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Better management needed to extract most from Alaska assets Commonwealth North study points finger at lack of communication, empire-building among key state agencies Steve Sutherlin PNA Contributing Writer
Alaska must find a way to harness the full force and size of its public assets if it hopes to generate revenues needed by the state and its people, according to a recently completed Commonwealth North study.
The Anchorage-based public policy group said effective management of the assets is essential, because no income or individual tax will ever be sufficient to cover the costs of state services and infrastructure.
To that end, the report — “Alaska’s Asset Portfolio: Managing for Maximum Return” — calls for a portfolio approach to handling public assets, with clear reporting to the public of overall income and other benefits.
But Commonwealth North said a lack of communication and empire-building among various key agencies — Alaska Permanent Fund, Alaska Housing Finance Corp., Alaska Industrial Development and Export Authority, the Department of Natural Resources, the Alaska Railroad Corp. and others — is eroding the return on assets. State agencies compete against each other “Because various state assets are managed independently there is not enough emphasis on leveraging and complementing the overall financial portfolio of the state,” said Nancy Bear Usera, co-chair of the study group and commissioner of Administration for four years under the Hickel administration.
She said the DNR, which is responsible for managing real estate, doesn’t talk to the Permanent Fund and AIDEA. “Opportunities to work together are missed,” she said.
In one instance, Usera said, DNR and the Alaska Railroad bid against each other in a real estate deal, meaning the state was competing against itself. The study said that although asset development agencies have mission statements embedded in their authorizing statues, the agencies often evolve and wander from those goals because of political pressure, changing needs or outmoded programs.
Scott Goldsmith, study group co-chair, said this “mission creep” can easily get out of hand.
“In times of focus on cutting the general fund budget, agencies can be used to hide general fund-type expenditures,” he said. Danger of undermining budget progress Goldsmith and Usera agreed that when agencies were used to run programs outside their mandate, the budget process was subverted. New activities carried out by agencies were unfairly favored over other programs against which they should compete for a share of state funds.
“We have a financial management problem,” said Usera, arguing Alaskans have a myopic view of state assets, focusing on the Permanent Fund when they should recognize and value all of the state’s assets. “When you look at the composite assets the Permanent Fund does not become less significant, but more proportionate,” she said, adding that if the fund was significantly impacted by a stock market crash the other legs of the state’s asset portfolio would take on greater importance.
Juneau economist Greg Erickson agreed that better oversight was needed because special interests do creep into agency agendas but suggested that in some cases a radical change would produce desired changes more efficiently. The state must entrust specialized assets to trained professionals but that leaves the asset at the risk of being managed for the interests of the professionals, he said.
“Why would people want their permanent fund thrown into a basket with assets that are managed like that?” he said. The permanent fund has clear accountability, a formula to determine the payout to the people and it’s popular, Erickson said. A report that calls for the dilution of the permanent fund’s policies has a low chance of implementation, he said.
The Alaska Railroad Corp. produces no financial returns to the state; all of the returns flow to the beneficiaries, said Erickson. The railroad undervalues its assets to make the returns look better than they are, he said.
“Shippers, vendors and landowners like the deal they get,” he said. The railroad would argue that its policies are to foster the development of infrastructure and provide low-cost transport, he said. The Commonwealth report calls for tension between the priorities of the state treasury and those of the beneficiaries, he said. “Why not put a share of stock into everyone’s PFD envelope and make the railroad a private operation?” he said. “Let the shareholders decide.” Financial vs. beneficial public asset returns The study noted that returns on assets fall into two categories: Financial returns which go to the treasury and beneficial returns, which reach the public directly through program subsidies or indirectly through the multiplier effect of business stimulation and job creation. Job creation increases the population, but the study said no personal income tax revenue is raised to provide a return on the state’s investment or to pay for additional services.
Commonwealth North said an “Alaska disconnect” paradox arises wherein growing demands for government infrastructure without an offsetting funding source make it essential to evaluate the cost of beneficial returns especially when weighed against the potential for financial returns which can be used to fund state services. Alaska disconnect is a great argument in favor of income taxes, said Erickson.
It is not clear from the report why the state’s financial needs are so great and why individual income taxes will never be sufficient to fund state services and infrastructure, Erickson said. “Why can’t Alaska use its resources to increase the tax base and tax back what it needs like other states?” he said.
Usera said the group doesn’t advocate the elimination of beneficial returns, but calls for returns to be subject to performance measures that quantify meaningful benefits to the state. She said the state tourism marketing council originally measured success by a head count of visitors, when the more meaningful statistic should be the dollars left behind by tourists.
Early gains in tourism were robbed of significant benefit to the local economies by massive horizontal marketing schemes, she said. Usera noted that Holland America brought people in on its own ships, transported them on its own buses, lodged them in its own hotels and fed them in its own restaurants. Thus, local benefits were limited to a few dollars dropped in souvenir shops.
Goldsmith said Commonwealth North plans to use the report to stimulate discussion on dealing with the state’s fiscal gap and to help increase revenues from Alaska’s assets. Governor’s office welcomes report Bob King, press secretary to Gov. Knowles said the governor was aware of the report and pleased to see the level of interest in the state’s fiscal condition.
“It’s good to have a broad range of solutions,” King said. “The governor has been involved in a lengthy and ongoing discussion over the state’s finances ever since the price of oil started going south,” he said.
The curve of declining Prudhoe Bay production has been extended by prolific advances in technology and the discovery of satellite fields, King said. “But the current price regime cannot support the state,” he said. “The day of reckoning is here.”
King said that the governor felt lucky that past governors and Legislatures did take steps to protect assets. “The governor is asking what would be acceptable to the public and how do we reconfigure and use assets for sustainable revenues to provide for the state,” he said.
The governor is examining savings through consolidations, cost reductions, and new technology, King said. “The time for action is now.”
For further information contact: Commonwealth North, 907 276-1414, e-mail: [email protected]
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