Elwood Brehmer

Alaska hire preference in limbo after AG drops defense

Editor's note: This story has been updated with a statement from Associated General Contractors of Alaska Executive Director Alicia Siira. Alaska’s local hire requirements are a touchy subject these days. On one hand, they are a means to ensure the residents of a state with historically high unemployment aren’t passed over when often large, nationwide construction firms are looking for help. At the same time, though, several iterations of Alaska hire laws have been struck down as unconstitutional, which appears to have led Attorney General Kevin Clarkson to conclude the current in-state hire mandates for many public projects are illegal, too. Clarkson issued a formal legal opinion Oct. 3 contending the state’s Alaska hire statute violates portions of both the U.S. and Alaska constitutions. In the 11-page opinion written for Gov. Michael J. Dunleavy, Clarkson wrote that laws intended to economically benefit Alaska residents at the expense of nonresidents violates the Privileges and Immunities Clause of the U.S. Constitution. Similarly, provisions in the current law could at times put Alaskans from one region of the state ahead of others when being considered for certain work, meaning it violates the Alaska Constitution’s Equal Rights, Opportunities, and Protection Clause, according to Clarkson. Clarkson’s interpretation of the Alaska hire law was published as the state Department of Labor and Workforce Development was being sued by SECON, a Juneau-based general contractor firm that works extensively on government-funded Southeast road projects as well as Ricky Kirby, a seasonal SECON paving equipment operator from Yakima, Wash. The Labor Department implements the Alaska hire law. SECON is a subsidiary of Colaska Inc., which is part of the larger Colas USA group of construction companies. While the law was being challenged, the case had not been adjudicated and state Superior Court Judge Peter Ramgren had not indicated how he might rule on the complaint, according to court records. Filed in July, the lawsuit alleges the state’s residential hiring preference violates the Privileges and Immunities and Commerce clauses of the U.S. Constitution and the Equal Protection Clause of the Alaska Constitution. SECON was fined by the Labor Department and paid $3,678 in July 2017 for violating the Alaska hire law while working on a public water system project; the company was additionally fined 17 separate times from Feb. 15 to May 20 for not meeting resident hire thresholds on a host of projects it worked on earlier this year, according to the complaint. The 2019 fines totaled $158,670. The complaint asserts that SECON is a union contractor managed by Alaskans and has an 85 percent resident workforce but is periodically forced to hire Outside laborers such as Kirby to work on its projects in the state. As it stands, state law requires that staffing for state or locally funded public works projects be conducted with a 90 percent Alaska resident hire requirement by trade when a given project is in a region of the state deemed to be a Zone of Underemployment by the Labor Department commissioner. A region of the state can be considered a Zone of Underemployment if the unemployment rate for the area averaged 10 percent more than the national unemployment rate over the prior 12-month period. The entirety of Alaska can also be deemed a Zone of Underemployment if the criteria are met statewide. Labor Commissioner Tamika Ledbetter found all of Alaska to be a Zone of Underemployment in the most recent employment preference determination issued by the department June 13. The determination was effective through June 30, 2021, for 21 trades — boilermakers to culinary workers to carpenters and tugboat workers — until Clarkson’s opinion. The subsistence lifestyle and lack of economic opportunities prevalent in rural Alaska and the state’s highly seasonal industries have historically combined to give the state a significantly higher unemployment rate than the rest of the country. The resident hire preference was suspended in 2013 under former Gov. Sean Parnell when the Lower 48 was continuing to recover from the Great Recession that largely missed Alaska. It was reinstated statewide in June 2015 by Gov. Bill Walker’s administration after the national unemployment rate had fallen below Alaska’s, which at the time was mostly holding steady. According to the most recent data available from the Labor Department, nonresidents made up 20.9 percent of the Alaska workforce in 2017. Kirby’s and SECON’s attorney Michael Geraghty wrote in the complaint that the state cannot justify upholding the Alaska hire law because there is no good reason for treating nonresidents differently than Alaskans. Discriminating against nonresidents won’t improve the employment situation of residents because workers from Outside “are not the ‘peculiar source of the evil at which the statute is aimed,’” Geraghty wrote, citing a 1978 U.S. Supreme Court ruling that struck down a prior Alaska hire law focused at oil industry employment based on the Privileges and Immunities Clause. “The residency law, thus, unlawfully discriminates against out-of-state individuals like Kirby who have the requisite skill, knowledge, and experience to work on publicly funded projects in Alaska, but for the residency law,” the complaint further contends. Geraghty was attorney general for Alaska from 2012-14 under former Gov. Sean Parnell. Kirby, according to the complaint, can make more money working on Alaska projects for roughly half the year than he can working in his home state of Washington for the same amount of time. Kirby is a member of the International Union of Operating Engineers, Local 302, which covers Alaska, Washington and Idaho. Local 302 Juneau district representative Corey Baxter said in an interview that union contractors such as SECON call him when they need workers for projects in the area. Baxter subsequently calls Local 302 union halls in Anchorage and Fairbanks if there are not enough Southeast workers to fill projects. However, he said it can be a challenge to get workers to temporarily relocate, particularly in summer when work is plentiful. “We can’t force somebody to come down to help,” Baxter said. He added that union officials always try to hire in state when they can, but sometimes they have to go Outside to meet the labor demand. SECON’s complaint lays out a similar scenario. The state does have a detailed process by which companies can have the local hire requirement waived on a case-by-case basis; it includes advertising the positions that need to be filled statewide for at least three days, according to an informational paper published by the Labor Department. The Associated General Contractors of Alaska, a trade group that represents numerous contractors subject to Alaska hire requirements, issued the following statement from Executive Director Alicia Siira. "In the construction industry, few people believe in local and Alaska hire more than we do," she said. "This determination will not open the floodgates to Outside contractors coming to Alaska. It costs more for a contractor to import labor from the Lower 48 than it does to hire local. The public projects that the Alaska hire law applies to have a prevailing wage requirement — workers are paid at published rates. These requirements also include paying $100 per day to workers whose domicile is more than a specific number of miles away from the job. There are not margins on construction projects to allow contractors to hire Outside labor unless it's absolutely necessary because workers are not available. And why would they? The excellent training Alaskans recieve in the construction trades results in some of the best trained workers in the country, and our industry wants to make sure they stay in Alaska." Clarkson wrote in his opinion that just because the Alaska hire law is based on good intentions, that doesn’t mean it passes legal muster. “Despite its popularity among some Alaskans, Alaska hire has not fared well in the courts,” also referencing the 1978 Supreme Court ruling and other rulings by the Alaska Supreme Court against broader Alaska hire laws that have since been repealed. “The U.S. Supreme Court has long held that the Privileges and Immunities Clause ‘plainly and unmistakably secures and protects the right of a citizen of one state to pass into any other state of the union for the purpose of engaging in lawful commerce, trade, or business without molestation,’” Clarkson wrote, citing the same U.S. Supreme Court precedent as Geraghty. Department of Law spokeswoman Cori Mills wrote via email Oct. 29 that the state was close to finalizing a settlement with SECON. But some legislators are not keen on the attorney general not defending the laws they’ve passed. House State Affairs Committee co-chair Rep. Zack Fields, D-Anchorage, called Clarkson’s opinion “politically charged” in a statement issued shortly after it was published. He acknowledged that courts have struck down local hire mandates for privately funded projects, but noted that, except for Dunleavy, both Democrat and Republican gubernatorial administrations since 1986 have implemented Alaska hire laws. Senate President Cathy Giessel, R-Anchorage, sent a letter to Clarkson Oct. 22 in which she wrote that his opinion “caused consternation” to her and many of her constituents. The State of Alaska has long tried to find a balance between being unjustifiably parochial and supporting employment for Alaskans, according to Giessel. She wrote that Alaska hire laws have been “tested and refined through the judicial process” but the current version has not been thrown out in court. Giessel stressed that as attorney general, Clarkson has a constitutional duty to enforce and defend the laws of the state, including Alaska hire. “Your ad hoc determination that the laws of our land, which remain untested in the courts, are unconstitutional is a diversion into the lawmaking field that is rightfully the purview of this branch of government (the Legislature). I respectfully urge you to cease a law creation process that appears to be done by executive fiat,” she wrote. “I also respectfully urge you to modify or revoke your Oct. 3 opinion in recognition of the constitutional obligation of the executive branch to faithfully execute the laws of this state enacted by the Legislature.” Clarkson responded to the Senate President Oct. 29, writing in a four-page letter that he and Dunleavy share her desire to see Alaskans working on projects in the state, but stressed that he took an oath of office to defend the state and federal constitutions. "Nowhere in law is the attorney general charged with a duty to defend every statute, however plainly unconstutitional it may be," Clarkson wrote, contending Alaska Supreme Court precedent gives the attorney general the discretion to handle the state's legal matters as he or she deems appropriate. At this point it’s unclear if Dunleavy, who has long stressed a need for state officials to follow the laws of the state — most often regarding the Permanent Fund dividend — will seek to repeal Alaska hire in the upcoming session. A spokesman for Dunleavy did not respond to questions in time for this story. Elwood Brehmer can be reached at [email protected]

UK sale close boosts ConocoPhillips income; nets $306M in-state

ConocoPhillips netted more than $3 billion in the third quarter as the major oil producer continues to focus its long-term strategy. Much of the large quarterly profit stemmed from closing a $2.2 billion sale of North Sea assets in Britain to BP during the period. The $3 billion net is a 60 percent year-over-year improvement and includes a nearly $1.8 billion gain from dispositions, according to the earnings report released Oct. 29. ConocoPhillips reported adjusted quarterly earnings — omitting one-time items — of $914 million, a 43 percent decrease from a nearly $1.6 billion adjusted profit a year ago. On the financial side, ConocoPhillips’ Alaska operations generated a $306 million third quarter profit, which was down 29 percent year-over-year from $427 million. Alaska spokeswoman Natalie Lowman wrote via email that ConocoPhillips paid $283 million in taxes and royalties to the State of Alaska in the third quarter. The company’s North Slope oil production increased 20 percent year-over-year to average 190,000 barrels per day; however North Slope oil prices for the quarter were down 18 percent from a year prior at $62.78 per barrel, according to the earnings report. ConocoPhillips invested $427 million in North Slope capital projects during the quarter, bringing its year-to-date capital spend in the state to more than $1.2 billion, compared to a full-year 2018 spend of just less than $1.3 billion. Lowman noted that the increased capital expenses mean the company “has reinvested 112 percent of our adjusted net income back into Alaska projects.” ConocoPhillips’ year-to-date adjusted net income in Alaska is $1.07 billion. The North Sea sale announced in July 2018 coincided with a North Slope deal with BP in which ConocoPhillips acquired the London-based major’s 38 percent stake in the Kuparuk River field, which it operates. The companies said at the time that the transactions generally amounted to cash-neutral asset swap. ConocoPhillips now holds 92 percent of Kuparuk; the legacy oil field produced 107,000 barrels per day during the 2019 state fiscal year, according to the Alaska Department of Revenue. Chairman and CEO Ryan Lance said in a formal statement that the third quarter results continue the company’s success since it reset its value proposition when oil prices bottomed out in 2016. “This business is all about having a sustainable strategy with consistent execution,” Lance said. “We believe ConocoPhillips offers both — a shareholder-friendly, returns-oriented value proposition and strong delivery on our commitments.” The net income totals were the product of nearly $10.1 billion in revenue during the quarter, which roughly matched the company’s third quarter 2018 revenue total when oil prices were markedly higher. The net income translated to quarterly earnings of $2.76 per share. ConocoPhillips stock closed trading Oct. 29 at $57.09 per share, up 2.5 percent for the day following the strong earnings report. ConocoPhillips also finalized its acquisition of the mid-sized Nuna prospect on the North Slope from small independent Caelus Energy in the third quarter. Company executives have described the Nuna deal as a roughly $100 million purchase. Now folded into the Kuparuk River Unit, ConocoPhillips Alaska leaders have said they expect Nuna to begin producing oil in 2022, with peak production hitting about 20,000 barrels per day. During the coming winter the company plans to drill seven more exploration and appraisal wells on its large lease holdings in the National Petroleum Reserve-Alaska, following up eight such wells the company drilled last winter in one of its busiest North Slope exploration seasons. ConocoPhillips is in the midst of constructing the Greater Mooses Tooth-2 oil project — peak production is pegged at up to 40,000 barrels per day — in the NPR-A as well as permitting its very large Willow prospect in the reserve. Willow is scheduled to come online in the 2025-26 timeframe with peak production estimates reaching 130,000 barrels per day. Elwood Brehmer can be reached at [email protected]

Alaska Airlines turning purchase into profits

Alaska Airlines’ parent company is starting to see the benefits of the $4 billion deal it made three years ago to purchase West Coast rival Virgin America. Executives for Seattle-based Alaska Air Group Inc. reported a $322 million third quarter profit on Oct. 24, a 48 percent improvement over the $217 million the company netted a year prior. The third quarter net income came on the back of nearly $2.4 billion in operating revenue, which was up 8 percent year-over-year. Alaska Air Group also operates regional carrier Horizon Air. CEO Brad Tilden highlighted numerous positives for the company so far in 2019 but he started an Oct. 24 earnings call by offering condolences to the passengers and their families impacted by the Oct. 17 crash of a Peninsula Airways plane that overran the runway in Unalaska while attempting to land in high winds. The crash killed one passenger and injured several others. PenAir is a code share partner with Alaska Airlines, which marketed the flight. “This is a somber reminder to me and the rest of our leadership team of the grave responsibility we should and of the continued need for us to underscore the importance of safety with our people and our partners at every opportunity and to back up this understanding with our actions every day,” Tilden said. To the quarterly results, Tilden emphasized the company’s focus on customer service is a foundational element of its strong recent financial performance. “We can’t thank our employees enough for their skill and dedication in serving our guests,” he said. The $322 million profit translated to earnings per share of $2.60. Alaska Air Group stock ended trading Oct. 25 at $71.57 per share, up nearly 4.1 percent from its Oct. 24 close following the post-trading release of the earnings report. The 8 percent revenue growth was on a system-wide passenger capacity increase of just 3.4 percent. Tilden noted that Horizon increased its capacity 24 percent year-over-year during the quarter through new aircraft but still managed to drop its per unit non-fuel expenses. The quarterly profit was aided in part by a 5 percent reduction in fuel costs, which make up approximately one-quarter of the company’s operating expenses. However, the fuel savings was overcome by an 11 percent increase in wage and benefits costs, which account for nearly one-third of operating costs. The wage cost increases included $24 million in signing bonuses related to contracts ratified during the quarter for ramp, passenger service and clerical employees represented by the International Association of Machinists and mechanics in the Aircraft Mechanics Fraternal Association, Chief Financial Operator Brandon Pedersen said. For the full year, per unit costs excluding fuel are expected to increase 2.2 percent on 2.1 percent capacity growth. “Normally we would celebrate unit cost declines, not increases, but given the step change increase in labor costs we’ve had this year and the very low growth relative to our recent history we’re pleased with the result,” Pedersen said. “It demonstrates what we can achieve with a back-to-basics approach to cost execution with a sharp focus on productivity and operating our business with a low overhead mindset.” He noted that 2020 costs will likely rise based on more major aircraft maintenance scheduled for next year as well as costs associated with starting to return leased Airbus aircraft formerly flown by Virgin America. Alaska Airlines had long flown the reliable and efficient Boeing 737 exclusively before taking on Virgin America’s fleet. Alaska does not currently have any of the grounded 737-MAX aircraft, but it is scheduled to take delivery of three in the coming months. Looking ahead, Tilden said full-year margins are expected to be in the 11-12 percent range, up from less than 9 percent in 2018. “We’re encouraged by our progress but we’re not at our destination,” he said, adding the long-term goal is to generate returns in the 13-15 percent range. The quarterly numbers were also buoyed by a load factor, or number of available seat miles sold, of 85.8 percent, a 0.9 percent year-over-year increase. According to Tilden, it marked the highest companywide quarterly load factor in five years for Air Group airlines. Chief Commercial Officer Andrew Harrison said the third quarter revenue per available seat mile of 13.6 cents was the best in three years. The company is enjoying growth in the number of Alaska Airlines mileage plan members and credit card holders, according to Harrison. That nearly one-third of new credit card memberships are from California — Virgin America’s primary market — is particularly encouraging, he said. Alaska announced Oct. 2 that its mileage partnership with American Airlines would be drastically reduced early next year, a move some analysts said is aimed at getting more passengers on its own planes as the airlines’ network grows. Nearly half of all Alaska passengers are loyalty members, Harrison said further. “Our value proposition hinges on offering low fares while providing award-winning service, generous rewards, and a premium product and our people are delivering on this,” he said. The fuller flights have helped the company mitigate per unit costs and drive up overall profits. As of Sept. 30, Alaska Air Group had a 12-month adjusted net income of $709 million — a 30 percent improvement over the prior 12-month period, according to Tilden — that it translated into $695 million of free cash flow. Alaska Air Group held $1.6 billion in cash at the end of the quarter and had generated nearly $1.5 billion in cash from operations so far in 2019, Pedersen said. Of that, approximately $525 million went to capital expenses, leaving about $950 million in free cash flow year-to-date, which is a $460 million improvement over 2018, according to Pedersen. Much of that cash is being used to pay down the debt incurred to buy Virgin America in 2016. The Air Group executives said deleveraging their balance sheet has been their primary objective with available funds and they expect the company will have repaid about 75 percent of the $2 billion it borrowed to acquire the San Francisco-based carrier. Alaska Air Group’s debt-to-capitalization ratio stood at 42 percent at the end of the quarter. Company leaders have a long-term goal of a 40 percent dept-to-cap ratio. “Strengthening our fortress balance sheet positions us to be flexible and opportunistic and make the best strategic and capital allocations in the future,” Tilden said. Pedersen often further detail, saying the company has refinanced more than 75 percent of its debt to be “fixed at historically low interest rates.” Air Group debt carried a weighted average interest rate of 3.2 percent at the end of the quarter, according to Pedersen. Additionally, Alaska Air Group made a $65 million voluntary payment towards its defined benefit pension plans, which are now 80 percent funded and increased its 2019 share repurchase allocation from $50 million to $75 million based on its strong cash balances, Pedersen added. With its quarterly dividend the company expects to return $248 million, or about a quarter of its free cash flow, to shareholders this year, he said. Elwood Brehmer can be reached at [email protected]

Treadwell-led group pairs with ExxonMobil on LNG from Point Thomson

Former Alaska Lt. Gov. Mead Treadwell is spearheading a new effort to sell North Slope natural gas with an offshore Arctic LNG plant and icebreaking tankers. Treadwell is CEO and chairman of the firm Qilak LNG. Leaders of the Anchorage-based startup announced Wednesday morning that they have a conceptual “heads of agreement” with ExxonMobil to purchase gas from the major producer’s Point Thomson field on the eastern North Slope for 20 years. The estimated $5 billion Qilak project would require building a gas treatment plant at Point Thomson to remove carbon dioxide and other impurities from the gas before it would be piped to a mobile LNG plant located six to 10 miles offshore. The plant would be served year-round by icebreaking LNG tankers that would take their cargoes to power plants in Asia. Treadwell said he has already been in discussions with buyers representing about 10 million tons of demand per year. The concept is a scaled-down version of Russia’s $21 billion Arctic LNG 2 project, according to Qilak representatives. The LNG plant would literally sit offshore in waters 13 to 16 meters deep meaning the project would not require costly ocean dredging. Qilak President and Chief Operating Officer David Clarke said the mobile LNG plant would store liquefied gas in underwater tanks beneath the deck of the plant and the whole facility would be sunk on the ocean floor. The project could eventually incorporate gas from Prudhoe Bay if the owners there, led by incoming operator Hilcorp Energy — which also acquired BP’s roughly one-third share in Point Thomson — elect to sell gas, Clarke added. Qilak expects to start a detailed feasibility study of its LNG project plan early next year. They are currently shooting for a final investment decision in 2021 or 2022 that could lead to a 2025 startup. The Point Thomson gas field, operated by ExxonMobil, holds approximately 8 trillion cubic feet of natural gas. “ExxonMobil sees the development of the Qilak LNG-1 project as an opportunity to develop Alaska’s gas resources,” ExxonMobil Alaska President Darlene Gates said in a statement released by Qilak. “As the largest holder of discovered gas resources on the North Slope, ExxonMobil has been working for decades to tackle the challenges of bringing Alaska’s gas to market.” Qilak is an Inupiat word for the environment and was suggested by a North Slope whaler, according to information provided by the company. The project concept has been in the works for about three years, according to Treadwell, who said the work is being funded by Lloyds Energy of Dubai. He emphasized that shipping from the North Slope is only about 40 miles farther to Asian markets than from Cook Inlet, which would be the endpoint for the Alaska LNG Project. Shipping LNG directly off the Slope has been considered several times before but sea ice and other factors challenged the economics the concept. “Markets have changed, technology has changed and ice conditions have changed,” Treadwell said. He also stressed that project officials would work with shippers and North Slope communities to schedule shipments and set ship routes around marine mammal subsistence harvests. He added that the tankers — powered by LNG with LNG cargoes — also limit environmental risks. “We are not moving oil through the Arctic Ocean,” Treadwell said. With a startup production rate of about 4 million tons of LNG per year, the project would be about one-fourth the size of the roughly $40 billion Alaska LNG Project that the Alaska Gasline Development Corp. is permitting through the Federal Energy Regulatory Commission. Under Gov. Michael J. Dunleavy’s administration AGDC has downsized and stopped seeking gas customers; instead, the state-owned agency hopes to turn the project over to private investors if it is deemed economic after ongoing analysis. What the Qilak project wouldn’t have, though, is an 800-plus mile gas pipeline bisecting the state. The estimated $10 billion gas pipeline portion of the Alaska LNG Project has long been viewed as the major economic hurdle to selling the state’s massive North Slope gas resources in the Point Thomson and Prudhoe Bay fields. But the line would also be the source of cleaner, lower-cost energy for communities along the route — notably the Fairbanks area — that largely rely on fuel oil for power generation and home heating. Alaska LNG advocates have also touted that project as a way to get lower-cost energy to the numerous Interior mine prospects that often have challenging economics largely due to the high cost of feedstock diesel used to power remote operations. The Qilak project was announced at a press conference at the downtown Anchorage offices of the national law firm Holland and Hart, which now employs former Gov. Sean Parnell, whom Treadwell served with as lieutenant governor from 2010 to 2014. It was Parnell’s administration that put together the initial Alaska LNG venture with BP, ConocoPhillips and ExxonMobil as equity partners along with the state. Treadwell said the project could possibly deliver LNG to Western Alaska communities as the tankers pass through the Bering Sea, but that would require lightering to smaller tankers or barges. The tankers would be too large to serve small ports and harbors and because there are no U.S.-made icebreaking LNG tankers, the Jones Act would prohibit from calling on Alaska ports unless a federal waiver was granted, acknowledged Clarke, a former executive with BP. Treadwell added that some amounts of LNG could potentially be trucked off the North Slope to reach road-accessible communities as well. “I promised the governor this morning that we would do anything we could to get gas to Alaskans,” he said. Dunleavy’s spokesman Jeff Turner wrote in an emailed statement that, “Gov. Dunleavy encourages and supports all business concepts that can successfully monetize the trillions of cubic feet of natural gas at Point Thomson and other areas on the North Slope.” Interim AGDC President Joe Dubler said in an interview that although Qilak’s plans would likely take part of the gas once intended for the Alaska LNG Project his agency is working on, he thinks any way to finally sell North Slope gas — a long-held dream of several generations of Alaskans — would be good for the state. “I’m an Alaskan and any project that can monetize North Slope gas is a good deal for me; that’s where I’m at. If (Alaska LNG) isn’t it, whatever one comes down that is it will have my support,” Dubler said. “We can cross the energy bridge for the whole state when we get there. Without a project that produces natural gas in marketable quantities that you can sell it doesn’t do any good to talk about anything else.” Qilak’s high-level agreement with ExxonMobil does not interfere with a binding gas sales precedent agreement AGDC signed with the producer in September 2018 for its share of Point Thomson and Prudhoe Bay gas because the preliminary AGDC-ExxonMobil deal was allowed to expire earlier this year, according to Dubler. He said the state corporation did not renew the agreement signed under the Walker administration because it was done prematurely and before other key elements of Alaska LNG had been settled. The Qilak project wouldn’t necessarily preclude Alaska LNG from utilizing gas from Prudhoe or other discoveries, Treadwell noted as well. Elwood Brehmer can be reached at [email protected]

Slow, steady recovery continues for economy

Alaska’s economy is growing but the state has a long way to go to return to pre-recession levels. The state’s has consistently had about 1,000 to 2,000 more jobs this year than in 2018. Preliminary Department of Labor employment figures for September show the state had 340,600 jobs, which is 1,900 more than a year prior. Employment peaked in September 2015 at 351,100 jobs. As the state is pulling out of a prolonged recession that started in late 2015, Alaska’s unemployment rate is as low as it’s ever been. The state’s seasonally adjusted unemployment rate was 6.2 percent in August and September — record lows according to the Department of Labor and Workforce Development. Improving the economy has been the primary mission the Dunleavy administration’s first year in office. Gov. Michael J. Dunleavy said there is still ample room for future economic growth but he’s encouraged about what the unemployment rate points to. “There is optimism in Alaska’s economy, and this is just another indicator that we are heading in the right direction,” Dunleavy said in an Oct. 21 statement. “Private investment is up, GDP is up, personal income is up, and unemployment is down — these all point to an improving economy.” The state’s gross economic production, also referred to as GDP, has been on the increase since bottoming out at $49.4 billion in 2016, according to the Federal Reserve Bank of St. Louis. It hit just more than $54 billion in 2018 for 9.3 percent growth over two years. Additionally, according to the federal Bureau of Economic Analysis, or BEA, Alaska’s GDP grew 3.9 percent from the fourth quarter of 2018 to the first quarter of 2019. Personal income in the state also grew 5.6 percent in the second quarter of the year, a BEA release states, which was greater than the national average of 5.4 percent. However, economists often note that GDP, particularly in Alaska can be a misleading statistic because the value of the state’s economic activity is closely tied to the price of oil and other market resources such as gold. The state’s recent GDP growth generally tracks with trends in oil prices over the past couple years, which bottomed out in early 2016. Department of Labor economist Neal Fried also highlighted that the job growth, while encouraging, is very small even in a state with a small workforce. “We’re talking about real small differences. It’s kind of amazing how small they are. The upside and downside are not very far apart,” Fried said in an interview. The recession petered out near the end of 2018 with monthly job losses of less than 1 percent year-over-year. On the flipside, the gains have been similarly small. Many economists in the state predicted the roughly $1.2 billion in state government budget cuts Dunleavy proposed early in the year would push Alaska back into recession but the state’s economy has continued to grow with the more moderate budget cuts of approximately $650 million instituted by the Legislature and governor. Alaska indeed enjoyed record-low unemployment in August, but year-over-year employment growth for the month was about 2,200, or 0.6 percent. Numerous sectors were still contracting in August, with manufacturing, financial activities, information, professional and business services and retail all losing at least 100 jobs during the month compared to August 2018. Those losses were overcome by gains of 500 to 600 jobs each in the closely tied mining, oil and gas and construction industries, according to Labor statistics. Month-to-month, the state actually lost approximately 2,400 jobs from July, highlighting the extremely seasonal nature Alaska’s economy — fishing and tourism in particular — even when it is growing. September’s employment growth of about 1,900 jobs was 0.5 percent year-over-year growth. It was again led by the mining, oil and gas and construction trades, with continued losses in retail and information and overall losses in state and local government totaling 500 positions, according to the Department of Labor. Fried also said Anchorage, the state’s economic center, has lagged behind the rest of Alaska. He attributed it in part to most of the new oil and gas jobs being in North Slope work, rather than office positions in the city. With that in mind, he also noted that those jobs still benefit Anchorage, as many Slope workers live and spend their money there. Fried also said the state’s unemployment rolls are almost certainly smaller due to the continued strong Lower 48 economy. The national unemployment rate fell to a 50-year low of 3.5 percent in September. “Fewer people are coming here looking for work; more people are being attracted elsewhere in the country because the job market is so good and that’s effectively kept our labor market pretty good,” he said. “It’s not a bad labor market in Alaska in spite of the fact that we have relatively soft growth.” Because of the remarkably low unemployment rate nationwide, which Fried characterized as “almost new territory” for the country — economists usually consider rates in the 5 percent range full employment — Alaska’s record-low unemployment rate is still the highest in the nation. “It’s amazing that you can say both of those things,” Fried said. Elwood Brehmer can be reached at [email protected]

Estelle gold prospect grows with additional acrage

Another large-scale gold prospect is gaining momentum in Southcentral Alaska. Australia-based Nova Minerals Ltd. announced Oct. 8 that it has secured exploration rights to approximately 25,100 additional acres of state mining claims at its Estelle prospect that sits deep in the western portion of the Alaska Range. The acreage adds to the nearly 29,300 acres the company acquired in November 2017. Located about 110 miles northwest of Anchorage near the divide that separates the Western Alaska Kuskokwim drainage and the Susitna drainage of Southcentral, the Estelle gold prospect was drilled by Anchorage-based Millrock Resources early this decade. Millrock and Canadian Teck Resources ended a joint venture and quit the project in 2016. Nova Minerals drilled 18 boreholes at the Estelle property and re-entered historic drill sites over the summer, according to a late September investor presentation. Company leaders currently estimate the prospect holds 2.5 million ounces of inferred gold resources with smaller accumulations of copper and silver also present. Specifically, Nova Minerals estimates the explored areas of the property hold 181 million metric tonnes of ore averaging 0.43 grams per tonne of gold given a cut-off of 0.18 grams per tonne. However, Nova Minerals Managing Director Avi Kimelman said Oct. 8 that the area drilled last summer — on the northern end of the prospect acreage — accounts for just about 1 percent of the overall Estelle property. For comparison, the producing Pogo underground gold mine near Fairbanks has produced approximately 3.9 million ounces of gold since mining started there in 2006, according to operator North Star Resources Ltd. Nova Minerals is currently contemplating an open-pit mine at Estelle if the project is fully developed, according to company documents. The additional acreage Nova Minerals acquired surrounds the northern portion of the original property that was drilled this year. “The expansion of the Estelle project area reinforces Nova’s commitment to expand our resource ounces and fast-track development across the project area,” Kimelman said in a formal statement. “This will allow us to enact much broader exploration and a discovery vision via the exploration of what we believe to be a regionally significant land package in the world-class Tintina gold belt.” Nova Minerals publications regularly note the Estelle prospect’s location on the southwest edge of the massive Tintina gold belt, which cuts across Interior Alaska generally between the Alaska and Brooks mountain ranges and extends into the Yukon Territory. Estelle is also adjacent to other advanced gold exploration ventures, most notably GoldMining Inc.’s Whistler project, which holds significant indicated copper, gold and silver resources. According to a September investor presentation, Nova Minerals leaders plan to continue drilling in 2020 and eventually combine upwards of 25,000 meters of drill core results with additional resource evaluation data. They also note the Estelle prospect is accessible for drilling year-round — a rarity among remote Alaska mineral projects — via winter trails in the area. The company expects to publish a full resource evaluation of the Estelle prospect late next year, according to the Oct. 8 release. ^ Elwood Brehmer can be reached at [email protected]

Port commission tackles tariff schedule with year-end deadline

The traditionally mundane process of updating the fees charged to use the Port of Alaska has turned contentious as city officials search for ways to pay for repairing the ailing docks. Anchorage Municipal Manager Bill Falsey told the Anchorage Assembly’s Enterprise and Utility Oversight Committee Oct. 17 that port managers had come up with four basic options for updating the tariffs levied on the goods and materials that cross the docks at the port. “Before the year’s end we have to have something in place. That means big decisions have to be made,” Falsey said to Assembly members, noting the current tariff schedule is set to expire Dec. 31. The baseline, “keep the lights on” option would follow historical practice and provide port officials the revenue to conduct routine maintenance on facilities — which now includes about $2 million per year to repair dock support piles weakened by corrosion — while keeping 90 days of cash in reserve. The actual baseline tariff increases would be 3.5 percent for 2020, 3.93 percent in 2021 and 3.01 percent annually through 2027 with flat rates to 2029, according to an Oct. 10 letter Falsey sent to the Port Commission. Falsey has long stressed that the municipality would not raise tariffs to a point that would unduly burden Alaska consumers or would drive business away from the port and prevent the expected revenue from being raised. However, the port users contend the proposal reneges on a commitment city officials made when work was approved to rebuild the Petroleum and Cement Terminal, or PCT. They understood city officials to mean port tariffs would not be raised at all to fund PCT construction when the initial contract was awarded, the users claim. The Port Commission is an advisory group to the Assembly that historically has agreed with the tariffs recommended by officials at the municipal-owned port. Port tariffs have usually been updated on a five-year basis, but the need for long-term funding has pushed city and port officials to look at a 10-year schedule. The remaining three proposals would raise varying levels of additional funds through greater petroleum and cement tariffs to pay for at least part of the new petroleum and cement terminal, or PCT that will start to be built next year. In late July the Anchorage Assembly approved a $42 million contract for the first year of PCT construction but an informal consortium of the primary port user companies objected, highlighting the fact that the municipality does not have funding to pay for a second year of PCT work to finish the new dock. User company representatives at the time said they worried city and port officials would attempt to raise tariffs to cover the cost of finishing the PCT in late 2021. Overall cost estimates for the PCT have come down from approximately $220 million initially; the city now expects to need $81 million to finish it, according to Falsey’s letter. The PCT is the restart of major construction work at the Anchorage port — officially renamed the Port of Alaska in 2017 — since 2010 when severe damage to installed sheet pile was discovered and the port expansion project was halted. That project spent roughly $300 million of public money but left little to show for it. No one disputes that the aging docks at the port need to be overhauled or replaced, but how quickly that should be done while city and port officials try to reduce costs from a $1.9 billion ballpark price published in January is at the heart of the debate. Many port stakeholders fear large increases on fuel import tariffs could ultimately be felt at Ted Stevens Anchorage International Airport, where international air cargo carriers stop to refuel on flights between Asia and the Lower 48. The business model of carrying more cargo and refueling in Anchorage instead of carrying more fuel and overflying Anchorage could be disrupted by even small changes to fuel prices, they say. That air cargo traffic has made the Anchorage airport one of the five busiest cargo hubs in the world and has recently spurred several large warehouse development plans there. According to Falsey, he had said tariffs would not be increased to fund next year’s work. He said during the Oct. 17 committee meeting that he believes there is an “emerging consensus that tariff adjustments of some sort are inevitable.” “We’re going to need help and back and forth from the user group to figure this all out but we’re committed to figuring something out,” Falsey said. The increased tariff revenue likely wouldn’t be applied directly to the construction work because much of it would come after the work would hopefully be done. Instead, it would pay the long-term debt service on revenue bonds the port would sell to fund the work up-front and pay back over time. The city is applying for federal grants to fund portions of the work, but the prospect of that money is still uncertain. A second option would generate approximately $41 million to finish in-water work on the PCT in 2021 by increasing the petroleum and cement tariffs by 120 percent in 2020 and 1.31 percent per year afterwards through 2029. More specifically, it would raise the current petroleum tariff of 16.4 cents per barrel to 36.2 cents per barrel in 2020 and 40.7 cents per barrel by 2029. The cement tariff would increase by approximately $2 per ton in 2020 and much smaller increments in subsequent years, according to the letter. Finishing the in-water work in 2021 would largely alleviate permitting risks for the project, Falsey said, as the port has a two-year permit from the National Marine Fisheries Service to do the work in the habitat of endangered Cook Inlet Beluga whales. City and port officials have also said a structurally sound but unfinished PCT could be used as an emergency cargo dock if an earthquake or other event took the current cargo docks out of service. The fuel and cement companies that use the port have declined to specify exactly how significantly the higher tariffs would impact their business, but they have said it would force them to evaluate their options. Falsey has said the user companies’ somewhat understandable reluctance to disclose sensitive business information makes it difficult to forecast the impact of any tariff changes. Raising $81 million to finish the PCT in 2021 would require raising the tariffs by 235 percent next year, or by 39 cents per barrel of fuel and $3.93 per ton of cement. Those rates would remain unchanged through 2029, according to municipal figures. Making the PCT functional for offloading cement shipments would cost approximately $60.5 million and would raise the tariffs by 176 percent next year and 0.61 percent subsequently. Falsey said year-to-year adjustments could be made to the tariff schedules as long as the revenue goals would be met. He also suggested the Assembly and commission start considering tariff changes for bulk container cargo that crosses the docks to prepare for replacing the port’s cargo terminals — work that is expected to cost hundreds of millions of dollars. “We all believe now that the cargo side of the (port modernization) program is kind of back to the drawing board. I think we have in mind ways to skinny the cargo side of the project way down. We don’t yet have a consensus on what that’s going to look like,” Falsey said. “We do know it’s going to cost something and it’s going to be expensive.” Port Commission members said they are reviewing the tariff documents but have not come to a decision. A commission meeting to discuss the tariffs is scheduled for Oct. 23. Elwood Brehmer can be reached at [email protected]

Permanent Fund investment plans generate opportunity, concern

Alaska Permanent Fund Corp. leaders see it as a way to better meet the responsibilities lawmakers have laid out for them while also encouraging economic growth in the state. To many skeptics, it’s the first step towards degrading a $65 billion investment that has become revered worldwide as a sterling model of how governments can turn fleeting riches into continual wealth. In September, the corporation announced it had selected North Carolina-based Barings LLC and McKinley Capital Management of Anchorage to invest up to $200 million in Alaska-based ventures and projects. Barings, a subsidiary of financial and insurance giant MassMutual, will focus on Alaska infrastructure and private credit opportunities; McKinley will manage the fund’s private equity investments in the state, according to APFC officials. A Journal story detailing the Alaska Investment Program drew a significant response from Alaskans fearful the in-state investment initiative would provide special interests access to the state’s giant nest egg. Former state Rep. Ray Metcalfe was one of the concerned individuals that contacted the Journal about that story. Metcalfe said his apprehension to investing Permanent Fund dollars in Alaska stems from his time in the Legislature. He was the Republican chair of the House State Affairs Committee in 1982 when some of the original Permanent Fund investment guidelines were being debated by lawmakers. Metcalfe said he and then-state Sen. Arliss Sturgulewski, who led the Senate State Affairs Committee, drafted very similar bills outlining the APFC’s investment procedures for its namesake fund and worked together to get Sturgulewski’s bill passed near the end of the 1982 legislative session. That legislation purposefully omitted any directive to invest the fund in Alaska-based ventures. “We were being lobbied by the chamber of commerce, (policy nonprofit) Commonwealth North, the banks and the oil companies to take that money and put it into docks, roads and harbors” in the state, Metcalfe said in an interview. “They wanted us to pay for those things out of the Permanent Fund that oil companies effectively would be taxed for additional monies to pay for.” He said he worries similar lobbying of APFC officials — though not necessarily from the same groups — could push the fund into politically friendly but not financially savvy investments. Then a Republican and now a Democrat who has also run for U.S. Senate, Metcalfe said when he started drafting the Permanent Fund investment legislation he was inclined to favor in-state projects but his stance changed after hearing from financial experts who warned against it. “Think of a 50-gallon bathtub and you’ve got 10,000 gallons of water,” Metcalfe recalled a Harvard finance professor consulting to the Legislature telling him. “If you put that 10,000 gallons in that 50-gallon bathtub it’s going to run over the sides and you’re never going to know where that other 9,000 and some-odd gallons went. You’re economy can only hold so much and there’s only so much money available for viable projects. Let the bankers decide what’s viable.” He and Sturgulewski successfully pushed to get the Permanent Fund investment legislation passed then because they did not want their opponents on the issue to have a crack at it in the subsequent election cycle, which proved fortuitous, according to Metcalfe. “Had this been delayed for a year, the Permanent Fund investment strategy would’ve been completely different,” he said. APFC Board of Trustees chair Craig Richards said the concerns held by Metcalfe and others are understandable and are things most folks in the Alaska investment realm are aware of. The resolution the trustees drafted in September 2018 to start the Alaska Investment Program — also called the Emerging Manager Program — attempted to address those issues. “We very thoughtfully and purposefully did not say, ‘Alaska Permanent Fund, let’s invest $200 million in the state of Alaska,’” Richards said in an interview. “Instead, we said, ‘let’s hire an external manager, who the Permanent Fund would oversee and that external managers will have the responsibility for investing the money and that external manager’s role to the corporation is to simply — like all other managers in their asset class — is to beat their benchmark.’ “It creates a level of separation between the corporation and the investment decisions.” Richards, a former state attorney general appointed to the board by former Gov. Bill Walker, stressed that Barings and McKinley will be judged on the returns they generate from the $100 million each will have to invest. Permanent Fund Corp. CEO Angela Rodell similarly said in an interview for the original story that the lone goal for the Alaska investments is to beat the performance benchmark set by the trustees. “These deals are going to be done exactly the same way as all the others and they’re going to be vetted for the same sort of return and risk expectations,” Richards said. He added that the APFC investment statute, which has been modified since Metcalfe’s time in the Legislature, now calls for the corporation to make in-state investments when they are worthy. The trustees’ resolution and the Alaska Investment Program are a way for the state-owned corporation to follow the law. “The law says, all things being equal, we should be investing in Alaska, but I think in practice what was happening was all things being equal the Permanent Fund wasn’t investing in Alaska because there was a concern of investments being politicized,” Richards surmised. Regarding the statutory language directing in-state Permanent Fund investments, Metcalfe said, “Therein lies your chamber of commerce push.” Metcalfe said Alaskan entrepreneurs can find other sources of capital for their ventures that don’t invite cronyism, particularly in the global age of finance. “I just think it’s a bad idea,” he said. “I think it’s a really bad idea and I fully expect them to go out and lose $200 million.” Beating benchmarks McKinley Capital CEO Rob Gillam was traveling and couldn’t be reached for additional comment, but he said in a prior interview that he believes there are ample opportunities for mid-sized — about $2 million to $15 million — private equity investments in the state. McKinley responded to the request for information, or RFI, issued by the APFC early this year for the program and has managed other global equity Permanent Fund investments for 22 years. According to the latest APFC monthly performance report, McKinley managers were responsible for more than $339 million of fund assets as of Aug. 31. Those managers have consistently outperformed the global equity benchmark in recent years. Permanent Fund assets managed by McKinley returned an average of 6.36 percent over the past five years, compared to the global equity benchmark of 5.4 percent for the period, according to APFC records. How McKinley and Barings will be compensated for their work is unclear. While it is a state-owned entity, the APFC’s enabling laws and regulations allow it to keep its business contracts confidential, as is the case with other similar state corporations. Richards also noted that the $200 million allocated to the program, while an immense sum in nearly every other realm, amounts to just barely 0.3 percent of the total $65.3 billion Permanent Fund. “Either as a percentage of the asset class or a percentage of the fund, it’s a toe in the water sort of allocation that was meant to sort of get the system up and going. If it has success in five to six years maybe the allocation increases and if not maybe it gets shut down,” he said. Elwood Brehmer can be reached at [email protected]

Mat-Su Borough officials say errors are skewing AK LNG baseline data

Frustrated over how their proposed site for an LNG plant has been dismissed by leaders of the roughly $40 billion Alaska LNG Project, Matanuska-Susitna Borough officials are pointing to statements from federal regulators they claim prove that parts of the project evaluation are based on flawed basic data. James Wilson, an internal auditor for the Mat-Su Borough, told the Alaska Gasline Development Corp. board of directors during an Oct. 10 meeting that there seems to be a “process issue” that has prevented the errors the borough has flagged regarding its Port MacKenzie in project documents from being corrected. The Federal Energy Regulatory Commission is currently evaluating the Alaska LNG Project — the state’s effort to sell North Slope natural gas via an 800-mile pipeline to a Southcentral LNG plant and export terminal — through the environmental impact statement, or EIS, review process. A favorable record of decision on the EIS would give broad federal approval to start construction and that is expected next June. FERC issued the draft Alaska LNG Project EIS in late June and took public comments on the nearly 4,000-page document until Oct. 3. The borough, which was granted intervenor status in the project docket by FERC, on Sept. 27 asked the agency to put together a supplemental draft EIS to correct what it called “foundational defects” in the current document. As an intervenor, the Mat-Su — along with the Kenai Peninsula Borough and the City of Valdez — has the right to challenge the final EIS and the record of decision in federal court. “Currently, while some of the information is sufficient, there is false and misleading information, at least in my opinion, that gets into the FERC record” for the project, Wilson told the AGDC board. Valdez leaders have also petitioned FERC and AGDC to give more credence to their city as a possible end-point for the Alaska LNG Project, arguing in filings that it was arbitrarily dismissed despite reviews of previous gasline proposals finding it to be the least environmentally damaging option. Mat-Su Borough Manager John Moosey said in an interview shortly after the draft EIS was made public that borough officials were satisfied with the document because based on an initial review it appeared to show Port MacKenzie “in a fair and more accurate light, and that’s really what we wanted.” Prior to that, Mat-Su officials had spent several years attempting to correct sometimes obviously false information that seemingly led project leaders to select Nikiski, on the Kenai Peninsula, as the site for the project’s multibillion-dollar LNG plant. For example, maps supplementing Alaska LNG Resource Report No. 10 that were submitted to FERC to outline the LNG facility location alternatives show Point MacKenzie, where the port is located, as being several miles north of its true location. The location pinpointed on the map has large tidal mud flats, which the port does not, and is on a parcel of private Alaska Native corporation land while the publicly owned port is on borough property. Mat-Su officials have said such errors shouldn’t be dismissed because they distort the baseline information regulators are using to make decisions on the project. Most of the information the borough has issues with is found in the project resource reports — the nearly 60,000 pages of environmental, socioeconomic and engineering data compiled by AGDC and the producer companies to support the project — according to Wilson. Those reports are the basis for the EIS. Nikiski was selected in 2013 when ExxonMobil was leading early work on the project in a consortium with BP, ConocoPhillips and the state. AGDC leadership has, through multiple management changes, stuck with Nikiski as the chosen locale for the massive LNG plant. Nikiski was chosen largely for its flat terrain and the ability to provide natural gas to the state’s four largest population centers along the pipeline route. The draft EIS largely affirms the conclusions of AGDC and the producers. The producer companies solidified their project endpoint by subsequently purchasing nearly 700 acres along tidewater in Nikiski to begin preparing for the LNG plant. Borough officials have changed their tune regarding the Alaska LNG draft EIS since talking with the Journal in early July after taking more time to carefully read through the details of the exhaustive report, according to Wilson. He and Mat-Su Port Commission member Randall Kowalke stressed to the board that they do not want to derail the project, wherever it would end, but they simply want their preferred location to be vetted with accurate information. Specifically, the draft EIS overstates the volume of ocean floor dredging that would likely be needed for a large Port Mackenzie LNG plant and loading terminal by 700,000 cubic yards, or about 55 percent, he highlighted. Those advocating for development at the port regularly point out that the dock is in deep water and strong tidal currents naturally scour the ocean floor in front of the dock. The draft EIS also overestimates the potential impacts to Cook Inlet’s endangered Beluga whales from a Port MacKenzie LNG plant, Wilson said. He referenced the U.S. Army Corps of Engineers’ comments on the document, which ask FERC to correct or remove information about the dredging and whale impacts. Additionally, the EIS greatly overstates the amount of wetlands in the largely undeveloped Port MacKenzie upland area, Wilson contended. It lists Port MacKenzie as having 1,591 acres of wetlands; Wilson said multiple reviews show that as being 430 acres too many. The amount of wetlands and subsequent required mitigation would be a significant consideration in choosing a site for the large development. “I’m not sure the process of one side submitting inaccurate information — some of it’s accurate but a lot of it’s not — and then we just publicly counter; I’m not sure that’s the most effective way,” he said to the AGDC board. “I would think there’s a way we could improve the process so that we don’t just keep going back and forth. It takes a lot of time and energy.” Interim AGDC President Joe Dubler said he and agency staff would take up Wilson on his offer to have a meeting and hash out the issues regarding data inconsistencies. However, Dubler did say the supplemental draft EIS would likely result in a “significant delay” of FERC’s decision on the project, which is now scheduled for June 2020. But he added whether or not a supplemental version is needed is ultimately up to FERC officials. “I’m a resident of the Mat-Su so I’m very interested in making sure that the borough’s happy with what we’re doing or at least not objecting to it,” Dubler said. As for other aspects of the project, AGDC continues to work with BP and ExxonMobil to lower the $43 billion cost estimate for the project, which was most recently calculated in late 2016. He and others at the corporation have said the estimate was made with conservative figures and design and construction methods in the LNG industry are constantly changing and could lower the project’s cost. In March BP and ExxonMobil both committed up to $10 million to help AGDC complete the project EIS. How much money AGDC will need will mostly depend on what additional information and study FERC requires to finish the EIS. AGDC’s commercial focus under Gov. Michael J. Dunleavy’s administration has shifted from seeking investment via LNG buyers to searching for those who want to take over the project once the EIS is done. As such, the corporation cut out much of its marketing work — and correspondingly 60 percent of its staff — in early July. “We’re looking for companies that are willing to invest at this stage of the project once we get the FERC order in June of 2020,” Dubler said. AGDC leaders are hopeful the work with the producers to lower the expected cost will help entice those investors, at which point the state would be a partner in Alaska LNG through the state’s ownership of gas resources. Elwood Brehmer can be reached at [email protected]

Tax initiative certified; legal opinion cites possible problems

The omnipresent issue of oil taxes could be on Alaska ballots next year. Lt. Gov Kevin Meyer certified the “Fair Share Act” Oct. 15. The Department of Law’s 13-page analysis of the citizens’ initiative questions how some portions of the bill would be implemented and whether or not some of it conflicts with existing state law but none of the potential snags warrant rejecting the initiative on constitutional grounds. They are “mainly post-enactment concerns,” wrote Attorney General Kevin Clarkson and Assistant AG Cori Mills, who signed the department’s opinion. The initiative sponsors led by longtime oil and gas attorney Robin Brena, who chairs the “Vote Yes for Alaska’s Fair Share” campaign, and state Sen. Bill Wielechowski, D-Anchorage, aim to raise roughly $1 billion per year in revenue for the state through higher oil production taxes. They contend the Fair Share Act would raise much-needed revenue for the state, which is still facing deficits approaching $1 billion while still keeping the tax regime in Alaska’s foundational industry competitive with other oil provinces. "The numbers show that Alaska will continue to be one of, if not the most profitable place in the world for oil companies to do business," Wielechowski said during an Oct. 16 press conference. Industry representatives contend it would pull money from the industry that would otherwise be invested in new projects to increase North Slope oil production. The initiative aims to raise production taxes on the largest and generally most profitable North Slope oil fields: Prudhoe Bay, Kuparuk River, and Alpine. Collectively, those fields account for nearly 90 percent of North Slope production. The base gross minimum production tax on those fields would increase from the current 4 percent to 10 percent and step with oil prices up to 15 percent at $70 per barrel under the initiative. The per barrel credit, a key provision of the current, contentious oil tax law known as Senate Bill 21 would also be repealed. The Department of Law opinion states that the initiative language is not written according to normal drafting guidelines and it is not clear exactly which sections of statute it attempts to change or repeal. “Because of these issues, the bill may not accomplish what was actually intended by the initiative sponsors,” according to the opinion. “It is also likely to lead to litigation over the meaning of the various provisions and questions of equal protection, due process, and the delegation of authority to Department of Revenue.” In addition to raising the production tax rate, the initiative also attempts to make public more tax information filed by the producers of those fields with the Department of Revenue to allow lawmakers and the public to know how the producers of a public resource are faring economically in the state. "Rather than partial information or misinformation, we need the best information to make decisions about our resources," Brena said regarding the disclosure of producers' tax filings. However, according to the opinion, a general statement in the initiative language that information relating to production tax calculations “shall be a matter of public record” means much in those filings would still be confidential due to exceptions in the Public Records Act for proprietary information or balance of interests. Brena said he was disappointed to see Law officials chose to "speculate" on the implementation of the law if it passes in their written review because that is not the department's role in the initiative process. "In regards to their speculation, it is what it is," he said, adding that the intent of the section aimed at making producer tax records public is clear. "I don't think there's any ambiguity in the (initiative)." The sponsors now have until Jan. 21, the start of the next legislative session to gather 28,501 signatures collectively from 30 of the 40 state House districts to get it on a 2020 statewide ballot, according to a letter to Brena from Meyer. ^ Elwood Brehmer can be reached at [email protected]

USDA announces preference for full Roadless Rule repeal

The U.S. Department of Agriculture is advancing toward a full exemption for the State of Alaska from the hotly contested Roadless Rule while a government watchdog group claims more timber sales in the Tongass National Forest will simply lead to more lost public money. On Oct. 15 the USDA released a summary of the options being examined in the draft environmental impact statement aimed at determining to what level Alaska’s national forests should be exempt from the 2001 Roadless Rule implemented by the Clinton administration. The full EIS has not been published, but the summary document indicates USDA officials have selected a full exemption as their preferred alternative from six options that ostensibly would allow for varying levels of development in the Tongass National Forest. A full exemption would open all 9.2 million acres currently classified as roadless to more development activities, such as mining, logging, and energy development, all of which are made easier with road access. The U.S. Forest Service, which manages the roughly 17 million-acre Tongass, is a sub-agency to the USDA and the Roadless Rule exemption would only apply to the Tongass; the Chugach National Forest in Southcentral Alaska historically has not been used for large-scale timber harvests. Local and national conservation groups said the land-use policy reversal ignores the economic transformation that has occurred in Southeast Alaska over the nearly 20 years since the Roadless Rule was put in place. They contend fishing and tourism — industries boosted by intact wild lands — have largely filled the void left by the region’s dwindling timber industry. “Repealing the Roadless Rule would cast aside years of collaboration and thriving businesses that depend on healthy forests, and usher in a new era of reckless old-growth clear-cut logging that pollutes our streams, hurts our salmon and deer populations, and spoils the forest and scenery,” Trout Unlimited Alaska Legal Director Austin Williams said in a formal statement. “This proposed rule is a complete about-face from the direction we should be headed and reflects the fact that special interests and not common sense are guiding this decision.” Gov. Michael J. Dunleavy and the members of Alaska’s congressional delegation, who have long called for the repeal of the Roadless Rule, said the USDA’s plan would help revitalize the economy in a region that long had a stagnant or declining population. “Today’s announcement on the Roadless Rule is further proof that Alaska’s economic outlook is looking brighter every day,” Dunleavy said in an Oct. 15 statement. “The ill-advised 2001 Roadless Rule shut down the timber industry in Southeast Alaska, wiping out jobs and economic opportunity for thousands of Alaskans. I thank the USDA Forest Service for listening to Alaskans wishes by taking the first step to rebuild an entire industry, putting Alaskans back to work, and diversifying Alaska’s economy.” Dunleavy often notes he first came to Alaska in the 1980s to work in Southeast logging camps. In early 2018, former Gov. Bill Walker requested the USDA and the Forest Service work on exempting the Tongass from the rule, which largely prohibited new road building in undeveloped national forest lands, after numerous attempts through the courts to get the state exempted or the rule repealed entirely failed. Walker’s administration assembled an advisory committee of Tongass stakeholders to issue recommendations on how the exemption should be crafted and their November 2018 report offered a suite of options for how the rule should be scaled back but it stopped short of pushing for a full exemption. Alaska Forest Association Executive Director Owen Graham said in an interview that the USDA’s move is welcome news, but he also noted that it would immediately open up just 165,000 acres of old-growth and 20,000 acres of young-growth stands for harvest without revising the Tongass Land Management Plan finalized in 2016. He characterized it as “a temporary bandage on a burst artery.” In round numbers, the acreage opened for timber harvests by the exemption would provide an additional 50 million board-feet of harvestable timber per year, according to Graham, who estimates more than 240 million board-feet per year need to be harvested from the Tongass to restore timber manufacturing in Southeast Alaska. Without those economies of scale, loggers will continue to ship raw logs out of Alaska — mostly to Asia — without value-added processing. The Forest Service currently offers timber sales authorizing the harvest of between 50 million and 60 million board feet per year from the Tongass. Robert Venables, executive director of the Southeast Conference, a regional development group that has long advocated for scaling back the Roadless Rule, wrote via email that a full exemption without more detailed compromise will likely continue the see-saw battle between development and conservation interests. “What has been missing, and is still missing, is a long-term sustainable plan for managing all of the Tongass resources,” Venables wrote. “Timber plays a small role within the resources needing to be accessed. The vast millions of acres of the Tongass will still never see a road or miss a tree. “My hope is for the rhetoric to wane and the sustainable planning to increase. It will be a long process…unfortunately, it will probably be a loud process with a lot of litigation.” Meanwhile, the Washington, D.C.-based fiscal policy group Taxpayers for Common Sense released a report Oct. 1 that contends the Forest Service has lost nearly $600 million — adjusted for inflation to 2018 dollars — from its Tongass timber sales over the last 20 years. According to the report, the Forest Service recovered on average just 5.4 percent of the costs it incurred to facilitate timber sales and harvests in the Tongass since 1999. Taxpayers for Common Sense totaled the Forest Service’s $632 million in costs for timber sale preparation, reforestation and road building and put that against the $33.8 million collected on a per board-foot basis by the agency from those harvests. Again, those figures are adjusted for inflation to 2018 values. Taxpayers Vice President Autumn Hanna said in an interview that the group is not opposed to logging the Tongass, but she stressed the costs should be scrutinized at a time when the federal administration is pushing to open more of the Tongass to logging. “This is a massive subsidy for the timber industry and we don’t think that this is justified in any way. The mission of our group is to look out for the public interest and make sure that we’re not just providing subsidies for industry,” Hanna said. An Alaska Forest Service spokesman referred questions to headquarters officials in Washington, D.C., who did not respond in time for this story. However, Graham said the report incorrectly characterizes road building, one of the more costly aspects of timber harvests in national forests. According to the group, building roads to access harvest areas cost the Forest Service approximately $200,000 per mile of road. He stressed that oftentimes roads needed to access timber are built too much more expensive multiple-use standards at the behest of other interests instead of being the very basic routes needed for timber trucks and equipment. Graham also contends that changes to environmental requirements for timber sales have also driven up the costs. “Environmental analyses have become extremely costly due to changes imposed by regulations and by the courts, but virtually all of these costly changes have resulted from pressure by environmental groups to reduce the scope of most projects and to require the agency to perform additional analysis,” he wrote in a response to the report. Taxpayers representatives though argue the issue is not new. They cite a 1984 Government Accountability Office report that found 42 percent of Tongass timber sales in 1982 were below-cost. The conclusions of the report should be factored into how the Forest Service implements any changes to the Roadless Rule in the Tongass, Hanna said. “If this program can be reformed and we can look at what is going to generate revenue and where it does make sense to sell timber, that’s what we should be doing first before we continue year after year to blindly follow a program that’s costing us hundreds of millions of dollars.” Elwood Brehmer can be reached at [email protected]

High hurdles remain on efforts to control health care costs

State health officials are promising better communication with their private sector counterparts while national lawmakers struggle to advance seemingly popular health care reforms. Alaska Department of Health and Social Services Commissioner Adam Crum and Sen. Lisa Murkowski recalled recent challenges and discussed their views on the future of health care policy Oct. 2 at the Alaska State of Reform health care conference held each fall in Anchorage. Crum acknowledged that the first 10 months of Gov. Michael J. Dunleavy’s administration was marked by “constant challenges and constant change.” While a sometimes-lengthy adjustment period is common when leadership turns over, the administration’s desire to quickly and drastically cut the state budget seemed to exacerbate the usual transition speed bumps. Crum said the department has asked a lot of those it works with in the health care industry over the past year. “We’re working to implement some significant reforms to address Alaska’s fiscal challenges and it hasn’t gone as smoothly as any of us would’ve liked,” he said. Crum vowed that over the coming year DHSS officials will work to improve health outcomes for Alaskans. The department will also be more responsive and hold monthly meetings with stakeholders on Medicaid initiatives. Alaska holds the dubious distinction of having the highest health care costs in the country, which is generally regarded as having the highest health care costs in the world. Recalling an administration mantra, Crum said, “We do like to say ‘Alaska is open for business,’ but the sad truth is that the high cost of health care is a weight holding back our businesses, our schools and a drain on our government.” At the same time, he noted that the industry was one sector of the state economy that continued to grow through the recent, roughly three-year recession, and state officials need to do their best to protect that growth while trying to cut costs. Across all industries Alaska has lost approximately 8,300 jobs since state’s labor force peaked in 2015. Those losses would be worse if not for the health care sector, which added nearly 4,000 jobs over the past four years and now accounts for more than 10 percent of total employment in the state, according to Alaska Department of Labor statistics. In February the Dunleavy administration proposed cutting upwards of $270 million from the state’s Medicaid budget in one year, which was approximately $680 million at the time. Provider groups said such a quick, steep cut could result in up to 8,000 job losses statewide, as the state’s Medicaid funding is also tied to large sums of federal matching funds. In March, when it became clear that most legislators were opposed to such a drastic reduction, DHSS officials said they could cut $102 million from the Medicaid budget over the coming year. Most of those savings were to come from 5 percent provider reimbursement rate reductions and getting more care for Alaska Natives fully covered by the federal Indian Health Service. The administration also chose to eliminate Medicaid coverage for adult preventative dental procedures against the urging of many lawmakers and providers who said the preventative coverage, which cost the state roughly $8 million per year, ultimately saves money by avoiding more serious and costly procedures down the road. DHSS also on Oct. 2 announced the settlement of a lawsuit brought against the department by the Alaska State Hospital and Nursing Home Association. ASHNHA filed the suit in July, arguing DHSS officials arbitrarily declared an emergency in order to implement the provider rate reductions quicker than can be done through the normal state regulatory process. The settlement calls for the department to pay back the 5 percent reduction to most providers for services rendered between July 1 and Sept. 30. Medicaid mental health providers can file claims for services offered between July 1 and Oct. 30, according to a statement from ASHNHA. Longer term, Crum said the state can save Medicaid dollars by addressing health more holistically, calling Medicaid the “engine” of health care reform in the state. As of August, more than 220,000 Alaskans, or nearly 30 percent of the state, were enrolled in Medicaid, according to DHSS figures. “We cannot cut, grow or change Medicaid without thinking about the other factors that determine our health as well as the impact that Medicaid has on the ecosystem of health care as a whole,” he told conference attendees. On the positive side, Crum highlighted the recent approval by the Center for Medicaid and Medicare Services of the state’s behavioral health Medicaid 1115 demonstration waiver. The waiver, approved Sept. 3, will provide the state more flexibility in what can be done to help Medicaid recipients in need of mental health and substance abuse treatment. The Legislature directed the department to draft the demonstration waiver program in the omnibus Medicaid reform package passed in 2016 as Senate Bill 74. Crum said the benefits of the behavioral health demonstration waiver will reach to Public Safety and other aspects of the state by reducing drug and mental health-related crimes, among other things. He also announced DHSS has contracted with Rich Albertoni of the national policy research firm Public Consulting Group to be a Medicaid advisor and strategist. The department hired Public Consulting Group for $100,000 in June to examine the feasibility of major proposed Medicaid program changes, including shifting some enrolled adults to private insurance plans that would be paid with Medicaid funds. Public Consulting experts found the private-Medicaid concept could work and gain federal approval, but the costs associated with implementing such a major shift are unclear. On the federal side, Murkowski said that while the Affordable Care Act, or Obamacare, focused on getting insurance coverage to as many Americans as possible, it didn’t address costs, and insurance premiums continue to be prohibitively expensive for many, particularly those in the individual market. “We know we have to address the drivers of cost,” Murkowski said. “We have to address the cost of care. We have to recognize that there is no simple fix; there is no silver bullet.” She praised the Lower Health Care Costs Act, sponsored by Health, Education, Labor and Pensions chairman Tennessee Republican Sen. Lamar Alexander and ranking committee Democrat Sen. Patty Murray of Washington as a means by which Congress can start getting to the roots of the problems in the nation’s health care system. Murkowski serves on the Senate HELP Committee. The 444-page bill attempts to address “surprise medical billing” for services rendered by out-of-network providers by limiting what can be charged for out-of-network care to the median price paid for a similar, in-network procedure. The Alexander-Murray bill also works to improve transparency around medical procedure pricing and increase prescription drug competition. Murkowski said it also includes provisions to limit the cost of air ambulances, which are a regular but often extremely expensive facet of life in Alaska. “It’s one of the first steps, I think, we’ve made at least on the Senate side in focusing on real substantive reforms that can be made when we’re talking about overall cost,” she said. Murkowski is a co-sponsor to Wisconsin Democrat Sen. Tammy Baldwin’s Fair Accountability and Innovative Research Drug Pricing Act. In spite of its alphabet soup-like title, the bill is rather simple; it would require prescription drug manufacturer’s to justify wholesale price increases of more 10 percent per year or 25 percent over three years to Food and Drug Administration officials on drugs with a wholesale cost of more than $100 for a month’s supply. The health care cost legislation moved out of the HELP Committee in early July on a bipartisan 20-3 vote, Murkowski noted in a subsequent Oct. 2 meeting with the Journal and Anchorage Daily News. “Lamar says, he says, ‘the only people that voted against it were (Sens.) Bernie Sanders, Elizabeth Warren and Rand Paul, so I figure we’ve got a pretty good product,’” Murkowski recalled from the July HELP vote. The bill is now up for consideration by the full Senate. The prescription drug legislation is still in the HELP Committee. “When it comes to affordability we’re making some headway but we’ve got a lot more work to do,” Murkowski said. She conceded, however, that even if the Senate is able to pass some bipartisan health care reforms in this Congress the impeachment proceedings of President Donald Trump in the House could make passing even popular legislation difficult for the next several months. There is hope that Alexander’s bill could pass towards the end of the session given he is retiring from the Senate and lawmakers often try to “send off” well-liked members of Congress, such as Alexander, by passing a bill of theirs, Murkowski added. ^ Elwood Brehmer can be reached at [email protected]

Alaska Airlines to end miles partnership with American

Finding ways to use your Alaska Airlines miles is about to get a little more difficult. Alaska and American Airlines announced Oct. 2 that they are scaling back their mileage plan partnership early next year. As of March 1, 2020, Alaska Airlines mileage plan members will no longer be able to earn miles on American Airlines international flights and they will no longer be able to use miles for award travel on any American flights. Alaska plan holders will still be able to earn mile-for-mile value on American flights with Alaska flight numbers to places in the Midwest, the East Coast and parts of Canada, according to the airlines. American Airlines was already Alaska’s lone remaining domestic mileage plan partner company, so the degraded mileage plan partnership means Alaska plan members will not have another major carrier on which they can use their Alaska miles. Steve Danishek, president of Seattle-based TMA Travel, said in an interview that he’s not aware of any other major domestic carriers that do not have another airline their loyalty plan members can fly on with earned miles. Alaska Airlines still has partnerships with 15 international carriers as well as in-state airlines Ravn and PenAir, which are under one owner. An Alaska Airlines spokesperson wrote via email that the partnership with American just doesn’t benefit either airline the way it did before Alaska purchased its West Coast rival Virgin America in 2016. “With our acquisition of Virgin America, we’re now the fifth-largest airline in the United States and can now fly more people where they want to go when they want to go,” the statement from Alaska said. Alaska Airlines insists the vast majority of its mileage plan members will not notice the change because it serves about 90 percent of the destinations that Alaska members earned or used miles through American Airlines flights on. When the 20-year partnership began Alaska was serving roughly 18 million passengers; last year it flew 46 million passengers, according to the airline. Alaska Airlines lost its other major domestic partner, Delta Air Lines in 2017, shortly after it purchased Virgin American as Delta began to make Seattle one of its hubs and became a more direct competitor with Alaska on West Coast routes. Alaska travel expert and author of the Alaska Travelgram blog Scott McMurren said American has been trying to divorce itself from Alaska since the Virgin America deal was made. He noted that the Department of Justice forced Alaska to amend some of its partnerships to allow the $4 billion deal to go through. “Ever since that time the partnership agreement (with American) has been degraded until it finally reached a tipping point most recently,” McMurren said. He also noted that American currently serves Anchorage with wide body Boeing 787 aircraft and recently announced nonstop flights between Fairbanks, Dallas and Chicago will start next May for the summer travel season. However, McMurren said given that Alaska Airlines now has upwards of 115 destinations of its own, travelers from its namesake state likely won’t feel the impact of the slow break up with American very often. Danishek said Alaska’s domestic partnership situation is somewhat part of the natural evolution as airlines grow. He pointed to Delta, which has ended many of its marketing arrangements and instead has chosen to purchase minority shares of smaller airlines that its mileage plan members can fly on with Delta miles. “The airlines will do better revenue-wise if they take all the mileage members and put them into their own planes because they don’t pay anything” to the partner airline, Danishek said. “So the fewer choices they give the mileage members — however they do it — the more money they keep. So there’s a revenue side to cutting loose partners.” Danishek said because Delta recently purchased a portion of Chile-based Latam Airlines he expects Alaska’s partnership with Latam will not be renewed when it expires. “Delta kind of declared war and they’re trying to clean Alaska’s clock any time they can,” he said. Danishek added that he suspects the West Coast battle between Alaska and Delta has started to eat into Alaska’s mileage plan membership somewhat, but overall the customers benefit from the competition as fares are kept in check. Elwood Brehmer can be reached at [email protected]

Most fund earnings splits still leave state with deficit

Nearly every option to change the Permanent Fund dividend being considered by lawmakers still leave the state with significant yearly deficits, according to the Legislature’s budget analysts. Legislative Finance Division analyst Alexei Painter told members of the Legislature’s Bicameral Permanent Fund Working Group on Oct. 7 that based on the current budget and revenues, the only way to break the state’s seven-year streak of deficit spending is to make the dividend 25 percent of the total annual draw from the $65.1 billion Permanent Fund. That solution to the State of Alaska’s ongoing deficits, Painter noted, is what the Senate passed in March 2017 in an early version of Senate Bill 26. That bill, championed by former Gov. Bill Walker, ultimately established an annual 5.25 percent of market value, or POMV, draw on the Permanent Fund from which the state could support government services and pay PFDs without violating basic financial management principles for endowment-style funds. However, the SB 26 that passed the Legislature and became law in 2018 did not address the contentious PFD calculation, which was a major political hurdle to establishing the POMV draw that most lawmakers felt needed to happen as the state’s savings accounts dwindled. Legislative leaders formed the eight-member Permanent Fund Working Group in June to analyze how the state should manage its giant nest egg over the long term when Alaska’s traditional oil revenue — and state savings from it — is generally on the decline. Working group co-chair Sen. Click Bishop, R-Fairbanks, said the group will hold another meeting soon to discuss a summary report and present that information to House and Senate leaders. Gov. Michael J. Dunleavy had said he would call a special session to address the PFD this fall — a move that could finally bring the longstanding issue to a head with his stated demand that the Legislature appropriate additional money from the fund to pay an additional $1,300 to satisfy the current statutory formula — but that has been complicated by a drawn out process to fill the seat of late Anchorage Republican Sen. Chris Birch, who died suddenly in early August. A “25-75” split of Permanent Fund POMV revenue between dividend payments and government support would make $773 million available for PFDs in the upcoming 2021 state fiscal year based on the current state budget and financial market forecasts, according to Painter. The remaining $2.3 billion from the nearly $3.1 billion POMV draw would go into the state’s General Fund. The $773 million would equate to dividends of about $1,100 per Alaskan. “It’s roughly a balanced budget if you have a dividend of this size and no other policy changes,” Painter said. The recently paid $1,606 PFDs required an appropriation of just more than $1 billion; that included a $172 million appropriation from the Statutory Budget Reserve Fund that zeroed out that savings account. A dividend calculated with 25 percent of the overall Permanent Fund POMV draw would leave the state with a small surplus of $56 million next fiscal year if the budget grows with inflation and the state’s oil revenue forecast is correct, according to Legislative Finance modeling. Still, a clause in SB 26 that automatically reduces the annual draw to a 5 percent draw — calculated from the Permanent Fund’s average value over the first five of the previous six years — would combine with changes in oil-based revenues to leave the state with deficits in the $100 million to $200 million range through 2026 based on the current budget and inflation projections. If lawmakers were to revert back to the historic dividend calculation, which is approximately half of the five-year average of the Permanent Fund’s annual earnings, the state would have a deficit of nearly $1.2 billion next year, growing to more than $1.7 billion by 2023, Painter said. It’s that large projected deficit that leads many legislators to say the current PFD and POMV statutes are “in conflict.” Backfilling the deficit with additional money beyond the 5.25 percent draw from the fund’s nearly $16 billion Earnings Reserve Account, which is available for the Legislature to spend with a simple majority, would violate endowment fund management principles and could lead to the degradation of the fund’s real value over the long-term. The Alaska Permanent Fund Corp.’s advisor firm Callan and Associates projects the fund will grow by about 7 percent in fiscal 2020. A draw beyond the approved 5.25 percent could then eat into the fund’s ability to grow with inflation. “They’re both equally weighted laws,” said Sitka Republican Sen. Bert Stedman, a co-chair of the Senate Finance Committee. “Both laws are subject to change by the Legislature, but what we can’t change is the Constitution. So we just need to be careful when we talk about following the law.” Dunleavy and legislators in favor of paying PFDs based on the statutory formula have stressed a need for the state to “follow the law” in regards to paying dividends. Dunleavy has proposed paying dividend amounts — and drawing beyond the 5.25 percent from the fund — forgone over the previous three years when the amount was first by Walker with a veto and then Legislature through the appropriations process. Stedman, an investment manager by trade, has been a leading voice in the Legislature against making additional ad-hoc draws on the fund for fears they would damage its long-term value. He and some other lawmakers, including Bishop, have suggested the current POMV draw rate might be too high as well. Palmer Republican Sen. Shelley Hughes for years had been one of the lawmakers advocating for full PFD payments and significant budget cuts to resolve the deficit, but she recently amended that position. A majority of legislators, urged on by significant public opposition to Dunleavy’s plan to cut more than $1 billion out of the state’s roughly $4.5 billion unrestricted General Fund budgets, have said the state cannot absorb cuts of that size and still provide the services most of the public expects. With those same legislators by and large opposed to additional draws on the Permanent Fund and taxes being an ever-politically sensitive topic, recalculating the dividend formula is a focal point of the budget debate. Hughes said during the meeting that a formula leading to somewhat smaller PFDs makes sense but to make it palatable government should not receive more from the fund than the public does. “Let’s make it fair and agreeable and go 50-50,” she said. “I am and expect to get beat up a bit by folks in my district and across the state that are supporting the historic (PFD) formula and have looked for me to carry that flag but I think we have to be realistic and we do have a mathematical problem and we have to realize that the historic draw is eroding the growth of the fund and we do have to make a change.” Stedman and Finance co-chair Sen. Natasha von Imhof, R-Anchorage, proposed legislation last spring to change the PFD formula to be a 50-50 split of the POMV draw, but it did not ever come before the committee for a vote. An even split of the POMV draw would provide more than $1.5 billion for both state services and dividend payments next year. Individual dividends would be in the $2,300 range — instead of about $3,000 under the current formula — and gradually grow to more than $2,500 over several years, according to Legislative Finance figures. However, lawmakers would still have to resolve a roughly $700 million deficit in 2021 and that deficit would likely grow to more than $1 billion by 2024 without additional measures, Painter said. While a 50-50 POMV split would still leave lawmakers with a lot of work to balance the budget, Hughes characterized it as a “grand compromise” that could be a big step towards resolving the issue that has dominated Alaska politics for four years and counting. “We have many important things in the state to work on and we’re getting wrapped around the axle on this one issue and it’s keeping us from addressing other problems,” she said. Bishop said Painter’s modeling indicating that nearly every change to the PFD being discussed still leaves the state with a deficit is a signal that it’s time for Alaska to look for new cash flows. For several years he has proposed the state reinstitute a small employment head tax to help fund school maintenance and construction. “Personally, it’s my opinion that we need to continue to look at new forms of revenue because I believe Alaska has a 20- to 30-year window to diversify our economy and the sooner we get ahead of the curve the better off Alaska’s going to be,” Bishop said. Elwood Brehmer can be reached at [email protected]

Consultants: $1.9B Port of Alaska price could be halved

Consultants tapped to take a comprehensive look at Anchorage’s long-challenged port renovation believe a third or more can be shaved off the project’s current ballpark price of approximately $1.9 billion. A draft report issued to the Anchorage Assembly recommending how city officials should move forward with the Port of Alaska modernization project says between $600 million and $800 million could be saved by limiting new construction to what is truly needed and shifting to a new contracting and design philosophy. The 97-page report was authored by Roe Sturgulewski, a vice president with the project management firm Ascent PGM. Former Anchorage Mayor and Alaska Sen. Mark Begich and Schawna Thoma, both of the consulting company Northern Compass Group, assisted in the port evaluation. Sturgulewski said during a Sept. 19 presentation to the Assembly’s Enterprise and Utility Oversight Committee that the $1.9 billion price tag — a shock to many observers when it was made public early this year — includes upwards of $300 million simply for cost escalation since the design concept was first drafted in 2014. Ascent and Northern Compass were contracted by the Assembly in April to help the city find ways to lower the cost of the project and identify funding options. In July, the Assembly approved a $42 million contract to start construction of a new petroleum and cement dock next year. The work will be the first major development at the port since construction was halted in 2010 when problems installing steel sheet pile led to widespread damage in the structure that was to be the primary dock support. The Municipality of Anchorage has since sued and settled with several contractors that worked on the project and is currently suing the U.S. Maritime Administration, or MARAD, in Federal Claims Court for the agencies role in overseeing the project that saw roughly $300 million of state and municipal money spent with little to show for it. The companies that use the port urged against starting work on the petroleum and cement dock largely out of concern that municipal officials would raise tariffs and fees at the port to cover at least some of the shortfall for the remainder of the petroleum and cement dock. The city had approximately $60 million allocated to the port at the time; the new dock is expected to cost more than $200 million. While the Assembly ultimately approved the contract at the administration’s request, Sturgulewski said at the Sept. 19 meeting that, “There’s a common goal of wanting to solve the port issue, so there’s a good foundation for moving forward.” Design changes and add-ons requested by the port user companies totaled roughly $400 million of the $1.9 billion overall cost based on the administration’s estimates, he also said. Sturgulewski also confirmed that another element adding significantly to the $1.9 billion estimate — a figure no one involved believes is feasible — is that the administration used the basic design criteria from the petroleum and cement terminal and extrapolated them out to other facilities, such as the large cargo terminals, that need to be upgraded. The petroleum and cement dock was designed to have a 75-year life and be extremely seismically resilient; to the point some engineers have said it’s overbuilt. “It was a very conservative approach,” Sturgulewski said. “It was useful to bound the issue but I think it’s definitely overstated what the actual costs are and that could be in the order of hundreds of million of dollars difference.” He suggested some other alternatives to drastically cut costs, such as building just one new cargo terminal instead of replacing both that are currently used. Shippers Matson and TOTE insist their schedules are set out of necessity and a result of many logistical issues, from when grocery stores want their fresh products to longshoremen’s union contracts. Both Matson and TOTE call on the port each Sunday and Tuesday and the two current cargo terminals are largely unused the rest of the week. Some Assembly members have said building one cargo terminal and compelling the shippers to adjust their schedules — with significant lead-time — warrants serious consideration. “You can cut the cost of the program in half, I believe, and that includes where we are at in terms of the PCT,” Sturgulewski said. Begich stressed that city officials need to move towards a maximum price design-build contracting approach. They also need to determine as much as possible what funding is available from the state and federal governments or other sources and build to that funding level. “You need to have a realistic plan of finance; not based on what you think the project is going to cost, but what you can actually get,” Begich said. Municipal Manager Bill Falsey said, as did Assembly members, that he was still reading through the lengthy report, but most of the suggestions were well received. He said he wanted to learn more about how the maximum price contracting concept would work with the inherent uncertainties of a large construction project. Sturgulewski asked for feedback from stakeholders that would be incorporated into the final report by Oct. 4. ^ Elwood Brehmer can be reached at [email protected]

Oil Search pushes up production date for Pikka

The company developing one of the largest oil prospects on the North Slope has applied with state regulators to change its plans and start producing oil a year early. Oil Search Alaska submitted a modification to its July 2019 Plan of Operations for its Nanushuk project in the Pikka Unit on Sept. 26 with the Division of Oil and Gas. The amended plan calls for some changes to the layout and size of the project’s three drill sites near the Colville River delta and moving the tie-in pad that will connect to ConocoPhillips’ Kuparuk River Unit that will link the project’s pipelines to the rest of Slope oil infrastructure at a site that won’t interfere with existing operations. But it also requests changes to the Nanushuk drill site B and associated pipelines that will allow the company to begin producing up to 30,000 barrels per day from the pad in 2022. Alaska leaders for Australia-based Oil Search had previously pegged late 2023 for startup of its Nanushuk oil project, which will require nearly $5 billion of investment and could produce upwards of 120,000 barrels of oil per day at its peak. According to the plan modification document, Oil Search hopes to initially transport liquids produced from drill site B to the Kuparuk Central Processing Facility-2 via pipelines that will pass through the Nanushuk Processing Facility site while it is being constructed. When its own Nanushuk Processing Facility is operational in 2023 or 2024, Oil Search will shift from sending unprocessed liquids to the Kuparuk facilities to sending sales-quality oil through them for shipment down the Trans-Alaska Pipeline System. The project changes will increase its overall gravel footprint by approximately 0.2 acres and add roughly 5,000 cubic yards of fill in total, according to the documents submitted to DOG. An Oil Search Alaska spokeswoman did not respond to questions about the changes in time for this story. This winter the company plans to conduct additional appraisal drilling and begin laying gravel for roads and work pads, Oil Search leaders have said. Oil Search received a favorable environmental impact statement record of decision for the project from the U.S. Army Corps of Engineers last May. The company reached a deal with Armstrong Energy in October 2017 to buy into Pikka and take over as the project operator for $400 million. This year the company exercised an additional $450 million option to completely buy out Armstrong and GMT Exploration Co., a silent working interest owner in Pikka, to take a 51 percent stake in the Unit. Spanish major Repsol holds a 49 percent interest in the Pikka Unit and the Nanushuk project. Most of the oil would come from its namesake shallow, conventional Nanushuk formation. It has been the source for smaller nearby discoveries by ConocoPhillips as well as Conoco’s Willow project in the National Petroleum Reserve-Alaska, which is similar in scale to Pikka but a couple years behind in the development process. The company announced Oct. 1 that current Oil Search Alaska President Keiran Wulff will take over for retiring Managing Director Peter Botten in February. The company’s current chief operating officer for its Alaska unit, Bruce Dingeman, will replace Wulff as its Alaska President. Elwood Brehmer can be reached at [email protected]

Palmer mine exploration permit on hold pending result of Hawaii water case

The tentacles of a legal battle over wastewater discharges in Maui have reached Alaska. Department of Environmental Conservation officials issued letters on Sept. 9 informing stakeholders that a wastewater discharge permit key to future exploration at the Constantine Metals Resources’ Palmer copper and zinc project near Haines mine would be remanded to Division of Water staff for review. Acting Division of Water Director Amber LeBlanc wrote to Southeast Alaska Conservation Council scientist Guy Archibald that the potential impact to Alaska wastewater discharge permits would be evaluated over approximately 90 days pending the outcome of a case now before the U.S. Supreme Court that originated in Hawaii. After that time, the division could uphold, revise or revoke Constantine’s Waste Management Permit for its Palmer exploration plan, according to LeBlanc. The Southeast Alaska Conservation Council, or SEACC, is one of several groups and individuals who requested an informal review of the project. Archibald said in an interview that DEC issued the wrong permit to Constantine altogether. He and Gershon Cohen, a project director for the group Alaska Clean Water Advocacy, argue the state agency should’ve examined the Palmer exploration plan under a more stringent Alaska Pollutant Discharge Elimination System Permit. They claim the Waste Management Permit for groundwater discharges is insufficient because the wastewater will quickly resurface in nearby Glacier Creek, which feeds the salmon-producing Klehini and Chilkat rivers. “The Waste Management Permit they issued basically allowed water degradation for Glacier Creek,” Archibald said, and does not analyze different options for managing wastewater at the site. Over the past year, Vancouver-based Constantine has been pursuing state approvals for its underground exploration plan. The company hopes to excavate a 2,000-meter tunnel that would serve as a space to conduct exploration drilling and collect geotechnical and hydrologic data, according to the plan submitted to the Alaska Mental Heath Trust Land Office. The Palmer project is located on Alaska Mental Health Trust property. Hawaiian connection The link between the State of Alaska wastewater permits and a Ninth Circuit Court of Appeals ruling in the case of Hawai’i Wildlife Fund v. County of Maui comes via the Clean Water Act. In many states, the Environmental Protection Agency administers the National Pollution Discharge Elimination System Program as required by the Clean Water Act. In Alaska, the state took primacy of the program starting in 2008, which allows the Department of Environmental Conservation to oversee the federal pollution discharge elimination system requirements, so long as the state standards are at least as stringent as the EPA’s. In the Maui case, the Hawai’i Wildlife Fund and attorneys for the national environmental law firm Earthjustice contend the County of Maui for decades has been polluting near shore ocean waters by injecting millions of gallons of treated sewage water into the groundwater. The contaminated water — pumped into four injection wells that are about 200 feet deep and roughly a half-mile from the ocean — then resurfaces through the shallow ocean floor near a local beach. The wastewater effluent has damaged coral and other marine life in the area, according to Earthjustice. The groups brought a lawsuit against the County of Maui and in 2014 a federal District Court of Hawaii judge found the wastewater injection well operation violates the Clean Water Act because the wastewater seeping up through the ocean floor can be traced back to the injection wells. The county’s appeal to the Ninth Circuit Court of Appeals was rejected as well. A three-judge panel of the federal appeals court ruled in February 2018 that the water injection wells are indeed “point sources” that discharged polluted water into a federally regulated navigable water. That makes the wells subject to National Pollution Discharge Elimination System Program regulation, the 2018 ruling states. “Agreeing with other circuits, the panel held that the Clean Water Act does not require that the point source itself convey the pollutants directly into the navigable water,” Ninth Circuit Court Judge D.W. Nelson wrote. “The panel held that the County was liable under the Act because it discharged pollutants from a point source, the pollutants were fairly traceable from the point source to a navigable water such that the discharge was the functional equivalent of a discharge into the navigable water, and the pollutant levels reaching navigable water were more than de minimis.” Had the courts ruled that wastewater is a non-point source pollutant, it would be outside the purview of the Clean Water and instead be subject to state regulations. Maui County further appealed the case to the U.S. Supreme Court and oral arguments are scheduled for Nov. 6. Palmer plan Constantine’s water management plan for Palmer states that groundwater expected to seep into the tunnel would be collected and run through a water management facilities and ponds at the floor of the Glacier Creek valley before being discharged back into the ground via diffusers about six feet below the surface. The two settling ponds are designed to handle 500 gallons per minute and hold up to 358,500 gallons each for 12 hours to allow solid materials to settle out of the water before it is sent back underground. The ponds would have surface spillways to release excess water if they are inundated due to melt water, rain runoff or unexpectedly high levels of seepage into the tunnel, according to the water management plan. Alaska Clean Water’s Cohen wrote in a July 25 request for an informal review by DEC that Constantine’s water management plan does not account for treating the water for residue from explosives used in the metal exploration work or hydrocarbons released from vehicles working in the tunnel or drilling compounds, “which will quickly make their way to fish-bearing segments of Glacier Creek and the Klehini River due to the connectivity of the groundwater to nearby surface waters.” Cohen said in an interview that the wastewater will quickly percolate through the loose glacial till soil that makes up the bottom of the valley and end up in the streams still carrying the contaminants. He wrote further in the review request that analysis of the area’s groundwater has been “wholly inadequate.” “We have no confidence that the operator [or the Department] has any credible knowledge of the eventual fate of the discharges, which will affect nearby salmon habitat and possibly the drinking water wells of nearby residents,” Cohen wrote. DEC staff wrote in a July 17 response to comments on the Waste Management Permit that the permit establishes surface water quality triggers at three sites and includes water quality monitoring at four sites “to assure and document the absence of a surface water discharge.” As it stands, Constantine’s Waste Management Permit is good through mid-July 2024. Constantine Vice President of External Affairs Liz Cornejo said in an interview that the permit delay has not impacted the company’s operations, as it was not planning to start work on the tunnel and other facilities until next year. Cornejo also wrote via email that the company agrees with DEC’s decision to not move forward with the permit, and subsequent construction, until the Maui case is resolved. “Construction of the underground ramp [tunnel] will not begin and no water discharge will occur until we have DEC support and approval,” she wrote. Alaska weighs in Alaska Attorney General Kevin Clarkson joined 19 other state attorneys general in supporting Maui County through an amicus brief filed with the Supreme Court. The states argue the Ninth Circuit’s decision drastically expands the Clean Water Act and would place a huge burden on states, such as Alaska, that have taken on pollution discharge elimination programs. “All told, the ‘fairly traceable’ standard threatens to drown state environmental protection agencies under a wave of newfound responsibility, requiring them to process and issue a swell of technologically challenging and complex NPDES permits to sources that have never before been subject to that process. Handling this flood of new permits will leech already scarce resources from other programs better equipped to address groundwater pollution,” the Supreme Court brief supporting Maui states. DEC spokeswoman Laura Achee said department officials aren’t sure about the implications of the Maui case because it’s still unresolved and therefore they aren’t commenting on issues relating to Constantine’s permit. Further complicating matters is a tentative settlement in the case approved by the Maui County Council on Sept. 20. Earthjustice spokeswoman Liz Trotter said the settlement would have county officials find another way to dispose of the wastewater, pay reclamation fees and most importantly, it would mean the Ninth Circuit’s ruling stands. However, Maui County Mayor Michael Victorino has yet to sign off on the agreement, which is required for it to be valid per the county’s procedures. Victorino’s spokesman Brian Perry said the mayor is weighing his options and has not yet decided whether or not to approve the settlement. “He’s doing his due diligence and giving the case the attention it warrants,” Perry said in a brief interview. He said the wastewater injected into the wells is “a step below drinking water” and the half of it not put into the ground is used by area farmers and property owners for irrigation. County officials view the issue as one over home-rule, not a debate over environmental laws with national implications. “Our concern is our own wastewater system, period,” Perry said. He added that the county would like to reuse all of the water as Earthjustice wants, but developing such a system could be prohibitively expensive. “The water has to go somewhere because people aren’t going to stop using the bathroom,” Perry said. Elwood Brehmer can be reached at [email protected]

Permanent Fund Corp. allocates $200M for in-state investments

The Alaska Permanent Fund Corp. is partnering with one of Alaska’s premier investment firms to put some of the capital from its $65 billion namesake fund to work closer to home. Anchorage-based McKinley Capital Management LLC will manage half of the newly formed $200 million Alaska Investment Program, which will seek in-state investments for the Permanent Fund, according to a Sept. 20 APFC statement. The Alaska Investment Program is a means of supporting growing businesses in the state but Permanent Fund Corp. CEO Angela Rodell emphasized that any investments made with the $200 million won’t get preferential treatment just because they’re in Alaska. “From my standpoint, our No. 1 and only goal is really to beat that private equity benchmark, so (the Alaska Investment Program) has to be contributive to the fund value in a positive way,” Rodell said in an interview. As with most investment funds, the APFC has return benchmarks, or standards, that its managers are expected to meet and ideally exceed. Those benchmarks vary for each type of investment and typically correlate to the amount of risk an investment entails. The private equity, or capital, investments that will be made with the $200 million demand a higher rate of return than do real estate purchases, for example, because they require accepting more risk of failure. The APFC uses a private equity benchmark established by the international firm Cambridge and Associates, which set a return goal of 12.7 percent for the just completed 2019 state fiscal year. The Permanent Fund’s roughly $8.7 billion of private equity investments beat that by netting a 19.2 percent return in fiscal 2019, according to the 2019 APFC Annual Report. Rodell said she is waiting to see what sectors of the economy the investment capital will be deployed into as the APFC Board of Trustees put few sideboards on the program beyond the return objectives and Alaska focus. “I think we’re all just really curious to see where this money is going to land and be put to work, but our goal is to make money for the (Permanent) Fund,” she said. The APFC Board of Trustees passed a resolution in September 2018 directing staff to establish the Alaska Investment Program. APFC staff had been working to set up the program in the year since, and Rodell, a former commissioner of the Alaska Department of Revenue, noted that the Alaska program will require a long-term view. She expects it will take upwards of five years just to deploy the $200 million, which says nothing about when those investments will start generating a return. “We will lose money to begin with; that is normal; that is not uncommon,” said Rodell, adding that private equity investments often follow what is called a “J-curve.” “You have to spend a lot of money before you start to see that positive cash flow return and return on investment, so the challenge with this is everybody has to be really patient. It’s not going get deployed in six months and its not going to be making money in eight months and I think that will be a challenge for people because we like our instant gratification.” McKinley Capital CEO Rob Gillam said working with the APFC is nothing new for his company, as McKinley has managed Permanent Fund assets for 22 years. McKinley leaders are excited to invest in the state because they are “bullish on Alaska,” Gillam said. He stressed that the Permanent Fund trustees’ collective decision to devote $200 million to Alaska is an indicator they believe there’s money to be made in the state, as it could’ve been put towards projects literally anywhere else on the planet. The $100 million McKinley will manage will be focused on small to midsized investments in the $2 million to $15 million range with high growth potential, according to Gillam. While no Alaska investments have been made yet, Gillam said he sees them being largely in what he calls “new Alaska,” or sectors such as renewable energy, technology and logistics, to name a few. “Those are the kinds of companies that generally don’t have access to capital and we’re going to fill that role,” he said. “There’s an enormous amount of opportunities out there.” Gillam added that McKinley leaders understand the situation a lot of Alaska entrepreneurs looking for funding face because their company — founded in 1990 by Gillam’s late father and Alaska magnate Bob Gillam — didn’t have access to capital either. “When we founded McKinley Capital 30 years ago we got exactly zero capital support from anyone and fortunately we were able to scrape together a living and build a business. Now we’re a very global business with clients all over the world and investments all over the world from places like Botswana and Nigeria to the New York Stock Exchange,” he said. “It’s wonderful that there is now an opportunity to have capital available to Alaskans that wasn’t available 30 years ago.” McKinley now manages a roughly $5 billion investment portfolio. North Carolina-based Barings LLC, a subsidiary of the financial and insurance giant MassMutual, will manage the other $100 million in the Alaska Investment Program in private credit and infrastructure sectors. In the coming weeks McKinley will put an Alaska Investment Program application portal on its website. When the money is eventually invested and hopefully starts generating strong returns, Gillam said it will create what he sees as a “virtuous cycle.” “Oil and gas come out of the ground, a royalty goes into the (Permanent) Fund, they invest it, they generate a return, the return gets, in-part, paid back to Alaskans and now when this royalty gets invested in place like Alaska — a little bit — and a return is generated and money goes back to Alaskans,” he said. Technology allows McKinley to invest successfully worldwide, but being an Alaska-based firm provides the advantage of knowing what’s going on in the state, and what opportunities arise from that, first. “There’s a little of an ‘it’s raining out there’ kind of attitude (about the Alaska economy) and we would say that there are as many opportunities in Alaska today as there were a decade ago and we just need to start looking for them,” he said. “Look at our business. Nobody would’ve thought you could’ve built a Wall Street firm 30 years ago in Anchorage, Alaska, and here we are with offices in New York and Chicago and Abu Dhabi. What business next door to you or down the street or across town or in Fairbanks or in Juneau is being built today where somebody needs growth capital that could be the next McKinley Capital 30 years from now? There’s a lot of them and hardworking people and it’s our job to find them.” Elwood Brehmer can be reached at [email protected]

Exploration resumes for gold west of Cook Inlet

A new company is restarting exploration at a long-dormant gold prospect on the west side of Cook Inlet. Newly formed HighGold Mining Inc. started drilling at the Johnson Tract prospect in late August. The Vancouver-based mining junior also announced Sept. 23 that it had started trading on the Canadian TSX Venture Exchange. HighGold CEO Darwin Green said in a formal statement that the company is starting with approximately 2,000 meters of total drilling in eight to 10 boreholes. The data derived from that work, combined with historic drilling results, will inform the first official resources estimate of the prospect, according to Green. That document is expected to be completed early next year. The Johnson Tract prospect sits on Cook Inlet Region Inc., or CIRI, in-holdings within the boundaries of Lake Clark National Park and Preserve. Last year CIRI leased 20,900 acres of the property to Vancouver-based Constantine Metal Resources Ltd. for 10 years. Several Southcentral Alaska Native village corporations also own surface rights to land there, while CIRI holds the subsurface mineral rights to those areas. “CIRI prides itself on projects that deliver economic benefits to our shareholders while respecting and preserving the land,” CIRI CEO Sophie Minich said when the Constantine lease agreement was announced in July 2018. “With Constantine’s excellent reputation for responsible mineral exploration and development activities, we know we have chosen an ideal partner.” CIRI spokesman Ethan Tyler wrote via email that the Southcentral region Alaska Native corporation prioritizes striking a balance between developing its resources and protecting land for future generations. He added that the Johnson Tract prospect is one of CIRI's numerous land selections with known mineral potential and it has been the company's intent to develop those prospects when the economics make sense. "HighGold's management team and board of directors are a proven technical team and have a track record as trusted operators with a reputation for safety and quality work," Tyler wrote. "This, combined with CIRI's reputation of excellence and land stewardship, demonstrates CIRI's mindfulness to any public concerns regarding resource development." HighGold's Green has also been part of Constantine's executive leadership, with a focus on exploration. The multi-metal Johnson Tract deposit sits about 10 miles from tidewater near Tuxedni Bay, about 125 miles southwest of Anchorage. HighGold is a spin-out of Constantine, which is also exploring the Palmer copper prospect in the Chilkat River valley north of Haines. HighGold also took over Constantine’s Munro-Croesus gold project in eastern Ontario. According to the mining company, the lease with CIRI calls for annual payments of $75,000 for the first five years, doubling to $150,000 per year for the second half of the term. HighGold is also required to invest $10 million into the Johnson Tract prospect over the 10 years, with $7.5 million of that coming in the first six years. If the decision is made to ultimately build a mine — currently envisioned as an underground operation — CIRI could obtain a 25 percent interest in the project at that time, according to HighGold. The Alaska Native regional corporation would also receive net smelter royalties of 2 percent to 4 percent if a mine is developed. The exploration company acknowledges Johnson is a relatively small prospect, but one that has the potential for very high grades of ore based on the prior drilling work. Anaconda mining company drilled 88 holes at Johnson totaling more than 26,800 meters between 1982 and 1995 and a September HighGold investor presentation calls the area a regional opportunity “with multiple underexplored satellite prospects.” The prior drilling revealed gold resources in excess of 10 grams per metric ton in many areas, as well as high-grade zinc and copper ore, according to HighGold. If developed, the mine would require an access road to a port, both of which would need to be built. The CIRI leases also come with access easement rights and the site has an airstrip built for the earlier exploration work, according to the company. Elwood Brehmer can be reached at [email protected]

Alaska Railroad seeks to overhaul Seward cruise terminal

The Alaska Railroad is looking for a partner to help it update and expand its cruise ship facilities in Seward in order to meet ever-increasing demand in the state’s tourism industry. Railroad officials issued a request for qualifications, or RFQ, on Sept. 16 to start the process of searching for a project developer for what is estimated to be an approximately $60 million to $70 million undertaking. Specifically, the state-owned railroad wants to replace its current passenger vessel, pile-supported dock in Seward, which is 736 feet long and was built in 1966, with a floating dock capable of accommodating two vessels up to 1,080 feet in length. The plan also calls for building a new cruise passenger terminal building with space to accommodate up to 1,500 people. It’s all intended to meet the railroad’s needs for moving cruise passengers from port at the head of Resurrection Bay to other Southcentral destinations for the next 50 years. Railroad officials expect construction to begin in late 2021 and continue into the fall of 2023. However, the current facilities would need to be available for use while construction was ongoing during the May-September cruise season, according to the railroad’s project schedule. Seward is the most popular Southcentral cruise destination; cruise ships called on the small town 95 times in 2019, according to the Alaska chapter of the Cruise Lines International Association. That’s up from 2015 when 11 ships made 64 calls on Seward, according to a railroad passenger report drafted in 2017. More broadly, Alaska’s tourism industry has boomed since visitor numbers bottomed out following the Great Recession roughly a decade ago. Overall railroad passenger ridership — driven largely by visitors arriving or leaving Alaska’s Railbelt by cruise ship — increased 5 percent in 2018, according to the Alaska Railroad’s annual report. The total number of train passengers has grown steadily each year for a 13 percent increase since 2014. Statewide, leaders of the Southeast Conference, a regional economic development organization, reported that more than 1.2 million tourists visited Alaska by cruise ship this year, for 7 percent year-over-year growth. The number of cruise passengers traveling through Seward has grown in recent years as well, from 122,000 in 2013 to nearly 185,000 in 2016, according to the 2017 passenger report. Cruise passengers regularly disembark vessels in Seward, Whittier or Anchorage and board the train to Anchorage or Fairbanks where they take flights back to their home destinations. The railroad frequently contracts to pull passenger cars owned by cruise companies on those routes. What the cruise passenger facility overhaul means for the railroad’s adjacent and idled coal terminal is unclear; railroad officials could not be reached with questions in time for this story, but the need to upgrade passenger infrastructure that sits alongside now unused freight facilities is indicative of a gradual shift in the railroad’s business and Alaska’s economy as a whole. The railroad’s freight business, which is still its primary revenue line, has been on a general downward trajectory while its passenger service continues to grow. Responses to the railroad RFQ are due by Oct. 30. The project is expected to start in May 2020. Elwood Brehmer can be reached at [email protected]


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