Navarre preps borough for stark change

Once a Democratic state lawmaker, now K-P mayor, Navarre says borough must brace for role in prospective pipeline, LNG project

STEVE QUINN

For Petroleum News

Mike Navarre has two years to help the Kenai Peninsula Borough find its place and role in the prospective AKLNG project.

The Democratic mayor understands those limits, yet he says he doesn’t want the borough to be caught off guard if the project gets under way when thousands of new workers descend on the Peninsula for pipeline and export facility construction.

Navarre brings two assets to the discussions: his 12 years in the Legislature and the recent hiring of former federal pipeline coordinator Larry Persily, who also had a stint as deputy Revenue commissioner.

Now in his second of two and final mayoral term, Navarre shared his thoughts on what the AKLNG project means for the borough as well as the state.

Petroleum News: What’s it like to mayor of a borough that could be a national, maybe a global, focal point with a project of this size advancing?

Navarre: Well, obviously it’s kind of exciting to be in the middle of it. At the same time, we are taking kind of a cautious approach with it because we are not exactly sure what’s going to happen. Because of the lead times and the environmental impact statements that have to be done, we have to be ahead of it. We can’t wait until the final decisions that are made in order to provide our input or a bulk of the responsibility could fall to the Kenai Peninsula Borough, the taxpayers, to take care of some things that are direct impacts from the project, if it moves forward.

So it’s exciting, but we are trying not to get too hyped up about it because we know there are a couple of decision points that are still out there that have to be made. I’ve lived here my whole life and been through this a number of times. It feels a lot more serious than any time in the past.

Petroleum News: You’ve seen the benefits of resource development. What have you seen and what cautions have you extracted from any of this?

Navarre: I guess the biggest thing is that oil and gas put the Kenai Peninsula on the map. It provided a lot of economic opportunities for residents and businesses. When I was growing up here in the early ’60s, we double shifted at schools because we couldn’t get infrastructure in place quick enough. We saw some of the same phenomena during the pipeline construction where the economy at the time was such that the size of the project kind of overwhelmed the state. I’ve seen it from a couple of different aspects over the years in Alaska.

This one is certainly a mega project. It will provide lots of opportunities in Alaska and on the Kenai Peninsula, but at the same time it brings with it impacts because there will be people coming up here who anticipate taking advantage of those opportunities who don’t have the skills or education, so there will be people moving up here who could be a drain on the state or the borough.

Some of the other impacts that go along with it are employment in the public and private sector sometimes gets cannibalized by major projects and we will expect that to happen. There will be impacts like that and we’ll be trying to hang onto employees.

Petroleum News: So how then are you preparing for this especially as project decisions are stage-gated?

Navarre: The first thing I do is go out and get some experience. I hired Larry Persily because he’s got great background and experience and knowledge about the issue. We are trying to figure out what the impacts are going to be and when they are going to hit to make sure we provide information to the environmental impact statements and socio economic reports so we get impacts addressed as part of the project costs.

The other things we are in the process of working to develop is what happens if the project moves forward? Since my term ends in 2017, and since it will be future mayor, administration and assembly that will have to deal with it, what we would like to do is put together a framework for what happens if you have a significant influx of population, significant influx of revenues and how the tax structure and tax mix might be changed. So at least we start discussing some of those things so it’s not a crisis situation if and when the project happens.

And it will start gearing up I think next year or the year after if they go forward with the FEED stage. We want to have a framework in place, not that it’s going to be final or definitive, but it could say here are some things that need to be addressed with infrastructure short term and long term. There will be as many as 5,000 people for construction on the Kenai Peninsula at the height of the project, but we don’t’ want to gear up for that kind of population increase and make estimates based on that. What we want to do is address what is going to happen during construction and also how you deal with it after construction because there will be a ramp down afterward.

Petroleum News: So are you sensing any kind of buzz or is it a bit too early to detect that? If so what are you telling people?

Navarre: There is quite a bit of excitement about it, but at the same time it’s summertime on the Kenai Peninsula, so fishing and outdoor activities are taking precedent. AKLNG has purchased a lot of property and they are working through various designs for re-routing the spur highway and that is something that will have huge impact into the community.

We are monitoring that and there will be some hearings on that later this fall. That is a project, if they go forward with the FEED stage, they probably look at doing that project before the final investment decision gets made just because they want it in place before they start the construction. We are trying to anticipate what things we need to do immediately and what things we need to plan for in the long term.

Petroleum News: Getting back to your hiring Larry Persily, how has hiring Larry helped? I know he’s only been there four months, so maybe it’s a little early to say.

Navarre: The way it’s helped is it gives us someone who can focus specifically on the various meetings, like even the changes that have to happen in the Legislature in order to go forward with the fiscal terms, and he’s got experience with the Department of Revenue. He’ll go to meetings that I would otherwise have to attend, including meeting with AKLNG, meeting with FERC folks, speaking to and meeting with other interested parties like he did when he was federal coordinator.

He’s doing a lot of that same stuff for me. He’s gathering that information. He’s identifying some of the socio economic impacts. Having somebody like Larry is extremely valuable.

Petroleum News: Does it help to have someone who is welcome in any legislative office in the Capitol?

Navarre: Absolutely. He has a lot of credibility and I get to benefit from that both with AKLNG folks, with the Legislature and the administration. While it doesn’t take up 100 percent of his time, we’ve got a few other projects we have him working on. Larry and I are also engaged with the state fiscal policy discussions.

Petroleum News: Knowing his position was going to be eliminated, were you surprised that he was available?

Navarre: You know, I was; I had hoped that he would be. When I first talked to him about it, I was wondering whether or not he would be willing to come to the Kenai Peninsula. We’ve known each other for a number of years and I think he was looking forward to continue working on the project, just in a little different capacity, but I think the latitude to work on other projects like fiscal policy was attractive to him, so it was a win-win.

Petroleum News: Larry’s not the only one who has credibility in those halls. You’ve served 12 years. How do you think that can help you as you watch developments with AKLNG whether it’s this fall or next year?

Navarre: You know I think we’ll be able to play a significant role in analyzing. What I’m really interested in is what are the changes? What does it mean for the state long-term? Having Larry gives us that perspective It gives us a chance to brainstorm with each other about making sure we don’t look out entirely for the state’s interest at the expense of the Kenai Peninsula Borough because we are going to face significant impact and the tax changes going to be proposed, including the payment in lieu of taxes, all of that changes from the status quo. We have to be cognizant of what that means for us, but at the same time there is a statewide perspective that you have to keep in mind also. I think we are both capable of doing that.

Petroleum News: Gov. Walker noted in one of his press conferences that you came down here to soothe over some hard feelings between the Legislature and the governor. Talk about your visit here.

Navarre: I think that I enjoy as a former legislature and a current mayor, I have a good relationship with people on both sides of the aisle. I’ve been through the political battles before so that sometimes they are willing to listen to my perspective even if they don’t always follow my advice, so it’s the benefit of experience.

Petroleum News: You’ve got the outside looking in, but what do you think has changed in the Capitol from the time you were in office?

Navarre: I think we saw it changing even while I was in office. One of the things that’s been frustrating for me at the state level and even at the national level, there is so much social media out there, that there is so many opportunities to have things misrepresented that creates additional political hurdles or even political perceptions that have to be overcome. Sometimes I think there is too much focus on that.

Petroleum News: Could that impede progress with AKLNG?

Navarre: Oh absolutely, I think it could because one of the things is there is a gubernatorial change. The state of Alaska has a very strong governor. There was momentum the previous administration had that this governor and his administration said - and rightly so - we need to complete our due diligence and review what’s been done so we can determine whether or not we can continue this direction or whether we should change some things because there is a new governor. For some people that frustrates them because they are saying, what’s he going to do.

At this point, he’s just saying I’m going to review it. He wants to apply his experience with the people he hired to take a look at the terms of the negotiation, the equity interest - any of that. He might want to propose some changes. For some people they see that as a delay. It could cause and I think has caused some delay. But it’s also part of our process and I think perfectly reasonable that he have the opportunity to complete his due diligence.

I think some legislators are frustrated by that because they sat through all of the hearings; they have been through all the discussions; they talked with the previous administration. There was much more consistency at the time. So it can be frustrating to change directions or put a hold on some things while you do a re-evaluation.

Petroleum News: What would your advice be to the Legislature and what would your advice be to the administration?

Navarre: My advice to the Legislature and the administration would be similar. Do what’s best for Alaska. Keep an eye on the goal and make sure that we continue moving this project forward. Don’t let the perfect be the enemy of the good.

Petroleum News: Have you seen that happen in Alaska once or twice?

Navarre: You know when I think of the fiscal policy, we can get so caught up in rhetoric and politics that it stops things from happening. That can be a concern because industry, they have certain timelines and timeframes and decision points they have to stick to because they answer to their shareholders. We need to be cognizant of that but also recognize we are the state of Alaska and just as they are looking out for their shareholders, we need to look out for our residents.

Petroleum News: Also in the forefront are oil prices. Have you seen this happen before?

Navarre: Absolutely. I got elected in 1984 so my first time in the Legislature was when we had the crisis of the mid-’80s - the price of oil dropped from $26 a barrel to $9 a barrel. We had special sessions and we went through an incredible economic downturn during that period, in the late ’80s.

That was as a result of the same things we are seeing now. We have a big budget deficit. The first thing that goes is the spending on the capital projects and that’s fine for short term, but long term it means you end up deferring on maintenance and things like that. And there is an impact on the economy.

That’s why I think it’s really critical for us to have a long-term fiscal plan, and the Legislature is going to have to buy into it. You can’t get there by cutting the budget. Any new revenues are going to have political consequences for the administration and the Legislature. Just because they are tough choices doesn’t mean they can be ignored. They can’t be.

Petroleum News: We’ve heard this before that we need a long-term plan. Do you think Alaskans see it as a reality now?

Navarre: I think so. I think they will be even more aware of it over the course of the next year. The first year of budget cuts and spending some of the reserves that we have, and cutting the capital budget by $1.5 billion, or whatever the number was, you can do that in the short term, but in the long term that builds up an economy associated with it. If you just pull it out, that’s going to have consequences. So will cuts to the operating budget. So will new taxes. When all if it is together with the price of oil between $50 and $70 over the course of the next year, it creates a lot of difficult financial choices.

In my view, there is no plan that doesn’t work without using earnings of the Permanent Fund. So how do you get the public there when there has been so much political rhetoric and it’s been a political football for so long and then for other new revenue, every single one of them has political as well as economic consequences? It will be easy for people to pick apart any plan that’s out there. The real goal should be building toward a consensus plan because we are all in this together.

Petroleum News: Speaking of budgets, one of the hot-button issues was delaying tax credit payments. Cook Inlet has been figured into the use of tax credits. What are your thoughts on these?

Navarre: My thoughts on tax credits are that I’ve never been a strong proponent of tax credits. I think they can work if they are targeted, limited and for a defined period of time so you can measure what the impacts are. There is no question tax credits can generate a lot of economic activity and in Cook Inlet, we’ve seen a lot of it. What’s a little tougher to define is how much of it may or may not have taken place because the price of oil was high when the tax credits were being offered. I think there is a place for tax credits but I think they need to be better defined.

Petroleum News: OK, so you’ve got a little over two years left in your final term. What would you like your legacy to be as you close out?

Navarre: I guess I’ve always been an advocate for responsible resource development so I hope the role I play at both the state level and here locally is one that doesn’t impede progress and the major project going forward. At the same time, it’s responsible structure for the residents of the state of Alaska and Kenai Peninsula Borough. Further, I want to make sure I leave the borough well managed with good people in place and financially sound. I think that is where we are now.