DJ Summers

ADFG opens early run of Kenai kings to catch-and-release

After years of depressed stocks and depressed fishermen, the Alaska Department of Fish and Game has opened the early king salmon sport fishery for the first time since 2012. This accompanies several other early king runs throughout Southcentral and in the Arctic, correlating with warmer marine temperatures. ““We’re seeing stronger numbers of early-run kings returning to the Kenai,” Robert Begich, the area management biologist in Soldotna, said in a release. “This has allowed us to ease pre-season restrictions, and provide opportunity for anglers to fish for early-run king salmon.” Sport fishing for king salmon in the Kenai River will be from its mouth up to an Alaska Department of Fish and Game regulatory marker at the outlet of Skilak Lake. Fishing will be restricted to catch-and-release from June 4 through June 30 using only one, unbaited, barbless, single-hook, artificial fly or lure. Numbers for the early run have been promising. On the Kenai River, sonar has counted 1,834 fish as of May 30 — more than double the 702 fish seen at the same time last year and nearly ten times more than in 2013. ADFG closed the Kenai River early king salmon run to sport fisheries on Feb. 18 due to a low forecast. Only 5,206 fish were expected, which would rank 29th of the last 31 years ADFG has been counting. The optimal escapement goal for early-run Kenai River king salmon is 5,300 to 9,000. “Things are looking very promising right now,” said Jason Pawluk, Kenai area assistant management biologist. “The question is it a really early, below average run, or is it a big run? That’s the ultimate question right now.” Other oddities are popping up with the early run. Pawluk said the returning fish are younger than usual. ADFG uses size measurements as a proxy for age. By these measurements, Pawluk notes more two-ocean and four-ocean fish than typically return this early. On other rivers, king salmon have seen promising numbers. The Deshka River’s weir counted 3,150 king salmon by June 1, a massive improvement over the 533 and 248 counted by the same date in 2014 and 2013, respectively. On the Anchor River, video weirs counted 1,614 by June 1, almost dead even with last year’s measure of 1,599. Kings and chums are also coming back early farther north on the Yukon River, according to Kwik’Pak Fisheries sales manager Jack Schultheis. “We’ve been catching fish here for the last two weeks,” Schultheis said. Environmental changes accompany, and may explain, the early runs. In the Gulf of Alaska, surface temperatures average one degree Celsius above the average temperature. This is a leftover effect of the Gulf’s infamous Blob in 2015, which warmed Gulf of Alaska surface temperatures two degrees Celsius and ushered in a red tide of toxic algae. On the Yukon River, ice floes have vanished already with the same early run effects as in Southcentral, as predicted by ADFG in an earlier forecast. “This is a very unusual year, for the ice to go out as soon as it did,” said Schultheis. In 2013, for example, he said ice was still present on the river on July 10. “Then we got into this pattern lately when it would go out the 27th or 28th of May,” he said. “Now it’s going back to earlier breakups. Fish come in right after the ice goes out.” The fish could be returning earlier to beat the heat. Anecdotal evidence of warming trends adds up. “We monitor Hidden Lake when the ice goes out,” said Pawluk. “This year, we went on April 7, but it was completely open. Jean Lake was open. It went out between April 1 and April 7. Typically it goes out the first week of May.”  Pawluk said ADFG has been monitoring stream temperatures as well. On the Russian River, he said temperature readings in April read between eight and nine degrees Celsius instead of the typical five degrees. For other Southcentral rivers not so sensitive to environmental changes, runs are decidedly slower. On the Copper River, sockeye returns are only a third of what they were at the same point in the last two years, and the early king salmon run is lackluster as well. “Our king salmon harvest was low,” said Jeremy Botz, the Copper River area management biologist. “Through Tuesday (May 31), we’ve got close to 9,000 harvested. The last five years we’ve had really small runs. Typical for this time period we had twice that. We would’ve wanted 13,400 by this time.” The Copper River, however, lacks the same environmental vulnerability its sister Southcentral rivers display. Glacial runoff forms the Copper River. When waters warm, the glacier simply pours more cold water into to the river to correct the imbalance. “That’s why the Copper River runs are so consistent,” said Botz. “A lot of it has to do with that regulation.” DJ Summers can be reached at [email protected]  

Banks see some impacts of oil crash, fiscal uncertainty

As the state Legislature chases solutions to a $4 billion budget gap and the oil and gas industry bleeds cash on the North Slope, Alaska’s financial institutions are still increasing loans but seeing some impacts from the price collapse on the state’s leading economic driver. Some of the state’s three largest banks — Wells Fargo, First National Bank Alaska, and Northrim BanCorp — have continued to increase loan portfolios and deposits, though they acknowledge the state’s precarious oil-driven position. Wells Fargo — a sizable underwriter of oil and gas operations — has seen several revenue streams associated with oil and gas decline. “We saw healthy business loan demand in the first quarter of 2016 with 10 percent growth year-over-year,” said Wells Fargo Alaska Region President Joe Everhart. “Loan demand has slowed with the headwinds in our economy, primarily in oil and gas, but also worries about state government spending. Retail demand is showing modest growth. “Wells Fargo’s total deposits in Alaska dipped 5 percent due to money movement and deployment of capital by large Alaska-based corporations. Consumer deposits are up six percent in the first quarter.” Wells Fargo held 53 percent of Alaska’s deposits, or just more than $6 billion, according to FDIC reports as of June 30, 2015. First National Bank Alaska mostly posted increases for the first quarter of 2016. FNBA’s net income for first quarter 2016 was $10 million. This compares to $7.8 million for the same quarter in 2015, a 28 percent increase. The company’s total assets grew 13 percent to $3.6 billion; total loans increased $11.7 million year-over-year. Deposits grew by $18.1 million to $3.1 billion. Northrim BanCorp Inc. reported a net income in the first quarter of 2016 of $3.4 million, a decline both from the last quarter of 2015 and the same quarter last year. This compares to $4.1 million in the fourth quarter of 2015 and $3.6 million in the first quarter of 2015. Northrim assets increased 4 percent to $1.5 billion, compared to $1.45 billion a year ago and $1.5 billion in the last quarter. In a release, bank officials said the income decline is a typical seasonal fluctuation. “Our first quarter results primarily reflect the seasonal trends in the Alaska economy,” said Joseph Beedle, President and CEO. “Moderate year-over-year loan and deposit growth, a stable net interest margin, and a profitable quarter for mortgage banking despite a decrease in refinance activity contributed to net income in the first quarter of 2016. “The acquisitions we made in 2014 continue to contribute to earnings and enhance our Alaska banking franchise.” Northrim closed deals to take full ownership of Residential Mortgage and Juneau-based Alaska Pacific Bank in 2014. Refinancing revenues accounted for 39 percent of total loans in the first quarter of 2015, and this year the numbers in that income stream declined. Net income from home mortgage lending operations contributed $588,000 in the first quarter of 2016, less than half the $1.3 million in the same quarter 2015. Northrim acknowledged the oil and gas industry’s grim outlook in Alaska in reporting its results to shareholders. More than 1,200 oil and gas industry workers to received unemployment benefits in 2015, up 545 from the prior year. The Department of Labor indicates that this trend has continued through the first quarter of this year with a total decrease of 1,900 jobs in the oil and gas sector as compared to the same period last year. Northrim doesn’t have loans to oil producers, but it estimates that it has $44.1 million, or approximately 5 percent of portfolio loans as of March 31, 2016, with direct exposure to the oil and gas industry in Alaska. None had been adversely classified. The bank also has substantial investment in ancillary businesses. According to Northrim’s quarterly financial statement, the bank has an additional “$52.9 million in unfunded commitments to companies with direct exposure to the oil and gas industry in Alaska.” “We currently have no loans to oil producers or drilling and exploration companies,” said Chief Financial Officer Latosha Frye in its quarterly release.  “Our direct exposure to the oil and gas sector is to oilfield service companies and other companies that we have identified as significantly reliant upon activity in Alaska related to the oil and gas industry, such as lodging, equipment rental, transportation and other logistics services specific to this industry.” Alaska’s credit unions maintained a flat income from the first quarter of 2015, growing net income a collective 0.1 percent year-over-year. Juneau’s True North led in net income growth, which spiked from $61,487 in 2015 to $271,584 in the first quarter of 2016. Denali Alaska also posted substantial gains with a 47 percent net income increase from last year. Only Credit Union 1 posted a loss with a 50 percent net income decline from $1.8 million in 2015. Alaska USA grew net income from $9.2 million to $9.6 million. Total assets increased 7.5 percent, or a total $8.7 billion. Each company posted an increase over the first quarter of 2015. Matanuska Valley led with a 9.7 percent boost. Each of Alaska’s six largest credit unions increased their total loan portfolios, a collective 10 percent increase from last year. The amount of delinquent loans, however, also increased a total 5.7 percent. Alaska USA’s delinquent loan rate dropped 1.4 percent, but the next largest credit unions both posted sizable increases in past due loans. Credit Union 1 increased delinquent loans by 41 percent. Denali Alaskan’s delinquent loan rate doubled, much of which can be attributed to nearly $600,000 in foreclosed property the credit union acquired during the first quarter. DJ Summers can be reached at [email protected]  

Council convenes in Kodiak with Gulf catch shares in focus

Editor's note: this article has beeen updated to reflect that CFAs were part of council's considerations since 2014, not recently introduced as in an earlier article version. The North Pacific Fishery Management Council will meet in Kodiak from June 6-14 to hear a discussion paper that has enraged the trawl industry since late 2015. Two proposals are engineered to prevent harmful impacts such as the job losses and high cost of entry that have occurred under previous such programs in halibut and crab. This is an official state position, and the North Pacific council holds a six-member majority of the 11-member body that governs federal Alaska waters. Gov. Bill Walker’s administration prioritizes coastal communities’ economic prospects during the state’s oil-driven financial calamity. Part of that stance concerns keeping the fishing industry, the state’s largest private employer, in Alaskan fishermen’s hands.  “The greatest challenge facing fishery managers and communities to date has been how to adequately protect communities and working fishermen from the effects of fisheries privatization, notably excessive consolidation and concentration of fishing privileges, crew job loss, rising entry costs, absentee ownership of quota and high leasing fees, and the flight of fishing rights and wealth from fishery dependent communities,” the council’s discussion paper reads. “Collectively, these impacts are altering and in some cases severing the connection between Alaska coastal communities and fisheries.” For years, the council has mulled over a regulations to install catch shares in the Gulf of Alaska groundfish fisheries. Mainly trawlers go after this fishery, which includes pollock, a midwater fish, and species such as Pacific cod and arrowtooth flounder, which are bottom, or pelagic, fish. Catch shares are a form of rationalization that can allocate fishing privileges for both direct harvest and bycatch to individual fishermen, or groups of fishermen through cooperatives.  Fisheries managers say these systems slow the so-called “race for fish” — the old-school derby fisheries that contribute to depleted stocks and dangerous conditions that inspired the title of the popular show Deadliest Catch. Catch share programs have also been shown to reduce bycatch, which includes prohibited species catch such as salmon or halibut taken by trawlers or sub-legal size species that cannot be retained known as regulatory discards. Bycatch is hot topic in Alaska as two iconic species, chinook salmon and Pacific halibut, have suffered decline in recent years either in numbers in the case of salmon or legal-sized fish in the case of halibut. Most North Pacific fisheries already have some form of catch share system. The Gulf of Alaska groundfish fishery is one of the last remaining without one. Gulf trawlers have fought one regulatory option since October 2015 when it was first introduced by Alaska Department of Fish and Game commissioner Sam Cotten. The option, known as Alternative 3, would give individual fishermen or groups of fishermen bycatch quota instead of target species quota. Trawlers say this does nothing to slow the race for fish, and will virtually guarantee that fishermen use every available pound of bycatch. The trawl industry feels slighted by the alternative and mistreated by an administration it believes unfairly demonizes the gear type. Trawl captains and crew traveled en masse to the council’s February meeting Portland to object. Trawlers also vociferously objected to Walker’s appointments of Buck Laukitis and Theresa Peterson to the council as members they believe embody an anti-trawl bias. As a kind of booster, the Alaska Whitefish Trawlers Association and Groundfish Data Bank — Kodiak’s main trawl industry groups — will hold a trawler appreciation parade and festival on the city’s docks during the council’s June meeting. Alternative 3’s supporters argue the council should at least consider the plan before it moves to more vigorous economic impact analysis. Catch shares, they say, will consolidate the Gulf’s groundfish into only the trawl fleet and disenfranchise other fishermen. In Kodiak, cost of entry into fisheries has risen, and local participation has fallen, according to council studies. Between 2000 and 2010, Kodiak’s locally held Commercial Fisheries Entry Commission permits dropped from 1,646 to 1,279; halibut quota holders from 304 to 224; active crew licenses from 1,263 to 884; and locally owned vessels from 719 to 452. Alternative 4 wants to try a kind of community protection. It would install a catch share system for both target and non-target species, but give the share to non-profit entities representing entire communities instead of directly to industry. “A community allocation provides a clear mechanism to retain local access and protect coastal communities by bolstering locally based vessels and locally based ownership through affordable access to more quota,” reads the paper. The Community Fishery Association, or CFA, would function like a non-profit, complete with governing board and executive director. To get quota, each CFA would have to submit a community sustainability plan to a larger board of directors. Elected borough members from Central and Western Gulf areas would comprise this board along with fishing industry representatives. To qualify as a CFA, a community must be adjacent to saltwater located within the Western, Central, or West Yakutat regulatory areas of the GOA coast of the North Pacific Ocean, have a population of less than 6,500 as of the year 2000, consist of residents having any Gulf groundfish commercial permit and/or fishing or processing activity as documented by CFEC. The CFAs harvesters would have to join a fishing cooperative. As a fitting preamble, the council’s other main agenda item will review the 10-year mark since the Bering Sea and Aleutian Islands crab fishery was rationalized.  The review details the extent of consolidation, which has continued since the plan’s last review in 2011. 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. “Catcher vessel consolidation has continued,” reads the report’s summary. “As shown, the number of vessels decreased in every region, while the direction of change in percentage of vessels varied by region.” DJ Summers can be reached at [email protected]  

Reinsurance bill passes House, still needs funding in budget

The Senate Finance Committee has heard and held a bill that would a secure $55 million to lower individual insurance premiums in Alaska. The bill’s passage will be the difference between a potential 40 percent or 25 percent spike for individual premium rates in 2017. The committee scheduled the bill’s next hearing for June 2 at 1:30 p.m. The Affordable Care Act, or ACA, drew high-risk patients away from the Alaska Comprehensive Health Insurance Association with its lower-cost, federal-subsidized plans. When federal reimbursements for insurer losses came up short, insurance companies hemorrhaged money and have been forced to raise insurance rates to recoup losses or leave the state altogether. After Moda Health’s announcement last month that it was leaving the state in 2017, Alaska’s sole remaining individual insurer, Premera Blue Cross, said rates will increase no matter what due to the ACA side effect. The bill would only lower the rate of increase from as high as 40 percent to as low as 20 percent. Premera and Moda raised rates by 39 percent in 2016. Without the bill’s passage, Division of Insurance director Lori Wing-Heier said she “can’t imagine that in 2018 we’re going to have individual insurance throughout the state,” though Premera has committed to staying through 2017. The House approved a committee substitute of the bill on May 30 and was sent to the Senate Finance Committee. The bill has widespread support, including from the Alaska Mental Health Board and Advisory Board on Alcohol and Drug Abuse, Premera, Moda Health, the Alaska Association of Health Underwriters, the Alaska Primary Care Association, and the Alaska State Hospital and Nursing Home Association. Supporters say premium rates are too high as is, and yet another large spike will further exclude Alaskans from health care and behavioral care. “There are many working Alaskan families who are ineligible for Medicaid who cannot afford the private health insurance plans available in the limited market,” wrote Kate Burkhart, executive director of the Alaska Mental Health Board and Advisory Board on Alcohol and Drug Abuse. “This results in some families incurring debt for health care services due to high deductible, co-pay, or coinsurance costs. Other families go without insurance and without preventative therapeutic health care services.” The committee substitute keeps most of the bill’s original provisions but specifies where $55 million in necessary reinsurance funds will come from. Alaska levies a 2.7 percent insurance premium tax on every plan in the state. Last year, the tax generated $55 million, the amount of an earlier assessment on individual plans. The bill would designate the premium tax to pay for the reinsurance. Currently, those funds go into the general fund. The committee substitute would establish an “Alaska comprehensive health insurance fund” in the general fund itself, and allow the Legislature use the annual estimated balance in the fund to make appropriations to the Department of Commerce, Community, and Economic Development to fund the reinsurance program. During a House Finance hearing on May 27, legislative fiscal analyst David Teal explained to the committee the money would be a loss from the operating budget. “There’s no free money here,” said Teal. “This is a loss of $55 million of general fund revenue.” The current fiscal year 2017 operating budget, approved by the Legislature late on May 30, doesn’t include the $55 million that will have to go to the reinsurance program. The ACA forces individual insurers to accept clients with pre existing conditions. In Alaska, those people used to buy insurance in a special high-risk pool operated by the Alaska Comprehensive Health Insurance Association, or ACHIA. The high-risk pool plans were naturally more expensive, and when the change came in 2014 many ACHIA customers jumped ship to the cheaper federal marketplace. The small Alaska individual insurance market providers then ate the new costs from the high-cost patients after federal subsidies were restricted by Congress to the amount that the government took in from insurers whose premiums exceeded their costs. The federal government continued appropriating money in defiance of Congress, and a U.S. District Court judge ruled that the payments are unconstitutional because the funds were not approved. Nationally, many state face the same problem. Rural states with decentralized populations like Wyoming and Alaska have been hit especially hard. “The ACA was written as a one-size-fits-all, and it doesn’t necessarily work for Alaska,” said Wing-Heier during the May 27 hearing. “We’re much more rural than we are urban. We’re farther away from metropolitan areas. We don’t have the medical research universities that they have in Washington and Boston and San Francisco.” Committee members agreed. “Under the people who said, ‘I told you so,’” said Rep. Dan Saddler, R-Eagle River, “giving people with high cost, preexisting conditions guaranteed insurability clearly resulted in this kind of health insurance market dynamic distortion. “While the intentions of the Affordable Care Act may have been noble and beneficent, the financial results are what we have before us now: problematic and endlessly expensive.” Alaska’s four individual insurers lost money since 2014. Ranks whittled down to a single insurer after Moda Health announced it was leaving the Alaska market in January 2016. Rates rose approximately 37 percent and 39 percent in 2015 and 2016, but Premera still loses money, spending $200 more per plan than it receives. The company has lost roughly $13 million since 2014. Premera’s average premium is $713 per person per month. Statewide, the average $700 per person per month is the highest in the nation, which averages $468 per person per month. The company has until July 15 to file its fiscal year 2017 rates. After Moda Health left the Alaska market, the Division of Insurance gave Premera an extended deadline to incorporate the information from Moda’s 14,000 customers. DJ Summers can be reached [email protected]  

Alaska holds its perennial spot atop NOAA fisheries rankings

The National Oceanic and Atmospheric Administration released its annual report detailing national and regional economic impacts of U.S. fisheries and as usual Alaska produced both the greatest value and volume of any area. The report includes economic impacts in the harvesting, processing, wholesale, retail, and import sectors, as well as those from recreational saltwater fishing. In 2014, the nation’s commercial seafood industry produced 1.4 million full-and part-time jobs, $153 billion in sales (including imports), $42 billion in income and $64 billion in value-added impacts. Domestic harvests produced $54 billion in sales. Alaska’s seafood industry employs more people than any other private industry in the state. California supported most of the nation’s 1.4 million seafood jobs in 2014 with 143,440. Alaska’s industry supported 60,749 jobs. NOAA oversees all fisheries in U.S. waters from three to 200 miles off the coast, with management rules crafted by eight regional councils created under the 1976 Magnuson-Stevens Act. In 2014, U.S commercial fishermen harvested a total market value of $9.4 billion worth of finfish and shellfish, worth $5.5 billion in dockside value to fishermen. The U.S. most valuable seafood product in 2014 was shrimp, which represents $702 million in market value. Pacific salmon came in second, representing $617 million in overall value. Lobster and scallops came in third and fourth, representing $567 million and $424 million, respectively. North Pacific fisheries, dominated by walleye pollock and Pacific salmon, accounted for the greatest volume and value of the eight regions. NOAA separates seafood into finfish and shellfish. Finfish includes groundfish like walleye pollock. Alaska caught the most finfish, representing 68 percent of the nation’s total. California produced the most shellfish with 260 million pounds, followed by Louisiana and Maine’s shrimp and lobster catches. In volume terms, pollock produced three times more sheer poundage than the next species, menhaden. Fishermen in the North Pacific harvested 3.1 billion pounds of walleye pollock in 2014, around 55 percent of the region’s total seafood landings. Pacific salmon’s value adds to pollock’s volume to make the North Pacific region the U.S. seafood industry’s largest. Of the $5.5 billion in nationwide dockside revenue, the North Pacific region produced $1.7 billion, or 31 percent of the total. Half came of that from Pacific salmon and pollock revenue. North Pacific fishermen made the most income from salmon, pollock, and crab in 2014. For Alaska fishermen, the three species comprised 69 percent of the region’s total value. Salmon produced the most revenue with $546 million, followed by $400 million from pollock and $238 million from crab. North Pacific waters did display some marked reductions in certain seafood, however. From 2013 to 2014, the overall halibut harvest declined by 70 percent, and the Pacific sablefish harvest declined by 31 percent. Pacific salmon landings declined by 33 percent, attributable mainly to the difference between 2013 pink salmon — one of the largest harvests on record — and the corresponding down cycle in 2014. Pink salmon run strong every other year. Recreational fisheries also played a large role in the U.S. marine economy, though Alaska’s numbers make a small amount of the national participation. Nationwide, 11 million anglers participated in U.S. saltwater recreational fisheries, taking a total 68 million trips. The recreational fisheries created $60.6 billion in sales impacts from fishing trips and related equipment, a 4 percent increase. Jobs supported by recreational saltwater fisheries were concentrated heavily in Florida and California, which together represent 31 percent of overall jobs. Alaska supported 1.2 percent of these jobs. DJ Summers can be reached at [email protected]  

Permanent Fund narrows losses in 3Q

The Alaska Permanent Fund’s investment returns rose in the third quarter of fiscal year 2016 ended March 31, though performance is still down year-to-date. Due in part to the U.S. dollar’s strength impacting international investments, the Alaska Permanent Fund came in relatively flat in the third quarter of fiscal year 2016 at 1.2 percent compared to the performance benchmark of 2.3 percent. Year-to-date, the Permanent Fund was down 0.9 percent as of March 31 at a total value of $52.5 billion, about $331 million less than the end of the 2015 fiscal year last June 30. The Permanent Fund includes the principal, which cannot be appropriated, and both the realized and unrealized gains on its assets. Currenty the “unspendable” corpus of the Fund is $43.6 billion, realized earnings are about $6.6 billion and unrealized earnings are about $856 million. The Fund has grown by 6.3 percent annually on average in the last five years and ended the 2015 fiscal year with a value of $52.8 billion. The Permanent Fund recorded $719 million in statutory net income during the quarter, bringing the year-to-date total to $1.9 billion. This is the amount used to calculate the annual Permanent Fund Dividend. In the second quarter of fiscal year 2016 (last October-December), the Fund returned 2.1 percent for an overall loss of 2.2 percent in the first half of the fiscal year. The Fund ended Dec. 31, 2015, with a value of $51.8 billion, down $1 billion from the start of the fiscal year. The Alaska Permanent Fund Corp. Board of Trustees held its regular quarterly meeting May 24-25 in Anchorage to discuss fiscal results and potential policy changes, including an examination of oil industry investment exposure and obtaining a line of credit. The Alaska Permanent Fund Corp., or APFC, is the state-owned corporation that manages the investments of the Alaska Permanent Fund.  “A sharp dip in U.S. and overseas markets held through to mid-February, before turning back up to end March just below where they started in January,” said Permanent Fund Corp. CEO Angela Rodell in a release. “The mid-quarter rally appears to have been fueled by several things that calmed investors’ concerns: increases in oil and other commodity prices, European Central Bank stimulus actions, including buying corporate bonds for the first time, and signals from the Federal Reserve that short-term interest rates will not rise in the coming months.” U.S. stocks underperformed for the quarter compared to overseas markets, according to APFC Chief Investment Officer Russell Read. Foreign investments, however, have performed worse year-to-date. “International investments have generally suffered under a strong U.S. dollar,” Read told the board. The fund’s U.S. stock portfolio returned 0.3 percent for the quarter but has lost 2 percent year-to-date. The non-U.S. side of the portfolio returned 1.3 percent for the quarter but has lost 9.3 percent year-to-date, while the global portfolio returned 0.1 percent for the quarter but lost 4.4 percent year-to-date. Read said he expects this trend to reverse in the upcoming years as the European economy rebounds. He expects the euro’s value to increase from $1.13 to $1.33 in the next 10 years, and a further 10 cents against the dollar in the following decade. In this light, Read said the board intends to “pivot” towards a more robust foreign investment portfolio in the future. U.S. bonds gained 3.2 percent for the quarter and 2.9 percent for the fiscal year-to-date. Non-U.S. bonds returned 5.2 percent and 3.9 percent for the respective periods. Real estate investments also performed well, up 2.1 percent for the quarter and 8.4 percent for the fiscal year-to-date. During the meeting, the board reviewed which investment areas performed well and which didn’t, calling to attention languid oil prices, state finances, and their impact on the Fund. The Fund is seeking a liquidity facility — a credit line — equal to 5 percent of the total fund’s value, or roughly $2.5 billion. Gov. Bill Walker has proposed an infusion of cash from the Constitutional Budget Reserve into the Fund Earnings Reserve, and then a fixed annual draw from the Earnings Reserve of $3.3 billion to help close the state’s budget deficits. The plan that has the most support in the Legislature, however, is a percent of market value, or POMV, plan, which would draw a percentage of the Fund’s value each year. Current versions of that bill would draw 5.25 percent annually to help fund the state budget, which would have the effect of reducing the annual Permanent Fund Dividend. Read said the volatility of Alaska’s state economy under the shadow of a $4 billion budget hole has only strengthened the need to establish this new line of credit. “The looming issues of the state have accelerated the call to get (a liquidity facility),” said Read. Possible sources for the liquidity facility include both Outside and Alaska banks, brokerage firms, and at the board’s in-meeting suggestion, the Constitutional Budget Reserve. APFC CEO Angela Rodell said the arrangement would allow the Department of Revenue to forward cash to the fund. This could be a potential moneymaker for the CBR, which already has some exposure to corporate bonds. “For the CBR, it would look and feel like an investment,” said Rodell. “It’s an instrument they’re holding that would receive fee income, interest income, like holding a bond, of which we’re the obligors.” Rodell said the Department of Revenue has made this kind of agreement with state agencies before, though not with the Permanent Fund. “We’ve done things like that in the past,” said Rodell. “We have used reserves at the Department of Revenue under various conditions. They haven’t been with the Permanent Fund, but they’ve been with other state agencies.” The road to a liquidity facility with the CBR is murky, however, as the CBR itself has strict statutory investment restrictions that don’t apply to the Permanent Fund. Rodell said the Department of Law is currently researching whether it would even be legal, and whether the Legislature would need to vote each time the Fund wants to draw credit from the CBR. “Part of it is making sure this is a lawful investment under the current statutory authority.” The board invited Leo de Bever to speak about how to adapt to a future in which oil prices could settle at $70 per barrel. De Bever is senior adviser at Bennett Jones LLP, a Canadian business law firm, and formerly the CEO of Alberta Investment Management Corporation, an institutional investment manager. He advised the Norwegian Pension Plan, a rough Norwegian equivalent to the Permanent Fund. De Bever told the board Alaska’s best option – like similarly oil-dependent British Columbia and Alberta – is to invest in new technologies in partnership with savvy companies. The world will depend on fossil fuels well into the 2030s, he said, so Alaska will remain relevant as long as it grows with emerging technologies in extraction efficiency. Survival means looking out for the next thing instead of “being frozen by what’s happening right now.” “Take emerging technologies and quickly commercialize them,” said de Bever. “That’s the way to do it.  Who else is doing it? No one. That’s why we need to do it. Team up with the right people for the right job, and you can make it.” Oil prices weighed heavily on the board. The board asked Read whether the Fund should draw back from oil and energy investments as worldwide prices continue to stagnate under oversupply. Currently, the Fund has a 10 percent exposure to energy investments, and should plan to keep it that way, Read said. Read said the Fund should not draw back from these investments, as oil and energy investments still provide cash at twice the value of other investments. Even at 10 percent of the Standard and Poor’s 500, oil and energy provide 20 percent of the income of stocks, Read said. “The oil and energy market ends up being particularly important as a source of income,” said Read. “As a cash income generator, energy resources have a positive cash impact.” DJ Summers can be reached at [email protected]

Recent trend of small sockeye continues at Copper River

Alaska’s earliest sockeye run could be a rerun. Copper River sockeye are even punier than last year’s record-setting slim fish, matching warnings from the Alaska Department of Fish and Game’s preseason forecast. “The fish are still small,” said Steve Moffitt, Cordova area management biologist for the Alaska Department of Fish and Game. “So far, they’re even smaller than what we got last year.” The early trend could foretell small fish throughout the state. Last year, workers statewide from offices of the Alaska Department of Fish and Game, or ADFG, noticed an early in-season trend of smaller-than-average fish. After the season ended, final tallies for each major salmon-producing area with brood stock from the Gulf of Alaska charted sockeye salmon an average pound less than the most recent 10-year averages. The Copper River run is still in its early stages, but Moffitt said the Copper River sockeye this year are following the same pattern. “First period we have about 4.4 pounds for sockeye, second period we had 4.3 pounds,” said Moffitt. “Last year, the year end was a little under 5.1 pounds. And that was the smallest we’d ever seen.” The average Copper River sockeye weighs an average 6 pounds, and hasn’t been measured smaller than 5.1 pounds anytime prior to 1966. The Copper River run precedes other major sockeye producing areas like Cook Inlet and Bristol Bay by several weeks. ADFG scientists in other areas have no data yet to compare sockeye size with the Copper River run. Moffitt emphasizes the fish are smaller across age classes, meaning scientists can’t attribute the size decrease to a prevalence of younger, smaller fish. More of the older and typically larger sockeye are returning this year than previous years, as predicted in ADFG’s area forecast. “The 2016 run of natural sockeye salmon to the Copper River will be composed primarily of returns from brood years 2011 and 2012. Five-year-old fish (brood year 2011) are expected to predominate Copper River Delta and upper Copper River runs,” the forecast reads. So far, Moffitt said ADFG forecast is spot on. “We’ve got a couple age class processed,” Moffitt said. “There’s been no change in the age composition. It pretty much matches the long-term average. We’re seeing the same age classes defining the run. The age five, which is usually predominant, is even more predominant this year.” Moffitt noted that adaptive fishing techniques could skew numbers downward. A reporting hitch has surfaced. In response to last year’s small fish, many Cordova area fishermen in 2016 swapped out gillnets for smaller mesh sizes to better catch the small fish. This could let the larger ones go unaccounted for and distort the true average, Moffitt said. This can produce commercial problems as well as statistical inaccuracies. Selling sockeye salmon nearly one-third beneath their average weight can be a problem for the Copper River brand, founded on high-end fillets that must meet certain marketability requirements for processors and retailers, including size. The change in mesh size could also affect harvest volume. Fishermen cannot drop smaller mesh sizes as deeply into the water column to snag salmon; many will swim underneath the net to escape warmer water, as fishermen reported last year from several Gulf-adjacent waters, potentially lessening the overall harvest. Limited supply comes with both benefits and drawbacks. As of May 24, Copper River gillnetters have harvested 72,733 sockeye, a slower beginning than average that has produced a $6.50 per pound price, more than a dollar better than last year’s opening price. Several factors could contribute to the small sockeye, according to Moffitt and other biologists who observed small fish in 2015. Most scientists link to warm water from the infamous Gulf of Alaska “Blob,” along with food competition between pink salmon and sockeye and among sockeye themselves. Warmer water has been the most visible marine change, and this year the trend is continuing, if on a smaller level than 2015. Through February 2016, Gulf of Alaska water was one degree Celsius greater than the most recent 10-year average, according to a majority of area buoy readings. This is an improvement from last year, when the same waters at that time were nearly two degrees Celsius above average. The so-called “Blob” has largely dissipated and mixed with colder water, though National Oceanic and Atmospheric Administration studies say the effects will linger until a La Niña weather cycle cools the North Pacific. Reports say the cycle has a 75 percent chance of beginning this fall. Warm water raises sockeye base metabolic rate, Moffitt said. Fish need more food, but the cold water-loving plankton they eat are more scarce. The sockeye can’t beef up as normal. Small fish also coincide with large runs, lending scientific credibility to the Cordova fisherman’s adage, “Big run, small fish.” Sockeye compete with pink salmon and other sockeye for less available food sources at a time when their metabolism demands more than normal. Of the seven largest sockeye runs to Copper River, five of them were in the last five years. Prince William Sound pink salmon run was the largest on record in 2015. This year’s forecast is tamer for the area.  The Alaska Department of Fish and Game 2016 total run forecast of sockeye salmon for the Copper River is 2.56 million, similar to the recent 10-year average total run 2.60 million. If realized, the 2016 forecast total run will be the 11th largest in the last 36 years. DJ Summers can be reached at [email protected]

Canada OK’s GE salmon; Senate panel requires labeling

A fast-growing, genetically-engineered salmon got Canada’s stamp of approval on May 19, the same day a U.S. Senate Appropriations committee approved language that requires the salmon be labeled as “genetically modified” in the U.S. Called AquAdvantage, the genetically-engineered fish has met massive resistance from the U.S. commercial fishing industry and politicians from fishing states. AquAdvantage grows to marketable size in half the time as conventional farmed salmon, and a fraction of the time and effort to harvest wild salmon. AquaBounty splices of Atlantic salmon and chinook salmon with a continual growth hormone from ocean pout, meaning it grows twice as fast. The U.S. still won’t see the new fast-growing fish on market shelves in the next year, both by federal design and by marketing needs. The U.S. Food and Drug Administration passed ban on the import of genetically engineered fish in January, only to apply to fiscal year 2016. The ban itself is symbolic, not functional; AquaBounty said its product won’t be market ready for another year anyway. AquAdvantage is the first genetically-engineered animal product to be approved for human consumption, though the approval has taken the better part of a decade. AquaBounty has sought U.S. and Canadian approval for the product since 1996. Backlash from anti-GMO groups and the Alaska congressional delegation in particular has slowed the process. Despite fears of health and environmental impacts, however, both governments said in the last year that the fish is safe for humans to eat. The FDA approved AquAdvantage in February 2015, saying it has “no substantial nutritional difference” from wild or conventional farmed fish. Canada Health and the Canadian Food Inspection Agency, that nation’s equivalent to the FDA, announced on May 19 that AquaBounty’s product is safe for human consumption. Canada has not yet required that the product be labeled, unlike the U.S. After AquAdvantage’s FDA approval, U.S. officials from fishing states, as well as environmental groups, have wrestled to force vendors to label the product as genetically engineered. On May 19, the Senate Appropriations Committee unanimously approved the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Fiscal Year 2017 appropriations bill, sending it to the full Senate for consideration, currently unscheduled. Among other provisions, the bill includes language to make vendors prominently include “genetically-engineered” in the product’s market name. “The acceptable market name of any salmon that is genetically engineered shall include the words ’genetically engineered’ or ‘GE’ prior to the existing acceptable market name,” reads the provision. Sen. Lisa Murkowski, Alaska’s senior U.S. Senator and a member of the Senate Appropriations Committee, added the language. Murkowski has doggedly pursued labeling mandates after a drawn-out fight with the FDA, which currently makes GE labeling voluntary. Murkowski had held the nomination of Dr. Richard Califf as FDA chief until the FDA agreed to labeling mandates. Murkowski attributes a list of problems to what she and other critics have dubbed “Frankenfish.” She said leaving the fish unlabeled would harm Alaska’s reputation and economy and the well being of Americans at large. “Genetically engineered salmon pose a serious threat to the livelihoods of fisherman and the health and well-being of Americans across the nation,” said Murkowski in a statement. “Alaska is known around the world for our sustainably-caught, wild, delicious seafood. Requiring labeling of genetically engineered salmon helps us to maintain Alaska’s gold-standard reputation for years to come, and protects consumers.”  Alaska’s state legislators also heavily oppose the product. In a series of releases in January, they expressed doubt over scientific basis of the FDA’s decision and called for a mandatory labeling requirement. DJ Summers can be reached at da[email protected]

State approves 13 new ER beds for Providence in Anchorage

Providence Alaska Medical Center in Anchorage received state approval on May 20 to build an additional 13 emergency department rooms, which will expand the department to 50 rooms by early 2018.  The decision, approved by Department of Health and Social Services Commissioner Valerie Davidson, concludes an appeal process involving both Providence and Alaska Regional Hospital, Anchorage’s other main non-Tribal health provider. The additional rooms will include pediatric care and two trauma rooms. “Having an emergency treatment area for children will help reduce anxiety for children and curtail stress parents feel when having to visit an emergency room,” said Providence Alaska Medical Center CEO Dr. Richard Mandsager. “Additionally, this expansion ensures we have the emergency department capacity to continue providing trauma care to Alaskans across our state.” A big part of the expansion’s intent, hospital staff said, is to give pediatric care staff the space they need. Dr. Sandra Horning, a pediatric emergency care physician at Providence, said the two additional children’s spaces are geared towards bringing new childcare medicine techniques to the state. Virtually all hospitals have pediatric care, but Horning said Providence wants to expand its offerings to accommodate special needs pediatric care. Two pediatric emergency rooms will be the only in the state she knows of that are designated for children. Currently, Providence’s pediatric care for children with special needs is temporarily housed in adult care facilities, pushing those adult patients out. The two additional rooms will provide a designated space to relieve the overflow. “One of our initial goals is to educate medical professionals,” Horning said. Special needs pediatric care techniques like numbing agents, distraction techniques, and positions of comfort, she said, will be taught to medical professionals throughout the city and state. The new 13 room allowance exceeds what the state had initially allowed Providence. Both Providence and Alaska Regional filed appeals to DHSS in August 2015 after DHSS denied a request by Alaska Regional for two freestanding emergency rooms — one in South Anchorage and another in Eagle River — and allow only eight new rooms at Providence. Alaska is a certificate of need state. Hospitals must apply for state approval before any buildout costing more than $1.5 million, the theory being unneeded facilities will drive up healthcare prices. Providence projects that the buildout for their new rooms will cost $12.8 million, less than half the projected price for Alaska Regional’s proposed freestanding emergency rooms. The state publishes projected healthcare needs on which medical providers base certificate of need requests. A state study had established that the Municipality of Anchorage needed an additional 13 rooms. Davidson originally only approved eight rooms for Providence. The state, rather than awarding the full 13 rooms, which are based on a five-year projection of population growth, chose only to fill what emergency services shortfalls exist now, as the department is prioritizing a reduction in unnecessary emergency room usage. Office of Administrative Hearings Judge Stephen Slotnick reviewed the appeal and recommended to Davidson that she approve the full 13 rooms, saying the state needs to fill its current needs according to protocol.  One of the key components of healthcare legislation awaiting Gov. Bill Walker’s signature is a statewide collaborative effort to reduce ER usage.  A new joint project by the state hospital association, the Alaska chapter of the American College of Emergency Physicians, and DHSS allows ER physicians to access ER information in real time to isolate frequent ER users who drive up costs by a using emergency services for non-emergency treatment. The project was authorized in Senate Bill 74, hybrid of health and Medicaid reform provisions from the offices of Walker and Sen. Pete Kelly. Jared Kosin, executive director of the DHSS Office of Rate Review, said the decision to award Providence the full 13 room amount reflects the present certificate of need regardless of the state’s intent. “Based on what’s happening today, they will need those beds and need to grow those beds,” said Kosin. “Just because that’s reality today. This decision happened. There’s an immediate need.” Kosin acknowledges that the decision looks inconsistent with the state’s ER use objectives, but said a future decline in ER usage will be Providence’s concern. “In an ideal world, if the state can curb ER use, in a couple of years Providence isn’t going to be filling all those beds,” said Kosin. Horning said the emergency room buildout is consistent with the state’s plan to save money. Better pediatric care, she said, will decrease the overall amount of children who need admittance to the hospital following an ER visit. DJ Summers can be reached at [email protected]

S&P notices lack of budget fix

Credit ratings agency Standard & Poor’s released a statement on May 19 warning the Legislature once again that a failure to address the $4 billion budget gap may further lower Alaska’s credit rating. The Legislature adjourned on May 18 at the end of an extended, 121-day session without passing a budget for the upcoming fiscal year, or any of several fiscal changes concerning the Permanent Fund or oil and gas tax credits. On May 19, Gov. Bill Walker issued a call for a special session to begin on May 23. The Legislature will have until July 1, the start of fiscal year 2017, to pass a budget and prevent a government shutdown.  S&P had supported Walker’s plan to restructure the Permanent Fund and install an income tax in January, but acknowledged the political difficulty of both ideas. All the same, S&P said the Legislature has to act or face both a government shutdown and worsened credit ratings. “The politics of reaching an agreement on some combination of fiscal reforms that would stabilize the state's budget outlook is proving every bit as difficult as we anticipated in January,” the statement reads. “If lawmakers cannot reach an agreement on fiscal reforms that move the state toward fiscal alignment in the special session, we expect the negative pressure on the state's credit rating could intensify.” S&P lowered Alaska’s general obligation debt rating from AAA to AA+ on Jan. 5, with a continued negative outlook in light of the $4.1 billion budget deficit. The ratings agency said at the time it would have to lower Alaska’s rating again if it did not renovate the state’s financial structure.  S&P maintains that the state cannot continue to operate at its current spending level without making substantial changes to the Permanent Fund dividend and finding new revenue sources. The report specifically mentions the $775 million the state will pay this year for the oil and gas tax credit program and the possibility of an income tax. “In order to materially close the structural budget gap, any such plan ultimately relies on a reduction to the state's dividend payments paid to residents,” reads the statement. “Furthermore, as prodigious as the state's base of investment assets is, it most likely cannot sustainably generate enough revenue from investments to support the current level of general fund expenditures.” It is largely believed that the roughly $52 billion Permanent Fund could support an annual net draw on investment earnings of about $2.5 billion per year. S&P has noted that Alaska has significant savings in the Constitutional Budget Reserve and the Permanent Fund earnings accounts, but insists the state’s fiscal structure needs to change before spending depletes them by the end of the decade. “Without a change to the state's fiscal structure, however, the forecast shows reserve balances declining each year,” the statement reads. “By fiscal 2020 the combined reserve balances would equal $2.3 billion, or 47 percent of expenditures under a status-quo fiscal structure according to the DOR forecast, assuming oil prices average $54.48 per barrel that year.” Revenue forecasts say that 57 percent of Alaska’s unrestricted revenue will come from oil in fiscal year 2017, assuming 520,000 barrels of production at an average price per barrel of $38.89. In a follow-up report in January, Standard and Poor’s Rating Services examined what makes some oil states’ futures look bleaker than others. The hardest-hit states forecasted oil prices too optimistically, tied too much state income to oil revenues, or didn’t save enough from the good old days when prices were high and state coffers were fat. S&P analyzed eight oil-producing states: Alaska, Louisiana, Montana, New Mexico, North Dakota, Oklahoma, Texas, and Wyoming. Of the eight, S&P rated Alaska, Louisiana, and New Mexico as having negative credit outlooks.   DJ Summers can be reached at [email protected]  

Report: Optimism for salmon prices in ‘16

A new market analysis has an optimistic outlook for the 2016 salmon season — and goes a long way in explaining why Bristol Bay sockeye salmon received a low dockside price for last year’s catch. Juneau-based economics firm McDowell Group completed the report under contract from the Alaska Seafood Marketing Institute. ASMI is a state- and private-funded marketing organization specifically set up to increase the foreign and domestic demand and prices for Alaska’s seafood. ASMI’s report responds in part to fishermen’s concerns about salmon prices paid to fishermen by processors, called the ex-vessel price. In 2015, fishermen in the state’s most valuable fishery, Bristol Bay’s sockeye salmon, only received half their usual ex-vessel price for fish while the processing and retail industries appeared to maintain their prices. The report says processors simply had less capital to spread to fishermen in 2015, as they were beset by a host of negative market factors. Strong U.S. currency values lessened purchasing power for key foreign export markets, important export markets vanished, and massive supply caused led to a decrease in overall value. Combined with 2013 and 2014, two of the largest volume years on record for statewide salmon harvest, last summer’s harvest created downward market pressure as processors were left with an oversupply. Researchers have a hard time gathering as much first wholesale data as they can with ex-vessel value data. Net processing revenue, they say, makes for the best widely available data to analyze processors’ financials. Even though wholesale price and corresponding retail prices may not have seemed to vary along with the ex-vessel price, total processing revenue for 2015 was very low. Ex-vessel prices dropped to control costs. “Net processing revenue averaged $706 million in 2013 and 2014 (about 10 percent below the previous three-year average), and net processing revenue per pound dropped 21 percent (inflation-adjusted basis),” the report reads. “This left many processors in a relatively poor financial position heading into 2015. With less working capital, a large 2015 salmon forecast, mounting canned inventories, and a declining wholesale market, processors were far more conservative with ex-vessel price commitments in 2015.” The report details that the 2015 ex-vessel price of 50 cents per pound is only the latest in a series of annual price drops. Ex-vessel value for Alaska salmon has declined sharply since 2013, when economists adjusted prices for inflation. “Ex-vessel value fell by approximately 41 percent between 2013 and 2015 - years which produced the two largest Alaska salmon harvest volumes on record,” explains the report. “Ex-vessel prices fell for all five salmon species during this time: sockeye (-61 percent), pinks (-51 percent), coho (-45 percent), chinook (-19 percent), and chum (-17 percent).” Dockside prices reached a peak in 2013 not seen since 1995. In 2013, the total inflation-adjusted value of Alaska salmon was more than $750 million, a level only reached twice in the last 20 years. The McDowell Group believes prices will stabilize this year, as supply will shrink. “There are several reasons to be cautiously optimistic that prices for most key products/species will at least stabilize and likely rise somewhat in both ex-vessel and wholesale market,” according to the report. “However, even if prices do increase somewhat, the smaller expected harvest in 2016 will probably result in a lower overall resource value.” This year, both pinks and reds are set to decline in production. Chinook and coho salmon will increase, but processors rely far more on reds and pinks. Together, the two species make up 84 percent of salmon volume and 78 percent of salmon value. According to the Alaska Department of Fish and Game, the sockeye salmon harvest — which makes up 55 percent of the state’s salmon sales by value — is expected to be about 7.3 million fewer than in 2015. ADFG forecasts the Bristol Bay sockeye harvest — the most valuable in the state — to be 29.5 million, far less than the 2015 harvest of more than 36 million but still greater than the 20-year average of 23.2 million. Both reds and pinks contributed last year to one of the largest overall salmon harvests on record. Statewide, the commercial salmon harvest of all species was 247 million fish, greater than the 2015 harvest projection of 220 million and the 2005-14 average of 179 million fish. The harvest was the second highest since 1994, following only 2013, when the harvest was 273 million fish. The projected harvest of pink salmon — which run strong every other year — is about 100 million fewer than in 2015 at 190.5 million. In Prince William Sound where pink salmon is the major harvest, the forecast is 23.4 million, less than average and a change of pace from the 2015 season that broke the 20-year record for the largest harvest with 96 million fish. Southeast Alaska will have a harvest of 34 million pinks. In Kodiak, 16.2 million is projected, and 13.4 million is forecast for the South Peninsula and Aleutian Islands. Chile’s farmed salmon situation should also benefit Alaska fishermen as the nation’s large farmed salmon export industry is beset by environmental damage and protests. Chile is the world’s second largest farmer of salmon, and one of the three main exporters of farmed salmon into the U.S. market along with Norway and Canada. In 2016, a massive red algal bloom killed upwards of 100,000 tons of Chilean Atlantic and coho salmon stocks — between 12 and 17 percent of the total output, according to various reports — representing tens of millions of dollars of lost product. The massive supply loss came with a price spike of upwards of 65 cents per pound, according to seafood industry news source Intrafish. Bristol Bay sockeye fishermen, who compete directly with Chilean farmed salmon, say the price spike should make Alaska exports that much easier both in domestic and foreign markets. DJ Summers can be reached at [email protected]

Bill allowing rural pot opt-out passes 37-1

After a hiatus, House Bill 75 reappeared on May 16 to sail through conference committee unopposed and passed 37-1 on the final day of legislative session.  The bill, sponsored by Rep. Cathy Tilton, R-Wasilla, began as an administrative bill to allow the Marijuana Control Board to request fingerprint background checks from the FBI. The bill morphed over time, however, as rural Alaska concerns arose over local control. The background check provision eventually passed through another bill, leaving HB 75 without the original intent. “This is a very scaled down version of both bills,” said Heath Hilyard, Tilton’s chief of staff. The current incarnation of HB 75 would allow established villages in the unorganized borough of the state to opt out of commercial marijuana activity, set a 12-plant household limit for personal home grows, and clarified that borough-wide bans would only affect unincorporated areas. The unorganized borough refers to the parts of the state not within the 19 organized boroughs. Local option HB 75 stalled in April over the Senate’s version of the bill, which would have automatically banned commercial marijuana in the unorganized borough. The new bill merely gives established villages in the unorganized borough the ability to opt out, a power it does not currently have under statute. Sen. Lyman Hoffman, D-Bethel, introduced the automatic opt out idea that caused the bill to stall, fearing marijuana could bring the same problems to the village alcohol brought. Title 4, the section of Alaska statute dealing with alcohol, gave villages no method to halt alcohol sales. Ballot Measure 2 created the same problem. Ballot Measure 2 passed in 2014 to legalize recreational marijuana commercial business. “As the ballot was written,” explained Hilyard, “there was no way for established villages to opt out.” At the last conference committee held April 13, Hoffman said, “Title 4 was flawed. It started out with those communities wet, and they had to go through all that pain and suffering.” The problem lies in the Ballot Measure 2 definitions, which don’t deal with established villages at all. Ballot 2 does give local authorities the ability to opt out of commercial marijuana, and several towns, cities, and boroughs have already used the local control options to enact temporary or permanent ordinances against some or all components of commercial marijuana, including Craig, Delta Junction, Palmer, Soldotna, Unalaska, Valdez, Wasilla, Kodiak Island Borough, and Mat-Su Borough. However, local control only applies to municipalities. “’Local government’ means both home rule and general law municipalities, including boroughs and cities of all classes and unified municipalities,” according to the measure’s definitions. This leaves established villages in the unorganized borough without any means of local control beyond Tribal councils or the Legislature itself. Tribal councils can enact local controls. According to Alcohol and Marijuana Control Office records, Metlakatla Indian Community has enacted a commercial marijuana ban by Tribal council action in accordance with federal laws. Native Village of Kipnuk has banned all marijuana sale or import for sale by Tribal ordinance. Jesse Logan, chief of staff for Sen. Lesil McGuire, R-Anchorage, said the state wants to avoid conflicts between Tribal ordinances, which don’t require public vote, and the state’s laws, which do.  “The Tribal authority is always in contention with the state,” said Logan. “Since the ballot measure was enacted by a vote of the people, it seems congruous to have the opt out provisions be subject to a vote of the people.” The Legislature does have the authority to act as the local authority for established villages, but rarely uses it. With upward of 100 established villages, the Legislature would be hard pressed to convene and deliberate each time a village wants to opt out. HB 75’s fix mirrors the way the Legislature solved the same problem with Title 4. It allows villages of 25 residents or more within a five-mile radius to submit a ballot initiative to ban marijuana if 35 percent of registered voters in the area petition for it. In this way, the bill gives local control to a public vote. Another of the bill’s provisions makes the local option non-area specific. This means a borough-wide ban would not apply to cities within the borough that keep commercial marijuana legal. Again, this portion of the bill mirrors Title 4 provisions, Hilyard said. For the Mat-Su Borough and Houston, the language is unnecessary to prevent borough law from overriding city law. Houston is the only incorporated city in the borough without a commercial marijuana ban. The borough itself enacted a moratorium on commercial marijuana on May 3, and will vote Oct. 4 to ban it indefinitely. The ballot measure specifies it will only affect unincorporated borough areas. Borough Mayor Vern Halter vetoed the moratorium on May 16. Halter said the borough has made marijuana regulations “cumbersome and confusing” and should welcome the income stream rather than creating codes it has little manpower to enforce. “We are a large and diverse borough outside our cities,” wrote Halter. “I have no problem with the cities regulating within their borders but it is better to allow the state to regulate outside our cities and for the borough to tax and receive revenue from the sales.” The veto had the lifespan of a fruit fly. The following day during its regular meeting, the borough assembly unanimously overturned the mayor’s veto, just as it unanimously voted in favor of the moratorium on May 3. Assembly members echoed member Randall Kowalke’s rationale when he introduced the moratorium in April. Kowalke said he wanted a “time out” for marijuana industry development, and that had concerns that cannabis businesses could crop up in de facto residential neighborhoods in the borough, which has no zoning laws. “I will not support anything that does not protect residential property owners from businesses being located within residential subdivisions,” said member Steve Colligan. “We don’t have zoning like Anchorage does. It’s a little more difficult.” Member Jim Sykes did add an amendment that sunsets the moratorium on Aug. 17, giving would be cannabis growers several weeks to grow in between the sunset and the Oct. 4 ballot. If the borough ban is successful, the sunset will mean little. Cannabis takes a minimum 100-day period to grow to maturity. 12-plant limit  The bill also sets a household limit of 12 cannabis plants, which follows Colorado’s lead but may or may not run afoul of cannabis law that predates Ballot Measure 2. Plant limits have been a touchy subject in the Legislature, Hilyard said, and parties have not yet agreed on anything more than that the state ought to have limitations. “Both regulators and law enforcement said, ‘we don’t care what the plant limit is, we just need one,’” Hillyard said. According to the measure, each Alaskan over 21 years of age may grow six plants for personal use, with no more than three plants in bloom at a time. The measure didn’t clarify, however, how that would extend to a household of several adults. Colorado allows personal marijuana grows of six per adult and a maximum 12 per household. Oregon allows only four plants per household. Washington allows no personal cultivation. Like the established village portion of the bill, Hillyard said the latest version takes cues from Title 4, trying to match cannabis with alcohol’s fine line between commercial use and personal consumptive use. Alaskans are allowed to brew up to 200 gallons of beer annually for personal use. Hilyard said the 12-plant limit is a rough proxy for the level of intoxication 200 gallons of beer could provide. Hilyard said the predominant legislative view holds that an ounce of cannabis roughly equals one pony keg of beer — five gallons — in its capacity for intoxication. In the hands of an experienced grower, 12 plants can yield roughly 10 pounds of cannabis annually, or 160 ounces. By this math, a 12-plant limit equivalent would equal 800 gallons of beer, four times the intoxicative power allowed to personal alcohol consumption. Hilyard said the limit seeks to establish a clear line between personal and commercial marijuana cultivation, specifically, not to allow a sizable black market grow that black marketers could pass off to personal use. Even at low quantity, cannabis has market value; 10 pounds of marijuana sold at the typical $250 to $400 per ounce black market price could be worth between $40,000 and $64,000, approaching twice the average Alaska per capita annual income of $33,062, according the U.S. Department of Census data. Allowing only 12 plants, however, digs into gray area of existing Alaska law. In 1975 in Ravin vs. State of Alaska, the Alaska Supreme Court decided that the Alaska Constitution’s right to privacy clause protects small cultivation and possession of marijuana. “We conclude that no adequate justification for the state’s intrusion into the citizen’s right to privacy by its prohibition of possession of marijuana by an adult for personal consumption in the home has been shown,” reads the ruling. The Ravin Doctrine neither guarantees marijuana possession nor sets definitive household allowance, but in several subsequent cases concerning the precedent Ravin vs. State of Alaska, the state ruled it would not make laws against small gardens under 25 plants. “There’s a gray area around the 12-plant limit,” said Logan. “Ballot 2 specifies that it won’t try to subvert Ravin, but Ravin offers protections to anyone growing up to 24 plants.”  

Port State Measures targeting IUU fishing takes effect June 5

The international Agreement on Port State Measures to Prevent, Deter, and Eliminate Illegal, Unreported, and Unregulated Fishing will go into effect next month as one more step in curbing a worldwide network of fish piracy. On May 16, the United Nations Food and Agriculture Organization announced that 29 nations and the European Union have joined the international agreement, representing 62 percent of worldwide fish imports and 49 percent of fish exports, that were $133 billion and $139 billion in 2013, according to official state estimates. The agreement only needs 25 countries to enter into force. It will go into effect on June 5. The agreement is an international attempt to control illegal, unreported and unregulated, or IUU, fishing by tightening port controls for member nations. It requires participating nations designate specific ports for foreign vessels. Foreign vessels may only enter with permission after providing a host of fishing documentation, and participating nations must compile lists of vessels known as IUU fishermen. These vessels should be refused port entry. President Barack Obama ratified the U.S. agreement in November 2015 as part of the IUU Enforcement Act of 2015, but U.S. behaviors changed very little as a result, according to officials’ statements from 2015. The U.S. already bars foreign fishing vessels from offloading at its ports.  Rather than focusing on domestic changes, the port agreement wants to tighten a noose around IUU deliveries worldwide before multiple nations can launder illegal fish among several processors and make their way into the U.S. market as mislabeled fish. The more countries that join the agreement, the fewer worldwide ports that serve as offload points for IUU seafood. “To have maximum impact, we need more countries to join the fight against IUU fishing,” said Secretary of State John Kerry in a statement. “As countries close off ports to illicit fishing products, those involved in IUU fishing will have to incur more expense and travel greater distances to land and sell their illegally caught fish.” Estimates vary regarding the economic impact of IUU fishing. Economists have a hard time compiling the expansive and elusive data required. “There have been numerous studies about the impact of IUU fishing but NOAA does not single out any specific study for reference,” wrote Katherine Brogan, a public affairs officer for the National Oceanic and Atmospheric Administration Fisheries Division. “A survey of the literature indicates the challenge and variety of approaches associated with quantifying the value and impacts of IUU fishing. That said, one would certainly conclude that the economic impacts, social costs, and environmental threats resulting from IUU fishing are significant.” The U.S. Coast Guard, however, estimates IUU fishing annually drains $10 billion to $23 billion away from the legitimate seafood industry worldwide. One of the major IUU sources, the Russian Federation, has still not joined the agreement, though it signed intent to join in April 2010, according to FAO records. Russia and the U.S. did enter a bilateral agreement in 2015 involving IUU fishing. The agreement instructs Russian and U.S. law enforcement to share the names and information of vessels and vessel owners involved in IUU fishing. Alaska’s congressional delegation has emphasized the importance of Russia joining the agreement. Rep. Don Young introduced and passed the IUU Enforcement Act of 2015, which added the U.S. to the Port State Measure Agreement among other changes. In Alaska, the largest fishing region in the U.S. with an annual $2 billion to $4 billion value, IUU cuts into the bottom line of pollock and crab, two of the most valuable species. According to a GMA Research consumer report, up to 40 percent of what has been sold as “Alaska pollock” is in fact from Russian waters. Young and Rep. Jaime Beutler, R-Wash., introduced legislation on Oct. 22, 2015 to amend the Federal Food, Drug, and Cosmetic Act to change the term “Alaska pollock” to “pollock.” The FDA subsequently announced Jan. 21 that only pollock caught in Alaska waters can be labeled “Alaska pollock.” Alaska waters are defined the Alaska-adjacent Exclusive Economic Zone three to 200 miles offshore, according to the Magnuson-Stevens Act, which governs U.S. federal fisheries. Pollock is the largest fishery in the U.S., producing 2.9 billions pounds and accounting for 11 percent of U.S. seafood intake. In the North Pacific management region, pollock accounted for $406 million worth of landings. Similar to pollock, North Pacific crab is often mislabeled as Alaskan. Russian IUU crab alone has cost Alaska Bering Sea crab fishermen up to $560 million, according to one estimate by United Fishermen of Alaska, the state’s largest commercial fishing industry group. DJ Summers can be reached at [email protected]

New database rules aimed at opioid crisis

A database of prescription drugs could help address Alaska’s opioid epidemic and a bill approved by the Legislature will require doctors to use it. Senate Bill 74, a hybrid of Medicaid reform bills introduced by Gov. Bill Walker and Sen. Pete Kelly, R-Fairbanks, will change regulations to require more doctors to use an online database of prescription opioid users. The bill requires medical providers to register with a Prescription Drug Monitoring Program, and requires doctors and nurse practitioners to check it before writing a prescription for opioids. A prescription drug monitoring database, or PDMP, is a statewide electronic database that tracks controlled drugs like opioids and amphetamines. The databases aim to slow illegal use and overprescription of opioids by preventing “doctor shopping” from doctor to doctor until one prescribes the drugs. Prescribers will check the statewide list of opioid prescriptions — who prescribed them and when customers filled the order — before prescribing any. This makes sure doctors and pharmacists don’t give out too many, which is one of the biggest links to a nationwide heroin and prescription opioid problem, and attempts to limit supply to the black market. The state already has such a program, but its effects have been lackluster as few physicians and pharmacists end up using it. The Legislature passed SB 74, which covers a swath of Medicaid and healthcare issues, but the bill hasn’t yet been transmitted to Walker for his signature. Some states have curtailed drug-seeking behaviors by requiring PDMP use. In 2012, New York required prescribers to check the PDMP before prescribing opioids. The following year, the state saw a 75 percent decline in the number of patients doctor shopping for opioid prescriptions, according to a Centers for Disease Control and Prevention report. Tennessee saw a 36 percent decline. Alaska ranks among the least effective states in implementing a robust PDMP, according to the CDC. The Department of Health and Social Services established a PDMP in 2008, but hasn’t lowered drug-related metrics to near the extent of other states. Part of the problem, explained Department of Health and Social Services Director Dr. Jay Butler, is that the Alaska PDMP is currently voluntary. Physicians and pharmacists are required to register with it, but not to actually check it before writing a prescription. Most of the bill’s changes aim to get more medical professionals actually using the system, both by requiring it and by making the process easier. “The PDMP is a communications tool,” said Butler. “Certainly the people who use it speak very highly of it, but it’s a tool that doesn’t work if we don’t have a high level of participation. I’m not a big fan of mandates and requirements and more work, but in the states that have created the requirements to utilize the PDMP the utilization has gone way up.” Some in the medical community objected to PDMP requirements simply because they add one more level of red tape to work through. “It is another item of work,” said Butler. “It has not been as user friendly as it could be.” Currently, medical professionals can register online for the PDMP, but must also print out and notarize certain forms. SB 74 changes will more of the registration and license renewal to be done online. The online system interface itself, Butler said, isn’t user friendly, but the department has switched to a new vendor to change it to smooth the added workload. The current Alaska PDMP requirements lag behind the rest of the nation, especially concerning the time frame under which prescribers enter prescriptions into the database. Currently, Alaska does not require prescribers to consult the PDMP before initially prescribing opioids. It also only requires prescribers to submit their dispensing information to the PDMP monthly instead of within 24 hours, as required by 23 other states. The new changes seek a middle road. SB 74 will require prescribers to make updates weekly, a schedule 24 other states follow. Apart from the physicians and nursing prescribing opioids, the new rules will also require pharmacists to check the PDMP before filling a prescription as a last measure. Calls for a more robust PDMP follow a nationwide trend of heroin use bred in part from overprescribing painkillers. Nationally, heroin addiction and prescription opiate abuse have been on the rise in the last 15 years. “Between 2003 and 2013, the number of people reporting heroin use in the past year approximately doubled from 314,000 to 681,000,” reads a report from medical publication Health Affairs. “The rate of heroin poisoning deaths quadrupled during the same time period, from 2,080 to 8,257. Deaths attributable to opioids and heroin combined totaled 24,492 in 2013.” Like with alcohol, the Last Frontier is more susceptible to trends in substance abuse, though Alaska’s alcohol’s abuse rate is far higher than the national average than its heroin use. According to the Centers for Disease Control and Prevention, Alaska’s overdose rate ranks above the national average. “The severity of the epidemic varies widely across U.S. states and regions,” according to a nationwide study from 2015. “For example, the state with the highest drug overdose death rate has a rate more than 10 times that of the state with the lowest rate. Alaska’s drug overdose death rate for 2013 (14.4 per 100,000 population) exceeds the national rate (13.8 per 100,000 population).” Researchers tie drug overdose directly to the availability of prescription opioids. In Alaska, the two have risen in tandem according to a report from the Department of Health and Social Services: “In 2012, Alaska’s prescription opioid pain reliever overdose death rate was more than double the rate in the United States (10.5 vs. 5.1 per 100,000 persons, respectively), and Alaska’s heroin-associated overdose death rate was over 50 percent higher than the national rate (3.0 vs. 1.9 per 100,000 persons, respectively).” DJ Summers can be reached at [email protected]  

Premera gets more time to file rates as fix awaits special session

Addressing Alaska’s broken individual health insurance market will likely have to take place in special session of the Legislature, and in the meantime the state’s last provider has been given extra time to calculate its rate increase for 2017. Premera Blue Cross — Alaska’s sole remaining individual insurance provider following the May 1 announcement by Moda Health that it will depart the market in 2017 — says it will stay in the Alaska market next year. “Premera is committed to the Alaska market and will continue to offer individual coverage to Alaskans through the federal marketplace,” said Premera spokesperson Melanie Coon in a statement. Premera was due to release a rate schedule on May 11, but the circumstances will push that date back to this summer, Coon said. Because Moda dropped from Alaska’s market, Premera, which covers 10,000 people in the state, has a new deadline to renew premium rate estimates to include the rates Moda charged its 14,000 customers. “We’ve requested from the (Division of Insurance) Moda’s numbers so we can kind of sharpen our pencils,” said Coon. “We have until July.” Two bills in the Legislature that attempt to address the problem, Senate Bill 206 and House Bill 374, stalled in the House Rules and Senate Finance committees, but officials say one will certainly pass. In order to pass, though, nearly $60 million will have to be included in the operating budget for a statewide reinsurance plan.  Lori Wing-Heier, Director of the Division of Insurance, said she believes Gov. Bill Walker will call a special session in which legislators will pass one of the insurance bills. In order to pay for a reinsurance plan — which would spread sky-high individual insurance premium costs among all Alaska’s insured to lessen the financial burden for Premera — the House bill proposes to use money destined for the General Fund, potentially up to $55 million. “It’ll come in the special session,” said Wing-Heier. “That’s the thought right now. It’s not dead. We’re still getting calls from both sides saying that it’s still being discussed. I fully expect this bill will pass in special session.” The Legislature will reach is maximum session limit of 120 days on May 17. The session can be extended 10 days with a two-thirds vote of the House and Senate, but any time after that will have to be in a special session. The bills The proposed legislation attempts to solve an insurance industry crisis that has caused insurers to bleed money and eventually move out of state. Under the Affordable Care Act, or ACA, insurers cannot deny coverage based on pre-existing conditions. In Alaska, people with pre-existing conditions were previously insured in a special high-risk pool, operated by the Alaska Comprehensive Health Insurance Association, or ACHIA. These high-risk pool plans were high-cost as well, and many people with pre-existing conditions left ACHIA for the lower rates in the federal marketplace after the change in 2014. The small Alaska individual insurance market providers then ate the new costs from the high-cost patients no longer confined to the high-risk pool. SB 206 and HB 374 would make changes to the Alaska Insurance Code to allow for a reinsurance program for the Alaska high-risk insured. A reinsurance program, essentially, is the insurance version of a subsidy, spreading the costs of the high-risk insurance pool among the rest of the state’s insured instead of only in the individual insurance pool. ACHIA would administer this program. Most of the medical and insurance industry agreed that reinsurance is the only way to keep premiums from spiking another 30 percent or more in 2017 — though it would only cut the inevitable rise by 15 percent to 18 percent. Organizations including Moda Health, the Alaska Association of Health Underwriters, the Alaska Primary Care Association, and the Alaska State Hospital and Nursing Home Association all wrote letters of support. Opposition, however, mounted against the bill in April due to how the state would fund the reinsurance. Both bills originally suggested an “assessment” — a fee levied against all Alaska insurance plans. Estimates said the reinsurance plan would require $55 million of extra funds, which pencils out to a $20 assessment for each of Alaska’s 236,779 “covered lives.” This assessment would stack up against stop-loss insurance providers, who underwrite insurance plans for organized labor. Labor unions and the Kenai Borough School District opposed the bills and the $20 assessment per month on each of their policies, said Wing-Heier. During an April 16 House Labor and Commerce hearing, Rep. Kurt Olson, R-Soldotna, introduced an amendment that would allow the Legislature to appropriate funds from the state’s current insurance premium tax to pay for reinsurance, rather than a new assessment. Wing-Heier said the idea has been roundly supported by virtually all groups, as it would evenly distribute costs and would leave the Division of Insurance fiscally unscathed; its $7 million operating cost runs on insurance licensing fees. The state levies a 2.7 percent tax on every insurance premium in the state. The tax brings in roughly $60 million a year, Wing-Heier said, and is goes into the General Fund. The bill was last referred to the House Rules Committee, but chances are slim that the Legislature will pass them before the end of the session. Legislative bandwidth is overwhelmed by the $4.1 billion dollar budget deficit, oil and gas industry tax credits and tapping Permanent Fund earnings to fill the gap. Premera to stay The individual insurance market, which insures those Alaskans not covered by either employee or government insurance, has reached a crisis point in the Last Frontier. The Affordable Care Act has created a nationwide situation where individual insurance premiums spike as insurers lose money, leaving several states with a precariously low number of insurance. Earlier this year UnitedHealth, the nation’s largest insurer, announced it was exiting the federal marketplaces in 2017 after absorbing hundreds of millions in losses in the last several years. Alaska’s small population exacerbates the problem. Only one individual insurer, Premera Blue Cross, remains in the state after three others dropped out. Simply put, high insurance rates still don’t recover the costs insurers undertake from being forced to enroll high-risk customers. Rates rose approximately 37 percent and 39 percent in 2015 and 2016, but Premera still loses money. The company has lost roughly $13 million since 2014. Premera’s average premium is $713 per person per month. Statewide, the average $700 per person per month is the highest in the nation, which averages $468 per person per month. Other states have larger populations to spread the higher cost, but Alaska’s 736,000 residents is too small a pool to absorb them. “In a very small sized market like Alaska, there are not enough healthy individual purchasers to offset the costs of enrollees with very high medical needs,” wrote Jerry Reinwald, a lobbyist for Premera, in a letter to the Legislature. On May 1, Moda Health announced that it is leaving the Alaska individual market and its 14,000 customers. Moda officials said the company could no longer operate in Alaska without a substantial increase in insurance premiums, which had already increased by 29 and 37 percent in 2015 and 2016, respectively. Both Alaska and Oregon had already suspended Moda Health from operation in February 2016 over its financial situation, though the states lifted the order weeks later after approving Moda’s plan to raise sufficient capital to continue service. DJ Summers can be reached at [email protected]

Lack of cannabis testing facilities presents bottleneck to sales

The Alaska marijuana industry first business licenses will be issued in June, and the most crucial kind have the lowest number of applications. Testing facilities — one of the four commercial cannabis licenses created under legalization — present a possible industry bottleneck. All cannabis products sold in Alaska must undergo tests in state-licensed labs. These labs are scarce due to investment and expertise hurdles, and are concentrated in Southcentral. So far, the Alcohol and Marijuana Control Office has only received three applications for testing facilities, only two of which will be operable. One of these applicants, Nick Braman, applied for a license in the Mat-Su Borough, which passed moratorium on commercial marijuana activity May 3. The other two licenses are located in Anchorage, creating a potential supply chain problem for marijuana markets outside the Railbelt. According to state records, both Washington and Colorado have 14 licensed cannabis testing facilities. Oregon has six. Marijuana’s designation as a federal Schedule I controlled substance create the industry’s largest business hurdles, including a lack of access to banking services. The same federal illegality affects testing in unique ways, and together with certain Alaska regulations could limit the amount of qualified testing facility directors. States in which recreational marijuana is legal have no standard set of best practices for labs to follow. Typically, federal agencies mandate and control testing for consumable products. Without a similar state program, Alaska testers say the business has little stability. “There isn’t a federal agency, like the (Food and Drug Administration) or something similar, that issue documentations,” said Jonathan Rupp of Canntest, one of the two proposed testing facilities in Anchorage. “They have organizations that sort these things out at the federal level. States are all on their own. There’s a lot of question marks around the testing requirements.” Alaska regulation requires testing, but provides no guidance for what specific tests must be performed for microbials, solvents, and potency. Lab investors say there are infinite varieties of testing procedures of varying simplicity and rigor. Developing a set of best practices could be easier if testers had the ability to learn from established markets in the Lower 48, but without an overseeing federal plan or the wherewithal to bring in experienced Outside testing investors, applicant Brian Coyle of AK Greenlabs said Alaska labs have to “start pretty much from scratch.” “I’ve reached out to those Lower 48 labs, but nobody’s saying, ‘here’s our policies,’” Coyle said. “We’re reinventing the wheel up here.” Testing facilities have unique capital problems associated with equipment in addition to the usual marijuana business concerns. State regulations allow neither direct nor indirect Outside financial interest in Alaska marijuana licenses. These regulations come in part from a desire to avoid federal money laundering charges; keeping capital within the state assures a measure of traceability. Alaska industry members also lobbied for the restrictions to prevent deep-pocketed Outsiders from overwhelming the market. Testing equipment varies in expense, and refurbished equipment can cost less than new. Jeannine Machon, business director for Denver’s CMT Laboratories, said testers need to invest roughly $500,000 at the minimum for a basic setup for only two of the most necessary equipment pieces. Alaska’s testing facilities will have a heavy initial investment for equipment. Alaska’s regulations require microbial, solvents, and potency testing from onset. Unlike Alaska, Colorado staggered the requirements for testing facilities. This allowed testers to develop revenue to put towards additional testing capability, Machon said. Coyle’s estimates match for his proposed Anchorage lab match. Though he’s still in development, he estimates his startup lab costs at roughly a half-million dollars. The equipment expense goes hand in hand with salary. Alaska’s regulations require testing facilities to have a lab director with a bachelor’s degree in chemical or biological sciences from an accredited college or university and have at least six years of post-degree laboratory experience, a master’s degree and four years of experience, or a doctorate and two years of experience. Finding qualified applicants who want to move to Alaska to run a marijuana testing facility can be challenging, he said. “There’s no Outside money. That doesn’t mean you cannot bring in an employee, but without attractive salaries that’s going to be difficult to bring in supervisors,” he said.  “It’s probably in the six-figure ballpark for someone like that. (My business partner) has some capital, but he doesn’t have unlimited pockets. My impression is we’re all in the same boat, on a shoestring, bootstrapping.” Without Outside scientific communities to lean on, Alaska’s local market needs to supply qualified lab overseers. Coyle, Rupp, and Braman are afraid the startup costs and procedural uncertainty prevent qualified Alaskans from entering the testing market. “There’s certainly a ton of talent in Alaska,” said Braman. “Frankly, I think there’s enough talent in the state that I’m surprised there aren’t more people starting up labs.” Coyle disagrees that the Alaska has a deep pool of scientists to choose from, or at least, as a deep a pool as it needs to sustain a robust testing segment. “The pool of chemistry and biological scientists is relatively small,” said Coyle. “I don’t think we have enough experience up here, that’s the bottom line. I think collaboration with people outside the state is the quickest way to get those best practices up here.” Transport Within the Marijuana Control Board, one member is concerned the lack of a robust, and accessible, testing system could harm the industry and help the black market. “You’re going to have two things if we don’t have labs set up,” said Brandon Emmet, a Marijuana Control Board member. “First and foremost, we’ll have a lot of pissed off people. Second, we’ll have an extremely robust black market. There’s literally going to be thousands of pounds of cannabis just hanging around. And people don’t like to sit on product they can sell.” The two Anchorage locations will be the only ones statewide if no one else applies for a license. For communities off the road system, few legal options exist to transport their product for testing, let alone to get it to market.  The Federal Aviation Administration has regulations against transporting marijuana even in states where it is legal. Mailing marijuana through the U.S. Postal Service is also prohibited, and private parcel services like FedEx have said they will not deal with cannabis transport either. Marijuana cannot be transported by land or water across state lines, or in federal lands or waters. All commercial marijuana transportation requires a manifest detailing origin and destination. Marijuana Control Board chair Bruce Schulte acknowledges that the regulatory structure doesn’t do any favors for rural Alaska. “We’ve created a regulatory regime that is very difficult to engage with people in rural communities,” said Schulte. “That’s just the reality. We could lower the testing bar, but I think we would get pushback from certain people on that.” However, Schulte said the board’s position on testing transit is rather lax. During an April 27 board meeting, board director Cynthia Franklin hinted that mailing the required four-gram sample size might fly beneath federal radar, or that a blind eye may be turned. Schulte said the board only concerns itself with what happens in the testing labs, not how the product arrives there. “As long as it’s tested, I don’t really care,” said Schulte. “We’re a regulatory board. Our concern is that people are meeting their testing requirements. How they get it to the lab…that’s up to them. That’s a business operation that at this point is kind of outside of our scope.” DJ Summers can be reached at [email protected]

GCI posts flat first quarter, plans for bolstering broadband

General Communications Inc. began 2016 with flat revenue but hot investment prospects.  GCI’s quarterly revenue was even compared to last year, driven by dips in consumer spending and roaming, but two maneuvers free up roughly $200 million to beef up existing broadband projects in rural Alaska. Ron Duncan, GCI’s president and CEO, said in a release that despite flat revenue he thinks the first quarter of 2016 was a success, considering the overhauls the company has had to make and the opportunities they opened. Revenue in the first quarter was $231 million, unchanged year-over-year for the period and down $10 million sequentially from the 2015 fourth quarter. Compared to a loss in the first quarter of 2015 of $19.3 million related to its acquisition of Alaska Communications’ wireless business  GCI posted first quarter net income of $1.1 million. “I am pleased with our start to the year,” said Duncan. “With long term agreements in place with our largest wireless roaming partners, we have better operating visibility that enables the company to make commitments to invest in longer term projects.” Managed broadband and consumer data both grew for the quarter, but losses in wireless revenue and roaming ate into those gains. “The decline is driven primarily by our new long-term roaming arrangements,” explains GCI in its press release, but roaming and backhaul only account for a portion. Wireless wholesale took a hit along with the roaming. The roaming revenue loss comes from security play. Late in 2015, GCI renegotiated its roaming agreements with Outside carriers, keeping the lucrative agreements for a $25 million price tag. Alaskans on powerhouse Lower 48 carriers like AT&T and Verizon roam on GCI networks when they step outside urban cores. Modern wireless users demand more and more data even when roaming, so the carriers foot an ever more expensive bill to use GCI’s network. Kyle Jones, GCI’s senior manager of corporate finance, said the big carriers could lower those costs by telling their customers to stop using roaming, or even canceling their agreements with GCI altogether and build their own networks. Rather than risk losing the roaming revenue altogether, GCI secured long term agreements with the big carriers at a new rate that lowers roaming revenues by $25 million. “We are receiving upwards of $100 million from backhaul revenues that were volatile,” Jones. “We didn’t have any security. By taking a $25 million reduction, we do have security.” Wireless revenue dipped, both sequentially and from the same quarter last year. Total wireless revenue was $51 million in the first quarter, a $9 million decline from the fourth quarter of 2015 and an $8 million drop from the same period year-over-year. Jones said the declines stem in large part from a drop in customer-sourced spending. Many of the 87,000 wireless subscribers GCI acquired through AWN got put into cheaper plans.  Further, the change in phone payment structure nets less consumer money to GCI. Jones said more than 90 percent of GCI wireless customers finance their new phones. The financing option gives a $30 service discount, so GCI’s wireless revenues don’t stack up against non-discounted past. Phones weren’t kind to GCI’s balance in more ways than one. Typical for first quarter, GCI took a $4 million sequential decline in handset sales — Permanent Fund Dividends, fall iPhone launches, and the Christmas season are tough fourth quarter acts to follow. Despite the losses, GCI’s other areas of focus performed well. GCI did see growth in managed broadband, which provides wire connections for businesses. Revenues in managed broadband were $43 million, up 27 percent over the first quarter of 2015 and 7 percent over the prior quarter. GCI also had a successful quarter absorbing new customers from its purchase of Alaska Communications’ wireless subscriber business and its 33 percent share of the Alaska Wireless Network for $300 million in cash in a deal finalized Feb. 2, 2015. The purchase gave GCI 80,000 more wireless customers. Much of GCI’s concern since then has been switching customers into the new billing system without losing them; Duncan said the first quarter was a success in this regard. “We have made great progress with the migration of acquired wireless subscribers onto our primary billing system, which is now over 70 percent complete,” Duncan wrote. “Our subscriber count is down less than one percent during the quarter, our best since the AWN transaction.” Beefing up broadband Successful wireless consumer absorption is only part of GCI’s plan. The other part, rural Alaska broadband dominance, is the real winner behind GCI’s numbers. GCI’s finances prepare them to spread capital expenditure dollars around the state. Both the roaming agreements and a recent real estate deal loosen up capital for North Slope and Southwestern Alaska projects, in particular. Along with the $100 million of secured roaming agreements, a telecommunications real estate sale put another $91 million of investment-ready funds into GCI’s coffers. GCI made a sale-leaseback agreement on May 4 to sell its urban wireless tower and 275 rooftop sites to Vertical Bridge for $91 million – approximately 20 times what the towers bring in for GCI, according to Vertical Bridge. The sold sites are all urban, company representative said. GCI’s rural TERRA sites will remain GCI’s property. Florida-based Vertical Bridge is the largest private owner and manager of communication towers and locations in the U.S, with 45,000 tower, rooftop, billboard, utility attachment and other site locations. GCI’s sale now makes Vertical Bridge the largest tower owner in Alaska, with approximately 300 wireless/broadcast sites. The agreement includes build to suit services to AWN for the next five years; if GCI needs improvements or new sites, Vertical Bridge will build them. The sale was motivated by a desire to concentrate on operations. GCI said it would rather focus on its core competency — consumer relationships — than site maintenance. “We’re a customer service business,” Jones said. “We don’t necessarily want to be in the business of building and maintaining that tower.” Jones said the priorities remain with rural broadband expansion. “The two ramping up now are the expansion of TERRA, and we’re also building a fiber to the North Slope,” said Jones. GCI’s TERRA projects created a hybrid of broadband and microwave transmitters in Southwest and Northwest Alaska The TERRA-Northwest project extends from Nome to Kotzebue. The Southwestern portion of TERRA began upgrades June 8 with new microwave radio networks from Levelock to Bethel — which allows 3G wireless data service in 28 communities in Southwestern rural Alaska villages, including Aniak, St. Mary’s, and Marshall. GCI also has an existing fiber leading to the North Slope. Though both projects are operable, Jones said they have room to grow to ensure longterm stability: they have no backup systems. “Prudhoe Bay and TERRA are some of the two places in our network where we don’t have any redundancy,” Jones said. To add stability, GCI will build another North Slope fiber to run concurrent with the existing fiber, and install similar systems for TERRA-Southwest. DJ Summers can be reach at [email protected]  

Alaska Communications grows non-wireless revenue in 1Q

Alaska Communications Systems Group Inc. had another quarter of business services growth, the company’s lifeblood now they are without a wireless segment. Consumer revenues, however, declined as the company shifts broadband plans. Over the last year, stabilization has been Alaska Communications’ plan. After selling its wireless business to General Communication Inc. for $300 million. Revenues have declined compared to last year due to the sale, including consumer services, but business segment revenues are performing well.  Alaska Communications’ reported net income of $86,000 on total revenue of $56.3 million that dropped from $65.8 million in the first quarter last year. In the first quarter last year, Alaska Communications still had wireless revenues of $12.1 million. First quarter net income in 2015 was $16 million, mostly due to a $38.6 million gain from its asset sale. After the $12 million elimination of wireless revenue, its remaining core services grew 4.8 percent to $56.3 million. Business and wholesale drove the growth, climbing 11.9 percent year over year to $33.6 million. Business and wholesale broadband revenue grew 18.2 percent to $21.8 million. The average revenue per user has shot up 22 percent over last year. Alaska Communications now makes $306.93 per business broadband customer instead of the $251.51 for the same quarter last year. Between the first quarter of 2015 and this year’s first quarter, Alaska Communications lost fewer than 200 business connections. Consumer numbers look less rosy. Total consumer wireline revenues declined 7 percent over the year, and consumer broadband revenue fell 7.5 percent. This comes largely from a drop-off in broadband subscribers. Consumer broadband connections have been falling. Alaska Communications lost close to 3,000 consumer connections year-over-year.  Unlike business connections, consumer ARPU has stayed relatively stable, rising from $59.33 in 2015 to $60.59 in 2016. Alaska Communications explains that the loss in subscribership comes from a switch in consumer broadband prices. The new plans have only one price: $79.99. That includes all speeds and unlimited usage. In areas without access to the upgraded infrastructure to offer the higher speed plans, Alaska Communications has stopped offering the lower priced plans altogether. The consumer broadband volatility is expected. Like last year, Vadapalli said he expects those revenues to fluctuate in 2016 but stabilize by 2017 as consumers get used to new services and new prices. “In terms of consumers business, we have been focused…on increasingly moving to 10 mg or higher services,” said Vadapalli in an earnings call on May 9. “Almost half our subscribers are 10 mg or higher, as opposed to a quarter one year ago. That is by design. It helps with ARPU. It helps with churn.” Company leaders said they expected the drop in consumers to be greater than it is. “It’s been very successful. The consumer market was planned to decline far faster than it really is,” said Laurie Butcher, senior vice president of finance. Alaska Communications is still paying down its debt, which dropped in 2016 to $159 million from $162 million in 2015.  As recently as 2014, that number stood at $425 million. The company’s 2016 outlook will remain the same, including a total wireline revenue of $228 million and capital expenditures of $35 million. DJ Summers can be reached at [email protected]

Quintillion starts laying Phase 1 of Arctic fiber at Nome

Anchorage-based fiber provider Quintillion Networks is hard at work on an 10,000-mile intercontinental subsea fiber system that will eventually connect Europe and Japan by way of the Alaska and Canadian Arctic. The projects will eventually be the first intercontinental cable system, but it will rely on terrestrial cable installation in Northwest Alaska towns. Work on these land-based cable sites is underway and will lead to undersea development later in the year. For each of six relevant Northwest Alaska communities, Quintillion has installed community liaisons, the company announced on May 9. “As an Alaskan company, managed by Alaskans, Quintillion is committed to keeping the residents of these communities informed,” said CEO Elizabeth Pierce in a release. “We have hired Alaskans with long track records of public service and community involvement and we are thrilled they have joined our team.” The community liaisons are Denise Michels, Nome; Reggie Joule, Kotzebue; Van D. Edwardsen, Barrow; Bessie Kowunna and Isaac Killigvuk, Pt. Hope; and JC Griffin, Wainwright. Quintillion’s project has international import. The Anchorage company is the Alaska arm of the international Canadian-led Arctic Fibre project, which wants to route its Tokyo to London submarine fiber optic cable along Alaska’s northern coastline. These terrestrial sites in Deadhorse, Barrow, Wainwright, Pt. Hope, Kotzebue and Nome are Phase 1 of the project, leading to an undersea cable stretching from Nome to Prudhoe Bay. As of early May, Quintillion was already laying 1,500 feet of conduit in Nome and scheduling ships to begin laying undersea cable in June. This portion of the undersea cable is set to be completed in October. Phase 2 includes stretching undersea cable from Nome to Japan. Phase 3 will complete the trans-Canadian line to England. Alaska’s movers and shakers have pitched in to the project. Quintillion has spent the last year securing partnerships with North Slope oil producers, regional Native corporations, and telecommunications companies. Alaska Communications partnered with Quintillion to take over the infield fiber optic cable on ConocoPhillips’ North Slope oilfields and begin a multi-year service provision contract for the oil company. ACS will sink $5 million to $6 million into the project between 2015 and 2016, and expects between $2 million and $3 million in resulting revenue in 2016. Internet service to ConocoPhillips’ Slope operations was formerly available, but largely from older, expensive legacy installations of microwave towers and satellite relays. The fiber runs from Kuparuk River and Colville River units to Pump Station 1 of the Trans-Alaska Pipeline System. Quintillion is also restarting work on another fiber optic cable from the North Slope’s Deadhorse to Fairbanks. The promise of greater connectivity has lured Native regional corporations to invest in the project. Both Arctic Slope Regional Corp., or ASRC, and Calista Corp. bought into the Alaska portion of the project, estimated at $250 million, though none of the companies have revealed what percentages of controlling interest. Both North Slope oil producers and Northwest towns have a vested interest in seeing the completed cable. The project delivers previously unavailable connectivity to Northwestern Alaska, which currently has connectivity rates far below standard. Quintillion’s planned spurs could deliver broadband speeds of 100 gigabits per second to rural Alaska villages, in stark contrast to the current Nome and Barrow speeds of 0.006 gigabits per minute. Quintillion officials said new and improved speeds could be delivered as soon as 2017. DJ Summers can be reached at [email protected]

Native care gets boost from federal funds under Medicaid reform legislation

Improving Alaska Native access to healthcare is a key result of the Medicaid reform bill now awaiting the governor’s signature. About 150,000 Alaskans covered under the Alaska Tribal Health Compact will move one step closer to expanded specialized care coverage once Gov. Bill Walker signs Senate Bill 74 into law, as care centers expand in rural areas. The omnibus healthcare and Medicaid reform bill has been one of the few items to survive a contentious and grueling 2016 legislative session, passing both chambers and only awaiting Walker’s signature to put its dozens of changes into law. Among the bill’s changes, the most potential cost savings come from shifting more Alaska Native healthcare expenses to federal dollars. This includes a change that allows full federal reimbursement for Native travel and for Native care in non-Tribal facilities. The policy change in SB 74 would take advantage of the new 100 percent Medicaid reimbursement to Native patients referred to non-Tribal providers. The Department of Health and Social Services estimates the changes to the Medicaid system in SB 74 would save the state more than $31 million right away in fiscal year 2017 starting July 1. Those savings are expected to increase to nearly $114 million per year by 2022 as the programmatic reforms are fully implemented. Like many of the Legislature’s cost-shaving plans, some of SB 74’s changes try to fund more services with federal dollars to reduce state spending. By far the most of the forecasted savings to be wrung from SB 74 — $29 million in 2017 growing to $97 million in 2022 — would come from getting more Medicaid services for Alaska Natives fully covered by the federal government. Under federal law, Medicaid provides for 100 percent reimbursement for all Indian Health Services beneficiaries under certain circumstances, but the criteria are often difficult to fulfill for 100 percent coverage. “It tends to be a rather narrow definition,” said Jon Sherwood, deputy commissioner of the Alaska Department of Health and Social Services.  Under the current system, care provided for IHS beneficiaries in non-Tribal or non-IHS facilities is only eligible for 50 percent reimbursement by Medicaid.  In order to get 100 percent reimbursement, three conditions must be met. The recipient must be an Alaska Native or American Indian, must be treated at an Indian Health Services or tribal facility, and must be Medicaid eligible. This narrow criteria leaves some kinds of care more difficult for rural and Tribal healthcare recipients to access. Indian Health Service, or IHS, is an agency within the U.S. Department of Health and Human Services. It provides healthcare for every federally recognized Tribe in the nation. The Alaska Area Indian Health Services provides healthcare services for just less than 150,000 Alaska Natives and American Indians, according to the Center for Medicaid Studies. There are 228 federally recognized Tribes in the state, each of them incorporated into the Alaska Tribal Health Compact. There are IHS-funded, Tribally managed hospitals in Anchorage, Barrow, Bethel, Dillingham, Kotzebue, Nome, and Sitka. Statewide, there are 58 Tribal health centers, 160 tribal community health aide clinics and five residential substance abuse treatment centers. Alaska Native Medical Center in Anchorage is the only statewide IHS facility, and the facility that serves as the focal point for specialty care. Not all, or even most, of these facilities have specialty care or often MRI capability. An IHS recipient may have hard luck finding a gastroenterologist within the IHS network, and need to be referred outside the Tribal system to find the necessary care. This puts financial strain on IHS beneficiaries who need specialized care. On the surface, the change seems like a win-win for providers and recipients. For healthcare recipients, this means increased access to specialist services unavailable in tribal facilities. For providers, it means full reimbursement for care. To implement the changes, DHSS will have to work with Tribal and non-Tribal healthcare providers to compile lists of recipients to share among them. “From our perspective,” said Sherwood, “we’re going to have to work with Tribal and non-Tribal providers to make sure the sharing is in place. We’re going to have to develop an adequate tracking system to ensure we have the ability to identity claims that would be eligible.” The policy change allows rather than commands involvement. Neither the state nor the federal government can force private healthcare providers join the program, so the new system will require a new network of participating providers. “This is voluntary,” Sherwood said. “The state can’t impose this onto either provider or individual recipients. This has to be a cooperative effort.” Providence Medical Center, the state’s largest non-Tribal healthcare facility, said it plans to participate in the change, though representatives say it’s too early to discuss any particulars. IHS changes come during a wave of land and construction agreements for Alaska Native medical centers across the state. The Yukon-Kuskokwim Health Corp., or YKHC, signed a joint venture agreement with IHS on March 29. The agreement secured increased funding for additional provider and a new primary care clinic, the 188,000 square foot Dr. Paul John Calricaaraq Project, as well as a remodel of Bethel’s existing 105,000 square foot hospital. Expanding populations in areas like Bethel make the existing healthcare structures somewhat outdated. The YKHC hospital in Bethel received about 88,000 patient visits in the early 1990s. The number has nearly doubled to 150,000 by 2015. This follows an October 2015 grant for the same project. The U.S. Department of Agriculture’s Rural Development agency made a funding commitment for $165 million in low interest loans to YKHC for the Dr. Paul John Calricaaraq Project in October 2015, the most the agency has ever given to an organization nationwide. At the federal level, Alaska’s congressional delegation is securing Alaska lands for Native health purposes. On April 27, U.S. Senate Committee on Indian Affairs passed legislation introduced by Alaska U.S. Sens. Lisa Murkowski and Dan Sullivan directing the U.S. Department of Health and Human Services to give property to both the Tanana Tribal Council and Bristol Bay Area Health Corp. The land transfers allow the Tanana Tribal Council to develop a Community Wellness Center and the Bristol Bay Area Health Corp. to expand a dental clinic. DJ Summers can be reached at [email protected]  


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