Legislature(2009 - 2010)Anch LIO Room 220
12/04/2009 10:00 AM House COMMUNITY & REGIONAL AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| Overview(s): Economic Development | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE
Anchorage, Alaska
December 4, 2009
10:12 a.m.
MEMBERS PRESENT
Representative Bob Herron, Co-Chair
Representative Cathy Engstrom Munoz, Co-Chair
Representative Charisse Millett
Representative Sharon Cissna
Representative Berta Gardner
MEMBERS ABSENT
Representative John Harris
Representative Wes Keller
OTHER LEGISLATORS PRESENT
Representative Bryce Edgmon
Representative Alan Austerman
Representative Paul Seaton
Representative Chris Tuck
COMMITTEE CALENDAR
OVERVIEW: ECONOMIC DEVELOPMENT
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
ERIN HARRINGTON, Staff
Representative Alan Austerman
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Reviewed the report entitled "Economic
Development in State Government."
MICHAEL CATSI, President
Alaska Partnership for Economic Development (APED);
Executive Director, Southwest Alaska Municipal Conference
(SWAMC)
Anchorage, Alaska
POSITION STATEMENT: Discussed the Alaska Forward Initiative.
JOHN TORGERSON, Executive Director
Kenai Peninsula Economic Development District, Inc.
Kenai, Alaska
POSITION STATEMENT: Discussed his experience and view of
economic development in Alaska.
SUSAN BELL, Special Staff Assistant
Office of the Governor
Juneau, Alaska
POSITION STATEMENT: Discussed Governor Parnell's plans with
regard to economic development.
TED LEONARD, Executive Director
Alaska Industrial Development and Export Authority (AIDEA)
Department of Commerce, Community, & Economic Development
Anchorage, Alaska
POSITION STATEMENT: Presented a slide presentation about the
Alaska Industrial Development and Export Authority (AIEDA).
EMIL NOTTI, Commissioner
Department of Commerce, Community, & Economic Development
Juneau, Alaska
POSITION STATEMENT: Discussed essential elements for economic
growth.
MICHAEL BLACK, Deputy Commissioner
Office of the Commissioner
Department of Commerce, Community, & Economic Development
Anchorage, Alaska
POSITION STATEMENT: Discussed the organization of DCCED.
ACTION NARRATIVE
[Due to technical difficulties the first few minutes of this
meeting were not recorded.]
10:12:02 AM
CO-CHAIR BOB HERRON called the House Community and Regional
Affairs Standing Committee meeting to order at 10:07 a.m., but
the recording did not begin until 10:12 a.m. Representatives
Herron, Munoz, Millett, Cissna, and Gardner were present at the
call to order. Also in attendance were Representatives Edgmon,
Austerman, Seaton, and Tuck.
^OVERVIEW(S): ECONOMIC DEVELOPMENT
10:12:12 AM
REPRESENTATIVE AUSTERMAN drew the committee's attention to a
book entitled "Economic Development in State Government," which
is a compilation of the work of staff in reviewing economic
models in various states, particularly those states that are
more successful with economic development, and potential changes
to Alaska's economic development system. He then mentioned that
there are a number of things that could be done to address
economic development in Alaska, including returning to the
Department of Commerce and the Department of Community &
Economic Development and whether energy should be a division
within one of those departments or the [Department of Commerce,
Community, & Economic Development (DCCED)].
10:14:46 AM
REPRESENTATIVE CISSNA opined that the more comprehensive the
[approach to economic development in Alaska] the better.
10:15:15 AM
REPRESENTATIVE AUSTERMAN noted his agreement that everything
flowing through the state is inter-related, but highlighted the
need to focus on separate matters in order to make them come
together.
10:15:48 AM
REPRESENTATIVE CISSNA asked whether Representative Austerman has
a specific proposal in mind or is this hearing an effort to work
toward a specific proposal.
REPRESENTATIVE AUSTERMAN answered that this hearing is the
effort to work toward a specific proposal. He related that when
this discussion began his first reaction was to split DCCED into
two departments. However, he did realize that the
aforementioned is likely not the best solution. Furthermore,
during last session there was discussion regarding creating a
Department of Energy. He said he didn't want to create new
bureaucracies, and with the possibility of three departments he
would lean instead toward strong divisions within the existing
department. This is merely a starting point for this
discussion, which he hoped the House Community and Regional
Affairs Standing Committee will take up during the upcoming
session, he related.
10:17:44 AM
ERIN HARRINGTON, Staff, Representative Alan Austerman, Alaska
State Legislature, explained that Representative Austerman
requested that his staff review the effort being expended on
economic development in the state as well as review what is
occurring in other states. She acknowledged that the Alaska
Industrial Development and Export Authority (AIDEA) has worked
on economic development long before she and other staff began
reviewing it.
10:19:37 AM
REPRESENTATIVE AUSTERMAN interjected that one component of what
started this conversation was began by former Governor Palin
when, with her LEGACY Plan, staff reviewed economic development.
The new administration is continuing to work on the LEGACY Plan,
but Representative Austerman suggested that the legislature has
to be part of the review as well.
10:20:15 AM
MS. HARRINGTON directed the committee's attention to the
"Briefing Paper: Economic Development in State Government" the
first page of which includes the following quote from Robert
Shively, Economic Development for Small Communities: "Community
development is capacity building; economic development is wealth
creation." The differentiation between community development
and economic development is not always well made in Alaska. At
its base community development is development of infrastructure
and public facilities. She suggested that the committee could
think of community development as those services for which
government provides fund, such as roads, cultural/intellectual
facilities, and other things that aren't developed by private
business. Economic development, on the other hand, is work that
leads to investment by the private sector, such as the creation
of wealth and jobs as well as the retention of wealth in
communities, and an increase in the standard of living.
Community development projects might be those in which water and
sewer infrastructure is installed, she said. Such community
development may be installed to support economic development
such as the construction of a clinic by a private medical
practice.
10:22:12 AM
MS. HARRINGTON then explained that first staff reviewed the
current resources within state government that are directed
toward economic development. The state does have the Office of
Economic Development (OED) within DCCED, the head of which is
Joe Austerman. The mission of OED, per the fiscal year (FY)
2010 budget, is to advance successful tourism, film, fisheries,
forest products, minerals, and small business assistance
programs in order to increase economic activity in Alaska as
well as create new employment opportunities for Alaska. That
mission is very specific to a handful of industries and
activities, which she attributed to the makeup of Alaska's OED.
The OED, as currently organized, has a division head and 11
employees in five sub-programs. The five sub-programs are the
Alaska Film Office, Business Development, Office of Fisheries,
Office of Mineral Development, and Tourism Program. Ms.
Harrington pointed out that in some cases statutory obligations
are linked to the sub-programs, which partially explains the
state's "silo" approach to economic development. She noted that
OED does provide technical support, report writing, and
answering questions on specific industries. The staff of OED
has experts in the division in which they're employed. She
characterized these employees as assets to the state.
10:24:56 AM
MS. HARRINGTON highlighted that also within DCCED is AIDEA. Per
the FY 10 Governor's Operating budget, the mission of AIDEA, a
financing organization, is "to promote economic growth and
diversification in Alaska." Although AIDEA is restructuring its
mission, AIDEA focuses on industrial development and putting
together financing packages to enable large development such as
the Red Dog Mine and port development. Additionally, AIDEA has
some smaller loan programs, some of which are administered by
the Division of Investments. As a finance organization, it has
a somewhat limited role. The Board of Directors of AIDEA
consists of five people, of which two members are commissioners
and one member is appointed by the governor and two public
members are appointed by the governor. As an aside, Ms.
Harrington related that those two public board members of AIDEA
are the only members of the private sector who currently have an
official capacity in advising economic development activities
within state government.
10:26:35 AM
CO-CHAIR MUNOZ inquired as to the amount of bonding authority
AIDEA has.
MS. HARRINGTON responded that she didn't have that information,
but deferred to AIDEA staff. She then returned to her
presentation and informed the committee that between AIDEA and
the Alaska Energy Authority (AEA) there are about 30
professional staff who work on economic development matters and
the finance programs that support it. She further informed the
committee that AIDEA is a public corporation.
10:27:21 AM
MS. HARRINGTON then told the committee that also within DCCED is
the Division of Investments (DOI), the primary responsibility of
which is to administer and service 12 state loan programs under
DCCED. Those programs are primarily designed to promote
economic development through direct state lending in industries
not adequately serviced by the private sector. To date, the
majority of programs that have been set up through state
government and serviced by DOI focus on the commercial fishing
industry. In general, those programs are well appreciated and
utilized, although they're not comprehensive across small
business economic development across the state. The authority
DOI has to make loans is relatively narrow, she noted. The
funding DOI has is through the revolving loan programs that have
been established and capitalized in the past. Furthermore,
those programs, per Ms. Harrington's understanding, are self-
supporting and have been for some time. There are other
activities that can be seen as supporting economic development,
which are included on the matrix provided to the committee by
OED. This chart reviews programs across other agencies that are
viewed as supporting economic development, including the
Department of Natural Resources (DNR) Alaska Grown program.
However, these other programs are small and aren't a concerted
effort, she remarked.
10:29:36 AM
MS. HARRINGTON acknowledged that outside of Alaska's state
government there are other entities working on economic
development, of which the primary entity is the Alaska Regional
Development Organizations (ARDORs). The ARDORs, she explained,
perform regional economic development activities and are
authorized to receive a certain amount of funding from the state
annually through a grant process. However, since the programs'
inception in 1992, it has received $50,000 annually with the
exception of the addition of a small amount of funding a couple
of years ago when a new ARDOR was formed. The ARDORs are
intended to:
· enable communities to pool their limited
resources, and work together on economic
development issues;
· develop partnerships among public, private and
other organizations;
· offer a technical, nonpartisan capacity to
develop and implement an economic development
strategy;
· often have extensive experience with
federal/state programs; and
· provide needed technical assistance via direct
links with local citizens.
MS. HARRINGTON related her understanding that there are 13
ARDORs in the state that work/function at various levels due to
how successful the organizations have been and in terms of how
successful they have been in attracting outside funding. For
example, the Southwest Alaska Municipal Conference ARDOR is a
fairly successful ARDOR with several staff positions whereas
there are other ARDORs that only have one half-time position.
In Alaska, as the committee well knows, the regions which these
ARDORs serve are fairly large geographically. Ms. Harrington
noted that there are a number of small regional economic
development organizations, such as the Juneau Economic
Development Corporation, working toward a larger vision while
working at the regional level. Other small regional economic
development organizations are the Fairbanks Economic Development
Corporation and the Alaska Village Initiatives.
10:32:33 AM
MS. HARRINGTON told the committee that in the university there
are two specific programs that support economic development in
the state. One of those programs is the Center for Economic
Development at the Institute of Social and Economic Research
(ISER) located in Anchorage. The center receives a large
portion of its funding through the Economic Development
Administration (EDA), which is a federal program. The Center
for Economic Development essentially provides assistance to
larger organizations, such as municipalities and tribes. The
center is generally supported by a fee for the service.
Therefore, the center and its funds aren't freely available to
any entity. Recently, the center began to offer professional
training for those seeking professional development as economic
development specialists.
10:34:26 AM
MS. HARRINGTON, in response to Representative Gardner, explained
that certification is put together by the International Economic
Development Council (IEDC) such that one would go through a
series of courses after which one must sit through an exam. She
likened the exam to that of a certified public accountant (CPA).
This program allows professionals to attend these classes and
eventually sit for the exam for the IEDC to receive
certification. Since the aforementioned has been offered, quite
a few people have attended the classes and thus there are folks
who are ready to sit for the exam.
10:35:49 AM
CO-CHAIR HERRON asked if the occupation of economic development
specialists is an exclusive occupation in the nation.
MS. HARRINGTON replied no, but added that it's a certification
that's an asset for those working in this field. For instance,
some of those running economic development agencies or
corporations have related that many of those on staff have IEDC
certification. One other organization provides similar
certification, she noted. These [economic development agencies
or organizations] view this certification as something that
staff should have or be working toward. Ms. Harrington informed
the committee that when the report was being compiled there
wasn't a certified economic development specialist, but recently
Ketchikan recruited such a professional.
10:37:06 AM
MS. HARRINGTON returned to her presentation and informed the
committee that the other asset in state government is Small
Business Development Centers (SBDC). The SBDC has centers
throughout the state as well as roaming staff who serve rural
Alaska. However, for some reason there are areas in rural
Alaska that are excluded. Ms. Harrington pointed out that
although Alaska's resources are fairly slim; they are something
from which to build.
10:38:21 AM
MS. HARRINGTON then turned to the topic of how other state
governments are addressing economic development. The report
reviewed North Dakota, Wyoming, and Oregon in the greatest depth
as well as Kentucky, Indiana, and Washington all of which have
been recognized for their economic development programs. She
pointed out that the report provides more specifics for each of
the states reviewed than she will discuss. Overall, each state
addresses economic development differently. For instance, some
states have chosen to establish corporate structures that have
taken over some formerly state agency functions. The notion
behind the aforementioned is to operate more leanly and to
reflect the business environment that they support. Other
states have taken an approach in which the areas of commerce,
business, and economic development within larger departments is
identified and separated into a separate department, which is
similar to the initial thoughts of Representative Austerman.
The efforts in this area have been lead by different areas. In
some cases, administrations have taken the lead through
executive order while in other cases the legislature has taken
the lead.
10:40:50 AM
MS. HARRINGTON highlighted that another important commonality
with the states that are recognized for their economic
development programs is that they have setup a formal structure
to have private sector oversight or advisory capacity into the
economic development work done by the state. The aforementioned
makes sense, she opined, because economic development is all
about investment by the private sector. In North Dakota there
is an advisory board that sits at the head of the North Dakota
Economic Development Foundation. A foundation was established
because it allows them to raise money outside of the state's
normal budgeting process. The board that oversees the North
Dakota Economic Development Foundation has a formal statutory
role in providing input into agency activities, and therefore
the board performs the strategic planning, advises the
commissioner and governor, and serves as the contact entity
regarding for what state resources should be used. The State of
Wyoming established a corporate body, the Wyoming Business
Council, such that all of the functions related to economic
development were pulled out of the state agencies. The State of
Wyoming also pulled out some infrastructure and community
development programs, which was a small addition. Any community
development in Alaska will be much larger than elsewhere. She
noted that the Wyoming Business Council has a board of directors
and a chief executive officer (CEO). The board members, per
Wyoming statute, are successful business owners in Wyoming.
10:43:02 AM
MS. HARRINGTON informed the committee that Kentucky has a
Cabinet for Economic Development, which is governed by the
Kentucky Economic Development Partnership Board. The board has
a combination of government and industry, in which the governor
has a strong role as he/she is the head of that cabinet. The
State of Indiana took a corporate approach and established the
Indiana Economic Development Corporation, which was created to
replace the Indiana Department of Commerce. The corporate
approach, she reminded the committee, provides the flexibility
to work more like a private sector organization. She then
turned to the State of Oregon, which completed the
reorganization of the Oregon Business Development Department.
The department has become leaner and rebranded itself as
"Business Oregon" and tried to make it clear to entities
entering the state how to do [business in the state]. Oregon
has a strategic plan, in which four areas have been identified
as having potential for growth, which is guiding its focus.
10:44:26 AM
MS. HARRINGTON then turned to points to consider about Alaska's
current system. She highlighted that currently, the private
sector's input into economic development activity within state
government is limited to the two public seats on the AIDEA
Board. Furthermore, incentive programs in Alaska are very
limited, although there are incentive programs for oil and gas.
She noted that the New Business Incentive Program [within DCCED]
isn't funded. However, the Film Incentive Office that's staffed
by OED staff is up and running.
10:45:51 AM
REPRESENTATIVE EDGMON asked where resource development ties in
with economic development, particularly in terms of the fishing
industry.
MS. HARRINGTON acknowledged that resource development is the
foundation for Alaska's economy, particularly since it's the
largest portion of the state's base sector. The state's base
sector includes industries that bring money in from out-of-
state versus service industries that re-circulate money in the
state for a while. Resource development, she said, is the
foundation of any economic development in Alaska. Ms.
Harrington noted that most of the states reviewed were Western
states that have resource extraction based industries as well as
agriculture and tourism. The efforts in those Western states
have focused on business and economic development that is tied
to the primary basic sector. Therefore, the economic
development in Alaska will most likely look at resources and
ways in which to develop the cluster of businesses that deal
with those resources. She specified that it's economic
development that creates more value and more wealth from the
resource development, which makes up the majority of Alaska's
basic economy.
10:49:06 AM
REPRESENTATIVE AUSTERMAN explained that OED is trying to model
what is going on in Alaska right now, such that it's reviewing
what is generated in economic development in Alaska in terms of
wealth and what happens to that. The model illustrates that
Alaska has a fairly balanced amount of wealth from the state's
resources, but it all funnels down South. At some point, the
aforementioned has to be viewed as loss of economic wealth to
the state in terms of jobs and other items. Furthermore,
there's the notion that if Alaska is a resource export state,
that's all it will ever be unless there are incentive programs
that can bring other wealth to the state in order to create new
jobs. All of the aforementioned needs to be part of the
discussion, he opined.
10:50:49 AM
REPRESENTATIVE EDGMON pointed out that what the state has to
offer in terms of economic development is fairly limited. The
state can offer low interest rate loans, a favorable regulatory
climate, outreach, and technical assistance. He surmised that
the discussion today surrounds trying to find out how the
aforementioned assets are placed in Alaska, how well they are
functioning, and whether they can be better defined in order to
create more economic development in Alaska.
REPRESENTATIVE AUSTERMAN replied yes and no. He explained that
with regard to technical assistance, one is only turning over
the same dollar. However, bringing in new wealth means that one
is reviewing how to build and grow the economy.
10:52:52 AM
CO-CHAIR MUNOZ asked if Ms. Harrington considered state policies
and laws that discourage business investment, such as taxation
policies.
MS. HARRINGTON replied no, adding that the research focused on
the tools the state already has or does not have. In regard to
Representative Edgmon's question, Ms. Harrington opined that the
state merely has "shadows" of low interest loans, incentive
programs, and technical assistance but no comprehensive way that
would allow there to be broad economic development. She
acknowledged that the state has low interest loans for the
fishing industry and incentives for the film industry as well as
technical assistance through the university in a somewhat
limited capacity. Still, there are no low interest loans for
business that may creatively evolve in Alaska.
10:54:42 AM
REPRESENTATIVE CISSNA highlighted her experience growing up in
Seattle, Washington, where a lot of Alaskan wealth was
deposited. She then opined that economic development is more
than merely creation of wealth; rather it's creation of survival
and survival on one's own terms. The other part of [economic
development] is community development. She pointed out that
schools in rural Alaska do not address the astounding resources
that surround them. If the communities developed those
resources, these communities would survive. Without communities
and their schools focusing on the resources in the town to grow
the community's capacity, the conversation the committee is
having dies. Representative Cissna expressed the need to review
economic development in a uniquely Alaskan way.
10:58:21 AM
MS. HARRINGTON, concluding her presentation, offered the
following points. Alaska has gone from having no certified
economic developers working in Alaska to now having one. She
pointed out that state government interactions with the
university's resources may be inefficient, although the
university is well prepared to perform technical assistance.
She further pointed out, "State government, through the auspices
of economic development, has really focused on a set of specific
industries without necessarily having the capacity to look more
broadly at places where ... business may evolve more
organically." As an aside, Ms. Harrington informed the
committee that [economic development in the state] doesn't have
a strong web presence. She offered up Oregon's website as a
powerful website. With regard to statute, there's very little
support to the economic developers in the state.
11:00:02 AM
MS. HARRINGTON then directed the committee's attention to the
other contents of the committee packet. There is a two-page
document entitled "Community Development or Economic
Development?" that discusses the differences between community
development and economic development. The packet also includes
a document entitled "Legislation, Executive Orders and Policy
from Other States" which includes information from the following
states: North Dakota, Wyoming, Oregon, Indiana, and Washington.
The information for North Dakota includes the legislation that
established the foundation and its board that provides private
oversight. The packet also includes legislation that
restructured North Dakota's department. There is also
legislation from Wyoming, the Wyoming Economic Development Act,
which specifies the general powers and duties of the council.
The committee packet also includes the executive order from
Oregon that laid the ground work from its radical restructure of
its [economic development] department. The backup for Oregon
also includes a strategic plan that led up to the aforementioned
change. There is also a report from a commission that reviewed
Oregon's version of ARDORs from which long-term planning was
done. The packet includes the executive order for Indiana that
laid the groundwork for that state to switch to a corporation
for economic activities. At the end of the Indiana section,
there is documentation of the items that are in the toolbox of
Indiana. She noted that these are offerings that Alaska doesn't
necessarily have. The committee packet also includes
information from the State of Washington, including an excerpt
from legislation that helped restructure its department. There
is also a summary of Washington's economic incentives, which is
listed on Washington's web site. Ms. Harrington said this
information is merely food for thought with regard to economic
development.
11:04:14 AM
REPRESENTATIVE AUSTERMAN, upon the request of Co-Chair Herron,
reiterated information he stated earlier in regard to the energy
issues in Alaska related to community development and economic
development.
11:05:39 AM
CO-CHAIR HERRON inquired as to whether Representative Austerman
believes the ratio between economic development and community
development within DCCED is 50:50.
REPRESENTATIVE AUSTERMAN said that he hasn't specifically
segregated that information in a percentage basis. With regard
to how much economic development is occurring within DCCED, the
information from the department relates that OED's 11 employees
are concentrating on wealth building. He noted that the Alaska
Film Office is the only entity bringing new dollars into the
State of Alaska. The question, he remarked, is regarding what
one determines to be economic development. Although the second
largest industry in Alaska, for jobs, is the fishing industry,
the regional seafood development associations (RSDAs) don't
bring new money into the state but rather try to use their money
to advertise their product and sell it for more. Furthermore,
vessel upgrades don't bring more money into the state.
Therefore, it's difficult to determine what type of economic
development growth is occurring within DCCED. Representative
Austerman said that the majority of the information regarding
economic development in the state is really rural development,
community development projects that aren't bringing new wealth
into the state.
11:09:54 AM
MICHAEL CATSI, President, Alaska Partnership for Economic
Development (APED); Executive Director, Southwest Alaska
Municipal Conference (SWAMC), informed the committee that SWAMC
is one of four federally designated economic development
districts in the state. He told the committee that he is
present to discuss the Alaska Forward Initiative. The
aforementioned initiative is an attempt to establish a statewide
economic development strategy for Alaska. Taking off his APED
and SWAMC hats, Mr. Catsi opined that Alaska has been fortunate
in that economic development has just happened in Alaska because
of the state's rich natural resources. Much of the economic
development of the state's resources has happened because
businesses made the effort. He further opined that economic
development happens in Alaska rather than the state taking a
proactive stance to make it happen.
11:11:41 AM
MR. CATSI explained the 12 ARDORs in Alaska joined forces to
leverage the ARDOR program to be more efficient and effective
with the multi-regional and statewide initiatives and programs.
Since the 12 ARDORs work in different regions and have different
emphasis, their efforts are often siloed. There wasn't a lot of
discussion and effort between the ARDORs, rather they were just
charged with making the state's economic development program
more effective. One notion to achieve the aforementioned was to
form an umbrella organization, APED, outside of the ARDOR
program itself. This organization would work closely on multi-
regional statewide initiatives. One of the first things APED
did was review economic development in the state of Alaska as a
whole. He related that APED felt that it was best to first get
an economic strategy going. Therefore, APED reviewed many
different models of economic development strategies throughout
the country. The model chosen to follow was the Prosperity
Partnership model that was based in Puget Sound, Washington.
That model was based on economic development organizations
taking the lead on the strategy, but more so in the management
of the initiative while having the private sector put together
and implement the strategy. He related APED's belief that the
private sector should take the lead. Past efforts of state- or
government-run economic development efforts face obstacles
because the state doesn't really have a good idea as to the
private sector's needs for private sector economic development.
Therefore, the state is in more of a support role while the
private sector takes the lead.
11:14:41 AM
MR. CATSI said that Alaska should have an economic development
strategy for the following three reasons: a strategy clearly
outlines a set of goals and objectives that are being sought; a
strategy develops a roadmap that helps one obtain the goals and
objectives; a strategy also produces a set of performance
measures that allow one to measure the success in reaching the
goals and objectives. Currently, the aforementioned isn't in
place at a statewide level, although they are in place at the
community and regional levels. Mr. Catsi related that APED
wanted to have a vision regarding why the organization was doing
what it was and going where it was going. There was also the
desire to have a clear vision and mission for APED, which is
stated on slides 3 and 4 of the document entitled "The Alaska
Forward Challenge."
11:16:12 AM
MR. CATSI related that when [the consulting team] reviewed
various strategies from around the country there was also review
of the opportunities to fund such a strategy. The Denali
Commission, through its economic development advisory committee,
had a grant opportunity that arose when this [initiative] was
being developed. The APED applied for the grant and was awarded
$500,000 from the Denali Commission to get the strategy
underway. To have any long-term meaningful change in the way
that economic development would happen in the state, the experts
within Alaska and throughout the country should be consulted.
Therefore, the APED issued a national request for proposals
(RFP) for which nine strong proposals were received. Mr. Catsi
highlighted that the RFP recognized that the way things are done
in Alaska is very different than elsewhere, which is why the RFP
required a partner in Alaska. The contract was awarded to IHS
Global Insight, the Economic Competitiveness Group, and the
McDowell Group from Alaska. He related that IHS Global Insight
has incredible scope around the world in terms of data
collection and analysis capabilities. The Economic
Competitiveness Group (ECG) from San Francisco focuses on
strategy development while the McDowell Group will focus on
"ground truthing" everything. He noted that IHS Global Insight
and ECG have worked on other projects together, such as the
Prosperity Partnership Project in Puget Sound.
11:18:43 AM
MR. CATSI opined that it was important for APED to think about
what it was trying to accomplish. In the past, many statewide,
regional, and local initiatives developed a plan full of
recommendations without any emphasis on the recommendations.
Therefore, APED focused on obtaining recommendations as well as
the final product, the implementation strategy. The project was
broken into two phases. Phase I was the information gathering
process during which Alaska's current economic situation was
reviewed. He highlighted the importance of quantifying and
qualifying the state's economy and the capacity of the economic
development organizations in the state. He then reviewed the
chart on slide 8 entitled "The Key Alaska Forward Challenge:
Alaska's comparative stagnation," which illustrates that
essentially the state's gross product has been stagnated since
1990. The chart on slide 9 illustrates the state's volatility
in Alaska's gross state product.
11:21:24 AM
MR. CATSI characterized slide 10 as disturbing since it relates
that Alaska's real per capita gross domestic product has fallen
below that of the U.S. The graph on slide 11 illustrates the
huge decrease in oil capacity. He then turned to slide 12
entitled "Employment -- a source of stability" that has a graph
illustrating consecutive job growth over the past 20 years,
which many view as indicating that the state is doing fine.
However, reviewing some of the information in prior graphs
results in a bit different outlook because it relates that the
state has been growing jobs but not output/income. In fact, the
state has actually been losing income. The aforementioned means
that the state is growing jobs, but they are lower paying jobs
and lower skilled jobs. The state is losing the higher paid
skilled jobs. If such a trend continues, it can be a real
problem for Alaska's future standard of living and quality of
life.
11:23:25 AM
MR. CATSI, referring to slides 12-13 in the packet, pointed out
that although oil production has been declining, there has been
an increase in the price of oil. The aforementioned has
resulted in the state being buffered a bit from the true impacts
of the decline in oil. The volatility of the oil price makes it
difficult to determine what will happen with regard to the price
of oil. Therefore, it becomes difficult to determine where the
state should focus its efforts in this situation. Part of Phase
I is to conduct a cluster analysis. A cluster analysis
identifies those industries and the health of those industry
sectors that have export potential, which is money that comes
into the state. Therefore, there's a difference between
businesses that bring money into the state versus those that
circulate funds that are already in the state. If the clusters
that bring money into the state are built, then businesses that
circulate those funds will grow and the demand for those
businesses will increase. Slides 15-16 specify the 10 clusters
that were found. He reviewed the chart on slide 16 entitled
"Segmenting the Clusters," which illustrates where the
industries are on a statewide scene. The chart highlights the
potential, issues, and possible opportunities with [the
clusters]. He noted that a cluster analysis was also performed
on a regional level. Eight regions have been identified.
11:26:49 AM
REPRESENTATIVE EDGMON inquired as to where the federal
government fits in [slide 16].
MR. CATSI explained that there is a cluster with the federal
government, which is an entity over which the state doesn't have
much control.
REPRESENTATIVE EDGMON said that he mentioned the federal
government because the military is one of the bigger clusters
and the military is tied to federal spending.
11:28:10 AM
MR. CATSI, in response to Co-Chair Herron, explained that the
chart on slide 16 is broken down on the relation to the U.S.
economy. He related that lines on the right have output growth
at a greater rate than the U.S. average. The clusters above the
horizontal line have employment concentrations higher than the
U.S. average.
11:29:19 AM
MR. CATSI returned to his presentation and directed attention to
slide 17 entitled "Fairbanks Clusters." He pointed out the
smaller clusters that were identified as future opportunities
for Alaska. However, he also pointed out that the clusters
cannot be developed unless Alaska has the economic foundation in
place to support those clusters. In some respects, the
infrastructure of a skilled work force, technology capacity,
access to capital, affordable energy, education system that puts
out qualified students, a quality of life, and etcetera is
what's necessary for companies to form and grow. Although there
is a link between community development and economic
development, the two are very different processes. The Alaska
Forward Initiative is focusing on the economic development
aspect. Within economic development, it's important to
understand where Alaska fits in relation to the rest of the U.S.
and the world.
11:31:42 AM
REPRESENTATIVE GARDNER, referring to slide 18 entitled "Seed
Clusters," asked if the specialty solvents cluster is a value-
added from the petroleum industry.
MR. CATSI answered that he would imagine so, but offered to find
out.
11:32:09 AM
MR. CATSI, continuing his presentation, informed the committee
that APED is collecting data and talking to stakeholders in
order to understand the various views and nuances of Alaska's
economic development. He further informed the committee that
the qualitative data is being included with the quantitative
data. The [stakeholder interviews] highlighted the lack of
statewide coordination and leadership with economic development.
Therefore, APED has decided to focus on that part of the
economic development strategy by laying out a framework
regarding how to implement the recommendations while identifying
leadership roles.
11:33:21 AM
MR. CATSI, referring to slide 29 entitled "What do you do in
such a situation?" specified that the focus is on a
private/public partnership. This initiative, he opined, needs
to be led by the private sector in collaboration with the public
sector. As the project moves into Phase II, the data and the
analysis from Phase I will be used to create a foundational
document from which an economic development plan is built and an
implementation strategy is created. The aforementioned will
require industry cluster groups led by the public sector with
support from the state government and other local governments.
Developing ways in which those two groups can work together to
develop a strategy will also be necessary. He recalled earlier
testimony that only two people advise state government on
private sector needs in the state and those two people sit on
the AIDEA board. With regard to a regional economic development
level and a local economic development level, he pointed out
that the ARDORs are good at having public/private partnerships.
He mentioned that APED has 93 members of which approximately
half are local governments, tribal governments, and nonprofits
while the other half is from the private sector.
11:35:04 AM
REPRESENTATIVE GARDNER related that often when there is
discussion of private/public partnerships it's really about
asking for money from the public sector. Therefore, she asked
if APED has proposed legislative changes, more specifically she
inquired as to what APED wants from the public sector.
MR. CATSI responded that APED is seeking a working partnership
that ensures that as the private sector begins to develop the
strategy, there is support from the public sector. Although
that support may be financial, he specified the [intent] for it
to be regulatory support to make sure that there aren't hurdles.
The public and private sector need to work together and move
forward together. In further response to Representative
Gardner, Mr. Catsi related that APED hasn't worked on
identifying whether the hurdles are statutory or regulatory.
11:36:35 AM
MR. CATSI resumed his presentation. He opined that ultimately
the result of the public sector and the private sector working
together is collaboration and trust. If the state has a healthy
private sector, it's likely that the state will have a very
healthy public sector. "I think we need to make sure that
there's skin in the game from both sides so that we build
Alaska's economy for the benefit of everybody," he stated.
Therefore, economic development really needs to be about people
and providing opportunities for future generations. Economic
development is also about building links that create more
interaction between the local companies and the larger companies
from outside. Wealth retention is very important, he said. He
then directed attention to slides 35-36, which relate those
participating in Collaborative Strategy Development in the
nation as well as globally.
11:39:03 AM
MR. CATSI told the committee that the report will also review
the best practices for implementing a strategy. Therefore,
those regions and countries with similar backgrounds and issues
will be reviewed. The Prosperity Partnership model uses a model
in which the majority of the leadership is the private sector.
The aforementioned model took five clusters at a time and
created work groups and an implementation strategy. As the
cluster groups meet the goals and objectives that were set out,
they move on to the next cluster. The Prosperity Partnership
model created a strategy for working through the 10 clusters
such that the most important clusters were worked on first.
11:40:20 AM
MR. CATSI noted that APED's Phase I report is due out January
31, 2010. Although it's a complex report with an aggressive
timeline, the consultants are up to the task. Thus far, the
team has been very positive. He mentioned that APED's planning
team consisted of five ARDOR members and five non-ARDOR members
so as to ensure the project remains a statewide economic
development project that involves economic developers from
around the state. In fact, every penny of the $500,000 received
from the Denali Commission is being put into this initiative and
none is going to the ARDORs, which are putting in a lot of in-
kind time on this project. In closing, he highlighted slide 43,
which identifies the regions of the state, and slide 44, which
specifies the work plan APED has developed to accomplish the
Alaska Forward Initiative.
11:41:51 AM
REPRESENTATIVE EDGMON asked if Mr. Catsi would characterize this
effort as a private sector effort.
MR. CATSI clarified that he would characterize it as a private
sector led effort. Some of the ARDORs are public entities and
some are private nonprofits. The entity, APED, that's leading
this effort is a private nonprofit 501(c)(3).
11:42:24 AM
REPRESENTATIVE EDGMON asked if the thesis being developed in
Phase I supports what Representative Austerman mentioned
regarding having more capacity at the state government level in
order to foster more economic development.
MR. CATSI reminded the committee that Phase I is the analysis
stage whereas Phase II reviews the capacity of the economic
development organizations throughout the state. The belief is
that by the private and public sectors working together the
needs of the private sector will be reviewed while the concerns
on the public sector side will be developed in order that the
capacity for economic development is built.
11:43:33 AM
REPRESENTATIVE AUSTERMAN opined that the [Alaska Forward
Initiative] exists because there is no legislative,
administrative, or governmental effort to do the same thing.
11:44:03 AM
CO-CHAIR HERRON characterized the [Alaska Forward Initiative] as
a performance audit. "We're going to find out if the state, the
legislature, the administration, the people that run this
department ... have the skill set to make sure their employers
are doing a better job ... for their constituents in Alaska," he
surmised.
MR. CATSI agreed that is part of it, but characterized it as a
smaller part of the larger economic development puzzle. The
consultants were asked to perform an analysis regarding the
state's capacity for economic development at all levels. The
effort, he emphasized, will be at the statewide, regional, and
local levels. Without the buy-in from both the private and
public sectors, the process won't work, he said. Mr. Catsi
echoed earlier testimony that it's best for the private sector
to lead this effort because it knows best what it needs to
expand business.
11:46:28 AM
JOHN TORGERSON, Executive Director, Kenai Peninsula Economic
Development District, Inc., thanked Representative Austerman for
bringing this issue forward and opined that [developing a
statewide economic development plan] is for the betterment of
the state. Although APED took the initiative to apply for the
grant from the Denali Commission to begin the strategic plan,
it's only Phase I and there will be opportunities during Phase
II for others to provide funding. He then mentioned that
although [APED] will likely request a legislative appropriation
for Phase II, it has begun a private sector funding initiative
from which it hopes to raise a substantial amount of money to
help fund Phase II.
11:47:45 AM
MR. TORGERSON then informed the committee that the Kenai
Peninsula Economic Development District, Inc., is an ARDOR, the
first that was formed in 1988. Furthermore, the Kenai Peninsula
Economic Development District, Inc., is an EDA recognized
economic development district that operates a business incubator
and manages two revolving loan funds. Mr. Torgerson directed
attention to page 7 of Representative Austerman's briefing paper
entitled "Economic Development in State Government." The seven
possible areas of discussion for the legislature are a good
starting point. In fact, the first discussion area,
restructuring economic development functions within state
government, is much of what has been discussed today. He opined
that the department shouldn't return to its existence as the
Department of Community & Regional Affairs, but rather the
[economic development] functions of government should be housed
in one entity, under AIDEA. The aforementioned would provide
the people on the ground with the funding sources. He
acknowledged that [the economic development function] within the
state government could be located within the Division of
Investments, the Department of Economic Development, or with
tourism under one leadership.
11:49:37 AM
MR. TORGERSON moved on to the second possible area of discussion
for the legislature, consideration of creation of a non-
governmental policy group. He related his understanding that
economic development from the perspective of the private sector
is controlled more by the ARDORs and local government than at
the state level where there are only two private sector
individuals involved in the decision-making process. This
[initiative] provides an opportunity to change the
aforementioned. He acknowledged that in the past there has been
fear that the governor would lose control if [an economic
development organization] isn't dominated by commissioners.
However, that doesn't seem to be of concern with the Permanent
Fund Corporation. Therefore, he opined that the first two areas
of discussion for the legislature could be combined. He moved
on to the third possible area of discussion for the legislature:
establish or reestablish incentive programs. Because Alaska has
a limited tax structure, save for the [oil industry], it's
difficult to provide incentive programs other than cash, grants,
and corporate tax credits. On the local level, local
governments have the ability to provide 50 percent tax relief
for 5 years or further on a new project in the area that doesn't
compete with [other companies]. However, one receives more
time, 10 years, for tax relief for deteriorated property than if
one rebuilds. He characterized the aforementioned as awkward.
11:51:49 AM
MR. TORGERSON acknowledged that the state's loan programs could
be considered an incentive. However, in order to be considered
for one of these loan programs one must be turned down by one to
two banks, depending upon the loan program. In these situations
the risk shifts from the private sector banks to government. He
said he understood that the state doesn't want public money to
compete with private sector money. Still, it remains
problematic when the state tries to take a feasibility study or
business plan that's been turned down by a few banks and massage
it in order to make it look good enough to receive approval.
Mr. Torgerson then turned to the fourth possible area of
discussion for the legislature, budgeting for ARDOR programs.
From his own perspective, he said he didn't want any more money
for strategic planning or things that the ARDORs do. However,
there seems to be a lack of funding for the feasibility studies
or business plans. He emphasized that Alaskans aren't short on
ideas, but rather they are short on methods and funds to bring
the ideas and proposals forward in a project.
11:54:52 AM
MR. TORGERSON, in closing, said that perhaps when the Department
of Community & Regional Affairs was incorporated into the
Department of Economic Development, the economic development
aspect slipped away a bit, he noted. In general, legislators
tend to reward the programs that are successful. He then
related his hope that the committee would consider holding
another hearing after the Phase I study is finished and there is
a clearer view of where the state may be able to focus its
efforts. Perhaps, some priority business clusters will surface
and result in some real successes.
11:56:21 AM
CO-CHAIR HERRON mentioned that U.S. Senator Lisa Murkowski's
staff is in attendance.
11:56:44 AM
CO-CHAIR HERRON, in response to Representative Austerman,
announced that the committee intends on having this group make a
presentation once its report is available.
11:57:25 AM
The committee took an at-ease from 11:57 a.m. to 12:02 p.m.
12:02:50 PM
CO-CHAIR HERRON called the meeting back to order.
12:03:09 PM
SUSAN BELL, Special Staff Assistant, Office of the Governor,
began by noting that she works closely with DCCED and the
Department of Revenue. Ms. Bell related that Governor Parnell
is committed to economic development. Furthermore, Governor
Parnell believes it's appropriate for government to create an
environment that's conducive to private sector investment and
sustainability through enhancing transportation, workforce
development, energy resource development, other natural resource
development, and removing the barriers that inhibit private
sector investment and opportunities. The comments today,
although from various perspectives and initiatives, seem to
relate the same idea. Ms. Bell then turned to the economic
planning effort referred to as LEGACY. LEGACY had a steering
committee, Alaska Diversified Economic Planning Team (ADEPT),
which included a number of commissioners, AIDEA, the university,
and the Office of the Governor. This LEGACY project started in
February 2009 under the Palin Administration and by July 2009
there was a public launch in which 13 work groups were pulled
together. The 13 work groups included industry sectors,
economic sectors, state and federal government, and many other
sectors. The groups were provided background and asked to
respond to questions that have been developed by the steering
committee and staff as well as identify barriers to economic
development at the state and federal levels. The groups were
also asked to suggest changes that would help facilitate
economic development. Concurrently, there were a number of
meetings with community and business leaders that made folks
aware of the LEGACY effort. There was also review of the best
practices of other states and how they could be adapted to be
utilized in Alaska.
12:06:37 PM
MS. BELL noted that this initiative was developed by Governor
Palin, but it wasn't funded. Although there was some
administrative and staff support, there was no budget for this
initiative. Therefore, Ms. Bell commended the staff who worked
on the LEGACY Project. In late September, early October 2009
Governor Parnell began to articulate his goals with the LEGACY
Project. Within the work groups and state government, there was
some confusion regarding the longevity of the process and
whether the focus would be on issues within state government or
statewide. Many of the groups took the assignment seriously,
met frequently, and produced an interim document. However, some
groups didn't meet after the July launch. More importantly,
there was no oil and gas work group. Governor Parnell has said
he would like to create an oil and gas work group and review the
makeup of the existing work groups and consider making them more
robust.
12:08:21 PM
MS. BELL then highlighted the concern about the expectation of a
mid-December delivery date for an economic development plan. In
mid-October, Governor Parnell told ADEPT that he wanted to take
the focus off the mid-December deadline, but preserve and
elevate the input from the private sector. After hearing the
governor's preferences, a couple of options for a new
administrative order were drafted. Ms. Bell said she
anticipated a new administrative order will be released to
clarify the change in LEGACY under the new administration.
Regarding the comments about focusing on implementation, Ms.
Bell related that Governor Parnell would like to hear what
barriers and ideas people have and streamline the process rather
than waiting for a plan delivery.
12:10:09 PM
MS. BELL commended those who worked on LEGACY. Those who worked
on LEGACY were asked to review their notes and interim work
group reports and compile the recommendations, ideas, and
barriers that were identified during the initial effort with
LEGACY. The aforementioned would ensure that the work is not
lost. She noted that both the APED and LEGACY programs were
aware of each other and intended to work together. In fact,
there were some similarities between the process of APED and
LEGACY. However, as they move forward and information is
shared, the discussion of economic development is well poised to
continue.
12:12:14 PM
CO-CHAIR HERRON surmised that per Administrative Order 249 there
is yet another subcabinet group made up mostly of commissioners
or executive directors. He asked if [the members of the
subcabinet group] are active in these planning groups.
MS. BELL related that ADEPT met frequently after the initial
administrative order was established; it met in sort of a
steering committee capacity. The concept was that there would
be the ability to share information with those who were
involved. At this point, it's likely that ADEPT will have an
opportunity to review the work products that have been
developed. The work group communication with the governor will
likely move forward, she said. Governor Parnell is moving
forward in a much more streamlined fashion than what the prior
administration envisioned.
12:14:13 PM
CO-CHAIR HERRON inquired as to why Ms. Bell was interested in
this job with the governor's office.
MS. BELL informed the committee that she previously worked with
the McDowell Group when it worked on the proposal. Ms. Bell
said, "It seems like a really great time when we've got a
governor that is committed to economic development ...."
Furthermore, she characterized it as a great opportunity,
although it's a necessity. She said she couldn't pass up being
involved with this economic development.
12:15:57 PM
CO-CHAIR MUNOZ asked if the governor intends for this effort to
result in recommendations for legislation.
MS. BELL opined that there will be opportunities for legislative
solutions. However, some of the actions will be ones which can
be done internally. She noted that APED made the suggestion
regarding review of the clusters it identified to create more
alignment as the process moves forward. The aforementioned may
result in the work group composition shifting slightly.
12:17:45 PM
CO-CHAIR MUNOZ suggested that perhaps the committee could
request Ms. Bell report to the committee regarding the progress
of the group in order to coordinate efforts.
MS. BELL agreed to do so.
12:18:09 PM
CO-CHAIR HERRON praised Representative Austerman and his staff
for their efforts.
12:19:06 PM
TED LEONARD, Executive Director, Alaska Industrial Development
and Export Authority (AIDEA), Department of Commerce, Community,
& Economic Development, reminded the committee that AIDEA has
reviewed best practices in the state. Through that review,
AIDEA has found that most states with successful economic
development organizations also have a robust and proactive
development finance authority [in the state]. Mr. Leonard then
informed the committee that AIDEA was organized by the
legislature in the late 1960s with the following purpose: "To
promote, develop and advance the general prosperity and economic
welfare of the people of Alaska." Since its inception AIDEA has
grown into a $1 million development authority with over 60
percent of AIDEA's assets in the loan participation program and
economic development infrastructure project. He then
highlighted the major programs AIDEA uses to fulfill its purpose
as follows: loan participation, conduit revenue bond, and
development finance. There are three other small programs, of
which the Small Business Economic Development Loan Fund and the
Rural Development Initiative Fund are run through the Division
of Investments.
12:21:59 PM
MR. LEONARD told the committee that AIDEA's programs are
uniquely structured under the private/public partnership
concept. For example, AIDEA's Loan Participation program allows
AIDEA to participate in loans with banks for up to 90 percent
[of the loan amount] for up to $20 million. The partnership is
one in which the banks will have a customer with a development
project, both AIDEA and the bank will do the underwriting.
Therefore, AIDEA shares the risk of the loan and the bank
services the loan. He pointed out that AIDEA provides the
ability of the banks' customers to obtain long-term financing.
He then turned to the Conduit Revenue Bond program, which allows
businesses and nonprofits access to the tax exempt bond market.
Over the program's life AIDEA has issued over $1.2 billion in
conduit revenue bonds. In fact, through this program AIDEA
recently issued $91 million to the Fairbanks Hospital. The
aforementioned funds allowed the Fairbanks Hospital to
restructure its variable bond debt and also obtain funds to
build a cardiac wing, which is estimated to bring in 40-50 new
jobs into the Fairbanks area. The other major development
program, Development Finance, provides the ability to raise
capital, usually through the bond market, and then invest in and
own infrastructure development projects. Currently, AIDEA owns
six projects, which are listed in AIDEA's annual report. He
highlighted the following two Development Finance projects that
have been very successful. First, the Red Dog Mine Road Port
facilities for which AIDEA owns the road and port facilities,
although Tech-Cominco runs the aforementioned facilities and
pays AIDEA for the use of those facilities. Last year, Tech-
Cominco paid NANA Corporation $212 million in royalties and paid
NANA joint venture companies over $110 million in service fees
for jobs for the mining company. Furthermore, the Red Dog Mine
Road Port project employed over 550 people of which 60 percent
were from the Northwest Arctic Borough. Second, the Ketchikan
Shipyard is owned by AIDEA in partnership with Alaska Shipyard
and Dry Dock Corporation, which recently launched the first ship
from that facility.
12:25:47 PM
MR. LEONARD pointed out that AIDEA's dividend program is also
important to AIDEA. He recalled that the dividend program was
passed in 1997 and every year thereafter AIDEA declared a
dividend in the amount of 20 percent up to 50 percent of the net
asset increase in AIDEA's base. Over the period that this has
been in place, AIDEA has paid the State of Alaska over $251
million in dividends. He characterized the aforementioned as
the state's return on its investment in economic development.
He reminded the committee that AIDEA is performing these
functions for its stakeholders, Alaskans, and therefore great
care is taken to ensure that the state's resources are being
used in the best manner possible.
12:27:06 PM
MR. LEONARD turned to the slide entitled "Other Activities." He
highlighted that AIDEA provides financing for the ARDORs. This
year AIDEA is looking at providing over $700,000 to that group.
He noted that AIDEA has spoken with the administration regarding
how that funding could or should be increased. Furthermore,
AIDEA is developing its relationship with the ARDORs because it
believes it's important to do so in order to be proactive and
understand what regional economic development is occurring and
communicate regarding how AIDEA can help with those projects.
Mr. Leonard then highlighted that AIDEA also partners with other
agencies to provide technical assistance to Alaska businesses.
He related that AIDEA agrees with Representative Austerman
regarding the need to provide tools to businesses and economic
development organizations as well as provide access to capital.
The AIDEA recently completed a partnership with the university
in which AIDEA sponsored one of the classes needed to obtain
certification. Another activity in which AIDEA participates is
its partnership with the Alaska Energy Authority (AEA). By
statute, AIDEA provides employees for AEA and shares overhead
expenses for them, which has brought down the overhead costs for
AIDEA. He mentioned that AIDEA is determining how it can work
through its financing programs to help finance the energy
programs identified through AEA's energy plan.
12:29:07 PM
MR. LEONARD related that over the past year AIDEA has been in
the process of determining how it can be a more proactive
promoter of economic development while increasing the tools in
AIDEA's tool box. As the process started, it became obvious
that AIDEA needed to revise its mission statement. The new
mission statement of AIDEA is as follows: "To promote, develop
and advance economic growth and diversification in Alaska by
providing various means of financing and investment." If AIDEA
desires to expand its role and be more proactive, the emphasis
has to be on promoting economic development, not just
concentrating on the existing tools.
12:30:44 PM
MR. LEONARD explained that AIDEA performed an environmental scan
and spot analysis of Alaska's economy as well as an
environmental analysis regarding how AIDEA is a part of that
process. Several surveys of all the stakeholders were reviewed
while following the best practices of development finance
agencies. As an aside, he mentioned that AIDEA is very involved
with the Council of Development Finance Authority. The major
theme that arose from the stakeholder survey was that although
AIDEA is a respected partner in economic development, it needs
to be more proactive and expand its role in how it promotes
economic development. Through the aforementioned process, AIDEA
reviewed where it is and where it is going and developed a new
strategic vision. The new strategic vision is "to become a more
proactive partner in statewide economic development and a
stronger resource for the state." The AIDEA determined that the
best way to accomplish the aforementioned was to embark on the
following four initiatives. The first initiative is to enhance
the efficiency and effectiveness of AIDEA's programs. As AIDEA
reviewed its best practices, it concluded that AIDEA should
build its expertise regarding how economic development financing
should be done in the state. Furthermore, AIDEA determined that
it should also coordinate and improve the intake and handling of
identified economic opportunities. Therefore, AIDEA will have
to be much more effective and rapid in its in-take process and
continuing process. Mr. Leonard related that the process takes
one to three years. In fact, the large project of the Red Dog
took about a decade to complete.
MR. LEONARD acknowledged that the theme throughout this hearing
has been in regard to how AIDEA coordinates with other agencies,
the private sector, or multi-source financing opportunities.
The prices of the larger infrastructure projects are in the
billions of dollars. Therefore, AIDEA considers these to be
multi-layered funding such that investment may come from a
Native organization, federal agencies/sources, and AIDEA.
12:34:49 PM
MR. LEONARD, in regard to Co-Chair Munoz's earlier question
regarding AIDEA's bonding capacity, informed the committee that
AIDEA has the ability to bond about $400 million in a rolling
year. He noted that last year AIDEA requested an increase in
bonding capacity up to $600 million and the ability to take out
refinancing bonds. The aforementioned legislation was passed by
the House last year and is now in the Senate Finance Committee.
12:35:42 PM
MR. LEONARD then returned to the ways in which AIDEA can become
more efficient and effective. He related the need for AIDEA to
establish better metrics and performance measures to assure
successful economic development financing. The aforementioned
also helps ensure that AIDEA is being effective in the use of
its limited resources. He noted that as a member of the
Government Finance Officers Association Distinguished Budget
Program, he has learned that if something is worth doing, it's
worth measuring. Another initiative is to diversify and grow
assets to support economic development. If the goal is to
expand AIDEA's existing programs and development of financing,
then AIDEA needs to better utilize its assets to ensure that
AIDEA's asset allocation is meeting the needs of the state as
well as Alaska's businesses. Again, one of the main themes is
AIDEA's ability to help businesses and industries access
affordable long-term capital, which AIDEA finds with its ability
to go to the bond market for that capital. He related that
AIDEA's strategy is to partition the more inherently risky
programs, such as start-up capital, so that the bond market or
rating agencies don't drop AIDEA's bond rating, which is
currently an AA- rating.
12:38:12 PM
MR. LEONARD moved on to the third initiative, which is to
improve existing programs and add new financial tools. The goal
is to make AIDEA's existing programs more robust while
fulfilling the needs of businesses in development projects and
commercial development. He reminded the committee that AIDEA's
expertise is in the commercial and project development side.
Furthermore, AIDEA is trying to increase the capacity in its
analysis in order to be a better tool for the legislature and
the governor in terms of reporting on the feasibility of
projects. Having the ability to do quick analysis is very
important to AIDEA, he stated. He then pointed out that the
financial upheaval in the nation impacted AIDEA's ability to
provide loans to businesses such that its rates increased from
the 6.5 percent range up to the 10 percent range and then back
down to the 6.5 percent range in less than a year. Currently,
AIDEA is working with the administration regarding how AIDEA
could have a more flexible statute in terms of setting the rates
in order to ensure that AIDEA provides long-term affordable
credit to businesses. He related that AIDEA is reviewing new
programs that, hopefully, incentivize job growth and investment
in rural areas. The AIDEA is working with the Division of
Investments on the aforementioned because some programs are a
better fit for AIDEA while those programs of a direct loan
nature are a better fit for the Division of Investments.
12:41:00 PM
MR. LEONARD turned the committee's attention to the last
initiative, which is expanding the deployment of economic
development financing. The goal is to increase project
financing to one to three projects a year totaling over $200
million over the next three years. He characterized the
aforementioned as an aggressive goal. At the same time, AIDEA
is leveraging existing projects, such as the Ketchikan Shipyard
expansion. The Ketchikan Shipyard expansion has amounted to
over $77 million over the last two years. A new ship lifter was
completed and will allow the company working the Ketchikan
Shipyard facility to bring in more ships, perform more repairs,
and bring more economic development into the Ketchikan area. He
told the committee that AIDEA has also increased the capacity of
the Skagway Ore terminal by 40 percent over the last year and
continues to work with the Skagway community to expand the port
facilities. Mr. Leonard related his agreement with earlier
statements that AIDEA needs to better work with each of the
organizations in the state as well as the public and private
sectors. Therefore, AIDEA is developing an aggressive outreach
program and adding a new position, a business development
officer, to deal with that. He noted that AIDEA will have
another position, economic development officer, who will be in
charge of taking projects through the in-take system and AIDEA's
system. He likened the aforementioned to a "deal maker" and
noted that the business development officer will coordinate with
the economic development officer in order to ensure that all the
appropriate parties are brought together.
12:43:48 PM
MR. LEONARD noted that AIDEA agrees with the comments of
Representative Austerman, Ms. Harrington, and Mr. Catsi
regarding increasing private sector input. In fact, AIDEA is in
the process of implementing two new committees, a business
advisory committee, and a business technical advisory committee,
to bring in private sector input to ensure that the private
sector's needs are met and AIDEA's tools are effective for the
private sector. In conclusion, Mr. Leonard reiterated that over
the past year AIDEA has been going through this process of
making AIDEA into a more proactive partner in promoting economic
development and a more valuable tool for the governor, the
legislature, and the private sector.
12:45:10 PM
CO-CHAIR HERRON inquired which of AIDEA's six programs is the
most challenging.
MR. LEONARD responded that the loan participation program is
very successful. On the economic development side, most of
AIDEA's projects are very successful and being leveraged to
provide jobs. The challenge, as Mr. Leonard observed, is to
invest more into the aforementioned type of projects. The
challenge, he stated, is bringing more of those projects into
the funnel because AIDEA often looks at 8-10 projects to find 1
that will be economically feasible and provide the economic
development for the state. Therefore, the investment side of
AIDEA is challenging.
12:47:05 PM
REPRESENTATIVE EDGMON commented that the House Special Committee
on Energy has heard a lot of support throughout the state to
have an independent entity that addresses energy, whether it's a
division or department.
MR. LEONARD remarked that such a structural change would have to
be addressed by the legislature and the governor. However, he
pointed out that [having an independent entity that addresses
energy] is the direction [DCCED] is moving. Currently, there is
an executive director for AEA and an executive director for
AIDEA and there are resources that are specifically linked to
the goal of each entity. He noted his agreement with
Representative Edgmon that AEA and AIDEA are complimentary, but
not the same. He added that the two authorities share resources
for overhead, such as for accounting and payroll.
12:49:09 PM
CO-CHAIR HERRON surmised that Representative Austerman's project
will be easy to accomplish. He then requested that Mr. Leonard
work with Representative Austerman and this committee regarding
the possible areas of discussion for the legislature so that
they can be discussed early in the session.
MR. LEONARD related that [AIDEA] is almost ready to present its
strategic plan to the board. Once that presentation is
available, it will be submitted to the committee. He related
that AIDEA looks forward to working with the legislature and the
governor to move improvements forward.
12:51:04 PM
EMIL NOTTI, Commissioner, Department of Commerce, Community, &
Economic Development, acknowledged that there's a lot of concern
and activity and effort in terms of where the state wants to go
with economic development. In the way of background,
Commissioner Notti informed the committee that in 1940 there
were 72,000 people in Alaska, which has grown to 700,000 today.
He then opined that for growth there are the following four
essential elements: communication, trained workforce,
reasonable energy, and transportation.
12:53:05 PM
COMMISSIONER NOTTI posed the question of how Alaska can retain
its wealth. There is the need to close the holes through which
money is leaving Alaska. The aforementioned can be accomplished
through workforce development because if the state had a local
workforce, more money would stay in and circulate in the state.
Therefore, one of the goals in economic development, he opined,
is to achieve full employment. Taking it one step forward, a
trained workforce is necessary and much more desirable than
welfare. The state is spending about $500 million a year in
welfare, mostly in rural Alaska. He characterized welfare as an
anchor on the state.
12:55:45 PM
COMMISSIONER NOTTI identified another goal as having reasonable
energy costs. Many are delving into how the cost of energy can
be reduced. The aforementioned is important because for
projects such as Donlin Creek one of the considerations
regarding whether or not to develop is the cost of energy. The
Donlin Creek project also has a problem with transportation. In
order for Alaska to be competitive in the world market, Alaska
must bring its transportation costs down. He related his
understanding that the individual airlines in Anchorage are
importing fuel to be able to handle the holiday rush, which
causes Alaska's transportation industry to be less competitive.
Therefore, Alaska must review other economic development models,
such as that of California that had timber, minerals,
agriculture, fish, industry, transportation, tourism,
entertainment and yet it is bankrupt. "If we do have a
destination for economic development, it ought to be improving
our quality of life for everyone," he remarked.
12:58:40 PM
CO-CHAIR HERRON inquired as to the existing ratio of economic
development to community development. He also inquired as to
what ratio is desirable.
COMMISSIONER NOTTI informed the committee that DCCED's budget
totals about $195 million, most of which is self-sustaining
through licensing and other fees that are charged. He further
informed the committee that about $35 million is from general
funds, from which the largest part goes toward maintaining the
Division of Banking & Securities, the Division of Insurance, and
the various other divisions. Commissioner Notti stated that a
very small part of DCCED's budget is devoted to economic
development. In fact, the Office of Economic Development didn't
really exist until "we were trying to find places for work for
people."
1:00:34 PM
REPRESENTATIVE EDGMON asked if AIDEA is becoming the nexus for
economic development.
COMMISSIONER NOTTI responded that AIDEA was never meant to be
that, but as a practical matter AIDEA had the budget. By
default, the legacy in DCCED is falling behind due to lack of
staff.
1:02:25 PM
MICHAEL BLACK, Deputy Commissioner, Office of the Commissioner,
Department of Commerce, Community, & Economic Development,
reminded the committee that his emphasis is in community and
rural issues. Prior to the loss of the department's other
deputy commissioner and the removal of the funding, he noted
that he observed what the department was doing in economic
development. The approach that Representative Austerman brings
is important because it's important in terms of how Alaska can
address economic development. He pointed out that economic
development represents a multitude of organizations in the
state, many of which are fragmented and don't fall under any
overarching strategy. Mr. Black noted his appreciation of
Representative Edgmon's question regarding whether AIDEA is the
nexus for economic development. Any entity with stable funding
becomes a nexus, he remarked. He opined that DCCED "cobbled"
together OED from remnants of what was left, such that the
former Division of Tourism is now just an element of OED.
Furthermore, the emphasis on minerals and other industries are
now just a couple of staff. Mr. Black said that although he
believes OED can be a very valuable part to any strategy that is
developed, it doesn't have the resources to do so on its own.
Therefore, he applauded the partnership programs through the
ARDORs and AIDEA. The situation seems to be at a point at which
there is an opportunity now to finally bring things together.
1:05:01 PM
CO-CHAIR HERRON recalled that a very similar discussion occurred
earlier during session. Therefore, he questioned whether DCCED
should be split into two departments as it was in the past or
are the divisions within DCCED strong.
MR. BLACK said he believes that the current department has a
multitude of functions and associated organizations, including
AIDEA and the Alaska Aerospace Development Corporation.
Although recreating the former Department of Community &
Regional Affairs might provide more focus [for community and
regional affairs] as well as the other remnants of economic
development, he opined that focus should be able to be achieved
without creating separate departments. Mr. Black stated his
belief that the answer to Co-Chair Herron's question is to
provide resources and a clear vision and mission of what the
resources are to achieve.
1:07:15 PM
CO-CHAIR HERRON inquired as to whether Mr. Black considered the
possible areas of discussion for the legislature to be
surprising or predictable.
MR. BLACK responded that although none of the possible areas for
discussion" jumped out at him," they were all excellent ideas.
1:07:57 PM
REPRESENTATIVE AUSTERMAN interjected that the steps the
legislature may want to take will surface after more discussion.
He expressed hope that this committee would pick up this issue
and start holding hearings once the session starts. He
acknowledged that DCCED has been working on a model of what
Alaska looks like today and will have some suggestions regarding
how to move forward. Hopefully, the department will return in
early January to discuss the model. He reminded the committee
that APED is already in the process of working on Phase I of its
process and could provide some information in early February.
Furthermore, the governor's office and the LEGACY discussion are
occurring. Moreover, there are a lot of other interested people
with ideas that could be invited to a public hearing to present
testimony. Representative Austerman expressed the hope that by
the halfway point of the session, some of the ideas could begin
to gel.
1:10:59 PM
REPRESENTATIVE AUSTERMAN related his partial commitment to the
private/public sector board similar to what other states have in
order that it oversees everything. Although currently there are
numerous organizations reviewing economic development, there is
no coordination to bring everything together. He suggested
having a private/public sector board with an exempt executive
director that the state would fund, and therefore he/she
wouldn't fall subject to political whims. The aforementioned
could actually achieve better direction and a cohesive working
group. He further suggested that such a group should meet at
least monthly in the first year to address economic development
in Alaska. Although he acknowledged that the governor has
mentioned having an advisory group on economic development,
Representative Austerman had the impression that it might only
meet once a month. Representative Austerman opined that the
state is actually past that point and rather is at the point of
having a working group. In closing, he reiterated the desire to
have this committee start the aforementioned process in January.
1:13:01 PM
CO-CHAIR HERRON committed to doing that. However, he reminded
everyone of his request to Ms. Bell and the commissioner to work
together with himself, Co-Chair Munoz, and Representative
Austerman prior to the new proclamation.
1:13:53 PM
REPRESENTATIVE AUTERMAN invited those interested to contact his
office regarding the large libraries of information online about
economic development.
1:14:20 PM
CO-CHAIR MUNOZ expressed interest in having reports from the
Forward Challenge, AIDEA strategic plan, and the LEGACY project
at the end of January or early February. She also expressed
interest in having input from private industry, from each of the
state's industries regarding removing barriers to private
investment.
1:15:36 PM
REPRESENTATIVE EDGMON, speaking to the energy side, highlighted
that there will be debate regarding the usefulness of having a
separate entity within state government for energy. He
expressed the hope that the topic of energy does not get lost in
these discussions of economic development. Furthermore, he
related that he is struck by the fact that three core
responsibilities of government are housed in one department.
Therefore, the following question comes to mind regarding
whether DCCED is being asked to do more than it is capable of
doing. Representative Edgmon stated that he is leaning in the
direction of returning DCCED to two departments.
1:17:27 PM
REPRESENTATIVE AUSTERMAN pointed out that the private sector has
to invest in itself or it goes out of business. While the State
of Alaska isn't a business, it has the same basic concepts as a
business. Therefore, if the state doesn't invest in itself or
departments aren't funded to perform their work, then it's the
legislature's fault. Legislators need to take a strong look at
what should be done to invest in Alaska to make it grow.
1:18:26 PM
CO-CHAIR HERRON opined that there could be a fear that this is
an evaluation process of the department and that employees at
the bottom will lose their jobs. However, he reminded everyone
that this is a performance audit, and the review will be from
the top not the bottom, as far as departmental employees.
1:19:37 PM
ADJOURNMENT
There being no further business before the committee, the House
Community and Regional Affairs Standing Committee meeting was
adjourned at 1:20 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| AIDEA_HouseC-RA_12-04-09.pdf |
HCRA 12/4/2009 10:00:00 AM |
|
| Alaska Forward Summary HCRA 12.4.09.pptx |
HCRA 12/4/2009 10:00:00 AM |
|
| Economic Development Hearing Doc..pdf |
HCRA 12/4/2009 10:00:00 AM |
Economic Development in State Government |
| OED Only Programs Final 10 15 09.pdf |
HCRA 12/4/2009 10:00:00 AM |
Office of Economic Development |