Commonwealth North Annual Assets Review

Commonwealth North hosted its 9^th annual Alaska Assets Review on February 18. The program recognizes that as shareholders of “Alaska Inc.” the citizens of Alaska need to be informed about how the assets of their company are performing. This year Northrim Bank President and CEO Joe Beedle and former Lt. Governor Mead Treadwell presented the performance review.

A bit of a history lesson on the reason Alaska has the wealth of assets that it does. During the statehood debate, it was recognized that the state’s population would likely never have the critical mass to finance government through conventional means employed by other states, primarily per capita taxation. In recognition of the need for Alaska to have means to produce its own revenue, the state was granted 104 million acres of land and mineral rights to significant acreage on federal lands. From this, it was felt that Alaska could build and sustain an economy and pay for necessary government services. The annual program tracks the performance of Alaska’s assets, including natural resources, financial assets and enterprises.

The full report and presentation can be found at www.commonwealthnorth.org. A few highlights of the discussion are below.

Alaska's natural resources are abundant and a large part of Alaska's economy.

• The tax revenue from fisheries has increased and the industry is strong, but there is a potential challenge ahead because not all of last year’s harvest has been sold.
• Within the Division of Mining, Land and Water, Alaska’s land position is strong. The state had 100.4 million acres in FY2014, which does not include the 65 million acres of submerged land acquired at Statehood.
• There are five area wide oil and gas lease sales a year. At the most recent sale in November 2014, 300 tracks were leased for $60 million. There is encouraging development occurring on the North Slope and in Cook Inlet.

Financial assets are an important topic of discussion because of the budget issues being seen in Alaska.

• The Permanent Fund Corporation is strong. In FY2014, the fund saw a 15.5% return, which was only slightly lower than the 15.7% benchmark. There are many investment opportunities that are doing well and the corporation is looking to expand into real estate outside of the United States.
• The Constitutional Budget Reserve is one of the options that could be used to bridge the budget gap. It currently holds $12.8 billion.
• Alaska Mental Health Trust Authority is utilizing their land well and making dividends. The state is served well by their investments.
• Alaska Industrial Development and Export Authority has paid $350 million in dividends to the state since its inception.
• Alaska Housing Finance Corporation paid $30 million in dividends to the state during FY2014. Energy and low income housing programs have benefitted Alaskans around the state.

The state’s enterprises are facing challenges, but are working to stay strong.

• The Alaska Marine Highway operates in the red, but is essential for Southeast Alaska.
• Alaska Energy Authority is also operating at a loss but the situation has not changed significantly in the past few years.
• The Alaska Railroad shows a small net revenue, but is facing some major challenges in federally mandated safety regulations. Its income from freight is strong and will continue with increased activity on the North Slope and in Cook Inlet.
• The International Airport System faces challenges, but the fact that Anchorage has the fourth largest cargo airport in the world helps add revenue.
• The Alaska Aerospace Corporation is also challenged, but lawmakers understand its strategic importance and will continue to fight for its survival.
• The University System has a strong endowment and the investment is doing better than recent years. The system has some challenges ahead but will continue to be a priority because additional human capital is necessary to grow Alaska.

To wrap up, Alaska is challenged, but it is also well funded and well endowed. Many people are working on ways to find solutions to the state’s fiscal problems. Commonwealth North has produced a report for Alaska’s leadership. This report highlights some opportunities to work through the fiscal problems and ways to fix the budget gap. This report, Alaska’s Operating Budget: Critical Crossroads, Choices and Opportunities will be presented in Anchorage on February 25 at a lunch hosted by Commonwealth North.