Naomi Klouda

Transport rules examined; pot event organizers fined

The director of marijuana law enforcement would like to see new requirements to tighten security for transportation via the road system including advice on locking products in a vehicle and where to store marijuana overnight. James Hoelscher gave a report to the Marijuana Control Board June 14 on possible revisions to current practices. A transporter now can have a backpack or duffle bag of marijuana or products in the back seat or trunk of their car as they travel on the road system. To differentiate them from black market operators, they travel with a manifest that is filed ahead of time with Metrc, the state’s tracking contractor. The printed manifest provides an address from point A to B and all the planned stops in between, even a bathroom break or gas fill-up. Notices of violation were issued to a Fairbanks grower this spring after the manifest didn’t contain all of the transporter’s expected stops. In transportation regulations, the board “has clearly stated marijuana needs to be sealed and locked inside the vehicle” and can’t be open during transport, Hoelscher said. The person driving the product from the cultivator to the retail store can’t make stops in between except as specified on the manifest. But what happens now isn’t safe, he said. The transport can be “one of the most vulnerable points in the chain.” If transportation is an extension of a business’ license to operate, then security measures along a highway need to be tighter by spelling them out in new regulations, he said. “It hasn’t happened yet, but suppose a vehicle gets stolen or a licensee is robbed?” Hoelscher asked the board. “Now that’s my concern.” If a car is broken into, not only the marijuana gets stolen. The cash does as well. Colorado and Washington both require strong boxes that are welded into the vehicle. “That box is secured and locked in Colorado and Washington,” Hoelscher said. “(A thief) can get to it if they have time. The purpose is to make it a deterrent and so difficult it’s not worth the effort. If there’s a report on the manifest that the product hasn’t arrived on time, we may have good idea of where it will be.” The vehicle then could be quickly located by law enforcement. Compared to a locked box, a gym bag takes away aspects of security and offers no deterrent, he added. Also, what happens when a transporter has to break for the night, sleeping at a hotel or a friend’s house? In that case, Hoelscher recommends the transporter take the marijuana to be stored overnight at a licensed marijuana facility. “Alaska is Alaska and there will be weather or mechanical issues,” he said. “But there are licensees and I hope they go by the golden rule to treat others as they want to be treated. If I got stuck in let’s say Sitka, I would hope a Sitka licensee would let me manifest the marijuana into their facility.” Retail stores and cultivators, any marijuana business operating legally, will have cameras and safe boxes for keeping overnight. Bringing it to a hotel room or into a friend’s house overnight raises too many security questions, Hoelscher said. Currently, the manifest that contains all the information pre-filed on Metrc helps with security because Metrc will notify AMCO if a package doesn’t show up after 12 hours. So far, Hoelscher said, transporters have been diligent in changing the manifest when they decide they don’t need to stop, or do need to schedule one. As for issuing violations for not following the manifest, Hoelscher said enforcement takes a look at the whole picture first. “We would look at all things. What efforts were made to update the manifest or contact with AMCO, and what were their efforts to secure the product?” he said. AMCO wouldn’t necessarily write a violation notice. Chairman Mark Springer saw all these as legitimate concerns. “I wouldn’t be adverse to seeing a new regulation project to flesh out these out,” he said. Festival organizers fined A couple who sell “judgeships” for a marijuana competition they put on annually called the Alaska Cannabis Classic was fined $10,000 by state regulators after people lit up at their event and then posted the activities on Facebook. They were also fined $10,000 for illegally selling marijuana without a license. But the combined $20,000 fine was reduced to $5,000 after $15,000 was suspended on the condition that the Cory and Kendra Ray do not commit similar offenses in the future. Alcohol and Marijuana Control Office Executive Director Erika McConnell told the board June 14 that she had a lot of dialogue prior to the May 19 Cannabis Classic with the event planners, who are Oregon residents who hold similar events at various west coast locations. The couple advertised the classic as an event meant to increase the quality of marijuana products through education and competition. About a week prior to the event, McConnell learned that the Wrays were advertising a bake-off competition. It asked for bakers to submit a minimum of 100 servings in one of the six categories and advertised that judges would evaluate the appearance, tastes, aroma and “effect.” McConnell contacted the Wrays to let them know this event was not legal and the state would seek a restraining order of they moved ahead. The Wrays changed the bake-off rules to exclude cannabis infusion. McConnell said she also warned the Wrays in writing that public consumption of marijuana is illegal, and it is illegal to sell marijuana without a license issued by AMCO. Yet, at the event, from 6 to 9 p.m. at 420 W. Third Ave., participants were clearly seen smoking pot and posting photos of the event on Facebook. One of the two civil fines McConnell wanted imposed was for allegedly selling marijuana without a license. The contention by AMCO is that the Wray’s competition, which involves selling judgeships for $350 to people who pass a test of written questions on marijuana, allows participating judges to pick up samples they “must consume and rate the products before the Cannabis Classic.” “Essentially, the Wrays are selling marijuana to individuals through their website,” McConnell wrote in her memo to the board. Then, despite being clearly informed that there could be no onsite consumption at the Cannabis Classic, the “Wrays made no apparent effort to prevent public consumption of marijuana at the event, and allowed a vendor, Bushwackers, to light joints and hand them to consumers,” McConnell wrote to the board. State law allows less than an ounce of marijuana to be given away. The location where the event was held is owned by Robinson Garcia, who was also recommended for a $10,000 fine by McConnell. The violation reads that Garcia should be fined for allegedly “knowingly allowing, on his property, violations of the (statute) which prohibits public consumption of marijuana.” The Third Avenue building formerly housed a marijuana social club called Pot Luck that closed on April 21, 2017, after McConnell and state Attorney General Jahna Lindemuth declared to be operating illegally. Garcia told the board he had specified “no consumption” in the rental contract signed by the Wrays. “I did what I was asked to do,” Garcia told the board. “I don’t see the justification for this.” In the end, the board agreed not to fine Garcia after board member Nick Miller, a marijuana business owner, noted that it’s not so common to fine “landlords after those renting his venue went out of control.”

Board ponders tax changes as $1M per month pours in

A million dollars per month in marijuana taxes paid mostly in cash to the Alaska Department of Revenue is creating a few headaches. About 76 percent of all taxes are paid in cash, Tax Division Director Ken Alper said, and the rest comes in money orders. The Department of Revenue made a presentation June 13 before the Marijuana Control Board at its meeting in Anchorage to address the issue of taxes. The board is pondering a recommendation to the Legislature to change the tax structure on the industry to a retail tax from the current flat excise tax on cultivators, but wanted input from Revenue before making its proposal. That led to an in-depth discussion about what’s currently going on in the cash-only industry. Chairman Mark Springer asked if collecting taxes in cash “stinks as much as you thought it was going to?” “Yes,” said Revenue Audit Supervisor Kelly Mazzei, who made the presentation to the board with Alper and Deputy Director Brandon Spanos. Large volumes of cash necessitated the recent purchase of a new money counting machine at the Department of Revenue. The new machine, similar to what banks use, cost $20,000. “We’ve had one since we started accepting cash,” Spanos said. “But it had only two trays. One tray for cash and two for the money to come out. We needed to separate it by denomination and it takes more time. We’ve lost bodies in the Tax Division due to budget cuts so we’re doing more with less people. In order to continue to process the same amount of cash, we’ve purchased a larger machine with nine output trays.” Over the past four years, the Revenue Department lost 22 positions to budget cuts and is down to 107 positions to handle the different taxes the state collects. Meanwhile, the number of taxpayers continues to grow as new marijuana cultivation licenses are granted. That wasn’t a bad problem to have when the state began collecting incrementally more in taxes per month, Revenue officials said. “It’s been a big headache over the past few years,” Spanos said. “We’re pleased that we are able to accept the payments and process them, but it would make things easier if Congress did something to help banks feel more comfortable taking the cash. And it would be safer for everyone, not only for our employees.” Revenue hires an armored truck to take the money to the bank, Spanos said. The cash counting activity goes on almost daily, he said. The many questions from business owners also resulted in spending a considerable amount of time on the phones, Spanos said. “We talk with every new licensee on the phone. We’re getting welcome packets to everyone and issue instructions on how to pay in cash. We’ve done more FAQs. Then the almost daily processing of cash and the cost of transporting the cash,” Spanos said. “And it’s not slowing down.” Other states such as Colorado, California and Oregon have also been struggling with the cash-only nature of the business. Board member Brandon Emmett found, while attending an industry conference in Washington, D.C., that Washington state has adapted by having the taxpayers make a deposit at a specific bank. “They have worked out that 97 percent of their tax payments are made through Salal (Credit Union of Seattle) to alleviate safety concerns,” he said. “Have you explored doing something like that?” Alper responded that yes, they’ve explored establishing a bank account that the industry taxpayers can use to make direct payments to the Revenue Department. “The problem is that no bank or credit union is willing to work with the industry. If one were to step forward, we would work with them,” Alper said. The fear is that, given marijuana’s continued listing as a Schedule I drug in the federal Controlled Substances Act, banks could be charged with breaking the law by accepting money from the industry. But these smaller credit unions, such as Salal, have worked out ways to remain in compliance with state laws and early on received the guidance of the U.S. Treasury’s Financial Crimes Enforcement Network, or FinCEN. In February of 2014, just as Colorado and Washington were setting up their recreational marijuana markets, FinCEN released guidance saying that they would not charge a bank with federal crimes for accepting weed money if the financial institution made sure that the business was following all state laws and the directives of a previous memo from the Department of Justice, according to an industry publication called The Stranger. As for progress made proposing a shift in how the Alaska industry is taxed, the board is still in the fact-gathering mode, Springer said. At the June 13 board meeting, discussion was also tangled up in what voters intended in supporting the initiative that made marijuana legal. Board member Loren Jones noted that the $50 per ounce tax at the cultivator level was put to the public as part of the initiative when they voted to make marijuana legal in the state. “Now we’re going to come back and say it’s not right. Now we’re saying it’s killing the industry,” Jones said. “Every industry says it’s overtaxed.” But board member Emmett countered that there’s shame in admitting they “got it wrong.” “It was palatable to voters at the time, but it’s not working. If we had a black market on the ropes, almost stamped out, then it wouldn’t be an issue,” Emmett said. As it is, the legal industry has a hard time competing on prices to customers when they must calculate in $800 in taxes per pound of marijuana. Growers in California and elsewhere are making illegal shipments to Alaska that continue to fill the black market niche. To be more competitive, prices at the counter for marijuana sales need to be lower, matching with the high supply available from Alaska’s 90 cultivators, he said. Considering the industry brings in about $10 million monthly in revenue and pays $1 million a month in taxes, the tax is working out to be 10 percent, Alper pointed out. “That’s not a gigantic tax when you look at the whole picture,” he said. Only the Alaska Legislature can change tax laws. Alper said the Department of Revenue will be running various scenarios for a report for the board in the coming months to help it decide on what to recommend to the Legislature. Naomi Klouda can be reached at [email protected]

Millions in federal funds flow toward opioid epidemic

Look for fairly consistent funding to flow into programs combating the opioid crisis over the next several years after Alaska was designated the recipient of three grants to pay for more treatment and more law enforcement. Gov. Bill Walker declared an opioid crisis on Feb. 14, 2017, prior to the national public health emergency declaration that came from President Donald Trump last October. Since then, the state has secured more than $5 million in funding for key rehab and law enforcement work ahead. A McDowell Group study estimated the costs of Alaska from the opioid epidemic to be more than $1 billion in 2015. Funds were made available through the Substance Abuse and Mental Health Service Administration, or SAMHSA. Alaska is utilizing two SAMHSA grants to support treatment expansion. One, under the 21st Century Cures Act, has provided the State of Alaska with $2 million annually for two years through a State Targeted Response grant. It is focused on increasing access to treatment and addressing unmet treatment and recovery needs, said Andy Jones, the director of the Office of Substance Misuse and Addiction Prevention in the Department of Health and Social Services. Another goal is reducing overdose related deaths through prevention, treatment and recovery activities for people suffering opioid use disorders. Three facilities that provide treatment for high-risk populations were awarded these funds: Interior AIDS Association in Fairbanks is providing medication assisted treatment, counseling, and case management; Cook Inlet Council on Alcohol and Drug Abuse in Kenai is providing comprehensive addiction services, including medication assisted treatment in the Kenai area who are struggling with opioid use disorders; Fairbanks Native Association began an integrated opioid treatment project that provides outpatient opioid use disorder treatment integrated with medication assisted treatment. A second grant came from the Medication-Assisted Treatment Prescription Drug and Opioid Addiction program sponsored by SMHSA. It provides the state with $3 million over three years to expand access to medication-assisted treatment services for those with opioid use disorder. Two grantees were awarded these funds: the Narcotic Drug Treatment Center of Anchorage to double capacity to 200 people; and the Bartlett Rainforest Recovery Center in Juneau, to increase the number of people it can serve to 75 per year. A third program, this one from the Department of Justice called the High Intensity Drug Trafficking Area, will go to law enforcement for increasing resources to fight against the illegal trafficking. The designation allows Alaska to share in a $275 million federal program that coordinates law enforcement efforts targeting the distribution and sale of illegal drugs. Alaska hasn’t yet officially received the final award amount, Jones said. “This gives us quite a few dollars to expand treatment,” Jones said. Work so far Jones said a coordinated effort began to build momentum after the 2017 declaration by the governor. The glue that held it together was weekly meetings of the Alaska Opioid Policy Task Force that included Walker and heads of state agencies, Jones said. “We didn’t talk about what we want to do,” he said. “We talk about what we are doing.” When Walker issued an administrative order that said the Department of Health and Social Services should look for federal grants and address the crisis head on, “he held our feet to the fire,” Jones said. “We met every week, and now we meet monthly. We are continually briefing the governor. He has been very involved in this,” he said. Dr. Jay Butler, chief medical officer at the Division of Public Health, said getting a handle on this kind of epidemic is different from other health emergencies. “It’s a complex disaster. Different from say, a response to an influenza pandemic. We have multiple levels of response that’s needed and it’s a very fluid situation,” Butler said. The practice of over-prescribing opioids by physicians was a relatively easier side to tackle than the demand and supply side of illegal drug use. “It means increasing access to treatment. Increase the providers who can treat addiction, and remove the stigma,” he said. “We’re working on it as a health condition, not just a bad habit but it actually is a condition that affects the brain so the behavior is different.” Butler said he draws on a comparison to get the public to understand addiction. Campaigns that teach people that “learning to just say ‘no’ would be just like saying a person with Alzheimer’s has to take a Dale Carnegie course and they’ll remember things. It’s not addressing the problem.” A disaster declaration means public resources are strained or insufficient to handle a particular problem. Police departments and emergency responders in Alaska describe their systems as overloaded during an opioid epidemic and the community can only react as opposed to planning safeguards. “Project Hope” was launched statewide as one of the first steps, Jones said. The Naloxone nasal spray that can save a person in the midst of an overdose was included in kits and distributed as part of the campaign. To date, the life saving doses have been administered to 644 people throughout the state, according to data collected between May 1, 2017, and April 30. In the same time period, about 100 people died of overdoses. “Instead of these kits going to a select group, anyone could get training and administer emergency treatment as a citizens,” Jones said. About 10,000 kits were handed out for police cars, clinics, parents and concerned citizens. “Many of the doses were done by citizens,” Jones said. “A woman in a grocery store bathroom saved a person’s life. The person was overdosing and the woman administered the dose in time to save her life.” Knowing CPR and first aid basics, along with the easy-to-administer Naloxone — it goes directly into the nostrils for quick absorption into the blood — can be all it takes to save a life, Butler said. One valuable grant came from the Centers for Disease Control. It made $750,000 available annually for three years, with a $600,000 supplemental grant, for data collection and strategic planning based on data collected. That allowed the Division of Public Health to create the Alaska Opioid Data Dashboard. Information collected over the past year shows 459 overdose patients were treated at Alaska emergency rooms. It also shows the number of prescriptions written by doctors that involved opioids: 504,616 from May 2017 to the end of April this year. The average number of prescriptions per month is listed as 42,051. The numbers should prove a valuable snapshot for gaging the epidemic, Butler said, and any progress that makes a dent in it. It lists how many 2,086 drug seizures by law enforcement took place in that year, for example. And as required by House Bill 159, which was signed into law by the governor in July 2017, it records the number of medical professionals registered with the Prescription Drug Monitoring Program, or PDMP. Small measures help Because most of the deaths are now resulting from fentanyl-laced heroin, the Division of Public Health will soon be making strips available that allow heroin users to test a drug for fentanyl. “We’re waiting for the strips to come in,” Jones said. “This will help in overdose prevention because they will be better informed. And we have to be knowledgeable about what is coming in.” Another new tool soon to be available to the public is called a “shark shaft” that encases spent needles when they are picked up off the ground so that they don’t infect members of the public that come into contact with them. The division wants to make these available for volunteers and others who help clean up homeless camps. Treatment tally Lack of treatment options is often cited as the biggest problem in the state. But programs are expanding based on public need and the urging of legislators and public health officials. A key program was instituted in Alaska’s prisons late last year. In a contract with the Salvation Army’s Clitheroe program, the Alaska Department of Corrections has expanded its prison treatment program to serve 1,400 inmates. The new program addresses opioid as well as other drug and alcohol addictions. Clitheroe also is expanding with the addition of new beds. A women’s treatment program will be relocated in late June to the Salvation Army Annex at 1700 C Street. “In October and November, we are moving the men from the current Clitheroe operations to our building which used to be the Adult Rehab Center,” said Salvation Army Communications Manager Robert DeBerry. The men’s facility will then be at 660 E. 48th Ave. “We will be going from 42 beds currently to 60 beds and we have opened a 15-bed women’s facility. So we have expanded that program to 75 beds total.” Another facility that recently added capacity at is at Set Free Alaska in Palmer. Joy Stein, interim executive director of Set Free Alaska said “the need for space is so great that we have even converted a closet under the stairs into an office.” A newly announced $350,000 grant from the Murdock Trust will help Set Free Alaska remodel and expand into a new building with a capacity to serve more than 1,000 outpatient clients annually that includes substance abuse treatment. At a total cost of $2.6 million, the building will also provide much needed space for counselors and administrative services. Added to the increased capacity at the facilities named as grant recipients by the Division of Public Health, Alaska is increasing its bed footprint, Jones said. “We have more grants coming out,” to serve more facilities. “The big question now is what are we missing?” ^ Naomi Klouda can be reached at [email protected]

Impromptu visit could open more China trade opportunities

A group of Chinese business delegates from the northeastern city of Harbin visited Anchorage June 8-9 to meet face-to-face with Alaska business leaders interested in opening more trade between the two cities. The Harbin group’s impromptu Alaska visit was arranged in five days time, said Emma Kelly, the Anchorage Economic Development Corp.’s business and economic director. The group of seven executives from the Hua Hong Group arrived eight days after Gov. Bill Walker’s China Opportunity Trade Mission returned to Alaska. “On Monday, (June 4) we received a phone call at 9 a.m. from Steven Lo (the executive director of Hua Hong Group), saying they would be in town Friday and Saturday and wanted to know if I could make arrangements for them to visit with businesses,” Kelly said.  The last-minute effort worked out fairly smoothly, Kelly said.  “This is undoubtedly related to the governor’s trade mission. And yes, it’s happening quickly,” she said. The Hua Hong Group, a conglomerate headquartered in Beijing, was interested in hearing about trade partnership opportunities in seafood, real estate, airport construction projects, air travel and tourism. Hua Hong is composed of about a dozen companies each specialized in the businesses of World Trade Center Harbin, which means real estate development, airlines, trading, logistics, investment and hospitality services, according to an information sheet they gave out at the meeting. Under discussion now are the logistics necessary to create a new direct-flight that puts Harbin and Anchorage 6 ½ hours apart, or half the time of the current more circuitous airline cargo routes. This would make it more easily possible to ship fresh fish and Alaska-made products that are then distributed throughout China from the World Trade Center Harbin, Lo said.   Eight Alaska businesses were able to introduce their businesses to the Hua Hong Group for a Friday morning meeting that started just after 8 a.m. at AEDC offices. Executives came from Pacific Rim Architects, DOWL Engineering, Matson Ocean Shipping, Stantec Anchorage, the Tanadgusix or TDX Corp., which owns crab processing facilities on St. Paul, and the Alaska Industrial Development and Export Authority. Zhang Hong Shan, chairman of the Hua Hong Group, asked questions of each person representing the various industries. Zhang, speaking through a translator, later said one of his top interests is finding a way to get fresh seafood from Anchorage to Harbin. “Specifically, we are interested in live seafood exported to Northeast Chinese markets,” Zhang said, referring to crab. These would be destined for restaurants, he added. But he would also like fresh-caught wild salmon made available to Chinese markets through Harbin. He’s also interested in construction companies that may be able to design cold weather architecture for residential and commercial needs in Harbin. The climates of Harbin and Anchorage are similar, he noted, though the Chinese city serves a population of nearly 11 million people and is the capital of Heilongjiang Province. He is also interested in hiring engineering and architect firms for airport construction that may relate to a new Harbin-Anchorage route.  In the “near term,” Zhang said he’s interested in the opportunities from Alaska’s liquefied natural gas proposal and more tourism ties. “I am looking forward to see what we can learn,” he said, noting this as his first trip to Alaska. One of the problems currently is that China imports a lot of farmed seafood, said Sui Jin Kon, director of global alliances at Hua Hong. But what they want is wild salmon, she added, in the “push for non-farmed, non-GMO-type products.” After the meeting at AEDC, the Harbin delegation went on a tour of Copper River Seafoods on the banks of Ship Creek, a processing plant for its famed salmon brand. They also visited Bambino’s Baby Food at the manufacturing operation on Spenard Road. Founder and CEO Zoi Maroudas traveled on the governor’s trade mission last month. Copper River and Bambino’s collaborate on the frozen baby food seafood products. AEDC’s Emma Kelly said after those visits, she arranged the group to go to a tourism presentation, then on an Anchorage Trolley Tour. They also met with officials at the Ted Stevens Anchorage International Airport. A presentation by regional vice president of Lynden, Rick Pollock, ended their airport tour. They then wrapped up the day with dinner at the 49th State Brewing Co. Owners Jason Motyka and David McCarthy are working on exporting their beer to China, and were also members of the  governor’s trade mission. On Saturday, the group was at Alyeska Resort for presentations. “These are people who are really poised to take action in regards to trade initiatives with China,” Kelly said, speaking of those she arranged the Chinese delegation to meet. Steven Lo, the chairman of the Hua Hong Group, said opportunities are arising rapidly and “we want to take advantage of that.” “This particular trip focused on possibilities that can be executed in the future between Anchorage and Harbin,” said AEDC Communications Director Sean Carpenter. “Everything they mentioned was in relation to a Harbin and Anchorage connection.” Naomi Klouda can be reached at [email protected]  

Impromptu visit could open more China trade opportunities

A group of Chinese business delegates from the northeastern city of Harbin visited Anchorage June 8-9 to meet face-to-face with Alaska business leaders interested in opening more trade between the two cities. The Harbin group’s impromptu Alaska visit was arranged in five days time, said Emma Kelly, the Anchorage Economic Development Corp.’s business and economic director. The group of seven executives from the Hua Hong Group arrived eight days after Gov. Bill Walker’s China Opportunity Trade Mission returned to Alaska. “On Monday, (June 4) we received a phone call at 9 a.m. from Steven Lo (the executive director of Hua Hong Group), saying they would be in town Friday and Saturday and wanted to know if I could make arrangements for them to visit with businesses,” Kelly said.  The last-minute effort worked out fairly smoothly, Kelly said.  “This is undoubtedly related to the governor’s trade mission. And yes, it’s happening quickly,” she said. The Hua Hong Group, a conglomerate headquartered in Beijing, was interested in hearing about trade partnership opportunities in seafood, real estate, airport construction projects, air travel and tourism. Hua Hong is composed of about a dozen companies each specialized in the businesses of World Trade Center Harbin, which means real estate development, airlines, trading, logistics, investment and hospitality services, according to an information sheet they gave out at the meeting. Under discussion now are the logistics necessary to create a new direct-flight that puts Harbin and Anchorage 6 ½ hours apart, or half the time of the current more circuitous airline cargo routes. This would make it more easily possible to ship fresh fish and Alaska-made products that are then distributed throughout China from the World Trade Center Harbin, Lo said.   Eight Alaska businesses were able to introduce their businesses to the Hua Hong Group for a Friday morning meeting that started just after 8 a.m. at AEDC offices. Executives came from Pacific Rim Architects, DOWL Engineering, Matson Ocean Shipping, Stantec Anchorage, the Tanadgusix or TDX Corp., which owns crab processing facilities on St. Paul, and the Alaska Industrial Development and Export Authority. Zhang Hong Shan, chairman of the Hua Hong Group, asked questions of each person representing the various industries. Zhang, speaking through a translator, later said one of his top interests is finding a way to get fresh seafood from Anchorage to Harbin. “Specifically, we are interested in live seafood exported to Northeast Chinese markets,” Zhang said, referring to crab. These would be destined for restaurants, he added. But he would also like fresh-caught wild salmon made available to Chinese markets through Harbin. He’s also interested in construction companies that may be able to design cold weather architecture for residential and commercial needs in Harbin. The climates of Harbin and Anchorage are similar, he noted, though the Chinese city serves a population of nearly 11 million people and is the capital of Heilongjiang Province. He is also interested in hiring engineering and architect firms for airport construction that may relate to a new Harbin-Anchorage route.  In the “near term,” Zhang said he’s interested in the opportunities from Alaska’s liquefied natural gas proposal and more tourism ties. “I am looking forward to see what we can learn,” he said, noting this as his first trip to Alaska. One of the problems currently is that China imports a lot of farmed seafood, said Sui Jin Kon, director of global alliances at Hua Hong. But what they want is wild salmon, she added, in the “push for non-farmed, non-GMO-type products.” After the meeting at AEDC, the Harbin delegation went on a tour of Copper River Seafoods on the banks of Ship Creek, a processing plant for its famed salmon brand. They also visited Bambino’s Baby Food at the manufacturing operation on Spenard Road. Founder and CEO Zoi Maroudas traveled on the governor’s trade mission last month. Copper River and Bambino’s collaborate on the frozen baby food seafood products. AEDC’s Emma Kelly said after those visits, she arranged the group to go to a tourism presentation, then on an Anchorage Trolley Tour. They also met with officials at the Ted Stevens Anchorage International Airport. A presentation by regional vice president of Lynden, Rick Pollock, ended their airport tour. They then wrapped up the day with dinner at the 49th State Brewing Co. Owners Jason Motyka and David McCarthy are working on exporting their beer to China, and were also members of the  governor’s trade mission. On Saturday, the group was at Alyeska Resort for presentations. “These are people who are really poised to take action in regards to trade initiatives with China,” Kelly said, speaking of those she arranged the Chinese delegation to meet. Steven Lo, the chairman of the Hua Hong Group, said opportunities are arising rapidly and “we want to take advantage of that.” “This particular trip focused on possibilities that can be executed in the future between Anchorage and Harbin,” said AEDC Communications Director Sean Carpenter. “Everything they mentioned was in relation to a Harbin and Anchorage connection.” Naomi Klouda can be reached at [email protected]  

FCC chairman proposes boost to rural health care funding

Federal Communications Commission Chairman Ajit Pai announced June 6 that he has circulated a proposal to his colleagues that would take immediate action to increase funding for the Universal Service Fund Rural Health Care Program.  The program helps rural health providers access affordable broadband services by covering the difference in rates between theirs and urban markets. The program’s current annual funding cap is $400 million, an amount that was set in 1997 and never adjusted for inflation. Recent demand for funding for the program has outpaced the budget in the past two years, which has created uncertainty for patients, healthcare providers, and communications companies. The chairman’s order — which still requires a vote of the other commission members — would increase the annual cap to $571 million.  This increase represents what the funding level would be today if the cap established in 1997 (when the program originated) included an inflation adjustment, according to the news release from the FCC.  “The order would apply the increased cap to the current funding year to immediately address a critical funding crisis and enable rural health care providers to continue offering telemedicine services,” said FCC spokesman Mark Wigfield.  If approved, it will also give these providers better certainty over RHC funding by adjusting the cap annually for inflation and allowing unused funds from prior years to be carried forward to future years, he added. As for when this will happen, Wigfield said that isn’t certain. The FCC met for its monthly meeting June 7, a day after Pai’s announcement, and the matter wasn’t taken up.   “For an item to be placed for a vote, it has to be provided to the other commissioners three weeks in  advance of the agenda,” Wigfield said. “He (Pai) circulated the order last week. That was too late to be on this agenda.” The two ways FCC commissioners issue key decisions is by either voting at meetings on agenda items or  “on circulation, an electronic vote,” Wigfield said. “They probably vote more on circulation. The chairman wants it voted on as quickly as possible, so it’s under consideration and we may hear anytime.” Alaskans became more familiar with the program when a telecommunications provider, Alaska Communications Services, threatened to shut off the internet at the Cordova Community Health Center last month. The difference between what the Cordova facility pays and what Alaska Communications says it is owed by the FCC is nearly $1 million for a year’s service. Mitchell said the hospital should not be the one paying the outstanding invoice that Alaska Communications claims is due. “The hospital doesn’t owe that money. The agreement with ACS includes the (Universal Service Administration Co.) program so the USAC would pay that,” Mitchell said. “They owe that, we don’t.” ACS laid off employees this past December while it was paying third-party carriers for contracts such as the Cordova hospital. The unpaid RHC invoices totaled $11.8 million through most of 2017 and the end of the first quarter this year after demand for the $400 million in funding failed to cover costs across the nation. Prior to Pai’s announcement, Alaska Communications, GCI Liberty and other telecoms were looking at receiving only 84.4 percent for its RHC invoices. The claims by telecoms have also triggered a national rate review that includes Alaska telecoms in the program. Under Pai’s plan, the $571 million total rural health care funding would pay “100 percent for the invoices,” Wigfield said. “Basically they are getting rid of having to cut everyone back across the board. Once they raise the cap, that will make everyone whole again.” In the meantime, the Cordova hospital’s chief administrator, Scot Mitchell, wasn’t taking the matter of possible shutdown lightly. Mitchell said Alaska Communications still intended to cut off services, although Pai has warned the company that would be illegal, but funding from the FCC would prevent that. In full summer swing as a major commercial fishery hub, Cordova would be at a severe loss in its medical facility if internet were cut “They did agree they would work with us if they planned on doing that,” Mitchell said. The three-year contract for Alaska Communications to provide the RHC services will be up in November, which means Mitchell’s task is to solicit bids from telecoms for a new contract. “We received two other bids from other telecoms – I can’t say who yet. This is going through the process that the FCC requires for USAC funding,” he said. “They are both Alaska-based telecom companies and we should have wrapped up an agreement with one of these two. They had told us that if ACS cancels at the end of the month they could get the service live, so there would be no lapse in service.” ACS officials were pleased at the news, calling it an important step forward out of the deadlock on funding that meant no payments for 2017 were coming to ACS for its RHC services to 40 hospitals and clinics. “Chairman Pai has proposed to increase the Rural Health Care Program budget, apply the increased cap to the current funding year and provide long-term certainty by adjusting the cap annually, adjusting the budget for inflation and allowing unused funds from prior years to be carried forward to future years,” Heather Cavanaugh, director of corporate communications summarized. “This is an important step forward for the Rural Health Care program, which is significant for our state. We look forward to working constructively with the FCC in ensuring robust participation from Alaska.” GCI, which is out $5.5 million in 2017 revenue from the funding shortfall, also expressed some relief. “Today’s announcement is welcome news for rural health care providers in Alaska and across the nation,” said Heather Handyside, GCI’s director of corporate communications. “Predictability and adequate funding are critical to the delivery of reliable connectivity for life-saving services in rural areas. GCI is committed to working with the FCC and our partners to develop a sustainable solution for the Rural Health Care Program so that our customers in rural communities can be assured of continued access to quality health care.”  GCI Liberty and Alaska Communications, like other telecoms across the U.S., were under FCC scrutiny to justify their costs for delivering broadband to remote Alaska locations. Because the process is confidential, the FCC couldn’t relate the status of those requests for information. But both telecoms issued statements last month that they are in full compliance with answering all requests for information. Naomi Klouda can be reached at [email protected]

Bill to recognize states’ rights on marijuana gets Trump support

Sens. Lisa Murkowski and Dan Sullivan joined a bipartisan group of lawmakers in Congress June 8 to support legislation that ensures states the right to regulate marijuana and allow banking services for the industry. Murkowski said the new legislation “brings the policy swing to an end, by saying unequivocally that the states have supremacy when it comes to marijuana regulation.” President Donald Trump told a group of news reporters in Washington, D.C., the same day as the STATES Act was introduced that he will likely support it. The Strengthening the Tenth Amendment Through Entrusting States Act, or STATES, doesn’t legalize marijuana in states that haven’t passed their own measures. But it works to address conflicts between state and federal marijuana laws. The bill was co-authored by Sens. Cory Gardner, R-Colo., and Elizabeth Warren, D-Mass. Sullivan said it’s important for this bill to advance in light of confusion cast over states with legal marijuana when the so-called Cole Memorandum was rescinded by Attorney General Jeff Sessions in January. The memo authored by former Deputy Attorney General James Cole under the Obama administration outlined guidelines that amounted to nonenforcement of federal marijuana laws in states where it had been legalized. Rescinding it created uncertainty of whether Sessions, an opponent of legalization, would begin enforcing federal law that classifies marijuana as a schedule one substance under the Controlled Substances Act, along with heroin, cocaine and LSD. “When the Cole memo was rescinded, it created a lot of additional confusion,” said Sullivan spokesman Matthew Shuckerow. “It was already out there, particularly in states that have it legalized and that created confusion as well.” Marijuana businesses have achieved a level of industry acceptance, he noted. Sullivan has heard from bankers saying they would not mind doing business with the industry. Credit unions and banks signed on as endorsing the bill. “This (act) would in many ways address those concerns,” he added. “By stating that bank transactions do not constitute illegal trafficking. It would pave the way to do business with banks and for banks to accept dollars from the operations.” One of the biggest problems facing cannabis business owners is the cash-only nature of transactions. Even to pay their state license renewals, they are taking cash to the bank and purchasing money orders that then are sent into the Alcohol and Marijuana Control Office, said Jana Weltzin, an attorney specializing in Alaska cannabis regulations. She analyzed the STATES Act to see how it might impact her clients. “If it goes through, and it looks like it has some likelihood, it would exempt marijuana businesses from being subject to the CSA (Controlled Substance Act) as long as they are in full compliance with the state regulatory process,” Weltzin said. Banks and credit unions could open accounts for marijuana business owners after going through their own due diligence to make sure the business is in compliance with state laws, Weltzin said. Weltzin has spoke with officials from Key Bank, answering questions about what forms should they ask for in determining if a potential client is operating under state regulations. “If this passes, and a company owner comes in and says he want to open a bank account, the bank will look at all his documents from AMCO. If there are notices of violations, then he is not within the exemptions,” Weltzin said. “This (law) would not be a change on prohibition. It’s a deference to the state laws and trusting the compliance and regulatory system to the state.” Alaska’s congressional delegation has seen the federal-state divide on marijuana legalization as a states’ rights issue. Rep. Don Young, a founding member of the Cannabis Caucus, has long taken this position and has repeatedly introduced bills in the House of Representatives to reconcile the conflict. “We’ve come together — lawmakers from both sides of the aisle — to offer a state-based solution to areas where state and federal marijuana laws are in conflict, including issues relating to production, sale, distribution, enforcement and longstanding challenges surrounding banking and the lack of access to financial institutions for marijuana-related businesses,” Sullivan said in a statement. Months ago, he stated that the repeal of the Cole Memorandum could be the impetus necessary for Congress to find a permanent legislative solution to these issues. The STATES Act should be an effective vehicle and its strength comes in terms of broad support from diverse groups. The act would amend the Controlled Substances Act so that its provisions would no longer apply to people in compliance with state or Tribal laws relating to marijuana activities as long they comply with a limited number of basic safeguards. On the banking front, it would clarify that state-compliant financial transactions do “not qualify as trafficking and do not result in proceeds of an unlawful transaction.” It would remove industrial hemp from the list of controlled substances under the CSA and prohibit the distribution of marijuana at transportation safety facilities such as rest areas and truck stops. The bill emphasizes no-distribution or sale of marijuana to persons under the age of 21, other than for medical purposes. Certain criminal provisions under the CSA would continue to apply such as prohibiting endangering human life while manufacturing marijuana and prohibiting employment of people under age 18. Supporters of the legislation include the American Civil Liberties Union, Americans for Prosperity (founded by Charles and David Koch), and a cross section of advocacy, law enforcement and financial organizations. Where other legislation addressing legal marijuana has fallen by the wayside, this bill holds promise of passage because of Gardner’s prep work on the bill, Shuckerow said. Gardner, a Republican, represents Colorado, one of the first to legalize recreational marijuana. He threatened to hold up judicial nominees if something couldn’t be resolved in the federal-state conflict over legal marijuana after Sessions rescinded the Cole Memo. According to the Denver Post, Gardner succeeded in holding up 11 nominees from getting a Senate floor vote between January and April, the last step before they can be seated on a bench. In early April, Trump and Gardner struck a deal that ended the deadlock: Trump would support “legislative solution(s) to fix this states’ rights issue once and for all,” Gardner told the Washington Post. In the end, Gardner achieved broad bipartisan support for this bill. “We’ve seen steady momentum building,” Shuckerow said. “The tide is switching. Now two-thirds of Americans live in states where there is some kind of legal marijuana.” Since the bill was just introduced, it’s difficult to tell when it will come to a vote. “The reality is there’s a shrinking calendar left this session. But there’s a sincere bipartisan effort,” Shuckerow said. “The legwork is already done. It’s been negotiated and discussed, and that is very helpful.” Naomi Klouda can be reached at [email protected]    

Walker wants to build on existing deals with China

The Alaska trade mission to China in May is already paying off in terms of incubating opportunities, Gov. Bill Walker said June 6 in Anchorage. Speaking alongside an entourage of Alaska business and political leaders that returned with him from China May 30, Walker said, “We’re working our way up from three deals.” According to information presented on the trip, the U.S. currently has 1,500 trade partnerships with 63 businesses in that country. “Alaska represents three of those,” Walker said. Walker was referring to the potential framework of the Alaska LNG Project, Chinese Olympic athletes training in Alaska and tourism marketing for Fairbanks. The latter two agreements were struck during the May trip. The timing of the trip also was fortuitous because it coincided with U.S. Secretary of Commerce Wilbur Ross’ visit to China and attention is on the gaping trade deficit between the two countries. China is currently the U.S.’s largest trading partner at a total of $578.2 billion in total goods traded during 2016. The U.S. exported $115.6 billion and imported $462.6 billion from China. That makes for a trade deficit with China that is $347 billion and in the effort to correct it, there are opportunities for partnerships to form, Walker noted. Incalculable opportunities are presented in a massive growing middle class that desires Alaska’s clean, pure food products, he said. The resource-challenged country also has need of Alaska’s rich resources, he said. “It’s an economy of 1.4 billion people. They genuinely want trade with Alaska. We met with some companies that have more employees than we have residents, so that gives you an idea of the size of the companies that are interested in Alaska,” Walker said. Among the people assembled to help the governor summarize the trade mission were Matanuska Susitna Borough Manager John Moosey and Assemblyman Randall Kowalke. They spoke about resources from Interior Alaska and the Valley such as timber, hay and grain that could be loaded at Point MacKenzie for shipment to China. Forest products, beetle-killed spruce logs, peonies and pork are some of the other products. “This could open possibilities for value-added products as well, such as lumber shipments,” Kowalke said.  More trade possibilities are also on the horizon, said Stephanie Moreland, director of government relations and seafood sustainability for Trident Seafoods, another delegate on the China mission. Trident currently offloads seafood at the Shanghai port. One of the seafood company’s China accounts is McDonald’s China, which serves  Alaska’s wild pollack in its fish sandwiches. “The fish gets distributed to McDonald’s throughout China,” Moreland said. It’s well-known that Alaska’s number one trade partner is China and that seafood composes most of that. But there’s the need to expand into sending even more seafood. “Our vision and interest in going on the trip is that we are already doing business in China and we can grow or expand on that because of their growing middle class. It’s a new phase for us,” Moreland said. Matson, a global shipping company, also has some China trade, but in a sea route from Long Beach, Calif., to Hong Kong, not much Alaska product get tacked on, said Lindsey Witt, manager of external affairs at Matson-Alaska. “Right now our Alaska shipments enter through the Port at Tacoma, and there are no direct Alaska to China shipments,” she said. That could change if more Alaska products can justify a new sea route for Matson, opportunities Witt is actively exploring now. Any trade with China by producers such as organic baby food maker Bambino’s Baby Foods and 49th State Brewing Co. will necessarily be small to start, but both have plans on the immediate horizon to grow. Zoi Maroudas, owner and founder of Bambino’s, said she is already in talks with the China Industrial Corp., for a loan to allow her to expand. Bambino’s makes baby food from farm fresh Alaska grown products. Her products are able to “tag along” with frozen seafood supplied by Copper River Seafoods to get to Chinese markets, she said, referring to a shipping partnership she has formed with the seafood company. “We will need new manufacturing capacity, and I am working on it now,” she said. A whopping 18 million babies are born each year in China, a lucrative market whose parents long for Alaska’s clean air, water and soil that grows vegetables used in Bambino’s products, she said. During Maroudas’ brief summary, the governor interjected that the baby food founder “isn’t sitting back and hoping the phone rings,” after the trade visit. She’s already connected with companies that are bringing people this year to Alaska. They know “how large they are and how small we are. They are asking ‘how can we help you scale up’?” 49th State Brewing Co. is in the same position; it doesn’t create high volumes of micro-brew beer at the moment, said co-owner Jason Motyka. Co-owner David McCarthy said that, like the baby food, their beer achieves “authenticity” among those who tested the it on the trade trip. Under the umbrella of their DV3 Corp., the partners also own 40 cabins at the Denali Park Salmon Bake. They were asked about winter tourism options. So far, that operation has been strictly seasonal in the summer but the partners said they are open to looking at changing that.   The governor said his own endeavors were broadly focused on seafood, tourism and establishing Alaska as a winter Olympic training venue. But he’s keen on another project as well that will have a direct impact on all interactions: creating the first direct passenger flight between Alaska and China. Talks are exploring it what it would take to get a direct route from Harbin, a northeastern Chinese city about 3,331 miles from Anchorage.  Jim Szczesniak, the manager at Ted Stevens Anchorage International Airport, was in China for business and joined with the governor’s trade mission. He said there are plenty of flights going back and forth between Anchorage and China cities. “Currently there are 20 flights a day carrying cargo between Hong Kong and  Anchorage and another 20 a day between Shanghai and Anchorage,” Szczesniak said. This is in addition to flights between two other cities, Guangzhou and a city south of Beijing. “We are just a stopover in general but we do have the ability to put cargo on the aircraft to those markets and we want to serve more markets,” he said. Seafood is already loaded on several of the daily flights, but the airport is looking at increasing the volume of those shipments. Establishing Harbin for a new air route between the two cities makes for a good location due to “all the flights from Chinese markets that flow up into Harbin,” Szczesniak said. “They can connect to a flight from Harbin to Anchorage. That’s important because of the new narrow-bodied Boeing 737 Aircraft from Harbin to Anchorage. You’re selling 150 tickets for each flight instead of 250” for a better economy of scale. Naomi Klouda can be reached at [email protected]

State smoking ban could force revision to proposed pot cafes

The Marijuana Control Board anticipates newly-passed legislation that would ban smoking in all public workplaces statewide could throw a monkey wrench into plans for legalizing onsite consumption. Current law already bans smoking in many workplaces across the state, such as schools, government spaces and health facilities. Senate Bill 63, awaiting the Gov. Bill Walker’s signature, would expand the ban to include private businesses as well. At the board meeting set for June 13-15 in Downtown Anchorage, the board is asking for guidance from Harriet Milks, the assistant attorney general who advises the Alcohol and Marijuana Control Office. Board chairman Mark Springer said the board needs to incorporate the smoking ban, which will go into effect Oct. 1 once it’s signed, into its present proposed onsite consumption regulations. Local governments including those in Anchorage, Palmer, Juneau, Bethel, Barrow, Nome, Petersburg, Dillingham, Haines and Skagway already have a smoking ban in private businesses. The new law would be a uniform ban throughout the state, but it allows local governments to opt out. Nevertheless, the board’s proposal to allow smoking, if the newly-designated onsite consumption regulations are approved, rested on the assumption that proper air ventilation and measures to protect employees would be in compliance with local laws.   “I know there’s a lot of interest, pro and con, in onsite consumption,” Springer said. “We will need to tie the proposal to the new smoking regulations. In the new smoking law, it specifies a separate building, which implies to me four separate walls disconnected from the retail store. It raises a heck of a lot of questions.” The newest onsite draft regulation was co-written by Brandon Emmett, an industry representative on the board, and Loren Jones, the public health representative. It won’t be voted on until the Aug. 15-16 meeting, Emmett said, because he plans to pull the project from the June meeting. He wants a full five-member board present for the vote, and at the August meeting, new public safety member appointee Sitka Police Chief Jeff Ankerfelt will be present. Onsite consumption has been debated by the board since its inception in July 2015, but each measure failed or was postponed. The current proposal would allow marijuana products to be sold to patrons in a retail shop, then consumed in a separate area of the shop. Once licensed, the premises would need to confine activities to a designated area. It would be separated from the remainder of the premises by a secure door and a separate ventilation system or located outside. Now, the question requiring Milks’ guidance is just “how separate” the onsite portion needs to be, Springer said. “It could become an expensive deal to try to open one of these (onsite consumption bars) if it’s now in a separate building,” Springer said. “How will it impact the cruise ship market? How do you accommodate them if you have a little pot shop in Skagway, and all of a sudden you have to do something additional?” Along with Springer’s plan to open public testimony to onsite consumption — perhaps in a special meeting — he wants to hear ideas on how the board can incorporate SB 63 into new onsite regs. “I anticipate we will see some creative attempts at solutions, such as jointly sharing among licensees who go into together,” Springer said, meaning one establishment of multiple shop owners.   He’s not sure how that would fly in terms of gaining the board’s approval, but it’s worth looking at various possible solutions ahead, he said. Taxes revisited  The board agreed to flip its regular agenda order in order to handle regulations and other businesses earlier in the meeting, board Chairman Springer said. The agenda June 13 starts with an executive session to handle an appeal from Frozen Budz, a Fairbanks cannabis manufacturer whose license was suspended in December 2017. The board found the licensee in violation for failing to properly test products, producing unauthorized edibles, allowing onsite consumption, improper labeling and violating waste notification requirements. The company, the first to have its license revoked in the burgeoning marijuana industry, was also fined $500,000. After public comments, the agenda calls for a presentation from the Department of Revenue on how the present taxation structure is working. The board has asked for more information about any possible impacts of a tax shift to the retail end.   Currently, the state taxes $50 per ounce of marijuana flower and $15 for stem and leaf trim at the cultivation end, but doesn’t impose a sales tax at the retail level, although municipalities do. Cultivators and others have advocated for a change, contending that the current tax artificially keeps retail prices high even when supply is also high. Only the Alaska Legislature can change tax law, but the board is still trying to figure out what to recommend, Springer said. At the April meeting in Nome, the board was advised that local communities already have sales tax collection at the retail level that could be anywhere from 1 percent to 7.5 percent. State marijuana sales taxes on top of those could become a burden at the local level, necessitating possible staff increases to municipal governments for collecting the tax, according to AMCO Executive Director Erika McConnell. Since the first legal sales began in October 2016, the state has collected $10.4 million in excise taxes. “We would like to see if Revenue can come up with a strategy, because taxes aren’t our role,” Springer said. METRC briefing The board will also hear from representatives of Florida-based Franwell, a tech innovating company that developed the Marijuana Enforcement Tracking Reporting Compliance, or METRC, services to focus on supply chain solutions and regulatory integration. Executive Director Scott Denholm and Kelly Jenkins, an account manager in the Denver office, will make a presentation to the board on June 13 explaining how the system works.   Alaska awarded METRC a five-year contract to handle the marijuana industry’s supply chain tracking process from 2016 to 2021. Colorado, Oregon, California, Nevada, Michigan, Massachusetts and Alaska all use the METRC system. Alaska’s marijuana regulations require commercial growers, retailers, testing facilities and manufacturers to use the tracking system on all their products. Violations issued by the Alcohol and Marijuana Control Office at times indicates a discrepancy in the form of missing or untracked inventory. Springer said this is a chance for industry people to ask questions and for the board to get more familiar with how METRC woks. Springer wants to know more about how it operates because when there are violations, business owners have told the board that METRC messed up. “For a long time, I’ve asked for a presentation so that we can understand METRC, so we can all understand it better,” Springer said. “This will be the first presentation the board’s had on it. I’m also inviting licensees to ask their questions, and I think there may be a lot of them who want to do that.” Naomi Klouda can be reached at [email protected]  

AEDC excited about athletic training, Alibaba and Anchorage flights after China trip

Two of the more immediate outcomes of Gov. Bill Walker’s trade mission to China involve Olympic athletes coming to Alaska for their winter trainings and a new direct Anchorage-China flight that could begin as early as next year. On the 12-day Opportunity Alaska Trade Mission to China, Alaska Pacific University President Robert Onders signed a memorandum of understanding with Heilongjiang Province to cooperate on training athletes for the 2022 Olympic Winter Games that will be hosted in Beijing. The MOU is a step toward developing a year-round international Winter Olympic training center in Alaska, an idea Walker has said evolved during his April 2017 visit with China’s President Xi Jinping in Alaska. Xi stopped in Anchorage during his trip back to China after a visit with President Donald Trump in Florida. Bill Popp, president and CEO of Anchorage Economic Development Corp., ticked off a list of “strong potential” partnerships as an outgrowth of the Opportunity Alaska Trade Mission to China that wrapped up May 30. A direct flight from Alaska to China has long made sense, considering the thousands of winter and summer visitors from there. This past winter, the Alaska Railroad made three trips a week between Anchorage and Fairbanks, the first time that had been done in winter, Popp said. Due to no direct flights, it takes 15 hours to fly from Harbin, for example, for what should be a 6½ hour direct flight to Anchorage. Visitors actually fly from China over Alaska, then down to Seattle where they disembark. There, they board another plane to fly to Anchorage, Popp said. Harbin is the capital of Heilongjiang, China’s northernmost province. Harbin wasn’t on the itinerary for the Alaska trade mission, Popp said, but establishing a new flight route from there has long been under discussion. “We know that there is a strong intent to get direct passenger service between China and Anchorage International. For us this is a brass ring to pursue. It’s been years in the talking stage and we’re finally starting to see significant progress,” Popp said. Provincial Gov. Waling Jong spoke with Walker on the trade mission about the Harbin-Anchorage stops. “That opens Alaska to a significant amount of tourism,” Popp said. “I’m not using enough hyperbole to describe it, hundreds of millions more people. Imagine if we had a much shorter air route, a significant difference.” Of the 26 business delegates that traveled on the mission, breakout groups met with individual Chinese delegations set up by the China Investment Corp, considered the world’s third-largest sovereign wealth fund. The corporation set up face-to-face meetings with 72 Chinese businesses, according to the governor’s office. One of those was with Alibaba, ranked in the top 10 worldwide by Fortune Global 500, Popp said. “It’s a huge company, their Amazon, but more like Amazon on steroids that sells a massive amount of goods throughout the world,” Popp said. Alaskans were told how to sell products via Alibaba. The Alaska businesses learned of Alibaba as an export portal for seafood, baby food and other Alaska-made products that could be shipped directly to Alibaba or direct to Chinese customers with Alibaba directing the transactions, Popp said. Among the group were Bambino Baby Foods owner Zoi Maroudas, 49th State Brewing Co., Copper River Seafoods, Alaska Skylar Travel, Kachemak Bay Seafoods, Golden Harvest Alaska Seafood, Alaska Native corporations such as Bering Straits Native Corp., NANA Regional Corp. and Sealaska Corp., as well as Visit Anchorage, Explore Fairbanks and the Alyeska Resort and Hotel Alyeska. Explore Fairbanks CEO Deb Hickok signed a contract in Beijing with East West Marketing Corp. to represent them in reaching Chinese tourists wanting to visit Alaska. The arrangement will also build on the business missions to China that Explore Fairbanks has coordinated with Visit Anchorage and other travel trade companies, such as the Alaska Railroad over the past three years, Explore Fairbanks Tourism Director Scott McCrea told the Journal last week. Alibaba opens another opportunity via an app called Fliggy. Fliggy is “a fun way of saying flying piggy, a symbol characterized by a cartoon pig head wearing aviator goggles and a scarf,” Popp said. It offers over two million travel products, Popp said, including hotel stays, tour packages and flights. For Alaskans, using the Fliggy option would open a huge market of Chinese travelers. Another major trade opportunity centers on the Chinese celebration of Nov. 11, an “auspicious day to travel and purchase,” Popp said. The number 1 represents powerful numerology, and that date yields four No. 1s in 11/11. Like American Black Friday, customers rush to take advantage of special sales, a day that generates more than $35 billion in sales for China, Popp said. Educating Alaska exporters about the date’s significance would open opportunities for them to participate in the day’s sales offerings, thus reaching millions more in potential customers, he said. AEDC went with its own project, which Popp focused on: an arrangement to have Chinese National Aviation Fuel Co., or CNAF, deliver bulk fuel to the Ted Stevens International Airport in Anchorage. CNAF is the sole provider of jet fuel in China, Popp said, earning $39 billion in annual revenues. “They deliver jet fuel to 59 international airports including L.A.,” Popp said. “They are now keen to set up a full blown operation here. We were able to arrange for a summit meeting. They have some due diligence to do, and this meeting moved the ball closer to a positive decision.” AEDC will also be hosting workshops on specific topics related to trade between Alaska and China, Popp said. Alaskans on the trip had access to translators to overcome language barriers. But there’s also an app called WeChat that can be downloaded to phones for translating texts, Facebook, Twitter, and debit card payments. “Using this app, people are in open dialogue right now,” Popp said. As for the current political environment under which Trump has placed tariffs on certain products from China, Popp said that had little impact on this trip. “The sanctions didn’t stop them from the dialogue. There are no tariffs on tourism and that’s an export since they are paying for the services that we provide that give them a tourism experience,” Popp said. The more money the Chinese spend on American goods and vacations, the better the trade balance between the two nations, Popp notes. Trump’s main argument to impose the sanctions is to correct the current massive trade deficit. Naomi Klouda can be reached at [email protected]

Millennials decline in Alaska population

Alaska isn’t just the second-youngest state in the union. Its population remains younger as well. The median age in Alaska is 33.4 years old, compared to 37.4 nationally. But the number of people ages 20 to 29 years old in Alaska has steadily declined over the past seven years, said state economist Neal Fried. Fried said that gives some advantages for Millennials — roughly 18 to 35 years old — to pick from jobs requiring certain skill sets. “(The younger age groups’) employment chances look bright because there’s not as much competition,” Fried said. But it means a harder situation for Alaska’s employers, as the Anchorage Economic Development Corp., documented in a recent study. State demographic data from 2010 to 2017 shows that the number of 18-year-olds fell by 1,164 people in Alaska, from 10,498 to 9,334. In the 24-year-old count, the number fell from 11,568 in 2010 to 10,600 in 2017, or 968 fewer. Alaska demographer Eddie Hunsinger said overall, the age 20 to 29 population fell from 109,383 in 2010 to 106,044 in 2017, or 3,339 fewer. The data are gleaned from the Alaska Permanent Fund Dividend application filings each year. “The number of prime working age adults is declining, or not expected to grow in the next 20 years,” Fried said. “The numbers have been falling in the younger demographic in Alaska, but it’s following on a national trend as well.” In addition to its impact in the workplace, Alaska demographic changes also have ramification for certain kinds of businesses, Fried said, while other aspects of an economy are not that fazed by broad changes in demographics. “Groceries for example, they will need, though products in the store may change,” he said. “Businesses are usually well aware of what groups they cater to, but an economic spin sometimes is a demographic spin. A change in demographics can also be dictated when fewer members of an age demographic are documented over time.” Alaska has grown accustomed to the high need for health care professions as the “Baby Boomer” generation ages. When the Boomer generation was coming of age, they flooded the market during their prime working years, Fried noted, which meant more competition for jobs. But the number of college graduates was a smaller fraction of that generation than the Millennials, 25 percent of which gain some kind of degree. When the numbers lag in that demographic, there may not be enough people to cover the positions traditionally offered to the 18- to 30 year-old employment grouping. Fast food establishments to retail stores to full restaurants dependent on large numbers of younger people entering the workforce say they can’t always find all the workers they need, Fried said. When that happens, such businesses compete from a limited work pool, Fried said, or hire older workers from the Baby Boomer population, born between 1946-1964. Alaska’s downturn while a brighter economic boom goes on outside Alaska also is a factor. That draws a young demographic away, including college students who chose not to return. Fried said there’s only so far you can go with data, however, and the next steps have to come in what employers say about whether they can draw and retain a younger workforce. Fried doesn’t bemoan the so-called “brain drain” that happens in a discussion about whether or not Alaska tends to lose its young, newly educated workforce. “It’s a two-way street,” he said. “People leave but people also come here. That’s the nature of the demographic. We gain others who have the skills Alaska needs.” Perhaps just not in the numbers wanted by employers. AEDC Millennial study The Anchorage Economic Development Corp. released a study based on a survey of 1,064 Millennials, which they defined as individuals born between 1980 and 2000. This is the age group that currently makes up a third of the city’s workforce, the Millennial Workforce Survey found. It’s also the generation that makes up a quarter of the total U.S. population. AEDC starts out its report stating the goal behind its Live.Work.Play. Initiative is to make Anchorage “the number one city in America in which to live, work and play by 2025.” The initiative means to attract and retain a highly skilled workforce. It came about at the request of the business community wanting to know how to attract and keep them here. Anchorage sees a shortage in technical skills, professions like accountants, health care, even carpenters and oil field workers. “It’s across the board. We can’t find the workforce we need,” said AEDC communication director Sean Carpenter . “We had heard a lot of that. Other cities experience the same thing. So we took the question to see if there’s a way we can answer it.” Making Anchorage attractive helps draw people with skills and talents. “Business chases talent, and talent chases place” is a premise behind the study. Clues were teased out from the question of what Millennials want in their jobs. A paycheck isn’t as important to 75 percent of the Anchorage survey respondents as “good management,” according to AEDC’s findings. “While Millennials do care about wages and benefits, it is evident that other factors like good management, scheduling flexibility, workplace culture and having an interest in the field of work are all aspects that play a critical role in employment decisions,” the survey concluded. Some 91 percent said having a positive impact on society is either somewhat or very important to their job satisfaction. These passion factors “are critical for employers to take into consideration when considering the structure of positions that are available to younger professionals,” according to the study. When asked if they valued telecommuting — working remotely from home or elsewhere — results indicated this was a “low priority for Anchorage residents deciding where to work.” Flexibility was one of the highest-ranking job factors. This isn’t the generation that wants a 9–to-5, but rather built-in scheduling and time-off options. The higher educated, the study found, the more they desired this job characteristic. For employers who say they are frustrated with this generation’s work habits, there’s a communication gap to heed: According to this survey’s results, communication problems are listed as the biggest on-the-job frustration by 71 percent of the Millennial respondents. “This finding was significant because it may indicate that employers have systems or methods of communication that are inadequate and are leading to frustration for Millennial employees,” the report concludes. Millennials are often defined as a generation reliant on electronic communication such as email or text, and not as comfortable in “face-to-face” encounters. Bill Popp, president and CEO of AEDC, said the problem lies in a “top-down military model” of workplace communication hierarchy. “The broader workforce is left in the dark while communication goes mainly between the top managers,” Popp said. “The horizontal model gets better contributions from young Millennials. That’s how you bridge some of those issues. They want to be inspired by the mission. To be inspired by the mission, you have to know the details” of workplace goals. So rather than Millennials being at “fault” for possessing poor communication skills, Popp recommends businesses reconfigure “our leadership systems. It’s a flaw in the system.” AEDC also heard from employers in a separate 2018 Business Confidence survey. One question was “what is the biggest barrier to growth in your business in 2018?” Out of top six barriers, three were labor related, Popp said. A top complaint was the lack of skilled and professional workforce availability. Business majorities see a lack in the semi-skilled workforce. “The three top concerns centered around the labor force — in the third year of a recession,” Popp said. “It tells us that there are things going on here that we are not addressing.” Naomi Klouda can be reached at [email protected]

Rogoff to give deposition over claims at Arctic Blvd. warehouse

Former Alaska Dispatch News owner Alice Rogoff gave a deposition June 6 after six months of delays in a state Superior Court lawsuit brought by an Alaska electrical company. On June 4, Rogoff also was in U.S. Bankruptcy Court Alaska Division for a mediation hearing that was closed to the public. A possible outcome of mediation could be an agreement to settle millions in unpaid debts after the public trustee in the case found evidence of wrongdoing among transactions that led to the 2017 bankruptcy of the Alaska Dispatch. The state court case was brought by M&M Wiring Service, which first filed a lien June 1, 2017, on a warehouse where it had completed electrical contract work for the Dispatch. The warehouse, owned by Arctic Partners, is also named as a defendant in the M&M lawsuit. M&M owner Mark Miller submitted invoices that went unpaid and unacknowledged, according to his complaint. He then filed the June 2017 lien against the property, contending that Rogoff’s actions nearly forced his company into a bankruptcy of its own. In the wake of unpaid contract work, he laid-off two employees and paid thousands of dollars out of pocket for subcontract work completed at the 5900 Arctic Blvd. warehouse. Now, more recently M&M filed a foreclosure suit based on a mechanic’s lien against Arctic Partners for the unpaid payments owed to M&M by Arctic Partner’s former tenant, Rogoff. Arctic Partners attorney Jason Kettrick has argued the building’s owners are victims themselves in the bankruptcy case because Rogoff breached her lease contract and stuck them with a printing press left behind during the liquidation phase of the case. A nearly 30,000-square foot warehouse is unusable to the owners until the giant press and all its pieces are hauled out. That job is underway now. “It is certainly worth noting that Arctic is the only party against whom no blame can be cast for the issues underlying this case. It was neither contracted with the Dispatch to install its new printing equipment, nor ran it financially into the ground,” Kettrick wrote in one of many filings in the case. Arctic Partners has filed its own case, this one leveled at Rogoff personally, for breach of lease and fraudulent transfers. Kettrick is arguing on his clients’ behalf that Rogoff anticipated bankruptcy and improperly paid Alaska Dispatch revenues toward the balance of her personally-guaranteed Northrim Bank loan of $13 million. The loan was used to help purchase the Anchorage Daily News from the McClatchy Co., in 2014. Though Rogoff paid $34 million to McClatchy, she also sold the Anchorage Daily News’ headquarters building that also housed the printing press on Northway Drive to GCI for $14.5 million. This was the first business move that caused her company to slip downhill into a bankruptcy that was filed Aug. 12, 2017, because she rented out additional office space for her staff on C Street as well as the eventual leasing of the Arctic Boulevard warehouse and the purchase of a new printing press to go into it. The massive overhead from staff and real estate costs caused losses totaling as much as $4 million per year, and the company was sold to the Binkley Co. for $1 million a month later on Sept. 11, 2017. (The Binkley Co. also now owns the Alaska Journal of Commerce after purchasing it from Morris Communications in a deal that closed Feb. 23.) In the meantime, other lawsuits besides the bankruptcy have moved along at a slow pace. M&M’s is one of four: Arctic Partners v. Alice Rogoff is another; GCI also has a breach of contract lawsuit related to unpaid rent and utility bills at the Northway Drive building; former business partner and Alaska Dispatch co-founder Tony Hopfinger alleges she owes him some $900,000 of a $1 million agreement signed on a restaurant napkin to purchase his share of the company after she merged the website with the Anchorage Daily News. M&M vs. Rogoff The original invoices for unpaid work completed by M&M amounted to nearly $600,000, but in his proof of claim filed in March with the U.S. Bankruptcy Court, owner Miller tripled the amount, as allowed under Alaska’s Unfair Trade Practices and Consumer Protection Act. He is alleging Rogoff’s contract for his work was signed with the Dispatch when the company was losing $125,000 per week, which means she knew she could not pay even upon hiring him. This constitutes deceptive business practices, Miller says in his claim, and violates the act. On June 6, Rogoff appeared at a deposition hearing to answer questions about her finances. Rogoff has thus far refused to respond to Miller’s questions about whether she acknowledges his 22 work invoices, his suit alleges. He asked whether the invoice was received, whether M&M furnished the items identified with the project, whether the Dispatch approved invoice payment and whether the invoice was paid. These four questions were asked in filings on each of Miller’s invoices. But Rogoff refused “in good faith by responding with inappropriate objections and by hiding behind the boilerplate response,” Miller’s attorney Wayne Dawson wrote in court filings. Rogoff’s standard reply has been “this request for admission appears to be directed to the ADN; therefore Rogoff in her individual capacity is not in a position to respond.” A reference to perjury comes into the back-and-forth, Miller asserts, because Rogoff already testified on Sept. 6, 2017, during bankruptcy proceedings that she acknowledged the debt to M&M, and further listed it as a debt in her bankruptcy filing. “For Rogoff to allege in this case that she does not know the amount due to M&M is perjury,” Dawson argued on Miller’s behalf. Then on Sept. 12, 2017, Rogoff also wrote of her challenges in the Dispatch about building the new printing press plant on Arctic Boulevard. “But what turned out to be our fatal challenge was the need to build a new printing plant at an affordable price… and then the retrofitting of the building for the printing presses ran into one setback and after another, one cost overrun too many… A series of misjudgments on my part caused the construction to grind to a halt in the spring,” Rogoff wrote. This sounds like a person who likely held oversight of the construction going on at the Arctic Boulevard warehouse, Dawson wrote, countering Rogoff’s claim that she was more distant from it. By deploying a formulaic reply, she is thwarting M&M’s “legitimate discovery efforts and prejudices its ability to have the lien foreclosure action tried without unnecessary delay,” Dawson argues. Rogoff’s attorneys in this case, David Karl Gross and Mara Michaletz of Birch Horton Bittner &Cherot of Anchorage, filed an objection on June 1. In this one, Rogoff is claiming M&M or Mark Miller is a bully. “M&M’s allegation of perjury is frivolous, has no basis in law or fact, and was made for the purpose of harming and embarrassing Rogoff. This accusation is consistent with M&M’s global litigation strategy of using bullying tactics and open hostility as a means to gain an advantage,” her attorneys wrote. As to the invoices and work completed, Rogoff’s attorney says “considering that Rogoff visited the warehouse infrequently, she cannot be expected to have this level of knowledge, making her responses appropriate.” The chain of command on the work site meant project manager Ed McCoy would have overseen the work. Any invoices would have gone to company vice president Margy Johnson. The attorneys argue that M&M’s remedy is “too harsh” and ask Superior Court Judge Eric Aarseth to deny the motion. To handle the confidentiality of Rogoff’s personal finances in this case, Aarseth ruled that sealed exhibits are to remain in his chambers. Rogoff has used the defense that limited liability corporation laws protect her personal right to privacy where an analysis of her finances is concerned. But both the bankruptcy case and this Superior Court cases have proceeded on the ruling that not all of her personal finances should remain off limits. She has admitted using her own money to cover the Dispatch’s annual losses, and lists herself as the largest unpaid creditor in the ongoing bankruptcy case. Naomi Klouda can be reached at [email protected]

Healthcare price disclosure aimed at high costs, but is no silver bullet

Patients curious about what health care costs won’t have to guess anymore after the Alaska Legislature followed 30 other states in passing a law requiring providers to disclose their prices. House Bill 123, sponsored by Rep. Ivy Spohnholz, D-Anchorage, awaits Gov. Bill Walker’s signature after it passed the House by a 34-6 vote in 2017 and was folded into Senate Bill 105 to pass both bodies on the last day of the 2018 session. Among the states that have passed similar measures, Florida and Colorado are most similar to Alaska’s, Spohnholz said. She was able to learn from Colorado legislative collegues that they regretted not building an enforcement mechanism such as fines.  The bill requires health care providers to publish price information in public spaces and on their websites. They will also need to submit the price information to the Alaska Department of Health and Social Services. A good faith estimate needs to be provided within 10 days of the request. Each listing will include 10 most commonly-performed procedures from six different sections of medical code for a total of 60 procedures. The six sections are medicine, pathology and labs, anesthesiology, surgery, radiology, and evaluation/management. No small amount of hope is pinned on the measure to help reduce health care costs, advocates have said. Alaska has the second-highest health care costs per person in the nation, Spohnholz noted when she proposed the legislation in January 2017. Simply having the price information and then a discussion between consumers can start bringing health care costs down, she said. According to her research, medical price transparency across the nation could save the U.S. $36 billion in health care spending. Colorado’s law went into effect Jan. 1, calling for hospitals and providers to post self-pay prices of their top 50 diagnosis-related group codes and self-pay prices of 25 leading current procedural technology, or CPT, billing codes. In shaping the Alaska legislation, Spohnholz started with the same 25 categories as Colorado but simplified it at the recommendation of the Alaska State Hospital and Nursing Home Association. “Transparency can also begin the public dialogue between stakeholders in the healthcare industry regarding the variation of health care costs within Alaska,” she said. Whereas several states, such as New Hampshire, require only the good faith estimates, Alaska’s law carries the posting requirement and a separate provision that within 10 days of non-emergency services, doctors, hospitals and insurers need to respond to a customer’s price request. The Municipality of Anchorage passed a similar measure last year that carries a fine for non-compliance. The law outlines how penalties for providers, facilities and insurers cannot exceed $10,000. Failing to comply by posting information carries a fine of $100 per day and failure to comply with a good faith estimate also carries a $100 per day fine beginning after the 10 days have passed. Becky Hultberg, the president and CEO of the Alaska State Hospital and Nursing Home Association, said she worked extensively with Spohnholz on the legislation. “We appreciated her willingness to consider our feedback. ASHNHA supports the concept of price transparency and consumer engagement in health care decision-making,” Hultberg said. “However, the structure of the health care payment and delivery system makes price transparency difficult to implement even when all parties agree on its desirability.” ASHNHA supports requiring health care providers and facilities to provide good faith estimates. Hospitals already have systems in place to help patients get estimates for what their care will cost, Hultberg said. Yet, while it seems logical that the health care provider would have access to the best information in helping consumers to understand price, the insurer actually has access to the best data, Hultberg said. “For those patients with insurance, working with their insurer remains the best way to get accurate information on out-of-pocket costs,” she said. Jim Grazko, president of Premera Blue Cross Blue Shield of Alaska, said he’s all in favor of price transparency. Premera rolled out an app earlier this year called Premera Pulse to help its 20,000 insured Alaskans track their health care costs in a year-long pilot program that will record results. “Everyone benefits from price transparency,” Grazko said. At the end of the year-long pilot program, Premera will analyze the data collected, perhaps modify it, and introduce it to the much larger pool of Washington state customers. Hultberg said her organization of hospital members also “appreciated the addition of the provision that limits municipalities from enacting an ordinance that is inconsistent with or imposes additional price disclosure requirements.” She was referring to the Anchorage ordinance that went into effect last year. Ketchikan also considered a price transparency measure. The city council created a committee to consider the requirements, but the committee “decided to wait to see how it turned out on the state level,” said Ketchikan City Clerk Katy Suiter. “This bill creates one statewide standard and that will help both consumers and providers,” Hultberg said. Opponents of the bill argued that pricing health care is a complex process and nothing like going to a car lot and picking out a vehicle based on the listed sticker. Fresenius Medical Care, which has nine Alaska facilities, specializes in kidney dialysis. Of the 300 people on dialysis in Alaska, only 11 percent have commercial insurance coverage, wrote Wendy Funk Schrag, the vice president of state government affairs for Fresenius. Others are on Medicare, Medicaid or Veterans Administration care. If they aren’t on one of the federal coverage programs when they begin, they may be switched over soon after, she said, and that will make a difference in the overall costs. “Posting price information for dialysis serves little, if any useful or relevant information to the patient,” Schrag wrote. The Alaska State Medical Association also warned of pitfalls in the bill. “For almost all patients, knowing the ‘rack rate’ or ‘cash rate’ for medical care would be very misleading as to what the actual charge would be… the rack rate will almost never provide price transparency and will almost always provide misleading information,” wrote Graham Glass, president of the ASMA. For example, one provider might charge $500 for an office visit, while another lists $400. “The seemingly more expensive provider may have a contract with Premera in which the negotiated rate is only $350 while the seemingly cheaper provider may have a contract with Premera in which the negotiated rate is actually $380,” Glass wrote. In other words, a doctor’s visit cost depends on whether you’re in that insurance pool or not and then what price your insurance company negotiated. To help with price variation understanding, Glass recommended that each estimate refer to the CPT code when working up potential invoicing. That way, you “create a culture of using CPT codes in documents that over time increase the ability to pre-inform patients of costs,” he wrote. The code comparison shows an apples-to-apples approach versus two people comparing their costs for knee surgery, he said. The bill is just one way to help achieve better price transparency, Hultberg said. “Health care price transparency is a complex topic and it is important to have realistic expectations about what this bill will achieve,” she said. “Consumers are usually only engaged in price shopping up to the point of their out-of-pocket expenses and have often met their deductibles when planning expensive hospital procedures. We appreciate that the Legislature took this step toward price transparency, but we do not expect that this bill alone will lead to lower health care costs.” Naomi Klouda can be reached at [email protected]

FCC funding shortfall spurs rural rate review

The delay in federal payments that allow Alaska’s rural hospitals and clinics access to affordable telecom services has been caused by a national rate review by the Federal Communications Commission. The state’s biggest broadband providers, GCI Liberty and Alaska Communications haven’t received payments since last year from the Rural Health Care program that pays the difference between urban and rural rates for medical customers. In 2016, the last year full RHC funding was paid, Alaska telecoms split an allocation of $122 million paid to state carriers out of a total funding pool of $400 million available nationwide, according to the FCC. National demand for the funding outstripped availability for the first time during the 2016-2017 funding year and has exceeded the $400 million limit again for the current funding year. The shortfall has led the FCC to demand more information from telecoms throughout the country to justify or explain their rates, according Healthcare-Informatics, an organization that has been tracking the issue over the past several months. The FCC took up the matter at its Dec. 14, 2017, monthly meeting when the $400 million ran out before eligible telecoms could collect on their invoices.. The five-member commission didn’t come to a conclusion at the meeting on whether to increase the size of the RHC funding from $400 million by as much as $171 million to account for inflation over the past 20 years, or to consider rolling funds over from the years when the full limit wasn’t claimed. But at the end of the meeting, the FCC sent out a notice of proposed rulemaking that sought public comment. One of the proposals is to “establish a process for evaluating outlier funding requests and reforming the calculation of urban and rural rates in the Telecom Program to improve fairness and transparency.” The public comment period on the new rules proposal just closed March 5, with no placement yet on the agenda this summer, said FCC spokesman Mark Wigman. But the FCC has begun to evaluate rates charged by the telecoms. That’s where Alaska is now, along with telecoms throughout the nation, in justifying their rates. The FCC is scrutinizing each submittal and requesting more information in some cases. In the meantime, the Universal Services Administration Co., or USAC, which pays out the RHC funds, has alerted the carriers across the nation they will be paid 84.4 percent on their 2018 bill submittals. According to FCC spokesperson Tina Pelkey, Chairman Ajit Pai fully recognizes the importance of the FCC’s Rural Health Care program and supports connecting Alaskans with broadband access. “Unfortunately, some carriers have not provided the FCC with sufficient information under the Commission’s rules to justify the funding requests that the carrier has submitted,” Pelkey wrote in an email. “Agency staff have been working diligently with those carriers to correct their non-compliant submission, and those carriers are now working on providing the FCC with additional information in support of the funding requests. “In the meantime, the Commission has made clear to carriers that they may not lawfully request that any rural healthcare provider pay more than the urban rate or cut off service to any rural healthcare provider if it fails to pay such a higher amount.” Critical problems with the delayed RHC funding came to light when Alaska Communications sent a letter to the Cordova Community Medical Center on May 6 threatening to cut off its internet service if nearly $1 million wasn’t paid by June 30, which represents the difference between the urban and rural rate that has gone unpaid by the USAC. Two days later, Pai wrote to Alaska Communications CEO Anand Vadapalli and told him it would be illegal to cut off service to Cordova, or any other rural health care customer, or to start charging more than the urban rate. The Cordova facility’s monthly internet bill is typically around $1,000 a month, with the remainder of the $80,000 monthly bill to be paid for by the RHC program. Alaska Communications officials stated that the company has covered the rural health care customers’ costs from its own revenue to keep 40 medical facilities on broadband for the last 11 months. Through the first quarter of 2018, Alaska Communications calculates it is owed $11.8 million in RHC funds dating back to the start of the funding year last July and it has blamed layoffs in December on the shortfall. The company is paying the costs for Cordova to a third-party carrier, the Cordova Telephone Cooperative. GCI Liberty is out $5.5 million in RHC compensation for 2017, and is still racking up additional receivables in 2018, according to company’s first quarter report. As Pelkey referenced, the FCC sent letters through its Enforcement Bureau to request the additional information from Alaska Communications and GCI Liberty in late March. All the filings by Alaska’s telecoms have been confidential so far, Pelkey said. Both GCI Liberty and Alaska Communications acknowledged the letters from the FCC Enforcement Bureau in their first quarter reports. GCI Liberty wrote in the report that on March 23, “we received a letter of inquiry and request for information from the Enforcement Bureau of the FCC, to which we are in the process of responding. This inquiry into the rates charged by us is still pending and we presently are unable to assess the ultimate resolution of this matter. The ongoing uncertainty in program funding could have an adverse effect on our business, financial position, results of operations or liquidity.” GCI Liberty has been working with the FCC to answer all the questions, said spokeswoman Heather Handyside. “The FCC is responsible for ensuring rates are justified and we welcome the opportunity to demonstrate the unique challenges of delivering broadband service in rural Alaska,” she wrote in an email. “GCI has invested $327 million in the TERRA network, which provides access to more than 45,000 Alaskans who live across an area comparable to the state of Texas. Building a network to deliver broadband to such a remote, sparsely populated areas was a risk but GCI is committed to doing everything we can to keep Alaskans connected. That’s why GCI has invested more than $3 billion in Alaska infrastructure over the past three decades and continues to invest today.” GCI Liberty’s rates for services are adopted through competitive bidding, Handyside wrote. “As an extra step to ensure that our rates are appropriate, GCI undertook a rate-of-return cost study, which was reviewed by a third party economic consultant,” she added. The study concluded that, based on the costs to build and operate the TERRA network in western Alaska, “GCI’s rate of return is less than would be expected for an incumbent local provider delivering service to the region. GCI provided the findings of this study to the FCC and has complied with all FCC requests for information,” Handyside wrote. Both the telecoms and the healthcare customers are in a bad situation due to the unpaid bills. Cordova Community Medical Center Administrator Scot Mitchell said the hospital would have to shut down if it lost its internet. “For us, if this does happen (a broadband cutoff) we will probably have to close our hospital,” Mitchell said. “Our electronic health records are on the cloud. We rely on it for X-ray and CAT scans, our entire telemedicine system. Our payroll system uses the internet. We won’t even be able to pay our staff.” Alaska Communications had to lay off 30 workers in December and rework employee compensation in order to absorb the revenue losses in RHC funding, said Leonard Steinberg, the company’s vice president of legal, regulatory and government affairs. The hope was that the 2017 RHC funding would be allocated eventually, Steinberg said. “Every month we’ve taken money out of our pockets. This company and its employees have put their lives on the line to subsidize health care services. We’ve been willing to do it for a while to resolve funding issues, but we can only go so long,” he said. The Alaska Telephone Association, an organization that serves its 20-some Alaska telecom members, is also concerned about the situation, said executive director Christine O’Connor. The FCC description of “non-compliant submissions” does not mean the telecoms committed any violations, she said. “That’s how they are characterizing it but we are all very careful about complying with rules. If the FCC finds any telecom out of compliance they are out of the program. It’s very disrupting and can stop funding,” O’Connor said. The RHC program was created in 1996 and has been funded at the $400 million level since that time. Meanwhile, the world of broadband and the tools in telemedicine grew exponentially each year. “The real problem is that the budget for the RHC program was exceeded and (the FCC) hasn’t adjusted the budget for over 20 years. They are overdue to fix the funding gap,” O’Connor said. “It’s been 11 months since the companies were paid and it’s a hardship. Both talked about it on their earnings calls. For ACS, it’s cash out that they have to pay to maintain the rural providers. Third parties are involved.” Alaska costs Alaska Communications officials are working with Pai and FCC staff on a solution to the funding challenge, said director of external and corporate communications Heather Cavanaugh. “We have provided the FCC with multiple rounds of the requested information regarding rural rates in Alaska. Of course, rates are different in Alaska than the Lower 48 because of our vast geographic distances, challenging terrain and small population,” Cavanaugh wrote in an email. The law provides that a carrier serving a rural healthcare provider is entitled to the difference between the rural rate and the urban rate. The FCC or USAC has the right to ask for more information about any carrier’s costs, but this generally didn’t occur until the 2016 funding year when, for the first time, demand for support from this fund exceeded the $400 million budget that the FCC adopted in 1997, Cavanaugh said. “So for funding year 2016 and 2017 (when demand again exceeded the budget, this time by an even greater amount) the FCC asked USAC to more closely scrutinize the rural rates and this has held up funding for a number of carriers, in Alaska but in other states, too,” she said. One problem is that the FCC is asking for measures Alaska telecoms cannot supply. “We believe our rates as submitted are compliant,” Cavanaugh said. Under FCC rules, the rural rate for telecommunications service provided to a health care provider, or HCP, must be the average of rates being charged to commercial (non-HCP) customers for identical or similar services in the rural area where the HCP is located; or the average of the published rates charged by other carriers to commercial customers for identical or similar services in the rural area where the HCP is located; or a cost-based rate approved by the FCC. “As we told the FCC and USAC more than a year ago, the first test cannot be met in most of Alaska Communications’ rural HCP locations because there is no commercial customer in the area buying the same or similar services; the second test cannot be met in many of Alaska Communications’ rural HCP locations using a single published rate for this type of service from a competing service provider. The third test is very difficult to comply with — in fact, no one ever has done it — because the advanced services we provide (high-speed IP-based managed broadband services) never were offered at tariffed or published rates, and never were the subject of cost-based ratemaking,” Cavanaugh said. “So we have to invent a cost justification acceptable to the FCC if we are to obtain FCC approval. To date, the FCC has rejected the several attempts made by Alaska Communications to demonstrate the reasonableness of our rates.” Funding short of demand, inflation Following the 1996 Rural Health Care Act, the FCC established the RHC Program to facilitate healthcare delivery in rural and remote parts of America in 1997. As a result of RHC Program funding, a variety of healthcare providers — ranging from not-for-profit hospitals to local health departments to rural health clinics, to name a few of the eligible healthcare provider types — have provided vital healthcare services in areas with limited or no access to many types of doctors and specialists. At its meeting Dec. 14, 2017, on the same day FCC commissioners officially repealed net neutrality regulations, the agency also voted to waive the RHC’s $400 million funding cap for the 2017 funding year, which runs from July 1, 2017, to June 30. The idea was to carry forward any unused funds from prior years when the fund wasn’t exhausted. Many groups, including the American Hospital Association and the National Rural Health Association, called for an increase to the $400 million annual cap, according to FCC records. Because the annual cap has not changed since the program’s inception in 1997, one consideration proposed by the FCC going forward is to adjust for inflation over that 20-year period, which would bring the cap to $571 million. The FCC also proposed reforming the agency’s definition of “rural” and prioritizing funding within the RHC program based on the remoteness of an area served by an organization requesting funding. Public comment ended on March 5, said FCC spokesman Wigman. The new rulemaking proposals could show up on the FCC meeting agenda later this summer, he said. The main answer is increasing the RHC budget, said the American Hospital Association, as even more strains are coming to the program. “Funding for broadband-enabled healthcare is needed today more than ever, and the $400 million cap established 20 years ago is no longer sufficient to meet burgeoning demand,” wrote Ashley Thompson, AHA’s senior vice president of public policy analysis and development. “The inclusion of a new class of provider — skilled nursing facilities — beginning in 2017 will place additional demands on funding and should be accompanied by an increase in the cap to accommodate them. Since the release of the National Broadband Plan in 2010, the Commission has increased the cap or budget for every Universal Service Fund program but the RHC program.” Ron Duncan, co-founder of GCI and the CEO, said during the first quarter 2018 results earnings call that he’s optimistic that there is a better way going forward, “but there are regulator processes that have to occur between here and there.” Naomi Klouda can be reached at [email protected]

Sitka Police chief named to marijuana board

The Marijuana Control Board will have its third police chief sitting in the designated public safety seat after the appointment of Jeff Ankerfelt of Sitka, Gov. Bill Walker’s office announced May 24. Walker appointed Ankerfelt to the seat that has been vacant since March. Ankerfelt volunteered to serve on the five-member board because he said he “believes it provides an opportunity for law enforcement to engage in the community and update” the understanding of marijuana. Travis Welch, who was appointed to the seat earlier this year, resigned in March after losing his job as North Slope Borough police chief. Welch was named to the seat following the January resignation of Soldotna Police Chief Peter Mlynarik. Walker’s office says there were two applications for the seat. Ankerfelt’s appointment is subject to legislative approval, but he will be able to serve until that vote in the 2019 session. The appointment, which was effective May 14, comes as the board is poised to once again debate proposed rules that would allow for consumers to partake of marijuana products on site at authorized shops. But Ankerfelt said he will not be able to attend the June 13-15 meeting in Anchorage because it falls on the same day as his daughter’s graduation from college. His first meeting attendance will be at the Aug. 15-16 board meeting scheduled for Denali National Park. Although it had a quorum of four members and a refined proposal after two years of work on the subject, the board decided to put off its vote over on-site consumption at its last meeting until it had all five members present. Ankerfelt was appointed police chief Nov. 1, 2016, after serving two years on the Sitka Police force. Prior to that, he was the deputy police chief of Brooklyn Park, Minn., where he served for 23 years. He’s also a graduate of the FBI National Academy. “While at the FBI academy I met the former police chief of Sitka. He would call every now and then and say he had an opening in the Sitka police department and would I like to come,” Ankerfelt said. “My wife and I talked about how you only live once. It’s been a great decision.” Since taking leadership of Sitka’s police department, Ankerfelt said he has kept a community and “customer service” focus to promote quality of life issues. “At the forefront, if there are people in community that suffer from substance abuse, mental health and homelessness, we get people the care they need from counselors or the medical profession,” he said. “It’s important to feel they are one and together with police. The more information we exchange the more we can change the future of crime and victimization.” According to the Sitka radio station KCAW, Ankerfelt launched a monthly or bi-monthly donut social he calls “coffee and donuts with a cop” as community outreach. This is an event “where people can come over and chat with us. We’re going to be focusing on problem solving, so when we do have a 911 call, we’re going to take a look at it and look at ways to prevent bad things from happening in the future.” Ankerfelt said his goal on volunteering to serve on the Marijuana Control Board is to help assist marijuana businesses in moving forward the “way the community wants.” Police departments lose an opportunity if they continue to fight marijuana, which is legal in Alaska, he said. “Law enforcement shouldn’t continue to stand in the way in terms of what a community wants in legalization. There’s an opportunity cost to our police department when they fight something that I don’t think needs to be fought. We have our hands full with heroin and other drugs. To fight marijuana gets in the way of benefits that marijuana has been shown to bring to people,” Ankerfelt said, citing seizure medicine, for example. “To the extent I can move that forward and challenge some of perceptions in law enforcement, I want to do that.” Sitka has been supportive of the marijuana businesses there, Ankerfelt said. Seven businesses operate in the town of about 9,500 population, including three retail stores and four cultivators. Ankerfelt joins a board that is required to be diverse in its make-up. The board is made up of representatives from rural Alaska (Chairman Mark Springer), public health (Loren Jones of Juneau), two industry members (Brandon Emmett of Fairbanks and Nick Miller of Anchorage) and a public safety member that is required to be actively working in the field. This is the third police chief in the position, Springer noted. “Someone actively involved in law enforcement is the description of the seat,” Springer said. “I can see how they might be conflicted given the federal look at it. At the same time, a police officer in Alaska is there to enforce Alaska laws. It shouldn’t be that big of an issue.” In light of Ankerfelt’s inability to attend the June meeting, the onsite consumption regulation will be postponed for voting until the August meeting. Emmett, the board member who crafted the latest onsite consumption regulation, with Loren Jones, said he had planned on the vote occurring in June. The proposal is to allow retail businesses to open an adjacent and separate area for people to consume marijuana products. Currently, it is illegal to smoke marijuana in a public setting and officials see an additional need to provide a place for tourists. “I want all five board members there when this thing gets voted on,” Emmett said. “It’s been such a topic of debate that I wouldn’t want it to fail on a tie. We owe the public a five-member vote. The government put together a board of five members, and I feel the public is relying on all five positions to make a decision for the state.” Even if the onsite consumption regulation were approved in June, businesses couldn’t open for customers until after the new year, he said. “Even if we were to approve it, there would not be enough time passed before final regulations to be signed for the businesses to have onsite consumption prior to Labor Day when the tourists leave. It’s still going to be next summer,” he said. The route toward signing it into law would go from passage, to public comment for 30 to 60 days, and then back to the board for either amendments or adoption, Emmett said. If there are amendments, it goes back out for public review for another 30-60 days. Once passed by the board at the end of that period, the new regulation would need the lieutenant governor’s signature. “It hasn’t taken very long for the lieutenant governor to sign these and they do get enacted quickly. If everything goes smoothly, we will be looking at January or February,” Emmett said. The next MCB meeting is June 13-15 in the Atwood Building in Anchorage. ^ Naomi Klouda can be reached at [email protected]

Federal fund injection boosts effort to relocate Newtok

Few in Alaska have the expertise to move an entire village, but a process at work now getting Newtok nine miles downriver to Mertarvik is a proving ground for figuring it out. The project is still massively expensive, now estimated to cost $100 million to $120 million, but it is about a quarter of initial guesses of as much as $400 million to move Newtok’s 350 people from their eroding village. Two recent developments have kept the effort advancing. One is the completion of an environmental impact statement on April 19 for the layout of Mertarvik. With it is a plan for how the village will be designed including the airport, a drinking water lagoon, fuel storage tanks, housing, a school, clinic and stores. The other addresses part of the funding conundrum. When Congress passed the omnibus budget in March, $15 million was added to the Denali Commission’s $15 million operating budget. The money is to go to help villages harmed by climate change. Since President Obama’s visit to Alaska in 2015, the Denali Commission has been designated the federal go-to agency to handle all village relocations. “But this was the first time we had the money to go with it,” said Jay Farmwald, the director of programs at the Denali Commission. The new village site is located nine miles south of Newtok on Nelson Island. It’s out of the way of the tidal activity of the Ninglick River, which feeds into the Bering Sea and is susceptible to storm surges. Newtok is surrounded by the Ninglick River on two sides. Though one year 300 feet of shore side slid away, the usual erosion rate is 70 feet per year. In the past 20 years, houses built on pilings sunk to ground level as the erosion came in two ways: melting permafrost couldn’t hold them up any more and water flooded in. A very real possibility is that Newtok residents may require evacuation before Mertarvik has services such as electricity and water available, said Romy Cadiente, a Newtok village relocation coordinator. “It’s not so simple as planning a move at some date in the near future. There’s a lot of planning, a lot of planning,” Cadiente said. “We’ve been blessed with the team that we have to help facilitate this huge movement. We’re in the process in getting a facility and we have scenarios and contingencies in the event we can be ready and provide for the folks if we have to move right now.” Newtok leaders say it’s important to stay together as a tribe in the face of advice that individual families should move away from their disappearing village lands. “Back in 2004, or even before when Newtok decided to relocate, elders told us why you cannot move,” said Andy Patrick Sr., the president of the Newtok Traditional Council who was born in 1947. “When they first planned this, they offered to send us to Bethel or wherever, and divide us up. But the elders told us to stay as one. We are an independent tribe, one of the 229 federally recognized tribes. We need to stay together, not divided.” Housing first The Denali Commission is focused on getting homes put in as its top priority, Farmwald said. “We’re using all of the $15 million allocation to move Newtok,” Farmwald said. “Most of the money will be spent on new houses and services to the houses.” An additional $5 million from the Denali’s budget also will go toward installing services at Mertarvik. At least two other villages among an identified 31 are in emergency mode for needing to move due to climate change’s loss of permafrost and the resulting erosion biting away at their lands. But with Mertarvik, Farmwald said, “we are setting down a template to help the next villages.” That template is currently a written plan that shows what the new village layout will be once completed. Villagers supplied their preferences for how public buildings should be grouped. Costs so far were contained by partnerships. For example, rather than each agency conducting its own required survey work — geotechnical, topographical and environmental — the Denali Commission did it. The geotechnical work cost the Denali Commission $450,000 to gather about 90 percent of the subsurface information needed to design Mertarvik infrastructure, including the airport, said Don Antrobus, an engineer in the U.S. Public Health Service who is on loan to the Denali Commission. “There are significant economies of scale if the money is released in one pot. Every project needs geotechnical, subsurface surveys,” he said. “It’s very expensive to mobilize the equipment. When you do a larger geotech investigation for the airport, road, school, landfill, lagoon — you only pay that cost once. If you do it project by project, then each agency needs to do its own geotechnical work and that’s expensive.” Now the Department of Transportation won’t have to do a separate “mobilization,” for example, Antrobus said. Mobilization is expensive in itself, meaning getting a drilling rig, equipment and crews on the ground, plus supplying food and housing for them while they do the survey work. Further cost savings came when surplus barracks from Joint Base Elmendorf-Richardson were donated last December. The pre-fabricated, single-story barracks are to be taken apart this spring and are expected to be barged to Mertarvik next summer. But the cost to barge and assemble them there is $4.5 million, of which Denali Commission is paying the bulk. The estimated cost is $450,000 each for newly constructed HUD, or Housing and Urban Development, homes. The barracks, once reconfigured into homes, will supply 13 houses, Antrobus said, at an average cost of $346,000 each. “It’s not free. But it’s about 75 percent of what new construction costs,” he said. The buildings are in good shape and together with the seven already built, there will be 21 homes by the end of summer 2019, if all goes as planned. More than 80 homes will be needed. Another partnership also has been a major contributing factor in saving time and money that resulted in the first road built at Mertarvik. The Department of Defense Innovative Readiness Training, or IRT, program performed the road building exercise in 2009 and returned each year through 2013 (except 2012) to build a bunk and kitchen camp for workers and storage buildings, as well as the site work for the Mertarvik Evacuation Center. They also opened a rock quarry that was used to build the road and will be used in foundation work for buildings. The IRT provides military personnel with real-world training opportunities on projects that benefit communities. At the time, the program manager, Lt. Col. William Morgan said the relocation effort of the village of Newtok provided a winning situation for both Newtok and the military. “To do something so far away from home, up in an Alaskan tundra that’s difficult to get to by boat or by air — this is exactly the type of challenge that will enhance our ability to go to war in the future, to do other engineering projects in remote locations,” he said. Their work resulted in a permanent road built to a white-rock quarry that will serve multiple construction needs as infrastructure and housing go in. When the IRT troops left, the road-building equipment they brought with them was left at Mertarvik for future work. The equipment belongs to the Tribe and was paid for by a grant. “That’s another opportunity for economy of scale,” Antrobus said. “If projects are done project-by-project or agency by agency, each brings equipment and when he leaves he takes it with him.” The IRT work amounted to a donation to the village, Antrobus said. The military transported, housed and fed more than 20 troops while they worked. When finished, the Mertarvik Access Road was built with gravel topped by polyethylene road mats, a technology used by oil companies on Alaska’s North Slope for road development on tundra. The 1,000-pound 8-by-14 foot polyethylene mats interlock to form a strong, stable and uniform surface over tundra. They cut down on dust and can be moved. Funding for the road came from the Department of Transportation and the Bureau of Indian Affairs. The Department of Commerce and Economic Development provided the majority funding and the U.S. Army Corp of Engineers provided $430,000 for a $7.5 million Mertarvik Evacuation Center, which is currently a platform on pilings. “This summer we will put on an exterior shell and plumbing and mechanicals,” Antrobus said. The MEC will be able to house Newtok residents should they need an emergency evacuation from their village anytime soon. It will also double as space for a clinic or a temporary classroom for kids. Currently there are seven homes built at Mertarvik. One is a prototype house designed by the Cold Climate Housing Research Center and funded by a BIA grant. The house is extremely energy efficient and moveable, since it was built on a skiddable foundation that can be towed across ice or tundra. All together, figuring out how to put new infrastructure in place without too many agencies stepping over each other is proving more economical, Antrobus said. “Over time, there have been some really astronomical cost predictions for this move, he said. “It has not cost anywhere near that.” In total, $47 million has been committed or spent on the move, including the projects completed to date. Back in Newtok Federal and state agencies continue to fund projects in Newtok. A certain number of people will need to live there for another five or 10 years, Antrobus said. One is an upgrade on the Newtok airport runway by the Alaska Department of Transportation and Public Facilities. The contract is for $1.8 million to resurface it, said spokeswoman Shannon McCarthy. Another is a water treatment plant improvement by the Alaska Native Tribal Health Consortium. Water from a lagoon source has been threatened in the flooding, Antrobus said. Newtok remains one of the villages on “honey buckets.” “One was a project that had funding to identify a new water source for Newtok. That was implemented last summer before we went into the winter,” Antrobus said. “There’s other money available for Newtok for improvement to the water treatment plant to heat it and keep it from freezing. Those projects will be done.” In the meantime, Newtok residents have gone through a lot of water insecurity issues. A $580,000 ANTHC project last year and this year paid for relocating the water supply plant to keep it safe from saltwater intrusion, said Gavin Dixon, an ANTHC engineer. The work is meant to help ensure water availability until the move. They are still on honey bucket style sewage. The only public place to fill water buckets and wash clothing wasn’t functioning properly and so the ANTHC work this summer will restore it to working order, Dixon said. “There’s been a lot of sickness from the water situation. It’s a public health solution to stabilize the village until they move.” It’s not a waste of money, Antrobus added, though the goal is to abandon the village as soon as possible. “Several hundred people will be living in Newtok for a period of time. It costs $100 million to $120 million to move and we don’t have anywhere near that,” he said. Even so, there isn’t much that can be moved when the big day to do it finally comes, Antrobus said. Of the 70-some homes at Newtok, “most are in poor or very poor condition.” “None of the homes can be moved,” Farmwald said. The design of the Newtok school was a modular building that can come apart in big wall panels, Antrobus said. “There’s the potential to take it down and transport it across the river and reassemble them. There’s been an analysis about what it would cost and it is not less than new construction,” he said. The Denali Commission and Newtok Planning Group are still exploring what other public buildings might be moved, and the means and methods to get them across the river on the ice. The problem is not being able to predict whether the river will freeze hard and deep enough to skid heavy buildings across it, Antrobus said. “The river freezing hasn’t been reliable,” he said. “Last year it did freeze, but late in season. The previous year it didn’t freeze.” Such is the conundrum of climate change, said Cadiente. “It’s happening faster than we can move,” the village relocation coordinator said. ^ Naomi Klouda can be reached at [email protected]

SBA Alaska recognizes Wells Fargo’s Harty as top financial advocate

Jim Harty puts hundreds of miles a week on his car traveling to meet with business owners applying for Small Business Administration loans through Wells Fargo Bank. At the end of the day, he’s most likely to be found in his home office making notes about those meetings until the late hours. Harty’s work on a majority of the 60 SBA loans by Wells Fargo in the last federal fiscal year led the SBA Alaska District Office to recognize him as the 2018 Alaska Small Business Financial Services Advocate. The 60 SBA loans at Wells Fargo totaled $23 million by the end of the 2017 federal fiscal year last Sept. 30. “His hard work and dedication has helped many small businesses grow and create measurable economic impact throughout Alaska,” said Nancy Porzio, director of the U.S. Small Business Administration Alaska office, in giving the award. Harty was recognized during the 2018 Alaska Lender Symposium May 17 at the Crowne Plaza Anchorage Midtown Hotel. Wells Fargo was also recognized as the 2017 SBA Alaska Lender of the Year, for loaning out more money to small businesses than any other Alaska lender. Of the $61.8 million loaned out by banks and credit unions, a third of the Alaska SBA loans originated at Wells Fargo. And that means most of the loans came after Harty’s initial work with each borrower. For Harty, it’s an unconventional banker’s life. Of the 60 loans that were approved, “six to eight times that number apply,” he said. That means he is talking to hundreds of small business owners a year. In order to qualify for an SBA guaranteed loan, a series of criteria need to be met. (The Alaska default rate is low at about 1 percent, Porzio said.) Then, the lender has its own criteria that each business has to meet, Harty said. At the end of both approval streams, the loan is made. In a geographic breakdown of 114 SBA guaranteed loans for 2017 in Alaska, the majority, 53, were made to Anchorage businesses, with another 17 in the Matanuska-Susitna area and 12 on the Kenai Peninsula. Businesses in Haines, Kodiak Island, Prince of Wales, Valdez, Cordova, Nome, Hoonah, Ketchikan, Sitka, Juneau, Fairbanks, Bristol Bay and the North Slope also were granted loans. While Harty didn’t work on all the loans, consider that the majority of Wells Fargo’s 60 SBA loans were his endeavors. He also works with Wells Fargo-SBA business developer Brian Sielski, who handles loans of $350,000 and less. “I do most of my work from my iPhone, my laptop and my car,” Harty said. This week, he anticipates several business stops on the road between Fairbanks and Homer. “Once they meet the basic criteria for an SBA guaranteed loan, I tell them ‘I’m coming to your business and we’re going to be spending a lot of time together,’” he said. The tools for analyzing a business are standard in terms of financial risk assessment and meeting loan criteria. Harty’s task is to also study their business plans and understand the entrepreneur’s strategy for success, a process that isn’t looking at the ledger so much as at the entrepreneur’s vision. After this evaluation, still, only one in eight loans make it to the next level: the underwriter’s desk. “If early on we determine they don’t meet the criteria, the next question is ‘why not?’ And if not, then is it a problem that can be overcome or is it insurmountable?” Harty said. “Everyone should at least ask the question of whether they will qualify for a loan. If it won’t work, I can show you in five minutes or less. That protects my time and their time.” For some, the turndown for a loan means “not now.” Repairing the problems can help them become eligible later on. For successful candidates, it can take 30 to 90 days from application to completion of loan. Harty, who’s been on the job for nearly five years, came to this career after serving eight years in the U.S. Air Force. He was stationed at Eielson Air Force Base from 1996 to 2000, then at the Air Force Academy in Colorado Springs from 2001-03 where he was an instructor in air space science for cadets teaching air campaign plan logistics. “Believe it or not, it wasn’t that different from evaluating a business,” Harty said. “It all begins with a plan. How am I going to do what I’m going to do tomorrow? The ones who execute a plan are the most successful.” Immediately after his discharge, Harty took a position with Bank of America in commercial lending. That introduced him to the road, and the face-to-face banking evaluation process. “There were no Banks of America between Denver and Minneapolis, so I was traveling a lot, spending time at people’s businesses,” he said. Harty was in a specialty niche analyzing loans for doctors and dentists. He would assess their profit and loss statements and business plans for their loan submittals to a Bank of America hub in Columbus, Ohio. At the time, he and his wife Yorisha were beginning their family, which now includes three daughters ages 11, 9 and 8. They moved to Anchorage where Harty took what turned out to be a brief position at Key Bank. After being laid off, he was hired by Wells Fargo. It was the first time the Alaska Wells Fargo had an in-house business development officer specializing in SBA loans. Previous to that, all the SBA specialty work was by Kelley Mears, a Wells Fargo Bank Oregon district sales manager who continues to help Alaska businesses and was also honored as a Small Business Financial Services Advocate. Nelida Irvine, the lender relations specialist at the Alaska SBA, said that nationally Wells Fargo is a top lender of SBA-backed loans. In Alaska, the numbers have gone up each year after Harty was hired to focus on this category of loans, she said. “So he has definitely made a big difference,” she said. Other awards went to: SBA Alaska Community Lender of the Year: Evergreen Business Capital. This award recognizes Evergreen Business Capital’s financial assistance to Alaska’s small business owners which resulted in the approval of 18 SBA loans totaling $15.9 million during the federal fiscal year. SBA Alaska 504 Lender of the Year: First National Bank Alaska: This award recognizes First National Bank Alaska’s financial assistance to Alaska’s small business owners which resulted in the approval of five SBA 504 loans totaling $2.4 million during the fiscal year. SBA Alaska Small Business Financial Services Advocate: Wells Fargo Bank VP District Sales Manager Kelley Mears, who is based in Oregon. Naomi Klouda can be reached at [email protected]

‘Go Global’ workshop shares free help available for exporters

A Palmer hay grower has teamed up with a timothy hay farmer in eastern Washington to sell to customers in Japan and South Korea. It’s a good export business for both small-scale farmers. The eastern Washington farmer had already invested in fumigation equipment, which is required to get rid of field pests like beetles and other live insects prior to shipment. He held licensing required to export agriculture and foreign trade compliance paperwork. A $150,000 loan for the fumigation equipment was made to the Washington farmer through an international trade loan, said Lee Gibbs, the export finance manager for Alaska, Washington and North Idaho at the U.S. Small Business Administration Office of International Trade. This is one story of a matchup that expanded partnerships for both hay growers and provided an example for how it’s done in a seminar, “Go Global” presented by the Alaska Small Business Administration office. Along with Gibbs, presenters were Debbie Franklin, the director of the U.S. Commercial Service-Alaska and Jon Bittner, executive director of the Alaska Small Business Development Center, who spoke about the Export-Import Bank of the U.S., or EXIM. The workshop gave pointers to about 20 attendees on the free technical services available by the three entities that often work in a partnership to get businesses ready to export. “We don’t get that many phone calls and that is why we are getting these workshops available to get out the word that there are resources available to help them start,” said workshop organizer and Alaska SBA lender relations specialist Nelida Irvine. “But I know of small businesses who are ready. A typical one would be the peony growers. We have 200 growers in Alaska now and they are ready.” A lot of small businesses could be exporting, but are afraid of the cultural, language and political barriers, she said. The big exporters in seafood and oil and gas have long engaged in international trade, Irvine noted, “but the small ones are still hesitating.” While Gov. Bill Walker and 24 Alaska businesses on a trade mission to China this week hope to open more trade opportunities, eyes are on the big trade partnerships that provide $4.9 billion to Alaska largely for seafood and minerals. Also on the trade mission are small entrepreneurs such as SBA clients 49th State Brewing Co. and Bambino Baby Foods. The later two are examples of another market of small and medium-sized enterprises that account for 71 percent of all Alaska goods exporters, Franklin said. Alaska’s top five export markets are China, Japan, Canada, Korea and Germany, in that order and a total of 589 companies exported from Alaska locations in 2015. In the farmers’ partnership example, Gibbs said he didn’t have permission to use the actual names. But such business “matchmaking” allows for people to connect with partners who already know the ropes about compliance issues on their particular export commodity. ““It’s not so much what you know as who you know and that couldn’t be more true in this area,” he told an audience that extended around the state via Webinars. Another piece of advice is to broaden what is considered an “export.” “Follow the money,” Gibbs said. “If the money comes from outside the U.S., then it is an export.” Alaska tourism businesses such as hotels, bed and breakfasts and guide operations that reach out to foreign customers are “exporters,” Gibbs said. Schools that seek foreign students are exporters. Offering services such as technical support to foreign customers is exporting. As an exporter of Alaska goods or services, lots of questions also arise such as how to navigate through the paperwork, language and cultural barriers, accepting foreign payments and getting loans to expand the business. At the Go Global workshop, the experts cautioned attendees to consider the first steps in any business plan: strategy and logistics. How to process payments is also a first step for consideration, Bittner said. Three ways of selling overseas are via cash in advance, accepting letters of credit and keeping an open account. “The open account is the most common, with 85 percent of world trade done on open accounts,” Bittner said. “Another 15 percent accept on secure payments.” The open account — payment received after goods were shipped — carries the most risk but with export insurance, supplied through EXIM, the risk is greatly reduced, Bittner said. Franklin emphasized that all of these arrangements need to be made before the first trade agreement takes place. There’s also a vetting process that needs to occur with a prospective business. Bittner talked about the safety net in export credit insurance from the EXIM, which is actually a federal agency, not a bank. This is a tool that is routinely used to insure foreign orders against nonpayment, offing up to 95 percent protection. There are also international trade loans up to $5 million to improve the competitive position of a business that is expanding or developing foreign markets. Gibbs, as an export finance manager, helps connect small businesses to loans and trade counseling. The free services include help finding the best international markets for a company. Trade counseling helps people develop an effective market entry and sales strategy. They also help navigate U.S. government export controls and compliance. There’s help in business matchmaking, Gibbs noted, and expertise to analyze market potential and foreign competitors. Some countries are illegal for U.S. imports or there are sanctions on certain products, such as in trade with Russia, North Korea and Cuba, noted Franklin, who opened the first International Trade Center in Iowa 15 years ago prior to taking the Alaska post in 2015. Given that all this information is free, it bothers Gibbs — who has 38 years experience in agricultural, commercial and SBA lending — when he is visited by professional consultants on behalf of businesses. “They come and get all this free information from me, then go back and charge the client for it,” Gibbs said. “I wonder why didn’t the client come to us to begin with?” ^ Naomi Klouda can be reached at [email protected]

Newly-christened GCI Liberty reports $9M dip in 1Q revenue

GCI Liberty posted first quarter 2018 revenues of $216.4 million, down from $225.3 million last year, after getting hit with a $6 million revenue shortfall in federal funds for providing rural health care broadband services. GCI may not be able to collect on $6 million in receivables from the Rural Health Care portion of support from the Universal Services Fund, or USF, program, said Senior Vice President and Chief Financial Officer Peter Pounds. Another $4 million decline in GCI’s materials and equipment for contractors contributed to the revenue decline in a year-over-year comparison down by a total of nearly $9 million. Both losses showed up in the business revenue bottom line of $108.5 million posted for first quarter 2018, down from the $117.9 million posted for the same time period in 2017. The new name for General Communications Inc. follows the successful merger between GCI and Denver-based Liberty Interactive Corp. that was completed on March 9. Liberty purchased GCI for $1.12 billion in April 2017. “We’re done seeing transaction-specific expenses,” Pounds said. “There are about 70 people at Liberty who are focused on hundreds of different things. There are a lot of interactions with our numbers team but it doesn’t go down that far. We really are left as an independent operating company that is rolled up in the Liberty complex.” On March 15, the Universal Services Administration Co., or USAC, announced the funding requests for the year from July 1, 2017, to June 30 exceeded the $400 million in federal funding available for the RHC program. As a result, GCI’s customers will see a 15.6 percent reduction in financial support, Pounds said. Reimbursements will not be coming until after July 1. GCI may need to “further reduce the RHC Program support receivables as we continue to work with our partners to come up with a solution that works for all parties,” Pounds said. In consumer revenue, residential customers are continuing to choose new data streaming options over cable television packages, Pounds said. Consumer revenue was flat at $40.9 million in the first quarter 2018. The number of basic cable subscribers fell from 106,100 in 2017 to 93,900 in a year-over-year look. That follows the market trends they’ve seen for the past few years, Pounds said. Phone subscribers also continued to decline in the landline category, from 52,700 at this time last year to 49,300 first-quarter 2018. “That consumer groups continued to decline is representative of people cutting the cord. The recession is also getting to people and it’s a luxury to have video,” Pounds said. “But losing video and moving to data isn’t a big loss. People are updating their data packages and simply not choosing to go with the multi-hundred cable channels.” Demand for the high-end data packages continues to grow after GCI introduced a new gigabyte service last year that bundles high speeds with unlimited data, he said. Consumer data revenue increased by $3 million in a year-over-year comparison from $36 million to $39 million. The total number of homes linked to GCI services increased from 250,800 to 252,900 or by 1 percent. In consumer wireless, GCI also saw a slight increase of 1 percent in revenue from $40.6 million to $41 million. Revenue from cable subscribers fell from $25 million in first quarter 2017 to $22.5 million in 2018’s first quarter. GCI now has 93,900 subscribers, down by 11 percent, or 2,200 fewer cable subscribers, from the same period in 2017. Business revenue saw slight decreases in every category, including data, voice and video. But Pounds attributes this largely to the loss of RHC funding, which helps pay for live video streaming for health examinations, telehealth and sending large volumes of medical data over the internet. Another trend is also showing up in companies that give a stipend to employees for their cell phone expenses, Pounds said. That switches what should be wireless business revenue to the consumer category when in the past, that could be tracked as a business expense. But these decreases were partially offset by increased purchases of additional data and transport services, Pounds said. Another bright spot is that the federal income tax decrease to 21 percent from 35 percent will continue to help with the bottom line, Pounds said. The company was able to benefit at the close of 2017, finishing in profit after a year of losses. “The move from a net loss of $9 million in (third quarter) to net income in (fourth quarter) was due, primarily to the Tax Reform Act, which reduces our federal tax rates going forward,” Pounds said. GCI finished the year by posting a fourth quarter profit of $48 million in the final stretch of 2017. Along with that, Pounds believes the Alaska economy may be turning around. “I feel more comfortable now than a year ago that there is light at end of the tunnel,” he said. “SB 26 (Senate Bill 26, which provides a government funding source from the earnings of the Permanent Fund) gives more fiscal certainty, and those are encouraging signs. I’m feeling more confident that a year from now I will look back now we’re going to turn the corner. That’s not something I would have said at this time last year.” ^ Naomi Klouda can be reached at [email protected]

Revenue flat, Alaska Communications points to unpaid rural funds

First quarter revenue for Alaska Communications Systems Group Inc. was down just 1.2 percent despite reporting $11.8 million in shortfall from the federal program for providing service to rural hospitals and medical facilities. Senior Vice President of Finances Laurie Butcher said a debt refinancing cost reflected in the 2017 first quarter made the company's net income look a little better than they were. “Last year’s first quarter recorded a $2.3 million negative impact that didn’t reoccur in a year-over-year,” Butcher said. The Anchorage-based telecom reported overall revenue of $56 million for the first quarter compared to $56.7 million reported for the same quarter last year. It was the first report after the company laid off 30 people in December, representing a 5 percent cut in its workforce. Alaska Communications has attributed the workforce cuts in part on the costs of providing the service to rural customers while only being able to charge the urban rate. It cited those costs in a shutoff notice sent May 6 to the Cordova Community Medical Center demanding nearly $1 million representing what the federal program hasn’t covered for its monthly invoices. Federal Communications Chairman Ajit Pai warned company CEO Anand Vadapalli in a letter two days later that it would be illegal to cut off Cordova or any other rural client. The Universal Services Administration Co., or USAC, normally fills the funding gap between the urban and rural rate that makes remote telehealth affordable. But last year and this year, requests for reimbursement have exceeded the $400 million pool for the first time. The unreimbursed funds are impacting all of Alaska’s telecoms. GCI Liberty reported a $6 million shortfall in the same Rural Health Care payments and also noted the Federal Communications Commission is conducting a review of the rates charged in Alaska, which consumed a bit more than a quarter of the total RHC funds at $122 million in 2016. This is the second year Alaska Communications is experiencing a funding shortage in its RHC revenue. Given overlaps in the fiscal years, with the federal funding year ending June 30, the losses were distributed over two years, Butcher said. “In 2016-2017 is when they had the first shortfall, a 7 percent funding gap. Sitting in Q1 last year, we thought we were getting the full revenue from the RHC program,” Butcher said. “But they didn’t announce their funding gap until April, so we didn’t start recording (losses) until Q2 last year. For this year, the 2017-2018 funding year, which started in July 2017, we still have not received any funding.” The cash flow impact amounts to about $1 million a month. Business revenue and wholesale revenue of $33.8 million decreased $700,000 or 2.2 percent in the first quarter of 2018. That’s down from the $34.5 million in the first quarter of 2017, and “due primarily to a $2.6 million reduction in broadband revenue driven by price compression and losses in the RHC funding levels,” Butcher said. The company’s first quarter RHC revenue was $3.5 million in 2018, compared to $6.3 million in 2017. Business and wholesale makes up just more than 60 percent of Alaska Communications’ total revenue while consumer business comprises almost 17 percent. Wholesale broadband revenue increased by $1.3 million. Business phone connections fell by 2,311 landlines, or 3.2 percent, year-over-year. Consumer revenue rose from $9.3 million last year by March 31, 2017 to $9.4 million for the same date this year. Of that, broadband helped push revenue slightly from $6.4 million to $6.5 million. Also in the consumer category, voice and other revenue decreased marginally due to 4,298 fewer connections due to loss of landlines. The consumer category overall benefitted from a rise in the average revenue per user or ARPU to $63.77 from $61.22. Regulatory income, which comprises 23 percent of its revenue, remained flat with first quarter 2017 at $12.8 million. The EBITDA tracking of earnings before interest, taxes, depreciation and amortization is a key indicator, Butcher said. “We don’t really focus on net income as much as we do EBITDA – depreciation, gains and loss on things that are non-operating expenses. These were double last year and are non-cash in nature.” Flat EBITDA was good news, she said, after the December employment cuts. “Some of the really drastic cost cutting measures we took in fourth quarter in response to what was happening with RHC impacted our employee compensation and reduced our workforce. It took serious cost cutting to keep EBITA flat,” Butcher said. An uptick in broadband is increasing revenues due to new technology that is expanding in fixed wireless for multi-dwellings and tenants, she added. “Technology enables us to provide services quickly at a much lower cost,” she said. Fixed wireless is installed via entire buildings that then enable individuals to quickly sign up for services. “Rather than the Old World of signing up for DSL where we roll a truck and hook you up, this is more customer friendly and cost efficient,” she said. Another bright spot is in new tax refunds that Alaska Communications can expect to begin collecting when 2018 taxes are filed and over the next four years. The company paid the alternative minimum tax, or AMT, that added back deductions to recalculate liability. Under the Tax Cuts and Jobs Act of 2017, the AMT was eliminated and corporations that paid it are due refunds. As for the RHC funding shortage, the Federal Communications Commission is currently evaluating how the Rural Health Care program is managed, said Sen. Lisa Murkowski’s spokesperson Karina Petersen. “Until that is finalized Alaskan participants are in limbo, which is a real problem because rural health clinics provide critical tele-medicine services for remote Alaskan communities,” Petersen wrote. ^ Naomi Klouda can be reached at [email protected]


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