Sunday, July 27, 2014

On KBYR tomorrow (Monday) morning ...

I will be on AM 700 KBYR Morning News & Comment with Chris Story again tomorrow (Monday) morning, this time at the 8:15 am segment.
I anticipate we will catch up on last week's SB 21 debate, and, if there is time, we even might start talking about the effect of some of the upcoming elections on Alaska oil and fiscal (i.e., revenue and spending) policy.

If in the area, listen in at AM 700; if outside either click on here, or listen in through the TuneIn app here.

Friday, July 25, 2014

A couple of additional perspectives on the SB 21 debate ...

To finish out the picture -- among others, for reader Greg Kisor who is at work this week and unable to view the video -- here are links to two other, longer news articles discussing the debate.  The first is Alex DeMarban's piece in the Alaska Dispatch News:  "Overflow Anchorage crowd hears robust debate over oil taxes."  

The second is the piece done by what I personally consider the best pure (non-editorial) state politics reporter in Alaska right now (at least she's the one whose pieces I regularly go to if I want the "just the facts" version), Alex Gutierrez of the Alaska Public Radio Network:  "Oil Tax Heavyweights Spar At Packed Debate."  (To complete that picture I consider Amanda Coyne the best "color" reporter and Fairbanks News Miner politics reporter Matt Buxton's "twitter" feed the best short form reporting in the state right now).

Combined with Amanda Coyne's earlier color piece (eighth paragraph down) and KTUU's video report, these pieces provide a fairly accurate overview of the highlights of the debate.

While the pieces largely emphasize different points made during the debate, they both report on one aspect that help further define the audience for those not there.  Toward the end of both pieces they mention the crowd's response -- laughter -- when I gave a serious answer to an audience question of why the Vote No on 1 side was spending so much on advertising.  Combined with Amanda Coyne's earlier observation that the Vote Yes proponents largely relied on "one liners about getting ripped off by the oil companies, and it being our oil," the pieces help to paint the color of what some of the evening was like and why I likened it yesterday to an experience I once had before the Oklahoma Corporation Commission.

As a message I received after the debate from an SB 21 skeptic who advised he had become convinced of the merits and would Vote No said, "I think at the end they were just mad that you guys had the answers that they didn't think you'd have."

One other thing is worth mentioning before I close the book on the debate.  While I seldom read comments following the stories, I did yesterday to get a further sense of how some are thinking about Proposition 1.  While several were interesting, one stood out in particular both because it repeated a sentiment I have heard from others and because of what it says about the "information" some voters are relying on in preparing to vote on the issue.

The comment was in response to the KTUU piece, was from Facebook writer Denise Rader and argued as follows:
The value of Alaska's oil and gas can only increase given the fact that we are facing an ongoing war (13 yrs + now ) and instability in the Middle East. 
Just because the oil companies, their spokesperson, and some elected officials keep repeating the same misinformation using "the sky is falling" scare tactics about loosing jobs etc., doesn't make it true. The sooner Alaskans accept the reality that the oil companies primary concern is to make money for themselves and their shareholders, then maybe common sense will prevail.

Oil and gas are Alaska's non-renewable resources. They shouldn't be depleted without Alaska getting a fair share. Vote Yes, to repeal the giveaway.
The irony?  Unlike Rader's presumably (in her mind) accurate "information" (as opposed to the "oil companies ... misinformation"), the futures markets currently are telling us that oil prices are headed down in the long-term, not up.  As of yesterday -- when she posted the comment -- the futures prices for December of each of the the following years were as follows (despite the current "instability in the Middle East"):

Source:  WTI, Brent (for those unfamiliar with futures prices, these are stated in then-year dollars, i.e., "I commit to deliver to you the contracted for quantities on the stated date for the stated price").  Some reasons for that are suggested by a relatively recent EIA report, including anticipated continued increases in U.S. production to offset anticipated declines elsewhere.

At those lower price levels, SB 21 is likely to produce more revenue to the state, even if the change results in no more production than otherwise would have occurred under ACES.

Some voters' perceptions aside, legislators made an informed decision when they decided to shift the state's tax structure from ACES to SB 21.  As I said at the debate, Alaska's long term economic interests are better protected by SB 21 than ACES.  Before the vote, I hope that Alaskans strive to inform themselves with accurate information, not the "misinformation" some of them are feeding themselves.  If they don't they likely are going to make the wrong choice, even from their own "Its our oil" perspective.

Thursday, July 24, 2014

The SB 21 debate (updated with video, audio and additional discussion) ...

Some reviews are in from the debate last night on Proposition 1 (the proposed repeal of SB 21).  The debate was sponsored by Alaska Common Ground, the Leagues of Women Voters of Anchorage and Alaska, the Anchorage Public Library, the University of Alaska-Anchorage Institute of Social and Economic Research (ISER) and Alaska Integrated Media.

Alaska Common Ground has posted a video of the complete debate on their website.  It is also available by clicking on the link above.  An audio of the debate is available here as part of Alaska Public Radio Network's "Addressing Alaskans" series.

Channel 2 gave what, in my view, was a balanced treatment of the discussion on their 10:00 pm report.   Amanda Coyne's take is included as part of today's "Loose Lips" column.   I know that Alex DeMarban from Alaska Dispatch News, Alex Gutierrez from the Alaska Public Radio Network and Margaret Hobson from national trade source Energy Wire also attended.  I also will post an update here with links to their or any subsequent reporting I come across.

For me, the debate reminded me a lot of an experience I had in a case before the Oklahoma Corporation Commission in the early 1980's.  At the time I was representing industrial natural gas consumers in a hearing that involved setting "allowables" -- production limits -- on natural gas delivered to the utility serving the consumers.  My position was that the allowables should be set in a way that allowed price competition among producers as long as takes did not exceed the maximum efficient rate of flow (MER) from any one source.  The producers argued that the allowables should be set in a way that provided all suppliers with an equal, proportionate share of the market based on the MER's.  The effect of that was to lock in an average price at a level which would make a number of industrial customers non-competitive, collapsing the market further.  The producers didn't believe that the industrial customers were sensitive to price -- just as Gregg Erickson and Sen. Bill Wielechowski argued last night that investment decisions are not sensitive to costs.

The Corporation Commission acted then, as now, as both the agency responsible for regulating utilities (similar to the Regulatory Commission of Alaska) and regulating oil & gas production (similar to the Alaska Oil & Gas Conservation Commission), but in this particular case was acting in its production role, which meant that most of the hearing room was taken up with lawyers representing oil & gas production companies.  Suffice it to say that they were not happy that an "outsider" from the consumer side was crashing their party and suggesting that the Commission do something different (take economics into account in setting allowables) than it had, to their clients' advantage, for as one argued to the Commission, "back to biblical times."

The hearing was a bruising experience, with the producers generally arguing that this was "their" proceeding and at one point one of the oldest and most respected producer lawyers publicly calling me a "Communist" for suggesting that economics should play a role in the Commission's decision-making.  With one exception, a friend I still have all these decades later, I can't recall another person in the hearing room that day being supportive of my arguments -- or even talking to me during breaks. And the Commission, in part not wanting to cause a riot among one of its key constituencies -- the Commissioners were elected and producers were a vital source of campaign contributions -- went the other way on the immediate point as Amanda suggests most of the crowd attending was predisposed to do last night.

But the thing that I recall most about that experience was talking a couple of years later to one of the Commissioners and a few of the producers in the room that day and listening to them, to a person, reflect on the fact that was the day they finally understood the economic realities of the time and how that subsequently changed their behavior -- and Commission and investment decisions -- going forward.

Last night Roger Marks and I argued the economic reality Alaska is facing; as Amanda points out, the other side based most of their positions, in front of a friendly audience, on "one liners about getting ripped off by the oil companies, and it being our oil."

Just as was the case in Oklahoma those many years ago, arguing economic reality was the right thing to do last night.  As one message I received after the debate from someone I respect and is listened to by others said:
I actually have been convinced reading and listening to you ... and a few others that I trust. I was never in favor of ACES, but I wasn't sold on SB 21 either (or HB 110 for that matter). I think you guys did great and have the facts on your side.  [As for the crowd reaction,] I think at the end they were just mad that you guys had the answers that they didn't think you'd have.
Alaskans -- like the Oklahoma producers that day back in the early 1980's -- are not above shooting themselves in the foot.  But I have faith that as many of those in the room last night and others think about the actual economic reality of the situation in which Alaska finds itself, they will come better to understand the choice we face and make the right decision going forward.

Sunday, July 20, 2014

A debate on SB 21 this Wednesday ...

In a piece in yesterday's Alaska Disptach ("Still have questions about the oil tax referendum? You're not alone"), Cliff Groh sets the stage for a debate this upcoming Wednesday evening (July 23) on Proposition 1, the proposal to repeal SB 21.  The debate features Sen. Bill Wielechowski and economist Gregg Erickson on the "Vote Yes" side, and economist Roger Marks and me on the "Vote No" side. Gunnar Knapp, an economist and Director of the University of Alaska's Institute of Social and Economic Research is moderating.

I am looking forward to the discussion, which will provide an increased level of engagement among the panelists.  As Cliff says in his piece, "[t]his forum will differ from a number of others on this issue in that it will focus on getting each side to answer the other side's questions. Audience members will have the opportunity to submit questions of their own."

The forum is co-sponsored by the League of Women Voters of Anchorage, the League of Women Voters of Alaska, the Anchorage Public Library, ISER, and Alaska Integrated Media (the home of KOAN -- Dan Fagan and Glenn Biegel, and KVNT -- Tom Anderson, and the same group that stepped up and sponsored the Senate Republican Debate a few weeks ago when it threatened to implode).

As Cliff concludes, "[t]he old saying is that if you don’t vote, you can’t complain. But if you don’t try to learn the issues you are voting on, you can’t complain that they are confusing." The forum will be held at the Wilda Marston Theatre at Anchorage’s Loussac Library from 7 p.m. to 9 p.m. The event is free and open to the public.

Saturday, July 19, 2014

Another conversation with Chris Story on #SB21 and Alaska oil policy ...

I'm beginning really to like Chris Story, the current host of KBYR 700AM's Morning Program, the News and Talk of Alaska.  I called the interview I did with Chris a couple of weeks ago "the best interview I have done on SB 21 and Alaska's fiscal future."  Yesterday's was its equal.  A podcast of the interview is available here.  The interview begins at 31:35 and continues through to 48:35.

What makes Story different is that he asks on topic open ended questions, provides the guest with the space to answer it without interrupting and then asks the next.  That enables the person being interviewed to answer the question fully.  On a potentially complex topic like oil taxes and fiscal policy, which requires laying a bit of groundwork for some of the answers, Chris's approach is both useful and important.

Yesterday's interview included questions like "who has surprised you the most about the position they have taken on Proposition 1" (answer:  Bill Walker); if SB 21 is retained, "how can Alaskans verify that SB 21 is working" (look for the announcement of investment in new fields); and "is Sarah Palin a potential game changer in the SB 21 debate" (no).

Click here to listen to the podcast (beginning at 31:35) if you are interested.

Wednesday, July 16, 2014

Two reminders of UAA's potential, and failure ...

The random juxtaposition of the upcoming opening of UAA's Alaska Airlines Center, combined with today's announcement of the results of the University of Virginia (UVA) Law School's (my alma mater) recently completed annual giving campaign have caused me to reflect again both on UAA's potential -- and its failure.

The Alaska Airlines Center, which before a naming agreement, started out as the Seawolf Sports Arena, has been built entirely with state funds.  A history of the funding, and those politicians involved, who no doubt will feature prominently and take great credit at its opening, is documented here.  

The Center is an anomaly in the recent history of the construction of such arenas throughout the country. Even among smaller schools, construction of similar arenas elsewhere largely have been funded with at least 50% private giving, if not more.  The University of Virginia's John Paul Jones Arena, for example, was built almost entirely with private funds.

The reason for such a use of private funding is largely three fold.

The first is financial.  Most states have competing demands on public funds.  Because private donors have demonstrated a willingness to contribute to such projects, states have used them as a funding source in order to free up state funds for other uses.  Those in Alaska focused on increased spending for education, for example, may want to keep that in mind in the months and years ahead, and calculate as they drive by the Center how many teachers could have been retained if 50% of the Center's cost -- roughly $54 million -- had been put into education instead of going into the Center.

The second is to serve as a market test.  A number of states have realized that state spending of this nature is susceptible to a market test.  By requiring that a significant portion of the cost be raised from private sources, states have been able to determine whether there is, in fact, a market demand to support such a facility.  Private support for such efforts usually comes largely from those who have something to gain from the construction (hotels, airlines and others such support services), or are proud of the education they received at the institution and want to "give something back."

If there isn't sufficient market support to support at least 50% of the costs, states have either retrenched their plans back to those which the market will support, or scrapped them entirely and concentrated on other (and more supported) uses of the state's funds, such as improving the quality of education provided at the institution in order to increase pride among alumni.  By funding the Center entirely with public funds, Alaska skipped over the market test and, essentially, has imposed the Center on the state whether the market values it or not.  While the community certainly will accept what appears at the outset to be a "free good," in doing so the state has missed the opportunity to ask the important question of whether the market would have valued another use of state funds -- such as retaining teachers, or avoiding the layoffs that both UAF and UAA are now facing -- more.

The third reason to seek private funding for at least a portion of the cost of such projects is to serve as a long-term fundraising tool.  That is where the second event -- the recent announcement of the continued success of my alma mater's annual fundraising effort -- comes in to play.  In the early-1990's, when UVA was outgrowing the then confines of the Law School building, then Dean Robert Scott began a project among alumni and other private donors to raise the necessary funds to undertake a major renovation and expansion.

The Law School had never undertaken anything like that before and more than a few doubted that it could be done.  By the time the effort ended in 2000, however, the Law School had raised over $200 million (at the time the most successful capital campaign in the history of American legal education), fully funding the construction.

How did UVA turn that into a long-term fundraising tool?  Using the enthusiasm, techniques and donor list generated by the initial effort the Law School continued to build on its initial success.  Annual giving continued to grow after the success of the capital campaign and by 2005 reached the level where more than 50% of all living alumni contributed annually to the School.

That has continued since; this year the Law School achieved the ninth year in a row of greater than 50% giving, setting records for both the number (9,172) and percentage (54.4%) of those participating in the annual giving campaign.  The success has spilled over in other ways as well.  In 2012, the Law School completed a second capital campaign that raised more than $170 million, this time largely funding academic, scholarship and other program needs.

UAA's comparable giving percentage to UVA's 50+%?  According to the 2011 Fisher Report commissioned by UA President Patrick Gamble, the comparable alumni giving rate for UAA is 5.9%, not that far distant from where UVA began, before it supercharged its effort with the annual campaign.

So, as UAA opens its new Center this coming month keep these lessons in mind as various politicians and others tell you how great their efforts have been.  UAA had a great potential when it started down the road of engaging in a new capital effort -- if done the right way it could have been done at half the cost to the state and helped provide the platform for efforts to make UAA much more self reliant going forward.

But the politicians and others didn't want to wait and go through the effort.  The state was "awash in money" (to quote then UAA Athletic Director Steve Cobb) and didn't need to subject -- or maybe want to run the risk of subjecting is a better explanation -- the Center to a market test.  It was easier to use "other people's money" (the state's), than raise and give their own.

And so, here we are six years later, with the state in the last two years having run back-to-back the two largest deficits in Alaska's history and drained $6 billion (35%) out of the state's savings accounts -- and with UAA about to open an arena that has been fully (instead of half) funded by the state and with a fundraising program that is still back at the starting gate.

The Center provided UAA with a large opportunity, but instead, measured from what could (and should) have been, is its largest financial failure.  Keep that in mind as Bill Stoltze and Kevin Meyer -- the two legislators receiving the largest share of the credit for securing state funding for the Center -- take the stage.  By not asking the tough questions and relying on state funds to cover all of the costs, maybe it isn't credit they deserve.

Monday, July 7, 2014

Hmmm ... potential topics for KBYR segment tomorrow morning

Am arriving back in Anchorage this afternoon after a fairly extensive travel schedule the past three months and will be hitting the ground running by joining Chris Story tomorrow (Tuesday) morning at the 8:15am segment on KBYR's Morning News and Comment.

I have been thinking about issues that need to be discussed that aren't being elsewhere due to the overhang of the U.S. Senate race.  While the Senate race is fun to talk about, the reality is that once its over all of the fun and national attention will move on to other things and Alaska will be back to facing up to its current problems itself.  Because the upcoming elections are Alaskans' one shot in the next four years to change the state's increasingly concerning downward spiral, we need to be discussing them now.

The top three thoughts so far:
  • Glen Biegel's incredibly weak (and inaccurate) defense of Reinbold's budget votes (Biegel: "Why does paying off previous legislatures false promises count against this legislature?" Answer: Because this legislature made the problem much, much worse than it was when they walked in the door. By enacting back-to-back the two largest deficits in Alaska's history (when they clearly could have stopped themselves from doing so), they sent Alaska's long-term "sustainable budget" level plummeting and didn't even try to hold things level. They became the problem, not (even part of) the solution. 
I am sure I will think of a few more things along the way.  July 4th has been celebrated; its now time to get serious about a few things.

Join in on the air at AM700 or online here.