A new study backed by a conservation group concludes that an Alaska economic development agency’s track record over the last four decades has been marked by failed projects and paltry earnings.
The Alaska government would be $10 billion wealthier if the $300 million it has invested into the agency, the Alaska Industrial Development and Export Authority, had instead been put into the Alaska Permanent Fund, the 130-page study says.
The review was conducted by Alaska economists Gregg Erickson and Milt Barker on behalf of SalmonState.
The report says the state agency has averaged a 3.8% return on its investments since 1980. It compares that to the rate of return for the state’s Permanent Fund, valued at $74 billion in August, which the report says is about 2 1/2 times higher.
The agency has made small positive returns in its cash and loan investments, the report says. But the agency’s investments into projects overall have been money-losers, with a negative 2.6% average annual return, the report says.
Alan Weitzner, executive director of the agency, disputed the report’s findings in an interview on Tuesday, saying projects and other areas have made money. He said it appears the study’s authors cherry-picked data to show a negative return on projects.
“I don’t understand what their objective is other than to stop development,” he said.
Weitzner said the agency has a different mission than the Permanent Fund. The agency is focused on investments that support projects and the private sector in Alaska, he said. The Permanent Fund invests globally.
Weitzner said the agency is achieving its mission of economic development and job growth in Alaska. Since 1987, the agency has reported net income of close to $1 billion and paid dividends to the state of nearly $450 million. It has injected $3.5 billion into the economy in project and loan investments, he said.
“By all measures, that is a successful organization,” he said.
SalmonState sought the review amid concern over the agency’s efforts to pursue development of the 100-mile West Susitna Access road, said Tim Bristol, SalmonState director, in a press event accompanying the report’s release on Tuesday. The road would extend from Point MacKenzie to the Yentna Mining District in the Alaska Range.
SalmonState says the road would threaten wildlife habitat the area’s hunting and fishing-based economy. The agency says it could create many new jobs and support mining prospects and other endeavors. The road is estimated to cost more than $350 million.
Report co-author Barker said five of the agency’s projects, out of 26, have failed. The agency has written-off as worthless $294 million of its investments into projects since 1987, the report says.
They include the Alaska Seafood International plant that closed in Anchorage in 2003. The plant became the ChangePoint Alaska church, off Raspberry Road near the Walter J. Hickel Parkway.
More recently, the agency has foreclosed on about a $70 million loan into the Mustang oil project on the North Slope. The agency took over the project more than two years ago, after the operator couldn’t meet loan payments to the agency. The agency is looking for a buyer for the project, which is in “cold shutdown” mode.
The report’s authors wrote that projects such as Mustang raise questions about procedures at the agency. They also express concern about political or outside influence at the agency, in investments such as the agency’s unconventional decision to buy oil and gas leases in the Arctic National Wildlife Refuge in 2021. The agency paid close to $10 million to buy seven, 10-year leases. It has held onto them in hope that development might occur and lead to new jobs in Alaska, even as companies concerned about exploration challenges there have walked away from their leases.
The agency’s record on projects raises concerns about its current efforts, Erickson said. Projects and loans the agency has supported often would have moved forward without the agency’s financing, the report asserts.
In addition to the West Susitna Access road, the agency is leading efforts to develop a 200-mile, $500 million-plus industrial road across Northwest Alaska wilderness to a mineral district near Ambler village, known as the Ambler Road.
The roads are critical to the agency’s mission because they could support thousands of jobs, if mining or other activity can occur, Weitzner said.
Weitzner said the agency has made some bad investments in its past. But a perfect track record would mean it’s being too conservative in its investments, he said. He said local governments also supported projects the agency invested in, before they were developed.
Weitzner said the agency will closely review details of any project before it’s approved, such as the proposed industrial roads, to ensure they bring positive returns to the state.
The study includes a series of recommendations. Those include additional audits of the agency’s finances that would include taking a close look at the type and location of jobs created by the agency’s investments, whom the investments benefit, and how that money could have been better spent.
It recommends that the agency, with a net worth of about $1.4 billion, transfer its assets to the state’s general fund or the Alaska Permanent Fund.
The study also proposes spending restrictions on the agency, recommending that it finance projects only by issuing revenue bonds. In that case, market investors such as financial institutions could buy the bonds for a viable project, generating cash for the project, Erickson said. But the investors would likely reject a project with poor prospects, creating a market-driven test before a project can advance, Erickson said.
“That would take a tremendous amount of risk off the table,” Erickson said.
AIDEA has planned a news conference Thursday to address findings in the report.