Legislature(2009 - 2010)CAPITOL 17

03/16/2010 01:00 PM TRANSPORTATION


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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 267 SNOW MACHINE USE IN DALTON HWY CORRIDOR TELECONFERENCED
Heard & Held; Assigned to Subcommittee
+= HB 257 BAN CELL PHONE USE WHEN DRIVING TELECONFERENCED
Scheduled But Not Heard
+ Bills Previously Heard/Scheduled TELECONFERENCED
              HB 357-AK RAILROAD CORP. LAND SALES                                                                           
                                                                                                                                
CHAIR P. WILSON announced that  the first order of business would                                                               
be  HOUSE BILL  NO. 357,  "An Act  relating to  the sale  of land                                                               
owned  by the  Alaska Railroad  that is  not needed  for railroad                                                               
purposes."                                                                                                                      
                                                                                                                                
1:07:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  BILL STOLTZE,  Alaska State  Legislature, related                                                               
that   many   private   businesses  are   frustrated   with   the                                                               
unpredictability  of  the  Alaska Railroad  Corporation's  (ARRC)                                                               
lease  terms   and  the   corporation's  unwillingness   to  make                                                               
investment improvements  to their property.   He said  he thought                                                               
that the  ARRC may need  "a little  bit of help  interfacing with                                                               
the   private   sector   on  these   lease   holdings."      Some                                                               
municipalities  have expressed  interest in  the bill  since they                                                               
embrace  private  sector  activity.    He  paraphrased  from  his                                                               
sponsor statement,  which read  as follows  [original punctuation                                                               
provided]:                                                                                                                      
                                                                                                                                
     To  spur  economic  development throughout  the  state,                                                                    
     House Bill  357 adds  a fourth  clause to  the existing                                                                    
     language governing how  the Alaska Railroad Corporation                                                                    
     may dispose  of land.  House Bill  357 will  enable the                                                                    
     railroad to sell land that  is not needed for essential                                                                    
     railroad  purposes.  This bill  does  not  ask for  any                                                                    
     irresponsible  disposal of  land, as  the sale  must be                                                                    
     initiated by the board of  directors on two conditions.                                                                    
     The first condition  is that the land  is not essential                                                                    
     to  railroad operations,  and the  second condition  is                                                                    
     that the sale  is in the best interest of  the state of                                                                    
     Alaska.                                                                                                                    
                                                                                                                                
     As  support has  shown, current  leaseholders are  very                                                                    
     unhappy  with the  inability to  purchase their  leased                                                                    
     properties from  the railroad.  In general  real estate                                                                    
     dealings,  private  purchases   are  made  in  mutually                                                                    
     beneficial  sales.  House  Bill  357  encourages  these                                                                    
     sales after determination by the  board of directors of                                                                    
     the  railroad  looks  at each  sale  with  the  overall                                                                    
     benefit to the  state of Alaska as the  key driver. Not                                                                    
     only  will   the  private  sector  benefit   from  this                                                                    
     addition  to state  law, the  railroad  will also  have                                                                    
     increased  ability to  make  decisions regarding  their                                                                    
     overall real estate portfolio.                                                                                             
                                                                                                                                
     The sale  and relationship of private  and public lands                                                                    
     are  vital  to the  economic  growth  of the  state  of                                                                    
     Alaska.  I ask  for your  consideration and  support of                                                                    
     House Bill  357 to  promote Alaskan growth  through the                                                                    
     diversification of  land ownership, increasing  the tax                                                                    
     base   of  the   state,  and   encouraging  responsible                                                                    
     development of Alaskan land.                                                                                               
                                                                                                                                
1:10:25 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE STOLTZE  characterized the  bill "as  a permissive                                                               
bill."   The committee  may wish  to make changes  to HB  357, he                                                               
stated.                                                                                                                         
                                                                                                                                
1:11:07 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE PETERSEN asked whether the  land would be sold and                                                               
if proceeds  would go to the  ARRC for further development  or to                                                               
purchase equipment.                                                                                                             
                                                                                                                                
REPRESENTATIVE STOLTZE offered his intent  for the proceeds to be                                                               
retained by the ARRC for its operations.                                                                                        
                                                                                                                                
1:12:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON  referred to page  2, lines 1-7  and asked                                                               
whether this  would require  a competitive bid  process or  if he                                                               
could explain the process.                                                                                                      
                                                                                                                                
REPRESENTATIVE  STOLTZE related  his intent  that the  lessee who                                                               
has an investment would have the first right of refusal.                                                                        
                                                                                                                                
1:13:17 PM                                                                                                                    
                                                                                                                                
CHAIR P. WILSON asked whether the  land is state land and if that                                                               
is allowable.                                                                                                                   
                                                                                                                                
REPRESENTATIVE STOLTZE  responded that if any  restrictions exist                                                               
the  bill drafters  did not  flag the  issue during  the drafting                                                               
process.  He offered that this is his best first effort.                                                                        
                                                                                                                                
1:14:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P.  WILSON  interpreted  that she  did  not  know                                                               
whether it  is allowable to offer  the first right of  refusal to                                                               
leaseholders of state  land.  She suggested  that question should                                                               
be answered by the Department of Law (DOL).                                                                                     
                                                                                                                                
REPRESENTATIVE STOLTZE said he wished  he knew the inner workings                                                               
of the ARRC.   The ARRC's budget is not  subject to state review.                                                               
He stated  that the  ARRC's executive payroll  is not  aligned to                                                               
the ARRC's economic  growth.  He also related his  desire for the                                                               
ARRC to  run more like a  private business in instances  in which                                                               
it  is involved  in the  private sector.   He  remarked that  the                                                               
breadth of  testimony from local  government and a  consortium of                                                               
business  and industry  have  endorsed this  bill.   However,  he                                                               
maintained  that  he did  not  solicit  the letters  in  members'                                                               
packets.   He offered  that these "folks  were yearning  for some                                                               
type of  bill like  this."   Simply by  holding this  hearing the                                                               
committee has  informed the public  that "the private  sector has                                                               
friends" in Juneau who are responsive, he stated.                                                                               
                                                                                                                                
1:16:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE T.  WILSON asked  whether this bill  would include                                                               
easements crossing private property if  the easement is no longer                                                               
in use by the railroad.                                                                                                         
                                                                                                                                
REPRESENTATIVE STOLTZE said  he did not know but  his staff would                                                               
check into it.   He suggested that  many complicated arrangements                                                               
with the ARRC and ownership issues exist.                                                                                       
                                                                                                                                
1:16:41 PM                                                                                                                    
                                                                                                                                
CHAIR P.  WILSON asked whether  the ARRC is selling  land without                                                               
giving its lessees the right of first refusal.                                                                                  
                                                                                                                                
REPRESENTATIVE  STOLTZE offered  that the  ARRC does  not have  a                                                               
consistent  policy  on  leases  or  sales.    The  ARRC  has  had                                                               
inconsistent  policies with  respect to  leases, he  stated.   He                                                               
recalled  last year,  during  the course  of  working on  another                                                               
bill, that the ARRC negotiated new  leases.  He surmised that the                                                               
ARRC reacts  more like a  political organization than  a business                                                               
organization.  He said, "I don't  know that I could say that they                                                               
have a  consistent lease  policy and  therein lies  a lot  of the                                                               
problems.   I don't think  we would  like to have  our individual                                                               
businesses subject to those vagaries."                                                                                          
                                                                                                                                
1:17:45 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MUNOZ  asked for  the  number  of leases  on  the                                                               
ARRC's non-essential property.                                                                                                  
                                                                                                                                
REPRESENTATIVE  STOLTZE offered  that  currently  the ARRC  holds                                                               
about 350  leases.   He was  not certain how  many of  the leases                                                               
fell into the category of essential property.                                                                                   
                                                                                                                                
CHAIR P. WILSON asked how the ARRC acquired its land.                                                                           
                                                                                                                                
REPRESENTATIVE STOLTZE  offered that  the ARRC acquired  its land                                                               
in  the mid-1980s  as a  result  of the  federal Alaska  Railroad                                                               
Transfer Act  (ARTA) of  1982 and the  subsequent state  act, the                                                               
Alaska Railroad Act.                                                                                                            
                                                                                                                                
1:19:07 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  STOLTZE,  in  response to  Representative  Munoz,                                                               
responded  that  under  the state's  Executive  Budget  Act,  the                                                               
legislature does not have access  to ARRC budget information.  He                                                               
maintained that  numerous members  of the  public can  testify to                                                               
explain  their relationships  and  frustrations  with the  Alaska                                                               
Railroad Corporation.                                                                                                           
                                                                                                                                
1:21:30 PM                                                                                                                    
                                                                                                                                
JIM KUBITZ,  Vice President, Real  Estate and  Facilities, Alaska                                                               
Railroad Corporation  (ARRC), stated that  he has worked  for the                                                               
ARRC  for  twelve  years.     He  provided  a  little  background                                                               
information.  In 1985, the  state purchased the railroad from the                                                               
federal government and  received about 36,000 acres of  land.  He                                                               
described  the land  as about  one-third right-of-way,  where the                                                               
trains  run,  one-third  rail and  operations  yard,    one-third                                                               
"reserve land" or  land that is available to lease.   The ARRC is                                                               
required by  law to  lease its  land for fair  market value.   He                                                               
remarked that  when the  state bought  the railroad,  the federal                                                               
government  was losing  money.    The state  wanted  to give  the                                                               
Alaska Railroad Corporation (ARRC)  an opportunity to succeed and                                                               
live under  its own profits.   Thus, the  land must be  leased at                                                               
fair market value, noting there are a few exceptions.                                                                           
                                                                                                                                
1:23:23 PM                                                                                                                    
                                                                                                                                
MR. KUBITZ explained  that the ARRC does not  always know whether                                                               
it will  need land.  Currently,  projects to expand the  yards in                                                               
Fairbanks, Anchorage, and Whittier  are underway to meet customer                                                               
needs and improve  the dock operations.  Sometimes  the ARRC must                                                               
buy out  tenants to expand its  operations.  He said,  "We do not                                                               
always have a crystal ball  knowing exactly what could be defined                                                               
as essential  railroad land  since it does  move."   For example,                                                               
the Anchorage International Airport  has numerous private tenants                                                               
but does  not sell  its land.   One big  issue that  some tenants                                                               
have had is the requirement that  they must pay property taxes on                                                               
the  leased  land.   In  2004,  the  State Assessor  advised  the                                                               
Municipality of Anchorage  that it must charge  fair market value                                                               
rent for  any leased  land that  is owned  by a  tax-free entity,                                                               
such as  the ARRC.   Thus, for  the first time  in that  area the                                                               
lessees  had to  pay  property tax  for the  land.   The  tenants                                                               
previously  were required  to pay  taxes on  their buildings  and                                                               
improvements,  but the  new requirement  to add  taxes on  leased                                                               
land upset some of the tenants.                                                                                                 
                                                                                                                                
1:25:00 PM                                                                                                                    
                                                                                                                                
CHAIR P. WILSON asked for the duration of the ARRC's leases.                                                                    
                                                                                                                                
MR. KUBITZ  answered that the leases  range from 20 to  40 years.                                                               
Tenants  suddenly had  to pay  property taxes  on leased  land on                                                               
which they had held long-term leases, he stated.                                                                                
                                                                                                                                
REPRESENTATIVE  JOHNSON  asked  who made  the  determination  and                                                               
asked for the statutory background.                                                                                             
                                                                                                                                
MR.   KUBITZ   related  that   the   State   Assessor  made   the                                                               
determination.   He offered to  provide the legal  opinion issued                                                               
by  the Department  of Law  to  the committee.   Ultimately,  the                                                               
state's  Attorney General  required  the lessees  to  pay tax  on                                                               
land.                                                                                                                           
                                                                                                                                
1:25:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MUNOZ asked whether the  assessment is on the land                                                               
that is leased or if the assessment is on all ARRC parcels.                                                                     
                                                                                                                                
MR.  KUBITZ  related  that  the  tenant  leases  are  subject  to                                                               
assessment,  but the  non-leased parcels  are not  assessed.   He                                                               
explained  that the  State Assessor  does have  some flexibility.                                                               
He offered  that a brand new  35-year lease would be  assessed at                                                               
full fair  market value on  the property.   However, if  only two                                                               
years remained  on the lease,  the State Assessor would  charge a                                                               
much reduced rate for the land portion of the lease.                                                                            
                                                                                                                                
1:26:44 PM                                                                                                                    
                                                                                                                                
MR. KUBITZ, in response to  Chair Wilson, explained that the ARRC                                                               
is tax exempt.  He pointed  out that advantages exist for parties                                                               
who  lease  land.   He  explained  that  the  tax cap  cannot  go                                                               
increase more  than 35 percent  each five-year period.   The ARRC                                                               
also has a floor on its leases,  which means the tax rates do not                                                               
decrease.  However,  the ARRC is currently  reviewing its leasing                                                               
policy given the  economy.  He commented that the  ARRC does have                                                               
a public leasing policy.                                                                                                        
                                                                                                                                
1:27:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MUNOZ  related that  other leased property  is not                                                               
charged  property  tax.   She  related  that  if the  leases  are                                                               
comparable to other leases whether  the ARRC takes property taxes                                                               
into account when setting the rate.                                                                                             
                                                                                                                                
MR.  KUBITZ  responded  that  only   the  value  of  property  is                                                               
considered.  Thus, if property is  valued at $1 million, the ARRC                                                               
would charge eight percent rent on  $1 million.  The ARRC is also                                                               
not involved  with improvements and  the appraiser  must appraise                                                               
the land as though it is vacant land.                                                                                           
                                                                                                                                
1:28:37 PM                                                                                                                    
                                                                                                                                
MR.  KUBITZ, in  response to  Chair P.  Wilson, related  that the                                                               
ARRC hires an independent appraiser to determine the land value.                                                                
                                                                                                                                
REPRESENTATIVE MUNOZ  asked whether all  the lease terms  are set                                                               
at eight percent.                                                                                                               
                                                                                                                                
MR. KUBITZ answered that the  interest rate on leases ranges from                                                               
8 percent  to 10 percent,  with 9  percent for waterfront  and 10                                                               
percent for  commercial property.   The bulk  of the  ARRC leases                                                               
are set at  8 percent.  He stated that  the ARRC follows standard                                                               
procedures for setting  its interest rates.   In further response                                                               
to Chair P. Wilson, he responded  that the ARRC has published its                                                               
leasing policies, which  are sometimes adjusted.   He stated that                                                               
currently,  due to  the  downturn  in the  economy,  the ARRC  is                                                               
considering eliminating  the floor,  but traditionally  the lease                                                               
rates have stayed flat.                                                                                                         
                                                                                                                                
1:30:08 PM                                                                                                                    
                                                                                                                                
MR.  KUBITZ stated  that  the ARRC  indemnifies  its tenants  for                                                               
contamination since the  ARRC has been around for 85  years.  The                                                               
ARRC  does not  hold  its tenants  responsible for  contamination                                                               
unless the tenant contaminated the property.                                                                                    
                                                                                                                                
1:30:29 PM                                                                                                                    
                                                                                                                                
MR. KUBITZ,  in response to Representative  Johnson, explained if                                                               
a person were  to purchase ARRC property that it  would depend on                                                               
the  structure  of  the  real  estate  agreement  as  to  whether                                                               
indemnification would be included in  the terms.  He offered that                                                               
any  potential  buyer  should perform  due  diligence,  have  the                                                               
ground tested and if a problem  exists that the party should hold                                                               
discussions to  determine who  will be  responsible.   This would                                                               
all be covered in the sales contract, he stated.                                                                                
                                                                                                                                
1:31:03 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON  recalled  several years  ago  a  battery                                                               
company went out of business.   He asked Mr. Kubitz to describe a                                                               
similar scenario with respect to the railroad.                                                                                  
                                                                                                                                
MR. KUBITZ recalled the site  mentioned is a Superfund Site under                                                               
control  by  the  Environmental  Protection  Agency  (EPA).    He                                                               
recalled that the site usage  is restricted.  He further recalled                                                               
that this site was capped and  a list of restrictions would apply                                                               
to the property use.  He was  unsure if someone would want to buy                                                               
the  property,  but  he  related   that  if  a  sale  did  occur,                                                               
discussions on contamination  would be part of  the due diligence                                                               
process.                                                                                                                        
                                                                                                                                
1:32:15 PM                                                                                                                    
                                                                                                                                
CHAIR P.  WILSON speculated that  the ARRC  would do its  part to                                                               
protect and inform any potential buyers.                                                                                        
                                                                                                                                
MR. KUBITZ  responded that professionals  would perform  tests to                                                               
determine any contamination.   He said he does not  want to leave                                                               
impression that  all the ARRC property  has environmental issues.                                                               
The  ARRC  is diligent  about  identifying  any issues  with  its                                                               
property,   but  would   not   necessarily   know  about   recent                                                               
environmental issues on  leased land.  He  characterized the ARRC                                                               
as knowledgeable about its property  and advised members that the                                                               
ARRC has a good file on hand for each of its properties.                                                                        
                                                                                                                                
1:33:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON asked  whether  anyone  has reviewed  the                                                               
cost  of   owning  versus  leasing   ARRC  land  given   the  new                                                               
interpretation on property taxes.                                                                                               
                                                                                                                                
MR. KUBITZ  answered that the  ARRC Board has policies  in place.                                                               
He offered  that the  ARRC performed a  market analysis  and that                                                               
eight percent is a standard interest rate for leased property.                                                                  
                                                                                                                                
1:34:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE    JOHNSON   asked    when   the    property   tax                                                               
interpretation was  adopted and  whether the market  analysis was                                                               
performed prior to when the tax policy was adopted.                                                                             
                                                                                                                                
MR. KUBITZ related  that it occurred at about the  same time.  In                                                               
2004, the tax  letter was received from the State  Assessor.  The                                                               
ARRC continually  reviews the market,  he stated.   He maintained                                                               
his  belief that  the market  study was  done at  about the  same                                                               
time.                                                                                                                           
                                                                                                                                
REPRESENTATIVE  JOHNSON  asked  whether   he  could  provide  any                                                               
examples  of  other  communities  or  states  that  charge  eight                                                               
percent interest in addition to the property tax.                                                                               
                                                                                                                                
MR. KUBITZ  related that ARRC  tenants have always paid  taxes on                                                               
their building.   He commented that  the property tax on  land is                                                               
based on  a decreasing rate  scale.   He explained that  the ARRC                                                               
also  requires its  tenants  to follow  local  state and  federal                                                               
laws.                                                                                                                           
                                                                                                                                
1:36:34 PM                                                                                                                    
                                                                                                                                
CHAIR  P.  WILSON asked  whether  the  Municipality of  Anchorage                                                               
(MOA) was  trying to find more  ways to bring in  revenue without                                                               
raising taxes.                                                                                                                  
                                                                                                                                
MR. KUBITZ acknowledged that the MOA has been very successful.                                                                  
                                                                                                                                
1:37:08 PM                                                                                                                    
                                                                                                                                
MR.  KUBITZ, in  response to  Representative Johnson,  reiterated                                                               
that  the  State  Assessor  wrote a  letter  to  Municipality  of                                                               
Anchorage referencing the Department  of Law's legal opinion that                                                               
the MOA had to assess property.                                                                                                 
                                                                                                                                
MR.  KUBITZ, in  response to  Chair P.  Wilson, related  that the                                                               
communities  have the  option on  whether  to assess  taxes.   He                                                               
stated  that  Anchorage  and Fairbanks  assesses  taxes  on  ARRC                                                               
property.                                                                                                                       
                                                                                                                                
1:38:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  T.  WILSON  asked  for  the  percentage  of  ARRC                                                               
property that is currently vacant.                                                                                              
                                                                                                                                
MR.  KUBITZ   explained  that  the   ARRC  owns  one   parcel  of                                                               
approximately 5,000 acres  that does not have tenant.   Thus, one                                                               
of its  largest parcels is  vacant.   He offered his  belief that                                                               
about  20   percent  of  ARRC   property  is  under   lease,  but                                                               
approximately 80 percent  of the revenue from  ARRC's real estate                                                               
is derived from  600 acres in Anchorage at Ship  Creek.  The rest                                                               
of  the leases  are  primarily located  in Fairbanks,  Talkeetna,                                                               
Seward, and Whittier.                                                                                                           
                                                                                                                                
1:39:07 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE T. WILSON asked if  the ARRC sold property whether                                                               
it would provide more revenue for the ARRC over time.                                                                           
                                                                                                                                
MR. KUBITZ related  that a parcel valued at $1  million leased at                                                               
8  percent would  provide $80,000  in revenue  annually.   If the                                                               
ARRC deposited  $1 million, it  may earn approximately  $20,000 a                                                               
year.  Thus,  selling ARRC's land would represent  a big decrease                                                               
in annual income for the railroad.                                                                                              
                                                                                                                                
1:40:07 PM                                                                                                                    
                                                                                                                                
MR.  KUBITZ,  in response  to  Chair  P. Wilson,  explained  that                                                               
during the  economic downturn the  real estate income  "tides the                                                               
ARRC over".   He stated that the ARRC earns  about $18 million in                                                               
leases and  reinvests it.   He related some investments  are made                                                               
on behalf  of tenants, such  as water and sewer  installation and                                                               
dock enhancements to create efficiencies.                                                                                       
                                                                                                                                
1:41:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON  asked of  the 80  percent of  leases, how                                                               
many of the ARRC leases in  Anchorage will expire within the next                                                               
five years.                                                                                                                     
                                                                                                                                
MR. KUBITZ offered  his belief that not many  leases will expire.                                                               
He said that typically most  lessees holding a 30-year lease will                                                               
renegotiate the lease  about ten years out.  He  related that the                                                               
largest ARRC customer is Flint  Hills in Anchorage and the second                                                               
largest customer  is Lynden Transport.   He stated that  the ARRC                                                               
renews its leases on a continual basis.                                                                                         
                                                                                                                                
1:42:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON  asked  whether the  lessees  will  renew                                                               
their leases  closer to  the end  date of the  lease in  order to                                                               
avoid paying higher property taxes.                                                                                             
                                                                                                                                
MR.  KUBITZ said  he was  unsure.   He  characterized the  ARRC's                                                               
customers as sophisticated customers  who renew their leases when                                                               
10  to 15  years remain  on the  lease.   He commented  that most                                                               
leases are renewed.                                                                                                             
                                                                                                                                
1:43:44 PM                                                                                                                    
                                                                                                                                
MR. KUBITZ explained  at times ARRC may need to  let tenants know                                                               
a lease will not be renewed in  the event that the ARRC needs the                                                               
land  for its  railroad  operations.   He  stated  that the  ARRC                                                               
currently  holds 350  active long-term  leases  and 900  permits,                                                               
which are for leases under 5 years in duration.                                                                                 
                                                                                                                                
1:44:19 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON asked how  disposing ARRC's property would                                                               
affect  the ARRC's  bonding status  and whether  it would  have a                                                               
negative effect.                                                                                                                
                                                                                                                                
MR. KUBITZ answered that selling  ARRC's land probably would have                                                               
a  negative effect.    He  commented that  the  ARRC produces  an                                                               
annual report with audited financial  information.  The ARRC also                                                               
borrows funds  based on lease  revenue income.  For  example, the                                                               
ARRC recently borrowed  $1 million and pledged  its lease revenue                                                               
for loan repayment.   He anticipated that if  suddenly the ARRC's                                                               
portfolio of  leases were  to shrink,  it could  adversely affect                                                               
the interest  rate.  He reiterated  the lease income is  used for                                                               
property improvements,  but sometimes the ARRC  will borrow funds                                                               
to complete necessary project improvements.                                                                                     
                                                                                                                                
1:45:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON  asked whether federal funding  would slow                                                               
down projects.                                                                                                                  
                                                                                                                                
MR. KUBITZ offered  that the ARRC receives  some federal railroad                                                               
funds  based  on  a passenger  transportation  formula,  but  the                                                               
federal dollars  are restricted to passenger  transportation.  He                                                               
stated  that  the  ARRC  could  build new  depot  or  buy  a  new                                                               
passenger  car, but  could not  spend the  federal funds  on real                                                               
estate.  He  restated that the federal funding "comes  with a lot                                                               
of strings."                                                                                                                    
                                                                                                                                
1:46:41 PM                                                                                                                    
                                                                                                                                
MR.  KUBITZ stated  that the  ARRC's tenants  have access  to the                                                               
Board of Directors.  The Board has  the final say on leases.  The                                                               
ARRC uses  money to  partner with tenants  to improve  the plant.                                                               
In 2002, the ARRC raised the  ability to lease land from 35 years                                                               
to 55  years.  The  legislature agreed to  the change.   The plan                                                               
has been to ask the legislature  for the ability to increase some                                                               
leases to 95-year leases for  those seeking long-term leases.  He                                                               
offered that land lease payments  are tax deductible.  Thus, many                                                               
tenants  would never  consider  buying their  land.   In  further                                                               
response to Representative Johnson,  he stated that the appraised                                                               
value is the highest amount that the land can be assessed.                                                                      
                                                                                                                                
REPRESENTATIVE JOHNSON related that if  a tenant had 2 years left                                                               
on a 95-year lease, he/she would pay less in property taxes.                                                                    
                                                                                                                                
MR. KUBITZ agreed.                                                                                                              
                                                                                                                                
1:48:46 PM                                                                                                                    
                                                                                                                                
MR. KUBITZ, in response to  Chair P. Wilson, explained the tenant                                                               
typically  will  approach the  ARRC  and  ask to  extend  his/her                                                               
lease.                                                                                                                          
                                                                                                                                
MR.  KUBITZ  related  that  passage  of  HB  357  might  start  a                                                               
speculation  spree because  the land  is state-owned  land.   For                                                               
example a person  could lease land in April, purchase  it in May,                                                               
and then  "flip the land."   He suggested that this  would not in                                                               
the ARRC's  best interest.   He said that  he was unsure  if that                                                               
type of speculation would happen.                                                                                               
                                                                                                                                
1:50:05 PM                                                                                                                    
                                                                                                                                
CHAIR P.  WILSON asked whether  the ARRC's  land is owned  by the                                                               
state.                                                                                                                          
                                                                                                                                
MR. KUBITZ answered  that the ARRC's land is state  land, but the                                                               
land is controlled,  managed, and operated by the ARRC.   He also                                                               
noted that the  ARRC did not receive all of  its federal transfer                                                               
land as of 12  years ago.  The ARRC is currently  down to about 5                                                               
percent of the land remaining to be transferred.                                                                                
                                                                                                                                
CHAIR P.  WILSON inquired  as to whether  the state  allows first                                                               
right of refusal to its tenants on state lands that are leased.                                                                 
                                                                                                                                
MR.  KUBITZ  said  he  did  not know.    He  suggested  that  the                                                               
legislature could pass  a law if it  chose to do so.   He thought                                                               
it might  put "a cloud over  it" to have first  right of refusal.                                                               
He explained that if the state  leased the land and then sold it,                                                               
the public may complain that it  was not aware that the state was                                                               
selling property.  He thought if  the state wanted to receive the                                                               
best  value that  the  ARRC  should simply  sell  the  land.   He                                                               
pointed out  that the  tenants are  protected during  sales since                                                               
the  potential buyer  cannot "kick"  any tenants  off the  leased                                                               
land, but must honor the lease.                                                                                                 
                                                                                                                                
1:52:18 PM                                                                                                                    
                                                                                                                                
MR. KUBITZ,  in response to Representative  Petersen, stated that                                                               
the 5  percent of 36,000 acres  of federal transfer land  has not                                                               
yet been transferred to the state.   He pointed out that the ARRC                                                               
has an  exclusive easement, which is  one step below full  fee on                                                               
the proposed transfer.   He remarked it will be  "nice to get all                                                               
the land" from the federal government.                                                                                          
                                                                                                                                
1:52:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   PETERSEN  asked   whether  the   potential  land                                                               
designated for  transfer is located in  one location or if  it is                                                               
spread out.                                                                                                                     
                                                                                                                                
MR.  KUBITZ offered  that "a  fair amount  of it"  is located  in                                                               
Anchorage.   Much of the  land is located along  the right-of-way                                                               
near  the inlet,  he  stated.   He  related  that some  confusion                                                               
exists since  the 1964  earthquake moved  some of  the land.   He                                                               
characterized  the   land  transfer  process  as   a  complicated                                                               
process, but  pointed out that  the ARRC is working  closely with                                                               
the Bureau  of Land  Management (BLM)  on the  matter.   Once the                                                               
process is finished  and agreed to the agreement will  be sent to                                                               
Washington  D.C. for  signature  and the  ARRC  will receive  the                                                               
land, he related.                                                                                                               
                                                                                                                                
1:53:32 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE PETERSEN  recalled that  5,000 acres of  ARRC land                                                               
is  not  leased  and  asked  whether  this  is  land  that  poses                                                               
difficulties to lease and asked whether the land should be sold.                                                                
                                                                                                                                
MR. KUBITZ  said he did not  think there was any  benefit to sell                                                               
the land not currently leased.   He stated that the land does not                                                               
currently have utilities  available, and the land  is located "50                                                               
miles  from  the  closest  power  pole."   He  commented  that  a                                                               
"section  house" is  located  on  the land  and  the  land has  a                                                               
strategic value to the ARRC.   He remarked that several uses have                                                               
also been considered.                                                                                                           
                                                                                                                                
MR. KUBITZ,  in response  to Chair P.  Wilson, answered  that the                                                               
parcel  does have  road access.   He  reiterated that  the ARRC's                                                               
income stream  could be affected if  the land was sold.   He also                                                               
thought  that changing  any  existing terms  of  the ARRC's  real                                                               
estate  contract  could be  problematic.    He offered  his  best                                                               
professional  advice is  the  ARRC  does not  want  to start  the                                                               
precedent by  selling property.   He stated that the  ARRC income                                                               
is  important and  the ARRC's  real estate  is necessary  for its                                                               
survival.   He also remarked that  100 people were laid  off last                                                               
year.                                                                                                                           
                                                                                                                                
1:55:53 PM                                                                                                                    
                                                                                                                                
MR. KUBITZ,  in response to  Representative T.  Wilson, responded                                                               
that the ARRC does not grant easements.                                                                                         
                                                                                                                                
REPRESENTATIVE  T.   WILSON  asked  whether  the   ARRC  has  any                                                               
mechanism to release easements it no longer needs.                                                                              
                                                                                                                                
MR. KUBITZ  answered that any  land disposal or transfer  of ARRC                                                               
property  must  be  approved  by the  legislature.    In  further                                                               
response to  Representative T. Wilson,  he said he was  unsure if                                                               
this bill would  allow the ARRC to  do so.  In  response to Chair                                                               
Wilson, he  agreed that currently  the ARRC's Board  of Directors                                                               
could decide to  sell land.  If such an  instance arose, the ARRC                                                               
would  ask the  legislature  for approval.    This bill  contains                                                               
special provisions, including that  the person occupying the land                                                               
would have the first right of refusal on the property.                                                                          
                                                                                                                                
1:57:12 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE T. WILSON  said she thought this  bill allowed the                                                               
ARRC to  sell the  land without  legislative approval,  and asked                                                               
whether the ARRC would still need legislative approval.                                                                         
                                                                                                                                
MR. KUBITZ  agreed that  this is state  land and  the legislature                                                               
would need to approval any sale.                                                                                                
                                                                                                                                
1:57:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON   asked  whether  the  ARRC   shares  any                                                               
facilities with the Alaska Marine Highway System (AMHS).                                                                        
                                                                                                                                
MR. KUBITZ  responded that the  ARRC leases  land to the  AMHS in                                                               
Whittier.                                                                                                                       
                                                                                                                                
MR.  KUBITZ,  in  further  response  to  Representative  Johnson,                                                               
advised that the AMHS could purchase  the land it leases from the                                                               
ARC, but he did not think it would  do so.  He explained that the                                                               
AMHS  pre-paid  a long-term  lease  using  federal funding.    He                                                               
offered his belief that the current lease is a 20-30 year lease.                                                                
                                                                                                                                
1:58:55 PM                                                                                                                    
                                                                                                                                
HANK BARTOS,  Representative, Rail  Safety and  Development Group                                                               
(RSDG), offered his belief that  a duplication of land management                                                               
effort  occurs  in  the  state.    He  suggested  that  the  land                                                               
currently not  used by  ARRC should be  transferred to  DNR since                                                               
that agency  could do a  better job managing  the land.   The DNR                                                               
could transfer any  land as necessary.  The  Fairbanks North Star                                                               
Borough (FNSB) asked  the legislature to transfer  some ARRC land                                                               
not currently  being used  to the FNSB  to improve  the Fairbanks                                                               
community.                                                                                                                      
                                                                                                                                
CHAIR P.  WILSON asked whether the  organization has specifically                                                               
asked the ARRC to transfer the land.                                                                                            
                                                                                                                                
MR. BARTOS stated  that the ARRC has been  approached on numerous                                                               
occasions to  move the ARRC  operations south of town  to relieve                                                               
traffic congestion.   He characterized  working with the  ARRC as                                                               
working with an "800 pound gorilla."                                                                                            
                                                                                                                                
2:01:05 PM                                                                                                                    
                                                                                                                                
CHAIR P. WILSON said she misunderstood Mr. Bartos's issue.                                                                      
                                                                                                                                
MR. BARTOS  explained that  the matter  is actually  two separate                                                               
issues.   In  addition to  relocating the  ARRC rail  yard to  an                                                               
areas south  of Anchorage, the FNSB  would also like the  ARRC to                                                               
transfer land  currently used by  the ice park  to the FNSB.   In                                                               
further response  to Chair P.  Wilson, he agreed that  the parcel                                                               
used by the ice  park is not used for ARRC  operations.  The land                                                               
could be donated, traded, or sold to the FNSB, he said.                                                                         
                                                                                                                                
CHAIR P. WILSON related that  the ARRC must conduct its operation                                                               
as a business.   She would not  like to see the ARRC  come to the                                                               
legislature and request additional operation funding.                                                                           
                                                                                                                                
MR.  BARTOS pointed  out that  the land  actually belongs  to the                                                               
people of  Alaska and  whether the revenue  is derived  from land                                                               
use operations  or is transferred  to DNR  and is managed,  it is                                                               
still state land.   Currently, a duplication of  effort exists on                                                               
land management since DNR and the ARRC both manage state land.                                                                  
                                                                                                                                
CHAIR P. WILSON answered that the  state is not the same category                                                               
of land.                                                                                                                        
                                                                                                                                
MR. BARTOS offered if the ARRC  land was transferred to one state                                                               
entity,  that   the  process  could   be  streamlined   and  more                                                               
efficient.                                                                                                                      
                                                                                                                                
2:03:11 PM                                                                                                                    
                                                                                                                                
DON LOWELL President,  Alaska Transportation Consultants; Member,                                                               
Rail  Safety and  Development Group  (RSDG),  explained that  the                                                               
Alaska  Transportation Consultants  is  a non-profit  group.   He                                                               
stated  that  he supports  the  bill.    Adding to  Mr.  Bartos's                                                               
testimony,  he recommended  that HB  357 be  amended to  transfer                                                               
land that  is not essential  to ARRC operations  to the DNR.   He                                                               
explained that  the DNR is  the agency responsible for  all state                                                               
land.  He offered his belief  that the ARRC does not operate very                                                               
well,  but  the DNR  has  held  the long-term  responsibility  to                                                               
manage state land.                                                                                                              
                                                                                                                                
2:04:57 PM                                                                                                                    
                                                                                                                                
BONNIE  WOLDSTAD stated  that her  comments are  directed to  the                                                               
Eielson  spur line  of  the ARRC.   She  asserted  that the  ARRC                                                               
currently encroaches on 10-12 acres  of her property.  She stated                                                               
that  under the  1914 Homestead  Act, the  United States  allowed                                                               
homesteaders  to  reserve rights  for  the  railroad to  traverse                                                               
property.   In  1946, her  family  applied for  the property  and                                                               
received a U.S.  patented homestead.  She said  that her property                                                               
predates the railroad.   Her ancestor was given 160  acres and in                                                               
1947  the  railroad  was  built.   She  said  that  her  ancestor                                                               
received the  deed for  the entire 160  acres.   Subsequently the                                                               
state  required  the ARRC  under  ARTA,  Section 1203,  including                                                               
language related to valid existing  claims.  She further asserted                                                               
that the patented homestead deed is  a valid claim.  In 1969, her                                                               
family  acquired the  remainder of  the homestead  and has  never                                                               
relinquished  any  property  rights.     She  restated  that  her                                                               
property predates the  railroad.  Thus, her  family has continued                                                               
to assert their property rights.   Under Section 1208 and 1209 of                                                               
the  ARTA,  a  provision  allows the  governor  to  declare  such                                                               
property  as no  longer being  used  and allows  the governor  to                                                               
transfer  that property  to the  property owner.   In  2003, that                                                               
specific  mechanism  was  repealed.   Thus,  property  owners  no                                                               
longer have the  means to receive property  under that provision.                                                               
She related that Section 4200-4400  also provides for a method to                                                               
vacate  easements.   Those  ARTA  provisions  allow the  ARRC  to                                                               
vacate an easement  and allow the state to  acquire the easement.                                                               
Therefore,  since the  state has  the easement  it should  revert                                                               
back to the owner, she stated.                                                                                                  
                                                                                                                                
2:07:50 PM                                                                                                                    
                                                                                                                                
DON CALLAHAN,  Public Relations Chair,  Ice Alaska;  Member, Rail                                                               
Safety and  Development Group (RSDG),  explained that  since 2006                                                               
he  has   participated  in  the   RSDG.    He  offered   that  an                                                               
organization,  Ice  Alaska, presents  the  best  winter event  in                                                               
Fairbanks for  tourists and residents.   Since 2006, he  has been                                                               
working with the RSDG to  relocate the railroad out of Fairbanks.                                                               
He characterized this as a  frustrating experience since the ARRC                                                               
has continuously defeated his  organization's efforts to relocate                                                               
the ARRC.   He  asserted that  this is a  safety issue  since the                                                               
rail  yard is  physically located  in Fairbanks.   As  Chair, Ice                                                               
Alaska, he  has found the ARRC  to be uncooperative.   Ice Alaska                                                               
would like  to trade the  property to  the FNSB for  property the                                                               
ARRC  could use  for  relocation.   He understood  Representative                                                               
Stoltze's frustration with the ARRC  since he is also "thoroughly                                                               
frustrated."    He recalled  working  for  a  year to  obtain  an                                                               
easement from the federal government  when it owned the railroad.                                                               
When the  state took ownership  of the railroad, he  expected the                                                               
ARRC  to be  community  activists  and to  be  supportive of  the                                                               
community's interests.   He suggested if the ARRC  earns money on                                                               
land leases to the detriment  of the community, that something is                                                               
wrong  with  their   business  plan.    The  ARRC   should  be  a                                                               
transportation entity  and not a  land entity.   He said  he also                                                               
did not understand the profit issue.                                                                                            
                                                                                                                                
2:10:52 PM                                                                                                                    
                                                                                                                                
RICHARD  FAULKNER,   President,  Steel   Fabrication;  President,                                                               
Alaska Railroad  Leaseholders Association (ARLA), spoke  in favor                                                               
of  HB 357.   He  said that  the ARRC  land needs  to be  sold to                                                               
private enterprise.  At the present  time only two percent of the                                                               
state's  land is  in private  hands.   The  rest of  the land  is                                                               
either owned by  the state or federal government.   In Anchorage,                                                               
treating the leased property as  fee simple property is derelict,                                                               
he stated.                                                                                                                      
                                                                                                                                
REPRESENTATIVE T. WILSON asked  whether leaseholders are required                                                               
to make any improvements to the land.                                                                                           
                                                                                                                                
MR. FAULKNER  answered yes.   However, he  stated that  after the                                                               
lease takes effect,  people do not want to  make improvements due                                                               
to the ARRC.  He stated that the  ARRC does not pay for water and                                                               
sewer.   He related that  his business sits on  8 to 10  acres in                                                               
Ship Creek  area of Anchorage.   He stated  that he had  a septic                                                               
and well  system, but the ARRC  ran the water line  from the main                                                               
street  to   edge  of  property  and   sent  him  a  bill.     He                                                               
characterized  the issue  with the  ARRC as  more of  an economic                                                               
development  issue   than  any  other  issue.     He  recommended                                                               
transferring   the  ARRC   property  to   private  ownership   so                                                               
individuals can  improve the property  and increase the  tax base                                                               
in Anchorage and the state.                                                                                                     
                                                                                                                                
2:13:45 PM                                                                                                                    
                                                                                                                                
CHAIR P.  WILSON, after first  determining no one else  wished to                                                               
testify, closed public testimony on HB 357.                                                                                     
                                                                                                                                
2:14:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PETERSEN asked  whether Mr.  Kubitz could  answer                                                               
questions about relocating the ARRC in Fairbanks.                                                                               
                                                                                                                                
Mr. Kubitz answered that was not his purview.                                                                                   
                                                                                                                                
CHAIR P.  WILSON inquired as  to whether the ARRC  is considering                                                               
moving its operations in Fairbanks.                                                                                             
                                                                                                                                
PAT    GAMBLE,    President     and    CEO,    Alaska    Railroad                                                               
Corporation,(ARRC) stated  that moving the ARRC  out of Fairbanks                                                               
makes a lot  of sense in the abstract.   Typically, towns grew up                                                               
around  the  tracks  and  many   towns  relocated  the  railroad.                                                               
However,  relocation   is  very   expensive  and  the   ARRC  has                                                               
undertaken with  the RSDG and  the FNSB to  reconsider relocating                                                               
the railroad in  phases from the main part of  town and to bypass                                                               
as much of Fairbanks  as it can.  He stated  that this process is                                                               
actually  a three  phase process  to make  this a  reality.   The                                                               
ARRC's efforts include  North Pole and in an  effort to relocate,                                                               
the  ARRC  has closed  crossings,  some  of  which are  close  to                                                               
schools, in  order to improve  safety.  Some  hazardous materials                                                               
have been hauled out of  residential areas.  He characterized the                                                               
goal to  relocate the railroad  as an excellent and  worthy goal.                                                               
Phase  1 included  two meetings  with the  RSDG.   Currently, the                                                               
ARRC is  working to  scope Phases  2 and  3 of  the project.   He                                                               
anticipated the ARRC would be more aggressive on the project.                                                                   
                                                                                                                                
2:17:15 PM                                                                                                                    
                                                                                                                                
MR. GAMBLE,  in response to  Chair P. Wilson, offered  that quite                                                               
often  "not  cooperating"  is  another   way  of  saying  that  a                                                               
disagreement  exists  over issues.    He  stated that  there  are                                                               
serious issues  to resolve,  but he felt  that more  progress has                                                               
recently been made.  He stated  that the former FNSB Mayor signed                                                               
a memorandum of agreement (MOA)  that codified a process to allow                                                               
the ARRC  to coordinate its  approach.  He assessed  the progress                                                               
to  resolve issues  to  relocate  the ARRC  as  slow, but  steady                                                               
progress since the MOA was signed.                                                                                              
                                                                                                                                
2:18:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON asked  what type  of hazardous  waste the                                                               
ARRC  would find  if it  relocated the  railroad in  Fairbanks to                                                               
south of  Fairbanks  He further  asked if the existing  rail yard                                                               
would need  to be paved,  if the ARRC would  be able to  sell the                                                               
land, and if the rail yard is a contaminated site.                                                                              
                                                                                                                                
MR.  GAMBLE  stated  that  the  Fairbanks  railroad  sits  on  an                                                               
industrial  site.     He   agreed  that   likely  some   kind  of                                                               
contamination is present.  He  recalled a recent survey conducted                                                               
at the  railroad yard  in Ship  Creek in  Anchorage.   He related                                                               
that the  survey cost $6  million, but the  ARRC did "not  find a                                                               
smoking gun."   He explained that  the ARRC would have  to do the                                                               
same  thing  in Fairbanks.    He  said  he  does not  assume  the                                                               
Fairbanks property would  be considered a "real  dirty site," but                                                               
that aspect  would need  to be  dealt with  before the  rail yard                                                               
could be  relocated.  He stated  that currently, the ARRC  is not                                                               
aware of any problem, noting  that the Fairbanks property has not                                                               
been surveyed.                                                                                                                  
                                                                                                                                
[HB 357 was held over.]                                                                                                         
                                                                                                                                

Document Name Date/Time Subjects
HB257 cell phone ban sponsor stmt.pdf HTRA 2/16/2010 1:00:00 PM
HTRA 3/16/2010 1:00:00 PM
HB 257
HB257 cell phone ban sectional.pdf HTRA 2/16/2010 1:00:00 PM
HTRA 3/16/2010 1:00:00 PM
HB 257
hb257 cell phone ban backup.pdf HTRA 2/16/2010 1:00:00 PM
HTRA 3/16/2010 1:00:00 PM
HB 257
HB357 sponsor stmt.pdf HTRA 3/16/2010 1:00:00 PM
HB 357
HB357 back up.pdf HTRA 3/16/2010 1:00:00 PM
HB 357
HB267 sponsor stmt TRA.pdf HTRA 3/11/2010 1:00:00 PM
HTRA 3/16/2010 1:00:00 PM
HB 267
hb 267 backup TRA.pdf HTRA 3/11/2010 1:00:00 PM
HTRA 3/16/2010 1:00:00 PM
HB 267