#AKbudget| Round 3 of “The FY 2015 end game (and its not looking good …)

ThelmaLouise4_001PyxurzEarly last week I wrote a column, after the Senate surfaced its proposed FY 2015 Capital Budget, entitled “#AKbudget| The FY 2015 end game (and its not looking good) ….”  The column was not intended to start off a series but after some in Juneau attempted to defend the indefensibly high budget that the legislature is preparing to pass again this year as “fiscally conservative,” I responded with a second piece later in the week (“#AKbudget| A postscript to ‘The FY 2015 end game …“).

That piece also generated a response.  This time the defense is that the budgets approved by this legislature (which are projected to generate a $2 billion deficit in the current fiscal year and, based on current numbers, likely another $2 billion next) are acceptable because, given the likely increase in future revenues resulting from SB 21 and the LNG project, the state’s fiscal picture will balance out in the long run.

My immediate response?  Good lord, do people really believe such things and, if so, what the heck are they doing running this state?

This is why. Continue reading

#AKbudget| A postscript to “The FY 2015 end game (and its not looking good) …”

FiscalCliffI have been told that some in Juneau think the column I wrote earlier this week on the current budget end game (“#AKbudget| The FY 2015 end game (and its not looking good) …“) is unfair because it does not properly recognize the cuts which have been made in spending over the last two years since the current so-called “fiscally conservative” Senate Majority took office (and, according to claims made at the time, finally positioned the Senate to work with an equally minded House and Governor to produce “fiscally conservative” results).

The problem with that defense is that revenues are falling off faster than the current legislature has cut the budget and, as a result, while the so-called “fiscally conservative” Governor and legislature have made some cuts to the budget, the net deficit has continued to grow.  In other words, the current Governor and legislature’s budget cuts haven’t even kept up with the revenue declines which have occurred since they took office, much less made any appreciable progress toward developing a sustainable budget going forward.

The budget for FY 2013, enacted the year before the new Senate Majority came to office, provided for $7.8 billion in spending (the highest in Alaska’s history), against what ultimately turned out to be revenues of $6.9 billion, resulting in a deficit of $900 million.  Bad, certainly, and a huge lost opportunity to transfer a significant amount of money to the state’s “nest egg” as a hedge against the day that oil revenues inevitably decline.

But — and if some in Juneau didn’t like the previous column they certainly aren’t going to like this statement — not as bad as what since has occurred on the so-called “fiscally conservative” legislature’s watch. Continue reading

#AKbudget| The FY 2015 end game (and its not looking good) …

Fiscal CliffAs this year’s regular legislative session enters its last few days, the outlines of the final FY 2015 budget are becoming clearer, and its not good for those concerned about Alaska’s future.

To bring readers current, the Governor started the bidding in December with an initial proposed budget advertised as $5.6 billion (in unrestricted general fund spending). That number, however, did not include a contribution toward the state’s retirement obligation (PERS/TRS), which exceeded $.6 billion in FY 2014 and previously was scheduled to be significantly higher for FY 2015, and also didn’t include money to cover so-called “legislative priorities,” the euphemistic phrase used to refer to legislative earmarks inserted annually by legislators in the capital budget for hometown projects.

Subsequently, last month in successive weeks the House, and then the Senate, announced their versions of the Operating Budget. The House included $5.075 billion in spending in its version, and the Senate $5.25 billion in its. Both versions, however, failed to address the PERS/TRS issue and, until today, both also lacked a corresponding capital budget. Continue reading

#AKbudget: Where we are, Where we are headed, What that means

Pages from The Alaska State Budget (MatSu Business Alliance 3.21.2014)

I am addressing the MatSu Business Alliance today as part of their regular lunch forum.  The general topic for today’s forum is the “Amusement Park of Economics.”   As described in the invitation to today’s program, my role is to discuss “the economic wheel of the state budget” and, given my recent focus on the area as part of the Alaska House Sustainable Education Task Force, “provide individual conversation around education funding.”

As I have thought through it, I have divided the topic into three pieces:  where we are (on the state budget), where we are headed and what that means for Alaskans and the state’s economy.  My conclusions two months in to the current legislative session:

  • The state budget is in for some rough – potentially very rough – economic seas ahead.  If oil goes to $90 (as some have projected), the situation will become seriously difficult.
  • While the proposed spending levels currently being proposed for the FY2015 budget are lower than the last three years (and compared to three years ago, significantly lower) , they nevertheless remain at alarmingly high levels which are not sustainable and continue to spend the next generation’s money.  At these levels, the state is continuing down the path that the University of Alaska’s Institute of Social and Economic Research (ISER) previously has identified is leading to a “fiscal crisis [and] economic crash,” which in turn will lead to the need for the  “ … institution of a broad-based tax, and use of a portion of the earnings of the Permanent Fund.”
  • If Alaskans want a different course, they need to tell Juneau that they will accept serious cuts.  Right now, that isn’t the message Juneau is hearing.

The slide deck reflecting the analysis and conclusions is available here.  I am looking forward to the opportunity — and more importantly, the questions following.

My (significant) concerns about the Alaska LNG project …

Thoughts on State participation (3.4.2014)Last month I outlined some concerns about the proposed Alaska LNG project and suggested that the legislature look more deeply to the experiences of other, successful projects elsewhere in the world to evaluate whether Alaska was applying global best practices.  (See The Legislature should rethink the Governor’s LNG proposal, Feb. 18, 2014)

As I have listened to the testimony and presentations about the Alaska LNG project in the intervening period my concerns have only deepened, and, disappointingly, the legislature still has not appeared to turn to the lessons learned from other, successful projects to determine whether Alaska could be doing better with this one.   As Alaska discovered with AGIA and ACES, sometimes — oftentimes — its not productive to create new approaches when others already have proven successful.  I am concerned that Alaska is going down the same road again.

As I outline in the attached (a copy also can be downloaded here),  I believe this project is going wrong in three critical areas.

  • Fails to achieve the “alignment” which the earlier Alaska North Slope Royalty Study found critical to successful efforts,
  • Unlike successful, similarly situated projects elsewhere in the world, does not provide Alaska with an active role in the critical upstream segment of the project, and 
  • Something I know a little bit about, potentially creates significant fiscal policy issues for the state and, by transferring a profitable segment of the project to a Canadian entity, does not maximize return to Alaskans.

Sometimes these things are better captured in a slide deck than by an extended essay.  I developed this slide deck in the format I would use if asked to testify or speak further on the issue.

The Legislature should rethink the Governor’s LNG proposal

Compass (2.18.2014)My appreciation to the Anchorage Daily News and Fairbanks News-Miner for running an op-ed piece I wrote.  The links to the online versions are  here (ADN) and here (News-Miner).   I titled the piece “The Legislature should rethink the Governor’s LNG proposal.”  The ADN ran it as “Governor’s plan the wrong way for the state to get a gas line.” 

BY BRAD KEITHLEY

As someone who long has argued in favor of state co-investment in the development of Alaska’s oil and gas resources, I was hopeful last fall when the state released the “Alaska North Slope LNG Royalty Study.”

With references to the need for “alignment” between the state and the industry and analyses of successful projects elsewhere in the world involving state participation, I believed that the Governor potentially was positioning Alaska to play a more active role in the development of its own resources, much in the same way as do some large landholders in the Lower 48 states and other governments that are resource owners.

The “Heads of Agreement” and related legislation (Senate Bill 138) that the Governor introduced at the start of the session, however, fall well short of the mark.  Instead of adopting global best practices taken from successful LNG projects, the Governor’s proposal is a confusing patchwork that is fraught with risk and even if it works perfectly, would not advance the goal of enabling the state to help drive increased activity where Alaska needs it most – in the upstream development of its oil and gas resources. Continue reading

The Monthly Lead: Retaining SB 21 is the right decision, if …

Through last month, I wrote a monthly op-ed column on oil, gas and fiscal policy issues for the Alaska Business Monthly.  I have suspended that column while some talk about me running for Governor (ABM’s policy understandably is to discontinue any “writings” by formally announced, or potential candidates).   In the meantime I am continuing to write a lead monthly article for the blog, called “The Monthly Lead.”  This is the first such piece.

Parnell SB 21

With certification this fall by the Division of Elections, the question of whether to repeal Senate Bill (SB) 21 – the oil tax reform enacted and signed by the Governor earlier this year – will be put to a statewide vote next August.  The issue on the ballot will be “Should this law [SB 21] be rejected?”  A “yes” vote will be to repeal SB 21; a “no” vote will be to retain it.

If SB 21 is rejected, Alaska’s oil tax approach will revert to ACES (Alaska’s Clear and Equitable Share), the state tax policy enacted in 2007, which virtually all legislators last session agreed was in need of reform, although many argued for different approaches.

Retaining SB 21 is the right decision if the Governor and legislature enact needed budget reforms this coming legislative session.  This piece explains why. Continue reading

UAA Athletics remain badly broken, and why addressing it is important …

Fiscal CliffLast year (2012), on the afternoon of July 27, I had a meeting at my request with UAA Chancellor Tom Case, primarily to discuss the recent hiring of then-UAA Women’s Basketball Coach Nate Altenhofen.

The University had announced the hiring of Altenhofen in late May, as the successor to highly successful Coach Tim Moser.

During the intervening two months I had come to develop deep concerns about Altenhofen based on his prior record and discussions with others Outside involved in women’s basketball.  As politely stated as I can, Altenhofen had developed a reputation of becoming involved with his players and staff in inappropriate ways, not something you want especially in a women’s basketball coach.  He had left his prior position as an assistant at Indiana University amidst rumors after only a year there, and had been out of college basketball entirely (i.e., no one would take a chance on him) in the year preceding his hiring by UAA. Continue reading

Where the money runs out: The price of oil, Medicaid expansion and Alaska social policy …

Fiscal CliffTwo seemingly unrelated events came together this past week to bring the emerging condition of Alaska social policy into stark relief.

The first event occurred Monday, with the release by the federal Energy Information Agency (EIA) of its most recent Short Term Energy Outlook (STEO).  Published monthly, the STEO is a look at the year ahead based on the then-best information.    In my experience, Continue reading

Sustainable Arctic Oil & Gas Exploration and Development (from the November 2013 Alaska Business Monthly)

Arctic Oil & Gas Basins (Nov 2013 AK Business Monthly)

Arctic oil and natural gas resource basins in the Arctic Circle region (click to enlarge).
Source: US Geological Survey

In addition to pieces on this page and elsewhere, I have been writing a monthly op-ed column on oil, gas and fiscal policy issues for the Alaska Business Monthly.  The following piece is the last in that series (at least for awhile), as I go to the bench while some talk about me running for Governor (ABM’s policy understandably is to discontinue any “writings” by formally announced, or potential candidates). This final piece for the ABM was originally published in the November 2013 print edition and is available online here.  In the future I will continue writing a lead monthly article for the blog, called “The Monthly Lead.”

Normally pieces that begin with this title are about the environmental aspects of oil and gas exploration and development in the Arctic. This piece isn’t.

Instead, this piece is about the commercial aspects of oil and gas exploration and development in the Arctic and near-Arctic, and what economic characteristics make ongoing activity sustainable in some regions and not in others. From my perspective, there is a lesson for Alaska in the results. Continue reading