Alaska Railroad Q's ^& A's

Q. What do HB 55 and SB 42 propose to do?

As introduced, the bills do only two thingsbring the railroad under the Executive Budget Act, so the governor and legislature have greater oversight. Second, the bill directs that the 36,000 acres of land that are to be transferred with the railroad from the federal government will be transferred to the department of natural resources rather than to the ARRC. The bills assume the railroad will be operated as a state corporation and not privatized.

Q. Why put the ARRC under the Executive Budget Act?

As a state corporation controlling hundreds of millions of dollars worth of state assets, the ARRC should have the oversight of the governor and legislature, as required under the state constitution, Article IX, Sections 3, 5, 7, 8, 13, and 14. Currently, the ARRC is the only state corporation not under the EBA. It was not the intent of the 1983-84 legislature to allow the temporary corporation to be excluded from oversight for 14 or more years. We are now on very weak footing, to allow the neglect of our constitutional responsibilities to continue. When we have tried to exercise our oversight, such as when the legislative auditor last summer investigated the ARRC's contracting procedures for gravel, he was met with monumental stonewalling.

Q. How will being under the Executive Budget Act affect the railroad?

Currently, the ARRC draws up and approves its own budget each year, determining without state oversight how it's revenues and expenditures will be used. Under the EBA, railroad management would be required to submit its proposed budget to the governor's office of management and budget each year, which would then submit it to the legislature for appropriation. This open, public process allows for ample debate and opportunity for affected third parties to give their views on programs and actions the ARRC proposes for the coming year. This is the process used for every other state agency, whether it's a line agency like DNR or a state corporation like the Alaska Housing Finance Corporation, the Alaska Permanent Fund Corporation, or the Alaska Industrial Development Corporation.

Q. Why would the legislature want to transfer the land to DNR?

We have completed our obligations under the agreement with the federal government to keep the railroad running for 10 years, and so should put the land to its highest and best uses. The authority for DNR's land management programs is found in the state constitution, at Article VIII, sec. 10, which requires that state land cannot be disposed of or leased without proper public notice and other safeguards of the public interest. The state's interest in mineral rights is spelled out in Article VIII, sec. 11. Under DNR's purview, the public's interest in the land and the mineral rights would be better protected.

Of the approximately 36,000 acres of land to be transferred from the federal government, industry experts estimate the railroad needs only between 18,000 and 22,000 acres for rail operations and maintenance. As a quasi-public corporation, the ARRC would not need to hold title to the land, but would be charged with managing and controlling the 18,000 - 20,000 acres it needs. The remainder could be made available for selection by the municipalities, or by the university, or could even be sold to some leaseholders. Perhaps a land management authority patterned after that of the university lands could be established.

Q. Why is this an issue at this particular time?

Under the federal transfer act of 1982, the state was required to operate the railroad for a minimum of 10 years before the lands could be transferred to a third party. And under the 1984 state law putting the transfer into effect, the ARRC was to report to the legislature every five years on its efforts to sell the line, including documentation of at least three offers to sell initiated by the ARRC. Also in the transfer act was a requirement that the governor contract for a report to the legislature in 1987 on steps taken toward privatization. Instead of taking steps to initiate a sale of the line, the railroad in 1988 persuaded the legislature to pass a statute repealing its responsibility to seek privatization. ARRC President and CEO at the time, Robert Hatfield, strongly supported this change in law.

Again, we have fulfilled our obligation to the federal government and are ready to receive the remainder of the 36,000 acres. In fact, the state is losing millions of dollars each year that goes by that the land continues in federal ownership. Another reason the issue has come to the fore at this time is because senior management at the railroad has been highly uncooperative with state officials whose duty it is to audit, inspect and report on the financial and contractual transactions of public entities such as the ARRC.

Q. Why can't the ARRC continue as it is?

The ARRC is a unique, and probably unconstitutional, quasi-public corporation that sometimes fancies itself a state agency providing a valuable service to the public, and other times a private corporation with proprietary information to protect. We can't have it both ways. The legislature made a mistake in 1984 when it passed the law establishing the ARRC by not clearly defining what kind of agency it was, and by giving away state oversight. Now is the time to take corrective action.

Q. Couldn't the ARRC be run like a private corporation?

At the time of the purchase of the railroad, it was the intent of the legislature and the people of Alaska that the railroad eventually be owned and/or operated by private industry. In setting up the current ARRC scheme, the legislature attempted to make the ARRC as nearly like a private railroad corporation as possible, even to the extent of deliberately keeping an arms-length, distant role for itself. The reason for this may have been to make an easier transition to private operation; however, it has not worked for long-term management as a quasi-public corporation. In fact, there are significant questions to be answered regarding the constitutionality of managing state assets in a way the assets have been managed by ARRC over the last 12 years.

Q. What about railroad employees? Won't they be hurt by privatization?

If the state opts to privatize the railroad or its operations, we can put conditions on the new owner, just as the federal government put conditions on the state 12 years ago. These included a continuity of employment for the union workers, protection of their pension funds, and a requirement that the state had to operate the line for 10 years before the land would be transferred, among others. Railroad employees and their families should not fear privatization.

Q. Isn't the railroad prohibited from competing with private business in non-railroad related ventures?

In 1984, the Senate finance committee adopted a letter of intent that said, in pertinent part: "...although the railroad may use public resources or the benefits of its public status to extend its lines or to provide passenger service, it should not use direct subsidies to compete unfairly with privately-owned carriers."

Perhaps this legislative directive should have said it should not compete unfairly with privately-owned carriers and other non-railroad related businesses. Despite the legislature's wishes and growing criticism from other businesses, the ARRC has entered into competition with private enterprise ventures, most notably by owning 40 percent of a hotel at Ship Creek, wholly-owning and operating an RV park in Anchorage, leasing land for another RV park in Fairbanks, and is now embarked on a joint venture to operate barge service between Anchorage and the Puget Sound. The railroad is even putting a restaurant in the ARRC headquarters building, further eroding any incentive for rail passengers to visit downtown businesses.

Alaska Railroad Q & A Produced and distributed by: Rep. Terry Martin, February 1997