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OPINION: Alaska has made progress toward righting its financial picture

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OPINION: Alaska has made progress toward righting its financial picture


By Luke Welles

Updated: 1 hour ago Published: 1 hour ago

The State of Alaska’s financial outlook is not entirely negative. Serving as a volunteer commissioner on the State of Alaska Municipal Bond Bank since 2008, I have engaged with all major credit rating agencies, including Fitch, S&P, Moody’s and Kroll. The primary objective of these interactions has been to secure the most favorable and realistic credit ratings possible. Achieving this goal is crucial, as it directly contributes to minimizing the interest rates on general obligation bonded debt. This financial prudence directly benefits Alaskans, particularly those in communities and rural health entities that utilize the bond bank.

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Moreover, a strong credit rating does more than just lower interest rates. It offers a thoroughly analyzed perspective on the future economic outlook of the State of Alaska. This analysis is a valuable tool for investors considering the allocation of substantial capital investments in state projects. Thus, maintaining a good credit rating is a strategic measure that underpins both fiscal responsibility and economic development in Alaska.

I’m concerned about the perception of our state’s finances and economic outlook due to static, mandated fiscal reports like the 10-year forecast. A significant source of the problem lies in the rigidity of a few of our statutes mandating static reports which do not consider reality. Alaska Statute 37.07.020(b)(2) requires that the state “must balance sources and uses of funds held while providing for essential state services and protecting the economic stability of the state” which is the guiding light for the 10-year forecast. Also required, AS 37.13.145(b) states that: “At the end of each fiscal year, the corporation shall transfer from the earnings reserve account to the dividend fund established under AS 43.23.045 , 50% of the income available for distribution under AS 37.13.140 ” which drives the projected “statutorily defined” permanent fund distribution in the 10-year forecast. The result is a significantly misleading 10-year forecast; especially given what has occurred in the past decade.

In 2016, an impactful decision by Gov. Bill Walker to veto half of the funds allocated for the Permanent Fund dividend, which had been approved by the state Legislature, led to significant legal and fiscal implications. Sen. Bill Wielechowski initiated legal action, challenging the veto on the grounds that it contravened the constitutional amendment which established the Permanent Fund. He contended that funds dedicated to the Permanent Fund dividend should be immune to gubernatorial veto. However, Anchorage Superior Court Judge William Morse upheld the governor’s veto, stating that any alteration to the governor’s veto power necessitates explicit and formal legislative action.

Without a statute change, the governor is mandated to include a “full” dividend in the state budget forecasts, a requirement that constrains the presentation of a balanced budget meeting the requirements of AS 37.07.020. It is, therefore, prudent for the Legislature to consider amending the statutory language governing the Permanent Fund earnings distribution language. Such an amendment would grant the governor greater leeway to formulate more realistic budget forecasts that are aligned with projected balanced budgets. This change is crucial for fostering transparent communication with the public regarding the state’s financial outlook, considering the necessity for the governor and legislators to balance actual income against expenditures.

The current fiscal situation of the State of Alaska must be realistically presented to the public in context of the past decade. The state’s 2013 unrestricted operating and capital budget stood at $7.9 billion, which declined to $4.5 billion in 2017 and 2018, and is estimated to be approximately $5.2 billion by 2025. This represents a significant decrease of 34% in unrestricted revenue over the past decade. Consequently, the state has struggled to meet its operational needs as per AS 37.07.020(b)(2) and unable to disburse a “full” dividend in line with current statute language (AS 37.13.140).

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The reality is that the past Legislatures and governors have ultimately made significant cuts in the past decade and adopted the percentage-of-market-value, or POMV, rule in 2018 and implementing it 2019, with a 5.25% subject to appropriation draw through 2021 and 5% thereafter. As a result, dependence on the projected petroleum revenues has decreased from more than 80% of the state’s budget in the past to 16% of the state’s projected 2025 total budget and 33% of the state’s 2025 unrestricted general fund budget. POMV has proven to be very effective in stabilizing state revenues in the past five years and combining the earnings reserve account with the corpus account with an “up to” draw of 5% for future legislators will add even more stability for Alaska’s fiscal future.

The State of Alaska’s current financial situation reflects a stable position, attributable in part to substantial budgetary reductions and the imposition of a cap on the growth of state agency expenses at less than 2% per year. This fiscal discipline is evident when comparing the fiscal year 2019 state agencies’ expenditure of $3.95 billion with the projected budget for fiscal year 2025, which stands at $4.32 billion. Additionally, the state’s fiscal health is bolstered by the full funding of Public Employees’ Retirement System and Teachers’ Retirement System obligations.

Moreover, the state’s total debt service to maturity, inclusive of school debt reimbursement, is less than $1.5 billion. Notably, more than 71% of this debt is scheduled to be repaid within the next 10 years. This scenario underscores the state’s effective management of its financial obligations and its commitment to maintaining a robust fiscal framework.

Fiscal debates and discussions about expense priorities are vital components of good governance. Annual discussions are key to creating accurate, realistic, and transparent financial reports and projections. It is important that the fiscal documents conform to both the wording and the spirit of state statutes. My recommendation is for legislators to amend statutes related to the Permanent Fund dividend distribution during the current session and to enhance the accuracy of the 10-year forecast with associated financial reports.

Luke Welles is the chairman of the Alaska Municipal Bond Bank Authority’s board of directors. He is the Senior Director of Business Development & Strategic Partnerships for the Alaska Native Tribal Health Consortium. Prior to this position, Welles served as Vice President of Finance for the Arctic Slope Native Association.

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The views expressed here are the writer’s and are not necessarily endorsed by the Anchorage Daily News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)adn.com. Send submissions shorter than 200 words to letters@adn.com or click here to submit via any web browser. Read our full guidelines for letters and commentaries here.





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Alaska

Alaska’s delegation responds to situation in Venezuela

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Alaska’s delegation responds to situation in Venezuela


ANCHORAGE, Alaska (KTUU) – Officials say Venezuela’s president, Nicolás Maduro, and his wife are in New York Saturday night after they were captured in a U.S. military operation that came amid strikes in the country’s capital.

Alaska’s delegation has responded to the situation.

Senator Dan Sullivan commented on the situation saying, “In the aftermath of last night’s remarkable operation, America and the world are safer.”

He continued, saying in-part, “Maduro was an illegitimate, indicted dictator who has been leading a vicious, violent narco-terrorist enterprise in our Hemisphere that was responsible for the deaths of tens of thousands of Americans. He will now face American justice. The interim Venezuelan government must now decide that it is in their country’s and people’s interest to cooperate with the United States and reject Maduro’s legacy of violence and narco-terrorism.”

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Senator Lisa Murkowski said the U.S. does not recognize Maduro as the legitimate leader of Venezuela.

She said in-part, “While I am hopeful that this morning’s actions have made the world a safer place, the manner in which the United States conducts military operations, as well as the authority under which these operations take place, is important. When the Senate returns to Washington next week, Congress has been informed that we will receive additional briefings from the administration on the scope, objectives, and legal basis for these operations.”

Representative Nick Begich posted his statement on Facebook. He called the situation a “lawful arrest” and said it was “a powerful and flawless execution of American power and capability.”

Begich continued, saying in-part, “Stability and accountability in the Western Hemisphere are core U.S. national interests. For far too long, criminal networks operating in our own hemisphere have exploited weak governance and corruption. The result has been poisoned streets, overwhelmed borders, and countless American lives lost to fentanyl and other illicit drugs.”

See a spelling or grammar error? Report it to web@ktuu.com

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Opinion: Before Alaska becomes an AI data farm, be sure to read the fine print

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Opinion: Before Alaska becomes an AI data farm, be sure to read the fine print


The Stargate artificial intelligence data center complex in Abilene, Texas. (AP)

Artificial intelligence is driving a revolution in the economy and culture of the United States and other countries. Alaska is being pitched as the next frontier for one of the most energy-intensive industries: data centers, with their primary purpose of advancing AI, socially disruptive to a degree as yet unknown.

Gov. Mike Dunleavy, the state’s biggest promoter, has invited more than a dozen high-tech firms, including affiliates of Microsoft, Facebook and Amazon, to establish “data farms” in Alaska. He has personally toured executives around potential sites in the Anchorage and Fairbanks areas. The Alaska Legislature has been a bit more circumspect, though its House Concurrent Resolution 3 (HCR 3) states that “the development and use of artificial intelligence and the establishment of data centers in the state could stimulate economic growth, create job opportunities and position the state as a leader in technological innovation.” True, however, the resolution makes no mention of drawbacks stemming from data center development.

The Northern Alaska Environmental Center (NAEC), based in Fairbanks, is examining the known and potential benefits, costs and risks of data center growth in the state. It urges a well-informed, unhurried, transparent and cautious approach.

First, though, what are data centers? They are facilities that house the servers, storage, networking and other computing infrastructure needed to support AI and other digital services, along with their associated electrical and cooling infrastructure.

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Generally speaking, there are two categories of data centers. One is the massive hyperscale facility, typically operating at multi-megawatt scale and designed to scale much higher. An example is the proposed Far North Digital (FND) Prudhoe Bay Data Center. It would start with a capacity of 120 megawatts with “significant expansion potential.” Natural gas would power it.

The other kind is the micro or microgrid data center. A good example is Cordova’s Greensparc Corp/Cordova Electric Cooperative 150-kilowatt facility. It is powered by 100% renewable energy from the nearby hydroelectric plant. We concur with the University of Alaska Fairbanks’ Alaska Center for Energy and Power (ACEP) analysis that contends that such smaller and sustainable data centers, sometimes integrated into existing microgrids, are more feasible for Alaska, particularly in underserved or remote communities.

The main problem with data centers is their high to huge energy demands, especially hyperscale ones that can consume as much electricity as 100,000 homes. Cooling can account for about 40% of a facility’s energy use, though it varies. While Alaska’s cold climate is an environmental advantage, reducing the need for energy-intensive mechanical cooling systems, cooling still requires a lot of water. The NAEC advocates that any new data centers be required to minimize use and thermal pollution of waters and reuse waste heat for local heating.

The Railbelt grid already faces constraints and expensive upgrade needs. The NAEC believes that if new data centers are developed, regulatory safeguards must be in place to ensure they do not exacerbate grid shortages and raise household electricity costs.

Most electricity powering data centers still comes from fossil fuels, even as operators sign renewable contracts and add clean generation. Building fossil fuel-powered data centers would lock in high-emissions infrastructure for decades, contradicting global decarbonization efforts. NAEC suggests that any new data center be required to build or contract for an equivalent amount of clean energy generation (wind, solar, hydro or geothermal) to match its consumption.

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There are many other concerns that need to be addressed when considering data centers and AI development. One is the problem of electronic waste, or e-waste. Needed upgrades to data centers result in e-waste, which contains hazardous materials. Given Alaska’s remote potential sites and limited recycling infrastructure, the cost of appropriately dealing with e-waste should be factored into data center decisions.

In their haste to recruit data centers, several states have granted substantial tax abatements and subsidies, often with limited public benefit. Alaska must learn from the mistakes made elsewhere. Before considering approval of any new data centers, legislation should be in place that ensures that the corporations that will profit do not get discounted power rates or tax breaks and pass additional costs to ratepayers, including costs for needed upgrades.

Yes, data centers provide some much-needed diversification to Alaska’s economy, but not much. They are highly capital intensive and employ many in the construction phase, but few for operation. Companies should be required to train and hire local residents to the degree practical.

Then there is the profound but scarcely recognized issue that transcends energy, economics and the environment. Data centers expand the compute available for increasingly capable AI systems. Some researchers and industry leaders argue this could accelerate progress toward AI that matches or exceeds human capabilities, along with new risks. Ultimately, the greatest cost of data centers and AI may be the changes wrought to our humanity and society, for which we are woefully unprepared.

Roger Kaye is a freelance writer based in Fairbanks and the author of “Last Great Wilderness: The Campaign to Establish the Arctic National Wildlife Refuge.” He sits on the Issues Committee of the Northern Alaska Environmental Center.

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The Anchorage Daily News welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)adn.com. Send submissions shorter than 200 words to letters@adn.com or click here to submit via any web browser. Read our full guidelines for letters and commentaries here.





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First alerts remain for: high winds, snow & rain

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First alerts remain for: high winds, snow & rain


ANCHORAGE, AK (Alaska’s News Source) –

Alaska’s Weather Source is continuing the First Alerts for sections of southcentral and most of southeast Alaska Sunday night to Monday.

High wind warnings are still in effect for the Matanuska Valley’s Palmer-Wasilla area. Winds gusted to 83 mph in Palmer Sunday afternoon, with an 80 mph gust on the Glenn highway where it veers to the Parks highway to Wasilla. Northeast winds 35 to 50 mph, with gusts between 75 and 80 mph are still expected Sunday into Monday. The high wind warning is set to expire at 9 pm Monday.

Valdez and the Thompson Pass area are also under a High Wind Warning through noon Monday. Valdez, the town could see east winds 30, gusting to 65 mph and Thompson pass saw a 76 mph gust Sunday, but the wind could still gust to 80 mph.

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Deep cold continues to grip interior Alaska, where low temperatures will drop to the 30s to 40s below zero. Daytime highs are going to be in the minus 20s range. This is the kind of cold that can cause human and mechanical issues. Take precautions in clothing, and plug in vehicles when possible.

And the First Alert extends to Monday in southeast Alaska. The region is getting slogged by snow, and rain! Hoonah as of Sunday, reported 36 inches, or 3 feet of snow! Amounts ranged from 18 to 31 from Juneau to Douglas and Auke Bay. Yakutat hit 23 inches Sunday with additional heavy amounts to come. Winter storm warnings encompass the northern Gulf of Alaska, northern panhandle and through Juneau. The southern end of the region will see rain, heavy at times. This has resulted in a flood watch that will extend into Monday as well.

Download the free Alaska’s News Source Weather App.

Send us your weather photos and videos here!

24/7 Alaska Weather: Get access to live radar, satellite, weather cameras, current conditions, and the latest weather forecast here. Also available through the Alaska’s News Source streaming app available on Apple TV, Roku, and Amazon Fire TV.

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