Movers and Shakers for May 5

Ken McCarty and John Sturgeon were confirmed as new trustees of the Alaska Mental Health Trust Authority on April 17. McCarty of Anchorage, currently in private practice as a licensed marriage and family therapist, brings more than 35 years of professional experience as a psychotherapist, clinical supervisor, administrator and in special needs education to the board. He has direct experience in providing marital family therapy, adolescent treatment, residential treatment and substance abuse/prevention treatment; including helping beneficiaries with opioid and alcohol addiction through medication assisted treatment. McCarty has served as the President of the Alaska Association of Marital Family Therapists, a member of the State of Alaska Marital Family Therapy Licensing Board and was an adjunct professor in the psychology department for National University in Redding, California. He has also worked as adjunct staff to the University of Alaska, Anchorage, with the Regional Alcohol and Drug Abuse Counselor Training Program to provide counselor training across Alaska. Sturgeon of Anchorage has an extensive background in forestry having worked for the U.S. Forest Service as the State Forester for the Alaska Division of Forestry and in the private forestry sector. He also formerly served as the CEO of Ouzinkie Native Corp. Sturgeon has served as a trustee for PNW Medical University and the Nature Conservancy of Alaska, and as a director on the Board of Forestry, Alaska Forest Association, the Wild Sheep Foundation and the Resource Development Council. He was awarded the Governor’s Conservationist of the Year Award in 2017. Elaine Kroll was named Cash Management and Anchorage Branch Administration director for First National Bank Alaska and was also appointed as senior vice president at the state’s largest, locally owned community bank. A graduate of State University of New York at Fredonia and the Pacific Coast Banking School, Kroll has earned the designation of Certified Treasury Professional and spent 24 years building her local banking experience. Cornerstone General Contractors announced that Macen Kinne and Mack Conn have joined the team as project managers. Kinne brings 29 years of experience in construction, starting off in the trades then later joined the Carpenter’s Union. Kinne has experience working on both government and private sector projects including defense infrastructure, oil and gas, industrial, and commercial. He also owned and operated a residential general contracting business that specialized in remodel, environmental, and demolition work before serving as a superintendent for a large company on many rural Alaska projects. Conn joins Cornerstone with more than 15 years in construction. Conn’s professional career has focused on large, commercial multi-family wood-framed facilities in Alaska, Colorado, North Dakota, and Idaho. Like Kinne, Conn also started out in the trades and owned his own framing company. In his role’s prior to joining Cornerstone, Conn served as a superintendent, general superintendent, and construction manager for major subcontractors and developers. Arctic Slope Telephone Association Cooperative Inc. announced Stacy Marshall was hired as the director of customer experience. Marshall brings more than 20 years of experience in the telecommunications industry. She most recently worked as the director of business sales for Alaska Communications over the commercial and healthcare vertical. Prior to that she held various leadership roles within the organization to include sales operations, retail, contact center, and was the key stakeholder in driving process improvement. Marshall will work with the executive team to meet and exceed customer expectations and retention goals across the North Slope. DOWL announced the addition of Alaska Aviation Manager Melissa Osborn, AAE, ACE, to its Fairbanks office. She brings extensive U.S. Federal Aviation Administration and U.S. Transportation Security Administration compliance expertise to the firm and will grow DOWL’s Alaska aviation services including TSA and FAA compliance. Osborn has been in aviation for more than 20 years having previously held positions as an airport operations superintendent at Fairbanks International Airport, an airport safety and security officer for the Alaska Department of Transportation and Public Facilities Northern Region, an operations officer at FAI, and a load planner for Alaska Airlines, Lufthansa, and Cargolux. Osborn brings valuable project management experience, having initiated and led a variety of short- and long-term airport planning programs throughout her career. She is an active member of several professional organizations and is an Accredited Airport Executive.

FISH FACTOR: Fish economics updated; skins show healing power

Why should every Alaskan budget watcher care about the price of fish? Because when the price at the docks goes up by just one penny, it means more money for state coffers. In 2017, for example, the average dock price per pound for all Alaska seafood was 41 cents. If the price had increased to 42 cents, it would have added nearly $2 million more from fisheries landing and business taxes. That was one of the takeaways in an updated McDowell Group report presented last week at the Alaska Seafood Marketing Institute’s spring board of directors meeting. It offers a good snapshot of the industry that spawned Alaska statehood and is now a seafood superpower. Here’s a sampler: Alaska’s seafood industry puts 60,000 people to work and supports at least $150 million a year in taxes and fees. More than 9,000 vessels are home-ported in Alaska and deliver fish to 87 large shoreside processing plants. Catches of nearly 6 billion pounds of seafood worth about $2 billion were the industry averages for 2016 and 2017. Pollock accounted for 57 percent of the volume caught and 22 percent of the value. Salmon ranked second for volume at 14 percent but was tops for Alaska seafood value at 34 percent. Cod catches were third and accounted for 11 percent of the value. Halibut, sablefish and crab each accounted for 1 percent of the total catch volume and 12 percent of the value. The U.S. is usually the largest market for Alaska seafood, followed by China, Japan, South Korea and the European Union. The export value over the past decade has averaged $3.3 billion, making seafood Alaska’s largest export by far. (By value, fishery products accounted for more than two-thirds of Alaska’s exports in the first quarter of 2017, according to the first quarter economic report by the state Department of Commerce.) Alaska’s top exports are pollock surimi and fillets (a combined $845 million) and frozen sockeye salmon ($313 million). Exports to China, which in 2018 comprised 32 percent of Alaska’s seafood sales and 23 percent of the value, dropped 20 percent due to ongoing trade spats with the Trump Administration. That included a 54 percent drop in Alaska salmon sales, a 49 percent decrease for crab and cod sales to China dropped 29 percent. In another trade hit: Imports to the U.S. of fresh Atlantic halibut from Canada have nearly doubled since 2012 to 8.8 million pounds last year. Looking at 2019, harvests of Alaska salmon, crab, halibut, sablefish and pollock are expected to increase, with declines for cod and rockfish catches. The market outlook for salmon is “stable to strong” said fisheries economist Garrett Evridge, who presented the report. “While there is optimism surrounding the harvest volume for the 2019 salmon season, we have been hearing reports of buyers pushing back against strong prices,” he said in an email message. Get skinny Those billions of fish skins tossed out each year could turn into a steady stream of more dollars for Alaska. Most recently, fish skins are making international headlines for their proven ability to heal burns. Last December tilapia skins treated the burnt paws of bears and mountain lions during the California wildfires. Earlier this year a tissue-like bandage created in Iceland from intact cod skins began use on burn patients in Europe and in the U.S. The fish skin product is called Kerecis Omega 3 Burn Treatment and when it is grafted onto damaged tissue, it builds up the body’s own cells to rapidly regenerate healthy tissue. Kerecis credits omega 3s for the healing power along with collagen. Fish skins contain the type of collagen protein that makes up most parts of human skin and bodies. Most has traditionally come from livestock and is used in a wide array of products. But the more remarkable properties of fish skins have experts pegging the value of marine collagen for the nutraceutical, cosmetic, food and medical market at $620 million in 2018 and nearly $900 million by 2023. Fish skins have extra appeal because they are available at a large scale and come with no religious constraints. “They’re fish — not beef or pork. So it satisfies kosher and halal dietary restrictions,” said Cindy Bower, a former U.S. Department of Agriculture food researcher at the University of Alaska Fairbanks. Bower’s studies also showed that skins destined for collagen extraction can be stabilized with common drying agents to hold them prior to shipment and don’t need to be chilled. Dan Lesh, a senior economist with the McDowell Group, said with catch volumes for Alaska pollock averaging more than 3 billion pounds annually, that adds up to over 1.4 million pounds of skins, assuming a 5 percent yield. Skin yield percentages were similar for Pacific cod and in the 8 percent to 10 percent range for salmon. Studies show that the fish skins are loaded with collagen. Nearly 20 percent was extracted from salmon skins and 11 percent from cod, according to a 2017 Portuguese study. Alyeska Seafoods and one other processing company in Dutch Harbor have reportedly been extracting collagen from fish skins for decades for sale to the Japanese cosmetic industry. And there’s this: fried salmon skins are becoming a snack rage in England. A former chef created Sea Chips after diners called for more crispy salmon skins as garnishes on their meals. The chips come in three flavors and are being cranked out at 100,000 bags a week. They are being sold at major retailers in Britain and the makers expect sales to top $1 million over the next 18 months with 10 percent going to ocean charities. Don’t do drugs Customer backlash has Chilean farmed salmon producers promising to reduce their use of antibiotics by half by 2025. Members of the Chilean Salmon Marketing Council made the announcement last month at Seafood Expo North America in Boston. The group will work with the Monterey Bay Aquarium’s Seafood Watch program to secure a coveted better rating by that watchdog group. Chile is the world’s second-largest producer of farmed salmon after Norway and most of the farmed salmon that Americans buy comes from Chile. The country was court ordered three years ago to disclose its antibiotic use after 37 companies refused to give any details, saying it would pose a “competition and commercial risk.” Chilean salmon farmers use florfenicol, a common veterinary antibiotic, to kill a bacteria that kills the fish that are grown in crowded net pens near coastlines. The court case was filed by Oceana that showed that Chile was using more antibiotics than any other fish and livestock producers in the world: 950 grams to raise one ton of fish. In 2014, usage was 1.2 million pounds of antibiotics on 2 billion pounds of fish. In contrast, Norway uses just 0.17 grams per ton of salmon. The Chilean marketing council said it plans to spend millions in its effort to win over wholesalers, retailers and food service companies with its new “Promise of Patagonia” campaign. Meanwhile, U.S. salmon lovers can easily tell if the fish they are choosing is drug free. Country of Origin Labeling laws since 2009 require fish sold in the U.S. to be identified as to where it comes from and if it is wild or farmed. Laine Welch lives in Kodiak. Visit www.alaskafishradio.com or contact [email protected] for information.

GUEST COMMENTARY: Impacts of budget cuts at a local level calls for negotiated solutions

There’s a lot of good work being done to measure the impact of the Governor’s proposed 2020 fiscal year budget and produce a measured response. The Alaska Municipal League has worked to answer the questions that both Senate and House Finance leaders have asked – what will be the impact to Alaska residents, local governments and the economy? We can answer those questions when it comes to municipalities, and we can walk through the implications at the community level for residents and businesses. The governor’s proposed budget amounts to cuts (with direct and indirect impacts on local governments), cost-shifting (State responsibilities now asked of local governments) and clawbacks (preemption of local taxing authority) that amount to nearly $900 million as an impact to local governments. That’s just for the 2020 fiscal year. The proposal to repeal school bond debt reimbursement will shift another billion dollars to local governments over the coming decade. Further, the proposal that the Power Cost Equalization endowment (that’s earned 8 percent on average over the last 10 years) be swept into the general fund (where it would earn less than 2 percent on average of 10 years) is a billion-dollar impact. We can estimate the secondary impacts of cuts to the University and the Marine Highway System based on the economic impact they both have, and apply that to local government property and sales taxes, at roughly $20 and $9 million respectively. While Community Assistance — which keeps the lights on in many city offices around the state — has been reduced by 946 percent since 1985, adjusted for inflation, the governor has proposed that this be cut by another 30 percent next year. While the state does less with less, responsibilities can’t be shifted beyond the local level. Municipalities will have fewer options to deal with these proposals that result in roughly a $1,500 per capita impact or a 51 percent increase in local taxes or decrease in services. The impact is more than 50 percent of nearly 20 local government budgets, and more than 80 percent of 10. We know that for those local governments that face cuts of that size, history has demonstrated that they very likely cease operations. Our members have looked at this in each of their communities and provided some analysis of the trade-offs. There are three basic options at the local level: 1) increase or add new taxes, 2) reduce or eliminate services, or 3) try to make it work out of existing revenues. Reduction or elimination of services fall into basically three buckets: public works, public safety, and quality of life programs. Municipalities have said that while quality of life programs would be the first to go, public safety and public works budget would plausibly see reductions. An analysis of just one element — the state forgoing reimbursement for school bond debt — shifts $100 million back to 19 local governments. Local governments have overwhelmingly said they would need to increase taxes to make up the difference. That doesn’t just equate to a portion of a property owner’s PFD. For the largest commercial property owners, increases are substantial and will determine just how open for business Alaska is. Just for school bond debt reimbursement: Increased property taxes in the Matanuska-Susitna Borough will fall on Mat-Su Regional Medical, Enstar, Fred Meyer, Alaska Hotel Properties, and GCI, and amount to $547,944. Increased property taxes in Fairbanks will fall on Alyeska Pipeline, Fort Knox, Doyon Utilities, Alaska Communications, Petro Star, GCI, and Flint Hills, and amount to $1.85 million. Increased property taxes in Anchorage will fall on GCI, Alaska Communications, Alaska Regional Hospital, Providence Medical Center, Fred Meyer, Enstar, Hickel Investment, Alaska Airlines, BP, Dimond Center, and JL Properties, and amount to $1.52 million. Local governments have said that in response to the proposed budget, they would leverage every available option, and the combination of choices they have is the best way to mitigate negative impacts. We have had numerous reports from mayors and managers that describe the micro level implications of cuts and cost-shifting, which go beyond statewide employment. We know that in many of our communities, there’s a feedback loop between employment and quality of life, which attract families and businesses, which strengthen the community and economy. Decreased services result in the erosion of both. Yes, Alaska has a fiscal challenge. That won’t go away when the State shifts the burden to local governments. AML is looking forward to working with State leaders, developing better solutions, together. Nils Andreassen is the executive director of the Alaska Municipal League.

GUEST COMMENTARY: University of Alaska needs support from Legislature, governor

There’s been much discussion and debate about the appropriate amount of state support for the University of Alaska. As a “finance expert” with specific knowledge of University of Alaska (as a graduate, as adjunct professor at more than six campuses, and as a former UA vice president of Finance from 2000-06), I support reasonable state services and budget support for them, but not by draconian and dysfunctional cuts while paying out what I consider extraordinary PFD payments. The Permanent Fund Earnings Reserve can be a source of moderate budget support while downsizing and making public services more efficient over time while we work on other budget and service discipline and broader based revenue enhancements in a methodically planned, strategic and tactical manner. This is true for the university budget, and I agree with President Jim Johnsen that deep cuts will permanently and significantly harm an already challenged fiscal scenario for UA. Knowing that some cuts will be inevitable, I urge them to be minimal and for the governor to respect what is reported out of the Legislature. My wife and I have personally given significant contributions (including funding an endowment) to UA and while serving as an executive officer of various banks and Native corporations I advocated for and successfully influenced millions of dollars of private sector contributions to UA. I intend to continue to do so. I also served as treasurer for the UA Foundation and was a trustee for several years advocating for private support and advanced fiduciary investment practices and entrepreneurial partnering, intellectual ownership and competitive research. I also worked on the university’s land grant issue, trying to gain equity for UA, which is long overdue and currently nowhere near equitable when compared with other states. In short, I know from personal experience that there is no short term funding alternative to supplement the state operating budget support for UA, though everyone continues to seek alternative revenue solutions, operating efficiencies and reductions in redundancy of significant and heretofore mandated services in multiple locations. The university gets it and will work toward the gradual realignment necessary to modernize the system. I also voice support for a single appropriation to the university. While legislative intent and administrative direction to elevate workforce development is a worthy objective, the strategy to bifurcate direction through separate appropriations is a crude, ineffective and inefficient manner to achieve such a goal, in my opinion and in prior past experience. Managing budget allocations and oversight/approval by the Office of Management and Budget is not efficient, effective or motivational. I fear that political, regional and rural funding acrimony will result in reduced financial security for the community campuses — the opposite of the desire intended. The job of allocating limited resources and preserving or enhancing outcomes is more efficiently left to the Board of Regents and the executive teams representing UA (and especially community campuses) and adhering to legislative/executive influenced direction. I have worked closely with all regions and major academic units of UA and especially with the Schools of Management, College of Business and Public Policy, ISER, the Small Business Development Center and the Business Enterprise Institute. I cannot emphasize enough how linked and supportive our UA system is to our state and our citizen success and hope that our legislative and government leaders can and will support UA. Governor, please support the appropriation efforts of the Legislature to keep UA from permanent harm due to lack of funding – for our children’s sake and for our own. My advocacy and my plea is both personal and professional. I am convinced that UA will be making extraordinary consolidation and efficiency moves to keep it a viable solution to higher education needs in our state. Joe Beedle, retired, is the former President and CEO of Northrim Bank.

Severe winter weather costs Alaska Airlines in first quarter

Alaska Airlines muddled its way through unusually bad winter weather on its home turf to lead its parent company to a $4 million profit to start 2019. Seattle-based Alaska Air Group Inc. operates Alaska Airlines and regional carrier Horizon Air. Company leaders said during an April 25 first quarter earnings call with investors that February storms made for the most significant winter weather the Pacific Northwest has seen in almost 50 years and led to roughly $15 million in forgone revenue. “Our teams went above and beyond to keep our guests and each other safe and to minimize the number of flights we had to cancel,” CEO Brad Tilden said while noting Alaska and Horizon canceled approximately 1,100 flights as a result of the winter storms. Tilden also said lower than expected market rates for last minute tickets on transcontinental flights challenged revenue generation as well. The $4 million net income in the first quarter — easily the slowest period in the airline business — matches Alaska Air Group’s results to start 2018 when the company was focusing on integrating Virgin America employees and aircraft into its network. The profit equates to 3 cents per diluted share of Alaska Air Group stock, which has rebounded from a 2.9 percent post-earnings call dip since April 25 and opened trading May 1 at $62 per share. Alaska Air Group paid a dividend of 35 cents per share and repurchased approximately $13 million worth of shares during the quarter. Tilden said the work to blend Virgin America into Alaska Airlines that has been ongoing since late 2016 is pretty much complete and the company is “on track to realize $330 million in revenue synergies this year.” Virgin and Alaska flight attendant crews were fully integrated as of Jan. 31 and the last of Virgin’s fleet of 71 Airbus aircraft will be repainted in Alaska livery by June, according to Air Group leaders. Alaska Airlines also added four new Boeing 737-900ER aircraft to its fleet in the first quarter. The airline, which for years before buying Virgin solely flew the popular 737 series, does not have any of the 737 MAX aircraft that have been grounded worldwide. The $4 million profit stemmed from nearly $1.9 billion in quarterly operating revenue, a 2 percent year-over-year increase on 0.2 percent capacity growth. While Alaska Air Group saw small growth in its passenger and smaller ancillary revenue segments, the company enjoyed 22 percent growth in its cargo business, which generated $50 million during the quarter. Alaska Airlines has used the formerly Virgin America Airbus fleet in part to expand its Lower 48 cargo offerings. Last summer it also began flying three cargo-dedicated Boeing 737-700s across Alaska. The new cargo jets are more fuel efficient than the much older Boeing 737-400 “combi” aircraft that were well known to in-state Alaska travelers for years and collectively offer 20 percent more cargo capacity, according to the airline. Alaska Air Group’s two largest expenses, wages and fuel, increased by 4 percent and 3 percent respectively, compared to 2018. The company generated $470 million in operating cash flow and held roughly $1.4 billion in cash at the end of the quarter, according to the earnings report. Its debt-to-capitalization ratio held steady at 47 percent. Looking ahead, company executives said near-term growth will be slower and more work needs to be done to control costs but they are generally positive about the future. Tilden said the previously stated goal of consistently hitting profit margins in the 13 percent to 15 percent range is achievable and “viewed through that lense our first quarter results were solid.” “On factors we can control that drive long-term value we’re headed in the right direction,” he added. Chief Financial Officer Brandon Pedersen said the company continues to renegotiate agreements with vendors for greater cost containment and thanked the companies Air Group works with that have been willing to make those adjustments. For the second quarter Air Group expects costs per seat mile to increase about 5 percent on a 1 percent increase in capacity because of capacity growth weighted to regional flights and aircraft maintenance that is often frontloaded to the first half of the year. Full-year consolidated capacity growth is forecasted at about 2 percent with per-unit costs expected to increase 2.1 percent. “We’ve slowed our growth to let recent investments mature and to focus our energies on making better use of what we have,” Tilden said. “We’re investing in our people, our product and we’re coming together as one team to realize the great potential of our platform.” ^ Elwood Brehmer can be reached at [email protected]

FWS wants most conservative ANWR option

The federal agency tasked with managing the Arctic National Wildlife Refuge is recommending the most conservation-minded option available for oil and gas development in the Coastal Plain. The U.S. Fish and Wildlife Service Alaska officials asked the Bureau of Land Management to select Alternative D-2 from the draft environmental impact statement published in December for leasing areas of the roughly 1.5 million-acre Coastal Plain. The alternative request and other management recommendations were made in 59 pages of comments on the draft EIS submitted to BLM March 13. Alternative D-2 would open just more than 1 million acres to oil and gas leasing; however, activity on 708,000 of those acres would be restricted by a “no surface activity” designation and another 328,000 acres would be subject to some limitations on type and timing of use to minimize development impacts on wildlife. The D-2 management option would meet the requirements of the tax reform bill while also best preserving the wilderness features prescribed in the 1980 Alaska National Interest Lands Conservation Act, according to the memo signed by FWS Alaska Director Greg Siekaniec. The act, best known as ANILCA, doubled the size of the refuge and also opened the door to potential oil and gas activity in the Coastal Plain. Additionally, the FWS preferred alternative would maintain the natural qualities of rivers within the refuge that could qualify to be added to the National Wild and Scenic River System and best aligns with Endangered Species and Marine Mammal Protection Act management requirements, the memo states. For comparison, the least restrictive alternative would open all 1.5 million acres for leasing and just 359,000 acres — mostly along rivers in the refuge and near Kaktovik — would fall under the designation for no surface occupancy. BLM Alaska officials noted that winter exploration activities could be conducted on no surface occupancy areas, which could be developed using directional drilling from adjacent facilities, but permanent infrastructure would be prohibited. Alternative D-2 would place areas across the Coastal Plain under the no surface occupancy designation and 526,000 acres mostly in the southeast portion of the refuge would be off-limits to leasing to protect Porcupine caribou herd summer calving grounds. The eastern Alaska-western Canada caribou use large swaths of the Coastal Plain as calving grounds and what impact oil development could have on the herd has been a primary debate point in the battle over ANWR oil exploration. The ANWR rider to the Tax Cut and Jobs Act passed in December 2017 directs the Interior Department to hold two oil and gas lease sales, each covering at least 400,000 acres of the coastal plain before 2025. It limits permanent development to 2,000 acres of federal land. FWS and BLM are sister agencies under the Interior Department umbrella. The Alaska Native village corporation Kaktovik Inupiat Corp. also owns about 92,000 acres around the coastal village of Kaktovik within the refuge that would also be open to development. FWS Alaska officials also stressed a desire for in-depth consultation with their BLM counterparts to reach a consensus on oil and gas decisions that would impact the wildlife and aquatic resources managed by the service. Interior spokeswoman Molly Block noted in response to questions about how the BLM will weigh the FWS comments in the final EIS that more than 1 million comments were submitted on the draft Coastal Plain EIS. “BLM has an obligation to consider all of these comments — including those from its sister agency and the federal family — and anticipates they will inform the final EIS in multiple ways,” Block wrote via email. Interior leaders have stressed a desire to hold a Coastal Plain lease sale late this year and public meeting presentations indicate the final draft of the EIS could be released in late summer. Exactly what level of interest industry will have in the Coastal Plain leases is also unknown. The most recent U.S. Geological Survey assessment of the oil and gas underneath the coastal plain, done in 1998, put the mean oil estimate at 7.6 billion barrels for the Coastal Plain 1002 area. A plan for a 3-D seismic survey over much of the Coastal Plain last winter was scuttled by the extended government shutdown and a lengthy review by Fish and Wildlife regarding the impacts of the survey on denning polar bears. The FWS comments also detailed a strong belief that polar bear denning habitat should be given significant consideration when lease offerings and associated stipulations are made. The Coastal Plain is a primary area of the Slope the bears use for denning and surveys of denning habitat should be required under all development options, according to FWS officials. The importance of those surveys will likely continue to escalate as land-based denning increases while sea ice declines, the memo states. FWS officials are also requesting that the final EIS explain how BLM will define the areas of the Coastal Plain with the highest hydrocarbon potential because the law authorizing exploration explicitly states that the 400,000-plus acres offered in each lease sale must correspond to the areas deemed to have the best resource potential. “Specifically, it is not clear how the draft EIS arrives at delineating an area of moderate potential and how this area meets the high (hydrocarbon potential) criteria set forth in the Tax Act for lease sales,” the memo states. The draft environmental review also lacks sufficient description of how BLM plans to prevent or deal with the introduction of invasive species to the refuge from oil development, according to the memo. Finally, FWS officials want more examination of how the rapidly warming Arctic climate will impact the Coastal Plain and oil and gas infrastructure in particular. Their memo cites a recent study that concluded melting permafrost “will be an engineering hazard to (North Slope) infrastructure by mid-century.” “Effects of these changes have shown to be more severe in areas with topographic complexity such as the (Coastal Plain),” it states. “We recommend that studies like these be included in the analysis of potential impacts to various development scenarios.” Elwood Brehmer can be reached at [email protected]

Emerging mariculture industry seeks to streamline permitting

Alaska may be famous for its wild fish, but some are working to make room in the state’s waters for more shellfish, kelp and crabs on aquatic farms. Mariculture is a hot topic in fisheries right now. Essentially, mariculture can be defined as the cultivation of plants or animals in controlled saltwater environments, but in Alaska it doesn’t include finfish, as that’s illegal in the state. So mariculture farmers have stuck to primarily kelp and oysters so far, but they’re starting to get more adventurous. As of December 2018, 58 aquatic farms were operating in the state along with five hatcheries and seven nurseries, though only 41 of the farms documented production in 2017, according to the Alaska Department of Fish and Game. Oysters are still the most widely grown product, though kelp is gaining ground; after the first operations for kelp were permitted in 2016, four farms had produced 16,570 pounds of ribbon and sugar kelp by the following year. A major obstacle remaining, though, is the regulatory hurdle to get an aquatic farm permitted. A bill in the Legislature — House Bill 116 — would trim down some of that procedure with an eye toward getting more operations out the gate. The bill, sponsored by representatives Andi Story, D-Juneau, and Jonathan Kreiss-Tomkins, D-Sitka, would fast-track permit renewals for farms in good standing for their first renewal cycle, which covers 10 years. Story clarified in a hearing before the House Fisheries Committee on April 23 that it would make no changes for salmon hatcheries, which operate in the state largely without saltwater net pens. There’s been a recent surge in license applications to the state for aquatic farms, increasing the wait time, Story said. “Because of the recent increase in the number of aquaculture farm leases … it now takes on average 18 months or more to approve an aquatic farm lease,” she said. To obtain a permit, the applicant first has to apply to the Alaska Department of Natural Resources for the use of the tidelands, which requires a 30-day public review and comment period and may require a site survey by ADFG. After the public comments are compiled and evaluated, DNR and ADFG issue a final decision. If the permit is denied, the applicant can appeal; if it’s approved, the permit is good for 10 years. The DNR permit’s annual fees are $450 or $875 for the first acre and $125 for each additional acre, with a $2,500 minimum performance bond required and a commercial use requirement by the fifth year with $3,000 per acre or a $15,000 max per farm site. ADFG requires an annual operating report for each species cultured as well as permits to acquire and transport wildlife. On top of that, to harvest and sell food products, the Alaska Department of Environmental Conservation requires that the operator obtain a water qualify classification, conduct shellfish sampling for paralytic shellfish poison and obtain shellfish processing permits, according to documentation submitted to the Legislature. It can be expensive and time-consuming. Meta Mesdag, co-owner of Salty Lady Seafood Company in Juneau, told the committee members that it’s taken about $150,000 of investment so far for her family’s approximately 1-acre operation growing geoduck clams and oysters. “(Oysters) take about three years to grow, and the geoduck will take seven,” she said. “Unfortunately, we only have five years left on our lease so we won’t see any revenue from our geoducks before we have to go through the renewal process all over again.” The Alaska Fisheries Development Foundation, which promotes the exploration and development of fisheries throughout the state, credited the work of the state Mariculture Task Force with the growth in interest. In a letter of support for HB 116, the foundation noted that the vetting process for renewing a permit slows down the process for new applicants. “HB 116 is important step toward efficiently developing a mariculture industry in Alaska,” wrote AFDF Executive Director Julie Decker in the letter. “HB 116 will allow for one renewal of an aquatic farm site through a simpler internal process which does not require public comment, if the lease is in good standing/compliance. However, the second renewal would still be required to go through the extended process similar to a new application.” The Mariculture Task Force, established by Gov. Bill Walker in 2016 after the Alaska Fisheries Development Foundation obtained a federal grant in 2014 to fund its Alaska Mariculture Initiative, developed a strategy released in March 2018 aiming to make Alaska’s mariculture industry worth $100 million in the next 20 years. The industry produced about $1.5 million in sales annually in the state in 2017. In the future, the primarily revenue drivers would be oysters, seaweed and geoduck clams, with smaller markets in mussels, sea cucumbers and king crab, according to the group’s Mariculture Development Plan. The primary recommendations the group produced are securing seed supply through hatcheries, passing state legislation to help fund hatcheries through the mariculture revolving loan fund and allow shellfish enhancement and filling several research and coordination positions for mariculture, among other goals. Alaska is significantly behind the Pacific Northwest in mariculture development. Some farms in Washington operate thousands of acres and employ hundreds of people. Taylor Shellfish Farms, which has been operating in the Seattle area since the 1890s, employs about 500 people and holds leases on more than 10,000 acres of tidelands in Washington. Some commenters raised a concern about the size of farms in the future. DNR does not currently have a size cap, other than that a farm cannot take up more than a third of the bay or inlet where it is located. Though the DNR considers risks like navigation hazards when reviewing farm permits, the agency is starting to consider ways to address concerns about farm size, said Christy Colles, who manages the shore leasing program for the Division of Mining, Land and Water, during the House Fisheries Committee meeting. “These new farms at this magnitude are by and large new to the state,” she said. “We haven’t really had much of a chance to think about how we can address those.” “Large” is a relative term in Alaska compared to the enormous operations in the Lower 48, said Mark Scheer, who operates Premium Aquatics near Craig, farming kelp and Pacific oysters. Though he said his lease is for more than 100 acres, he doesn’t use all of it at once. “I think it’s important to recognize that this is a new transition for Alaska,” he said. “The relative scale of what we’re doing here is modest at best.” HB 116 was passed out of the House Fisheries Committee to the House Resources Committee, scheduled for its next hearing on May 3. Elizabeth Earl can be reached at [email protected]

Cook Inlet setnet buyback program gains support

Cook Inlet fishermen are again pushing for a bill that would authorize a commercial set gillnet permit buyback, but with the budget battles ongoing, it may not advance this year. Senate Bill 90 is the latest version of the plan to set up a buyback program for setnet permits on Cook Inlet’s east side. About 440 permits exist on the east side, targeting primarily sockeye salmon with secondary catches of king salmon headed for the Kasilof and Kenai rivers. The bill, sponsored by Sen. Peter Micciche, R-Soldotna, aims to permanently remove up to 200 permits and their shore leases from the fishery. The fishermen have been debating a way to reduce the fleet for about four years, surveying stakeholders for support and working with Micciche to authorize a program to do so. The latest version of the bill would require a confirming vote by the fishermen, a voluntary signup for the program and would seek funding other than the state General Fund. With a set price of $260,000 per permit, the whole program would cost $52 million. “There are some private endowments that have mentioned some interest because of the conservation; there are federal programs that participate in conservation efforts,” Micciche told the Senate Resources Committee in a hearing April 22. “This is going to take some time to be ready with the election and settling any of the appeals and whatever goes with it, but the state is not paying for any of this. This is going to come from other sources that we’re not sure of at this point.” The conflict between fisheries user groups in Cook Inlet is notorious statewide. The Kenai River draws thousands of anglers from all over the world for its salmon runs, while commercial fishermen ply both the beaches and the Inlet. Personal-use dipnet fishermen come from all over the state each summer for the fisheries at the mouths of the Kenai and Kasilof rivers. As king salmon runs declined and both commercial and sport fisheries have been restricted in response, the allocation conflicts have become more pitched. Micciche said this bill is intended to help reduce the allocation conflict, allow more king salmon to make it through to spawn and make the remaining setnetters more economically viable. In an example of rare cooperation, multiple groups have come together to support the effort, he said. If the Legislature approves the bill, the initiative would go to a vote among permit holders. If they approve it, permit holders could put their names into a lottery to be drawn for the buyback. The bill also redefines the areas of the buyback, sectioning off the Cook Inlet East Side setnetters as Upper Subdistrict fishermen that are distinct from setnetters in the Northern District or on the west side of the Inlet. In the past, the Kenai Peninsula Fishermen’s Association, which represents the East Side setnetters, has been wary of bills establishing a buyback program. After taking surveys and working with Micciche on the language, the association offered its support for Micciche’s version of the bill, said Andy Hall, the president of the association’s board. That doesn’t mean every person in the fleet supports the concept, but the survey brought back about 70 percent to 80 percent support, he said. The price tag for the buyout may seem high to some people, Hall said, but it’s based on 10 years of average earnings and was closed to adjustment at the end of December 2018. Removing gear from the fishery will likely have an immediate financial benefit for the fishermen who are left. “We’re not looking to be martyrs; we’re business people,” he said. “If we’re going to step away, we want to be remunerated for it.” One source of contention is how so many fishermen wound up on the east side of the Inlet to begin with. Commercial fishermen are issued permits for Cook Inlet in general, and though they were more widely distributed across the west side, east side and Kalgin Island before the 1980s, they began migrating to the east side because of the accessibility of the fishery and the proximity of processing facilities in Kenai, Kasilof and Ninilchik. Fate Putnam, the chair of the Commercial Fisheries Entry Commission, told the Senate Resources committee that the days of the East Side fishery being highly profitable are gone, though. “I will say this: There was a time about 20 years ago that these fishermen were making about $100,000 (per permit),” he said. “Now they’re making about $11,000.” However, the Senate Resources committee members expressed some hesitation about forwarding the bill on. Senate President Cathy Giessel, R-Anchorage, who sits on the committee, proposed an amendment requiring anyone participating in the buyback to have held the permit for at least 10 years and have fished actively at least five of those years. Her goal was to prevent speculation or system-gaming, she said. Micciche said the amendment could effectively kill the program, as many of the fishermen who want to participate have held their permits for less than 10 years. Permits are swapped every year in fisheries; according to information provided by Putnam to the Legislature, an average of 58 setnet permits in Cook Inlet in general are transferred each year. The ratio of permits being transferred is similar to other fisheries and hasn’t changed much over the years, suggesting that there isn’t much speculation going on about the buyback, Putnam wrote in a memo to the Senate Resources Committee. Speculation may happen, but that’s normal in fisheries, Micciche told the committee. “People speculate on fishing permits. That’s what they do,” he said. “We don’t care which permits they are — we just want 200 out. And if you don’t pass the vote, you don’t get the buyback and you don’t get the extra fish in the rivers.” During an April 29 hearing, the Senate Resources Committee moved SB 90 out of committee after amending it to require anyone participating in the buyback to have held the permit for at least four years and have fished for two of those years. The new amendment, proposed by Giessel, was intended to be a middle ground to prevent speculation but to still allow the program to continue. Micciche said the adjustment better served the intention to prevent speculation, and the committee passed the amendment and the bill without objection. Ken Coleman, who fishes a setnet site near the Kenai River and is one of the proponents of the buyback program through the East Side Consolidation Association, said he hopes to see the bill climb through the Legislature this year, but it still has a long way to go through even the Senate before it goes to the House. Several committee members expressed concern about funding, and though Micciche said the fishermen have no intention to seek state funding, they need a program established by a bill first before they can apply for funding elsewhere. Konrad Jackson, Micciche’s chief of staff, said he plans to keep working to get the bill heard, but with less than three weeks left before the Legislature’s 121st day and major budget items still to be debated, it’s unlikely the bill will make it far this year. Coleman said they may be able to seek federal funding, even though the fishery is not in federal waters. “I’ve had several talks with the federal delegation about funding, and also had talks with (The National Oceanic and Atmospheric Administration) about their capacity reduction program,” he said. “To the extent we can seek funding, we have to have a work product. I’ve been in discussion with the federal delegation, and they’re amenable to seeking funding, but we need a bill.” Elizabeth Earl can be reached at [email protected]

Fed likely to underscore a message: No rates hikes in 2019

WASHINGTON (AP) — The Federal Reserve this week will likely reinforce a theme that has cheered consumers and investors since the start of the year: No interest rates hikes are likely anytime soon. The prospect of continued low rates is keeping borrowing costs low for households and companies. It is helping drive record highs in the stock market. It is supplying fuel for a U.S. economy that’s growing steadily but fairly modestly and until recently was seen as facing the risk of a recession. And with inflation remaining unusually mild, the Fed is seen as able to stay on the sidelines through year’s end and perhaps beyond. The Fed will likely express that belief in a statement when its latest policy meeting ends May 1 and in a news conference that Chairman Jerome Powell will hold afterward. “The Fed will recognize the brighter economic outlook, but there will be no change at this meeting,” said David Jones, an economist and author of books about the Fed. The generally brighter view of the economy and the stock market represents a sharp rebound from the final months of 2018, when concerns about a possible global recession and fear of further Fed rate increases had darkened the economic picture. Stock prices tumbled in the final quarter of the year, especially after the Fed in December not only raised rates for the fourth time in 2018 but suggested that it was likely to keep tightening credit this year. Yet beginning in January, the Fed engineered an abrupt reversal, suggesting that it was finished raising rates for now and might even act this year to support rather than restrain the economy. In characterizing its stance, the Fed’s new watchword became “patient.” And investors have responded by delivering a major stock market rally. The market gains have also been fed by improved growth prospects in China and some other major economies and by the view that a trade war between the world’s two biggest economies, the United States and China, is moving closer to a resolution. On April 26, the government reported that the U.S. economy grew at a surprisingly strong 3.2 percent annual rate in the January-March quarter. It was the best performance for a first quarter in four years, and it far surpassed initial forecasts that annual growth could be as weak as 1 percent at the start of the year. If economic prospects were to brighten further, could Fed officials rethink their plans to suspend further rate hikes and perhaps resume tightening credit? Possibly. But investors don’t seem to think so. According to data tracked by the CME Group, investors foresee zero probability that the Fed will raise rates anytime this year. And in fact, their bets indicate a roughly 64 percent likelihood that the Fed will cut rates before year’s end. One factor in that dovish view is that the economy might not be quite as robust as the latest economic figures suggest. The first quarter’s healthy 3.2 percent annual growth rate was pumped up by some temporary factors — from a surge in restocking of companies’ inventories to a narrowing of the U.S. trade deficit — that are expected to reverse themselves. If so, this would diminish the pace of growth and likely hold down inflation. “We are still confronting a global slowdown, with 70 percent of the global economy slowing,” said Diane Swonk, chief economist at Grant Thornton. Indeed, for all of 2019, growth is expected to total around 2.2 percent, down from last year’s 2.7 percent gain, as the effects of the 2017 tax cuts and billions of dollars in increased government spending fade. At the same time, the Fed is still struggling to achieve one of its mandates: To produce inflation of roughly 2 percent. On April 29, the government reported that the Fed’s preferred inflation gauge rose just 1.5 percent in March from 12 months earlier. Many analysts say they think the Fed won’t resume raising rates until inflation hits or exceeds its 2 percent target. Too-low inflation is seen as an obstacle because it tends to depress consumer spending, the economy’s main fuel, as people delay purchases in anticipation of flat or even lower prices. It also raise the inflation-adjusted cost of a loan. “They will express concerns about the low inflation numbers,” Sung Won Sohn, finance and economics professor at Loyola Marymount University in Los Angeles, predicts of Fed officials this week. Sohn foresees a roughly 50-50 chance that the Fed will end up cutting rates before year’s end, at least in part over concerns about low inflation. President Donald Trump and Larry Kudlow, head of his National Economic Council, have urged the Fed to cut rates. Last week, Trump asserted that annual economic growth would have reached 5 percent last quarter, instead of 3.2 percent, had the Fed provided rates as low as the ones that prevailed during the Obama administration, when the economy was recovering from the devastating 2008 financial crisis. In recent months, Trump tapped two conservative political allies for vacancies on the Fed’s influential board in hopes that they would push for lower rates and counter the influence of Powell, whose leadership Trump has repeatedly attacked. One of them, Herman Cain, has since withdrawn. But the other, Stephen Moore, is aggressively campaigning for the board seat despite criticism of his qualifications and sometimes inflammatory writings. As recently as December, Moore was publicly calling for Trump to try to fire Powell. Most analysts say they think Powell will stick to his public position that the Fed will keep pursuing its goals of maximum employment and stable inflation without regard to outside influence. “This pressure will not affect the Fed’s decisions, but it does undermine confidence in the Fed, and that sets a dangerous precedent,” Swonk said.

US consumer spending surges 0.9 percent in March

WASHINGTON (AP) — U.S. consumer spending surged 0.9 percent in March, the biggest gain in nearly a decade, as inflation pressures remain non-existent. The March gain was the biggest monthly increase since August 2009, the Commerce Department reported April 29. That’s a marked improvement after three months of lackluster readings in this key segment of the economy. Consumer spending accounts for 70 percent of economic activity. Incomes grew 0.1 percent in March while inflation rose just 0.2 percent and has risen only 1.5 percent over the past 12 months, far below the Federal Reserve’s 2 percent target for inflation. The big jump in consumer spending is encouraging because it suggests that the overall economy had solid momentum going into the April-June quarter. The government reported April 26 that the economy, as measured by the gross domestic product, grew at a surprisingly strong 3.2 percent, helped by the March surge in consumer spending. However, economists noted that about half of the first quarter strength came from a big rise in inventory stocking by businesses and by a sharp narrowing in the trade deficit. Both of those gains were expected to be temporary and that could subtract from growth in the current quarter. The 0.9 percent March jump in spending followed a sharp 0.6 percent drop in December and tiny gains of 0.3 percent in January and 0.1 percent in February. The slight 0.1 percent rise in incomes in March followed a modest 0.2 percent rise in February and a 0.1 percent decline in January. With the big rise in spending and the small increase in incomes, the household saving rate fell to 6.5 percent of after-tax income in March, the lowest level since November when it was 6.2 percent. The 1.5 percent year-over-year increase in consumer prices was up from a 1.3 percent 12-month gain in February but still well below the Fed’s target. The absence of inflation pressures was a key reason that the central bank did an about-face this year and announced that after boosting its benchmark interest rate four times in 2018, it planned to be “patient” and expected that it would not raise rates at all in 2019. That change has helped spur a big rally in the stock market as investors stopped worrying that the Fed was in danger of over-doing its credit tightening campaign and might drive the economy into a recession.

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