STATEMENT OF MAYOR TED SCHMIDTKE, CHAIRMAN, MATANUSKASUSITNA BOROUGH, PALMER, ALASKA

Mr. SCHMIDTKE. Mr. Chairman, my name is T. O. Schmidtke. I am the mayor of Palmer, Alaska. I have also been asked by the Matanuska-Susitna Borough to represent the borough in appearing before you. On behalf of the people of Palmer and the borough, I wish to thank you for the opportunity to present this statement in opposition to the proposed conversion of Fort Richardson and Elmendorf Air Force Base from coal to natural gas.

Palmer and the borough have an important financial stake in the retention of the coal industry. The primary revenue source of the city of Palmer is its sales tax, from which we have derived approximately $100,000 annually. This amount represents some $5 million in gross taxable business within the city. You have information that the coal industry locally spends approximately $1 million annually in direct wages, and we estimate that each of these dollars generates a buying power of $5 to $7 within the borough area. It is reasonable to assume that we derive at least 20 percent of our sales tax income directly or indirectly from the payroll of our basic coal industry.

In the event this payroll is lost, our city government would have to at least double property taxes in order to continue its present services, thus placing an intolerable burden on the average homeowner. Even such an increase in property taxes would not supply us with sufficient revenues to operate our city efficiently. We would be forced to make cutbacks in all the services currently provided for the people of this area. There is no question that we would have to abandon planned advances in public works and other capital improvements.

Palmer has just completed the installation of a complete sewer system throughout the community. This system cost $750,000, of which $550,000 will be financed through bonds sold to the Community Facilities Administration. These bonds must be retired directly by the individuals owning property within this community. Loss of the coal industry would mean that many of the people employed by it who live in the city would be forced to leave. For those who remained the burden of this project would fall heavily upon their shoulders, and there is a strong possibility that it would be more than they could bear. The sewer project was undertaken based on a feasibility study which assumed retention of the coal industry. It is extremely doubtful that this project could have been found feasible if the loss of this industry had been considered.

Conversion with the accompanying loss of employment would also drastically affect the basic business climate of Palmer and the borough. Even with the mines in operation, the area's total retail sales have decreased by over $6 million since 1961, a reduction of almost one-half. This decrease has resulted from the near cessation of homestead development, curtailed activity in the construction program, and the removal of government offices from Palmer as well as local supporting industry from the borough. In addition, many producing farms have gone out of operation.

These losses have resulted in an unemployment rate of about 12 percent, or over twice the national average. And we estimate that the loss of the 85 to 90 jobs from this conversion would cost an additional

40 positions in the service businesses of the city. When you consider that there are only a total of some 800 persons now gainfully employed in the area, the enormous economic impact upon the community becomes readily apparent.

Palmer and the Matanuska-Susitna Borough is currently a struggling rural area. We believe that we have the potential to become one of the strongest economic areas in Alaska. But that goal still eludes us, and our coal industry is essential if we are to attain it within the reasonably foreseeable future. In reaching a decision on the future of this industry, I am confident that the Congress will carefully consider the effects of the loss of the coal industry which I have attempted to describe in this brief statement.

On behalf of Palmer and the borough, I again thank you for the opportunity of appearing before you.

Senator BYRD. Thank you, Mr. Mayor.

Could you answer the question with reference to the meeting of the legislature and as to the status of the bill to which references have been made?

Mr. SCHMIDTKE. The bill was passed by the House and was returned by the Senate to hold public hearings throughout the State of Alaska. It was quite a disagreement between the municipalities that did not want to be covered by public service or be regulated by a State agency, and there is a chance it may have to be reintroduced into the House. Senator BYRD. In which case this would probably occur at the beginning of the next convening of the legislature?

Mr. SCHMIDTKE. Yes, I believe that the Governor of Alaska had more or less given A-1 priority.

Senator BYRD. It has the Governor's support?

Mr. SCHMIDTKE. Yes.

Senator BYRD. But it may indeed not have to be reintroduced in the House?

Mr. SCHMIDTKE. There is that possibility.

Senator BYRD. In which case it would be considered by the Senate, and the Senate and House will meet again in January?

Mr. SCHMIDTKE. Yes.

Senator BYRD. This coming January.

(NOTE.-See letter from Senator Bartlett dated May 27, 1965, previously included in the record.)

Senator BYRD. Senator Bartlett?

Senator BARTLETT. I have no questions. I think it is well that the mayor of Palmer came here and expressed his views on behalf of these people to you, Mr. Chairman, because it shows the urgency of the situation insofar as that part of Alaska is concerned.

Senator BYRD. Senator Inouye, do you have any questions at this point?

Senator INOUYE. Yes.

Mr. Mayor, I note in your statement you argue that the property tax may have to be doubled if this conversion goes through. What are the property taxes at the present time?

Mr. SCHMIDTKE. At the present time Matanuska Valley has a very high property tax. We are paying, will be paying, 20 mills on a hundred percent valuation plus the 2 percent sales tax. Fourteen mills goes to schools, 6 mills to help operate the city, and the entire bonded indebtedness.

Senator INOUYE. If this conversion goes through you will have difficulty in retiring these bonds which were just sold to the Community Facility Administration?

Mr. SCHMIDTKE. We would anticipate we would run into difficulty inasmuch as from previous testimony it has been brought up that when the mining company went bankrupt the people that I knew from that mine have left the area of that part of Alaska, and there is a definite lack of a real good real estate market in that area.

Senator INOUYE. When the coal mine went bankrupt and the employees were laid off, you testified that they all left your area

Mr. SCHMIDTKE. The ones that I knew, very few stayed around. Senator INOUYE. What sort of economic effect did the closure have on your community?

Mr. SCHMIDTKE. It had, I believe, a very depressing effect on the advance of total applications for unemployment, and being in the newspaper business I can tell by the number of classified ads I place for real estate, and they definitely have increased.

Senator INOUYE. Did it affect your income?

Mr. SCHMIDTKE. My income?

Senator INOUYE. The income of the village or the city of Palmer. Mr. SCHMIDTKE. Yes, I think it did from the standpoint of our sales tax had been increasing approximaetly 5 percent a year to 7 percent, and it showed a drop in, I believe it was, February, from about $7,400 to $6,600.

Senator INOUYE. Was this coal company using the facilities of the railroad company?

Mr. SCHMIDTKE. Yes.

Senator INOUYE. Did the closure affect the rates of the railroad company?

Mr. SCHMIDTKE. Not to my knowledge.

Senator INOUYE. Do you think the closure of this coal mine will affect the rates of the railroad company?

Mr. SCHMIDTKE. I would assume that it would inasmuch as it seems to be a fairly high freight rate to haul a ton of coal that distance, and from observations that I have seen and heard from other people they have a very high profit ratio on that portion of the line so theoretically that portion of the line could be subsidizing lower freight rates in other portions of the railroad.

Senator INOUYE. Thank you very much, Mr. Chairman.

Senator BYRD. Thank you.

Mayor, when was the feasibility study conducted?

Mr. SCHMIDTKE. In 1961.

Senator BYRD. 1961.

Could you submit the statistics concerning your sales tax income? You indicate that it is your assumption that at least 20 percent of the sales tax income is derived directly or indirectly from the coal industry payroll. Can you give us some specifics on this?

Mr. SCHMIDTKE. I just base it on the amount of expenditures. If you spend a million dollars which is spent all in the area, or paid out in the area, as the other business districts are smaller outside of the city of Palmer; then the city of Palmer, and I think I based it fairly reasonably, would lose $20,000, which would be a total of retail sales value of about $1 million.

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Senator BYRD. I presume then that you would have no way of plying firm statistics on that?

Mr. SCHMIDTKE. I could probably submit it later.

Senator BYRD. I don't know how long the record will be open.

Senator Bartlett, you might include these in the record if the mayor gets them in time.

Senator BARTLETT. Very well.

Senator BYRD. All right, Mayor. We are grateful for your testi

Senator BARTLETT. You publish the local paper?
Mr. SCHMIDTKE. Yes, sir.

Senator BARTLETT. In addition to being mayor?
Mr. SCHMIDTKE. Right.

Senator BARTLETT. The Valley Frontiersman?
Mr. SCHMIDTKE. Right.

Senator BARTLETT. On a personal basis, would you expect your busi

ness to suffer?

Mr. SCHMIDTKE. Definitely. Just the one company alone, the Evans Jones Co. does approximately, my total business is approximately 211⁄2 percent directly. The company that went bankrupt was approximately 1 percent. And I would assume that through loss of retail sales my gross income would be definitely downward.

Senator BARTLETT. Closing the coal mine would be meaningful to you in a business way as it would be to every other business in the community?

Mr. SCHMIDTKE. Yes.

Senator BARTLETT. Thank you.

Senator BYRD. Once again, what is the total population of the area? It was indicated earlier.

Mr. SCHMIDTKE. It is approximately 5,700 to 6,000 in the total borough area. In the city of Palmer it is about 1,200 people. Senator BYRD. All right. Thank you very much, sir.

Mr. SCHMIDTKE. Thank you.

Senator BYRD. The next witness is Mr. Dale Teel, vice president, Alaska Pipeline Co., Anchorage, Alaska.

Mr. TEEL. Thank you, Mr. Chairman.

STATEMENT OF DALE TEEL, VICE PRESIDENT AND GENERAL MANAGER, ALASKA PIPELINE CO.; ACCOMPANIED BY SEABORN EASTLAND, JR., VICE PRESIDENT AND COUNSEL

Mr. TEEL. Mr. Chairman, thank you very much.

My name is Dale Teel. I am vice president and general manager of Alaska Pipeline Co. of Anchorage, Alaska, and president of its wholly owned subsidiary, Anchorage Natural Gas Corp. My professional background is in engineering, and I hold a degree in chemical engineering from the University of Illinois. I am a native of southern Illinois, and my father is a retired coal miner. I have resided, with my family, in Alaska for more than 5 years.

I moved to Alaska from Honolulu Gas Co. in Hawaii, where I had worked for the previous 10 years. I went to Alaska first as a consultant and stayed as an executive officer of the company.

Alaska Pipeline Co. has built a 90-mile gas transmission line from Alaska's Kenai gas field, across Turnagain Arm of Cook Inlet to Anchorage, and I could indicate that on a map very briefly, with your permission.

Senator BYRD. All right. Where is the map?

Mr. TEEL. Right here.

Our pipeline runs from the water's edge along Cook Inlet, the area of Kenai, across the Kenai Peninsula with two lines across Turnagain Arm and into Anchorage. The pipeline is owned by Alaska Pipeline Co. and it is proposed to extend it to the military bases. Its present length is approximately 90 miles with approximately 12 mile extension to the bases.

Thank you.

Anchorage Natural Gas Corp. distributes this gas in the cities of Anchorage and Soldatna and the surrounding areas. Alaska Pipeline Co. signed a contract with the Department of Defense on December 28, 1964, to supply the boiler fuel requirements of Fort Richardson and Elmendorf Air Force Base, both within 3 miles of Anchorage. The contract will take effect on July 1, 1966, if Congress authorizes the conversion of boilers to allow use of gas and approves the request for funds. That cost will be returned to the Defense Department by fuel savings in little more than a single year.

I hope that my remarks will be of value to you as you consider the merits of the request by the Department of Defense for approval to implement the contract they have with us.

The contract marks the outcome of 4 years of study and restudy by the Department of Defense and other agencies of the Government. Always the military were interested in economy, efficiency, and military backup of alternate fuels, but the decision was delayed time and time again to be sure that every opportunity was thoroughly explored. The request for conversion funds comes now as a result of competitive bidding by coal, oil, and gas-all produced in the Anchorage area near the military bases, and the conversion will give the military the capability of using its choice of any of these fuels in future years. Natural gas is one of Alaska's newest major industries. Now in its fourth year of development, natural gas can have a profound beneficial effect on the economy of Alaska. Already it has reversed the upward trend of the cost of living and it offers Alaska, and the military installations, great savings as a source of energy. Costs of competing fuels have dropped as much as 35 percent where gas is available; obviously in Alaska the cost of fuel is a major item in the cost of living. The natural gas industry has brought private risk capital to Alaska, and its successful development will attract other new industries to Alaska.

Conversion of the military bases in the Anchorage area offers natural gas its only major potential market at present-a market which can more than double the volume of gas now being used. Because of the great distances involved, gas cannot at present look elsewhere for a market, as in the case of coal and oil, but must be used locally in Alaska. It is indeed fortunate for Alaska that gas was found near the Anchorage military bases, because without them the industry could not have been financed and developed as it has today.