Legislature(2009 - 2010)

04/13/2010 02:42 PM TRA


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              HB 357-AK RAILROAD CORP. LAND SALES                                                                           
                                                                                                                                
CHAIR KOOKESH announced the consideration of HB 357. [CSHB
357(FIN) was before the committee.]                                                                                             
                                                                                                                                
2:42:59 PM                                                                                                                    
REPRESENTATIVE BILL STOLTZ, sponsor of HB 357, presented the                                                                    
bill speaking to the sponsor statement:                                                                                         
                                                                                                                                
     To  spur  economic  development throughout  the  state,                                                                    
     House Bill  357 adds  a fourth  clause to  the existing                                                                    
     language governing how  the Alaska Railroad Corporation                                                                    
     (ARRC) 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.                                                                                               
                                                                                                                                
REPRESENTATIVE STOLTZE clarified that any leasehold sales would                                                                 
be permissive and considered on a case-by-case basis.                                                                           
                                                                                                                                
2:46:23 PM                                                                                                                    
SENATOR PASKVAN joined the meeting.                                                                                             
                                                                                                                                
REPRESENTATIVE STOLTZE told the  committee that ARRC Board Chair,                                                               
John Binkley, has  taken a leadership role  in acknowledging that                                                               
there have been  problems in the way the railroad  has dealt with                                                               
communities  and  lessees.   HB  357  would  help   to  keep  the                                                               
conversation going, he  said. In conclusion he  restated that the                                                               
bill  is   permissive  and  provides  opportunities   that  don't                                                               
currently exist.                                                                                                                
                                                                                                                                
2:49:34 PM                                                                                                                    
SENATOR MENARD  asked if the  current leaseholders  would receive                                                               
priority if the railroad decided to sell its land.                                                                              
                                                                                                                                
REPRESENTATIVE STOLTZE  replied the  bill specifies  that current                                                               
leaseholders  would  have first  right  of  refusal, but  it's  a                                                               
policy issue that is debatable.                                                                                                 
                                                                                                                                
SENATOR MENARD  said she  is torn  because, although  the lessees                                                               
have a stake, it makes good business  sense for the land to go to                                                               
the highest bidder.                                                                                                             
                                                                                                                                
REPRESENTATIVE STOLTZE  replied it's  debatable, but he  opted to                                                               
protect leaseholder's  time and money investments,  some of which                                                               
go back over 50 to 60 years.                                                                                                    
                                                                                                                                
CHAIR  KOOKESH  asked  if  this   simply  adds  a  fourth  option                                                               
governing how the railroad may dispose of its land.                                                                             
                                                                                                                                
REPRESENTATIVE  STOLTZE confirmed  that the  bill was  written to                                                               
reflect that intent.                                                                                                            
                                                                                                                                
2:52:06 PM                                                                                                                    
SENATOR PASKVAN said he understands  that the bill was written to                                                               
give current leaseholders the right to match the highest bid.                                                                   
                                                                                                                                
REPRESENTATIVE STOLTZE responded that  he believes it was written                                                               
that way.                                                                                                                       
                                                                                                                                
SENATOR  PASKVAN  expressed  concern about  unduly  delaying  the                                                               
transaction and asked  if there would be a limit  on the time the                                                               
leaseholder would have to meet the high bid.                                                                                    
                                                                                                                                
REPRESENTATIVE STOLTZE said  he believes that would be  up to the                                                               
railroad, but he believes ARRC would act in good faith.                                                                         
                                                                                                                                
SENATOR  PASKVAN said  he tends  to  agree with  the sponsor.  It                                                               
would be  in ARRC's best economic  interest to act in  good faith                                                               
in these transactions.                                                                                                          
                                                                                                                                
2:55:18 PM                                                                                                                    
SENATOR MENARD asked  if the railroad would argue  for the status                                                               
quo since  it gets  eight percent annual  return from  its leased                                                               
land.                                                                                                                           
                                                                                                                                
REPRESENTATIVE  STOLTZE clarified  that the  proceeds would  stay                                                               
with  the railroad  and  he  believes ARRC  could  make an  eight                                                               
percent  return on  its  money. The  agency  is unencumbered  and                                                               
outside the Executive Act, and  in some instances it should lower                                                               
interest  rates  to  help certain  small  communities.  It's  not                                                               
always about making the most on every dollar, he said.                                                                          
                                                                                                                                
SENATOR MENARD  complemented Representative  Stoltze for  his due                                                               
diligence.                                                                                                                      
                                                                                                                                
2:58:15 PM                                                                                                                    
SENATOR MEYER asked him to elaborate  on what would happen to the                                                               
proceeds from the sale of the land.                                                                                             
                                                                                                                                
REPRESENTATIVE STOLTZE  said this legislation clarifies  that the                                                               
proceeds  stay with  the  railroad  and could  only  be spent  in                                                               
increments as interest accrues.                                                                                                 
                                                                                                                                
SENATOR MEYER asked  if he's heard that the passage  of this bill                                                               
could impact the railroad's bond rating.                                                                                        
                                                                                                                                
REPRESENTATIVE STOLTZE said  he hasn't heard that  and isn't sure                                                               
how a  permissive activity that  may not happen could  affect the                                                               
rating. It  begs the question of  why some people are  working so                                                               
hard to kill the bill, he added.                                                                                                
                                                                                                                                
3:01:09 PM                                                                                                                    
CHAIR  KOOKESH asked  if this  bill could  force the  railroad to                                                               
sell land.                                                                                                                      
                                                                                                                                
REPRESENTATIVE STOLTZE said no; it's a gentle nudge.                                                                            
                                                                                                                                
CHAIR  KOOKESH  observed that  the  railroad's  concern seems  to                                                               
hinge on the  language that says the money in  the account may be                                                               
appropriated.                                                                                                                   
                                                                                                                                
REPRESENTATIVE STOLTZE  explained that an amendment  in the House                                                               
Transportation   Committee  substituted   the   word  "use"   for                                                               
"appropriated" but legislative legal said  that to comply with 45                                                               
U.S.C.   1207(a)(5)Alaska  Railroad   Transfer   Act  of   1982),                                                               
"appropriated" was the right language.                                                                                          
                                                                                                                                
CHAIR  KOOKESH  asked for  clarification  that  the language  was                                                               
changed on the advice of  legislative legal counsel; there was no                                                               
intention to do harm.                                                                                                           
                                                                                                                                
REPRESENTATIVE STOLTZE said that's correct.                                                                                     
                                                                                                                                
3:03:12 PM                                                                                                                    
WENDY  LINDSKOOG, Vice  President  of  Corporate Affairs,  Alaska                                                               
Railroad Corporation, thanked the  sponsor for introducing HB 357                                                               
and bringing to light some  of the frustrations that leaseholders                                                               
have  had with  ARRC.  She  assured the  committee  that ARRC  is                                                               
discussing  ways to  address  those concerns  and  is working  to                                                               
improve  customer relations  with its  leaseholders. Real  estate                                                               
revenues are  the bread and  butter of  the railroad and  a vital                                                               
part of  what has  made ARRC a  successful operating  entity. The                                                               
model  that allows  ARRC to  lease  land is  excellent and  worth                                                               
protecting, she said.                                                                                                           
                                                                                                                                
MS.  LINDSKOOG  said  that  it  has  never  been  the  railroad's                                                               
practice to  sell land and there  is concern that this  bill will                                                               
create an  expectation that  that practice  may change.  This may                                                               
further frustrate  customers, she said. Ms.  Lindskoog referenced                                                               
a  letter to  legislators  from John  Binkley articulating  those                                                               
concerns. She  said she  appreciates that  Representative Stoltze                                                               
clarified that  his intent is  not to mandate land  sales because                                                               
the board wouldn't  necessarily take that path if  this bill were                                                               
to pass.                                                                                                                        
                                                                                                                                
MS. LINDSKOOG  informed the committee  that the concern  that was                                                               
raised   by   ARRC's   bond  counsel   centered   on   the   word                                                               
"appropriate." She noted  that Bill O'Leary, acting  CEO and CFO,                                                               
could answer  questions in regard  to that potential  problem. In                                                               
conclusion she said,  "We do understand this  doesn't require the                                                               
railroad to sell land, it is permissive at this point."                                                                         
                                                                                                                                
3:07:59 PM                                                                                                                    
CHAIR KOOKESH asked if she  would greatly object if the committee                                                               
passed the  bill as currently  drafted. There is  no requirement;                                                               
the  bill  simply  provides  the railroad  a  fourth  option  for                                                               
disposing of land.                                                                                                              
                                                                                                                                
MS. LINDSKOOG  replied they could  live with it because  the bill                                                               
is permissive and does not require action.                                                                                      
                                                                                                                                
SENATOR  PASKVAN  noted  that  the  last  sentence  of  the  bill                                                               
contains the word  "appropriated" and a reference  to federal law                                                               
and asked  if compliance  to that federal  law is  compulsory for                                                               
ARRC.                                                                                                                           
                                                                                                                                
MS. LINDSKOOG declined to answer  a legal question and referenced                                                               
a  legal  memo from  the  ARRC's  general counsel  that  strongly                                                               
recommended substituting  another term for "appropriated"  in the                                                               
legislation. The  terms "retained and managed"  [and "used"] were                                                               
suggested as viable  alternatives. "Maybe it's just  one of those                                                               
instances where our  legal team at the railroad has  a little bit                                                               
different take  on the  issue than  the legislative  legal team,"                                                               
she added.                                                                                                                      
                                                                                                                                
SENATOR PASKVAN  pointed out  that any  language the  state might                                                               
use would  be preempted if  45 U.S.C. 1207(a)(5)is  compulsory on                                                               
the railroad.                                                                                                                   
                                                                                                                                
3:10:31 PM                                                                                                                    
JEFFREY  DAVIES,  President,  American Federation  of  Government                                                               
Employees, Alaska Railroad Workers  Local 183, said he represents                                                               
350  employees who  are concerned  about the  effect that  HB 357                                                               
might  have on  the railroad's  ability  to continue  as a  self-                                                               
sufficient operation.  In 2009  ARRC had to  lay off  many needed                                                               
positions  in response  to rising  operational costs  and without                                                               
real estate  revenue to offset operational  shortfalls the impact                                                               
could have  been greater,  he said.  The employees  he represents                                                               
believe  these are  necessary assets  that continue  to serve  as                                                               
intended. The  model works; changing it  could create uncertainty                                                               
or  lessen job  stability and  reduce the  benefits that  Alaskan                                                               
jobs provide, he said.                                                                                                          
                                                                                                                                
3:13:07 PM                                                                                                                    
JOHN COOK, Board of Directors,  Alaska Railroad Corporation, said                                                               
he has  a background in  real estate development. He  thanked the                                                               
sponsor for introducing  the bill and said it's  brought to light                                                               
some communication problems that  ARRC has with the leaseholders.                                                               
He's new to  the board and welcomes discussion, but  he does have                                                               
certain concerns about the unintended  consequences of this bill.                                                               
The first relates  to the right of first refusal  because it will                                                               
have the overall affect of depressing market rates.                                                                             
                                                                                                                                
The  second concern  is that  developers would  potentially lease                                                               
pieces of  property and  then attempt  to purchase  and subdivide                                                               
that property. That  may be the property's highest  and best use,                                                               
but just that  one person would garner the profit  instead of all                                                               
Alaska residents.  He said he  can also see situations  where the                                                               
lessee  would ask  to purchase  the property  under the  right of                                                               
first refusal  and have  a preexisting agreement  to sell  to the                                                               
developer for a profit when the title vests.                                                                                    
                                                                                                                                
3:16:56 PM                                                                                                                    
PETER MACKSEY,  Customer Relations, Steelfab, stated  support for                                                               
HB 357.  He related that  this family-owned business has  been on                                                               
the same ten-acre site for about  60 years. They pay taxes on the                                                               
property, which  would be tax  free if the railroad  didn't lease                                                               
it. He noted that less than one  percent of the land in Alaska is                                                               
in private hands and  he thinks that this is a  chance to allow a                                                               
viable  business  to  expand.  He expressed  the  view  that  the                                                               
railroad seems to act like a  state agency when it suits them and                                                               
a  private company  when  it  doesn't. HB  357  doesn't push  the                                                               
railroad into selling its leasehold land, it offers the option.                                                                 
                                                                                                                                
3:19:57 PM                                                                                                                    
CARL ANDERSON, Owner, Cook Inlet  Tug and Barge, said the company                                                               
has  been in  the family  since 1938.  He is  concerned that  the                                                               
railroad is  in the transportation  business, but when  times are                                                               
tough  it can  apply for  subsidies  or stimulus  funds or  raise                                                               
rates.  These options  aren't available  to other  transportation                                                               
companies, he said.                                                                                                             
                                                                                                                                
3:21:28 PM                                                                                                                    
MARK  STEARNS,  Alaskan   Wood  Molding,  said  he   has  been  a                                                               
leaseholder since 2001 and in  that time his effective costs have                                                               
increased  from  about $10,000  per  year  to $42,000  per  year.                                                               
Leaseholders have no  recourse when the railroad  decides to levy                                                               
increases.  HB  357 would  provide  some  certainty and  make  it                                                               
reasonable to make further investments  in their buildings. Until                                                               
recently his  company was  told that  extending the  lease wasn't                                                               
possible, which hindered any desire  to make improvements and the                                                               
ability to  get bank loans.  He described  the bill as  a win-win                                                               
for the railroad and its leaseholders.                                                                                          
                                                                                                                                
3:25:01 PM                                                                                                                    
REPRESENTATIVE STOLTZE  reiterated that  the bill  is permissive.                                                               
It's spurred  by a  desire to  be responsive  to the  majority of                                                               
Alaskans who aren't involved with the railroad.                                                                                 
                                                                                                                                
CHAIR KOOKESH closed  public testimony and asked the  will of the                                                               
committee.                                                                                                                      
                                                                                                                                
SENATOR  MENARD  moved  to  report HB  357  from  committee  with                                                               
individual recommendations and attached fiscal note(s).                                                                         
                                                                                                                                
REPRESENTATIVE  STOLTZE commented  that  it's  puzzling that  the                                                               
railroad  submitted an  indeterminate fiscal  note given  that it                                                               
isn't under the  Executive Budget Act. The result is  that it has                                                               
a finance committee referral.                                                                                                   
                                                                                                                                
3:27:58 PM                                                                                                                    
SENATOR MEYER  objected to state  that he  too is puzzled  by the                                                               
fiscal note.  He suggested that  to avoid a finance  referral the                                                               
committee could  zero out  the indeterminate  part of  the fiscal                                                               
note.                                                                                                                           
                                                                                                                                
CHAIR KOOKESH opposed the suggestion.                                                                                           
                                                                                                                                
SENATOR MEYER removed his objection.                                                                                            
                                                                                                                                
CHAIR  KOOKESH announced  that  without  further objection,  CSHB
357(FIN)   moved   from   the  Senate   Transportation   Standing                                                               
Committee.                                                                                                                      

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