How little can the state afford to spend?
Gov. Bill Walker halted immediate spending on six of the state’s notable pending mega-projects Dec. 27, part of an effort to scrutinize all expenditures and minimize the fiscal year 2016 budget deficit.
Walker’s administrative order stopped work on a road to the Ambler Mining District; the Juneau access road; the Susitna-Watana Hydro project; the Knik Arm bridge; the Alaska Stand Alone Pipeline; and the Kodiak Launch Complex.
“Our budget deficit grows deeper as oil prices go lower. These are large projects that require significantly more state investment to complete,” Walker said in a statement from his office. “I’ve requested that the state agencies not enter into any new contracts until we’ve had a chance to look at the various projects.”
He said it is a way to keep the state from committing to further work on the projects that “may not be continued during this fiscally challenging time.”
Walker asked the agencies in charge of the projects to submit reports outlining operating costs, current obligations and the potential consequences of delaying or terminating their work to the Office of Management and Budget by Jan. 5.
Alaska North Slope crude prices in the $60 per barrel range are hitting the state coffers hard. Fiscal year 2015 revenue, once projected at about $5 billion, is now expected to be about half that, in the $2.5 billion range.
For the 2016 fiscal year, which begins July 1, it gets worse. The Department of Revenue predicts a little more than $2 billion of state revenue in its Fall 2014 Revenue Forecast released in mid-December.
Associated General Contractors of Alaska Executive Director John MacKinnon said he urges caution when it comes to the possibility of “killing” any of the projects the governor has brought attention to.
“All of the projects are investments in the future of the state,” MacKinnon said.
He noted that by and large the funding for the six proposed developments would be financed and not come out of the state’s general fund.
A negative message from state leadership can impact the public’s perception of the state’s economic future, according to MacKinnon.
“My concern is that if government starts the Chicken Little — the sky is falling — syndrome, then you’re going to see private investment shrink very quickly,” he said.
Speaking on budget issues before the Anchorage Chamber of Commerce Dec. 15, Walker said he is not “declaring a crisis” and Alaska can work through these tough times as it has in the past. MacKinnon said he hopes the public continues to hear that message.
AGC of Alaska, in conjunction with the University of Alaska Anchorage Institute of Social and Economic Research, or ISER, releases its construction outlook in late winter each year.
Going back to his campaign, Walker has said he would prioritize the state’s big projects. In an October interview with the Alaska Journal of Commerce, he referred to the Juneau access road as former Gov. Sean Parnell’s “road to re-election.”
Parnell had said the state has sufficient funds to investigate large projects up to the point where major construction investment decisions had to be made.
Walker pulled $20 million to the Alaska Energy Authority for Susitna-Watana study work from Parnell’s “in-progress” budget, and another $8 million for work on the Ambler road environmental impact statement by the Alaska Industrial Development and Export Authority.
AIDEA needs about $10 million to conduct the Ambler EIS, according to spokesman Karsten Rodvik. The development authority had hoped to file the EIS application shortly, Rodvik said.
AEA has $10 million in unencumbered funds for the hydro project from a $20 million fiscal year 2015 appropriation passed last legislative session. It is currently projecting Susitna-Watana to cost $5.65 billion.
The state still would need to invest more than $330 million through 2018 for Federal Energy Regulatory Commission licensing and design of the large dam, according to AEA project leaders. From there, construction and program costs would likely be financed with a loan and bond package.
The state has invested $192 million since 2010 in the latest attempt at building the Susitna-Watana dam.
The Department of Transportation has enough money remaining from a $55 million appropriation to the Knik Arm bridge last session to take the project to construction.
Knik Arm Bridge and Toll Authority Executive Director Judy Dougherty said in early December that a request for proposals on a design-build contract for the bridge and road connections would be let sometime next year to have a construction team under contract by June 2016. That process is at least temporarily on hold with Walker’s order.
AEA spokeswoman Emily Ford wrote in an email that the authority is looking at FERC licensing options to preserve the investments already made in the project if it is ultimately shelved for a time.
“The FERC Initial Licensing Process is very milestone driven and with no funding currently in the capital budget and the recent administrative order, there will be impacts to the overall schedule,” Ford wrote.
AEA’s latest project timeline has first power coming from the dam in 2028 or 2029.
The outlook for capital projects needing state money in 2015 is shaky at best.
Going into the 2015 legislative session, the project topping the list in terms of immediate ask is the Port MacKenzie rail extension. The Matanuska-Susitna Borough needs $119.5 million to finish the 32-mile rail spur over the next few years, bringing the total project cost to $303.5 million.
Segments one, three and six, totaling 14.4 miles are funded and rail has been laid on the 1.8 miles of segment six, the northern end of the spur. Work on a 7.4-mile segment to the east of Big Lake will be completed by the middle of next year, according to the borough. Right-of-way acquisition is in progress for 4.2 miles of future track near Houston, as it is for about 7 miles of the route to the south through the Point MacKenzie Agriculture District.
Funding is needed to purchase and lay track and ballast on almost the entire route, including the rail loop at Port MacKenzie.
At least in the near term, robust North Slope oil and gas activity should help offset a lack of state investment elsewhere.
ConocoPhillips is in the midst of nearly $2.5 billion of capital projects to add production through 2017.
New to the Slope in 2014, Caelus Energy announced a $500 million 2015 capital plan earlier this year for its two developments, Nuna and Oooguruk.
And work continues to the east at ExxonMobil’s Point Thomson, where another roughly $1.5 billion is needed to get to first production in 2016.
Elwood Brehmer is a reporter for the Alaska Journl of Commerce. He can be reached at email@example.com.