May 6, 2025 • 56 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 May 5, 2025.
This week, our top 3 issues are these: 1) we discuss what’s going on with oil prices: what’s driving the price drop, how low could they go and how long could the price drop last (2:17); 2) we discuss the failure of those who voted for HB 57 (the permanent K-12 funding increase) to realistically deal with a fundamental question: where’s the money coming from and #WhoPays (18:56); and 3) we discuss a bill hovering over this session that, if passed, could make Alaska’s future even worse from a fiscal perspective (40:35).
The Weekly Top 3 is a regular weekly segment on The Michael Dukes Show. The Show broadcasts on Facebook and YouTubeLive as well as via streaming audio from the Show’s website weekdays from 6–8am. We join Michael weekly in the first hour of Tuesday’s show, from 6:25–7am, for a discussion between the two of us about our three issues.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:11):
Hi, this is Brad Keithley, managing Director of
Alaskans for Sustainable Budgets.
Welcome to the weekly top threethe top three things on our
mind here at Alaskans forSustainable Budgets for the week
of May 5th 2025.
The weekly top three is aregular segment on the Michael
Duke Show.
The show broadcasts on bothFacebook Live and YouTube Live,
(00:34):
as well as via streaming audiofrom the show's website weekdays
from 6 to 8 am.
I join Michael weekly in thefirst hour of Tuesday's show
from 6 10 to 7 am for adiscussion between the two of us
about our three issues.
We post the podcast of ourdiscussion following the show on
the Alaskans for SustainableBudgets Facebook, youtube,
(00:56):
soundcloud, spotify and Substackpages.
Also on the Alaskans forSustainable Budgets website, as
well as the project's page onnational blog site mediumcom,
you can find past episodes ofthe weekly top three also at the
same locations.
Keep in mind that, in additionto these podcasts during the
(01:17):
week, you can also follow andparticipate in the discussion
with us of these and otherissues affecting Alaska's fiscal
and economic condition byfollowing us on the Alaskans for
Sustainable Budgets Facebookpage and through our posts on
Twitter.
This week, our top three issuesare these First, we discuss
(01:38):
what's going on with oil prices,what level they've gone to, how
low they could go and how longdoes the price drop?
Last Second, we discuss thefailure of those who voted for
HB 57, the permanent K-12funding increase, to
realistically deal with thefundamental question where's the
(02:00):
money coming from and who pays?
And third, we discuss a billhovering over this session that,
if passed, could make Alaska'sfiscal future even worse.
And now let's join Michael.
Speaker 2 (02:17):
Let's get started.
We've been talking a lot aboutit.
Like I said before, it seemslike the legislature has now
just welcome to the party, pal.
You're the first person torealize that we're in a deficit
and they're shocked, shocked.
I tell you that this isactually going on.
But the news from oil is notgood.
For those who've been planningon a big, rosy budget for next
(02:40):
year, it's just not as good asthey thought it was right.
Give us the news on oil pricing, brad.
What's happening?
Speaker 1 (02:46):
there.
It's not only not good, it'sgetting terrible.
I did the futures prices thismorning before we started and
the current fiscal year FY25,that we've got what two months
left of month and a half left ofis going to be okay.
The projection on which thebudget was based was $75.
(03:11):
The spring revenue forecastbrought that down a dollar and
said it was going to come in at$74.
And factoring in the currentfutures markets for the
remainder of this month and forJune, it looks like the average
is going to end up around $73 abarrel.
So FY25 is taking a hit, butnot that much of a hit.
(03:36):
Fy26 is just a disaster when youlook at it.
When you look at it.
The forecast, the springrevenue forecast, on which this
budget was theoretically beingbuilt, is $68 a barrel for
Alaska crude, the currentfutures market, and some will
(04:11):
sometimes argue with me and say,well, there is no futures
market for Alaska, which isabsolutely true, but you can
take Brent, which is what Alaskais priced against basically in
the world market.
You can take Brent and you canadjust it for the Alaska
differential and we keep trackof what the differential is
between Alaska crude and Brentcrude on a daily basis and then
factor that in in looking at theBrent futures market coming up
with an Alaska futures price andthe current market for Alaska
futures against a spring revenueforecast of $68,.
(04:34):
The current futures price fromthis morning for the Alaska
futures is $62, $6 less and thattranslates into about a $200
miss, $200 reduction inprojected oil revenues for the
state.
Speaker 2 (04:54):
So FY26 $200 million, not $200,.
$200 million, right, yeah,right, $200 million, I'm sorry
$200 million lower funding forthe state.
Speaker 1 (05:06):
So FY26 is just looking horrible and interesting
thing about the current marketsince this ride started a couple
of months ago.
Interesting thing about thecurrent market up to a couple of
months ago since COVID up to acouple of months ago, the oil
(05:31):
futures market had been in whatis called backwardation, which
means that current prices arehigher than futures prices.
It was a downward slope to themarket.
What's happened in the lastfour weeks, six weeks, is that
the market has gone into thissort of roller coaster that is
(05:54):
in backwardation for the firstcouple of years and then goes
into what's called contango bythe futures analysts or the
market analysts, by the futuresanalysts or the market analysts.
Contango, which means thatfutures prices are higher than
current prices.
So we're in backwardation for acouple of years and then we
(06:14):
start into contango and whatthat means is beyond FY26, the
market sort of comes back up andif you look at an average of
FY27 through FY32, at least inthe current futures market, the
spring revenue forecast says $67a barrel and the current
futures market says $67 a barrelalso.
(06:37):
So we sort of even out in thefuture years.
But right now, looking at thefutures market.
Fy26 is a disaster and it's notentirely clear we get out of
this anytime soon.
What's going on is we startedwith a soft market because of
reduced demand, largely becauseof the tariffs.
(06:59):
As the tariff wars started,demand started contracting, uh,
and so we've got a soft market.
Uh, uh, to begin with, uh, butwhat's mostly happened over the
last couple of months is thatOPEC has OPEC plus has vastly
increased, uh, the quotas,vastly increased production, uh,
(07:21):
first in April for May, uh, andnow at the most recent meeting
they upped it another 400,000barrels a day in May for June,
which was a surprise to themarket.
I think the market expectedabout 100,000 barrels a day
increase, or 150,000 barrels aday increase, and OPEC
(07:41):
substantially exceeded that.
And there's an increasingexpectation that OPEC is going
to do the same in June, up atanother $400,000 in June for
July, which will bring pricesdown even further.
So it's not entirely clearwhat's going to change.
That sort of stops, thefreefall that we're in gets this
(08:01):
sort of stops, the free fallthat we're in the OPEC
production increases are inresponse.
I mean against the soft market,against the soft demand market.
You would think that they'dstart tightening up, but what
they've done is they've expandedbecause they've got a problem
with two of their members, iraqand Kazakhstan, greatly
exceeding their OPEC quotas.
So this is sort of you know, ifyou're going to do that, we're
(08:22):
just going to increase theCquotas.
So this is sort of this is sortof you know, if you're going to
, if you're going to do that,we're just going to increase,
we're just going to increase theoverall quotas and everybody's
going to compete for for thatincreased market share that
you've been filling by over oversupplying your quota.
It's a punishment.
It's a punishment.
Speaker 2 (08:37):
Anything else to try and drive the whole market price
down.
So sure you could overproduce,but you're going to make less
because we're all going tooverproduce at this point.
Speaker 1 (08:45):
It's mostly punishment, but it's also a
market share battle.
I mean Saudi.
So what's happened is we had ina soft market, Kazakhstan and
Iraq were increasing theirmarket share dramatically, which
was coming at the expense ofSaudi.
So Saudi's response was look,you're not going to be able to
(09:06):
play that game.
We're going to increase thequotas so we can compete for
that increased market share,that increased share of the
market you've been supplying,and in doing that it drives
price down.
But it begins with a marketshare battle that has the effect
on price.
Dropping price is also sort ofa fortuitous response by the
Saudis to request by the Trumpadministration to bring price
(09:27):
down, to level off inflation, tokeep inflation under control,
even with the tariff increases.
And Trump's headed over toSaudi for a foreign visit in the
next month or so, next fewweeks or so, and this gives the
Saudis an opportunity to say see, you know, you ask us for lower
prices.
Look what's happened.
Speaker 2 (09:47):
We deliver, right, we deliver.
So what's the effect on Alaska,though?
I mean, this is you know, youknow, sixty eight dollars a
barrel is what they factored iton, but sixty one, sixty, fifty,
nine, I mean we look, and we'relooking into the high fifties,
or what are we thinking?
Speaker 1 (10:06):
What is it going to mean for Alaska?
The Trump administration saysthey want 50.
The current futures price is at62.
If the Saudis increase thequotas again in June by another
400,000, which is what theycould do, I mean they're really
restoring the cuts that happenedduring COVID.
(10:27):
And if they could, if theyincrease it by another 400,000,
which the Saudis have thecapability of doing that'll
drive it into the fifties forsure and and possibly start
approaching the $50 barrel levelthat the Trump administration
has said it has said it wanted.
So that just makes FY26 forAlaska an absolute disaster and
(10:55):
will just wreck the budget allto heck.
We don't have enough savings toguide us over.
So just really, I mean FY 26 isgoing to be if the Saudis
increase the production again,if the price drives down into
the fifties, into the middle andlow fifties, it's going to,
it's going to wreck the FY 26budget and start putting future
budgets at risk as well.
(11:15):
Even though we're in contango,if you start from a lower base
the contango the contango getsyou lower levels.
I mean it gets you higherlevels than current, but it ends
up getting you lower levels.
I don't think it'll affectproduction.
I don't think it will affectthe incentive for projects
currently underway like Willowand PICA.
(11:36):
They're too far along CapEx istoo far along to really stop
work on those.
It probably will slow down anyfuture projects beyond Willow
and beyond PICA that may be inthe planning phases or may be in
people's minds right now.
It will weight down on those.
(11:59):
But I think we'll continue tohave production.
It's just that the price forthat production is just going to
be, uh, significantly lowerthan the, than the, than the
forecast and the, the price onwhich the budget's based in
dollars and cents though you'retalking about, I mean, if we end
up with a drop, every dollar,and drop is what?
Speaker 2 (12:17):
about 40 million dollars or so at these levels,
about 30 million?
30 million dollars.
Yeah, so at every dollar.
So if we drop $10 down fromthat's the thing they keep
factoring the budget on thishigher and higher Number 68, now
we get to 58.
If we get to 55, I mean all ofa sudden we're talking about
(12:38):
going from potentially abillion-dollar deficit to a $2
billion deficit.
Speaker 1 (12:44):
Oh, easily 1.9.
Easily oh easily.
Speaker 2 (12:47):
We're talking big dollars.
Speaker 1 (12:50):
Current law deficit.
Starting from the statutory PFD, we're easily over $2 billion.
Even at $62 a barrel we may beover $2 billion.
I haven't run those numbers yet, I'll run them on Friday.
But even at $62, we're probablyover $2 billion for FY26
against the current law budget,against the budget, factoring in
(13:12):
the PFD cuts that they'remaking Against that budget,
we'll still be down maybe $400,$500 million if we get into the
mid-50s for FY26.
And we've only got like $3billion in savings.
We say savings.
What it really is isaccumulated PFD overcuts that
(13:36):
have happened during the lastfive years.
Speaker 2 (13:40):
The PFD slush fund right.
Only whatever's left of yourPFDs is sitting in there at this
point, and it's what?
2.8, 2.9,.
But they say they have toretain almost a billion dollars
for cash flow.
So it's not even that.
It's about $2 billion.
That's really what's availableis just under $2 billion.
So it makes it even more.
And that doesn't even accountfor the new employee contracts
(14:01):
which we don't even have thefull price tag on that yet.
But it's upwards of $300million a year in perpetuity
going forward.
So there's another.
I mean this is.
I mean this just hurts all theway through.
It's just, it just keepsgetting worse as we go through.
Speaker 1 (14:18):
Yeah, and and.
In the face of this, michael, Imean we'll talk about this more
in the second segment, but, butin the face of this, we keep
voting spending increases.
I mean we'll talk about thismore in the second segment, but
in the face of this, we keepvoting spending increases.
I mean the K-12 spendingincrease permanent increase that
the House just passed is insanein this environment.
They don't have a way of payingfor it.
They didn't even discuss afiscal plan on how to pay for it
(14:41):
, but nevertheless they votedthis permanent increase.
And now we're talking aboutchildcare.
And now we're talking about the.
You know, people are pushingfor the childcare subsidies that
are out there.
And now we're talking about theincreased wage increases.
Speaker 2 (14:56):
It's- Medicaid, all the other things.
I mean it's just gonna be.
Yeah, this is whoo, it's gonnabe fun, yeah, brad.
I mean I'm just looking at thisand going, it's going to be.
You know, it's going to beworse If Trump gets his way and
they get to that $50 mark, whichwould be good for the overall
US economy, don't get me wrong.
(15:16):
But for Alaska, I mean, if wewent from 18 to 50 or 51, 52, I
mean that's devastating.
It's devastating for what we'vegot going on right now.
Speaker 1 (15:29):
We should have long ago and I've been an advocate of
this since the 20 teens.
We haven't talked about it muchon the show but I've written a
couple of pieces on it.
We should have long ago gone toa system for the oil revenues
we use in our budget based uponthe 10-year history.
We should be basing the oilrevenues that we use in the
(15:54):
budget on what we have, thesurplus we may have built up by
using a 10-year forecast or a10-year history.
But we haven't done that.
I mean we're just riding thecurb as it goes and we're about
to see just sort of riding theroller coaster.
It goes up and goes down andwe're about to see the down
consequence of this Again.
(16:15):
I mean we've been through itbefore.
We've never been through itwith savings this low before, so
it'll be a new thrill to godown through it in this
situation.
But we're about to go throughthe down dive again and if it
gets down to 50, if oil getsdown in the $50 range, trump's
(16:37):
going to want to keep it there.
I mean because the deflationaryeffects of getting oil prices
down that low is going to beoffsetting the inflationary
effects of the tariffs and he'sgoing to want to keep that
deflationary pressure there tooffset what's going on with the
tariffs, to continue to justifythe tariff policy, and so he's
(16:58):
going to want to keep it there.
And the Saudis?
If the Saudis regain marketshare, saudis have a lot of
capacity for absorbing lowprices, and so the Saudis may go
there for a while.
So once we get down there,there's going to be a lot of
pressure to keep it there, andif it stays there, alaska is
(17:20):
just going to take one hit afteranother in terms of revenue and
in terms of the budget.
Speaker 2 (17:28):
Well, maybe I hate to say this, but maybe that's what
we need.
Maybe we need that wake-up call.
Maybe we need the call to say,hey look, you can't be all
things to all people, and youknow two or three years of oil
at, you know, at $50 a barrel inin the 50s.
Maybe that will be the wake-upcall that's required.
I don't know.
It just seems like they justdiscovered recently that we have
(17:50):
a deficit problem and now it'llbe like woof, you know now
we'll see where it goes fromthere.
Speaker 1 (17:56):
Yeah, and, and you know, you said who wants to be
governor of this.
Well, we already have twocandidates that announced
yesterday, neither of whom clickput out this long release about
.
You know all the stuff he'sconcerned about.
Fiscal policy Wasn't one ofthem?
Oh no, the budget, the budgetwasn't one of them, so neither
of them were ready for this.
Speaker 2 (18:16):
Yeah, no, it's.
Yeah, I'm not, I'm notencouraged.
Well, I'll.
(18:41):
Yeah, I'm not encouraged.
Well, to be honest with again,I want to know more before I go,
but there's really, it has notbeen an inspiring field thus far
about all the names that havebeen mentioned, but we'll see
where it goes from here.
Speaker 1 (18:52):
I'm holding that for Ben Carpenter to tell you the
truth.
Speaker 2 (18:55):
That would be pretty awesome.
All right, we got to go.
We're drawn to number two hereof the weekly top three Brad
Keithley, alaskans forsustainable budgets.
The basic question of the weekis uh, you know what is the
basic question on hb 57, what isthe question that we should all
be?
We all know it right, it's thequestion we should all be asking
(19:16):
all the time who pays, brad?
Hb 57.
You're in an analysis, ananalysis of, in an analysis of
this debacle here.
Speaker 1 (19:27):
So HB 57, for those who are numbers challenged, HB
57 is the K-12 bill, the $750K-12 or 700, which was it?
700?
The $700 K-12 bill that gotthrough the legislature, got
through.
Yeah, that got through.
Uh, they got through thelegislature, got through the
Senate and got through the houseand currently is sitting on the
on the on the governor's desk.
(19:49):
If there's one thing, michael,that we did over the course of
the last two years, or thecourse of the last three years,
as long as people have beenwriting these, these, these
op-eds about, we need increasedK through 12 funding.
We need,12 funding.
We need more funding in theschools.
We need to spend more in theschools.
If there's one thing we talkedabout on this show, one thing I
(20:11):
wrote about elsewhere repeatedly, was okay, if we're going to
address increased spending, wehave to talk about who pays.
We have to talk about broadlydistributing the burden of any
such increase.
Especially if they're going todo it on a permanent basis, we
have to address who pays.
(20:31):
It has to be hand in glove andwe criticized liberal op-ed
after liberal op-ed afterliberal op-ed for not addressing
the issue of who pays, nottalking about how they were
going to make sure the burdenwasn't entirely focused on
middle and lower income Alaskafamilies through PFD cuts.
So we get to.
(20:51):
We get to the vote on HB 57 andwe have a bunch of
conservatives vote for it andthey don't.
They don't talk about who paysand they and they don't care.
It's a permanent increase andthey're voting for a permanent
increase in the BSA, permanentincrease in K-12 spending,
permanent increase.
(21:12):
Taking it out of the discussionfor the future and offset to.
If you're going to vote forincreased spending, you have to
vote for increased revenues.
Are you ready to do that?
And are we going to spreadthose revenues broadly, taking
it out of that discussion?
Voted for a permanent increaseand they don't address who pays.
(21:32):
Rob Yunt had an op-ed in thelast week trying to explain what
the hell he was doing and theheadline of it was how a common
sense education package passedthe Alaska legislature to fund
some additional spending fundedby that internet tax $60 million
(22:32):
of internet tax and all hetalks about in his op-ed is that
he was responsible fiscallybecause when he added that
additional, that addition headded, when he added that
additional spending, it addedadditional additional revenue to
support it.
But he doesn't talk about the,the baseline seven $700 increase
(22:54):
, permanent increase that hevoted for.
He doesn't talk about how he'sgoing to pay for that and why
that was fiscally responsible.
The thing that really surprisedme is Sarah Vance and Refridge
and Bill Elam voting for HB 57.
(23:20):
And then they came outafterwards with an op-ed or with
a release that justified theirvotes for it.
And one of the things they saidin here in this explanation is,
quote education funding is thesingle biggest issue before the
legislature this year, saidRepresentative Vance.
(23:41):
We had a choice make realprogress now or risk walking
away with nothing.
I chose progress.
Education funding isn't thesingle biggest issue before the
legislature.
As we just discussed in thelast segment, especially with
oil prices dropping, fiscalpolicy is the biggest issue
facing the legislature and whatwe've got again, what those
(24:04):
op-eds tried to do the lastthree years is they tried to say
, oh, forget about fiscal policy.
We just need to focus oneducation policy and we need to
fund it no matter what, andbuild additional spending, no
matter what.
And what our response was thelast three years is no, it needs
to be fiscally responsibleeducation policy.
(24:26):
You need to pay for it.
If you want to increase it, youneed to pay for it.
And now we've got Vance andRefuge and Elam falling in the
same trap, saying, oh, it'seducation policy.
We've got to do educationpolicy without addressing the
fiscal consequences, at least onthe baseline portion of the
increased funding.
Speaker 2 (24:47):
I mean, look, I could have stood behind it if it was
a one-time thing just to get itoff the table.
But it's not, it puts it inperpetuity.
And the second thing is you canalready see them gearing up for
next session.
They're already saying this isa good start.
Essentially, the AnchorageSchool District Superintendent
said well, this is just to holdus over until next year.
Essentially, this is going tobe a.
(25:07):
This is a whole new deal.
This is a.
This is.
They've seen that you'veblinked and that you've given in
, and so they'll be back nextyear for another thousand
dollars.
Speaker 1 (25:17):
We get into these traps.
We get into these traps wheresomething that's going to cause
an increase in spending becomesmore important.
The policy of pursuing itbecomes more important than the
fundamental fiscal policy of howyou pay for it and how you pay
for it equitably Educationpolicy.
(25:37):
I mean Representative Vance hasfallen into that trap with the
statement that education fundingis the single biggest issue
before the legislature this year.
We got another trap coming upin the 15 days or however few
days 14 to 10 days, whatever itis left in the session.
We got another trap coming upin terms of childcare.
(26:01):
I mean people are going aroundoh, we've got to fund childcare.
We've got a crisis in childcare.
We've had a crisis in childcare.
We've had all these child carefacilities closed.
We've got to increase thesubsidies or make permanent the
subsidies we've got in thelegislature for child care.
How do you pay for that?
How do you pay for thatequitably?
It isn't just middle and lowerincome Alaska families that are
(26:22):
getting the benefit of that.
Top 20% are taking advantage ofthat too.
How do we fund that equitably?
If you want to increase thespending, how do we fund that?
But there's no discussion abouthow to fund it.
It's just we need thatadditional spending and we get
into these traps of where thepolicy around the spending is
(26:43):
what drives the boat, as opposedto the fiscal policy of how do
we pay for it.
If you're going to do it, howdo you pay for it responsibly?
And I'm just.
I'm shocked, frankly, thatconservatives are now falling
into the trap.
It's like they're falling overthe edge of the cliff right Into
the gorge.
To see that from RepresentativeVance was just shocking.
(27:05):
To see the vote first of alland then to see this statement
from Representative Vance isjust shocking.
At least Yunt tried to explainpart of it by saying he voted
for that increased incrementbecause he had funding behind it
.
Didn't explain the rest of it,but at least he explained that
increment.
Representative Vance, andRefridge and Elam don't explain
(27:29):
that at all.
I mean, it's just, we neededucation policies first.
We gotta deal with educationfunding.
Fiscal policy oh, we'll get toit someday, but education policy
, we gotta deal with it first.
Speaker 2 (27:40):
Yeah, well, putting $200 million on the bottom line
forever moving forward to me was, I mean, as important as
education may be, and evenassuming all their arguments
were correct, putting $200million permanently on the books
in perpetuity $175 million,whatever it is.
Okay, I'm just, I'm rounding up, that's just.
(28:01):
It's reckless.
I mean it really is justreckless at that point Because,
again, if you can't pay for itthis year, how are you going to
pay for it next year or the yearafter that, especially if oil
continues to tank.
I mean it's insane, it'smadness.
Speaker 1 (28:20):
Well, it's 182 million.
Whoever wanted to be pickyabout it forgot to include
people transportation, which's182 million.
Whoever wanted to be pickyabout it forgot to include
people transportation, whichalso was permanently increased.
So yeah, how do you?
I mean?
So I'd sort of resigned myselfto another one year funding as
we continue the debate.
That needs to go in parallel.
(28:40):
We want to increase spending.
Okay, how do you pay for itresponsibly?
How do you pay for it equitably?
I'd sort of said, okay, anotheryear of that, another temporary
fix of permanent fund cut, pfdcuts to pay for it.
But at least we preserve thedebate going forward, the
parallelism of the debate goingforward.
This takes away the parallelism.
(29:00):
It says we're going topermanently increase spending
without addressing funding, andso the implication of that is we
don't know how we're going tofund it.
It's probably going to be fromPFD cuts on the long term, but
we're not going to say that andwe're not going to fix that and
we're not going to address theissues that that raises in terms
of out migration and otherthings.
(29:21):
We're just going to increasethe spending side raises in
terms of out migration and otherthings.
We're just going to increasethe spending side and I've
gotten used to progressives andmoderates so-called moderates in
the legislature who claim to befiscal conservatives but aren't
.
I've sort of gotten used tothem going down this one-way
track of increasing spendingpermanently without addressing
the fiscal side, but to have tohave Vance and Ruffridge and and
(29:44):
Elam do it was just.
I mean, I don't know where wego If you can't, if you can't
hold the conservatives on thatissue, will you ever hold?
Speaker 2 (29:53):
on to anything, right , right.
Well, it's the same thing with.
I mean, in the first go around,the only person who voted
against it in the Senate is RobMyers, who's like hello, has
anybody seen the fiscal outlookright?
I mean even Schauer and Hughesand everybody.
And then, even when it cameback and Schauer and Hughes
voted against it, you still gotCronk and Yount and Rauscher who
(30:16):
are all saying, oh no, we're,you know, we're going to
override the governor's veto onthis.
Well, I mean, I asked MikeCronk on this program why are
you, if you were going tosupport it, would you support it
as a permanent or not?
And he's like yes.
And I'm like okay, come on,take a stand.
Right, can we really affordthis in perpetuity?
Nobody's even really thinkingabout that.
Speaker 1 (30:39):
Yep, we get into these cycles where we talk about
policy and we get focused on,you know, some policy child care
policy, education policy, somepolicy.
We get focused on that policythat has huge fiscal
implications, but we get focusedon that policy and we have to
address that policy.
I mean again, vance, educationfunding is the single biggest
(31:02):
issue for the legislature thisyear.
No, it's not, but you getfocused in on that.
You say, oh, that's the thingwe got to focus on and
everything else is secondary tothat, including how you pay for
it.
And so we end up in thesesituations where we increase the
spending on a permanent basisand we don't have the dollars
sitting there.
And and and we don't have thedollars sitting there, we don't
(31:23):
have a way of paying for itother than taking even more out
of the pockets of middle andlower income Alaska families
through PFD cuts, even thoughthe top 20% are benefiting from
it as well.
Right, we're taking more out ofthe pockets of middle and lower
income Alaska families to payfor it.
So it's, it's just hugelydisappointing and hugely
(31:44):
discouraging in terms of wherewe're going on fiscal policy.
I'm concerned we're going tosee the same thing on the child
care subsidies.
What fiscal policy.
Speaker 2 (31:53):
I mean, that's the thing the fiscal policy seems to
be spend whatever you need,it'll always be there, don't
worry about it.
Nothing to see here, move along.
I mean, that really is the.
I think Anthony said somethingabout.
You know that we're.
You know we can't fund anything.
Alaska is literally gettingthose scam credit cards
activated to pay off the otherfour credit cards that they
(32:15):
maxed out.
We're all in a death junglewith chainsaws flying in the air
and the government keeps addingmore and bigger chainsaws to
the mix.
I mean, that's where we're at.
It's just like we just keepdoing more and more and more,
with no end in sight.
No thought of how, I mean whenthe music finally stops.
Will there even be one chairleft in the room when the music
stops is my question.
Speaker 1 (32:36):
We're going to find out next year If oil keeps
dropping.
We're going to find out nextyear if there's, even if there's
even one chair, one chair, leftin the room and it's not.
I mean, this was done in thecontext of the oil drops.
This is done in the context ofstedman and others saying we got
a fiscal.
Even stedman and others sayingwe've got a fiscal problem.
(32:58):
This was done in the context ofthat.
Oh no, yeah, I understand.
Yeah, whatever, but educationfunding is the most important.
We got to vote.
Speaker 3 (33:05):
We got to vote this permanent increase because
ironically, steadman had thisreally great speech on the floor
the week before and I thinksome of the rhetoric that we've
had for the last two months isnumbing people's minds on how
big a billion dollars is.
You know they act like we'vegot a billion and a half
underfunded.
It's no big thing.
Or we're a billion or we're 500million.
(33:26):
That is a pile of money.
And when we look at addinganother 100 million or so cut
out of our operations, we put itin today, we take it out
tomorrow.
In the finance committee andother areas we don't have any
choice.
You know, it's not a matter ofwhat we want to do, is what we
(33:51):
have to do.
Speaker 2 (33:52):
So he says that the week before which I'm like wow,
I mean he and I are, I can'tbelieve it he's doing.
And then the next week he votesfor the $700 million permanent
increase.
$700 permanent increase 180something million bucks a year
moving forward.
So it's, everybody is there.
They're schizophrenic in thelegislature as far as that goes.
As far as policy, I thinkAnthony's right.
Speaker 1 (34:14):
I think Anthony is the scam credit card that you're
going to pay off all the othercredit cards with.
It's just we don't have at thecore, we don't have good solid
fiscal conservatives except formaybe Rob.
We don't have good solid fiscalconservatives that think about
dollars and cents first howyou're going to pay for this
(34:35):
stuff before you vote foradditional spending, and people
that we thought over on theHouse side that were turned out
not to be not.
Speaker 2 (34:43):
Yeah, Maybe Brad or I should write an opinion piece
that says when the music stops,will there be any chairs in the
room?
When the music stops, no, we'llall be sprawled on the floor.
Brian says the chairs will allbe in the pawn shop and the
wooden ones will be pretty muchit.
There won't be any chairs.
We rented all the chairs fromthe wedding caterer and now
(35:04):
they're all been repossessed andgone.
That's the thing.
That's that's the thing youknow.
And, yeah, where's Donna Ardwinwhen we, when we missed her?
I mean, she told us years agothat this was coming down.
She tried to get it fixed, butnobody wanted to face reality
back in 2018, 2019.
Nobody wanted to look at it.
We're too big to fail, Brad,too big to fail.
Speaker 1 (35:26):
Well, I mean, I mean the, the.
The thing that's got, the thingthat everybody has thought
about has justified theiractions on at least the
progressives and the so-calledmoderates have justified their
actions on through the years iswe've always got the PFD.
We can always take the PFD, wecan always tax the PFD to pay
(35:46):
for it, to cover ourselves.
And that's essentially whatVance and Ruffridge and Elam
have done in their action.
I mean, without having a fiscalplan on how you pay for this
permanent increase in spendingyou just voted for.
They're essentially saying youknow, we're going to rely on
(36:07):
this hidden account, the PFDaccount, that we can just tax
because it has to go through ourfingers on its way to Alaska
citizens.
Uh, we're going to rely on itto tax it.
Well, we're about running outof that too, right?
Speaker 2 (36:20):
Well, what do you do then?
Because you could take all ofthe PFD next year and we'll
still be underwater.
I mean, I just you know whatare you going to do then?
Speaker 1 (36:29):
Yeah, so it's.
I mean, I just can't understandhow you don't have a speech on
the floor by those voting for itor you know those trying to
explain why they're voting forit Conservatives, so-called
fiscal conservatives, trying toexplain why they're voting for
it.
So-called fiscal conservativestrying to explain why they're
(36:51):
voting for it.
I don't understand how youdon't have a speech on the floor
that says I would vote for this.
I agree it's good policy.
I agree we're making gooddecisions here.
I agree that this is what K-12needs, but I can't vote for it
until we have a plan of howwe're going to pay for it.
Until we have a plan notjust're going to pay for it,
(37:11):
until we have a plan, not justthis, but the whole bundle.
Until we have a plan to pay forit, I'll do it.
I'll vote for it, I'm ready forit, but we've got to have a
plan on how we're going to payfor it first.
I can't believe we didn't have aspeech like that on the floor
in the course of this.
I mean, this was the perfectopportunity for it.
If Sarah says, if Sarah Vancesays, this is good policy, we
(37:35):
need to pursue it, great, you'reprepared to vote for it, but at
least say that we need to havea plan about how we're going to
pay for it.
Other than PFD cuts, right, weneed to have a plan about how
we're going to pay for it beforewe start going down that road.
And just no click.
(37:56):
Yes, I'm ready to go there now,even though I don't have a plan
to pay for it and even thoughthe bottom's falling out in one
of our major revenue sources.
Speaker 2 (38:07):
So the one thing I mentioned it earlier but we
haven't gotten the full pricetag yet it came out yesterday
that the that the employeecontracts were done were signed
Right.
They come to an agreement.
An 11 percent increase in in apay bump 11 percent pay bump.
But the pay bump is not the bigthing.
(38:28):
The big thing is the medicalcost increase because it went
from paying $12.50 per employeeto now, depending on the plan,
anywhere from $180 to over $500per employee per month on health
care.
So an 11% increase in pay andupwards of a a 500 increase in
(38:54):
benefit payments on top of that.
I mean there's no, I haven'tseen the full price tag.
Nobody was really reporting onwhat the full price tag was, but
it's got to be the high end ofthat 300 million dollar range
yeah, yeah.
Speaker 1 (39:06):
We've both seen estimates of between two and
three hundred million dollars.
So it's gotta be.
It's gotta be somewhere inthere, and they've already I
mean.
So the PFD cut, the most recentPFD cut from 1400 down to a
thousand, was supposed to createa cushion that would that would
incorporate that increasedspending plus, you know, the
(39:27):
permanent increase in K through12 spending, plus whatever
additional spending.
Anybody can sneak in the door,like child care subsidies, sneak
in the door before the end ofthe session, but with oil
cratering the way it's doing,I'm not sure that $1,000 is
sacred at this point.
(39:48):
I'm not sure it creates enoughcushion to be able to absorb
that increased spending, theincrease in spending on salaries
and healthcare, plus all theother increased spending that
we're layering on top of that.
So I'm not going to be hugelyshocked if somewhere along the
way somebody says well, maybe weneed to take another couple
(40:08):
hundred bucks out of the PFD tomake sure all this balances out
at some point.
Speaker 2 (40:14):
Yeah, well, we'll have to see.
I'm sorry, it wasn't 500.
It was 300.
It was from $12.50 to 300 forthe current contract to the new
contract.
We'll get into that more, anhour or two, I'm sure.
But yeah, this is not going toend well, that's all I'm saying.
It's not going to end well.
(40:34):
The weekly top three continues.
I mean, after all that doom andgloom, you'd think, oh man,
this is bad, it couldn'tpossibly get worse.
And then somebody in thelegislature said hold my beer,
and they produced SJR 14.
Brad, it couldn't possibly getworse, right, right?
Speaker 1 (40:57):
Yeah, no, it could get worse.
It could get worse.
So here's the one thing that'ssort of hovering out there that
I'm really concerned about inthese closing days SJR 14 is a
proposed constitutionalamendment that would, as we've
talked about on the showpreviously, open a back door
into the permanent fund corpus.
(41:18):
It would set it would, it wouldrestate the, the Constitution,
the constitutional provisionaround the permanent fund from
saying you cannot spend from thecorpus period End of statement,
end of discussion, end ofanything.
You cannot spend from thecorpus to a constitutional
provision that would merge thecorpus and the earnings reserve
(41:38):
together and essentially say youcan spend 5% of the average
value over the previous fiveyears.
You can spend 5%.
This is the thing it doesn'tsay, but that it would permit,
regardless of whether actualearnings equal 5% or not.
Essentially, it opens theability of the legislature to
(42:02):
keep going at 5% draws from thepermanent fund, even if the
permanent fund is only earning4% or 3% or 2%.
And people quickly say, oh, butthe permanent fund's always
going to earn 5%, well, overinflation.
And the response to this well,it hasn't in five of the last
six years.
It hasn't earned 5% overinflation in five of the last
(42:25):
six years.
So there's a reasonableexpectation that it may not be
able to do that on an ongoingbasis.
And if it doesn't do that on anongoing basis, what the
proposed constitutionalamendment does is say, fine, you
can just take the difference.
Whatever the difference is, youcan take the difference from
the corpus and just startdraining down the corpus to
continue supporting this 5% drawthat the constitutional
(42:49):
provision would set up.
That opening a backdoor to thecorpus like that is just, is it?
I mean, we've gone through theSBR, we've gone through the CBR,
we're going through thepermanent fund dividend, and now
it would open a backdoor intothe corpus and just keep this
show going on and on and on.
In addition, it would negatethe incentive for the permanent
(43:15):
fund corporation to get its acttogether.
The permanent fund corporationhas two very real problems that
are going on right now.
One, it's spending way the helltoo much on management fees and
other things that it's doing tojustify its investment program
(43:37):
management fees and consultingfees.
It's spending way the hell toomuch.
It's spending a percent of thepermanent fund on that thing
when other similar agencies arespending much, much less than
that, spending a billion dollarsa year on that.
So that's one problem isspending way too much.
And the second problem is it'snot earning enough.
(43:59):
The way its investmentportfolio is, it's earning less
than 5% five of the last sixyears, 5% over inflation.
It's earning less than thatfive of the last six years While
the S&P just to use one measure, alternative measure has been
skyrocketing, leveling off now,but it's been skyrocketing the
last few years, while thepermanent fund's been just sort
(44:20):
of loping along earning lessthan 5% above inflation.
Those are two serious problemsfacing the permanent fund.
If we would adopt SJR 14 andallow a backdoor into the corpus
, permanent fund corporationdoesn't care about that because
it will always deliver the 5% tothe legislature.
(44:41):
And the legislature doesn'tcare about it because they're
always getting 5%, regardless ofwhat the permanent fund's
spending and regardless of whatit's earning.
So there's no incentives forthe permanent fund.
It releases the incentives onthe permanent fund corporation
to get its act together on thosetwo very important things.
So SJR 14 to me is just adisaster, another disaster to
(45:05):
our fiscal house that would beset up by its passage.
It's been hovering in thebackground in Senate Finance.
They've brought it up a coupleof times.
They haven't passed it out yet.
They haven't moved to pass itout yet, hopefully, because it
doesn't have the votes, but ithasn't passed out yet.
But it's sitting there andBurt's been a big supporter of
(45:26):
it because he sees what it woulddo.
It would ensure this 5% goingforward, regardless of what the
permanent fund was actuallydoing, and so Burt's been a big
supporter of it.
And my concern is in these finaldays, as everything's confused,
as everything's, you knoweverybody's trying to get done,
that they move it.
It gets through the Senate andthe House goes oh yeah, the
(45:56):
Senate and the House goes.
Oh yeah, the House sets up andadopts it as well.
Governor, can't veto aconstitutional amendment, so all
it takes is passing.
The Senate requires a supermajority in each body, but all
it takes is passing the Senate,passing the House and it goes to
the people.
And I'm concerned that it'ssitting out there and doing it.
So can it get worse?
Yes, they could bring up SJR 14and try to move it out.
Speaker 2 (46:15):
Yeah, Well, and it is .
Frank says it's a resolution.
It has no standing.
You don't understand.
It's a resolution on aconstitutional amendment, so it
has standing in the fact that ifit does pass, it will go to a
vote of the people and Iguarantee you there'd be plenty
of big entities out there whoare just living on the
government lucre who would spend.
(46:36):
I mean, what did GCI spend thatone year $2 million, $3 million
on trying to take your PFD.
When SB26 was going through,they spent millions of dollars
to get it passed because theyknew it would take money out of
the PFD.
So there would be a huge pushto get that passed, even though,
(46:59):
again, this is essentiallyeating the seed corn, right,
Because if we haven't made our5%, we're still going to draw.
All it does is reduce theearning power of the fund.
So the next year they make evenless and then that just
continues every year.
They keep taking their 5% andit just keeps earning less,
because now there's lessinvestment money and it's over.
(47:23):
It's over at that point.
That's the beginning of thedownhill slide.
Speaker 1 (47:28):
Yeah, I want to be clear.
It is SJR, it is resolution,but it does have absolute effect
in that it sets up a vote, ifpassed by the super majorities
in the Senate and the House.
If passed, it sets up aconstitutional amendment vote
and then it's a vote of thepeople.
And there is.
There's going to be a hugeamount of money.
(47:48):
Michael's exactly right.
Gci is going to be behind it,the oil companies are going to
be behind it, people are goingto be behind it who want to
spend more, want to ensure thatthat revenue stream continues,
that, regardless of how screwedup the permanent fund
corporation becomes, thatrevenue stream continues.
And people are going to want itto make sure that, oh, we're
(48:11):
not going to be talking abouttaxes on them because we're
going to have this other revenuestream coming in that's going
to be supplying revenue to thestate, to the legislature,
regardless of what's going onover the permanent fund
corporation.
There will be a lot of moneybehind it, and so it's my.
It is a serious concern that itmay be brought up in the last
(48:31):
days and pushed.
Speaker 2 (48:33):
This would be.
This would just be insult toinjury.
I mean, if something like thispassed now Rob says they won't
pass SJR 14 until next yearIt'll pass the Senate.
It probably doesn't have thevotes to pass the House.
I mean.
Passing the Senate, though,requires a super majority, which
is what?
30 or 17?
(48:58):
Is that what it is?
17 of 20 to get the two thirds?
No, I mean of 17 of 20 to getout of the Senate.
I mean, I just I mean really,would all these Republicans vote
for this?
Would you know?
Cronk and Rauscher and Yount?
(49:18):
I guess maybe I can't seeTwo-thirds isn't 17.
Speaker 1 (49:23):
Two-thirds is three-quarters is 15.
Three-quarters.
Speaker 2 (49:27):
Oh, a three-quarter.
Okay, so three-quarters so 15.
They got 15 to get.
Is it a three-quarters vote oris it a two-thirds vote?
It's a three-quarters vote,isn't it?
It's a high threshold 14 in theSenate, 27 in the House.
Thank you, rob, for getting mesquared away there.
I just can't believe thatpeople would be all excited
(49:50):
about this, not looking at justthe simple aspect of if you
start sucking into the corpus ofthe fund, you're immediately
reducing the investmentopportunity, and it'll just be
especially Bert Steadman who'salways been going on and about
stability and all this kind ofstuff.
Why would you allow them to cutinto the corpus of the fund?
Speaker 1 (50:10):
Well, it is.
I mean.
Bert's answer to that is it isstability.
It's always going to be 5%.
We can count on that 5%, maybe5% of declining number, but it's
always going to be 5%.
He's going to claim that isstability.
To me, as important as breakinginto the corpus, as opening a
(50:31):
backdoor into the corpus, iseliminating those incentives on
the permanent fund corporationto reduce cost, keep costs down
and to have a strong earningstream.
Eliminating those incentivesbecause it'll always be 5%.
It doesn't matter what we spend, it doesn't matter what our
earnings are, it'll always be 5%.
(50:51):
Eliminating those incentives oreven more.
Now the permanent fundcorporation is going to tell you
oh, we always do that, wealways minimize costs, we always
pursue strong returns.
Well, just look at the last fiveyears.
You haven't.
You've allowed costs toescalate dramatically and you've
allowed returns to deterioratedramatically compared to the S&P
(51:14):
500 or compared to otherindexes, and you've allowed that
to go on.
So no, I mean you can claimthat, but you haven't performed
that way.
This creates maintaining thecurrent two account creates an
absolute incentive to do that,creates an absolute incentive to
minimize costs and to maximizeor optimize returns.
(51:38):
Eliminating that that SJR14would do, consolidating the two
together eliminates thoseincentives, and that to me is as
important, because incentivesmatter a lot.
That to me is as important ascreating a backdoor into the
corpus.
Speaker 2 (51:56):
Yep, it's, it could get worse.
I mean, you, you, you, youproven it right there.
It's a, it's a, it's a bigthing.
So all right, well, brad, um,there's a lot to unpack here.
There's a lot to unpack.
We still haven't finishedfighting the child care fight.
We still haven't finishedfighting the Medicaid fight.
Now we've got the employee costfight.
Now we've got all this otherkind of stuff.
(52:18):
Any care to run me a?
You know, hold the envelope toyour forehead and run me a
Kreskin.
Projection here on what youthink the deficit is going to be
this next year.
Projection here on what youthink the deficit's going to be
this next year.
Speaker 1 (52:34):
You know $2.5 billion is not out of the.
Against current law, againstthe current law budget, counting
the PFD and statutory levels,$2.5 billion is not out of the
question.
A deficit that is half 50% ofspending is deficit is not out
of the question.
Given where oil prices aregoing and given the way our
(52:58):
budget is structured, it mightbe record-breaking, that might
be a record deficit, but a 50% abudget that's only 50% paid for
, the other 50% of which has tocome out of the meager reserves
we continue to have, plus hugePFD cuts, a budget that's funded
(53:23):
50% by that is not out of thequestion.
I mean we're already at a 30%deficit financed budget.
Speaker 2 (53:40):
So you know oil prices diving down would get us
fairly easily to a 50% deficitfinanced budget and we can't
print money and we can't borrowto do it and we've only got $2
billion in spendable, just under$2 billion in spendable in the
CBR in our savings accountquote-unquote savings account
which is supposed to have $10billion in it, right
constitutionally, or $12 or $15,something like that.
Yeah, something like that.
(54:00):
I mean, I think the minimum issupposed to be $10.
And there you go, man.
Next year is going to be fun.
It's going to be fun aroundhere, Brad.
Speaker 1 (54:12):
And we've got people who are voting for things.
It shocks me, people who arevoting for permanent spending
increases in the face of allthat, without saying I'll vote
for it If you tell me how we'regoing to pay for it, without
saying that, just voting for theincrease because it's good
policy.
I mean fiscal conservatives.
(54:34):
We really fiscal conservatives?
We don't really have.
I mean, they may claim to be,but they don't think that way.
They think about other things,they prioritize other things
instead.
Speaker 2 (54:43):
Well, it gets to the realm of emotion, because they
got people banging on their doorabout my kids are going to die
if you don't take care of themand everything.
My kids are going to die if youdon't take care of them and
everything.
And you know, I mean ShelleyHughes did have a good article
in her blog yesterday or daybefore.
There was an article about, youknow, the Anchorage School
District actually still sittingon a big chunk of the money that
they got last year and theywere holding it over.
(55:04):
That's what they said in one oftheir fiscal reports.
But on the other fiscal reportsaid that they haven't spent any
of it.
And then the third fiscalreport said they spent only a
portion of it.
So it's all shell games at thispoint.
And yet they're genning up allthe people with.
We're going to cut 300 teachingpositions, not telling you that
180 or 200 of them are not evenfilled, right, I mean.
(55:24):
So it's all at this point.
It's all theater to get moremoney out of everybody.
That's what it's all about.
And they're buying it, they'rebuying into it and again not
asking the question of how do wepay for it all.
That's the problem.
All right, brad, we got to go,thanks.
Speaker 1 (55:39):
Thanks for having me, Michael.
Well, that's a wrap for anotherweek's edition of the Weekly
Top Three from Alaskans forSustainable Budgets.
Thank you again for joining us.
Remember that you can find pastepisodes on our YouTube,
SoundCloud, Spotify and Substackpages, and keep track of us
(56:00):
during the week on Facebook andTwitter.
This has been Brad Keithley,Managing Director of Alaskans
for Sustainable Budgets.
We look forward to you joiningus again next week for the next
edition of the Weekly Top Three.
Hi, this is Brad Keithley, managing Director of
Alaskans for Sustainable Budgets.
Welcome to the weekly top threethe top three things on our
mind here at Alaskans forSustainable Budgets for the week
of May 5th 2025.
The weekly top three is aregular segment on the Michael
Duke Show.
The show broadcasts on bothFacebook Live and YouTube Live,
(00:34):
as well as via streaming audiofrom the show's website weekdays
from 6 to 8 am.
I join Michael weekly in thefirst hour of Tuesday's show
from 6 10 to 7 am for adiscussion between the two of us
about our three issues.
We post the podcast of ourdiscussion following the show on
the Alaskans for SustainableBudgets Facebook, youtube,
(00:56):
soundcloud, spotify and Substackpages.
Also on the Alaskans forSustainable Budgets website, as
well as the project's page onnational blog site mediumcom,
you can find past episodes ofthe weekly top three also at the
same locations.
Keep in mind that, in additionto these podcasts during the
(01:17):
week, you can also follow andparticipate in the discussion
with us of these and otherissues affecting Alaska's fiscal
and economic condition byfollowing us on the Alaskans for
Sustainable Budgets Facebookpage and through our posts on
Twitter.
This week, our top three issuesare these First, we discuss
(01:38):
what's going on with oil prices,what level they've gone to, how
low they could go and how longdoes the price drop?
Last Second, we discuss thefailure of those who voted for
HB 57, the permanent K-12funding increase, to
realistically deal with thefundamental question where's the
(02:00):
money coming from and who pays?
And third, we discuss a billhovering over this session that,
if passed, could make Alaska'sfiscal future even worse.
And now let's join Michael.
Speaker 2 (02:17):
Let's get started.
We've been talking a lot aboutit.
Like I said before, it seemslike the legislature has now
just welcome to the party, pal.
You're the first person torealize that we're in a deficit
and they're shocked, shocked.
I tell you that this isactually going on.
But the news from oil is notgood.
For those who've been planningon a big, rosy budget for next
(02:40):
year, it's just not as good asthey thought it was right.
Give us the news on oil pricing, brad.
What's happening?
Speaker 1 (02:46):
there.
It's not only not good, it'sgetting terrible.
I did the futures prices thismorning before we started and
the current fiscal year FY25,that we've got what two months
left of month and a half left ofis going to be okay.
The projection on which thebudget was based was $75.
(03:11):
The spring revenue forecastbrought that down a dollar and
said it was going to come in at$74.
And factoring in the currentfutures markets for the
remainder of this month and forJune, it looks like the average
is going to end up around $73 abarrel.
So FY25 is taking a hit, butnot that much of a hit.
(03:36):
Fy26 is just a disaster when youlook at it.
When you look at it.
The forecast, the springrevenue forecast, on which this
budget was theoretically beingbuilt, is $68 a barrel for
Alaska crude, the currentfutures market, and some will
(04:11):
sometimes argue with me and say,well, there is no futures
market for Alaska, which isabsolutely true, but you can
take Brent, which is what Alaskais priced against basically in
the world market.
You can take Brent and you canadjust it for the Alaska
differential and we keep trackof what the differential is
between Alaska crude and Brentcrude on a daily basis and then
factor that in in looking at theBrent futures market coming up
with an Alaska futures price andthe current market for Alaska
futures against a spring revenueforecast of $68,.
(04:34):
The current futures price fromthis morning for the Alaska
futures is $62, $6 less and thattranslates into about a $200
miss, $200 reduction inprojected oil revenues for the
state.
Speaker 2 (04:54):
So FY26 $200 million, not $200,.
$200 million, right, yeah,right, $200 million, I'm sorry
$200 million lower funding forthe state.
Speaker 1 (05:06):
So FY26 is just looking horrible and interesting
thing about the current marketsince this ride started a couple
of months ago.
Interesting thing about thecurrent market up to a couple of
months ago since COVID up to acouple of months ago, the oil
(05:31):
futures market had been in whatis called backwardation, which
means that current prices arehigher than futures prices.
It was a downward slope to themarket.
What's happened in the lastfour weeks, six weeks, is that
the market has gone into thissort of roller coaster that is
(05:54):
in backwardation for the firstcouple of years and then goes
into what's called contango bythe futures analysts or the
market analysts, by the futuresanalysts or the market analysts.
Contango, which means thatfutures prices are higher than
current prices.
So we're in backwardation for acouple of years and then we
(06:14):
start into contango and whatthat means is beyond FY26, the
market sort of comes back up andif you look at an average of
FY27 through FY32, at least inthe current futures market, the
spring revenue forecast says $67a barrel and the current
futures market says $67 a barrelalso.
(06:37):
So we sort of even out in thefuture years.
But right now, looking at thefutures market.
Fy26 is a disaster and it's notentirely clear we get out of
this anytime soon.
What's going on is we startedwith a soft market because of
reduced demand, largely becauseof the tariffs.
(06:59):
As the tariff wars started,demand started contracting, uh,
and so we've got a soft market.
Uh, uh, to begin with, uh, butwhat's mostly happened over the
last couple of months is thatOPEC has OPEC plus has vastly
increased, uh, the quotas,vastly increased production, uh,
(07:21):
first in April for May, uh, andnow at the most recent meeting
they upped it another 400,000barrels a day in May for June,
which was a surprise to themarket.
I think the market expectedabout 100,000 barrels a day
increase, or 150,000 barrels aday increase, and OPEC
(07:41):
substantially exceeded that.
And there's an increasingexpectation that OPEC is going
to do the same in June, up atanother $400,000 in June for
July, which will bring pricesdown even further.
So it's not entirely clearwhat's going to change.
That sort of stops, thefreefall that we're in gets this
(08:01):
sort of stops, the free fallthat we're in the OPEC
production increases are inresponse.
I mean against the soft market,against the soft demand market.
You would think that they'dstart tightening up, but what
they've done is they've expandedbecause they've got a problem
with two of their members, iraqand Kazakhstan, greatly
exceeding their OPEC quotas.
So this is sort of you know, ifyou're going to do that, we're
(08:22):
just going to increase theCquotas.
So this is sort of this is sortof you know, if you're going to
, if you're going to do that,we're just going to increase,
we're just going to increase theoverall quotas and everybody's
going to compete for for thatincreased market share that
you've been filling by over oversupplying your quota.
It's a punishment.
It's a punishment.
Speaker 2 (08:37):
Anything else to try and drive the whole market price
down.
So sure you could overproduce,but you're going to make less
because we're all going tooverproduce at this point.
Speaker 1 (08:45):
It's mostly punishment, but it's also a
market share battle.
I mean Saudi.
So what's happened is we had ina soft market, Kazakhstan and
Iraq were increasing theirmarket share dramatically, which
was coming at the expense ofSaudi.
So Saudi's response was look,you're not going to be able to
(09:06):
play that game.
We're going to increase thequotas so we can compete for
that increased market share,that increased share of the
market you've been supplying,and in doing that it drives
price down.
But it begins with a marketshare battle that has the effect
on price.
Dropping price is also sort ofa fortuitous response by the
Saudis to request by the Trumpadministration to bring price
(09:27):
down, to level off inflation, tokeep inflation under control,
even with the tariff increases.
And Trump's headed over toSaudi for a foreign visit in the
next month or so, next fewweeks or so, and this gives the
Saudis an opportunity to say see, you know, you ask us for lower
prices.
Look what's happened.
Speaker 2 (09:47):
We deliver, right, we deliver.
So what's the effect on Alaska,though?
I mean, this is you know, youknow, sixty eight dollars a
barrel is what they factored iton, but sixty one, sixty, fifty,
nine, I mean we look, and we'relooking into the high fifties,
or what are we thinking?
Speaker 1 (10:06):
What is it going to mean for Alaska?
The Trump administration saysthey want 50.
The current futures price is at62.
If the Saudis increase thequotas again in June by another
400,000, which is what theycould do, I mean they're really
restoring the cuts that happenedduring COVID.
(10:27):
And if they could, if theyincrease it by another 400,000,
which the Saudis have thecapability of doing that'll
drive it into the fifties forsure and and possibly start
approaching the $50 barrel levelthat the Trump administration
has said it has said it wanted.
So that just makes FY26 forAlaska an absolute disaster and
(10:55):
will just wreck the budget allto heck.
We don't have enough savings toguide us over.
So just really, I mean FY 26 isgoing to be if the Saudis
increase the production again,if the price drives down into
the fifties, into the middle andlow fifties, it's going to,
it's going to wreck the FY 26budget and start putting future
budgets at risk as well.
(11:15):
Even though we're in contango,if you start from a lower base
the contango the contango getsyou lower levels.
I mean it gets you higherlevels than current, but it ends
up getting you lower levels.
I don't think it'll affectproduction.
I don't think it will affectthe incentive for projects
currently underway like Willowand PICA.
(11:36):
They're too far along CapEx istoo far along to really stop
work on those.
It probably will slow down anyfuture projects beyond Willow
and beyond PICA that may be inthe planning phases or may be in
people's minds right now.
It will weight down on those.
(11:59):
But I think we'll continue tohave production.
It's just that the price forthat production is just going to
be, uh, significantly lowerthan the, than the, than the
forecast and the, the price onwhich the budget's based in
dollars and cents though you'retalking about, I mean, if we end
up with a drop, every dollar,and drop is what?
Speaker 2 (12:17):
about 40 million dollars or so at these levels,
about 30 million?
30 million dollars.
Yeah, so at every dollar.
So if we drop $10 down fromthat's the thing they keep
factoring the budget on thishigher and higher Number 68, now
we get to 58.
If we get to 55, I mean all ofa sudden we're talking about
(12:38):
going from potentially abillion-dollar deficit to a $2
billion deficit.
Speaker 1 (12:44):
Oh, easily 1.9.
Easily oh easily.
Speaker 2 (12:47):
We're talking big dollars.
Speaker 1 (12:50):
Current law deficit.
Starting from the statutory PFD, we're easily over $2 billion.
Even at $62 a barrel we may beover $2 billion.
I haven't run those numbers yet, I'll run them on Friday.
But even at $62, we're probablyover $2 billion for FY26
against the current law budget,against the budget, factoring in
(13:12):
the PFD cuts that they'remaking Against that budget,
we'll still be down maybe $400,$500 million if we get into the
mid-50s for FY26.
And we've only got like $3billion in savings.
We say savings.
What it really is isaccumulated PFD overcuts that
(13:36):
have happened during the lastfive years.
Speaker 2 (13:40):
The PFD slush fund right.
Only whatever's left of yourPFDs is sitting in there at this
point, and it's what?
2.8, 2.9,.
But they say they have toretain almost a billion dollars
for cash flow.
So it's not even that.
It's about $2 billion.
That's really what's availableis just under $2 billion.
So it makes it even more.
And that doesn't even accountfor the new employee contracts
(14:01):
which we don't even have thefull price tag on that yet.
But it's upwards of $300million a year in perpetuity
going forward.
So there's another.
I mean this is.
I mean this just hurts all theway through.
It's just, it just keepsgetting worse as we go through.
Speaker 1 (14:18):
Yeah, and and.
In the face of this, michael, Imean we'll talk about this more
in the second segment, but, butin the face of this, we keep
voting spending increases.
I mean we'll talk about thismore in the second segment, but
in the face of this, we keepvoting spending increases.
I mean the K-12 spendingincrease permanent increase that
the House just passed is insanein this environment.
They don't have a way of payingfor it.
They didn't even discuss afiscal plan on how to pay for it
(14:41):
, but nevertheless they votedthis permanent increase.
And now we're talking aboutchildcare.
And now we're talking about the.
You know, people are pushingfor the childcare subsidies that
are out there.
And now we're talking about theincreased wage increases.
Speaker 2 (14:56):
It's- Medicaid, all the other things.
I mean it's just gonna be.
Yeah, this is whoo, it's gonnabe fun, yeah, brad.
I mean I'm just looking at thisand going, it's going to be.
You know, it's going to beworse If Trump gets his way and
they get to that $50 mark, whichwould be good for the overall
US economy, don't get me wrong.
(15:16):
But for Alaska, I mean, if wewent from 18 to 50 or 51, 52, I
mean that's devastating.
It's devastating for what we'vegot going on right now.
Speaker 1 (15:29):
We should have long ago and I've been an advocate of
this since the 20 teens.
We haven't talked about it muchon the show but I've written a
couple of pieces on it.
We should have long ago gone toa system for the oil revenues
we use in our budget based uponthe 10-year history.
We should be basing the oilrevenues that we use in the
(15:54):
budget on what we have, thesurplus we may have built up by
using a 10-year forecast or a10-year history.
But we haven't done that.
I mean we're just riding thecurb as it goes and we're about
to see just sort of riding theroller coaster.
It goes up and goes down andwe're about to see the down
consequence of this Again.
(16:15):
I mean we've been through itbefore.
We've never been through itwith savings this low before, so
it'll be a new thrill to godown through it in this
situation.
But we're about to go throughthe down dive again and if it
gets down to 50, if oil getsdown in the $50 range, trump's
(16:37):
going to want to keep it there.
I mean because the deflationaryeffects of getting oil prices
down that low is going to beoffsetting the inflationary
effects of the tariffs and he'sgoing to want to keep that
deflationary pressure there tooffset what's going on with the
tariffs, to continue to justifythe tariff policy, and so he's
(16:58):
going to want to keep it there.
And the Saudis?
If the Saudis regain marketshare, saudis have a lot of
capacity for absorbing lowprices, and so the Saudis may go
there for a while.
So once we get down there,there's going to be a lot of
pressure to keep it there, andif it stays there, alaska is
(17:20):
just going to take one hit afteranother in terms of revenue and
in terms of the budget.
Speaker 2 (17:28):
Well, maybe I hate to say this, but maybe that's what
we need.
Maybe we need that wake-up call.
Maybe we need the call to say,hey look, you can't be all
things to all people, and youknow two or three years of oil
at, you know, at $50 a barrel inin the 50s.
Maybe that will be the wake-upcall that's required.
I don't know.
It just seems like they justdiscovered recently that we have
(17:50):
a deficit problem and now it'llbe like woof, you know now
we'll see where it goes fromthere.
Speaker 1 (17:56):
Yeah, and, and you know, you said who wants to be
governor of this.
Well, we already have twocandidates that announced
yesterday, neither of whom clickput out this long release about
.
You know all the stuff he'sconcerned about.
Fiscal policy Wasn't one ofthem?
Oh no, the budget, the budgetwasn't one of them, so neither
of them were ready for this.
Speaker 2 (18:16):
Yeah, no, it's.
Yeah, I'm not, I'm notencouraged.
Well, I'll.
(18:41):
Yeah, I'm not encouraged.
Well, to be honest with again,I want to know more before I go,
but there's really, it has notbeen an inspiring field thus far
about all the names that havebeen mentioned, but we'll see
where it goes from here.
Speaker 1 (18:52):
I'm holding that for Ben Carpenter to tell you the
truth.
Speaker 2 (18:55):
That would be pretty awesome.
All right, we got to go.
We're drawn to number two hereof the weekly top three Brad
Keithley, alaskans forsustainable budgets.
The basic question of the weekis uh, you know what is the
basic question on hb 57, what isthe question that we should all
be?
We all know it right, it's thequestion we should all be asking
(19:16):
all the time who pays, brad?
Hb 57.
You're in an analysis, ananalysis of, in an analysis of
this debacle here.
Speaker 1 (19:27):
So HB 57, for those who are numbers challenged, HB
57 is the K-12 bill, the $750K-12 or 700, which was it?
700?
The $700 K-12 bill that gotthrough the legislature, got
through.
Yeah, that got through.
Uh, they got through thelegislature, got through the
Senate and got through the houseand currently is sitting on the
on the on the governor's desk.
(19:49):
If there's one thing, michael,that we did over the course of
the last two years, or thecourse of the last three years,
as long as people have beenwriting these, these, these
op-eds about, we need increasedK through 12 funding.
We need,12 funding.
We need more funding in theschools.
We need to spend more in theschools.
If there's one thing we talkedabout on this show, one thing I
(20:11):
wrote about elsewhere repeatedly, was okay, if we're going to
address increased spending, wehave to talk about who pays.
We have to talk about broadlydistributing the burden of any
such increase.
Especially if they're going todo it on a permanent basis, we
have to address who pays.
(20:31):
It has to be hand in glove andwe criticized liberal op-ed
after liberal op-ed afterliberal op-ed for not addressing
the issue of who pays, nottalking about how they were
going to make sure the burdenwasn't entirely focused on
middle and lower income Alaskafamilies through PFD cuts.
So we get to.
(20:51):
We get to the vote on HB 57 andwe have a bunch of
conservatives vote for it andthey don't.
They don't talk about who paysand they and they don't care.
It's a permanent increase andthey're voting for a permanent
increase in the BSA, permanentincrease in K-12 spending,
permanent increase.
(21:12):
Taking it out of the discussionfor the future and offset to.
If you're going to vote forincreased spending, you have to
vote for increased revenues.
Are you ready to do that?
And are we going to spreadthose revenues broadly, taking
it out of that discussion?
Voted for a permanent increaseand they don't address who pays.
(21:32):
Rob Yunt had an op-ed in thelast week trying to explain what
the hell he was doing and theheadline of it was how a common
sense education package passedthe Alaska legislature to fund
some additional spending fundedby that internet tax $60 million
(22:32):
of internet tax and all hetalks about in his op-ed is that
he was responsible fiscallybecause when he added that
additional, that addition headded, when he added that
additional spending, it addedadditional additional revenue to
support it.
But he doesn't talk about the,the baseline seven $700 increase
(22:54):
, permanent increase that hevoted for.
He doesn't talk about how he'sgoing to pay for that and why
that was fiscally responsible.
The thing that really surprisedme is Sarah Vance and Refridge
and Bill Elam voting for HB 57.
(23:20):
And then they came outafterwards with an op-ed or with
a release that justified theirvotes for it.
And one of the things they saidin here in this explanation is,
quote education funding is thesingle biggest issue before the
legislature this year, saidRepresentative Vance.
(23:41):
We had a choice make realprogress now or risk walking
away with nothing.
I chose progress.
Education funding isn't thesingle biggest issue before the
legislature.
As we just discussed in thelast segment, especially with
oil prices dropping, fiscalpolicy is the biggest issue
facing the legislature and whatwe've got again, what those
(24:04):
op-eds tried to do the lastthree years is they tried to say
, oh, forget about fiscal policy.
We just need to focus oneducation policy and we need to
fund it no matter what, andbuild additional spending, no
matter what.
And what our response was thelast three years is no, it needs
to be fiscally responsibleeducation policy.
(24:26):
You need to pay for it.
If you want to increase it, youneed to pay for it.
And now we've got Vance andRefuge and Elam falling in the
same trap, saying, oh, it'seducation policy.
We've got to do educationpolicy without addressing the
fiscal consequences, at least onthe baseline portion of the
increased funding.
Speaker 2 (24:47):
I mean, look, I could have stood behind it if it was
a one-time thing just to get itoff the table.
But it's not, it puts it inperpetuity.
And the second thing is you canalready see them gearing up for
next session.
They're already saying this isa good start.
Essentially, the AnchorageSchool District Superintendent
said well, this is just to holdus over until next year.
Essentially, this is going tobe a.
(25:07):
This is a whole new deal.
This is a.
This is.
They've seen that you'veblinked and that you've given in
, and so they'll be back nextyear for another thousand
dollars.
Speaker 1 (25:17):
We get into these traps.
We get into these traps wheresomething that's going to cause
an increase in spending becomesmore important.
The policy of pursuing itbecomes more important than the
fundamental fiscal policy of howyou pay for it and how you pay
for it equitably Educationpolicy.
(25:37):
I mean Representative Vance hasfallen into that trap with the
statement that education fundingis the single biggest issue
before the legislature this year.
We got another trap coming upin the 15 days or however few
days 14 to 10 days, whatever itis left in the session.
We got another trap coming upin terms of childcare.
(26:01):
I mean people are going aroundoh, we've got to fund childcare.
We've got a crisis in childcare.
We've had a crisis in childcare.
We've had all these child carefacilities closed.
We've got to increase thesubsidies or make permanent the
subsidies we've got in thelegislature for child care.
How do you pay for that?
How do you pay for thatequitably?
It isn't just middle and lowerincome Alaska families that are
(26:22):
getting the benefit of that.
Top 20% are taking advantage ofthat too.
How do we fund that equitably?
If you want to increase thespending, how do we fund that?
But there's no discussion abouthow to fund it.
It's just we need thatadditional spending and we get
into these traps of where thepolicy around the spending is
(26:43):
what drives the boat, as opposedto the fiscal policy of how do
we pay for it.
If you're going to do it, howdo you pay for it responsibly?
And I'm just.
I'm shocked, frankly, thatconservatives are now falling
into the trap.
It's like they're falling overthe edge of the cliff right Into
the gorge.
To see that from RepresentativeVance was just shocking.
(27:05):
To see the vote first of alland then to see this statement
from Representative Vance isjust shocking.
At least Yunt tried to explainpart of it by saying he voted
for that increased incrementbecause he had funding behind it
.
Didn't explain the rest of it,but at least he explained that
increment.
Representative Vance, andRefridge and Elam don't explain
(27:29):
that at all.
I mean, it's just, we neededucation policies first.
We gotta deal with educationfunding.
Fiscal policy oh, we'll get toit someday, but education policy
, we gotta deal with it first.
Speaker 2 (27:40):
Yeah, well, putting $200 million on the bottom line
forever moving forward to me was, I mean, as important as
education may be, and evenassuming all their arguments
were correct, putting $200million permanently on the books
in perpetuity $175 million,whatever it is.
Okay, I'm just, I'm rounding up, that's just.
(28:01):
It's reckless.
I mean it really is justreckless at that point Because,
again, if you can't pay for itthis year, how are you going to
pay for it next year or the yearafter that, especially if oil
continues to tank.
I mean it's insane, it'smadness.
Speaker 1 (28:20):
Well, it's 182 million.
Whoever wanted to be pickyabout it forgot to include
people transportation, which's182 million.
Whoever wanted to be pickyabout it forgot to include
people transportation, whichalso was permanently increased.
So yeah, how do you?
I mean?
So I'd sort of resigned myselfto another one year funding as
we continue the debate.
That needs to go in parallel.
(28:40):
We want to increase spending.
Okay, how do you pay for itresponsibly?
How do you pay for it equitably?
I'd sort of said, okay, anotheryear of that, another temporary
fix of permanent fund cut, pfdcuts to pay for it.
But at least we preserve thedebate going forward, the
parallelism of the debate goingforward.
This takes away the parallelism.
(29:00):
It says we're going topermanently increase spending
without addressing funding, andso the implication of that is we
don't know how we're going tofund it.
It's probably going to be fromPFD cuts on the long term, but
we're not going to say that andwe're not going to fix that and
we're not going to address theissues that that raises in terms
of out migration and otherthings.
(29:21):
We're just going to increasethe spending side raises in
terms of out migration and otherthings.
We're just going to increasethe spending side and I've
gotten used to progressives andmoderates so-called moderates in
the legislature who claim to befiscal conservatives but aren't
.
I've sort of gotten used tothem going down this one-way
track of increasing spendingpermanently without addressing
the fiscal side, but to have tohave Vance and Ruffridge and and
(29:44):
Elam do it was just.
I mean, I don't know where wego If you can't, if you can't
hold the conservatives on thatissue, will you ever hold?
Speaker 2 (29:53):
on to anything, right , right.
Well, it's the same thing with.
I mean, in the first go around,the only person who voted
against it in the Senate is RobMyers, who's like hello, has
anybody seen the fiscal outlookright?
I mean even Schauer and Hughesand everybody.
And then, even when it cameback and Schauer and Hughes
voted against it, you still gotCronk and Yount and Rauscher who
(30:16):
are all saying, oh no, we're,you know, we're going to
override the governor's veto onthis.
Well, I mean, I asked MikeCronk on this program why are
you, if you were going tosupport it, would you support it
as a permanent or not?
And he's like yes.
And I'm like okay, come on,take a stand.
Right, can we really affordthis in perpetuity?
Nobody's even really thinkingabout that.
Speaker 1 (30:39):
Yep, we get into these cycles where we talk about
policy and we get focused on,you know, some policy child care
policy, education policy, somepolicy.
We get focused on that policythat has huge fiscal
implications, but we get focusedon that policy and we have to
address that policy.
I mean again, vance, educationfunding is the single biggest
(31:02):
issue for the legislature thisyear.
No, it's not, but you getfocused in on that.
You say, oh, that's the thingwe got to focus on and
everything else is secondary tothat, including how you pay for
it.
And so we end up in thesesituations where we increase the
spending on a permanent basisand we don't have the dollars
sitting there.
And and and we don't have thedollars sitting there, we don't
(31:23):
have a way of paying for itother than taking even more out
of the pockets of middle andlower income Alaska families
through PFD cuts, even thoughthe top 20% are benefiting from
it as well.
Right, we're taking more out ofthe pockets of middle and lower
income Alaska families to payfor it.
So it's, it's just hugelydisappointing and hugely
(31:44):
discouraging in terms of wherewe're going on fiscal policy.
I'm concerned we're going tosee the same thing on the child
care subsidies.
What fiscal policy.
Speaker 2 (31:53):
I mean, that's the thing the fiscal policy seems to
be spend whatever you need,it'll always be there, don't
worry about it.
Nothing to see here, move along.
I mean, that really is the.
I think Anthony said somethingabout.
You know that we're.
You know we can't fund anything.
Alaska is literally gettingthose scam credit cards
activated to pay off the otherfour credit cards that they
(32:15):
maxed out.
We're all in a death junglewith chainsaws flying in the air
and the government keeps addingmore and bigger chainsaws to
the mix.
I mean, that's where we're at.
It's just like we just keepdoing more and more and more,
with no end in sight.
No thought of how, I mean whenthe music finally stops.
Will there even be one chairleft in the room when the music
stops is my question.
Speaker 1 (32:36):
We're going to find out next year If oil keeps
dropping.
We're going to find out nextyear if there's, even if there's
even one chair, one chair, leftin the room and it's not.
I mean, this was done in thecontext of the oil drops.
This is done in the context ofstedman and others saying we got
a fiscal.
Even stedman and others sayingwe've got a fiscal problem.
(32:58):
This was done in the context ofthat.
Oh no, yeah, I understand.
Yeah, whatever, but educationfunding is the most important.
We got to vote.
Speaker 3 (33:05):
We got to vote this permanent increase because
ironically, steadman had thisreally great speech on the floor
the week before and I thinksome of the rhetoric that we've
had for the last two months isnumbing people's minds on how
big a billion dollars is.
You know they act like we'vegot a billion and a half
underfunded.
It's no big thing.
Or we're a billion or we're 500million.
(33:26):
That is a pile of money.
And when we look at addinganother 100 million or so cut
out of our operations, we put itin today, we take it out
tomorrow.
In the finance committee andother areas we don't have any
choice.
You know, it's not a matter ofwhat we want to do, is what we
(33:51):
have to do.
Speaker 2 (33:52):
So he says that the week before which I'm like wow,
I mean he and I are, I can'tbelieve it he's doing.
And then the next week he votesfor the $700 million permanent
increase.
$700 permanent increase 180something million bucks a year
moving forward.
So it's, everybody is there.
They're schizophrenic in thelegislature as far as that goes.
As far as policy, I thinkAnthony's right.
Speaker 1 (34:14):
I think Anthony is the scam credit card that you're
going to pay off all the othercredit cards with.
It's just we don't have at thecore, we don't have good solid
fiscal conservatives except formaybe Rob.
We don't have good solid fiscalconservatives that think about
dollars and cents first howyou're going to pay for this
(34:35):
stuff before you vote foradditional spending, and people
that we thought over on theHouse side that were turned out
not to be not.
Speaker 2 (34:43):
Yeah, Maybe Brad or I should write an opinion piece
that says when the music stops,will there be any chairs in the
room?
When the music stops, no, we'llall be sprawled on the floor.
Brian says the chairs will allbe in the pawn shop and the
wooden ones will be pretty muchit.
There won't be any chairs.
We rented all the chairs fromthe wedding caterer and now
(35:04):
they're all been repossessed andgone.
That's the thing.
That's that's the thing youknow.
And, yeah, where's Donna Ardwinwhen we, when we missed her?
I mean, she told us years agothat this was coming down.
She tried to get it fixed, butnobody wanted to face reality
back in 2018, 2019.
Nobody wanted to look at it.
We're too big to fail, Brad,too big to fail.
Speaker 1 (35:26):
Well, I mean, I mean the, the.
The thing that's got, the thingthat everybody has thought
about has justified theiractions on at least the
progressives and the so-calledmoderates have justified their
actions on through the years iswe've always got the PFD.
We can always take the PFD, wecan always tax the PFD to pay
(35:46):
for it, to cover ourselves.
And that's essentially whatVance and Ruffridge and Elam
have done in their action.
I mean, without having a fiscalplan on how you pay for this
permanent increase in spendingyou just voted for.
They're essentially saying youknow, we're going to rely on
(36:07):
this hidden account, the PFDaccount, that we can just tax
because it has to go through ourfingers on its way to Alaska
citizens.
Uh, we're going to rely on itto tax it.
Well, we're about running outof that too, right?
Speaker 2 (36:20):
Well, what do you do then?
Because you could take all ofthe PFD next year and we'll
still be underwater.
I mean, I just you know whatare you going to do then?
Speaker 1 (36:29):
Yeah, so it's.
I mean, I just can't understandhow you don't have a speech on
the floor by those voting for itor you know those trying to
explain why they're voting forit Conservatives, so-called
fiscal conservatives, trying toexplain why they're voting for
it.
So-called fiscal conservativestrying to explain why they're
(36:51):
voting for it.
I don't understand how youdon't have a speech on the floor
that says I would vote for this.
I agree it's good policy.
I agree we're making gooddecisions here.
I agree that this is what K-12needs, but I can't vote for it
until we have a plan of howwe're going to pay for it.
Until we have a plan notjust're going to pay for it,
(37:11):
until we have a plan, not justthis, but the whole bundle.
Until we have a plan to pay forit, I'll do it.
I'll vote for it, I'm ready forit, but we've got to have a
plan on how we're going to payfor it first.
I can't believe we didn't have aspeech like that on the floor
in the course of this.
I mean, this was the perfectopportunity for it.
If Sarah says, if Sarah Vancesays, this is good policy, we
(37:35):
need to pursue it, great, you'reprepared to vote for it, but at
least say that we need to havea plan about how we're going to
pay for it.
Other than PFD cuts, right, weneed to have a plan about how
we're going to pay for it beforewe start going down that road.
And just no click.
(37:56):
Yes, I'm ready to go there now,even though I don't have a plan
to pay for it and even thoughthe bottom's falling out in one
of our major revenue sources.
Speaker 2 (38:07):
So the one thing I mentioned it earlier but we
haven't gotten the full pricetag yet it came out yesterday
that the that the employeecontracts were done were signed
Right.
They come to an agreement.
An 11 percent increase in in apay bump 11 percent pay bump.
But the pay bump is not the bigthing.
(38:28):
The big thing is the medicalcost increase because it went
from paying $12.50 per employeeto now, depending on the plan,
anywhere from $180 to over $500per employee per month on health
care.
So an 11% increase in pay andupwards of a a 500 increase in
(38:54):
benefit payments on top of that.
I mean there's no, I haven'tseen the full price tag.
Nobody was really reporting onwhat the full price tag was, but
it's got to be the high end ofthat 300 million dollar range
yeah, yeah.
Speaker 1 (39:06):
We've both seen estimates of between two and
three hundred million dollars.
So it's gotta be.
It's gotta be somewhere inthere, and they've already I
mean.
So the PFD cut, the most recentPFD cut from 1400 down to a
thousand, was supposed to createa cushion that would that would
incorporate that increasedspending plus, you know, the
(39:27):
permanent increase in K through12 spending, plus whatever
additional spending.
Anybody can sneak in the door,like child care subsidies, sneak
in the door before the end ofthe session, but with oil
cratering the way it's doing,I'm not sure that $1,000 is
sacred at this point.
(39:48):
I'm not sure it creates enoughcushion to be able to absorb
that increased spending, theincrease in spending on salaries
and healthcare, plus all theother increased spending that
we're layering on top of that.
So I'm not going to be hugelyshocked if somewhere along the
way somebody says well, maybe weneed to take another couple
(40:08):
hundred bucks out of the PFD tomake sure all this balances out
at some point.
Speaker 2 (40:14):
Yeah, well, we'll have to see.
I'm sorry, it wasn't 500.
It was 300.
It was from $12.50 to 300 forthe current contract to the new
contract.
We'll get into that more, anhour or two, I'm sure.
But yeah, this is not going toend well, that's all I'm saying.
It's not going to end well.
(40:34):
The weekly top three continues.
I mean, after all that doom andgloom, you'd think, oh man,
this is bad, it couldn'tpossibly get worse.
And then somebody in thelegislature said hold my beer,
and they produced SJR 14.
Brad, it couldn't possibly getworse, right, right?
Speaker 1 (40:57):
Yeah, no, it could get worse.
It could get worse.
So here's the one thing that'ssort of hovering out there that
I'm really concerned about inthese closing days SJR 14 is a
proposed constitutionalamendment that would, as we've
talked about on the showpreviously, open a back door
into the permanent fund corpus.
(41:18):
It would set it would, it wouldrestate the, the Constitution,
the constitutional provisionaround the permanent fund from
saying you cannot spend from thecorpus period End of statement,
end of discussion, end ofanything.
You cannot spend from thecorpus to a constitutional
provision that would merge thecorpus and the earnings reserve
(41:38):
together and essentially say youcan spend 5% of the average
value over the previous fiveyears.
You can spend 5%.
This is the thing it doesn'tsay, but that it would permit,
regardless of whether actualearnings equal 5% or not.
Essentially, it opens theability of the legislature to
(42:02):
keep going at 5% draws from thepermanent fund, even if the
permanent fund is only earning4% or 3% or 2%.
And people quickly say, oh, butthe permanent fund's always
going to earn 5%, well, overinflation.
And the response to this well,it hasn't in five of the last
six years.
It hasn't earned 5% overinflation in five of the last
(42:25):
six years.
So there's a reasonableexpectation that it may not be
able to do that on an ongoingbasis.
And if it doesn't do that on anongoing basis, what the
proposed constitutionalamendment does is say, fine, you
can just take the difference.
Whatever the difference is, youcan take the difference from
the corpus and just startdraining down the corpus to
continue supporting this 5% drawthat the constitutional
(42:49):
provision would set up.
That opening a backdoor to thecorpus like that is just, is it?
I mean, we've gone through theSBR, we've gone through the CBR,
we're going through thepermanent fund dividend, and now
it would open a backdoor intothe corpus and just keep this
show going on and on and on.
In addition, it would negatethe incentive for the permanent
(43:15):
fund corporation to get its acttogether.
The permanent fund corporationhas two very real problems that
are going on right now.
One, it's spending way the helltoo much on management fees and
other things that it's doing tojustify its investment program
(43:37):
management fees and consultingfees.
It's spending way the hell toomuch.
It's spending a percent of thepermanent fund on that thing
when other similar agencies arespending much, much less than
that, spending a billion dollarsa year on that.
So that's one problem isspending way too much.
And the second problem is it'snot earning enough.
(43:59):
The way its investmentportfolio is, it's earning less
than 5% five of the last sixyears, 5% over inflation.
It's earning less than thatfive of the last six years While
the S&P just to use one measure, alternative measure has been
skyrocketing, leveling off now,but it's been skyrocketing the
last few years, while thepermanent fund's been just sort
(44:20):
of loping along earning lessthan 5% above inflation.
Those are two serious problemsfacing the permanent fund.
If we would adopt SJR 14 andallow a backdoor into the corpus
, permanent fund corporationdoesn't care about that because
it will always deliver the 5% tothe legislature.
(44:41):
And the legislature doesn'tcare about it because they're
always getting 5%, regardless ofwhat the permanent fund's
spending and regardless of whatit's earning.
So there's no incentives forthe permanent fund.
It releases the incentives onthe permanent fund corporation
to get its act together on thosetwo very important things.
So SJR 14 to me is just adisaster, another disaster to
(45:05):
our fiscal house that would beset up by its passage.
It's been hovering in thebackground in Senate Finance.
They've brought it up a coupleof times.
They haven't passed it out yet.
They haven't moved to pass itout yet, hopefully, because it
doesn't have the votes, but ithasn't passed out yet.
But it's sitting there andBurt's been a big supporter of
(45:26):
it because he sees what it woulddo.
It would ensure this 5% goingforward, regardless of what the
permanent fund was actuallydoing, and so Burt's been a big
supporter of it.
And my concern is in these finaldays, as everything's confused,
as everything's, you knoweverybody's trying to get done,
that they move it.
It gets through the Senate andthe House goes oh yeah, the
(45:56):
Senate and the House goes.
Oh yeah, the House sets up andadopts it as well.
Governor, can't veto aconstitutional amendment, so all
it takes is passing.
The Senate requires a supermajority in each body, but all
it takes is passing the Senate,passing the House and it goes to
the people.
And I'm concerned that it'ssitting out there and doing it.
So can it get worse?
Yes, they could bring up SJR 14and try to move it out.
Speaker 2 (46:15):
Yeah, Well, and it is .
Frank says it's a resolution.
It has no standing.
You don't understand.
It's a resolution on aconstitutional amendment, so it
has standing in the fact that ifit does pass, it will go to a
vote of the people and Iguarantee you there'd be plenty
of big entities out there whoare just living on the
government lucre who would spend.
(46:36):
I mean, what did GCI spend thatone year $2 million, $3 million
on trying to take your PFD.
When SB26 was going through,they spent millions of dollars
to get it passed because theyknew it would take money out of
the PFD.
So there would be a huge pushto get that passed, even though,
(46:59):
again, this is essentiallyeating the seed corn, right,
Because if we haven't made our5%, we're still going to draw.
All it does is reduce theearning power of the fund.
So the next year they make evenless and then that just
continues every year.
They keep taking their 5% andit just keeps earning less,
because now there's lessinvestment money and it's over.
(47:23):
It's over at that point.
That's the beginning of thedownhill slide.
Speaker 1 (47:28):
Yeah, I want to be clear.
It is SJR, it is resolution,but it does have absolute effect
in that it sets up a vote, ifpassed by the super majorities
in the Senate and the House.
If passed, it sets up aconstitutional amendment vote
and then it's a vote of thepeople.
And there is.
There's going to be a hugeamount of money.
(47:48):
Michael's exactly right.
Gci is going to be behind it,the oil companies are going to
be behind it, people are goingto be behind it who want to
spend more, want to ensure thatthat revenue stream continues,
that, regardless of how screwedup the permanent fund
corporation becomes, thatrevenue stream continues.
And people are going to want itto make sure that, oh, we're
(48:11):
not going to be talking abouttaxes on them because we're
going to have this other revenuestream coming in that's going
to be supplying revenue to thestate, to the legislature,
regardless of what's going onover the permanent fund
corporation.
There will be a lot of moneybehind it, and so it's my.
It is a serious concern that itmay be brought up in the last
(48:31):
days and pushed.
Speaker 2 (48:33):
This would be.
This would just be insult toinjury.
I mean, if something like thispassed now Rob says they won't
pass SJR 14 until next yearIt'll pass the Senate.
It probably doesn't have thevotes to pass the House.
I mean.
Passing the Senate, though,requires a super majority, which
is what?
30 or 17?
(48:58):
Is that what it is?
17 of 20 to get the two thirds?
No, I mean of 17 of 20 to getout of the Senate.
I mean, I just I mean really,would all these Republicans vote
for this?
Would you know?
Cronk and Rauscher and Yount?
(49:18):
I guess maybe I can't seeTwo-thirds isn't 17.
Speaker 1 (49:23):
Two-thirds is three-quarters is 15.
Three-quarters.
Speaker 2 (49:27):
Oh, a three-quarter.
Okay, so three-quarters so 15.
They got 15 to get.
Is it a three-quarters vote oris it a two-thirds vote?
It's a three-quarters vote,isn't it?
It's a high threshold 14 in theSenate, 27 in the House.
Thank you, rob, for getting mesquared away there.
I just can't believe thatpeople would be all excited
(49:50):
about this, not looking at justthe simple aspect of if you
start sucking into the corpus ofthe fund, you're immediately
reducing the investmentopportunity, and it'll just be
especially Bert Steadman who'salways been going on and about
stability and all this kind ofstuff.
Why would you allow them to cutinto the corpus of the fund?
Speaker 1 (50:10):
Well, it is.
I mean.
Bert's answer to that is it isstability.
It's always going to be 5%.
We can count on that 5%, maybe5% of declining number, but it's
always going to be 5%.
He's going to claim that isstability.
To me, as important as breakinginto the corpus, as opening a
(50:31):
backdoor into the corpus, iseliminating those incentives on
the permanent fund corporationto reduce cost, keep costs down
and to have a strong earningstream.
Eliminating those incentivesbecause it'll always be 5%.
It doesn't matter what we spend, it doesn't matter what our
earnings are, it'll always be 5%.
(50:51):
Eliminating those incentives oreven more.
Now the permanent fundcorporation is going to tell you
oh, we always do that, wealways minimize costs, we always
pursue strong returns.
Well, just look at the last fiveyears.
You haven't.
You've allowed costs toescalate dramatically and you've
allowed returns to deterioratedramatically compared to the S&P
(51:14):
500 or compared to otherindexes, and you've allowed that
to go on.
So no, I mean you can claimthat, but you haven't performed
that way.
This creates maintaining thecurrent two account creates an
absolute incentive to do that,creates an absolute incentive to
minimize costs and to maximizeor optimize returns.
(51:38):
Eliminating that that SJR14would do, consolidating the two
together eliminates thoseincentives, and that to me is as
important, because incentivesmatter a lot.
That to me is as important ascreating a backdoor into the
corpus.
Speaker 2 (51:56):
Yep, it's, it could get worse.
I mean, you, you, you, youproven it right there.
It's a, it's a, it's a bigthing.
So all right, well, brad, um,there's a lot to unpack here.
There's a lot to unpack.
We still haven't finishedfighting the child care fight.
We still haven't finishedfighting the Medicaid fight.
Now we've got the employee costfight.
Now we've got all this otherkind of stuff.
(52:18):
Any care to run me a?
You know, hold the envelope toyour forehead and run me a
Kreskin.
Projection here on what youthink the deficit is going to be
this next year.
Projection here on what youthink the deficit's going to be
this next year.
Speaker 1 (52:34):
You know $2.5 billion is not out of the.
Against current law, againstthe current law budget, counting
the PFD and statutory levels,$2.5 billion is not out of the
question.
A deficit that is half 50% ofspending is deficit is not out
of the question.
Given where oil prices aregoing and given the way our
(52:58):
budget is structured, it mightbe record-breaking, that might
be a record deficit, but a 50% abudget that's only 50% paid for
, the other 50% of which has tocome out of the meager reserves
we continue to have, plus hugePFD cuts, a budget that's funded
(53:23):
50% by that is not out of thequestion.
I mean we're already at a 30%deficit financed budget.
Speaker 2 (53:40):
So you know oil prices diving down would get us
fairly easily to a 50% deficitfinanced budget and we can't
print money and we can't borrowto do it and we've only got $2
billion in spendable, just under$2 billion in spendable in the
CBR in our savings accountquote-unquote savings account
which is supposed to have $10billion in it, right
constitutionally, or $12 or $15,something like that.
Yeah, something like that.
(54:00):
I mean, I think the minimum issupposed to be $10.
And there you go, man.
Next year is going to be fun.
It's going to be fun aroundhere, Brad.
Speaker 1 (54:12):
And we've got people who are voting for things.
It shocks me, people who arevoting for permanent spending
increases in the face of allthat, without saying I'll vote
for it If you tell me how we'regoing to pay for it, without
saying that, just voting for theincrease because it's good
policy.
I mean fiscal conservatives.
(54:34):
We really fiscal conservatives?
We don't really have.
I mean, they may claim to be,but they don't think that way.
They think about other things,they prioritize other things
instead.
Speaker 2 (54:43):
Well, it gets to the realm of emotion, because they
got people banging on their doorabout my kids are going to die
if you don't take care of themand everything.
My kids are going to die if youdon't take care of them and
everything.
And you know, I mean ShelleyHughes did have a good article
in her blog yesterday or daybefore.
There was an article about, youknow, the Anchorage School
District actually still sittingon a big chunk of the money that
they got last year and theywere holding it over.
(55:04):
That's what they said in one oftheir fiscal reports.
But on the other fiscal reportsaid that they haven't spent any
of it.
And then the third fiscalreport said they spent only a
portion of it.
So it's all shell games at thispoint.
And yet they're genning up allthe people with.
We're going to cut 300 teachingpositions, not telling you that
180 or 200 of them are not evenfilled, right, I mean.
(55:24):
So it's all at this point.
It's all theater to get moremoney out of everybody.
That's what it's all about.
And they're buying it, they'rebuying into it and again not
asking the question of how do wepay for it all.
That's the problem.
All right, brad, we got to go,thanks.
Speaker 1 (55:39):
Thanks for having me, Michael.
Well, that's a wrap for anotherweek's edition of the Weekly
Top Three from Alaskans forSustainable Budgets.
Thank you again for joining us.
Remember that you can find pastepisodes on our YouTube,
SoundCloud, Spotify and Substackpages, and keep track of us
(56:00):
during the week on Facebook andTwitter.
This has been Brad Keithley,Managing Director of Alaskans
for Sustainable Budgets.
We look forward to you joiningus again next week for the next
edition of the Weekly Top Three.
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