The Weekly Top 3
The Weekly Top 3
The Weekly Top 3 (6.9.2025)
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 June 9, 2025.
This week, our top 3 issues are these: 1) we discuss the issues surrounding the state’s threat to terminate the Cosmopolitan leases (2:01); 2) we explain why we believe a recent op-ed about state child care support fails to address the equally important question of #WhoPays for the support (19:29); and 3) we focus on why what didn’t happen at Governor Dunleavy’s sustainability conference is more important than what did (39:35).
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 June 9th 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.
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 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. 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 what the issues are surrounding the state's threat to terminate the cosmopolitan leases. Second, we explain why we believe a recent op-ed about state child care support fails to address a huge related issue. And third, we focus on why what didn't happen at Governor Dunleavy's Sustainability Conference is more important than what did. And now let's join Michael.
Speaker 2:Let's dive into today's discussions and talking points. We're going to start off with the number one thing right out of the gate. The governor has decided to start talking about some stuff with the Cosmo unit, the cosmopolitan, the gas unit out in the Cook Inlet, the one that's run by Blue Crest, and apparently they're threatening to revoke, to shut down. Who knows, what do we got going on here.
Speaker 1:So it's the commissioner of the Department of Natural Resources, John Boyle. It's not the governor. Let's not elevate it more than it needs to be. Well, directly.
Speaker 2:You're right. I'm sorry, I apologize, go ahead.
Speaker 1:No, no, no, no, no, before the governor's allies start complaining to us that we're invoking the governor's name unnecessarily it is Commissioner of Natural Resources, john Boyle. The headline in the ADN and elsewhere around the state is from a Nat Hertz article. The headline is amid, alaska natural gas crunch state could revoke leases from company whose drilling has stalled out. Is is, as you said, blue crests, um, cosmopolitan unit that's down near you, uh, off anchor point, uh in, uh in the cook inlet, um, and there, and the storyline basically is boyle has issued a notice of default, which is a technical step, a legal step that you do, uh, as an administrator of units and leases in Alaska A notice of default to Cosmopolitan for breach of its plan of development and the penalty for, if you ultimately find them in breach, the penalty, the ultimate penalty, is to terminate the unit and terminate the leases and upon termination, they revert back to the state and it is a dramatic penalty.
Speaker 1:In Alaska I can't recall a major unit. I can recall some minor leases, but I can't recall a major unit that's gone through a default, at least in the last 30, 40 years in Alaska, and so it's a fairly major step. What's going on is this Cosmopolitan is a unit several leases banded together into a unit that has some production from oil, some production of oil, but has also has a huge natural gas find, or at least what cosmopolitan, what Bluecrest says, is a huge natural gas find in the Cook Inlet that has never been developed. And the reason it hasn't been developed is because it's offshore and it would take either some some cutting edge technology or just plunking a uh platform out in the Cook Inlet to uh out over over the over the natural gas deposits to uh uh to produce it, both of which would be very expensive and and carry carry some risk. Cosmopolitan's never undertaken that investment. Uh, because the economics of it are fairly difficult.
Speaker 1:The problem with a huge find or a significant find like that is you need a market to be able to monetize. If you're going to make that investment, you need a market to be able to monetize the production, the volume of production that you're going to get out of it, to be able to pay off the investment, to make a return. And the problem with the Cook Inlet at least since the time when the Agrum plant shut down and we stopped exporting gas out of the old Conoco Phillips LNG terminal the problem with the Cook Inlet has been it's got a fairly small market and it's got significant coverage by existing contracts of that market. So if you have a huge find, if you have a significant find and you make all this investment and you have to monetize it by significant amounts of production and significant amounts of sale, there really isn't an opportunity to do that in the cooking lot because you don't have the markets that can absorb that type of investment.
Speaker 2:So it's sort of a even with the Alaska, I mean, even though we're challenged right now with our own gas. It's not a, are you saying it's not a big enough market to offset those investments?
Speaker 1:market to offset those investments. Well, the problem, the challenge with it, is that shows up sort of gradually over time we start having exposure of tranches of market that is not covered by contracts and you need production to sort of ease into that. That's why the incrementalism of LNG imports or the scalability of LNG imports is so attractive, because you can sort of ease into that one, one ship at a time, or adding another, another ship on top of that, another delivery on top of that, and so it's not really. The market just doesn't show up. Bam, all of a sudden. I I'm not sure I've ever run the economics, even if all the market disappeared tomorrow. Whether the scale of that market availability is enough to make cosmopolitan economic, it may be, but it doesn't show up that way. The market doesn't show up that way. It shows up in these tranches.
Speaker 1:So cosmopolitan has never been developed. And we have this. I mean, as you correctly quickly pointed out, we have this juxtaposition of this cookie and lick crisis of production or of lack of production, lack of gas, compared to the cosmopolitan volume sitting out there, the field sitting out there. That could help offset part of that issue. So it's never been developed. And now we're getting to the point. I mean it's really sort of odd, right. I mean you talk about the cooking, the crisis. You got cosmopolitan sitting there. Blue Crest hasn't developed Cosmopolitan and so you start saying, well, why haven? That was my question.
Speaker 2:Because if if it doesn't work for them because they can't get enough investment, because there's not enough money to be returned. On the other side, I mean the state of Alaska, the one of the the the article made it sound like the state is like oh, there's just people chomping at the bit to get in here and do this and take over this lease and do it. Is there really? Because if they were, wouldn't they want to buy the lease from Bluecrest or wouldn't they want to, you know, wouldn't they want to at least partner up or invest? I mean, if the economics worked, wouldn't, you know? I mean, that's the thing the market needs to play out. Is this kind of pressure helpful?
Speaker 1:Yeah, I mean the thing. The thing that you get a little concerned about is are there investors out there and is Bluecrest asking too much in terms of participation, the economics of their participation? Is Bluecrest trying to negotiate too hard a deal to get those investors in here? I doubt that. I mean, I doubt that Bluecrest is saying, oh you know, you've got to give us a chunk of money and you won't see a return for 10 years because we want to get our return first. I doubt. I doubt that that's what's going on. And so you really got to, you got to question, you got to question whether we gain anything other than you know nice headlines of hey, you know, you guys didn't develop the field, of hey, you guys didn't develop the field, so we terminated you. Whether you gain anything other than those nice headlines.
Speaker 1:Alaska has always been a bit odd not odd, but odd compared to the rest of the industry In the lower 48,. When you have lease problems like this, what happens and you have economic fields and you have good production or good prospects, what happens and you have, you know, economic fields and you have good production or good prospects, what happens is somebody comes in and what's called top leasing in the lower 48. The leaseholder, which is the, or the lessor, which is the landowner or the mineral interest owner, will negotiate a lease with somebody that says, look, if this lease terminates, you get the lease it's top, it sits on top of the existing lease. If the existing lease goes away, then that the top less or less E, takes the position of the, of the, of the existing lessee, and that sort of creates litigation about whether or not the existing lease is is valid or not. We don't have that in Alaska and Alaska goes out of its way, frankly, to hang on to existing lessees because the investments up here are so capital intensive and so time intensive over a span of years that once you've got somebody you want to sort of keep them on the hook. You want to threaten them every once in a while maybe, but you want to keep them on the hook and keep pushing them, because the time it would take to recreate where they are at any given point would be significant.
Speaker 1:The time investment it would take for someone new to come in and recreate where an existing lessee is at any given point would be significant, even more so in this case because the facility isn't out there. The facilities aren't out there to produce this gas. That's the problem. Blue Crest hasn't put them in, hasn't made the investment to put them in. So a new lessee coming in would face the same issues as Blue Crest, that is, you know, the technological challenge of getting the facilities out there and technological challenge of getting the facilities out there and the cost of getting the facilities out there. So have you really gained anything by terminating this lease? So it's an issue.
Speaker 1:I mean some people say oh well, there's gas, hillcrest or Blue Crest isn't producing it and so terminate them and get somebody else in there to produce this gas. It's not that easy. There's a reason the gas isn't being produced, there's a reason that Bluecrest hasn't followed through on the lease obligations and it's not clear that terminating them is going to advance the ball toward the objective of getting that gas produced anytime soon. What the state really should want to do, and probably what's going on here, is the state wants to scare Blue Crest enough and threaten the economics of what they've invested already, enough to force them into a sale to somebody Probably Hillcorp Preferably Hillcorp who has existing know-how and existing facilities inside the Cook Inlet to come out and do this. So there's a tension going on here. A game the state's playing, probably targeted ultimately on a sale, but it's interesting and to hear people say, oh yeah, absolutely, we ought to terminate that lease. They haven't produced anything, it's time to get somebody in there that will. It's not that simple.
Speaker 2:Well, and how much of this is pressure? Because blue crest and hillcorp were in the midst of a deal in late 23, uh, but they couldn't come to terms on profits and cost splitting right, so they were going to joint venture and do some things. So is this just a final thought here? Is this just more of a power play to push that deal or to push an outright sale? Do you think I it of a power play to push that deal or to push an outright sale? Do you think?
Speaker 1:I. It's a power play to push something, uh, to push blue crest to do something. I think termination is probably the last thing the state wants to do. But it's a power play to push blue crest to do something. And if and if hillcorp is that something, I mean, then you have further monopolization of the cook inlet. That's not good either, but it's a push to get Blue Crest to do something. And and, and you know, blue Crest is sitting there going look, we'd like to get money out of this deal, we'd like to do a deal with somebody, but it has to be on decent terms. And so you know, we're still trying to find that person out there.
Speaker 2:And, of course, creating a monopoly in the Cook Inlet? Never could. I mean, you know, a monopoly at this point is not a great idea, but that seems to be the direction everybody is trying to push at this point. It's kind of crazy. Brad does this for fun. Who pays Brad for his weekly commentary? I mean, brad does this for fun, I. I mean, I know it's weird, but he does it for fun. Um, but yeah, the state is, I don't know, this push. Uh, why would you want to conglomerate any more power into hill corp, who's already shown that they will? I mean, I guess, never let a crisis go to waste, right? I mean, it just seems like a monopoly in this case doesn't make much sense. I mean it might make much sense from a vertical integration standpoint of only having one player out there so you don't have to duplicate effort, et cetera, et cetera. But it doesn't make much sense for Alaskans, as consumers and producers, to have a single source, because that means they're kind of at the mercy of the single source, right?
Speaker 1:Yeah, we've sort of found that out. But Hillcorp already has an effective monopoly. I mean, I did the HHI's Hirschman-Hirffendahl Index, which is how you measure the degree of market concentration, uh, concentration in a market. Um, I did the HHIs for a column a few, a few weeks ago and the HHIs are off the charts. I mean they're, they're in any other market. The department of justice, even the Trump department of justice, or the federal trade commission, whoever had jurisdiction over it, would be all over it. Uh, but the HH. But we've already got effective monopolization and with Hillcorp's pending acquisition or proposed acquisition or I don't know, may be completed by now. Acquisition of Marathon's LNG terminal, the old ConocoPhillips LNG terminal, and turning it around to use it as an import heck, that increases the HHIs even more. So Heck, that increases the HHIs even more. So Hillcrop already effectively has monopolization.
Speaker 1:This would be a big step because basically, if they acquired Cosmopolitan and if they produced it, it would take away the potential competition of LNG imports into the Cook Inlet as a potential competitor. That has some constraining effect. So it'd be another huge chunk in it. But we're already at I mean we're at the stage where what was it last session, a year before a year ago, when Kathy Giesel brought up the potential of fixing the C-Corp tax issue, the S-Corp tax issue, hill Corp sent a letter that said, hey, we'll just shut down the Cook Inlet investment. They said kinder words than that, more lawyerly words than that, but basically said we'll shut down investment. And Giesel backed off. So yeah, they're already exercising monopoly power out there. This would be another step in that.
Speaker 2:Yeah, it's a nice gas field. To be ashamed if somebody put the plug in it, right. I mean, that was kind of essentially what they said to Kathy Giesel and got it scored away. So what do you think happens here, brad, as you look at this tug of war? Is it just a warning shot? Is it just to play nice play ball? What do you think is going to happen?
Speaker 1:I think Boyle keeps pressing. I mean, we know the field's there. Bluecrest has made public statements about it being proven reserves, which means they have a high degree. I've never really heard proven reserves about a field that's never produced before, but proven reserves, and so they have a high degree of, of, of, of, of a high sense that the reserves are there. And I think dnr keeps pressing.
Speaker 1:But the problem is hillcorp, not hillcorp. I mean blue crest sort of sits there and goes, yeah, okay, you want to take it away from us. You know, you know it's not going to improve your situation any Right. And Blue Crest keeps saying, oh, why don't we have Ada, give us more money, give us more money to pursue the objective of development. It is not a good situation and the reason it's not is because of the size of the cooking market. If we got an LNG line I don't think we will, but if we got an LNG line down from the North and we had an LNG plant, that would change the dynamics a little bit and Cosmopolitan would then sit there going well, we have the potential of being able to export some of this and that would change the dynamics. But by then we will otherwise solve the cooking.
Speaker 2:And we're not just talking about one lease, chris. Chris is talking about. One lease is not a monopoly. I mean, the problem is, is that there's not that many players, that the one lease is not, that it's just a continuation of a monopoly. That's already kind of happening, um, since there's only really essentially three main players in the cook inlet and blue crest is one, so uh, with hillcorp being the dominant giant. That's what we're talking about.
Speaker 1:All right, chris needs to go back to Economics 101.
Speaker 2:The weekly top three continues. We're on to number two of three. Look, I can count, mom, one-sided analysis really irritates Brad. I mean Brad just gets and is it really analysis? I don't know know. I read this piece and uh, um, I mean, you're calling it one-sided analysis, I call it a pablum for the masses. At this point it's not even really it it. I was just irritated reading this article. Brad. It just like, talked down to me like I was five or something. I I mean, it's just, uh, the whole thing was so. Go ahead, tell me about how this one-sided analysis really irritates you.
Speaker 1:Well, there's a paragraph that has an analysis in it, and I'll get to the paragraph in a second, but, uh, the opinion piece is from Kevin Berry, who's a UAA economics professor. Uh, which is which is what caused my, caught my eye and and made me want eye, and made me want to read the piece, because Kevin's pretty balanced about economic issues. The opinion piece is please and thank you, please and thank you these are nice words that we can say, and it's about the legislature passing and, in Kevin's view, Governor Dunleavy, supporting the extension of child care credits, both subsidies as well as tax credits for child care facilities and child care employees. In Alaska, providers are struggling with an economic model that cannot simultaneously provide care that is affordable to all families in need of care while also paying wages that caregivers and teachers deserve. This funding is a lifeline and basically, as an economist, what Kevin is saying look, the economics of child care facilities don't work in the in the current Alaska free market you don't get.
Speaker 1:Parents. Potential users, potential customers of the childcare facilities can't afford the prices it would take to be able to maintain these, create and maintain these childcare facilities and pay the wages that need to be paid to attract the workers that would need to be there to make the childcare facilities and pay the wages that need to be paid to attract the workers that would need to be there to make the childcare facilities work, that there's a gap in market forces between the willingness to pay or the ability to pay on the part of potential customers and the economics of what it takes to make that business model, the business model of of child care work. And so this funding and what kevin's talking about with this funding, this funding of of of the child care credits, tax credits uh, for corporations, basically, because we don't have taxes on anybody else child care tax credits and the child care subsidies, that funding is a lifeline to make those, the economics of child care facilities, work. What you're doing is you're essentially saying that that there are, there can be, subsidies to the business side, the business model side, subsidies in terms of payments by government or tax credits to corporations who would then fund these child care facilities and make the model work. They can then keep the rates low enough to make it attractive to parents, to fit the economics of parents and all of that.
Speaker 1:You know I don't argue a lot with that economic analysis, but here's where I think Kevin fails. Here's where I think this article fails and why it just irritated me to see it fail in this way. He's not considering at all the economic impacts, the economic side of who's paying for these credits, the economic consequences of generating the revenue necessary to fund these tax credits, to cover the gap created by these tax credits or to fund the subsidies, the direct subsidies, that are being paid by government to that particular business segment. And we know it's not like it's a mystery out here. We know who the marginal source of revenue is for these sorts of programs, and it's PFD cuts. And PFD cuts hit the very people that Kevin tells us he's talking about in this article middle and lower income Alaska families hit middle and lower income Alaska families hardest.
Speaker 1:Indeed, one of Kevin's co professors at you in UAA economics, matt Berman, has said that it pushes PFD cuts, push more people into poverty, and you can see how that was. That is, if you're sitting on the poverty line, above the poverty line, you take out PFD income, you drop them below the poverty line, right, um, and so you're pushing more people into poverty. You're, you're affecting middle and lower income Alaska families. You're pulling revenue out from underneath income from underneath middle and lower income Alaska families. You're making them poorer and making them more economically challenged at the same time as you're using that money and then funding childcare. So you're really subsidizing those in the middle and lower income Alaska families who are, uh, who have children and who are able to put those children into childcare. It's taking money out of everybody's pocket in order to or in order to subsidize one subset uh of uh, of that, of that, uh, that group. And it seems like the perfect opportunity when you're talking about child care. It seems like the perfect opportunity to talk about the economics of the revenue side, the economic impacts on the revenue side, as well as the economics on the market side, on the spending side.
Speaker 1:And Kevin just completely doesn't, doesn't do it and I think, I think that's a huge, it hugely irritates me, because that's what economists should be doing. They should be talking about both sides. They shouldn't be talking about the impact on both sides. They should be concerned as much about doing what's what, what they believe is needed to do on the market side as spending side. They should be as concerned about doing what they believe is needed to do on the market side as spending side. They should be as concerned about doing what needs to be done for those same goals promoting families, keeping families together, allowing two income families, promoting those goals on the revenue side, because revenue policy can have an equal effect, because revenue policy can have an equal effect, equally damaging effect on the revenue side. Revenue policy can, as spending policy can. So I think it's a huge loss, a huge absence of analysis that should have matched that paragraph. That's talking about what's going on on the market side, on the spending side.
Speaker 2:Well, what I find amazing is here's an economist, a professor, right, I mean, he's an economist, and yet he's advocating for the government to come in and essentially distort the market. Right, I mean, already the market distortions have happened with regulation and everything else and basically saying that, oh, the government needs to come in and bail this out because it's not economically viable, caused in part by the viability of. But what about the personal responsibility aspect, brad? That's what kills me. You talk about the one paragraph that really caught your attention.
Speaker 2:What caught my attention was the paragraph was two paragraphs before that, when he says I want to thank our leaders in Juneau who are making investments and making sure that access extends to more families, that more mothers and fathers can work if they choose and more kids have access to quality care that prepares them for a lifetime of learning. This funding will enable more families to have the access to the dignity of work without sacrificing the safety of their children. What that says to me is well, they're sacrificing their children. You're making choices and there are consequences to those choices. Why do you have children if you're just going to farm them off to somebody else? For the dignity of work. I mean, it's competing priorities here and he's looking to the government to be able to make sure that everybody can have everything all the time. And that's the problem. You're an economist. That's not sustainable.
Speaker 1:Yeah Well, you're asking a different question, and a valid question, and I certainly don't want to argue with the validity of it. But you're asking a different question than I am. I mean, I'm asking a much more. If you're going to ask a strictly economic question.
Speaker 2:I'm asking more of an overall arching question. Yes, I understand question?
Speaker 1:Yes, I understand. I'm asking, if you're going to say this about the market side, why don't you address the revenue side, the supply side, at the same side, the money supply side at the same time? Because they're both equally as significant issues. They both have the same equal impact. I mean, my God, you're talking about pushing people into poverty have the same equal impact. I mean, my God, you're talking about pushing people into poverty.
Speaker 1:On the, on the, on the PFD, you're making PFD cuts, pushing people into poverty, in order to support this, this lifestyle choice, by, by a certain sub-segment of middle and lower income and indeed upper income, uh, uh, indeed, top 20% Alaska families. I mean, there, there's no limitation on who can, who can uh access childcare, and certainly you, you would expect some of the top 20% uh are doing it. So that's, that's, that's my issue. I understand your issue, Um, and, and that may be a great issue for you to talk about in the, in the next segment or in in in your segment, but, but I want to. I, Kevin, Kevin, should have focused on both.
Speaker 2:I definitely see your point, yeah, no, I definitely see your point from an economic standpoint of saying, hey, you can't talk about one without the other. What about the economic impacts of taking from one sector versus defeat another? Essentially, you know wealth redistribution in that regard. I totally understand that. I just find it ironic that these people you know that this is obviously a there's obviously a multiplicity of problems with his opinion piece and you and I are catching just two of them together that are similar or different.
Speaker 1:I mean, I mean it's it's part of the, it's part of the much bigger issue of of Alaska is a very expensive place to live and Alaska is also small sort of the same sort of economic issue as the cosmopolitan issue. I mean, you don't have, from the child care standpoint, you don't have a broad enough base in terms of either customers or workers to make the economics quite work. I mean, if you had a lot of customers, then the economics would work better, but Alaska is a small place. We don't have that many families. If you had a broad population of workers, then the economics would work better because you would have a broader group of people to bring in to help work in these things. And so it's sort of you know, alaska is a tough place.
Speaker 1:Basically, what we've done is we have asked government to support or government to subsidize living in this tough place, in this sort of economic environment by subsidizing things that otherwise don't work in the limited market we have. And that's, I mean, that would be Kevin's answer, I think, to your issue about why are we doing this at all. He would say look, alaska is a tough place, the costs are high. We need this sort of support in order to maintain living up here. But my retort to that is okay, kevin, I'll give you that for the sake of argument, for the sake of continuing this discussion. I'll give you that Then. Why is it okay to be pulling income out of the pockets of the very people you claim to be promoting? Is it okay to be pulling income out of the pockets of middle and lower income Alaska families in order to subsidize this one sort of small subset of Alaska families? And it's not. It's not.
Speaker 2:I mean, you're it exacerbates the same problem. You don't think those people in middle and lower income are having exactly the same problem trying to get their own child care, and now you're taking the money from them? I mean, it's a self-l ice cream cone at least, yeah.
Speaker 1:And to some degree I mean to some degree, to sort of use this to make another point I sometimes try to make you're pulling money out of the pockets of middle and low-income Alaska families to subsidize the top 20%.
Speaker 1:Because top 20% people are taking or families are taking advantage of child care as well. There's no limit on the subsidies related to income. The subsidies go to child care providers, the employees, or they go to corporations who set up the tax credits go to corporations who set up the child care facilities, and so there's no income limit. You know, the president of Conoco's if he has children of this age, probably doesn't, but the children of the vice presidents of Conoco can go to their facility, the same as you know the bottom rung employees can go to those facilities, and but yet top 20 percenters, but yet we're having middle and lower income alaska families be the ones to subsidize that by taking, by taking income out of their pockets. It is. It is a. It is a one-sided piece, in my view, a one-sided economic analysis of the argument, designed to support the subsidies but without thinking through the consequences of who's paying for the subsidies.
Speaker 2:Brad, this reminds me of a opinion piece that we were listening to last week. I'm sorry I'm scrolling back to it because I was just so agitated by the attitude of the person who wrote it and again, it was talking about child care and things like that. I'm sorry, I'm just trying to Because I was just so. Essentially oh, I don't see it here right off the top, right out of the gate, here in the opinion pieces, essentially the guy's telling a story about how he had two children I was talking about Dunleavy's education and how the costs were being higher and one kid went to school out of state and then didn't come home because they made cuts to the university, right. And then he had another kid, who was another kid, who had just gotten married and they just had a kid and they just bought a house and they couldn't afford child care and they were both working.
Speaker 2:And I'm thinking, why is this? Why is any of this my problem? I mean, they chose to, you know, go to work. They chose to have a kid, they chose to buy a house, they chose all those things. And yet he's saying that what we need is we needed more government subsidies so that they could continue to do all the things that they wanted to do. Where is the personal responsibility aspect of these things as well?
Speaker 1:Yeah, well, there isn't. I mean Alaska we take for granted. I mean there was a piece that I sent you and Rob from the Fairbanks News Minor about how heavily involved government subsidies are up in Fairbanks. Just shockers. Like 70% of every dollar starts with the government up in Fairbanks, either federal government or the state government Just shocked me. I mean, we are a heavily subsidized state and what you get, both from the federal standpoint and from the state standpoint, and we're heavily subsidized because it's expensive to live up here we don't have a huge market and so you know we need price, basically price supports, in order to have, in order to have the kind of lifestyle that that that people say they want. I mean this goes.
Speaker 1:We had, we had this discussion back in the early 20 teens with the artificial football fields, right, the artificial, putting artificial grass on football fields.
Speaker 1:It was.
Speaker 1:We had a bunch of Texans who came up here who had played on, you know, played football and won their kids to play football and won their kids to have artificial one, wanted to have the latest and greatest one and to have artificial turf, and so we had the government paying for artificial turf on the frigging high school football fields where you had like two games a year, paying for artificial turf on the frigging high school football fields where you had like two games a year, three games a year, to subsidize that particular lifestyle.
Speaker 1:In Alaska we've gotten used to this subsidized lifestyle. But now we've gotten to the point in the early 20 teens we were subsidizing it. In the mid 20 teens we were subsidizing it on the backs of future Alaskans because we were drawing down savings in order to maintain that lifestyle. Well, we ran through those, we ran through the pot that we had set aside for future Alaskans. And now we're starting to have cross-subsidization from middle and lower income Alaska families through PFD cuts to some upper income Alaska families through through through childcare subsidies. And we've just gotten we've just gotten so used to it that we complain when it's when, when there's not more, when we complain that there's not additional subsidies to make our life even easier up here.
Speaker 2:Yeah, yeah, no, I mean, that's been the problem in Fairbanks for years is that when you've got, you know, approaching 50% of the people are working for government in one form or another. You know, in the, in that community, and then on top of that, everybody is, you know they're subsidized in one form or another through some form of government spending. It makes it very, very difficult, you know, that makes it very, very difficult to to see that as from an economic standpoint, for sure. But yeah, this is, this is frustrating to watch this whole thing go on with this tug of war over. You know why not just let the free market work in the way that it's supposed to? We've got all this distorting and this malinvestment because government is interfering at every level instead of letting the market sort itself out. But it's just like we can't do that, and this is all I think it comes back to again the power and the money of it.
Speaker 1:Yeah, it is. That's part of it. Certainly. I mean legislators get to play hero by saying I'm going to sprinkle some fairy dust on your segment of the population so you can thrive. I mean, why do we do it? We do it because otherwise we'd have 400,000 people instead of 750,000 people in the state. I mean, if we went to a pure market economy, the state would be a lot smaller. We saw what that was before oil and we would see it again. And so what we've got is a bunch of people who say, oh, we don't want to go back to 400,000 people. And you know, we want to come up here and we want to be able to live the Alaska lifestyle, but we want to live it with Texas price supports, you know, texas amenities, and so we want, since nobody else is doing it, we want government to do it. It's just it's. I mean, kevin's article in that respect is just consistent with a bunch of other with a bunch of other articles.
Speaker 2:We're going to continue on here. Number three of the weekly top three and that's what didn't happen at the governor's conference in Japan. As he was trying to go out there and shop the idea of an Alaskan LNG line out to the various Asian markets, Brad, what didn't happen? That should have happened.
Speaker 1:Well, I'm talking about the governor's sustainability conference last week where he had the three administration officials and had a bunch of delegates over 1,000 delegates is what the reports are at the sustainability conference and had the three the Secretary of Interior, secretary of Energy and the Director or the Administrator of the EPA up here. You know, touring the North Slope, touring the Cook Inlet, focused on Alaska LNG. A lot of talk about Alaska LNG here's what the New York times and other publications said in April was was the target, the focus of this conference I'm quoting from the times uh version a group created by Mr Trump that is advising him on domestic energy production, the national energy dominance council, is seeking to convene officials from the trade ministries of both Japan and South Korea for a summit in Alaska on June 2nd. According to three people with knowledge at the summit at the summit that they have received signed letters of intent from Japan and South Korea to invest in Alaska LNG or purchase its gas. The people said Taiwan formally signed a similar letter of intent to purchase gas from Alaska LNG last month. So the goal let's just step back a couple of months, the goal of the conference and the goal of getting the administration officials up here around the Governor's Sustainability Conference was to have trade officials from South Korea and Japan participate and to sign letters of intent similar to Taiwan at the conference, have a big signing party under the lights at the conference.
Speaker 1:Didn't happen. Now there's reasons it didn't happen. South Korea is going through an election in which the incumbent administration, the incumbent president, was voted out and a new president was voted in who has significantly different policies on in a number of areas, possibly including energy, has a significant number of of of issues on that. So South Korea was in a was in the middle of an election campaign and really not not well placed to to come, come sign things. Japan, on the other hand, has some political instability, but was not in the same place as Korea and Japan could have.
Speaker 1:I mean, it doesn't have internal reasons why it wasn't in a position to do so, but also didn't. They both had officials there, but the officials there at the conference. But the officials weren't particularly high ranking and there was no discussion during the conference of those officials being in a position to sign things, sign letters of intent while they were at the conference. So you really have to sort of back up and say, okay, well, this was the goal of having the three administration officials up there. It was the goal of part of the conference to have a signing party, a public signing party with commitments, expressions of commitments, by Japan and Korea, and it didn't occur. What does that say about the projects?
Speaker 2:Right, when you first sent me this topic, I thought I had to go. Is he talking about the sustainable energy? I was cause. You know cause, again, it didn't really even make the news that there were officials from South Korea or Japan or you know that was. So I was like confused. What does it say for it? It doesn't look good from the outside. As a just a layman on the outside looking in, it's like wait, I thought this was supposed to be the big beautiful pipe thing. I mean, what's go? What's going on?
Speaker 1:Yeah, well, they made the most. They made the most of what they had, which was they had three administration officials that could tour and talk about things and and say say great things. Although when asked when the when the secretary of Interior was asked whether the federal government would help pay for it, his reported answer, reported in the newspapers was well, you guys have a big sovereign wealth fund, you ought to pay for it, not the federal government. So they made as good a thing as they could out of what they had, which was the three initials up from DC. But it didn't meet the goals that had been set forth, the objectives that had been set forth earlier.
Speaker 1:And I think it does mean a couple of things. The trade talks aren't very far along because the Japanese and the Koreans are not going to make commitments to Alaska LNG unless they're in conjunction with commitments on the US side about trade. And the Japanese-US discussions are going slow on trade. The Korean discussions are just going to wander around for a while while the new government gets in place and figures out what its trade policy is and how to approach the Trump administration. So it means the trade talks are going much slower, I think, than one of the things it means is that trade talks are going much slower than otherwise anticipated and I think for that reason, clearly Alaska LNG is going to go at a much slower pace.
Speaker 1:It also means that we don't know what the economics are and nobody's going to make Taiwan did, but they're so ephemeral they're. So you know uh, uh, uh, often the myths that they're not really commitments. Um, nobody's going to make commitments, significant commitments, until we know what the economics are. And uh, and Glen Farn says they'll have the economics by the end of the year, which is sort of stunning. Even Exxon couldn't pull that off when they were trying to tie down the cost. But Glen Farn says they'll have the economics by the end of the year and we're not going to have people stepping up, we're not going to have countries or companies, potential purchasers, stepping up to make these sorts of commitments until we have the economics down.
Speaker 1:So it probably was. If somebody had sat down, looked at the calendar and looked at where we were on the economics and looked at where we were on the trade negotiations, they probably wouldn't have made that prediction or that projection back in April. But they did and it didn't happen. It's significant that it didn't happen. The LNG conference made, or the sustainability conference made, as much as they could about what with what they had the three people up from DC, but this core goal didn't happen and it sort of tells us that things are not on as good a track as some had hoped and has and as some had projected at the time that they made those statements.
Speaker 2:60 seconds now, brad, you and I have talked about this that there's a lot of pie in the sky going on, a lot of positivity. It's as if we're going to talk it into existence. But the economics are the problem. That's what doesn't lie right.
Speaker 1:The economics are the problem. That's what doesn't lie right. Yep, economics rule, economics rule. It has to pencil out People are not going to jump, countries are not going to jump and make these commitments because of trade deals, because the trade deals go away in four years when the administration changes. So economics, fundamental economics rule.
Speaker 2:And that's always been part of the problem with the Alaska gas line is that the economics just don't work as they sit right now. Maybe something will change, but we won't know. I mean Glenn Fard says the end of the year. I think that's highly optimistic. We'll see what actually happens out of that. Yeah, I mean I've run into people Somebody bent my ear the other day when I was at the harbor fest thing and they're just, they're so excited. The gas line's just going to coming. The gas line's coming, it's going to be. You know, the president's going to make it happen, is going to, and.
Speaker 2:And my question was well, but again, how does it get paid for? And if the economics don't work out, are you okay with the federal government picking up the tab? I mean, there's all these problems, but people are just convinced that it is the solution to all. I mean, yes, it would be a great solution to our problems if it could work out. But I'm just not convinced. After years and years and years of hey, it's just around the corner. Hey, it's just around the corner. Hey, it's just around the corner, I'm not convinced that that's actually what's going to happen here.
Speaker 1:Yeah, and you know people say oh well, we've got a federal debt guarantee, that you know, 30, some odd billion in federal debt guarantee that's going to make it happen. That's what you know, I've been told. That's, brad, what you never consider. You don't consider the impact of the federal debt guarantee. Well, all the federal debt guarantee does is lower debt costs. It doesn't eliminate costs. It's not a subsidy in the sense that it takes $10 billion worth of expenses that have to occur or $10 billion of investment, and wipe it off because the federal government's going to pay for it. That's not what the debt guarantee is. What the debt guarantee says is if you issue debt and the federal government backs it up if the project fails, once it gets going, if the project fails, then the federal government will pay out the debt payments and what that does is lower your debt costs from I don't know. Just to pick numbers out of thin air from 10% debt costs down to 6% debt costs. I mean federal government debt costs right now are 4%. I mean the federal government debt issuances are 4%, so it's going to have some premium over that. So it lowers your debt costs down.
Speaker 1:Yes, that improves the economics, but not hugely. It's not like you wipe out, you know. It's not like the federal government is going to pay a $10 billion direct subsidy to take out a bunch of the costs. It's just going to lower your debt costs and that's not enough. I mean, I've run the economics both a long time ago and currently. That's not enough to move the needle a whole lot that you're going to reduce the debt costs. So, yeah, people go around saying, oh well, federal government is going to come in with this debt guarantee and that's going to solve everything. That's not going to solve much.
Speaker 2:No, I mean, what's the? We were just talking about this a few weeks ago. I mean, you know, it was 2017, eight years ago they were saying it's $44 billion. I mean today, with tariffs and steel and changes and, of course, costs going up, I mean, what are we talking about here? Are we talking about an $80 billion project?
Speaker 1:No, you could be. I mean the contingency factor. The way you do these deals is you sort of price them based upon the market of the day and then you put in a contingency factor. The contingency factor on something like this has got to be huge, because you don't know what direction the administration is going to go. You don't know what's going to happen uh, uh, out there in the, in the, in the, in the world, in terms of uh, in terms of uh, uh equipment costs, or in terms of materials costs, or in terms of even employee costs. You just don't know.
Speaker 1:So by the time you add in the contingency factor, you could get a fairly high number. And even if you exclude the contingency factor, even if you layer in lower debt costs, it's not going to move those economics all that much. So I think, to get back to the point, the people in April who were saying, yeah, we're going to get signed deals, we're going to have a signing party at this conference in Alaska in early June, I think they were just, I think they were really overextending themselves. They were out over their skis, uh, in a big way, and we've just seen that. We've seen that play out once we got to once we got to the conference.
Speaker 2:Yeah, and I mean again, this is not one of those things where you want to be able to tell people I told you so because you're sitting in the second train car. When you said, I told you you were going to go over the cliff, you want to be on the outside watching the train go by, you know, kind of thing. So it's a difficult thing. Brad, what are you watching for the next couple weeks here? What are you keeping an eye on in Alaska on this, since we're kind of in the off season, so to speak?
Speaker 1:Next big thing up is governor's vetoes. What's he going to veto? How's he going to explain the vetoes? Are the vetoes going to be so big the legislature gets motivated to come back in? Likely, not, uh, uh. How many bills is he going to veto? I read, I read, an interesting fact they haven't sent him. Uh, the tax bill, the, the bill that hb1 or sb113.
Speaker 2:They haven't sent it to him yet yeah, and they're, and they're waiting on.
Speaker 1:the speculation was they might wait until December to send that to him so that he would have to veto it right in front of the right in front of the new start of the new legislature and potentially use it as a way of overturning, having that legislature come in and overturn it. The budget vetoes are the next big thing and we're going to see, you know, we're going to see whether the governor's going to walk the walk or walk the talk about, you know, being cutting down costs and you know, controlling spending and all the sort of stuff he said over the last eight years, or whether, once again, he's going to, you know, make a few clips here and there and then sign the bill and go on from there.
Speaker 2:But that's the next big thing on my-. You think he's going to veto the funding for HB57?
Speaker 1:I think he will do some veto of it. Just to make his point, whether he will go down below the 600 mark, what is it? 700 now? So whether per student bsa right increase, increase, so whether he will 580 or whatever, yeah, whether he will go down below the 600 mark, uh, but I think he will make. He will certainly make some uh veto. And I know the school boards are just sitting on pins and needles out there wondering what the hell? You know, how how do they their their budget for the coming school year that starts at the same time? How do they do their budget for the school coming school year without knowing what the governor's number is going to be? But I think he'll make it. I think he'll make some veto there.
Speaker 2:And that'll just set us up for next year. That'll just set us up for the argument for next year More school funding. That's what it'll be All right.
Speaker 1:All right, brad, thank you so much Appreciate you coming in. It's good to see you, my friend Michael. As always, thanks for having me.
Speaker 2:All right, we'll see you later.
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 on the Weekly Top Three top three.
