Legislature(2007 - 2008)HOUSE FINANCE 519
10/25/2007 02:00 PM House ECONOMIC DEV., TRADE, AND TOURISM
| Audio | Topic |
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| Start | |
| Alaska's Economy - Past, Present, & Future | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON ECONOMIC DEVELOPMENT, INTERNATIONAL
TRADE AND TOURISM
October 25, 2007
2:07 p.m.
MEMBERS PRESENT
Representative Mark Neuman, Chair
Representative Carl Gatto
Representative Wes Keller
Representative Andrea Doll
Representative Mike Doogan
MEMBERS ABSENT
Representative Kyle Johansen
Representative Bob Lynn
OTHER LEGISLATORS PRESENT
Representative Sharon Cissna
Representative Bryce Edgmon
Representative Anna Fairclough
Representative Jay Ramras
Representative Ralph Samuels
Representative Paul Seaton
Representative Bill Stoltze
Senator Charlie Huggins
COMMITTEE CALENDAR
ALASKA'S ECONOMY - PAST, PRESENT, & FUTURE
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
SCOTT GOLDSMITH
Institute of Social and Economic Research
University of Alaska, Anchorage
Anchorage, Alaska
TIM BRADNER
Alaska Journal of Commerce
BILL SHEFFIELD
Port of Anchorage
Anchorage, Alaska
MARC LANGLAND, President/CEO
Northrim Bank
Anchorage, Alaska
BRUCE CARR, Director
Strategic Planning
Alaska Railroad Corporation
Anchorage, Alaska
PHIL STEYER, Director
Government Relations and Corporate Communications
Chugach Electric Association
Anchorage, Alaska
MARIE DARLIN
AARP-Alaska
Juneau, Alaska
ACTION NARRATIVE
2:07:38 PM
CHAIR MARK NEUMAN called the House Special Committee on Economic
Development, International Trade and Tourism meeting to order.
Committee members Gatto, Keller, Doll, Doogan, and Neuman were
present, as well as Representatives Gardner, Wilson and Roses.
^ALASKA'S ECONOMY - PAST, PRESENT, & FUTURE
CHAIR NEUMAN told members that today's meeting would focus on
Alaska's economy and its relation to oil taxes. He has invited
a variety of experts on different aspects of the economy to
present to the committee. He introduced Professor Scott
Goldsmith and asked him to begin.
2:09:31 PM
SCOTT GOLDSMITH, Professor of Economics, Institute of Social and
Economic Research (ISER), University of Alaska Anchorage,
thanked members for the opportunity to testify. He told
members:
Here are some of the things I would like to talk
about. Where's the economy been? Where are we today?
What does the structure look like and what are the
prospects for the future?
If we look at the standard economic indicators that
come out from government, and this is a list of most
of them, things look pretty good - jobs, income,
commodity prices and so on and so forth. ... And
there's nothing wrong with these indicators. It's
always nice that the number of jobs is growing and
income is growing but the problem is they don't tell
us the most important thing about the economy that we
want to know, and that is are we building for a strong
future for our economy or are we basically living on
borrowed time. Really, in order to begin to answer
that question, we have to look behind the numbers and
look at what the foundation for the economy really is.
This is what I've tried to do in the next set of
slides here where I divide the ... foundation of the
economy into three parts and this is sort of what I
call the ... one-third rule. I will talk about each of
these thirds in a moment.
The idea here is the foundation of the economy is the
source of the new money that comes into Alaska. It is
that new money that comes in different forms that
supports the Safeways, supports the banks, supports
the phone company. It supports the restaurants. It
supports most of the jobs that are held by Alaskans.
The way you might think about this is that if the oil
and gas industry - if we never had found any oil and
gas in Alaska, the economy would be about two-thirds
the size that it is today and about one-third of those
of us in the room here today wouldn't be here. We'd
be in who knows where - Florida, California.
So let's talk about these three components that make
up the foundation of the economy and I want to start
off with the federal government. About one-third of
the economy is dependent upon the activities of the
federal government and, of course, the laws and
regulations and so on that the federal government
promulgates are an important component to determining
the size and direction of our economy. Today I just
want to mention the...dollars that flow in each year
from the federal government and their importance in
terms of supporting other jobs in the economy.
We can think about the federal government presence in
terms of the civilian side and the military side but
another way to think about it is the three main types
of money that come in. The first is grant. Capital
and operating grants go to state and local governments
and non-profits. The second is operations of the
various federal agencies. The third is support that
goes directly into individual and household
pocketbooks; social security and so on and so forth.
Well, Alaska doesn't stand out from the crowd in terms
of support that goes to individuals but where Alaska
does stand out [is] in terms of both grants and agency
operations. This graph looks a little weird,
compared to when I put it into PowerPoint yesterday,
but I think you can read it. What you can see is the
total federal grants currently are about $3 billion a
year and that's both for construction and operations
that are administered by various levels of governments
and non-profits. Two other interesting things on this
graph, because it shows the history of the flow of
grants, is the very rapid run up, starting in the mid
90s and the plateau of the annual amount of grants,
starting in about 2002. I think that is relevant for
thinking about what has been driving growth in the
economy in the last five years and I'll come back to
that in a second. One of the things about grants ...
for the general public it is sometimes hard to relate
the economic activity that they see with the ultimate
source.
2:15:40 PM
MR. GOLDSMITH continued:
This is a view outside my window in Anchorage and some
of you may recognize it as being the Alaska Native
hospital. I think it's a good representation of what
these federal grants go to pay for. Two of the very
important things are construction, and there's a lot
of construction represented by the buildings that you
see here. The other large component of federal grants
is health care. Again, this is one of the locations
where a lot of that federal money enters the Alaska
economy.
Just to give you some sense of what the composition of
federal grants is, this is a little bit dated but only
the size has changed in the last five years and not
necessarily the composition. Where do we stand in
federal grants compared to the rest of the United
States? Well, we are far and away the highest on a
per capita basis. What this shows is that we are
currently running about three times the national
average, which is about $1,500 per capita. We're at
about $4,500. It also shows that because there's some
historical information here shown by the growth in the
size of the bars by the different colors, that we have
grown quite dramatically in the last five or ten years
and also that historically we'd also been much higher
than the national average.
The other component that makes us stand out compared
to the rest of the U.S. is agency spending in Alaska
and I've combined here the spending that goes to
payroll of federal employees, military and civilian,
and procurement, and that's construction spending as
well as the procurement spending of other goods and
services used by the federal agencies. Again, what
you see is a very large amount of money to begin with,
$4 billion in the most recent year - 2005 that we have
data for, and also a huge run up doubling, if you
will, from $2 billion to $4 billion a year flowing
into Alaska between the year 2000 and 2005, so a
dramatic increase. If we look behind the aggregate
numbers, the agency that has accounted for the biggest
share of that is the Department of Defense and other
military-related operations. What stands out
particularly here is that it hasn't been military
payroll but it's been military procurement in
primarily construction dollars that has grown the most
dramatically in the last three or four years. Again,
if we compare ourselves to the rest of the U.S., the
other states, Alaska comes out nearly on top.
Virginia, which happens to be where the Pentagon is,
gets a little bit more per capita than we do but
Alaska is number 2 and, again, we're running about
three times the national average in terms of per
capita spending. Again, that growth has been quite
dramatic in the last several years.
2:19:33 PM
MR. GOLDSMITH continued:
There are some that say the growth in federal
spending, which has been one of the important drivers
of the economy in Alaska in the five, if not ten,
years is topping out. Although military personnel
have increased dramatically in 2006, it's unlikely
that growth will continue. Health care job growth has
slowed dramatically. Public construction dollars, the
total amount, has dropped off and the annual increase
in construction jobs has gone negative in the last
couple of years. So, although in recent years the
economy has had a boom, or at least partly, driven
federal grants and federal agency spending growth
that, I would argue, is now behind us. The question
is whether we'll be able to maintain the current level
of federal spending, which is about $9 billion a year,
or whether it's going to drop off. Nobody can answer
that question but I think everybody in their own mind
is trying to do their own calculus to determine the
answer to that question. I'm not going to certainly
answer it today.
In terms of this one-third of the foundation for the
economy, we have to ask ourselves what that $9 billion
that is being spent...each year is contributing to the
long-term growth and development of the economy. And
certainly there are some things that it is
contributing to. It's contributing to the development
of our infrastructure. It's contributing to the
quality of our workforce and our families and it is
benefiting us as individuals. But you can't say that
it is directly adding sustainable jobs to the economy
because when we look at this picture and think about
the future of federal spending, I think we all in our
minds think well if these federal dollars go away,
it's going to be bad for the economy but it's going to
be bad for the economy today, not necessarily that
it's going to have a negative effect on our long term
growth prospects.
One of the more obvious ways that we can see this is
when we think about the tax base that is generated by
federal dollars in Alaska. The reason that there's no
figure in this figure is because there is no tax base.
The federal dollars don't generate any tax base
directly.
2:22:57 PM
It's the most obvious example of a problem that we
face in this state that is called the Alaska
disconnect and that is that we spend today to generate
jobs for today, and that's what we're doing with our
federal dollars, but we're not getting any kind of a
return in terms of an increase in the tax base that
will allow us to pay the cost of government associated
with the families of the workers who come to fill the
jobs that we're creating. And what we've done in the
last five or ten years is we've created, I haven't run
the numbers, how many additional jobs based on this
growth in federal spending, we haven't generated
really a single dollar to pay for the additional costs
of the population that we've attracted to the state to
fill those jobs. And so we've dug ourselves into a
deeper hole than we were five or ten years ago with
this federal spending.
Who has paid? Well we're attempting to put the
additional burden on one of our industries, the oil
and gas industry that contributes a second third to
the foundation of the economy. I would divide the
contribution of oil and gas into three components, as
you see - production, taxes and royalties in the
Permanent Fund and the Constitutional Budget Reserve.
Just to give you a sense of the importance of
petroleum to our tax base, here's a slightly different
way of looking at it. What's the...industrial
property tax base of the state? Well, it's mostly oil
and gas, $14 billion as opposed to less than $4
billion for all other industrial.
We're finally coming to the realization that
production on the North Slope and Cook Inlet is
falling. It's taken us a long time to do that.
Usually we look at the straight production profile.
What I like to do is to take Alaska oil production and
look at it on per capita terms because that highlights
the fact that not only is production falling, but at
the same time population has been increasing and, on a
per capita basis, we're now at about 30 percent tax
base in terms of annual production capacity than we
were at the peak of 1988. Another way to think about
that is in 1988, we were producing about 4 barrels per
day per capita and it won't be too soon before we'll
be producing one barrel a day per capita so it's not
only a burden of falling production, it's...a burden
of increased population dependent upon this
production.
What I call the oil patch action I characterize by an
iceberg and I hope nobody takes this wrong but the
reason I do it is because if you look at the
statistics, there aren't very many oil company jobs in
the state. The oil companies, as we're finding out,
spend a lot of money on production each year and they
spend a lot of money on construction and those
production dollars and those construction dollars, to
a large extent, get passed to other sectors of the
economy. The construction industry, the
transportation sector, other support sectors, other
support industries providing services up on the Slope
- there's also the pipeline, there's also refining,
there's also manufacturing. Most of that is a little
hard to see and, in that sense, it's like an iceberg.
Most of the jobs that are created are not in the oil
industry directly. They're somewhere else. But, if
you add that all together, it adds up to a much larger
payroll and impact on the economy through a number of
different industries and would be the case just
looking at oil and gas company employment.
2:27:53 PM
MR. GOLDSMITH continued:
And, of course, the second part of the impact of the
oil industry on the state now is the Permanent Fund
dividend and the Constitutional Budget Reserve.
Really, if you think about it, the Permanent Fund is
the most successful case of our ability in the last 30
years...to diversify the economy because we have
created through the Permanent Fund a source of wealth
totally independent of all the other sectors of the
economy and it can now throw off $2 billion a year in
perpetuity. That's something that most other
industries in the state cannot boast of.
The other part of the oil contribution to the economy,
of course, is the revenues that support government
and, if you look at the green line here, you can see
that historically we have not been able to wean
ourselves from oil revenues. We've not been able to
diversify our fiscal sources away from oil.
The other third of the economy that is the foundation
of all the jobs that are created is what I would call
traditional resources and new resources.
2:29:25 PM
The traditional resources others - today and tomorrow
we'll talk about it at some point - it's easiest to
see what they are if you look at the seal of the great
State of Alaska. If you look closely, you can see
that there's mining, fishing, timber, agriculture, it
looks like there's some value-added production - I'm
not sure what that is coming from the smokestack, and
I think I even see a seal on the seal of the State of
Alaska. Those are certainly important industries and,
particularly, before oil their contribution was
primary. Now, because of the growth of oil and the
growth of the federal presence, their contribution is
relatively small. We might think about redesigning
the seal of the state if we want it to be a little bit
more up-to-date as to what's really going on.
2:30:36 PM
... In addition to our traditional resources, we've
got some newer resources that are beginning to make a
contribution to the foundation of the economy and
those, of course, are: the natural beauty of the
state, which draws 1.5 million tourists to Alaska; the
location of Alaska, which provides the basis for
servicing the international air cargo industry out of
Anchorage; and although this guy is unlikely to ever
move to Alaska, we are starting to develop a retiree
industry in the state, and that is not only from those
of us who live here who are reaching retirement age,
but we are beginning to draw people in from outside.
Many of those retirees do have money.
2:31:48 PM
... This is a fruit salad comparison to sort of
summarize what I've said about the one-third, one-
third, one-third and I call it a fruit salad
comparison because we're really comparing different
kinds of dollars here so it's not really appropriate
or accurate but I want to give you some sense of
relative magnitudes and I think this does it. It
shows quite clearly, I think, that the $9 billion of
federal grants and procurement and wages that come in
each year is a large chunk of money relative to the
value of minerals, fish, timber and agriculture,
relative to the dollars that tourists bring in,
relative to the dollars that retirees bring in or the
air cargo [indisc.]. ... The value of production of
oil and gas, of course, is the largest of all the
bars. It does sort of reinforce the idea of the one-
third, one-third, one-third.
The point I've been trying to make here is a lot of
the growth we've seen in the last five and ten years
we can trace back to growth in federal dollars. There
has been growth in some of the final, the last one-
third, the traditional resources and the new
resources. Each of those sectors is small relative to
either oil or gas or to the federal presence so growth
in the number of tourists, which has been significant,
growth in air cargo activity, which has been very
significant, they're good but they don't add a lot of
juice to the whole. Where the juice comes from is in
federal dollars.
2:33:54 PM
MR. GOLDSMITH continued:
If we look back, a little bit further, say back to
1980, a small share of the overall growth has been due
to our traditional resources and this is employment in
the various sectors: mining, air cargo, timber,
petroleum and so on and so forth. You can see that
from 1980 on there's been some growth but it hasn't
been very dramatic. If you look at the value of
output of our various natural resource industries, you
see that oil and gas has far and away dominated and it
continues to dominate the other sectors.
If you look at employment by industry, you'll see that
a large share of the growth since 1980 is due to what
I call the economy maturing. That really means that
more and more we're taking in our own wash ... rather
than sending it out to Seattle to be done. So, it's
growth in retail trade. It's growth in various
services. It's growth in accommodations and in
restaurants and so on and so forth that has accounted
for a lot of the job growth since 1980.
2:35:27 PM
If we look ahead on this graph we look behind and we
look ahead both. This is the annual rate of wage and
salary job growth and about three-quarters of the way
over there we start to get a projection of what the
future might look like. We can see a couple of
things. One is that the bars are not generally as
high as they were back in the '80s and '90s. The
second thing is that we do see a boom and a bust. I
would argue that our days of boom and bust are not all
behind us. If the stars align in a certain way, we
can continue to have booms and busts in the future.
That boom and bust that you see there between 2010 and
2015 - and this projection is a couple of years old,
so it's not completely current - that is a result of
the construction of the gas line and development in
ANWR. They happen to coincide and that's really what
leads to that boom and bust there that you see. The
growth out beyond that, and I think it's important to
think about the long term, rather than just next year
or the year after, the growth that happens after that
I would argue that it's most likely to come from these
sectors of the economy but that it's not guaranteed.
It's something we have to work at and the reason is
that I think that we suffer from some of the symptoms
of what has come to be known as the resource curse.
2:37:30 PM
MR. GOLDSMITH continued:
The resource curse is the notion that resource wealth
leads to slower economic growth than otherwise would
be the case. There's evidence that that has happened
in many places that have gotten windfalls from
petroleum or other resources. I don't think that we
suffer as badly as some other places but we do have
some symptoms, and I've listed some of them here, the
most important one for us today is the notion that we
are under investing and that the flip side of that
being that we're over consuming. Just to give you a
couple of examples to get you thinking about this
notion, I ran an interesting calculation, which was to
ask the question what if - and I'm not advocating this
please - what if, instead of paying Permanent Fund
dividends that last 25 years, we had taken that money
and simply reinvested it in the corpus of the
Permanent Fund. How big would the Permanent Fund be
today? Well to my surprise, I discovered that the
Permanent Fund would likely be about $31 billion
larger than it is. It's running about $37 billion so
it would be not quite twice as big as it is today. I
think, to me, what that is an example of is the fact
that we need to think about what our options and our
opportunities are. We've had some big opportunities
because we're not poor. We have to ask ourselves have
we taken appropriate advantage of those opportunities.
I think it's worth asking ourselves...what has been
the value of the Permanent Fund dividend and think
about it in relation to $31 billion that we could have
today if we'd taken this other path.
2:39:28 PM
MR. GOLDSMITH continued:
The second example is a hypothetical example of an
investment that I think is an appropriate one, and
this one just happens to be for a marginal oil field.
This is an analysis that was done some time ago but I
think it shows the three important components of a
successful investment that builds sustainability for
the future. Those three components are, first of all,
that the investment dollars ... create jobs when the
investment is being made, in this case, 1,780 jobs.
But it doesn't end there. That's the end of the
story, which unfortunately is the end of the story for
a lot of things that we called investments in the
past.
The second and third returns are, first of all, that
it creates an annual flow of jobs and payroll that
goes on for many, many years - a smaller number but
it's sustained for many years. Last, there is a bonus
in terms of public revenues that are generated in this
case. This was done a long time ago when we thought
oil would be $12 a barrel. This particular
hypothetical case generated not only enough revenues
to pay for the cost associated with this new
development, but it left $103 million left over as a
bonus that could support other public spending. So,
to my mind, this is the kind of investment that we
should be thinking about and trying to foster, not
only in the oil industry but in other industries as
well.
2:41:23 PM
The process of doing that and the public role in
fostering that is not an easy one to accomplish. If
it were, we would have done it many years ago but we
haven't been very successful at it. One of the
reasons I think we haven't been successful is that
we've been spending a lot of time, too much time in my
[opinion], worrying about this other problem, which is
really a non-problem because it has an easy solution.
That's the problem of where are we going to get the
revenues to pay for government? We see that if we
look at non-petroleum revenues, we haven't done a very
good job over time in fostering growth in non-
petroleum revenues. Looking ahead, some of us think
that the gas line is all that we need and it will
solve all of our problems but I don't think it will.
But we do have an obvious solution to Alaska state
finances. If you just run the numbers, it looks
pretty good right now if we're willing to make use of
our entire tax base, which would include part of the
Permanent Fund earnings and personal taxes. It's an
easy problem to solve. We shouldn't be spending a lot
of time moaning and groaning about it. I know
politically it's difficult but we do have a much
thornier problem to deal with and that is how we're
going to foster this investment that will help the
private sector to expand.
Well I've talked about the state economy quite a bit
and one of the problems that we face when we're trying
to describe the economy and how we're doing is that
the state economy is dominated by what happens in
urban Alaska and that's Anchorage, Fairbanks, Juneau
and the surrounding areas.
2:43:22 PM
MR. GOLDSMITH continued:
There really are, to my mind, three Alaska economies.
The other two are rural Alaska, which is most of
Southeast and some of Southcentral, and remote rural
Alaska - that part of Northwest Alaska that is, in a
sense, off the grid. It's off the transportation
grid.
Well, the majority of economic activity is in urban
Alaska. Right now about 78 percent of that [indisc.]
rural and remote together account for about 22
percent. What's happening in other parts of Alaska
outside of urban Alaska is very different than what's
happening in urban Alaska. Historically, a rising
economic tide would sort of lift all boats and so if
there was expansion that lifted urban Alaska, it also
increased employment in rural Alaska and remote rural
Alaska. You see this during the '70s and '80s. But
if you look forward to the '90s and into this decade,
you see that the picture looks quite a bit different.
The job growth is more and more concentrated on urban
Alaska and I'm not going to have time to talk about
what's going on in the rural or remote rural, but
they're very different structurally and they have very
different challenges. If we look just at the overall
picture for the state, we miss what's happening out in
those areas and that is something that we should not
be doing. That makes monitoring what's happening to
the economy much more of a challenge.
2:45:26 PM
MR. GOLDSMITH continued:
The other thing that is becoming more important to
consider is how are Alaska families doing.
Traditionally, we pretty much follow the number of
jobs being created and per capita personal income and
if those things are going up well then everything must
be okay. But I think more and more, we're going to
have to look at the distribution across families and
households to find out how healthy the economy is. If
we look between the '80s and the '90s in jobs being
added to the Anchorage economy, for example, in the
'80s there was a mix of jobs under $60,000 and jobs
over $60,000. In the '90s, the pattern was completely
different. Jobs added under $60,000 ... well, there
were jobs added over 60 but there were more jobs lost
over $60,000 so there was quite a significant shift
there. We need some better measures of what's going
on at the family level.
Finally, the economy impacts population; population
impacts the economy. One of the things that we need
to be aware of is the fact that we have two big bulges
in our population that are moving through the age
distribution. Those are baby boomers - we have more
baby boomers that share the population than any other
state, I believe, and young people. We have many more
young people that share the population than the U.S.
as a whole. As those two groups move through the age
distribution, it is going to have tremendous impacts
on the economy. Are the boomers going to retire or
keep their jobs? Are they going to stay here when
they retire or are they going to move out of the
state? Are there going to be jobs opening up for the
young people that we're going to be moving into the
labor market? Are they going to want to live in
Alaska? Is it going to be attractive for them? These
are the kind of questions that we're going to have to
face.
2:47:23 PM
MR. GOLDSMITH continued:
So, in conclusion, sort of a take away message is
let's solve the fiscal problem. It's an easy one.
We've got more difficult problems to wrestle with. We
need to get serious about investing for the future
rather than just talking about investing that really
turns out to just be consumption for the present. I
didn't talk about it much but we have to recognize the
limits of government. Government can fund
infrastructure. It can create some of the necessary
requirements for economic development but it can't do
the whole thing itself. We have to recognize the
difference between growth, which doesn't necessarily
lead to sustained economic activity and development
that does. We need to look beyond the aggregate
indicators that I showed you at the beginning to
really ... monitor the health of the economy. We need
to focus on the long term, rather than what's
happening today or in the next year. And, with that,
I'll finish and if there ... is time for questions you
have I'll try to answer them.
2:48:38 PM
CHAIR NEUMAN asked when a dollar flows through the Alaskan
economy, whether the impact can be determined, such as with an
economic multiplier and whether it can be analyzed based on
whether it is a federal dollar, tourist dollar, or other dollar.
MR. GOLDSMITH said each dollar does represent a different
picture based on the source and intent. For example, a dollar
spent by a tourist that is spent on something manufactured in
Hong Kong doesn't "stick very long in the state." A federal
construction dollar provides jobs to perhaps build a road but
that is the end of the story. A dollar invested in a new mine
initially creates construction activity but continues to
generate economic activity through its life. That has a more
sustainable impact versus the other two so the dollars are not
the same, even though they look the same.
2:50:44 PM
REPRESENTATIVE DOOGAN referred to the "fruit salad" comparison
slide, and asked if that shows the Permanent Fund dividend as
the third largest economic driver in the state.
MR. GOLDSMITH said that slide shows that the Permanent Fund's
average annual earnings of $2 billion provide a dividend amount
of about half that size, so $1 billion.
2:51:40 PM
REPRESENTATIVE DOOGAN asserted the slide entitled, "Looking
Ahead: Alaska Wage and Salary Job Growth," indicates that the
largest growth occurred around 1974-76. He asked if that was
due to the pipeline construction.
MR. GOLDSMITH said that is correct.
REPRESENTATIVE DOOGAN said it appears that a lot of activity
happened prior to that time.
MR. GOLDSMITH said most of the growth occurred between 1974 and
1976. The pipeline was completed in 1977 so employment fell in
that year.
2:52:22 PM
REPRESENTATIVE GARDNER asked Mr. Goldsmith to define the phrase
"footloose services."
MR. GOLDSMITH explained that it refers to an industry that is
not location specific; it can locate anywhere. An example of
that would be a software development company.
2:53:01 PM
REPRESENTATIVE GATTO referred to slide 2, "The Alaska Economic
Drivers: The Foundations of Our Economy," and asked if oil and
gas truly represent only one-third of Alaska's economy. He
constantly hears that it represents 85 percent of Alaska's
economy.
MR. GOLDSMITH replied it represents 85 percent of the general
fund revenues in a typical year. If one looks at the
contribution of the oil and gas industry to the total number of
jobs in Alaska and to the total household income, it represents
about one-third.
REPRESENTATIVE GATTO asked why that differs from the federal
government share. He stated, "Maybe it doesn't go in the
general fund and then get spent, but it is nonetheless a person
having a job and getting a federal paycheck that comes
from...the federal government. It doesn't come through the
general fund. It's still a certain part of the economy."
MR. GOLDSMITH agreed that it is and explained that his point was
that it is an important part that is under recognized. For an
economy that produces about $27 billion of total personal income
per year, $9 billion per year of federal funds is substantial.
REPRESENTATIVE GATTO asked if the oil companies were to leave
Alaska tomorrow, Alaska would have more than two-thirds of its
economy because the federal sector or other sectors would
increase and take up the slack.
MR. GOLDSMITH said he does not see anything coming along to take
up the slack because for at least 30 years, efforts have been
made to find other industries to diversify the economy that have
only been partially successful. He did not believe the economy
would contract by a full one-third because the Permanent Fund
would continue.
2:56:43 PM
REPRESENTATIVE GATTO asked:
Would the jobs that disappear because the oil
companies are no longer here be oil company jobs and
relatively unnecessary where they actually leave the
state so that the number of jobs remaining is already
filled by non-oil company employees, or would there be
a dynamite change in that we would have a lot of oil
company employees simply unemployed?
MR. GOLDSMITH responded the jobs would go away and the employees
would leave. He reminded members of a crash in the economy in
1986. The price of oil fell precipitously and about $1 billion
was pulled out of the state budget. The oil industry cut a
significant number of jobs and the population dropped. This
caused a recession until the Exxon Valdez wreck brought back
work opportunities. The housing market was a clear indicator of
the recession. Every household felt the impact of the
recession.
2:59:11 PM
REPRESENTATIVE DOLL asked Mr. Goldsmith to elaborate on the last
slide, entitled "The Take Away Message," which says get serious
about investment and focus on the long term.
MR. GOLDSMITH replied that as he analyzes how federal and state
dollars have been spent in the past, particularly in the capital
budgets, he would have to say a lot of those funds went to
consumption rather than investment. That money was spent to get
construction activity jobs but did not lead to anything further.
He cautioned that fewer opportunities to invest are likely in
the future.
REPRESENTATIVE DOLL noted Mr. Goldsmith isn't offering
suggestions.
MR. GOLDSMITH replied he is saying that challenge is much
tougher than balancing the budget, so the focus should be on
investment.
3:00:57 PM
REPRESENTATIVE ROSES asked why Mr. Goldsmith predicted dips in
wage and salary job growth in 2008 and 2009 and again in 2014.
3:01:21 PM
MR. GOLDSMITH answered the boom is due to the construction of
the gas pipeline and the development of ANWR and [the
completion] would cause the second dip. He predicted the first
dip based on a slow down of the federal dollars coming into the
state. He said he made those projections over one year ago.
3:01:54 PM
REPRESENTATIVE ROSES said the legislature has already seen a
decrease in federal dollars during the last session. He asked,
regarding making wise investment decisions to "stretch" a
dollar, whether the legislature is better off investing in the
oil industry than in other sectors since the oil industry
provides 85 percent of general fund revenue and is accountable
for one-third of the economy.
3:02:45 PM
MR. GOLDSMITH said that depends on what is happening in the
margin. The tourism and mining industries have a lot of upside
growth potential and are particularly important for certain
areas of the state. Many factors must be taken into
consideration so it is not a matter of one being better than
another.
3:03:48 PM
REPRESENTATIVE EDGMON commented that the take-away message
should include the crippling effect of rising energy costs,
particularly in rural Alaska. He stated, regarding the three
economic areas of the state, urban, rural and remote, must be
considered because many people are moving from rural to urban
areas due to the cost of energy. He pointed to the age
distribution graph and asked whether the two bumps in population
relate to Bush Alaska.
3:04:55 PM
MR. GOLDSMITH said Bush Alaska will have a pronounced hump among
young people and a bigger dip among 30 to 50 year olds.
REPRESENTATIVE EDGMON referred to a study ISER did on the
economy of rural Alaska and asked whether that study indicates a
migration of the young people from Bush Alaska to urban areas.
MR. GOLDSMITH responded it does. Both rural and remote Alaska
populations are growing much slower than urban Alaska. The
migration to find work in urban areas is highest among younger
females.
3:06:10 PM
CHAIR NEUMAN thanked Mr. Goldsmith for his presentation and
introduced Tim Bradner, an oil industry economist from the
Alaska Journal of Commerce.
The committee took an at-ease at 3:06:28 PM.
3:09:39 PM
CHAIR NEUMAN called the meeting back to order and then asked Mr.
Bradner to give his presentation.
3:09:40 PM
TIM BRADNER, natural resources writer for the Alaska Journal of
Commerce, and co-editor, Alaska Legislative Digest and the
Alaska Economic Report, gave the following testimony:
... Chairman Neuman asked me to appear before you and
make a few comments on the oil and gas industry and
some of the observations that some of us who write
about the industry have made over the years. ...I'm
talking mainly about the growth of what I term as the
Alaskanization of the industry, the growth of a
locally based oil service industry and workforce that
I think has been very successful. This is a good
story. I think it's a real strength of our economy
and so one thought I might leave with you is when you
think about [petroleum production profits tax] PPT,
and you've been deeply engrossed in these issues,
there's been a lot of discussion about cost
allocations under PPT.
One thing I haven't heard discussed much and you just
might think about is that when the industry's costs go
up, that's also money flowing into the economy to the
extent that we have Alaskan firms engaged in the
industry, doing support work, Alaska workers involved
with the industry, wages are going up, more money is
going out into the community. A lot of that money is
flowing into the state's economy. That's good. So I
mean on one side of the equation you have to weigh the
effect of higher costs under PPT, potentially reducing
revenues to the general fund treasury, but the other
side of that is a lot of that money is flowing out
into the paychecks and the bank accounts of Alaskan
workers and firms that are doing business here. So,
just with that in mind, I thought I'd make just a few
observations and I'm going to move very quickly
through this.
3:11:38 PM
MR. BRADNER continued:
Alaska oil and gas employment is really at record
levels right now. I can't give you precise answers or
numbers right now but the last time I looked, we had
the highest employment in the industry and this
includes direct company employees as well as
contractors. Most of it is contractors that we've had
since the 1970s, since pipeline days. That's really
quite remarkable. It speaks partly to the pipeline
renewal efforts and repair efforts that are going on
in Prudhoe Bay. It also speaks to the high level of
activity all across the North Slope. Last winter beds
were so scarce on the Slope that that was a real
constraint for contractors. Planes going to the Slope
were full. There was a real scarcity of skilled labor
and I think a lot of that - it may not be as severe
this winter, but I think a lot of it is going to
happen again this year so, record employment. The
logical question that you might ask is well, so what,
employment is high.
3:12:43 PM
What is the Alaskan percentage of that? How many
Alaskan workers are employed there? I can't give you
specific numbers but I would observe that probably -
and the Department of Labor can give you these numbers
but I would observe that probably the Alaska hire
percentages of the Alaska contractors working on the
Slope and the major companies themselves probably
haven't changed a lot in the last two or three years
despite the high levels of activities. Normally in a
boom time the percentage of Alaskan workers would go
down a little bit because ... there's a certain amount
of skilled labor supply here in the state so the only
way that these contractors can meet the demand that
they have is to import workers from out of state.
But right now it's sort of a unique situation because
there are demands all over the world for the same pool
of skilled labor and so the contractors have been, to
a large extent, unable to recruit from out of state.
So the percentages state the same but it also means
that people are now getting very serious and very
focused on training, pruning and trying to grow our
own. That's something I'll sort of finish and get to
in a couple of minutes here.
3:14:04 PM
MR. BRADNER continued:
It sort of goes to the point also that it's obvious
why it is important to hire Alaskan workers and
Alaskan businesses in the oil patch - the money stays
local. I think that's obvious for all of us.
I'd like to just give a little history here on why
this has happened and why the strong Alaska support
industry is, in my opinion, probably unique in a lot
of places. I would argue that probably the local
content of our Alaska oil services work force is
higher than a lot of other regions. There's some
history for that. Back in the 1970s, when the Alaska
Native Claims [Settlement] Act passed and the Alaska
Trans Alaska Pipeline Act passed, there was a
relationship between the two. The oil industry helped
get the claims act passed through Congress and a
couple of years later, because they needed clear title
for the pipeline, a couple of years later the Alaska
Native groups helped get the Trans-Alaska Pipeline
[Act] through Congress that allowed the pipeline to be
built.
But, you know, the historical significance of that, in
my opinion, is that it established a relationship
between Alaska groups and the petroleum industry that
has turned into business relationships. You have -
these Native corporations formed companies, they've
all been companies, contracting entities, that started
doing work for the industry and that's continued to
this day. I can name several very successful Alaska
businesses that are owned by Alaskans: Doyon Drilling
Company was formed by Doyon Corporation. Several
years ago you had other entities, including NANA,
which had interests in drilling. Those rigs were sold
and there have been some changes in the industry but
Doyon Drilling, ASRC Energy owned by Arctic Slope is
one of the major contractors on the Slope. VECO
Corporation, which is a name a certain amount of
attention has been paid to recently, but VECO is an
Alaskan owned company. It was, it's now been bought
by another company. It started here. It prospered.
It's been very innovative, very successful and has, in
fact, grown overseas with operations in Russia, as has
ASRC and NANA and the other corporations. The skills
that these companies have acquired in the oil patch
have turned into ... intellectual assets that they've
been able to translate into doing business in other
places. So I think that's a real advantage and it
speaks well to our home grown industry here.
3:16:41 PM
So that was one thing that historically happened and
helped create an Alaskan oil services industry.
Another thing, surprisingly, was that the major
layoffs of the industry in 1992, 1993 - some of you
may remember the major layoffs by ARCO. I think there
were 800 people that were laid off at one time. Well
you know a lot of those people stayed here. They
didn't leave the state. They took their packages and
they formed consulting companies. They formed small
contracting entities. You can see that the membership
in the Alaska Support Industry Alliance took a big
jump in that period. It was very interesting because
there were all these people that had been formally
managers and engineers with ARCO or BP that were out
on their own, hanging their own shingle out.
Ironically, most of them went back to work for their
former employers but they also grew their businesses.
There was Alaskan owned investment capital that played
into those businesses. So today we have a lot of
consulting companies and contracting firms that are
based here because of that and I think that's a real
success story.
I just want to leave the thought with you when you
think about money being spent by the industry and
costs are going up and prices are going up and things
like that. Well that's good for our economy. So it's
a question for you as to whether you want the dollars
to go into the state treasury and to be spent on
public services or to go into the economy, and that's
a policy call. But that's just something to reflect
on.
3:18:17 PM
There are some challenges though that I think are also
worth reflecting on. It's a good story. A lot of
these firms have been successful but they're sharing
constraints. They have to acquire skilled workers
just like the other firms do. I think the big
challenge we have in continuing this Alaskanization of
the workforce is to sustain it. We have to invest in
vocational education. We have to invest in education
in general to make sure that we've got workers that
are trained and ready to meet the demands.
Right now the industry is very short of skills in
certain categories. I think this is just not the
petroleum industry. It's all through the economy.
The construction industry is a good case in point.
The industry has done its part, I think, in stepping
up to recruit and train Alaskans. BP and
ConocoPhillips have been recruiting from the
University of Alaska engineers and professionals.
They've been recruiting operators from the UA operator
training program. ... This has been a very successful
program. These companies have become Foundation
contributors to engineering programs at the UA, which
have gotten national recognition, one I can think of
is the Alaska Native Science and Engineering Program
[ANSEP] at UAA, which has become a national model as
to how to encourage not only minority people to stay
with a very difficult, challenging five-year
engineering degree program but also all students. Now
it's been so successful in its track record that there
are a lot of non-Native students that also are part of
ANSEP in the sense that they follow the same
curriculum and they participate in the same study
programs. There are a lot of reasons for the success
of that program, which we can go into some other time.
Basically, it illustrates that when industry steps up
to the plate, whether it's the construction industry
or the transportation industry or, in this case, the
oil industry and gets involved with the education
community directly, the results are good and I think
we can point back and see the track record of success
that's contributing. Each year tens of new graduates
of engineers are entering the workforce and all of
them are snapped up just like that. These are good
jobs. The starting salaries in these engineering jobs
are pretty outstanding.
But the thing to leave you with, just to make a few
brief comments here, is that I think the state needs
to do its part too in stepping up and Scott Goldsmith
talked about the need to invest.
3:21:26 PM
I think in this case, the investment is in vocational
education. I know Chairman Neuman has a couple of
bills in - mechanisms for increasing funding and
support for voc ed. I think those things are very
important and I've been, frankly, kind of disappointed
that as much talk as there has been over the years
about the need to increase voc ed, there hasn't really
been a lot of action and there's a lot of reasons for
that. I think it's something to think about. If
we're going to keep that pipeline full and keep our
Alaskan quotient of skilled workers up, we need to put
some money into education, and particularly vocational
education. So, anyway, a few thoughts, some things to
think about. With that I'll leave it. Any questions?
3:22:12 PM
CHAIR NEUMAN agreed with Mr. Bradner about the importance of
vocational education programs, and particularly offering them at
the high school level. He asked Mr. Bradner for his best guess
on the amount of oil that will be flowing in TAPS ten years from
now.
3:22:40 PM
MR. BRADNER said Dudley Platt, a Department of Revenue [DOR]
petroleum engineer, follows oil projections very closely and
urged members to listen to Mr. Platt's advice. He said he was
struck by BP's remarks last January that the decline rate at
Prudhoe Bay has been 7 percent plus the past couple of years.
He noted that a 6 percent decline rate has been discussed
recently but he fears it may be higher than that. The oil
companies' goal may be 6 percent but they would not want to talk
about their difficulty in achieving that goal. He said the DOR
numbers for last year show a 12.5 percent decline. Part of that
was due to the Prudhoe Bay incidents and the resulting loss of
production. He noted those barrels were not lost; they are
still in the ground and will be produced in the future.
However, the decline in the previous year was higher than 6
percent, perhaps 7 or 8 percent. He advised members to look at
the DOR rates later this year to determine what they really are.
If the decline is greater than 6 percent, the annual flow
through TAPS in ten years will decrease to levels that may not
sustain pipeline operations. He told members he has no special
knowledge of the situation but, obviously, great efforts are
being made to stem that decline.
3:25:22 PM
CHAIR NEUMAN questioned whether the record employment levels are
connected to the changes made with the PPT.
MR. BRADNER said he believes it is too early to see the effect
of the PPT. He thought the intense amount of activity that
occurred last winter was probably due to the pipeline repair
work that was done. That work will continue through this year.
However, there is a high level of activity throughout the North
Slope in addition to the repair work. He believed a gradual
effect of the PPT will be seen over the next few years.
3:26:15 PM
REPRESENTATIVE SEATON asked regarding the current situation with
record employment and the problems that is causing, such as lack
of beds and equipment, whether that is constraining oil
companies when it comes to expanding their capacity at this
time. He asked if the state leaves additional investment
dollars available to the oil companies, whether they will be
able to use those investment dollars.
MR. BRADNER said he suspects the severe bed shortage and
capacity are a short-term problem and that if that level of
activity can be sustained, a rapid expansion of capacity will
occur. He surmised that a more incremental increase in heavy
oil work has the greatest growth potential. He pointed out that
new exploration requires a lengthy permitting process, so
investment activity in that arena will not show a quick increase
in activity.
3:29:28 PM
REPRESENTATIVE SEATON noted that BP and ConocoPhillips testified
that they are fully utilizing all available rigs at this time.
He asked whether Mr. Bradner had any insight about that
situation.
3:31:07 PM
MR. BRADNER replied there is a shortage of rigs but more are
being brought to the North Slope. New rigs are being built for
Arctic conditions. He felt over time the capacity will expand
so the capacity will not be a constraint over the long term.
3:32:25 PM
CHAIR NEUMAN stated the committee heard testimony that 800 new
wells were drilled last year, 6 new rigs were brought up to
Prudhoe Bay and Anadarko is bringing one or two more, and the
oil companies have been investing in existing infrastructure and
updating technology to handle more capacity. He thanked Mr.
Bradner for his presentation and announced the committee would
take a brief at-ease.
3:39:11 PM
BILL SHEFFIELD, Director, Port of Anchorage; Former Governor,
State of Alaska, gave the following testimony:
Thank you very much for inviting us to come down. I'm
the director of the Port of Anchorage. My name is
Bill Sheffield. Laurie Hermann is going to do the
computer work over here at the right time ....
As I said, I appreciate Mr. Chairman, the opportunity
to talk today about Alaska and the infrastructure and
where we are and where we might be going and what
might happen and to talk about trade and economic
development. So the subject of today's hearing,
economic development in Alaska, is one that is near
and dear to my heart, one that I've spent the better
part of my professional career pursuing. There are so
many opportunities in Alaska. I'm going to just
devote my time to maybe four or five of them here
before I talk about some other things.
The Alaska gas line is, of course, at the top of
everybody's agenda. It's probably the largest project
that any state will ever have the opportunity to
undertake. It means an awful lot to Alaskans and to
the nation as a whole. At my age, as Mr. Goldsmith's
chart showed a little while ago, the age and the
people that are here at that age, I'm at the far
bottom right of that column so I won't be here all
that long but it's their kids and their children that
are going to benefit by an Alaska gas line. I suppose
when we get down to 300 or 400 barrels of oil in a
pipeline per day, and forget what the price might be,
it doesn't really matter because there won't be very
much income. So an Alaska gas line would look pretty
good and we should keep that in mind for the long
term. I know people don't like to think out there too
far, but I suffer from that disease. I was born in
the Depression and kind of know what it is to not have
as much as you'd want.
We're in pretty good shape. The economy is ... good
but it's flat. I see some deterioration here and
there coming along. Development of the vast rich coal
deposits in Northwestern Alaska is in need of
development of transportation infrastructure - there's
probably three or four more Red Dog Mines where Red
Dog Mine is now. Just over the hill about 45 miles,
starts the best coal in the entire world - 3 trillion
tons of it from Point Lay all the way across the map
to Barrow. 3 trillion tons, they tell me, is enough
to heat all of America for 500 years so we're probably
not going to run out soon. It just happens to be in a
tough place to get it out of on the Chukchi Sea,
shallow water, ice 11 months of the year, and so
infrastructure is what we need to get that coal to
market.
Coal for Alaska Bush villages - we've been talking
about trying to lower the cost of living in the Bush
ever since I've been around, some 55 years. We talked
about solar energy and windmills and some of that has
been tried but we have steam coal all over Alaska.
It's good coal for heating and it's good coal for
power plants and if you could think about most
villages are on a river system, bringing coal to a
village once a year to give them heat and power would
lower the cost of living. A rail line extension to
the Arctic - I just want to go to the Arctic.
Governor Hickel wants to go on to Siberia with it. I
can only get as far as the Arctic with it in my mind
but things like that would develop coal for the Bush
villages. It would provide a market for our ore and
other resources that we have in Alaska. It might
sometime happen.
We've been given money in Alaska by the congressional
delegation over the years for a study to the Arctic
for a rail line but I've never seen one finished or
ever talked about once the money was spent. I share
in that blame as well. A rail line extension is
needed for Port Mackenzie in the Mat-Su Valley, if
that dock is ever going to do anything, because if you
add a rail line to it then you could export coal from
there instead of taking the coal to Seward. Seward
could probably well do without that coal in their
backyard.
3:44:57 PM
It doesn't employ many people but it would be cheaper
and more effective if it could be taken to tidewater
at an earlier time and not have to be railed all the
way to Seward.
When the time comes, and I don't know that it is now,
but when the time comes that should be done sometime
to haul bulk [indisc.] such as coal and mineral
resources. A rail extension to Canada through the
valuable military training ground in Interior Alaska
would not only enhance its support and its ability to
serve but enhances the jobs in Alaska, the training
ground for Alaska, more things happening and I'll talk
just a little bit about that as well as new shipping
routes through the Northwest Passage. Some think
that's kind of far fetched but I learned a lot about
it the last two or three weeks and I want to discuss
it a little bit.
But here is one economic development project that is
underway that we can all get our arms around, the Port
of Anchorage expansion. ... We have container traffic
and petroleum and dry bulk cement, Coast Guard,
military, cruise ships and four or five steel ships or
steel barges coming in from Asia every year to load
their cargo. As you can see from this slide, the
annual tonnage of the Port of Anchorage has risen
significantly and steadily since 1992. There was a
study performed before I went to the Port six years
ago and I went there for just a few days to fix a
couple of things and I'm still there but that said, by
the year 2014, the Port would have 5,000 tons of cargo
across their dock - 5 million tons, and we did that in
about 2005. The Port is old. It was built in 1958,
1960, 1961. It's 50 years old. It's basically in bad
shape. The pilings take a beating with ice and
weather in the wintertime and the winds and the
storms. We spend over $1 million a year just putting
sleeves on pilings and fixing pile and driving some
new pile just to keep it intact and safe until we tear
it all down. So, it needs to be replaced.
The Port of Anchorage expansion project will increase
the size of the existing port by approximately 135
acres of ground and I'll show you a couple of slides
showing the Port in just a little while. With a
gravel filled dock and open cell sheet pile front face
of it and tail walls, it has a lot longer life and
will withstand a greater earthquake than we had in
1964 and 2,000 feet of the dock will even be designed
to carry a much more severe earthquake than in 1964.
The project will also add an administration building,
a building for the Coast Guard's maritime safety and
security team and a maintenance building and new
hundred gauge cranes like they have in all of the
ports down in America. They are 100 gauge, 100 feet
across, five highway lanes under them and they reach
out to 16 containers wide. Horizon Line is going to
have ships built here pretty soon and new ones will
come in 2009.
3:48:49 PM
They'll be 13 wide, another reason for new cranes.
There's a picture on the top right of the film showing
a crane ship and that's the kind of crane ship that
will be bringing our three new cranes in August of
2009 and that will be kind of a sight to see.
The Port serves 80 percent of the state of Alaska's
population. It supplies about 90 percent of its
consumer goods. It supplies all of the jet fuel for
Elmendorf Air Force Base, which comes in by barge all
of the time from Valdez and all of the jet fuel for
the Ted Stevens International Airport, 85 percent of
it, I should say.
I think I missed a slide there. I missed the cost. I
didn't want to say it. The cost is estimated to be in
excess of $400 million. We'll know what the actual
cost is in about December when we go out for our bids
in December for another phase of construction, which
will include sheet pile for the first time. The
expansion will be funded with 52 percent federal funds
and 48 percent non-federal funds. The non-federal
funds are comprised of Port profits and equity funds
through future revenue bonds and state participation.
There's where you folks come in. Don't rush off and
leave now. We've requested at the next legislative
session $20 million and $20 million each year for the
next five years. That's $100 million. When you put
$100 million into this project, which will be $126
with what we have in the past, you'll have $126
million in it and the Municipality of Anchorage will
have about $146 or $148 million in it and the federal
government will have the other half so it's kind of a
half, a quarter and a quarter.
It's a statewide project. It's not just an Anchorage
port and we'll show that to you here in a little bit
and how it functions and takes care of 80 percent of
the state geographically. The Port serves 80 percent
of the state's population and 90 percent of the goods
that go out to those areas. It provides all of the
jet fuel, which I talked about, for Elmendorf and the
jet fuel for the Stevens International Airport.
Here's a slide that I want to pause and go just a
little slower on because this really shows - you see
where Anchorage is. It's right there.
3:51:49 PM
MR. SHEFFIELD continued:
When fuel comes in to Anchorage, it comes in by ...
ships and tanker barges and by rail line from
Fairbanks on a daily basis. Fuel comes in, the
barges will bring fuel in from Valdez and from
Nikiski, and some tanker ships will bring fuel in
that's contracted for from outside. But mostly we
raise what we use in Alaska as far as refined
products. But then it goes out and it goes to Naknek
and Dillingham and Bethel and Nome and Kotzebue and
once you're up to Barrow, and then it goes out by ship
- items go out by ship, by airplane, by air cargo to
the hubs and it goes by smaller planes out to the
villages and up the river system. When the fuel is
delivered to all of those hubs from the Port all the
time, then it goes into smaller barges and tugs as it
goes up the river. Some places only get served once a
year - and out the Aleutian Islands, down at the
bottom and all of that, so by truck and by sea and by
air is how everything goes. It truly does serve 80
percent of the state of Alaska and that's hard to
explain to someone that doesn't know Alaska and
doesn't understand the bigness of it and how it works.
But it's been doing that for years and that's how
people get their goods.
3:53:33 PM
So it's not just an Anchorage project, it's a
statewide project.
The port expansion project is administered by the U.S.
Maritime Administration. We have federal dollars so
we have a lead agency, which is MARAD - the Maritime
Administration. ICRC is a project manager contractor.
The project began in 2003 with environmental
assessments and a public scoping process. We
negotiated a lease with the military for some needed
land in the rear of the Port. This is all Elmendorf
Air Force Base behind us and some Army land at the end
of it, which is the old defense fuels property. A lot
of you know about it.
In 2004, the project performed design, development and
geotechnical analysis.
3:54:40 PM
MR. SHEFFIELD continued:
Geotechnical analysis means that seeing that we could
use an open cell sheet pile dock. A road and rail
project was started in gravel extraction and an
agreement was reached with the neighboring Elmendorf
Air Force Base. That gravel extraction project was
worth about $100 million to the Port of Anchorage.
Gravel doesn't cost much; it's the transportation.
So, we figure we get that gravel for about $7 a yard
because we're hauling it down from the north end of
the North-South runway and from Cherry Hill, which
we'll show you a little bit more in just a little bit.
The Corps of Engineers issued our Phase 1 permit back
in 2004, which was the North backlands. In 2005, the
new railroad tracks were installed at tide to port
into the Alaska Railroad main line. These are the two
sittings here and the track was extended from down in
this area for the main line coming in the back of the
Port.
A floating dock was installed for an AMSST - that's
the maritime safety and military safety part of the
Coast Guard. It's right here. Work began on a new
ultra-low sulfur diesel pipeline. 2006 - Expansion of
the Port began with the creation of 21.5 acres of new
land referred to as the North back lands. That's this
area in here and that's been filled. Application for
the Phase 2 Corps of Engineers' permit was filed that
same year. Incidentally, we did receive our permit
with the entire balance of the project in the middle
of August and we're under construction now.
In 2007 - this year, the project moved forward on the
improvement of its main road coming into the Port -
new drainage, new asphalt and sidewalks, so on, so
forth, upgrading and a new route into Horizon Lines
new gate house providing turning lanes for better
traffic flow and pedestrian and landscaping, as I
said. Construction is underway on a new security
command control center, which is toward the bottom of
the map. We've got 85 trucks running every day for
the last month and a half, and if it doesn't freeze up
for another couple of weeks, I think we'll get our
contract work done this year.
Talk about jobs - we have 300 people badged to come in
and out of Elmendorf Air Force Base with the gravel
operation and about 50 more in addition to that down
at the Port working 24 hours a day. In 2008 new barge
bursts will be added to the south back land - that
will be completed. That's the orange part right
there. That's a big year. That's the first big, big
year for us because we'll be driving sheet pile, as
well as filling ground. When we get that ground
filled, we'll have 60 acres of new ground filled then
we'll come back and we'll pave it all. In 2009 we'll
come in here and we'll put new crane rails in here,
1,000 feet of crane rails. We'll move our container
ships from here to here, back to here then so we can
tear these docks out and keep on filling in the years
2009 and 2010.
2009 - The north extension will be completed. That's
the crane ship there, a model of it, dropping the
cranes off. This is 60 acres of new ground. The
barge docks will be at the end down here. The first
public barge docks [indisc.] Cook Inlet. We've talked
about the cranes will be installed. Container
operations will move. The other part of the dock will
be demolished.
2010 - The north replacement will be underway down
here. We're doing this work right in here this year
and then this will be the new docks here on the south
end. Our cement ship will be parking down here
delivering cement to the silos right here. ABI
[Alaska Basic Industries], Anchorage Sand and Gravel,
and the petroleum docks will be in here for our ships.
We'll have two petroleum docks. One will be in here
and one will be right about here before we get
finished.
4:00:02 PM
2011 - We'll finish this and then we'll fill in the
middle and we're getting down toward the end here.
Now I've spent a lot of money here in about 10
minutes. So, in 2012 the south replacement will be
completed. The Corps of Engineers harbor deepening
will occur then. We'll be going down to minus 49 feet
draft for all except the barge docks on the North end.
They'll be all at minus 49; we're at minus 39 now.
The driveway out here off of Fire Island, off of the
Knik Arm shoal will be dredged as well, down to 49
feet. There will be driveways about 2,000 meters wide
and about 3,000 meters long. It's pretty well self
scouring so we don't have to dredge that. We read it
twice a year in the summertime to make sure it's okay
for the ships.
So, what that means is Panamax ships can come in and
load and unload or an aircraft carrier could come in
and not get trapped at low tide and not be able to get
out of there.
So our dock will be 1,080 feet long - that's not right
- 1.87 miles long, let me get it right. Now that
sounds like a lot. Here's Cairn's Point. Here's
Flint Hills Loop Track down here. The dock will come
to this area here. We're going out from the original
docks 400 feet, creating 135 acres of new ground.
That's before and below is after.
4:01:39 PM
Now then, during a recent trip to Washington, D.C.
where I met with officials from the U.S. Department of
Transportation, the U.S. Army Corps of Engineers and
members of our congressional delegation, it became
apparent that with the increasing year-round ability
to navigate the Northwest Passage, the federal
government is seriously looking at this route for
future shipping, for both military and commercial use.
There are actually ships that go through there now
from north to south.
This shows just a view, let's say Shanghai is over
here and you're coming this way. Here's Unimak Pass,
you're coming right down through Dutch Harbor. So
coming through here there is a couple of ways to go
but if you keep watching the maps, this ice keeps
going away, more and more all of the time. ...
Governor Hickel's been talking about the Northwest
Passage for a long time and darn if it didn't start to
melt when he started talking about it. So maybe he's
right. So here's the Port of Anchorage and right out
here is Asia and the great circle route and you go the
Canadian route you come here - here's London. You can
go the Russian route, the North Sea route up here like
this, which is a little longer.
When I was in Virginia a couple of weeks ago at a port
convention and the President of Panama was speaking
about the $5 billion he's putting into the Panama
Canal and how much bigger and better and greater it's
going to be for everybody, I thought we're sure going
to ruin his life one day. When you go from up here
and you come through - you go down through here and
all the way down to the Panama Canal and all the way
underneath and all the way over here and come back
into London, you've traveled three weeks longer than
you have to if you just come and go straight. So,
things are happening out there and we just want to
keep abreast of it and keep contact with the Navy and
the Coast Guard and see what's going on because
eventually, we could almost be a Long Beach where we
are.
4:04:15 PM
MR. SHEFFIELD continued:
Alaska, and Anchorage in particular, is perfectly
situated to play a hub in this potential new route.
The Port of Anchorage is also of great significance to
th
the military. We were designated as the nation's 15
strategic commercial seaport by the Department of
Defense for supporting the rapid deployment of the
Stryker Brigade Combat Team and other U.S. Army Alaska
combat forces due to its immediate proximity to
Elmendorf Air Force Base in Fort Richardson and the
rail that we have to Fairbanks and Fort Wainwright.
The next slide, the entire state of Alaska has long
been recognized to be of great importance to the
United States. It has a large number of military
installations and vast areas set aside for military
training, both air and ground. We've had 20 something
deployments to Iraq and Afghanistan out of the Port of
Anchorage and into the Port of Anchorage over the last
four years - equipment going out and equipment coming
back in.
4:05:55 PM
The haul road has been constructed - this is the East-
West runway. This is the Cherry Hill area - there's
Cherry Hill housing for you folks that live in
Anchorage and know the area. Here's the Port down in
here. We built a haul road several years ago from the
Port up to here. We have about 300 acres that we're
mining for gravel in this area. Then we built a haul
road last year and this spring finished it. It goes
all the way up here to the north end of the North-
South runway. We have about 400 acres up there that
we're mining. We're taking the hill down for
Elmendorf. Pilots don't like to come along and take
off coming this way and then have to go up Federal
Hill. That's not good and you wouldn't like it either
if you were sitting behind them. So we're taking that
down as far as we can. We're making a lot of new
ground over on this side and a lot of new ground over
in here and at Cherry Hill we'll have some new ground
for them to use out here in the flats and it will be
very good. So when we're through with that road in
four years from now, we'll pave that road. We'll
clean it up and pave it and then they can extend it
right into Ft. [Richardson] right about here and so
even now they use it. So when we deploy and have
military equipment going from Ft. [Richardson] to the
Port for deployment, it goes back here now and down
our haul road but it will be the main traffic lane
when we're out there and totally done so it doesn't
have to go through town, over the bridge to the ACI
[indisc.] and all of that stuff.
So, it's kind of a win-win arrangement for the Port.
The Elmendorf Air Force Base just dedicated the haul
road to the Eklutna Village people. In name they call
it the Dena'ina Road and have road signs up now.
4:07:51 PM
MR. SHEFFIELD continued:
The Port of Anchorage is the natural hub for the
future Navy expanded Arctic operations. This picture
over here shows some Donlin training grounds out of
Fairbanks towards Ft. Greeley. There are thousands
of acres. This is like a whole state down in the
Lower 48 and here's Fairbanks and it's up in this area
here. Bruce is here. He might talk about that a
little bit further but the rail line would go through
that area and they would have Strykers in this area so
troops could come in and be deployed and learn how to
use them and then leave and more people could come in.
Now they take them down to the Lower 48, take them to
Texas, Louisiana and other places; move them around,
training people when they could leave them all right
here all of the time, year-round. It's beneficial to
Alaska.
Then you're getting close to the Canadian border with
the rail line so you let your mind wander a little
bit. If you had a gas line maybe you could have a
Canadian line come on down here, about Ft. Nelson, tie
in with the system. And then our Port of Anchorage
would be five days by train to haul merchandise from
Asia to Chicago. You'd beat the time that it takes to
go to Los Angeles and Long Beach by about three or
four weeks. So, we're out in the middle of nowhere
but we're going to play a very important role.
4:09:24 PM
MR. SHEFFIELD continued:
The Port of Anchorage will play a key role in the
construction of an Alaska gas pipeline. At project
completion, the Port will be a major intermodal ship-
rail-truck staging facility for the pipeline, for the
North Slope to Western Canada and the U.S. We've been
told by consultants and people thinking about a gas
pipeline that we would have a Panamax ship every three
weeks carry 2,700 pieces of pipe for two years to
unload the pipe that would be going to Fairbanks and
up to the North Slope. It would move out of our yard
by train, go to Fairbanks, unloaded and trucked on up,
as was the oil pipeline. So we'll play an important
part.
The Port of Anchorage will have the necessary acreage
to provide loading and offloading and storage of
materials before eventually moving the direct pipe to
Fairbanks.
4:10:59 PM
So, in closing, I guess I'd just like to say that we
need infrastructure in Alaska to continue to keep jobs
going, things happening, raising our income. We need
a gas line to help pay for the infrastructure. The
federal government is cutting back on aid to Alaska.
That was mentioned earlier by a couple of speakers.
Alaska needs to do more without federal funds. The
economy is good, I think, but it's flat. We see that
in our numbers in railroad season and in their
numbers. We see [fewer] kids in school in Anchorage
and [fewer] kids in school predicted for next year. I
think the same thing is happening in Fairbanks. ...
I've heard numbers on dollars of income between 22.5
percent and 25 percent and I don't know if they're
right or wrong so I won't quote them. All I know is
that you can't tax yourself rich and we are a resource
state and our income comes from the resources, and
probably always will. We know it's probably 85 to 90
percent of our budget. The budget is $9.5 billion
now. When I was here it was a little less than $3
[billion] so we're growing by leaps and bounds in some
areas.
4:12:34 PM
We need reinvestment. We need extraction of our
resources. I agree with Tim Bradner wholeheartedly.
When I was down here in my short learning experience
in government, we worked hard on vocational education
but never really achieved anything for it. That's a
hard one to start with the University system. But
there are so many opportunities in Alaska and so many
good jobs if people are trained to do certain jobs.
Anchorage is probably number one in all forms of
engineering. Sometimes you can't get enough engineers
in Anchorage. They're all too busy. Surveyors for
one - our people like to survey so we've had a lot of
experience in it but anyway, there's so many things to
do in education. If we're going to have a gas line,
it's going to be with us a long time and we need to
use as many of our own people as we can. We need to
get them trained. Thank you very much.
4:13:51 PM
CHAIR NEUMAN praised Mr. Sheffield's work on the Port of
Anchorage and asked him to comment on the price of oil at $8
when he was governor and the price of oil today at $89.
4:14:57 PM
MR. SHEFFIELD told members he wrote to Governor Hammond to tell
him how good he had it with revenue increasing during his term,
compared to decreasing revenue during Mr. Sheffield's term. He
said the budget was not as high but $8 a barrel was a low price.
He pointed out the state was destined to be in trouble because
it had been overextended. In the '70s and '80s, the state grew
by leaps and bounds. Alaska was starved for everything in the
world up until then so when the oil money came in, the state
needed to spend it. A lot of it was spent well but some was
not. His goal was to run the state as a business and to cut the
operating budget, but he quickly learned from the legislature
that would not happen. Trying to trim up government and cut the
operating budget took an effort. It is important to do the
right thing for the state and the constituents. A fiscal policy
or road map is important; it enables one to see and navigate
what is coming down the road. He pointed out that mining could
employ a lot of people in the state; however the problem with
mining is that most mines are on federal or Native land. The
Pebble Mine is on state land, which provides a good opportunity.
He advised legislators to keep their eyes on the big picture and
consider future generations. Mistakes have been made and are
allowed, but it is important to think out of the box and have a
plan.
4:21:25 PM
REPRESENTATIVE DOLL asked if ships will be built at the Port of
Anchorage.
MR. SHEFFIELD said yes, Horizon Lines is building three new
ships and is investing about $375 million. He pointed out aside
from federal and state funds, the private sector is putting
nearly 1 billion into the Port project. Totem Ocean Trailer
built two new ships three years ago that it plans to enlarge.
ABI, Alaska Basic Industries, will build more silos for cement
storage.
4:22:49 PM
REPRESENTATIVE DOLL asked if they will be built in Anchorage.
MR. SHEFFIELD clarified they will not.
4:23:07 PM
REPRESENTATIVE DOLL said, in regard to connecting transportation
supply routes, she did not see anything coming to Southeast
Alaska on his map.
MR. SHEFFIELD said for the most part, there has not been a
shipping tie-in from Southeast Alaska to Anchorage or Western
Alaska. He thought previous attempts had been made but were
never successful.
4:23:56 PM
REPRESENTATIVE DOLL said the shipping routes connect every dot
on the map except Southeast Alaska.
MR. SHEFFIELD affirmed that every place above Cordova is served
by the Port of Anchorage, while every place below Cordova is
served by Southeast Alaska. He pointed out the cost of shipping
freight on the water is not high; the cost of stopping and
loading or unloading is.
4:24:49 PM
REPRESENTATIVE GARDNER asked about direct income generated by
the Port of Anchorage and possible changes to that over time.
MR. SHEFFIELD replied the Port of Anchorage has in excess of
$400 million in cash flow on an annual basis. Its profits are
about $2.85 million annually but about $5 million with
depreciation. All of that is put back into capital projects for
the Port. He explained:
We've estimated that ... federal funds will be half of
our income and 25 percent will be state and 25 percent
will be the Municipality of Anchorage. That's either
a revenue bond that we'll pay back at the rate of $4
or $5 million a year or it's Port profits [indisc.]
and money that we saved up for a few years in advance
of this construction. We call that equity funds that
we have.
4:27:09 PM
REPRESENTATIVE GARDNER asked if all of this construction is
completed and the loans are paid, what will happen to the Port's
revenue.
4:27:34 PM
MR. SHEFFIELD said there should be a lot of income but that will
be 25 years down the road. In the meantime, other projects will
be on-line. The Port pays the municipality money in lieu of
property taxes and, at that point, that amount may increase.
The Port may also become married to other ports as part of a
port authority. All of the procurement is currently run through
the federal government. He envisioned ports around the
Southcentral region becoming part of a port authority.
4:29:05 PM
REPRESENTATIVE WILSON noted the Port of Anchorage has made its
own road map, which is not something that is easy for the state
to do because of the different entities involved. She asked if
he had any advice on what the legislature could do differently
and what is working correctly.
MR. SHEFFIELD agreed it is a difficult job for both the
legislature and the governor to analyze the priorities. He
recalled the budget was split into thirds during his term, one
for the Senate, one for the House and one for the governor. The
system changed to one in which the communities prioritized their
needs and submitted them to OMB and legislators. Prior to that,
money that was never requested by the communities would appear
in the budget. He thought the community approach centers around
providing jobs and sustaining the economy.
4:34:08 PM
REPRESENTATIVE FAIRCLOUGH said she is curious about the 52
percent federal funding, considering that federal aid is likely
to be cut. She asked if that money is "in the bank." She said
legislators have been tasked in the last week by the governor to
be prepared to talk about the quality of Alaska's return on its
investment in the form of oil resources. The oil industry is
saying if the tax structure is changed, it will run a different
economic model and some projects may become uneconomical. She
asked him to comment on what the oil industry means to Alaska in
regard to revenue from his perspective as a former governor and
how the oil industry impacts the Port of Anchorage. In other
words, how much of what is transported through the Port is
actually affected by industry, she asked.
4:36:11 PM
MR. SHEFFIELD noted that while the oil industry represents 85-90
percent of state revenue, it touches every walk of life in
Alaska. It touches the Port of Anchorage via cargo that is
brought through. The Port will be especially impacted if a gas
line is built. State revenue from oil dollars goes into
everything: water, sewer, education, and etcetera. He said the
Port project will actually cost closer to $500 million. The bid
proposals accepted in December will show what the rest of the
Port expansion will cost because future work will be similar.
Every phase of this construction stands on its own and is
valuable. He said he has a cash flow statement that he studies
every day.
4:40:36 PM
CHAIR NEUMAN thanked Mr. Sheffield and introduced Mr. Langland
and asked him to begin his presentation.
4:41:08 PM
MARC LANGLAND, President and CEO of Northrim Bank, told members
his presentation is about Alaska's past, present and future
economy. He paraphrased from a prepared statement as follows:
During the last century Alaska's economy prospered.
Our infrastructure developed and the standard of
living of our residents improved dramatically. We
progressed from a territory to a full-fledged member
of the United States. The development of our natural
resources played a central role in this development.
The discovery of energy in the Cook Inlet helped
provide the assurance that we could support ourselves
as a financial part of the state. Our world class
mining, timber, and fishing industries made
significant economic contributions during those days.
Then the discovery of Prudhoe Bay and the construction
of the Trans Alaska Pipeline brought our economy to a
whole new level. Thousands of the highest paying jobs
in Alaska were created by the energy industry and they
have continued for many decades. In the 80s we saw a
dramatic increase in oil production leading to
escalating government budgets with boundless
expectations for the future. Then suddenly oil prices
fell, as Governor Sheffield just described. Industry
investments dried up and the massive government
spending cuts led Alaska into a very major recession.
Our economy has diversified somewhat in the past 20
years, however we can have no illusions. Natural
resource development is still the economic base. It
provides the foundations for our state's economy.
Oil prices and investment levels can change quickly,
creating an enormous volatility in our government
budget and entire economy. If we want a bright
future, we have to learn from the past. My hope is
that we continue to develop our abundant natural
resources, attract new investors, create jobs and
export our products. We can build on our successes of
th
the 20 Century and advances in society. Alaskans
have already had many great achievements in our young
state's history. We can continue to work hard to
provide a better future for ourselves.
4:43:34 PM
We cannot spend the royalties of good decisions made
decades ago without taking action now to prepare
ourselves for the future.
The decisions being debated in this special session
clearly have an important impact on the future of our
state. I would like to offer my testimony today, both
as a business person and a 42-year citizen of Alaska.
Alaska's private sector companies and Alaska's
citizens have depended on the strength of our economy.
When the economy is strong and the business conditions
are stable, private sector companies can create more
jobs and better pay for Alaskans. My company doesn't
produce oil but we do benefit when energy companies
invest billions of dollars in Alaska each year. This
is one of the large new sources of new money that
enters our economy and then circulates through other
industries and supports thousands of jobs.
Every month, billions of dollars flow out of Alaska to
buy goods and services that are not created within our
borders. The only way to keep the economy thriving is
to offset these losses by attracting more inflows in
the form of individual and company investments. We
have built up a successful economy over several
decades now on the back of natural resources. For the
foreseeable future, our resources will be the economic
base and the principal driver of our economy. That's
why I'm so concerned about the governor's plan to
increase oil taxes again. Unfortunately, the
Administration and some politicians seem to be too
focused on the short term budget needs of the
government rather than building a strong private
sector economy for the long run. This belief creates
an enormous disconnect between politicians who want
more money for state government and citizens of Alaska
who need job opportunities and more money circulating
in the private sector economy.
The gross state product, or GSP, is the economic
measurement with a total value added in production in
the state in one year. According to the federal
bureau of economic analysis, in 2006 total government
spending accounted for only 18 percent of GSP. The
other 82 percent of contributions to GSP in the form
of wages, profits and taxes were created by the
private sector.
4:46:13 PM
MR. LANGLAND continued:
If we think of the economic output of Alaska and GSP
as the pie, then it is important to remember that the
state government take is only a small slice of the
pie. The easiest way for the pie to get larger is if
the private sector grows. Government revenues are a
result of a successful economy. We should not let
escalating government spending drive our oil tax
policy.
The Alaska spirit values independence but the Alaska
reality is increased government dependence. Alaskans
value self discipline and self reliance but we have
moved to a state of increased government dependence
and government reliance.
Economic productivity occurs when Alaskans wake up
each morning and get to work on making something that
did not exist before, fixing something that was broken
or developing a natural resource. This is wealth
creation, not just dollars changing hands. We have to
break free of the government wealth redistribution
mentality, and focus on creating new wealth for
Alaskans.
Because our economy is so dependent on natural
resources, the government, and you as legislators,
play a critically large role in determining the
success of the private sector economy. Alaska is
often the exception to the rule and, in this respect,
the government plays a larger role in our economy that
any other state. Through tax policy and regulation,
you can quickly change the attitude and therefore the
level of investment made in Alaska. There's no
question you have the power to create opportunities
and you have the power to destroy them.
Uncertainty in tax policy slows investment decisions,
not just by the oil companies, but all types of
businesses and individuals. In response it feels like
many in the general business community are in a
holding pattern now. We are taking a wait and see
approach before we commit large amounts of investment
capital in Alaska. I hear people saying will the
state drive away investments with taxes too high.
Will the governor's [Alaska Gasline Inducement Act]
AGIA process actually lead to a gas line project? The
oil prices and production stay high enough to support
ever-increasing state budgets.
4:48:49 PM
MR. LANGLAND continued:
So how do we overcome some of these common fears?
First we need to do a better job of aligning our tax
policies with our goals. If our goal is to encourage
exploration and reinvestment in Alaska to increase oil
production, then increasing taxes again will have the
opposite effect - pretty basic Economics 101. We need
to reward long term risk taking, not penalize it.
Just having this special session on oil taxes is
creating more uncertainty and adding risk to the
producer decision making process on future
investments.
Secondly, if the Administration's top priority is
getting a natural gas pipeline built, then a higher
tax rate will only push us further away from that
goal. Antagonizing and criticizing our largest
investor in this project is not as productive as
negotiating with them to achieve a successful outcome.
The PPT is not only about oil, but also gas tax rates.
The [Alaska's Clear & Equitable Share] ACES plan adds
more uncertainty to the gas line project by bringing
into question the stability of our tax system for both
oil and gas. It will also reduce the companies'
profits by raising the costs of developing the gas.
This lowers the feasibility of the project for
investors. It seems the special session time would be
better spent talking about natural gas tax rates for
the preparation of the gas line. Let's work on
achieving our goals, not moving further away from
them.
Third, we need to control our spending habits when
revenues rise. The government needs to save money
during these days of prosperity and spend it when the
economy slows, rather than spending our oil windfall
during years that the private sector is already
strong. The government should utilize more counter-
cyclical spending practices.
Open and transparent capital budget planning is also
needed. We can do a better job planning ahead for
needs and prioritization spending. This will help
avoid over reactions in times of crisis and knee jerk
reactions when decisions are made at the last minute.
Higher oil prices have been a blessing and a curse.
They are helping to pay for an ever-increasing state
budget, but are also allowing many to avoid their
responsibilities to conduct long term fiscal planning.
4:51:28 PM
MR. LANGLAND continued:
I feel that the higher prices are also having another
unseen effect. They are changing the dynamics of the
relationship between the oil companies and the state.
In the past there has been more partnering; now it
seems there is more contention. This is only
reinforced by the need for a gas line. The state and
oil companies are now clearly entrenched on opposite
sides of the bargaining table. This does not lead to
a healthy relationship with the state's largest paying
customer. I've heard members of this legislature say
we need to get a fair share by taxing oil companies to
the limit then back off a nickel. How do you think
individual property tax payers would take it if you
just kept increasing taxes on their houses to the
limit and then backed off a nickel? That would put a
lot of good, hardworking families on the street
because they couldn't pay their bills before you found
out what the limit was. Why should the tax paying
energy companies be treated much differently? This
reminds me of an old saying. Pigs get fed and hogs
get slaughtered. We can't be overly greedy and try to
squeeze out the last penny of profits and taxes.
Successful negotiations happen when both sides leave
something on the table and each side feels like they
would like to come back and do the deal again. We
want a long term relationship with the oil industry
and they have to be able to see the benefits of taking
long term investment risks in Alaska.
Politicians tend to live in the present and make
decisions that have an impact during their re-election
cycle. However energy companies have to make the very
long term investment decisions that span many
administrations. This fundamental difference in
perspective causes a misalignment in government policy
that adds risk to the companies. Attitude can be a
principal driver in our economy. When there is
generally attitude toward the future prospects of
Alaska, then there is more interest in investing in
Alaska. Money gravitates toward what is seen as a good
opportunity. This investment leads to more jobs and
options for local residents.
4:54:00 PM
Money multiplies through the economy in wages and
profits and other service industries. Government
attitude toward industry is equally important. The
oil companies have a limited pool of capital to invest
in exploration and development around the world.
Alaska must compete for these investment dollars in a
globally competitive marketplace. Yes, there are a
variety of variables that go into making an investment
decision. The tax rates are one of the most
important. Certainly some countries have more
political risk. Others have higher development costs.
Some locations have more potential for discovering
large fields. All of these factors have been weighed
in a given point in time and the final outcome is the
balance of global investment decisions we see today.
For Alaska, this means that we only attract a fraction
of the total investment dollars available. At this
level of investment, the end result is constantly
declining oil production in our state. Clearly there
is not enough investment. If there was enough
investment, we'd have a stable or even increasing
production, not a decline. We know this decline is
not occurring because of a lack of energy resources in
Alaska. The cause is most likely the result of our
tax policy, regulatory environment, high cost of
production and legal access to explore in large
regions of our state. If your only change in this
special session is to increase taxes and regulatory
burden, then you have just made our location
relatively less attractive than our competitors'. The
governor's ACES plan not only raises tax rates, but
removes some production incentives that create
uncertainty that is already having some chilling
effects on Alaska's economy.
You may see cranes all over Anchorage and think that
the economy is booming but those cranes are the result
of investment decisions made years ago. Just like
investment in oil production, other investments in our
economy take years to plan, design and construct. At
the time those investment decisions were made,
Alaska's business leaders were confident in Alaska's
future.
4:56:22 PM
MR. LANGLAND continued:
We can't control oil prices but the other decisions
about oil and gas are in our hands. We are in control
of our own destiny for a change. A successful economy
puts its assets to use in the most productive means
possible. We have an abundant supply of natural
resources, literally billions of dollars of assets
lying dormant in the ground. Our economy can continue
to flourish if we choose to build a business climate
that attracts investments and exploration and
increased production.
In this society often driven by immediate
satisfaction, it is hard to properly value long term
stability. We need to have a stable tax environment
so companies can make long term investments without
the fear of having the rules changed on them after
they commit billions of dollars to develop research
for mutual benefit. Long term fiscal planning can
help bring this state and the energy industry together
to focus on their common goal of having a strong,
stable economy. We can learn from the mistakes of the
past, and better prepare ourselves for the future.
The choices you and the governor make now will have a
significant impact on our economy for many years to
come. Your responsibility is not only to balance the
budget, but it is also to create an investment
climate. It allows individual citizens and private
businesses to prosper. Thank you for allowing me to
testify.
4:57:54 PM
CHAIR NEUMAN asked Mr. Langland what guiding factors he uses
when deciding whether to loan business or housing funds as a
member of the banking industry.
MR. LANGLAND said Mr. Goldsmith spoke of the key indicators.
U.S. housing starts are another key factor. [Building] permits
in the Anchorage Bowl are down 50 percent. Incoming freight at
the Port facility is an indicator and it is currently down 10%.
Those factors can be seen more easily but another factor to
watch is the general attitude. Right now people are very
concerned about what role the government will play in oil taxes.
The oil industry touches everyone. Alaska's economy is fragile
so small events can have a big impact.
5:00:00 PM
CHAIR NEUMAN thanked Mr. Langland for his presentation and
introduced Bruce Carr and asked him to begin his presentation.
5:00:26 PM
BRUCE CARR, Director, Strategic Planning, Alaska Railroad, told
members he was asked to review the status of Alaska's economy,
past, present and future, for the committee. He pointed out
that members will hear a lot of common themes in the business
industry today from independently prepared presentations. He
began his presentation, as follows:
As background, the Alaska Railroad is a state-owned
corporation that was given the responsibility of
acting as a quasi-private business with an added
mission of being an economic tool for development in
the state. We offer freight, passenger and real
estate services through 13 municipalities from Seward
to North Pole. This provides us a broad perspective.
Speaking of the past, the Alaska Railroad has been an
integral part of the system of the transportation
infrastructure since its completion in 1923. We
connected tidewater in Anchorage and Seward to the
Interior moving freight and passengers as the
territory got started. Railroad construction camps
were the genesis of many of the thriving communities
that exist today in the Railbelt, which comprises
about 70 percent of the population of the state.
The railroad, even back in those days, was seen as a
tool for economic development by the federal
government. They wanted to open up the Mat-Su Valley
coal mines and serve the Interior gold mines in
Fairbanks. We have a rich and proud history, one of
which the citizens of Alaska can be very proud.
However, few events in the railroad's history are as
important as the sale of the federal railroad to the
State of Alaska in 1985 and we're very privileged to
have one of the prime movers of that event, Governor
Sheffield, who testified before me.
The wisdom of the legislature in accepting the
operation of the railroad from the federal government
cannot be overemphasized. The wisdom of the
legislature in establishing us as a business based
model of ownership is of equal importance. We are
required by the state to act like a business. We must
build a sustainable budget, justify that budget before
our board of directors, and then execute that budget
with a high degree of certainty.
Our board of directors is intimately involved in the
business details of operating the Alaska Railroad to
make sure we meet that expense budget but also to
ensure we are reinvesting our capital dollars into the
railroad assets to sustain us into the future. We
must be responsive to our customers and we must be
flexible to anticipate changing markets as they occur.
So what do we move? Well, it's no secret. We
primarily move bulk materials - coal, gravel, refined
petroleum products.
5:03:38 PM
MR. CARR continued:
Representative Fairclough's question about how does
the industry touch us? Well, we move a significant
amount of tubular steel, hazardous materials, tubular
pipe and other products to sustain the activities on
the North Slope. It's not a large part of our
business but is a significant part of our business
from a revenue standpoint.
We support mining operations at Fort Knox gold mine.
We provide critical, logistical support to our
military, as you saw from Governor Sheffield's slide
about deployment from Fairbanks, Fort Wainwright down
to the strategic Port of Anchorage. We help DOT build
roads. We supply jet fuel that he mentioned to the
Port of Anchorage to ship over to the international
airport at Ted Stevens. We supply coal for power
generation in the Interior in Fairbanks and we also
supply coal for export to overseas market. We are an
integral part of the economy today and we will
continue to be that part.
5:04:25 PM
What are we doing today? What do we see today, which
I think, Chairman Neuman, I congratulate you on
putting together this panel to talk about that. I
really think this is important.
From our perspective, we see the state's economy at a
crossroads. Reduced federal highway trust funds
coming into Alaska reduce the potential market for
gravel, for example, as state highway projects
decline. You saw earlier from Scott Goldsmith the
amount of the impact of the federal dollars. A large
part of that is federal highway dollars. Recall that
I am addressing my points from the perspective of an
infrastructure system of a railroad. Roads and
railroads and airports provide that transportation
infrastructure.
5:05:26 PM
In addition to federal highway money, large projects
and subdivisions are falling off, and gravel for
construction for those is also going down. We expect
gravel and construction to continue to decline slowly
over the next two years and more steeply thereafter,
unless there is some stimulus to the economy. We just
heard Mr. Langland talk about what happened in 1986.
I was part of a team that prepared a budget for our
board of directors in November of 1985. We gave them
a very rosy picture. I was part of the same team that
went back in there in January of 1986 and said we have
to recommend a 10 percent pay cut across the board and
that we would not even come close to our revenue
projections. Mr. Langland said it can happen quickly.
The spigot just turned off.
It's all based on perception.
Oil patch spending continues to be satisfactory but
seems fragile. Will there be a gas pipeline? When
will that occur?
5:06:34 PM
The current blip in pipe shipments that we are
experiencing will come to an end as the majority of
the feeder line replacement project is completed.
Additional drilling is probably based on a function of
the current debate in the legislature. While there
will be a need to maintain pressure in the fields, I
see no reason to return to the large shipments of the
past. What we see, however, is a halt to capital
projects and slowed growth until the oil producers
understand the economic changes required, if any, by
the special session.
5:07:15 PM
MR. CARR continued:
Current housing markets - in the Mat-Su Valley
troubles in that market may translate to reduced
spending on durable goods, which could reduce trailer
and container shipments coming into Alaska. Again, in
my opinion, this is a function of the optimism placed
in the market on the potential for a gas pipeline.
This could, and probably will, impact the larger
Anchorage housing market as well. We just heard that
from Mr. Langland.
The steamship companies serving Southcentral Alaska -
that's the companies that service into the Port of
Anchorage as well as barges and others - carry about
70 percent of all the goods coming in for the region
and the state through the Port of Anchorage. Overall,
consumer goods, project freight and construction
through the Port of Anchorage appear to be flat or
down one or two percent in the near future. Governor
Sheffield gave us a good idea of what that market may
be.
Freight moving to the Interior through the Port of
Anchorage is up, largely due to that military
construction that you saw from Mr. Goldsmith this
morning - tremendous boon going on in Fairbanks
because of the build-up of the Fort Wainwright and the
Stryker Combat Brigade team. Again, that level of
spending is not expected to continue though. Once
they get all the facilities built, they'll stop
building.
5:08:38 PM
MR. CARR continued:
Permitting problems with hard rock minerals may have
additional downward pressures on the need for mining
equipment and support materials for this sector that
the Alaska Railroad moves. The recently approved
proposed ballot initiative aimed at limiting the
ability of Pebble Mine to be permitted may affect the
rest of the sector dramatically. I don't want to
sound all negative with that. It really isn't. It's
simply what we see is happening in the economy. There
are some bright spots though. The opportunity for
greater shipment of export coal - you heard Governor
Sheffield talk about the tremendous resources that are
available. The resources that we have currently
available to us at Usibelli Coal Mine, what we're
working with them in partnership, is that we are
testing new markets, for example, in Chile and our
foreign markets in Japan and Korea to land additional
contracts. There is more capacity available at
Usibelli.
The Port Mackenzie rail extension, if built, could
have a significant impact on not only the railroad,
but also on the Interior, additional jobs at Usibelli
and the long term potential for development of mines
in the Interior unless, again, they may be stymied by
a permitting process.
Agrium's Kenai coal gasification project is going
through a business case justification at Agrium. All
of the additional jobs we see from the marketing side
are related to that single project, jobs at Agrium,
jobs at the railroad, jobs at Usibelli. These are
those long term, sustainable, high paying jobs that
Mr. Langland, Scott Goldsmith and others spoke about.
5:10:35 PM
MR. CARR continued:
Air cargo shipments through the Ted Stevens
International Airport will continue to grow, providing
an opportunity for Flint Hills refinery to participate
as the demand for jet fuel increases. We currently
ship the majority of that output. It represents 35 to
40 percent of our freight revenue stream. Freight
revenue represents right now about $80 million in
revenue to the Alaska Railroad. Our passenger revenue
is about $20 million. Our real estate revenue is an
additional $20 million. So, as you can see, the
importance - the railroad in the Lower 48, if you ask
someone about the Alaska Railroad, they'll know us for
our passenger services. But the real benefit to the
state of Alaska is from our freight services.
What do we see for the future? You know, Governor
Sheffield is a hard act to follow. A lot of what he
said has rubbed off on the railroad. We look at a
tremendous number of possibilities. My job at the
railroad is to look ahead 50 and 100 years and see
what we're going to be like then and then try to put
into place policies and have decisions made to help
implement that in the future. You've heard it before,
I'll repeat it again. From a strategic standpoint,
the state must invest in its transportation
infrastructure, whether it be roads, railroads,
airports, marine transportation, or ports. We cannot
continue to rely on the dwindling federal dollars for
our capital investment program in our infrastructure.
Recognizing that same fact, the State of Washington
produced a strategic plan for its transportation
infrastructure about three years ago. They then
followed it up by issuing $4 billion in general
obligation transportation bonds.
5:12:30 PM
MR. CARR continued:
It goes back to a question that I believe it was -
Representative Wilson, I believe it was you. What can
the state do? The state is not a business, it's a
government. Well, there's an example of a government
that put out a strategic plan and then followed it up
with action.
The State of California two years ago issued $20
billion in general obligation bonds for their
transportation infrastructure. They developed a plan,
they looked at their future and made strategic
investments to make themselves and keep themselves
competitive in a world market.
You've heard it before, you'll hear it again. The
development of natural resources is absolutely
critical to the future of Alaska. To bring it down to
the Alaska Railroad, the majority of our traffic that
we move is bulk material, coal, gravel, petroleum
products. So when we start talking about mineral
resources, what do we talk about? The rail port to
the extension of the spur to Port Mackenzie is a very
important strategic investment that the state can
make. It opens up mines in the Interior.
Governor Sheffield talked about the Northwest Arctic.
Well, there's somewhere between 600 million and a
billion ton limestone deposit 25 miles away from
Fairbanks. ... Now it would do away with a little bit
of Governor Sheffield's business at the Port because
you can produce Portland cement. The state of Alaska
all of a sudden would be able to export Portland
cement rather than being a net importer of Portland
cement. What does that create? Additional jobs, long
term, sustainable jobs. For the railroad it
represents about 30 years of movement of trains every
day, back and forth through the corridor.
As I mentioned here, with this one Port, those
Interior resources become available. The geologic
models tell us that somewhere between Delta and the
Canadian border, there's one, on a conservative level,
to six, on an aggressive model, world class mines of
the Red Dog size. These mines over the life of their
production will produce literally trillions of dollars
of gross revenue. It's time we invest in making the
transportation infrastructure possible.
5:15:18 PM
MR. CARR continued:
We are currently pursuing an environmental decision
for an extension from Eielson Air Force Base to Delta,
some 80 miles away. What will that do? That will
open up that million acres worth of training ground
that's available to the Donlin Training area and the
Tanana Flats, south of Fairbanks. It will open up the
opportunity to provide commuter rail service between
Delta and Fort Wainwright so their troops can be
stationed there and just commute back and forth to
Delta and get off the Richardson Highway during the
winter.
We have no actual funding for construction though.
The legislature approved $500 million in revenue bonds
for us about four years ago when we pitched this
project. It's a good project. It was based on the
military helping to pay for the capital debt service.
The war in Iraq happened, the military cannot pay for
that now so we're continuing to look for ways of
happening for that debt service and, until such time
as we can find something, the project will be approved
but it will go on the shelf. Again, an opportunity
for the state to take the money that it has and invest
in its infrastructure.
5:16:31 PM
MR. CARR continued:
I recently served on a bilateral commission from the
State of Alaska and Yukon government that looked at
the feasibility of the Alcan railway. After two years
of study, the initial report issued says it's
economically possible. The legislature gave the
University of Alaska about $5 million to continue the
effort. That will move it along but it won't move it
along very far. Again, we need to invest in our
infrastructure.
In closing, transportation infrastructure drives your
economy. It develops natural resources. It provides
those long term sustainable jobs that have been talked
about here previously. It makes us more efficient in
the global market we compete in. Governor Sheffield's
graph that shows where Alaska is in reference to the
rest of the world is dramatic. We know it works for
the air cargo business. We're nine hours from...75
percent of the world's population - Anchorage
International Airport. Well, by steamship we're not
quite that close, but the bottom line is, you can go
from Alaska, the Northwest, Point Lay coal resources
and give Europe that has an insatiable demand for coal
and is turning very much green. That coal is very low
in sulfur, high in [British thermal unit] BTU; we've
got 3 trillion tons of it. The State needs to invest
in its infrastructure. The Alaska Railroad thanks you
for giving it an opportunity to present.
5:18:18 PM
CHAIR NEUMAN thanked Mr. Carr and announced that the final two
presenters will wrap up the presentations.
5:18:34 PM
REPRESENTATIVE GATTO noted the grade of Alaska's coal varies
from very good to bad. He asked what kind of coal is currently
available in sufficient quantities on the rail line.
MR. CARR said the railroad currently gets all its coal from
Usibelli, near Healy. That coal is lower grade than anthracite
coal. It is about 8,000 BTU and has about 27 percent moisture
content. Since 1984, when Alaska began to export coal to Korea,
it has been used as a feeder coal. It is added to a higher BTU
coal to reduce costs while producing an equivalent amount of
electricity. Some [Korean] plants are in the process of
converting equipment so that the lower grade coal can be used
exclusively. He noted the Beluga fields across from Port
Mackenzie have coal resources but he does not know its quality.
5:20:04 PM
REPRESENTATIVE WILSON asked how long the Alaska Railroad has
been under state authority.
MR. CARR said the Alaska Railroad started as a state corporation
on January 5, 1985, after federal and state legislation passed.
5:20:53 PM
REPRESENTATIVE WILSON asked whether the railroad corporation has
been doing a much better job than the federal government would
have.
MR. CARR answered yes.
REPRESENTATIVE WILSON questioned whether Mr. Carr thought the
ferry system could benefit from a similar change.
MR. CARR replied he presented the Alaska Railroad's business
model to the Marine Transportation Advisory Board in Juneau
several weeks ago. He noted a lot of enthusiasm for that model,
but some critical aspects need to be considered. The Alaska
Railroad through former federal ownership and state maintenance
was endowed with 36,000 acres of land that the ferry system does
not have. The land that the federal government owned as a
result of developing the railroad was in downtown Anchorage,
Seward, and Fairbanks. That land has been very important from
the perspective of a real estate [revenue] stream. Second, the
railroad serves the Railbelt with a population of 450,000 to
500,000. Southeast Alaska's population is probably one-tenth of
that. He believes the railroad could provide advice to the
ferry system but the two entities have fundamental differences.
5:23:25 PM
CHAIR NEUMAN again thanked Mr. Carr and asked Mr. Steyer to
begin his presentation.
5:23:49 PM
PHIL STEYER, Director, Government Relations and Corporate
Communications, Chugach Electric Association, gave the following
presentation:
... I know many of you but not all of you so if you'll
indulge me, I'll tell you a little bit about my
organization. Chugach is a vertically integrated
cooperative electric utility. Our headquarters are in
Anchorage. We perform generation transmission and
distribution functions. Those are the three key
functions if you break the electric utility industry
down in America and we happen to perform them all.
Chugach provides power for Alaskans throughout the
Railbelt through retail, wholesale and economy energy
sales. We directly serve retail customers at
approximately 80,000 metered locations from the
Anchorage Bowl to the northern Kenai from Whittier to
Tyonek. Chugach is the wholesale power provider for
Matanuska Electric Association, Homer Electric
Association, and the City of Seward. We also sell
large amounts of power on the economy energy market to
Golden Valley Electric in Fairbanks and occasionally
to Anchorage Municipal Light and Power.
We are in an interesting business. We cannot store
our product. Instead we must have the generation
transmission and distribution facilities in place to
serve customers at the point in time that they request
our service, the point in time they need power.
Essentially, they flip a switch and at the speed of
light, our system responds to deliver power for them.
Consequently, we must pay attention to the economy of
our region. Our industry is very capital intensive
and infrastructure for us takes years to plan, finance
and build. It is important for us to look ahead and
make timely decisions so we are ready to provide power
when customers request it.
One of our planning documents is a financial plan, a
portion of which is presented as a five-year business
plan. Part of this effort includes a load forecast.
There are a number of different ways you can measure
growth as an electric utility. You can count the
number of meters on your system. You can count the
number of members you have in the cooperative. You
can measure the peak demand each year and you can
count your annual revenues. We do all of those things
but for today's discussion, I'm going to focus on our
loan forecast.
Chugach's load forecast attempts to predict the change
in Kilowatt hours sold from year to year. In other
words, it is a measure of the amount of energy we
expect to sell annually. I'm not sure that electric
load provides a perfect measure of the state of the
economy. I freely acknowledge you may have asked me
to come and talk about something that - I may be
driving a square peg into a round hole for you.
5:26:42 PM
But, we do believe that it's a part of the overall
picture and we appreciate the invitation to
participate today.
Power sales can be influenced by factors other than
growth and the number of homes and businesses in the
overall health of the economy. Those can include
temperature, hours of darkness, holidays, price. Our
modeling takes those things into account and it also
emphasizes the most recent data over historical
trends.
Human behavior is an important factor in our business.
Another interesting point about our industry is,
contrary to what many of our customers probably
believe, your electric utility cannot force power
through your meter. Each of us as a customer has to
do something on our side that draws power through the
meter. What that really means is that customers then
can take actions to limit the amount of energy they
use and consequently lower their bills.
The price and availability of natural gas in the Cook
Inlet area is of concern to utilities and their
customers. Chugach depends upon natural gas to
generate power. Last year, 90 percent of the kilowatt
hours Chugach sold came from burning natural gas, with
the other 10 percent from hydroelectric generation.
Between 2003 and 2006, the average unit price for
natural gas paid by Chugach doubled, going from about
$2.50 per 1,000 cubic feet, to around $5. For the
past dozen years or so, the rise in cost of fuel has
driven nearly all of the increases in a customer's
monthly bill. Today the cost of fuel accounts for
about 40 percent of the cost of a kilowatt hour for a
Chugach residential customer.
Price clearly affects customer behavior and not always
just from a single utility. Even though rising fuel
costs have led to higher electric bills, the increases
from the gas utility have been even more dramatic.
5:28:43 PM
When Enstar raises the price of natural gas, customers
of both gas and electric utilities respond.
Residential customers on the Enstar system saw
increases of 19 percent in 2006, and 30 percent in
2007, and their total household energy costs,
consequently, went up. Even though Chugach's
increases were not that dramatic, we know our own
retail customers are attempting to better manage their
electric bills to help control their total household
energy costs. In our most recent research, 82 percent
of residential customers surveyed reported taking
steps to conserve and thereby lower their electric
bills, interestingly, about two-thirds by doing
something with lighting. So, the cost of heating your
home goes up and you respond by turning off a light.
The truth is your heat is driven by pumps and motors
that run on electricity.
So even though changes in the electric load are
subject to a number of influences, it is still one of
the best indicators we have of changes in the economy.
While some would say that when it comes to
forecasting, the only thing you can be certain of is
that you'll be wrong. We are confident that our
effort provides a reasonably close view of the near
future. Historically our load forecasts come very,
very close to the actual changes that we see in the
following year.
5:30:25 PM
MR. STEYER continued:
And because we are the wholesale power provider for
Homer Electric Association, the City of Seward and
Matanuska Electric Association, as well as for our own
retail customers, our forecast looks at the area from
the Kenai Peninsula up and through the Mat-Su. In
recent years we have seen load growth of about 1
percent on the Kenai Peninsula, about 1.5 percent in
the greater Anchorage area, and nearly 3 percent in
the Mat-Su. Our 2007 forecast was in line with these
numbers but will now be affected by the recently
announced plan to shut down the Agrium plant in
Nikiski.
Here are our current 2008 projections. Our forecast
is for load to fall next year by 6 percent on the
Homer Electric Association system, grow by 1 percent
on the Chugach retail system, and grow by 3 percent on
the Matanuska Electric Association system. The
anticipated drop in load on Homer's system is
primarily due to the closure of Agrium. We expect to
see continued moderate growth on the Chugach retail
system and, within [Matanuska Electric Association]
MEA's retail service territory, we continue to foresee
increases in residential load and also now increases
in commercial activity as this segment of the market
develops on the heels of sustained residential
development.
Overall, we are still expecting a load on the combined
[Homer Electric Association] HEA, MEA and Chugach
systems to grow by about 1 percent a year during the
next 5 years. That said, there are certainly many
things that could affect this forecast but today those
are the best estimates I can give you. Again, I thank
you for the opportunity to speak.
5:32:03 PM
REPRESENTATIVE GATTO asserted it is important to note that the
cost of fuel is only 40 percent of a person's electric
generation.
MR. STEYER clarified it is 40 percent of the cost of the retail
kilowatt hour, not of generation.
REPRESENTATIVE GATTO said a 100 percent price increase in the
cost of fuel actually results in a 40 percent increase in a
person's electric bill. He then asked about whether
Commissioner Giard of the Regulatory Commission of Alaska (RCA)
has commented on MEA's proposal to collaborate with other
utilities about coal generation.
5:33:28 PM
MR. STEYER replied MEA filed a petition requesting the RCA to
open a docket to consider a mandatory generation and
transmission cooperative for four Railbelt cooperatives or,
alternatively, power pooling. When the RCA held hearings, a
few entities asked for more time, so the RCA voted to leave the
comment window open until October 15. The RCA gave MEA 10
business days to respond but he does not know whether the RCA
announced a deadline for its own action. He said he is not
aware of any new information on coal that has been provided to
the RCA.
5:34:43 PM
REPRESENTATIVE DOLL asked if Chugach, in its long term
investment plans, is doing anything with alternative energy
sources.
5:35:16 PM
MR. STEYER said Chugach has led the effort to consider wind
generation on Fire Island with funds from the Denali Commission.
Chugach now considers itself a potential buyer of power from a
project developed by another entity. Chugach plans to build new
gas fired combined cycle generation in the Anchorage area by
2011. Chugach's natural gas capacity equipment is getting old.
Its newest gas turbine was installed in the late 1970s. It's
rebuilt its two largest gas turbines and done very good
maintenance, however Chugach plans to replace that equipment [in
the near future].
5:37:34 PM
REPRESENTATIVE DOLL asked what percentage of Chugach's earnings
is used for maintenance.
MR. STEYER did not know.
5:37:47 PM
REPRESENTATIVE WILSON commented that increased costs do change
behavior in households.
MR. STEYER agreed price does affect customer behavior.
5:38:45 PM
CHAIR NEUMAN thanked Mr. Steyer and asked Ms. Darlin to present
to the committee.
5:39:00 PM
MARIE DARLIN, AARP, gave the following testimony:
For the record, Mr. Chairman, members of the
committee, my name is Marie Darlin. I've been here
many times before. I am a volunteer with AARP and
currently serve as the coordinator of their Capital
City Task Force. We do appreciate the invitation to
be with you here today and hope we can put a little
different perspective on some of the things that have
been discussed. I might say it's been a very
interesting afternoon and I have spent many, many
years in this building as a lobbyist for different
organizations, such as school boards and things like
that. I can say I've heard a lot of this before too,
but I'm hoping that we are on a track toward doing
something about some of it.
As a third generation Juneauite and an Alaska history
buff, because of that, I particularly appreciate the
topic of today's hearing and I do have great
grandchildren growing up here in this state. And I
might say that I can join Governor Sheffield on that
further end of the chart that Professor Goldsmith
showed us. I want to therefore add a few historic
perspectives to all of this, which is what I was asked
to do and maybe from a little different perspective
being it's from the perspective of seniors and
retirees who constitute most of our AARP membership.
5:40:30 PM
MS. DARLIN continued:
We've all read that in order to know ... where you are
going, you should know where you've been and we should
have learned from our past and you've heard a lot of
that this afternoon. So, I will present a bit of the
past. ...Alaska's past as part of the United States
began in 1867 and you've all heard that. We were
almost totally ignored until suddenly gold became a
part of the U.S. economy. Then came furs, and fish,
and timber, etcetera. All were our resources and
suddenly we became a part of the U.S. In fact, May
17, 1884, this is information from some of Bob
DeArmond's historical stuff he has done; the first
Alaska Organic Act was signed into law by President
Chester A. Arthur. It provided that Alaska would
become a civil and judicial district with a governor
and a district court but without a legislative body.
5:42:07 PM
In 1880, gold was discovered in Gold Creek in Juneau
here, and although we know there were gold seekers all
over Alaska and the Yukon and in the Cassiar in B.C.,
then the '98 Klondike gold rush began the real rush
for our resources and on May 2, of 1913, the first
Alaska Territorial Legislature adjourned sine die at
the end of its mandated 60-day session. It had, among
other things, given Alaska women the vote. That was
the first bill they passed, provided for a pioneers'
home, and adopted a two-year budget of $64,143.75.
That's a bit of history for you. So for all those
years in between 1884 and 1913, there was not a
legislature.
5:43:15 PM
MS. DARLIN continued:
Today, a century later, our greatest resource now, we
may say, is in our people, all 670,000 of them
including our retirees and seniors, which is one of
the main concerns of our AARP group. We know Alaska's
ability to meet the needs of our citizens of all ages
and to create a better quality of life for all of us
depends on a strong economy. We have older Alaskans
who lived through the Depression, although we didn't
feel it that much here in Alaska. But indeed some of
our fellow citizens ended up in Alaska because of the
Depression.
5:43:53 PM
In those years we were raised to not live beyond our
means, to pay our bills, to avoid debt. If we didn't
have enough money to buy something, we didn't buy it.
Even today, you won't find many credit cards in the
wallets and pocketbooks of our older Alaskans. This
is all a part of our past. The present, today's
economy, is atypical. Very few states have a state
budget that is so dependent on resources. In the past
few years, and even the past few days, we have seen
oil at $9 a barrel, as well as $90 a barrel.
AARP members expect our state government, and you, our
elected representatives and leaders, to have a fiscal
plan that recognizes the wide variations in our
income. Closing our eyes and keeping our fingers
crossed for high oil prices is not good fiscal
planning and yet we've been doing it for years. Many
of us lived in Alaska when we had an income tax and
some of us wish we had kept it. At some point, Alaska
will either choose to develop a fiscal plan or we will
be forced into it by circumstances beyond our control.
And just as you are now engaged in an historical
debate about oil taxes, at some point you will need to
develop a fiscal plan that will have a variety of
proposals to bring in income beyond taxes on resources
and please note I'm skipping several pages mostly
because a lot of this has already been said by all of
the previous speakers.
As a membership organization with over 93,000
Alaskans, AARP recognizes that we have an obligation
to you to help educate our members and the public that
taxes may be the price of good government.
5:46:05 PM
We are also the largest organization of grandparents
in Alaska and we want you to remember that. You are
all aware of the demographics of the age-wave, which
we've been aware of for some time and that Professor
Goldsmith laid out for us very well today. So this is
something we have to be prepared for, let's say, is
the future and, rather than being an age wave, we
might say it more appropriately would be titled a
tsunami.
Our 85 plus population is growing. This age cohort is
also one of the most likely to need health services,
especially home and community based care and, for
some, nursing homes. And Alaska has the highest
percentage of baby boomers in the nation ... and also
of veterans. These Alaskans are here and they aren't
going to go away. Many of them will live much longer
than their parents and grandparents. Indeed, when
these boomers first start turning 65 in 2011, 29
percent of the women will make it to age 90, as will
18 percent of the men.
5:47:24 PM
So, can Alaska afford to grow older? Can we do so
with intergenerational fairness without burdening our
children and our grandchildren? How do we help older
Alaskans maintain their quality of life while
preserving the integrity of public programs that
contribute to that quality? And how do we achieve
these objectives without seriously damaging our
economy? There is no question that there are serious
challenges. In fact, determining how best to adapt to
an aging Alaska may be one of the most important
issues of our time.
In AARP we believe Alaska can balance longer lives
with the pressures the aging of the baby boomers and
increased longevity will put on our economy. First of
all, it's important to remember that an ISER study,
and this was indicated earlier today, indicated that
older Alaskans bring about $1.5 billion - with a b -
into our state's economy and then we aren't even
considering the value of all of the volunteer services
given by Alaska's retirees.
5:48:40 PM
MS. DARLIN continued:
Increases in the cost of health care and, in
particular, prescription drugs are arguably the
biggest problem Alaska faces with regard to managing
our public health budget. Our current health care
system costs too much and delivers too little. We,
and especially you, our elected representatives, all
need to work on making our health care more
affordable, more accessible, and of higher quality.
For the past several decades, about one-half of
Alaskans have had some type of a pension plan. This
is another aspect of retirees. Obviously pensions
have a significant impact on our current economy, as
well as the future. And we have basically, with the
changes in the public retirement system recently made,
shifted the responsibility for retirement security to
the worker.
5:49:38 PM
A healthy Alaskan economy should encourage workers
about the importance of beginning to save early,
contribute regularly, and invest prudently in
retirement savings programs that are available to
them. This is one other aspect that AARP has really
tried to work on as far as educating the public. You
need to start sooner to think about retirement and yet
that's not the easiest thing to do. We would
encourage you to research and consider making a state-
K program available to all Alaskans, as has been done
in Washington State. They have taken it a step
further and tried to provide more employers and
employees a way to make pensions available.
5:50:23 PM
So, with that, I just want to close to say please tell
us where we are going so we'll know when we get there.
And with that, I thank you. Apart from that, I have
one other comment I wish to make and this is from my
background of being on the school board and involved
in education for many years. On the comments
regarding vocational education, which you have heard
considerably about today, and how did we do it in the
past, going back to the past, we did have a good
program at one time, about 30 or 40 years ago, which I
was familiar with. I was a member of a vo-tech
advisory committee for the state. I would just invite
you to look to the past.
5:51:18 PM
CHAIR NEUMAN thanked Ms. Darlin for her comments. He thanked
all presenters for attending the meeting at their own expense.
5:51:41 PM
REPRESENTATIVE ROSES jested that many senior citizens do not
have, nor believe in, credit cards but that their contribution
to the economy might be $2 billion if they did.
5:52:03 PM
CHAIR NEUMAN thanked the speakers as well as the gallery of
attendees for coming to today's hearing, particularly the
legislators who are not committee members. That same group of
legislators has attended every House Special Committee on
Economic Development, International Trade and Tourism meeting,
which he opined shows a strong commitment to Alaskans. He
announced the committee would continue this discussion tomorrow.
5:53:30 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Economic Development and International
Trade and Tourism meeting was adjourned at 5:53:34 PM.
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