When the Alaska Industrial Development and Export Authority releases its long-awaited $250,000 study praising AIDEA, the report will highlight the Red Dog zinc and lead mine as an AIDEA success story.

In November 2022, AIDEA said it wanted a consultant to "document the authority’s impressive economic and investment history” and its “central role” in supporting economic development. It said the report would be done by June 2023.

Red Dog, one of the largest lead and zinc mines in the world, is always mentioned as the ultimate AIDEA success story.

What rarely gets mentioned is whether one of the largest zinc deposits in the world would have been brought into production without a state subsidy, meaning without AIDEA. And how many of the jobs and how much of the Red Dog revenue can be attributed to AIDEA?

AIDEA declares that Red Dog would have never been built without its participation, but there is room to argue that point.

The best evidence that the subsidy was not needed is a study dated July 31, 1985 on Red Dog economics that said, “we question the need for a substantial state subsidy in financing the proposed transportation system.”

“The Red Dog mine is expected to be a very low cost mine and should thus become one of the most important zinc/lead operations in the world,” said SRI International, a research company hired by what was then the Alaska Industrial Development Authority.

The expected return on investment was “relatively insensitive” to many factors, including the amount of state subsidy, if any, SRI said in its economic evaluation of the project.

Economist Gregg Erickson said he came across the SRI study a couple of years ago in the Alaska State Archives, while researching the history and economics of AIDEA. He doesn’t know if this study was intentionally buried by AIDEA 40 years ago, but he had never seen it before during his decades in Juneau researching state government.

Erickson and Milt Barker, who have each studied and analyzed Alaska economics for more than 50 years, have completed four reports on AIDEA that challenge the conventional wisdom on AIDEA. Part of that is challenging the conventional wisdom on Red Dog.

Here is the executive summary of their first report from 2022.

“The Red Dog Mine in Northwest Alaska is the Authority’s poster child for the use of subsidies to jump-start a big industrial mine and generate jobs in a rural area where jobs are badly needed. Yet AIDEA’s own consultants concluded that the project would go forward regardless of whether subsidies were offered or not,” they wrote.

AIDEA put $160 million into the road and port project more than 35 years ago, followed by $85 million for an expansion to increase production and take advantage of the economies of scale. The mine operator pays a toll to use the port and road.

AIDEA financed the transportation system for the Red Dog mine, which included a 52-mile road from the mine site to the ocean, a shallow water dock, a conveyor system to load ore, storage facilities, a power supply and residential quarters.

Erickson and Barker presented their AIDEA findings to the Senate Finance Committee Wednesday. Here is that presentation.

To no one’s surprise, Randy Ruaro, the executive director of AIDEA, said it is “absolutely not true” that the Red Dog mine could have been built without the subsidy from the organization he now leads.

“I say that based on the legislative record. There were two bills in 1985 that passed the Legislature, SB 279 and SB 280. Both of those bills authorized AIDEA to go forward with financing the road and port,” said Ruaro, the former chief of staff for Gov. Mike Dunleavy.

“And both of those bills passed nearly unanimously. I think there was one senator that voted no, Mr. Rodey. But otherwise the entire Legislature heard the testimony that the financing was needed,” Ruaro said.

Ruaro said that if you believe that AIDEA financing was essential to the project “then all the statistics that you just saw from Mr. Erickson and Mr. Barker are off by magnitudes of billions because they haven’t counted the benefits from the Red Dog mine.”

There are several things to note here.

First, this is an exercise in “what ifs” about a part of Alaska economic history, marked by claims that are impossible to prove with complete certainty.

“It’s a Wonderful Life,” this is not. We can’t call on an angel to reveal how life would have been without AIDEA in the picture.

But Ruaro should never say never when talking about how these things might have developed.

Before the state granted the subsidy, the Cominco Alaska president told the Anchorage Times in 1984 that without state support, the company would have to wait for higher zinc prices and that mines elsewhere in the world might go ahead, keeping prices too low for Red Dog to compete.

It might have taken longer to get built and it might have been less profitable.

Second, Sen. Pat Rodey’s complaint was not unique to him. “It’s not good public policy to pay massive subsidies to foreign corporations while Alaskan businesses and corporations go without,” Rodey said, while running for reelection in 1986.

Steve Cowper, who ran for governor in 1986 and won, also opposed the Red Dog subsidy. He said at the time that the plan ultimately approved by the Legislature provided far less than the promoters had wanted, in essence a low-interest loan, and was better than what had been sought.

Legislative approval of a bill, even legislative approval with a near-unanimous vote, always represents politics first and foremost, which makes the economic assertions open to question.

Under Ruaro’s reasoning we should have had a gas pipeline long ago because the Alaska Gas Line Inducement Act was approved on a 59-1 vote in 2007.

Third, Gov. Bill Sheffield supported a state subsidy for Red Dog. The NANA Regional Corporation, which owns the land, supported a state state subsidy for Red Dog. Cominco, which was plagued by losses and low metal prices, supported a state subsidy for Red Dog. Lobbyists, including former House Speaker Ramona Barnes, pressed legislators for a state subsidy for Red Dog.

The parties that benefit from a state subsidy always argue that the state subsidy is essential. Had the state approved an outright grant for $33 million, as proponents wanted, the economics would have been much better for the recipients. That would have made all the difference, AIDEA would now be saying.

A state subsidy for Red Dog improved the economics for NANA and for Cominco. And it improved the economics for the companies from Canada, West Germany and Australia that bought control of Cominco in 1986 from Canadian Pacific, after the state subsidy became part of the package.

“The project might not be going ahead now were it not for last year's change in ownership at Cominco,” the Financial Times of London reported in 1987.

“Mr Hank Giegerich, president of Cominco's Alaska subsidiary, says 'CP (Canadian Pacific) wasn't comfortable with the ups and downs of metal prices,' and the new controlling group 'has a better understanding of what we're trying to do. ' In addition, the recent upturn in world zinc prices to around 45 cents a lb. from 36 cents a year ago, has spurred enthusiasm for the project,” the Financial Times said.

Fourth, the aforementioned analysis by SRI was not an “internal report,” as Ruaro claimed.

It was supposed to be a public document that would inform public debate and guide legislators in making a smart decision.

The study was not finished until after the Legislature acted, however, and it disappeared into the bowels of the bureaucracy. The political and business interests backing the Red Dog subsidy in 1985 had tremendous clout in Juneau, so it’s not clear whether completion of the report in time for legislators and the public to read it would have changed the outcome.

SRI had been hired by what was then AIDA in March 1985 to do a study on Red Dog economics and develop a financing plan. Here is a story in the Anchorage Times about the $267,000 contract. A protest filed by a competing firm—alleging that one of the SRI researchers had been a Cominco employee—led to delays in the research.

The SRI report delivered to AIDA that Erickson found in the archives carries a July 31, 1985 date, nearly three months after action by the Legislature.

In September 1986, the president of Cominco Alaska said the subsidy of the road and port was not a subsidy, but an investment with a minimum return of 6.5 percent. The Legislature had required a minimum return of 5 percent on its loan.

Shortly before the Legislature acted in 1985, Maureen Kennedy of the Alaska Public Interest Research Group said that the Legislature should wait until after it saw the SRI study that summer because of the “ever-changing variety of financing options suggested by the Department of Commerce and AIDA.”

“So we think the decision should be put off until next year, when this basic information (from the SRI study) is available,” Kennedy said.

The state did not wait.

When AIDEA releases its new economic study that says AIDEA has a history of creating so many jobs and so much revenue, the document will be flawed if it makes the inflated claim that every job and every dollar ever generated from Red Dog came about because of AIDEA. And that the Red Dog mine would have never been built without AIDEA. It might have been built without AIDEA.

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