New economic report(s): AIDEA’s “investments” are politically-driven gambles that have lost Alaskans billions.

JUNEAU—An in-depth new report analyzing the Alaska Industrial Export and Development Authority’s (AIDEA’s) costs shows that AIDEA’s project decisions are more politically driven, losing gambles than they are investments. AIDEA has not only mostly failed to create jobs or wisely invest state funds, it has cost Alaskans $10 billion over the years — a figure that equates to $27,842.74 per hour.

The report, AIDEA – Cost and Financial Performance — A Long, Hard Look, by Alaska economists Milt Barker and Gregg Erickson, is bolstered by the information in the spring 2022 report Alaska Megaprojects Update by economist Ginny Fay.

“This report makes clear that AIDEA is hemorrhaging Alaskans’ money — which, instead of benefiting Alaskan communities, is lining the pockets of the rich and powerful overseas,” said SalmonState executive director Tim Bristol. “Alaskans are dealing with inflation, can’t figure out how to get their kids to school, and are looking at a cold, expensive winter. Meanwhile, AIDEA is pushing through even more bad ideas that would cost hundreds of millions of dollars. It’s time to invest in Alaskans — not AIDEA’s politically-driven gambles.”

“AIDEA’s investments in projects are more likely to cost rather than make money,” said economist and report author Milt Barker. “Projects lost money in 17 of the 35 years since AIDEA’s first project, $233.3 million in net losses.  There is adverse selection going on here.  The risky and undercapitalized projects come to AIDEA.  Good projects go to the bank.  Undercapitalization is a prime culprit in AIDEA’s latest failure, the Mustang oil project.”

“AIDEA’s money comes from the same pot used for anything else in Alaska: law enforcement, the university, school funding, road maintenance, social services, and PFDs,” said Rick Halford, a Republican who served as president of the Alaska Senate. “Any of those uses would be better than throwing it away on AIDEA, an entity whose performance can be characterized in three ways: loss, waste and giveaways.”

“AIDEA’s project decision-making has been fundamentally flawed," said economist and report co-author Gregg Erickson. “The agency generously subsidized schemes that were losers from the outset. The bankrupt Mustang oil project is a sad example. Ironically, AIDEA also provided assistance to other projects that would have moved ahead anyway; Red Dog mining  is the poster child for a would-have-happened-anyhow project.”                                                   

“AIDEA is subsidizing the giveaway of Alaska’s resources away to foreign multinational corporations and nonresident workers,” said economist Ginny Fay. “Those financial losses are worsened by the state giving away 97.7% of the value of mineral production when it collects only 2.3% in taxes. A more accurate phrase than ‘open for business’ might be ‘open for massive giveaways.’”

“AIDEA is losing real money,” said Emily Anderson, Alaska Director of the Wild Salmon Center.  “Why have we somehow accepted that AIDEA should be subject to less review than any other Alaska entity? It’s time for Alaska’s elected officials to take a long, hard look at just why Alaska is subsidizing foreign companies at Alaskans’ expense — and losing Alaskans billions of dollars in the process.”

AIDEA is perhaps the only state-owned, publicly-funded corporation of its kind in the United States. Since it funded its first project 35 years ago, AIDEA has:

• Received a net total of $301 million of public money from the State of Alaska, while AIDEA’s development projects have lost $233.3 million

• Performed poorly, earning an average of 3.8% on its investments (as contrasted with the Permanent Fund’s 9.4%). Its project “investments” specifically have earned negative 2.6%.

• Subsidized a large number of projects that flounder or founder

• Cost the state $10 billion with its poor investment choices (If that $301 million had been invested in the Permanent Fund, the state would have $11.4 billion — $10 billion more than it does currently.)

• Alaskans would have collected $1.3 billion more in their PFD checks if AIDEA’s money had been invested in the Permanent Fund and disbursed.

• Demonstrated “fundamental flaws” such as insufficient or unattractive deal flow; overly generous subsidies; and being beholden to outside influence, which has led to its poor performance.

A one-page summary of the report is here and below this release. The 17-page executive summary is here. The full report is here. The September 27, 2022 press conference is available on our YouTube channel.

One page summary:

Report(s) Summary: AIDEA – Cost and Financial Performance — A Long, Hard Look, by Milt Barker and Gregg Erickson, with additional information from Alaska Megaprojects Update by Ginny Fay

The Alaska Industrial Development and Export Authority (“AIDEA”) is a state government corporation that subsidizes private commercial real estate and economic development projects in Alaska with public money. New reports by Barker, Erickson, and Fay show that AIDEA’s project decisions are more politically driven, losing gambles than they are investments. AIDEA has not only mostly failed to create jobs or wisely invest state funds, it has cost Alaskans billions of dollars.

The express purpose of AIDEA is to “promote, develop and advance the general prosperity and economic welfare of the people of the state, to relieve problems of unemployment, and to create additional employment.” AIDEA first received funds  in 1980, and in 1984 it was authorized to directly invest in, own, or partially own and operate development projects. AIDEA — Cost and Financial Performance analyzes and delves into AIDEA’s performance — and failures — over the past 41 years. 

The majority of AIDEA’s projects have floundered or foundered, failing to benefit Alaska’s economy or provide Alaskan jobs.

Less than half of AIDEA’s projects have made permanent additions to Alaska’s economy.  In the 38 years since AIDEA ownership and operation of development projects was first authorized, AIDEA has invested in 26 projects.  Four of these projects are no longer operating, seven were acquisitions of existing properties or operations, and three are still in the planning stages.

In fact, “AIDEA’s investments in projects are more likely to cost rather than make money. Of the $682 million AIDEA has invested in subsidizing development projects since 1987,  $294.1 million has since been written-off as worthless by AIDEA’s board. AIDEA’s project failures have lost almost as much money as the $301.4 million in net contributions the State has made to AIDEA.

AIDEA’s subsidization of resource extraction projects also creates a major giveaway of public resources to foreign multinational corporations and nonresident workers. The loss to Alaskans is compounded by the fact that the state recoups very little of the mineral value in mineral licensing taxes  and doesn’t offset the cost of public services required by the businesses, their workforces, and families.

Furthermore, AIDEA does not fill any void in the commercial mortgage market. What AIDEA does do is provide below-market financing rates and terms. Of the 39 AIDEA loan participants funded in the 16 months prior to October 31, 2020, 48% of the dollars were for loans that added no permanent jobs, and 65% entailed no construction jobs.

Had state funds wasted by AIDEA been invested in the Permanent Fund, Alaskans would have thousands of dollars more in their pockets — or Alaska would have billions more in the bank.

If the net $301.4 million handed to AIDEA from the State of Alaska had been appropriated to and its earnings retained in the Alaska Permanent Fund, the State savings account would be richer by $11.4 billion. Had a portion of those earnings been distributed to Alaskans as Permanent Fund Dividends (PFDs), recipients would have collected an additional $1.3 billion. The Permanent Fund would be $39.1 billion larger if the State of Alaska had invested the $301 million state funds spent on AIDEA and those funds appropriated to large development projects reviewed by Ginny Fay in her 2022 Alaska Megaprojects Update report.  Bottom line: Alaska has better things to do with its money than give it to AIDEA.