Gov.Bill Walker explains his budget at a press conference.

In the always entertaining world of Alaska politics, the Alaska business community has given Gov. Bill Walker a grade of “D” for his past year’s performance in office, and Walker has in turn graded the business community an F-U.

In a six-page, Sept. 30 letter, Walker lashes out at the Alaska State Chamber, the Alaska Support Industry Alliance, the Resource Development Council of Alaska, and Prosperity Alaska for his low score on trimming the state budget and boosting the state economy.

“To Whom It May Concern,” Walker’s chilly missive begins:

“Enclosed is a point-by-point response to your unsigned letter dated September 12, 2016 purporting to assess the performance of my Administration during the past legislative session. Overall, it is difficult to take the grade or analysis seriously, on account of your shifting criteria and inaccurate use of facts.”

Apparently following the lead of Republican Presidential candidate Donald Trump, Walker obviously took his grade – a staple of U.S. interest groups in modern times – very personally despite the efforts of the business community to explain it wasn’t personal.

High marks for goodness

“Based on your actions and lack of reversing the unsustainable state budget, we regretfully deliver a grade of ‘D,'” their Alaska Business Report Card began. “Giving bad news to good people is difficult. When the ABRC assigns a grade to elected officials, it’s not about personalities – it’s about performance. And it’s because of performance that this Administration has earned the grade of ‘D’ from the Alaska business community.”

The letter focuses heavily on the state budget, which is running a more than $3 billion deficit that has forced state government to dip deeply into the state’s Constitutional Budget Reserve Fund, and the business community’s view that Walker has done little to improve the climate for business in the 49th state.

“The budget your administration introduced was $4.8 billion dollars – well above a sustainable budget level – and your administration only reduced the operating budget by $140 million over the previous year,” it says.

“Your administration’s policy calls and introduction of new industry taxes has worked specifically against private employers, focusing instead on expanding governmental control of Alaska’s private sector, such as co-opting the Fairbanks natural gas project from private sector service providers,” it says.

“Progress on AKLNG (the Alaska gas pipeline) has slowed down significantly. Your insistence on repeating a study to determine pipe size and announcement that AGDC (the Alaska Gasline Development Corporation) would focus on a ‘backup plan’ introduced the uncertainty of a competing project,” it says.

Overall, the criticism is simple: Knowingly or otherwise, Walker is creating an anti-business climate in the state.

Traitors

Walker’s response to the criticism was to accuse business leaders of being divisive. He dragged out a now well-worn cliché to make his point.

“I often speak of the picture I received from Lt. Governor Byron Mallott showing Metlakatla in the early 1900s when the entire community would pull on a rope to remove tree stumps,” he wrote. “The picture is titled ‘Pulling Together.’

“Rather than spending time assigning grades, I encourage your organizations to be on the front end of that rope pulling just as hard for Alaska’s future. Alaska was not built — or rebuilt after our various disasters — by forces pulling us apart. I hope you will reconsider your strategies, push past parochial interests, and do all you can to contribute constructively to the tough decisions needed for Alaska to truly prosper.”

The governor echoed comments his half-million dollar gasline man, Keith Meyer, made to the public-policy group Commonwealth North last month. At a Commonwealth luncheon, Meyer, the newly hired head of the AGDC, chastised Alaska business leaders for their “negativity.”

Walker’s letter is unlikely to narrow the growing gulf between the governor and the Alaska business community. In the letter, Walker tries to snow business leaders on what happened with the budget.

“The $4.8 billion budget I introduced in December 2016 was down from $6.1 billion when I took office [see press release here],” he writes. “But that’s only half the story. Following the legislative session, after lawmakers failed to adopt any new revenue measures or to restructure the Permanent Fund as I proposed, I cut a further $1.3 billion using my line-item veto authority [see press release here].”

The  problem with those assertions are two-fold. The $4.8 billion Walker talked about in the press release included the elimination of about $1.2 billion in oil-tax credits the state owed small oil companies. The legislature balked at going back on that deal designed to up oil production in a state where oil funds about 90 percent of the cost of state government. With the oil credits in the budget, it came to about $6 billion.

Walker later cut the oil tax credits to the lowest level the state could legally get away with paying in the current fiscal year – $30 million. That saved about $400 million in spending for next year.

Then came the governor’s biggest budget “cut,” the veto of $696 million of about $1.4 billion earmarked for distribution to Alaskans as Permanent Fund Dividends. Whether that veto of money set aside for the PFDs in a constitutionally created fund was legal is now the subject of a court suit.

CINOS

The cuts to the PFD and the refusal to pay the promised credits to small, oil-industry businesses together constituted almost all of the governor’s budget cuts. And they were cuts in name only.

The oil credits must still be paid some day, and the PFD reduction did nothing to reduce the size of government for which the state must pay. The merits of the PFD cut are also being hotly debated.

It reduced the annual payout to Alaskans from more than $2,000 this year to a little over $1,000. Critics of the cut have hammered away at Walker with a study from the University of Alaska Institute of Social and Economic Research (ISER) that concluded that “the PFD cut…has the largest adverse impact on the (overall Alaska) economy.”

Even those businessmen who supported various plans to reduce the PFD and restructure the use of the Permanent Fund earnings to help cover the costs of government – and there were many who did so – recognize the PFD vetoes could cost them business.

And with the state now in the recession no one wants  to talk about , they have plenty of reason to be concerned about how Walker handles the budget going forward. Not to mention his seeming obsession with showing the world’s top petroleum companies the state of Alaska can build a hugely expensive gas pipeline they couldn’t.

“Following years of trying to determine what works best for the North Slope producers, we are in a position to find out what works for Alaska,” Walker wrote the authors of the report card. “In February the producers asked us to consider a State-led (gas line) project given the economic advantages a State-owned gasline might bring.”

Oil industry leaders involved in the negotiations with the state say that isn’t what happened. Their version of events is that Exxon, the world’s largest private petrochemical company and a leader in LNG development and the AKLNG project, told the state that it needed to slow down work on the gasline because the market for gas isn’t there at the moment. Either that, it said, or the state would have to take over the project because the costs of moving full-speed toward production were more than the companies could afford in an economy with seriously slumping global oil prices.

Walker, they say, jumped at the chance to take over. He and Meyer have since been traveling the world trying to sell the natural gas trapped beneath the permafrost of Alaska’s North Slope about 800 miles from tidewater.  A pipeline to move the gas to Cook Inlet so it can be liquified and  loaded aboard ships to Asia is estimated to cost $45 to $65 billion, and it is certain to throw the state into a construction frenzy for years.

The Trans-Alaska Pipeline System project in the 1970s brought north chaos not seen since the Gold Rushes of the late 1800s and early 1900s. Construction workers chasing high-paying pipeline jumps stormed north. Prostitutes, drugs, crime and more followed.

The long game

The gas pipeline is, however, Walker’s long game. He has predicted it will produce $1 billion to $1.2 billion a year in state revenue and largely solve the state’s budget problems. Most industry analysts are skeptical. They put potential state revenue at several hundred million per year, if that.

“The reality is, Alaska is currently constrained by real-world fiscal limitations,” Walker said in the closing to his letter. ” I’m looking at the long game. The best thing we can do now to ensure future investment in major infrastructure projects is to get our fiscal house in order — so we can grow and build our state again.”

The governor clearly does not believe the business community is helping with that cause.

“If your group had a credible proposal to balance the budget in a sustainable way without taxes — and without bringing dividends to zero — I never heard or saw it,” he wrote.

“With regard to the Fairbanks energy project,” he added, “Fairbanks has been burdened with high energy costs for many decades while Anchorage has enjoyed low-cost energy in part from financial subsidies. In essence you claim we have interfered with Fairbanks’ high energy costs, which reduced energy costs for that area and spurred additional economic activity. We proudly stand by that charge.”

As of the moment, however, the only help Fairbanks has seen in lowering energy costs has come from the global oil glut. Home heating oil which was above $4 per gallon is now near $2, low enough to cause problems for Walker’s plan for a government-backed conversion to gas.

Alaska Business Monthly in August called the gas plan “an empty pipe dream for now.” The gas project was designed to deliver LNG by rail or truck  to Fairbanks at a price equal to $2 per gallon heating oil. With heating oil now near that price, many Fairbanks residents are rethinking conversion to gas given projected investments of $10,000 to $15,000 per home to convert from burning oil to burning gas.

Meanwhile, Doyon, the Alaska Native Corporation in the Interior, believes it might be on the verge of discovering a commercially viable gas field only 50 miles southwest of Fairbanks. Fairbanks Daily News-Miner reporter Matt Buxon said the company is suggesting the field could provide gas to the Interior city by the fall of 2019.

It would be cheaper to build a 50-mile, commercial gas pipeline from the find to Fairbanks than for the state to take Cook Inlet gas, convert it to LNG, haul it to Fairbanks by railroad or truck, and then convert it back to gas for distribution through a natural gas pipeline.

The project underlines what seems to be a fundamental disagreement between the business community and the governor on whether government or the markets should rule the Alaska economy.