U.S. Senator Lisa Murkowski, Arctic, Alaska, Dave Harbour PhotoTODAY AT 10 AM EASTERN, The Senate Energy and Natural Resources Committee will hold a hearing to evaluate opportunities for the United States to build on its status as an ​Arctic nation for the betterment of the nation and those who live in the Arctic.

Charlotte Brower, Alaska North Slope Borough Mayor, Arctic Policy, Photo by Dave Harbour

U.S. Senator Lesil McGuire, Alaska Senate, Arctic Policy, Photo by Dave HarbourLisa Murkowski ​(NGP Photo-Upper L) chairs the hearing.  The hearing features North Slope Borough Mayor Charlotte Brower (NGP Photo-L.  Said federal Arctic policy works against Alaska's and America's future and is like painting a mailbox while the house burns down…."); and Alaska State Senator Lesil McGuire (NGP Photo); and Representative Bob Herron (Said Canada is key to the success of Alaska and all of America).  -dh  (View hearing here.)


TransCanada, Energy East Pipeline Map, NEB Intervenors

Today's State Spending Commentary by Dave Harbour


 

CBC News.  A New Anti-Energy Tactic: inundate TransCanada's Energy East pipeline regulatory process with nearly 2,000 requests for intervention?  If so, watch for enviro allies in the US to begin applying this technique throughout the U.S.  -dh  "The National Energy Board has received 1,805 applications to participate in the hearing for TransCanada Corp.'s proposed Energy East Pipeline…."


Alaska State Spending Commentary

by

Dave Harbour

Alaska's huge permanent fund fools everyone into thinking the state has no spending problem–including New York rating agencies that give Alaska a AAA bond rating.  

The New York analysts ignore that Alaska is basically insolvent right now — setting aside the Permanent Fund — when one cancels its estimated fiscal year-end savings of $9 billion with over $9 billion in the state's personnel retirement fund liability.  

Citizens in general just assume, "well, we'll have the permanent fund for a rainy day."  Rating agencies assume "prudent management" going forward when financial management has not been "prudent" for decades.  But our readers are not stupid.  They can envision a day of divisiveness ahead when every public safety and education lobbyist will be fighting retirees and unions and matching federal fund programs and revenue sharing municipalities for the Permanent Fund scraps.  

Yes, the time to control the budget is now, if not long past.  The fiscal cliff ahead comes closer, for every year of imprudent (i.e. deficit spending).  

Unfortunately, we see this independent governor and republican legislature kicking the can down the road once again, with only cosmetic operating budget cuts this year (We hope we are wrong and that courage will abound as necessary cuts are achieved.  Yet the most courageous, right-thinking elected officials are a small minority and their demands for fiscal responsibility seem muted as the legislative leadership tries to keep the ship of state from rocking too much this year.  We can envision many of these "leaders" retiring in the next year or two, hoping their own undeserved retirement checks are the first priority to fund by a permanent fund soon to be under siege.)

We believe odds are that rating agencies will soon be saying, "With its enormous Permanent Fund savings account, Alaska had the ability to weather volatile oil prices–assuming as we did that they would undertake prudent spending practices.  We regret that their lack of prudence now requires us to reevaluate Alaska's credit worthiness."  

Meanwhile, liberals and environmental activists must be rejoicing; the sooner Alaska depletes its savings, the sooner they can happily advocate higher natural resource taxes, exacerbating the death spiral of Alaska's economy and depopulation of the 49th state.

Below we provide readers with the raw data: we report.  You decide.  -dh


1.  Here is Commonwealth North's new Alaska state operating budget study ("…the state operating budget has increased 102% – from $2.2 billion in FY 2004 to $4.4 billion in 2014.")  More here….

2.  Above is the video — along with a link — of Governor Walker's recent presentation to New York rating agency financial analysts representing: Standard & Poor's, Moody's, and Fitch.

3.  Here are the rating agency reports accompanying the ratings they applied to Alaska.  More here….



The State’s Operating Budget: Critical Crossroads, Choices, and Opportunities  Posted: 04 Mar 2015 

Over recent years the state operating budget has increased 102% – from $2.2 billion in FY 2004 to $4.4 billion in 2014. In Commonwealth North's study on the Long Term Economic Sustainability for the State of Alaska (January 2013) they noted that the current level of spending is unsustainable and it's imperative that the state implement a long-term fiscal plan, which will require spending restraints. Fiscal discussions have primarily focused on the revenue side of the state's ledger and on capital project spending. Minimal public attention or discussion has been given to the recurring cost drivers of other state spending.

As a way to find solutions to the budget problems, Commonwealth North enlisted the help of its Fiscal Policy Study Group. The study group is co-chaired by CWN board members Eric Wohlforth and Cheryl Frasca and the group was asked to produce a study that aims to:

  • Increase the understanding of cost drivers of the operating budget over the last ten years and the forecasted impact over the next ten years.
  • Understand the impact and nature of formula-driven programs and the latitude for change.
  • Identify the effectiveness of state programs through a review of its performance measure framework in terms of results delivered and resources required.

More than 6 months of discussion and research allowed the group to produce a report that gives targeted suggestions to evaluate and reduce spending in the state’s operating budget. It is important to evaluate spending before addressing revenue because Alaskans will want to know that the state is being fiscally responsible before being asked/required to contribute to the state’s revenue. The recommendations from the report are below.

  • Immediately get Medicaid reforms underway to ensure the state can continue to provide services to those most in need. All formula-driven programs must be reviewed in terms of policy goals, results being achieved and cost effectiveness.
  • Administration, unions re-open negotiations to identify short and long-term savings in personnel and benefits costs.
  • Ensure all current revenue is available to fund highest priorities by placing all state revenue in the general fund unless external legal restrictions.
  • Undertake in-depth review of programs that examines effectiveness and appropriateness and engage citizens in these reviews. Report results to citizens and use data to inform budget decision-making.
  • Governor establish citizen-led commission to undertake such a review.
  • Establish a process similar to BRAC to implement package of recommendations that will be necessary to re-size state programs.
  • Governor and Legislature co-sponsor series of dialogues in which citizens better understand the challenge and through which they provide input on the choices they believe should be made.

Budget practices and process recommendations- Governor

Governor’s budget development

  • Citizen panels provide input into Governor’s proposed budget
  • Governor moves up budget submission to November 15 to give Legislature more time

Budget practices and process recommendations- Legislature

  • Revenue limit
    • Establish limit on savings used in any one year- provides additional pressure for spending reductions and prolongs availability of savings
    • Deposit all savings into statutory budget reserve- removes ¾ vote requirement to access Constitutional Budget Reserve
  • Create Joint Ways & Means committee
  • Establish revenue limit by defining, through resolution, amount of savings and other revenues available to fund next budget
  • Review revenue forecasting for reliability
  • Return to Constitution’s 120-day session
  • Increase interim work on budget
  • Special session(s) devoted to budget work if necessary
  • Increase time for budget work
  • Implement contingency plan for mid-year savings when significant drop in revenue

Each of these recommendations involves political obstacles and requires deliberative, thoughtful actions to ensure economic stability. Commonwealth North presented this study to public at an luncheon on February 25 and delivered the report to the Governor and the Legislature on the same day. Read the full report and presentation given by Eric Wohlforth and Cheryl Frasca.  


Rating Ag

ency Letters and Ratings

State Announcement: March 3, 2015 JUNEAU –Governor Bill Walker and Department of Revenue Commissioner Randall Hoffbeck today announced that the State of Alaska has received three separate AAA bond ratings from Moody’s Investor’s Service, Standard & Poor’s and Fitch Ratings. The announcements come after the bond rating agencies met in February with Governor Walker, Commissioner Hoffbeck and staff members of Departments of Natural Resources and Revenue. The meetings addressed growing concerns about Alaska’s declining oil revenue.

“This is excellent news,” Governor Walker said. “Three separate agencies have each given Alaska a triple-A bond rating, which will provide the state with unparalleled access to funding for future capital projects. I look forward to the opportunities this news will provide us in the years to come.”

A rating of AAA is the highest grade assigned by credit rating agencies. It is given to entities with an exceptional degree of credit worthiness, with little risk of loan default. As a result, Alaska will receive some of the lowest interest rates available when issuing or refinancing its bonds, saving the state millions of dollars in the coming years.

“Developing Alaska’s natural gas resources is one of the top priorities of this administration,” said Governor Walker. “Securing these bond ratings will help see such projects to fruition by attracting potential investors and allowing Alaska to get the biggest bang for its buck. I also want to thank past leaders, who had the wisdom to create large reserve funds—without which we could not have secured these coveted ratings.”

On March 10, the state is scheduled to sell its Series 2015A $162.7 million general obligation bond anticipation note to refinance its Series 2014A bond anticipation notes. In addition, on March 26 the state is scheduled to sell approximately $100 million of its Series 2015B general obligation bonds to refinance its Series 2009A general obligation bonds, saving the state an estimated $9 million in future interest costs.

Download Moody's rating here

Download the Fitch rating here

Read the S&P letter here

Read the S&P report here

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