Legislature(1995 - 1996)

04/23/1996 08:45 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
  CS FOR HOUSE BILL NO. 466(FIN) am                                            
       An Act establishing the Adak Reuse Authority.                           
  Co-chairman Halford directed that CSHB 446(Fin)am be brought                 
  on for discussion.   REPRESENTATIVE  CARL MOSES came  before                 
  committee  accompanied  by his  aide,  TIM BENINTENDI.   The                 
  Representative  advised that Adak  could become  a showpiece                 
  for the nation, demonstrating what could be done with a base                 
  closure.    He   suggested  that  the  magnitude   would  be                 
  comparable  to  closure of  Elmendorf  or Eielson  Air Force                 
  While some question the opportunity at Adak, future economic                 
  opportunity is limited only  by imagination.  Fresh  fish to                 
  the  Orient  presents  great   opportunity  because  of  the                 
  adequate airport.   Representative Moses  specifically noted                 
  that  tuna  could  be flown  from  the  site  since, in  the                 
  summertime, the tuna industry is "considerably closer to the                 
  Aleutians"  than  to Midway  where  the product  is normally                 
  Representative    Moses    referenced    information    from                 
  representatives of the Aleut Corporation suggesting that the                 
  state would  become a "deep  pocket" for U.S.  Department of                 
  Defense involvement at  Adak.  He countered  that statement,                 
  saying that  the opposite is true.   HB 466 would  enable an                 
  unbiased public authority to work toward the future of Adak.                 
  The Navy will be much more lenient in dealing with  a public                 
  authority, in terms of what the military will leave  behind.                 
  It will not  be a black hole  for the state.   The authority                 
  would be in a position to  dispose of property to commercial                 
  interests  to support  management expenses of  the authority                 
  until adequate municipal entities develop.                                   
  Representative  Moses  expressed resentment  regarding false                 
  information indicating  that Senator  Stevens had  suggested                 
  creation of  a  profit or  non-profit entity.   The  Senator                 
  merely suggested  that that  approach should  be considered.                 
  Technically,  the proposed  authority is a  non-profit which                 
  would  operate for the benefit  of the future  of Adak.  The                 
  Congressional delegation and  the U.S. Navy are  waiting for                 
  HB 466 to pass.  Time is of the essence.                                     
  Representative Moses  next referenced concern  raised by the                 
  Aleut Corporation that stripping  of facilities might occur.                 
  He said  he  did not  believe  an authority  delegated  with                 
  economic   development   of  Adak   would  do   anything  to                 
  disadvantage that goal.   Much equipment left behind by  the                 
  U.S. Navy will  be sold to commercial  interests moving into                 
  Adak.  The Representative termed  "ridiculous" a caveat that                 
  equipment  could not leave the island.   Much equipment will                 
  be surplus  to needs on Adak.  He  said he was a stockholder                 
  of  the Aleut Corporation, and  he suggested that a majority                 
  of the members were in favor of the proposed bill.  He urged                 
  passage as soon as possible.                                                 
  Senator  Zharoff  asked  if   the  authority  would  receive                 
  ownership of the land.  Representative Moses said that would                 
  have to be decided by Congressional legislation.                             
  END:      SFC-96, #90-B, Side 1                                              
  BEGIN:    SFC-96, #90-B, Side 2                                              
  Senator  Zharoff  attested  to problems  associated  with  a                 
  similar   transfer   at  Kodiak.      He  then   voiced  his                 
  understanding that if the Aleut  Corporation has "top filed"                 
  on  the land,  and it is  vacated by the  present owner, the                 
  corporation  would   have   first  option   on   the   land.                 
  Representative  Moses  acknowledged  that   possibility  but                 
  reiterated  that  the  final  decision   would  be  made  by                 
  Congress.    He  then  described  past  discussion  of  land                 
  selections   with   the  corporation.      He  attested   to                 
  difficulties that would arise should one entity own the land                 
  while another owns the improvements.                                         
  Further  discussion followed  regarding the  impact of  "top                 
  filing,"  using  both Ft.  Richardson,  Adak, and  Kodiak as                 
  examples.  Senator Zharoff suggested that the proposed reuse                 
  authority  would   merely  add   an   additional  layer   of                 
  LAMAR  COTTEN, Deputy Commissioner,  Dept. of  Community and                 
  Regional Affairs, came before committee.   He explained that                 
  discussions relate to an exchange  rather than "top filing."                 
  The exchange involves land that would revert from withdrawal                 
  status  from  the refuge  back  into  the refuge.    It then                 
  becomes the property of the U.S. Department of the Interior.                 
  Interior  has expressed  interest  in undertaking  exchanges                 
  with the Aleut  Corporation for over-selection.  In light of                 
  that, the state initiated  discussions involving itself, the                 
  U.S. Navy, and the Aleut Corporation.  Discussion focused on                 
  the proper configuration of land status, in the future,  for                 
  Adak.  The state recognizes that consensus on status must be                 
  reached.  Senator  Stevens would then introduce  legislation                 
  to make appropriate exchanges and/or transfers.                              
  Mr. Cotten said  the state is  not interested in becoming  a                 
  participant  in  a   situation  where  the  base  is  to  be                 
  transferred to the Aleut Corporation  and an authority is in                 
  place.  If there is an economic value to parts of  the base,                 
  and two-years of revenue stream can be demonstrated to cover                 
  operating costs, the  authority would  want to choose  those                 
  lands.   The problem between  the Aleut Corporation  and the                 
  authority  (or  the  state)  rests  in  the  fact  that  the                 
  corporation would prefer that "We take over things  that are                 
  traditional  municipal  or  state  responsibility."    Those                 
  things (breakwaters, roads,  etc.) do not  make money.   The                 
  department believes the authority should acquire  properties                 
  that can produce a revenue  stream to cover responsibilities                 
  that do not produce income.                                                  
  The proposed bill reflects a conservative approach for state                 
  review of  pros  and cons  and to  ensure a  cash flow  from                 
  properties  it  acquires  through the  authority.    Under a                 
  likely  scenario,  the  authority would  not  take  over the                 
  entire  base.  Mr. Cotten  referenced over 500 housing units                 
  and many  buildings for which  no use  is envisioned.    The                 
  premise is private  sector interest in renting,  leasing, or                 
  buying certain facilities:   the  fuel station, water  front                 
  property,  warehousing,  the  school,  buildings  near   the                 
  airport, machine shops, etc.                                                 
  Mr. Cotten  directed attention to  page 13, lines  9 through                 
  16, and noted  that if  a municipality other  than a  second                 
  class  city  is  created  or  the   area  is  annexed  by  a                 
  municipality to the east, the  authority would be integrated                 
  into  that municipal government  within a year.   The assets                 
  and   liabilities  assumed   by  the   authority   would  be                 
  transferred to the municipality.                                             
  Senator Rieger asked if establishment of the authority could                 
  evolve into a situation similar to the Alaska Railroad.  Mr.                 
  Cotten  said  he  was  unfamiliar  with  operations  of  the                 
  railroad.   He advised  that any  bonded indebtedness to  be                 
  issued by  the authority would require legislative approval.                 
  Tim Benintendi added that referenced language at page 13 was                 
  tightened  to  accommodate  the concern  raised  by  Senator                 
  Rieger.   The authority  would not linger  in the wake  of a                 
  viable municipality.                                                         
  Discussion  of  annexation  followed.    Two  entities  have                 
  expressed  interest:     Unalaska  and  the  Aleutians  East                 
  Co-chairman  Halford suggested  that  the ultimate  means of                 
  bringing the issue  back before the  legislature would be  a                 
  four-year  sunset provision.   Representative Moses  said he                 
  was so optimistic about  the future of Adak he  did not feel                 
  sunset would be necessary.   The Aleutians East  Borough has                 
  already  prepared  annexation  paperwork,  and  the City  of                 
  Unalaska  is having a  study conducted.   Mr. Cotten advised                 
  that  he  had   written  to   the  Aleutians  East   Borough                 
  registering concern over annexation.  Concern has less to do                 
  with Adak than state policy regarding "leapfrogging" over an                 
  existing municipality (Unalaska).   The department is  leery                 
  about setting that precedent.                                                
  Senator Zharoff referenced ability of the authority to bond.                 
  He  further  referenced  succession  on  dissolution  of the                 
  authority    providing for  the  municipality to  succeed to                 
  authority assets, liabilities,  rights and powers.   He then                 
  pointed  to  exemptions  from  taxation  and asked  how  all                 
  aspects  of the foregoing  would fit  together.   Mr. Cotten                 
  explained  that   issuance  of  debt   would  require  state                 
  approval.   The authority would be exempt from taxation, but                 
  those who lease or buy could be taxed.  Assets would consist                 
  of  properties  and revenue  streams;  liabilities  would be                 
  contracts or bonded indebtedness.                                            
  Mr. Cotten stressed  the unknown nature of  the undertaking.                 
  At the present time, there is  an idea of what the authority                 
  would acquire and what it would not,  but that is the extend                 
  of  what is  known.   The  state, the  U.S. Navy,  the Aleut                 
  Corporation, and the  Department of Interior are  attempting                 
  to "look  at what's realistic."   The Aleut  Corporation has                 
  some "chips" to  deal with  Interior.   Mr. Cotten  stressed                 
  that the state is  not going to be  a "cash cow" to pay  for                 
  the operating expenses of somebody to become a capitalist.                   
  He   further  advised   that  frustration  with   the  Aleut                 
  Corporation  approach  stems from  the  fact that  while the                 
  corporation  anticipates   taking  over  a  portion  of  the                 
  facilities,  it  expects the  state  to operate  the airport                 
  through  state  general funds.    The  state would  need  to                 
  balance that general fund expenditure  with a revenue stream                 
  from the area.  Co-chairman Halford suggested that  once the                 
  area is incorporated  within a municipality, it  is eligible                 
  for revenue sharing,  community grants,  equal treatment  in                 
  terms of airports and roads.  It appears  that the U.S. Navy                 
  is giving the state a multi-billion dollar asset which could                 
  become a multi-million dollar annual  drain on the treasury.                 
  As  the Navy  moves  out,  the  department  will  not  allow                 
  creation of a city of twenty-five  people.  A minimum of 400                 
  people  is  needed  for  a  first   class  city  capable  of                 
  incorporating and taking over  the assets of the base.   Mr.                 
  Cotten  acknowledged  that, in  theory,  the state  might be                 
  obligated to take on certain operations such as the airport.                 
  He voiced a reluctance to do so unless an offsetting revenue                 
  stream could be developed.                                                   
  Representative  Moses   stressed   that   need   for   state                 
  participation  would  triple  under  the  Aleut  Corporation                 
  proposal.  He  voice need for a state authority to lease the                 
  fuel facilities  for  which four  different concessions  are                 
  bidding.  The authority would  be delegated with development                 
  of Adak for the benefit of the future.  Representative Moses                 
  noted that it would be  difficult for Alaska's Congressional                 
  delegation to  obtain federal  transitional  moneys if  take                 
  over is by  a private entity.   That is  the reason for  the                 
  proposed bill.                                                               
  Discussion    followed    between   Senator    Zharoff   and                 
  Representative Moses regarding responsibility  for hazardous                 
  cleanup.   Representative Moses advised that the $90 to $100                 
  million in  federal cleanup  over the  next two years  would                 
  jump  start  the economy  of Adak.    Mr. Cotten  added that                 
  cleanup  is to be  coordinated with state  selection of what                 
  has  the highest  reuse.  As  an example, he  noted that the                 
  existing waterline goes  through the landfill and  would not                 
  meet  EPA  standards.   Representative  Moses cited  factory                 
  trawler interest in renting warehouses  for base operations.                 
  The 1,000 units  of housing are  worth $50 million at  "rock                 
  bottom prices."                                                              
  Co-chairman Frank asked what would happen to properties that                 
  are not acquired.   Mr. Cotten said that the  property would                 
  be transferred to the Department of  Interior.  The Navy and                 
  Interior will then  determine whether  facilities remain  or                 
  are demolished.  Since the area is within a wildlife refuge,                 
  the  Department of Interior  would probably  prefer removal.                 
  The  U.S. Fish and Wildlife Services  wishes to continue its                 
  presence  on   the  island.     Representative  Moses  cited                 
  difficulty  in  determining  what  might  be useful  in  the                 
  Discussion followed regarding approval of  a majority of the                 
  membership of the authority prior to disposal of property or                 
  facilities.   Senator Zharoff  asked if  more than  a simple                 
  majority should be required.  Representative Moses expressed                 
  reluctance  to  tie  the  hands  of the  unbiased  authority                 
  delegated to what is best for the future of Adak.                            
  CHIS GATES,  representing the  Aleut Corporation, next  came                 
  before committee.  Senator Zharoff  again posed the question                 
  of  the  majority  needed  to  approve  a  disposal.     Tim                 
  Benintendi clarified that it  would not be possible to  move                 
  on an action  on a tie vote  or less than a  majority of the                 
  board.    Mr. Gates  voiced his  understanding that  Senator                 
  Stevens believes  consideration of a  non-profit corporation                 
  instead of an authority might have merit.  He then read from                 
  correspondence  from the Senator  indicating that  the Aleut                 
  Corporation proposal "offers  a mechanism to jump  start the                 
  process of attracting commercial enterprises to Adak."                       
  Further,  while the  fiscal note  is for $600.0,  real state                 
  expenditures for operation  of the airport and  seaport will                 
  total  millions.     The  Aleut  non-profit  (including  the                 
  Aleutians East Borough, Dutch Harbor, state  representation,                 
  and  villages  of the  region)  proposes that  a corporation                 
  operate the airport.   That would  save millions of  general                 
  fund dollars.   Mr. Gates  noted that reuse  arrangements in                 
  Alaska   generally   utilize    non-profits   rather    than                 
  authorities.   He expressed his  hope that the proposed bill                 
  would not allow ability to "strip  out the assets" without a                 
  super majority  (three-quarter) vote  of the  board.   There                 
  will be great incentive  to "sell stuff that we're  going to                 
  need to make that town work."                                                
  Co-chairman  Halford asked  if it  was the  intent  that the                 
  state  maintain   the   airport.      Representative   Moses                 
  acknowledged that someone would have to operate  it since it                 
  is  the  mainstay  of  Adak.    He  said  he  anticipated  a                 
  substantial  amount of  help  from  the federal  government.                 
  Under a public authority, the  Navy, other federal agencies,                 
  and the  Congressional delegation  would be  better able  to                 
  assist the  future of Adak than if  it is in the  hands of a                 
  private entity.                                                              
  Co-chairman Halford  referenced the $281.0  fiscal note  and                 
  voiced  his  understanding  that  $100.0  of  the  total  is                 
  federal.  He sought assurance that only that amount would be                 
  spent.  Representative Moses noted that, one way or another,                 
  the  airport  would  be kept  open  since  it  serves as  an                 
  alternate for all  planes to the  Orient.  He stressed  that                 
  the proposed bill  provides a vehicle  to take in moneys  to                 
  support public needs until a municipality is in place.                       
  Discussion   followed   regarding   activities  leading   to                 
  establishment of a new town.   Representation Moses stressed                 
  that that would happen.  The proposed bill would allow it to                 
  happen  along  an  organized  path.    Once  seed  money  is                 
  provided,  the  authority  will  be  self-supporting.    The                 
  authority must be  in place for  the Navy and  Congressional                 
  delegation to commence transition.  The Navy will be gone by                 
  January of 1998.  Senator  Randy Phillips inquired regarding                 
  a five or  ten-year sunset.  Representative Moses said while                 
  he  did  not  think  it  was  necessary, he  would  have  no                 
  objection.  He added that "Things are going to happen  a lot                 
  faster  than that."    Senator  Zharoff voiced  concern that                 
  sunset provisions  might impact ability to bond.  Mr. Cotten                 
  concurred in that concern.                                                   
  END:      SFC-96, #90-B, Side 2                                              
  BEGIN:    SFC-96, #91,   Side 1                                              
  Senator Rieger  expressed concern  that bonded  indenture or                 
  lease obligations not prevent transfer of the authority to a                 
  successor.  Co-chairman Halford agreed  with the concern and                 
  voiced his belief that pledge of  the state language at page                 
  9 has problems.  It appears that the authority could enter a                 
  covenant that supercedes state ability  to change the powers                 
  and duties of the authority at a later date.                                 
  Discussion followed regarding transition  language to ensure                 
  that bond holders  would not  lose their investments,  since                 
  the state  would pick up the obligation, in the event of any                 
  change.      Representative   Moses   reiterated  that   the                 
  legislature  would  have to  approve  any bonding.   Further                 
  discussion followed regarding bond issues by AIDEA.                          
  Senator Rieger suggested  that pledge of the  state language                 
  might work if  coupled with a restriction on  bond indenture                 
  language so  as  not  to preclude  eventual  transfer  to  a                 
  municipality or other entity.                                                
  Co-chairman  Halford  observed   that  wording  within   the                 
  succession  section  at  page 13  appears  in  conflict with                 
  pledge of  the state  language at  page 9.   If  language in                 
  these  sections  is read  so  as not  to  include transition                 
  provisions, it may work as is.                                               
  Referencing  AIDEA  financing,  Senator  Rieger  voiced  his                 
  understanding that the  state has  always been obligated  to                 
  defer to language in  a contract or a bond indenture.   That                 
  is  governed  by  a  breach  of  contract  provision  in the                 
  Constitution.  Co-chairman Halford suggested that if general                 
  language  covers  the  issue, perhaps  pledge  of  the state                 
  language  is  not necessary.    He concurred  that necessary                 
  provisions  could  be  added  when  bonds  come  before  the                 
  legislature for approval.                                                    
  Senator   Rieger  MOVED   for  adoption  of   the  following                 
       Page 5, line 17, after "transfer" insert:                               
            (d) The  authority may not  enter into a                           
            trust  indenture  or contract  which has                           
            the effect of precluding the transfer of                           
            the  assets  and   liabilities  of   the                           
            authority to a successor.                                          
  No objection having been raised,  the AMENDMENT was ADOPTED.                 
  Senator  Rieger  directed  attention to  page  11,  lines 23                 
  through 29,  and advised that  provisions set  forth do  not                 
  reflect  a "good deal"  for the authority.   Risk associated                 
  with loans  often occurs  in the  outer years.   There is  a                 
  large differential in risk between  initial and outer years.                 
   He suggested  that  no state  agency should  enter such  an                 
  arrangement.  Co-chairman Frank acknowledged the concern and                 
  commented that AIDEA presently has such authority.                           
  Senator Sharp MOVED for  passage of SCS CSHB 466  (Fin) with                 
  individual  recommendations  and accompanying  fiscal notes.                 
  No objection  having been  raised, SCS CSHB  466, (Fin)  was                 
  REPORTED OUT of committee with a $281.0 fiscal note from the                 
  Dept. of Commerce  and Economic Development and  a zero note                 
  from the  Dept.  of Community  and  Regional Affairs.    All                 
  members present signed the committee report with a "do pass"                 
  recommendation.   Senator  Randy  Phillips  was  temporarily                 
  absent and did not sign.                                                     

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