Fitch, Slope leaders weigh in on local revenue proposals

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

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Span Alaska to construct new freight terminal

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

Corps releases draft review of Pebble mine project

The U.S. Army Corps of Engineers has released a draft report detailing potential impacts of developing a large copper-and-gold mine near the headwaters of a major Alaska fishery. The Pebble Limited Partnership has proposed an open-pit mine and related infrastructure including a power plant and water treatment plants and tailings storage sites. The proposed project also includes a 188-mile natural gas pipeline from the southern Kenai Peninsula under Cook Inlet to the mine site north of Iliamna Lake, access roads, a large port on Cook Inlet and an ice-breaking ferry across the lake. Pebble CEO Tom Collier said in a prepared statement that the company's initial reivew of the draft environmental impact statement didn't reveal any large data gaps or impacts of the project that cannot adequately be addressed. "We see no significant environmental challenges that would preclude the project from getting a permit and this shows Alaska stakeholders that there is a clear path forward for this project that could potentially generate significant economic activity, tax revenue and thousands of jobs. I also commend the corps for their comprehensive, efficient and transparent management of the process thus far," Collier said. The corps plans to take comments for 90 days starting March 1 on its analysis of various development alternatives for the proposed Pebble Mine, including a no-development option. Public hearings will also be held in nine communities. Development alternatives considered in the EIS include different road and ferry routes, open water-only ferry operations and using a pipeline to transport mine slurry from the mine site instead of trucks. The project is in Alaska's Bristol Bay region. About half the world's sockeye salmon is produced by Bristol Bay. Critics say a mine doesn't belong there and have faulted the corps for its EIS review. Bristol Bay Native Corp. has led opposition to the project and CEO Jason Metrokin said in a statement provided to the Journal that the comment period should be much longer. "Now is the time to ensure that Pebble mine is thoroughly vetted, the public's voice is heard, and Pebble Limited Partnership addresses the clear deficiencies in its application and plans in Bristol Bay," Metrokin said. "A 270-day comment period on the (draft) EIS is the first — and necessary — step in holding PLP accountable during the permitting process. Bristol Bay cannot become a laboratory to test unproven and unprecedented mining practices." Pebble in 2017 settled a lawsuit with the U.S. Environmental Protection Agency that cleared the way for the company to seek permits.   Journal reporter Elwood Brehmer contributed to this story. Look for updates in an upcoming issue of the Journal.

COMMENTARY: Years of input culminating in Chugach purchase of ML&P

As we head into another local election season, it’s incredible to look back at all that has happened in the past year. One year ago, Anchorage voters overwhelmingly supported the consolidation of Chugach Electric Association and Municipal Light &Power with more than 65 percent voting in favor of what was Proposition 10. The vote came after more than three decades of community discussion and innumerable conversations with the public and the business community about how to create a more efficient system, reduce redundancy, and provide lower long-term electric rates for Southcentral Alaska. As we get ready to file the case before the Regulatory Commission of Alaska, the Chugach board of directors is grateful for the numerous people and organizations who have supported this consolidation. After voters approved the ballot initiative authorizing the Municipality of Anchorage to sell ML&P for a competitive value of approximately $1 billion, teams from Chugach, the MOA, and ML&P worked extensively to finalize the sales agreement and associated documents. A proposed term sheet was released in September 2018, giving the public an opportunity to see the progress and review the details of the proposal. Over the summer, fall, and early winter of 2018, numerous meetings were held, and documents reviewed as we all worked toward the best deal for the community of Anchorage. The Anchorage Assembly held multiple work sessions going over information and reviewing draft documents. The Chugach board spent hundreds of hours reviewing materials in preparation for meetings, and spent numerous meetings questioning, debating, and discussing many significant issues related to the transaction; all with the goal of ensuring our decisions were in the best interests of our members, not only for today but for years to come. In December, the Assembly voted unanimously to authorize the MOA to sell ML&P to Chugach. The Chugach Board gave its final approval on Dec. 19, and all sales agreements were signed by the parties before year-end. The RCA gets the final say on whether this sale is in the public interest, and we certainly believe that to be the case. Consolidation and elimination of duplication, while taking advantage of economies of scale, means significant savings can be realized over several decades. As a member-owned cooperative, those savings go back to ratepayers in the form of lower, long-term electric rates. It has taken many individuals and groups working together to get us to this point. We appreciate the support of Anchorage voters who recognized the opportunity to do something that will have a positive impact for generations of Alaskans. The Chugach board is profoundly thankful to those who have worked with us and supported this effort. As a not-for-profit cooperative, Chugach is focused on serving our more than 68,000 members with reliable, safe, affordable electricity. We look forward to providing that service to more individual Alaskans, families, and businesses, while supporting good jobs and a strong economy in the communities we serve. Bettina Chastain is the chair of the Chugach Electric board of directors and Susan Reeves is the vice chair.

COMMENTARY: Concerns misplaced over ANWR impact on carbon emissions

On Feb. 11, I had the privilege of watching democracy in action, right here in Anchorage. The draft environmental impact statement, or DEIS, for the Arctic National Wildlife Reserve was released, and public comments were taken at the Dena’ina Civic and Convention Center in Anchorage. The Bureau of Land Management furnished us with maps of the different development scenarios, impacts on the indigenous people and animal species, and a strong education on the process. Hats off to the agency for sitting through six straight hours of public comment by stakeholders from both inside as well as outside of the protected region, with a wide spectrum of coherence. Many of the comments were spot on, but many others diverged widely from the scope of the report. I was struck by a conspicuous lack of discourse on the specific threats that development poses to the Porcupine caribou herd, which is central to the controversy surrounding the development of ANWR. Despite its minimal appearance in the public comment period, the actual DEIS addressed this issue very well. However, opponents of the leasing program did not allow a lack of education on the issue to stand in the way of holding the microphone hostage. They used the airwaves to discuss many issues, one common thread being the potential greenhouse gas emissions. One activist was bold enough to implore the BLM to consider the carbon created during the end use of the hydrocarbons. Of course, had this activist read the DEIS, they would find that use-phase CO2 impacts were actually addressed very well. I thought it would be interesting to provide a bit of color and more technical detail around this hot subject. The draft report recognizes (correctly) that additional upstream hydrocarbon development does not have a one-for-one impact on oil and gas demand. Developing ANWR to its full potential will not actually add 390,000 barrels per day to the world’s oil consumption. It will almost displace that much oil already on the market, and then add a fraction of that as a result of bringing the price down. Between the direct emissions generated by the development itself and the indirect emissions generated by the modest increase in global demand, the report ultimately arrives at the conclusion that ANWR development would increase global emissions by between 0.76 and 5.38 million metric tons of CO2 over the field life. This is 11,000 to 77,000 metric tons per year, or about 0.5 kilograms per barrel produced. It’s hard to picture what this means in real life, so in context, the average barrel of North Slope crude oil produces 564 kilograms of CO2 throughout its life. Augmenting this by 0.5 kilograms for the barrels produced by the ANWR development is a 0.1 percent increase. If anything, the report was too fair. Alaska North Slope crude is typically refined in California, meaning that ANWR development is likely to offset declining California barrels as a refinery feedstock. California, despite its green image, produces the dirtiest crude in the nation at 725 kilograms of CO2 per barrel. With this in mind, we are likely offsetting dirtier crude with cleaner crude, should we develop ANWR. The reality is that the North Slope has a legacy of environmental responsibility that shines among the prolific oilfields in the world. This great corporate citizenship is not being left behind in the age of climate change. BP recently announced the purchase of 9.3 million metric tons of carbon offsets from Ahtna. My employer, ASRC Energy Services, has seen a strong trend of clients asking for greenhouse gas, or GHG, reduction solutions. It’s an exciting time to be a part of a changing industry. The GHG impact of ANWR development pales in comparison with the potential in demand reduction. People who care about climate change should work to change their habits. Boeing 737s make an astonishing 11 metric tons of CO2 for a short 575-mile flight. An electric vehicle can take 4.5 metric tons of CO2 per year out of the atmosphere. Tesla therefore sold enough cars in 2018 to solve the worst-case ANWR carbon emissions scenario 11 times over. People can truly impact GHG emissions on the demand side, by changes in their everyday life. To conclude, carbon emissions may be the defining issue of the decade, but they are far from the most important issue related to ANWR development. We will continue to develop and produce oil on the North Slope with world-class corporate responsibility, and drive hard toward a low-carbon future. Proponents of ANWR leasing are open to constructive input on responsible development scenarios. This should be seen as an unprecedented opportunity to collaborate between industry, regional stakeholders, and concerned Americans to reach a plan that benefits everyone. People engaging in the process would be advised to learn more about the issues, the proposal and the process itself. In this way, the discussion can be elevated and constructive outcomes achieved. I want to again thank the BLM for a great presentation, an excellent report (which was delivered through a government shutdown), and for great patience shown throughout these hearings. I hope the conversation in the future can remain focused on the relevant elements, such as the impact on coastal plain wildlife. Finally, I hope that the needs and wishes of the regional stakeholders are met, especially the Iñupiat people of the village of Kaktovik, as they have the greatest at stake. ^ Liam Zsolt is the Director of Technology at ASRC Energy Services. He is originally from Canada, obtaining his Bachelors of Chemical Engineering from McGill University in Montreal. Zsolt’s work in well interventions has been published four times by the Society of Petroleum Engineers, and was awarded one US Patent for innovations in the field of materials inspection by magnetic flux leakage.

Capital budget trimmed as oil tax credits total $254M

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

Dunleavy nominee to marijuana board hears major opposition

Cannabis industry members have their hackles raised at one of Gov. Michael J. Dunleavy’s appointees to the board that regulates their businesses with wide concerns about the administration’s long-term intentions. New governors regularly flip the membership of boards and commissions, particularly high-impact regulatory bodies. The Marijuana Control Board is no different. Dunleavy did not reappoint industry member Brandon Emmett of Fairbanks, instead nominating Vivian Stiver of Fairbanks. He also appointed Lt. Christopher Jaime, who works as a wildlife trooper at the Alaska Department of Public Safety’s Soldotna post, to the designated public safety seat. Jaime would take the seat from Sitka Police Chief Jeff Ankerfelt, whom the Dunleavy administration dismissed from the board in January. Both Ankerfelt and Emmett voted to authorize on-site consumption of cannabis in a 3-2 vote on Dec. 20, 2018. Stiver has owned several small businesses and worked in the legislative offices of Rep. Tammie Wilson, R-Fairbanks, and Sen. Cathy Giessel, R-Anchorage, previously served on the Fairbanks City Council and led an effort to ban commercial marijuana activity within Fairbanks city limits in 2017. Stakeholders immediately raised the alarm, in part because Emmett held a seat designated for the industry or general public, and had been one of two industry representatives since the board was formed in 2015. During a Senate Labor and Commerce Committee hearing on Feb. 12, members of the public testified on Stiver’s appointment for nearly two-and-a-half hours. A few people testified in support, but the vast majority opposed her confirmation. During her introduction, Stiver said she could put aside her personal views and be impartial. Her effort to ban commercial cannabis in Fairbanks had not been because of prohibitionist views, she said, but rather over concern with the city and borough’s readiness for businesses. “Our concern was are we ready? Are we ready for this industry?” she said. “There were many people in the group at that time that had different viewpoints from mine. I do believe there’s no problem with me working within the parameters of (the board) seat and working well for everyone involved.” She said she has been meeting with members of the industry and working to educate herself about the issues in the meantime as well. So far, the vast majority of operators have been responsible and no issues have come up, and those that have were dealt with, she said. A handful of people called in to testify in support of Stiver’s appointment, while other submitted letters saying they wanted someone on the board with an opposing viewpoint to balance the board. Some of the industry testifiers said they hoped Stiver’s statements were true and she would work fairly with the industry. Cole Hollister, the chairman of the Alaska Marijuana Political Action Committee and a co-owner of cannabis business Pakalolo Supply Co., agreed with another testifier that Stiver may be a “Trojan horse” for Dunleavy’s intentions in the future. “I believe that in removing one of our biggest voices, Brandon Emmett, and appointing Vivian Stiver, he’s spoken loud and clear of his intention toward the industry,” he said. “I don’t believe Vivian is telling the entire truth but I want to give her the benefit of the doubt.” Others offered no support based on Stiver’s previous work. Cary Carrigan, the executive director of the Alaska Marijuana Industry Association — a group where Emmett serves as the board president — testified against Stiver’s confirmation, saying the business people she had consulted did not include a broad swath of the industry and the AMIA had not been included. The AMIA sent out multiple emails to stakeholders before the meeting requesting that they testify against Stiver’s confirmation. “It’s impossible for a leopard to change its spots,” he said. “I think that it’s really interesting that we have somebody who’s as well versed in cannabis as Brandon Emmett being displaced by someone who has little to no knowledge whatsoever.” Public safety nominee Though the Labor and Commerce Committee hearing was supposed to include both nominees, the entire hearing focused on Stiver. Jaime’s hearing was rescheduled two days later, where the committee members heard less than half an hour of discussion before forwarding his name to a joint session for consideration. Jaime said he has worked in both rural and urban settings as a trooper and would listen to the industry within the lines of law enforcement. Since being nominated, he said he met with several Kenai Peninsula cannabis business owners and visited their operations to get a better understanding of the industry. “I am not looking forward to expressing my personal opinions about marijuana or going against the will of the people,” he said. The people who offered testimony on his appointment were cautiously optimistic or supportive. Ryan Tunseth, who owns the retail shop East Rip in Kenai, said Jaime has earned a reputation as a fair officer with the Department of Public Safety. His effort to visit with industry stakeholders offered an olive branch to industry members, he said. “(The stakeholders he visited) felt like it was very meaningful, that he would work to understand the inner workings,” Tunseth said. Both nominees were forwarded out of committee to a joint session for consideration. But even as the nominees move forward, the board they plan to serve on may not be long for this world. Dunleavy’s fiscal year 2020 budget, released on Feb. 13, includes a proposal for legislation to abolish both the Marijuana Control Board and the Alcoholic Beverage Control Board and delegate their responsibilities to the commissioner of the Alaska Department of Commerce, Community and Economic Development. Elizabeth Earl can be reached at [email protected]

AGDC criticizes Mat-Su Borough for ‘factual and legal errors’

The state’s gas pipeline development corporation and the Matanuska-Susitna Borough continue debating the worthiness of the borough’s Port MacKenzie property for the proposed Alaska LNG Project, as the state’s latest filing with federal regulators accuses the borough of “factual and legal errors.” The borough’s most recent comments to the Federal Energy Regulatory Commission “simply nit-pick (erroneously, in many instances) around the edges,” the Alaska Gasline Development Corp. told federal regulators Feb. 13. The corporation has not strayed from its choice of Nikiski on Cook Inlet as the best site for the gas liquefaction plant and export terminal. The borough, however, is contesting the state-led project’s evaluation of Port MacKenzie at the entrance to Knik Arm, across from Anchorage, about 65 air miles northeast of Nikiski. Both AGDC and the borough are adding to the file at FERC, which is preparing the project’s environmental impact statement, or EIS. FERC is scheduled to release the draft EIS by the end of February, followed by public hearings and comments, along with comments from federal and state and municipal agencies, and then, if the environmental review stays on schedule, a final EIS in November. Federal law requires than an impact statement review economically feasible alternatives to a project developer’s preferred options to determine the “least environmentally damaging practicable alternative.” The Matanuska-Susitna Borough argues that AGDC has failed to give Port MacKenzie fair consideration. The proposed $43 billion project would move Alaska North Slope gas to a liquefaction plant for export. AGDC denies the borough’s assertion that its analysis is flawed. But even if the review of Port MacKenzie was inadequate, AGDC said in its Feb. 13 filing with FERC, “(the) Matanuska-Susitna Borough’s comments do not change the unavoidable conclusion that the significant environmental impacts and safety concerns associated with siting the Alaska LNG liquefaction facilities at Port MacKenzie render it an inferior alternative to AGDC’s proposed site at Nikiski.” Because of the considerable environmental issues of building at Port MacKenzie, AGDC told FERC, the regulators do not need to address every issue raised by the borough “to fulfill its obligations under the National Environmental Policy Act to examine alternatives.” The state corporation and the Matanuska-Susitna Borough, along with the Kenai Peninsula Borough in its defense of Nikiski, have all contracted with Washington, D.C., law firms that specialize in work at FERC. Neither AGDC, the Matanuska-Susitna Borough or FERC have raised any questions or added anything to the docket regarding the 7.0 earthquake that shook the Anchorage area on Nov. 30 and was centered about five miles north of Port MacKenzie. Separate from the debate over the borough property, AGDC still owes a substantial amount of data to FERC, along with answers to more than 100 detailed questions about engineering and safety systems for the LNG plant, the gas treatment plant at Prudhoe Bay and the 807-mile pipeline from the North Slope to Nikiski. The corporation has said it will be September before it provides all the answers. Federal regulators have not said if that timeline for the missing data will affect the EIS schedule. In its Feb. 13 filing, AGDC responded to the borough’s 145-page, Jan. 25 filing that listed why the municipal government believes the state project team shortchanged Port MacKenzie in its site consideration. The borough contends the state development team did not accurately map out and consider the “optimum site” proposed by the borough. “As a result,” the borough said, AGDC’s efforts “misidentify and overlook key features of Port MacKenzie.” The borough further contends, “Rather than assessing Port MacKenzie as a unique site, AGDC begins from the assumption that the same facilities specifically designed for Nikiski will be built at Port MacKenzie. This assumption is irrational and leads AGDC to overestimate the amount of construction necessary to site a liquefaction facility at Port MacKenzie.” Not true, AGDC told FERC on Feb. 13. Regardless of which exact site is mapped out at Port MacKenzie, there are multiple problems with building the LNG plant and marine terminal at the property. The state corporation restated its concerns over conflicts with more frequent vessel traffic in the navigation channel to Port MacKenzie (across from the Port of Alaska) than in Nikiski; more significant ice conditions than at Nikiski; restrictions on when construction delivery ships and LNG carriers could cross the Knik Arm Shoal; and the impacts and restrictions of building in the critical habitat area for endangered beluga whales. AGDC also took issue Feb. 13 with the borough’s analysis of berthing facilities, water depth, dredging and other issues at Port MacKenzie. And the state team told FERC that the existing haul road from the dock to the property is too steep to transport large modules to the upland construction site, regardless what the borough contends. “In short, the Matanuska-Susitna Borough’s attempt to substitute its erroneous analysis for AGDC’s rigorous analysis and conclusions as to berthing and other design elements needed to construct and operate the project facilities reliably and safely should be rejected,” the corporation’s lawyer wrote to FERC. The borough a year ago stepped up its complaints to federal regulators over AGDC’s analysis of Port MacKenzie as a potential site for the development. The borough charged that AGDC may have violated the National Environmental Policy Act and federal Clean Water Act by “improperly and intentionally excluding” Port MacKenzie as a “reasonable alternative” for the proposed LNG plant. The borough has long promoted its money-losing port for the LNG project and other industrial developments, with little success. Nikiski was selected as the preferred alternative from more than two dozen options in October 2013, when North Slope oil and gas producers ExxonMobil, BP and ConocoPhillips were leading the project. The state took over the venture in late 2016 after the companies declined to proceed with spending significant sums of money on additional engineering, design and permit applications. The state applied to FERC in April 2017. “FERC has sufficient information to fulfill its responsibilities … to analyze Port MacKenzie,” the state corporation said Feb. 13. The borough’s suggestion that AGDC “should develop a site-specific design for Port MacKenzie … is unreasonable and not required for the commission to comply” with federal law, the corporation said. Larry Persily is a former Alaska journalist, state and federal official who has long tracked oil and gas markets and projects worldwide.

ADFG cuts aim at logbook program, division directors

Sportfishing guides on Alaska’s rivers and lakes would no longer have to submit logbook records of what their clients catch if the cuts proposed in Gov. Michael J. Dunleavy’s fiscal year 2020 budget come to fruition. The elimination of the freshwater sportfish guide logbook program is just one of a handful of changes proposed for the Alaska Department of Fish and Game to save money. A letter from acting Commissioner Doug Vincent-Lang to staff sent out on Feb. 13 detailed some of those cuts to accommodate the approximately 4.3 percent proposed cut in the department’s budget. “As we all know, the state continues to face fiscal challenges in the wake of low oil prices,” Vincent-Lang stated in the letter. “I, along with our budget team and the staff at the Office of Management and Budget, have worked diligently over the last six weeks to align our programs with our core services and identify areas of opportunity for efficiencies.” Those cuts include moving the Commercial Fisheries Entry Commission into the Division of Commercial Fisheries, eliminating the director positions for the Habitat and Subsistence divisions, a 50 percent travel reduction for all divisions, eliminating General Fund support for Special Wildlife Viewing Areas as well as eliminating the logbook program. Currently, sportfishing guides have to meticulously record the fish their clients catch and submit them in a timely manner to the state so biologists can get a better idea of harvest rates and some survey information on stocks that may not be monitored. The department enumerates and tracks many runs of fish, especially salmon, using weirs and sonars, but the expense makes it impossible for all species on all rivers. Even some major stocks, such as coho salmon on the Kenai River, are not tracked by sonar or weir every year, though the department conducts periodic assessments in the river. This applies to guides both in freshwater and saltwater. Guides on the ocean would still have to record and submit logbooks, but the freshwater program would go away entirely, said Samantha Gatton, the acting director of administrative services for ADFG. Together, the salt and freshwater guide programs cost between $650,000 to $690,000 annually, she said. “(The freshwater logbook program) would just go away,” she said. “That doesn’t mean we don’t have fisheries biologists out in the field.” ADFG biologists regularly travel to remote locations all over the state in a variety of vehicles to monitor fisheries and wildlife, from periodic aerial salmon surveys to diving surveys for clams to moose collaring. Beyond just the staff, members of the regulatory boards of Fisheries and Game travel from their respective regions to where the regulatory meetings are being held. A 50 percent travel reduction would impact the entire department, including the boards. Gatton said the goal is to eliminate unnecessary travel. The department leaders also want to find ways to use technology instead of flying for some meetings, for example, which could save the time and expense for the boards. It might also improve logistics, she said — travel in Alaska can often be unpredictable. The changes to the CFEC aren’t coming from nowhere; former governor Bill Walker’s administration also tried to consolidate some of the agency’s functions into Fish and Game through an administrative order issued in early 2016. The CFEC, which administers the limited entry permit system for Alaska’s commercial fisheries, has been plagued by complaints of inefficiency in both expense and permit adjudication. A judge blocked the implementation of the administrative order in August 2016 and the Walker administration put the action on hold to consult more stakeholders. In the case of Dunleavy’s budget, the consolidation of the CFEC would have to be done through statute approved by the Legislature, Gatton said. Though contained within ADFG, the CFEC would retain independence in functions like permit adjudication, but sharing services and other expenses like office space could result in savings, Gatton said. “They would be creating efficiencies,” she said. “You’re kind of duplicating a lot of services right now.” Of all the state departments, ADFG is proposed to take one of the smallest cuts. That may be in part because the department has been working to shift away from its dependence on the General Fund to operate, Gatton said. When the Legislature authorized the department to raise its fees for sportfishing and hunting licenses, that helped access more federal funds and split the cost between user fees and federal dollars rather than relying on the state. The Division of Commercial Fisheries did not shift at the same time, so has experienced more general fund cuts as the Legislature has cut the budget over the past three years, she said. The specific cuts to the department were made in “a collaborative effort” between the Office of Management and Budget and ADFG, Gatton said. “The goal here at Fish and Game is to continue to do our core functions … while learning to operate within what we’re given,” she said. ^ Elizabeth Earl can be reached at [email protected]

Movers and Shakers for Feb. 24

Nathan Hagar is Ahtna Environmental Inc.’s newest geologist based in the Fairbanks office. Hagar attended the University of Alaska Fairbanks, and graduated in 2016 with a bachelor’s degree in geological engineering. While attending UAF, he worked as a Student Research Assistant for the Institute of Northern Engineering, performing geologic mapping in the Yukon and Central Brooks ranges. Hagar will be a field team lead for projects such as the installation and startup of an air sparge/soil vapor extraction system at Fort Wainwright and will be sampling various contaminated media at Fairbanks sites and in Tanana. Martin Molyneux has joined AEI as a senior project manager as part of its construction team based in Anchorage. Molyneux has 27 years of experience in Alaska and California managing megaprojects with values of more than $5 billion on Alaska’s North Slope, as well as performing operational work involving major facilities, pipelines, sealifts and fabrication. Molyneux has a bachelor’s degree in political science from University of Colorado. Justin Dunn has joined AEI as a senior project manager in Anchorage. He has an extensive background in commercial vertical construction throughout the state of Alaska, and has worked on projects from the North Slope to Kodiak Island. His experience includes federal, municipal, and private construction, which has increased his versatility and ability to manage different types of projects. Dunn has an associate’s degree in small business management from WyoTech in Laramie, Wyo. Marty Walker was hired by AEI as a site superintendent based out of the firm’s Anchorage office. Walker has 22 years of civil construction including an extensive background with equipment operation. Walker has supervised projects for federal, state, municipal, and private clients, such as ice-road construction on Alaska’s North Slope under extreme weather conditions across sea ice, a new four- lane road and bridge for the 48th Avenue expansion in Anchorage, and the Port of Anchorage 20-acre expansion, which involved the hauling and placing of 1 million yards of fill material. Wayne Johnson was hired as senior superintendent for the AEI Anchorage office. Johnson has 30 years of experience in all phases of the construction industry including providing comprehensive project supervision, quality control, safety management, and project administration throughout Alaska, including in remote locations. He has extensive experience with military, state and commercial clients. U.S. Sens. Lisa Murkowski and Dan Sullivan announced that Dana Herndon has been hired as their Juneau delegation representative. As the senators’ representative, Herndon will assist constituents in Juneau and other communities in Southeast Alaska. Herndon will replace Connie McKenzie, who served in this position for the delegation after nearly 15 years. A Juneau resident, Herndon owned Higher Image Management, a full-service marketing agency based in Juneau. Previously, Herndon worked for the Juneau Economic Development Council to help increase economic opportunities for Alaska. She has also served as a public relations specialist as well as a media relations and project manager. Shelley Byrd is the new vice president of marketing strategy for Credit Union 1. Since 2000, Byrd has worked in various levels of Alaskan marketing as an account executive, ad agency team member, executive committee member and more. She also previously served as a media planner and media director in Oregon and received her BBA in marketing from Boise State University. Byrd will be responsible for the internal and external communication of Credit Union 1’s brand, products and services while overseeing its in-house marketing team. Southcentral telecom provider MTA announced the following promotions. Jared Lindman was promoted to director of Product Management at MTA. Since joining MTA, Lindman has organized and improved MTA’s Business Solutions product suite. In 2018, Lindman launched Business Amplifier and redesigned MTA’s business internet plans, repositioning MTA in the business community from internet provider to technology partner. Jacki Webb was promoted director of Marketing and External Communications at MTA. In this role, Webb will ensure brand consistency across all channels driving brand awareness and loyalty. Matt Langhoff was promoted to vice president of Administrative Services at MTA. He has been with MTA for more than 15 years in human resources. In the past two years, he has led the transition of the HR department from traditional HR to Administrative Services to also include risk management, fleet and facilities, warehouse operations and the project management office. Diana Escobar was promoted to Project Management Office manager. During her 15-year tenure with the organization, Escobar has worked in various departments and for the last eight in the PMO department. Architect and interior designer Carel Nagata, CDT/CCCA, NCIDQ, has joined Stantec as an associate and senior architect with the firm’s Buildings group in Anchorage, Alaska. Nagata will apply her 20 years of experience to serve and grow the firm’s Buildings practice in Alaska, with a focus on multi-family housing, education, planning and development. Nagata brings a combination of architecture and real estate experience. In addition to a bachelor’s degree from the University of Oregon, Nagata earned her master of real estate and construction management degree from the University of Denver. Since 2005, she has worked for both architecture firms and real-estate developers in Alaska. Her real estate experience includes time spent with Cook Inlet Housing Authority and Cook Inlet Region Inc. Nagata’s project design experience consists of commercial and multi-family residential architectural design, including space planning, tenant improvements, interior design, and construction administration. Since joining Stantec, she has worked on a variety of projects, including the new Homer Police Station and several EPA Brownfield grant projects in Kodiak, the Matanuska-Susitna Borough and Anchorage. First National Bank Alaska announced several personnel moves. Rick Flake was named Corporate Services director. He will oversee special credits for the bank. A graduate of the University of Alaska Anchorage, Flake brings 30 years of local banking expertise to First National. New Lending Unit Team Leader I and Vice President Shin Suzuki will manage an experienced team of corporate lenders and oversee commercial and real estate loans. Suzuki has 16 years of experience in the local banking industry. Michael Musgrove joined the bank as loan officer II and was appointed assistant vice president. Musgrove has a bachelor’s degree from the University of Alaska Southeast and more than 20 years of experience in local banking. Matthew Ezell will utilize his decade of banking and real estate experience as First National’s newest mortgage loan originator III and loan officer. Ezell is the current president of the Alaska Mortgage Bankers Association and an active member of the Building Owners and Managers Association of Anchorage. He has been honored as a past “Affiliate of the Year” by the Anchorage Home Builders Association, where he has also served on the board. Assistant Vice Presidents Ligia Lutan and Sheila Lomboy have each been promoted to loan officer III and appointed vice president. The American Red Cross of Alaska announced last month that Buddy Custard, president and CEO of the Alaska Maritime Prevention &Response Network, has assumed the role of chair for the Red Cross of Alaska board of directors. His current term will run through July 1, 2020. Custard possesses extensive knowledge and expertise working maritime operations from both the public and private sectors, including serving with the U.S. Coast Guard for more than 30 years and as a senior manager with Shell Exploration &Production Co. for more than three years while it was operating in the U.S. Arctic and Alaska Outer Continental Shelf. During his career in the Coast Guard, Custard attained the position of Chief of Staff for the Alaska region before retiring in 2012. Custard was preceded by John Moore, ExxonMobil Alaska’s senior advisor for public and government affairs, who ended his tenure as board chair on Jan. 8 prior to taking on a new role as field operations manager, public and government affairs and regional operations for ExxonMobil PNG Limited in Papua New Guinea. Custard joined the board in June 2015 after attending the Red Cross Real Heroes Breakfast that year, and is one of three board members who serves in Southeast Alaska. For the remainder of fiscal year 2019, Custard is joined by Secretary Joseph Gerace, proprietor of Dimond Chevron. Gerace has been a Red Cross board member since early 2016.

Health care officials alarmed by proposed Medicaid cuts

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

COMMENTARY: Strong dollar policy is costing US in global trade

Despite a lot of handwringing from globalists, President Trump’s tariffs are working. One year after the first tariffs were imposed, U.S. manufacturing employment is up by 261,000 jobs. The U.S. is outperforming all other major economies. And new investments have been announced in key sectors covered by the tariffs, including steelmaking and solar panels. There’s a clear justification for the tariffs. Countries like China have spent the past two decades flouting the rules of global trade in an effort to erode America’s economic, military and geopolitical strength. And Beijing’s use of massive subsidies, dumping, and cyber hacking has cost the United States millions of manufacturing jobs and more than 60,000 factories. Finally, the United States is rethinking its support for unrestricted free trade. But it’s also time to rethink a “strong dollar” policy that has contributed to 40 years of U.S. trade deficits — all because it makes America’s goods, services, and labor too expensive in global markets. How overvalued is this strong dollar? In 2017, former World Bank economist John Hansen estimated the dollar was 25 percent overvalued. And in the second half of 2018, Federal Reserve data showed the dollar jumping an additional 7.15 percent. That keeps driving up America’s trade deficits. Despite President Trump’s aggressive trade intervention, the 2018 U.S. trade deficit with China is still projected to climb 11 percent above 2017’s record $375 billion. And the International Monetary Fund is warning that America’s trade deficits will get even worse. The Coalition for a Prosperous America recently studied the effects of the dollar’s overvaluation on the U.S. economy. According to CPA’s research, if the dollar’s exchange value was gradually lowered by 27 percent over a six-year period, the United States could create as many as 6.7 million new jobs, including 1.4 million in manufacturing alone. And the U.S. economy would grow by an extra 4.8 percent, meaning our economy would be nearly $1 trillion larger than currently projected by 2024. Manufacturing exports would grow by 12 percent per year. And the availability of good full-time jobs for non-college educated workers would surge. The Trump administration should pay particular attention. If the dollar keeps rising, it could simply negate much of the gains the president is now achieving from his tariff strategy. The IMF certainly sees it that way. In a report last year, it said that America’s “persistent excess imbalances may become unsustainable, putting the global economy at risk and aggravating trade tensions.” While Wall Street champions an overvalued dollar, Main Street suffers weaker exports, fewer jobs, and lower incomes. There’s a clear precedent for action, though. In 1985, the Reagan administration negotiated the Plaza Accord with Japan, West Germany, France, and the United Kingdom. The agreement lowered the dollar’s exchange value, causing America’s annual trade deficits to disappear within a few years. At present, the United States keeps absorbing other countries’ overproduction, and at a cost of hundreds of billions of dollars annually. This is unsustainable, and it’s time to get the nation’s economic house in order. Adjusting the dollar is an essential remedy that would create millions of new jobs along with almost a trillion dollars in added economic growth. Washington needs to take action before the dollar causes America to lose its position as a global economic leader. Michael Stumo is CEO of the Coalition for a Prosperous America.


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