Political views shaping confidence in Alaska economy

Nearly 10 years ago, Alaska Survey Research and Northern Economics reached an agreement to begin an ongoing and regular measurement of Alaska economic confidence. Starting in March 2010, and every three months since, ASR has conducted statewide telephone surveys asking Alaskans how they feel about the economy, both in their communities and in Alaska as a whole, and asking them how financially secure they and their families feel. Last month, we completed the 39th consecutive quarterly survey, all conducted with a consistent methodology and asking the same set of questions, gathering the opinions of 1,150 randomly selected Alaskans around the state. Alaska Survey Research and the Alaska Journal of Commerce have now agreed to present these results publicly every three months. The central result of this measure is an economic confidence index score. The results to the six questions are normalized onto a 0-100 scale, where 100 is a hypothetical situation where every single survey respondent gives a maximally positive response to every question, and a 0 is the similar situation on the negative end. The resultant track of this index score over the last 10 years is very revealing. The first couple of years of results were fairly steady in the 53 to 54 range before starting a gradual upward climb. The peak of 61.9 was reached in September 2014, back when the price of oil was still around $100 and Bill Walker was conducting his ultimately successful run for governor. But then the wheels fell off, with economic confidence falling in sync with the price of oil. By the time the first quarter of 2016 arrived, the index was sub-50 for the first time. The years 2016 and 2017 were spent in recession, with the index score bumping along in the 49 to 52 range. But starting in December 2017, things started to recover, and by June last year we were back up to an index score better than 57, a level where we could say with some confidence that the Alaska recession was over. But hang on, not so fast! The June measure this year saw a steep decline back down. This survey was fielded, of course, during the budget fight in Juneau, with all the talk at the time of vetoes and reverse sweeps and massive cuts to state spending. But the most recent September result shows a steadying of the economic ship , with the index climbing back up to 54. I mention the political context of these numbers with caution. While we can’t, strictly speaking, state exactly why numbers rose or fell at particular times, we can hypothesize, and we can certainly look within the numbers to identify patterns that inform us. What we see when we do this is that this data is inexorably connected to “politics”, despite the fact that the questions are asked in each survey prior to any mention of anything political at all. Back in June, we did a deep dive into the 2019 Q2 data and found that the index score was significantly higher among certain demographic groups, notably men, those aged 65+ and those with household incomes greater than $100,000. But it was highest of all among self-identified Republicans, conservatives, Mat Su residents and those who watch Fox News and/or listen to KENI radio most. The lowest index scores, meanwhile, were measured among self-identified Democrats, progressives and KSKA listeners, among women, those with household incomes under $40,000 and among the 15 percent of the Alaska population who live in communities served by the Alaska Marine Highway System, most notably Juneau and Kodiak. Scores were also significantly low in rural Alaska and among Alaska Native respondents. Another more specific political connection is revealed in this most recent Q3 data. While the total population shows an index score of 54, respondents who approve of Gov. Michael J. Dunleavy’s performance show a whopping score of 63, while those who disapprove of his performance are down at 47.9. The governor’s supporters, in other words, are highly confident economically right now, while it’s all doom and gloom among his detractors. By political ideology, conservatives had an index score in this most recent survey of 60.9, moderates 52 and progressives 46.6. So, it’s clear that perceptions of the Alaska economy are totally dependent on the ideological views of the observer. But the good news is that all three groups were up in their scores from June; the recovery from the 51.7 mark back to 54 didn’t occur in one group at the expense of another. Regardless of political affiliation, we all have a little more confidence now than we did earlier in the summer. Indicating perhaps that while watching politics happen is sometimes akin to watching sausage get made, when the process works and a consensus of sorts is reached, everyone wins. The next survey will be fielded in December, with results to appear in these pages in mid-January 2020. Ivan Moore is the principal and founder of Alaska Survey Research.

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]

North Pacific council votes to hike observer fees in 2021

The costs for on-board fisheries observers will be increasing, and no one in the industry is particularly happy about it. The North Pacific Fishery Management Council voted to adjust the observer fee percentage to 1.65 percent of ex-vessel values. It was previously set at 1.25 percent. The increase is intended to cover additional observer services to reach the target coverage rate set out by the council for the various fisheries across the North Pacific region. Observers are hired through a federal contracting system. On board, the observers document the catches of both target species and bycatch, and take samples from the catch, among other responsibilities. Typically, they have training in biological sciences and fisheries. Federally managed fisheries are designated as either partial or full coverage, with the National Marine Fisheries Service, or NMFS, determining where observers need to go based on the necessary data for each year. Fishermen in the partial coverage category pay a 1.25 percent fee on their landings to cover the cost of observing and the deployment of electronic monitoring systems, collected by the processors on behalf of NMFS. After the program was restructured in 2013, NMFS provided about $4.5 million in funding to help cover operations, and the federal government has contributed funds every year since — about 32 percent of total costs, according to documents submitted to the North Pacific Fishery Management Council. However, with the likelihood of federal support diminishing and costs increasing, the council has been looking for ways to fund the program through industry fees. The fee change will be delayed until 2021, making the funds available to pay for at-sea coverage by mid-2022, according to a memo from council staff member Diana Evans. “It should be noted that while the scope of this analysis is focused narrowly on the amount of the observer fee, the Council is also pursuing parallel initiatives with the Fishery Monitoring Advisory Committee (FMAC) to evaluate additional ways to improve cost efficiency for the program,” she wrote. Stakeholders were everywhere from fiercely opposed to begrudgingly supportive, but no one seems to be happy about the increase, particularly in the fixed-gear fleet. Most asked the council to cap the cost increase and instead pursue containment measures and efficiencies to avoid overburdening fishermen. Many recognized that the observer program is important enough to have to continue, but were concerned about the long-term trajectory. Partial coverage is more expensive per trip than full-coverage fisheries. In 2018, a single observer day cost $1,380, while full-coverage observer days cost $382 per day. In theory, the observer fee is supposed to be shared between the processors and fishermen, but the fee analysis completed by council staff indicates that the burden may be shifted more toward the harvesters than the processors, as the existence of a tax lowers the dockside price. The North Pacific Fisheries Association, a trade group based in Homer, pointed to this in connection with its opposition to a fee increase. “NPFA appreciates that the Observer Program is operating on a tight budget, but so are our members,” NPFA President Malcolm Milne wrote in a comment to the council. “We’ve put a lot of effort into the development of a workable Electronic Monitoring Program and have consistently participated in NPFMC committees and workgroups including the FMAC and its subgroups. It is imperative that the Observer Program control its costs and demonstrate some efficiencies and effectiveness before we would willing pay more money for it.” The trawl fleet agreed, though the Midwater Trawlers Cooperative “begrudgingly” supported the fee increase to sustain the observer program, said Heather Mann, the group’s executive director. “We need the observer program,” she said in testimony to the council. “We use it to manage fisheries. When I say begrudgingly (support), I also want to see cost containment measures … We can’t just let the program blow up; we need this program. So let’s fix it.” She added that the group supported the motion that raised fees equally across the fishing sectors, rather than varying rates across sectors. One alternative proposed in the fee analysis would have internalized the cost increase of vessels limited by protected species catch limits to those vessels — specifically, the prohibited catch species-limited trawl fleet. The analysis reasoned that PSC catch by trawl vessels imposes costs on other sectors, but Mann argued that it isn’t fair to single out the trawl vessels. Oceana, a national ocean conservation advocacy nonprofit, supported the fee increase to maintain coverage levels but also encouraged the council to pursue cost containment measures. In its comments, the organization advocated for the council to switch all Gulf of Alaska trawl vessels to the full-coverage category, particularly to control bias in sampling because of the presence of an observer and to make costs more efficient for broader coverage. The Alaska Longline Fishermen’s Association also opposed the fee increases until the council looks for efficiencies and cost containment measures. Project Coordinator Dan Falvey told the council that the organization favored the continued implementation of electronic monitoring, which has equipment costs but is generally cheaper than a human observer and easier for small vessels. With current costs increases, he said the program is unsustainable. “How would (the council) sharpen your pencil, shave off 10 percent of the program costs while still getting the coverage rate?” he said. Along with passing the 1.65 percent increase, the council passed a set of priorities for the partial coverage category focusing on cost containment. Among the immediate items for work are conversion of pelagic, or midwater, trawl fisheries to electronic monitoring with shoreside sampling, an integrated monitoring plan for fixed gear that combines electronic monitoring, shoreside sampling and at-sea coverage as needed, and optimizing the size and composition of the fixed gear observed and electronic monitoring. Elizabeth Earl can be reached at [email protected]

Movers and Shakers for Oct. 20

Alaska Communications announced promotions of Laurie Butcher and Diedre Williams. Butcher will serve as chief financial officer and Williams as senior vice president of operations and people matters. Butcher has been with the company since 1997 and has served in several leadership roles, most recently as senior vice president, finance. She guides the effective planning, monitoring and maintenance of the company’s financial health. Williams has been with the company since 2003, most recently serving as vice president, human resources. Williams leads employee and labor relations, compensation and benefits and employee development programs. PDC Engineers announced that Senior Structural Engineer Amy Mestas has been recognized as 2018 Engineer of the Year by the American Society of Civil Engineers 8. This title is Mestas’ second Engineer of the Year award for 2018, the first being awarded by a panel of judges made up of representatives from the engineering society chapters of Alaska earlier in the year. ASCE’s Region 8 is made up of Alaska, Arizona, Hawaii, Idaho, Montana, Nevada, Oregon, Utah, Washington, and the Canadian provinces of Alberta, British Columbia, Northwest Territories, and Yukon Territory. The region includes nearly 14,000 members. In addition to Mestas’ professional accomplishments, leadership abilities, and community involvement through coaching high school volleyball, she was also instrumental in Anchorage, Alaska’s recovery following the Nov. 30, 2018, earthquake. She led structural assessments throughout the Municipality of Anchorage for months following the event and has served as an advocate for future earthquake preparedness. Credit Union 1 announced the promotion of Jessica Gallagher to Public Relations and Editorial director. In her new role, Gallagher will be responsible for developing and directing upper-level creative and corporate content across all brand communications. She will act as the spokesperson of Credit Union 1 to media and other outlets and will implement strategies that are intended to uphold a positive public image for the credit union. Gallagher joined the credit union in 2008 as a part-time teller before transitioning to the in-house marketing team. She has since held the positions of marketing coordinator, communications specialist and senior communications specialist charged with cultivating and strengthening the credit union’s brand voice across all channels. Originally from northern Wisconsin, Gallagher holds a bachelor’s degree in English and creative writing from the University of Wisconsin River Falls and a master’s degree in English and creative writing from Southern New Hampshire University. The National Association of State Workforce Agencies has named Alaska Department of Labor and Workforce Development Commissioner Dr. Tamika L. Ledbetter as national chair of its Employment and Training Committee. The Employment and Training Committee develops legislative priorities for Congress and is a forum for states to share information and solutions for emerging workforce development issues. Sen Dan Sullivan announced that Greg Bringhurst has been hired as his Fairbanks regional director and rural advisor. Bringhurst will replace Leslie Hajdukovich, who served in this position for the last 4½ years. Born and raised in Fairbanks, Bringhurst was most recently the director of public policy and government affairs at Cook Inlet Housing Authority. He has also worked as a legislative assistant for Sen. Lisa Murkowski in Washington, D.C., as a legislative aide in the Alaska Legislature, and for the Tanana Chiefs Conference. Bringhurst is a graduate of the University of Alaska Fairbanks.

FISH FACTOR: Board of Fisheries work session kicks off annual meeting cycle

Hundreds of fishery stakeholders and scientists will gather in Anchorage next week as the state Board of Fisheries begins its annual meeting cycle with a two-day work session. The seven-member board sets the rules for the state’s subsistence, commercial, sport and personal use fisheries. It meets four to six times each year in various communities on a three-year rotation; this year the focus is on Kodiak and Cook Inlet. The board and the public also will learn the latest on how a changing climate and off-kilter ocean chemistry are affecting some of Alaska’s most popular seafood items at an Oct. 23 “talk and Q&A” on ocean acidification, or OA, in Alaska. And they undoubtedly will be astounded to learn that despite salmon being Alaska’s most iconic fish, only two studies have looked at salmon response to OA, and both were conducted outside of Alaska. Most of the research to date has focused specifically on crab and fish stocks, said Bob Foy, director of the Alaska Fisheries Science Center at the National Oceanic and Atmospheric Administration Auke Bay lab in Juneau who will lead the Anchorage presentation. Ocean acidification is caused when carbon dioxide gas from the atmosphere dissolves in the ocean, lowering the water’s pH level and making it more acidic. The imbalance prevents marine creatures from forming shells and skeletons, among other things. “We’ve found effects on Tanner crab and red king crab in the laboratory. Interestingly, on a positive note, we have found very little effect, if any, in the early life stages of juvenile snow crab. So, there’s some hope for that species,” Foy said. “For fish, we’ve found limited if any effects on pollock, but we have found effects on cod and some flatfish species.” Most studies to date have focused on direct effects to an animal, Foy said, but future work will take a “bottoms up” approach to learn how ecosystem changes affect their metabolism and body functions. “We know more recently from the large changes we’ve seen in the climate and the increased warming, the heat waves we’ve seen in Alaska, that the lower trophic levels are dramatically affected by that heat. And those effects have been observed in the larger commercial fish species such as cod,” Foy said, referring to the 80 percent cod crash last year in the Gulf of Alaska that is blamed on imbalances caused by warmer water. The real concern, Foy said, is the speed at which changes are occurring. “It’s difficult to assess, difficult to manage,” he said. “Now we’ve got important commercial species moving thousands of kilometers over a couple of years in the Bering Sea, Northern Bering Sea and Chukchi Sea. That shows us that these populations will try to adapt, they will move and push the ranges of their physiology and their tolerance. The unknown is whether or not they can adapt at the speed at which everything is changing.” Early victims of OA already are known to be pteropods, microscopic floating snails that make up a huge portion of the diets of juvenile pink salmon. Research elsewhere also has shown that acidity affects growth rates of pink salmon and impairs the sense of smell in cohos. Evaluating the risks to Alaska salmon will be part of the discussion by Toby Schwoerer, a research associate at the University of Alaska Institute for Social and Economic Research Associate. Being forewarned is being forearmed, said Bob Foy. “The importance of providing information and educating ourselves is critical,” he stressed. “Our goal is to get the word out to the commercial industry, coastal communities, to managers and policymakers so we can better understand how these changes in the environment may lead to changes in our economies, in our livelihoods and our ways of life in Alaska.” The OA talk will take place on Wednesday, Oct. 23 at the Egan Center starting at 5:30 p.m. Contact Darcy Dugan at the Alaska Ocean Acidification Network for more information at [email protected] Crab numbers As Bering Sea crab fisheries got underway on Oct. 15 the fleet has less crab to haul up overall. Crabbers were relieved to get an opener for Bristol Bay red king crab with a catch reduced to just less than 3.8 million pounds of mature male crabs, the only ones that can be retained for sale. As expected, the snow crab total catch was increased by 24 percent to 34 million pounds. There will be no fishery for bairdi Tanners, snow crab’s larger cousin. A catch of 2.4 million pounds was allowed last year but surveys showed there were not enough crab to meet a threshold for an opener. Likewise, closures will remain for blue king crab at St. Matthew Island, and for blue and red king crab at the Pribilof Islands where the stocks remain depleted. That’s not the case for Dungeness crab in the Gulf of Alaska and all along the Pacific coast where fisheries are booming. Southeast Alaska’s summer fishery produced over four million pounds for more than 185 crabbers and strong catches have continued in the fall opener that runs through November. At the westward region, which includes Kodiak, Chignik and the South Peninsula, Dungeness crab fisheries are booming and Kodiak is no exception. Since May, a fleet of 13 boats has hauled up 1.2 million pounds, double last year’s catch. “We’re certainly on track to break 1.3 million pounds if not more. We’ve got another few weeks left in the season that closes October 31,” said Nat Nichols, area manager at the Alaska Department of Fish and Game office in Kodiak. “We knew that this year was going to be good based on reports from the fishery last year, Nichols added. “We knew that there was a big year class of small crab that were going to recruit into the fishery and we’re seeing the results of that now.” Crab abundance is quite cyclical, Nichols said, and at least for the short term, the outlook for Dungies is good. “It seems like when we get these pulses of crab coming through, they last for a season or three,” he explained. “I have hopes that the fishing we’re experiencing this year may carry into next year. What I’ve heard from some of the fleet is that they’re still seeing small crab and we may have a few more good seasons in front of us. So that’s something to look forward to.” Westward crabbers are reportedly getting $2.60 to $2.75 a pound for their Dungeness catches. Industry updates Alaska’s seafood industry includes more than 9,000 fishing vessels, 87 large shoreside processing plants and generates 60,000 jobs annually. Those are just a few of the fishing industry updates unveiled at the recent Alaska Seafood Marketing Institute’s All Hands meeting in Anchorage. Here’s a sampler compiled by the McDowell Group: Alaska’s catches in 2018 reached 5.8 billion pounds with Alaska pollock comprising 59 percent of the volume. The $2 billion value of the harvest was led by salmon at 36 percent. Nearly 80 percent of Alaska’s seafood is exported; through the first half of 2019 the value of exports to China declined 15 percent. The 2019 salmon catch ranks eighth for all-time harvests. Just 14 percent of the salmon was canned compared to 40 percent in the early 2000s. Alaska is the world’s largest producer of Pacific cod, which is at a 20-year low. Current halibut harvest levels are just 20 percent of what they were 20 years ago. The export value of sablefish is down 30 percent due mostly to small fish and losses from whale predation. Strong demand for crab is pushing prices higher. Alaska accounts for 10 percent to 15 percent of global red king crab supply with 70 percent coming from Russia; for snow crab, Alaska produces less than 10 percent of the supply with 45 percent coming from eastern Canada. About 500 million pounds of more than 10 different kinds of flatfish are caught each year in Alaska valued at $100 million. Pacific Ocean perch is the main rockfish taken at 100 million pounds valued at $25 million. Looking ahead, strong or stable pollock prices are a bright spot and the 2019 salmon catch will be one of the most valuable ever. One caution: trade disputes remain a threat and more tariffs could be coming this month or in mid-December. ^ Laine Welch lives in Kodiak. Visit www.alaskafishradio.com or contact [email protected] for information.

Crabbers face another round of harvest cuts

Bering Sea crabbers started their 2019-20 season this week with a mixed harvest bag and an uncertain future for their fisheries. The North Pacific Fishery Management Council and the Alaska Department of Fish and Game, which collaboratively manage the state’s crab fisheries, announced the catch limits and overfishing limit for the Bering Sea/Aleutian Islands and Bristol Bay crab fisheries last week, just in time for the fisheries to open Oct. 15. While the eastern Bering Sea snow crab fishery’s total allowable catch is up, the Bristol Bay red king crab fishery’s is down and there won’t be a Bering Sea Tanner crab fishery at all. The St. Matthew Island blue king crab and Pribilof blue and red king crab fisheries will remain closed due to stock depletion. Most of these were not terribly surprising to many crab fishermen and fishery stakeholders. The exception was in the Tanner crab fishery — also called the bairdi fishery, after the crab’s scientific name, said Jamie Goen, the executive director of the Alaska Bering Sea Crabbers Association. “I would say we were surprised that we’re not having a bairdi fishery,” she said. “It’s discouraging, because our crab stocks in general are declining.” The survey data collected in the Bering Sea District Tanner crab fishery showed the stock didn’t have enough mature crab to justify a fishery, according to survey data provided to the North Pacific Fishery Management Council. ADFG announced that there would be no fishery on Oct. 6, citing a lack of mature male crab biomass in the survey data. That means no Tanner crab can be kept in the snow crab fishery, either. The Tanner crab fishery has seesawed since rationalization was implemented there in 2005. The fishery was open through 2010, when it was determined to be overfished and closed. After it reopened in 2013, the total allowable catch, or TAC, climbed until 2016, when the fishery was closed due to a lack of available mature female biomass, according to the survey that year. The fishery west of 166 degrees West longitude reopened in 2017-18 and 2018-19, with TACs of 2.5 million pounds and 2.4 million pounds, respectively; the fishery east of that line has been closed since 2016. The survey data provided to the North Pacific council determined that the Bering Sea Tanner crab stock is not overfished, but biomass of male crabs has been steadily declining. “Since 2014 the trend has been a steady decline, with male biomass currently at its lowest point (28,000 (tons)) since 2000,” the survey states. The Bristol Bay red king crab fishery has been going through a similar decline over time. Though it’s not closed this year, the TAC is set at 3.797 million pounds, about 12 percent less than last year’s TAC. About 3.4 million pounds is allocated to individual fishing quota, or IFQ, holderss and 379,700 pounds to Community Development Quota, or CDQ, groups, according to ADFG. The survey data provided to the council notes that environmental conditions are likely playing a role in the red king crab’s decline, depressing recruitment. Crab stocks in Alaska generally spiked in the 1970s before swinging low again in the 1980s, then high again in the 1990s. “Due to lack of recruitment, mature and legal crab should continue to decline next year,” the survey report states. “Current crab abundance is still low relative to the late 1970s, and without favorable environmental conditions, recovery to the high levels of the late 1970s is unlikely.” The downward trend in the red king crab fishery is particularly concerning for the fleet. Wild Alaska red king crab commands a high market price and is consistently one of the highest-value fisheries in the United States. Ex-vessel prices have nearly doubled in the last 10 years, rising from an average of $5.11 per pound in 2008 to $9.27 per pound in 2018, according to Fish and Game. “It’s our highest-value stock,” Goen said. The Eastern Bering Sea snow crab fishery is a bright spot, though. Recent survey data has shown strong recruitment, and the 2020 TAC is set at just more than 34 million pounds — about 23 percent more than last year — apportioned with about 30.6 million pounds to IFQ fisheries and about 3.4 million pounds to CDQs, according to Fish and Game. The stock was previously declared overfished in 1999 and has steadily increased since, according to survey data provided to the council. After the observed mature male biomass dropped to an all-time low in 2017, it has increased again as a large recruitment moves through the age classes. The boost in the eastern Bering Sea snow crab biomass has helped offset some of the downturns in the fishery, but there’s a lot of uncertainty in the fleet about the future, Goen said. “It’s ocean acidification, it’s the warming ocean conditions, lack of sea ice, and all the data unknowns,” Goen said. “There’s a lot of uncertainty among the fleet. We’re definitely looking to the science. We’re trying to understand better how (the crab) move, and these stocks are moving further north now from where they normally are… I would say it’s too soon to know what the crab fishers are doing.” There are a lot of unknowns about the factors affecting crab life cycles, recruitment and maturity. Goen pointed to an ongoing National Marine Fisheries Service study using saildrones to track tagged red king crab, gathering more information about seasonal movement, habitat use and interactions with groundfish and trawl fisheries, as well as how crab movement is changing amid changing ocean conditions. If the study proves successful, it may be expanded to other crab stocks. Strong demand is pushing prices for crab higher, according to a presentation by the McDowell Group economist Garrett Evridge at the Alaska Seafood Marketing Institute’s All Hands meeting in Anchorage this week. However, threats to the market include tariffs overseas — particularly in China, one of Alaska’s three largest trading partners in seafood — and increasing competition. About 70 percent of the world’s supply of red king crab comes from Russia, while only 10 percent to 15 percent comes from Alaska. Similarly, Alaska produces about 10 percent of the world’s snow crab supply, while Canada produces 45 percent, according to the presentation. Hannah Lindoff, the international program director for ASMI, wrote in an email that the tariffs have driven Chinese consumers toward Chilean and Russian king crab and Canadian snow crab. “Traditionally, crab has been one of the most preferred seafood products in both mainland China and Hong Kong and demand outstrips supply for live king crab into Hong Kong,” she said. “Prior to the current trade situation, Alaska snow crab was an especially popular item at hotel restaurant buffets.” However, she added that recent concerns in Hong Kong about high metal levels in European brown crab have driven a shift toward Alaska seafood. Additionally, Evridge wrote in an email that some of the downward trend in red king crab can be replaced by Southeast’s golden king crab fisheries, where the stocks are doing somewhat better. “One thing that’s unique about the current period is that golden king crab volume is higher than red crab—it’s not usually like that,” he wrote. “Some substitution can occur between the two species. But the golden variety is smaller and generally more difficult to handle as it has sharper spines.” ^ Elizabeth Earl can be reached at [email protected]

GUEST COMMENTARY: What are the most common misconceptions about the Permanent Fund dividend?

Editor’s note: This is the second installment of a continuing series; the first installment set out the original arguments for the dividend. Was the Permanent Fund created to pay Permanent Fund dividends? No. The Permanent Fund was created to save a portion of the oil wealth coming to the State of Alaska following the discovery of the supergiant Prudhoe Bay oilfield. There was no agreement about what exactly the amount saved would be used for in the future when the Permanent Fund was created in 1976 by an amendment to the Alaska Constitution, a process that requires approval by the voters. A review of the record shows that everything from dams to daycare centers to dividends were dangled as possible future uses of the savings to entice the people of Alaska to vote for that constitutional amendment. The most historically accurate explanation of the voters’ intent in 1976 appears to have come from Elmer Rasmuson, the first Chair of the Permanent Fund Board of Trustees: “The Permanent Fund began, chiefly, with a ‘negative’ goal, to place part of the one-time oil wealth beyond the reach of day-to-day spending.” The Permanent Fund dividend, by contrast, was created in 1982 by the Alaska Legislature through the adoption of statutes, which are laws the Legislature can make without getting approval from the voters. The two institutions are fundamentally different. The Permanent Fund is a public savings vehicle, while the Permanent Fund dividend is per capita universal direct distribution. Is the Permanent Fund Dividend constitutionally guaranteed? No. The Alaska Constitution contains no guarantee of any kind that Permanent Fund dividends will be paid. The constitutional amendment adopted in 1982 establishing a spending limit includes appropriations for dividends on a list of exceptions to that spending limit. That reference in Article IX’s Section 16, however, does not constitute any guarantee or requirement of payment. Has the Alaska Legislature guaranteed the annual payment of Permanent Fund dividends through the Legislature’s adoption of statutes? No. The Alaska Supreme Court answered this question definitively in 2017 in the case of Wielechowski v. State of Alaska. The Alaska Supreme Court ruled that the Alaska Constitution does not currently allow the Legislature to set up a system in which Permanent Fund dividends are paid in future years automatically. The Alaska Supreme Court stated: “Absent another constitutional amendment, the Permanent Fund dividend program must compete for annual legislative funding just as other state programs.” Is the Permanent Fund dividend what individual Alaskans got as a trade when the Statehood Act reserved to the State of Alaska the mineral rights to the lands granted by the federal government under the Statehood Act? No. The Permanent Fund dividend arose as a possible option more than 15 years after Congress adopted the Statehood Act in 1958. The Statehood Act provides that the “mineral lands” granted by the federal government to the State of Alaska pursuant to statehood are granted under the express condition that all sales, grants, deeds, or patents of those lands must be reserved to the State. This provision means that Alaskans cannot receive royalties as individual landowners from development of those mineral lands. The House Finance Committee adopted a letter of intent in 1982 regarding the legislation creating the Dividend that included the statement, “The Committee recognizes that virtually all the petroleum development in Alaska has occurred on publicly owned lands. This is in sharp contrast to other states, where vast accumulations of wealth have accrued to private landholders.” ^ Cliff Groh was the legislative assistant who worked the most on the bill in 1982 that created the Permanent Fund dividend we have today. He is also a lawyer who has litigated constitutional issues. Some material here overlaps with a chapter he co-authored with Gregg Erickson for the book Alaska’s Permanent Fund Dividend: Examining Its Suitability as a Model.

GUEST COMMENTARY: Hilcorp’s proven ability to increase production is just what Alaska needs

In 2009, elected officials and leaders across Southcentral Alaska were sounding the alarm about the risk of losing natural gas deliverability due to inadequate gas supply. The possibility of rolling blackouts had citizens on edge and demanding solutions. Once an active, thriving oil and gas basin, Cook Inlet oil production peaked in 1970, and had since declined to the point where the big Cook Inlet players were no longer investing in new projects. Plenty of hydrocarbons remained in Cook Inlet, but not in quantities sufficient to hold the interest of larger, multi-national companies who typically prefer large-scale projects. The Alaska Legislature moved quickly, changing Cook Inlet’s tax structure to attract more investment. Soon thereafter, smaller players swarmed into the Inlet and began looking for new oil and natural gas. The most notable was Hilcorp, which began buying assets from Marathon, XTO, and others. Before long, Hilcorp was the dominant player in Cook Inlet, and began injecting hundreds of millions in new investment into finding oil and gas. Fast forward a few years, and Southcentral Alaska’s utilities had all the gas they needed under contract, as well as a new storage facility that allowed excess gas pumped during the summer to be saved for wintertime demand spikes. The Cook Inlet Recovery Act was essentially repealed a few years later, but Hilcorp was now well established in the area with plans for more investment. More recently, Hilcorp reconstructed the Cook Inlet subsea pipeline that stretches along the west side of the Inlet, a $90 million project. After years of successfully applying its unique business model in Cook Inlet, Hilcorp realized it could do the same on Alaska’s North Slope, another basin with significant potential. In 2014, Hilcorp purchased a portion of BP’s assets: Northstar, Milne Point, Endicott, and Liberty. Since then, Hilcorp has operated the fields, increasing investment, activity, and production from the producing fields. Hilcorp has made significant investments, increased daily production by thousands of barrels a day, and most importantly has extended field life. The Prudhoe Bay announcement represents the next opportunity in Alaska’s oil and gas story, and is a natural outgrowth of oil field economics. Hilcorp has a proven track record of taking over older, more established oil and gas fields and breathing new life into them. The positive impact they have had on the economy of the Cook Inlet basin has been significant and continues. Their can-do attitude is a positive sign that Alaska’s largest and most iconic oil field will continue to support thousands of Alaskan jobs and produce oil and generate state revenue for years to come. Tim Dillon is the Executive Director of the Kenai Peninsula Economic Development District. KPEDD is a non-government organization that aids and promotes responsible and sustainable regional economic growth.

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]

Fed plans more Treasury purchases to control lending rates

WASHINGTON (AP) — The Federal Reserve said Oct. 11 that it will buy short-term Treasury bills each month until the second quarter of 2020 to inject cash into the banking system and make it easier to control its benchmark lending rate. The action marks the Fed’s latest response to a shortage of cash reserves that developed last month and caused short-term interest rates to spike, briefly sending the Fed’s benchmark rate above its target range. The New York Fed said its first monthly purchases, starting Oct. 15, will total $60 billion. Future amounts weren’t specified. The Fed also said it will extend a separate short-term lending operation through January that is also intended to boost bank reserves. Chairman Jerome Powell has said these Treasury purchases aren’t intended to stimulate the economy. On Oct. 11, the Fed said its purchases are “technical” and “should not have any meaningful effects on household and business spending decisions and the overall level of economic activity.” Even so, large Fed bond-buying programs typically attract attention from economists and investors because they recall the extraordinary programs the central bank undertook to support the economy during the Great Recession and its economically sluggish aftermath. For several years through 2013, the Fed bought roughly $1.5 trillion of Treasurys and mortgage bonds to try to hold down long-term interest rates and encourage more borrowing and spending. Lower rates also led investors to invest more in stocks. At the time, many critics feared that the purchases, known as “quantitative easing” or QE, would stoke rampant inflation. That fear proved unfounded. Fed officials consider those earlier bond-buying programs to have largely succeeded. Still, some critics charge that by leading more investors to buy stocks, QE contributed to higher stock prices that disproportionately benefited wealthier Americans while leaving lower-income people with measly savings rates. This time, the Fed has stressed that its new bond-buying isn’t intended to affect most interest rates. Instead, they are intended to help the Fed’s tools for setting interest rates work better. “Purchases of Treasury bills likely will have little if any effect on longer-term interest rates, broader financial conditions, or the overall stance of monetary policy,” the Fed said in a written Q&A. Some observers are skeptical. Paul Ashworth, an economist at Capital Economics, notes that $60 billion is three times as large as purchases under the European Central Bank’s recently announced quantitative easing program. “When it swims like a duck and quacks like a duck, it’s hard to prove your intentions aren’t fowl,” Ashworth said. But Ashworth also acknowledged in an email that “The Fed is of course correct that this isn’t the same as QE,” because it isn’t intended to lower longer-term rates. Fed policymakers met by video conference Oct. 4 to approve the new buying operations. The Fed’s benchmark interest rate is now a range of 1.75 percent to 2 percent. Changes in that rate flow through other interest rates, such as those charged on mortgages, to influence borrowing and spending and the broader economy. The central bank keeps its short-term rate in its target range by paying banks interest on the reserves they hold at the Fed. That rate is 1.8 percent. This provides an incentive to banks to lend only at rates above 1.8 percent. But shortages of reserves occurred last month. Most experts blame quarterly tax payments made by many banks as well as auctions of new Treasury securities by the government, which soaked up cash. The reserve shortfall caused rates to spike in several short-term funding markets. If it continued, such spikes could offset the Fed’s efforts to keep interest rates low. The Fed plans to buy Treasury bills of durations between five and 52 weeks, until reserves exceed the level they were at in early September. Reserves at that time were between $1.45 trillion and $1.5 trillion, according to Michael Feroli, an economist at JPMorgan Chase. On Oct. 9, reserves were $1.35 trillion, Feroli said, suggesting that the Fed will need to buy at least $100 billion in Treasurys. But the purchases will likely be much higher: The Fed needs reserves to offset the growth of currency, which rises at about $10 billion per month. And the central bank also wants to eventually replace about $160 billion in short-term loans it has made since the troubles in money markets first surfaced. Stephen Stanley, chief economist at Amherst Pierpont, said the Fed will likely buy about $60 billion a month for the first few months before slowing to roughly the $10 billion a month that is needed to keep up with currency growth.

Analysis: China’s ‘internal affairs’ going global

One day in 1955, the fledgling People’s Republic of China was unhappy about U.S. involvement with Taiwan, the self-governing island that Beijing considered its territory. So Premier Zhou Enlai wrote a letter to the secretary-general of the United Nations. “The Chinese people’s exercise of their own sovereign rights in liberating their own territory,” Zhou wrote, “is entirely a matter of China’s internal affairs.” He went on to use that wording, “internal affairs,” three more times in the letter. Internal affairs. Across the decades, from Zhou’s relatively ineffectual plea extending to the dramatically different China that exists today, that precise phrase remains an indispensable tool for the Beijing government when challenges — and what it considers bad behavior — arrive from the outside. Whether it’s foreign complaints about human rights, disputes over the South China Sea or anything about Taiwan or Xinjiang or Tibet and the Dalai Lama, the answer has been remarkably consistent: These are the internal affairs of China — so keep your nose out of them. For evidence, just review this past week’s events and the Beijing government’s reactions. A U.S. basketball team’s general manager supporting Hong Kong protesters with a single tweet from the United States? Interference in China’s internal affairs, with major repercussions for the NBA. Apple hosting an app to help those protesters locate police? Interference in internal affairs. An episode of “South Park” that skewers Hollywood for cozying up to Beijing? Close enough to interference in internal affairs to get the show scrubbed from the Chinese internet. And U.S. sanctions on Chinese companies that Washington says provide technology to repress minorities in the country’s predominantly Muslim Xinjiang region? No question about that one. “I must point out that Xinjiang affairs are purely China’s internal affairs that allow no foreign interference,” Chinese Foreign Ministry spokesman Geng Shuang said Tuesday. “We urge the U.S. to correct its mistakes at once, withdraw this decision and stop its interference in China’s internal affairs.” Ever since the Opium Wars in the mid-19th century, in which the British forced Qing Dynasty rulers into the opium trade and pried open Chinese ports to Western trade, China’s government has been particularly sensitive to Western doings inside its borders. But tension between internal and external in China is far older. The very language it uses for itself and the rest of humanity illustrates that: “zhongguo,” or “middle country,” for China and “waiguo,” or “outside country,” for the foreign. Like any government that controls lots of far-flung land, China, whether run by imperial rulers, Nationalists or the Communist Party, has almost always functioned as a central government trying mightily to maintain control at the edges of a sprawling territory. In the U.S., power is balanced carefully between a federal government and the states. In China, the might always comes back to the nucleus of the nucleus — once the emperor inside the Forbidden City, now Xi Jinping and the Communist Party’s Politburo Standing Committee. And in China’s case, watching the farthest reaches of its territory for incursions is a strand of the fundamental, historical DNA. This is, after all, a culture that, nearly a millennium ago, was invaded by Mongols who pushed in from its northern edge and formed the Yuan Dynasty, ruling for nearly a century before they collapsed and Han Chinese reclaimed power. The Great Wall, in fact, was built primarily to preserve China’s territorial integrity by keeping more outsiders from invading. Today, it’s no accident that some of the Beijing government’s most pressing worries are at the flanks of its domestic influence — Xinjiang and Tibet to the far west, Taiwan and now Hong Kong at its southeast edges. But as this week’s events underscore, a transformation has been taking place. With its growing influence and international profile, coupled with the rise in technology and the muddying of virtual borders, China’s internal affairs are drifting into more external realms with each passing year. The country’s very success in some of its leadership’s priorities — being taken seriously on an international stage and wielding influence worldwide — has placed what was once a relatively inward-focused government onto a global platform. By opening up and engaging the world, China extended its reach everywhere. And where reach extends, so, too, has the communist government’s insistence on control. Now the edges of that control have become less defined, because they are no longer entirely geographic or obvious. For every step China takes into its vaunted Belt and Road initiative, designed to build global infrastructure and extend influence, it opens itself to more opinions, more disagreements, more potential contentiousness. That’s simply the nature of international engagement. For every fresh leap into the internet’s choppy waters (even shielded by its “great firewall”) and for every engagement with a Western tech behemoth like Apple, it creates opportunities for outsiders to trip over affairs that it might consider “internal.” For every move that its propaganda operations make toward framing themselves as sleek, independent media on a global stage, it thrusts itself into the marketplace of ideas and invites some of those ideas inside. And for every Confucius Institute it opens to promote Chinese culture and language in another country, it creates conditions for backlash, and for a critical response it may not want. In the case of Apple — and, to some extent, the NBA — China’s market muscle may allow it to prevail. In other cases, such as “South Park” and, perhaps, Xinjiang, it may find shutting people up to be more difficult. Either way, China’s internal and external affairs are now so cross-pollinated that the relatively straightforward territorial pleas of a Zhou Enlai in 1955 — about a dispute that is still playing out all these years later — seem almost quaint in their concreteness. Addressing the NBA brouhaha, an opinion piece in the English-language version of People’s Daily, the Communist Party’s flagship newspaper, took up this issue on Thursday. “What are the social taboos, sensitive issues, and political correctness in China?” writer Ren Yi asked. “They are the integrity of national sovereignty and territory. That is what China values the most.” But in an era of blurred boundaries, of basketball leagues and sarcastic foreign TV shows and apps and tweets and the local becoming the global, the question raised this week isn’t going away: Who defines that sovereignty and maps that increasingly virtual territory — China alone, or China along with the world? Ted Anthony, who covered China for The Associated Press from 2001 to 2004 and oversaw coverage of it as Asia-Pacific news director from 2014 to 2018, has written about global affairs since 1995. Follow him on Twitter at @anthonyted.

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]

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]

Massive Mozambiqe LNG project gets green light

French energy major Total is moving ahead with the $20-billion-plus Mozambique LNG project started by Anadarko Petroleum, which discovered the large offshore gas field in 2011 and with its partners decided in July to begin construction for a 2024 startup. The East African gas development is one of a half-dozen liquefied natural gas projects sanctioned in the first nine months of the year, totaling almost 65 million tonnes of annual output capacity. The final investment decisions represent a 15 percent boost to global LNG capacity, with several more projects expected to get the go-ahead from investors in the next 12 months. Total was quick to affirm its plans to move forward in Mozambique after it started to close the deal on its purchase of Anadarko’s Africa assets in the last week of September. The offshore fields that will feed the project hold a reported 75 trillion cubic feet of gas. The multinational company bought the assets as part of the deal for Occidental Petroleum to take over the rest of Anadarko’s holdings that include valuable properties in the Permian Basin and U.S. Gulf. “Mozambique LNG is one-of-a-kind asset that perfectly fits with our strategy and expands our position in LNG,” Total CEO Patrick Pouyanne said in a prepared statement. Total is the world’s second-largest LNG supplier, after Shell. The venture is “largely de-risked,” with almost 90 percent of the output sold through long-term contracts with key buyers in Asia and Europe, Total said. Even as the project has the benefits of sales contracts in hand and partners from five different countries, Mozambique has its problems. The nation of 30 million people is among the poorest in the world; it’s in default on past international borrowing; and rebels opposed to the government have staged violent attacks. Total executives have dismissed any concerns, explaining that the company has expertise in operating in unstable, sometimes dangerous markets. “We are in Venezuela. We are in Argentina. We have this expertise compared to other players,” Laurent Vivier, Total’s senior vice president of gas, said in a presentation Sept. 19 in Houston, according to the Houston Chronicle. “This is something we are used to doing,” Vivier said. Total also is a major investor in Russia’s Arctic LNG projects. Total holds a 26.5 percent stake in the Mozambique development, which includes partners from Japan, India, Thailand and Mozambique’s national oil company Empresa Nacional de Hidrocarbonetos. In addition to its LNG investments in Mozambique and Nigeria, Russia, Papua New Guinea, Australia and the Middle East, the 95-year-old French company also holds LNG offtake contracts at three U.S. Gulf Coast export terminals, and last month said it planned to sign more deals next year to become the largest seller of U.S. LNG. The Mozambique project received financing help when the board of directors of the Export-Import Bank of the United States voted Sept. 26 to authorize a direct loan of up to $5 billion to support the export of U.S. goods and services for the development. “Private financing was not available for this project given its size, complexity and risk — necessitating support from EX-IM,” said Chairwoman Kimberly Reed. “We have been told that China and Russia were slated to finance this deal” before the federally chartered lending agency approved the loan. It was the bank’s biggest export financing deal in years. Separate from the EX-IM Bank’s assistance, each of the partners will have to cover their equity stake. Mozambique’s national oil and gas company announced in July it would hold off on making plans to raise money for its share until later this year at the earliest. The government said it was trying to limit its debt following a default three years ago and expected it could strike a better deal after construction was underway and Total’s takeover completed. “We’ll go back to the market to seek funding” when conditions become more attractive, said Empresa Nacional CEO Omar Mitha. The government hopes revenues from the project will help the country recover from a loan scandal that forced it to restructure its international debt. Approvals related to sovereign debt became more rigorous in Mozambique after the International Monetary Fund in 2016 discovered the government had failed to declare $1.2 billion of loans. While waiting to raise its share of the project costs, the country is looking to collect $880 million in capital gains taxes from the sale of Anadarko’s holdings in the country. President Filipe Nyusi announced the target for capital gains tax revenues after he met Occidental and Total managers, the Mozambique newspaper O Pais reported in September. The African nation is not the only country looking for what it considers its fair share from resource development. The South Pacific nation of Papua New Guinea, led by a new government that took over in May, wants to strike a better financial deal with ExxonMobil and its partners for expansion of the country’s first LNG plant, which started operations in 2014. The ExxonMobil-led expansion is part of a tandem $14 billion effort — the other led by Total — to more than double Papua New Guinea’s annual LNG export capacity to about 16 million tonnes by 2024. Total has reached agreement with the government, with ExxonMobil next up to the negotiating table to discuss local jobs and other benefits. “It (the ExxonMobil deal) has to be better, it has to be far better” than the terms negotiated with Total. “That’s the key point,” Petroleum Minister Kerenga Kua told Reuters on the sidelines of the annual LNG Producer-Consumer Conference on Sept. 26 in Tokyo. In addition, Kua announced that same day that Papua New Guinea plans to review its natural resource extraction laws, which are more than 40 years old. “Whilst attracting FDI (foreign direct investment) in the oil and gas sector, reaping and sharing the rewards involving this valuable resource must be equitable to our development partners, investors and the host government and its people,” Kua said in an interview with Reuters. ^ Larry Persily is a former Alaska journalist, state and federal official who has long tracked oil and gas markets and projects worldwide. He is the Atwood Chair of Journalism at the University of Alaska Anchorage School of Journalism and Public Communication.

OPINION: A little trouble in big China

Talk isn’t always cheap. The National Basketball Association has learned this the hard way over the past two weeks after a seven-word tweet supporting pro-democracy protesters in Hong Kong by the general manager of the Houston Rockets has torn a gash in a billion-dollar relationship. From severed broadcast and sponsorship deals to the canceling of events and the silencing of NBA Commissioner Adam Silver and the members of the Los Angeles Lakers and the Brooklyn Nets during their exhibition trip to their communist trade partner, a glaring spotlight was placed on a league that prides itself on its social awareness and progressive values. What we’ve discovered since the posting and deletion of GM Daryl Morey’s Hong Kong statement roiled the mainland — the Rockets have been China’s adopted “home” team since 7-foot-6 Yao Ming roamed the courts for that team for his entire career — is that the willingness to “speak truth to power” stops for many members of the NBA from its owners to its players where their bank accounts begin. For years, Hollywood has been altering movies and plots to avoid offending the communist censors of China in order to access the population of more than 1.3 billion and its growing middle class. The NBA’s relationship with China has certainly been a more benign one. Sports have long been a unifying force around the world where political differences can be set aside for the common love of a game. Unlike Google or Apple, the NBA’s relationship with China doesn’t contribute to the oppression of the people and a strengthening of the police state. But now that members of the NBA have been asked where they stand, statements have ranged from none at all to the more egregious examples of Golden State coach Steve Kerr using the question to attack gun ownership in the U.S. — nevermind China has the kind of gun control many on the progressive left are seeking — and superstar LeBron James criticizing the timing of Morey’s tweet and his apparent disregard for how it would impact the league financially. President Trump’s two-year trade war with China has had a wide-ranging impact on both nations’ economies, including right here in Alaska with our seafood industry seeing exports fall to what was the state’s No. 1 trade partner. While our Sens. Lisa Murkowski and Dan Sullivan have generally been supportive of Trump’s efforts to end decades of acquiesce to China’s rise, there have also been frequent calls to attempt to hold our industry harmless as this long overdue correction takes place. Even as many companies have begun pulling out of China to avoid tariffs, Alaska’s seafood industry partners — perhaps believing Trump would eventually cave — haven’t followed suit in shifting the reprocessing of state products to other nations. Wall Street rises and falls based on every development in this trade fight with no concern for China’s human rights record so long as global economic growth continues apace. Rebalancing this relationship, and weakening a communist rival who aims to supplant the U.S. and extend its control of free speech around the world through economic means, is vital to our interests. For a nation that has paid vast sums of blood and treasure since its founding to defend these values, temporary economic pain is a bill we must be willing to pay. Inexpensive labor, ticket sales and market access aren’t worth sacrificing the things that make us the freest nation on earth. Just because something is cheap doesn’t mean it won’t come with a huge price. Andrew Jensen can be reached at [email protected]

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