Alaskanomics

Alaskans Support New Revenue to Help Address the State’s Budget Shortfall

During July, The Rasmuson Foundation worked with Strategies 360 to poll registered voters to gather their opinions on the current state fiscal situation. The results of the survey were released to the public on August 13. The survey was titled “Alaska Attitudes on the State Fiscal Climate” and examined voter opinion about the budget shortfall facing Alaska. Twelve hundred and six registered voters from around the state were surveyed between July 13 and 21, 2015.

 According to the Rasmuson Foundation, highlights of the survey include:

• Nearly 90 percent of voters know about the budget shortfall facing the state with a majority of those polled ‘extremely’ to ‘fairly’ concerned about the shortfall.
• A majority of voters would prefer to see new revenue included as part of any solution to address the budget shortfall.
• Just 25 percent of residents believe that the state’s budget shortfall should be solved ‘only’ or ‘mostly’ through spending cuts.
• 61 percent of voters believe that the state’s economy would be negatively impacted if the state only relied on savings and spending cuts and did not raise new revenue to address the shortfall.
• 66 percent have low confidence in elected officials. The governor has a 54 percent approval rating and the Legislature has a 32 percent approval rating.
• People are significantly unaware that they pay no personal state taxes.

In order to help close the budget shortfall, voters surveyed said they would be willing to support a number of revenue proposals, including:

• Introducing a statewide sales tax
• Putting a cap on the yearly amount of Permanent Fund dividends
• Using a portion of excess earnings from the Permanent Fund to fund public services and programs
• Reducing oil development tax credits offered by the state

It is great that the Rasmuson Foundation undertook the task of surveying voters to help guide government officials. This survey will be a good baseline to construct statewide outreach and discussions regarding the fiscal policy issues. This should help guide our elected officials in discussions on how to reach out to their constituents and appreciate the level of understanding of the average voter. While it is alarming that many voters are unaware that they do not pay personal state taxes, it is positive that voters are willing to discuss additional revenue options to help bridge the gap in providing government services.

 

The full survey, including results can be read at: https://www.rasmuson.org/_uploads/press_release/355/Alaskaattitudesonstatefiscalclimate.pdf

Alaska LNG Update- Summer 2015

By Tim Bradner

Alaska community and business leaders are closely watching developments on the big Alaska LNG Project this summer. North Slope producing companies and the state of Alaska, which are in a partnership on the project, are engaged in preliminary engineering and environmental work, and key decisions are pending late this year and in early 2016.

Alaska LNG really encompasses three mega-projects rolled into one: a large natural gas conditioning plant on the North Slope, an 800-mile, 42-inch pipeline from the slope to Nikiski, on the Kenai Peninsula south of Anchorage, and a large liquefied natural gas, or LNG, plant at Nikiski. An earlier cost estimate is $45 billion to $65 billion, but that is being updated as part of the engineering studies now underway. The revised cost estimate, which could be available late this year, is obviously very important to the future of the project.

A fourth project now under construction will also be part of Alaska LNG if it proceeds. This is the $4 billion Point Thomson gas and condensate production project currently under construction about 60 miles east of Prudhoe Bay, on the slope. The Prudhoe Bay oil field holds about 24 trillion cubic feet (tcf) of gas and would be the “anchor” gas supplier for Alaska LNG but Point Thomson’s reserves of about 8 tcf will also be needed to support the pipeline and LNG project. Construction at Point Thomson will be finished in early 2016 and will initially produce 10,000 barrels per day of liquid condensates through a new 12-inch liquids pipeline that has been built from Point Thomson. If the big gas project proceeds, Point Thomson’s facilities will be converted to conventional gas production.

The preliminary engineering now underway, called Pre-Front End Engineering and Design, or “pre-FEED”, will set the stage for a decision by the partners to begin final engineering, Front End Engineer and Design or “FEED”, is expected sometime in 2016, although under the partners’ agreement the decision can be stretched into early 2017. Gov. Bill Walker hopes the decision can be made as soon as possible, possibly mid-2016, after completion of pre-FEED. The FEED decision is very important because it will be expensive, with cost estimates ranging from $1.5 billion to $2 billion, and requiring the first substantial investment by the partners. The state’s share of the FEED costs has been estimated at about $500 million. The pre-FEED costs are less, in total about $500 million, with the state’s share of about $100 million. This has already been funded.

The FEED decision is also important because it will be a major indicator that the project’s economics are favorable and that the decision planned in 2018 to actually build it, the Final Investment Decision, is likely. We’re told that very few large projects that reach the FEED stage do not wind up being built.

However, there are important decisions involving the state of Alaska’s partnership role that must be decided later this year. The state is a party to several project operating agreements that are needed among the partners, and the Legislature will have to approve some of these. Most important, the producing companies and the state have to reach agreement on fiscal (tax and royalty) terms on gas production and a way to lock in these terms for a period of years, most likely the terms of LNG sales contracts with buyers (the buyers will insist on stable fiscal terms). There are legal issues involved in this and Governor Walker has said that an amendment to the state constitution is likely to be necessary. The earliest this can occur is the November 2016 state general election. The deal on fiscal terms is necessary for the project and legislative approval is needed, but if a constitutional amendment is required a positive vote of the public will also be required.

Separately, the state will have to decide on whether to change its current partnership with TransCanada Corp., a pipeline company. Under the current arrangement TransCanada would finance and build, and own, the state’s 25 percent share of the pipeline and North Slope gas conditioning plant. The state would separately finance and own 25 percent of the LNG plant through the state-owned Alaska Gas Development Corp. Even this is a big financial undertaking for the state because the LNG plant represents about half of the total capital cost of Alaska LNG. Gov. Walker and the state gas team are considering keeping the current arrangement with TransCanada, ending it and having the state own (and have to finance) all of the 25 percent share of Alaska LNG, or exercising an option to buy into TransCanada’s share of the pipeline and gas plant. This decision will have to be made by the end of the year.

Negotiations are currently underway among the partners on all of these issues and the status is confidential. It is known, however, that the governor has asked for certain changes, such as an increase in pipe diameter to 48 inches; a Cook Inlet crossing on an alternate eastern route to one the project is now focused on, and a change in the way the project would market LNG and the state’s share of that. How the industry partners are responding to these requests is unknown at this time.

While there are still many unknowns, it is known that Alaska LNG is very important to future state finances and the continuation of oil production on the North Slope. After it is operating–2025 is the expected startup–the project would result in several billion dollars a year in new revenue to the state from sales of the state’s share of the LNG. As for continued oil production, the availability of a gas pipeline will encourage exploration on the slope for gas and, inevitably, new oil discoveries will also be made.

 

Tim Bradner is a natural resources writer for the Alaska Journal of Commerce

Department of Revenue Update- Make It Monday Forum

The Anchorage Chamber of Commerce hosted Alaska Department of Revenue Commissioner Randy Hoffbeck at their weekly Make It Monday Forum. In a continuation of the conference held at UAF earlier in the month, Commissioner Hoffbeck shared his presentation Building a Sustainable Future: Conversations with Alaskans. The Commissioner shared that he and the Governor both agree that before any discussions on revenues occur spending must be reduced. The State must show that the size of government is right before asking Alaskans to weigh in on the revenue discussion. The Commissioner also believed that there are solutions to the fiscal situation, but they all have a lot of baggage that would need to be addressed.

The State is not able to cut its way to a balanced budget. There simply is not enough slack in the budgets without cutting essential services such as education, health and safety and public safety. Nominally, the budget has increased steadily over time with a sharp increase since the mid-2000’s. Adjusted to “real” or “constant” dollars, only recently have we reached post-pipeline spending. Finally, when adjusted for inflation and population, the current budget is lower than most years during the post-pipeline boom. In comparison to other states, Alaska’s total expenditures by population ranks very low.

There is little chance higher oil prices or production will create a balanced budget. At the current rate of production, the price of oil would need to be over $110 to reach $5.2 billion, which is the current size of the unrestricted general budget. If oil stays at the current price of about $60, even an increase to 800,000 barrels per day would only raise $2.9 billion in revenue. Skyrocketing prices and doubling production is not likely in the near future. Many predict that prices will rise, but not much about the $80 mark and while production decline has slowed, it will not increase significantly in the near future.

Commissioner Hoffbeck introduced the Revenue Model that is being used to show the different options for spending cuts and increased revenues. The model puts into perspective how much is needed to create a balanced budget. There is no ‘magic bullet’ for a balance budget and a viable solution will take discussion and compromise from state government and citizens. Alaska currently has the lowest tax burden per capita and a frank discussion will be necessary before moving forward with any tax that affects individuals.

Options to balance the budget include:

• Repurpose financial assets
• Modify oil and gas taxes
• Modify oil and gas credits
• Modify non-oil and gas taxes
• Add new taxes
• Lottery/gaming

It is likely that balancing the $3 billion annual deficit will take a combination of four things.

1. Continued budgetary restraint
2. Taxes impacting individual Alaskans
3. Changes to oil and gas taxes
4. Strategic use of our legacy assets

According to Commissioner Hoffbeck, we are about midway through the path to fiscal stability. A lot of good work has been done but there is still more to go. Education of the general population needs to continue and be increased. Initial conversations have been held with government officials, business leaders and those who typically pay close attention to the matters of state. The public must listen to the debate and stop putting up walls when the words “Permanent Fund” and “Taxes” are added to the discussion. If Alaska wants to have educated children, healthy communities and safe neighborhoods, everything must be on the table for potential solutions to the fiscal situation. The solution is out there and while it is not easy, Alaska can and will find the path to fiscal stability with discussion and compromise.

For more information on the conversation, visit http://gov.alaska.gov/Walker/priorities/transition-2014/sustainable-future/the-conversation.html

State Budget Update

By Tim Bradner

How does one explain the extended budget gridlock and political squabbling in the Legislature this year? The session was supposed to end April 19 but it has been extended in special sessions as lawmakers wrestled with difficult funding problems. It took two special sessions, the first called by Gov. Bill Walker and the second by the Legislature itself, but a budget deal was finally concluded June 11.

Part of the problem was financial, part structural, in the way large deficits are dealt with, and part purely political.

Financially, our state government is in truly uncharted waters–oil prices dropped by 50 percent last fall, and so did state revenues that come mostly from oil. Faced with huge budget deficits, Gov. Bill Walker and legislators moved to cut spending, and through the spring the Legislature managed to cut the state operating budget by about $500 million, from $6.1 billion to $5.6 billion in state general funds.

It was heavy lifting because the operating budget has never been cut before to this magnitude. Most state agencies and programs took hits but Democrats in the Legislature (which is Republican-controlled) objected to the scale of reductions to school funding and to a proposal to cancel scheduled pay raises for unionized state employees, which had been agreed to in collective bargaining.

It was over these points, school funding and the pay raises that had been agreed, that Democrats really dug in their heels in negotiating with the Republican leadership. This was the political part.

The cuts aren’t enough to make much of a dent in the deficits, however. The deficit for Fiscal Year 2015 (the current year ending June 30) is now estimated at about $3.8 billion, and for upcoming FY 2016 the deficit is estimated at $3.2 billion. Fortunately, our state has several billion dollars of reserves in savings accounts to draw on, not including the $53 billion Permanent Fund.

However, to gain access to these reserve funds, in the Constitutional Budget Reserve, the state Constitution requires a three-quarters approval in both the House and Senate. This is the structural part of the current problem.

The Senate’s Republican leadership had the needed 15 votes of the 20-member Senate but the House Republican leadership could not muster the needed 30 votes out of 40 House members.

This put the House Democrats, who controlled the needed 10 votes, in a strong bargaining position. They used the leverage, too, forcing a compromise with the House leadership that reduced the cuts to education and funded the pay raises.

The dispute seems mainly symbolic because the amounts of money at stake are small, about $50 million, compared with the deficit and the consequences if an agreement does not come before July 1, forcing parts of the state government to be shut down.

While the budget dispute was resolved for FY 2016, which begins July 1, the issue is likely to return next year, when the Legislature prepares the FY 2017 budget, and possibly in following years, as more money is taken from the Constitutional Budget Reserve and the House Democrats’ votes are again needed for the withdrawals.

Is there any relief in sight on revenues? Oil prices are expected to show gradual improvement, and they appear to be doing so, but most analysts expect a recovery only to $80 per barrel to $90 per barrel over the next two years (they are now a little over $60 per barrel). This won’t help the state budget much.

If a natural gas pipeline is built there will be additional revenues to the state, but how much is unknown and the income wouldn’t come until 2025, when the project begins operating. There are still uncertainties as to whether this big project is economically viable and if it can be built. 

However, given the current outlook for oil prices it is quite likely that state cash reserves, except for the Permanent Fund (which can’t be spent) will be drained before a gas pipeline starts up.

To keep state government solvent, new sources of revenue must be found. A discussion on that question is started in Fairbanks June 5, 6 and 7 in a fiscal conference called by Gov. Walker to weigh alternatives. About 160 Alaskans worked through the weekend to weigh additional budget cuts, possible new state personal income tax or state sales tax, or some way of using Permanent Fund income to support public services.

The conference did not reach firm conclusions–that wasn’t intended–but most working groups at the meeting decided a mix of revenue sources, some taxes and use of Fund earnings, in addition to more spending cuts, will be needed. The real purpose of the meeting was to spark further discussions among Alaskans through the summer and fall. The governor hopes to present new revenue proposals to the Legislature soon.

 

Tim Bradner is a natural resources and state government reporter for the Alaska Journal of Commerce

 

Sustained Conversation about a Sustainable Government

A Perspective on a Weekend in Fairbanks

By: Karl Hanneman

Reflecting upon a long weekend spent at the University of Alaska discussing whether our state government can be sustained by Alaska’s economy, I offer my observations.

I believe the gathering was worthwhile and resulted in meaningful dialogue. Governor Walker, Lt. Governor Mallot, and the entire cabinet should be commended for their efforts to pull Alaskans together. The broad diversity of the political and economic persuasions of the invitees reflect an intent to be inclusive, not divisive. 

Following an informative evening presentation by Gunner Knapp, Institute of Social and Economic Research (ISER), on the expense and revenue facts, the first half of day one focused on voting with red and green stickers to assess what government services are important to the participants. Seven subject matter expert groups and seven randomly selected groups sequentially reviewed all program areas of State government that depend upon unrestricted general funds, currently forecast at about $5.1 billion per year. Both groups said most everything is important, although tellingly, the subject matter groups were tougher on the department programs and budgets that they understood than the random groups were on those same programs. Time did not allow for an in-depth review of state programs or methods of service delivery.

The second half of day one then reviewed various revenue options available to pay for $5.1 billion of government services with projected revenues of only $2.0 billion (at $70/bbl). With much to ponder, everyone then retired for the night.

The second day began with seven breakout groups independently reviewing revenue options in an attempt to close the gap using a simple but effective spreadsheet model prepared by the Department of Revenue. However, upon overnight reflection of the magnitude of the budget deficit, most groups were unwilling to delve into revenue options without further constraint on the cost of government. With insufficient time to revisit program budgets and in order to break the logjam, the administration gave direction to groups to assume a further 10% cut in the FY17 budget to approximately $4.6 billion.

With more red and green stickers to vote on various revenue options available to help close the deficit, a remarkable consistency emerged:

1. Most groups were not willing to ask Alaskans to step up and pay for state government without further spending constraints.
2. All groups recommended broad based revenue options, as most participants recognize that fair application of revenue options across a broad spectrum will be necessary to get buy in from anyone being asked to contribute.
3. Generally, the most viable revenue tools were viewed as:  use of the permanent fund earnings/PFD cap, personal income taxes, and corporate income taxes, including oil industry taxes.
4. Most groups were concerned that further work is necessary to understand the potential impact on Alaskans and Alaska’s economy of these various taxes and revenue options.

Missing from the open forum, but heard being discussed frequently between some participants, was the issue of the growth in the wages, salaries, and health and pension benefits of the state government employees. Overall, the State needs better tools to help manage employee costs.  If this cost element could be better constrained, the potential cost savings would accrue to all Alaskans and all good programs. Unfortunately, the structure of the weekend did not provide an opportunity to raise awareness on the issue that employees costs have grown faster than inflation.

Overall, I was fortunate to have been invited to a productive process to engage in a difficult dialogue.  I appreciate that our elected representatives in the Legislature have already begun wrestling with these tough issues. A humbling couple of days voting with red dots and green dots of little consequence gives me nothing but respect for the effort put forth by the Governor and the Legislature when the votes count.   

 

Karl Hanneman is the Chief Operating Officer of International Tower Hill Mines, Ltd.   He is also a member of the Board of Directors for Northrim BanCorp, as well as a director of Alaska Resource Education, Alaska Mining Hall of Fame, Resource Development Council, Fairbanks Chamber of Commerce and Usibelli Coal Mine, Inc.

ISER Publication: The Path to a Fiscal Solution: Use Earnings from All Our Assets

By: Scott Goldsmith

The state government's assets could generate enough earnings in fiscal year 2016 to pay the Permanent Fund dividend, boost the size of the Permanent Fund, and cut the expected General Fund deficit from $3.3 billion to just over $1 billion—which would still be a big fiscal challenge but much more manageable. That's the finding of a new analysis by Scott Goldsmith, professor emeritus of economics at ISER.

Those state assets consist of money in the Permanent Fund and other accounts as well as the value of state-owned petroleum still in the ground. Dr. Goldsmith estimates that after first paying the dividend and adding to the Permanent Fund, the state could put $2.2 billion in remaining earnings in the General Fund, which pays for public services. 

Right now the state uses only current petroleum revenues and smaller sources to cover General Fund spending—but those revenues are expected to fall $3.3 billion short of the estimated $5.5 billion in spending next year. Dr. Goldsmith finds that if the state's broader assets were carefully managed and annual General Fund spending was gradually reduced to about $4.5 billion, part of the asset earnings could be used every year, without risking the value of the assets themselves.

A grant from Northrim Bank funded this research. ISER publications are solely the work of individual authors and should be attributed to them, not to ISER, the University of Alaska Anchorage, or the research sponsors.

Read the analysis, The Path to a Fiscal Future: Use Earnings from All our Assets

A Terrible Constitutional Amendment; Constitutionalizing the Dividend

Alaska Legislative Digest- Supplemental Commentary

By: Mike Bradner

Sen. Bill Wielechowski has introduced a proposed constitutional amendment, SJR-1, that would constitutionalize the Permanent Fund dividend. This would essentially take Fund income off the table for spending on the basic purposes of government, such as schools, health and social needs, public safety, and transportation that might be needed under emergency fiscal conditions. 

We’re not picking on Sen. Wielechowski, but he volunteered to be part of this discussion!

 

Basic Politics 101: What’s the primary purpose of government?

The primary purpose of government, Sen. Wielechowski, is to provide public services, not to pay the public a cash dividend. The latter may be feel good politics, but it lacks a place in the fundamental role of government.

None of us know how this fiscal crisis we’re mired in is going to work out. The odds are we’re not going to get through it without some significant budget reductions, harsh enough that they will also put revenue necessities on the table.

Revenue necessities - taxes!

These “revenue necessities” are polite words for “taxes,” money we will have to pay-citizen taxes they’re called. In the agenda of revenue, use of Permanent Fund income, is also a revenue, citizens surrendering a portion of their dividend for public services.

State lawmakers, as well as governors, in recent years have lived in a political environment where taxes have not been part of the discussion with the public.

Taxes is a political “choke word”

Alaskans seem to have a speech impediment. They can say Tanana, Tutatuliak, Tallahassee, Texas, Tatalanika. But ask them to say “taxidermy,” but hold everything after the “x” and they’ll choke up, and perhaps go into apoplectic shock. On the state level, taxes have simply been off the table for decades, not discussable. As a result, the “political culture” of such discussions is also a blank.

Politicians have to “facilitate” bringing taxes to public discussion

This isn’t to be taken lightly. Politicians have to work up to a dialogue about taxes, as well as use of Permanent Fund income. No one has to rush the barricades. But politicians do have to facilitate “this language,” gradually bringing the public into the discussion. Notice we used the word “facilitate.”

One of the political skills of politicians, especially when they face politically hazardous, and unavoidable, issues is to use their political skills to insure that such issues get on to the table. If they can’t personally touch the issues, then the skill is getting less vulnerable parties to push the issues on the table.

We have not had to deal with revenue issues within the institutional memory of most of our present lawmakers, so it should be no surprise they are reluctant to engage such discussion.

No one yet has put revenue discussion on the table!

• In the aftermath of the 2008 financial crash, and subsequent recession, the first action of many states across the country was to put all their revenues, fees, tax exemptions, and etc. on the table for review (not necessarily advocacy).

• Such a review of our revenues options has yet to occur.

• The recent Commonwealth North report (by people who don’t have to stand for election) managed to do a volume of work without putting revenue issues on the table. They had the opportunity, but made only a reference to such future work.

Talking taxes is politically hazardous, to be sure!

Talking taxes is a hazardous process to be sure. By nature, politicians avoid being first to grab the “third rail” of new and controversial issues. Nurturing revenue issues forward is a delicate dance between legislative leaders, majorities, minorities, and individual lawmakers. Many lawmakers come from districts where such issues may be far more hazardous than others. Then there is the governor, who has a singular constitutional responsibility to lead.

Legislators need to think about the fact that they don’t have to be elected forever.

There is life after politics. They may well have to stand up among flying political bullets. They may survive, they may not. The history of such revenue/tax combat is that the voters, of course, do react. They come down hard on a “tax legislature.” In fact, voters in reaction often don’t distinguish between those who voted for taxes and those who did not - they just whack them all.

However, even where there is a quantum shift in makeup of a Legislature, the new body rarely repeals such taxes. They may move some decimal points, and make political noise, but the revenue enactments generally remain “in place” – they were necessary. However, we are told that many lawmakers who bite the bullet often later get elected again. They apparently were respected for their courage.

Facing up to tough issues, not passing the buck!

Politicians are elected to do what? They are elected to look at complex issues, and at a greater depth than the general public, being busy with their daily personal lives can possibly do.

However, there are many of the elected willing to duck such issues, pass the buck to the public. We’re talking about putting a revenue issue out at public referendum - let the public decide. The result of such a political dodge is that there will be only one answer by the public - that will be an emphatic “no.”

Once putting a tax issue to a public vote, lawmakers are stuck with that as “precedent.”

The odds are repeated efforts will just bring repeated rejection.

 

Income tax, sales tax, or use PF income

The question for such lawmakers who dodge responsibility and pass the buck to the public is:

• “Why the Hell do we elect you.” We elect people to make the tough decision.

The best test of the necessity of a tax is when politicians lay their futures on the line and “do it.”

In the future, like it or not, lawmakers will likely face choices that involves enacting an income tax, a sales tax, and use of Permanent Fund income.

What we “are not” as a state!

We need to remember we are not a “usual state,” we are not Maryland, Delaware,

New Jersey, Connecticut, New Hampshire, Vermont, which you can walk across in a day. Nor are we Ohio, Indiana, Illinois, Iowa , Wisconsin that you can easily drive across in a day. These are states where a kilowatt of electricity can flow border to border, where the tax bases of local governments are relatively uniform, where local governments can support many services without state assistance.

As a state “what we are”

We are is a state that superimposed over the contiguous United States would stretch coast to coast, a fifth the size of the contiguous states. We have two-thirds of the shoreline, an extensive fishery, 82 percent of our communities are connected only by air, the state operating 247 airfields. One marine highway system stretches 1,619 miles along our coastline.

We operate school systems unconnected by roads, and where individual school sites are unconnected from each other. The densities of school populations and school costs defy efficiency in Many of these areas lack a local tax base in the traditional sense. Costs for electricity and heating oil is prohibitively high, climate restricts fuel deliveries to once a year. Community infrastructure is costly and difficult to maintain- water, sewer, waste treatment, and solid waste.

We have gained in our core regional efficiency!

Today the good news is that the costs of our railbelt region (Seward to Fairbanks) are pretty good in comparisons with elsewhere. The same is true for our Southeast Alaska cities and boroughs. The bad news is that a lot of “other Alaska” still has a high cost profile.

All this being said, our windfall of oil revenues due to the 2008 ACES tax, and the escalation of oil prices worldwide, has allowed our budgets to soar.

We can reduce budget, but also have to have a mix with new revenues. A good end result comparison might be with similar core areas in other states.

The same goes regarding what people pay for their services in these ad hoc comparisons.

So what’s going to happen now?

Somewhere here lawmakers have choices to make regarding budget reductions and balancing reductions these with a mix of different kinds of new revenue. Our budget spending is still constrained by oil prices. While we may adopt new revenues that are more predictable, our reliance on oil prices will remain, and oil price will likely remain volatile for some time to come.

There’s a lot more ahead of us!

There is a lot more ahead of us regarding a host of issues that revolve around budget situation. We will have ongoing special reports exploring the shadows of emerging policy. Right now lawmakers are pretty much just looking at budget reductions, disregarding revenue. They are assessing what is structurally possible and over what kind of time span. Cuts take time to implement, programs time to dismantle and phase out. There are also contracts. Likewise new revenue take time to put in place.

 

For information on subscribing to the Alaska Legislative Digest, email [email protected]

 

Resource Development Council Conference Part 1

The Resource Development Council hosted the 35^th Annual Alaska Resource Conference this week. Over the next week, Alaskanomics will highlight the presentations from the conference.

The two-day event allows the resource industry to gather and look back at the past year, while planning for the coming year. There were many things to celebrate at this year’s conference, but participants and speakers were decidedly cautious about the State’s fiscal future.

As is the tradition, the conference started out with an outlook for the coming year by Alaska Department of Labor Economist, Neal Fried. With the exception of 2009, the Alaska economy has been growing for the past 25 years. The growth has not always been by leaps and bounds, but it has been moving in the right direction. In 2014, it is predicted that there will only be about 900 new jobs in Alaska, which is only 0.6 percent. This is not as strong as many would hope and there will be a breakdown of the employment categories in January when the annual wrap up is published. Fried continued with brief updates of the various resource industries.

• Timber has had very little change and is down with record lows
• Mining is largely unchanged as well and has slowed and growth has flattened out
• Fishing grew in both processing and harvesting this past year
• Oil keeps hitting new highs, North Slope employment has doubled in the past decade
• The Visitor Industry is up for the third year in a row

Alaska earnings have grown since a dip in the late 1990s and we currently have the second highest household income behind Maryland. The population grew in the past year, but the growth is starting to slow down.

Kara Moriarty of the Alaska Oil and Gas Association gave the update for the oil and gas industry. She shared the usual numbers that more than one third of all Alaska jobs are tied to the oil and gas industry and for every one industry job, 20 other jobs are generated through industry spending. The oil industry paid $6.9 billion in taxes and royalties and luckily the current tax policy generates more revenue at low prices than the old regime. This is very good since the price of oil has dipped below $80 a barrel. There has been a lot of new development on the North Slope and in Cook Inlet. Moriarty finished with the reminder that while we cannot control the price of oil or Alaska’s high cost environment, we could all be “Resource Proud”.

Stephanie Madsen of the At-Sea Processors Association shared that the fishing industry continues to grow and is currently the number one private sector employer in the state. The value of Alaska’s fisheries fluctuates because of the global market. The industry continues to be challenged by environmental non-governmental organizations (NGOs) calling for protected areas. Madsen continued by noting that Alaskan fisheries historically have been managed conservatively and are continually adapting to the varying definitions of sustainable.

Keith Coulter with Koncor Forest Projects gave the update for the timber industry, which by far has seen the largest decline of other resource industries. He noted that both fishing and forestry are sustainable and renewable and are not mutually exclusive. Rural communities that have lost timber are having a hard time replacing the jobs and income that were seen with the timber industry. Coulter shared that he felt that Federal Forests should be managed in the same way that private forests are and Alaska should resist efforts to adopt federal forest practices. He warned that changes to the Alaska forest practice should be informed by contemporary science. Coulter also urged the need for reform of federal overreach in the Tongass and elsewhere through fewer environmental regulations and restrictions.

Karen Matthias with the Council of Alaska Producers gave the update for the mining industry. She was proud to share that both Red Dog and Greens Creek Mines were celebrating their 25^th anniversary of operation. She said the industry needed to do a better job at sharing success stories from around the state. An example is that Usibelli Mine has been in operation for more than 70 years and is mining responsibly. There are more than 5000 direct mining jobs in Alaska with an average annual wage of $100,000. Donlin Gold is in the permitting process and other mines could bring many new jobs to the state. Alaska is number one in the world for pure mineral potential and holds incredible potential in the mining industry. It was no surprise to conference attendees that permitting is consistently the biggest challenge in mining and is a very slow process. The outlook is bleak right now, but the industry can redouble efforts to fight against those trying to block responsible development and educate the public on the positive impact of mining so that things might improve.

Gideon Garcia with CIRI Alaska Tourism wrapped up the year in review with the tourism industry update. This past year, Alaska saw 1.96 million visitors, who spent $3.9 billion. The tourism industry adds 46,000 jobs for Alaskans. The projections for the 2015 season look good. Cruise traffic is predicted to have a 2.8 percent increase and overall visitor traffic is expected to jump 2-3 percent in 2015.

The year in review and 2015 outlook is a staple to the RDC conference and while presenters were proud to share accomplishments within their individual industries, it was obvious that the challenges of federal overreach, commodity prices, and regulations weighed heavy in the room.

Alaskanomics will continue to highlight the conference with Investment in Action by Trond-Erik Johansen of ConocoPhillips Alaska and Investing in Alaska’s Future with Janet Weiss of BP Exploration (Alaska).

Keep Alaska Competitive and Vote No on 1

With five days to go until the Primary Election on August 19, the battle over oil tax structure is fierce.  The vote is too close to call and both sides are urging everyone to get out and vote. The facts of the debate seem to fade away as the issue is becoming extremely emotional.

Northrim Bank has publically supported the ‘Vote No’ effort and has contributed to the Keep Alaska Competitive campaign because it is important that Alaska is competitive for development and production of our natural resources. The tax structure put in place by SB21 returns some competitive edge to Alaska and production has increased in the short time that SB21 has been in place. The production numbers of FY14 were finalized on August 6 and there was only a 0.1 percent decline for the year. After an 8.2 percent decline in FY13, an average of only 565 fewer barrels a day FY14 is a welcome change.

Both sides of the debate agree that a change was needed for Alaska’s oil tax structure. SB21 provides incentives for new oil, which will help increase production. New projects have already been announced after the passage of SB21 last year. There have also been new investors to the North Slope and many agree that the new projects are a direct result of a more favorable business climate in Alaska.

North America is well on its way to being energy independent and Alaska can be part of increased production and development if ‘Vote No’ prevails on August 19.  A ‘No’ vote is a vote for Alaska’s future. It means more jobs for Alaskans, increased revenue for the State, and a stronger chance for the gas pipeline to be completed. This is one of the most important issues to face Alaska since statehood. We encourage all Alaska voters to be engaged in the process and to ‘Vote No’ on ballot measure 1 on August 19.

2014 3-Year Outlook Luncheon

The Anchorage Economic Development Corporation (AEDC) hosted its Annual 3-Year Outlook luncheon today. The event always packs the house and this year included an update from Mayor Dan Sullivan on Investments in Anchorage, the 3-Year Outlook from AEDC President & CEO, Bill Popp, and a Keynote Address from Terry Jones, Founder & Former CEO of Travelocity.com, and Chairman of Kayak.com.

Mayor Sullivan’s presentation outlined the strength of investments throughout Anchorage in the past few years and gave examples of continued growth for the Municipality. He highlighted that the Municipality is currently retiring bonds faster than they are being incurred, which is reducing debt for the city. There has been over $372 million spent in road improvements since 2009. Community and neighborhood parks have also been a focus in the past few years. Since 2009, there have been 100 park improvement projects, totaling $20 million. Park rehab has been assisted by more than 460,000 volunteer hours. There will be another 8 neighborhood park projects in 2015.

The Mayor also outlined non-government projects that are helping Anchorage thrive as the Municipality prepares to celebrate Anchorage’s Centennial in 2015. Special events have already started and there are many great activities on the calendar throughout the remainder of 2014 and into 2015. More information about Anchorage’s Centennial Celebration can be found at www.Anchoragecentennial.org.

Bill Popp then took the stage to present the 3-Year Economic Outlook for Anchorage. He started on a high note, saying that the Anchorage Consumer Index is at an all-time high of 63.3 percent. This figure includes three statistics. The first is local economic confidence at 65.2 percent; personal finance confidence at 67.1 percent; and future expectations at 60.4 percent. While all three represent a good outlook, respondents were not as confident in the future as they were in the current economic situation.

The 3-Year Outlook looks at population, employment, personal income, Anchorage airport passenger numbers, air freight volume, building permit values, port volumes, Anchorage visitor industry, and Alaska North Slope crude oil prices as indicators of the economic strength in Anchorage. Highlights from Popp’s presentation include a 4.5 percent growth in personal income. This is likely to be bolstered by a string of larger Permanent Fund Dividend checks in the coming years. Experts are predicting a boost due to loss of 2008 and 2009 averages when oil prices were significantly lower than they are today.

Air travel is also expected to increase in the coming years and is predicted to see record or near record numbers by 2017. Individuals and families are traveling again after holding off during the recession. This is great news for Anchorage and all of Alaska. The Anchorage Visitor Industry as a whole is doing well because the great work of Visit Anchorage, who promotes travel to Anchorage at industry shows throughout the world. Their hard work is really paying off in the level of visitors coming to Anchorage.

Air freight volume and Port of Anchorage volume has been relatively flat in recent years. The freight volume forecast can be attributed to a shift in the logistics/supply industry. The industry is becoming more efficient and able to use surface transportation more than before, which reduces air freight in and out of Anchorage. They are also using larger planes, which increases the amount of freight being carried by fewer planes. The larger planes are able travel different routes, that do not always include stopping in Anchorage. Much of the volume that comes through the Port of Anchorage is fuel and with the loss of Flint Hills and fewer planes coming through with freight, the fuel volume has decreased in recent years. There has been a slight recovery from the Flint Hills loss, but not enough to give a huge upswing.

Popp concluded his presentation with his thoughts on why it is important to 'Vote No on 1' in the upcoming primary election. The Board of Directors of AEDC supports 'Vote No' because they believe that a stable tax structure is the way to keep Alaska’s economy strong and therefore keep Anchorage’s economy strong. This is one way that we as citizens can have some say in the future of our city and state. He encouraged everyone to get out and 'Vote No on 1' on August 19. With the large amount of applause from the crowd, it was obvious that many in the room supported this stance.

A full luncheon recap can be found at www.aedcweb.com, as well as the Anchorage Consumer Optimism Index, and the presentations from the luncheon.