The Weekly Top 3
The Weekly Top 3
The Weekly Top 3 (3.9.2026)
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Welcome to The Weekly Top 3 — our look at the top 3 things on our mind here at Alaskans for Sustainable Budgets — for the week of March 9, 2026.
This week, our top 3 issues are these: 1) we explain how SB 274 — the Senate Finance Committee’s proposal to reduce the level of the annual POMV draw from the Permanent Fund — is applying the wrong lesson taken from the performance of the Permanent Fund Corporation (2:18), 2) we discuss whether the market dynamics behind the #AKLNG project have changed as a result of the effects of the military operation in Iran (19:24), and 3) we explain why the legislature should ignore the oil price derived from the Spring Revenue Forecast when setting the FY27 budget and instead use the rolling 10-year average price (38:41).
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.
SB 274 And The POMV Stepdown
SPEAKER_01This is Brad Keithly, Managing Director of Alaskans for Sustainable Budgets. Welcome to the Weekly Top Three. The Top Three Things on Our Mind here at Alaskans for Sustainable Budgets for the week of March 9th, 2026. 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 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's 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 explain how SB 274, the Senate Finance Committee's proposal to reduce the level of the annual POM V draw from the Permanent Fund, is applying the wrong lesson taken from the performance of the Permanent Fund Corporation. Second, we discuss whether the dynamics behind the Alaska LNG project have changed as a result of the effects of the military operation in Iran. And third, we explain why the legislature should ignore the oil price derived from the spring revenue forecast when setting the FY27 budget and instead use the rolling 10-year average price. And now let's join Michael.
SPEAKER_00Let's start off with uh the bill that probably most people have never heard of right now, SB 274. You've got some um you've got some thoughts on this. Let's uh let's dive into this about how this, you know, on the on the surface, this sounds great because we're talking about reducing the draw on the permanent fund. Boy, this sounds like a great idea. Uh, but you say that there are some challenges to that. Let's uh let's get in it.
Incentives And PF Corporation Performance
The PFD At Risk Under A Lower Draw
SPEAKER_01So SB 274 is a bill uh introduced by the Senate Finance Committee, um, and which means it's basically Burton Lyman, Donnie maybe. Um uh and and the bill is a proposal to step down the POMB draw, which is currently at 5%, the statutory POMV draw, step it down from 5% in the following manner uh over a period of five years to step it down to 4.5%. So beginning in FY28 um uh or FY29 rather, step it down to 4.9%, 4.8% in FY30, uh uh 4.7 percent in FY31, uh 4.6% in FY32, and then 4.5% by uh FY uh 33, and to bring it down to 4.5, bring it down to 4.5 percent. Now, as we've talked on the show innumerable times, more times than probably certainly the permanent fund corporation board wants to hear, but but more times than maybe even listeners want to hear. We've talked about how the permanent fund corporation's performance has not has not been equal to 5%, and that that we're setting up a situation where first we're drawing down the earnings reserve by taking it 5% when the when the permanent fund corporation is not earning at 5%, um, and then potentially either draining the the earnings reserve by doing that, or uh if we pass the constitutional amendment that we've talked about a lot of times on the show to merge the two account system into the one account system, potentially set up a situation in which we would start to uh uh eat away at the corpus of the permanent fund. And so when you when you talk about reducing the draw on the permanent fund at first blush, you you would think that, okay, this would be a great thing because now we're getting the permanent fund, the the draw, the POMB draw, more aligned with what the permanent fund corporation has been earning and is projected to earn, itself projects to earn over the over the the the coming years. And so we we we avoid a situation in which we're draining down the ERA or setting up a situation if we have a constitutional amendment of eating into the eating into the permit fund corpus. Here's the problem the the the problem I see with that. We're institutionalizing by doing this, by reducing the the the the POMB draw. And this isn't this isn't, I mean, people will tell you Bert would probably say, well, this is a cap. This is you can draw up to you know 5%, 4.9, 4.8, 4.7, 4.6, 4.5. You draw up to that. But it's not really, I mean, what they're really setting up is is that sort of draw. And it's institutionalizing, in my view, and I'll write more about this on Friday, but it's institutionalizing the failure of the permanent fund corporation. What you're essentially saying, what the what this bill essentially says is, yeah, okay, we recognize the permanent fund corporation isn't going to be able to live up to the 5%, and that, and that that's a problem, and that we need to correct that problem. And it says we're gonna correct that problem by reducing the POMV draw down to what the permanent fund corporation can do. Um, and so you're institutionalizing what I think is the failure of the permanent fund corporation to maximize its returns. Uh, you're saying, okay, the permanent fund corporation can't do this over the long term, so we're gonna lower the rate of the POMV draw down to the level at which uh at which the permanent fund corporate we think the permanent fund corporation is going to perform. You're re you're eliminating the incentive. I mean, the permanent fund corporation is say, well, we still have the incentive to earn more, uh, but you're really eliminating the permanent fund corporation's incentive to strive to produce more than whatever this return is, because at this return, they achieve their their their goal of producing enough revenue on a consistent basis for the for the legislature to spend, for the legislature to take in the POMV draw. And and and you know, they're sort of done. We've done our job, is what they can is what they can say at this point. I think a much better approach is the approach that that Bruce Tangerman first recommended. Um, and that we've talked about on the show for the last few weeks, which is which is to say that the permanent fund draw, the POMB draw, will be the lesser of 5%, or the what the permanent fund corporation in fact has earned over the five-year period that you're that you're using as the as a basis for the draw. So that if over the five-year period you you only earn 4.2%, then the then what you can draw is 4.2%. If as they've done in prior periods, prior five-year periods, you earn only you know 3% or 2%, then that's all you can draw. So you're not draining out the the ERA or you're not invading the permanent fund corpus. Uh, but I think that we ought to keep the 5% cap, or maybe even a higher cap. We ought to keep a cap that is that is if you if you earn more, then the POMV draw is more up to whatever that cap is. And that would create an incentive, create pressure, and through pressure and incentive on the permanent fund corporation to to stay alert to and to focus on, and will create pressure on the on the legislature to focus the permanent fund corporation on producing higher returns. Um, because with higher returns, you'd have higher draws, and with higher draws, you would have, you know, you would have a better situation for uh for the Alaska uh economy. Um, so I think what we're doing here with this bill is good in an initial sense of we are realigning the POMB draw, the POMB percentage to what the permanent fund corporation has been doing and is projected to continue to do. But I think that we're that that when you sort of get through that and think about what that's doing to incentives, it is it is reducing the incentive on the permanent fund corporation to press forward for for for higher returns. And we know by looking at yes, looking at the Buffett rule, the 9010 rule, or looking even at the permanent fund corporation's own passive index, we know there are higher returns out there the permanent fund corporation could be using, could be achieving. And and and so by passing this bill and sort of capping the the level of the POMV draw, we're sort of letting the permanent fund corporation off the hook for from from the having the incentive to go out and produce the produce those, uh uh chase those additional returns, achieve those additional returns that we know they can achieve.
SPEAKER_00It's interesting because I think uh Rob Myers kind of summates what you're saying here in the chat room. He says they're still trying to protect the spend by making it smoother from year to year rather than making it healthier for the fund. Um and I mean, I think that's that's in part for sure. Uh, and and quite honestly, I I question the the genuous, uh, the the genuine nature of what uh uh Steadman is saying here. Oh, this will act like a cap. Well, until it doesn't, right? Until they have to take more than five, because again, this will be statutory. This is not uh this is not the constitutional component, this is a statutory component. So when the crisis is really real, they'll draw more anyway. But like you said, it's taking the pressure off the permanent fund to deliver. Oh, and by the way, the permanent fund is still spending almost a billion dollars on all these fees and everything else. So everybody's still getting paid. So what does it matter if we don't deliver a great return or not, right?
SPEAKER_01Yeah, to some degree, the four the step down to 4.5% recognizes that recognizes the impact of the permanent fund paying all those fees, paying a billion dollars uh a year in fees, more than a percent uh in fees. And it sort of it sort of instant again institutionalizes that approach by the permanent fund corporation to be paying those fees to have this sort of you know subpar uh mediocre return uh uh going on. It says, okay, well, that's fine. You know, we'll just step down, we'll step down the POMV draw. I think there's one other thing, and Rob has made this point before, uh, maybe on the show, but if not separately, uh, that what we're really doing is this is a backhanded way of wiping out the PFD. I mean, we usually think of the PFD being wiped out by increased spending. But what this is going to do, remember the PFD comes from the POMB draw. What this really does is step down the POMV draw uh in a way that will preserve the amount that's going to fund government, uh, but sort of wipe out, wipe out the marginal amount that's been been used for the PFD. Now, the PFD shouldn't be calculated that way. The PFD, as it's set up in statute, is a preferred dividend. It's a dividend that's supposed to come before everything else. It's designated, it's designated funds. But the way we've treated it the last 10 years is a common dividend, the whatever common stock dividend, whatever's left over at the end. And by stepping down this revenue source, what you're essentially doing is undercutting the revenue that has that has supported the uh the permanent fund. Stedman and and Steadman and Lyman won't care about that, but but that's that's that's another thing we're doing. And again, by institutionalizing that low return, that low POM, the the low return from the PF from the permanent fund corporation, you're essentially institutionalizing the wipeout of the PFD.
Passive Index vs Active Fees Debate
SPEAKER_00Well, and and again, yeah, because that half a percent that you're talking about is probably the majority of the PFD in and of itself. And maybe that's the intent in the long run, is a slow track down of the PO of the PFD when it's all uh when it's all said and done. So on the face, it looks like it may be good, but then when you start digging into it, you realize that this is just more political cover for the permanent fund corporation to not do its job in the long run while still getting paid, by the way. But we're still while still getting that billion dollars in uh nearly billion dollars in uh in management fees and everything else. So um, you know, why can't we just why can't we just get a permanent fund that that ties itself to to to an SP fund of some kind and and and really starts generating and just start paying. I mean, why can't we do that? Because we've got people who believe that they know better than we how to uh to spend it.
SPEAKER_01Yeah, you know, there there was a slide in the permanent fund corporation's presentation to uh both the Senate House Finance and Senate finance, where they asked themselves that question because we've asked it enough that enough people are asking the question that they they put it on the slide deck and they said, Well, why don't we why don't we just go to the SP 500? And the and the slide said something along the lines of, well, we're not chasing headlines, we're chasing, you know, rock solid performance. Well, you're chasing deficient performance.
SPEAKER_00Yeah, yeah. You're chasing. I mean, you know, you'll note that while chasing headlines are also getting some pretty decent returns compared to what you guys are doing. So maybe you should start chasing some headlines at that point. Wouldn't it be great to have a headline in the Wall Street Journal says Alaska permanent fund uh you know reaches new stratospheric heights because it's uh you know matching the SP. Um, I really don't care about the headlines, but I do care about the performance. Again, I think Rob kind of summates it well here, where again he's trying to say they're trying to protect the spend. This is all about everything that they're doing is about protecting the spend in the long run. And again, I would not be surprised, Brad, if what they're trying to do is a gentle, gradual phase out of the PV, uh the PFD. Because again, that half a percentage point would essentially equate to almost all of the PFD draw at this point.
SPEAKER_01Yeah, but but to give Burke credit in this small respect, they're not phasing it out in a way that preserves the revenue that formerly supported the PFD. They're not phasing it out in a way where that revenue goes to spending. By reducing the the POMB rate down to 4.5%, they are they are essentially keeping those that money in the fund as opposed to letting it leak out uh to spending. Of course, you know, this is statutory, assuming they observe the statute and all that sort of stuff. But but uh we we need to give him, we need to give him that credit. But I don't, I I think what's going on, I mean, I I will characterize it this way. What they're saying to themselves is look, permanent fund corporation isn't going to get there. They're not gonna get to 5%. So we gotta we gotta phase it down. And it's okay that we phase it down because all we're really giving up is the PFD. And we don't really care. We, this is Burt and Lyman, we don't really care about the PFD anyway. So it's okay that we phase it, that we recognize the permanent fund corporation. This is what the permanent fund corporation is going to do. And it's okay that we're gonna recognize it because we're not really taking that money out of spending, we're taking it out of the out of the out of the PFD, and and the PFD is expendable in any event. Yeah.
“Lower Of” Draw Proposal Explained
SPEAKER_00Uh Donna says, yes, Stedman wants the draw reduced so he can wipe out the PFD. That's uh sick. Charlie asks, so how would your proposal be worded if this was you running? What would what would what would you do differently in this case?
SPEAKER_01Well, Tangeman, I've got an uh uh commentary three weeks ago, four weeks ago, I think, in the landmine. And Tangeman had one in front of that, like the week before that, that essentially said it's the lower of, it's the lower of 5% or whatever number you want, but lower of 5%, or what the actual rolling average return was over the five years you're using uh for the basis for the uh the POMB draw. So it's a simple, simple language, lower of. And so what that says is look, if the permanent fund corporation, and and what that creates is the incentive for the legislature to say, look, permanent fund corporation, you've got to get up to 5%. You've got to maintain that 5%. You got ways to do it. And and we're not gonna reward you for letting for letting it it slide down to 4.5%, because we can take that 5%. We can take it as a dividend, or we can take it whatever however we want to. So it creates that incentive, that pressure, if you will, legislative pressure on the permanent fund corporation to continue to maintain a 5%, which would which would require them to do something different than they've been doing because they haven't been maintaining uh the 5% over the last uh last several uh periods.
Transition To AKLNG And Iran War Effects
SPEAKER_00Brad Keithley, Alaskans for sustainable budgets. In other words, says Kim, the public uh knows the PFD is going away, so let's just accelerate it going away even more. I mean, again, I will be totally shocked and surprised if next year um there is a there really is any kind of PF. Now, I guess it all depends, and we're gonna get into this in the next segment. It all depends on what happens with the Iran war, uh, what happens with oil prices, what the you know, what the legislators do here in the next uh few weeks uh with the with the proposed oil prices and everything else. But I think overall, I think I'm still sticking by the statement that I'll be totally surprised and shocked if we get a PFD next year. Yeah.
SPEAKER_01Isn't that a horrible thing to say? Isn't that a horrible thing to admit? I mean, it's just we we can't control our fiscal situation enough to give the the the citizens their share of the commonly owned wealth. We can't we we the legislature are gonna give up trying to do that. Yeah, because we failed and and we're just gonna admit failure and we're just gonna wipe it out.
SPEAKER_00Yeah, no, it's uh but it is what it is. And I think, Brad, they don't even feel bad about it because, again, they know better than us how to spend this money. That's the disease.
SPEAKER_01That's the disease. Well, that's part of it, and part of it is they're all in the top 20%. After they gave themselves the raise, they're all in the top 20%. So the PFD to them means very little. Yeah, it's a nothing burger to them.
SPEAKER_00To everyone else, it's something real. Brad Keithly, Alaskans for sustainable budgets, continues with us his weekly discussion. We call it the weekly top three, three big topics that uh affect us uh each and every uh week here uh in the state. Uh the second part, number two, are the AKLNG's dynamics changing as a result of the Iraq War? Of course, we're seeing a lot of the headlines, streets of hormous. Qatar shut down its gas. I mean, Qatar produces 20% of the gas on the planet, and they've shut down their facilities. And uh, and you know, even if it's just for a month, the ripple effects of that are going to be amazing. And Glenn Farn has said, uh, hey, hey, let's make hay while the sun shines. Brad, is it you know what's going on?
Why Temporary Shocks Don’t Lift AKLNG
Cost Stack And Timeline Reality Check
SPEAKER_01Yeah, I've we'll talk about oil prices in the third segment. This one, this one's about uh LNG, and I've had more that more people than I would have thought uh send in questions or texts or calls and say, you know, well, doesn't this it isn't the the Iran war going to result in uh isn't that going to push the AKLNG project forward? Here's the response I've given to that, and I and I think is the is the correct one. If the Iran War, if if as a result of the Iran War, Qatar's LNG making capacity was white was obliterated, if it was um if if it if the LNG uh export uh facilities were targeted and wiped out, if the field um in one of those fields they shared jointly with Iran, if the fields were set a fire and the productive capacity of those fields were materially uh uh uh uh altered, then yes, I think I think there would be some knock-on consequence for other LNG projects. And Alaska, the Alaska LNG project is somewhere in the stack in terms of costs and in terms of uh characteristics, is somewhere in the stack. And so if you wipe out 20% of the LNG production capacity in the world, you're going to you know have to replace that with another with a different 20% someplace else, and Alaska might be caught uh in that um in that stack. But that that is that assumes that you wipe out Qatar's productive capacity and you set the fields ablaze and you can't restore that productive capacity in any sort of timeline. If all that we're if all that's going on. And it looks like this is all that's going on. Everybody's sort of pulling their punches. Iran and the other countries are pulling their punches when it comes to destroying, fundamentally destroying the oil and gas productive capacity over there. If all that happens out of this is there is a time period during which Iran or Qatar is taken offline, and it takes a time for Qatar to come back, if that's all that's gonna is if that's all that's gonna happen, no, there's not gonna be any knock-on consequence. We're not gonna have to replace 20% of the capacity of the LNG making capacity out there in the world uh in order to bring it on. Now people might say, oh, but Alaska is safer and and you know all these other places are safer, and now we've known that Qatar is is risky, and so we need to go to those safer places. That lasts for about three seconds because Qatar is cheap. The productive capacity in Qatar is huge fields over there, uh uh fairly very low cost to monetize those fields uh because of the scale. Um and and so yeah, okay, Qatar is risky, but we always knew that. We always knew Qatar was in the Middle East. We always knew that Qatar had had to go through the streets of Hormouth. We always knew that there was some potential out there at some point that that Qatar could be that Qatar could be taken offline. But it was in vet people invested in it, people entered into contracts with them, knowing that risk was there. Okay, now we know there's a little more risk because we've seen it once, but but if that risk is fairly contained in time, constrained in time, um uh price is gonna overcome everything else. Alaska is much more costly than Qatar. People are gonna go aren't gonna go out and invest in Alaska if they know that Qatar is coming back. Uh they're not going to go out and say, oh my, there's a risk premium somehow. So we're gonna invest in Alaska. And I mean, because when Qatar comes back, it's gonna knock Alaska offline. It's gonna knock all of those more expensive sources offline. So why are you gonna go invest in in a project in a country that's gonna be more expensive? Why are you gonna invest in it when it's gonna get knocked offline in a fairly, from an economic standpoint, in a fairly, fairly short order? The world's already seen this sort of condition uh on the LNG side. When Russia invaded Ukraine and the Europeans all decided to go off Russian pipeline gas, we've seen the price spikes that occur when you take a bunch of gas offline. I mean, Russia was providing more than 50% of the gas of Europe's gas at the time that the Ukraine war hit. And when Europe decided to go off Russian gas, you know, take that, take the dollars away from Russia that were going to pay for the gas and and ultimately going to pay for the Ukraine war, when when Europe decided to take Russia offline and not use Russian gas anymore, prices spiked in Europe. High. But they come down because the the world found alternate sources to be able to accommodate that. I mean, Russia was taken offline permanently, uh, in the sense that that Europe said we're not going to buy any more of your gas. Um, and so, but the world found alternative sources of supply, particularly in the U.S. Gulf Coast, that brought those prices back down. So we've seen you know price spikes before, and and we've seen that they're temporary as a result. So I don't, so when people say, you know, isn't Guitar gonna, you know, make the L the Alaska LNG project go? No, it's not. I mean, if the Alaska LNG project goes, it's gonna be because, as we've talked before, the U.S. government and other governments decide that it's like a war, it's a strategic asset from a war standpoint, and they'll be the ones investing in it.
SPEAKER_00Right. Because again, the big challenge here is uh is is is about timing and timelines, right? The Qatari may they may go offline for a period of time and it may cause it to spike, but their ability to turn it back on and turn it back around in you know 60 days versus three, four years for Alaska gas to be able to actually make it to the export market. I mean, that's a pretty rapid timeline, three to four years, is part of the problem. And Bruce Tangerman, who's in the chat room today, says, and close to tidewater, a$20 billion, 800 mile pipe is Alaska's biggest hurdle. That's another plus on the side of the Qataris, is their stuff is right there at the water. So, yeah, so this is, you know, it's all it's all about timing and and uh and uh and you know how long would it take to get it back up or on. So there is a little bit of a bright spot, but it's not the Hail Mary that everybody seems to think it is.
“Show Me The Money” On AKLNG
SPEAKER_01Yeah, and Michael, it's not it's not a year. I mean, we're not looking at year time frames. So even if Qatar was gonna be off a year, even if it was gonna be off two years, it wouldn't really press Alaska forward because Alaska is a 20, 30, 40 year payout. I mean, you're investing money in the expectation that you're gonna that you're gonna pay it out and get your profit over 20, 30, uh, 40 years. So it's not, I mean, and so you have to assume that Alaska stays online, stays economic, and is able to uh achieve those margins over that over that sort of time frame. So even if you were gonna knock Qatar off a couple of years, um uh you wouldn't you wouldn't automatically shift to Alaska. You would just take the price spike. You would hope that the Gulf Coast of LNG, uh the the U.S. Gulf Coast uh uh steps up. There's a couple of U.S. Gulf Coast projects that have been mothballed uh uh because the the economics aren't aren't great for them. They might uh be resuscitated uh to come in and provide some additional supply. But you you're you're talking about time frames, you're not talking about you know, six months. If Qatar is off six months, oh my gosh, all of a sudden Alaska's gonna go. It it a Qatar would have to be off permanently. You'd have to be saying, okay, they've knocked out all of the liquefaction facilities, they've knocked out the port, they've torched all the fields. It's gonna be nearly impossible to get those fields back up to the same productive capacity. Qatar's gone. You'd have to say that, and then you just have to say, okay, how are we going to fill this 20% hole in in world demand as a result of Qatar being gone? You'd have to say that in order for the world to move on to the less economic projects that are that are sitting out there uh in line. And and that's just that's not how this war is gone, at least so far. People see, as I said, people seem to be pulling, nations seem to be pulling their punches. Yeah, they'll they'll bomb the occasional refinery or they'll bomb the occasional, you know, luxury hotel in Dubai. But they're not, they're not, unlike what Saddam did in Kuwait uh at the end of the Kuwaiti war, where he torched all the fields, we're not seeing that sort of scorched earth uh policy adopted.
SPEAKER_00Right. And and and and I know that you and I have been not negative. Uh, I mean, I I like to say that I'm hopeful, but not optimistic about the AKLNG line. I'm hopeful that it could, you know, that they find some way to make it happen. But again, I ain't counting those chickens until they're in the coop. And that's kind of where we're at right now. That just, you know, I don't see how financially we could make this work. I mean, they haven't even produced the we still don't know what the final number is, right? The the FID, we still don't know what the final investment number is. And apparently we're not gonna know it's supposed to be this month, they're supposed to do it, but we're not gonna see it. So um there's no way to really know what's going on with that.
SPEAKER_01Yeah, this is this is Jerry Maguire. This is show me the money. Show me the money, and and I'll start believing in this project. But but there's been no money. I mean, there's been no we we've had a bunch of contracts, uh uh heads of agreement announced. We've had a bunch of you know, potential orders for uh EPC for equipment uh uh well, whatever the hell EPC stands for, construction. We've seen a bunch of preliminary contracts entered into for that, but we've not seen investment uh on the on the line, d uh uh large-scale investment to pay for all this these contracts, to pay for all these things that um that that uh we have preliminary agreements on. So, you know, as the movie may be dated now, Jerry Maguire may be you know beyond whatever whatever age class we've got listening to the program, but the there was a line in that movie that said, show me the money, and then I'll believe. Um and and that's where we are with uh that's where we are with the AKLNG project. Well, and the money's not gonna show up as a result of Qatar.
Legislative Control And Geisel’s Bill
SPEAKER_00Right. And even as Brian says, as if Alaska doesn't have its own risk, and we didn't even get into this. I mean, Kathy Giesel and Company in Senate Resources now is putting together a bill that would basically politicize and have the legislature take control of the whole thing at this point. Uh I mean, if you think that they're inept and uh and uh and there's a lot of bickering and and uh schoolyard tactics going on now, wait until they have control of the LNG project, right?
SPEAKER_01Yeah, this Geisel's bill reminds me a lot of what happened during the Palin administration uh with respect to the line to the lower 48. Remember, we were going to build a line from Alaska down to the gas line down to the lower 48 because the lower 48 was running out of gas. And and the Palin administration came in, and I can't remember the acronym for that bill, but they they they they had this bill that you know required bidding for the pipeline and all this sort of stuff, and had all sorts of tax provisions. And we had long debates about whether the state should take its gas in kind or take its royalty gas in kind or take it in value. We had this huge bill that came out, didn't do anything. I mean, we we spent about we spent another X hundred millions of dollars with Trans Canada uh because they got awarded the contract, and the state agreed that uh part of the contract was the state would pay Trans Canada for what Gia, thank you. Um uh whatever the uh whatever this the the Trans Canada was doing, the state would pay for it. Um, but it reminds me, I mean Giesel's bill reminds me a lot of of that process that the pal administration went through. It's just you know, a lot of churning, a lot of, oh my gosh, we got to do it this way, we got to do it for a project that's never gonna go.
SPEAKER_00Right. No, exactly. I mean, and and if you want to, if you want to scare off investors, nothing scares off investors faster than a government saying, Oh, we'll take control of this and we'll make it easier. Nothing makes uh investors grab their pocketbooks faster than uh something like that. Yeah, this bill, um, when you get down into it, uh, the Alaska story actually wrote two stories about this. One, it just kind of gives you the bare bone facts, and the other one basically just says, has Kathy Geisel lost her mind, essentially, is what the second story says. Because that's in and what happened to her? I mean, she used to be, well, I mean, this is the same chick that did the the the ad with her husband and the and his wallet on the table about stealing the PFD. And now she's like totally become one of the pod people, and and now she's all about look at all the stuff we could spend this money on if we need. I mean, what's going on down there, Brad? In your mind, you look at this, and I mean, what what's what triggered this? Where we need to take over everything and have legislative approval and the and the legislative budget and audit committee will oversee everything, and like that's ever worked out well.
Complexity, Taxes, And Investor Flight
SPEAKER_01Yeah, remember they hired these consultants. Remember that we went through this whole cycle where they hired the consultants that turned out to be a subsidiary of of the the the EPC contractor for the project, right? Um, so we got these consultants, and you know, consultants have to consult, and consultants have to, you know, justify their existence by making recommendations. And we had we had a whole slide deck worth of recommendations uh that the consultants made about what you know the state should do to protect protect its interests. Um and and it looks like to some degree, I haven't gone back and compared slide bullet point X with you know uh section X of Giesel's bill, but it looks like um the consultants' recommendations got turned into got turned into legislation. And um, and and and so hey, you know, we had a project, we had consultants, the consultants advised us to do certain things, and you know, we're supposed to do what the consultants tell us to do, so we we've turned that into legislation. But it's all reminding me, truly reminding me, and and thank you to Rob for reminding me of what the acronym was. It's all reminded it's all reminding me, Alaska Gas Line Inducement Act, that's what it stood for. It's all reminding me of sort of late stage uh project. I mean, in in in what what decade was that? Oh, it was the 2000s, um, that that the producers had worked hard on putting on coming to agreement with uh the Murkowski administration on on exactly how they would govern uh the line of the lower 48. And I and the economics of the line to the lower 48, this is before the the shale revolution and the gas revolution that came with the shale revolution. Um uh it there was a there was a period of time that the producers really believed that that the Alaska gas had a role to play in the lower 48, and they put together this project and they all agreed on it, and they worked with the Murkowski administration and they had an agreement on it. And then Murkowski flamed out. Palin came in and she had to change it all. You know, she had consultants and they had she had to change it all. And in the meantime, the project just died. The economics behind the project died, and it was just sort of sort of fun to watch all of this late stage, you know, legislation and and and directions that went on.
SPEAKER_00It's fun to watch until you realize that it's you know, we're in the middle of it. That's the thing, you know. It'd be one thing to it's one thing to watch, it's one thing to watch the train wreck from outside and be like, ooh, that's that's spectacular. And then realize, no, you're in car A when the thing comes off the rails, then that's a whole different way to look at it. And that's kind of how we've been here in Alaska. We, you know, we're watching the train wreck, but we're on the train while it's happening. And that's the worst part, is you just can't get away from it.
SPEAKER_01I've got to say, I've got I'm I uh that bill really has Giesel's bill has two big components in it. One is the first half of it is really how do how does the legislature control or how does the state control uh the LNG project? And the second half of it is tax, how we tax uh gas and and royalties and and the like and how we're gonna set all that up. And you know, in my X number of years in Alaska, one thing I've learned is simplicity is important. Um simplicity in tax is important, simplicity in in government regulation is important because because the the complexity of it will just wear you out and and make you do other things. Uh even if even if it's even if it's well founded, just complexity itself will will drive you away. And the last half of that bill, the tax sections, it's just one complexity after another. I mean, all of it, you know, you sit there, I sit there and I go, okay, well, why would they do that? Okay, I understand what they're trying to incentivize, but it's like it's like our it's it's like what SB21 has turned into. It's one complexity on top of another complexity. And what that produces is an unpredictable result. I mean, what we've got with SB21 now, I don't think anybody sitting there in 2013 and 2014 foresaw what stacking all these credits on top of themselves would do in terms of driving down the state's take. And and it was the it's the complexity itself that is undoing the benefits of SB21. And that's what the tax provisions in Giesel's bill look like to me.
Ignoring The Spring Forecast
SPEAKER_00Well, exactly. And and all you're doing is discouraging external uh investment in these kinds of things, the more complexity. But again, it goes back to the syndrome of we know better than you how to do this. We've got to show that we're taking care of it and we're taking charge and we're doing it. That's the problem with the with government in general, is that that is their nature to go ahead and take control of those things to show that they're doing something. And of course, by doing something, they're creating more hurdles to the market and everything else. And it just creates it's a hot, hot, hot mess. All right, the Michael Duke show continues. Brad Keithly, Alaskans for Sustainable Budgets, the weekly top three. Number three. Number three. Um, Brad, why should we ignore the spring revenue forecast? That's the that's the I mean, we could see it coming. We could see it. I mean, uh uh uh Gary Stevens's comment the other day. Oh, this is really tragic and all this loss of life and destruction. But guess what? We're gonna make a lot of money. It's great that we're gonna make a lot of money. Uh, we can already see uh there's some problems here. Why should we be ignoring the spring revenue forecast?
SPEAKER_01The the spring revenue forecast, the Department of Revenue's spring revenue forecast, which is the basis on which the legislature finishes up the then current fiscal year, the supplementals for the then current fiscal year, and then the and then the budget for the initial budget for the subsequent fiscal year. Spring revenue forecast is based upon the average price in the futures mark market over 10 over a 10-day period prior to the time that the spring revenue forecast is published. And we're currently in that 10-year period. We're currently in the period that the 10-day period. Yeah, 10-day period that the that the uh uh Department of Revenue is is calculating uh this average for both 2006 and or 26. We're in 26, 2026, FY26 and FY27. You know, Agea, it always got me always got me going back and forth between decades. Um uh but we're currently in the in the 10-year period. I've got I I keep on my desk one computer that's dedicated to oil matters, and I've got uh oil prices flashing up during the day, flashing up in front of me. And and just from the start of the show, oil prices have gone from$94, which is where we were. Well, maybe that was like at you know 5 30 a.m. when I was getting up and getting everything set up. Oil prices have gone from$94 down to now$87 for the front month. Uh for FY27 prices have gone from we were about at$75 or so,$76. Now we're at$74. I mean, these prices are bouncing around all over the place. Right. And yes, mathematically, you can take the average from this 10-day slice and say that's the forecast that that we're going to use. But it is as arbitrary and as as unpredictable as as anything can be when they're when we're in the middle of a war that's affecting that's affecting uh affecting oil prices. So I I think I we're just setting ourselves up for huge problems. Maybe not with respect to FY26, maybe not with the end game of of FY26, because we're only using uh we're only using the last three months of the futures uh of the fiscal year, the futures prices for the last three months to sort of figure out what the FY26 average price is going to be. And maybe, maybe that makes some sense. But to but to use the futures price for FY27 to set the budget up based upon whatever the heck those 12 months, the futures price in those 12 months are during this 10-day slice, it's just setting us up for all sorts of all sorts of problems.
Futures Volatility And Budget Risk
SPEAKER_00Yeah. Well, at least we've always talked about that that the the problem with the Alaska with the budgeting process is that we are always betting on the if come. We're always betting on some kind of future amorphous thing that's really nothing more than a best guess. And even in times like this, you'd think that the Department of Revenue would say, Well, we usually do it in this time frame, but you know, there's a war on, and that's a really extraneous, you know, kind of thing, and that's going to really blow these numbers apart, and they're not going to be true and accurate. But no, they're going to do, you know, this has been part of our problem the whole time. Why aren't we betting it on, you know, an average of the revenue from the previous five years? Why aren't we using some kind of waiting to go, this doesn't make any sense, you know?
SPEAKER_01Yeah, I mean, there's a there's a there's a sort of a usefulness to to revenue doing this. I mean, you sort of want to have, I mean, you you want to you want to look at 10-year forecasts, you want to look at five-year forecasts, you want to sort of see where you're heading. And and the best way to do that is the futures market. And there's, you know, you got to do it at some point. So it's not a bad thing to do. The problem is budgeting on it. The problem is saying this is the revenue we're gonna have and we're gonna depend on uh in in setting up the budget. And it's just, I mean, it's wild that we do it even during normal times, because even during normal times, there can be stray stray uh uh events that cause those prices to get way out of whack. Right. We know right now that we're not in normal times. Um, so it I understand. I under I I don't I don't not arguing that DOR shouldn't do it because there's a usefulness to having that projection, but it shouldn't be the basis on which we budget. Right, we should now if we're ever Going to do it. Now's the time to go to what other states do, what Oklahoma and New Mexico do. I wrote a column last Friday's column in the landmines all about this for those who want to dig into it. What other states do, which is to use either averages or to use some mechanism that that that normalizes oil prices based upon historical levels and then shoves the rest of it uh into some uh uh uh sequester account that you then can use when when oil prices are are below that are below that level.
SPEAKER_00It's not like this is happening in a vacuum either. We can just go back to look at Parnell's administration when they used an oil projection of$105 a barrel. By the time he got to doing the budget, it was down to 70, and he's still factoring at$105 a barrel, right? This is not this is not like it hasn't happened before. We haven't seen the danger of this. Uh that's what started this whole merry-go-round off by drawing out of the CBR and those three billion dollar draws to pay for this kind of stuff because of this kind of factoring. We got two minutes here, Brad.
Use Rolling Averages Like Other States
SPEAKER_01Well, no, we absolutely so so we know that we're going into a screwy period. We know that these prices are gonna come from a screwy period, and and we know that they are unlikely to reflect where we're gonna be over the course of fiscal year 2027. We know that. And so we ought to take that knowledge and and apply that in how we budget going forward. And the best thing we can do is to go to historical averages. I mean, that's what Oklahoma does, it's what New Mexico does, it's what Wyoming, New North Dakota. I mean, you look around the rest of the US, nobody is doing it like we're doing it. You look around the rest of the globe, nobody does it the way we do it. Nobody predicates their budgets on the projection of oil prices. So we ought to, we ought to step back. We since we know that you know that we're gonna be off using using these numbers, we ought to step back and use a budgeting process that's tried and true and been used in other states and other places around the globe.
SPEAKER_00Bruce Tanjamin just he almost gets the final word today. The legislature will most likely ignore the DOR report and come up with their own number based on one, their fifth school year 27 budget, and two, a thousand dollar PFD, and then back into an oil price to make it all balance. That's just that's sad. That's just kind of where we're at right now. Final thoughts, Brad. One minute.
SPEAKER_01Well, that explains for why Alaska is where it is. I mean, we're not exactly we're we're not using, and Bruce was a was a legislative staffer at one point to finance. We're we're not using tried and true budgeting practices, we're using made up, you know, spur-of-the-moment rationalizations of of how we want to get to our budget. We're not using a process that produces a good solid outcome. We're just making it up, making it up as we go along.
SPEAKER_00No, we know better than how the system works. We know better than all these other people. We'll figure it out, we're gonna make up our own stuff, and it'll all work out just fine. Uh Rob just said, we've been told that Senate finance will use$68 oil this year. I mean, if that turns out to be okay, then that's that's great. That's great. I mean, they're playing it safe, which is is all good. Um, but the problem is that's this year. You know, we need to stop this back and forth every year and start looking at it from a long-term perspective where these the legislators can't just you're right, okay. So they could have decided to do 68 this year, but they could have decided to do 88 this year, right? Or 72, or 72, or 70, or 75.5, or pick a number, pick a number. Yeah, I mean, they politicize the whole process. There's no grounding in reality, it's just whatever the hell they feel like it. And that's the problem that we're talking about, right, Brad?
Politicized Pricing And Structural Reform
SPEAKER_01You know, yes, you know, I've never heard a Senate hearing, a Senate finance hearing or a house finance hearing, or even an administration talk about how it's done in other states, talk about how, you know, other states who are confronted with the same issues we are in terms of having this volatile uh commodity uh producing a significant part, a material part of the of their revenue stream. We I've never heard a hearing that sort of goes through what others do and try and sort of tries to develop best practice uh for Alaska. It's always um and it's out there. I mean, I mean, I tried to do it in the Friday column to a degree. Um uh it's that there's stuff out there that people have thought through and and applied, you know, basic fundamental uh financial policy, um, uh in trying to public finance policy and trying to develop uh these mechanisms that work and become tried and true and predictable and understandable and simple and that sort of stuff. We don't do that in Alaska. We we just sort of make it up as we go along, you know. 68 today, you know, 65 tomorrow. I it's just I mean, well it and and we wonder why we run into these issues that we're running into. We wonder why we can't observe the the permanent fund dividend, uh the the preferred nature of the designated nature of the permanent fund dividend. It's because we're just making this shit up as we go along. Yeah, and and and we run ourselves into these dead ends where you know the only thing we can do is sort of steal money from somebody else.
SPEAKER_00Well, and and Brad, it's it's this is indicative of Alaska's legislature and the leadership overall. It's not just with oil and gas. I mean, look at the Alaska Reads Act. I mean, it worked in Mississippi and it took us what six years to finally force a bill through to show that because we knew that it worked, we saw that it worked, you know. If they've looked at other states, but see, then they wouldn't be able to be able the ones to say, look at what we did. We knew exactly how much better we were than anybody else to do it. It's it's that whole idea of we know better. I mean, it really truly is a sickness, in my opinion.
SPEAKER_01It it is, and and it at least on the economic side, it's we know better, but we aren't we aren't subject to the same, we we know better. We're gonna apply our our experience and our understanding, and we're gonna come up with the way it works. But they but the legislators have have insulated themselves through the raises and the other things that they do for themselves, have insulated themselves from what affects the bulk of Alaskans, what affects 80% of Alaska families. So they're operating on an experience, they're operating on an on on their experience level, their the impact on them that doesn't reflect the way it impacts ordinary Alaskans. And you know, and we get stuff like out migration. My God, why do we have out migration? Well, it must be because the government hasn't spent enough money uh in this area or that year area. No, it's because we're taking money out of the pockets of those Alaskans of middle and lower income Alaskans that that are leaving the state. We're taking money, we're affecting their economics. Oh no, but it's because we don't have child care for them, or we don't have this, or we don't have that. It's Julie Cologne. I mean, it's it's because we because we have to have child care. That's that will solve out migration. No, it won't. And but but that's her experience, and she doesn't have the experience of you know, paychecks. I mean, day-to-day living living on on day-to-day income and and looking at the PFD is a part of the part of her income.
SPEAKER_00No, you're 100% right. Um, and unfortunately, I I mean, I don't know how to fix all that. I don't know how to fix this mindset in the legislature that instead of taking a blueprint from somebody else who's done something similar and modifying it and using it for ourselves and saying, hey, look, that's a great idea. Let's steal that and make it our own. It is let's build it from the ground up from scratch and completely ignore anybody else who's ever done anything else because we know better than anybody else how to make this happen. I mean, it's it's it it it that's the madness that we're facing uh in this situation. And I don't know, I don't I don't know.
SPEAKER_01Maybe there maybe we never get out of this. Maybe through a combination of of eliminating uh campaign finance uh uh limits and and and and giving them enough salary that they don't have to worry about ordinary common stuff. Maybe we've set ourselves up where this legisl where our legislature never reflects uh what is uh in the best interest of the bulk of Alaskans.
Middle-Class Impact And Outmigration
SPEAKER_00It's Stedman Anomics, Colleen Sullivan Leonard said. Yeah, I mean, I just these guys are convinced that they're the smartest people in the room and that nobody else could have possibly done it better than they have. And so they're going to uh do it. All right, Brad, final thoughts here, last minute. Um, final thoughts on where we're going and what happens this legislative session.
SPEAKER_01I think the most important thing, if anybody's listening on this, I think the most important uh thing this session is don't go by the tenure, the the Department of Revenues uh spring forecast. Go by uh historical average. 68 is probably close to the historical average right now, 10-year average, 10-year moving average. Uh so I wouldn't I wouldn't get hugely upset about that. Uh, but you know, there's gonna be pressures to spend more. Yeah, we're seeing a school bill out there, right? I mean, right? Increase the BSA, or there's gonna be pressures to to increase spending. Don't use the spring forecast.
SPEAKER_00Yeah, another 160 million, which would mean we would spend over a third of a billion dollar increase in two years on schools and forever, in perpetuity, until we're done. It's uh, dude, it's madness. It's just total madness. All right, Brad Keithly, thank you so much, my friend. As always, it's great to talk with you. We will catch you uh next week, okay? Michael, thanks as always for having me. All right, we appreciate you.
SPEAKER_01Well, that's a wrap for another week's edition of the weekly top three from Alaskans for Sustainable Budgets. Thank you again for joining us. Remember that you can find past episodes on our YouTube, SoundCloud, Spotify, and Substack pages, and keep track of us during the week on Facebook and Twitter. This has been Brad Keithley, Managing Director of Alaskans for Sustainable Budgets. We look forward to you joining us again next week for the next edition of the weekly top three.
