Below is a summary from Northrim Bank’s Mark Edwards of Commissioner Galvin and budget Director Karen Rehfeld’s July 9 address to Commonwealth North.

Last week at Commonwealth North, Department of Revenue Commissioner Galvin and the Governor’s budget Director Karen Rehfeld spoke on the fiscal future of Alaska for the next 10 years. Mrs. Rehfeld’s comments centered around the findings their long term plan completed earlier this year. They see this coming decade as a transition period from the state government financed predominately by oil to one financed by both oil and natural gas once a large pipeline is built to monetize the North Slope gas resources. She stated that bridging this gap of ten years should be manageable by filling budget shortfalls with draws from our reserve savings accounts and instituting better spending discipline.

The 10 year plan focused on three principles:

1. Balance the budget between sources and uses of funds
2. Provide for essential state services
3. Protect Alaska’s economic stability

She spoke often about living within our means and controlling the growth of government. We need to save for future generations when we can and build our reserves, preserve the permanent fund and forward fund key programs when possible. Each department was asked to prioritize their constitutionally mandated services. The current administration’s priorities are resource development, infrastructure improvements, education, public safety and public health. She has also asked each department to make budgets that include the costs of any new responsibilities if a gas line were to occur.

The plan calls for spending increases of 3% per year, which would only cover the cost of inflation. However, the population is expected to grow by 1% a year, so spending on a per capita basis is expected to decline. Also, the state’s portion of Medicaid costs is predicted to grow by 7% a year to over $1 billion in 2019. Other long-term challenges she highlighted that could strain this budget were: the unfunded PERS/TRS liabilities, the cost of oil tax credit to encourage new production, rising education costs, the $500 million cost of AGIA reimbursements to TransCanada, other upfront gas line costs prior to first gas production such as infrastructure upgrades, new energy initiatives to combat the high cost of energy statewide, local government revenue sharing, deferred maintenance, growing elderly and prison populations, and the impacts of climate change.

The full report and a detailed plan for every state department can be found at: http://www.gov.state.ak.us/omb/10_omb/budget/Index10YearPlan.htm

Commissioner Galvin focused more on revenue issues. He said that 88% of the FY 09 general fund revenues came from oil, while only 12% came from non-oil sources. Revenue sources are expected to decline in FY 2010 and a balanced budget will require using the $1 billion that was forward funded for education as well as a $76 million draw from the Constitutional Budget Reserve Fund. This is after a $310 million reduction in the operating budget and a $503 million reduction in the capital budget.

He really wanted to emphasize that we cannot only think in terms of oil prices and production. Because of the new production tax regime (PPT and then ACES), a third variable, the cost of production, must be added to our analysis. Production costs have increased each of the three years since the production tax credits were instituted. He said we must understand that the state is taking on more up front risk and costs to encourage new production that will not be paid back until some time in the future once the energy flow begins.

The Department of Revenue is now predicting that oil prices will average over $80 a barrel by 2013 and approach $100 a barrel by 2018. At these prices he says we will have small budget surpluses over the next ten years, even as production declines. However, at $50 oil we would have $1 to $2 billion deficits each year over the decade and our savings accounts would be depleted. The most recent Spring 2009 Revenue forecast can be found at: http://www.tax.alaska.gov/programs/documentviewer/viewer.aspx?1785f

Overall he gave a very mixed message. He said the Alaska outlook was “stable but fragile”. He said that the oil price volatility was outside our control and therefore our budget process needed to be flexible. But later when asked about oil price hedging he said it was potentially a good idea and that he wished they would have locked in last year when prices were high. He said the hedging strategy should be used whenever the current prices are higher than the state’s breakeven point for balancing our budget at current production levels. The downside is that it is politically unpopular if prices go higher and revenue is lost. He finished with a question on fiscal certainty on the gas line. He said the state doesn’t want to commit to making an offer on tax rates for gas until after the companies complete their engineering cost studies on building the line so we know what tax rates they need to be profitable.
 

July 9, 2009, saw one of Commonwealth North’s most popular and well-attended forum meetings. Pat Galvin, Commissioner of the Department of Revenue, and Karen Rehfeld, Director of the Office of Management and Budget, addressed the public on the future of Alaska’s fiscal health.

Commonwealth North tradition includes being able to ask speakers for more information than was covered in their speech. What follows below are nine questions that we weren’t able to cover during the 1-hour forum. We will be sending these questions to Commissioner Galvin and Director Rehfeld for follow-up.

1. How do your budget assumptions change when you exclude deferred maintenance and capital expenditures?
2. Tell us a little about what the future holds for “new” infrastructure development projects: how are we going to finance them, and what is the state’s appetite for public/private partnerships?
3. What kind of legislative action will your administration pursue in order to guarantee “fiscal certainty” for the three major North Slope gas producers?
4. Should the state hedge against falling oil prices, futures, or options markets? What is the state doing to mitigate market volatility in this arena?
5. What are the benefits to investing the constitutional budget reserve (CBR) in the stock market?
6. What are your thoughts in regards to the Percent of Market Value (POMV) form of Permanent Fund management?
7. Has the State identified expenditures for services that could be reduced to save money in the future? For example, services in the judicial system that reduce the cost of incarceration.
8. What are your opinions regarding the administration’s role in accepting energy stimulus funds?
9. What is your projection of the natural gas wellhead price, pending the successful completion of an Alaska-to-Lower 48 gasline?

To view this on Blip.tv please follow this link: http://blip.tv/file/2250104

Commonwealth North's Health Care Action Coalition has supported the work of the Alaska eHealth Network (AeHN) since its inception. A co-chair of this action group, Dr. Thomas Nighswander, also sits on the AeHN board of directors. Additionally, the Commonwealth North Board of Directors approved a resolution of support for Alaska Senate Bill 133, which calls for the creation of a statewide electronic health information exchange system.

Below is an overview and update provided by Rebecca Madison, Director of the Alaska eHealth Network. 

The Alaska eHealth Network (AeHN) is a carefully planned solution to our national health care problem of high spending and low returns on healthcare. When complete, the Alaska eHealth Network will have the capability to provide any Alaskan with a secure Personal Health Record, including authorization for their health care providers to access electronic records required for continuity of care, such as hospitalization records, medical history, prescription information, vaccinations, allergies, imaging records and laboratory results. The Network will support telemedicine services, the transfer of high resolution images for patient care, video conferencing, and Voice over Internet applications for providers.

Where they have been developed successfully, the benefits of HIE networks include:

• improved patient access to medical care,
• reduced incidents of duplicate and unnecessary testing and procedures,
• improved patient safety,
• reduced health agency administrative costs,
• greater patient and provider satisfaction, and
• enhanced rapid response to public health emergencies.

National studies demonstrate annual cost savings from the use of Electronic Health Records and HIE networks at approximately 5% of health care expenditures; this equates to an annual savings of $249 million based on Alaska's $5 billion health care expenditures, or an annual savings of $10-14 million based on the State of Alaska's $250 million Medicaid program.

AeHN partners are determined to ensure the long-term viability and success of the network when completed. Several business models have been considered, including provider/user fees and payor contributions. Networks with the highest degree of success have secured long-term support from state governments (e.g. Arizona, California, New York, Delaware, Rhode Island). The total annual operating cost of the Alaska eHealth Network, when fully deployed and used by the majority of state residents, is estimated at $5 million, or less than $10 per year per resident.

The Alaska eHealth Network to date has been a collaborative partnership of the Alaska Federal Health Care Partnership (including the Veterans Administration, the Department of Defense, the Indian Health Service, and the U.S. Coast Guard), the Alaska Primary Care Association, the Alaska Native Tribal Health Consortium, the Alaska State Hospital and Nursing Homes Association, the Alaska Mental Health Trust Authority, Premera Blue Cross/Blue Shield, AARP Alaska, the State Department of Health and Social Services, and the Alaska EHR Alliance (private physicians).

Click here to view a table and presentation related to the cost savings projections.

A little over a week ago we had a lively panel discussion on the Law of the Sea and its Arctic implications. Speakers included John Norton Moore (former presidential ambassador to the Law of the Sea convention), Stephen de Boer (Director of the Canadian Oceans and Environmental Law Division), and Commander James Kraska (professor of international law at the Naval War College). As with all our events, we open the floor to questions from the audience, yet we’re not always able to address each one.

Below are some of the unaddressed questions that have been edited, when possible, for clarity. What are your thoughts on each?

• “To Mr. de Boer – What would be the effect if Canada established a toll for transit [through the] Northwest Passage? Could it be justified [in covering] administration, search and rescue, icebreaking, [and other expenses]?”
• “The REAL ID Act gives [the] Homeland Security Secretary authority to waiver (sic) all cultural, historic, environmental planning and protective legislation to build walls and other security infrastructure as needed without consultation with other countries. How will this authority impact Arctic security?”
• “To all – So why doesn’t the US understand that we are an Arctic nation? Could it be the desire of non-development forces to declare this [the] Alaska National Park?”
• “Stephen de Boer – Although your presentation was clear that Canada currently allows transit of the “NWP” as long as there is compliance with the Canadian regulations. I was wondering whether it is Canada’s position that it has the “legal” right to control shipping in the NWP, even to the point of prohibiting transit by foreign vessels.”
   

In this policy discussion website, we have initially identified 4 areas of focus that relate to our currently active study group or action coalitions.  However, there are a host of other policy areas that Commonwealth North has studied over the years, and which continue to be important to the future of Alaska.  Feel free to write about any policy issue that CWN has studied in the past, or that we should study in the future. 

The Infrastructure Study Group is meeting regularly, every two weeks.  It is an exciting group, with a lot of area to cover.  If you have suggestions for what this group should be considering, or speakers, or other comments on the State's infrastructure, please include them here. 

The Energy/Gasline Action Coalition has had two energetic meetings, and the most common topic to date is how to provide energy along the railbelt and southcentral Alaska.  There is clearly no easy and agreed-upon answer.  What are your thoughts about the best/most economical way to meet these energy requirements in the short run and longer term?