February 18, 2025 • 55 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 February 17, 2025.
This week, our top 3 issues are these: 1) we discuss the needed conversation about Alaska’s fiscal situation that the Senate Majority and Senator Yundt from the minority have started (2:08); 2) we explain why the Permanent Fund's failed investment in Peter Pan Seafoods is only the tip of the iceberg of the conversation we should be having about the Fund's management and operation (18:16); and 3) we explain why the board of the Alaska Gasline Development Corporation is rapidly losing its credibility (37:59).
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 February 17th 2025.
The weekly top three is aregular segment on the Michael
Duke Show.
The show broadcasts on bothFacebook Live and YouTube Live
(00:32):
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,
(00:53):
soundcloud, spotify and Substackpages, also on the Alaskans for
Sustainable Budgets website, aswell as the projects page on
national blog site mediumcom, 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
(01:14):
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 issues are theseFirst, we discuss the needed
(01:35):
fiscal discussion that theSenate Majority and Senator
Yount from the minority havestarted.
Second, we explain why thePermanent Funds failed.
Investment in Peter PanSeafoods is only the tip of the
iceberg of the conversation weshould be having about the
fund's management and operation.
And third, we explain how theboard of the Alaska Gas Line
(02:00):
Development Corporation israpidly losing all credibility.
And now let's join Michael.
Speaker 2 (02:08):
So let's get started.
Today we're going to talk aboutthree big topics.
Number one is the revenues.
The Senate is starting to talkabout it.
I mean, they've kind of, andRob Yunt got the conversation
started, although he immediatelytook some slings and arrows
from the conservative, fiscallyconservative right on this.
(02:32):
So let's talk about it.
Speaker 1 (02:34):
Well, I'm going to I'll go to the end and then and
then sort of back up done agreat job and I've become a
bigger fan of Rob Yunt as aresult of him stepping up to
address more equitable, lowerimpact revenues.
I mean, does anybody wantrevenues?
(02:55):
Probably not.
But if we're going to haverevenues and that's the
situation the state's in, likeit or not, whether there is an
education bill at all or not,the state's in a deficit
situation.
As the alleged finance analysissaid, even before considering
(03:15):
HB 69, even before consideringany of the additional spending
bills that have been piled onthis session, the state's in a
deficit, even at 75-25 or 25-75PFD.
So I think Rob is to becommended for facing up to
reality, not living in thefantasy land where spending cuts
(03:37):
only are going to solve thissomeday.
We've been going down that roadsince 2017 or since 2019.
When the governor tried itCouldn't even get 16 in the
legislature to back him up onthat, and the governor hasn't
tried it again because hedoesn't think he can do it.
So I think Rob's done a greatjob.
(03:59):
But that's sort of the end ofthe story.
Let me go back to the beginning.
Last Tuesday was sort of a bigday for fiscal policy.
The day started at least my daystarted with, you know, the
usual Tuesday segment on here,but when I got off and started
looking at what the papers weresaying, there was an op-ed in
(04:21):
there from Larry Persily.
The headline was Alaskans needto decide what's more important
adequate school funding or a bigPFD, and I took that as sort of
the beginning of the drive, ormaybe the middle of the drive,
to wipe out the PFD as a way ofpaying for increased school
(04:42):
funding.
Persily, as he's always done,made it just a binary choice
Either it's increased spendingon this end, which a lot of
people support for variousreasons, or the PFD on the other
end, and that's it.
That's the only choice.
Tuesday's got better, though,in the context of how we're
(05:03):
going to face up to theseproblems that we've got
ourselves into.
Tuesday got better with theSenate majority press conference
, and it was refreshing, in asense, that they were talking in
terms of reality, that LymanHoffman, who is the co-chair of
Senate Finance for the operatingbudget this year, was talking
(05:24):
in terms of reality.
This is what he had to say, asreported by the ADN we haven't
addressed revenue for decades,said Lyman Hoffman, a Bethel
Democrat, told reporters.
I think it's high time thelegislature looks at raising
news revenues if we want toaccomplish the many things that
we want to do.
If not, I don't see a clearpath forward to balancing not
(05:45):
only this year's budget but nextyear's budget.
And Hoffman went on to say thatone of the things we're going
to look at is oil taxes.
He mentioned specifically theHillcorp loophole, which is
about a hundred million dollarloophole, and the credits that
are credits, uh, that are usedto reduce oil tax obligations,
(06:07):
sliding scale credits as as two,uh two places there, uh,
they're going to be looking atthis.
The house did an interestingthing, um, in response to to
Hoffman's conversation, theHouse said in response, andy
(06:28):
Josephson, chair of theoperating budget, house Finance,
told reporters that the 21members of the House's majority
caucus really haven't sat downand gotten really into what we
would find acceptable in termsof revenues.
We're not interested inseverance tax reform, so that's
sort of off the table.
It's interesting in the senseof what it didn't say.
(06:51):
It didn't say anything aboutcorporate taxes, which is where
the Hillcorp loophole.
Is it focused on severancetaxes In severance taxes?
The House's position on notaddressing severance taxes seem
to be the price that theDemocrats and independents paid
to get Chuck Kopp on board andLouise Stutes.
(07:12):
Part of the terms andconditions of them coming on
board was the then coming Housemajority wouldn't take up
severance taxes.
So they've got themselves in abit of a quandary, but the
Senate looks like it's ready toaddress it, and I think it's a
good thing.
I mean, look, let's be real, asRob Yount is.
(07:35):
Let's be real.
The reality is that spending hascontinued on, continued to
increase.
Yes, everybody would like totake spending down.
F.
Everybody would like to takespending down.
Fiscal conservatives would liketo take spending down, but it
hasn't happened.
It didn't happen in 2019.
It hasn't happened since.
It's not going to happen thissession.
(07:55):
No one's talking about deepspending cuts, and so the
question becomes what's the mostequitable, what's the lowest
impact revenue source to use topay for the spending?
And?
And PFD cuts ate it.
Pfd cuts have the largestadverse impact on the overall
economy and they are by far thecost list to the majority of
(08:16):
Alaska families, are hugelyregressive and hit middle and
lower income Alaska families farhigher than than they hit the
top 20%.
Don't take anything fromnon-residents.
Don't take anything from um,from uh, uh, the old companies
to pay for additional spending.
So there are by far much moreequitable revenue sources and
(08:38):
it's encouraging to me, frankly,that the Senate majority at
least is talking about some ofthem uh, not all of them.
I mean Stephen said he wasn'tinterested.
He didn't think the majoritywas interested in sales or
income taxes.
So we've still got a long wayto go, but not totally closing
(09:02):
the door to more equitablerevenue sources.
Rob Young had started outearlier by introducing SB 92,
which closes the Hillcorploophole and the Hillcorp
loophole for those who haven'tcaught up.
Speaker 2 (09:20):
You keep saying loophole.
I just love it.
It's a tax structure thatthey've taken advantage of.
I don't know if it's a loophole, but I understand.
Speaker 1 (09:26):
It is a loophole, michael.
I mean here's Alaska.
I mean people like to talkabout CNS corps.
Let's talk about it in terms ofthe way that it really
structures out.
Alaska has a tax code, acorporate tax code, for oil
companies.
It is built on the generalcorporate tax code but it is
separate.
The way it's designed isseparate for oil companies.
(09:49):
Every oil company pays it.
Every of the major oilcompanies pay it.
Bp paid it before they sold toHillcorp.
What Hillcorp did was come inand slide through an exemption
or an exception to the generalcorporate tax, which turns into
an exception to the petroleumtax, and is the only major
(10:13):
petroleum company in the statenot contributing to the overall
petroleum corporate tax.
That's a loophole.
That's a tax loophole.
If we were talking aboutfederal tax policy, you had nine
panelists up here or 10panelists up here talking about
federal tax policy.
All 10 of them would talk aboutit as a loophole.
(10:38):
So it's a loophole.
It's an exception to thegeneral rule of the petroleum
corporate tax and Hillcorp'staking advantage of it, since
they acquired BP's properties.
And Rob, I think,straightforwardly said look, all
companies ought to be taxed thesame.
All companies in the samesituation ought to be taxed the
same.
So we're going to close thatloophole and we're going to
subject Hillcorp not to anyadditional tax over and above
(11:00):
beyond what the other companiesare paying, but we're going to
subject Hillcorp to the taxthey're paying.
The challenge, I mean and Ithink Rob's to be committed for
doing that, the challenge of itis, according to the fiscal note
that came out over the weekend,it raises $126 million.
This is against a budgetdeficit of a billion and a half.
(11:22):
It raises $126 million in FY27,$121 million in FY28, $118
million in FY29.
And it starts going down.
From that sort of followingwhat, what some anticipate would
be Hill corpse, a decline curve.
Hill corpse, a productiondecline curve.
(11:44):
So it's not, it's it's.
It doesn't close by in, in, byany stretch of the imagination.
It doesn't close, uh, thedeficits that we're facing
facing, but it does.
It is a, it is a piece ofwhat's needed to close those
deficits equitably.
Speaker 2 (12:03):
So I think Rob's to be commended for that, yeah, and
I know immediately he faced alot of there was some hostility.
There was an article in mustread that immediately called him
out for it.
Was he really a conservative?
Was he really not?
And I just I found the tone ofthe article to be a little
ridiculous because we need totalk about it and I agree with
the equitability thing as far asthat goes, and especially on a
(12:26):
severance tax on a finiteresource, it should all be the
same.
I'm not arguing that.
I just I had to chuckle becausethey just took advantage of a
structure that was already inplace and now somebody's talking
about closing it.
That's what happens when youdiscover a uh, when you discover
a caveat in the, in the lawthat you could take advantage of
.
Eventually somebody will say,hey, that's uh, that's not right
(12:48):
, and they'll try to fix it.
Now whether it'll go anywhere,I don't know.
We are going to have a Rob Yunton the program this week to
discuss this further.
Um and uh, we'll see.
We'll see where it goes fromthere.
Um.
Final thoughts on this Go ahead.
Speaker 1 (13:03):
Well, I, I I object to people saying that Rob's not
fiscally conservative becausehe's proposed a tax.
Look, we've got taxes.
That's what PFD cuts are theyare.
They are, you know, a diversionof income.
If Randy wants to quibble overwords, they are a diversion of
income away from middle andlower income, largely from
middle and lower income Alaskafamilies.
We have taxes Once you're atthat point and we have deficits,
(13:26):
huge deficits.
Once you're at that point, thequestion is no longer if there's
revenues, the question iswhat's the most equitable,
lowest impact revenues you canhave, lowest impact on the
overall economy, and certainlyclosing the Hillcorp loophole is
a piece of that.
Speaker 2 (13:42):
I mean, look, I understand that.
I just, you know, people do askabout the loophole.
This is not something thatHillcorp put in there or did it.
They just took advantage of it.
And as a business, and if Icould retain $100 million a year
in income that I didn't have togive up just due to the
structure of my business, I'dprobably do that, I'd probably
(14:05):
bank that as well.
But it's just something thatwhen the corporate tax code for
the petroleum taxes put together, s-corps were not really a
thing and so it was a little bitof a different.
You know, they weren't aspopular.
Today they're wildly popular.
So it's just a little bit of adifferent.
Uh, it's a little bit of adifferent thing.
Speaker 1 (14:22):
Yeah, and S-Corps S-Corps, generally speaking, I
uh I don't have a problem withat all.
I mean the, the.
The thing about S-Corps, whatthe S-Corps do, is that they
they allow a pass through of theincome.
They don't tax it at thecorporate level, so you don't
have double taxation.
They allow the income to dropdown to the personal level and
you take what otherwise would becorporate income.
(14:44):
If you have an S-Corp, you takeit at the personal level and
from a federal standpoint that'snot really considered a
loophole because you pick up thetax revenue at the personal
level.
The individual who owns theS-Corp or the individuals who
own the S-Corp pick it up at thepersonal level.
The, the, the individual whoowns the S corp or the
individuals who own the S corp,uh, pick it up at the personal
level.
The, the.
The thing in Alaska is we don'thave a personal income tax and
(15:07):
so it's not picked up at thepersonal level.
Instead of dropping through,dropping through and being, you
know, dropping through thecorporate level and then being
picked up at the personal level,it just continues on dropping
and it drops to the, to theindividual's bottom line, and
and so it's.
That's the.
That's the issue with it inAlaska.
We're just not picking it upany place, it just completely,
(15:30):
it just completely drops out andand yeah, hillcorp didn't
create it, it was created, itwas created back there.
But but at the federal level,99% of the loopholes that exist
aren't created by those who takeadvantage of them.
They're created by someone elseand everybody sort of rushes in
.
Once you see it, you sort ofrush in and take advantage of it
(15:52):
.
I will say one other thing aboutthis loophole, michael, it was
okay, maybe sort of fine, todefend it Uh, uh, prior to last,
uh, last session, when Hillcorp, you know, threatened to cut
off the Cook Inlet, threatenedto stop making uh, investments
in the Cook Inlet if anybodytouched their loophole.
(16:14):
And, and that's when theloophole became, you know,
became a weapon.
They weaponized it againstAlaskans, against Cook Inlet gas
consumers, yeah, and you know,whatever sympathy some should
have had for Hillcorp shouldhave dissipated at that point,
right, and we should be tryingto get them on a level playing
(16:36):
field.
So I commend Rob.
I mean, I know, I know, probably, you know, no doubt took a lot
of guts to put that bill in hisfirst bill as a new freshman.
But I commend Rob for doing it.
Because, again, folks, it's notwhether, it's not whether we're
going to have revenue, it's notwhether we're going to have
taxes, it's what kind of taxwe're going to have.
(16:59):
And when you were looking at itthat way, the question is
what's the lowest impact, mostequitable approach?
Right, and Rob certainlyidentified a piece of that.
Speaker 2 (17:11):
Yeah, I mean look, anthony says it the only two
options are.
If the only two options arecatastrophic budget failure
versus implementation of a taxto keep us alive, not sure it
makes you not a conservative todecide budget seppuku is a bad
idea, and that's exactly it.
Um, I also agree with bradleywho says as a business owner
(17:32):
myself, I pay very little intaxes because of the way the tax
laws are written.
I use the system to myadvantage.
That's what businesses do andI'm not criticizing Hillcorp.
Like I said, I think I wouldhave done the same thing Now if
they start to weaponize it andcall for other things.
That's kind of a differentkettle of fish and as an owner
of a resource, I want to getmaximum yield for my finite,
(17:55):
non-renewable resource.
So I also want to see thatfixed.
No, I'm not blaming Hillcorp,but it also makes sense to close
it if we can get more for ourown.
It's our resource, we own it.
It's us.
We're the owners, we're theguys in the Permian who are
telling the oil companies you'regoing to pay me for that or
else kind of thing.
(18:15):
That's how it works.
Brad Keithley, alaskans forSustainable Budgets.
Our guest, the weekly top three, number two, this was a little
shocking when I read thisyesterday, looking at what's
going on, and it's the story ofPeter Pan no, not the guy who
flits around in tights Peter PanSeafoods and the Permanent Fund
(18:36):
, and it is an example of whatis going on and what is wrong
with the permanent fund and whywe're.
I mean we've got problems andthis is a prime example of it.
Hit me with this, brad.
Speaker 1 (18:48):
So this is the story.
If readers or if listenershaven't seen it, you can find it
on the Anchorage Daily News andprobably other websites.
I think it's also on the Beacon.
The headline is how a riskystate at least in the news, the
headline is how a risky stateinvestment in seafood cost
alaskans millions and left afishing town in crisis, and it's
(19:10):
it's discussing a one of theinvestments that got made.
During the period that theentFund Board set aside a portion
of its investments, a portion ofthe $70 billion, $60 billion
$90 billion, take your pick onany given day set aside a
portion of its capital forinvestment in state projects,
(19:35):
the in-state program, and theyset aside 200 million in total.
Of that, 29 million gotinvested in this, uh, in this
company, uh, peter Pan, uh, uh,seafoods, uh, that uh went belly
up, and so the entire 29million that the state invested
in it, the permanent fundinvested in it.
Um, seems to, you know, itseems to be non nonrecoupable uh
(20:01):
, and seems to be lost.
And it's a.
It's a great story.
Nat uh partnered with uhpropublica and developed a
really great story, uh, withrespect to this whole episode
and who was involved, and youknow it sort of reads like a spy
thriller or something uh in interms of the way they put it
together.
But the bottom line is that is,the permanent fund board had
(20:23):
this program that wasill-conceived at the time.
You and I talked about it atthe time, complained about it at
the time, outlined the threatswe thought it presented at the
time, and, lo and behold, it hadsome of those and it's and and
come back to haunt the permanentfund board, um, and the $200
(20:44):
million investment program setaside for state investments has
been closed down, got closeddown before this, uh, but it's
been closed down.
And so this is sort of a sortof a a narrow, narrow uh story
in terms of uh, in terms ofwhat's going on, but it reflects
badly on the permanent fund.
But here's the deal.
It pales in comparison to someof the other stuff that's going
(21:09):
on, and I'm going to come backto a discussion that we had in a
previous segment that I thinkwe need to come back to often.
Keep in mind Peter Pan's $29million.
The permanent fund publishes alot of information about itself
and I think that's good.
It gets high marks from me, atleast in terms of transparency.
(21:30):
One of the things it publishesis how much in management fees
it pays.
The permanent fund is a highlymanaged, highly active fund in
the nomenclature that thesesorts of funds have.
Highly active in the sense thatit's managed very actively by
(21:51):
the permanent fund staff,permanent fund board staff that
decides on investments and makesinvestments, particularly the
private equity market.
That's compared to a passivefund, passive fund that, just
you know, puts all of its moneyor a lot of its money in S&P 500
, you know indices and letsthose indices, lets the people
(22:11):
who are running the indices,make the investment decisions
and rides on the benefit of theindices.
Frankly, that's how I invest mymoney.
I invest my money in indices,but the permanent fund does very
little of that.
They like to be active and theylike to get in there and
actively manage theiropportunities.
(22:33):
The problem with that, or thechallenge with that, is it costs
a hell of a lot to do that.
Keep in mind Peter Pan is $29million.
Keep in mind the big story ofthe big, the big scandal here
about Peter Pan is $29 million.
And for the rolling 12 monthperiod, um, uh, uh ending uh the
(22:54):
in the most recent um permanentfund uh publication, permanent
fund financials publications,which is at the end of second
quarter, fiscal quarter 2025, atthe end of calendar year 2024.
For that 12-month period, thepermanent fund board has paid
$880 million.
(23:16):
$880 million in management fees.
Keep in mind Peter Pan's $29million.
Right Permanent fund board haspaid 800 on an annual basis,
$880 million in terms ofmanagement fees.
Now, the way that you evaluatemanagement fees is as a percent
(23:43):
of the assets being managed, andso that $880 million, you
calculate what the impact is bylooking at it as a percent of
the assets management and whenyou look at it on that basis, as
of the end of the secondquarter, um the, that's a
percent more than a percent, onepoint, or 1.06 percent um uh,
(24:05):
of of the assets.
The cost of managing thoseassets is 1.06 percent of those
assets.
Norway, which is you know, whenyou look at the norwegian fund
that in the in the sovereignwealth industry is sort of the
gold standard, that's the oneyou look to, that's the one you
(24:26):
sort of compare yourself toNorway pays less than half that
in terms of their managementfees.
Now, in raw dollars they'repaying more, but that's because
the Norwegian fund is a hell ofa lot bigger as a percent of
assets.
Norway is paying 0.4%, a littleover 0.4%, not 4%.
(24:53):
0.04%.
There we go, four mils.
0.04% of its no 0.4%.
There we go 0.s.
0.04% of its no 0.4.
There we go 0.4%.
Half a percent as its fees Halfless than half what the Alaska
Permanent Fund Board is paying.
If we were paying at theNorwegian rate, we would be
(25:16):
paying instead of the $880million.
We'd be paying around $400million or around $450 million,
somewhere in that range ofmanagement fees.
So when you look at Peter Panand you look at this $29 million
scandal and then you look atthe annual, but then you look at
(25:37):
the annual management fees thatthe permanent fund is incurring
, I mean that's where the realscandal is.
Instead of it, you know we'repaying double what Norway is and
so we're paying $440 million onan annualized basis.
We're paying $440 million moreon an annual basis.
So $29 million is a one-timeinvestment, million more on an
(26:01):
annual basis.
So 29 million is a one-timeinvestment, $440 million more on
an annual basis than the goldstandard the Norwegian fund
would suggest we should bepaying.
Interestingly enough, thepermanent fund board, the
president of the permanent fundboard, chairman of the permanent
fund board, jason Brinney, andthe President of the Permanent
Fund, executive Director of thePermanent Fund, whatever the
(26:22):
title is came before thelegislature.
Came before Senate Finance lastweek to talk about the
Permanent Fund.
They had a 35-page PowerPointdense PowerPoint.
This wasn't one point perPowerPoint page.
This was like 20 points perPowerPoint page Extremely dense
PowerPoint.
35 wasn't one point perPowerPoint page.
This was like 20 points perPowerPoint page extremely dense
PowerPoint 35 pages of it.
(26:45):
Management fees aren't mentionedat all.
They mention returns.
They don't mention one-yearreturns, which are looking
horrible for the permanent fundright now.
They mention returns.
They mention them on a 10-yearbasis, a five-year basis, a
three-year basis.
They actually don't publish.
I mean, what's really sort ofshocking.
They tried to defend themselvesabout how good their 10-year
(27:08):
returns look.
They don't publish the 10-yearreturns publicly.
They don't even consider themimportant enough to publish
publicly.
But when you go to thelegislature and you're under
fire, yeah and you're under fire, yeah, let's haul out those
10-year returns and look atthose.
But they didn't publish theone-year returns which they do
make.
They didn't use the one-yearreturns in the legislative
presentation, which they do makepublic.
But they didn't discuss the 35pages of dense PowerPoint, don't
(27:32):
discuss management fees at all.
So to me, the $29 million again$29 million, one time $29
million the Peter Pan episode isenlightening.
It is troublesome, but it'sjust the tip of the iceberg.
(27:52):
Once you plunge down below thetip of the iceberg, once you go
below the water surface, you seethis huge sitting iceberg down
there in terms of managementfees.
What was the final shocky, thefinal humorous thing is, at the
end of the entire presentation,jason Brinney, the chairman of
the Permanent Fund Board,governor Dunleavy's appointee,
(28:16):
self-admitted, not an investmentexpert, jason sits up there and
says oh, and we're a low costmanaged fund.
No, nothing of the slide decksupports that.
None of the numbers supportthat.
He just wanted to say it and hesaid it.
But it's wrong.
It's not a low cost managedfund.
Right, it is.
(28:37):
It is one of the highest costmanaged.
It is likely one of the highestcost managed funds in the world
.
Right, and so when we're lookingat, when we're looking at,
peter pay, and that's just thetip of the iceberg.
Speaker 2 (28:48):
Yeah, I mean again $29 million.
I mean to you and me that'sreal money.
But if you're talking about interms of $850, $880 million,
that's a drop in the bucket.
And even the $200 million fundfor Alaska investment, when
you're looking at nearly abillion dollars every year just
in management fees, that seemslike a drop in the bucket as
(29:10):
well.
I mean things and I wentthrough this slide deck and,
like you said, it's very dense,but you could see already that
they're prepping everybody forthat conversion of the earnings
reserve into the corpus of thefund as well.
So it's like the it's thedouble whammy, it's the.
It's the proverbial doublewhammy on all those things.
Speaker 1 (29:31):
Yeah, it's, uh, it, they're definitely it's.
It's like the slide deck'sinteresting Cause I I have
watched the presentation, I'vebeen through the slide deck
slide.
That's interesting.
It's sort of it's sort ofcurving around.
It's got all these numbers andso you think it's really a
fulsome, fulsome presentation,right, but it's sort of curving
around the trouble spots.
It's not addressing the troublespots.
(29:52):
It's just sort of you know, sowhen you're showing returns, you
show your 10, five andthree-year returns as opposed to
including your one-year return,and so you sort of curve around
, don't show your one-yearreturns, you don't show the
management fees at all.
There's one slide in there onNorway and it talks about how
Norway is more a passivelymanaged fund than an actively
(30:13):
managed fund and it talks about,you know, the advantages of
being an actively managed fund,but it doesn't talk at all about
the management fees that Norwayincurs versus the management
fees as a percent of assetsunder management, doesn't talk
at all about that.
It's misleading by omission.
(30:34):
It's misleading by notincluding.
I mean the Permanent Fund Boardthinks it's important enough,
or past Permanent Fund Boardshave thought it's important
enough, to publish themanagement fee information,
right, to make that transparent.
Except when you go to thelegislature and then you don't
want to talk about it.
So I, yes, peter Pan, let'stalk about that.
(30:54):
Let's talk about that, you know, for maybe an hour, but then
let's spend the other 23 hoursof the day talking about the
management fees and other thingsthat are going on.
Speaker 2 (31:04):
Well, and the difference between a passive
fund and a actively managed fund.
I mean, the permanent fund isstill underperforming the major
indexes in the.
Maybe we should turn it back toa passive fund and just peg it
to the indexes at this point.
If it's getting a better returnthat way, why are we spending a
billion?
We'd be a billion dollars ahead, almost, uh, if we just pegged
it to the other funds instead of, uh, doing all this other
(31:25):
nonsense.
I mean, I don't know what'shappened there, but it's not
helping.
You know, you guys are notbeing helpful in this regard.
Final thoughts Brad.
Speaker 1 (31:34):
Well, the last three years, even as an actively
managed fund, it's performedunderperformed relative to the
permanent fund's own passiveincome benchmark, which one
could argue whether that'sreally a passive income
benchmark, but it'sunderperformed even relative to
the passive income benchmark.
Essentially, the permanent fundis admitting, through looking
(31:54):
at those benchmarks, admittingthe fund would have made more
money.
Set aside the management fees,the fund would have made more
money by just investing it inthe indices as opposed to
actively managing it.
And then you add on the feesthat come from active management
and it really becomes a mess.
So there is much more there.
If Nat wants to continuewriting or others want to
(32:16):
continue writing, I've done it acouple of times in the landmine
, the Friday column in thelandmine.
But if others want to reallydig in and see what's going on
with the permanent fund, there'sa lot more there than the $29
million in Peter Pan.
Speaker 2 (32:31):
Brian says, because Donna mentioned that the
permanent fund underperforms themajor indexes.
And Donna, time to have acareer talk with the fund
management team.
I mean again, why are weactively managing it if they're
doing worse than a passivelymanaged fund?
I mean, that just seems likethat makes no sense.
And this is one of those thingswhere you get a bunch of
experts or people who are, youknow, this is the Ellie
(32:52):
Rubenstein, I want to play inthe, in the in the pool with all
the big kids and, uh, do mything.
And that's really where we kindof went sideways with this
whole deal.
We should just be, you know, weshould be leaving it and uh, we
should be the envy of, uh, theworld.
Here we are, where it's goingdown.
I mean, will they drop activemanagement?
(33:15):
I doubt it.
Should they, based on thenumbers that we're seeing right
now?
Probably, brad.
Speaker 1 (33:23):
Oh, they need to be much less actively managed than
they are now.
I mean, what Norway does is usepassive indices for a large
segment of its investments andit retains a little bit to be
actively managed in terms ofinvestment in the private
markets.
If I recall the discussion withSenator Stedman, who was
(33:47):
raising sort of this point,although he wasn't raising the
fees question If I recall thediscussion between the permanent
fund board rep and SenatorStedman, we have something like
40% of our fund actively managed.
And what active managementreally is?
You're looking for the home run, right?
(34:09):
You're investing in a lot oflittle things, hopefully.
You're investing in a lot oflittle things.
You're not putting all thechips in one pot.
You're investing in a lot ofopportunities in hope that a few
of them hit big and sort ofcover whatever losses you have
in the rest of them.
I mean, it was sort of like the$200 million that got invested
(34:31):
in the state Peter Pan's a bust,but maybe some of the other of
them did fairly well and if youhit a huge one, then maybe you
have pretty solid returns.
And that's what you're doingwith active management.
But you're assuming when you dothat that you can outguess the
market.
Right, you're going to find thegolden egg that the very few of
(34:53):
others have been able to find.
You're going to find a piece ofthe golden egg with others that
very few are able to find andyou're going to hit the home run
and have have great returns.
Maybe that happens, but but thethe odds are, maybe it doesn't.
And, and you know, permanentfunds big, but it's not.
It's not a big player in theoverall investment world.
(35:16):
Um, and for it to think it'sgoing to find the golden egg,
it's going to have the inroads,it's going to have the insight
to find, to find the golden eggsout there is, you know, that's
a lot of, it's a lot of hubris.
That's a that's a lot of.
That's a lot of hubris, that'sa that's a lot of of of of
expectation about yourself thathasn't been, is not being proved
true in the market.
So, yeah, I, we do need tolessen, uh, the amount we have
(35:41):
in the private equities.
We need to less, as, as SenatorStevin pointed out, we need to
lessen, uh the um, themanagement fees.
And and, michael, when we dothat, there's going to be an
interesting phenomenon occur Allof a sudden, the money in the
earnings reserve is going to goup because we're going to be
realizing income in a way thatwe're not now.
Because we're making all theseprivate investments and holding
(36:03):
onto them for extended periodsof time, we're hoping they hit,
not turning them into cash.
Not turning them into cashthat's going in to the earnings
reserve.
So there's a secondary impactof creating cash that goes into
the earnings reserve on a moreregular basis, which, lo and
behold, solves your earningsreserve problem problem.
(36:36):
There's a lot of issues in thisone area of how much of our
nest egg we're putting intothese private assets.
Management fees is a big partof it, but it also has knock-on
consequences in other areas.
Speaker 2 (36:44):
Lesko says why don't we have any media looking into
the fund mismanagement orlooting?
And that's because people'seyes glaze over as soon as you
start talking about the detailsof something that's kind of
complicated like the permanentfund.
Most people don't understandhow it works.
Most people don't understandhow education funding works, let
alone.
I mean, they'll buy hook lineand sinker the half-truth, the
(37:07):
BSA, non-increase or things likethat and they just it's because
people's their eyes just glazeover.
They're like, ah, so it's um, Imean it's, it's a problem.
Speaker 1 (37:19):
It is a problem and it's you know and it's you can
get a sexy story like Peter Panthat affects people and and you
know the story is built a lotaround how it destroyed.
You know a, a, a fishingvillage of fishing fishing
village, dependent on the Peter,a Peter Pan uh facility.
You can build a human intereststory around that.
It's less easy to build a humaninterest story around around
(37:41):
management fees, so that'sthat's part of it.
I mean you can't get suchsensationalized press out of it
as easily as you can out of thePeter Pan episode.
Speaker 2 (37:50):
Yeah, more people need to understand, but it is
the lifeblood of the state rightnow, because that's where we're
drawing the majority of ourrevenues, and we should be
paying attention to it 100% forsure.
All right, we're continuing now.
Brad Keithley, alaskans forSustainable Budgets the weekly
top three.
On to the third pain point forthis week, and that is number
(38:12):
three, which is geez.
The AGC board must have hadtheir fingers crossed behind
their back when they said, yeah,yeah, that's what we mean, we
really mean it this time, whichmeans that we just give us one
more, that's all we will get it.
Mm, hmm, they had their fingerscrossed, brad.
Speaker 1 (38:31):
So last year in the legislature there was a lot of
focus on how much we werespending for the AKLNG project,
the Alaska Gas Line project.
Senator Bishop was on washeading the capital budget.
I believe he was heading thecapital budget, the co-chair for
capital budget on Senatefinance, and focused on that and
(38:53):
was contemplating at the timecutting off funding, additional
funding for the project becausethe project just hadn't brought
anything home.
A couple of presentations wentsouth for the AKLNG leadership
before the various financecommittees and it was looking
pretty bleak.
The response to that was aletter dated April 22, 2024.
(39:18):
We're talking about last year,april 22, 2024, signed by the
chairman of the AGDC board,janet Weiss, the vice chair,
mike Chenault, secretarytreasurer of the AGDC board, to
Senator Bishop and the keysentence of this letter says if
AGDC this is last April, april24, if AGDC fails to secure
(39:49):
funding for the entire projector for the initial pipeline
phase of the project by thatdate, fails to secure funding
for the entire project or forthe initial phase of the project
by that date, we haveinstructed we, the board, have
instructed AGDC staff toinitiate the work required to
shut down and either sell AlaskaLNG project assets or put them
into storage If there isinsufficient value realized for
(40:13):
the state of Alaska from a saleApril 24, if AGDC fails to
secure funding for the entireproject or for the initial phase
of the project by that date,the date being the end of the
year.
Then we've instructed, so we'vereached the end of the year.
Then we've instructed, so we'vereached the end of the year.
Have we secured funding for theentire project or for the
(40:38):
initial phase of the project?
The answer is no, we haven't.
We have instructed AGDC staffto initiate the work.
Have they initiated the workRequired to shut down and either
sell LNG project assets or putthem into storage?
Nope, they're still going.
The only thing they've securedby the end of the year, the only
(41:03):
thing they secured by the endof the year, was a press release
.
They don't even have theproject details.
They don't even have theproject details, they don't even
have the contracts.
A press release with alow-capitalized,
small-capitalized, fairlyinexperienced operator, glenfarn
.
They've got a press releasewith Glenfarn that says Glenfarn
(41:28):
is going to negotiate projectdocuments with AGDC that, if
negotiated, we'll have GlennFarn take the lead for the
project, uh, through FID andthen and then beyond, if they
decide to go to final investment, if they decide to make the, if
they decide to make theinvestment, is that financing
for the project, for the, forthe entire project or for the
(41:50):
initial phase?
Nope, it's not.
Even the financing that GlenFarn, even the financing that is
there for Glen Farn to do thework once they enter into the
documents, once they negotiateand if they finally agree on the
documents, enter into thedocuments, even the financing
that's there for Glen Farn to dothe work to FID isn't Glen
(42:13):
Farn's.
It's backstopped by ADA, by apromise from ADA to pay $50
million to Glen Farn toreimburse them for FID.
At one point we thought thelegislature was going to be able
to stop that, but last week ADAtestified no, they're committed
(42:38):
to the $50 million, whether thelegislature approves it or not,
they've got $50 million sittingaround.
Ada testified they got $50million sitting around in their
bank accounts that they can usefor this project, whether the
legislature approves it or not.
It'd be nice if the legislatureapproved it, because I'd give
Ada $50 million more.
They wouldn't have to spend $50million out of their existing
(43:00):
pot.
It'd be nice if the legislaturedid it.
But no, they don't have to.
The legislature doesn't have toapprove it.
Ada is going to go forward withit anyway.
But that's all.
That's all beside the point.
I mean, even if you look at thefinancing, financing's coming
from the state.
But that's all beside the point.
The point is we have this iswhat the letter said we have
instructed AGDC staff to toinitiate the work required to
(43:22):
shut down and either sell theproject assets or put them in
the storage If AGDC fails tosecure funding for the entire
project or for the initial phaseof the project by that date.
Haven't Done.
So what does the letter mean?
It doesn't mean anything.
Now AGDC is just ignoring it.
The administration is ignoringit.
Hell, even the legislature isignoring it.
(43:43):
Everybody's got their blinderson saying what letter?
And AGDC, who made thiscommitment, signed by the
chairman of the board, by thevice chairman of the board and
by the secretary of thetreasurer?
Agdc has made this commitment.
They aren't following throughon it Must have had their
fingers crossed behind theirback.
It's just, it is.
What's going on with the AKLNGproject is outrageous, as we
(44:12):
discussed last week, in acontext where the state clearly
has run through all of itssavings the SBR, the CBR deep
into the PFD, deep into PFD cutsto pay for government in a
context where the state is so tohave this, to have this project
continuing.
It's just just outrageous.
And and yet yet it, it, itkeeps on going on.
(44:35):
I, I want somebody to ask, Iwant somebody to haul the
chairman of the board, vicechair of the board, and Mike
Chanel, secretary, treasurer,signed on the bottom line you
can see the signature haul themup in front of the, in front of
the legislature, and say whatthe hell do you mean, what's
this letter mean, and whyhaven't you done it?
Why haven't you followedthrough on the letter?
Oh well, you know, we got aGlen Farn.
(44:56):
Glen Farn hasn't made anyfinancing commitments.
In fact, glen Farn hasn't madeany commitments at all.
Yet they haven't signed anydocuments yet.
Speaker 2 (45:05):
No, but they did write a good opinion piece that
talks all about how it's acompetitive, well-positioned
project.
I think they said competitivelike six times in the article
and you're like competitive.
I mean even with an 80% subsidy, it's 30% over market value.
How is that competitive?
Speaker 1 (45:22):
Yeah, that opinion piece was great, wasn't it?
I mean, the opinion piece is byGlenn Farn is talking about how
great the project is.
You know, the one question thatkills all this is great.
Are you putting your money intoit?
No, we're going to front endthe money.
You know it's the same thing onthe NSTAR LNG import project.
(45:43):
We're going to front end themoney.
At Glenn Farn, it's going tofront end the money.
But if there isn't FID andthere won't be if there isn't
FID and there won't be, if thereisn't FID, then we get
reimbursed by the state.
In the case of the big line or,you know, proposed to be by
NSTAR and its rate payers, inthe case of the LNG project, we
are putting our money into it.
So, if it's such a great deal,why aren't you putting your
(46:05):
money into it?
Well, we're putting our timeinto it.
It your money into it?
Well, we're putting our timeinto it.
It's, it's.
You know, I can I can tie thediscussion in the second segment
to this one in to this segment.
In this way, it's like one ofthose, is like one of the piece,
one of the things that you dowhen you're private, when you're
doing a private investment.
You, you invest in a lot ofthings in the hope that one or
(46:25):
two will, you know, produce hugereturns.
That's what's going on here.
Gl on here.
Glen Farn has a bunch ofprojects out there.
Somebody said, well, how wouldyou like to add this one?
Oh well, if it hits, it'd hitbig.
And look, they're going toguarantee us our money.
So we don't have to.
It's not any of our money outthe door.
We have to front end it, butwe'll get reimbursed if it
(46:47):
doesn't go anyplace Likely notto go anyplace.
So we'll get reimbursed.
If it hits, that'd be great.
But if it doesn't, we don'thave any skin in the game, right
?
So they can talk all day longabout it being competitive and
being great and being thiswonderful thing, but they aren't
putting any of their money upfor it, right?
Speaker 2 (47:07):
No, it's amazing to watch.
I mean, it's like it's a zerorisk thing for them.
If they hit and hit big,they'll make tons of money, and
if they don't, we got paid for ayear or two while we did all
this work and nobody didn't costus anything.
So everybody's still got a joband we'll go on to the next
project 240 million worth of gasinto it.
(47:32):
We're talking about a projectthat's worth $60 billion and
you're you're diddling aroundbragging about your 240 million.
That's not even a blip on theradar.
You know, uh, but yeah, thiswhole thing is, is, uh, is
astonishing.
So I mean, who calls them onthe carpet?
I know that, uh, that uh, bothuh.
Bert Stedman and BillWilikowski were both quoted in
one of these ADN articles sayingit looks like it needs to be
shut down.
Is it going to be, or is itjust going to keep limping along
(47:55):
at this point?
Speaker 1 (47:56):
Well, ada has now told them they don't have the
ability to shut it down.
I mean, surely they do, surelythey can pass a statute that
says shut the sucker down.
Do what your board said lastyear you were going to do, right
.
But now Ada's saying $50million, we'll just take it out
of our kitty and our money overthere.
It'd be great if you wanted toreimburse us for it.
Speaker 2 (48:17):
Yeah, I think at this point government is running
amok.
I mean, when the legislativebody, which is supposed to have
the power over that kind ofstuff, is told basically to go
pound sand, that's a problem.
I mean, that's the thing BradADO just basically told the
(48:37):
legislature.
You can't tell me what to do.
We're going to spend this,whether you think it's a good
idea or not.
We're going to spend this,whether they said they were
going to shut down or not.
And I mean the lunatics areliterally running the asylum at
that point.
Speaker 1 (48:51):
Yeah, we've got a second government going on,
essentially, michael, I meanwe've got it's smaller than the
big government, but but we'vegot a second government going on
over at ADA in terms of, interms of money.
I mean, they've beenappropriated money over time for
certain projects.
When they when and they investin those projects or they lend
(49:11):
money to those projects, andwhen those projects are
producing cash back, whenthey're either paying off their
loans or they're producing cashback on the investment, ada is
the one that gets the money,because it's ADA that made the
investment right.
The contemplation, I think, wasthat ADA would then dividend
the money, dividend the earningsthat they're making off of
(49:34):
state money back to back to thegovernment and reduce the amount
that we need for, uh, thegeneral fund.
But that's not how that's out.
It's not how it's operated inpractice.
They just just kept a wholebunch of the money.
It's dividended some back togovernment, sort of to keep
government off its back.
Oh look, here's a shiny new toy.
We just dividended you $25million or something.
(49:56):
Don't pay attention to theother $500 million.
We got stored in the back roomover here.
Here's $25 million.
Aren't we good boys?
Aren't we doing a good job andby creating this cash pile or
creating this asset pile thatthey've got stored in the stored
in the back room, they're ableto do stuff like this.
They're able to tell the Senateto go pound, tell the
(50:19):
legislature to go pound sandwhen the legislature's you know,
evaluating whether or not tocontinue to fund AGDC, I you
know it makes you want to say,all right, Aida, dividend all
the money.
Here's a statute or here's theappropriation.
Dividend all the money back.
We'll decide going forward.
We can't trust you anymore.
We'll decide going forward whenwe give you money for certain
(50:39):
projects and we'll includeprovisions that say, if you earn
money off those projects, giveit back to us.
Speaker 2 (50:44):
And isn't board authority?
I mean AGDC isn't their boardauthority in part through the
legislature?
I mean AGDC isn't their boardauthority in part through the
legislature?
I mean shouldn't they be ableto say you said you were going
to shut down, so shut down.
I mean, especially with thesesalaries of 400 million, 400,000
a year for some of the topexecutives?
I mean it's just.
I mean it's, it's nutty, thatthat's uh, that that's what's
(51:05):
going on.
And yet they're just like no,we're just going to keep going
on.
Speaker 1 (51:09):
Yeah, I, you can't trust the AGDC board anymore
anymore.
I mean, they send you a letterthat says we're going to shut.
We hear you.
We hear you, senator, bishop,we're going to shut it down.
Uh, if we don't, if we don't,you know, meet these criteria by
the end of the year, get to theend of the year, have a method,
criteria, what, who sent thatletter?
What letter?
I mean, it's just, it's so.
(51:30):
You know, the board has nocredibility anymore.
The AGDC board has nocredibility anymore.
They didn't follow through onwhat they said they were going
to do.
The ADA board essentially istelling the legislature you know
, up yours.
We got our own money that we'vestashed over here.
We're going to do whatever thehell we want to, you know, and
(51:50):
up years, and the legislature isjust sort of sitting there
going take it all this and, youknow, letting the AGDC board
walk back from its letter andletting Ada, you know, keep the
cash pile over there instead oftransferring it back into the
general fund.
The general fund, I mean, it'dbe a one-time thing, but if you
want to solve a $500 million,$500 million revenue shortfall
(52:18):
dividend, the $500 million, that500 plus million dollars that
ADA's got sitting in its backroom.
Dividend that back into thegeneral fund.
Speaker 2 (52:22):
We've talked about that for years.
They should go through and theyshould sweep every account out
there in state government backinto the pot and then have a
conversation aboutreapportioning it out back out,
because there's millions,probably billions of dollars in
the various pots of money aroundthe state that had just been
squirreled away for years.
Speaker 1 (52:40):
Um, you know, whether it's pce or the ada or any
other fund, there's hundreds ofmillions of dollars out there
yep, yep, and, but, but, you,but, but you know, and, and, but
we just keep letting him go, wekeep letting Ada go ahead and,
you know, be its own governmentout there deciding what to
invest in and and, and.
Michael, it's just, it's, it'sjust sort of shocking.
(53:02):
I mean, we get a letter fromboard members.
We get a member.
We get a letter from thechairman of the board, from the
vice chairman of the board,signed by the secretary of
treasurer.
We get a letter that says thisOkay, fine, we got it.
We'll give you one more yearget it done, or or wrap it up.
And then you get to the end ofthe year.
There's not even any discussionof wrapping it up.
It's give us $50 million more.
(53:25):
so we can so we can, so we cankeep on going.
It's just I mean.
Speaker 2 (53:29):
Fool me once.
You know.
Yada, yada, Fool me the 17thtime.
We got a problem and that'skind of where we are right now.
Final thoughts on everythingfrom this week.
Brad, Last 90 seconds here, orso.
Speaker 1 (53:42):
Rob Yunt is my personal most appreciated
legislator right now.
He's the most realistic uhlegislator that we've got on the
conservative side and hestepped up and and recognized
that yes, we got a problem andyes, we've got to find better
ways, more equitable, lowerimpact ways to to solve the
(54:05):
problem.
So some of these other guys thepermanent permanent fund board
I'm just shaking my head, uh,paying $880 million out in, uh
in management fees the, the AGDCand the ADA boards I'm just
shaking my head.
But Rob Young, rob Young'sgoing down the right track and I
and I and I I want to commendhim for the proposal he's made
(54:25):
to try to get us back on theright track, at least taking the
first step to get us back onthe right track of more
equitable, lower impact revenues.
Speaker 2 (54:35):
We're going to have to see what he has to say.
He's going to be on the programon Thursday to talk more about
it and we'll see if we can getsome more details on it.
Brad Keithley Alaskans forSustainable Budgets the weekly
top three.
It's not always pleasant, butit is always informative and
it's what we need to know.
Thank you, brad, for coming onboard, as always.
Michael, as always, thanks forhaving me Appreciate you coming.
(54:57):
My friend, stay safe and enjoythe music wherever you're going.
I know you're going somewherehere eventually.
Thanks for coming on board.
Speaker 1 (55:06):
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
for Sustainable Budgets.
(55:27):
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 February 17th 2025.
The weekly top three is aregular segment on the Michael
Duke Show.
The show broadcasts on bothFacebook Live and YouTube Live
(00:32):
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,
(00:53):
soundcloud, spotify and Substackpages, also on the Alaskans for
Sustainable Budgets website, aswell as the projects page on
national blog site mediumcom, 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
(01:14):
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 issues are theseFirst, we discuss the needed
(01:35):
fiscal discussion that theSenate Majority and Senator
Yount from the minority havestarted.
Second, we explain why thePermanent Funds failed.
Investment in Peter PanSeafoods is only the tip of the
iceberg of the conversation weshould be having about the
fund's management and operation.
And third, we explain how theboard of the Alaska Gas Line
(02:00):
Development Corporation israpidly losing all credibility.
And now let's join Michael.
Speaker 2 (02:08):
So let's get started.
Today we're going to talk aboutthree big topics.
Number one is the revenues.
The Senate is starting to talkabout it.
I mean, they've kind of, andRob Yunt got the conversation
started, although he immediatelytook some slings and arrows
from the conservative, fiscallyconservative right on this.
(02:32):
So let's talk about it.
Speaker 1 (02:34):
Well, I'm going to I'll go to the end and then and
then sort of back up done agreat job and I've become a
bigger fan of Rob Yunt as aresult of him stepping up to
address more equitable, lowerimpact revenues.
I mean, does anybody wantrevenues?
(02:55):
Probably not.
But if we're going to haverevenues and that's the
situation the state's in, likeit or not, whether there is an
education bill at all or not,the state's in a deficit
situation.
As the alleged finance analysissaid, even before considering
(03:15):
HB 69, even before consideringany of the additional spending
bills that have been piled onthis session, the state's in a
deficit, even at 75-25 or 25-75PFD.
So I think Rob is to becommended for facing up to
reality, not living in thefantasy land where spending cuts
(03:37):
only are going to solve thissomeday.
We've been going down that roadsince 2017 or since 2019.
When the governor tried itCouldn't even get 16 in the
legislature to back him up onthat, and the governor hasn't
tried it again because hedoesn't think he can do it.
So I think Rob's done a greatjob.
(03:59):
But that's sort of the end ofthe story.
Let me go back to the beginning.
Last Tuesday was sort of a bigday for fiscal policy.
The day started at least my daystarted with, you know, the
usual Tuesday segment on here,but when I got off and started
looking at what the papers weresaying, there was an op-ed in
(04:21):
there from Larry Persily.
The headline was Alaskans needto decide what's more important
adequate school funding or a bigPFD, and I took that as sort of
the beginning of the drive, ormaybe the middle of the drive,
to wipe out the PFD as a way ofpaying for increased school
(04:42):
funding.
Persily, as he's always done,made it just a binary choice
Either it's increased spendingon this end, which a lot of
people support for variousreasons, or the PFD on the other
end, and that's it.
That's the only choice.
Tuesday's got better, though,in the context of how we're
(05:03):
going to face up to theseproblems that we've got
ourselves into.
Tuesday got better with theSenate majority press conference
, and it was refreshing, in asense, that they were talking in
terms of reality, that LymanHoffman, who is the co-chair of
Senate Finance for the operatingbudget this year, was talking
(05:24):
in terms of reality.
This is what he had to say, asreported by the ADN we haven't
addressed revenue for decades,said Lyman Hoffman, a Bethel
Democrat, told reporters.
I think it's high time thelegislature looks at raising
news revenues if we want toaccomplish the many things that
we want to do.
If not, I don't see a clearpath forward to balancing not
(05:45):
only this year's budget but nextyear's budget.
And Hoffman went on to say thatone of the things we're going
to look at is oil taxes.
He mentioned specifically theHillcorp loophole, which is
about a hundred million dollarloophole, and the credits that
are credits, uh, that are usedto reduce oil tax obligations,
(06:07):
sliding scale credits as as two,uh two places there, uh,
they're going to be looking atthis.
The house did an interestingthing, um, in response to to
Hoffman's conversation, theHouse said in response, andy
(06:28):
Josephson, chair of theoperating budget, house Finance,
told reporters that the 21members of the House's majority
caucus really haven't sat downand gotten really into what we
would find acceptable in termsof revenues.
We're not interested inseverance tax reform, so that's
sort of off the table.
It's interesting in the senseof what it didn't say.
(06:51):
It didn't say anything aboutcorporate taxes, which is where
the Hillcorp loophole.
Is it focused on severancetaxes In severance taxes?
The House's position on notaddressing severance taxes seem
to be the price that theDemocrats and independents paid
to get Chuck Kopp on board andLouise Stutes.
(07:12):
Part of the terms andconditions of them coming on
board was the then coming Housemajority wouldn't take up
severance taxes.
So they've got themselves in abit of a quandary, but the
Senate looks like it's ready toaddress it, and I think it's a
good thing.
I mean, look, let's be real, asRob Yount is.
(07:35):
Let's be real.
The reality is that spending hascontinued on, continued to
increase.
Yes, everybody would like totake spending down.
F.
Everybody would like to takespending down.
Fiscal conservatives would liketo take spending down, but it
hasn't happened.
It didn't happen in 2019.
It hasn't happened since.
It's not going to happen thissession.
(07:55):
No one's talking about deepspending cuts, and so the
question becomes what's the mostequitable, what's the lowest
impact revenue source to use topay for the spending?
And?
And PFD cuts ate it.
Pfd cuts have the largestadverse impact on the overall
economy and they are by far thecost list to the majority of
(08:16):
Alaska families, are hugelyregressive and hit middle and
lower income Alaska families farhigher than than they hit the
top 20%.
Don't take anything fromnon-residents.
Don't take anything from um,from uh, uh, the old companies
to pay for additional spending.
So there are by far much moreequitable revenue sources and
(08:38):
it's encouraging to me, frankly,that the Senate majority at
least is talking about some ofthem uh, not all of them.
I mean Stephen said he wasn'tinterested.
He didn't think the majoritywas interested in sales or
income taxes.
So we've still got a long wayto go, but not totally closing
(09:02):
the door to more equitablerevenue sources.
Rob Young had started outearlier by introducing SB 92,
which closes the Hillcorploophole and the Hillcorp
loophole for those who haven'tcaught up.
Speaker 2 (09:20):
You keep saying loophole.
I just love it.
It's a tax structure thatthey've taken advantage of.
I don't know if it's a loophole, but I understand.
Speaker 1 (09:26):
It is a loophole, michael.
I mean here's Alaska.
I mean people like to talkabout CNS corps.
Let's talk about it in terms ofthe way that it really
structures out.
Alaska has a tax code, acorporate tax code, for oil
companies.
It is built on the generalcorporate tax code but it is
separate.
The way it's designed isseparate for oil companies.
(09:49):
Every oil company pays it.
Every of the major oilcompanies pay it.
Bp paid it before they sold toHillcorp.
What Hillcorp did was come inand slide through an exemption
or an exception to the generalcorporate tax, which turns into
an exception to the petroleumtax, and is the only major
(10:13):
petroleum company in the statenot contributing to the overall
petroleum corporate tax.
That's a loophole.
That's a tax loophole.
If we were talking aboutfederal tax policy, you had nine
panelists up here or 10panelists up here talking about
federal tax policy.
All 10 of them would talk aboutit as a loophole.
(10:38):
So it's a loophole.
It's an exception to thegeneral rule of the petroleum
corporate tax and Hillcorp'staking advantage of it, since
they acquired BP's properties.
And Rob, I think,straightforwardly said look, all
companies ought to be taxed thesame.
All companies in the samesituation ought to be taxed the
same.
So we're going to close thatloophole and we're going to
subject Hillcorp not to anyadditional tax over and above
(11:00):
beyond what the other companiesare paying, but we're going to
subject Hillcorp to the taxthey're paying.
The challenge, I mean and Ithink Rob's to be committed for
doing that, the challenge of itis, according to the fiscal note
that came out over the weekend,it raises $126 million.
This is against a budgetdeficit of a billion and a half.
(11:22):
It raises $126 million in FY27,$121 million in FY28, $118
million in FY29.
And it starts going down.
From that sort of followingwhat, what some anticipate would
be Hill corpse, a decline curve.
Hill corpse, a productiondecline curve.
(11:44):
So it's not, it's it's.
It doesn't close by in, in, byany stretch of the imagination.
It doesn't close, uh, thedeficits that we're facing
facing, but it does.
It is a, it is a piece ofwhat's needed to close those
deficits equitably.
Speaker 2 (12:03):
So I think Rob's to be commended for that, yeah, and
I know immediately he faced alot of there was some hostility.
There was an article in mustread that immediately called him
out for it.
Was he really a conservative?
Was he really not?
And I just I found the tone ofthe article to be a little
ridiculous because we need totalk about it and I agree with
the equitability thing as far asthat goes, and especially on a
(12:26):
severance tax on a finiteresource, it should all be the
same.
I'm not arguing that.
I just I had to chuckle becausethey just took advantage of a
structure that was already inplace and now somebody's talking
about closing it.
That's what happens when youdiscover a uh, when you discover
a caveat in the, in the lawthat you could take advantage of
.
Eventually somebody will say,hey, that's uh, that's not right
(12:48):
, and they'll try to fix it.
Now whether it'll go anywhere,I don't know.
We are going to have a Rob Yunton the program this week to
discuss this further.
Um and uh, we'll see.
We'll see where it goes fromthere.
Um.
Final thoughts on this Go ahead.
Speaker 1 (13:03):
Well, I, I I object to people saying that Rob's not
fiscally conservative becausehe's proposed a tax.
Look, we've got taxes.
That's what PFD cuts are theyare.
They are, you know, a diversionof income.
If Randy wants to quibble overwords, they are a diversion of
income away from middle andlower income, largely from
middle and lower income Alaskafamilies.
We have taxes Once you're atthat point and we have deficits,
(13:26):
huge deficits.
Once you're at that point, thequestion is no longer if there's
revenues, the question iswhat's the most equitable,
lowest impact revenues you canhave, lowest impact on the
overall economy, and certainlyclosing the Hillcorp loophole is
a piece of that.
Speaker 2 (13:42):
I mean, look, I understand that.
I just, you know, people do askabout the loophole.
This is not something thatHillcorp put in there or did it.
They just took advantage of it.
And as a business, and if Icould retain $100 million a year
in income that I didn't have togive up just due to the
structure of my business, I'dprobably do that, I'd probably
(14:05):
bank that as well.
But it's just something thatwhen the corporate tax code for
the petroleum taxes put together, s-corps were not really a
thing and so it was a little bitof a different.
You know, they weren't aspopular.
Today they're wildly popular.
So it's just a little bit of adifferent.
Uh, it's a little bit of adifferent thing.
Speaker 1 (14:22):
Yeah, and S-Corps S-Corps, generally speaking, I
uh I don't have a problem withat all.
I mean the, the.
The thing about S-Corps, whatthe S-Corps do, is that they
they allow a pass through of theincome.
They don't tax it at thecorporate level, so you don't
have double taxation.
They allow the income to dropdown to the personal level and
you take what otherwise would becorporate income.
(14:44):
If you have an S-Corp, you takeit at the personal level and
from a federal standpoint that'snot really considered a
loophole because you pick up thetax revenue at the personal
level.
The individual who owns theS-Corp or the individuals who
own the S-Corp pick it up at thepersonal level.
The, the, the individual whoowns the S corp or the
individuals who own the S corp,uh, pick it up at the personal
level.
The, the.
The thing in Alaska is we don'thave a personal income tax and
(15:07):
so it's not picked up at thepersonal level.
Instead of dropping through,dropping through and being, you
know, dropping through thecorporate level and then being
picked up at the personal level,it just continues on dropping
and it drops to the, to theindividual's bottom line, and
and so it's.
That's the.
That's the issue with it inAlaska.
We're just not picking it upany place, it just completely,
(15:30):
it just completely drops out andand yeah, hillcorp didn't
create it, it was created, itwas created back there.
But but at the federal level,99% of the loopholes that exist
aren't created by those who takeadvantage of them.
They're created by someone elseand everybody sort of rushes in
.
Once you see it, you sort ofrush in and take advantage of it
(15:52):
.
I will say one other thing aboutthis loophole, michael, it was
okay, maybe sort of fine, todefend it Uh, uh, prior to last,
uh, last session, when Hillcorp, you know, threatened to cut
off the Cook Inlet, threatenedto stop making uh, investments
in the Cook Inlet if anybodytouched their loophole.
(16:14):
And, and that's when theloophole became, you know,
became a weapon.
They weaponized it againstAlaskans, against Cook Inlet gas
consumers, yeah, and you know,whatever sympathy some should
have had for Hillcorp shouldhave dissipated at that point,
right, and we should be tryingto get them on a level playing
(16:36):
field.
So I commend Rob.
I mean, I know, I know, probably, you know, no doubt took a lot
of guts to put that bill in hisfirst bill as a new freshman.
But I commend Rob for doing it.
Because, again, folks, it's notwhether, it's not whether we're
going to have revenue, it's notwhether we're going to have
taxes, it's what kind of taxwe're going to have.
(16:59):
And when you were looking at itthat way, the question is
what's the lowest impact, mostequitable approach?
Right, and Rob certainlyidentified a piece of that.
Speaker 2 (17:11):
Yeah, I mean look, anthony says it the only two
options are.
If the only two options arecatastrophic budget failure
versus implementation of a taxto keep us alive, not sure it
makes you not a conservative todecide budget seppuku is a bad
idea, and that's exactly it.
Um, I also agree with bradleywho says as a business owner
(17:32):
myself, I pay very little intaxes because of the way the tax
laws are written.
I use the system to myadvantage.
That's what businesses do andI'm not criticizing Hillcorp.
Like I said, I think I wouldhave done the same thing Now if
they start to weaponize it andcall for other things.
That's kind of a differentkettle of fish and as an owner
of a resource, I want to getmaximum yield for my finite,
(17:55):
non-renewable resource.
So I also want to see thatfixed.
No, I'm not blaming Hillcorp,but it also makes sense to close
it if we can get more for ourown.
It's our resource, we own it.
It's us.
We're the owners, we're theguys in the Permian who are
telling the oil companies you'regoing to pay me for that or
else kind of thing.
(18:15):
That's how it works.
Brad Keithley, alaskans forSustainable Budgets.
Our guest, the weekly top three, number two, this was a little
shocking when I read thisyesterday, looking at what's
going on, and it's the story ofPeter Pan no, not the guy who
flits around in tights Peter PanSeafoods and the Permanent Fund
(18:36):
, and it is an example of whatis going on and what is wrong
with the permanent fund and whywe're.
I mean we've got problems andthis is a prime example of it.
Hit me with this, brad.
Speaker 1 (18:48):
So this is the story.
If readers or if listenershaven't seen it, you can find it
on the Anchorage Daily News andprobably other websites.
I think it's also on the Beacon.
The headline is how a riskystate at least in the news, the
headline is how a risky stateinvestment in seafood cost
alaskans millions and left afishing town in crisis, and it's
(19:10):
it's discussing a one of theinvestments that got made.
During the period that theentFund Board set aside a portion
of its investments, a portion ofthe $70 billion, $60 billion
$90 billion, take your pick onany given day set aside a
portion of its capital forinvestment in state projects,
(19:35):
the in-state program, and theyset aside 200 million in total.
Of that, 29 million gotinvested in this, uh, in this
company, uh, peter Pan, uh, uh,seafoods, uh, that uh went belly
up, and so the entire 29million that the state invested
in it, the permanent fundinvested in it.
Um, seems to, you know, itseems to be non nonrecoupable uh
(20:01):
, and seems to be lost.
And it's a.
It's a great story.
Nat uh partnered with uhpropublica and developed a
really great story, uh, withrespect to this whole episode
and who was involved, and youknow it sort of reads like a spy
thriller or something uh in interms of the way they put it
together.
But the bottom line is that is,the permanent fund board had
(20:23):
this program that wasill-conceived at the time.
You and I talked about it atthe time, complained about it at
the time, outlined the threatswe thought it presented at the
time, and, lo and behold, it hadsome of those and it's and and
come back to haunt the permanentfund board, um, and the $200
(20:44):
million investment program setaside for state investments has
been closed down, got closeddown before this, uh, but it's
been closed down.
And so this is sort of a sortof a a narrow, narrow uh story
in terms of uh, in terms ofwhat's going on, but it reflects
badly on the permanent fund.
But here's the deal.
It pales in comparison to someof the other stuff that's going
(21:09):
on, and I'm going to come backto a discussion that we had in a
previous segment that I thinkwe need to come back to often.
Keep in mind Peter Pan's $29million.
The permanent fund publishes alot of information about itself
and I think that's good.
It gets high marks from me, atleast in terms of transparency.
(21:30):
One of the things it publishesis how much in management fees
it pays.
The permanent fund is a highlymanaged, highly active fund in
the nomenclature that thesesorts of funds have.
Highly active in the sense thatit's managed very actively by
(21:51):
the permanent fund staff,permanent fund board staff that
decides on investments and makesinvestments, particularly the
private equity market.
That's compared to a passivefund, passive fund that, just
you know, puts all of its moneyor a lot of its money in S&P 500
, you know indices and letsthose indices, lets the people
(22:11):
who are running the indices,make the investment decisions
and rides on the benefit of theindices.
Frankly, that's how I invest mymoney.
I invest my money in indices,but the permanent fund does very
little of that.
They like to be active and theylike to get in there and
actively manage theiropportunities.
(22:33):
The problem with that, or thechallenge with that, is it costs
a hell of a lot to do that.
Keep in mind Peter Pan is $29million.
Keep in mind the big story ofthe big, the big scandal here
about Peter Pan is $29 million.
And for the rolling 12 monthperiod, um, uh, uh ending uh the
(22:54):
in the most recent um permanentfund uh publication, permanent
fund financials publications,which is at the end of second
quarter, fiscal quarter 2025, atthe end of calendar year 2024.
For that 12-month period, thepermanent fund board has paid
$880 million.
(23:16):
$880 million in management fees.
Keep in mind Peter Pan's $29million.
Right Permanent fund board haspaid 800 on an annual basis,
$880 million in terms ofmanagement fees.
Now, the way that you evaluatemanagement fees is as a percent
(23:43):
of the assets being managed, andso that $880 million, you
calculate what the impact is bylooking at it as a percent of
the assets management and whenyou look at it on that basis, as
of the end of the secondquarter, um the, that's a
percent more than a percent, onepoint, or 1.06 percent um uh,
(24:05):
of of the assets.
The cost of managing thoseassets is 1.06 percent of those
assets.
Norway, which is you know, whenyou look at the norwegian fund
that in the in the sovereignwealth industry is sort of the
gold standard, that's the oneyou look to, that's the one you
(24:26):
sort of compare yourself toNorway pays less than half that
in terms of their managementfees.
Now, in raw dollars they'repaying more, but that's because
the Norwegian fund is a hell ofa lot bigger as a percent of
assets.
Norway is paying 0.4%, a littleover 0.4%, not 4%.
(24:53):
0.04%.
There we go, four mils.
0.04% of its no 0.4%.
There we go 0.s.
0.04% of its no 0.4.
There we go 0.4%.
Half a percent as its fees Halfless than half what the Alaska
Permanent Fund Board is paying.
If we were paying at theNorwegian rate, we would be
(25:16):
paying instead of the $880million.
We'd be paying around $400million or around $450 million,
somewhere in that range ofmanagement fees.
So when you look at Peter Panand you look at this $29 million
scandal and then you look atthe annual, but then you look at
(25:37):
the annual management fees thatthe permanent fund is incurring
, I mean that's where the realscandal is.
Instead of it, you know we'repaying double what Norway is and
so we're paying $440 million onan annualized basis.
We're paying $440 million moreon an annual basis.
So $29 million is a one-timeinvestment, million more on an
(26:01):
annual basis.
So 29 million is a one-timeinvestment, $440 million more on
an annual basis than the goldstandard the Norwegian fund
would suggest we should bepaying.
Interestingly enough, thepermanent fund board, the
president of the permanent fundboard, chairman of the permanent
fund board, jason Brinney, andthe President of the Permanent
Fund, executive Director of thePermanent Fund, whatever the
(26:22):
title is came before thelegislature.
Came before Senate Finance lastweek to talk about the
Permanent Fund.
They had a 35-page PowerPointdense PowerPoint.
This wasn't one point perPowerPoint page.
This was like 20 points perPowerPoint page Extremely dense
PowerPoint.
35 wasn't one point perPowerPoint page.
This was like 20 points perPowerPoint page extremely dense
PowerPoint 35 pages of it.
(26:45):
Management fees aren't mentionedat all.
They mention returns.
They don't mention one-yearreturns, which are looking
horrible for the permanent fundright now.
They mention returns.
They mention them on a 10-yearbasis, a five-year basis, a
three-year basis.
They actually don't publish.
I mean, what's really sort ofshocking.
They tried to defend themselvesabout how good their 10-year
(27:08):
returns look.
They don't publish the 10-yearreturns publicly.
They don't even consider themimportant enough to publish
publicly.
But when you go to thelegislature and you're under
fire, yeah and you're under fire, yeah, let's haul out those
10-year returns and look atthose.
But they didn't publish theone-year returns which they do
make.
They didn't use the one-yearreturns in the legislative
presentation, which they do makepublic.
But they didn't discuss the 35pages of dense PowerPoint, don't
(27:32):
discuss management fees at all.
So to me, the $29 million again$29 million, one time $29
million the Peter Pan episode isenlightening.
It is troublesome, but it'sjust the tip of the iceberg.
(27:52):
Once you plunge down below thetip of the iceberg, once you go
below the water surface, you seethis huge sitting iceberg down
there in terms of managementfees.
What was the final shocky, thefinal humorous thing is, at the
end of the entire presentation,jason Brinney, the chairman of
the Permanent Fund Board,governor Dunleavy's appointee,
(28:16):
self-admitted, not an investmentexpert, jason sits up there and
says oh, and we're a low costmanaged fund.
No, nothing of the slide decksupports that.
None of the numbers supportthat.
He just wanted to say it and hesaid it.
But it's wrong.
It's not a low cost managedfund.
Right, it is.
(28:37):
It is one of the highest costmanaged.
It is likely one of the highestcost managed funds in the world
.
Right, and so when we're lookingat, when we're looking at,
peter pay, and that's just thetip of the iceberg.
Speaker 2 (28:48):
Yeah, I mean again $29 million.
I mean to you and me that'sreal money.
But if you're talking about interms of $850, $880 million,
that's a drop in the bucket.
And even the $200 million fundfor Alaska investment, when
you're looking at nearly abillion dollars every year just
in management fees, that seemslike a drop in the bucket as
(29:10):
well.
I mean things and I wentthrough this slide deck and,
like you said, it's very dense,but you could see already that
they're prepping everybody forthat conversion of the earnings
reserve into the corpus of thefund as well.
So it's like the it's thedouble whammy, it's the.
It's the proverbial doublewhammy on all those things.
Speaker 1 (29:31):
Yeah, it's, uh, it, they're definitely it's.
It's like the slide deck'sinteresting Cause I I have
watched the presentation, I'vebeen through the slide deck
slide.
That's interesting.
It's sort of it's sort ofcurving around.
It's got all these numbers andso you think it's really a
fulsome, fulsome presentation,right, but it's sort of curving
around the trouble spots.
It's not addressing the troublespots.
(29:52):
It's just sort of you know, sowhen you're showing returns, you
show your 10, five andthree-year returns as opposed to
including your one-year return,and so you sort of curve around
, don't show your one-yearreturns, you don't show the
management fees at all.
There's one slide in there onNorway and it talks about how
Norway is more a passivelymanaged fund than an actively
(30:13):
managed fund and it talks about,you know, the advantages of
being an actively managed fund,but it doesn't talk at all about
the management fees that Norwayincurs versus the management
fees as a percent of assetsunder management, doesn't talk
at all about that.
It's misleading by omission.
(30:34):
It's misleading by notincluding.
I mean the Permanent Fund Boardthinks it's important enough,
or past Permanent Fund Boardshave thought it's important
enough, to publish themanagement fee information,
right, to make that transparent.
Except when you go to thelegislature and then you don't
want to talk about it.
So I, yes, peter Pan, let'stalk about that.
(30:54):
Let's talk about that, you know, for maybe an hour, but then
let's spend the other 23 hoursof the day talking about the
management fees and other thingsthat are going on.
Speaker 2 (31:04):
Well, and the difference between a passive
fund and a actively managed fund.
I mean, the permanent fund isstill underperforming the major
indexes in the.
Maybe we should turn it back toa passive fund and just peg it
to the indexes at this point.
If it's getting a better returnthat way, why are we spending a
billion?
We'd be a billion dollars ahead, almost, uh, if we just pegged
it to the other funds instead of, uh, doing all this other
(31:25):
nonsense.
I mean, I don't know what'shappened there, but it's not
helping.
You know, you guys are notbeing helpful in this regard.
Final thoughts Brad.
Speaker 1 (31:34):
Well, the last three years, even as an actively
managed fund, it's performedunderperformed relative to the
permanent fund's own passiveincome benchmark, which one
could argue whether that'sreally a passive income
benchmark, but it'sunderperformed even relative to
the passive income benchmark.
Essentially, the permanent fundis admitting, through looking
(31:54):
at those benchmarks, admittingthe fund would have made more
money.
Set aside the management fees,the fund would have made more
money by just investing it inthe indices as opposed to
actively managing it.
And then you add on the feesthat come from active management
and it really becomes a mess.
So there is much more there.
If Nat wants to continuewriting or others want to
(32:16):
continue writing, I've done it acouple of times in the landmine
, the Friday column in thelandmine.
But if others want to reallydig in and see what's going on
with the permanent fund, there'sa lot more there than the $29
million in Peter Pan.
Speaker 2 (32:31):
Brian says, because Donna mentioned that the
permanent fund underperforms themajor indexes.
And Donna, time to have acareer talk with the fund
management team.
I mean again, why are weactively managing it if they're
doing worse than a passivelymanaged fund?
I mean, that just seems likethat makes no sense.
And this is one of those thingswhere you get a bunch of
experts or people who are, youknow, this is the Ellie
(32:52):
Rubenstein, I want to play inthe, in the in the pool with all
the big kids and, uh, do mything.
And that's really where we kindof went sideways with this
whole deal.
We should just be, you know, weshould be leaving it and uh, we
should be the envy of, uh, theworld.
Here we are, where it's goingdown.
I mean, will they drop activemanagement?
(33:15):
I doubt it.
Should they, based on thenumbers that we're seeing right
now?
Probably, brad.
Speaker 1 (33:23):
Oh, they need to be much less actively managed than
they are now.
I mean, what Norway does is usepassive indices for a large
segment of its investments andit retains a little bit to be
actively managed in terms ofinvestment in the private
markets.
If I recall the discussion withSenator Stedman, who was
(33:47):
raising sort of this point,although he wasn't raising the
fees question If I recall thediscussion between the permanent
fund board rep and SenatorStedman, we have something like
40% of our fund actively managed.
And what active managementreally is?
You're looking for the home run, right?
(34:09):
You're investing in a lot oflittle things, hopefully.
You're investing in a lot oflittle things.
You're not putting all thechips in one pot.
You're investing in a lot ofopportunities in hope that a few
of them hit big and sort ofcover whatever losses you have
in the rest of them.
I mean, it was sort of like the$200 million that got invested
(34:31):
in the state Peter Pan's a bust,but maybe some of the other of
them did fairly well and if youhit a huge one, then maybe you
have pretty solid returns.
And that's what you're doingwith active management.
But you're assuming when you dothat that you can outguess the
market.
Right, you're going to find thegolden egg that the very few of
(34:53):
others have been able to find.
You're going to find a piece ofthe golden egg with others that
very few are able to find andyou're going to hit the home run
and have have great returns.
Maybe that happens, but but thethe odds are, maybe it doesn't.
And, and you know, permanentfunds big, but it's not.
It's not a big player in theoverall investment world.
(35:16):
Um, and for it to think it'sgoing to find the golden egg,
it's going to have the inroads,it's going to have the insight
to find, to find the golden eggsout there is, you know, that's
a lot of, it's a lot of hubris.
That's a that's a lot of.
That's a lot of hubris, that'sa that's a lot of of of of
expectation about yourself thathasn't been, is not being proved
true in the market.
So, yeah, I, we do need tolessen, uh, the amount we have
(35:41):
in the private equities.
We need to less, as, as SenatorStevin pointed out, we need to
lessen, uh the um, themanagement fees.
And and, michael, when we dothat, there's going to be an
interesting phenomenon occur Allof a sudden, the money in the
earnings reserve is going to goup because we're going to be
realizing income in a way thatwe're not now.
Because we're making all theseprivate investments and holding
(36:03):
onto them for extended periodsof time, we're hoping they hit,
not turning them into cash.
Not turning them into cashthat's going in to the earnings
reserve.
So there's a secondary impactof creating cash that goes into
the earnings reserve on a moreregular basis, which, lo and
behold, solves your earningsreserve problem problem.
(36:36):
There's a lot of issues in thisone area of how much of our
nest egg we're putting intothese private assets.
Management fees is a big partof it, but it also has knock-on
consequences in other areas.
Speaker 2 (36:44):
Lesko says why don't we have any media looking into
the fund mismanagement orlooting?
And that's because people'seyes glaze over as soon as you
start talking about the detailsof something that's kind of
complicated like the permanentfund.
Most people don't understandhow it works.
Most people don't understandhow education funding works, let
alone.
I mean, they'll buy hook lineand sinker the half-truth, the
(37:07):
BSA, non-increase or things likethat and they just it's because
people's their eyes just glazeover.
They're like, ah, so it's um, Imean it's, it's a problem.
Speaker 1 (37:19):
It is a problem and it's you know and it's you can
get a sexy story like Peter Panthat affects people and and you
know the story is built a lotaround how it destroyed.
You know a, a, a fishingvillage of fishing fishing
village, dependent on the Peter,a Peter Pan uh facility.
You can build a human intereststory around that.
It's less easy to build a humaninterest story around around
(37:41):
management fees, so that'sthat's part of it.
I mean you can't get suchsensationalized press out of it
as easily as you can out of thePeter Pan episode.
Speaker 2 (37:50):
Yeah, more people need to understand, but it is
the lifeblood of the state rightnow, because that's where we're
drawing the majority of ourrevenues, and we should be
paying attention to it 100% forsure.
All right, we're continuing now.
Brad Keithley, alaskans forSustainable Budgets the weekly
top three.
On to the third pain point forthis week, and that is number
(38:12):
three, which is geez.
The AGC board must have hadtheir fingers crossed behind
their back when they said, yeah,yeah, that's what we mean, we
really mean it this time, whichmeans that we just give us one
more, that's all we will get it.
Mm, hmm, they had their fingerscrossed, brad.
Speaker 1 (38:31):
So last year in the legislature there was a lot of
focus on how much we werespending for the AKLNG project,
the Alaska Gas Line project.
Senator Bishop was on washeading the capital budget.
I believe he was heading thecapital budget, the co-chair for
capital budget on Senatefinance, and focused on that and
(38:53):
was contemplating at the timecutting off funding, additional
funding for the project becausethe project just hadn't brought
anything home.
A couple of presentations wentsouth for the AKLNG leadership
before the various financecommittees and it was looking
pretty bleak.
The response to that was aletter dated April 22, 2024.
(39:18):
We're talking about last year,april 22, 2024, signed by the
chairman of the AGDC board,janet Weiss, the vice chair,
mike Chenault, secretarytreasurer of the AGDC board, to
Senator Bishop and the keysentence of this letter says if
AGDC this is last April, april24, if AGDC fails to secure
(39:49):
funding for the entire projector for the initial pipeline
phase of the project by thatdate, fails to secure funding
for the entire project or forthe initial phase of the project
by that date, we haveinstructed we, the board, have
instructed AGDC staff toinitiate the work required to
shut down and either sell AlaskaLNG project assets or put them
into storage If there isinsufficient value realized for
(40:13):
the state of Alaska from a saleApril 24, if AGDC fails to
secure funding for the entireproject or for the initial phase
of the project by that date,the date being the end of the
year.
Then we've instructed, so we'vereached the end of the year.
Then we've instructed, so we'vereached the end of the year.
Have we secured funding for theentire project or for the
(40:38):
initial phase of the project?
The answer is no, we haven't.
We have instructed AGDC staffto initiate the work.
Have they initiated the workRequired to shut down and either
sell LNG project assets or putthem into storage?
Nope, they're still going.
The only thing they've securedby the end of the year, the only
(41:03):
thing they secured by the endof the year, was a press release
.
They don't even have theproject details.
They don't even have theproject details, they don't even
have the contracts.
A press release with alow-capitalized,
small-capitalized, fairlyinexperienced operator, glenfarn
.
They've got a press releasewith Glenfarn that says Glenfarn
(41:28):
is going to negotiate projectdocuments with AGDC that, if
negotiated, we'll have GlennFarn take the lead for the
project, uh, through FID andthen and then beyond, if they
decide to go to final investment, if they decide to make the, if
they decide to make theinvestment, is that financing
for the project, for the, forthe entire project or for the
(41:50):
initial phase?
Nope, it's not.
Even the financing that GlenFarn, even the financing that is
there for Glen Farn to do thework once they enter into the
documents, once they negotiateand if they finally agree on the
documents, enter into thedocuments, even the financing
that's there for Glen Farn to dothe work to FID isn't Glen
(42:13):
Farn's.
It's backstopped by ADA, by apromise from ADA to pay $50
million to Glen Farn toreimburse them for FID.
At one point we thought thelegislature was going to be able
to stop that, but last week ADAtestified no, they're committed
(42:38):
to the $50 million, whether thelegislature approves it or not,
they've got $50 million sittingaround.
Ada testified they got $50million sitting around in their
bank accounts that they can usefor this project, whether the
legislature approves it or not.
It'd be nice if the legislatureapproved it, because I'd give
Ada $50 million more.
They wouldn't have to spend $50million out of their existing
(43:00):
pot.
It'd be nice if the legislaturedid it.
But no, they don't have to.
The legislature doesn't have toapprove it.
Ada is going to go forward withit anyway.
But that's all.
That's all beside the point.
I mean, even if you look at thefinancing, financing's coming
from the state.
But that's all beside the point.
The point is we have this iswhat the letter said we have
instructed AGDC staff to toinitiate the work required to
(43:22):
shut down and either sell theproject assets or put them in
the storage If AGDC fails tosecure funding for the entire
project or for the initial phaseof the project by that date.
Haven't Done.
So what does the letter mean?
It doesn't mean anything.
Now AGDC is just ignoring it.
The administration is ignoringit.
Hell, even the legislature isignoring it.
(43:43):
Everybody's got their blinderson saying what letter?
And AGDC, who made thiscommitment, signed by the
chairman of the board, by thevice chairman of the board and
by the secretary of thetreasurer?
Agdc has made this commitment.
They aren't following throughon it Must have had their
fingers crossed behind theirback.
It's just, it is.
What's going on with the AKLNGproject is outrageous, as we
(44:12):
discussed last week, in acontext where the state clearly
has run through all of itssavings the SBR, the CBR deep
into the PFD, deep into PFD cutsto pay for government in a
context where the state is so tohave this, to have this project
continuing.
It's just just outrageous.
And and yet yet it, it, itkeeps on going on.
(44:35):
I, I want somebody to ask, Iwant somebody to haul the
chairman of the board, vicechair of the board, and Mike
Chanel, secretary, treasurer,signed on the bottom line you
can see the signature haul themup in front of the, in front of
the legislature, and say whatthe hell do you mean, what's
this letter mean, and whyhaven't you done it?
Why haven't you followedthrough on the letter?
Oh well, you know, we got aGlen Farn.
(44:56):
Glen Farn hasn't made anyfinancing commitments.
In fact, glen Farn hasn't madeany commitments at all.
Yet they haven't signed anydocuments yet.
Speaker 2 (45:05):
No, but they did write a good opinion piece that
talks all about how it's acompetitive, well-positioned
project.
I think they said competitivelike six times in the article
and you're like competitive.
I mean even with an 80% subsidy, it's 30% over market value.
How is that competitive?
Speaker 1 (45:22):
Yeah, that opinion piece was great, wasn't it?
I mean, the opinion piece is byGlenn Farn is talking about how
great the project is.
You know, the one question thatkills all this is great.
Are you putting your money intoit?
No, we're going to front endthe money.
You know it's the same thing onthe NSTAR LNG import project.
(45:43):
We're going to front end themoney.
At Glenn Farn, it's going tofront end the money.
But if there isn't FID andthere won't be if there isn't
FID and there won't be, if thereisn't FID, then we get
reimbursed by the state.
In the case of the big line or,you know, proposed to be by
NSTAR and its rate payers, inthe case of the LNG project, we
are putting our money into it.
So, if it's such a great deal,why aren't you putting your
(46:05):
money into it?
Well, we're putting our timeinto it.
It your money into it?
Well, we're putting our timeinto it.
It's, it's.
You know, I can I can tie thediscussion in the second segment
to this one in to this segment.
In this way, it's like one ofthose, is like one of the piece,
one of the things that you dowhen you're private, when you're
doing a private investment.
You, you invest in a lot ofthings in the hope that one or
(46:25):
two will, you know, produce hugereturns.
That's what's going on here.
Gl on here.
Glen Farn has a bunch ofprojects out there.
Somebody said, well, how wouldyou like to add this one?
Oh well, if it hits, it'd hitbig.
And look, they're going toguarantee us our money.
So we don't have to.
It's not any of our money outthe door.
We have to front end it, butwe'll get reimbursed if it
(46:47):
doesn't go anyplace Likely notto go anyplace.
So we'll get reimbursed.
If it hits, that'd be great.
But if it doesn't, we don'thave any skin in the game, right
?
So they can talk all day longabout it being competitive and
being great and being thiswonderful thing, but they aren't
putting any of their money upfor it, right?
Speaker 2 (47:07):
No, it's amazing to watch.
I mean, it's like it's a zerorisk thing for them.
If they hit and hit big,they'll make tons of money, and
if they don't, we got paid for ayear or two while we did all
this work and nobody didn't costus anything.
So everybody's still got a joband we'll go on to the next
project 240 million worth of gasinto it.
(47:32):
We're talking about a projectthat's worth $60 billion and
you're you're diddling aroundbragging about your 240 million.
That's not even a blip on theradar.
You know, uh, but yeah, thiswhole thing is, is, uh, is
astonishing.
So I mean, who calls them onthe carpet?
I know that, uh, that uh, bothuh.
Bert Stedman and BillWilikowski were both quoted in
one of these ADN articles sayingit looks like it needs to be
shut down.
Is it going to be, or is itjust going to keep limping along
(47:55):
at this point?
Speaker 1 (47:56):
Well, ada has now told them they don't have the
ability to shut it down.
I mean, surely they do, surelythey can pass a statute that
says shut the sucker down.
Do what your board said lastyear you were going to do, right
.
But now Ada's saying $50million, we'll just take it out
of our kitty and our money overthere.
It'd be great if you wanted toreimburse us for it.
Speaker 2 (48:17):
Yeah, I think at this point government is running
amok.
I mean, when the legislativebody, which is supposed to have
the power over that kind ofstuff, is told basically to go
pound sand, that's a problem.
I mean, that's the thing BradADO just basically told the
(48:37):
legislature.
You can't tell me what to do.
We're going to spend this,whether you think it's a good
idea or not.
We're going to spend this,whether they said they were
going to shut down or not.
And I mean the lunatics areliterally running the asylum at
that point.
Speaker 1 (48:51):
Yeah, we've got a second government going on,
essentially, michael, I meanwe've got it's smaller than the
big government, but but we'vegot a second government going on
over at ADA in terms of, interms of money.
I mean, they've beenappropriated money over time for
certain projects.
When they when and they investin those projects or they lend
(49:11):
money to those projects, andwhen those projects are
producing cash back, whenthey're either paying off their
loans or they're producing cashback on the investment, ada is
the one that gets the money,because it's ADA that made the
investment right.
The contemplation, I think, wasthat ADA would then dividend
the money, dividend the earningsthat they're making off of
(49:34):
state money back to back to thegovernment and reduce the amount
that we need for, uh, thegeneral fund.
But that's not how that's out.
It's not how it's operated inpractice.
They just just kept a wholebunch of the money.
It's dividended some back togovernment, sort of to keep
government off its back.
Oh look, here's a shiny new toy.
We just dividended you $25million or something.
(49:56):
Don't pay attention to theother $500 million.
We got stored in the back roomover here.
Here's $25 million.
Aren't we good boys?
Aren't we doing a good job andby creating this cash pile or
creating this asset pile thatthey've got stored in the stored
in the back room, they're ableto do stuff like this.
They're able to tell the Senateto go pound, tell the
(50:19):
legislature to go pound sandwhen the legislature's you know,
evaluating whether or not tocontinue to fund AGDC, I you
know it makes you want to say,all right, Aida, dividend all
the money.
Here's a statute or here's theappropriation.
Dividend all the money back.
We'll decide going forward.
We can't trust you anymore.
We'll decide going forward whenwe give you money for certain
(50:39):
projects and we'll includeprovisions that say, if you earn
money off those projects, giveit back to us.
Speaker 2 (50:44):
And isn't board authority?
I mean AGDC isn't their boardauthority in part through the
legislature?
I mean AGDC isn't their boardauthority in part through the
legislature?
I mean shouldn't they be ableto say you said you were going
to shut down, so shut down.
I mean, especially with thesesalaries of 400 million, 400,000
a year for some of the topexecutives?
I mean it's just.
I mean it's, it's nutty, thatthat's uh, that that's what's
(51:05):
going on.
And yet they're just like no,we're just going to keep going
on.
Speaker 1 (51:09):
Yeah, I, you can't trust the AGDC board anymore
anymore.
I mean, they send you a letterthat says we're going to shut.
We hear you.
We hear you, senator, bishop,we're going to shut it down.
Uh, if we don't, if we don't,you know, meet these criteria by
the end of the year, get to theend of the year, have a method,
criteria, what, who sent thatletter?
What letter?
I mean, it's just, it's so.
(51:30):
You know, the board has nocredibility anymore.
The AGDC board has nocredibility anymore.
They didn't follow through onwhat they said they were going
to do.
The ADA board essentially istelling the legislature you know
, up yours.
We got our own money that we'vestashed over here.
We're going to do whatever thehell we want to, you know, and
(51:50):
up years, and the legislature isjust sort of sitting there
going take it all this and, youknow, letting the AGDC board
walk back from its letter andletting Ada, you know, keep the
cash pile over there instead oftransferring it back into the
general fund.
The general fund, I mean, it'dbe a one-time thing, but if you
want to solve a $500 million,$500 million revenue shortfall
(52:18):
dividend, the $500 million, that500 plus million dollars that
ADA's got sitting in its backroom.
Dividend that back into thegeneral fund.
Speaker 2 (52:22):
We've talked about that for years.
They should go through and theyshould sweep every account out
there in state government backinto the pot and then have a
conversation aboutreapportioning it out back out,
because there's millions,probably billions of dollars in
the various pots of money aroundthe state that had just been
squirreled away for years.
Speaker 1 (52:40):
Um, you know, whether it's pce or the ada or any
other fund, there's hundreds ofmillions of dollars out there
yep, yep, and, but, but, you,but, but you know, and, and, but
we just keep letting him go, wekeep letting Ada go ahead and,
you know, be its own governmentout there deciding what to
invest in and and, and.
Michael, it's just, it's, it'sjust sort of shocking.
(53:02):
I mean, we get a letter fromboard members.
We get a member.
We get a letter from thechairman of the board, from the
vice chairman of the board,signed by the secretary of
treasurer.
We get a letter that says thisOkay, fine, we got it.
We'll give you one more yearget it done, or or wrap it up.
And then you get to the end ofthe year.
There's not even any discussionof wrapping it up.
It's give us $50 million more.
(53:25):
so we can so we can, so we cankeep on going.
It's just I mean.
Speaker 2 (53:29):
Fool me once.
You know.
Yada, yada, Fool me the 17thtime.
We got a problem and that'skind of where we are right now.
Final thoughts on everythingfrom this week.
Brad, Last 90 seconds here, orso.
Speaker 1 (53:42):
Rob Yunt is my personal most appreciated
legislator right now.
He's the most realistic uhlegislator that we've got on the
conservative side and hestepped up and and recognized
that yes, we got a problem andyes, we've got to find better
ways, more equitable, lowerimpact ways to to solve the
(54:05):
problem.
So some of these other guys thepermanent permanent fund board
I'm just shaking my head, uh,paying $880 million out in, uh
in management fees the, the AGDCand the ADA boards I'm just
shaking my head.
But Rob Young, rob Young'sgoing down the right track and I
and I and I I want to commendhim for the proposal he's made
(54:25):
to try to get us back on theright track, at least taking the
first step to get us back onthe right track of more
equitable, lower impact revenues.
Speaker 2 (54:35):
We're going to have to see what he has to say.
He's going to be on the programon Thursday to talk more about
it and we'll see if we can getsome more details on it.
Brad Keithley Alaskans forSustainable Budgets the weekly
top three.
It's not always pleasant, butit is always informative and
it's what we need to know.
Thank you, brad, for coming onboard, as always.
Michael, as always, thanks forhaving me Appreciate you coming.
(54:57):
My friend, stay safe and enjoythe music wherever you're going.
I know you're going somewherehere eventually.
Thanks for coming on board.
Speaker 1 (55:06):
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
for Sustainable Budgets.
(55:27):
We look forward to you joiningus again next week for the next
edition of the Weekly Top Three.
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