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Alaska Air does it again with record $842M profit in 2015

The State of Alaska might be rubbing pennies together, but its namesake airline is not. Alaska Airlines’ parent company, Alaska Air Group Inc., once again posted record fourth quarter and full-year earnings in 2015. Alaska Air Group executives reported a $186 million fourth quarter profit and a 2015 net income of $842 million in a Jan. 21 investor conference call. The quarterly profit is a 49 percent year-over-year improvement and the full-year return is 47 percent better than 2014. Many domestic carriers have seen profits grow as fuel costs have fallen over the last six quarters; however, Alaska Air Group’s strong performance, led by Alaska Airlines, has withstood high fuel prices as well. The company has now posted six consecutive years of record profitability. Seattle-based Alaska Air Group also owns Horizon Air, a regional carrier that serves Kodiak, Anchorage and Fairbanks. “While every airline has benefited from low fuel prices, Alaska led the industry in many of the underlying drivers of financial performance: areas like operation reliability, customer satisfaction, customer growth, and low fares-low cost,” Air Group CEO Brad Tilden said during the investor call. Alaska’s average fuel cost was $1.88 per gallon in 2015, down 39 percent from $3.08 per gallon a year prior. Tilden noted that markets constituting 95 percent of Alaska Air Group’s revenue would still be profitable at fuel prices of $3 per gallon. Fuel can account for up to a third of a major airline’s operating cost at higher prices. Flight capacity increased 10.6 percent for the year with the addition of 20 new markets in 2015, primarily on the back of 10.7 percent capacity growth by Alaska Airlines. That led to a 33 percent decrease in actual fuel cost. Consolidated yearly revenue was nearly $5.6 billion, up 4 percent from 2014, while total operating expenses fell 2 percent. At $1.3 billion, Air Group’s pretax income was up 35 percent. Air Group also used its strong year to buy back 5.5 percent of its outstanding stock. Since 2007, the company has repurchased 35 percent of its stock, according to Chief Financial Officer Brandon Pedersen. The $842 million full-year profit translated to adjusted earnings of $6.51 of per share, a 56 percent increase over 2014. Alaska Air Group stock sold on the New York Stock Exchange for $72.60 per share at the close of trading Jan. 21. The company also announced on Jan. 21 a 27.5-cent per share quarterly dividend that will be paid March 8. It paid a 20-cent per share dividend in the fourth quarter of 2014. Pedersen said non-fuel operating costs declined 1.3 percent in the fourth quarter and 0.8 percent for the year. “We recognize that low fuel prices will probably not last forever, so we remain focused on creating a permanent, sustainable advantage by lowering nonfuel unit costs and increasing the fuel efficiency of our fleet,” Pedersen said. Alaska Airlines is in the midst of phasing out older, Boeing 737-400s over several years and replacing them with newer, more efficient 737s. Air Group’s fuel burn improved 2 percent per available seat mile in 2015, Pedersen said. That led to an 8.3 percent increase in overall fuel consumption despite the 10.6 percent increase in capacity. Alaska Air Group continued to pay down debt in 2015. At the end of the year its debt-to-capitalization ratio stood at 27 percent, leaving the company in a $300 million net cash position with $686 million in outstanding long-term debt, according to Pedersen. The median debt-to-cap ratio for S&P 500 companies is 45 percent, he noted. “Alaska (Airlines) remains one of only two U.S. airlines to have an investment grade balance sheet,” Pedersen said. The other is Southwest Airlines. Tilden said Air Group’s return on invested capital, or ROIC, was 25.2 percent for the year, up from 13 percent in 2012. He added that the company’s 15,000 employees will share in the record year through $120 million in bonuses expected to be paid this year.

Gov’s foray into ‘fish war’ ill-fated as Maw faces felonies

Gov. Bill Walker’s early foray into the Cook Inlet fish conflict soon after taking office has turned out to be ill-fated as Roland Maw, his one-time nominee to the Board of Fisheries, was charged with residency fraud just a week after a meeting with Walker and the United Cook Inlet Drift Association. Walker met with UCIDA and Maw, the former executive director of the commercial fishing group, on Jan. 6. On Jan. 13, Maw was hit with 12 felony charges and five misdemeanors for claiming Alaska residency to obtain Permanent Fund Dividends and resident rates for hunting and fishing permits. Soon after Maw withdrew his name for consideration to the board last February, the State of Montana pressed similar charges against him a month later and he pled no contest in May 2015. Walker says advisors have told him to stay away from fisheries politics, but from his perspective there are still ideas to discuss and people to see. In a Jan. 26 interview, Walker said he’s been advised to steer clear of the so-called “fish wars” in Cook Inlet in particular, and to an extent he agrees, but said he still has two cents to throw into the Kenai River. “With all that’s going on I should probably stay away from this issue in some respects, all that’s going on in the state as far as the deficit and the budget stuff, but this is a big issue,” said Walker. “When I see this kind of angst among different groups, that’s a process I want to focus on.” Maw’s history with Walker predates his failed nomination to the Alaska Board of Fisheries in 2015 when Walker ousted board chair Karl Johnstone and named Maw as his replacement just days later on Jan. 20. Maw supported Walker in his election campaign, both in fundraising capacity and in direct contributions. He, along with UCIDA president Dave Martin and several UCIDA board members, donated to Walker’s campaign, and was present at a Walker fundraiser in Kenai two days before the Nov. 4, 2014, election. Between 2013 and 2014, Maw donated a total of $1,250 to Walker’s campaign. Walker’s campaign reimbursed Maw $150 on Sept. 29, 2014, for a pair of tickets to the United Fishermen of Alaska annual banquet and $100 for a non-monetary contribution of refreshments for a fundraiser on the Kenai Peninsula two days before Walker’s election according to public disclosures. Due to Maw’s pending charges, Walker’s office said he could not comment on him. “Because of the Department of Law’s charges against him, it would be inappropriate to discuss Roland Maw,” said Katie Marquette, Walker’s press secretary. Apart from meeting with the Walker, Maw was present for an editorial meeting between the board and the Journal in October 2015 at UCIDA’s office in Soldotna. The cover photo on UCIDA’s Facebook page is a photo of Walker and the UCIDA board along with Maw that was posted on Sept. 25, 2015, four months after Maw pled no contest to residency fraud in Montana. UCIDA said Maw has no relationship with the board. He no longer serves as executive director of the board or in any kind of consultant capacity to the board. UCDIA president Dave Martin said Maw only came “as a concerned fishermen” and holds no formal relationship with the organization. “I think everyone is forgetting that the law says innocent until proven guilty, and that’s how people should treat him,” Martin said. Walker said in a telephone interview he’s held dozens of meetings with fishing groups since entering office, as he wants to be equally accessible to all groups in order to facilitate discussion and solutions. “We’ve met with anybody who wants to meet with us on fishing,” Walker said. “I’ve never turned down a request for a meeting on fish issues. I’ve met a lot of people in different positions with different positions. It’s been an open door for me.” Board of Fisheries flap The governor’s public involvement with Maw goes back to a choppy Board of Fisheries appointment process in 2015 that eventually revealed Maw’s Montana licensing charges and exposed gaps both in the vetting process and Walker’s knowledge of fish politics nuance. The seven-member Board of Fisheries has a precarious balance; traditionally, three members represent the commercial fishing industry, three represent the sport fishing sector, and one represents the subsistence fishing community. Walker turned that balance on its head by replacing a sport representative, Johnstone, with a commercial representative in Maw. Cook Inlet fish battles continue to rage about the board’s balance and its political agenda. Commercial advocates allege that sportfishing interests hold too much sway in setting allocations and management. Sportfishing industry voices say it’s only a perception, because the sportfishing sector is the relative newcomer to the Alaska fishing scene previously dominated by commercial interests. Walker’s appointment of Maw in early 2015 split the political schism wide open. In a joint meeting Jan. 14, the Boards of Fisheries and Game voted 7-7 against moving Maw forward to an interview for Department of Fish and Game commissioner. The Board of Game voted unanimously that Maw was qualified to interview for the position, while the Board of Fisheries chaired by Johnstone voted unanimously that he was not qualified. Public outcry followed, alleging that anti-commercial fishing politics had swayed the board to deny a qualified candidate an interview for the top job at ADFG. Walker expressed outrage, drafting a letter to legislative leaders scorning the board’s failure to deem Maw qualified as a potential commissioner even though Walker had already made his preference known when he took office by naming Sam Cotten the interim ADFG commissioner. “Today, I spoke with Chair Karl Johnstone and expressed my sincere disappointment in the recent lack of process demonstrated by the Board of Fisheries,” wrote Walker in a letter to House Speaker Mike Chenault, R-Nikiski. “I expect the Board of Fisheries to hold a fair, transparent, and public process when selecting candidates... It is apparent to me that it is time for a change on the Board of Fisheries.” Walker told Johnstone he wouldn’t renew Johnstone’s appointment, which was set to expire June 30, 2015. Johnstone resigned instead of waiting for his term to end, and Walker quickly filled his absent position by appointing Maw to the seat, subject to Legislative confirmation. The appointment backfired. Maw mysteriously withdrew his name from consideration on the day he was scheduled for a confirmation hearing on Feb. 20, only a few days before it became public that Montana was investigating him for hunting and fishing license fraud. He pled no contest to the charges in May 2015, paid a grip of fines, and had his hunting and fishing privileges revoked in Montana. Montana is part of a network of Wildlife Violator Compact states, which honor such bans among them when implemented in another state. Alaska is a member of the compact. With Maw withdrawn, Walker had to take a second crack at filling the board seat. Walker nominated Robert Ruffner, a Kenai area conservationist and director of the Kenai Watershed Forum, a habitat restoration group. As with Maw, segments of the fishing world said the nomination disturbed the board’s balance of three commercial industry representatives, three sportfishing representatives, and one subsistence representative. Sportfishing interest groups campaigned to paint Ruffner as sympathetic to the commercial fishing industry. The campaign was a success. The Legislature voted against approving him by a 30-29 vote, again to public outcry over the contentious politics of the Board of Fisheries. On his third try, Walker’s office planned to make another board appointment the administration has not acknowledged. Days before the a board nomination was due, commercial fishing group United Fishermen of Alaska forwarded an email to members asking that they call Walker’s office to protest the pending nomination of Bobbi Quintavell. Quintavell is the former senior vice president and chief operating officer of Alaska Native regional corporation Doyon Ltd., and past president and CEO of Arctic Slope Regional Corp. Quintavell’s fishing involvement is limited to her appearance in a Kenai River Sportfishing Association promotional video advocating king salmon conservation entitled “Save Our Kings.” Walker’s office denied that it planned to nominate Quintavell to the position, but former Walker administration employees said the denial covers a hasty decision and an administration leak. Karen Gillis resigned as director of the governor’s Boards and Commissions office, insisting she did it specifically because Walker intended to nominate Quintavell to the board over Gillis’ objections she lacked fisheries experience.  On his fourth try, Walker nominated Bob Mumford, a former Board of Game member with no overt commercial or sportfishing fishing affiliations. Mumford has been serving on the Board of Fisheries ever since and is currently awaiting the approval of 2016 Legislature to continue the post. Board vetting Each governor, and each governor’s Boards and Commissions director, has a different method for vetting applicants. The process of digging into candidate part is largely case-by-case, according to several sources. Gillis served as Walker’s Boards and Commissions director when Maw was nominated to the Board of Fisheries. Gillis did not respond to Journal requests to verify her vetting process at the time. The current Boards and Commissions nomination process is largely subjective, according to Walker’s office, with no defined code or rubric for how appointees’ backgrounds are vetted. Walker’s Deputy Chief of Staff, John Hozey, who took the job in August 2015, months after the Board of Fisheries appointment fiasco, said the governor’s office usually checks a handful of open sources for boards and commissions appointments, including Courtview and social media. There is no concrete red flag that would prevent a nominee’s progress in moving forward; rather, staff judge each nominee individually.  “If someone were an axe murderer, I wouldn’t forward their name,” said Hozey. “It’s so subjective.” Hozey said the office looks for “ anything that might indicate a lack of judgment,” or indicate a position the governor wouldn’t agree with. “We don’t want anything coming up that’s going to embarrass the administration or the Legislature.” The office does not generally check board and commission applicants’ PFD histories or criminal backgrounds from previous states of residency. Walker’s fisheries involvement; Kluberton off the board Walker’s public interactions with Alaska’s fishing world have been limited. For fisheries knowledge, he leans in large part on Alaska Department of Fish and Game Commissioner Sam Cotten, whom Walker appointed in 2015, and Lt. Gov. Byron Mallot. At this point, he said he wants to be a facilitator for communication between user groups, particularly in Cook Inlet. Walker said he has no concrete plans for fisheries, but that he has interest in establishing some kind of informal multi-user group fisheries advisory group similar to the federal Tongass Advisory Committee. The committee advises the U.S. Department of Agriculture Forest Service in young forest management, “emphasizing the need for collaborative, creative and publicly owned solutions to forest management on the Tongass,” according to the USDA website. “I have a lot of faith in Alaskans being able to work things out amongst themselves,” said Walker. “Now is an appropriate time to look at these issues. If I can be a facilitator in some way, I think I’m willing to do that. I’m stepping into areas there’s a lot of passion.” Walker’s “open door” policy means he’s met with dozens of fishing groups, but he said he seems to have had more meeting requests from commercial fishermen than other user groups. “It would appear there’s been more interest as far as contacting me from some of the folks in the commercial groups, but they all have equal access to me.” Apart from the Board of Fisheries flap in early 2015, the only official action he’s taken has been to write a letter to the Board of Fisheries asking that it move the 2017 Upper Cook Inlet board meeting from Anchorage to the Kenai Peninsula. Since then, he said his insistence on the meeting’s location has shifted to “broader solutions.” Walker wrote a letter to the board Oct. 21, 2015, asking it to consider changing the location and promising to attend if it were held on the Peninsula. “There has been much attention given to the controversies surrounding the Cook Inlet fisheries, and I feel we should attempt to improve the communication and exchanges among the many interested parties,” wrote Walker. “Holding a meeting on the Peninsula, possibly Soldotna, may show a willingness to consider points of view from local residents who may not have been able to participate over the past five board cycles.” Walker promised during his election campaign he would not renominate any Board of Fisheries member who voted against moving the meeting to the Kenai Peninsula. When asked if he plans on following through, Walker didn’t renew his promise, but referred back to his removal of Johnstone as board chairman. “Certainly I removed an individual who was lobbying against moving the meeting to the Kenai Peninsula,” said Walker. He said he has since changed his mind about the geographical importance of the meeting; public process is more important. “What I have learned is where a particular meeting is held isn’t as important as people feel that the process is fair,” he said. Walker’s promise to deny reappointment to Board of Fisheries members will have no conclusion, as a board member says he is stepping down voluntarily. Tom Kluberton, a sportfishing representative and board chair, was among those who voted against moving the 2017 Upper Cook Inlet meeting to the Kenai Peninsula at a December 2015 board meeting. Along with commercial fisherman Fritz Johnson, who voted to move the meeting, Kluberton’s three-year term expires in June. Kluberton confirmed in an email that he would not be resubmitting his name for another appointment. The $10,000 per year stipend isn’t worth the “mild PTSD” that can come from a single board meeting packed with impassioned fishermen, he wrote in an email. With the marathon Upper Cook Inlet meeting coming next year for whoever Walker names to replace Kluberton, all stakeholder groups will be watching closely. “I am proud to have contributed to the task but cannot fit that much effort, for so little compensation, into my life without feeling the effects of the sacrifice on my family and myself,” wrote Kluberton. “My second term ends this spring. I feel I earned my little bit of money; I have never worked harder, or withstood more stressful situations for less. I’m done.” DJ Summers can be reached at [email protected]

North Pacific council keeps up work on Gulf bycatch plan

The North Pacific Fishery Management Council will meet in Portland, Ore., Feb. 1-9 to discuss changes to Gulf of Alaska bycatch management, Bering Sea yellowfin sole management, and halibut management framework. The council is one of eight regional fishery councils oversees federal fisheries within three to 200 miles from the coast. The council will only take final action on two items. The first will set overfishing limits and acceptable biological catches for the Norton Sound red king crab fishery. The second, more involved, will make changes to observer coverage requirements on Bering Sea and Aleutian Islands catcher vessel owners and operators in order to reduce their financial burden. The Bering Sea and Aleutian Islands limited entry trawl catcher vessel fleet has requirements to document halibut bycatch on an individual vessel level. Some vessels, however, are still in the partial coverage category, and even if selected for voluntary full coverage must pay both a partial observer fee and a full coverage fee. Observers employed by the National Marine Fisheries Service live onboard vessels and monitor the amount, size and species of bycatch taken. “Through this action, the council is seeking to provide relief to trawl catcher vessels owners who have voluntarily paid for full observer coverage in addition to the partial observer coverage fee in order to better manage bycatch while complying with existing Observer Program regulations,” reads the council’s report. In an ongoing method to streamline halibut management, the council will also review its Scientific and Statistical Committee’s report on halibut management framework. Halibut are co-managed by the council and the International Pacific Halibut Commission, or IPHC. The council regulates halibut bycatch and sets the harvest split as a percentage between commercial and charter fishermen in the Central Gulf of Alaska and Southeast. The IPHC sets the overall harvest level among regulatory areas from Northern California to the Bering Sea, which includes the directed harvest, bycatch, wastage and sport take by both charter and unguided anglers. The co-management has proven problematic, creating a situation in which more halibut are taken as bycatch than by the actual halibut fishermen in the face of a shrinking supply of legally harvestable fish. In an effort to reduce this bycatch and provide for halibut fishermen, the council is reviewing ways to better cooperate with the international commission. The halibut management framework looks to identify each governing body’s scientific methods, fill gaps between council and commission process where the methods are not consistent, and potentially create a loose collaborative process to improve communication channels. The council will also review a discussion paper for the Gulf of Alaska’s groundfish fisheries.  The discussion paper includes several alternatives to lower bycatch in the Gulf. Creating some kind of vessel and processor cooperative system in the Gulf is the council’s preferred alternative. Cooperatives are thought to share information about high bycatch areas than individual vessels, theoretically leading to lower overall bycatch rates. In the Bering Sea and Aleutian Islands fisheries, groundfish fishermen are encouraged to belong to a cooperative rather than fish alone; the council engineers the cooperatives to incentivize bycatch reduction by giving them more flexible management than individual vessels. Vessels that choose not to participate in an incentive plan agreement through cooperatives receive a smaller bycatch allocation than those who do. Other options would create a system of shoreside processor allocations based on fishery dependency, among other factors. Some would install safeguards against overconsolidation of groundfish and bycatch quota. Shoreside processors, the lifeblood of many Gulf of Alaska coastal communities, are concerned that bycatch management could limit the amount of groundfish they process by closing fisheries before the full harvest is taken. Preventing overconsolidation of the fishing fleets is of particular concern to Kodiak, which was particularly devastated by the rationalization of the Bering Sea and Aleutian Islands crab fishery. The fleet shrunk by two-thirds in the first season as quota was consolidated to fewer vessels and some 1,000 crew jobs were wiped out. The paper also includes options to allow trawlers to fish at slower speeds. Shorter seasons for certain groundfish lead trawlers to race to catch as much as possible, lowering the caution in regards to bycatch. In several of the options, the council would require 100 percent observer coverage for all Gulf of Alaska trawlers. In the case of catcher-processors, the council could require two observers per vessel as is in place for catcher-processors in the Bering Sea and Aleutian Islands fisheries. A discussion paper on the Bering Sea and Aleutian Islands yellowfin sole fishery will determine whether the fishery will be reserved for a predetermined group of historical participants. In the Bering Sea and Aleutian Islands, the yellowfin sole fishery stands as one of the last remaining fisheries without a comprehensive limited entry system. The paper examines the effects of creating a limited entry system for the offshore yellowfin sole fishery in this area. The closure of the area to new participants has both economic and environmental implications. In 2015, several yellowfin sole vessels told the council new entries to the fishery were downsizing their historical harvest rates and contributing to a greater halibut bycatch level. Yellowfin sole, a groundfish, has one of the highest rates of halibut bycatch in the North Pacific. DJ Summers can be reached at [email protected]

Walker’s Permanent Fund plan gets first Senate hearing

JUNEAU (AP) — The chairman of the Senate State Affairs Committee said Jan. 26 that he wants to vet several ideas surrounding the use of Alaska Permanent Fund earnings. Sen. Bill Stoltze, R-Chugiak, said that could include a constitutional amendment to allow voters to weigh in on the matter. So far, such a measure has not been introduced. Stoltze said he wants to be able to have different bills and ideas ready to send to the Senate Finance Committee for additional review. Stoltze’s committee held its first hearing Jan. 26 on Gov. Bill Walker’s plan to use the Permanent Fund as an endowment of sorts, fed by oil tax revenue and a portion of royalties. Earnings from the Fund, bolstered by a transfer from savings, would help pay for state government, moving the state away from budgeting around volatile oil revenue. The plan would change how the annual dividends most Alaskans receive are calculated, basing them on a portion of royalties rather than on the performance of the Fund. This year would be a transitional year for the dividend, and Walker’s budget proposal for the upcoming fiscal year calls for oil-tax revenue and the bulk of royalties to go into the earnings reserve. The use of Permanent Fund earnings is a centerpiece of Walker’s budget plan. But questions have been raised about whether the Fund’s earnings reserve account must be swept into the constitutional budget reserve to repay money that’s been taken out of it. The Department of Law, in a memo to the House Finance co-chairs this week, said it wouldn’t. In recent years, lawmakers have approved taking money from the constitutional budget reserve to help with the state’s pension shortfall and to help balance the budget amid deficits fueled by low oil prices. Under the constitution, if money is taken from the budget reserve, money in the general Fund available to spend at the end of each fiscal year is to be deposited into the budget reserve until it’s repaid. A three-quarter vote of each the House and Senate generally is needed to access the budget reserve. State law defines the earnings reserve as a separate account in the Permanent Fund. But the Legislative Finance Division has argued that putting money other than Permanent Fund earnings into the earnings reserve would change the nature of that account. The Department of Law’s memo, signed by Senior Assistant Attorney General William Milks on behalf of the attorney general, acknowledges that the earnings reserve would no longer be comprised solely of Permanent Fund income and that the account would be used for state government costs rather than restricted to paying dividends. But, the memo states, that doesn’t change the earnings reserve into a Fund within the general Fund. The account has always been available to pay for government even if it hasn’t been used that way, the memo states. Legislative Finance Division Director David Teal said he wanted to have the issue at least discussed. If adopted as proposed by the administration, he said he’s concerned about a potential court challenge. A memo from Legislative Legal Services, requested by Sen. Bill Wielechowski, D-Anchorage, states that the appropriation of non- Permanent Fund income to the earnings reserve, as proposed “poses a novel issue not yet resolved by the Alaska Supreme Court.” Some legislators have indicated they’re interested in looking at some use of Permanent Fund earnings to address the deficit. At least two bills with different approaches than Walker has proposed are pending. Sen. Bert Stedman, R-Sitka, said he thinks lawmakers should consider not inflation proofing the Permanent Fund and using that $900 million. He also wants to change the state’s oil tax credit structure. Laura Achee, a spokeswoman for the Alaska Permanent Fund Corp., said by email that most of the Fund’s assets rise and fall with inflation and are “self-inflation proofing.” The Legislature traditionally also has used Fund income toward inflation-proofing the Fund’s principal.

Cheap oil good for consumers, bad for stocks

NEW YORK (AP) — Wall Street is drowning in oil. Stocks are having their worst start to a year in history in part because of a rapid plunge in the price of oil. The price of crude is down 28 percent this year already, which in turn has dragged down energy company shares in the Standard & Poor’s 500 index by 13 percent, which has helped pull the overall index down 9 percent. This even though low oil prices — and the cheap prices for gasoline and other fuels that result — are wonderful for consumers and many companies. “It seems ironic that in the run-up to the global financial crisis we were worried about oil prices being too high in 2007 and 2008. Now we’re worried about them being too low,” said Julian Jessop, head of commodities research with London-based researchers Capital Economics Ltd. The drastic drop in oil and stock prices stands in contrast with a U.S. economy that, on the whole, is doing pretty well. U.S employers created 292,000 jobs in December, and few economists see the economy sliding into recession. Here’s what experts think is going on. Why is oil so low? Because there is so much of it. A long run of high oil prices inspired drillers to develop new techniques and to go to new places to find more oil, and they succeeded. In the U.S. improved oil drilling technologies known generally as fracking have added more oil to the global market than the total production of any other nation in OPEC other than Saudi Arabia. Producers in the U.S. and abroad haven’t cut back production very much, despite the low prices, and now the lifting of international sanctions against Iran could send more oil flowing into markets that are already awash in crude. U.S. stockpiles are at their highest level in at least 80 years, and the International Energy Agency predicts that during the first half of this year global oil supply could outstrip demand by 1.5 million barrels per day. Demand for crude has been growing steadily, but that may not last because economic growth in China, the world’s second-largest oil consumer after the U.S., is slowing. Why do low oil prices hurt the stock market? Oil company profits are plummeting, so oil company shares are plummeting, and that is dragging down the whole market. Analysts estimate that profit for all S&P 500 companies in total are on track to be down a recession-like 5.8 percent for 2015. But if energy companies were removed from that figure, S&P 500 profits would be up a very healthy 5.7 percent for the full year. That profit drop directly leads to lower share prices that drag down entire indexes. Two of the biggest oil companies in the world, Exxon and Chevron, are part of the 30-member Dow Jones industrial average. Of the 20 biggest share price losers in the S&P 500 this year, 13 are energy companies. Investors are also selling shares of companies that may have exposure to the oil industry, like certain banks. And the price of oil has now fallen so low that investors are also worried that it could mean global economic growth is much weaker than expected, which could hurt all companies. Aren’t lower oil prices a good thing for the economy? It depends on why prices are lower. If they fall because new supplies have been found, it usually helps the broader economy, and markets held up fairly well during oil’s big slide from over $100 a barrel in 2014 to under $50 a barrel last year. “In the long run, lower oil prices should be positive or at worst neutral for the world economy because all they’re really doing is transferring income from oil producers to oil consumers,” Jessop says. But this latest plunge in prices to under $30 a barrel has investors worried that oil prices are falling because global growth is slowing, as businesses and consumers in many developing countries, particularly China, cut back on spending. Bruce Kasman, chief economist at JPMorgan Chase, says that steep drops in oil prices have historically been a sign of a weakening global economy. Also, U.S. consumers have remained cautious about spending the money they aren’t putting into their gas tanks, which limits the benefit to the broader economy. Americans saved 5.5 percent of their incomes in November, up nearly a full percentage point from a year earlier. Kasman estimates that U.S. spending grew at a tepid pace of just 1.5 percent in the final three months of last year. “There’s no doubt that the consumer spending growth figures for the U.S., Europe and Japan have disappointed,” he said. Some of that likely reflected a temporary drag from warm weather, as Americans spent less on winter clothing and utilities. That could turn around in the first quarter, giving the economy a lift, Kasman said. Delta Air Lines told investors this week that bookings for this spring are ahead of last year’s pace because cheaper gasoline means consumers have more money. Could this lead to broader turmoil, the way the subprime mortgage crisis did? It is already having some ripple effects, but the energy market isn’t nearly as big or far-reaching as the housing market. When oil prices were high, lots of banks, including some of the biggest on Wall Street, made loans to energy companies to finance drilling in North Dakota, Texas and elsewhere. Dealogic estimates that the oil and gas industry has roughly $500 billion in outstanding debt. According to the Federal Reserve, there is $11 trillion in outstanding residential mortgage debt. Still, some are feeling it. Oil company cash flow is slowing, and companies are finding it harder to repay their loans. Oil and gas company bankruptcies are rising, and the entire market for so-called junk bonds has been shaken as a result of energy company defaults. JPMorgan Chase, Wells Fargo, Citigroup and Bank of America all had to write down the value of energy loans or set aside more money to cover losses. BofA executives told investors this week that energy loans were roughly 2 percent of its total loans. Smaller regional banks could to be more exposed relatively than the big Wall Street banks. Is there an oil price that would be good for the market and consumers? Jessop thinks that a price of about $60 a barrel would do the trick. “High enough to keep the main producers in business but low enough to provide a real boost to the incomes of consumers,” he says. He expects prices to return to that level by the end of next year as oil companies pare back exploration and the glut is worked off. AP Economics Writer Christopher S. Rugaber contributed to this story from Washington. Koenig reported from Dallas.  

The Bookworm Sez: Do tomorrow’s list today

You tried to make a big sale last week. A sale would’ve made you money and it would’ve made your numbers go up, which would definitely have made you happy. Alas, you just couldn’t make it happen, but if you read “Organize Tomorrow Today” by Dr. Jason Selk & Tom Bartow with Matthew Rudy, you’ll see how you might’ve made it so. Just like everybody else in the world, you have a finite amount of time: 24 hours per day, seven days per week. Part of that time is spent at work but, for many reasons, making the utmost of each precious minute can sometimes seem impossible. Selk, Bartow, and Rudy say that learning to use “the power of the mind” is the way to boost productivity: the best tool, as it turns out, is behind your eyes. The second-best is the method for which they named this book. No doubt, you create a to-do list each day, but the authors say you should do tomorrow’s list this afternoon, long before quittin’ time. Then prioritize by choosing the three most important (not urgent) tasks and setting tomorrow’s time-frame for finishing them. Write everything in long-hand, by the way; it will imprint better in your brain. Choose those tasks — and everything in your day — wisely. Many people “try to focus on too much and lose focus” on the big things, but heeding the most important items on your list (one at a time) can set the stage for success. Maximize your time by finding minutes throughout your day to finish up minor things that need doing. You’d be surprised at how many three- or five-minute blocks of time you have, and what you can get done. Understand how to conquer “fight-thrus.” Know how to evaluate and track your own performance and success. Learn what to say — and not to say — to yourself and to others. Embrace “abnormal” and, above all, learn to stop worrying about what you can’t control. There are simple things you can control. Use them. Did I read this book before?  I asked myself that once or twice but no, I didn’t. “Organize Tomorrow Today” just felt like it. Indeed, there’s a lot of familiar territory in this book but then I took a second hard look: authors Selk, Bartow, and Rudy dig a little deeper in each chapter than other, similar books and I ultimately liked that — but I must admit that I’m awfully tired of business books that draw analogies to sports. That doesn’t make this book bad – just, sometimes, it’s not very interesting. Maybe, inside the good and the bad here, the best advice is the simplest: don’t tackle too much, too early. The authors advocate taking one chapter of their book, adapting it and adopting it before moving to another chapter-point, which makes it all much easier to accept and, perhaps, enjoy. Ignore that caveat, and this book will seem like every other one of its ilk. Accept it, and “Organize Tomorrow Today” might ultimately make you a success. Terri Schlichenmeyer is the author of The Bookworm Sez, which is published in more than 200 newspapers and 50 magazines throughout the U.S. and Canada. Schlichenmeyer may be reached at [email protected]

CINGSA appeals decision on sales of gas discovery

KENAI — Cook Inlet Natural Gas Storage Alaska is contesting a revenue-sharing scheme that would allow it to sell 2 billion cubic feet of natural gas found in its underground storage facility if it gives 61.1 percent of the revenue to its client utilities. CINGSA is appealing for the Alaska Superior Court to overturn a Dec. 4, 2015, decision by the Regulatory Commission of Alaska, the state entity that oversees public utilities. The Regulatory Commission allowed CINGSA to sell 2 billion cubic feet of the 14.5 billion cubic feet of gas it had discovered while drilling a storage well in 2012 and keep 13 percent of the profits. The rest would be divided among the four utilities that hold 20-year contracts to store gas in the CINGSA facility — Homer Electric Association, Anchorage’s Municipal Light and Power, Chugach Electric Association, and CINGSA’s sister company ENSTAR — according to the percentage of stored gas each owns. CINGSA representatives had earlier argued before the Regulatory Commission that their company had sole property rights over the gas and could sell it as they wished, and later presented a scheme in which CINGSA split profits with its clients half and half. The Regulatory Commission rejected both after hearing arguments from the client utilities that their investments in CINGSA storage contracts had made the facility — and the discovery — possible, and that the removal of the found gas would decrease well pressure required to extract stored gas, constituting a risk deserving a return in revenue from the gas sale. CINGSA and ENSTAR spokesperson Lindsay Hobson said CINGSA would argue its original contention: that it has a right to all the revenue from the gas it found. “We’re appealing on the basis of our litigation position, and our litigation position was 100 percent of the proceeds of CINGSA’s asset to remain with CINGSA as the property owner,” Hobson said. CINGSA’s statement of points on appeal contends that in creating the revenue-sharing scheme it did, the Regulatory Commission “effectuated an unconstitutional taking without just compensation by ordering CINGSA to distribute to third parties proceeds of the sale of assets undisputedly owned by CINGSA” and that it did so “without reference to any law or legal principle.” The appeal was filed Jan. 4 and initially assigned to Judge Catherine Easter, who was peremptorily disqualified after a motion by CINGSA attorney Matthew Findley. Alaska court rules allows a party to a lawsuit to disqualify a judge. The case was then assigned to Judge Pamela Washington, who was similarly disqualified by a motion from ENSTAR attorney David Shoup. As of Jan. 26, the case is assigned to Judge Eric Aarseth. Hobson said CINGSA had not estimated the value of the 2 billion feet of natural gas. “Right now, with prices, it’s too speculative for us to say the value of something we can’t sell today,” Hobson said. Reach Ben Boettger at [email protected]

Kenai finalizes pot regulations, doubles schools setback

KENAI — Prospective marijuana businesses in Kenai will have to observe 1,000-foot setbacks from schools, 500-foot setbacks from other sensitive areas — measured two different ways — a list of zones in which they can establish themselves with permission from the Kenai Planning and Zoning Commission, and two zones in which one business type can operate unpermitted. The Kenai City Council amended and unanimously passed the city’s final marijuana regulations during a four-and-a-half hour meeting Jan. 20. At the final meeting in which they could pass law that would be in effect before the state begins accepting commercial marijuana license applications on Feb. 24, the council edited and passed a set of marijuana regulations originally created by the Kenai Planning and Zoning commission. The regulations mandate minimum distances between marijuana businesses and schools, recreation centers, churches, correctional facilities, or drug abuse treatment centers. In the case of schools, this setback is 1,000 feet, measured from the outer wall of the marijuana business’s building to the property line of the school. The 500-foot setback from recreational centers is measured the same way. The 500-foot setback from churches, correctional facilities, and drug abuse treatment centers is measured from the marijuana business’s outer wall to the nearest pedestrian entrance. Five principals from area schools testified at the meeting to their personal support of the 1,000-foot school setback. The setback, which is double the state-mandated 500-foot school setback, was recommended by Kenai City Attorney Scott Bloom, who said it complied with the federal Drug-Free School Zone Act. Marijuana establishments will also be constrained by zone. Of the four state-licensed establishment types, only one will be allowed without planning and zoning permission, and only in two zones. Establishments licensed to test marijuana for contamination and potency will be allowed in Kenai’s light industrial zone — concentrated near the airport and a spot along the Spur Highway at the northern edge of town — and the heavy industrial zone — located near the Kenai River along Bridge Access Road. Holders of the other license types — for marijuana cultivation, retail, and the manufacture of marijuana products such as concentrates and edibles — will have to seek conditional use permits from the planning and zoning commission before opening in allowed zones. The change allowing unpermitted testing in industrial zones was proposed by council member Bob Molloy and passed unanimously. Motions by council member Terry Bookey to also allow planning and zoning-permitted cultivation and retail establishments in the industrial zones failed, with council members Brian Gabriel, Henry Knackstedt, Tim Navarre, and Kenai Mayor Pat Porter voting against both motions. Bookey made a successful motion to allow retail establishments with planning and zoning permission in the central mixed-use zone, where they had been banned under the planning and zoning commission’s draft regulations. The central mixed-use zone is located around the intersection of Bridge Access Road and the Kenai Spur Highway, and north of the Kenai Spur Highway across from Old Town. A resolution passed by the seven members of the Kenaitze Tribal Council requested that the Kenai City Council exempt Old Town Kenai, defined in the Kenaitze resolution as the area between Broad Street and Petersen Way, from all four commercial marijuana license types. The resolution stated “the Kenaitze Tribe has a firm belief that substance use negatively impacts our traditional ways of living, culture, and values” and referred to the tribe’s large presence in Old Town Kenai through its Dena’ina Wellness Center and Tyotkas Elder Center. Although the zone Bookey proposed opening to commercial marijuana lies near Old Town Kenai, it is mostly separated from it by the Kenai Spur Highway, with only a few highway-fronting lots directly bordering Old Town. Bookey said these would be accessible by vehicle from the highway, but not from Old Town. The change was made with opposing votes by Gabriel and Porter. Bookey also made a successful motion to allow small-scale marijuana growers to operate with conditional use permits in residential and limited commercial lots less than 40,000 square feet, which was opposed by votes from Navarre, Porter, and Gabriel. Bookey, who had recently been traveling out of state, said he had seen marijuana regulations at work in Washington and Oregon, and the experience — along with the finalized set of Alaska regulations expected to be signed officially by Lieutenant Governor Byron Mallot on Jan. 24 — had reassured him that marijuana could be commercialized safely. “With the regulation that’s going to be put forth for cannabis, I’m less scared than I was before — and I wasn’t that scared to begin with — about it getting to unintended users,” Bookey said. Reach Ben Boettger at [email protected]

Movers and Shakers 1/31/16

R&M Consultants Inc. named Len Story, PLS as the firm’s new CEO and Bret Coburn as chief financial officer, effective Jan. 1. This is a planned change as laid out in the firm’s succession plan. Story joined R&M in 1979, as a survey technician. Over the past 37 years, he has worked his way up, filling roles as party chief, senior land surveyor, Surveying and Mapping Department manager, vice president, chief operating officer (2008-2015) and now CEO. In conjunction with assuming the CEO role, he was also voted President of R&M’s board of directors. Coburn served as R&M’s CEO with responsibility for oversight of the firm’s administrative and financial functions from 2002 to 2014. He is moving into the CFO position at R&M and will continue to be responsible for financial matters at the firm, and providing oversight of the firm’s accounting and administrative staff. Coburn was recently voted vice president of R&M’s board. Prior to joining R&M, Coburn worked for the St. George Tanaq Corp. in various positions, ending his 19-year tenure as the corporation’s CEO. His professional experience includes more than 30 years of involvement in professional services, land development, construction and finance. U.S. Sen. Lisa Murkowski announced several promotions within her Washington, D.C., office at the beginning of the second session of the 114th Congress. These movements in her personal office include Michael Pawlowski, Nathan Bergerbest, Garrett Boyle and Karina Petersen. Pawlowski, currently the deputy chief of staff, will begin transitioning into the role of chief of staff. Pawlowski joined Murkowski’s team on the Energy and Natural Resources Committee in December 2014. Before that, he served as Alaska’s Deputy Commissioner of Revenue. Pawlowski will replace Ed Hild, who has served as Chief of Staff since 2011. Mr. Hild will be leaving the Senate after over 20 years of service. Bergerbest, currently senior counsel and legislative assistant, has been promoted to the role of deputy chief of staff. Bergerbest has served as senior counsel to Murkowski since 2003 handling the national security, foreign relations, judiciary, Alaska public lands, Indian Affairs, public safety and federal civil service portfolios at various times over the past 12 years. He holds a Juris Doctor degree from the University of Southern California and a master of public health degree from Harvard University. Boyle, who joined the office last year as Legislative Assistant handling health care, environmental, and rural development policy issues, will take over the role of legislative director. Boyle received his bachelor’s degree from Seattle University and is a graduate of Tulane University School of Law. Prior to joining Senator Murkowski’s staff, he ran his own business dealing with oil and gas and patent law issues, and served as an extern in the Eastern District of Louisiana while in law school. Petersen, who has served as Murkowski’s Alaska communications director for a year and a half, has been promoted to the role of communications director and will lead the senator’s communications efforts in both Washington, D.C., and Alaska. Previously, Petersen worked as the media relations coordinator for Samaritan’s Purse, an international relief organization that provides aid to victims of war, disaster, and disease in over 100 countries. Prior to that, she was a reporter and weekend anchor at KTVA CBS 11 News in Anchorage for over two years. Petersen holds a bachelor’s degree in journalism in radio-television news from the University of Missouri. First National Bank Alaska announced two appointments, bringing a new branch manager to the Federal Branch and a new officer to the Trust Department. A 15-year banking veteran, Krissi Estrada takes over as branch manager at the Federal Branch in Downtown Anchorage. Adam Sikorski joined First National’s Trust Department with 12 years of investing experience. He was born and raised in Alaska. As a trust officer, Sikorski will rely on his trust and investment knowledge to assist customers in building customized, tax-efficient portfolios. Northrim Bank announced the promotion of Veronica Pillans, assistant vice president loan officer-Small Business Center, and the hiring of Bruce Tretzen, vice president relationship manager-Northrim Funding Services. Pillans has over 10 years banking and lending experience. She began her banking career at First National Bank Alaska in 2005 and joined the Northrim team in 2012. She is currently a loan officer with Northrim’s Small Business Center. A lifelong Alaskan, Pillans holds a Small Business Degree from University of Alaska Anchorage and completed the Banking and Finance program through American Bankers Association in 2015. Tretzen joins the Northrim Funding Services team with 17 years of commercial lending experience, nine of which in the asset based lending industry. He is a former business owner who studied accounting and business at Edmonds College and the University of Washington. He is a lifelong resident of Washington State and enjoys traveling. The Wilson Agency LLC has recently hired Ron Devon to fill the position of retirement plan and financial services account strategist, and Jennifer Prowell for the position of Support Services manager. Devon joins The Wilson Agency with a strong background in business, having been a small business owner for most of his career. Prior to joining TWA, he worked with investors to provide them with financial planning services. His current role will focus on providing employers with the support they need to build a long term retirement strategy. Prowell brings years of IT experience to The Wilson Agency in her role as Support Services manager. This is a new position which has come about as a result of the recent merger of The Wilson Agency and Albers & Company, located in Tacoma, Wash. ConnectHR, The Wilson Agency’s human resource services division, has also had the need to grow its employee base. The company recently hired Mary Anne Aadnesen for the position of HR services senior partner, in addition to hiring a part-time employee and an intern.

FDA: only Alaska pollock is 'Alaska pollock'

Alaska pollock is having a good 2016 so far, with boosted quotas, favorable certifications, and a federal rule that will give Alaska an edge over Russia. “I have long fought to resolve this issue, and I am thrilled that this change has been made to protect both our fisheries and consumers,” said Sen. Lisa Murkowski in a statement. “Alaska is the gold standard of fish management. It is disingenuous and harmful to our fishing industry for Russian-harvested pollock to be passed off as Alaskan. Now consumers can be confident that pollock labeled as ‘Alaskan’ is caught only in our state’s healthy, sustainable waters. Pollock is the largest fishery in the U.S., producing 2.9 billions pounds and accounting for 11 percent of U.S. seafood intake. In the North Pacific management region, pollock accounted for $406 million worth of landings. The pollock season began Jan. 20 with an increased quota of 1.34 million metric tons, thanks to a December 2015 North Pacific Fishery Management Council aimed at curbing halibut bycatch in other groundfish sectors. This is 30,000 metric tons more than the year before. With more fish to catch and sell, Congress has now made Alaska’s highest volume fishery easier to market. The U.S. Food and Drug Administration put a change to seafood labeling laws in its Seafood List, ending an Alaska congressional fight to ensure that “Alaska pollock” is actually from Alaska. The FDA announced Jan. 21 that only pollock caught in Alaska waters can be labeled "Alaska pollock." Alaska waters are defined the Alaska-adjacent Exclusive Economic Zone three to 200 miles offshore, according to the Magnuson-Stevens Act, which governs U.S. federal fisheries. The Pacific Northwest had been pushing for the change in 2015. In Congress, Rep. Don Young and Rep. Jaime Beutler, R-Wash., introduced legislation on Oct. 22 to amend the Federal Food, Drug, and Cosmetic Act to change the term “Alaska pollock” to “pollock.” Meanwhile, Murkowski added a mandate in the fiscal year 2016 Omnibus Appropriations bill to force the FDA to make the change. The bill passed. Pollock nomenclature has an important economic impact in Alaska as the state’s largest fishery by volume and a key foreign export. The “Alaska” label signifies sustainability in marketing campaigns. According to a GMA Research consumer report, up to 40 percent of what is currently sold as “Alaska pollock” is in fact from Russia waters, which do not have the same controls and management frameworks as U.S. North Pacific fisheries governed by the North Pacific Fishery Management Council, particularly concerning marine habitat protections and preventing overfishing. The U.S. pollock industry received another year of sustainable fisheries certification from the Marine Stewardship Council, or MSC. Pollock has received the certification since 2005. "The MSC’s vision is for oceans to be teeming with life for future generations,” said Brian Perkins, MSC regional director, in a release. “Alaska Pollock has successfully created and maintained new markets, especially in the U.S. and Europe, over the past decade. We are extremely pleased to see this fishery succeed in the MSC process yet again.” The MSC charges companies for its sustainability rating. European countries in particular prize the certification, and much of the seafood on the European market cannot move without it. Aside from U.S. consumption, Alaska pollock is a European favorite, particularly in Germany where it is the most-consumed fish in the nation. DJ Summers can be reached at [email protected]

Buckling down in face of budget deficit

State legislators are back in Juneau for the 2016 legislative session, and they’re back facing a huge budget deficit. Some legislative leaders say they’re ready to step up to the plate to deal with it. Three Republican senators — Senate President Kevin Meyer, Finance Co-chair Anna MacKinnon and Resources Chair Cathy Giessel — say some combination of budget cuts and new revenues such as use of Permanent Fund earnings for this year are needed to solve the problem. Cuts must come first, all three say. But cuts alone won’t do the job. House leaders have been quiet about the problem so far. “We can’t cut our way out of this. Even if we were to cut $1 billion, we’d still have a multi-billion-dollar deficit, so cuts aren’t the total answer,” said Sen. Cathy Giessel, R-Anchorage, who chairs the Senate Resources Committee. Giessel’s comments came during a briefing of the Alaska Support Industry Alliance, a contractor group, on Jan. 14. MacKinnon voiced similar views in a talk to constituents at the Eagle River-Chugiak Chamber of Commerce Jan. 13. The Permanent Fund should be managed like an endowment, she said, to make more funds available. “This could bring us $900 million instantly,” she said, and make a big dent in the deficit. Giessel said the Senate Majority will target $1 billion in cuts this year, a goal similar to last year that was mostly achieved (the budget was reduced by about $750 million). But cuts should also be matched with some use of Permanent Fund earnings this year. “We have to do this a piece at a time, in a predictable manner that will preserve stability. To make radical changes too suddenly would not be good,” Giessel told the Alliance. Only after government is “right-sized” should taxes be considered, she said. Worries about reelection later this may be causing many lawmakers to be timid in facing the issue, but a new poll by the Rasmuson Foundation released Jan. 20 indicates legislators may face voters’ wrath if they fail to act on the deficit. Of those surveyed, 83 percent said they are “less likely to support” incumbent lawmakers who fail to take action on the budget shortfall; 75 percent say they are more likely to support legislators who act, or at least that the action would have no effect on support for reelection. As to how to solve the problem, 65 percent feel a combination of budget cuts and new revenue are needed, compared with 30 percent who favor budget cuts only. As to how much should be cut, 55 percent said they would support a reduction of 10 percent of the state operating budget, or about $500 million. The state’s operating budget is now about $4.8 billion. The poll sampled opinions of 812 voters between Jan. 3 and Jan. 10. Meanwhile, oil prices keep dropping. Two years ago the state received $5 billion in unrestricted general fund revenues, 90 percent from oil. But at $30 per barrel oil prices, or lower, $1.5 million in unrestricted state revenues may be lucky, Giessel told the Alliance in her briefing. On Jan. 20, oil dropped further to less than $27 per barrel. Gov. Bill Walker has put forth a plan that mixes modest cuts and new revenues, and that balances the budget by 2019. Some legislators, again mostly senators, say they are interested in Walker’s plan, or at least parts of it. Sen. Lesil McGuire, R-Anchorage, introduced Senate Bill 114 last year, a bill enacting fiscal reforms with concepts similar to Walker’s ideas. Scott Goldsmith, a University of Alaska economist, has put forth another variation in a “sustainable budget” plan. All proposals involve a mixture of budget reductions and new revenues. Sen. Pete Kelly, R-Fairbanks, who co-chairs the Senate Finance Committee with MacKinnon, said the public still believes the state budget is too large despite $350 million cut out of the operating budget last year. “Last year we reduced spending for the first time and by about $800 million, $350 million from operating and the rest from capital spending. We made government smaller for the first time,” Kelly said at the Senate Majority briefing. “We didn’t see a tremendous impact from this, however, no significant response,” in the curtailment of services. “That tells me it’s probably still too fat. “I think we have to do one more round of cuts before we start talking about the Permanent Fund dividend or new taxes. I hear people talking about a plan for ‘sustaining’ the government but it’s usually from people who support the government as it is now.” This 2016 session faces complications in reducing the budget, however. The House Minority has served notice that it has no intention of giving up its leverage with votes needed for a three-quarters approval in the House on a cash withdrawal from the Constitutional Budget Reserve, or CBR, to cover the deficit. That departs from one key part of the governor’s plan, which is to transfer funds remaining in the CBR to the Permanent Fund’s earnings reserve account, from which appropriations can be made, as a way of helping “bulk up” the Permanent Fund to generate revenue for the state. House Minority Leader Chris Tuck said Jan. 19 this isn’t a good idea. “We shouldn’t make these funds too easy to reach,” he said. The Earnings Reserve can be tapped by a simple majority vote by lawmakers while a CBR draw requires a three-quarters vote. The Constitutional requirement for a super-majority to tap the CBR is a useful mechanism that requires that there be consensus in the Legislature, Tuck said.   It can also hand leverage to a small group of lawmakers, however. Last year the House Minority used its muscle to get additional school funding and state employee pay raises from the Legislature’s Republican Majority. The dispute put the 2015 session into overtime that ran through two special sessions and a near-shutdown of the state government. It’s unclear what budget priorities the House Minority may settle on this year but education funding is likely to be among them again. The first shot across the bow in a possible 2016 school-funding fight was fired by MacKinnon in her talk at the Eagle River chamber. A scheduled increase in the Base Student Allocation, a formula that guides state funding for local schools, is set for this year, MacKinnon said, and the senator has a problem with that given the current fiscal situation. Giessel identified another hot-button school issue in the 10-student minimum size for state support to rural schools. The Republican Majority may push a plan to raise the minimum to 25 students. She said she has visited small community one-room schools in her previous senate district, and understands how a school is at the heart of a small community. “I know this is hard, but can we really afford to support schools with 10 students?” she said. MacKinnon said education funding has grown fast in recent years to the point that it is now the single biggest driver in the state budget, outpacing health and social services. Medicaid reform is on the agenda this year, MacKinnon said, meaning a systematic look at the program to reduce its costs. She doesn’t expect a drive to repeal the governor’s expansion of Medicaid, however. “I’m very aware of the benefits the expansion has brought for many people, but the system needs reform,” she said at the Eagle River-Chugiak Chamber. MacKinnon has worked over the summer with Rep. Liz Vasquez, R-Anchorage, and officials from the Department of Health and Social Services, on ways of solving problems in Medcaid. “It will be one of our top priorities,” MacKinnon said at a Senate Majority briefing Jan. 19. There are a lot of basic policy decisions made in past years by the Legislature that have now resulted in the growth of spending in “formula” programs like Medicaid, and these need to be reviewed to reduce costs, MacKinnon told the chamber. On other topics, Giessel said in her briefing to the Alliance that the governor’s plan to replace state contributions to pension liability with bonds will be scrutinized. “There are some of us who believe this is just kicking the can down the road,” on the liability, she told the Alliance. “We’ll be having a robust discussion on this,” in the Senate, she said. On a topic Giessel is closely involved with — oil and gas incentive tax credits — the senator said a flat repeal of the tax credits is unwise, because it would impair future oil production. “Totally eliminating these is like decimating your kindergarten class,” in education, she said. The governor proposes to replace much of the tax credit program with loans from the Alaska Industrial Development and Export Authority, the state’s development financing corporation, but Giessel isn’t sure about this, she said. “This may be the wrong way to do this, because it doesn’t bring in fresh money from out of state,” which banks and other lending institutions can provide, she said. With the tax credits in effect companies could borrow from commercial banks against the credit, as a form of interim financing. Having AIDEA make loans just uses up state lending resources rather than bringing in new money, Giessel said. Some in industry have suggested that loan guarantees made by AIDEA to backstop commercial loans could accomplish part of what the governor intends, but changes in state law may be necessary. Giessel also said changes may be needed that are not to the liking of the petroleum industry. “Cook Inlet oil pays zero production tax,” a legacy policy from prior Legislatures,” she said. “This (exemption) is due to expire in 2022. We are discussing allowing it to expire in 2018 instead.” She also said the minimum tax in the state production tax law applying to North Slope production needs to be “hardened,” a proposal also put forth by the governor. The current tax law has a minimum tax paid when oil prices slide below a certain point, which they have. However, there are circumstances involving net operating loss tax credits that now allow producers to pay less than he minimum. Walker proposes to end this. Bradner is a correspondent for the Journal. He can be reached at [email protected]  

Latest McDowell Group seafood report shows job growth

Harvesting Alaska seafood ranks between oil and tourism in economic impact, according to a new report detailing on the commercial fishing industry. The Juneau-based economics firm McDowell Group released an updated study on the economic impacts of the commercial fishing industry on Jan. 19. The Alaska Seafood Marketing Institute, a private-state collaboration designed to increase Alaska seafood’s worldwide value, contracted the report. According to the report, seafood created 41,100 full time equivalent jobs and $2.1 billion in labor income between 2013 and 2014; 17,600 of the total were Alaska resident commercial fishermen, who took a total ex-vessel income of $735 million in 2014. The report found a growth in seafood employment from 2010-14, with more resident fishermen, processors, and total earnings and harvest levels. In 2014, the state had 500 more seafood jobs than 2010, representing a $24 million payroll growth. Alaska is the country’s largest seafood producer, and hauling in fish, as well as processing and selling them, creates the largest source of direct private employment in the state. Fisheries data can be hard to nail down, with swings in employment and harvest from year to year. The updated report takes the yearly averages from both 2013 and 2014 to smooth the data. The report did not examine the economics of sport fishing or subsistence fishing. The North Pacific is home to some of the most verdant marine ecosystems in the world, and the proof lies in harvest statistics. Sixty percent of the nation’s seafood landings — more than every other state combined — come from Alaska waters. The state exports more seafood than any other product, renewable or non-renewable. If Alaska were its own country, it would rank sixth in the world for seafood exports. Production continues to rise. The 2014 seafood harvest totaled $1.9 billion in dockside prices. The resulting processed products raked in $4.2 billion on the wholesale market. The rising value comes mostly from the fisheries in the Bering Sea and Aleutian Islands, or BSAI. “Harvest and wholesale values have risen substantially (27 and 24 percent, respectively) in the last five years in the BSAI region,” the reports reads, “by far the most of any region in Alaska. Without these increases, statewide values would be roughly flat over the time period.” The revenue has benefits for the state. “Commercial fishing and processing businesses pay substantial taxes and fees to operate in Alaska, including more than $138.6 million in 2014,” the report reads. The large-scale fisheries output isn’t localized only in the Last Frontier. Supply chains and retails operations add up to a sizable national economic base resting on North Pacific fisheries. Alaska’s seafood industry creates 111,800 full time equivalent jobs nationally, with $5.8 billion in labor income and $14.8 billion in total economic output. Salmon and pollock  run the show Alaska’s salmon is the ocean’s North Slope, as far as economic impact goes. “Salmon is still king in Alaska,” reads the report. “By all measures, salmon are responsible for the greatest economic impact (jobs, income, and total value) among all species in the Alaska seafood industry. Salmon’s total contribution to the national economy includes approximately 38,400 (full time equivalent) jobs and just under $2 billion in annual labor income.” On the opposite end of the price spectrum is pollock, which lacks salmon’s fine dining appeal but compensates with versatility and sheer volume; the fish is the largest volume seafood harvest in the nation. “As the largest single species U.S. fishery, by volume, Alaska pollock is a close second,” reads the report. “Much of pollock’s value is added through processing, which occurs both shoreside and at-sea. Pollock’s national economic impact includes an estimated 29,300 (full time equivalent) jobs and $1.5 billion in labor income.” Salmon and pollock make up the bulk of Alaska’s seafood value, but the expensive delicacies carry their weight in spite of lower volumes harvested. Alaska crab, which commands high prices in both domestic and international markets, accounts for 14 percent of the harvest value. Another 10 percent of harvest value owes to halibut and black cod.  Alaska’s top five seafood landings areas display the diversity of fishermen’s business operations. Dutch Harbor, the highest valued area, landed $450 million in wholesale value of groundfish and crab in 2014. Kodiak’s crab, groundfish, and salmon-based landings came in second at $284 million, and the largely sockeye-based Naknek processors — situated in Bristol Bay, the world’s largest sockeye run — third with $254 million. Cordova and Sitka netted $174 million and $129 million, respectively, of those area’s primarily pink, chum, and sockeye salmon, halibut, and black cod fisheries. Southeast Alaska has the largest private employment Fishermen can take a moment to feel pleased that BP’s layoffs and the state hiring freeze don’t touch the seafood industry. Oil and gas employ more people than the seafood industry because of the massive secondary impacts, but seafood employs more people directly than any other private industry in the state. One fifth of Alaska’s private sector economy is seafood-based, whether as crew for a fishing vessel, on a processor’s slime line, or at the retail level. Because fishing jobs are mostly seasonal, McDowell Group economists use the metric “full time equivalent” jobs to measure employment. In Southeast Alaska, fishing is the top job creator. In terms of workforce size – nearly 10,000 full time equivalent jobs – seafood is the largest private sector employer in the region. Southeast Alaskans own more commercial fishing vessels, and have more shore processors, than any other Alaska region. Salmon reigns in Southeast; 72 percent of the regions wholesale value comes from salmon. Southeast has more direct employment from fishing, but Southcentral has more resident commercial fishermen. One-third of Alaska’s resident commercial fishermen live in Southcentral, more than any other region with 7,000 full time equivalent jobs considering secondary impacts. In Southcentral, 86 percent of the total wholesale fisheries value is from salmon. Kodiak, which hosts 10 different processors for its diverse fisheries, is the third largest commercial fishing port in the U.S. by volume and ex-vessel value. 5,150 direct jobs in fishing, processing, and support come from the region, and 8,350 full time equivalent jobs total considering secondary impacts. The Bering Sea and Aleutian Islands region holds 10,300 full time equivalent jobs, half of which are related to the processing. 53 percent of the region’s value comes from pollock Bristol Bay totals 4,650 full time equivalent jobs, and is almost entirely dependent on salmon, with 96 percent of wholesale value in the region from salmon. The Arctic-Yukon-Kuskokwim area, as one of the lowest density areas in the state, has only 860 full time equivalent jobs related to commercial fishing.  

Judge keeps subcontractors in port lawsuit

Subcontractors are still potentially liable for work done years ago on the disastrous Port of Anchorage expansion project, according to a federal court ruling. U.S. District Court of Alaska Judge Sharon Gleason ruled Jan. 13 that Quality Asphalt Paving Inc. and MKB Constructors, its working partner on the Anchorage port project in the late 2000s, are still subject to a lawsuit filed by the Municipality of Anchorage because the city never knowingly reconciled with the companies. Quality Asphalt Paving, or QAP, joined by MKB, filed a motion for summary judgment in the suit in August, claiming a September 2012 settlement for $11.1 million between the U.S. Maritime Administration, as the port project manager, and the subcontractors released them from liability. Gleason wrote in her Jan. 13 order denying the judgment motion that court records indicate the Maritime Administration, or MARAD, attempted to reassure the municipality shortly after the 2012 settlement that it did “not preclude (the municipality) from pursuing its own litigation.” An Oct. 19, 2012, letter from then Anchorage Mayor Dan Sullivan to MARAD Administrator David Matsuda supports the municipality’s contention that it was unaware of the settlement and further found the federal agency to be a weak negotiator, settling for $11.1 million when the agency found $11.5 million of a $17 million claim to be valid. Sullivan wrote that he was “surprised and disappointed” to learn MARAD settled a contract dispute with Integrated Concepts and Research Corp. on behalf its contractors QAP and MKB regarding the Port of Anchorage Intermodal Expansion Project. MARAD hired ICRC, a former subsidiary of the Kodiak-area Alaska Native corporation Koniag Inc., early in the project to act as its on-the-ground prime contractor. “When pressed whether ICRC (and subsequently its contractors) had been released from further claims, particularly claims that might be asserted by the Municipality of Anchorage, MARAD only made vague and general comments,” Sullivan wrote. “When further pressed as to whether funds of the municipality were used to settle the matter, MARAD pretended not to know the answer, although the clear implication was that the funds provided by the municipality were used without our knowledge or consent.” MARAD, a federal Transportation agency, was brought into the project in 2003 by the municipality to manage construction and be a vessel to acquire federal funding. Originally intended to update and expand the Port of Anchorage’s aging docks, the project was fraught with control and communication issues nearly from its outset. Those issues were manifested in construction problems and led to work being stopped partway through in 2010, which was never resumed. In all, the municipality spent roughly $302 million of state, federal and its money for virtually nothing. The Municipality of Anchorage originally filed suit in March 2013 against ICRC, dock designer PND Engineers Inc. and CH2M, which now owns a former project consultant. Anchorage filed a separate suit against MARAD in Federal Claims Court in February 2014 seeking to recover damages for the project. An August 2013 Inspector General report was deeply critical of MARAD for its handling of the Anchorage port project and other similar work in Hawaii and Guam. PND has long contended the construction problems associated with its patented Open Cell Sheet Pile dock were due to inexperienced contractors, not a faulty design, as the municipality and a study commissioned by the city conclude. PND filed a third-party suit against QAP and MKB, bringing the subcontractors into the tangled legal mess.   Elwood Brehmer can be reached at [email protected]  

Restricting board-generated proposals among fisheries bills

Rep. Tammie Wilson, R-North Pole, is proposing a change to the Boards of Fisheries and Game process that would put certain proposals back into public oversight under House Bill 103. “Notwithstanding another provision of this chapter,” the bill reads, “the boards may adopt, amend, or repeal a regulation only if that regulation, or the amendment or repeal of that regulation, was initially recommended by (1) an advisory committee established under AS 16.05.260; (2) a state agency; or (3) a person petitioning the boards under AS 44.62.220.” Wilson’s bill seeks to correct a perceived lack of public input. In 2015, the bill made it as far as the House Fisheries subcommittee before the session ended. Committee chairwoman Rep. Louise Stutes, R-Kodiak, held the bill. The boards of Fisheries and Game rely on public proposal process to craft regulations. Members of the public submit proposal ideas to the board well in advance of the meeting so that other members of the public can express support or opposition in written comments to the board, or at least have time to review the proposals before the board hears public commentary. The Alaska boards of Fisheries and Game are also able to craft their own proposals. The board itself can ask for the Alaska Department of Fish and Game to submit a proposal on the board’s behalf. Unlike public proposals, the boards’ proposals have no restrictions where timing is concerned, and often fly under the public’s radar. Wilson’s bill came largely as a response to the Board of Game’s passage of a board-generated proposal for Dall sheep management. Critics, including Wilson, charge that the proposal was crafted behind closed doors and slipped into the meeting without a chance for public review. According to Wilson, three members of the board got together in a “work group” to draft sheep management outside the public purview. Working groups, Wilson contends, are simply a way legislative bodies can step outside the public process. Public comment swayed in favor of the proposal. Robert Caywood, a member of the Anchorage Advisory Committee for the Board of Fisheries, said during the 2015 session that six members of the committee quit their positions over feeling circumvented by board decisions. Proposals to limit board-generated proposals have come before the legislature before. In 2012, the United Fishermen of Alaska filed a request with the Attorney General to review the Board of Fisheries’ usage of board-generated proposals to serve as undefined placeholders. In 2013, the boards drafted a sideboard that would allow for board-generated proposal only if the proposal were deemed to be in the public’s “best interest.” HB 220: Hatcheries for all Yukon River fishermen have said, “every fish counts” in talks of chinook salmon management, and Rep. Dave Talerico, R-Healy, wants to take the sentiment literally. Talerico’s HB 220 would create a permit system for fishery enhancement open to individuals, non-governmental organizations, tribes, and virtually anyone else with a plan for enhancing Alaska fish stocks. The Interior representative said he sees the bill as a “no harm, no foul” way to get more fish into Alaska’s rivers for subsistence, sportfishing, and commercial purposes. The bill has three main goals: put pressure on the farmed sockeye that competes with Alaska fishermen, ensure tourists hook a trophy, and boost subsistence harvest opportunities. Entities beyond non-profits have attempted enhancement programs in the past with limited success. The Chickaloon Village Traditional Council has been attempting a warm air incubator for Matanuska River king salmon since 2007, but funding has been problematic. Talerico said private investors may be more inclined to start their own similar projects if his bill passes. The permit, subject to Alaska Department of Fish and Game approval, would allow the holder “to remove fish from state water, collect gametes or fertilize and incubate eggs taken from the fish, and place the incubated and fertilized eggs or hatched fish in the same or other state water; to enhance habitat and augment nutrients in state water to aid the survival of fish; and subject to AS 16.10.375 - 16.10.480, to use technologies and tools to accomplish approved project activities.” Talerico said the bill intends to find a way for more private industry to get involved in restocking. Currently, stocking is done by state-sanctioned non-profit hatcheries. “I think folks were a little disappointed with hatcheries,” Talerico said. “Hatcheries are a great thing. But hatcheries are limited to non-profits.” Native organizations like Tanana Chiefs Conference, he said, are considering backing the measure out of concerns for subsistence community health of Upper Yukon River villages. Upper river villages feel the sting of low king returns, as the Alaska Department of Fish and Game limits chum salmon harvest opportunities to prevent incidental chinook catch. HB 241: Non-resident permits surcharges Rep. Charisse Millett, R-Anchorage, and Rep. Jonathan Kreiss-Tomkins, D-Sitka, have introduced a bill that would require non-resident fishermen to pay a surcharge to the Commercial Fisheries Entry Commission if they do not qualify for a Permanent Fund Dividend. Fishermen would to provide proof they qualify for or have received a Permanent Fund Dividend in order to avoid the surcharge. HB 41: Angler guides A bill from the office of Rep. Kathy Tilton, R-Wasilla, HB 41 would renew licensing requirements for guided recreational anglers. Licensing requirements inadvertently sunset Dec. 31, 2014. The bill was passed in the House with amendments in 2015 but was held in the Senate Finance Committee until further consideration. Among other points of contention, the requirement for keeping a detailed logbook divides salt and freshwater fishermen. The bill does not address logbooks specifically but encompasses their reestablishment as a licensing requirement. Saltwater charter operators who largely depend on offshore halibut expressed support of the bill. Logbooks are important for halibut charter operators. More detailed logbooks contribute to larger quota allowances from federal halibut overseers. For freshwater guides, however, logbooks can be cumbersome. Kenai River guides opposed the bill, even with a carve-out provision that exempts Kenai guides from certain licensure requirement in the Kenai River Special Management Area. The area, which is managed by the Alaska Department of Natural Resources, requires charter anglers to complete a specialized course in addition to the state-required licensure. HB 41 would exempt certain anglers from this requirement if forced to make an in-season hire, as DNR only offers these courses twice a year. HB 137: Raising license fees Sponsored by Rep. Dave Talerico, R-Healy, Rep. Cathy Munoz, R-Juneau, and Rep. Wes Keller, R-Wasilla, HB 137 would raise prices for resident and non-resident hunting, trapping, and fishing licenses. In 2015, the bill was approved by the House and sent to the Senate, where it stopped in the Resources Committee at the end of the session. The bill provides for “raising certain fees related to sport fishing, hunting, and trapping; relating to the fish and game fund; providing for the repeal of the sport fishing surcharge and sport fishing facility revenue bonds; replacing the permanent sport fishing, hunting, or trapping identification card for certain residents with an identification card valid for three years; relating to hunting and fishing by proxy; relating to fish and game conservation decals; raising the age of eligibility for a sport fishing, hunting, or trapping license exemption for state residents; raising the age at which a state resident is required to obtain a license for sport fishing, hunting, or trapping; and providing for an effective date.” With state budget crises cutting into the Alaska Department of Fish and Game budget drawn in part from unrestricted general funds, the bill’s sponsors argue that each license fee increase could add to the department’s shrinking coffers.  License fees would increase from as little as a $5 for a resident hunting license to $1,100 dollars for non-resident musk ox tag. The bill would also increase the age at which Alaska residents would require a license from 16 year old to 18 years old. HB 92, HB 258, HJR 28: Genetically engineered salmon Rep. Geran Tarr, D-Anchorage, must have had a premonition in 2015. During the 2015 session, Tarr introduced a bill that would require labeling for all genetically modified food, touching on the issue of genetically modified salmon that would fill headlines in the latter months of 2015. On Jan. 19, Tarr dug further into her anti-GMO bill to specifically target a genetically engineered salmon with HB 258 and HJR 28. HB 258 would explicitly forbid the sale of genetically engineered salmon in Alaska. The joint resolution would oppose U.S. Food and Drug Administration actions and call for mandatory labeling of all genetically engineered salmon. In November, the U.S. Food and Drug Administration approved for human consumption AquAdvantage salmon, which splices salmon and ocean pout genes to grow a fish twice as fast as wild salmon. Alaska’s state representatives came out in broad opposition to the decision. In a series of releases, they expressed doubt over the FDA’s decision and called for a mandatory labeling requirement so consumers can distinguish between genetically engineered farmed salmon and the more expensive wild-caught salmon, one of Alaska’s most valuable exports and largest private employment sources. HB 92 localizes a battle Alaska’s congressional delegation is fighting in the national arena. Tarr’s bill would win the battle in Alaska, but most domestic sockeye consumption is in the Lower 48. Sen. Lisa Murkowski renewed vows to hold the nomination or Dr. Robert Califf as new FDA chief after a Senate panel approved him on Jan. 12. Murkowski’s office said the senator is adamant about keeping Califf off the FDA’s payroll until he makes assurances that genetically modified salmon be labeled as such. HB 110: Personal use priority Rep. Mark Neuman, R-Big Lake, will continue to move HB 110, which would create a personal use priority in the state’s fisheries. The bill moved out of the House Fisheries Committee and passed to the House Finance committee chaired by Neuman during the 2015 session. Neuman’s bill and Senate Bill 42, introduced by Sen. Bill Stoltze, R-Chugiak, together titled the “Alaskans-First Fishing Act,” would direct the Board of Fisheries to place restrictions on sport and commercial fisheries before putting restrictions on personal use fisheries when the harvest of a stock or species is limited to achieve an escapement goal. The focal point for the act’s support and opposition are the popular Upper Cook Inlet personal use salmon fisheries in the Kenai, Kasilof, and Fish Creek rivers that fuel allocation and gear conflict battles in the Board of Fisheries process. The rationale behind the act is that personal use carries more urgency than commercial or sport fishing, as it was intended to provide Alaskans with equal shares of a common property for direct consumption. Subsistence, which currently receives first priority from the Board of Fisheries as per state law, would still trump personal use in the event of restrictions. The opposition’s rationale denies an equivalency between personal use and subsistence. Detractors of the bill say the personal use fishery was created by the Board of Fisheries in 1982 in order to distribute surplus fish in times of high abundance, and was not intended as a makeshift subsistence fishery. DJ Summers can be reached at [email protected]  

Fairbanks wants bigger slice of $15.7B PILT pie

Emotions can run high when $15.7 billion is up for grabs. Decorum held Jan. 15 as mayors of the boroughs along the proposed Alaska LNG Project corridor debated the appropriate allocation of $15.7 billion the state and local governments could get in-lieu of traditional property tax revenue on the project’s infrastructure. However, the Municipal Advisory Gas Project Review Board meeting discussion certainly had an undercurrent of tension. Much of the back-and-forth centered on parsing out what is fair, particularly for the Fairbanks North Star Borough. While it’s widely assumed the Interior local government area will act as a hub for much of the project construction and operating activity, the current route of the 800-mile pipeline would cross only two miles of FNSB territory. That would leave the borough with a 0.2 percent allocation for the pipeline portion of the $15.7 billion payment in-lieu of property tax, or PILT, total. FNSB Mayor Karl Kassel has made it clear that he would not accept a scenario in which the borough received a PILT allocation based solely on infrastructure value within local government boundaries. Revenue Commissioner and board chair Randy Hoffbeck offered an allocation matrix at a December meeting that would split the PILT money based on infrastructure valuation, while leaving a small portion for distribution to local governments statewide based on population. Hoffbeck noted at the time that the model was intended to be a starting point for the discussion — a visual to outline the complex relationship between PILT takes by the State of Alaska, locales within the AK LNG Project corridor and the rest of Alaska. Kassel said in an interview that the Revenue Department’s draft is still the basis for discussion, but added that even as there is “somewhat of a general consensus” the final allocation will be something different, no one, including himself, has come up with an agreeable solution. The $15.7 billion PILT figure was negotiated by the state with the AK LNG Project partners as a sum to be paid over the initial 25-year life of the project. The yearly payments, starting about 2025, would be tied in part to the natural gas throughput of the project, with payments starting at $556 million and escalating to $706 million in year 25. If the project exceeds its initial life as expected and processes more gas, the final PILT sum could increase. Under the Revenue Department model — based heavily on allocating in-area asset valuation similar to a property tax — the Fairbanks North Star Borough would get just $75,600 per year for its two miles of pipeline. The Fairbanks North Star Borough will feel major impacts from the project despite holding only two miles of pipeline, Kassel emphasized. “We’re the supply depot; we’re the hub of the network,” he said in an interview. The Trans-Alaska Pipeline System, or TAPS, has given Fairbanks a very good idea as to what the community can expect with the gasline. Kassel said the borough’s payroll increased 75 percent during TAPS construction. He said he doesn’t expect growth on that scale given the state has matured greatly since the mid-1970s, but expecting growth up to 20 percent is not unreasonable, according to Kassel. He said at the meeting he expects everyone to fight for their communities, but Fairbanks “would rather not see the pipeline filled with the (Revenue Department’s) structure.” Regardless of the model, the State of Alaska will likely take a significant share of the PILT because 304 miles of the pipeline runs through unincorporated areas of the state north and west of Fairbanks and the state, as a 25 percent owner of the project, will presumably recoup its portion of the PILT. Without the state’s quarter share, about $11.8 billion would actually be split between the state and local governments. Matanuska-Susitna Borough Mayor Vern Halter proposed a model allocating 50 percent of the $15.7 billion PILT to the state, including the 25 percent state tax payback; 20 percent to areas with AK LNG Project infrastructure; and 30 percent to local governments statewide based on population each year. The 20 percent share for boroughs and the state with project assets would be weighted, with 70 percent as a ratio of asset value and 30 percent based on population. Kassel said the model has merit, but shouldn’t distribute facility asset values from the North Slope and the Kenai Peninsula boroughs because the gas treatment plant to the north and the massive LNG plant at the end of the pipe are wholly located within those areas. The ratio split should focus on the pipeline asset allocation to acknowledge impacts to Fairbanks, he said. Kassel suggested a 50-50 split of the pipeline portion of the PILT based on the location of assets and the population of the jurisdictions within the pipeline corridor. Hoffbeck noted that allocating based on population within the project corridor is “getting a long way from property tax,” but said it is up to the larger board to decide its recommendation. Halter said he doesn’t want the ultimate allocation “over-weighted to infrastructure,” which the Revenue model is, he contends. Kenai Peninsula Borough Mayor Mike Navarre said the idea that a PILT is not tied to property taxes simply isn’t accurate. The $25 billion LNG plant expected for Nikiski on the Peninsula is projected to bring in massive amounts of tax revenue for the Navarre’s borough even if it is taxed at a lower rate than current borough statute, as the negotiated PILT calls for. Navarre commented at the meeting and Kassel said in an interview that regardless of what the board recommends to Gov. Bill Walker, the Legislature makes the final decision. “I think it’s important for us to be involved and give it a best-faith effort to come up with the best recommendation we can,” Kassel said. “Where it goes from there — we know it goes into the sausage maker of the legislators and what comes out the other end — who knows?”    

AJOC EDITORIAL: Market slide shows risks of counting on Fund earnings

Since oil first started gushing through the Trans-Alaska Pipeline System nearly 40 years ago, the Alaska has repeatedly failed to learn the lessons from the troughs in the price cycle. Now facing a yawning budget gap nearing $4 billion annually with crude collapsing to less than $27 per barrel as of Jan. 20, there is near-unanimous support to shift from oil income to tapping the investment earnings from the Permanent Fund to bridge the gap. Gov. Bill Walker’s proposal to use a so-called “sovereign wealth model” using the Earnings Reserve where the Fund income flows anticipates an annual rate of return of 6.7 percent essentially in perpetuity allowing yearly draws of more than $3 billion to pay for state government. At the beginning of the fiscal year, the value of the Permanent Fund was just more than $55 billion. As of Jan. 18, the value of the Fund was $49.2 billion. Rosy predictions of future returns are how governments get into trouble, particularly when they are facing looming unfunded liabilities such as pension obligations — of which the state has more than $12 billion — or budget deficits. After yet another rout on Wall Street Jan. 20 as the markets are off to their worst ever start to a year, we are now officially in a correction, which is defined as a drop of 10 percent or more from the high point in the indices. It wasn’t that long ago, back in 2009, when the Permanent Fund lost money for the year as the Dow dropped into the 6,000 range. The markets nearly tripled since then, creating a situation where the state was earning more money from its investments than from its oil income. Now that the bulls ran for more than half a decade, the bears are roaring back. Multiple investment firms are forecasting oil could keep dropping to less than $20 per barrel, some as low as $10 according to a Jan. 12 article in The Telegraph, as OPEC refuses to cut back production and Iran has stated it intends to start pumping 500,000 barrels per day into the market now that it has been relieved of sanctions. While there is consensus that oil prices will keep falling, whether the United States will enter a recession is still being debated. There can be no doubt, though, that the reeling energy sector that fueled so much of the economic expansion will drag down growth. More than 70,000 oilfield workers have been laid off — including hundreds so far here in Alaska — and more pink slips are coming. Hundreds of rigs have been idled and the ripple effects through the broader economy will be felt from everyone to contractors to homebuilders. There is also no doubt that lower fuel prices benefit multiple sectors of the economy, but industrial output is dropping as well. This from a Dec. 16 Reuters  report: “U.S. industrial production saw its sharpest decline in more than three and a half years in November as utilities dropped sharply, a sign of weakness that could moderate fourth-quarter growth. “Industrial output slipped 0.6 percent after a downwardly revised 0.4 percent dip in October, the Federal Reserve said on Wednesday, marking the third straight month of declines.” Alaska’s great gasline hope for economic growth and new revenue will also face major hurdles beyond the enormous cost. Prices in Asia have been halved since 2013, and current demand forecasts are being revised downward. Since shutting them down after the 2011 earthquake and tsunami, Japan has restarted nearly all of its nuclear reactors and is actually reselling LNG shipments; ditto for China amid its own economic growth slump. Korea is also lowering its demand forecasts as nuclear power is still a cleaner alternative when it comes to meeting lower carbon emission commitments. To say it’s rough out there would be the understatement of the year. Strong leadership from the governor and legislators is critical right now, but even if the competing sides can come together with a fiscal plan they must do so knowing that the fight for Alaska’s future is far from over — and that putting our faith in investment earnings may be just as risky a bet as counting on oil prices.

Industry: Tongass timber forecast flawed

A U.S. Forest Service study projects growth in Tongass timber harvest over the next 15 years, but leaders of Alaska’s timber industry are saying the forecast is still too low. The draft Tongass National Forest Timber Demand report calls for a timber harvest increase from fiscal year 2014 of nearly 25 percent by 2030 on Tongass lands. Southeast mills took 39 million board feet of lumber from the national forest in 2014; the 2030 harvest is forecasted to be 51.8 million board feet. Alaska Forest Association Executive Director Owen Graham argues the demand analysis is based on a restricted timber supply, which artificially limits demand for Alaska forest products. “The analysis attributes the supply constraints to federal budgets and (National Environmental Policy Act) issues, but fails to acknowledge that its self-imposed standards and guidelines for its timber sale program have greatly increased the cost of harvesting timber sales,” Graham wrote in formal comments about the study. “These high costs are one of the primary reasons the agency has been unable to prepare economic timber sales.” Agriculture Secretary Tom Vilsack issued a memo in 2013 expressing an intent to transition to young-growth harvest in the Tongass National Forest within 15 years. That transition would be faster than was prescribed in the 2008 Tongass Forest Plan. Graham has said the industry needs to harvest at least some old-growth trees for about another 30 years to allow young, or second-growth, stands to fully mature, which takes about 90 years for most trees in Southeast Alaska. Young-growth stands are often more dense and thus hold more board feet of raw lumber. However, Alaska’s downsized timber industry in recent years has survived on high-value, “shop grade” lumber products from large spruce and hemlock trees harvested from the Tongass. Southeast sawmills will not be able to manufacture that high-value lumber from the 60-year-old, young-growth trees that would be available under an expedited shift away from old-growth harvesting, according to Graham. “The spruce custom-cut lumber that currently enjoys very high prices in the Pacific Rim markets will no longer be produced. Likewise, since shop grade hemlock lumber requires logs that are at least 16 inches in diameter, this high value lumber will also disappear,” he wrote. “What the (demand forecast) is missing is the most likely outcome of the transition strategy — the end of timber manufacturing in Southeast Alaska.” Allowing young-growth stands to mature another 30 years to age 90 would roughly double the harvestable volume per acre usable for Alaska mills, Graham said. Smaller logs can be exported to other markets, but that eliminates the value-added sawmill industry from the logging process, he said. The study forecasts the total Southeast timber harvest will increase from 120.6 million board feet in 2015 to 155.1 million by 2030. That includes timber sales from state land and Alaska Native corporation property, primarily the area Native regional corporation Sealaska Corp. Nearly all of the harvest increase will come from logs meant for export — 31 million board feet of the overall Southeast harvest increase of about 35 million board feet is in the form of export saw logs, based on the Forest Service projections. Sealaska, which gained 68,000 acres of formerly Tongass timberland in a conveyance from the federal government last year, exports nearly all of its timber as raw logs because it cannot process the logs in Alaska economically. Sealaska CEO Anthony Mallott has said the company wants to add timber processing and the new acreage will be an opportunity to study the economics of its entire timber business model. The study projects harvest from Southeast Alaska Native corporation lands will increase from 61.5 million board feet in 2015 to more than 80 million board feet 15 years later. Graham contends Sealaska is the only major private timberland owner in the region. According to Sealaska, it can now maintain an average harvest of 45 million board feet for the next 25 years, stretched from earlier projections of 45 million board feet 15 years. Sealaska is also interested in bidding on up to 20 million board feet per year of harvest from public lands. Further, Alaska’s Southeast State Forest has a maximum sustainable harvest of about 12 million board feet per year, according to state Forestry Director Chris Maisch. The study projects harvests from State of Alaska lands in the region to grow from 18.2 million board feet to 23.1 million board feet over the 15-year study period. The Alaska Mental Health Trust Land Office occasionally offers large timber sales upwards of 50 million to 60 million board feet from its Southeast properties. However, Trust Land Office Resource Manager Paul Slenkamp said the large sales are sporadic and none are expected for the next three to four years. Southeast Alaska’s timber industry is a shell of its former self. Average annual harvest from the Tongass ranged from about 280 million board feet to more than 400 million board feet during the late 1980s and early 1990s. The last year timber harvest from the 17 million-acre national forest exceeded 100 million board feet was 2000, which was the last full year before President Bill Clinton issued the Roadless Rule, restricting access to undeveloped tracts of national forests. At its peak, the industry supported more than 4,000 jobs in Southeast, today that number is down to about 300, according to Graham. Study co-author Jean Daniels, a federal research forester, said the demand forecast is a continuation of trends seen in related markets after the global recession in the late 2000s. The study was also kept independent from the Tongass Land and Resource Management Plan ongoing update process, Daniels said. “For the most part we tried to stay as separate from what was going on with the (Tongass environmental impact statement) process as possible to try to be as unbiased as possible with the results of the analysis,” she said. The Alaska Region of the Forest Service released a draft environmental impact statement for the Tongass Management Plan in November. The plan amendment calls for continuing the 15-year transition to young-growth harvest in the Tongass. Susan Alexander, a manager in the Forest Service’s Pacific Northwest Research Station, also helped pen the demand forecast study and said that Graham is looking at the forecast from the supply side, while the Forest Service attempted to figure out demand for all West Coast timber markets, with Alaska and the Tongass harvest subsets to the larger picture. “It’s a demand side analysis and I think that is sometimes confusing for people in Alaska who think that the supply equals demand, but it doesn’t, not from a theoretical standpoint,” Alexander said in an interview. Alexander and Daniels said they viewed Alaska as if timber supply was unconstrained and concluded that the cost of transportation has simply pushed Alaska out of the West Coast market. Demand is growing for lower value construction-grade lumber, but Alaska mills simply can’t compete with the rest of the Pacific Northwest. “Washington and Oregon have made all of the industry retooling necessary to be competitive in commodity markets and that’s a dimension lumber market where you’d be a price taker and Alaska has always been more competitive in the high-quality, shop-grade lumber,” Daniels said. Revamping Alaska sawmills to process dimension, or construction lumber from smaller young-growth trees would require hundreds of millions of dollars of investments and extremely high volumes of timber, Graham says. Additionally, those mills are highly mechanized, mostly eliminating the benefit of jobs in the industry, he argues. Alaska’s congressional delegation has criticized the Forest Service for pushing a quick transition to young-growth timber in the Tongass without helping Southeast mill operators transition their operations.   Elwood Brehmer can be reached at [email protected]

Anchorage regs would ban pot clubs, pesticides

The Municipality of Anchorage doesn’t exactly trust state regulations, but appears to see the new marijuana industry as a revenue source worth mining. An Anchorage ordinance would ban cannabis clubs and cafes, force retailers to foot the bill for cultivators’ pesticide use, and subject the Anchorage industry to city inspection on top of the required state inspection. Meanwhile, a separate ordinance establishes a retail marijuana sales tax that exceeds the city’s tax cap. The dual licensing ordinance would require Anchorage marijuana businesses to apply for a municipal license as well as a state license. Industry hopefuls say dual licensing is redundant, and along with the sales tax puts undue burden on retail businesses. Industry also fears city inspectors and law enforcement could use their powers to harass retail owners, mirroring concerns brought up during the state Marijuana Control Board rulemaking process.  City officials say they want more involvement with an industry that’s still federally illegal. Officials list “control over industry” in the “pro” column of an early dual licensing discussion paper, and ordinances are geared toward giving the city more control than it would otherwise have if it simply deferred to state regulations. Committee chairman Ernie Hall said the city is still waiting for Lt. Gov. Byron Mallott to approve state regulations on Jan. 24. “We’re still in a kind of never never land,” said committee chairman Ernie Hall. “Until the state regulations come out and the lieutenant governor signs it, we’re still kind of in limbo.” The Anchorage Assembly, however, is expected to vote on the dual licensing ordinance on Jan. 26, leaving only two days for draft revisions. Hall implored the cannabis industry to remember that Assembly process still leaves plenty of room for changes. “I want everybody to understand that this ordinance is being introduced. Don’t panic. There’s a process yet for this,” said Hall. The dual licensing and tax ordinances apply mostly to retail operations.  Municipal attorney Bill Falsey said the city’s intent is to focus on retail marijuana licenses to give Anchorage more control of the industry; much of the cultivation will likely be done elsewhere not subject to the city’s oversight. The ordinance would allow city officials to inspect and levy fines for marijuana business violators — just as in state regulations, which fine violators up to $10,000 — but Falsey said they’ve engineered a staggered fine structure to keep fines smaller for lesser offenses. “Ours will be tailored to different provisions,” said Falsey. “We’re going to have smaller violations with smaller fines, larger violations with larger fines.” Bruce Schulte, the chair of the Marijuana Control Board and ex-officio member of the committee, wondered why the city should have so much enforcement need beyond collecting revenue. “Why wouldn’t we just defer to the state?” asked Schulte. “I’m not sure what value we gain other than money into the city coffers. Or is that the goal?” Falsey said city enforcement should be able to enforce state regulations, as well as its own extra regulations, without having to go through the state board. “As we have municipal code enforcement doing purely municipal things,” said Falsey, “they may stumble on infractions on the licensing and regulatory side. When we have someone in power to do enforcement, they should be fully in power to enforcement.” The state marijuana board already pays half its licensing fees to the locality where the license is held, so the city will charge nothing for the license. The draft ordinance would ban both marijuana clubs and onsite consumption licenses, the latter of which the state specifically allows. Falsey said a ban is only a procedural necessity to bring the issue up when the Assembly meets. “The Assembly has asked that these issues be brought back to it,” Falsey said. “We know these questions are coming back to the assembly one way or the other.” The city already has an indoor smoking ban, but it has workarounds including private smoking clubs. Marijuana club Pot Luck Events has used this comparison frequently in defending its legality as a non-public place where cannabis consumption is permitted. Falsey said the Assembly might want its own ordinances regarding clubs and cafes. The state’s allowance for onsite marijuana consumption was not unanimous in the first place, he said, and the city might differ in opinion. “The onsite consumption and smoking clubs were highly contentious in the state regulatory discussions,” said Falsey. “Alaska is now currently the only jurisdiction anticipating whether or not there are marijuana café. Certainly the more conservative way would be to fall back on the Colorado Washington Oregon approach.” The city infractions mirror some of the state’s licensing requirements, as well as adding others where the city feels the state regulations didn’t address. The city’s hands could reach into other jurisdictions by applying certain rules like a pesticide ban. The ordinance would ban 59 different pesticides for marijuana cultivation, citing Oregon’s recent anti-pesticide provisions. City compliance officers could spot check retailers’ cannabis for pesticides. Since most cultivation will likely be done outside Anchorage, the city sees this as a way to control industry beyond what will likely be a heavily retail-based Anchorage market. Industry agreed with the sentiment, but not with method. The system makes retailers responsible — at $500 dollars a pop — for testing their product for pesticides. The cultivators who used the pesticides, however, would have no responsibility beyond souring business relationships with Anchorage retailers. “Cultivation sends samples, gets it tested,” said Kim Kole, a member of Coalition for Responsible Cannabis Legislation. “Retail has to sit on that product, and send out another sample for the testing facility again? It’s completely redundant and inefficient.” “We want to start the conversation going early,” said Falsey. Apart from fines and possible testing expenses, Anchorage’s marijuana industry will face a stiff tax schedule. The proposed marijuana tax would stick retail marijuana with a 5 percent sales tax, but allow city officials to increase the tax every two years by 2 percent. Conceivably, the tax could rise as far as 12 percent. Localities have already passed their own tax schedules. Fairbanks has passed a 5 percent marijuana sales tax and Bethel a 15 percent tax.    DJ Summers can be reached at [email protected]

Budget challenge makes it time to put our wealth to work

By now, most of you know we have a budget challenge: Over the past two years, Alaska’s oil revenue has plummeted by 88 percent, mainly due to a sharp drop in oil prices. We’ve cut the budget from $8 billion in 2012 to $4.8 billion. Despite these reductions, our deficit amounts to more than half our annual budget. If we do nothing, we’re on a course to drain the constitutional budget reserve within two years — and the permanent fund earnings reserve within another two years. Dividends would likely end within four years, and we’ll be left with no source of funding for public services like troopers, teachers, and transportation. Here’s the good news: We don’t have a wealth problem, we have a cash-flow problem. And we have a plan. When oil started flowing through the trans-Alaska pipeline, the late Governor Jay Hammond and others recognized that oil wouldn’t sustain us forever. They created the Alaska Permanent Fund as a means to turn a temporary oil boon into a permanent income generator. Gov. (Jay) Hammond said, “I wanted to transform oil wells pumping oil for a finite period into money wells pumping money for infinity.” And he succeeded. We’ve reached a crossover point where our savings earn more income than our oil. It’s time to put our wealth to work. One of the problems that has plagued Alaska is our dependence on a volatile revenue source. We feast when oil revenue goes up, and it’s famine time when oil goes down. We need to get off the boom-and-bust cycle — we need to put government on an allowance, provide stability for our economy, and give investors confidence in our future. That’s what my proposal aims to do. A key piece of my plan is the Alaska Permanent Fund Protection Act. Instead of putting oil revenue into the general fund, the legislation puts most oil revenue in the Alaska Permanent Fund, which is big enough to absorb the revenue volatility. A set portion of the earnings would be used each year to support government services. That amount would go up (or down) with inflation – rather than with the price of oil. But first, half of all royalty revenue would be set aside for distribution to Alaskans as dividends. The first year, my bill provides a fixed dividend of $1,000. Future dividends are expected to be around $1,000 based on current projections. If and when new resource development comes on line, dividends will increase. The Alaska Permanent Fund Protection Act reduces the need for taxes. It does not touch the principal of the fund. Rather, my bill diverts more income to the fund, and sets up stable and sustainable use of earnings. This plan makes the Permanent Fund permanent. This gets us most of the way toward closing the budget gap. I am proposing other measures to get us the rest of the way there: oil tax credit reform, modest broad-based taxes, and other targeted tax increases. All who benefit from our great state — including nonresident workers — are part of the solution. The other key part of our plan is continuing to bring down state spending. On top of $900 million in cuts last year, we’re proposing more than $100 million in reductions in the coming year. We’ve instituted statewide travel and hiring restrictions. We’re establishing shared services agreements to reduce government overhead. We’re consolidating divisions. We’re doing away with some programs. This is just the beginning of a long-term effort to reduce the size of government without harming Alaskans or our economy. The question we’ve asked over and over as we’ve crafted this plan is, “Is it fair? Is it balanced?” We can and no doubt will debate what’s fair and what’s balanced. I welcome that debate. This plan is written in pencil, not pen. The only truly unacceptable course is to do nothing. Our credit rating was recently downgraded, and credit agencies have warned that we must take action this year to close the gap between our spending and revenues to avoid further downgrades. Lower credit ratings mean higher costs of borrowing for critical projects, and can have a chilling effect on investment. Ultimately, a balanced budget is just a means to an end. Alaskans have dreams and goals. Most of us want to live in a community that feels safe and healthy, where our children can get a good education, where there are jobs and opportunities – where our families can thrive. It’s hard to do that when the budget is so off-kilter and uncertainty looms large. Let’s roll up our sleeves and pull together to solve our budget challenge so we can move on to the goals and visions we carry for ourselves, for our families, and for our state.

INSIDE REAL ESTATE: A snapshot of Anchorage housing as oil prices plunge

In Anchorage, a home in an upscale subdivision was recently put on the market for $25,000 less than the buyer paid for it 17 months ago. The seller is a relocation company most likely hired by an oil, or oil field service, company to dispose of a departing employee’s primary residence. The $25,000 amounts to a 3 percent reduction from the original purchase price paid by the employee to the builder.  Last week, for-sale inventory of single-family homes bumped up by over 20 homes. For the first time in several weeks, new inventory outpaced pending sales, according to recently published MLS statistics. So are these two scenarios indicative of a change in the housing market? The answer is both yes and no. As departing oil industry employees’ homes are sprinkled throughout the marketplace over the next few months, expect some good buys. Relocation companies do not like to hold inventory. It costs employers money, and depending on the relocation company’s contractual relationship with the employer, may reduce the relocation company’s profit. They like to sell homes “as-is where is” at a competitive price. If the average time on the market for a comparable home is 65 days, they like to price it to sell in 45. Their sold comps can drag a market down when used by an appraiser. But, like the home with the $25,000 price drop, most of these relocation homes are going to be priced over $500,000. It’s a good opportunity for the move-up buyer. The homes are generally newer, well cared for, and include appliances, window coverings, and landscaping. It is hard for builders to compete with these like-new homes, particularly when they are building in the same subdivision. The question is what remains when these well-priced homes are absorbed. Anchorage continues to have a housing shortage in all price ranges below $700,000. With a population of 300,000+, Anchorage should be building 900 new housing units a year. Yet, for the past several years, new housing units have averaged less than 500, including single family, duplexes, and multi-family. The new Title 21 rewrite, which went into effect in January of this year, will slow down any new permits for the first six months of this year as builders and developers grapple with the new requirements. Plus, there is no doubt that these new regulations will add to the cost of all housing types. It is not just a housing shortage but an affordability shortage as well. New homes under $500,000 will be in short supply and any four bedroom, 2.5 bath home with a double, or triple car garage, will be hard to find and ultimately, a good buy. Connie Yoshimura is the broker/owner of Dwell Realty. Contact her at 907-646-3670 or [email protected]  

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