March 11, 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 March 10, 2025.
This week, our top 3 issues are these: 1) we review a recent, balanced look by the Alaska Beacon’s James Brooks at Alaska’s budget situation and the battle over #WhoPays (2:03); 2) we discuss the full on raid on the Permanent Fund corpus by the Senate Majority and how it’s being fueled by a poorly invested Permanent Fund (17:56); and 3) we explain how the #AKLNG project always looks great to newcomers … until they start looking under the hood at the economics (38:35).
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 three, the top three things on our
mind here at Alaskans forSustainable Budgets for the week
of March 10th 2025.
The weekly top three is aregular segment on the Michael
Dukes 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 a podcast of ourdiscussion following the show on
the Alaskans for SustainableBudgets Facebook, youtube,
(00:54):
soundcloud, spotify and Substackpages.
Also on the Alaskans forSustainable Budgets website, as
well as the project's page onnational 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
(01:15):
week, you can also follow andparticipate in the discussion
with us of these and otherissues affecting Alaska's fiscal
and economic condition byfollowing us on the Alaskans for
Sustainable Budgets Facebookpage and through our posts on
Twitter.
This week, our top three issuesare these First, we discuss a
(01:36):
balanced.
Look at Alaska's budgetsituation and the battle over
who pays.
Second, the full-on raid on thepermanent fund corpus and how
it's being fueled by a poorlyinvested permanent fund.
And third, we explain how theAKLNG project looks great until
(01:58):
you look at the economics.
And now let's join Michael.
Speaker 2 (02:03):
Brad Keithley, alaskans for Sustainable Budgets
.
The weekly top three Today issome good stuff, brad.
I mean there's some interestinginformation in there and I will
finally say that there is seemsto be some truth coming out.
You're going to start off herein the number one with a look at
(02:23):
Alaska's budget situation andthe battle over who pays, and it
starts off with what I think isa deep article finally.
Finally, from James Brooks atthe Alaska Beacon.
He takes a look at this andsays, hey, we got some problems
here, so let's get started there.
Speaker 1 (02:40):
Let's see what you have to say there well, I I
complain a lot about jamesbrooks on various shows about
his failure to use or recognizethis fact or that fact, but he's
he's written an article inyesterday's alaska beacon,
because yesterday's yep, uh, thetitle of it is as alaska
(03:02):
legislature tackles educationfunding a bigger budget deficit
loops.
And the article is the title ofit is as Alaska Legislature
Tackles Education Funding ABigger Budget Deficit Loops.
And the article is really aboutis not so much about how do we
pay for education funding,although it's in part that it's.
Even if you set educationfunding aside, there's still a
big deficit and the question ishow are we going to pay for that
(03:24):
?
And for one of the few timesand for the first time recently,
I think James does a very goodjob of laying out all of the
various perspectives.
Now it may be becauselegislators are finally talking
about these perspectives.
James tends to write what hehears and so it may be that
(03:44):
legislators are talking aboutthese different issues more than
they have in the past.
He goes through the variousrevenue options that are on the
table the governor's proposedoverdraw or a draw into the CBR,
the tax, the oil tax proposalsthat are out there on the table
(04:07):
from Rob Young and from BillWilkowski and PFD cuts.
And this is what he says aboutPFD cuts.
And it's been a long time sinceI've seen James write this
about PFD cuts.
Significant numbers oflegislators he's talking about
75-, 25 and and talking aboutcutting further the andy
(04:27):
josephson proposal essentially,or the house proposal
essentially right to cut down tothe thousand dollar pfd um and
he says significant numbers oflawmakers say that's the
thousand dollar proposalunacceptably low.
Cutting the permanent funddividend has the same effect as
a regressive tax.
(04:48):
Same effect as a regressive taxMaybe that language will
satisfy Randy Same effect as aregressive tax.
It takes the same amount ofmoney away from a millionaire
and a six-month-old baby.
And that's the first time I'veseen James recognize the
regressive effect of PFD cuts.
(05:08):
So he goes through and he talksabout.
He talks about these various,you know, proposals on who pays
and I think has a veryreasonable, has a very reasoned,
balanced approach to it.
The other extreme you see allthese.
You see you're beginning to seea.
At the other extreme you seeall these, you see you're
beginning to see a bunch ofarticles about, about people
(05:29):
pushing back on them having topay.
So in must read, you can readarticles about how Senator
Yunt's proposal to nope wrong,wrong segment.
I didn't mean for that to bringyou up.
so sorry, go ahead I didn't meanfor that to bring up, so sorry,
go ahead, it's okay.
Uh, you, you can.
(05:49):
You can see you, you, in otherarticles.
In must read, for example, yousee articles about how bad
senator yunt's proposal tolevelize the petroleum
production tax again across allproducers, including hillcorp,
is, uh, and.
And how bad it is to to taxhillorp.
You see articles in Must Readpushing back on Wolakowski's
proposal to tax oil companies,to reform the tax on oil
(06:13):
companies, essentially to getback under SB21, back in the
coming decade, where we've beenin the past decade in terms of
share of the gross.
And then you see, I was stunnedby this one.
There was an op-ed in theJuneau Empire by none other than
Bill Corbus, who was FrankMurkowski's Department of
(06:35):
Revenue head and one of therichest men in Alaska.
Corbus took an opportunity inthe Juneau Empire to write a my
Turn, a community op-ed, and theheadline of it is it's time to
eliminate the permanent funddividend.
Speaker 2 (06:52):
We went over this one last week and it was well.
It was a blood sport when wediscussed it.
Speaker 1 (06:57):
Well.
So it's like, I mean, everybodyis now out trying to defend
their take by pushing the burdenoff on somebody else and it's
just sort of a free-for-all interms of the battle over who
pays.
It is encouraging and at thesame time we see continued
(07:21):
proposals to increase spending.
The K-12 revision is now $1,000BSA still way over more than
what we can afford based uponcurrent revenues.
And we see other articlescoming out with, you know,
conversations about how muchMedicaid the state share of
Medicaid is going to go up overthe next decade.
Everybody's sort of positioningthemselves for the next battle
(07:45):
over revenues.
But it is encouraging to seeyou know James, step in there
with a, with what I think is abalanced article about who pays
Now from here on out, it's goingto be.
It's going to be a push.
The Senate has essentially saidthey're not going to go into the
CBR.
The House has said they're notgoing to go into the CBR for a
(08:05):
CBR vote.
So you've got to close itsomehow and that's either going
to take PFD cuts in order todivert revenue that otherwise
would go to largely the middleand lower income Alaska families
into the budget.
Essentially how did James putit?
The same effect as a tax, todivert that revenue over into
(08:30):
the budget, or you're going tohave to do oil taxes.
That's what's on the table sofar.
Interestingly, we've not seen aresurrection of Ben Carpenter's
proposed sales tax, thesubstitute revenue source that
Ben talked about last session,and I think that's probably the
most effective tool in terms ofspreading the burden broadly.
(08:54):
And by spreading the burdenbroadly you reduce the impact on
everyone.
You have the biggest divisors,so you have the smallest
quotient as a result of that,and sales tax would also sort of
trigger everybody to get in thegame of pushing back on
(09:14):
spending.
The problem with the proposalscurrently on the table if you do
PFD cuts, the top 20%, the oilcompanies and the non-resident
industries don't care becausethey're not going to pay any
share of it.
If you do oil cuts Alaskafamilies most Alaska families
don't care because.
Or oil taxes most Alaskafamilies don't care because
(09:37):
you're taking it from the oilcompanies.
So we haven't yet gotten to thediscussion, I think, of
personal responsibility in thestate for a share of the
spending that a lot of peopleare pushing for.
Speaker 2 (09:51):
And that seems to be part of the trend here.
I mean the taxes that they'retalking about the Yunt tax, even
Wilkowski's tax, and then therewas another tax that was going
to tax online sales from onlinevendors outside so that's
outside as well.
So it's all these taxes thatare away, generally speaking,
from the public, so they don'tfeel the pinch.
I think it's kind of likethat's what they're focusing on.
(10:14):
They're not focusing onsomething that's broad-based and
would get people's attention.
Speaker 1 (10:18):
Yeah, everybody wants somebody else to pay, right I
mean.
So Bill Corbett wants middleand lower income Alaska families
to pay by wiping out the PFD,which, incidentally, would
essentially indemnify or protectCorbis from paying anything,
since he's one of the mostwealthy in the state.
(10:38):
Some people want oil companiesto pay more, and I think oil
companies should pay morebecause I don't think they're
paying what the Constitutionrequires, which is the maximum
yield.
But a lot of people say well,we just need to tax the oil
companies and that'll be thesolution.
So at this point everybody'strying to push the burden off on
(11:01):
somebody else, saying somebodyelse should pay and I think
James Brooks' article capturesthat well, although it doesn't
really put it in those terms butthe effort of most people to
try to push the burden off onsomebody else so they don't have
to be part of the solution.
But what we really need to getto at some point is a tax or a
(11:25):
revenue approach that createsincentives for everyone to push
back on spending.
Right now we've got a revenuesituation which encourages some
people to push back on spending,but it's largely middle and
lower income Alaska families whodon't have a lot of political
power, while the top 20% of theoil companies in the
(11:45):
non-resident industry sort ofget off the hook.
We need to be taught.
We need to start putting on thetable a revenue base, a revenue
approach that engages everyoneacross the board, from Natasha
all the way down to thesix-month-old baby that James
uses, and get everybody engagedin the process of pushing back
(12:09):
on spending, because it's goingto affect them if they don't.
And that may be too far astretch for this session, but
when you look at where thisbudget is going, when you look
at the trend lines, even takingK-12, the K-12 increase out of
the equation.
When you look at the trendlines where this is going, the
(12:33):
deficits get deeper and deeperand deeper, and deeper and
deeper.
And so we're going to have to betalking about that at some
point.
Speaker 2 (12:40):
And again I have to say kudos to James.
He talks about that that evenwith just holding the spending
from last year, we're in adeficit, and then he points out
that this fiscal year we're in adeficit $165 million, he said
even the lawmakers face a secondproblem.
In the current fiscal year, theone that ends on June 30, the
(13:00):
state is also running $165million deficit.
I mean this is hello, this hasbeen coming and we've been
saying it and just like all of asudden it's like everybody's
like oh wait, you mean this is.
You mean we're spending morethan we're taking in.
How is that?
When did that happen?
Right, I mean this is like allof a sudden.
It's shocking, I tell you,shocking.
Speaker 1 (13:22):
Yeah, it's like Gary Stevens at the beginning of the
session said well, I didn't knowwe had this budget problem.
Well, you could have seen itcoming if you just would have
looked at numbers.
And you can see it gettingdeeper and deeper and deeper.
We've got a.
I mean oil prices are trendingdown.
If you look at the futuresmarket, oil prices are trending
down significantly from wherethe fall revenue forecast had
(13:44):
them.
And if you watch that trend andwatch where oil prices are
going over the next decade or sonow what the futures market are
saying, I mean it just getseven deeper still.
But even if oil prices hung onto what the forecast, the fall
revenue forecast, even if theyhung on to that, we're still
heading for bigger and biggerdeficits.
(14:05):
I think what we're seeing isthe beginning of the who pays
thing, battle the war over whopays, but we're far from seeing
the end of it.
And I think we're only going tosee the end of it when we
create a revenue approach thatbroadly bases the revenue so
that everybody starts pushingback on spending.
Speaker 2 (14:27):
Anthony said this is a novel, legitimate question.
The PFD is probably cooked andtaxes are inevitable.
I know that MD and Brad areadvocating education and
preparing to ensure that thosetaxes are fair and regulated in
that scenario, but I'm genuinelycurious what mechanism could be
used to just not wind up.
The same people who've devouredthe PFD arbitrarily and
regularly increase those taxesto offset their preposterous
(14:49):
spending problems.
I feel like there's a lot ofmisplaced trust and faith in the
system happening here.
I feel like there's a lot ofmisplaced trust and faith in the
system happening here.
And Anthony's asking thequestion that I've asked Brad
for years that while I agreethat we need to have the
discussion, I don't want taxesBecause my fear has always been
that Parkinson's principle willrule supreme, which is, you know
, government spending will fillup to expend all the available
(15:10):
monies kind of thing.
So if we increase revenues byhaving taxes or anything else,
that they'll just be sucked up.
And, brad, you've had an answerfor this.
But the problem is it's twoparts.
You've got the tax part andthen you've got the spending cap
part and can you get them bothpassed at the same time?
That's part of the problem,right?
Speaker 1 (15:28):
Well, I think it's part of the problem.
It is part of the problem, butwhat incentives work?
Incentives work.
I mean, that's the economist'sanswer to virtually everything.
Create the right incentives,you'll have the right answer.
And the problem we have in thisstate is we don't have across
the board incentives to pushback on spending.
(15:50):
In fact, we have created asystem where we have incentives
to increase spending, incentivesamong some people to increase
spending.
By doing it through PFD cuts,you push the burden off on
middle and lower income Alaskafamilies have had a free ride in
(16:12):
terms of free government.
They haven't paid for the costsof government increased costs
of government in the case of oiltaxes, because we haven't
changed oil taxes since 2013.
They've had a free ride on theincreased costs of government.
They've pushed all that burdenoff on middle and lower income
Alaska families.
The only way you're going tostop this is to create
incentives on everybody to pushback, and to do that you have to
(16:37):
have a broad-based tax.
Ben Carpenter was exactly right.
You have to have a broad-basedtax to engage everyone in
pushing back on spending,because if they don't, they will
pay a share of it.
They will pay a share of it andas long as we keep going down
(17:00):
that road of not having a broadbased incentive to push back on
spending, particularly where theincentive to spend is on those
who have political power, upperincomes, oil companies and the
non-resident industries, as longas you have that type of
incentive system, we're going tohave increased spending.
I mean, we're going to talk inthe second segment about the new
(17:21):
place.
They're going to try to avoidhaving to pay for government.
They're just going to invadethe permanent fund corpus
themselves or the permanent fundcorpus itself and that will
continue their free ride, freegovernment that they don't have
to pay for.
We have to create theincentives for everybody to push
back.
Speaker 2 (17:39):
Well, and it has to be a holistic approach.
Again, that was the big thingthat the working group came out
with was that it has to be aholistic approach.
It can't just be one thing.
There's no single magic bullet.
It has to be a comprehensiveoverhaul and that's the one
thing that they apparently don'twant to do.
All right, brad Keithley,alaskans for Sustainable Budget,
is our guest.
(17:59):
We continue on with the weeklytop three.
Now Brad is about to tell usabout the full-blown, full-blown
attack and raid on thepermanent fund itself, which,
again, that was one of the firsttopics that I covered when I
started this show back in 1999.
(18:22):
That was one of the firsttopics that we covered because
at the time that was the firstattack on the POMV or on the on
the PFD with a POMV draw, andthey were talking about it back
then.
And I said the one thing thatthey want is they want access to
the corpus, and this was thefirst step.
Brad, they're saying the quietpart out loud now.
Speaker 1 (18:42):
Yeah, michael, there was a hearing last week at which
they had the permanent fundexecutive director and the
chairman of the permanent fundboard up to discuss the
permanent fund and the entirediscussion was around.
I mean, just to cut to thechase.
They put a lot of nice wordsaround it, but a lot of
(19:04):
discussion around how do we getat the permanent fund corpus?
The problem that they're facingis that the permanent fund is
not earning enough to fund thePOMV and, to James's credit, in
James Brooks's piece that wetalked about in the first
segment, he talks about thatalso that part of the problem
(19:25):
with the permanent fund is thatit's not generating enough money
to cover the POMV draw and sowhen they've got that situation,
it's not generating enoughmoney to cover the POMB draw.
Let me put a parenthetical inhere.
That's been helped along by the$8 billion raid that Burt
(19:46):
Stedman did of taking $8 billionan additional ad hoc $8 billion
out of the permanent fundearnings reserve and putting it
over in the corpus earlier inthis decade, earlier in the
2020s.
Burt did that and nobody everthinks about well, what if we
still have that $8 billion inthe earnings reserve?
But separate and aside fromthat, separate and, aside from
(20:08):
the $8 billion, the permanentfund is not earning enough money
to cover the POMV.
So the answer to that, theanswer to that's one of the
three things Reduce the amountyou're taking from the permanent
fund, reduce it down to whatthe permanent fund is actually
earning, or go in and look atwhat the permanent fund's
(20:30):
earning and look at whether theycould earn more.
We're going to talk about thatin just a second or.
The third is the easy step islet's eliminate this barrier to
getting at the corpus that theConstitution creates by creating
the two separate accounts theearnings reserve and the
permanent fund corpus.
Let's eliminate that barrier sowe can just get inside the
(20:53):
permanent fund corpus.
Let's eliminate that barrier sowe can just get inside the
permanent fund corpus.
And the proposal to go to mergethe two accounts together is
nothing more than a raid on thepermanent fund corpus.
You wouldn't need to merge thetwo accounts together if either
the permanent fund earning thepermanent fund was producing
enough to cover the POMB draw orif you were going to observe
(21:18):
the barrier created by thecurrent constitution.
But they don't want to do that.
They're now talking aboutraiding the permanent fund
corpus, the thing that I havetrouble with is it's not only
the Senate majority that has abill in to do that.
The Senate minority JamesKaufman, has proposed a bill
(21:39):
that was signed off on by all ofthe members of the minority.
Now I'm sure there'srationalizations and
explanations for why they'redoing that, but it's being taken
broadly as acquiescence by theSenate minority in the Senate
majority's proposal to raid thepermanent fund corpus, and
that's something that'ssurprising to me and something
that's troubling to me.
I mean Kaufman, I sort ofunderstand, because Kaufman came
(22:02):
out of the majority.
The only reason he went to theminority is because the majority
wouldn't put him on Senatefinance and he wanted to be on
Senate finance, so he shiftedover to the minority.
He's always had that.
He's always been a proponent ofusing permanent fund dividends,
cutting the permanent funddividends, and has been a
proponent of this sort ofmerging before.
I'm just surprised that theother members of the Senate
(22:23):
minority agree to that.
But let's step beyond that for asecond.
Let's talk about what thepermanent fund is earning.
I did a column last Friday witha lot of help, with a lot of
input from others, a column lastFriday that looked at what the
permanent fund would be if we'dinvested it differently than the
(22:44):
permanent fund invested.
And, michael, if you can putthat chart up, that would
probably help at this point.
Here we go.
So what I did in the column isI went back to FY20, the
beginning of FY20, which is July1st 2019.
And I tracked what thepermanent fund did in terms of
growth and it's in the blue,it's the bottom line and that's
(23:07):
what the permanent fund thefirst of year, the end of year,
amounts of the permanent fundhave been.
Balances of the permanent fundhave been since FY20.
And then I went back and I said, okay, so what if the permanent
fund had invested instead ofhow it invested, with all of
those fees?
It's running $880 million inannual fees most recently.
(23:30):
Instead of all those fees, whatif the permanent fund had just
put all the money into anexchange-traded fund, an ETF,
and put it into the S&P 500?
Now the S&P 500 goes up andgoes down.
It's a lot more variable thanwhat the permanent fund's
invested in.
But let's just go look at whatwould have happened and the red
line is what the balances of thepermanent fund at the end of
(23:53):
the year, at the same point asthe balances we've got for the
blue line.
The red line is what thebalance of the permanent fund
would have been in all the yearssince subsequent, since FY20,
if we just invested all of it inS&P futures and you can see
that the value of the permanentfund would have skyrocketed.
Value of the permanent fundwould have skyrocketed under
(24:14):
that alternative investmentapproach when we get to January
30, 2025, the permanent fund, asit has been invested over this
period, has a balance of $80billion.
If it had been invested in S&P500 ETF since FY20, the balance
(24:43):
would be $118 billion.
The difference in the POMV 5%draw would have been significant
, would have been about abillion dollars by now and going
forward.
So you can see that there arealternative ways of investing
the permanent fund that producesmuch higher returns than what
the PFC is producing, what thecurrent approach is producing.
(25:03):
Why are they doing it this way?
Why are they doing it the waythey're doing it?
Well, they will tell you,they're doing it to mitigate
risk.
You can see that the S&Pbounces around.
So in FY 2021, it was $67billion.
It would have been $67 billion.
In FY 2022, it would have been$91 billion.
In FY 2023, it would have beenback to $79 billion and then it
(25:24):
grows from there.
But it has a high variation.
The way the permanent fundinvests.
They don't have those sorts ofhighs.
They don't have those sorts oflows and they will tell you that
they're investing to sort ofkeep it even.
But you can see that under thatinvestment approach they've got
(25:44):
a levelized line from FY23 on,while the S&P is climbing
rapidly.
I'm not entirely advocating, orI'm not solely advocating,
investing in the S&P 500 as away of, or ETF funds that look
like the S&P 500.
I'm not saying that's the onlyway you could do it, but what
(26:07):
I'm suggesting is there are waysyou could do a lot better than
what the permanent fundcorporation is doing.
So, rather than pushing back onthat and saying, wait, are you
guys investing this the rightway?
You're not earning enough tocover the POMB draw.
That's a big deal.
That's a big issue to us,because we're relying on the.
We, the legislature, arerelying on the POMB draw.
(26:28):
So we need to wipe out thebarrier between the earnings
reserve and the permanent fundso we can get at the corpus and
keep our 5% draw, instead ofsaying that they could be saying
and they should be saying wait,are you guys investing this
right?
I mean, you're investing it ina way that produces a steady
(26:51):
state of return, sort offlatlines the return, but you're
not producing it in a way thatgrows the fund and would grow
the POMV draw and would lessenour revenue problems elsewhere
by doing that.
Performing is a big issue thatwe need to be taking on rather
than trying to separate the wallbetween the earnings reserve
(27:26):
and the corpus.
I want to read one comment thatI got in response and this was a
comment to the column that saidthis is what investing in the
S&P did.
The comment was Nevada.
The Nevada PERS, the NevadaState Retirement System, does
(27:49):
just this.
It invests in the red line.
They have a total of twoemployees and they simply invest
in broad, low-cost stock andbond indices.
Net of fees, they blow mostpublic investment houses out of
the water.
Getting fancy with alternativeinvestments, as the permanent
fund has done, comes with highfees and the need for $300,000
(28:12):
plus employees to manage it all.
You really need to be beatingthe market significantly to
justify those fees.
That missing $38 billion andhe's talking about the gap
between the red and the bluethat missing $38 billion will be
producing about an extra 2billion per year from the POMV.
It's actually about a billion.
(28:33):
It grows over time but it'sactually about a billion
currently.
But it's not like no one elsedoes this.
I mean, there are other stateinvestment houses that do
exactly this.
They don't try to beat themarket, they don't pay a lot of
fees, they don't hire a bunch ofexpensive people.
They invest in a broad-basedmarket measure and ride the
(28:58):
curve.
And sometimes the curve goes up, as it did with the S&P between
FY21 and FY22.
And sometimes the curve goesdown.
The wave goes down, as it didbetween FY22 and FY23.
But on the whole it'sperforming better and Nevada's
performing better as a result ofthat, performing much better
than the permanent fundcorporation is doing, pushing
(29:19):
not rating the corpus, notnecessarily lowering the return,
as others are pushing tomaintain to match what we're
(29:40):
taking out of the permanent fundwith what the permanent fund's
earning.
But I think looking at what thepermanent fund corporation
itself is doing is where weought to be focusing a lot of
attention, because even thisrudimentary look at comparing it
to the S&P 500 shows you thatit's flatlining at a time that
other parts of the market aregrowing significantly.
Speaker 2 (30:02):
Well, and in fact, these market indices, although
they do swing harder than thepermanent fund does, the trend
line is still always up.
I mean, the permanent fund tookthe same dip in the 22 to 23
year.
It just took a smaller dip, butit also means that the growth
is much smaller and if you lookat the overall growth of the
(30:23):
indices versus what thepermanent fund has been doing,
it's still a net gain.
I mean, that's the thing, it'sthe net gain in the long run.
Why aren't we looking at thatinstead of well, we want to
equal it.
We're getting no growth andwe're essentially been sitting
at $80 billion for the last twoor three years, I mean, and
competing funds are $35, $38billion more.
(30:47):
Who at the permanent fund isnot going?
Well, we should be doingsomething, is it just?
I'm making $300,000 a year tomake this flat line, so that's
OK.
I mean, what's going on?
Speaker 1 (30:57):
They've got, they've gotten?
I think?
I think the answer is thepermanent fund corporation has
gotten into a bureaucracy, amindset of a bureaucracy.
We have all these advisors,because then we can't be blamed
for something going wrong.
We have all these advisors toadvisors to tell us what we're
doing.
And then and then, becausewe're investing in all these, in
(31:20):
all these private equity deals,we need, we need to hire
expensive people to look afterthe private equity deals, make
sure somebody is not ripping itoff, ripping us off.
And after you do all that,you've got, you've got a huge
cost base and then you've got,you've got people invested in
that cost base.
Well, you know, johnny's myfriend, he's an advisor.
I don't want to, I don't wantto, I don't want to cut him, or
I don't want to cut my salaryand I don't want to have to cut.
You know the number of peoplethat we employ at the, at the
permanent fund corporation, thenumber of people we've we've
(31:42):
built up over time, and we havea board that doesn't understand
any of this.
We have a board that's made upof politicians.
I mean, governor Dunleavy justdid it again by appointing John
Binkley to the board.
John Binkley is a nice guydeserves to be in the Alaska
Business Hall of Fame, but he'snot an investment guy, right and
and and a market investment guy, and so we have all these
(32:04):
people on the board, none ofwhom really understand this
stuff.
So I think I think we've sort ofcreated, you know, if you talk
about your bureaucracies andbureaucratic sticking the mud,
that's what we've got at thePermanent Fund Corporation now,
and rather than diving into thatand saying we ought to be doing
(32:25):
this a lot differently, ratherthan diving into that, what the
Senate majority, followed by theSenate minority, are doing is
saying, eh well, that's where weare.
So let's just take down thiswall between the earnings
reserve and the corpus and goafter the corpus.
What?
Speaker 2 (32:41):
we have here is a failure of leadership for
somebody to say whoa, whoa, whoa, wait a second.
This doesn't make any sense.
Why aren't we just looking atthe indices and going from there
?
Bruce Tangeman is in the chatroom.
He says please clarify Brad.
From there, bruce Tangeman isin the chat room.
He says please clarify Brad.
I believe the Senate majorityplan is to sweep the statutorily
protected ERA into theConstitution-protected corpus,
(33:02):
thereby taking it completely offthe table from raids.
Why are you falsely claiming itwill be raided?
It will all be underconstitutional protection.
Speaker 1 (33:12):
It's already constitutionally protected,
bruce Constitutionally protectedfrom having taken out of it any
more than what's in theearnings reserve.
What the proposal on the tableis is to combine the two
accounts together and allow the5% draw to continue, which
necessarily will take a portionof it out of the old corpus.
(33:34):
So it's already constitutionallyprotected.
We don't need constitutionalprotection.
We've already got that with theearnings reserve.
The earnings reserve is a hardstop If the permanent fund
doesn't earn any more, If itdoesn't earn enough to cover
what's being taken out of it,then you don't get to take any
(33:54):
more.
There's a constitutionalprotection there.
What's on the table is theproposal to merge the two and
allow access to what's now inthe corpus in order to continue
the 5% draw.
Speaker 2 (34:08):
My understanding of the proposal is that the
percentage of the draw is set bystatute, that it's
constitutionally protected andthat it's held to the POMV
amount, but that the amountcould be varied by statute
instead of by constitutionalamendment, because it's got to
have a one-time constitutionalamendment to allow them to have
(34:29):
access to it, and so that is thebig problem.
They could say 5% today, buttomorrow it could be 6% or 5.5%
or 7% or whatever we decide.
Speaker 1 (34:41):
In fairness, the constitutional provision that
the Senate Majority has talkedabout includes 5% as a cap on
what could be taken out of thecombined account, but the
problem is it allows takingadditional amounts more than
what the permanent fund isearning.
So if the permanent fund onlyearned four or three or two, it
(35:05):
would still allow thelegislature to take out five out
of the permanent fund andinvade what's now in the in the
corpus in order to make up thatdifference right and and the and
.
Speaker 2 (35:19):
yes, that's bruce just said.
But the era is notconstitutionally protected,
hence the raids and overdraw.
But see, that's the thing, it'sa hard stop.
You can only take what's in it.
So if there's only three and ahalf percent worth in the era at
the time, that's all you get.
Three and a half percent worthin the ERA at the time, that's
all you get.
Three and a half percent, boom,you're done.
Stop, full stop.
You can't go into the corpus.
That is the firewall, and whatthey're proposing is removing
(35:42):
the firewall.
So if there's only three and ahalf percent in what would be
the ERA and they have their newplan, they could draw that extra
one and a half percent out ofthe corpus of the fund.
And that could happen yearafter year after year and pretty
soon you've eaten the seed corn, you've killed the golden goose
.
That's laying the egg.
That's the problem, bruce, andthat's always been.
My fear is that somehow theywould get their tentacles into
(36:05):
the corpus of the fund, andthat's what many politicians
have wanted for years.
Speaker 1 (36:13):
Yeah, we did a column , oh, maybe a couple of years
ago when this proposal was firstgaining traction, and looked at
what the effect of taking 5%while the fund was only earning
4% over an extended period oftime was.
And it's clear, I mean the fund, the corpus of the fund, keeps
going down and down and downbecause you're taking more out
of the corpus or you're takingmore out of the permanent fund
(36:35):
than it's generating.
That's the problem we've gotnow.
I mean James Brooks is right inthe article the problem we have
now is the permanent fund isnot generating enough to fund
the POMV draw.
It's exacerbated by that $8billion ad hoc draw that Burt
took earlier, but it's notgenerating enough to cover the
POMB draw.
(37:07):
And the earnings reserveprotects you in that situation
by saying the currentconstitutional provision
protects you in that situationby saying well, you're only
earning four when you drain theERA, that's it Hard stop, can't
do any more, you can't go intothe corpus to get your extra
extra one percent.
What the proposal at the Senatemajority is pushing is it says
you know you get five percent nomatter what, so you can keep
going in, you can go into thecorpus to get that additional
percent it removes.
The protection, that's theconstitutional protection, is
(37:28):
currently embedded in theConstitution.
The constitutional protectionis currently embedded in the
Constitution.
Speaker 2 (37:32):
Bruce says that is a problem.
If that's their true intention,that would certainly not be an
endowment fund such as theHarvard.
But again, you don't have tolook at their true intention.
Look at their past history,bruce.
That's the problem.
Look at their historicals.
Past performance is indicativeof future results.
They have spent every dimeavailable to them.
(37:53):
And if they had?
Well, look, we got to do it.
We got to do it Because so it'snot just their intention, it
doesn't have to even beintentional, it just means
that's situational, becausethat's what they've done every
time for the last 15 years.
Brad.
Speaker 1 (38:10):
And well, we build up this cost structure, this
spending structure that has tobe fed.
So you're going to get to thepoint where you're only
producing 4% earnings and thechoice is either you take 5%,
which the constitution wouldthen permit you, or you tax
people.
What they're going to do istake the 5%, and that's what
they're setting up the abilityto continue to do by eliminating
(38:30):
the firewall.
That's what they're setting upthe ability to continue to do by
eliminating the firewall that'scurrently existing between the
corpus and the earnings reserve.
Speaker 2 (38:36):
All right, brad Keithley Alaskans for
Sustainable Budgets the weeklytop three.
We continue now.
Number three AK LNG is greatsort of, as long as you don't
look under the covers, right,brad?
Yeah, that's the deal.
Speaker 1 (38:51):
There was a lot, there's been a lot of press
about, uh, president trump's uhcomment about the ak lng, the
alaska lng project, uh, in hisuh address to congress, uh, last
week.
There's a little bit been a lotof follow-on in terms of terms
of comments by, particularly,senator sullivan, governor
dunleavy and others about, oh mygosh, we're on the way, we're
(39:14):
rolling right there, and you hadsome comments out of
representatives of Korea andJapan and even Taiwan, people
that President Trump is tryingto direct this project, market
this project too.
About, oh, yeah, we'reinterested in that.
But here's the deal with HAL&Gand here's the deal you know,
(39:40):
since the very beginning of theproject, back when we realized
there was gas in conjunctionwith the oil that's coming out
of Prudhoe Bay and the questionwas raised how are we going to
market the gas?
Here's the problem with it.
Every time you look under thehood of how you would do this
(40:01):
and the costs involved and theterm involved, the term of
commitment you would have tomake to the project, with those
costs to be able to do theproject, people go whoa, whoa.
I didn't understand that.
I mean, I didn't realize I wasgoing to have to invest 40, 60,
(40:22):
whatever the heck the number isat any given day a billion
dollars to build this project.
I didn't realize I wasn't goingto get gas out of it or LNG out
of it for five years.
I didn't realize I was going tohave to make a 20 or 25 year
commitment to amortize all ofthe costs in order to make this
project go.
So what you're hearing of Taiwanand Korea and Japan is the
(40:47):
response to a statement byPresident Trump or others.
Hey, we got this great projectup in Alaska.
We need to build a longpipeline.
We need a lot of investment todo that, but when we get down to
Tidewater, the price will bevery competitive with what's
going on in the world and we'llsell it to you at a competitive
price.
So we need you to help usinvest in this project.
(41:10):
You'll get LNG out of it,you'll help our balance of trade
in Trump's world, you'll helpour balance of trade and you'll
get a competitive product out ofit.
And so Japan and Korea andTaiwan listening to that sales
pitch go.
Yeah, it makes prettyreasonable.
I get a competitive price.
You're promising me acompetitive price, a long-term
competitive price, because Ihave to stay with this thing for
(41:33):
20, 25 years.
You're promising me a long-termcompetitive price and it's on
the Pacific Ocean and it's nearwhere I am and I get to make you
happy, I get to make PresidentTrump happy.
So yeah, heck, yes, I'minterested in that.
Let's do that.
Let's go down the road on that.
Let's do that, let's go downthe road on that.
(41:59):
Here's what happens.
That's what happened every timesince the 1970s when we
realized we had a bunch of gasup at Prudhoe investment.
You have to make you startlooking at the period of time
over which you have to commit tocontinue to buy this stuff at
the price, because it's a fixedprice.
It's a fixed price.
I mean, you sunk the costs intothe pipeline.
(42:22):
It's not the variable cost ofthe gas that's the big driver
for the Alaska pipeline, it'sthe fixed cost of the pipeline.
So you've sunk the costs intothe pipeline.
You have to make this long-termcommitment.
And then you look at what'sgoing on in the rest of the
world in terms of LNGdevelopment and you go wait a
second, this is not a reallygood deal.
And you sort of start backingaway from it and saying, well,
(42:49):
we're going to study it somemore or we're going to start a
task force or we're going to puttogether a consortium to really
look at this thing hard and youstart looking at ways to sort
of weasel out of your beginningdiscussion of making a
commitment to it.
And that's the history withthis project and it's going to
(43:12):
continue to be the history withthis project.
You know we talk now about itbeing a $40 billion project or a
$45 billion project With thetariffs that the president has
slapped on steel from othercountries and the higher cost of
steel that you have in the US,not to mention I don't think we
have a US plant that rolls pipein the size that we're talking
(43:36):
about, the 48-inch pipe of thesize that we're talking about
for the AK LNG project.
With the tariffs you've slappedon, with the increased costs
that are the cost inflationthat's gone on in the industry
as a result of a bunch of peoplebuilding LNG plants.
There's only so manyspecialists, there's only so
much supply of capability ofbuilding LNG plants and now
(43:57):
we've got a huge number of LNGplants being built, so we have a
strain on that supply of beingable to build the construction
supply to be able to build it,and so we're having rising costs
going on with thoseconstruction costs.
Once you look under the hoodyou see it's not going to be $40
billion.
It's probably going to becloser to $50 or $60 billion,
going back to its old coststructure.
(44:18):
And then you look at so what amI getting out of this?
Trump has a four-year term.
He wants me to commit to it now, but this is going to roll into
the president after that, thepresident after him and the
president after that, presidentafter that, president after that
, and they may do things thatmake this a lot more costly or a
(44:40):
lot less commerciallyattractive than what President
Trump is suggesting it is.
And really all I have to do issort of wait out his four-year
term and get to another term,another president, and talk
about other things, becauseother things will be important
to them.
Alaska won't be important tothem.
So, yes, a lot of discussionabout it.
(45:02):
Now, it's great the presidentbrought it up.
It's great you have all thesepeople talking about it, people
talking about it.
But I've been there for a longtime.
Once you look under the hoodand once you see the economics
of this thing, you start backingoff and you start making
excuses about well, I just needto study it a little bit more,
or we need to have a new costprojection before I really
(45:25):
commit to this.
Or I don't want to commit for20 years, I want to commit for
10 years and all of a suddenthat blows the economics out of
the water.
Speaker 2 (45:33):
Well, they can say all the right things, right,
they can make all the rightnoises for the next couple,
three, four years, and then allof a sudden it's over, because
this is a long tail situation.
It's not like they're going tobuild it in the next two years.
Even if the federal governmentdecided to pony up the upwards
of $80 billion that I think thepipeline would probably cost,
(45:57):
it's not going to be built inthat timeframe.
So they can keep making all theright noises and basically
assuage Trump in the short term,but will they stick with it?
And that's always been theproblem with the gas.
We all want the gas, we allwant to be able to use it, we
all want to be able to burn it,but the economics, the
financials, just don't work.
Uh, and that's been the wholeproblem the whole time.
Speaker 1 (46:16):
Yeah, and a lot of it , michael is, is is the way.
There's a huge differencebetween the Alaska project and
the projects on the on the U?
S Gulf coast or the projects inMozambique or or elsewhere, the
projects in Qatar, elsewherearound the world.
And that is it takes a hugepipeline to get the gas from the
(46:38):
North Slope down to Tidewater,down to the gasification plant,
and what that means is the sunkcost.
The fixed cost component of theAlaska project is a lot higher
than all the tidewater projects.
The tidewater projects can varytheir price because they can
(46:59):
keep going up and down dependingupon what the gas cost is or
the gas price is, and they havea lot more flexibility than
Alaska does.
Alaska, it may be a competitiveprice today, but if Qatar puts
on another project and decidesto cut the price because they'll
just take less for their gas inthe project they don't have
that much fixed cost They'lljust take less for the gas All
(47:20):
of a sudden the Alaska projectbecomes a lot less competitive
and Alaska can't cut its pricebecause most of that price is
built on fixed costs.
Speaker 2 (47:29):
You know, I mean I know that there's a lot of
positivity.
People are excited.
Maybe the president will dothis as a nationalized national
security deal, Maybe they'll putit.
But again, the problem is,unless we've got people, unless
you've got somebody locked inand who wants to be locked in
for 25 years, it's going to bean issue.
(47:51):
I would love to see it.
I mean, that's the thing Idon't mean.
Henry's in here, like you guysare always poo-pooing.
No, look, it's the economics ofit, Henry.
I'd love to be burning naturalgas from Alaska right now.
I would love to do that.
But you just can't make ithappen.
On the metrics, Somebody's gotto pay for it and if it's 80%
(48:12):
subsidized and delivered at 30%over market value, do you want
to pay 30% more and have all themoney that was paid for 80% of
it coming from the government?
I mean it just doesn't work,Brad.
Speaker 1 (48:25):
Final thoughts here.
Well, it does.
I mean the economics don't work.
I mean, yeah, maybe thegovernment, maybe the federal
government builds it as anational security, sort of like
you build an army base or youbuild ice-breaking tankers and
cost is sort of irrelevant tothem and they will commit to.
You know, maybe they'll committo sell it at the world price,
they'll sell it on an index asopposed to what the cost is
(48:47):
they've incurred, and thefederal government decides to
take the hit.
Yeah, maybe that happens.
But in an environment where thenation's already hugely in debt
and we're trying to cut down onspending, you think there's
going to be a huge wave ofsupport in the other states for
(49:09):
a federal of $50 billion or $60billion, or maybe, if the
federal government builds it,$80 billion, as you suggest,
boondoggle, I doubt it.
I doubt it.
It's always great in concept.
I mean, I remember the firsttime it was great in concept.
(49:30):
Yes, we're going to build anLNG line, and yes, it's going to
be economic.
And yes, we're going to buildan LNG line, and yes, it's going
to it's going to be economic,and yes, it's going to be great.
It was, it was great in concept, but then then you get under
the hood and you start facing upto the cost, you start facing
up to the term that people haveto commit to those costs, to
that, to that economic structure.
Um, and it's just, it's just,it's just a bridge too far for
(49:56):
those who are concerned aboutthe economics to cross.
Speaker 2 (49:59):
Well, we're going to watch what happens, but again,
I'm not holding my breath.
That's the thing Bruce says.
Bingo, that's the AGDC's goldenticket.
In their mind, price doesn'tmatter.
Now, right, they're going totag it to some kind of index and
say you're just going to paythis flat rate and the
government will pay for it, andyada, yada, yada, and they will
all be vindicated.
The problem is that there'sstill reality.
(50:21):
And again, he only has fouryears and this project would not
be done in four years.
There's just no way.
Speaker 1 (50:28):
You can easily see people making these commitments
and slow walking theimplementation of the
commitments.
But we need a lot of studiesbefore we go down this road.
Yeah, slow walking theimplementation of these
commitments and then at the endof the four-year term, you know
Trump's no longer there, thetariff threats are no longer
there.
Yeah Well, it was a good ideaat the time and I've just seen
(50:50):
that go on time and time andtime and time again.
Speaker 2 (50:53):
Yeah, rob makes an interesting point, which is why
I think it's going to be $80billion.
He said, assuming the $44billion price tag from 2016,.
Just adjusting for inflationputs it at $59 billion.
That's not even counting theincreased price of steel.
So, yeah, I mean that's like Isaid.
I think it's closer to 80billion dollars by the time
you're all said and done.
And what state out there isgoing to say Alaska with only
(51:15):
700?
Why would we spend 80 billiondollars there?
Right, I mean again, even if itwas a national security issue,
even like that.
You know, like we talked aboutthe those pipelines on the East
Coast that were built duringWorld War Two because they
weren't economically feasibleand federal government built
(51:36):
them because they had a need.
But we're not at war.
It's a harder sell than youknow.
We're facing Nazi domination orJapanese imperialism, and so we
have to do it.
We're not facing any of thosethings right now, so it's a much
harder sell.
Speaker 1 (51:47):
And the other thing, michael, is, once we start down
that road, once we say, okay,we're going to have a federal
government subsidized Alaskapipeline or Alaska LNG project,
the senator from Louisiana, billCassidy, is going to say, well,
what about my projects?
I'm building LNG projects here.
Why don't I get federalsubsidies?
Or the Texas people, they'rebuilding LNG projects, why don't
(52:09):
we get federal subsidies?
I mean, you start going downand again I've seen this time
and time and time again you juststart going down these rabbit
trails and you get to the end.
You're just exhausted and yourealize this project is just not
economic.
I mean, it's great in theorybut it's just not economic.
Speaker 2 (52:27):
Once you put all the pieces together, and I think
Henry is encapsulating thefeeling of a lot of Alaskans who
don't understand the metrics.
Go ahead and keep propaganda tonot ever build or use our own
gas.
If not now, then when?
Drill, baby drill, build thatpipeline, transport that LNG all
over to Alaska to provide cheapheat, hot water, dry clothes,
cook and power off-road vehicles.
Wake up and stop disparagingSupport.
I can support it all I want,henry.
(52:48):
I can't build it myself.
You can't build it yourself.
You've got to get the beancounters involved and the bean
counters will look at it andthey will laugh you out of the
room because it's not economicalas much as we want Alaska gas.
For all the reasons you justlaid out, it's not economically.
Speaker 1 (53:12):
I don't know how to tell you about the economics of
that more.
If you don't understand thatthe economics don't work, I
don't know what else to tell you.
I mean, it's just it.
Just, it's a lot of money and alot of commitment, a lot of
long-term commitment, and thereare just better opportunities
out there in the world.
Speaker 2 (53:23):
Yeah, I mean the better way to do this.
At this point I think I agreewith Rob.
I mean Rob's put that proposalin for a resolution to get an
exemption to the Jones Act, toget a waiver for the Jones Act
for Alaska, for LNG tankers only.
That would be one way to do itto get it done in the short term
.
But nobody seems to beinterested in that either.
Nobody wants their ox to begored.
(53:44):
They don't want to give anexemption to the Jones Act to
Alaska.
They're making money.
Why would they want?
I mean, it's a whole thing.
It's a whole whole thing.
All right, brad.
Um, final thoughts here, realquick, 30 seconds.
Speaker 1 (53:57):
Well, michael, uh, uh .
I guess the the Chinese proverb.
May we live in interestingtimes.
We're certainly doing that.
Um, I think that I think we'regoing to see a huge fight the
rest of the session about whopays.
Uh, and the battle over whopays, and I'm going to be there
with my popcorn watching.
Speaker 2 (54:15):
Yeah, exactly, exactly.
We're going to watch Rome burn.
We'll be fiddling while Rome isburning at this point, because
I just don't see any other way.
Brad, thank you so much.
Good to talk with you.
We'll see you next week.
Speaker 1 (54:26):
Michael, as always, thanks for having me.
Well, that's a wrap for anotherweek's edition of the Weekly
Top Three from Alaskans forSustainable Budgets.
Thank you again for joining us.
Remember that you can find pastepisodes on our YouTube,
SoundCloud, Spotify and Substackpages, and keep track of us
during the week on Facebook andTwitter.
This has been Brad Keithley,Managing Director of Alaskans
(54:49):
for Sustainable Budgets.
We look forward to you joiningus again next week for the next
edition of the Weekly Top Three.
Hi, this is Brad Keithley, managing Director of
Alaskans for Sustainable Budgets.
Welcome to the weekly top three, the top three things on our
mind here at Alaskans forSustainable Budgets for the week
of March 10th 2025.
The weekly top three is aregular segment on the Michael
Dukes 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 a podcast of ourdiscussion following the show on
the Alaskans for SustainableBudgets Facebook, youtube,
(00:54):
soundcloud, spotify and Substackpages.
Also on the Alaskans forSustainable Budgets website, as
well as the project's page onnational 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
(01:15):
week, you can also follow andparticipate in the discussion
with us of these and otherissues affecting Alaska's fiscal
and economic condition byfollowing us on the Alaskans for
Sustainable Budgets Facebookpage and through our posts on
Twitter.
This week, our top three issuesare these First, we discuss a
(01:36):
balanced.
Look at Alaska's budgetsituation and the battle over
who pays.
Second, the full-on raid on thepermanent fund corpus and how
it's being fueled by a poorlyinvested permanent fund.
And third, we explain how theAKLNG project looks great until
(01:58):
you look at the economics.
And now let's join Michael.
Speaker 2 (02:03):
Brad Keithley, alaskans for Sustainable Budgets
.
The weekly top three Today issome good stuff, brad.
I mean there's some interestinginformation in there and I will
finally say that there is seemsto be some truth coming out.
You're going to start off herein the number one with a look at
(02:23):
Alaska's budget situation andthe battle over who pays, and it
starts off with what I think isa deep article finally.
Finally, from James Brooks atthe Alaska Beacon.
He takes a look at this andsays, hey, we got some problems
here, so let's get started there.
Speaker 1 (02:40):
Let's see what you have to say there well, I I
complain a lot about jamesbrooks on various shows about
his failure to use or recognizethis fact or that fact, but he's
he's written an article inyesterday's alaska beacon,
because yesterday's yep, uh, thetitle of it is as alaska
(03:02):
legislature tackles educationfunding a bigger budget deficit
loops.
And the article is the title ofit is as Alaska Legislature
Tackles Education Funding ABigger Budget Deficit Loops.
And the article is really aboutis not so much about how do we
pay for education funding,although it's in part that it's.
Even if you set educationfunding aside, there's still a
big deficit and the question ishow are we going to pay for that
(03:24):
?
And for one of the few timesand for the first time recently,
I think James does a very goodjob of laying out all of the
various perspectives.
Now it may be becauselegislators are finally talking
about these perspectives.
James tends to write what hehears and so it may be that
(03:44):
legislators are talking aboutthese different issues more than
they have in the past.
He goes through the variousrevenue options that are on the
table the governor's proposedoverdraw or a draw into the CBR,
the tax, the oil tax proposalsthat are out there on the table
(04:07):
from Rob Young and from BillWilkowski and PFD cuts.
And this is what he says aboutPFD cuts.
And it's been a long time sinceI've seen James write this
about PFD cuts.
Significant numbers oflegislators he's talking about
75-, 25 and and talking aboutcutting further the andy
(04:27):
josephson proposal essentially,or the house proposal
essentially right to cut down tothe thousand dollar pfd um and
he says significant numbers oflawmakers say that's the
thousand dollar proposalunacceptably low.
Cutting the permanent funddividend has the same effect as
a regressive tax.
(04:48):
Same effect as a regressive taxMaybe that language will
satisfy Randy Same effect as aregressive tax.
It takes the same amount ofmoney away from a millionaire
and a six-month-old baby.
And that's the first time I'veseen James recognize the
regressive effect of PFD cuts.
(05:08):
So he goes through and he talksabout.
He talks about these various,you know, proposals on who pays
and I think has a veryreasonable, has a very reasoned,
balanced approach to it.
The other extreme you see allthese.
You see you're beginning to seea.
At the other extreme you seeall these, you see you're
beginning to see a bunch ofarticles about, about people
(05:29):
pushing back on them having topay.
So in must read, you can readarticles about how Senator
Yunt's proposal to nope wrong,wrong segment.
I didn't mean for that to bringyou up.
so sorry, go ahead I didn't meanfor that to bring up, so sorry,
go ahead, it's okay.
Uh, you, you can.
(05:49):
You can see you, you, in otherarticles.
In must read, for example, yousee articles about how bad
senator yunt's proposal tolevelize the petroleum
production tax again across allproducers, including hillcorp,
is, uh, and.
And how bad it is to to taxhillorp.
You see articles in Must Readpushing back on Wolakowski's
proposal to tax oil companies,to reform the tax on oil
(06:13):
companies, essentially to getback under SB21, back in the
coming decade, where we've beenin the past decade in terms of
share of the gross.
And then you see, I was stunnedby this one.
There was an op-ed in theJuneau Empire by none other than
Bill Corbus, who was FrankMurkowski's Department of
(06:35):
Revenue head and one of therichest men in Alaska.
Corbus took an opportunity inthe Juneau Empire to write a my
Turn, a community op-ed, and theheadline of it is it's time to
eliminate the permanent funddividend.
Speaker 2 (06:52):
We went over this one last week and it was well.
It was a blood sport when wediscussed it.
Speaker 1 (06:57):
Well.
So it's like, I mean, everybodyis now out trying to defend
their take by pushing the burdenoff on somebody else and it's
just sort of a free-for-all interms of the battle over who
pays.
It is encouraging and at thesame time we see continued
(07:21):
proposals to increase spending.
The K-12 revision is now $1,000BSA still way over more than
what we can afford based uponcurrent revenues.
And we see other articlescoming out with, you know,
conversations about how muchMedicaid the state share of
Medicaid is going to go up overthe next decade.
Everybody's sort of positioningthemselves for the next battle
(07:45):
over revenues.
But it is encouraging to seeyou know James, step in there
with a, with what I think is abalanced article about who pays
Now from here on out, it's goingto be.
It's going to be a push.
The Senate has essentially saidthey're not going to go into the
CBR.
The House has said they're notgoing to go into the CBR for a
(08:05):
CBR vote.
So you've got to close itsomehow and that's either going
to take PFD cuts in order todivert revenue that otherwise
would go to largely the middleand lower income Alaska families
into the budget.
Essentially how did James putit?
The same effect as a tax, todivert that revenue over into
(08:30):
the budget, or you're going tohave to do oil taxes.
That's what's on the table sofar.
Interestingly, we've not seen aresurrection of Ben Carpenter's
proposed sales tax, thesubstitute revenue source that
Ben talked about last session,and I think that's probably the
most effective tool in terms ofspreading the burden broadly.
(08:54):
And by spreading the burdenbroadly you reduce the impact on
everyone.
You have the biggest divisors,so you have the smallest
quotient as a result of that,and sales tax would also sort of
trigger everybody to get in thegame of pushing back on
(09:14):
spending.
The problem with the proposalscurrently on the table if you do
PFD cuts, the top 20%, the oilcompanies and the non-resident
industries don't care becausethey're not going to pay any
share of it.
If you do oil cuts Alaskafamilies most Alaska families
don't care because.
Or oil taxes most Alaskafamilies don't care because
(09:37):
you're taking it from the oilcompanies.
So we haven't yet gotten to thediscussion, I think, of
personal responsibility in thestate for a share of the
spending that a lot of peopleare pushing for.
Speaker 2 (09:51):
And that seems to be part of the trend here.
I mean the taxes that they'retalking about the Yunt tax, even
Wilkowski's tax, and then therewas another tax that was going
to tax online sales from onlinevendors outside so that's
outside as well.
So it's all these taxes thatare away, generally speaking,
from the public, so they don'tfeel the pinch.
I think it's kind of likethat's what they're focusing on.
(10:14):
They're not focusing onsomething that's broad-based and
would get people's attention.
Speaker 1 (10:18):
Yeah, everybody wants somebody else to pay, right I
mean.
So Bill Corbett wants middleand lower income Alaska families
to pay by wiping out the PFD,which, incidentally, would
essentially indemnify or protectCorbis from paying anything,
since he's one of the mostwealthy in the state.
(10:38):
Some people want oil companiesto pay more, and I think oil
companies should pay morebecause I don't think they're
paying what the Constitutionrequires, which is the maximum
yield.
But a lot of people say well,we just need to tax the oil
companies and that'll be thesolution.
So at this point everybody'strying to push the burden off on
(11:01):
somebody else, saying somebodyelse should pay and I think
James Brooks' article capturesthat well, although it doesn't
really put it in those terms butthe effort of most people to
try to push the burden off onsomebody else so they don't have
to be part of the solution.
But what we really need to getto at some point is a tax or a
(11:25):
revenue approach that createsincentives for everyone to push
back on spending.
Right now we've got a revenuesituation which encourages some
people to push back on spending,but it's largely middle and
lower income Alaska families whodon't have a lot of political
power, while the top 20% of theoil companies in the
(11:45):
non-resident industry sort ofget off the hook.
We need to be taught.
We need to start putting on thetable a revenue base, a revenue
approach that engages everyoneacross the board, from Natasha
all the way down to thesix-month-old baby that James
uses, and get everybody engagedin the process of pushing back
(12:09):
on spending, because it's goingto affect them if they don't.
And that may be too far astretch for this session, but
when you look at where thisbudget is going, when you look
at the trend lines, even takingK-12, the K-12 increase out of
the equation.
When you look at the trendlines where this is going, the
(12:33):
deficits get deeper and deeperand deeper, and deeper and
deeper.
And so we're going to have to betalking about that at some
point.
Speaker 2 (12:40):
And again I have to say kudos to James.
He talks about that that evenwith just holding the spending
from last year, we're in adeficit, and then he points out
that this fiscal year we're in adeficit $165 million, he said
even the lawmakers face a secondproblem.
In the current fiscal year, theone that ends on June 30, the
(13:00):
state is also running $165million deficit.
I mean this is hello, this hasbeen coming and we've been
saying it and just like all of asudden it's like everybody's
like oh wait, you mean this is.
You mean we're spending morethan we're taking in.
How is that?
When did that happen?
Right, I mean this is like allof a sudden.
It's shocking, I tell you,shocking.
Speaker 1 (13:22):
Yeah, it's like Gary Stevens at the beginning of the
session said well, I didn't knowwe had this budget problem.
Well, you could have seen itcoming if you just would have
looked at numbers.
And you can see it gettingdeeper and deeper and deeper.
We've got a.
I mean oil prices are trendingdown.
If you look at the futuresmarket, oil prices are trending
down significantly from wherethe fall revenue forecast had
(13:44):
them.
And if you watch that trend andwatch where oil prices are
going over the next decade or sonow what the futures market are
saying, I mean it just getseven deeper still.
But even if oil prices hung onto what the forecast, the fall
revenue forecast, even if theyhung on to that, we're still
heading for bigger and biggerdeficits.
(14:05):
I think what we're seeing isthe beginning of the who pays
thing, battle the war over whopays, but we're far from seeing
the end of it.
And I think we're only going tosee the end of it when we
create a revenue approach thatbroadly bases the revenue so
that everybody starts pushingback on spending.
Speaker 2 (14:27):
Anthony said this is a novel, legitimate question.
The PFD is probably cooked andtaxes are inevitable.
I know that MD and Brad areadvocating education and
preparing to ensure that thosetaxes are fair and regulated in
that scenario, but I'm genuinelycurious what mechanism could be
used to just not wind up.
The same people who've devouredthe PFD arbitrarily and
regularly increase those taxesto offset their preposterous
(14:49):
spending problems.
I feel like there's a lot ofmisplaced trust and faith in the
system happening here.
I feel like there's a lot ofmisplaced trust and faith in the
system happening here.
And Anthony's asking thequestion that I've asked Brad
for years that while I agreethat we need to have the
discussion, I don't want taxesBecause my fear has always been
that Parkinson's principle willrule supreme, which is, you know
, government spending will fillup to expend all the available
(15:10):
monies kind of thing.
So if we increase revenues byhaving taxes or anything else,
that they'll just be sucked up.
And, brad, you've had an answerfor this.
But the problem is it's twoparts.
You've got the tax part andthen you've got the spending cap
part and can you get them bothpassed at the same time?
That's part of the problem,right?
Speaker 1 (15:28):
Well, I think it's part of the problem.
It is part of the problem, butwhat incentives work?
Incentives work.
I mean, that's the economist'sanswer to virtually everything.
Create the right incentives,you'll have the right answer.
And the problem we have in thisstate is we don't have across
the board incentives to pushback on spending.
(15:50):
In fact, we have created asystem where we have incentives
to increase spending, incentivesamong some people to increase
spending.
By doing it through PFD cuts,you push the burden off on
middle and lower income Alaskafamilies have had a free ride in
(16:12):
terms of free government.
They haven't paid for the costsof government increased costs
of government in the case of oiltaxes, because we haven't
changed oil taxes since 2013.
They've had a free ride on theincreased costs of government.
They've pushed all that burdenoff on middle and lower income
Alaska families.
The only way you're going tostop this is to create
incentives on everybody to pushback, and to do that you have to
(16:37):
have a broad-based tax.
Ben Carpenter was exactly right.
You have to have a broad-basedtax to engage everyone in
pushing back on spending,because if they don't, they will
pay a share of it.
They will pay a share of it andas long as we keep going down
(17:00):
that road of not having a broadbased incentive to push back on
spending, particularly where theincentive to spend is on those
who have political power, upperincomes, oil companies and the
non-resident industries, as longas you have that type of
incentive system, we're going tohave increased spending.
I mean, we're going to talk inthe second segment about the new
(17:21):
place.
They're going to try to avoidhaving to pay for government.
They're just going to invadethe permanent fund corpus
themselves or the permanent fundcorpus itself and that will
continue their free ride, freegovernment that they don't have
to pay for.
We have to create theincentives for everybody to push
back.
Speaker 2 (17:39):
Well, and it has to be a holistic approach.
Again, that was the big thingthat the working group came out
with was that it has to be aholistic approach.
It can't just be one thing.
There's no single magic bullet.
It has to be a comprehensiveoverhaul and that's the one
thing that they apparently don'twant to do.
All right, brad Keithley,alaskans for Sustainable Budget,
is our guest.
(17:59):
We continue on with the weeklytop three.
Now Brad is about to tell usabout the full-blown, full-blown
attack and raid on thepermanent fund itself, which,
again, that was one of the firsttopics that I covered when I
started this show back in 1999.
(18:22):
That was one of the firsttopics that we covered because
at the time that was the firstattack on the POMV or on the on
the PFD with a POMV draw, andthey were talking about it back
then.
And I said the one thing thatthey want is they want access to
the corpus, and this was thefirst step.
Brad, they're saying the quietpart out loud now.
Speaker 1 (18:42):
Yeah, michael, there was a hearing last week at which
they had the permanent fundexecutive director and the
chairman of the permanent fundboard up to discuss the
permanent fund and the entirediscussion was around.
I mean, just to cut to thechase.
They put a lot of nice wordsaround it, but a lot of
(19:04):
discussion around how do we getat the permanent fund corpus?
The problem that they're facingis that the permanent fund is
not earning enough to fund thePOMV and, to James's credit, in
James Brooks's piece that wetalked about in the first
segment, he talks about thatalso that part of the problem
(19:25):
with the permanent fund is thatit's not generating enough money
to cover the POMV draw and sowhen they've got that situation,
it's not generating enoughmoney to cover the POMB draw.
Let me put a parenthetical inhere.
That's been helped along by the$8 billion raid that Burt
(19:46):
Stedman did of taking $8 billionan additional ad hoc $8 billion
out of the permanent fundearnings reserve and putting it
over in the corpus earlier inthis decade, earlier in the
2020s.
Burt did that and nobody everthinks about well, what if we
still have that $8 billion inthe earnings reserve?
But separate and aside fromthat, separate and, aside from
(20:08):
the $8 billion, the permanentfund is not earning enough money
to cover the POMV.
So the answer to that, theanswer to that's one of the
three things Reduce the amountyou're taking from the permanent
fund, reduce it down to whatthe permanent fund is actually
earning, or go in and look atwhat the permanent fund's
(20:30):
earning and look at whether theycould earn more.
We're going to talk about thatin just a second or.
The third is the easy step islet's eliminate this barrier to
getting at the corpus that theConstitution creates by creating
the two separate accounts theearnings reserve and the
permanent fund corpus.
Let's eliminate that barrier sowe can just get inside the
(20:53):
permanent fund corpus.
Let's eliminate that barrier sowe can just get inside the
permanent fund corpus.
And the proposal to go to mergethe two accounts together is
nothing more than a raid on thepermanent fund corpus.
You wouldn't need to merge thetwo accounts together if either
the permanent fund earning thepermanent fund was producing
enough to cover the POMB draw orif you were going to observe
(21:18):
the barrier created by thecurrent constitution.
But they don't want to do that.
They're now talking aboutraiding the permanent fund
corpus, the thing that I havetrouble with is it's not only
the Senate majority that has abill in to do that.
The Senate minority JamesKaufman, has proposed a bill
(21:39):
that was signed off on by all ofthe members of the minority.
Now I'm sure there'srationalizations and
explanations for why they'redoing that, but it's being taken
broadly as acquiescence by theSenate minority in the Senate
majority's proposal to raid thepermanent fund corpus, and
that's something that'ssurprising to me and something
that's troubling to me.
I mean Kaufman, I sort ofunderstand, because Kaufman came
(22:02):
out of the majority.
The only reason he went to theminority is because the majority
wouldn't put him on Senatefinance and he wanted to be on
Senate finance, so he shiftedover to the minority.
He's always had that.
He's always been a proponent ofusing permanent fund dividends,
cutting the permanent funddividends, and has been a
proponent of this sort ofmerging before.
I'm just surprised that theother members of the Senate
(22:23):
minority agree to that.
But let's step beyond that for asecond.
Let's talk about what thepermanent fund is earning.
I did a column last Friday witha lot of help, with a lot of
input from others, a column lastFriday that looked at what the
permanent fund would be if we'dinvested it differently than the
(22:44):
permanent fund invested.
And, michael, if you can putthat chart up, that would
probably help at this point.
Here we go.
So what I did in the column isI went back to FY20, the
beginning of FY20, which is July1st 2019.
And I tracked what thepermanent fund did in terms of
growth and it's in the blue,it's the bottom line and that's
(23:07):
what the permanent fund thefirst of year, the end of year,
amounts of the permanent fundhave been.
Balances of the permanent fundhave been since FY20.
And then I went back and I said, okay, so what if the permanent
fund had invested instead ofhow it invested, with all of
those fees?
It's running $880 million inannual fees most recently.
(23:30):
Instead of all those fees, whatif the permanent fund had just
put all the money into anexchange-traded fund, an ETF,
and put it into the S&P 500?
Now the S&P 500 goes up andgoes down.
It's a lot more variable thanwhat the permanent fund's
invested in.
But let's just go look at whatwould have happened and the red
line is what the balances of thepermanent fund at the end of
(23:53):
the year, at the same point asthe balances we've got for the
blue line.
The red line is what thebalance of the permanent fund
would have been in all the yearssince subsequent, since FY20,
if we just invested all of it inS&P futures and you can see
that the value of the permanentfund would have skyrocketed.
Value of the permanent fundwould have skyrocketed under
(24:14):
that alternative investmentapproach when we get to January
30, 2025, the permanent fund, asit has been invested over this
period, has a balance of $80billion.
If it had been invested in S&P500 ETF since FY20, the balance
(24:43):
would be $118 billion.
The difference in the POMV 5%draw would have been significant
, would have been about abillion dollars by now and going
forward.
So you can see that there arealternative ways of investing
the permanent fund that producesmuch higher returns than what
the PFC is producing, what thecurrent approach is producing.
(25:03):
Why are they doing it this way?
Why are they doing it the waythey're doing it?
Well, they will tell you,they're doing it to mitigate
risk.
You can see that the S&Pbounces around.
So in FY 2021, it was $67billion.
It would have been $67 billion.
In FY 2022, it would have been$91 billion.
In FY 2023, it would have beenback to $79 billion and then it
(25:24):
grows from there.
But it has a high variation.
The way the permanent fundinvests.
They don't have those sorts ofhighs.
They don't have those sorts oflows and they will tell you that
they're investing to sort ofkeep it even.
But you can see that under thatinvestment approach they've got
(25:44):
a levelized line from FY23 on,while the S&P is climbing
rapidly.
I'm not entirely advocating, orI'm not solely advocating,
investing in the S&P 500 as away of, or ETF funds that look
like the S&P 500.
I'm not saying that's the onlyway you could do it, but what
(26:07):
I'm suggesting is there are waysyou could do a lot better than
what the permanent fundcorporation is doing.
So, rather than pushing back onthat and saying, wait, are you
guys investing this the rightway?
You're not earning enough tocover the POMB draw.
That's a big deal.
That's a big issue to us,because we're relying on the.
We, the legislature, arerelying on the POMB draw.
(26:28):
So we need to wipe out thebarrier between the earnings
reserve and the permanent fundso we can get at the corpus and
keep our 5% draw, instead ofsaying that they could be saying
and they should be saying wait,are you guys investing this
right?
I mean, you're investing it ina way that produces a steady
(26:51):
state of return, sort offlatlines the return, but you're
not producing it in a way thatgrows the fund and would grow
the POMV draw and would lessenour revenue problems elsewhere
by doing that.
Performing is a big issue thatwe need to be taking on rather
than trying to separate the wallbetween the earnings reserve
(27:26):
and the corpus.
I want to read one comment thatI got in response and this was a
comment to the column that saidthis is what investing in the
S&P did.
The comment was Nevada.
The Nevada PERS, the NevadaState Retirement System, does
(27:49):
just this.
It invests in the red line.
They have a total of twoemployees and they simply invest
in broad, low-cost stock andbond indices.
Net of fees, they blow mostpublic investment houses out of
the water.
Getting fancy with alternativeinvestments, as the permanent
fund has done, comes with highfees and the need for $300,000
(28:12):
plus employees to manage it all.
You really need to be beatingthe market significantly to
justify those fees.
That missing $38 billion andhe's talking about the gap
between the red and the bluethat missing $38 billion will be
producing about an extra 2billion per year from the POMV.
It's actually about a billion.
(28:33):
It grows over time but it'sactually about a billion
currently.
But it's not like no one elsedoes this.
I mean, there are other stateinvestment houses that do
exactly this.
They don't try to beat themarket, they don't pay a lot of
fees, they don't hire a bunch ofexpensive people.
They invest in a broad-basedmarket measure and ride the
(28:58):
curve.
And sometimes the curve goes up, as it did with the S&P between
FY21 and FY22.
And sometimes the curve goesdown.
The wave goes down, as it didbetween FY22 and FY23.
But on the whole it'sperforming better and Nevada's
performing better as a result ofthat, performing much better
than the permanent fundcorporation is doing, pushing
(29:19):
not rating the corpus, notnecessarily lowering the return,
as others are pushing tomaintain to match what we're
(29:40):
taking out of the permanent fundwith what the permanent fund's
earning.
But I think looking at what thepermanent fund corporation
itself is doing is where weought to be focusing a lot of
attention, because even thisrudimentary look at comparing it
to the S&P 500 shows you thatit's flatlining at a time that
other parts of the market aregrowing significantly.
Speaker 2 (30:02):
Well, and in fact, these market indices, although
they do swing harder than thepermanent fund does, the trend
line is still always up.
I mean, the permanent fund tookthe same dip in the 22 to 23
year.
It just took a smaller dip, butit also means that the growth
is much smaller and if you lookat the overall growth of the
(30:23):
indices versus what thepermanent fund has been doing,
it's still a net gain.
I mean, that's the thing, it'sthe net gain in the long run.
Why aren't we looking at thatinstead of well, we want to
equal it.
We're getting no growth andwe're essentially been sitting
at $80 billion for the last twoor three years, I mean, and
competing funds are $35, $38billion more.
(30:47):
Who at the permanent fund isnot going?
Well, we should be doingsomething, is it just?
I'm making $300,000 a year tomake this flat line, so that's
OK.
I mean, what's going on?
Speaker 1 (30:57):
They've got, they've gotten?
I think?
I think the answer is thepermanent fund corporation has
gotten into a bureaucracy, amindset of a bureaucracy.
We have all these advisors,because then we can't be blamed
for something going wrong.
We have all these advisors toadvisors to tell us what we're
doing.
And then and then, becausewe're investing in all these, in
(31:20):
all these private equity deals,we need, we need to hire
expensive people to look afterthe private equity deals, make
sure somebody is not ripping itoff, ripping us off.
And after you do all that,you've got, you've got a huge
cost base and then you've got,you've got people invested in
that cost base.
Well, you know, johnny's myfriend, he's an advisor.
I don't want to, I don't wantto, I don't want to cut him, or
I don't want to cut my salaryand I don't want to have to cut.
You know the number of peoplethat we employ at the, at the
permanent fund corporation, thenumber of people we've we've
(31:42):
built up over time, and we havea board that doesn't understand
any of this.
We have a board that's made upof politicians.
I mean, governor Dunleavy justdid it again by appointing John
Binkley to the board.
John Binkley is a nice guydeserves to be in the Alaska
Business Hall of Fame, but he'snot an investment guy, right and
and and a market investment guy, and so we have all these
(32:04):
people on the board, none ofwhom really understand this
stuff.
So I think I think we've sort ofcreated, you know, if you talk
about your bureaucracies andbureaucratic sticking the mud,
that's what we've got at thePermanent Fund Corporation now,
and rather than diving into thatand saying we ought to be doing
(32:25):
this a lot differently, ratherthan diving into that, what the
Senate majority, followed by theSenate minority, are doing is
saying, eh well, that's where weare.
So let's just take down thiswall between the earnings
reserve and the corpus and goafter the corpus.
What?
Speaker 2 (32:41):
we have here is a failure of leadership for
somebody to say whoa, whoa, whoa, wait a second.
This doesn't make any sense.
Why aren't we just looking atthe indices and going from there
?
Bruce Tangeman is in the chatroom.
He says please clarify Brad.
From there, bruce Tangeman isin the chat room.
He says please clarify Brad.
I believe the Senate majorityplan is to sweep the statutorily
protected ERA into theConstitution-protected corpus,
(33:02):
thereby taking it completely offthe table from raids.
Why are you falsely claiming itwill be raided?
It will all be underconstitutional protection.
Speaker 1 (33:12):
It's already constitutionally protected,
bruce Constitutionally protectedfrom having taken out of it any
more than what's in theearnings reserve.
What the proposal on the tableis is to combine the two
accounts together and allow the5% draw to continue, which
necessarily will take a portionof it out of the old corpus.
(33:34):
So it's already constitutionallyprotected.
We don't need constitutionalprotection.
We've already got that with theearnings reserve.
The earnings reserve is a hardstop If the permanent fund
doesn't earn any more, If itdoesn't earn enough to cover
what's being taken out of it,then you don't get to take any
(33:54):
more.
There's a constitutionalprotection there.
What's on the table is theproposal to merge the two and
allow access to what's now inthe corpus in order to continue
the 5% draw.
Speaker 2 (34:08):
My understanding of the proposal is that the
percentage of the draw is set bystatute, that it's
constitutionally protected andthat it's held to the POMV
amount, but that the amountcould be varied by statute
instead of by constitutionalamendment, because it's got to
have a one-time constitutionalamendment to allow them to have
(34:29):
access to it, and so that is thebig problem.
They could say 5% today, buttomorrow it could be 6% or 5.5%
or 7% or whatever we decide.
Speaker 1 (34:41):
In fairness, the constitutional provision that
the Senate Majority has talkedabout includes 5% as a cap on
what could be taken out of thecombined account, but the
problem is it allows takingadditional amounts more than
what the permanent fund isearning.
So if the permanent fund onlyearned four or three or two, it
(35:05):
would still allow thelegislature to take out five out
of the permanent fund andinvade what's now in the in the
corpus in order to make up thatdifference right and and the and
.
Speaker 2 (35:19):
yes, that's bruce just said.
But the era is notconstitutionally protected,
hence the raids and overdraw.
But see, that's the thing, it'sa hard stop.
You can only take what's in it.
So if there's only three and ahalf percent worth in the era at
the time, that's all you get.
Three and a half percent worthin the ERA at the time, that's
all you get.
Three and a half percent, boom,you're done.
Stop, full stop.
You can't go into the corpus.
That is the firewall, and whatthey're proposing is removing
(35:42):
the firewall.
So if there's only three and ahalf percent in what would be
the ERA and they have their newplan, they could draw that extra
one and a half percent out ofthe corpus of the fund.
And that could happen yearafter year after year and pretty
soon you've eaten the seed corn, you've killed the golden goose
.
That's laying the egg.
That's the problem, bruce, andthat's always been.
My fear is that somehow theywould get their tentacles into
(36:05):
the corpus of the fund, andthat's what many politicians
have wanted for years.
Speaker 1 (36:13):
Yeah, we did a column , oh, maybe a couple of years
ago when this proposal was firstgaining traction, and looked at
what the effect of taking 5%while the fund was only earning
4% over an extended period oftime was.
And it's clear, I mean the fund, the corpus of the fund, keeps
going down and down and downbecause you're taking more out
of the corpus or you're takingmore out of the permanent fund
(36:35):
than it's generating.
That's the problem we've gotnow.
I mean James Brooks is right inthe article the problem we have
now is the permanent fund isnot generating enough to fund
the POMV draw.
It's exacerbated by that $8billion ad hoc draw that Burt
took earlier, but it's notgenerating enough to cover the
POMB draw.
(37:07):
And the earnings reserveprotects you in that situation
by saying the currentconstitutional provision
protects you in that situationby saying well, you're only
earning four when you drain theERA, that's it Hard stop, can't
do any more, you can't go intothe corpus to get your extra
extra one percent.
What the proposal at the Senatemajority is pushing is it says
you know you get five percent nomatter what, so you can keep
going in, you can go into thecorpus to get that additional
percent it removes.
The protection, that's theconstitutional protection, is
(37:28):
currently embedded in theConstitution.
The constitutional protectionis currently embedded in the
Constitution.
Speaker 2 (37:32):
Bruce says that is a problem.
If that's their true intention,that would certainly not be an
endowment fund such as theHarvard.
But again, you don't have tolook at their true intention.
Look at their past history,bruce.
That's the problem.
Look at their historicals.
Past performance is indicativeof future results.
They have spent every dimeavailable to them.
(37:53):
And if they had?
Well, look, we got to do it.
We got to do it Because so it'snot just their intention, it
doesn't have to even beintentional, it just means
that's situational, becausethat's what they've done every
time for the last 15 years.
Brad.
Speaker 1 (38:10):
And well, we build up this cost structure, this
spending structure that has tobe fed.
So you're going to get to thepoint where you're only
producing 4% earnings and thechoice is either you take 5%,
which the constitution wouldthen permit you, or you tax
people.
What they're going to do istake the 5%, and that's what
they're setting up the abilityto continue to do by eliminating
(38:30):
the firewall.
That's what they're setting upthe ability to continue to do by
eliminating the firewall that'scurrently existing between the
corpus and the earnings reserve.
Speaker 2 (38:36):
All right, brad Keithley Alaskans for
Sustainable Budgets the weeklytop three.
We continue now.
Number three AK LNG is greatsort of, as long as you don't
look under the covers, right,brad?
Yeah, that's the deal.
Speaker 1 (38:51):
There was a lot, there's been a lot of press
about, uh, president trump's uhcomment about the ak lng, the
alaska lng project, uh, in hisuh address to congress, uh, last
week.
There's a little bit been a lotof follow-on in terms of terms
of comments by, particularly,senator sullivan, governor
dunleavy and others about, oh mygosh, we're on the way, we're
(39:14):
rolling right there, and you hadsome comments out of
representatives of Korea andJapan and even Taiwan, people
that President Trump is tryingto direct this project, market
this project too.
About, oh, yeah, we'reinterested in that.
But here's the deal with HAL&Gand here's the deal you know,
(39:40):
since the very beginning of theproject, back when we realized
there was gas in conjunctionwith the oil that's coming out
of Prudhoe Bay and the questionwas raised how are we going to
market the gas?
Here's the problem with it.
Every time you look under thehood of how you would do this
(40:01):
and the costs involved and theterm involved, the term of
commitment you would have tomake to the project, with those
costs to be able to do theproject, people go whoa, whoa.
I didn't understand that.
I mean, I didn't realize I wasgoing to have to invest 40, 60,
(40:22):
whatever the heck the number isat any given day a billion
dollars to build this project.
I didn't realize I wasn't goingto get gas out of it or LNG out
of it for five years.
I didn't realize I was going tohave to make a 20 or 25 year
commitment to amortize all ofthe costs in order to make this
project go.
So what you're hearing of Taiwanand Korea and Japan is the
(40:47):
response to a statement byPresident Trump or others.
Hey, we got this great projectup in Alaska.
We need to build a longpipeline.
We need a lot of investment todo that, but when we get down to
Tidewater, the price will bevery competitive with what's
going on in the world and we'llsell it to you at a competitive
price.
So we need you to help usinvest in this project.
(41:10):
You'll get LNG out of it,you'll help our balance of trade
in Trump's world, you'll helpour balance of trade and you'll
get a competitive product out ofit.
And so Japan and Korea andTaiwan listening to that sales
pitch go.
Yeah, it makes prettyreasonable.
I get a competitive price.
You're promising me acompetitive price, a long-term
competitive price, because Ihave to stay with this thing for
(41:33):
20, 25 years.
You're promising me a long-termcompetitive price and it's on
the Pacific Ocean and it's nearwhere I am and I get to make you
happy, I get to make PresidentTrump happy.
So yeah, heck, yes, I'minterested in that.
Let's do that.
Let's go down the road on that.
Let's do that, let's go downthe road on that.
(41:59):
Here's what happens.
That's what happened every timesince the 1970s when we
realized we had a bunch of gasup at Prudhoe investment.
You have to make you startlooking at the period of time
over which you have to commit tocontinue to buy this stuff at
the price, because it's a fixedprice.
It's a fixed price.
I mean, you sunk the costs intothe pipeline.
(42:22):
It's not the variable cost ofthe gas that's the big driver
for the Alaska pipeline, it'sthe fixed cost of the pipeline.
So you've sunk the costs intothe pipeline.
You have to make this long-termcommitment.
And then you look at what'sgoing on in the rest of the
world in terms of LNGdevelopment and you go wait a
second, this is not a reallygood deal.
And you sort of start backingaway from it and saying, well,
(42:49):
we're going to study it somemore or we're going to start a
task force or we're going to puttogether a consortium to really
look at this thing hard and youstart looking at ways to sort
of weasel out of your beginningdiscussion of making a
commitment to it.
And that's the history withthis project and it's going to
(43:12):
continue to be the history withthis project.
You know we talk now about itbeing a $40 billion project or a
$45 billion project With thetariffs that the president has
slapped on steel from othercountries and the higher cost of
steel that you have in the US,not to mention I don't think we
have a US plant that rolls pipein the size that we're talking
(43:36):
about, the 48-inch pipe of thesize that we're talking about
for the AK LNG project.
With the tariffs you've slappedon, with the increased costs
that are the cost inflationthat's gone on in the industry
as a result of a bunch of peoplebuilding LNG plants.
There's only so manyspecialists, there's only so
much supply of capability ofbuilding LNG plants and now
(43:57):
we've got a huge number of LNGplants being built, so we have a
strain on that supply of beingable to build the construction
supply to be able to build it,and so we're having rising costs
going on with thoseconstruction costs.
Once you look under the hoodyou see it's not going to be $40
billion.
It's probably going to becloser to $50 or $60 billion,
going back to its old coststructure.
(44:18):
And then you look at so what amI getting out of this?
Trump has a four-year term.
He wants me to commit to it now, but this is going to roll into
the president after that, thepresident after him and the
president after that, presidentafter that, president after that
, and they may do things thatmake this a lot more costly or a
(44:40):
lot less commerciallyattractive than what President
Trump is suggesting it is.
And really all I have to do issort of wait out his four-year
term and get to another term,another president, and talk
about other things, becauseother things will be important
to them.
Alaska won't be important tothem.
So, yes, a lot of discussionabout it.
(45:02):
Now, it's great the presidentbrought it up.
It's great you have all thesepeople talking about it, people
talking about it.
But I've been there for a longtime.
Once you look under the hoodand once you see the economics
of this thing, you start backingoff and you start making
excuses about well, I just needto study it a little bit more,
or we need to have a new costprojection before I really
(45:25):
commit to this.
Or I don't want to commit for20 years, I want to commit for
10 years and all of a suddenthat blows the economics out of
the water.
Speaker 2 (45:33):
Well, they can say all the right things, right,
they can make all the rightnoises for the next couple,
three, four years, and then allof a sudden it's over, because
this is a long tail situation.
It's not like they're going tobuild it in the next two years.
Even if the federal governmentdecided to pony up the upwards
of $80 billion that I think thepipeline would probably cost,
(45:57):
it's not going to be built inthat timeframe.
So they can keep making all theright noises and basically
assuage Trump in the short term,but will they stick with it?
And that's always been theproblem with the gas.
We all want the gas, we allwant to be able to use it, we
all want to be able to burn it,but the economics, the
financials, just don't work.
Uh, and that's been the wholeproblem the whole time.
Speaker 1 (46:16):
Yeah, and a lot of it , michael is, is is the way.
There's a huge differencebetween the Alaska project and
the projects on the on the U?
S Gulf coast or the projects inMozambique or or elsewhere, the
projects in Qatar, elsewherearound the world.
And that is it takes a hugepipeline to get the gas from the
(46:38):
North Slope down to Tidewater,down to the gasification plant,
and what that means is the sunkcost.
The fixed cost component of theAlaska project is a lot higher
than all the tidewater projects.
The tidewater projects can varytheir price because they can
(46:59):
keep going up and down dependingupon what the gas cost is or
the gas price is, and they havea lot more flexibility than
Alaska does.
Alaska, it may be a competitiveprice today, but if Qatar puts
on another project and decidesto cut the price because they'll
just take less for their gas inthe project they don't have
that much fixed cost They'lljust take less for the gas All
(47:20):
of a sudden the Alaska projectbecomes a lot less competitive
and Alaska can't cut its pricebecause most of that price is
built on fixed costs.
Speaker 2 (47:29):
You know, I mean I know that there's a lot of
positivity.
People are excited.
Maybe the president will dothis as a nationalized national
security deal, Maybe they'll putit.
But again, the problem is,unless we've got people, unless
you've got somebody locked inand who wants to be locked in
for 25 years, it's going to bean issue.
(47:51):
I would love to see it.
I mean, that's the thing Idon't mean.
Henry's in here, like you guysare always poo-pooing.
No, look, it's the economics ofit, Henry.
I'd love to be burning naturalgas from Alaska right now.
I would love to do that.
But you just can't make ithappen.
On the metrics, Somebody's gotto pay for it and if it's 80%
(48:12):
subsidized and delivered at 30%over market value, do you want
to pay 30% more and have all themoney that was paid for 80% of
it coming from the government?
I mean it just doesn't work,Brad.
Speaker 1 (48:25):
Final thoughts here.
Well, it does.
I mean the economics don't work.
I mean, yeah, maybe thegovernment, maybe the federal
government builds it as anational security, sort of like
you build an army base or youbuild ice-breaking tankers and
cost is sort of irrelevant tothem and they will commit to.
You know, maybe they'll committo sell it at the world price,
they'll sell it on an index asopposed to what the cost is
(48:47):
they've incurred, and thefederal government decides to
take the hit.
Yeah, maybe that happens.
But in an environment where thenation's already hugely in debt
and we're trying to cut down onspending, you think there's
going to be a huge wave ofsupport in the other states for
(49:09):
a federal of $50 billion or $60billion, or maybe, if the
federal government builds it,$80 billion, as you suggest,
boondoggle, I doubt it.
I doubt it.
It's always great in concept.
I mean, I remember the firsttime it was great in concept.
(49:30):
Yes, we're going to build anLNG line, and yes, it's going to
be economic.
And yes, we're going to buildan LNG line, and yes, it's going
to it's going to be economic,and yes, it's going to be great.
It was, it was great in concept, but then then you get under
the hood and you start facing upto the cost, you start facing
up to the term that people haveto commit to those costs, to
that, to that economic structure.
Um, and it's just, it's just,it's just a bridge too far for
(49:56):
those who are concerned aboutthe economics to cross.
Speaker 2 (49:59):
Well, we're going to watch what happens, but again,
I'm not holding my breath.
That's the thing Bruce says.
Bingo, that's the AGDC's goldenticket.
In their mind, price doesn'tmatter.
Now, right, they're going totag it to some kind of index and
say you're just going to paythis flat rate and the
government will pay for it, andyada, yada, yada, and they will
all be vindicated.
The problem is that there'sstill reality.
(50:21):
And again, he only has fouryears and this project would not
be done in four years.
There's just no way.
Speaker 1 (50:28):
You can easily see people making these commitments
and slow walking theimplementation of the
commitments.
But we need a lot of studiesbefore we go down this road.
Yeah, slow walking theimplementation of these
commitments and then at the endof the four-year term, you know
Trump's no longer there, thetariff threats are no longer
there.
Yeah Well, it was a good ideaat the time and I've just seen
(50:50):
that go on time and time andtime and time again.
Speaker 2 (50:53):
Yeah, rob makes an interesting point, which is why
I think it's going to be $80billion.
He said, assuming the $44billion price tag from 2016,.
Just adjusting for inflationputs it at $59 billion.
That's not even counting theincreased price of steel.
So, yeah, I mean that's like Isaid.
I think it's closer to 80billion dollars by the time
you're all said and done.
And what state out there isgoing to say Alaska with only
(51:15):
700?
Why would we spend 80 billiondollars there?
Right, I mean again, even if itwas a national security issue,
even like that.
You know, like we talked aboutthe those pipelines on the East
Coast that were built duringWorld War Two because they
weren't economically feasibleand federal government built
(51:36):
them because they had a need.
But we're not at war.
It's a harder sell than youknow.
We're facing Nazi domination orJapanese imperialism, and so we
have to do it.
We're not facing any of thosethings right now, so it's a much
harder sell.
Speaker 1 (51:47):
And the other thing, michael, is, once we start down
that road, once we say, okay,we're going to have a federal
government subsidized Alaskapipeline or Alaska LNG project,
the senator from Louisiana, billCassidy, is going to say, well,
what about my projects?
I'm building LNG projects here.
Why don't I get federalsubsidies?
Or the Texas people, they'rebuilding LNG projects, why don't
(52:09):
we get federal subsidies?
I mean, you start going downand again I've seen this time
and time and time again you juststart going down these rabbit
trails and you get to the end.
You're just exhausted and yourealize this project is just not
economic.
I mean, it's great in theorybut it's just not economic.
Speaker 2 (52:27):
Once you put all the pieces together, and I think
Henry is encapsulating thefeeling of a lot of Alaskans who
don't understand the metrics.
Go ahead and keep propaganda tonot ever build or use our own
gas.
If not now, then when?
Drill, baby drill, build thatpipeline, transport that LNG all
over to Alaska to provide cheapheat, hot water, dry clothes,
cook and power off-road vehicles.
Wake up and stop disparagingSupport.
I can support it all I want,henry.
(52:48):
I can't build it myself.
You can't build it yourself.
You've got to get the beancounters involved and the bean
counters will look at it andthey will laugh you out of the
room because it's not economicalas much as we want Alaska gas.
For all the reasons you justlaid out, it's not economically.
Speaker 1 (53:12):
I don't know how to tell you about the economics of
that more.
If you don't understand thatthe economics don't work, I
don't know what else to tell you.
I mean, it's just it.
Just, it's a lot of money and alot of commitment, a lot of
long-term commitment, and thereare just better opportunities
out there in the world.
Speaker 2 (53:23):
Yeah, I mean the better way to do this.
At this point I think I agreewith Rob.
I mean Rob's put that proposalin for a resolution to get an
exemption to the Jones Act, toget a waiver for the Jones Act
for Alaska, for LNG tankers only.
That would be one way to do itto get it done in the short term
.
But nobody seems to beinterested in that either.
Nobody wants their ox to begored.
(53:44):
They don't want to give anexemption to the Jones Act to
Alaska.
They're making money.
Why would they want?
I mean, it's a whole thing.
It's a whole whole thing.
All right, brad.
Um, final thoughts here, realquick, 30 seconds.
Speaker 1 (53:57):
Well, michael, uh, uh .
I guess the the Chinese proverb.
May we live in interestingtimes.
We're certainly doing that.
Um, I think that I think we'regoing to see a huge fight the
rest of the session about whopays.
Uh, and the battle over whopays, and I'm going to be there
with my popcorn watching.
Speaker 2 (54:15):
Yeah, exactly, exactly.
We're going to watch Rome burn.
We'll be fiddling while Rome isburning at this point, because
I just don't see any other way.
Brad, thank you so much.
Good to talk with you.
We'll see you next week.
Speaker 1 (54:26):
Michael, as always, thanks for having me.
Well, that's a wrap for anotherweek's edition of the Weekly
Top Three from Alaskans forSustainable Budgets.
Thank you again for joining us.
Remember that you can find pastepisodes on our YouTube,
SoundCloud, Spotify and Substackpages, and keep track of us
during the week on Facebook andTwitter.
This has been Brad Keithley,Managing Director of Alaskans
(54:49):
for Sustainable Budgets.
We look forward to you joiningus again next week for the next
edition of the Weekly Top Three.
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