Alaska Journal of Commerce

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]

Assembly eases Anchorage marijuana setbacks

The Anchorage Assembly freed up more marijuana space for Anchorage on Feb. 23, but further limited the already scarce zones in Chugiak and Eagle River. The new rules seem a win-win for the two Assembly members it concerned, Amy Demboski and Patrick Flynn.  The reconsideration holds the intent of the final Assembly land use package passed on Feb. 9 — which was packed with amendments adding additional restrictions to Chugiak and Eagle River — while partially responding to industry panic of overregulation in Anchorage. The reconsideration concerns setback distances between marijuana businesses and sensitive areas like schools, churches, and child-centered facilities like daycares. These distances will be measured by shortest pedestrian route through the municipality. The new amended land use package requires that Chugiak and Eagle River marijuana businesses maintain a distance of 1,000 feet from such areas, which now includes residential districts, dedicated parks, and the McDonald Memorial Center. In Anchorage, rules were somewhat loosened, though the breadth of sensitive areas could prove limiting. Marijuana businesses must maintain the state-mandated 500-foot separation from school, churches, correctional institutions, community centers, recreation centers, playgrounds, public housing, day care centers, and homeless shelters. Both area’s setback requirements will be measured by the shortest pedestrian route between the front entrance of a marijuana establishment and that of the special use property. This eliminates the “as the crow flies” measurement passed earlier — from property line to property line — which could conceivably have zoned marijuana business out despite being separated from sensitive areas by multi-lane highways or other obstacles. Atypical for public meetings involving marijuana, the meeting was quick and quiet, with little discussion among Assembly members and no public comment from the industry throng in the audience. Assembly member Flynn had called for reconsideration on marijuana zoning after noticing inconsistencies between an amendment he passed and those introduced by Assembly member Demboski in an earlier meeting finalizing land use requirements. One of Flynn’s amendments defined the pedestrian route measurement, while Demboski’s — one of 18 she introduced — specified “as the crow flies.” Industry in Anchorage and community councils in Chugiak and Eagle River had each expressed dissatisfaction with the original ordinance. Flynn, who plans to have direct stakeholder involvement in the marijuana industry, said he’d received outraged messages from cannabis entrepreneurs saying the original Anchorage rules zoned their planned buildings out overnight. Cannabis business attorney Jana Weltzin said the Assembly opened itself to legal challenge by making the industry “impracticable.” Marijuana land use is already restricted enough, industry believes, with a limited number of available retail and industrial buildings even by the least restrictive rules. Sara Williams, chief executive officer of Midnight Greenery, said she’d visited 47 retail properties in Anchorage without finding one both properly zoned and with a willing landlord. One business planner’s building would be just less than 500 feet from the nearest school by shortest pedestrian route, but just more than 500 feet if measured by lot line. In Chugiak and Eagle River, however, community councils said the rules didn’t go far enough. Largely conservative and with a sizeable bedroom contingent of military workers from Joint Base Elmendorf-Richardson, the area lobbied Assembly members Bill Starr and Demboski for more restrictive measures. DJ Summers can be reached at [email protected]

Army chief says Alaska 4-25 troop reduction should wait

U.S. Army Chief of Staff General Mark Milley said he wants to delay proposed force reductions at Joint Base Elmendorf-Richardson at least a year in testimony to a Senate committee Feb. 24. The revelation came as Sen. Lisa Murkowski questioned Milley during a Senate Appropriations Defense Subcommittee hearing. Army officials first announced plans to cut 2,600 soldiers from the 4th Airborne Brigade Combat Team of the 25th Infantry Division, also known as the 4-25, stationed at JBER last July as part of an Army-wide cut of 40,000 troops. The full division stationed in Alaska is about 4,000 troops. Milley, who visited Alaska military installations earlier this month, said increasing aggression and force buildup by Russia, particularly in the North Pacific, along with an “increasingly assertive” China and “very provocative North Korea” create heightened conditions for potential conflict in the region. “I think it would be contrary to U.S. national security interests to go ahead and pull out the 4-25 at this time,” Milley said to Murkowski. “My thought is that we should extend them at least a year to see how the strategic situation develops and then move from there.” He added that those beliefs were confirmed in conversations with on-site commanders and the troops themselves. “There’s a great joint strategic deployment capability with the Air Force up there. (The 4-25) can move by air; they can move by sea. We’ve got a national capability up there (in Alaska) that I think is worth keeping,” Milley said. Murkowski responded that Milley provided “very welcome news,” as the 4-25 Airborne Brigade Combat Team is the only such Army force stationed in the Pacific. Further, Milley noted, as members of Alaska’s congressional delegation have in their fight to keep the 4-25 intact, the brigade’s strategic ability to reach East Asia and other parts of the world in less than eight hours from its position in Alaska. Acting Army Secretary Patrick Murphy said to Murkowski that the Army has invested “a lot of money up there” in training facilities that are “second to none” and that he looks forward to working with the senator to fully resolve the issue. Sen. Dan Sullivan said in a statement reacting to Milley’s comments that he appreciates the general’s willingness to evaluate how important the 4-25 is in protecting the country’s global interests. “The 4-25 is the only extreme cold weather and mountain-trained airborne brigade combat team in the entire U.S. Army, and the only one strategically located to respond to threats in the Asia-Pacific and the Arctic,” Sullivan said. “This kick-in-the-door capability is vital to our national security and provides deterrence against increasingly aggressive actions from Russia, China and North Korea.” Sullivan requested Milley reconsider the troop drawdown last year when the general was going through the confirmation process. Sullivan also succeeded in adding an amendment to the defense spending bill requiring the Defense Department to draft an Arctic Operations Plan. He received verbal assurances from Army brass that the 4-25 would not be moved until the plan was complete, Sullivan told the Journal in December. During an Armed Services Committee hearing a day earlier U.S. Pacific Commander Admiral Harry Harris said to Sullivan that without the 4-25 in Alaska that “I don’t know where we’d be if we had a major fight on the Korean Peninsula.” The 4-25 also just completed a training exercise at Fort Polk in Louisiana with a full Airborne Task Force of nearly 1,600 troops to show the value of the full force, according to a U.S. Army Alaska press release. U.S. Army Alaska officials asked branch leaders to consider training with the full force last year after the Army directed the 4-25 to downsize to an Airborne Task Force of 1,046 soldiers as part of the effort to restructure to a smaller, more agile force, the release states. The release stated that the exercise at Fort Polk validated the 4-25 as “the only U.S. airborne unit in the Pacific region capable of performing forcible entry operations.” Elwood Brehmer can be reached at [email protected]

Greens Creek mine reports record silver production in 2015

Hecla Mining Co. announced annual results that included record silver production at its Greens Creek mine near Juneau. Greens Creek had production of 2.6 million and 8.5 million ounces of silver in the fourth quarter and full year of 2015, respectively, an increase of 4 percent and 8 percent over the same periods of 2014. It was the highest annual silver production since Hecla acquired 100 percent of the mine in 2008. According to the company, silver production increased over 2014 levels due to higher silver ore grades, particularly during the fourth quarter of 2015, as well as higher metallurgical recoveries. Overall, Hecla announced 2015 sales of $443.6 million and gross profit of $38.5 million, with net loss applicable to common stockholders of $87.5 million, and an adjusted net loss applicable to common stockholders of $34 million. Hecla President and CEO Phillips S. Baker Jr. said he was pleased with the results. “We believe we are one of few precious metals companies growing right now, not just in reserves but in production as well,” Baker said in a release. “Because our balance sheet allowed us to continue investing during the price decline of the last few years, we expect more than a 15 percent increase in silver production and about a 10 percent increase in gold production this year, positioning us to take advantage of the rally in prices we have seen in 2016.” At Greens Creek, capital spending was $46 million, including $20.7 million for a tailings pond expansion. Capital spending for Greens Creek in 2016 is estimated to be $48 million, of which approximately $14 million is for the tailings expansion project. Cash cost, after by-product credits, per silver ounce at Greens Creek was $4.18 and $3.91 for the fourth quarter and full year, respectively, compared to $2.74 and $2.89 for the same periods in 2014. The increase in cash costs, after by-product credits, per silver ounce for 2015 compared to 2014 is the result of lower by-product credits due to decreasing metal prices, partially offset by increased silver production.

Wells Fargo report bleak for Alaska on strong dollar, weak oil

Wells Fargo economists released an investment update for 2016, and little of the news looks pleasant for Alaska. The report, entitled “Navigating Risk in a Year of Change,” advises investors to shrug off the appearance of market volatility in 2016. “We started the year very differently than we started the year ever before,” said JoEllen Weatherholt, an Alaska investment strategist with Wells Fargo. Weatherholt said the market’s recovery from economic doldrums beginning in March 2009 has been abnormally smooth. Market volatility now, she said, only feels intense by comparison. “We’re back to more normal volatility,” she said. “It feels like super volatility when you haven’t had any in awhile. We are going to continue to have volatility, we’re not going to be in that smooth sailing environment.” Investors, she said, should calculate their appetite for risk and try not to get sucked into pessimism. “Quit watching TV and just hang tough,” Weatherholt said. The volatility, the report says, traces back to several themes. Most crucial for Alaska, commodity prices including oil remain low with little sign of an upswing, and the U.S. dollar’s strength causes problems in export markets. In terms of Wells Fargo’s report, Alaska more closely resembles the bank’s definition of an “emerging economy”: one dependent on low-value bulk resources without a substantial proportion of 21st century business drivers like technology and internet development. With political unrest and low commodity prices, these emerging economies have a negative outlook. The dollar’s strength hurts for Alaska as a foreign export producer, notably for the state’s largest foreign export, seafood, and for it’s largest revenue source, oil. Alaska also exports other commodities such as gold, lead and zinc. In 2015, the dollar’s strength factored into Bristol Bay fishermen — the world’s largest sockeye run — receiving half the average price for their fish. Wells Fargo doesn’t predict the dollar will weaken anytime soon, though early 2016 saw it beef up less than the previous year as foreign economies strengthen. “The dollar’s two main supports are stronger economic growth and widening interest-rate differentials across countries,” reads the report. “The U.S. economy has outperformed the Eurozone and Japanese economies since 2014 as the dollar has surged in value against the euro and the yen. The economic-growth gap across these regions should narrow somewhat in 2016.” Europe is a key export market for Alaska seafood along with Japan and China, but outlooks for their currencies look dim. Political unrest driven by the European refugee crisis contributes to the euro’s weakness, said Mike Serio, Regional Chief Investment Officer for Wells Fargo Private Bank. The dollar’s strength has been a factor in the price of oil’s decline, colliding with a glut in supply. Global production increased in 2015 from 94.5 million barrels to 95.5 million, with no equivalent increase in demand to raise prices back up. “The problem is our storage facilities all over the U.S. are just bloated with oil,” said Serio. Rather than depress supply willingly, oil-producing regions continue to yield. “We’ve got Russia continuing to pump, Saudi Arabia continuing to pump, and Iran continuing to pump,” he said. Oil prices are good for the U.S. consumer, but there’s been no equivalent buildup in other areas to benefit. Wells Fargo estimates an annual household savings of $92 billion per year. Typically, economists theorize that gas pump savings fuel growth in other sectors, but the U.S. consumer appears to have learned a savings lesson from the Great Recession. “People are saving 5.5 percent of their income,” said Jon Snare, a regional investment manager. “It’s one of the mysteries in the U.S. that consumers since the crisis have been less willing to go out and spend the money they save.” For Alaska, this could dampen tourism expectations. Tourism, nearly a third of the state’s private economy, comes from discretionary spending, especially lengthier and more expensive trips to remote locales like Alaska. With that extra money socked away in savings, it may be less likely to be spent on glacier cruises and halibut charters, although the state is forecast to have another strong year of visitors in 2016. DJ Summers can be reached at [email protected]

AK LNG talks ‘unlikely’ to meet deadlines

A lack of progress in negotiations between the state’s producer partners on major Alaska LNG Project agreements is likely to throw the project off schedule, according to a key member of the Walker administration. Deputy Department of Natural Resources Commissioner Marty Rutherford said in an interview that BP, ConocoPhillips and ExxonMobil are still working on the structure of the Alaska LNG Project’s critical Gas Balancing Agreement after more than a year of negotiations. Rutherford is the state’s lead negotiator for commercial terms on the project, Gov. Bill Walker has said. The Gas Balancing, or gas supply, Agreement is the underpinning contract for at least seven more issues that must be resolved within several months to keep the project on track, according to the administration. It provides a framework for the companies — each with a different share of North Slope natural gas dedicated to the project — to pull their gas from the fields at certain times without upsetting the overall operations of the project. Even if the Gas Balancing terms were reached immediately, she said, it would still be “highly, highly unlikely” that all the agreements could come together in time because it still takes months to finalize agreements met in principle. Rutherford noted she always thought the Alaska LNG Project commercial terms would be wrapped up in time for a spring 2016 special session, but she also characterized the general challenge of several-party negotiations, regardless of the topic. “Two-party negotiations are tough; three are very difficult and four are — it’s hell,” she said. Company representatives acknowledged the slow pace of the negotiations in recent testimony before state legislative committees. Gas supply agreements are common in joint-venture LNG projects, but disparate ownership in the Alaska LNG Project’s two major gas fields, Point Thomson and Prudhoe Bay, makes this negotiation particularly challenging, ConocoPhillips Vice President of Commercial Assets Leo Ehrhard told the Senate Resources Committee Jan. 27. The agreement dictates how gas is “lifted” from the field under normal operations, but also during downtimes for maintenance on one field or the other. Gas draws must also jive with when customers want LNG from the $45 billion-plus export project, further complicating matters. On top of all that, each party comes to the table with differing risk perspectives and policy goals in a time of particular financial stress, given the state of world oil markets, Rutherford noted. “There have been some pieces we haven’t even begun (negotiating) yet because the foundational, what I call the threshold agreement, hasn’t been landed, even structurally,” she said. Walker sent a letter to the company leaders in Alaska on Jan. 18 expressing his concern over the lack of progress. He said the state would seek other alternatives to commercialize its gas if the parties don’t reach an agreement by the end of the regular legislative session, which is in late April. The governor has said for several months he hoped to have a comprehensive set of project agreements in place for the Legislature to review late in the regular session so a special session to vote on the agreements could be held shortly thereafter. A special session would also include a vote on a constitutional amendment needed for the state to enter into long-term contracts — tax policy — for the initial 25-year life of the project. The Alaska Constitution prohibits one Legislature from taking the authority to tax away from future bodies, which locking the state into a 25 percent share of the project’s gas would seemingly do. “There is an absolute certainty that a constitutional amendment is needed if the fiscal agreements that the producers want contain the Legislature suspending their power to tax,” Attorney General Craig Richards said to the Senate Resources Committee Jan. 29. Richards noted many, if not most, states have similar clauses in their constitutions. He also said the Stranded Gas Development Act, an earlier attempt to monetize North Slope natural gas, included fiscal terms that would have required an amendment as well. Because the public must vote on the amendment in a general election, the Legislature’s vote needs to happen in time to get it to the Division of Elections before June 23, the deadline for getting it on the November ballot. If any of that falls apart, the project is all but delayed for at least two years until the 2018 general election. The timeline was imposed by the producers’ prerequisite to have fixed project tax terms, Rutherford said, which added deadlines for the fiscal term sheets and the subsequent constitutional amendment. Ehrhard also said the agreements are necessary for the project to enter the full-fledged front-end engineering and design, or FEED, stage. The decision whether to enter FEED has been expected sometime next year. Despite the challenges, the parties are continuously negotiating. “We’re working hard to try to get breakthroughs on all fronts with the hope that the unlikely could happen,” Rutherford said. “We’re totally focused on trying to make these dates.” Gas supply from each field is also an issue for the state, she said, but not on the level it is for the producers because the state holds an equal 25 percent share of gas in each field through royalties and the proposed tax share to be taken in-kind. The negotiations started even before the Walker administration took office in December 2014, but began in earnest about a year ago. Last June the producers asked the state to step aside so they could work on the issue themselves and the State of Alaska was invited back to the Gas Balancing table about a month ago, according to Rutherford. Elwood Brehmer can be reached at [email protected]

Cotten, council get earful from trawlers

PORTLAND, Ore. — An administrative push to keep fishing jobs in coastal communities is butting heads with the trawl industry claiming they provide the jobs in the first place. The North Pacific Fishery Management Council will continue studying a bycatch reduction plan unpopular with Gulf of Alaska trawlers. The option, known as Alternative 3, would allocate individual bycatch caps to groundfish vessels in the Gulf of Alaska rather than the target species. The council is making changes at the fleet’s insistence. The council passed a series of chinook salmon bycatch limits and halibut bycatch reductions in 2011 and 2012, leading to bycatch-related shutdowns of the trawl fleet. Following a two-day public comment marathon that spilled into an impromptu town hall-style meeting, the council approved an amended version of the original alternative. The amended Alternative 3 narrowly passed the council 6-5 along the state lines. All six Alaska members voted in favor of including the alternative, while members from Washington, Oregon, and the National Marine Fisheries Service Alaska Region voted against it. Even with changes, trawl industry representatives say Alternative 3 is the short route to crippling the Gulf of Alaska groundfish fleet. “If the goal of the council is to hamstring the trawl industry, then Alternative 3 it is,” said Bob Krueger, executive director of Alaska Whitefish Trawlers. Trawlers say the council process is skewed towards small boat Alaska interests, a disservice in their eyes, as the fishery is federal. Council members said that may be true, but Alaska plays the biggest role in the North Pacific. “The majority of the people that have LLPs (limited license permits) now don’t even live in Alaska,” said Alaska Department of Fish and Game Commissioner and council member Sam Cotten. “But the fishery is prosecuted from Alaska ports. The fish are brought to Alaska harbors. The fish are processed in Alaska communities. There are people who live in these towns who are affected by fishery management plans. We’re gonna listen to them, too.” After the vote, trawl industry stakeholders clustered together to vent against what they said was harmful anti-trawl rhetoric that will shoot Alaska in the foot. “All my boats that are ported in Kodiak deliver to Kodiak for decades,” said Heather Mann, executive director of the Midwater Trawlers Cooperative. “They spend money in Kodiak. The fish is being processed in Kodiak. They’re buying groceries and fuel in Kodiak, and getting services in Kodiak. We’re as much a part of that economy as someone who was born and lives in Kodiak. To discriminate against us…harms Alaskans.” Cotten said the trawlers are right; Alaska interests, in his mind, are the council’s top priority. “If not us, then who will protect the economic interests of Alaska?” he said. Alternative 3 Roughly 85 percent of North Pacific groundfish fisheries are rationalized. A big chunk of the remainder is in the Gulf of Alaska. Rationalization assigns blocks of fish quota to individual vessels or to fishing cooperatives. Managers often pinpoint rationalization as the best way to ensure safety and to minimize bycatch; vessels with their own quota can harvest at their leisure instead of the derby style fisheries of the past, thus allowing more time to avoid prohibited species like chinook salmon and halibut. Coastal communities, however, have a bad aftertaste of some rationalization programs. When the council rationalized Bering Sea crab, the number of boats in the crab fleet shrank by two-thirds in one season and eliminated 1,000 crew jobs. Though not to the dramatic level as crab, halibut rationalization also produced some consolidation of vessels and harvest quota. Quota is also extremely expensive, which has limited the ability of new entrants to join the fisheries. In state fisheries, the Alaska limited entry permit system saw many rural permits migrate to urban areas.  “Those that live in the community are very concerned about duplicating and magnifying the negative experiences we’ve had in the past,” said council member Duncan Fields. “Our experiences create a very clear philosophical demarcation on the council.” Alternative 3 creates an individual quota system for bycatch, rather than for the target species. Trawlers say this does nothing to end the race for fish, as vessels will simply fish up to their individual bycatch limit instead of the fleetwide limit. Trawlers understand the fears of consolidation, but say their fishery isn’t analogous to crab or halibut. Groundfish are low-price, high-volume product not subject to the same harvesting or market structure as the higher-end seafood products. As evidence, they point to the Gulf rockfish fishery, which produced little consolidation when it was rationalized in 2007. Fewer than 40 trawlers currently operate in the Gulf of Alaska groundfish fishery, but potentially as few as 10 could harvest the whole quota. Fields said this is exactly the kind of consolidation Alternative 3 wants to avoid. Trawlers say an existing option, Alternative 2, already incorporates certain guarantees for preventing consolidation, including vessel usage caps. To prevent the kind of consolidation of the crab or halibut, each vessel would be restricted to hold no more than 1 or 3 percent of the total target quota – allowing for increased efficiency but preventing the fleet from shrinking below about 25 vessels. Among other concerns, trawlers also say Alternative 3 doesn’t recognize individual vessels’ or cooperatives’ historical take of prohibited species catch, or PSC, or of target species; they worry a PSC-only allocation will be a kind of redistribution of wealth to those entrants without their lengthy investment of time and finances. To fix this, Cotten amended the final Alternative 3 to recognize dependency, but not history, which trawlers said “molests” their concerns. Only recognizing dependency without history, they say, goes against the tenets of the Magnuson-Stevens Act, which states the council must make allocations with history as a consideration. Cotten put in a concession to history: any allocation of history would use only the historical share from the year before. Trawlers say one year of bad fishing shouldn’t guarantee another. Both trawlers and the National Marine Fisheries Service, or NMFS, oppose Alternative 3, believing it doesn’t address the stated goal to make fisheries safer and lower bycatch. Merely adding it to the discussion, they said, will cost crucial time for the trawl fleet, which has had two bycatch-related shutdowns already and anticipates more. NMFS Alaska Region Assistant Administrator Glenn Merrill, who sits in place of Alaska Region Administrator Jim Balsiger on Gulf-related matters because Balsigers’s wife Heather McCarty works for the City and Borough of Kodiak on fisheries matters, voted against Alternative 3 and said analyzing the option will add up to a year’s more time to a final plan’s passage. Stakeholder input Trawlers heatedly testified against moving Alternative 3 forward, both in the Advisory Panel and in front of council. The AP, a group of 21 stakeholders who provide input to the council, almost passed a recommendation to the council to drop Alternative 3, but the motion failed on a 9-12 vote.  Virtually everyone affiliated with a trawl operation spoke against the option, most with the same criticism: only allocating bycatch caps will not encourage trawlers to slow their operations and avoid prohibited species. “I feel that time is the most effective and powerful tool to reduce bycatch,” said trawl captain Jason Chandler. “If only PSC is reduced, the fleet will continue to race upwards to the limit. I can’t honestly believe we’re even talking about a program that doesn’t take out the race for fish.” Most public comment was against the alternate with a few notable exceptions. Those who supported it spoke to the alternative’s ultimate goal: boosting coastal community stake in the fishery. “Everyone has figured out that owning a public resource is a really groovy tool,” said Alexus Kwachka, a Kodiak fisherman and AP member. “I don’t know if Alternative 3 would work, but I think it has merits to consider. I think there has to be some kind of happy medium. If we do it wrong in the Gulf, we wipe out other businesses.” Trawlers organized a voluntary stand down from Feb. 3-6 in order to testify and show solidarity. The masses hinted that the stand down was taken seriously, but Alaska council members probed to find out if the stand down’s timing was too convenient. Prior to the council meeting, pollock prices pushed trawlers to target non-pollock fish in the Gulf instead, leading to a halibut bycatch spike of 100 metric tons, or about 242,000 pounds, over the same period last year and spurring trawlers to stop targeting non-pollock species such as Pacific cod. Accounts for when the trawlers decided to stand down to participate in the council meeting differed; some said last year, others said earlier in January. “Are their any other reasons you would stand down,” asked Cotten, “perhaps because of bycatch?” Trawlers acknowledged the halibut bycatch spike, but said the two stand downs were purely coincidental. “I just want to point at that that agreement was entered prior to the beginning of our fishing season,” said Jason Chandler, a trawl captain. Alaska council members seemed to think the much-publicized stand downs skewed reality. There’s a critical distinction, they said, between the largely Seattle-based trawl industry and the actual residents of Gulf of Alaska towns like Kodiak, Sand Point, and King Cove. Few such residents testified before council or wrote letters of support. Trawlers, meanwhile, resented the implication that they aren’t community members, too. The council’s Advisory Panel wrote in its recommendation that “no industry” voiced any support for the alternative, earning a scolding tone from council member Duncan Fields. “Is the AP of the opinion that (supporting) written comments do not count as stakeholder input?” Fields asked AP co-chair Art Nelson. The letter Fields referred to came from the Sitka-based Boat Company, which describes itself as a “non-profit educational organization offering luxury eco-cruises through Southeast Alaska.” Of the 20-odd letters submitted to council, the Boat Company alone supported Alternative 3. The remaining letters came from processors, trawl captains and crew, or from industry groups. Some Kodiak residents within the council process had argued a similar point in the AP discussion preceding the council’s. Certain “community protections,” they said, are merely protections for trawlers and processors. “I consider myself a stakeholder as a resident of the community of Kodiak,” said Theresa Peterson. “I don’t see stakeholders as being limited to the stakeholders in the trawl industry. Granted, people not directly represented in the trawl industry have not shown up en masse, but I feel like the state was responsive to a lot of community concerns.” The council’s public comment period — spanning two days with more than 50 speaking — was highly charged, and the Benson Hotel’s conference room temperature rose. The sheer volume of public comment spilled into an impromptu town hall-style meeting with Cotten. Trawlers crowded the commissioner and some had trouble keeping voices below an on-deck volume. Paddy O’Donnell, a Kodiak resident and trawl owner who introduced the motion to scrub Alternative 3 out of the package as an Advisory Panel member, told Cotten he hates being treated as a second class citizen. Fixed gear fishermen, he raged in a brogue-soaked shout, are just as important to the Alaska economy — and the Alaska identity — as the more romanticized hook and line fisheries. “I’m branded because I’m a trawler. I’ve lived in Alaska for 26 years, longer than I ever lived in Ireland,” said O’Donnell. “I’ve got two kids going to school there. You are throwing out the future of my livelihood, the future of my kids, the future of the community of Kodiak.” Fishy politics Trawlers accuse the North Pacific council of letting itself be dominated by Gov. Bill Walker’s interests through Cotten, and weren’t shy about telling Cotten they felt betrayed by Alternative 3. “You, as commissioner to the State of Alaska, you’ve got a job to do, but you’re throwing me under the bus,” said O’Donnell. “You’re the guy we look up to, to protect us. You’re our man in Juneau, and you need to look after us.” Council members don’t necessarily disagree that the process is weighted for Alaskans; that’s the way it’s supposed to be, they said. Alaska was given the majority of the voting seats on the North Pacific council when the eight regional councils were created by the Magnuson-Stevens Act. Cotten introduced Alternative 3 in October 2015. Former commissioner Cora Campbell, who Cotten replaced following Walker’s election, had forwarded Alternative 2 to the council the year before. Trawlers support Alternative 2, which they said is still flawed but had the benefit of two years of substantial public comment. Trawlers said the council discriminates against them. The decision to move Alternative 3, opponents said, demonstrates an Alaska-stacked, philosophically anti-trawl council process. Cotten, they said, controls the majority of Alaska votes and has rearranged the council’s Advisory Panel to reflect anti-trawl interests. At its December meeting, the council removed Mitch Kilborn of Kodiak’s International Seafoods of Alaska and Anne Vanderhoeven, fisheries quota manager for Bristol Bay Economic Development Corp., a Community Development Quota, or CDQ, group. In place, the council appointed Ben Stevens of the Tanana Chiefs Conference and Angel Drobnica of the Aleutians Pribilof Islands Community Development Association, another CDQ group. Before the Portland meeting, the AP changed leadership roles, voting to replace Ruth Christiansen with Ernie Weiss of Aleutians East Borough as chair, with co-chairs Matt Upton from U.S. Seafoods and Art Nelson from Bering Sea Fishermen’s Association.  Only eight of the 21 AP seats come from outside Alaska. “This meeting just underlined how dysfunctional the council is becoming,” said Krueger. “People are not voting the way they really feel. We have council members up for reappointment. Voting contrary to the wishes of the commissioner would end any hope of being reappointed.” Council members disagree that the council bears hatred for trawl interests. Fields said the trawlers, more than any other group, began working the council process in 1976. The appearance of anti-trawler bias through increased regulation is more an example of long-absent equity between North Pacific user groups and stakeholders than some kind of targeted attack. “They structured fisheries that generally advantaged the trawl fleet and perhaps disadvantaged others,” said Fields. “There is a perspective on the council that the trawl fleet needs to be regulated in ways that minimize impact to other stakeholders.” Clem Tillion, a lobbyist for the city of Adak and Alaska political fixture, said the trawlers simply don’t like the taste of sour grapes. “They had everything going their way under (former Gov. Sean) Parnell,” he said. “Well, Walker won, and they’re having trouble facing up to that.” Walker’s limited involvement with fisheries has typically been in favor of Upper Cook inlet commercial fishing interests. He has repeatedly emphasized the importance of coastal and rural economies dependent on fishing. Julie Bonney, executive director of Alaska Groundfish Data Bank, submitted a letter to Walker on Feb. 5 and passed copies around to council members during public comment. “Your Administration’s proposal jeopardizes these benefits and yet does nothing to better manage bycatch and improve conservation,” the letter reads. “There is absolutely no support for this approach by the current participants in the fishery.” Cotten said Walker is aware of the council’s actions and supports them. Alternative 3 hits the main points of Walker’s objectives for Alaska fisheries, he said: the health of coastal communities and fish-first management. Other items The Gulf of Alaska bycatch issue took the majority of council’s time, but it also revisited several ongoing issues peripheral to halibut fisheries. Like the Gulf, the Limited Access Trawl Sector yellowfin sole fishery in the Bering Sea is not rationalized. New entrants have been coming into the fishery, leading to both economic concerns for the historical participants and to halibut bycatch concerns – yellowfin sole is one of the “dirtiest” fisheries for halibut bycatch, and the Bering Sea and Aleutian Islands yellowfin grounds are nurseries for halibut.  The council’s discussion paper examined possibly closing off the fishery to new entrants. For trawl vessels in the Bering Sea and Aleutian Islands, the council passed a motion that allows vessel in the partial observer category to voluntarily opt into full coverage. Also in the coverage category, a discussion paper examined the possibility of putting observers on tender vessels, which deliver fish from offshore vessels to onshore processors. The council will continue to review observer data and move forward a rule for tenders to file landings reports. The council’s next meeting will be held in Anchorage from April 4-12, where it is tentatively slated to hold an initial review of halibut Recreational Quota Entities, a discussion paper of salmon genetics, and another review of the ongoing halibut management framework. DJ Summers can be reached at [email protected]

Utilities purchase share of Beluga gas field

Anchorage’s electric utilities have partnered to purchase part of a Cook Inlet natural gas field, a move that secures a long-term fuel supply and could save ratepayers up to $9 million per year, utility leaders said Monday. City-owned Anchorage Municipal Light and Power and Chugach Electric Association agreed to purchase ConocoPhillips one-third interest in the Beluga River Unit gas field for a total of $152 million. Under the agreement ML&P will own 70 percent of the unit share and Chugach will take the remaining 30 percent. ML&P purchased a one-third share of the Beluga field in 1996, which has already saved its ratepayers more than $239 million when the utility’s cost to produce the gas is stacked against historical market prices, according to ML&P General Manager Mark Johnston. Hilcorp Energy owns the remaining third of the West Cook Inlet field and is the expected operator on behalf of the utilities, Johnston said in a press briefing. “Because we have the city’s business core and commercial and industrial core (in ML&P’s service area) we think it’s very important that we have a stable fuel supply that helps us to have stable fuel prices for the business community that they can rely on,” Johnston said. The latest deal should supply ML&P with all of its natural gas needs and Chugach with about 10 percent to 15 percent of its gas demand for about the next seven years before production begins to significantly taper. Beluga is expected to produce for the utilities through 2033. Johnston said two reservoir analyses concluded there is between 70 billion and 80 billion cubic feet of gas remaining in the Beluga River Unit. Chugach CEO Brad Evans said his ratepayers would likely see overall savings up to 15 percent on the fuel portion of their electric bills, equating to an overall yearly savings of between $2 million and $3 million per year. Johnston said ML&P’s larger share in the field should translate into savings in the $4 million to $6 million per year. “My wife and I did a back of the envelope calculation and we figure it could be worth a couple hundred bucks a year,” in savings to ML&P ratepayers, Anchorage Mayor Ethan Berkowitz said. ML&P’s gas production cost this year is $4.35 per thousand cubic feet, or mcf, from its original share in Beluga, according to the utility; compared to the regulated wholesale market price of $7.42 per mcf for Cook Inlet natural gas. While still a savings, the production cost has nearly doubled since 2013, a consequence of drilling new wells and doing well workovers to maximize production, Johnston said. The cost of production has fluctuated over the 20 years ML&P has held an interest in Beluga, he said in an interview, and the utility could invest about $30 million to $40 million more in the field over the next five years. ML&P expects to be able to pay for its portion of the acquisition with about $80 million from its Deferred Regulatory Liability from Gas Sales Fund along with a $13.5 million underlift and nearly $25 million in available cash. If the Regulatory Commission of Alaska limits the fund draw Johnston said the utility would turn to revenue bonds tied to production from the field. Evans said Chugach will likely use its low-interest commercial paper program for short-term financing with longer-term debt covering any remaining balance. The utilities first partnered to build the $369 million Southcentral Power Project, a 183-megawatt natural gas-fired plant completed in early 2013. Ownership shares in the power plant are reversed from Beluga deal, with Chugach owning 70 percent and ML&P holding 30 percent. ML&P is also finishing work on the new wholly owned 120-megawatt George M. Sullivan Power Plant 2 natural gas-fired plant in Northeast Anchorage. Combining the new, more efficient generation with owned gas reserves enables the utility to provide power at the lowest possible cost, Johnston and Berkowitz said. Elwood Brehmer can be reached at [email protected]

Juneau hydro developer has plan for clean, stable heat

Duff Mitchell is doing his damndest to get Alaska’s capital off of fuel oil. The director of Juneau Hydropower Inc. announced plans for a seawater-sourced district heat system for Downtown Juneau Feb. 9 at the Juneau Economic Development Council’s annual Innovation Summit. 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. 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, Mitchell said in an interview. 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. 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, according to Mitchell. 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, he said. Mitchell estimated 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. “The conversion cost is low because you’re not ripping out your old system; you’re just supplementing it,” he said. Adding a new space heat source adds redundancy, meaning a fuel oil boiler could be called back into use if need be just by turning a water bypass valve, Mitchell noted. Water used in the loop would head back to be reheated at a temperature between about 120 and 140 degrees Fahrenheit. The system does not sell an energy source; the end product is energy itself. “We’re selling and monitoring (British thermal units),” he said. Recent advancements in the compressors have improved the efficiency of the technology to upwards of 300 percent, making the system more feasible on a larger scale, according to Mitchell. “There’s nothing more efficient than a heat pump,” he said. “In fact, we’ve gone to saying heat pumps are to heating what LED lights are to lighting.” Juneau’s would be the first ocean-sourced district heat system in the country, but Mitchell said the coastal city of Drammen, Norway, supplies heat to its 65,000 residents through the same system. Alan Simchick, a regional manager for the heat pump manufacturer Emerson Climate Technologies, said the large-scale pump technology has been on the market for about eight years, a relatively short period in engineering time. “We really see a bright future for (heat pumps) in a lot of different areas, not just district heating, but also in food processing plants and any areas where heating is needed on an industrial scale,” Simchick said. He called it “one play” in reducing a community’s overall carbon footprint. The end cost of heat to consumers will largely depend on how many homes and businesses sign up, he said, but district heat can compete at today’s oil prices and it offers another major benefit — price stability. The seawater must be at least 37 degrees to maximize efficiency, according to Mitchell, and temperature records show Gastineau Channel has historically met the criteria. Installing the pipe network can be done through directional drilling, eliminating the need to rip up Juneau’s already cramped streets. Initial plans are to cover the city’s Downtown, Willoughby District and extend north to include Juneau-Douglas High School, Mitchell said. Expansion to include Douglas and the hospital areas is being analyzed. The key to Juneau’s system will be the stable cost of electricity born from Sweetheart Lake hydro. About half of the 20 megawatts available will go to power the district heat pumps and the other half will go to the Kensington underground gold mine north of Juneau, he said. Mitchell is developing both projects in concert with hopes have everything complete in 2018, he said. Permitting for the projects should be wrapped up by the end of this year. Combined, the work could inject upwards of $200 million into the region’s economy. Because inexpensive electricity is paramount for an ocean-sourced district heat system, the technology could be extended to communities in Southeast with excess hydro capacity; however, the economics would likely be challenged in communities with fuel oil, or diesel-fired, electric generation, according to Mitchell. Elwood Brehmer can be reached at [email protected]

ConocoPhillips absorbs $4.4B loss; nets just $4M in Alaska

ConocoPhillips’ fiscal situation looks a lot like the State of Alaska’s after the company posted a 2015 net loss of $4.4 billion in its year-end financial results released Feb. 4. While Alaska leaders are contemplating cutting the Permanent Fund Dividend to help fund the budget, ConocoPhillips announced it was slashing its dividend from 74 cents to 25 cents per share. Combined with reductions in capital expenditures to $6.4 billion from the $7.7 billion plan announced in December, the two moves will save the company $4.4 billion in 2016. The company’s share price dropped 8.1 percent to $35.50 following the announcement. In Alaska, ConocoPhillips reported earnings of $4 million for the year, compared with more than $2.04 billion in earnings for 2014. Excluding negative special items totaling $478 million for the year that include a $412 million impairment related to its Chukchi Sea leases, adjusted earnings for Alaska were $482 million for the year compared to $2.07 billion in 2014. The company posted positive Alaska earnings in the first three quarters, but reported a $389 million loss in the fourth quarter as its average realized price per barrel was $40.29 compared to $71.34 in the fourth quarter of 2014. In January, Alaska North Slope crude prices dipped to less than $30 per barrel for the first time in more than a decade. Including special items, ConocoPhillips reported an overall pre-tax net loss of $650 million for Alaska in the fourth quarter. Company spokeswoman Natalie Lowman said ConocoPhillips is estimating its tax and royalty obligation for the year at $665 million, which, when combined with capital expenses, resulted in a negative cash flow exceeding $100 million in Alaska. A $467 million fourth quarter after tax item loss for Alaska is primarily attributable to the company’s federal Chukchi Sea lease holdings, according to Lowman. Following Shell’s lead, the company announced it would suspend development of the Chukchi leases it paid $500 million for in 2008. New oil from the CD-5 development in the National Petroleum Reserve-Alaska and Drill Site 2S online late in the year helped boost fourth quarter production, Lowman said. ConocoPhillips’ average daily Alaska production increased 5,000 barrels per day in the third and fourth quarters compared with 2014. Its average daily in-state production for the year was down 4,000 barrels to 158,000 per day, or about 2.4 percent. The harsh financials likely mean a slight decrease to the previously announced $1.3 billion Alaska capital budget in 2016, Lowman said, but she also noted the state continues to have one of the highest capital spend levels of any sector of the company’s worldwide portfolio. “For this year we expect our (Alaska) capital budget will be higher than in 2012,” Lowman said. In November, ConocoPhillips announced the sanctioning of its Greater Moose’s Tooth-1 exploration in the NPR-A, with a projected development cost of $900 million. LNG export permit renewed On Feb. 9, ConocoPhillips received a renewal of its LNG export permit for its Nikiski plant. After allowing its permit to lapse in 2012 as Cook Inlet supply shortages were a concern, the company renewed exports from the plant in 2014 after utilities’ gas needs were secured. “For nearly half a century, Alaska has exported liquefied natural gas to our friends and allies overseas,” said Alaska U.S. Sen. Lisa Murkowski. “As projects get underway in the rest of the nation, and planning continues for an even larger project here in the State, we should remember that Kenai set the precedent for the historic build-out of export capability now underway in North America. Alaska led the way, Alaskans can now continue to lead the way, and all Alaskans should be proud.” Elwood Brehmer can be reached at [email protected]

AG wants permission to investigate Bill Allen

Alaska Attorney General Craig Richards and Sen. Dan Sullivan joined forces in Anchorage Feb. 5 to announce the state’s intent to pursue longstanding allegations of sexual abuse and trafficking of a minor against former Alaska business leader Bill Allen. Richards sent a letter to U.S. Attorney General Loretta Lynch Friday requesting she cross-designate the State of Alaska with authority to investigate and potentially prosecute Allen in federal court for violating the Mann Act. A federal law passed in 1910, the Mann Act prohibits transport of individuals across state lines with the intent of engaging in sexual acts with them. The Anchorage Police Department and the Federal Bureau of Investigation first looked into the allegations in 2004 that Allen had paid for Paula Roberds, originally from the Western Alaska village of Goodnews Bay, to fly between Anchorage and Seattle multiple times for sex when Roberds was 16, according to news reports. The U.S. Department of Justice announced in 2010 that it would not prosecute Allen for those allegations. Prior requests for cross-designation by former attorneys general Michael Geraghty and Sullivan himself were denied by the Justice Department with little explanation. In rather unique coalescence, Sullivan, as senator, sponsored an amendment to the Mann Act requiring the U.S. attorney general to approve the cross-designation or provide the state attorney general with “a detailed reason for the denial no later than 60 days after the date on which a request is received,” the law states. President Barack Obama signed the anti-trafficking bill that included Sullivan’s Mann Act amendment into law last year. Alaska Criminal Division Director John Skidmore said documents subpoenaed to a federal grand jury cannot be revealed to parties not authorized to pursue charges on a federal level, thus requiring the cross-designation authority from Lynch. Speculation has persisted — and continued at the press conference in Anchorage —that Allen was not prosecuted due to a deal he may have reached with the feds in exchange for testifying against the late Sen. Ted Stevens in a 2008 political corruption case. Stevens was found guilty just days before the 2008 election and lost to Mark Begich by a narrow margin. The conviction against Stevens was eventually tossed and the Justice Department attorneys were sanctioned for misconduct for withholding exculpatory evidence from the defense. “The guardians of justice for the country may have said, ‘alright, to go after Ted Stevens we are going to throw (out), ignore and not go after the heinous crimes where victims are young girls.’ The Department of Justice should not be doing that if that did indeed happen,” Sullivan said. Richards and Sullivan both emphasized that their criticism of the Justice Department’s silence regarding its denials of previous cross-designation requests is not aimed at Lynch, given she was not the U.S. attorney general when those requests were made. “This is really, I think, the opportunity for the Justice Department to right a wrong and make clear and provide clarity around what really happened,” Richards said. “And if there was a deal cut and the deal was that (seeking) to prosecute Ted Sevens would result that Bill Allen not be prosecuted for sexual crimes against children, then we should know it and if that wasn’t the deal then Alaskans should know that too.” Allen, the former head of the oilfield services firm VECO Corp., pled guilty in 2007 to bribing a handful of Alaska legislators for support of an industry-friendly state tax policy. He was sentenced to three years in prison and fined $750,000. Skidmore said the state has not yet confirmed Allen’s whereabouts and would do so if it chooses — and is allowed — to pursue charges against him.

Anchorage Assembly finalizes marijuana business regulations

Anchorage’s marijuana industry is set to begin, with a final package of municipal requirements coming weeks before the Marijuana Control Board starts accepting licenses on Feb. 24. Anchorage tightened certain regulations while holding off on others. New regulations increase buffer zones in Chugiak and Eagle River, add new buffer zone triggers to Anchorage marijuana businesses, bar small-scale commercial home grows, prohibit onsite consumption, and redraft the measurement standard between marijuana businesses and sensitive areas. Most restrictively, property buffer distances have changed. The Assembly narrowly approved a 500-foot separation distance from schools, which halved the earlier proposed 1,000-foot separation. However, that distance is no longer measured by the shortest pedestrian route, but “as the crow flies,” and from property line to property line instead of from entrance to entrance. This shortens distances some marijuana upstarts said they’d already counted on having nailed down, and nixes marijuana facilities adjacent to a sensitive area’s property line. “Many of my clients’ spaces were fine this morning,” said Jana Weltzin, a marijuana business attorney. “And as of tonight, many are now back to square one after months of careful property location scouting and efforts.” Weltzin said the Assembly’s final regulations make the industry impracticable — echoing earlier claims that the Assembly opens itself to legal challenge. Assembly members emphasized that the ordinances will be an ongoing project and certainly be revised as time passes. Members maintained earlier sentiments about wanting to start slowly with the new industry, rather than open floodgates too quickly and have to scale them back. Caution, they said, should not be misinterpreted as antagonism. “Politics is the art of the possible,” said chairman Dick Traini. “It’s a compromise. We’ve got a better document now. We’re going to have to tweak it. We want to see you guys successful.” 500-foot buffers Restrictions tempered an early concession to cannabis industry concerns. Introduced by assemblyman Patrick Flynn, an amendment recalls the city’s earlier insistence that it avoid federal scrutiny with a 1,000-foot buffer zone from schools. Flynn argued that the best way to thwart the black market is to make the industry as easy as possible for the regulated market. With a land crunch in Anchorage making retail and industrial space scarce, Flynn said the industry needs more lax rules to avoid being priced out of existence. “There’s just limited land available in the Anchorage Bowl,” said Flynn. “We’re already seeing a premium charged on facilities available under the 1,000-foot standard.” Members Amy Demboski and Paul Honeman both argued the federal government’s scrutiny should steer the Assembly to caution, but member Bill Evans said the fear is misplaced; if the feds want to bust marijuana businesses, they need little reason, as the substance is still federally illegal. Encouraging the regulated market, he said, will help the schools’ children more than a 1,000-foot distance. “The feds can (shut down a business) if they make it 10 miles away,” said Evans. “The regulated industry doesn’t sell to kids, whereas the black market does…the 500 (foot) limitation…is the safest way for the kids; 1,000 feet, I’m not sure there’s any magic, really, about that distance.” Cannabis less welcome in Chugiak and Eagle River Several amendments introduced by Demboski effectively zoned Chugiak and Eagle River out of the industry, according to marijuana industry stakeholders. Demboski, who attended meetings with Eagle River community council members last weekend, said she chose conservative rules specifically to meet the needs of the community she represents. Her district largely disapproved of legalization. “This is one of those moments, this night, there may be some things I would do differently if I was acting individually,” said Demboski at the meeting’s prelude. Eagle River residents looking to enter the legal marijuana market said they feel cheated as Anchorage taxpayers. “I feel like an overprotected Eagle River child that’s not able to participate in the recreational marijuana market,” said Jessica Jansen, co-founder of Canna Farm Co-op. Demboski submitted a battery of amendments with varying degrees of success. Some, like a 500-foot buffer for video arcades, died a quick death with a majority vote against it. Others received more consideration and more favorable votes. In the end, Demboski succeeded in securing a 1,000-foot buffer from an Eagle River community center, a removal of marijuana retail stores from all B-3 zones in Chugiak and Eagle River, and a 1,000-foot buffer from all dedicated parks in Chugiak and Eagle River. Other Demboski amendments applied to Anchorage at large and revived previous restrictions the Assembly’s Planning and Zoning Commission had stripped out of its recommendation to the Assembly. Demboski tried to reinstate a buffer trigger for dedicated parks — of which Anchorage has roughly 10,000 acres — but was voted down. The Assembly forwarded the special land use package to the Planning and Zoning Commission late last year, complete with the setbacks for parks, childcare centers, and homeless shelters. After a round of outraged industry comment, the commission loosened some of the proposals in their final recommendation to the Assembly. Another amendment introduced by Demboski added childcare facilities back into the buffer zone. The Planning and Zoning Commission had stripped this provision out of the assembly’s packet earlier after industry complaints that the measure would remove too much available land. These specifically apply to businesses license to provide care for nine or more children, according to Demboski. Demboski admitted during debate that she disagreed with the Planning and Zoning team’s recommendations, saying they “drastically altered” the Assembly’s “original intent.” The ballot initiative included an opt-out clause for localities, and several have already done so. Chugiak and Eagle River, however, are not their own municipalities or villages. Traini said closing off specific areas for specific businesses is allowed by Title 21. Pot clubs and home grows Pot Luck Events — the Anchorage marijuana club that allows members to bring and share product — will continue operations for now. The Assembly opted not to go through with ban on clubs, which are neither prohibited nor approved by state regulations. However, the Assembly did opt to prohibit state-regulated onsite consumption licenses, saying they plan to review the state’s final provisions when licenses become available. Assembly regulations also put a halt on small marijuana cultivators. An amendment to allow limited commercial marijuana grows in residential areas failed. Pete Petersen, the amendment’s author, said he wanted to acknowledge a reality of the black market and try to collect tax dollars the city may be missing. “The more of the black market growers that become legitimate business people, the more taxes the municipality is going to collect,” said Petersen. “Right now, there are no warehouses growing marijuana. All the marijuana being grown in Anchorage is grown in residential areas. It’s been going on for decades.” The amendment failed overwhelmingly on a 9-2 vote, however. Assembly members acknowledged the same black market reality, but said the dynamics change when people openly profit from it. “People do not want this in residential areas,” said Hall. “I understand what Mr. Petersen is saying. I think it becomes a totally different situation when you legalize them and everybody knows they’re there.” DJ Summers can be reached at [email protected]

Construction forecast down 18% to 2013 levels

Alaska’s contractors will begin to feel the effects of the new oil reality in 2016 as statewide capital spending declines about 18 percent from last year, according to a construction industry forecast. The University of Alaska Anchorage Institute for Social and Economic Research projects just more than $7.3 billion will be spent on capital projects in 2016. About $8.9 billion was spent on construction projects in Alaska last year. “Our short-term outlook is challenging,” Associated General Contractors of Alaska Executive Director John MacKinnon said during a Jan. 28 presentation in Anchorage. ISER compiles the industry data for AGC of Alaska’s annual spending forecast. MacKinnon noted that the contraction in outlays is neither positive, nor a catastrophe; it takes the industry back to 2013 spending levels. Statewide construction employment in 2013 peaked at 20,700 jobs in late summer and averaged 16,600 workers throughout the year, according to the state Labor Department. Preliminary Labor numbers show the industry averaged 18,100 workers in 2015. Not surprisingly, the spending decline will be led by the oil and gas sector, which is expected to be down 25 percent at $3.1 billion from an all-time capital spending high of $4.2 billion last year, according to ISER Professor Emeritus Scott Goldsmith. The annual wellhead value of North Slope crude has fallen from about $20 billion several years ago to $10 billion in 2015 and is projected to be roughly $5 billion this year, Goldsmith said. Less revenue translates directly, he said, into less spending on exploration and maintenance of existing fields. However, spending on oil and gas development projects is often separate from immediate price fluctuations, as evidenced by the record 2015 industry capital spend in Alaska while oil prices fell throughout much of the year. Several major projects, including Shell’s offshore Arctic exploration, the Point Thomson gas project led by ExxonMobil, and ConocoPhillips’ CD-5 oil development, mostly wrapped up last year, leading to an organic spending vacuum. A bright spot for this year is ConocoPhillips’ $900 million Greater Moose’s Tooth No. 1 oil project in the National Petroleum Reserve-Alaska, which was sanctioned late last year. The age of the North Slope fields — Prudhoe Bay is closing in on 40 years of production — also helps spur workforce demand that is disparate from oil prices, Goldsmith said. “One of the things that is a positive is that jobs in oil and gas related industries — construction related oil and gas — continue to grow as production declines,” he said. “Aging fields require more maintenance and smaller fields require more workers for a given barrel of oil.” Projections were mixed for other industries outside of the dominant oil and gas sector, which supports about 40 percent of the total capital spend in the state. Transportation spending, pegged at just more than $1 billion, will be down slightly due to less work on the state’s ports and harbors. The Matanuska-Susitna Borough’s Port MacKenzie rail extension, which has relied on state capital appropriations, is also stalled this year for lack of money. Large state capital appropriations in the 2012 and 2013 fiscal years have supported many projects across Alaska; however, expenditures from public-supported capital projects will fade in the coming years if the state continues with sparse capital budgets. According to ISER, money from public projects “hits the street” over six years after the initial approval, with peak monies available two years following the appropriation. Gov. Bill Walker’s administration has proposed a $500 million general obligation bond package to fund capital projects in the 2017 budget being debated in Juneau now. Utility spending is expected to be down by a third to $459 million in 2016 mainly because, similar to oil and gas, several large projects wrapped up in 2015. Matanuska Electric Association and Golden Valley Electric Association both commissioned new power plants in 2015 and Anchorage’s Municipal Light and Power is nearly done with its replacement plant started in 2014. Most of the utility spending will be from nearly 50 small projects going on across the state, according to ISER. Long-term, Alaska’s Railbelt electric utilities are currently debating whether major upgrades, estimated at upwards of $900 million, are needed for the region’s transmission system. Defense spending is projected to reverse a several year trend and increase by more than 25 percent to $552 million this year. Work scheduled at Eielson Air Force Base in Fairbanks includes a new flight simulator in preparation for new squadrons of F-35 fighters and upgrades to the base’s heat and power plant. Upwards of $1 billion will be invested in missile defense systems over the coming years at Clear Air Force Station near Nenana and Delta Junction’s Fort Greely. “Anytime that kid in North Korea starts playing with fireworks it bodes well for Defense spending in Alaska,” MacKinnon quipped. Construction spending by Alaska’s large mines will remain flat at about $180 million in 2016, despite depressed metal prices, Goldsmith said. He noted lower oil prices can help the bottom lines of the state’s mines, many of which are remote and rely heavily on diesel fuel for not only equipment but for electrical generation as well. “I was surprised to find that all of the existing world-scale mines in Alaska are spending at higher rates than they have in years past and that’s to upgrade their facilities, to expand their facilities to be able to take advantage of new discoveries that will extend the lives of their mines,” Goldsmith said. Health care’s capital spend will be down about 20 percent at $195 million, ISER projects, again, as new construction in Anchorage, Kenai and Ketchikan is completed. Alaska’s health care industry has grown steadily both on the capital and employment sides for more than a decade. One major hospital project expected to start this year is the Yukon-Kuskokwim Health Corp.’s new $287 million clinic and hospital in Bethel. YKHC received a $165 million U.S. Department of Agriculture loan for the project, the largest single loan the USDA has ever approved, according to corporation leaders. Elwood Brehmer can be reached at [email protected]

Negotiations among producers challenging AK LNG timeline

Progress has slowed in fiscal negotiations among the state’s partners in the Alaska LNG Project, raising concerns that agreements might not be in place to meet critical deadlines. At the top of the list of eight agreements still needing to be resolved is the Gas Balancing Agreement, the foundation necessary for the other issues to fall into place, project leaders told the Senate Resources Committee Jan. 27. Representatives from BP and ExxonMobil stuck mostly to vague boilerplate statements, saying the negotiations are hitting “speed bumps,” that should in a way be an encouraging as a sign the tough issues are being addressed. Bill McMahon, a senior commercial advisor for ExxonMobil, said the project must have “agreeable, competitive and durable” fiscal terms for each party — the State of Alaska, BP, ConocoPhillips and ExxonMobil. “The key is making sure we have a clear understanding of positions and making sure we find ways to bridge those gaps,” McMahon said to the committee. ConocoPhillips Vice President of Commercial Assets Leo Ehrhard offered more telling testimony, saying the project faces “significant economic headwinds” as oil and natural gas prices have fallen. LNG prices in Asian markets have slid by up to 60 percent since early 2014, the beginning of major work on the project, he noted. As it stands, the $45 billion-plus Alaska LNG Project has made it farther than any of the other previous attempts to monetize the massive North Slope natural gas resource. “Should we find an impasse on these agreements, we will not stand in the way of the project and will make our gas available to the state on commercially reasonable terms,” Ehrhard said. In early December, the state received commitments from BP and ConocoPhillips to sell their shares of gas to the state for “commercially reasonable terms” in the event either pulls out of the Alaska LNG Project for any reason. Analysis of the potential purchase found the state would have to come up with $19.2 billion to purchase ConocoPhillips’ 22 percent share of the project’s gas at a price of $4 per thousand cubic feet. That would be on top of the $13 billion-plus the state is already committed to for its quarter-share of Alaska LNG Project construction costs. The three producers and the state are collectively paying more than $690 million for the current preliminary front-end engineering and design phase, or pre-FEED. A decision to move to the full front-end engineering and design, or FEED, will require a commitment of $2 billion or more among the four parties proportional to their ownership shares. “In these times we have to be careful stewards of our cash,” Ehrhard said. Negotiating the Gas Balancing Agreement, also known as the gas supply agreement, is mostly up to the producers, the companies acknowledge. It determines how the parties, each with varying shares of gas in two fields, Prudhoe Bay and Point Thomson, will manage offtake from the fields. After the Gas Balancing Agreement there are seven other issues that must be hashed out. According to Gov. Bill Walker’s administration, they are as follows: byproduct handling terms; field cost allowances; modifications to state leases for the Point Thomson field; marketing agreements; project governance agreements; system use agreements; and in-state gas sales. Department of Natural Resources Deputy Commissioner Marty Rutherford said the state is involved in the negotiations but is not a signatory to the balancing agreement. (Editor's note: Rutherford told the Journal in a follow-up interview that she misspoke in her committee testimony and that the State of Alaska is a signatory to the agreement.)  She noted the producers have been good at recognizing the state’s share in the process. Having two fields to draw from provides security that gas will always be available, but it adds challenges as well. The agreement becomes increasingly complex when accounting for field downtime, for maintenance or otherwise, on top of making sure each party can get its gas off the field when the market wants it. These issues are usually resolved earlier in the process through field unitization that helps simplify the agreements, Ehrhard said. In the case of Alaska LNG, blending varied ownership of multiple gas fields into one pipeline adds to the challenge. “We have probably the only project in the world that’s being sourced from two separate fields with separate interests across those fields,” he said. Once in place, the Gas Balancing Agreement provides the state with a path to its 25 percent share of the project’s gas derived through royalty and tax payments, according to Ehrhard. “We see that it’s unlikely, from just the amount of time that’s left in front of us, to try and conclude an agreement of this complexity,” he said. “On the commercial side, we’re just not as far along as we’d like to be. We’d like to be in a position to have this agreement behind us.” Walker has said for several months the fiscal terms of the project need to be hashed out by sometime this spring in order to hold a special legislative session so the state can give its approval, or not. The long-term commercial agreements will bind the parties together for at least the 25-year initial life of the LNG export project. They also need to be done soon so the administration can draft a constitutional amendment required to allow the state to enter long-term the financial contracts, which amount to tax commitments. The Legislature must vote on and approve the amendment in time to send it to the Division of Elections by June 23, the deadline for placing it on the general November ballot, at which point the voters will take up the issue. Because amendments to the state Constitution must be taken up on a general election ballot, falling short of the timeline likely means delaying the project at least two years. Rutherford told the Senate committee that much progress has been made on the technical side of the project, mainly aimed at reducing costs, but the administration is concerned about the pace of the negotiations, as the governor noted in a Jan. 18 letter to the Alaska leaders of the producers. “We will have to step up the pace in order to meet the spring special session,” Rutherford said. In his letter, Walker wrote that he is “increasingly concerned” about the progress of the negotiations, given a 2015 deadline set out in the original Heads of Agreement to have fiscal terms completed has already passed. “I have been extremely patient in allowing the negotiations to proceed in the hope that the parties will reach alignment on the agreements necessary to move the AK LNG Project forward and thereby commercialize Alaska’s gas,” the governor wrote. He continued to explain that he would seek to move a gas project forward in other ways if the parties fail to reach alignment in 2016. “If the parties do not reach alignment on these important contracts and issues, then I will have no other choice but to consider other options for commercializing Alaska’s gas,” Walker wrote. “In addition, absent any such alignment on all of these agreements and issues, my administration will be unable to support any fiscal contract that the producers may seek, or a constitutional amendment supporting such fiscal contract.” Pre-construction work is all but complete on the state-led Alaska Stand-Alone Pipeline project, but the economic viability of the smaller project is seriously questioned.

Bycatch spike, meeting spur trawl stand down

Gulf of Alaska trawlers are flocking to a meeting in Portland, leaving behind a halibut bycatch situation the North Pacific Fishery Management Council is attempting to fix. The trawlers have complaints with council process, but are also standing down from a halibut bycatch spike resulting from a pollock price dispute with area processors. Industry sources say the stand down was already underway prior to a letter from prominent Gulf of Alaska trawl organizations on Jan. 28 asking for the council-related stand down. Trawl industry representatives said the two stand downs are unrelated. Thirty-four Central Gulf of Alaska trawlers and 19 Western Gulf of Alaska trawlers have agreed not to fish from Feb. 3-6, showing solidarity with those trawlers traveling to Portland to testify at the council meeting. No pollock, lots of halibut Before the Jan. 28 letter, a pollock price dispute spun into high halibut bycatch. Processors set a low pollock price for the Gulf of Alaska this year; sources said processors are offering 8 cents per pound for pollock less than 800 grams (1.78 pounds) in weight compared to a more typical 12- to 15-cents range. These smaller fish, the majority of this year’s early catch, also have little roe for finished products, and those prices are relatively low as well. In response, trawlers who’d come to the Central Gulf for pollock fished for groundfish instead and their nets filled with halibut bycatch.  While fishing for non-pollock groundfish such as Pacific cod, the Central Gulf of Alaska groundfish fleet collectively caught 110 more metric tons of halibut this year than through the same period in 2015, or about 242,000 pounds. “Last week, they thought they were getting into some halibut and getting some high rates,” said Mary Furuness, a resource management specialist with the Alaska Region of National Marine Fisheries Service. “We were getting PSC (prohibited species catch) rates extrapolated to the rest of the fleet from the observers. So they decided to have a voluntary stand down and stop targeting non-pollock species.” Through Jan. 24, the fleet caught 118 metric tons of halibut compared to the same period in 2015 when they caught only 8 metric tons.  Gulf of Alaska processors say they are not taking deliveries for trawl-caught groundfish, though managers clarify it is a vessel decision not to fish, not a processor decision not to accept deliveries. Both the Kodiak Ocean Beauty and Kodiak Trident Seafoods, two of the region’s largest processors, have confirmed their fleets are standing down. Gearing down for Portland Julie Bonney, executive director of Alaska Groundfish Data Bank, said the stand down’s organizers set the current council-driven stand down date on Jan. 18, two days before the season began and the halibut bycatch rate spiked.  “This is really quite unique,” said Bonney. “Fishermen agreeing to stand down, essentially losing income, in order to make this trip to provide their input demonstrates just how important this change in management is to the fishing industry.” Each vessel will likely lose between $30,000 to $50,000 in total revenue, she estimated; vessels lose two trips worth of fishing over the four-day stand down. Similarly, the Gulf’s 1,500-odd processor workers could lie idle and payless in shoreside bunkhouses with no fish to scale and gut. Bob Krueger, executive director of Alaska Whitefish Trawlers Association, said the stand down’s organizers wanted to show unity. “We don’t want someone going out and fishing while other vessel crew are closing operations to go to Portland,” he said. “It’s a fairness issue for everybody.” Salmon and halibut bycatch in the Gulf of Alaska drives the council’s agenda for early 2016. The council has lowered the bycatch caps for halibut and set caps for chinook salmon for the Gulf fisheries in the last few years and will decide on an entirely new management scheme in 2016 or 2017. The 2016 halibut cap dropped 3 percent from 2015, and the council could potentially lower it further. On Jan. 29, the executive directors of some of Gulf’s largest trawler organizations circulated a second letter to media explaining the rationale behind the stand down, outlining criticisms of proposed bycatch management. The letter described a host of issues the fleet has with the council’s latest Gulf of Alaska options. The Gulf of Alaska groundfish fishery is one of the few fisheries in the North Pacific that has no quota system, which assigns individual vessels specific amounts of fish every season. Most other fisheries have such management, ending derby style fishing where the “race for fish” makes the occupation dangerous and unpredictable and results in greater bycatch rates. Trawlers also have high bycatch rates for halibut and chinook salmon. Both fish are in a low abundance state compared to previous decades. Managing bycatch is a top priority for the North Pacific council. New management has already proven problematic. In 2015, chinook salmon bycatch caps closed Western Gulf trawlers down prematurely; the council had to make an emergency shift of chinook salmon bycatch quota for the fleet to resume fishing. “The management structure we have right now just does not work,” said Krueger. “We’re set up to fail again unless we get another management structure. The last thing the state needs is to have the economy of the Gulf melt down.” Preferred alternatives Trawlers protest one alternative in the current management package, which they say didn’t have enough public input before an Alaska council member added it in October 2015. The trawlers’ preferred alternative, they said, came from former Alaska Department of Fish and Game Commissioner Cora Campbell after two hard years of public input throughout the council process. The Alaska ADFG commissioner holds one of 11 voting seats on the North Pacific council. In 2014, however, Gov. Bill Walker entered the governor’s mansion and brought new fisheries managers with him. He appointed Sam Cotten to fill Campbell’s commissioner position. During the council’s October meeting in Anchorage, Cotten forwarded a new option to the Gulf of Alaska bycatch management discussion, naturally without the same amount of input as Campbell’s. Gulf of Alaska trawlers say the option does nothing to help bycatch, and could damage the Gulf’s economy. Cotten’s option, Alternative 3, only creates an individual quota system for bycatch, rather than for the target species. Trawlers say this does nothing to end the race for fish, as vessels will simply fish up to their individual bycatch limit instead of the fleet wide limit. This would depart from other North Pacific area management, which gives quota for both bycatch and directed species. “Alternative 3 introduces a catch share program significantly different from those programs already implemented in other Alaska fisheries,” reads the trawlers’ letter to the council. “In fact, so far as we are aware, there are no programs in any fishery worldwide similar to that proposed under Alternative 3.” Further, Alternative 3 doesn’t have the same community protections against overconsolidation, such as port landing requirements for on shore processors and vessel use caps. “It is difficult to understand why the Council would pursue management measures that hamstring the industry’s ability to provide these economic benefits to Alaska’s fishery dependent communities while also meeting the Council’s bycatch reduction requirements,” reads the letter. DJ Summers can be reached at [email protected]

‘Permission slip’ offered to use Fund earnings

Politicians are often accused of being childish, and the leaders of some of Alaska’s largest companies and interest groups are asking Alaskans to sign a “permission slip” allowing legislators to use Permanent Fund earnings as the basis for a solution to the state’s nearly $4 billion budget deficit. Led by GCI co-founder and CEO Ron Duncan, the newly formed Alaska’s Future coalition has the singular mission of pushing the Legislature to finally use the $50 billion Permanent Fund for its original purpose: to pay for state operations when resource revenues are depleted. Speaking during a Jan. 29 forum in Anchorage hosted by the policy think tank Commonwealth North, Duncan stressed that state government needs to solve its budget problem not only to save itself, but more importantly to save the private economy. He noted GCI’s capital budget, at $225 million this year, as one of many potential casualties of inaction by the Legislature this session. GCI also employs more than 2,200 people in Alaska. “If in June or July or August or September or whenever the legislators go home this year there is no solution in sight there is no way (GCI) can continue to make that investment because we will be looking out the front window and seeing an economic cataclysm within 18 months,” Duncan warned. The list of Alaska’s Future co-chairs is short but powerful. It includes Duncan, NANA Development Corp. President Helvi Sandvik, Cook Inlet Region Inc. CEO Sophie Minich, former Democratic Gov. Tony Knowles, Alaska AFL-CIO President Vince Beltrami, former Administration Commissioner and founder of the Andrews Group management firm Eleanor Andrews and Fairbanks businessman Steve Frank. Duncan said he took an interest in the daunting issue of closing the multi-billion dollar gap in late summer when he examined what taxes and spending cuts would do to his business. He quickly became consumed by the grim budget situation. Alaska’s Future projects, much like many Alaska economists and general budget gurus have, that the state can maintain its current revenue system and live off its total savings of about $15 billion for three more years — give or take a year with market, oil price and spending fluctuations — before going broke. Spreading a politically ambiguous mantra is Alaska’s Future’s job, according to Duncan. The group, that just formally launched Jan. 26, will employ a broad media campaign to spread the word, he said in an interview. The home page of GCI’s website incorporated a scrolling Alaska’s Future ad Feb. 1. “When we did our focus groups we learned that people believe that there’s a problem; they’re willing to make some personal contributions to solve it, but they don’t believe what their public officials are telling them.” Duncan said. “They do believe their employers; they believe their labor unions; they believe their teachers; they believe people in their community councils and their churches and to get this message out we need to get people who are willing to carry this message to their affinity groups.” Alaska’s Future’s members list included the names of nearly 90 Alaska businesses, nonprofits and influential Alaskans on Feb. 1. If the Legislature does not move to capture the investment earnings of the fund for government operations this session, Duncan predicted businesses statewide will pull back spending and trigger an “economic catastrophe” ultimately resulting in the loss of upwards of 10,000 private sector jobs. Historically, the Permanent Fund’s realized earnings have primarily been reinvested in the fund and paid dividend checks to Alaska residents. The principle of the fund is off-limits to the Legislature per the state Constitution. “If you like the current dividend formula you can keep it for three years,” Duncan said. “You’ll give up your economy in the process, but you can keep the dividend.” Gov. Bill Walker has proposed shifting state resources to what is known as a “sovereign wealth fund,” which would pump revenue that had previously gone directly into the General Fund through the Permanent Fund, so the money can earn an investment return. The state would then draw from the earnings of the Permanent Fund each year to pay for operations. Duncan credited Walker’s overall plan that includes further spending cuts and increased taxes for putting “a target on every special interest in the state,” but emphasized that Alaska’s Future is not endorsing any specific political plan. Sen. Lesil McGuire, R-Anchorage, introduced her own proposal to revamp how the state uses the Permanent Fund last session in Senate Bill 114. “We will cheer for either plan that gets adopted,” Duncan said in an interview. He noted that maintaining a sustainable dividend is a related emphasis of the group. Walker’s New Sustainable Alaska Plan would pay dividends with half of the state’s annual resource royalties, likely cutting the projected size of future dividends. McGuire’s bill would use a similar, but slightly more dividend-friendly formula. While recent dividends have some of the largest the state has paid, it bears noting that future PFDs under the current system are tied to often-fickle financial markets, much the same way Alaska’s General Fund is coupled to a collapsed oil market. SB 114 would sustainably pull roughly $2.5 billion from the fund’s Earnings Reserve account each year and the governor’s plan would put more money directly into the fund each year and draw about $3.2 billion annually. Knowles said factions on either side of the political spectrum that demand more cuts to government spending or revenue generation — taxes in some form — before using the Permanent Fund are missing the point of the argument. “The reason why the cornerstone of the Permanent Fund earnings comes first is because that gives you the time before you lose the crucial mass of your (savings) assets to make other tough decisions,” Knowles said. “It’s not a question of what you like the best, it’s a question of what’s the most effective.” Taking the one big step of revamping how Alaska uses its wealth in the Permanent Fund would give the Legislature and Walker another two years to hash out the finer points of taxes and spending cuts. The state cut about $800 million from its overall 2015 fiscal year budget; however, about half of the reduction came from one-time cuts in the capital budget. Walker’s plan includes additional but smaller cuts to spending over the next two fiscal years. Sandvik said in an interview that she became comfortable with joining Alaska’s Future when she learned that keeping a dividend is part of the group’s mission. Originally from the Northwest Alaska village of Kiana, she said the checks every fall help rural families and struggling urban residents alike pay essential bills. Using the Permanent Fund properly also allows the state to stabilize its finances without wholesale cuts to critical programs. “You feel the pain a little bit sooner in rural Alaska when you start cutting state services,” Sandvik said. Elwood Brehmer can be reached at [email protected]

Walker gives Ruffner second shot at Board of Fisheries

Gov. Bill Walker announced three new nominees to the Board of Fisheries on Feb. 2, including one who lost a bruising confirmation fight to the same body in 2015. Walker once again put forward Kenai area habitat advocate Robert Ruffner for a seat on the board, but this time his nomination has been promised to go smoother after a campaign waged against him last year by sportfishing advocates that resulted in a 30-29 defeat in the Legislature. Walker had at least two openings to fill with the resignations of Bob Mumford and Tom Kluberton, but he also announced he is replacing Dillingham commercial fisherman and current board member Fritz Johnson, who was nominated to the board in 2013 by former Gov. Sean Parnell. Ruffner received the governor’s call on Feb. 1, and after a talk with his wife decided he was up for another round. In a telephone interview, he said he still has plenty to offer the board, though the nomination came as a surprise. “I don’t know how it’s going to turn out, I didn’t even think I was eligible for a year,” Ruffner said. “Nothing’s changed, I think I’d be good at doing the job. Hopefully there will be less drama this year.” Ruffner said believes this year won’t breed the same kind of ugly political fighting that led to his narrow Legislative defeat in 2015. “I have had the assurances that it won’t happen, and I hope it won’t,” he said. Ruffner’s “assurances” from the governor’s office are well-founded. Sportfishing industry representatives said they support all three of Walker’s appointments, including Ruffner. They don’t anticipate the same legislative fracas for Ruffner, as Walker is nominating him to replace a commercial fisherman on the board rather than a sportfishing seat. “We support all three of the governor’s appointments,” said Ricky Gease, executive director of the Kenai River Sportfishing Association, which led the fight against Ruffner in 2015. Gease said the sportfishing industry’s issue with Ruffner last year concerned board composition, which isn’t an issue in the current board lineup. In 2015, Ruffner would have replaced Karl Johnstone, the former chair and a sportfishing industry representative on the board. Gease’s organization wanted to ensure that the sportfishing interests of the Anchorage area, which they emphasized are the state’s largest, were satisfied. “Those are satisfied with the appointments this year,” Gease said. “I think those issues are not going to be raised.” Gease, like Ruffner, said he interprets the nominations as a signal that Walker is willing to shake up the board’s customary user group and geographical designations. Fritz Johnson, a Bristol Bay commercial fisherman, was not reappointed, leaving the board without a Bristol Bay representative. Ruffner seemed pleased with Walker’s full nominee list. He said it indicates a willingness on the governor’s part to alter the current custom of stacking the board with equal numbers of competing interests. “It seems like with the list of names…he still has that idea, that the dedicated seat idea is not the right way to do this business,” said Ruffner. “Picking a candidate based on how much they’re opposed to another particular gear type isn’t the right idea. I think picking individuals with a balanced view is a better way to look at it.” “Most of the drama,” he said, comes from Upper Cook Inlet. He said he hopes he can “roll up his sleeves and go to work” on statewide issues. Besides Ruffner, Walker nominated Alan Cain and Israel Payton for seats on the board. Cain, of Anchorage, is a natural resources enforcement advisor and trainer, with 40 years of experience as an Alaska Wildlife Trooper, criminal justice planner, and private contractor. According to a release from the governor’s office, “During that time, he spent 15 years as an enforcement advisor to the Alaska Board of Fisheries” and “worked closely with the Alaska Department of Law, board members, and the public to develop clear and enforceable regulations for the Alaska Board of Fisheries.” Payton, of Wasilla, is currently a salesman for Airframes Alaska and has worked as a hunting and fishing guide in Southcentral and Western Alaska for 20 years. According to the release, Payton is from Skwentna and grew up living a subsistence lifestyle. He’s also a member of the Mat-Su Fish and Game Advisory Committee. With the 2017 Upper Cook Inlet meeting approaching, the nominations are sure to draw scrutiny from user groups and legislators in the area. The fight over Ruffner began last year after Walker ousted the previous board chair Karl Johnstone, a representative of the sportfishing users, and replaced him with commercial fisherman Roland Maw, previously of the United Cook Inlet Drift Association. Maw withdrew from consideration on Feb. 20, 2015, as he faced charges for illegally obtaining resident hunting and fishing licenses in Montana, leading Walker to nominate Ruffner, who was painted as too sympathetic to commercial interests and not representative of the state’s population center in Anchorage and the Mat-Su Valley. Maw was charged Jan. 13 by the State of Alaska with 12 felonies and five misdemeanors for illegally obtaining Permanent Fund Dividends and resident hunting and fishing permits in Alaska. After Ruffner lost his bid for confirmation, Walker eventually named Mumford to serve in the interim, but Mumford recently tendered a letter of resignation effective at the end of the current board meeting cycle in March. Walker also nominated Guy Trimmingham of Hope, a veteran hunting guide, and reappointed Nathan Turner, a wilderness trapper from Nenana, to the Alaska Board of Game.   Former fish board nominee pleads not guilty to fraud, theft By Rashah McChesney, Associated Press JUNEAU — A former Alaska Board of Fisheries nominee has pleaded not guilty to 17 felony and misdemeanor charges that he fraudulently obtained commercial fishing permits and Alaska Permanent Fund dividend payments. Roland Maw entered his plea Feb. 2 in court in Juneau to the 17 counts covering theft and unsworn falsification. Maw was charged on Jan. 13 with illegally collecting more than $7200 in dividends between 2009-2014. His lawyer, Nicholas Polasky, said his client declined to comment after the hearing. Gov. Bill Walker appointed Maw, a Cook Inlet commercial fishermen, in January 2015. He withdrew his name from consideration suddenly last February and faced criminal charges that he illegally obtained resident hunting and fishing licenses in Montana. He pleaded no-contest to the charges, paid more than $7,200 in fines and lost his privileges to hunt and fish in Montana and all of the Wildlife Violator Compact States, including Alaska.

Anchorage LIO owners submit proposal to Legislative Council

A proposal to resolve the political hot potato that has become the Anchorage Legislative Information Office lease has been submitted to Legislative Council chair Sen. Gary Stevens. The building’s owner group, 716 West Fourth Ave LLC, released a statement Feb. 2 saying it would not release the details of the proposal out of respect for the Legislative Council process, but noted that the group had met the timeline laid out by the council in mid-December and also likely resolved a lawsuit over the terms of the lease. “Our discussions with Sen. Stevens over the past 45 days have pushed us to dig deep for short-term interim savings,” 716 spokeswoman Amy Slinker wrote in an email. “That then set the stage for a long-term solution to save millions of dollars and help avoid any negative financial implications for the state. In addition, the conversations with Sen. Stevens appear likely to result in dismissal of the lawsuit by Alaska Building Inc.” The leaseholder company name is the Downtown Anchorage address of the LIO. The current 10-year lease has the Legislature making rent payments totaling $3.3 million per year for the built-to-suit, six-story office building with underground parking and 45,000 square feet of usable space. It is paid through May 31, 2016. Anchorage Democrats, the public and legislators from elsewhere in the state have disparaged the LIO lease terms as far too expensive at a time when the state is facing annual budget deficits approaching $4 billion. Anchorage attorney Jim Gottstein, owner of the adjacent Alaska Building, filed suit against 716 West Fourth Avenue and the Legislative Affairs Agency, which manages business for the council, last March alleging the LIO lease is illegal because it is neither an extension of an existing lease, nor 10 percent below market value, as statute requires for a long-term lease extension. On Dec. 19, the Legislative Council — at a meeting in the Anchorage LIO —unanimously recommended the full Legislature vote not to fund the lease unless a solution that is cost-competitive with moving to the Atwood Building could be resolved within 45 days, or by Feb. 5. Multiple news outlets were denied a copy of the proposal when requests were made to Stevens’ office. A move to the nearby state-owned Atwood Building, home primarily to executive branch agencies, would first require a $3.5 million remodel and then $664,000 per year to operate the 30,000 square-foot space, according to a cost analysis presented at the Dec. 19 council meeting. Purchasing the LIO in some fashion — 716 West Fourth Avenue managing member and project developer Mark Pfeffer has said the group would sell for $37 million plus closing costs — would require the initial payment and covering of operations costs estimated at $525,000 per year for its 45,000 square feet of space. However, the state would immediately begin building equity in the property, Pfeffer has noted. The building houses off-season offices for 25 Anchorage legislators and is the de-facto home to much of the general Legislature’s out-of-session activity. The Legislative Council, then led by Rep. Mike Hawker, R-Anchorage, who has announced he will not seek reelection this year, decided to rebuild on the old LIO building site in 2013 after numerous attempts to find existing suitable space that meets the unique needs of a public government body in Anchorage failed. The Legislature contributed $7.5 million towards the construction cost, so Pfeffer and his company ultimately funded $37 million, about $28 million of which is long-term debt and $9 million is Pfeffer’s cash equity position in the property, he has said. Appraisals of the six-story building plus its underground parking facility have been as high as $48.5 million by the Alaska Housing Finance Corp., while numerous estimates by lenders involved in the construction and long-term loans appraised its value at $44 million. The customized office space cost $44.5 million to build in 2014, according to Pfeffer. His group first drafted and submitted terms for the state to purchase the building for $37 million plus fees this past Oct. 9; a proposal requested by the Legislative Affairs Agency. The original terms agreed to by Legislative Affairs attorneys in an Oct. 22 letter to Pfeffer set a Jan. 31 deadline to act on the sale terms, according to correspondence between attorneys for both sides. The Legislature could terminate the lease seemingly without legal ramification because of a clause in nearly all government contracts stating fulfillment of the agreement is “subject to appropriation,” in this case, by the Legislature. If the Legislature doesn’t fund it, for any reason, the lease or contract falls apart. Pfeffer has indicated an intention to sue if the Legislature walks away from its obligation. Elwood Brehmer can be reached at [email protected]


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