October 15, 2025 • 52 mins
Welcome to The Weekly Top 3 — our look at the top 3 things on our mind here at Alaskans for Sustainable Budgets — for the week of October 13, 2025.
This week, our top 3 issues are these: 1) we discuss EIA’s most recent oil price forecast, why the oil futures market is starting to trend the same way, and what that means for Alaska’s fiscal situation (2:12); 2) we explain how all of the enthusiasm over the Ambler road and other new projects could end up causing even deeper PFD cuts (16:02); and 3) we explain how Jon Faulkner’s Permanent Fund inflation-proofing argument in Must Read Alaska undermines both the current two-account system and the PFD (35:39).
The Weekly Top 3 is a regular weekly segment on The Michael Dukes Show. The Show broadcasts on Facebook and YouTubeLive as well as via streaming audio from the Show’s website weekdays from 6–8am. We join Michael weekly in the first hour of Tuesday’s show, from 6:25–7am, for a discussion between the two of us about our three issues.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
SPEAKER_01 (00:10):
Hi, this is Brad Keatley, Managing Director of
Alaskans for SustainableBudgets.
Welcome to the Weekly Top Three.
The top three things on our mindhere at Alaskans for Sustainable
Budgets for the week of October13th, 2025.
The weekly top three is aregular segment on the Michael
Duke Show.
The show broadcasts on bothFacebook Live and YouTube Live,
(00:33):
as well as via streaming audiofrom the show's website,
weekdays from 6 to 8 a.m.
I join Michael weekly in thefirst hour of Tuesday's show
from 6.10 to 7 a.m.
for a discussion between the twoof us about our three issues.
We post the podcast of ourdiscussion following the show on
the Alaskans for SustainableBudgets Facebook, YouTube,
(00:55):
SoundCloud, Spotify, andSubstack pages.
Also on the Alaskans forSustainable Budgets website, as
well as the project page onnational blog site, medium.com.
You can find past episodes ofthe weekly top three also at the
same locations.
Keep in mind that in addition tothese podcasts, during the week,
(01:17):
you can also follow andparticipate in the discussion
with us of these and otherissues affecting Alaska's fiscal
and economic condition byfollowing us on the Alaskans for
Sustainable Budgets Facebookpage and through our posts on
Twitter.
This week, our top three issuesare these.
First, we discuss EIA's mostrecent oil price forecast, why
(01:40):
the oil futures market isstarting to trend the same way,
and what that means for Alaska'sfiscal situation.
Second, we explain how all theenthusiasm over the Ambler Road
and other new projects mayresult in even deeper PFD cuts
in the future.
And third, we explain how JohnFaulkner's permanent fund
(02:01):
inflation proofing argument inmust read Alaska undermines both
the current two account systemand the PFD.
And now, let's join Michael.
SPEAKER_00 (02:12):
Weekly top three, and it all starts off with um
where is oil going?
And what I mean by that is theprice of oil, because of course
our whole economy is built onthis madness.
And uh and here we are, thiscommand economy, and uh and and
we're kind of at the mercy ofit.
(02:32):
So tell us what's happening inthe uh in the oil situation.
Where do we go?
Where do we go from here, myfriend?
Where do we get started?
SPEAKER_01 (02:40):
A couple of months ago, we uh talked about on the
show the latest, then latest uhenergy information agency
administration, energyinformation administration for
uh uh price forecast for the uhfollowing, oh, I think they do
it for 18 months, year and ahalf uh forward.
(03:00):
And the August forecast from EIAwas significantly different uh
from the forecast that had thathad been making up until that
point.
It reflected the impact of theOPEC production increases uh and
showed a significant softeningin the market as a result of
oversupply.
(03:21):
Uh, significant softening in themarket uh and a significant drop
in price to absorb thatadditional uh oversupply.
Um uh futures prices were up inthe high 60s, touching 70 uh at
the time.
And I know a lot of peoplediscounted uh that projection.
(03:43):
Um EIA came back and did itagain uh in September and made
the same projection about whereprice was going.
Um and prices had softened alittle bit uh in the futures
market at that point.
Um, and now they've come backagain in October and continued
to make the same forecast.
And what we're beginning to seeis the futures market is
(04:05):
beginning to trend down.
Um, not as far as theprojections yet, but the trend
from where it was uh and whereit is now gives you an
indication that it may be goingwhere EIA thinks it's going.
Um EIA is is what EIA is seeing,and what the IEA, another uh
(04:27):
energy uh uh source is doing,energy analysts are doing, is
they're seeing this OPECproduction um really hitting the
market hard, uh resulting instorage buildup because there's
no place else for it to go.
And when you have when you'rebuilding storage, that really
(04:48):
softens the price because peoplewould prefer to sell the oil
rather than put it into storageand incur the incur the storage
fees for an extended period oftime.
So it really impacts price.
And what EIA continues to see isthe OPEC production continuing
to uh uh continuing to stay highand continuing to build res uh
(05:08):
build uh storage and and bringthe price down.
What happened the last couple ofmonths is two things.
One, you still had summerdemand, um, summer refinery
demand, refined refineries, oildemand is strongest in the
summer, in North American summerbecause of gasoline.
So you still had summer demand,and that was sort of masking
what was going on.
(05:29):
And then the Chinese have beenbuilding their own storage, have
been buying uh oil on the marketand putting it into storage.
Some people describe that as theK as the K oil industry, uh,
with uh with real oil demand, uhconsumption demand going down or
softening, and uh the Chinesedemand going up as a result of
(05:53):
storage.
But EIA, both EIA and IEA seethat storage, see China sort of
end nearing the end of thatstorage.
And as a result, they'recontinuing with the uh with the
price projection.
If you have the chart uh and canthrow that up on the screen,
that would be great.
You were just waiting, weren'tyou?
Um so this is so this is thesorry go ahead.
(06:17):
No, I was just waiting for it.
Go ahead.
So this is this is the EIAforecast from October from last
week, and it shows pricescontinuing to soften.
The the the it's divided intocalendar quarters.
As we all know, the Alaskafiscal quarter runs from the
middle of the year to the middleof the next year.
(06:37):
Um so the beginning of uh 2025,really the the line that they
have in the middle is thebeginning of the Alaska fiscal
year.
It's the middle of the calendaryear, but the beginning of the
Alaska fiscal year.
And you can see over the courseof the Alaska fiscal year their
projection uh coming down.
The latest, the the Octoberprojection has the average for
(06:59):
the year has it has it comingdown to oh an average of$52 uh
in the fourth quarter.
Um and the average for the yearuh in the EIA forecast is$59 uh
a barrel uh Brent.
That's compared to the initialforecast, the initial spring
(07:20):
revenue forecast uh of$68 or$68that uh that was forecast at the
time that the spring revenueforecast came out and on which
our budget is based.
Um and it also compares to the$64.
If you'll recall, after thelegislature passed the budget
out, Department of Revenue cameout with a different forecast
(07:43):
than the than the spring revenueforecast or revised forecast for
FY26, uh took it down to$64, andthe governor's vetoes were based
on that$64, the revenues comecoming from the$64.
So the legislature, you can youcan see it in the ledge finance
uh publications.
The legislature still thinksthat we're at$68.
(08:03):
The governor's budget, which thelegislature partially rejected,
was at$64.
And now EIA is telling us thatwe're headed toward$59.
The current futures market is at$64 average for the year.
So it's down from certainly fromwhere the legislature thinks the
market is.
(08:24):
It's on, it's it's the sameprice that the that the
governor's that the governor'svetoes were based on, but EIA is
telling us it's going evenlower.
The result of that is that if ifEIA plays out, and as I say, the
futures market seems to beincreasingly believing that's
where the market is going, um,if that plays out, then we're
(08:45):
we're talking about UGFrevenues, unrestricted general
fund revenues.
The legislature thought thatthey were going to be at$2.33
billion.
The governor's budget was basedon$2.1 billion, down$230 million
from uh from that.
Uh, but EIA's forecast is nowsending us down to about$1.9
(09:07):
billion, a little bit over$1.9billion.
Long, long way of getting tothis.
People are still acting as ifoil prices are going to be high
for the year.
Um, the legislature is stillacting as if they're going to
get$68.
Uh, the administration said saidit was$64, and then you have um
uh the Department of Revenue,former Department of Revenue
(09:30):
head uh Adam Crumb going off andinvesting$50 billion$50 million
uh out of the CBR because hesaid, Oh, we're not gonna need
it.
Well, we are gonna need it.
I mean, if if this if theseprices keep going down, uh we're
gonna have we're gonna have avery difficult FY25 and the EIA
forecast for FY FY26 rather, andthe EIA forecast for FY27, the
(09:55):
current EIA forecast for FY27 is$53 a barrel, even even lower.
So those who are running aroundthinking, okay, we're gonna be
okay, um, and and you know,we're gonna we're gonna get
through this okay.
Prices aren't gonna be great,but we're gonna get through the
the the very tight budget, assome said, that we passed this
(10:15):
last year.
If prices keep going in thisdirection, then EIA is telling
us again and again and againthat's where they're going.
If prices keep going in thisdirection, we're gonna have a
very difficult uh uh spring nextyear as everybody sort of wakes
up and says, where did all therevenue go?
Um, and we're gonna have an evenmore difficult heading into even
more difficult time heading intoFY27 uh with uh with prices
(10:39):
projected at$53 a barrel.
It's gonna make for a veryinteresting election year.
SPEAKER_00 (10:44):
Well, I mean, this is what we've been saying for
the last 10 months on thisprogram that the next, you know,
that the next year is going tobe, you know, in some ways
ultimately brutal, and we're weshould be prepared for it.
And yet they and and and it wasmentioned during the last
session.
I mean, uh uh Bert Steadman waslike, well, we know it's gonna,
(11:06):
but we don't want to payattention to that.
Don't pay attention to that.
We want to focus on this year.
You know, again, theshort-sightedness, uh, it's
mentioned in passing, and thenit's a shock.
Shock, I tell you, that we'reout of money and we don't know
what to do.
That's that's kind of the thisis like a redo.
Like I said, groundhog day.
SPEAKER_01 (11:24):
Yeah, the supplemental, um when uh when
Ledge Finance issued their lastnewsletter, they were talking
about what was going to beneeded for the supplemental.
And they said, well, of course,we have this reserve that was
that the surplus that was setaside uh in the spring budget
based on$68.
Uh we have this reserve, butwe're even gonna outspend that
(11:45):
uh on the supplementals.
The supplementals are gonna bebigger than the reserve we set
aside, so we may have to go intothe CBR sum.
Well, that's based on that thatstatement's based on$68.
That they they continue to relyon the spring revenue forecast
as opposed to the revisedrevenue forecast that Department
of Revenue came out.
That's not true at$64, and it'scertainly not true uh at$59,
(12:07):
which is uh which is where EIAtells us we're now uh we're now
going.
So it's gonna be it's gonna be abig wake-up call uh next spring.
And legislators, I mean, this isreally pitched to legislators
and staff out there.
You guys need to stop, you know,you guys need to stop and sort
of you know suck in some air andthink about where this takes
(12:28):
you.
If uh if this is where uh ifthis is where prices are going.
Um maybe not, maybe they theyaren't.
But I would stop with the oh, wegot money to do this, we got
money to do this, and we gotmoney to do that, and and we'll
be okay, don't worry about it.
It's all based on six to eightdollars.
You need to you need to back upand take a breath and uh and and
and really think about whatyou're saying.
SPEAKER_00 (12:49):
So I look at this and I just keep seeing these
numbers, and this is actually,it seems like this was just
slightly better than what we hadconsidered in our previous
discussion of IEA, because theyhad talked it about they had
talked about the oil being downmaybe in the low 50s.
Like, so this seems like this iseven a little bit brighter than
what they were anticipatingbefore.
SPEAKER_01 (13:11):
Well, I sort of uh by cutting it off by giving you
a fourth quarter average, uh, Isort of made it a little better.
Uh the April, May, let's see,the March, April, uh March and
April prices are$51.
The May and June prices are$52.
Um, the um, and if you go overto the WTI, those prices are
(13:32):
lower, but but we need to needto focus on brand.
So yeah, it's come up a littlebit from where it was in August,
but that that little bit isn'tisn't worth a whole lot to uh in
terms of uh UGF.
SPEAKER_00 (13:46):
Right, right.
Well, and and they've gottathey've gotta pay attention.
They've got to they've got towake up to where they're at.
And the where they're at isthere's not gonna be a whole lot
of bailout coming from some kindof big oil prices.
Um, and you mentioned this, andI know you're gonna get into it
a little bit here in the nextsegment.
You mentioned this uh um thisthis thing with crumb.
(14:08):
This has kind of been um thishas kind of been a crazy thing.
I mean, at one point I agreewith him.
If they get down to the last$50million in the account, then
they've got bigger problems.
But at the same time, what wasgoing on here?
What was with this$50 million?
I mean, you know, that nobodyseemed to know about or that
everybody seemed to know aboutand nobody wanted to talk about.
(14:30):
I think it's crumb trying to bea big shot.
SPEAKER_01 (14:32):
I think it's crumb trying to say, hey, I'm the
commissioner of revenue.
I can, I've got, you know, allthis money at my disposal.
I can invest it how I want to.
This is the type of investmentas we've drained down the CPR,
CBR, really what we've said toourselves is the CBR is going to
be our cash investment.
It's we're gonna hold it in cashor near cash, liquid assets, um,
(14:53):
and that's and that's gonna beour cash investment.
And we're gonna invest for thelong term using the permanent
fund corporation.
And I think this is this is Crumsort of saying, well, maybe I
couldn't get this through thepermanent fund corporation, so
I'll just do it myself uhthrough uh through this
investment.
I don't know, maybe we're gonnasee this get worse, and maybe
we're gonna see the the peoplewho who crumbs invested with
(15:14):
show up as big campaign donors,and then that'll set off all
sorts of additional arm alarmbells.
But even if we don't, even if wedon't see that, uh what we're
going to have seen is takingwhat we really have been
preserving as our cash accountfor emergencies and for oil
price drops and and things likethat, we're gonna we we're gonna
(15:35):
we're taking a portion of ourcash account and we're setting
it aside into a long-terminvestment.
That's that's something thatwe've said we just weren't gonna
do as we've taken the CBR down.
So Crum, crumb, for whateverreason, and I and I think it's
just because you know he justwanted to be a big shot and say
that uh that he could do this.
I'm the revenue commissioner, Ican commit this money.
(15:56):
Uh, but for whatever reason,it's a it's a stupid move,
especially in light of where oilprices are going.
SPEAKER_00 (16:02):
All right, we're continuing right now with Brad
Keithly, Alaskans forSustainable Budgets in the
weekly top three.
Number two is uh on the agendanow.
We just finished up with numberone, which was where was oil
going?
And now Brad says somebody needsto look at the financials of all
these projects that we've gotgoing on out there.
And we we were just talkingabout this the other day, right,
(16:24):
Brad?
I mean, the the whole gaspipeline, and we still haven't
seen the updated finance.
But somebody needs to look atthe financials of all these
projects.
What do you mean exactly?
SPEAKER_01 (16:33):
Well, there's been a series of headlines uh that just
sort of, you know, every time Isee one, I go, I I I rush to the
paragraph that talks about howwe're gonna pay for it.
The most recent one was the wasthe Ambler Road.
I mean, Trump made a big dealout of reversing Biden and
reversing the protections thatBiden instead on the road and
opening up the opportunity forthe road.
(16:55):
Um, and you know, and people arenow saying, now talking about it
as if it's a done deal.
But the feds aren't paying forit.
I mean, it's it they've openedup the permitting for
essentially the state to pay forit.
And the same problems that wehad before, I wrote a column on
this a couple of years ago whenwe were when Ambler was hot and
heavy at that time.
(17:16):
Uh, the same financing problemsthat that we had then uh are
still around.
The road is gonna be is notgonna be cheap, it's gonna be at
least 300 million.
There's some estimates that sayit's gonna be 500, some
estimates that say 700.
There's even one estimate outthere that says a billion.
And and so you can discount,maybe discount the high end of
(17:38):
those, but where's the 300, 500,700 million gonna come from?
AID AI ADA has said that they'regonna issue bonds for it, and
the bonds will be financed onthe back of uh toll road
agreements that they're gonnaenter into with the with the
mines.
But the mines that are outthere, uh the potential mines
that are out there are not yetpermitted.
(17:59):
And the two mines that peopletalk about most are really small
deposit mines, short-term mines,uh, that would not be enough
either in volume or in or intime to pay out$300 million in
bonds.
Um also, you know, where are yougonna get the money?
Where are you gonna, Ada saysit's gonna borrow the$300
(18:20):
million by issuing these bonds?
Bondholders are gonna want toknow that there's a pretty good
certainty uh of payback.
And so they're gonna look at themines themselves.
They're gonna look at the samething that I just talked about,
the mines themselves, where theyare in the process, what the
what the deposits are, theprojected deposits are, how
that's gonna, you know, how muchof the toll road that's gonna
pay for.
(18:40):
Um, and they're gonna, the bondissuers are gonna be skeptical
about getting it payback.
So they're gonna ask foradditional assurances,
additional guarantees,additional backups.
And I think what we're I thinkwhat we're seeing is sort of the
maybe unintentionally, but maybeintentionally, we're sort of
seeing the same thing from allof these projects.
(19:01):
They're building up publicexpectation, they're building up
public, you know, uh uh uhenthusiasm for them, they're
building up public desire to seethem, to see them go forward.
They're gonna say that, youknow, President Trump unleashed
it and we're gonna do these.
And then all of a sudden we'regonna look at where the hell is
the money coming from to pay forthese things, and we're gonna
(19:22):
see it start backing up on thelegislature.
And they're gonna say, Oh, wegot to do Ambler.
President Trump authorized it,we got to do Ambler, bond market
isn't there yet, the minesaren't there yet, but we got to
do Ambler, so we're gonna needsome additional money out of the
legislature or and a guaranteeout of the legislature to back
up these bonds.
I see the same thing from theLNG project.
(19:42):
I see them going down the road,building up enthusiasm, holding
community events, uh, getting itgetting people excited about it.
But there's there's things thatthe LNG project's gonna want
from the state, the not theleast of which is a change in
the property tax assessment orproperty chat tax rate on uh on
(20:02):
pipelines, which the the WoodMackenzie study that was done
last year to support the theexpect or to support the numbers
that said that it was sort ofcompetitive coming into into uh
South Central, uh, they alreadyassumed that those those uh
projections assumed that theproperty tax relief, the
property tax rate would be lowerfor the uh for the gas pipeline
(20:25):
than for the oil pipeline.
So it's there's a I think whatwe're seeing is the front ending
of a lot of enthusiasm aboutthese projects and the
expectation that once they getthe enthusiasm, if they can get
the enthusiasm whipped up enoughuh to the point that people are
gonna you know be demandingthem, then then they'll just
take it to the legislature andsay, you've got to follow
(20:46):
through on this because we buildup we build up all this
expectation.
You've also got people likeShelly Hughes.
There was an article uh in theKetchikan paper uh where Shelly
had been down campaigning uh inKetchikan, and she said, Oh, we
need to have a capital budgetagain.
We've only had these skinnycapital budgets, we need to be
building uh uh things again.
(21:06):
You've got you know, PortMcKenzie is is is building back
up again, they're having publictours and and trying to sell the
uh the the project again, all ofwhich is dependent on state
financing.
The the the what there's oneother piece of this that when I
start fitting the puzzletogether, you start seeing these
articles by Bruce Tanjamin andby others about we can't afford
(21:29):
the PFD anymore.
The PFD needs to go.
Right, I saw that.
And and we need to we need allthis money.
I there's a link between thosetwo.
There's a link between peopleyou know wanting to get on with
these infrastructure projects oror just projects in general,
wanting to get on with theseprojects, Shelly wanting to do a
capital budget, everybodywanting to get out there uh with
(21:50):
these projects, building up theenthusiasm for it.
And on the other hand, peoplestarting to you know try to say,
well, we can't afford the PFDanymore.
And and and and the link is thatmay that's the funding source
that people have in mind for howto support these projects when
the enthusiasm built to thepoint that they come to the
legislature and say, Oh, youknow that project, that Adler
(22:12):
project that we want to goforward with that President
Trump approved, that everybodyis expecting now to you know
turn dirt next year.
What was it?
The Secretary of Interior saidit'd be built next year.
Um you know these projects.
Well, we just don't have themoney for it.
Would you and so you're gonnahave to come up with the money,
and so they're gonna link thattogether with the with the
(22:32):
anti-PFD folks, and all of asudden, whip-boom, bamboo, the
PFD is gonna be gone and we'regonna be spending it on all
these projects that don't pencilout that we need money for
because nobody will lend us themoney because the project isn't
isn't isn't uh firm enough to befinanceable yet.
So there you can, I I can justsee this building and I can and
I can see these two thingsmoving in parallel.
(22:55):
Uh and it bothers me.
I mean, because we don't have afinancial plan for Ambler.
We don't have a financial planfor the for the LNG line when
when the LNG folks come to thestate and say, you need to give
us this, that, and the otherthing to make this.
SPEAKER_00 (23:06):
When they come to the state.
I mean, we still haven't seenthe updated, right?
I mean, we still haven't seenthe updated metrics on that.
What is it actually gonna cost?
We have no idea because nobody'sactually even brought it
forward.
But don't worry, it'll bespectacular.
It'll be spectacular.
We're guaranteed that.
SPEAKER_01 (23:22):
Yeah, and and and you know, so I saw one post that
said, oh, we need we need weneed the Mance Newport, we need
the the Port McKenziedesperately.
Okay, how who pays?
Who's gonna pay for it?
Well, we need to cut out theuniversity, we need to cut the
university back.
That's not gonna happen.
I mean, people who areadvocating these things in and
(23:43):
and and their explanation of howthey're gonna pay for it is
we're gonna cut something else.
Is that they're just living indreamland.
They're really those people,those people who are out there
building these expectationswithout financial underpinning
for it, other than we're justgonna cut somebody else, those
people who are building that outare really building up the steam
(24:03):
that's gonna result in theelimination of the PFD.
It's gonna result in the switchover to the second parallel
stream of people talking abouteliminating the PFD.
And I just I I you know, you canjust you can if you if you piece
these things together, you cansee it coming.
So if somebody somebody believesin the PFD, as I do, uh and
(24:24):
believes in the in theimportance of the PFD and the
and the importance of the rolethe PFD plays uh in the Alaska
economy and to Alaska families,then we need to be skeptical, I
am skeptical, about about theseprojects uh uh going forward uh
without without a strongfinancing plan, without their
(24:45):
own strong financing plan,without ADA being issued, able
to issue the bonds withoutrecourse and that sort of stuff.
SPEAKER_00 (24:53):
I mean, if you were the mad emperor for a day, would
you mandate that any one ofthese projects have to have some
kind of fiscal note or planattached to it that said, and
here's how we I mean, wouldn'tthat be part of the of the whole
pitch to it?
I mean, if you're doing a pitchdeck, I mean, what you know,
I've because I've built a fewpitch decks over the years.
If you're pitching something,you know, in some kind of sales
(25:13):
thing or whatever, you've alwaysgot a page that talks about the
breakdown of the cost and howit's gonna get paid for and what
the ROI is gonna be.
You'll always put that in theresomewhere.
It's I mean, you know, it'susually near the end because
that's when you're asking forthe money.
But, you know, there's alwayssomething built in.
I mean, shouldn't shouldn't thisall be part of it instead of
this pie in the sky, we're gonnabuild skyscrapers to the moon,
(25:35):
and then we never talk about howit's gonna get paid for.
SPEAKER_01 (25:39):
Yeah, Ada, Ada in particular, uh uh should be
doing that.
I mean, so uh and and aboutAmbler in particular.
What ADA says when they'reasking about the financing with
Ambler is, oh, we're gonna issueuh bonds and they're gonna and
we're gonna toll road the road'sgonna be a toll road and we're
gonna pay for the bonds with thetolls.
Yeah, but you need to havemines.
(26:01):
I mean, anybody who's gonna buythese bonds is gonna say, yeah,
but you need to have mines perat least permitted on these
roads, and they need to be ofsufficient volume and sufficient
size that they're gonna pay itout.
I'm not gonna, I'm not gonnalend you$300 million or$500
million or$700 million basedupon, you know, just a statement
that says, oh, it's gonna be atoll road, don't worry about it.
(26:23):
I want to know who's gonna bepaying these tolls, and I want
to know that there's gonna bemoney behind those people,
revenue behind those people inorder to pay the tolls before I
issue the bonds.
And I'm gonna, and I'm gonnasay, as a bond, as a as a bond
buyer, I'm gonna say, look, ifyou can't, if you can't show me
the money in terms of minespermitted and in terms of volume
(26:44):
of production that's gonna payout these tolls, then I tell you
what, give me a guarantee, giveme a state guarantee, and I'll
buy your bonds.
But but what we've done then isjust really commit the state's,
you know, commit future revenuesources to to underlie these
bonds.
People say, oh, well, we did itover at at Tech Cominco, we did
it over uh at the red dog mine.
(27:04):
Well, the red dog mine, beforewe issued those bonds, the red
dog mine was almost completelypermitted.
It was scoped in a way that theyknew the volume of production
that was gonna come out ofthere, and they knew that that
volume of production was enoughto pay the bonds off.
So, yes, we they there we gotbonds for for that toll road,
(27:25):
but it was in a much differentplace than Ambler is uh right
now and Amber and in a muchdifferent place than Ambler's
likely to be in the next four orfive years.
So if Bergam's out there sayingwe're gonna, we're gonna you
know build this road next year,I I don't know where the money's
gonna come from.
SPEAKER_00 (27:41):
Is the federal government gonna I mean if you
know he's saying that, but isthe government gonna pony up
with the money, or is it justyou know, this is all
aspirational at this point?
SPEAKER_01 (27:49):
Oh no, when he when they were asked, they said, Oh,
there's it's gonna be a tollroad.
They did the Ada, the ADA uh uhdefense and said, Oh, it's gonna
be a toll road.
Don't worry about it.
Yeah, well, you gotta have tohave volume on the road to pay
the tolls to support the bonds,and we don't have that.
Right.
And so, and so I'm just I sayconcern I'm concerned we're
(28:12):
gonna get all this buildup andall this expectation, and then
Ada's gonna say, well, we can'tsell the bonds because we don't,
and and and then everybody'sgonna say, Well, legislature,
you need to come back this up.
You need to you need to make ithappen because we have all this
expectation on all these peopleout there who want jobs and
they're ready to go.
SPEAKER_00 (28:30):
Well, and I can see another problem with this with
the legislature and everythingelse.
Frank brings it up in the chatroom.
He said the issue with theAmbler Road is who gets to use
it.
If the state and the federalgovernment build the road, it
would have to be open to thepublic, to all the public.
If it's built by private sourcesand it's a toll, they can
control who uses it.
And that's part of the problemas well.
(28:50):
And I could see that being asticking point with somebody in
the legislature.
Oh, we've got to have publicaccess to it.
I mean, you know, it's again, itthis is not all built into it.
It's they should have all thislaid out before they come out
with these big, hugeaspirational plans.
You got to have a way to make itall work.
SPEAKER_01 (29:09):
Yep, yep.
And and and we're certainlybuilding up the aspirations.
We're certainly building up theexpectations.
And I just we just don't havethe money to we don't have the
money to back it up, and and theprojects aren't at a point where
they can back it up themselves,at least in the case of Ambler.
Uh, and certainly in the case ofAKLNG also, they're not at the
point where they can where theycan back up their projects.
(29:31):
But we're gonna build up theseexpectations, we're gonna start
all these all these tradeschools and education courses uh
to get everybody ready to go.
We're gonna, you know,everybody's gonna be sitting
there at the starting line,ready to go.
And then AJ's gonna say, Oh, butwe don't have the money.
So legislature, bail us out.
And then the people who say killthe PFD are gonna kick in and
(29:51):
say, Ah, we got the money, let'sgo.
SPEAKER_00 (29:54):
David says it seems that the railroad line would be
more cost effective and wouldensure that the public would not
be able to use.
It um, but but again, who'sgonna build it?
And railroad, I thinkhistorically is much more
expensive than an actual roadsystem or you know, I mean, it's
significantly more to build arailroad, David.
(30:14):
That's part of the problem.
Um well, and where's thefinancing for the railroad?
Yeah, exactly.
I mean, how do you build it?
That's again, that comes back tothe big issue.
Who pays?
Where does it come from?
SPEAKER_01 (30:26):
Yeah, right.
SPEAKER_00 (30:28):
It says, How how about we start with any plan?
Oh, wait, cue the Alaska studyindustry industry, right?
Because we're gonna study thestudy that we studied before to
study the previous study that westudied once before.
I mean, that's exactly wherewe're at.
Uh, there's a whole industry butbaked up around that.
Um maybe the$50 million crumbjust threw down the crapper
(30:55):
would be a down payment on theroads, you know.
Uh that's it.
But I I will say this, Brad.
One of the interesting thingsthat came out of this discussion
about Crumb and this$50 millionwas we got a little bit of a
peak at the very end of thisarticle in the Alaska Beacon,
where they were talking aboutthis specifically, was that Andy
(31:16):
Josephson was talking about it,and and he said he didn't think
that the legislature will needall of the CBR.
But he, which I mean, that's hesays he thinks there's a great
concern about the fact that weneed readily available cash, and
that's what the CBR was designedto provide.
And he goes on to talk about,you know, crumb and the
governor's veto and everythingelse.
(31:37):
And he goes, We're it's justthat we're suspicious.
We don't know when we can haveour$50 million back.
This is the attitude.
This is all our money.
We want our$50 million back.
We didn't want somebody else.
It's okay if we spend it, but wedidn't want somebody else to
have our we when are we going toget our$50 million back?
(31:59):
I mean, what the mean or did thethe hairs in the back of your
neck just go like that when hesaid something like that?
Because that's the attitude,right?
SPEAKER_01 (32:06):
Yeah, exactly right.
And and in terms of you know,the statement we won't need it
this year.
Well, look, the the EIA forecastfor next year or for oil next
year is what$53 um uh throughFY27.
So we may not need it all thisyear.
God hopes we don't need it allthis year because we're gonna
(32:26):
need some of it next year.
Um, you know, the the spendingis projected to go up.
We have supplementals that areprojected to to hit uh in the
spring, and we're gonna befacing$53 or$55, or you know,
just pick a number in the 50s,any number in the 50s, even the
high 50s, and we're we're indeep crap.
(32:46):
So yeah, the 50, the 50 milliondollars, I mean, Crumb's defense
of always just 50 milliondollars.
I that's not much of a defense.
Because after the end of thisyear, depending upon depending
upon what they do with the FY27PFD, after the end of this year,
we may have less than$100 leftin the$100 million left, uh,
left less than a billion dollarsleft in the CBR.
(33:10):
Right.
And and so where do you go fromthere if you're facing another
year of$53 uh$50 oil?
SPEAKER_00 (33:16):
Yeah.
No, and and and the irony hereis that well, it was only$50
million, and I was trying to getus to cut above inflation and
blah blah.
And I'm like, with just$50million out of a multi-billion
dollar fund, you were trying to,you know, we're not even keeping
up with inflation kind of thing.
This was just some kind of testbed that you approve three days
(33:37):
before you leave off.
I mean, it just is so weird.
The whole thing is just soweird.
Maybe it was him just trying toput on his big boy pants.
I I don't know.
I've I'm I'm can I'm confused byit.
SPEAKER_01 (33:49):
It it it is it's weird, especially.
I mean, he's on the PermanentFund Corporation board, right?
And he understands the role ofthe Permanent Fund Corporation
is to is to make these long-terminvestments, to make these plays
in combination with other plays,you know, risk weight the whole
thing.
They don't do a good job at it,as we've talked on other shows,
but nevertheless, risk weightthe whole thing and and always
(34:11):
make sure you have you know somehedge against against a high
risk, uh, a high-risk bet likethat.
And he knows that.
And yet he decided out of theCBR, which which you know
generally was considered to bethe cash account that we kept
for emergencies, out of the CBRhe's gonna make this$50, you
know, million dollar, this$50million bet uh instead of the
(34:32):
Permanent Fund Corporation.
If he thought it was a good betto make, then he would have made
it, he should have made itthrough the they should have
made it through the permanentfund corporation.
But but for whatever reason, youknow, and it can it'll either be
sinister if you if you see thatthere's been donations made by
the people to whom he to whom hecommitted the money or not
sinister if there aren't, butstill sort of odd.
SPEAKER_00 (34:57):
Well that's the thing, it's it's weird.
It's it's not, you know, it'slike I said, if there's no if
there's no connectivity throughcampaign finance or something
like that, but just why?
And maybe you hit on it.
Maybe he just wanted to put upput on the big boy play, you
know.
I I'm I can play with the bigboys.
I'm the you know, I just I justdon't know.
(35:17):
I'm I'm trying to wrap my brainaround it.
SPEAKER_01 (35:19):
And that's that's sort of been crumb's MO.
I mean, we've gone through howmany tax directors, we've gone
through how many deputydirectors of of revenue.
I'm the one.
I'm I make the call.
SPEAKER_00 (35:30):
We're continuing now.
Brad Keithly, Alaskans forsustainable budgets, the weekly
top three.
The great debate.
That's what must read's JohnFaulkner is calling it.
It's a new series of articlesthat he's writing.
He said this is the first in theseries that frames Alaska's
great debate regarding thepermanent fund.
The series will invite debatebut promote a protective view of
(35:53):
both the management of thecorpus and the original dividend
plan.
We start this series withinflation proofing, a topic what
topic which has broad consensusand clear legal direction.
But Brad, you're you you haveyou have questions.
SPEAKER_01 (36:08):
Well, so so inflation proofing has been used
um by the permanent fundcorporation as a justification
for moving to a one accountfund.
And the way they've used it isthey've said, look, the way the
way historically we've doneinflation proofing is we've
(36:29):
taken cash out of the uh theearnings reserve and we've
transferred it over to thecorpus uh in order to inflation
proof uh the corpus.
And and so the the problem, saysthe permanent fund corporation,
is that's taking too much cashout of that, that plus the PFD
(36:51):
demand on the earnings reserveis taking too much cash out of
the out of the the the earningsreserve to to move over to the
to the permanent to the corpus.
We can solve that by justconsolidating uh the two funds
together, and we won't run outof money in the in the earnings
reserve.
It's also been the need for cashout of it out of for inflation
(37:14):
proofing has also been ajustification, the need for to
take cash out of inflation outof the earnings reserve and move
it over to the corpus forinflation proofing has also been
a rationale that some have used,many have used, to cut the PFD.
Because you have the earningsreserve, you only have so much
cash in the earnings reserve.
And if you're trying to fund thePFD and you're trying to fund
(37:34):
inflation proofing, uh theargument is you'll run out of
cash.
So you particularly when they'renot earning, when the permanent
funds not earning enough,permanent fund corporation's not
earning enough to refill theearnings reserve, but the rates
are taking it out for those twothings.
So what we need to do, says,says those, we need to cut the
PFD in order to leave enoughcash in the earnings reserve to
(37:57):
move it over to the permanentfund corpus.
We don't need to do that.
Um we have inflation proofing isa non-cash item.
It can be satisfied eitherthrough cash or through
appreciated assets.
And we have a lot of appreciatedassets on the books.
And as long as your appreciatedassets are earning enough,
(38:19):
there's enough appreciation inyour assets, unrealized gains,
there's enough appreciation inyour assets, then then you're
you're inflation-proofing, theuh the the corpus uh through the
through the appreciated assets.
And I wrote a long column or acouple of columns a while back
that analyzed the amount ofunrealized gains or appreciated
(38:42):
assets that we had in thepermanent fund corporation and
reached the conclusion thatthere's nearly enough of that
generated every year,appreciated assets or unrealized
gains, nearly enough of that tocover inflation proofing.
The cash need to thesupplemental cash need to cover
the remainder of inflationproofing is relatively small.
And if you do it that way, ifyou use the unappreciated assets
(39:04):
to cover inflation proofingproofing, the non-cash item of
inflation proofing, and preserveyour cash, not only do you not
run out of it in the earningsreserve, you start building the
earnings reserve back up, andthere's enough cash to cover the
PFD.
You don't get people saying, oh,we need to cut the PFD in order
to create cash to move over tothe move over to the permit fund
(39:25):
corpus.
So in the in the article, John'sarguing that we've got to do
cash and placement inflationproofing, that we've got to have
cash, that we've got to coverthe inflation proofing
requirement through cash.
And that's just playing rightinto the hands of those, A, who
want to cut the PFD by arguingthere's arguing there's not
(39:46):
enough cash in the earningsreserve to do both, and B
playing right into the hands whowant to who want to consolidate
the permanent fund into a singlesingle account by arguing that
if you as you continue payingcash out of the earnings
reserve, you're training it downto the point that you don't have
enough cash left in the earningsreserve to cover to cover your
requirements.
I wouldn't think that John wouldbe in favor of either of those.
(40:08):
I mean, in the past he said hesupports the PFD.
Right, right.
And I wouldn't think he would bein favor of a single account
because the single account opensa backdoor into the permanent
fund corpus.
We've talked about that a numberof times on the show.
So I'm not I'm not quite surewhat John's doing.
I mean, I from a from a you knowa general standpoint, cash is
(40:29):
always better than appreciatedassets.
But appreciated assets arevaluable, they've earned.
I mean, the appreciation is theearning.
You just haven't realized thatearning by selling the asset
yet.
But those earnings are real.
That those earnings are there,they're embedded in the asset,
they're continuing to beinvested by leaving your
investment in that stock andwatching it continue to rise or
(40:52):
that asset and watching itcontinue to rise.
So, I mean, from an accountingstandpoint, unrealized gains,
appreciated assets are are asvaluable as cash if you don't
need them for something that youneed to you need to pay out.
And we don't need to be payingout the inflation proofing.
SPEAKER_00 (41:09):
Right.
Well, and again, just to beclear, he doesn't advocate in
this article per se for a singleaccount, but as you say, he's
kind of playing into thatargument by you know talking
about inflation proofing.
And the one thing he alsodoesn't talk about is the
transfers.
I mean, we transferred$8 billionout of the earnings reserve into
(41:29):
the permanent fund corpus.
And it was ostensibly, in fact,it wasn't just obstensibly, it
was blatantly said that this wasfor future inflation proofing,
and then they convenientlyforgot about it a year later or
two years later.
They conveniently forgot aboutthe billions of dollars that
they transferred over andstarted talking about inflation
proofing again, which again goesback into our theory that
(41:51):
somebody wants the corpus to becombined and this is a way to
kind of create that crisis uhkind of thing.
So, I mean, I don't I don'tunderstand it either.
Um, and it uh you know it begsthe it begs the question of why
are we so focused on that?
Why would that be the startingpoint of a discussion on the
permanent fund?
SPEAKER_01 (42:11):
Well, maybe John thinks it's the
non-controversial one.
I mean, he does say we startthis series with inflation
proofing, a topic which hasbroad consensus and clear legal
direction.
Well, it doesn't have I I meanto the extent anybody listens to
me, it doesn't have consensusbecause it's a bad thing to do,
because you it leads to PFD cutsand it leads to the argument for
(42:34):
uh for the single combining thetwo accounts into a single
account.
Um and clear legal direction, Idon't know.
Earnings, what the what theconstitution says is that the uh
legislature shall deal with theearnings off of the off of the
corpus.
Well, earnings come in twotypes.
They come in cash.
If you cash out an asset andrealize the gain on it, they
(42:56):
come in cash, or they come inunrealized, unrealized gains, uh
appreciated assets.
And those are from an accountingstandpoint, those are the same
thing.
I mean, they are they are theyare the equivalent.
So, in terms of clear legaldirection, I don't know if
there's clear legal direction,certainly not from the
constitution.
Well, there's not clear legaldirection that you have to use
cash.
SPEAKER_00 (43:16):
And isn't there some conflicting league?
Because I mean, I thought underSB26, which was the POMB draw,
there was a whole change to theinflation-proofing component
anyway, right?
I mean, so now you've got kindof dueling statutes and there
and there's a different way tohandle it.
So is there clear legaldirection?
I guess it depends on whichstatute you're paying attention
to.
SPEAKER_01 (43:35):
Yeah, I mean, everybody talks about these
dueling statutes.
They really aren't.
They can be they can bereconciled.
Uh, but I just I I don't.
I mean, there's not there's notclear legal direction from the
constitution, at least, there'snot clear legal direction that
you have to use cash to coverinflation proofing.
In fact, the constitutiondoesn't talk about inflation
proofing at all.
It just talks, it just talksabout maintaining the corpus,
(43:56):
that you can't spend the corpus,and it talks about the earnings,
and the legislature can dowhatever it wants with the
earnings.
I agree that inflation proofingis is useful.
I agree that it's important.
It just doesn't have to be donein cash.
And there are there aresignificant downsides in terms
of draining the earnings reserveuh and in terms of putting the
PFD at risk by by requiring thatyou use cash for what
(44:20):
essentially what essentially canbe an is a non-cash uh
requirement on the other side.
SPEAKER_00 (44:25):
We've got two minutes here, Brad.
What would you say to JohnFaulkner if you ran into him at
the store and said, Hey, I readyour article and and uh you know
I don't understand, or what youknow, give me a give me the
90-second version of what youwould say here.
SPEAKER_01 (44:37):
John, I don't understand, uh don't understand
why you're arguing what you'rearguing, because A, it plays
into people's hands on cuttingthe PFD, and B, it pays plays
into people's hands uh on uh onconsolidating the two accounts
and opening a back door into theinto the corpus.
I thought you were against atleast one of those, uh, if not
(44:57):
both of those.
So why why are you uh supportinguh something that that leads to
uh leads to to both of those uhtogether?
Doesn't need to be cash, John.
It can be uh appreciated assetsor accounting or accounting
gains, uh, and we can satisfyinflation proofing with it.
SPEAKER_00 (45:14):
That was a weird entree into the whole debate
about the PFD was the was theinflation proofing.
That would have not been theprobably the point of entry that
I would have taken, but to eachhis own.
Um I think John and I areprobably in alignment on most
things uh regarding the PFD, butthat is kind of a weird entree.
But any any final thoughts herefor everything we've been
discussing today?
SPEAKER_01 (45:35):
I'm going back to the beginning, Michael.
I'm going back to the firstsegment.
I I am concerned.
Um, I mean, I follow EIA and IEAand OPEC religiously.
I follow what they say about theoil markets.
I follow the oil markets, I doweekly charts that look at what
the oil markets are doing.
Um and I and I I I mean I Ispend a lot of time on it every
(45:58):
day on where oil markets and theand the prices are going.
And at first, when EIA came outwith this and the futures
markets were sort of someplaceelse, I thought, okay,
occasionally the EIA goes off ona on a tangent, and maybe this
is one of those tangents.
But then they stuck to it thesecond month.
Um, and I thought, yeah, they'reserious about this.
(46:21):
And now they've stuck to it athird month, um, and and and you
start seeing the futures marketsshowing the same trend across
the across the remainder of theAlaskan fiscal year.
And I'm concerned about it.
I I think this is I think thisis realistic.
The the you know, and and andnow that Trump solved the Middle
East, you don't have that risksitting in there that always
(46:45):
sits underneath the oil marketsand you know, of some sort of
flare-up in the in the MiddleEast that will bring prices back
up.
Um, and China uh has built awhole lot of new storage, but
they seem to be filling it up.
Um, and so you can't count onChina continuing to support the
market uh over the remainder ofthe year.
I mean, EIA is saying you can't,and IEA is saying you can't.
(47:07):
Can't count on China supportingthe market over the remainder of
the year.
So I I am concerned and andincreasingly believe the the
strength of what EIA isprojecting on these prices and
the and the impact of that onAlaska in terms of what we're
gonna face next spring from abudget standpoint, both the the
last part of the FY26 budget andmaking the FY27 budget, what
(47:30):
we're gonna face next year, ifthat's where these prices go, is
just gonna be huge.
SPEAKER_00 (47:34):
Well, because like you were saying earlier, this
discussion about thesupplemental, and oh, don't
worry, we've got this extramoney and we've put it aside,
and then it's all been sucked upby the fact that the oil prices
have plummeted.
Um you know, what's thesupplemental gonna be?
A quarter of a billion dollars,you know, next year, uh, just
for this current fiscal year,let alone what's coming in the
(47:55):
next year?
I mean, we've talked about this.
This is a significant,challenging time.
It's gonna, this is not a timethat I would want to step up as
governor, quite honestly,personally.
But somebody's gonna have to doit and somebody's gonna have to
take the reins on this thing,and it's gonna be a hot mess.
SPEAKER_01 (48:10):
Yeah, the candidates here are talking now about full
PFDs.
I I I love the discussion of thefull PFD.
I think it's important.
I think it's central to theAlaska economy.
I think it's central to Alaskafamilies, middle and lower
income Alaska families.
I I I strongly like candidateswho talk about that, but they're
gonna have to be ready to talkabout how the hell they're gonna
(48:33):
balance the budget otherwise.
And, you know, the 19 or the2018 Dunleavy, we're gonna cut
our way to it, just ain't gonnawork this time.
Um, because we saw where thatwent.
So those candidates are gonnahave to be ready.
Even the candidates who say,even the candidates who say, you
know, the PFD is important, butyou know, maybe maybe we need a
(48:54):
more reasonable level,reasonable level, even those
candidates are gonna have to beprepared to talk about revenues
because if these prices hit, andagain, I have increasing belief
that they're gonna hit, if theseprices hit, it's just gonna be
very difficult next year, bothin in balancing out the FY26
budget, but particularly ifwe're going to$53 in FY27,
(49:16):
particularly uh in puttingtogether the FY27 budget.
SPEAKER_00 (49:21):
Well, I mean, look, a governor could be willing.
Uh, you know, a governor couldbe willing and they could come
in with a budget that hacks andslashes and cuts what we're
looking for.
But you've got to have alegislature that uh that
cooperates, and they're notgonna do it.
They have no, there's nopolitical will.
A governor can come in and be asstrident and as strong and
produce a balanced budget thatpays a full PFD, shows it all,
(49:44):
does what it is, cuts deep intogovernment, but the legislature
has got to sign off on it.
And that's the problem.
The stumbling block right now isthe legislature.
SPEAKER_01 (49:53):
Yeah.
If I were Bernadette and andSchauer, I would be I would be
putting together a slate ofcandidates, legislative
candidates that supported me.
If I were serious about carryingthrough on what she says she
wants to do, I would be puttingtogether a slate of legislative
candidates that's supportive onthe issue, and I would be
running with those saying, wecan do it.
(50:14):
Not not I can do it as governor,because you can't, but we can do
it.
Vote for me and this slate ofcandidates and we will do it.
Now that would be that would berealistic, but just you know,
running around as a singlecandidate for governor saying, I
can do a full PFD and I'll doall these cuts, that's just not
going to have credibility.
SPEAKER_00 (50:33):
Yeah, well, I mean it's it's aspirational.
Again, we keep using, I keepusing that word today.
It's my word of the day,apparently, but that's
aspirational.
Um, you know, you can aspire todo that, but it what's the
reality going to be?
Again, we're reminded about whatDunleavy did.
You know, he came forward withthat budget that Donna Arduin
put together, and I mean it wasgreat until it wasn't great,
(50:55):
until the legislature got a holdof it, and then it was tall man
bad, and uh and everybody losttheir collective minds.
Uh, but if we're faced with thereality of no money and that, I
don't know.
I mean, I just don't know, Brad.
SPEAKER_01 (51:09):
Well, then we're gonna have then we're gonna have
all the PFD term eliminate thePFD people uh pipe up.
Yeah, you know what?
SPEAKER_00 (51:16):
Just go enjoy your music, Brad.
That's what you need to do.
Go enjoy that music, my friend.
I intend to.
I intend to.
I I hope you do.
I hope you do.
Appreciate it, my friend.
Thanks for coming on board.
We'll see you next week, okay?
Michael, as always, thanks forhaving me.
SPEAKER_01 (51:30):
Well, that's a wrap for another week's edition of
the weekly top three fromAlaskans for Sustainable
Budgets.
Thank you again for joining us.
Remember that you can find pastepisodes on our YouTube,
SoundCloud, Spotify, andSubstack pages, and keep track
of us during the week onFacebook and Twitter.
This has been Brad Keithley,Managing Director of Alaskans
(51:52):
for Sustainable Budgets.
We look forward to you joiningus again next week on the weekly
top three.
Hi, this is Brad Keatley, Managing Director of
Alaskans for SustainableBudgets.
Welcome to the Weekly Top Three.
The top three things on our mindhere at Alaskans for Sustainable
Budgets for the week of October13th, 2025.
The weekly top three is aregular segment on the Michael
Duke Show.
The show broadcasts on bothFacebook Live and YouTube Live,
(00:33):
as well as via streaming audiofrom the show's website,
weekdays from 6 to 8 a.m.
I join Michael weekly in thefirst hour of Tuesday's show
from 6.10 to 7 a.m.
for a discussion between the twoof us about our three issues.
We post the podcast of ourdiscussion following the show on
the Alaskans for SustainableBudgets Facebook, YouTube,
(00:55):
SoundCloud, Spotify, andSubstack pages.
Also on the Alaskans forSustainable Budgets website, as
well as the project page onnational blog site, medium.com.
You can find past episodes ofthe weekly top three also at the
same locations.
Keep in mind that in addition tothese podcasts, during the week,
(01:17):
you can also follow andparticipate in the discussion
with us of these and otherissues affecting Alaska's fiscal
and economic condition byfollowing us on the Alaskans for
Sustainable Budgets Facebookpage and through our posts on
Twitter.
This week, our top three issuesare these.
First, we discuss EIA's mostrecent oil price forecast, why
(01:40):
the oil futures market isstarting to trend the same way,
and what that means for Alaska'sfiscal situation.
Second, we explain how all theenthusiasm over the Ambler Road
and other new projects mayresult in even deeper PFD cuts
in the future.
And third, we explain how JohnFaulkner's permanent fund
(02:01):
inflation proofing argument inmust read Alaska undermines both
the current two account systemand the PFD.
And now, let's join Michael.
SPEAKER_00 (02:12):
Weekly top three, and it all starts off with um
where is oil going?
And what I mean by that is theprice of oil, because of course
our whole economy is built onthis madness.
And uh and here we are, thiscommand economy, and uh and and
we're kind of at the mercy ofit.
(02:32):
So tell us what's happening inthe uh in the oil situation.
Where do we go?
Where do we go from here, myfriend?
Where do we get started?
SPEAKER_01 (02:40):
A couple of months ago, we uh talked about on the
show the latest, then latest uhenergy information agency
administration, energyinformation administration for
uh uh price forecast for the uhfollowing, oh, I think they do
it for 18 months, year and ahalf uh forward.
(03:00):
And the August forecast from EIAwas significantly different uh
from the forecast that had thathad been making up until that
point.
It reflected the impact of theOPEC production increases uh and
showed a significant softeningin the market as a result of
oversupply.
(03:21):
Uh, significant softening in themarket uh and a significant drop
in price to absorb thatadditional uh oversupply.
Um uh futures prices were up inthe high 60s, touching 70 uh at
the time.
And I know a lot of peoplediscounted uh that projection.
(03:43):
Um EIA came back and did itagain uh in September and made
the same projection about whereprice was going.
Um and prices had softened alittle bit uh in the futures
market at that point.
Um, and now they've come backagain in October and continued
to make the same forecast.
And what we're beginning to seeis the futures market is
(04:05):
beginning to trend down.
Um, not as far as theprojections yet, but the trend
from where it was uh and whereit is now gives you an
indication that it may be goingwhere EIA thinks it's going.
Um EIA is is what EIA is seeing,and what the IEA, another uh
(04:27):
energy uh uh source is doing,energy analysts are doing, is
they're seeing this OPECproduction um really hitting the
market hard, uh resulting instorage buildup because there's
no place else for it to go.
And when you have when you'rebuilding storage, that really
(04:48):
softens the price because peoplewould prefer to sell the oil
rather than put it into storageand incur the incur the storage
fees for an extended period oftime.
So it really impacts price.
And what EIA continues to see isthe OPEC production continuing
to uh uh continuing to stay highand continuing to build res uh
(05:08):
build uh storage and and bringthe price down.
What happened the last couple ofmonths is two things.
One, you still had summerdemand, um, summer refinery
demand, refined refineries, oildemand is strongest in the
summer, in North American summerbecause of gasoline.
So you still had summer demand,and that was sort of masking
what was going on.
(05:29):
And then the Chinese have beenbuilding their own storage, have
been buying uh oil on the marketand putting it into storage.
Some people describe that as theK as the K oil industry, uh,
with uh with real oil demand, uhconsumption demand going down or
softening, and uh the Chinesedemand going up as a result of
(05:53):
storage.
But EIA, both EIA and IEA seethat storage, see China sort of
end nearing the end of thatstorage.
And as a result, they'recontinuing with the uh with the
price projection.
If you have the chart uh and canthrow that up on the screen,
that would be great.
You were just waiting, weren'tyou?
Um so this is so this is thesorry go ahead.
(06:17):
No, I was just waiting for it.
Go ahead.
So this is this is the EIAforecast from October from last
week, and it shows pricescontinuing to soften.
The the the it's divided intocalendar quarters.
As we all know, the Alaskafiscal quarter runs from the
middle of the year to the middleof the next year.
(06:37):
Um so the beginning of uh 2025,really the the line that they
have in the middle is thebeginning of the Alaska fiscal
year.
It's the middle of the calendaryear, but the beginning of the
Alaska fiscal year.
And you can see over the courseof the Alaska fiscal year their
projection uh coming down.
The latest, the the Octoberprojection has the average for
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the year has it has it comingdown to oh an average of$52 uh
in the fourth quarter.
Um and the average for the yearuh in the EIA forecast is$59 uh
a barrel uh Brent.
That's compared to the initialforecast, the initial spring
(07:20):
revenue forecast uh of$68 or$68that uh that was forecast at the
time that the spring revenueforecast came out and on which
our budget is based.
Um and it also compares to the$64.
If you'll recall, after thelegislature passed the budget
out, Department of Revenue cameout with a different forecast
(07:43):
than the than the spring revenueforecast or revised forecast for
FY26, uh took it down to$64, andthe governor's vetoes were based
on that$64, the revenues comecoming from the$64.
So the legislature, you can youcan see it in the ledge finance
uh publications.
The legislature still thinksthat we're at$68.
(08:03):
The governor's budget, which thelegislature partially rejected,
was at$64.
And now EIA is telling us thatwe're headed toward$59.
The current futures market is at$64 average for the year.
So it's down from certainly fromwhere the legislature thinks the
market is.
(08:24):
It's on, it's it's the sameprice that the that the
governor's that the governor'svetoes were based on, but EIA is
telling us it's going evenlower.
The result of that is that if ifEIA plays out, and as I say, the
futures market seems to beincreasingly believing that's
where the market is going, um,if that plays out, then we're
(08:45):
we're talking about UGFrevenues, unrestricted general
fund revenues.
The legislature thought thatthey were going to be at$2.33
billion.
The governor's budget was basedon$2.1 billion, down$230 million
from uh from that.
Uh, but EIA's forecast is nowsending us down to about$1.9
(09:07):
billion, a little bit over$1.9billion.
Long, long way of getting tothis.
People are still acting as ifoil prices are going to be high
for the year.
Um, the legislature is stillacting as if they're going to
get$68.
Uh, the administration said saidit was$64, and then you have um
uh the Department of Revenue,former Department of Revenue
(09:30):
head uh Adam Crumb going off andinvesting$50 billion$50 million
uh out of the CBR because hesaid, Oh, we're not gonna need
it.
Well, we are gonna need it.
I mean, if if this if theseprices keep going down, uh we're
gonna have we're gonna have avery difficult FY25 and the EIA
forecast for FY FY26 rather, andthe EIA forecast for FY27, the
(09:55):
current EIA forecast for FY27 is$53 a barrel, even even lower.
So those who are running aroundthinking, okay, we're gonna be
okay, um, and and you know,we're gonna we're gonna get
through this okay.
Prices aren't gonna be great,but we're gonna get through the
the the very tight budget, assome said, that we passed this
(10:15):
last year.
If prices keep going in thisdirection, then EIA is telling
us again and again and againthat's where they're going.
If prices keep going in thisdirection, we're gonna have a
very difficult uh uh spring nextyear as everybody sort of wakes
up and says, where did all therevenue go?
Um, and we're gonna have an evenmore difficult heading into even
more difficult time heading intoFY27 uh with uh with prices
(10:39):
projected at$53 a barrel.
It's gonna make for a veryinteresting election year.
SPEAKER_00 (10:44):
Well, I mean, this is what we've been saying for
the last 10 months on thisprogram that the next, you know,
that the next year is going tobe, you know, in some ways
ultimately brutal, and we're weshould be prepared for it.
And yet they and and and it wasmentioned during the last
session.
I mean, uh uh Bert Steadman waslike, well, we know it's gonna,
(11:06):
but we don't want to payattention to that.
Don't pay attention to that.
We want to focus on this year.
You know, again, theshort-sightedness, uh, it's
mentioned in passing, and thenit's a shock.
Shock, I tell you, that we'reout of money and we don't know
what to do.
That's that's kind of the thisis like a redo.
Like I said, groundhog day.
SPEAKER_01 (11:24):
Yeah, the supplemental, um when uh when
Ledge Finance issued their lastnewsletter, they were talking
about what was going to beneeded for the supplemental.
And they said, well, of course,we have this reserve that was
that the surplus that was setaside uh in the spring budget
based on$68.
Uh we have this reserve, butwe're even gonna outspend that
(11:45):
uh on the supplementals.
The supplementals are gonna bebigger than the reserve we set
aside, so we may have to go intothe CBR sum.
Well, that's based on that thatstatement's based on$68.
That they they continue to relyon the spring revenue forecast
as opposed to the revisedrevenue forecast that Department
of Revenue came out.
That's not true at$64, and it'scertainly not true uh at$59,
(12:07):
which is uh which is where EIAtells us we're now uh we're now
going.
So it's gonna be it's gonna be abig wake-up call uh next spring.
And legislators, I mean, this isreally pitched to legislators
and staff out there.
You guys need to stop, you know,you guys need to stop and sort
of you know suck in some air andthink about where this takes
(12:28):
you.
If uh if this is where uh ifthis is where prices are going.
Um maybe not, maybe they theyaren't.
But I would stop with the oh, wegot money to do this, we got
money to do this, and we gotmoney to do that, and and we'll
be okay, don't worry about it.
It's all based on six to eightdollars.
You need to you need to back upand take a breath and uh and and
and really think about whatyou're saying.
SPEAKER_00 (12:49):
So I look at this and I just keep seeing these
numbers, and this is actually,it seems like this was just
slightly better than what we hadconsidered in our previous
discussion of IEA, because theyhad talked it about they had
talked about the oil being downmaybe in the low 50s.
Like, so this seems like this iseven a little bit brighter than
what they were anticipatingbefore.
SPEAKER_01 (13:11):
Well, I sort of uh by cutting it off by giving you
a fourth quarter average, uh, Isort of made it a little better.
Uh the April, May, let's see,the March, April, uh March and
April prices are$51.
The May and June prices are$52.
Um, the um, and if you go overto the WTI, those prices are
(13:32):
lower, but but we need to needto focus on brand.
So yeah, it's come up a littlebit from where it was in August,
but that that little bit isn'tisn't worth a whole lot to uh in
terms of uh UGF.
SPEAKER_00 (13:46):
Right, right.
Well, and and they've gottathey've gotta pay attention.
They've got to they've got towake up to where they're at.
And the where they're at isthere's not gonna be a whole lot
of bailout coming from some kindof big oil prices.
Um, and you mentioned this, andI know you're gonna get into it
a little bit here in the nextsegment.
You mentioned this uh um thisthis thing with crumb.
(14:08):
This has kind of been um thishas kind of been a crazy thing.
I mean, at one point I agreewith him.
If they get down to the last$50million in the account, then
they've got bigger problems.
But at the same time, what wasgoing on here?
What was with this$50 million?
I mean, you know, that nobodyseemed to know about or that
everybody seemed to know aboutand nobody wanted to talk about.
(14:30):
I think it's crumb trying to bea big shot.
SPEAKER_01 (14:32):
I think it's crumb trying to say, hey, I'm the
commissioner of revenue.
I can, I've got, you know, allthis money at my disposal.
I can invest it how I want to.
This is the type of investmentas we've drained down the CPR,
CBR, really what we've said toourselves is the CBR is going to
be our cash investment.
It's we're gonna hold it in cashor near cash, liquid assets, um,
(14:53):
and that's and that's gonna beour cash investment.
And we're gonna invest for thelong term using the permanent
fund corporation.
And I think this is this is Crumsort of saying, well, maybe I
couldn't get this through thepermanent fund corporation, so
I'll just do it myself uhthrough uh through this
investment.
I don't know, maybe we're gonnasee this get worse, and maybe
we're gonna see the the peoplewho who crumbs invested with
(15:14):
show up as big campaign donors,and then that'll set off all
sorts of additional arm alarmbells.
But even if we don't, even if wedon't see that, uh what we're
going to have seen is takingwhat we really have been
preserving as our cash accountfor emergencies and for oil
price drops and and things likethat, we're gonna we we're gonna
(15:35):
we're taking a portion of ourcash account and we're setting
it aside into a long-terminvestment.
That's that's something thatwe've said we just weren't gonna
do as we've taken the CBR down.
So Crum, crumb, for whateverreason, and I and I think it's
just because you know he justwanted to be a big shot and say
that uh that he could do this.
I'm the revenue commissioner, Ican commit this money.
(15:56):
Uh, but for whatever reason,it's a it's a stupid move,
especially in light of where oilprices are going.
SPEAKER_00 (16:02):
All right, we're continuing right now with Brad
Keithly, Alaskans forSustainable Budgets in the
weekly top three.
Number two is uh on the agendanow.
We just finished up with numberone, which was where was oil
going?
And now Brad says somebody needsto look at the financials of all
these projects that we've gotgoing on out there.
And we we were just talkingabout this the other day, right,
(16:24):
Brad?
I mean, the the whole gaspipeline, and we still haven't
seen the updated finance.
But somebody needs to look atthe financials of all these
projects.
What do you mean exactly?
SPEAKER_01 (16:33):
Well, there's been a series of headlines uh that just
sort of, you know, every time Isee one, I go, I I I rush to the
paragraph that talks about howwe're gonna pay for it.
The most recent one was the wasthe Ambler Road.
I mean, Trump made a big dealout of reversing Biden and
reversing the protections thatBiden instead on the road and
opening up the opportunity forthe road.
(16:55):
Um, and you know, and people arenow saying, now talking about it
as if it's a done deal.
But the feds aren't paying forit.
I mean, it's it they've openedup the permitting for
essentially the state to pay forit.
And the same problems that wehad before, I wrote a column on
this a couple of years ago whenwe were when Ambler was hot and
heavy at that time.
(17:16):
Uh, the same financing problemsthat that we had then uh are
still around.
The road is gonna be is notgonna be cheap, it's gonna be at
least 300 million.
There's some estimates that sayit's gonna be 500, some
estimates that say 700.
There's even one estimate outthere that says a billion.
And and so you can discount,maybe discount the high end of
(17:38):
those, but where's the 300, 500,700 million gonna come from?
AID AI ADA has said that they'regonna issue bonds for it, and
the bonds will be financed onthe back of uh toll road
agreements that they're gonnaenter into with the with the
mines.
But the mines that are outthere, uh the potential mines
that are out there are not yetpermitted.
(17:59):
And the two mines that peopletalk about most are really small
deposit mines, short-term mines,uh, that would not be enough
either in volume or in or intime to pay out$300 million in
bonds.
Um also, you know, where are yougonna get the money?
Where are you gonna, Ada saysit's gonna borrow the$300
(18:20):
million by issuing these bonds?
Bondholders are gonna want toknow that there's a pretty good
certainty uh of payback.
And so they're gonna look at themines themselves.
They're gonna look at the samething that I just talked about,
the mines themselves, where theyare in the process, what the
what the deposits are, theprojected deposits are, how
that's gonna, you know, how muchof the toll road that's gonna
pay for.
(18:40):
Um, and they're gonna, the bondissuers are gonna be skeptical
about getting it payback.
So they're gonna ask foradditional assurances,
additional guarantees,additional backups.
And I think what we're I thinkwhat we're seeing is sort of the
maybe unintentionally, but maybeintentionally, we're sort of
seeing the same thing from allof these projects.
(19:01):
They're building up publicexpectation, they're building up
public, you know, uh uh uhenthusiasm for them, they're
building up public desire to seethem, to see them go forward.
They're gonna say that, youknow, President Trump unleashed
it and we're gonna do these.
And then all of a sudden we'regonna look at where the hell is
the money coming from to pay forthese things, and we're gonna
(19:22):
see it start backing up on thelegislature.
And they're gonna say, Oh, wegot to do Ambler.
President Trump authorized it,we got to do Ambler, bond market
isn't there yet, the minesaren't there yet, but we got to
do Ambler, so we're gonna needsome additional money out of the
legislature or and a guaranteeout of the legislature to back
up these bonds.
I see the same thing from theLNG project.
(19:42):
I see them going down the road,building up enthusiasm, holding
community events, uh, getting itgetting people excited about it.
But there's there's things thatthe LNG project's gonna want
from the state, the not theleast of which is a change in
the property tax assessment orproperty chat tax rate on uh on
(20:02):
pipelines, which the the WoodMackenzie study that was done
last year to support the theexpect or to support the numbers
that said that it was sort ofcompetitive coming into into uh
South Central, uh, they alreadyassumed that those those uh
projections assumed that theproperty tax relief, the
property tax rate would be lowerfor the uh for the gas pipeline
(20:25):
than for the oil pipeline.
So it's there's a I think whatwe're seeing is the front ending
of a lot of enthusiasm aboutthese projects and the
expectation that once they getthe enthusiasm, if they can get
the enthusiasm whipped up enoughuh to the point that people are
gonna you know be demandingthem, then then they'll just
take it to the legislature andsay, you've got to follow
(20:46):
through on this because we buildup we build up all this
expectation.
You've also got people likeShelly Hughes.
There was an article uh in theKetchikan paper uh where Shelly
had been down campaigning uh inKetchikan, and she said, Oh, we
need to have a capital budgetagain.
We've only had these skinnycapital budgets, we need to be
building uh uh things again.
(21:06):
You've got you know, PortMcKenzie is is is building back
up again, they're having publictours and and trying to sell the
uh the the project again, all ofwhich is dependent on state
financing.
The the the what there's oneother piece of this that when I
start fitting the puzzletogether, you start seeing these
articles by Bruce Tanjamin andby others about we can't afford
(21:29):
the PFD anymore.
The PFD needs to go.
Right, I saw that.
And and we need to we need allthis money.
I there's a link between thosetwo.
There's a link between peopleyou know wanting to get on with
these infrastructure projects oror just projects in general,
wanting to get on with theseprojects, Shelly wanting to do a
capital budget, everybodywanting to get out there uh with
(21:50):
these projects, building up theenthusiasm for it.
And on the other hand, peoplestarting to you know try to say,
well, we can't afford the PFDanymore.
And and and and the link is thatmay that's the funding source
that people have in mind for howto support these projects when
the enthusiasm built to thepoint that they come to the
legislature and say, Oh, youknow that project, that Adler
(22:12):
project that we want to goforward with that President
Trump approved, that everybodyis expecting now to you know
turn dirt next year.
What was it?
The Secretary of Interior saidit'd be built next year.
Um you know these projects.
Well, we just don't have themoney for it.
Would you and so you're gonnahave to come up with the money,
and so they're gonna link thattogether with the with the
(22:32):
anti-PFD folks, and all of asudden, whip-boom, bamboo, the
PFD is gonna be gone and we'regonna be spending it on all
these projects that don't pencilout that we need money for
because nobody will lend us themoney because the project isn't
isn't isn't uh firm enough to befinanceable yet.
So there you can, I I can justsee this building and I can and
I can see these two thingsmoving in parallel.
(22:55):
Uh and it bothers me.
I mean, because we don't have afinancial plan for Ambler.
We don't have a financial planfor the for the LNG line when
when the LNG folks come to thestate and say, you need to give
us this, that, and the otherthing to make this.
SPEAKER_00 (23:06):
When they come to the state.
I mean, we still haven't seenthe updated, right?
I mean, we still haven't seenthe updated metrics on that.
What is it actually gonna cost?
We have no idea because nobody'sactually even brought it
forward.
But don't worry, it'll bespectacular.
It'll be spectacular.
We're guaranteed that.
SPEAKER_01 (23:22):
Yeah, and and and you know, so I saw one post that
said, oh, we need we need weneed the Mance Newport, we need
the the Port McKenziedesperately.
Okay, how who pays?
Who's gonna pay for it?
Well, we need to cut out theuniversity, we need to cut the
university back.
That's not gonna happen.
I mean, people who areadvocating these things in and
(23:43):
and and their explanation of howthey're gonna pay for it is
we're gonna cut something else.
Is that they're just living indreamland.
They're really those people,those people who are out there
building these expectationswithout financial underpinning
for it, other than we're justgonna cut somebody else, those
people who are building that outare really building up the steam
(24:03):
that's gonna result in theelimination of the PFD.
It's gonna result in the switchover to the second parallel
stream of people talking abouteliminating the PFD.
And I just I I you know, you canjust you can if you if you piece
these things together, you cansee it coming.
So if somebody somebody believesin the PFD, as I do, uh and
(24:24):
believes in the in theimportance of the PFD and the
and the importance of the rolethe PFD plays uh in the Alaska
economy and to Alaska families,then we need to be skeptical, I
am skeptical, about about theseprojects uh uh going forward uh
without without a strongfinancing plan, without their
(24:45):
own strong financing plan,without ADA being issued, able
to issue the bonds withoutrecourse and that sort of stuff.
SPEAKER_00 (24:53):
I mean, if you were the mad emperor for a day, would
you mandate that any one ofthese projects have to have some
kind of fiscal note or planattached to it that said, and
here's how we I mean, wouldn'tthat be part of the of the whole
pitch to it?
I mean, if you're doing a pitchdeck, I mean, what you know,
I've because I've built a fewpitch decks over the years.
If you're pitching something,you know, in some kind of sales
(25:13):
thing or whatever, you've alwaysgot a page that talks about the
breakdown of the cost and howit's gonna get paid for and what
the ROI is gonna be.
You'll always put that in theresomewhere.
It's I mean, you know, it'susually near the end because
that's when you're asking forthe money.
But, you know, there's alwayssomething built in.
I mean, shouldn't shouldn't thisall be part of it instead of
this pie in the sky, we're gonnabuild skyscrapers to the moon,
(25:35):
and then we never talk about howit's gonna get paid for.
SPEAKER_01 (25:39):
Yeah, Ada, Ada in particular, uh uh should be
doing that.
I mean, so uh and and aboutAmbler in particular.
What ADA says when they'reasking about the financing with
Ambler is, oh, we're gonna issueuh bonds and they're gonna and
we're gonna toll road the road'sgonna be a toll road and we're
gonna pay for the bonds with thetolls.
Yeah, but you need to havemines.
(26:01):
I mean, anybody who's gonna buythese bonds is gonna say, yeah,
but you need to have mines perat least permitted on these
roads, and they need to be ofsufficient volume and sufficient
size that they're gonna pay itout.
I'm not gonna, I'm not gonnalend you$300 million or$500
million or$700 million basedupon, you know, just a statement
that says, oh, it's gonna be atoll road, don't worry about it.
(26:23):
I want to know who's gonna bepaying these tolls, and I want
to know that there's gonna bemoney behind those people,
revenue behind those people inorder to pay the tolls before I
issue the bonds.
And I'm gonna, and I'm gonnasay, as a bond, as a as a bond
buyer, I'm gonna say, look, ifyou can't, if you can't show me
the money in terms of minespermitted and in terms of volume
(26:44):
of production that's gonna payout these tolls, then I tell you
what, give me a guarantee, giveme a state guarantee, and I'll
buy your bonds.
But but what we've done then isjust really commit the state's,
you know, commit future revenuesources to to underlie these
bonds.
People say, oh, well, we did itover at at Tech Cominco, we did
it over uh at the red dog mine.
(27:04):
Well, the red dog mine, beforewe issued those bonds, the red
dog mine was almost completelypermitted.
It was scoped in a way that theyknew the volume of production
that was gonna come out ofthere, and they knew that that
volume of production was enoughto pay the bonds off.
So, yes, we they there we gotbonds for for that toll road,
(27:25):
but it was in a much differentplace than Ambler is uh right
now and Amber and in a muchdifferent place than Ambler's
likely to be in the next four orfive years.
So if Bergam's out there sayingwe're gonna, we're gonna you
know build this road next year,I I don't know where the money's
gonna come from.
SPEAKER_00 (27:41):
Is the federal government gonna I mean if you
know he's saying that, but isthe government gonna pony up
with the money, or is it justyou know, this is all
aspirational at this point?
SPEAKER_01 (27:49):
Oh no, when he when they were asked, they said, Oh,
there's it's gonna be a tollroad.
They did the Ada, the ADA uh uhdefense and said, Oh, it's gonna
be a toll road.
Don't worry about it.
Yeah, well, you gotta have tohave volume on the road to pay
the tolls to support the bonds,and we don't have that.
Right.
And so, and so I'm just I sayconcern I'm concerned we're
(28:12):
gonna get all this buildup andall this expectation, and then
Ada's gonna say, well, we can'tsell the bonds because we don't,
and and and then everybody'sgonna say, Well, legislature,
you need to come back this up.
You need to you need to make ithappen because we have all this
expectation on all these peopleout there who want jobs and
they're ready to go.
SPEAKER_00 (28:30):
Well, and I can see another problem with this with
the legislature and everythingelse.
Frank brings it up in the chatroom.
He said the issue with theAmbler Road is who gets to use
it.
If the state and the federalgovernment build the road, it
would have to be open to thepublic, to all the public.
If it's built by private sourcesand it's a toll, they can
control who uses it.
And that's part of the problemas well.
(28:50):
And I could see that being asticking point with somebody in
the legislature.
Oh, we've got to have publicaccess to it.
I mean, you know, it's again, itthis is not all built into it.
It's they should have all thislaid out before they come out
with these big, hugeaspirational plans.
You got to have a way to make itall work.
SPEAKER_01 (29:09):
Yep, yep.
And and and we're certainlybuilding up the aspirations.
We're certainly building up theexpectations.
And I just we just don't havethe money to we don't have the
money to back it up, and and theprojects aren't at a point where
they can back it up themselves,at least in the case of Ambler.
Uh, and certainly in the case ofAKLNG also, they're not at the
point where they can where theycan back up their projects.
(29:31):
But we're gonna build up theseexpectations, we're gonna start
all these all these tradeschools and education courses uh
to get everybody ready to go.
We're gonna, you know,everybody's gonna be sitting
there at the starting line,ready to go.
And then AJ's gonna say, Oh, butwe don't have the money.
So legislature, bail us out.
And then the people who say killthe PFD are gonna kick in and
(29:51):
say, Ah, we got the money, let'sgo.
SPEAKER_00 (29:54):
David says it seems that the railroad line would be
more cost effective and wouldensure that the public would not
be able to use.
It um, but but again, who'sgonna build it?
And railroad, I thinkhistorically is much more
expensive than an actual roadsystem or you know, I mean, it's
significantly more to build arailroad, David.
(30:14):
That's part of the problem.
Um well, and where's thefinancing for the railroad?
Yeah, exactly.
I mean, how do you build it?
That's again, that comes back tothe big issue.
Who pays?
Where does it come from?
SPEAKER_01 (30:26):
Yeah, right.
SPEAKER_00 (30:28):
It says, How how about we start with any plan?
Oh, wait, cue the Alaska studyindustry industry, right?
Because we're gonna study thestudy that we studied before to
study the previous study that westudied once before.
I mean, that's exactly wherewe're at.
Uh, there's a whole industry butbaked up around that.
Um maybe the$50 million crumbjust threw down the crapper
(30:55):
would be a down payment on theroads, you know.
Uh that's it.
But I I will say this, Brad.
One of the interesting thingsthat came out of this discussion
about Crumb and this$50 millionwas we got a little bit of a
peak at the very end of thisarticle in the Alaska Beacon,
where they were talking aboutthis specifically, was that Andy
(31:16):
Josephson was talking about it,and and he said he didn't think
that the legislature will needall of the CBR.
But he, which I mean, that's hesays he thinks there's a great
concern about the fact that weneed readily available cash, and
that's what the CBR was designedto provide.
And he goes on to talk about,you know, crumb and the
governor's veto and everythingelse.
(31:37):
And he goes, We're it's justthat we're suspicious.
We don't know when we can haveour$50 million back.
This is the attitude.
This is all our money.
We want our$50 million back.
We didn't want somebody else.
It's okay if we spend it, but wedidn't want somebody else to
have our we when are we going toget our$50 million back?
(31:59):
I mean, what the mean or did thethe hairs in the back of your
neck just go like that when hesaid something like that?
Because that's the attitude,right?
SPEAKER_01 (32:06):
Yeah, exactly right.
And and in terms of you know,the statement we won't need it
this year.
Well, look, the the EIA forecastfor next year or for oil next
year is what$53 um uh throughFY27.
So we may not need it all thisyear.
God hopes we don't need it allthis year because we're gonna
(32:26):
need some of it next year.
Um, you know, the the spendingis projected to go up.
We have supplementals that areprojected to to hit uh in the
spring, and we're gonna befacing$53 or$55, or you know,
just pick a number in the 50s,any number in the 50s, even the
high 50s, and we're we're indeep crap.
(32:46):
So yeah, the 50, the 50 milliondollars, I mean, Crumb's defense
of always just 50 milliondollars.
I that's not much of a defense.
Because after the end of thisyear, depending upon depending
upon what they do with the FY27PFD, after the end of this year,
we may have less than$100 leftin the$100 million left, uh,
left less than a billion dollarsleft in the CBR.
(33:10):
Right.
And and so where do you go fromthere if you're facing another
year of$53 uh$50 oil?
SPEAKER_00 (33:16):
Yeah.
No, and and and the irony hereis that well, it was only$50
million, and I was trying to getus to cut above inflation and
blah blah.
And I'm like, with just$50million out of a multi-billion
dollar fund, you were trying to,you know, we're not even keeping
up with inflation kind of thing.
This was just some kind of testbed that you approve three days
(33:37):
before you leave off.
I mean, it just is so weird.
The whole thing is just soweird.
Maybe it was him just trying toput on his big boy pants.
I I don't know.
I've I'm I'm can I'm confused byit.
SPEAKER_01 (33:49):
It it it is it's weird, especially.
I mean, he's on the PermanentFund Corporation board, right?
And he understands the role ofthe Permanent Fund Corporation
is to is to make these long-terminvestments, to make these plays
in combination with other plays,you know, risk weight the whole
thing.
They don't do a good job at it,as we've talked on other shows,
but nevertheless, risk weightthe whole thing and and always
(34:11):
make sure you have you know somehedge against against a high
risk, uh, a high-risk bet likethat.
And he knows that.
And yet he decided out of theCBR, which which you know
generally was considered to bethe cash account that we kept
for emergencies, out of the CBRhe's gonna make this$50, you
know, million dollar, this$50million bet uh instead of the
(34:32):
Permanent Fund Corporation.
If he thought it was a good betto make, then he would have made
it, he should have made itthrough the they should have
made it through the permanentfund corporation.
But but for whatever reason, youknow, and it can it'll either be
sinister if you if you see thatthere's been donations made by
the people to whom he to whom hecommitted the money or not
sinister if there aren't, butstill sort of odd.
SPEAKER_00 (34:57):
Well that's the thing, it's it's weird.
It's it's not, you know, it'slike I said, if there's no if
there's no connectivity throughcampaign finance or something
like that, but just why?
And maybe you hit on it.
Maybe he just wanted to put upput on the big boy play, you
know.
I I'm I can play with the bigboys.
I'm the you know, I just I justdon't know.
(35:17):
I'm I'm trying to wrap my brainaround it.
SPEAKER_01 (35:19):
And that's that's sort of been crumb's MO.
I mean, we've gone through howmany tax directors, we've gone
through how many deputydirectors of of revenue.
I'm the one.
I'm I make the call.
SPEAKER_00 (35:30):
We're continuing now.
Brad Keithly, Alaskans forsustainable budgets, the weekly
top three.
The great debate.
That's what must read's JohnFaulkner is calling it.
It's a new series of articlesthat he's writing.
He said this is the first in theseries that frames Alaska's
great debate regarding thepermanent fund.
The series will invite debatebut promote a protective view of
(35:53):
both the management of thecorpus and the original dividend
plan.
We start this series withinflation proofing, a topic what
topic which has broad consensusand clear legal direction.
But Brad, you're you you haveyou have questions.
SPEAKER_01 (36:08):
Well, so so inflation proofing has been used
um by the permanent fundcorporation as a justification
for moving to a one accountfund.
And the way they've used it isthey've said, look, the way the
way historically we've doneinflation proofing is we've
(36:29):
taken cash out of the uh theearnings reserve and we've
transferred it over to thecorpus uh in order to inflation
proof uh the corpus.
And and so the the problem, saysthe permanent fund corporation,
is that's taking too much cashout of that, that plus the PFD
(36:51):
demand on the earnings reserveis taking too much cash out of
the out of the the the earningsreserve to to move over to the
to the permanent to the corpus.
We can solve that by justconsolidating uh the two funds
together, and we won't run outof money in the in the earnings
reserve.
It's also been the need for cashout of it out of for inflation
(37:14):
proofing has also been ajustification, the need for to
take cash out of inflation outof the earnings reserve and move
it over to the corpus forinflation proofing has also been
a rationale that some have used,many have used, to cut the PFD.
Because you have the earningsreserve, you only have so much
cash in the earnings reserve.
And if you're trying to fund thePFD and you're trying to fund
(37:34):
inflation proofing, uh theargument is you'll run out of
cash.
So you particularly when they'renot earning, when the permanent
funds not earning enough,permanent fund corporation's not
earning enough to refill theearnings reserve, but the rates
are taking it out for those twothings.
So what we need to do, says,says those, we need to cut the
PFD in order to leave enoughcash in the earnings reserve to
(37:57):
move it over to the permanentfund corpus.
We don't need to do that.
Um we have inflation proofing isa non-cash item.
It can be satisfied eitherthrough cash or through
appreciated assets.
And we have a lot of appreciatedassets on the books.
And as long as your appreciatedassets are earning enough,
(38:19):
there's enough appreciation inyour assets, unrealized gains,
there's enough appreciation inyour assets, then then you're
you're inflation-proofing, theuh the the corpus uh through the
through the appreciated assets.
And I wrote a long column or acouple of columns a while back
that analyzed the amount ofunrealized gains or appreciated
(38:42):
assets that we had in thepermanent fund corporation and
reached the conclusion thatthere's nearly enough of that
generated every year,appreciated assets or unrealized
gains, nearly enough of that tocover inflation proofing.
The cash need to thesupplemental cash need to cover
the remainder of inflationproofing is relatively small.
And if you do it that way, ifyou use the unappreciated assets
(39:04):
to cover inflation proofingproofing, the non-cash item of
inflation proofing, and preserveyour cash, not only do you not
run out of it in the earningsreserve, you start building the
earnings reserve back up, andthere's enough cash to cover the
PFD.
You don't get people saying, oh,we need to cut the PFD in order
to create cash to move over tothe move over to the permit fund
(39:25):
corpus.
So in the in the article, John'sarguing that we've got to do
cash and placement inflationproofing, that we've got to have
cash, that we've got to coverthe inflation proofing
requirement through cash.
And that's just playing rightinto the hands of those, A, who
want to cut the PFD by arguingthere's arguing there's not
(39:46):
enough cash in the earningsreserve to do both, and B
playing right into the hands whowant to who want to consolidate
the permanent fund into a singlesingle account by arguing that
if you as you continue payingcash out of the earnings
reserve, you're training it downto the point that you don't have
enough cash left in the earningsreserve to cover to cover your
requirements.
I wouldn't think that John wouldbe in favor of either of those.
(40:08):
I mean, in the past he said hesupports the PFD.
Right, right.
And I wouldn't think he would bein favor of a single account
because the single account opensa backdoor into the permanent
fund corpus.
We've talked about that a numberof times on the show.
So I'm not I'm not quite surewhat John's doing.
I mean, I from a from a you knowa general standpoint, cash is
(40:29):
always better than appreciatedassets.
But appreciated assets arevaluable, they've earned.
I mean, the appreciation is theearning.
You just haven't realized thatearning by selling the asset
yet.
But those earnings are real.
That those earnings are there,they're embedded in the asset,
they're continuing to beinvested by leaving your
investment in that stock andwatching it continue to rise or
(40:52):
that asset and watching itcontinue to rise.
So, I mean, from an accountingstandpoint, unrealized gains,
appreciated assets are are asvaluable as cash if you don't
need them for something that youneed to you need to pay out.
And we don't need to be payingout the inflation proofing.
SPEAKER_00 (41:09):
Right.
Well, and again, just to beclear, he doesn't advocate in
this article per se for a singleaccount, but as you say, he's
kind of playing into thatargument by you know talking
about inflation proofing.
And the one thing he alsodoesn't talk about is the
transfers.
I mean, we transferred$8 billionout of the earnings reserve into
(41:29):
the permanent fund corpus.
And it was ostensibly, in fact,it wasn't just obstensibly, it
was blatantly said that this wasfor future inflation proofing,
and then they convenientlyforgot about it a year later or
two years later.
They conveniently forgot aboutthe billions of dollars that
they transferred over andstarted talking about inflation
proofing again, which again goesback into our theory that
(41:51):
somebody wants the corpus to becombined and this is a way to
kind of create that crisis uhkind of thing.
So, I mean, I don't I don'tunderstand it either.
Um, and it uh you know it begsthe it begs the question of why
are we so focused on that?
Why would that be the startingpoint of a discussion on the
permanent fund?
SPEAKER_01 (42:11):
Well, maybe John thinks it's the
non-controversial one.
I mean, he does say we startthis series with inflation
proofing, a topic which hasbroad consensus and clear legal
direction.
Well, it doesn't have I I meanto the extent anybody listens to
me, it doesn't have consensusbecause it's a bad thing to do,
because you it leads to PFD cutsand it leads to the argument for
(42:34):
uh for the single combining thetwo accounts into a single
account.
Um and clear legal direction, Idon't know.
Earnings, what the what theconstitution says is that the uh
legislature shall deal with theearnings off of the off of the
corpus.
Well, earnings come in twotypes.
They come in cash.
If you cash out an asset andrealize the gain on it, they
(42:56):
come in cash, or they come inunrealized, unrealized gains, uh
appreciated assets.
And those are from an accountingstandpoint, those are the same
thing.
I mean, they are they are theyare the equivalent.
So, in terms of clear legaldirection, I don't know if
there's clear legal direction,certainly not from the
constitution.
Well, there's not clear legaldirection that you have to use
cash.
SPEAKER_00 (43:16):
And isn't there some conflicting league?
Because I mean, I thought underSB26, which was the POMB draw,
there was a whole change to theinflation-proofing component
anyway, right?
I mean, so now you've got kindof dueling statutes and there
and there's a different way tohandle it.
So is there clear legaldirection?
I guess it depends on whichstatute you're paying attention
to.
SPEAKER_01 (43:35):
Yeah, I mean, everybody talks about these
dueling statutes.
They really aren't.
They can be they can bereconciled.
Uh, but I just I I don't.
I mean, there's not there's notclear legal direction from the
constitution, at least, there'snot clear legal direction that
you have to use cash to coverinflation proofing.
In fact, the constitutiondoesn't talk about inflation
proofing at all.
It just talks, it just talksabout maintaining the corpus,
(43:56):
that you can't spend the corpus,and it talks about the earnings,
and the legislature can dowhatever it wants with the
earnings.
I agree that inflation proofingis is useful.
I agree that it's important.
It just doesn't have to be donein cash.
And there are there aresignificant downsides in terms
of draining the earnings reserveuh and in terms of putting the
PFD at risk by by requiring thatyou use cash for what
(44:20):
essentially what essentially canbe an is a non-cash uh
requirement on the other side.
SPEAKER_00 (44:25):
We've got two minutes here, Brad.
What would you say to JohnFaulkner if you ran into him at
the store and said, Hey, I readyour article and and uh you know
I don't understand, or what youknow, give me a give me the
90-second version of what youwould say here.
SPEAKER_01 (44:37):
John, I don't understand, uh don't understand
why you're arguing what you'rearguing, because A, it plays
into people's hands on cuttingthe PFD, and B, it pays plays
into people's hands uh on uh onconsolidating the two accounts
and opening a back door into theinto the corpus.
I thought you were against atleast one of those, uh, if not
(44:57):
both of those.
So why why are you uh supportinguh something that that leads to
uh leads to to both of those uhtogether?
Doesn't need to be cash, John.
It can be uh appreciated assetsor accounting or accounting
gains, uh, and we can satisfyinflation proofing with it.
SPEAKER_00 (45:14):
That was a weird entree into the whole debate
about the PFD was the was theinflation proofing.
That would have not been theprobably the point of entry that
I would have taken, but to eachhis own.
Um I think John and I areprobably in alignment on most
things uh regarding the PFD, butthat is kind of a weird entree.
But any any final thoughts herefor everything we've been
discussing today?
SPEAKER_01 (45:35):
I'm going back to the beginning, Michael.
I'm going back to the firstsegment.
I I am concerned.
Um, I mean, I follow EIA and IEAand OPEC religiously.
I follow what they say about theoil markets.
I follow the oil markets, I doweekly charts that look at what
the oil markets are doing.
Um and I and I I I mean I Ispend a lot of time on it every
(45:58):
day on where oil markets and theand the prices are going.
And at first, when EIA came outwith this and the futures
markets were sort of someplaceelse, I thought, okay,
occasionally the EIA goes off ona on a tangent, and maybe this
is one of those tangents.
But then they stuck to it thesecond month.
Um, and I thought, yeah, they'reserious about this.
(46:21):
And now they've stuck to it athird month, um, and and and you
start seeing the futures marketsshowing the same trend across
the across the remainder of theAlaskan fiscal year.
And I'm concerned about it.
I I think this is I think thisis realistic.
The the you know, and and andnow that Trump solved the Middle
East, you don't have that risksitting in there that always
(46:45):
sits underneath the oil marketsand you know, of some sort of
flare-up in the in the MiddleEast that will bring prices back
up.
Um, and China uh has built awhole lot of new storage, but
they seem to be filling it up.
Um, and so you can't count onChina continuing to support the
market uh over the remainder ofthe year.
I mean, EIA is saying you can't,and IEA is saying you can't.
(47:07):
Can't count on China supportingthe market over the remainder of
the year.
So I I am concerned and andincreasingly believe the the
strength of what EIA isprojecting on these prices and
the and the impact of that onAlaska in terms of what we're
gonna face next spring from abudget standpoint, both the the
last part of the FY26 budget andmaking the FY27 budget, what
(47:30):
we're gonna face next year, ifthat's where these prices go, is
just gonna be huge.
SPEAKER_00 (47:34):
Well, because like you were saying earlier, this
discussion about thesupplemental, and oh, don't
worry, we've got this extramoney and we've put it aside,
and then it's all been sucked upby the fact that the oil prices
have plummeted.
Um you know, what's thesupplemental gonna be?
A quarter of a billion dollars,you know, next year, uh, just
for this current fiscal year,let alone what's coming in the
(47:55):
next year?
I mean, we've talked about this.
This is a significant,challenging time.
It's gonna, this is not a timethat I would want to step up as
governor, quite honestly,personally.
But somebody's gonna have to doit and somebody's gonna have to
take the reins on this thing,and it's gonna be a hot mess.
SPEAKER_01 (48:10):
Yeah, the candidates here are talking now about full
PFDs.
I I I love the discussion of thefull PFD.
I think it's important.
I think it's central to theAlaska economy.
I think it's central to Alaskafamilies, middle and lower
income Alaska families.
I I I strongly like candidateswho talk about that, but they're
gonna have to be ready to talkabout how the hell they're gonna
(48:33):
balance the budget otherwise.
And, you know, the 19 or the2018 Dunleavy, we're gonna cut
our way to it, just ain't gonnawork this time.
Um, because we saw where thatwent.
So those candidates are gonnahave to be ready.
Even the candidates who say,even the candidates who say, you
know, the PFD is important, butyou know, maybe maybe we need a
(48:54):
more reasonable level,reasonable level, even those
candidates are gonna have to beprepared to talk about revenues
because if these prices hit, andagain, I have increasing belief
that they're gonna hit, if theseprices hit, it's just gonna be
very difficult next year, bothin in balancing out the FY26
budget, but particularly ifwe're going to$53 in FY27,
(49:16):
particularly uh in puttingtogether the FY27 budget.
SPEAKER_00 (49:21):
Well, I mean, look, a governor could be willing.
Uh, you know, a governor couldbe willing and they could come
in with a budget that hacks andslashes and cuts what we're
looking for.
But you've got to have alegislature that uh that
cooperates, and they're notgonna do it.
They have no, there's nopolitical will.
A governor can come in and be asstrident and as strong and
produce a balanced budget thatpays a full PFD, shows it all,
(49:44):
does what it is, cuts deep intogovernment, but the legislature
has got to sign off on it.
And that's the problem.
The stumbling block right now isthe legislature.
SPEAKER_01 (49:53):
Yeah.
If I were Bernadette and andSchauer, I would be I would be
putting together a slate ofcandidates, legislative
candidates that supported me.
If I were serious about carryingthrough on what she says she
wants to do, I would be puttingtogether a slate of legislative
candidates that's supportive onthe issue, and I would be
running with those saying, wecan do it.
(50:14):
Not not I can do it as governor,because you can't, but we can do
it.
Vote for me and this slate ofcandidates and we will do it.
Now that would be that would berealistic, but just you know,
running around as a singlecandidate for governor saying, I
can do a full PFD and I'll doall these cuts, that's just not
going to have credibility.
SPEAKER_00 (50:33):
Yeah, well, I mean it's it's aspirational.
Again, we keep using, I keepusing that word today.
It's my word of the day,apparently, but that's
aspirational.
Um, you know, you can aspire todo that, but it what's the
reality going to be?
Again, we're reminded about whatDunleavy did.
You know, he came forward withthat budget that Donna Arduin
put together, and I mean it wasgreat until it wasn't great,
(50:55):
until the legislature got a holdof it, and then it was tall man
bad, and uh and everybody losttheir collective minds.
Uh, but if we're faced with thereality of no money and that, I
don't know.
I mean, I just don't know, Brad.
SPEAKER_01 (51:09):
Well, then we're gonna have then we're gonna have
all the PFD term eliminate thePFD people uh pipe up.
Yeah, you know what?
SPEAKER_00 (51:16):
Just go enjoy your music, Brad.
That's what you need to do.
Go enjoy that music, my friend.
I intend to.
I intend to.
I I hope you do.
I hope you do.
Appreciate it, my friend.
Thanks for coming on board.
We'll see you next week, okay?
Michael, as always, thanks forhaving me.
SPEAKER_01 (51:30):
Well, that's a wrap for another week's edition of
the weekly top three fromAlaskans for Sustainable
Budgets.
Thank you again for joining us.
Remember that you can find pastepisodes on our YouTube,
SoundCloud, Spotify, andSubstack pages, and keep track
of us during the week onFacebook and Twitter.
This has been Brad Keithley,Managing Director of Alaskans
(51:52):
for Sustainable Budgets.
We look forward to you joiningus again next week on the weekly
top three.
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