Favorite Link Friday March 11, 2016

Governor Walker Begins Process to Streamline Alaska’s $3.2 Billion Economic Development Activities

No. 16-21
Contact:
Grace Jang, Governor’s Office (907) 465-3976
Sara Fisher-Goad, AEA (907) 771-3961
John Springsteen, AIDEA (907) 771-3024
Bryan Butcher, AHFC (907) 330-8445

March 10, 2016 JUNEAU—Governor Bill Walker today signed Administrative Order 281 to begin the process to explore options for a more streamlined and effective approach to economic development in the state. Three state corporations—Alaska Housing Finance Corporation (AHFC), Alaska Energy Authority (AEA) and Alaska Industrial Development and Export Authority (AIDEA)—will participate in finding potential opportunities for efficiency and consolidation. “It’s important that members of these economic development agencies play an active role in finding opportunities to improve both effectiveness and efficiencies,” Governor Bill Walker said. “As the state scales back on spending, we must also diversify our economy. I look forward to seeing the recommendations put forth by AEA, AIDEA and AHFC on the most efficient way to do so.” About 440 people work at AEA, AIDEA and AHFC, which have a combined $3.2 billion in net assets.

“Today’s current environment of low oil prices and declining production necessitates a proactive response that signals to bond holders, business partners and Alaska families that our agencies are committed to doing our part to improve the economic health of the state,” said Bryan Butcher, AHFC CEO and Executive Director. “This administrative order sets in motion an initiative to strengthen and give laser-focus to AHFC’s assets, capabilities and talents.” AHFC, established in 1971, is an active investor on Wall Street that allows for low-cost mortgage financing across Alaska, provides 10,000 Alaskans with public housing each night, supports construction of special needs housing, and promotes energy efficient homes and public facilities.

“This initiative ensures we are engaging in an inclusive process with the stated goals,” said John Springsteen, AIDEA Executive Director. “Through this collaboration we look forward to enhancing our toolkit to support enterprise development in Alaska.”

AIDEA, created by the Alaska Legislature in 1967, is the State’s development finance authority. AIDEA advances economic growth and diversification in Alaska by providing support to business and industry through its comprehensive financing capabilities. As a result of this partnership with Alaskans, thousands of jobs have been created or retained across the state.

“As we advance this initiative we will engage in an inclusive process that includes private sector experts and corporation partners, employees, the legislature, and Alaskans,” said Sara Fisher-Goad, AEA Executive Director. AEA has worked for the past 40 years to diversify Alaska’s energy portfolio, provide assistance to rural Alaska communities, lead strategic energy planning and construct energy systems. AEA administers the Renewable Energy Grant Fund and Emerging Energy Technology Fund and owns the Bradley Lake Hydroelectric project and Alaska Intertie.

Governor Walker has requested a report of recommendations ahead of the next legislative session.

Oil giants to sharply reduce rigs working at Prudhoe Bay, affecting hundreds of jobs

BP will reduce the active rig count at Prudhoe Bay from five drilling rigs to just two, a decision caused by low oil prices that is expected to impact oil production and more than 200 contracting jobs while sending negative waves across the state’s oil-dependent economy.

With oil prices at their lowest since 2008, the news comes on the heels of several other announcements of job reductions and project delays as companies slash operations in Alaska. BP Exploration Alaska recently announced a loss of $194 million in its latest annual report to the Securities and Exchange Commission.

Rebecca Logan, general manager at the Alaska Support Industry Alliance, said the decision will affect between 200 and 300 jobs directly, and remove millions of dollars from the economy as soon as the rigs are no longer active. Losing the high-paying jobs will also have a ripple effect throughout the economy, with each of the lost jobs impacting another nine jobs as less money is spent at restaurants, shops and elsewhere, she said.

Logan pointed out that changes to the tax regime -- Gov. Bill Walker has proposed changes that include increasing the minimum production tax from four percent to five percent to generate an extra $100 million during low oil prices -- will only compound the headwinds the oil industry faces.

“Any further changes brought about by House Bill 247 will only exacerbate a bad situation and make it much worse for Alaskan companies and Alaskan workers,” she said. [Source]

On State Fiscal Policy, History Knocking at the Door

By Tim Bradner

In the din of intense debate, like what’s happening right now in Juneau, it’s hard to hear history knocking at the door. But in fact I hear knocking. Here we are–at a pivotal point in our state’s history.

We’re facing a tough set of facts: Oil prices at $30 per barrel; state revenues less than a third of what’s needed to balance the budget and a drawdown of available cash that will leave the treasury empty in four years, except for the Permanent Fund.

Of course, it’s not really a financial crisis. It’s a political will crisis.

We actually have plenty of money on hand, mainly several billion dollars of yearly revenue we’ve never touched, meaning the investment earnings mainly of the Permanent Fund.

This is not the Fund itself, which can’t be spent, but rather the earnings, which have always been available but never spent except for the annual Permanent Fund Dividends.

To illustrate, while the state’s petroleum revenues have gone into the tank, investments revenues, most from the Permanent Fund, are up smartly. Investment income increased from $2.58 billion in state Fiscal Year 2015, the budget year ended last June 30, to an estimated $3.77 billion for FY 2016, the current fiscal year, according to the Department of Revenue’s December 2015 state revenue forecast. For FY 2017, which begins in July, estimated investment earnings are $4.88 billion, according to the revenue department forecast.

So while oil income is down, investment income is up. Viewed that way, our situation is not as stark.

Gov. Bill Walker is widely given credit for being the first politician to call out the fiscal imbalance and propose solutions, including using some of the Permanent Fund’s earnings and also, by the way, asking Alaskans to pay some taxes. The governor’s specific proposals may not pass, at least all at once, but I believe a similar package will eventually be developed by legislators showing leadership.

This is history at the door: We’ll be taking the first step at diversifying our revenue base away from a 90 percent dependence on a volatile commodity–oil. This will help stabilize and diversify our state’s economy, in the long run, because we’ve allowed ourselves to become too dependent on the spending of state oil dollars.

In the meantime it will be a cold shower, however. Alaska jobs are starting to decline after years of slow, steady growth, and this will accelerate the news of more drill rigs being laid down on the North Slope. State budget cuts of several hundred million dollars won’t help. [Read the Rest Here]

This penguin swims 5,000 miles each year to visit the man who saved his life

Joao Periera de Souza is a 71-year-old part-time fisherman who saved Dindim's life 5 years ago. He found Dindim covered in oil and fighting for his life, so he nursed him back to health and, after some coercion, set him free. Little did he know, Dindim would return to visit each year. [Source]