Plan unites ferries and state rail

System would fund itself with 500,000-acre state land grant

Posted: Wednesday, February 27, 2002

State Sen. Jerry Ward proposes to help solve the state ferry system's budget problems by coupling it with the Alaska Railroad and giving the new system 500,000 acres of state land.

But officials from the ferry system and the railroad don't like the idea.

Bill O'Leary, vice president of finance for the Alaska Railroad Corp., told the Senate Transportation Committee on Tuesday that the bill could spell disaster for the railroad and the Alaska businesses it serves.

And Bob Doll, director of the state Department of Transportation's Southeast region, said the measure won't do anything to solve the ferry system's immediate funding problems.

"If it doesn't rapidly produce revenue, then it's not a solution," Doll said.

The ferry system is seeking $2.8 million in supplemental funding this fiscal year and a $17 million increase in general funds in the fiscal year that starts July 1.

George Capacci, general manager of Alaska Marine Highway System, said the ferry system needs more money because a $40 million marine highway fund that had been helping pay expenses for the past decade has run dry.

Ward, a Kenai Republican, said the ferry system needs to become more self-sufficient. His constituents don't see its value and won't be willing to put state money into it in times of tight budgets, he said.

Ward proposes to create a state-owned authority that would operate both the railroad and ferry system. Providing that authority with 500,000 acres of state land is a key provision of the bill.

Ward said the railroad's land holdings are the reason it has been able to operate without a state subsidy, and the ferry system deserves the same opportunity.

"If it's good enough for the Railbelt, it's good enough for Southeastern," he said.

O'Leary, the railroad executive, agreed that the railroad's land base has been critical to its success, but said that wouldn't necessarily be the case for the ferry system.

In most years the railroad about breaks even on its rail operations, and this year will lose money, he said, but it will make about $6 million from its real estate holdings.

Railroad land is valuable because it's located in the cities and towns that grew up along the railroad, O'Leary said. Undefined tracts of state land elsewhere might not make money.

"Depending upon where this land is, millions of dollars may be required to transfer it and prepare it for any revenue-generating use that may be years away," O'Leary said.

He worries that because the bill requires all surplus earnings to be transferred to the state authority, the railroad would no longer be able to use the surplus it makes from its real estate.

That money needs to be plowed back into maintenance and used to match federal funds that pay for capital projects, O'Leary said.

Ward said the railroad won't necessarily lose money under the bill.

O'Leary said other elements of the bill also could hamper the railroad's success, including a provision requiring the railroad to go through the state budgeting process. Currently the railroad is exempt, which enables it to react quickly to market demands, he said.

The committee took no action on the measure Tuesday.

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