Elwood Brehmer

Users say fuel tariff hikes would impact cargo operations at airport

Anchorage port customers on March 15 affirmed the possibility that self-funding a rebuild of the critical but badly corroded infrastructure they use might drive ultimately business away from the port and Anchorage in general. Municipal and port officials are once again in the midst of an analysis to determine exactly is needed how to pay for it at what is arguably Alaska’s most critical piece of infrastructure. The ongoing Anchorage Port Modernization Program would mostly replace the existing docks with a few additions. While scaled back from the failed port expansion project of the late 2000s, the current work is expected to cost upwards of $1.9 billion to complete, according to the project management firm CH2M, which was recently purchased by Jacobs Engineering Group. That price has been met with varying levels of sticker shock; it also includes more than $500 million for risk contingencies and cost escalations as the current schedule calls for work through 2028. Increased foreign steel tariffs; building to high seismic criteria with a 75-year working life; the logistical complexities of keeping the port open during construction; and removing much of the 30 acres of fill that created a large area of backlands at the north end of the port during the expansion project further add to the cost. First in line for replacement is the petroleum and cement terminal, or PCT, which is scheduled to be replaced over the next two years at a cost of $223 million. The PCT is on the oldest section of the docks and must be done first to free up space for when the adjacent cargo docks are rebuilt, according to port officials. Some sections of the pile-supported docks have been in place since 1961 and have far exceeded their initial 35-year design life. Studies indicate the pile maintenance program can keep the docks open for about another nine years before pervasive corrosion from seawater will start forcing closures. The PCT work is being partially funded with unspent money from the first project and court settlements, but absent state or federal funding, city officials in February proposed drastic increases to the port’s fuel and cement import tariffs to cover the cost of borrowing up to $200 million through revenue bonds for the remainder of the work. Representatives from port user companies said at a March 15 Anchorage Assembly Enterprise and Utility Oversight Committee meeting — the second in a series of meetings examining port reconstruction — that increasing the port’s fuel tariff by more than 500 percent would likely increase the cost of fuel and goods across the state. It’s estimated that up to 90 percent of the goods destined for delivery across mainland Alaska arrive across the port’s docks. In 2017, the Anchorage Assembly renamed it the Port of Alaska in an attempt to highlight its importance statewide and hopefully drum up support for its rebuild. Few state leaders deny the necessity of the port work, but the prospect of meaningful levels of state assistance is bleak as lawmakers continue to wrestle with how to close large state budget deficits. Specifically, the proposed fuel tariff change would incrementally increase the current 0.38 cents per gallon to 2.4 cents per gallon in 2023, which would be sufficient to cover the debt service on bonds to pay for a new PCT when combined with cement tariff hikes. While just about 2 cents per gallon in nominal terms, the impacts of the higher petroleum tariffs could be much larger in practice, according to shippers and others. Fuel economy Bert Mattingly, a manager with Anchorage Fuel and Service Co., said any tariff increase would force the international cargo carriers that support a large portion of the business at Ted Stevens Anchorage International Airport to reexamine their operations. Anchorage Fuel and Service doesn’t buy fuel. Rather, it is a consortium of 18 primarily cargo airlines that own fuel facilities at the airport and handles the fuel purchased by the individual carriers. Roughly half of the 616 million gallons of jet fuel the company received in 2018 came through the port, according to Mattingly. Anchorage Fuel and Service also owns the pipeline that carries jet fuel from the port to the airport, he said. The Anchorage airport is the fifth busiest cargo hub in the world mainly because of its position between manufacturers in east Asia and consumers in North America, and that cargo business is a large reason the airport supports 10 percent of the jobs in the city, according to the Anchorage Economic Development Corp. Refueling in Anchorage allows carriers to fill aircraft with more cargo instead of carrying the added fuel that would be needed to reach refueling hubs or destinations to the south and east. However, the economics of the cargo business model rely on a difference of pennies per gallon between hauling more fuel or hauling more cargo, industry experts note. As a result, any tariff change at the port could impact international business at the airport, Mattingly said, adding that newer, more fuel efficient jumbo jets have already begun to challenge the model of an Anchorage stopover. “We’re in a good place physically for heavy cargo to come through but on the return flight (cargo carriers) have a lot more options” for refueling locations, he said. Petro Star Vice President Mark John characterized the Alaska fuel business as an “incredibly competitive” market where changes as seemingly minor as “fractions of a penny” can influence decisions. Petro Star operates small refineries in North Pole and Valdez as well as fuel terminals across much of the state. The company also purchased a 200,000-barrel storage facility at the Anchorage port in 2017. “While we agree that the port is vital to the state’s commercial and public interests, an increase of over 500 percent in port user tariffs would ripple through the fuel market in Alaska and cause irreparable harm,” John told the Assembly members. “Once those customers leave they won’t return.” John said in response to questions about other funding alternatives that Petro Star’s parent company, Arctic Slope Regional Corp., is aware of the situation at the port and is also active in state lobbying efforts for its businesses. Committee co-chair Assemblyman Christopher Constant commented that the tariff proposal is the first thing the city has done regarding the port project that has garnered attention from outside Anchorage. “As scary as it might sound that this could happen it might be the first time we can actually educate people outside of Anchorage that this is their port,” Constant said. The situation for cement could be similar to fuel if the tariffs are enacted, according to Ryan Zins of Alaska Basic Industries, which imports cement at the PCT. Cement tariffs would go from $1.61 per ton eventually to $8.30 per ton under the city’s proposal. Anchorage Municipal Manager Bill Falsey has said city officials believe the current market price for cement is about $155 per ton. “If we look at it from a tariff standpoint, what I hear is lost jobs,” Zins said. He acknowledged the market can absorb some cost increases on cement but the proposed tariffs would equate to $750,000 to $1 million either coming out of Alaska Basic Industries’ bottom line or its customers pockets. The company is in the fourth year of a recession in its business, Zins said, adding that the tariffs could curtail some work in an already fragile construction sector. However, the worries about the basic commodity tariffs don’t even consider what it would cost for Anchorage to self-fund the port’s general cargo docks used by TOTE Maritime and Matson Inc., which provide consumer goods to Alaska. City leaders estimate another roughly $200 million per year would need to be generated to cover the debt service for building new, permanent cargo terminals and the backlands removal and stabilization. All in, that work is pegged at nearly $1.5 billion. Up to $200 million in new charges equates to about $2,000 per container delivered from Tacoma, according to Marion Davis, a Matson consultant, who called the company, “the grocery guys.” “I don’t know what (costs) we could pass on but it wouldn’t be $200 million a year,” Davis said. And while some shipments could possibly be routed to Seward or Whittier, he said that isn’t likely on a large scale. Whittier, tucked against the Chugach Mountains, doesn’t have much extra space; using the railroad isn’t feasible for time-sensitive produce, according to Davis; and adding large volumes of truck traffic to the Seward Highway from either alternative port is untenable. The most likely alternative is that more groceries would likely come north via the Alaska Highway, he said. Davis also clarified that TOTE and Matson need to use the port on the same days — Sundays and Tuesdays, necessitating two cargo docks — because supermarkets want fresh produce early in the week. Also, staggering the shipping schedules would put some ships back in Tacoma during weekends, when there is no freight to load, amongst other logistical challenges. After hearing the concerns of those most directly impacted by changes at the port, Falsey emphasized that city officials along with the Assembly are conducting a detailed review of every aspect of the modernization plan approved in late 2014. “We’re not interested in building a port that will cause business to flight from the airport. We’re not interested in building a port that will cause volumes to spiral down so that the port can no longer pay for the infrastructure that it just created,” Falsey said, while noting that something needs to be done soon. “Our goal remains to build the cheapest port that serves our needs and we’re all in this together.” Funding alternative While Anchorage leaders have struggled for years to drum up support for state and federal funding or the port project, a new possibility emerged from one of the country’s largest labor unions at the March 15 Assembly meeting. Alaska AFL-CIO President Vince Beltrami said the building trades union has a large Building Investment Trust that it could utilize to leverage other funds and help with the Port of Alaska rebuild. The roughly $7 billion AFL-CIO Building Investment Trust supports the union’s pension plans and invests in projects its laborers can work on, according to spokesman Bob Struckman. As a concept, the trust would likely sell bonds to fund a large part of the project but would not become a part owner of the port, explained Struckman, who added the investment could be “in the range of hundreds of millions” of dollars or more. “We would enter into an agreement with Anchorage to service whatever investment that we put in. The terms are very good because we’re not Wall Street. I think we’re a lot better partner than a lot of sources of funding and it can be easier than self-financing,” he said. Beltrami said any such agreement would come with the expectation that AFL-CIO affiliated laborers would do the work and Constant noted the city would hire union contractors for a project the size of the port regardless of funding arrangements. Struckman said he’s very optimistic the union’s fund managers would be interested in the Anchorage port and he’s looking to get investors to Alaska soon to review the project. Elwood Brehmer can be reached at [email protected]

Economists struggle to calculate impacts of cuts to budget vs. PFD

While economics is so far from perfect science it’s often referred to as an art, lawmakers are still asking leading state economists to quantify the economic effects of Gov. Michael J. Dunleavy’s budget proposal. One thing is clear: Filling Alaska’s $1.6 billion budget deficit without new taxes and at the same time paying each Alaskan a Permanent Fund dividend of roughly $3,000 adds up to a net negative for the state’s economy. University of Alaska Anchorage Institute of Social and Economic Research Economist Mouhcine Guettabi said in testimony to the Senate Finance Committee that the administration’s plan to cut approximately $1.2 billion of state agency and program spending and divert another $440 million in historically local tax revenue to state coffers would extend the current recession and result in a net loss of more than 7,100 jobs statewide. According to Guettabi’s calculations, the spending reductions would cost Alaska approximately 16,900 jobs. Those losses, equating to about 5 percent of Alaska’s current workforce, would be partially offset by a temporary employment boost of nearly 9,800 jobs stemming from a larger 2019 PFD and the eventual payback of forgone PFD amounts over several years. “How communities respond to these cuts will determine the actual size of the job losses,” he said, adding that if local governments raise taxes to offset the loss of current revenue the impacts to the workforce could be mitigated somewhat. He also noted that the North Slope Borough, for example, would have to impose taxes in excess of $30,000 per resident per year to fully recoup the gap left by shifting about $370 million in annual borough oil and gas property tax revenue to the state. Longtime Alaska economist Jonathan King said in February he believes the combined state and federal funding cut of approximately $750 million proposed for the state’s Medicaid program would result in 8,000 jobs lost across the state. Guettabi and other economists have said they believe the current recession — three years and running — is likely to end late this year absent complicating factors such as significant government spending cuts. Overall, Alaska has lost about 12,300 jobs since 2015, according to the state Labor Department. Office of Management and Budget Chief Economist Ed King testified the budget proposal would likely result in about a 5,000-job reduction statewide, but he emphasized that Alaska’s economy is more resilient than at any time in the state’s history and any solution to the state’s budget troubles is going to be felt at some level. “There’s going to be a negative impact regardless of how you solve this problem. That impact is either going to be an impact on the current economy or it’s going to be a negative impact on future generations, but there’s going to be an impact,” King told the senators March 7. “At some point we need to pay the piper and the economy needs to adjust to the new normal.” He suggested that private sector entities could backfill some of the direct cuts to state and local government positions. The administration’s budget would directly eliminate 714 State of Alaska positions, according Office of Management and Budget. Finance Committee members from both parties contended King, who downplayed Guettabi’s job loss projections, tried to avoid their questions about specific impacts of the governor’s proposals. He said the best way to analyze the health of the state’s economy is not to focus on job numbers but rather to track the money circulating through it. Many politicians in recent years have lamented the fact that Alaska’s unemployment rate has been the highest in the nation — largely due to a highly seasonal workforce — while the Lower 48 economy has been booming. At the same time, according to Labor Department figures, Alaskans’ personal income has generally increased despite the job losses throughout the recession, with the exception of 2016. Alaskans earned or received a total of $42.3 billion in 2017, the latest full-year data available. “The whole picture that somehow we’re on the precipice of economic calamity is just not consistent with the demographics of the state,” King insisted. Sen. Peter Micciche, R-Soldotna, insisted the administration’s stance that the private sector will step in to fill the void left by a major reduction in government spending is largely a myth because there is no corresponding benefit, such as a tax cuts for private industry or individuals. The structure of Alaska’s economy generally prohibits the benefits of the traditional conservative “trickle down” economy theory, Micciche said. Guettabi said in an interview that because the budget cuts would not be accompanied by a corresponding cut to state corporate or personal taxes — the latter of which does not exist — there is no “counteracting effect” that would be likely in other states where government spending is tied to taxes. “If you’re saying the money has to come from somewhere and I’m taking it from person A and giving to government then obviously the impact is going to be smaller, because that person potentially would have spent it better or at least spent some of it,” Guettabi said to describe the typical relationship between taxes and government spending in other states. “The Alaska economy is fairly diversified; its revenue sources are not,” he said to the committee. As is often the case, regardless of the issue, Alaska is different. According to the Fall 2018 Revenue Sources Book published by the Department of Revenue, just $867 million, or 14 percent, of the more than $6 billion in spendable revenue the state is expected to collect in fiscal year 2019 will come from non-petroleum or investment sources, mostly in the form of various industry-specific taxes. That means the vast majority of the State of Alaska’s funding, whether from resource extraction or Permanent Fund investment returns, is additive to the economy as opposed to recycled tax revenue. “On the state level we are an ownership state and the resources that we partner with industry to develop through the lease structures that we have in place, the royalty share that we take and then the taxes that we take are in effect new money injected into our economy,” Anchorage Economic Development Corp. CEO Bill Popp said in an interview. For that reason and others, the large AEDC board of directors, comprised mostly of the city’s business leaders, does not support Dunleavy’s budget plan, according to Popp. As has been the case for several years, the AEDC board is advocating for “a balance of measured, targeted cuts, identifying new income streams to fund government and to include the Permanent Fund as part of the solution,” he said. “We’re focusing on the Legislature as being where a balance of different aspects of a long-term fiscal plan can be developed that will not take our state backwards.” In addition to the state budget reductions, the administration’s proposal would forgo approximately $730 million in federal revenue, much of which would be cut from the Department of Health and Social Services Medicaid program budget. King in a follow-up interview agreed with the premise that government spending in Alaska has been an economic stimulant — at least since the income tax was repealed in 1980 — but going forward, “the revenue’s not there,” he said. The alternatives to cutting the budget, such as taxes or PFD reductions, would have the negative corresponding economic impacts Alaska has avoided for nearly four decades, King noted. He added that spending Permanent Fund investment revenue could alleviate the budget problem without immediate negative consequences, but those consequences are then put on future Alaskans in the form of reduced dividends. “The governor is very focused on that balancing act between supporting the current economy and protecting future Alaskans and the proposal he put forward best solves that problem,” King said. ISER economists have said a broad-based tax would have a less negative impact on the economy than direct budget cuts because, whether a sales or income tax, it would capture revenue from nonresident workers or visitors. ‘PFD jobs’ Senators also questioned the economists on how they believe the PFD impacts the economy and how changes to it compare to other budget-solving options. Guettabi said his estimate that the large PFD payments would induce nearly 9,800 jobs is based on an impact analysis done in 2016 when the debate about how to solve the state’s budget problems ramped up. He acknowledged it is a fairly “generic” analysis given no firm solutions have been implemented. At the time, he suggested Alaska would give up 558 to 892 jobs for every $100 million in cumulative PFD reductions. The range indicates an open question as to how much of each Alaskan’s PFD is spent in the state economy, how much is saved, and how much is spent elsewhere. For comparison, Guettabi forecasts broad-based state spending cuts would result in losses of 980 to 1,260 jobs for every $100 million reduction. Economists have generally said determining how Alaskans use their PFDs is an extremely challenging exercise. He said in an interview that a recent causal analysis he and other ISER economists did regarding PFD spending found that about 2,700 temporary jobs are generated for every $1,000 in per person PFD payments in the three months immediately following the distribution. “The way I think about the jobs that are created is that they are ‘demand induced’ jobs, meaning retailers or people that are in businesses that depend on household spending basically make short-term hires in order to deal with the rush or increase in demand,” Guettabi explained. The months immediately following the early October PFD distribution are also the prime holiday shopping period, which is a boon for retailers Outside as well. While King attempted to rebut Guettabi’s estimates in regards to job losses, he asserted in his presentation that injecting money into the economy would spur more spending and create additional labor demand to the tune of 14,272 jobs — a figure based on the high-end of Guettabi’s PFD jobs projection. However, Micciche — while emphasizing that it is appropriate to advocate for the PFD as a policy matter —noted that King discounted the impacts the dividend has on Alaska’s economy when he was a private economist. King wrote in an article published on the website for his firm King Economics Group last September that his study of the issue concluded that up to 90 percent of PFD income bypasses Alaska’s economy. “I was surprised to find that there is no statistically significant relationship between PFD payments and changes in jobs,” King wrote. “Not even if I try to find one by lagging the time periods.” Most PFD money goes towards college savings accounts, vacations, federal taxes and other non-stimulating sources, according to King. Micciche acknowledged that King is now in the very different role of advocating for Dunleavy’s policy priorities. For his part, King told the Finance Committee that while the PFD may not have a big influence on Alaska’s economy as a whole, it is a big deal to many individuals in the state. “When you look at what the PFD does, it doesn’t just create jobs, it also creates value to people. It allows them to improve the quality of their life. It allows people to buy fuel for the winter, or food for their kids, or send their kids to college or take a vacation or whatever it is they want to do,” he said. “Those PFDs have a much bigger impact on people’s individual lives than the job numbers indicate.” Elwood Brehmer can be reached at [email protected]

ADFG advances logbook repeal; OMB takes director salaries

Alaska Department of Fish and Game officials want input on a proposal to repeal rules requiring sport fish guides to report their clients’ catch. ADFG issued a public notice March 7 requesting public comments on eliminating the Freshwater Sport Fish Guide Logbook program. The department currently mandates all fishing guides and charter operators to complete detailed summaries of each fishing trip they run in logbooks provided by the department. Freshwater guides are required to record the time and location of each trip; the number of each species caught and harvested or released; as well as the sport fishing license number of each guide and client that participated in a given outing. Those logbooks must then be turned in to the department each week during the fishing season. Saltwater fishing guides would still be required to record their trips in the state logbooks. While ADFG monitors fish stocks in many popular commercial and sport fisheries across the state with fish weirs, sonar, and various other survey methods, many other fisheries, even on large, heavily used waters, are not tracked. The logbooks offer fisheries managers a frame of reference for how fisheries typically not actively managed in-season are performing by tracking catch rates and angler effort. Logbook data can also be used in gathering other harvest information as well. The popular Kenai River coho fishery, for example, largely occurs after the sonar focused on enumerating the river’s sockeye run is pulled in mid-August. Questions about the reasons behind repealing specifically the freshwater logbook requirement were referred to the Office of Management and Budget despite being a regulatory proposal and were not answered in time for this story. Acting Fish and Game Administrative Services Director Samantha Gatton told the House Fish and Game budget subcommittee March 5 that repealing the program would save approximately $100,000. Gatton previously said the overall saltwater and freshwater logbook program costs the state $650,000 to $690,000 per year. Overall, the department is facing a $4.5 million cut from a roughly $200 million budget under the Dunleavy administration’s proposal. Incoming Kenai River Sportfishing Association Executive Director Ben Mohr said the group is fairly ambivalent about the proposal to repeal it. The freshwater logbook program is scheduled to sunset in October and, according to Mohr, has not been used for in-season management as much as intended. On March 12 ADFG Commissioner Doug Vincent-Lang also clarified in response to questions from legislators on the House budget subcommittee that the department is cutting the Habitat and Subsistence Division director positions so the PCNs, or position control numbers, can be transferred to the Office of Management and Budget for director-level positions there. He stressed that the department will continue to operate the Habitat and Subsistence aspects of its work as it has done; the difference will be that division operations managers leading each area will report to a deputy commissioner. The Habitat and Subsistence director positions are vacant and not required by statute, according to Vincent-Lang. “I’d rather not lose two permitters; I’d rather lose a vacant director and figure out how to oversee that division by a deputy commissioner,” he told the committee. Rep. Geran Tarr, D-Anchorage, questioned the plan for putting science-based permitting decisions on an appointee-level position. Rep. Jonathan Kreiss-Tomkins, D-Sitka, said OMB needs to explain the rationale behind transferring the positions out of Fish and Game. Elwood Brehmer can be reached at [email protected]

Premera uses AI to identify customers at risk of high-cost care

Premera Blue Cross is betting that new technology can predict future health problems, thereby giving patients and medical providers the ability to react before potential issues become severe. The large Seattle-based health insurer in February announced a partnership with Cardinal Analytx Solutions to use Cardinal’s Cost Bloom predictive modeling program to identify Premera members with the highest probability of needing high-cost health care over the coming year. It’s generally understood in the health insurance industry that a small portion of any population accounts for the vast majority of health care costs associated with that population. According to a Premera paper on the program, research at Stanford University found that approximately 10 percent of an insured population typically accounts for 70 percent of the costs. The challenge is in predicting who will be in that 10 percent pool in a given year, Premera Data and Analytics Director Colt Courtright said in an interview. That’s because, according to Cardinal Analytx, 60 percent of the high-cost pool changes year-to-year, and most analytics programs focus on identifying and providing managed care to only the 40 percent long-term portion of the high-cost pool. Cardinal Analytx Solutions is a Palo Alto, Cali.-based data analytics firm. “Really, what we’re trying to do is help people avoid those (high health care) costs in the first place. The challenge using classical statistics is that it was impossible to find a large portion of that 10 percent and be able to predict who they might be, so you couldn’t really intervene,” Courtright said. “You couldn’t offer support programs; you couldn’t perform outreach; you couldn’t encourage provider visits.” The key to the program is employing artificial intelligence with the ability to parse out much more subtle indicators of future high-cost health care users. When a potential high-cost individual is flagged, Premera can then notify that person and suggest preventative or early treatment methods. The artificial intelligence can identify patterns in members’ use of medications, or a constellation of health conditions and discern if a social support program, for instance, could improve the condition before a major procedure or other intensive care is required, Courtright said. Cardinal Analytx estimates the Cost Bloom program can result in 15 percent savings across an insured group over two years. The condition forecasting is an addition to Premera’s existing clinical care management and care coordination programs and when a member is identified as someone who is likely to need high-cost care in the next year a case manager can reach out through those programs, according to Courtright. He also said the predictive modeling works using data insurance companies have traditionally gathered; however, the artificial intelligence analysis of that data is driven by the interaction of more than 50,000 data points or variables processed through a predictive algorithm, according to Premera. “It’s less about a specific data point as these are attributes that are often combined across data points,” Courtright said. Premera Blue Cross Blue Shield Alaska is the lone insurer in Alaska’s individual health insurance market. A reinsurance program first started by the State of Alaska in 2016 and then approved by the federal Centers for Medicare and Medicaid Services in 2017 has allowed Premera to reduce its individual market insurance rates by 26 percent in 2018 and 6.5 percent in 2019. The Alaska Reinsurance Program is in the middle of receiving $332 million in CMS grants over five years to support the program. Premera returned $25 million in reinsurance money to the State of Alaska in late 2017 after the company determined there had been a significant reduction in the use of medical services by members in the individual market. Elwood Brehmer can be reached at [email protected]

AGDC scales back as it moves project forward

Alaska’s new gasline leaders offered some insight Wednesday into their plans to continue building on the progress that has been made on the $43 billion Alaska LNG Project while at the same time reevaluating its viability and doing so at a lower cost to the state. Interim AGDC President Joe Dubler told the corporation’s board of directors that a primary emphasis is returning to the “stage gate” process used by the producer companies to advance Alaska LNG before the state took it over in late 2016. BP, ConocoPhillips and ExxonMobil and the State of Alaska collectively spent roughly $600 million in the 2013-16 timeframe to get the megaproject through the preliminary front-end engineering and design, or pre-FEED, stage. At that point, with depressed oil and LNG markets, the companies offered to either hand the project over to the state or slow it down until global energy markets improved. Narrowing the Alaska LNG Project cost from a $45 billion to $65 billion range down to the current estimated $43 billion was a primary product of the pre-FEED work. Gov. Bill Walker chose for the state to continue the effort and under former AGDC President Keith Meyer — who was hired in June 2016 and fired by the board this January — work was focused on selling to project to LNG customers and investors while also initiating the federal permitting process to get approvals for early construction in 2020. AGDC will now focus on determining whether or not it’s worth advancing to the up to $2 billion FEED stage gate, which would get the Alaska LNG Project to about a 40 percent design level and is necessary to make a subsequent final investment decision, according to Dubler. Given that, he said a 2020 start to construction is not realistic. A desire to reinstitute the stage gate approach and get the producers directly involved in Alaska LNG again were priorities of Gov. Michael J. Dunleavy during his campaign. “What’s needed to make a final investment decision — we don’t have everything in place at this time. We think it will probably be two years or so but we haven’t worked the schedule all the way out,” Dubler said. “If you’re going to fail on a project you want to fail when you only have $500 million or a billion dollars into the project and not $4 to $5 billion into the project, so you stop at each gate and make a decision.” Dubler said during a Feb. 27 legislative hearing on AGDC’s budget that corporation leaders are prepared to shut down operations if the Alaska LNG Project is not determined to be economically viable. Under the previous approach, AGDC planned to hire one or more large firms to develop the project under an engineering, procurement and construction, or EPC, contract and that included the final technical development. The corporation will also go through a new economic analysis of the project, according to Dubler, who noted the last time the project’s economics were assessed was in 2016. That evaluation, done by the international energy economics firm Wood Mackenzie, concluded low global LNG prices challenged the viability of a producer-led Alaska LNG Project and suggested state control could benefit it’s economics but did not draw firm conclusions on the viability of the current project structure. Dubler said he doesn’t believe the changes will deter the potential LNG customers and investors AGDC has preliminary agreements with, adding that the corporation has sent letters to them explaining the changes and corporation officials will meet with several of them at the large LNG2019 conference in Shanghai in early April. However, he did say the nonbinding joint development agreement framework AGDC has with three nationalized Chinese companies to finance up to 75 percent of the project costs in exchange for purchasing up to 75 percent of its LNG production capacity puts too much control in one place. “We’re looking to diversify into more companies — get more people involved. We’re just looking to expand participation by investors and offtakers,” Dubler said. AGDC officials have previously said the corporation has formal letters of interest from 15 potential customers entities; but those documents are confidential. Commercial and Economics Vice President Leiza Wilcox said feedback from prospective customers remains positive because of Alaska’s location in relation to Asian LNG buyers. On the investor side, she said indications are the initial Alaska LNG investors would likely require returns “in the mid-double digits.” “Somewhere between 12 to 15 percent, that would be my feeling,” Wilcox told the board of directors. “For a long-term infrastructure project the expected rate of return can be lower and in the long-term the project can be put into the hands of infrastructure investors that expect a lower rate of return. It’s just a matter of who invests up front and who invests for the long-term; that’s part of the structuring of the financing package.” Securing those infrastructure investors, such as pension funds, with lower return hurdles was a cornerstone of the approach AGDC took to the Alaska LNG Project under Meyer, who often cited the higher return requirements of the major oil producers as an impediment for developing the project based on their investments. As for AGDC’s internal finances, Dubler said the corporation could complete its mission on a smaller budget to do its part to close the state’s $1.6 billion budget deficit. The corporation has already cut $5 million out of its current year budget — mostly by cutting its contractor and legal expenses — and is downsizing its Anchorage offices. The Dunleavy administration’s fiscal year 2019 supplemental budget request includes transferring that $5 million back to the General Fund. “We’re right-sizing for the narrower marketing focus and we’re advancing the FERC (permitting) process,” Dubler said. However, he went on to say that with the $5 million reduction, AGDC expects to have roughly $15 million at the end of the current, 2019 fiscal year, but expects to need about $29 million in 2020 to complete the Alaska LNG environmental statement and keep the reduced scope of commercial work ongoing. Agency officials are working on a resolution to the funding issue, Dubler said. “I’m not sure we can reduce enough to get there but we’re going to see what we can do,” he added. House Resources Committee co-chair Rep. Geran Tarr, D-Anchorage, said in a statement offered to the Journal that she was pleased to hear AGDC is continuing with the Federal Energy Regulatory Commission environmental impact statement process started in 2017 under the Walker administration. “This is the right decision. The state has invested hundreds of millions of dollars, and that investment must be maximized by achieving this critical regulatory approval,” said Tarr, who added that she’s looking forward to “closely evaluating any new proposals to change the ownership model to ensure the state’s strong position is maintained.” There is a general consensus among industry experts and Alaska LNG observers that completing the project’s EIS would be beneficial in the long-term even if the project is not sanctioned in the coming years. To date, AGDC has spent more than $260 million on the Alaska LNG Project. AGDC leaders are scheduled to present to legislators March 22 in a joint House and Senate Resources Committee meeting. Outside help AGDC on Friday announced new partnerships with BP and ExxonMobil in which the companies will help the quasi-state corporation “identify ways to improve the project’s competitiveness and progress the Federal Energy Regulatory Commission authorization to construct the project,” according to a statement from the corporation. Last year BP and ExxonMobil signed binding term sheets, which include pricing terms, to sell their respective shares of North Slope natural gas into the Alaska LNG Project. “BP and ExxonMobil possess world-class LNG expertise which may help AGDC responsibly advance this project with maximum efficiency for the benefit of Alaskans, and I welcome their collaboration,” Dubler said in a formal statement. BP previously supplied AGDC with technical assistance under an agreement from late 2016. According to AGDC officials, the latest agreements ostensibly provide free volunteer help from the companies on value engineering and answering federal agency questions for the Alaska LNG environmental impact statement. FERC officials said Feb. 28 that issuance of the draft Alaska LNG EIS would be pushed back about four months to June of this year due, in part, to responses the federal regulators still need to get from AGDC, according to FERC documents. Additionally, Dubler said during the Wednesday board meeting that AGDC would seek third-party help from “quality, experienced LNG project owners and operators to build, own, and operate the project” if it reaches that point. “We realize this is not something the state does. The state’s very good at some things; running integrated LNG projects is not one of them,” he added. Former AGDC head Meyer often noted that AGDC would likely hire a firm to operate the project while it remained under state ownership. That state ownership has been recognized by many, including Dubler, as a crucial economic benefit because it would likely exempt Alaska LNG operations from federal income taxes based on a 2016 ruling from the Internal Revenue Service. Elwood Brehmer can be reached at [email protected]

Slope production forecast coming up short

Alaska is facing a projected $1.6 billion budget deficit next year, but the financial picture for the current fiscal year could get a little worse if North Slope oil production figures don’t increase soon. North Slope crude oil and natural gas liquids production for fiscal year 2019 averaged 496,197 barrels per day through February, according to the state Department of Revenue. That is 5.8 percent below the average daily production forecast produced by the Department of Natural Resources of 526,800 barrels for all of fiscal 2019, which began last July 1. The delta between actual and forecasted production is notable because overall 2019 North Slope production was supposed to increase from the final fiscal 2018 average of 521,398 barrels per day. Instead, the 496,197 barrels per day of production since the start of July is also well below the year-to-date average for 2018, which was 516,870 barrels per day at the end of February 2018. Overall, the state was expected to draw roughly $700 million from savings when the fiscal 2019 budget was passed last June. Actual North Slope production in February averaged 517,227 barrels per day, while state officials calculated that production for the month would have to be about 582,000 barrels per day to stay on pace for the 526,800 barrels per day forecast for the year. It’s worth noting that the monthly calculation is largely based on historical production averages prorated by month — production peaks in winter months —as opposed to strictly being based on year-to-year situations, according to state officials. Oil taxes and royalties were expected to generate more than $2.2 billion in unrestricted revenue for the State of Alaska in the current fiscal year, according to the annual Revenue Sources Book the Department of Revenue publishes each December. The revenue projection is based on the combination of the department’s oil price forecast for the year as well as DNR’s production estimate. The price side of the equation is currently a slight but dwindling positive for Alaska’s finances, as higher than expected prices through late summer and fall have the average price for a barrel of Alaska North Slope crude at $69.85 per barrel, or about 2.8 percent more than the $67.96 per barrel forecast. However, the average realized price has gradually been falling since Alaska oil prices fell back to sub-$70 per barrel range in November. Another roughly 11,000 barrels per day of oil is produced from Cook Inlet oil fields, but Cook Inlet oil provides minimal production tax revenue and the volume doesn’t compare with North Slope production. Division of Oil and Gas Commercial Analyst Pascal Umekwe said the Revenue Department’s annual spring update to the fall forecast will likely show “a slight downward revision” for the production forecast based on the numbers from the first seven months of the fiscal year. The spring forecast is usually published in mid-March. State officials last year attributed actual production not meeting the fall forecast to unusually warm North Slope temperatures, which degrades the efficiency of production facilities designed to run most efficiently at very cold temperatures. The natural gas compressors that help reinject gas at many wells to enhance oil production are not as effective at warmer ambient temperatures — which is the primary reason for less summer production each year — and can lead producing companies to focus on extracting oil from wells that have a lower gas-to-oil ratio when things warm up. Last winter North Slope temperatures were about 14 degrees above the long-term average. This year, February temperatures at Utqiagvik averaged 4.5 degrees Fahrenheit, or 18.7 degrees above normal. The high in Utqiagvik hit 34 degrees on Feb. 28. January temperatures were still high but more in line with historical norms at 4.6 degrees above normal, according to the National Weather Service. Umekwe emphasized that production from the large, mature North Slope fields typically declines each year unless companies put significant work into turning it around. That work can come in the form of improving production facilities, “workovers” to existing wells or drilling new wells. The timing of that work can also impact oil production. He also noted that state analysts who prepare the production forecast are typically able to have just one or two meetings with company representatives to gather information prior to releasing the forecast each fall. Subsequent information for the spring update comes from publicly available data. Changes to companies’ maintenance and drilling schedules after their meetings with state officials could then play into the variance between forecasted and actual production volumes, according to Umekwe. “It is the scheduling of work, in terms of turnaround activities that were done in the summer and how production responds after that work is done. That would be a key factor as well as how temperatures in a given February compare with temperatures in a previous February,” he said. “Work being done at a production facility that dips down production for a longer period of time would be very different than work done in a similar period the previous year that wasn’t that extensive — so both the intensity of the work and the schedule of the work. When I talk about intensity, it’s intensity of the impact of that work on production.” Industry representatives noted that Eni, which operates the small Nikaitchuq field, had problems with its production facilities in late fall, which slowed production from the field. An Eni spokesman did not respond to questions in time for this story.

St. Paul ready for takeoff with Sabrewing partnership

Small communities aren’t often able to attract investments in groundbreaking technologies. It’s even more rare when it happens to an ultra-remote island village near the edge of the Arctic; but thanks to the foresight of community leaders, the unique opportunities that isolation provides, and a little luck, St. Paul, Alaska, is on its way to becoming the center of field research for large commercial unmanned aircraft. Earlier this year, the Aleut Community of St. Paul Island, the Tribal government of St. Paul, inked a deal worth up to $43 million with Sabrewing Aircraft Co. to test, develop and ultimately purchase the company’s unmanned cargo aircraft. The partnership, officially announced Feb. 27, first calls for the Tribal government to establish the St. Paul Experimental Test Range Complex for testing Sabrewing’s Rhaegal and Wyvern vertical takeoff and landing prototype cargo aircraft. Eventually, the Tribe plans to buy up to 10 Sabrewing aircraft and form a joint-venture company with the manufacturer offering large unmanned aircraft pilot training, maintenance, leasing and other services. Sabrewing co-founder and CEO Ed De Reyes said the partnership with the tribe of St. Paul has pushed company leaders to expedite their plans. De Reyes said in a June 2018 interview with the Journal that the company was working toward completing the 4,500-mile trans-oceanic Pacific Drone Challenge this year. However, Sabrewing has since “set the Pacific Drone Challenge to the side” given the opportunity came sooner than expected to commercialize its aircraft. “In St. Paul I don’t think I’ve ever seen a place that has such a variety of capabilities (for unmanned aircraft) in one location. It sounds so weird because you never think you’d find this in the middle of the Bering Sea but it’s amazing. It is there,” De Reyes said. St. Paul is the largest of the Pribilof Islands, and sits roughly 250 miles north of the Aleutian chain in the Bering Sea. Patrick Baker, executive director of the Tribal Government of St. Paul, said the Tribe has a for-profit subsidiary that operates small unmanned aircraft — referred to as Part 107 aircraft in Federal Aviation Administration parlance — and wanted to expand that work but was not thinking about hosting a large unmanned aircraft system, or UAS, test range. Much of that work has been on small contracts with companies, universities and government agencies doing mapping and various types of environmental research. Historically, the village’s economy has revolved around Bering Sea crab and halibut fisheries. “We’re a community that’s a very resource-based community around fishing as the Tribal government. We’ve seen the trend of resource depletion, overfishing. The trend has been in decline so we’ve been looking for opportunities around diversification that also kind of fit with our mission,” Baker said. “With St. Paul and most of Alaska being challenged with logistics, we were looking to get ahead of technology, find tomorrow’s industry and we started with Part 107, training pilots, then training instructors. “We’ve found some opportunities around the 107-class aircraft but nothing quite on the same scale as the fishery resource. We feel this larger platform is the future. We feel we’re ahead — getting in at the right time; kind of building on that unique geography of St. Paul in the center of the Bering Sea.” St. Paul’s population has fallen from about 600 residents to a little more than 400 along with declines in the fisheries, he noted, as residents seek employment elsewhere. Stars align St. Paul Tribal Council President Amos Philemonoff described the last eight months as “pushing a snowball down a mountain,” adding that, “everything has just lined up perfectly. You just couldn’t ask for a better alignment of the stars.” The courtship with Sabrewing started after a Tribal government representative read a June 2018 story in the Journal profiling Sabrewing and the company’s plans to manufacture its aircraft in Anchorage. Cargo deliveries to remote communities is Sabrewing’s target market, and without the ability to legally fly its aircraft to Alaska with all the state’s opportunities in that market, Anchorage is a natural home for manufacturing its aircraft. “The more time that goes on the more sense it makes for us to be located in Anchorage,” De Reyes said in June. “I can’t think of any other place in the United States that has that unique — not only position in the aircraft industry — but that unique place in unmanned cargo (aircraft). It makes more sense than any other location that I can think of.” Sabrewing is also an associate member of the Alaska Air Carriers Association. Currently based in Camarillo, Calif., the company is focused on developing the Rhaegal first: a mid-sized aircraft with a cargo capacity of 800 pounds, a range of 360 nautical miles and a maximum altitude of 22,000 feet. Sabrewing’s aircraft are built on a composite airframe with a gas-electric hybrid power system that drives four electric motors, each turning a variable-position fan. While a hybrid system, the Sabrewing powertrain does not alternate between power sources in the way the popular Toyota Prius hybrid car does. Instead, a light, super-quick response rotary engine generates the power that is converted into electricity by the four motors in real-time. De Reyes said he believes the costs to operate and maintain a Rhaegal will be about half of what it takes to fly a traditional small cargo plane such as a Cessna Caravan, and those cost savings could translate directly into a lower cost of living in remote communities. The larger Wyvern, with a 4,400-pound payload and a 1,600-mile range, will come later, according to De Reyes. Eyeing Anchorage Company leaders are shopping for industrial space in Anchorage and hope to start putting the first Rhaegals together early next year. De Reyes said Anchorage will be more of an assembly facility as opposed to true manufacturing. The aircraft’s five major segments and other small components will be developed elsewhere and put together here. On the regulatory side, the FAA is close to approving an initial certificate of authorization, or COA, for the test range. The first COA is likely to be for a small area immediately surrounding St. Paul Island. It could be expanded soon after Sabrewing demonstrates it can operate the Rhaegal safely, De Reyes said. Ultimately, St. Paul offers approximately 126,000 square miles of relatively empty unrestricted airspace underneath the large jet traffic that starts at 27,000 feet, according to De Reyes. He and others have credited the FAA for being open to ideas for testing emerging technologies, such as unmanned aircraft, in recent years while still following the strict “safety first” mandate. FAA officials said they have been impressed in talks with St. Paul and Sabrewing leaders with their proactive approach to address regulatory issues. John “Nevada” Nevadomsky, a former director of the University of Alaska Fairbanks’ Pan-Pacific UAS Test Range Complex and Sabrewing’s new research and development director, also noted that the FAA Reauthorization bill passed by Congress last fall allows for Tribal governments to set up test ranges. UAS test ranges had previously been limited mostly to research institutions. The abundance of available airspace and inclement weather conditions afforded by the Bering Sea will help Sabrewing prove its mettle in all types of conditions, De Reyes said. The remote location also keeps the testing of proprietary technologies a safe distance away from those who aren’t supposed to see it, added De Reyes, who has worked extensively as a test pilot for numerous aircraft manufacturers. “I can’t tell you the number of projects we’ve worked on before where you’ll sit here and go, ‘Holy smokes, nobody was supposed to know about this,’ but yet, it’s in somebody’s magazine and they have data on how fast it flies and how high it flies right down to the nitty gritty,” he said. “But that’s one thing about St. Paul; when you get off the plane they know what you’re there for and if they don’t somebody’s going to find out. If you’re there to snoop it’s the wrong place to be because you’ll be invited to leave very quickly.” Education investment pays off Finally, the St. Paul Tribe’s forethought helped seal the deal from Sabrewing’s perspective. According to Baker, the Tribe has invested upwards of $1.6 million per year in profits from its businesses into STEM education materials and equipment at the community’s K-12 school to broaden students’ opportunities. De Reyes said he noticed parallels between the small south Texas town he grew up in — but had to leave to pursue his dreams in aviation — and St. Paul. “As I grow older I realize how much I miss the little town I grew up in. It’s still there but it’s not the little town I grew up in,” he described. “St. Paul, I think, will always have that same kind of community that it has now; they’re just moving forward but really recognizing this: If we put the mechanism in place to teach them here, to provide them with jobs and a meaningful living wage here in St. Paul, they’ll stay in St. Paul.” The Sabrewing partnership has brought a “buzz” to St. Paul, according to Council president Philemonoff. The excitement reaches down to the community’s youth, he said while describing a presentation Sabrewing and tribal leaders gave to the entire St. Paul student body. “Man, these kids, you could just see their faces light up — their arms shooting in the air. All we did was answer questions for a couple hours,” Philemonoff recalled. “There was this kid in front of me; he must have mouthed off 10 or 12 questions and I’ve never seen him talk before. Just amazing.” ^ Elwood Brehmer can be reached at [email protected]

AGDC ready to disband if Alaska LNG a ‘no-go’

New Alaska gasline officials are prepared to break up the band if an internal review concludes the current iteration of the $43 billion Alaska LNG Project doesn’t pencil out. Alaska Gasline Development Corp. President Joe Dubler told legislators during a Feb. 27 Senate Finance subcommittee meeting that the quasi-state corporation holding Alaska’s longtime hopes for a large natural gas pipeline project is in the process of scaling back while evaluating the technical and commercial viability Alaska LNG. Dubler, who officially took the helm at AGDC Feb. 1, emphasized that Gov. Michael J. Dunleavy replaced four board members and hired him to “refocus the corporation.” “What (Dunleavy) wanted us to focus on was the Alaska LNG Project to determine if the larger project with the export capacity could meet economic hurdles without undue execution risk,” Dubler said to members of the Senate subcommittee for the Department of Commerce, Community and Economic Development budget, which AGDC falls under. “If it is (viable) we’re going to solicit world-class partners for FEED, which is front-end engineering and design and completion of regulatory efforts,” he continued. “If we do all of our work and we determine that the project does not look like it’s going to be viable we will wind the project down, close the corporation up and return all the current funds that remain to the General Fund.” The message is a sharp contrast to what former AGDC President Keith Meyer — whom Dubler replaced after leading the corporation since June 2016 — often stressed. Meyer and former Gov. Bill Walker emphasized the state would only go forward with an LNG pipeline and export plan if it was economical, but there was never an indication the corporation would give up on finding a path forward for Alaska LNG if the current plan ultimately didn’t work. Dunleavy was highly critical of Walker’s state-led gasline plan while he was in the Senate and while campaigning for governor. He has said he wants to bring Alaska’s major oil producers back into the project if the administration ultimately decides to keep it moving forward. Dubler added that AGDC has closed its office in Houston and is in the process of consolidating its main Midtown Anchorage office by nearly half. A small, one-person office in Tokyo remains open, according to Dubler. He said the corporation’s $10.1 million budget proposed in Dunleavy’s fiscal year 2020 budget should be sufficient to complete the Alaska LNG Project environmental impact statement. AGDC spokesman Tim Fitzpatrick said after Dubler’s comments that it continues to be “business as usual” at the corporation. Fitzpatrick highlighted that there is no internal timeline to complete the Alaska LNG review; it will take as long as it takes, he said. While the $10.1 million covers corporate operations such as payroll and office leases, AGDC spends additional money on the project from the Alaska LNG fund, which held $34.1 million at the end of January, according to corporation officials. That spending is largely for technical contractors hired to gather information for project permitting. To date, AGDC has spent more than $260 million on the Alaska LNG Project. Also, while the governor could veto appropriations to AGDC, disbanding it and transferring remaining Alaska LNG funds to the General Fund would require legislative approval. Corporation officials are still in commercial negotiations with several parties that signed preliminary agreements to purchase LNG, Fitzpatrick said, including the three Chinese companies that signed a joint development agreement with AGDC in November 2017 to be potential anchor customers and financiers of the project. The Federal Energy Regulatory Commission, which is writing the Alaska LNG EIS, was expected to publish a draft of the document in February; however, the agency on Thursday revised that schedule for a June release. It’s generally believed the extended partial government shutdown affected FERC’s ability to meet the original schedule in addition to having many technical questions for which AGDC is still providing answers; FERC historically has been one of the best federal agencies in terms of meeting its self-imposed permitting schedules. The revised Alaska LNG schedule calls for a final EIS to be published in March 2020 with a record of decision coming shortly thereafter. Sen. Chris Birch, R-Anchorage, who chairs the Resources Committee and the subcommittee Dubler testified to, said in a brief interview there is a general consensus among legislators that AGDC should complete its current Alaska LNG permitting effort regardless of whether or not other aspects of the project are advanced. “You might be back asking (FERC) for another LNG license down the road,” Birch said, noting that he will be interested in seeing AGDC’s updated spending plan during a presentation to the joint House and Senate Resources Committees set for March 22. On March 4, AGDC received the joint record of decision on its original, smaller Alaska Standalone Pipeline, or ASAP, project from the Army Corps of Engineers and the Bureau of Land Management. The ASAP project, estimated at roughly $10 billion, is a smaller gas pipeline plan to get natural gas off of the North Slope strictly for in-state use. ASAP includes a 733-mile long natural gas pipeline system from Prudhoe Bay to the Enstar Natural Gas Co. distribution system near Big Lake, and a 30-mile long lateral line to Fairbanks. It does not include the large LNG plant needed for gas exports, which accounts for about half of the $43 billion Alaska LNG price, but experts also doubt the economics of any trans-Alaska natural gas pipeline without the LNG export component. The ASAP decision was likely also delayed because of the government shutdown that ended in January. ^ Elwood Brehmer can be reached at [email protected]

Corps releases draft EIS for Pebble

Alaskans interested in the future of the Pebble mine project should get their reading glasses ready. The U.S. Army Corps of Engineers is asking for feedback on its approximately 1,400-page draft environmental impact statement, or EIS, released Feb. 20 for the Pebble project. A 90-day public comment period begins March 1. Opponents of the mine contend the Corps limited its focus to environmental impacts at the mine site and ignored potential downstream effects, particularly to fisheries. To the contrary, Pebble Limited Partnership CEO Tom Collier said the company didn’t identify any major data gaps or substantive impacts that couldn’t be addressed in the draft document. “We see no significant environmental challenges that would preclude the project from getting a permit and this shows Alaska stakeholders that there is a clear path forward for this project that could potentially generate significant economic activity, tax revenue and thousands of jobs,” Collier said in a formal statement. Pebble estimates the project will generate about 2,000 jobs during its four-year construction and about 850 full-time positions over its 20-year life. “We have stated that the project must coexist with the important salmon fishery in the region and we believe we will not harm the fish and water resources in Bristol Bay. Now we have a science-based, objective assessment of the project that affirms our work,” Collier continued. The draft EIS examines Pebble’s proposed project submitted to the Army Corps of Engineers in December 2017. The Corps adjudicates Clean Water Act Section 404 wetlands fill permit applications on behalf of the Environmental Protection Agency and the size of the Pebble project triggered a full EIS review under the National Environmental Policy Act. While the plan is scaled back from previous mine concepts, the overall project would still stretch 187 miles from the mine site north of Iliamna Lake to the edge of the Sterling Highway on the southern Kenai Peninsula. In between would be a natural gas pipeline up to 12 inches wide traversing the Cook Inlet sea floor for 95 miles from the Anchor Point area to a deepwater port at Amakdedori west of Augustine Island. From there, a two-lane, private road would run 35 miles northwest to a ferry terminal on the south shore of Iliamna Lake. An ice-breaking ferry would then shuttle materials 18 miles across roughly the midpoint of the large Iliamna Lake. Another 30 miles of industrial road would connect the north ferry terminal near the village of Newhalen with the mine site. The gas pipeline would follow the rest of the transportation corridor to the mine. According to the EIS, the 8,086-acre Pebble mine site would permanently displace 3,458 acres of wetlands and 73 miles of streams. The site would consist of a large bulk tailings dam and storage facility, a pyritic tailings storage facility, a 270-megawatt power plant, multiple water management ponds and plants and a 608-acre open pit, among other facilities. It would all support processing of about 1.4 billion tons of mine material during the 20 years of production based on Pebble’s initial plans. Roughly 100 acres of wetlands would be lost in development of the transportation corridor, according to the EIS. There would be indirect impacts from fugitive dust and partial dewatering to another approximately 1,900 to 2,100 acres of wetlands depending on which development alternatives are chosen for the final project, according to the document. Alternative construction options beyond Pebble’s proposal include a more northerly ferry and pipeline route across Iliamna to Pile Bay at the far east end of the lake with a corresponding deepwater port at Diamond Point near Williamsport instead of Amakdedori to the south. Summer-only ferry operations are also considered and would require additional storage at the mine for metal concentrates, fuel and general goods. Residents around the lake have raised concerns that a year-round ferry could disrupt winter travel across the lake ice. Another transportation alternative would eliminate the ferry altogether and instead calls for an 82-mile road around the north and east portions of Iliamna to the Diamond Point port. Pedro Bay Corp., which owns much of the land north and east of Iliamna Lake, issued a statement Feb. 22 saying the Native village corporation continues to oppose Pebble and recently rejected a right-of-way agreement for a transportation corridor across its land. Additionally, Bristol Bay Native Corp. owns subsurface rights to lands owned by area village corporations and executives have told the Journal the regional corporation may use its subsurface title to try and prevent Pebble from burying a pipeline or developing gravel quarries to build roads across village corporation lands. Alaska Peninsula Corp. owns lands south of Iliamna Lake and has a surface access agreement with Pebble. Shane McCoy, the Corps’ manager for the Pebble EIS, said in a conference call with reporters that the EPA suggested a concentrate pipeline along the north road right-of-way. The pipeline would eliminate copper-gold concentrate trucking, but 18 round trips per day between the mine and port would still be needed to haul molybdenum concentrate, fuel and other goods. The pipeline alternative also considers a second pipeline to send concentrate slurry water back to the mine for reuse. McCoy said he is not aware of other specific mines that employ lengthy concentrate pipelines but he was told the concept is in use elsewhere. The only significant change considered at the mine site is constructing a bulk tailings dam with the downstream buttress method, which is generally considered to be more stable and requires more material than the common centerline method Pebble has proposed. Corps officials note the state Department of Natural Resources is in charge of reviewing Pebble’s dam designs when the company applies for its state permits. Dry stack tailings storage — which would eliminate the risk of a bulk tailings dam failure — was discounted early in the evaluation because Pebble’s proposed mining operation would be about four times larger than the largest mine using the dry stack tailings method. It involves filtering water out of the bulk tailings until the material is 75 to 85 percent solid and “soil-like,” according to an appendix of the EIS. “(The dry stack) option would greatly complicate the logistics of the milling operation to include frequent clogging of filters, the need for an emergency storage (tailings storage facility) when the filter plant is down for maintenance, and the large number of personnel and equipment needed to transport and place the filtered tails. The option is not practicable,” the document states. Time to comment Critics of the Corps’ process contend the agency is rushing its evaluation of Pebble to fall within the four-year timeframe — starting in May 2017 — before the EPA can revisit its authority to “veto” the project. Those were the main parameters of a 2017 settlement between Pebble and the EPA that resolved a lawsuit the company filed against the agency in 2014. Former EPA Administrator Scott Pruitt declined to finalize rescinding the proposed Pebble “veto” in January 2018; it’s an outstanding issue that must be resolved before the Corps can issue Pebble a Section 404 permit, if it decides to do so. Jason Metrokin, CEO of Bristol Bay Native Corp., which has led opposition to the project, said in a statement provided to the Journal that the 90-day comment period should be much longer. “A 270-day comment period on the (draft) EIS is the first — and necessary — step in holding PLP accountable during the permitting process. Bristol Bay cannot become a laboratory to test unproven and unprecedented mining practices,” Metrokin said. McCoy noted the 90-day comment period is twice the statutorily required 45 days and the Corps released the draft EIS to the public a week before the comment period begins to give interested individuals a head start on reading it. He said Corps Alaska District officials are discussing the possibility of extending the comment period. Pebble advocates argue many who are insisting on a longer comment period simply want to delay the EIS process in any way possible. Metrokin and leaders for Bristol Bay Native Association and Bristol Bay Economic Development Corp. wrote to Army Corps officials Feb. 5 requesting a 270-day draft EIS comment period. They stressed that Pebble has proposed to increase the amount of material it would mine by 25 percent since first applying for its wetlands permit and “some of the aspects of (Pebble’s) proposal appear to us to be unprecedented in the world of hard rock mining.” Sen. Dan Sullivan told reporters shortly after the EIS was published that he would likely be making a formal request to the Corps for a longer comment period given the scope and significance of the document. Sullivan has previously said he would generally like to reform and streamline the NEPA process to prevent unnecessary delays for development projects. Sen. Lisa Murkowski told the Journal in a Feb. 22 interview that her initial reaction was that the comment period should also be longer than 90 days for similar reasons but she couldn’t specify exactly how long would be appropriate because the EIS had just been released two days prior. She encouraged Alaskans to take the comment period seriously and said she will meet with Corps officials after having a chance to review the draft EIS herself. “The expectation of Alaskans and certainly my expectation is that this process that (the Corps of Engineers) is going through has to be rigorous; it has to be thorough; it has to be robust; and anything less than that is just not right and in fairness is just not acceptable,” Murkowski said of the Pebble EIS. Elwood Brehmer can be reached at [email protected]

Assembly begins critical look at Anchorage port plan

Faced with a looming price tag of nearly $2 billion to fix its port, unsavory funding options and competing claims, the Anchorage Assembly is again examining every aspect of rebuilding one of Alaska’s most critical pieces of infrastructure. The Assembly began its third review of plans to rebuild the municipal-owned port, which the body officially renamed the Port of Alaska in 2017, during a Feb. 20 Assembly Enterprise and Utility Oversight Committee meeting where representatives from several civil engineering firms were invited to present their thoughts on the current port modernization project. Assemblyman and committee co-chair Christopher Constant characterized the informal meeting as a “crowd-sourcing” session for Assembly members to gather high-level design concepts and other information that could be carried forward. Notably, Jim Campbell, president of the Anchorage-based firm PND Engineers Inc., said he believes major components of the new construction estimated to cost more than $1.4 billion can be done for just more than $300 million. PND engineered the docks for the original Port of Anchorage intermodal expansion project in the mid-2000s using its proprietary Open Cell Sheet Pile design. Construction work on the port expansion project was halted in 2010 and never resumed after extensive damage to installed sheet pile was discovered. PND was part of a complex web of contractors on that project that were sued by the municipality in early 2013 based on a study that found the Open Cell Sheet Pile design was not suitable for the project given the challenging construction conditions and seismic requirements at the Anchorage port. The suitability study was conducted by CH2M Hill, which is now named CH2M and is owned by the international firm Jacobs Engineering Group. PND leaders have long been adamant that their design was sound and it was improper installation that led the sheet pile to fail. There is little dispute amongst those who have followed the port developments that there were problems with construction techniques in the 2008-09 timeframe. However, the suitability study concluded those issues were on top of fundamental design flaws. PND settled with the city for $750,000 in early 2017. Campbell said at the time that the relatively small sum validates the company’s claims about the sheet pile design. “We still maintain, to this day, that the original design was not flawed,” Campbell said Feb. 20, later adding that PND’s sheet pile has been used successfully at ports across Alaska, including Kodiak and Dutch Harbor. He also highlighted the fact that CH2M is managing the current port modernization — with a more traditional pile-supported dock concept — only after drafting the report that deemed the previous design faulty. Officials in former Anchorage Mayor Dan Sullivan’s administration said in 2014 that CH2M was best suited to lead the second iteration of port reconstruction given its knowledge of the issues and the company did not know it would get the larger management contract when it was conducting the suitability analysis. The current port modernization schedule blends complex logistics and needs-based construction to keep regular port users reasonably happy during construction while also replacing some of the oldest infrastructure first. It calls for first building a new petroleum and cement terminal, or PCT, over the next two years at a cost of $223 million. A new PCT must be done first in order to free up space for when the adjacent cargo docks — used twice weekly each by TOTE Maritime and Matson Inc. — are rebuilt. It is also on the oldest part of the dock structure, according to Port Director Steve Ribuffo. Some sections of the pile-supported docks have been in place since 1961 and have far exceeded their initial 35-year design life as the saltwater they stand in has gradually taken its toll and badly corroded the steel support pilings. The PCT work is being partially funded with unspent money from the first project and court settlements, but city officials also recently proposed drastic increases to the port’s fuel and cement import tariffs to cover the cost of borrowing up to $200 million through revenue bonds for the remainder of the work. The proposed tariff changes were met with initial skepticism from members of the Anchorage Port Commission, an advisory body, because of the broader negative economic consequences they could have, commission members said. Municipal Manger Bill Falsey said while the tariff rate hikes are among the least appealing options for funding the project, they would act as a user fee increase and are one of the few ways for the city to fund the project without state or federal help. City officials regularly cite the how critical the port is to Alaska, not just Anchorage, as justification for help in paying for its overhaul. It’s estimated that roughly 90 percent of the goods destined for delivery across mainland Alaska are imported across the port’s docks. “It is the one need that beats all other needs,” Falsey said Feb. 20. “This is core, basic infrastructure.” The Legislature and former Gov. Bill Walker approved $20 million for the port last spring; however, with Gov. Mike Dunleavy’s emphasis on reducing spending to close the state’s $1.6 billion budget gap, the prospect of future state appropriations is uncertain. CH2M’s cost estimate for the modernization project has gone from approximately $500 million in late 2014 to more than $1.9 billion today. The company’s Jeff Bool told Assembly members that risk contingency accounts for nearly $300 million of the overall projection and built-in price escalation — given the current schedule calls for work through 2028 — adds another $202 million. Building the PCT should help refine the overall cost estimate, Bool said. “As we bid out the work on the petroleum cement terminal we’ll know what the larger costs are and we can forecast more accurately what these future facilities might cost,” he said. Additionally, he noted that larger federal tariffs on foreign steel have increased the cost of the fundamental building material by roughly 30 percent over the past two years. Bool and others have also said the city could reexamine the self-imposed criteria of a 75-year design life and building the PCT and one cargo terminal to withstand a catastrophic earthquake with the ability to be back in service within a week after such an event. Regular port customers have also requested amenities and equipment that add to the cost. “We have time to affect change in the cost,” Bool said. Some observers have suggested TOTE and Matson — which both call on the port every Sunday and Tuesday — could adjust their schedules, thus allowing Anchorage to build just one new, heavy-duty cargo terminal instead of two. Representatives from those companies did not respond to requests for comment, but Port of Alaska spokesman Jim Jager said the shippers have made it clear to port officials that their schedules can’t be changed. The logistics of getting fresh produce and other regular, time sensitive cargoes to the Port of Tacoma, combined with labor issues with longshoremen there challenge the feasibility of spreading the trips throughout the week, according to Jager, and Alaska’s relatively small market size reduces the incentive to try. Essentially, the shippers call the shots in this situation. PND’s Campbell insisted the city could build two basic, pile-supported docks off of the north backlands — the area CH2M contends is unstable, which PND disputes — for roughly $300 million and cut approximately $1.1 billion out of the cost. The concept is very similar to what the company did in Kodiak and the same Matson ships call on both ports, Campbell noted. He said Anchorage should “take what you’ve got there instead of throwing it out. If you actually just figure out how to address the problems from before and build something there it’s a big cost savings.” The current plan calls for removing much of the roughly 30 acres of fill that created the north backlands area during the expansion project at a cost of $253 million. The port leases much of the area for lay down and temporary storage now and officials want to keep part of it intact for those reasons. Bool characterized the north end demolition as “very high risk work” and the $253 million estimate includes about $50 million in risk contingency as a result. “We’ve got over a million yards of fill to remove and dispose of in the Inlet,” Bool said. “There’s a lot of unknowns, it’s risky and it’s a very expensive demolition.” Scrapping the whole north backlands area could actually be cheaper than trying to stabilize and preserve a portion of it, he said, but that’s another decision for port and city officials to make. Constant said in an interview after the meeting that the Assembly committee will hold weekly meetings at least through March to get perspective on the current plan from all the port’s stakeholders. Keeping on the current construction schedule won’t be as important as settling on an appropriate scale project, he said. “At $2 billion there’s utter shock in every direction and very little appetite for that type of project,” Constant said. However, port officials say the current maintenance program for badly corroded piles can keep the port open for about another 10 years before operations will have to be curtailed for safety reasons, meaning much schedule slippage would just add another challenge to the work. The full Assembly must approve any major port changes. PND’s proposals will be considered, but the company has a high bar to clear given its history at the port, according to Constant. “They really have to make their point; it doesn’t mean we shouldn’t listen,” he said. “No decision is going to be made based on what PND tells us.” ^ Elwood Brehmer can be reached at [email protected]

Tax credit lawsuit appealed to Supreme Court

The State of Alaska’s plan to pay off more than $800 million in oil industry tax credits by selling bonds is on its way to a final judgment. An attorney for former University of Alaska regent Eric Forrer, who sued the state challenging the constitutionality of the bond plan last May, appealed the case to the Alaska Supreme Court Feb. 21. Superior Court Judge Jude Pate dismissed Forrer’s lawsuit Jan. 2 in a lengthy and long-awaited ruling. Forrer’s lawyer, longtime Juneau attorney Joe Geldhof, contends Pate not only misconstrued the Alaska Constitution three times in his ruling, but also that Pate, a fairly new trial court judge, misapplied procedural court standards in granting the state’s motion to dismiss. Geldhof noted during the court proceedings that state attorneys never responded to Forrer’s initial complaint and instead filed a detailed motion to dismiss the case that Pate then treated as a motion for summary judgment. Pate concluded in his ruling that Forrer failed to state a claim upon which the court could grant relief on the grounds that House Bill 331 “passes constitutional muster.” Forrer alleges the plan to sell the “tax credit bonds” falls outside the tight sideboards the Alaska Constitution puts on the state’s ability to incur debt. He also argued in interviews and through court filings that the plan amounts to a de-facto dedication of General Fund money to pay the bond debt because not making the payments would have grave consequences on the state’s credit rating and future finances. The state Constitution generally limits the Legislature from bonding for debt to general obligation, or GO, bonds for capital projects, veterans’ housing and state emergencies. In most cases the voters must approve the GO bond proposals before the bonds are sold. State corporations can also sell revenue bonds, but those are usually linked to a corresponding income stream and only obligate the corporation to make payments, not the State of Alaska as a whole. The tax credit bond plan would have the Department of Revenue set up the Alaska Tax Credit Certificate Bond Corp. specifically for the purpose of issuing the 10-year bonds. State attorneys contended the plan is legal because the bonds would be “subject to appropriation” by the Legislature, which the bond buyers would be aware of, and therefore would not legally bind the state to make the annual debt payments. Department of Law spokeswoman Cori Mills wrote via email that the state stands by Pate’s ruling but has not yet received a notice of appeal in the case; and attorneys handling the case have not decided whether the state will request expedited consideration. The five-justice Supreme Court could remand the case back to Superior Court if it concludes Pate misapplied the procedural standards or it could acknowledge the alleged missteps but chose to focus on the constitutional arguments. Geldhof stresses that Forrer is most concerned that a ruling in the state’s favor will give local governments in the state — often with less public oversight than state officials — a green light to borrow irresponsibly, particularly in a time when state funding support is dwindling. The lawsuit has prevented the state from selling the first tranche of bonds, which was initially planned for last August. Gov. Michael J. Dunleavy proposed $254 million for tax credit payments with Alaska Industrial Development and Export Authority funds in his budget released Feb. 13 as it is unlikely the suit will be resolved before the 2020 state fiscal year begins July 1. Elwood Brehmer can be reached at [email protected]

Fitch, Slope leaders weigh in on local revenue proposals

Gov. Michael J. Dunleavy’s plans to pull back the State of Alaska’s financial support to local governments could hamper the ability of cities and boroughs to finance future projects, according to a Fitch Ratings brief issued Feb. 20. To resolve the state’s roughly $1.6 billion budget deficit without tax increases or changes to the Permanent Fund dividend program the Dunleavy administration is proposing combination of deep budget cuts and ending several revenue sharing programs with local governments. One of the largest cuts would be to state education funding. Dunleavy’s budget calls for a $269.4 million cut to the state’s formula funding program to school districts as well as repealing a $30 million one-time, forward-funded appropriation boost to districts passed last year for the 2020 fiscal year. Fitch analysts speculate that the education cut, equal to about one-quarter of current General Fund support to districts, could require local governments to make up the shortfall through increased local taxes or by shifting funding away from other programs or projects. The administration is also seeking a statutory repeal of the state’s program to reimburse districts for a large portion of their school construction bond debt obligations. Doing so would save the state roughly $100 million per year, according to the Office of Management and Budget. In 2015 the state put a five-year moratorium on sharing the burden of school construction bonds with local governments; the latest proposal would cut state aid for bonds sold prior to 2015. The moratorium is set to end in July 2020 when the state would resume funding 40-50 percent of school bond debts depending on the size of a given community. “The loss of school bond reimbursement would prompt immediate increases in debt service property tax rates that support schools’ unlimited tax general obligation (GO) bonds,” Fitch states. “Higher debt service tax rates could make it more difficult to garner public support for tax increases that would be needed to offset losses in operating revenues and could decrease public appetite for school bonds to meet ongoing capital needs.” A Feb. 21 Legislative Research Division analysis concludes that the Municipality of Anchorage would have to increase property tax rates by 25 percent to generate enough additional local funding to offset the proposed state education reductions. Many legislators critical of parts or all of Dunleavy’s budget have characterized it as a cost-shift from the state to cities and boroughs The rating agency also notes the cumulative cuts could further strain the state’s economy, particularly in rural areas where government is often the largest employer. Additionally, the administration’s plan in Senate Bill 57 to repeal a law allowing cities and boroughs to assess oil and gas property taxes on exploration and production facilities would pull another roughly $420 million per year from local jurisdictions into state coffers to reduce the deficit, according to fiscal notes accompanying the legislation. The vast majority of that money, about $372 million in 2018, would come from the North Slope Borough. The City of Valdez — with the end of the Trans-Alaska Pipeline System and Alyeska Pipeline Service Co.’s marine shipping terminal — the Kenai Peninsula and Fairbanks North Star boroughs would absorb most of the remaining reductions. While the state conducts oil and gas property tax assessments, local governments are able to apply their mill rates on the state’s assessments to collect their portion of oil and gas property taxes. Companies then use the local tax payments as credits against the state’s 20-mill oil and gas property tax rate. The oil and gas property tax revenue accounted for 86 percent of the North Slope Borough’s total revenue in 2018, according to Fitch, which currently gives the borough an “AA” credit rating with a stable outlook. “If passed, the change in tax law would likely prompt a significant downgrade in the rating, absent offsetting policy actions to provide alternative revenues to the borough,” Fitch states, while also noting the North Slope Borough had $162.7 million in general obligation debt at the end of the 2018 fiscal year. A spokesman for Dunleavy did not respond to questions about the property tax plan in time for this story, but OMB officials have said the North Slope specifically could rely on its $708 million endowment fund and prospective federal grants from oil development in the National Petroleum Reserve-Alaska to offset the tax revenue loss. According to Fitch, it’s unlikely the borough would be able to cut expenses enough for other revenue streams to offset the potential loss. The North Slope Borough and the usually quiet Arctic Slope Regional Corp. put out a joint statement Feb. 21 rejecting the administration’s oil and gas property tax plan. ASRC President Rex Rock Sr. said the tax stream has supported “everything from public safety in our communities to even reliable power and heat” over more than 40 years. “These are services, let’s not forget, that are not provided by the state,” Rock added. “Trying to balance the budget on the backs of the Iñupiat people across the Arctic Slope is a wrong-sided attack on our region.” NSB Mayor Harry Brower Jr. said borough residents have generally supported responsible resource development because of the economic benefits it brings them. “As written, Senate Bill 57 makes us question that support. Is this what the governor is intending to do with this legislation — pit the Iñupiaq people of the Slope against industry?” Brower questioned. According to Fitch, the rating agency will follow the progress of SB 57 and affected local government ratings changes could be made if it appears likely to pass. Elwood Brehmer can be reached at [email protected]

Span Alaska to construct new freight terminal

One of Alaska’s largest shipping companies is investing in the state. Span Alaska Transportation Inc. announced Feb. 15 that it is constructing a new, 54,000 square-foot freight terminal in West Anchorage that will serve as the company’s primary service center. Span bills itself as the largest freight forwarder and less-than-container load shipper in the state. The company, which was purchased by integrated shipper Matson Logistics in 2016, handles roughly 180,000 shipments annually totaling more than 400 million pounds, according to President Tom Souply. “Anything that has a need to get from the Lower 48 up in to Alaska — on the average we’re running 160 to 200 containers per week to the Alaska market,” Souply said of the freight Span handles. The new facility will allow Span to consolidate its operations and provide greater efficiencies. Span currently works out of two South Anchorage warehouses. Souply said the new building, located off Electron Drive near Chugach Electric Association’s Southcentral Power Project, exemplifies Span’s commitment to the state. “We’re in it for the long run here, we really are. We’ve been in Alaska since ’78; 40 years we’ve been doing this. We know there’s going go to be highs and lows and we’ve all come together as a community here over the last three years dealing with the recession,” Souply said. “We’re really bullish on what we’re doing here. Our commitment here is a major commitment to Alaska, to our customers and to our employees.” Foundation work has begun and vertical construction is expected to start in the coming weeks. All 80 current Span employees will move into the new building once it is complete; and that is scheduled for the fourth quarter of 2019, according to Souply. “As the economy continues to recover we will have the capacity to grow our business which will allow us to add additional employment,” he added. The company declined to disclose a price on the project, which is being led by Anchorage-based Watterson Construction. Municipal records list the roughly 16-acre parcel as currently being appraised at nearly $6.4 million. Municipal officials have told the company “it’s the largest non-government related project for 2019” in Anchorage, according to Souply. In addition to bringing all of its work under one roof, which will help avoid duplication, he said the new facility will have an 8,100 square-foot covered area to protect flatbed freight loads, a larger loading dock and improved security. “We’re going to have everything we need to be as efficient and effective as possible, including creating a four-bay vehicle maintenance shop that will allow us to be very nimble when it comes to maintenance and repairs. We’ll be able to do that on-site; that’s a big piece for us,” he said. Elwood Brehmer can be reached at [email protected]

Capital budget trimmed as oil tax credits total $254M

Gov. Michael J. Dunleavy’s operating budget proposal has captured the attention of the state, but his capital budget is also smaller than in years past. At $95.7 million in unrestricted General Fund dollars, the discretionary spending portion Dunleavy’s fiscal year 2020 capital budget is the smallest in years. More than $61 million of that would go towards generating federal matching funds, mostly from the Department of Transportation for highway and airport maintenance programs. The administration’s capital budget plan totals about $1.2 billion when the unrestricted funds are combined with just more than $1 billion in federal money and $114 million in designated funds, which often consist of fees or other revenue sources directed for a specific purpose. The current capital budget for the 2019 fiscal year that ends June 30 spends more than $1.4 billion from all funding sources. Dunleavy’s budget cuts funding to the state’s Bulk Fuel and Rural Power Systems upgrades programs, which are managed by the Alaska Energy Authority. The rural energy programs have long been capital budget staples. They provide funds to AEA for diesel fuel storage facilities and electric powerhouse repairs and replacement in communities that lack the economic base to pay for the basic infrastructure upkeep. Former Gov. Bill Walker’s capital proposal — submitted by the Dunleavy administration shortly after the leadership transition in December to meet a statutory requirement for a budget plan — called for a total of $10.5 million in general funds for the Bulk Fuel and Rural Power Systems programs. That state money would have been matched with $20 million in federal grants from the Denali Commission. The latest budget also eliminates the Alaska Housing Finance Corp.’s home Weatherization Program offering financial assistance for qualifying low- and middle-income households to increase the energy efficiency of their homes. It was funded with a $6 million split of state and federal money in the fiscal 2019 budget, but also was not in the Walker administration’s proposal. The Alaska Travel Industry Association is allocated $7.4 million in general funds; the same for the Department of Education’s K-12 Major Maintenance program. Federal disaster relief funding of $4.5 million for the 2016 Gulf of Alaska pink salmon run also arrives via the capital budget. On other fisheries projects, the budget contains $1 million for a Cook Inlet stock assessment; half of what the Walker administration had proposed, and cuts a $1.85 million allocation for Chinook salmon research. The Walker administration’s Arctic Strategic Transportation and Resources, or ASTAR, initiative that seeks to develop a network of basic roads across the western North Slope would get $2.5 million under Dunleavy’s plan. The University of Alaska would receive $5 million for deferred maintenance. A $20 million appropriation for Port of Alaska repairs that Anchorage officials were hopeful for is not in the capital budget. The state approved $20 million for the beleaguered piece of critical infrastructure last year. Oil tax credits The Dunleavy administration is proposing to fund an additional $84 million in oil and gas tax credit payments in 2019 and $170 million for 2020. The money would come via the Alaska Industrial Development and Export Authority’s “excess funds,” according to OMB Policy Director Mike Barnhill. Barnhill told the Senate Finance Committee that the Revenue Department did a liquidity analysis of AIDEA’s funds and concluded the authority had undesignated money available. The $84 million is in addition to a $100 million backstop appropriation the Legislature made last spring to pay credits this year. It would bring the total 2019 credit payments to the statutory minimum calculation of $184 million based on how the department interprets the law. Some Democrat legislators insist the minimum payment should be much lower due to a different reading of how the state’s payment formula should be used. The $100 million was recently disbursed to credit holders, Barnhill said, after the state’s plan to bond for nearly $1 billion to pay the credits off in one lump sum was challenged in court. That case, with the state’s position of the bond sale being legal upheld in Superior Court in December, is expected to reach the Supreme Court. The $170 million meets the minimum payment for 2020. Democrat senators on the Finance Committee were critical of the plan for paying the credits contrasted with proposing significant cuts to education funding. Sen. Bill Wielechowski, D-Anchorage, noted that the 2019 appropriation may be an item for the supplemental budget and emphasized his contention that the state technically does not need to make the payments because they are “subject to appropriation” by the Legislature, according to the law. Barnhill said the credits are regarded as debt that must be paid even when the state is in a major financial bind. “It is important for the state’s credit story and reputation that we manage our debts appropriately,” he said. AIDEA spokesman Karsten Rodvik said the money would come out of the authority’s Revolving Fund and officials are discussing the plan with the governor’s office. The authority, with a $1.3 billion net position, has several real estate development and business loan programs in which it partners with private lenders. AIDEA also returns a dividend to the state each year; it is pegged at $10.3 million for 2020. Elwood Brehmer can be reached at [email protected]

Health care officials alarmed by proposed Medicaid cuts

Gov. Michael J. Dunleavy’s plan to cut upwards of $270 million from the state’s Medicaid budget would drastically reshape Alaska’s health care system and be a major blow to the broader economy, according to state health care leaders and economists. In his fiscal year 2020 budget released Feb. 13, Dunleavy is proposing to reduce the state’s portion of Medicaid funding, which is expected to be $677 million in the current 2019 fiscal year, by nearly 40 percent based on detailed Department of Health and Social Services budget documents. Dunleavy has pledged to eliminate the state’s $1.6 billion budget deficit without new taxes while restoring Permanent Fund dividend payments to their statutory calculation. The PFD payment for the upcoming budget year is expected to be about $3,000 per Alaskan for a total appropriation of roughly $1.9 billion. “This budget is going to impact all Alaskans; it’s too big not to,” Dunleavy said during a Feb. 13 press conference to announce his budget plan. Dunleavy has repeatedly said he wants to reduce state spending on Medicaid to a sustainable level. As of October, 210,276 Alaskans were enrolled in Medicaid or the Children’s Health Insurance Program, or CHIP, according to the Centers for Medicare and Medicaid Services, or CMS. Administration officials said immediately after the budget was released that they are proposing a $225 million cut to the state’s Medicaid appropriations. The $225 million figure is also cited in a 27-page informal budget summary provided by the governor’s office. That document also lists an additional $27 million savings by cutting Medicaid coverage for adult dental services, which is the optional service the state covers but one health care providers say is an important primary care service that can prevent more costly emergency procedures. A more detailed breakdown of the Department of Health and Social Services budget proposal shows a $271 million general fund cut to the state’s Medicaid services program. Office of Management and Budget Policy Director Mike Barnhill said in a press briefing following the release of the budget that most of the Medicaid cuts would come through reducing provider reimbursement rates. Barnhill emphasized that the administration is not proposing to eliminate coverage for anyone currently enrolled in the state’s Medicaid program; it’s working with the federal CMS on new ways of providing Medicaid coverage at a reduced cost to the state. “Alaska reimburses providers under the Medicaid program at a higher rate than any other state in the country so we’re taking a close look at that and then we’re looking at different ways of treating and providing access to the expansion (Medicaid) population for medical care,” Barnhill said. State Budget Director Donna Arduin said DHSS Commissioner Adam Crum is also working on legislation “to revise our entire Medicaid program.” A spokesman for DHSS referred a request to interview Crum on potential Medicaid policy changes to a phone line in OMB dedicated to press inquiries about the budget. The phone line was unattended. Medicaid reimbursement rates are set through regulations, meaning a rate reduction is one way the administration could potentially cut the Medicaid budget without the getting legislative approval needed to make major changes to the program. However, state Medicaid funds are tied to large sums of federal money. Costs from traditional Medicaid recipients are split 50-50 by the state and the federal governments, while Medicaid expansion recipients are covered 93 percent by the federal government and 7 percent by the state this year. The Medicaid expansion cost share will shift to 90 percent federal and 10 percent state for calendar year 2020 and beyond. Alaska Native Medicaid claims are paid 100 percent by the federal Indian Health Service for care provided at a Tribal health facility. According to the Legislative Finance Division, overall spending on Medicaid in Alaska has increased from $1.7 billion to more than $2.3 billion since fiscal year 2015, but the state’s portion of that has actually gone down from $724 million in 2015 to $677 million, which includes a $15 million supplemental budget request, in the current fiscal year. Those state savings have largely been attributed to shifting state costs to the federal government through Medicaid expansion and the Medicaid reform package the Legislature passed in 2016 with broad bipartisan support. Arduin said Feb. 13 that it’s unclear at this point exactly how much federal money the state would forgo with a major cut to the Medicaid program because the underlying details of the state’s plan are still being worked out. The department-specific breakdown of the budget lists a $477 million reduction in federal funding as a result of the proposed state cuts. Alaska State Hospital and Nursing Home Association CEO Becky Hultberg said in an interview the approximately $750 million cumulative cut to Medicaid funding would “fundamentally restructure” Alaska’s health care system. Hultberg was a commissioner of Administration under former Gov. Sean Parnell’s administration. While the proposed cuts may improve the state’s bottom line, they would be extremely damaging to hospitals, particularly rural hospitals, if they are implemented through provider reimbursement rate reductions, according to Hultberg. “There’s really no way that the health care system can absorb a cut of this magnitude and not look dramatically different. I feel very confident in saying we will have hospital closures. Our rural communities are particularly vulnerable, but even our mid-sized communities — hospitals outside of the Anchorage and Mat-Su area — don’t have big margins,” she said. “It means services and facilities won’t be available for everyone.” Alaska health care providers are reimbursed by Medicaid at some of the highest rates in the country because the state’s reimbursement rates are set to cover the cost of the service provided — which in Alaska are the highest in the country — while other states pay less than the cost to cover individual services, Hultberg said. Longtime Alaska economist Jonathan King wrote via email that the proposed cuts would likely result in at least 8,000 job losses in the state. Medicaid spending has helped insulate the health care sector from Alaska’s ongoing recession that has touched nearly every other industry in the state. According to King’s calculations, Alaska would lose one job for every $33,000 it doesn’t spend on Medicaid given the significant federal match every state dollar generates. The Hospital and Nursing Home Association also commissioned King to analyze the economic impacts of repealing Medicaid expansion in Alaska. Many political observes anticipated the Dunleavy administration would propose repealing expanded Medicaid coverage in the budget plan, but that proposal has not been made and the governor’s authority to do so unilaterally has been questioned by legislative attorneys. The state reduced Medicaid payment rates for professional services and hospitals by 5 percent to 8 percent in 2017. Further drastic reductions to provider payment rates would also result in fewer physicians and health care facilities accepting Medicaid patients, Hultberg added. “I think there’s either a lack of understanding of reality (by the Dunleavy administration) or a willingness just to make Alaska a poorer and less safe place,” Hultberg said. She added that while provider reimbursement rate changes can be done through regulation, CMS must also sign off on the reductions. “Essentially, you could cut provider rates to 25 percent and have a Medicaid program but no providers that take Medicaid and CMS won’t let you do that,” Hultberg said. “They don’t have a plan,” she concluded. Alaska Regional Hospital CEO Julie Taylor said significant Medicaid cuts would just exacerbate the current challenges Alaska’s health care system faces: extremely high costs and a lack of providers. Alaska Native Tribal Health Consortium CEO Roald Helgesen suggested that provider rate cuts could lead to higher local taxes in areas with community-owned hospitals if the rates don’t at least cover procedure expenses. “It’s a huge cost-shift to the community from the state,” Helgesen said, a view that has been echoed by many critics of varying aspects of Dunleavy’s budget plan. “What’s been presented just doesn’t make sense,” he added. A Legislative Research Services report dated Feb. 13 and conducted for House Democrats on the impacts of repealing Medicaid expansion and thus pulling $420 million — roughly 90 percent of which is federal money — out of the health care sector could lead to a 17 percent increase in private insurance premiums across the state. That’s because much of the care provided to the roughly 50,000 Alaskans covered under the expanded class of Medicaid recipients would then go uncompensated and hospitals would seek to cover those costs through other patients. “Big cuts to Medicaid don’t just affect Medicaid; they affect what the system looks like and they affect people with private insurance because when you consider health care as a system and you extract that much money from the system without a glide path there will be significant consequences to everyone,” Hultberg said. “That includes people who might feel like this doesn’t affect me because I have (private) insurance.” Other Alaska health care leaders have emphasized a similar sentiment. Alaska Primary Care Association Policy Director Jon Zasada said his organization is focused on the apparent consolidation — based on budget documents — of behavioral health, senior and disability services into the general Medicaid Services classification. APCA officials want to know if it is simply a budget reporting technique or an attempt to change or repeal the services. Zasada noted that Medicaid reimbursement rates for the federally qualified health care centers the APCA represents are calculated differently than rates for hospitals or private practice physicians; however, those rates have been frozen for four years, he added. APCA officials are also concerned about the cut to optional adult dental care coverage. Zasada said eliminating coverage for a preventative care program often just leads to more costly emergency care, which would then be covered by emergency service Medicaid funding. Critics of Alaska’s Medicaid program have often highlighted the fact that the state provides coverage for more optional services than nearly every other state as well. Elwood Brehmer can be reached at [email protected]

Study: Steep tariff hikes necessary for Port of Alaska repairs

Import charges on levied on basic commodities at the Port of Alaska could increase five-fold or more if the Municipality of Anchorage is forced to rebuild decrepit shore side infrastructure on its own dime, according to an analysis released Feb. 14. The analysis considered how much tariffs on refined petroleum products and cement would have to be raised to cover the cost of borrowing $200 million to pay for replacing the port’s petroleum and cement terminal. It was prepared by the Virginia-based economic consulting firm Parrish, Blessing and Associates Inc. and presented at a Port Commission meeting. Municipal Manager Bill Falsey said in a follow-up interview that the municipality will have to sell $200 million in revenue bonds in less than a year to stay on the construction schedule for the petroleum cement terminal. “I think we have to have some credible way to borrow approximately this amount of money by the year’s end or we can’t procure construction for 2020 so then we would be in a situation where we would have half constructed the petroleum cement terminal,” said Falsey, who discussed the situation at the Port Commission meeting. “How long could we have a half-constructed petroleum cement terminal in the water? I don’t know the answer to that but it’s certainly not anybody’s desire.” The cost for a new petroleum and cement terminal has been pegged at $223 million. About $20 million in funds left over from prior port construction appropriations would fund part of the work and the bonds would pay for the rest, Falsey said. The terminal must be done first in order to free up space for when the cargo docks are rebuilt and must be done while they are still being used by TOTE Maritime and Matson Inc., which provide container and roll-on, roll-off shipping services to Anchorage, according to Port Director Steve Ribuffo. It is also on the oldest part of the dock structure, he said. Some of the pile-supported docks have been in place since 1961 and have far exceeded their initial 35-year design life as the saltwater they stand in has gradually taken its toll and corroded the steel support pilings to the point where many resemble Swiss cheese. The port currently charges a tariff of 15.7 cents per barrel on petroleum products, which breaks down to 0.38 cents per gallon. Those rates would need to be increased by 45 percent per year until 2023 — when they would reach $1.01 per barrel and 2.4 cents per gallon — to cover the debt service on the bonds, according to the analysis. For cement, the tariff is currently $1.61 per ton. It would similarly increase 39 percent per year and hit $8.30 cents per ton in 2023. Falsey said the municipality believes the market price for cement is about $155 per ton now. The tariff rates would stabilize after 2023, according to Ribuffo. The bonds would be 40-year revenue bonds calculated at 4.1 percent interest, he said. State lawmakers approved $20 million for the port last spring, but the prospect of additional direct state appropriations is bleak given the state's ongoing budget deficits. Falsey said the state could either approve a general obligation bond sale to pay for the work and avoid the tariff increases or agree to backstop the port revenue bonds. The state’s guarantee would likely lower the interest rate on the debt somewhat. Federal funding has also been sought — although unsuccessfully to this point — given the Department of Defense classifies Anchorage as a strategic defense port and therefore requires large amount of dock space to be available for rapid deployments from Alaska’s military installations. Municipal officials hope an ongoing lawsuit agains the U.S. Maritime Administration, which oversaw the first, failed port construction project, will result in money for the current work. Attorneys for the city have said they are seeking upwards of $300 million from the federal government in the lawsuit. The tariff plan is a way to limit cost increases to pay for the petroleum and cement terminal to the customers that use it; similar plans could be used when the rest of the port’s infrastructure is finally reconstructed. Petroleum and cement tariffs and other sources generated $14.6 million for the port in 2018 and the rate hikes would lead to more than $24 million in annual revenue by 2023 if they don’t drive business away. Falsey said port and city officials will spend the next month talking with the customers that use the terminal to try and determine what impacts the tariff increases could have on business. The Port Commission is tentatively set to make its recommendation on the tariff changes to the Anchorage Assembly in mid-March; the Assembly would make the final decision. The ultimate fear is that the changes could slow the petroleum and cement business at the port to where there wouldn’t be enough revenue generated to pay for the bonds. The prospective tariffs could also have larger implications across the state economy from higher fuel prices, such as deterring cargo business at Ted Stevens Anchorage International Airport. Cargo carriers flying from Asia to the Lower 48 stop in Anchorage — and make it one of the busiest cargo hubs in the world — because it is slightly cheaper for them to haul more cargo and refuel here than it is to carry more fuel and fly over Alaska. Cargo industry experts say the cost difference is usually pennies on the gallon for jet fuel, so the potential impacts of the tariff changes is unknown at this point. “It’s pretty difficult to model that and we don’t have access to that kind of information that we would need to know,” Falsey said of how the suggested tariffs would impact some port customers and the broader economy. He said city officials are hopeful those customers will be forthcoming with the information they need to make an informed decision and help them minimize the impact of the tariff changes if they are made. Calls to several of those customers were not returned in time for this story. Regardless of those impacts, the work needs to be done, Falsey stressed. “Our view is that we need to have the new petroleum cement terminal and we are increasingly uncomfortable with the terminal we have rotting away into the ocean,” he said. The first port rehabilitation project, Port of Anchorage Intermodal Expansion Project started in 2003, was intended to greatly increase the size of the port but it came to a halt in 2010 after extensive damage to the Open Cell Sheet Pile being installed to support the new docks was discovered. That work, much of which has been or will be removed as part of the new plan, cost roughly $300 million from a consolidated pool of local, state and federal dollars. There was $128 million left when the expansion project stopped and Ribuffo said there is about $60 million left now after years of design work and some small-scale rehabilitation. The remaining money is being spread amongst the several phases of the port modernization project, he added. Anchorage officials for years have been trying to gain support from state officials and lawmakers to help pay for the port work. The Anchorage Assembly officially changed the name of the city-owned port in 2017 from the Port of Anchorage to the Port of Alaska in an attempt to highlight its importance statewide and possibly drum up support for funding the rebuild. It’s estimated that 90 percent of the goods destined for delivery across mainland Alaska are imported across the port’s docks. It is the epicenter of logistics and one of the foundational elements of the state’s economy. Funding for the port modernization project has been the municipality’s only capital request to the state Legislature since Mayor Ethan Berkowitz took office in 2015. Those requests have recently been in the $300 million range, although cost estimates for the total port modernization project have gone from about $500 million in 2014 to nearly $2 billion currently. The most recent cost projections from private consultants are for a 75-year design life and constructing one cargo dock to withstand shaking at least as severe as the 9.2 magnitude 1964 earthquake, according to Falsey. Those parameters were chosen in 2014 and are still flexible given design work on the rest of the port is ongoing. “We are going to pick up all of those assumptions in the face of now this revised $2 billion number and say, ‘Is this what we can afford? Is this what we want? What do those assumptions cost us?’” Falsey said. Elwood Brehmer can be reached at [email protected]

Dunleavy budget includes $225 million cut to Alaska’s state share of Medicaid

Gov. Mike Dunleavy’s plan to cut upwards of $225 million from the state’s Medicaid budget would drastically reshape the overall health care system in Alaska, according to the leader of the state hospital and nursing home association. In his fiscal year 2020 budget released Wednesday morning, Dunleavy is proposing to reduce the state’s portion of Medicaid funding, which is expected to be $677 million in the current 2019 fiscal year, by more than 33 percent. Dunleavy has pledged to eliminate the state’s $1.6 billion budget deficit without new taxes while restoring Permanent Fund dividend payments to their statutory calculation. The PFD payment for the upcoming budget year is expected to be about $3,000 per Alaskan for a total appropriation of roughly $1.9 billion. “This budget is going to impact all Alaskans; it’s too big not to,” Dunleavy said during a news conference to announce his budget plan. Dunleavy has repeatedly said he wants to reduce state spending on Medicaid to a sustainable level. As of October, 210,276 Alaskans were enrolled in Medicaid or the Children’s Health Insurance Program, also known as CHIP, according to the Centers for Medicare and Medicaid Services. Office of Management and Budget policy director Mike Barnhill said in a press briefing following the release of the budget that most of the Medicaid cuts would come through reducing provider reimbursement rates. Barnhill emphasized that the administration is not proposing to eliminate coverage for anyone currently enrolled in the state’s Medicaid program. Instead, it’s working with the federal Centers for Medicaid and Medicare Services on new ways of providing Medicaid coverage at a reduced cost to the state. “Alaska reimburses providers under the Medicaid program at a higher rate than any other state in the country so we’re taking a close look at that and then we’re looking at different ways of treating and providing access to the expansion (Medicaid) population for medical care,” Barnhill said. State budget director Donna Arduin said Department of Health and Social Services Commissioner Adam Crum is also working on legislation “to revise our entire Medicaid program.” However, state Medicaid funds are tied to large sums of federal money. The federal government covers at least 50 percent of the costs generated by each Medicaid enrollee. Costs from traditional Medicaid recipients are covered 50-50 by the state and the federal government, while Medicaid expansion recipients are covered 93 percent by the federal government and 7 percent by the state this year. The Medicaid expansion cost share will shift to 90 percent federal and 10 percent state for 2020 and beyond. Alaska Native Medicaid claims are paid 100 percent by the federal Indian Health Service for care provided at a tribal health facility. According to the Legislative Finance Division, overall spending on Medicaid in Alaska has increased from $1.7 billion to more than $2.3 billion since fiscal year 2015, but the state’s portion of that has actually gone down from $724 million in 2015 to $677 million, which includes a $15 million supplemental budget request, in the current fiscal year. Those state savings have largely been attributed to shifting state costs to the federal government through Medicaid expansion and the Medicaid reform package the Legislature passed in 2016 with broad bipartisan support. Arduin said it’s unclear at this point exactly how much federal money the state would forgo with a roughly $225 million cut to the Medicaid program because the underlying details of the state’s plan are still being worked out. The overall DHSS budget would be cut by $364 million, or 30 percent, from current levels, according to budget documents. Alaska State Hospital and Nursing Home Association CEO Becky Hultberg said in an interview that people reviewing the governor’s proposal in her office would expect a total of at least $700 million in overall cuts to Medicaid based on a $225 million state cut. Hultberg was a former commissioner of the Department of Administration under former Gov. Sean Parnell. Pulling that much money out of Alaska’s health care system would “fundamentally restructure” it, she stressed. While the proposed cuts may improve the state’s bottom line, they would be extremely damaging to hospitals, particularly rural hospitals, if they are implemented through provider reimbursement rate reductions, according to Hultberg. “We had several small hospitals with less than 10 days’ cash on hand last year. They cannot sustain significant provider cuts without closing their doors,” she said. Alaska health care providers are reimbursed by Medicaid at some of the highest rates in the country because the state’s reimbursement rates are set to cover the cost of the service provided while other states pay less than the cost to cover individual services, Hultberg said. A study released Monday and commissioned by the Hospital and Nursing Home Association concluded that pulling roughly $420 million in Medicaid funding out of Alaska’s health care industry would result in nearly 3,700 jobs lost statewide; about 1,800 of those would come out of hospitals, private practice offices and other health care providers. That study looked specifically at Medicaid expansion funding, which many political observers thought Dunleavy would attempt to repeal. The state reduced Medicaid payment rates for professional services and hospitals by 5 percent to 8 percent in 2017. Further drastic reductions to provider payment rates would also result in fewer physicians and health care facilities accepting Medicaid patients, Hultberg added. “I think there’s either a lack of understanding of reality (by the Dunleavy administration) or a willingness just to make Alaska a poorer and less safe place,” Hultberg said. Alaska Primary Care Association Policy Director Jon Zasada said his organization is focused on the apparent consolidation — based on budget documents — of behavioral health, senior and disability services into the general Medicaid Services classification. APCA officials want to know if it is simply a budget reporting technique or an attempt to change or repeal the services. A spokesman for DHSS referred a request to interview Crum on potential Medicaid policy changes to a phone line in OMB dedicated to press inquiries about the budget. The phone line was unattended. Zasada noted that Medicaid reimbursement rates for the federally qualified health care centers the APCA represents are calculated differently than rates for hospitals or private practice physicians; however, those rates have been frozen for four years, he added. APCA officials are also concerned about a prospective $27 million cut to optional adult dental care coverage detailed in a supplemental budget document provided by the administration. Zasada said eliminating coverage for a preventative care program often just leads to more costly emergency care, which would then be covered by emergency service Medicaid funding. Critics of Alaska’s Medicaid program have often highlighted the fact that the state provides coverage for more optional services than nearly every other state as well. “To give you an order of magnitude, all of the services on the optional services list, which includes behavioral health, pharmacy, emergency department services, are about $100 million in general fund dollars,” Hultberg said. “So how you get to $225 million by cutting provider rates — I just shake my head.”   Elwood Brehmer can be reached at [email protected]

UA braces for budget cuts

University of Alaska President Jim Johnsen is preparing for the worst when Gov. Michael J. Dunleavy releases his budget plan Feb. 13. While budget specifics were not discussed, Johnsen said after several discussions with Dunleavy and his Budget Director Donna Arduin that he expects the university’s proposed budget cut to be “big.” “I would say it’s going to be a capital ‘B’ big,” Johnsen said during a Feb. 8 meeting with the Journal and the Anchorage Daily News. Dunleavy, Arduin and other administration officials have spent much of their first two-plus months in office preparing Alaskans for what their budget will look like without roughly $1.6 billion. They are committed to balancing the state’s budget — currently with an anticipated 2020 fiscal year deficit of about $1.6 billion — without tax hikes or changing the Permanent Fund dividend calculation, which were two pillars of Dunleavy’s campaign. Johnsen expects the state universities to be one of the areas that will take the brunt of the budget cuts because the university system is the state’s third- or fourth-largest budget item, depending on whether one lumps PFD payments with other state spending. “It’s going to be K-12, health and us to get to $1.6 (billion in cuts),” he said. The University of Alaska System is also one of the easiest places lawmakers to cut spending. Despite having three separate universities and 13 community campuses under its umbrella, the university system’s general fund budget support comes in one lump sum and it is up to Johnsen and the UA Board of Regents to allocate funding and implement the cuts. The state’s university funding also is not tied to any other statutory mandates — outside of the constitutional mandate to have a university — or funding formulas that would need to be changed to make cuts legal or workable within the Capitol. Whatever cuts Dunleavy proposes to the UA budget will come on top of significant cuts already. The state’s general fund support for its university system has fallen from $378 million in fiscal 2014 to $327 million currently. University funding bottomed out at $317 million in 2018 but last spring legislators agreed to add $10 million back in; at the time former Gov. Bill Walker was proposing flat funding but agreed to the one-time increase. Johnsen considers the budget cuts to total $195 million in overall forgone state support since 2014, which doesn’t account for inflation since then. Unrestricted state money accounts for roughly 40 percent of the total UA budget. The rest of the system’s funding comes from federal sources, tuition and student fees and other sources such as research grants. “For us, even the word, even the news of a significant budget cut has negative implications for us. It has negative enrollment implications, which takes away our ability to serve our mission for the state,” Johnsen said. “With enrollment comes tuition.” To that end, enrollment has fallen along with the budget in recent years. The total student headcount across the system was down 15 percent from fall 2013 to fall 2017, according to university figures. The university system has cut its workforce by 1,283 over the past four years and statewide administration has been cut by 38 percent over that time, according to Johnsen. Much of that was done under Johnsen’s multi-year “Strategic Pathways” initiative to reform the system’s operations and focus on strengthening the programs and other things it does best. He characterizes the state funding as the “seed corn” that allows the university system to carry out its multiple missions. “We’ve already taken $195 million in cumulative cuts but if this year-over-year cut is big then it’s, to quote Donna Arduin, ‘it’s doing less with less,’” Johnsen said. “Then it’s saying, really seriously folks, this campus, this college, this school, this service, this team — sorry, it’s going to need to go away.” He and the regents will do everything the can to avoid closing branch campuses that are often in remote parts of the state, but the concept of using them as “nodes” where students use content developed at the main campuses through distance learning has been discussed, Johnsen added. He has avoided talk about eliminating specific programs to avoid unnecessary worry among students as well as potentially deterring future students from enrolling. However, he now says, “if indeed the sky is falling I am going to yell and I’m going to say, this is what athletics costs; this is what KUAC (UAF public radio) costs; this is what Mat-Su College costs; this is on down the list and talk about it.” What cuts come will not be pro-rated among the three main campuses; they will be evaluated at a statewide level, Johnsen emphasized. One thing administrators will prioritize is the system’s research budget, which is weighted to Arctic research at UAF. Fairbanks is generally recognized as the world’s leading Arctic research institution. UAF’s Geophysical Institute has also served as primary testing ground for the Federal Aviation Administration’s work to integrate small, unmanned aircraft into the national airspace and allow the private sector to realize the advantages of the new and evolving technology. The drone work at UAF has also helped attract business startups in that realm to Alaska. UA leaders often stress that state research support returns $6 to Alaska for every $1 invested. “If you have a revenue generator like that, that actually adds to your international reputation and the quality of what happens in your classrooms and your labs you’re going to try to reduce the impact there,” Johnsen said of research funding. While the expected magnitude of Dunleavy’s proposed cuts have many across the state waiting anxiously for the release of the budget — and many others waiting eagerly — legislators will also have their say as to what future state spending will look like. In conversations with legislators Johnsen said there are naturally those who are opposed to the governor’s plan. Others, even some who he characterized as “fiscal hawks,” are skeptical that the administration can find another $1.6 billion to cut from a budget that has already been reduced about 40 percent from its peak. Others exude “resignation,” Johnsen said, given Alaska’s governor has the authority to line item veto appropriations. That authority could mean that Dunleavy vetoes appropriations back to his proposed level regardless of what the Legislature does. Dunleavy has said he wants to work with the Legislature to rebuild the state’s budget. A final group of lawmakers is resigned for a different reason, according to Johnsen. “Maybe the average citizen in Alaska needs to experience what likely would come from a $1.6 billion cut to get it, to understand — maybe it’s too big a role — but to understand the very important role that government plays in Alaska’s economy,” he described. “so that was interesting to hear.” Dunleavy and Arduin discussed possibilities for supporting the university with Johnsen through fulfilling its land grant entitlement or tying funding to performance outcomes, the latter of which California did when Arduin worked there. He is supportive of those concepts, but they are very long-term, Johnsen said. He did note that legislators and administration officials don’t seem to be holding the UAA School of Education accreditation issues against the system overall. “There were serious issues there; the leadership issues have been addressed; the curricular issues are being addressed,” Johnsen said of UAA losing its initial education licensing accreditation. “The primary concern right now is taking care of those students and making sure each and every one of them has a path to licensure from an approved program.” UAA’s advanced and specialized education licensing programs, such as those for a principal license or special education certification have not been impacted, he added. Whether or not UAA will go through the multi-year process of reapplying for its lost accreditation is unclear at this point. Administrators are still gathering information to answer that question. If the decision is ultimately not to reapply, undergraduate education students at UAA could get degrees through UAF or UAS from Anchorage in much the same way the system runs its nursing school. “If you’re sitting in a nursing class in Fairbanks, the faculty member and the students are UAA students, the same in Juneau; so nursing education is done across the state by UAA, so we know how to do this,” Johnsen described. Regardless of what the answer is to that question, it would undoubtedly be made more difficult by another significant budget cut. Johnsen acknowledged his frustration regarding what he sees as a “culture of complacency” in Alaska and a corresponding feeling of entitlement, which other prominent leaders in the state have expressed recently as well. “It is frustrating there’s no doubt about it when the dominant thinking in the state is ‘me, now’ as opposed to ‘us, later,’ which is sort of our business, right?” he said in reference to Dunleavy’s pledge to pay $1.9 billion in PFDs while cutting $1.6 billion elsewhere. “We’re in the business of preparing people to create the future of our state.” Still, he said the university will ramp up marketing for its college savings fund around PFD time next fall. And when the politics and bureaucracy and other challenges of his job start to strain his nerves, Johnsen goes back to the root of the issue. “When I get sort of to the end of my rope I’ll ask my assistant to get me into a class somewhere here at UAA, or UAS or a rural campus or up in Fairbanks and then you get why we’re here,” he described. “Or you meet with some researchers and they start talking about what they’re doing with drones or with sea ice or with you name it; and you just go ‘Wow, this is cool stuff. This is exciting; we need to keep fighting for this.’” Elwood Brehmer can be reached at [email protected]

Murkowski leads major lands bill through Senate

Sen. Lisa Murkowski was happy to talk with reporters after shepherding the first omnibus lands bill package through the Senate in years with overwhelming support. The U.S. Senate passed the Natural Resources Management Act Feb. 12 on a 92-8 vote. The legislation addresses a plethora of “small matters that in local communities can really make a significant difference,” Murkowski said in a conference call with Alaska reporters. “When we can come together on a bipartisan basis — move something out of the Senate 92-8 — it is a pretty significant win,” she said. “I think it’s a pretty historic day really when it comes to our public lands.” The Natural Resources Management Act is a compilation of about 120 individual lands bills dealing with issues nationwide. It’s the first public lands package to pass the Senate in five years, according to Murkowski. While much of what it deals with are “small, parochial” matters, as Murkowski characterized them, it also permanently reauthorizes the popular Land and Water Conservation Fund and declares an “open unless closed” policy for recreation activities on most federal lands. Murkowski, who chairs the Senate Energy and Natural Resources Committee, introduced the legislation Jan. 9. Using military training exercises on Bureau of Land Management tracts in the Interior as an example, she said areas that need to be closed to hunting and other activities for such a reason will only have access restricted for specific periods and not without explanation. The process for notifying the public about a given federal lands closure will be spelled out in regulations. “Our public lands are going to be designated as open for public use unless specifically closed, so this is significant in that regard,” Murkowski said. The bill also reforms and makes permanent the longstanding and popular Land and Water Conservation Fund. Congress established the LWCF in 1964 as a way to offset impacts from oil and gas development. Revenue from federal offshore oil and gas leases in the Gulf of Mexico is allocated to the fund and used for land and water restoration, parks, trails and other conservation projects across the country. The LWCF has funneled approximately $3.9 billion to support more than 40,000 projects covering nearly 2.4 million acres in every county in the country since its inception, according to the Interior Department. The National Geologic Mapping program, run by the U.S. Geological Survey, is also reauthorized for five years under the bill. Specifically to Alaska, the Natural Resources Management Act is an attempt to resolve several long unresolved issues. Notably, it would allow for Alaska Native veterans of the Vietnam War to finally receive the allotment entitlements they missed out on selecting when Native lands claims were settled in the early 1970s and they were serving overseas. Murkowski said the issue applies to roughly 300 individuals and the bill lays out a specific course by which they can select their 160-acre allotments. “Now our Alaska veterans will be able to submit their selections in a very considered process, but one that will allow them to move forward,” she said. It provides a way for eligible family members of deceased veterans to select allotments as well. The provisions in that portion of the Natural Resources Management Act were largely introduced by Sen. Dan Sullivan in the Alaska Native Veterans Land Allotment Equity Act he introduced in the last Congress. Sullivan thanked Murkowski and former Interior Secretary Ryan Zinke for working on the issue and Rep. Don Young for gaining support to resolve it in the House in a Feb 12 statement from his office. “For decades, a group of special Alaska veterans have suffered an injustice due to their service during the Vietnam War. My colleagues and I today took a significant step towards righting this wrong and ensuring Alaska Native vets have an opportunity to finally receive the land allotment they’ve previously been denied,” Sullivan said. The bill additionally includes provisions to provide flexibility for securing a natural gasline right-of-way through the eastern edge of Denali National Park and Preserve and requires the Interior Department and the U.S. Forest Service to study the impacts federal land acquisitions have had on Chugach Alaska Corp.’s ability to develop its land and come up with options for potential land exchanges with the Alaska Native regional corporation. It also repeals a federal prohibition on exporting unprocessed timber from lands conveyed to the Kake Tribal Corp, among other things. Today, much of the timber harvested in Southeast is exported directly to China. Murkowski said she and former ranking Energy and Natural Resources Democrat Sen. Maria Cantwell of Washington started working with Natural Resource Committee leaders in the House last year to gain support for the omnibus bill and make sure it gets to President Donald Trump’s desk. “Because of the way we handled this process — working again across the aisle and across the chambers — I’m feeling very good about its prospects on the House side,” Murkowski said.

Report touts benefits of Medicaid expansion; legislative lawyers conclude no rollback without statutory change

Repealing Medicaid expansion would pull more than a half-billion dollars out of Alaska’s economy and likely extend what is already the longest recession in the history of the state, according to an analysis commissioned by one of the state’s leading health care groups. The report for the Alaska State Hospital and Nursing Home Association concludes that repealing Medicaid services for the expanded class of eligible recipients from Alaska’s Medicaid program would have a negative economic impact of $556 million. In turn, Alaska would lose 3,690 jobs, according to the report done by Halcyon Consulting released Feb 11. More than 1,800 of those jobs would come out of hospitals, private practice offices, outpatient centers and other health care providers. Dental offices would lose an estimated 174 jobs, according to the report, while smaller, secondary impacts would be felt through job losses in the real estate, air transportation and other sectors. The next day, on Feb. 12, House Democrats released an analysis from Legislative Legal Services that concludes it would take a statutory change for Gov. Michael J. Dunleavy to roll back Medicaid expansion. According to the Legislative Finance Division, overall spending on Medicaid in Alaska has increased from $1.7 billion to more than $2.3 billion since fiscal year 2015, but the state’s portion of that has actually gone down from $724 million in 2015 to $677 million, which includes a $15 million supplemental budget request, in the current fiscal year. Economists generally expect Alaska will come out of the current recession, which started in late 2015, towards the end of this year. The state Labor Department is officially forecasting Alaska will add approximately 1,400 jobs this year after losing roughly 12,000 over the last three-plus years. However, if and when Alaska’s economy rebounds will largely depend on how legislators and Dunleavy resolve the state’s roughly $1.6 billion budget deficit projected for the 2020 fiscal year that begins July 1. The health care sector — partly driven by new Medicaid expansion funding started in fall 2015 — has defied overall state economic trends and added roughly 3,700 jobs, for about 11 percent growth, since 2015, according to Labor statistics. The longstanding policy debate over whether the State of Alaska should offer Medicaid to individuals who now qualify for it under the expanded eligibility guidelines of the Affordable Care Act has been at the forefront of state politics since former Govs. Sean Parnell first rejected Medicaid expansion in November 2013 and Bill Walker accepted it in 2015. The federal Affordable Care Act allows states to expand Medicaid coverage to cover uninsured low-income adults up to 138 percent of the federal poverty level. A 2012 U.S. Supreme Court decision struck down the ACA language requiring states to expand Medicaid and left it to each to decide whether to expand eligibility. Proponents highlight the fact that procedures and other costs for expanded-class Medicaid recipients are covered by at least 90 percent federal funding with a corresponding 10 percent state general fund match; a matching rate similar to federal transportation funding programs Alaska routinely attempts to maximize. Costs for more traditional Medicaid recipients are covered 50-50 by the feds and the state, while Medicaid coverage for Alaska Natives is paid 100 percent by the federal Indian Health Service. Expansion detractors argue the program simply adds to overall government health care costs for individuals — low-income, working-age adults — who were never intended to be covered by Medicaid when it began. There also are no assurances the federal expansion-class support won’t be arbitrarily reduced at some point, then leaving the state to pay more, they contend as well. Halcyon Consulting founder and longtime Alaska economist Jonathan King said in a formal statement that the projected negative impact of repealing Medicaid expansion would mostly be a result of lost federal funds. In the 2018 fiscal year the State of Alaska spent $15.6 million to match $404.5 million in federal funds to cover more than 50,500 Medicaid recipients under the expanded program. The federal funding rate has gone from 100 percent in 2016 to 93 percent in calendar 2019 and in 2020 will level out at 90 percent per year. Expanded-class enrollment estimates from before Walker unilaterally accepted federal Medicaid expansion funds in September 2015 ranged from roughly 43,000 more than 64,000. Economy and health care analysts also believe the ongoing recession has added individuals once covered by employee-sponsored health care to the state’s Medicaid rolls. “Elected officials can debate the politics of the issue, but not the numbers; economic analysis shows how rejecting these federal dollars would hurt Alaska’s economy,” King said. “Our economy is too fragile (to) absorb this size hit without extending the recession.” According to the report, strictly cutting Medicaid expansion would pull, based on fiscal 2018 figures, $420 million from the state budget, result in $283 million in lost wages from 4,041 fewer jobs across the state and have a cumulative negative economic impact of $627 million. However, the report presumes that a small portion of the expansion population would then find health insurance through another means, thereby lessening the net negative impact. Alaska State Hospital and Nursing Home Association CEO Becky Hultberg said she has not heard of any specific plans from the Dunleavy administration to repeal Medicaid expansion or make other wholesale changes to the state’s program, which includes many optionally covered services and procedures, but noted administration officials have stressed that everything is “on the table.” A spokesman for Dunleavy did not return a request for comment in time for this story. In addition to Walker accepting federal funding for Medicaid expansion in 2015 — then 100 percent federally funded — despite attempts by the Republican-controlled Legislature to stop him in court, in 2016 the Legislature passed a Medicaid reform package aimed at reducing the state’s annual bill. The state’s savings in that bill were estimated at the time to total more than $365 million over six years, with most of that coming from targeted efforts to and maximize the value of the state’s Medicaid matching funds shift state costs to the federal government. The state has also reduced its Medicaid reimbursement rates paid to providers. “I think the question for not just our state but for our country is: How do we take care of people and do it in a fiscally sustainable way?” Hultberg said. “We have lots of conversations about how we do one or the other but the reality is that we have an obligation to do both.” She added that the U.S. already provides health care to people who can’t afford it but that care usually comes via emergency departments; often the least effective and most expensive way it can be provided. Legislative Legal: Gov must accept expansion funds While the federal money for expanding Medicaid services was accepted with executive authority, the governor cannot selectively reject Medicaid funding without a change to state law, at least according to an opinion offered by the nonpartisan Division of Legislative Legal Services. The House Democrat-led coalition released a memo on Feb. 12 from Legislative Legal Director Megan Wallace that states, “given the precedent in Alaska, without a substantive law change, if the governor refused to accept all or part of the federal funding for Medicaid expansion, that act alone would not be enough to reverse Medicaid expansion.” The memo is dated Dec. 6 and addressed to then Rep.-elect Zack Fields, D-Anchorage. House Democrats emphasized the economic boost the federal money — nearly $1 billion so far — offers the state in formal statements. “Medicaid expansion has reduced the cost of uncompensated care at hospitals, which saves money for Alaskans who are covered by private health insurance,” Fields said. “Alaska’s leading business organizations advocated for Medicaid expansion based on a need to reduce uncompensated care and bring new investment to the state.” Gov. Walker in 2015 accepted the expansion money by invoking state statutes that call for all Alaskans who are eligible for federal Medicaid coverage to be offered that coverage and allow the governor to accept federal program recipients in excess of what the Legislature appropriated for as long as the appropriation was made in the budget. In other words, the governor can authorize the state to spend more federal money than the Legislature planned for as long as the new money is going to an existing appropriation. An Alaska Superior Court ruling upheld that authority in a subsequent lawsuit led by Republican legislators against Walker over the issue. However, according to Wallace, the governor cannot parse out and reject the Medicaid expansion funds — or any other subset of federal Medicaid funding for that matter — because all Medicaid funds are lumped together in a single $2 billion-plus “Medicaid Services” appropriation in the budget. “Medicaid expansion cannot be stopped through the failure to accept or appropriate full funding, it would instead impact all Medicaid services,” Wallace wrote. As a result, any restrictions on how Medicaid funding can be spent must come through a law change, according to Wallace. Officials in the Dunleavy administration have said a suite of separate but related bills will accompany their much-anticipated budget release Feb. 13 to address formula funded programs and other issues. ^ Elwood Brehmer can be reached at [email protected]


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