Face To Face

Interview with Tony Knowles

This interview with Democratic candidate Tony Knowles took place July 19.

News-Miner: What would you do regarding the proposed gas contract?

Knowles: I just think that we can't make a decision now because it is unfinished business. [W]e do have a proposal on the table from the producers. Now I believe we... have a responsibility and an obligation to look at all viable proposals and see which one is best for Alaska... And I believe in addition to looking at all proposals we should set some terms by which those proposals should be judged, in terms of the best interests of Alaska.

[T]here are a long list of terms, but the foremost important to me are No. 1—that we need to ensure that this is a project, a contract for a project, and not just an option, which many people, including myself, believe that the current proposal is. It's not a commitment to a project. [I]f there is an intent to do the project, (we need) to have very specific deadlines and benchmarks on the work accomplished and money spent and if these benchmarks and deadlines aren't met, then the state has the option to cancel the contract, be reimbursed for expenses that the state might have spent at that point and move on to another proposal.

News-Miner: Does the state have any leverage?

Knowles: No, no. It is absent from this. They can give kind of an estimate of what they're going to do and then they say that it falls on the word "diligence." That is all they have to show is diligence, and the definition of diligence is not even due diligence, which I guess is a legal term of art. This is just diligence that is interpreted by them. So it is almost impossible that they could ever be held accountable.

News-Miner: Yet at the same time how can a company be expected to guarantee that they will do a project of this magnitude so many years down the road?

Knowles: Well, they're not guaranteeing things because there is not even a start date or a finish date. I don't think you can require that. What I do think that you could require—it must require—if you're going to do a project is a commitment... [T]hey can't do the permitting phases because that is somewhat out of their control, but they can do some engineering, the design, the engineering, the assemblage of the various logistical projects. They can phase that out with specific agreements as to how much money and how long those phases of the project will take, and then if you don't meet those phases, then they probably aren't pursuing it.

News-Miner: How would you deal with the shortcomings you see in the contract?

Knowles: There are four things. [T]he first one would be to really put some teeth in measurable benchmarks that have to be met in the pursuit as the project is being pursued. The second one would be that there has to be access to affordable gas by Alaskans to include the gas line that goes to Southcentral Alaska. And the affordable gas to Alaskans inclusive of rural and urban areas, those not on the road system or the pipeline system. Now, I recognize that is not a completely business and economic decision to make. There's a social decision that is part of that, and the state is going to have a responsibility to step up to that part of the plate...

News-Miner: What's No. 3 on your list?

Knowles: No. 3 on the list would be the use of Alaska businesses and Alaska hire. Now, in Alaska hire some people roll their eyes and say "Oh, that's unconstitutional." But there are some very specific provisions I believe that can put teeth into the phrase "Alaska hire." First and foremost would be the training of Alaskans through the vocational technical and university programs that can prepare Alaskans to compete for those jobs, coordinating with the union apprenticeship programs. We do, I think, certainly have a fine but rather limited system with voc-tech. You have Hutchison Center (in Fairbanks), Martin Luther King Center in Anchorage, and the Seward center, but we need to expand these.

The second would be a project labor agreement whereby there very clearly can be given a written assurance that Alaska residents will be given a priority. That can be done and there will be some pushback from some of the unions perhaps, I don't know, but there may be. But this is not limited just to union members. It can be union or nonunion and the essence of the project labor agreement is whoever competes for the job for the term of that project, they will become part of the union and at the end of the job they will have accrued a certain amount of benefits whether they're vested or not... But it is a process by which Alaska residents, and it is court-tested, can be certainly given a priority.

News-Miner: And would you put this PLA requirement in the gas contract?

Knowles: Yes, the requirement to have the PLA and to spell it out, and that would be between the unions and the contractor and be in the written agreement.

News-Miner: What's your fourth item?

Knowles: And the fourth item is just very simple: that oil taxes have nothing to do with the gas line contract.

News-Miner: Well then you don't get a gas line, right? That's what the oil companies say.

Knowles: It is my firm belief that the gas line is a profitable, and some parties—and they will be right—say it is a lucrative proposal that stands on its own merits... We have only talked to the producers. Now we have to go to Mid-America, the (Alaska Gasline) Port Authority, TransCanada, and other parties that may well have the capability and the interest to put forward a very solid proposal.

News-Miner: One of the proposed amendments to the Stranded Gas Development Act would allow oil taxes to be part of the stranded gas contract, retroactive to January 2004. What do you make of that?

Knowles: Well, the Stranded Gas Act that I introduced very clearly made the separation that you couldn't negotiate oil taxes with gas, and that's because we felt that it was for gas that is not commercially viable.

News-Miner: What's your view of the gas reserves tax that is on the November ballot?

Knowles: I do not support the reserves tax for several reasons. One, if we do have a Mid-America building the line, or another party... that doesn't then do anything to get the line built to have a reserves tax, because it doesn't affect them. So it would only affect the producers. It has no effect on someone else that does the line. [T]hen it would be a tax that would be only punitive, and it doesn't encourage any type of action because it would already be done.

The second thing (is) I think there are some serious constitutional questions as to whether or not that would work. What we do know is that there will be a series of legal actions, the legislative actions, that it will be a very confrontational and divisive approach and I think that—and this is one of my themes—we have to bring Alaskans together to support a project that is in the best interest of Alaska.

News-Miner: Gov. Murkowski says that the contract has to be passed before the election because of the reserves tax and because of the threat of LNG imports is overwhelming. Are those good reasons for the Legislature to pass the contract before the election?

Knowles: I think that there is a long-term competition from additional LNG facilities in the Lower 48 to make the development of Alaska gas a lot more difficult, but it hasn't happened yet. There are still only four facilities in America that can take LNG. They're pretty well maxed out and the permitting process for that is extensive and long lasting, and to the best of my knowledge there aren't any that have been approved at this point... I mean it's not a question of [in] the next three months, if we don't pass this all of a sudden these LNG facilities are going to spring up. But I think there is a concern over time, and the approach that I'm taking to it is that we're on dead center right now. This project is not moving and I want to get it moving, and that's where I'm proposing that if we can get Alaskans unified behind an approach that is acceptable that exerts our state's sovereignty to a maximum degree to work with not just industry but all other parties to get the project moving that is economic we can meet that issue. In terms of the reserves tax I don't think that's a reason to pass a bad contract.

News-Miner: Something else that people want so see moving is the Healy Clean Coal Project. What would you do to get that plant running again?

Knowles: I forget how many millions of dollars were placed into it and I think it turned out, as a matter of fact we cut some ribbons on Healy. I mean we did a great job, eight of us were involved in it at our direction. I thought the project was great when I left. It opened up. It was working. Everybody was fine. What happened?...

What happened is I left and things got screwed up since I left office, oh man.

[I]t was a heck of a project. We had a labor agreement just like the one we will need to have on the gas line. So, yes, I'd look into seeing what we could do to clean it up.

News-Miner: Let's go on to the budget. The governor's current budget, passed by the Legislature, was come under criticism for its size. A lot of folks say it's not sustainable at that growth rate, so what are your thoughts on that and what sort of budgets might we see from you?

Knowles: And this is where I'd like to put the budget issue into the context of certainly why I'm running for office and what I think Alaskans would want to look for out of the 50-year plus effect the decisions we're going to make in these next few years are going to have. 'Cause I'm pushing the gas line and also a fair share of oil taxes. We are going to have potentially years, numerous years, of substantial surpluses... [I]t's certainly a warning from this last year's budget how what seemed to be a surplus, a lot of it just kind of went up in smoke. There are some valid reasons why there were a number of expenditures that helped do that, but at the end of the day people say "What happened to it?" And that's why we do need fiscal discipline. I'd submit that I have a background and went through a lot of fiscal discipline. And we had to live with the price of oil somewhere $9 a barrel and $20 a barrel and the Legislature and I, we did argue over how much to cut the budget, but the fact is for eight steady years we cut the budget. We were the only state in America to cut its budget during that time.

News-Miner: Would legislators from that time say the budgets were cut because of the Legislature? What were your budget proposals?

Knowles: Yes, it was always a cut. It was just a question of how much. And I'd like to think also because this is when government works its best, with checks and balances, that we made some substantial gains in areas. We did increase education and we certainly increased construction. We had Denali Kid Care, which I think is a very significant and important health care coverage program, and we still maintained eight years of steady growth.

[I]f we had the fiscal discipline to save... we can invest in the area that I think has not been adequately addressed—and that's education. And we should invest in education in two ways. First, we should fully fund the constitutional responsibility we have on K through 12.

News-Miner: Now what does that mean? They're funding education now.

Knowles: Well you're exactly right, and when they're funding education now there is a foundation formula. A foundation formula is driven sometimes... by the numbers, how much one region can get or one district can get as opposed to another. You have a set amount and you try to divide up the pie, and that's where there are accusations of "Well, you're over-representing your special needs students" or transportation costs... it's kind of a lottery system. I think we need a reform of our foundation formula to where our educators can sit back and say, regardless of how much is put in or not put in by the local districts, what is it that we need, what level do we need to fund education...

News-Miner: Some of your critics might say that spending more money doesn't necessarily equate to better education.

Knowles: Exactly. And people say that, but they say we just don't want to throw money to it. A lot of times that's said because people don't want to put any money into it. What I'd say is that we need both. We need to have both education reform in the classroom, as well as the resources to get the job done. Let me go to my other part about what to do with these surpluses. If we have a surplus that is, which I say would be considerable and could be anywhere between $2 billion and $4 billion a year after the gas line, which is 10 to 12 years out, we should start and I'll call it a trust fund... [And] you would take the earnings of this fund and would apply it to broaden the definition of education. Rather than just K through 12, you would look to the earliest years in children's health, the family's ability to provide, you know, a child's safety and nutrition, early learning problems to make sure they could go to school regularly.

News-Miner: Gov. Murkowski will argue that he has put a substantial amount in to education.

Knowles: That's right, but that's if you're just following the numbers. But if you talk to the educators and how much of that money got down into the classroom, it's not very much...

News-Miner: A couple of budget questions from the municipal view. Should municipalities be required to pay their share of the increased retirement system bill on their own? Or should they get some help from the state?

Knowles: I would not put it on the municipalities and (would) open discussion of the retirement program. I think we went from what was considered by many observers Outside the state of Alaska as the best run and the best public and teacher pension retirement plans. We went from the best to the worst.

You have to look at what the problem is and before you figure out how to fix it. No. 1, what they did by switching from the defined-benefit program to a defined-contribution program (401(k)) program. They did nothing to fix whatever problem they said was there. Nothing is fixed. As a matter of fact, it is more dangerous for the people in the system right now because there's no new people coming into it putting funds into it to keep it financially whole.

News-Miner: So you propose going back?

Knowles: Oh, yeah, absolutely.

News-Miner: And how would we solve the funding shortfall in the systems?

Knowles: There are three reasons it is not fully funded. As I understand the financial term "fully funded" is that if you take a snapshot at any given time of all of the liabilities of people that are working within the system and the retirees and you see if there is enough money to (pay) on all of those current and future claims to judge whether you're at 100 percent or 70 percent or 60 percent. Most funds are not in that sense fully funded because that instance will never happen. You always have new people coming into the system. They continue on in the system before their funds get paid out. While I was governor... our funding problems were a little different. It wasn't whether we were at 100 percent, we were actually at 105 and 107 percent funding. The people who tell you about that are your financial advisers, and what they do is they make estimates on the life expectancy, on what the stock market is doing for how you're investing your funds and what the return on that is and then health care costs—because that is one of the driving forces, variables, of the retirement system.

Well after I left office they... hired a new group that said people are living longer. They did a new model and under their model all of a sudden we were at 70 percent, 75 percent [funding], so there's a liability now of X billion dollars and that's when they said, "Well, this is the reason why we've got to quit because we've got to fund this liability."

News-Miner: So it sounds like you're saying that you don't agree with that new model?

Knowles: Well, I don't know. I'm not a modeler. All I'm saying is that was what happened. Now it's true people are living longer and it is true that health care costs are double digit.

News-Miner: So what would you do about the shortfall?

Knowles: Well about the shortfall: One, you have a period a time. This is not something that you have to fix tomorrow, that somebody is going to give you a bill for $6 billion. [Y]ou have time to make adjustments. You can increase the amount the employees contribute and the amount that the state contributes. You can reduce health care costs, (use) generic drugs. You have a real cutback in that. You can look at different tiering... You can look at a number of ways. And then you can also hope for the stock market to go back up.

News-Miner: Do you have a preferred method though?

Knowles: Well I'm saying that what we need to do is, we should not, and for a number of other important reasons, kick out the very good public retirement and teacher retirement benefit plan, because there's a lot of advantages to having some way to attract good people, attract good teachers.

News-Miner: On another municipal topic: Local governments want some sort of financial aid that is sustainable and predictable. What would you do for them?

Knowles: The first people thrown off the boat after I left office, the ship of state if you will, the first people that were thrown off were the seniors and the kids with Denali Kid Care and then the communities and villages, cutting revenue assistance, revenue municipal assistance. I'd restore all three of those. We had it when oil was $15 a barrel, and we were successful in initiating the Denali Kid Care program. There are now 2,500 kids that don't have it, thanks to the cuts that they did in that. Longevity bonus was a phrase out program. The vast majority of which went to people who are now over 75 years of age by definition and have no ability to supplement a very meager, oftentimes a very meager cash (supply), particularly in rural Alaska.

News-Miner: You would restore the longevity bonus?

Knowles: As the program was when I left office.

And then I would restore municipal assistance and revenue sharing. I think the priorities were all mixed up when the first three groups that were thrown off the ship were those three because where does municipal assistance and revenue sharing go? It goes to two places: The two biggest parts of any community's budget are education and public safety and I would maintain that the single largest tax increase in the history of communities in this state was the year they canceled it, because those education and public safety aren't options. It's whether you're on sales tax or property tax. That's where the pressure went.

News-Miner: The governor has said the longevity bonus was an unfair program because upper-income seniors were getting it. Do you think that the program was unfair?

Knowles: No. No more so than the permanent fund dividend is unfair.

News-Miner: Another municipal question that has come up quite a bit in the last couple of years is the idea of forcing the creation of boroughs. The idea is to have people help pay some of the cost of government. Would you push for that?

Knowles: [I]f you look at the large rural areas—and maybe the Northwest Borough is a great example because it got formed really with the development of the Red Dog Mine and they wanted to be able to capitalize on that tax base to provide local services—I guess the real fundamental is if you can have an economic asset, an economic base, then it makes sense to have local government. But in many of the areas... they just don't have an economic base within which to be able to do that.

News-Miner: So you say that in places where there is an economic base that can support property taxes or some other tax to support schools, for example, then a local government should be formed?

Knowles: Well, we would like to certainly encourage it and to work with [residents] to form a local government, yes. But in terms of jamming it down their throat, that's not something that I (support).

News-Miner: Talk about subsistence for a bit. You had some special sessions of the Legislature on this topic as governor. What do you see happening with that if you are returned to Juneau? Or will Alaska continue to have federal management?

Knowles: I think we should always look for a way to bring management of fish and game under state control. I think that state control of fish and game is important to Alaska and to Alaskans. And I do believe that there is and should be a rural preference for subsistence, and I've always believed that. I don't think that it should be done along racial lines. Alaska Natives get it. I think it should be done in a geographic sense of a preference in times of need, and I would continue to work for that.

News-Miner: What you would do with predator control and what changes, if any, would you make to the lineup of the Board of Game?

Knowles: There are two important principles that I would follow on that. First, science-based management. And I think that that's an obligation we have in the stewardship of our wildlife resources is a science-based management. And I believe that the Board of Game should reflect a balance of interests.

News-Miner: Is the Board of Game unbalanced now?

Knowles: I think so.

News-Miner: Unbalanced in favor of predator control?

Knowles: Yeah. I mean it's not even predator control. I think it has been described by a lot of people in a lot more extreme terms that there's a war on bears and wolves. And I think certainly predator control is appropriate in (some) areas...

[W]e certainly looked at ways in which to encourage the hunting and trapping of predators, and that is a form of predator control. But in terms of the approach to it, and rather than have it done on an emotional anecdotal level, we tried to elevate that with the study of the National Academy of Sciences entitled "Wolves, Bears and their Prey." And I think it gave a very good guideline on if you're going to have predator control what, you need to do and some of the circumstances in which you would do it and some of the things that need to be considered. And that I think was just tossed out the window.

News-Miner: We haven't asked the oil tax question yet. What do you think?

Knowles: In correcting the current impasse on the PPT, etc. I think there is a lot less there than meets the eye. I spent my first two years in office fixing what had been a several decades long battle over royalties and taxes. There was more than $3 billion in disputed taxes on the table and we went in there in a very, I think, sensible, open way of fixing the language in that to where that it was transparent and variable and it is based on production and you got a meter that knows how much you produce. There's a published price for the wellhead value and then you establish a rate and you just multiply it and that's how you come up with your oil taxes. We settled $3 billion worth of taxes. We fixed up what was, I felt, a bias... in inappropriate appeals process, and we settled those and there is no more disputes on the way in which the process that you're using to collect it. So I would continue with that process today...

News-Miner: A number of people in the Fairbanks area want to see the expansion of therapeutic courts—wellness courts—to deal with DUI issue. Do you support an expansion of those?

Knowles: Absolutely. (They) increase the effectiveness of the justice system. To include treatment is something that we unfortunately have dropped off the map because of the cost cuts, and we don't have a drug and alcohol counselor any more in the prisons. They dropped all that out... So, yes, the rehabilitation value of that, I think, is outstanding.

News-Miner: People age 18 to 30 don't vote as regularly as older people, but in a close election they could make the difference. Why should they vote for you? What do you say to them to get them to vote?

Knowles: The reason why I'm running is because I want to build a future taking into account the opportunities that we have now. If we make the right decision, and that is what this election is all about, is the future, and the young voters between 18 and 30 obviously have the most at stake. And do they want to have an education system that will empower them and their kids to not only compete for the jobs but for all the advantages that will give them? The best education system in America? To have the ability of a growing economy fueled by good paying jobs that will keep our stewardship responsibilities to the environment of Alaska? To keep that uniqueness that we do have? We have an obligation to pass on to them and so that's why I believe that this election in some ways is the most important election in their lives... [T]hey have every reason to be the most interested of all the voter groups.

News-Miner: Any particular issues we didn't ask you about that?

Knowles: There are some other big ideas that I am going to bring up during the campaign and during a Knowles administration, and those are health care in a broader sense then has been discussed to date of what we do with 120,000 people that have no health care at all. Every working family ought to have health care. We should... do what we can to have, say, a universal coverage. If you start to think about it, only people that work and their families are the only ones that don't have health care, because if you're very poor you've got Medicare.

News-Miner: So you want universal health care for all Alaskans?

Knowles: I think that we need to address that issue and do what we can as a state and work in the national forums to pursue that, absolutely.

And then finally public safety in communities. We addressed that a little bit with municipal assistance and revenue sharing, but public safety. There is also the partnership that we have with local communities because when those cops go out and arrest somebody, if it's a felony the state system is the one that has to work with it. So we have to be more supportive, I think, in communities that are sharing adequate funding of the court system and they did make I think in this last budget they did make some I think substantial changes in that, which is good.

News-Miner: Are these all things that you can pay for without a gas pipeline but just on the additional oil revenue from the high prices?

Knowles: Oh, absolutely.

News-Miner: So all your programs health care and money for education and so on would come from current financial set up?

Knowles: Uh-huh.