Andrew Jensen

AJOC EDITORIAL: Legislators have only selves to blame for vetoes

The 29th session of the Alaska Legislature is starting to resemble the final scene of Reservoir Dogs when everyone ends up dead. Gov. Bill Walker dropped the veto hammer on $1.3 billion worth of state spending on June 29 after the House Finance Committee refused to even allow a floor vote on using part of the Permanent Fund earnings to bridge a budget deficit of almost $4 billion. Democrats and Republicans alike howled at the $666 million cut to the Permanent Fund Dividend appropriation — setting it at $1,000 this year versus a projected $2,000 — and the House Finance co-chairs Mark Neuman and Steve Thompson issued a whiny press release about Walker vetoing $430 million in oil tax credit payments that no one disputes are fully owed to companies who’ve already spent that money in the state. What, exactly, did these people think was going to happen? It is rich that Rep. Chris Tuck, leader of the House Democrats, would put out a statement that Walker is “playing politics” with the budget after his caucus has done nothing but play politics over oil tax credits this entire session. To read their press release that contains Tuck’s statement, you’d think the oil tax credits are a discretionary expense. They aren’t, and the Democrats know it. To celebrate the state sticking it to companies that invested in the state in good faith tells you all you need to know about how seriously they take their responsibility to create a stable financial climate for the companies they expect to pay for everything. The state cannot get out of paying this money. Period. Full stop. We can pay it now or we can pay it later, but the amount isn’t going to change. It’s a rash and destructive action by Walker as well, who is trotting out his new CEO of the Alaska Gasline Development Corp. to attempt to convince legislators the state can go into the private markets and finance a $45 billion LNG export project. Really? How does the state convince investors that Alaska is a good place to put their money when for two years running the state has failed to make good on what it owes? Some of that money is no doubt owed to Furie and to BlueCrest, who began producing gas and oil, respectively, within the last year. Surely the state isn’t collecting its royalty share of that production while it is reneging on paying tax credits. That would only be fair. The guess here is that Furie and BlueCrest wouldn’t be operating for very long if they refused to make their royalty payments to the state, but it’s becoming crystal clear that Walker and his fellow Democrats think this is a one-way street. Absent from Walker’s vetoes were the automatic “merit” pay raises for state employees. The absence becomes conspicuous when considering that the amount due for raises next fiscal year is larger than what Walker vetoed from K-12 funding and the University of Alaska System. Neither the governor or the Legislature comes off well here, and like the end of Reservoir Dogs, it doesn’t matter who shot first or who killed Nice Guy Eddie. Nobody walks out alive. Andrew Jensen can be reached at [email protected]

AJOC EDITORIAL: Gov. Walker gets chance to bite the bullet on the PFD

Gov. Bill Walker has said repeatedly he’s willing to take the hit for reducing the Permanent Fund Dividend as a partial solution to the state’s budget deficit, and it looks like he’s going to get that chance. The Alaska House of Representatives adjourned the latest special session on June 18 one day after the Finance Committee failed to advance Senate Bill 128 for a floor vote. SB 128, which passed the Senate 14-5, would have ensured a $1,000 dividend for the next three years and contributed about $1.8 billion toward reducing the fiscal year 2017 deficit. The version that failed in House Finance would have guaranteed a $1,500 dividend the next two years and $1,000 in the third, but even that sweetener wasn’t enough to get six votes. So Walker has called the Legislature back once again for a fifth special session to begin July 11, but it is hard to see anything that will change attitudes toward a reduced PFD in the House between now and then. Walker doesn’t have a lot of good options, but he’s not up for reelection until 2018. That gives him a chance to put his veto pen where his mouth is. If the governor wished to leverage funding that is important to the House minority Democrats, he could begin by line-item vetoing budget items dear to their hearts such as increases in the Base Student Allocation, pay raises for state employees, the University of Alaska System and the like. “We can’t afford x, y and z if we’re going to spend $1.4 billion on dividends every year,” Walker could say, and put it on them to explain why they would rather keep the PFD at an unsustainable level than support education or health care or their union constituency. Walker has said, though, that he’s not interested in those kind of games and his lack of acuity for deal-making has already become self-evident during his first two years as governor. A simpler fix, one that would allow the House to become the heroes of the dividend and allow Walker to make the fiscally responsible call, would be for the governor to veto the PFD appropriation down to a level that would pay his preferred amount of $1,000. With the Senate on his side, the House could not override the veto on its own even if the members could muster 30 votes. Walker wouldn’t get his plan, but at least he’d be saving about $750 million the state is going to need sooner or later. That would leave the House with a choice. Pass the House Finance version with the $1,500 PFD for two years while incorporating the annual draw from the Earnings Reserve, or go home and campaign against a governor who isn’t up for election for cutting the PFD. The problem with the latter choice is House members would have to explain why they didn’t vote to increase the PFD when they had a chance and let the mean ol’ governor take their hard-earned money instead. If the House finally passes the modified SB 128, they would be able to at least campaign on standing up for the PFD, and achieving a smaller cut than the governor and the Senate proposed. They’d still be free to rail against oil tax credits and megaprojects and all the other Democrat bogeymen lurking under your bed, which is all they really care about, but at least the state would have done something to get its fiscal house in order. And in the end, cutting the PFD to $1,000 or $1,500 isn’t going to hurt the state economy very much, if at all. Consider that in 2015 the PFD appropriation of $1.2 billion represented 2.2 percent of the Gross State Product of $52.8 billion. If the GSP is relatively similar this year, cutting the PFD by either $375 million or $750 million would represent 0.7 percent to 1.4 percent of the total state economy. The only peaceful solution to this standoff is one that lets everyone save a little face. Allowing the House to vote to increase the PFD after a veto may give both sides what they want. Andrew Jensen can be reached at [email protected]  

AJOC EDITORIAL: Democrats’ ghoulish response to Orlando attack

President Barack Obama was unsure of the motivations of a man who yelled “Allahu akbar” as he opened fire on hundreds of defenseless people at an Orlando nightclub, but he was certain what the real problem is. “This massacre is therefore a further reminder of how easy it is for someone to get their hands on a weapon that lets them shoot people in a school, or in a house of worship, or a movie theater, or in a nightclub,” he said. “And we have to decide if that’s the kind of country we want to be. And to actively do nothing is a decision as well.” After presiding over, in succession, the worst terrorist attacks on U.S. soil since 9/11 from Fort Hood to the Boston Marathon to San Bernadino and now Orlando, Obama still believes the problem is guns and not the ideology of the people who pull the triggers. Rather than blaming the radical Islamic terrorists who are wantonly slaughtering civilians on a daily basis around the globe, Obama’s statement effectively blames Americans — “if that’s the kind of country we want to be” — for allowing the sale of semi-automatic rifles. Democrats were following Obama’s lead as bodies were still being identified at Pulse, pointing the finger at Republicans in Congress, Christian bakers, Donald Trump, the National Rifle Association, and just about anyone else other than the killer and the Islamic State that has flourished under Obama’s watch for the last four years. Obama and Democrat nominee Hillary Clinton are happily pushing the idea that Trump is “doing the work” for the Islamic State with his inflammatory rhetoric about Muslim immigration. It should take a new definition of chutzpah to blame Trump for the Islamic State when he was nowhere near the national stage in 2014 when Obama scoffed at the group as “the JV team” as it steamrolled across Iraq and Syria accumulating hundreds of millions of dollars in cash and American military equipment along the way. At that time, Obama made the decision to “actively do nothing” until the horrific images of American citizens being beheaded by the Islamic State that August forced him to interrupt his golf game momentarily and at least appear to be doing something. Three days after Orlando, the reliably left-wing New York Times came straight out and blamed “Republican politicians” for bigotry against minorities while claiming that the terrorist’s motivation “remains unclear.” For Obama, his fellow Democrats and his praetorian guards in the media, it’s all too simple. Their enemies aren’t the enemies of America who have demonstrated they will kill citizens of the West of all political persuasions and colors. Their enemies are their fellow Americans. Whether it’s Sarah Palin, Trump or the Dukes of Hazzard, Democrats are quite willing to assign the fault for every gun crime or terrorist attack to someone other than the perpetrator, unless that fault can be traced to radical Islam. It takes sick kind of mental gymnastics to witness a clear cut case of Islamic terrorism committed by a registered Democrat and turn around and blame Republicans. As this column is being written a Connecticut senator is filibustering a budget bill demanding some kind of action on gun control. Never mind that the FBI had every red flag it needed to deny a weapon to the Orlando terrorist, or that it was a clerical screwup that allowed the Charleston church killer to buy a .45 caliber handgun that isn’t even covered by the Democrats’ renewed calls for a ban on “assault weapons.” The FBI had warnings from the Russian government about the Boston Marathon bombers. Immigration officials had warnings about the female half of the San Bernadino terrorists. The Fort Hood terrorist had the acronym for “Soldier of Allah” on his business card for goodness’ sake. Yet for Democrats the Golden Calf of government is always the answer despite its repeated cases of butterfingers when it comes to carrying the ball in the fight against radical Islamic terrorism. Looking inward at whether their strategy — to the extent one exists at all — to combat the Islamic State is working, or what federal law enforcement could do better to prevent terrorists from acquiring weapons in the first place would be too hard. Blaming Republicans, on the other hand, takes no work at all no matter how high the body counts grow. As we’ve seen after Orlando, it gets easier every time. Andrew Jensen can be reached at [email protected]  

AJOC EDITORIAL: $1,000 is nothing to sneeze at

Only in Alaska could a guaranteed $1,000 to every man, woman and child be considered a rip-off. Only in Alaska could such an unrealistic attitude take hold fueled by widespread expectations that everything should be paid for by the federal government funded by U.S. taxpayers and the state government funded almost entirely by a single industry. Those who have opined that the Permanent Fund Dividend has created an unhealthy sense of entitlement among Alaskans have been proven more right than wrong over the past couple days as the howls of “raids” on the Fund and claims of outright stealing from people’s back pockets emanate from internet cowboys’ (and girls’) keyboards and legislators from both parties. For a state filled with people who endlessly espouse the refrain of “it’s our oil!” it’s a small wonder that in the 39 years of oil flowing through the Trans-Alaska Pipeline System many have not bothered to think about what being an owner state means. Owning the oil means owning the risk. If some Alaskans don’t want to ever feel the brunt of commodity price cycles then they should quit saying “it’s our oil!” and say what they really mean about the treasuries of the companies who produce it: “it’s our money!” That’s what it looks like when the state constantly moves the tax levers to take in more at high prices and then take in more at low prices as if the oil companies are nothing more than a money printing press for the government. The attitude of these Alaskans, reflected by a majority of the House and Gov. Bill Walker, are downright Venezuelan. To put things in perspective, ExxonMobil finished 2015 with $3.7 billion in cash on hand. Even if the state could seize it all Hugo Chavez-style, it wouldn’t cover this year’s deficit. ConocoPhillips, the state’s largest oil producer, finished 2015 with $2.3 billion in cash on hand. That would cover a little more than half of next year’s deficit. The state, meanwhile, has nearly $54 billion in the Permanent Fund and nearly another $8 billion in the Constitutional Budget Reserve. It will take in more than $1.1 billion this fiscal year from the oil industry despite the fact the producers spent a good chunk of this year losing money on every barrel. Since the Swanson River discovery in 1957, the state has taken in nearly $116 billion in unrestricted petroleum income and has paid out more than $21 billion in dividends since 1982. But to hear the loudest voices tell it, we’re getting hosed by the oil companies. You’ll never hear them talk about the 10 Democrats who controlled the Senate from 2006-12 and passed bloated budget after bloated budget and approved ever-escalating government union contracts that have raised the state payroll to some $1.4 billion. Yes, Republicans controlled the House back then as they do now, but maybe someday the Democrats will be called to account for their spending habits as well, which included billions of dollars in tax credits under ACES that dwarfed PFD distributions in several years while production continued declining by 6 percent per year. And what has the state done with that money? Alaska still has some of the worst education and health outcomes in the nation.Its state employees get generous raises every year for achieving nothing more than an “acceptable” review on their performance, if they’re evaluated at all. The damage that will be done to the state from loss of oil production and loss of jobs will far outweigh the damage from distributing the historical average from the Permanent Fund as the Senate voted to do. Media reports and Democrat talking points are that the PFD has been “halved” under this bill. Cutting it to $1,000 from a projected $2,000 is indeed cutting it by half. It would also be accurate to say that the PFD has been capped for the next three years near the historic average of $1,089 per Alaskan. The average total distribution since 1982 has been $621 million compared to the $700 million that will be sent out this year. To put it bluntly, the idea of spending $1.4 billion on PFD checks in the midst of a $4 billion deficit is insane, and those who advocate for the PFD being the No. 1 spending priority for the state are irresponsible. The PFD was less than $1,000 in 2004, 2005, 2012 and 2013. It was less than $1,200 in 2003, 2006 and 2011. In other words, the 2016 dividend will still be roughly equal to seven of the last 13 years even after being “cut in half.” The sky didn’t fall then, and it’s not going to fall now from a PFD reduced from an all-time high to its historic average at a time of historic deficits. Anyone saying different is probably trying to get elected. Andrew Jensen can be reached at [email protected]

AJOC EDITORIAL: Money for nothing and the checks for free

I want my, I want my, I want my PFD. With apologies to Dire Straits, the demagogues in the Democrat ranks are back in their comfort zone after dismantling oil and gas tax credits they once championed under ACES by winning over enough squishes among a Republican-led Majority that now exists in name only. Alaska has a new House majority full of Garas and Guttenbergs that are apparently capable of coming up with an endless series of convoluted matrices of tax levers creeping ever upward but who can’t or won’t read the daily production report from the Department of Revenue. Most of the public obviously doesn’t know it — and Gov. Bill Walker, his commissioners and his fellow Democrats sure aren’t going to point it out — but North Slope production increased this fiscal year for the first time since 2002. With the fiscal year nearing its end June 30, production will be in the range of 520,000 barrels per day compared to 501,500 barrels per day in 2015. Not only is that a 4 percent increase in the midst of a historic price collapse over the last 18 months, but it is only 2 percent less than the 531,100 barrels per day produced in fiscal year 2014 when the average price was $107 per barrel instead of the current $42. In the last three years of ACES while the price averaged $105 per barrel, production declined by 11 percent from 600,000 barrels per day to 531,600 barrels per day. In the first three years of Senate Bill 21, production has declined 2 percent while the price has averaged $74 in the same period. To hear Walker and Sen. Bill Wielechowski tell it, though, we didn’t get anything out of Senate Bill 21 that passed in 2013. One thing we didn’t get was the 5 percent annual decline that took place in six years of ACES. Had the 5 percent ACES decline continued, production would have averaged 455,000 barrels per day this year instead of the current 520,000. That’s an additional 64,500 barrels per day, or 23.5 million barrels for the year that all generate a 12.5 percent to 16.6 percent royalty. In calendar year 2015, the state collected $715.3 million in royalty payments (plus 5.1 million barrels of royalty oil) and for fiscal year 2016 will collect some $1.1 billion in petroleum income from an industry that is losing billions. It is patently dishonest for Democrats and Walker (but I repeat myself) to continually assert that the state is losing money from oil tax credits when the state is taking in more than a billion dollars this fiscal year. Wielechowski was at it on Twitter claiming everyone in Alaska is on the hook for $1,000 apiece to fund the oil tax credits already earned by companies and owed by the state. Never mind that nearly every penny in unrestricted general fund revenue, in savings accounts, and the Permanent Fund was generated by the North Slope producers who can never pay enough as far as the Democrats and the new Republican members of their cohort are concerned. It’s funny, but Wielechowski did not have a problem in fiscal year 2012 when the credits under ACES totaled $716 million and the funds appropriated for the Permanent Fund Dividend were $564 million. In fiscal year 2013, ACES credits totaled $918 million and the PFD appropriation was $576 million. In two years that’s a half-billion more in credits than PFD payments. Where were the Democrats then? They were defending the credits as evidence ACES was working while ignoring  the fact production declined by 7 percent or more in three of the previous four fiscal years. Walker won’t stop his mantra that the dividend checks are going to go away without adopting his plan to tap the Permanent Fund Earnings Reserve, but that’s exactly what’s going to happen to the PFD if the Legislature elects to fund it according to his proposal with royalty income from a resource destined to decline more rapidly under their assault against the industry they demand pays the state’s way. The message the House and Walker just delivered to the oil and gas industry is that the state is going to raise taxes now and then even further as soon as prices reach a level that would allow the companies to begin recouping the billions they’ve lost in the last two years and the billions they’ve invested since SB 21 passed. No sane company would attempt to increase production or investment in such an environment. That won’t matter to the anti-oil Democrats in the Legislature or the Governor’s Mansion. They’ll just keep singing the same tune. That ain’t working; that’s the way you do it. You get the money for nothing and the checks for free. I want my, I want my, I want my PFD.   Andrew Jensen can be reached at [email protected]  

AJOC EDITORIAL: Democrats loved credits, until they didn’t

Rep. Les Gara, D-Anchorage, and former Democrat Sen. Hollis French once boasted about spending $540 million on them in a single fiscal year. As a candidate, Gov. Bill Walker said he wanted to use them on the North Slope the way they’ve been used in Cook Inlet. Sen. Bill Wielechowski, D-Anchorage, touted them as a way for the major Slope producers to reduce their tax liability. Revenue Commissioner Randall Hoffbeck called them investments in the future. The Legislature’s consulting firm told them May 10 that eliminating them would be a “trade-off” between saving money and losing future private spending. We’re talking, of course, about oil and gas tax credits offered by the state to incentivize development in one of the most expensive and challenging places on the planet to operate. With the state in a $4.1 billion hole for the upcoming fiscal year beginning July 1, the Legislature has ground to a halt wrangling over the credit expenditures that are going to cost about $775 million no matter what changes are made going forward. Republicans who fought through elections and a referendum defending their vision for tax policy and incentives have tucked tail and run over the issue as Democrats who supported these very incentives have been allowed to bank on the public’s amnesia over their past statements and ride on their tried-and-true playbook of demagoguing the oil companies. Let’s review. In a 2010 op-ed, French and Gara wrote the following about their preferred tax policy known as ACES: “The credits reduce the tax a company owes, or, in the case of a company with no production, the credit can be sold. There is big money involved here: in fiscal year 2009 the oil industry made over $2 billion in capital investment in Alaska that resulted in $540 million of tax credits that lowered their overall tax burden.” That’s right. Gara, who all but alleges oil executives are running around knocking bread out of Oliver Twist’s mouth, was bragging about the state laying out $540 million in credits, or about as much as would have been appropriated this year had Walker not vetoed $200 million in credit appropriations last June. In 2011, Gara wrote another op-ed in which he stated that he proposed to “increase our tax credits for new exploration on the Slope, and for new processing facilities needed to put new oil in our pipeline.” Under ACES, and before Senate Bill 21 repealed its overly generous 20 percent cap-ex credit, the state paid out $918 million in credits during fiscal year 2013 while French was a leader of the Bipartisan Senate Majority. This is the law the Democrats fought to bring back in 2014 and the one they pine for to this day. Here’s what Pat Forgey of the Juneau Empire reported in 2011 from Wielechowski’s defense of ACES: “The future of the North Slope is these smaller, wildcat companies, he said. Those incentives are available for any company, and the big producers such as ConocoPhillips Co., BP plc and ExxonMobil Corp. can lower their total tax rate by spending more on exploration, he said.” You read that right. Wielechowski, who can’t finish a sentence without saying the word “giveaway” was advertising ACES credits as a way for the insidious big three producers to lower their tax obligations to the state. Walker, who started this whole “conversation” with his veto last summer, said this at a Rotary Club debate on Oct. 28, 2014: “We need to level the playing field so smaller companies can come to Alaska. It’s very expensive to do business on the North Slope. We’re fortunate to have the large companies we do have, but we need to look for ways we can reduce the costs so it’s more economic for the smaller companies to come to Alaska, create jobs, create opportunity and drill for oil. We need more wells drilled outside the legacy fields to get more oil for the pipe.” Holding diametrically opposed positions on a major policy issue within the space of a year or two is generally something the press finds newsworthy, but not many members of the media have bothered to hold Walker or Democrats accountable for their past statements — and votes — as they pound Republicans and the oil companies for supposedly trying to take away the Permanent Fund Dividend to line some fat cats’ pockets. The credits under ACES were a way for Democrats to pretend they appreciate the mammoth contributions to the state economy from the oil and gas industry by claiming they supported small companies and incentivizing exploration with credits while bagging on the easy targets of the major multi-nationals who pay virtually every government salary in Alaska including the minority members of the Legislature and Walker’s anti-oil administration. It’s no surprise politicians would cynically exploit the current fiscal state for their own gain, but it has been a useful exposure of the Democrats’ hypocrisy on the issue if anyone would bother to notice. Andrew Jensen can be reached at [email protected]  

AJOC EDITORIAL: Dead horses: Feds’ King Cove hypocrisy & the LIO fiasco

Sometimes a dead horse really does need another beating. On May 4, we received a fresh reminder of the federal government’s rank and callous hypocrisy regarding the emergency access road from King Cove to Cold Bay. Earlier in the week, we were treated to more of the rudderless Legislature’s trademark blend of incompetence and dysfunction that goes together like a jar of Goober Grape. Before getting to the Republican-led Legislature’s ongoing and pathetic attempts to extricate itself from the embarrassment of its Downtown Anchorage office building, up for the first whack is the U.S. Interior Department led by Sally Jewell and a new rule proposed by its Fish and Wildlife Service agency. The rule released May 4 allows for the killing of bald and golden eagles by wind farms and nearly quadruples the annual limit for killing bald eagles first proposed in 2009; it also acknowledges that human-caused mortality of golden eagles may be unsustainable because studies since 2009 indicate the population may be in decline. The new rule out for public comment would allow the killing of 4,200 bald eagles nationwide by wind farms compared to the limit of about 1,100 proposed in 2009. The limit on golden eagle kills remains zero, but the Fish and Wildlife Service knows that windmills will still be causing mortality and therefore it has come up with “compensatory mitigation” workarounds so that companies may pay some sort of fee to a conservation bank to make up for killing golden eagles. This is the same Fish and Wildlife Service that denied approval — and was upheld by Jewell — for 11 miles of one-lane road to complete a connection between King Cove and Cold Bay through the Izembek Wildlife Refuge based on hypothetical impacts on Trumpeter swans and Pacific black brant geese whose populations have no conservation concern. FWS estimates there are about 143,000 bald eagles in the U.S., with half of those in Alaska, and it believes as much as 5 percent or more of local area populations can be killed annually without impacting the species as a whole. Of the Pacific black brant geese, about 160,000 gather in Alaska annually and thanks to warmer temperatures as many as 50,000 stayed through winter in 2014 to continue feasting on abundant eelgrass in the refuge lagoons. Of the Trumpeter swans, 13,000 of the 16,000 or so in the U.S. reside in Alaska with Lower 48 populations raised mostly by eggs transplanted from here. Examples of the federal government’s arrogant abuse of discretion can be found on a daily basis, but few could be more egregious than Jewell’s heartless disregard for 1,000 mainly Alaska Natives living in King Cove while giving special treatment to a favored “green” industry such as wind power to kill thousands of eagles every year even when her own data show one of those species may be in decline. The proposed road would do no such harm, as Alaskans have a long history of building infrastructure in sensitive areas. And in any case, putting a few birds at risk cannot begin to outweigh the risks to residents with medical emergencies and the members of the U.S. Coast Guard who are called upon to rescue them. The press release from the FWS regarding the new eagle kill rule — which it describes in Orwellian fashion as “eagle management” — commits sins of omission by not including the number of eagles it will allow the wind industry to kill every year. You have to read into the 162-page proposed rule to find that information. Even more galling, though, is FWS Director Dan Ashe’s comment in the release that, “Eagles hold a revered place in our nation’s history and culture, particularly that of Native Americans.” Frankly, it is disgusting that Jewell, Ashe, et al, can pretend to be concerned about Native Americans’ feelings when it comes to eagles while coldly disregarding their feelings about access to emergency medical care. No more proof is needed that the federal government’s care for its trust responsibilities to Alaska Natives goes no further than the extent to which it aligns with its own agenda. LIO saga continues On May 2, the Legislative Council voted 12-1 to attempt to buy another office building in Anchorage for $12.5 million currently owned by Wells Fargo and rescinded its offer made just a month ago to buy the current Legislative Information Office for $32.5 million. In an ironic twist, Wells Fargo was one of the construction lenders along with Northrim on the Downtown LIO and prepared an appraisal of $44 million that was used to justify the now-voided lease being below market value at some $3.3 million per year, which means it might end up getting a double payout from this whole fiasco because those notes were eventually consolidated into a longterm loan by EverBank. The Legislature isn’t going to get away from its mess in Downtown Anchorage by moving to Midtown. The Legislature is going to get sued by the developers and their lender and based on Alaska Supreme Court precedent they’re going to have a good chance of recovering their costs at a minimum regardless of the fact the lease was voided by a Superior Court judge. This bunch in Juneau couldn’t boil water without messing it up, but then again, they can probably get a lobbyist to do it for them. A microcosm of Republican leadership’s cluelessness was Senate President Kevin Meyer’s statement about letting lobbyists for the LIO owners buy his dinner at the same time he’s getting $213 in per diem. “We could pay for our own way,” he said to the Alaska Dispatch News. “I’m just trying to think how that would work.” They sure know how to eat. They just don’t know how to pay.

ConocoPhillps loses $1.47B in 1Q, pays 96.4% effective tax rate in Alaska

ConocoPhillips posted a loss of $1.47 billion in the first quarter of 2016, including a $2 million net loss from its Alaska operations. The state’s largest oil producer increased its output year-over-year by 4.3 percent, from 163,000 barrels per day in the first quarter of 2015 compared to 170,000 in 2016. It also spent $320 million in capital expenditures in Alaska, down from the $402 million spent in the same period of 2015, which reflects the work done throughout last year to bring the CD-5 site into production last October. Although ConocoPhillips said Thursday that it is lowering its full-year capital expenditures outlook to $5.7 billion from $6.4 billion, the company announced last week it will spend $190 million to fully drill out CD-5 this year and next, and reach its production target of 16,000 barrels per day this year. Last fall, ConocoPhillips announced it has sanctioned development of the adjoining Greater Mooses Tooth-1 project that has potential to produce 30,000 barrels per day. Before reflecting net operating loss credits now the subject of so much debate in Juneau, ConocoPhillips’ unadjusted result in the state was a loss of $52 million. Yet even with the upward revision to a net loss of $2 million after taxes and credits, the company reported paying an effective tax rate of 96.4 percent in Alaska in the first quarter. It was the highest effective tax rate for any jurisdiction where ConocoPhillips operates, ahead of 90.8 percent in the Asia Pacific/Middle East and 65.3 percent in North Africa/Europe. The company's consolidated average rate was 34.5 percent. Besides production taxes, oil companies in Alaska pay a 12.5 percent royalty plus property and corporate taxes. In the same period of 2015, ConocoPhillips paid an effective tax rate in Alaska of 35.2 percent on pre-tax income of $225 million. Revenue totaled $5.02 billion, down from $8 billion a year ago. ConocoPhillips reported its average realized price for crude oil was $31.43 per barrel in the first quarter compared to $48 in the same period of 2015. The Alaska Department of Revenue estimates that lease expenses and transportation costs on each barrel of North Slope crude are about $46 per barrel. The company’s loss was less than expected by Wall Street. Losses, adjusted for asset impairment costs and one-time costs, came to 95 cents per share. This was better than the loss of $1.07 per share that analysts surveyed by Zacks Investment Research expected. Shares were up slightly by 88 cents to $49 as of 10:20 a.m. Alaska time.

AJOC EDITORIAL: Gov’s union contract is a joke, and so is GOP response

Gov. Bill Walker has a funny way of showing that he’s looking everywhere for solutions to the state’s current $4.1 billion deficit. In addition to reducing the Permanent Fund Dividend by redirecting earnings into paying for state government, he’s proposed raising taxes on oil and gas, fishing, mining, tourism, alcohol, cigarettes, fuel, and personal income. He made a big show in January of claims he’s instituted a hiring freeze and restricted employee travel, although he couldn’t provide any estimate of how much money it would save. Meanwhile, his Department of Administration was negotiating with the labor unions that represent about 87 percent of the employees covered by collective bargaining arrangements. About 11,000 of the 14,400 or so employees covered by the current negotiations are members of the Alaska Public Employees Association and the Alaska State Employees Association. Coincidentally, both unions endorsed Walker for governor in 2014. Also coincidentally, its members are giving up next to nothing in the contracts being presented to the Legislature for approval. All together, the Administration Department estimates the current contracts tentatively agreed to will save a whopping $6.5 million in the next fiscal year from a couple furlough days per employee and a minimal contribution to the health insurance from the current 0 percent to 5 percent. To put that in perspective, $6.5 million in savings represents about 0.5 percent of total state payroll of about $1.2 billion. Zero-point-five. Out of the total deficit, $6.5 million is 0.1 percent. Zero-point-one. In the accounting world these amounts are known as rounding errors. Out of the $457 million in higher taxes proposed by Walker — which amounts to more than 10 percent of the deficit — $6.5 million is 1.4 percent. The furlough days, minimal as they are, generate even less when Administration estimates that about three-quarters of employees will cash in leave rather than take an unpaid day. What remains are escalating and generous pay increases for “merit” and what is simply known as a “step” increase of 3.25 percent every two years. The definition of merit, under the state’s current contracts, is “acceptable or better.” Under this definition, according to Administration Commissioner Sheldon Fisher, about 95 percent of employees qualify for the 3.5 percent “merit” raise for each of their first five years on the job. To be fair, the Administration has removed the cost of living allowance increases, or COLA, from the current deals. A 2.5 percent COLA for the current fiscal year totaled about $30 million, which the Legislature offset with a corresponding cut to executive branch budgets. That is difficult to count as “savings,” though, as elimination of the COLA will be more than offset by the near-automatic merit and step raises still in the contracts. It is also worth noting that the Consumer Price Index has increased by just 0.5 percent and 1.6 percent in Anchorage in 2015 and 2014, respectively, thanks largely to the collapse in oil prices that is driving the deficit. The most fantastic statement in the Department of Administration’s presentation to the House Finance Committee on March 14 was from the slide titled “Bargaining Priorities” that read “Current fiscal climate requires modest reductions.” Modest? We know Juneau is off the road system but until now it wasn’t clear that it is actually on another planet. As usual, though, the Republican-led majorities are botching their response. Rep. Craig Johnson, R-Anchorage, introduced House Bill 379 that would eliminate the merit and step increases until oil reaches $90 per barrel for a full fiscal year. It would also change the qualification for a merit increase from “acceptable” to “good.” This is in direct opposition to a legal opinion from the Legislature’s own attorneys that declared unequivocally it is outside the body’s constitutional powers to engage in collective bargaining, which Johnson’s bill clearly does with its specific requirements for a labor contract. The memo concludes that the Legislature holds the power of the purse, and can simply refuse to appropriate money to fund raises if it doesn’t approve of them. All it should take is some firm statements from legislators to the Administration Department that they will not fund raises if they’re included in a contract. Instead they are taking what appears to be an unconstitutional path to achieve what they already have the power to do by other means. It’s no wonder the majorities find themselves in their current mess. Andrew Jensen can be reached at [email protected]

AJOC EDITORIAL: Final week cramming won’t produce sustainable solutions

As legislators attempt to cram their final week with major changes to how the state pays oil credits and uses its Permanent Fund earnings while filling the budget deficit with savings accounts, they may be tempted to go home to seek reelection feeling like they did their jobs. Public polling conducted by Dittman Research for the Alaska Chamber in the last week of March suggests they won’t face a lot of citizens who’d agree. When asked whether they had a favorable opinion of various state industries including oil and gas, tourism, mining and timber, the only segment of the economy to receive a negative rating was state government with just 42 percent having a “very” or “somewhat” favorable opinion. The Legislature fared even worse, with only 33 percent having a favorable opinion. That may not make the difference in the makeup of the body next year in Juneau, as voters in Alaska aren’t much different than those around the country that routinely give Congress a sub-20 percent approval rating yet more than 85 percent of incumbents are typically reelected. “Everybody else is an idiot, but my (fill in the blank) is OK,” seems to be the sentiment, which calls to mind an expression by Alaska pioneer Clem Tillion that goes along the lines of, “Nothing will make you think worse of your neighbors than seeing who they elect to represent them.” What Alaska’s fiscal crisis has exposed is how poorly so many state government functions and programs perform. In fat budget times not many in Juneau were overly concerned with throwing money at capital projects, prisons, education and oil tax incentives. Now that they have been forced to examine all spending — and as their constituents who’ve gotten hooked on it lobby to preserve the status quo — it’s clear that oversight and accountability have been sorely lacking.  Starting with oil credits, the Legislature is missing a huge opportunity to fix the program beyond simply reducing outlays. While some tweaks to credits at low prices are not unreasonable, it is indisputable that oil companies have responded to Senate Bill 21 passed in 2013 and upheld by referendum in 2014. Daily production for this fiscal year is now forecast to be about 520,000 barrels per day compared to 500,000 barrels per day last fiscal year. That’s a real number that can’t be disputed by those legislators who criticize SB 21 to this day with the same tired talking points they’ve belched out for the last three years. Even next year, knowing BP plans to shut down some rigs at Prudhoe, the forecast is for 507,000 barrels per day. In the fall 2012 Revenue Department forecast, production in fiscal year 2017 was supposed to be only 484,000 barrels per day. The 2012 forecast was for just 8,300 barrels per day in Cook Inlet. We’re now nearly 10,000 barrels per day greater than that. One Hilcorp platform that was producing just 600 barrels per day when the company took it over is now paying $6 million per year in royalties to the state and as a producer of more than 50,000 barrels per day it is no longer eligible for many of the credits it is advocating to preserve. The Cook Inlet Recovery Act and SB 21 worked to reverse declines on both the Slope and the Inlet. They aren’t perfect, but looking at the bottom line of production, SB 21 has far outperformed ACES, which had its own issues with declining output and ballooning credit payments that were on pace to top $1 billion per year before the overly generous 20 percent capital expenditure credit was repealed under SB 21 and replaced with credits tied to barrels produced and not merely money spent. That ACES cap-ex credit would have put the state on the hook for $800 million at Point Thomson alone, which is greater than the entire proposed fiscal year 2017 appropriation for tax credits and incentives. Transparency measures have been stripped out of the current oil tax credit bills, and that’s a shame. Keeping confidential credits related to actual tax liability and production is understandable. Keeping confidential the rebates paid out to companies exploring that have no tax liability is not. A simple fix would be to set an annual appropriation amount the state is willing to invest in exploration projects. Companies would have to seek pre-approval for projects, and therefore know what they can expect in rebates, and the state would know what its outlays will be and whether a prospect is worth exploring based on input from the Natural Resources and Revenue departments. Companies have been quite willing to disclose what they expect from state rebates to secure private investor funding, so if they want the state’s help they should have to do it on the state’s terms. That should mean the public knows the projects the state is investing in. It’s impossible to defend a program you can’t explain, and House Speaker Mike Chenault couldn’t be more wrong when he says the average Alaskan doesn’t care where the money is going. The state needs companies investing and exploring at times of low prices so that when the inevitable price rebound occurs the state will be positioned to benefit. But instead it once again appears poised to chase out companies with its never-ending quest to find a “heads we win, tails you lose” tax policy that jacks up taxes at times of both high and low prices. The education lobby wants funding preserved for K-12 and the university system, but there has been precious little examination of what the state is getting for its money despite spending more per pupil than every state other than New York. The idea of defunding the Alaska Performance Scholarships in order to pay for retired teacher pensions appears backward on its face — cutting spending on the future in order to pay for promises of the past — but it has shone a light on the shortcomings of the state education system. A full 50 percent of students enrolling in the University of Alaska system need remedial education, including 20 percent of the students who receive scholarships, and three out of four students who enroll at the UA won’t graduate within six years. Neither of those numbers are acceptable, yet nothing that’s happening in Juneau is addressing the chronic problem of poor results at every level of education. Critics are harping on subsidies for the oil industry that pays the freight for virtually everything in Alaska (and is once again being called to pay more), yet few have questioned the wisdom of subsidizing unqualified students and therefore the tuition rolls of the University system. On Medicaid reform, a great irony of the bill headed for passage is that most of the savings come from more federal dollars for Tribal care. The Legislature is also quietly funding the expanded class of Medicaid recipients the majorities are currently suing the governor to overturn. For the most part, legislators are papering over problems with the apparent main goal of preserving the PFD at $1,000, an amount greater than the 2012 and 2013 payouts, which were $876 and $900, respectively, in the hopes they can return to Juneau next year. A better example of election year politics is hard to imagine than setting a minimum PFD that is actually larger than recent year payouts at a time of multi-billion-dollar deficits. If lack of leadership creates a vacuum, Stephen Hawking should be studying Juneau for its resemblance to a black hole. Andrew Jensen can be reached at [email protected]

Air Force officially chooses Eielson for F-35s

A long-awaited and expected announcement came Monday by the U.S. Air Force that two squadrons of F-35 fighters will be deployed to Eielson Air Force Base in Fairbanks. A total of 54 new aircraft and an estimated 2,765 personnel will be part of the deployment, with construction to begin in fiscal year 2017, which begins Oct. 1. The two squadrons of F-35s will join the F-16 Aggressor squadron and the 168th Air Refueling Wing currently assigned to Eielson. The first jets are scheduled to arrive in 2020. "Alaska combines a strategically important location with a world-class training environment,” said Secretary of the Air Force Deborah Lee James in a statement released by the Public Affairs office for the 354th Fighter Wing. “Basing the F-35s at Eielson AFB will allow the Air Force the capability of using the Joint Pacific Alaska Range Complex (JPARC) for large force exercises using a multitude of ranges and maneuver areas in Alaska. This, combined with the largest airspace in the Air Force, ensures realistic combat training for the (Defense Department)." The announcement made formal what had long been anticipated, especially after construction began last year on a F-35 simulator at Eielson AFB. A release from the Alaska congressional delegation applauding the decision stated that construction activity associated with the siting of the F-35A Joint Strike Fighter is expected to create a total of 2,339 new construction jobs and generate $453.4 million in economic output over the next four years. That’s on top of some $1 billion in spending at Clear Air Force Station near Nenana and Fort Greely at Delta Junction currently planned or underway for upgraded missile defense radar and additional interceptors. "The decision to base two F-35 squadrons at Eielson AFB, Alaska, combined with the existing F-22 Raptors at Joint Base Elmendorf-Richardson, will double our fifth-generation fighter aircraft presence in the Pacific theater," said Air Force Chief of Staff Gen. Mark A. Welsh III. "Integrating that fifth-generation force with Navy, Marine, and allied F-35 forces will provide joint and coalition warfighters unprecedented survivability, lethality and battlespace awareness in contested environments. It's an exciting time for Pacific airpower." Members of the congressional delegation and Gov. Bill Walker noted in their official comments that it wasn’t long ago that Eielson was targeted for closure, and then the reassignment of the F-16 that would have essentially done the same. The Air Force dropped the plan to move the F-16s out of Eielson in late 2013. More recently, the delegation challenged a U.S. Army proposal to cut the 4th Infantry, 25th Brigade, also known as the 4-25, from Fort Richardson in Anchorage. Citing the state’s strategic Arctic location, emerging threats in the Pacific theater and the 4-25 status as the only Airborne Brigade in the region, the delegation convinced the Army to delay any force reduction. “It's clear DOD understands that Alaska’s strategic value — its vast training areas, proximity to the Asia-Pacific, and our commitment to serving our military — is unmatched anywhere else in the world,” said Alaska U.S. Rep. Don Young. “From the beginning, my case for bringing the F-35 to Alaska has focused on fulfilling the mission. While I’m proud to have played a role in this process, having secured language in each of the last two National Defense Authorization Acts that emphasized Alaska’s immense military value and the benefits Eielson offers the Air Force, I’ve always said that Alaska’s contributions to our military sell themselves.”

AJOC EDITORIAL: Read their lips: No new taxes

With operating budgets passed in the House and Senate but not yet funded, at least one thing is now clear: Gov. Bill Walker’s proposals to raise taxes on individuals and businesses by nearly $460 million in the next fiscal year aren’t going anywhere. Senate Finance Co-Chair Pete Kelly, R-Fairbanks, couldn’t have been more blunt — or, frankly, rude — in response to a question about how the Legislature plans to pay for the fiscal year 2017 spending that figures to outpace revenue by $3.7 billion. At a Finance Committee press conference March 15, Kelly took the opportunity of a question that did not mention taxes to state unequivocally that he has no intention of plumbing a well to the private sector to fill whatever gap remains once some means of drawing from Permanent Fund earnings is chosen. Kelly noted he was speaking for himself, but with all but one of Walker’s proposed tax hikes still sitting in committee or yet to receive a hearing, there can be little doubt his opinion represents the Republican majorities. The only tax proposal that has moved out of its original committee is the doubling of the fuel tax from its current national low of 8 cents per gallon that is projected to raise about $49 million per year. The increase has received a large amount of support from stakeholders in the transportation industry who recognize the importance of maintaining the infrastructure on which their livelihoods depends. Of all Walker’s tax proposals, it’s also the fairest and most broad-based, especially at today’s depressed fuel prices. The Legislature still has a heavy lift ahead to select a means to use the Permanent Fund earnings and because it won’t raise additional revenue through taxes, the majority in the House is going to have to cut some deals with the minority Democrats in order to draw from the Constitutional Budget Reserve, or CBR. And just as an aside, Kelly and fellow Finance Co-Chair Anna MacKinnon, R-Eagle River, attempted to argue that a budget paid for with the Earnings Reserve and the CBR is “balanced.” A budget is balanced when revenue covers expenses. A budget that relies on savings is funded. There’s a huge difference, and as far as spin goes it can’t turn a pinwheel in a hurricane. Nevertheless, the majorities are correct that it is far better to make a relatively small draw from the CBR than it is to kick Alaska’s economic drivers in the guts while they’re down. The oil industry that’s propped up Alaska’s government spending for nearly 40 years is always a juicy target — for this governor in particular — but no knowledgeable observer could look at the daily stream of news about layoffs, delayed projects and idled rigs and think raising taxes on its members by some $100 million as Walker has proposed is anything but a terrible idea. Alaska’s most valuable fishery with the greatest number of workers — salmon — is in the midst of its own price crisis yet Walker wants to extract $18 million out of the industry by raising every fish tax. Minerals prices have also trended lower, and global sluggishness is reducing demand along with other factors such as transitions away from coal that caused Usibelli to halt exports last year. The governor and his Revenue Department asked the University of Alaska Institute of Social and Economic Research to study the effects of budget cuts on the broader economy. That ISER’s original analysis did not consider the impacts of private sector job losses was a glaring omission that still managed to be revealing. What we can see from the ISER study is that government job losses have a multiplier effect of less than one. A loss of 900 government jobs results in a loss of about 700 indirect jobs. ISER may not have looked at private sector losses and their multipliers, but the McDowell Group has done plenty of work in this arena over the years. What McDowell Group has found is that every direct job in oil production creates an additional nine in the private sector. When the role of oil taxes are accounted for, each oil industry job pays for another 10 state and local government jobs. Mining and fishing have 2-to-1 job multipliers according to various McDowell Group studies. Breaking it down, the Legislature’s priorities should be clear: Preserving private sector jobs is more important than preserving public sector jobs. As a business publication, we don’t want anyone to lose their job, but this is the tradeoff the state faces. Walker may not like it — and he’s certainly welcome to go out and advocate for taxing Alaskan incomes at a $400 million annualized rate — but refusing to raise taxes during an economic downturn is the right call from the Legislature. Andrew Jensen can be reached at [email protected]  

AJOC EDITORIAL: No news is bad news for AK LNG Project

It was the Seinfeld of press conferences. One might think that a gathering of the five most influential figures in the massive Alaska LNG Project would have had more news to share, but in the end it was a press conference about nothing. And that’s bad news for everyone involved. Standing shoulder-to-shoulder with the state’s project partners whose taxes he’s proposing to raise dramatically at a time when their costs are nearly double the price per barrel, Gov. Bill Walker had no answers for where AK LNG is headed. As the Journal first reported Feb. 10, the project is now officially off schedule and most likely delayed from undertaking the more advanced work for at least two years. The state and its producer partners will finish the preliminary-front-end engineering and design, or pre-FEED, this year as planned but there will be no vote on a constitutional amendment in November because there will be no fiscal contracts to present to the Legislature for approval. The next time the state’s residents could vote on an amendment to set tax policy for the project will be 2018. Ostensibly, the delay in the project is related to the failure among the three North Slope producers who own differing shares of the gas at Prudhoe Bay and Point Thomson to reach the lynchpin gas balancing agreement governing offtake from the two fields once the project goes into production. But the “elephant in the room,” as Walker put it, is the price per barrel that has hovered in the mid-$20s or low $30s since the start of the year. As anyone who’s been following along knows, the oil companies on the Slope and around the world are hemorrhaging cash in the current price environment. Contemplating a spend of $2 billion or more among the state and its three partners for the full front end engineering design, or FEED, stage is simply not a viable option. ConocoPhillips, for example, burned through $2.7 billion of its $5 billion in cash during 2015 and was compelled to slash its dividend by two-thirds from 74 cents per share to 25 cents per share. From this vantage, then, the best way to slow-walk the project without obviously slow-walking the project is to hold off on sealing the deals that would force the companies to make the FEED decision sooner than is fiscally responsible to their shareholders. That is certainly disappointing to Alaskans who have seen the concept of commercializing North Slope gas advance further than it ever has, but with the state in deficit spending with a budget hole approaching $4 billion it doesn’t exactly have a lot of cash to throw around either. Between the Alaska Gasline Inducement Act subsidies to TransCanada, the subsequent buyout of that company’s interest in AK LNG this past November, and the state’s obligations for its share of pre-FEED spending, Alaska is blowing past a half-billion dollars spent on its last two efforts to monetize North Slope gas. The state does have more to show for its money in the current effort, with export permits in hand and a refined cost estimate to result from pre-FEED, but anything would look good compared to what Alaska got out of AGIA. With a desperate need to hold this project together through a brutal price cycle nobody saw coming, Walker must rethink his proposals to hike taxes on our project partners. Walker wants to raise the tax floor from 4 percent to 5 percent, and restructure the system so that producers are always paying taxes even when they are losing money. Walker cannot have it both ways. He cannot endlessly repeat that Alaska should act like an owner state while expecting to be insulated from depressed markets. It has always been well known that such a capital-intensive project with much thinner margins would require a healthy oil business to support it, yet Walker is proposing to drain the Slope producers’ cash at a time when they have none to spare. With or without AK LNG, the state and the Slope producers are in this boat together. We shouldn’t be the ones trying to sink it by weighing our partners down with more taxes.

AJOC EDITORIAL: Moda’s big Obamacare bet goes bust

Moda Health went all in on Obamacare, and it is now short-stacked and heading for the rail. On Jan. 29, the Alaska Division of Insurance followed suit of its counterpart in Oregon by suspending Moda from operating in the state due to its rapidly deteriorating financial condition caused by massive losses incurred operating in the health insurance exchanges created by the ill-named Affordable Care Act commonly known as Obamacare. Moda’s suspension leaves Alaska with only Premera Blue Cross Blue Shield offering individual health insurance policies. The Oregonian reported this past October on Portland-based Moda pulling out of the insurance markets in Washington and California after the company announced it would receive only $11 million of the $90 million it was expecting from the federal government to cover its losses from the exchanges. As the company sought a 25 percent premium increase in Oregon, it had also asked for and received a 39.6 percent increase for its Alaska policies. Premera received approval for a similarly large increase of 38.7 percent for 2016, citing losses from the policies sold in the state. In 2014, Premera lost $9 million serving the individual Alaska policyholders, and a similar loss of $9 million was projected for 2015 based on claims cost data in the first three months. “The bottom line is that we see another year of significant losses,” Premera spokeswoman Melanie Coon told the Journal last August. “It’s not getting any better.” Insurers across the country are warning they will consider pulling out of the insurance exchanges next year if the situation does not improve. The nation’s largest, UnitedHealth Group, is among those, and Aetna recently reported that it lost $100 million last year from its exchange business. Herbert Stein’s Law states: “That which cannot continue, won’t.” Insurers are not going to sit back and continue to lose hundreds of millions of dollars, which should be of grave concern in a state with one company that is currently losing money in the Obamacare exchanges. So what’s going on here? It starts with the way the Obama administration got insurance companies to buy in to the law in the first place. The ACA created a “risk corridor” by which the companies agreed to pay the government for profits in excess of their estimates for the year and if they lost money, the government would bail them out. Remember, Obamacare was sold as deficit-neutral at worst, and a deficit-reducer at best. Over and over we heard the pitch that it was going to save the country money (part of those “savings” came from the government taking over the student loan business, but that’s a whole ‘nother column). Well, Republicans in Congress led by presidential candidate Sen. Marco Rubio inserted language into the 2015 and 2016 spending bills that prohibited the Department of Health and Human Services from using discretionary funds to bail out insurance company losses from the exchanges. In other words, they held the Obama administration to its pledge that the ACA would not add to the deficit. Here’s how the Fiscal Times reported the results in December: “Last year, the insurance companies paid just $362 million into risk corridor program while submitting $2.87 billion in claims for reimbursement … The fiscal 2015 budget package approved last year specified that payments made to insurers under the risk corridors could not exceed collections. That is why the (DHHS’s) payouts this year were equivalent to just 12.6 percent of the claims.” President Barack Obama signed every bill with these spending restrictions, so while he may have vetoed the bill to repeal his namesake law, he did sign the bills that may have started its death spiral. Moda entered the Oregon market with the lowest premiums in 2014, betting on getting its losses covered by the federal government and gaining 100,000 customers in the process. It even signed a 10-year, $40 million naming rights deal for the basketball arena in Portland just a couple years after only clearing $10.4 million in net income. Barely two years later its bet went bust. Moda may be one of the biggest losers so far to gamble on Obamacare, but it will surely not be the last. Andrew Jensen can be reached at [email protected]

AJOC EDITORIAL: Market slide shows risks of counting on Fund earnings

Since oil first started gushing through the Trans-Alaska Pipeline System nearly 40 years ago, the Alaska has repeatedly failed to learn the lessons from the troughs in the price cycle. Now facing a yawning budget gap nearing $4 billion annually with crude collapsing to less than $27 per barrel as of Jan. 20, there is near-unanimous support to shift from oil income to tapping the investment earnings from the Permanent Fund to bridge the gap. Gov. Bill Walker’s proposal to use a so-called “sovereign wealth model” using the Earnings Reserve where the Fund income flows anticipates an annual rate of return of 6.7 percent essentially in perpetuity allowing yearly draws of more than $3 billion to pay for state government. At the beginning of the fiscal year, the value of the Permanent Fund was just more than $55 billion. As of Jan. 18, the value of the Fund was $49.2 billion. Rosy predictions of future returns are how governments get into trouble, particularly when they are facing looming unfunded liabilities such as pension obligations — of which the state has more than $12 billion — or budget deficits. After yet another rout on Wall Street Jan. 20 as the markets are off to their worst ever start to a year, we are now officially in a correction, which is defined as a drop of 10 percent or more from the high point in the indices. It wasn’t that long ago, back in 2009, when the Permanent Fund lost money for the year as the Dow dropped into the 6,000 range. The markets nearly tripled since then, creating a situation where the state was earning more money from its investments than from its oil income. Now that the bulls ran for more than half a decade, the bears are roaring back. Multiple investment firms are forecasting oil could keep dropping to less than $20 per barrel, some as low as $10 according to a Jan. 12 article in The Telegraph, as OPEC refuses to cut back production and Iran has stated it intends to start pumping 500,000 barrels per day into the market now that it has been relieved of sanctions. While there is consensus that oil prices will keep falling, whether the United States will enter a recession is still being debated. There can be no doubt, though, that the reeling energy sector that fueled so much of the economic expansion will drag down growth. More than 70,000 oilfield workers have been laid off — including hundreds so far here in Alaska — and more pink slips are coming. Hundreds of rigs have been idled and the ripple effects through the broader economy will be felt from everyone to contractors to homebuilders. There is also no doubt that lower fuel prices benefit multiple sectors of the economy, but industrial output is dropping as well. This from a Dec. 16 Reuters  report: “U.S. industrial production saw its sharpest decline in more than three and a half years in November as utilities dropped sharply, a sign of weakness that could moderate fourth-quarter growth. “Industrial output slipped 0.6 percent after a downwardly revised 0.4 percent dip in October, the Federal Reserve said on Wednesday, marking the third straight month of declines.” Alaska’s great gasline hope for economic growth and new revenue will also face major hurdles beyond the enormous cost. Prices in Asia have been halved since 2013, and current demand forecasts are being revised downward. Since shutting them down after the 2011 earthquake and tsunami, Japan has restarted nearly all of its nuclear reactors and is actually reselling LNG shipments; ditto for China amid its own economic growth slump. Korea is also lowering its demand forecasts as nuclear power is still a cleaner alternative when it comes to meeting lower carbon emission commitments. To say it’s rough out there would be the understatement of the year. Strong leadership from the governor and legislators is critical right now, but even if the competing sides can come together with a fiscal plan they must do so knowing that the fight for Alaska’s future is far from over — and that putting our faith in investment earnings may be just as risky a bet as counting on oil prices.

AJOC EDITORIAL: Time for Penney to drop vendetta against setnetters

Bob Penney is now 0 for 2 at the Alaska Supreme Court in his efforts to reallocate Cook Inlet salmon stocks at the ballot box, but he’s not giving up the fight against commercial fishermen. It’s past time that he did after some three decades of dividing the community with his nonstop efforts to drive his neighbors out of business and turn the Kenai River into his personal playpen. After the court emphatically rejected his ballot initiative that would ban setnetting from Cook Inlet beaches on Dec. 31, Penney released a statement that, “Maybe it’s time the federal government looked into this issue.” Later, Clark Penney, the executive director of the Alaska Fisheries Conservation Alliance started by his grandfather to push the initiative back in November 2013, said the group is looking into pursuing an Endangered Species Act listing for Kenai River king salmon. Anyone can petition for such a listing, but AFCA will have no better luck with the ESA than it had at the Alaska Supreme Court. Abundance of the late run of Kenai River kings is no doubt at a low point, but the stock has never failed to meet its escapement goal and in fact returned in strong enough numbers to allow all user groups more liberal harvest opportunity in 2015. The early run of Kenai River kings, on the other hand, has failed repeatedly in recent years to meet minimum escapement goals and was closed to all sportfishing in the past two years. Notice it hasn’t been closed to commercial fishing. That’s because commercial fishermen haven’t been in the water during the early run for decades as the stock abundance cratered under heavy pressure from the guided angler industry. That’s something Penney and his like-minded friends don’t ever talk about because they can’t blame it on commercial fishing. Oh, but they can spin a fish tale, though, and never was Penney’s win-at-all-costs mentality more evident than last legislative session when his advocacy outfit led a misleading smear campaign against a well-respected member of the Kenai Peninsula community who’d been nominated to the Board of Fisheries. The successful effort by the Kenai River Sportfishing Association to defeat Soldotna habitat advocate Robert Ruffner by a single vote based on a made-up criteria about not living in Anchorage and a ridiculous accusation that he was some kind of Manchurian candidate of the commercial fishing industry was the last straw for many in the community who saw his candidacy as an opportunity to break up what had become a polarized board dominated by factions instead of facts. KRSA, which is based in Soldotna, claims to be a conservation organization. The words “Kenai River” are in its name. Yet they waged a public relations war against a neighbor and conservationist despite his widespread endorsements from the local legislative delegation, municipal governments, and chambers of commerce. And they won, as they often have in the Cook Inlet fish wars they keep fueling. A similarly dishonest campaign was waged two years earlier, and succeeded in getting board member Vince Webster booted by an identical 30-29 vote. At both the 2011 and 2014 Upper Cook Inlet meetings, KRSA was able to essentially write the management plan for the Kenai River. In 2011, the group’s proposal severed the historical split between setnetters and drifters, turning what had typically been a 50-50 ratio into a 2-1 gap amounting to millions of dollars in reallocation. In 2014, KRSA was able to go further, getting the board to adopt a plan that removed almost all discretion from the day-to-day fishery managers in favor of the arbitrary hours and so-called “paired restrictions” designed to render setnetting uneconomic. One of the most damaging provisions KRSA was able to push through was a rule that after Aug. 1 the Department of Fish and Game must still restrict commercial fishing if the king salmon escapement is projected to be less than 22,500. That is the mid-point of the escapement goal, or 50 percent above the minimum. Last year, with the king salmon escapement goal ensured of being met, the sockeye run showed up in force at record late dates, and millions of dollars worth of fish went unharvested in August because of a rule in the management plan that has no basis in science but instead reflects the political muscle of KRSA to get what it wants at the Board of Fisheries. Penney couldn’t influence the Supreme Court with campaign donations and a Kenai River Classic perk package, though, and this time he’s going to have to take “no” for an answer. Andrew Jensen can be reached at [email protected]

AJOC EDITORIAL: Time to put up or shut up for Legislature

With just a couple weeks to go until the next legislative session begins, Alaska’s elected officials have a hefty to-do list. In no particular order, here it is: • Restructuring the Permanent Fund earnings in order to use a portion to pay for state government, and possibly reducing the annual citizens’ dividend. • Considering whether to raise or institute new taxes. • Cutting spending. • Reaffirming approval for the sale of pension-obligation bonds; and deciding whether to fund the capital budget with general obligation bonds subject to voters’ approval. • Allocating $15.7 billion in payments-in-lieu-of taxes, or PILT, between the state and municipalities for the Alaska LNG Project. • Reforming the oil tax credit program, and possibly raising or hardening the production tax floor. • Dealing with the Anchorage Legislative Information Office hot potato. • Funding the expanded class of Medicaid recipients that the House and Senate majorities are currently suing the governor to overturn. • Approving Alaska LNG Project fiscal terms, commercial agreements and a constitutional amendment securing those terms to be presented to voters in November. Any one or combination of the above items would bog down a Legislature that has gone down to the last minute or overtime just to pass budgets in healthy fiscal years. Taken in total mere months from a statewide general election, it would be wildly optimistic to expect a series of profiles in courage to be written from the halls of the Capitol in Juneau. Both sides are going to have to be realistic. Republicans should know they can’t cut enough, and Democrats should drop their incessant insistence on raising oil taxes. Reforming the credit program or hardening the tax floor is one thing; pretending that there’s some vast supply of money on the Slope that can be tapped at $35 per barrel is not. Republicans have stated Gov. Bill Walker’s budget doesn’t cut operating spending enough, by only $100 million compared to their desire for a $400 million reduction. If they can cut operating spending by another $300 million compared to Walker’s budget, it would eliminate the need for $200 million in revenue from a state income tax. Whether they have a plan or the wherewithal to execute such a reduction remains to be seen. If the Republicans can’t propose a budget that balances, or choose to move some of the Constitutional Budget Reserve into the Permanent Fund Earnings Reserve as part of the restructuring to fund government, then the House minority Independent Democrat caucus will still have the same leverage it exerted last session to protect its members’ funding priorities such as education or Medicaid expansion. Senate President Kevin Meyer, R-Anchorage, has said some in the majorities could be comfortable with a budget that doesn’t fully close the $3.5 billion gap, which could be a preferable compromise between not slashing state spending to the bone while reducing the annual draw from the CBR to a much smaller level. With a 15-5 advantage in the Senate, Meyer can pass such a plan without Democrats; such is not the case in the House. If the Republicans don’t want to raise or create taxes to fully close the deficit, the House majority is going to have to work far more constructively with the minority than it did last year when, at an impasse, the leadership proposed to transfer the entire Earnings Reserve into the Permanent Fund to eliminate the requirement for a three-quarters vote to pull from the CBR. Democrats are correct to be concerned that new taxes, higher taxes and a reduced dividend will impact low income Alaskans disproportionately. Taken in total, Walker’s fiscal plan would remove some $1.15 billion — $500 million in taxes, $650 million from the dividend payout — from the private economy to help fund government. But funding government is also a Democrat priority, and they’re not going to be able to have it both ways. Republicans are also correct that taking money out of the private sector and disrupting the oil tax system for the fifth time in 10 years is likely to chill investment and economic output at a time when state government can least afford it. None of the options are good, but legislators will have to remember what Hyman Roth said in The Godfather Part II: “This is the business we’ve chosen.” If they’re not ready to make the hard choices and compromise, the voters may send them into another line of work. Andrew Jensen can be reached at [email protected]

AJOC EDITORIAL: Breaking LIO lease will signal state can’t be trusted

Legislators were rightly concerned when Gov. Bill Walker, without warning, vetoed $200 million in appropriations from the current fiscal year budget designated for the oil and gas tax credit program. Walker noted at the time — and his Revenue Commissioner Randall Hoffbeck had to spend a lot of time in the aftermath reiterating to the financial community — that the State of Alaska was not reneging on its obligation to pay the credits. The consequences of not honoring its debts would be terrible for a state trying to protect its top-notch AAA credit rating as it faces multi-billion deficits and now plans to finance its $13 billion share of the Alaska LNG Project. Yet here the Legislature is, through its Legislative Council that handles out-of-session affairs for the body, contemplating breaking a 10-year lease for its downtown Anchorage office building. Like all leases the state government enters, payment is “subject to appropriation,” meaning it can break the lease simply by refusing to pay the rent.  The Senate passed an operating budget last session that withheld the rent payment while the House passed a budget that did. That early April action by the Senate was so concerning that it spurred the Alaska Bankers Association to convene a meeting of its seven member institutions on Easter Sunday to craft a letter to the budget conference co-chairs Sen. Pete Kelly and Rep. Mark Neuman. The language was not ambiguous. ABA President Steve Lundgren of Denali State Bank wrote that, “We alert you that this action will likely impact the State’s credit worthiness and the cost of borrowing in the future.” Lundgren closed with this: “Alaska should not put itself in the position of having to react to a narrative that it will not live up to its commitments. How long creditors would remain accommodating is a great question to which we do not have the answer. What we do know is that some ideas have unintended consequences, and the current funding proposal would be as a good a bellwether as any signaling a risk aversion to the greater credit markets.” Thomas F. Klinker of the law firm Birch Horton Bittner & Cherot, was similarly blunt, citing Moody’s Investor Service guidance that states that “depending on the circumstances involved in a lessee’s decision to not appropriate, this risk could be reflected in that entity’s other debt ratings, including its general obligation and other tax-supported debt.” Klinker noted that while it is true the lease on the Legislative Information Office is not securitized, “a decision to not appropriate rent for the lease without a specific justification, such as the lessor’s failure to perform, could have a similar adverse effect.” He further stated that breaking the lease — which in this case is being contemplated for no reason other than public scrutiny, not because the state lacks the ability to pay — “could be considered material to investors in future state financings, and a required subject of disclosure to prospective investors in such financings under federal securities law, particularly financings based on a lease that is subject to annual appropriation.” Not only is the state considering financing its capital budget for the next two years with general obligation bonds, but Walker has also proposed issuing pension obligation bonds to help cover the 11-figure unfunded liabilities of the public employee and teachers retirement systems. Pension obligation bonds are also “subject to annual appropriation.” Hoffbeck said in a recent interview that while the Legislature has previously approved the issuance of such pension bonds in 2008, a new vote would reassure investors the state would make good on payment if the bonds are sold. “If the Legislature is not willing to voice support of it, we don’t want that kind of noise going into the market when we try to sell bonds,” Hoffbeck said. In other words, if the Legislature won’t pay what it owes on something as small as a $3.3 million annual appropriation, investors aren’t going to lend the state money to finance billions of dollars in bonds or they will do so at much greater interest rates. It is irrelevant at this point whether the decision to renovate and improve the downtown office space was right or not. The fact is the Legislature signed a contract and it should live up to it. If the Legislature can’t make what’s a difficult but necessary decision to pay its debts, how in the world will its members find the intestinal fortitude to do what needs to be done to put the state on a more sustainable fiscal path? A shortsighted action bowing to political pressure or just the optics of the whole thing will signal to private investors that the state can’t be trusted when times get tough, and they sure aren’t getting easier any time soon. Given the circumstances we find ourselves, that should be the last way the Legislature wants to ring in the new year. Andrew Jensen can be reached at [email protected]

Alaska, British Columbia sign transboundary MOU

Gov. Bill Walker and British Columbia Premier Christy Clark signed a Memorandum of Understanding Nov. 25 committing to cooperation on transboundary issues, particularly related to concerns in Southeast over mines on the Canadian side of the border. The MOU will create a Bilateral Working Group on the Protection of Transboundary Waters that will facilitate the exchange of best practices, marine safety, workforce development, transportation links and joint visitor industry promotion. It will also explore other areas for cooperation such as natural resource development, fisheries, trade and investment and climate change adaptation. The neighboring U.S. state and Canadian province will work together on water quality monitoring, scientific information exchanges, resource sharing and facilitating access to information and soliciting input from First Nations, Alaska Native Tribes, and other stakeholders. Lt. Gov. Byron Mallott will lead the Alaska side of the working group and the Minister of Environment and Minister of Energy and Mines will lead the BC side. “As our next door neighbor, Canada plays a significant role in many Alaska industries, including trade, transportation, and tourism,” Walker said. “This MOU underscores that connection, and I thank British Columbia Premier Clark for her support and cooperation in advancing this important relationship “As we work to improve our state’s economy, it is important that we actively reach out and foster good relationships with our trading partners and neighbors with whom we share so much in common.” In an interview with the Journal, British Columbia Minister of Energy and Mines Bill Bennett said the MOU signifies a “change in how we do business” between Alaska and BC. “How we were doing business was the state and province cooperated on mine approvals and permitting that takes place in British Columbia that has potential to impact Alaska,” he said. “But there wasn’t very much public awareness of that relationship and it was incredibly difficult for Tribes and conservation groups and fishing groups to get information on our processes. “We realized that was a shortcoming of our approach and Alaska realized they needed to communicate more with Alaskans on the opportunities the state has to be involved in our process. It’s a matter of opening our doors to acquiring information and making it easier. We’re adding to the opportunities for them to be involved. “This is sealing the deal by having the two leaders sign a deal that says ‘we’re going to do a better job on issues between the jurisdictions.’” There was initially some confusion among the Southeast stakeholders who have been pushing for action on transboundary issues. They had been presented the draft of a statement of cooperation on Nov. 16 by Mallott and told they had two weeks to provide comments to the state. After the announcement, Salmon Beyond Borders, a coalition of Southeast stakeholders representing Tribes, fishing and conservation groups, released statements blasting the timing of the signing and the nonbinding nature of the agreement. A spokesperson from the governor’s office clarified to the Journal that the MOU signed Nov. 25 was not the one presented to the stakeholders for comment Nov. 16, and that the comment period has been extended to Dec. 11. The MOU signed Wednesday is the “umbrella agreement,” Bennett said, which creates the working group that will facilitate the access and cooperation between the two jurisdictions. Southeast stakeholders have repeatedly called for the involvement of the International Joint Commission, which regulates disputes under the Boundary Waters Treaty of 1909. “Since day one, the fishing industry has called on the state and Congress to secure legally binding agreements between the U.S. and Canada with substantial habitat protection and mitigation requirements to ensure the state’s interests are protected,” said Dale Kelley, Executive Director of the Alaska Trollers Association, in the Salmon Beyond Borders press release. “Alaska has instead signed non-binding agreements with British Columbia that offer no visible means of holding Canada, or the mining companies, accountable for mitigating our losses should accidents like the one at Mt. Polley occur in the region.” Kelley was referring to the Mount Polley mine tailings disaster on Aug. 4, 2014, that spilled millions of gallons of mine waste into the Cariboo region of British Columbia, polluting several lakes and watersheds. Concerns over mine waste polluting Alaska watersheds have been elevated by several proposed cross-border mines, particularly the proposed KSM mine near the Unuk River watershed that will also require a large tailings dam structure; there is also ongoing acid rock drainage flowing into a tributary of the Taku River from the abandoned Talsequah Chief Mine. R. Brent Murphy, vice president of environmental affairs for Seabridge, the owners of the proposed KSM mine, wrote in an emailed statement that, “Seabridge wants to clarify that our proposed TMF (tailings mine facility) associated with the KSM Project is not situated in the Unuk watershed or a watershed that drains into Alaska, contrary to the assertions of those who are the most vocal with regards to transboundary development. Our TMF will be situated within the Nass watershed, a watershed that drains entirely into Canadian waters.” Murphy also wrote that naturally occurring acid rock drainage is currently occurring in a Unuk tributary. “We also want to highlight that the water quality within the Unuk River is currently being impacted by naturally occurring acid rock drainage originating from the exposure of the Mitchell Deposit within the head waters of Mitchell Creek (which is a tributary of the Unuk River),” he wrote. “This naturally occurring acid rock drainage results in naturally elevated concentrations of many metals within the river, including copper, iron and zinc. These elevated concentrations have been identified during our extensive baseline sampling of the Upper Unuk River and associated watersheds, which has been ongoing since 2008.” After Bennett visited the Talsequah site in August, government agencies issued a letter to the owners of the mine Nov. 10 that they have 90 days to come up with a plan to stop the acid rock drainage. Although the drainage has been ongoing for years, tests by several government agencies have found that fish in the Tulsequah River are not being affected by the discharge. Regarding the Tulsequah mine, Bennett said the company has told the province it will have a plan to improve the site but that it will stop short of reopening the water treatment plant because the small exploration company doesn’t have the financing. “We think we have some opportunities here to have the company improve the site,” he said. “The best thing would be to develop the site, create cash flow for the company that can open the treatment plant, operate the mine, then close the site, remediate the site, and stop the leaching. That would all be paid for by company as opposed to the public. “That’s what BC has been trying to see happen for 20 years.” He said the fact no harmful effects have been measured by agencies on either side of the border affects how the province is approaching the mine, but that could change if damage was being done. “If the scientists in Alaska and British Columbia were saying that the drainage was harming the water, harming the fish, we’d obviously have a different reaction,” he said. “I think we should do more study, more monitoring, to make sure about the impacts. “If it was determined that there is a negative impact, I think BC would have to take more dramatic action and we’d be responsible for that site. The government would probably have to take it over. I don’t see it happening any time soon, but I acknowledge that it’s a possibility in the future.” Bennett also said there is a “fundamental misunderstanding” of what role the International Joint Commission, or IJC, could play on Alaska-BC transboundary issues. As sub-national jurisdictions, Alaska and BC cannot sign legally binding documents, and the IJC could only get involved if both the U.S. and Canada agreed to it, and if there was a complete breakdown in communications between the nations. He noted that there is a “tremendous amount of pressure on both jurisdictions” related to preserving watersheds from mining impacts and the signing of the MOU is a strong public commitment to working together. “It’s there for the world to see,” he said. “It’s shortsighted to say it won’t impact BC or Alaska.” Andrew Jensen can be reached at [email protected]

AJOC EDITORIAL: Tax credit program would benefit from transparency

When the Legislature finally adjourned after a second special session to pass a budget this past spring, about 20 percent of the approximately $3.5 billion deficit was related to payments from the state’s oil and gas tax credit program. Unlike deductions, which the large producers use on a per-barrel basis to reduce their tax liabilities, the credits are direct payments from the state to mostly independent companies exploring for oil and gas in Cook Inlet and the North Slope. Gov. Bill Walker roiled the industry and lending circles with his move in late June to use his line item veto authority to reduce a $700 million appropriation for the credits by $200 million, deferring the payments to future fiscal years. The short-term effect was a credit freeze between lenders and explorers that required damage control by the state Revenue Commissioner Randall Hoffbeck to assure financial institutions and private equity firms that Alaska would make good on the payments owed. That’s according to the report released Dec. 1 by the Senate Oil and Gas Tax Credit Working Group formed among members of the Senate Majority and Minority member Sen. Bill Wielechowski, D-Anchorage. The report was short on recommendations to actually reduce the annual outlays and focused more on going slow with any changes so as not to disrupt projects in the development stage, protecting the state’s interests should a company go into bankruptcy as Buccaneer Energy and Cook Inlet Energy have, and firming up the tax “floor” on production taxes so companies cannot use a net operating loss, or NOL, deduction to reduce their liability to less than 4 percent. Cementing the tax floor seems to be a no-brainer and should be an easy fix by requiring companies to spread the NOL out over multiple years if necessary to ensure a minimum production tax is received. Ultimately, though, there is no silver bullet to fix Alaska’s revenue problem at the current oil prices under any current or prior tax system. Without question the oil and gas credits, or rebates, require examination along with every expenditure the state is making. There is also no question that the state’s oil and gas credit system has major successes to tout. The Cook Inlet gas supply resurgence led by Hilcorp would not have happened absent the credit system, nor would the recent start of gas production by Furie Operating Alaska that is now delivering gas to Homer Electric Association at a lesser price than some of Hilcorp’s customers from the first new production platform seen in Cook Inlet in more than three decades.  Looking to the North Slope, the independent Caelus is currently developing the Nuna prospect it acquired from Pioneer Natural Resources in 2014, and is scheduled for production in 2017. Hilcorp has entered also the fray by purchasing some smaller BP assets and has now submitted a development plan for the Liberty offshore field that could produce 60,000 to 70,000 barrels per day by 2020. The majors are also spending money on the Slope despite the price crash. ConocoPhillips has spent $1.5 billion developing Drillsite 2S in Kuparuk and the CD-5 field in the National Petroleum Reserve-Alaska. It also just sanctioned a billion-dollar project at Greater Moose’s Tooth-1, also in the NPR-A. When companies continue to spend money in the current price environment and bid on acreage as many independents did at the recent state Slope lease sale, something is working. While we can piece together a rough picture of how credits may be benefitting the state economy, the credit program needs to be more transparent. The public has a right to know how much in credits is being paid out and for what projects. That is the only way to tell if the state is getting something back for what it is spending. The working group reached a rather strange conclusion in its recommendations to disclose the amount of credits paid by project, but not the recipient of the credits. It is hard to understand what difference it would make to withhold the recipient of the credit while disclosing the project for which it was paid. Under the since-discontinued film tax credit program, the public was able to see the project, the recipient, the amount of the credit and the qualifying expenditures that led to the credit. If the oil and gas industry really wants to see this program continue, they should be disclosing how much they’re spending, what they’re spending it on, and how many people in Alaska are being hired as a result. A simple return on investment analysis of credits relative to production taxes does not capture things like local wages, their multiplier effects or the economic impact of ratepayers in Homer or elsewhere benefitting from lower utility costs. The best way to ensure a stable credit system continues — and it must continue — is to make it more transparent.

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