Elwood Brehmer

Another record for Alaska Air despite increased competition

Alaska Air Group Inc. rode low fuel prices and debt to another record-high second quarter profit of $230 million, company leaders announced July 23. The Seattle-based parent company to Alaska Airlines and regional carrier Horizon Air has turned record net incomes in 12 of the last 13 quarters, along with five consecutive record-breaking profit years. The $230 million profit is a 46 percent increase over 2014. By comparison, Air Group’s full 2014 profit was $571 million. Alaska Air Group CEO Brad Tilden said it also marks the largest profit in the company’s history. “As we pause to take a look at how we’re doing mid-year, and two-and-a-half years into the biggest competitive incursion we’ve seen in a while, I’m happy to share that we are thriving,” Tilden said during a call with investors, with his “incursion” comment referring to the foray of Delta Airlines into state markets. “Our operation is firing on all cylinders, our leaders are focused on execution, and we are generating returns that far exceed our cost of capital.” Profit growth coupled with a stock repurchase program — about 3 percent of outstanding shares totaling $262 million in the first two quarters — pushed earnings per share up 56 percent to $1.76 per share in the second quarter. Alaska Air Group stock traded for $73.04 at the end of trading July 27. The stock price has improved 53 percent since the company executed a 2-for-1 split of shares in late June 2014. Per gallon fuel cost was down nearly 34 percent year-over-year, at $2.12 per gallon. Total fuel expense was down 28 percent despite a 10.7 percent increase in capacity companywide. Alaska Air Group’s financials, driven primarily by Alaska Airlines, were strong before fuel prices dropped last year. The company hedges its fuel purchases through call options to mitigate drastic price swings. Other major domestic carriers have enjoyed record profits over the past several quarters due to lower oil and subsequent lower fuel prices. Southwest Airlines and United Airlines each posted record second quarter profits despite 2 percent revenue growth for Southwest and declining revenue for United, according to a July 23 Associated Press report. Chief Financial Officer Brandon Pedersen said the company’s fuel burn per available seat miles, essentially the fuel efficiency of its aircraft, improved 2.6 percent year-to-date. Alaska Airlines is transitioning its fleet from older Boeing 737 models to newer 737-800s and -900s. It will add 42 of Boeing’s 737-900 Extended Range aircraft over the next two years, according to Pedersen. Also notable is Air Group’s debt-to-capitalization ratio, which was down to 29 percent. Pedersen said he believes Alaska Air Group is the only major domestic carrier owner to have net interest income on its profit and loss, or P&L, statement. The company expects to generate about $500 million of free cash flow for the year, he said. Company executives often note their wish to have the balance sheet of an investment-worthy industrial company, not just a healthy airline. Overall operating revenue was up 5 percent to more than $1.4 billion for the quarter. Operating expense was down 4 percent on $101 million of fuel savings year-over-year. That led to a net operating income of $372 million, or 41 percent growth. Passenger revenue increased $57 million, nearly 5 percent on the 10.7 percent capacity growth. “We’re growing significantly to strengthen and fortify our franchise in Seattle, and we crossed the 1,000-flight per day threshold on July 2,” Tilden said. Delta Air Lines, an Alaska Airlines partner, has increased its traffic through Seattle and in Alaska significantly in recent years. Chief Commercial Officer Andrew Harrison said overall capacity is expected to be up 10 percent in Hawaii and 17 percent in Alaska in the third quarter. Despite that, competitive capacity growth is generally trending down, according to Harrison. “We have confidence in the resilience of our business model, and we expect our positive momentum to continue,” he said. Alaska Air Group airlines have added 18 markets since the first quarter of 2014. Harrison said nearly 70 percent of those markets are profitable within a year; and half would be profitable at $3 per gallon fuel. The company is also adding another 18 new markets in the second half of the 2015, some of those through agreements with partner airlines. Notable among the new markets this fall is service to New York’s John F. Kennedy International Airport, Charleston, S.C., Raleigh, N.C., Nashville, Tenn., and Costa Rica. Harrison said he expects 2016 growth to be “somewhere in the high single digits.” Air Group also announced a new mileage plan partnership with Chinese Hainan Airlines July 22. Elwood Brehmer can be reached at [email protected]

Treatment center named for 'American Sniper'

Alaskan veterans and active service members have a new option for seeking treatment of the invisible scars inflicted by combat. Taya Kyle, widow of U.S. Navy SEAL Chief Petty Officer Chris Kyle, helped dedicate the Chris Kyle Patriots Hospital in Anchorage July 28. A decorated Iraq War veteran, Chris Kyle worked with fellow veterans dealing with post traumatic stress disorder, or PTSD, after he returned home from four tours of service. He also authored the autobiography “American Sniper” that became a surprise worldwide blockbuster after its release last Christmas. Chris Kyle was murdered in 2013 at a Texas shooting range while working with a veteran struggling with PTSD. Opened in April by North Star Behavioral Health, the facility on Bragaw Street in East Anchorage is a primary treatment center for active duty military and veterans who want help dealing with PTSD, or any other challenges they may face after returning home from deployment. Kyle said she was first hesitant about allowing her husband’s name to be used in naming the hospital, but after talking with staff she was impressed by the “holistic” treatment North Star Behavioral Health and its sister facilities under Universal Health Services Inc. provides. “They’re listening to the veterans that come, and that’s what Chris did often,” Kyle said during the dedication ceremony. North Star Behavioral Health has residential hospitals and treatment centers in Palmer and Anchorage. It is part of the Universal Health Services network of facilities, which offers behavioral health treatment to 450,000 veterans and active-duty military at 160 bases and installations across the country, UHS Vice President Debbie Osteen said. North Star CEO Dr. Andrew Mayo said the PTSD and substance abuse care programs offered at the Chris Kyle Patriots Hospital were developed after studying what is offered at the 14 other UHS Patriot hospitals. After touring the facilities, potential patients were asked for feedback, which was integrated into the program development, according to Mayo. Because Alaska’s military bases don’t have a behavioral health facility, active-duty and veterans often go to traditional hospitals where they get acute, crisis treatment, rather than longer-term care, Mayo said. North Star also offers the state’s only residential preteen focused behavioral health treatment center. The Chris Kyle Patriots Hospital has capacity for 36 patients in 28-day inpatient treatment programs. At full capacity its current staff of 40 would likely grow to about 100, he said. “We’re taking patients in as folks are calling, but we’re doing it at a pace to make sure — ok, did we miss anything, did we get everything correct — consistently evaluating our opening strategy from a clinical standpoint,” Mayo said. Staff includes a full range of therapists, psychologists, psychiatrists and dieticians to meet as many individual needs as possible under the core programs. “What you really have is a program schedule that for the most part is constructed as a core schedule, but then as people’s individual issues are identified, we move them off into the more specialty groups for specialty time with our staff that are more appropriate for their particular issue,” Mayo said in an interview. Once patients exit the programs they can be transitioned to follow-up care through Veterans Affairs facilities, according to Mayo. Alaska Commander U.S. Air Force Lt. Gen. Russell Handy said only half of individuals with PTSD seek treatment and only half of that group gets adequate treatment, which makes facilities like the Chris Kyle Patriots Hospital so important. Kyle said an average of 22 military veterans commit suicide each day and 80 percent of those are Vietnam War veterans from an era when the psychological wounds of war were not treated, which exemplifies the need to offer treatment today. Mayo said he believes the hospital’s capacity should meet the need of the state’s military and veterans as demand for what it offers grows. The state has the highest population of veterans per capita in the U.S. Universal Health Services CEO Alan Miller said the Chris Kyle Patriots Hospital is the only facility in the company’s network named after an individual. Mayo said that’s an honor that comes with a responsibility. “My job is to make sure we fulfill our programs and our outcomes in a way that (Kyle) continues to be proud of us,” Mayo said. Elwood Brehmer can be reached at [email protected]

State, industry examine fees, taxes to fund rural airports

State aviation officials and industry leaders are looking for ways to ease the burden of the state’s 247 rural airports on the general fund. Revenue from the rural airports with scheduled service and airports nearby the hubs covered less than 25 percent of their own operating cost over recent years. The average annual combined revenue generated at the 22 hubs from state fiscal years 2012-14 was slightly more than $4.9 million, while the operating expenses totaled $23.2 million, leaving a funding gap of $18.2 million yearly, according to a Department of Transportation and Public Facilities report. Deadhorse was the only airport to break even — an average of $39,000 net income on about $1.7 million in revenue — among those airports recording operating expenses. Prospect Creek and Galbraith Lake, two small airports along the Dalton Highway, did not report operating expenses during the period and are not scheduled to be open this fiscal year. The airports listed in the revenue report are those that have scheduled service from carriers with aircraft designed to carry at least 10 passengers. They are certified by the Federal Aviation Administration as Part 139 airports. The Anchorage and Fairbanks international airports are owned by the State of Alaska but are self-sustaining enterprise businesses. Juneau International Airport is operated by the City and Borough of Juneau. Statewide Aviation Division staff collected data on four options to increase rural airport revenue and presented them to the Aviation Advisory Board at a July 15 meeting in Anchorage. The board is expected to make its recommendations to Gov. Bill Walker after its next meeting in Ketchikan tentatively scheduled for late August. Aviation Division Operations Manager Troy LaRue said in an interview that personnel and operating hours at many airports have already been cut this fiscal year to save money. Bethel’s airport, which used to be open around the clock, is now open from 6:00 a.m., to 10:30 p.m. The challenge with cutting operations particularly at a busy hub such as Bethel is getting adequate conditions reporting and surface maintenance done before each day’s flights — always a challenge in changing weather, he said. “I still believe we’ll be able to provide safe transportation systems, but it might take longer to clean up Mother Nature’s messes when they come our way,” LaRue said. The three widespread options for revenue enhancement include increasing the state aviation fuel tax and instituting airport user and landing fees. Alaska Air Carriers Association Executive Director Jane Dale said her group hasn’t taken a stance on any of the proposals and is currently soliciting comments to see what member businesses are willing to support. The Air Carriers Association is also seeking more background from the state, as well. “We’ve asked the state for some more information to describe each one of the scenarios and also, not just to provide how much revenue they expect from each one of the proposed options, but what the net is, because some are going to be more costly (to implement) than others,” Dale said. Alaska’s taxes stand now at 3.2 cents per gallon for jet fuel and 4.7 cents per gallon for aviation gasoline, or avgas, used primarily by small, general aviation aircraft. The state’s jet fuel tax ranks 32nd among the 47 states with similar taxes, according to the Tax Foundation, a national tax policy research firm. In April, the Legislature approved raising the taxes on vehicle gasoline, marine and heating fuel by 0.95 cents to fund the Department of Environmental Conservation Spill Prevention and Response Division — an issue that was subject to lengthy debate. Aviation fuels are exempt from the tax hike. Raising each fuel tax to 5 cents per gallon would generate about $2.3 million in new revenue; a tax of 7 cents per gallon would add $5.1 million and 10 cents per gallon would generate an additional $9.3 million for the state’s general fund, according to a DOT model. At its highest level the fuel tax would get DOT to its goal of self-generating about 50 percent of the revenue needed at its Part 139 airports. The state collected $4.6 million from aviation fuel taxes in fiscal 2014, and about 90 percent of that revenue came from the jet fuel tax. LaRue said aviation fuel tax and airport lease revenue are poured into the general fund partially because the airports operate so far in the red and require such a significant subsidy from the general fund. If more rural airports were closer to breaking even there would be more of a reason to keep funds in-house, he said. Dale noted that aircraft on foreign born and foreign bound flights that stop to refuel in Alaska are not subject to the state fuel tax. At the same time, she said the fuel tax increase would likely be the least expensive option to implement because the system is already in place. An annual $300 airport user fee — a new fee — instituted on each of the more than 9,200 aircraft registered in Alaska would generate a little more than $2.7 million. A $100 fee would produce an additional $922,000 for the state. The smallest $50 fee would earn $461,000. A user fee and sticker could be required to park aircraft in transient state parking areas, for example, LaRue said. DOT’s model for instituting new landing fees at state airports is a slightly more complex one. A flat $5 per landing fee for aircraft under 12,500 pounds gross weight, which is 97.8 percent of the aircraft registered in the state, would generate $391,000, the department estimates. A $10 fee would gross $783,000 and $12 per use charge would bring the revenue total up to $939,000. For primarily commercial aircraft with a maximum gross weight of 12,500 pounds or more, a per 1,000 pound fee system was modeled. Charging $1 for each 1,000 pounds of a large aircraft would make the state $2.7 million; at $2 it would be $5.4 million and at $3 the state would generate another $8.2 million. At the lowest end of the fees, with a 5-cent per gallon fuel tax, the state would take in $5.5 million in new money, according to DOT. At the high end, with a 10-cent per gallon tax the state could nearly break even with $21.2 million of new revenue. In the mid-range example — a 7-cent per gallon tax, a $200 user fee and a $2 per 1,000 pounds large plane landing fee — the state would collect about $12.4 million. LaRue said the state’s fiscal situation and subsequent discussions about getting more revenue from its airports has actually made an existing partnership with Alaska’s aviation industry stronger. The objective with any fee or tax changes is to be fair to all users without growing the size of government just to administer changes. “The goal is to generate enough money to protect the airport system we have,” he said. A fourth revenue option, a passenger facility charge, would help pay for capital improvements at 13 of the state’s Part 139 airports. Passengers on aircraft with at least 60 seats would be charged the fee to support work at the airport of enplanement, per FAA guidelines. There were 709,410 such enplanements in 2014, which could have generated up to $3.2 million with a $4.50 charge. A passenger facility fee could not be charged at airports with Essential Air Service, according to DOT. “There’s a lot of research that needs to go into a (passenger facility charge) before it can be implemented,” LaRue said. “We want to make sure that any direction we go is very sustainable and cost-effective to implement.” A year-plus study of state airport lease rates is nearly complete, and those results could be used to increase revenue and comply with the FAA. State property at rural airports can be leased for between 5.5 cents per to 12.3 cents per square foot of raw land depending on the facility. Most of the rates were increased by 0.02 cents at the end of 2012, according to DOT data. The FAA requires airport lease rates be at market value for similar nearby property. Airport leases generated about $5.2 million in fiscal 2014 and cost about $1.9 million to administer, according to DOT. Elwood Brehmer can be reached at [email protected]

Berkowitz ready to move on housing, port

New Anchorage Mayor Ethan Berkowitz is ready to make things happen when it comes to his city’s housing woes. The city needs to capitalize on all the resources it has, as well as what potential development partners can offer, he said in a July 17 interview with the Journal. Focusing on issues government can impact such as land availability and permitting and not those determined by external forces — costs of labor and building materials — seems obvious, but can be clouded by layered issues. Anchorage’s housing problem is a simple economic problem of short supply generating high demand and cost, Berkowitz said. But the solution is far from straightforward. Rental vacancy in the city has been in the 3 percent range for several years; real estate experts typically consider 5 percent vacancy to be a healthy market. At the same time, overall housing costs are some of the highest in the country among cities of comparable size with Anchorage. Berkowitz announced the appointment of former Republican Anchorage mayoral candidate Andrew Halcro to lead the Anchorage Community Development Authority July 7. “We’re going to be very aggressive with how we use the Anchorage Community Development Authority,” he said. “I’ve talked with Andrew Halcro significantly and we have a shared goal to make sure we address the housing situation.” At the end of the 2014 calendar year, ACDA held more than $12 million in unrestricted assets. However, effectively using the authority’s position will require more than just accessing its funds, Berkowitz said. It’s the authority’s ability to engage in financing options, as well as possibly working with the municipality’s Heritage Land Bank to transfer city-owned property into the right hands for development, he said. “We’ve got to improve deal flow if we’re going to see any kind of development,” Berkowitz said. The Heritage Land Bank, a division under the municipality’s Real Estate Department, manages roughly 10,000 acres of city property spread out across the municipality. About half of the property is in the Girdwood Valley. Berkowitz said his goal is to engage private developers in all sorts of public-private partnerships to find ways to ease utility infrastructure costs, for example, which are often cited by real estate and building experts as a major impediment to housing developments in Anchorage. In recent years Anchorage Community Development Authority staff tasked with review building plans and permit applications have been simply overwhelmed with work as manpower has been cut, and that has led to paperwork bottlenecks that can discourage prospective developers, according to Berkowitz. A long-awaited transition to a computerized system should help ease the burden and is nearly complete. He said the often-contentious Title 21 zoning regulation rewrite has limited what city officials can do to work with builders. “What’s happened here is the classic problem — when you take away discretion from people who are charged with enforcement (of land-use requirements), then you get very rule-bound,” Berkowitz said. “We’ve got to get to a situation where the folks charged with enforcement are more in a situation of trying to help people through the process rather than simply being a toggle that says ‘yes, your in compliance; no you’re not.’” Adequately tackling the housing issue will also require further evaluating Anchorage’s transportation system and how it fits what neighborhoods demand, whether that is trail accessibility or advancing public transportation to meet higher density living. That will mean truly listening to what the city’s residents want, he said. “The goal is to look out across Downtown in a couple years and not see all this surface parking,” Berkowitz said. “The goal is to make sure we have mixed-use, that there’s housing across Anchorage, that we’ve rehabilitated parts of the city that have languished for too long. We can’t do that by continuing to do what we’ve done.” Less than a month into his term, Berkowitz announced the opening of permanent housing July 21 for chronic homeless residents and those struggling with mental disorders. The city leveraged $200,000 to support more than $1.5 million in state and federal funding to open 56 units at Safe Harbor Inn in Downtown Anchorage. The units had previously been used for transitional housing with limited assistance for those in-need who used the resource. Anchorage Port On the city’s biggest construction burden, the Port of Anchorage, Berkowitz said he is focused on making immediate fixes to make sure current operations continue to run smoothly. That means getting Phase 1 of the six-phase Anchorage Port Modernization Project conceptual design built, and entails digging up a portion of the backlands created on the north end of the port during the first iteration of construction. Doing so would stabilize the waterfront and alleviate some silting issues that have arisen as the backlands that jut out from the incomplete project disrupt current flow along the face of the docks. The $60 million Phase 1 also includes moving the port administration office off the docks where it is now located and building a new multi-purpose terminal on the south end of the facility. The full plan with four new terminals is projected to cost the city another $485 million, leaving Anchorage to find another $350 million beyond the roughly $130 million it has left from the first Port of Anchorage Intermodal Expansion Project. That could make the new design a very long-term project, according to the mayor. Port customers have said despite the fact that the facility runs well now it is in need of significant upgrades. Berkowitz said he plans to discuss specifics of what is needed at the port with its director Steve Ribuffo. The port, a self-sustaining day-to-day business owned by the city, currently spends more than $1 million per year patching and maintaining its corroding 54-year old pile dock. The mayor said he expects to collect a suite of financing mechanisms with contributions from the city, state and federal governments for the full scope of the modernization plan, because the port is the offload point for 85 percent of the goods that enter mainland Alaska. Further, it is of national importance as a strategic military port — the primary route out for deployed troops and equipment. “It’s unfair to expect Anchorage to shoulder the entire burden for a port that serves the state and the United States,” Berkowitz said. “We’re the beneficiary of geography given this is where the port is, but the fact that the port is the portal to the rest of the state and serves important national interests means that we should not be the only ones who shoulder the fiscal responsibility to see that it’s developed, modernized.” How willing the state and federal governments are to spend more money on a project that has already cost more than $300 million and yielded very little remains to be seen. Berkowitz added that he has a very good working relationship with Gov. Bill Walker and that the governor and legislative leaders understand the situation the city is in regarding port funding. Further, he said the city is confident in its lawsuit against the U.S. Maritime Administration, or MARAD, the Department of Transportation agency first in charge of the problem project, and that could produce a portion of the funding for the new plan. Elwood Brehmer can be reached at [email protected]

What will exploration permit ruling mean for industry?

The mining industry is waiting for the Department of Natural Resources to chart a path forward after an Alaska Supreme Court ruling that could change permitting procedures and require public notice for exploration work. Two months after the ruling in the case over Pebble Limited Partnership exploration permits went against the State of Alaska, it is still unclear exactly what the state will do to respond. Alaska Miners Association Executive Director Deantha Crockett she’s hopeful some members of the industry will be able to assist DNR in moving from “temporary permits for temporary activity to permanent permits for temporary activity.” However, the detailed work has not yet taken place. The case focused on whether or not temporary state land-use permits for exploration of Pebble’s claims were truly functionally revocable at any time, as the state claimed. DNR typically issues five-year Miscellaneous Land Use Permits, or MLUPs, and Temporary Water Use Permits, or TWUPs, for mining exploration done on state land, as in the case of Pebble. The plaintiffs listed, the anti-Pebble group Nunamta Aulukestai, Ricky Delkittie, Sr., the late Violet Willson, Vic Fischer and Bella Hammond claimed DNR should allow for public comment prior to issuing these permits, because among other things, permanent damage is could be done to state land. Exploration impacts that constitute a permanent “disposal” of land are something Alaska residents should be able to weigh in on under the state constitution, they argued. Exploration drill, or bore, holes are usually filled with concrete or other impermeable cement-like mixtures to prevent movement of groundwater between layers of bedrock and subsequent possible contamination. Robert Retherford, president of the exploration and geology consulting firm Alaska Earth Sciences, said steel drill casing is sometimes left in the hole when it becomes stuck or is needed to prevent collapse. In those instances, cement is forced down the casing until it pushes up around the outside of the casing, sealing and entrapping it in a safe concrete environment. The Supreme Court found these “concrete pillars,” as it referred to them in its May 29 ruling, to be permanent structures, which in part made the exploration permits irrevocable. DNR argued that the common practice of filling boreholes is environmentally benign. It’s a long-time common practice in the mining industry. Retherford said defining old bore holes as permanent structures “creates a lot of fog and haze” around the permitting process. Executive director for the environmental advocacy law firm Trustees for Alaska Vicki Clark said in a release after the ruling that the state has “issued permits behind closed doors without even looking at the harm to public resources,” and the Supreme Court ruling will put an end to that practice. “This decision means that all Alaskans, especially those whose rights and livelihoods are jeopardized by intensive exploration activities like those at Pebble, have the constitutional right to participate in the decisions affecting them,” Clark said. The court also found the permits to be irrevocable for large exploration projects such as Pebble’s, which totaled more than $300 million, because DNR staff could be swayed to issue or protect permits when such large sums of money are at stake. The court did not determine a monetary threshold where that becomes the case. Retherford said the issue off permanent structures simply doesn’t make sense. “We’re concluding that the people making the regulations, in this case the Supreme Court, that they’ve had enough coaching or enough time to really understand how (the exploration process) works. It doesn’t seem like that in this case, so we’ll see,” Retherford said. When a borehole penetrates no aquifers, as is often the case in mountain drilling, putting the drill cuttings back would be an acceptable way to meet the new requirements if sealing a hole is unfeasible, he said. Changing current regulations to meet the Supreme Court’s view could make some exploration cost prohibitive, according to Retherford. He said he uses a ballpark figure of $150 per foot for exploration drilling when discussing cost with potential clients. “It’s not uncommon to see a million bucks go into a hole if you’re drilling say 3,000, 4,000, 5,000 feet” when preparatory work is included, he said. The Supreme Court decision overturned a Superior Court ruling that shot down the plaintiffs’ six claims for relief. Alaska Miners Association attorney Larry Albert noted that the court did not find evidence of actual environmental harm from the filled holes, but rather used potential harm as the basis for its ruling. He also said the Supreme Court did an “end run” on the Superior Court ruling and did not rule on the merits of the case. Rather, it determined the case to be moot because Pebble’s permits had expired and exploration had ceased, but decided to rule based on the need for a resolution that had implications in an associated case dealing with attorneys’ fees. Albert said that is a legitimate course of action; however, the court ended up ruling on what happened in Pebble’s case and not on what would likely happen in future cases, thus issuing a contradictory ruling. Crockett said the ruling should concern individuals on either side of the development debate — for or against — because it clouds a permitting process that should be built on science alone. “We need to have a permitting process that’s clear, that’s predictable, that we understand and that we have confidence in,” she said. Without a defined regulatory framework using the best available science, the confidence of the public and potential project investors is damaged, Crockett said. Rick Van Nieuwenhuyse, CEO of NovaCopper, which is exploring copper deposits in the Ambler Mining District along the Brooks Range, said his company has always found Alaska to be a good permitting environment to conduct work. NovaCopper’s $5 million summer season exploration and data gathering plan is one of the few significant mine exploration projects going on in the state this year. Van Nieuwenhuyse commended the work DNR and the Department of Environmental Conservation have done in the past and said he expects state regulations “to reflect what’s reasonable.” “What we do currently and what we’ll continue to do is meet the regulations,” Van Nieuwenhuyse said. Elwood Brehmer can be reached at [email protected]

Walker expands Medicaid without Legislature

There were hugs and high-fives between Gov. Bill Walker and members of his administration as he announced the State of Alaska would accept funding to expand Medicaid via executive authority. “Today, Alaska becomes the 30th state to accept the benefits of Medicaid expansion,” Walker said during a July 16 briefing at the Alaska Native Tribal Health Consortium office in Anchorage. Accepting and spending money by the State of Alaska typically requires the Legislature’s approval. However, because the Medicaid funding is federal dollars and does not involve the general fund, it can be done administratively. Walker sent a letter to Legislative Budget and Audit Committee chair Rep. Mike Hawker, R-Anchorage, July 16, stating he would begin the administrative process by submitting the requisite Legislative Revised Programs to expand Medicaid and accept $148.6 million for the state’s 2016 fiscal year that began July 1. Growing the low-income health care program will make about 42,000 uninsured residents eligible for coverage; about 20,000 are expected to sign up in the first year. Newly eligible for Medicaid under the program will be adults without dependents who make less than 138 percent of the federal poverty level; for single individuals that is $20,314 per year and for married couples it’s $27,490 annually. The Legislative Budget and Audit Committee now has 45 days to vote on whether or not to accept the funds. If the governor’s recommendation is voted down, he must then evaluate the committee’s decision and send another letter notifying members of his final decision. The administrative move has been used seven times prior in the state’s history, according to Walker, to accept settlement money resulting from the Exxon Valdez spill and other unusual agency funding. Regardless of the committee’s vote, Walker said he expects the State of Alaska to accept additional Medicaid funding Sept. 1 at the latest — the end of the 45-day period. Health and Social Services Commissioner Valerie Davidson said more Medicaid money would also save the state $6.6 million this year and over $100 million over the next six years by using federal funds to foot the bill for things the state is currently paying for. Walker noted in his speech that 160 local governments, associations and nonprofit organizations in Alaska have formally supported expanding federal Medicaid funding, which was a cornerstone of his campaign last year. It was also major issue left unresolved by the Legislature this year after the regular session and a special session called by Walker that included Medicaid expansion and reform. More than 60 percent of Alaskans support the move, according to the governor. “This is not a partisan issue,” he said. Democrats in the House and Senate commended Walker’s announcement. “Gov. Walker is being forced to use his executive power to expand Medicaid because the Republican controlled leadership in the House and Senate refused to properly consider an expansion bill this past session,” Independent Democratic Coalition Leader Rep. Chris Tuck, D-Anchorage, said in a formal statement. “We have an opportunity to get health care for 40,000 Alaskans and receive nearly $400,000 a day (in) federal funding. It’s the right and moral thing to do and our coalition applauds the governor’s leadership on this issue.” A $145 million line item for federal receipts to expand Medicaid included in Walker’s budget proposal was cut out by the Legislature during the budget process. Walker introduced reform and expansion legislation, Senate Bill 78, in the middle of the session, which some legislators said did not give them enough time to review the complexities of overhauling a $1.5 billion program. Sen. Pete Kelly, R-Fairbanks, one of the most vocal critics of expansion in the Legislature, introduced Senate Bill 74 focused on reform. Both pieces of legislation remain in committees. “Regardless of federal funding, we cannot afford the Medicaid system we currently have now. In addition, our current system is broken. Adding tens of thousands of people to a broken system will do nothing to improve the quality of care, access, or efficiency,” Kelly said in a formal statement after the governor’s announcement. Walker said he wanted expansion to happen through the legislative process, but he was left with no choice.  “This is the final option for me; I’ve tried everything else. Alaska and Alaskans cannot wait any longer,” the governor said during the press conference. A release from the Alaska Republican Party claims Walker agreed with legislative leadership to hire experts to determine the actual cost of the existing Medicaid program and help plan for reform. “Prudence demands caution. I’m disappointed the governor has chosen to abandon the legislation he introduced,” House Speaker Mike Chenault said in a release. “I think his rush to judgment before even hearing from expert consultants is the wrong approach — with potentially serious negative consequences for Alaska.” Walker spokeswoman Katie Marquette said the governor never made the agreement purported by the Alaska Republican Party. Medicaid expansion is “a catalyst for reform” and DHSS has plans to implement reforms that could save $570 million over six years, Davidson said. Those reforms focus on fraud control, overuse of emergency rooms, refinancing home and community-based services and encouraging Alaska Natives to use Indian Health Service Facilities, which is completely federally reimbursed, she said. Greater Fairbanks Community Hospital Foundation President Jeff Cook said expanding Medicaid would ease costs on the rest of the health care system right away. “Patients without coverage often have to resort to the emergency room for what should have been basic care, but often they wait so long it becomes chronic care. This is uncompensated care that could have been done more efficiently and effectively in a better setting which Medicaid expansion will allow,” Cook said. The cost of the emergency room care Cook described is absorbed by providers, hospitals and the insured general public through higher premiums, he said. Concerns about further stressing a once broken Medicaid billing and payment system have largely been alleviated, according to Davidson. The much-maligned Medicaid Management Information System is now making accurate and on-time payments at a better than 90 percent rate, she said. The Walker administration also estimates expansion will generate about 4,000 new jobs in the health care industry, but also in construction of facilities and support services. Labor Commissioner Heidi Drygas said her department is using a $3 million federal grant to accelerate registered apprenticeship programs in the health care field. “The (Labor) Department is working to ensure that our vocational training programs in Alaska are designed to provide skilled health care workers to employers,” Drygas said. “Increased access to targeted training will likewise increase the quality of healthcare in Alaska.” Walker said he’s not sure if the Legislature will refuse to fund expansion when it requires a 10 percent state match after several years. Currently, federal money covers the entire expansion. He likened the 90-10 federal-state funding of this portion of Medicaid to federal transportation funding, which the state accepts yearly and requires a 10 percent match. Walker has said in the past the state would drop the program if the match exceeds 10 percent. He also noted in a later speech July 16 that funding changes to the system at the federal level are unlikely because they would require congressional approval that would be unpopular given a majority of states are in the program. Elwood Brehmer can be reached at [email protected]

Back to work for Knik, Juneau and Susitna mega projects

Three of the state’s mega projects are back in business, at least temporarily, after Gov. Bill Walker’s administration partially lifted an administrative order halting spending on the development work. State officials overseeing the Knik Arm bridge, the Susitna-Watana dam and the Juneau access road all got the go-ahead to continue work with existing funding in memos sent out by Office of Management and Budget Director Pat Pitney July 6. Each of the memos notes that once authorized work is completed and immediate goals are met the projects will be evaluated in the context of the state fiscal environment and competing major capital projects at that time. On Dec. 26 of last year Walker issued Administrative Order 271, which stopped spending on six projects in its tracks: the Knik Arm bridge; the Susitna-Watana dam; the Juneau access road; the Alaska Stand-Alone Pipeline, or ASAP, natural gas project; the Kodiak Launch Facility expansion; and the Ambler Mining District industrial access road. At the time the governor said his administration would evaluate each of the projects and determine a path forward in light of lower oil prices and the resulting drastic decline in state revenue. Knik Arm bridge Department of Transportation and Public Facilities spokeswoman Shannon McCarthy said the department will pretty much pick up where it left off when work stopped in December. That work includes securing funding and a key remaining environmental permit. In early 2014, the 1.7-mile bridge and about 4.5 miles of associated connections between Anchorage and Point MacKenzie were estimated at a cost of $782 million. The state’s three-pronged financing plan has contingencies to allow for that cost to grow to $894 million without issue. Pitney wrote in the memo that moving forward with existing appropriations would give the state up to 20 years to address the bridge without needing to pay back federal money already spent. Project leaders have said the $55 million state capital appropriation to the project in fiscal year 2015 is sufficient to get it to construction. McCarthy said DOT would now advance its letter of interest for a $300 million federal Transportation Infrastructure Finance and Innovation Act, or TIFIA, loan, which would cover about a third of the project cost. Yearly Federal Highway appropriations and state bonds would roughly equally cover the rest of the cost under the plan. The department also needs to finish up the final requirements for its National Marine Fisheries Service Marine Mammal Protection Act permit. That is needed to approve an in-water construction plan in Knik Arm that would not impact endangered Cook Inlet beluga whales, which feed in the arm each summer. “The National Marine Fisheries permit is really what all the other permits hinge on at this point,” McCarthy said. Right-of-way acquisition and obtaining and a needed easement through Joint Base Elmendorf-Richardson will also resume. McCarthy noted that approval of the state easement through the military installation goes all the way to the Secretary of Defense, which will take some time. The six-month delay likely pushed first construction back to 2017 at the earliest, she said. Susitna-Watana hydro The Alaska Energy Authority can spend the $6.6 million it has left from $192 million of previous capital appropriations to move forward on work related to the $5.6 billion Susitna-Watana dam. AEA spokeswoman Emily Ford said the authority was in the midst of the study report process on Susitna-Watana for the Federal Energy Regulatory Commission. If constructed, the dam in the upper reaches of the Susitna Valley would to stabilize electric rates for Alaska’s Railbelt region for generations, proponents tout. Critics of the project claim AEA’s cost estimates are shaky and argue it would harm salmon returns to the Susitna by altering natural flood cycles. The next steps are less about intensive fieldwork and research and more about holding public meetings with stakeholders on the study plan. “Hopefully next year we’ll work towards the study plan determination with FERC,” Ford said. That determination — whether AEA has met its federal requirements — is the next major step for the project. The memo states that AEA should work through 2017, at which time the Walker administration will review the Susitna-Watana dam again. Juneau access road The cheapest of the three projects, pegged at $574 million to build, is the 48-mile Glacier Highway extension north of Juneau. In September, DOT released a draft supplemental environmental impact statement, which included its preferred alternative to build the road parallel to Lynn Canal. Spending the remaining $900,000 in general fund appropriations to the project should allow the state to complete the supplemental EIS and reach a record of decision on the project, expected in January 2016. Doing so would ensure the state does not have to repay $27 million in federal investment on the project, according to Pitney’s memo to DOT Commissioner Marc Luiken. Those opposed to the Juneau road extension claim it would actually make traveling to Juneau from Haines and Skagway more difficult, as the Auke Bay ferry terminal near Juneau would be closed in favor of a terminal at the end of the road. As for the other projects, the Alaska Stand Alone Pipeline project natural gas line, has been shelved for now as the Legislature pulled funding for its development in a battle with the governor, who is interested in expanding its scope. All but $3 million of the original $25 million in capital funding to the Kodiak Launch Facility has been put back in the general fund, according to Walker’s Press Secretary Katie Marquette. “As of this year, the state no longer subsidizes the operation with general funds. The state will continue to evaluate the project in December as they are moving toward a more private partnership mode,” Marquette wrote in an email to the Journal. Funding early environmental work by the Alaska Industrial Development and Export Authority for the 220-mile Ambler Mining District road is still being evaluated by the administration. Elwood Brehmer can be reached at [email protected]

RCA report recommends realignment of Railbelt utilities

Issues of reliability and cost in Alaska’s Railbelt electric transmission system are slowly coming to a head. The Regulatory Commission of Alaska released its recommendations on how to improve power dispatch through the region June 30 in a six-page letter signed by RCA Chairman Robert Pickett to Senate President Kevin Meyer and House Speaker Mike Chenault. In 2014, the Legislature appropriated $250,000 to the RCA to provide its input on how to improve the Railbelt system the commission called “fragmented” and “balkanized” in its letter. Upgrading the Railbelt system has the potential to save ratepayers between $146 million and $241 million per year, according to the RCA. Those upgrades amount to a $900 million overhaul. More than half of the work, about $480 million worth, is in the northern portion of the intertie, according to the Alaska Energy Authority. That would improve line capacity and reliability to the Interior and regional utility Golden Valley Electric Association. Getting power from Southcentral natural gas-fired power plants and the Bradley Lake Hydro project, located east of Homer near the end of Kachemak Bay, helps lower rates for Golden Valley ratepayers by offsetting high-cost fuel oil generation. “Right now the utilities can get Bradley power but they don’t always have access to it at the optimum time of the day,” AEA Energy Policy Director Gene Therriault said during a presentation at the authority’s June 25 board of directors meeting. Not being able to draw power from a relatively cheap hydro source thus kills the economic benefit of Bradley Lake, he said. Increasing transmission capacity and efficiency would also be a must if the Susitna-Watana Hydro project were to come to fruition. The transmission work largely involves adding transformers, substations and line capacity and redundancy. While the current intertie can handle more electricity in most places, trying to push more power through the lines increases transmission losses exponentially, Therriault said. Additionally, redundancy in the lines could help keep the system operating smoothly in the event of a natural disaster. By maximizing economic dispatch of power, each Railbelt consumer would save 3 cents to 6 cents per kilowatt-hour, according to AEA. Those savings would be the avoided cost increase of doing nothing, AEA Railbelt Energy Infrastructure Engineer Kirk Warren said to the authority board. The State of Alaska owns 173 miles of transmission line between Willow and Healy, which is operated by AEA. The state authority works with the owner utilities through the Intertie Management Committee. How the overhaul of the Railbelt system is configured and paid for are the big unknowns. “A key weakness in the current Railbelt electrical system is the lack of an institutional structure to finance significant transmission assets crossing the service areas of several utilities,” the RCA letter states. Along with AEA, each utility along the intertie owns at least a small portion of the transmission infrastructure. That individual ownership complicates and challenges wholesale change to the system. Unified command To rectify the separate ownership of transmission assets, the RCA in its letter recommends an independent transmission company, or TRANSCO, be created to operate the system and execute major maintenance projects. Alaska Railbelt Cooperative Transmission and Electric Co. CEO David Gillespie said in an interview that his member utilities are largely in support of the RCA’s findings. However, actually realizing the savings projected by the RCA is the difficult part, he said. ARCTEC, as the member organization is known, is made up of five Railbelt utilities. Anchorage’s Municipal Light and Power and Homer Electric are not members. Gillespie said ARCTEC is in favor of establishing both a TRANSCO and an independent system operator; the combination would oversee all aspects of the complex Railbelt electric regime. The TRANSCO would be made up of transmission asset-owning utilities — each with an ownership stake equivalent to their asset value — and a separate firm, which would bring liquid capital to the table, Gillespie envisions. The organization would be managed however the utility leaders decide, by another entity or in-house. He emphasized the utilities do not want to outsource this responsibility. The utilities could then collectively decide which major transmission projects to tackle and use the pooled resources and added capital to fund the big work, he said. Any outside or contracted firms would be used as sources of capital, expertise and labor, Gillespie said. Midwest utilities Xcel Energy Inc. and American Transmission Co. have presented to the Legislature and the RCA over the past two years about their work to form TRANSCOs in that part of the country and expressed interest in entering the Alaska market. American Transmission Co., or ATC, was established in 2001 as the country’s first multi-state, transmission-only utility. Xcel is a generation and transmission utility. An independent, or unified, system operator would govern the actions of the TRANSCO. This would almost likely include determining the proper balance between utility returns and economic dispatch, as well as setting fair transmission tariffs. Establishing a TRANSCO would also prompt utilities to implement a “postage stamp” transmission tariff, or a single rate to wheel power along the entire Railbelt system. Currently, each utility has its own tariff, which leads to what is known as “rate pancaking.” Stacking the tariffs has hurt the economic feasibility of some renewable energy projects, including Cook Inlet Region Inc.’s planned expansion of its Fire Island Wind project outside of Anchorage. The issue has been one of contention for small power producers in the state. Gillespie said ARCTEC would need to be a facilitator of a TRANSCO and could be a vehicle organization to start a system operator. An independent system operator, if modeled after Lower 48 groups, would be comprised of non-partisan industry experts. Simply finding enough such individuals in Alaska — those without direct ties to certain interests — could be another little hurdle, Gillespie and others have said. The RCA demanded a report on development of a TRANSCO by Sept. 30 and another report on the process of transmission restructuring by the end of the year. Gillespie said TRANSCO discussions are ongoing among Railbelt utilities. “Failure to file these reports will be construed as a failure of the current voluntary efforts to develop an independent Railbelt electric transmission company,” according to the RCA letter. “If voluntary efforts fail, the commission will work with the Legislature and the administration to develop and implement specific legislation and to prioritize actions necessary to create an independent Railbelt electric transmission company.”  Past efforts to transform the Railbelt electric system have failed and the RCA was blunt in emphasizing the lack of trust that has formed as a result among independent power producers and large power customers in its findings. A reliance on state appropriations to fund transmission work has also led to this “dysfunctional history,” according the to the commission. Thus, the strict reporting timelines were called for. A push for merit order economic dispatch was also recommended. The RCA states in its letter that it should use its authority to “strongly promote economic dispatch, and seek new statutory as needed to promote this goal.” House Bill 78, currently in House committees, would clarify the RCA’s authority over electric transmission and direct the authority to bring state regulations in line with federal rules. Bill sponsor Tammie Wilson, R-North Pole, has said it would provide open access to small power generators and ease tariff disputes. Opponents, including several Railbelt utility leaders, claim the RCA already has much of the authority the bill calls for and say the legislative directive is not the way to handle complex regulatory matters. Gillespie said everyone believes there are significant opportunities to save ratepayers money, but achieving real economic dispatch is extremely difficult in practice. The fundamental flaw is that savings from the upgrades necessary to benefit one end of the Railbelt, for instance, don’t show up everywhere, he said. Thus, one utility ends up paying for infrastructure it doesn’t really need. “The costs show up in one pocket and the benefits show up in another pocket,” Gillespie said. Further, utilities have invested in nearly $1.5 billion of new generation over the last five years, as noted by the RCA. Those power plants have debt tied to them, which can only be paid for if they are making power. AEA’s Therriault and Gillespie said this power plant debt service and gas purchase contracts the utilities have can be unavoidable impediments to seemingly common sense dispatch. “Our desire to be able to predict cost and benefits is very high and our ability to do so is very low,” Gillespie said. Still, Therriault said Chugach Electric Association projected annual savings of $60 million from the $900 million transmission system rebuild in its worst-case scenario. “The cost-benefit ratio is tremendous,” he said. Transmission line bondholders would likely be open to a compromise on short-term returns if it meant more use of the system in the long-term, according to Therriault. “If you’re holding the paper on a piece of transmission infrastructure that basically is a means of wheeling a commodity, you want to see that piece of infrastructure used as much as possible,” Therriault said. “Right now, what we’re suggesting is the existing system is not being used to its full potential.” The utility boards have a narrow view out of necessity to protect their own assets and customers, Gillespie said, which can inhibit them from taking long-term views. AEA’s Warren said everyone on the Railbelt would ultimately benefit from the new system. “We’ve continuously said we don’t believe there are any losers, there’s just people winning at different levels,” Warren said to the AEA board. If or when the Railbelt electric hierarchy is sorted out, the matter of paying the $900 million bill for the transmission upgrades will still linger. Gillespie said a public and private financing combination would likely be the best solution, based on what the utilities have found now that direct state grants are boots up. “Return on equity is trivial,” Gillespie said. “There is not a material difference to customers whether it’s publicly or privately financed.” The best role for the state would be in backstopping private bonds, according to Gillespie. Therriault said the challenge ahead is finding a governing structure to maximize ratepayers’ savings and then capturing “one or two of those pennies to use for financing.” Elwood Brehmer can be reached at [email protected]

Budget cuts take Alaska-grown lunches off the menu

July 1 was a dreaded day across much of Alaska. It marked the start of the 2016 state fiscal year and the harsh realities of the state’s new financial future were about to take hold. Alaska’s youngsters will taste the impact of state budget cuts at the lunch table when the go back to school in fall. The Nutritional Alaskan Foods in Schools program was cut from this year’s capital budget. Started in 2013 under former Gov. Sean Parnell’s administration, the $3 million grant program provided reimbursable funding for school districts to purchase foods grown, raised and caught in Alaska. District leaders across Alaska that spoke with the Journal understood the need to cut state grants, theirs included, but that didn’t lessen the disappointment. Petersburg School District Superintendent Erica Kludt-Painter summed up the sentiment succinctly: “It’s kind of a bummer.” Bristol Bay Borough School District Kitchen Manager Tanya Dube said the program introduced her to the wide array of crops and livestock available in the state. It also helped her keep up with changes in national nutritional standards that require grains served in schools to be at least 51 percent whole grain. “Now, all the breads and pizzas I make from scratch contain Alaska barley. Starting next year that won’t be the case,” Dube said. The barley came from a farm near Delta. The Bristol Bay district’s annual food service budget is about $70,000, according to Dube. It got a $27,000 boost from Nutritional Alaskan Foods in Schools in fiscal year 2015. “That’s a huge jump in the funds that I have available to feed my students,” she said. Dube purchased vegetables from Meyers Farm in Bethel and salmon from local docks. “Obviously, as you know, Bristol Bay has the best salmon in the world,” she noted. And the students took notice. Dube said they began shunning produce from Outside in favor of more flavorful local crops. More staff and teachers in Petersburg have been staying at school and buying lunch since the program took off, too, Kludt-Painter said, in another testament to the difference in the quality of the products. In its last year, 54 school districts across the state took advantage of the Alaska foods program, which was managed by the Commerce Department’s Division of Community and Regional Affairs. Grant administrator Debi Kruse said the program was a huge success while it lasted. Anecdotes similar to Dube’s about students preferring and asking for homegrown foods are plentiful, Kruse said, and some farms had to grow to meet demand. “In the beginning I was really excited about the educational aspect of getting nutritional food, healthy Alaska food into our kids stomachs,” she said. “What’s more exciting to me now is from the commerce side of things. These producers have started expanding what they’re raising.” Nutritional Alaskan Foods in Schools got meats and produce moving from places outside of the state’s traditional agriculture districts near Delta and the Matanuska Valley. Kruse said carrots were going all the way from Gustavus to Kotzebue. “You hear these stories about kids saying, ‘This is what a fresh carrot tastes like,’” she said. “Those are the success stories to me.” Down the road the students are also more likely to purchase local products when they become consumers after getting a taste of what Alaska has to offer, Kruse noted. Tim Meyers, owner of the Bethel farm, sent his cool weather crops to Cordova, King Cove, Sand Point and to Dube in Bristol Bay. “What a way for the state to get ag going — to give it to the schools,” Meyers said. “It’s a real good market to motivate me to do more than I have been.” Rutabagas, of all things, were a big hit with Cordova’s kids, he said. Meyers sent about 5,000 pounds of produce to schools across the state last year, he said. This year he hopes to up his total output from 45,000 pounds to more than 65,000 pounds of veggies and greens. Another year or two of the program would have allowed him to establish firmer relationships with the schools and merge expansion and efficiencies in his operation, he said. Kruse said she thought the program needed another three years to strengthen the bonds between districts and farmers, as well as help grow the overall economy of scale of the local food buys. Initial worries about farmers and distributors inflating prices when grant money was available were ultimately unfounded, according to Kruse. However, local foods from small operations cost more nearly everywhere, and the realities of Alaska just add to those costs. “There is no doubt that the cost of raising beef up here and slaughtering it and doing all of those things is going to cost a bit more than getting something that was slaughtered three months ago, frozen and sent up here, but the bang for the buck that (the schools) are getting I think benefits us as a state,” she said. Also cut from this year’s budget was $181,000 for the Division of Agriculture’s Farm to School program. Started in 2009, that initiative was designed to simply foster relationships between farmers, fishermen and schools. The Commerce Department grants were a separate but related program. Together, the short-lived programs managed to gain national notoriety. A U.S. Department of Agriculture State Farm to School program report published in March of this year used Alaska’s local food in schools work as one of four national case studies of successful programs. According to the report, 22 states and the District of Columbia had enacted farm-to-school legislation through 2014. Ag Division Director Franci Havemeister said by 2012 the program had reached 38 districts, about 70 percent of the school districts in the state. “I think that everybody, including the Legislature, recognized the good work the program had done,” Havemeister said. Without state funding, the division is very close to securing a federal reimbursable services grant to continue the Farm to School program from the Department of Education, she said. However, that means abiding by Uncle Sam’s stipulations instead of doing completely what the state wants. Petersburg’s Kludt-Painter said her district forward-funded the food service budget with $60,000 each of the next two years because keeping superior offerings on plates is such a priority. Petersburg is also trying to source as much local fish as possible, she said. It’s of particular importance in her district, which offers breakfast, snack, lunch and after school meals, because some kids do most of their eating during the year at school, according to Kludt-Painter. “We’re hoping that we can continue to use as many of those (Alaska) products as possible if we can manage, just because the quality is better, the kids like them better and we like using things that are Alaska-grown. We just do,” she said. From each end of the supply chain, Kludt-Painter and Meyers both indicated shipping costs as being at least as much of a challenge as wholesale pricing. Reimbursement request statements from the state grant program show shipping expenses being as much as a third of the total cost of in state produce. Still, Meyers was ultimately optimistic about his ability to meet districts’ pricing needs as he expands. “I’ll definitely work with the schools I’ve been working with,” Meyers said. “I’m sure there’s absolutely no reason I can’t get them my stuff for the same price they’re getting other stuff elsewhere.” Elwood Brehmer can be reached at [email protected]

Senators using budgets to put heat on administration, EPA

Alaska’s senators outlined their plans to continue to fight on resource and environment issues on which they say the Obama administration is overstepping its boundaries at the 40th annual Resource Development Council for Alaska meeting June 30. Sen. Dan Sullivan said Alaskans and the state’s congressional delegation need to “keep making and winning arguments for responsible resource development.” “I think it’s safe to say most people in Alaska are supportive of responsible resource development,” Sullivan said. Sen. Lisa Murkowski, along with Sullivan, noted how their positions on Senate committees, combined with Rep. Don Young’s seniority in the House, give the state a strong position on energy and environment issues. Sullivan chairs the Fisheries, Water and Wildlife Subcommittee of the Environment and Public Works Committee. Murkowski heads the Senate Energy and Natural Resources Committee and the Appropriations Subcommittee on Interior and the Environment. “We hold, not me, we the state of Alaska hold the purse strings for many of the (Interior Department) agencies through the chairmanship that I have on the Appropriations Subcommittee,” Murkowski said in her remarks to RDC members. There are 30 senators that sit on the Appropriations Committee, but “the gavel is in Alaska’s hands,” in terms of Interior Department and environment spending, she said. “We have an opportunity to help shape the direction where many of these agencies are going,” Murkowski said. The Interior Appropriations Subcommittee passed its $31 billion budget June 16, which is about $2.2 billion less than the president’s request. When the full Appropriations Committee passed the budget June 18, Murkowski said it was the first Interior and Environment budget bill to move through the standard committee process in six years. “We have moved through this appropriations process (in the past) kind of in a closed door situation where you advance the authorities through an omnibus appropriations bill,” Murkowski said. “Not a good way to operate.” Now that Republicans have control of Congress they are pushing back hard on the administration’s environmental policies of the EPA under the Obama administration. The battle in recent days has been over the Environmental Protection Agency’s rule known as the Waters of the U.S., that would delineate which water bodies the agency has jurisdiction over under the Clean Water Act. If the EPA has control over a given wetland, lake, river or stream, a Clean Water Act Section 404 permit is required to alter it or an adjacent parcel of land for development. Republicans continue to say the “WOTUS” rule is a power grab by the Obama administration. Legislation to essentially kill the rule has passed the House and is pending in the Senate. Sullivan said the bill has bipartisan support on the Senate floor and could garner 60 votes. The State of Alaska joined a lawsuit with 11 other states against the EPA challenging the Waters of the U.S. rule June 29. Alaska’s complaints are with how the rule could impact states’ sovereignty and with how the U.S. Army Corps of Engineers, which issues Section 404 permits, and the EPA consulted with state in developing the rule, according to a release from Gov. Bill Walker’s office. “This rule came about under a muddled process which failed to consider information specific to Alaska. By overlooking our state’s unique circumstances, the rulemaking fails to disclose the regulatory and economic impacts it will have on Alaska, which is required by law,” Walker said in a formal statement. The language in the Clean Water Act, passed in 1972, regarding EPA’s jurisdiction is vague and the agency says the WOTUS rule would simply clarify in regulation what it has been doing all along. Murkowski and Sullivan contend the rule would further restrict where development can occur and put additional cost and permitting burden on already strictly monitored projects in the state. Republicans on the Interior Appropriations Subcommittee blocked EPA from funding implementation of WOTUS in the budget package passed out of the subcommittee. In total, the budget cut EPA’s funding by $540 million, or 7 percent, from the current fiscal year. Murkowski also said she is pushing for a state option to the EPA’s proposed Clean Power Plan, which would put strict limits on carbon dioxide emissions from large power plants and essentially phase out coal-fired plants. She said the proposal could make sense for states that can draw from many power sources on large interstate grids, but could drive the price of power higher in Alaska where that option doesn’t exist. Energy Murkowski vowed to move the country’s first wholesale energy policy legislation since 2007, as chair of the Energy and Natural Resources Committee. “2007 is a long time to stay still from a policy perspective while at the same time what’s happening across the country, what’s happening in the state is galloping forward,” she said. Since the last major piece of federal energy legislation, hydraulic fracking has exploded shale oil and natural gas production across the country and renewable energy development, particularly wind and solar, has increased dramatically. In Alaska, Shell has pushed to explore offshore Arctic leases and ConocoPhillips has reached the verge of the first oil production from the National Petroleum Reserve-Alaska. Also, an emphasis on small-scale efficient and renewable energy projects in remote villages across the state emerged as oil prices escalated. While much of that work has been done with state money, federal Department of Energy grants have buoyed several successful projects. In a press briefing after her speech, Murkowski said she is working to blend three Outer Continental Shelf, or OCS, oil and gas production revenue sharing bills that are currently in front of her committee. “This activity may be out in federal waters but the impact is to those communities, those state that host the activity offshore,” she said. Any legislation to split federal revenue with states and local governments will need 60 votes in the Senate. Murkowski said her bill has support from Gulf and mid-Atlantic legislators whose states could also benefit from OCS revenue sharing. The exact details on how the revenue might be divided are still being worked through, according to Murkowski. Elwood Brehmer can be reached at [email protected]

Carpenter Training Center growing to meet industry demand

It’s quiet these days around the Southern Alaska Carpenter Training Center in South Anchorage. To the center’s training coordinator Aaron Combs, that’s a good thing. It means his students are working. Just a few weeks ago, in early June, the Southern Alaska Carpenter Training Center yard was full of lumber and about 40 students building frames for concrete walls, the consummation of their first year of training. Combs said the initial six weeks of training attempts to touch on the basics of everything the apprentice-level students could encounter on a job site. “We’re trying to stay at least up with, if not ahead of where the construction industry is going, so our projects are relevant and (the students) are developing skills they’re going to be using on the job,” Combs said. He estimated more than 90 percent of the work demanded of center students is concrete, drywall and metal stud and framing construction on commercial-sized facilities. After six months on the job, the students return to the center for more advanced training. A year later, there is another round of progressively advanced tutorials, with a fourth and final intense, 40-hour per week training course six months after that. All of the six-week classes are scheduled early or late in the year to keep students on jobsites during the peak of Alaska’s summer construction season. The first-year students vary greatly in age and skill level. The 38-year-old Combs said he is waiting for the first class he teaches in which all of his students are younger than him. He took the first-year course in 1998. “The first class is always the hardest one for us to teach because we have those people that have 15 years experience all the way down to never touched a hammer before, never seen a tape measure before; we have that wide of a range,” he said. With four instructors for each class there is a 10-1 student-teacher ratio that allows for attentive instruction that first year. While the business climate in Alaska has quickly shifted from exuberant to hesitant with the decline in the price of oil, the commercial construction market has remained fairly strong, at least for the time being. Combs said all of his motivated and disciplined apprentices are in high demand — high enough demand that the training center is in the early stages of expanding. Pacific Northwest Regional Council of Carpenters spokesman Ben Basom said the union expects to have to replace about 40 percent of its workforce over the next seven years to keep up with attrition and retirement. “The Northwest Carpenters Union is in the process of expanding its training and apprenticeship program to include a new state-of-the-art training facility, which will train the present and future generations of carpenters in Alaska,” Basom wrote in an email. Tentative plans are to hopefully grow the 45-foot by 60-foot shop in order to have more space to train scaffold builders, millwrights and also house pile driver training, Combs said. According to Local 1281 Business Manager Scott Hansen, the ideal expansion would also include moving the Local into the facility as well if a parcel adjacent to the training center can be secured. The first year starts with simple math, all the way down to addition and subtraction. By year four, the focus is on reading blueprints and consulting with architects how to integrate design and construction, Combs said. “We don’t just train people to work, we train people to be the leaders in the industry, so we really want them to have all the skills to be that leader,” he said. After the fourth year, most classes have shrunk by about half, according to Combs. He said he certainly doesn’t want that high of a dropout rate and that application and acceptance standards are being evaluated so the carpentry school can keep more of its students for four years. The vast majority of the students that fall out of the program do so between the years one and two, he said, primarily because a lack of work ethic or ability to show up to a job on time is exposed. “Reputation is everything in this industry,” Combs said. “The construction community in Anchorage is pretty small. Once you make a bad reputation for yourself everybody knows it.” Those that can’t master the basics of being an available employee quickly find themselves out of work, he said. The students are members of the Anchorage Carpenters Union Local 1281. As a result, the classes are free, covered by union dues, outside of about $300 for books and $580 worth of hand tools. Hansen, also a graduate of the Southern Alaska Carpenter Training Center, said the basics taught early in the program is instruction that can be hard to find in on-the-job training. “Our goal, our mission, is to supply our signatory contractors with the best trained, safe workforce possible, so without an apprenticeship, without a training center — that’s a very important aspect of what we do,” he said. Elwood Brehmer can be reached at [email protected]

Revenue commissioner outlines fiscal options after cuts

Revenue Commissioner Randall Hoffbeck encouraged Alaskans to try their hand at eliminating the $3 billion-plus state budget deficit through mixing cuts and taxes on a computer model available on the state website during a June 22 talk to Anchorage Chamber of Commerce members. Hoffbeck said he tried to discuss increased revenue options shortly after taking the lead Revenue Department post last December, but Gov. Bill Walker told him major spending cuts would have to come first. “The price of admission to talk about revenue is reduction in the size of government,” Hoffbeck said. “We had to show Alaska that we had seriously attempted to bring the size of government and government spending down before we would be allowed to talk about revenue.” The fiscal model, available to the public through the Governor’s Office homepage, is the same software used during the governor’s Building a Sustainable Future weekend conference held in Fairbanks June 5-7. With a budget that is about $800 million smaller than last fiscal year finally passed in the Legislature, the first round of cuts is complete. More are likely coming for the 2017 fiscal year, but the state likely can’t afford cuts nearly as severe. The 2016 unrestricted general fund spend will be $5.2 billion, which is down about 35 percent from roughly $8 billion in 2013. Cutting another $500 million from the 2017 fiscal year budget, a number Hoffbeck said has been bantered by some demanding smaller government, would require significant programmatic cuts to the three largest cost drivers: education, health care and state retirement plans. About three-quarters of the $800 million budget cut came from virtually eliminating the state capital budget, something Hoffbeck said can’t continue long-term. Outside of funding the Kivalina school construction, the only significant state funds in the capital budget will be used to leverage federal match dollars, largely for transportation infrastructure construction. Hoffbeck echoed a comment made often by Associated General Contractors of Alaska Executive Director John MacKinnon, that there are enough projects “in the hopper” from prior year appropriations to keep construction crews busy for a couple years. However, “if we don’t have an active capital program at some point in time we will have some very significant impacts on the construction industry in the state,” Hoffbeck said. Adding back construction spending, if done through straight appropriations, challenges future balanced budgets even further. MacKinnon said in an interview the state might have to look once again at bonding for large project investments, a practice that has fallen by the wayside. Hoffbeck touched on a suite of options to increase cash flow — taxes and Permanent Fund options — and which ones might make the most sense for the state, near and long-term. The computer model contains 30 revenue options for users to play with. Waiting for oil prices to rebound and hoping for increased North Slope production will likely leave Alaska with an empty wallet, based on a chart in the model. Even if oil returns to $80 per barrel soon, a price Hoffbeck says could be a sort of price ceiling for awhile, as it is roughly the price that shale oil production becomes profitable, and even if 800,000 barrels per day were flowing down the trans-Alaska Pipeline System, the state would still be $1.3 billion in the red with the 2016 budget. He was quick to note that the Walker administration won’t consider changing the oil production tax structure, saying, “the people have spoken,” in regards to the oil tax referendum held last August upholding the current regime. There are, however, “modifications at the edges” of oil taxes that could improve the health of state coffers, according to Hoffbeck, particularly in regards to Cook Inlet oil and gas production. While the Cook Inlet credits help keep the lights on in the region, they do not stimulate significant tax revenue. Taxes on Southcentral basin production were locked at 17 cents per thousand cubic feet of natural gas and no tax on oil when the state transitioned from the economic limit factor, or ELF, tax structure to the petroleum profits tax, or PPT, model in the mid-2000s, he said. “All of the money that goes into Cook Inlet is producing more gas, more oil, but there’s no real nexus with the treasury,” Hoffbeck said. Changing the base tax rate would not help much now in a time of lower oil prices, while changing the minimum oil tax rate would help now with per barrel price in the $65 range, but wouldn’t increase revenue significantly when prices increase, he said. Reducing the amount the state pays out in reimbursable and per barrel tax credits, each in the $700 million range annually, could help significantly. Reimbursable credits do not require companies to produce, they must only meet guidelines for oil and gas field activity. Per barrel credits are tied to production, are part of the overall tax regime and work with the minimum and base taxes to come up with the final production tax rate, according to Hoffbeck. However, what impact adjusting credits could have on producers’ willingness to invest is unknown. Instituting a natural gas reserves tax was popular at the Fairbanks conference because it swung the budget pendulum towards balanced very quickly, but ultimately it is a “net zero tax,” Hoffbeck said. Used while TAPS was being constructed, the industry paid a tax that it was then able to write off at a 50 percent rate on production until the reserves tax was essentially refunded. “(A reserves tax) can be used as a loan against future revenues but it would not make any sense unless a gasline is under construction,” he said. It can also be implemented as a stimulus to get producers to put their gas or oil into a pipeline. When it comes to personal taxes, Alaskans can’t complain. The national average is $2,300 per person, Hoffbeck said, while Alaskans pay about $500 per person, the lowest in the country. “Let’s face it, we’ve had it pretty good for the last 40 years,” he said. Instituting a health care provider tax — Alaska is the only state without one — would bring the state in line with the industry norm, he said. A personal income tax at 15 percent of one’s federal liability, which has been proposed in the Legislature, would generate about $500 million per year. Some local governments with sales taxes are opposed to adding another state sales tax, while others would like a state sales tax because a local tax could be tacked on and administered by the state, Hoffbeck said. Alaska’s fuel taxes, which total 11.3 cents per gallon, are the lowest in the country and about a third of the national average, according to the American Petroleum Institute. If earnings from Permanent Fund are used properly, it could be a way to generate significant general fund dollars without impacting the hallowed dividend checks. The Permanent Fund has been the largest revenue source for the state and greatly exceeded oil and gas tax income over the last three years. State investment revenue totaled more than $8 billion in fiscal year 2014, while petroleum-derived income tallied $5.7 billion. “We really are kind of at that tipping point that I think was in mind when the Permanent Fund was put in place, that at some point it would become the financial engine for the state,” Hoffbeck said. Revising how the fund’s earnings are used to an endowment-type format — an idea floated during the administration of former Gov. Frank Murkowski and the last time oil prices were low for a significant time — could allow the state to use the earnings for the general fund, Hoffbeck said. After pulling from the earnings for this year’s PFD checks, there is still about $7 billion in a Permanent Fund earnings reserve account, available for use. However, Hoffbeck did note he feels the booming domestic financial markets are due for a correction soon, which could dampen revenues if that happens in the short-term. Simply capping the PFD check at $1,200 this year would have generated between $500 million and $600 million for the state to use, he said. Also, borrowing against the state’s assets, the nearly $55 billion of them, and then generating a return on the loan could generate safe income, he said. “Most likely it would be invested more in real estate and other assets that generate dividends or monthly rents so that there would be annual cash flow each year,” Hoffbeck speculated. Investing about $1 billion per year over 10 years would mitigate risk and allow for a $300 million return if a feasible 3 percent return could be made on the borrowed-invested funds, he said. Playing with the Permanent Fund is another option in the computer model. Overall, Hoffbeck said the fiscal situation is not a crisis yet with $10 billion still in the Constitutional Budget Reserve account — before the fiscal year 2016 deficit is covered — but could become one quickly if the state does not act. The Walker administration hopes to unveil a fiscal plan late this summer, he said. Hoffbeck said a conversation he had with his wife prior to the Fairbanks conference in his view summed up the challenges facing the state. “I said, ‘If I do my job right this year, by the end of the summer I could be the most hated person in the state of Alaska,’” he recalled. “She said, ‘I’ll still love you, but don’t take my dividend.’” Elwood Brehmer can be reached at [email protected]

Anchorage marks a hundred years, a hundred languages

“English plus 99, so 100 languages.” That’s not how many languages are spoken in the country, or even Alaska. As of last count there were 100 different languages actively heard in the Anchorage School District, Philip Farson said. Farson directs the district’s English Language Learners program, designed to help students adapt to an English-centric learning environment. More than 1,000 new students enter the program every year, he said. As a result, he is one of the first people in Anchorage to see the city’s changing population through its new students and their parents. There are now 100 languages spoken in the Anchorage School District. From 1993 to 2015, Spanish remains tops in non-English languages spoken, and Lao is still fifth. Hmong-speaking students have jumped up to second place with 1,067. Currently, about 6,200 students are in the language program, 13 percent of the ASD student body. In all, more than 10,000 students are in, or have graduated from, English Language Learners; that’s one-in-five public Anchorage students. At the beginning of last school year, minority students comprised 57 percent the district, up from 45 percent 10 years prior, according to ASD. Farson said it’s more than just the surface data, however. What sets Anchorage apart from other districts nationwide is the diversity among traditional minority groups, he said. Often, a district will have a dominant second language, such as Spanish, and very few speakers of other languages, according to Farson. “There are many districts that have as many or more languages than we do,” he said. “It’s just that they don’t have them in the same kind of mix that we do.” While the number of students that primarily speak Spanish at home was second to English with 1,344 speakers last school year in Anchorage, Hmong, Samoan and Filipino speakers are not far behind. Yupik, the language of Western Alaska Natives, was fifth and spoken by 279 students, according to ASD data. The next highest Alaska Native language on the list was Inupiaq at eighth, spoken by 120 students. It is the language of Alaska Natives from the North Slope and Northwest Alaska regions. At every level, elementary to high school, ASD has some of the most diverse schools in the country as a result, according to U.S. Department of Education metrics. Farson and his staff of 150 teachers and paraprofessionals try to help each student understand English academically, while at the same time encouraging the students and parents to embrace their home language. He said some parents eliminate their primary language from their homes in an effort to immerse their children in English, a noble effort that can sometimes stunt a child’s vocabulary and language development. “We encourage (parents) to speak whatever language they are most fluent in,” Farson said. “We want the students to have models of rich language. The reason for that is, if you’re using a rich vocabulary at home that will transfer over.” The worldwide immigration to Anchorage is a relatively recent phenomenon. “I don’t think people realize just how diverse Anchorage really is, how much it’s changed over time and how much it continues to change,” Farson said. Historical census data backs him up. Nearly 84 percent of Anchorage residents identified as white or Caucasian in 1980. The next largest racial group was African Americans at 5.2 percent of the city’s population, followed closely by Alaska Natives or American Indians at 5.1 percent. People of Hispanic origin were 3 percent of Anchorage in 1980. By 2013, Caucasians made up exactly two-thirds of city residents. Asians, less than 3 percent of Anchorage’s population in 1980, were nearly 9 percent two years ago. The Alaska Native-American Indian population had risen to 8.1 percent and Hispanics or Latinos were all of a sudden 8.6 percent of the Anchorage population. Also, Pacific Islanders showed up on the list of the largest racial groups in Anchorage at 2.3 percent, while those identifying as bi-racial were nearly 8 percent of the city. African Americans were 6.3 percent of Anchorage in 2013. Nearly 10 percent of Anchorage residents were foreign-born in 2013, and 17.3 percent did not speak English, according to U.S. Census data. By comparison, about 78 percent of the U.S. population identified as white in 2013. Much of the growth of minority groups in Alaska’s largest city has happened within the last 15 years. Anchorage’s population increased 12.1 percent between 2000 and 2010. Its collective Asian, Native Hawaiian and Pacific Islander population grew almost 40 percent during the decade, and the Hispanic or Latino population increased by 23 percent. The Alaska Native-American Indian population kept pace with overall population growth at about 12 percent, while the number of Caucasians and African Americans each increased by less than 3 percent. About 10 percent of all Alaska businesses were owned by immigrants in 2010, according to the Immigration Policy Center, or nearly 3,400 statewide. The reasons behind the moves obviously vary as much as the people themselves, but a recent influx of Middle Eastern and North African refugees is sadly a result of conflict. Farson said he is beginning to see more Arabic-speaking individuals in his work, a trend he expects to continue. “Ten years ago we had no Sudanese; now we have 700 (in Anchorage),” he said. For many of the city’s residents, particularly refugees relocated by government officials, Alaska is all these newcomers know of the United States, Farson said. “America is whatever we are making it for them to be, and that’s true even for a lot of those that come here by choice,” he said. Cook Inlet’s earliest settlers, of course, were the Dena’ina. The Alaska Native people had permanent settlements north of the Anchorage Bowl at Eklutna, across Knik Arm from what is now Anchorage and along the western shore of the Inlet at Tyonek. Early immigrants to the city of Anchorage were primarily immigrants from Greece, Russia, Norway, Sweden and Denmark, according to a 2002 joint publication by U.S. Army staff at Fort Richardson and Colorado State University. They sought work building and operating the new Alaska Railroad. Anchorage residents referred to all newcomers as “Swedes” in the early days, Cook Inlet Historical Society President James Barnett said. Even in its early days, Anchorage was a place where immigrants were not marginalized like they were in other parts of the country, he said. Anchorage passed some of the America’s first anti-discrimination laws, according to Barnett. Its lack of social classes is partially a result of Anchorage being a young city and traditions that have always favored immigrants, he said. “We’re all newcomers,” Barnett said. “In every case as we’ve grown we’ve grown because we’ve embraced the newcomer.” The population explosion during World War II and the early Cold War was because of military expansion in the city, which brought soldiers and airmen with ranging backgrounds from all over the country north. As still happens today, many of the military personnel stationed in Alaska fell in love with the state and stayed, or came back when their service is complete. More than 15 percent of Anchorage residents are veterans, compared with an average of less than 10 percent nationwide, according to the state Labor Department. Alaska has the highest number of veterans per capita of any state in the union. More than 25 years ago, Anchorage resident and well-known community organizer Mao Tosi was one of the city’s newcomers. “I’m Samoan — warm everything — but my heart and my soul are rooted here in Anchorage, Alaska,” Tosi said. “So it’s to know that this place becomes home.” Tosi moved north from San Diego with his family in 1989 with the allure of jobs and a fresh start ahead, he said. Tosi was 12 years old at the time. Since, he has witnessed Anchorage become a more colorful community not afraid to discuss racial issues, Tosi said. “I moved here in 1989 and to see the changes from then to now, it’s what you hope for most cities, to grow in a way where there hasn’t been much in the news about the segregation or the division of our community,” he said. “That says to me that Anchorage, that Alaska, is much different from the rest of the country.” Malcolm Roberts is an advisor to the Bridge Builders of Anchorage board of directors. He helped found the group that focuses on bringing Anchorage’s communities together as a member of former Mayor Rick Mystrom’s staff in 1996. “It’s still that frontier mentality,” Roberts said, explaining Anchorage’s increasingly diverse population. His wife, Cindy Roberts, traced the attitude back to the area’s pre-Anchorage, gold rush days. “We need talent,” she said. Before transitioning to non-denominational Alaska Pacific University in 1978, Alaska Methodist University worked to bring Pacific Islander students to Alaska, part of the reason for Anchorage’s Tongan community, Malcolm Roberts said. People from all over the world continue to come to Anchorage for education, jobs and that welcoming attitude, according to Tosi. He said Anchorage also benefits from being a small city, in which newcomers can easily become involved and feel as though they are a part of the overall community. “Nowhere else in the country do I see any city move as quickly as we do when there are issues that we come together on,” Tosi said. The fact that Anchorage is often ranked among the best cities to call home in America is not lost on those worldwide. Many newcomers quickly encourage their relatives to think about giving the city a try, according to Tosi. “It’s spreading like wildfire that this is a good place to live,” he said. Elwood Brehmer can be reached at [email protected]

Interior budget bill cuts EPA, tries again on King Cove

Sen. Lisa Murkowski unveiled an Interior Department budget bill June 16 with funding limitations on the Environmental Protection Agency and a provision that could lead to an emergency access route for King Cove. “Many of Alaska’s key initiatives have been addressed, whether it’s how we access our lands and our resources for development to strengthen our economy; whether it’s how we conserve our lands for use by Alaskans,” Murkowski said during a teleconference briefing with Alaska reporters. The EPA’s budget was cut by nearly 7 percent, a $540 million reduction from the current fiscal year. Funding for its regulatory programs was cut by $57.1 million, but cleanup programs got an additional $21.5 million. Murkowski said the EPA budget finds a balance between caring for the environment while not adding “unduly and unnecessary regulations to thwart our opportunities and further hinder development.” In total, the bill authorizes more than $30 billion of discretionary spending, plus $1.05 billion for emergency firefighting. It is about $2.2 billion less than President Obama’s budget request. Murkowski, who chairs the Appropriations Subcommittee on Interior and Environment, said the bill also funds several Alaska Native priorities through Interior agencies, including funding for Tribal courts at the federal level for the first time. Nationwide, the first version of the 2016 fiscal year Interior budget commits $4.77 billion for Indian Health Services, a $135 million increase over 2015, with $20 million dedicated to easing the IHS facility construction backlog, according to a subcommittee bill summary. Another EPA-related provision attempts to halt the agency from implementing the pending Waters of the U.S. rule by blocking any funding to the regulation. The Obama administration argues the Waters of the U.S. rule simply clarifies the EPA’s jurisdiction over navigable waterways under the Clean Water Act, and thus where and when it can require Section 404 fill and dredge permits for development projects. Republicans contend it vastly expands the agency’s authority to even small creeks and dry-run ditches and would make permitting many resource development projects an even slower and more costly endeavor. Alaska’s congressional delegation has been exceptionally critical of the pending regulation given the state contains about 60 percent of the nation’s wetlands. A close reading of the regulation finds the actual impact is likely somewhere in the middle. The EPA has broadly interpreted the vague Clean Water Act since it was enacted more than 40 years ago, and the Waters of the U.S. rule mostly codifies current agency practices. It remains to be seen whether cutting off funding will have any impact on the effectiveness of the new rule as federal agencies often manage to deal with funding challenges. Specifically to Alaska, Murkowski said the budget bill also contains language that directs the Bureau of Land Management to remove permitting roadblocks for oil and gas projects in the National Petroleum Reserve-Alaska, and has similar provisions for mining on federal land. “We’re trying to eliminate some of the redundancy (in regulation) that leads to additional cost and further delay,” Murkowski said. Murkowski said a provision also directs the U.S. Forest Service to take stock of Interior Alaska timber resources for the first time. New Mexico Sen. Tom Udall, the ranking Democrat on the Interior Appropriations Subcommittee said he is disappointed by, among other things, the EPA funding cuts that hurt efforts to limit climate change. “It underfunds education and health care for Tribal communities. It shortchanges communities that depend on national parks and other public lands to support their local economies,” Udall said in a formal statement. “And it includes dangerous policy riders that undermine environmental laws that have kept our air and water clean, protected imperiled species and safeguarded sensitive ecosystems for decades.” Murkowski said the funding levels in the bill follow the Budget Control Act, known as sequestration, passed by Congress and signed by the president in 2011. The bill provides $2.73 billion for the National Park Service, which is $112 million more than 2015, but $321 million short of the president’s budget. President Obama requested a one-time $326 million appropriation to prep the country’s parks and monuments for the National Park Service’s centennial in 2016; the bill authorizes $110 million for the centennial initiative. King Cove road Murkowski touted a provision in the budget bill that would allow the State of Alaska and the Interior Department to negotiate a “fair trade” land exchange and allow the state to build a road from the Alaska Peninsula village of King Cove to nearby Cold Bay. The 11-mile section of gravel road — through what is now Izembek National Wildlife Refuge territory — would give King Cove residents overland access to the large World War II-era runway at Cold Bay, and thus safe access to medical care in Anchorage during bad weather. While the bill allows the feds to enter negotiations with the state, it does not require a deal to be accepted. Murkowski dodged questions from reporters about how the land swap would be any different than one passed by Congress and signed by Obama in 2009, but was denied by Interior Secretary Sally Jewell just before Christmas 2013. That land swap, part of an omnibus public lands package, would have given about 56,000 acres of Native village corporation and state land to the federal government in exchange for 206 acres in the Izembek Refuge. “We offered up a pretty good exchange with the law that was passed several years ago, a 300-1 exchange,” Murkowski said. Since, Murkowski has blasted Jewell on the issue every chance she’s had, saying the road will be built one way or another. Jewell has said the road would damage critical waterfowl habitat in the refuge, which is home to nearly all of the world’s populations of some migratory birds at certain times of the year. During a February visit to Alaska Jewell reiterated her stance on the King Cove road and said the issue was a done deal. Eventually Murkowski admitted a new land swap could be denied, but also said that wouldn’t happen. “We’re not going to let the Interior Department say they’re not interested; we’ve already gone down that road once before,” Murkowski said. “What we’re trying to accomplish through this policy provision is that the people of King Cove will have access to an emergency, lifesaving road to get to Cold Bay.” She did not elaborate on how she would prevent a repeat by the Interior Department during her brief availability. Whether the road is ultimately built could have a lot to do with the upcoming elections in 2016. Elwood Brehmer can be reached at [email protected]

AIDEA approves $52.5M purchase of Fairbanks Natural Gas

Nearly six months after the idea was announced, the Alaska Industrial Development and Export Authority board of directors approved the $52.5 million purchase of Fairbanks Natural Gas during a special meeting June 11. Included in the purchase price are all of the companies under Pentex Alaska Natural Gas Co., the parent company to Fairbanks Natural Gas and Titan Alaska LNG, which operates the small natural gas liquefaction facility at Point MacKenzie. The two LNG-powered trucks used to transport LNG to Fairbanks are also part of the deal. AIDEA estimates transitioning the ownership structure of the Fairbanks utility from private to public will save customers more than 13 percent on their bills nearly immediately. “We expect the Pentex acquisition to be a short-term strategic investment that can play a significant role in helping achieve the long-term success for the Interior Energy Project,” AIDEA Executive Director John Springsteen said in a formal statement. “This acquisition will promote an integrated gas distribution system that can be built and operated in a more efficient manner for the benefit of Interior Alaska residents and businesses.” AIDEA and Pentex leaders tentatively agreed to the deal back in late January, and in the meantime have been negotiating finer points while the authority has done its due diligence on the deal. The current management structure at Fairbanks Natural Gas, which serves about 1,100 customers in the heart of Fairbanks, is expected to remain in place to operate the utility after the sale. Resolutions passed by the AIDEA board allow for up to $54 million to be used from the authority’s Development Finance Program fund, with the added money above the purchase price for working capital. The sale, separate from but related to the Interior Energy Project, also includes Hilcorp’s $15.1 million deal to purchase and operate the Titan facilities. That deal is under review by the Regulatory Commission of Alaska and Attorney General Craig Richards and is set to close by late September if it passes the regulatory inspections. It would also lessen AIDEA’s total investment in Pentex to $38.9 million. The proposed Pentex purchase came under fire from some Southcentral Republican legislators when it was announced who questioned whether it is appropriate for the state to purchase a private company and potentially compete with other companies that might want to supply natural gas to the Interior. While AIDEA is a state entity controlled by the Commerce Department, it is a financially self-sustaining development organization in terms of its day-to-day operations. Local Interior government leaders have voiced broad support for the plan. AIDEA leaders have said they plan to sell Fairbanks Natural Gas to a local entity within two years — likely the Fairbanks North Star Borough, which controls the developing Interior Gas Utility. Combining the utilities could provide additional operational and capital efficiencies and subsequent savings to customers, those knowledgeable with the work have said. Elwood Brehmer can be reached at [email protected]

Anchorage's port of necessity

​Editor’s note: This is the eighth in a series of 10 articles by the Journal of Commerce recognizing the Anchorage Centennial and examining the events and the industries that have shaped Alaska’s largest city. The series will be released as a single special edition of the Journal in time for the Solstice celebrations June 20 and will be available at centennial events throughout the summer. The drive along the lower Kenai Peninsula affords views few places can offer: snow-capped and active volcanoes rise above blue, fishing boat-dotted water like a defensive line collapsing on a third-string quarterback. Some days that water is so smooth it appears one could skate on it. Looks are deceiving. The water is constantly moving, and fast. The tidal currents in Cook Inlet regularly exceed five knots. At the upper reaches of “the Inlet” — the home of Alaska’s largest city — the tide can fluctuate 35 feet in little more than six hours. Combine that with shallow channels, which the currents are constantly changing, and you’ve got a mariner’s nightmare. For these reasons, Alaska maritime historian J. Pennelope Goforth calls the Port of Anchorage “the port that wasn’t supposed to be.” It abruptly became the port of necessity on March 27, 1964, when the 9.2-magnitude Good Friday Earthquake dismantled every other large dock in Southcentral Alaska. “(Anchorage) was the only one left standing,” Goforth said. “Seward, Whittier, Valdez, just gone, and I think it was at that point that people started to realize all the things you need a port for.” Opened for business in April 1961, the single-berth, 600-foot pile dock that withstood the second-largest earthquake known to man is still at the center of operations at the port more than 54 years later. Before the first big city dock, the port was largely a hodgepodge of development, Goforth said. There was little more than Ship Creek’s infamous tide mud at the port site when the city formed in 1915. By 1917, Henry J. Emard had opened the Emard Packing Co. near where the docks stand today, according to records from the Cook Inlet Historical Society. “It was a nice little dock with a warehouse that employed a lot of local people processing salmon,” Goforth said. The salmon cannery primarily processed Susitna River chinooks, Goforth said. One of those locals was eventually Dan H. Cuddy, the longtime president of First National Bank Alaska. Cuddy, who died May 12 at the age of 94, who got his first job from Emard. In a 2001 interview with the Journal, Cuddy remembered what Emard said when he was promoted to cannery superintendent. “He said, ‘I hand you this leaky boat,’” Cuddy said. “It flattered me highly.” Cuddy eventually gave Emard a seat on FNBA’s board of directors. For years after the founding of Anchorage, most infrastructure was developed organically, Goforth said. The city of today was a scattered collection of small towns — Anchorage, Muldoon and Spenard. A June 1920 copy of the Alaska Railroad Record reveals that the city was happy with its dock, new in November 1919, at least for its ability to handle freight from the S. S. Admiral Watson. “From the time the vessel passed the Forelands until the moment she tied up at the dock not a minute of anxiety was experienced by the skipper on account of the floating ice and the only answer made by him to the questions of the skeptical concerning the possibility of the ship’s progress being retarded by the presence of the floating ice was a knowing smile and a pointing finger at the vessel, made fast to the big dock,” the Record reported. “That the construction of the new ocean dock represents a big economy in the matter of unloading of vessels is reflected in the fact that in less than 14 hours actual unloading time, 562 tons of merchandise were taken from the ship’s hold and loaded aboard flat cars standing along side.” The Admiral Watson also carried 137 first-cabin passengers when it docked on Nov. 15, 1919, according to the Record, the official publication of the Alaska Engineering Commission, the federal group tasked with building the Alaska Railroad. However, when the Admiral needed a berth for repairs, the dock didn’t fare as well, according to Goforth. “The city dock was not much wider than (40 feet) and they had the huge Admiral there trying to repair it,” she said. “After that they started to build a little bit more but it was still all individual efforts.” War boom As was the case with most things in early Anchorage, World War II changed that. The need for an industrial-size dock was exemplified in the city’s rapid growth during the war. In April 1940, Anchorage had about 4,000 residents. By the middle of 1941, military activity pushed the city’s population beyond 9,000; and by 1950, Anchorage had a population of 32,000 people. Military construction brought nearly $1 billion into the city, and the materials for that work needed to come through a port. In 1943, the Anton Anderson Memorial Tunnel was completed and linked Anchorage by rail to the deep-water Port of Whittier, which served as the military’s primary fuel terminal. Most commercial goods came via rail from Seward. Still, Anchorage’s freight demand outpaced handling capacity. Goforth said a cement barge was anchored along the Anchorage dock during the war to serve as an additional loading platform. After World War II, the country’s appetite for infrastructure and a new method of shipping combined to transform to Port of Anchorage into at least part of what it is today, she said. The standard method of freight delivery to mainland Alaska was born on the East Coast, according to the National Museum of American History. Malcom McLean, a trucker and businessman from North Carolina bought a small steamship company in 1955 with the idea of loading ships with full semi-trailers. The next year, the S.S. Ideal-X, a converted WWII-era tanker ship, sailed from New Jersey to Texas with 58 trailers aboard. Sea-Land Services Inc. was born. “It used to be break bulk cargo, which is you get 10 people in a line and throw boxes to each other from the hold of the ship,” Goforth said. She likened the change in transport methods to the change in computer code from “command to HTML.” And a few years later, in 1961, the Port of Anchorage was really open for business with gantry cranes, a 50,000-square foot transit shed and 52 acres primed for industrial development. Despite having a brand new infrastructure, insured for more than $5.5 million, the Port of Anchorage did not attract the traffic the city hoped for in 1961. According to the port’s annual report from that year, the city approved a budget that projected handling 130,000 tons of cargo generating $602,500 of revenue and $433,207 of net income. The budget was approved on April 17, 1961, days after the new port officially opened. “The success of the Anchorage Port facilities can only be achieved by handling bulk cargo destined for the Anchorage and Fairbanks areas, which objective requires a diversion of cargo now being handled through the Seward ‘gateway,’” the 1961 report stated. “The City of Anchorage and its port officials should continue their efforts to bring about this diversion.” After the barge Kevalaska unloaded 330 tons of construction materials and vehicles on April 21 — the first vessel to dock at the new port — the final 1961 tallies were as follows: 38,476 tons of freight generating $189,999 of revenue for a net income of $47,383. Port records also indicate discussions between the city and Shell Oil Co. in 1961 to move the company’s fuel products over the new pier and steal business from Whittier as well. “It appears that if the petroleum now being handled over the Ocean Dock and through Whittier can be attracted to Anchorage port facilities, the revenues from this source may be in excess of $100,000 per year,” the annual report states. Cargo tonnage grew steadily the next several years as the aforementioned petroleum business grew from 208 tons in the first year to 98,900 tons in 1963. However, it didn’t explode until there were no other docking options in 1964. Quake mostly spared Anchorage port The Good Friday earthquake inflicted more than $500 million of damage to Anchorage and the surrounding area, including rendering the ports of Whittier and Seward unusable for weeks. Rail and road links to Seward were also severed. At the Port of Anchorage, several hundred feet of railroad track was destroyed and the two of the four gantry cranes lost their counterweights, according to the 1964 report. In total, the port suffered about $1.5 million of damage, all but $100,000 of which was covered by insurance. On May 7, less than two months after the earthquake, Sea-Land’s 496-foot S.S. New Orleans containership called on Anchorage with 126 containers filled with food and construction supplies. It was the first containership run in the Pacific Northwest, according to Sea-Land. The New Orleans made the voyage from Seattle in four days. It averaged 17 knots per hour, a speed traditional barge traffic could not match. Today, Totem Ocean Trailer Express Inc., or TOTE, provides twice-weekly service to Anchorage with two, 840-foot vessels filled with semi-trailers ready to be rolled off the ship upon arrival. Matson Inc., formerly Horizon Lines Inc., provides Anchorage with regular containership service. By 1965, the first full year of operations after the earthquake, the Port of Anchorage handled 940,000 tons of cargo, more than two-thirds of which was petroleum products. That business grew steadily until 1975, when construction materials for the Prudhoe Bay oil field and the trans-Alaska pipeline increased the general cargo business by more than 40 percent in a single year. Since that first dock, the Port of Anchorage has expanded to include three traditional dock terminals and two petroleum terminals, with the small Terminal No. 1 right in the middle. The five docks handle 90 percent of the goods headed for mainland Alaska. In 2014, the port handled 3.45 million tons of cargo. Activity peaked in 2005 at just more than 5.1 million tons. The U.S. Army Corps of Engineers commissions more than $10 million of dredging every year to keep the Port of Anchorage open. Glacial silt from the rivers at heads of Knik and Turnagain arms would quickly fill shipping channels and cut off the city from large traffic without the annual maintenance. The now-scaled back Anchorage Port Modernization Project, still a $485 million endeavor — after $300 million was spent during the first expansion that began in 2003 — will replace and grow the dock infrastructure, while going to four main berths equipped for larger vessels. Elwood Brehmer can be reached at [email protected]

Federal judge allows Pebble case against EPA to continue

Pebble Limited Partnership’s lawsuit against the Environmental Protection Agency will continue as a federal judge denied the agency’s motion to dismiss June 4. U.S. Alaska District Court Judge H. Russel Holland concluded that while the EPA may not have established the three “anti-mine” groups as described by Pebble in its complaint — the Anti-Mine Coalition, Scientists and Assessment Team — agency staff could have utilized them to draft the pending determination to block development of Pebble’s copper and gold claims near Bristol Bay. The mining organization’s attorneys argued during a May 28 hearing that the agency was in cahoots with area tribes and mine opposition groups for years prior to and during the Bristol Bay Watershed Assessment process. The exhaustive assessment, which found large-scale mining would irreparably harm the region’s robust salmon fisheries, is the basis for the EPA’s attempt to preemptively stop Pebble through its Clean Water Act Section 404(c) wetlands protection authority. Pebble’s primary argument centers on the claim that the EPA violated the Federal Advisory Committee Act, or FACA, which requires agencies to remain objective and follow strict public notice and open meetings guidelines on policy issues when taking input from interest groups. “We are convinced the EPA has pursued a biased process against our project that then drove their actions toward a predetermined outcome,” Pebble CEO Tom Collier said in a formal statement after the order. “Our fight with the EPA has been about a fair and transparent process for objectively evaluating a development plan for our project once we have presented it via the permitting process. In addition to this case, we are seeking documents to show the EPA’s lack of transparency and action under the Freedom Information Act.” He also said the group has commissioned an independent investigation into the EPA’s actions in regards to Pebble. The EPA Inspector General is in the midst of a review of the Bristol Bay Watershed Assessment that began more than a year ago. As far as the court case goes, Pebble will now seek to depose federal employees and members of third-party groups involved in drafting the assessment, Collier said. The agency claims that even if it unknowingly violated FACA, Pebble had ample opportunity to provide input during more than 30 meetings with EPA officials since 2003 — long before the assessment process officially began in 2011. The United Tribes of Bristol Bay and Trout Unlimited Alaska, two staunch opponent groups of the mine, issued statements saying Holland’s ruling doesn’t change the fact that the science behind the assessment proves Pebble would damage the region’s aquatic resources. “This case is simply another delay tactic from Pebble. The company’s complaints about the federal advisory process — a process Pebble itself participated in —in no way changes the scientific fact that this mine, in this place, will devastate our fishery, “ UTBB President Robert Heyano said in a June 4 release. “Today’s ruling was merely a preliminary step in a judicial process that isn’t over, and if further litigation is the price necessary to protect the Bristol Bay fishery and our traditional way of life, then it will be well worth it.” In November, Holland issued an injunction to halt all work on the 404(c) process until the court case is resolved. He dismissed with prejudice Pebble’s allegations that the EPA established the Anti-Mine Coalition and Anti-Mine Scientists groups in the latest order. Holland also dismissed with prejudice Pebble’s claim for injunctive relief. The EPA was also relieved from answering chunks of the amended Pebble complaint, which it claimed violated court procedure. “(Pebble’s) first amended complaint is lengthy and does contain irrelevant and redundant allegations and unnecessary factual details,” Holland wrote. “But rather than dismissing the first amended complaint, the court will excuse the defendants from answering” the sections that do not pertain to the FACA accusations. Holland called Pebble’s original, 138-page complaint, an “outrageous violation” of court procedural guidelines when issuing the November injunction. Also on May 28, a three-judge panel from the 9th Circuit Court of Appeals dismissed a previous lawsuit by Pebble — also heard and dismissed by Holland last September — that the EPA overstepped its authority by beginning the 404(c) process before a mine plan or permit applications were submitted. It was determined that case was not ripe for a ruling until the mine veto was finalized. Elwood Brehmer can be reached at [email protected]

Fort Wainwright to house combat Gray Eagles

Fort Wainwright is getting nine Gray Eagle unmanned combat aircraft, according to a June 8 release from Alaska’s congressional delegation. The Gray Eagle Company includes 128 military personnel that will relocate to the Fairbanks-area U.S. Army base, the release states. Army officials told the delegation that there are plans to construct a permanent unmanned aerial system, or UAS, facility at Fort Wainwright if the funding is included in the 2017 fiscal year budget. In the interim, the aircraft will be stored in an existing facility. The delegation members said the announcement confirms the importance of Alaska to Department of Defense strategy. “Alaska is the tip of the spear when it comes to the Pentagon’s strategic shift to the Asia-Pacific, but the Pentagon clearly sees it as a superior choice to also respond to increasing military activities in the Arctic,” Sen. Lisa Murkowski said in a release. In February, the Defense Department revealed Joint Base Elmendorf-Richardson and Fort Wainwright are on a list of 30 bases across the country that could see force reductions as part of a budget control effort to cut the Army’s total force from 570,000 soldiers to 450,000 by 2017. Residents of Anchorage and Fairbanks turned out in droves during listening sessions to tell Army leaders how much the military presence in the state means to Alaskans. “The Gray Eagle Company will provide benefit to Alaskan service members by allowing them to train as they fight — with support from Gray Eagles, Apaches, and Air Force assets at JBER and Eielson (Air Force Base),” Rep. Don Young said. Sen. Dan Sullivan, a Marine Corps Reserve officer, said military intelligence, surveillance and reconnaissance has never been more important. “Now more than ever, ground commanders need to see and understand the battlefield, and the Gray Eagle is a critical component of for the U.S. Army to do that,” Sullivan said. “Importantly, basing the Gray Eagle at Fort Wainwright, near the Joint Pacific Alaska Range Complex, will give the U.S. Army access to some of the world’s most expansive and robust training ranges.” The General Atomics Aeronautical Gray Eagle is a large UAS with a 56-foot wingspan and a ceiling of 29,000 feet. It has a maximum flight time of 25 hours, according to the manufacturer. Elwood Brehmer can be reached at [email protected]

Judge allows Pebble case against EPA to continue

Pebble Limited Partnership’s lawsuit against the Environmental Protection Agency will continue as a federal judge Thursday morning denied the agency’s motion to dismiss. U.S. Alaska District Court Judge H. Russel Holland concluded that while the EPA may not have established the three “anti-mine” groups as described by Pebble in its complaint — the Anti-Mine Coalition, Scientists and Assessment Team — agency staff could have utilized them to draft the pending determination to block development of Pebble’s copper and gold claims near Bristol Bay. The mining organization’s attorneys argued during a May 28 hearing that the agency was in cahoots with area tribes and mine opposition groups for years prior to and during the Bristol Bay Watershed Assessment process. The exhaustive assessment, which found large-scale mining would irreparably harm the region’s robust salmon fisheries, is the basis for the EPA’s attempt to preemptively stop Pebble through its Clean Water Act Section 404(c) wetlands protection authority. Pebble’s primary argument centers on the claim that the EPA violated the Federal Advisory Committee Act, or FACA, which requires agencies to remain objective and follow strict public notice and open meetings guidelines on policy issues when taking input from interest groups. The agency claims that even if it unknowingly violated FACA, Pebble had ample opportunity to provide input during more than 30 meetings with EPA officials since 2003 — long before the assessment process officially began in 2011. In November, Holland issued an injunction to prevent the EPA from finalizing the 404(c) process until the court case is resolved. He dismissed with prejudice Pebble’s allegations that the EPA established the Anti-Mine Coalition and Anti-Mine Scientists groups in the latest order. Holland also dismissed with prejudice Pebble’s claim for injunctive relief. The EPA was also relieved from answering chunks of the amended Pebble complaint, which it claimed violated court procedure. “(Pebble’s) first amended complaint is lengthy and does contain irrelevant and redundant allegations and unnecessary factual details,” Holland wrote. “But rather than dismissing the first amended complaint, the court will excuse the defendants from answering” the sections that do not pertain to the FACA accusations. Holland called Pebble’s original, 138-page complaint, an “outrageous violation” of court procedural guidelines when issuing the November injunction. Also on May 28, the federal a three-judge panel from the 9th Circuit Court of Appeals dismissed a previous lawsuit by Pebble — also heard and dismissed by Holland last September — that the EPA overstepped its authority by beginning the 404(c) process before a mine plan or permit applications were submitted. It was determined that case was not ripe for a ruling until the mine veto was finalized. Elwood Brehmer can be reached at [email protected]

Anchorage & aviation: Flying through time

Editor’s note: This is the seventh in a series of 10 articles by the Journal of Commerce recognizing the Anchorage Centennial and examining the events and the industries that have shaped Alaska’s largest city. The series will be released as a single special edition of the Journal in time for the Solstice celebrations June 20 and will be available at centennial events throughout the summer. “Owning a Widgeon, living in Anchorage and flying in Alaska, there’s just nothing left. You just can’t get any better than that,” said George Pappas in his deliberate cadence, with the hint of a grin showing through. The 86-year-old Pappas has lived the history of aviation in Anchorage for more than 60 years. For nearly 30 of those years he used the versatility of his Grumman Widgeon, an amphibious twin-engine aircraft, to enjoy the fruits of Southcentral Alaska and run a rare breed of business. A farm kid from Western Nebraska, Pappas came to Anchorage by way of California in 1953 with a new airframe and engine mechanic’s license (known today as an airframe and powerplant, or A&P, license). Growing up on the Great Plains, Pappas knew right away as youngster that raising sugar beets, the family profession, was not for him. “There was nothing I wanted more than to get involved in aviation,” he recalled. “Being a dirt farmer just wasn’t my way, wasn’t something I had any interest in.” His traditional education ended in the eighth grade, at age 12, when a bone infection pulled him out of school and put him in the hospital. At the time, Nebraska had a vocational program for kids in his situation. However, without an aeronautical program to fit his desire near home, Pappas headed to The Golden State to learn about the insides of airplanes. He graduated in 1948 at age 19. “That was very young for someone to have that license and frankly I didn’t know a damn thing,” Pappas said. His training timeline was backwards compared to most aircraft mechanics of the day; he got his education first and then began gaining experience with airplanes. When he arrived in the Territory of Alaska in the spring of 1953, he knew instantly he didn’t want to leave. “It was a glorious summer, just like we’ve had these past few weeks,” Pappas said June 1 from his Anchorage home. “I just knew that I had died and gone to heaven. Here I was in this beautiful place with beautiful weather and I was up to my armpits in airplanes.” He had landed a job as a mechanic with Alaska Aeronautical Industries, a maintenance shop at Merrill Field. An aircraft mechanic without a pilot’s license, it didn’t take long for his new acquaintances around Merrill to get Pappas into the cockpit of a Cessna 140, the plane he learned to fly in, he said. In 1956, with a new job at a local Cessna dealership, Pappas really began putting his pilot’s license to use. He started running “ferry trips,” flying commercially to the Cessna factory in Wichita, Kan., and returning in a new Cessna back to the dealership in Anchorage. “In the spring I would go to Wichita and pick up an airplane — first stop out of Wichita is West Nebraska so I could visit my folks,” he said. Pappas first flew a four-seat Cessna 170 north from Kansas, and eventually flew nearly every small plane the company made over the years up to a Cessna 206. He made the convenient trip off and on for nearly 30 years, he said, sometimes multiple times a year and often with his wife, Ruby, also a pilot. Pappas followed the Alaska Highway through Canada, a method of navigation that astounded Outside pilots, who said they would worry about getting lost above the wilderness. He said it was actually harder to stay on course farther south. “You take off out of Wichita and there’s just roads and railroads everywhere — pretty hard to navigate following a map,” Pappas recalled. “But once you get out of Great Falls, (Mont.,) and head north there was one road to follow.” The advent and popularity of the Cessna 180, a larger, more powerful four- or six-seat plane than the 170 series, helped Pappas launch the business he ran for 50 years, he said. Pappas formed Aircraft Rebuilders in 1959 after being tasked with recovering a ditched Grumman Goose near Redoubt Bay along West Cook Inlet. “The snow was about eight feet deep. The airplane was sitting out there and you could walk right over the top of it,” Pappas described. “It was the damndest thing you ever saw, but I managed to get down under it and I could see what was damaged and what it took to be repaired.” So, he flew back to Anchorage in a borrowed Cessna 170 and returned with new landing gear, parts to patch the fuselage and a piece of plywood to replace a window, he said. The plane was on an oil exploration site, so with the aide of a nearby crane it was lifted out, repaired, and flown home by an out-of-work Goose pilot Pappas paid $100 for the trip. “He took off (on the snow) on the hull just like water with the gear up and then when he got back to Merrill he could put the gear down and land on Merrill,” he said. “He beat me back to town by quite a bit and when I landed there was my repair job parked right in front of the hangar and I was in business.” Alaska Air Carriers Association Executive Director Jane Dale described Pappas as a “sheet metal wizard,” able to repair nearly anything that was remotely salvageable. Pappas credited the Cessna 180s for the duration of his recovery and repair business. The newer, expensive planes were “heavily financed and heavily insured,” he said, meaning there was great interest in getting damaged ones back in the air. “Whoever had an accident — you’d hardly stop sliding and there’d be an insurance adjuster there wanting to get that airplane back to get repaired,” Pappas said. With his Grumman Widgeon, Pappas could not only get to the best fishing spots on land or sea, but he could also land alongside nearly any downed plane that needed saving. When the repair business dried up in the 1980s as the major fleet of 180-series Cessnas aged, he moved Aircraft Rebuilders off of Merrill Field and transformed the business to primarily a custom parts shop. Pappas was honored by the Air Carriers Association as an Alaskan Aviation Legend in 2013, one of more than 40 individuals the association has recognized for their contributions to Alaska aviation culture since 2012. Dale said the acknowledgments were started the association board and former director Joy Journeay. “(Pappas) is quite a brilliant man and we’re just honored to be able to recognize him and share his story and get to know him,” Dale said. Wein, Merrill and McGee Thirty-one years before Pappas moved north, an Anchorage machinist named C.O. Hammertree changed Anchorage forever. His Boeing seaplane arrived on April 24, 1922, and introduced the infant city to aviation for the first time. The first flight in the state took place in nine years earlier on July 3, 1913, in Fairbanks. The first Anchorage flight was short-lived. Roy Troxell took off in the plane over Cook Inlet and began to turn back to the city once he gained a few hundred feet of altitude, according to an account of the flight by the municipality. Troxell quickly crashed in the mud flats and survived the accident, but the Boeing did not. In 1923, a year after Troxell’s ill-fated first flight, a strip of land at the edge of the Anchorage was cleared for a nine-hole golf course and a small runway. By the following summer of 1924 the Delany Park Strip was open for business. On July 4, having been in Alaska less than two months, Noel Wien performed aerial stunts in Hisso Standard biplane he named “Anchorage” to commemorate the opening of the park. A pioneering Alaska bush pilot, Wien also made the first flight between Anchorage and Fairbanks that same July. With his brothers Ralph, Sig and Fritz, he founded Wien Air Alaska in 1927, the first airline in the state. According to the National Aviation Hall of Fame, the quartet made $4,000 in the first two months of the airline. The state’s largest airline — Alaska Airlines — also traces its roots to this period. According to its official history, the airline dates to 1932 when Mac McGee began flying a three-seat Stinson between Anchorage and Bristol Bay; later McGee Airways merged with Star Air Service to become the state’s biggest in 1934. Alaska Airlines cemented its statewide reach in the late 1960s when it merged with Alaska Coastal-Ellis and Cordova airlines, and then acquired Horizon Air in 1987. Growth in the early industry spurred the development of Aviation Field in August 1929, Anchorage’s first dedicated airport. The city had crept beyond Ninth Street and the park strip couldn’t handle the flight activity. It had two runways and was almost instantly one of the busiest airports in the world. On April 2, 1930, the Anchorage Woman’s Club successfully pushed through a resolution to change the name of airport from Aviation Field to Merrill Field, in honor of Russel Hyde Merrill, another Alaska aviation pioneer, according to the municipality. Among other accomplishments, Merrill is known for being the second pilot to fly from the Lower 48 to Alaska. He also mistakenly found the most advantageous route through the Alaska Range from Anchorage to Bethel in November 1927, when he flew farther south than intended and went through what is now Merrill Pass. Less than two years later, Merrill had become a busy commercial pilot. During his third flight of Sept. 16, 1929, bound for Bethel, Merrill disappeared. A month later part of the tail of his plane was discovered on a beach along Cook Inlet. The cause of the crash is still unclear. A year after it officially became Merrill Field, the Woman’s Club got the city council to approve a tower and signal beacon at the airport. Also in 1931, the park strip was closed to aircraft and Merrill Field was it for Anchorage — on land anyway. All good in Lake Hood Once sporadic but consistently growing seaplane activity forced development the Lake Hood seaplane base in 1938. That year a channel was dug between lakes Hood and Spenard, thus creating what is today the busiest seaplane base on Earth. The Lake Hood Seaplane Base served 67,000 flight operations in 2012, according to a McDowell Group economic report. In June alone that year, there were 13,159 operations, an average of 439 per day. Lake Hood in total contributed 230 jobs and $42 million to the Anchorage economy in 2012, the study estimates. The floatplane hub — surrounded by wilderness when the channel was dug — also got a 2,200-foot gravel runway. World War II provided the state, particularly Southwest Alaska, with runways and airports. Infrastructure the military built during the early 1940s to support the war effort quickly turned civilian in the late ‘40s and ‘50s, PenAir founder Orin Seybert said. When Seybert founded Peninsula Airways Inc. in 1955 he was “just a kid out of high school and one airplane,” he said. That airplane was a two-seat Taylorcraft and Seybert was 19 years old. Peninsula Airways was shortened to its current “official nickname” of PenAir by passengers who refused to say the whole name, he said. Today, Seybert has logged more than 30,000 hours in a cockpit and serves on the Board of Directors of the Alaska Aviation Heritage Museum on the south shore of Lake Hood. He is also a former president of the museum. Seybert is eager to show off the restored aircraft and artifacts the museum has collected. “It’s so important to preserve this aviation history because it’s so unique in the whole United States,” he said. Anchorage goes International It wasn’t until 1948 that Anchorage’s flagship airport was born. In May, Congress authorized site selection for the airport and approved $12 million for its construction, which began the following spring. The site adjacent to Lake Hood was selected because it was away from the city and there was already a road from Anchorage to Lake Hood. It was open for business in January 1952 with two runways, a main 8,400-foot east-west runway and a 5,000-foot crosswind strip. A wooden control tower shipped in from Yakutat was used until the terminal was finished the following year, when the wooden tower was moved to Lake Hood. The Anchorage International Airport was transferred to the State of Alaska, its current owner, as a part of statehood in 1959. It was assessed at $11.65 million just prior to the transfer. The main runway grew to longer than 10,000 feet in 1961 and parking aprons were enhanced to handle growing commercial jet traffic. There was one fatality at Anchorage International during the March 27, 1964, earthquake. Tower controller Bill Taylor was killed when falling debris struck and killed him as he came down the tower stairs. Lighting and electrical systems were damaged at Lake Hood and the International Airport, but daylight operations resumed at the airport the following day. In the 51 years since the earthquake, the Anchorage International Airport, now named after the late Alaska U.S. Sen. Ted Stevens, has gone through a couple business transformations. In the 1970s, international passenger traffic was king in Anchorage, according to airport manager John Parrott. Before the Soviet Union opened its airspace, planes flying between Europe and Asia made a technical stop in Anchorage to refuel while on the circumpolar route. As Boeing’s 747 became the de facto choice for trans-ocean travel later in the decade, it was believed the stop in Anchorage would become obsolete, Parrott said, but that didn’t happen. Rather, the passenger business in Anchorage collapsed with the Berlin Wall and the opening of Russia’s skies. Fortuitously, Asia’s manufacturing industry and FedEx were growing rapidly at about the same time, Parrott said, and Anchorage International Airport quickly transitioned from a passenger stop to one of the world’s busiest cargo hubs — a title it retains today. Anchorage was the fifth-busiest cargo airport in the world in 2013, according to the Airports Council International. Nearly 2.5 million metric tons of freight landed at the airport two years ago. Domestically, Anchorage was second behind Memphis International, FedEx’s homeport. Even with most major cargo airlines flying the latest and long range capable 747-8s, it makes economic sense for the jumbo jets to carry more cargo and less fuel — thus making a technical stop in Anchorage — on their way from Asia to the Lower 48, rather than sacrifice carrying capacity to fly direct. Parrott said the latest 747s can make a trans-Pacific flight if about 100,000 pounds of cargo capacity is sacrificed. “At a dollar a pound, that’s $100,000 for stopping here,” per flight, he said. Aviation an economic force The impact aviation has had on Anchorage is visible everywhere. Ted Stevens Anchorage International Airport supports one of every 10 jobs in the city, either through direct jobs in the terminals and hangars or a myriad of related offsite positions, according to the Anchorage Economic Development Corp. Merrill Field and Lake Hood are still the centers of general aviation and small air-taxi services, many of which cater to the ever-growing tourist industry. Pappas and Seybert said the busy skies above Anchorage haven’t changed much over the years and the pilots familiar with the airspace know where to go and generally stay out of trouble without issue. However, Pappas said pilots he’s flown with from Outside are astounded at the number of planes in the sky. The one difference Pappas noted is that fewer flights out of Merrill Field are simply pilots flying for fun, mainly because of the cost of planes and fuel, he said. Yet, “there’s no place that has traffic like Merrill Field does on a sunny day,” Pappas said. And Anchorage’s airports — the five controlled airports among the 20-some uncontrolled lakes and airstrips within the municipal limits — still help support the 82 percent of Alaska communities that are reached only by boat or plane. Dale, of the Alaska Air Carrier Association, said during a recent meeting with Federal Aviation Administration leadership she was approached by an astounded FAA official. “He said, ‘Jane, what’s that number you just said, 82 percent of the communities?’” Dale recalled. “Not everybody is aware of that but it’s still incredibly relevant. All of the industries (in Alaska) rely on commercial aviation.” Its biggest city is no different. Elwood Brehmer can be reached at [email protected]


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