The Weekly Top 3
The Weekly Top 3
The Weekly Top 3 (10.13.2025)
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 October 13, 2025.
This week, our top 3 issues are these: 1) we discuss EIA’s most recent oil price forecast, why the oil futures market is starting to trend the same way, and what that means for Alaska’s fiscal situation (2:12); 2) we explain how all of the enthusiasm over the Ambler road and other new projects could end up causing even deeper PFD cuts (16:02); and 3) we explain how Jon Faulkner’s Permanent Fund inflation-proofing argument in Must Read Alaska undermines both the current two-account system and the PFD (35:39).
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 Keatley, 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 October 13th, 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 a.m. I join Michael weekly in the first hour of Tuesday's show from 6.10 to 7 a.m. 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 project page on national blog site, medium.com. 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. This week, our top three issues are these. First, we discuss EIA's most recent oil price forecast, why the oil futures market is starting to trend the same way, and what that means for Alaska's fiscal situation. Second, we explain how all the enthusiasm over the Ambler Road and other new projects may result in even deeper PFD cuts in the future. And third, we explain how John Faulkner's permanent fund inflation proofing argument in must read Alaska undermines both the current two account system and the PFD. And now, let's join Michael.
SPEAKER_00:Weekly top three, and it all starts off with um where is oil going? And what I mean by that is the price of oil, because of course our whole economy is built on this madness. And uh and here we are, this command economy, and uh and and we're kind of at the mercy of it. So tell us what's happening in the uh in the oil situation. Where do we go? Where do we go from here, my friend? Where do we get started?
SPEAKER_01:A couple of months ago, we uh talked about on the show the latest, then latest uh energy information agency administration, energy information administration for uh uh price forecast for the uh following, oh, I think they do it for 18 months, year and a half uh forward. And the August forecast from EIA was significantly different uh from the forecast that had that had been making up until that point. It reflected the impact of the OPEC production increases uh and showed a significant softening in the market as a result of oversupply. Uh, significant softening in the market uh and a significant drop in price to absorb that additional uh oversupply. Um uh futures prices were up in the high 60s, touching 70 uh at the time. And I know a lot of people discounted uh that projection. Um EIA came back and did it again uh in September and made the same projection about where price was going. Um and prices had softened a little bit uh in the futures market at that point. Um, and now they've come back again in October and continued to make the same forecast. And what we're beginning to see is the futures market is beginning to trend down. Um, not as far as the projections yet, but the trend from where it was uh and where it is now gives you an indication that it may be going where EIA thinks it's going. Um EIA is is what EIA is seeing, and what the IEA, another uh energy uh uh source is doing, energy analysts are doing, is they're seeing this OPEC production um really hitting the market hard, uh resulting in storage buildup because there's no place else for it to go. And when you have when you're building storage, that really softens the price because people would prefer to sell the oil rather than put it into storage and incur the incur the storage fees for an extended period of time. So it really impacts price. And what EIA continues to see is the OPEC production continuing to uh uh continuing to stay high and continuing to build res uh build uh storage and and bring the price down. What happened the last couple of months is two things. One, you still had summer demand, um, summer refinery demand, refined refineries, oil demand is strongest in the summer, in North American summer because of gasoline. So you still had summer demand, and that was sort of masking what was going on. And then the Chinese have been building their own storage, have been buying uh oil on the market and putting it into storage. Some people describe that as the K as the K oil industry, uh, with uh with real oil demand, uh consumption demand going down or softening, and uh the Chinese demand going up as a result of storage. But EIA, both EIA and IEA see that storage, see China sort of end nearing the end of that storage. And as a result, they're continuing with the uh with the price projection. If you have the chart uh and can throw that up on the screen, that would be great. You were just waiting, weren't you? Um so this is so this is the sorry go ahead. No, I was just waiting for it. Go ahead. So this is this is the EIA forecast from October from last week, and it shows prices continuing to soften. The the the it's divided into calendar quarters. As we all know, the Alaska fiscal quarter runs from the middle of the year to the middle of the next year. Um so the beginning of uh 2025, really the the line that they have in the middle is the beginning of the Alaska fiscal year. It's the middle of the calendar year, but the beginning of the Alaska fiscal year. And you can see over the course of the Alaska fiscal year their projection uh coming down. The latest, the the October projection has the average for the year has it has it coming down to oh an average of$52 uh in the fourth quarter. Um and the average for the year uh in the EIA forecast is$59 uh a barrel uh Brent. That's compared to the initial forecast, the initial spring revenue forecast uh of$68 or$68 that uh that was forecast at the time that the spring revenue forecast came out and on which our budget is based. Um and it also compares to the$64. If you'll recall, after the legislature passed the budget out, Department of Revenue came out with a different forecast than the than the spring revenue forecast or revised forecast for FY26, uh took it down to$64, and the governor's vetoes were based on that$64, the revenues come coming from the$64. So the legislature, you can you can see it in the ledge finance uh publications. The legislature still thinks that we're at$68. The governor's budget, which the legislature partially rejected, was at$64. And now EIA is telling us that we're headed toward$59. The current futures market is at$64 average for the year. So it's down from certainly from where the legislature thinks the market is. It's on, it's it's the same price that the that the governor's that the governor's vetoes were based on, but EIA is telling us it's going even lower. The result of that is that if if EIA plays out, and as I say, the futures market seems to be increasingly believing that's where the market is going, um, if that plays out, then we're we're talking about UGF revenues, unrestricted general fund revenues. The legislature thought that they were going to be at$2.33 billion. The governor's budget was based on$2.1 billion, down$230 million from uh from that. Uh, but EIA's forecast is now sending us down to about$1.9 billion, a little bit over$1.9 billion. Long, long way of getting to this. People are still acting as if oil prices are going to be high for the year. Um, the legislature is still acting as if they're going to get$68. Uh, the administration said said it was$64, and then you have um uh the Department of Revenue, former Department of Revenue head uh Adam Crumb going off and investing$50 billion$50 million uh out of the CBR because he said, Oh, we're not gonna need it. Well, we are gonna need it. I mean, if if this if these prices keep going down, uh we're gonna have we're gonna have a very difficult FY25 and the EIA forecast for FY FY26 rather, and the EIA forecast for FY27, the current EIA forecast for FY27 is$53 a barrel, even even lower. So those who are running around thinking, okay, we're gonna be okay, um, and and you know, we're gonna we're gonna get through this okay. Prices aren't gonna be great, but we're gonna get through the the the very tight budget, as some said, that we passed this last year. If prices keep going in this direction, then EIA is telling us again and again and again that's where they're going. If prices keep going in this direction, we're gonna have a very difficult uh uh spring next year as everybody sort of wakes up and says, where did all the revenue go? Um, and we're gonna have an even more difficult heading into even more difficult time heading into FY27 uh with uh with prices projected at$53 a barrel. It's gonna make for a very interesting election year.
SPEAKER_00:Well, I mean, this is what we've been saying for the last 10 months on this program that the next, you know, that the next year is going to be, you know, in some ways ultimately brutal, and we're we should be prepared for it. And yet they and and and it was mentioned during the last session. I mean, uh uh Bert Steadman was like, well, we know it's gonna, but we don't want to pay attention to that. Don't pay attention to that. We want to focus on this year. You know, again, the short-sightedness, uh, it's mentioned in passing, and then it's a shock. Shock, I tell you, that we're out of money and we don't know what to do. That's that's kind of the this is like a redo. Like I said, groundhog day.
SPEAKER_01:Yeah, the supplemental, um when uh when Ledge Finance issued their last newsletter, they were talking about what was going to be needed for the supplemental. And they said, well, of course, we have this reserve that was that the surplus that was set aside uh in the spring budget based on$68. Uh we have this reserve, but we're even gonna outspend that uh on the supplementals. The supplementals are gonna be bigger than the reserve we set aside, so we may have to go into the CBR sum. Well, that's based on that that statement's based on$68. That they they continue to rely on the spring revenue forecast as opposed to the revised revenue forecast that Department of Revenue came out. That's not true at$64, and it's certainly not true uh at$59, which is uh which is where EIA tells us we're now uh we're now going. So it's gonna be it's gonna be a big wake-up call uh next spring. And legislators, I mean, this is really pitched to legislators and staff out there. You guys need to stop, you know, you guys need to stop and sort of you know suck in some air and think about where this takes you. If uh if this is where uh if this is where prices are going. Um maybe not, maybe they they aren't. But I would stop with the oh, we got money to do this, we got money to do this, and we got money to do that, and and we'll be okay, don't worry about it. It's all based on six to eight dollars. You need to you need to back up and take a breath and uh and and and really think about what you're saying.
SPEAKER_00:So I look at this and I just keep seeing these numbers, and this is actually, it seems like this was just slightly better than what we had considered in our previous discussion of IEA, because they had talked it about they had talked about the oil being down maybe in the low 50s. Like, so this seems like this is even a little bit brighter than what they were anticipating before.
SPEAKER_01:Well, I sort of uh by cutting it off by giving you a fourth quarter average, uh, I sort of made it a little better. Uh the April, May, let's see, the March, April, uh March and April prices are$51. The May and June prices are$52. Um, the um, and if you go over to the WTI, those prices are lower, but but we need to need to focus on brand. So yeah, it's come up a little bit from where it was in August, but that that little bit isn't isn't worth a whole lot to uh in terms of uh UGF.
SPEAKER_00:Right, right. Well, and and they've gotta they've gotta pay attention. They've got to they've got to wake up to where they're at. And the where they're at is there's not gonna be a whole lot of bailout coming from some kind of big oil prices. Um, and you mentioned this, and I know you're gonna get into it a little bit here in the next segment. You mentioned this uh um this this thing with crumb. This has kind of been um this has kind of been a crazy thing. I mean, at one point I agree with him. If they get down to the last$50 million in the account, then they've got bigger problems. But at the same time, what was going on here? What was with this$50 million? I mean, you know, that nobody seemed to know about or that everybody seemed to know about and nobody wanted to talk about. I think it's crumb trying to be a big shot.
SPEAKER_01:I think it's crumb trying to say, hey, I'm the commissioner of revenue. I can, I've got, you know, all this money at my disposal. I can invest it how I want to. This is the type of investment as we've drained down the CPR, CBR, really what we've said to ourselves is the CBR is going to be our cash investment. It's we're gonna hold it in cash or near cash, liquid assets, um, and that's and that's gonna be our cash investment. And we're gonna invest for the long term using the permanent fund corporation. And I think this is this is Crum sort of saying, well, maybe I couldn't get this through the permanent fund corporation, so I'll just do it myself uh through uh through this investment. I don't know, maybe we're gonna see this get worse, and maybe we're gonna see the the people who who crumbs invested with show up as big campaign donors, and then that'll set off all sorts of additional arm alarm bells. But even if we don't, even if we don't see that, uh what we're going to have seen is taking what we really have been preserving as our cash account for emergencies and for oil price drops and and things like that, we're gonna we we're gonna we're taking a portion of our cash account and we're setting it aside into a long-term investment. That's that's something that we've said we just weren't gonna do as we've taken the CBR down. So Crum, crumb, for whatever reason, and I and I think it's just because you know he just wanted to be a big shot and say that uh that he could do this. I'm the revenue commissioner, I can commit this money. Uh, but for whatever reason, it's a it's a stupid move, especially in light of where oil prices are going.
SPEAKER_00:All right, we're continuing right now with Brad Keithly, Alaskans for Sustainable Budgets in the weekly top three. Number two is uh on the agenda now. We just finished up with number one, which was where was oil going? And now Brad says somebody needs to look at the financials of all these projects that we've got going on out there. And we we were just talking about this the other day, right, Brad? I mean, the the whole gas pipeline, and we still haven't seen the updated finance. But somebody needs to look at the financials of all these projects. What do you mean exactly?
SPEAKER_01:Well, there's been a series of headlines uh that just sort of, you know, every time I see one, I go, I I I rush to the paragraph that talks about how we're gonna pay for it. The most recent one was the was the Ambler Road. I mean, Trump made a big deal out of reversing Biden and reversing the protections that Biden instead on the road and opening up the opportunity for the road. Um, and you know, and people are now saying, now talking about it as if it's a done deal. But the feds aren't paying for it. I mean, it's it they've opened up the permitting for essentially the state to pay for it. And the same problems that we had before, I wrote a column on this a couple of years ago when we were when Ambler was hot and heavy at that time. Uh, the same financing problems that that we had then uh are still around. The road is gonna be is not gonna be cheap, it's gonna be at least 300 million. There's some estimates that say it's gonna be 500, some estimates that say 700. There's even one estimate out there that says a billion. And and so you can discount, maybe discount the high end of those, but where's the 300, 500, 700 million gonna come from? AID AI ADA has said that they're gonna issue bonds for it, and the bonds will be financed on the back of uh toll road agreements that they're gonna enter into with the with the mines. But the mines that are out there, uh the potential mines that are out there are not yet permitted. And the two mines that people talk about most are really small deposit mines, short-term mines, uh, that would not be enough either in volume or in or in time to pay out$300 million in bonds. Um also, you know, where are you gonna get the money? Where are you gonna, Ada says it's gonna borrow the$300 million by issuing these bonds? Bondholders are gonna want to know that there's a pretty good certainty uh of payback. And so they're gonna look at the mines themselves. They're gonna look at the same thing that I just talked about, the mines themselves, where they are in the process, what the what the deposits are, the projected deposits are, how that's gonna, you know, how much of the toll road that's gonna pay for. Um, and they're gonna, the bond issuers are gonna be skeptical about getting it payback. So they're gonna ask for additional assurances, additional guarantees, additional backups. And I think what we're I think what we're seeing is sort of the maybe unintentionally, but maybe intentionally, we're sort of seeing the same thing from all of these projects. They're building up public expectation, they're building up public, you know, uh uh uh enthusiasm for them, they're building up public desire to see them, to see them go forward. They're gonna say that, you know, President Trump unleashed it and we're gonna do these. And then all of a sudden we're gonna look at where the hell is the money coming from to pay for these things, and we're gonna see it start backing up on the legislature. And they're gonna say, Oh, we got to do Ambler. President Trump authorized it, we got to do Ambler, bond market isn't there yet, the mines aren't there yet, but we got to do Ambler, so we're gonna need some additional money out of the legislature or and a guarantee out of the legislature to back up these bonds. I see the same thing from the LNG project. I see them going down the road, building up enthusiasm, holding community events, uh, getting it getting people excited about it. But there's there's things that the LNG project's gonna want from the state, the not the least of which is a change in the property tax assessment or property chat tax rate on uh on pipelines, which the the Wood Mackenzie study that was done last year to support the the expect or to support the numbers that said that it was sort of competitive coming into into uh South Central, uh, they already assumed that those those uh projections assumed that the property tax relief, the property tax rate would be lower for the uh for the gas pipeline than for the oil pipeline. So it's there's a I think what we're seeing is the front ending of a lot of enthusiasm about these projects and the expectation that once they get the enthusiasm, if they can get the enthusiasm whipped up enough uh to the point that people are gonna you know be demanding them, then then they'll just take it to the legislature and say, you've got to follow through on this because we build up we build up all this expectation. You've also got people like Shelly Hughes. There was an article uh in the Ketchikan paper uh where Shelly had been down campaigning uh in Ketchikan, and she said, Oh, we need to have a capital budget again. We've only had these skinny capital budgets, we need to be building uh uh things again. You've got you know, Port McKenzie is is is building back up again, they're having public tours and and trying to sell the uh the the project again, all of which is dependent on state financing. The the the what there's one other piece of this that when I start fitting the puzzle together, you start seeing these articles by Bruce Tanjamin and by others about we can't afford the PFD anymore. The PFD needs to go. Right, I saw that. And and we need to we need all this money. I there's a link between those two. There's a link between people you know wanting to get on with these infrastructure projects or or just projects in general, wanting to get on with these projects, Shelly wanting to do a capital budget, everybody wanting to get out there uh with these projects, building up the enthusiasm for it. And on the other hand, people starting to you know try to say, well, we can't afford the PFD anymore. And and and and the link is that may that's the funding source that people have in mind for how to support these projects when the enthusiasm built to the point that they come to the legislature and say, Oh, you know that project, that Adler project that we want to go forward with that President Trump approved, that everybody is expecting now to you know turn dirt next year. What was it? The Secretary of Interior said it'd be built next year. Um you know these projects. Well, we just don't have the money for it. Would you and so you're gonna have to come up with the money, and so they're gonna link that together with the with the anti-PFD folks, and all of a sudden, whip-boom, bamboo, the PFD is gonna be gone and we're gonna be spending it on all these projects that don't pencil out that we need money for because nobody will lend us the money because the project isn't isn't isn't uh firm enough to be financeable yet. So there you can, I I can just see this building and I can and I can see these two things moving in parallel. Uh and it bothers me. I mean, because we don't have a financial plan for Ambler. We don't have a financial plan for the for the LNG line when when the LNG folks come to the state and say, you need to give us this, that, and the other thing to make this.
SPEAKER_00:When they come to the state. I mean, we still haven't seen the updated, right? I mean, we still haven't seen the updated metrics on that. What is it actually gonna cost? We have no idea because nobody's actually even brought it forward. But don't worry, it'll be spectacular. It'll be spectacular. We're guaranteed that.
SPEAKER_01:Yeah, and and and you know, so I saw one post that said, oh, we need we need we need the Mance Newport, we need the the Port McKenzie desperately. Okay, how who pays? Who's gonna pay for it? Well, we need to cut out the university, we need to cut the university back. That's not gonna happen. I mean, people who are advocating these things in and and and their explanation of how they're gonna pay for it is we're gonna cut something else. Is that they're just living in dreamland. They're really those people, those people who are out there building these expectations without financial underpinning for it, other than we're just gonna cut somebody else, those people who are building that out are really building up the steam that's gonna result in the elimination of the PFD. It's gonna result in the switch over to the second parallel stream of people talking about eliminating the PFD. And I just I I you know, you can just you can if you if you piece these things together, you can see it coming. So if somebody somebody believes in the PFD, as I do, uh and believes in the in the importance of the PFD and the and the importance of the role the PFD plays uh in the Alaska economy and to Alaska families, then we need to be skeptical, I am skeptical, about about these projects uh uh going forward uh without without a strong financing plan, without their own strong financing plan, without ADA being issued, able to issue the bonds without recourse and that sort of stuff.
SPEAKER_00:I mean, if you were the mad emperor for a day, would you mandate that any one of these projects have to have some kind of fiscal note or plan attached to it that said, and here's how we I mean, wouldn't that be part of the of the whole pitch to it? I mean, if you're doing a pitch deck, I mean, what you know, I've because I've built a few pitch decks over the years. If you're pitching something, you know, in some kind of sales thing or whatever, you've always got a page that talks about the breakdown of the cost and how it's gonna get paid for and what the ROI is gonna be. You'll always put that in there somewhere. It's I mean, you know, it's usually near the end because that's when you're asking for the money. But, you know, there's always something built in. I mean, shouldn't shouldn't this all be part of it instead of this pie in the sky, we're gonna build skyscrapers to the moon, and then we never talk about how it's gonna get paid for.
SPEAKER_01:Yeah, Ada, Ada in particular, uh uh should be doing that. I mean, so uh and and about Ambler in particular. What ADA says when they're asking about the financing with Ambler is, oh, we're gonna issue uh bonds and they're gonna and we're gonna toll road the road's gonna be a toll road and we're gonna pay for the bonds with the tolls. Yeah, but you need to have mines. I mean, anybody who's gonna buy these bonds is gonna say, yeah, but you need to have mines per at least permitted on these roads, and they need to be of sufficient volume and sufficient size that they're gonna pay it out. I'm not gonna, I'm not gonna lend you$300 million or$500 million or$700 million based upon, you know, just a statement that says, oh, it's gonna be a toll road, don't worry about it. I want to know who's gonna be paying these tolls, and I want to know that there's gonna be money behind those people, revenue behind those people in order to pay the tolls before I issue the bonds. And I'm gonna, and I'm gonna say, as a bond, as a as a bond buyer, I'm gonna say, look, if you can't, if you can't show me the money in terms of mines permitted and in terms of volume of production that's gonna pay out these tolls, then I tell you what, give me a guarantee, give me a state guarantee, and I'll buy your bonds. But but what we've done then is just really commit the state's, you know, commit future revenue sources to to underlie these bonds. People say, oh, well, we did it over at at Tech Cominco, we did it over uh at the red dog mine. Well, the red dog mine, before we issued those bonds, the red dog mine was almost completely permitted. It was scoped in a way that they knew the volume of production that was gonna come out of there, and they knew that that volume of production was enough to pay the bonds off. So, yes, we they there we got bonds for for that toll road, but it was in a much different place than Ambler is uh right now and Amber and in a much different place than Ambler's likely to be in the next four or five years. So if Bergam's out there saying we're gonna, we're gonna you know build this road next year, I I don't know where the money's gonna come from.
SPEAKER_00:Is the federal government gonna I mean if you know he's saying that, but is the government gonna pony up with the money, or is it just you know, this is all aspirational at this point?
SPEAKER_01:Oh no, when he when they were asked, they said, Oh, there's it's gonna be a toll road. They did the Ada, the ADA uh uh defense and said, Oh, it's gonna be a toll road. Don't worry about it. Yeah, well, you gotta have to have volume on the road to pay the tolls to support the bonds, and we don't have that. Right. And so, and so I'm just I say concern I'm concerned we're gonna get all this buildup and all this expectation, and then Ada's gonna say, well, we can't sell the bonds because we don't, and and and then everybody's gonna say, Well, legislature, you need to come back this up. You need to you need to make it happen because we have all this expectation on all these people out there who want jobs and they're ready to go.
SPEAKER_00:Well, and I can see another problem with this with the legislature and everything else. Frank brings it up in the chat room. He said the issue with the Ambler Road is who gets to use it. If the state and the federal government build the road, it would have to be open to the public, to all the public. If it's built by private sources and it's a toll, they can control who uses it. And that's part of the problem as well. And I could see that being a sticking point with somebody in the legislature. Oh, we've got to have public access to it. I mean, you know, it's again, it this is not all built into it. It's they should have all this laid out before they come out with these big, huge aspirational plans. You got to have a way to make it all work.
SPEAKER_01:Yep, yep. And and and we're certainly building up the aspirations. We're certainly building up the expectations. And I just we just don't have the money to we don't have the money to back it up, and and the projects aren't at a point where they can back it up themselves, at least in the case of Ambler. Uh, and certainly in the case of AKLNG also, they're not at the point where they can where they can back up their projects. But we're gonna build up these expectations, we're gonna start all these all these trade schools and education courses uh to get everybody ready to go. We're gonna, you know, everybody's gonna be sitting there at the starting line, ready to go. And then AJ's gonna say, Oh, but we don't have the money. So legislature, bail us out. And then the people who say kill the PFD are gonna kick in and say, Ah, we got the money, let's go.
SPEAKER_00:David says it seems that the railroad line would be more cost effective and would ensure that the public would not be able to use. It um, but but again, who's gonna build it? And railroad, I think historically is much more expensive than an actual road system or you know, I mean, it's significantly more to build a railroad, David. That's part of the problem. Um well, and where's the financing for the railroad? Yeah, exactly. I mean, how do you build it? That's again, that comes back to the big issue. Who pays? Where does it come from?
SPEAKER_01:Yeah, right.
SPEAKER_00:It says, How how about we start with any plan? Oh, wait, cue the Alaska study industry industry, right? Because we're gonna study the study that we studied before to study the previous study that we studied once before. I mean, that's exactly where we're at. Uh, there's a whole industry but baked up around that. Um maybe the$50 million crumb just threw down the crapper would be a down payment on the roads, you know. Uh that's it. But I I will say this, Brad. One of the interesting things that came out of this discussion about Crumb and this$50 million was we got a little bit of a peak at the very end of this article in the Alaska Beacon, where they were talking about this specifically, was that Andy Josephson was talking about it, and and he said he didn't think that the legislature will need all of the CBR. But he, which I mean, that's he says he thinks there's a great concern about the fact that we need readily available cash, and that's what the CBR was designed to provide. And he goes on to talk about, you know, crumb and the governor's veto and everything else. And he goes, We're it's just that we're suspicious. We don't know when we can have our$50 million back. This is the attitude. This is all our money. We want our$50 million back. We didn't want somebody else. It's okay if we spend it, but we didn't want somebody else to have our we when are we going to get our$50 million back? I mean, what the mean or did the the hairs in the back of your neck just go like that when he said something like that? Because that's the attitude, right?
SPEAKER_01:Yeah, exactly right. And and in terms of you know, the statement we won't need it this year. Well, look, the the EIA forecast for next year or for oil next year is what$53 um uh through FY27. So we may not need it all this year. God hopes we don't need it all this year because we're gonna need some of it next year. Um, you know, the the spending is projected to go up. We have supplementals that are projected to to hit uh in the spring, and we're gonna be facing$53 or$55, or you know, just pick a number in the 50s, any number in the 50s, even the high 50s, and we're we're in deep crap. So yeah, the 50, the 50 million dollars, I mean, Crumb's defense of always just 50 million dollars. I that's not much of a defense. Because after the end of this year, depending upon depending upon what they do with the FY27 PFD, after the end of this year, we may have less than$100 left in the$100 million left, uh, left less than a billion dollars left in the CBR. Right. And and so where do you go from there if you're facing another year of$53 uh$50 oil?
SPEAKER_00:Yeah. No, and and and the irony here is that well, it was only$50 million, and I was trying to get us to cut above inflation and blah blah. And I'm like, with just$50 million out of a multi-billion dollar fund, you were trying to, you know, we're not even keeping up with inflation kind of thing. This was just some kind of test bed that you approve three days before you leave off. I mean, it just is so weird. The whole thing is just so weird. Maybe it was him just trying to put on his big boy pants. I I don't know. I've I'm I'm can I'm confused by it.
SPEAKER_01:It it it is it's weird, especially. I mean, he's on the Permanent Fund Corporation board, right? And he understands the role of the Permanent Fund Corporation is to is to make these long-term investments, to make these plays in combination with other plays, you know, risk weight the whole thing. They don't do a good job at it, as we've talked on other shows, but nevertheless, risk weight the whole thing and and always make sure you have you know some hedge against against a high risk, uh, a high-risk bet like that. And he knows that. And yet he decided out of the CBR, which which you know generally was considered to be the cash account that we kept for emergencies, out of the CBR he's gonna make this$50, you know, million dollar, this$50 million bet uh instead of the Permanent Fund Corporation. If he thought it was a good bet to make, then he would have made it, he should have made it through the they should have made it through the permanent fund corporation. But but for whatever reason, you know, and it can it'll either be sinister if you if you see that there's been donations made by the people to whom he to whom he committed the money or not sinister if there aren't, but still sort of odd.
SPEAKER_00:Well that's the thing, it's it's weird. It's it's not, you know, it's like I said, if there's no if there's no connectivity through campaign finance or something like that, but just why? And maybe you hit on it. Maybe he just wanted to put up put on the big boy play, you know. I I'm I can play with the big boys. I'm the you know, I just I just don't know. I'm I'm trying to wrap my brain around it.
SPEAKER_01:And that's that's sort of been crumb's MO. I mean, we've gone through how many tax directors, we've gone through how many deputy directors of of revenue. I'm the one. I'm I make the call.
SPEAKER_00:We're continuing now. Brad Keithly, Alaskans for sustainable budgets, the weekly top three. The great debate. That's what must read's John Faulkner is calling it. It's a new series of articles that he's writing. He said this is the first in the series that frames Alaska's great debate regarding the permanent fund. The series will invite debate but promote a protective view of both the management of the corpus and the original dividend plan. We start this series with inflation proofing, a topic what topic which has broad consensus and clear legal direction. But Brad, you're you you have you have questions.
SPEAKER_01:Well, so so inflation proofing has been used um by the permanent fund corporation as a justification for moving to a one account fund. And the way they've used it is they've said, look, the way the way historically we've done inflation proofing is we've taken cash out of the uh the earnings reserve and we've transferred it over to the corpus uh in order to inflation proof uh the corpus. And and so the the problem, says the permanent fund corporation, is that's taking too much cash out of that, that plus the PFD demand on the earnings reserve is taking too much cash out of the out of the the the earnings reserve to to move over to the to the permanent to the corpus. We can solve that by just consolidating uh the two funds together, and we won't run out of money in the in the earnings reserve. It's also been the need for cash out of it out of for inflation proofing has also been a justification, the need for to take cash out of inflation out of the earnings reserve and move it over to the corpus for inflation proofing has also been a rationale that some have used, many have used, to cut the PFD. Because you have the earnings reserve, you only have so much cash in the earnings reserve. And if you're trying to fund the PFD and you're trying to fund inflation proofing, uh the argument is you'll run out of cash. So you particularly when they're not earning, when the permanent funds not earning enough, permanent fund corporation's not earning enough to refill the earnings reserve, but the rates are taking it out for those two things. So what we need to do, says, says those, we need to cut the PFD in order to leave enough cash in the earnings reserve to move it over to the permanent fund corpus. We don't need to do that. Um we have inflation proofing is a non-cash item. It can be satisfied either through cash or through appreciated assets. And we have a lot of appreciated assets on the books. And as long as your appreciated assets are earning enough, there's enough appreciation in your assets, unrealized gains, there's enough appreciation in your assets, then then you're you're inflation-proofing, the uh the the corpus uh through the through the appreciated assets. And I wrote a long column or a couple of columns a while back that analyzed the amount of unrealized gains or appreciated assets that we had in the permanent fund corporation and reached the conclusion that there's nearly enough of that generated every year, appreciated assets or unrealized gains, nearly enough of that to cover inflation proofing. The cash need to the supplemental cash need to cover the remainder of inflation proofing is relatively small. And if you do it that way, if you use the unappreciated assets to cover inflation proofing proofing, the non-cash item of inflation proofing, and preserve your cash, not only do you not run out of it in the earnings reserve, you start building the earnings reserve back up, and there's enough cash to cover the PFD. You don't get people saying, oh, we need to cut the PFD in order to create cash to move over to the move over to the permit fund corpus. So in the in the article, John's arguing that we've got to do cash and placement inflation proofing, that we've got to have cash, that we've got to cover the inflation proofing requirement through cash. And that's just playing right into the hands of those, A, who want to cut the PFD by arguing there's arguing there's not enough cash in the earnings reserve to do both, and B playing right into the hands who want to who want to consolidate the permanent fund into a single single account by arguing that if you as you continue paying cash out of the earnings reserve, you're training it down to the point that you don't have enough cash left in the earnings reserve to cover to cover your requirements. I wouldn't think that John would be in favor of either of those. I mean, in the past he said he supports the PFD. Right, right. And I wouldn't think he would be in favor of a single account because the single account opens a backdoor into the permanent fund corpus. We've talked about that a number of times on the show. So I'm not I'm not quite sure what John's doing. I mean, I from a from a you know a general standpoint, cash is always better than appreciated assets. But appreciated assets are valuable, they've earned. I mean, the appreciation is the earning. You just haven't realized that earning by selling the asset yet. But those earnings are real. That those earnings are there, they're embedded in the asset, they're continuing to be invested by leaving your investment in that stock and watching it continue to rise or that asset and watching it continue to rise. So, I mean, from an accounting standpoint, unrealized gains, appreciated assets are are as valuable as cash if you don't need them for something that you need to you need to pay out. And we don't need to be paying out the inflation proofing.
SPEAKER_00:Right. Well, and again, just to be clear, he doesn't advocate in this article per se for a single account, but as you say, he's kind of playing into that argument by you know talking about inflation proofing. And the one thing he also doesn't talk about is the transfers. I mean, we transferred$8 billion out of the earnings reserve into the permanent fund corpus. And it was ostensibly, in fact, it wasn't just obstensibly, it was blatantly said that this was for future inflation proofing, and then they conveniently forgot about it a year later or two years later. They conveniently forgot about the billions of dollars that they transferred over and started talking about inflation proofing again, which again goes back into our theory that somebody wants the corpus to be combined and this is a way to kind of create that crisis uh kind of thing. So, I mean, I don't I don't understand it either. Um, and it uh you know it begs the it begs the question of why are we so focused on that? Why would that be the starting point of a discussion on the permanent fund?
SPEAKER_01:Well, maybe John thinks it's the non-controversial one. I mean, he does say we start this series with inflation proofing, a topic which has broad consensus and clear legal direction. Well, it doesn't have I I mean to the extent anybody listens to me, it doesn't have consensus because it's a bad thing to do, because you it leads to PFD cuts and it leads to the argument for uh for the single combining the two accounts into a single account. Um and clear legal direction, I don't know. Earnings, what the what the constitution says is that the uh legislature shall deal with the earnings off of the off of the corpus. Well, earnings come in two types. They come in cash. If you cash out an asset and realize the gain on it, they come in cash, or they come in unrealized, unrealized gains, uh appreciated assets. And those are from an accounting standpoint, those are the same thing. I mean, they are they are they are the equivalent. So, in terms of clear legal direction, I don't know if there's clear legal direction, certainly not from the constitution. Well, there's not clear legal direction that you have to use cash.
SPEAKER_00:And isn't there some conflicting league? Because I mean, I thought under SB26, which was the POMB draw, there was a whole change to the inflation-proofing component anyway, right? I mean, so now you've got kind of dueling statutes and there and there's a different way to handle it. So is there clear legal direction? I guess it depends on which statute you're paying attention to.
SPEAKER_01:Yeah, I mean, everybody talks about these dueling statutes. They really aren't. They can be they can be reconciled. Uh, but I just I I don't. I mean, there's not there's not clear legal direction from the constitution, at least, there's not clear legal direction that you have to use cash to cover inflation proofing. In fact, the constitution doesn't talk about inflation proofing at all. It just talks, it just talks about maintaining the corpus, that you can't spend the corpus, and it talks about the earnings, and the legislature can do whatever it wants with the earnings. I agree that inflation proofing is is useful. I agree that it's important. It just doesn't have to be done in cash. And there are there are significant downsides in terms of draining the earnings reserve uh and in terms of putting the PFD at risk by by requiring that you use cash for what essentially what essentially can be an is a non-cash uh requirement on the other side.
SPEAKER_00:We've got two minutes here, Brad. What would you say to John Faulkner if you ran into him at the store and said, Hey, I read your article and and uh you know I don't understand, or what you know, give me a give me the 90-second version of what you would say here.
SPEAKER_01:John, I don't understand, uh don't understand why you're arguing what you're arguing, because A, it plays into people's hands on cutting the PFD, and B, it pays plays into people's hands uh on uh on consolidating the two accounts and opening a back door into the into the corpus. I thought you were against at least one of those, uh, if not both of those. So why why are you uh supporting uh something that that leads to uh leads to to both of those uh together? Doesn't need to be cash, John. It can be uh appreciated assets or accounting or accounting gains, uh, and we can satisfy inflation proofing with it.
SPEAKER_00:That was a weird entree into the whole debate about the PFD was the was the inflation proofing. That would have not been the probably the point of entry that I would have taken, but to each his own. Um I think John and I are probably in alignment on most things uh regarding the PFD, but that is kind of a weird entree. But any any final thoughts here for everything we've been discussing today?
SPEAKER_01:I'm going back to the beginning, Michael. I'm going back to the first segment. I I am concerned. Um, I mean, I follow EIA and IEA and OPEC religiously. I follow what they say about the oil markets. I follow the oil markets, I do weekly charts that look at what the oil markets are doing. Um and I and I I I mean I I spend a lot of time on it every day on where oil markets and the and the prices are going. And at first, when EIA came out with this and the futures markets were sort of someplace else, I thought, okay, occasionally the EIA goes off on a on a tangent, and maybe this is one of those tangents. But then they stuck to it the second month. Um, and I thought, yeah, they're serious about this. And now they've stuck to it a third month, um, and and and you start seeing the futures markets showing the same trend across the across the remainder of the Alaskan fiscal year. And I'm concerned about it. I I think this is I think this is realistic. The the you know, and and and now that Trump solved the Middle East, you don't have that risk sitting in there that always sits underneath the oil markets and you know, of some sort of flare-up in the in the Middle East that will bring prices back up. Um, and China uh has built a whole lot of new storage, but they seem to be filling it up. Um, and so you can't count on China continuing to support the market uh over the remainder of the year. I mean, EIA is saying you can't, and IEA is saying you can't. Can't count on China supporting the market over the remainder of the year. So I I am concerned and and increasingly believe the the strength of what EIA is projecting on these prices and the and the impact of that on Alaska in terms of what we're gonna face next spring from a budget standpoint, both the the last part of the FY26 budget and making the FY27 budget, what we're gonna face next year, if that's where these prices go, is just gonna be huge.
SPEAKER_00:Well, because like you were saying earlier, this discussion about the supplemental, and oh, don't worry, we've got this extra money and we've put it aside, and then it's all been sucked up by the fact that the oil prices have plummeted. Um you know, what's the supplemental gonna be? A quarter of a billion dollars, you know, next year, uh, just for this current fiscal year, let alone what's coming in the next year? I mean, we've talked about this. This is a significant, challenging time. It's gonna, this is not a time that I would want to step up as governor, quite honestly, personally. But somebody's gonna have to do it and somebody's gonna have to take the reins on this thing, and it's gonna be a hot mess.
SPEAKER_01:Yeah, the candidates here are talking now about full PFDs. I I I love the discussion of the full PFD. I think it's important. I think it's central to the Alaska economy. I think it's central to Alaska families, middle and lower income Alaska families. I I I strongly like candidates who talk about that, but they're gonna have to be ready to talk about how the hell they're gonna balance the budget otherwise. And, you know, the 19 or the 2018 Dunleavy, we're gonna cut our way to it, just ain't gonna work this time. Um, because we saw where that went. So those candidates are gonna have to be ready. Even the candidates who say, even the candidates who say, you know, the PFD is important, but you know, maybe maybe we need a more reasonable level, reasonable level, even those candidates are gonna have to be prepared to talk about revenues because if these prices hit, and again, I have increasing belief that they're gonna hit, if these prices hit, it's just gonna be very difficult next year, both in in balancing out the FY26 budget, but particularly if we're going to$53 in FY27, particularly uh in putting together the FY27 budget.
SPEAKER_00:Well, I mean, look, a governor could be willing. Uh, you know, a governor could be willing and they could come in with a budget that hacks and slashes and cuts what we're looking for. But you've got to have a legislature that uh that cooperates, and they're not gonna do it. They have no, there's no political will. A governor can come in and be as strident and as strong and produce a balanced budget that pays a full PFD, shows it all, does what it is, cuts deep into government, but the legislature has got to sign off on it. And that's the problem. The stumbling block right now is the legislature.
SPEAKER_01:Yeah. If I were Bernadette and and Schauer, I would be I would be putting together a slate of candidates, legislative candidates that supported me. If I were serious about carrying through on what she says she wants to do, I would be putting together a slate of legislative candidates that's supportive on the issue, and I would be running with those saying, we can do it. Not not I can do it as governor, because you can't, but we can do it. Vote for me and this slate of candidates and we will do it. Now that would be that would be realistic, but just you know, running around as a single candidate for governor saying, I can do a full PFD and I'll do all these cuts, that's just not going to have credibility.
SPEAKER_00:Yeah, well, I mean it's it's aspirational. Again, we keep using, I keep using that word today. It's my word of the day, apparently, but that's aspirational. Um, you know, you can aspire to do that, but it what's the reality going to be? Again, we're reminded about what Dunleavy did. You know, he came forward with that budget that Donna Arduin put together, and I mean it was great until it wasn't great, until the legislature got a hold of it, and then it was tall man bad, and uh and everybody lost their collective minds. Uh, but if we're faced with the reality of no money and that, I don't know. I mean, I just don't know, Brad.
SPEAKER_01:Well, then we're gonna have then we're gonna have all the PFD term eliminate the PFD people uh pipe up. Yeah, you know what?
SPEAKER_00:Just go enjoy your music, Brad. That's what you need to do. Go enjoy that music, my friend. I intend to. I intend to. I I hope you do. I hope you do. Appreciate it, my friend. Thanks for coming on board. We'll see you next week, okay? Michael, as always, thanks for having me.
SPEAKER_01: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.
