Alaska Journal of Commerce

State sues feds over predator control restrictions

The State of Alaska has taken the Obama administration to court one last time. State attorneys filed a lawsuit against outgoing Department of the Interior Secretary Sally Jewell and U.S. Fish and Wildlife and National Park Service leaders Jan. 13, contending new regulations limiting predator control on federal wildlife refuge lands unlawfully step on state management authority. In August, the Fish and Wildlife Service finalized a rule to prohibit bear trapping; the baiting of brown bears; and the use of aircraft to take bears among other restrictions within Alaska refuges. The rule also restricts the take of wolves and coyotes during the spring-summer denning season. Applicable to 16 federal wildlife refuges in Alaska, which total nearly 77 million acres, the rule covers about 20 percent of the state. The Fish and Wildlife rule largely mirrors predator take restrictions for national preserves put in place by the National Park Service in 2015. State officials argue in their 47-page complaint filed in U.S. District Court of Alaska that the rules disregard states’ longstanding authority to manage wildlife, including on federal lands, and give federal agencies the purview to further restrict future fish and game harvests intended to be under state control. The Fish and Wildlife Service, or FWS, stated in its Federal Register posting for the final rule that state game regulations allowing the effective predator take methods are “inconsistent with the conservation of fish and wildlife populations and their habitats in their natural diversity,” and therefore are in conflict with several federal public lands laws, including the Alaska National Interest Lands Conservation Act, or ANILCA. Passed in 1980, ANILCA established Alaska’s current federal refuge system and contains some land management provisions unique to Alaska. The Federal Register docket characterizes the prohibited take methods as means of “predator control” to increase prey — moose, caribou and deer — populations utilized for sport and subsistence harvest. “We prohibit predator control on refuges in Alaska, unless it is determined necessary to meet refuge purposes; is consistent with federal laws and policy; and is based on sound science in response to a conservation concern,” the USFWS states. “Demands for more wildlife for human harvest cannot be the sole or primary basis for predator control.” However, the Alaska Constitution requires fish and wildlife management in the state to be based on the “sustained yield principle, subject to preferences among beneficial uses.” Additionally, state law defines sustained yield as a management objective that accounts for “a high level of human harvest of game,” a fact state attorneys note repeatedly in their complaint. The state’s management relies on the underlying principle that if humans harvest prey species, natural predators must also be actively managed to maintain a balanced ecosystem. “Alaskans depend on wildlife for food. These federal regulations are not about predator control or protecting the state’s wildlife numbers,” Alaska Attorney General Jahna Lindemuth said in a release announcing the lawsuit. “These regulations are about the federal government trying to control Alaskans’ way of life and how Alaskans conduct their business. This is contrary to state and federal law.” The state further alleges the federal rules in question disregard “recognized scientific principles that show these (state) regulations are necessary to protect healthy populations of fish and wildlife,” the complaint states. Rather, the Park and Fish and Wildlife rules prevent the state from managing for sustainable populations while accounting for hunting and fishing opportunities, which violates ANILCA, according to the State of Alaska. The Fish and Wildlife Service cited testimony by the late former Alaska Sen. Ted Stevens from when ANILCA was passed indicating the intent of the law was to give FWS discretion to manage game populations on Alaska refuges for healthy and balanced predator-prey populations; and that management for such “natural diversity” could include human uses such as subsistence harvests. Former Arizona Rep. Morris Udall, chairman of the House committee with oversight of the Interior Department when ANILCA was passed and sponsor of the bill, is also cited in the rule docket in an attempt to clarify legislative intent. According to FWS, Udall stated in a floor speech nine days after passage of ANILCA that Congress intended to “direct the U.S. Fish and Wildlife Service to the best of its ability…to manage wildlife refuges to assure that habitat diversity is maintained through natural means, avoiding artificial developments and habitat manipulation programs.” The state’s complaint also questions the objectivity and validity of the environmental assessment process — required by the National Environmental Policy Act — used by the federal agencies to draft the rules. Elwood Brehmer can be reached at [email protected]

Delegation revs up for another ANWR fight

Alaska’s congressional delegation is hoping the 13th time will be the lucky one for legislation to open the Arctic National Wildlife Refuge to oil and natural gas development. That’s because — as he is quick to note — Rep. Don Young has successfully shepherded such bills through the House 12 times before, only to see them falter time and again before becoming law. Only once has a bill opening ANWR reached a president’s desk, and it was vetoed by President Bill Clinton in 1996. This go-round, Young introduced the American Energy Independence and Job Creation Act just hours after being sworn in to the new Congress Jan. 3. Not to be outdone, Alaska’s Sens. Lisa Murkowski and Dan Sullivan co-sponsored a similar bill with a slightly more straightforward title Jan. 5: the Alaska Oil and Gas Production Act. Both pieces of legislation would limit development to no more than 2,000 acres of the refuge’s 1.5 million-acre Coastal Plain, the only portion of the overall 19 million-acre ANWR potentially open to resource development. With Republicans controlling both the House and the Senate and President-elect Donald Trump’s seemingly oil-friendly administration set to take office, there is renewed hope for “opening” ANWR. However, the narrow Republican majority in the Senate still leaves the filibuster in play for Senate Democrats who surely won’t concede quietly on such an omnipresent, hot button political issue as drilling in ANWR. The U.S. Geological Survey estimates the refuge could hold 10.4 billion barrels of conventional oil and 8.6 trillion cubic feet of natural gas, putting it on the scale of the nearby Prudhoe Bay, which is the largest conventional oilfield in North America. Murkowski, who chairs the Senate Energy and Natural Resources Committee, said in a release from the committee’s Republican office that Alaska has proven it can dually develop resources and protect the environment through the 40 years of oil production that has taken place on the North Slope. She insisted “there is no valid reason” why the Coastal Plain should remain locked up. Sullivan reiterated Murkowski’s sentiment in the joint release. He also contends ANWR is a touchy political issue only outside of the state that holds the refuge. “For decades, Alaskans of all political stripes have been pleading with the federal government to let us responsibly develop our resources — including the small (Coastal Plain) area of ANWR. Time and again, our pleas have been denied. This is shameful,” Sullivan said. “Development of this area would be a boost to our state and national economies, providing thousands of good-paying jobs and billions of dollars in federal and state revenue. Because energy can be used as a tool for power and diplomacy, developing Alaska’s abundant reserves would also strengthen our national security.” Even if the legislation passes, it is generally accepted that exploration and development would take at least 10 years before oil would start to flow from ANWR. Gov. Bill Walker, who advocates for drilling in the refuge at every opportunity, commended the delegation for continuing to fight for the cause in a release from his office and said the state would do anything in its power to help with infrastructure to access the refuge. “Alaska has developed the seismic technology needed to focus on the most resource-rich portion of the area, allowing us to limit the footprint of activity in the region. With an oil pipeline that is three-quarters empty and an over $3 billion budget deficit, drilling in the 1002 would fill TAPS and bring much needed revenue to our state coffers,” Walker said. State of Alaska oil and gas experts told the state Legislature in 2015 that full development of ANWR’s purported hydrocarbon resources could yield $150 billion in revenue to the state over 50 years. The ANWR Coastal Plain is also known as the “1002 area,” derived from the section of the 1980 Alaska National Interest Lands Conservation Act that nearly doubled the size of the refuge but also left the Coastal Plain area open to study of its petroleum potential. Seismic mapping data was compiled in the early 1980s; and BP and Chevron partnered to drill an exploration well in 1985 on a portion of the Coastal Plain with Alaska Native subsurface rights, but the results of that well remain confidential. The 2,000-acre cap on ANWR development in the latest legislation is not new, according to Young’s spokesman Matt Shuckerow. He said the 2,000-acre limit has been in ANWR bills that have passed the House before and that Young has compared it to the size of Washington Dulles International Airport for those in the nation’s capital unfamiliar with the scope of the proposal. Young’s ANWR bill would allow for horizontal drilling to maximize recovery with a limited footprint from ever-improving drilling technology. In October, ConocoPhillips announced a deal with Doyon Drilling Inc. to build an extended reach drilling rig, which the producer says will allow it to cover up to 125 square miles of subsurface area from a 12-acre gravel pad. Currently employed rigs on the Slope have a maximum reach of about 55 square miles, according to ConocoPhillips. Elwood Brehmer can be reached at [email protected]

Silver, gold production steady in Southeast

The metal mines of Southeast Alaska had consistent and positive production in 2016, according to year-end results released by the operating companies. Hecla Mining Co. reported Jan. 10 that its Greens Creek underground, primarily silver mine on Admiralty Island west of Juneau produced 9.3 million ounces of silver during the year, the highest production level since the company took full ownership of the mine in 2008. One of the most productive silver mines in the world, Greens Creek accounted for more than half of silver production from all of Hecla’s four active mines in 2016, which was a record silver year for the company, according to CEO Phil Baker. The Idaho-based company operates three other silver-centric mines; one each in Canada, the Lower 48 and Mexico. “The 17.2 million ounces of silver produced and the 46 million silver equivalent ounces produced mark the third consecutive year we have broken our 125-year production record, a result of our strategy of investing in organic growth,” Baker said in a company release. Investments to increase production through a period of depressed commodity prices along with “ongoing strong performance of Greens Creek allowed Hecla to generate substantial cash flows this year and we expect well into the future,” Baker said further. Overall, Hecla ended the year with $198 million in cash and short-term investments, a $43 million increase versus 2015, according to the operational report. In 2015 Hecla began a three-year, $44 million project to expand its dry stack tailings facility at Greens Creek, which the company expects to support the mine until 2027 or 2028. The 9.3 million ounces of silver Greens Creek produced last year was about 10 percent more than the 8.4 million ounces extracted in 2015. Hecla attributes the increase to both better grade or and better resource recovery. Silver production at Greens Creek has increased each year since 2012, when the mine ore gave up nearly 6.4 million ounces. On the flipside, gold production at the mine fell by 11 percent year-over-year to 53,912 ounces, the result of lower grade ore, according to Hecla. Production of both precious metals in the fourth quarter was down more than 10 percent compared to 2015 as well. Greens Creek also produces lead and zinc. The Greens Creek mill processed an average of 2,229 tons of ore per day in 2016. The 2016 year-end numbers for gold production at the underground Kensington mine north of Juneau look a lot like the final 2015 figures. Kensington, a gold-only mine owned by Chicago-based Coeur Mining Inc., produced 124,331 ounces of gold in 2016, down slightly from 126,266 ounces in 2015, according to a company release. The average gold grade of 0.21 ounces per ore ton and 94.7 percent resource recovery rate were also in line with 2015. Overall milling was also down slightly from 660,400 tons in 2015 to 620,200 tons last year. Opened in 2010, Coeur said in a company statement that the 2016 production at Kensington was in-line with company expectations and that production this year should be similar. The company also said development of the nearby Jualin deposit is on schedule and about two-thirds complete. Couer said previously that it expects gold production at Kensington to approach 150,000 ounces per year when full-scale mining of Jualin commences in 2018. Elwood Brehmer can be reached at [email protected]

State, Doyon, miners opposed to Eastern Interior plan

The State of Alaska and mining proponents are once again at odds with Bureau of Land Management; this time the dispute is over the agency’s updated plan to manage 6.5 million acres of federal lands in Eastern Alaska. On Jan. 5 BLM released the decision documents to its Eastern Interior Resource Management Plan that would keep approximately 4.8 million federal acres off-limits to development, namely mining in the region known for gold production. Much of that land was previously set aside by prior actions, but Gov. Bill Walker’s administration contends the management plans for the four subunits — White Mountains, Steese, Draanjik and Fortymile — ignore historic legislation regarding lands in the state. The Eastern Interior Resource management plan pertains to BLM-managed lands across a massive triangle of Eastern Alaska from just north of Fairbanks; east to the Canadian border; north to the edge of the Arctic National Wildlife Refuge; and south to Wrangell-St. Elias National Park including the Alaska Highway corridor. The four subunit records of decision are the result of the environmental impact statement process that began way back in 2008. The previous land management plans for the Eastern Interior were enacted in 1986. “People rely on these public lands for their livelihood, for subsistence, for recreation, for access to state and private lands and many other reasons,” BLM Fairbanks District Office Manager Geoff Beyersdorf said in a formal statement. “Over eight years, we have listened and taken the public’s concerns into account. With approval of these plans, we can move forward with management of these public lands in a way that balances use, development and conservation.” In a 13-page Aug. 29 formal protest letter to BLM Director Neil Kornze that reads more like a court complaint, Senior Alaska Assistant Attorney General J. Anne Nelson wrote that BLM’s then-proposed Eastern Interior plan does not allow for conveyance of lands selected by Alaska Native Claims Settlement Act corporations without revising the areas targeted for conservation. James Mery, vice president of lands for Doyon Ltd., the Interior Alaska Native regional corporation, also protested the management plan on several fronts. Mery wrote that while BLM met with Doyon leaders to discuss the plan in 2015, the agency did not adequately address how changing large areas of critical environmental concerns, or ACECs, would impact the company’s use of its lands adjacent to or “effectively enveloped by the ACEC.” Mery specifically referenced ACECs designated for caribou and Dall sheep habitat within the Fortymile Eastern Interior subunit. The Fortymile River drainage is an area known for small placer gold mining operations. “Given the agency’s consultation obligations to (Alaska Native corporations) and the agency’s knowledge of the substantial economic, historic and cultural interest of Doyon and its shareholders in the area, BLM should have engaged in further consultation with Doyon regarding the specific proposed revisions to the ACEC boundaries in an effort to address Doyon’s access concerns,” he wrote. Doyon selected about 770,000 acres within the Eastern Interior area to be conveyed by the federal government, and 755,000 of those acres are within the Fortymile subunit. The agency’s response to possible Native consultation issues states that conservation withdrawals in the plan would not impact conveyance of Native-selected lands and that an access corridor through the Fortymile ACEC to existing Native corporation lands was proposed. According to BLM, land conveyances under either ANCSA or the Alaska Statehood Act are administrative procedures that trump land use guidelines established in the resource management plan. “The BLM also modified the boundary of the Fortymile ACEC to exclude the Fortymile (Wild and Scenic River) corridor, partially in response to Doyon Ltd.’s request,” the protest response document states. However, the agency also notes more generally that Native corporations are “over-selected and not all selected lands will be conveyed.” Assistant state attorney Nelson argued further that the plan “frustrates” the state’s ability to get title to the remaining federal lands it is owed and disregards the agency’s own conclusion in a 2006 report — in response to the 2004 Alaska Land Transfer Acceleration Act — that about 95 percent of historic federal land withdrawals have outlived their usefulness. Nearly 160 million federal acres in the state have been withdrawn, or removed, from possible conveyance to the State of Alaska or private interests primarily for conservation as parts of the numerous public land laws pertaining to Alaska. The Eastern Interior plan instead retains the withdrawals and “unnecessarily and unjustifiably complicates land management in the planning area,” Nelson wrote. She also insists the plan perpetuates a common theme among recent Interior Department agency decisions because it “expressly seeks to curtail mineral exploration and development in an area that has significant mineral potential and a rich mining history, including the oldest mining district in the state,” Nelson wrote. “The plan doubles down on this effort by failing to recommend lifting any existing withdrawals until new substitute withdrawals are in place.” Sen. Lisa Murkowski called the conservation withdrawals in the plan “intentionally excessive” in a release slamming the planning documents, a sentiment shared by Rep. Don Young in a statement from his office. Murkowski, chair of the Senate Energy and Natural Resources Committee, said the habitat protections should be more targeted to protect subsistence interests. Instead, “BLM has continued to disregard its multiple-use mission and the livelihoods of Alaskans as it seeks to impose unnecessary conservation designations,” she said. Alaska Department of Natural Resources Commissioner Andy Mack furthered that sentiment in a Sept. 28 letter to BLM Alaska Director Bud Cribley. According to Mack, not only does the plan hamper the title transfer of state-selected federal lands, it also challenges the state’s ability to build on its resource-based economy, as 40 percent of BLM lands in the Fortymile subunit are off limits to mineral leasing. “Further, the areas of the (Fortymile) subunit that are recommended as open to mining have low mineral potential; therefore, there is little likelihood that mining will occur in any areas recommended as open in the subunit,” Mack wrote. According Alaska BLM spokeswoman Lesli Ellis-Wouters, the entirety of the planning area is withdrawn from mineral development unless the Interior Secretary approves lifting from withdrawal status the 1.7 million acres recommended in the plan. Ellis-Wouters also wrote in an email that the Draanjik and Fortymile plans recommend new withdrawals of more than 5,000 acres, which triggers an Alaska National Interest Lands Conservation Act Requirement for the agency to seek approval from Congress. Alaska Miners Association Executive Director Deantha Crockett concurred with the state’s stance in a litany of points protesting the plan, most focused on how it limits future mining activity in the region. In its retort, BLM notes there are still 1.7 million federal acres in the vast region open to mineral leasing. Additionally, there are about 10,000 acres of federal mining claims in the Fortymile region that predate the withdrawals and thus have been grandfathered in along with active placer operations on state claims within the Fortymile Wild and Scenic River corridor, according to the agency. There are another 11,200 acres of federal mining claims in the Steese and White Mountains areas; and overall the Eastern Interior Planning Area held more than 15,100 active state claims in 2013, BLM states. Elwood Brehmer can be reached at [email protected]

Study: New North Pacific fleet would cost $11.6B

Rejuvenating Alaska’s large vessel fishing fleet could be nearly an $11 billion boon for Outside shipyards, according to a new McDowell Group report. The Alaska-based research firm pegged $11.3 billion as the cost to completely replace the 414 fishing and processing vessels longer than 58 feet that participate in North Pacific fisheries off the coast of Alaska in a study commissioned by the Port of Seattle and the Washington Maritime Federation. Regulations generally require boats in Alaska’s salmon fisheries to be less than 58 feet, which makes that length the common delineator between smaller boats focused on near shore fisheries and larger vessels that fish and process catch in federal waters at least three miles offshore. Additionally, most of the more than 5,000 smaller commercial fishing boats that operate in Alaska homeport in the state and nearly all of the larger vessels in federal fisheries have Puget Sound addresses for a host of reasons. While the $11.3 billion baseline figure includes the cost to eventually replace a dozen vessels among the 414 built since they year 2000, according to McDowell Group the fleet averages 40 years old and 87 percent of the vessels were built before 1990. To that end, the study estimates it would cost nearly $9 billion to replace all of the North Pacific fishing vessels more than 30 years old and about $4.4 billion for those at least 40 years old. There was no way for vessel owners to replace much of the fleet until federal regulators in 2012 and 2014 lifted restrictions on transferring vessel-tied fishing permits in acknowledgment of the aging fleet. The most expensive vessels to replace are naturally the largest in the North Pacific fishing fleet: the three, 300-plus foot processors at $170 million apiece and 16 dual-purpose catcher-processor vessels that average 285 feet at a cost of $130 million each. These vessels are primarily focused on pollock, the small whitefish that comprises the bulk of the offshore Alaska catch. Replacing the vessels that make up most of the fleet would cost $15 million to $18 million apiece for the smallest crab and trawl boats and up to an average of $78 million for smaller — generally less than 200 feet — catcher-processors that are part of the Bering Sea-Aleutian Islands “Amendment 80” groundfish trawler fleet, according to the study. How quickly the North Pacific fleet gets new additions depends on a host of factors, some of which are nearly as variable as any one fish’s location in the immense Gulf of Alaska. Modern engines and hull designs can improve fuel efficiency by up to 30 percent on new vessels, according to the study, and a strong impetus for new construction, as is the ability to integrate value-added processing equipment on new vessels. However, vessels participating in fisheries such as crab that have few on-board, value-added possibilities are much less likely to be replaced, the McDowell authors concluded. For these reasons, seafood companies that own multiple vessels may be inclined to build one efficient boat to replace two that are of age, which the study states is the circumstance for at least one Amendment 80 trawler currently being built. Conversely, some catcher-processor companies indicated a desire to not consolidate because more vessels fishing naturally means more opportunities to find fish, according to the study. The need to swap out old for new can also depend largely on the maintenance history of individual vessels, the authors acknowledge. “Despite the regulatory and financial benefits of operating new vessels, many owners of well-maintained, older vessels are hesitant to commit to reinvestment,” the study states. The ability of vessel owners to obtain financing with preferable terms — as is the case with nearly all multimillion-dollar construction projects — will also play a large role in how quickly the North Pacific fishing fleet is upgraded. According to McDowell Group, lenders view fishing vessels similar to real estate projects with the addition of some potentially challenging variables. First, the financing need could range from about $10 million for smaller, single-owner vessels to more than $100 million for processors owned by large companies. The one-off nature of large fishing vessels, each with an individual design to meet specific gear type and other ranging needs, is a large risk to ensuring a project can be done on time and within budget. Interest rates between 2 percent and 3.5 percent above the going prime rate are common in fishing industry loans, the report states. A trend in federal North Pacific fisheries towards “rationalizing” the harvest — in which vessel owners are allocated a set quota as opposed to historical derby-style fishing — has helped mitigate some lenders’ concerns about prospective revenue to offset loan payments because the owner is more or less guaranteed a portion of a given harvest. The report notes that harvest quota in rationalized fisheries can often be used as loan collateral, too. Still, the biggest impediment to paying for most new fishing vessels is the “financing gap” that often exists in the industry with very high overhead, the authors conclude. Repaying a no-interest loan for the full cost of a new vessel over the common maximum term of 12 years for commercial loans would in most instances require at least half of the vessels gross annual earnings to go towards loan payments across all North Pacific fishing vessel types, according to the report. To that end, the authors add that the average annual net earnings for the Amendment 80 fleet — the funds a loan would actually be repaid from — were just 15 percent to 28 percent of gross earnings from 2008 to 2012. The end result is a need for substantial down payments to close the financing gap, the report states. Despite the challenges, McDowell Group projects the need for modernizing the North Pacific fishing fleet will lead to 37 new vessels being built over the next decade at a total cost of more than $1.6 billion. Comparatively, 19 new vessels have joined the fleet since 2002. Those figures do not include a number of vessels that have been — or will be — retrofitted or otherwise significantly modified but not replaced. Looking further, the authors estimate three to five new North Pacific fishing vessels per year will be built each year after 2026. They also expect fleet consolidation to continue barring major increases to seafood prices or harvest limits, which could impact the rate of vessel replacement. “The primary driver of this consolidation will be transferrable quota, which will tend to concentrate in the hands of the most successful companies and therefore require fewer vessels to harvest,” the report states. While just more than one-third of historical North Pacific fishing vessel projects have been done by Puget Sound shipyards, McDowell Group estimates that market share will increase to about 50 percent in the near-term, assuming the region’s industry can maximize the benefit of local construction. According to the report, “Puget Sound shipyards are viewed favorably by the commercial fishing industry for their high-quality work.” Additionally, there are inherent benefits for Seattle-area owners in having their vessels built locally, such as the ability to closely monitor the project during construction and a “shipyard and crew familiar with a vessel are well-positioned to provide cost-effective maintenance and repair services in the future,” the report states. Capturing half of the new vessel projects through 2026 would likely result in up to 750 direct and indirect jobs for the Puget Sound region, according to McDowell Group. The primary competitors for the projects are Gulf Coast shipyards Southern states. Gulf Coast shipyards benefit from labor costs — up to half of the cost of a new vessel — that are about 30 percent less than those in Washington and about 45 percent less than Alaska. Also, Alaska currently has just one shipyard capable of building large fishing vessels. Portland, Ore.-based Vigor Industrial’s Ketchikan Shipyard finished the F/V Arctic Prowler in 2013, a 136-foot freezer-longliner and the first large fishing vessel built in the state. Elwood Brehmer can be reached at [email protected]

State projects $2B investment loss

Not surprisingly, Alaska’s fiscal picture got worse with the March 21 release of the 2016 Spring Revenue Forecast. Total state revenue for the 2016 fiscal year, which ends June 30, is now projected to be about $3.6 billion, down more than 60 percent from the $9.5 billion of income estimated in the Fall 2015 Revenue Forecast released last December. The fall outlook for investment revenue had the state taking in $3.8 billion in fiscal year 2016, while the spring forecast expects the Fund to take a loss of just more than $2 billion for the year. In the first two quarters of fiscal year 2016, or from last July 1 to Dec. 31, 2015, the Fund lost $1 billion according to reports released by the Permanent Fund Corporation Feb. 12. The vast majority of the turnabout in the revenue forecast is attributable to poor financial market performance since the start of the New Year, which for the State of Alaska translates into lost income from Permanent Fund investments. The Dow Jones Industrial Average lost 5.5 percent in January and is currently down nearly 3 percent from one year ago. The Permanent Fund, which includes the principal of the Fund and the Earnings Reserve, ended fiscal year 2015 last June 30 with $55.9 billion in total assets and fell as low as the $48 billion range in January. However, Revenue Commissioner Randy Hoffbeck noted in a press briefing that markets have been on the rebound even since the spring forecast was compiled. In the most recent quarter ended Dec. 31, 2015, the Permanent Fund returned 2.1 percent, bringing the fiscal year-to-date return through two quarters to a loss of 2.2 percent according to reports released Feb. 12 by the Permanent Fund Corporation. The Fund held $52.7 billion as of March 18, according to the Alaska Permanent Fund Corp. Total state revenue was $8.5 billion in fiscal year 2015 and is expected to rebound near that amount to $8.2 billion in the 2017 fiscal year that starts July 1. Unrestricted General Fund revenue for 2016 was also revised down by $277 million, to about $1.3 billion in the latest forecast, as lower-than-expected oil prices more than offset an upward bump in the state’s oil production projection. The spring estimate for the average price in fiscal year 2016, is $39.50 per barrel for Alaska North Slope crude, compared to the fall estimate of $49.50 per barrel. The 2016 production estimate, on the other hand, increased about 3 percent from just more than 500,000 barrels per day in fall to 516,700 barrels per day in the latest calculation based on data provided by the producers, Hoffbeck said. In 2017 production is expected to fall back to about 506,000 barrels per day. Unrestricted revenue will fall as well, according to the forecast, to just more than $1.2 billion on a price projection of about $40 per barrel for next fiscal year, which is $564 million less than the fall forecast. Depending on how much is cut from the final state budget, if the lower 2017 revenue projection holds true it could increase the budget deficit that has been pegged at $3.5 billion to nearly $4 billion for next fiscal year. Diminishing oil income has also diminished the state’s dependence on it as a revenue source from supplying nearly 90 percent of all unrestricted state funds in prior years to 55 percent to 60 percent going forward, according to Hoffbeck. Long term, the Revenue Department expects oil to stabilize in the $60 per barrel range by 2021, which Hoffbeck said partially reflects the historical inflation-adjusted average price as well as the range where shale oil, which can be brought into production quickly, becomes profitable. “It makes sense that $60 would be kind of a ceiling we would bump into on oil price,” he said. The annual spring revenue forecast is typically released in early April, but Gov. Bill Walker said the preliminary forecast was released March 21 to better inform the Legislature and the public as major structural changes to how the state manages its money are contemplated during the last weeks of the legislative session. “The more information that’s available sooner, the better,” Walker said during the press briefing. The announcement comes as legislators are planning to tap into the Permanent Fund Earnings Reserve to bridge the current budget deficit. The last time the Fund lost money was during the Great Recession of 2009, when it lost $2 billion. Elwood Brehmer can be reached at [email protected]

Army officially delays plan to slash Arctic Warrior force level

The U.S. Army has officially announced that it will delay the proposed reduction of 2,600 “Arctic Warriors” stationed at Joint Base Elmendorf-Richardson. Army officials first announced plans to cut 2,600 soldiers from the 4th Airborne Brigade Combat Team of the 25th Infantry Division, also known as the 4-25, last July as part of an Army-wide cut of 40,000 troops. Alaska’s congressional delegation and state political leadership hailed the delay as a win for national security. The full division stationed in Alaska is about 4,000 troops. All three members of the Alaska congressional delegation were sharply critical of the proposed withdrawal as short-sighted and potentially dangerous give current tensions on the Korean Peninsula and chilly Russian relations combined with that country’s military buildup in the Arctic. “This is good news for Alaska — from the moment the Army proposed to eliminate the 4-25 Airborne Brigade I knew that it was shortsighted and the direction of world events would ultimately prove that,” said Sen. Lisa Murkowski in a release. “Whether measured by North Korea’s provocative actions this month, our discomfort with Russia’s military path, the need for troop strength to support the strategic balance to the Pacific, or emerging challenges in the Arctic, maintaining Army strength in Alaska right now is the right answer.” Rep. Don Young praised the delay, but said Alaskans should not get too excited until the possibility of a troop withdrawal is completely off the table. “While today’s announcement comes as great news for Alaska and the nation, we must not rest on our laurels,” said Young in a release. “Instead, we must continue to fight to ensure this reduction is overturned so JBER’s 4-25 can continue its status as the only airborne brigade in the Pacific.” The announcement comes on the heels of U.S. Army Chief of Staff General Mark Milley’s public announcement that he wants to delay proposed force reductions at least a year in testimony to a Senate committee Feb. 24, and statements by Secretary of Defense Ash Carter to Sen. Dan Sullivan that he would support such a recommendation to halt the reduction if one were made by Milley. Sullivan also succeeded last December in adding an amendment to the defense spending bill requiring the Defense Department to draft a formal Arctic Operations Plan, which is a complex undertaking. He received verbal assurances from Army brass that the 4-25 would not be moved until the plan was complete, Sullivan told the Journal in December. Milley, who visited Alaska military installations in February, told Murkowski on Feb. 24 that increasing aggression and force buildup by Russia, particularly in the North Pacific, along with an “increasingly assertive” China and “very provocative North Korea” create heightened conditions for potential conflict in the region. “I think it would be contrary to U.S. national security interests to go ahead and pull out the 4-25 at this time,” Milley said to Murkowski. “My thought is that we should extend them at least a year to see how the strategic situation develops and then move from there.” He added that those beliefs were confirmed in conversations with on-site commanders and the troops themselves. “There’s a great joint strategic deployment capability with the Air Force up there. (The 4-25) can move by air; they can move by sea. We’ve got a national capability up there (in Alaska) that I think is worth keeping,” Milley said. The 4-25 also just completed a training exercise at Fort Polk in Louisiana with a full Airborne Task Force of nearly 1,600 troops to show the value of the full force, according to a U.S. Army Alaska press release. U.S. Army Alaska officials asked branch leaders to consider training with the full force last year after the Army directed the 4-25 to downsize to an Airborne Task Force of 1,046 soldiers as part of the effort to restructure to a smaller, more agile force, the release states. The release stated that the exercise at Fort Polk validated the 4-25 as “the only U.S. airborne unit in the Pacific region capable of performing forcible entry operations.” DJ Summers can be reached at [email protected]

Cultivation dominates marijuana applicants

The first batch of marijuana business licenses is available to the public, and so far Alaskans have more interest in growing than selling. The Marijuana Control Board began accepting license applications on Feb. 24, but only made them available to the public March 14. Public figures from various marijuana industry and political groups have filed, including members of the Marijuana Control Board itself and the Alaska Marijuana Industry Association. The Marijuana Control Board received 198 different applications as of March 17, but many applicants submitted duplicates, an issue raised by Marijuana Control Board executive director Cynthia Franklin the first week after submissions began.  After duplicates are removed, the board received applications for 175 individual licenses, submitted by 136 individuals or groups of individuals acting as a single agent. By far, more Alaskans have applied for cultivation licenses than any other license type. Of 175 licenses, 117 are for cultivation: 40 for limited cultivation, which applies to grow operations 500 square feet and under, and 77 for standard cultivation, which has no upward limit.  Retail licenses number 43. Marijuana product manufacturing licenses — which include edibles — number six, while concentrate manufacturing facilities number seven. Only three people have submitted applications for testing facilities, which all cannabis products must pass through to be legally saleable. Both are located in Southcentral Alaska: two in Anchorage and one in the Mat-Su area. The numbers expose several cracks in the ongoing struggle for marijuana businesses to get their establishments running quickly in spite of zoning regulations and local government actions. Some applications are submitted in unincorporated Mat-Su Borough areas, which could outlaw commercial marijuana as soon as October by ballot initiative, while others are using only tentative addresses. The numbers put Alaska to roughly half the concentration of marijuana licenses in other states. As of now, if every license were approved, Alaska would have one recreational marijuana license per every 4,200 residents. Colorado has one marijuana license per every 2,200 residents, though that ratio includes medical facilities, which do not exist in Alaska. Many applications are co-located with retail marijuana dispensaries and cultivation facilities a popular duo. Several license applicants even go for a triple, co-locating product or concentrate manufacturing with retail and cultivation. The Marijuana Control Board received 50 of these stacked license applications, or 25 pairs. Notable applicants Among applicants is Brandon Emmett, one of two designated industry representatives on the Alaska Marijuana Control Board. Emmett has applied with two associates for three separate licenses in Fairbanks, including limited cultivation, standard cultivation, marijuana product manufacturing, and marijuana concentrate manufacturing. Kim Kole, a member of both the Alaska Marijuana Industry Association and the Coalition for the Responsible Legislation of Cannabis, has applied for seven licenses, all in Anchorage, more than any other individual or group of individuals statewide. These include five applications for retail establishments, each located at different addresses throughout Anchorage. Two include co-locations with standard retail cultivation facilities. Rather than trying to dominate the Anchorage market, Kole said she’s only trying to keep her place in line by getting the ball rolling on all potential locations. She said she didn’t end up securing several of the addresses for which she applied, which she expected. Licenses cost nothing to initiate, and potential landlords are constantly pulling out of potential leasing opportunities to marijuana businesses. “Honestly I’m surprised more people didn’t seem to do that,” Kole said. Among other notable applicants is Sherman Ernouf, law partner of Anchorage attorney and former Anchorage mayoral candidate Dan Coffey, has applied for an Anchorage standard cultivation license. Coffey also acts as filing agent for other marijuana license applicants. Regional preferences Of 175 licenses, Anchorage claims the largest interest for marijuana business, with 50 licenses in Anchorage and one in Girdwood. In Anchorage, more interest lies in cultivating than in selling, but only by a hair. The board received applications for 21 retail stores, 18 standard cultivation licenses, and four limited cultivation licenses. Anchorage will feature quite a few of the brewpub-style co-located marijuana outlets. Of Anchorage’s 46 license applications, 18 are located at the same address, meaning nine retailers in the area will be growing their own product on premises. Two of the three applications for marijuana testing facilities are located in Anchorage. The Interior has a clear preference for cultivation. Of 22 license applications located in Fairbanks, 12 are for cultivation: 11 standard cultivation licenses and one limited cultivation license. Only five individuals have made applications for retail outlets. The two applications for North Pole businesses are both for cultivation, one standard and one limited. Fairbanksans also submitted four product manufacturing applications and one concentrates manufacturing application. A dozen of Fairbanks’s licenses are concentrated in only four addresses. The Mat-Su Borough will have a measure on the October 2016 ballot that would ban all commercial marijuana activity in the unincorporated borough, but evidently, would-be marijuana entrepreneurs in the area are optimistic it won’t pass. Both Wasilla and Palmer have already passed bans on commercial cannabis activity, but a number of licenses have been filed for addresses in each area. Most are attached to addresses that fall outside city limits. Wasilla, like the rest of the state, focuses primarily on growing, with eight standard cultivation licenses and five limited cultivation licenses. Only three retail outlets have been applied for, along with two concentrate manufacturing facilities and one product manufacturing facility. Palmer reflects the same balance, with two limited cultivation licenses, two standard cultivation licenses, two retail stores, and one testing facility. DJ Summers can be reached at [email protected]

After record price year, construction loans and permits dip

Editor's note: this article has been updated to reflect that the current 2016 average home sale price only includes January and February, which are historically the lowest priced months of the year.  Alaska housing prices peaked in 2015 – and according to statistics, so did homeowners’ willingness to pay them. With layoffs on the North Slope and a precarious fiscal situation for the state government, homeowners in Anchorage appear less willing to fund new residential construction projects than in 2015. Anchorage’s land shortage, along with new municipal land use rules, make the Anchorage market spendy, particularly for new construction. An existing home in Anchorage cost $368,012 in 2015, while a new home cost $574,333 to build, according to municipal data. Karen Kissik-Michelsohn, vice president of Michelsohn and Daughter Construction Inc., said her company is beginning to see a new reticence for home building projects. “We’re seeing a real hesitation,” said Kissik-Michelsohn. “Once they hire us and we get done with design and get to the costing component, they are so cautious.” Kissik-Michelsohn said the “cold feet” some of her potential clients get near the end of a contract negotiation loops back to concerns over the state economy and the oil industry. She said one Anchorage customer, a Slope worker asking for a large custom-built house, is waiting until April to finalize plans. He needs to make sure he has a job first. “Anybody in the oil industry…they’re all scared,” Kissik-Michelsohn said. “The state of the Alaska economy in general has really had a big impact.” Indeed, municipal records show a drop in new home building interest. In Anchorage, building permit records from the municipality show a decline in building projects from the same time in 2015. To date, only 13 single-family home building permits have been submitted for 2016, down from 21 during the same time period in 2015. Totals reveal an even bigger gap. In January and February 2015, applicants filed for a total of $66.6 million in building permits. In 2016, they applied for $35.7 million. The lack of enthusiasm for new construction collides with state fiscal woes and the highest housing prices on record for Anchorage. According to statistics, 2015 was the most expensive year ever for Alaskans looking to buy homes, with some of the lowest interest rates. According to the Freeman-Reed Index, an analytical tool used by the Alaska Multiple Listings Services, the average Anchorage residential price peaked in 2015 at $366,585, lower than the average provided by municipal data but still greater than any year in Alaska history and roughly double the average price in 2000. In Juneau, the average price for an existing single family home was $377,620 in the third quarter of 2015, and $414,717 for new construction. In Fairbanks, homes were cheaper, at $265,884 for existing homes and $287,833 for new construction. According to the National Association of Realtors, the average single-family home sale price for existing homes in 2015 was $267,300. Condominiums followed the same path as homes, with an average sale price of $213,071 in 2015, also the highest in Alaska history. Anchorage’s residential prices are now coming off their record highs. The lack of new construction coincides with the first dip in average housing prices this decade. The average residential sale price has declined for the first time since 2011. So far, Anchorage’s average residential price is $353,729, a 3.5 percent decline from last year. However, these numbers only include January and February - historically, the lowest point of the seasonal ebb and flow of home sale prices, as people are more willing to move in summer months. January and February combined have declined $2,000 compared to the January and February total from 2015. January itself actually increased in price compared to last year.  Going by three-year average, the prices of Anchorage homes peaked at $356,652 in 2015. That average has lowered to $353,729 in 2016. Similarly, condos’ three-year average lowered from $216,952 to $214,821 in 2016. Statewide, a steady roll in interest rates coincided with the housing prices climbing. Over 7 percent in 2000, the average Alaska mortgage interest rate came to 4 percent in 2015. Key indicators from the Alaska Housing Finance Corp. indicate that new construction took a downward bend at the end of 2015. Statewide, there were 14 percent fewer condos, single and multi-family homes, and mobile homes built in 2015 than in 2014, with each category declining year-over-year. Loan activity started strong in 2015, but went down in the back half of the year. In the first and second quarters, total loans for single family loans — the largest segment of the housing industry — increased from the same quarter in 2014 over $24 million for the first quarter and over $21 million in the second quarter. Loan activity for condominiums increased in both quarters, while multi-family homes lost in the first quarter but gained over $3 million in the second. That turned around in the third quarter. Loans activity for single-family homes dropped in the third quarter of 2015 by $55 million, and by $18 million in the fourth quarter. Loans for condominiums dropped by $14 million and $2 million in the third and fourth quarters. Only multi-family homes kept the momentum, increasing loan activity by $400,000 and $5 million. Anchorage took the biggest hits, posting loan declines as early as the second quarter of 2015. In total, the Anchorage real estate market saw a $73.2 million reduction in single-family home loans in 2015. In Fairbanks, single-family home loan activity declined in every quarter, resulting in an overall $29.2 million reduction in 2015. Single family loan activity fell by $3.5 million in Juneau. Loans for new construction of single-family homes increased despite the loan reduction. Statewide, $400,000 more worth of loans were used to build new single-family homes, but those numbers skew declines in home building activity in the state’s two largest population centers. In Anchorage, $8.4 million less in loans was used to fund the new construction of single-family homes compared to 2014. In Fairbanks, $1.6 million less was used. Juneau, however, saw an increase of $2.6 million in loans used for single-family home construction in 2015. DJ Summers can be reached at [email protected]

Analysis finds buying Anchorage LIO close to moving cost

An independent review of the Legislative Council’s options to deal with the Anchorage Legislative Information Office building found the cost of purchasing the building to be nearly on par with moving the Legislature’s Anchorage offices elsewhere. San Francisco-based Navigant Consulting Director Nigel Hughes concluded in a report dated March 14 that purchasing the Anchorage LIO would cost 4 percent more, on a per square-foot present value basis, than moving to the nearby Downtown Atwood Building, which houses state executive branch agencies. The conclusion is first based on a $37 million purchase price, which Anchorage real estate developer Mark Pfeffer, managing member of the building owner group, 716 West Fourth Avenue LLC, has said he would be willing to sell for. It also assumes the purchase would be financed over 20 years at 3.1 percent interest, which was the going rate for tax exempt bonds on March 7, according to the Alaska Housing Finance Corp. 716 West Fourth Avenue is the Anchorage address of the LIO building. Subsequently, the analysis takes into account that the 42,900 square feet of usable space in the LIO is significantly greater than the 34,100 square feet of space available at the Atwood Building. While purchasing the LIO for $37 million equates to a 20-year net present value cost of $31.7 million and the 20-year cost to move would be $24.2 million, according to Hughes, the additional usable space in the LIO closes the per square-foot cost gap to $3.08 per square foot to stay and buy the LIO versus $2.95 to move to the Atwood Building. Included in the Atwood scenario is the $3.5 million in renovations the Legislative Affairs Agency estimates it would cost to make the available Atwood space suitable for legislative offices. The Legislative Affairs Agency handles business and legal matters for the council. Extending the existing 10-year, $3.3 million per year lease on the building to 20 years would cost $61.8 million in today’s dollars, or an even $6 per square foot, the analysis concludes. “Our goal from the beginning of our conversations with the ALaska Legislature and the Legislative Council has been to find an agreement that is good for Alaska,” 716 spokeswoman Amy Slinker said in a statement. “The Navigant analysis provides a solid step forward. We will continue to discuss in good faith options that can achieve savings.” The Legislative Council has found itself in a political bind over the current lease at a time when the state is trying to manage its way out of a $3.5 billion-plus budget deficit. On Dec. 19, the Legislative Council unanimously recommended the full Legislature vote not to fund the lease at a meeting in the Anchorage LIO unless a solution that is cost-competitive with moving to the Atwood Building could be resolved within 45 days with help from state finance agencies. With the issue being a political hot potato, that help didn’t come. Navigant’s Hughes notes in his analysis that there are issues for the council to consider beyond simply the bottom line cost. If the council decides not to fund the current LIO lease, it “will need to consider the wider financial and legal implications between the state and the business community,” Hughes wrote. The Legislature could terminate the lease seemingly without legal ramification because of a clause in nearly all government contracts stating fulfillment of the agreement is “subject to appropriation,” in this case, by the Legislature. If the Legislature doesn’t fund it, for any reason, the lease or contract falls apart. Pfeffer has hinted intent to sue if the Legislature walks away from its obligation. The Legislative Council, then led by Rep. Mike Hawker, R-Anchorage, decided to rebuild on the old LIO building site in 2013 after attempts to find existing suitable space that meets the unique needs of a public government body in Anchorage failed. The Legislature contributed $7.5 million towards the construction cost, so Pfeffer and his company ultimately funded $37 million, about $28 million of which is long-term debt and $9 million is Pfeffer’s cash equity position in the property, he has said. Appraisals of the six-story building plus its underground parking facility have been as high as $48 million, but numerous estimates put its value at $44 million. The customized office space cost $44.5 million to build in 2014, according to Pfeffer. A Nov. 24 cost analysis done by AHFC and the Department of Revenue with information provided by the Legislative Affairs Agency put the 10-year cost of purchasing the LIO for $37 million with fixed-rate bonds at $48.8 million when financing and operating costs were included— translating to $8.97 per square foot. The comparable cost to move to the Atwood Building was found to be $10.1 million, including the $3.5 million for tenant improvement costs. AHFC Deputy Executive Director Mike Buller sent an email to Legislative Affairs Agency Executive Director Pam Varni Dec. 3 contending the analysis should not be considered when evaluating the council’s options because, among other reasons, it used a 10-year amortization for the purchase a longer-term assets and ignored the residual value of owning the building after it would be paid for. “Unfortunately, I cannot support the analysis of the options presented in your report to the council and a public discussion at this time will only embarrass everyone involved,” Buller wrote. He declined to comment further. Varni said in an interview that Legislative Council chair Sen. Gary Stevens was made aware of Buller’s concerns; however, neither Stevens nor Varni brought the issue up in discussions, according to a transcript. Questions to Stevens’ office regarding the Nov. 24 analysis were directed to Chief of Staff Katrina Matheny, who also serves as council staff. Matheny said Stevens waited until Feb. 11 to recommend an independent analysis of the council’s options because he was concerned more with the Legislature’s direct cash outlay on a 10-year basis, which is equivalent to the current lease, and less so with the inflation-adjusted present value cost or other issues. “We had no intention at that point (in early December) of hiring an independent third-party; we didn’t think one was needed,” Matheny said. When a Jan. 29 proposal from 716 West Fourth Avenue contended purchasing the LIO for $37 million would save the state money over moving to Atwood was quickly disputed by Varni for overstating moving costs by up to $16 million over 30 years, Matheny said the “dueling comparisons” pushed council members towards an independent review. Settlement passed Ultimately, waiting to hire outside help could have cost the council an opportunity to settle a lawsuit challenging the legality of the current Anchorage LIO lease. 716’s Jan. 29 proposal for the Legislative Council to purchase the building included a settlement in the lawsuit brought against the building owner and the Legislative Affairs Agency by Anchorage attorney Jim Gottstein, who also owns the Alaska Building adjacent to the LIO. Gottstein contends the lease violates state law because the council did not follow proper procurement code when it contracted with Pfeffer’s development team in 2013. He and 716 agreed to settle by Feb. 12 if the council and Legislative Affairs agreed to not attempt to recoup attorney fees from Gottstein in the settlement. The settlement, from 716’s perspective, was also contingent upon the council funding the current LIO lease or agreeing to purchase the building, according to the Jan. 29 document. Matheny said the settlement “fell by the wayside” because of the deadline and that Stevens wanted the state Superior Court to decide whether the lease is legal or not before making a decision on the building. Judge Patrick McKay heard partial summary judgment arguments March 22. He indicated an intent to issue a ruling by the week of March 28. Elwood Brehmer can be reached at [email protected]

No bonds means bare-bones capital budget

With little appetite from legislators for a general obligation bond package, bare bones capital budgets the next couple years are probably a harsh reality of the state’s fiscal situation. The administration’s proposal for a $500 million general obligation, or GO, bond package to fund up to $250 million of capital appropriations in each of the 2017 and 2018 fiscal years received, seemed possible, if not likely, to pass the Legislature based on reactions when the idea was first offered by Gov. Bill Walker in December. Attitudes have changed, however, as the session has worn on. Revenue Commissioner Randy Hoffbeck said during a March 21 press briefing that there was growing concern in the Legislature about taking on additional debt at a time when the state’s budget is upside down to the tune of a $3.5 billion-plus deficit. “The consensus seemed to be with legislators that they would like to wait until we get a stabilized fiscal plan in place because bonding will have to dovetail with whatever plan that we come up with,” Hoffbeck said. An administration plan to bond for future state pension obligation payments also fell on deaf ears and was subsequently scrapped. When first proposed, the bonding plans were pitched as a way to leverage the state’s low-interest borrowing capacity under the premise that the state can get a better percentage return on its savings over the long-term than the interest on the bonds would cost. The leaders of the capital budget in both chambers of the Legislature largely echoed Hoffbeck’s conclusions in interviews. Senate Finance co-chair Sen. Anna MacKinnon, R-Eagle River, said she heard through public testimony to the committee that many Alaskans feel the state operating budget is still too large, and therefore it wouldn’t be prudent to add spending for capital projects. Walker floated the GO bond proposal as a way to pay for critical and incomplete infrastructure projects across the state, but House Finance co-chair Rep. Steve Thompson, R-Fairbanks, said his primary concern lies in the prospect of “Christmas treeing” on a bond package. That is, a fear that numerous, nonessential projects would end up decorating the bond legislation. Both MacKinnon and Thompson said the sentiment towards capital spending could change next year if the Legislature works out a fiscal plan that stabilizes state revenue and substantially reduces annual deficits through some use of the Permanent Fund’s investment earnings, taxes and budget cuts. Thompson added that it will be a new Legislature next year, which could bring with it new priorities. MacKinnon also cited the State Bond Committee’s January Debt Affordability Analysis report, which concludes Alaska has the capacity to take on about $175 million in additional GO bonds without further impacting its credit rating. Multiple ratings agencies have slightly lowered the Alaska’s formerly sterling credit ratings this year because of the messy budget situation, and, so far, a lack of a plan to address it. “The issue is we absolutely could use debt to finance some projects that we think are viable and that would benefit the state long-term, and I believe that may still be a conversation going forward, but the issue is that currently we are structurally imbalanced and if we don’t change the way that we are structurally balances I can’t in good conscience go forward and recommend a bond package to anyone,” MacKinnon said. The hitch in holding off on a bond package is that waiting one year means waiting at least two. GO bond proposals must be approved by the public on a general election ballot — if not this November then not again until November 2018 — that also means approval from the electorate is far from a sure thing. While GO bonds often pass in better budget times, the prospect of voters signing off on state debt when cuts are being made to other areas of government spending is more uncertain. Hoffbeck said that when the next window for GO bonds opens up it would be something the state “would need to strongly consider.” MacKinnon did not rule out the possibility of funding high-priority projects — namely those that address safety issues — through direct appropriations next year. As for the 2017 budget, she said the capital budget, which will come out of the Senate first, will take center stage in the last couple weeks of the session, with the state’s priority being “to squeeze every dollar of matching money” out of federal capital programs. Much like last year, the governor’s proposed capital budget uses about $180 million of state general funds to match more than $950 million of federal money mostly for highway and airport improvement programs. All in, Walker’s capital budget totals more than $1.2 billion thanks to the federal support. As recently as fiscal 2013, when oil prices averaged close to $100 per barrel and translated into full state coffers, Alaska spent more than $2 billion of its own money in a capital budget. The drastic change in capital spending is exemplified simply in the size of the actual budget bills — 194 pages in 2013 versus 20 pages from the administration this year. Because it takes up to six years for most state appropriations to fully “hit the street” in the form of work for contractors, Alaska’s construction industry is still relying on the larger capital budgets from days gone by for much of its work. Significant contraction from the oil and gas sector led the Associated General Contractors of Alaska to project a decline in construction spending this year of about 18 percent, which would take the industry roughly back to the activity level seen 2013. Cut from the administration’s initial capital budget was $5 million for the Alaska Energy Authority’s popular Renewable Energy Fund grant program that supports projects across the state focused on getting rural communities off of diesel and fuel oil for home heating and electric generation. Since 2008, the Legislature has committed $271 million to the Renewable Energy Fund. It received $11.5 million in the budget passed last year, one of the few state programs to be funded in the state’s slim 2016 capital spend. AEA contends completely cutting Renewable Energy funding this year will impact its ability to administer prior-year grants. MacKinnon said the authority should expect to be “touched” by changes in state spending habits, but also noted she is working on a way for surplus funds from the Power Cost Equalization Program, also administered by AEA, to support renewable energy projects. The premise behind the idea being that rather than spending PCE money each year to subsidize electric costs, the money could be used to permanently reduce rural energy prices through generating renewable energy. Power Cost Equalization is an endowment-style state subsidy that buys down the cost of electricity for rural Alaska residents and small businesses. “It’s a theory we need to do the math on,” MacKinnon said. Elwood Brehmer can be reached at [email protected]

Board of Fisheries hopefuls, legislators playing nice in 2016

The 2016 Board of Fisheries appointees represent no one, and everyone, they insist. 2015 and 2016 took a toll on fisheries leadership. The last 12 months include one botched interview, one forced resignation, three failed nominations – including one denied by the Walker Administration – a fistful of felony charges, and two recent resignations – one of which chairman Tom Kluberton said comes from political burnout and stress, the other, Bob Mumford, coming before he even had the chance to be confirmed by the Legislature.  Gear group and regional allegiance bubbled underneath it all, and what the board should look like to best reflect them all. This year, Gov. Bill Walker’s appointees are eager to explain what little bias they carry onto a board that oversees Alaska’s largest source of private employment. Legislators offer none of the fire seen last year, public comments are gentle, and none of last year’s regional and gear group tensions have boiled over. The Senate Resources Committee forwarded Israel Payton on March 21 to a joint session hearing, moving the Mat-Su resident one step closer to being confirmed as a board member. Payton, along with former Alaska Wildlife Trooper Al Cain and Kenai area conservationist Robert Ruffner, was nominated to fill one of three available positions on the board left Kluberton, Mumford, and Fritz Johnson. This leaves Bristol Bay without a representative. Bay groups are angry, but so far haven’t led the same kind of campaign that derailed board nominations last year. Payton came out of the gate speaking directly of a lack of allegiance to user groups, gear types, and regions, describing a good board member as neutral above all else. A good board member, he said, “should be careful not to be seen as one user’s advocate,” and “realize that board members do not represent any specific interest group, fishery, but represent all Alaskans equally, and we all have very unique differences and perspectives.” Payton’s fisheries involvement extends to subsistence and sport, and he currently serves on the Board of Fisheries’ Mat-Su Fish and Game Advisory Committee. The committee, public commentators, and Payton himself focused mostly on affiliation, specifically, which if any he holds. Payton insists his time as a sportfishing guide has no bearing on his Board of Fisheries plans. “I’ve worked as a sportfishing guide in the past,” said Payton, “but it’s been 11 years since I’ve made any money related to any type of fisheries resource, and it does not define who I am or how I will vote.” Though he has little direct commercial fishing experience, Payton claims he will benefit commercial fisheries. Without any connections, he has no loyalties or prejudices. “I will not bring any preconceived ideas or conflicts between different commercial users or fisheries,” he said. Sen. Pete Micciche, R-Soldotna, the only committee member to question Payton, probed for Payton’s backbone, asking whether he would have trouble making tough allocative calls when needed. “You know the pressure that comes on you in the Board of Fisheries,” Micciche said. “Do you have any hesitation on limiting harvest opportunities to any or all of the four user groups to meet the (maximum sustainable yield) requirement?” Payton said his alliance was to Alaska’s Constitution first, not to user groups. “If there’s a biological concern, and there’s a resource in crisis or not meeting the MSY, I think that it’s time to act accordingly,” he said. “I realize the amount of pressure that the commissioners and managers currently face when they do things like emergency orders, but we are mandated by the statues, by the Legislature, and we have to follow it.” In the midst of the interview, Payton acknowledged the pressure Micciche spoke about. “I would be lying if I told you I wasn’t nervous about serving on this board,” he said, but that he could only try. Along with the committee itself, the public had little input. Only three people called in to the committee, two in support of Payton and one neutral. A March 10 hearing was similarly mild compared to last year. A Senate Committee Hearing for Al Cain and Robert Ruffner met calm receptions from Sens. Bill Wielechowski, D-Anchorage, and Bill Stoltze, R-Chugiak. Both senators counted among the most vociferous of Ruffner’s critics during his 2015 confirmation hearing, but recanted their earlier opposition. In 2015, they said, Walker had nominated Ruffner to fill a seat they feel sportfishermen had traditionally held. This time around, that’s not a problem. Both Stoltze and Wielechowski said they were glad to see Ruffner back and nominated for a commercial fisherman’s spot. The senators, representing the largely sportfishing and personal use interests of Southcentral Alaska’s largest urban population centers, had opposed Ruffner’s appointment on the grounds that it should go to an Anchorage resident and a sportfisherman. Wielechowski acknowledged that Ruffner’s failed confirmation – the joint committee failed to confirm him by a single vote – had less to do with Ruffner’s undisputed credentials and more to do with fish politics. “Last year was rough and it really had nothing to do with you at all, it was just simply concern over the seat designation,” Wielechowski said. “I’m certainly more open to this entry now that you’re applying for a different seat,” Stolze said. “The seat you are applying for is traditionally thought to be a commercial seat.” Ruffner, director of the habitat restoration focused Kenai Watershed Forum, reaffirmed what he’d said last year. The health of the fish and habitat are first and foremost in his mind. Likewise, Cain responded to committee questions maintaining a neutral position in the endless Cook Inlet fisheries allocation battles. “I’d like to hear input on all sides, and if we can improve something, make something more sustainable, I’m not interested in disenfranchising any user group or individual but seeing that the allocations … are as equally distributed as they can be is my goal,” Cain told the committee. “That is why I’m not opposed to listening to suggested changes for any user group.” DJ Summers can be reached at [email protected]

Enstar, Furie seal gas deal through April ‘21

Enstar Natural Gas Co. appears to have locked up 90 percent of its gas supply needs into 2021 after finalizing a deal with Furie Operating Alaska. The gas supply and purchase agreement filed March 14 with the Regulatory Commission of Alaska is for a firm supply of 6.2 billion cubic feet, or bcf, of natural gas per year from April 2018 through March 2021. During the first year of the contract the gas price would be $6.70 per thousand cubic feet, or mcf, nearly 20 percent less than the price the utility will pay — based on Consent Decree pricing — under a contract it has with Hilcorp Energy that expires at the end of March 2018. The contract has a price escalator of 2 percent per year, which is half of the annual price increase allowed under the Consent Decree. Base gas in the last year of the deal would be $6.97 per mcf. Daily calls for extra gas during peak winter demand periods would be about $1 more per mcf than the base price for the life of the contract. Enstar also has the option to extend the gas supply contract for two additional years through March 2023, but it must notify Furie of its intent to do so by April 1, 2018, according to a letter from the utility submitted to the RCA. The 2012 Consent Decree, agreed to by the State of Alaska and Hilcorp, set price caps on Cook Inlet natural gas through 2017 to prevent a monopoly situation when Hilcorp became the dominant player in the market through its purchases of Marathon Oil and Chevron assets. The ending Consent Decree price for base load gas in 2017 is $7.72 per mcf. Enstar estimates its average gas cost, when higher priced variable load gas is included, will be $8.33 per mcf under its Consent Decree-based contract with Hilcorp set to expire March 31, 2018. The utility also recently reached a gas supply deal with Hilcorp for 70 percent of its firm demand from early 2018 through early 2023. The initial gas price in that contract is $7.56 per mcf, a 9.2 percent price drop from the end of Consent Decree pricing. It also has a 2 percent price escalator. Both of the deals are pending RCA approval. Enstar projects its latest contract with Hilcorp will save Southcentral natural gas customers $14 million in the first year as the lower gas price is passed through to consumers. On the demand side, the utility is forecasting flat demand for gas at about 33 bcf per year through 2023 due to increased efficiency and conservation efforts by consumers offsetting small growth in its customer base, Enstar leaders have said. Furie’s deal with Enstar is the Houston-based independent’s second contract with Southcentral utilities since entering Cook Inlet. Furie agreed last September to supply Homer Electric Association with a base load of 4 bcf per year through 2018, with options to extend through 2020. That deal kicks in April 1 at a $6.50 per mcf base price. HEA will pay $7.00 per mcf for base load gas in 2018. Furie started exploratory drilling in the Kitchen Lights Unit offshore from Nikiski in 2011. Since, the company has spent over $700 million to bring Kitchen Lights online, according to company executives in testimony to the Legislature. Much of that money was invested in the first new production platform to be installed in the Inlet since the 1980s. Elwood Brehmer can be reached at [email protected]

Committee bill cuts Cook Inlet credits, not much more

Legislators began putting their imprints on Gov. Bill Walker’s oil and gas tax credit overhaul with the first committee version of the legislation released March 19. The House Resources Committee substitute of House Bill 247 is a mild version of the original bill; it gradually reduces the value of credits companies could claim for capital expenses, but does not address the minimum production tax rate or “tax floor.” Tax Division Director Ken Alper said in testimony March 21 that the bottom line savings to the state from the committee bill would be roughly $45 million to $65 million per year versus the status quo credit program. The administration’s bill would save an expected $400 million in fiscal year 2017 mostly by eliminating a 20 percent credit on capital expenditures and a 40 percent credit on drilling expenses, both in the Cook Inlet basin. Walker also proposed raising $100 million in new revenue through increasing the minimum production tax from 4 percent to 5 percent and preventing North Slope producers from using credits to take their tax liability below the minimum tax floor. The House Resources Committee is co-chaired by Reps. Benjamin Nageak, D-Barrow, and Dave Talerico, R-Healy. The committee version was promptly passed to House Finance late March 22 after 43 of 45 amendments to the bill were dismissed. They were brought primarily by Anchorage Democrat Reps. Geran Tarr and Andy Josephson. The lone amendment to pass from the Minority members was introduced by Tarr to ensure a legislative working group the bill would establish to evaluate the future of the Cook Inlet oil and gas tax regime includes members of the minority caucuses in the House and Senate. Rep. Paul Seaton, R-Homer, also introduced numerous amendments to the committee substitute mostly focused on further reducing the state’s direct cash outlay for refundable credits for existing producers. Of the seven Majority caucus members on the Resources Committee, Seaton has been the most critical of the state’s current industry tax credit program through the lengthy hearing process. “Once you’re giving people a lot of monetary support they want to keep giving to even if it’s not necessary,” he said in an interview. Tax credits should focus on helping companies develop new projects rather than producers working on existing fields that are already profitable with the basins high natural gas costs, he said, which the committee bill doesn’t adequately do. The only amendment of Seaton’s to make the bill requires companies engaged in exploration or development to file a $250,000 surety bond with the state to cover its unsecured creditors. It grew from Buccaneer Energy filing for bankruptcy in 2014 after developing the small Kenai Loop gas field, which left several Buccaneer small contractors on the Kenai Peninsula high and dry. He described the bond as a “small insurance policy” for businesses providing goods and services such as fuel or camp services to explorers. So far in fiscal 2016 the state has paid $473 million in refundable oil and gas tax credits for work that predominantly occurred in 2014, according to Alper. The total 2016 refundable tax obligation is expected to reach $700 million, but the state will be able to pay the remainder of that in the 2017 fiscal year, he said. To date, the State of Alaska has paid out roughly $3.5 billion in refundable oil and tax credits, Alper said, since the subsidy program took off in the 2007 fiscal year. Walker introduced HB 247 and its Senate mirror bill, SB 130, as a way to significantly reduce what he characterizes as an unsustainable expense that is a large part of the state’s $3.5 billion-plus budget deficit. Company representatives have said the administration’s policy changes would pile on an industry that is already losing money on every barrel it produces at current prices. The cost of producing North Slope oil and getting it to market is approximately $46 per barrel, according to the Revenue Department, while Alaska North Slope crude sold for $41 per barrel March 21, the first time it was above $40 this year. The committee’s HB 247 focuses on Cook Inlet and “Middle Earth” refundable credits. The Middle Earth region is anywhere in Alaska other than the North Slope and Cook Inlet geologic basins. It would reduce the current 40 percent Well Lease Expenditure credit to 30 percent in 2017 and 20 percent in 2018. The Net Operating Loss, or NOL, credit for those areas south of the Slope would also be cut from 25 percent to 10 percent on Jan. 1 2017. The committee bill also replaces a $25 million per company annual limit on refundable credits proposed by the administration with a $200 million annual repurchase cap. Alper said the $200 million cap would likely come into play only for companies executing major development projects requiring annual spending approaching $600 million. A requirement to make public the companies receiving refundable tax credits pushed by the governor was also left out of the substitute bill. Alaska Oil and Gas Association Executive Director Kara Moriarty said in an interview that the committee bill is recognition of the industry’s position in that it doesn’t make structural tax changes, but that changes to the Cook Inlet credits are still a concern. “Regardless of the (fiscal) situation the state is in, raising taxes on an industry in our situation only makes the situation worse,” she said. Tarr and Josephson, on the other hand, described the version of HB 247 that is moving on as a missed opportunity to save the state hundreds of millions of dollars per year in a Minority caucus press release. “I want to support the oil industry and in some cases can see the usefulness of co-investing in exploration and development projects,” Tarr said in a statement. “However, the (credit) current system is out of balance and needs to be reformed. House Bill 247 in its current form is unrecognizable from the original bill.” The two versions of HB 247 do align on eliminating a loophole in current statute that allows North Slope producers of new oil — production brought online in recent years — to compound a 20 percent new oil credit known as the Gross Value Reduction with a 35 percent NOL credit to produce a refund greater than the company’s actual loss. The Gross Value Reduction credit lowers the taxable wellhead value of new oil by 20 percent before other considerations are added to the oil’s taxable value. Alper said closing the Gross Value Reduction plus NOL loophole was first projected to save the state about $13 million next fiscal year, but that figure continues to go up as low oil prices force more producers to claim operating losses. Members of the committee and the Walker administration have noted throughout the tax policy debate that the loopholes allowing companies to take their tax liability below the 4 percent floor and grow their operating loss credit are a consequence of current oil prices below $50 per barrel that were not modeled when Senate Bill 21, the broader oil tax structure, was passed in 2013. According to the Tax Division, the committee bill would not impact tax structure for major North Slope producers — companies with over 50,000 barrels per day of production. It would impact new entrants to the Slope or small producers only at low prices through closing the NOL loophole. For Cook Inlet producers and companies developing production, however, the final impact of the latest version of HB 247 would be a reduction in state support that is now up to 55 percent for development costs to the 20-30 percent range by the time the credit reductions are fully implemented in 2018, Alper said. The Senate Oil and Gas Tax Credit Working Group held last year and headed by Sen. Cathy Giessel recommended hardening the production tax floor, which the committee substitute does not, and making any changes to the credit program forward looking, which it does. Elwood Brehmer can be reached at [email protected]

Medicaid reform passes Senate

Medicaid has been a divisive topic in Alaska since Gov. Bill Walker announced his plan to expand the federal insurance program in the state early last year, but the Medicaid reform package that unanimously passed the Senate March 11 seems to be something lawmakers and health care leaders can agree upon. Sen. Pete Kelly’s Senate Bill 74 that was sent to the House after a 19-0 vote combined parts of the administration’s Medicaid reform and expansion bill with an earlier version of Kelly’s bill, both of which were introduced last session. The Department of Health and Social Services estimates the changes to the Medicaid system in SB 74, as it is currently constructed, would save the state more than $31 million right away in fiscal year 2017. Those savings are expected to increase to nearly $114 million per year by 2022 as the programmatic reforms are fully implemented. Kelly, a Fairbanks Republican and co-chair of the Senate Finance Committee, said the savings estimates are very conservative in discussion on the Senate floor before the vote on the bill. He also said prior attempts at Medicaid reform “missed the point” in trying to change patient behavior and therefore didn’t achieve meaningful savings. “(SB 74) is a reform bill that goes after the system, not after the recipient,” he said. Walker said in a statement to the Journal that he typically does not comment on legislation until it reaches his desk, but that he is committed to working with the Legislature on Medicaid reform. Medicaid expansion funded The state’s Medicaid expense has grown more than 70 percent in the last decade, from less than $400 million in 2006 to nearly $700 million this fiscal year at a time when the state is running $3.5 billion-plus annual budget deficits. The federal government is contributing more than $1.1 billion to Alaska’s Medicaid program this fiscal year. The ballooning cost of the program has been oft cited by legislators opposed to expanding it to a new group of beneficiaries, which Walker did last summer via executive order after the Republican-led majorities in the Legislature chose not to last year. A lawsuit against Walker by the Legislative Council challenging his authority to expand the program without the Legislature’s approval was dismissed in state Superior Court earlier this month. Republican leaders in the Legislature have said they intend to appeal the decision to the Supreme Court. The cost of the new class of Medicaid beneficiaries was fully covered by the federal government in fiscal year 2016, which allowed Walker to take the money without legislative approval, but will eventually require a 10 percent state match of about $20 million per year after 2021, based on DHSS enrollment estimates. The federal government’s 100 percent match ends at the end of 2016, meaning the state must begin contributing a match for the last half of fiscal year 2017, which runs through June 30 of that year. The state’s first payment for the new Medicaid recipients, estimated at $3.8 million based on enrollment projections, was funded in the operating budgets passed by House and Senate earlier this month, according to the offices of the Finance Committee chairs in each body. House Bill 227, a Medicaid reform package introduced by Rep. Paul Seaton, R-Homer, passed from the House Health and Social Services Committee to Finance March 9. Federal dollars make up savings By far the most of the forecasted savings to be wrung from SB 74 — $29 million in 2017 growing to $97 million in 2022 — would come from getting more Medicaid services for Alaska Natives fully covered by the federal government. Care received by Alaska Natives enrolled in Medicaid from IHS and Tribal health providers has long been fully funded by the federal government. Changes to federal rules within the last year expand what the feds consider to be received through an Indian Health Services or Tribal health facility. “The policy changes basically broaden what’s considered a service delivered through a Tribal facility to include the related transportation costs and also to include referrals out to other providers from the Tribal system when certain conditions are met,” DHSS Deputy Commissioner Jon Sherwood said in an interview. Federal funding will also now cover 100 percent of the Medicaid expense for Alaska Natives in long-term care facilities outside of a Tribal network. Previously, the match for all care received by Alaska Natives from non-IHS and Tribal facilities was 50 percent, similar to the match for Medicaid services to the broader public. Managed care SB 74 would also require DHSS to implement a primary care case management system to push Medicaid enrollees towards primary care first and away from potentially unnecessary and more expensive specialty provider and emergency room visits. Alaska Primary Care Association Executive Director Nancy Merriman said she doesn’t know what the case management system would look like yet, but hopes it “takes the form of a primary care health home for Medicaid enrollees where that practice has the ability to provide comprehensive and coordinated care for patients.” Included in the optimal system model would be services across the provider spectrum and care coordinators, particularly for individuals with chronic issues, to assure critical health information reaches from one provider to another and help in managing everything from prescriptions to appointments, according to Merriman. Overall, Merriman said she spent a substantial amount of time following the formation of SB 74 and commended the Senate Finance Committee for undertaking a “really thorough process of learning about all the different facets of Medicaid and then really listening to people and putting together a pretty good bill.” The bill also directs the Health Department to partner with a statewide hospital organization in developing a hospital-based approach to reduce over-utilization of emergency services. Sherwood said he expects to start talking with the Alaska State Hospital and Nursing Home Association about the directive if the bill is passed, as the idea was first floated by the organization. Also among the department’s duties would be establishing a medical assistance reform program that would, among other things, reduce travel expenses paid through Medicaid by requiring recipients to obtain care in their home communities whenever possible and expand the use of telemedicine for primary, behavioral and urgent care. Outside telemedicine allowed To make telemedicine providers as accessible as possible, the Department of Commerce, Community and Economic Development is directed to establish a business registry of telemedicine providers in the state. Telemedicine providers are required to be licensed in Alaska but do not have to be located in the state under the bill. Sen. Peter Micciche, R-Soldotna, a Finance Committee member, said on the Senate floor that telemedicine costs about a third of an in-person visit and one-tenth of most emergency room visits. “We are one of only two states that does not allow telemedicine to be practiced across state lines, this bill will change that,” Micciche said. Coinciding with the push to expand the use of telemedicine, the State Medical Board is also tasked with adopting guidelines for physicians who provide treatment or prescribe drugs without an in-person examination that are consistent with national guidelines for administering telemedicine. Behavioral health Also added to the state Health Department’s duties would be the management of a behavioral health system that integrated into the broader primary care system. In partnership with the Alaska Mental Health Trust Authority, the department would develop a plan for community-based behavioral health services that addresses related housing, employment and criminal justice issues. Mental Health Trust CEO Jeff Jesse said in an interview that the focus of the behavioral health reform is an attempt to elevate the treatment of behavioral, or mental, health issues to the primary care level. “We really want to integrate care so that the whole person is being looked at in as many settings as possible,” Jesse said. Prioritizing behavioral health treatment can address minor depression or substance use early on and prevent what can become extremely harmful and costly issues down the road if left untreated, he said. Sherwood echoed what others have said in regards to behavioral health reform, that everyone knows the cost savings are there, but they are hard to quantify because they stretch far beyond medical costs. “We know that when behavioral health issues are not addressed appropriately and quickly we see increased pressure on the criminal justice system, law enforcement, our courts, our correctional system. We see increased pressures on our child protection system; we see increased use of inappropriate services like emergency room services and other kinds of hospitalization,” Sherwood said. The Mental Health Trust’s role in reforming Medicaid goes beyond changing behavioral health practices for in the state to that of a funder, according to Jesse. The trust is in the process of considering a list of requests from DHSS to fund the drafting of federal waivers, provider assistance programs and consulting contracts for studies; “all those one-time expenses that, particularly in this fiscal climate, are pretty hard for the department to come by and hard for the Legislature to appropriate,” he said. In all, he said the self-funded trust could end up contributing several million dollars to the reform effort, which would likely require a restructuring of its current operations but also be worth the extra effort, Jesse said. He, like Merriman of the Primary Care Association, commended the committee for its thorough work on the far-reaching bill. Among the studies the bill calls for is a look at privatizing the Alaska Psychiatric Institute and the six state-run assisted living Pioneer Homes for elderly Alaskans. The original Pioneer Home in Sitka was a converted U.S. Marine barracks that first provided housing, meals and basic medical care to indigent elderly men in 1913, according to the Health Department. Pioneer Home residents applying for payment assistance would also have to show proof of a Medicaid application on the basis that Medicaid eligible individuals could have care partially paid for through the federal Medicaid match, a possible savings approaching $1 million annually, Micciche said. Health plans, opioid monitoring, fraud enforcement Additionally, the bill directs the Department of Administration to analyze the feasibility of establishing a health care authority to consolidate all state employee and retiree health care plans with local school district employee plans to maximize market purchasing power in an attempt to achieve lower insurance rates for the state. Beyond just Medicaid, SB 74 also requires providers and pharmacists to register with the state Prescription Drug Monitoring Program. The prescription drug database was established in 2008 as a voluntary program in an attempt to reduce the over-prescription of opioids and other addictive and controlled substances. Sen. Cathy Giessel said before the Senate vote that setting up the program was the first step of progress and “this inclusion in the Medicaid reform bill is the other half step.” Physicians and pharmacists would be required to search for a patient in the database before prescribing a controlled substance to see if the patient had also been prescribed the medication by another provider and could be “doctor shopping” as Giessel described it. The bill has an allowance for physicians and pharmacists to authorize a designee access to the database who would also register with for the program. Making participation in the Prescription Drug Monitoring Program mandatory will benefit all Alaskans, not just Medicaid beneficiaries, she said. Medicaid fraud is addressed in SB 74 through increased enforcement by the Department of Law and formation of the Alaska Medicaid False Claims Act. Largely in-step with federal law, the Medicaid False Claims Act would set civil penalties between up to three times the damages incurred by the state plus attorneys fees, but not less than $5,500 or more than $11,000 for each count. It would also set a statute of limitations of 10 years for any action to be brought against a provider or beneficiary accused of Medicaid fraud. Stricter fraud monitoring is expected to save the state up to $900,000 per year, according to the Law Department. The department requested $365,000 for two full-time positions to focus on Medicaid fraud for one year until the lawyers can pay for themselves. Criminal Division Director John Skidmore called the request a “put up or shut up” scenario in testimony to Senate Finance March 7. “If we collect the money, we’ve paid for ourselves and if we don’t, we’re not asking you to increase our budget, only to increase our authority to spend if we collect the money,” he said. Implementing the many changes in the bill — if it passes the House with a similar look — will also require seven new Health Department positions in 2017 and nine new staff in 2018. The department projects that number will decrease to five permanent positions once the transition period is complete in 2020. Elwood Brehmer can be reached at [email protected]

Banks, CUs haven’t seen downturn yet

Alaska’s state budget and economy hang over dangerous cliff, but the state’s financial institutions haven’t been pushed to the edge yet. Alaska’s banks and credit unions showed growth in 2015, driven by commercial lending growth statewide and optimism for housing markets in the Interior. “Wells Fargo has continued to see our Alaska business customers stockpile cash with total deposits topping $6 billion in Alaska for the first time,” said Joe Everhart, president of Wells Fargo Alaska region. “That’s an eight percent increase from year-end 2014 to year-end 2015. We have also seen steady loan demand with total loans at $2 billion in Alaska, up five percent over 2014. Wells Fargo provided more than $400 million in new business loans in Alaska in 2015, and we were the No. 1 (Small Business Administration) lender in Alaska for the eighth consecutive year.” Statewide, Alaska’s five largest state-based banks grew net income 5.5 percent throughout 2015, from $61.6 million in 2014 to $65 million. Collectively, the banks represent $6.2 billion in total assets, up from $5.9 billion. Banks increased their total loans by 13 percent to $3.1 billion. Tops in growth was Denali State Bank in Fairbanks, which increased its net income 11 percent in 2015 to $2.1 million. Denali State Bank President Steve Lundgren said a push in mortgages and commercial loans drove the income bump, which came with a sizable dividend for the bank’s investors. Denali State paid out nearly twice the normal dividend than in the previous year. “I think last year we had a couple drivers that helped with that,” said Lundgren. “We saw increased mortgage activity. We had focused on that. Our lending activity overall remained as strong as we could expect it to considering our geography and economy, largely as a result in increase in commercial lending activity.” Lundgren said no particular sector of the commercial world grew in particular; rather, traditional commercial loans and commercial real estate opportunities peppered the year. Denali State Bank also saw a $2 million jump in delinquent loan rates, the majority of which Lundgren said are Outside government-backed loans. Unlike some “doom and gloom” seers, he said, Denali State expects a healthy 2016. Lower oil prices rake the state’s budget, but Fairbanksans — whose homes are generally heated with heating oil, one of the largest household expenses — are reaping the benefits of a disposable income boost. Interior banks Denali State Bank and Mt. McKinley Bank remain hopeful for a construction uptick due to the 2014 U.S. Air Force announcement that Eielson Air Force Base is its preferred location for two new squadrons of F-35 fighters. An estimated 3,000 new Fairbanksans will be made in the process. The runner-up in growth as a percentage was the largest state-based bank. First National Bank Alaska grew net income 10.8 percent to $36.1 million. Growth was natural considering a 12 percent boost in total loans and leases, and a shedding of millions worth of delinquent loans. Public relations director Lyn Whitley said the bank’s strong balance sheet is due to deposit growth and steady growth in interest income. The bank’s $2.5 million increase in other real estate owned came mainly from land improvements to existing properties. Northrim Bank’s balance sheet showed a small downturn for 2015 with a 2 percent net income loss. Bank Executive Vice President and Chief Financial Officer Latosha Frye said the bottom line number is misleading after Northrim’s record-breaking 2014, in which net income increased 42 percent from the previous year. Northrim finalized its purchase of Alaska Pacific Bank April 2014, which gave the company access to the long-sought Southeast Alaska market. Northrim also bought the remaining shares of Residential Mortgage, which was already 23.5 percent Northrim-owned. The mortgage company is now a wholly owned subsidiary of Northrim Bancorp. When merger costs and new revenues are extracted, Frye said, Northrim Bank posted a 33 percent organic net income growth for 2015. Total loans and leases grew 6 percent. Like Lundgren, Frye said Northrim hasn’t yet noticed any impacts of the oil industry’s and state’s problems — she said Northrim still sees “stable demand” compared to this time last year, and no decline in credit quality — but she’s begun to see signals, and lacks the Lundgren’s federal spending-driven optimism. “We certainly expect it to be more challenging to grow,” said Frye. “To have a no growth year is not a goal of ours, but we know it’s going to be harder to grow, when the economy is projected to be flat to slightly down.” Frye said Northrim is noticing some customers appearing to prepare for an economic downturn by paying off debts ahead of schedule. “We have seen our most well capitalized and liquid customers are paying down some debt,” said Frye. “That’s a good thing as far as risk management goes, but of course has its own challenges for us.” Ketchikan-based First Bank had a modest 5.4 percent net income growth for 2015, expanding its loan portfolio by 4.3 percent. Alaska’s six credit unions also performed well in 2015, growing their collective income 23 percent to $67.9 million, driven by an overall 11 percent loan growth. Denali Federal Credit Union more than doubled net income to $4.9 million from $1.8 million. Alaska USA, the state’s largest credit union, drove hard in 2015 as well, growing net income from $34.9 million to $49.4 million with a 14 percent growth in total loans and leases. Matanuska Valley credit union reaped the benefits of a strong 2015 along with Interior and Anchorage, posting $4.2 million in net income, a 14 percent increase from 2014.  Denali big year buries losses in the average. Credit Union 1, Spirit of Alaska, and Juneau’s True North all posted net income decreases for 2015, at 25 percent, 6 percent, and 56 percent, respectively. DJ Summers can be reached at [email protected]skajournal.com.

Alaska trawlers furious about Walker’s council nominations

Editor's note: This article has been updated to include comment from Alaska Department of Fish and Game Commissioner Sam Cotten. Two months after a heated meeting, trawlers are again accusing Alaska Department of Fish and Game Commissioner Sam Cotten of short-changing their industry.  Gov. Bill Walker submitted nominations to fill two seats of the North Pacific Fishery Management Council on March 9, sending waves of dissatisfaction throughout an industry segment that claims Walker’s administration is forcing it out of the process at the worst time possible. Walker nominated Buck Laukitis of Homer and Theresa Peterson of Kodiak to replace Duncan Fields and David Long among the 11 voting members of the council, one of eight regional councils established by the 1976 Magnuson-Stevens Act to oversee federal fisheries from three to 200 miles off the coast. The U.S. Secretary of Commerce ultimately selects each member, choosing either the governor’s stated preference or from his list of alternates. Of 11 voting members, six seats are reserved for Alaskans, including the commissioner of the Alaska Department of Fish and Game, currently held by Cotten. The remaining seats are reserved for the fish and game officials from Washington and Oregon, as well as a designated seat for the National Marine Fisheries Service Alaska Region. Fields has served his maximum of three consecutive, three-year terms. Long only served one term after being appointed by former Gov. Sean Parnell in 2013. Since Walker announced the nominations, trawl industry representatives have voiced a steadily building frustration with the his administration’s fisheries policy.  “There’s a strong anti-trawl message coming from this administration,” said Glenn Reed, executive director of the Pacific Seafood Processors Association. “The two appointees illustrate that really clearly.” Cotten did not respond to requests for comment before press time, but said on on March 17 that the Washington and Oregon council seats already provide ample represenatation for trawlers, the majority of whom port in the Lower 48, not Alaska. He reiterated his comments from the contentious February meeting, saying that the economic and cultural welfare of Alaska communities is the administration's goal. "We are trying to look out for the health of coastal communities," he said.  ‘Fair and balanced’ Trawl representatives say they bring in too much seafood to be left completely off the Alaska council delegation. “Right now, 90 percent of the 5 billion pounds caught off Alaska is caught with trawl gear,” said Julie Bonney, executive director of Alaska Groundfish Data Bank. “Now we have bycatch management tools in front of the council for Gulf of Alaska fisheries, and yet on the Alaska side of the council we don’t have anyone that really understands those fisheries.” In a release, Walker said his nominations provide “balanced and insightful experience.” Trawl representatives insist that Walker’s nominations run afoul of the clause of the Magnuson-Stevens Act which calls for “the Secretary, in making appointments under this section, shall, to the extent practicable, ensure a fair and balanced apportionment, on a rotating or other basis, of the active participants (or their representatives) in the commercial and recreational fisheries.” Both Peterson and Laukitis have opposed many policies in recent years supported by the trawl industry, and promoted others in opposition to the industry’s stakeholders. Most recently, Peterson opposed a proposal to establish rationalization programs in the Gulf of Alaska groundfish fisheries favored by the trawl industry during a February council meeting as a member of the Advisory Panel that’s made up of 21 fisheries stakeholders. Instead, Peterson voted to continue studying a proposal the trawl industry loathes which does not allocate harvest quota. Peterson said “large scale fishing operations and the processing sector are well represented both on the council and through dedicated participation,” and that she believes small-scale coastal residents need more help. “Through my years participating in the Council process, seven of them serving as an Advisory Panel member, I find the voice of the small-scale, independent fishing operations to be the most underrepresented group in the process,” said Peterson. “In order to maintain fair and equitable representation on the council we need to have council members who represent coastal community members and understand the challenges of living in remote regions.” Laukitis does not have experience on the council’s Advisory Panel, but has gone on record during council process opposing trawl-backed regulatory proposals. In an 2014 Homer News editorial addressing halibut bycatch, Laukitis advocated for deep halibut bycatch cuts for the Bering Sea groundfish trawlers, referring to Clem Tillion, former Gov. Jay Hammond, and former Sen. Ted Stevens as examples of sound fisheries management. As alternates to Laukitis and Peterson, Walker forwarded Eric Olson, Paul Gronholdt, Linda Behnken, and Art Nelson. None directly represent trawlers or processors. Screening process Trawlers claim nominees were chosen based on fealty to a specific vision of Alaska fisheries rather than experience. John Whiddon, a Kodiak city council member, had applied and was interviewed by Cotten along with Barbara Blake and Walker’s Deputy Chief of Staff John Hozey. Whiddon said the interview had two components. One asked a list of basic questions to determine fisheries management experience and familiarity with council process. The second probed for something deeper. “The second part was how supportive I’d be as a potential candidate of the state’s position towards the various fisheries,” said Whiddon. Whiddon said Walker’s team seemed to want to engineer the council so that “there wouldn’t be any real strong outliers in the Alaska contingent.” “It’s obvious the state has a direction they want to go,” said Whiddon. Bonney, executive director of the Alaska Groundfish Data Bank, was interviewed for a council seat. “It seemed to me they were looking for people who were all going to agree with a particular vision,” she said. “My feeling was, there’s two sides of fish. One is social justice and access and the mantra coming out of fish policy now, and the other side, which is economics. Fishing is about making money. I think they’re looking not so much about the division of return of dollars…but access to opportunities for small boat participants.” Certain applicants received no interviews at all, including trawler Jason Chandler, Anne Vanderhoeven, and Rebecca Skinner, an attorney and Kodiak Borough co-chair of the Kodiak Fisheries Work Group. Trawl representatives suspect the timing and reveals what they say is a pattern. “That’s sort of the way the commissioner is stacking the deck,” said Paddy O’Donnell, Kodiak resident and trawl operator who serves on the council’s Advisory Panel. At its December meeting, the council removed Mitch Kilborn of Kodiak’s International Seafoods of Alaska, and Anne Vanderhoeven, fisheries quota manager for Bristol Bay Economic Development Corp., a Community Development Quota group. In place, the council appointed Ben Stevens of the Tanana Chiefs Conference and Angel Drobnica of the Aleutians Pribilof Islands Community Development Association, another CDQ group, both of whom trawlers describe as “anti-trawl.” Before the Portland meeting, the AP changed leadership roles, voting to replace Ruth Christiansen with Ernie Weiss of Aleutians East Borough as chair, with co-chairs Matt Upton from U.S. Seafoods and Art Nelson from Bering Sea Fishermen’s Association. Trawl representation Trawlers argue their fisheries are the most important part of the Kodiak economy and other coastal economies with fish processing capability. In Kodiak, groundfish fisheries contribute to a year-round processor workforce, rather than the seasonal employment used by many other processing hubs. In Kodiak, an average of 1,500 employees work in processors per month. In all months except June-August — salmon fishing months — the majority of Kodiak’s processor poundage is delivered by trawl vessels. More Alaskans fish the Gulf of Alaska federal fisheries than non-Alaskans, though more non-Alaskans use trawl gear. According to permit data from the National Marine Fisheries Service Alaska Region, twice as many Alaskans fish groundfish in the Gulf of Alaska than do non-residents — which includes pollock, Pacific cod, and flatfish. NOAA federal permit manager Tracy Buck clarified that the agency does not monitor permits according to resident status, exactly. Rather, each permit is attached to a physical address; 65 percent of groundfish permits are attached to an Alaska address. Gulf of Alaska groundfish can be harvested by trawl or non-trawl gear, though the majority of the catch is taken by trawl. There are 1,209 limited license permits, or LLPs, for groundfish in the Gulf of Alaska: 1,062 non-trawl LLPs and 152 trawl LLPs. The numbers favor Alaska addresses, but the difference between trawl and non-trawl residency speaks to the nature of fisheries. Of the non-trawl permits, a majority of 70 percent trace back to Alaska addresses while just a third of the trawl LLPs have an Alaska address. Non-trawl permits include longline and pot vessels — typically smaller than trawl vessels with a substantially lower barrier to entry where cost is concerned. Larger and more expensive trawlers have the ability to move between Pacific Northwest and Alaska waters, leaving homeport in Seattle or Portland to prosecute groundfish in the Gulf.

Victors in suit against NMFS want hired skipper rule scrapped

The victorious plaintiffs in a case challenging a federal rule over hired skippers in the sablefish and halibut fisheries filed a motion Feb. 24 to vacate the National Marine Fisheries Service action. Fairweather Fish Inc. and Ray Welsh filed suit against the National Marine Fisheries Service, or NMFS, in 2014, following the finalization of a regulation that prohibited the use of hired skippers to harvest halibut and sablefish quota acquired after Feb. 12, 2010. A U.S. District Court judge in the Western Washington District ruled in their favor on Jan. 13, finding that the regulation didn’t meet legal muster. The court ruled that NMFS violated the Administrative Procedures Act, and failed to ensure the new rule complied with National Standards 9 and 10 of the Magnuson-Stevens Act. Judge Benjamin Settle asked the parties for briefings regarding remedy, and the plaintiffs are now requesting that the court simply throw the rule out. “To remedy these violations of law,” the motion reads, “plaintiffs respectfully request that the court vacate the final rule and remand to NMFS for further review.” The Magnuson-Stevens Act was passed in 1976 to govern all federal fisheries in the U.S. It established an Exclusive Economic Zone from three to 200 miles off the U.S. coast, and created eight regional fishery management councils to govern. The act, or MSA, has 10 National Standards, or guidelines that mandate fisheries management goals. National Standard 9 requires regulations to minimize bycatch and bycatch mortality; National Standard 10 requires regulations to prioritize human safety at sea. The court ruled that NMFS failed to consider either when it approved the hired master prohibition. “A fundamental purpose of the halibut and sablefish IFQ program is to reduce bycatch in those fisheries. Yet, the final rule increased bycatch,” reads the plaintiffs’ motion to vacate the rule. “Likewise, by forcing disabled individuals to be onboard their vessels, the final rule decreased safety at sea.” Rather than tune up the rule, the plaintiffs argue that it should be scrapped, citing an earlier case against the U.S. Department of Energy: “When a court determines that an agency’s action failed to follow Congress’s clear mandate the appropriate remedy is to vacate that action.” The hired master rule was a perceived loophole in the federal quota systems installed in the North Pacific, following a derby-style fishery that was both dangerous and over-capitalized. In 1993, the North Pacific Fishery Management Council created an Individual Fishing Quota, or IFQ, program for halibut and sablefish in the North Pacific. The program, ultimately approved by NMFS through the Secretary of Commerce, assigned quota shares to fishermen based on their historical participation in the fishery, and provided for the transfer or sale of those shares among fishermen. The IFQ system allowed for some initial quota recipients to use hired skippers to fish quota for them as long as the quota holder retained more than 20 percent interest in the vessel. They also had to have traditionally used a hired skipper to fish. The North Pacific council, believing that the hired skipper exception was allowing for overconsolidation of quota shares among owners not required to be onboard the vessel, passed a rule in 2013 that prohibited the use of hired masters to harvest any quota acquired after Feb. 12, 2010. However, the council did not set the control date until February 2011, which was after several share transfers had occurred and been approved by NMFS. The plaintiffs argued that the council’s action was an illegal retroactive rule, and that it violated the Rehabilitation Act by disqualifying a disabled quota share owner from the fishery by requiring them to be on board the vessel. The judge did not rule on either the retroactive or Rehabilitation Act claims, stating that the violations of National Standards were enough to determine the final rule was improperly implemented. DJ Summers can be reached at [email protected]

Alaskans note lack of input in pushback against Arctic plan

Alaska’s leaders in Juneau and Congress had harsh words for a joint March 10 statement from the White House and Canadian Prime Minister Justin Trudeau announcing plans for new emissions caps on the oil and gas industry and preservation of significant chunks territory in each country’s Arctic. The statement was released as Trudeau made the first official visit by a Canadian prime minister to the White House in nearly two decades. “Beyond deepening cooperation to reduce greenhouse gas emissions — which will have an outsized impact on the long-term health of the global Arctic — President Obama and Prime Minister Trudeau are announcing a new partnership to embrace the opportunities and to confront the challenges in the changing Arctic, with indigenous and northern partnerships, and responsible, science-based leadership,” the statement reads. It asks the leaders of all Arctic nations to embrace the objectives of conserving Arctic biodiversity, incorporating traditional indigenous knowledge in decision-making, supporting strong Arctic communities and building a sustainable economy in the region. The U.S. took chairmanship of the international Arctic Council last year from Canada, which held the post starting in 2013.  The council is a non-binding body of eight Arctic nations meant to spur positive relationships between the countries on Arctic issues. Secretary of State John Kerry led U.S. representation at an Arctic Council meeting in Fairbanks the following week. Sens. Lisa Murkowski and Dan Sullivan and Gov. Bill Walker all noted the omission of Alaska in drafting the 10-page agreement in formal statements of their own. The sentiment is similar to comments made following the president’s three-day visit to Alaska last summer, which was used as a vehicle to promote his climate change policies. “The Arctic presents great opportunity for our state and our nation to prosper in a global economy. However, the way to achieve that is by greater federal investment in our state’s Arctic development efforts, and not the restrictive policies that were presented today,” Walker said March 10. “It is important to consider the interests of all stakeholders in the region – whether it be focused on marine and wildlife preservation, international travel and shipping, or natural resource development. In doing so, we will ensure Alaska and the United States remain at the forefront of a flourishing Arctic economy.” Walker has said he pushes Obama to allow for oil and gas exploration on the coastal plain of the Arctic National Wildlife Refuge each time he meets with the president, despite actions from the White House to move further towards preservation, not development, of the area. Specifically, the U.S.-Canadian Arctic plan calls for protecting at least 17 percent of the countries’ Arctic land and 10 percent of far north marine waters by 2020. Obama and Trudeau also agreed to the “ambitious and achievable” goal of reducing methane emissions from oil and gas operations by up to 45 percent below 2012 levels by 2025, according to the statement. Further, both countries also endorsed the World Bank’s initiative to eliminate routine methane flaring from oil and gas facilities by 2030. Methane is the primary component of natural gas. “Recognizing the role that carbon markets can play in helping countries achieve their climate targets while also driving low-carbon innovation, both countries commit to work together to support robust implementation of the carbon markets-related provisions of the Paris (climate) agreement” reached in December, the joint statement reads. The countries would also be required to consult each other before approving future oil and gas development in the Arctic. Murkowski called the consultation requirement “simply stunning” in a release from her office. She also said by focusing almost solely on climate change in regards to the Arctic, the Obama administration fails to address other needs in the region, namely economic development. “Although the joint statement makes topical reference to consultation with indigenous people and the incorporation of traditional knowledge into decision-making, it also implies unjustifiable limits that will leave Alaskans standing at the door, rather than seated at the table, on Arctic policy,” Murkowski said. The announcement was not received kindly by the largest private employer in Alaska and the Native regional corporation for the North Slope. “Unfortunately, this is the treatment we’ve come to expect from this administration,” said Arctic Slope Regional Corp. president and CEO Rex A. Rock Sr. “Although these burdensome and largely unnecessary regulations will negatively impact the economy and the people of our region, Alaska’s North Slope, we continue to be completely left out of the conversation when the rules are being drafted. It appears, by all counts, the only side the administration bothered to reach out and listen to was the environmental groups, like the Center for Biological Diversity, World Wildlife Fund and National Resources Defense Council. “Make no mistake, this agreement isn’t the final word; we will fight for keeping the door of opportunity open across the Slope.” Environmental groups noted by Rock hailed the announcement as leadership towards protecting one of the world’s most delicate environments. To achieve the methane reduction goals the Environmental Protection Agency and Environment and Climate Change Canada will develop new regulations governing methane emissions from existing oil and gas sources as soon as possible. The EPA will quickly begin a process requiring producers operating existing methane emissions sources to provide data that will assist in developing “comprehensive standards to decrease methane emissions,” according to the joint statement. The proposed actions will harm the nation’s energy sector, and in-turn could impact the lives of hundreds of millions of Americans that rely on low-cost energy for their quality of life, Sullivan said, adding they could be “particularly devastating” for Alaska at a time when the state needs oil and gas revenue more than ever. “If the initiatives are enacted, less oil and gas will be produced in our state, more jobs will be lost, and state coffers will be increasingly diminished,” he said. “Now is the time when Alaska needs a federal government that will work with the state, instead of working against us to stymie economic opportunity.” Arctic fisheries were also addressed in that Obama and Trudeau are calling for an international agreement to preemptively close unregulated fishing in the central Arctic Ocean, an area that is increasingly accessible as summer sea ice continues its retreat. Elwood Brehmer can be reached at [email protected]  

Ahtna cites tax credits as it prepares to spud gas well

Ahtna Inc. is preparing a drill site near Glennallen to further its hunt for natural gas in the Copper River basin. The Copper River-area Alaska Native regional corporation is building a gravel road and four-acre pad now, with first drilling of its exploration well Tolsona No. 1 scheduled for next month, according to a March 12 company release. Tolsona No. 1 will be on state land about 10 miles west of Glennallen along the Glenn Highway. Ahtna President Michelle Anderson said in a statement that the company is anxious to get drilling after beginning the exploration application process nearly six years ago. “We are optimistic of a resource discover that will help address the rural energy crisis in the Ahtna region,” Anderson said. “A substantial discovery would benefit not only the Ahtna region but the state at large. It would provide a boost to the economy by putting Alaskans to work and help alleviate the high energy costs that many residents experience.” The proposed well depth of 4,500 feet will reach the targeted Nelchina sandstone formation, according to Ahtna. Drill work will be done with a Saxon rig owned by the global drilling company Schlumberger Ltd. Ahtna is partnering on the work with the Midland, Texas-based independent Rutter and Wilbanks, which hit gas when it drilled the nearby Ahtna 1-19 well in the mid-2000s. That well was abandoned, however, because of high-pressure water zones that were also encountered. Ahtna conducted more that 40 miles of seismic surveys last winter, the results of which led to the decision to drill this year, according to the company. Roy Tansy Jr., Ahtna’s executive vice president, testified to the House Resources Committee earlier this month that the company utilized the state’s Frontier Basin refundable tax credits for its seismic program and will do the same for drilling. The state covered about $2.4 million of the $3 million in seismic costs and the company expects to recover 73 percent of its drilling costs estimated at $10 million through the tax credit program. While Gov. Bill Walker’s proposed overhaul of the state’s oil and gas tax credit program does not touch the Frontier credits, Tansy urged the Legislature to extend them, as they are set to expire July 1, the start of the 2017 fiscal year. The Frontier Basin credits were established in 2012. “Ahtna would not be doing this exploration if the tax credits were not there,” he said. The Frontier Basin seismic credit can be used to cover 75 percent of costs up to $10 million for the first four surveys in the six Frontier oil and gas basins identified by the state. The drilling credit covers up to 80 percent of drilling costs up to $25 million, also on the first four wells in each of the areas. Once drilling of Tolsona No. 1 is done in May the site will be demobilized and cleaned and the road will be available for public access to the surrounding state land. Elwood Brehmer can be reached at [email protected]

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