Saturday, August 31, 2013

(Coming soon to this space) Morning in Alaska ...

During the debate on Alaska fiscal policy before the House Task Force on Sustainable Education Thursday afternoon, Andrew Halcro asked at one point "where do we see any sunrise on the horizon." His question came at the end of an exchange between he and Rep. Millett; for context, readers can pickup at minute 252:50 of the archived webcast.

My answer to the question ends at 258:00.

This weekend I am taking some time to work on a piece that discusses the sunrise that is Alaska's opportunity.  The title is taken from Reagan's timeless 1984 campaign ad, Morning in America.

There is an opportunity for a Morning in Alaska.  State policy has not reached for it -- and in fact, has moved Alaska away from it -- over the last several years, but the opportunity is there.  I will explain what it takes, and what it is, this coming week.

Note:  The piece ran in the Anchorage Daily News as a "Compass" piece on Sunday, September 8, 2013.  It is available online here.  The ADN gave it a different title when it ran.  I like "Morning in Alaska" better.

The @AlaskaDemocrats are just bizarre ...

It has been an interesting week.  Before the start of it I had been asked, accepted and was looking forward to a speaking engagement with the Anchorage Republican Women's Club ("AWRC") to talk about "key budget issues."  On Monday, Amanda Coyne mentioned in the side column of her blog that I might consider running for Governor.  In the wake of that (even though I had responded to Amanda about running for Governor, "I don't want to do it"), on Wednesday I was advised that the ARWC had decided to "go in a different direction" and was disinviting me from speaking at the event.

Then on Thursday, the @AlaskaDemocrats, apparently thinking they should take advantage of the situation (you can tell that because they used the "#akleg" hashmark in their post, which results in putting it on the twitter feed of a large number of the people in this state that follow such things) resorted to Twitter again (apparently no one took the keys away) with the following:
Alaska Democrats ‏@AlaskaDemocrats29 AugHey we may not always agree about budgets but definitely welcome the debate. Unlike . Thanks

The bizarre thing about that? The @AlaskaDemocrats themselves earlier in the month had ducked a debate with me that they had first suggested in the wake of some previous twitter posts we had exchanged.

That discussion had gone like this:
Alaska Democrats ‏@AlaskaDemocrats8 Aug
@bgkeithley want to do a radio show to talk about this in more depth? Good topic to explore, though we disagree on some points

Brad Keithley ‏@bgkeithley8 Aug
Sure, how about two, one progressive, one conservative @AlaskaDemocrats: want to do a radio show to talk about this in more depth? #akoil
Alaska Democrats ‏@AlaskaDemocrats8 Aug
Exactly. Have a preference on station/time? May be easiest to figure out on the phone 258-3077
Brad Keithley ‏@bgkeithley8 Aug
Am out of town until the 20th, back and flexible after. One is the Casey Reynolds Show (morning KFQD), you pick the progressive.

Brad Keithley ‏@bgkeithley10 Aug
Gave your number to @KCReynoldsShow. Will let him set up if you want to do it. What show from your side.
Brad Keithley ‏@bgkeithley13 Aug
dKCReynoldsShow. Casey asked if we are doing this next week with him. Yes? "Exactly. Have a preference on station/time?"
I never heard from the @AlaskaDemocrats again ... until Thursday, when (to repeat) they said "we may not always agree about #akleg budgets but definitely welcome the debate.  Unlike @akgop."

Uhhhhh, frankly, @AlaskaDemocrats, the "welcoming the debate" part is escaping me. On this issue, at least, it strikes me that there is no difference between you and the GOP.

But in other events, by the end of the week I also had received -- and gladly accepted -- an invitation to be an opening speaker at the Alaska Business Monthly's "Annual Top 49ers Awards Luncheon," had been asked to be, and immediately accepted, an invitation to be a co-host for Rep. Lynn Gattis' (R-Wasilla) reelection campaign kickoff event, and finally had found others who, intentionally or not, ended up debating about state fiscal policy.

Oh yeah, and I had become so concerned about the direction of UAA Athletics that I have decided to become even more deeply involved in attempting to repair that train wreck, albeit from the outside. But that's how things started with state fiscal policy, and we are making progress on that.

The @AlaskaDemocrats, however?  They remain bizarre; no progress there.

Thursday, August 29, 2013

Short Takes| This reminds me of ...

In reading the morning news and commentary, I caught up with Amanda Coyne's piece posted after my bedtime last night (which admittedly is pretty early) on state spending:  "Days of 'spend baby spend' are coming to an end."

I had forgotten about Bill Proxmire and the federally-focused "Golden Fleece Awards."  But once she mentioned the term, it immediately brought back to mind Proxmire's monthly press releases highlighting this or that federal program -- during both Republican and Democrat Administrations -- that seemed to cross the line in terms of wasteful government spending.

It seems Amanda has been dipping into Alaska's online state checkbook for a few examples at the state level.  I encourage her to continue her efforts.

But there was one sentence in her piece that stood out starkly above all others:
"The [state] budget has increased 55 percent since Gov. Sean Parnell took over."
Just wow.

That fact, and Amanda's discussion in her piece of how the Administration's opponents may use it, brought back to mind a quote from the Wall Street Journal from a few years ago that I have used previously on these pages, but bears repeating for a state political party that may have grown somewhat complacent (and based on my recent experience, maybe even a shade or two intolerant) on the subject.

The quote was reflecting on the 2006 election, in which the Republicans lost control of the US House for the first time since gaining it back in 1994:
…the number of earmarks multiplied from nearly 1,500 in 1994 to a little under 14,000 in 2005—before voters ousted what had become the Grand Old Pork Party. It isn’t easy to spend so much money so egregiously that even Nancy Pelosi could campaign as a relative fiscal conservative, but the Tom DeLay Republicans managed the feat in 2006.
As they are purging the party of potential speakers at their events, maybe the Alaska Republican Party leadership also should reflect on that experience a little bit.

And while on that topic I want to add one postscript to my commentary yesterday on being disinvited to speak on budget issues at an upcoming event.  The commentary may have been taken by some as a criticism of the host group.

It wasn't.  During an exchange yesterday following my piece one of the members of the host group had this to say:  "Slow down everybody.  Don't blame the Anchorage Republican women for something beyond their control. They are a great group providing an excellent forum to help educate people."

I agree.  Reading between the lines of that post somewhat, there seem to have been larger forces, coming from elsewhere in town, involved in the disinvitation.  I wish the host group the best on their endeavor and now that I no longer get in free, may even buy a ticket to listen to the other speakers.

Wednesday, August 28, 2013

Short Takes| ... and then, I wasn't

Readers of the main blog site -- -- may recall that there is a box on the right side of the page that lists "Upcoming Engagements."  Over the weekend I updated the list to include an event at which I had been invited to speak by the Anchorage Republican Women's Club.  The event is the first in a three part series the Club is sponsoring entitled "Vision for Victory 2014:  The Big Picture."  I had accepted.

I know I was invited because I was listed on their website as a speaker (in fact, at the time of this posting I still am).  The website said this under the heading "Election Issues:"
Election Issues 
Budget Issues
Brad Keithley, Owner of Keithley Consulting and Founder of Alaskans for a Sustainable Budget, will evaluate the key budget issues. 
Oil and Gas Issues
Kara Moriarty, President of the Alaska Oil and Gas Association, will discuss the pressing issues surrounding oil and gas. 
Ballot Initiatives
Rebecca Logan, General Manager of the Alaska Support Industry Alliance, will brief us on the ballot initiatives on the table for 2014.
This morning, after Amanda Coyne ran a piece Monday in her "Loose Lips" column about an exchange she and I had earlier in the day about rumors that I was running for Governor, I received a call telling me that the Club had "decided to go in a different direction" and I was no longer invited to speak.  (If the website later changes, you can click on the relevant portion of the one that existed at the time of this writing at the picture above).  Those that read Amanda's piece will recall that I responded to her question as follows: "I don't want to do it and remain hopeful the Governor will offer a sustainable budget in December."

I intended to use the opportunity of appearing before the Club to encourage them to support the Governor in doing just that thing.

Interestingly, the call this morning comes also on the heels of an exchange I had earlier in the week with someone that participated in the Republican State Central Committee meeting over the weekend in Fairbanks, passing on that one of the participants in the meeting had been asked -- abruptly -- whether I was behind and/or funding their efforts opposing the adoption of the so-called "Common Core" education standards in Alaska.  Those efforts, which I am not affiliated with in any way (other than, apparently in the minds of some), include challenging the Governor over whether he has been involved in the adoption by the state of those standards.

Is there a pattern?  Who knows.  All that I know is that I was invited to talk about "key budget issues" to the Anchorage Republican Women's Club -- something that is critical to the future of this state, about which I know more than a little, and which others need to understand as well -- and then, I wasn't.  If you  -- including those members of the Club that had told me you were looking forward to the discussion -- want to know what I was going to say, you can catch up with the outline here.

On Casey Reynolds this (August 28) morning ...

I will be on The Casey Reynolds Show this (August 28) morning at the 8:30a segment to discuss Alaska's current fiscal situation, sustainable budgets, the House Task Force on Sustainable Education, which has its initial meetings today and tomorrow, and knowing Casey, deal with Amanda Coyne’s “Loose Lips” column from Monday.

Casey’s show is broadcast locally on KFQD FM 103.7/AM 750 and available on the web here. We will see how it goes.

Tuesday, August 27, 2013

Short Takes| Oh geez, you answer a question and ...

While I haven't always agreed with her conclusions, I like Amanda Coyne; I like her new blog.  I even have promoted it to the readers of these pages ("A New Blog:"), provide a link to her current stories on the "Daily News" portion of these pages (down on the lower right side here) and include them in the mix of Keithley Consulting's daily webpaper.

I never wanted to be the story, however.

Readers this morning will find a blurb on her, otherwise newsworthy and interesting, "Loose Lips" column, reporting on an exchange Amanda and I had yesterday.  Other than for the off-handed use of the words "so called" in front of the phrase "looming fiscal crisis" -- have you read the ISER report?!! -- I can't object much.  I know Amanda is a columnist, I responded to her question (not really thinking it was newsworthy, however) and she reports the response fairly accurately.

Angus King and Lowell Weicker indeed are University of Virginia Law graduates who ran for Governor of their respectives states as fiscal conservative Independents and won.  There is just something in the water at Mr. Jefferson's institution that leads to that sort of thing.

Anyway, just so I have it handy in the event it someday becomes relevant -- and so interested readers (hahaha, assuming there are any) can understand the context -- here is the full exchange:
Amanda Coyne:  hearing that you're running for governor. True? 
Brad Keithley:  If the Governor doesn't bring the budget down to sustainable levels some fiscal conservative is going to do it. Because I talk about the issue often, I suppose my name has become associated with the potential. I don't want to do it and remain hopeful the Governor will offer a sustainable budget in December ... but there is a tradition of Virginia Law School trained lawyers doing that sort of thing. Angus King in Maine, and Lowell Weicker in Connecticut, both UVa Law graduates, ran as independents for Governor and won.

Saturday, August 24, 2013

Short Takes| "Naming names ..."

In a post earlier today on state fiscal policy ("Short Takes| Some Interesting Facts ...") I close by saying that "[s]omeone suggested recently that I should 'sharpen my point, call a spade a spade, get down in the trenches, name names so Alaskans know who is responsible [for excessive state spending] ....'"

In a subsequent response a reader suggested that "[i]f you name of the list is Alaskan citizens who ask state government to pay for everything."

That is a fair point and reminded me of a call I received earlier this week from Mayor Sullivan over a column I wrote last week on these pages complaining, among other things, about "Anchorage Mayor Dan Sullivan's ... efforts to appropropriate state money to build municipally owned tennis courts."

During the call -- which was not intended to compliment the piece -- the Mayor suggested that I should keep in mind going forward that the appropriation request was not made by him, but rather by the Alaska Tennis Association.

Fair enough, but that in turn made me curious about who then is the "Alaska Tennis Association."  The Alaska Tennis Association is run by a Board of Directors, the members of which are available online.

Now that is where things get interesting.  The President of the Alaska Tennis Association during the period when the request was made was none other than Scott Kohlhaas, the Chairman of the Alaska Libertarian Party from 2002 - 2006 and the Libertarian candidate for the Alaska state house in 2006, 2008 and 2010.

The platform of the Alaska Libertarian Party includes the following:  "The only proper role of government in the economic realm is to protect property rights, adjudicate disputes, and provide a legal framework in which voluntary trade is protected. All efforts by government to redistribute wealth, or to control or manage trade, are improper in a free society."

It might be interesting to debate with Mr. Kohlhaas whether using government to redistribute wealth from the state General Fund to the limited population that plays tennis in Anchorage is consistent with that platform.

And the Vice President of ATA during the same period was Ed Hendrickson, who during the day is currently the Senior Vice President and Chief Financial Officer of Alyeska Pipeline Service Company, "seconded" to Alyeska from ConocoPhillips where he previously served as Vice President of ConocoPhillips Denali.

ConocoPhillips, of course, is one of the largest beneficiaries of SB 21, the oil tax bill that will significantly reduce state revenues over the next few years.  It is surprising that one of their officers was part of the effort to ask the legislature to spend over $7 million in state funds on new indoor tennis courts at the same time as the corporation was asking the state for significant reductions elsewhere in state revenue.

No wonder Alaska's state finances are headed for a train wreck.  The very people who should know better and be working hard on avoiding it -- indeed, in some instances say they are working hard on avoiding it -- are among the ones stepping on the accelerator as it nears the cliff.

What possibly will the next generation -- as they face income, sales and property taxes, and even then, significantly reduced levels of state services from those that this generation has provided for itself -- think of this one.

Short Takes| Some interesting facts ...

As I was working on something else this morning I sat down with the state budgets for the last few years and put this together. I thought I would add the hyperlinks so I have the source material handy for future endeavors:
Based on Office of Management and Budget data, over the last decade annual Alaska state general fund spending – operating and capital combined – has nearly tripled, from roughly $2.3 billion in FY 2004 to a now-projected $7.1 billion for FY 2014. Over the same period, the Consumer Price Index (CPI) has only increased roughly 27 percent. 
The escalation has been substantial even when measured only over the last five years, since Governor Parnell took office. Alaska state general fund spending has increased over that period alone by approximately 40 percent, from roughly $5.1 billion in FY 2009, the last budget prepared under Governor Palin, to $7.1 billion for FY 2014. The total spend for FY 2013, the most recently completed year, was $7.8 billion, a 55 percent increase over the last budget prepared under Governor Palin. During the same period the CPI has only increased 6 percent. 
As I have reported on these pages before, earlier this year the University of Alaska – Anchorage’s Institute of Social and Economic Research (ISER) looked at Alaska’s fiscal situation and had this to say: “Right now, the state is on a path it can’t sustain. Growing spending and falling revenues are creating a widening fiscal gap. … Reasonable assumptions about potential new revenue sources suggest we do not have enough cash in reserves to avoid a severe fiscal crunch soon after 2023, and with that fiscal crisis will come an economic crash.” 
That analysis, by the way, was based on projections which assumed the continuation of ACES.   
Alaska is not facing a revenue problem, it is facing a serious and soon, catastrophic spending problem of the Governor and Legislature's own creation. For a supposedly fiscally conservative state, Alaska is careening toward a crisis, not attributable to "federal overreach" or any other Outside force, but entirely created by the state's own inability to control spending.
Someone suggested recently that I should "sharpen my point, call a spade a spade, get down in the trenches, name names so Alaskans know who is responsible and who has to be changed to address the situation."  This is an effort in that direction.  Any reactions?

Saturday, August 17, 2013

Working on my next Alaska Business Monthly piece ...

I am sitting here this morning, working on my October piece for Alaska Business Monthly (the deadlines are in the second month ahead).  When I started it earlier this month the working title of the piece was “Why Alaska needs to reduce state spending (and what happens if it doesn’t).”  As I sit here this morning, however, it is starting to evolve into "Why Alaska needs to reduce state spending (and how to do it)."

Some, including several sitting state legislators and their staffs, recently have told me and others that state spending can't be cut.  Their solution is to hope and pray for a revenue solution, for example, that SB 21 will result in an explosion of new activity resulting in reversing the current decline curve, or for those that support the other side, that ACES will be reinstated and result in stabilizing state revenues.  A few even suggest that LNG sales will come through at netback price levels which will result in significant increased revenues to the state.

As I point out in the first part of the article, all of those are wrong.  Not even the Administration's own numbers during the recent oil tax debate support the fantasy that there is going to be such a strong supply response to SB 21 that revenues are going to rise again sufficiently to offset current spending levels.  As readers of these pages realize, at the beginning of the last recent legislative session the University of Alaska - Anchorage's Institute for Social and Economic Research (which Vic Fisher once headed) looked at where ACES was taking the state (at current spending levels) and concluded "reasonable assumptions about potential new revenue sources suggest we do not have enough cash in reserves to avoid a severe fiscal crunch soon after 2023, and with that fiscal crisis will come an economic crash."

And those thinking that an LNG line is the cavalry coming over the hill to save state spending levels simply don't understand global LNG markets (something I have spent a great deal of my career working on).

But rather than just throw the piece down on the table in October and essentially say, "Alaska, our house is on fire," I have begun spending more and more time thinking about detailed solutions.

One of those I am finding increasingly intriguing is an idea that the Congress adopted when the Republicans returned to control of the House in 2010.  As you will recall, prior to that time Congress passed bill upon bill, approving a seemingly endless parade of  "earmarks," appropriations to specific projects supported by individual members.

Interestingly, Alaska does the same thing.  If you need your memory jogged, think about former Rep. Bill Thomas' efforts to use state funds to subsidize airplane tickets to the Great Alaska Shootout, Sen. Lesil McGuire's efforts to appropriate state money for paving the parking lot of the privately owned Anchorage "Dome," and most recently, Anchorage Mayor Dan Sullivan's (working through Rep. Lindsey Holmes) efforts to appropropriate state money to build municipally owned tennis courts.

After a new Congress was elected in 2010, the Wall Street Journal had this to say about the practice:
As the nearby chart shows [click on the link above if you want to review], the number of earmarks multiplied from nearly 1,500 in 1994 to a little under 14,000 in 2005—before voters ousted what had become the Grand Old Pork Party. It isn't easy to spend so much money so egregiously that even Nancy Pelosi could campaign as a relative fiscal conservative, but the Tom DeLay Republicans managed the feat in 2006. 
... It's true that earmarks make up only 2% to 3% of all federal spending, but that spending is what greases the political skids for passing trillion-dollar-plus budget bills. Members get what they want in return for voting "aye" on what the Administration and Congressional leaders want.
Frankly, I could write the same story (complete with a similar statistic) about today's Alaska legislature.

The Congress subsequently banned earmarks at the beginning of the new Congress in 2011.  While it hasn't solved the federal spending problem alone, it has slowed it down as members increasingly have come to focus on the big picture.  Personally, I am beginning to think it could have the same effect here.  And I have a couple of other ideas in mind as well.

I am looking forward to how this piece turns out.

Friday, August 16, 2013

Short Takes| Best college course, lifetime ...

Those who know me know that sometimes I make lists.  Top 5 concert, lifetime; best vacation, lifetime; Top 10 BBQ joints; best place to stay in Homer ...

The approaching start of the fall semester has jogged my memory about another category -- college courses.  I received a great undergraduate education at the University of Tulsa, and, in my opinion, the best career-preparing education possible at the University of Virginia School of Law.

But the single best college course, lifetime, was one I took last fall, at the University of Alaska - Anchorage. The course was taught by Willie Hensley; the title of the course was "Alaska Policy Frontiers." The syllabus says the course is about this:
"This course will focus on Alaska and its future. It will address major historical eras that shaped Alaska. These eras will provide a backdrop to understand and meet the challenges of creating policies and practical actions which will shape a livable and dynamic Alaska for future generations."
It was that, but also was more, much more.  In many ways, it was Alaska viewed through Willie Hensley's eyes.  And given where he has been, that's a wide ranging and deeply knowledgeable view.

Now, I am not saying that I always agreed with the perspective.  But I have either lived or spent a lot of time in this state for going on 20 years and know a lot about some fairly important things.  Even with that, however, I must say that during those course sessions last fall I learned more about the fundamental drivers of what makes this state tick, and is needed to keep it ticking than in all of the previous 20 (well, then, 19 years) combined.

I bring this up because I received a note from Willie the other day indicating that this coming fall might be one of the last times he teaches the seminar, and am checking my schedule to see if I can take it again.  Even if he covers the exact same subjects and uses the exact same words, it likely still would be the second best college course I have ever taken (second only to the first time).  There is a depth about Alaska covered in the course that bears listening to more than once.

If you are interested as well -- and my guess is that readers of these pages are interested in such things -- the basic information is available on the UAA website.  Go to here, search for "Alaska Policy Frontiers," Public Administration (PADM) Course No. A672, Section 602 (CRN 77892) -- trust me, you will need most if not all of that information, the UAA website is not exactly user friendly -- or if all else fails, Willie's email is

Short Takes| Good lord, now the @AlaskaDemocrats can't even get a press release right ...

Readers of these pages will recall that, for the past couple of weeks, I have been noticing a deteriorated quality in the tweets coming from the @AlaskaDemocrats.  Others have noticed as well.

That is somewhat troubling, of course.  Generally speaking, I believe competition produces the best quality products and believe that extends to politics as well.  In my view, a public is served best by a vibrant, ongoing exchange of competing ideas that forces all sides to come up with their best arguments and policies.  But in order for that to work, both sides have to put their best foot forward and make certain they produce high quality arguments.

Up until yesterday, the @AlaskaDemocrats quality control problem seemed mostly confined to tweets and twitter exchanges.  Those sometimes have an off the cuff, looked at my phone while eating lunch and decided to respond, quality to them and so, a less than stellar argument here or there is understandable.

But press releases should be different.  There, the writer generally is in command of all the words on the page, can do it at his own pace, look up whatever facts he is doubtful about, vet it through others and scrub the words and tone until its just right.  Unlike twitter, there shouldn't be any unforced errors.

In a press release yesterday, however, the @AlaskaDemocrats demonstrated that they are suffering a quality control problem even in that medium.

In a press release entitled "AHCC Slush Fund Masks Size of State Deficit," the @AlaskaDemocrats argued this:
HCC [Alaska Housing Capital Corporation] transfers to the state have hidden the size of Alaska’s state budget deficit by transferring money saved during past budget cycles to fill part of the budget hole created by the Oil Giveaway. By transferring some $269 million for state operations and capital expenditures in 2013, AHCC has been used to reduce the perceived deficit by one-third. In fact, Alaska is in massive deficit spending as a direct result of the Oil Giveaway, and is projected to run billion-dollar deficits next year. Taking into account AHCC transfers in 2013, the actual state budget deficit this year is nearly $1 billion.
The problem?  The argument is just flat out, unarguably and demonstrably wrong.

SB 21 -- the law which the @AlaskaDemocrats have taken to calling the "Oil Giveaway" -- wasn't in effect during FY 2013.  Instead, ACES was.  So if its the oil tax that's responsible, the thing that caused the "budget hole" and produced "the actual state budget deficit this year [of] nearly $1 billion?"  ACES.

Ready.  Aim.  Fire.  Oh darn, I was aiming at my own foot?

Look for this one to come back to haunt the @AlaskaDemocrats again and again and again.  They called their own favored oil tax approach a deficit creator.  I, at least, am going to remember that one.

Monday, August 12, 2013

Short Takes| Someone needs to take the Twitter keys away from the @AlaskaDemocrats until they learn how to drive ...

The @AlaskaDemocrats are tweeting again.  It is clear that they didn't take my prior advice and go hire an economist.  It is going from bad to worse.

This time they are trying to make the case that -- in their prior incarnation as the Bi-Partisan Majority -- they deserve credit because some of the years during the time the majority ruled the Senate, they saved some money.  The problem is they didn't save nearly enough and, soon after saving even the amount they did, have started spending it away.

Understanding Alaska fiscal issues requires first understanding one fundamental point.  The revenue stream that Alaska is receiving today is being used to fund both the current generation and future ones.  That is because, unlike the remainder of the states, Alaska does not use any renewable sources of state revenue -- such as property, sales or income taxes -- to fund state government.  Instead, Alaska relies almost entirely on oil revenues.

As a result, until we find more, rational leaders must assume that the oil revenue stream we are receiving today and forecasting for tomorrow is all that there is going to be.  And unless they want to consign future generations to less revenue than the current generation is taking for itself, the current generation needs to set aside a portion of the current stream in savings for future generations.  To the extent we don't do that, the current generation is stealing from tomorrow's Alaskans, just as surely as most feel the federal government is doing the same by loading up on debt today that tomorrow's Americans will be required to pay.  We are leaving future generations with less revenue on which to operate than we grabbed for ourselves as it was going through our fingers.

Recently, the University of Alaska-Anchorage Institute of Social and Economic Research (ISER) calculated the amount that current Alaskans need to save -- and spend -- if we are to treat future Alaskans fairly.  The key number is $5.5 billion.  If current Alaskans restrain their spending to that level, there will be enough left over to put into savings, so that the income stream available to future Alaskans is the same (adjusted for inflation) as that available to current Alaskans.  In short, if current Alaskans spend no more than $5.5 billion, then future Alaskans will have the same amount for themselves.

As current Alaskans spend more, however, we are leaving future Alaskans with less.  If current Alaskans spend $6 billion instead of $5.5 billion, for example, at some point future Alaskans will have only $5 billion available to spend instead of $5.5 billion.  The higher the current spending levels, the lower the revenue levels available to future Alaskans.  Current Alaskans may have astro-turfed football stadiums to show for it, but not only will future Alaskans not have the money required to maintain the fields, they won't even be able to afford the coaches (or for that matter, teachers).

That is the fundamental point the @AlaskaDemocrats are missing.  They claim that the Bi-Partisan Majority did an excellent job managing state finances, yet it is that very body that approved spending $7.9 billion in the recently completed fiscal year.  That is $2.4 billion (40%) above sustainable levels; in turn, that is any number of fewer teachers, road repairs and covered health costs in 2025 as a result.

Guys (and gals), it isn't enough to "balance" current spending with revenue.  A calculable portion of that revenue needs to be set aside for future generations so that they can have the same amounts available for spending we are providing ourselves.  When you spend it all (achieve a "balanced budget"), you fail future generations.  When you don't save their proportionate share (and you haven't), you fail future generations.

I grew up from a fiscal policy standpoint in Bill Clinton's Arkansas and while Bill Clinton was President.  Say what you want about him on other issues (and I may join you some of the time), but on fiscal issues in both locations he was responsible, future minded and solid thinking.  He took it to heart when James Carville told him "its the economy, stupid."  The @AlaskaDemocrats need to find someone, and fast, that shares that understanding.

Today's tweets ...

@AlaskaDemocrats @arogers907 Revenue and spending grew but revenue outpaced spending, so we saved money. Now we need a balanced approach addressing both.

@bgkeithley #AKfiscal Wrong. Spent above sustainable levels "@AlaskaDemocrats: Revenue and spending grew but ... we saved money."

@AlaskaDemocrats @bgkeithley So balanced budgets aren't "sustainable?" Let's use math, not theology to make budgetary decisions.

@bgkeithley #AKfiscal Good lord, you still haven't read Goldsmith. Take a tweet off and do it @AlaskaDemocrats So balanced budgets aren't "sustainable?"

@AlaskaDemocrats @bgkeithley Read it long before you suggested it. We'll take $15 billion in savings over abstract targets and promises any day.

@bgkeithley #AKfiscal Which explains why a fiscal crisis is coming up fast @AlaskaDemocrats: We'll take [some past] savings over targets and promises

"Targets" are what will save future Alaskans.  Some savings -- less than the proportionate share due future generations -- won't.  Unsustainable spending -- which draws down even the deficient savings that did occur -- won't.  Someone needs to take the Twitter keys away from the @AlaskaDemocrats until they learn how to drive.

Friday, August 9, 2013

Short Takes| Shannyn Moore has left the building ...

Twitter is a an interesting medium.  Users are limited to messages of 140 characters or less, so it places an emphasis on short, pithy (neither of which I am very good at) messages.  But it is a good way to follow certain events.  I followed it closely during the last legislative session, for example, when various legislative beat reporters and others used the medium to keep readers informed of the points being made during various debates, hearings coming up, stories being published and other such events.

Recently, those supporting the repeal of SB 21 -- such as the "Alaska Democrats" and others -- have taken to the medium to hi-lite their spin on various events.  My guess is because the legislative beat reporters use the medium as well, those opposing SB 21 think of the medium as a good way of keeping their spin in front of the reporters.

Yesterday, for example, the "Alaska Democrats" used it to tout a press release they had issued during the day blaming the state budget deficits on "the Parnell/Treadwell Oil Giveaway."  That's wrong on the substance, of course.  SB 21 hasn't even taken effect yet, but the budget deficits have -- under ACES.  In fact, the deficits are the direct result of the record levels of spending started during the so-called "Bi Partisan Majority" era and, for reasons beyond me, that are continuing under the current legislature as well.  But that's a story for other times.

This blurb is about Shannyn Moore.  A few days ago she posted a question -- generally to the world I supposed -- I responded and we engaged in an exchange.  The string went like this:

Shannyn Moore ‏@shannynmoore2 Aug
gov race : Bill Walker/Bill Wielechowski - independent ticket?

Brad Keithley ‏@bgkeithley2 Aug
Parnell's dream, vote doesn't split : gov race : Bill Walker/Bill Wielechowski - independent ticket?

Shannyn Moore ‏@shannynmoore2 Aug
said a guy from Texas...

We are all from someplace, I was born in Illinois, but still, Parnell's dream : said a guy from Texas...

I have never solicited your opinion. I have good reasons.

[BGK Comment: Actually that part is wrong. A few years ago Shannyn's producer called to ask me to appear on her then-TV show to discuss a recent fact-finding trip I and others had made to Norway. I had watched the show before.  I declined the invitation.]

Hahaha, that's ok, I won't charge you for them : I have never solicited your opinion.

Shannyn Moore ‏@shannynmoore2 Aug
and I am from here. I am this place.

And Wielechowski from NJ, French from Mass and Hickel from Kansas. So? : and I am from here.

You are boring. Really boring.

So, ignore me then, like you do others : You are boring. Really boring.

The exchange ended there.

This morning as I was checking in on the latest posts I noticed that Shannyn appeared not to have posted anything recently on the subjects I follow -- Alaska oil, politics, fiscal issues -- which is unusual, so I went to her page to see if that was the case and found that I was no longer "following" her, so that her posts didn't appear in my feed. Thinking, as usual, that I had just clicked the wrong button here or there I clicked on "follow" to pick up her posts again.

That's when I learned what had happened.

"You have been blocked from following this account at the request of the user."  I suppose she took the "ignore me" suggestion a little more literally than I intended.

Oh well, I suppose she concluded I was beyond education ... or maybe it was that my responses were interfering with her storyline.  In any event, Shannyn has left the building; she will be missed ....

Wednesday, August 7, 2013

The @AlaskaDemocrats' talking points need a lot of work ...

As the SB 21 debate matures we should expect both sides to start ramping up their talking points.  I ran into some from the @AlaskaDemocrats over the last few days on twitter.  If those points are indicative of the level of analysis the party intends to put into the effort, this is going to be a low quality debate.

Keep in mind when reading the following string that crude prices averaged in the $40's from 2000 - 2007, when ACES was enacted, and since then have averaged in the $90's, more than double.  Following price, industry activity was slow earlier in the decade, and then started to ramp up in the mid-2000's.  It wasn't until 2009, for example, that the New York Times led with the headline "Oil Industry Sets a Brisk Pace of New Discoveries."

As the following discussion demonstrates, the Alaska Democrats apparently think that the proper method of assessing the success of ACES is by comparing various measures of Alaska activity from the latter half of the decade, once ACES was enacted, against the first half.  Its not.  The proper method is to assess whether Alaska activity kept pace in the latter half of the decade with the increase the industry experienced overall.  It didn't.  As I said in a 2009 commentary on the situation -- the very first post on these pages -- "[t]o put it bluntly, for the past several years, Alaska’s exploration signals to the industry have said 'go elsewhere'.”

At the end of the string, the Alaska Democrats also make the argument that current levels of profitability "are the most accurate measure" of competitiveness.  They aren't.  Current levels of profitability are a scorecard which measure the results of past investments.  The competitiveness of future investments are determined based on forward looking assessments of required new investment levels, anticipated revenues and costs.  Those factors aren't incorporated at all in quarterly or annual profit statements.  Instead, quarterly and annual earnings statements are, in essence, history books.

Clearly the Alaska D's need to add someone actually familiar with oil economics to their team.  That will severely reduce the number of arguments they raise, but will lead to a higher quality debate.  Otherwise, its going to be a long, long year from their side with very little of substance to show for it.

Here is the string:

@AlaskaDemocrats:  Casey Reynolds: "We're spending our nest egg...especially with the oil tax provision we're going to be out of money." Agreed. @KFQD #akleg

@bgkeithley:  Then do AK D's agree to limit spending to $5.5 B? @AlaskaDemocrats: "We're spending our nest egg... Agreed." #akleg #akfiscal

‏@AlaskaDemocrats:  @bgkeithley Legislators will make those kind of specific policy decisions. #Alaska Democrats have a good record of fiscal prudence.

@bgkeithley:  "@AlaskaDemocrats have a good record of #AKfiscal prudence." Comedic interlude? AKDs have voted for the same unsustainable budgets as R's.

@AlaskaDemocrats:  @bgkeithley Credit where credit is due: The ACES era put billions into savings, and we'd be much worse off today but for that.

@bgkeithley:  #AKfiscal AK is worse for ACES; lower production, lower revenue, higher spending @AlaskaDemocrats: Credit where credit is due: The ACES era.

@AlaskaDemocrats:  @bgkeithley Actually TAPS decline slowed under ACES while # of oil companies, oil jobs, and oil capital investment grew.

@bgkeithley:  @AlaskaDemocrats Silly. Valid comparison is v. what would have happened as oil prices rose; AK lost ground v. industry ave. #AKoil

@AlaskaDemocrats:  @bgkeithley How can you say we lost ground when there was more exploration, more companies conducting exploration, more oil jobs...

@AlaskaDemocrats:  @bgkeithley ...and major new areas like Chukchi and CD-5? That's progress, not losing ground. [BGK comment: they apparently forgot the Begich talking points the first time]

@bgkeithley:  #AKoil @AlaskaDemocrats All areas had activity, the question is did Alaska hold its own relative to peers. The answer is no, lost ground.

[@Jordan_E_Engel:  I love tweets by @bgkeithley. Nice to see someone on twitter using real, defensible arguments regarding oil tax and spending in Alaska.]

@AlaskaDemocrats:  @bgkeithley CP's latest financials show we remain competitive as measured by profitability, which is the most accurate measure

@bgkeithley:  @AlaskaDemocrats Current profitability reflects past investments. It has nothing to do with competitiveness for new investments #akoil

Tuesday, August 6, 2013

On The Mike Porcaro Show (Paul Jenkins is guest hosting) today at 5:00 pm ...

I will be joining Paul Jenkins this afternoon at 5:00 pm while he sits in as guest host for The Mike Porcaro Show.  We will be discussing the piece I published yesterday on the main blog -- Alaska Oil|  Is the Governor undermining SB 21 ....  

The gist of that piece is this:
"As a result, rather than supporting the achievement of SB 21′s objectives, due to the excessive spending levels he previously has approved and continues to advocate, the Governor currently is headed down a path of undermining them. ... The effort to increase long-term investment in this state is a two-part battle. The first part, modifying the oil tax, is done. But the Governor can’t declare victory at half time and fail to take the field for the second half. The second half — bringing fiscal policy into alignment with long-term investment — is about to begin. The Governor — or someone — needs to suit up and take the field."
Listen in locally at KENI, 650 AM or on the web here.

Sunday, August 4, 2013

Short Takes| Facts, not conjecture ...

Gregg Erickson is an excellent state budget economist with a long Alaska history, who is retiring and moving out of state.  As he approaches retirement he appeared on a panel during the United States Association of Energy Economists convention, held this past week in Anchorage.

Some of his remarks were made into a story in Friday's Alaska Dispatch ("An Alaska-sized conundrum -- filthy-rich but a state falling into a fiscal hole").  The story then was the subject of various tweets Saturday by, among others, Sen. Hollis French.  Sen. French's tweet reads, "Long time AK economist expects SB 21 will grow state budget deficits: #akleg@alaskadispatch".

Senator French's interpretation of the Erickson's comments comes from the following portion of the Dispatch story:
That downturn [in revenues] may come faster now that the Legislature cut oil-production taxes by hundreds of millions of dollars a year, said Erickson. 
Politicians and the oil industry have promulgated the myth that lower taxes will reverse the oil-production decline, Erickson said. But he believes oil production that has fallen for more than 20 years as the state's monster fields -- Prudhoe Bay and Kuparuk – are tapped will continue falling. 
"It's a collective hallucination to believe that reducing the state's oil revenue by 10 percent would somehow reduce decline," he said. 
"I believe in incentives, and taxes do make a difference," but examples around the world show the benefits to Alaska will be very small, he said.
With all due respect, Mr. Erickson's reputation has been built on his analysis of Alaska's budget and fiscal structure.  I have not read, because I have found none, any extended analyses by him of oil economics.

On the other hand, such analyses were introduced during the recent legislative session by economists who do have extensive backgrounds in oil economics.

As I have written previously on these pages, in the latter stages of the consideration of SB 21 before House Finance, EconOne, the oil economists retained by the Administration, provided a series of comparisons (at p. 13-19) of future revenue streams under ACES and SB 21.  These analyses demonstrated that at all long term price levels between $90 and $120/bbl ($2012), SB 21 produced a greater net present value for the state than ACES, even if SB 21 only resulted in a 2% change in the decline curve and all of the incremental production was treated as "new" production, and thus, taxed at a lower rate.

SB 21 still outdistanced ACES even at higher (and unrealistic) long-term price levels, if the change in the decline curve was only an additional 1% higher.

As Mr. Erickson's quote recognizes, "taxes do make a difference," and the empirical evidence demonstrates that even if the resulting change in production levels is "very small," forecasts of the most likely outcomes show that Alaska is better off under SB 21, than under ACES.  Thus, rather than what he did write, to be accurate Senator French should have tweeted, "Under most likely outcomes, SB 21 will reduce state budget deficits."

Of course, as I have written elsewhere, there will still be deficits under SB 21 nonetheless because of the current Governor's ongoing and disastrous spending plans.  See "Alaska Oil Policy| Missing the Point" (Alaska Business Monthly, July 2013) ("The Governor's proposed solution isn't much better").  But, when analyzed in detail and not off the cuff, the economic outcomes under SB 21 are better than under ACES.

Short Takes| Oil industry trends and another reason why Alaska is being left behind ...

This week's Economist carries one of the best, high level analyses of the oil industry that I have read this summer.  Entitled "Supermajord√§mmerung," the article explains the Economist's reasoning why it believes "[t]he day of the huge integrated international oil company is drawing to a close."

One key fact, incredibly relevant to Alaska but barely on most state policy makers' radar screen is captured by the following:
In the 1950s the seven sisters [the largest private oil companies of the day] controlled some 85% of global reserves. Today over 90% of reserves are under the control of national oil companies (NOCs) which are owned, at least in part, by the governments sitting on the oil in question.
Why has that occurred?  For several reasons, but important among them is the fact that governments have found being directly involved in the industry both produces more wealth and brings a greater focus to the development of the resources they own than completely contracting that role out to third parties, who are focused on pursuing projects that make the most economic sense globally, not necessarily those located in the host government's back yard.

That is not to say that these governments have rushed to the opposite end of the boat and completely displaced private companies from the field.  As we see repeatedly in nations that are just discovering oil and gas reserves, the global best practice today is the development of a government owned entity to partner with, or as I sometimes refer to it elsewhere on these pages, co-invest with, industry in the development of the nation's resources.

That partnering produces benefits for both sides. The government captures what the Economist refers to as the "the technological expertise, project-management skills and global reach of the big international oil companies to produce, refine and sell their oil."  At the same time, done the right way the private side benefits from having the host government as a partner, not an adversary, sharing the same economics and seeing the opportunities and roadblocks in the same way as the companies.

Despite this global trend, however, few policy makers in Alaska recognize the trend or its benefits.  Instead, they remain tied to an outdated, 1950's-era model for the development of government owned resources, arguing that it best preserves "private enterprise," while the very private enterprise it is preserving increasingly focuses its attention -- and investment dollars -- elsewhere, ironically enough, in many instances in regions where the host government has adopted the partnering model.

Finally, before his supporters claim it to be the case, this also is not the model that Bill Walker has in the past, and in his latest incarnation as an "independent," continues to pursue.  What Walker argues for is that the state should become involved in the midstream phase of the business -- owning the pipeline.  

He has not in the past -- and does not now -- argue that the state also should co-invest in the upstream end of the business, where most of the money, and more importantly, the development decisions, are made. Instead, there he argues simply that the state should become a super-regulator, attempting to force the oil companies by lawsuit and regulation to do what is "in Alaska's interest."  Walker has, and continues, to miss the central point by miles.

There are additional reasons why Alaska is being left behind by the oil industry, but in my view this is one of the important ones.  At the rate we are going -- especially at the rate we are spending what wealth we are receiving from the state's resources -- it won't be long before the Economist leads with a story entitled "Alaskad√§mmerung."

Friday, August 2, 2013

Short Takes| Getting down to where the rubber meets the road ...

Yesterday afternoon, Alaska House Education Committee Chair Lynn Gattis announced the Speaker’s appointees to the House Sustainable Education Task Force. The task force was created by passage of House Resolution 8 during the 2013 regular legislative session.

The Task Force is Co-Chaired by Rep. Gattis, R-Wasilla, and Rep. Tammie Wilson, R-North Pole/Fairbanks, Chair of the House Finance Subcommittee on Education & Early Development. Filling the slots created by HR 8, members include Rep. Charisse Millett, Co-Chair House Energy Committee, Andy Baker, NANA member, Jerry Covey and David Nees, Educators, and Andrew Halcro and ... me, Business persons.

As outlined in HR 8, the purpose of the Task Force is, among other things, is to examine "the efficiency and effectiveness of public education delivery in the state, including (1) the ability of the state's public schools to prepare students for various rewarding careers; and (2) all aspects of public education funding in the state."

I applied to serve on the Task Force because it is a key place where the rubber is going to meet the road on state budget issues.  As the readers of these pages will know I have written and spoken extensively over the last few years on state fiscal policy.  My concern, shared by an increasing number, is that the state is heading toward a serious fiscal crisis, brought about by unsustainable state spending levels.  As a report earlier this year by the University of Alaska-Anchorage Institute of Social and Economic Research (ISER) put it, "[r]easonable assumptions about potential new revenue sources suggest we do not have enough cash in reserves to avoid a severe fiscal crunch soon after 2023, and with that fiscal crisis will come an economic crash."

The solution to that challenge is to reduce state spending, now, to sustainable levels.  As the ISER report explains, "What can the state do to avoid a major fiscal and economic crisis? The answer is to save more and restrict the rate of spending growth.  All revenues above the sustainable spending level of $5.5 billion ...would be channeled into savings."  Similar to an individual's 401(k), the savings in turn would create an investment "nest egg" from which revenue can be drawn in future years to sustain state spending when oil revenues are no longer able to do so. 

Education spending currently is the largest consumer of General Fund monies in the state Operating Budget and, even though spending on health and social services is growing at a faster rate, when combined with the University budget education spending will remain so through the end of this decade.  The size and rate of growth in education spending over the last few years has been one of the largest factors contributing to the increase of overall General Fund spending to record and unsustainable levels.  If the state is going to avoid the "economic crash" forecast by ISER, state education spending levels not only have to be stabilized, they have to be reduced.  

Literally, we are at the point where today's spending levels are robbing the state of the ability to pay for even basic education services for tomorrow's generations.

I view this Task Force as being a critical component of the efforts to address the state's fiscal crisis and look forward to participating in its efforts.  We will keep readers updated on its progress on these pages and elsewhere.