January 28, 2025 • 54 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 January 27, 2025.
This week, our top 3 issues are these: 1) Senator Dunbar asks the right question about ENSTAR’s most recent Cook Inlet proposal, and by the way, where are Chugach, MEA … and Marathon (2:11), 2) Alaska is already sitting in a massive fiscal hole, but rather than working to repair it, the Alaska House Majority is proposing to make it even deeper (16:53), and 3) we explain the real Permanent Fund crisis — the Permanent Fund Corporation is so mismanaging the Fund that it isn’t earning enough even to cover the POMV draw (37:31).
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 1 (00:10):
Hi, this is Brad Keithley, managing Director of
Alaskans for Sustainable Budgets.
Welcome to the weekly top threethe top three things on our
mind here at Alaskans forSustainable Budgets for the week
of January 27th 2025.
The weekly top three is aregular segment on the Michael
Duke Show.
The show broadcasts on bothFacebook Live and YouTube Live
(00:34):
as well as via streaming audiofrom the show's website.
Weekdays from 6 to 8 am.
I join Michael weekly in thefirst hour of Tuesday's show
from 6.10 to 7 am for adiscussion between the two of 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 and Substackpages, also on the Alaskans for
Sustainable Budgets website, aswell as the projects page on
national blog site mediumcom.
You can find past episodes ofthe weekly top three also at the
same locations.
Keep in mind that, in additionto these podcasts during the
(01:16):
week, 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, senator Dunbar
(01:36):
asked the right question aboutNSTAR's Cook Inlet proposal.
And, by the way, where areChugach, mea and Marathon?
Second, alaska is alreadysitting in a massive fiscal hole
, but rather than working on it,the Alaska House majority is
proposing to make it even deeper.
And third, we explained thereal permanent fund crisis.
(02:00):
The Permanent Fund Corporationis so mismanaging the fund that
it isn't earning enough even tocover the pomv draw.
And now let's join michaellet's get started.
Speaker 2 (02:12):
We've got quite a bit to go over today and there's a
lot of stuff that I want totouch on here.
So first things first.
We saw the thing about thelawsuit with nSTAR and Hillcorp
and everything else, butsomebody at least seems to be
asking the right questions ofChugach Electric MEA and, I
guess, maybe NSTAR.
Let's start with that.
Speaker 1 (02:54):
Last week NSTAR's presentation about where things
are and their pitch for whytheir deal, their new deal with
Glen Farn, is a great thing andwill solve all of the Cook
Inland's problems.
During the course of thepresentation, senator Giesel
asked a question of John Simswho was presenting for NSTAR.
That was sort of a puffquestion.
The question was do youperceive any conflicts between
(03:16):
Glenn Farn doing the deal withNSTAR and Glenn Farn also being
the one in the contractualrelationship with AGDC to do the
big line down from the NorthSlope?
And Sims, you know, sort ofswatted that one away and said
no, there's no conflicts.
I mean the Glen Farns got aseparate deal with us and we're
convinced they're going to gothrough with our deal separate,
(03:36):
apart from whatever happens withthe pipeline coming down from
the slope, their deal with AGDCon the pipeline, that coming
down from the slope.
And then Senator Dunbar askedthe question that I think is one
of the key questions that weneed to keep asking in the
course of looking at what NSTARis proposing to do and looking
(03:58):
at what in the course of whatAGDC is proposed to do.
Senator Dunbar said let's goback to this question that
Senator Giesel asked and he saidlast year he laid the
foundation this way.
He said last year we got intothis deal with Hillcorp where
members of the Senate proposed abill that would that would
(04:20):
levelize Hillcorp's corporateincome tax, levelize Hill Corp's
corporate income tax, thatwould bring it up to the level
that BP paid and the level thatthe other producers on the North
Slope are paying, essentiallyclose the Hill Corp loophole,
all related to essentially NorthSlope operations.
But Hill Corp responded.
Senator Dunbar continuing.
(04:41):
Hill Corp responded by sayinghey, you tax me, you close that
loophole and you make me paywhat everybody else is paying.
And guess what?
I'll probably retaliate, saidHillcorp.
I'll probably retaliate theCook Inlet by lowering my
investment in the Cook Inlet.
And if you guys go high and drydown in the Cook Inlet you have
(05:02):
only yourselves to blamebecause you took that money out
of my hide on the North Slope,that surplus, that windfall that
we were getting on the NorthSlope.
You took it out of my hide andso I took it out of your hide by
reducing investment in the CookInlet.
And then Dunbar continued.
He said so what's to prevent,since we have this dual
(05:24):
relationship with Glen Farn nowbetween the Cook Inlet and the
North Slope.
What's to prevent Glen Farn atsome point from coming to the
legislature and saying, hey, Ineed an extra $100 million or
$500 million or whatever theamount might be, or I need this
waiver or that waiver, or I needthis exception or that
(05:45):
exception, or I need thisreduction in property tax, or I
need that reduction in propertytax to make my project economic.
And if you don't do that, maybeI don't have the money to go
forward with the Cook InletFacility I promised to do with
NSTAR.
Maybe I have to reduce myinvestment there.
(06:06):
What's to prevent Glenfarn fromdoing the very same thing that
Hillcorp did with us last year?
And Sins' answer was you know,as you would expect when you're
not expecting the question, itwas a little bit of a stumble.
And then, oh well, we have adirect contractual relationship
with Glenfarn and they'vecommitted to go through with it.
And you, oh well, we have adirect contractual relationship
with Glenfarm and they'vecommitted to go through with it
(06:27):
and we don't have to worry aboutthat.
It's all separate and apart.
Yeah, me worry.
But here's the deal the NSTARcontract with Hillcorp and with
the Cook Inlet Utilities are allseparate and apart and Hillcorp
has an obligation under thosecontracts, in good faith and
(06:48):
fair dealing, to makeinvestments when it needs to do
so in order to make deliveriesunder those contracts.
Yet Hillcorp was threateningthat contract, those contracts,
essentially unrelated contractsby saying we'd underinvest and,
you know, maybe delay ourinvestment or delay whatever we
(07:10):
would do.
It's exactly the same thing.
Dunbar hit on a key questionabout these inner ties that
we're developing with Glenfarm.
This you know, low cap, smallcap, low cap, small cap,
(07:30):
inexperienced company we've gotout of New York that we've
entered into these variousrelationships with.
Dunbar hit on the key questionand it's a question that we need
to probe a lot.
So, for example, the deal withAGDC and Glenn Farn is dependent
on the legislatureappropriating $50 million to ADA
.
So ADA can underwrite theinitial FID work that needs to
(07:57):
be done to bring the big lineproject up to the point where
you can make the FID decisionand AIDA has agreed to
underwrite that by $50 million.
But they need the legislatureto appropriate the $50 million.
So what's to prevent Grundfarmfrom saying, hey, you know you
want us to go forward with NSTAR.
(08:17):
Your Cook Inlet life nowdepends on this deal we've got
with NSTAR.
You know we need that $50million appropriated to ADA so
that we have.
You know we have the amountunderwritten for us.
What's to prevent Glen Farn downthe road from saying you know
that dock that we've got tobuild both for our facility,
(08:38):
both for the big line facilityand for NSTAR's in-state
facility Hmm, you facility.
Maybe we don't have the moneyto go forward with that doc,
unless you do.
X, y and Z.
There are shared facilitiescontemplated in this deal
between Glen Farn and NSTAR andGlen Farn AGDC and those shared
(09:00):
facilities have got to be builtin order for NSTAR's deal to go
forward.
So I think Senator Dunbar justhit on it shared facilities have
got to be built in order for mstar's deal to go forward.
So I I think senator dunbarjust hit on it, hit a huge
question that I think really youknow the rca and others need to
dig into to really understandyou know what, what we're doing,
what alaska is doing by tyingits future, both its cook emmett
(09:20):
future and its north slope uh,to glen farm well, there's a
history of this, right.
Speaker 2 (09:25):
right, brad.
I mean there's been a historyover the years, over the decades
, of oil companies kind of, atsome point or another, kind of
holding the state over thebarrel and say, well, you could
do that, but it'd be a shame ifsomething like this happened,
and we've seen it.
Arco, bp, conoco, they've allat one point or another kind of
done a little bit of corporateblackmail on some of those
(09:46):
things, simply because we are ina stranded position.
We are in a kind of a weaknegotiating position at some
time for certain things, and sothis is something that's
happened before.
Speaker 1 (09:56):
Yep, exactly right.
I mean ACES.
We had when ACES was, and Ithink this was an appropriate
market response.
But when ACES was the taxstructure, the big three on the
North Slope essentially saidwe're not going to invest under
the economic structure of ACES.
You want additional production,you want additional exploration
, Then you need to change thetax structure.
(10:17):
We're going to do that and thestate ultimately did that and we
got the additional investment,but we can be held over a barrel
ultimately did that and we gotthe additional investment, but
but we can be held over a barrel.
And the problem is we're tyingagain, just like has happened
with Hillcorp.
We're tying the North slope tothe Cook Inlet and Alaska is
very feels very vulnerable withrespect to the Cook Inlet right
now.
So we're we're giving Glen Farna tremendous amount of leverage
(10:41):
Go ahead.
Well, this raises one otherquestion, and maybe, maybe I
don't have enough time for it,but there's a question of NSTAR
presented.
But where's Chugach, where'sMEA and where's Marathon?
Chugach and MEA have contractsthat expire before NSTAR's.
The Glen Farn deal.
(11:02):
The NSTAR-Glen Farn deal istimed to meet NSTAR's
obligations and needs.
But where's MEA and Shoe Gatchin all this?
Are we leaving them behind andMarathon?
The final question on Marathon.
Marathon has an existing LNGfacility that is certificated by
the FERC to receive gas to actas an import facility.
(11:23):
Separate and apart fromGlenfarm Don't need it.
We have an existing facility.
So where are they in thisequation?
Why aren't we pursuing thatopportunity instead of trying to
do this new, this new deal onon with new builds with that are
intertied with AGDC's project?
Why are we?
Why aren't we pursuing theexisting facilities?
Speaker 2 (11:43):
Because we're already halfway there with that
facility.
We don't have to wait on stuffthere.
Final question here We've onlygot about two minutes left.
We saw that article yesterdaytalking about now this new
lawsuit between NSTAR andHillcorp, and so I mean you are
(12:03):
more familiar with gas contractsand deliveries and storage and
everything else.
I read into this, like Hillcorpwas basically saying we don't
like the fact that you'reBogarting gas, even though it's
part of the contract and eventhough it was negotiated.
But is this just more flexingon the same, or what is this?
Speaker 1 (12:20):
Yeah, it's flexing by Hillcorp.
I mean it's the timing of NSTARwants to be able to take gas,
buy gas from Hillcorp and stickit in the storage.
Hillcorp, which runs its ownstorage facilities, doesn't want
NSTAR to do that.
If NSTAR needs gas over andabove storage then Hillcorp is
willing to sell it, but itdoesn't want to sell Hillcorp
(12:41):
additional gas just to be stuckin storage.
And essentially they're tryingto.
I mean it is Hillcorp againtrying to hold NSTAR hostage to
modify NSTAR's behavior in a waythat maximizes Hillcorp's
flexibility and Hillcorp'sprofits.
I'm not.
(13:01):
The contract's not entirelyclear on the issue.
It'll be an interesting lawsuitas it plays out.
But it is Hill Corp againtrying to exert its control over
over the gas side, the gassupply side of the Cook Inlet,
to to extract additionalconcessions out of out of the
purchasers.
Speaker 2 (13:20):
All these players trying to maximize their yield
and to make somebody else pay.
That's essentially, I mean.
I think I can summate it thatway NSTAR's looking for the
state to pay, hillcorp's lookingfor NSTAR and the state to pay.
Everybody's looking for thestate to pay in the long run and
we're the ones that are goingto pay.
I just want to.
That's spoiler alertforeshadowing.
(13:42):
We're the ones that are goingto pay in the end, right, brad?
That's the end.
Speaker 1 (13:46):
Yeah, that seems to be the case.
Speaker 2 (13:48):
So, brad, yeah, I saw this thing yesterday and I just
like man, this saga is just, Ican tell that the gloves are
about to come off, because theyknow that the legislature's in
session and if they put enoughpressure on them they're going
to have to do something.
And this is going to tie in alittle bit to your last one with
number three and the and the.
You know, stop digging the holeor the deep pockets or whatever
.
But I mean, this is they'rejust gonna, they're gonna spend.
Speaker 1 (14:12):
Uh, you could see it already yeah, everybody's going
for leverage on everybody else.
I mean it's uh.
Dunbar is exactly right to toraise the question of whether
we're recreating with Glen Farnexactly the same leverage over
the Cook Inlet that Hillcorp hasbeen able to develop through
its acquisitions in the CookInlet and then a BP up on the
(14:35):
North Slope.
Dunbar raises exactly the rightquestion and I don't think we
want to go down that road again.
I don't think we want to putthe state Cook Inlet in the
position where it's dependent onsomebody who can then leverage,
you know, leverage up theirposition in the Cook Inlet for,
you know, benefits that relateto their, that relate to their
(14:56):
slope project and this is whywhy I raised the question
where's Marathon?
It's not like.
It's not like we don't havealternatives out there.
Sims, they previously talkedabout a floating LNG plant and
during his presentation, simssaid that that didn't look like
it was going to work out becauseof the tides in the Cook Inlet,
(15:17):
because of ice in the CookInlet.
The concerns about dependingupon a floating barge that was
regasifying the plant was toogreat.
Those concerns were too great.
So we needed an onshorefacility.
But we're not dependent onGlenfarm for the only onshore
facility we possibly can have.
I went back in the records andKenai the LNG plant is
(15:41):
certificated for imports through2025, if they if certificated
to make the changes necessary todo it and then, once they do it
, they have a longer termcertificate to operate it, they
would have to add the importsfor others in addition to
Marathon's needs.
But that shouldn't be a greatbig.
That shouldn't be a big dealbefore the FERC.
(16:02):
That's an existing facility.
We need to make some changes innot huge, but a big deal before
the FERC.
That's an existing facility weneed to make some changes in not
huge, but we need to make somechanges in.
Why aren't we pursuing thatinstead of this whole new
structure out here on land thatneither Glen Farn nor NSTAR own
and involving new facilitiesthat are joint facilities that
would give Lundfarn leverageover Alaska on the Cook Inlet?
(16:26):
So Dunbar raised the rightquestion.
We need to continue going downthat track and make sure we
aren't recreating the Hillcourtproblem again.
Speaker 2 (16:35):
That's something you'll hear on this program.
Dunbar asks the right.
Even a stopped clock is righttwice a day, you know, even then
Dunbar at least did ask.
We try and give praise wherepraise is due, and I guess that
is a good question and I'm gladthat somebody somebody out there
at least asked it.
We'll have to see where it goesfrom here.
Brad Keithley, alaskans forSustainable Budgets, the weekly
(16:56):
top three.
This is number two of the topthree.
What do you do when you findyourself in a hole?
Right, what do you do?
You look up and you're like man, there's daylight is way up
there.
What's the first thing you do?
Well, you stop digging and youfind a ladder.
The Alaska legislature,apparently, is not figuring that
out, brad.
(17:16):
They have not stopped digging.
In fact they got a biggershovel.
Speaker 1 (17:21):
They did get a bigger shovel.
They're trying to get a biggershovel.
All right, let's go back tolast week.
Last week we did a segment onLedge Fin's overview Ledge
Finance's overview of thegovernor's budget in which Ledge
Finance analyzed the governor'sbudget, looked at revenues,
looked at projected spendinglevels and reached the following
conclusion.
(17:41):
Listeners last week, orlisteners that go back and
listen to the show, willremember this there was a chart
that said 75-25 PFD alone won'tbalance the budget, that even at
75-25 PFD 25-75, 25 to Alaskacitizens, 75% to the government
(18:02):
of the POMB, draw to governmentthat alone wouldn't balance the
budget.
And in the concluding paragraphon that issue said adding those
items, certain items to reflectthe K-12 match just sort of
bringing K-12 back up to whereit was last year Medicaid adding
(18:22):
those items which representcosts necessary to maintain
state services at the same levelas FY25, just holding FY26
equal to FY25 in terms ofservices would result in a
substantial deficit in FY26,even with a 75-25 PFD
(18:44):
appropriation to balance thebudget.
This is just to hold equal toFY25 service levels.
To balance the budget thelegislature will need to reduce
spending, pass legislation toincrease revenue further, reduce
the PFD or draw from savingsjust to hold equal to FY25
(19:07):
levels.
Even POMB 2575 isn't enough todo it.
The line of sand that Burt andLyman and others have drawn in,
the Senate said we're not goingto go below POMB 2575.
That wouldn't be enough tobalance the budget.
On the heels of that, what arethe headlines this week?
(19:27):
Headlines this week is AlaskaHouse to expedite consideration
of education funding increase.
The increase would increaseAlaska public school funding by
more than 35%.
The bill would add roughly$464.5 billion to the state's
(19:52):
annual education spending, whichcurrently hovers around $1.2
billion per year to Alaskaschools.
It would increase it by morethan a third.
So last week we have Ledgefincome out with the overview that
(20:29):
says we can't even afforditedconsideration to that would add
roughly a half a billion dollarsto the state's education
spending.
And and there's no mention inany of the discussion that the
house did of how the hellthey're going to pay for it on
long term.
Speaker 2 (20:47):
yeah, the house didn't talk about it, but the
senate previewed this here theweek before when joseph quoted
well, yeah, we're probably goingto have to pay for this out of
the PFD.
There's going to be more PFDcuts.
I mean, you know it's coming,you know that's where it's going
.
Speaker 1 (21:01):
That's where they're drawing.
It's not the right line.
The right line either ought tobe current statutory or it ought
to be POMV 50-50.
But they've told us they'regoing to draw the line at 75-25.
Can't even pay for FY26spending levels that are
necessary to equal FY25 servicelevels.
(21:23):
Can't even pay at that level.
And now the House is throwing ahalf a billion dollars on top
of it.
Look, there's a fiscal rule.
There are fiscal rules outthere.
It's sort of like GAAP, it'ssort of like generally accepted
accounting principles.
Well, there are generallyaccepted fiscal rules and
generally accepted fiscal rulesare that when you propose a
massive increase in spending,you propose at the same time how
(21:47):
you're going to pay for it andyou discuss how you're going to
pay for it and you put in thelegislation necessary companion
legislation necessary to pay forit.
House has gone completely roguein terms of that fiscal rule.
They're just out there on theirown proposing these increases.
(22:11):
When you are in a hole, youstop and you figure out how
you're going to get yourself outof the hole.
You're going to figure out howyou're going to fill in the hole
.
You figure out how you're goingto get a ladder.
You figure out where you areand what it takes to correct the
situation you put yourself in.
The Alaska house is saying, ohhell, no, we're not doing that,
(22:32):
we're just going to go deeper.
Speaker 2 (22:34):
And this is just the beginning, brad.
This is just the educationcomponent.
Then we have the definedbenefits component, which is
another $50, $60, $80 million ayear.
Then we have whatever they'regoing to do with the gas and the
Cook Inlet which we were justtalking about in segment one,
which could be I don't know, youknow millions of dollars in the
long run.
Oh, and we've got the newnegotiations for the new
(22:56):
contracts which are coming upfor the employees as well.
I mean, this is just you know.
This is like one more feather,only one thin wafer, before we
just you know explode everywherebecause they just don't care.
At this point.
It's just like the, you know,the rules are made up and the
facts don't count.
Speaker 1 (23:16):
Yeah Well, the rules are ignored.
I mean, I have a lot of respectfor Alexi Painter, who's the
director of legislative finance.
I'm not quite sure how he'sgoing to address the issue when
someone asks him, as surelysomeone's going to.
How do you square up the factwe can't even afford FY26 with
(23:40):
the fact that some in thelegislature are wanting to pour
more and more and more and moreand more money into things
without proposing offsettingrevenues to pay-fors it's what
they're called at the federallevel without proposing pay-fors
to offset it, to pay forpay-fors it's what they're
called at the federal levelwithout proposing pay-fors to
offset it, to pay for it?
And I don't know what Alexei'sgoing to say.
I mean, alexei's going to haveto repeat essentially what he
(24:01):
said in the overview, which isto balance the budget.
To balance an even greaterbudget, the legislature will
need to reduce spending evenfurther, pass legislation to
increase revenue even morefurther, reduce the PFD even
further or draw from savings.
Except we don't have savings.
So Alaska needs to stop andtake a breath and say look,
(24:28):
we've gotten ourselves in a hole.
We need to figure out how toget ourselves out of this hole
equitably and with low impact onthe Alaska economy and we just
need to devote a session or weneed to devote a committee, or
we need to devote something togetting ourselves back out of
the hole.
(24:48):
The Ledgefin summary Ledgefinfinance summary ought to be
taken as a wake-up call of howdeep a hole we've now gotten
ourselves into, and we ought todevote a session to getting
ourselves out of that hole.
Instead of that, we got theHouse just wanting to make it
worse and worse and worse andworse and worse and worse.
So it's a hugely concerningsituation that the House is
(25:16):
proposing something like this.
It's a hugely concerningsituation.
They're not following generallyaccepted fiscal rules of
offering what the pay-fors aregoing to be, explaining what the
pay-fors are going to be tooffset the spending that they're
proposing.
Speaker 2 (25:32):
So I mean, and you're saying that the House is run
amok, but you said the Senatewants to hold the line.
But again, going back to whatthey had said just last week as
maybe Burt, maybe Burt, maybeLyman, but that's not everybody
Again Josephson was quoted assaying you know, we're going to
take it out of the PFD.
So and who's running the?
(25:53):
Who's running the Senate rightnow?
I mean, it's a bipartisancoalition, but the Democrats
outnumber the Republicans by asignificant amount and a lot of
those Republicans seem to bereal cozy with the Democratic
ideology.
As far as spend, spend, spend,do you think they're going to be
able to hold the line?
You?
Speaker 1 (26:13):
know?
The answer is I don't know.
And and here's, here's a verysubtle thing that happened in
the Senate organization, the,the significance of which you
know may become more apparent aswe go along.
Burt has has historically been,for the last several sessions,
last several legislatures, hasbeen the co-chairman of Senate
(26:38):
Finance for the operating budget, for the big spend side, before
he got exiled.
That's right.
And in this legislature he'sbeen pushed over to co-chair for
the capital budget.
Lyman has become co-chair ofSenate Finance for the operating
budget.
Burt has, you know, they bothhave round heels in terms of
(27:02):
they'll, you know, rock back andgive and give, and give and
give.
But Burt tends to draw the lineat a point before Lyman.
Lyman tends to have rounderheels than Burt does.
Burt last year drew the line atthe defined benefits and that's
one of the reasons he's beenexiled over to the.
He's been moved over to thecapital budget.
(27:24):
So as these things start to playout, the person setting the
agenda on the Senate side is notgoing to be Burt.
He's on the committee, he willhave a voice, he will articulate
his concerns, but it's notgoing to be Burt setting the
agenda.
It's going to be Lyman settingthe agenda and another
moderating factor in Senatefinance is Donnie Olson.
(27:45):
Donnie is co-chair for billsthe running bills that don't
relate directly to the operatingbudget or the capital budget,
and Donnie's been somewhat of avoice for the PFD.
I mean he represents a districtthat has lower economics than
(28:07):
other parts of Alaska and hasbeen more sensitive to the, to
the PFD.
But Donnie's now in the hospitalfor a for an unknown period,
possibly an extended period,right?
So you have Donnie off thecommittee, you have Bert pushed
down to capital budgets orpushed over to capital budgets.
You have Lyman running thecommittee.
It'll be interesting to see howthat, how that plays out, if
(28:31):
that has an effect.
Lyman in the past has been oneof those who talked about 75-25
being the line in the sand, butLyman's been known to erase
lines in the sand as he goes.
So that little detail, thatlittle organizational change,
may play a factor in this aswell.
Speaker 2 (28:55):
Yeah, no, it's interesting to watch and the
fact that they've been kind ofsidelined shows you the
direction they're going.
I mean, I'm not confident thatthey're going to be able to hold
back.
You know what I mean.
Again, we'll give praise wherepraise is due.
Stedman did he held back thedefined benefits package last
year.
He was the big, major stumblingblock in the Senate to get it
(29:20):
out of there although it did endup actually coming out and then
dying in the House.
But he at least tried to dothat and spoke very, very
strongly against it.
And now he's just not going tohave that, he's not going to
have that horsepower.
And so 75, 25?
No problem, you did the math onthis.
What is it like?
81, 19, something like thatthis year, something like that.
Speaker 1 (29:42):
Yeah, and that's before adding $400 million.
I mean, $400 million is goingto take it to like I'm doing
this week's column on it, but Ihaven't done the calculations
yet, so it's going to takesomething like 92.8.
Speaker 2 (29:54):
92.8, yeah.
So I mean again, I waspredicting this earlier.
Everybody was saying earlierlast year people were saying
doom and gloom.
I said it'll be 24 to 36 monthsbefore they exhaust the
permanent fund and people werelike, oh no, that's too soon.
I think it'll be five or sixyears.
But if they add a half abillion dollars in spending,
(30:16):
yeah, it's pretty much going tobe gone in 24 to 36 months
because that increase justcontinues, especially if they
lock that education increaseinto the BSA, where it's in
perpetuity.
That's it, it's in perpetuityand they peg it to the consumer
price index.
Speaker 1 (30:35):
Yeah, and think about the irony of this.
We're talking about theargument that we want to raise
this spending level because wewant to improve the education
for working Alaska families.
We're not concerned abouthigher income families.
We want to raise the for the 80percent of working Alaska
families.
Well, who are they?
Who are they hurting to pay forthis?
If they, if they, if they cutthe PFD, they're taking it out
(30:58):
of the very, out of the pocketsof the very people they claim to
be helping.
They're not spreading it acrossacross a broad base.
They're not including there.
There was a, there was an op edthat just blew my mind.
There was an op-ed in the ADNby two people in the oil
industry saying how importanteducation was to the oil
industry retaining the oilindustry in Alaska, and how
(31:20):
important it was that we have anincreased K-12 funding to help
out the oil industry in Alaska.
Well, the oil industry isn'tpaying for any of the increased
costs, so they claim a benefit,they claim it's important to
them, but I guess it's onlyimportant if somebody else pays
for it, if middle and lowerincome Alaskans pay for it.
So the irony of this is justhuge.
(31:43):
We want to help you.
We're from the government.
We want to help you here.
Give us your money out of yourpocket so we can spend it to
help you.
Speaker 2 (31:51):
I mean, we've been talking about that, the ICER,
the initial ICER report that itwas the worst thing that they
could possibly do for 10 years.
2014 is when we first startedtalking about it.
And here we are, 10, going on11 years now, still watching the
same thing happen over and overand over again.
Let me go back and answer thisquestion.
So John says just to, to beclear, of all revenues, the
(32:15):
state gets 75% off.
The top 25 goes to the PFD.
The PFD pays a dividend ofabout 5% supposed to be 50-50,
but a four of the state.
No, you have it wrong, john.
So what happens is 25% of theroyalty revenues goes into the
permanent fund, right off thetop, and then it rolls in there
and the earnings spin off everyyear.
And then what was supposed tohappen was that we were supposed
(32:39):
to be paid on a five-yearrolling average of those
earnings, but they stopped thatwith the POMV, which means the
government takes 5% of theearnings every year, earnings
every year and then was supposedto, according to Hammond, split
those 5% that they roll outevery year 50-50 with us, the
people, and split it out for thePFD for 50% and state spending
for the 50%.
(32:59):
But what's happened is they'renow taking 75% of that money and
it's going towards 90% of thatmoney, leaving us with whatever
crumbs we can pick up with oursticky little fingers on the
plate, because that's all that'sgoing to be left over is the
crumbs at this point.
Speaker 1 (33:16):
So that's how it works, and we're just talking
about the POMV revenue.
I mean, the state gets all ofthe production tax revenue, gets
all of the additional fees andtaxes.
Speaker 2 (33:29):
And 75 percent of the royalty right off the top, it's
only the 25 that gets deposited, and they want that and more so
.
It's basically like they handedyou a plate that's with a full
cake and then said, and you goto take a piece and they're like
no, no wait.
And then they eat all of thecake except for that one bite
left and they say, okay, you canhave that, but we're still kind
of hungry, so maybe we'll too.
(33:50):
I mean that's, that's what itis, that's.
I mean you know.
And again, no thoughts.
No, look at fiscal discipline,no, look at anything else.
I mean their own reports fromtheir own people at Ledge
Finance say you just can't dothat, even to get to this
spending level.
And their first reaction is towell, let's increase it half a
billion dollars a year.
Right, I mean let's.
(34:13):
Let's increase it half abillion dollars a year.
The greed and the entitlement isastounding to me.
I just don't fathom it.
I mean, they said that was us.
By the way, that was, she wastalking about us, not about the
legislature.
She was talking about howgreedy we were, that we dared to
(34:34):
want our PFD, which I just Iagain, I don't think it's, I
don't think it's going anywhere.
Man, I don't know about youguys, but I just I think we're
going to, I think the PFD willbe gone.
And then what'll happen, Brad?
They'll come back to us and gofree rides.
Die hard, sweetheart.
Speaker 1 (34:54):
Right.
Well, no Michael, no Michael,we may hit this in the next
segment.
What they will come back andsay is we need to combine the
earnings reserve and the corpusof the permanent fund so we can
continue to draw even though thepermanent fund isn't earning
the return that it needs to payfor the draw.
We need to combine the two andcontinue to draw and in that
(35:18):
fashion, through that step, openthe door to starting to drain
the permanent fund to continueto fund government without the
top 20% or non-residentindustries or the oil companies
having to pay a dime toward theadditional costs.
So the next attack really isbeing set up now through this
(35:43):
proposal to consolidate theearnings reserve in the corpus
of the-.
Speaker 2 (35:46):
Which we saw last year and we warned about last
year.
We said this is the danger zone, Danger zone.
This is what's happening rightthere.
You're going to drop us intothe danger zone where you're
going to eat the seed corn outof a PFD or out of the permanent
fund itself, and of coursethere will be no PFD and they'll
just start tapping into thepermanent fund harder and harder
(36:07):
and next thing you know, thereis no more permanent fund either
.
Speaker 1 (36:11):
And what's the constituency?
What's going to be theconstituency to save the
permanent fund at that point?
People talk about, well, it'sthere for future generations.
We shouldn't tap it for futuregenerations.
But we've seen with the PFD,we've seen with the CBR, we've
seen with the SBR, we've seenhow far that argument goes.
It's no, no, I need it now.
I need it now for my spendingand I don't want to tax the top
(36:34):
40% and non-residents in the oilcompanies because they might
say no, they wouldn't pay thatstuff, they'd push back on it.
I need it now for my spending.
So you know, I'll just take it,I'll just start, you know,
making these rules about how Iget into the permanent fund to
start taking it down.
And it's there.
You know it's there for futuregenerations.
We're a future generation nowand so we're going to start
(36:57):
covering it that way.
That's where we're going to go.
Speaker 2 (37:01):
That's the direction that they're trying to set up.
Well, and I mean, there's justno, there's no fiscal discipline
in sight.
There's very few people who areeven asking the question about
who pays and how does this getdone, and what happens to the
future.
Nobody seems to be thinkingabout that or talking about that
in any of the discussions.
As long as the governmentemployees are taken care of,
(37:21):
we're okay, just calm down.
As long as the governmentemployees are taken care of,
it'll all be fine.
Don't worry about it, forgetabout everybody else.
So, yeah, well, brad, I don'tknow, sometimes these Tuesday
meetings between you and me, Imean I got to be honest, I come
(37:42):
away just a little bit depressed, more depressed than I started
out, because I would.
I just can't believe that thisis the direction we're still
going, with all these warningsigns and everything else.
And, like you said, it lookslike this is all a setup for
number three, which is the realdanger to not just the PFD, the
(38:05):
permanent fund dividend but tothe permanent fund itself.
We've talked about this.
But all the things that arelining up right now, this extra
spending, the disregard forwhere the PFD goes, the
disregard for how we pay for itit all seems like it's setting
it up for one big final throw ofthe dice when it comes to the
(38:28):
real permanent fund crisis.
Speaker 1 (38:32):
Yeah.
So there was a forum, aconference, a seminar held
earlier this month jointlysponsored by Alaska Common
Ground, the Institute of theNorth and Commonwealth North all
of the so-called thoughtleaders at least top 20% thought
leaders in the state and thesubject of it was excuse me, the
(38:56):
subject of it was protectingthe permanent fund, a
rules-based permanent fundendowment model, and I listened
to it, I watched it andbasically it was a pep rally for
this proposal to consolidatethe earnings reserve into the
corpus and have the draw, thePOMV draw, come from that single
(39:22):
fund.
The reason they're doing it isbecause the earnings reserve is
running down and they'reconcerned that there's not going
to be enough in the earningsreserve to cover the POMV draw.
So they want to consolidate thetwo funds together in order to
continue the draw, sort ofregardless of how the earnings
are coming out and if necessaryor not, or just as a matter,
(39:49):
they can take money from thecorpus in order to cover the
POMB draw.
The conference turned in to bea pep rally for that proposal.
The claim is that there's acrisis, that not having the two
funds consolidated is a crisisbecause we won't have enough
money to cover the POMV draw.
(40:10):
But it's a self-created crisis.
We've been through this onprevious segments.
I've written columns about it.
The reason the earnings reserveis low is because the
legislature took $8 billion outof the earnings reserve and
that's about a three-year, twoor three-year piece of, or
(40:34):
coverage of, the POMB draw.
It took $8 billion out of theearnings reserve and moved it
over to the corpus and at thetime they said this was a
prepayment for inflationproofing, so we don't need to
inflation proof.
In subsequent years We'll have.
We've already prepaid enoughfor the inflation proofing.
(40:54):
Well, the Permanent FundCorporation accounted for it
that way for about a year andthen the Permanent Fund
Corporation dropped the footnotethat said it's a prepayment for
inflation proofing and justtook it and said it's part of
the corpus now and it's not inthe earnings reserve anymore.
It's not a prepayment foranything that should come out of
the earnings reserve, it's justours.
Now it's in the earningsreserve anymore.
(41:14):
It's not a prepayment foranything that should come out of
the earnings reserve, it's justours.
Now it's in the corporate space.
And they've created this crisis, this so-called crisis in the
earnings reserve, by drainingthe earnings reserve through
that $8 billion transfer.
And now, all of a sudden peopleare saying, oh my gosh, there's
not enough in the earningsreserve.
Well, that's because it wassupposed to be a prepayment.
(41:40):
It was supposed to be, so youdidn't have to pay as much out
of the earnings reserve goingforward.
But now that they've forgottenthat all of a sudden, yeah, we
have to pay inflation proofingout of the earnings reserve and
now we're draining the earningsreserve.
So it's a self-created crisis,but it's being used as a
justification for merging thetwo funds together in order to
(42:01):
allow the clawback or thebreakdown of the permanent fund
corpus.
I went in at the urging of someothers.
I went in and spent quite a bitof time understanding the
earnings the earnings side ofthe permanent fund and how we're
(42:21):
earning and the level at whichwe're earning and what the
investments are producing.
And I discovered something thatI wrote in last week's column
we aren't earning anything offthe permanent fund After you
take into account the differencebetween we've got a benchmark
(42:42):
that we call a passive indexbenchmark and the permanent fund
is an actively managed fund.
That means we've got advisorsand we've got people that work
on it.
We've got people that decide tomake investments.
They make investments inprivate funds rather than follow
an index like the S&P 500 indexor the NASDAQ or the Dow Jones
or one of the common indices outthere.
(43:04):
Rather than do that, we got abunch of people who are working
on deciding where theseinvestments go and you realize
after you run the numbers thatthe level of money we're
spending on the fees for thisactive management, which is
about $800 million a year about1% of the fund the level of
(43:28):
money we're spending on the feesis greater than the amount of
additional benefit we're gettingout of actively managing the
fund as opposed to just relyingon the benchmark.
Yeah, you've got to chart upthe yellow.
(43:49):
The column in yellow is theamount of additional benefit
that the permanent fund hasearned through this active
management, the amount ofbenefit we've gotten through
active management over what wewould have got if we just would
have invested it in the passiveindex.
(44:10):
And it shows that for the yearsfrom 2017 through 2022, we got
some benefit of it.
But then we look at the feesthat we've paid for that benefit
(44:34):
and 2% again in 2018, negative0.1% in 2019 after fees fees.
We've paid the difference inthe return that the fees have
(44:58):
produced compared to what wewould have gotten if we just
would have stuck them in indices.
The problem with the fund is notthis whole mishmash that's
going, this contrived mishmashthat's going on in the earnings
reserve.
The problem with the fund isit's not earning enough.
It's not earning what it wouldearn even if we just put it.
(45:21):
Stop the fees, stop thepayments, stop the $800 million
a year and put the money intothe passive indices, into the
index benchmarks that are outthere.
If we just invested the moneythat way, just put the money
into these indices, we wouldmake more than we're making by
(45:43):
trying to actively manage thefund and paying all these fees.
We're underwater.
We're losing money by not usingthe passive indices and trying
to actively manage the fund.
Basically, what we're doing isfor a while we were making
enough to pay the fees, just topay the fees, to continue to
(46:04):
fund the bureaucracy that thepermanent fund corporation has
become.
But in the last three years wehaven't even done that.
We haven't even made enough outof the earnings to out of the
permanent fund investments tocover the fees.
So it's the problem here.
Yeah, the problem here is notthe lack of combination of the
(46:26):
accounts.
The problem here is the lack ofearnings.
Speaker 2 (46:30):
And the lack of fiscal discipline.
Right, I mean, that's reallythe core problem here is the
lack of fiscal discipline, whichhas led us to this, which I've
been saying since 1999.
The goal is to get their handson the corpus of the permanent
fund, and I'd be interested tosee if they use some Bill Walker
math in that big meeting withall the think tank people,
(46:51):
because that was his argumenttoo back in the day.
There's just not enough money.
Of course they didn't accountfor any of the money they got
added in, right, I remember thatwas the bill walker thing.
Look, there's not enough moneyin the earnings reserve.
Here's what we're going to keepdrawing it down and we're going
to zero it out.
Of course, the math that theyput up on the big chart did not
account for any of the moneythat would be deposited over the
(47:11):
next.
You know however many, howevermany number of years it was.
It was just as if that accountwas static and they just kept
drawing from it and there was nomore deposits.
I mean that was Bill Walkermath.
It was just totally fallacious,but it looked.
I mean it was true, but again,only if you didn't account for
the deposits that would go ineach year, and so it was totally
misleading.
Speaker 1 (47:32):
Yeah, and here's the.
Here's the problem now, michael.
They aren't even making enoughin the earnings.
They aren't even making enoughoff the permanent fund to, even
if they accounted for thosenumbers, even if they accounted
for their earnings, they aren'tmaking enough to fund the
earnings, the POMV draw that thelegislature is making.
The real problem, the realreason that the legislature
(47:56):
wants to consolidate the twoaccounts in part is because of
that $8 billion.
But it's also because they lookdown the road and they see the
permanent fund is not producingenough earnings even to generate
the 5% take that the POMBstatute calls for.
The permanent fund is notgenerating enough earnings to
(48:17):
cover that 5% draw, particularlyafter you take into account the
management fees.
I mean the management fees aredouble as a percent of the fund.
They're double what the youknow, the Bellwether Norway fund
pays.
Norway pays about, you know, ahalf a percent in fees or
(48:37):
four-tenths of a percent in fees.
We're paying eight-tenths,nine-tenths of a percent in fees
and after the fees we're notearning enough to be able to
cover those POMV draws.
So the real problem here, thelong-term problem, is the
permanent fund corporation hasbecome a bureaucracy that is
just earning enough to payitself to pay all the management
(48:59):
fees it's incurring.
It's not producing the level ofreturns.
The state needs to continue tofund the POMV drop.
So those who think long-termare saying great, okay, we need
to consolidate the accounts sowe can start pulling from the
corpus.
Speaker 2 (49:15):
We can start funding current operations from the
corpus, which is a self-lickingice cream cone.
I mean, can't they see thedanger in that, or do they just
not care?
They don't care.
Speaker 1 (49:27):
This is all about funding my spending now, funding
my government unions, fundingthe programs that make me look
like a giant in the legislature,make me look like God because I
can fund these programs.
All they care about is fundingtheir programs now.
They don't care about the longterm.
(49:48):
Bert will tell you he cares,bert who's a proponent of
consolidating the two accounts.
They'll tell you that they areconcerned about the future, but
they're not.
If they were concerned about thefuture, they'd keep the
earnings reserve as what one ofmy friends calls a speed bump, a
barrier that you can't get tothe corpus because you have to
(50:09):
go through the earnings reserve.
And if the earnings reservedoesn't have enough money in it,
then you got to figure out whatyou're going to do, as opposed
to being able to attack thecorpus.
Um, now they're trying to doaway with that speed bump.
They're trying to do away withthat barrier and say, look, if
we don't earn enough, you knowif, if the permanent fund
corporation gives away all thismoney in in management fees 800
(50:30):
million dollars a year inmanagement fees if the earnings
return, if the PFD gives away orthe permit fund gives away all
that money, okay, fine, they'vegot their own bureaucracy they
need to fund.
We'll just go attack the corpus.
Set us up, we can go attack thecorpus.
Speaker 2 (50:46):
Well, we've talked about for years how the
legislature has always been goodabout kicking the can down the
road, and we were talking abouteventually you run out of road
and you have to face the hardfacts.
But what they've done here isthey're going to try and murder
Alaska's financial future andpave it with its dead body and
put it out there to givethemselves just a little bit
more road to kick the can downbefore they completely run it
(51:07):
out of money.
Speaker 1 (51:08):
Yeah, it's, it's.
I mean, first they came for theSBR the statutory budget
reserve, Then they came for theCBR.
First they came for the SBR thestatutory budget reserve, Then
they came for the CBR, Then theycame for the PFD, started
cutting the PFD and now, as thePFD is winding down, they're
saying wait, we got to gosomeplace else.
We can't tax the top 20%non-resident industries and the
(51:28):
oil companies.
We got to go someplace else.
So we'll merge these twoaccounts and open the door in
that way, open the door to goingafter the corpus.
That's exactly what's going onhere.
So when we say what's going tohappen when the PFD runs out,
there are people thinking aboutthat and they're thinking about
great, we'll set up the abilityto raid the permanent fund
(51:50):
corpus at that point.
Speaker 2 (51:54):
And we have been screaming about this for years
and and saying this is wherethey were going, this is the
direction they're going, andnobody's listening.
People just keep electing them.
Oh, we're going to put achicken in every pot.
Speaker 1 (52:07):
That's because.
That's because people areelecting them based upon the
chickens, their current chickens.
I want my spending now.
You know what?
What?
Alaska turns over a third ofits population every whatever,
whatever number of years.
They want it, they want it intheir pot Now.
They're not concerned about thefuture because you know, in the
future they're going to be inTexas or Florida or or South
(52:27):
Carolina or Calgary.
Wherever they're going to be,we want it in our pot Now.
We want Johnny educated now.
I mean, this goes back.
This goes back to the early 20teams when we talked about, you
know, the astroturf footballfields all over the state.
I want my johnny to play on anastroturf football field, just
like he would play off and playon in in texas if he was down
(52:49):
there.
I and yeah, yeah, it takesmoney out of the out of the
budget to do that, but that'swhat I want.
Speaker 2 (52:57):
I think Bill speaks for us all, Brad.
He says thank you, Brad.
Another Tuesday that I'm mad ashell and can't do anything
about it.
That's kind of frustrating, butthat's where we're at, we know,
we can see where it's going andit's a painful, painful thing.
In Alaska, says Senator Myers,politicians are elected based on
(53:19):
what they can spend, not whatthey can save.
Yeah, I mean, I guess that'sbeen proven over and over and
over again.
All right, Brad, we are out oftime.
We got to go.
Thank you so much.
I see Dwayne is in the greenroom getting ready to join us
here for hour two.
Thanks, I think, Brad, forcoming on board.
Michael, thanks for having me.
(53:39):
It's always good to talk withyou, my friend.
Thank you so much.
Speaker 1 (53:43):
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 and Substackpages, and keep track of us
during the week on Facebook andTwitter.
This has been Brad Keithley,Managing Director of Alaskans
(54:04):
for Sustainable Budgets.
We look forward to you joiningus again next week for the next
edition of the Weekly top three.
Hi, this is Brad Keithley, managing Director of
Alaskans for Sustainable Budgets.
Welcome to the weekly top threethe top three things on our
mind here at Alaskans forSustainable Budgets for the week
of January 27th 2025.
The weekly top three is aregular segment on the Michael
Duke Show.
The show broadcasts on bothFacebook Live and YouTube Live
(00:34):
as well as via streaming audiofrom the show's website.
Weekdays from 6 to 8 am.
I join Michael weekly in thefirst hour of Tuesday's show
from 6.10 to 7 am for adiscussion between the two of 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 and Substackpages, also on the Alaskans for
Sustainable Budgets website, aswell as the projects page on
national blog site mediumcom.
You can find past episodes ofthe weekly top three also at the
same locations.
Keep in mind that, in additionto these podcasts during the
(01:16):
week, 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, senator Dunbar
(01:36):
asked the right question aboutNSTAR's Cook Inlet proposal.
And, by the way, where areChugach, mea and Marathon?
Second, alaska is alreadysitting in a massive fiscal hole
, but rather than working on it,the Alaska House majority is
proposing to make it even deeper.
And third, we explained thereal permanent fund crisis.
(02:00):
The Permanent Fund Corporationis so mismanaging the fund that
it isn't earning enough even tocover the pomv draw.
And now let's join michaellet's get started.
Speaker 2 (02:12):
We've got quite a bit to go over today and there's a
lot of stuff that I want totouch on here.
So first things first.
We saw the thing about thelawsuit with nSTAR and Hillcorp
and everything else, butsomebody at least seems to be
asking the right questions ofChugach Electric MEA and, I
guess, maybe NSTAR.
Let's start with that.
Speaker 1 (02:54):
Last week NSTAR's presentation about where things
are and their pitch for whytheir deal, their new deal with
Glen Farn, is a great thing andwill solve all of the Cook
Inland's problems.
During the course of thepresentation, senator Giesel
asked a question of John Simswho was presenting for NSTAR.
That was sort of a puffquestion.
The question was do youperceive any conflicts between
(03:16):
Glenn Farn doing the deal withNSTAR and Glenn Farn also being
the one in the contractualrelationship with AGDC to do the
big line down from the NorthSlope?
And Sims, you know, sort ofswatted that one away and said
no, there's no conflicts.
I mean the Glen Farns got aseparate deal with us and we're
convinced they're going to gothrough with our deal separate,
(03:36):
apart from whatever happens withthe pipeline coming down from
the slope, their deal with AGDCon the pipeline, that coming
down from the slope.
And then Senator Dunbar askedthe question that I think is one
of the key questions that weneed to keep asking in the
course of looking at what NSTARis proposing to do and looking
(03:58):
at what in the course of whatAGDC is proposed to do.
Senator Dunbar said let's goback to this question that
Senator Giesel asked and he saidlast year he laid the
foundation this way.
He said last year we got intothis deal with Hillcorp where
members of the Senate proposed abill that would that would
(04:20):
levelize Hillcorp's corporateincome tax, levelize Hill Corp's
corporate income tax, thatwould bring it up to the level
that BP paid and the level thatthe other producers on the North
Slope are paying, essentiallyclose the Hill Corp loophole,
all related to essentially NorthSlope operations.
But Hill Corp responded.
Senator Dunbar continuing.
(04:41):
Hill Corp responded by sayinghey, you tax me, you close that
loophole and you make me paywhat everybody else is paying.
And guess what?
I'll probably retaliate, saidHillcorp.
I'll probably retaliate theCook Inlet by lowering my
investment in the Cook Inlet.
And if you guys go high and drydown in the Cook Inlet you have
(05:02):
only yourselves to blamebecause you took that money out
of my hide on the North Slope,that surplus, that windfall that
we were getting on the NorthSlope.
You took it out of my hide andso I took it out of your hide by
reducing investment in the CookInlet.
And then Dunbar continued.
He said so what's to prevent,since we have this dual
(05:24):
relationship with Glen Farn nowbetween the Cook Inlet and the
North Slope.
What's to prevent Glen Farn atsome point from coming to the
legislature and saying, hey, Ineed an extra $100 million or
$500 million or whatever theamount might be, or I need this
waiver or that waiver, or I needthis exception or that
(05:45):
exception, or I need thisreduction in property tax, or I
need that reduction in propertytax to make my project economic.
And if you don't do that, maybeI don't have the money to go
forward with the Cook InletFacility I promised to do with
NSTAR.
Maybe I have to reduce myinvestment there.
(06:06):
What's to prevent Glenfarn fromdoing the very same thing that
Hillcorp did with us last year?
And Sins' answer was you know,as you would expect when you're
not expecting the question, itwas a little bit of a stumble.
And then, oh well, we have adirect contractual relationship
with Glenfarn and they'vecommitted to go through with it.
And you, oh well, we have adirect contractual relationship
with Glenfarm and they'vecommitted to go through with it
(06:27):
and we don't have to worry aboutthat.
It's all separate and apart.
Yeah, me worry.
But here's the deal the NSTARcontract with Hillcorp and with
the Cook Inlet Utilities are allseparate and apart and Hillcorp
has an obligation under thosecontracts, in good faith and
(06:48):
fair dealing, to makeinvestments when it needs to do
so in order to make deliveriesunder those contracts.
Yet Hillcorp was threateningthat contract, those contracts,
essentially unrelated contractsby saying we'd underinvest and,
you know, maybe delay ourinvestment or delay whatever we
(07:10):
would do.
It's exactly the same thing.
Dunbar hit on a key questionabout these inner ties that
we're developing with Glenfarm.
This you know, low cap, smallcap, low cap, small cap,
(07:30):
inexperienced company we've gotout of New York that we've
entered into these variousrelationships with.
Dunbar hit on the key questionand it's a question that we need
to probe a lot.
So, for example, the deal withAGDC and Glenn Farn is dependent
on the legislatureappropriating $50 million to ADA
.
So ADA can underwrite theinitial FID work that needs to
(07:57):
be done to bring the big lineproject up to the point where
you can make the FID decisionand AIDA has agreed to
underwrite that by $50 million.
But they need the legislatureto appropriate the $50 million.
So what's to prevent Grundfarmfrom saying, hey, you know you
want us to go forward with NSTAR.
(08:17):
Your Cook Inlet life nowdepends on this deal we've got
with NSTAR.
You know we need that $50million appropriated to ADA so
that we have.
You know we have the amountunderwritten for us.
What's to prevent Glen Farn downthe road from saying you know
that dock that we've got tobuild both for our facility,
(08:38):
both for the big line facilityand for NSTAR's in-state
facility Hmm, you facility.
Maybe we don't have the moneyto go forward with that doc,
unless you do.
X, y and Z.
There are shared facilitiescontemplated in this deal
between Glen Farn and NSTAR andGlen Farn AGDC and those shared
(09:00):
facilities have got to be builtin order for NSTAR's deal to go
forward.
So I think Senator Dunbar justhit on it shared facilities have
got to be built in order for mstar's deal to go forward.
So I I think senator dunbarjust hit on it, hit a huge
question that I think really youknow the rca and others need to
dig into to really understandyou know what, what we're doing,
what alaska is doing by tyingits future, both its cook emmett
(09:20):
future and its north slope uh,to glen farm well, there's a
history of this, right.
Speaker 2 (09:25):
right, brad.
I mean there's been a historyover the years, over the decades
, of oil companies kind of, atsome point or another, kind of
holding the state over thebarrel and say, well, you could
do that, but it'd be a shame ifsomething like this happened,
and we've seen it.
Arco, bp, conoco, they've allat one point or another kind of
done a little bit of corporateblackmail on some of those
(09:46):
things, simply because we are ina stranded position.
We are in a kind of a weaknegotiating position at some
time for certain things, and sothis is something that's
happened before.
Speaker 1 (09:56):
Yep, exactly right.
I mean ACES.
We had when ACES was, and Ithink this was an appropriate
market response.
But when ACES was the taxstructure, the big three on the
North Slope essentially saidwe're not going to invest under
the economic structure of ACES.
You want additional production,you want additional exploration
, Then you need to change thetax structure.
(10:17):
We're going to do that and thestate ultimately did that and we
got the additional investment,but we can be held over a barrel
ultimately did that and we gotthe additional investment, but
but we can be held over a barrel.
And the problem is we're tyingagain, just like has happened
with Hillcorp.
We're tying the North slope tothe Cook Inlet and Alaska is
very feels very vulnerable withrespect to the Cook Inlet right
now.
So we're we're giving Glen Farna tremendous amount of leverage
(10:41):
Go ahead.
Well, this raises one otherquestion, and maybe, maybe I
don't have enough time for it,but there's a question of NSTAR
presented.
But where's Chugach, where'sMEA and where's Marathon?
Chugach and MEA have contractsthat expire before NSTAR's.
The Glen Farn deal.
(11:02):
The NSTAR-Glen Farn deal istimed to meet NSTAR's
obligations and needs.
But where's MEA and Shoe Gatchin all this?
Are we leaving them behind andMarathon?
The final question on Marathon.
Marathon has an existing LNGfacility that is certificated by
the FERC to receive gas to actas an import facility.
(11:23):
Separate and apart fromGlenfarm Don't need it.
We have an existing facility.
So where are they in thisequation?
Why aren't we pursuing thatopportunity instead of trying to
do this new, this new deal onon with new builds with that are
intertied with AGDC's project?
Why are we?
Why aren't we pursuing theexisting facilities?
Speaker 2 (11:43):
Because we're already halfway there with that
facility.
We don't have to wait on stuffthere.
Final question here We've onlygot about two minutes left.
We saw that article yesterdaytalking about now this new
lawsuit between NSTAR andHillcorp, and so I mean you are
(12:03):
more familiar with gas contractsand deliveries and storage and
everything else.
I read into this, like Hillcorpwas basically saying we don't
like the fact that you'reBogarting gas, even though it's
part of the contract and eventhough it was negotiated.
But is this just more flexingon the same, or what is this?
Speaker 1 (12:20):
Yeah, it's flexing by Hillcorp.
I mean it's the timing of NSTARwants to be able to take gas,
buy gas from Hillcorp and stickit in the storage.
Hillcorp, which runs its ownstorage facilities, doesn't want
NSTAR to do that.
If NSTAR needs gas over andabove storage then Hillcorp is
willing to sell it, but itdoesn't want to sell Hillcorp
(12:41):
additional gas just to be stuckin storage.
And essentially they're tryingto.
I mean it is Hillcorp againtrying to hold NSTAR hostage to
modify NSTAR's behavior in a waythat maximizes Hillcorp's
flexibility and Hillcorp'sprofits.
I'm not.
(13:01):
The contract's not entirelyclear on the issue.
It'll be an interesting lawsuitas it plays out.
But it is Hill Corp againtrying to exert its control over
over the gas side, the gassupply side of the Cook Inlet,
to to extract additionalconcessions out of out of the
purchasers.
Speaker 2 (13:20):
All these players trying to maximize their yield
and to make somebody else pay.
That's essentially, I mean.
I think I can summate it thatway NSTAR's looking for the
state to pay, hillcorp's lookingfor NSTAR and the state to pay.
Everybody's looking for thestate to pay in the long run and
we're the ones that are goingto pay.
I just want to.
That's spoiler alertforeshadowing.
(13:42):
We're the ones that are goingto pay in the end, right, brad?
That's the end.
Speaker 1 (13:46):
Yeah, that seems to be the case.
Speaker 2 (13:48):
So, brad, yeah, I saw this thing yesterday and I just
like man, this saga is just, Ican tell that the gloves are
about to come off, because theyknow that the legislature's in
session and if they put enoughpressure on them they're going
to have to do something.
And this is going to tie in alittle bit to your last one with
number three and the and the.
You know, stop digging the holeor the deep pockets or whatever
.
But I mean, this is they'rejust gonna, they're gonna spend.
Speaker 1 (14:12):
Uh, you could see it already yeah, everybody's going
for leverage on everybody else.
I mean it's uh.
Dunbar is exactly right to toraise the question of whether
we're recreating with Glen Farnexactly the same leverage over
the Cook Inlet that Hillcorp hasbeen able to develop through
its acquisitions in the CookInlet and then a BP up on the
(14:35):
North Slope.
Dunbar raises exactly the rightquestion and I don't think we
want to go down that road again.
I don't think we want to putthe state Cook Inlet in the
position where it's dependent onsomebody who can then leverage,
you know, leverage up theirposition in the Cook Inlet for,
you know, benefits that relateto their, that relate to their
(14:56):
slope project and this is whywhy I raised the question
where's Marathon?
It's not like.
It's not like we don't havealternatives out there.
Sims, they previously talkedabout a floating LNG plant and
during his presentation, simssaid that that didn't look like
it was going to work out becauseof the tides in the Cook Inlet,
(15:17):
because of ice in the CookInlet.
The concerns about dependingupon a floating barge that was
regasifying the plant was toogreat.
Those concerns were too great.
So we needed an onshorefacility.
But we're not dependent onGlenfarm for the only onshore
facility we possibly can have.
I went back in the records andKenai the LNG plant is
(15:41):
certificated for imports through2025, if they if certificated
to make the changes necessary todo it and then, once they do it
, they have a longer termcertificate to operate it, they
would have to add the importsfor others in addition to
Marathon's needs.
But that shouldn't be a greatbig.
That shouldn't be a big dealbefore the FERC.
(16:02):
That's an existing facility.
We need to make some changes innot huge, but a big deal before
the FERC.
That's an existing facility weneed to make some changes in not
huge, but we need to make somechanges in.
Why aren't we pursuing thatinstead of this whole new
structure out here on land thatneither Glen Farn nor NSTAR own
and involving new facilitiesthat are joint facilities that
would give Lundfarn leverageover Alaska on the Cook Inlet?
(16:26):
So Dunbar raised the rightquestion.
We need to continue going downthat track and make sure we
aren't recreating the Hillcourtproblem again.
Speaker 2 (16:35):
That's something you'll hear on this program.
Dunbar asks the right.
Even a stopped clock is righttwice a day, you know, even then
Dunbar at least did ask.
We try and give praise wherepraise is due, and I guess that
is a good question and I'm gladthat somebody somebody out there
at least asked it.
We'll have to see where it goesfrom here.
Brad Keithley, alaskans forSustainable Budgets, the weekly
(16:56):
top three.
This is number two of the topthree.
What do you do when you findyourself in a hole?
Right, what do you do?
You look up and you're like man, there's daylight is way up
there.
What's the first thing you do?
Well, you stop digging and youfind a ladder.
The Alaska legislature,apparently, is not figuring that
out, brad.
(17:16):
They have not stopped digging.
In fact they got a biggershovel.
Speaker 1 (17:21):
They did get a bigger shovel.
They're trying to get a biggershovel.
All right, let's go back tolast week.
Last week we did a segment onLedge Fin's overview Ledge
Finance's overview of thegovernor's budget in which Ledge
Finance analyzed the governor'sbudget, looked at revenues,
looked at projected spendinglevels and reached the following
conclusion.
(17:41):
Listeners last week, orlisteners that go back and
listen to the show, willremember this there was a chart
that said 75-25 PFD alone won'tbalance the budget, that even at
75-25 PFD 25-75, 25 to Alaskacitizens, 75% to the government
(18:02):
of the POMB, draw to governmentthat alone wouldn't balance the
budget.
And in the concluding paragraphon that issue said adding those
items, certain items to reflectthe K-12 match just sort of
bringing K-12 back up to whereit was last year Medicaid adding
(18:22):
those items which representcosts necessary to maintain
state services at the same levelas FY25, just holding FY26
equal to FY25 in terms ofservices would result in a
substantial deficit in FY26,even with a 75-25 PFD
(18:44):
appropriation to balance thebudget.
This is just to hold equal toFY25 service levels.
To balance the budget thelegislature will need to reduce
spending, pass legislation toincrease revenue further, reduce
the PFD or draw from savingsjust to hold equal to FY25
(19:07):
levels.
Even POMB 2575 isn't enough todo it.
The line of sand that Burt andLyman and others have drawn in,
the Senate said we're not goingto go below POMB 2575.
That wouldn't be enough tobalance the budget.
On the heels of that, what arethe headlines this week?
(19:27):
Headlines this week is AlaskaHouse to expedite consideration
of education funding increase.
The increase would increaseAlaska public school funding by
more than 35%.
The bill would add roughly$464.5 billion to the state's
(19:52):
annual education spending, whichcurrently hovers around $1.2
billion per year to Alaskaschools.
It would increase it by morethan a third.
So last week we have Ledgefincome out with the overview that
(20:29):
says we can't even afforditedconsideration to that would add
roughly a half a billion dollarsto the state's education
spending.
And and there's no mention inany of the discussion that the
house did of how the hellthey're going to pay for it on
long term.
Speaker 2 (20:47):
yeah, the house didn't talk about it, but the
senate previewed this here theweek before when joseph quoted
well, yeah, we're probably goingto have to pay for this out of
the PFD.
There's going to be more PFDcuts.
I mean, you know it's coming,you know that's where it's going
.
Speaker 1 (21:01):
That's where they're drawing.
It's not the right line.
The right line either ought tobe current statutory or it ought
to be POMV 50-50.
But they've told us they'regoing to draw the line at 75-25.
Can't even pay for FY26spending levels that are
necessary to equal FY25 servicelevels.
(21:23):
Can't even pay at that level.
And now the House is throwing ahalf a billion dollars on top
of it.
Look, there's a fiscal rule.
There are fiscal rules outthere.
It's sort of like GAAP, it'ssort of like generally accepted
accounting principles.
Well, there are generallyaccepted fiscal rules and
generally accepted fiscal rulesare that when you propose a
massive increase in spending,you propose at the same time how
(21:47):
you're going to pay for it andyou discuss how you're going to
pay for it and you put in thelegislation necessary companion
legislation necessary to pay forit.
House has gone completely roguein terms of that fiscal rule.
They're just out there on theirown proposing these increases.
(22:11):
When you are in a hole, youstop and you figure out how
you're going to get yourself outof the hole.
You're going to figure out howyou're going to fill in the hole
.
You figure out how you're goingto get a ladder.
You figure out where you areand what it takes to correct the
situation you put yourself in.
The Alaska house is saying, ohhell, no, we're not doing that,
(22:32):
we're just going to go deeper.
Speaker 2 (22:34):
And this is just the beginning, brad.
This is just the educationcomponent.
Then we have the definedbenefits component, which is
another $50, $60, $80 million ayear.
Then we have whatever they'regoing to do with the gas and the
Cook Inlet which we were justtalking about in segment one,
which could be I don't know, youknow millions of dollars in the
long run.
Oh, and we've got the newnegotiations for the new
(22:56):
contracts which are coming upfor the employees as well.
I mean, this is just you know.
This is like one more feather,only one thin wafer, before we
just you know explode everywherebecause they just don't care.
At this point.
It's just like the, you know,the rules are made up and the
facts don't count.
Speaker 1 (23:16):
Yeah Well, the rules are ignored.
I mean, I have a lot of respectfor Alexi Painter, who's the
director of legislative finance.
I'm not quite sure how he'sgoing to address the issue when
someone asks him, as surelysomeone's going to.
How do you square up the factwe can't even afford FY26 with
(23:40):
the fact that some in thelegislature are wanting to pour
more and more and more and moreand more money into things
without proposing offsettingrevenues to pay-fors it's what
they're called at the federallevel without proposing pay-fors
to offset it, to pay forpay-fors it's what they're
called at the federal levelwithout proposing pay-fors to
offset it, to pay for it?
And I don't know what Alexei'sgoing to say.
I mean, alexei's going to haveto repeat essentially what he
(24:01):
said in the overview, which isto balance the budget.
To balance an even greaterbudget, the legislature will
need to reduce spending evenfurther, pass legislation to
increase revenue even morefurther, reduce the PFD even
further or draw from savings.
Except we don't have savings.
So Alaska needs to stop andtake a breath and say look,
(24:28):
we've gotten ourselves in a hole.
We need to figure out how toget ourselves out of this hole
equitably and with low impact onthe Alaska economy and we just
need to devote a session or weneed to devote a committee, or
we need to devote something togetting ourselves back out of
the hole.
(24:48):
The Ledgefin summary Ledgefinfinance summary ought to be
taken as a wake-up call of howdeep a hole we've now gotten
ourselves into, and we ought todevote a session to getting
ourselves out of that hole.
Instead of that, we got theHouse just wanting to make it
worse and worse and worse andworse and worse and worse.
So it's a hugely concerningsituation that the House is
(25:16):
proposing something like this.
It's a hugely concerningsituation.
They're not following generallyaccepted fiscal rules of
offering what the pay-fors aregoing to be, explaining what the
pay-fors are going to be tooffset the spending that they're
proposing.
Speaker 2 (25:32):
So I mean, and you're saying that the House is run
amok, but you said the Senatewants to hold the line.
But again, going back to whatthey had said just last week as
maybe Burt, maybe Burt, maybeLyman, but that's not everybody
Again Josephson was quoted assaying you know, we're going to
take it out of the PFD.
So and who's running the?
(25:53):
Who's running the Senate rightnow?
I mean, it's a bipartisancoalition, but the Democrats
outnumber the Republicans by asignificant amount and a lot of
those Republicans seem to bereal cozy with the Democratic
ideology.
As far as spend, spend, spend,do you think they're going to be
able to hold the line?
You?
Speaker 1 (26:13):
know?
The answer is I don't know.
And and here's, here's a verysubtle thing that happened in
the Senate organization, the,the significance of which you
know may become more apparent aswe go along.
Burt has has historically been,for the last several sessions,
last several legislatures, hasbeen the co-chairman of Senate
(26:38):
Finance for the operating budget, for the big spend side, before
he got exiled.
That's right.
And in this legislature he'sbeen pushed over to co-chair for
the capital budget.
Lyman has become co-chair ofSenate Finance for the operating
budget.
Burt has, you know, they bothhave round heels in terms of
(27:02):
they'll, you know, rock back andgive and give, and give and
give.
But Burt tends to draw the lineat a point before Lyman.
Lyman tends to have rounderheels than Burt does.
Burt last year drew the line atthe defined benefits and that's
one of the reasons he's beenexiled over to the.
He's been moved over to thecapital budget.
(27:24):
So as these things start to playout, the person setting the
agenda on the Senate side is notgoing to be Burt.
He's on the committee, he willhave a voice, he will articulate
his concerns, but it's notgoing to be Burt setting the
agenda.
It's going to be Lyman settingthe agenda and another
moderating factor in Senatefinance is Donnie Olson.
(27:45):
Donnie is co-chair for billsthe running bills that don't
relate directly to the operatingbudget or the capital budget,
and Donnie's been somewhat of avoice for the PFD.
I mean he represents a districtthat has lower economics than
(28:07):
other parts of Alaska and hasbeen more sensitive to the, to
the PFD.
But Donnie's now in the hospitalfor a for an unknown period,
possibly an extended period,right?
So you have Donnie off thecommittee, you have Bert pushed
down to capital budgets orpushed over to capital budgets.
You have Lyman running thecommittee.
It'll be interesting to see howthat, how that plays out, if
(28:31):
that has an effect.
Lyman in the past has been oneof those who talked about 75-25
being the line in the sand, butLyman's been known to erase
lines in the sand as he goes.
So that little detail, thatlittle organizational change,
may play a factor in this aswell.
Speaker 2 (28:55):
Yeah, no, it's interesting to watch and the
fact that they've been kind ofsidelined shows you the
direction they're going.
I mean, I'm not confident thatthey're going to be able to hold
back.
You know what I mean.
Again, we'll give praise wherepraise is due.
Stedman did he held back thedefined benefits package last
year.
He was the big, major stumblingblock in the Senate to get it
(29:20):
out of there although it did endup actually coming out and then
dying in the House.
But he at least tried to dothat and spoke very, very
strongly against it.
And now he's just not going tohave that, he's not going to
have that horsepower.
And so 75, 25?
No problem, you did the math onthis.
What is it like?
81, 19, something like thatthis year, something like that.
Speaker 1 (29:42):
Yeah, and that's before adding $400 million.
I mean, $400 million is goingto take it to like I'm doing
this week's column on it, but Ihaven't done the calculations
yet, so it's going to takesomething like 92.8.
Speaker 2 (29:54):
92.8, yeah.
So I mean again, I waspredicting this earlier.
Everybody was saying earlierlast year people were saying
doom and gloom.
I said it'll be 24 to 36 monthsbefore they exhaust the
permanent fund and people werelike, oh no, that's too soon.
I think it'll be five or sixyears.
But if they add a half abillion dollars in spending,
(30:16):
yeah, it's pretty much going tobe gone in 24 to 36 months
because that increase justcontinues, especially if they
lock that education increaseinto the BSA, where it's in
perpetuity.
That's it, it's in perpetuityand they peg it to the consumer
price index.
Speaker 1 (30:35):
Yeah, and think about the irony of this.
We're talking about theargument that we want to raise
this spending level because wewant to improve the education
for working Alaska families.
We're not concerned abouthigher income families.
We want to raise the for the 80percent of working Alaska
families.
Well, who are they?
Who are they hurting to pay forthis?
If they, if they, if they cutthe PFD, they're taking it out
(30:58):
of the very, out of the pocketsof the very people they claim to
be helping.
They're not spreading it acrossacross a broad base.
They're not including there.
There was a, there was an op edthat just blew my mind.
There was an op-ed in the ADNby two people in the oil
industry saying how importanteducation was to the oil
industry retaining the oilindustry in Alaska, and how
(31:20):
important it was that we have anincreased K-12 funding to help
out the oil industry in Alaska.
Well, the oil industry isn'tpaying for any of the increased
costs, so they claim a benefit,they claim it's important to
them, but I guess it's onlyimportant if somebody else pays
for it, if middle and lowerincome Alaskans pay for it.
So the irony of this is justhuge.
(31:43):
We want to help you.
We're from the government.
We want to help you here.
Give us your money out of yourpocket so we can spend it to
help you.
Speaker 2 (31:51):
I mean, we've been talking about that, the ICER,
the initial ICER report that itwas the worst thing that they
could possibly do for 10 years.
2014 is when we first startedtalking about it.
And here we are, 10, going on11 years now, still watching the
same thing happen over and overand over again.
Let me go back and answer thisquestion.
So John says just to, to beclear, of all revenues, the
(32:15):
state gets 75% off.
The top 25 goes to the PFD.
The PFD pays a dividend ofabout 5% supposed to be 50-50,
but a four of the state.
No, you have it wrong, john.
So what happens is 25% of theroyalty revenues goes into the
permanent fund, right off thetop, and then it rolls in there
and the earnings spin off everyyear.
And then what was supposed tohappen was that we were supposed
(32:39):
to be paid on a five-yearrolling average of those
earnings, but they stopped thatwith the POMV, which means the
government takes 5% of theearnings every year, earnings
every year and then was supposedto, according to Hammond, split
those 5% that they roll outevery year 50-50 with us, the
people, and split it out for thePFD for 50% and state spending
for the 50%.
(32:59):
But what's happened is they'renow taking 75% of that money and
it's going towards 90% of thatmoney, leaving us with whatever
crumbs we can pick up with oursticky little fingers on the
plate, because that's all that'sgoing to be left over is the
crumbs at this point.
Speaker 1 (33:16):
So that's how it works, and we're just talking
about the POMV revenue.
I mean, the state gets all ofthe production tax revenue, gets
all of the additional fees andtaxes.
Speaker 2 (33:29):
And 75 percent of the royalty right off the top, it's
only the 25 that gets deposited, and they want that and more so
.
It's basically like they handedyou a plate that's with a full
cake and then said, and you goto take a piece and they're like
no, no wait.
And then they eat all of thecake except for that one bite
left and they say, okay, you canhave that, but we're still kind
of hungry, so maybe we'll too.
(33:50):
I mean that's, that's what itis, that's.
I mean you know.
And again, no thoughts.
No, look at fiscal discipline,no, look at anything else.
I mean their own reports fromtheir own people at Ledge
Finance say you just can't dothat, even to get to this
spending level.
And their first reaction is towell, let's increase it half a
billion dollars a year.
Right, I mean let's.
(34:13):
Let's increase it half abillion dollars a year.
The greed and the entitlement isastounding to me.
I just don't fathom it.
I mean, they said that was us.
By the way, that was, she wastalking about us, not about the
legislature.
She was talking about howgreedy we were, that we dared to
(34:34):
want our PFD, which I just Iagain, I don't think it's, I
don't think it's going anywhere.
Man, I don't know about youguys, but I just I think we're
going to, I think the PFD willbe gone.
And then what'll happen, Brad?
They'll come back to us and gofree rides.
Die hard, sweetheart.
Speaker 1 (34:54):
Right.
Well, no Michael, no Michael,we may hit this in the next
segment.
What they will come back andsay is we need to combine the
earnings reserve and the corpusof the permanent fund so we can
continue to draw even though thepermanent fund isn't earning
the return that it needs to payfor the draw.
We need to combine the two andcontinue to draw and in that
(35:18):
fashion, through that step, openthe door to starting to drain
the permanent fund to continueto fund government without the
top 20% or non-residentindustries or the oil companies
having to pay a dime toward theadditional costs.
So the next attack really isbeing set up now through this
(35:43):
proposal to consolidate theearnings reserve in the corpus
of the-.
Speaker 2 (35:46):
Which we saw last year and we warned about last
year.
We said this is the danger zone, Danger zone.
This is what's happening rightthere.
You're going to drop us intothe danger zone where you're
going to eat the seed corn outof a PFD or out of the permanent
fund itself, and of coursethere will be no PFD and they'll
just start tapping into thepermanent fund harder and harder
(36:07):
and next thing you know, thereis no more permanent fund either
.
Speaker 1 (36:11):
And what's the constituency?
What's going to be theconstituency to save the
permanent fund at that point?
People talk about, well, it'sthere for future generations.
We shouldn't tap it for futuregenerations.
But we've seen with the PFD,we've seen with the CBR, we've
seen with the SBR, we've seenhow far that argument goes.
It's no, no, I need it now.
I need it now for my spendingand I don't want to tax the top
(36:34):
40% and non-residents in the oilcompanies because they might
say no, they wouldn't pay thatstuff, they'd push back on it.
I need it now for my spending.
So you know, I'll just take it,I'll just start, you know,
making these rules about how Iget into the permanent fund to
start taking it down.
And it's there.
You know it's there for futuregenerations.
We're a future generation nowand so we're going to start
(36:57):
covering it that way.
That's where we're going to go.
Speaker 2 (37:01):
That's the direction that they're trying to set up.
Well, and I mean, there's justno, there's no fiscal discipline
in sight.
There's very few people who areeven asking the question about
who pays and how does this getdone, and what happens to the
future.
Nobody seems to be thinkingabout that or talking about that
in any of the discussions.
As long as the governmentemployees are taken care of,
(37:21):
we're okay, just calm down.
As long as the governmentemployees are taken care of,
it'll all be fine.
Don't worry about it, forgetabout everybody else.
So, yeah, well, brad, I don'tknow, sometimes these Tuesday
meetings between you and me, Imean I got to be honest, I come
(37:42):
away just a little bit depressed, more depressed than I started
out, because I would.
I just can't believe that thisis the direction we're still
going, with all these warningsigns and everything else.
And, like you said, it lookslike this is all a setup for
number three, which is the realdanger to not just the PFD, the
(38:05):
permanent fund dividend but tothe permanent fund itself.
We've talked about this.
But all the things that arelining up right now, this extra
spending, the disregard forwhere the PFD goes, the
disregard for how we pay for itit all seems like it's setting
it up for one big final throw ofthe dice when it comes to the
(38:28):
real permanent fund crisis.
Speaker 1 (38:32):
Yeah.
So there was a forum, aconference, a seminar held
earlier this month jointlysponsored by Alaska Common
Ground, the Institute of theNorth and Commonwealth North all
of the so-called thoughtleaders at least top 20% thought
leaders in the state and thesubject of it was excuse me, the
(38:56):
subject of it was protectingthe permanent fund, a
rules-based permanent fundendowment model, and I listened
to it, I watched it andbasically it was a pep rally for
this proposal to consolidatethe earnings reserve into the
corpus and have the draw, thePOMV draw, come from that single
(39:22):
fund.
The reason they're doing it isbecause the earnings reserve is
running down and they'reconcerned that there's not going
to be enough in the earningsreserve to cover the POMV draw.
So they want to consolidate thetwo funds together in order to
continue the draw, sort ofregardless of how the earnings
are coming out and if necessaryor not, or just as a matter,
(39:49):
they can take money from thecorpus in order to cover the
POMB draw.
The conference turned in to bea pep rally for that proposal.
The claim is that there's acrisis, that not having the two
funds consolidated is a crisisbecause we won't have enough
money to cover the POMV draw.
(40:10):
But it's a self-created crisis.
We've been through this onprevious segments.
I've written columns about it.
The reason the earnings reserveis low is because the
legislature took $8 billion outof the earnings reserve and
that's about a three-year, twoor three-year piece of, or
(40:34):
coverage of, the POMB draw.
It took $8 billion out of theearnings reserve and moved it
over to the corpus and at thetime they said this was a
prepayment for inflationproofing, so we don't need to
inflation proof.
In subsequent years We'll have.
We've already prepaid enoughfor the inflation proofing.
(40:54):
Well, the Permanent FundCorporation accounted for it
that way for about a year andthen the Permanent Fund
Corporation dropped the footnotethat said it's a prepayment for
inflation proofing and justtook it and said it's part of
the corpus now and it's not inthe earnings reserve anymore.
It's not a prepayment foranything that should come out of
the earnings reserve, it's justours.
Now it's in the earningsreserve anymore.
(41:14):
It's not a prepayment foranything that should come out of
the earnings reserve, it's justours.
Now it's in the corporate space.
And they've created this crisis, this so-called crisis in the
earnings reserve, by drainingthe earnings reserve through
that $8 billion transfer.
And now, all of a sudden peopleare saying, oh my gosh, there's
not enough in the earningsreserve.
Well, that's because it wassupposed to be a prepayment.
(41:40):
It was supposed to be, so youdidn't have to pay as much out
of the earnings reserve goingforward.
But now that they've forgottenthat all of a sudden, yeah, we
have to pay inflation proofingout of the earnings reserve and
now we're draining the earningsreserve.
So it's a self-created crisis,but it's being used as a
justification for merging thetwo funds together in order to
(42:01):
allow the clawback or thebreakdown of the permanent fund
corpus.
I went in at the urging of someothers.
I went in and spent quite a bitof time understanding the
earnings the earnings side ofthe permanent fund and how we're
(42:21):
earning and the level at whichwe're earning and what the
investments are producing.
And I discovered something thatI wrote in last week's column
we aren't earning anything offthe permanent fund After you
take into account the differencebetween we've got a benchmark
(42:42):
that we call a passive indexbenchmark and the permanent fund
is an actively managed fund.
That means we've got advisorsand we've got people that work
on it.
We've got people that decide tomake investments.
They make investments inprivate funds rather than follow
an index like the S&P 500 indexor the NASDAQ or the Dow Jones
or one of the common indices outthere.
(43:04):
Rather than do that, we got abunch of people who are working
on deciding where theseinvestments go and you realize
after you run the numbers thatthe level of money we're
spending on the fees for thisactive management, which is
about $800 million a year about1% of the fund the level of
(43:28):
money we're spending on the feesis greater than the amount of
additional benefit we're gettingout of actively managing the
fund as opposed to just relyingon the benchmark.
Yeah, you've got to chart upthe yellow.
(43:49):
The column in yellow is theamount of additional benefit
that the permanent fund hasearned through this active
management, the amount ofbenefit we've gotten through
active management over what wewould have got if we just would
have invested it in the passiveindex.
(44:10):
And it shows that for the yearsfrom 2017 through 2022, we got
some benefit of it.
But then we look at the feesthat we've paid for that benefit
(44:34):
and 2% again in 2018, negative0.1% in 2019 after fees fees.
We've paid the difference inthe return that the fees have
(44:58):
produced compared to what wewould have gotten if we just
would have stuck them in indices.
The problem with the fund is notthis whole mishmash that's
going, this contrived mishmashthat's going on in the earnings
reserve.
The problem with the fund isit's not earning enough.
It's not earning what it wouldearn even if we just put it.
(45:21):
Stop the fees, stop thepayments, stop the $800 million
a year and put the money intothe passive indices, into the
index benchmarks that are outthere.
If we just invested the moneythat way, just put the money
into these indices, we wouldmake more than we're making by
(45:43):
trying to actively manage thefund and paying all these fees.
We're underwater.
We're losing money by not usingthe passive indices and trying
to actively manage the fund.
Basically, what we're doing isfor a while we were making
enough to pay the fees, just topay the fees, to continue to
(46:04):
fund the bureaucracy that thepermanent fund corporation has
become.
But in the last three years wehaven't even done that.
We haven't even made enough outof the earnings to out of the
permanent fund investments tocover the fees.
So it's the problem here.
Yeah, the problem here is notthe lack of combination of the
(46:26):
accounts.
The problem here is the lack ofearnings.
Speaker 2 (46:30):
And the lack of fiscal discipline.
Right, I mean, that's reallythe core problem here is the
lack of fiscal discipline, whichhas led us to this, which I've
been saying since 1999.
The goal is to get their handson the corpus of the permanent
fund, and I'd be interested tosee if they use some Bill Walker
math in that big meeting withall the think tank people,
(46:51):
because that was his argumenttoo back in the day.
There's just not enough money.
Of course they didn't accountfor any of the money they got
added in, right, I remember thatwas the bill walker thing.
Look, there's not enough moneyin the earnings reserve.
Here's what we're going to keepdrawing it down and we're going
to zero it out.
Of course, the math that theyput up on the big chart did not
account for any of the moneythat would be deposited over the
(47:11):
next.
You know however many, howevermany number of years it was.
It was just as if that accountwas static and they just kept
drawing from it and there was nomore deposits.
I mean that was Bill Walkermath.
It was just totally fallacious,but it looked.
I mean it was true, but again,only if you didn't account for
the deposits that would go ineach year, and so it was totally
misleading.
Speaker 1 (47:32):
Yeah, and here's the.
Here's the problem now, michael.
They aren't even making enoughin the earnings.
They aren't even making enoughoff the permanent fund to, even
if they accounted for thosenumbers, even if they accounted
for their earnings, they aren'tmaking enough to fund the
earnings, the POMV draw that thelegislature is making.
The real problem, the realreason that the legislature
(47:56):
wants to consolidate the twoaccounts in part is because of
that $8 billion.
But it's also because they lookdown the road and they see the
permanent fund is not producingenough earnings even to generate
the 5% take that the POMBstatute calls for.
The permanent fund is notgenerating enough earnings to
(48:17):
cover that 5% draw, particularlyafter you take into account the
management fees.
I mean the management fees aredouble as a percent of the fund.
They're double what the youknow, the Bellwether Norway fund
pays.
Norway pays about, you know, ahalf a percent in fees or
(48:37):
four-tenths of a percent in fees.
We're paying eight-tenths,nine-tenths of a percent in fees
and after the fees we're notearning enough to be able to
cover those POMV draws.
So the real problem here, thelong-term problem, is the
permanent fund corporation hasbecome a bureaucracy that is
just earning enough to payitself to pay all the management
(48:59):
fees it's incurring.
It's not producing the level ofreturns.
The state needs to continue tofund the POMV drop.
So those who think long-termare saying great, okay, we need
to consolidate the accounts sowe can start pulling from the
corpus.
Speaker 2 (49:15):
We can start funding current operations from the
corpus, which is a self-lickingice cream cone.
I mean, can't they see thedanger in that, or do they just
not care?
They don't care.
Speaker 1 (49:27):
This is all about funding my spending now, funding
my government unions, fundingthe programs that make me look
like a giant in the legislature,make me look like God because I
can fund these programs.
All they care about is fundingtheir programs now.
They don't care about the longterm.
(49:48):
Bert will tell you he cares,bert who's a proponent of
consolidating the two accounts.
They'll tell you that they areconcerned about the future, but
they're not.
If they were concerned about thefuture, they'd keep the
earnings reserve as what one ofmy friends calls a speed bump, a
barrier that you can't get tothe corpus because you have to
(50:09):
go through the earnings reserve.
And if the earnings reservedoesn't have enough money in it,
then you got to figure out whatyou're going to do, as opposed
to being able to attack thecorpus.
Um, now they're trying to doaway with that speed bump.
They're trying to do away withthat barrier and say, look, if
we don't earn enough, you knowif, if the permanent fund
corporation gives away all thismoney in in management fees 800
(50:30):
million dollars a year inmanagement fees if the earnings
return, if the PFD gives away orthe permit fund gives away all
that money, okay, fine, they'vegot their own bureaucracy they
need to fund.
We'll just go attack the corpus.
Set us up, we can go attack thecorpus.
Speaker 2 (50:46):
Well, we've talked about for years how the
legislature has always been goodabout kicking the can down the
road, and we were talking abouteventually you run out of road
and you have to face the hardfacts.
But what they've done here isthey're going to try and murder
Alaska's financial future andpave it with its dead body and
put it out there to givethemselves just a little bit
more road to kick the can downbefore they completely run it
(51:07):
out of money.
Speaker 1 (51:08):
Yeah, it's, it's.
I mean, first they came for theSBR the statutory budget
reserve, Then they came for theCBR.
First they came for the SBR thestatutory budget reserve, Then
they came for the CBR, Then theycame for the PFD, started
cutting the PFD and now, as thePFD is winding down, they're
saying wait, we got to gosomeplace else.
We can't tax the top 20%non-resident industries and the
(51:28):
oil companies.
We got to go someplace else.
So we'll merge these twoaccounts and open the door in
that way, open the door to goingafter the corpus.
That's exactly what's going onhere.
So when we say what's going tohappen when the PFD runs out,
there are people thinking aboutthat and they're thinking about
great, we'll set up the abilityto raid the permanent fund
(51:50):
corpus at that point.
Speaker 2 (51:54):
And we have been screaming about this for years
and and saying this is wherethey were going, this is the
direction they're going, andnobody's listening.
People just keep electing them.
Oh, we're going to put achicken in every pot.
Speaker 1 (52:07):
That's because.
That's because people areelecting them based upon the
chickens, their current chickens.
I want my spending now.
You know what?
What?
Alaska turns over a third ofits population every whatever,
whatever number of years.
They want it, they want it intheir pot Now.
They're not concerned about thefuture because you know, in the
future they're going to be inTexas or Florida or or South
(52:27):
Carolina or Calgary.
Wherever they're going to be,we want it in our pot Now.
We want Johnny educated now.
I mean, this goes back.
This goes back to the early 20teams when we talked about, you
know, the astroturf footballfields all over the state.
I want my johnny to play on anastroturf football field, just
like he would play off and playon in in texas if he was down
(52:49):
there.
I and yeah, yeah, it takesmoney out of the out of the
budget to do that, but that'swhat I want.
Speaker 2 (52:57):
I think Bill speaks for us all, Brad.
He says thank you, Brad.
Another Tuesday that I'm mad ashell and can't do anything
about it.
That's kind of frustrating, butthat's where we're at, we know,
we can see where it's going andit's a painful, painful thing.
In Alaska, says Senator Myers,politicians are elected based on
(53:19):
what they can spend, not whatthey can save.
Yeah, I mean, I guess that'sbeen proven over and over and
over again.
All right, Brad, we are out oftime.
We got to go.
Thank you so much.
I see Dwayne is in the greenroom getting ready to join us
here for hour two.
Thanks, I think, Brad, forcoming on board.
Michael, thanks for having me.
(53:39):
It's always good to talk withyou, my friend.
Thank you so much.
Speaker 1 (53:43):
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 and Substackpages, and keep track of us
during the week on Facebook andTwitter.
This has been Brad Keithley,Managing Director of Alaskans
(54:04):
for Sustainable Budgets.
We look forward to you joiningus again next week for the next
edition of the Weekly top three.
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