Naomi Klouda

Judge orders Northrim to turn over Rogoff’s loan documents to trustee

After months of cross filings arguing whether former Alaska Dispatch News owner Alice Rogoff must reveal documents related to a $13 million bank loan, a bankruptcy judge decided it’s all fair game except for her marital settlement agreement. The bottom line of Bankruptcy Judge Gary Spraker’s March 21 decision is that Rogoff’s finances are not confidential as it relates to the $13 million loan from Northrim Bank used to purchase the Anchorage Daily News from McClatchy Co. Spraker ordered Northrim to turn over all documents to the public trustee Nacole Jipping in an unredacted form, including memos relating to Rogoff’s personal finances. Rogoff filed for Chapter 11 bankruptcy protection on Aug. 12, 2017, after the newspaper she had owned from 2014-2017 fell into financial distress totaling millions in losses per year and had been sued for eviction by GCI the day before. She sold the company to the Binkley family Sept. 11 for $1 million and the name was eventually changed back to the Anchorage Daily News. (The Binkley Co. has since purchased the Alaska Journal of Commerce and the Chugiak-Eagle River Star in a sale that was announced Feb. 23) Now, months later, the Chapter 11 reorganization has been changed to a Chapter 7 liquidation, which means the public trustee continues to analyze finances through what’s known as a Rule 2004 examination. This looks at Rogoff’s conduct and spending habits through financial documents that may affect how the news operation became distressed. One of those ways is that the newspaper’s revenues were used to pay interest payments on a personal loan Rogoff secured in order to purchase the Anchorage Daily News operation and headquarters building housing its printing press for $34 million, according to court filings on questions Jipping is pursuing. The effort seeks to recoup as much as possible of the $2.7 million in unsecured debt owed to dozens of contractors and individuals, Jipping has said. Even though the trustee agreed to keep bank information confidential — not available through public court records — Rogoff nonetheless objected in several rounds of court filings. Another objection was that she could be vulnerable to identity theft if her finances were revealed in publically available documents. But Jipping, through attorney Christine Tobin-Presser, argued the relevancy is that Rogoff took out a personal $13 million Northrim loan to acquire the Anchorage Daily News in May 2014. Then, beginning in June 2014, Rogoff “transferred over $2 million in monthly interest payments to the Northrim Bank on the Northrim Rogoff loan,” Tobin-Presser argued in her filings. “The Debtor (the Alaska Dispatch News) did not become obligated on the Northrim Rogoff loan until March 2017… The Trustee is entitled to review the Northrim Rogoff Loan Documents for information, including as to Ms. Rogoff’s financial wherewithal to ascertain why these withdrawals were made from the Debtor’s operating funds rather than by Ms. Rogoff,” Tobin-Presser wrote. Rogoff has argued that she injected more than $16 million of her own money from 2014 to 2017 into Alaska Dispatch operations to keep the newspaper afloat, and even that she is the largest creditor owed money in the bankruptcy. But Tobin-Presser countered that “the fact that Ms. Rogoff provided significant and necessary cash to fund the undercapitalized Debtor’s operations does not negate the need for the inquiry.” The fact remains that Rogoff “opted to treat her own contributions to the Debtor as loans that the Debtor (the ADN) would be required to repay in full, plus six percent interest.” Tobin-Presser said Rogoff’s marital settlement agreement isn’t the sticking point. Her divorce was finalized Dec. 8, 2017, with billionaire husband and Carlyle Group founder David Rubenstein. The couple held extensive property and other assets. The issue is how money was spent on her Alaska obligations. “Northrim Bank is required to turn over all documents to the Trustee in unredacted form, including documents relating to Ms. Rogoff’s personal finances,” Tobin-Presser wrote in an email to the Journal. “Thereafter, a document relating to Ms. Rogoff’s financial condition is only subject to protective treatment if it does not relate to the ‘acts, conduct or property or to the liabilities and financial condition of the debtor, or to a matter which may affect the administration of the debtor’s estate.’ “Whether a document falls outside of that broad scope is something that would be determined after the Trustee has had an opportunity to review the documents.” When Rogoff obtained a loan from Northrim in 2014 to help purchase the Anchorage Daily News, she submitted personal financial statements and at least one tax return, according to the filings. Communications between Rogoff and Northrim relating to her personal assets also are part of the loan record. Jipping is seeking to review these loan documents. But Rogoff argues the records are hands-off because they “constitute impermissible pre-judgment discovery of a co-debtor,” which would be Rogoff. The relevant “debtor” in the bankruptcy is the Alaska Dispatch News, as defined for legal purposes by the nature of limited liability corporations. In her objections to allowing Jipping to be privy to certain bank documents, Rogoff claimed she is “a business owner and has complex business financial affairs such that her financial situation (particularly net worth and liquidity) is itself sensitive commercial information.” A Rule 2004 isn’t without limits, the judge wrote in ruling. Once there is an objection to a Rule 2004 examination, the person requesting the information — in this case Jipping — has the burden of showing good cause, he wrote. Both parties recognize the trustee’s investigation of “avoidance claims for monies” paid in Alaska Dispatch News revenues, Spraker wrote, referring to the money that possibly was not properly paid out of Dispatch revenues. “The parties agree that the debtor was not a party to the loan, nor was it originally a guarantor of the original loan.” The court isn’t going to get involved in “a discussion of potential defenses to potential claims,” however, Spraker wrote. “The salient point for the limited matter before the court, however, is that Rogoff’s proffered defense relies upon her financial ability to make those loans. In essence, Rogoff’s argument calls into question her financial ability.” Spraker said how Northrim expected to be repaid is a legitimate area of inquiry. “Northrim originally did not expect repayment from the debtor (the Alaska Dispatch) as it was neither the borrower, nor the guarantor. Yet, to forestall adverse actions against Rogoff for failure to pay on her loan, the debtor assumed liability and pledged its assets to Northrim,” Spraker wrote, referring to Rogoff offering the newspaper as collateral for the remaining $10 million owed as she renegotiated the loan in the months before filing for bankruptcy. In an April 2 filing, Rogoff scaled back her objections. She and her attorney, James Lister of Birch Horton Bittner &Cherot, PC of Washington D.C., said they had time to look through 7,000 pages of Northrim correspondence, much of it duplications. She now asks that only the talking points that address her “liquid assets” and statements of “net worth” be redacted from public view. The deadline for those seeking to recoup money owed in a Proof of Claim to the bankruptcy court was March 19. This included all contractors, businesses and individuals on the original list of creditors made by Rogoff of her debts. A final listing of all debt has not yet been made available by the trustee. Naomi Klouda can be reached at [email protected]

Kodiak governments latest to explore savings of consolidation

Kodiak Island Borough and the City of Kodiak are the latest local governments to consider consolidation. After five separate attempts, the process proved so complicated that Ketchikan’s city and borough governments gave up the idea. Fairbanks also explored similar changes or consolidations before setting aside the idea. Eagle River has long debated separating from the Municipality of Anchorage, but that’s an idea that isn’t going anywhere, either, said Dan Bockhorst, the former chief of staff at the Alaska Boundary Commission. Haines successfully dissolved its city government to consolidate with the Haines Borough in 2002 and more recently, Petersburg in 2013 dissolved the city and formed a borough, among other examples. Major unifications occurred in the 1970s to form the Municipality of Anchorage and the City and Borough of Juneau. At its most basic, consolidating a city and borough means dissolving the current local governments and incorporating a new one, Bockhorst said in advising Kodiak. Each is a multi-million dollar municipal corporation carrying massive assets and debts, he said. Pondering whether it’s a good idea is proving an “emotional debate,” according to officials of both bodies who came together March 21 in a joint work session. At this point, one thing they all agree on is that more information is needed, said Kodiak Borough Manager Michael Powers. Voters may have believed combining all local and borough functions under one roof would eliminate duplication and save money. When Kodiak Islanders picked up their ballots Oct. 2, 2016, they were asked by the borough: “Should the Kodiak Island Borough pursue the idea of consolidating the Kodiak Island Borough and City of Kodiak into a single unit?” The results were 1,235 yes and 919 no. Residents from the City of Kodiak and 10 other municipal or village entities voted on the matter. Kodiak City Councilmember John Widdon said at the March 21 work session that voters may have thought consolidation is no more complicated than “taking two decks of cards and shuffling them together to have one large deck of cards.” But the reality is proving much more complicated as Kodiak returns to a question that cropped up in the late 1980s: how to join fire departments, police services, school obligations, taxes and budgets to form one entity. Since 1989, they’ve voted three times on some form of combining. “The topic has never really died,” said Kodiak Island Borough Manager Powers. “As times are tough — we’re not any different from other government entities — you look at ways to save money.” Now, 18 months after the vote, borough and city officials are seeking to hire an economic consultant to tease out the “show stoppers” that could make this a good idea or a terrible one. A request for proposals sent out March 11 has not received a single response, though the deadline isn’t until April 13, noted Kodiak City Mayor Pat Branson. She believes the process was backward: first should come the economic analysis, then the advisory vote. Some borough assembly members agree. “I don’t know why we put this question on the ballot without having this discussion 18 months ago,” said assembly member Julie Kavanaugh. “It seems to me we don’t have enough information now and we didn’t have enough then.” Unfunded challenges In the face of state budget cuts that slashed the 70-30 general obligation bond match to 60-40, the borough and the city face “unfunded challenges” in school and other public facilities, according to a borough report analyzing consolidation questions. The borough, in existence for the past 55 years, has $73 million in general obligation debt secured on borough credit that paid for school improvements. New Environmental Protection Agency rules on disposing solid waste forced spending to update the landfills, Powers said. “Regulatory requirements crept up and created unfunded mandates. We spent $30 million on landfill changes in the last five years,” he said. Dismal years in commercial salmon harvests, lower halibut quotas and devastating reductions in Pacific cod projections hit the communities hard. The base for collecting taxes has diminished slightly as people move out, according to a borough staff report released Nov. 30, 2017. “These unfunded capital costs are measured in the tens of millions of dollars,” the report stated. As of June 2017, the City of Kodiak carried $19.3 million in debt, including $6.5 million in general obligation bonds. Its incorporation stretches back 77 years to 1941. Assemblyman Kyle Crow, who favors consolidation, has argued potential cost savings mean it’s worth a look at what it would take to combine assets and roles. “Both municipalities have their own legislative bodies, manager’s offices, clerk’s offices and finance and billing departments,” Crow wrote in an email. Some days, the two local governments hold meetings at the same time. “The Kodiak Island Borough leases administrative and meeting space to the City of Kodiak and both municipalities occupy the same building. Many citizens are often confused about which government does what for whom, and perceive that there are overlapping services and duplication of costs between the two.” Kodiak residents pay more for their services than those of other comparable towns, he said. In 2017, the borough spent its budget of $20 million on a population of 13,824 people. (The separate school district budget was $45.5 million in 2017, paid for in part by borough taxes.) The City of Kodiak spent an additional $36.5 million serving about 6,191 citizens. Some of the difference comes in police expenses. The borough, which is covered by Alaska State Troopers, doesn’t pay for police because that is a state operation. But the City of Kodiak employs more than 40 officers and its fire department, who are responsible for what is proclaimed as the largest commercial fishing port in Alaska with more than 770 vessels. The total spent by both municipalities during that year was $56.5 million on services. As a comparison, the City and Borough of Sitka with a population of 8,881 had a budget of $28.3 million, Crow said. The City of Ketchikan with a population of 8,050 had a budget of $25.7 million. But Kodiak City Mayor Branson said comparing towns’ expenses and budgets is trying to equal “apples with oranges.” She also believes distinctions between the borough and city is pretty clear. “The assets are different. Each has different powers over services and infrastructure,” Branson said. “We do police, fire, our ports and harbors. The borough collects property taxes and handles landfill, planning and zoning, schools. They have service districts, a volunteer fire department and maintain roads. The only duplication is clerks and managers, the administrative crossovers. But each administrator is the head of completely different services.” Bockhorst, who helped many communities analyze questions of mergers, consolidations or annexation during his 29 years on the Alaska Boundary Commission, says they are pondering a complicated process. “The City of Kodiak and Kodiak Island Borough are mature local governments that provide many essential services to significant numbers of residents,” Bockhorst wrote to Branson. Next steps At the joint session, Branson asked for two outcomes: to launch a town hall type discussion with the Alaska Boundary Commission that includes the city, borough and other village or municipal governments. The commission could give an overview of what the process entails, questions they need to ask themselves about whether a merger or a consolidation would be best and then what kind of government. Home rule? First class borough? Staff can walk residents and officials through the pros and cons of choices. Branson, who said she was branded early on as anti-consolidation by some pro-consolidation officials, is trying to make clear that she is more concerned that the research gets done to determine whether consolidation is a good idea. Branson, who has served as mayor of Kodiak since 2011, started her own quest with a question to Bockhorst. She asked him to consult with her about restructuring Kodiak area local governments. “At the forum, the commission would open the discussion by including definitions of consolidation, merger, unification and annexation and what the process each requires,” she said. These are points Bockhorst brought up in his seven-page letter to Branson on questions that need to be addressed. The second request is to follow up that public meeting by drafting a memorandum of understanding explaining the process and expectations of each entity. At the joint session, both of Branson’s requests were approved. Powers also said he doesn’t have a position on the move. “I work for the assembly and if they want to do something, I do it. The assembly has made it clear they want to study the matter,” Powers said. One factor that killed off consolidation efforts in the past is a housing credit available to those under “rural” designation by the Alaska Housing Corp. which holds the mortgage to many island homes, Powers said. “It would have changed Kodiak’s definition of rural to urban. So it didn’t go further at that time,” he said. “Now there seems to have been some changes that won’t impact them.” City residents currently pay a 10.5 mill rate to the borough, plus a 2-mill rate to the city, which means a $200,000 home would have $2,500 a year in taxes. “Saving money remains to be seen,” said borough manager Powers. “Right now we’re seeking outside help to evaluate the operations and fiscal side of this. “You have two clerks, two finance departments, two public works departments. Both provide recreational facilities. And there are areas not overlapping. We do all the assessing and tax collections on property, and we do all the planning and zoning.” No date has yet been set for the town hall gathering to hear from boundary commission staff. Naomi Klouda can be reached at [email protected]

Sitka’s surplus water may help Cape Town crisis

Sitka’s water source at Blue Lake is said to be so pure it doesn’t need to be filtered. And now, if logistics pan out, thousands of tons of it will be loaded on a ship bound for Cape Town, South Africa, before the city of 3.7 million people runs out of water. Cape Town’s drought, coupled with population growth, is sparking one of the world’s worst urban water crises as South African leaders warn reservoirs are running so low they will have to turn off the taps. Previously predicted for mid-April, now leaders are saying “Day Zero” — the day the water runs dry — is more likely to strike by July. Either way, there’s not a moment to lose and a ton of logistics to figure out in order to get water to the other end of the earth, said Garry White, the executive director of the Sitka Economic Development Association, or SEDA. White helped write a proposed contract between the City and Borough of Sitka and an entity called Green Gold Distributors of Cape Town operated by global entrepreneur Anna Marie Gericke. If the deal happens, it will be the first time Sitka has successfully sold its water in bulk after 20 years of attempts that didn’t pencil out, White said. “In the past, we’ve dealt with a distributor who says ‘I’m going to get a contract and then find a market.’ Whereas the woman with Green Gold Distributors, Anna Marie, has an identified need when you have 3.7 million people who are soon going to be out of water,” White said. “She’s still trying to figure out the economics of it: Leasing the ship. How to load it. Where she’s going to offload a significant quantity of water. What do you do when you show up to the port if there aren’t enough storage tanks? Very hard venture to figure out economically.” In order to start contracting with a shipping vessel and getting other logistics tacked down, Gericke needed the local government’s contract in-hand, White said. The contract was approved by the City and Borough of Sitka Assembly on March 13. The critical impetus is on Green Gold Distributors to figure it out due to the pending crisis. Gericke’s isn’t the only company working on getting water to South Africa. Other towns with surplus water, meanwhile, were also in the running against Sitka, local officials warned as the town debated pros and cons of the deal on its local radio station, KWAC. Gericke has accomplished a number of difficult source-trading ventures, according to her website. The company exports fruits, grains and other commodities between South Africa, Egypt, Italy and Argentina. “They had a chicken crisis in South Africa, that apparently killed off a lot of birds,” White said. “She was able to get eggs shipped in.” Gericke has said she would like the deal to be finalized in March, to begin shipping by May. She met with the Gary Paxton Industrial Park Board via teleconference in February. “People on the streets of Cape Town are going to be paying for this water, and we have to keep it cost-effective as possible” Gericke said, as reported by the local radio station, KWAC. During the teleconference, Gericke gave information about her business plan, which involves shipping water in containers to private clients. She plans on using Panamax freighters: ships within the size requirements to go through the Panama Canal. She will pay Sitka the going rate of 1 cent per gallon and a $5,000 non-refundable administrative fee. According to her contract, the Gericke will have to move 50 million gallons in the first six months of the contract. The price after that will be $0.005 per gallon. In the past, during California’s drought, companies sought unsuccessfully to transport tons of Sitka’s water only to find that even “5 or 6 cents was just too expensive,” White said. That’s because water is an incredibly heavy commodity to move on ships and through pipes. Transportation costs ended up sinking every deal, he said. In 1993, when Sitka Mill and Pulp closed down, the city found itself with excess water that would be available for sale, White said. The Blue Lake Dam and Reservoir stores 18 square miles of water behind the dam. And since it had previously sold its water as a commercial entity, the mill's closure meant the city and borough gained water rights. The city and borough appointed the Gary Paxton Industrial Park Board in 1998 to market water. So far, $1.5 million in water has been sold, but none of it bulk. Currently, an estimated 7.4 billion gallons of water is annually available for export from Sitka’s reservoirs. “If the assembly approves Green Gold’s request, the CBS will still have over 20,027 acre-feet or 6.4 billion gallons of raw allocation annually available to enter into other contracts,” the resolution before the Assembly stated. “Green Gold has stated it wishes to establish a tideline-loading facility that would be similar to one already installed by the Alaska Bulk Water, Inc.,” (which sells bottled water) according to the Assembly’s resolution. The Gary Paxton Industrial Board of Directors recommended the project after analyzing, among other questions, whether it would drain or diminish Sitka’s own water supply. Likely it would not, their report concluded. At the end of its work, the board drafted a contract to be signed between the city and Green Gold. Now with the local government’s stamp of approval, the hope is to move quickly over the next few weeks, White said. “This is going to be a tough project. We are on the opposite side of the world,” he said. “That’s a long haul. And it will be expensive.” ^ Naomi Klouda can be reached at [email protected]

House passes supplemental budget to cover some of Medicaid shortfall

The State of Alaska pays $12.5 million per week for its share of Medicaid expenses. But in order for the Department of Health and Social Services to continue processing medical assistance payments through May 14, the department will require an estimated immediate $40 million in funds. A partial supplemental budget was passed by the House on March 12 that included $45 million of the requested amount for Medicaid. Rep. Paul Seaton, R-Homer, said the rest of the funding to cover the program through June 30 could come through the capital budget that’s typically passed near the end of the session, according to his aide, Joan Brown. Seaton is co-chair of the House Finance Committee. The supplemental appropriation in general funds through House Bill 321 also includes $24 million for the Alaska Marine Highway and other state programs for a total of $110.2 million. The bill now heads to the Senate. The Alaska Legislature was caught off-guard in December when Gov. Bill Walker’s supplemental budget request for the rest of fiscal year 2018 came in for an extra $100 million to make Medicaid’s ends meet. A big part of the reason the state’s budget for the program ran into funding shortages is because an additional 42,500 people were added to Medicaid under the expansion Walker accepted in 2015, according numbers from the Office of Management and Budget analyst Neil Steininger. During Senate Finance hearing talks in February, Sen. Lyman Hoffman, D-Bethel, made an inquiry to DHSS asking, “how much of the supplemental is required” by DHSS to continue processing medical assistance payments through May 14, the 121st day of the legislative session. Shawnda O’Brien, the assistant commissioner at DHSS, wrote back to Hoffman on Feb. 23 that, “without the additional general funds, DHSS is estimating it will be unable to continue processing medical assistance payments requiring a general fund match by the week of April 16, with a caveat that this could vary by a week or two before or after based on current spending trends.” DHSS is requesting $93 million to make payment through June 30. The total supplemental request was lowered from $100 million to $93 million after the federal Children’s Health Insurance Program, or CHIP, was extended by Congress. That covered a $7 million deficit the state would have had to fill to keep its Denali Kid Care program going, O’Brien said. “The $93 million would cover the amount of that is being billed to us or that will be billed to us over the next several months,” O’Brien said in an interview. “Some expenses already happened that we haven’t been billed for or will be billed for as providers continue caring for individuals they serve. Projections right now show the soonest that we run out of funding would be the end of this middle month of March or the middle of April. That’s the amount we have to continue to process the payments past what we’ve currently projected money to last for.” The big question now is what happens if funding runs out? Short answer: DHSS would need to stop paying providers for bills submitted. DHSS sent out a statement this week from spokesman Clinton Bennett, that “without the supplemental, the department will run out of State General Funds for Medicaid by mid-April. “The department would then be forced to suspend payments to Medicaid providers. The suspension of payments would continue until funding for the supplemental is approved. If a supplemental is not appropriated by the Legislature, the department would pay the suspended FY18 claims at the start of FY19,” Bennett wrote in an email. That would mean funding shortages gets kicked down the road. “This would result in the Medicaid budget being underfunded for next fiscal year,” DHSS’s statement read. Work requirements discussed A few public officials have begun to question how the state’s Medicaid ranks grew so quickly. Among those were Sens. Peter Micciche, R-Soldotna, and Anna MacKinnon, R-Eagle River, in a Senate hearing earlier this year. One effort might disqualify some Alaskans from being eligible for Medicaid. Alaska Senate President Pete Kelly is sponsoring a bill, SB 193, which would require able-bodied Medicaid recipients to work, volunteer or perform subsistence activities. Modeled after other efforts across the nation by states wanting similar requirements, Kelly said his bill will not require new mothers, the elderly or the disabled to seek out employment. But “in pursuing a work requirement, Alaska would join 10 other states already moving forward with similar efforts.” States first received a waiver from the Centers for Medicare and Medicaid Services to make the new requirement. Kelly’s provisions protect the most vulnerable and provide exemptions for job training, students, caregivers and others. It asks for the state to submit to CMS for the waiver. The bill was read for the first time on Feb. 19 and referred to the Health and Social Services Committee where it hasn’t moved yet. Meanwhile, efforts are also heating up nationally to fight against the Medicaid-to-work requirements. A letter was sent out to legislators in states this this week signed by 160 organizations including the Legal Action Center, ACLU, Southern Poverty Law Center, the American Psychological Association and the National Alliance on Mental Illness. The letter outlines how harmful the new Centers for Medicare &Medicaid Services or CMS policy allowing the imposition of work requirements would hit vulnerable populations hardest. Among those are people undergoing treatment programs in this time of drug addiction crises, including those relying on Medicaid to treat opioid addiction. ^ Naomi Klouda can be reached at [email protected]

Tax bill leads to rebates, $50M investment for Premera

Premera Blue Cross Blue Shield of Alaska announced March 12 that the company will make a $50 million investments over five years in Alaska thanks to the tax reform bill passed by Congress in December. The money will be spent to shore up the individual insurance market, improve access to care in rural areas and support local communities in their efforts to address behavioral health, Premera announced. The investments came about after the Tax Cuts and Jobs Act of 2017 directed the federal government to refund certain prior tax payments to eligible companies over a four-year period. Premera President Jim Grazko, who also is manager of Premera’s Alaska’s office, said they “had no idea the tax break would be so large.” Premera found out the news just two weeks ago. “We’ve only had time to think about key areas for our investment, then we will be fleshing out our ideas in the next six months,” Grazko said. “We don’t receive the first installment of the refund until early 2019 when we receive 50 percent of the total in that calendar year. We receive the second installment in 2020 of 25 percent, then in the next two years, 12.5 percent each.” Premera is having a good year after initial economic losses in Alaska’s insurance market that led other insurance companies to fold their losses and move out of state. This tax refund news comes on the heals of a one-time $25 million deposit made in December back into the state’s Alaska Reinsurance Program, or ARP. That deposit was made possible after lower-than-expected claims came in from Premera’s Alaska insurance policy holders, Grazko said. Grazko said the $50 million will focus in infrastructure projects in three key areas. First up is making investments to ensure Alaska’s individual market remains stable. The tax savings are expected to trigger premium rebates for individual and small group customers under the medical loss ratio provision of the Affordable Care Act. Premera also expects to return about $1.5 million to those covered in large groups or employee-sponsored insurance policies. A second key area is improved access in rural areas of Alaska. “We want to explore and see what we can do from an infrastructure standpoint that would make sense,” Grazko said. “We haven’t gotten further down the road to pinpoint whether that’s refurbishing a clinic, establishing a new clinic or making improvements to communication infrastructure of the rural part of the state.” Communication improvements may include hooking up more remote clinics to telemedicine opportunities or getting involved the infrastructure investments. A third front are options to invest in behavioral health. “We’ve been looking at the substance abuse aspect of behavioral health, as well as adverse childhood experience. How they flow into the overall population in terms of the maladies, to try to get at the root cause of some of these,” Grazko said. There may be opportunities to directly invest in research to find a means to identify root causes of addiction and homelessness. “Infrastructure, outreach — these are the types of things that we are talking about,” Grazko said. Naomi Klouda can be reached at [email protected]

Another vacancy arises on Marijuana Control Board

The Marijuana Control Board needs yet another member for its public safety seat after Travis Welch resigned from the board before facing confirmation after losing his position as police chief of the North Slope Borough. The process next is an online call for applicants and a look-back at past applicants who have sought to fill the five-member board’s public safety seat. State law requires the person be employed in that sector, which could be a firefighter, paramedic, village public safety officer or police officer. The other four seats are designated for industry (two seats), public health (one seat) and rural Alaska (one seat). “We will review other applicants and online (new) applicants to try to fill the seat before the Legislative session ends, since they need to go through confirmation hearings,” said Shalome Cederberg, the assistant director of Boards and Commissions. Welch told the Journal he’s not sure why his appointment as police chief was rescinded by new North Slope Mayor Harry Brower, who was elected mayor this past November. According to his February letter to Welch, Brower said he wanted to “make changes” in the borough. “I was in Anchorage attending a conference. I’m a mayoral appointment, so all they had to do is send a release saying I’m no longer an appointee. That’s all I was provided, the letter,” Welch said. Welch served 10 years with the North Slope Borough Police Department after first traveling there with his family of four children and his wife after he graduated from Alaska State Trooper Academy. He advanced from officer to police chief over that decade. In the midst of figuring out what to do next after getting the borough’s letter of dismissal, Welch received another phone call. This came from an assistant to the House Community and Regional Affairs Committee asking if Welch could discuss the schedule for his legislative confirmation hearing to the Marijuana Control Board. It was set for March 15. “It was at that time I notified them that I was released,” Welch said. “I was told that you have to work in public safety in order to serve in that board position.” No public safety job means a person is not qualified for a public safety seat on the MCB, according to Alaska statute. “I really enjoyed the one meeting I was able to attend (in January in Juneau),” he said. Welch was already in the middle of reading the packet for the meeting in April 4-6 in Nome. “I really looked forward to serving. When the governor asks you to serve, you serve. For the past almost 10 years, I’ve been grateful to serve the people of the North Slope. Now I am looking at all the options,” Welch said. One is to consider keeping his family and career in Alaska, he said. The other is to move out of state. The Alaska Police Standards Council was also notified of Welch’s removal, said Executive Director Bob Griffiths. “That’s just procedural: we are notified anytime an officer separates from their agency — quits, retires, is terminated,” Griffith said. “We get a form and it usually has a check mark on it about why they left. It’s the way we track the personnel across the state.” It’s back to square one in the nomination process that began Jan. 4 when Soldotna Police Chief Peter Mlynarik resigned from the board after serving since its creation in 2015. He did so after the U.S. Department of Justice shifted its policy on marijuana enforcement, believing it removed protections of the state’s legal marijuana industry. Welch was chosen from two applicants at the end of a 14-day open application period to the Alaska Boards and Commissions Office. Prior to moving to Alaska and pursuing a master’s in criminal justice, he graduated with an economics degree from Brigham Young University. The only other nominee at the time was Leonard Wallner, a veteran Alaska State Trooper in the Mat-Su Valley, now retired. Among the cases he worked was the Robert Hansen murder case back in the early 1980s. “I threw my name in the hat; as far as I knew that was the end of it,” Wallner said of applying to the MCB. “I’m retired but I work part-time for a Native nonprofit, director of security at Chugachmiut. I work part-time on purpose because I’m full-time retired from the state.” If he gets the chance, Wallner said he’d be happy to fill the seat. ^ Naomi Klouda can be reached at [email protected]

Alaskans serve as test market for Premera Pulse platform

A new platform devised by Premera Blue Cross Blue Shield opens opportunities not only for the insured, but to help crack the conundrum of high medical costs. Alaskans enrolled in the individual and employer-sponsored insurance market with Premera can tap into an app that makes it easier to track their health care. Results will feed into a year-long pilot program before Premera opens the service to its Washington state customers. Designed in partnership with Vim, a healthcare tech company based in San Francisco, Premera Pulse is available to all Alaskans covered under Premera’s health insurance. The new service is meant to overcome the challenges patients face when searching for the right, “high-value” provider. In turn, Premera will be collecting information from consumer-driven decisions on health care providers and doctors. Premera Blue Cross Blue Shied Alaska President Jim Grazko released news about the app at a time that coincided with a “Blueprint for Improving Our Nation’s Health System Performance.” The plan authored by five state governors — Gov. Bill Walker joined with Ohio Gov. John Kasich, Colorado Gov. John Hickenlooper, Pennsylvania Gov. Tom Wolf and Nevada Gov. Brian Sandoval — includes what they consider a good plan for solving problems left behind from a tattered Affordable Care Act. In their blueprint, the governors present four guiding principals for transforming their health care systems. One of the aims is to “recognize state innovations in value-based care.” That’s the direction the new app is also headed, Grazko said. “This engages them before they go to a hospital or to see a doctor. It’s not an app you download. It’s not a website, and it’s not a texting service. But it’s a little of all those things,” he said. To access the app, Premera customers will be given a link that allows a one-time sign in. They will then be able to find in-network care (doctors that take Premera insurance), schedule appointments, access medication lists, get reminders about important preventive care visits, set up convenient appointment reminders and rate doctors after visits. Nearly 10,000 people have signed up already and more than 300 booked doctor visits through the app, Grazko said. “When enough people do the survey afterwards, that will be information you can use as well,” Grazko said. A prompt asks, “’would you like to see how others in your area, how their visit went?’ It will allow you to know if they had long wait times, if they felt listened to… ” Premera can collect information from the “experience” recorded in the survey. Premera includes all the physicians in its network and will get a better idea of which providers offer “high-value” care. For example, the insurance company knows of Anchorage providers it already has categorized as providing good health care services that effectively increase their patients’ health. The move is away from fees-for services and toward incentivizing “quality,” Grazko said. “This is getting us toward increasing the value of health care, the whole value-based reimbursement approach,” Grazko said. “These providers are not doing unnecessary tests. They are only doing the care necessary at the time.” Providers go by standard check-lists before determining which tests are necessary. So it’s easy enough to find patterns among providers and facilities that pad their finances through unnecessary procedures, Grazko said. They can also track the customer’s health to determine how it’s faring. The doctor is likely to get some credit if your overall health improves. “Health status is higher or lower than standard and in general and over time, you can detect differences,” Grazko said. This also heads in the direction of paying doctors for outcomes. “It’s in our sights, not too far down the road,” Grazko said. “We’ve already identified some primary care providers by tracking outcomes.” The goal is to shift to a payment methodology that keeps a person out of the hospital. “If you keep your population healthy rather than just cranking through tests and scans — that’s the next generation. It’s value-based reimbursement,” Grazko said. The Blueprint The governors’ blueprint was written with the goal of producing better outcomes at a lower cost to governments. In Alaska, increasing health care costs for public employees and Medicaid is the single greatest expense in the budget; this session an additional $100 million has been requested by Walker as part of the state’s fiscal year 2018 supplemental budget. The current unrestricted general fund budget for 2018 Medicaid is $564.2 million. According to the blueprint, “governors understand that while some issues may temporarily divide us, on most issues we can find agreement,” including that it’s largely up to individual states to transform their own health care systems. One of the core beliefs expressed in the paper is that “we can and must achieve multiple, complementary objectives.” The best approach is to “address multiple objectives simultaneously.” The paper contends states can “lead by example” using Medicaid and state employee benefits (and to a lesser extent, individual and small group markets) as a catalyst for change. The strategy proposed for improving health care services is that the states “must align consumer and provider incentives, encourage more competition and innovation, (and) reform insurance markets,” much as Alaska has done in its Alaska Reinsurance Program, or ARP. The creation of the ARP with $55 million in state funds in 2016 led to a smaller premium hike than expected in 2017 and a decrease in premiums of more than 20 percent in 2018 for about 16,000 Alaskans in the individual market. The Division of Insurance filed for a waiver from the federal Health and Human Services Department in December 2016 to use the federal savings from reduced Affordable Care Act premium tax credits to help offset the price of the reinsurance program. The savings in premium subsidies are key as the waiver must be budget neutral. Under the waiver, the ARP will receive $332 million in federal appropriations over five years, the Centers for Medicare and Medicaid Services and the U.S. Treasury Department announced in July 2017. It’s logical that now with the ARP program assisting the Alaska individual insurance market, the next step is to get costs under control. The governors want to reduce the incentives for medical providers to overuse marginal or unnecessary services within “high cost episodes of care,” which means emergency situations. Grazko said it’s no accident that government and private enterprise are finding the same words and concepts. “The ACA didn’t control costs; it was a set of insurance regulations,” Grazko said. “In switching to a value-based contract for large group coverage, the key is to get costs down.” To read the Bipartisan Blueprint for Improving Our Nation’s Health System Performance, go to: Naomi Klouda can be reached at [email protected]

GCI closes ‘17 with quarterly profit, but loses $25M for year

After a year of reporting losses, General Communications Inc. posted a fourth quarter profit of $48 million in the final stretch of 2017, a factor the telecom attributes in large part to tax reform just as it finalizes its acquisition by Colorado-based Liberty Interactive Group. GCI took in $236 million in consolidated revenue in its fourth quarter and $919 million in revenue for the year. Despite net income of $48 million for the quarter, the company still reported a net loss of $25 million for the year. The fourth quarter financial report came as GCI expects to close its deal with Liberty on March 9, just less than a year since Liberty announced last April it would buy GCI’s assets for $1.12 billion. After the merger is complete, GCI executives have repeatedly said there will be “very few” changes that consumers will notice. “The corporate legal structure of the company is changing a little in the reorganization but the management, employees and our commitment to Alaska remains,” said Senior Vice President and Chief Financial Officer Peter Pounds. A change customers will notice is in the name from GCI to GCI-Liberty Inc. The fourth-quarter revenue was up $3 million year-over-year, and consumer revenues made up two-thirds of that increase despite significant subscriber losses. During the quarter, GCI reported it lost 500 cable modems, 2,600 video subscribers and 4,100 wireless subscribers. “The recession in Alaska is a significant contributing factor in our subscriber headwinds,” GCI wrote in the report. Pounds said tax reform passed in late December made a difference in the fourth quarter report. “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,” he said. “Effectively, our deferred tax liabilities in the future went down significantly given the lower future tax rates and that flowed through the income statement.” In total, consumer revenue “is still a little behind business,” but there was an increase from the previous quarter driven by the sales of the latest iPhone, Pounds said. GCI also connected nearly 20 communities to the internet in the last quarter. GCI finished its northwest Alaska portion of the 3,289-mile communications network known as Terrestrial for Every Rural Region in Alaska, or TERRA network. “Every new community that we bring on board helps us to grow revenues,” Pounds said. Business revenues of $122 million in fourth quarter were up $1 million or 1 percent on both a sequential and year-over-year basis. Earnings before interest, taxes, depreciation and amortization or EBITDA was $76 million, after the one time GCI-Liberty transaction costs were added in. This amount is down $4 million from the previous quarter and up $8 million year-over-year. In the upcoming completion of the GCI-Liberty transaction, Pounds said what’s ahead now should be relatively seamless with most of the work of merging behind them. “There should not be any changes that consumers should see that relate to the transaction,” Pounds said. “We are always striving to be better so there will continue to be change as there is in any healthy company.” Naomi Klouda can be reached at [email protected]

Duluth, Dave and Buster’s cushion recent Anchorage job losses

Ax throwing and log sawing contests vied for crowd approval outside but it was probably the flannel shirts or underwear inside that stole the show when Duluth Trading Co. staged its grand opening March 1. Duluth took over the 24,500-square feet former home of Sports Authority at 8931 Old Seward Highway, which closed in 2016. After an investment of $800,000 in renovations performed by local contractors H. Watt &Scott Inc., it took about a month to set up the store and hire 50 individuals, said manager Erik Hansen. The Wisconsin-based clothing company wanted a big Alaska entrance for its grand opening. One sure need when scouting out the store’s location was a high-visibility spot near a highway where motorists would frequently spot the brand name, Hansen said. It didn’t hurt when the festivities included its standard live shows that involved throwing axes and chopping wood. Inside, product lines spouted rhymes — “Crouch without the Ouch” pants and “Dry on the Fly” coats — had drawn hundreds of customers standing five deep by each cash register. “It’s been non-stop busy since we opened,” Hansen said. Duluth is opening just after some big names — Sports Authority, Sam’s Club and now, Sears — have exited the Anchorage market. But other big name stores are moving in to hire nearly the same number of workers displaced by a sum total of the closings, said Anchorage Economic Development Corp. CEO Bill Popp. What’s happened in Anchorage with the loss of big box stores involves corporate decisions based on a national level, Popp said. “It was impacted by what was going on in Alaska and may have been sped up a process … but it was not only the Alaska recession,” he said. He sees Dave &Buster’s — set to open March 19 — as a trendy entertainment chain and Duluth as “true retailers.” But each is very much customer experienced-base, he added. “Duluth is fun, energetic, engaging. The same will be true with the Dave &Buster’s model. These will be two good contributors to the economy,” Popp predicts. Between the two newcomers, about 350 jobs are getting filled, Popp said. When Sam’s Club closed, just fewer than 300 people lost their retail jobs. Sears’ economic descent in Anchorage meant steadily shedding jobs until near the end it employed just more than 100, meaning a more gradual loss of jobs for the economy to absorb, he said. “The job losses are replaced already,” Popp said. The next employment opportunity comes in constructing and filling the 60,000-square-feet of space now occupied by Sears where a grocery store will go in, Popp said, which will mean a few hundred jobs. Guitar World will be employing a “couple dozen” people as well, Popp said. Anchorage is likely to see additional national attention from companies that don’t yet have a presence here. “That is traditional in a business cycle, when a town is in a weakened economy,” Popp said. “Construction costs are down. Contractors are willing to sharpen pencils more sharply in terms of bids. Rent is cheaper. So a smart business operator who has the cash and financial ability to do so will take advantage of the bottom side of the cycle.” In releasing the AEDC 2018 economic forecast this January, Popp predicted the recession is “moderating quite a bit and potentially will end later this year, barring unforeseen circumstances.” The new mall businesses will help, he said. “They will help to moderate the losses and end the recession. Returning to growth, however, that’s different, That has to come from state fiscal policy to return to more robust growth,” Popp said. “But on a local level, retail wise, these are positive signs for retail and the service economy.” The recent bankruptcy declaration by the group owning Humpy’s Great Alaskan Alehouse, the Williwaw, Flattop Pizza and Bootleggers 8 Star Saloon is “concerning” in what it may forebode about the Anchorage service economy, Popp said. “There are signs of weakness in employment and we are hearing anecdotally they are struggling. I’m worried we will see a couple of those closing,” Popp said. “The recent announcement of bankruptcy by Humpy’s — that’s some of the concerns we have in that sector.” On the other hand, Popp added, it’s normal in a down economy for consumers to reduce dining out, even for businesses to tone back the lunch and catering dates. That trend negatively impacted local restaurants’ profits, he said. Alaska tested A line of 25 or so waited in single-digit temperatures for the doors to open at Duluth. “One man said he’s a big fan of our catalogue and took the day off work so he could be here for the opening,” Hansen, the manager, said. Alaska was a good match for Duluth’s product lines, Hansen said. “Three years ago they came here for a trades panel discussion and saw we would definitely have a customer base here,” he said. The trades panel is a made up of industry representatives from construction, commercial fishing and extreme outdoor adventuring like dog mushing. Duluth consults these representatives to gain feedback that then goes into how it manufactures outdoor gear after trials. Its Alaska Hard Gear line, which takes up a 1,600-square foot chunk of store space, was manufactured with the help of such feedback. The lines are manufactured by companies in and outside the USA, Hansen said. “We gained product feedback to see what’s needed: Is it the right length? Is it too heavy? If a coat is too heavy, they won’t wear it,” Hansen said. Wall illustrations of people wearing the apparel aren’t models but actual Alaskans who wore the clothing and evaluated its durability in a hardcore industry workout. Commercial fishermen from Sitka, construction workers and a dog mushing woman dominate the wall space. In 1998, the company was founded by brothers Bob and Dave Fierek in Belleville, Wis., after they designed a tool organizer they called the Bucket Boss. Still a best-seller, the tools can be tossed unsorted in a bucket. “Then you can organize them easier with the kit like this around the bucket,” Hansen said as he demonstrated. Since 2001, Duluth Trading Co., has been owned by investor Steve Schlect, now its CEO. The Anchorage location marks its 32nd store. Dave &Buster’s opening nears Duluth’s opening is to be followed by another major anchor for South Anchorage at the Dimond Center in Dave &Busters Sports Bar, a popular bar-restaurant chain from Texas that also prides itself on doing things large. Dave &Buster’s opens March 19, said Jared Hilliard, manager. They’ve hired about 300 service workers, though interviews conducted and wrapped up March 5. Some 1,400 people applied over the past few weeks, according to the company. The restaurant’s entry to Alaska required more than raising the roof at the Dimond Center. It also required legislation that was signed by Gov. Bill Walker in 2016 declaring the tokens or tickets that can be won in gaming are not classified as gambling. The 44,000-square foot business is to be located on the second floor of the Dimond Center, down the hall from the Regal Cinema movie theaters. The location will have a sports bar, dining, arcade gaming area and private dining areas for parties and events, said Dimond Center Marketing Director Brenda Steil. The $21 million investment was split by the Dimond Center owners the Ashlock family ($11 million) and Dave and Buster’s ($10 million), she said. The construction contracts were given to local companies. Between construction and Dave &Buster’s hires there were nearly 600 jobs created by this Dimond Center expansion, Steil said. The redesign of space involved major changes to the mall’s northern edifice and lifting the roof, which was built in the original mall design of 1977. Local companies WB Architecture, MCN Construction Inc. general contractors, BBFM Engineers, Allied Steel Construction Inc., RSA Engineering and Steel Erectors were all involved, with only one outside contractor, Rooflifters of Miami, Fla. Sears Mall transition Sears at its namesake the Mall at Sears is closing down, with plans for a new Safeway store to take up a majority of the space. Albertson’s, which purchased the Alaska Safeway chain of grocery stores in 2014, removed a main mall anchor when it closed down its Safeway store at the western end in 2015, said Linda Boggs, the mall’s marketing and leasing specialist. “I guess they missed it. Now they want to put it back in, but at the opposite end,” Boggs said. The mall, owned by national group Seritage Growth Properties, is giving out few details on its plans for releasing the space to new retailers. A press release the company put out stated only that Sears was closing in April and that the lease of 145,680 square feet in the store area and 17,390 square feet in the auto center for were each up for lease, all with the ability to subdivide. The western side of the mall — where the Carrs store formerly leased space — is currently in need of a company to lease it, Boggs said. A new name also is on the way to replace “The Mall at Sears,” Anchorage’s second oldest mall, built in January, 1968. (Montgomery Wards in the Northern Lights Center was first, built in the early 1960s.) “Just in time for its 50th anniversary, we will be revealing the new name,” Boggs said. “It will be something simple.” The public will hear about the new name in a “few weeks” she said, after the decision and the new signs are made. They also are waiting for Sears to close its doors sometime in April. Naomi Klouda can be reached at [email protected]

UA president delivers grim look after years of cuts

The University of Alaska president painted a distressing picture of what’s occurring in the university system after enduring $145 million in cumulative state funding cuts over the past four years. UA President Jim Johnsen outlined his concerns during his annual “State of the University” speech Feb. 20 to Commonwealth North at the Cuddy Center on the UAA campus. The system has 1,183 fewer employees and 50 fewer programs than three years ago, he said. Gov. Bill Walker’s budget includes flat funding of $317 million for the UA system, down from $378 million in 2014. University wide, the college has also experienced an enrollment decline from 32,700 to 27,800 during the same period. “These cuts surely hurt us, but the greater impact is to our state because of our reduced capacity to serve Alaska’s huge unmet needs for higher education,” he said. What followed was then a lengthy list of what concerns Johnsen. Alaska’s costs for health care, K-12 education, energy and food are among the highest in the nation. High crime rates and the nation’s highest unemployment plague the state. “We should be concerned about our extremely low — among the last in the nation — high school graduation rates, college going rates, and college completion rates,” he said. “We should be concerned about these numbers because they represent real people — Alaskans who will not have the opportunities for a good job and a good life for themselves and their families because of our state’s low educational attainment.” Johnsen’s lament included vocational and technical training that Alaskans lack as well as the college’s academic degrees. “We should be concerned because our economy, while increasingly diverse, ranks in the bottom 10 states in the New Economy Index and ranks dead last among all states in improvement from 2014 to 2017,” he said, referring to the outlook from the Information Technology and Innovation Foundation that looks at 25 indicators to measure the extent state economies are knowledge-based, globalized, entrepreneurial, IT driven and innovation oriented. Alaska was listed 42nd on the list. Johnsen also got into the “land grant deficit” that has long bothered the university. “Only Delaware received a smaller land grant than we did,” he said. That’s ironic because the state has more land than any other state in the nation yet the UA system’s lack of it “impaired growth for decades and unless remedied, will hobble us for years to come,” he said. The entire UA system, which comprises the Anchorage, Fairbanks and Juneau campuses as well as numerous small rural campuses, was granted 110,000 acres. But it is due 360,000 acres more that has not yet been granted, he said, a matter that is taken up with the Alaska congressional delegation. In 1862, an act passed by Congress under President Lincoln provided 11 million acres to states and territories to create a system of land grant colleges and universities. Alaska was to receive its allotted acres upon statehood. That hasn’t occurred yet, though efforts were made through the years by the Alaska Legislature through land swaps that were later struck down by the Alaska Supreme Court. The efforts continue to today to gain the allotted lands, Johnsen said. Johnsen said it’s a sad fact that businesses requiring a skilled workforce still reach outside Alaska to hire. That costs businesses money and constrains opportunities for those businesses, “our people and our state,” he said. But it takes a great university to build a great state, Johnsen said. He hit on that theme several times in his talk, noting that this is the 101st anniversary of the university’s founding in Fairbanks in 1917. Despite the endurance of budget cuts that hurt the university’s ability to deliver on all of its goals, Johnsen said there is nonetheless a lot to inspire confidence. “We should be confident because the university is a wise investment. For every $1 the state gives us, we generate another $2. In research we generate more like $4 for every state dollar,” he said. He noted the many industry partners and K-12 partners. If UA is able to educate more the state’s teachers, it helps reduce the annual $20 million recruitment bill statewide, he said. “If we are able to educate more health care professionals, we help bring down our health care costs. The same for engineers, miners, process technicians and scientists,” he said. And the university has demonstrated that it can make the tough decisions, Johnsen added. The Strategic Pathways process helped the board of regents determine a way to structure the system to reduce costs even while trying to enhance services, he said. “We have cut redundancy, reduced our statewide organization by 37 percent, improved transferability of course credit across our campuses and increased the number of online courses.” The UA system now has 104 online programs, he said. They also have cut travel costs by 32 percent since 2014 and “our employee health care costs are the lowest among the state’s major public organization,” Johnsen said. At the same time, the UA system’s work with school districts and the Alaska Department of Education aims to increase student success in the primary and secondary level to better prepare students for college. Concurrent enrollment programs, Rural Alaska Honors Institute, and the Alaska Native Science and Engineering Program are examples of that, he said. Then Johnsen announced the opening of the university’s first business incubator, the Center for Innovation, Commercialization and Entrepreneurship or Center ICE. That’s an innovation hub designed to accelerate economic diversification and entrepreneurship in the UA system, he said. The first Center ICE “class” will consist of five university spinoff companies and 10 individual innovators. Copyrighted intellectual property produced at the university benefits the private sector and brings in funding at the same time, he noted. The regents have settled on five goals to measure progress annually through 2025: Contribute to the state’s economic development; provide a skilled workforce; continue to lead in Arctic research; increase the state’s education attainment and operate more cost effectively. That’s why he is asking the Alaska Legislature for a $24 million increase in the operating budget from $317 million to $341 million this year. So far, Johnsen believes he’s received a fair hearing in Juneau. “After these years of state disinvestment in the university, our ability to move these worthy goals forward is limited,” he said. ^ Naomi Klouda can be reached at [email protected]

‪Launch Alaska selects four energy startups for 2018 program

Four energy companies were selected in a competitive process to participate in Launch Alaska’s 2018 business accelerator in Anchorage. They will complete an intensive four-month program beginning March 26 at the downtown Boardroom, a shared working space for innovators. In the program, they receive mentorship, business training, business services, and $75,000 in exchange for equity in their companies. The 2018 group is BoxPower, Carter Wind, Correlate and Omega Grid. This is the third class or “cohort” to enter the accelerator program, which has as its goal to build Alaska into “an innovation and entrepreneurial hub.” The 2016 and 2017 cohorts worked on diverse business plans from drones to baby food to security measures against identity theft. This year’s group will focus on solving problems with energy generation. Isaac Vanderburg, managing director of Launch Alaska, said they received about 27 applicants from Alaska and around the nation. This year’s process called for a highly involved vetting system that required a look at the companies’ financials, market, business models and more interviews as well as more pitches. “All are from out of state, but have reasons why they need to be in Alaska,” said Launch Alaska program manager Alyse Daunis. ”With the highest cost of electricity and some of the highest per-capita energy consumption in the U.S., Alaska is hungry for energy innovation because of the out-sized impact that energy costs have on residents’ pocketbooks,” Vanderburg and Daunis wrote at the end of their selection process. “Participation in the cohort provides a unique opportunity for a company to test its technology in remote and harsh conditions.” Launch Alaska wanted to attract energy startups to allow a more intense focus on that industry-need in the state. Over the past year, Vanderburg and Daunis worked on recruiting efforts and conferences that focused on energy startups and issues. Vanderburg brought further attention to Launch Alaska and the state through articles published in the journals Microgrid Knowledge and GreenBiz. He also completed the Energy Executive Leadership Program at the National Renewable Energy Lab in Golden, Colo., in 2016. “We’re super happy about getting them here. There are lot of people who said ‘you’ll never be able to attract energy startups to Alaska’,” Vanderburg said. “It has a clear value proposition for Alaska. At the same time, we are now recognizing the opportunity in the food, water and transportation markets as well, in what’s known as the energy-food-water-transportation nexus.” The idea that those four things are related means solving a problem in one will help solve a problem in another, Vanderberg said. Over the next three years, Launch Alaska plans to fund at least 30 innovative companies that can leverage emerging “Arctic Tech” to meet Alaska’s local energy, food, water and transportation challenges. At the same time, they will look toward extending their impact to remote communities throughout the world. These companies are in the 2018 cohort: BoxPower of Grass Valley, Calif., provides innovative infrastructure solutions to off-grid and under-served markets worldwide. It has developed the world’s largest containerized hybrid renewable energy system. The company designs and manufactures custom, modular, off-grid energy systems for any application, with the goal of bringing their technology to the 1.2 billion people worldwide without grid electricity. Carter Wind from Witchita Falls, Texas, plans on filling a gap between large and small wind turbines. They are a manufacturer of next generation wind turbine technology that is self-erecting and designed for ease of utility. The company distributes micro-grid power generation applications in the most remote, extreme environments. “This should be interesting for a lot of our rural utilities,” Vanderburg said. “A lot of the large wind turbines are just too big for our rural communities.” Correlate, from San Francisco, is a virtual energy manager for businesses that leverages an artificial intelligence platform to create, deploy and manage low-cost custom strategic energy programs. This reduces the risk of investments and increases energy savings. They work with large energy users such as the military to help bring down costs. Omega Grid of Chicago offers a peer-to-peer “blockchain,” which is a decentralized accounting system for transactions between multiple energy parties. It is an energy platform that removes the revenue risk of distributed generation of utilities, encourages energy investment by property owners, and enables access to lower rates for everyone. Their primary customers are the utilities. “We look forward to working closely with these innovators to begin solving some of the state’s most intractable problems — leveraging emerging technologies like AI (artificial intelligence) and blockchain to address energy cost and deployment challenges. Alaska can and should be a hub for innovative solutions to meet some of the most pressing global challenges,” Vanderburg said. The energy companies each are required to work on an Alaska problem as part of their participation in the accelerator. Stakeholders, military and orporate partners helped Launch Alaska discern the energy issues they would like to see tackled in the state. “We recruit companies to work on those. Every company that comes into the acceleration is providing an economic benefit to the state,” Vanderburg said. Launch Alaska, now in its third year, has grown in its own organizational structure since it was founded in 2015. Vanderburg manages the $3 million fund that invests directly in the accelerators’ cohort companies. He previously served as the director of the Alaska Small Business Development Center. Daunis works with startups to rapidly develop, find product-market fits and connect with other founders, mentors and partners. She is a skilled ecosystem builder, organizing and mentoring for startup weekends, hackathons, innovation sprints and other entrepreneurial events. Her MBA is in global, social and sustainable enterprise from Colorado State University. Launch Alaska would like more companies to be homegrown, to get Alaskan entrepreneurs to a point they are competing with their peers in Boston, Chicago and Austin, for example. “We have a high bar to become a world class accelerator that companies what to be part of and, at the same time, build out the local ecosystem. We’re just kind of raising the tide for everyone,” Vanderburg said. ^ Naomi Klouda can be reached at [email protected]

Startup community brainstorms to save nonprofit farm

Managers of an Anchorage hydroponic farm at risk of shutting down in March made an unusual move to save their operation. Seeds of Change, located off Arctic Boulevard and 26th Avenue, occupies a 10,000-square-foot warehouse designed for the purpose of high-tech agriculture growing. During its first year of operation, it served 18 youth employees through a program for at-risk youth at the Anchorage Community Mental Health Service, or ACMHS. They’ve sold their first produce at farmers’ markets and to local restaurants: a dozen varieties of lettuce, chives, mint, kale and bok choy. “Our program has not generated enough revenue to be self-supporting,” said Ryan Witten, the community development manager at Seeds of Change. “We were told we have funding through the end of March, by the ACMHS board. Unless we have a plan for the future, they would be forced to shut down. That is absolutely not what the board wants to do.” They reached out to the University of Alaska Business Enterprise Institute, or BEI, for ideas on saving Seeds of Change. That led to calling on Nigel Sharp, the University of Alaska Anchorage Global Entrepreneur in Residence, or GEIR. Sharp, the university’s first GEIR and one of only a handful around the nation, has held startup weekends, technology sprints and other events to guide tech-savvy startups since arriving in Alaska last June. But this was the first chance to put together a think tank of expertise moving from theory to a hands-on rescue of a distressed business. Sharp got the pieces in motion to launch the first Growspace Social Business Catalyzer event Feb. 16 that began at the Seeds of Change warehouse. He invited the entrepreneurship community, including BEI staff, Alyse Daunis of Launch Alaska and Rachel Miller, Alaska Pacific University’s School of Business’ Walter Hickel Endowed Professor. Eight youth from Seeds of Change also attended, as did officials from ACMHS. “The project is short on both time and money and yet serves an incredibly important mission for our community,” Sharp wrote in his invitation. “Join us for the Growspace program where we’ll deep dive into developing new sustainable business models which will end with a presentation to their board of directors for implementation.” A “catalyzer” works with participating organizations that includes social enterprises and nonprofits, to rapidly develop business models, customer validation and funding source strategies. About 32 professionals turned out for the 10-hour catalyzer at the Anchorage Communications Center the morning of Feb. 17. Sharp said he started from a list of about 160 entrepreneurial resource people. The kickoff event the day before brought out about 100 of them, he said. The main goal was to come up with a transition plan to present to the board by the end of March. Then the board will make a decision about whether to proceed or shut down, Sharp said. “We came up with three major elements: fundraising, functioning as an educational business model and outsourcing Seeds of Change staff and facilities to partner organizations,” Sharp said. “A fourth element is to do agricultural tourism. It’s a novel opportunity to visit an indoor hydroponic farm.” The managers of Seeds of Change, Ryan Witten and Sundance Visser, were energized by the ideas. “We split into six work groups,” Witten said. “First we did team building, then talked about challenges with the existing structure. We looked at other organizations that do social impact work working with youth. We all did work ahead of time, researching. Then we came up with ideas in the work groups.” The four action plan ideas they ended up with are all credible, workable ideas that link well together, Witten said. The first one focuses on fundraising and marketing. “A lot of people still don’t know about Seeds of Change. Since the community is still becoming aware of it, it’s important to raise awareness and do fundraising, to give a longer runway on training and education programs for more youth,” Witten said. The plan calls for providing educational tours and classes on how to grow year-round indoors. “It’s a pretty new thing to do. If we can help other people shorten their learning curve, that’s a good opportunity for us,” Witten said. A second plan involves opportunities for leasing space. Far North Fungi, a mushroom growing business, is looking for more space and showed up at the meeting. “They need a place that gives more heat for the mushrooms to grow and we need more CO2 for our plants, which the mushrooms give off,” Witten said. “In the coming weeks, we will be talking about leasing space.” A third idea is to develop tourism opportunities inside Seeds of Change. A fourth idea is to sublease with a partner business such as a software developer who can create farm-planning software. They can also partner with other growers for food distribution from the location. Seeds of Change features 1,500 growing “towers,” vertical columns containing thousands of plants. Though the first seeds were planted before Christmas in 2016, the dream dates back a decade of planning by Dr. Michael Sobocinski, the chief operating officer of ACMHS. Seeds is part of the ACMHS Transition Age Youth Continuum of Services. Staff are 16 to 26 years old, and generally are coming out of foster care, mental health treatment, the juvenile justice system or were formerly homeless or Alaska Youth Advocates who use the space as a healthy drop-in center. Sobocinski’s dream was to give them a transition point or seeds for changing their own lives through the nurturing environment of planting. ACMHS bought the building in 2014 and renovated it at a cost of about $2.9 million, including the purchase of equipment from the Alaska Department of Health and Social Services from the “Bring the Kids Home Fund,” said Jessica Cochran, the executive coordinator at ANCMS. An Alaska Mental Health Trust grant paid for the staffing and startup. Seeds of Change’s growing operation is energy efficient thanks to the investment in the latest technology: low energy usage even with dozens of grow lights, maximum use of space due to the vertical towers and an irrigation system that recirculates water. Even soil costs are reduced since the plants grow in a “beds” made of recycled-plastic wicking material. The goal is to produce 70 tons of produce per year. But the expense of operating the business has far exceeded any profits, Witten said. “There’s been a shift in the way that nonprofits have operated in the past. We have been doing our best and we recognize we need more support, working with Nigel Sharp and the UAA Business Enterprise Institute,” Witten added. “I was really impressed at the caliber of people in the room. It was tens of thousands of dollars donated in time to us, especially over the last weekend.” Sharp said social-impact businesses — enterprises that combine a social cause in either a for-profit or nonprofit structure — are becoming a new vehicle for philanthropy in the U.S. They also represent a $310 billion US industry sector that is expected to grow to $500 billion over the next 10 years. “This represents a huge opportunity for building impactful businesses,” Sharp said. The consequence is that more resources will be shared among entrepreneurs to create working business models. Naomi Klouda can be reached at [email protected]

State gets more than expected for reinsurance program

The first disbursement from the federal government to help cover Alaska’s high-cost individual insurance market pool was announced Feb. 9 at $58.5 million for 2018, an amount higher than projected. The funds come after the State of Alaska was approved for what’s known as an “innovation waiver” under Section 1332 of the Affordable Care Act that will allow it to continue the Alaska Reinsurance Program, or ARP, created by the Alaska Legislature in 2016. Lori Wing-Heier, the director of the Alaska Division of Insurance, said the Centers for Medicare and Medicaid Services or CMS calculation of $58.5 million means Alaska’s portion will be smaller than expected at $1.5 million. After consecutive years of nearly 40 percent premium increases and down to just one company offering insurance in the individual market, the Legislature established the program to reinsure claims for Alaskans with high-cost medical conditions and isolate the higher costs from the majority of people in the insurance pool. The creation of the ARP led to a smaller premium hike in 2017 and a decrease in premiums of more than 20 percent in 2018 for about 18,000 Alaskans in the individual market. The Division of Insurance filed for the 1332 waiver in December 2016 to use the federal savings from reduced Affordable Care Act premium tax credits to help offset the price of the reinsurance program. The savings in premium subsidies are key as the waiver must be budget neutral. The Legislature used $55 million from existing insurance policy taxes to cover the cost of the program in 2017. Under the waiver, the ARP will receive $332 million in federal appropriations over five years, the Centers for Medicare and Medicaid Services and the U.S. Treasury Department announced in July 2017. At the time, it was estimated that the CMS would kick in about $48 million to match with the state’s $11 million portion in 2018. “The CMS award was more than we were expecting, reducing the amount that the state will need to contribute for CY2018,” Wing-Heier wrote in an email. The money will be disbursed over a calendar year, rather than an Alaska fiscal year, which begins July 1. The federal fiscal year runs from Oct. 1 to Sept. 30. “The ARP is set at $60 million (maximum) for the individual market and the award was $58.5,”she wrote. But Wing-Heier cautions that this is the estimated amount and subject to a true-up at the end of the calendar year. “But we are not expecting any significant deviation from the award when the true-up occurs,” she wrote. In the meantime, since applying for the waiver and receiving it, Alaska’s insurance pool enrolled on the individual market has settled at about 17,357 people, said Steve Kipp, vice president of corporate communications with Premera Blue Cross Blue Shield. Premera is Alaska’s lone remaining insurance company serving the individual market. That number includes those who enrolled during the open enrollment period from Nov. 1-Dec. 15, Kipps said. Premera, in announcing its 2018 rates last August, filed insurance rates that were 21.6 percent less than the previous year’s insurance plans. Then in September, the rates were lowered more, an overall 26.5 percent, after Premera found a significant reduction in the use of medical services and due to lowered costs in the reinsurance program. The reduced services also allowed Premera to refund $25 million back to the state. Gov. Bill Walker announced the CMS award Feb. 9, lauding the reinsurance program, a unique program built by the Alaska Division of Insurance, the Alaska Legislature and the federal government. “We have created an innovative solution to stabilize the market, which other states are now attempting to replicate,” Walker said. “We are committed to developing smarter solutions like the Alaska Reinsurance Program so that all Alaskans have access to affordable health insurance.” Alaska’s small population — and therefore small individual insurance market pool — creates challenges, Wing-Heier acknowledged. The smaller the pool, the fewer people there are to absorb the costs. “But while premiums in the individual market are rising sharply in most states, because of the reinsurance program Alaskans saw only a modest rate increase in 2017 and a 22 percent decrease in the average individual market plan in 2018,” Wing-Heier said. It was the first time the average rate had decreased under the current federal health care law in Alaska, where high health care and premium costs have been an ongoing concern as some of the highest in the nation. Rate increases were nearly 40 percent in 2015 and 2016, but stabilized in 2017 with a 7 percent increase after the ARP was created. The president of Premera’s Alaska office said at the time it was too soon to assume the lower rates are the start of a trend. “However, we believe the state’s reinsurance program without question has contributed to a more stable and affordable individual health insurance market,” Jim Grazko said in a statement. ^ Naomi Klouda can be reached at [email protected]

Senate considers changes to education tax credit

A Senate bill is on the move to save a popular education tax credit for businesses that donate money to Alaska universities and schools from expiring later this year, though it may require some fixes to ensure the program is functioning as intended. As the state looks for means to plug the budget chasm, the education tax credit has been identified as foregone revenue. Between 2015 and 2017, the Alaska Department of Revenue calculates $20.5 million was given in tax credits to corporations. That’s how much the state would have taken in if the credits weren’t granted. But unlike Alaska’s oil tax credits, no check goes from the state back to corporations, Sen. John Coghill, R-North Pole, explained as his Senate Bill 116 was heard Feb. 8 in the Senate Labor and Commerce Committee. He is proposing to extend the credit to the year 2025 and hang onto provisions that keep it a lucrative tax write-off. At the hearing Feb. 8, senators heard the pros and cons of the program. On the one hand, it helps feed between $10 million and $11 million per year to universities and education programs. Over the past three years, the combined total is about $33 million. On the other hand, the ambiguities should be removed about what donations should qualify for the tax credit, Tax Division Director Ken Alper told the committee. Upon questions about tax credits available to a variety of programs from Sen. Mia Costello, R-Anchorage, Alper was quick to point out problems that need to be “cleaned up” if the program is reauthorized. “One of the most awkward parts of my job is responding to questions about the education tax credit. We’re not allowed to give tax advice,” he said. “It doesn’t have a pre-approval process. There’s a lot of gray area. It’s not the cleanest statute in the book.” Alper said the tax credit shows up in 12 different categories of the state tax code. For example, it is listed separately in mining, fisheries and oil as well as in the general corporate tax sections. The credit was first made available in 1987. It’s been amended and updated many times since, Alper said. “Through the years, if someone has a desire to make a donation (to an organization) and it’s not in a statute, they go to their legislator and he amends it,” Alper said. “It started out being traditional colleges and universities, and then secondary-vocational education, for example, was added six years ago. Now, nonprofits with an education component are allowed, too.” Currently, nonprofits with only a tenuous education program piece and even groups outside of Alaska are on the list for receiving donations in what’s called the “other” category. The 2017 list of recipients in the “other” category includes the Smithsonian Institute, the Alaska World Affairs Council, the Foraker Group, Alaska Business Week and the Alaska Development Corp. as well as traditional education groups such as the Girl Scouts. Who gets the donation? According to the Department of Revenue’s numbers, the total amount of contributions submitted for tax breaks hasn’t exceeded $11.2 million per year in the past three years. Those making the contribution are kept anonymous in the annual summary of Alaska Education Credits submitted to the Legislature, Alper said. In 2015, contributions totaled $11.2 million and $7.4 million was claimed in credits. That same year, University of Alaska system proved the beneficiary of $5.2 million. Alaska Pacific University was granted $655,655 and secondary vocational schools split $3.36 million. The “other” category in 2015 tallied just more than $2 million. By 2016, $10.5 million was donated and $6.3 million in credits claimed. UA was given $2.9 million; APU $1.6 million and vocational schools split $3.6 million. The “other” category split just over $2 million. The secondary-vocational ed institutions on the receiving end were fewer in number, ranging from Anchorage School District to Ilisagvik College to Northwestern Alaska Career And Technical Center of Nome. In 2017, corporate donations fell to $9.3 million with $6.3 million in claimed credits. UA received $3 million, or one-third of all donations, while APU took $1.6 million. Secondary-vocational education received $3.6 million and the “other” category was just more than $1 million. The “other” category listed 100 different agencies ranging from Cook Inlet Historical Society to Girl Scouts of America and the Alaska World Affairs Council. A rewrite ahead? Coghill, whose bill would extend the program until Jan. 1, 2025, said he understands the problems with the statute. “We are approaching a sunset deadline. I say let’s keep it from expiring, then go to work on fixing the problems with it,” Coghill said. The division has no way to pre-determine which eligible educational programs should qualify, Alper said. There are 12 corporate tax categories and “it’s subject to a little bit of interpretation as eligible recipients of the tax credits.” Typically, since it’s not based on pre-approval, a corporation makes the donation, and then when they file their taxes, they claim it to offset their taxes. “At some point we audit it and they may or may not be approved,” Alper said. One solution would be for the Legislature to amend the code to offer a process by which a tax credit could be pre-determined. “It might add time and a little bit of cost, but there is a certain risk associated with this credit because they can’t know for sure if a given credit could qualify at the time its given,” Alper said, adding that it is the tax attorney’s advice to make that call. The credit provision allowed for 50 percent of the annual contribution up to $100,000, 100 percent of the next $200,000, and 50 percent of annual contributions beyond $300,000. The total tax credit couldn’t exceed $5 million. The credits were justified in the direct benefits to students who will become the future workforce. The credits allow private industry to partner with education for outcomes agreeable to both sides. “The university has partnerships that are pretty dramatic: world class fish biology with the fishing industry. ConocoPhilips with ANSEP (Alaska Native Science and Engineering Program.) Same in the mining world, such as at the University of Alaska Fairbanks we have the College of Mines,” Coghill said. “For every dollar we give them a break on, we get a dollar extra that we wouldn’t get.” Students gain from a “high end” education that the state wouldn’t otherwise be able to afford, Coghill argues. One project just completed last year was the University of Alaska Fairbanks’ Engineering, Learning and Innovation Facility. Usibelli Coal Co., BP and ConocoPhillips together donated $2 million toward the $115.1 million construction costs, said spokesperson Marmiam Grimes. “It costs us money because we have to allow that deduction against their taxes. But we see value in students and dollar for dollar, it pays money into education,” Coghill said. There is a price paid by the state, however, Alper said. “Instead, we’re letting companies do it, and claim the social benefits of it. But the state’s actually the one paying the costs. It (the tax credit) was written at a time when the state had more money. At the time, we didn’t really think about non-oil revenue. We were able to offer these benefits as an economic development strategy,” he said. “Now it’s probably appropriate to take a sharper pencil.” Naomi Klouda can be reached at [email protected]

House to vote on bill to increase max unemployment benefits

Alaska’s unemployment benefits would rise for the first time since 2009 to provide up to half of average lost wages under a bill heading for a House floor vote on Feb. 16. The current maximum weekly benefit amount of $370 only replaces 36 percent of the state’s average wage according to House Majority Leader Chris Tuck, D-Anchorage, who introduced House Bill 142. That’s about a third of the state’s average weekly gross wage amount of around $1,020 with fulltime employment. On Feb. 9, the bill was passed out of the House Finance Committee and is up for a floor vote on Feb. 19. An increase of the maximum weekly unemployment benefit to $510 is proposed to bring Alaska up to the U.S. Department of Labor recommendation that unemployment insurance cover 50 percent of lost wages, Tuck said. It would increase in two stages to $458 in 2018 and then to $510 in 2019. Currently, the state ranks 39th in the nation in maximum weekly benefits, according to Tuck’s sponsor statement on HB 142. He compared Alaska to Washington state’s $681 per week while Oregon’s unemployed get up to $490 and California’s maximum is $450. Yet, the federal poverty level for a family of three in Alaska for 2016 was $25,200 a year or $2,100 a month. The maximum unemployment check possible for a single parent with two children is $370 plus $24 per child under 18. That amounts to only $1,800 a month, which puts it below poverty level. A single wage claim currently brings $252 per week maximum, or $1,008 a month. At a Feb. 8 House Finance Committee meeting, Rep. Paul Seaton, R-Homer, questioned how much the bill will increase costs to the state. The insurance tax is paid by the state for state employees, said Legislative Finance Division Director David Teal. Kelly Cunningham, an office of Legislative Finance analyst, told Seaton the costs would be rolled into salary adjustments for state employees. “You won’t see those. The $230,000 per year would be spread across agencies and rolled into increases next year,” Cunningham said. The fiscal note to accompany HB 142 is undetermined, Teal explains, and no money is thus far designated to accompany the increase. The amount could be absorbed in each department budget, depending on how it is handled administratively, he said. “That’s the governor’s choice. It may come in terms of efficiencies via the department’s budgets. It won’t be much money in the grand scheme of things, so there may be a recommendation to just absorb it,” Teal said. The State of Alaska pays 100 percent of all unemployment insurance contributions, Teal said. For private employers the impact if this bill passes will mean an increase in their unemployment insurance tax. Businesses typically pay a certain amount of money into an unemployment insurance trust fund, based on the number of employees they have, their history of laying people off, and the current tax rate. That trust fund then provides the money needed for benefits when a former employee is approved to receive the unemployment benefits. In Alaska, approval for benefits comes on a case-by-case basis, according to the Alaska Department of Labor. Alaska is one of only three states that require employee contributions in the private sector. In New Jersey and Pennsylvania, employees contribute .09 percent and .08 percent, Tuck found in researching his bill. In all other states, employers pay 100 percent of the unemployment insurance tax. In Alaska, employees pay significantly more — 27 percent of their own unemployment insurance premium while the employer is responsible for 73 percent, according to state figures. The cost per employee is estimated to increase to $58 per employee earning the full taxable wage base in 2019, or about $40,000. It would go up to $84 in 2020. The bill has the support of labor groups such as AFL-CIO Fairbanks Building and Construction Trades Council to help workers remain living in the state and “maintain a pool of skilled workers even when times are lean,” according to a resolution the council signed. The Alaska Workforce Investment Board also supports the increase. The National Federation of Independent Business-Alaska group has expressed opposition to the bill because “it will increase the tax on small Alaskan businesses,” according to a letter from state director Dennis DeWitt. “One thing that was interesting when I was doing the research was when looking at it nationwide – the number one job creation is mass transit and the next, number two was employment benefits,” Tuck said. “A dollar in unemployment benefits increasing creates jobs. That’s because when buying food and taking care of the mortgage, it directly keeps the money flowing and you can gauge your economy according to how your money is flowing through it.” Naomi Klouda can be reached at [email protected]

House passes education budget bill with just $118M in funds

Alaska House of Representative leaders on Feb. 13 claimed credit for getting an education funding bill passed and over to the Senate within three weeks of the session starting, but the funding source and the size of the budget are now up to the Senate. After removing $1.2 billion in funding from House Bill 287 that was to come from the Constitutional Budget Reserve, the bill as transmitted to the Senate includes only about $118 million for Alaska’s 54 school districts. It made it out of the House Feb. 7 by a 33-3 vote in an attempt to separate education funding from the traditional operating budget. But a vote to draw the vast majority of the proposed $1.3 billion from the CBR failed to reach the 30-vote threshold. “We had only three negative votes. Unfortunately, the minority didn’t agree with the funding of the bill,” said Rep. Paul Seaton, R-Homer, the bill’s main sponsor, on Feb. 13. “But all the options are on the table for the Senate. I am confident that if the Senate agrees the CBR is the best mechanism, they will do that.” It wasn’t clear why Seaton believed the Senate would consider it when the CBR funding mechanism didn’t meet approval in the House, failing in a vote of 20-16. Drawing from the CBR requires a supermajority, three-quarters vote from both the House and the Senate. So far, the Senate hasn’t yet stated its agenda for the education budget, Senate President Pete Kelly, R-Fairbanks, and Majority Leader Peter Micciche, R-Soldotna, said in a Feb. 12 media briefing. Kelly said the, “House simply didn’t pass an education funding bill and the House’s effort amounts to wasted time for the past three weeks when we were counting on them to get it out early. This isn’t fixed just because we have it (the bill) in our hands.” Kelly expressed frustration that the “reality” of an unfunded appropriations bill didn’t sink in among members of the House for a few days, nor did the press release that was sent out from the House Majority catch it, he said. “The bottom line is that the House sent over an appropriation bill that simply covered $118 Million for Mount Edgecumbe (High School) funding and $66 million in the language section for pupil transportation,” Micciche told the Journal in an email. “It was only short $1.2 billion for actual education funding. The Senate Majority supports funding education in a way that avoids the ‘pink slip impacts’ of last year. We will be working to solve this issue in a timely manner.” Absent the CBR approval from the House, the bill was reduced to federal grant funding and $67 million for pupil transportation drawn by simple majority from the Statutory Budget Reserve. Still, a House Majority press release claimed the bill appropriated $1.3 billion even though the original language using $1.2 billion from the CBR had to be stripped out of the final version sent to the Senate. Kodiak Republican Sen. Gary Stevens has a similar bill to take education funding out of the budget debate. Stevens’ Senate Bill 131 is currently in the Senate Finance Committee. Stevens pre-filed his bill to avoid the tardy budget politics three years in a row that caused budget-balancing nightmares for Alaska’s school districts when the Legislature failed to pass a timely budget. He was the first to propose in a bill for education funding – one-third of the state’s estimated $4.5 million budget – to be removed from the 2019 Fiscal Year Operating Budget. The Path of HB 287 Seaton sought to change that too, with a bill he proposed that would send $1.3 billion in K-12 funding out the door earlier. He proposed to do it through the state’s savings accounts, with $1.2 billion coming from the CBR, and $68 million from the Statutory Budget Reserve Fund, or SBR. The CBR and SBR funds have much lower interest earning rates when compared to other funds, Seaton wrote in his sponsor statement, which was the reason for proposing the savings draw. “When considering the proposed use of the CBR, the fund balance would still be over $1 billion after the appropriation made in this bill,” Seaton stated. The state’s money managers insist there should be at least $1 billion in savings at all times as a buffer for emergencies or short-term unexpected revenue shortfalls. Seaton contended further that if the Education budget continues to be tied to the operating budget, it is subject to the line item veto or veto restrictions that can be made by the governor under competing state priorities. But “an early, separate appropriation for education that has existing funding identified would prevent these problems and will allow school districts to finalize their budgets on time,” Seaton wrote. Early funding education has bipartisan support because there is a general consensus among legislative leaders of both parties to keep K-12 spending consistent with current levels in the 2019 fiscal year budget. That also aligns with Gov. Bill Walker’s proposed 2019 operating budget. The first amendment to HB 287 came from Rep. Jennifer Johnston, R-Anchorage, who didn’t want the funding vehicle to be the CBR or the SBR. Instead, she proposed revenue for schools should come from the state’s unrestricted general fund, the same way it’s always funded. Johnston called it “backward funding” when money is taken from a savings account to pay bills, instead of from the flow of incoming revenue. Save the CBR for augmenting cash shortages in the general fund, she advocated. Besides, there is a loss in revenue from interest money when the CBR and SBR are tapped, she said. Agreeing to fund the Education budget from the CBR could also lessen the leverage minority Republicans have in other budget debates yet to come, as savings will be needed at some level to fill the budget deficit this session. Only a standard majority vote is required to draw from the General Fund and the near-depleted SBR. House Majority Leader Rep. Chris Tuck, D-Anchorage, said the Education Department budget needed to be separated from the fiscal year’s operating budget. After discussions on the controversial nature of cracking into the CBR to do it, he warned the 90-day session goal wouldn’t be met if they pursued that path. “We need a separate appropriation and we need to make it out of here in 90 days,” Tuck said. When legislators go overtime into special sessions, “districts are left writing their budgets over and over again,” he said. “If you want to be here longer than 90 days: vote against the amendment.” Johnston’s amendment was voted down 16-21. Rep. Lora Reinbold, R-Eagle River, proposed requiring school districts to budget for and “spend a minimum of 70 percent of the school district’s budget for the fiscal year ending June, 30, 2019.” After much debate on where there may or may not be waste in school district budgets, the House voted 18-19 to not pass it. A third amendment, also by Reinbold, sought to direct that school districts “subject to budget reductions issue teacher layoffs or non-retention notices … only after considering all other cost-saving measures, including laying off employees in other bargaining units.” In her floor speeches, Reinbold did not mention the statutory requirements to notify teachers in two tiers prior to the end of the school year of any layoffs. Otherwise, if no notice is made, the district cannot lay the teachers off. Rep. Geran Tarr, D-Anchorage, strongly protested this amendment after asserting that laid-off janitors meant some teachers are now cleaning their own school rooms three days a week instead of doing instruction preparation. Rep. Adam Wool, D-Fairbanks, joined that argument to give an illustration about social workers provide safety nets for “kids showing up without socks” and were already some of the first to go in budget cuts. Juneau Democrat Rep. Justin Parish talked about the Juneau School District’s $3 million cut, which came on top of $11 million trimmed from its budget over the course of the last five years. “More cuts will not be well-received and are not appropriate,” he said. In the end, the third amendment was shot down as well. Rep. Tammie Wilson, R-North Pole, proposed a fourth amendment along the same lines as Reinbold’s to instruct districts to put cuts of other staff ahead of teachers. But that too was defeated in a late-evening vote 20-16. Naomi Klouda can be reached at [email protected]

House education budget bill passes without appropriation

Editor's note: This article and headline have been updated to reflect the bill transmitted by the House to the Senate includes about $118 million in funding for education compared to the initial version of the bill which would have provided $1.3 billion. A bill including about $118 million for Alaska’s 54 school districts made it out of the Alaska House of Representatives Feb. 7 in an attempt to separate education funding from the traditional operating budget, but a vote to draw the vast majority of the proposed $1.3 billion from the Constitutional Budget Reserve failed to reach the 30-vote threshold. In a 33-3 vote, the House agreed to pass an education appropriations bill, House Bill 287, proposed by Rep. Paul Seaton, R-Homer. However, a vote to use $1.2 billion from the Constitutional Budget Reserve, or CBR, failed in a vote of 20-16. Drawing from the CBR requires a supermajority, three-quarters vote from both the House and the Senate. Absent the CBR approval from the House, the bill was reduced to federal grant funding and $67 million for pupil transportation drawn by simple majority from the Statutory Budget Reserve. Still, a House Majority press release claimed the bill appropriated $1.3 billion even though the original language using $1.2 billion from the CBR had to be stripped out of the final version sent to the Senate. Kodiak Republican Sen. Gary Stevens has a similar bill to take education funding out of the budget debate. Stevens’ Senate Bill 131 is currently in the Senate Finance Committee. Just three weeks after the beginning of the 2018 legislative session, the education appropriations bill is now in the hands of the Alaska Senate. Tardy budget politics three years in a row caused budget balancing nightmares for Alaska’s school districts when the Legislature failed to pass a timely budget. That forced the annual round of sending out pink slips warning teachers they might not be returning the following school year. Seaton sought to change that with a bill he proposed that would send $1.3 billion in K-12 funding out the door earlier. He proposed to do it through the state’s savings accounts, with $1.2 billion coming from the CBR, and $68 million from the Statutory Budget Reserve Fund, or SBR. The CBR and SBR funds have much lower interest earning rates when compared to other funds, Seaton wrote in his sponsor statement, which was the reason for proposing the savings draw. “When considering the proposed use of the CBR, the fund balance would still be over $1 billion after the appropriation made in this bill,” Seaton stated. The state’s money managers insist there should be at least $1 billion in savings at all times as a buffer for emergencies or short-term unexpected revenue shortfalls. Seaton contended further that if the Education budget continues to be tied to the operating budget, it is subject to the line item veto or veto restrictions that can be made by the governor under competing state priorities. But “an early, separate appropriation for education that has existing funding identified would prevent these problems and will allow school districts to finalize their budgets on time,” Seaton wrote.   Early funding education has bipartisan support because there is a general consensus among legislative leaders of both parties to keep K-12 spending consistent with current levels in the 2019 fiscal year budget. That also aligns with Gov. Bill Walker’s proposed 2019 operating budget. The first amendment to HB 287 came from Rep. Jennifer Johnston, R-Anchorage, who didn’t want the funding vehicle to be the CBR or the SBR. Instead, she proposed revenue for schools should come from the state’s unrestricted general fund, the same way it’s always funded. Johnston called it “backward funding” when money is taken from a savings account to pay bills, instead of from the flow of incoming revenue. Save the CBR for augmenting cash shortages in the general fund, she advocated. Besides, there is a loss in revenue from interest money when the CBR and SBR are tapped, she said. Agreeing to fund the Education budget from the CBR could also lessen the leverage minority Republicans have in other budget debates yet to come, as savings will be needed at some level to fill the budget deficit this session. Only a standard majority vote is required to draw from the General Fund and the near-depleted SBR. House Majority Leader Rep. Chris Tuck, D-Anchorage, said the Education Department budget needed to be separated from the fiscal year’s operating budget. After discussions on the controversial nature of cracking into the CBR to do it, he warned the 90-day session goal wouldn’t be met if they pursued that path. “We need a separate appropriation and we need to make it out of here in 90 days,” Tuck said. When legislators go overtime into special sessions, “districts are left writing their budgets over and over again,” he said. “If you want to be here longer than 90 days: vote against the amendment.” Johnston’s amendment was voted down 16-21. Rep. Lora Reinbold, R-Eagle River, proposed requiring school districts to budget for and “spend a minimum of 70 percent of the school district’s budget for the fiscal year ending June, 30, 2019.” After much debate on where there may or may not be waste in school district budgets, the House voted 18-19 to not pass it. A third amendment, also by Reinbold, sought to direct that school districts “subject to budget reductions issue teacher layoffs or non-retention notices … only after considering all other cost-saving measures, including laying off employees in other bargaining units.” In her floor speeches, Reinbold did not mention the statutory requirements to notify teachers in two tiers prior to the end of the school year of any layoffs. Otherwise, if no notice is made, the district cannot lay the teachers off. Rep. Geran Tarr, D-Anchorage, strongly protested this amendment after asserting that laid-off janitors meant some teachers are now cleaning their own school rooms three days a week instead of doing instruction preparation. Rep. Adam Wool, D-Fairbanks, joined that argument to give an illustration about social workers provide safety nets for “kids showing up without socks” and were already some of the first to go in budget cuts. Juneau Democrat Rep. Justin Parish talked about the Juneau School District’s $3 million cut, which came on top of $11 million trimmed from its budget over the course of the last five years. “More cuts will not be well-received and are not appropriate,” he said. In the end, the third amendment was shot down as well. Rep. Tammie Wilson, R-North Pole, proposed a fourth amendment along the same lines as Reinbold's to instruct districts to put cuts of other staff ahead of teachers. But that too was defeated in a late-evening vote 20-16. Naomi Klouda can be reached at [email protected]  

Northrim attorney calls size of request for Rogoff loan docs ‘ridiculous’

Extracting communications related to former Alaska Dispatch News owner Alice Rogoff’s $13 million loan from Northrim Bank will take upward of 1,600 hours, the bank’s attorney complained to the judge in the latest bankruptcy hearing Feb. 5. At issue are Northrim loan documents that involved bank committee meetings and voluminous communications after Rogoff borrowed $13 million to help pay for the Anchorage Daily News. In May 2014, she used the cash to go toward the $34 million payment to McClatchy News Co., and changed the newspaper’s name to the Alaska Dispatch News. This past Sept. 11, she sold the newspaper to the Binkley Co. for $1 million as agreed in the Chapter 11 proceedings after she filed for bankruptcy protection on Aug. 12. The Binkley Co. has since returned the newspaper to its original name. Events moved quickly to rescue the financially distressed the newspaper, but the court case, now converted from a Chapter 11 reorganization to a Chapter 7 liquidation, is limping at a slow pace as attorneys for Rogoff and now Northrim objected to handing over documents or paperwork that might contain confidential information. Northrim attorney Michael Parise told U.S. Bankruptcy Court Judge Gary Spraker the request to produce that many documents and go to that much work and expense is “ridiculous” and an “obscene abuse of the (rule) 2004 exam.” The bankruptcy case is still in the process of discovering what assets and liabilities Rogoff claimed were her personal finances — through what’s known as a rule 2004 exam — and which ones were pledged to Alaska Dispatch LLC. The newspaper wasn’t used as collateral for originally obtaining the Northrim loan, but the newspaper’s revenue was used to make up to $70,000 per month in payments to Northrim, according to the public trustee, Nacole Jipping, through attorney Christine Tobin-Presser. If Rogoff’s personal loan obligation drained the Dispatch of revenue and contributed to its financial ruin, Jipping will be able to claim that money should go to the Dispatch’s debts of $2.3 million to the scores of businesses and individuals left holding unpaid invoices. Also at issue is a marital separation agreement, or MSA that the bankruptcy court has agreed is confidential. Rogoff was married for 34 years to billionaire David Rubenstein, founder of the global equity investment firm the Carlyle Group. They’ve been separated since 2005 and finalized their divorce this past December. Loan documents contain information on money Rubenstein gave to Rogoff as part of their separation agreement. That dollar amount, like any mention of the divorce settlement money, is outside the scope of the case, according to Rogoff’s attorneys. Rubenstein’s attorney has also stepped in to point to “remedies” at his disposal if the MSA disclosure is broken. Northrim’s documents could get swept into the confidentiality arguments, though Spraker has said there’s nothing inherently confidential about bank documents in a bankruptcy. “To the extent the payment stream and loan communications talk about Alice Rogoff’s financial affairs and MSA, the documents will need redaction,” Parise said. “If something needs to be redacted, the burden can’t be placed on Northrim Bank” to do it, he said. But Rogoff’s attorney, James Lister of Birch Horton Bittner &Cherot, assured Parise at the hearing that he would review any of the documents ahead of the public trustee to protect confidentiality. Both attorneys — Rogoff’s and Jipping’s — have signed stipulations agreeing to protect whatever may be confidential about Rogoff’s income from her former husband. These will be under seal in court documents and not allowed to be known by the public. In public documents, the sensitive information will be redacted. Spraker agreed to the arrangement of letting the bank’s attorney run any information past Lister before it is forwarded to Jipping. “You’ll be the gatekeeper in this process,” Spraker told Lister, who appeared telephonically from his Washington, D.C., office. With that objection settled, Parise’s grievances turned to the amount of work it will take to first access, then review communications between Rogoff and 25 or so loan officers. But his claims were met with skepticism. Parise told Spraker some of the records that go back to May 2014 are now kept on archival tapes. Other loan forms, emails and letters from more recent communications may be on loan officers’ desktop computers. Those could be produced by Feb. 11, Parise said. It may be easy enough to get at information still on desktops, but the archival retrievals are arduous on a “small IT department,” Parise said. Each hearing produces more information the bank is required to retrieve, he said. Tobin-Presser, the attorney for the public trustee Jipping, expressed some frustration. The 2004 exam motion approved by the judge dates back to December. That motion spelled out documents relating to the Rogoff loan that needed to be reviewed. Nevertheless, she consented to giving Parise more time to produce the archival paperwork “as long as he is committed to discussions” that move the bankruptcy examination forward. She requested that Northrim’s internet technician speak with IT people at her firm, Bush Kornfeld LLC of Seattle. “None of us speak IT,” Tobin-Presser said. “They will be able to see if they can do this and if it won’t take 1,600 hours to do it.” Parise also said Northrim intends to seek reimbursement for the work to come from any funds that may be recovered to pay off Rogoff’s debts. The attorneys agreed to three hearing dates ahead to brief the judge on advancements in the case: Feb. 22, March 8 and March 15. Naomi Klouda can be reached at [email protected]

Board seeks change to pot tax; Drummond bill would clear records

The Alaska House Finance Committee heard testimony Feb. 6 on the Marijuana Control Board’s role regulating the industry and an appeal to change the current tax structure of $50 per ounce. The Finance Committee was hearing about at House Bill 273, sponsored by Rep. Sam Kito D-Juneau, a measure that extends the life of the Marijuana Control Board beyond the June 2018 sunset. A legislative audit of the Marijuana Control Office by the state has recommended extending the board through June 2024. It is one of 11 professional licensing boards up for renewal this session. Testimony focused on how far the burgeoning marijuana industry has come since Alaskans legalized it through a ballot initiative in 2014. Legislators quizzed Alcohol and Marijuana Control Office Executive Director Erika McConnell on whether the agency will be self-supporting by 2020. It is written in statute that by that date, fees from professional licenses need to fully fund the operations of AMCO. The money comes to AMCO from $5,000 annual licensing fees paid by cultivation facilities, retailers and manufacturers. Other fees that go to support AMCO are $1,000 license fees charged limited cultivators per year, $1,000 per year for testing labs and each $1,000 application fee for establishing a business. McConnell answered that she’s “confident the industry will be stabilized enough to fully fund ourselves on license fees by that date.” So far, from October 2016 through December 2017, the industry has paid $6.4 million to the state’s general fund as taxes, McConnell told them, though tax revenue is separate and does not go to fund AMCO. Legislators also wanted to know if the current tax structure is working. McConnell let legislators know of the board’s own analysis that the current $50 per ounce flat tax may be artificially stifling prices. The board wants to see the legislature approve changes to a percentage-based tax. At its Jan. 24-26 meeting, the board approved drafting a resolution to the Alaska Legislature requesting a change to the tax structure, McConnell said. The resolution will be rolled out in more detail at the April 3 board meeting in Nome. Board Chair Mark Springer of Bethel, representing rural Alaska, voiced concerned the board keeps approving new business licenses — there were 22 approvals at the January meeting — without assurance “it’s not maxing out what the market can support.” At last count through December 2017, 149 cannabis businesses were operating in Alaska. In addressing the Finance Committee, Springer said he also didn’t want AMCO to be “kept to a quota” in order to fund its functions. The current flat tax doesn’t give as much flexibility as percentage-based tax, testified Bruce Schulte. Schulte is the spokesperson for the Coalition for Responsible Cannabis Legislation, the group that advocated for the successful ballot measure. He was also the first chair of the Marijuana Control Board until he was removed by Gov. Bill Walker in 2016 after clashing with the McDonnell’s predecessor Cynthia Franklin. Ballot Measure 2, which legalized commercial marijuana, stipulates an excise tax of $50 per ounce for the flower portions of the plant. There is a separate tax of $15 per ounce on the trimmings of the plant. “I do not envision the base $50 excise tax changing in 2018 as that would require legislative action at a time of much more pressing priorities,” Schulte testified. “However, I believe that in 2019 this would be a valid topic to revisit with an eye toward shifting the tax in the production chain and possibly adopting a percentage tax instead of a flat tax — allowing for some stability in the face of fluctuating prices.” Presently, board member Brandon Emmett and other members are working on specific tax recommendations to the legislature. During the last board meeting he mentioned his concern the industry could hit a wall, or rather, a cliff, he said. “There’s been a lot of discussion on the number of licenses,” Emmett said at the Juneau meeting. “And on the amount (of marijuana) they said they can produce. We may be headed for a fiscal cliff in the marijuana industry because of our tax structure, which is keeping marijuana at an artificial price point.” Even the new, non-confirmed board member, North Star Borough Police Chief Travis Welch, delved into the debate and offered to help draft the resolution to the legislature. He argued that prices are subject to the economics of an industry, and “this flat tax doesn’t allow for the market to absorb that.” At $50 tax per ounce, the cost on a pound of marijuana is $800 in taxes. McConnell noted this to the finance committee. “In other states, it is less; $100-$200 a pound,” McConnell said. “It (the retail price) can’t fluctuate with supply and demand.” Also during the committee meeting, they heard the four recommendations for improving the AMCO from the Legislative Auditor Kris Curtis. The Legislative Audit Office has recommended the board be renewed for another six years. After an October 2017 audit, they recommended the following changes: • That the board members, the AMCO director, and enforcement supervisor work together to formally establish an enforcement plan to direct AMCO’s limited enforcement resources. • The board and AMCO management needs to better monitor and track all actions taken on complaints to ensure they are resolved in a timely manner. Complaints are only tracked if they result in an inspection or investigation. AMCO needs to also show why it decided not to investigate a complaint. • The AMCO director should develop written procedures for establishing the expiration dates of marijuana handler permits. A mix-up on permit expiration dates was found in 47 of 53 permits. • The AMCO director should segregate the duties for calculating and sending fees to local governments. A system of checks and balances would be better assured if more than one person were doing both jobs, the report states. Drummond bill would clear pot records An Anchorage legislator found 719 people convicted of low-level marijuana crimes who would qualify to get their records scrubbed if her proposed bill is passed. Rep. Harriet Drummond, D-Anchorage, is proposing House Bill 316 that would seal public records related to charges of marijuana possession of an ounce or less and six or fewer marijuana plants. The bill also calls for the Alaska CourtView system, which includes names and criminal records of individuals, to be wiped clean of all marijuana convictions classified as a non-violent offender misdemeanor. In looking at Alaska Court System numbers, Drummond found that about 100 people per year between 2007-15 had been convicted of possession of small amounts and were classified as non-violent offenders. “This bill is not a get out of jail card,” Drummond said. “It’s a reasonable approach to allow Alaskans to get jobs currently unavailable to them because they did something that is now entirely legal.” Both Vermont and California are considering the rationale of forgiving small time violators after those states legalized marijuana. In Vermont, 192 such people were pardoned by the governor, Drummond said. California voters made the law retroactive, allowing people to petition to overturn former convictions for possession and distribution of marijuana. But according to the Sacramento Bee, it’s proving an expensive proposition because state courts received nearly 5,000 petitions in the first 11 months after marijuana legalization was enacted. The California court system calculates 460,000 would ultimately qualify to have their records scrubbed, placing a huge burden and cost on the courts. Officials are currently debating how to avoid that. In Alaska, Drummond wants to avoid burdening the Alaska Court System administrators. Her bill wouldn’t make the action of scrubbing records automatic. People would need to petition the court, as they can now when accused of certain crimes for which they were not convicted. And so far, numbers indicate it would impact a limited amount of people. The bill does not benefit drug dealers, she wanted to emphasize. “It’s not violent offenders; they wouldn’t be eligible for this,” Drummond said. “This would be young people who did something stupid and now have a black mark or moms and dads from way back in the day when they did something stupid then, but it’s legal now.” Drummond has heard from people about the punishment continuing for decades, she said with a criminal history that can keep someone from qualifying for jobs or housing. As the public debates HB 316, she hopes constituents will let her know their stories of how lives may have been impacted after low-level drug convictions. In Alaska, marijuana laws likely caused public confusion about what was and wasn’t allowed in the wake of the 1975 Raven Decision and then medical marijuana legalization in 1998, Drummond noted. The Alaska Supreme Court held in Raven v. State that the Alaska Constitution’s right to privacy protects an adult’s ability to use and possess a small amount of marijuana in the home for personal use. Medical marijuana use was legalized by voter initiative in Alaska in 1998 but did not allow for legal sale of plants or marijuana to those qualifying as patients in need of it. Naomi Klouda can be reached at [email protected]

Onerous health insurance taxes put off by Jan. 22 spending bill

The immigration stalemate that temporarily caused a government shutdown over a late January weekend was ended with a three-week funding bill that included a six-year extension of the Children’s Health Insurance Program, or CHIP, and postponed instituting two problematic health insurance taxes. CHIP, referred to as the Denali Kid Care program in Alaska, covers 9 million American children including 17,700 Alaskans. The extension is the longest one granted to the program, which had its funding expire last September, since CHIP was created in 1997. Two taxes to fund the Affordable Care Act were particularly dreaded by Alaskans because the taxes would be tacked onto some of the most expensive insurance premiums and health care costs in the country. According to Alaska Chamber calculations, the 2.6 percent Health Insurance Tax, or HIT, would have taken a $500 per year chunk out of each employer-provided policy. A second Affordable Care Act tax is what’s know as the Cadillac Tax that seeks to levy a 40 percent excise tax on the most comprehensive and expensive health insurance plans. According to Sullivan’s office, this would have impacted 90 percent of Alaskans. The HIT was delayed until 2019 and the Cadillac tax was pushed off another two years. This week, Alaska Chamber President Curtis Thayer expressed relief on behalf of his member businesses. “The Chamber was supportive of eliminating the 40 percent Cadillac tax and the HIT because these taxes would have impacted a high number of Alaskans,” Thayer said. “And while it’s helpful that it isn’t being imposed now, the postponement means Congress is just kicking the can down the road.” Thayer said what was particularly hard to swallow about the Cadillac Tax is that he knows of businesses where employees chose to forego wage increases in order to allow their employers to put those dollars into better insurance policies. It would hit plans exceeding $10,200 premiums per year for individuals, and $27,500 for families. It’s called the Cadillac tax because it is supposed to hit only the “best” insurance plans that cover the most, but because of Alaska’s high premium costs it affects nearly every policy in the state, Thayer said. The HIT would have been collected from Alaska’s 69,000 small businesses that employ about 141,000 private sector workers, according to the Alaska Chamber’s numbers. The excise taxes were enacted in the Affordable Care Act legislation that Republicans in Congress failed to repeal or amend this past summer and aimed at health insurers to collect an estimated $14.3 billion in 2018. Congress also delayed applying the Medical Devise Excise Tax for two years, which likely would have impacted as a pass-through fee to consumers. The MDET, as its called, aimed at manufacturers and importers of devises to pay a 2.3 percent sales tax. This one was originally imposed in 2013 to help pay for expanded health insurance under the ACA. It hit industry groups that produce such items as catheters, heart stents and artificial joints. It was estimated to raise $20 billion over a decade, according to the Medical Imagining and Technology Alliance. Without action by Congress, which repealed the individual mandate to buy health insurance as part of the tax overhaul passed Dec. 20, the HIT and the MDET would have applied starting this month. The continuing resolution wasn’t an ideal way to deal with the taxes, but “it served the purpose for the delay,” he added. What the Alaska Chamber really wants is for the federal government to go back to passing 12 budget bills for each of the 12 departments of government, Thayer said. “Congress has gone eight years of not passing the budget. A continuing resolution is not the ideal budget vehicle,” he said. “But in this case, that was the option congress and the delegation had. We’re supportive of the outcome and not the vehicle.” The delay does serve the purpose of buying time to vet a possible repeal of the ACA excise taxes, he added. “For right now, a one-year on one and two-year delay on the other gives time to work on a permanent solution,” Thayer said. ^ Naomi Klouda can be reached at [email protected]


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