AK LNG pre-FEED work continues with uncertain future

KENAI — Local representatives of the Alaska LNG Project said that although their leaders have spoken of possible delays, employees of the project remain set on smaller steps before them. These steps include creating final drafts of impact reports and completing property acquisitions for the prospective pipeline’s liquefaction facility and export terminal in Nikiski. On Feb. 17, representatives of the Alaska LNG Project partners — the State of Alaska, BP, ExxonMobil, and ConocoPhillips — said at an Anchorage press conference that uncertainty over the global LNG market may bring changes to the larger structure of the project. In a public meeting Saturday at the Kenai Visitor Center, Alaska LNG Community Stakeholder Advisor Josselyn O’Connor said these possible changes were not prompting hesitation with the project’s work. “Our marching orders are to get through and complete pre-FEED,” O’Connor said, using the project’s acronym for preliminary front-end engineering and design — the preparatory work needed to decide whether to invest in building the 806-mile pipeline to carry natural gas from the North Slope. Since 2012 the Alaska LNG partners have invested approximately $500 million in conceptualizing the pipeline, including $230 million budgeted for 2016, and are expected to make a further investment of up to $2 billion if they continue to actual engineering and design. The Alaska LNG Project has estimated it will ultimately spend between $45 and $60 billion on its facilities. “We know there’s a lot of noise around the project right now,” O’Connor said. “But we’re committed to pre-FEED. I think the owners stood up and said they’re committed to pre-FEED. We’re also looking at optimization: how do we get the cost of this project closer to the lower end of that price ticket? The other big thing is the resource reports. Those have to line up.” Alaska LNG will have to submit 13 reports of the project’s estimated effect on the local environment and culture to the Federal Energy Regulatory Commission, a national licensing authority. O’Connor said she expects the reports to be submitted in summer 2016. In response to an audience question, O’Conner said Alaska LNG will not need to complete its land purchases for the Nikiski facility in order to continue FERC licensing. She said the project has purchased about 570 acres and will eventually need to buy between 800 and 1,000 acres for the Nikiski terminal. Larry Persily, a former federal oil and gas coordinator and current advisor to Kenai Peninsula Borough Mayor Mike Navarre on LNG issues, said FERC would consider Alaska LNG’s application even if its acquired land is “a little bit of a jigsaw, and there’s a few pieces missing.” “When the project applies to the Federal Energy Regulatory Commission, they have to show they control the site,” Persily said. “The law does not require that they own 100 percent of the property, but they’ve got to show federal regulators that they have enough of the property under contract purchase option to show they control it.” He added that at least one prospective LNG project has been denied a FERC license for lacking sufficient control of property. When asked by an audience member what the project might do with the land if it does not reach the building stage, Alaska LNG Project Advisor Jeff Raun was uncertain. “In terms of our property management plan, I’m not sure of a clause that says ‘what do we do if...?” Raun said. In an interview afterward, Persily said that in the event the Alaska LNG Project decides not to build, recouping the land investment would be “the least of their worries,” and the property tax the project would continue to pay on the unused land would be a small part of its overall expenses. At the meeting’s conclusion, Persily also commented on the presently oversupplied global LNG market, in which major buyers in South Korea and Japan have dropped their imports by around 14 percent over the past two years, according to an email update by Persily. “The only LNG export projects anywhere in the world in the past few years that have gone to a final investment decision — because the market is so bad — have been the ones on the U.S Gulf Coast, where they already had an LNG import terminal in place,” Persilly said Saturday. In that case, he said exporting had been viable because it only required a slight reconfiguration of an unused export terminal. The U.S largely stopped importing natural gas after the technique of extracting gas from shale was perfected in the 2000’s, creating a new domestic supply. He added that the only other recent new LNG exporter is an effort subsidized by the Russian government. In a later interview, Persily said that given the value of the North Slope gas Alaska LNG wants to market, it’s unlikely Alaska’s pipeline and terminal will never be built. “I don’t think it’s a question of not building it, but when,” Persilly said. Reach Ben Boettger at [email protected]

Tax credit changes show unpredictability, consultant says

A consultant to the Legislature reviewed the oil and gas tax credit changes proposed by Gov. Bill Walker and concluded the State of Alaska needs one thing above all else: fiscal stability. Janak Mayer, chairman of the petroleum industry consultant firm Enalytica, said in a marathon session of presentations before the House Resources Committee Feb. 25-27 that the administration’s proposals to reduce state expenses and increase revenue are not individually drastic. However, they collectively make significant changes to the industry-favored tax structure known as Senate Bill 21 that was implemented less than three years ago. “It is said over and over again, but stability is the most important element in any fiscal system,” Mayer said. House Bill 247, the administration’s bill to change Alaska’s oil and gas credits, is not a tax policy overhaul, but incremental changes to the credits with the goal of more revenue could give industry the impression the state is headed down a “slippery slope” of tax tweaks, he said. Collectively, Mayer said the small tax changes would likely have a significant adverse impact on producers, particularly at the low oil prices of today’s market. Soldotna Republican Kurt Olson commented that the Legislature changes oil tax policy virtually every two years. “That’s not (HB) 247’s fault, it’s just the newest one,” Olson said. The Alaska Oil and Gas Association contends the bill amounts to drastic changes in the state’s oil tax system that will directly impact production and investment if enacted. Walker’s suite of oil tax revisions was introduced along with tax increases on other prominent industries as part of an overarching fiscal plan to pull the state out of annual budget deficits that have grown to more than $3.5 billion as fast as the price of oil fell to the current $30 per barrel range. The tax changes include raising the minimum production tax rate from 4 percent to 5 percent, as well as “hardening” the tax floor to prevent companies from claiming losses against tax liabilities in order to pay less than the minimum tax. Among closing other loopholes, HB 247, and its companion legislation Senate Bill 130, would limit the amount of money the state pays out to explorers and producers each year by setting a refundable credit limit of $25 million per company per year. Refundable credits can be applied to tax liability, sold to another company with a liability or cashed in to the state, resulting in a direct expense for the state. Walker deferred — through a partial veto — $200 million of a $700 million line item in the 2016 budget for the state’s projected refundable credit obligation this fiscal year. That action was meant to start a conversion about the expensive subsidy program, Walker said, and it did. At the same time, the veto is alleged by those in industry to have scared potential private investors and killed some deals in the state that were dependent on the credits as collateral for additional financing. The state’s payout of refundable credits peaked in fiscal year 2015, with more than $400 million paid to companies working in Cook Inlet and another $224 million going to North Slope operators, according to the Department of Revenue. If passed as proposed, HB 247 would cut the annual credit outlay to about $200 million and generate about $100 million per year in additional tax revenue, the administration has said. Of the eight tax credits that would continue beyond 2016 under current law, five are refundable; the remaining three are non-transferrable credits that can only be used by North Slope producers. HB 247 would eliminate two of the refundable capital expenditure credits available for companies working in Cook Inlet. The loopholes the governor’s bill attempts to close are mostly related to what have been described by legislators as unintended consequences of SB 21’s credit provisions, which were not modeled for fiscal impacts at oil price regimes below about $60 per barrel when it was being debated. One of Walker’s changes would prevent the state from covering more than 100 percent of a North Slope operator’s losses for producing new oil during times of low prices, which could occur if the Gross Value Reduction for new oil and the Net Operating Loss credits are combined. Mayer, who helped the Legislature scrutinize SB 21, said he was surprised to learn of the possibility for the state to pay more than a company’s loss through the combined credits, but the bigger issue is again how many statutory cracks lawmakers try to fill at once. “There are a number of things in (HB 247) that are really important questions to be thinking about,” Mayer said. “It’s some of the specific solutions and the incremental nature of what’s being proposed that I have the biggest worry about.” He testified Feb. 25 that on top of Alaska being an innately high-cost place of business for oil companies, the state’s near total dependence on the industry for revenue makes it a more risky business environment. When in need of cash, Alaska is more likely to turn to the industry for concessions than other state’s or countries that have an oil and gas sector as part of a more diversified economy, he reasoned. Additionally, Alaska’s overall industry tax structure combines tax systems kept separate in other jurisdictions. The state’s mineral royalty acts as a steady, regressive gross tax often used by resource-dependent governments to provide income during low price cycles, Mayer said, while the more volatile and net production tax — on its own — gives producers a break at low prices but captures more revenue during profitable periods through progressivity. Another issue of concern is the July 1, 2016 effective date for most of the provisions in the bill, according to Mayer. He said immediately changing the credit system could significantly impact exploration and development plans that have already been drafted. The Oil and Gas Tax Credit Working Group led by Sen. Cathy Giessel, R-Anchorage, recommended to harden the minimum tax floor, as the administration wants to do, but also noted that any changes to the system be made gradually. Cook Inlet Cutting Cook Inlet tax credits wouldn’t generate new revenue, as no production tax is collected on the basin’s oil and its natural gas production tax would not be impacted. Eliminating the capital and drilling credits would save the state money, but what effects that would have on an out-of-step gas market needs to be considered, Mayer and Enalytica President Nikos Tsafos said. The 2010 Cook Inlet Recovery Act, passed by the Legislature to encourage natural gas development, among other things, instituted a 40 percent drilling and exploration credit that HB 247 would cut. The reliability of Southcentral’s natural gas supply has improved since the passage of the act when fears of gas shortages abound, but the act contributed to distorting the isolated market, according to Mayer and Tsafos. Further complicating matters is the Consent Decree that Hilcorp Energy and the state agreed to in 2012, which allowed Hilcorp to purchase a vast majority of the producing assets in the Inlet, but also set gas prices on most utility contracts through early 2018. The prices laid out by the Consent Decree are in the $6-$8 per thousand cubic feet, or mcf, of gas. Recent contracts for gas supply beyond 2018 have been at slightly lower prices than the Consent Decree, evidence that some natural market forces may at play. A simple lack of demand for Cook Inlet natural gas has put nearly everyone involved in a bind. As Henry Hub-based natural gas prices have fallen in the Lower 48 to about $2 per mcf in recent years and worldwide LNG prices have fallen as well, Cook Inlet has become one of the most expensive natural gas markets in the world. High gas prices and tax credits have undoubtedly incentivized new investments and helped turn Inlet production around — and secured Southcentral’s primary energy source — but the whole situation has led to unsustainable state expenses that won’t be recovered under the current system, according to Mayer. The credits, combined with the lack of a significant production tax, has led to Cook Inlet being one of the most generous fiscal regimes for oil and gas in the world, he said, with about 40 percent total government take. Still, companies are only able to manage about a 10 percent to 15 percent return on investment because the volume of gas they can sell is basically capped with limited exports and no major industrial anchor customer. “The basic impact of the credits is to make what is a very marginal investment maybe just possible,” Mayer said. While it’s time for the state to have a “serious conversation about what the state’s policy aims are” through the Cook Inlet credits, he added that eliminating the capital credits July 1 “seems like a rash decision.” Tsafos suggested — now that the Inlet can supply Southcentral for at least 10 years based on Department of Natural Resources reserve estimates — allowing market forces to return as much as possible in the coming years as the Consent Decree expires. “The broad instinct should be rather than try to artificially prop up a market that isn’t working, it’s to try to think more generally about how do we make this market work better,” Tsafos said. Rep. Mike Hawker, R-Anchorage, a sharp critic of many provisions in HB 247, said the state should be careful to not disrupt the Cook Inlet gas market further through credit changes because it will change the Consent Decree’s current March 2018 expiration.

GUEST COMMENTARY: Time for another approach on gasline fiscal certainty

Alaskans have just been told that gasline contract negotiations have not progressed satisfactorily and thus there is no time left to get a constitutional amendment allowing a vote on fiscal certainty on the 2016 ballot. The proposed constitutional amendment would provide the producers with the necessary assurances that the State would not arbitrarily increase the tax rate over the life of the LNG project. The producers have told the state for years that unless they had fiscal certainty on taxes they would not spend the large sums of many (around $4 billion) required for front- end engineering and design, or FEED. Putting off fiscal certainty until the 2018 elections and the resulting delay in beginning FEED should be unacceptable to all parties — both the state and the producers. To suggest that there may be another market for Alaska gas overlooks the fact that a good portion of Alaska gas has been leased to the producers. Any effort to take it back will result in extended litigation and more delay. A few months ago, I proposed a solution which I sent to each legislator and the Alaska media. I believe my proposal has merit and if adopted addresses the two major concerns of each of the parties. Certainly for the producers as well as neutralizing the risk to the state if the pipeline is never built. In 2005-2006 when my administration was negotiating with the producers on the natural gas line fiscal certainty was a major issue and a “must have” for the producers. We did not seek a constitutional amendment regarding Alaska’s tax alienation authority because we were not turning over Alaska’s taxing authority to someone else. We were simply entering into a good faith contract “fixing the tax rate for the life of the project (subject to certain escalation based on inflation) etc. We agreed that the state and the producers could rely on that part of the Alaska Constitution that protects the “sanctity of contracts” and each side would be bound by its terms. In order to avoid the threat of a constitutional challenge to such a contract the Legislature could require that any constitutional challenge would have to be brought directly in the Supreme Court within 90 days of the Legislature’s approval of the contract. Why not agree to similar contract terms and move on? It was satisfactory then, why not now? With the delicate state of the Alaskan economy, we must take advantage of every opportunity to market our resources in a sound and prudent manner in the best interest of all our citizens. It is not in the interest of the state or the producers to delay. Frank Murkowski served as Alaska’s governor from 2002-06, and as U.S. senator from 1981-2002.

GUEST COMMENTARY: Completing Port Mac rail extension will expand economy

I’m sure columnist Charles Wohlforth felt a genuine lump in his throat as he pedaled for miles on the Port MacKenzie Rail embankment, worried about the sinking Alaska economy and casting blame on an unfinished rail project in his Feb.1 column. On his bike seat, overlooking an arm of Cook Inlet, he retreated to the safety of income taxes as a solution for our fallen oil prices and state deficit, rather than to what needs to be done: diversifying the economy beyond oil. Resource development is going to return hundreds of millions annually to the state of Alaska. The quicker we are to develop the natural resources, the quicker we generate revenue. We share his earnest concern for our state’s future. But our views diverge there. Where Wolhforth saw a railroad ending in forest, consuming dollars, we see a rail embankment 75 percent complete, awaiting steel wheels on iron rail, the most efficient and affordable transportation for bulk materials since the Industrial Revolution. We see investment in transportation infrastructure — a fundamental requirement for resource development and economic growth — just as the building of the Parks Highway was an investment in the ‘70s. It connected Southcentral Alaska with Fairbanks and brought economic opportunity to towns and businesses along the corridor. Port MacKenzie Rail will shorten the trip of a 100-rail-car train between tidewater and the mineral wealth of the Interior. Each Alaska port has its valuable role to play in Alaska’s economy. Port Mackenzie — with rail — will be the least expensive path for exporting natural resources to tidewater. Here’s why: • When finished, Port Mac Rail is 32 rail miles closer to water from the Interior than the port of Anchorage, and 140.7 rail miles closer than the port of Seward. The dollars saved per ton-mile can be the tipping point to development for projects with narrow profit margins such as mineral development. Saving a million dollars per shipload can determine whether a company exports at all. • It has 14 square miles of staging grounds. There’re no constraints on space at Port MacKenzie. The laydown area for large projects is massive. • A 100-rail-car loop will provide the longest industrial loop in the State with efficient handling of bulk materials. Trains will offload materials and circle a mile around for the trip north. Trains do not have to be broken apart. • It connects to a port with deep waters, 60 feet at low tide, that accommodate the largest ocean-going vessels in the world. Bigger ships mean lower export costs for bulk materials. • It avoids costly and unsafe congestion of road crossings on the mainline. Longtime Alaska prospectors like Ed and Ann Ellis know the importance of cheaper transportation. Their company, Diamond Gold Corporation, just put Port Mac Rail in their operating plan with the Alaska Department of Natural Resources. For 19 years, they’ve been developing a gold-silver-copper deposit and gems in Yenlo Hills, 45 miles northwest of Willow. Ed Ellis plans to export super sacks of sand-like concentrate of precious metals to a smelter in Asia. Port Mac Rail’s role in Ellis’ profit margin is “huge,” he said. Exporting by truck costs three times as much. Will it pan out? We don’t know yet, but we do know that transportation is at the heart of success for this company and for larger ones. Columnist Wohlforth ignored how critical rail is to mineral development. In fact he made fun of rail, calling it a “white elephant.” If the builders of the Transcontinental Railroad had shared that opinion, the West would not have been opened up until long after the Civil War. Wolhlforth is the author of several books, so it’s strange that he saw no opportunity in transportation infrastructure when he wrote: “In 1915, the Alaska Railroad itself was expected to open vast new mineral and agricultural development, which never happened.” In his column, Wohlforth forgot about Fairbanks, a town built on mining and the railroad. He forgot about Fort Knox Gold Mine, which could not have happened at low gold prices if it weren’t built close to rail. The Interior has produced more than 18 million ounces of gold. Pogo Mine, alone, has yielded more than three million ounces of gold. Fort Knox has paid some $2 billion to the Fairbanks’ economy over 19 years. In 2014 alone, Kinross Gold, the owner of Fort Knox, paid $17.1 million in state taxes and fees. Both those companies—Kinross at Fort Knox and Pogo’s Sumitomo Metal—have written letters of support for Port MacKenzie Rail in previous years. Fort Knox spends some $5 million on transportation costs annually. Reducing the costs of importing materials, they say, will help them be more competitive and give better opportunities for expansion and longevity. Right now, there’s exciting news on two large mineral occurrences near Fairbanks, a promising copper, molybdenum, gold accumulation at Shorty Creek, some 70 miles northwest of Fairbanks. Recent drilling results cause UAF Geological Engineering Professor Paul Metz to think that this single mine could yield $385 million per year to the State in taxes, royalties, and fees because it’s potentially a high grade, large deposit. There’s also a large gold occurrence near Fort Knox Gold Mine, and a gold deposit, Money Knob, near Fairbanks. Port MacKenzie Rail would help those projects increase profit margins. The mines would need to haul in by rail hundreds of millions of dollars in freight. The low grade gold needs cheap transportation for operating materials. The copper mine would haul out copper concentrates, first by truck, then by rail to Port MacKenzie, where the sand-like material would be loaded onto large ships for smelting and refining overseas. Mining does take years to get off the ground, but so does the Alaska LNG Pipeline. Both are worthy investments critically linked to rail. In addition to mining, Port Mac Rail provides infrastructure for these large projects: •  Moving Cook Inlet gas to Fairbanks via rail. The Alaska Railroad recently became the first railroad in the nation allowed to transport LNG. Salix, Inc. is vying to be AIDEA’s pick for an LNG plant with expansion capability of up to 400,000 gallons of liquefied natural gas per day. If chosen, the company could connect to Port Mac Rail at Ayrshire Road. • Providing construction support to the Alaska LNG Project. Port Mac Rail would save the project $100 million over other ports by staging and transporting pipe north by rail through the closer Port MacKenzie. • Hauling low-sulfur diesel to Fairbanks by Central Alaska Energy, a company leasing property with completed pad, seeking funding for construction of a tank farm at Port MacKenzie • Moving supplies to support continued petroleum activity at Prudhoe Bay • Hauling limestone from Globe Creek’s 1.6 billion ton deposit near Livengood, as agriculture lime and for mines such as Red Dog or the proposed Donlin Creek Mine and ultimately cement exports • Exporting liquefied natural gas from Port MacKenzie to Japan. The natural resources development company, REI, is doing due diligence on a $1 billion liquefaction facility and power plant at Port MacKenzie. The Japanese company would export Cook Inlet gas to Japan. REI Vice President Mary Ann Pease calls Port MacKenzie “the best port in Upper Cook Inlet for LNG exports to Japan in a timely manner.” REI is still committed to a 2020 timeframe for exports to begin. The next year or more is going to be challenging. But now is not the time to let our entrepreneurial muscle atrophy as Wohlforth suggests. The returns on resource development and on infrastructure like Port MacKenzie Rail will be far more than the original investment. Let’s get to it. Vern Halter is Mayor of the Matanuska-Susitna Borough and a dog musher who took first in the 1,000-mile Yukon Quest International Sled Dog Race in 1990 from Fairbanks to Whitehorse, Yukon.

INSIDE REAL ESTATE: Anchorage’s mixed-use rules reflect mixed-up priorities

During the 10 years of negotiation and conflict over the new Title 21 land use regulations which finally became ordinance in January 2016, the Municipality of Anchorage planning department held firm on their vision of encouraging mixed-use development by creating new zoning categories as one avenue to solving Anchorage’s housing shortage. However, what works on paper and theory isn’t necessarily financially feasible in reality. In other words, mixed-use in Anchorage has yet to be “ground tested” on new, non-subsidized, vertically-integrated projects. Traditionally, mixed-use development has been developed as vertical construction with retail and offices on the ground and lower level floors and residences above. The best local example of this is the Petersen Towers that has retail on the first floor, several floors of offices above, and three top floors — each with six units — of luxury condos. At the time it was built in the early 1980s, Petersen Towers was a ground-breaking building with unobstructed inlet and mountain views. Since then, to my knowledge, there has been no vertical mixed-use development on that scale, although small, older buildings with grandfathered rights have seen some mixed-use conversions. Fire Island Bakery in South Addition shares space in a building with apartments and offices. Celestial Sweets on Spenard Road is located on a ground floor in a small building with apartments above it. Some older two-story buildings in the downtown corridor also have a handful of apartments above their retail space. New mixed-use developments include Cook Inlet Housing Authority’s projects in Mountain View and plans for a larger, mixed-use development on Spenard Road. The popular Rustic Goat restaurant on Northern Lights is considered a mixed-use project with detached apartments located on the back alley. These small mixed-use developments fit in well with local neighborhoods and contribute to economic and social diversity. However, higher density development as advocated by the MOA has many issues. According to Seth G. Weissman, a real estate attorney presenting to the Georgia Planning Association, “mixed-use works best in highly urbanized areas where the project (particularly the retail) can be woven into the fabric of an existing urban center. Mixed-use cannot survive without the density to support it.” Weissman goes on to explain that the residential housing component in mixed-use works best as a high quality rental product but still must be surrounded by density and local government contributions for alleyways, parks, and other destination amenities. Anchorage’s housing shortage is now a well-recognized and much-discussed fact. We are short hundreds of housing units. The solution, however, is not in high density vertical mixed-use where talk is cheap and construction is over $350 per square foot. Rather, the MOA should look at ways to encourage more affordable housing such as a small lot ordinance or low density neighborhood mixed-use through the use of variances and overlay districts. Connie Yoshimura is the broker/owner of Dwell Realty. Contact her at 907-646-3670 or [email protected]

GUEST COMMENTARY: Alaska’s second-hand economy funds itself and heals society

The new millennium has introduced many new ways of spending, saving, and earning money. We have the sharing economy, the gig-economy, the on-demand economy. The Salvation Army specializes in what is often referred to as the second-hand economy, an increasingly important part of the larger, mainstream economy. The second hand economy is just what it sounds like: the buying and selling — or donating — of durable goods and services. Craigslist, yard sales, thrift stores. Our Thrift Stores are one of the most visible functions of The Salvation Army. You can see the familiar red shield over storefronts all over the world and in 14 communities around Alaska. The second-hand economy is worth billions of dollars. A recent study in Canada found that it is currently responsible for contributing nearly $34 billion dollars to our neighbor nation’s GDP. This is about 15 percent of the value of new goods purchased. There are many benefits of the second-hand economy. For one thing it keeps local money in local pockets. Every dollar that a consumer uses to purchase an item from someone nearby on Craigslist or, say, from their local Salvation Army thrift store, is a dollar that doesn’t go to an Outside vendor. Similarly, every item that is purchased at a garage sale, or your local Salvation Army thrift shop, is an item that doesn’t need to be barged in. This again saves money and time for the consumer but has the added benefit of reducing the potential for environmentally harmful waste. Likewise, that which doesn’t have to be shipped in doesn’t need diesel oil to be burned on its way to purchase here. The potential for job creation is enormous. In Canada, some 300,000 jobs can be traced to the second-hand economy. Here in Alaska, hundreds of people work in thrift stores around the state including those operated by The Salvation Army. There is an extra economic value added when people shop for or donate goods at a Salvation Army thrift shop. In Anchorage, Salvation Army thrift store proceeds fund homeless and rehabilitation services. Alaska spent over $217 million in 2010 on drug- and alcohol-related criminal justice services. Every purchase and donation to a Salvation Army thrift store goes towards keeping someone away from a dangerous substance and defrays the direct cost to society of their rehabilitation. Outside of Anchorage and Wasilla, Salvation Army thrift store proceeds support the local Corps Community Centers in towns throughout Alaska. Services like food pantries, after-school programs, meal deliveries, senior services, and emergency disaster response are all made possible in communities throughout urban and rural Alaska through thrift store sales. So that ironic t-shirt you bought at your local Salvation Army thrift store helped provide someone in your town with a job, protect the environment, boost your local economy, lower state spending, and save someone’s life. Congratulations. And thank you. Thomas Brown is the Communications Manager for The Salvation Army Alaska Division. The Salvation Army has been in Alaska since 1898. More information about The Salvation Army in Alaska can be found at their website: http://www.salvationarmyalaska.org.

Juneau Assembly supports Juneau Hydropower plan

JUNEAU — The City and Borough of Juneau Assembly has pledged its support to Juneau Hydropower Inc.’s $25 million district heating plant proposal, which company officials said will keep heat prices low and carbon emissions lower. At a Feb. 22 Assembly work session, Juneau Hydropower CEO Keith Comstock and Duff Mitchell, the company’s managing director, pitched their plan to use water from the Gastineau Channel to heat Downtown Juneau. They didn’t ask for much in return. “We’re asking for your love, tenderness and cheerleading support,” Mitchell said, channeling his inner Michael Bolton and eliciting a few chuckles from Assembly members and onlookers alike. Mayor Mary Becker showed the Juneau Hydropower some love when she moved that the Assembly write a letter of support for the plan. The rest of the Assembly turned on the tenderness when it voted, without objection, to pass Becker’s motion, but not before Assembly member Debbie White gave Comstock and Mitchell her cheerleading support by amending Becker’s motion, clarifying that it would be a “strong letter of support.” Boasting their district-heating plant’s 300 percent efficiency rating and its ability to reduce Juneau’s dependence on fossil fuels and outside markets, Comstock and Mitchell won over some of the Assembly’s toughest critics, such as Jerry Nankervis. “In the four years I’ve been hearing about this project, I’ve yet to hear anything about it that I don’t like,” Nankervis said after the pitch. With the Assembly at their backs, Comstock and Mitchell have to finish answering the four major questions that Comstock said need to be resolved in order to get the project going. They’ve already answered the first two: both think the project is both economically feasible and marketable. Now they need to finish getting their equity in order and securing financing, according to Comstock. “This is a large project so there’s a large amount of equity that has to be put down,” he said noting that Juneau Hydropower has friends on Wall Street ready to invest in the project. As for the financing, Mitchell and Comstock said they are looking for a low-interest loan from the federal government, and they are getting “strong signals of support.” “We wouldn’t be here talking to you if we didn’t intend to go into construction, and in order for that to happen we have to have all of these things in place,” Comstock said. Juneau District Heating’s system would take electricity from Juneau Hydropower’s Sweetheart Lake facility about 40 miles south of the city to power heat pumps in Gastineau Channel that “scavenge” the thermal energy in the seawater and transfer the heat to water in network of pipes used to deliver the heat to homes and businesses. It is essentially the same process used in large-scale refrigeration, except the heat is trapped as a valuable resource rather than being collected and dispersed as waste. The City of Seward is also investigating the potential of sourcing its heat from Resurrection Bay. The science behind the renewable energy is nothing new; it’s already being used on a smaller, and cooler, scale to heat the Alaska Sealife Center in Seward and the Ted Stevens Marine Research Institute in Juneau. At more than 180 degrees Fahrenheit, the district heat loop would run hotter than the systems used at the Sealife Center and Marine Research Institute. With two water lines, that hot water can simply be put hooked up to and replace a fuel oil-fired boiler system, which 78 percent of Juneau’s buildings, including Downtown state facilities, use for space heat. Juneau Hydropower estimates the cost to switch from fuel oil heat to the district heat system to be in the hundreds or low thousands of dollars — less than switching to natural gas. Information from a previous Journal article by Elwood Brehmer was added to the original story.

Legislative legal, CFEC question Walker’s adminstrative order

Ed. note: An earlier version of this article referred to Rep. Stutes' bill as not having passed the fisheries committee. The bill did pass that committee in 2015 and is currenlty awaiting a hearing in the House Resources Commitee.  The Commercial Fisheries Entry Commission is once again fighting to stay abreast of fisheries officials who want to narrow its scope of duties. Gov. Bill Walker signed an administrative order on Feb. 16 that folded several of the Commercial Fisheries Entry Commission’s key duties into the Alaska Department of Fish and Game, effective immediately. These functions include licensing and permitting, IT, accounting, payroll, procurement, and budgeting. The order moves personnel associated with these services into the Alaska Department of Fish and Game, or ADFG. The most identifiable operational change – ministerial licensure – also causes the administration’s biggest legal hurdle; both CFEC officials and Legislative legal support question Walker’s order’s constitutionality. Fishermen have opposed such rearrangements of CFEC in the past, fearing that the independent agency could be swept into the politics enmeshing the Alaska Department of Fish and Game. Walker’s administration says the order is a cost-saving move in a grim financial climate, but CFEC doubts the order’s sense. A letter from CFEC officials accuses the administration of deceit and says the plan is vague, possibly unconstitutional, and cuts the Legislature out of the decision-making process. According to Walker’s press release, the reshuffling will save the state an extra $1.3 million. The House Finance Subcommittee cut ADFG’s budget by 14 percent on March 1. This included a $650,000 cut to CFEC, less than Walker’s $1.3 million but still beyond the phased-in approach recommended by the CFEC Legislative audit. The Limited Entry Act, passed by the Legislature in 1973, established a limited entry permit system for state fisheries, establishing a set number of permits for fisheries and the Commercial Fisheries Entry Commission, or CFEC, to issue and monitor them. Three commissioners serve as judges; they decide who’s eligible for permits, oversee the permit transfer process, and handle appeals for those fishermen who are denied. Currently, one of the positions – each with $200,000 in salary and benefits – is vacant. Bruce Twomley and Robert Brown fill the two remaining positions. The order will make the commissioner positions part-time. A long time coming CFEC has been under increasing scrutiny since 2014 after two bills to disband it legislative audits that call it inefficient. Both Rep. Paul Seaton R-Homer, and Rep. Louise Stutes, R-Kodiak, introduced separate bills that would have disbanded the commission. The bills were sandwiched between a scallop fishery scandal in late 2013 and two separate audits in 2015. Both reports complimented CFEC’s past work, but also pointed out CFEC’s inefficiency so long after the Limited Entry Act. In each of the last two years, CFEC only adjudicated three contested permits per year. It maintains a backlog of 28 permit applications, most of which have been in the adjudication stage for 15 or more years. “Both reviews outlined the good work that CFEC has accomplished, but also noted that the workload of the agency has diminished over time and that the organizational structure of CFEC is no longer efficient or effective,” reads Walker’s budgetary request for CFEC. The audit points out that the original mission of the CFEC – to establish limited entry fisheries – has been largely completed since the 1980s. Alaska has 68 current limited entry fisheries, most of which were established by CFEC in the 1980s and the last of which was established in 2004. Part of the order delegates CFEC’s research duties to ADFG. Stutes, who chairs the House Fisheries Committee, worries Walker’s order could present a “conflict of interest” between CFEC’s licensing research adn ADFG’s biological research. ADFG commissioner Sam Cotten said he doesn’t understand how research performed under one body would be different under another. “We do research too, we could combine the research needed for the Board of Fisheries,” said Cotten. “It’s another effort to streamline…I don’t see at all that it presents a conflict.” In 2015, Stutes introduced a bill that would have disbanded CFEC entirely and folded its duties into ADFG. Stutes’ bill passed committee and is currently waiting for a hearing in the House Resources Committee. In the interim between sessions, however, Stutes said she rewrote the bill to a more toned-down version that would keep several of CFEC’s duties but still hand over a portion to ADFG. Permit adjudication, fishermen told her, should remain in CFEC’s hands, while ADFG could easily take over tasks like ministerial licensing.  Under the current CFEC system, commercial fishermen must send away to the Juneau office for their permits. Stutes’ change, which Walker’s order incorporates, allows fishermen to renew permits at their local ADFG office. Stutes forwarded her rewrite to the governor, but said she didn’t know Walker planned his own action. “I didn’t even know the governor had intended to take that bill until he had done it,” she said. Order’s constitutionality Walker’s plan saves money, but legal opinions say the administration exceeded its authority simply by making it an administrative order instead of an executive order. CFEC staff circulated two separate letters to the Senate Fish and Game Finance Subcommittee on Feb. 17, one draft and one final – both expressing dissatisfaction with the administrative order. “(The order) ignores entirely the audit’s recommendations, and instead seeks to transfer a vast array of power, functions, and staff to (ADFG),” the letters read. Both letters challenge Walker’s legal authority to make a “de facto rewrite of the Limited Entry Act,” and ask the subcommittee to budget the CFEC according to a legislative audit. CFEC contends that the administrative order skirts the Legislative budgeting process.  “We would further ask the subcommittee to consider the means employed by the Governor to enable (ADFG) to take over the vast majority of CFEC’s operations. Use of an administrative order and not an executive order, denies the Legislature a role in crafting CFEC’s budget for the coming year,” the letters read. The letters, sent by CFEC chair Bruce Twomley and commissioner Robert Brown, accuse Walker’s administration – ADFG commissioner Sam Cotten and deputy commissioner Kevin Brooks – of “actively misleading the (Senate Finance Fish and Game) Subcommittee” at a Feb. 15 hearing, the day before Walker issued the administrative order. CFEC argues that the Legislature should assign CFEC’s budget according to the Legislative audit’s recommendation, not Walker’s order. Furthermore, Brown and Twomley contend Walker’s order could be unconstitutional, both by stripping an agency of several key functions and shuffling employees between two disparate agencies. “The question of whether it is constitutional or otherwise lawful and appropriate for an Administrative Order to deprive an autonomous agency of its ability to perform explicit statutory duties and assign that performance to a separate agency deserves an answer, but that answer will not be forthcoming in time to allow the Subcommittee to act in obeisance to A.O. 279,” the letter reads. Indeed, the Legislature’s legal council seems to agree with Twomley and Roberts. Rep. Cathy Muñoz, R-Juneau, asked the legislative law office for its opinion of Walker’s order. The opinion, drafted by Legislative Affairs Director of Legal Services Doug Gardner, finds a potential constitutional snag. According to the Alaska constitution, the governor is indeed authorized to “reorganize” administrative duties in the executive branch, which includes both ADFG and CFEC. If the reorganization requires “force of law” – a change in statute – then it requires an executive order subject to the Legislature’s approval. Most CFEC duties are statutory, put in place by the Limited Entry Act. In particular, Walker’s administrative order could give ADFG the statutory duty to issue licenses under certain circumstances. This would require a statutory change – a force of law – which means Walker’s order should have been executive, according to Gardner. “Based on the language in (Walker’s order),” wrote Gardner, “it is hard to evaluate how ADFG can perform either of these licensing functions which are 1) specific statutory duties of CFEC that in some cases affect the rights and liabilities of permit holders; and 2) where these statutory functions could be more that purely ‘ministerial.’” DJ Summers can be reached at [email protected]  

Beyond growth and value: Investors are tired of choosing

NEW YORK (AP) — Coke or Pepsi? Biggie or Tupac? Growth or value? For decades, investors chose their stock mutual funds from one of two distinct camps. On one side were growth funds, which bought only the most dynamic stocks with the fastest-rising revenues and profits. On the other were value funds, which hunted the bargain bin for stocks with cheap prices relative to their earnings. Today, just like more people are choosing neither Coke nor Pepsi, investors are pulling out of both growth and value stock funds. Instead, they’re pouring cash into broad index funds and other options that don’t pigeonhole themselves into one of the two investing philosophies. The moves are the result of several trends that are reshaping the investment industry. Chief among them: People are looking for ever-simpler ways to invest, and they’re opting for index funds that track the broad market. So, instead of holding a small-cap growth fund plus a large-cap value fund plus a mid-cap growth fund, more investors are holding just one fund that tracks the entire stock market. The numbers bear out the change in preference. Investors pulled a net $36.2 billion from U.S. growth stock mutual funds and exchange-traded funds in the 12 months through January, according to Morningstar. Another $42.6 billion left U.S. value stock funds. At the same time, $12.5 billion went the opposite direction, into “blend” funds, which own a mix of both growth and value stocks. The trend isn’t as strong with foreign stocks, where investors are still putting money into growth and value stock funds. And even with U.S. stocks, growth and value funds still command big piles of dollars. Together, they control $2.9 trillion, more than the $2.7 trillion that sit in blend funds. But the trend is moving toward U.S. blend funds eventually overtaking their growth and value rivals. One reason for the shift is that investors are tired of picking which philosophy will do best. Or, rather, they got tired of getting it wrong when they tried to pick which would do best. Growth and value stocks tend to take turns at the top, with growth leading for some years before ceding leadership to value. Growth stocks, for example, were in favor during the dot-com boom of the late 1990s. Investors at the time were excited about the “new economy” and were more interested in companies attracting “eyeballs” than in those making profits. After getting burned by the dot-com bust, chastened investors turned back to value stocks. For seven years, the value stocks in the broad Russell 3000 index beat their growth counterparts, from 2000 through 2006. After that, growth stocks regained the lead and had better returns in five of the following seven years. So instead of guessing whether growth stocks will do better than their value counterparts, investors are simply buying broad-market funds that own both groups. Perhaps the biggest reason for the trend is the migration into index funds generally, says Alina Lamy, a senior analyst at Morningstar. After seeing the majority of actively managed stock mutual funds fail to keep up with indexes, investors have been streaming into options that merely try to match the index rather than beat it. Some index funds focus on just growth or value stocks. But the most popular ones cover broad swaths of the market and include both. Vanguard’s Total Stock Market Index fund, for example, has $385.9 billion in assets and tracks the entire U.S. stock market. It’s also more than 10 times as big as Vanguard’s Value Index fund and eight times as big as its Growth Index fund.

Main Street holds up as Wall Street struggles

NEW YORK (AP) — Wall Street is hurting, and Main Street doesn’t care. It’s got burgers and cars to buy. Big losses in stock markets around the world this year have the wingtip-set fretting, but regular consumers across the United States are confident enough to open their wallets and spend more. It’s an about-face from the early years of the economic recovery, which began in 2009, when stocks and big banks were soaring but many on Main Street felt like they were getting left behind. “It’s almost like a stock market is a different animal,” says Earl Stewart, who owns a Toyota dealership in North Palm Beach, Florida, far from the roiling markets in New York, Frankfurt and Shanghai. “We’re not seeing any of the negativity.” The stock market’s malaise hasn’t affected his customers, at least not yet. Sales for the past year have been the best since 2007, and he had record profits in 2015. The divergence underway between Main Street and Wall Street highlights the difference between the U.S. stock market and the economy. The stock market’s worries are centered on things like the strength of foreign economies, such as how much China’s sharp slowdown will hurt exporters and businesses in other countries. Low oil prices are crushing the shares of big energy companies and the big banks that lend to them — but leaving consumers with more money to spend after they fill up their car with cheap gasoline. These forces have dragged the Standard & Poor’s 500 index down 12.5 percent from its peak in May. Foreign stocks have lost double that. Hedge funds, which cater to the wealthiest and biggest investors, are also struggling. They lost money in January and got off to their worst start of a year since 2008, according to Hedge Fund Research. Economists say the split trends between Main Street and Wall Street can continue, but only up to a point. If profits fall sharply enough, for example, it could push CEOs to once again cut swaths of jobs in order to shore up their earnings. If stock prices fall deep enough, the panic in the headlines could traumatize consumers whether or not they have a 401(k), and spending could slow. For now, though, Main Street continues to trend upward. Only 13 percent of the U.S. economy depends on exports, and the rest of it — which is mostly consumer spending — is still growing, albeit slowly. “Down here, as a small business owner, you don’t feel connected to Wall Street at all,” says Jon Sears, a co-owner of four bars and restaurants in Columbia, South Carolina. “When I talk to people in Columbia, I can’t think of a conversation I’ve had about the stock market in the past two or three weeks.” His business depends instead on the nearby University of South Carolina. Revenue growth at his locations has held up this year, at his cheapest bar and his more upscale restaurant that serves local, organic foods. Retailers around the country are seeing something similar. Shoppers bought more autos, clothes and other items last month, even though the S&P 500 in that span had its worst week in more than four years. U.S. retail sales rose 0.2 percent during the month, beating analyst expectations. Consumer sentiment did show a dip in early February. But confidence still remains near its average for last year and well above where it was for every other year of the recent bull market. Among the reasons that Main Street is feeling relatively confident while Wall Street stumbles: • The job market is getting better. Employers continue to add jobs, particularly in the retail and health care industries, and the unemployment rate is at an eight-year low. Job growth did slow last month, but economists say that just balances out the big surge in hiring at the end of last year, and they’re still forecasting more gains. Even more importantly, wages are trending higher. That means workers are feeling more secure in their jobs and in their finances. Just over 3 million workers quit their jobs in December, the highest number in nearly a decade. That’s an optimistic sign because people generally quit when they have a higher-paying job offer in hand. • Bills are getting a bit easier to pay. The plunging prices of gasoline, natural gas, heating oil and other commodities are getting lots of attention, but prices are low across the economy. Prices for meat, poultry, fish and eggs also fell in December from a year earlier. So did prices for clothes and airfares. There is a fear that the economy may get too much of a good thing. If prices fall too sharply, it could lead to a vicious cycle in which customers wait longer to make purchases, which forces businesses to cut jobs. • Home values are rising. “More people care still care about the value of their homes than the value of their stocks,” says Diane Swonk, an independent economist. That’s because for many Americans, their home is their biggest if not only investment. And that investment is doing well, regardless of the stock market’s struggles. Home prices nationwide are nearly back to peak levels from before the Great Recession, and they’re already at a record in San Francisco and several other cities. It may just be Main Street’s time in the sun, says Bob Doll, chief equity strategist at Nuveen Asset Management. He says economic recoveries have long been split into two phases. “The first half of an economic cycle is when markets tend to best, and that’s when Wall Street gains on Main Street,” Doll says. “The second half is when labor gets an increasing share of GDP, and that’s just starting.” Associated Press Auto Writer Tom Krisher contributed from Detroit.

Trump not yet on track to win candidate nomination

WASHINGTON (AP) — Despite Donald Trump’s string of Super Tuesday victories, the billionaire businessman must do even better in upcoming primaries to claim the Republican presidential nomination before the party’s national convention this summer, an AP delegate count shows. Texas Sen. Ted Cruz is emerging as the candidate who might stop him — with a little help from Florida Sen. Marco Rubio. The good news for Trump: He is in a better position than any of his rivals. Through the first 15 states of the 2016 campaign season, the best chance for Cruz, Rubio or any of the other candidates could be a contested national convention in July that would almost certainly wreak further havoc on the deeply divided Republican Party. “I think anybody that precludes any possibility at this point doesn’t understand what’s going on,” said John Jordan, a California-based Republican donor now supporting Rubio. “Anything can happen.” While Trump has racked up 10 wins so far, he’s won only 46 percent of the delegates awarded since voting began. It takes an outright majority of delegates to win the nomination. To win enough delegates to claim that prize, Trump would have to win 51 percent of the remaining delegates awarded in the state-by-state contests scheduled through early June. That could be difficult if three or more candidates stay in the race. Republican leaders in Washington and in statehouses across the country are scrambling to stop Trump. Trump’s main Republican opponents are vowing to stay in the race until the end. And that could prevent him from getting the delegates needed to win the nomination outright — even if they can’t overtake him on their own. “We’re beyond the winning states stage. This is now purely a competition for delegates,” Cruz spokeswoman Catherine Frazier said. Rubio, in a Tuesday interview on Fox News, promised to campaign in all 50 states, “even if I have to get in my pickup truck and drive all over this country. I will do whatever it takes to prevent a con artist like Donald Trump from ever becoming the Republican nominee.” While not giving up on beating Trump before the convention, both the Cruz and Rubio camps concede that their best opportunity could come at a contested convention in July. That happens only if no candidate takes a majority of delegates before then. Under such a scenario, delegates on the floor of the Cleveland convention would decide on their own whom to support in a series of floor votes. Not since 1976 has there been a contested convention. Some Republicans warn of dire consequences should the party go that route this year, especially if Trump has a commanding delegate lead. “If the establishment thinks there’s a backlash now, wait until the guy with the most delegates gets to the convention and they decide to take it from him,” said GOP operative Hogan Gidley. “Then you’re going to see an all-out political jihad.” The Republican campaign now enters a critical two-week stretch ahead of the March 15 primaries. These are the first primaries that can award all of a state’s delegates to the winner, and the two big prizes are Florida and Ohio. Florida has 99 delegates, Ohio 66. Winning those states could boost Trump to a commanding lead in the delegate count, but Florida is Rubio’s home state and Ohio is home for John Kasich, the state’s governor. Only nine states award delegates winner-take-all. Five more make it possible for one candidate to win all of the delegates, or at least a large majority. These states could take an outsized role in determining who wins the nomination. Among the other winner-take-all primaries: Arizona on March 22, Nebraska on May 10 and New Jersey on June 7. The delegate math from Super Tuesday shows how difficult it can be to rack up a big lead when states award delegates in proportion to the vote. Trump won seven of 11 states, but his gains were limited by Cruz’s big win in delegate-rich Texas — his home state. For the night, Trump won at least 237 delegates and Cruz won at least 209. Rubio was a distant third with at least 94. There were still 33 delegates left to be allocated on Wednesday. Cruz won at least 99 of the 155 delegates at stake in Texas. Trump got at least 38, with 14 left to be awarded. Rubio picked up four. Overall, Trump leads the field with 319 delegates and Cruz has 226. Rubio has 110, Kasich has 25 and Ben Carson has eight. It takes 1,237 delegates to win the Republican nomination for president.

TAPS value settled at $8B for 5 years

The next court battle over the value of the Trans-Alaska Pipeline System won’t be for at least another five years. Two settlements over the taxable value of TAPS between the State of Alaska, its owners, and municipalities along the pipeline corridor were announced March 1. The agreements fix the value of the 800-mile pipeline, for property tax purposes, at $8 billion through 2020, according to a release from the North Slope Borough. All pending litigation in Alaska courts regarding TAPS value will be dismissed as part of the deals as well. North Slope Mayor Charlotte Brower thanked the Walker administration for the state’s help in reaching the linked deals. “By fixing the value of the Trans-Alaska Pipeline System for the next five years, this agreement will provide a more stable and predictable budget environment and help ensure the financial security of the borough moving forward,” Brower said in a statement. “It also brings an end to the need for continuous litigation in which the borough and other municipalities have spent a decade and millions of dollars to obtain a fair valuation of TAPS.” Under the deals for property tax years 2007 through 2015, the North Slope Borough will repay the state nearly $7.6 million and the City of Valdez will pay $7.3 million back to the State of Alaska for prior tax payments the state believes were in excess of the statutory cap on property tax revenues, according to a statement from the Department of Law. The pipeline is primarily owned by subsidiaries of BP, ConocoPhillips and ExxonMobil. Unocal Pipeline Co. owns a 1.3 percent share of TAPS, according to Alyeska Pipeline Service Co., the pipeline operator. In May 2014, the State Assessment Review Board valued TAPS at $10.2 billion. At the time, the owners estimated its value at $2.7 billion; the municipalities pegged the value at $13.7 billion; and the Department of Revenue suggested $5.7 billion as the taxable value for the year. The proper value of the pipeline and subsequent property tax rates has been a source of legal contention for the Valdez and the North Slope and Fairbanks North Star boroughs for many years. Coincidentally, the pipeline cost $8 billion to build in 1977 and was the world’s largest privately funded construction project at that time. Elwood Brehmer can be reached at [email protected]

Valley bills seek fishing dollars

Gov. Bill Walker’s commercial fisheries tax bill is stalled in committee, but legislators continue digging into the industry for revenue. Two bills, sponsored by legislators from the Matanuska-Susitna Borough, would impose new taxes on either the entire industry or the longliners and trawlers in the federal and state fisheries. HB 358, sponsored by Rep. Mark Neuman, R-Big Lake, and Rep. Les Gara, D-Anchorage, would require non-salmon and non-halibut trawlers and longliners to pay a tax on halibut and salmon bycatch. The bill was passed to the House Fisheries Committee on Feb. 24 but has not yet been scheduled for a hearing. On the same day, Rep. Scott Kawasaki, D-Fairbanks, signed as a bill cosponsor. Rex Shattuck, Neuman’s chief of staff, said the bill doesn’t intend anything more drastic than starting the conversation. “This is a very fundamental bill, and we honestly can’t say we have all the answers,” Shattuck said. “It’s a basic framework to start the conversation. If it’s a resource we own as Alaskans, and we always have this concern about bycatch, let’s have a discussion.” Neither bill is expected to move quickly in a Legislature buried under a fiscal bill landslide, but Shattuck said he hopes the bycatch bill will spark a conversation to have over the summer. Though the extra funds would go into the general fund and not directly into fish and game management, Neuman’s position as vice-chair of the House Finance Committee guarantees that the funds will be used for fisheries management and research.  “You can comfortably know those are going into related management,” said Shattuck. “From our perspective, Neuman’s sort of been clear in that. We should be looking at putting them into funding things like research.” Bycatch happens when fishermen incidentally harvest a non-target species while chasing the main catch. The bill would require both state and federal fishermen to pay 1 percent of the total value of their bycatch. In federal fisheries – those from three to 200 miles off the coast – federal law bars vessels from selling bycatch salmon and halibut. It therefore has no existing value on which to base a tax. To fix this, the bill would direct fisheries managers to assign it a value, defined as “the market value of the fishery resource as determined by the prevailing price paid to fishermen for the unprocessed fishery resource of the same kind and quality by fisheries businesses in the same region of market area where the fishery resource was taken.” According to this formula, fishermen could end up paying thousands at the individual vessel level and millions altogether. A 1 percent tax on halibut bycatch would have extracted up to $1.7 million from the federal groundfish fisheries alone in 2014. The price paid to fishermen, or ex-vessel price, varies from region to region and year to year. For chinook salmon, the Alaska Department of Fish and Game estimated an average price of $2 per pound for chinook salmon in 2015 – lower than the average $2.80 per pound over the prior four years. Halibut varies, but industry sources say the current ex-vessel price is between $5 and $6 per pound. In 2014, federal groundfish fisheries harvested 27.6 million pounds of halibut, according to catch data from the National Oceanic and Atmospheric Administration. At $5 per pound, the total value of halibut bycatch would be $138 million. At $6 per pound, it would be $166 million. Federal groundfish fisheries also harvested just under 34,000 chinook as bycatch in the Bering Sea and Aleutian Islands and Gulf of Alaska in 2014. Assuming an average weight of 30 pounds, the value of chinook bycatch in federal groundfish fisheries is $2.9 million, or $29,000 in tax value. The bill would exempt those fishing vessels that donate their bycatch halibut to food bank programs like SeaShare. Federal law, however, forbids some vessels are forbidden from making such donations. Groundfish fisheries in the Bering Sea and Aleutian Islands are disallowed from keeping bycatch halibut. Representatives from this fishery view the proposed tax as a penalty. SB 198 The second bill, sponsored by Sen. Mike Dunleavy, R-Wasilla, would affect all Alaska fishermen regardless of bycatch. SB 198, introduced Feb. 22, levies a 12.5 percent royalty on all limited entry license holders’ catch. The bill requires seafood buyers to collect the royalty upon purchase, keep detailed records, and remit the money to the state at the end of each month. The bill was referred to the Senate Resources Committee on Feb. 22. Dunleavy’s bill would bring in a hefty chunk of cash for the state, and a hefty chunk of cash from fishermen’s bottom lines. According to Commercial Fisheries Entry Commission data, limited entry permits for both Alaska resident permit holder and non-residents pulled a collective $957 million in 2014. At the proposed royalty rate, Alaska limited entry permit holders would have paid $120 million to the state. The royalty would hit Alaska permit holders on an individual basis. CFEC records for 2014 show an average Alaska resident limited entry permit holder earnings of $50,451 per permit. Under the proposed royalty, Alaska fishermen would have paid an average $6,307 apiece in 2014. Non-residents would have paid slightly more at $6,525. Though the Anchorage and Mat-Su boroughs host over half the state’s population – 54 percent, according to the most recent U.S. census data – they only host 10 percent of the resident commercial fishing permits. Of 38,192 limited entry permits issued in 2014, only 1,141 – 3 percent – were issued to Mat-Su Borough residents. CFEC issued 2,647 permits to Anchorage municipality residents, or 7 percent of the total permits issued.

Gov’s bill would double strict liability commercial fines

Fishermen worry that Gov. Bill Walker’s industry taxes hikes may fall on them alone as a litany of fish bills stacks up. The Senate Resources Committee heard SB 164 on Feb. 22, also from Walker’s office. The complex bill concerns hunting and fishing permits – specifically, how ADFG can discourage wildlife violations while making extra money off them. The bill includes measures to increase commercial fines and recoup money lost in the recreation hunting and fishing licensing process. It will have a second hearing March 3. The bill doubles commercial fishing violation fines, raises the fine schedule for illegal wildlife harvest, prevents wildlife violators in other states from purchasing Alaska fishing and hunting licenses, and allows the state to take restitution from hunting and fishing violators. The committee had mixed feelings about what the bill aims to accomplish. Some elements seemed administrative, while others seemed targeted specifically for revenue. Major Bernard Chastain of the Department of Public Safety and Bruce Dale, ADFG’s wildlife division director, sold the bill as a “flexibility” package with elements of restorative justice, but committee members saw other intentions in the language. “Is this a revenue bill? Is this a deterrence bill?” asked Sen. Bill Stoltze, R-Chugiak. “I may missed what the overlying theme or motive is.” Chastain said the bill is solely for deterrence. The bill’s fiscal notes provide no estimates for how much revenue the state could raise. Among the largest-scale changes, the bill doubles commercial fishing strict liability violation fines. The new fine schedule would charge $6,000 for a first conviction, up from $3,000; $12,000 for a second conviction, up from $6,000; and $15,000] for a third or subsequent conviction within a 10- year period, up from $9,000. Chastain described the current fine schedule as “inadequate” to keep fishermen from violations. Fishermen have already voiced some concern over the possibility of raising the fine schedule. In a House Fisheries Committee hearing, on Sitka fishermen testified against raising the commercial fishing tax rates, saying that taxes alone are enough to cripple an industry already suffering from the strong U.S. dollar’s downward pressure on seafood exports. Doubled fines could hurt fishermen even worse, Some of ADFG’s budget comes from federal matching funds. Pittman-Robertson funds, for example, earmark three federal dollars for every one Alaska dollar. The federal funds are reserved for wildlife conservation. Part of Walker’s bill would allow the state to take restitution payments that can be funneled back into ADFG funds for the federal match. According to Dale and Chastain, the state loses tens of thousands of dollars a year from petty license fraud. Non-residents often move to Alaska and purchase resident hunting and fishing licenses for the cheaper resident rate. The bill would allow the state to charge the violators for the entire history of the difference. “Over time, we lost the ability to leverage that money into federal funds,” said Dale. “This provides the state appropriate opportunity to restore those funds.” Most times, the losses are fairly small; Sen. Bill Wielechowski wondered aloud if the restitution payments are “figurative.” Dale, however, said several violators each year amount to tens of thousands of dollars apiece. Other bill elements give judges the ability to fine some wildlife violators up to $10,000 rather than the current $5,000 fine schedule. DJ Summers can be reached at [email protected]

Alaska judge tosses lawmaker challenge to Medicaid expansion

A state court judge in Alaska on Tuesday upheld Gov. Bill Walker’s decision to expand Medicaid without legislative approval, finding that the federal Social Security Act requires Medicaid expansion. Superior Court Judge Frank Pfiffner dismissed a challenge to Walker’s authority by the Legislative Council, which is comprised of state House and Senate lawmakers. That decision can be appealed. A spokeswoman for the Senate majority said the Republican-led majority is looking over the decision and will evaluate its options. The decision came as Republicans in Alaska were participating in the state’s presidential preference poll. A key argument in the case centered on whether the expansion population is a mandatory group for coverage under Medicaid or an optional group that cannot be covered unless approved by the Legislature. The Legislative Council, in its lawsuit, argued that Walker overstepped his authority in expanding Medicaid on his own. The federal health care law expanded eligibility for Medicaid, and the U.S. Supreme Court in 2012 upheld most of the law. But it also found that states cannot lose existing Medicaid funding if they don’t expand Medicaid coverage. Pfiffner found that the U.S. Supreme Court decision striking down a penalty for not complying with expansion did not affect the requirement that states provide Medicaid to the expansion group. “This requirement may lack the coerciveness that Congress intended, but it is still a requirement,” Pfiffner wrote. The Legislature can change state law to reject the expansion if it wants, he wrote. Until then, state law requires the governor to provide Medicaid services to the expansion group, Pfiffner wrote. The population targeted by expansion is people between the ages of 19 and 64 who are not caring for dependent children, not disabled and not pregnant, and who earn up to 138 percent of the federal poverty level. Expansion in the state took effect last September. More than 10,000 people have been covered by the expansion, according to the state health department. Walker, in a statement, said he is pleased with the decision. He said the administration would continue to work with the Legislature on efforts to redesign and reform the Medicaid program. Becky Bohrer can be reached at https://twitter.com/beckybohrerap.

Movers and Shakers 3/06/16

Shawn Uschmann has been named director of External Affairs for AT&T Alaska. Uschmann will spearhead AT&T’s legislative and community affairs initiatives throughout the state and assist with new technology deployment and infrastructure investment. Prior to his new role, Uschmann served as the AT&T sales director in Alaska, where he worked with state, federal, and enterprise business customers. Uschmann attend the University of Massachusetts in Amherst, where he studied economics. He will be based at AT&T’s Anchorage office. Phil Reid has been promoted to a commercial banking relationship manager and vice president at KeyBank. In his new role, he is responsible for providing financial solutions to large commercial clients, maintaining existing client relationships and developing new business opportunities throughout the state of Alaska. Reid has more than 21 years of financial service and sales management experience. He is a graduate of Virginia Tech and a former Alaska Journal of Commerce Top Forty Under 40 award recipient. Reid is currently a member of Anchorage South Rotary, serves on the boards of both the Anchorage Community YMCA and the Community Pregnancy Center Anchorage, and serves in the Navy Reserve as a Commander. Robert “Nick” Enos, MS, CPG, has joined DOWL’s mining and environmental staff. Enos joined DOWL as a senior environmental project manager based in the Bend, Ore., office. He is a senior geoscientist and environmental professional with over 20 years of experience in the mineral industry, primarily in environmental management, permitting, project management, project development, geotechnical and environmental studies, reclamation and closure planning, and National Environmental Policy Act planning. Prior to joining DOWL, Enos was the environmental manager and permitting manager at Barrick and NovaGold’s Donlin Gold Project in Alaska. DOWL has 25 offices throughout Alaska, Arizona, Colorado, Oregon, Montana, North Dakota, Oregon, Washington, and Wyoming. Coastal Villages Region Fund announced the addition of two new team members to its community benefits staff: Lang Van Dommelen and Lena Aloysius. Van Dommelen will fill the position of community information coordinator. Having grown up in rural Alaska, Lang holds a degree in political science and environmental studies from the University of Alaska Anchorage. He has worked as a research professional at the Institute of Social and Economic Research, Alaska Energy Authority, Alaska Center for Energy and Power, and Intelligent Energy Systems, a renewable energy company providing services to villages in rural Alaska, including the CVRF region. Aloysius will fill the position of community program coordinator. She grew up in Holy Cross and holds an undergraduate degree in political science from Pacific University and an education graduate degree in curriculum and instruction from the University of Denver. Aloysius’ passion is education; she has worked as an instructor at a creative arts academy in Colorado and at Mt. Edgecumbe in Sitka where she attended high school. Most recently, she served as a shareholder outreach manager for Doyon Universal Services where she specialized in designing and implementing workforce development programs to advance the careers of shareholders. R&M’s Senior Land Surveyor John Bennett, PLS, SR/WA was inducted into the 2016 Alaska Surveying & Mapping Conference Hall of Fame. The ASMC Hall of Fame program honors the exemplary contributions of surveying and mapping professionals in Alaska. Bennett was inducted into the Hall of Fame during the ASMC’s Annual Awards Banquet on Feb. 18. Bennett is a Senior Land Surveyor at R&M and has more than 30 years of land surveying experience in Alaska. He is based in R&M’s Fairbanks office and is responsible for tasks relating to the development of surveys and plans to define existing rights of way or new ROW to be acquired by a public agency. Since joining R&M, he has worked on a variety of airport and highway mapping and title research projects for the Alaska Department of Transportation & Public Facilities, title research for a gas distribution system in Fairbanks, provided support to the Attorney General’s office relating to title and acquisition services, and worked on projects for private clients to resolve title and boundary conflicts. Bennett commenced his career in surveying and mapping with the Alaska Department of Highways in 1972. He spent 28 years with DOT&PF Northern Region ROW, starting as Titles and Plans supervisor and ending with almost 15 years as ROW chief

Walker orders mariculture task force

Gov. Bill Walker issued an administrative order on Feb. 29 establishing a mariculture task force for shellfish and sea plants. Walker’s order responds to both economic and ecological concerns. The release touts the potential economic benefits to coastal communities and the Alaska fishing industry. Further, as ocean acidification continues to impact shellfish, Walker said the stocks need all the help they can get in recovering. “Mariculture represents a tremendous opportunity to diversify our economy, strengthen our coastal communities, and provide healthy food to the world by using sustainable practices that are a foundation of our current fishery resources,” said Walker in a release. “The goal of this task force is to bring key stakeholders together and determine how the state can help this industry prosper with Alaska-grown products.” The task force carries no additional cost to the state – rather than establishing a budgeted agency, it asks for officials and stakeholders to meet a minimum of once every quarter to come up with a mariculture development plan. The governor will appoint members to the eleven-member task force. These will include the commissioners of the Alaska Department of Fish and Game and the Department of Commerce, Community and Economic Developments, a University of Alaska representative, the director of the Alaska Sea Grant Marine Advisory Program, seven at-large stakeholders with backgrounds in seafood farming, marketing, or harvesting, as well as experience in Alaska Native corporations, tribal governments, or Community Development Quota groups. Task force members will not receive compensation from the state. The Alaska Mariculture Task Force will be required to submit a comprehensive plan to the governor by March 1, 2018 Mariculture farms marine life in saltwater, as opposed to aquaculture, which farms in fresh. Alaska, though it has 30,000 miles of available coastline, has a wary relationship with seafood farming. The Legislature banned salmon farming in 1989 as other seafood-based economies overseas began experimenting with it. Commercial fishermen in Alaska voiced concerns of market competition, product safety, and ecosystem impacts. Only state-run hatcheries may rear salmon, and these are released into the ocean and provided as common harvest for Alaska fishermen. Nations like Norway, Iceland, Canada, and Chile now produce a majority of the world’s farmed salmon. The majority of U.S. salmon is farmed salmon imported from these nations. Alaska’s mariculture output lags behind with an average annual value of less than $1 million. Shellfish and sea plant mariculture, however, is legal in Alaska. Walker’s mariculture task force follows the Alaska Crab Research, Rehabilitation, and Biology Program, which released an experimental batch of red king crab in 2013.   DJ Summers can be reached at [email protected]

Trustees hear plans for Fund

The plans before the Legislature to use the Permanent Fund’s investment returns to pay for government have much in common, while their differences exemplify the priorities of their sponsors. The plan that is ultimately chosen will go a long way toward shaping the relationship Alaskans have with their state government. The Alaska Permanent Fund Corp. Board of Trustees got rundowns of the three ideas in “to the point” presentations from the proposers themselves, Anchorage Republicans Rep. Mike Hawker and Sen. Lesil McGuire and officials from Gov. Bill Walker’s administration on Feb. 19. Legislators largely agree that filling the state’s $3.5 billion-plus budget deficit will require some utilization of the Permanent Fund’s earning power. The bigger lift could be getting the public on board, as Alaskans have become detached from how their government is funded, each of the presenters noted. Hawker, a vocal critic of many Walker policies, commended the governor for his effort to “reconnect Alaskans to the financial and budget decisions made by their public officials,” through his overarching fiscal plan. “We have been blessed in this state for the past 30 years with untold wealth; wealth that is the envy of every state in the union and probably three-quarters of the world through the earnings we’ve had from our oilfields we’ve been able to pay for every needed and desired government service as well as distribute a portion of that wealth to individuals in the form of Permanent Fund dividends,” Hawker said. “We’ve paid for both necessities and we have had the luxury of being able to distribute money back (to the public), which has been wonderful.” However, the combination of ever-declining oil production and unforeseen low prices will force changes to the status quo, according to Hawker. “We are at an economic crossroads in the state where we can no longer afford to have everything we want,” he said. Alaska would need Alaska North Slope crude prices to rebound from the $30 per barrel range to nearly $110 per barrel to balance the budget at status quo. McGuire, a 15-year veteran in the Legislature, said she “gasped” when she first learned that upwards of 90 percent of state revenue is tied to the oil industry. “It made me sick to my stomach to think that every year you would get a fall and spring (revenue) forecast based on hypotheticals regarding a single commodity of crude oil that is extremely volatile and then make decisions that affect every Alaskan’s life profoundly,” she said. Hawker and McGuire are not seeking reelection this fall. The Permanent Fund ended calendar 2015 at $52.3 billion, with about $6 billion of that being realized, spendable investment revenue in the fund’s Earnings Reserve Account. Unrealized income and the amount currently committed to the 2016 dividend raise the value of the Earnings Reserve to about $8.1 billion. At that size, Alaska is better off than other governments with similar funds, according to Attorney General Craig Richards, who is also a member of the Fund Board of Trustees. He said Alaska’s Permanent Fund, when compared against the state’s average annual spending, is the largest “sovereign wealth” style fund in the world. Walker laid out his ambitious New Sustainable Alaska Plan in early December. While it includes ongoing budget cuts and a suite of industry and personal tax hikes, the lynchpin of the proposal, the Alaska Permanent Fund Protection Act, relies on Fund returns to pull up to $3.3 billion for government services each year. The Alaska Permanent Fund Protection Act would significantly re-plumb state coffers and transform the fund into a basic annuity. It would shift petroleum production taxes and the 75 percent of available royalty revenue into the Earnings Reserve Account. From there would come the $3.3 billion annual “allowance”, which, when combined with other revenues and further budget cuts would balance the state budget by the 2019 fiscal year, according to the administration. Revenue Commissioner Randy Hoffbeck said the governor’s plan would allow the state to disconnect its annual budgets from a commodity with high price volatility and thus stabilize government spending to support economic growth in the state. All of Alaska’s petroleum tax and “other” revenues have historically gone directly to the state’s General Fund, along with 75 percent of resource royalties. The remaining 25 percent of royalties is constitutionally mandated to the Permanent Fund principal, or corpus. That system has led to the state “chasing oil prices” and resulted in highly cyclical, and unhealthy spending, Richards said. “When your economy is doing well (because of high oil prices) is not when you want your large capital budgets,” he commented. “You want your large capital budgets probably when your economy is not doing as well.” The same pattern can be seen in the state’s operating budget, Richards noted. Last year lawmakers cut roughly $800 million — about $400 million each from the operating and capital budgets in response to the oil slide and declining state revenues that began in the third quarter of 2014. “That’s just sort of the way governments around the world work; you spend the money when you get it,” Richards said. The actual draw on Fund earnings would be about $2.3 billion in the early years of the plan, as oil income would contribute a little more than $1 billion to the Earnings Reserve at low prices, according to Revenue projections. “We’re housing these volatile revenue streams into a large savings pot and we take out of that savings pot a fixed amount every year,” Richards said. To date, Permanent Fund Dividend payments have been the only draw on the Earnings Reserve Account. Legislators over the years have shown discipline towards the account despite being able to access its funds with a simple majority vote, Richards said. The administration is betting that discipline continuing once the account is funding government to prevent overdraws. A $3 billion transfer from the Constitutional Budget Reserve, or CBR, savings account to the Earnings Reserve would jumpstart the process and help the fund weather potential down years. Currently, the CBR has about $8.7 billion available for appropriation. The annual draw would be adjusted for inflation starting in fiscal year 2020, Richards said. An Earnings Reserve starting at about $13 billion would provide about four years of funding and be a buffer from individual years of poor Fund returns. The Alaska Permanent Fund Protection Act would require average annual investment returns of 6.9 percent, according to the administration. The annuity-like draw could deplete the Earnings Reserve faster than the Percent of Market Value, or POMV, draw proposals by Hawker and McGuire, Richards acknowledged, because a POMV plan pays out less following years of poor returns. However, a four-year review cycle of the plan’s draw and Fund returns would allow lawmakers to adjust spending up or down while maintaining the sustainability of the fund, Richards and Hoffbeck said. On the flipside, a POMV approach adds to available state funds but doesn’t address volatility in petroleum revenue, Richards said. The drastic spending swings could still occur. He said a $2.5 billion swing, positive or negative, in the fund’s value would equate to roughly $100 million more or less available for a sustainable draw each year under the administration’s plan. As for dividends, the administration borrowed an idea from McGuire’s plan to tie the payment to Alaskans to resource income, thus connecting Alaskans to their state’s fiscal situation. After a guaranteed $1,000 dividend in the first year of the plan, the dividend would be 50 percent of annual resource royalty revenue — somewhere between $800 and $1,000 per person in the coming years based on the state’s future oil price and production estimates, Hoffbeck said. A year of current oil prices in the $30 range would roughly equate to a $400 check for each Alaskan, he noted. The longstanding dividend formula distributes half of the fund’s annualized five-year rolling average of realized earnings each year. “One of the things we really tried to do with this plan is to make the dividend payment somehow reflect the state’s ability to pay the dividend, so we don’t end up in a situation like this year when we’re paying a historic high dividend (about $2,000) at a time when the state is in a historic difficult time financially,” Hoffbeck said. McGuire’s plan would provide a slightly higher dividend with nearly 75 percent of royalty revenue being devoted to the checks. A 0.5 percent share of royalties would add to the state Public School Trust Fund. The final dividend and government funding amounts are little more than a balancing act. Adding to one ultimately means pulling from the other and the final shares are debatable policy decisions, Hoffbeck and McGuire said. Both also addressed the misconception that the annual PFD checks are constitutionally protected and that the proposals to change the dividend calculation would automatically cut the payment amount. Overall strong financial market performance since 2010 has led to large PFDs the last two years, but a look back farther shows volatility in the dividend as well. Hoffbeck said over the last 12 years four PFDs have been more than $1,500; four have been between $1,000 and $1,500; and 4 have been less than $1,000. McGuire said pushback to changing the dividend calculation comes from an emotional attachment many individuals have with the annual October check. “The constitutional amendment that was put forward by (former Gov. Jay) Hammond — of course approved by the House and the Senate and then put on the November 1976 ballot — was to create a Permanent Fund, not a Permanent Fund Dividend or a Permanent Fund Dividend Program and this is a point that is still lost in the public,” she said. McGuire’s Senate Bill 114 McGuire quietly introduced Senate Bill 114 last April while a long and ugly battle over the operating budget was just beginning. It was the first of the three plans now under review in the Legislature to utilize the Permanent Fund’s earnings for state operations. She proposes to use an annual draw equal to 5 percent of the rolling five-year average market value of the Permanent Fund, or POMV, from the Earnings Reserve to add $2 billion, and hopefully more in future years, to the General Fund in fiscal year 2017 beginning July 1. Allocations of oil production taxes and other revenues would continue to flow into the General Fund. The Permanent Fund Board of Trustees passed resolutions in 2000, 2003 and 2004 — the last period of sustained low oil prices — supporting a 5 percent POMV spending limit for the Fund. McGuire said the recognition of the Legislature’s authority to statutorily restructure the payout of Fund earnings has been a “light bulb moment” for some legislators. Simply, her plan would not balance the budget, but it would put the state in a better situation and give lawmakers more time to debate further budget cuts or other revenue options while keeping dividends intact in some form. The process of transforming state government funding must be taken in pieces, she said. McGuire and Hawker both said their plans hit on what they feel is politically possible to accomplish over what might be a philosophically perfect solution. “If we could just get the Legislature to adopt this one piece, whether it’s my bill or another bill, but just examine the role of the Permanent Fund itself — whether it’s appropriate to have some distribution to the government,” McGuire said. “If we could just do that one thing it would be good and in the process of doing that the conversation can begin in earnest about the size and cost of government that Alaskans want and what they’re willing to pay for. “This is a conversation we have needed to have for decades and it is at the heart of what will make this state viable in the future because Alaskans have been completely out of touch with what pays the bills.” Hawker’s House Bill 224 Hawker’s House Bill 224 prioritizes a balanced budget over everything else, including dividends. It’s based on the “fiscal responsibility rule” of necessities over luxuries, Hawker said to the trustees. “My bill simply says to the Legislature that we need to provide our schools; we need to provide our roads; we need to provide health and service benefits; we need to do all this before we pay dividends,” he said. His plan has goals similar to the administration’s proposal, but reaches them more simply, he said. It uses savings to mitigate oil and financial market volatility. With an annual draw equal to 4.5 percent of the Permanent Fund’s average market value, Hawker’s bill would draw about $2 billion from the Earnings Reserve to the General Fund each year. Like SB 114, it would keep other current revenue flows in place, but the royalty cash used to pay dividends in the plans from McGuire and the administration, would also be used to close the fiscal gap. Further budget cuts would also be needed. Dividends could be paid in years of surplus, a determination that would be up to the Legislature and also depend on whether state savings accounts need to be replenished as well. The 2016 fiscal year dividend appropriation could be paid in one year or spread over several years — another legislative decision — to wean Alaskans off of the annual check, he said. In years of particularly high market returns the Legislature could also appropriate excess POMV revenue directly into the corpus of the Permanent Fund to continue growing the fund, Hawker said. “My bill specifically has provisions in it that very clearly state the Legislature is not in any way prescribed from making any appropriation that would move money anywhere,” he said, noting he plans to add further clarification that a 4.5 POMV appropriation to the General Fund is not required either. Hawker’s POMV would be calculated using the average Fund value from the first five of the previous six years. As a result, the POMV draw would be based on finalized, audited Fund results, rather than using preliminary figures from the current fiscal year to calculate the draw. McGuire said she will likely add the “five out of six” provision to SB 114 as well. A fund perspective (Editor's note: This story has been updated to reflect Greg Allen's role as a consultant to the Alaska Permanent Fund Corp. An earlier version incorrectly listed Allen as an APFC trustee.) Greg Allen, head of the fund's consulting firm Callan Associates Inc., shared the prospective impacts each of the plans could have on the fund with his fellow trustees. The results? They’re all about the same. “I’m happy to report that all of these plans in the median case result in a slightly higher market value” for the fund, Allen said. The full viability of each plan, as originally constructed, would be hurt by poor projected fund returns this year, he noted. Callan is forecasting a 3.7 percent loss in fiscal year 2016, which ends June 30. Through Feb. 19 the total return was down 5.6 percent from the start of the state fiscal year, Allen said. The Permanent Fund’s value was $50.2 billion as of Feb. 22 compared to the $52.3 billion it held at the end of the 2015 fiscal year last June 30. When the poor expected return for 2016 is accounted for, the inflation adjusted value of the fund after 10 years would be $49.6 billion under the Alaska Permanent Fund Protection Act, $50.2 billion under McGuire’s SB 114 and with a slightly smaller POMV draw, $51.7 billion under Hawker’s HB 224. The fund’s status quo ending value for 2016 is projected at $48.6 billion. The status quo market value of the fund, in 2015 dollars, would be $63.1 billion after 10 years, Callan estimates. While the fund would benefit the most from high oil prices under the governor’s plan because it places oil revenues in the Earnings Reserve, the plan also has the highest risk of hitting a draw limit. The governor’s Permanent Fund Protection Act would require a draw recalculation under 30 percent of market scenarios, while the POMV plans would need to be reworked in 25 percent of market forecasts, according to Callan. Hoffbeck emphasized the importance of management to remain free from state needs regardless of the plan chosen by the Legislature. “It is absolutely critical that the investment side has to stay autonomous, independent from the spending so that the trustees and the Permanent Fund don’t get into a place where they have to start making investment decisions to meet a budgetary requirement,” Hoffbeck said. If that were to happen the whole system would begin to crumble, he said.

Fuel tax bill moves with industry support

Gov. Bill Walker’s bill to increase state fuel taxes has support from some industry groups it would directly impact. It is also the only tax bill amongst a suite of revenue proposals by the administration to help close the $3.5 billion-plus budget deficit to have moved out of a single committee so far. The Senate Transportation Committee passed the bill onto the Finance Committee last week with lukewarm support on a 3-2 vote. Committee chair Sen. Peter Micciche, R-Soldotna, said he was for moving the bill to Finance for further vetting, but not necessarily in favor of the bill itself. Senate Bill 132, and its mirror House Bill 249, would raise the per gallon state fuel taxes as follows: highway fuel tax from 8 cents to 16 cents; marine fuel tax from 5 cents to 10 cents; aviation gasoline from 4.7 cents to 10 cents; and jet fuel from 3.2 cents to 10 cents. The legislation would correspondingly increase the per gallon highway fuel tax rebate for off-road use from 6 cents to 12 cents. In all, the tax hikes are projected to raise $49 million per year, according to the Revenue Department. Leaders of the Associated General Contractors of Alaska, Alaska Airmen Association, Alaska Trucking Association and the Alaska Region of the Aircraft Owners and Pilots Association all supported the tax increases in letters to House and Senate committees. Alaska Trucking Association Executive Director Aves Thompson wrote to Senate Transportation that the tax hike is part of a “durable, long-term fiscal plan” for the state. “The Alaska Trucking Association has long supported a fuel tax increase if the funds could be dedicated to transportation needs,” he wrote. “We realize that this won’t happen in this bill but feel strongly that we need to help to resolve the fiscal issues by doing our part.” Owner of the Anchorage taxi service Checker Cab Michael Thompson wrote in opposition to the tax increase. He estimated doubling the highway fuel tax would “burden each driver an additional $325 per year.” Alaska’s 8-cent per gallon highway fuel tax is the lowest in the nation. The national average for state highway fuel taxes is 20 cents per gallon, according to the American Petroleum Institute, while the federal tax is 18 cents per gallon. Alaska’s highway tax hasn’t been raised since 1970, Transportation Commissioner Marc Luiken wrote in a letter informing the committees on the legislation. The 3.2-cent per gallon jet fuel tax is the 32nd lowest in the country, according to the national policy research group the Tax Foundation. The State of Alaska collected $41.8 million from fuel taxes in fiscal year 2015. Those fuel taxes accounted for 3.5 percent of all state taxes last fiscal year, according to Revenue. SB 132 moved out of Senate Transportation with limiting amendments added by the committee, including a sunset date of July 1, 2018, and a provision reverting the taxes back to previous amounts if the average price for Alaska North Slope crude is more than $85 per barrel in the previous calendar year. At that oil price the state’s need for other revenue sources would be diminished, committee members reasoned. “If we reduce our budget as we have planned we would have more revenue than we need at those (oil) price ranges and I think that’s the right place to promise Alaskans that we would be returning some of this revenue,” Micciche said. Sen. Mike Dunleavy, R-Wasilla, who opposed moving the bill, said the Legislature needs to spend another year doing its “due diligence” to cut spending before adding to taxes. An amendment to add subaccounts to track the tax revenue by fuel source was also added by Fairbanks Republican Sen. Click Bishop. Opponents to the fuel tax increases have said the legislation could have more support if highway fuel tax money, for example, was dedicated to highway maintenance, instead of being lumped into the General Fund. The same could be applied to airports and aviation fuel taxes. The Department of Revenue tracks the taxes by fuel type, but those monies are not dedicated for specific uses. The Department of Transportation has $113 million in unrestricted general fund money to spend on road and airport maintenance this fiscal year, according to department spokesman Jeremy Woodrow. He said roughly 75 percent of that goes to road work, but winnowing out exactly how much is allocated to the specific type of work is difficult because DOT crews in rural communities often handle both road and airport duties with the same equipment. Fuel for flight Aviation fuel tax collections totaled nearly $4.9 million in 2015; and the vast majority of that, about $4.4 million, came from jet fuel. At the same time, the state spends about $39 million per year to wholly operate its 247 airports, Alaska Airport Division Operations Manager Troy LaRue said. The higher aviation fuel taxes would generate about $9 million, according to a DOT model. The state Aviation Advisory Board, comprised of state and industry members, unanimously recommended in November the state use fuel tax hikes to add revenue over landing fees or airport user fees, largely because the latter two proposals would require implementing new payment systems while the fuel taxes are already in place at lower levels. The state airport system also generates about $1.5 million in lease revenue, LaRue said. “We know we’re probably never going to earn enough money to insulate the airports from the General Fund, but maybe we could get a lot closer,” he said in an interview. Alaska Airlines Senior Vice President Joseph Sprague told the House Transportation Committee that the airline believes it will pay 30 percent of the additional revenue generated by the jet fuel tax increase from 3.2 cents per gallon to 10 cents per gallon. He said to the Juneau Empire that it’s difficult for the airline to directly oppose the tax increase as it is advocating for a solution to the state’s budget deficit, as many businesses and trade organizations have. Delta Air Lines, which has increased its presence in the state in recent years, wrote in opposition to the jet tax change, as did UPS. UPS uses Ted Stevens Anchorage International Airport primarily as a fueling stop for flights between Asia and the Lower 48. However, jet fuel for flights with an international origin or destination is exempt from taxes at the Anchorage airport because the airport is in a federal Foreign Trade Zone established primarily to encourage cargo companies to use the airport as a transfer facility. Elwood Brehmer can be reached at [email protected]

Committee chair refuses to advance gov’s fisheries tax hike

Commercial fisheries may see taxes increase, but only if other resource industries do, too. Under a budgetary thundercloud, Gov. Bill Walker is trying to squeeze funding from any source. A commercial fisheries tax bump, part of nine such bills in the Legislature, has slowed to a crawl in committee as fishermen decry it. Fishermen, and House Fisheries Committee chair Rep. Louise Stutes, R-Kodiak, fear Walker’s tax plan could disproportionately pinpoint the commercial fishing industry while other resource taxes die. Stutes said during a Feb. 23 committee hearing that she’ll hold the bill in committee until further study. “I have some reservations about passing this bill out of committee,” said Stutes. “I’ve been seeing a lot of the other resource tax bills faltering. I’m going to hold this in committee until I’m comfortable that the fishing industry is not being singled out. I would like this committee to assimilate and digest what they’ve heard.” United Fishermen of Alaska, the state’s largest fishing industry group, brooked little opposition to the bill during a February meeting, but cracks appeared once Stutes opened the committee to public comment. The committee heard from fisherman that the tax plan seemed poorly thought out. Richie Davis, a representative for the Seafood Producers Cooperative, said the tax bump is proof that either the Walker’s administration doesn’t fully grasp the social and economic aspects of the fishing industry, or “or somebody is using Alaska’s fiscal crisis as a springboard to cripple our industry.” 1 percent across the board House Bill 251 would levy a 1 percent increase on commercial fisheries taxes. Current rates range from 1 percent to 5 percent, depending on the category. Comment from two separate hearings on Feb. 18 and Feb. 23 called the tax plan too simple, too rushed, and too ignorant of the other resource taxes in the state. A 1 percent across-the-board raise, fishermen said, ignores the industry’s nuances and unique challenges. The fisheries tax schedule is one of the more complex in Alaska tax code. The fisheries business tax and fisheries resource landings tax sprawl across different categories and sectors. The state levies a fishery business tax and a fisheries resource landing tax, which distinguish between established fisheries and developing fisheries, each with different rates for floating processors, salmon canneries, and shore based processors.  The 1 percent tax rate increase doesn’t make enough distinctions, industry said. “The approach HB 251 takes is quite frankly oversimplified,” said Vince O’Shea, vice president of Pacific Seafood Processors Association. O’Shea, along with Icicle Seafoods representative Kris Norosz, pointed out that a 1 percent increase could conceivably work for some sectors but would stress salmon canneries, which are glutted with oversupply and having trouble profiting at the current 4.5 percent cannery rate. “There hasn’t been quite enough analysis on the proposed action,” said Norosz. “I’m not quite sure how we got to this.” Ken Alper, director of the state’s Department of Revenue Tax Division, said the 1 percent tax rate bump aims to bridge the gap between the state’s spending on fisheries management and its revenue. The state splits half the fisheries resource landings tax with the municipalities where the fish were landed. According to an Institute of Social and Economic Research report, the state spent about $78.3 million to manage commercial fisheries in fiscal year 2014 while taking in about $70.2 million in its share of fisheries taxes. Local municipalities received about $50.8 million from their share of the taxes. Combined with management and capital spending, the state spent about $96.8 million on commercial fisheries versus the $70.3 million in revenue. Despite accusations from fishermen and committee member Rep. Charisse Millett. R-Anchorage, that the tax rate is a “dart thrown at a dartboard,” Alper said the tax rate was chosen for simplicity and to “to generate $15-$20 million of (unrestricted general funds) for the state.” “Obviously there was no dart board,” Alper told the committee. “One percent across the board tax on developing fisheries develops $18 million.” Taxes piled on taxes and cutbacks Taxes, some said, will pour more economic hardship on the commercial fishing industry, along with management cuts, market factors, and tax plans in other areas such as fuel. The Alaska Department of Fish and Game, or ADFG, has already had its budget reduced 15 percent from last year. Budget cutbacks limit resources vital to fisheries management, including field workers and stock survey study methods. Without a full breadth of surveys, ADFG will manage more conservatively and allow fewer fish for commercial harvest. Committee members asked the public if ADFG would manage differently in the face of budget cuts. Most said it would. “With cuts at (ADFG), it’s hard not to manage more conservatively if you think you have less data to go on,” said Norosz. Fishermen said they will feel the state economy’s sting more harshly than other groups. The commercial fishing industry’s current market climate has created some anxiety in the industry even absent a tax hike. “There’s literally a perfect storm in the seafood industry now,” said O’Shea. Alaska exports 70 percent of its seafood harvest. The U.S. dollar’s strength over key export markets like Europe, China, and Japan has softened seafood prices, notably the 2015 Bristol Bay sockeye harvest for which fishermen received half the average price per pound. New state regulations have and will squeeze this bottom line even further. A $2 per hour minimum wage hike, fishermen said, eats away revenue for processor workers and low-level crew. Further, they said, new fuel taxes will drive up operation costs for all fishermen. Fear of a potential Permanent Fund Dividend reductions and a statewide income tax lurk behind the narrowing profit margins. Fishermen asked why the Legislature wasn’t writing a comprehensive resource taxation bill that includes other industries as well. Piecemeal legislation, they said, could combine with politics and leave fishermen to foot the bill if other taxes don’t pan out. Equity concerned some fishermen. Many asked why Walker’s bill doesn’t include a tax on charter angler guides. Alper said Walker’s goal was to “increase what we already have” instead of creating new areas to tax. “It was not part of the administration’s agenda for this session to try to find new areas to tax,” said Alper. “Once you’re in there, dealing with tour operators, the natural extension is to say, ‘Well what about other tour operators?’” “Fishermen are paying for the privilege of extracting that resource,” said Jonathan Kress-Tomkins, D-Sitka. “The difference is that charter operators make their living from extracting a public resource.” Stutes said the fisheries committee would address charter taxation at a later point. “This committee is aware that there is a charter fleet that is not being taxed in any capacity,” she said. “That issue will be addressed,” but not in the context of Walker’s tax bill. DJ Summers can be reached at [email protected]


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