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Harnessing Alaska's iron horse.

FIVE YEARS AGO, AFTER what one legislator describes as a bloody battle, the state assumed control of the Alaska Railroad. Since that time, despite a profitable performance that took many by surprise, the railroad has rarely been far from the center of public debate.

Although moose mortality along the railbelt right-of-way made the most headlines last winter. the long-standing discussion about eventual disposition of the railroad, and its role ill the economic development of the state, continued unabated as well. This discussion predictably revolves around questions such as whether the state should be operating what is essentially a for-profit business, or the degree to which the railroad, as part of the state's transportation infrastructure, should be responsive to political pressure from the communities it serves.

Finding answers to these questions is complicated by the railroad's history, public expectations, the terms of its transfer from the federal government to the state and the uncertainty of Alaska's economic future.

Construction of the railroad was authorized by Congress in 1914. Its purpose was to open up the territory by transporting coal from the Matanuska Valley and gold from the Interior. The line, from Seward to Fairbanks, was completed in 1923 and commemorated by the driving of a golden spike by President Warren Harding at Nenana. In its 66 years of operation, the only major expansion of the railroad has been the addition of a 12-mile spur to the deep-water port of Whittier.

In 1982, Congress took a long look at the railroad, for decades operated at taxpayer expense, and concluded it was chiefly used by the state; there was no longer a strong federal interest in its existence. Generally a red-ink proposition under federal control, the railroad was purchased by the state after lengthy negotiations and legislative consideration that included 48 public hearings.

"The state got into this thing by accident," remembers Frank Turpin, president of the railroad and the man who engineered its quick trip to black ink. "They had no intention of getting into the railroad. And the only reason they got there is because the federal government said, 'I'm going to walk away from it."'

For $22.3 million and another $10 million in payroll and benefit liabilities, Alaska bought itself a railroad. The package included 653 miles of track, buildings valued at $13 million, 57 locomotives, 52 passenger cars, 1,669 freight cars and other rolling stock. Also part of the purchase was 33,000 acres of land, including prime real estate in Anchorage and Fairbanks.

The federal government stipulated that if the railroad were sold within five years, any profit would revert to the federal treasury. State legislators agreed to stay out of day-to-day management of the line and mandated it be put up for sale three times every five years. In 1988, the requirement to sell the line was lifted.

Contrary to some expectations, the Alaska Railroad has operated without a dime of state subsidy since 1985. Even more impressive, it has made a profit every year except 1986, when a million dollar loss was posted during the depths of the state's recession.

The railroad is now at something of a crossroads. It is at or near the threshold set by the federal government for giving profits from a possible sale to the U.S. Treasury. Also during this year's primary elections, a ballot initiative pushed by independent truckers (who feel the state-owned line takes away their business) will give voters a chance to whittle away at the railroad's autonomy from state government - a key factor in its profitability. What's more, at least a dozen legislative proposals dealing with rail operations and autonomy have been before lawmakers this session. These include Gov. Steve Cowper's request for millions of dollars to purchase rolling stock to transport coal from the Wishbone Hill Mine near Sutton to tidewater in Seward.

Turpin takes great pride in the record of the Alaska Railroad since the beginning of state ownership. He points to the $70 million invested to overhaul the line's physical plant, involvement in trying to open new markets for Alaskan coal and timber resources and contributions to the state's tourism industry through modernized, higher-profile passenger services.

"I think the improvements we have been able to make to the physical plant have just been a terrific success. We've been able to bring the quality of the railroad up to the best it's ever been," Turpin says.

Joe Usibelli Jr. is a long-time railroad watcher. The Usibelli Coal Mine near Healy ships coal north to Fairbanks and south to Seward for shipment to the Far East. He notes that business with the line hasn't changed dramatically since the transfer, although he perceives a greater awareness and concern by state managers, especially compared with the final years of federal management. "Under state ownership, they're probably paying more attention to the railroad as an asset than under federal ownership," says Usibelli.

But he feels things could be a lot better. According to Usibelli, his company accounts for about a quarter of the railroad's freight revenue (Mapco Petroleum of Fairbanks accounts for another 25 percent). Usibelli says there is need for more work on the roadbed and bridges need rebuilding.

"They still have lots of work to do on the railroad. It's not an entirely healthy system right now. I have concerns about the service that I get. It's been trying at times, to say the least," Usibelli explains.

Although he would like to see the railroad in private hands eventually, sale or expansion of the line is not Usibelli's main concern. "I think they really need to concentrate on getting the system they have in order," he says.

But the question of railroad expansion under state ownership versus sale to the private sector just won't go away. Although the lines of debate are not always sharply defined and the debaters themselves not entirely free of ambivalence, the order of battle looks something like this:

On one hand, there are those who feel the railroad should stay in state ownership and be used as a vehicle for developing the state's economy and infrastructure. These people are comfortable with the existing administrative structure of the line, agree the railroad should not be prey to political whims and feel the political will is available to maintain its autonomy. Walter Hickel, former governor, and Mark Hickey, commissioner of the Alaska Department of Transportation and Public Facilities, are among those espousing this view.

On the other hand, State Sen. Jan Faiks (R-Anchorage), while seeing the merits of a railroad under state ownership assuming the mandate to open up the country, feels that maintaining the line's sacred autonomy is a losing battle and it's time to sell.

An avowed lover of rail travel, Hickel also must rank among the staunchest supporters of railroad expansion in Alaska. Many of his views on the subject are decidedly not mainstream. "The Alaska Railroad is the best 'permanent fund' we ever had. It fits a country like Alaska that is basically government-owned," says Hickel.

In his view, the primary purpose of the railroad is to aid in the long-term development of the state, not to pay short-term dividends. Keeping the railroad in the perspective of public infrastructure offers one approach for overcoming what to private enterprise could be a substantial obstacle to expansion: public ownership of most of the land that any rail extension would cross.

Says Hickel, "Without the railroad, there'd be no Anchorage or Fairbanks. That's true. It's the best transport, environmentally, that can happen in the Arctic country. The Canadians know that and the Russians know that. I think the Alaska Railroad, as they're doing it today, they're doing it the right way."

Hickel believes expansion would be both self-supporting and profitable. He cites extension of the present line from Nenana to the Yukon River and construction of a free-standing short line from mineral deposits in Northwest Alaska to an all-weather port on the Seward Peninsula as two top priorities. His argument: Economics favors expansion.

"We could have thrown the railroad away if we had built it to Prudhoe Bay," Hickel says. "Think what you could have saved in building the pipeline. It would have been a hell of a thing for the country. You could have shipped things in year-round. Big things."

Hickel concedes that railroad autonomy from the normal process of state government and political leadership is essential for his rail vision to succeed. "It's going to take a governor. He's going to have to want to do it. He'll need long-term vision and goals," adds Hickel.

Hickey, as Alaska's transportation commissioner, sits ex-officio on the Alaska Railroad board. He has officially notified his colleagues of his interest in Turpin's job once the Cowper administration leaves office-should the position become available-and has removed himself completely from the board's executive search process.

"I think the railroad has done very well since the state has taken it over," says Hickey. "I think there's more opportunity (for it) to do more to develop the economy. I would see placing more emphasis on that in the future." Sale Debate. One of his biggest concerns is that any interest shown in the railroad by the private sector so far has been related more to lust for the line's real estate than concern for operating a key element of the state's transportation system. Explains Hickey, "The freight operations are breaking even, just barely. We're losing a little on the passenger operations. We're ultimately making it up through real estate. It's a marginal proposition. If you had too many years of that, private enterprise is going to cut losses."

According to Hickey, ultimately losing the railroad would be a substantial blow to the state, resulting in higher costs for highway maintenance and significant loss of jobs and other benefits to communities. "It's fairly integral to the state's economy right now," he says.

"We need to protect it in its current form; state ownership under the current structure is the preferred way. I think more emphasis should be placed on the development role. The railroad has a mission to do that where it makes economic sense."

Although he agrees there has been some erosion of the railroad's autonomy due to legislative dabbling, Hickey feels the situation is under control. "I think that's manageable," he says.

Faiks does not agree. The Republican senator from Anchorage, who helped author the railroad purchase legislation which she describes as "the bloodiest battle in my eight years in the legislature"), says, "Totally exempt from state control, the thing has made money. But we can't guarantee that (continued autonomy). What the legislature has been trying to do is erode the railroad's autonomy. They want the railroad to do what their communities want. Seward wanted their own board member, for example. This erodes the ability of the railroad to operate and make a profit."

Faiks explains that although terms and conditions could be applied to any sale agreement to guarantee operation of the railroad in the public interest, such an approach could dramatically lower the selling price. She is among those who fear efforts to administer the railroad more like a state agency.

"My horror is that the railroad is going to look like the ferry system in 10 years, a mish-mash of hodge-podge," Faiks says. "I believe the railroad should be sold to the private sector. It's the best available entity to control business. But I don't know if it can be sold. I see the handwriting on the wall."

Turpin deeply laments the lack of legislative interest in extending the railroad and using it more aggressively to diversify the state's economy. "I personally think it would be better to sell the railroad," he says. "I'm convinced, after five years of frustration, that the state is not going to use it the way it should, as an economic development tool. Hell, I can't even name you a legislator that's interested in doing something like that. So why the hell should the state, then, run a railroad? Why not get the thing out in private hands?"

Yet Turpin is all too aware of the obstacles to private enterprise expanding the line, such as public ownership of major probable transportation corridors and high capitalization costs. Which way does he think the political wind is blowing on the issue of state ownership? "The winds are not blowing, period. It's not costing the state anything, so we're just mulling our way along. I get discouraged at that, because I think its a great opportunity for the state," he says.

Still, "mulling along" has a deceptively relaxed connotation. In truth, Turpin's crew, streamlined since the days of federal ownership, pursues a variety of projects which can only enhance the value of the railroad to Alaskans, as well as its potential resale value. Up to its gondolas in coal, the railroad has made a concerted effort to develop a rate that would make shipments from the Wishbone Hill Mine competitive.

Efforts are continuing to test-market Alaskan lumber in the Far East. Again, the railroad has been involved through helpful rate structuring. New opportunities for freight and commodity shipping are always being sought.

Rail passenger service continues to grow, and where it stops, nobody knows. The popular Seward run will continue; new rolling stock (the first new passenger cars the line has ever owned) are being put on the tracks this spring. With hotels and lodges at the entrance to Denali National Park running near capacity during the summer months, the railroad is considering building a hotel on acreage it owns adjacent to Denali State Park.

Then there's all that real estate. In Anchorage, railroad executives have been involved in plans to develop the corporation's Ship Creek properties, and in Fairbanks, two developers have expressed interest in constructing visitor facilities on railroad-owned land.

Despite this activity, Turpin, like Hickel, feels the next step in deciding the railroad's future will depend a lot on the course of election-year politics. Without decisive leadership, the line is likely to continue "mulling along," albeit profitably.
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Title Annotation:Alaska Railroad Corp.
Author:Richardon, Jeffrey
Publication:Alaska Business Monthly
Article Type:company profile
Date:May 1, 1990
Previous Article:Environmental business surge.
Next Article:Frank Turpin: determined driver.

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