The Weekly Top 3
The Weekly Top 3
The Weekly Top 3 (3.10.2025)
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 March 10, 2025.
This week, our top 3 issues are these: 1) we review a recent, balanced look by the Alaska Beacon’s James Brooks at Alaska’s budget situation and the battle over #WhoPays (2:03); 2) we discuss the full on raid on the Permanent Fund corpus by the Senate Majority and how it’s being fueled by a poorly invested Permanent Fund (17:56); and 3) we explain how the #AKLNG project always looks great to newcomers … until they start looking under the hood at the economics (38:35).
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 March 10th 2025. The weekly top three is a regular segment on the Michael Dukes 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.
Speaker 1: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 a 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 project's 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 a balanced. Look at Alaska's budget situation and the battle over who pays. Second, the full-on raid on the permanent fund corpus and how it's being fueled by a poorly invested permanent fund. And third, we explain how the AKLNG project looks great until you look at the economics. And now let's join Michael.
Speaker 2:Brad Keithley, alaskans for Sustainable Budgets. The weekly top three Today is some good stuff, brad. I mean there's some interesting information in there and I will finally say that there is seems to be some truth coming out. You're going to start off here in the number one with a look at Alaska's budget situation and the battle over who pays, and it starts off with what I think is a deep article finally. Finally, from James Brooks at the Alaska Beacon. He takes a look at this and says, hey, we got some problems here, so let's get started there.
Speaker 1:Let's see what you have to say there well, I I complain a lot about james brooks on various shows about his failure to use or recognize this fact or that fact, but he's he's written an article in yesterday's alaska beacon, because yesterday's yep, uh, the title of it is as alaska legislature tackles education funding a bigger budget deficit loops. And the article is the title of it is as Alaska Legislature Tackles Education Funding A Bigger Budget Deficit Loops. And the article is really about is not so much about how do we pay for education funding, although it's in part that it's. Even if you set education funding aside, there's still a big deficit and the question is how are we going to pay for that? And for one of the few times and for the first time recently, I think James does a very good job of laying out all of the various perspectives. Now it may be because legislators are finally talking about these perspectives.
Speaker 1:James tends to write what he hears and so it may be that legislators are talking about these different issues more than they have in the past. He goes through the various revenue options that are on the table the governor's proposed overdraw or a draw into the CBR, the tax, the oil tax proposals that are out there on the table from Rob Young and from Bill Wilkowski and PFD cuts. And this is what he says about PFD cuts. And it's been a long time since I've seen James write this about PFD cuts. Significant numbers of legislators he's talking about 75-, 25 and and talking about cutting further the andy josephson proposal essentially, or the house proposal essentially right to cut down to the thousand dollar pfd um and he says significant numbers of lawmakers say that's the thousand dollar proposal unacceptably low. Cutting the permanent fund dividend has the same effect as a regressive tax. Same effect as a regressive tax Maybe that language will satisfy Randy Same effect as a regressive tax. It takes the same amount of money away from a millionaire and a six-month-old baby. And that's the first time I've seen James recognize the regressive effect of PFD cuts.
Speaker 1:So he goes through and he talks about. He talks about these various, you know, proposals on who pays and I think has a very reasonable, has a very reasoned, balanced approach to it. The other extreme you see all these. You see you're beginning to see a. At the other extreme you see all these, you see you're beginning to see a bunch of articles about, about people pushing back on them having to pay. So in must read, you can read articles about how Senator Yunt's proposal to nope wrong, wrong segment. I didn't mean for that to bring you up.
Speaker 1:so sorry, go ahead I didn't mean for that to bring up, so sorry, go ahead, it's okay. Uh, you, you can. You can see you, you, in other articles. In must read, for example, you see articles about how bad senator yunt's proposal to levelize the petroleum production tax again across all producers, including hillcorp, is, uh, and. And how bad it is to to tax hillorp. You see articles in Must Read pushing back on Wolakowski's proposal to tax oil companies, to reform the tax on oil companies, essentially to get back under SB21, back in the coming decade, where we've been in the past decade in terms of share of the gross. And then you see, I was stunned by this one. There was an op-ed in the Juneau Empire by none other than Bill Corbus, who was Frank Murkowski's Department of Revenue head and one of the richest men in Alaska. Corbus took an opportunity in the Juneau Empire to write a my Turn, a community op-ed, and the headline of it is it's time to eliminate the permanent fund dividend.
Speaker 2:We went over this one last week and it was well. It was a blood sport when we discussed it.
Speaker 1:Well. So it's like, I mean, everybody is now out trying to defend their take by pushing the burden off on somebody else and it's just sort of a free-for-all in terms of the battle over who pays. It is encouraging and at the same time we see continued proposals to increase spending. The K-12 revision is now $1,000 BSA still way over more than what we can afford based upon current revenues. And we see other articles coming out with, you know, conversations about how much Medicaid the state share of Medicaid is going to go up over the next decade. Everybody's sort of positioning themselves for the next battle over revenues. But it is encouraging to see you know James, step in there with a, with what I think is a balanced article about who pays Now from here on out, it's going to be. It's going to be a push.
Speaker 1:The Senate has essentially said they're not going to go into the CBR. The House has said they're not going to go into the CBR for a CBR vote. So you've got to close it somehow and that's either going to take PFD cuts in order to divert revenue that otherwise would go to largely the middle and lower income Alaska families into the budget. Essentially how did James put it? The same effect as a tax, to divert that revenue over into the budget, or you're going to have to do oil taxes. That's what's on the table so far.
Speaker 1:Interestingly, we've not seen a resurrection of Ben Carpenter's proposed sales tax, the substitute revenue source that Ben talked about last session, and I think that's probably the most effective tool in terms of spreading the burden broadly. And by spreading the burden broadly you reduce the impact on everyone. You have the biggest divisors, so you have the smallest quotient as a result of that, and sales tax would also sort of trigger everybody to get in the game of pushing back on spending. The problem with the proposals currently on the table if you do PFD cuts, the top 20%, the oil companies and the non-resident industries don't care because they're not going to pay any share of it. If you do oil cuts Alaska families most Alaska families don't care because. Or oil taxes most Alaska families don't care because you're taking it from the oil companies. So we haven't yet gotten to the discussion, I think, of personal responsibility in the state for a share of the spending that a lot of people are pushing for.
Speaker 2:And that seems to be part of the trend here. I mean the taxes that they're talking about the Yunt tax, even Wilkowski's tax, and then there was another tax that was going to tax online sales from online vendors outside so that's outside as well. So it's all these taxes that are away, generally speaking, from the public, so they don't feel the pinch. I think it's kind of like that's what they're focusing on. They're not focusing on something that's broad-based and would get people's attention.
Speaker 1:Yeah, everybody wants somebody else to pay, right I mean. So Bill Corbett wants middle and lower income Alaska families to pay by wiping out the PFD, which, incidentally, would essentially indemnify or protect Corbis from paying anything, since he's one of the most wealthy in the state. Some people want oil companies to pay more, and I think oil companies should pay more because I don't think they're paying what the Constitution requires, which is the maximum yield. But a lot of people say well, we just need to tax the oil companies and that'll be the solution. So at this point everybody's trying to push the burden off on somebody else, saying somebody else should pay and I think James Brooks' article captures that well, although it doesn't really put it in those terms but the effort of most people to try to push the burden off on somebody else so they don't have to be part of the solution.
Speaker 1:But what we really need to get to at some point is a tax or a revenue approach that creates incentives for everyone to push back on spending. Right now we've got a revenue situation which encourages some people to push back on spending, but it's largely middle and lower income Alaska families who don't have a lot of political power, while the top 20% of the oil companies in the non-resident industry sort of get off the hook. We need to be taught. We need to start putting on the table a revenue base, a revenue approach that engages everyone across the board, from Natasha all the way down to the six-month-old baby that James uses, and get everybody engaged in the process of pushing back on spending, because it's going to affect them if they don't. And that may be too far a stretch for this session, but when you look at where this budget is going, when you look at the trend lines, even taking K-12, the K-12 increase out of the equation. When you look at the trend lines where this is going, the deficits get deeper and deeper and deeper, and deeper and deeper.
Speaker 1:And so we're going to have to be talking about that at some point.
Speaker 2:And again I have to say kudos to James. He talks about that that even with just holding the spending from last year, we're in a deficit, and then he points out that this fiscal year we're in a deficit $165 million, he said even the lawmakers face a second problem. In the current fiscal year, the one that ends on June 30, the state is also running $165 million deficit. I mean this is hello, this has been coming and we've been saying it and just like all of a sudden it's like everybody's like oh wait, you mean this is. You mean we're spending more than we're taking in. How is that? When did that happen? Right, I mean this is like all of a sudden. It's shocking, I tell you, shocking.
Speaker 1:Yeah, it's like Gary Stevens at the beginning of the session said well, I didn't know we had this budget problem. Well, you could have seen it coming if you just would have looked at numbers. And you can see it getting deeper and deeper and deeper. We've got a. I mean oil prices are trending down.
Speaker 1:If you look at the futures market, oil prices are trending down significantly from where the fall revenue forecast had them. And if you watch that trend and watch where oil prices are going over the next decade or so now what the futures market are saying, I mean it just gets even deeper still. But even if oil prices hung on to what the forecast, the fall revenue forecast, even if they hung on to that, we're still heading for bigger and bigger deficits. I think what we're seeing is the beginning of the who pays thing, battle the war over who pays, but we're far from seeing the end of it. And I think we're only going to see the end of it when we create a revenue approach that broadly bases the revenue so that everybody starts pushing back on spending.
Speaker 2:Anthony said this is a novel, legitimate question. The PFD is probably cooked and taxes are inevitable. I know that MD and Brad are advocating education and preparing to ensure that those taxes are fair and regulated in that scenario, but I'm genuinely curious what mechanism could be used to just not wind up. The same people who've devoured the PFD arbitrarily and regularly increase those taxes to offset their preposterous spending problems. I feel like there's a lot of misplaced trust and faith in the system happening here. I feel like there's a lot of misplaced trust and faith in the system happening here.
Speaker 2:And Anthony's asking the question that I've asked Brad for years that while I agree that we need to have the discussion, I don't want taxes Because my fear has always been that Parkinson's principle will rule supreme, which is, you know, government spending will fill up to expend all the available monies kind of thing. So if we increase revenues by having taxes or anything else, that they'll just be sucked up. And, brad, you've had an answer for this. But the problem is it's two parts. You've got the tax part and then you've got the spending cap part and can you get them both passed at the same time? That's part of the problem, right?
Speaker 1:Well, I think it's part of the problem. It is part of the problem, but what incentives work? Incentives work. I mean, that's the economist's answer to virtually everything. Create the right incentives, you'll have the right answer.
Speaker 1:And the problem we have in this state is we don't have across the board incentives to push back on spending. In fact, we have created a system where we have incentives to increase spending, incentives among some people to increase spending. By doing it through PFD cuts, you push the burden off on middle and lower income Alaska families have had a free ride in terms of free government. They haven't paid for the costs of government increased costs of government in the case of oil taxes, because we haven't changed oil taxes since 2013. They've had a free ride on the increased costs of government. They've pushed all that burden off on middle and lower income Alaska families.
Speaker 1:The only way you're going to stop this is to create incentives on everybody to push back, and to do that you have to have a broad-based tax. Ben Carpenter was exactly right. You have to have a broad-based tax to engage everyone in pushing back on spending, because if they don't, they will pay a share of it. They will pay a share of it and as long as we keep going down that road of not having a broad based incentive to push back on spending, particularly where the incentive to spend is on those who have political power, upper incomes, oil companies and the non-resident industries, as long as you have that type of incentive system, we're going to have increased spending. I mean, we're going to talk in the second segment about the new place. They're going to try to avoid having to pay for government. They're just going to invade the permanent fund corpus themselves or the permanent fund corpus itself and that will continue their free ride, free government that they don't have to pay for. We have to create the incentives for everybody to push back.
Speaker 2:Well, and it has to be a holistic approach. Again, that was the big thing that the working group came out with was that it has to be a holistic approach. It can't just be one thing. There's no single magic bullet. It has to be a comprehensive overhaul and that's the one thing that they apparently don't want to do. All right, brad Keithley, alaskans for Sustainable Budget, is our guest. We continue on with the weekly top three. Now Brad is about to tell us about the full-blown, full-blown attack and raid on the permanent fund itself, which, again, that was one of the first topics that I covered when I started this show back in 1999. That was one of the first topics that we covered because at the time that was the first attack on the POMV or on the on the PFD with a POMV draw, and they were talking about it back then. And I said the one thing that they want is they want access to the corpus, and this was the first step. Brad, they're saying the quiet part out loud now.
Speaker 1:Yeah, michael, there was a hearing last week at which they had the permanent fund executive director and the chairman of the permanent fund board up to discuss the permanent fund and the entire discussion was around. I mean, just to cut to the chase. They put a lot of nice words around it, but a lot of discussion around how do we get at the permanent fund corpus? The problem that they're facing is that the permanent fund is not earning enough to fund the POMV and, to James's credit, in James Brooks's piece that we talked about in the first segment, he talks about that also that part of the problem with the permanent fund is that it's not generating enough money to cover the POMV draw and so when they've got that situation, it's not generating enough money to cover the POMB draw. Let me put a parenthetical in here. That's been helped along by the $8 billion raid that Burt Stedman did of taking $8 billion an additional ad hoc $8 billion out of the permanent fund earnings reserve and putting it over in the corpus earlier in this decade, earlier in the 2020s. Burt did that and nobody ever thinks about well, what if we still have that $8 billion in the earnings reserve? But separate and aside from that, separate and, aside from the $8 billion, the permanent fund is not earning enough money to cover the POMV. So the answer to that, the answer to that's one of the three things Reduce the amount you're taking from the permanent fund, reduce it down to what the permanent fund is actually earning, or go in and look at what the permanent fund's earning and look at whether they could earn more. We're going to talk about that in just a second or. The third is the easy step is let's eliminate this barrier to getting at the corpus that the Constitution creates by creating the two separate accounts the earnings reserve and the permanent fund corpus. Let's eliminate that barrier so we can just get inside the permanent fund corpus. Let's eliminate that barrier so we can just get inside the permanent fund corpus.
Speaker 1:And the proposal to go to merge the two accounts together is nothing more than a raid on the permanent fund corpus. You wouldn't need to merge the two accounts together if either the permanent fund earning the permanent fund was producing enough to cover the POMB draw or if you were going to observe the barrier created by the current constitution. But they don't want to do that. They're now talking about raiding the permanent fund corpus, the thing that I have trouble with is it's not only the Senate majority that has a bill in to do that. The Senate minority James Kaufman, has proposed a bill that was signed off on by all of the members of the minority. Now I'm sure there's rationalizations and explanations for why they're doing that, but it's being taken broadly as acquiescence by the Senate minority in the Senate majority's proposal to raid the permanent fund corpus, and that's something that's surprising to me and something that's troubling to me. I mean Kaufman, I sort of understand, because Kaufman came out of the majority. The only reason he went to the minority is because the majority wouldn't put him on Senate finance and he wanted to be on Senate finance, so he shifted over to the minority. He's always had that. He's always been a proponent of using permanent fund dividends, cutting the permanent fund dividends, and has been a proponent of this sort of merging before. I'm just surprised that the other members of the Senate minority agree to that.
Speaker 1:But let's step beyond that for a second. Let's talk about what the permanent fund is earning. I did a column last Friday with a lot of help, with a lot of input from others, a column last Friday that looked at what the permanent fund would be if we'd invested it differently than the permanent fund invested. And, michael, if you can put that chart up, that would probably help at this point. Here we go. So what I did in the column is I went back to FY20, the beginning of FY20, which is July 1st 2019. And I tracked what the permanent fund did in terms of growth and it's in the blue, it's the bottom line and that's what the permanent fund the first of year, the end of year, amounts of the permanent fund have been. Balances of the permanent fund have been since FY20. And then I went back and I said, okay, so what if the permanent fund had invested instead of how it invested, with all of those fees? It's running $880 million in annual fees most recently.
Speaker 1:Instead of all those fees, what if the permanent fund had just put all the money into an exchange-traded fund, an ETF, and put it into the S&P 500? Now the S&P 500 goes up and goes down. It's a lot more variable than what the permanent fund's invested in. But let's just go look at what would have happened and the red line is what the balances of the permanent fund at the end of the year, at the same point as the balances we've got for the blue line. The red line is what the balance of the permanent fund would have been in all the years since subsequent, since FY20, if we just invested all of it in S&P futures and you can see that the value of the permanent fund would have skyrocketed. Value of the permanent fund would have skyrocketed under that alternative investment approach when we get to January 30, 2025, the permanent fund, as it has been invested over this period, has a balance of $80 billion. If it had been invested in S&P 500 ETF since FY20, the balance would be $118 billion. The difference in the POMV 5% draw would have been significant, would have been about a billion dollars by now and going forward. So you can see that there are alternative ways of investing the permanent fund that produces much higher returns than what the PFC is producing, what the current approach is producing.
Speaker 1:Why are they doing it this way? Why are they doing it the way they're doing it? Well, they will tell you, they're doing it to mitigate risk. You can see that the S&P bounces around. So in FY 2021, it was $67 billion. It would have been $67 billion. In FY 2022, it would have been $91 billion. In FY 2023, it would have been back to $79 billion and then it grows from there. But it has a high variation. The way the permanent fund invests. They don't have those sorts of highs. They don't have those sorts of lows and they will tell you that they're investing to sort of keep it even. But you can see that under that investment approach they've got a levelized line from FY23 on, while the S&P is climbing rapidly.
Speaker 1:I'm not entirely advocating, or I'm not solely advocating, investing in the S&P 500 as a way of, or ETF funds that look like the S&P 500. I'm not saying that's the only way you could do it, but what I'm suggesting is there are ways you could do a lot better than what the permanent fund corporation is doing. So, rather than pushing back on that and saying, wait, are you guys investing this the right way? You're not earning enough to cover the POMB draw. That's a big deal. That's a big issue to us, because we're relying on the. We, the legislature, are relying on the POMB draw. So we need to wipe out the barrier between the earnings reserve and the permanent fund so we can get at the corpus and keep our 5% draw, instead of saying that they could be saying and they should be saying wait, are you guys investing this right? I mean, you're investing it in a way that produces a steady state of return, sort of flatlines the return, but you're not producing it in a way that grows the fund and would grow the POMV draw and would lessen our revenue problems elsewhere by doing that. Performing is a big issue that we need to be taking on rather than trying to separate the wall between the earnings reserve and the corpus.
Speaker 1:I want to read one comment that I got in response and this was a comment to the column that said this is what investing in the S&P did. The comment was Nevada. The Nevada PERS, the Nevada State Retirement System, does just this. It invests in the red line. They have a total of two employees and they simply invest in broad, low-cost stock and bond indices. Net of fees, they blow most public investment houses out of the water. Getting fancy with alternative investments, as the permanent fund has done, comes with high fees and the need for $300,000 plus employees to manage it all. You really need to be beating the market significantly to justify those fees.
Speaker 1:That missing $38 billion and he's talking about the gap between the red and the blue that missing $38 billion will be producing about an extra 2 billion per year from the POMV. It's actually about a billion. It grows over time but it's actually about a billion currently. But it's not like no one else does this. I mean, there are other state investment houses that do exactly this. They don't try to beat the market, they don't pay a lot of fees, they don't hire a bunch of expensive people.
Speaker 1:They invest in a broad-based market measure and ride the curve. And sometimes the curve goes up, as it did with the S&P between FY21 and FY22. And sometimes the curve goes down. The wave goes down, as it did between FY22 and FY23. But on the whole it's performing better and Nevada's performing better as a result of that, performing much better than the permanent fund corporation is doing, pushing not rating the corpus, not necessarily lowering the return, as others are pushing to maintain to match what we're taking out of the permanent fund with what the permanent fund's earning. But I think looking at what the permanent fund corporation itself is doing is where we ought to be focusing a lot of attention, because even this rudimentary look at comparing it to the S&P 500 shows you that it's flatlining at a time that other parts of the market are growing significantly.
Speaker 2:Well, and in fact, these market indices, although they do swing harder than the permanent fund does, the trend line is still always up. I mean, the permanent fund took the same dip in the 22 to 23 year. It just took a smaller dip, but it also means that the growth is much smaller and if you look at the overall growth of the indices versus what the permanent fund has been doing, it's still a net gain. I mean, that's the thing, it's the net gain in the long run. Why aren't we looking at that instead of well, we want to equal it. We're getting no growth and we're essentially been sitting at $80 billion for the last two or three years, I mean, and competing funds are $35, $38 billion more. Who at the permanent fund is not going? Well, we should be doing something, is it just? I'm making $300,000 a year to make this flat line, so that's OK. I mean, what's going on?
Speaker 1:They've got, they've gotten? I think? I think the answer is the permanent fund corporation has gotten into a bureaucracy, a mindset of a bureaucracy. We have all these advisors, because then we can't be blamed for something going wrong. We have all these advisors to advisors to tell us what we're doing. And then and then, because we're investing in all these, in all these private equity deals, we need, we need to hire expensive people to look after the private equity deals, make sure somebody is not ripping it off, ripping us off. And after you do all that, you've got, you've got a huge cost base and then you've got, you've got people invested in that cost base. Well, you know, johnny's my friend, he's an advisor. I don't want to, I don't want to, I don't want to cut him, or I don't want to cut my salary and I don't want to have to cut.
Speaker 1:You know the number of people that we employ at the, at the permanent fund corporation, the number of people we've we've built up over time, and we have a board that doesn't understand any of this. We have a board that's made up of politicians. I mean, governor Dunleavy just did it again by appointing John Binkley to the board. John Binkley is a nice guy deserves to be in the Alaska Business Hall of Fame, but he's not an investment guy, right and and and a market investment guy, and so we have all these people on the board, none of whom really understand this stuff.
Speaker 1:So I think I think we've sort of created, you know, if you talk about your bureaucracies and bureaucratic sticking the mud, that's what we've got at the Permanent Fund Corporation now, and rather than diving into that and saying we ought to be doing this a lot differently, rather than diving into that, what the Senate majority, followed by the Senate minority, are doing is saying, eh well, that's where we are. So let's just take down this wall between the earnings reserve and the corpus and go after the corpus. What?
Speaker 2:we have here is a failure of leadership for somebody to say whoa, whoa, whoa, wait a second. This doesn't make any sense. Why aren't we just looking at the indices and going from there? Bruce Tangeman is in the chat room. He says please clarify Brad. From there, bruce Tangeman is in the chat room. He says please clarify Brad. I believe the Senate majority plan is to sweep the statutorily protected ERA into the Constitution-protected corpus, thereby taking it completely off the table from raids. Why are you falsely claiming it will be raided? It will all be under constitutional protection.
Speaker 1:It's already constitutionally protected, bruce Constitutionally protected from having taken out of it any more than what's in the earnings reserve. What the proposal on the table is is to combine the two accounts together and allow the 5% draw to continue, which necessarily will take a portion of it out of the old corpus.
Speaker 1:So it's already constitutionally protected. We don't need constitutional protection. We've already got that with the earnings reserve. The earnings reserve is a hard stop If the permanent fund doesn't earn any more, If it doesn't earn enough to cover what's being taken out of it, then you don't get to take any more. There's a constitutional protection there. What's on the table is the proposal to merge the two and allow access to what's now in the corpus in order to continue the 5% draw.
Speaker 2:My understanding of the proposal is that the percentage of the draw is set by statute, that it's constitutionally protected and that it's held to the POMV amount, but that the amount could be varied by statute instead of by constitutional amendment, because it's got to have a one-time constitutional amendment to allow them to have access to it, and so that is the big problem. They could say 5% today, but tomorrow it could be 6% or 5.5% or 7% or whatever we decide.
Speaker 1:In fairness, the constitutional provision that the Senate Majority has talked about includes 5% as a cap on what could be taken out of the combined account, but the problem is it allows taking additional amounts more than what the permanent fund is earning. So if the permanent fund only earned four or three or two, it would still allow the legislature to take out five out of the permanent fund and invade what's now in the in the corpus in order to make up that difference right and and the and.
Speaker 2:yes, that's bruce just said. But the era is not constitutionally protected, hence the raids and overdraw. But see, that's the thing, it's a hard stop. You can only take what's in it. So if there's only three and a half percent worth in the era at the time, that's all you get. Three and a half percent worth in the ERA at the time, that's all you get. Three and a half percent, boom, you're done. Stop, full stop. You can't go into the corpus. That is the firewall, and what they're proposing is removing the firewall. So if there's only three and a half percent in what would be the ERA and they have their new plan, they could draw that extra one and a half percent out of the corpus of the fund. And that could happen year after year after year and pretty soon you've eaten the seed corn, you've killed the golden goose. That's laying the egg. That's the problem, bruce, and that's always been. My fear is that somehow they would get their tentacles into the corpus of the fund, and that's what many politicians have wanted for years.
Speaker 1:Yeah, we did a column, oh, maybe a couple of years ago when this proposal was first gaining traction, and looked at what the effect of taking 5% while the fund was only earning 4% over an extended period of time was. And it's clear, I mean the fund, the corpus of the fund, keeps going down and down and down because you're taking more out of the corpus or you're taking more out of the permanent fund than it's generating. That's the problem we've got now. I mean James Brooks is right in the article the problem we have now is the permanent fund is not generating enough to fund the POMV draw. It's exacerbated by that $8 billion ad hoc draw that Burt took earlier, but it's not generating enough to cover the POMB draw.
Speaker 1:And the earnings reserve protects you in that situation by saying the current constitutional provision protects you in that situation by saying well, you're only earning four when you drain the ERA, that's it Hard stop, can't do any more, you can't go into the corpus to get your extra extra one percent. What the proposal at the Senate majority is pushing is it says you know you get five percent no matter what, so you can keep going in, you can go into the corpus to get that additional percent it removes. The protection, that's the constitutional protection, is currently embedded in the Constitution. The constitutional protection is currently embedded in the Constitution.
Speaker 2:Bruce says that is a problem. If that's their true intention, that would certainly not be an endowment fund such as the Harvard. But again, you don't have to look at their true intention. Look at their past history, bruce. That's the problem. Look at their historicals. Past performance is indicative of future results. They have spent every dime available to them. And if they had? Well, look, we got to do it. We got to do it Because so it's not just their intention, it doesn't have to even be intentional, it just means that's situational, because that's what they've done every time for the last 15 years. Brad.
Speaker 1:And well, we build up this cost structure, this spending structure that has to be fed. So you're going to get to the point where you're only producing 4% earnings and the choice is either you take 5%, which the constitution would then permit you, or you tax people. What they're going to do is take the 5%, and that's what they're setting up the ability to continue to do by eliminating the firewall. That's what they're setting up the ability to continue to do by eliminating the firewall that's currently existing between the corpus and the earnings reserve.
Speaker 2:All right, brad Keithley Alaskans for Sustainable Budgets the weekly top three. We continue now. Number three AK LNG is great sort of, as long as you don't look under the covers, right, brad? Yeah, that's the deal.
Speaker 1:There was a lot, there's been a lot of press about, uh, president trump's uh comment about the ak lng, the alaska lng project, uh, in his uh address to congress, uh, last week. There's a little bit been a lot of follow-on in terms of terms of comments by, particularly, senator sullivan, governor dunleavy and others about, oh my gosh, we're on the way, we're rolling right there, and you had some comments out of representatives of Korea and Japan and even Taiwan, people that President Trump is trying to direct this project, market this project too. About, oh, yeah, we're interested in that. But here's the deal with HAL&G and here's the deal you know, since the very beginning of the project, back when we realized there was gas in conjunction with the oil that's coming out of Prudhoe Bay and the question was raised how are we going to market the gas? Here's the problem with it. Every time you look under the hood of how you would do this and the costs involved and the term involved, the term of commitment you would have to make to the project, with those costs to be able to do the project, people go whoa, whoa. I didn't understand that. I mean, I didn't realize I was going to have to invest 40, 60, whatever the heck the number is at any given day a billion dollars to build this project. I didn't realize I wasn't going to get gas out of it or LNG out of it for five years. I didn't realize I was going to have to make a 20 or 25 year commitment to amortize all of the costs in order to make this project go.
Speaker 1:So what you're hearing of Taiwan and Korea and Japan is the response to a statement by President Trump or others. Hey, we got this great project up in Alaska. We need to build a long pipeline. We need a lot of investment to do that, but when we get down to Tidewater, the price will be very competitive with what's going on in the world and we'll sell it to you at a competitive price. So we need you to help us invest in this project. You'll get LNG out of it, you'll help our balance of trade in Trump's world, you'll help our balance of trade and you'll get a competitive product out of it. And so Japan and Korea and Taiwan listening to that sales pitch go. Yeah, it makes pretty reasonable. I get a competitive price. You're promising me a competitive price, a long-term competitive price, because I have to stay with this thing for 20, 25 years. You're promising me a long-term competitive price and it's on the Pacific Ocean and it's near where I am and I get to make you happy, I get to make President Trump happy. So yeah, heck, yes, I'm interested in that. Let's do that. Let's go down the road on that. Let's do that, let's go down the road on that.
Speaker 1:Here's what happens. That's what happened every time since the 1970s when we realized we had a bunch of gas up at Prudhoe investment. You have to make you start looking at the period of time over which you have to commit to continue to buy this stuff at the price, because it's a fixed price. It's a fixed price. I mean, you sunk the costs into the pipeline. It's not the variable cost of the gas that's the big driver for the Alaska pipeline, it's the fixed cost of the pipeline. So you've sunk the costs into the pipeline. You have to make this long-term commitment. And then you look at what's going on in the rest of the world in terms of LNG development and you go wait a second, this is not a really good deal. And you sort of start backing away from it and saying, well, we're going to study it some more or we're going to start a task force or we're going to put together a consortium to really look at this thing hard and you start looking at ways to sort of weasel out of your beginning discussion of making a commitment to it. And that's the history with this project and it's going to continue to be the history with this project. You know we talk now about it being a $40 billion project or a $45 billion project With the tariffs that the president has slapped on steel from other countries and the higher cost of steel that you have in the US, not to mention I don't think we have a US plant that rolls pipe in the size that we're talking about, the 48-inch pipe of the size that we're talking about for the AK LNG project.
Speaker 1:With the tariffs you've slapped on, with the increased costs that are the cost inflation that's gone on in the industry as a result of a bunch of people building LNG plants. There's only so many specialists, there's only so much supply of capability of building LNG plants and now we've got a huge number of LNG plants being built, so we have a strain on that supply of being able to build the construction supply to be able to build it, and so we're having rising costs going on with those construction costs. Once you look under the hood you see it's not going to be $40 billion. It's probably going to be closer to $50 or $60 billion, going back to its old cost structure. And then you look at so what am I getting out of this?
Speaker 1:Trump has a four-year term. He wants me to commit to it now, but this is going to roll into the president after that, the president after him and the president after that, president after that, president after that, and they may do things that make this a lot more costly or a lot less commercially attractive than what President Trump is suggesting it is. And really all I have to do is sort of wait out his four-year term and get to another term, another president, and talk about other things, because other things will be important to them. Alaska won't be important to them. So, yes, a lot of discussion about it.
Speaker 1:Now, it's great the president brought it up. It's great you have all these people talking about it, people talking about it. But I've been there for a long time. Once you look under the hood and once you see the economics of this thing, you start backing off and you start making excuses about well, I just need to study it a little bit more, or we need to have a new cost projection before I really commit to this. Or I don't want to commit for 20 years, I want to commit for 10 years and all of a sudden that blows the economics out of the water.
Speaker 2:Well, they can say all the right things, right, they can make all the right noises for the next couple, three, four years, and then all of a sudden it's over, because this is a long tail situation. It's not like they're going to build it in the next two years. Even if the federal government decided to pony up the upwards of $80 billion that I think the pipeline would probably cost, it's not going to be built in that timeframe. So they can keep making all the right noises and basically assuage Trump in the short term, but will they stick with it? And that's always been the problem with the gas. We all want the gas, we all want to be able to use it, we all want to be able to burn it, but the economics, the financials, just don't work. Uh, and that's been the whole problem the whole time.
Speaker 1:Yeah, and a lot of it, michael is, is is the way.
Speaker 1:There's a huge difference between the Alaska project and the projects on the on the U? S Gulf coast or the projects in Mozambique or or elsewhere, the projects in Qatar, elsewhere around the world. And that is it takes a huge pipeline to get the gas from the North Slope down to Tidewater, down to the gasification plant, and what that means is the sunk cost. The fixed cost component of the Alaska project is a lot higher than all the tidewater projects. The tidewater projects can vary their price because they can keep going up and down depending upon what the gas cost is or the gas price is, and they have a lot more flexibility than Alaska does. Alaska, it may be a competitive price today, but if Qatar puts on another project and decides to cut the price because they'll just take less for their gas in the project they don't have that much fixed cost They'll just take less for the gas All of a sudden the Alaska project becomes a lot less competitive and Alaska can't cut its price because most of that price is built on fixed costs.
Speaker 2:You know, I mean I know that there's a lot of positivity. People are excited. Maybe the president will do this as a nationalized national security deal, Maybe they'll put it. But again, the problem is, unless we've got people, unless you've got somebody locked in and who wants to be locked in for 25 years, it's going to be an issue. I would love to see it. I mean, that's the thing I don't mean. Henry's in here, like you guys are always poo-pooing. No, look, it's the economics of it, Henry. I'd love to be burning natural gas from Alaska right now. I would love to do that. But you just can't make it happen. On the metrics, Somebody's got to pay for it and if it's 80% subsidized and delivered at 30% over market value, do you want to pay 30% more and have all the money that was paid for 80% of it coming from the government? I mean it just doesn't work, Brad.
Speaker 1:Final thoughts here. Well, it does. I mean the economics don't work. I mean, yeah, maybe the government, maybe the federal government builds it as a national security, sort of like you build an army base or you build ice-breaking tankers and cost is sort of irrelevant to them and they will commit to. You know, maybe they'll commit to sell it at the world price, they'll sell it on an index as opposed to what the cost is they've incurred, and the federal government decides to take the hit. Yeah, maybe that happens.
Speaker 1:But in an environment where the nation's already hugely in debt and we're trying to cut down on spending, you think there's going to be a huge wave of support in the other states for a federal of $50 billion or $60 billion, or maybe, if the federal government builds it, $80 billion, as you suggest, boondoggle, I doubt it. I doubt it. It's always great in concept. I mean, I remember the first time it was great in concept. Yes, we're going to build an LNG line, and yes, it's going to be economic. And yes, we're going to build an LNG line, and yes, it's going to it's going to be economic, and yes, it's going to be great. It was, it was great in concept, but then then you get under the hood and you start facing up to the cost, you start facing up to the term that people have to commit to those costs, to that, to that economic structure. Um, and it's just, it's just, it's just a bridge too far for those who are concerned about the economics to cross.
Speaker 2:Well, we're going to watch what happens, but again, I'm not holding my breath. That's the thing Bruce says. Bingo, that's the AGDC's golden ticket. In their mind, price doesn't matter. Now, right, they're going to tag it to some kind of index and say you're just going to pay this flat rate and the government will pay for it, and yada, yada, yada, and they will all be vindicated. The problem is that there's still reality. And again, he only has four years and this project would not be done in four years. There's just no way.
Speaker 1:You can easily see people making these commitments and slow walking the implementation of the commitments. But we need a lot of studies before we go down this road. Yeah, slow walking the implementation of these commitments and then at the end of the four-year term, you know Trump's no longer there, the tariff threats are no longer there. Yeah Well, it was a good idea at the time and I've just seen that go on time and time and time and time again.
Speaker 2:Yeah, rob makes an interesting point, which is why I think it's going to be $80 billion. He said, assuming the $44 billion price tag from 2016,. Just adjusting for inflation puts it at $59 billion. That's not even counting the increased price of steel. So, yeah, I mean that's like I said. I think it's closer to 80 billion dollars by the time you're all said and done. And what state out there is going to say Alaska with only 700? Why would we spend 80 billion dollars there? Right, I mean again, even if it was a national security issue, even like that. You know, like we talked about the those pipelines on the East Coast that were built during World War Two because they weren't economically feasible and federal government built them because they had a need. But we're not at war. It's a harder sell than you know. We're facing Nazi domination or Japanese imperialism, and so we have to do it. We're not facing any of those things right now, so it's a much harder sell.
Speaker 1:And the other thing, michael, is, once we start down that road, once we say, okay, we're going to have a federal government subsidized Alaska pipeline or Alaska LNG project, the senator from Louisiana, bill Cassidy, is going to say, well, what about my projects? I'm building LNG projects here. Why don't I get federal subsidies? Or the Texas people, they're building LNG projects, why don't we get federal subsidies? I mean, you start going down and again I've seen this time and time and time again you just start going down these rabbit trails and you get to the end. You're just exhausted and you realize this project is just not economic. I mean, it's great in theory but it's just not economic.
Speaker 2:Once you put all the pieces together, and I think Henry is encapsulating the feeling of a lot of Alaskans who don't understand the metrics. Go ahead and keep propaganda to not ever build or use our own gas. If not now, then when? Drill, baby drill, build that pipeline, transport that LNG all over to Alaska to provide cheap heat, hot water, dry clothes, cook and power off-road vehicles. Wake up and stop disparaging Support. I can support it all I want, henry. I can't build it myself. You can't build it yourself. You've got to get the bean counters involved and the bean counters will look at it and they will laugh you out of the room because it's not economical as much as we want Alaska gas. For all the reasons you just laid out, it's not economically.
Speaker 1:I don't know how to tell you about the economics of that more. If you don't understand that the economics don't work, I don't know what else to tell you. I mean, it's just it. Just, it's a lot of money and a lot of commitment, a lot of long-term commitment, and there are just better opportunities out there in the world.
Speaker 2:Yeah, I mean the better way to do this. At this point I think I agree with Rob. I mean Rob's put that proposal in for a resolution to get an exemption to the Jones Act, to get a waiver for the Jones Act for Alaska, for LNG tankers only. That would be one way to do it to get it done in the short term. But nobody seems to be interested in that either. Nobody wants their ox to be gored. They don't want to give an exemption to the Jones Act to Alaska. They're making money. Why would they want? I mean, it's a whole thing. It's a whole whole thing. All right, brad. Um, final thoughts here, real quick, 30 seconds.
Speaker 1:Well, michael, uh, uh. I guess the the Chinese proverb. May we live in interesting times. We're certainly doing that. Um, I think that I think we're going to see a huge fight the rest of the session about who pays. Uh, and the battle over who pays, and I'm going to be there with my popcorn watching.
Speaker 2:Yeah, exactly, exactly. We're going to watch Rome burn. We'll be fiddling while Rome is burning at this point, because I just don't see any other way. Brad, thank you so much. Good to talk with you. We'll see you next week.
Speaker 1:Michael, as always, thanks for having me. 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.
