SENATE TRANSPORTATION March 23, 1995 1:36 p.m. MEMBERS PRESENT Senator Steve Rieger, Chairman Senator Lyda Green Senator Al Adams Senator Georgianna Lincoln MEMBERS ABSENT Senator Robin Taylor, Vice Chair COMMITTEE CALENDAR SENATE BILL NO. 64 "An Act relating to the dissolution of the Alaska Railroad Corporation and providing for a successor corporation; and providing for an effective date." CS FOR HOUSE CONCURRENT RESOLUTION NO. 9(TRA) Relating to Alaska School Bus Driver Appreciation Day. PREVIOUS SENATE ACTION SB 64 - See Senate Transportation minutes dated 2/9/95. HCR 9 - No previous senate committee action. WITNESS REGISTER Robert S. Hatfield, Jr., President & CEO Alaska Railroad Corporation Department of Commerce & Economic Development P.O. Box 107500, Anchorage, AK 99510-7500¶ POSITION STATEMENT: James B. Blasingame, Vice President of Corporate Affairs & Secretary, Alaska Railroad Corporation Department of Commerce & Economic Development P.O. Box 107500, Anchorage, AK 99510-7500¶ POSITION STATEMENT: ACTION NARRATIVE TAPE 95-6, SIDE A STRA - 3/23/95 SB 64 CONVERT AK RR TO PRIVATE CORPORATION Number 002 CHAIRMAN RIEGER called the Senate Transportation meeting to order at 1:36 p.m. He introduced SB 64 as the first order of business before the committee. The chairman outlined the changes in the committee substitute to SB 64: the sections requiring the railroad to pay for an appraisal have been deleted; there is new language describing the qualifications of board members; the board of directors will report on suggestions for creating a trust, and there is language added to clarify that the legislature will retain its' power of appropriation of these shares, while the shares are in state hands. Chairman Rieger noted those sections are highlighted in members' bill packets. Number 049 SENATOR GREEN made a motion to adopt the Senate Transportation committee substitute for SB 64. SENATOR ADAMS objected in order to inform the committee that he also had a proposed committee substitute for the bill. Senator Adams removed his objection. Hearing no further objection, the Utermohle CS, version K dated 3/22/95, was adopted. Number 067 BOB HATFIELD, President & CEO of the Alaska Railroad Corporation, testifying from Anchorage, noted the presence of board members Loren Lounsbury, Jack Burton, Paul Massey, Dale Lindsey, and Secretary Jim Blasingame. Mr. Hatfield informed the committee that the corporation is taking a break in a board meeting in order to accommodate this Senate Transportation Committee meeting. The board received a copy of the committee substitute for SB 64 late yesterday afternoon, and has had a chance to quickly review it. The board is pleased with the changes incorporated in the CS which had been discussed earlier. Mr. Hatfield directed the committee to page 2, line 6; the board does not like the language, "...subject to the concurrence of the other parties to the contract." He is not sure what is intended by that language. The board certainly supports keeping the railroad's current labor agreements in place, but he would not want to suggest that some of the railroad's customers would be able to cancel their contracts with the successor corporation. The language on page 2, line 6 suggests that possibility to him. CHAIRMAN RIEGER thought that was a good question. He pointed out that the language to which Mr. Hatfield is concerned was in the original draft of SB 64. There was no objection raised previously, which is why that language remains in the CS. Number 110 BOB HATFIELD suggested removing that language. Mr. Hatfield stated that the language on page 2, subsection (f) appears open ended to him. He is not sure what costs might be included by that language. He reiterated that the board has not had very much time to review the committee substitute, and asked if anyone could explain what specific costs that language was meant to cover. [Mr. Hatfield raised concern about the language on line 17 regarding the manner in which shares are to be distributed, but due to taping difficulties, it is not possible to understand what he is saying. He mentioned that the language might bring an appraisal process back into the picture.] Number 140 Mr. Hatfield stated that under Section 3, subsection (b), perhaps language should be added to specify that different judicial districts on the railbelt should be represented on the board. Such language has served the corporation well in the past. He explained, regarding the language in Section 5, usually dividends are paid with the amount of money remaining after the future and present needs of the corporation have been met. In conclusion, Mr. Hatfield addressed Section 7; he would like to see the corporation keep its' current name. CHAIRMAN RIEGER observed that, with the exception of geographic distribution of board members, the points raised by Mr. Hatfield were all in the original draft of SB 64. He was not sure why Mr. Hatfield did not raise his concerns earlier. BOB HATFIELD apologized for any inconvenience caused. Number 215 CHAIRMAN RIEGER noted the presence of Senator Adam's proposed committee substitute. SENATOR ADAMS said it was unfair that the Alaska Railroad Corporation does not have a copy of his proposed CS. Senator Adams explained that his CS stipulates that the governor shall issue a request for proposals by July 1, 1996 to sell the Alaska Railroad Corporation. By January 1, 1998, the corporation shall be sold with the following requirements: the continuing operation of the railroad for 20 years; continuation of the current contracts; purchase of the railroad for fair market value; retention of the right-of-way by the State of Alaska; the appraisal will be contracted by the governor; the governor shall report to the legislature on the sale; upon sale, the Alaska Railroad Corporation will be dissolved; the governor may adopt regulations for implementation of this act; the sale will not be subject to the state procurement code; and there is an immediate effective date. SENATOR ADAMS stated his proposal is very simple and should be considered a working document. CHAIRMAN RIEGER informed Mr. Hatfield he was being faxed a copy of Senator Adam's proposed CS at that moment. SENATOR ADAMS asked the chairman if the committee was planning to move SB 64 from committee today. CHAIRMAN RIEGER responded he was planning on doing so, but he could hold SB 64 over to the next meeting. SENATOR ADAMS stated he would appreciate that. CHAIRMAN RIEGER added he was willing to hold the bill over for one meeting. The approach Senator Adams is proposing has been discussed. Senator Adams' proposal has the advantage of speed, but the disadvantage that the state might not maximize value. SENATOR ADAMS commented that the state might not gain an immediate profit from the sale, but in the long run there would be gains. Number 269 SENATOR LINCOLN asked, regarding Section 5 of SB 64, who would make the determination of the amount of the dividend. SENATOR RIEGER replied that the language, "...30 percent of net earnings...." has a literal meaning. He acknowledged that there can be a difference of opinion regarding the definition "net earnings." There is an implicit assumption that the accounting for the railroad would be conducted in accordance with generally accepted accounting principles. He recognized that reinvestment of earnings is a common source of tension between the shareholders and the management of a corporation. The chairman thinks 30 percent is a reasonable number, but it is not clear whether it is the right number. That provision was in the original draft of SB 64, and no objection was raised until now. Chairman Rieger noted that this requirement is lifted once the state is no longer a majority shareholder. Number 313 SENATOR ADAMS asked if a financial run could be done using that language, with the scenario that the language has been in place for the past three years. CHAIRMAN RIEGER said the committee could ask the railroad to prepare such a run; that would be beneficial. SENATOR LINCOLN asked if that information would be requested from the corporation. CHAIRMAN RIEGER stated he planned to ask for that. Chairman Rieger clarified the request that the corporation submit information describing how a 30 percent of net earnings requirement would have affected the corporation and the state if it had been in effect for the previous five years. How much money would have been paid in dividends? BOB HATFIELD responded no money would have been paid in 1994 or 1993, about $600,000 would have been paid in 1992, and about $900,000 would have been paid in 1991. That was as far back as he could recall. SENATOR LINCOLN asked if that is using 30 percent of the net earnings equation. BOB HATFIELD replied that is correct. SENATOR LINCOLN noted the language in Section 5 of SB 64 states payment must equal or exceed 30 percent net earnings. BOB HATFIELD was assuming the board could limit it to 30 percent. CHAIRMAN RIEGER specified that the board would have the option of paying out any dividend, as long as it was at least 30 percent. SENATOR LINCOLN asked Mr. Hatfield if he could justify the zero fiscal note. Number 348 JIM BLASINGAME, Vice President for Corporate Affairs and Secretary of the Alaska Railroad Corporation, testifying from Anchorage, stated that at the time the state purchased the railroad from the federal government, the federal government paid just over $2,000,000 to go through the appraisal process. That does not include funds expended by the state during that process. It is unknown to the corporation how much an appraisal would cost today. He indicated that the corporation put the 1984 costs on the fiscal note, just as a benchmark. BOB HATFIELD explained that zero fiscal note is due to the fact that there is no required expenditure of general fund money or state funds in the original draft of the legislation. Number 370 SENATOR LINCOLN asked Mr. Hatfield about his concern that geographic representation be addressed by Section 2. She asked Mr. Hatfield if the corporation currently has geographic representation on the board. BOB HATFIELD replied the board does currently have geographic representation. SENATOR LINCOLN asked if geographic representation is representative of the state as a whole, or just the railbelt area. BOB HATFIELD stated that the board is currently meant to represent the geographic diversity of the railbelt. CHAIRMAN RIEGER informed Mr. Hatfield that he would review the possibilty of revising the language on page 2, line 6. Also, language relating to the par value may be meaningless, and that could probably be deleted from SB 64. SENATOR LINCOLN voiced continuing concern over the fiscal note. She indicated the need to see an opinion from the Attorney General's Office on whether or not the state would be paying for the appraisal. CHAIRMAN RIEGER informed Senator Lincoln that the committee substitute removed the requirement for the appraisal from the original bill. SENATOR LINCOLN asked how the value of the corporation would be determined if an appraisal is not conducted. CHAIRMAN RIEGER replied, under the concept of selling shares of stock, the value is determined by the amount of money the buyer is willing to pay. That is why he believes the requirement on the par value is no longer meaningful. Number 422 CHAIRMAN RIEGER asked Senator Adams if he would like more exact figures on the run he requested earlier. SENATOR ADAMS responded he would not. He is getting the feeling that the committee doesn't want to get rid of the Alaska Railroad. The railroad is an asset the state needs. CHAIRMAN RIEGER stated that he was willing to have one more hearing on SB 64, and then he would like to see either the current Transportation CS or Senator Adam's proposed CS moved from committee. The committee would certainly be open to Senator Adam's offering his language. CHAIRMAN RIEGER stated that SB 64 would be held until the next Senate Transportation Committee meeting. STRA - 3/23/95 HCR 9 SCHOOL BUS DRIVER APPRECIATION DAY CHAIRMAN RIEGER introduced HCR 9 as the next order of business before the Senate Transportation Committee. Number 434 SENATOR ADAMS made a motion to discharge HCR 9 from committee with individual recommendations. Hearing no objection, it was so ordered. CHAIRMAN RIEGER adjourned the Senate Transportation Committee meeting at 2:05 p.m.