The Weekly Top 3
The Weekly Top 3
The Weekly Top 3 (5.18.2026)
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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 May 18, 2026.
This week, our top 3 issues are these: 1) we discuss the effort yesterday by some to use the gasline bill permanently to divert revenues to their favored spending categories, and why we continue to be concerned about the potential for similar efforts in the future, even though yesterday's effort failed (2:11), 2) we explain what, in the euphoria about first oil, many are forgetting about the state revenue side of Pikka, Willow, and other new developments (17:40), and 3) we discuss where the conference report puts the FY27 budget (35:27).
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.
What The Weekly Top Three Is
SPEAKER_00This is Brad Keithley, Managing Director of Alaskans for Sustainable Budgets. Welcome to the Weekly Top Three, the Top Three Things on Our Mind here at Alaskans for Sustainable Budgets for the week of May 18th, 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 projects 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 discussed the effort yesterday by some to use the gas line bill permanently to divert revenues to their favored spending categories and why we continue to be concerned about the potential for similar efforts in the future, even though yesterday's effort failed. Second, we explain what in the euphoria about first oil many are forgetting about the state revenue side of Pika Willow and other new developments. And third, we discuss where the conference report puts the FY27 budget. And now, let's join Michael.
SPEAKER_01Brad Keithley, Alaskans for Sustainable Budgets, joins us this morning fresh off his trip to the Emerald Isle and his music festival wanderings.
SPEAKER_00Michael, I'm doing great today. It's almost like I never left. You know, the the the legislature, the legislature was in chaos when I left, and it's in chaos when I come back. I missed some of the some of the ups and downs of the chaos, but you know, it's still the same.
SPEAKER_01I swear, Brad, if uh you could leave for two years and come back, and you'd be like, same song, same song is still playing, the same song is still playing, same dance is still going on. Um, but anyway, welcome back and thanks for coming in and joining us. All right, let's get cracking on the weekly top three. Sorry, I didn't mean to take too much of your time there, but I just I read that and I had to say, if it was bad, then it's bad. Why do you you're gonna trade something? We're gonna we're gonna take this bad stuff, but we're gonna um all right, but let's first get into it.
Gas Line Bill Stuffing Strategy
SPEAKER_01Uh the bill did not pass last night in the house. It was stymied, but uh that may not necessarily be a bad thing because there was some stuff that was stuffed into it.
SPEAKER_00Uh give us uh give us the rundown here, Brad. Yeah, it was an interesting, it was an interesting exercise when uh when the House thought uh thought that the governor might trade the pension bill for the uh for the gas line bill. People were stuffing things, attempting to stuff things into the gas line bill um uh to to you know do unrelated to accomplish unrelated objectives. Um up to the point, there was this balance, you know, up to the point that they don't want to stuff it too much, or else the governor might not do the trade. But there certainly was an effort to to stuff a lot of stuff into it. And I'm not sure we've seen the end of that. I mean, I we we we have seen the end, we may have seen the end, may have seen the end, should have seen the end, uh uh for this regular session, but we may have a special session yet to go. Right and we may have future sessions, uh uh uh future governors, future sessions to go uh on the gas line, and we may see the same sort of stuffing. One thing in particular that I had when I sent you the list for today that I uh had in mind was a provision in it that uh uh Zach Fields had put in, which it was leveraging up on a bill yet to be considered by the House. We'll talk about that in a moment, but leverage leveraging up on a bill yet to be considered by the House that provided for how the revenues, all of the revenues from the gas line were to be divvied up. You know, the the governor and others have talked about all the revenu the great boom in revenues that are going to come from the gas line, not immediately, but are gonna come from the gas line over time. Zach already had a bill for how to divide those up. The first was to the the uh the permanent fund, not permanent fund dividend, the first was to the permanent fund. Uh, and then uh he uh had a provision in there that a a chunk of it could go to uh renewable, the renewable fund to build uh to fund uh government subsidized renewable projects. And then the third piece of it was anything that wasn't spent on the first two would go to K through 12. Now, we normally think, okay, well, that's designation, that's legislative designation, it doesn't bind the legislature. Um, and so uh and so, yeah, okay, you're you're putting it, you're saying you're designating it for that purpose. But like the PFD, most normal would people would think, well, like the PFD, uh, it's just designated, it's not statutorily designated, it's not written in stone, not constitutional, and so um, and and so don't worry about it. But what's going on here is a is a twofer. Uh Zach was anticipating, Zach's bill and Zach's provision anticipated that the that the and the Senate's already passed this, that the House would pass a proposed constitutional amendment that would create a design, a dedicated, constitutionally dedicated education fund, K through 12 education fund. And and and and that that constitutional provision provides that anything put into it is constitutionally dedicated, can't be taken out to be used for other purposes, becomes constitutionally dedicated. And so what Zach's bill was doing, or what Zach's proposal was doing, was sweeping
The Education Fund Dedication Risk
SPEAKER_00the remainder that didn't go to the permanent fund and didn't go to the didn't go to the renewable fund, sweeping the remainder into this newly yet to be newly created constitutional K through 12 and constitutionalizing, uh constitutionally dedicating uh the remainder of the funds to K through 12. I I have been a big opponent, yeah. This is the provision that he had in there. I've been a big opponent of the of the constitutional provision. I am hopeful the House defeats it uh if it makes it to a vote uh in these last two days. Um I've urged representatives to vote against the const proposed constitutional provision. And it's just it's because of this sort of stuff that I that that I'm concerned about it. Any bill that comes along that has revenues attached to it from now, if the constitutional provision became effective, any bill that came along that had revenues attached to it could have this sort of provision that would sweep those revenues into the constitutionally dedicated fund, um, the K-312 fund, and then keep them away from the legislature. The net effect of that, and we've talked about this before on the show, but the net effect of that constitutional provision is to is to take the the low-hanging fruit in terms of revenues like this, like the like the gas line revenues, sweep them into the K-12 fund, and leave the remainder of the funding of government to things like PFD cuts. Um it would put increased pressure uh on PFD cuts, put increased pressure on increasing PFD cuts to pay for the pay for the government. It imbalances the the the way the the the budget works now in terms of revenues being used to pay for a variety of things and all of them sort of competing together. It would take those funds, these funds, what Zach proposed, these funds, and uh and sweep them into the constitutionally dedicated fund. So I I was that this is a this is a provision that got knocked out last night. Um uh Jeremy Bynum quickly sent a note uh on on one of the Facebook pages that said, Oh, we defeated this. That got that this provision got knocked out last night uh during the consideration of the bill before the bill itself imploded. Uh but but but this provision was in there, and it's not enough to say, well, this one got knocked out. Right. What that constitutional provision does is set up the ability to continue to have these sorts of things at infinitum as we go along. So the the way what we need to do in order to make sure this sort of provision doesn't keep showing up in future gas line bills or in future oil uh uh uh tax uh uh modifications or anywhere else is we need to make sure the the constant the underlying constitutional provision they're relying on is defeated on the House floor if it comes for vote in these last in these last two days.
SPEAKER_01What does this tell you about the what does this tell you about the just so the folks know, the the the the the bill is as Brad said, read that notwithstanding any other provision of law, the Alaska Education Fund, which is the constitutionally protected fund, consists of all revenue received by the state associated with the North Slope Natural Gas Project that remains after they put some in the permanent fund and the payment to municipalities and the renewable energy grant. After that, everything else goes to education. But what does this tell you overall, Brad, about the mindset of the legislators, both in the House and the Senate, in regards to the gas line? What does it tell you about their actual mindset over this project?
SPEAKER_00Well, they're uh again, this got defeated last night. So it tells you that it tells you that they're not willing to take everything, but it tells you that there's a there that that the governor has indicated that he wants the gas line so much that people are stuffing things into the bill, approving the gas line, um, uh hoping that he will buy off on that because he gets his gas line. Um, and it's it's it's it's this this balance of how much can we get on the other side, how much can we get out of the governor in exchange for the gas line. I mean, the big trade uh was the pension bill, right? Uh we get the pension bill uh if you get the gas line. I mean, but but think about that, Michael. Think about that. We get the pension bill, which once you have a pension, the constitution protects going forward until you revise the pension uh for people going forward, but but whatever is accrued in the meantime is protected, constitutionally protected. We get the pension bill, you get a gas line bill that we can amend next session. I mean, um uh that that it's telling you that the governor has indicated he's so desperate for a gas line bill that that he's willing to take stuff like the pension bill, potentially if this had gotten through the gas, had gotten through the house, stuff like this, stuff like the Zach Fields proposal, right? That he's so desperate for the gas line that he's willing to take bad stuff um uh just to just to get the gas line, the potential of the gas line.
SPEAKER_01Right. Well, and I look at this and I see, and Kevin McCabe is in the chat room, um, and he says this, which I I I follow uh I believe in exactly. He says, I predict the gas line is dead. Every rep is thinking of their own district and not the state and the hundred-year legacy of this project, short-term greed, even in Anchorage, Fairbanks, North Slope versus long-term uh strategic thinking. And I think you could substitute the different communities for the short-term greed for special interests as well. This is what Zach Fields is trying to do in his special interest to protect the special interests. I don't think the gas line is dead per se, but I would agree with the whole um this is the this is the thinking that's in the legislature. What can I get? How can I get my constituencies, my community, my special interests covered, regardless? And if we, hey, if we lose a project, we lose a project. I'm just gonna get everything I can on top of that.
SPEAKER_00Yeah, and they're and they're going for things that are permanent. I mean, Zach Fields, if the constitutional provision is passed, hope it's not, but if the constitutional provision is passed, that and Zach Fields provision have been included in the bill, and the bill got through the governor, signed it. That's a permanent thing. And and the gas line's not uh not a not a uh guaranteed thing. So they so they're going for things that they will get permanently, stuffing things that they will get permanently, even while the gas line, even while the gas line is still out there. One one thing on the gas line, I don't think it's dead. Not
Why Future Revenue Sweeps Matter
SPEAKER_00it may be dead legislatively in Alaska, but what we what what what we need to bring back into mind is Trump's uh executive order on the Defense Production Act. And I and I think to some degree, I said this before on the show, but I think to some degree this is all kabuki theater, uh uh sort of leading up to the Defense Production Act. I don't think that I don't think the gas line will get financed, even if the legislature passed whatever gas line bill the governor wanted intact with no amendments. I don't think the financing is there uh for uh for the gas line out there in the market. I mean, look at look at how many LNG projects are going to are going to FID in the world or on their way to FID in the world, and and Alaska's lagging. I mean, it's just it's a high cost project. People don't want to take, don't want to take a risk on it. I think I think the federal government coming in with the DPA is is how the gas line is gonna get built. And you know, what happened last night, what's happening with with the legislative gas line bill, what happened with the governor's proposal, I think is all kabuki theater leading up to uh leading up to the DPA designation.
SPEAKER_01Because if the DPA comes in, that takes it all out of the state's hands. At that point, it's no soup for you. Sorry. Uh, they're gonna take it in and they'll make it a national security thing, and then there you go.
SPEAKER_00That's like it's like building an Air Force base or building an army base. It becomes a it becomes a defense installation, essentially, um, and um and is subject to federal government control. And and what the state gets out of it at that point, state gets still gets upstream revenues from the producers, but what the state gets out of the pipeline at that point is entirely up to the feds in terms of what they're willing to authorize uh as uh payments in lieu of taxes.
SPEAKER_01Terry says constitutional amendments should be voted on by the people. We can't trust the legislature. This would have been voted on by the people. The problem is, this is my thought, Terry. If they come in and say, think of the children, wouldn't you like to help the children? Wouldn't you like to be, wouldn't you like to know that your children are being educated? I mean, that's the thing. It most people are not paying attention to the finite details of this. If it put, if you put it in front of them on a ballot that said, would you support you know protecting education for the future? Most people would say, Oh, sure, that sounds good. They have no idea what's going on, they have no idea what they would be doing to themselves by putting this into the Constitution.
SPEAKER_00Brad? Yeah, my response to that when people have raised it with me is elections in Alaska right now are a lot more about money than they are about about votes. Votes are being driven by money. And and given where we are on campaign and finance in Alaska right now, and given where we are nationally, there's virtually unlimited amounts of money that can be put into this. So let's think about this for a minute. The education industry has the opportunity to set up a constitutionally dedicated fund for its, basically for its use, uh, because once the funds are in there, they are dedicated, constitutionally dedicated to K-12. So there's gonna be a lot there if this gets out of the house, if the constitutional amendment gets out of the house, there's gonna be a huge amount of money put in behind pushing uh for uh uh for that constitutional support for that constitutional amendment among the voters. And as I say, given where Alaska is on campaign finance, there's gonna be virtually an unlimited amount of money that's gonna come in in support of that constitutional amendment with the theme that you just outlined is for the children. So I don't, I'm, I don't pay, I don't give a whole lot of give a whole lot of um, I don't get a whole lot of comfort out of the fact that the constitutional amendment uh would have to go to a public vote. I don't think I don't think public votes are really what people think they are anymore. Well, they are money games.
SPEAKER_01Yeah, especially the way that this one could be framed. I mean, I would see this if this made it to the public, I'm assuming it would pass because simply because uh again, it's for the children. And if it's for the children, then most people are, oh, okay, that sounds good. Never even thinking of the deeper problems associated with it. Okay, uh, Brad Keithley, Alaskans for sustainable budgets and the weekly
DPA Theory And Federal Takeover
SPEAKER_01top three. Let's uh jump into number two of the weekly top three.
Pikka First Oil And The Reality
SPEAKER_01Um, what many people are forgetting about Pika and Willow and all the other ones out there. I mean, we got the big headline yesterday: first gas, first oil from PICA. It was all great. And I announced it yesterday and I said, yeah, but don't forget we're not actually getting uh any more money, just more production. Anyway, Brad, what are we forgetting here? Give me the give me the rundown.
SPEAKER_00So Pika is great. I mean, I don't want to, I don't want to minimize it. I think it's great that we found additional oil resources. I think it has led others to uh to be excited about the potential for additional opportunities. But we need to keep in mind what's going on here from a from a from a revenue standpoint. Pika, the $80,000 or the 80,000 barrels that are that are coming on stream are really just gonna fill in for the decline curve that we have going on uh in the traditional slope, Prudeau, uh Kaparic, and and elsewhere. If you look at the spring revenue forecast, you look at the volumes in the spring revenue forecast, volumes from state lands stay about even uh across the entire uh 10-year period. The real bump in volumes comes when willow comes on and when additional uh federal lands volumes come on. That's what really causes the spike that many, spike in production that many talk about. PICA is just sort of filling in the gaps that otherwise would would be created by the decline curve uh uh that's that's that's coming from state lands. And so, and so let's think about that a second. PICA does bring royalties on the on the production volumes, but those royalties are really just filling in for the royalties we're going to be losing uh as a result of the decline curve elsewhere on the slope. So from a royalty standpoint, we're just about staying even in terms of revenues over the uh over the projection period. What what PICA does though, because of the way SB21's written and because of the way the credits stack up, PICA doesn't bring uh production tax revenues. We did a we we've done segments on the show and we did an analysis on the landmark page or on the landmine page uh a few uh few months ago about what PICA does from a production standpoint. Um and you can look, you can you can see that and see that PICA doesn't bring in any new production tax revenues. Yeah, here we are. This is this is DOR, Department of Revenue Analysis. And it shows that PICA starting in 2026, like it has, running quickly up to 80,000 barrels a day, the peak. But but production tax revenues don't start until we're after the peak, until 2034, because of the way the production tax credits work. And we don't we don't even get to minimum production tax credits. Um uh we don't rise above the 4%, the current minimum production tax credits, until 2038. And we don't really we don't get to full production tax
Why Production Rises But Revenue Falls
SPEAKER_00credits until until after that. And as you can see, we're way down the production decline curve on PICA at that point. So what's happening is PICA is replacing the decline curve that we're that the declines that we're having from existing sources. It's filling in those gaps. Yay for that. It's producing royalty revenues that will help fill in the gap from the decline, from the loss in product in royalty revenues from the decline in in traditional sources. But PICA won't be replacing the production tax revenues we're getting off existing off existing production. Um it doesn't even start uh uh starting contributing uh for until 2034, until after PICA limit. So what happens is we're having we have a decline in in product in revenues, state revenues from production, due to the fact that PICA, the PICA volumes, when they're replacing uh the existing volumes that are that are in decline, PICA is not bringing production. Tax with it at all until 2034 and not at the same level until 2040. So when people talk about, oh, we're safe, PICA's here, you know, these 80,000, this 80,000 volume, 80,000 production will save us. No, it won't. I mean, it it we're we're in decline. The irony of all this is we're going to have a decline in uh in revenues from production at the same time as we're having this huge spike um uh in production once you count in the federal volumes. Federal volumes don't bring any royalty revenue. Right. Uh new leases, production from new leases uh do because of of a provision that Nick Beggage worked into the OBBA, but but that doesn't start until new leases start producing, and that's way the heck down the road. And so federal volumes, the new federal volumes that are going to be that are going to be coming from willow, don't bring any uh any royalty revenues. And because of the same provisions that we're seeing with PICA, they don't bring in any production tax revenues. So a lot, so what we need to celebrate the new production. Yes, we do, because otherwise we would be in even steeper decline than we've been in for the past 10 years. We need to celebrate those volumes. But don't think and don't let anybody try to convince you that this is even a contributor to the even a partial contributor to the solution of the state's fiscal problems. It is in fact, because of the oil tax credits, it is in fact a contributor to the state's fiscal problems because it drags down oil revenues uh as long as those uh as long as those credits uh uh keep going.
SPEAKER_01So I keep hearing, I keep hearing, oh, we'll make it up on volume. That's not how it works, it's not how it works, man. If you're taking in less, that's that's just not how it works.
SPEAKER_00You'll just go broke faster at that point. And everybody says, oh, well, this opens the door to additional uh additional development, and that'll save us. No, it won't, because as long as these oil tax credits stay in place, as long as they stack the way they do, and this is not what SB21 contemplated. This is sort of SB21 spinning out of control 10 years by not looking at it again 10 years after it was enacted. SB21 did what happens is additional development, additional oil volumes are just going to have the same credits. And so we're gonna continue in this decline uh of uh of revenues uh over the long over the uh over the long term, as long as as long as this keeps repeating itself.
SPEAKER_01Uh this is again part of the big problem where we keep seeing about all this joy and all this excitement about uh about this stuff. And uh again, we're taking in less. I mean, it's great that we're getting new production. Again, new production is great. That's all good. But if we're not getting, as owners, if we're not getting the full kick, it doesn't do us any good. If we're taking in less revenue with more production, if you just extrapolate that out, we're getting more and more production with less and less revenue. Again, we're going broke faster. We have to look at SB21.
SPEAKER_00Yeah. All contractors are ecstatic. I mean, oil contractors who got the contracts uh to go up on uh to go up on the slope to build out Pika, who are building out Willow, who potentially build out other fields, they're ecstatic. I mean, to them, it is revenue because they're getting contracts to build this stuff. But that's that's a very small slice of Alaska. You have to look at at what's going on with the remainder of the state. And this is this is putting the state in even more difficult economic circumstances going forward. If we have if we have a population growth, uh uh, I mean, people say, oh, we need more population. Well, if we have population growth because of this, we will not have the revenues to support that, the the to provide the state services to support that population growth because of the way SB1 is is is uh operating in its old age, um, in its daughtering old age. So it's I I I I appreciate the headlines that say PICA, you know, 80,000 barrels a day, aren't we, aren't we rolling in the in the oil now? And people who say, yeah, Willow's going to come from behind it and Pika 2 is going to come behind it. I appreciate the the enthusiasm that that generates. But don't let anyone tell you that that enthusiasm carries over into a solution for the fiscal issues uh that we're facing at a state level. Indeed, because of the way the credits operate. And as I said, PICA results in a net decline in revenues, because of the way SB21 operates and the way these oil credits operate in SP21's old age, uh, we're gonna see a decline in state revenues at the same time as we may see a a uh uh pressures for even increased state services.
SPEAKER_01Brad Keithley, Alaskans for sustainable budgets, the weekly top three. Uh, this is number two. Um I I got to tell you, Brad, um we we've got to address SB21. It is a, I mean, it's not a suicide pact, right? We can't just hold on to it and glom onto it forever and say, this is the way it's always gonna be. We always have to go back and look at, especially when there's unintended consequences,
SB21 Credits And GVR Volumes
SPEAKER_01when things happen beyond the scope of what the original framers of SB21 envisioned, and they're like, this is what it's all gonna be, and then it blows up way beyond that. And then you're like, we this framework was not built to handle this new stuff. We have to re-examine it.
SPEAKER_00It wasn't. So SB21 was really there's an incentive in there for new development uh called the gross volume reduction, uh, and the provisions around the gross, the G VR volumes, what are called the G VR volumes. There were provisions in there, and I and at the time SB21 was enacted, I recall estimates of maybe 5%, maybe 10% uh of the volumes would be would be GVR volumes. And it's GVR that's causing this this effect in PICA where you they don't pay production taxes until well after uh they've hit the the peak production until well after production is is going. And I recall you know estimates at the time that that there were going to be fairly minimal uh percentages. Well, GVR volumes grow to something like in the 10-year period of the of the of the current spring revenue forecast, grow to something like 40%, 50% uh of the volumes. And so, and so what's going on, and and G VR G VR volumes stack in a way that that produce this this effect as you're seeing in the in the Pika Pika curve production curve of where you know production taxes are put way off, and even when you get them, you don't get the full amount. Um it's the G VR volumes that are that are a big driver of that. And if you think if you see that G VR volumes are going to grow to 40% or 50% of volumes, you can see the effect they're gonna have on on production tax revenues or wiping out production tax revenues. Yes, it's great we're we're having this this this this surge in development. Yes, the oil field contractors are ecstatic. I mean, you talk to Ayoga, you talk to the Alliance, you talk to the RDC. Boy, they're all they're all for this. The problem is it it is making the state's fiscal situation uh uh much worse.
SPEAKER_01Brad Keithley, Alaska's forced sustainable budgets, the weekly top three. Craig is just in here saying that I'm completely misinterpreting what the governor was doing, that he wasn't trading the defined benefits bill for the bill. That it's just my interpretation of it. It doesn't matter what the legislative leader said, it doesn't matter what all this other stuff said, that the governor was just apparently playing fifth-dimensional chess here. And is it it uh it's just my interpretation of it. I mean, it's just what everybody said, including Kevin McCabe and and uh Sarah Vance and all these other people saying this is what's going on. Ben Carpenter's been watching from the wings, this is what it said. I mean, they pretty much admitted it. This is he waited until 11 p.m. last night to veto the bill because they couldn't get the gas line thing passed. You don't think he was trading the gas line for the defined benefits bill? I don't know what to tell you, Craig. I really don't.
SPEAKER_00Well, just just look just look at what was going on yesterday. I mean, the governor initially announced a a press press conference at 10 a.m. in the morning to discuss uh to discuss the gas line and the pension bill, and then he moved it to noon as the as the day as the legislative day wore on, and then he moved it to three, and then he moved it to an indefinite. I mean, he was clearly I mean, there's no one who was thinking that that he was just waiting around to you know issue the veto that was always gonna come. He was clearly waiting to see what the what the playout was on the effort to get the gas line bill through at the at the last minute.
SPEAKER_01So yeah, of course there's a negotiation, but not the way you were claiming. I don't know what you mean. There what was I claiming? I'm claiming that he was trading the defined benefits bill for a gas line bill that he could approve. What it what difference am I claiming here, Craig? I'm not claiming anything different. He also said, Brad, do you really think Pika or Willow would have happened without SB21?
SPEAKER_00Yes. They would have happened. Let me let me nuance the answer this way. SB21 sort of jolt got everybody's attention focused on on uh uh on new developments. It it it corrected for ACEs um and and corrected for the the disincentives that ACEs created. So SB21 got everybody's attention focused on it. The problem is I don't no one thought SB21 was going to go in because of the way that the credits pile on top of each other, I don't think anyone thought through where SB21 was going to go as it got into its old age, as as it passed as it passed the 10-year mark. And so would those would would the developments have occurred if we knew that the SB21 was going to act in this way and fixed it at the outset? Yes. I I think SB, I think, I think those developments would have gone. So I don't think the developments are conditioned on this weird thing that we've got going on with the way the G VR credits are are piling on top of everything else. I in to put it another way, I think that's producing the way those GBR credits are operating now, and the way that they've stacked on top of the other credits, and the way that it's producing this negative, negative production tax, um, I think that is a windfall. The negative production tax is a windfall to the producers. Yeah. And I don't and I don't think the producers counted on this windfall in making their initial investment decisions.
SPEAKER_01So it would have happened regardless. And by the way, Craig, uh, Rob said straight from the horse's mouth, he said, I spoke to the governor last night. That's what was happening. There was a trade going on, one for the other. So, I mean, I don't again, you believe what you want to believe, my friend. I, you know, it doesn't matter to me, uh, but I did not put any words in the governor's mouth. I read it directly. Um, uh, I read it directly from the uh from the press release. So that that's that's what it was last night. And again, uh my whole point was this trade for something that he called um uh an unfunded liability risk to the state and participating employers, and talking about how it contained unresolved legal tax, administrative, and fiscal issues that create uncertainty, that's again, no surprise. Those are things that he said. And if it's bad for that, and that's why he vetoed it, I don't know why he would want to support it any other way. Um go ahead, Brad. Sorry.
SPEAKER_00Well, so so if I were trying to, if I were the governor's defense lawyer on this issue, what I would say was in theory, look, I'm gonna get revenues out of out of out of uh the gas line. Yes, the the pension bill is bad. It's gonna cost us a lot of money, but I'm getting revenues and I'm getting development out of the gas line. And so that that's the trade. I'm getting I'm getting new revenues, I'm getting new new uh new uh uh things going on out there, new dollars coming on coming on out there for for this commitment to the pension benefits. The problem with that, the problem with that is it it it's a trade of something that's that's fixed. The defined the defined benefits would be fixed for as long as they lasted because the constitutional protection of pensions. The you're trading something fixed for something that is ethereal can be changed in the next legislature. There there would be no permanence, there is no permanence to whatever provisions. That's another reason we're gonna have the DPC come in, but but there is no permanence to whatever you pass on the gas line bill. It can be changed tomorrow, it can be changed you know, two years from now, it can be changed three years from now. So you're changing a fixed obligation. You're uh even even from the defense standpoint, you're changing an obligation that's fixed for an obligation that that's unfixed, that that or for a benefit that's unfixed and can be and can be changed. So it's it was a it was a bad trade, uh, but he is so focused on this gas line. Again, I'm not quite sure why, but he's focused so focused on this gas line given the DPC, given the Defense Production Act that's sitting behind this. He's so focused on the gas line.
SPEAKER_01Welcome back to the program, Brad Keithly, the weekly top three. We're ready to go.
FY27 Budget Numbers From Conference
SPEAKER_01We're continuing on, ready to get into it. Number three, Brad. Uh, number three of the weekly top three. Uh, where the conference committee report puts the fiscal year 27 budget. Now, we do know that the PFD has remained at $1,000. They did increase the energy relief payment to $200 whopping dollars. So, I mean, that's right, that's great. I mean, $200. Uh, but where does this put us uh in the in the in the end here? What what are we looking at?
SPEAKER_00Well, this is one of the benefits of me being gone for two weeks because you didn't have to put up with these intervening charts uh in the in the in the meantime that I that that that would have come out about what the house had done and what the Senate had done. So we can go straight to the conference committee chart uh and and talk about uh what what the what the FY27 uh budget looks like. Uh if you can throw that up for me uh uh uh quickly, uh Michael. Thank you. Um so this is a chart, this is a uh a chart approach that we've used in uh in previous uh segments. Uh on the left-hand side, on the far left-hand side is the uh the FY26 budget, uh updated for the supplementals, huge supplemental uh that uh that the legislature has passed on the FY26 budget. Uh and on the right, those two blocks on the right are the FY27 budget. Each of those on the on the left side, we have spending uh that's gone on, and on the right side, we're showing revenues that is being used to uh to to fund that uh fund that spending level. The FY26 budget uh is gonna come in or uh as as passed through the conference committee process uh with the supplemental is gonna come in at around $5.87 billion in spending. Uh $5.88 using the spring revenue forecast as the basis for the revenue, $5.81 billion in spending. That looks like a deficit of $60 million. It's really not, because we're gonna end up with more revenue uh at the end of the at the end of this year, given the spike in oil prices, we're gonna end up with more revenue than what the spring forecast uh projected. So that'll that'll roughly balance out. And the legislature, frankly, took advantage of that uh in the final days when they did the the energy uh uh energy relief payment, added the energy relief payment to the FY26 uh uh budget and uh and added in uh the additional uh supplementals uh have taken advantage of that additional revenue that they anticipate uh uh coming as a result of the uh the oil price spike. And so, you know, 5.8 uh 5.85 uh looks to be about where the FY26 budget ends up. Uh over uh about a third of that, uh well, a little bit less than a third, about 30% of that coming from PFD cuts. Um, you know, people say, well, we've got this spike in oil prices and it's gonna it's gonna fund uh fund all this spending. It's not. I mean, this is the stack on the right is how they're funding the spending, and the the PFD cut uh level didn't change. Uh and so about a about 30% of the of the uh spending is gonna be funded by uh by PFD cuts. FY27 gets worse uh in in that respect. FY27, the spending uh using the conference committee numbers, the spending is going to be about $6 billion, uh $6.03 billion. The revenue is about using the spring revenue forecast again. Uh the spending the revenue is about $6.04 billion. That revenue may be higher as as a result of the price spike. It may not. I mean, if if Hormuz gets opened, oil starts flowing again, uh uh uh various things recover, uh prices may drop, uh drop back down toward the levels that were rejected in the spring revenue forecast. If it doesn't, we may have additional revenues that they'll somehow find to spend next year uh in the supplemental. But spending's about up about $100 million, $6.03 billion, uh $5 billion of that's on the agency budget, and and six uh $60 uh $600 million of that's on the uh uh uh the statewide budget, which includes the uh energy, whatever the Energy Relief Act, and then the and then $380 million, huge spike in capital spending from $1,660 million in the FY26 budget to $380 in the FY27 budget. And then I've got $50 million up there for supplementals, but supplementals really depends upon what revenue you have. If you have a lot of excess revenue, they'll find a the legislature finds a way to spend that excess revenue. The the real the real thing that I that that and I've talked about this before, but I want to keep people focused on the P the the permanent fund dividend would have been up from from FY statutory permanent fund dividend would have been up about $300 million uh from the FY26 uh level, about uh uh whatever that calculates to on a person on a per person level, but it would have been up about close to $4,000 statutorily. So it would have been up, it would have been up uh uh from uh FY uh FY uh 26 levels, but the legislature took that increase. I mean, people say, oh, well, the PFD is going to be about the same from from last year to this year. No, it's not. I mean, the the it on an individual PFD basis, what they've done is they've focused on the individual PFD basis. But on the on the basis of what the statutory amount of the
PFD Cuts As Alaska’s Biggest Tax
SPEAKER_00PFD would have been, the PFD would have been up about $300 million. The legislature's cut taken all of that for itself, all of that increase, none of it leaked out uh to Alaska families, all of that $300 million increase um in the uh in the PFD amount uh was taken by the legislature in additional cuts to support uh to support spending. So the the the net result of this is you know, the house majority, whoever the house majority is at the time, uh whether it's Republican or Democrat led, likes to always claim, oh, we have a balanced budget. But look how they're getting to the balanced budget. The budget's being balanced on the back of PFD cuts. I mean, and and huge, a huge amount of PFD cuts, an increasing amount of PFD cuts. That's how they're getting to a balanced budget. If you look at statutory revenues, if you look at the statutory PFD and other statutory revenues, we'd be in a huge uh uh deficit. Um uh we'd have spending of roughly six billion dollars, we'd have revenues of roughly four billion dollars. That's the combination of oil plus uh the oil revenues plus the the portion of the uh of the POMB draw that's statutorily set aside for government. We'd have about $4 billion in revenue. We'd have a $2 billion gap. The only reason we're getting to uh uh to a balanced budget when people claim we're getting to a balanced budget, the only reason we're getting there is because of the huge level of PFD cuts the and growing level of PFD cuts. You know, when the PFD gets a gets an increase from you know additional earnings and PFD would be higher, just raking that off and giving it to government to spend. The the the only way we're getting to the balanced budget is through these through these uh huge PFD cuts. So it's I I think it's important to keep this and keep in mind what's really going on here. The level of personal taxes, if you consider PFD cuts as I do, as economists do, if if you consider PFD cuts as taxes, the level of per of of taxes, personal taxes that are being levied, regressive, most regressive tax approach ever proposed, the level of personal taxes are being leveled to keep this budget, to keep the budget in balance is huge. It's about 30, 30 some odd percent, more than 30 percent this year of the budget's being financed through PFD cuts.
SPEAKER_01No, I mean again, you look at it, and they're taking two billion dollars from the people in the form of PFD cuts, 1.95 billion dollars from people. In the PFD cuts and people walk around and look at themselves and pat themselves on the back saying we're not being taxed. I mean, it it's $1.95 billion on 700,000 people. That's a huge, huge amount of tax. That means you're getting, you know, statutorily, it should be a $4,000 PFD and they're taking $3,000 of it. That's what you're getting out of this.
SPEAKER_00It's more than, I mean, we we run these, we do a Friday chart every week that uh that calculates that the level of the PFD cut in terms of its impact on AGI, in terms of its impact on GDP. It's the tax is about 4.5% of adjusted gross income uh is how much is being taken out in taxes through PFD cuts. I mean, that's that's that's we're taxing ourselves. We're taking 4.5% of adjusted gross income out of the pockets of Alaska families, putting it into government. That is a tax. Um and uh and that's how we're financing the uh the level government. If you look back at that chart for just one second, there's one other point um uh I want to make. Uh the the if you look at that chart on both the left-hand side and the right-hand side, PFD cuts are the single largest source of revenue to government in both years. Single largest source, bigger than bigger than the the portion of the POMB that's that's that's designated for government, bigger than oil, the single largest source of revenue in both years.
SPEAKER_01Well, that thanks for that piece of good news. 1.66 billion this year, 1.95 billion next year, and it is significantly uh it is significantly more. It's 60% more uh in revenue than the statutory POMV. And you see that their percentage of the POMV dropped because they're taking more from you. That's what it all comes down to. They're taking more from you uh all the way down here.
SPEAKER_00And when Mike and Michael, when people say, oh, oil taxes don't matter, I mean, oil's just uh it isn't the biggest source of revenue anymore. What's going on is as oil taxes drop, as oil revenues drop uh over the year, and there's they're spiking a little bit here because of price, or they're up a little bit here because of prices, but oil prices in the spring revenue forecast. But as oil revenues drop uh over time, the thing that's filling in the gap is PFD cuts. It's not it's not any other source, any of the you know, five major sources of revenues. What's being used is PFD cuts. Um, so it's you know, when people say oil taxes don't matter, oh, you know, it's fine that SB21 has this weird effect in the out in the as it passes its 10th birthday and it's fine that you know it it's doing all these unintended consequences. It's not because it's coming out of the pockets of Alaska families through additional PFD cuts. And it's and it's you know, it is as when you do this sort of chart on a as I've done for the last however many years I've done it, when you do this sort of chart on a continuum, you see it develop over time. You see oil revenues going down and you see PFD cuts climbing to keep this balance that uh Calvin Shrage is so fond of talking about, right? Uh to keep uh to keep this balance. And you know, oil taxes matter. You get oil revenues up, assuming that you have a spending cap or somebody, you know, doesn't go off and go off the deep end and spend all the additional money. Um oil revenues are up, PFD cuts are going to come down.
SPEAKER_01Well, as we look at this and we see this, we at some point we've got to acknowledge that, you know, folks, there's a problem here. I mean, again, we we we know that, but really we just we've got to notice that there is a problem. They're taking $2 billion out of the private economy to prop up government. And you're called you're saying that it's not a tax. The taking of the PFD is a tax. Two billion dollars worth in 2027 coming out of the pocket of Alaskans. Just think about what that could do to the economy. I mean, if you've got a family of two, you know, that's $6,000 a year. If you've got a family of four, that's $12,000 a year that you could be doing something with, whether it's putting tires on your car, uh buying a trip to Hawaii, or putting it away, or starting a business or all these things. And none of that money is coming to you. It's going straight to the government. And that's it.
SPEAKER_00And and then is being recirculated by at the at the whim of 21 in the House, 11 in the Senate, and and a governor who may or may not have his vetoes uh upheld, who may or may not veto it, may or may not have his vetoes upheld. That's instead of 650, 625,000 people, that's the approximate number of PFDs, instead of them deciding how that money is spent, you're putting it in the hands of 21 plus 11 plus one. And it and that's I mean, yeah, you talk about central planning.
SPEAKER_01Yeah, no. Uh Ken says I could actually afford heating fuel with a full PFD. Yeah, I mean, that's it. Um, I mean, it you look at it and you go, this is I I remember many years when I was, I remember it was 2016. Uh 2015, 2016 was the first years that I was able to actually put the PFD away as a buffer in my savings account to be able to use it for other things. Up until that point, man, I was using it to put heating fuel in the tank, tires on the cars, you know, all those things. That was all great. Uh, and then in 2016, 2017, they submarined the whole thing. And since then, we've been behind the power curve the whole time and they've just been taxing us to death.
SPEAKER_00And and in the lower 48, lower 48, where royalties are privately held, people do get that money and they and they spend it the way, the way they want to. The thing about Alaska is we have collective ownership of the uh of the of the of the resource. And so the royalties that in the lower 48 go direct to the landowners. The royalties in in Alaska go through the PFD and and you know, go through the the permit fund, and the legislature can grab them along the way. If this uh we're not we're not doing anything different. The PFE isn't anything different in Alaska than what normal royalties are in the lower 48. The difference here is they come through in a way that the legislature can grab them, can tax them uh along the way in a way that you don't have uh in the lower 48. But otherwise, they're the exactly the same
Wrap Up And Where To Follow
SPEAKER_00thing.
SPEAKER_01All right, Brad Keithley, Alaskans for Sustainable Budgets. Brad, thank you so much for coming on board. As always, it's good to talk with you. Thank you for uh being part of the show today.
SPEAKER_00Michael, thanks for having me back. It's good to have you back, my friend. Good to have you back. Well, that's a wrap for another week's edition of the weekly top three from Alaskans for Sustainable Budgets. Thank you again for joining us. Remember that you can find past episodes on our YouTube, SoundCloud, Spotify, and Substack pages, and keep track of us during the week on Facebook and Twitter. This has been Brad Keithley, Managing Director of Alaskans for Sustainable Budgets. We look forward to you joining us again next week for the next edition of the weekly top three.
