Ø Report on value, income, and prospects of Alaska’s key assets for the preceding year
Ø Identify emerging public policy issues related to those assets
Ø Ask asset managers to identify what criteria they should be judged upon in the coming year
Ø Track performance of those assets - and asset managers - against that criteria and other metrics

Manages its assets as: Ø Natural Resources, available for sale, lease, or conservation

Ø Financial Assets, intended to produce financial return

Ø Enterprises, intended to produce both financial return and key infrastructure

Total Gross State Product – 52.8 Billion (2017) Alaska’s GSP grew 0.3% from 2016 National Average was up 2.1% Top State Industries as a Percentage of GSP Other Mining, Oil & Gas Mining, Oil & Gas Government

Transportation

Finance & Real Government Estate Education & Health 20% Education & Health Care Care

Finance & Real Estate Transportation

Per Capita Personal Income: $56,042 (2017) Up 0.7% from 2016 % of the National Average of $50,392

Source: Bureau of Economic Analysis

Total State Assets in Billions

Each Individual Alaskan’s Share $93,814 FY '09 FY '10 FY '11 FY '12 FY '13 FY '14 FY '15 FY '16 FY'17 Total State Assets

Total Fisheries Tax Revenue Millions

FY '10 FY '11 FY '12 FY '13 FY '14 FY '15 FY '16 FY'17

Millions FY ’18 FY ‘17 FY ‘16 FY ‘15 FY ‘14 FY ‘13 FY ‘12

Total Budget $13.39 $14 $14.4 $14.6 $14.1 $13.7 $13.7

Revenue from User $3.73 (FY18 $4.07 $4.1 $3.3 $3.1 $2.9 $3.00 Fees estimate)

Total Acres of Land 3.3 3.3 3.3 3.3 3.3 3.3 3.3

Total No. of Visitors Not available (millions)

FY ’18 FY ‘17 FY ‘16 FY '15 FY '14 FY '13 FY '12 FY '11

Millions of Acres 100.5 100.5 100.5 100.5 100.4 100.4 100.4 100.3

Less: Total Land Conveyed -2.2 -2.2 -2.2 -2.2 -2.2 -2.2 -2.2 -2.2

Remaining Total Acquired Lands 98.3 98.3 98.3 98.3 98.2 98.2 98.2 99.1

*Does not include 65 million acres of submerged land acquired at Statehood.

FY ’18 FY ‘17 FY ‘16 FY ‘15 FY ‘14 FY ‘13 FY ‘12 FY ‘11

Millions of Acres Leased

# of Leases 2,094 2,071 2,226 1,997 1,906 1,748 1,569 1,737

Question One:

If we’re trying to attract investment, why don’t we keep our commitments?

Millions* FY ‘17 FY’16 FY‘ 15 FY‘ 14 FY‘ 13 FY ‘12 FY ‘11 Petroleum Property Tax Petroleum Corporate ($59.4) ($58.8) $94.8 $307.6 $434.6 $570.9 $542.1 Income Tax Severance Tax (a.k.a. Production Tax) Petroleum Mineral Bonuses and Rents Oil and Gas Royalties Total Unrestricted Petroleum $867.9 $1,104.3 $1,684.0 $4,750.5 $6,351.9 $8,857.3 $7,059.4 Revenue Total Unrestricted Nonpetroleum $474.2 $423.2 $568.4 $627.3 $576.5 $627.4 $624.0 Revenue

Source: Alaska Department of Revenue: 2018 Spring Revenue Sources Book

Sheldon Fisher Presentation to Commissioner, Commonwealth North Alaska Department of Revenue August 1, 2018 Anchorage, Alaska

— State’s Financial Statements, including the Balance Sheet, are reflected in the Comprehensive Annual Financial Report -- CAFR

— State’s Fiscal Year runs from July 1 – June 30.

— Fiscal Year 2018 ended June 30, 2018

— We are now in FY 2019

— The CAFR is released approximately 6 months following the end of the fiscal year

— Expect FY 2018 CAFR in January, 2019

— The most recent available CAFR is from FY

— The information presented today adds to FY 2017.

All references to current fiscal year market values and stated returns are unaudited, preliminary, and include some estimates.

M Y PRESENTATION WI LL FOCUS ON A PORTION OF THE C A F R:

— Government Funds include: Ø General Fund and Other Nonsegregated Funds (GeFONSI) Ø Constitutional Budget Reserve (CBR) Ø Statutory Budget Reserve (SBR) Ø Permanent Fund Ø Power Cost Equalization Fund Ø Public Education Fund Ø Public School Trust Fund

• Proprietary Funds – When the State charges customers for the services it provides: Ø International Airports Funds
• Fiduciary funds - The State acts as a trustee or fiduciary for its employee pension plans. Because of a trust arrangement, can be used only for the trust beneficiaries. Ø State Retirement System
• Component Units: Ø University of Alaska Ø Alaska Housing Finance Corporation Ø Alaska Industrial Development and Export Authority Ø Nonmajor Component Unit

The General Fund is the State’s primary operating fund:

• Treasury has combined, for investment purposes, assets of many funds into the General Fund and Other Non-segregated Investments (or ‘GeFONSI’)
• The GeFONSI includes almost all of the assets of the General Fund together with the assets of a long list of smaller funds
• DOR is responsible for investing the GeFONSI, and calculating and allocating the monthly investment earnings to participants in accordance with the provisions of each fund’s memorandum of understanding (MOU)
• By pooling funds the state can achieve benefits from economies of scale, cash flow management, and administration

There are several accounts and funds that have been created by law which are considered part of the General Fund, and accounted for individually:

• Constitutional Budget Reserve Fund; Statutory Budget Reserve; Public Education Fund; Permanent Fund Dividend Fund

Audited Balance as Audited Balance Unaudited ASSET of as of Balance as of June 30, 2016 June 30, 2017 June 30, 2018* Funds Description ($mm) ($mm) ($mm)

Constitutional • Established in 1991 to provide fiscal stability $7,343.4 $4,834.7 $2,360.1 Budget • Restricted use and mandated periodic funding of the reserve Reserve • Second reserve to draw in event of cash flow shortfall, requires 75% (CBRF) majority to appropriate, must replenish Reserves

Permanent • Legislatively available portion of Permanent Fund 8,570.0 12,815.5 18,864.4 Fund Earnings • SB26 establishes a statutory framework on the amount that can be Reserve drawn from the PFER each year TOTAL of CBRF and PFER $15,913.4 $17,650.2 $21,224.5

Permanent • Source for perpetual earnings and budget stability 44,199.7 46,969.6 46,030.0 Fund Principal • Principal balance requires Constitutional amendment to spend; Balance earnings from Permanent Fund does not

Source: State of Alaska *Balances presented are asset values as of June 30, 2018 (unaudited). The CBRF balance represents cash and securities, and may differ from the official fund balance presented in the State’s FY18 CAFR, with anticipated release in January 2019. Audited balances as of FY2016 and FY2017 use the State’s CAFR and 19 APFC’s financial statements.

Balances at FY End ($Millions) Returns at FY End (1-Year Actuals) Treasury Fund FY 2016 FY 2017 FY2018 FY 2016 FY 2017 FY 2018

Constitutional Budget Reserve

Power Cost Equalization

Public School Trust (Principal & Income) Balances at FY End ($Millions) Returns at FY End (1-Year Actuals) FY 2018 FY 2016 FY 2017 FY2018 FY 2016 FY 2017 Quarter Ended: PERS Retirement (DB Pension & Health Trust)

TRS Retirement (DB Pension & Health Trust)

Notes: -FY2018 Returns for the GeFONSI do not include the GeFONSI II, a portion was segregated during Fiscal Year 2018 with a longer term investment horizon -Public School Trust returns stated are for the Principal Account only -Returns shown for the Retirement system are for 6/30/2016 and 6/30/2017, quarterly information is shown for FY2018 (most recent available) 20

$ Millions FY ’18 FY ‘17 FY ‘16 FY '15 FY '14 FY '13 FY '12 (UNAUDITED)

Net Assets Managed by $8,285 $10,864 $13,703 $18,561 $25,919 $26,208 $24,623 Treasury Division ARMB Assets

Investment Income (Not including $236 $362 $207 $325 $1,485 $828 $374 *ARMB Assets (PERS + TRS) include totals for both Defined Benefit and Defined Contribution Plans 7

Funded Status as of June 30 ($ in 000's) 2014 2015 2016 2017 2014 2015 2016 2017

DB - Pension Actuarial Accrued Liability 12,947,759 13,337,033 13,633,033 13,832,130 6,921,362 7,051,724 7,159,788 7,217,525 Valuation of Assets 7,731,438 8,931,160 9,056,662 9,229,703 3,771,139 5,442,651 5,428,687 5,476,835 Unfunded Liability 5,216,321 4,405,873 4,576,371 4,602,427 3,150,223 1,609,073 1,731,101 1,740,690 Funded Ratio 59.7% 67.0% 66.4% 66.7% 54.5% 77.2% 75.8% 75.9%

DB - Healthcare Actuarial Accrued Liability 7,949,613 7,310,734 7,736,457 8,049,265 2,919,670 2,677,393 2,747,836 2,927,093 Valuation of Assets 6,913,160 7,242,299 7,411,330 7,557,068 2,248,135 2,686,272 2,771,704 2,836,802 Unfunded (Overfunded) Liability 1,036,453 68,435 325,127 492,197 671,535 (8,879) (23,868) 90,291 Funded Ratio 87.0% 99.1% 95.8% 93.9% 77.0% 100.3% 100.9% 96.9%

DB - Total Actuarial Accrued Liability 20,897,372 20,647,767 21,369,490 21,881,395 9,841,032 9,729,117 9,907,624 10,144,618 Valuation of Assets 14,644,598 16,173,459 16,467,992 16,786,771 6,019,274 8,128,923 8,200,391 8,313,637 Unfunded (Overfunded) Liability 6,252,774 4,474,308 4,901,498 5,094,624 3,821,758 1,600,194 1,707,233 1,830,981 Funded Ratio 70.1% 78.3% 77.1% 76.7% 61.2% 83.6% 82.8% 82.0%

• Defined Benefit OPEB funding is 93.9% for PERS and 96.9% for TRS (FY 2017)
• FY 2017 returns of 13.35% for PERS and 13.36% for TRS were above actuarial assumptions
• FY 2015 figures reflect the impact of the State’s $3 billion transfer from the CBRF:
• $1 Billion PERS / $2 Billion TRS

— A compromise version of Governor Bill Walker’s Permanent Fund Protection Act was passed, establishing a statutory limit on the amount that can be drawn from the Permanent Fund earnings reserve each year.

— For Fiscal Years 2019 through 2021, the draw calculation is $Millions 5.25% of the average market value of the fund for the first five Projection of PF Draw Fiscal Year PF Total Balance of the preceding six fiscal years, including the fiscal year just under SB26 ended, computed annually. A draw rate of 5.00% is used 2019 2,722.6 64,844.7 thereafter. 2022 3,048.5 69,379.9 — SB26 addresses draws from the Permanent Fund earnings reserve; the precise appropriation for Dividends and Government Spending shall be determined annually. 2026 3,447.2 75,536.4 — Dividends are approximately $1,600 this year for every Alaskan. 2027 3,523.1 77,158.2 For the third consecutive year, Dividends are $1,000 less than they would be under the historical formula.

Source: State of Alaska – Office of Management and Budget (‘OMB’). Permanent Fund draw forecast per fiscal year represents initial projections by OMB. www.omb.Alaska.gov Assumes 6.5% flat annual earnings

The outlook under SB26 reflects more stable and diversified sources of unrestricted revenues for government use, and will shape reserve management into the future

SB26 – Permanent Fund POMV Unrestricted General Fund Revenue Before and After SB26 FY2019 Budget Outlook by Oil Price ($millions) FY2015-FY2018 FY2019 Forward* Oil Price (Deficit)/Surplus (Deficit)/Surplus Permanent Fund 80% CBRF Earnings $45.00/bbl $ (2,950) $ (1,251) 60% Oil & Gas Revenue CBRF Oil & Gas Revenue Oil & Gas Revenue 10% Non-Oil & Gas Non-Oil & Gas Non-Oil & Gas Revenue 15% $90.00/bbl $ (117) $ 1,582 Revenue 12% Revenue 13% Past Today Post SB26

Non-Oil & Gas Revenue Oil & Gas Revenue CBRF Permanent Fund Earnings • SB26 produced $2.7 billion for FY2019, $1.0 billion for dividends and $1.7 billion for government. Source: State of Alaska – Office of Management and Budget (‘OMB’) Without the passage of SB26, the deficit would have FY2019 Budget Outlook by Oil Price, and SB26 (Deficit)/Surplus forecast represents initial projections by OMB with $1,600 Dividend. www.omb.Alaska.gov been approximately $2.2 billion. *This was the split as of the passage of the FY2019 Operating Budget, and assumes an ANS oil price averaging $63 for the fiscal year

Fiscal Year DOR Spring Official $63 $64 $66 $67 $69 $70 $72 $74 $75 NYMEX Extended3 $62 $59 $57 $56 $56 $56 $56 $56 - As Of July 2018 NYMEX Extended 75 73 70 Base/Reference Analysts: Average $64 $66 $67 $64 EIA AEO - - 81 Analysts Average 72 70 69

• NYMEX Futures: Retrieved: 7/27/2018; Crude Traded Brent; FY calculated

Current Average ANS Oil Price for July 2018: $76.48 based on monthly prices.

• EIA STEO (Short-Term Energy Outlook): Released 7/10/2018; Crude

Forecast Brent; FY calculated based on monthly prices. 1 All price forecasts rounded to the nearest dollar. Dashes indicate that a forecast for this FY is either not - EIA AEO (Annual Energy Outlook) forecasts: Released 2/6/2018; Crude available or inapplicable. Forecast Brent; Converted to FY by assuming 6 months of each calendar 2 DOR Spring Official forecast: Released 3/16/2018; Crude Forecast ANS West Coast; Original forecast in year’s forecast. FY. - Analysts Forecasts: Retrieved 7/5/2018; Individual forecasts released 3 NYMEX Futures: Retrieved: 3/9/2018; Crude Traded Brent; FY calculated based on monthly prices. 4 EIA STEO (Short-Term Energy Outlook): Released 3/6/2018; Crude Forecast Brent; FY calculated based between 04/01/2018 and 07/05/2018; Crude Forecast Brent. on monthly prices. 5 EIA AEO (Annual Energy Outlook) forecasts: Released 2/6/2018; Crude Forecast Brent; Converted to FY by assuming 6 months of each calendar year’s forecast. 6 Analysts Forecasts: Retrieved 3/9/2018; Individual forecasts released between 01/22/2018 and

03/02/2018; Crude Forecast Brent.

Source: Department of Revenue – Economic Research

UGF Revenue Projection ($Millions) ANS Oil Price FY 2019 FY 2020 FY 2021

1Chart ranges include unrestricted Oil and Gas revenues only, and not other forms of UGF revenues

Source: Department of Revenue – Economic 26 Research

Recent announcements look promising for future oil and gas development

— Oil Search Ltd. recently purchased interests in the largest onshore oil discovery in the US in three decades

• Oil Search Ltd. recently assumed role as operator and paid an initial $400 million for a stake in the exploration acreage
• A 1.2 billion barrel find on Alaska’s North Slope
• First oil could come as early as 2021
• Potential to produce 120,000 barrels per day

— ConocoPhillips is developing the Greater Mooses Tooth Unit in the NPR-A

• First phase under construction (30,000 barrels per day starting in 2019)
• Second phase in EIS process (first oil projected in 2022)
• “Willow” discovery announced (potential 100,000 barrels per day)

— Hilcorp is progressing the “Liberty” Project in OCS

• Well known resource that has faced several logistical hurdles
• Final EIS expected next year
• Up to 70,000 barrels per day of production as early as 2022

CBR Annual Market Value in Billions

Constitutional Budget Reserve

$ Billions (as of FY’17 FY’16 FY’15 FY’14 FY’13 FY ‘12 FY '11 FY '10 unaudited)

Net Assets 65.4 59.8 52.8 52.8 51.2 44.9 40.3 40.1 33.3

Statutory Net Income Interest, Dividends, Real 1.4 1.3 1.2 1.1 1.2 1.1 1.0 0.9 0.8 Estate, Other Increase in Market Value of 4.7 5.6 -0.7 1.3 5.8 3.4 -1.0 6.0 2.8 Investments

Total Revenue 6.0 6.7 0.5 2.5 7.0 4.4 -0.2 6.9 3.3

% Return 9.58 12.89 1.02 4.9 15.5 10.9 0.0 20.6 11.7

Country Fund Assets $Billions Inception Norway Government Pension Fund – Global $1,035.24 1990 China China Investment Corporation $900.0 2007 UAE - Abu Dhabi Abu Dhabi Investment Authority $828.0 1976 Kuwait Kuwait Investment Authority $524.0 1953 Saudi Arabia SAMA Foreign Holdings $494.0 1952 China - Hong Kong Hong Kong Monetary Authority Investment Portfolio $456.6 1993 China SAFE Investment Company $441.0 1997 Singapore Government of Singapore Investment Corporation $390.0 1981 Singapore Temasek Holdings $320.8 1974 Qatar Qatar Investment Authority $320.0 2005 China National Social Security Fund $295.0 2000 Saudi Arabia Public Investment Fund $250.0 2008 UAE – Dubai Investment Corporation of Dubai $229.8 2006 South Korea Korea Investment Corporation $134.1 2005 UAE - Abu Dhabi Mubadala Investment Company $125.0 2002 UAE – Abu Dhabi Abu Dhabi Investment Council $123.0 2007 Australia Australian Future Fund $105.4 2006 Iran National Development Fund $91.0 2011 Russia National Welfare Fund $66.3 2008 Libya Libyan Investment Authority $66.0 2006 US - Alaska Alaska Permanent Fund $61.5 1976 Kazakhstan Samruk-Kazyna JSC $60.9 2008 Kazakhstan Kazakhstan National Fund $57.9 2000 Brunei Brunei Investment Agency $40.0 1983 Turkey Turkey Wealth Fund $40.0 2016 US – Texas Texas Permanent School Fund $37.7 1854

Source: Sovereign Wealth Fund Institute April, 2018, $ Billions

$ Millions FY ‘17 FY ‘16 FY ‘15 FY ‘14 FY ‘13 FY ‘12 FY ‘11

Net Assets $639.8 $593.4 $601.9 $585.6 $527.4 $487.6 $501.8

Rents and Royalty Income

Investment Income

$ Millions FY ‘17 FY ‘16 FY ‘15 FY ‘14 FY ‘13 FY ‘12 FY ‘11

Net Position (Assets)

Operating Revenue $59.9 $77.4 $53.1 $64.9 $51.9 $69.5 $68.3

Operating Expense $49.9 $40.2 $27.8 $29.0 $31.2 $27.4 $27.2

Net Operating Income $10.0 $37.2 $25.3 $35.9 $20.7 $42.1 $41.1

Transfers to State of Alaska/Other Agencies Non-operating Revenue Change in Net Position $5.8 $21.2 $28.3 $105.8 $85.5 $36.1 $27.3

Net Assets In Billions

FY '11 FY '12 FY '13 FY '14 FY '15 FY '16 FY'17

$ Millions FY’17 FY ’16 FY ‘15 FY ‘14 FY ‘13 FY ‘12 FY '11

Net Position $1.513.6 $1,499.5 $1,485.5 $1,509.9 $1,525.5 $1,554.1 $1,593.8

Operating Revenue

Operating Expense

Operating Income

Change in Net Position

Dividend to $29.4 $30.5 $25.9 $19.1 $7.5 $10.6 $27.3 State of AK (projected)

Net Position $1.62 In Billions

FY '10 FY '11 FY '12 FY '13 FY '14 FY '15 FY '16 FY '17

$ Millions FY ‘17 FY ‘16 FY ‘15 FY ‘14 FY ‘13 FY ‘12 FY ‘11

Net Assets $1,297.5 $1,204.9 $1,116.7 $1,038.8 $963.3 $893.2 $828.3

Operating Revenue

Operating Expense

Net Income ($89.1) ($98.0) ($106.9) ($114.3) ($118.2) ($116.3) ($110.1)

$ Millions FY ’17 FY ‘16 FY ‘15 FY ‘14 FY ‘13 FY ‘12 FY ‘11

Net Assets $1,461.2 $1,395.2 $1,426.8 $1,406.2 $1,180.9 $1,070.3 $1,075.9

Operating Revenue

Operating Expense

Operating Loss/Gain

Investment Income Capital Contributions $9.1 $9.2 $28.9 $37.0 $25.9 $29.0 $437.4 by the State

Assets in Action Organization (following State purchase)

• Independent corporation owned by State
• Managed by a seven-member board of directors appointed by Governor
• Mandated to be self-sustaining, responsible for financial and legal obligations

Operating Data

• 683 Total miles of track
• 912 Freight cars (owned & leased)
• 44 Passenger cars
• 51 Locomotives

2017 Operating Statistics

• 505,994 passengers
• 4.8 million tons of freight

Employees (January 2018)

• 572 full-time year-round employees
• 511 members of 5 unions

The Bottom Line Total Assets – $1.07 Billion 2017 Revenue – $187.5 Million 2017 Net Income – $22.4 Million Net Income in $ Millions

2017 Revenue Breakdown

Freight Operations Freight down significantly

• Export Coal & Refined Petroleum
• Gravel was a bright spot for 2017

Passenger Operations Passenger Service Rebounding

• Up 2% over 2016 / Up 25% over 2010
• Near max capacity on south end
• Variety of summer services

Real Estate

• Recent Land Sales
• Ship Creek Development
• Residential & industrial opportunities
• Fairbanks Leases
• Exploring Wetlands Mitigation

$ Millions FY ’17 FY ’16 FY ’15 FY ’14 FY ’13 FY ‘12

Net Assets $338.70 $316.33 $320.69 $304.71 $278.23 $255.6 Operating Revenue (Trains) Operating Expense (Trains) Operating Income (Trains) Non Operating Income (Real Estate)

Net Revenue (Corporate) $22.4 ($4.4) $10.9 $14.1 $14.3 $12.5

$ Millions FY ‘17 FY ‘16 FY ‘15 FY ‘14 FY ‘13 FY ‘12 FY ‘11

Net Position (Assets) Operating Revenue Operating Expense Net Op Revenue Capital Contributions

$ Millions FY ‘17 FY ‘16 FY ‘15 FY ‘14 FY ‘13 FY ‘12 FY ‘11

Net Capital Assets $1,692.5 $1,617.9 $1,544.7 $1,447.3 $1,280.3 $1,097.3 $952.9

Endowment Investments

Land Endowment and other Assets Endowment Investment Return

Fall Fall Fall Fall Fall Fall Fall Fall 2017/FY18 2016/FY17 2015/FY16 2014/FY15 2013/FY14 2012/FY13 2011/FY12 2010/FY11 Fall Student Headcount 27,823 29,171 30,496 31,522 32,696 33,581 34,983 34,480 (Non-degree) (7,825) (8,100) (8,454) (8,716) (8,992) (9,564) (10,567) (11,063) August Degrees Awarded 4,594 4,794 4,678 4,908 4,491 4,174 3,983 High School/College Concurrent Enrollment 2,721 2,392 1,881 1,522 1,556 1,413 1,313 1,394 Headcount Tuition and Fees - UA to Western States 88% 88% 84% 80% 77% 78% 76% 83% Average (4-Year) Average Annual Salary Available Available Available Increase for Exiters, February February 24% 27% 33% 29% 31% Post-Training 2020 2019 Grant-Funded Available Research Expenditures October $123.4 $119.4 $111.8 $120.4 $129.8 $132.7 $138.0 ($ Millions) 2018 Full-Time Regular Employees Headcount (Total Employees)

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