The Weekly Top 3
The Weekly Top 3
The Weekly Top 3 (2.17.2025)
Welcome to The Weekly Top 3 — our look at the top 3 things on our mind here at Alaskans for Sustainable Budgets — for the week of February 17, 2025.
This week, our top 3 issues are these: 1) we discuss the needed conversation about Alaska’s fiscal situation that the Senate Majority and Senator Yundt from the minority have started (2:08); 2) we explain why the Permanent Fund's failed investment in Peter Pan Seafoods is only the tip of the iceberg of the conversation we should be having about the Fund's management and operation (18:16); and 3) we explain why the board of the Alaska Gasline Development Corporation is rapidly losing its credibility (37:59).
The Weekly Top 3 is a regular weekly segment on The Michael Dukes Show. The Show broadcasts on Facebook and YouTubeLive as well as via streaming audio from the Show’s website weekdays from 6–8am. We join Michael weekly in the first hour of Tuesday’s show, from 6:25–7am, for a discussion between the two of us about our three issues.
Hi, this is Brad Keithley, managing Director of Alaskans for Sustainable Budgets. Welcome to the weekly top three the top three things on our mind here at Alaskans for Sustainable Budgets for the week of February 17th 2025. The weekly top three is a regular segment on the Michael Duke Show. The show broadcasts on both Facebook Live and YouTube Live as well as via streaming audio from the show's website. Weekdays from 6 to 8 am. I join Michael weekly in the first hour of Tuesday's show from 6.10 to 7 am for a discussion between the two of us about our three issues. We post the podcast of our discussion following the show on the Alaskans for Sustainable Budgets Facebook, youtube, soundcloud, spotify and Substack pages, also on the Alaskans for Sustainable Budgets website, as well as the projects page on national blog site mediumcom, as well as the projects page on national blog site mediumcom. You can find past episodes of the weekly top three also at the same locations. Keep in mind that, in addition to these podcasts during the week, you can also follow and participate in the discussion with us of these and other issues affecting Alaska's fiscal and economic condition by following us on the Alaskans for Sustainable Budgets Facebook page and through our posts on Twitter.
Speaker 1:This week. Our top three issues are these First, we discuss the needed fiscal discussion that the Senate Majority and Senator Yount from the minority have started. Second, we explain why the Permanent Funds failed. Investment in Peter Pan Seafoods is only the tip of the iceberg of the conversation we should be having about the fund's management and operation. And third, we explain how the board of the Alaska Gas Line Development Corporation is rapidly losing all credibility. And now let's join Michael.
Speaker 2:So let's get started. Today we're going to talk about three big topics. Number one is the revenues. The Senate is starting to talk about it. I mean, they've kind of, and Rob Yunt got the conversation started, although he immediately took some slings and arrows from the conservative, fiscally conservative right on this. So let's talk about it.
Speaker 1:Well, I'm going to I'll go to the end and then and then sort of back up done a great job and I've become a bigger fan of Rob Yunt as a result of him stepping up to address more equitable, lower impact revenues. I mean, does anybody want revenues? Probably not. But if we're going to have revenues and that's the situation the state's in, like it or not, whether there is an education bill at all or not, the state's in a deficit situation. As the alleged finance analysis said, even before considering HB 69, even before considering any of the additional spending bills that have been piled on this session, the state's in a deficit, even at 75-25 or 25-75 PFD. So I think Rob is to be commended for facing up to reality, not living in the fantasy land where spending cuts only are going to solve this someday. We've been going down that road since 2017 or since 2019. When the governor tried it Couldn't even get 16 in the legislature to back him up on that, and the governor hasn't tried it again because he doesn't think he can do it. So I think Rob's done a great job. But that's sort of the end of the story.
Speaker 1:Let me go back to the beginning. Last Tuesday was sort of a big day for fiscal policy. The day started at least my day started with, you know, the usual Tuesday segment on here, but when I got off and started looking at what the papers were saying, there was an op-ed in there from Larry Persily. The headline was Alaskans need to decide what's more important adequate school funding or a big PFD, and I took that as sort of the beginning of the drive, or maybe the middle of the drive, to wipe out the PFD as a way of paying for increased school funding. Persily, as he's always done, made it just a binary choice Either it's increased spending on this end, which a lot of people support for various reasons, or the PFD on the other end, and that's it. That's the only choice. Tuesday's got better, though, in the context of how we're going to face up to these problems that we've got ourselves into.
Speaker 1:Tuesday got better with the Senate majority press conference, and it was refreshing, in a sense, that they were talking in terms of reality, that Lyman Hoffman, who is the co-chair of Senate Finance for the operating budget this year, was talking in terms of reality. This is what he had to say, as reported by the ADN we haven't addressed revenue for decades, said Lyman Hoffman, a Bethel Democrat, told reporters. I think it's high time the legislature looks at raising news revenues if we want to accomplish the many things that we want to do. If not, I don't see a clear path forward to balancing not only this year's budget but next year's budget. And Hoffman went on to say that one of the things we're going to look at is oil taxes. He mentioned specifically the Hillcorp loophole, which is about a hundred million dollar loophole, and the credits that are credits, uh, that are used to reduce oil tax obligations, sliding scale credits as as two, uh two places there, uh, they're going to be looking at this.
Speaker 1:The house did an interesting thing, um, in response to to Hoffman's conversation, the House said in response, andy Josephson, chair of the operating budget, house Finance, told reporters that the 21 members of the House's majority caucus really haven't sat down and gotten really into what we would find acceptable in terms of revenues. We're not interested in severance tax reform, so that's sort of off the table. It's interesting in the sense of what it didn't say. It didn't say anything about corporate taxes, which is where the Hillcorp loophole. Is it focused on severance taxes In severance taxes? The House's position on not addressing severance taxes seem to be the price that the Democrats and independents paid to get Chuck Kopp on board and Louise Stutes. Part of the terms and conditions of them coming on board was the then coming House majority wouldn't take up severance taxes. So they've got themselves in a bit of a quandary, but the Senate looks like it's ready to address it, and I think it's a good thing. I mean, look, let's be real, as Rob Yount is. Let's be real.
Speaker 1:The reality is that spending has continued on, continued to increase. Yes, everybody would like to take spending down. F. Everybody would like to take spending down. Fiscal conservatives would like to take spending down, but it hasn't happened. It didn't happen in 2019. It hasn't happened since. It's not going to happen this session.
Speaker 1:No one's talking about deep spending cuts, and so the question becomes what's the most equitable, what's the lowest impact revenue source to use to pay for the spending? And? And PFD cuts ate it. Pfd cuts have the largest adverse impact on the overall economy and they are by far the cost list to the majority of Alaska families, are hugely regressive and hit middle and lower income Alaska families far higher than than they hit the top 20%. Don't take anything from non-residents. Don't take anything from um, from uh, uh, the old companies to pay for additional spending. So there are by far much more equitable revenue sources and it's encouraging to me, frankly, that the Senate majority at least is talking about some of them uh, not all of them. I mean Stephen said he wasn't interested. He didn't think the majority was interested in sales or income taxes. So we've still got a long way to go, but not totally closing the door to more equitable revenue sources. Rob Young had started out earlier by introducing SB 92, which closes the Hillcorp loophole and the Hillcorp loophole for those who haven't caught up.
Speaker 2:You keep saying loophole. I just love it. It's a tax structure that they've taken advantage of. I don't know if it's a loophole, but I understand.
Speaker 1:It is a loophole, michael. I mean here's Alaska. I mean people like to talk about CNS corps. Let's talk about it in terms of the way that it really structures out. Alaska has a tax code, a corporate tax code, for oil companies. It is built on the general corporate tax code but it is separate. The way it's designed is separate for oil companies. Every oil company pays it. Every of the major oil companies pay it. Bp paid it before they sold to Hillcorp.
Speaker 1:What Hillcorp did was come in and slide through an exemption or an exception to the general corporate tax, which turns into an exception to the petroleum tax, and is the only major petroleum company in the state not contributing to the overall petroleum corporate tax. That's a loophole. That's a tax loophole. If we were talking about federal tax policy, you had nine panelists up here or 10 panelists up here talking about federal tax policy. All 10 of them would talk about it as a loophole. So it's a loophole. It's an exception to the general rule of the petroleum corporate tax and Hillcorp's taking advantage of it, since they acquired BP's properties. And Rob, I think, straightforwardly said look, all companies ought to be taxed the same. All companies in the same situation ought to be taxed the same. So we're going to close that loophole and we're going to subject Hillcorp not to any additional tax over and above beyond what the other companies are paying, but we're going to subject Hillcorp to the tax they're paying.
Speaker 1:The challenge, I mean and I think Rob's to be committed for doing that, the challenge of it is, according to the fiscal note that came out over the weekend, it raises $126 million. This is against a budget deficit of a billion and a half. It raises $126 million in FY27, $121 million in FY28, $118 million in FY29. And it starts going down. From that sort of following what, what some anticipate would be Hill corpse, a decline curve. Hill corpse, a production decline curve. So it's not, it's it's. It doesn't close by in, in, by any stretch of the imagination. It doesn't close, uh, the deficits that we're facing facing, but it does. It is a, it is a piece of what's needed to close those deficits equitably.
Speaker 2:So I think Rob's to be commended for that, yeah, and I know immediately he faced a lot of there was some hostility. There was an article in must read that immediately called him out for it. Was he really a conservative? Was he really not? And I just I found the tone of the article to be a little ridiculous because we need to talk about it and I agree with the equitability thing as far as that goes, and especially on a severance tax on a finite resource, it should all be the same. I'm not arguing that. I just I had to chuckle because they just took advantage of a structure that was already in place and now somebody's talking about closing it.
Speaker 2:That's what happens when you discover a uh, when you discover a caveat in the, in the law that you could take advantage of. Eventually somebody will say, hey, that's uh, that's not right, and they'll try to fix it. Now whether it'll go anywhere, I don't know. We are going to have a Rob Yunt on the program this week to discuss this further. Um and uh, we'll see. We'll see where it goes from there. Um. Final thoughts on this Go ahead.
Speaker 1:Well, I, I I object to people saying that Rob's not fiscally conservative because he's proposed a tax. Look, we've got taxes. That's what PFD cuts are they are. They are, you know, a diversion of income. If Randy wants to quibble over words, they are a diversion of income away from middle and lower income, largely from middle and lower income Alaska families. We have taxes Once you're at that point and we have deficits, huge deficits. Once you're at that point, the question is no longer if there's revenues, the question is what's the most equitable, lowest impact revenues you can have, lowest impact on the overall economy, and certainly closing the Hillcorp loophole is a piece of that.
Speaker 2:I mean, look, I understand that. I just, you know, people do ask about the loophole. This is not something that Hillcorp put in there or did it. They just took advantage of it. And as a business, and if I could retain $100 million a year in income that I didn't have to give up just due to the structure of my business, I'd probably do that, I'd probably bank that as well. But it's just something that when the corporate tax code for the petroleum taxes put together, s-corps were not really a thing and so it was a little bit of a different. You know, they weren't as popular. Today they're wildly popular. So it's just a little bit of a different. Uh, it's a little bit of a different thing.
Speaker 1:Yeah, and S-Corps S-Corps, generally speaking, I uh I don't have a problem with at all. I mean the, the. The thing about S-Corps, what the S-Corps do, is that they they allow a pass through of the income. They don't tax it at the corporate level, so you don't have double taxation. They allow the income to drop down to the personal level and you take what otherwise would be corporate income. If you have an S-Corp, you take it at the personal level and from a federal standpoint that's not really considered a loophole because you pick up the tax revenue at the personal level. The individual who owns the S-Corp or the individuals who own the S-Corp pick it up at the personal level. The, the, the individual who owns the S corp or the individuals who own the S corp, uh, pick it up at the personal level. The, the.
Speaker 1:The thing in Alaska is we don't have a personal income tax and so it's not picked up at the personal level. Instead of dropping through, dropping through and being, you know, dropping through the corporate level and then being picked up at the personal level, it just continues on dropping and it drops to the, to the individual's bottom line, and and so it's. That's the. That's the issue with it in Alaska. We're just not picking it up any place, it just completely, it just completely drops out and and yeah, hillcorp didn't create it, it was created, it was created back there. But but at the federal level, 99% of the loopholes that exist aren't created by those who take advantage of them. They're created by someone else and everybody sort of rushes in. Once you see it, you sort of rush in and take advantage of it.
Speaker 1:I will say one other thing about this loophole, michael, it was okay, maybe sort of fine, to defend it Uh, uh, prior to last, uh, last session, when Hillcorp, you know, threatened to cut off the Cook Inlet, threatened to stop making uh, investments in the Cook Inlet if anybody touched their loophole. And, and that's when the loophole became, you know, became a weapon. They weaponized it against Alaskans, against Cook Inlet gas consumers, yeah, and you know, whatever sympathy some should have had for Hillcorp should have dissipated at that point, right, and we should be trying to get them on a level playing field. So I commend Rob.
Speaker 1:I mean, I know, I know, probably, you know, no doubt took a lot of guts to put that bill in his first bill as a new freshman. But I commend Rob for doing it. Because, again, folks, it's not whether, it's not whether we're going to have revenue, it's not whether we're going to have taxes, it's what kind of tax we're going to have. And when you were looking at it that way, the question is what's the lowest impact, most equitable approach? Right, and Rob certainly identified a piece of that.
Speaker 2:Yeah, I mean look, anthony says it the only two options are. If the only two options are catastrophic budget failure versus implementation of a tax to keep us alive, not sure it makes you not a conservative to decide budget seppuku is a bad idea, and that's exactly it. Um, I also agree with bradley who says as a business owner myself, I pay very little in taxes because of the way the tax laws are written. I use the system to my advantage. That's what businesses do and I'm not criticizing Hillcorp. Like I said, I think I would have done the same thing Now if they start to weaponize it and call for other things. That's kind of a different kettle of fish and as an owner of a resource, I want to get maximum yield for my finite, non-renewable resource. So I also want to see that fixed. No, I'm not blaming Hillcorp, but it also makes sense to close it if we can get more for our own. It's our resource, we own it. It's us. We're the owners, we're the guys in the Permian who are telling the oil companies you're going to pay me for that or else kind of thing. That's how it works.
Speaker 2:Brad Keithley, alaskans for Sustainable Budgets. Our guest, the weekly top three, number two, this was a little shocking when I read this yesterday, looking at what's going on, and it's the story of Peter Pan no, not the guy who flits around in tights Peter Pan Seafoods and the Permanent Fund, and it is an example of what is going on and what is wrong with the permanent fund and why we're. I mean we've got problems and this is a prime example of it. Hit me with this, brad.
Speaker 1:So this is the story. If readers or if listeners haven't seen it, you can find it on the Anchorage Daily News and probably other websites. I think it's also on the Beacon. The headline is how a risky state at least in the news, the headline is how a risky state investment in seafood cost alaskans millions and left a fishing town in crisis, and it's it's discussing a one of the investments that got made.
Speaker 1:During the period that theent Fund Board set aside a portion of its investments, a portion of the $70 billion, $60 billion $90 billion, take your pick on any given day set aside a portion of its capital for investment in state projects, the in-state program, and they set aside 200 million in total. Of that, 29 million got invested in this, uh, in this company, uh, peter Pan, uh, uh, seafoods, uh, that uh went belly up, and so the entire 29 million that the state invested in it, the permanent fund invested in it. Um, seems to, you know, it seems to be non nonrecoupable uh, and seems to be lost. And it's a. It's a great story. Nat uh partnered with uh propublica and developed a really great story, uh, with respect to this whole episode and who was involved, and you know it sort of reads like a spy thriller or something uh in in terms of the way they put it together. But the bottom line is that is, the permanent fund board had this program that was ill-conceived at the time. You and I talked about it at the time, complained about it at the time, outlined the threats we thought it presented at the time, and, lo and behold, it had some of those and it's and and come back to haunt the permanent fund board, um, and the $200 million investment program set aside for state investments has been closed down, got closed down before this, uh, but it's been closed down. And so this is sort of a sort of a a narrow, narrow uh story in terms of uh, in terms of what's going on, but it reflects badly on the permanent fund. But here's the deal. It pales in comparison to some of the other stuff that's going on, and I'm going to come back to a discussion that we had in a previous segment that I think we need to come back to often. Keep in mind Peter Pan's $29 million.
Speaker 1:The permanent fund publishes a lot of information about itself and I think that's good. It gets high marks from me, at least in terms of transparency. One of the things it publishes is how much in management fees it pays. The permanent fund is a highly managed, highly active fund in the nomenclature that these sorts of funds have. Highly active in the sense that it's managed very actively by the permanent fund staff, permanent fund board staff that decides on investments and makes investments, particularly the private equity market. That's compared to a passive fund, passive fund that, just you know, puts all of its money or a lot of its money in S&P 500, you know indices and lets those indices, lets the people who are running the indices, make the investment decisions and rides on the benefit of the indices. Frankly, that's how I invest my money. I invest my money in indices, but the permanent fund does very little of that. They like to be active and they like to get in there and actively manage their opportunities.
Speaker 1:The problem with that, or the challenge with that, is it costs a hell of a lot to do that. Keep in mind Peter Pan is $29 million. Keep in mind the big story of the big, the big scandal here about Peter Pan is $29 million. And for the rolling 12 month period, um, uh, uh ending uh the in the most recent um permanent fund uh publication, permanent fund financials publications, which is at the end of second quarter, fiscal quarter 2025, at the end of calendar year 2024. For that 12-month period, the permanent fund board has paid $880 million. $880 million in management fees. Keep in mind Peter Pan's $29 million. Right Permanent fund board has paid 800 on an annual basis, $880 million in terms of management fees. Now, the way that you evaluate management fees is as a percent of the assets being managed, and so that $880 million, you calculate what the impact is by looking at it as a percent of the assets management and when you look at it on that basis, as of the end of the second quarter, um the, that's a percent more than a percent, one point, or 1.06 percent um uh, of of the assets. The cost of managing those assets is 1.06 percent of those assets.
Speaker 1:Norway, which is you know, when you look at the norwegian fund that in the in the sovereign wealth industry is sort of the gold standard, that's the one you look to, that's the one you sort of compare yourself to Norway pays less than half that in terms of their management fees. Now, in raw dollars they're paying more, but that's because the Norwegian fund is a hell of a lot bigger as a percent of assets. Norway is paying 0.4%, a little over 0.4%, not 4%. 0.04%. There we go, four mils. 0.04% of its no 0.4%. There we go 0.s. 0.04% of its no 0.4. There we go 0.4%. Half a percent as its fees Half less than half what the Alaska Permanent Fund Board is paying.
Speaker 1:If we were paying at the Norwegian rate, we would be paying instead of the $880 million. We'd be paying around $400 million or around $450 million, somewhere in that range of management fees. So when you look at Peter Pan and you look at this $29 million scandal and then you look at the annual, but then you look at the annual management fees that the permanent fund is incurring, I mean that's where the real scandal is. Instead of it, you know we're paying double what Norway is and so we're paying $440 million on an annualized basis. We're paying $440 million more on an annual basis. So $29 million is a one-time investment, million more on an annual basis. So 29 million is a one-time investment, $440 million more on an annual basis than the gold standard the Norwegian fund would suggest we should be paying.
Speaker 1:Interestingly enough, the permanent fund board, the president of the permanent fund board, chairman of the permanent fund board, jason Brinney, and the President of the Permanent Fund, executive Director of the Permanent Fund, whatever the title is came before the legislature. Came before Senate Finance last week to talk about the Permanent Fund. They had a 35-page PowerPoint dense PowerPoint. This wasn't one point per PowerPoint page. This was like 20 points per PowerPoint page Extremely dense PowerPoint. 35 wasn't one point per PowerPoint page. This was like 20 points per PowerPoint page extremely dense PowerPoint 35 pages of it.
Speaker 1:Management fees aren't mentioned at all. They mention returns. They don't mention one-year returns, which are looking horrible for the permanent fund right now. They mention returns. They mention them on a 10-year basis, a five-year basis, a three-year basis. They actually don't publish. I mean, what's really sort of shocking.
Speaker 1:They tried to defend themselves about how good their 10-year returns look. They don't publish the 10-year returns publicly. They don't even consider them important enough to publish publicly. But when you go to the legislature and you're under fire, yeah and you're under fire, yeah, let's haul out those 10-year returns and look at those. But they didn't publish the one-year returns which they do make. They didn't use the one-year returns in the legislative presentation, which they do make public. But they didn't discuss the 35 pages of dense PowerPoint, don't discuss management fees at all.
Speaker 1:So to me, the $29 million again $29 million, one time $29 million the Peter Pan episode is enlightening. It is troublesome, but it's just the tip of the iceberg. Once you plunge down below the tip of the iceberg, once you go below the water surface, you see this huge sitting iceberg down there in terms of management fees. What was the final shocky, the final humorous thing is, at the end of the entire presentation, jason Brinney, the chairman of the Permanent Fund Board, governor Dunleavy's appointee, self-admitted, not an investment expert, jason sits up there and says oh, and we're a low cost managed fund. No, nothing of the slide deck supports that. None of the numbers support that. He just wanted to say it and he said it. But it's wrong. It's not a low cost managed fund. Right, it is. It is one of the highest cost managed. It is likely one of the highest cost managed funds in the world.
Speaker 1:Right, and so when we're looking at, when we're looking at, peter pay, and that's just the tip of the iceberg.
Speaker 2:Yeah, I mean again $29 million. I mean to you and me that's real money. But if you're talking about in terms of $850, $880 million, that's a drop in the bucket. And even the $200 million fund for Alaska investment, when you're looking at nearly a billion dollars every year just in management fees, that seems like a drop in the bucket as well. I mean things and I went through this slide deck and, like you said, it's very dense, but you could see already that they're prepping everybody for that conversion of the earnings reserve into the corpus of the fund as well. So it's like the it's the double whammy, it's the. It's the proverbial double whammy on all those things.
Speaker 1:Yeah, it's, uh, it, they're definitely it's. It's like the slide deck's interesting Cause I I have watched the presentation, I've been through the slide deck slide. That's interesting. It's sort of it's sort of curving around. It's got all these numbers and so you think it's really a fulsome, fulsome presentation, right, but it's sort of curving around the trouble spots. It's not addressing the trouble spots. It's just sort of you know, so when you're showing returns, you show your 10, five and three-year returns as opposed to including your one-year return, and so you sort of curve around, don't show your one-year returns, you don't show the management fees at all.
Speaker 1:There's one slide in there on Norway and it talks about how Norway is more a passively managed fund than an actively managed fund and it talks about, you know, the advantages of being an actively managed fund, but it doesn't talk at all about the management fees that Norway incurs versus the management fees as a percent of assets under management, doesn't talk at all about that. It's misleading by omission. It's misleading by not including. I mean the Permanent Fund Board thinks it's important enough, or past Permanent Fund Boards have thought it's important enough, to publish the management fee information, right, to make that transparent. Except when you go to the legislature and then you don't want to talk about it. So I, yes, peter Pan, let's talk about that. Let's talk about that, you know, for maybe an hour, but then let's spend the other 23 hours of the day talking about the management fees and other things that are going on.
Speaker 2:Well, and the difference between a passive fund and a actively managed fund. I mean, the permanent fund is still underperforming the major indexes in the. Maybe we should turn it back to a passive fund and just peg it to the indexes at this point. If it's getting a better return that way, why are we spending a billion? We'd be a billion dollars ahead, almost, uh, if we just pegged it to the other funds instead of, uh, doing all this other nonsense. I mean, I don't know what's happened there, but it's not helping. You know, you guys are not being helpful in this regard. Final thoughts Brad.
Speaker 1:Well, the last three years, even as an actively managed fund, it's performed underperformed relative to the permanent fund's own passive income benchmark, which one could argue whether that's really a passive income benchmark, but it's underperformed even relative to the passive income benchmark. Essentially, the permanent fund is admitting, through looking at those benchmarks, admitting the fund would have made more money. Set aside the management fees, the fund would have made more money by just investing it in the indices as opposed to actively managing it. And then you add on the fees that come from active management and it really becomes a mess. So there is much more there. If Nat wants to continue writing or others want to continue writing, I've done it a couple of times in the landmine, the Friday column in the landmine. But if others want to really dig in and see what's going on with the permanent fund, there's a lot more there than the $29 million in Peter Pan.
Speaker 2:Brian says, because Donna mentioned that the permanent fund underperforms the major indexes. And Donna, time to have a career talk with the fund management team. I mean again, why are we actively managing it if they're doing worse than a passively managed fund? I mean, that just seems like that makes no sense. And this is one of those things where you get a bunch of experts or people who are, you know, this is the Ellie Rubenstein, I want to play in the, in the in the pool with all the big kids and, uh, do my thing. And that's really where we kind of went sideways with this whole deal. We should just be, you know, we should be leaving it and uh, we should be the envy of, uh, the world. Here we are, where it's going down. I mean, will they drop active management? I doubt it. Should they, based on the numbers that we're seeing right now? Probably, brad.
Speaker 1:Oh, they need to be much less actively managed than they are now. I mean, what Norway does is use passive indices for a large segment of its investments and it retains a little bit to be actively managed in terms of investment in the private markets. If I recall the discussion with Senator Stedman, who was raising sort of this point, although he wasn't raising the fees question If I recall the discussion between the permanent fund board rep and Senator Stedman, we have something like 40% of our fund actively managed. And what active management really is? You're looking for the home run, right? You're investing in a lot of little things, hopefully. You're investing in a lot of little things. You're not putting all the chips in one pot. You're investing in a lot of opportunities in hope that a few of them hit big and sort of cover whatever losses you have in the rest of them.
Speaker 1:I mean, it was sort of like the $200 million that got invested in the state Peter Pan's a bust, but maybe some of the other of them did fairly well and if you hit a huge one, then maybe you have pretty solid returns. And that's what you're doing with active management. But you're assuming when you do that that you can outguess the market. Right, you're going to find the golden egg that the very few of others have been able to find. You're going to find a piece of the golden egg with others that very few are able to find and you're going to hit the home run and have have great returns. Maybe that happens, but but the the odds are, maybe it doesn't. And, and you know, permanent funds big, but it's not. It's not a big player in the overall investment world. Um, and for it to think it's going to find the golden egg, it's going to have the inroads, it's going to have the insight to find, to find the golden eggs out there is, you know, that's a lot of, it's a lot of hubris. That's a that's a lot of. That's a lot of hubris, that's a that's a lot of of of of expectation about yourself that hasn't been, is not being proved true in the market.
Speaker 1:So, yeah, I, we do need to lessen, uh, the amount we have in the private equities. We need to less, as, as Senator Stevin pointed out, we need to lessen, uh the um, the management fees. And and, michael, when we do that, there's going to be an interesting phenomenon occur All of a sudden, the money in the earnings reserve is going to go up because we're going to be realizing income in a way that we're not now. Because we're making all these private investments and holding onto them for extended periods of time, we're hoping they hit, not turning them into cash. Not turning them into cash that's going in to the earnings reserve. So there's a secondary impact of creating cash that goes into the earnings reserve on a more regular basis, which, lo and behold, solves your earnings reserve problem problem. There's a lot of issues in this one area of how much of our nest egg we're putting into these private assets. Management fees is a big part of it, but it also has knock-on consequences in other areas.
Speaker 2:Lesko says why don't we have any media looking into the fund mismanagement or looting? And that's because people's eyes glaze over as soon as you start talking about the details of something that's kind of complicated like the permanent fund. Most people don't understand how it works. Most people don't understand how education funding works, let alone. I mean, they'll buy hook line and sinker the half-truth, the BSA, non-increase or things like that and they just it's because people's their eyes just glaze over. They're like, ah, so it's um, I mean it's, it's a problem.
Speaker 1:It is a problem and it's you know and it's you can get a sexy story like Peter Pan that affects people and and you know the story is built a lot around how it destroyed. You know a, a, a fishing village of fishing fishing village, dependent on the Peter, a Peter Pan uh facility. You can build a human interest story around that. It's less easy to build a human interest story around around management fees, so that's that's part of it. I mean you can't get such sensationalized press out of it as easily as you can out of the Peter Pan episode.
Speaker 2:Yeah, more people need to understand, but it is the lifeblood of the state right now, because that's where we're drawing the majority of our revenues, and we should be paying attention to it 100% for sure. All right, we're continuing now. Brad Keithley, alaskans for Sustainable Budgets the weekly top three. On to the third pain point for this week, and that is number three, which is geez. The AGC board must have had their fingers crossed behind their back when they said, yeah, yeah, that's what we mean, we really mean it this time, which means that we just give us one more, that's all we will get it. Mm, hmm, they had their fingers crossed, brad.
Speaker 1:So last year in the legislature there was a lot of focus on how much we were spending for the AKLNG project, the Alaska Gas Line project. Senator Bishop was on was heading the capital budget. I believe he was heading the capital budget, the co-chair for capital budget on Senate finance, and focused on that and was contemplating at the time cutting off funding, additional funding for the project because the project just hadn't brought anything home. A couple of presentations went south for the AKLNG leadership before the various finance committees and it was looking pretty bleak. The response to that was a letter dated April 22, 2024. We're talking about last year, april 22, 2024, signed by the chairman of the AGDC board, janet Weiss, the vice chair, mike Chenault, secretary treasurer of the AGDC board, to Senator Bishop and the key sentence of this letter says if AGDC this is last April, april 24, if AGDC fails to secure funding for the entire project or for the initial pipeline phase of the project by that date, fails to secure funding for the entire project or for the initial phase of the project by that date, we have instructed we, the board, have instructed AGDC staff to initiate the work required to shut down and either sell Alaska LNG project assets or put them into storage If there is insufficient value realized for the state of Alaska from a sale April 24, if AGDC fails to secure funding for the entire project or for the initial phase of the project by that date, the date being the end of the year. Then we've instructed, so we've reached the end of the year. Then we've instructed, so we've reached the end of the year. Have we secured funding for the entire project or for the initial phase of the project? The answer is no, we haven't. We have instructed AGDC staff to initiate the work. Have they initiated the work Required to shut down and either sell LNG project assets or put them into storage? Nope, they're still going.
Speaker 1:The only thing they've secured by the end of the year, the only thing they secured by the end of the year, was a press release. They don't even have the project details. They don't even have the project details, they don't even have the contracts. A press release with a low-capitalized, small-capitalized, fairly inexperienced operator, glenfarn. They've got a press release with Glenfarn that says Glenfarn is going to negotiate project documents with AGDC that, if negotiated, we'll have Glenn Farn take the lead for the project, uh, through FID and then and then beyond, if they decide to go to final investment, if they decide to make the, if they decide to make the investment, is that financing for the project, for the, for the entire project or for the initial phase? Nope, it's not. Even the financing that Glen Farn, even the financing that is there for Glen Farn to do the work once they enter into the documents, once they negotiate and if they finally agree on the documents, enter into the documents, even the financing that's there for Glen Farn to do the work to FID isn't Glen Farn's. It's backstopped by ADA, by a promise from ADA to pay $50 million to Glen Farn to reimburse them for FID.
Speaker 1:At one point we thought the legislature was going to be able to stop that, but last week ADA testified no, they're committed to the $50 million, whether the legislature approves it or not, they've got $50 million sitting around. Ada testified they got $50 million sitting around in their bank accounts that they can use for this project, whether the legislature approves it or not. It'd be nice if the legislature approved it, because I'd give Ada $50 million more. They wouldn't have to spend $50 million out of their existing pot. It'd be nice if the legislature did it. But no, they don't have to. The legislature doesn't have to approve it. Ada is going to go forward with it anyway.
Speaker 1:But that's all. That's all beside the point. I mean, even if you look at the financing, financing's coming from the state. But that's all beside the point. The point is we have this is what the letter said we have instructed AGDC staff to to initiate the work required to shut down and either sell the project assets or put them in the storage If AGDC fails to secure funding for the entire project or for the initial phase of the project by that date. Haven't Done.
Speaker 1:So what does the letter mean? It doesn't mean anything. Now AGDC is just ignoring it. The administration is ignoring it. Hell, even the legislature is ignoring it. Everybody's got their blinders on saying what letter?
Speaker 1:And AGDC, who made this commitment, signed by the chairman of the board, by the vice chairman of the board and by the secretary of the treasurer? Agdc has made this commitment. They aren't following through on it Must have had their fingers crossed behind their back. It's just, it is.
Speaker 1:What's going on with the AKLNG project is outrageous, as we discussed last week, in a context where the state clearly has run through all of its savings the SBR, the CBR deep into the PFD, deep into PFD cuts to pay for government in a context where the state is so to have this, to have this project continuing. It's just just outrageous. And and yet yet it, it, it keeps on going on. I, I want somebody to ask, I want somebody to haul the chairman of the board, vice chair of the board, and Mike Chanel, secretary, treasurer, signed on the bottom line you can see the signature haul them up in front of the, in front of the legislature, and say what the hell do you mean, what's this letter mean, and why haven't you done it? Why haven't you followed through on the letter? Oh well, you know, we got a Glen Farn. Glen Farn hasn't made any financing commitments. In fact, glen Farn hasn't made any commitments at all. Yet they haven't signed any documents yet.
Speaker 2:No, but they did write a good opinion piece that talks all about how it's a competitive, well-positioned project. I think they said competitive like six times in the article and you're like competitive. I mean even with an 80% subsidy, it's 30% over market value. How is that competitive?
Speaker 1:Yeah, that opinion piece was great, wasn't it? I mean, the opinion piece is by Glenn Farn is talking about how great the project is. You know, the one question that kills all this is great. Are you putting your money into it? No, we're going to front end the money. You know it's the same thing on the NSTAR LNG import project. We're going to front end the money. At Glenn Farn, it's going to front end the money. But if there isn't FID and there won't be if there isn't FID and there won't be, if there isn't FID, then we get reimbursed by the state. In the case of the big line or, you know, proposed to be by NSTAR and its rate payers, in the case of the LNG project, we are putting our money into it. So, if it's such a great deal, why aren't you putting your money into it? Well, we're putting our time into it. It your money into it? Well, we're putting our time into it. It's, it's.
Speaker 1:You know, I can I can tie the discussion in the second segment to this one in to this segment. In this way, it's like one of those, is like one of the piece, one of the things that you do when you're private, when you're doing a private investment. You, you invest in a lot of things in the hope that one or two will, you know, produce huge returns. That's what's going on here. Gl on here. Glen Farn has a bunch of projects out there.
Speaker 1:Somebody said, well, how would you like to add this one? Oh well, if it hits, it'd hit big. And look, they're going to guarantee us our money. So we don't have to. It's not any of our money out the door. We have to front end it, but we'll get reimbursed if it doesn't go anyplace Likely not to go anyplace. So we'll get reimbursed. If it hits, that'd be great. But if it doesn't, we don't have any skin in the game, right? So they can talk all day long about it being competitive and being great and being this wonderful thing, but they aren't putting any of their money up for it, right?
Speaker 2:No, it's amazing to watch. I mean, it's like it's a zero risk thing for them. If they hit and hit big, they'll make tons of money, and if they don't, we got paid for a year or two while we did all this work and nobody didn't cost us anything. So everybody's still got a job and we'll go on to the next project 240 million worth of gas into it. We're talking about a project that's worth $60 billion and you're you're diddling around bragging about your 240 million. That's not even a blip on the radar. You know, uh, but yeah, this whole thing is, is, uh, is astonishing. So I mean, who calls them on the carpet? I know that, uh, that uh, both uh. Bert Stedman and Bill Wilikowski were both quoted in one of these ADN articles saying it looks like it needs to be shut down. Is it going to be, or is it just going to keep limping along at this point?
Speaker 1:Well, ada has now told them they don't have the ability to shut it down. I mean, surely they do, surely they can pass a statute that says shut the sucker down. Do what your board said last year you were going to do, right. But now Ada's saying $50 million, we'll just take it out of our kitty and our money over there. It'd be great if you wanted to reimburse us for it.
Speaker 2:Yeah, I think at this point government is running amok. I mean, when the legislative body, which is supposed to have the power over that kind of stuff, is told basically to go pound sand, that's a problem. I mean, that's the thing Brad ADO just basically told the legislature. You can't tell me what to do. We're going to spend this, whether you think it's a good idea or not. We're going to spend this, whether they said they were going to shut down or not. And I mean the lunatics are literally running the asylum at that point.
Speaker 1:Yeah, we've got a second government going on, essentially, michael, I mean we've got it's smaller than the big government, but but we've got a second government going on over at ADA in terms of, in terms of money. I mean, they've been appropriated money over time for certain projects. When they when and they invest in those projects or they lend money to those projects, and when those projects are producing cash back, when they're either paying off their loans or they're producing cash back on the investment, ada is the one that gets the money, because it's ADA that made the investment right. The contemplation, I think, was that ADA would then dividend the money, dividend the earnings that they're making off of state money back to back to the government and reduce the amount that we need for, uh, the general fund. But that's not how that's out. It's not how it's operated in practice.
Speaker 1:They just just kept a whole bunch of the money. It's dividended some back to government, sort of to keep government off its back. Oh look, here's a shiny new toy. We just dividended you $25 million or something. Don't pay attention to the other $500 million. We got stored in the back room over here. Here's $25 million. Aren't we good boys? Aren't we doing a good job and by creating this cash pile or creating this asset pile that they've got stored in the stored in the back room, they're able to do stuff like this. They're able to tell the Senate to go pound, tell the legislature to go pound sand when the legislature's you know, evaluating whether or not to continue to fund AGDC, I you know it makes you want to say, all right, Aida, dividend all the money. Here's a statute or here's the appropriation. Dividend all the money back. We'll decide going forward. We can't trust you anymore. We'll decide going forward when we give you money for certain projects and we'll include provisions that say, if you earn money off those projects, give it back to us.
Speaker 2:And isn't board authority? I mean AGDC isn't their board authority in part through the legislature? I mean AGDC isn't their board authority in part through the legislature? I mean shouldn't they be able to say you said you were going to shut down, so shut down. I mean, especially with these salaries of 400 million, 400,000 a year for some of the top executives? I mean it's just. I mean it's, it's nutty, that that's uh, that that's what's going on. And yet they're just like no, we're just going to keep going on.
Speaker 1:Yeah, I, you can't trust the AGDC board anymore anymore. I mean, they send you a letter that says we're going to shut. We hear you. We hear you, senator, bishop, we're going to shut it down. Uh, if we don't, if we don't, you know, meet these criteria by the end of the year, get to the end of the year, have a method, criteria, what, who sent that letter? What letter? I mean, it's just, it's so.
Speaker 1:You know, the board has no credibility anymore. The AGDC board has no credibility anymore. They didn't follow through on what they said they were going to do. The ADA board essentially is telling the legislature you know, up yours. We got our own money that we've stashed over here. We're going to do whatever the hell we want to, you know, and up years, and the legislature is just sort of sitting there going take it all this and, you know, letting the AGDC board walk back from its letter and letting Ada, you know, keep the cash pile over there instead of transferring it back into the general fund. The general fund, I mean, it'd be a one-time thing, but if you want to solve a $500 million, $500 million revenue shortfall dividend, the $500 million, that 500 plus million dollars that ADA's got sitting in its back room. Dividend that back into the general fund.
Speaker 2:We've talked about that for years. They should go through and they should sweep every account out there in state government back into the pot and then have a conversation about reapportioning it out back out, because there's millions, probably billions of dollars in the various pots of money around the state that had just been squirreled away for years.
Speaker 1:Um, you know, whether it's pce or the ada or any other fund, there's hundreds of millions of dollars out there yep, yep, and, but, but, you, but, but you know, and, and, but we just keep letting him go, we keep letting Ada go ahead and, you know, be its own government out there deciding what to invest in and and, and. Michael, it's just, it's, it's just sort of shocking. I mean, we get a letter from board members. We get a member. We get a letter from the chairman of the board, from the vice chairman of the board, signed by the secretary of treasurer. We get a letter that says this Okay, fine, we got it. We'll give you one more year get it done, or or wrap it up. And then you get to the end of the year. There's not even any discussion of wrapping it up. It's give us $50 million more.
Speaker 1:so we can so we can, so we can keep on going. It's just I mean.
Speaker 2:Fool me once. You know. Yada, yada, Fool me the 17th time. We got a problem and that's kind of where we are right now. Final thoughts on everything from this week. Brad, Last 90 seconds here, or so.
Speaker 1:Rob Yunt is my personal most appreciated legislator right now. He's the most realistic uh legislator that we've got on the conservative side and he stepped up and and recognized that yes, we got a problem and yes, we've got to find better ways, more equitable, lower impact ways to to solve the problem. So some of these other guys the permanent permanent fund board I'm just shaking my head, uh, paying $880 million out in, uh in management fees the, the AGDC and the ADA boards I'm just shaking my head. But Rob Young, rob Young's going down the right track and I and I and I I want to commend him for the proposal he's made to try to get us back on the right track, at least taking the first step to get us back on the right track of more equitable, lower impact revenues.
Speaker 2:We're going to have to see what he has to say. He's going to be on the program on Thursday to talk more about it and we'll see if we can get some more details on it. Brad Keithley Alaskans for Sustainable Budgets the weekly top three. It's not always pleasant, but it is always informative and it's what we need to know. Thank you, brad, for coming on board, as always. Michael, as always, thanks for having me Appreciate you coming. My friend, stay safe and enjoy the music wherever you're going. I know you're going somewhere here eventually. Thanks for coming on board.
Speaker 1:Well, that's a wrap for another week's edition of the Weekly Top Three from Alaskans for Sustainable Budgets. Thank you again for joining us. Remember that you can find past episodes on our YouTube, SoundCloud, Spotify and Substack pages, and keep track of us during the week on Facebook and Twitter. This has been Brad Keithley, Managing Director of Alaskans for Sustainable Budgets. We look forward to you joining us again next week for the next edition of the Weekly Top Three.
