On Glen Biegel today at 7:05 am ...

I will be on the Glen Biegel Show this morning at the 7:05 am slot. As most of you know, Glen recently moved to the mornings from 6 - 9am. 

Ray Metcalfe, the originator of the SB 21 recall effort, was on the show with Glen last week while I was in Ireland on vacation. I am looking forward to catching up on the discussion.

On at KBYR 750 AM if local or listen on the web by clicking here. Call in with questions to 907-274-5297.

On Glen Biegel Thursday at 7:00 am ...

I will be on the Glen Biegel Show tomorrow (Thursday) morning at the 7:00 am slot.  As most of you know, Glen recently moved to the mornings from 6 - 9am.  I am up early anyway, but I still will have coffee in hand.

This discussion will feature a slight variation on my usual agenda with Glen.  Senator Begich will be joining Glen on Friday and my discussion on Thursday will be more focused than usual on federal resource development issues.  So, maybe some discussion of the future for Alaska OCS development, the recent NPRA management plan and the ongoing CD-5 problems. On at KBYR 750 AM if local or listen on the web by clicking here.  Call in with questions to 907-274-5297.

Arctic Policy| White House releases "National Strategy for the Arctic Region"

The White House yesterday released its "National Strategy for the Arctic Region."  The accompanying press release said that it is the first ever effort by the US Government to address the subject in a comprehensive way and set an overall policy to guide subsequent decisionmaking.  The full strategy is available here.

The strategy is built around three touchstones:

Advance United States Security Interests –We will enable our vessels and aircraft to operate, consistent with international law,through, under, and over the airspace and waters of the Arctic, support lawful commerce, achieve a greater awareness of activity in the region, and intelligently evolve our Arctic infrastructure and capabilities, including ice-capable platforms as needed. U.S. security in the Arctic encompasses a broad spectrum of activities, ranging from those supporting safe commercial and scientific operations to national defense.

Pursue Responsible Arctic Region Stewardship – We will continue to protect the Arctic environment and conserve its resources; establish and institutionalize an integrated Arctic management framework; chart the Arctic region; and employ scientific research and traditional knowledge to increase understanding of the Arctic.

Strengthen International Cooperation – Working through bilateral relationships and multilateral bodies, including the Arctic Council, we will pursue arrangements that advance collective interests, promote shared Arctic state prosperity, protect the Arctic environment, and enhance regional security, and we will work toward U.S. accession to the United Nations Convention on the Law of the Sea (Law of the Sea Convention).

The first mention of oil occurs five pages in.  Policies surrounding oil development are outlined mostly as a subset of the first touchstone -- "Advance US Security Interests."

Provide for Future United States Energy Security –The Arctic region’s energy resources factor into a core component of our national security strategy: energy security. The region holds sizable proved and potential oil and natural gas resources that will likely continue to provide valuable supplies to meet U.S. energy needs. Continuing to responsibly develop Arctic oil and gas resources aligns with the United States “all of the above” approach to developing new domestic energy sources, including renewables, expanding oil and gas production, and increasing efficiency and conservation efforts to reduce our reliance on imported oil and strengthen our nation’s energy security. Within the context of this broader energy security strategy, including our economic, environmental and climate policy objectives, we are committed to working with stakeholders, industry, and other Arctic states to explore the energy resource base, develop and implement best practices, and share experiences to enable the environmentally responsible production of oil and natural gas as well as renewable energy.

Other mentions are in connection with potential oil spill issues --

Together, Arctic nations can responsibly meet new demands – including maintaining open sea lanes for global commerce and scientific research, charting and mapping, providing search-and-rescue services, and developing capabilities to prevent, contain, and respond to oil spills and accidents – by increasing knowledge and integrating Arctic management.   

and the benefits of US ratification of the Law of the Sea Treaty --

The United States is the only Arctic state that is not party to the Convention. Only by joining the Convention can we maximize legal certainty and best secure international recognition of our sovereign rights with respect to the U.S. extended continental shelf in the Arctic and elsewhere, which may hold vast oil, gas, and other resources."

Alaska Oil| Keeping thoughts on Norway's tax increase apples to apples ...

A brief wire story carried in today's Anchorage Daily News is getting some comment this morning -- and I anticipate will continue to do so.  The story reports on a decision announced today by the current Norwegian government to propose a tax increase on the oil industry. See "Norway to shift tax burden more to oil industry," May 5, 2013.

Some will see some relevance in the development to Alaska's continuing debate over oil taxes and attempt to draw parallels.  Three things make clear that is not the case.

• The first is that the increase is being made, in part, to "damp" industry activity. According to the story on the increase in today's Financial Times, "[a]s oil prices stay comfortably over $100 a barrel and energy firms make big discoveries in areas once thought close to depleted, Norwegian oil investment is hitting record highs, extending the sector's outlook several decades into the future."  The increased level of investment has brought about significant increases in costs and shortages in the workforce and supply chain, which in turn have resulted in "huge delays and cost overruns [in new projects], reducing government revenue."  This activity level stems, in part, from a number of benefits the government provides to industry outside of the tax code, which Alaska doesn't, such as co-investment.  The increased tax is an attempt to respond to the overheated activity level, by "increas[ing] the industry's cost-consciousness," and in significant part, simply offsets other benefits the government provides.  Certainly, steps designed to reduce overheated demand and investment levels are not analogous to Alaska's current situation.

• The second is that the increase is part of a broader macroeconomic move to equalize economic activity in the country.  The tax increase is not designed to raise overall government revenue or spending; instead, the tax increase on oil is being offset by a reduced tax on other industries.  As the Financial Times story continues, "[c]ompanies outside the energy sector have been struggling as the oil sector crowds out traditional industries, ramping up wages. Export demand has also been weak because of Europe’s debt problems while a strong currency hurts competitiveness."  The result has been to "split the economy, causing job cuts in traditional industries such as forestry production as record investments offshore pushes wages and costs up nationwide."  The purpose of the shift in taxes is to remedy the split, by providing a moderate reduction in costs to Norway's other industries at the same time as the government moves to dampen heightened activity in the oil sector.  Again, this is not a problem Alaska shares; indeed, Alaska doesn't significantly tax its other sectors and does not face overheated demand in any sector.

• The third is that the increase in part relates to the structure of the oil sector.  The largest oil company operating in Norway is Statoil, which is 67 percent state owned.  As a result, a large part of the tax will simply take dollars that Statoil otherwise would retain and either invest elsewhere in the world or distribute as dividends, and retain them directly in the government.  As I anticipate Statoil's private investors will conclude as they think through the government's move, the effect really is to create a special dividend to the government in the amount of the tax to be paid by Statoil instead of allowing those revenues to flow through as earnings to be shared also with the company's private investors.  The government will then use the revenues to offset the reductions being made in the tax rate applicable to other industries. In other words, a significant portion of the tax is best explained as an internal play designed to direct a bit more of Statoil's earnings through the state to Norway's other industries at a time when they are not doing as well.  Alaska has no similar situation.

While some will jump to different conclusions, this change in rates actually has very little to do with the oil industry, and provides very little in the way of guidance to Alaska.  The tax increase is out of step globally (where recent efforts mostly have been focused on lowering the share of government take), and is explained mostly by the fact that Norway's oil industry has become overheated compared to its other, "mainland" industries.  The increase is much better understood as an effort to restore some balance between those two sectors, and to use the tax code to reduce some of the other benefits the oil industry receives in Norway which have contributed to the overheated nature of the industry.

Finally, it is important to understand that these steps are being made as the current government faces an election this coming September and feels a need to respond to the current state of Norway's other industries.   As the Financial Times story reports, "Polls indicate that [the governing] Labour party will be easily defeated by the centre-right opposition after eight years in office."  As a result, just as with the UK and Alberta tax increases before them, this change in policy may end up being very short-lived.

On Glen Biegel Wednesday at 6:15 am ...

I will be on the Glen Biegel Show Wednesday morning at the 6:15am -- yes, the 6:15am -- slot.  As most of you know, Glen recently moved to the mornings from 6 - 9am.  I am up early anyway, but I still will have coffee in hand.

On the agenda, oil policy, fiscal policy -- maybe even some on the latest UAA controversy (which is as much a fiscal policy story as anything else).  On at KBYR 750 AM if local or listen on the web by clicking  here.  Call in with questions to 907-274-5297.

Short Takes| UAA's Case disappoints ...

The Anchorage Daily News carries a story this morning on the continuing UAA saga.  The headline is "UAA chancellor defends athletic director Cobb."

One of the most interesting pieces of this story came Monday during the Casey Reynolds Show.  There, a caller reported on an earlier meeting with Cobb:

... we had a meeting down in the locker room after all the alumni were up in arms about the whole arena. And Dr. Cobb said, basically along the lines of it doesn't matter how much money this Athletic Department loses, the state is awash in money and we are just going to get a blank check.

The podcast of the show is here; the call starts at the 7:50 mark.

Nothing in Chancellor Case's comments carried in today's article addresses that issue.  Instead, the focus of Case's defense is centered mostly around the performance of the University's sports programs other than hockey.

"What doesn't resonate as well with some hockey people is we're a Division II school and our Division II sports are in the top four percent in the nation. 

"That's something I don't take lightly. That says a lot. I was talking to (Great Northwest Athletic Conference commissioner) Dave Haglund recently, and he told me it was OK to share this: In his experience, Steve is probably the best athletic director in the conference. 

"That's not compelling to our hockey fans, maybe, but it is to me.''

Read more here: http://www.adn.com/2013/04/25/2879738/uaa-chancellor-defends-athletic.html#storylink=cpy

All that may be true, but it is not a good defense of either Cobb, or Case's confidence in him.

As the University's own Institute of Social and Economic Research (ISER) has pointed out repeatedly, Alaska is headed for an economic crisis.

Right now, the state is on a path it can’t sustain. Growing spending and falling revenues are creating a widening fiscal gap. In its 10-year fiscal plan, the state Office of Management and Budget (OMB) projects that spending the [state's current] cash reserves might fill this gap until 2023 ….   

But what happens after 2023?  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.

Maximum Sustainable Yield: FY 2014 Update (ISER, Jan. 2013).

In that environment it is critical that every arm of state government work to minimize costs and maximize contributions.

I have been involved in a number of university fund raising efforts in my life and in my experience, athletics play a key role.  Athletics brings people in the doors, helps to develop a sense of institutional loyalty and commitment, and over time, converts that support to dollars.  Supporters that start with athletics often become supporters of other programs as well.  It is one of the significant front doors through which a university builds strong alumni and other donor support.

Instead of serving that function, UAA's athletics program is now driving potential supporters away, out of the front door.

Whether he realizes it or not, one of Chancellor Case's greatest responsibilities to the institution and the state is to lead the University's fundraising efforts.  When first named to his position, UA system President Patrick Gamble asked a team of highly respected consultants to evaluate the University system and provide recommendations.  One of the areas on which the President asked the team he retained to focus was fundraising (or, what universities prefer to call "institutional advancement").

In the final report (referred to as the "Fisher Report" after the leader of the team), the team had the following to say:   "The Chancellors, in coordination with staff or key volunteers, are crucial to soliciting [major] gifts and providing careful stewardship and attention to this group of donors. ... the Chancellors, with appropriate help from the President, must be in the forefront of this fund raising activity."

Regardless of how the Commissioner of the Great Northwest Athletic Conference (who, after all, effectively is hired by the Athletic Directors) may feel about Dr. Cobb, the litmus test that Chancellor Case should use in evaluating Cobb's performance is whether he is making the contributions to the University that need to be made by an Athletic Director as Alaska heads into its fiscal storm.  Is he bringing alumni and supporters in the front door and helping to strengthen UAA's support and financial outlook.

Undertaking such an assessment is part of the Chancellor's role of "providing careful stewardship" of the University's efforts.

Rationally evaluated in any number of ways (attendance in major arenas, financial health of major events, alumni support) the answer to the question of whether Cobb is performing those tasks at the required level is "no".  Indeed, Cobb is moving UAA in the reverse (and wrong) direction.

I am confident the legislature next year will be evaluating how all of the state's institutions are preparing to deal with reduced budgets and what efforts they are making to maximize contributions from other sources to their bottom lines.  As I have discussed previously on these pages one of the criteria for evaluating the University system will be whether the institutions are doing as well as their peers in attracting contributions from alumni and other supporters.

Chancellor Case has the opportunity to make UAA's position much better by starting out fresh with a new Athletic Director.  Given the history that has built up, Dr. Cobb is never going to return to the starting point, much less help make up the additional ground that UAA requires in preparing to shoulder its share of the institution's costs.

Chancellor Case is wrong, very wrong in putting his confidence in Dr. Cobb. As leaner economic times arrive it is only a matter of time before that becomes apparent.  The only significant question is how much additional ground UAA will lose in the meantime.

Short Takes| The power of a (misleading) headline ...

The Alaska Dispatch posted its story on Conoco Alaska's first quarter 2013 earnings this afternoon.  The headline reads:

ConocoPhillips reports $540 million in first-quarter Alaska profits

Let that soak in for a moment and reflect on your reaction.  And then, compare that with the reaction you would have if the story instead carried the following headline:

 Alaska receives $900 million, ConocoPhillips $540 million on first-quarter Alaska production

As we have written elsewhere on these pages, Alaska and Alaskans face some very challenging decisions in the years ahead as we come to grips with the state's oil and fiscal policies.  What the state is earning from oil is as directly relevant to those discussions, if not more so, than what the state's investors are earning.

Focusing attention only on what others receive, without providing in the same breath also what the state already is receiving, misleads Alaskans.  It fails to provide the additional context that the state already is receiving significantly more.

If the state's news sources are truly interested in educating Alaskans (rather than spinning them), they should provide both numbers at the same time, and indicate the importance of each by including them in the headlines.  The Dispatch's approach of putting a private investor's share in the headline, with the state's buried seven paragraphs down is both disappointing and unhelpful.