March 18, 2025 • 55 mins
Welcome to The Weekly Top 3 - our look at the top 3 things on our mind here at Alaskans for Sustainable Budgets - for the week of March 17, 2025.
This week, our top 3 issues are these: 1) we explain how the Permanent Fund Corporation is leaving substantial amounts of money on the table (1:59); 2) we look at what both the left and right are missing about the Hilcorp loophole (19:54); and 3) we discuss how the Senate is being pushed this session to act as the fiscal grown-up in the room (38:42).
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 17th 2025.
The weekly top three is aregular segment on the Michael
Duke Show.
The show broadcasts on bothFacebook Live and YouTube Live
(00:32):
as well as via streaming audiofrom the show's website.
Weekdays from 6 to 8 am.
I join Michael weekly in thefirst hour of Tuesday's show
from 6.10 to 7 am for adiscussion between the two of us
about our three issues.
We post the podcast of ourdiscussion following the show on
the Alaskans for SustainableBudgets Facebook, youtube,
(00:54):
soundcloud, spotify and Substackpages, also on the Alaskans for
Sustainable Budgets website, aswell as the projects page on
national blog site mediumcom.
You can find past episodes ofthe weekly top three also at the
same locations.
Keep in mind that, in additionto these podcasts during the
(01:15):
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 explain how
the Permanent Fund Corporationis leaving substantial amounts
(01:38):
of money on the table.
Second, we look at what boththe left and the right are
missing about the Hillcorploophole.
And third, we discuss how theSenate is being pushed this
session to act as the fiscalgrown-up in the room.
And now let's join Michael.
Speaker 2 (01:59):
All right, brad.
Well, let's dive into this.
You got some good topics fortoday and I'm looking forward to
it.
The first one is we talked alittle bit about this last week,
but you dove a bit deeper intothis in your weekly column,
talking about exactly how muchmoney are we leaving on the
table with the PF, the PermanentFund Corporation, and the POMV
(02:21):
draw?
You've got some questions, sohit me with it here.
Speaker 1 (02:28):
So last week we talked about the permanent fund
balances, what the permanentfund balances would have been
had the permanent fund beeninvested in S&P 500, in the S&P
500 index, through an electronictraded fund, into the S&P 500
index, and the numbers weresurprising.
(02:49):
I went back to 2020 and itshowed that in every year except
one, the S&P would haveproduced significantly higher
returns for the permanent fundas opposed to how the permanent
fund, as opposed to how thepermanent fund corporation had
invested the funds, and that thebalance for the permanent fund
(03:11):
would be significantly highertoday, even starting in 2020,
would be significantly highertoday, nearly double what the
balance of the permanent fund ishad it been invested.
Over the course of the week Ikept thinking about that and I
got several questions about well, what does that mean in terms
of money?
What does that mean in terms ofthe POMV draw?
(03:32):
What does that mean in terms ofhow much the Alaska revenue
side would realize had thepermanent fund corporation
invested the funds differently?
And so I dug into that and Iwent back to FY13, because the
way you calculate the POMV drawis it's the average of the first
(03:56):
five of the preceding six.
It makes sense if you thinkabout it, the first five of the
preceding six years, the averagepermanent fund balance.
And so you can't just start insay you just can't start
recalculating in, say 2019 andknow what the 2019 POMV draw was
would have been underalternative investment.
(04:16):
You have to go back to FY13,actually to be able to do that
to July 1st 2012, to be able todo that calculation.
So I did that.
I went back to July 1, 2012, andlooked at what the permanent
fund would have looked like hadit been invested in S&P or the
(04:40):
S&P 500 or some variation of theS&P 500, a 90-10, the Buffett
rule for investment, 90% in theS&P 500, 10% in bonds had it
been invested in those.
And the numbers are justflooring.
I talk about them in lastweek's landmine column for
(05:01):
people who want to dig into thedetails, but the numbers are
just jaw dropping.
I mean the.
So you, you start in.
We started in F on July 1st2012, beginning of FY 13, with
the same balance as thepermanent fund had, and said,
okay, up to then everything'sthe same, and that balance was
about $40 billion, thank you.
And that balance was about $40billion.
(05:23):
And then we started building thepermanent fund through
investment in the S&P andthere's a publicly traded fund
VOO is the trading symbol forthe Vanguard S&P 500 fund that
tracks the S&P 500 index.
And so we said, okay, so whatif it had been invested in VOOs,
(05:44):
as opposed to the way it wasinvested?
And Michael's got the chart upon the screen.
The blue line at the bottom,the line is what the permanent
fund did over that period andthe red line is what the
permanent fund would have done.
The permanent fund balanceswould have been over that period
(06:05):
had it been invested in the S&P500.
In only one year did the S&P500, did the permanent fund
outperform through this entireperiod, through this entire
13-year period?
In only one year did thepermanent fund outperform the
S&P 500.
And that was in 2022, fy 2022,when the permanent fund, when
(06:30):
the S&P, dropped, but so did thepermanent fund, the permanent
fund balance just dropped alittle bit less.
But using those balances then,using the balances we
constructed out of the S&P, welooked at what the permanent
fund draw would have been andthat's what the bars are at the
bottom of this chart, and thereason they begin in FY19 is
(06:53):
because that's when the POMVdraw began and that's the period
that we can start going back toFY13.
That's the period that we canstart using the average of the
five of the preceding six yearbalances, and the blue bar is
what the POMV draw was from thepermanent fund.
The red bar is what thepermanent fund draw would have
(07:17):
been had we been using the S&P500.
And the differences are juststark.
I mean, beginning in FY19, thedraw, the POMV draw, had we been
invested in the S&P 500, thePOMV draw would have been $470
million more than the actualPOMV draw based upon the
(07:41):
permanent fund balances at 17%.
Fy20, the difference is $760million, 25%.
The draw would have been 25%higher had we been invested in
the S&P 500.
Fy21, the draw would have beena billion dollars higher.
Just the POMV draw would havebeen a billion dollars higher in
(08:05):
FY21, 35% above what the actualPOMV draw was.
Fy22, the POMV draw would havebeen a billion and a half
dollars, nearly a billion $600million higher in FY22, 50%
above what the POFD draw.
So you go on out and by thetime you get to FY26, uh, well,
(08:28):
fy25 is a $2.74 billiondifference.
The POMV draw would have been$6.39 billion versus $3.66
billion.
And uh, fy26, the year we'relooking at the POMV draw, would
be $3.25 billion higher.
It would be $7.08 billionversus $3.8 billion, 86% higher.
(08:55):
So what you figure out from thisis the permanent fund
corporation has been investingbasically to just sort of hold
its own.
If you look at the blue line,you can see it sort of flat
lines across this entire period,while the S&P if it had been
invested in the S&P while itclimbs substantially.
(09:20):
The permanent fund executivedirector, devin Mitchell, was
before Senate Finance and gotasked about why didn't you
invest in S&P, and the answerbasically was volatility that
the S&P is more volatile, andthat's a significant insight
into what's going on in thepermanent fund corporation's
(09:40):
mind.
They're scared of volatilityand so they're investing in a
way that doesn't have muchvolatility, doesn't have much
variation, and what you'regetting out of that is that flat
line, the blue flat line, thatcrosses all those years without
much significant growth.
They're just sort of holdingtheir own and they're paying
(10:02):
something like $860 million.
This 12-month period just ended,at the end of December.
They're paying $860 million infees basically cover your ass
fees to get advisors andmanagers to build this fund.
That doesn't vary much.
Well, variability is not a badthing as long as the variability
(10:26):
is generally high, is generallyup, and that's what the S&P
line is showing you that if youinvested in the S&P, yes, it's
more variable, which means itchanges more year to year, but
the volatility has been up, withthe exception of one year, and
even then has been up, with theexception of one year, and even
(10:49):
then, when the S&P correcteddown by 10% in FY22, it still
stayed significantly higher thanthe permanent fund corporation
level.
And this is part of why thisnumber flatlines the Permanent
Fund Corporation flatlines.
(11:11):
Instead of paying $860 millionin fees, like the Permanent Fund
Corporation is doing, to getmanagers and advisors to tell
you how to avoid volatility, allyou would pay in fees for
investing in the S&P 500 throughVOO, through the Vanguard S&P
500 ETF, all you would pay infee is 0.03%.
And that 0.03% even at the muchhigher balance that we're
(11:33):
showing in FY25 and FY26, that0.03% would be $50 million in
fees compared to the $860million that the Permanent Fund
Corporation has invested.
So what I think we've done withthe Permanent Fund Corporation
is we said look, we want you tobe riskless, we want you to take
no risk, we want you to keepthe fund growing a little bit,
(11:59):
but we'll tolerate a loss ofreturn to avoid volatility, and
the consequence of that is thatwe've foregone these higher
returns.
If you look at FY25, that $2.74billion difference in the POMV
(12:20):
draw would have been more thanenough not only to pay a full
PFD without really breathinghard, but also to cover
additional expenses.
Like we're hearing now aboutdeferred maintenance and about
additional K-12 spending.
We're leaving money on thetable.
The way the Permanent FundCorporation is managing the
(12:42):
Permanent Fund and we've got, tomy knowledge we've got no one
looking at it.
I mean, what you have a revenuecommissioner for in government
is to look after revenue.
He's not supposed to be lookingafter other things.
He's supposed to be lookingafter revenue.
And when you look after revenue, you're supposed to be looking
at things like am I getting thefull return from oil that we
(13:03):
should be getting?
Am I getting the full returnother places?
If I need more revenue, wherewould be the efficient and
equitable way to get morerevenue?
One of the things the revenuecommissioner should be looking
at is this very thing he shouldbe looking at is the permanent
fund corporation producing thekind of returns that we could
get off this money?
Are they producing the type ofPOMV draws, the type of revenue
(13:28):
generation that we could begetting off this money.
To that end, the revenuecommissioner sits on the
permanent fund board.
By statute, the revenuecommissioner has a seat on the
permanent fund board, but ourrevenue commissioner has been
asleep at the wheel on a numberof things, but this is certainly
one of them and I think this isjust shocking when you look at
(13:50):
the revenue being left on thetable by the way in which the
Permanent Fund Corporation isinvesting.
I'll go so far.
One more thing.
I'll go so far even to say Ithink this is a 2026 election
issue.
I think I look at that.
I mean, that's $3 billion beingleft on the table and I think I
(14:12):
think somebody in 2026 runningon replace the permanent fund
board is is going to get a lotof traction when you start
talking about the numbers thatare that are being left behind.
Speaker 2 (14:21):
Well, and the other thing, of course, that
exacerbates this is they keeppatching all these rosy
projections into what thepermanent fund is going to earn
and it's not earning.
What they're projecting.
You know what they're saying isa standard projection, whereas
I mean you're talking about.
You know, the current $80.46billion value of the permanent
fund and the $188 million valueof the Vanguard fund just shows
(14:46):
you how far they're, $108billion apart, after only 10, 12
years.
I mean, that's a real problem.
And it's not that I want togive more and more money to
government, which is what thiswould have done, but we would at
least not be fighting, I think,about some of the things that
we're fighting about right now.
Speaker 1 (15:04):
Oh, we wouldn't be fighting about the permanent
fund dividend.
This would cover the permanentfund dividend, the statutory
permanent fund dividend, easily.
Speaker 2 (15:10):
Rob Meyers says in the legislature.
We're talking about how theopposite.
We're saying the draw rate istoo high and encouraging the
permanent fund board to investtoo aggressively is what they're
saying right now.
I mean, you wouldn't even haveto.
Let just invest it.
Have one guy going yeah, we'llinvest it all in the S&P 500 and
we'll just be fine.
Speaker 1 (15:30):
I mean, wow, that's what Nevada does, the Nevada
PERS, the public retirementsystem, their public retirement
fund.
Down there, they invested inETFs, they invested in
electronic traded funds, the lowcharge, low fee funds, and
they've got a lot of it investedin S&P and they got one guy
(15:51):
running it and one person doingthe books.
That's their entireadministrative costs and they're
producing returns not as highas this because they don't have
it all invested in the S&P 500,but they're producing returns
significantly higher than whatthe permanent fund's returning.
I get that people are cautious.
(16:11):
I get that people don't want torisk the money and don't want
to incur volatility, as ifthat's a nasty word.
I get that, but what it's doneis it's leaving money on the
table.
It's paying a huge amount infees.
I mean we're paying 1% in feescompared to the 0.03% we would
(16:35):
be paying using an ETF.
We're paying a huge amount infees and we're getting like zero
returns, in fact, or very lowreturns, in fact.
The reason we're having thiswhole discussion about merging
the earnings reserve and that'show I got into this issue the
reason we're having this wholediscussion about merging the
(16:56):
earnings reserve and thepermanent fund corpus is because
the permanent fund isn'tgenerating enough money, even
enough money to cover the 5%POMV draw.
And so the sense is oh, we needto merge those two funds so we
can start drawing from thecorpus, so we can keep the 5%
draw going even when thepermanent fund is not generating
(17:19):
enough in earnings to cover thePOMV draw.
This would have solved thatproblem in spades had we been
going down this track.
I've been.
I mean, I've got to admit that,like everybody else, I've been
one of the ones that has said,oh, we need to manage the
permanent fund cautiously.
But this isn't in cautiously.
(17:40):
Look at the 13 years.
Only one year have we had asignificant decline in the S&P,
and that was more than offset bythe growth in the S&P up to
that point and the growth in theS&P after that point.
So this isn't incautious.
Yes, it's more volatile in thesense that the variation around
(18:03):
the median is more active.
But when you have a lowvolatile fund, when you're not
investing for growth, you'rejust investing to avoid
volatility, you get what theblue line is showing.
You get this sort of flat linethat goes across time.
(18:26):
Yeah, you haven't lost much,but you haven't grown it, and
the consequence of not growingit is you're not getting the
POMB draw.
The consequence of not gettingthe POMB draw is we're cutting
the PFD.
Instead, we are talking yearsof foregone deferred maintenance
, that that we haven't, that wehaven't kept up with.
We're talking about K through12 and we're and we're talking
(18:50):
about, we're talking about highfees on the permanent fund.
To maintain this sort of steady, non-volatile, flatlined
existence, we need to.
As I say, I think a 2026campaign slogan of replace the
permanent fund board is going tobe something that, if they
(19:11):
don't get this under control andI doubt they do, if they don't
get this under control somethingwe're going to see in 2026.
When you look at these numbers,it's unavoidable.
Speaker 2 (19:20):
Well, and what really hits my attention here is that
even with the supposedvolatility we're talking about
the drop in 22 and things likethat I mean the permanent fund
lost about $5 billion, just over$5 billion, and the S&P fund
lost about $19 billion $19billion.
(19:47):
But overall you'd already madeup there was already a $50
billion difference between thetwo, $60 billion difference.
That was again what has stillbeen negligible in the long run,
especially with the returns asthey are today.
We've got to continue here, theweekly top three, brad Keithley
, with our Truth Tuesday segment.
The big question here is today.
The big question here is today.
(20:17):
I've seen a lot of this hatethat's come out for Rob Yunt
over this discussion on changingthe S-Corp, c-corp, llc
designation for oil companies,and there's been a lot of
hand-wringing.
There's a lot of discontent, Iguess I should say, on the right
over Rob bringing this up.
I for one am fine with it, butthere's a lot of folks out there
that are doing it.
What are the left and the rightboth missing on this discussion
of this Hillcorp?
(20:39):
You know the Hillcorp rule, orthe loophole, as you call it,
for the taxation on oilcorporations, brad.
Speaker 1 (20:48):
So, michael, I've been involved in the Alaska oil
industry since 1993.
And by my calculations that'ssomething like 32 years that
I've been in the industry in oneway or another, either directly
in the industry or, for thelast 10 years, sort of
monitoring it in terms ofnumbers and calculations and in
(21:12):
terms of the proposals that comebefore the table.
There are several truths,consistencies over that 32-year
period.
But one of them is that theAlaska revenue system from
petroleum is four-pronged One isproduction, one is royalty.
(21:35):
That's been consistent over theentire 32 years.
The second is that allproducers have paid royalty for
production from state lands.
The second is that there's beena production tax of varying
types over that period butthere's been a production tax
(21:56):
throughout that period that allproducers, regardless of whether
it's state or private orfederal lands that all producers
have paid into.
The third is that there's beena petroleum property tax that's
shared with the boroughs but thestate takes a share of a tax
calculated on the propertyinvested in petroleum plant and
(22:20):
equipment.
And the fourth has been there'sbeen a corporate income tax on
petroleum companies consistentlyacross that entire period.
It's a four pronged approachand the reason you have a four
pronged approach, the reason anytax system has more than one
way of calculating, ofcalculating taxes is is
(22:42):
sometimes one of the measuresgoes way up.
When you're in a highinvestment period, for example,
the property tax will go up high.
Sometimes, the numbers will goway low.
For example, when oil pricesdrop, the royalty will go way
low.
Sometimes, because you want tochange the petroleum tax, you
(23:04):
want to change the incentives.
Because you want to change thepetroleum tax, you want to
change the incentives, as we didwith ACES in 2006, 2007,.
Rather, and as we did with thecurrent SB21 in 2013.
Sometimes, because you want tochange the incentives uh, what
(23:25):
you're, what you're encouragingproducers to do you'll change
the petroleum tax, sometimes the, the, the severance tax, and
sometimes that'll cause it to goup and sometimes it'll cause to
go down.
Sometimes it'll cause it toflatline, even though oil prices
are going up.
Um, and and, and.
So you've got.
You've got those variations.
The corporate income tax hasalways been sort of a net
(23:46):
profits share that Alaska hasshared in the net profits
through the corporate income tax, has shared in the net profits
of the corporations operatingthe petroleum corporations
operating in Alaska.
It's been consistent since waybefore 1993, way before I came
on the scene but it's beenconsistent since the time that
I've been involved and it is anot insubstantial.
(24:10):
This sort of net profits tax isa not insubstantial source of
income If you look at.
For those who are reallyinterested in this sort of stuff
, if you go to the springrevenue forecast and you look at
Appendix A3, which has thebreakdown of the petroleum
revenue by category, you'll seethat petroleum corporate income
(24:32):
tax is the third largest sourceof income projected over the
last 10 years and projected overthe next 10 years.
The oil and gas royalties arefirst, projected over the next
10 years are first.
Production tax is second butclose behind production tax and
in fact even with production tax, if Hillcorp were paying the
(24:54):
corporate income tax, even withproduction tax would be the
corporate income tax to get atpetroleum revenue in different
ways to make sure the state isgetting its share of what those
petroleum revenues are.
It's not a new system.
It's not something we're tryingto apply for the first time.
(25:16):
It's not something we're tryingto penalize a company with.
It's been a basic, fundamentalpart of the overall petroleum
system for the last four years.
Now the thing about it is thecorporate income tax part, the
petroleum corporate income taxpart, is built in part on the
basic corporate income tax.
(25:37):
As a convenience, when theywere building the petroleum
corporate income tax, they usedthe basic corporate income tax
as a starting point and thenbuilt various widgets on that
corporate income tax tocalculate the petroleum
corporate income tax.
And so it's built on this.
It's built on the corporateincome tax in part, but it's not
(25:59):
.
I mean, when people think aboutit as a corporate income tax,
it's not that.
It's the petroleum corporateincome tax, it's part of the
petroleum revenue system thatwe've always had in this state.
And so when I see articles youknow complaining about Rob Yunt,
about oh, what's the articlethat just really I mean I almost
(26:20):
started laughing at MarcySowers.
Senator Yunt talks like atax-loving social justice
warrior, not a conservative.
When I see articles like that Ijust break out in laughter.
It has nothing to do withsocial justice warrior,
tax-loving social justice.
It has nothing to do with that.
(26:41):
The petroleum corporate incometax as it applies to Hillcorp,
in the same way that the damntax has been there since before
1993, since before I came on thescene it is to make sure that
that fourth prong of thepetroleum revenue system applies
(27:02):
to Hillcorp in the same waythat it applies to everybody
else, that the revenue the netprofit share, if you will from
Hillcorp's income in the stateis being taken in the same way
as being taken from everybodyelse.
It isn't a tax-loving socialjustice warrior, it's somebody
who's trying to restore thesystem, conservative, who's
(27:25):
trying to restore the system towhat it's always been.
So we don't have to go taxsomebody else to make up the
difference for the hole that'sbeing blown in the petroleum
corporate income tax.
The only reason that hole'sbeing blown is because, as I
said, the creators, the fathersof the petroleum corporate
(27:45):
income tax system, based it onthe corporate income tax system
as a convenience and sort ofbuilt from there.
The only reason that we've gotthis problem with Hillcorp is
they've come into a way in thecorporate income tax system that
isn't captured by the basecorporate income tax system and
so it's not captured.
We're not building on top ofthat into the, into their share
(28:08):
of the of the petroleum revenue.
It is it, is it they.
They come in in a side door ina way that sort of takes out the
base on which the petroleumcorporate income tax is built
and has allowed them to escapethe petroleum corporate income
tax.
Allowed them to escape thepetroleum corporate income tax
(28:31):
and that's fine, but it is aproblem that creates a hole in
the petroleum corporate incometax system.
That fourth problem.
One other thing Larry personallyI mean the right, I think is
just cuckoo on this issue.
I think they're just making upcrap to complain about.
The left is off in their ownworld.
Larry personally writes anarticle, an opinion piece in the
(28:55):
ADN that says Alaska needs tofix its tax problem, all of it.
And what Larry says is not onlydo we need to tax the S Corp,
the Hill Corp as a C Corp, weneed to change it to be able to
tax them, we need to change itfor all of the S Corps.
We need to tax all of the SCorps.
That's nuts too.
(29:15):
What we need to do is we need tomake sure that the four prong
petroleum corporate, thepetroleum revenue system that
we've had in this state sinceprobably the beginning of the
petroleum industry I've nevertraced it all the way back, but
probably so that the four-prongsystem stays in place with
respect to all of the players,all of the major players and
(29:38):
these people who are complainingabout trying to create new
taxes or tax somebody thatshouldn't be taxed.
That's just nuts.
It is a petroleum corporateincome tax system.
It has four prongs.
We need to make sure those fourprongs still work.
And the reason we need to makesure those four prongs still
work is to make sure we don'thave to go tax somebody else in
terms of PFD cuts or in terms ofother new revenue sources to
(29:59):
make up the hole that's beingcreated by the way in which the
Hill Corp's operating under thepetroleumroleum Corporate Income
Tax System.
So the left's nuts about thisissue by wanting to spread it to
everybody else.
The right's nuts about thisissue, about wanting to complain
about Senator Yount trying tobring the Petroleum Corporate
Income Tax back together againso it can operate in the same
(30:22):
way.
It's operated since at least1993 when I first got into it.
Speaker 2 (30:27):
Well, it's interesting because I would
think that, as we're notthinking about this in the right
way, we're not thinking aboutthis as owners of the resource.
You have a finite, excuse me, afinite, limited resource and as
an owner, you want to get themaximum yield out of it that you
can while you're going on.
And if one and yes, it's not, Imean, it wasn't anything bad
that Hill Corp did, they justtook advantage of an existing
(30:50):
law.
But if it's not equitable andyou're not receiving your fair
share as an owner, as a resourceowner, you should be looking at
that, absolutely should belooking at that.
And that's the problem.
They're not looking at it asowners, they're looking at it
from a philosophical standpointof taxes are bad.
I agree, I don't like taxes,but as an owner, if I was going
(31:11):
to, if I had my own oil, well,you damn well better be sure
that I was going to be gettingall my fair share of that, of my
resource that I am allowing youto take out in that way.
Speaker 1 (31:22):
And that's, and that's the thing people are
missing.
We've got a four-prong systemto do that.
Some people think, oh, it'sjust royalty.
Some people think, oh, it'sjust royalty.
Production tax.
Some people think, oh, it'sjust royalty.
Production tax and property tax.
But it's a four-prong system.
We've built it.
If we hadn't built it that way,if we'd built it as a
three-prong system, those prongswould be bigger, they would
(31:43):
take more, because we wouldn'tbe collecting a piece of it
through the corporate petroleumcorporate income tax.
And so what we've done is we'vecreated a balanced system that
that sort of operates throughtime as some pieces go up, other
pieces go down, as as somepieces sort of flatten out,
other pieces grow, and andyou've built this system to sort
(32:06):
of, over time, deal with therevenue source.
Take a fair share of therevenue source from the
petroleum companies.
The petroleum corporate incometax is a key piece of that,
especially during the next 10years.
During the next 10 years theproduction tax declines.
Or even though production isgrowing, the production tax
(32:28):
declines because of the way SB21is set up.
And so what helps offset that,in the big scheme of things, the
way we've set things up, is thecorporate income tax because
that produces higher profits.
The corporate income tax takesa higher share of the net
profits out of the corporationsto sort of offset the decline
(32:48):
that's going on in theproduction tax.
And now we're just now we'rejust, you know, saying, yeah, we
got a wheel off the bus, we'rejust going to leave the wheel
off the bus.
So we got this three-prongedbus going down the road.
Bad thing.
Speaker 2 (33:01):
That's why I think these folks are missing it, brad
, is that they're not looking atit through the eyes of I mean,
I could see where they're comingfrom, the people on the right.
I could see where they'recoming from in the fact that
lowest taxes are the best planand taxation is staffed and I
get all that.
But as an owner, if I'm owningsomething and I'm looking at it,
I want to get maximum yield formy limited non-renewable
(33:23):
resource.
I want to get maximum yield formy limited non-renewable
resource.
I want to get the most that Ican out of it.
And if somebody has slippedthrough and we missed something
and I mean S-Corps weren't evena thing back in the day, so
that's how it got throughthere's no blame on Hillcorp.
They're just taking advantageof the system as it's written
currently.
I mean it just makes sense asan owner to go back and revisit
(33:45):
that.
I mean to me I don't see thisas being, again, I'm not a fan
of taxes, but if it is myresource and I'm trying to get
the maximum yield out of it thatI can, that just makes sense.
Speaker 1 (34:08):
I don't understand all the fervor over it.
This system is a four-prongedsystem to get at property, to
get an investment.
To get at production, to get atthe benefits of production as
you produce.
To get the royalty share, ourownership share, as it's
produced and, as an integralpiece of the whole system, the
petroleum corporate income tax,to get at net profits as a part
(34:32):
of the share that is.
I mean it's a whole system.
That's four pronged.
It gets at our fair share, asyou're discussing it, from the
resource and we've got this onepiece of it that's gone amiss
because of the way it was built,because it's built on the
foundation of the corporateincome tax.
(34:54):
Not because we decided that wedidn't want a petroleum
corporate income tax fromHillcorp, not because we decided
that somehow we needed toincentivize Hillcorp by having a
different petroleum corporateincome tax apply to them, to
everybody else.
Just because the by having adifferent petroleum corporate
income tax apply to them, toeverybody else.
Just because the way we builtthe petroleum corporate income
tax on this base of thecorporate income tax.
That's the reason they'regetting out of it.
(35:16):
It's not because anybody said,oh, they don't need to pay
petroleum corporate income tax.
Of course they do.
That's one piece.
That's one prong of how we getour share of revenues from the
oil companies.
And for people to say, you knowfor Marcy Sowers, who I don't
know and probably is a greatperson, but that headline is
just outrageous For them to saythat somebody trying to get that
(35:40):
piece back together again, getthe four prong system back
together again, is a bad person,a social justice warrior, it's
just outrageous.
That's not what Rob is doing.
Rob has been up until the timehe stepped off of the bill, for
whatever reason he did.
Rob has just been trying tokeep the existing system going
(36:04):
and I think both the left andthe right have lost their minds
about this.
It's a technical thing.
It's a technical detail.
We've built the four-prongpetroleum revenue system.
One prong has been sprungbecause of the base that it was
built on.
(36:24):
We just need to go back and getthat prong back in so we
continue to have a four-prongsystem that's applying to the
total oil flow that's occurringin the state.
Speaker 2 (36:38):
It's interesting to watch them.
Basically, the feeding frenzyover this bill.
Again, as I said, I'm okay withit, which I'm sure a lot of my
libertarian friends are freakingout about.
But again, I'm looking at it asan owner.
I'm looking at it as an ownerIf I own the resource.
That's how I have, that's thelens that I have to look at it
(36:59):
through.
And if I'm not getting, youknow, my maximum yield out of
that ownership, then I need tofigure out how do I do that, how
do I fix that?
And, like you said, thefour-pronged approach is
important for that.
And if we're missing out on one, then we need to adjust.
To me it's just common sense.
I don't understand why it's socontentious.
Speaker 1 (37:21):
It's conservative to go put this piece back together
again.
It's conservative to go putthis piece back together again
to go unspring the sprung pieceof the prong of the system as it
applies to Hillcorp.
It's conservative to do that.
We're just going back to whatwe've always done to make sure
(37:45):
it continues to work.
If you don't do that, you haveto create new taxes to fill the
revenue hole.
I mean, that's the thing aboutMarcy Sowers.
It just sort of drives me overthe edge.
There's going to be spending.
It's just how we fund thespending.
And if we're not funding it aswe traditionally I thought that
was the conservative thing as wetraditionally have through the
(38:06):
four-prong approach, we're goingto have to go out and tax
somebody else.
That's exactly what we're doingwith PFD cuts.
So essentially what MarcySowers and the others who are
going all crazy about this aredoing is they're saying tax the
PFD more, take more in PFD cuts,because we don't want to put
back together this four-prongsystem.
We want a three-prong systemfor Hillcorp.
Speaker 2 (38:31):
Yeah, kevin says.
My guess is that he stepped offof that tax because they were
planning to stuff an income taxor some other kind of revenue
generation into it, which, again, is very possible, because
that's what all the folks andthe Democrats in the Senate have
been talking about this wholetime is more new taxes as well.
All right, we're continuing.
Brad Keithley, alaskans forSustainable Budgets, our Truth
Tuesday segment continues theweekly top three.
The final question is is theSenate going to be the fiscal
(38:56):
grown-ups in the room or not?
That's a question I don't knowthe answer to it.
I can suspect the answer, but,brad, what do you say?
What are we talking about here?
Speaker 1 (39:13):
Michael, thus far this session we've had a lot of
punting.
The governor filed a budgetthat violated the law because it
didn't balance.
Nobody seems to care much aboutthat.
But the governor filed a budgetthat violated the law, had a
budget that balanced only bypulling down the CBR and then
once you went out a couple ofyears the CBR was gone because
we pulled it all out and he hadbig zeros, big red marks on out
(39:38):
in the future.
So he just basically punted.
He said look, I'm not going totry to be fiscally sound here or
fiscally conservative orfiscally sustainable or fiscally
anything.
I'm just going to throw you abudget and throw it into the
room and just you know, just youguys, you guys do something.
And now the House has done thesame thing.
I mean, the House has passedthe K-12 bill at last, at least,
(40:01):
without knowing how the hellthey're going to fund it East,
without knowing how the hellthey're going to fund it.
House passes education billwith $1,000 BSA increases.
State's fiscal situation growsbleaker.
That was the Juneau Empire, theAnchorage Daily News, alaska
House advances school fundingboost over doubts about its
costs.
It just goes on and on and on.
And then we're getting otherstuff on top of it in terms of
(40:26):
school maintenance.
And it's just.
I mean, these two branches ofgovernment the governor in the
first place with his budget andthe House in the second place
are just not dealing withreality.
They're just throwing it alldown the road.
The governor threw it into theHouse, the House is just
throwing it into the Senate, anunbalanced budget into the
(40:47):
Senate, saying we don't know howwe're going to fund this.
You guys figure it out and thequestion is is the Senate going
to be responsible?
Is the Senate going to be thegrown-up in the room and finally
come to grips with these issuesthat everybody else is refusing
to deal with?
They say they are.
I mean, they say they've gotproposals to deal with it.
(41:08):
You've got the bill supportedby the entire Senate Finance
Committee that would reduce thePFD down to $25.75 statutory and
may uses the magic word may butwould theoretically reduce the
PFD down to and hold the PFD at2575.
You've got Stedman saying that,oh, we're going to cut the K
(41:33):
through 12, increase down to 600and some odd million dollars
when it gets over to us andthat's going to be a piece of
balancing the budget.
But even after all that, we'vestill got this huge deficit,
$500 million deficit.
That's going to sit in thebudget.
But even after all that, we'vestill got this huge deficit,
$500 million deficit.
That's going to sit in thebudget.
And the question is is theSenate?
Because the House isn't goingto do it, the House essentially
(41:56):
says take it out of the PFD, cutthe PFD down to $750 million or
$750 per PFD or something likethat, to balance.
The House isn't going to befiscally responsible.
So the question really comesdown to is the Senate going to
be fiscally responsible?
And here's what it's going totake for the Senate to be
fiscally responsible.
(42:16):
They're going to have to dosome cutting the $650 BSA
increase that they've talkedabout instead of the House $600
to $1,000 PFD, or how $1,000 BSAincrease that they've talked
about instead of the house $600to $1,000 PFD, or how thousand
dollar BSA increase is is partof that.
They're going to have to dealto some degree with deferred
maintenance, because they're theones bringing it up and do
(42:38):
something with the, with the,with the dollars there.
But they're also going to haveto come up with some revenues
and even if you would acceptwhich I don't that it's fair and
equitable to come up with, touse 25-75 as the split on the
PFD, the split for the PFD 25 ofthe PFD 75 of government, even
(42:58):
if you accept that they stillhave a big hole.
So they're going to have tocome up with some revenues.
The closing the Hillcorploophole, restoring the
four-prong for those who didn'thear the second segment, go back
and listen to it againrestoring the traditional
four-prong corporate revenue,petroleum revenue approach.
That's going to have to be partof it.
(43:20):
That'll get you some of the waythere.
Going back and looking at SB21,as we've talked about on the
show previously, adjusting SB21to get back to the same percent
overall percent of the grossthat we've had the past decade.
We're not talking aboutchanging the revenue that SB21
produces.
We're just talking aboutgetting SB21 in this environment
(43:43):
that it's in over the nextdecade, getting it back to the
same percent of gross overallpercent of the gross that we had
just this last decade, thefirst decade of SB21.
That's going to need to be partof it and maybe we squeeze by
with just that and maybe theycan get out of town with a
(44:04):
balanced budget just by doingthat Cuts, closing the Hillcorp
loophole and revisiting SB21 andgetting it, readjusting it in
the new environment we're facingover the next decade and
getting it back up to the sameshare of the gross that we've
had over the last decade.
Maybe they can get out of townwith that, but that's just
(44:24):
getting them out of town thisyear.
As you look at SB21, as you lookat the production tax from MSP
21, it goes down Even asproduction is rising.
It goes down because of theincentives on top of incentives
on top of incentives on top ofincentives, kicking in in a way
that I don't think anybodycontemplated when it was passed,
(44:45):
kicking in over the next decade.
So you're going to have to fixthat and get that back up to the
same share of the gross anddeal with the incentive issues
so that you don't distort theincentive issues but deal with
the incentive issues as you'redoing that.
You're going to have to do that.
You're going to have torestrain spending over the next
(45:06):
10 years.
That's going to have to be partof it.
And you're going to have todeal with how you're going to
get a personal tax, whether it'sa PFD cut, which is a personal
tax, or an income tax, or goback to Ben Carpenter's
brilliant I want to say thisabout 20 times brilliant,
broad-based, hugely broad-based,ultra broad-based sales tax,
(45:26):
which took very little fromanybody but by taking it from
everybody, built into somerevenue.
Whether it's going back to that,they're going to have to deal
with that.
The House, the governor, justisn't going to deal with it.
Governor has refused to dealwith it.
He's out traveling.
I don't know what he's doing,but he's not being governor.
(45:47):
The Senate just wanted toplease all of its constituencies
and pass spending on top ofspending on top of spending.
So the Senate's going to haveto kick in and be the adult in
the room.
But to be the adult in the room, they need to be supported in
the things you're going to needto do Cuts, certainly to the K
through 12, to the BSA increase,closing the Hillcorp loophole,
(46:09):
adjusting SB21 to reflect thereality we're in over the next
decade and then looking at howwe're going to raise money
personally, either through PFDcuts or in some other way.
That's much more broader andwould include non-residents and
other sources of income.
Speaker 2 (46:25):
The interesting part about this discussion for today
in this segment was the factthat they're now talking about
these school maintenance fundsand things like this.
But again, how much of thislays back on the school
districts, who have beendeferring the maintenance on
these things for years.
I mean, this has always been apet peeve of mine, the deferred
maintenance.
And now they go to the stateand say, well, now we're in
(46:49):
trouble, now we need it, now weneed the help.
And Jesse Keel actually is evenquoted in this article saying
that he wants to lift themoratorium on the school bond
debt reimbursement.
How are we going to pay?
I mean, again, there's the whopays thing.
Nobody seems to be asking thatquestion.
It always seems to be going onlike oh, don't worry, the money
will always be there, we'll befine.
A minute.
Speaker 1 (47:07):
Brad.
Well, deferred maintenance ishuge in and of itself.
I mean, this is sort of thefirst time we've talked about it
.
We may talk about it insubsequent shows, but the
standard 3% that the Departmentof Education applies, that would
be $330 million a year atcurrent values.
So it's huge.
I mean, if we talk aboutbringing deferred maintenance
(47:28):
back in, that's a huge chunk tothe budget.
Yes, the school district shouldhave handled it.
Yes, the state should havehandled it.
Yes, the state should havehandled it before now.
But you know, we've got schooldistricts falling apart, we've
got school buildings fallingapart that we're going to have
to deal with.
Speaker 2 (47:40):
You're wrong.
Md Brad just said it was thegovernor's fault.
I mean, it's a combination ofboth the governor, you know, not
putting it into his budget,these, you know, these deferred
maintenance plans, and thelegislature doing their things
as well.
I mean the school boards.
They've been pushing this stuffoff forever.
I mean, what the heck?
(48:02):
You knew it was coming.
And then they look to the statelike, well, bail us out, daddy.
That's what they keep comingback to.
Speaker 1 (48:09):
Yeah, so it goes both ways.
I mean, so deferred maintenanceis supposed to be a separate
line item.
The state has a responsibility.
I mean the state has aresponsibility by statute for
deferred maintenance and so theschool districts put in projects
and the state's supposed tofund them.
The state hasn't funded them sothey haven't set the money back
(48:31):
to the school districts.
Now the school districts wouldhave had the discretion to take
the money that has come back tothem and use part of it to cover
the deferred maintenance.
They could have allocated apart of it themselves, even
though the state didn'tseparately line item money back
to them for it.
They could have used a part ofit themselves.
They could have used part ofthe property tax that they get
(48:53):
from local sources to deal withit.
So yeah, it's a sharedresponsibility.
If you talk to somebody on theschool districts which I've done
if you talk to somebody on theschool districts and say, oh,
it's all the state'sresponsibility.
We put in these projects, theyhaven't funded them.
You know, the fact they'refalling apart is the state's
responsibility, and then you say, but yeah, you could have put
(49:14):
funds toward it.
Oh well, I needed the funds for, you know, healthcare for
teachers or for teacher, youknow additional additional
salaries for teachers, or youknow for this project or for
that project or for the otherproject, and so it's it's a,
(49:42):
it's a shared responsibilitybetween the two.
Speaker 2 (49:43):
But regardless of how we got here, it's now a huge
dollar figure that's beginningto come at us that we've got to
deal with in some fashion.
Rob Myers makes the point.
This deferred maintenance hasbeen brewing for decades.
We had a bunch of cash in 2013.
We decided it was moreimportant to build AstroTurf
football fields.
He's not wrong.
I mean, everybody was askingfor it.
I mean, theFairbanks-Norrisburg borough was
like, oh, we need AstroTurf.
I mean, if they've got anAstroTurf field in Barrow, we
need one here.
We need three here.
I mean, it was just shaking myhead like, come on, guys, there
(50:09):
are better things to spend themoney.
And and that was at the pointwhere they still had tens of
millions of dollars in deferredmaintenance on other things.
We should have been taking careof the buildings we had.
Speaker 1 (50:17):
Well, yeah, and part of the problem is, you know the
state was paying half of theconstruction of new schools.
So you know, the localmunicipalities looked at it, or
the local school districts lookat it, as free money.
Basically, right, we can go outand we can.
You know, we can favor ourfavorite architects.
We can do our favorite.
We can.
You know, we can favor ourfavorite architects.
We can do our favoritecontractors.
(50:37):
They can all, you know, getthis money and the state will.
They can all get this money andthe state will pay half of it
instead of paying, instead ofcontributing that money toward
deferred maintenance of thebuildings we already had.
So we created more and more andmore of the problem during that
era by the state, you know,paying for half of new school
buildings and encouraging peopleto go out and build more and
more and more, as opposed totaking care of what they already
(50:59):
had.
So it's a shared problem, butit's a big problem that's
beginning to land on people'sdoorsteps and again it's the
Senate who's getting forced intobeing the grownup in the room
because the House hasn't dealtwith it.
The house hasn't talked abouthow to fund it.
The house hasn't talked aboutthe amounts just like.
Well, give me the.
Speaker 2 (51:21):
Vegas odds.
Do you give me the Vegas oddson what you think you think the
Senate's going to actually stepup and have to and do that?
I mean I.
I mean what?
Speaker 1 (51:29):
do you think?
I think?
I think I I have a lot ofconcerns about the Senate.
I think some of them have goodintentions.
I think some of them are justlike House members, in the sense
that they just want to curryfavor with whatever constituency
, whatever trade group they'vegot out there that help fund
their election.
(51:51):
Some of the senators, I think,have good intentions, but one of
the things they could do isspend some time figuring out
what's going on with thePermanent Fund Corporation.
One of the things they could dois look at the type of
deficient returns that we'regetting out of, the deficient
compared to where we could bethat we're getting out of the
Permanent Fund.
I mean, that's a revenue sourceand, frankly, the
(52:14):
administration, the commissionerof revenue, ought to be looking
at that, but he's off doingother things.
He's getting ready to run forgovernor, so he doesn't want to
be bothered by those things.
It's in his job description,you know, and so we just got
people just sort of runningaround and not doing the job.
The Senate says they'll do thejob.
Speaker 2 (52:35):
We'll see.
Brian said but look, look atthis new center of science-y
stuff that we can't afford tooperate, but it will look great
on the brochure in color.
I mean, that's typical, that'swhat we see all the time.
Oh, but look at this, it'll begreat, we'll put it up there.
I mean, we finally fought forfiscal notes in the borough to
finally, when I was there tofinally get you know, put on the
(52:55):
fiscal note what the cost ofkeeping the building going was.
That took a Herculean effort toget that on there.
I mean, come on, we've got toknow great, you build the
building, how much is it goingto cost us in the next 10 years?
And it's like nobody wasthinking about that.
It's like, once you build it,oh, now it's done.
But we kept seeing themaintenance be deferred,
deferred, deferred.
(53:15):
I mean the Fairbanks-DorchesterBorough has a quarter of a
billion dollars in deferredmaintenance for a government of
100,000 people, less than100,000 people.
A quarter of a billion dollars.
And this is, you know, andremind me who is the revenue
commissioner?
Adam Crum.
That's who the revenuecommissioner?
Speaker 1 (53:39):
is Brian if you're asking there.
All right, brad.
One less than a minute Finalthoughts.
Michael, we got big issues infront of us, but people need to
deal with it reasonably.
This stuff that Rob Young'sbeen through is just insane.
We've got to have people whowill take the time before they
fire off crazy op-eds and mustread.
We've got to have people whowill take the time to actually
(54:00):
understand what we've done inthe past and that Rob's just
trying to continue what we'vedone in the past.
Going forward, we need toreinforce those people who are
trying to come up withreasonable sources of revenue as
opposed to castigate them everytime that they open their
mouths.
Speaker 2 (54:17):
All right, brad.
Thank you so much, my friend.
Good to talk with you.
We'll see you next week.
Michael, as always, thanks forhaving me Well.
Speaker 1 (54:24):
That's a wrap for another week's edition of the
Weekly Top Three from Alaskansfor Sustainable Budgets.
Thank you again for joining us.
Remember that you can find pastepisodes on our YouTube,
soundcloud, spotify and Substackpages, and keep track of us
during the week on Facebook andTwitter.
This has been Brad Keithley,managing Director of Alaskans
for Sustainable Budgets.
(54:44):
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 17th 2025.
The weekly top three is aregular segment on the Michael
Duke Show.
The show broadcasts on bothFacebook Live and YouTube Live
(00:32):
as well as via streaming audiofrom the show's website.
Weekdays from 6 to 8 am.
I join Michael weekly in thefirst hour of Tuesday's show
from 6.10 to 7 am for adiscussion between the two of us
about our three issues.
We post the podcast of ourdiscussion following the show on
the Alaskans for SustainableBudgets Facebook, youtube,
(00:54):
soundcloud, spotify and Substackpages, also on the Alaskans for
Sustainable Budgets website, aswell as the projects page on
national blog site mediumcom.
You can find past episodes ofthe weekly top three also at the
same locations.
Keep in mind that, in additionto these podcasts during the
(01:15):
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 explain how
the Permanent Fund Corporationis leaving substantial amounts
(01:38):
of money on the table.
Second, we look at what boththe left and the right are
missing about the Hillcorploophole.
And third, we discuss how theSenate is being pushed this
session to act as the fiscalgrown-up in the room.
And now let's join Michael.
Speaker 2 (01:59):
All right, brad.
Well, let's dive into this.
You got some good topics fortoday and I'm looking forward to
it.
The first one is we talked alittle bit about this last week,
but you dove a bit deeper intothis in your weekly column,
talking about exactly how muchmoney are we leaving on the
table with the PF, the PermanentFund Corporation, and the POMV
(02:21):
draw?
You've got some questions, sohit me with it here.
Speaker 1 (02:28):
So last week we talked about the permanent fund
balances, what the permanentfund balances would have been
had the permanent fund beeninvested in S&P 500, in the S&P
500 index, through an electronictraded fund, into the S&P 500
index, and the numbers weresurprising.
(02:49):
I went back to 2020 and itshowed that in every year except
one, the S&P would haveproduced significantly higher
returns for the permanent fundas opposed to how the permanent
fund, as opposed to how thepermanent fund corporation had
invested the funds, and that thebalance for the permanent fund
(03:11):
would be significantly highertoday, even starting in 2020,
would be significantly highertoday, nearly double what the
balance of the permanent fund ishad it been invested.
Over the course of the week Ikept thinking about that and I
got several questions about well, what does that mean in terms
of money?
What does that mean in terms ofthe POMV draw?
(03:32):
What does that mean in terms ofhow much the Alaska revenue
side would realize had thepermanent fund corporation
invested the funds differently?
And so I dug into that and Iwent back to FY13, because the
way you calculate the POMV drawis it's the average of the first
(03:56):
five of the preceding six.
It makes sense if you thinkabout it, the first five of the
preceding six years, the averagepermanent fund balance.
And so you can't just start insay you just can't start
recalculating in, say 2019 andknow what the 2019 POMV draw was
would have been underalternative investment.
(04:16):
You have to go back to FY13,actually to be able to do that
to July 1st 2012, to be able todo that calculation.
So I did that.
I went back to July 1, 2012, andlooked at what the permanent
fund would have looked like hadit been invested in S&P or the
(04:40):
S&P 500 or some variation of theS&P 500, a 90-10, the Buffett
rule for investment, 90% in theS&P 500, 10% in bonds had it
been invested in those.
And the numbers are justflooring.
I talk about them in lastweek's landmine column for
(05:01):
people who want to dig into thedetails, but the numbers are
just jaw dropping.
I mean the.
So you, you start in.
We started in F on July 1st2012, beginning of FY 13, with
the same balance as thepermanent fund had, and said,
okay, up to then everything'sthe same, and that balance was
about $40 billion, thank you.
And that balance was about $40billion.
(05:23):
And then we started building thepermanent fund through
investment in the S&P andthere's a publicly traded fund
VOO is the trading symbol forthe Vanguard S&P 500 fund that
tracks the S&P 500 index.
And so we said, okay, so whatif it had been invested in VOOs,
(05:44):
as opposed to the way it wasinvested?
And Michael's got the chart upon the screen.
The blue line at the bottom,the line is what the permanent
fund did over that period andthe red line is what the
permanent fund would have done.
The permanent fund balanceswould have been over that period
(06:05):
had it been invested in the S&P500.
In only one year did the S&P500, did the permanent fund
outperform through this entireperiod, through this entire
13-year period?
In only one year did thepermanent fund outperform the
S&P 500.
And that was in 2022, fy 2022,when the permanent fund, when
(06:30):
the S&P, dropped, but so did thepermanent fund, the permanent
fund balance just dropped alittle bit less.
But using those balances then,using the balances we
constructed out of the S&P, welooked at what the permanent
fund draw would have been andthat's what the bars are at the
bottom of this chart, and thereason they begin in FY19 is
(06:53):
because that's when the POMVdraw began and that's the period
that we can start going back toFY13.
That's the period that we canstart using the average of the
five of the preceding six yearbalances, and the blue bar is
what the POMV draw was from thepermanent fund.
The red bar is what thepermanent fund draw would have
(07:17):
been had we been using the S&P500.
And the differences are juststark.
I mean, beginning in FY19, thedraw, the POMV draw, had we been
invested in the S&P 500, thePOMV draw would have been $470
million more than the actualPOMV draw based upon the
(07:41):
permanent fund balances at 17%.
Fy20, the difference is $760million, 25%.
The draw would have been 25%higher had we been invested in
the S&P 500.
Fy21, the draw would have beena billion dollars higher.
Just the POMV draw would havebeen a billion dollars higher in
(08:05):
FY21, 35% above what the actualPOMV draw was.
Fy22, the POMV draw would havebeen a billion and a half
dollars, nearly a billion $600million higher in FY22, 50%
above what the POFD draw.
So you go on out and by thetime you get to FY26, uh, well,
(08:28):
fy25 is a $2.74 billiondifference.
The POMV draw would have been$6.39 billion versus $3.66
billion.
And uh, fy26, the year we'relooking at the POMV draw, would
be $3.25 billion higher.
It would be $7.08 billionversus $3.8 billion, 86% higher.
(08:55):
So what you figure out from thisis the permanent fund
corporation has been investingbasically to just sort of hold
its own.
If you look at the blue line,you can see it sort of flat
lines across this entire period,while the S&P if it had been
invested in the S&P while itclimbs substantially.
(09:20):
The permanent fund executivedirector, devin Mitchell, was
before Senate Finance and gotasked about why didn't you
invest in S&P, and the answerbasically was volatility that
the S&P is more volatile, andthat's a significant insight
into what's going on in thepermanent fund corporation's
(09:40):
mind.
They're scared of volatilityand so they're investing in a
way that doesn't have muchvolatility, doesn't have much
variation, and what you'regetting out of that is that flat
line, the blue flat line, thatcrosses all those years without
much significant growth.
They're just sort of holdingtheir own and they're paying
(10:02):
something like $860 million.
This 12-month period just ended,at the end of December.
They're paying $860 million infees basically cover your ass
fees to get advisors andmanagers to build this fund.
That doesn't vary much.
Well, variability is not a badthing as long as the variability
(10:26):
is generally high, is generallyup, and that's what the S&P
line is showing you that if youinvested in the S&P, yes, it's
more variable, which means itchanges more year to year, but
the volatility has been up, withthe exception of one year, and
even then has been up, with theexception of one year, and even
(10:49):
then, when the S&P correcteddown by 10% in FY22, it still
stayed significantly higher thanthe permanent fund corporation
level.
And this is part of why thisnumber flatlines the Permanent
Fund Corporation flatlines.
(11:11):
Instead of paying $860 millionin fees, like the Permanent Fund
Corporation is doing, to getmanagers and advisors to tell
you how to avoid volatility, allyou would pay in fees for
investing in the S&P 500 throughVOO, through the Vanguard S&P
500 ETF, all you would pay infee is 0.03%.
And that 0.03% even at the muchhigher balance that we're
(11:33):
showing in FY25 and FY26, that0.03% would be $50 million in
fees compared to the $860million that the Permanent Fund
Corporation has invested.
So what I think we've done withthe Permanent Fund Corporation
is we said look, we want you tobe riskless, we want you to take
no risk, we want you to keepthe fund growing a little bit,
(11:59):
but we'll tolerate a loss ofreturn to avoid volatility, and
the consequence of that is thatwe've foregone these higher
returns.
If you look at FY25, that $2.74billion difference in the POMV
(12:20):
draw would have been more thanenough not only to pay a full
PFD without really breathinghard, but also to cover
additional expenses.
Like we're hearing now aboutdeferred maintenance and about
additional K-12 spending.
We're leaving money on thetable.
The way the Permanent FundCorporation is managing the
(12:42):
Permanent Fund and we've got, tomy knowledge we've got no one
looking at it.
I mean, what you have a revenuecommissioner for in government
is to look after revenue.
He's not supposed to be lookingafter other things.
He's supposed to be lookingafter revenue.
And when you look after revenue, you're supposed to be looking
at things like am I getting thefull return from oil that we
(13:03):
should be getting?
Am I getting the full returnother places?
If I need more revenue, wherewould be the efficient and
equitable way to get morerevenue?
One of the things the revenuecommissioner should be looking
at is this very thing he shouldbe looking at is the permanent
fund corporation producing thekind of returns that we could
get off this money?
Are they producing the type ofPOMV draws, the type of revenue
(13:28):
generation that we could begetting off this money.
To that end, the revenuecommissioner sits on the
permanent fund board.
By statute, the revenuecommissioner has a seat on the
permanent fund board, but ourrevenue commissioner has been
asleep at the wheel on a numberof things, but this is certainly
one of them and I think this isjust shocking when you look at
(13:50):
the revenue being left on thetable by the way in which the
Permanent Fund Corporation isinvesting.
I'll go so far.
One more thing.
I'll go so far even to say Ithink this is a 2026 election
issue.
I think I look at that.
I mean, that's $3 billion beingleft on the table and I think I
(14:12):
think somebody in 2026 runningon replace the permanent fund
board is is going to get a lotof traction when you start
talking about the numbers thatare that are being left behind.
Speaker 2 (14:21):
Well, and the other thing, of course, that
exacerbates this is they keeppatching all these rosy
projections into what thepermanent fund is going to earn
and it's not earning.
What they're projecting.
You know what they're saying isa standard projection, whereas
I mean you're talking about.
You know, the current $80.46billion value of the permanent
fund and the $188 million valueof the Vanguard fund just shows
(14:46):
you how far they're, $108billion apart, after only 10, 12
years.
I mean, that's a real problem.
And it's not that I want togive more and more money to
government, which is what thiswould have done, but we would at
least not be fighting, I think,about some of the things that
we're fighting about right now.
Speaker 1 (15:04):
Oh, we wouldn't be fighting about the permanent
fund dividend.
This would cover the permanentfund dividend, the statutory
permanent fund dividend, easily.
Speaker 2 (15:10):
Rob Meyers says in the legislature.
We're talking about how theopposite.
We're saying the draw rate istoo high and encouraging the
permanent fund board to investtoo aggressively is what they're
saying right now.
I mean, you wouldn't even haveto.
Let just invest it.
Have one guy going yeah, we'llinvest it all in the S&P 500 and
we'll just be fine.
Speaker 1 (15:30):
I mean, wow, that's what Nevada does, the Nevada
PERS, the public retirementsystem, their public retirement
fund.
Down there, they invested inETFs, they invested in
electronic traded funds, the lowcharge, low fee funds, and
they've got a lot of it investedin S&P and they got one guy
(15:51):
running it and one person doingthe books.
That's their entireadministrative costs and they're
producing returns not as highas this because they don't have
it all invested in the S&P 500,but they're producing returns
significantly higher than whatthe permanent fund's returning.
I get that people are cautious.
(16:11):
I get that people don't want torisk the money and don't want
to incur volatility, as ifthat's a nasty word.
I get that, but what it's doneis it's leaving money on the
table.
It's paying a huge amount infees.
I mean we're paying 1% in feescompared to the 0.03% we would
(16:35):
be paying using an ETF.
We're paying a huge amount infees and we're getting like zero
returns, in fact, or very lowreturns, in fact.
The reason we're having thiswhole discussion about merging
the earnings reserve and that'show I got into this issue the
reason we're having this wholediscussion about merging the
(16:56):
earnings reserve and thepermanent fund corpus is because
the permanent fund isn'tgenerating enough money, even
enough money to cover the 5%POMV draw.
And so the sense is oh, we needto merge those two funds so we
can start drawing from thecorpus, so we can keep the 5%
draw going even when thepermanent fund is not generating
(17:19):
enough in earnings to cover thePOMV draw.
This would have solved thatproblem in spades had we been
going down this track.
I've been.
I mean, I've got to admit that,like everybody else, I've been
one of the ones that has said,oh, we need to manage the
permanent fund cautiously.
But this isn't in cautiously.
(17:40):
Look at the 13 years.
Only one year have we had asignificant decline in the S&P,
and that was more than offset bythe growth in the S&P up to
that point and the growth in theS&P after that point.
So this isn't incautious.
Yes, it's more volatile in thesense that the variation around
(18:03):
the median is more active.
But when you have a lowvolatile fund, when you're not
investing for growth, you'rejust investing to avoid
volatility, you get what theblue line is showing.
You get this sort of flat linethat goes across time.
(18:26):
Yeah, you haven't lost much,but you haven't grown it, and
the consequence of not growingit is you're not getting the
POMB draw.
The consequence of not gettingthe POMB draw is we're cutting
the PFD.
Instead, we are talking yearsof foregone deferred maintenance
, that that we haven't, that wehaven't kept up with.
We're talking about K through12 and we're and we're talking
(18:50):
about, we're talking about highfees on the permanent fund.
To maintain this sort of steady, non-volatile, flatlined
existence, we need to.
As I say, I think a 2026campaign slogan of replace the
permanent fund board is going tobe something that, if they
(19:11):
don't get this under control andI doubt they do, if they don't
get this under control somethingwe're going to see in 2026.
When you look at these numbers,it's unavoidable.
Speaker 2 (19:20):
Well, and what really hits my attention here is that
even with the supposedvolatility we're talking about
the drop in 22 and things likethat I mean the permanent fund
lost about $5 billion, just over$5 billion, and the S&P fund
lost about $19 billion $19billion.
(19:47):
But overall you'd already madeup there was already a $50
billion difference between thetwo, $60 billion difference.
That was again what has stillbeen negligible in the long run,
especially with the returns asthey are today.
We've got to continue here, theweekly top three, brad Keithley
, with our Truth Tuesday segment.
The big question here is today.
The big question here is today.
(20:17):
I've seen a lot of this hatethat's come out for Rob Yunt
over this discussion on changingthe S-Corp, c-corp, llc
designation for oil companies,and there's been a lot of
hand-wringing.
There's a lot of discontent, Iguess I should say, on the right
over Rob bringing this up.
I for one am fine with it, butthere's a lot of folks out there
that are doing it.
What are the left and the rightboth missing on this discussion
of this Hillcorp?
(20:39):
You know the Hillcorp rule, orthe loophole, as you call it,
for the taxation on oilcorporations, brad.
Speaker 1 (20:48):
So, michael, I've been involved in the Alaska oil
industry since 1993.
And by my calculations that'ssomething like 32 years that
I've been in the industry in oneway or another, either directly
in the industry or, for thelast 10 years, sort of
monitoring it in terms ofnumbers and calculations and in
(21:12):
terms of the proposals that comebefore the table.
There are several truths,consistencies over that 32-year
period.
But one of them is that theAlaska revenue system from
petroleum is four-pronged One isproduction, one is royalty.
(21:35):
That's been consistent over theentire 32 years.
The second is that allproducers have paid royalty for
production from state lands.
The second is that there's beena production tax of varying
types over that period butthere's been a production tax
(21:56):
throughout that period that allproducers, regardless of whether
it's state or private orfederal lands that all producers
have paid into.
The third is that there's beena petroleum property tax that's
shared with the boroughs but thestate takes a share of a tax
calculated on the propertyinvested in petroleum plant and
(22:20):
equipment.
And the fourth has been there'sbeen a corporate income tax on
petroleum companies consistentlyacross that entire period.
It's a four pronged approachand the reason you have a four
pronged approach, the reason anytax system has more than one
way of calculating, ofcalculating taxes is is
(22:42):
sometimes one of the measuresgoes way up.
When you're in a highinvestment period, for example,
the property tax will go up high.
Sometimes, the numbers will goway low.
For example, when oil pricesdrop, the royalty will go way
low.
Sometimes, because you want tochange the petroleum tax, you
(23:04):
want to change the incentives.
Because you want to change thepetroleum tax, you want to
change the incentives, as we didwith ACES in 2006, 2007,.
Rather, and as we did with thecurrent SB21 in 2013.
Sometimes, because you want tochange the incentives uh, what
(23:25):
you're, what you're encouragingproducers to do you'll change
the petroleum tax, sometimes the, the, the severance tax, and
sometimes that'll cause it to goup and sometimes it'll cause to
go down.
Sometimes it'll cause it toflatline, even though oil prices
are going up.
Um, and and, and.
So you've got.
You've got those variations.
The corporate income tax hasalways been sort of a net
(23:46):
profits share that Alaska hasshared in the net profits
through the corporate income tax, has shared in the net profits
of the corporations operatingthe petroleum corporations
operating in Alaska.
It's been consistent since waybefore 1993, way before I came
on the scene but it's beenconsistent since the time that
I've been involved and it is anot insubstantial.
(24:10):
This sort of net profits tax isa not insubstantial source of
income If you look at.
For those who are reallyinterested in this sort of stuff
, if you go to the springrevenue forecast and you look at
Appendix A3, which has thebreakdown of the petroleum
revenue by category, you'll seethat petroleum corporate income
(24:32):
tax is the third largest sourceof income projected over the
last 10 years and projected overthe next 10 years.
The oil and gas royalties arefirst, projected over the next
10 years are first.
Production tax is second butclose behind production tax and
in fact even with production tax, if Hillcorp were paying the
(24:54):
corporate income tax, even withproduction tax would be the
corporate income tax to get atpetroleum revenue in different
ways to make sure the state isgetting its share of what those
petroleum revenues are.
It's not a new system.
It's not something we're tryingto apply for the first time.
(25:16):
It's not something we're tryingto penalize a company with.
It's been a basic, fundamentalpart of the overall petroleum
system for the last four years.
Now the thing about it is thecorporate income tax part, the
petroleum corporate income taxpart, is built in part on the
basic corporate income tax.
(25:37):
As a convenience, when theywere building the petroleum
corporate income tax, they usedthe basic corporate income tax
as a starting point and thenbuilt various widgets on that
corporate income tax tocalculate the petroleum
corporate income tax.
And so it's built on this.
It's built on the corporateincome tax in part, but it's not
(25:59):
.
I mean, when people think aboutit as a corporate income tax,
it's not that.
It's the petroleum corporateincome tax, it's part of the
petroleum revenue system thatwe've always had in this state.
And so when I see articles youknow complaining about Rob Yunt,
about oh, what's the articlethat just really I mean I almost
(26:20):
started laughing at MarcySowers.
Senator Yunt talks like atax-loving social justice
warrior, not a conservative.
When I see articles like that Ijust break out in laughter.
It has nothing to do withsocial justice warrior,
tax-loving social justice.
It has nothing to do with that.
(26:41):
The petroleum corporate incometax as it applies to Hillcorp,
in the same way that the damntax has been there since before
1993, since before I came on thescene it is to make sure that
that fourth prong of thepetroleum revenue system applies
(27:02):
to Hillcorp in the same waythat it applies to everybody
else, that the revenue the netprofit share, if you will from
Hillcorp's income in the stateis being taken in the same way
as being taken from everybodyelse.
It isn't a tax-loving socialjustice warrior, it's somebody
who's trying to restore thesystem, conservative, who's
(27:25):
trying to restore the system towhat it's always been.
So we don't have to go taxsomebody else to make up the
difference for the hole that'sbeing blown in the petroleum
corporate income tax.
The only reason that hole'sbeing blown is because, as I
said, the creators, the fathersof the petroleum corporate
(27:45):
income tax system, based it onthe corporate income tax system
as a convenience and sort ofbuilt from there.
The only reason that we've gotthis problem with Hillcorp is
they've come into a way in thecorporate income tax system that
isn't captured by the basecorporate income tax system and
so it's not captured.
We're not building on top ofthat into the, into their share
(28:08):
of the of the petroleum revenue.
It is it, is it they.
They come in in a side door ina way that sort of takes out the
base on which the petroleumcorporate income tax is built
and has allowed them to escapethe petroleum corporate income
tax.
Allowed them to escape thepetroleum corporate income tax
(28:31):
and that's fine, but it is aproblem that creates a hole in
the petroleum corporate incometax system.
That fourth problem.
One other thing Larry personallyI mean the right, I think is
just cuckoo on this issue.
I think they're just making upcrap to complain about.
The left is off in their ownworld.
Larry personally writes anarticle, an opinion piece in the
(28:55):
ADN that says Alaska needs tofix its tax problem, all of it.
And what Larry says is not onlydo we need to tax the S Corp,
the Hill Corp as a C Corp, weneed to change it to be able to
tax them, we need to change itfor all of the S Corps.
We need to tax all of the SCorps.
That's nuts too.
(29:15):
What we need to do is we need tomake sure that the four prong
petroleum corporate, thepetroleum revenue system that
we've had in this state sinceprobably the beginning of the
petroleum industry I've nevertraced it all the way back, but
probably so that the four-prongsystem stays in place with
respect to all of the players,all of the major players and
(29:38):
these people who are complainingabout trying to create new
taxes or tax somebody thatshouldn't be taxed.
That's just nuts.
It is a petroleum corporateincome tax system.
It has four prongs.
We need to make sure those fourprongs still work.
And the reason we need to makesure those four prongs still
work is to make sure we don'thave to go tax somebody else in
terms of PFD cuts or in terms ofother new revenue sources to
(29:59):
make up the hole that's beingcreated by the way in which the
Hill Corp's operating under thepetroleumroleum Corporate Income
Tax System.
So the left's nuts about thisissue by wanting to spread it to
everybody else.
The right's nuts about thisissue, about wanting to complain
about Senator Yount trying tobring the Petroleum Corporate
Income Tax back together againso it can operate in the same
(30:22):
way.
It's operated since at least1993 when I first got into it.
Speaker 2 (30:27):
Well, it's interesting because I would
think that, as we're notthinking about this in the right
way, we're not thinking aboutthis as owners of the resource.
You have a finite, excuse me, afinite, limited resource and as
an owner, you want to get themaximum yield out of it that you
can while you're going on.
And if one and yes, it's not, Imean, it wasn't anything bad
that Hill Corp did, they justtook advantage of an existing
(30:50):
law.
But if it's not equitable andyou're not receiving your fair
share as an owner, as a resourceowner, you should be looking at
that, absolutely should belooking at that.
And that's the problem.
They're not looking at it asowners, they're looking at it
from a philosophical standpointof taxes are bad.
I agree, I don't like taxes,but as an owner, if I was going
(31:11):
to, if I had my own oil, well,you damn well better be sure
that I was going to be gettingall my fair share of that, of my
resource that I am allowing youto take out in that way.
Speaker 1 (31:22):
And that's, and that's the thing people are
missing.
We've got a four-prong systemto do that.
Some people think, oh, it'sjust royalty.
Some people think, oh, it'sjust royalty.
Production tax.
Some people think, oh, it'sjust royalty.
Production tax and property tax.
But it's a four-prong system.
We've built it.
If we hadn't built it that way,if we'd built it as a
three-prong system, those prongswould be bigger, they would
(31:43):
take more, because we wouldn'tbe collecting a piece of it
through the corporate petroleumcorporate income tax.
And so what we've done is we'vecreated a balanced system that
that sort of operates throughtime as some pieces go up, other
pieces go down, as as somepieces sort of flatten out,
other pieces grow, and andyou've built this system to sort
(32:06):
of, over time, deal with therevenue source.
Take a fair share of therevenue source from the
petroleum companies.
The petroleum corporate incometax is a key piece of that,
especially during the next 10years.
During the next 10 years theproduction tax declines.
Or even though production isgrowing, the production tax
(32:28):
declines because of the way SB21is set up.
And so what helps offset that,in the big scheme of things, the
way we've set things up, is thecorporate income tax because
that produces higher profits.
The corporate income tax takesa higher share of the net
profits out of the corporationsto sort of offset the decline
(32:48):
that's going on in theproduction tax.
And now we're just now we'rejust, you know, saying, yeah, we
got a wheel off the bus, we'rejust going to leave the wheel
off the bus.
So we got this three-prongedbus going down the road.
Bad thing.
Speaker 2 (33:01):
That's why I think these folks are missing it, brad
, is that they're not looking atit through the eyes of I mean,
I could see where they're comingfrom, the people on the right.
I could see where they'recoming from in the fact that
lowest taxes are the best planand taxation is staffed and I
get all that.
But as an owner, if I'm owningsomething and I'm looking at it,
I want to get maximum yield formy limited non-renewable
(33:23):
resource.
I want to get maximum yield formy limited non-renewable
resource.
I want to get the most that Ican out of it.
And if somebody has slippedthrough and we missed something
and I mean S-Corps weren't evena thing back in the day, so
that's how it got throughthere's no blame on Hillcorp.
They're just taking advantageof the system as it's written
currently.
I mean it just makes sense asan owner to go back and revisit
(33:45):
that.
I mean to me I don't see thisas being, again, I'm not a fan
of taxes, but if it is myresource and I'm trying to get
the maximum yield out of it thatI can, that just makes sense.
Speaker 1 (34:08):
I don't understand all the fervor over it.
This system is a four-prongedsystem to get at property, to
get an investment.
To get at production, to get atthe benefits of production as
you produce.
To get the royalty share, ourownership share, as it's
produced and, as an integralpiece of the whole system, the
petroleum corporate income tax,to get at net profits as a part
(34:32):
of the share that is.
I mean it's a whole system.
That's four pronged.
It gets at our fair share, asyou're discussing it, from the
resource and we've got this onepiece of it that's gone amiss
because of the way it was built,because it's built on the
foundation of the corporateincome tax.
(34:54):
Not because we decided that wedidn't want a petroleum
corporate income tax fromHillcorp, not because we decided
that somehow we needed toincentivize Hillcorp by having a
different petroleum corporateincome tax apply to them, to
everybody else.
Just because the by having adifferent petroleum corporate
income tax apply to them, toeverybody else.
Just because the way we builtthe petroleum corporate income
tax on this base of thecorporate income tax.
That's the reason they'regetting out of it.
(35:16):
It's not because anybody said,oh, they don't need to pay
petroleum corporate income tax.
Of course they do.
That's one piece.
That's one prong of how we getour share of revenues from the
oil companies.
And for people to say, you knowfor Marcy Sowers, who I don't
know and probably is a greatperson, but that headline is
just outrageous For them to saythat somebody trying to get that
(35:40):
piece back together again, getthe four prong system back
together again, is a bad person,a social justice warrior, it's
just outrageous.
That's not what Rob is doing.
Rob has been up until the timehe stepped off of the bill, for
whatever reason he did.
Rob has just been trying tokeep the existing system going
(36:04):
and I think both the left andthe right have lost their minds
about this.
It's a technical thing.
It's a technical detail.
We've built the four-prongpetroleum revenue system.
One prong has been sprungbecause of the base that it was
built on.
(36:24):
We just need to go back and getthat prong back in so we
continue to have a four-prongsystem that's applying to the
total oil flow that's occurringin the state.
Speaker 2 (36:38):
It's interesting to watch them.
Basically, the feeding frenzyover this bill.
Again, as I said, I'm okay withit, which I'm sure a lot of my
libertarian friends are freakingout about.
But again, I'm looking at it asan owner.
I'm looking at it as an ownerIf I own the resource.
That's how I have, that's thelens that I have to look at it
(36:59):
through.
And if I'm not getting, youknow, my maximum yield out of
that ownership, then I need tofigure out how do I do that, how
do I fix that?
And, like you said, thefour-pronged approach is
important for that.
And if we're missing out on one, then we need to adjust.
To me it's just common sense.
I don't understand why it's socontentious.
Speaker 1 (37:21):
It's conservative to go put this piece back together
again.
It's conservative to go putthis piece back together again
to go unspring the sprung pieceof the prong of the system as it
applies to Hillcorp.
It's conservative to do that.
We're just going back to whatwe've always done to make sure
(37:45):
it continues to work.
If you don't do that, you haveto create new taxes to fill the
revenue hole.
I mean, that's the thing aboutMarcy Sowers.
It just sort of drives me overthe edge.
There's going to be spending.
It's just how we fund thespending.
And if we're not funding it aswe traditionally I thought that
was the conservative thing as wetraditionally have through the
(38:06):
four-prong approach, we're goingto have to go out and tax
somebody else.
That's exactly what we're doingwith PFD cuts.
So essentially what MarcySowers and the others who are
going all crazy about this aredoing is they're saying tax the
PFD more, take more in PFD cuts,because we don't want to put
back together this four-prongsystem.
We want a three-prong systemfor Hillcorp.
Speaker 2 (38:31):
Yeah, kevin says.
My guess is that he stepped offof that tax because they were
planning to stuff an income taxor some other kind of revenue
generation into it, which, again, is very possible, because
that's what all the folks andthe Democrats in the Senate have
been talking about this wholetime is more new taxes as well.
All right, we're continuing.
Brad Keithley, alaskans forSustainable Budgets, our Truth
Tuesday segment continues theweekly top three.
The final question is is theSenate going to be the fiscal
(38:56):
grown-ups in the room or not?
That's a question I don't knowthe answer to it.
I can suspect the answer, but,brad, what do you say?
What are we talking about here?
Speaker 1 (39:13):
Michael, thus far this session we've had a lot of
punting.
The governor filed a budgetthat violated the law because it
didn't balance.
Nobody seems to care much aboutthat.
But the governor filed a budgetthat violated the law, had a
budget that balanced only bypulling down the CBR and then
once you went out a couple ofyears the CBR was gone because
we pulled it all out and he hadbig zeros, big red marks on out
(39:38):
in the future.
So he just basically punted.
He said look, I'm not going totry to be fiscally sound here or
fiscally conservative orfiscally sustainable or fiscally
anything.
I'm just going to throw you abudget and throw it into the
room and just you know, just youguys, you guys do something.
And now the House has done thesame thing.
I mean, the House has passedthe K-12 bill at last, at least,
(40:01):
without knowing how the hellthey're going to fund it East,
without knowing how the hellthey're going to fund it.
House passes education billwith $1,000 BSA increases.
State's fiscal situation growsbleaker.
That was the Juneau Empire, theAnchorage Daily News, alaska
House advances school fundingboost over doubts about its
costs.
It just goes on and on and on.
And then we're getting otherstuff on top of it in terms of
(40:26):
school maintenance.
And it's just.
I mean, these two branches ofgovernment the governor in the
first place with his budget andthe House in the second place
are just not dealing withreality.
They're just throwing it alldown the road.
The governor threw it into theHouse, the House is just
throwing it into the Senate, anunbalanced budget into the
(40:47):
Senate, saying we don't know howwe're going to fund this.
You guys figure it out and thequestion is is the Senate going
to be responsible?
Is the Senate going to be thegrown-up in the room and finally
come to grips with these issuesthat everybody else is refusing
to deal with?
They say they are.
I mean, they say they've gotproposals to deal with it.
(41:08):
You've got the bill supportedby the entire Senate Finance
Committee that would reduce thePFD down to $25.75 statutory and
may uses the magic word may butwould theoretically reduce the
PFD down to and hold the PFD at2575.
You've got Stedman saying that,oh, we're going to cut the K
(41:33):
through 12, increase down to 600and some odd million dollars
when it gets over to us andthat's going to be a piece of
balancing the budget.
But even after all that, we'vestill got this huge deficit,
$500 million deficit.
That's going to sit in thebudget.
But even after all that, we'vestill got this huge deficit,
$500 million deficit.
That's going to sit in thebudget.
And the question is is theSenate?
Because the House isn't goingto do it, the House essentially
(41:56):
says take it out of the PFD, cutthe PFD down to $750 million or
$750 per PFD or something likethat, to balance.
The House isn't going to befiscally responsible.
So the question really comesdown to is the Senate going to
be fiscally responsible?
And here's what it's going totake for the Senate to be
fiscally responsible.
(42:16):
They're going to have to dosome cutting the $650 BSA
increase that they've talkedabout instead of the House $600
to $1,000 PFD, or how $1,000 BSAincrease that they've talked
about instead of the house $600to $1,000 PFD, or how thousand
dollar BSA increase is is partof that.
They're going to have to dealto some degree with deferred
maintenance, because they're theones bringing it up and do
(42:38):
something with the, with the,with the dollars there.
But they're also going to haveto come up with some revenues
and even if you would acceptwhich I don't that it's fair and
equitable to come up with, touse 25-75 as the split on the
PFD, the split for the PFD 25 ofthe PFD 75 of government, even
(42:58):
if you accept that they stillhave a big hole.
So they're going to have tocome up with some revenues.
The closing the Hillcorploophole, restoring the
four-prong for those who didn'thear the second segment, go back
and listen to it againrestoring the traditional
four-prong corporate revenue,petroleum revenue approach.
That's going to have to be partof it.
(43:20):
That'll get you some of the waythere.
Going back and looking at SB21,as we've talked about on the
show previously, adjusting SB21to get back to the same percent
overall percent of the grossthat we've had the past decade.
We're not talking aboutchanging the revenue that SB21
produces.
We're just talking aboutgetting SB21 in this environment
(43:43):
that it's in over the nextdecade, getting it back to the
same percent of gross overallpercent of the gross that we had
just this last decade, thefirst decade of SB21.
That's going to need to be partof it and maybe we squeeze by
with just that and maybe theycan get out of town with a
(44:04):
balanced budget just by doingthat Cuts, closing the Hillcorp
loophole and revisiting SB21 andgetting it, readjusting it in
the new environment we're facingover the next decade and
getting it back up to the sameshare of the gross that we've
had over the last decade.
Maybe they can get out of townwith that, but that's just
(44:24):
getting them out of town thisyear.
As you look at SB21, as you lookat the production tax from MSP
21, it goes down Even asproduction is rising.
It goes down because of theincentives on top of incentives
on top of incentives on top ofincentives, kicking in in a way
that I don't think anybodycontemplated when it was passed,
(44:45):
kicking in over the next decade.
So you're going to have to fixthat and get that back up to the
same share of the gross anddeal with the incentive issues
so that you don't distort theincentive issues but deal with
the incentive issues as you'redoing that.
You're going to have to do that.
You're going to have torestrain spending over the next
(45:06):
10 years.
That's going to have to be partof it.
And you're going to have todeal with how you're going to
get a personal tax, whether it'sa PFD cut, which is a personal
tax, or an income tax, or goback to Ben Carpenter's
brilliant I want to say thisabout 20 times brilliant,
broad-based, hugely broad-based,ultra broad-based sales tax,
(45:26):
which took very little fromanybody but by taking it from
everybody, built into somerevenue.
Whether it's going back to that,they're going to have to deal
with that.
The House, the governor, justisn't going to deal with it.
Governor has refused to dealwith it.
He's out traveling.
I don't know what he's doing,but he's not being governor.
(45:47):
The Senate just wanted toplease all of its constituencies
and pass spending on top ofspending on top of spending.
So the Senate's going to haveto kick in and be the adult in
the room.
But to be the adult in the room, they need to be supported in
the things you're going to needto do Cuts, certainly to the K
through 12, to the BSA increase,closing the Hillcorp loophole,
(46:09):
adjusting SB21 to reflect thereality we're in over the next
decade and then looking at howwe're going to raise money
personally, either through PFDcuts or in some other way.
That's much more broader andwould include non-residents and
other sources of income.
Speaker 2 (46:25):
The interesting part about this discussion for today
in this segment was the factthat they're now talking about
these school maintenance fundsand things like this.
But again, how much of thislays back on the school
districts, who have beendeferring the maintenance on
these things for years.
I mean, this has always been apet peeve of mine, the deferred
maintenance.
And now they go to the stateand say, well, now we're in
(46:49):
trouble, now we need it, now weneed the help.
And Jesse Keel actually is evenquoted in this article saying
that he wants to lift themoratorium on the school bond
debt reimbursement.
How are we going to pay?
I mean, again, there's the whopays thing.
Nobody seems to be asking thatquestion.
It always seems to be going onlike oh, don't worry, the money
will always be there, we'll befine.
A minute.
Speaker 1 (47:07):
Brad.
Well, deferred maintenance ishuge in and of itself.
I mean, this is sort of thefirst time we've talked about it
.
We may talk about it insubsequent shows, but the
standard 3% that the Departmentof Education applies, that would
be $330 million a year atcurrent values.
So it's huge.
I mean, if we talk aboutbringing deferred maintenance
(47:28):
back in, that's a huge chunk tothe budget.
Yes, the school district shouldhave handled it.
Yes, the state should havehandled it.
Yes, the state should havehandled it before now.
But you know, we've got schooldistricts falling apart, we've
got school buildings fallingapart that we're going to have
to deal with.
Speaker 2 (47:40):
You're wrong.
Md Brad just said it was thegovernor's fault.
I mean, it's a combination ofboth the governor, you know, not
putting it into his budget,these, you know, these deferred
maintenance plans, and thelegislature doing their things
as well.
I mean the school boards.
They've been pushing this stuffoff forever.
I mean, what the heck?
(48:02):
You knew it was coming.
And then they look to the statelike, well, bail us out, daddy.
That's what they keep comingback to.
Speaker 1 (48:09):
Yeah, so it goes both ways.
I mean, so deferred maintenanceis supposed to be a separate
line item.
The state has a responsibility.
I mean the state has aresponsibility by statute for
deferred maintenance and so theschool districts put in projects
and the state's supposed tofund them.
The state hasn't funded them sothey haven't set the money back
(48:31):
to the school districts.
Now the school districts wouldhave had the discretion to take
the money that has come back tothem and use part of it to cover
the deferred maintenance.
They could have allocated apart of it themselves, even
though the state didn'tseparately line item money back
to them for it.
They could have used a part ofit themselves.
They could have used part ofthe property tax that they get
(48:53):
from local sources to deal withit.
So yeah, it's a sharedresponsibility.
If you talk to somebody on theschool districts which I've done
if you talk to somebody on theschool districts and say, oh,
it's all the state'sresponsibility.
We put in these projects, theyhaven't funded them.
You know, the fact they'refalling apart is the state's
responsibility, and then you say, but yeah, you could have put
(49:14):
funds toward it.
Oh well, I needed the funds for, you know, healthcare for
teachers or for teacher, youknow additional additional
salaries for teachers, or youknow for this project or for
that project or for the otherproject, and so it's it's a,
(49:42):
it's a shared responsibilitybetween the two.
Speaker 2 (49:43):
But regardless of how we got here, it's now a huge
dollar figure that's beginningto come at us that we've got to
deal with in some fashion.
Rob Myers makes the point.
This deferred maintenance hasbeen brewing for decades.
We had a bunch of cash in 2013.
We decided it was moreimportant to build AstroTurf
football fields.
He's not wrong.
I mean, everybody was askingfor it.
I mean, theFairbanks-Norrisburg borough was
like, oh, we need AstroTurf.
I mean, if they've got anAstroTurf field in Barrow, we
need one here.
We need three here.
I mean, it was just shaking myhead like, come on, guys, there
(50:09):
are better things to spend themoney.
And and that was at the pointwhere they still had tens of
millions of dollars in deferredmaintenance on other things.
We should have been taking careof the buildings we had.
Speaker 1 (50:17):
Well, yeah, and part of the problem is, you know the
state was paying half of theconstruction of new schools.
So you know, the localmunicipalities looked at it, or
the local school districts lookat it, as free money.
Basically, right, we can go outand we can.
You know, we can favor ourfavorite architects.
We can do our favorite.
We can.
You know, we can favor ourfavorite architects.
We can do our favoritecontractors.
(50:37):
They can all, you know, getthis money and the state will.
They can all get this money andthe state will pay half of it
instead of paying, instead ofcontributing that money toward
deferred maintenance of thebuildings we already had.
So we created more and more andmore of the problem during that
era by the state, you know,paying for half of new school
buildings and encouraging peopleto go out and build more and
more and more, as opposed totaking care of what they already
(50:59):
had.
So it's a shared problem, butit's a big problem that's
beginning to land on people'sdoorsteps and again it's the
Senate who's getting forced intobeing the grownup in the room
because the House hasn't dealtwith it.
The house hasn't talked abouthow to fund it.
The house hasn't talked aboutthe amounts just like.
Well, give me the.
Speaker 2 (51:21):
Vegas odds.
Do you give me the Vegas oddson what you think you think the
Senate's going to actually stepup and have to and do that?
I mean I.
I mean what?
Speaker 1 (51:29):
do you think?
I think?
I think I I have a lot ofconcerns about the Senate.
I think some of them have goodintentions.
I think some of them are justlike House members, in the sense
that they just want to curryfavor with whatever constituency
, whatever trade group they'vegot out there that help fund
their election.
(51:51):
Some of the senators, I think,have good intentions, but one of
the things they could do isspend some time figuring out
what's going on with thePermanent Fund Corporation.
One of the things they could dois look at the type of
deficient returns that we'regetting out of, the deficient
compared to where we could bethat we're getting out of the
Permanent Fund.
I mean, that's a revenue sourceand, frankly, the
(52:14):
administration, the commissionerof revenue, ought to be looking
at that, but he's off doingother things.
He's getting ready to run forgovernor, so he doesn't want to
be bothered by those things.
It's in his job description,you know, and so we just got
people just sort of runningaround and not doing the job.
The Senate says they'll do thejob.
Speaker 2 (52:35):
We'll see.
Brian said but look, look atthis new center of science-y
stuff that we can't afford tooperate, but it will look great
on the brochure in color.
I mean, that's typical, that'swhat we see all the time.
Oh, but look at this, it'll begreat, we'll put it up there.
I mean, we finally fought forfiscal notes in the borough to
finally, when I was there tofinally get you know, put on the
(52:55):
fiscal note what the cost ofkeeping the building going was.
That took a Herculean effort toget that on there.
I mean, come on, we've got toknow great, you build the
building, how much is it goingto cost us in the next 10 years?
And it's like nobody wasthinking about that.
It's like, once you build it,oh, now it's done.
But we kept seeing themaintenance be deferred,
deferred, deferred.
(53:15):
I mean the Fairbanks-DorchesterBorough has a quarter of a
billion dollars in deferredmaintenance for a government of
100,000 people, less than100,000 people.
A quarter of a billion dollars.
And this is, you know, andremind me who is the revenue
commissioner?
Adam Crum.
That's who the revenuecommissioner?
Speaker 1 (53:39):
is Brian if you're asking there.
All right, brad.
One less than a minute Finalthoughts.
Michael, we got big issues infront of us, but people need to
deal with it reasonably.
This stuff that Rob Young'sbeen through is just insane.
We've got to have people whowill take the time before they
fire off crazy op-eds and mustread.
We've got to have people whowill take the time to actually
(54:00):
understand what we've done inthe past and that Rob's just
trying to continue what we'vedone in the past.
Going forward, we need toreinforce those people who are
trying to come up withreasonable sources of revenue as
opposed to castigate them everytime that they open their
mouths.
Speaker 2 (54:17):
All right, brad.
Thank you so much, my friend.
Good to talk with you.
We'll see you next week.
Michael, as always, thanks forhaving me Well.
Speaker 1 (54:24):
That's a wrap for another week's edition of the
Weekly Top Three from Alaskansfor Sustainable Budgets.
Thank you again for joining us.
Remember that you can find pastepisodes on our YouTube,
soundcloud, spotify and Substackpages, and keep track of us
during the week on Facebook andTwitter.
This has been Brad Keithley,managing Director of Alaskans
for Sustainable Budgets.
(54:44):
We look forward to you joiningus again next week for the next
edition of the Weekly Top Three.
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