Introduction

It is fitting that as the state embarks into the next millenium, that I should be privileged to speak today before such a diverse group of Alaskans.

The members of Commonwealth North are unified in their desire to understand and explore common issues affecting our state and who are actively seeking solutions to increase Alaska's economic, social and political well being.

Our state stands at a historic crossroads. We're not at a loss for issues to tackle involving urban and rural relations, fiscal reality that challenges your legislature and local governments to provide smarter, leaner and more efficient governance, the re-structuring of our oil industry; and hopefully, a new and stronger role for Alaska's military.

Budget

This past January, the 60 men and women you elected in 1998 met in Juneau confronted with incredibly low oil prices and the specter of a billion-dollar budget gap.

Much can happen in a year. We have seen a three-fold rise of Alaska crude oil prices even as Alaska's oil industry is in the midst of epic re-structuring.

FY 2000 oil prices have rebounded to over $19.75/bbl annual average through October 1999.

The experts are widely divided in their forecasts for oil prices in the new millenium. We would need $29.00/bbl to balance the budget at current spending levels.

For FY 2001 and beyond it is projected that ANS oil production will level off around 1.0 million bbl/day.

At current spending levels, we will continue to require annual borrowing from the CBRF. The CBRF could be exhausted as soon as FY 2002 ($10/bbl oil) or as late as FY 2006 ($20/bbl oil).

And so -- the overriding theme of the session will be our focus on eliminating government waste. We will continue the majority commitment to our 5-year plan of reducing the budget. We've $30 million in cuts to operating left to achieve.

Our other significant task is to make sure that the gains we have already made, both by the state legislature and our congressional delegation, are maintained and strengthened.

Federal Appropriations

Our Congressional delegation is bringing in over $2 billion a year in federal appropriations for programs & infrastructure -- more than the entire annual state operating budget.

This is not "pork spending." AK is not taking more than its fair share. We are starting to receive much of the essential state infrastructure & programs that will serve as the foundation for economic development (that other states received 100 years ago).

Our congressional delegation needs the continued vocal support of Alaska's legislature and its citizens.

People outside are skeptical about our needs. They see big oil, the permanent fund, and the dividends -- and question the spending. It's becoming an issue in the presidential race -- and the comments in Iowa and New Hampshire aren't good for Alaska. Senator Stevens is the butt of many jokes -- at our expense!

Senator Stevens has made it clear -- the state and local communities must be able to support & maintain the infrastructure gained through the influx of federal dollars. After the federal money is gone, that won't be easy.

We must learn from others like the example in Oregon. The Oregon Health Sciences University is now in a serious financial crisis because they no longer have the support & influence of Senator Hatfield on appropriations. There must not be an "Oregon Health Sciences" in AK.

Let's look at one example of how federal dollars are building Alaska infrastructure. I'm talking about the latest activity of the Alaska railroad -- which obviously lobbies very well on Capitol Hill.

The railroad is now upgrading its facilities at the Seward dock, an important terminus for Alaska's huge coal deposits, thanks to Senator Stevens.

The railroad is also enhancing its depots in Anchorage, Fairbanks and Denali which should greatly add to our tourist experience, thanks to Senator Stevens.

Let's talk about the new airport railroad depot -- more than $20 million. Guess whom from?

Is the Alaska Railroad situated for the future in terms of operation and maintenance costs? Does it have the growth capacity to support and maintain all these projects? We must ensure that it does.

As I will address in more detail later, Alaska is vying to be the site for the new ballistic missile defense system. If Alaska is chosen as the site, it is highly likely that the Department of Defense would fund an expansion of the railroad to Fort Greely -- 1/3 of the distance to the Canadian border.

Our congressional delegation is doing an amazing job building the foundation for Alaska to be able to withstand potential declines in state and federal resources -- but they need our help to provide a framework for sustainability.

Deferred maintenance of public infrastructure is already a billion dollar critical problem in Alaska. We cannot afford to add to the problem. The state must address these issues in the very near future -- how will we pay for the upkeep. Commonwealth North has a history of good ideas -- it's time to bring that discussion to the forefront.

BP/ARCO Merger

Last Thursday Governor Knowles and BP Amoco signed an amended Charter Agreement to give state approval to BP's proposed acquisition of Arco.

In his speech at the signing Governor Knowles said he was satisfied that the agreement met our state's stringent antitrust statutes.

Despite the signing of the agreement, an air of uncertainty clings to this landmark realignment of Alaska's two largest oil producers:

The governor has been criticized repeatedly for rushing to closure of his deal, with supposed inadequate attention to a more considered review of the process, highlighted by greater public scrutiny. I do not plan to criticize the Governor or the merger here today -- though it is no secret that I am a skeptic personally.

As most people are aware, the Legislature's Joint Commission on Mergers has retained legal and economic experts to review the merger.

We gained access to the same documents provided to the FTC and the state.

We sent a memo detailing specific concerns to the FTC in October. We've met with the FTC at least three times and invited FTC to our hearing in July -- an act unprecedented in FTC history.

The legal experts we retained voiced two primary concerns about original charter:

First, that the Charter Agreement's terms should have been set forth as part of an enforceable court order (called a consent decree in FTC parlance) signed by a judge. Such an order would have accompanied a formal civil complaint and would be easier to enforce than the contract styled agreement entered into between the administration and the oil company participants.

Second, our legal counsel suggested that the terms of the Charter are ambiguous and lack the legal precision that specifically defines the rights and obligations of the state and BP Amoco.

The crux of the matter, from the legislature's point of view, is whether the merger will bring benefits to Alaska. Ten years from now will Alaska look back at the merger and say Alaska fared well?

We are cognizant of the need for closure. That was my primary message last Thursday as I met in Washington D.C. with FTC Commissioners Sheila Anthony, Orson Swindle and FTC Chairman Robert Pitofsky.

Staff members at the FTC have apparently recommended that the merger be blocked. This was big news in the Post, the Times and the Journal.

At this time, the legislature's committee is analyzing the revised Charter. We will likely comment to the FTC as we did on the first agreement the governor signed.

We will also be making a report to the full legislature within 15-days of the commencement of the 2nd session.

Military and the National Missle Defense System

The military has been a major economic presence in Alaska since territorial days.

Our servicemen and women bolster our state's economy. Their children go to our schools and they contribute to all our communities.

A high percentage of servicemen and women who come to Alaska stay in Alaska. In fact, Alaska has the 2nd highest per capita rate of veterans in our country. These men and women go on to live in our communities and fill vital niches in civilian positions. They contribute to civic leadership and many come to enjoy fruitful positions in our state and local governments.

BRAC and the Decline of Alaska's Military

In the early1990s, federal efforts to restructure our military took a toll in Alaska. Base realignment and closures struck at Adak Naval Air Facility and Fort Greely. The sixth light infantry division was deactivated.

These events caused the legislature and the people of Alaska to re-evaluate the presence and contribution of the military to our state.

Joint Armed Services Committee

Last session, the legislature created the Joint Armed Services Committee.

Its purpose is to facilitate and encourage the growth and continued presence of the military in Alaska.

At the forefront of the Committee's efforts is its aggressive pursuit for the deployment in Alaska of the National Ballistic Missile Defense System.

The changing role of the U.S. military and the increasing threat of terrorism and the rise of missile capability in potentially hostile countries mandates that our country develop a means to defend all Americans.

North Korea has shown in the last year that it has a missile capable of hitting Japan and Alaska. It has been reported that the Chinese are preparing to test a new system of mobile ICBMs.

Pakistan and India are developing missile systems that could one day threaten the U.S. and there is ongoing concern about the security of the Russian Federation's nuclear arsenal after the break-up of the former Soviet Union.

There is only one location in our country where all 50 states can be protected from rogue missiles and that is in Alaska.

Missle Defense System

The first, most obvious benefit that the missile defense system represents to Alaska is protection and deterrence from potential attacks against our state and our country.

But there are other, equally important contributions that this system will provide to our state:

It represents our commitment to the continued presence of Alaska's military family;

It means increased federal revenue to bolster our own state economy;

The missile defense system's economic multiplier effect means increases to Alaska's transportation infrastructure in the creation of new roads, ports, airports and rail lines.

It also means more jobs for Alaskans because the system would be operated by members of Alaska's Air National Guard and the promise of civilian contracting jobs.

Session Review

2001 Budget

Lesson of Advisory Vote: The message voters gave us is that the PFD and excess earnings from the fund are untouchable in terms of the budget.

5-Year Plan: This is year 5 of the plan and in order to meet our commitment to reduce $250 million from the state budget, we will have to cut $30 million this session. This will be a difficult task and much of it depends on what the governor will announce in his proposed budget due late next week.

Statewide bond issue: There has been talk about a general obligation bond which will be voted on statewide in 2000. You need a cash stream to pay it off and that's a big question mark. My questions are how big does it have to be to gain the support to pass?

We'll probably see lots of bond proposals for many issues, including schools and other infrastructure needs. And you can bet that Eldon Mulder, Tim Kelly and I will be beating the drum about deferred maintenance which could be a part of a bond issue.

Rural Schools Litigation

A question I'm often asked is what will be the legislature's response to the litigation regarding the conditions of our rural schools. A superior court ruling this year says the state is in violation of state constitutional rights and federal civil rights because of inadequate rural schools. It is hard to respond to that because we are awaiting a written decision explaining the judge's reasoning.

We are waiting to see if the governor plans to appeal but mostly, we need an opinion from the state's highest court. There are needs in both our rural and urban schools and I foresee that this will be a topic to be addressed in session.

Privatization

At the beginning of session the privatization committee will introduce its recommendations to the full legislature. It is too early to comment on what the full content of those recommendations will be, however you should bear in mind that any recommendations will not be adopted out of hand. The PERA (Public Employees Relations Act) requires an economic study to be complete before any privatization can occur.

Subsistence

It is quite likely that those who want an amendment will bring subsistence up at session. The question remains whether any of the 8 no votes can sign off on some different type of plan -- I don't know. Some of the 8 won't even talk about it, some might.

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