Legislature(2015 - 2016)Anch LIO Conf Rm

12/09/2015 09:30 AM House ECON. DEV., TOURISM, & ARCTIC POLICY

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Audio Topic
09:29:12 AM Start
09:30:29 AM Overview(s): Commonwealth North Activities
10:10:01 AM Presentation(s): Unlocking the Potential of the Permanent Fund; Alaska's Current Economic Climate; and Securing Alaska's Fiscal Future and Arctic Opportunity
11:25:35 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ - Overview of CWN Activities by Mary Ann Pease, TELECONFERENCED
President, Commonwealth North
- "CWN's Recent Fiscal Policy Work" by Cheryl
Frasca, President-Elect, Commonwealth North
- "Unlocking the Potential of the Permanent
Fund: A Game Plan for Meeting Alaska's Fiscal
Challenge" by Dr. Scott Goldsmith, Professor
Emeritus, UAA Institute of Social & Economic
Research (ISER)
- "Alaska's Current Economic Climate" by Neal
Fried, Economist, Dept. of Labor & Workforce
- "Securing Alaska's Fiscal Future and Arctic
Opportunity" by Martin Cary, Vice President and
General Manager, Managed Broadband Services, GCI
-- Testimony <Invitation Only> --
                    ALASKA STATE LEGISLATURE                                                                                  
 HOUSE SPECIAL COMMITTEE ON ECONOMIC DEVELOPMENT, TOURISM, AND                                                                
                         ARCTIC POLICY                                                                                        
                        December 9, 2015                                                                                        
                           9:29 a.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Bob Herron, Chair                                                                                                
Representative Cathy Tilton                                                                                                     
Representative Dan Ortiz                                                                                                        
Representative Adam Wool (via teleconference)                                                                                   
MEMBERS ABSENT                                                                                                                
Representative Craig Johnson                                                                                                    
Representative Charisse Millett                                                                                                 
Representative Louise Stutes                                                                                                    
OTHER MEMBERS PRESENT                                                                                                         
Representative Bryce Edgmon (via teleconference)                                                                                
Representative David Guttenberg (via teleconference)                                                                            
COMMITTEE CALENDAR                                                                                                            
OVERVIEW(S): COMMONWEALTH NORTH ACTIVITIES                                                                                      
     - HEARD                                                                                                                    
PRESENTATION(S): UNLOCKING THE POTENTIAL OF THE PERMANENT FUND;                                                                 
ALASKA'S CURRENT ECONOMIC CLIMATE; AND SECURING ALASKA'S FISCAL                                                                 
FUTURE AND ARCTIC OPPORTUNITY                                                                                                   
     - HEARD                                                                                                                    
PREVIOUS COMMITTEE ACTION                                                                                                     
No previous action to record                                                                                                    
WITNESS REGISTER                                                                                                              
MARY ANN PEASE, President                                                                                                       
Commonwealth North                                                                                                              
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Co-presented an overview of the activities                                                               
of Commonwealth North.                                                                                                          
CHERYL FRASCA, President-Elect                                                                                                  
Commonwealth North                                                                                                              
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Co-presented an overview  of the activities                                                             
of Commonwealth North.                                                                                                          
SCOTT GOLDSMITH, Professor Emeritus                                                                                             
Institute of Social and Economic Research (ISER)                                                                                
College of Business and Public Policy                                                                                           
University of Alaska Anchorage                                                                                                  
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Presented  "Unlocking the Potential  of the                                                             
Permanent  Fund:   A  Game  Plan  for   Meeting  Alaska's  Fiscal                                                               
NEAL FRIED, Economist                                                                                                           
Research Section                                                                                                                
Department of Labor and Workforce Development                                                                                   
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:     Presented  "Alaska's   Current  Economic                                                             
MARTIN CARY, Vice President and General Manager                                                                                 
Managed Broadband Services                                                                                                      
General Communication, Inc. (GCI)                                                                                               
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:     Presented  "Alaska's   Current  Economic                                                             
ACTION NARRATIVE                                                                                                              
9:29:12 AM                                                                                                                    
CHAIR BOB HERRON  called the House Special  Committee on Economic                                                             
Development, Tourism, and Arctic Policy  meeting to order at 9:29                                                               
a.m.  Representatives  Tilton,  Ortiz,   Wool,  and  Herron  were                                                               
present  at  the  call  to order.    Representatives  Edgmon  and                                                               
Guttenberg were also present.                                                                                                   
^OVERVIEW(S): COMMONWEALTH NORTH ACTIVITIES                                                                                     
           OVERVIEW(S): COMMONWEALTH NORTH ACTIVITIES                                                                       
9:30:29 AM                                                                                                                    
CHAIR HERRON advised  the meeting is a coming  together to listen                                                               
to Alaskans on Alaska's economic  outlook, and announced that the                                                               
first order  of business would  be an overview of  the activities                                                               
of Commonwealth North.                                                                                                          
9:31:26 AM                                                                                                                    
MARY   ANN  PEASE,   President,  Commonwealth   North,  discussed                                                               
Commonwealth  North's   focus  on   energy  related   issues  and                                                               
projects.  She  discussed slide 2 of  the PowerPoint presentation                                                               
and advised that Commonwealth North  continues to focus on public                                                               
policy  issues related  to Alaska,  and that  Cheryl Frasca  will                                                               
take over as president next  year.  She offered that Commonwealth                                                               
North is a public policy  membership organization founded in 1979                                                               
by  Governors William  A.  Egan,  and Walter  J.  Hickel, with  a                                                               
mission  to  address  critical  issues  affecting  Alaska  in  an                                                               
objective and  non-partisan manner and to  offer recommendations.                                                               
She said  that the dedicated  board of directors meet  in various                                                               
study groups,  action collisions,  and policy  committee meetings                                                               
and put a lot of due diligence into public policy issues.                                                                       
MS.  PEASE  referred  to  slide   3,  and  paraphrased  [original                                                               
punctuation provided]:                                                                                                          
     We  have  completed  eight  major  studies  on  Alaskan                                                                    
     public  policy including  the  strategic importance  of                                                                    
     the arctic  in U.S. policy decisions,  Railbelt energy,                                                                    
     rural  and alternative  energy.   We've also  looked at                                                                    
     Alaska's oil tax structure, the  state budget, and have                                                                    
     kind  of  a  roadmap   for  transportation  and  energy                                                                    
     infrastructure development.                                                                                                
     Our  reports provide  members  and  policy makers,  and                                                                    
     legislators,   and   Alaskans   who   are   our   major                                                                    
     stakeholder,  the  fundamental  tools  needed  to  make                                                                    
     changes  and think  about  those  public policy  issues                                                                    
     that, you know, direct our future.                                                                                         
9:34:32 AM                                                                                                                    
MS. PEASE continued and discussed slide 7:                                                                                      
     One of  our most  recent reports  which Cheryl  will go                                                                    
     into  in  a  little  bit more  detail  is  The  State's                                                                  
     Operating  Budget:  Critical  Crossroads,  Choices  and                                                                  
     Opportunities which  has been widely  distributed among                                                                  
     policy makers,  the state chamber, and  is shaping many                                                                    
     of  the  discussions that  we  see  before our  state's                                                                    
     fiscal future.                                                                                                             
9:34:54 AM                                                                                                                    
CHAIR  HERRON  referred to  the  above  report and  requested  an                                                               
example of significant criticism, and  a significant "you hit the                                                               
nail on the head."                                                                                                              
9:35:13 AM                                                                                                                    
CHERYL FRASCA, President-Elect,  Commonwealth North, advised that                                                               
she chaired  the fiscal policy  study group with  Eric Wohlforth,                                                               
and explained the following:                                                                                                    
     Criticism from out study group  was that we only wanted                                                                    
     to talk  about the  operating budget,  and ah  so, they                                                                    
     really wanted  to go and  talk about more  revenue, but                                                                    
     we know the focus of  the reports really focus on [the]                                                                    
     spending side  of the fiscal  gap which frankly,  not a                                                                    
     lot of organizations spend time  doing.  So I'd say the                                                                    
     limited scope of it was the negative feedback we got.                                                                      
     And the  other would  be ... we  didn't specify  ... ah                                                                    
     ...  specific spending  cuts in  more identified  areas                                                                    
     that we  felt should  be evaluated  further ...  um ...                                                                    
     and  made more  recommendations about  how to  approach                                                                    
     On the spending  cuts side, we didn't have  the time to                                                                    
     do that or the resources  necessarily, but if necessary                                                                    
     that is  an area if  the study  group wants to  go down                                                                    
     that path, we will continue.                                                                                               
9:36:22 AM                                                                                                                    
MS.  PEASE  advised  that  one of  the  studies  performed,  with                                                               
Representative  Bryce  Edgmon,  was   Energy  for  a  Sustainable                                                             
Alaska,  The  Rural  Conundrum,   and  during  that  study  group                                                             
reviewed   issues  associated   with  transportation,   delivery,                                                               
alternative energy,  renewable energy  sources, propane,  and the                                                               
extremely high  cost in may rural  parts of the state.   The goal                                                               
was to get off of the  diesel benchmark that many of the villages                                                               
use, but  each village  and community were  so different  in that                                                               
there was  no "single  bullet" that  would magically  correct the                                                               
energy situation.   She  listed the  transportation difficulties,                                                               
icing of the rivers and  streams during winter, the distance, and                                                               
the ever-changing  price which many  of the (indisc.)  are linked                                                               
to in  terms of fluctuations in  oil, and there is  the high cost                                                               
of any  renewable or  other alternatives.   She advised  that the                                                               
"other"  report  prepared  by  Commonwealth  North  a  few  years                                                               
discussed the Railbelt predicament of  running out of natural gas                                                               
and the possibility  of importing LNG.  Obviously,  she said, the                                                               
programs   that   were   put   in  place   to   incentivize   the                                                               
revitalization  of  Cook  Inlet   resulted  in  new  wells  being                                                               
drilled,  new energy  sources online,  and  instead of  importing                                                               
LNG, the state resumed exports of  LNG to Asia, and is looking at                                                               
the development of other LNG projects  in Cook Inlet both for the                                                               
interior of Alaska as well as smaller scale for export.                                                                         
9:38:34 AM                                                                                                                    
MS. PEASE pointed out that LNG  is very critical in Cook Inlet as                                                               
not only does  it provide a backstop for  energy for Southcentral                                                               
during the  cold winter months,  it also  incentivizes additional                                                               
exploration drilling and development.   Currently, she explained,                                                               
should a producer/explorer decide to  go after several gas wells,                                                               
the gas  would basically  be stranded  and financing  on stranded                                                               
gas  is extremely  difficult.   Therefore,  smaller LNG  projects                                                               
could  provide  backup  for  the  state's  winter  needs  and  be                                                               
available for summer export.   Thereby, matching the principle of                                                               
"supply and demand."                                                                                                            
9:39:21 AM                                                                                                                    
CHAIR HERRON asked the date of this [report].                                                                                   
MS. PEASE opined that it was approximately four years ago.                                                                      
CHAIR HERRON  surmised that  if it was  a predicament  four years                                                               
ago, what is it today.                                                                                                          
MS. PEASE  responded that it is  "an opportunity.  It's  true ...                                                               
the Railbelt opportunity is what we  would be looking at with the                                                               
new suppliers.    We didn't have Furies, we  didn't have the Cook                                                               
Inlet energies of the world,  we didn't have Apache {Corporation]                                                               
in full  force, Buchaneer [Energy  Limited] has changed  hands is                                                               
now operating  under other  entities, both  Cook Inlet  Energy as                                                               
well as Cosmopolitan under BlueCrest  [Energy]."  She pointed out                                                               
that  all of  those  are exploring  for oil  and  gas, have  been                                                               
successful,  and  need a  market  to  continue their  exploration                                                               
programs.   Early development wells  could show  possibility, but                                                               
it is  not until  getting into full-on  production that  there is                                                               
security, she  remarked.  Currently,  she noted, it  is difficult                                                               
to get  it onto fully production  in that there could  be minimal                                                               
quantities that  would be  funded for  the development,  but full                                                               
production  requires a  substantial investment  without a  market                                                               
9:40:44 AM                                                                                                                    
REPRESENTATIVE ORTIZ referred to  the recent tax credit incentive                                                               
program  to  help  solve  the   Railbelt  predicament  and  asked                                                               
whether, based  on the  state's current  fiscal situation,  it is                                                               
the  position of  Commonwealth  North  that it  would  be a  good                                                               
decision by the  state to scale down that  incentive program that                                                               
was put in place during the time of the Railbelt predicament.                                                                   
MS. PEASE advised  that their study group that  meets every other                                                               
Friday  has  had  several  presentations   from  the  Cook  Inlet                                                               
producers, as  well as the  State of  Alaska.  The  study group's                                                               
interest is regarding  sustainable long-term economic opportunity                                                               
and  believes there  is opportunity  to restructure  the existing                                                               
tax credit  system, but  doing away with  it completely  would be                                                               
premature.   She acknowledged that  it needs to  be restructured,                                                               
but  something still  needs to  be  in place  that will  continue                                                               
exploration and development in Cook Inlet on a go forward basis.                                                                
9:42:28 AM                                                                                                                    
MS. PEASE referred  to the Energy Action  Coalition [slides 4-6],                                                               
and  stated  that  "great"  groups of  presenters  come  in  with                                                               
specific   expertise  in   various  areas,   such  as   new  coal                                                               
gasification projects  that Furie Operating Alaska  is looking at                                                               
to link energy,  to the developers, explorers  and producers, and                                                               
utilities.  She pointed to their  web site and advised there is a                                                               
complete  compilation of  all  of the  presenters  over the  last                                                               
three to  four years that  shows how  things have changed  in the                                                               
Railbelt  over  time.    Commonwealth   North  brought  in  state                                                               
experts,  Department of  Natural  Resources  (DNR) discussed  the                                                               
upgraded 19  trillion cubic feet  of gas potential in  Cook Inlet                                                               
under the  recently released USGS  study, and many  other experts                                                               
in  DNR, Department  of Revenue  (DOR),  and other  parts of  the                                                               
state  administration that  have  supported Commonwealth  North's                                                               
efforts and review of materials..   Commonwealth North has looked                                                               
at taxing, different  revenue sources for oil and  gas - offshore                                                               
as  well,  and it  tends  to  focus  more  on the  Railbelt,  she                                                               
remarked, but  they have spread  their wings into other  parts of                                                               
the state.                                                                                                                      
MS. PEASE  described Commonwealth North's annual  legislator meet                                                               
and greet  today, and  said the keynote  speakers will  be Senate                                                               
President Kevin  Meyer and House Speaker  Mike Chenault regarding                                                               
their 2016 legislative agenda.   The speeches will be followed by                                                               
table  conversation  between   Alaska  legislators,  Commonwealth                                                               
North attendees,  and members.   Another program, she  offered is                                                               
with the University of Alaska  Anchorage debate team wherein they                                                               
review various  forms of policy  issues.   She described it  as a                                                               
different perspective  from these  young debaters, and  this year                                                               
they debated whether  the permanent fund should be used.   It was                                                               
judged by  former judges,  and the  judges' decisions  were split                                                               
right  down  the middle.    She  offered  that the  argument  the                                                               
permanent  fund should  not be  used had  slightly more  attendee                                                               
MS. PEASE, in  response to Chair Herron's question  of whether it                                                               
was a tie, Ms. Pease agreed that it was a tie.                                                                                  
9:46:31 AM                                                                                                                    
CHAIR HERRON asked  the results of the  previous "legislator meet                                                               
and greet."                                                                                                                     
MS. PEASE  answered that the  dialogue was focused on  the recent                                                               
announcements on the  AKLNG project, and what  progress was being                                                               
made  with the  producers at  that point  in time.   There  was a                                                               
fiscal overtone,  she said, but that  always seems to be  part of                                                               
the fiscal  policy discussion, how  the economy is  doing, budget                                                               
constraints, percent of  market value, and what needs  to be done                                                               
in terms of the reserves.                                                                                                       
9:47:59 AM                                                                                                                    
REPRESENTATIVE TILTON  advised she was  at the meeting  last year                                                               
and the  discussions at her  tables involved the  fiscal policies                                                               
of what  was happening  in the state,  and especially  around the                                                               
health and social services area.                                                                                                
MS.  PEASE said,  "I always  forget about  the health  and social                                                               
services issues, and you are right, they do come up."                                                                           
REPRESENTATIVE TILTON noted it is a large part of the budget.                                                                   
9:48:28 AM                                                                                                                    
CHAIR HERRON  advised he is  a member of Commonwealth  North, and                                                               
asked  Ms.  Pease  to describe  the  population  of  Commonwealth                                                               
MS.  PEASE described  it  as a  diverse  organization focused  on                                                               
public  policy, it  is non-partisan  and not  a lobbyist  for any                                                               
specific group.   Most of the  members, she pointed out,  are not                                                               
oil and gas, mining, or  renewable energy, and is a cross-section                                                               
focused on  public policy.   Commonwealth  North looks  at issues                                                               
for the  betterment of Alaskans,  and does not have  a particular                                                               
industry it  is lobbying  on behalf of.   Commonwealth  North has                                                               
also been looking into education, she said.                                                                                     
9:49:51 AM                                                                                                                    
REPRESENTATIVE  EDGMON  referred  to  the  February  report,  and                                                               
paraphrased as follows [original punctuation provided]:                                                                         
     Alaskans  basically  saying,   look  we've  had  fiscal                                                                    
     cliffs for  the last 25-years  ... oil prices  come and                                                                    
     go,  but in  the  end  we've always  been  saved by  an                                                                    
     uptake in oil prices.                                                                                                      
REPRESENTATIVE  EDGMON continued  that  Alaskans,  by and  large,                                                               
mostly throughout the state are  unwilling to accept any suite of                                                               
hard choices  that have  to be  made.  He  asked whether  that is                                                               
still the  perception, almost a  year later, that  Alaskans still                                                               
do not  think there is  a fiscal crisis,  and do not  think tough                                                               
choices have to be made.                                                                                                        
9:51:41 AM                                                                                                                    
MS.  FRASCA  responded that  since  last  February several  other                                                               
organizations  have performed  public  surveys  with the  results                                                               
that there  is not  a large  percentage of  Alaska that  do think                                                               
Alaska does  has a fiscal problem,  and that there is  a dramatic                                                               
decline in state  revenues.  A recommendation from  the report is                                                               
to engage Alaskans in a  true series of dialogues where community                                                               
members  are   provided  with  balanced  information,   who  come                                                               
together  to discuss  current circumstances.   Thereby,  enabling                                                               
them to talk  around a table to their  neighbors, family members,                                                               
and associates  from work about  the choices and  trade-offs they                                                               
would  be  willing  to  make.   She  continued  that  they  could                                                               
consider their values  as to the choices  government faces, which                                                               
is  different  from  a  traditional   town  hall  meeting.    She                                                               
described this as  a true dialogue engagement  process that could                                                               
help people  truly understand the  circumstances and  the choices                                                               
legislators  must  make,  and   give  legislators  the  political                                                               
permission to  make the difficult  choices.  In that  manner, the                                                               
public   will  understand   and  legislators   will  have   their                                                               
9:54:35 AM                                                                                                                    
MS.  FRASCA explained  that  she is  the  incoming president  for                                                               
Commonwealth North and has chaired  the fiscal policy study group                                                               
for a  number of years.   She said they  have been involved  in a                                                               
number of policy  related issues since 1997,  when the discussion                                                               
was   balancing  the   role  of   state  government   {slide  9].                                                               
Commonwealth North  performs its  work through study  groups that                                                               
meet  weekly  or every  other  week,  and invite  subject  matter                                                               
experts to  discuss fiscal  policy issues.   She referred  to the                                                               
February  2013   report  (slides   10-12)  "Long   Term  Economic                                                               
Sustainability  for the  State of  Alaska," and  stated that  the                                                               
bottom line recommendations include:  1. scrutinize all spending,                                                               
not just general fund spending; 2.  all revenues are on the table                                                               
and available to  ensure priority services can be  funded; and 3.                                                               
reform budget and  other practices that inhibit  achieving #1 and                                                               
#2.    She explained  that all revenues need  to be on  the table                                                               
and available to fund the  highest and most important services of                                                               
state government.   When dividing the pie, she  stated, there are                                                               
federal designated  funds, other  state funds, and  general funds                                                               
that make up  approximately 45 percent of the  pure general fund.                                                               
She  related that  that  is the  only part  that  is getting  "as                                                               
scrutinized."   With regard to the  reports, recommendations, and                                                               
areas they  examined formula-driven reviewed were  formula driven                                                               
programs, and  that K-12  receives a lot  of scrutiny,  and noted                                                               
this  was  before  Medicaid  expansion   so  they  discussed  the                                                               
optional services  under Medicaid  and the  cost of  those versus                                                               
the whole Medicaid program.   She said other formula driven costs                                                               
are recurring  and foundational throughout the  whole enterprise,                                                               
such as state  employee salaries and benefits.   [She referred to                                                               
a  slide  by  the  Department  of  Administration  that  was  not                                                               
available  during the  meeting.]   She pointed  to the  slide and                                                               
said that if  a state employee had been in  the same position for                                                               
ten years,  2002-2012, that their  wages would have  increased 63                                                               
percent,  while the  Anchorage inflation  increased approximately                                                               
30 percent, and  the cost of living  adjustment was approximately                                                               
22 percent.  She asked "if  that is the type of mechanism because                                                               
there are  more than just a  cost of living allowance  that state                                                               
employees  contracts  provide, that  it  does  provide for  merit                                                               
increases as  well as  annual cost of  living adjustments."   She                                                               
remarked that  enterprise-wise, this crosses all  departments, is                                                               
important to  examine, and that the  Department of Administration                                                               
is in negotiations  with two of the state's  largest unions, "but                                                               
that is  the way in which  you make these kinds  of institutional                                                               
9:59:09 AM                                                                                                                    
MS. FRASCA  explained that they  looked at health care  for state                                                               
employees, retirees,  Medicare, Medicaid, and the  private sector                                                               
that  all bear  the increased  costs [slide  13].   She explained                                                               
that  the   2013  slide  was   prepared  by  the   Department  of                                                               
Administration to the health  care commission, and interestingly,                                                               
the  red   bars  represent  employer   amounts  paid   for  their                                                               
employee's  health insurance,  and  the blue  bars represent  the                                                               
contributions of  employees.  In  2012, she pointed  out, private                                                               
employees  paid  $4,495  of  health   care,  and  employers  paid                                                               
$10,704;  public  employees  paid   $3,368,  and  employers  paid                                                               
[$12,381]; and with regard to  the State of Alaska's economy plan                                                               
employees,  the State  of Alaska  pays 100  percent of  the cost.                                                               
She  suggested that  this is  an  area to  examine for  potential                                                               
enterprise-wise type  savings, realizing  that these  changes are                                                               
the result of collective bargaining negotiations.                                                                               
10:00:45 AM                                                                                                                   
MS. FRASCA  said they reviewed  information from  the perspective                                                               
of  what Commonwealth  North believes  the legislature  should do                                                               
that included a rigorous timely  review of all state programs and                                                               
services [slides  14-16].   She suggested  a series  of questions                                                               
[for   the   review]:   is   this   an   appropriate   government                                                               
responsibility;  if so,  how effective  is the  program, and  the                                                               
results; what  is the cost to  deliver these results; and  is the                                                               
state  the  only entity  that  can  deliver  the service.    They                                                               
recommended  the  following:   the  governor's  budget  delivered                                                               
November 15;  returning to the  Alaska State Constitution  of 120                                                               
day session  and if necessary  a special session focusing  on the                                                               
budget  work   and  scrutiny  of   programs  and   services,  not                                                               
necessarily the wheeling and dealing  to get a three-fourth vote;                                                               
a revenue  limit - establish  limit on  savings in any  one year;                                                               
create a Joint Ways and  Means Committee to review the governor's                                                               
November 15 budget and funding  plan that, thereby allows, at the                                                               
beginning  of  session,  a proposed  resolution  laying  out  the                                                               
revenue  limits -  she continued  that if  the governor's  budget                                                               
comes in November 15, the committee  would be able to implement a                                                               
contingency  mechanism  for  mid-year  spending  reductions  when                                                               
there is a significant drop  in revenue; deposit all savings into                                                               
the statutory budget reserve so  a three-fourth vote in no longer                                                               
necessary to access  the CBR while money remains in  the CBR; and                                                               
if all else  fails, establish BRAC-type commission  or process to                                                               
resize government  that can make recommendations  to the governor                                                               
and  the  governor  could  make  his tweaks,  submit  it  to  the                                                               
legislature, and the  legislature would have a  certain length of                                                               
time  to  reject it,  as  taking  no  action  means it  would  be                                                               
10:05:41 AM                                                                                                                   
MS.  FRASCA  offered  that engaging  Alaskans  could  include:  a                                                               
statewide  dialogue through  which Alaskans  could be  engaged to                                                               
better  understand the  state  fiscal  issues and  constructively                                                               
comment  on solutions;  citizen panels  providing input  into the                                                               
governor's  proposed  budget;  and  management  review  of  state                                                               
programs by  a citizen team  to offer a different  perspective on                                                               
state  management  [slide  17].     She  advised  that  they  are                                                               
continuing to stay engaged on the issues.                                                                                       
10:07:14 AM                                                                                                                   
REPRESENTATIVE  ORTIZ related  that Ms.  Pease mentioned  several                                                               
times  within  the  presentation  the need  to  prioritize  state                                                               
spending  to  the highest,  most  important  services, and  asked                                                               
whether  there has  been any  process  performed by  Commonwealth                                                               
North to create a priority list  of importance and what the state                                                               
should, or should not, be doing.                                                                                                
MS.  FRASCA  answered  that  they  have  not,  but  could.    She                                                               
explained that  when she discusses  that issue she  is discussing                                                               
the  constitution, the  public  protection  aspect, public  good,                                                               
troopers,  corrections, and  things  that individual  communities                                                               
cannot  do themselves,  and  opined that  those  are the  highest                                                               
responsibilities  of government.   Ironically,  she pointed  out,                                                               
those  are funded  by pure  general  funds and  have the  highest                                                               
competition  from limited  dollars.   She reminded  the committee                                                               
that many  years ago Senator  Fred Dyson passed a  bill requiring                                                               
the  departments to  prioritize  their programs.   Although,  she                                                               
explained, it is  not performed as he wanted, there  is a list of                                                               
the  priority of  programs from  [the department's]  perspective.                                                               
She offered  that Commonwealth North  can review those  lists and                                                               
offer  observations,   but  at  the  same   time  each  program's                                                               
effectiveness information  is required.  She  explained that time                                                               
and resources  are involved  in obtaining  information, compiling                                                               
and  reviewing it,  and having  thoughtful discussions  with each                                                               
10:09:23 AM                                                                                                                   
CHAIR HERRON  commented that when discussing  the competition for                                                               
the limited number of general  fund dollars "usually what happens                                                               
is, it's  not necessarily  what's the best  program, it's  who is                                                               
the strongest politician."                                                                                                      
^PRESENTATION(S): UNLOCKING THE POTENTIAL  OF THE PERMANENT FUND;                                                               
ALASKA'S CURRENT  ECONOMIC CLIMATE; AND SECURING  ALASKA'S FISCAL                                                               
FUTURE AND ARCTIC OPPORTUNITY                                                                                                   
PRESENTATION(S): UNLOCKING THE POTENTIAL OF THE PERMANENT FUND;                                                             
ALASKA'S CURRENT ECONOMIC CLIMATE; AND SECURING ALASKA'S FISCAL                                                             
                 FUTURE AND ARCTIC OPPORTUNITY                                                                              
10:10:01 AM                                                                                                                   
CHAIR HERRON announced  that the next order of  business would be                                                               
"Unlocking the Potential  of the Permanent Fund: A  Game Plan for                                                               
Meeting Alaska's Fiscal Challenge," by Dr. Scott Goldsmith.                                                                     
10:10:23 AM                                                                                                                   
SCOTT  GOLDSMITH, Professor  Emeritus,  Institute  of Social  and                                                               
Economic Research (ISER), College  of Business and Public Policy,                                                               
University of Alaska Anchorage, said  he is an economist with the                                                               
University of Alaska Anchorage,  Institute of Social and Economic                                                               
Research, has lived in Alaska for  40-years, and that his area of                                                               
concentration  has been  state fiscal  policy.   He  paraphrased,                                                               
[slide 2]  of his presentation,  "Unlocking the Potential  of the                                                               
Permanent  Fund:   A  Game  Plan  for   Meeting  Alaska's  Fiscal                                                               
Challenge," take  away message  as follows  [original punctuation                                                               
     There is  no solution  to our Fiscal  Challenge without                                                                    
     use of the  earning of the Permanent Fund.   We can use                                                                    
     those   earning   without   compromising   either   the                                                                    
     Permanent Fund or the Permanent  Fund dividend.  Use of                                                                    
     the earnings  is challenging since no  other state, and                                                                    
     probably no  other nation, has  had a  fiscal structure                                                                    
     relying primarily  on the  earnings of  its accumulated                                                                    
     wealth.   We  have several  proposals for  implementing                                                                    
     the use  of earnings  to help  us start  thinking about                                                                    
     the best solution.  Crafting  a successful solution, or                                                                    
     game plan, will require everyone working together.                                                                         
10:12:01 AM                                                                                                                   
DR.  GOLDSMITH  said the  fiscal  challenge  is the  unrestricted                                                               
general fund  fiscal gap [slide  3].   He pointed out:  the black                                                               
line is the  current trend in spending; the "pies"  at the bottom                                                               
of the graph depict the current  source of revenue; the orange is                                                               
non-petroleum  revenues;  black  is  oil revenues;  green  is  an                                                               
estimate of  additional oil revenues  the state may take  in that                                                               
are not  currently projected  by the  Department of  Revenue; and                                                               
red  is  the CBR  with  the  gap  between spending  and  revenues                                                               
currently running about $3.5 billion.   He commented that the gap                                                               
doesn't go away.                                                                                                                
DR.  GOLDSMITH remarked  that time  is  running out  in that  the                                                               
constitutional  budget reserve  at the  beginning of  this fiscal                                                               
year was in the neighborhood of  $5 billion [slide 4], and at the                                                               
start of  next fiscal year the  reserve will be down  to about $2                                                               
billion, or less.                                                                                                               
DR. GOLDSMITH  noted that solutions  have been proposed  over the                                                               
years  to  deal with  the  fiscal  challenge  that he  puts  into                                                               
categories, such  as "Zombie Solutions"  that have been  shown to                                                               
be  dead, but  won't die  and  keep coming  back [slide  5].   He                                                               
explained  that   diversifying  the   economy  or   investing  in                                                               
renewable energy  are things to work  on, but will not  solve the                                                               
problem this  year.   He described the  next category  as "Nickel                                                               
and  Dime Solutions"  that are  reasonable to  consider but  only                                                               
generate approximately  $5-$10 million  [slide 6].   He explained                                                               
that $10 million,  over the course of one year,  solves one day's                                                               
worth of fiscal  gap problem; therefore, 365 of  those nickel and                                                               
dime solutions would  be necessary.  He allowed  that they should                                                               
be considered but will not solve the $3.5 billion problem.                                                                      
10:14:56 AM                                                                                                                   
REPRESENTATIVE  ORTIZ commented  that several  solutions depicted                                                               
on the  slides are solutions  the governor will  suggest adopting                                                               
in  the next  session.    However, he  asked,  would  any of  the                                                               
solutions actually  be harmful to  Alaska's economy,  and whether                                                               
Dr. Goldsmith is nervous about adopting any of the solutions.                                                                   
DR. GOLDSMITH  responded that all  of those solutions  would have                                                               
some negative impact on the  economy because all of the solutions                                                               
take purchasing  power out of  the private sector, and  when that                                                               
happens there is a negative impact on jobs and the economy.                                                                     
REPRESENTATIVE  ORTIZ  surmised  that  Dr.  Goldsmith  would  not                                                               
recommend any of those.                                                                                                         
DR. GOLDSMITH  disagreed with that statement,  and clarified that                                                               
one has to be very careful  when thinking of implementing any new                                                               
tax because any new tax will have some negative impact.                                                                         
10:16:31 AM                                                                                                                   
CHAIR HERRON pointed  out that some taxes are  called "sin taxes"                                                               
that  will have  an economic  effect  on that  industry and  less                                                               
money in the pocket  book.  Yet, he pointed out,  a school tax is                                                               
a tax  wherein a  citizen has  "skin in the  game," in  that they                                                               
have more interest in  what is going on.  He  said, that is where                                                               
the argument is, that there should  be some of these taxes so the                                                               
citizens are paying attention.                                                                                                  
DR.  GOLDSMITH  agreed  that  having  skin  in  the  game  is  an                                                               
important  consideration, but  if the  legislature wants  to have                                                               
skin in the game they should  impose "broad based taxes," such as                                                               
an  income tax  or  general sales  tax.   He  explained that  the                                                               
solutions  these  taxes will  affect  is  a  small share  of  the                                                               
population,  such as  tobacco products,  but then  there will  be                                                               
some indirect effect on the broader economy.  (Indisc.).                                                                        
10:18:26 AM                                                                                                                   
REPRESENTATIVE WOOL  referred to the "nickel  and dime solutions"                                                               
that are  all specific users,  except the school tax  which would                                                               
be for the general population, and wouldn't go just to schools.                                                                 
DR.  GOLDSMITH opined  he is  correct  in the  manner people  are                                                               
talking about that tax.                                                                                                         
REPRESENTATIVE WOOL surmised  that it is more along  the lines of                                                               
an income tax.                                                                                                                  
DR. GOLDSMITH  responded that it is  not based on income  per se,                                                               
but it would be broad based, generally.                                                                                         
10:19:13 AM                                                                                                                   
DR. GOLDSMITH pointed  to his third category  of solutions [slide                                                               
7], "Silver  Blank Solutions, not  the Silver  Bullet Solutions."                                                               
He  offered that  the following  two  suggestions certainly  have                                                               
merit and should be considered [original punctuation provided]:                                                                 
     Those would  be to  squeeze more  out of  the petroleum                                                                    
     industry, or to optimize  our financial asset portfolio                                                                    
     to  increase the  rate of  return, but  these are  very                                                                    
    complicated   questions,   complicated   issues,   that                                                                     
        require a lot of thought and a lot of discussion                                                                        
       before implementation.  And ... they are not short-                                                                      
         term solutions, and they may not be long-term                                                                          
     solutions either in terms of the amount of money these                                                                     
     can generate.                                                                                                              
10:19:48 AM                                                                                                                   
DR. GOLDSMITH  explained that it  comes down to three  real tools                                                               
[slide 8]:  more budget cuts,  broad based taxes or  reduction of                                                               
the  permanent fund  dividend;  or using  the  earnings from  the                                                               
state's assets.   He said  that given the  size of the  gap, pick                                                               
any three.                                                                                                                      
CHAIR HERRON said "You've chosen all three."                                                                                    
DR.  GOLDSMITH recommended  choosing all  three and  there are  a                                                               
number of  people who  "dance" around  the three  available tools                                                               
who do  not realize  the need  to use  all three.   He  posed the                                                               
question "what if  we do nothing," and postpone  dealing with the                                                               
$3.5 billion  gap this year [slide  9].  He pointed  out that the                                                               
economy would  go into a tailspin  because the state may  be able                                                               
to  convince  the   general  public  that  the   problem  can  be                                                               
postponed,  but   the  investment  community  and   the  business                                                               
community  will  not  be  fooled   in  that  it  understands  the                                                               
magnitude of  the problem and  will respond in a  negative manner                                                               
[slide 10].  He posed the question  of how to fill the fiscal gap                                                               
without  using the  permanent fund  and  suggested the  following                                                               
scenario:  [slide 11]  cut the  budget by  $700 million  and take                                                               
$400 million out of operations; and  take $300 million out of the                                                               
investment  tax credit  for the  petroleum industry;  which drops                                                               
the general fund budget for 2015  down to about $4.5 billion.  He                                                               
said that has some  impact on the size of the  fiscal gap, but it                                                               
is still huge.   He then suggested, within  the scenario, [slides                                                               
11-14]  adding  an income  oil  sales  tax at  approximately  the                                                               
national average rate  which would generate about  $700 million -                                                               
$1,000 per  capita, and  it has  a positive  impact but  there is                                                               
still a huge fiscal gap.   He then doubled the oil production tax                                                               
and said it has  some impact but at low oil prices  it has a very                                                               
modest impact.   He noted that if things work  out for the state,                                                               
the gas  line will begin  generating revenues in  nine-ten years,                                                               
assuming natural gas  revenues of about $2 billion a  year in the                                                               
future.  He  pointed out that it  would go a long  way in filling                                                               
the gap in the future, but  there is still a short-term hold even                                                               
though introducing these  new measures have extended  the life of                                                               
the constitutional budget reserve for several years.                                                                            
10:24:16 AM                                                                                                                   
DR.  GOLDSMITH  explained  that  in  taking  the  permanent  fund                                                               
earnings  off the  table there  would be  some negative  economic                                                               
consequences  [slide 15-18].     He  further  explained that  the                                                               
budget  cuts  will  take  money   out  of  the  economy  and  cut                                                               
employment directly and indirectly,  and taxes on households will                                                               
also  take  purchasing  power  out  of the  economy  and  have  a                                                               
negative effect.   Reducing the investment tax  credits will have                                                               
some  negative effect  on the  petroleum  industry, and  business                                                               
community confidence  will be  at a low  point because  the state                                                               
will  not  have  solved  the  problem  in  substantive  long-term                                                               
fashion.   In the  meantime, he remarked,  the permanent  fund is                                                               
continuing to grow  with the principal and  earnings reserve from                                                               
about  $52-$55 billion  today, over  the next  24-25 years  up to                                                               
close to  $200 million  a year  total annual  earnings increasing                                                               
about tripling,  and the permanent  fund dividend  would increase                                                               
to over $3,000 per year.                                                                                                        
10:26:03 AM                                                                                                                   
DR. GOLDSMITH  offered an  alternative method  to trying  to fill                                                               
the  fiscal gap  including  use of  the  permanent fund  earnings                                                               
[slides 17-18].  He offered a  scenario of cutting the budget the                                                               
same way as before down to  $4.5 billion, use the earnings of the                                                               
permanent fund each  year, and not pay the dividend  to help fund                                                               
the  general   fund.    He   described  this  as   a  significant                                                               
contribution to filling in the gap  and extending the life of the                                                               
Constitutional Budget  Reserve for 6-8  years.  Then,  he pointed                                                               
out, if a gas  line comes in, things look better  in terms of the                                                               
state's  ability to  fund the  unrestricted  general fund  [slide                                                               
19].   He offered  that if the  gas line, in  a couple  of years,                                                               
appears it will  not happen, an alternative is to  impose a broad                                                               
based tax,  a sales tax  or an income  tax [slide 20].   Thereby,                                                               
use of the earning of the  permanent fund, in addition to the tax                                                               
and cutting  the budget, extends  the life of  the Constitutional                                                               
Budget  Reserve for  about  15-years.   Under  this scenario,  he                                                               
advised, the permanent fund is not  able to grow as rapidly as it                                                               
would have, but  the permanent fund does continue  to increase in                                                               
value, continues to be inflation  proof, and continues to grow in                                                               
real  terms  because it  is  still  receiving contributions  from                                                               
royalties from oil, gas, and other resources [slide 21].                                                                        
10:28:41 AM                                                                                                                   
DR. GOLDSMITH noted that the  permanent fund earnings continue to                                                               
grow and the permanent fund  dividend continues at about the same                                                               
level  as  today,  about  $2,000.   Using  the  earnings  of  the                                                               
permanent fund does impact the  size of the dividend, he related,                                                               
but  in  exchange,  about  $1-$2  billion  in  additional  annual                                                               
revenue can be used to reduce  the size of the fiscal gap [slides                                                               
22-23].    In  the  event  the earnings  of  the  permanent  fund                                                               
earnings are used, the economic impact  is a plus for the economy                                                               
for two  reasons [slide 23].   First of  all, he said,  using the                                                               
permanent fund earnings means that money  is not drawn out of the                                                               
pockets of  Alaskan households or businesses  so purchasing power                                                               
is not  reduced; and secondly,  it sends  a strong signal  to the                                                               
business community within the state,  and outside the state, that                                                               
the  State of  Alaska stepped  up to  the problem  and crafted  a                                                               
solution.    He  remarked  that  there  will  be  an  inevitable,                                                               
horrendous  "tug of  war" in  Juneau among  the various  ideas of                                                               
those who  do not want an  income tax, or sales  tax, or dividend                                                               
cut,  or budget  cuts,  and suggested  dealing  with the  easiest                                                               
solutions  first, such  as using  the earnings  of the  permanent                                                               
fund [slide 24].  When  discussing implementation of the strategy                                                               
for  using   the  earnings  of   the  permanent  fund,   it  gets                                                               
complicated  [slide 25],  he said.    The slide  depicts how  the                                                               
Alaska fiscal structure  works and, he noted,  the general public                                                               
does not understand  it so the messaging to the  public has to be                                                               
very simple.   There are  at least four complicated  proposals on                                                               
the table for  use of earnings of the permanent  fund [slide 26].                                                               
He offered  that each  proposal addresses the  problem of  how to                                                               
access the  earnings of the  permanent fund a  little differently                                                               
in terms of what would be  included in the permanent fund and how                                                               
to draw from  the permanent fund.  He explained  that each of the                                                               
four alternatives emphasizes one of  the elements of this type of                                                               
solution: POMV  is a 15-year  proposal concentrating on  the idea                                                               
of  accessing  the  total  earnings of  the  permanent  fund  and                                                               
methods  for better  management of  the corpus  of the  permanent                                                               
fund; a  statutory version of  POMV, Senate Bill 114,  because it                                                               
is easier to pass a  law than pass constitutional amendments, and                                                               
it  emphasizes that  this is  an  easy solution  with few  moving                                                               
parts;    Governor  Bill  Walker's   proposal  is  the  Statutory                                                               
Sovereign  Wealth   Fund  that   concentrates  on  the   idea  of                                                               
stabilizing the  stream of revenue moving  forward and recognizes                                                               
that historically  one of  Alaska's main  problems has  been that                                                               
revenues  gyrate up  and down  and with  that, expenditures.   He                                                               
described  the proposal  as complicated  with many  moving parts;                                                               
and the sustainable spending approach  is to balance the needs of                                                               
the  present  generation with  the  needs  of future  generations                                                               
recognizing  that   Alaska's  petroleum   revenues  are   a  non-                                                               
sustainable resource.  He said  all of these proposals are simply                                                               
proposals and none are written in stone.                                                                                        
10:35:57 AM                                                                                                                   
DR.  GOLDSTEIN  offered a  "pitch"  for  his proposal  of  having                                                               
sustainable  revenue  spending,  and   defined  it  as  [original                                                               
punctuation provided]:                                                                                                          
     A spending level based on  current and projected future                                                                    
     petroleum revenue  stream which, if adopted  now, could                                                                    
     be  maintained consistently  long  into  the future  --                                                                    
     adjusted for inflation and population growth.                                                                              
DR.  GOLDSMITH  explained  that future  generations  would  share                                                               
equally in the petroleum wealth of Alaska [slide 27].                                                                           
10:36:39 AM                                                                                                                   
DR. GOLDSMITH shared criteria to  consider when discussing how to                                                               
move forward  and using the  permanent fund earnings  [slide 28].                                                               
He pointed  out that Alaskans  want an alternative  resulting in:                                                               
stability of  the revenue stream  and what can actually  be spent                                                               
in  a year;  disciplining  Alaska's  spending level;  sustainable                                                               
solutions over  the long-term; fairness  to all Alaskans  of this                                                               
generation;   understandability    by   the    public   at-large;                                                               
implementation  today  and  for the  long-term;  flexibility  and                                                               
ability to deal  with an uncertain future;  protection of assets;                                                               
and  minimizing unintended  consequences.  He  described that  as                                                               
particularly important  because this is unchartered  territory in                                                               
opening up and  using the earnings of the permanent  fund, and an                                                               
unintended consequence  is how the  state protects the  corpus of                                                               
the permanent  fund.  Historically,  he explained,  the permanent                                                               
fund  has grown  as much  as  it has  due to  the permanent  fund                                                               
dividends, in  that they  have protected  the corpus  because the                                                               
public understands the  relationship there.  He  pointed out that                                                               
if the  dividend is eliminated  or to  fund the dividend  by some                                                               
other  means,  such  as  a  portion  of  the  stream  of  royalty                                                               
revenues,  then the  "bulwark" would  be  removed protecting  the                                                               
corpus of  the permanent fund.   The  public may decide  that the                                                               
permanent fund is not that  important as they are receiving their                                                               
dividend from another  source of revenue and, he  warned, that is                                                               
something  legislators  need to  be  very  careful about  and  to                                                               
consider the  consequences of breaking  that link.   He explained                                                               
that the  strategy this  year in moving  forward would  be budget                                                               
cuts and structured use of  the permanent fund earnings; and next                                                               
year, continue the  budget cuts and have  the inevitable four-way                                                               
tug of war [slide 29].  He  said with this strategy, one thing is                                                               
implemented  at   a  time,  beginning   with  the   easiest,  and                                                               
recognizing that the  fiscal gap solution is  something that will                                                               
take  many years  to get  to where  the state  wants to  be.   He                                                               
emphasized that  the legislature  must start implementing  a game                                                               
plan immediately or the state will be in dire economic straits.                                                                 
10:40:59 AM                                                                                                                   
REPRESENTATIVE  ORTIZ noted  that a  portion of  the presentation                                                               
reflected  moving   forward  with   a  fiscal   solution  without                                                               
impacting the  current amount of  the permanent fund  dividend of                                                               
approximately $2,000,  and it can  continue.  He then  noted that                                                               
Governor  Walker's plan  reduces that  dividend to  approximately                                                               
$1,000 based  on a dividend  generated from oil revenues  per se,                                                               
or  oil tax  revenue as  opposed  to the  permanent fund  itself.                                                               
Representative  Ortiz asked  why Dr.  Goldsmith's permanent  fund                                                               
dividend is able to maintain the $2,000 level.                                                                                  
DR.  GOLDSMITH opined  that the  governor's  proposal, in  moving                                                               
forward, the  dividend would  be paid  out of  50 percent  of the                                                               
royalties,  primarily from  oil and  gas and  other resources  as                                                               
well, and that  is estimated to result in  about $1,000 dividend.                                                               
He explained  that the remainder  of the royalties would  go into                                                               
the permanent  fund corpus,  the production  taxes would  go into                                                               
the  corpus, and  out of  the permanent  fund earnings  comes the                                                               
annual  flow for  the unrestricted  general fund  revenues.   Dr.                                                               
Goldsmith asserted  that in looking  forward, the state  can take                                                               
between  $1-$2  billion  a  year  out  of  the  earnings  of  the                                                               
permanent  fund  if  the  state  was able  to  access  the  total                                                               
earnings - including  the unrealized gains, and at  the same time                                                               
continue to  generate a dividend  from the rest of  the earnings.                                                               
He explained that  there are enough earnings being  thrown off by                                                               
the  permanent fund  that it  can fund  both the  dividend and  a                                                               
significant contribution  of the unrestricted general  fund on an                                                               
annual basis,  and still be inflation  proof.  He is  not saying,                                                               
he  clarified,  that  the  state   could  continue  the  existing                                                               
dividend forever, "but  that if we were to  implement this policy                                                               
today of just  using the earnings, we could still  pay it ... the                                                               
same dividend as we would have without using the earnings."                                                                     
10:44:44 AM                                                                                                                   
CHAIR  HERRON  referred  to  [slide 26]  "Proposals  for  Use  of                                                               
Earnings"  and  the four  points  and,  he  noted the  danger  of                                                               
returning to Juneau,  trying to do something in  2016, and coming                                                               
up with  a sausage formula  by taking of  piece of each  of them,                                                               
and it  may not work.   "Obviously," he stated, that  will take a                                                               
lot of political courage for  the legislature to figure something                                                               
DR. GOLDSMITH  related that  the sausage  formula may  work, "and                                                               
that's the up side."                                                                                                            
10:45:36 AM                                                                                                                   
CHAIR HERRON announced  that the next order of  business would be                                                               
a  presentation by  Neal Fried,  Research Section,  Department of                                                               
Labor and Workforce Development.                                                                                                
10:46:03 AM                                                                                                                   
NEAL FRIED, Economist, Research  Section, Department of Labor and                                                               
Workforce Development, said  that he will offer  a quick overview                                                               
of  the [current]  Alaskan economy,  trends and  current numbers.                                                               
He advised  that the [Resource  Section] is preparing  a forecast                                                               
for 2016 that will be available  in early January.  He noted that                                                               
the broad  psychologies "out there"  are defined [in  slides 1-3]                                                               
and said he doesn't believe it  "really even matters."  While the                                                               
employment  growth  has   not  been  fast  over   the  years,  he                                                               
explained,  the growth  will not  necessarily  continue in  2016.                                                               
With regard  to the  percent of  employment change  from previous                                                               
years for Alaska  and the U.S., [slides 4-6], he  said Alaska has                                                               
been growing  and during the  last three years continues  to grow                                                               
slightly at less than one  percent.  He related that unemployment                                                               
is not  a "great" economic  indicator, but  Alaska's unemployment                                                               
rate, around 6.0-6.2 percent rate, has  not changed at all in the                                                               
last four-five  years, while the  nation's unemployment  rate has                                                               
dramatically  declined.    He reminded  the  committee  that  the                                                               
nation had a long way to recover  and Alaska did not, and in fact                                                               
the  only time  in history  that Alaska's  unemployment rate  was                                                               
below the nation was during the great recession.                                                                                
10:49:40 AM                                                                                                                   
REPRESENTATIVE  ORTIZ quiered  why Alaska  has less  unemployment                                                               
rate volatility than the nation.                                                                                                
MR.  FRIED clarified  that, historically,  Alaska  does not  have                                                               
less volatility  and he suspected  it possibly had more.   During                                                               
this period, he pointed out,  Alaska was largely untouched by the                                                               
great  recession, while  for the  rest  of the  country this  was                                                               
probably the most dramatic recession  the country had experienced                                                               
since  the  great depression.    Interestingly,  he said,  within                                                               
Alaska's  whole  history this  is  the  only  period of  time  it                                                               
enjoyed lower  unemployment rates, and that  population in Alaska                                                               
has  a larger  effect  on  the unemployment  rate,  more so  than                                                               
elsewhere.  He  noted that [slides 7-8] represent  the latest GDP                                                               
numbers  (value  of  all  goods and  services  produced  in  this                                                               
state,) and he guessed  it will come down in 2015  due to oil and                                                               
the value of oil.                                                                                                               
MR.  FRIED  explained  that  [slides  9-10]  represent  continual                                                               
growth  of  the  total  income of  Alaskan  residents,  and  that                                                               
Alaska's income  figure "looks still  pretty good."   He referred                                                               
to  the comparison  regarding housing  and the  foreclosure story                                                               
and  advised that  Alaska's  picture  looks significantly  better                                                               
because it  did not  experience the  great recession  {slides 11-                                                               
12].   He  noted that  housing is  often considered  an important                                                               
economic indicator and Alaska is  in a very different trend again                                                               
as  the value  of homes  have  continued to  increase sales,  but                                                               
possibly new home construction has not.                                                                                         
10:53:07 AM                                                                                                                   
MR. FRIED remarked  that the timber industry has been  "flat as a                                                               
pancake" for  years, mining employment  looks "pretty  good," but                                                               
not  the exploration  portion of  mining, and  he projected  that                                                               
2015  fish harvesting  and processing  employment in  Alaska will                                                               
look similar to  2014 [slides 13-15].  Although,  he noted, there                                                               
is  stress  with  the  salmon  prices and  if  those  low  prices                                                               
continue  it could  cause fewer  employed people  in the  fishing                                                               
industry in the future.                                                                                                         
10:54:54 AM                                                                                                                   
REPRESENTATIVE  ORTIZ asked  where fishing  ranks on  the overall                                                               
Alaskan economy, and  further asked whether it  ranks second only                                                               
to the oil industry, or another industry.                                                                                       
MR.  FRIED  said   "No,  I  mean  you  have   fishing,  you  have                                                               
government,  you having  fishing ...  I mean,  you have  oil, you                                                               
have federal government, and then  you have, you know ... fishing                                                               
and tourism are quite similar,  mining is smaller, so it's trends                                                               
if you look at the broader industry."                                                                                           
10:55:23 AM                                                                                                                   
MR.  FRIED advised  that these  are actual  oil industry  numbers                                                               
(counts of paychecks) that are  healthy through the first half of                                                               
2015  [slides 16-19],  but will  probably change.   He  explained                                                               
that during  the past three months  unemployment records indicate                                                               
an increase in  the number of individuals,  previously working in                                                               
the  oil  industry,  filing  for  unemployment  claims,  and  the                                                               
numbers will probably  get a lot softer next year.   He described                                                               
Alaska's oil  industry as  more "project  based" and  guessed "we                                                               
are  postponing  some of  this,"  such  as  Point Thompson.    He                                                               
pointed out  that the national  data for oil  industry employment                                                               
is a  picture of Alaska's future  to some degree, and  that there                                                               
are  two  big struggles  for  this  forecast:  how hard  the  oil                                                               
industry  will fall  in 2016;  and  the struggle  related to  the                                                               
MR. FRIED referred to Alaska's  visitor industry and described it                                                               
as the "shining  star" for next year.  He  noted that Alaska lost                                                               
a significant  piece of  its civilian  federal workforce,  but it                                                               
appears that  the loss  has come  to an end  and is  now leveling                                                               
off.   Although, he  conveyed, there  has been  a steady  drop in                                                               
state  employment in  that there  are 1,400  fewer state  jobs in                                                               
October 2015 compared to last October [slides 20-22].                                                                           
MR. FRIED said [slide 23] represents  a long term growth of where                                                               
Alaska's growth  has come from  and indicates  vulnerabilities in                                                               
the future.   He said that oil and gas  is interesting given that                                                               
it is  a very small industry  from an employment standpoint.   He                                                               
remarked  that out  of all  the industries,  it added  the second                                                               
largest number  of jobs in  absolute numbers in  Alaska's economy                                                               
during the last decade.                                                                                                         
11:00:12 AM                                                                                                                   
REPRESENTATIVE  ORTIZ questioned  whether this  factored in  jobs                                                               
held by Alaskan residents versus jobs held by non-residents.                                                                    
MR. FRIED  responded no, it is  a strict job count,  but that the                                                               
non-resident   count    has   kicked   up   in    recent   years.                                                               
Interestingly, he pointed  out, oil and gas  was almost competing                                                               
with health care in growth.                                                                                                     
MR.  FRIED explained  that [slides  24-26] represent  the average                                                               
earnings for  the different  industries, median  household income                                                               
in 2014, and  a study for full-time,  year-round workers adjusted                                                               
for inflation.  Interestingly, he  pointed out, Alaska lost a lot                                                               
of ground in earnings during the 1990s  due to a lot of growth in                                                               
lower wage industries  when there was the  "big retail invasion,"                                                               
and  lost a  lot of  jobs in  the oil  patch and  timber industry                                                               
during  this   period  of  time   which  were  all   high  paying                                                               
industries.  He noted recovery  has taken place during the recent                                                               
decade,  but there  was  not as  much growth  in  the lower  wage                                                               
industries,  and he  guessed the  oil industry  had an  effect on                                                               
pushing the median earnings up.                                                                                                 
11:02:14 AM                                                                                                                   
MR.  FRIED said  [slides  27-36] offer  similarities between  the                                                               
1980s and  now, and noted  that oil  prices and oil  revenues are                                                               
falling  and the  economy  remains  very dependent  on  oil.   He                                                               
pointed  out the  good  differences, as  follows:  Alaska is  not                                                               
preceded  by  an  economic boom  or  population  boom;  different                                                               
demographics; the problems  are not a surprise;  this time Alaska                                                               
has  savings; there  is  more control  this  time; more  economic                                                               
diversity,  a larger  service sector,  Native Corporations;  much                                                               
lower interest rates; and "Tax Reform  Act of 1986?" and, the big                                                               
bad difference is that there is  much less oil production.  Since                                                               
1988, 2014 is the first  time Alaska's population fell, which has                                                               
nothing to  do with the  price of oil  and everything to  do with                                                               
the national  economy.   He pointed  out 2013-2014  represent two                                                               
negative years in  migration, although in 2013  there were enough                                                               
births  to  make up  the  difference,  but  that 2015  will  look                                                               
somewhat like 2014.   He said, "that's what's  interesting is ...                                                               
we just  don't ...  it ... it's  hard to find  any ...  and we've                                                               
been looking really hard for  numbers that sort of represent this                                                               
sort of ... huge uncertainty that  exists ... um ... right now in                                                               
our economy.   It's probably  just all  about timing."   The next                                                               
slides  [slides  37-38]  represent  the  volatility  in  Alaska's                                                               
population and the  number of people moving in and  out, and that                                                               
car sales are doing very well in Alaska, right now.                                                                             
11:08:34 AM                                                                                                                   
CHAIR HERRON  noted that  [Dr. Scott Goldsmith]  and he  are both                                                               
upbeat about  Alaska's opportunities  moving forward,  other than                                                               
the price  of oil.  He  asked, when comparing back  in history to                                                               
today  whether there  is  a  correlation to  learn  from in  that                                                               
history repeats itself.                                                                                                         
MR.  FRIED responded  that the  late 1990s  and early  2000s were                                                               
very much  as today with low  oil prices, losing jobs  in the oil                                                               
patch, and  sizable fiscal  gap, but the  difference is  that the                                                               
gap has  never been this dramatic.   He said, "Of  course, in the                                                               
1980s we  didn't look at that  ... that just sort  of happened to                                                               
us.   I don't  know of  anyone that  predicted what  happened ...                                                               
that sat around 1985 and said this  is what 1986 is going to look                                                               
like and were (indisc.)."                                                                                                       
11:10:39 AM                                                                                                                   
REPRESENTATIVE  ORTIZ  asked whether  Mr.  Fried  believes it  is                                                               
essential for the  health of the over-all  economy and betterment                                                               
of all  Alaskans, that the  legislature do  something significant                                                               
toward the fiscal gap this year.                                                                                                
MR.  FRIED replied  yes, it  is  important and  there's no  doubt                                                               
about it.                                                                                                                       
11:11:16 AM                                                                                                                   
CHAIR HERRON announced that the  final order of business would be                                                               
the  presentation "Securing  Alaska's  Fiscal  Future and  Arctic                                                               
Opportunity," by Martin Cary, Vice  President and General Manager                                                               
of General Communication, Inc.                                                                                                  
11:11:42 AM                                                                                                                   
MARTIN  CARY,   Vice  President  and  General   Manager,  Managed                                                               
Broadband Services,  General Communication, Inc. (GCI),  said his                                                               
comments come  from his perspective of  over 30-years' experience                                                               
in working to provide opportunity  to those living and working in                                                               
rural Alaska.   He began  his career in Barrow  building distance                                                               
learning systems and tele-medicine systems  in the late 1980s and                                                               
early  1990s, and  joined General  Communication,  Inc. (GCI)  in                                                               
1997 after selling his business to  GCI.  He described himself as                                                               
GCI's  primary advocate  into GCI's  expansion into  rural Alaska                                                               
that  includes infrastructure  and  services  for hospitals,  the                                                               
health  care  market, education,  business,  and  consumers.   He                                                               
explained that  robust telecommunicational services  are critical                                                               
to Alaska's participation  in a modern economy,  in that telecomm                                                               
and technology  are the engines  of economic growth and  can also                                                               
culturally and socially bind people  together.  He explained that                                                               
GCI  has invested  the following:  more  than $3  billion in  its                                                               
network in  Alaska since  1979; and since  2008, $800  million of                                                               
that  has  been invested  over  200  rural communities;  and  has                                                               
deployed $210 million in the  construction of its TERRA network -                                                               
terrestrial  network that  extends  out into  western and  north-                                                               
western  Alaska.   In 2008-2009,  he offered,  he began  pursuing                                                               
building  TERRA  because  their  customers  were  demanding  more                                                               
bandwidth, but  mainly lower latency.   The satellites  they use,                                                               
he explained,  are parked  22,000 miles away  at the  Equator and                                                               
even at the  speed of light it takes about  125 milliseconds each                                                               
way to travel.   It became clear that they  needed to evolve away                                                               
from  satellite  wherever  they could  and  move  to  terrestrial                                                               
networks, he said.                                                                                                              
11:14:41 AM                                                                                                                   
MR. CARY offered  that along the way, GCI has  become the leading                                                               
Arctic telecommunications  provider in the country,  serving over                                                               
110  locations  in  the  U.S. Arctic.    GCI's  services  provide                                                               
tangible   benefits,  increased   opportunity,  jobs   throughout                                                               
Alaska,  and it  continues to  build, expand,  and innovate.   He                                                               
explained that  GCI's high definition video  conferencing network                                                               
is  used  throughout  the  state  for  assisted  learning.    For                                                               
example,  the Lower  Kuskokwim  School District  is  a leader  in                                                               
distance learning not only in Alaska,  but in the country and its                                                               
superintendent, Dan  Walker, has been  recognized for that.   The                                                               
Lower Kuskokwim School District  runs three simultaneous classes,                                                               
serving  26 communities,  from  Bethel all  day  long, he  noted.                                                               
There  are three  teachers and  three  studios teaching  students                                                               
across their  22,000 square mile  school district  throughout the                                                               
day.  He related that  Kodiak students recently performed a squid                                                               
dissection via  two-way videos with  the SeaLife  Center, because                                                               
the SeaLife Center employs two  teachers who provide outreach and                                                               
opportunities for students throughout Alaska and the country.                                                                   
11:16:00 AM                                                                                                                   
MR. CARY referred  to the health care area and  explained that it                                                               
has  changed  dramatically  as broadband  connectivity  has  been                                                               
expanded  into rural  Alaska, and  other  markets as  well.   For                                                               
example, the Indian  Health Service (IHS) built  the Norton Sound                                                               
Health Corporation  a beautiful hospital  a couple of  years ago.                                                               
He  offered  that  as  part   of  that,  it  implemented  a  very                                                               
sophisticated,  industry   leading  hospital   management  system                                                               
called "Cerner."   The hospital  management systems  are complex,                                                               
he advised because  in order to implement, a data  center must be                                                               
built in  the hospital, filled  with servers, it must  be cooled,                                                               
and  power to  the servers,  which is  expensive.   Typically, he                                                               
pointed out,  many professional services  labor must  be imported                                                               
to  build  and operate  it.    On the  low  end,  he said,  these                                                               
hospital installations  are in  the $25  million range,  and have                                                               
very expensive ongoing costs.  He  expressed that due to the fact                                                               
that [GCI] built TERRA to Nome,  they had other options and chose                                                               
to implement a "cloud-based" version  of Cerner.  He relayed that                                                               
the hospital is  operating out of Cerner data  centers across the                                                               
lower-48  and  they estimate  they  saved  $20 million  in  their                                                               
implementation by being able to  use the broadband infrastructure                                                               
versus having to build the infrastructure in Nome.                                                                              
11:17:36 AM                                                                                                                   
MR.  CARY offered  a  scenario of  a patient  who  presents in  a                                                               
village clinic, and  a health aide that is essentially  an EMT in                                                               
training, in a Medivac situation.   He opined that in a stressful                                                               
situation they will  probably transport because they  do not want                                                               
to  make the  wrong decision.   Video  conferencing, he  offered,                                                               
allows the  health aide to communicate  with an ER doctor  in the                                                               
regional hospital  and they can  work with  the doctor to  make a                                                               
decision.   He  opined  that health  corporations  feel they  are                                                               
saving  money with  this, but  actually they  are more  concerned                                                               
with better patient outcomes with better service.                                                                               
MR. CARY related that GCI is  looking ahead and planning to spend                                                               
$200 million in capital next year,  and $150 million a year after                                                               
that is  their five-year  forecast.   Previously, he  said, GCI's                                                               
capital spends have run an  average of $135-$185 million over the                                                               
past three or four years.   He remarked that of the above amount,                                                               
$70,000 million is slated to  be spent on GCI's TERRA terrestrial                                                               
network in  the northwest, which  would be villages  around Nome,                                                               
Kotzebue, "and  closing the  ring which  is basically  creating a                                                               
ring to create redundancy up the  Yukon River to Nenana from just                                                               
north of Shaktoolik."                                                                                                           
11:19:23 AM                                                                                                                   
MR.   CARY   expressed   the  following   [original   punctuation                                                               
     We  cannot in  good faith,  though, advocate  for these                                                                    
     investments, or  at least  I can't,  if the  state does                                                                    
     not  adopt  a stable  fiscal  plan  this next  session.                                                                    
     Lack  of  action  will  jeopardize  future  investments                                                                    
     which will  ultimately cost Alaskans jobs  and contract                                                                    
     the  economy.   The  status quo  for  the state  fiscal                                                                    
     health will put many  rural villages and communities at                                                                    
     risk  of  disappearing.   Adoption  of  proposals  that                                                                    
     would more  readily eliminate key  anchor institutions,                                                                    
     such  as  schools  in rural  communities  will  have  a                                                                    
     devastating    ripple     effect    throughout    whole                                                                    
     communities.    There's  no  debate  Alaska's  economic                                                                    
     health is  in decline  and there is  no magic  cure for                                                                    
     the problem.  As Alaskans,  we must identify how we can                                                                    
     insure an environment for  growth, jobs, and investment                                                                    
     that  includes  the  Arctic.    A  sustainable,  stable                                                                    
     budget  is key  to the  economic growth  in the  Arctic                                                                    
     region  and  the  rest  of Alaska.    Knowing  we  have                                                                    
     communities  that will  survive and  prosper well  into                                                                    
     the future is  critical for GCI to  continue its record                                                                    
     of    investments   and    sustainable   infrastructure                                                                    
     throughout  Alaska.   So we  appreciate  the hard  work                                                                    
     that's  ahead ...  um ...  we look  forward to  working                                                                    
     with  you  and  the   legislature,  the  governor,  and                                                                    
     Alaskans to help secure  a long-term sustainable fiscal                                                                    
     plan  for Alaska.   So,  thank  you very  much for  the                                                                    
     opportunity  to  present  to you,  Alaska's  future  is                                                                    
     GCI's future.                                                                                                              
11:20:58 AM                                                                                                                   
CHAIR HERRON offered that the  committee asked Commonwealth North                                                               
to present  and Commonwealth has  been and will continue  to work                                                               
on having  a grassroots debate  to encourage the  legislature and                                                               
executive branch  to move  forward given  the fiscal  crisis; Dr.                                                               
Scott  Goldsmith  gave   his  opinion  to  the   committee  of  a                                                               
relatively clear path  of moving forward; and  Neal Fried painted                                                               
the  picture  historically,  and  currently,  and  it  does  look                                                               
positive.   He pointed out that  the private sector is  also here                                                               
today, and  [after the  testimony today  and meetings  around the                                                               
state] Chair  Herron offered  a scenario  of the  legislature not                                                               
doing anything, for whatever reason,  and questioned what kind of                                                               
hard decision GCI would make.                                                                                                   
MR.  CARY replied  that should  the  legislature not  act and  it                                                               
creates   that  risk   especially  in   rural  communities,   the                                                               
legislature will  see a  pull back on  GCI's willingness  to take                                                               
those  risks.   He noted  they are  already risky  investments in                                                               
that they are very thin markets,  and when there are proposals to                                                               
close  certain  schools,  GCI starts  to  evaluate  whether  that                                                               
village is on the  list, and if it is, GCI will  not put money in                                                               
there.   GCI  has  spent a  lot  of capital  in  this state,  the                                                               
construction industry is  concerned that there may  be some civil                                                               
construction left over  from a lot of the federal  money that has                                                               
been  in  the pipeline,  but  there  is  not  a lot  of  vertical                                                               
construction in  next year's  pipeline at all.   He  related that                                                               
architectural   firm   friends   and   companies   that   perform                                                               
environmental work  are all looking  at next year and  not seeing                                                               
much in the pipeline.  In  the event the commercial sector starts                                                               
getting nervous  they will start  hoarding cash, he  pointed out,                                                               
and if  that happens and GCI's  revenues start to be  impacted by                                                               
that, "really  the only lever  we've   got to maintain  free cash                                                               
flow, which  is what  our investors  look at, is  going to  be to                                                               
dial back on capital spending."                                                                                                 
CHAIR HERRON thanked the presenters and stated that clearly the                                                                 
legislature must do something.                                                                                                  
11:25:35 AM                                                                                                                   
There being no further business before the committee, the House                                                                 
Special Committee on Economic Development, Tourism, and Arctic                                                                  
Policy meeting was adjourned at 11:25 a.m.                                                                                      

Document Name Date/Time Subjects
12.9.15 EDA - Goldsmith.pdf HEDA 12/9/2015 9:30:00 AM
12.9.15 EDA - Neal Fried.pdf HEDA 12/9/2015 9:30:00 AM
Agenda EDA 12.9.15.pdf HEDA 12/9/2015 9:30:00 AM
EDA 12.9.15 Presenter Bios.pdf HEDA 12/9/2015 9:30:00 AM
12.9.15 EDA - Martin Cary.pdf HEDA 12/9/2015 9:30:00 AM
CWN MAP House Committee updated 120915 (1).pptx HEDA 12/9/2015 9:30:00 AM