Legislature(2009 - 2010)HOUSE FINANCE 519

04/01/2010 01:30 PM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ HB 357 AK RAILROAD CORP. LAND SALES TELECONFERENCED
Heard & Held
+ HB 344 SALMON PRODUCT DEVELOP. TAX CREDIT TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 357                                                                                                            
                                                                                                                                
     "An Act relating to the sale of land owned by the                                                                          
     Alaska Railroad that is not needed for railroad                                                                            
     purposes."                                                                                                                 
                                                                                                                                
1:40:48 PM                                                                                                                    
                                                                                                                                
JOHN COAN, STAFF, REPRESENTATIVE  BILL STOLTZE explained the                                                                    
legislation. He explained  that HB 357 is an  act giving the                                                                    
Alaska Railroad  Corporation the  ability to sell  land that                                                                    
is  not  used  for  railroad purposes.  The  bill  does  not                                                                    
establish  a  method  for the  railroad  to  liquidate  land                                                                    
assets or  force the railroad  to dispose of any  lease hold                                                                    
interests.  The  legislation  creates  flexibility  to  sell                                                                    
unneeded  land.  The  bill   received  numerous  letters  of                                                                    
support  from  unhappy leaseholders  that  do  not have  the                                                                    
ability  to purchase  the property  they have  improved. The                                                                    
letters  were   unsolicited  and   the  lease   holders  are                                                                    
reluctant to  make new or  additional improvements  for fear                                                                    
that  they  will  not  be  able to  adjust  their  lease  or                                                                    
purchase  the property.  The  bill was  designed  to give  a                                                                    
voice to the lease holders.                                                                                                     
                                                                                                                                
Representative  Austerman  understood that  the  legislation                                                                    
indicated  that  the  railroad cannot  sell  land.  Co-Chair                                                                    
Stoltze   concurred,  but   stated  that   a  more   precise                                                                    
definition  will  be  available during  testimony  from  the                                                                    
Alaska Railroad Corporation.                                                                                                    
                                                                                                                                
Representative Salmon asked if  the legislation affected the                                                                    
land  surrounding Nenana.  Co-Chair  Stoltze responded  that                                                                    
the  legislation  might affect  the  mentioned  area, but  a                                                                    
designated  area  is  not  mandated.   The  intent  was  not                                                                    
geocentric,  but  instead  affects the  landholding  of  the                                                                    
whole Alaska Railroad.                                                                                                          
                                                                                                                                
Representative  Salmon commented  that  the Alaska  Railroad                                                                    
owns the  land surrounding  the loading  dock in  Nenana. He                                                                    
referenced reports  of the steep prices  charged to maintain                                                                    
and lease the land. He  opined that the action constituted a                                                                    
disadvantage to  the barge company.  Much of the  high lease                                                                    
rate is passed on to inhabitants of villages.                                                                                   
                                                                                                                                
Representative  Salmon stated  concerns. He  referenced that                                                                    
other  village  entities  having difficulty  with  the  high                                                                    
lease payments.                                                                                                                 
                                                                                                                                
1:46:32 PM                                                                                                                    
                                                                                                                                
Co-Chair   Stoltze  referred   to   other  concerns   raised                                                                    
regarding the Alaska Railroad.  The legislation spurred many                                                                    
similar comments.                                                                                                               
                                                                                                                                
Representative Gara  reported many questions  about railroad                                                                    
issues. He was concerned that  the state allows the railroad                                                                    
to  control the  land that  they own.  He expressed  concern                                                                    
about allowing the railroad to  sell state land and keep the                                                                    
money. He opined  that the railroad might  take what belongs                                                                    
to  the people  and use  the money  for internal  operations                                                                    
that the legislature may or may not agree with.                                                                                 
                                                                                                                                
Co-Chair  Stoltze opined  that funds  would not  be eligible                                                                    
for  use without  legislative intervention.  He agreed  that                                                                    
problems  existed.  He  reported that  the  testimony  would                                                                    
provide answers.                                                                                                                
                                                                                                                                
Representative Austerman  viewed that  the scenario  is such                                                                    
that the railroad  has the ability to lease the  land at the                                                                    
chosen rate. Co-Chair Stoltze concurred.                                                                                        
                                                                                                                                
Representative  Austerman  pointed  out  that  the  railroad                                                                    
already has the ability to use lease money for salaries.                                                                        
                                                                                                                                
Representative  Gara communicated  the  limitation of  short                                                                    
term leases as an advantage.  Another benefit of the limited                                                                    
lease was that  the state will eventually  reclaim the land.                                                                    
With the  legislation, the railroad  receives the  money and                                                                    
the state never sees the land again.                                                                                            
                                                                                                                                
Co-Chair Stoltze acknowledged  the many questions associated                                                                    
with the legislation.                                                                                                           
                                                                                                                                
1:51:04 PM                                                                                                                    
                                                                                                                                
PETER MACKSEY, CUSTOMER  RELATIONS, STEELFAB, ANCHORAGE (via                                                                    
teleconference),  addressed  Representative  Gara's  comment                                                                    
and opined that the investment  made by some people would be                                                                    
difficult if  the state took  the land back. He  stated that                                                                    
he felt  confined by the  railroad periodically  raising the                                                                    
rent. He  commented that the  mentioned property  is without                                                                    
rail and  he believed that  the railroad has no  further use                                                                    
for the land. A piece  of property in Anchorage leased under                                                                    
the railroad is  heavily taxed. He opined  that with private                                                                    
ownership,  the  investment  and  sense of  worth  would  be                                                                    
greater.  He announced  that the  railroad increases  stress                                                                    
levels with the steep lease prices.                                                                                             
                                                                                                                                
Representative   Doogan  requested   more   detail  on   the                                                                    
statement "taxed as if own  the land." Mr. Macksey responded                                                                    
that he  paid property  taxes in addition  to taxes  for the                                                                    
City of Anchorage.                                                                                                              
                                                                                                                                
Co-Chair Stoltze  commented that the municipal  of Anchorage                                                                    
taxed airport property in a similar manner.                                                                                     
                                                                                                                                
Representative Doogan asked where  the land was located. Mr.                                                                    
Macksey replied Railroad Avenue.                                                                                                
                                                                                                                                
1:55:51 PM                                                                                                                    
                                                                                                                                
Representative Gara  asked if Mr. Macksey  realized that the                                                                    
land was owned  by the railroad when he agreed  to lease it.                                                                    
Mr. Macksey responded that many  of the leases were 100 year                                                                    
leases and the original intent  was to provide an industrial                                                                    
base  for Anchorage.  He believed  that the  length of  time                                                                    
that his  company existed on  the land warranted  the option                                                                    
to buy.                                                                                                                         
                                                                                                                                
JOHN  BINKLEY, CHAIR,  BOARD OF  DIRECTORS, ALASKA  RAILROAD                                                                    
CORPORATION, FAIRBANKS (via  teleconference), commented that                                                                    
the   legislation   highlighted   the  importance   of   the                                                                    
relationship  between the  lessees and  the Alaska  Railroad                                                                    
Corporation.  The   real  estate  division  of   the  Alaska                                                                    
Railroad  Corporation  is   critical  to  the  corporation's                                                                    
success. The  real estate division relies  completely on the                                                                    
revenue  from the  lessees. The  steady revenue  provided by                                                                    
the  lessees allows  the corporation  to succeed  throughout                                                                    
varying business cycles.                                                                                                        
                                                                                                                                
Mr. Binkley  shared that the  board understands the  need to                                                                    
renew  efforts  to communicate  well  with  the tenants.  He                                                                    
mentioned  the railroad's  fiduciary  responsibility to  the                                                                    
shareholders of Alaska  to treat lessees in  an equal manner                                                                    
and  to  receive  a  fair  return on  the  asset  value.  He                                                                    
stressed  the  importance of  ensuring  that  the people  of                                                                    
Alaska  receive a  fair return  for  the asset  made on  the                                                                    
leased land.                                                                                                                    
                                                                                                                                
2:00:22 PM                                                                                                                    
                                                                                                                                
Mr.  Binkley referred  to a  mechanism already  in place  to                                                                    
release  Alaska   Railroad  Corporation  land   utilizing  a                                                                    
procedure  to determine  public  purpose and  report to  the                                                                    
legislature for  advice. He  believed the  legislation would                                                                    
refine the process.                                                                                                             
                                                                                                                                
Representative Austerman  asked Mr.  Binkley's stand  on the                                                                    
bill.  Mr.  Binkley  reported that  the  railroad  was  "not                                                                    
necessarily  supportive"  of   the  legislation.  The  board                                                                    
believed that the mechanisms were  already in place in terms                                                                    
of  discharging  land  with  the  appropriate  role  of  the                                                                    
legislature. He  repeated that the  opinions of  the lessees                                                                    
were important to him.                                                                                                          
                                                                                                                                
Representative Doogan  asked how  many lessees  the railroad                                                                    
had  under  contract.  Mr. Binkley  responded  approximately                                                                    
250.                                                                                                                            
                                                                                                                                
Representative  Doogan asked  for the  annual basis  income.                                                                    
Mr. Binkley replied approximately $9 million.                                                                                   
                                                                                                                                
Representative  Doogan   queried  the  annual   budget.  Mr.                                                                    
Binkley replied that the  corporation had operating revenues                                                                    
of $143 million or approximately 7 percent.                                                                                     
                                                                                                                                
Representative  Gara referred  to  years of  net income  for                                                                    
railroad from  leaseholds not operations; if  that were true                                                                    
he  expressed  concern  about  the  lessening  of  leasehold                                                                    
rental potential.  He asked how  long the  corporation's net                                                                    
income has been attributable  to its leasehold interest. Mr.                                                                    
Binkley responded that the income  goes up and down; in some                                                                    
years the real estate is  necessary to carry the corporation                                                                    
through, in other years the  corporation creates a return on                                                                    
the operations  of the  railroad plus  the real  estate. The                                                                    
railroad was  experiencing tough times because  of less fuel                                                                    
availability leading to a reduction in the bottom line.                                                                         
                                                                                                                                
2:05:26 PM                                                                                                                    
                                                                                                                                
Representative  Gara asked  what the  railroad was  doing to                                                                    
accommodate lessees. He asked about  any changes made by the                                                                    
corporation regarding  the treatment and  communication with                                                                    
lessees. Mr.  Binkley responded that an  important issue was                                                                    
sound  communication with  lessees to  enable businesses  to                                                                    
succeed.  He referred  to the  extension of  leases from  35                                                                    
years to 55 years for increased stability.                                                                                      
                                                                                                                                
Representative Gara  asked if companies like  SteelFab would                                                                    
lose their  improvements. Mr.  Binkley hoped  SteelFab would                                                                    
not;  he   wanted  them  to  succeed   and  commended  their                                                                    
achievements.                                                                                                                   
                                                                                                                                
Co-Chair Stoltze  noted that the purpose  of the legislation                                                                    
was not  to sell  the land  but instead  to function  like a                                                                    
permanent fund  within the  railroad. The  corporation would                                                                    
use the earnings for their operations.                                                                                          
                                                                                                                                
2:09:06 PM                                                                                                                    
                                                                                                                                
Representative  Salmon asked  about the  lease situation  in                                                                    
Nenana with  the cost  passed on to  the village  people. He                                                                    
believed  the legislation  would change  nothing. He  wanted                                                                    
action and not just talk.                                                                                                       
                                                                                                                                
Co-Chair Stoltze advocated for the  bill, which will lead to                                                                    
discussion and potentially change.                                                                                              
                                                                                                                                
Mr. Binkley stated that the  railroad is working with Nenana                                                                    
to  renew  the  lease.  He  discussed  the  history  of  the                                                                    
railroad as  part of the  overall transportation  system. He                                                                    
mentioned the process of renegotiating  a lease for the dock                                                                    
properties.  He reiterated  promises  to communicate  better                                                                    
with lessees and support their success.                                                                                         
                                                                                                                                
Representative  Austerman   asked  about  a   standard  year                                                                    
renegotiated contract  or yearly fee. Mr.  Binkley responded                                                                    
that  the corporation  re-evaluates every  five years  and a                                                                    
reappraisal is presented  with a ceiling no  greater than 35                                                                    
percent.                                                                                                                        
                                                                                                                                
Representative Kelly queried the concerns of the railroad.                                                                      
                                                                                                                                
Mr. Binkley replied that the  railroad does not want to sell                                                                    
the  real   estate.  He  expressed  concern   regarding  the                                                                    
importance of the railroad's success  being tied to the real                                                                    
estate. He  mentioned that  the railroad  has operated  as a                                                                    
state owned entity for 25  years without annual requests for                                                                    
operating funds. He pointed out  that the state would suffer                                                                    
the  loss of  the  real  estate even  if  the proceeds  were                                                                    
reinvested.   He  noted   that  real   estate  is   a  great                                                                    
investment.  He  commented  on  the  wisdom  of  the  Alaska                                                                    
Legislature    in   establishing    the   Alaska    Railroad                                                                    
Corporation.                                                                                                                    
                                                                                                                                
2:15:27 PM                                                                                                                    
                                                                                                                                
Co-Chair  Stoltze commented  that  additional testimony  for                                                                    
the railroad would be organized by Mr. Binkley.                                                                                 
                                                                                                                                
MARK STEARNS,  OWNER, ALASKA WOOD MOULDING,  INC., ANCHORAGE                                                                    
(via  teleconference)  informed that  he  has  been a  lease                                                                    
holder for ten years. He  provided the history of increasing                                                                    
lease prices  for his company.  He discussed  his experience                                                                    
with changes  in lease terms  without notice  or discussion.                                                                    
He   understood   that   the  railroad   has   a   fiduciary                                                                    
responsibility to  maximize the benefit of  their assets for                                                                    
the  shareholders. He  understood  the need  to utilize  the                                                                    
property as a revenue source.                                                                                                   
                                                                                                                                
Mr. Stearns  referred to  other buildings  in the  area that                                                                    
have been  taken over  by the  railroad. He  understood that                                                                    
the money earned from the sale  of the land could be used as                                                                    
a permanent  fund; the railroad  did not lose the  value. He                                                                    
was concerned  with a long-term ability  to control expenses                                                                    
for his business. The lease  has gone up dramatically, which                                                                    
hurts the ability to reinvest in the business.                                                                                  
                                                                                                                                
Representative  Kelly pointed  out  that HB  357 would  only                                                                    
permit the  railroad to sell the  land if they chose  to. He                                                                    
asked how the bill would help.                                                                                                  
                                                                                                                                
Mr. Stearns  explained that the  mentioned property  was not                                                                    
used by the railroad. He  believed that the property that he                                                                    
leases  is not  essential to  the railroad's  operations. He                                                                    
argued  that if  the railroad  does not  require land  as an                                                                    
essential part  of their  operation, then  the sale  of land                                                                    
would only strengthen the business climate.                                                                                     
                                                                                                                                
2:23:10 PM                                                                                                                    
                                                                                                                                
Co-Chair   Stoltze  pointed   out  that   Mr.  Binkley   was                                                                    
responsive to the needs of the lessees.                                                                                         
                                                                                                                                
Representative  Doogan  asked   about  the  municipality  of                                                                    
Anchorage's decision  to tax lessees. Mr.  Stearns confirmed                                                                    
that he  was taxed by  the Municipality of Anchorage  for an                                                                    
additional $6  thousand per  year. He  pointed out  that his                                                                    
company pays an  additional $26 thousand in  taxes each year                                                                    
as a result of the changes instituted by the railroad.                                                                          
                                                                                                                                
Representative Doogan asked about  the lease rate increases.                                                                    
He  asked   about  the   communication  with   the  railroad                                                                    
following the  rate increase notices. Mr.  Stearns responded                                                                    
that he  received the information "just  because" and listed                                                                    
problems  that the  railroad responded  to  by requesting  a                                                                    
letter. He stated that the damage has been done.                                                                                
                                                                                                                                
2:28:16 PM                                                                                                                    
                                                                                                                                
Representative  Kelly asked  if property  was sold  during a                                                                    
lease expiration time, would  improvement costs be required.                                                                    
Mr. Stearns  replied that the  improvements on  the property                                                                    
belong to his business "from the ground up."                                                                                    
                                                                                                                                
Representative Kelly  verified that the answer  provided was                                                                    
no. He asked  if the corporation would  own the improvements                                                                    
if he did not renew his  lease. Mr. Stearns replied that the                                                                    
corporation  could  own  the   improvements  or  they  could                                                                    
request or require that the improvements were removed.                                                                          
                                                                                                                                
BONNE   WOLDSTAD,   FAIRBANKS  (via   teleconference),   had                                                                    
concerns about the legislation.  She expressed that the bill                                                                    
might solidify  the inverse take  that the  railroad created                                                                    
on her property in 2003  by repealing Sections 1208 and 1209                                                                    
of the  Alaska Railroad  Transfer Act (ARTA).  She explained                                                                    
that she owned  a homestead that predates  the railroad. The                                                                    
railroad  received   an  exclusive   use  easement   on  her                                                                    
property. She  expressed concern that the  corporation might                                                                    
sell her land.                                                                                                                  
                                                                                                                                
Co-Chair   Stoltze  expressed   a   lack  of   understanding                                                                    
regarding the  railroad transfer.  Ms. Woldstad  pointed out                                                                    
that ARTA  stated that if  railroad track was unused  for 18                                                                    
years, then it  would be declared vacant and  revert back to                                                                    
the adjacent property owner.                                                                                                    
                                                                                                                                
2:33:48 PM                                                                                                                    
                                                                                                                                
Representative  Kelly asked  if a  change in  language would                                                                    
help to ensure  that the bill did not  negatively affect the                                                                    
property.  Ms. Woldstad  responded  that  language might  be                                                                    
inserted to  recognize that  if the  railroad was  to vacate                                                                    
their easement  with a prior  existing right, then  the land                                                                    
would revert back to the adjacent property owner.                                                                               
                                                                                                                                
Representative Kelly commented that  a language change might                                                                    
be difficult  to achieve,  as he was  not the  bill sponsor.                                                                    
Ms. Woldstad thought that a  language change would alleviate                                                                    
concerns that  the bill is  not intended to  prejudice those                                                                    
ownership rights.                                                                                                               
                                                                                                                                
Representative Fairclough asked if  the easement was passed,                                                                    
was the homestead compensated by  the railroad. Ms. Woldstad                                                                    
stated that she  had not found record  of compensation under                                                                    
the  original 1914  law. Following  changes in  the original                                                                    
Homestead Act  of 1862,  any future  homestead had  a clause                                                                    
into  patent for  construction of  railroad, telegraph,  and                                                                    
telephone lines. The territory had  the right to traverse by                                                                    
the Homestead Act, but not to own.                                                                                              
                                                                                                                                
Co-Chair Stoltze promised to follow up on the issue.                                                                            
                                                                                                                                
TERRY    SMITH,    CHIEF    FINANCIAL    OFFICER,    CARLILE                                                                    
TRANSPORTATION   SYSTEMS,  ANCHORAGE   (via  teleconference)                                                                    
stated that  the railroad has  been a good partner,  but his                                                                    
personal standpoint  was that the amount  of road controlled                                                                    
by  the railroad  leads to  scarcity. He  added that  leased                                                                    
land is not favored as  collateral in lending situations. He                                                                    
understood  the value  of land  ownership for  the railroad,                                                                    
but for investors the preference  is to reduce risk and gain                                                                    
ownership to control destiny.                                                                                                   
                                                                                                                                
2:39:18 PM                                                                                                                    
                                                                                                                                
Ms.  Woldstad  commented  on the  fiduciary  rights  of  the                                                                    
state.  She wished  to communicate  the  maximum benefit  by                                                                    
considering the jobs provided by the lessees.                                                                                   
                                                                                                                                
2:40:36 PM          AT EASE                                                                                                   
2:42:33 PM          RECONVENED                                                                                                
                                                                                                                                
Representative Austerman  asked how the railroad  arrived at                                                                    
8  percent. Mr.  Binkley  responded that  8  percent is  the                                                                    
corporation's policy  with a couple of  exceptions including                                                                    
waterfront land.                                                                                                                
                                                                                                                                
Representative  Austerman  clarified  that  the  action  was                                                                    
determined  via  board  policy. Mr.  Binkley  concurred  and                                                                    
stated that the action was  consistent for leases around the                                                                    
state.  Many   leases  were  initiated  under   the  federal                                                                    
government  and  rather  than terminating  the  leases,  the                                                                    
state allowed  federal leases to  lapse under the  terms and                                                                    
conditions  of the  federal government.  Many of  the leases                                                                    
were a  better deal for  leaseholders than state  system. He                                                                    
understood  the  shock  when   the  federal  leases  expired                                                                    
placing them under the state system.                                                                                            
                                                                                                                                
Representative  Austerman   asked  when   municipalities  of                                                                    
Anchorage and  Fairbanks initiated any adjustment  on leases                                                                    
from the  railroad. Mr. Binkley  replied that there  was not                                                                    
an  adjustment by  the railroad  when the  lessees paid  the                                                                    
additional amount  for property taxes. Some  lessees express                                                                    
that the cost of the lease  can be expensed over a period of                                                                    
time;  from   a  tax  standpoint,  there   is  sometimes  an                                                                    
advantage to leasing.                                                                                                           
                                                                                                                                
2:46:21 PM                                                                                                                    
                                                                                                                                
Co-Chair  Stoltze suggested  that  this  was the  permissive                                                                    
nature to be discussed between  the government owner and the                                                                    
lease  holder.   He  appreciated  the  discussion   and  the                                                                    
testimony from the Alaska Railroad Corporation.                                                                                 
                                                                                                                                
Representative Austerman  commented that he  understood that                                                                    
the  leasing   agreement  presents  a  good   deal  for  the                                                                    
railroad.                                                                                                                       
                                                                                                                                
Co-Chair  Stoltze agreed  that  the  legislation provided  a                                                                    
permissive route for the Alaska Railroad Corporation.                                                                           
                                                                                                                                
HB  357  was  HEARD  and   HELD  in  Committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
2:49:10 PM          AT EASE                                                                                                   
2:56:55 PM          RECONVENED                                                                                                
                                                                                                                                

Document Name Date/Time Subjects
HB357 Letters.pdf HFIN 4/1/2010 1:30:00 PM
HB 357
HB344 PSPA support.pdf HFIN 4/1/2010 1:30:00 PM
HB 344
HB 344--Alaska Tax Division 2009 Detail[1].pdf HFIN 4/1/2010 1:30:00 PM
HB 344
HB 344N Pac Seafood support.pdf HFIN 4/1/2010 1:30:00 PM
HB 344
HB 344--Qualified and Non-qualified Expenditures[1].pdf HFIN 4/1/2010 1:30:00 PM
HB 344
peter pan Letter HB 344.pdf HFIN 4/1/2010 1:30:00 PM
HB 344
PSPA support.pdf HFIN 4/1/2010 1:30:00 PM
ss Hb 344 Sponsor Statement.doc HFIN 4/1/2010 1:30:00 PM
HB 344
HB 344 CS WORKDRAFT 26-LS1473 E Version.pdf HFIN 4/1/2010 1:30:00 PM
HB 344
HB 344 Letter Icicle Seafoods.pdf HFIN 4/1/2010 1:30:00 PM
HB 344