SENATE TRANSPORTATION COMMITTEE February 18, 1999 1:35 p.m. MEMBERS PRESENT Senator Jerry Ward, Chairman Senator Drue Pearce, Vice Chair Senator Rick Halford Representative Andrew Halcro, Vice Chair Representative John Cowdery Representative Jerry Sanders Representative Bill Hudson Representative Allen Kemplen MEMBERS ABSENT Senator Mike Miller Senator Georgianna Lincoln COMMITTEE CALENDAR Joint Meeting of the Senate Transportation Committee and House Transportation Subcommittee regarding Airline Passenger Facility Charges. PREVIOUS SENATE ACTION There is no previous action to report WITNESS REGISTER Mr. Ron Simpson, Manager Airports Division of the Federal Aviation Administration Anchorage, AK Mr. Kurt Parkan, Deputy Commissioner Department of Transportation & Public Facilities 3132 Channel Drive Juneau, AK 99801-7898 Mr. Cliff Argue, Staff Vice President Alaska Airlines/Airline Affairs Committee Anchorage, AK Mr. Mort Plum, Director Anchorage International Airport Anchorage, AK Mr. David Jensen, Vice President Reeve Aleutian Airways Anchorage, AK Mr. Paul Landis, Vice President ERA Aviation Anchorage, AK ACTION NARRATIVE TAPE 99-02, SIDE A Number 001 CHAIRMAN WARD called the Senate Transportation Committee meeting to order at 1:35 p.m. and announced that the full committee and the House Transportation Subcommittee would hear testimony on Airline Passenger Facility Charges. Present were Senators Pearce and Halford. Also present were Representatives Sanders, Kemplen and Cowdery. CHAIRMAN WARD invited Representatives Hudson and Halcro to join the members at the table. CHAIRMAN WARD stated that legislation on this issue, if needed, would be proposed by the Transportation Subcommittees to the full committees for consideration, with the committee chairs taking it under advisement. Number 044 MR. RON SIMPSON, Manager of the Airports Division of FAA, Anchorage, stated he is responsible for the administration of the Airport Improvement Program which provides federal funding for airport infrastructure development. The Department of Transportation (DOTPF) has requested an additional $25 million in new revenue bonding authority from the Legislature to complete the funding package for the Anchorage International Terminal Redevelopment Project (AITRP) . Passenger Facility Charges (PFCs) could be used to supplement available financing or fund shortfalls without incurring an additional $25 million in bond debt for the State of Alaska. By implementing PFCs, Anchorage would generate at least $5 to $6.5 million in additional revenues annually. The airport would be required to give up 50% of its Passenger Entitlement Funds, about $1.5 million annually, but the result would be a net gain of $3.5 million. The FAA has supported the AITRP and the letter of intent, which is the long-term commitment of AIP discretionary funds of $32 million for reimbursement over 2 years. MR. SIMPSON stated the PFC application and approval process requires full public disclosure, including public hearings, consultation with the airlines, and publication in the federal register for public comment. PFCs are collected for projects pre- approved by the FAA and are project specific. For example, if Anchorage International were approved for PFCs for only the terminal redevelopment project, when the project is completed and the bond debt is paid off, the PFC collection would be terminated. Anchorage International would then have to reapply to collect PFCs for future projects. The FAA encourages airports to take advantage of every available funding source for financing airport construction and development projects. PFCs are the most viable funding source for large airport infrastructure development projects. Pressure to implement a PFC program may impact an airport's ability to receive AIP discretionary funds which are allocated on a competitive basis. For example, if Anchorage were competing for discretionary funds with another airport that did have a PFC, taking advantage of every available funding source, the other airport would be more likely to be awarded discretionary funds to make their financing package. Over 300 airports are approved for collection of PFCs, and over 100 applications are currently being processed. Estimated collections based on current approvals for Jan. 1, 1999 through Dec. 31, 1999 exceed $1.4 billion nationally. Over 3500 airports are eligible to receive the limited AIP discretionary funds. Juneau International and Ketchikan International airports are approved for PFC collection. Juneau's application was approved in April 1998 and collection began last October. Ketchikan's application was approved in December 1998 and collection began this February. The FAA has not received any complaints as a result of implementing PFC programs in Juneau or Ketchikan. Prior to Juneau initiating the PFC collection, Alaska was one of only two states without an airport participating in the PFC program. Several of the AIP reauthorization proposals currently being considered by Congress include an increase in the maximum PFC an airport can collect, from $3 per segment to $4 or maybe $5 per segment. If these proposals pass with AIP reauthorization, the large to medium hub airports that elect to raise their PFC charge to more than $3 will likely forego 100% of their Passenger Entitlement Funds and face new restrictions on the use of AIP Cargo Entitlement Funds. AIP funds for large to medium hub airports will then be limited by federal mandate, such as meeting safety, security and environmental requirements. MR. SIMPSON said that whatever level of PFC is implemented, this legislation which has been in effect since 1990 authorizes PFC collection at the first two participating airports on the outbound trip excluding the destination airport. On the return trip, the last two participating airports, excluding the destination airport are authorized for PFC collection. This would remain the case with any new legislation. Airlines collect this fee as part of their ticket price, and remit PFC revenues to the specific airport that is PFC-approved. There are legitimate concerns regarding the impacts that PFC collection will have on rural Alaska. Currently there is strong support for, and strong opposition to, increasing the PFC limit in Congress. During the last AIP reauthorization, all PFCs for business were dropped from the omnibus bill because the industry had not reached consensus on the maximum PFC limit. However, the FAA has the authority to approve PFC exemptions by administrative action. Juneau requested exemptions in their PFC application for several routes to rural communities. The FAA approved Juneau's exemptions by administrative action without federal legislation, direction or mandate. Alaskans already pay PFCs when they fly outside of Alaska. PFCs are charged on flights to Seattle, Portland, San Francisco, Salt Lake City, Denver, Minneapolis, Chicago; in short, every major airport with connections from Anchorage. Alaskans are paying up to $6 one way, $12 round trip in PFCs to help finance development projects in those other airports. None of the funding remains in Anchorage International because the airport has not applied for PFCs. Number 181 MR. SIMPSON summarized by saying the FAA believes PFCs should be an integral part of the Anchorage International Terminal Redevelopment financing package. The FAA stands ready to move forward on a PFC application once it is received. He asserted that the FAA is sensitive to the concerns about the impacts the PFC will have on rural Alaska and is willing to work with Anchorage International to craft exemption language with PFC applications to address those concerns. Number 194 REPRESENTATIVE COWDERY asked Mr. Simpson how long the Anchorage International application would take to implement. MR. SIMPSON responded the FAA has 180 days to process a formal application for approval from the date of receipt. From a policy standpoint, the FAA likes to work with an airport in advance of receiving a formal application by putting together a draft application, which for Anchorage could include draft exemptions. It coordinates with FAA headquarters office in Washington D.C. and gives feedback to the airport to complete and finalize the application. During the 180- day review, the PFC proposal must be published in the Federal Register for public comment and response. REPRESENTATIVE COWDERY asked if Kenai airport has applied for the PFC. MR. SIMPSON replied that Kenai has considered applying but has not approached the FAA with a formal proposal. REPRESENTATIVE COWDERY asked if Mr. Simpson had said the airports would bring in $5 to $6 million. MR. SIMPSON answered yes, the estimates are $5 to $6.5 million additional revenues annually; however, the airport would have to give up 50% of its past year's entitlements, about $1.5 million annually, for a net gain of $4 to $5 million in revenues annually. Number 235 REPRESENTATIVE HALCRO asked Mr. Simpson to explain how the FAA can circumvent, by administrative action, the current statutes and regulations not allowing exemption of rural communities. He gave the example of Juneau's exemptions. MR. SIMPSON replied that the City & Borough of Juneau requested the following classes of air carriers be excluded from the requirement to collect PFCs-- all those operating between Juneau and: Chatham, Funter Bay, Gustavus, Petersburg, Wrangell, Yakutat; and all air carriers deplaning 1,000 or less passengers annually at Juneau. All were approved by the FAA except for the route between Juneau and Gustavus. The PFC regulation as written excludes collection by carriers who fly to locations that receive the individual air service subsidy as well. REPRESENTATIVE KEMPLEN asked Mr. Simpson what projects are funded and what numbers are involved relative to Alaska, in the AIP discretionary funds allocated on a priority basis to airports with PFCs. MR. SIMPSON responded AIP funding is somewhat complex. Anchorage International receives funding from 3 different categories: passenger entitlements, cargo entitlements and discretionary dollars. The first two are by formula, from authorization from Congress that is distributed pro-rated for each airport based on the number of passengers and the amount of cargo service. Discretionary dollars are at the discretion of the FAA to be applied to high priority projects, primarily those that improve safety, capacity, security or environmental concerns. Those funds are primarily used at the national level when an airport does not have enough of one or both kinds of entitlement funds to fully fund a project. The FAA is always asked, where is Anchorage International on implementing PFCs. If Anchorage International is competing with another airport in the Lower 48, and both have high priority and worthy projects but the other airport uses every available funding source including PFCs while Anchorage does not, it's more likely that the FAA will provide discretionary dollars to complete the other airport's funding package. Over 3500 airports compete for those discretionary dollars. REPRESENTATIVE KEMPLEN asked the total discretionary dollars available. MR. SIMPSON replied over the last few years the State of Alaska has been able to secure a little over $90 million in total AIP funding. About $20 million to $25 million of that has been discretionary dollars, or about a quarter of the funding through the AIP program. REPRESENTATIVE COWDERY showed the committee a copy of a check from Reeve Aleutian Airways. CHAIRMAN WARD clarified that basically we're sending these dollars, in this case $1500, to Seattle. REPRESENTATIVE COWDERY explained it was for some tickets sold in Western Alaska to go south, possibly from Dutch Harbor. Number 339 MR. KURT PARKAN, Deputy Commissioner, Department of Transportation & Public Facilities, stated the Administration supports PFCs, and supported them in 1996 when the department submitted the request to the Legislative Budget & Audit Committee for a fund source change for projects at Anchorage and Fairbanks airports. The department supports PFCs as a fund source that can be used for capital improvement projects at airports. Unlike a tax that goes into the General Fund that can be used for any purpose the legislative body chooses to spend it on, the PFC is a pure user fee with the money coming directly from the people benefiting from the facilities and going right to the improvement of those facilities. CHAIRMAN WARD asked when the Governor will introduce legislation. MR. PARKAN replied that legislation is not necessary to collect the PFCs. In 1996 when the department proposed the PFCs to LB & A, the committee expressed concern that there might not be adequate support. The committee held hearings in Fairbanks, Anchorage and Kenai and heard a lot of testimony from legislators, rural communities, regional carriers and air carriers serving rural communities indicating that there was not adequate support for PFCs at that time. There was a sense of inequity and of placing an undue burden on rural communities without roads that have no other option but to fly in and out. DOTPF pulled back, and the Governor advised that PFCs would not be pursued until there was a program with broad public support that reflected the unique nature of the state. From fall 1996 through January 1997, DOTPF talked with carriers who had expressed concern, Warblow's in Fairbanks and Northern Air Cargo in Anchorage, and worked with FAA staff in Anchorage to try to craft a program addressing the concerns of rural communities. DOTPF looked for a way to exempt small communities off the road system. The FAA believed their administrative procedures would not allow that kind of blanket exemption. The mutual conclusion was that a legislative fix by Congress was needed for that kind of exemption. The department worked with the FAA, Senator Stevens' office and John Katz's office in D.C. to draft language the FAA submitted to the Administration for inclusion in the Administration's proposal for the AIP reauthorization. That language was modified a little, with input from Senator Stevens. The legislative session ended without agreement on the whole package, and it was decided to extend the whole program for six months without making substantive changes to it. DOTPF is now working with the delegation again to get this language inserted into this year's reauthorization bill package. The AIP funding in the program expires March 1, 1999, and the delegation is under a lot of pressure to take care of this. MR. PARKAN stated he doesn't feel it's likely to happen because it's too contentious an issue, principally because the airlines don't support the increase from $3 to $5. The airports do support the increase because they see the need for capital improvements. SB 82 passed out of the Commerce Committee last week and has exemption language close to the old language, and with minor modifications, can move the PFC program forward. Mr. Simpson called DOTPF recently and suggested the department pursue PFCs. He asked that the department look at the Juneau application, and he shared the record of decision on Juneau to see if there is a way to do it administratively and not go the legislative route. DOTPF would rather go through the Legislature to get the needed exemptions rather than go to Congress; however, legislative fixes are not the preferred alternative if it could be done administratively. A consultant is looking at the Juneau point-to -point exemption by community based on the total deplanements going to each town. DOTPF will try to get the roadless area exemption it's seeking, but will continue to try for the legislative fix as well. Number 434 CHAIRMAN WARD asked Mr. Parkan, for the record, for a copy of the original administrative proposal, before S. 82, that DOTPF took to Senator Stevens. MR. PARKAN replied that he would provide it. REPRESENTATIVE HALCRO stated that in 1996 there were 30 communities that enjoyed EAS subsidies and he asked Mr. Parkan how many there are now. MR. PARKAN replied that in Alaska the EAS communities haven't changed for several years. REPRESENTATIVE HALCRO discussed the exemptions for roadless communities, stressing that they still get off in Anchorage and still impact the airport and its services. From rural communities like Barrow, Nome, Kotzebue, the average fare for a supersaver is $350; a PFC of $3 on those tickets appears to him to be nominal. However, on a one-way trip from Kenai at $58, the $3 PFC would have a much greater impact on the price of the ticket. He stated he is concerned with exempting communities where they already pay $350 for the airfare but comprise a much smaller percentage of travelers than those from Kenai or Homer on weekend fares. MR. PARKAN replied he's making the same case DOTPF made in 1996. It is reasonable to ask people who use airports to contribute to their improvement. The department received strong opposition from various areas of the state. He stated he would not want to make comparisons between Kenai with a smaller ticket price, and rural Alaska with a high ticket price, only that all the passengers who go through the Anchorage airport benefit from it. Number 477 REPRESENTATIVE HUDSON asked Mr. Parkan if he is saying that no legislation is needed in order for the Administration to place the PFCs in effect. MR. PARKAN replied the department wants the legislative endorsement of PFCs before it goes forward with the program. He clarified that the Commissioner has statutory authority over the international airports, including Fairbanks and Anchorage. REPRESENTATIVE COWDERY said that he has drafted a joint or concurrent resolution. He asked Mr. Parkan if the legislature passed a resolution, would the department be ready to start immediately? MR. PARKAN replied yes, the endorsement by the legislature for PFCS would give the department a "jump start." DOTPF would still be working to get the exemptions, but the endorsement would be absolutely important. CHAIRMAN WARD asked if Juneau applied for the PFC, received it, and then applied for the exemptions. MR. PARKAN replied he is unsure. SENATOR PEARCE asked if the department went to LB & A in 1996 for authorization to accept the money. MR. PARKAN responded the DOTPF was looking for a fund source change in order to include PFCs as a fund source. SENATOR PEARCE asked if there would need to be authorization in the FY 2000 budget to accept the money and spend it. MR. PARKAN replied the Attorney General's opinion states that DOTPF can apply for the PFCs by statutory authority. The money comes into the department's revenue fund and can be spent for projects; but the additional money would need authorization to apply to a particular project at some point. CHAIRMAN WARD stated his appreciation of Representative Cowdery bringing forth the recommendation that the two committees introduce a resolution. He suggested the Administration should present a request, and SENATOR PEARCE clarified it should be a budget amendment. Number 521 SENATOR HALFORD asked for an update of the top 8 revenue-generating airports that are listed as Deadhorse, Kodiak, Birchwood, King Salmon, Galena, Bethel, Nome and Unalaska. He stated that one seems out of place on the list. MR. PARKAN replied that he guesses Birchwood airport is the only state-owned airport outside of the Alaska international airport system that pays for itself. MR. PARKAN referred to a handout showing the PFCs being charged and the money going out of state. SENATOR PEARCE asked if PFCs are charged in every airport you land in, or every airport that you change planes in, or your destination? Number 548 MR. PARKAN gave an example of a ticket from Fairbanks to San Diego. On the Fairbanks-Anchorage-Sea/Tac leg, the passenger pays $3 on the outbound to the Sea/Tac airport; and on the return trip, he pays $3 to San Diego and $3 to Sea/Tac, for a total of $9 collected by airports outside of the state. The program says the first 2 airports of emplanement outbound charge the PFC, unless it's the same flight number; on the return, the last 2 emplanement airports before the final destination collect the PFC. Using the same example of the Fairbanks/San Diego round trip, if Fairbanks and Anchorage had the PFC, the first PFC would be collected in Fairbanks and the second in Anchorage unless it's the same flight number. On the return, the final two emplanement airports, or Seattle and Anchorage, would collect. On that ticket, $12 would be collected, with $9 staying in the state. He said that Mr. Simpson's numbers of $5 to $6 million are accurate, based on emplanements without exemptions. Exemptions would reduce it maybe 25-30%. REPRESENTATIVE COWDERY asked if the money could be utilized for past projects. MR. PARKAN replied that is correct, it can be used for future projects or previously completed projects. The department plans to use it to pay back bonds to defer the cost of the terminal project. REPRESENTATIVE HALCRO asked if the department has figures for the revenue generated if there were no exemptions. MR. PARKAN responded that based on FY 99 emplanements, they expect Anchorage without exemptions to collect just under $4.9 million. In Fairbanks, taking a 25% exclusion off for certain types of passengers you can't collect on, they expect a total collection of $340.0. As Mr. Simpson said, a portion of the passenger entitlement funds would be lost, about $1.4 million. The net for Anchorage would be $3.5 million. The growth of emplanements is expected to increase that figure. SENATOR PEARCE asked if there is any restriction under federal regulation or law that these dollars have to be utilized in some way that upgrades passenger facilities, as opposed to going out and building a new cargo tarmac. MR. PARKAN deferred to Mr. Simpson to answer that. TAPE 99-02, SIDE B Number 591 MR. PARKAN continued, saying that if Mr. Simpson can't answer Senator Pearce's question, he would be happy to follow up on it. MR. CLIFFORD ARGUE, Staff Vice President for Properties and Facilities for Alaska Airlines testified next. He stated he serves as Chair of the Anchorage/Fairbanks Airlines Airport Affairs Committee which represents 25 airlines with operating agreements to serve the two airports. His comments today reflect the position of Alaska Airlines, Reeve, Delta, Mark West, Federal Express, United and American. He expressed their support of the imposition and use of PFCs at the current $3 level as an appropriate funding source for airport projects which meet statutory and regulatory criteria of safety, security, capacity, noise mitigation or enhancement of competition. The terminal expansion project at Anchorage International is one for which PFC funding makes sense. Most of the airlines would support imposition of the PFC to help fund the project, either through direct capital payments or to help offset debt service of $179 million in revenue bonds already issued, plus the forthcoming additional $25 million in revenue bonds to be issued soon. He stated that there are other worthy projects for consideration of PFC funding at Fairbanks and Anchorage to reduce the overall impact on airline rates, fees and charges, including planned airfield ramp and terminal work. MR. ARGUE stated that some 300 airports all over the country with PFCs in place will collect a total estimated $23 billion over the next 20-25 years. Anchorage and Fairbanks are among the only airports of their size not collecting PFCs. There is no hard evidence of any difference in air traffic demand by adding the PFC to ticket cost. Number 545 MR. BUTCH HALLFORD, Vice President of Northern Air Cargo, Member of Airport Affairs Committee, stated the arguments for and against the PFC program continue to hold merit. Now the quarter billion dollar terminal expansion adds a new element: the approval for the expansion was predicated on the agreement of the signatory air carriers serving Anchorage and Fairbanks to pay for it. Several carriers supported the project based on written and verbal promises from DOTPF that new and additional sources of income including PFCs would be sought to pay for the terminal. They questioned if the PFC program could, once achieved, still be applied to this project. The DOTPF argued the commencement of the project was urgent, and a delay would create a hardship on visitors to Alaska if they waited until PFCs were approved. Mr. Hallford said he testified last year that one-third of the cost of the terminal expansion would be borne by the cargo carriers that operate to and through the Anchorage and Fairbanks airports. He remains concerned that to impose even a fraction of the $250 million dollar bill on cargo carriers could potentially damage Alaska's ability to compete in the global market. He stated his rural customers will have to pay a portion of the cost of the Anchorage terminal in every loaf of bread and gallon of milk they buy, whether or not they fly through the Anchorage terminal ever again. It is clear that the cost of a project this size must be spread across a broad base of payers, but should minimize the amount of cost borne by people who never use the terminal. The people who use it should bear the greatest share. Number 492 CHAIRMAN WARD asked Mr. Mort Plum if he can recall and explain the concerns of the air cargo carriers last year regarding the mechanics of the PFC program. MR. MORT PLUM, Director, Anchorage International Airport, recalled that several carriers voted for the airport expansion contingent on the future application for PFCs, including Mr. Jensen with Reeve Airways. The technical aspects of the vote did not have the PFC contingent in it. He said he does not have a copy of the vote. REPRESENTATIVE COWDERY stated the legislation last year was based on the statements by DOTPF and Administration about pursuing the PFC program. He asked if there have been cost overruns so far. MR. PLUM replied not to his knowledge. REPRESENTATIVE COWDERY asked how much has been spent on administration, design, engineering and other non-construction expenses to date. MR. PLUM replied he does not have that information with him, but a monthly report is provided to the Legislature and he will get that material to Representative Cowdery after the meeting. REPRESENTATIVE COWDERY asked if the project scope remains the same as the project presented last year. MR. PLUM replied that a committee will soon evaluate some of the terminal proportions. The Commissioner has not eliminated any part of the project at this time. CHAIRMAN WARD asked if the baggage area was eliminated. MR. PLUM replied the baggage area was not part of the original project which included only those components within the new terminal. REPRESENTATIVE COWDERY asked if the proposed covered walkway between the domestic and international terminals is still in planning to be built. MR. PLUM said that the north terminal connector is being scrutinized closely and would cost around $1.7 million. It was part of the original project as presented to the Legislature and the airlines. Number 416 SENATOR HALFORD said it appears that virtually all of Southeast would be exempt except for Juneau, Ketchikan and Gustavus. All the essential air service communities are exempt, leaving the Railbelt and Valdez in-state locations to pay the new cost. The other cost is just a reallocation because if there's an outside leg, the money is being collected and already goes there. He suggested passing a bill that only applies the fees to any flight that includes an outside leg, to maximize capture of fees from outside. SENATOR WARD asked Mr. Parkan for a copy of the department's proposal in 1996 and Senator Steven's proposal now, so the committee can mix together the requests of the Administration. MR. PARKAN responded he'll provide the original LB & A request which in 1996 did not consider exemptions. SENATOR HALFORD asked if the essential air service (EAS) communities are already exempt under federal law. MR. PARKAN replied that is true. The department looked at using EASs as a basis for exemptions; these were established at a point in time based on emplanements in a community. Nome or Kotzebue are not designated EASs because they've grown considerably since the EAS program was established. MR. PARKAN explained the department looked at exempting intrastate travel and only charging for those people going outside the state. Hawaii tried to do the same thing and the FAA would not allow it. He clarified that he meant the existing regulations of the PFC program would not allow it, but legislative change would provide that opportunity. However, he cautioned that putting gates at the borders would "set off red flags" and draw other states' attention to Alaska. SENATOR PEARCE asked if 'essential air service' communities is a federal designation for any community without a road. MR. PARKAN replied it is, it's based on emplanements, and it's been in existence for several years. REPRESENTATIVE SANDERS asked why the original proposal for the PFC program didn't include exemptions and now it does. MR. PARKAN said the department thought it could get approval more easily, but instead, generated a lot of concern and opposition. Later DOTPF felt it could get approval with the inclusion of exemptions. Number 339 REPRESENTATIVE HALCRO asked Mr. Hallford if he's concerned that if the PFCs are not collected by the airport, the cargo companies will be forced to bear a heavier burden of the bonded indebtedness. MR. HALLFORD replied yes, that is true. Number 328 MR. DAVID JENSEN, Vice President of Reeve Aleutians Airways, stated he supports Gateway 2000 and the Anchorage Terminal expansion. Twenty-two of the 25 signatory airlines voted by ballot on the expansion, with 12 voting disapproval. A simple majority did not approve the project, but according to the agreement a 2/3 vote is required for disapproval. MR. JENSEN said he voted on behalf of Reeve to disapprove the project, but he noted on his ballot that with PFCs included in the funding stream for bonds redemption that Reeve would change its position and approve the expansion. He was led to believe by DOTPF that PFCs would be part of the 1999 funding. Based on his belief, Reeve joined the Airline Transport Association in supporting the expansion. He urged the state to propose a PFC for the Anchorage terminal expansion. Number 268 SENATOR PEARCE asked how many of the communities Reeve Aleutians Airways serves are exempt. MR. JENSEN replied that none are exempt. They collect PFCs for out of state airports with a PFC in place when they write a ticket in Cold Bay, for example. In further discussion with Senator Pearce, MR. JENSEN said he does not agree with having any exemptions at all. Number 230 REPRESENTATIVE HALCRO asked if SB 82 passes into law, exempting PFC collection for populations less than 10,000 that are not connected with the national highway system, what percentage of Mr. Jensen's customers would it affect? MR. JENSEN replied none. SENATOR HALFORD asked for clarification of exemptions, and if Sand Point is an essential air service destination. MR. JENSEN answered it is not, and there is no PFC at Sand Point. MR. PARKAN explained that the first emplanement means an airport that collects or charges PFCs. The department doesn't envision Sand Point to be a PFC collecting airport. He further clarified that it works on the outbound flight. In other states, you pay the fee to leave the airport having the PFC, but not to arrive at it. The sponsor, the State of Alaska, as the owner and operator of most airports can select them for PFC collection. Only the international airports are under consideration at this time. It could be broadened to collection at all rural airports but there is marginal value because of the administrative cost. SENATOR HALFORD stated virtually every outside trip has two stops in Alaska. If the state system collected on the first emplanement, it would be taking money from Seattle. MR. PARKAN said that is true. PFCs at all the state airports would clearly draw more revenue into the state. SENATOR HALFORD suggested applying the charge to all state airports but only if there were an outside leg. MR. PARKAN reiterated that putting the gate at the border is a problem with the existing PFC regulations. CHAIRMAN WARD interjected that he would ask Mr. Simpson about it. SENATOR PEARCE suggested trying to exempt any flight without at least two legs; so if you fly from Kenai to Anchorage, you don't pay the charge, but if you fly Kenai-Anchorage-Fairbanks and change planes in Anchorage, you pay the charge. It would minimize the complaints from folks on the Kenai who don't want to pay every time they fly to Anchorage, less than 75 miles away. MR. PARKAN responded they looked at ways to consider the Kenai situation, and were unable to find anything to satisfy the regulations. The one percent rule applies: any class of carrier that has less than 1% of total emplanements out of an airport can be considered for an exemption. He had a list of the EAS airports in the state and offered to make copies for the committee. In answer to CHAIRMAN WARD, he said he doesn't think Congress needs to reauthorize the EAS, but they need to provide the funding for the appropriation. REPRESENTATIVE COWDERY asked if it's possible to group the smaller airports to get the PFC revenue pooled, and apply it to a particular airport. MR. PARKAN replied that as the sponsor, the state could apply the use of those PFCs to any airports it owns and operates. A pool wouldn't be necessary. REPRESENTATIVE HALCRO referred to a table of 1992 emplanement figures, and said that if the PFC was charged at all airports, it would total $7.6 million, significantly more than the $5 million being considered now. He asked if Senator Halford's suggestion of a PFC at all airports has been considered. MR. PARKAN said it was considered, but the DOTPF thought it would be best to start with the international airports and assess their success, then do the certificated rural airports later. A threshold above which it pays to collect is 10,000 emplanements, so looking at the 1992 list, the charge wouldn't be collected for many of them. It has to be a community above 2,500 to qualify. MR. PAUL LANDIS, Vice President of ERA Aviation, member of Anchorage International Airport Affairs Committee, said ERA has stated opposition to PFCs on a number of inequities to its passengers and the company in general. Kenai is ERA's largest passenger market and highly price sensitive, with ERA the only air carrier. The new and improved road has cut driving time to Anchorage by about an hour. The full walk-up fare between Kenai and Anchorage is $55 and includes an 8% transportation tax. The tax would be 7.5% except that Kenai is within 75 miles of Anchorage International. ERA also collects an additional federal tax, a $2 segment fee from each passenger, increasing the fare to $57. Adding a $3 PFC onto the passenger fee would mean about 15% of each full fare is pure tax. The PFC alone would be 5% of the Kenai- Anchorage fare, whereas on longer flights, it's about 1%. Among regional air carriers in Anchorage, ERA would carry a disproportionate share of the load in collecting PFCs. TAPE 99-03, SIDE A Number 000 MR. LANDIS continued. The two-tiered pricing structure and the common market means passengers riding on large aircraft will pay more than those riding on small aircraft, making it impossible to collect PFCs in advance. The 20 passenger seat exemption places an insurmountable burden on ERA Aviation. MR. LANDIS explained a situation in Cordova, a market served by both ERA Aviation as a subcontractor to Alaska Airlines, and by Alaska Airlines' jets. According to FAR 158.9(a), Alaska Airlines cannot collect the PFC because it collects the EAS subsidy for Cordova. ERA does not share the EAS subsidy and therefore must collect PFCs, which puts ERA at an immediate price disadvantage, and in a common market with its partner, Alaska Airlines. MR. LANDIS explained his fifth point surrounds the question of whether or not the current push for PFCs is an attempt to mask the known cost overruns on the terminal expansion project, which is a Band-Aid approach. ERA withdrew its initial objections to the terminal expansion and has not changed that position, however as the second largest carrier of passengers to and from the Anchorage International Airport, it desires to seek other solutions before the burden is disproportionately shifted to airline passengers. Approximately 75 percent of ERA passenger traffic is local in nature, meaning those passengers only travel on ERA flights. Those passengers do not necessarily need the expanded terminal project, but will be forced to carry a disproportionate share of the load if PFC legislation is enacted. All regional carriers should be required to collect local PFCs or all should be excluded from collecting them: ERA Aviation clearly prefers the latter approach. One alternative approach would require regional airlines to collect PFCs in Anchorage, but only in conjunction with the "down line" ticket from, for example, a passenger traveling from Kenai to Anchorage and beyond. Number 066 REPRESENTATIVE COWDERY asked Mr. Landis if he thought the $3 fee, or an amount equal to five percent of the ticket cost, would stop people from flying. MR. LANDIS replied the number of emplanements in the Kenai market has been decreasing over the past few years, one cause being the change adding the $2 segment fee. He suspected the additional $3 PFC would further reduce ERA's traffic. Number 080 REPRESENTATIVE HALCRO described a scenario in which at one of ERA's sites, the location and time of day dictates the use of a smaller aircraft, and the passengers purchase tickets for that flight. The flight is then canceled due to weather conditions, and a larger aircraft is later used to accommodate the stranded passengers. He asked who will pay the PFCs for the passengers who bought tickets for the previous, smaller flight. MR. LANDIS answered with ERA's situation and the 20-seat exemption, ERA would have to position an employee next to the airplane collecting or returning $3 to each passenger, a system that would be unworkable. Number 114 CHAIRMAN WARD asked Mr. Simpson if all of Southeast is exempted, with the exception of Juneau and Ketchikan. MR. SIMPSON replied Juneau and Ketchikan have approved PFC programs. The exemptions in Southeast are specific to Juneau's applications; Ketchikan's application contained no PFC exemptions. He clarified the EAS exemption pertains to the subsidized carrier that flies in and out of the EAS location; Alaska Airlines does not collect for a particular location. Number 139 REPRESENTATIVE HALCRO asked, given the Cordova example where one carrier is exempt from collecting PFCs and the other is not, whether Mr. Simpson knew of an administrative way to waive these communities from the collection of PFCs. MR. SIMPSON replied the particular provision within that existing regulation is specific regarding the EAS. Using Juneau as an example, the FAA would be willing to consider and work with DOTPF and Anchorage International Airport to structure exemptions that are necessary for the particular airport or the communities served. MARCO PIGNALBERI, staff to Representative Cowdery, referred to Senator Halford's question regarding whether the FAA could or would approve a system by which PFCs would be charged only for the interstate routes, and asked if the FCC could live with such a regime. MR. SIMPSON stated the FAA headquarters' response to that question was that exempting PFCs within Alaska was specifically precluded by the FAA PFC regulations. MR. PIGNALBERI stated that during a negotiation process, a regulation might be amended based on the fact that Alaska is a non- contiguous state with a predominant number of communities outside of a road system. He asked whether ERA and Alaska Airlines would both be exempt from paying the PFC for Cordova; and specifically whether the exemption is based on the airline or community, or both. MR. SIMPSON said his list indicates that Alaska Airlines is the subsidized carrier for the Cordova market, therefore Alaska Airlines is exempt. Any other carrier that serves that market is subject to PFCs. REPRESENTATIVE COWDERY asked Mr. Simpson whether Kenai has considered applying for an exemption. MR. SIMPSON said Kenai has not applied to date, and no direct discussion regarding an application with Kenai has taken place. He recalled, during public hearings in 1996 in Kenai, the Kenai mayor expressed an interest in implementing PFCs for Kenai, but no further discussion has taken place. Number 214 CHAIRMAN WARD asked Mort Plum to start preparing for the Senate Transportation Committee update on the noise study for the Anchorage International Airport. He thanked all participants and adjourned the meeting at 3:20 p.m.