AIDEA needs an independent audit of where all the money goes
The column below by Rodger Painter, published by the Alaska Beacon, is a timely analysis about Alaska’s state-owned development bank, which is controlled by political appointees loyal to the governor.
The Alaska Industrial Development & Export Authority has become more aggressive about throwing public money at questionable enterprises. The agency needs stronger oversight and an approach to development more intelligent than the Dunleavy dictum of saying yes to everything and anything.
The Legislature can start by exerting its authority over the authority.
Painter, a former reporter and a longtime leader in the seafood industry, has been tracking AIDEA for decades. His column is on the mark.
In particular, his call for an independent audit makes lots of sense.
“AIDEA could add millions of dollars to the state treasury to close enormous deficits. Its required annual contribution to the state treasury is a fraction of the cash it raises. The Legislature could consider launching an independent audit of AIDEA to determine how much the agency can afford to pay,” he said.
Here is the column:
By Rodger Painter
As legislators scramble to balance the budget without raising taxes, tapping further into the Permanent Fund or spending out limited savings, there’s a big pot of cash readily available.
The Alaska Industrial Development and Export Authority was created in 1967 as a public corporation “to provide financing for Alaska’s business community, to expand the economy of the state, and to provide jobs for Alaskans.”
AIDEA has become Alaska’s second largest source of revenue through its traditional loan programs, but instead of funneling its large profits to the state’s general fund it has launched special projects favored by politicians that have spectacularly failed.
While the list of failed projects dates back decades it makes sense to focus upon recent projects.
Ambler road
AIDEA’s proposal to build a 211-mile road to Ambler to access mining claims along the Kobuk River is a classic example of putting the cart before the horse. There are four operations exploring mineral deposits in the Ambler Mining District, but there are no active mines. Only one operation has completed an economic feasibility study.
If Ambler Metals develops its 112,000 acres of patented mining claims the mine could result in 13 years of production, according to a feasibility study conducted by Ausenco Engineering Canada Inc. At this point Ambler Metals has no proven reserves.
AIDEA says it will take 50 years of use of the road by multiple mines to recover its investment, but its agreement with Ambler Metals allows the Australian and Canadian company to use its predevelopment investment, estimated at $35 million, to offset tolls and other user fees for use of the road if developed.
AIDEA estimates $350 million will be required to build the road, but the final Environmental Impact Statement estimates the full cost at $518-$992 million. The EIS estimates yearly operational and maintenance at $9-$14 million. Other estimates of the road cost are even higher.
In addition to the high construction costs there are many other obstacles, such as opposition to the road by tribal organizations and a host of lawsuits filed by conservation groups and tribal organizations alike. Along the Ambler Road corridor alone, the Native villages of Alatna, Allakaket, Evansville, and Huslia oppose the road. In all, eighty-eight tribal indigenous governments oppose this road.
Many tribal leaders cite concerns for their subsistence way of life at the hands of the proposed road. Tanana Chiefs Conference President Brian Ridley states that the road “represents a fundamental threat to our people, our subsistence way of life and our cultural resources.” While the road has been endorsed by several Native corporations, Alaska Natives who live within the affected area have spoken loudly in opposition.
Impacts upon the troubled Western Arctic caribou herd, which decreased from 490,00 in 2003 to 164,00 in 2022, are of particular concern. A recent study by the U.S. Geological Survey estimates oil road traffic of more than five vehicles per hour disrupts caribou movement. For decades that standard for North Slope oil field traffic has been 15 vehicles per hour.
The Biden Administration rolled back the Trump approval of the Ambler Road and it is unclear if it will grant approval when more studies are complete.
AIDEA has labeled the road as industrial, but the history of the Dalton Highway suggests it will eventually be open to all traffic. This is a very shaky project that could leave the state holding the bag, and primarily benefits foreign multinational corporations.
West Susitna Access road
AIDEA’s proposed 100-mile road is designed to access hard rock mines, coal and timber and is estimated to cost $357 million to construct. Meanwhile, there are no proven reserves or operational mines in the area. Planning costs for AIDEA as of January 2023 were $319,753.
Area forests have been heavily hit by beetle kill and the agency concedes only a few jobs would be supported by timber harvests. Current demands for coal power plants suggests the future of coal extraction in the Susitna area is remote.
AIDEA also promotes recreational opportunities as the road would be open to public access across the bridge crossing the Susitna River. Public reaction has been mixed.
Like the Ambler Road this project is very premature and primarily benefits multinational conglomerates.
ANWR leases
No major oil companies submitted bids for tracts in the Arctic National Wildlife Refuge oil lease program to the federal government in December 2020. The only private companies to submit bids were very small companies with no Arctic oil experience. The companies later withdrew their bids.
To the surprise of many, the top bidder was a state agency: AIDEA, which claimed nine tracts. The agency later dropped two tracts which resulted in AIDEA losing about $290,000.
“To date, AIDEA has spent $12,802,615 on the Section 1002 Area leases, which includes the initial bid amount, the first-year lease payment that was due with the bid amount, and a small processing fee,” according to an AIDEA press release.
Annual lease payments for the seven tracts are $2.4 million. AIDEA sent the federal government payments for the current fiscal year, upping its investment to about $15 million.
AIDEA appears to be operating beyond its original mission in the ANWR lease program. Theoretically industry should lead the way with AIDEA support. AIDEA is not an oil company and is not equipped to develop the leases. This messy affair could be very costly for Alaska.
Mustang Road
AIDEA spent $20 million to build a 4.5-mile gravel road to help a proposed oil facility on the North Slope that was never developed and later convinced lawmakers to forgive $14 million of its required $17.9 million annual payment to the state treasury in exchange for the road.
The state will be required to pay for maintenance of the Mustang Road, which is being used by oil companies free of charge. A ruling by the Alaska Department of Natural Resources forbids AIDEA and now the state from charging tolls for use of the road.
Several questions are raised by these actions, such as why AIDEA pressed forward with road construction before the oil project was under way and why the state accepted the road instead of $14 million. The cash could have helped fund many projects, such as education or capital projects.
Conclusion
These examples are a drop in the bucket when examining AIDEA’s history of failed “special projects.” Two reports by three very experienced Alaska economic specialists, Gregg Erickson, Ginny Fay and Milt Barker, and funded by Salmon State, a Southeast NGO, examined 26 AIDEA projects. Here’s Erickson, in an opinion piece in the Anchorage Daily News in response to AIDEA’s criticism of the reports:
“Still, it’s no surprise that AIDEA doesn’t like our report. We found that Alaska would be $10 billion richer – or Alaskans could have received thousands more in dividends – if the state’s appropriations to AIDEA had gone instead to the Permanent Fund. We documented that since AIDEA’s inception, the majority of its 26 projects have either produced no new jobs, floundered or gone bankrupt.”
The Legislature could take a close look at AIDEA.
The agency’s board of directors is appointed by the governor and not subject to legislative confirmation. This could change by adding board seats, providing AIDEA with enough expertise to make sound investments rather than continually betting on the outcome.
AIDEA could add millions of dollars to the state treasury to close enormous deficits. Its required annual contribution to the state treasury is a fraction of the cash it raises. The Legislature could consider launching an independent audit of AIDEA to determine how much the agency can afford to pay.
This is a summary of the report by Erickson and Barker.