Elwood Brehmer

Judge allows Pebble case against EPA to continue

Pebble Limited Partnership’s lawsuit against the Environmental Protection Agency will continue as a federal judge Thursday morning denied the agency’s motion to dismiss. U.S. Alaska District Court Judge H. Russel Holland concluded that while the EPA may not have established the three “anti-mine” groups as described by Pebble in its complaint — the Anti-Mine Coalition, Scientists and Assessment Team — agency staff could have utilized them to draft the pending determination to block development of Pebble’s copper and gold claims near Bristol Bay. The mining organization’s attorneys argued during a May 28 hearing that the agency was in cahoots with area tribes and mine opposition groups for years prior to and during the Bristol Bay Watershed Assessment process. The exhaustive assessment, which found large-scale mining would irreparably harm the region’s robust salmon fisheries, is the basis for the EPA’s attempt to preemptively stop Pebble through its Clean Water Act Section 404(c) wetlands protection authority. Pebble’s primary argument centers on the claim that the EPA violated the Federal Advisory Committee Act, or FACA, which requires agencies to remain objective and follow strict public notice and open meetings guidelines on policy issues when taking input from interest groups. The agency claims that even if it unknowingly violated FACA, Pebble had ample opportunity to provide input during more than 30 meetings with EPA officials since 2003 — long before the assessment process officially began in 2011. In November, Holland issued an injunction to prevent the EPA from finalizing the 404(c) process until the court case is resolved. He dismissed with prejudice Pebble’s allegations that the EPA established the Anti-Mine Coalition and Anti-Mine Scientists groups in the latest order. Holland also dismissed with prejudice Pebble’s claim for injunctive relief. The EPA was also relieved from answering chunks of the amended Pebble complaint, which it claimed violated court procedure. “(Pebble’s) first amended complaint is lengthy and does contain irrelevant and redundant allegations and unnecessary factual details,” Holland wrote. “But rather than dismissing the first amended complaint, the court will excuse the defendants from answering” the sections that do not pertain to the FACA accusations. Holland called Pebble’s original, 138-page complaint, an “outrageous violation” of court procedural guidelines when issuing the November injunction. Also on May 28, the federal a three-judge panel from the 9th Circuit Court of Appeals dismissed a previous lawsuit by Pebble — also heard and dismissed by Holland last September — that the EPA overstepped its authority by beginning the 404(c) process before a mine plan or permit applications were submitted. It was determined that case was not ripe for a ruling until the mine veto was finalized. Elwood Brehmer can be reached at [email protected]

Anchorage & aviation: Flying through time

Editor’s note: This is the seventh in a series of 10 articles by the Journal of Commerce recognizing the Anchorage Centennial and examining the events and the industries that have shaped Alaska’s largest city. The series will be released as a single special edition of the Journal in time for the Solstice celebrations June 20 and will be available at centennial events throughout the summer. “Owning a Widgeon, living in Anchorage and flying in Alaska, there’s just nothing left. You just can’t get any better than that,” said George Pappas in his deliberate cadence, with the hint of a grin showing through. The 86-year-old Pappas has lived the history of aviation in Anchorage for more than 60 years. For nearly 30 of those years he used the versatility of his Grumman Widgeon, an amphibious twin-engine aircraft, to enjoy the fruits of Southcentral Alaska and run a rare breed of business. A farm kid from Western Nebraska, Pappas came to Anchorage by way of California in 1953 with a new airframe and engine mechanic’s license (known today as an airframe and powerplant, or A&P, license). Growing up on the Great Plains, Pappas knew right away as youngster that raising sugar beets, the family profession, was not for him. “There was nothing I wanted more than to get involved in aviation,” he recalled. “Being a dirt farmer just wasn’t my way, wasn’t something I had any interest in.” His traditional education ended in the eighth grade, at age 12, when a bone infection pulled him out of school and put him in the hospital. At the time, Nebraska had a vocational program for kids in his situation. However, without an aeronautical program to fit his desire near home, Pappas headed to The Golden State to learn about the insides of airplanes. He graduated in 1948 at age 19. “That was very young for someone to have that license and frankly I didn’t know a damn thing,” Pappas said. His training timeline was backwards compared to most aircraft mechanics of the day; he got his education first and then began gaining experience with airplanes. When he arrived in the Territory of Alaska in the spring of 1953, he knew instantly he didn’t want to leave. “It was a glorious summer, just like we’ve had these past few weeks,” Pappas said June 1 from his Anchorage home. “I just knew that I had died and gone to heaven. Here I was in this beautiful place with beautiful weather and I was up to my armpits in airplanes.” He had landed a job as a mechanic with Alaska Aeronautical Industries, a maintenance shop at Merrill Field. An aircraft mechanic without a pilot’s license, it didn’t take long for his new acquaintances around Merrill to get Pappas into the cockpit of a Cessna 140, the plane he learned to fly in, he said. In 1956, with a new job at a local Cessna dealership, Pappas really began putting his pilot’s license to use. He started running “ferry trips,” flying commercially to the Cessna factory in Wichita, Kan., and returning in a new Cessna back to the dealership in Anchorage. “In the spring I would go to Wichita and pick up an airplane — first stop out of Wichita is West Nebraska so I could visit my folks,” he said. Pappas first flew a four-seat Cessna 170 north from Kansas, and eventually flew nearly every small plane the company made over the years up to a Cessna 206. He made the convenient trip off and on for nearly 30 years, he said, sometimes multiple times a year and often with his wife, Ruby, also a pilot. Pappas followed the Alaska Highway through Canada, a method of navigation that astounded Outside pilots, who said they would worry about getting lost above the wilderness. He said it was actually harder to stay on course farther south. “You take off out of Wichita and there’s just roads and railroads everywhere — pretty hard to navigate following a map,” Pappas recalled. “But once you get out of Great Falls, (Mont.,) and head north there was one road to follow.” The advent and popularity of the Cessna 180, a larger, more powerful four- or six-seat plane than the 170 series, helped Pappas launch the business he ran for 50 years, he said. Pappas formed Aircraft Rebuilders in 1959 after being tasked with recovering a ditched Grumman Goose near Redoubt Bay along West Cook Inlet. “The snow was about eight feet deep. The airplane was sitting out there and you could walk right over the top of it,” Pappas described. “It was the damndest thing you ever saw, but I managed to get down under it and I could see what was damaged and what it took to be repaired.” So, he flew back to Anchorage in a borrowed Cessna 170 and returned with new landing gear, parts to patch the fuselage and a piece of plywood to replace a window, he said. The plane was on an oil exploration site, so with the aide of a nearby crane it was lifted out, repaired, and flown home by an out-of-work Goose pilot Pappas paid $100 for the trip. “He took off (on the snow) on the hull just like water with the gear up and then when he got back to Merrill he could put the gear down and land on Merrill,” he said. “He beat me back to town by quite a bit and when I landed there was my repair job parked right in front of the hangar and I was in business.” Alaska Air Carriers Association Executive Director Jane Dale described Pappas as a “sheet metal wizard,” able to repair nearly anything that was remotely salvageable. Pappas credited the Cessna 180s for the duration of his recovery and repair business. The newer, expensive planes were “heavily financed and heavily insured,” he said, meaning there was great interest in getting damaged ones back in the air. “Whoever had an accident — you’d hardly stop sliding and there’d be an insurance adjuster there wanting to get that airplane back to get repaired,” Pappas said. With his Grumman Widgeon, Pappas could not only get to the best fishing spots on land or sea, but he could also land alongside nearly any downed plane that needed saving. When the repair business dried up in the 1980s as the major fleet of 180-series Cessnas aged, he moved Aircraft Rebuilders off of Merrill Field and transformed the business to primarily a custom parts shop. Pappas was honored by the Air Carriers Association as an Alaskan Aviation Legend in 2013, one of more than 40 individuals the association has recognized for their contributions to Alaska aviation culture since 2012. Dale said the acknowledgments were started the association board and former director Joy Journeay. “(Pappas) is quite a brilliant man and we’re just honored to be able to recognize him and share his story and get to know him,” Dale said. Wein, Merrill and McGee Thirty-one years before Pappas moved north, an Anchorage machinist named C.O. Hammertree changed Anchorage forever. His Boeing seaplane arrived on April 24, 1922, and introduced the infant city to aviation for the first time. The first flight in the state took place in nine years earlier on July 3, 1913, in Fairbanks. The first Anchorage flight was short-lived. Roy Troxell took off in the plane over Cook Inlet and began to turn back to the city once he gained a few hundred feet of altitude, according to an account of the flight by the municipality. Troxell quickly crashed in the mud flats and survived the accident, but the Boeing did not. In 1923, a year after Troxell’s ill-fated first flight, a strip of land at the edge of the Anchorage was cleared for a nine-hole golf course and a small runway. By the following summer of 1924 the Delany Park Strip was open for business. On July 4, having been in Alaska less than two months, Noel Wien performed aerial stunts in Hisso Standard biplane he named “Anchorage” to commemorate the opening of the park. A pioneering Alaska bush pilot, Wien also made the first flight between Anchorage and Fairbanks that same July. With his brothers Ralph, Sig and Fritz, he founded Wien Air Alaska in 1927, the first airline in the state. According to the National Aviation Hall of Fame, the quartet made $4,000 in the first two months of the airline. The state’s largest airline — Alaska Airlines — also traces its roots to this period. According to its official history, the airline dates to 1932 when Mac McGee began flying a three-seat Stinson between Anchorage and Bristol Bay; later McGee Airways merged with Star Air Service to become the state’s biggest in 1934. Alaska Airlines cemented its statewide reach in the late 1960s when it merged with Alaska Coastal-Ellis and Cordova airlines, and then acquired Horizon Air in 1987. Growth in the early industry spurred the development of Aviation Field in August 1929, Anchorage’s first dedicated airport. The city had crept beyond Ninth Street and the park strip couldn’t handle the flight activity. It had two runways and was almost instantly one of the busiest airports in the world. On April 2, 1930, the Anchorage Woman’s Club successfully pushed through a resolution to change the name of airport from Aviation Field to Merrill Field, in honor of Russel Hyde Merrill, another Alaska aviation pioneer, according to the municipality. Among other accomplishments, Merrill is known for being the second pilot to fly from the Lower 48 to Alaska. He also mistakenly found the most advantageous route through the Alaska Range from Anchorage to Bethel in November 1927, when he flew farther south than intended and went through what is now Merrill Pass. Less than two years later, Merrill had become a busy commercial pilot. During his third flight of Sept. 16, 1929, bound for Bethel, Merrill disappeared. A month later part of the tail of his plane was discovered on a beach along Cook Inlet. The cause of the crash is still unclear. A year after it officially became Merrill Field, the Woman’s Club got the city council to approve a tower and signal beacon at the airport. Also in 1931, the park strip was closed to aircraft and Merrill Field was it for Anchorage — on land anyway. All good in Lake Hood Once sporadic but consistently growing seaplane activity forced development the Lake Hood seaplane base in 1938. That year a channel was dug between lakes Hood and Spenard, thus creating what is today the busiest seaplane base on Earth. The Lake Hood Seaplane Base served 67,000 flight operations in 2012, according to a McDowell Group economic report. In June alone that year, there were 13,159 operations, an average of 439 per day. Lake Hood in total contributed 230 jobs and $42 million to the Anchorage economy in 2012, the study estimates. The floatplane hub — surrounded by wilderness when the channel was dug — also got a 2,200-foot gravel runway. World War II provided the state, particularly Southwest Alaska, with runways and airports. Infrastructure the military built during the early 1940s to support the war effort quickly turned civilian in the late ‘40s and ‘50s, PenAir founder Orin Seybert said. When Seybert founded Peninsula Airways Inc. in 1955 he was “just a kid out of high school and one airplane,” he said. That airplane was a two-seat Taylorcraft and Seybert was 19 years old. Peninsula Airways was shortened to its current “official nickname” of PenAir by passengers who refused to say the whole name, he said. Today, Seybert has logged more than 30,000 hours in a cockpit and serves on the Board of Directors of the Alaska Aviation Heritage Museum on the south shore of Lake Hood. He is also a former president of the museum. Seybert is eager to show off the restored aircraft and artifacts the museum has collected. “It’s so important to preserve this aviation history because it’s so unique in the whole United States,” he said. Anchorage goes International It wasn’t until 1948 that Anchorage’s flagship airport was born. In May, Congress authorized site selection for the airport and approved $12 million for its construction, which began the following spring. The site adjacent to Lake Hood was selected because it was away from the city and there was already a road from Anchorage to Lake Hood. It was open for business in January 1952 with two runways, a main 8,400-foot east-west runway and a 5,000-foot crosswind strip. A wooden control tower shipped in from Yakutat was used until the terminal was finished the following year, when the wooden tower was moved to Lake Hood. The Anchorage International Airport was transferred to the State of Alaska, its current owner, as a part of statehood in 1959. It was assessed at $11.65 million just prior to the transfer. The main runway grew to longer than 10,000 feet in 1961 and parking aprons were enhanced to handle growing commercial jet traffic. There was one fatality at Anchorage International during the March 27, 1964, earthquake. Tower controller Bill Taylor was killed when falling debris struck and killed him as he came down the tower stairs. Lighting and electrical systems were damaged at Lake Hood and the International Airport, but daylight operations resumed at the airport the following day. In the 51 years since the earthquake, the Anchorage International Airport, now named after the late Alaska U.S. Sen. Ted Stevens, has gone through a couple business transformations. In the 1970s, international passenger traffic was king in Anchorage, according to airport manager John Parrott. Before the Soviet Union opened its airspace, planes flying between Europe and Asia made a technical stop in Anchorage to refuel while on the circumpolar route. As Boeing’s 747 became the de facto choice for trans-ocean travel later in the decade, it was believed the stop in Anchorage would become obsolete, Parrott said, but that didn’t happen. Rather, the passenger business in Anchorage collapsed with the Berlin Wall and the opening of Russia’s skies. Fortuitously, Asia’s manufacturing industry and FedEx were growing rapidly at about the same time, Parrott said, and Anchorage International Airport quickly transitioned from a passenger stop to one of the world’s busiest cargo hubs — a title it retains today. Anchorage was the fifth-busiest cargo airport in the world in 2013, according to the Airports Council International. Nearly 2.5 million metric tons of freight landed at the airport two years ago. Domestically, Anchorage was second behind Memphis International, FedEx’s homeport. Even with most major cargo airlines flying the latest and long range capable 747-8s, it makes economic sense for the jumbo jets to carry more cargo and less fuel — thus making a technical stop in Anchorage — on their way from Asia to the Lower 48, rather than sacrifice carrying capacity to fly direct. Parrott said the latest 747s can make a trans-Pacific flight if about 100,000 pounds of cargo capacity is sacrificed. “At a dollar a pound, that’s $100,000 for stopping here,” per flight, he said. Aviation an economic force The impact aviation has had on Anchorage is visible everywhere. Ted Stevens Anchorage International Airport supports one of every 10 jobs in the city, either through direct jobs in the terminals and hangars or a myriad of related offsite positions, according to the Anchorage Economic Development Corp. Merrill Field and Lake Hood are still the centers of general aviation and small air-taxi services, many of which cater to the ever-growing tourist industry. Pappas and Seybert said the busy skies above Anchorage haven’t changed much over the years and the pilots familiar with the airspace know where to go and generally stay out of trouble without issue. However, Pappas said pilots he’s flown with from Outside are astounded at the number of planes in the sky. The one difference Pappas noted is that fewer flights out of Merrill Field are simply pilots flying for fun, mainly because of the cost of planes and fuel, he said. Yet, “there’s no place that has traffic like Merrill Field does on a sunny day,” Pappas said. And Anchorage’s airports — the five controlled airports among the 20-some uncontrolled lakes and airstrips within the municipal limits — still help support the 82 percent of Alaska communities that are reached only by boat or plane. Dale, of the Alaska Air Carrier Association, said during a recent meeting with Federal Aviation Administration leadership she was approached by an astounded FAA official. “He said, ‘Jane, what’s that number you just said, 82 percent of the communities?’” Dale recalled. “Not everybody is aware of that but it’s still incredibly relevant. All of the industries (in Alaska) rely on commercial aviation.” Its biggest city is no different. Elwood Brehmer can be reached at [email protected]

Dalton Highway could reopen June 5

The Dalton Highway could reopen on June 5 if everything goes right, according to the state Department of Transportation and Public Facilities. DOT issued a release Friday afternoon stating the tentative reopen date is dependent on weather conditions and the progression of repairs to the northern end of the haul road.  A more than 30-mile stretch of the Dalton was closed May 18, when melting ice covered the roadway in up to two feet of water. Since, the closure area has grown to more than 75 miles, from milepost 335 to milepost 413 near Deadhorse. Ice overflow from the nearby Sag River built up several feet thick in late winter along the northern end of the Dalton between mileposts 390 and 405. That melting ice is now flooding and eroding the roadway. DOT spokeswoman Meadow Bailey said when the road was closed in May the department had been expecting issues with the melting ice. However, unusually warm weather accelerated spring breakup and compounded the problem. When the Dalton does reopen, DOT says it will try to have passable corridor at least 20 feet wide through the work zone. There will likely still be some one-lane areas in order to get traffic to the North Slope as soon as possible, according to the department. Crews are currently installing culverts on the south end of the project area. The Dalton was closed for about a week beginning April 5 when water trapped by the overflow ice flooded the road surface. Gov. Bill Walker declared the Dalton Highway a state disaster April 7. Road crews began fighting the overflow in mid-March. The Legislature appropriated $5 million in emergency funding for the Dalton Highway to the capital budget passed in April. Elwood Brehmer can be reached at [email protected]

Dismissal arguments heard in Pebble-EPA case

Pebble Limited Partnership and the Environmental Protection Agency argued in court May 28 whether the agency violated federal law in developing the Bristol Bay Watershed Assessment, which is the basis for its effort to block Pebble mine. The oral arguments on the EPA’s motion to dismiss Pebble’s lawsuit were heard in Alaska U.S. District Court by Judge H. Russel Holland. Justice Department attorney for the EPA Brad Rosenberg said the agency did not violate the Federal Advisory Committee Act as Pebble contends, because the EPA had the same type of contact with Pebble as it did with the groups and individuals Pebble claims it conspired with to stop mine development. The Federal Advisory Committee Act, or FACA, was enacted in 1972 to set guidelines for federal agencies and ensure committees they form are objective and open to the public. Pebble claims it was shut out of the assessment process, but it had regular contact with EPA staff at all levels beginning in 2003, Rosenberg argued. “Pebble had a role in creating the Bristol Bay Watershed Assessment,” he said. “If anything, Pebble had unprecedented access to the EPA.” Rosenberg said the EPA officials all they way up to the administrator met with Pebble about 30 times from 2003 to 2013. The mine developers simply disagree with the science in the assessment, according to Rosenberg. He said the FACA requirements are narrow and do not apply in this instance. In February 2014, shortly after releasing the final version of the 1,000-plus page Bristol Bay Watershed Assessment, the EPA announced it would begin the process to block development of Pebble’s gold and copper claims with its authority under Section 404(c) of the Clean Water Act. Coincidentally on May 28, a three-judge 9th Circuit Court of Appeals panel dismissed another Pebble lawsuit against the EPA claiming harm from the 404(c) mine veto. Holland initially dismissed that case last September because the agency hadn’t issued its final action, thus making Pebble’s argument not ripe for consideration, at least for the time being. The assessment concluded that large-scale surface mining in the Bristol Bay region would significantly impact the robust salmon and resident fisheries in the area. Pebble filed suit the suit argued May 28 before Holland in September 2014, alleging the assessment to be biased. Holland issued an injunction halting the 404(c) veto process in November to prevent the agency’s action from becoming final during the lawsuit. Pebble attorney Roger Yoerges argued that the EPA set up “de-facto” advisory committees based on contact the agency had with anti-mine groups, which is evidenced in the documents obtained from Freedom of Information Act requests Pebble has submitted to the EPA. “The government is saying a federal committee cannot exist unless they say it exists,” Yoerges said. In its complaint, Pebble attorneys claim the agency set up three informal advisory committees the mining company dubbed the “anti-mine coalition,” the “anti-mine scientists” and the “anti-mine assessment team.” Rosenberg countered that an agency can’t inadvertently set up an advisory committee. A formal advisory committee must be made up of a balanced panel of members and publish actions in the Federal Register. He also said the 2010 emails between anti-mine activists and then-EPA ecologist Phillip North that Pebble has touted as prime examples of the bias within the agency were to a “low-level” agency scientist and had little impact on the assessment, officially undertaken in 2011. Yoerges said the EPA attorneys were arguing the facts of the case appropriate for a summary judgment motion during a hearing for dismissal, and that further discovery would allow Pebble to flesh out its allegations, he said. “We suspect more discovery will show more documents in support of our view,” Yoerges said. In his rebuttal, Rosenberg called the advisory committees “nothing more than a figment of (the) plaintiff’s imagination.” He said everybody wanted the EPA to hear their respective views during and before the assessment process. Rosenberg noted that the EPA regional administrator could have initiated the 404(c) process in 2010 if the agency’s mind was made up at that time, but decided to do a detailed scientific assessment of the resource in question. He said the Bristol Bay Watershed Assessment is a final, standalone scientific document, separate from the pending 404(c) action. However, senior EPA officials have cited the assessment as the basis for starting the mine veto process. Finally, Rosenberg said Pebble would still have a chance to further voice its position on the 404(c) process if the injunction is lifted. When Holland issued the injunction halting the veto effort last November, he said the 404(c) process could result in “no action, but it isn’t headed that way.” Elwood Brehmer can be reached at [email protected]

Proposed bill to access Constitutional Budget Reserve

The House Finance Committee introduced a bill May 26 that would put $6.4 billion from the Permanent Fund earnings reserve account into the Fund principal, putting it off limits to appropriation and triggering the means to draw from the Constitutional Budget Reserve with a simple majority vote to cover the fiscal year 2016 deficit. House Bill 2002 would put $4.9 billion from the Permanent Fund earnings reserve account on June 30, and another $1.5 billion from the account would go into the principal in June 2016. A draw from the Constitutional Budget Reserve, or CBR, is required to cover the 2016 fiscal year deficit that currently stands at $2.1 billion after Gov. Bill Walker signed a partially funded budget May 18. House minority Democrats have said any move to access the Fund’s earnings — which can be done with a majority vote — would put future Permanent Fund Dividend checks at risk. Drawing from the CBR requires three-quarters of the both houses in the Legislature to approve, and Democrats are holding out for several demands including education funding and Medicaid expansion to vote for the draw. However, the CBR only requires a three-quarters vote when other funding sources are available. By putting the earnings reserves into the principal of the Permanent Fund, that money would be inaccessible and allow the CBR to be drawn from without the minority Democrats’ support. Deputy Revenue Commissioner Jerry Burnett wrote in a May 19 email to Rep. Les Gara, D-Anchorage, that this year’s appropriation for dividends won’t be at risk; but that is not the case for future years. The earnings reserve fund is what pays for the annual Permanent Fund Dividend checks. As Burnett described it, dividends would not be affected as long as the 2016 fiscal year earnings are at or above the five-year earnings average. “The official forecast from (the Alaska Permanent Fund Corp.) indicates that the transfer will not affect future dividends,” Burnett wrote. “However, as we have seen a number of times in the past actual earnings fall below projections in many years. There is a real chance that if the balance of the (earnings reserve account) is reduced below the amount needed for dividends that dividends will be reduced in that year.” The Permanent Fund Corp.’s latest projections show statutory net income growing from $2.7 billion in fiscal year 2016 to $3.2 billion by 2020. For the 2015 fiscal year, $1.32 billion has already been appropriated for the PFD checks that will be distributed this October. Burnett noted the 2009 fiscal year, when the net income of the fund was $2.5 billion in the red, and wrote that another such event could reduce or eliminate PFDs entirely if the money is moved. The reserve account held nearly $5.8 billion in realized earnings on April 30. Another $1.3 billion in “unrealized appreciation on invested assets” brought the total earnings assigned for future appropriations to more than $7.1 billion, according to the latest Permanent Fund balance sheet. There was $55.3 billion in total liabilities and assets in the Permanent Fund as of April 30. Majority Democrat Reps. Bryce Edgmon and Neal Foster and Republican Reps. Jim Colver, Gabrielle LeDoux, Paul Seaton and Louise Stutes signed a May 20 letter to House Speaker Rep. Mike Chenault, R-Nikiski, urging him to negotiate with the minority to avoid tapping the reserve account. The six could eliminate the 26-member Majority’s voting power in the 40-seat House. A stalemate over about $100 million of program funding the minority Democrats want added back into the budget has pushed legislators into the second special session of the year. It began May 21 after the House and Senate adjourned Gov. Bill Walker’s first special session and immediately began their own in Anchorage. Heading the minority’s funding list is $48 million for the state Education Department. Several sections of the bill contain language that reads, “if and only if” the super-majority approval to access the Constitutional Budget Reserve is not achieved will the Permanent Fund earnings reserves be transferred to the principal. But in either outcome, the CBR would be accessed through the Democrats giving their votes to meet the three-quarter threshold, or by refusing and the earnings reserve account being converted to principal and opening up the CBR to a majority vote. The Republican-led House Majority has been investigating ways to get around a three-quarter vote needed to approve a draw from the CBR savings account to fund the deficit. Democrats have withheld from approving a CBR vote until a budget deal is reached and have accused the Majority of being unwilling to negotiate, noting that they are demanding the entire $100 million. House Minority Leader Chris Tuck, D-Anchorage, told the Juneau Empire on May 26 he wasn’t surprised by the bill dropping because “it’s nothing new.” “It doesn’t change anything,” he said by phone. “But there’s definitely got to be a change (in the way we’re negotiating). We definitely have to come up with a new way through this gridlock.” He said he would meet with House Speaker Rep. Mike Chenault, R-Nikiski, to “explore ideas on how to improve the process. ... We don’t have much time and we don’t want to have pink slips go out (to state employees).” “Hopefully we come up with something, even if it’s a coin toss,” he added jokingly. Republicans in both chambers of the Legislature have said they are being “held hostage” and “held up” from funding the budget by the minority Democrats. Walker has said his offers to mediate a deal were rejected. ‘Compromise’ bill introduced A Republican budget compromise was introduced May 27 in the House Finance Committee that would fully fund the Base Student Allocation and 2.5 percent state employee wage increases, while at the same time cutting nearly $30 million across state government, was introduced to the House Finance Committee during a May 27 meeting. The latest version of House Bill 2001, as described by committee co-chair Rep. Mark Neuman, R-Big Lake, would provide $16.5 million for the Education Department to bring the BSA up to the level prescribed in the education legislation passed last year. It would also put $29.7 million of general fund money towards union and non-union cost of living pay hikes. On the flip side, it would require Gov. Bill Walker and his executive branch leadership team to cut $29.8 million from state agency budgets as they see fit. “This has been a long time coming,” Neuman said. The funding adds are contingent on getting House minority support for a Constitutional Budget Reserve draw 0with a three-quarters vote. “I can’t help but feel I’m being leveraged a little in this budget,” said  Rep. Les Gara, D-Anchorage. The agency cuts could just lead to the some of the workers in line for pay increases to be laid off. Neuman said there have been discussions with the Walker administration as to where the agency cuts could come from. Elwood Brehmer can be reached at [email protected] Juneau Empire reporter Katie Moritz contributed to this story.

House Democrats: Erin's Law changes are a nonstarter

House minority Democrats say the changes made to the youth sexual abuse prevention legislation known as Erin’s Law gut the bill, and they don’t approve. The changes, which include allowing school districts to opt-out of the curriculum, were made during a May 19 Senate Education Committee meeting by Chair Mike Dunleavy, R-Wasilla. The Senate Education substitute for House Bill 44 would also prohibit school districts from contracting with organizations that provide abortion services like Planned Parenthood for course materials or instruction related to sexual education or sexually transmitted diseases. Dunleavy’s amended bill combines HB 44 with three other bills dealing with college readiness assessments, parental rights and teacher training. Rep. Geran Tarr, D-Anchorage, said in an interview that the “anti-Planned Parenthood” portion of the new bill has a companion bill in the House that never received a committee hearing. Should the new version of HB 44 pass the Senate and a conference committee, she said the House would be asked to vote on a bill it never vetted, and would amount to a “real abuse of the process,” Tarr said. “The special session is open to any topic, and (Dunleavy) can schedule hearings in his committee on those other pieces of legislation,” Tarr said. “Child sexual abuse and dating violence prevention are important enough issues that they can stand on their own.” Minority members said during a May 20 press briefing that they would not vote for Dunleavy’s version of HB 44. The original version of the bill had broad bipartisan support and passed the House 34-6 on April 18. Tarr noted that the state already has a law that allows parents to pull their children out of a classroom for any reason, and that’s why the version of Erin’s Law that passed the Senate unanimously last year did not have such a clarification. Erin’s Law is named after Erin Merryn, an Illinois woman who was a victim of sexual abuse as a child, and has made it her mission to get such prevention and education legislation passed in every state. Gov. Bill Walker made the bill part of the first special legislative session he called and four versions of Erin’s Law were introduced during the regular session. Tarr has been a vocal leader on the issue and prefiled one of the bills. She said the opt-out option for parents is the middle ground; it respects the rights of parents who believe the topics should be discussed at home, but at the same time is the best way to get the information to children who might be victims of such abuse. A sponsor statement from Dunleavy’s office states that the substitute “codifies in state statute the inherent right of parents to direct the upbringing and education of their children. Under this legislation, local school boards shall, working with parents, teachers and school administrators, adopt policies to promote the involvement of parents in the education programs for their children.” Elwood Brehmer can be reached at [email protected]

Fed dollars down, Denali Commission tries more with less

Denali Commission leaders are working to chart a new path for the rural development group based on leaner budgets and community partnerships. Built on federal funding, the commission was formed in 1998 at the behest of the late Sen. Ted Stevens with the mission of bringing basic infrastructure in rural Alaska up to the standards expected in the rest of the country, Denali Commission Energy Program Manager Jodi Fondy related at a May 22 Commonwealth North meeting. “Rural Alaska is much different than the rural folks think of down in the Lower 48. They think about a barn, a silo, but there’s a road and an intertie, and our rural is very, very different than that,” Fondy said. The Denali Commission has poured nearly $1.1 billion into rural Alaska since getting its first $20 million during the 1999 federal fiscal year. About half of that money, $507 million, has gone into energy projects, with another $302 million for health programs and clinics. During the mid-2000s, its budgets approached $140 million annually. That money came from a host of federal agencies and funds; at least 10 have provided funding to the Denali Commission at some point. These days, the commission is trying to get used to budgets in the $15 million range, Fondy said. That has led to prioritizing projects and sometimes just doing less. “We get asked a lot whether we’re still around,” she said. “We’re still around.” As a result, the Denali Commission is developing a strategic plan focused on how to best serve rural Alaska with about $15 million per year, Fondy said. As the last of its health care projects are wrapping up, she said the commission could revert back to its genesis, which is energy. Much of the energy funding has gone to improving traditional infrastructure: bulk fuel storage facilities, power plants, interties and distribution networks. Replacing a power plant or fuel storage tanks can cost several million dollars each, she said, which leaves the commission with a choice — fund a couple major projects each year or try to cast a wider net with smaller pots of money. When funding began to dry up in 2011, the Denali Commission held six listening sessions across Alaska to see where stakeholders felt remaining funding should go, Fondy said. The themes, energy, housing, health and economic development, remained the same. As a result, the commission formed the Strategic Technical Assistance Response Team with the Department of Energy to “look at communities holistically, energy and otherwise,” Fondy said. The first two rounds of assistance focused on five communities each and the third round will begin this summer, she said. Lower cost activities include holding energy efficiency workshops, equipment training, technical assistance and project support. It’s a shift back to the mid-2000s, when the commission did significant energy efficiency work on top of the infrastructure construction. “We’re starting to look at those projects again as our funding has declined, and it may be more cost effective to work on energy efficiency in communities versus the amount of capital it takes to put in some of this new infrastructure,” Fondy said. Other work is emphasizing maintenance as opposed to new construction. Testing, painting and refurbishing existing fuel tanks can cost less than $1 million, while the replacement cost is several times that, she said. This work should help extend the life of previous Denali Commission projects, too. Training and keeping qualified operations and maintenance staff is a continual challenge, she said. “We have trained somebody to operate and maintain something — and either with their new skill set they are able to find a job that pays better elsewhere or they get burnt out because they have taken on too much,” Fondy described. Either way, a community ends up with an untrained operator and there’s little the commission can do about it, she said. AVTEC, the state vocational school in Seward, does some power system training, she said, but funding is always an issue. Projects done in partnership with the Alaska Energy Authority and the Alaska Village Electric Cooperative can be remotely monitored, but someone in the community still needs to alert staff of potential problems, she said. The commission has also partnered with the AEA on a couple ventures that spurred state investment. In 2008, the commission had $3 million and AEA had $1 million, Fondy said. The two came together and solicited for the first round of projects in what is now the state Renewable Energy Fund. Eventually, 31 projects, mostly energy assessments, were funded that first year, she said. Since, the State of Alaska has committed $247.5 million, according to an AEA’s latest program report. With $11.5 million for the Renewable Energy Fund in the capital budget passed by the Legislature in April, the fund is one of few things that withstood budget cuts this year. The two groups also started what has become the state’s Emerging Energy Technology Fund, typically reserved for small-scale, cutting edge energy generation and efficiency projects. Elwood Brehmer can be reached at [email protected]

House bill to make Permanent Fund earnings off limits

The House Finance Committee introduced a bill Tuesday that would put $6.4 billion from the Permanent Fund earnings reserve account into the Fund principal, putting it off limits to appropriation and triggering the means to draw from the Constitutional Budget Reserve with a simple majority vote to cover the fiscal year 2016 deficit. House Bill 2002 would put $4.9 billion from the Permanent Fund earnings reserve account on June 30, and another $1.5 billion from the account would go into the principal in June 2016. A draw from the Constitutional Budget Reserve, or CBR, is required to cover the 2016 fiscal year deficit that currently stands at $2.1 billion after Gov. Bill Walker signed a partially funded budget May 18. House Minority Democrats have said any move to access the Fund’s earnings — which can be done with a majority vote — would put future Permanent Fund Dividend checks at risk. Drawing from the CBR requires three-quarters of the both houses in the Legislature to approve, and Democrats are holding out for several demands including education funding and Medicaid expansion to vote for the draw. However, the CBR only requires a three-quarters vote when other funding sources are available. By putting the earnings reserves into the principal of the Permanent Fund, that money would be inaccessible and allow the CBR to be drawn from without the minority Democrats’ support. Deputy Revenue Commissioner Jerry Burnett wrote in a May 19 email to Rep. Les Gara, D-Anchorage, that this year’s appropriation for dividends won’t be at risk; but that is not the case for future years. The earnings reserve fund is what pays for the annual Permanent Fund Dividend checks. As Burnett described it, dividends would not be affected as long as the 2016 fiscal year earnings are at or above the five-year earnings average. “The official forecast from (the Alaska Permanent Fund Corp.) indicates that the transfer will not affect future dividends,” Burnett wrote. “However, as we have seen a number of times in the past actual earnings fall below projections in many years. There is a real chance that if the balance of the (earnings reserve account) is reduced below the amount needed for dividends that dividends will be reduced in that year.” The Permanent Fund Corp.’s latest projections show statutory net income growing from $2.7 billion in fiscal year 2016 to $3.2 billion by 2020. For the 2015 fiscal year, $1.32 billion has already been appropriated for the PFD checks that will be distributed this October. Burnett noted the 2009 fiscal year, when the net income of the fund was $2.5 billion in the red, and wrote that another such event could reduce or eliminate PFDs entirely if the money is moved. The reserve account held nearly $5.8 billion in realized earnings on April 30. Another $1.3 billion in “unrealized appreciation on invested assets” brought the total earnings assigned for future appropriations to more than $7.1 billion, according to the latest Permanent Fund balance sheet. There was $55.3 billion in total liabilities and assets in the Permanent Fund as of April 30. Majority Democrat Reps. Bryce Edgmon and Neal Foster and Republican Reps. Jim Colver, Gabrielle LeDoux, Paul Seaton and Louise Stutes signed a May 20 letter to House Speaker Rep. Mike Chenault, R-Nikiski, urging him to negotiate with the minority to avoid tapping the reserve account. The six could eliminate the 26-member Majority’s voting power in the 40-seat House. A stalemate over about $100 million of program funding the minority Democrats want added back into the budget has pushed legislators into the second special session of the year. It began May 21 after the House and Senate adjourned Gov. Bill Walker’s first special session and immediately began their own in Anchorage. Heading the minorities’ funding list is $48 million for the state Education Department. Several sections of the bill contain language that reads, “if and only if” the super-majority approval to access the Constitutional Budget Reserve is not achieved will the Permanent Fund earnings reserves be transferred to the principal. But in either outcome, the CBR would be accessed through the Democrats giving their votes to meet the three-quarter threshold, or by refusing and the earnings reserve account being converted to principal and opening up the CBR to a majority vote. The Republican-led House Majority has been investigating ways to get around a three-quarter vote needed to approve a draw from the CBR savings account to fund the deficit. Democrats have withheld from approving a CBR vote until a budget deal is reached and have accused the Majority of being unwilling to negotiate, noting that they are demanding the entire $100 million. At the same time, Republicans in both chambers of the Legislature have said they are being “held hostage” and “held up” from funding the budget by the minority Democrats. Walker has said his offers to mediate a deal were rejected. It’s expected that HB 2002 will be taken up during the House Finance Committee meeting Wednesday morning at 9:00 a.m. Elwood Brehmer can be reached at [email protected]

House Finance introduces budget bill after majorities call own special session

Alaska legislators adjourned Thursday to end the special session called by Gov. Bill Walker, immediately called their own session and the House Finance Committee later introduced a budget bill now set for consideration Friday. The vetoed portions of the operating budget Walker signed May 18 were packaged in new legislation, House Bill 2001, which was introduced to the House Finance Committee during a meeting after the new special session was called. Combined, the partially funded HB 72 and HB 2001 are the equivalent of the full operating budget passed with minority objection on April 27. It would require $2.1 billion to fund state agency operations for the 2016 fiscal year. Another $1 billion would be needed to cover debt service, fund capitalization and retirement accounts. Rep. Tammie Wilson, R-North Pole, discussed the possibility of gathering funds from all the available state savings accounts to pay for the $2.1 billion and get around a three-quarter majority Constitutional Budget Reserve vote. “Most of those programs, whether it’s scholarships or Power Cost Equalization, we can still fund those they will just need to be funded next year,” Wilson said. Exactly how much the state has available in its various fund and savings accounts was unknown in the meeting. The House Finance Committee is scheduled to meet again Friday, at 10 a.m., and public testimony on the budget is set to be taken from 11 a.m., to 2 p.m., that day. During a floor session held Thursday at the Anchorage Legislative Information Office, Anchorage Democrat Sen. Bill Wielechowski requested the Legislature reconvene Friday in Juneau, where the governor ordered the session be held. “As much as I enjoy being in my hometown, Mr. President (Senate President Kevin Meyer), this session violates the Alaska Constitution,” Wielechowski said. A May 18 legal opinion from Legislative Affairs Director Doug Gardner to Wielechowski declared that the Legislature must meet in Juneau to comply with Walker’s call to a special session, but allowed there may be a way around that order: “A court would likely conclude that if the legislature wants to meet in special session in Anchorage, the legislature’s remedy it to adjourn sine die from the legislative session and convene its own special session in Anchorage. While it seems unlikely a court would invalidate the action of the legislature meeting under the governor’s special session proclamation in Anchorage instead of Juneau for the sole purpose of adjourning sine die, there is risk in doing so as described above.” “Sine die” is a Latin expressing meaning “without a future date being designated (as for resumption).” Wielechowski also noted that Democratic minority caucus members were not polled when the majority decided to call another session. The Legislature did not take action on any of the three issues — the operating budget, Medicaid expansion and reform, and the sexual abuse prevention bill known as Erin’s Law — during the special session. Walker, who signed a partially funded operating budget May 18 that would force layoffs for 15,000 state employees beginning at the start of the 2016 fiscal year on July 1, said that day he would continue to call special sessions until the budget is resolved. Senate Majority Leader John Coghill, R-Fairbanks, called reconvening in Juneau “practically impractical,” because of travel and scheduling challenges and the fact that the Capitol is undergoing a major renovation. During a House floor session later in the day, Rep. Sam Kito, D-Juneau, said there are adequate facilities in Juneau outside of the Capitol for legislators to use. Rep. Andy Josephson, D-Anchorage, said adjourning and reconvening is “disrespectful” to the office of the governor. Anchorage Democrat Rep. Les Gara said calling a new session on the budget takes the focus off of the governor’s Medicaid legislation, which is stalled in the House Finance Committee. There were 14 senators present for the Thursday floor session. The three Senate minority members present voted against adjourning; the motion passed 11-3. The vote in the House was 21-13 in favor of adjourning. Minority Democrats and Republican Reps. Cathy Muñoz of Juneau and Lora Reinbold of Eagle River voted against adjournment. Reinbold was kicked out of the Majority caucus during the regular session after voting against the operating budget because she said it does not cut government spending enough. Oral roll calls and votes were tallied by staff in the makeshift chamber rooms in the Anchorage LIO building. Legislators and staff passed microphones around during floor discussions. “We have not completed our job. We should not be adjourning,” Wielechowski said. The Legislature was assembled in Juneau when Walker called the 30-day special session April 28. House minority Democrats have refused to vote for a roughly $3 billion draw on the Constitutional Budget Reserve to fund the 2016 budget, a state savings account that requires a three-quarter vote from each chamber to access. They are holding out for at least some of about $100 million in program funding cuts they want put back in the budget, along with the passage of Medicaid expansion, and have argued that the spending cuts they have proposed which include capping oil tax credits are greater than what’s been approved by the House and Senate majorities. House minority members said during a May 20 press briefing that the Republican-led majority has refused to negotiate a budget deal. The new special session could go until late June while state agencies prepare for a partial shutdown if a budget deal is not reached sooner. Elwood Brehmer can be reached at [email protected]  

Legislature adjourns, convenes new session in Anchorage over minority objections

Alaska legislators have adjourned the special session called by Gov. Bill Walker and immediately called their own session. During a floor session held May 21 at the Anchorage Legislative Information Office, Anchorage Democrat Sen. Bill Wielechowski requested the Legislature reconvene May 22 in Juneau, where the governor ordered the session be held. “As much as I enjoy being in my hometown, Mr. President (Senate President Kevin Meyer), this session violates the Alaska Constitution,” Wielechowski said. A May 18 legal opinion from Legislative Affairs Director Doug Gardner to Wielechowski declared that the Legislature must meet in Juneau to comply with Walker’s call to a special session, but allowed there may be a way around that order: “A court would likely conclude that if the legislature wants to meet in special session in Anchorage, the legislature’s remedy it to adjourn sine die from the legislative session and convene its own special session in Anchorage. While it seems unlikely a court would invalidate the action of the legislature meeting under the governor’s special session proclamation in Anchorage instead of Juneau for the sole purpose of adjourning sine die, there is risk in doing so as described above.” “Sine die” is a Latin expressing meaning “without a future date being designated (as for resumption).” Wielechowski also noted that Democratic minority caucus members were not polled when the majority decided to call another session. The Legislature did not take action on any of the three issues — the operating budget, Medicaid expansion and reform, and the sexual abuse prevention bill known as Erin’s Law — during the special session. Walker, who signed a partially funded operating budget May 18 that would force layoffs for 15,000 state employees beginning at the start of the 2016 fiscal year on July 1, said that day he would continue to call special sessions until the budget is resolved. Senate Majority Leader John Coghill, R-Fairbanks, called reconvening in Juneau “practically impractical,” because of travel and scheduling challenges and the fact that the Capitol is undergoing a major renovation. During a House floor session later in the day, Rep. Sam Kito, D-Juneau, said there are adequate facilities in Juneau outside of the Capitol for legislators to use. Rep. Andy Josephson, D-Anchorage, said adjourning and reconvening is “disrespectful” to the office of the governor. Anchorage Democrat Rep. Les Gara said calling a new session on the budget takes the focus off of the governor’s Medicaid legislation, which is stalled in the House Finance Committee. There were 14 senators present for the May 21 floor session. The three Senate minority members present voted against adjourning; the motion passed 11-3. The vote in the House was 21-13 in favor of adjourning. Minority Democrats and Republican Reps. Cathy Muñoz of Juneau and Lora Reinbold of Eagle River voted against adjournment. Reinbold was kicked out of the Majority caucus during the regular session after voting against the operating budget because she said it does not cut government spending enough. Oral roll calls and votes were tallied by staff in the makeshift chamber rooms in the Anchorage LIO building. Legislators and staff passed microphones around during floor discussions. “We have not completed our job. We should not be adjourning,” Wielechowski said. The Legislature was assembled in Juneau when Walker called the 30-day special session April 28. House minority Democrats have refused to vote for a roughly $3 billion draw on the Constitutional Budget Reserve to fund the 2016 budget, a state savings account that requires a three-quarter vote from each chamber to access. They are holding out for at least some of about $100 million in program funding cuts they want put back in the budget, along with the passage of Medicaid expansion, and have argued that the spending cuts they have proposed which include capping oil tax credits are greater than what’s been approved by the House and Senate majorities. House minority members said during a May 20 press briefing that the Republican-led majority has refused to negotiate a budget deal. The new special session could go until late June while state agencies prepare for a partial shutdown if a budget deal is not reached sooner. Elwood Brehmer can be reached at [email protected]

Walker preps for partial shutdown

Gov. Bill Walker signed a partial state budget May 18, a move that could force the layoff of about 15,000 state employees and lead to a partial government shutdown if legislators can’t reach a budget deal. Left with few options, the governor vetoed much of the nearly $5 billion of state expenditures in the operating budget bill that passed April 27, House Bill 72, before signing it to bring it in line with the approximately $1.9 billion available to draw from in the Statutory Budget Reserve, he said. Because the bill was transmitted to him earlier this month, Walker had to act on HB 72 before 11:59 p.m., May 19, or the full bill would have become law. The Legislature scheduled regular floor sessions for both the House and Senate on May 21 to be held in Anchorage. A visibly tired Walker said at a press briefing after he signed the bill that most state agency funding would be cut by 72 percent under the enacted budget. The departments of Corrections and Public Safety are fully funded for the 2016 fiscal year, which begins July 1, as is the state judicial system, debt service and the Legislature’s budget, he said. The Department of Health and Social Services is funded for six months. “The only responsible thing for us to do is what we’ve done — to prepare for the worst-case scenario and hope and pray we don’t get there,” Walker said. Vetoing the budget entirely was not an option, he said, as it includes supplemental funding for the rest of the current fiscal year. A full veto would have initiated “complete chaos” in state government nearly instantly, Office of Management and Budget Director Pat Pitney said. The governor also sent a letter to state employees early May 18 explaining his actions. “Later today, I will sign the budget bill the Legislature passed in April. However, I have little choice but to veto the unfunded items in the bill,” Walker wrote. He continued: “One consequence of HB 72 being unfunded for 2016 is most state employees will receive a layoff notice in early June if the Legislature fails to pass a fully funded budget by that time.” A fight in the House over state spending and Medicaid expansion has led to normal legislative procedures being thrown aside. House minority Democrats are demanding the restoration of $47 million cut from education spending, among others, and approving the governor’s Medicaid expansion and reform package, House Bill 148, be passed before they will vote to approve a draw on the Constitutional Budget Reserve, a state savings account that requires a three-fourths majority to access. Drawing on the Statutory Budget Reserve only requires a majority vote. There was $10.1 billion in the CBR as of April 30, according to the Revenue Department. About $3 billion of that is needed for fiscal year 2016, Walker said, and the stalemate in the Legislature over about $90 million has pulled attention away from the bigger problem, which is the entirety of the nearly $4 billion deficit. “The irony of it is other states that have done this — they couldn’t go out and borrow money,” Walker said. “We have the money; we just cant get sufficient votes or the budget to match so they can access the funds that are there. Here we are with a Triple-A bond rating and we’re talking about this scenario of a potential shutdown.” Walker has been criticized by some Republican legislators for proposing to increase spending beyond the budget passed primarily on Majority votes. When the impasse between legislators became clear, the governor reintroduced his budget that would increase spending about $50 million over HB 72, a negotiating “starting point,” he called it. If it comes to a partial shutdown, Walker said all commerce — the summer fishing, oil and gas, tourism and other industries — that need state oversight would be impacted. “Let me be perfectly clear. Our coalition does not want a government shutdown and have been working daily to prevent a shutdown,” Minority Leader Chris Tuck, D-Anchorage, said in a release. “This current impasse is due to the Majority’s refusal to consider the huge spending cuts we have put forward while simultaneously slashing education funding and turning away millions from the federal government to expand Medicaid in Alaska.” The $47 million reduction in the Education budget came from the Senate. House Speaker Mike Chenault, R-Nikiski, said in an interview that he would have preferred Walker pass the whole budget, but that at the same time it was not a surprise. “The governor has to do what he believes is the right thing for the state given the fact that he has a partially funded budget because we’ve not been able to get a three-quarter CBR vote from our minority,” Chenault said. “We’ll deal with what (Walker) kept and what he vetoed and we’ll put that together in another bill and move it forward.” The Legislature is set to reconvene the special session May 20 in Anchorage. Walker called a 30-day special session to be held in Juneau April 28 to handle the operating budget, a sexual abuse prevention bill known as Erin’s Law and Medicaid expansion and reform. HB 148, the Medicaid bill, has since stalled in the House Finance Committee. Chenault said he met with Tuck, members of the Senate Majority and Walker’s staff May 15 and that all the issues are still “in play,” but the top priority is getting a complete budget. The state Capitol building is undergoing a major renovation and numerous legislators have voiced displeasure with the governor over the Juneau special session. “I guess if they would spend as much time on getting the business done as where they’re going to get the business done maybe it would get done,” Walker said May 18. The governor said he would continue to call special sessions until the budget is resolved. He expects to get a complete budget passed “pretty soon,” Chenault said. “Whether it’s this special session or we have to extend a little bit longer I don’t know, but certainly we’re going to pass a budget.” Elwood Brehmer can be reached at [email protected]

State budget could mean 15,000 layoffs

Gov. Bill Walker signed a partial state budget May 18, a move that could force the layoff of about 15,000 state employees and lead to a partial government shutdown if legislators can’t reach a budget deal. Left with few options, the governor vetoed much of the nearly $5 billion of state expenditures in the operating budget bill that passed April 27, House Bill 72, before signing it to bring it in line with the approximately $1.9 billion available to draw from in the Statutory Budget Reserve, he said. Because the bill was transmitted to him earlier this month, Walker had to act on HB 72 before 11:59 p.m., May 19, or the full bill would have become law. A visibly tired Walker said at a press briefing after he signed the bill that most state agency funding would be cut by 72 percent under the enacted budget. The departments of Corrections and Public safety are fully funded for the 2016 fiscal year, which begins July 1, as is the state judicial system, debt service and the Legislature’s budget, he said. The Department of Health and Social Services is funded for six months. “The only responsible thing for us to do is what we’ve done — to prepare for the worst-case scenario and hope and pray we don’t get there,” Walker said. Vetoing the budget entirely was not an option, he said, as it includes supplemental funding for the rest of the current fiscal year. A full veto would have initiated “complete chaos” in state government nearly instantly, Office of Management and Budget Director Pat Pitney said. The governor also sent a letter to state employees early May 18 explaining his actions. “Later today, I will sign the budget bill the Legislature passed in April. However, I have little choice but to veto the unfunded items in the bill,” Walker wrote. He continued: “One consequence of HB 72 being unfunded for 2016 is most state employees will receive a layoff notice in early June if the Legislature fails to pass a fully funded budget by that time.” A fight in the House over state spending and Medicaid expansion has led to normal legislative procedures being thrown aside. House minority Democrats are demanding the restoration of $47 million cut from education spending, among others, and approving the governor’s Medicaid expansion and reform package, House Bill 148, be passed before they will vote to approve a draw on the Constitutional Budget Reserve, a state savings account that requires a three-fourths majority to access. Drawing on the Statutory Budget Reserve only requires a majority vote. There was $10.1 billion in the CBR as of April 30, according to the Revenue Department. About $3 billion of that is needed for fiscal year 2016, Walker said, and the stalemate in the Legislature over about $90 million has pulled attention away from the bigger problem, which is the entirety of the nearly $4 billion deficit. “The irony of it is other states that have done this — they couldn’t go out and borrow money,” Walker said. “We have the money; we just cant get sufficient votes or the budget to match so they can access the funds that are there. Here we are with a Triple-A bond rating and we’re talking about this scenario of a potential shutdown.” Walker has been criticized by some Republican legislators for proposing to increase spending beyond the budget passed primarily on Majority votes. When the impasse between legislators became clear, the governor reintroduced his budget that would increase spending about $50 million over HB 72, a negotiating “starting point,” he called it. If it comes to a partial shutdown, Walker said all commerce — the summer fishing, oil and gas, tourism and other industries — that need state oversight would be impacted. “Let me be perfectly clear. Our coalition does not want a government shutdown and have been working daily to prevent a shutdown,” Minority Leader Chris Tuck, D-Anchorage, said in a release. “This current impasse is due to the Majority’s refusal to consider the huge spending cuts we have put forward while simultaneously slashing education funding and turning away millions from the federal government to expand Medicaid in Alaska.” The $47 million reduction in the Education budget came from the Senate. House Speaker Mike Chenault, R-Nikiski, said in an interview that he would have preferred Walker pass the whole budget, but that at the same time it was not a surprise. “The governor has to do what he believes is the right thing for the state given the fact that he has a partially funded budget because we’ve not been able to get a three-quarter CBR vote from our minority,” Chenault said. “We’ll deal with what (Walker) kept and what he vetoed and we’ll put that together in another bill and move it forward.” The Legislature is set to reconvene the special session May 20 in Anchorage. Walker called a 30-day special session to be held in Juneau April 28 to handle the operating budget, a sexual abuse prevention bill known as Erin’s Law and Medicaid expansion and reform. HB 148, the Medicaid bill, has since stalled in the House Finance Committee. Chenault said he met with Tuck, members of the Senate Majority and Walker’s staff May 15 and that all the issues are still “in play,” but the top priority is getting a complete budget. The state Capitol building is undergoing a major renovation and numerous legislators have voiced displeasure with the governor over the Juneau special session. “I guess if they would spend as much time on getting the business done as where they’re going to get the business done maybe it would get done,” Walker said May 18. The governor said he would continue to call special sessions until the budget is resolved. He expects to get a complete budget passed “pretty soon,” Chenault said. “Whether it’s this special session or we have to extend a little bit longer I don’t know, but certainly we’re going to pass a budget.” Elwood Brehmer can be reached at [email protected]

Pebble, EPA agree lawsuit should continue

Pebble Limited Partnership and the Environmental Protection Agency finally agree on one thing: their court fight should move forward. Each side filed seven-page briefs May 14 requesting Alaska U.S. District Court Judge H. Russel Holland continue with an oral argument hearing in Pebble’s lawsuit against the EPA scheduled for later this month. Holland ordered the sides to file short-notice briefs May 4, asking if an Office of Inspector General evaluation of the EPA’s Bristol Bay Watershed Assessment would impact court proceedings and if the lawsuit should be suspended until the Inspector General report is released. The assessment, released in January 2014, is the agency’s basis for its move to preemptively ban the copper and gold mega-project near Iliamna before Pebble applied for permits or released a mine plan. Pebble claims the EPA developed the 1,000-plus page Bristol Bay Assessment under false pretense — that the agency used science from biased experts dead-set against the mine project, and decided to use its authority under Section 404(c) of the Clean Water Act to stop mine development years before the assessment was released. The EPA has resoundingly denounced Pebble’s allegations in court and through its public affairs campaign. Holland’s May 4 order indicated the federal judge was unaware of the pending Inspector General review until he read a May 3 Alaska Dispatch News story that summarized the Pebble fight. The IG review began nearly more than a year ago and has been reported on extensively by multiple state and national news outlets. In November, Holland issued a preliminary injunction ordering the EPA to halt its 404(c) process until the lawsuit is resolved over whether the agency violated public process and objectivity laws in drafting the Bristol Bay Assessment. Without the injunction, the seldom-used 404(c) project ban could have been finalized over winter, as EPA officials have said the process initiated in February 2014 usually takes about a year to complete. Holland dismissed another suit against the EPA in September filed by Pebble that claimed the agency was overstepping its authority with the 404(c) action. He ruled Pebble did not have a case on that front because, among other reasons, the EPA had not officially finalized its decision. The agency has never before stopped a development project in such an early stage as Pebble via its 404(c) authority. In the EPA’s latest brief to Holland the agency’s attorneys wrote that “the government is very concerned that postponing a decision on its motion to dismiss (set to be argued May 28) would unduly delay this litigation.” If the suit is delayed the EPA will be under the injunction for more than a year without resolution to whether or not Pebble has a valid argument, according to the agency’s brief. The court filing states that an IG representative told EPA counsel that a final evaluation report is not expected until February 2016. Further, EPA attorney’s noted that the IG evaluation can have no bearing on the court case. Pebble’s filing states it is “well aware” of the IG evaluation and included several letters Pebble and its parent investor Northern Dynasty Minerals Ltd. sent to the office that they claim details the EPA’s biased actions. In a Feb. 27 letter to EPA Inspector General Arthur Elkins, Jr., the mine developers state documents Pebble obtained through a Freedom of Information Act request prove EPA Region 10 ecologist Phillip North “collaborated” on a petition to initiate the 404(c) process submitted by regional Alaska Native groups with the groups’ attorney Geoffrey Parker months before the official assessment drafting began. The correspondence took place in early 2010, according to the letter. A March 12 letter states that “Pebble has recently obtained a document from the National Park Service that further proves that EPA colluded with anti-mine activists to veto the Pebble mine, even before (Pebble Limited Partnership) submitted an application for regulatory approval.” Elwood Brehmer can be reached at [email protected]

Anchorage, railroad have ties that bind

Editor’s note: This is the third in a series of 10 articles by the Journal of Commerce recognizing the Anchorage Centennial and examining the events and the industries that have shaped Alaska’s largest city. The series will be released as a single special edition of the Journal in time for the Solstice celebrations June 20 and will be available at centennial events throughout the summer. The Alaska Railroad is the tie that binds the state together. It is the reason for Anchorage. It exemplifies Alaska. “To a large degree the railroad has mirrored, or led, depending on your perspective, the ups and downs of the state of Alaska. Everything from the impact of the 1964 earthquake to the tremendous growth when the pipeline came to pass, to even being a big part of the big drivers in Anchorage today,” Alaska Railroad Corp. CEO Bill O’Leary said. “A lot of the (Anchorage) airport’s growth was, pardon the pun, fueled by the ability of the railroad to move all that jet fuel down from the refinery in Fairbanks. It’s been a key participant in most of the larger events of the state.” The Alaska Railroad’s story begins in earnest 101 years ago, a year before the founding of Anchorage. President Woodrow Wilson signed the Alaska Railroad Act on March 12, 1914, which allowed him to task a group of engineers to investigate the prospect of building a rail line from Southcentral to the Interior. Those engineers mare up the Alaska Engineering Commission. The act also approved $35 million for construction, a dollar figure that ballooned with inflation induced by World War I, according to Alaska Railroad historian Jim Blasingame, but was still 60 percent more than the State of Alaska paid for the railroad seven decades later. There were two spur lines the commission could’ve chose to build off of in 1914: the Alaska Syndicate railroad in Cordova and Seward’s 71-mile Alaska Northern Railway. Seward was chosen because of politics and the “other” black gold, Blasingame said. The Alaska Syndicate was owned by the Guggenheims and J.P. Morgan, who also controlled the nearby Kennecott copper mine. They did not like idea of the government building a railroad in their territory and Wilson didn’t like them, he said. “It took the federal government — with the U.S. Treasury — to put together the money to build the railroad because the private sector, all of them that were attempting to do it, were doing it to make a profit, which was difficult to do.” Blasingame said. “Congress was savvy enough to realize they needed to build a rail line to develop the territory. At the time that they decided to act their goal was to go for the black gold, which was coal.” Blasingame retired from the Alaska Railroad Corp. in 2009 after a career that spanned five decades. He is currently researching a book detailing the complex history of the railroad’s transfer from the feds to the State of Alaska. Despite the robust copper industry on the other end of Prince William Sound, the Alaska Engineering Commission ultimately recommended a route north from Seward because of the ability to reach coal near Healy and in the Matanuska Valley. When construction began, so did Anchorage. The July 10, 1915, Anchorage townsite auction formalized the tent city that formed at the mouth of Ship Creek, the area that remains the headquarters of the Alaska Railroad. By the end of the year Anchorage had grown to 1,500 people and the rail stretched to Eagle River. By the time President Warren Harding drove the Golden Spike near Nenana that completed construction on July 15, 1923, nearly $72 million had been spent building the Alaska Railroad, about 10 percent of the annual federal budget at that time. The first sitting president to visit Alaska, Harding died from food poisoning Aug. 2 during a stop in San Francisco on his trip back from the territory. After construction the railroad fell under the jurisdiction of the Department of the Interior. Tourism, war, a great quake and oil A marketing campaign promoting “African safari-like” adventures in Alaska via the railroad was quickly developed to drive business to the fledgling railroad, Blasingame said. Brochures printed during the depths of the Great Depression touted the territories rugged scenery and untapped hunting and fishing opportunities. The Alaska Railroad first turned a profit in 1938. In 1943, two tunnels were blasted through the Chugach Mountains allowing rail access to Whittier, a military port during World War II. For decades, the Downtown Anchorage Railroad Depot not only served as the executive offices for the railroad, but also housed the city’s phone system and morgue. Competition from the brand new Seward Highway caused the railroad to cancel passenger service to Seward in 1953. The growth of the tourism industry ultimately led to the railroad reestablishing that service. Barge service began out of Whittier in 1962, which allows the railroad to transport loaded railcars north from Seattle. It constitutes the longest rail line in America stretching from Fairbanks to Florida. These days, the rail-barge service helps the railroad support North Slope oil and gas work by moving large quantities of pipe and other bulky construction modules as efficiently as possible, by rail. The 1964 Good Friday Earthquake hit the Alaska Railroad with $30 million of damage, cut passenger service to Fairbanks for two weeks and freight service to Whittier for three. The discovery of oil at Prudhoe Bay four years later was a boon to Alaska and the railroad was not left out. During construction of the trans-Alaska Pipeline System the railroad’s workforce grew to more than 1,300 in the mid-1970s, according to former employees. It has about 590 full-time employees today. Blasingame said federal procedures during the time of rapid expansion hinted at the need for a change of ownership. “We were going like gangbusters and we couldn’t hire any permanent employees. We could hire temporaries, so we had probably 250 or so temps, but we would have to let them go before the last two weeks of the end of the calendar year and then hire them back after the first of the year,” he said. “So we had to go through the federal policy exercise of terminating these temporary employees and then in another two weeks go through the federal process of hiring them back. It was all this paperwork; it was just unreal.” Further, the Alaska Railroad had to keep federally adequate financial books because Congress appropriated its budget every year, while keeping a separate set of financials that met industry standards, according to Blasingame. “Everything we did took twice as long,” he remarked. Sale to the State When it came time for the federal government to sell the Alaska Railroad, late Sen. Ted Stevens led they way. Stevens first tried to give the State of Alaska the railroad through legislation in 1980. At the same time the state was issuing the first Permanent Fund Dividend checks. The act of philanthropy didn’t sit well with some in Congress. “It was Sen. Howard Metzenbaum from Ohio that stood up on the floor of the U.S. Senate and said ‘If the State of Alaska can afford to give each of its citizens a $1,000 check then they can afford to pay for the railroad at market rate, whatever that is,’” Blasingame said. “Stevens called him a ‘pain in the ass’ on the Senate floor and its part of the Congressional record.” A backlog of safety hazards and deferred maintenance cost the feds big time. According to Blasingame, the fire-sale $22.3 million purchase price arrived at in 1983 came only after assessors deducted work that needed to be done to the railroad’s infrastructure and cut the market value of the Alaska Railroad from an initial estimate in the $250 million range. Under federal ownership, which in 1967 shifted to the Department of Transportation, the Operational Safety and Health Administration had no jurisdiction over the Alaska Railroad and it showed. When the State of Alaska officially took ownership on Jan. 5, 1985, it had plenty of work to do to bring its new toy up to code. “At the time of transfer the federally-owned railroad had over 2,500 OSHA violations. Under the state we had five years to correct all that,” Blasingame said. Since transitioning to a state corporation, the Alaska Railroad Corp. has operated as a for-profit business, a quasi-government entity that asks for money only when federal regulations require new and expensive equipment. As its CEO Bill O’Leary said, the Alaska Railroad helped lay the foundation for business growth at Ted Stevens Anchorage International Airport, another government enterprise that supports 1 in 10 city jobs. The railroad’s ability to cheaply ship jet fuel from the Flint Hills North Pole refinery to Anchorage helped support the logistical benefits inherent in Anchorage’s location and make the little city’s airport one of the busiest cargo hubs in the world. Ultimately, the cost to run the refinery, which grew with oil prices, made it cheaper for airlines to buy their fuel elsewhere and have it shipped in to Anchorage and was the demise of the operation. However, at its peak, the Flint Hills Anchorage fuel terminal received 12,000 railcars per year, according to the company. Last full-service railroad Providing both freight and rail service under one roof is unique. The Alaska Railroad is the last full-service railroad in the United States. The railroad’s place in mainland Anchorage’s tourism industry has only grown over the years. Since rebounding from the Great Recession, which hit the state’s tourist-centric businesses hard from 2009-11, the Alaska Railroad has hauled nearly 500,000 Alaskans and Outsiders annually. “I don’t believe there is any other railroad in the country that has the same impact on its state as the Alaska Railroad,” O’Leary said. “We’re many things to many people here.” Visit Anchorage President and CEO Julie Saupe said the railroad offers a simple, but important alternative to the Southcentral’s limited road system. “If we didn’t have the railroad I’m not sure we’d be able to manage all the visitors that we currently get,” Saupe said. It’s estimated each tourist spends more than $900 once they get to Alaska. Saupe said the shorter itineraries the railroad now offers also give tourists easy options to see Alaska, and stay a night or two longer. When Saupe talks of the benefit cruise ships have on Anchorage, she talks about ships docking in Seward and Whittier as well, because the cruisers will almost invariably make it to Anchorage on rail. “The whole idea of the cruise tour was made more tangible in visitors’ eyes with the option of riding the railroad all the way into the Interior. For more than 30 years, the railroad has partnered with the Anchorage School District’s King Career Center to train high school juniors and seniors for summer tour jobs. “They have to learn the history of the railroad; they have to learn the history of Alaska; they have to know the flora, the fauna,” Blasingame said. “It’s a wildly popular program.” The program started in the last years of federal ownership and hesitation over hiring additional temporary employees forced the state Legislature to fund it for the first two years, according to Blasingame. He said “Thank Yous” in the form of baked goods are periodically sent to the railroad’s offices — responses to the experiences passengers have had with their young tour guides. Holland America Princess is one of the companies that offer cruise tour trips with the railroad. HAP currently manages 20 cars that are run by the railroad, 10 of which are the largest domed passenger cars in the world, according to the company. HAP’s rail maintenance superintendent John Crews has worked on the fleet for more than 20 years. He said there have been frustrations stemming from differing operating styles on both sides of the relationship, but open lines of communication have kept the partnership healthy. Employees regularly change jobs between HAP and the railroad, he said. While HAP’s passengers book a ticket with the tour company, Crews said it’s understood why they visit Alaska. “People want to come to Alaska and ride the historic Alaska Railroad,” he said. “They don’t come up here to ride the Holland America railroad or the Princess railroad. People ask us all the time about the Alaska Railroad.” “We’re just providing the vessel for them to ride on the Alaska Railroad.” Elwood Brehmer can be reached at [email protected]

Changes may be looming for SBA 8(a) Native contractors

Proposed changes to the Small Business Administration’s Business Development Program have gotten the attention of Alaska Native business groups. The changes to the 8(a) program are small, but could impact Native corporations in multiple ways, according to Chenega Corp. Vice President of Government Relations Kristina Woolston. An SBA proposal to allow the administration to change a firm’s North American Industry Classification System, or NAICS, code without consent is cause for concern, she said. A change could be made arbitrarily if a company’s revenue source does not match its code based on data in the Federal Procurement Data System, or FPDS. It could also impact a firm’s qualification for the 8(a) preferential contracting program. “Really, there’s incomplete data in FPDS and that’s one of the challenges that we have with this proposed rule,” Woolston said at the Alaska Native Village Corporation Association annual conference. Woolston also chairs the Native American Contractors Association board, a trade group that supports Native contracting with the federal government. Specifically to Alaska, she said the SBA should draft a new consultation policy to clarify how government agencies work with Alaska Native corporations, or ANCs. “There is a need to codify legal obligation with ANCs on the same basis as Tribes and that’s a current deficit in the way that the SBA engages with ANCs,” Woolston said. The 8(a) Business Development program offers assistance to firms under majority control by socially or economically disadvantaged individuals. The U.S. Government Accountability Office is currently compiling a report on how the SBA implements and oversees the program, particularly as it relates to Alaska Native businesses. Woolston said that report should be out this summer and is another cause for concern because it appears the GAO is looking into specific contracts. She urged anyone contacted by the office to seek advice from an appropriate village or regional corporation association. In an effort to respond to program participants, the SBA is also looking at shortening its seven-page program benefits report to two pages, which Woolston said could actually be too short in some instances. Chenega voluntarily submits annual 50-page reports to the SBA on each of its 8(a) subsidiaries, she said. “It’s really a narrative of the benefits we provide to our communities in a fairly comprehensive manner,” Woolston said. “We think it’s a good reflection of the complexity of what our native communities require in receiving these benefits from the work that we do.” A two-page reporting system would not allow companies like Chenega, which draws 95 percent of its revenue from 8(a) contracts, to report all the positive impacts its work has on regional communities, she said. She encouraged Native government contractors to provide additional feedback beyond the minimum requirements and said industry groups have discussed other ways to provide that feedback in a more structured manner. The Native American Contractors Association held meetings with roughly two dozen members of Congress at its 2015 outreach summit to discuss the impact of limitations to the 8(a) program and assure the SBA gets appropriate funding to continue it, she said. “Our NACA members fly in for this and it’s a terrific time to highlight and represent a national interest in our Native-owned community enterprises,” Woolston said. A positive change could be coming to the mentor-protégé assistance program that is part of the larger 8(a) work, according to Woolston. The proposal would allow any small business to be a protégé in the program, even those that have graduated from 8(a). “While it does take away some of the desire of having a Native 8(a) as the protégé, it will then allow us to be a protégé outside of the 8(a) program,” she said. Businesses can participate in the program for up to nine years. As a mentor, a business can provide assistance to an 8(a) participant on non-program contracts so the protégé can develop its competitive capabilities, according to the SBA. Mentors can also enter into joint ventures with protégés to help them on certain government contracts. Elwood Brehmer can be reached at [email protected]

Pentex purchase could cut ratepayers' bills immediately

Fairbanks Natural Gas customers could see their heating bills drop immediately if the utility is sold to the Alaska Industrial Development and Export Authority. “We do believe through the financing tools that AIDEA has, we could reduce the (gas) rate in Fairbanks right away by approximately 14 percent,” former AIDEA director Ted Leonard said at the authority’s April 30 board meeting. “Rationalizing” the two gas distribution systems being developed by Fairbanks Natural Gas and the Interior Gas Utility and forming one system could provide significant capital and operating cost savings, he said. Leonard retired as AIDEA executive director earlier this year but has continued to work on the Interior Energy Project because of his extensive experience with the earlier North Slope work. Further savings to ratepayers would come from the different business models — moving away from the inherent cost and return requirements in a privately-owned utility structure. Mark Gardiner, a financial consultant who is working closely with AIDEA on the proposed deal, said that the current rate of $23.35 per thousand cubic feet, or mcf, of gas FNG customers are paying could be $20 next year if the sale goes through. The savings would be even greater if FNG’s pending rate case before the Regulatory Commission of $24.96 per mcf is accepted. The potential cost savings from the purchase are separate from whether or not the Interior Energy Project moves forward. However, an early projection of $16.80 per mcf in 2020 for all customers of a blended utility was presented to the board. That estimate assumes liquefied natural gas can be delivered to Fairbanks for the equivalent of $11 per mcf, a midstream price the Interior Energy Project will have to come close to in order to meet the stated goal of the project. Leonard said North Slope gas trucking project models came in with a comparable price in the $13 to $13.50 per mcf range. AIDEA projects full buildout of a consolidated Fairbanks gas utility to cost $223 million. To date, the authority has issued $52.8 million in loans for gas distribution from the $332.5 million Interior Energy Project state financing package. AIDEA announced a preliminary agreement to purchase the parent company to Fairbanks Natural Gas, Pentex Alaska Natural Gas Co., in late January. That announcement was met with resistance from some Alaska legislators who questioned the premise of the state purchasing outright a private business and how the AIDEA-Pentex sale would affect an earlier agreement for a Hilcorp subsidiary to purchase Titan Alaska LNG — Pentex’s LNG trucks and small Southcentral liquefaction facility. The 10-year LNG supply agreement Harvest has with Pentex, as part of the Titan sale would remain as well. That agreement is to fuel existing gas customers and does not expand Interior’s natural gas supply. It’s currently believed the two deals can coexist; AIDEA would purchase Pentex for $54 million and then sell Titan to Harvest Alaska (Hilcorp) for $15.1 million, which is the price Pentex and Harvest originally agreed to. The AIDEA deal is set to close July 31. The Titan sale is being reviewed by the RCA and Attorney General Craig Richards and has a Sept. 31 financial close date. If the Titan sale is denied or otherwise fails AIDEA would retain those assets. Leonard and Gardiner said it is the authority’s intent to sell or otherwise transfer control of Fairbanks Natural Gas within two years to a local entity, most likely IGU, which is owned by the Fairbanks North Star Borough. Fairbanks Natural Gas President and CEO Dan Britton, who is also a minority shareholder in Pentex, said in an interview that IGU leaders have generally been kept abreast of the negotiations with AIDEA and are supportive of the overall plan. Fairbanks Natural Gas petitioned the RCA for IGU’s service area and Britton has said two operating gas utilities makes little sense for the small customer base that is the greater Fairbanks area. IEP gets moving Now that a bill has passed allowing Cook Inlet gas to be used as a possible supply, it’s full steam ahead for the Interior Energy Project, its manager Bob Shefchik said April 30. The project team had meetings scheduled the week of May 4 with 15 to 18 parties that have expressed interest in partnering on the Interior Energy Project, Shefchik said. “Because it’s been such a long process we want to bring them in, talk to them about where we’re headed, what we expect to be in the solicitation and get some feedback,” he told the AIDEA board. A request for proposal, or RFP, for a private partner to expand Southcentral gas liquefaction capacity should be issued by AIDEA by mid-May and stay open for 30 days, according to Shefchik. Proposals for a small gas pipeline and propane solutions will also be accepted. He said the board could expect the results of the RFP at its June 25 meeting. Concurrently, the state Commerce Department along with the Revenue and Natural Resource departments are working on a gas supply solicitation. Shefchik, a former Interior Gas Utility chair, said the Fairbanks utilities have agreed to participate in the RFP selection process and a range of acceptable gas prices will be worked out earlier than it was during the North Slope supply efforts to keep the utilities on board. “The thing that has to be avoided is (price) being the last thing decided,” he said. Elwood Brehmer can be reached at [email protected]

Alaska Air continues run with $149M record quarter

Growth, efficient operations and lower fuel prices helped Alaska Air Group Inc. turn a record profit of $149 million in the first quarter, the company announced April 23. The strong early 2015 results mark the 11th record quarter of the last 12 for the Seattle-based parent company of Alaska Airlines and its regional carrier Horizon Air. In January, Alaska Air Group reported its fifth consecutive record-breaking year with a total 2014 profit of $571 million. “We’re performing as well on many fronts, and our people are as focused on providing great service to our customers as I’ve ever seen,” Air Group CEO Brad Tilden said in a call with investors. “Thanks to their efforts, we’re off to a great start this year and this should set us up very well for the rest of 2015.” The $149 million net income is a 58 percent increase over a year ago. It came on 4 percent operating revenue growth to $1.27 billion. Alaska Airlines managed 6 percent revenue growth while Horizon’s revenue remained flat for the quarter, according to the financial report. The earnings equate to $1.13 per share. An intense share repurchase program — 1.2 percent of outstanding shares worth $102 million during the quarter — helped grow the earnings-per-share value by 75 percent year-over-year, Tilden said. The company has repurchased 31 percent of its outstanding shares since 2007, he said. Alaska Air Group stock traded for $68.30 at the close of business April 24. The stock price has risen about 45 percent since a June two-for-one stock split. It began 2015 at about $60 per share. Company-wide capacity was up 10.8 percent compared with the first part of 2014, according to its March operational results. Tilden said 40 percent of company’s revenue and profit over the last 12 months has come from markets it didn’t serve in 2000. Chief Revenue Officer Andrew Harrison said Alaska Airlines continues to add capacity to its home Seattle market to give “customers more utility and maintain schedule superiority versus the competition.” Increased competition for the Pacific Northwest market over the past two years has come primarily from its longtime partner Delta Air Lines. Overall capacity growth is currently planned at 12 percent in the second quarter and 7 percent in the third quarter, Harrison said. Pre-tax operating income was up 69 percent on the back of $123 million in fuel savings, despite a 13 percent increase in personnel costs. Part of the added wage cost includes a new agreement with Alaska Airlines flight attendants, company Chief Financial Officer Brandon Pedersen noted. Alaska Air Group hedges fuel through call options; Pedersen said company executives feel it provides the best balance between mitigating the impact of price spikes and realizing low fuel price savings. The company’s economic fuel price per gallon was $1.98 for the quarter, down more than 40 percent year-over-year. The benefits of lower oil prices have not been exclusive to Alaska Air Group’s carriers. Industry giants American Airlines and United Airlines also had record profits in quarter one despite slight dips in revenue. The Associated Press reported April 24 that those airlines each saved more than $1 billion on fuel versus 2014. Pedersen also referred to Alaska Airlines’ fleet transition from away from Boeing 737-400s to more efficient 737-800s and -900s as a “permanent hedge.” Alaska improved its fuel burn-to-capacity ratio by 3 percent during the quarter, he said. A 20.1 percent 12-month return on invested capital, or ROIC, was about 12 higher than Air Group’s cost of capital and an 18.9 percent pretax margin was a 7 percent improvement on the first quarter of 2014. Underlying its historically strong financial run is Alaska Air Group’s emphasis on reducing debt. Its debt-to-capitalization ratio stood at 29 percent at the end of the quarter, down from more than 60 percent less than four years ago. As a result, operational cash flow totaled about $500 million for the first quarter, roughly equivalent to all of 2010, according to Pedersen. Alaska Airlines was once again the top on-time performer among major domestic carriers with an 85 percent on-time rate during the quarter, according to the U.S. Department of Transportation. However, its on-time performance was down 2.1 percent from 2014. Alaska Air Group was also named as one of Forbes magazine’s top 100 domestic employers in April. Air Group was 93 on the list and third among major airlines behind Southwest Airlines and JetBlue Airways. Elwood Brehmer can be reached at [email protected]

Capital budget slashed; IEP bill approved

The capital budget passed April 27 was little more than a formality this year. Nearly 70 percent of the $108.3 million in unrestricted general fund appropriations made by the Legislature for fiscal year 2016 will be used to match federal receipts. A mere $7.7 million of unrestricted general fund money was approved for optional spending statewide. That amounts to virtually a complete cut in state capital spending from the comparative appropriations of $444.2 million in 2015 and $627.6 million in 2014. It is even a significant reduction in spending from the $150.3 million Gov. Bill Walker proposed in January. Senate Finance co-chair Anna MacKinnon, R-Anchorage, who led the capital budget construction, said April 27 that committee members were consulted during the process and ultimately agreed to no discretionary spending in the capital budget. “There were many requests that have been unmet on the capital side,” MacKinnon said. Her staffers compiled a list of roughly $3 billion worth of capital requests that were sent to the committee, she noted. With the state facing a budget deficit approaching $4 billion in fiscal 2016, the Legislature is prepared to accept more than $1.27 billion from the federal government, a $130 million increase from 2015 and $330 million more than 2014. MacKinnon said leveraging as much federal money as possible should help minimize the impact of state cuts. Still, the overall $1.49 billion capital budget is down about 30 percent from last year. The only significant appropriation is $43.2 million to fund construction of a new school in the Northwest village of Kivalina. It is the state’s last remaining obligation from the settlement the state reached in 2011 in the lawsuit known as the Kasayulie education suit, which claimed Alaska’s rural schools were not funded on par with urban districts. In the settlement, former Gov. Sean Parnell agreed the state would contribute $146 million over four years to fund five rural school projects. The money for the Kivalina school will not come from the general fund, however. The Legislature decided to pull the $43.2 million from the Alaska Capital Income Fund, a savings account of sorts, for returns on investments made by the Revenue Department. Walker’s capital budget included $7.1 million to design the school and early work for an access road to the school site. Also pulled from the governor’s proposal was $3 million for the Alaska Housing Finance Corp. Home Energy Rebate Program, a popular program that for several years reimbursed homeowners for energy efficiency improvements made to their homes. At the same time, funding for AHFC’s weatherization program for low- and middle-income residents increased from $6.6 million to $7.1 million. Of that, $5.6 million is set to come out of the general fund. The Legislature also halved funding for the Cold Climate Housing Research Center from $1 million to $500,000. The Legislature’s appropriation is on par with what the research-focused nonprofit has received in recent years. Left out in the cold was the University of Alaska. Legislators cut an $8 million appropriation in Walker’s budget to fund ongoing construction of the University of Alaska Fairbanks’ engineering building. UA President Pat Gamble had told the Senate Finance Committee that $8 million would extend construction from August to January and allow for about a quarter of the building to completed and used by students. The cut came despite public testimony to Senate Finance that greatly supported keeping the UAF construction funding in the budget. The governor’s $8 million proposal for deferred maintenance work on UA facilities was cut to $3 million. The governor can cut or trim line items from the budget but cannot add in any appropriations back in. Walker said April 27 that he would look closely at ways to reduce the capital budget further. “There’s not a huge amount of room in the capital budget but if there’s ways of tightening it up, we will. We have to look at everything at this point,” Walker said. The budget included $45.3 million in future federal receipt authority for the Knik Arm Crossing — authority added in during House Finance hearings. An administrative order issued by Walker in December halting work on six “mega projects,” including the Knik Arm Crossing, across the state as they are evaluated by the administration is still in effect, according to a Walker spokeswoman. Interior Energy Project Legislation allowing the managers of the Interior Energy Project to spend money on a Cook Inlet-generated plan also passed the Legislature April 27 without requiring further legislative approval of a project. The subject of unforeseen debate and amendments in the House Resources and Finance committees, House Bill 105 ultimately came out looking fairly similar to the version submitted by Walker. “The economic future of the Interior depends on low-cost energy being delivered to its residents. At the end of the day, conditions in Fairbanks have not changed, and relief in the form of clean, affordable energy is needed now,” Walker said in a release. “HB 105 provides a clear path to accomplish that.” The original intent of the bill was to allow the Alaska Industrial Development and Export Authority to use much of a $332.5 million financing package passed in 2013 to get natural gas to the Interior from anywhere, not just the North Slope, as earlier legislation required. The authority to investigate and possibly construct a small pipeline system from Cook Inlet or shift the project’s focus to propane was added in the Senate. Several House Republicans from Anchorage supported language in the Resources version of HB 105 restricting AIDEA from spending money on a plan without legislative approval. Those amendments would have delayed the project’s 2016 goal to deliver gas to the Interior by at least a year, IEP managers said. They were removed in House Finance hearings. However, HB 105 does restrict the authority’s ability to enter into a gas supply contract for the Interior market unless the primary customer utility is owned by AIDEA, which is evaluating the purchase of Fairbanks Natural Gas and its sister companies. It also limits the amount of money the authority can loan for capital investments to the Interior Energy Project. Removed from the last version of the bill was $240 million of bonding authority for AIDEA to finance Southcentral electric transmission line overhauls. AIDEA’s monthly board meeting was scheduled for April 30. Elwood Brehmer can be reached at [email protected]

Bringing 100 years of Anchorage to life

Editor’s note: The Journal of Commerce is recognizing the Anchorage Centennial with a series of articles over the next 10 weeks examining the events and the industries that have shaped Alaska’s largest city. The stories will be released as a single special edition of the Journal in time for the Solstice celebrations June 20 and will be available at centennial events throughout the summer. The task: tell the century-long story of Anchorage in 124 pages. The man to do it: 50-year Anchorage resident Charles Wohlforth. “From the Shores of Ship Creek” recounts Anchorage’s first 100 years through the stories of its residents. Each of the 14 chapters is a time capsule of the city’s history. “I really wanted it to be a character-based book because characters are the fundamental building blocks of stories, and stories are what make history interesting and meaningful,” Wohlforth said during an interview at an Anchorage café. However, it is not simply a compilation of recycled tales from best-known names. The final characters were chosen only after Anchorage itself gave thorough input. Wohlforth chose the periods based on his extensive historical knowledge of the city — he’s authored several books on Alaska and told the stories of some of the state’s most influential people — and held public forums to get ideas for the characters. He had never heard of Nellie Brown (chapter four) until a participant of one such meeting suggested the early Anchorageite. “(Brown) turned out to be the most interesting person in the entire book,” he said. Writing the piece was a “big honor and quite a challenge,” he said, particularly because it could’ve easily turned into an oppressive, academic history. It’s not. Abundant photos tell the story of the city without reading a line of copy. Flip Todd, the Anchorage publisher who worked with Wohlforth on “From the Shores of Ship Creek” said the book illuminates early Anchorage while still detailing its transition to a modern, multicultural city. Anchorage Mayor Dan Sullivan said the book should be enjoyable for both those new to the city and lifelong residents such as himself. “’From the Shores of Ship Creek’ captures so many details about Anchorage’s history in a truly personal and unique way,” Sullivan said. Wohlforth said he understood from the beginning that if it was going to be inviting read there would be substantial amounts of worthy history that just wouldn’t make the cut. An Alaskan since the age of three, Wohlforth’s family moved from New York City to Anchorage’s Turnagain neighborhood in 1966. His father is an attorney specializing in government finance and helped Alaska’s state and local governments rebuild after the 1964 earthquake. “Of course, like everybody, they said they were only going to be here for three years; (they) didn’t sell their house back east for many years,” Wohlforth remarked. Because the chapters in the book are distinct stories, they read as well on their own as they do as part of the larger work. He said that achieved one of the goals he had when he began the project: the standalone essays can be pulled out and used in classrooms as part of a unit lesson on the given time period. For that reason and others, “From the Shores of Ship Creek” is an attractive history lesson, but not an advertisement. “From the Shores of Ship Creek” is available at Title Wave Books, Barnes and Noble, Once In a Blue Moose, Mosquito Books (at Ted Stevens Anchorage International Airport), the Alaska Native Heritage Center, Anchorage Museum, Cabin Fever, and other Downtown Anchorage gift shops. The paper retails for $20 and the hardcover is $30. A second run will be available in June after the limited initial release in stores now.  Author Charles Wohlforth is scheduled to hold a book signing event May 8 from 6-8 p.m., at the Barnes and Noble between Benson and Northern Lights boulevards. “Part of my pitch was that I was going to write a serious book that took on the issues having to do with Anchorage development, address them head-on and not sugarcoat things,” Wohlforth said. Going in, he attempted to examine three themes of the Anchorage’s life: the role of the federal government; the struggle to become a permanent city; and whether Alaska’s largest city is a true representation of the state. As much as Alaskans take pride in their contempt for Washington, D.C., the epicenter of their state is completely a creation of the federal government, Wohlforth said. The tent city that became Anchorage was 100 percent a railroad town at its inception; it was a construction and maintenance camp, first and foremost. Its economy was based completely on the Alaska Railroad’s payroll. The headquarters of the railroad moved from Seward to Anchorage as the makeshift city first formed along Ship Creek in 1915. That was after the feds agreed to spend $35 million in 1914 to extend the short rail line out of Seward all the way to Fairbanks. Wohlforth said the early residents refused to form a city until the federal government threatened to shut down the fire station. “Maybe we’re still teenagers, because who’s more hostile towards their parents than teenagers, right?” he quipped. For more than 60 years, Anchorage remained an incredibly young and transient city, always dependent on its maternal government. In the 1960s, the average age of an Anchorage resident was 23, Wohlforth said. When the railroad was complete the military moved in to fight World War II, and then the Cold War. The boom and bust theme spurred for years by shifting military forces only magnified as oil took over the scene. It all came to a crashing halt in 1985 when declining oil prices killed state budgets and sent nearly a third of Anchorage residents packing. The economic collapse forced more than a dozen banks to close, ruined the real estate market, and “flushed out” the transient portion of the population, Wohlforth said. “Anybody who stayed after that really wanted to be here and that’s what we’ve built on from there to the present,” he said. In a sudden and remarkable shift over the last third of its history, Anchorage’s steady and reliable growth since would be envy of any city in the country. “Now we’re really a stable, middle-American city,” Wohlforth said. The battle over the identity of Anchorage began almost immediately in 1915 and has flared long into the city’s history, according to Wohlforth. Early residents of the city proper wanted it to be an outpost of the Lower 48, while those living on the periphery of the Bowl saw their home as Alaska first, U.S. second. “It’s a very interesting lens that fits every era and every set of controversies,” he said. It’s most recognizable today in the areas of the municipality that are plumbed for city sewer, a direct result of the unification of the Greater Anchorage Area Borough and the City of Anchorage in 1975. The old Alaska adage, “Anchorage isn’t Alaska but you can see Alaska from there,” may be cliché, but it holds water, Wohlforth said. Anchorage is a classic American economic center with box stores and too many chain restaurants to count. He described it as a dichotomy that can’t be defined. “In what other city in the country do you run into moose all the time? Or where can you go cross-country skiing from your house — or half an hour from a five-star restaurant be on the top of a mountain? These are really unique things and you have to be here a really long time to forget how unique this place is,” Wohlforth said. These days the tug-of-war has subsided and even sworn political adversaries have found common ground. “If you talk with (Anchorage Mayor) Dan Sullivan and (former Mayor) Mark Begich — in the last chapter of the book — their visions for the city are almost indistinguishable,” he said. The multicultural feel Anchorage enjoys today is a direct result of the boom-bust and distinct lack of organized development of yesterday, Wohlforth said. Also, the fact that 10 percent of the city’s population “turns over” every year means fresh faces with varying backgrounds are still common, even in the more stable version of Anchorage. “The sort of silver lining to poor community planning is — in a lot of community planning there was a sub-layer of racism — it didn’t work here,” he said. “Here, largely because of terrible community planning and rapid growth, we don’t have any of that. So you go near West High School and you have some of the most affluent people in town living across the street from some of the poorest people in town. You end up with one of the most diverse high schools in the country.” Depending on which study is cited, Anchorage’s Mountain View, East, West and Bartlett high schools are all among the most integrated in the nation. The Anchorage School District notes on its website that its students speak 93 different languages at home. The lack of social tiers among a collection of transients that built the city is now part of its culture, Wohlforth believes. Anchorage’s tomorrow will likely be more challenging, at least economically, than the last 25 years have been, he predicts. The city’s business base is often touted as being more ready to handle a downturn in oil prices, but the volatile commodity still rules many of its employers as well as state government. Wohlforth said he hopes residents will “be more mature about the ‘build it and they will come’” mentality that has dominated the city from the start. And like it or not, decisions made in D.C. are still felt in Anchorage. “We’re kind of at the mercy of the Pentagon. As an economy we can’t give up oil and military at the same time,” he said. “That would really turn out the lights.” Elwood Brehmer can be reached at [email protected]

Ferry cuts may displace thousands of tourists

The full impact of proposed ferry system budget cuts could go well beyond the initial service cuts, according to state Transportation officials. The state operating budget in conference committee April 15 would reduce the overall Alaska Marine Highway System budget by slightly more than $11 million, but the final tally is likely to be much more, DOT Deputy Commissioner Mike Neussl said. Potential revenue lost from canceled sailings could end up setting the ferry system back nearly $25 million, when combined with the subsidy cut, Neussl told the Marine Transportation Advisory Board April 8. Further complicating the problem is the large number of trips already booked on sailings subject to change with a smaller AMHS budget. The ferry system releases its upcoming summer schedule each October, and through the end of March, Neussl said tickets for 9,261 passengers and 2,472 vehicles with a retail value of more than $1 million had been purchased for service that could be cut. Neussl noted that the state was in a much different fiscal situation when the schedule was built. About 30 percent of the itineraries were booked by Alaskans, meaning thousands of Outside tourists could be displaced by the budget reductions. Southeast Conference Executive Director Shelly Wright said that would cut directly to the core of the biggest business in many of the regions small communities. “The independent tourist is really the money side of tourism in Southeast Alaska,” Wright said. A McDowell Group report done for the Commerce Department estimates each visitor to Alaska spends an average of $930 once in the state. “The ramifications of this are far and wide and I’m not sure we understand them all right now,” Neussl said. A revised sailing schedule has been drafted that would cut summer service by 15 percent to 20 percent. It would be the lowest level of service the ferry system has provided since 2004, when the current 11-vessel fleet was established, he said in an interview. That schedule would go into effect July 1 to coincide with the start of the 2016 state fiscal year. Revenue generated by the system goes into the Marine Highway designated general fund, which is controlled by the Legislature. If the operational losses are great enough it could mean the ferry system would ultimately need a larger subsidy next year, Neussl said. The Alaska Marine Highway System generated about $50 million in fiscal year 2014. It has operated on a budget in the $160 million-plus range in recent years. Beyond the tangible impact, Neussl and AMHS General Manager Capt. John Falvey told the MTAB board there is a fear changing the schedule could hurt the system’s image with prospective travelers and tour operators. Neussl said the ferry system is not liable for additional travel expenses incurred by displaced customers because of “fine print” language on the back of each AMHS ticket. However, he said it’s important for the Legislature to know that tour companies booking trips for clients on the system do not have the same “out” and could take business elsewhere if they’re unsure about the reliability of the ferry schedule in the future. “It’s going to be a very massive disruption to the schedule and not good for our business practices of sailing a schedule that we published back in October,” he said in an interview. Neussl said Gov. Bill Walker restored some funding to the ferry system to the original draft of the operating budget when he was notified of the potential hit to future business, but that money has since been removed by the Legislature. DOT and AMHS are waiting to implement the schedule change on the slim hope some funding is restored. Falvey said the revised schedule is queued up in the online reservation system and would go live as soon as the budget is final, if funding is not restored. The whole online system would be locked for several weeks while AMHS ticket agents attempted to contact each person who booked an affected trip in the order the reservations were made, he said. “We would be overwhelmed with trying to rebook everything and trying to create new bookings via calling in the call center where everyone’s reservations are going to be,” Falvey said to the board. Over the past year the ferry system has closed all bars and gift shops aboard its vessels to save money, and is prepared to cut 31 positions — seasonal to high-level shore side jobs — to minimize impacts service. Late last fall DOT announced 4.5 percent rate increases for most ferry routes beginning May 1. Reducing service is also the last resort because vessels cost money whether they are active or not, Neussl said. There are fuel savings but each ferry is required to have a crew onboard while it is laid up and there are mooring fees if the vessel isn’t tied to a state-owned dock. It all adds up to a conundrum for the Alaska Marine Highway System and its parent agency DOT, according to Neussl. Cutting winter service, which is primarily used by residents, means deviating from the mission of providing transportation to Alaskans. Further, about half the fleet runs during the winter on a normal year and more service cuts would result in some communities being cut off completely, an unacceptable outcome, Neussl said. However, reducing summer service means killing some of the system’s most profitable routes, he said. Neussl added that about 75 percent of summer ferry riders are Outside customers. “I would argue that providing tourism in Alaska helps all Alaskans,” he said. Wright, of the Southeast Conference, said her organization generally supports raising rates to help fund the ferries, but she emphasized that the ferry system is part of the national highway system and that no highway pays for itself. “The ferry system touches every industry and every person and every business in Southeast Alaska. Small businesses use the Marine Highway for their commerce,” Wright said. “This is like closing the Glenn Highway three days a week.” Elwood Brehmer can be reached at [email protected]

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