Wednesday, June 27, 2012

Kim Skipper for State House

Not otherwise committed this evening?  Please join Mayor Dan Sullivan, Assemblyman Bill Starr, Dan Coffey, Lynn Johnston, Maynard Tapp, Don Winchester, Ken & Myrna Maynard and me at the Sourdough Mining Company after work this evening for a fundraiser for State House Candidate Kim Skipper.  The event runs from 5:30 - 7:30pm.

Friday, June 22, 2012

Understanding State Spending ...

Dr. Steve Cobb, the UAA Athletic Director, was on The Dan Fagin Show yesterday morning to discuss The Great Alaska Shootout airfare ticket promotion.  The program has been the subject of previous commentaries on this page.  The interview, which did not go well for UAA (its never a good idea to get in an argument with the interviewer), is available here (the segment begins shortly after 1:34:00).  The interview also provides an insight into what has gone wrong overall with state spending.

Throughout the discussion, Dr. Cobb argued that those raising issues about the program "just don't understand" -- sometimes he said, "refuse to understand" -- that the Shootout "turns a profit" for the community, which in his view justifies the state subsidy.  By "turn a profit," he appears to mean that, in overall combination, Anchorage hotels, car rentals, restaurants and other business make more in revenue than the Shootout costs to produce.  Certainly, if the University was turning a profit on the Shootout of its own, there wouldn't be a need for a state subsidy.

The fact that portions of the business community "turn a profit" from an event, however, does not justify state funding.  Lots of businesses -- and lots of events -- could turn profits if the state shouldered some of the costs.

That might be acceptable if Alaska had unlimited funds to fund unlimited things in an unlimited number of communities.  But it doesn't.  Ironically, as UAA's own Institute of Social and Economic Research ("ISER") has made clear, state spending now vastly exceeds long-term, sustainable levels.  If cuts are not made now to return state spending to sustainable levels, future Alaskans will suffer either significantly reduced levels of service, or substantially increased taxes at all levels in an effort to stave off the reductions.

If the Shootout indeed "turns an overall profit", then those businesses that are making the profit should have both the incentive and money to invest in its continuation, through sponsorships and other support.  Because those businesses that benefit from it haven't invested enough to sustain the program -- and not enough residents see the Shootout as sufficiently beneficial to sustain it through ticket sales -- the supporters have turned to the state.

In a microcosm, that explains how Alaska has worked itself into the current fiscal morass.  Good people each thinking this program or that is beneficial to the community -- but which the community doesn't sufficiently support -- turn to the state for funding.  With mostly good intentions, they argue that there is a greater good to this or that segment of the community which will result if their program exists.

The next step is where the failure occurs.  Because it is their constituents that are making the ask and other people's money that is involved, at first the legislators being asked to sponsor the funding are inclined to agree.  In most other states, there is usually a constraint on that system because the money which would be used to fund the request comes mostly from current taxpayers, in the form of income, sales or property taxes.  In the aggregate, the legislators thus curb their approval of the requests for fear of taxpayer -- voter -- blowback.

In Alaska, the sense has been that its only the "oil companies' money" that is involved, and that Alaskans are entitled to it anyway because "its our oil."  As a result, increasingly over the last several years there has been very little resistance when a funding request has been made.  That is how the state has ended up in the most recent budget with the "Great Alaska Airline Ticket Spree," paying for paving parking lots at private sports facilities, and paying for astroturf on middle school playgrounds.

As the ISER study points out, however, its not the "oil companies' money" that is being raided to support these funding requests.  Instead, at current state spending levels, its money that future Alaskans require to maintain state goods and services at the same level once the oil runs out.  As is the federal government in another way, current Alaskans are simply enjoying a lavish lifestyle by financing it on the backs of future Alaskans.  For those interested, a deeper dive into these issues is at "A Statute and a Pledge:  A Potential Approach for Addressing Alaska's Coming Fiscal Crisis. "

It is unfortunate for UAA that the $400,000 they are using to finance the The Great Alaska Shootout airfare ticket promotion has become the poster child for this concern.  It simply happen to hit the airwaves at the same time as the issues that ISER raises became more widely understood.  Dr. Cobb and UAA are not bad people seeking to do bad things.  Instead, they are simply one of a large number of Alaskans that have sought the same sort of handout from the state.

But the blowback over current spending levels had to start somewhere, and it has started here.

Tuesday, June 19, 2012

The Great Alaska Airline Ticket Spree, Part II ...

UAA announced yesterday changes to the "Fan Flight Frenzy program" under which the University is providing airfare from 18 rural Alaska communities to Anchorage in connection with the purchase of tickets to the Great Alaska Shootout, UAA's annual Thanksgiving basketball tournament.

The changes have the effect of now charging approximately $103 for the airline portion of the the package; UAA formerly had proposed to provide free airfare for participants willing to pay $127 for game tickets.  The total charge for tickets (and airfare) now is $230.

Put another way, rural Alaskans who view the program as simply a way to obtain discounted airfares to Anchorage for Thanksgiving Break will now pay $230 for the tickets, rather than $127.

The University said that it was making the revisions "to find a solution that addressed the concerns of the public," presumably, among others, the criticism of the program leveled by Dermot Cole of the Fairbanks News-Miner.

In a column written after the revisions were announced, Cole said the revisions were not enough to satisfy the concerns raised by the program.  "While this is an improvement over the plans to give free airline tickets ... it is still a waste of  money.  The program should be halted by UA President Pat Gamble."

That tends to border on quibbling.  UAA previously has said the cost of the program would be "about $400,000."  According to Cole, 230 of the tickets previously had been bought at the lower, $127 price, at a cost to the state of approximately $140/ticket.  Assuming the remainder of the 1500 tickets are purchased at the revised price, the charges will recover approximately 80% of the overall cost of the program, leaving a total net cost to the state of the program of about $80,000.

I agree with Cole that a number of deficiencies remain in the program.  In an extended discussion Sunday, one of the UAA coaches passionately defended the program as providing an opportunity to "transform" the lives of some children from rural Alaska.  That seems something of an overstatement, given that the program is neither limited to children, nor designed to ensure that the participants actually attend the Shootout (Cole has pointed out that many in rural Alaska may view the program simply as a means of acquiring discounted airline tickets to visit Anchorage over the Thanksgiving holiday for other purposes).

Moreover, the touted economic benefits of the program -- UAA's first statement appeared to claim that the program could result in a $2 million addition to the Anchorage economy -- largely are coming at the expense of other, more economically challenged parts of the state.  Some restaurant and diner owners in rural Alaska, for example, have complained that the program could result in lower sales in their areas during the economically important Thanksgiving weekend.  A state subsidized raid by Anchorage on the economies of rural Alaska would seem to make sense only to those with an Anchorage-centric view of the world.

Nonetheless, by reducing the net cost of the program to the state to $80,000, UAA has taken steps to minimize its impact on state spending.  At that level, continued discussion borders on noise.

Which leads to one final comment.  Some readers have asked why a page concerned with Alaska oil and gas issues has spent time on a University and sports-related issue in the first place.  Indeed, the UAA coach commenting Sunday bordered on suggesting that the comments made here were anti-higher education ("If universities operated in your suggest[ed] model they would never have athletics programs, art programs, or music programs.  You certainly understand the costs but you are not appreciating the value."  Parenthetically,  I might add that seems an odd thing to say to one of the University's largest individual donors.)

But the reason that this page has devoted time to the subject is simple.  As this page consistently has made clear, Alaska oil production is in dramatic decline.  One of the reasons for that is the economic environment which has been created by Alaska's high oil tax rates.  Recently, one of the justifications some have given for why those rates cannot be changed is because reductions in the rates would result in sending the state into deficit spending.

Frankly, that is not a justification for refusing to change the tax.  Instead, as discussed elsewhere on these pages and, ironically enough, by another part of UAA, it is a wake up call for the state to stop spending above long-term, sustainable levels.  One way to do that is to eliminate state spending where it is less than efficient.  As even UAA's own Institute of Social and Economic Research ("ISER") has predicted, if current state spending levels are not lowered immediately, they will lead to a crash in state spending in the next decade.  In that light, spending $400,000 so that a few -- very few -- lottery winners from rural Alaska can fly free to Anchorage looks pretty damned ridiculous.

If Alaska -- and that includes the University of Alaska Anchorage and its various departments -- is to have a viable future, it needs a strong oil industry which continues to produce the revenues necessary to fund that future.  In order for that industry to remain strong, among other steps the state's oil tax structure needs to be reformed.  In order to reform that structure, state spending needs to be lowered significantly (using ISER's estimates, the current general fund spending rate needs to be lowered to approximately $5.3 billion annually; this year, the spending rate is $7.6 billion).

In order to lower state spending, even some major programs -- perhaps including some at the University -- are going to need to be eliminated.  Certainly, current marginal spending programs, producing very small, if any, benefits, need to go first.  At $400,000 -- or even at $200,000 -- UAA's "Great Alaska Airline Ticket Spree" was one such program.  As Dermot Cole suggests, at $80,000, it likely still is, but the cost is reduced enough so that its time to move on to other, larger things.  Hopefully, however, UAA will have received the message.

Saturday, June 16, 2012

The Great Alaska Airline Ticket Spree ...

You will recall UAA's recent offer of free air fare from 18 communities throughout the state to Anchorage for Thanksgiving.  That is the offer that many in rural Alaska are viewing simply as way of obtaining round trip tickets for a Thanksgiving vacation to Anchorage for the price of $127.  That is also the offer that some restaurants and diners in rural Alaska -- already dealing with a difficult economy -- view as undermining their traditional Thanksgiving sales.  (The $2 million in promised benefits to Anchorage are simply a state subsidized transfer of spending that otherwise would occur mostly in other parts of the state.)  

It struck me the other day that the program also fails another simple red faced test.  UAA says that it will spend "about $400,000" on the airline tickets.  In return, UAA will sell an additional 1500 tickets at $127/ticket.  So, in order to generate an additional $190,000 in sales, UAA is going to transfer roughly double that, $400,000, in state funds to the airline industry.  If that is what the Legislature intended, they easily could have just cut a check for $400,000 to the state's airline industry and removed the middle man; they didn't need UAA to act as a reappropriator.  But more importantly, future legislators -- and donors -- need to keep in mind that, at least in some instances, UAA apparently actually needs for its own use only half of the funds that are being given to it.

Wednesday, June 13, 2012

Alaska's Break Even Oil Price? It depends ...

Earlier this week ANS oil dropped below $100/barrel and has remained there consistently since.  Given developments generally with respect to oil prices, it is likely that the price will continue to drift lower in the days, weeks and months ahead.  With these developments, some have started talking about what the break even price is this year for the state government budget, with most suggesting the price is $100/barrel.  That is true to a degree, but assumes that none of the following savings accounts included in the budget are funded during the year:   Public Education Future Year Funding, Regional Educational Attendance Area School Fund, Renewable Energy Grant Fund, Education Grants/Performance Scholarships Fund, Mariculture/Charter Fisheries/CQE RLFs, AIDEA Sustainable Energy Development Fund, and neither contribution to the Statutory Budget Reserve.  The break even price to fully fund the budget is $110/barrel.  The break even price to fund all of the savings accounts -- including the recently highly touted AIDEA Sustainable Energy Development Fund -- other than the second contribution to the Statutory Budget Reserve, is $104/barrel.

Tuesday, June 5, 2012

On Glen Biegel this (Tuesday) afternoon ...

... at 4:30p to discuss "Alaska Fiscal Policy|  Where We Have Gone Wrong." We'll see how this goes.  Listen live at 700 AM (KBYR) or online (by clicking on "Listen Live") at The Glen Biegel Show.

Sunday, June 3, 2012

Alaska Oil| A note to the Anchorage School Board ...

... an excellent suggestion from "AK Syrin" ... "Every Alaskan teacher should consider this option for the students of Alaska --"  At the link, Petroleum News makes the following offer:  
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Revenues from oil are responsible for 90% of Alaska state government general fund revenue and just under a third of Alaska jobs.  There is no better place to learn about events affecting Alaska oil -- and thus, Alaska's future -- than Petroleum News.

Friday, June 1, 2012

Alaska Dispatch| Do you think they calculated ...

Mixing news and editorial commentary, a story in yesterday's Alaska Dispatch touted the positive effect, at least in the Dispatch's eyes, of ACES on state employment.  "A new manufacturing directory says Alaska's oil-and-gas workforce expanded 5 percent over the last year to 9,062 employees, a sign that new tax incentives for exploration continue to work some magic." See New Data Suggest Continued Growth of Alaska Oil Jobs, Alaska Dispatch (May 31, 2012). I read the story to see if they calculated -- or even mentioned -- the potential cost to the state of that approach to adding jobs.  Nope.  One approach is to divide the $400 million in credits included in the FY 2013 budget by the number of jobs which the Dispatch implies were added (the story suggests that number is roughly 430 jobs).  That's $930,000 per job.  Wow.  

Understanding Alaska Spending (Part V) ...

... "Stedman spent the bulk of his time in front of the Sitka Chamber of Commerce addressing the state’s capital budget – namely, the money coming to Sitka. Millions will flow into the community from Juneau this year to fund improvements to a baseball field, a new roof for the hospital, some street paving, a diesel generator for electricity and more."  See Stedman: Could Southeast be support center for Arctic?, KCAW (May 31, 2012).

Fairbanks Natural Gas| I have never quite understood ...

... how the Regulatory Commission of Alaska justifies granting Fairbanks Natural Gas a "certificate" (monopoly) to serve large portions of Fairbanks, while at the same time effectively freeing it from retail price regulation.  Dermot Cole, as usual, has a point, see Parnell should push ahead ASAP on local gas distribution system for Fairbanks, Fairbanks News Miner (May 31, 2012) ("If the rates of Fairbanks Natural Gas become subject to regulation by the state, then perhaps we will get a clearer picture of what is in the best interests of the community. Until then the best option for the community is to pursue some form of cooperative structure for a natural gas distribution system in Fairbanks, which means that community and state leaders, including the governor, are in a position to move forward on this now without waiting for GVEA and FNG or anyone else to reach a deal.")

Alaska Resitricting| I like Bob Herron ...

... and am wondering if this the type of collateral damage that has occurred as the R's have worked to retake the Senate through redistricting.   See Redistricting plan divides and conquers Native vote in Southwest Alaska, Alaska Dispatch (May 31, 2012).