Lindsay hopson who is here tonight with me. [applause] is also my distinct honor to introduce Lieutenant Governor first lady tony milan. [applause] i stand before you tonight to deliver my third state of the state address. I extend a special welcome to the 15 newlegislators. Thank you for stepping up to serve when the challenging but exciting chapter in the states history. [applause] i look forward to working with all of you, new and returning legislators to help write the next chapter for alaska. And i think my cabinet for your leadership and creativity. Governing requires a team effort and im grateful to have a dedicated and multi talented team. I think you are hardworking state employees, much of what you do is invisible but indispensable to the quality of life many of us take for granted as a state workforce has strong, you are doing more with less. But still state employees donated more than 350,000 to nonprofits last year through the share campaign. [applause] i am proud of your generosity and your service and finally i extend a heartfelt gratitude to all who reached out to me during my cancer diagnosis. In october, during an afm convention i received a call from my urologist informed me that i had been diagnosed with prostate cancer. Following my surgery, i feel incredibly blessed to be a cancer survivor. [applause] eva and i have been blessed by the many wellwishers and prayers from across the state. I am fortunate that my cancer was diagnosed early through a routine screening. I encourage all alaskans to please recommend their screenings. [applause] turning now to the great state of our state tonight, i will discuss our fiscal deficit, highlights of accomplishments andchallenges , introduce a new initiative and share my vision to alaska forward. State revenues are down more than 80 percent from four years ago. During that period we cut the budget 44 percent. But we still face a 3billion fiscal debt. So theres some good news. Last year at this time oil was at 26 a barrel. Today it is double that. You Oil Discoveries have a potential to stem the downturn in production. Last year i told you about our work helping phillips with federal challenges. I received a call last week from the president of conical phillips alaska. I was elated to hear they are finding a new npr a with the potential to increase Oil Production by up to 100,000 barrels a day. Currently Oil Production has dropped 500 barrels a day. Oil prices however are around 50 per barrel. It would take a price of over 100 a barrel for a long period to solve their fiscal problem. Oil would require tripling the flow of oil in the pipelines. That is expected anytime soon. Some say weve been here before. They say we should just wait it out. This philosophy is bound on hopes and dreams not facts and realities. This philosophy has cost us nearly 13 billion of our limited savings over the past year. These are dollars we will never see again. These are dollars we wont generate investment earnings. Earnings that amount to hundreds of millions of dollars each year. We have nearly emptied our statuary Budget Reserve accounts. Next years budget will virtually drain the Budget Reserves. Heres the hard truth. Denial doesnt make the problem go away. Doesnt pay the bills. We need to pass and stabilize our fiscal future and we need to do it now. Taken from the legislatures own financial expert david kiel, last summer he said alaska is in the midst of the greatest fiscal crisis in state history. Mister geo is correct. Alaskans made it clear before they would accept new revenues major budget cuts were needed. My message to alaskans is this. We heard you and we have axes. During my tenure we have got more than 1. 7 billion in unrestricted general fund spending. We have reduced Capital Budget by 80 percent. We are shrinking the footprint of government with shared administrative services, improved technologyand efficiency. We reduced executive branch travel by 41 percent in the last two years. Weve given up leasedspace. Our court system is statewide. Now down on friday at noon. The department of health and social services has been cut by more than 13 percent. One result is that more than 2000 alaskan families will no longer get help to pay their homeowners. Crime rates are too high. Averages have decreased. By the end of this year we will have closed six health centers, three stations, one correctional facility, to detention facilities, multiple job centers and a Fire Training facility. We are selling search and rescue aircraft. We are assessing whether it makes sense to do other state assets. We are making sure that any project is sound before we send money into it. We canceled projects that are too costly to build and too costly to maintain. We are strictly adhering to formula funding for education and tax credits. By this Time Next Year we will have reduced the state workforce by 3000 state employees since i took office. That brings the workforce down to what it was 15 years ago. We are asking more state employees. We have negotiated zero costofliving adjustments and labor agreements. They employees are taking unpaid furlough days and contribute more for health insurance. In short, weve made Great Strides to make government for more efficient and accountable. I am proposing legislation to freeze the salaries of some state employees while we address our fiscal challenges. Better days will come but until then we must make difficult decisions. While it obviously will not close the fiscal gap i believe in leading by example. I have reduced my own salary by one third area the budget is now below 4. 5 billion. The level that some alaskans and budget hawks have identified as a sustainable spending target. The last time our state had a budget of 4. 5 billion was 2007. Adjusted for inflation and population, the fiscal year 2018 budget is the lowest since 2002. Some use per person state spending as a litmus test of reasonableness. That can be misleading when applied to alaska. We are the largest state in the nation. Our population is among the smallest and is most dispersed. That combination creates high cost of providing government services. Additionally our state provides partial or full funding for Many Services such as education and public safety. The local governments fully funded many other states. Sometimes we forget the expense of the magnitude of the last frontier. While minnesota boasts 10,000 lakes, alaska has 3million. Alaska has 242 state owned airports. The next largest number of state owned airport is in oregon with 40. As a comparison, the governor of california recently announced a 1. 6 billion budget deficit. That equates to a deficit of 40 per resident. Here in alaska, we have a 3 billion dollar deficit. And a population of 730,000. That equates to a 4000 per person deficit. We have a significant problem. In a recent town hall meeting in waccamaw, residents were restrained from turnover crime. Many wanted to increase police presence. The head of the Alaska State Troopers did a good job explaining the impact of ongoing budget cuts. We cant continue to cut the budget and expect to improve the situation. Alaskans deserve and are demanding better. Its not just Public Services that suffer. Our economy is at risk. Ways, president of Bp ExplorationResource Development council not solving the fiscal imbalance increases uncertainty and exacerbates the problem. It is time to move forward beyond the transitions and work the problem. I couldnt agree more. Its time to balance the books in a responsible and lasting way. It is time to increase revenue. You have the ability. We have industry that can support modest increases. We are the lowest tax people in the nation. We have outside workers paying taxes to other states on their alaskan earnings. We have a Permanent Fund that rooms enough to pay for a portion of the state services and pay dividends and gratuity if we structure it wisely. As we come closer to draining out readily available state, our economy comes increasingly uncertain. Uncertainty is the greatest threat to economic opportunity. Last year i introduced nine majors that together would impose a gap. Not one of those proposals path, not a single one. Only the Permanent Fund protection act made it out of one chamber. I think the senate for having the courage to approve the bill. [applause] this year i am again proposing Permanent Fund protection act in the form passed the senate last year. I am willing to introduce an increase in the motor fuel tax which is not been raised significantly since president john f. Kennedy was in office. I am no fan of taxes but i am a fan of a fiscal, Stable Foundation for alaska. In 2004, governor jay hammond expressed remorse with the lack of income tax repeal. He believed that had the income tax state in place, alaska would not have to contend they fiscal gap. Hammond also said that in the event of a fiscal gap, pfcs should be used as support Public Services. In this vein i maintain my support for a modest income tax and other revenue bills introduced last year. If all these majors pass , alaska received a pfd each year we would still be the most tax individuals in the nation. Before reintroducing those bills i plan to work with you in this body to chart a path forward. If you dont support the plan i have proposed, put another plan on the table. If you believe we need to cut more, identify your cuts and put them on the table. If you think the solution is a different kind of tax that i have proposed, your tax proposal on the table. Whatever your plan may be, put it out there and lets get to work and find a solution but if your plan does not close fiscalgaps, if you identify the amount of my savings it will take each year to cover the gap under your plan. As a carpenter, i never framed half the house. Or poured half of foundation. If you have a plan, saving alaskans make it a complete plan. [applause] last june, i faced an unprecedented decision as governor. Have the Senate Version of funds legislation passed the house, it would have been reduced to the historical average of approximately 1000. I made one of the hardest decisions of my life when i reduced the dividend payout without legislative action. The balance of the dividend payout was less than reserve accounts and earned income for future payments. I know the Significant Impact that decision had alaskans across the state. If not revealed it was necessary, believe me, i would not have done it. For Historical Perspective you might recall that in 2012 when oil, our primary Revenue Source was 112 a barrel, we received an 878 dividend. In 2013 when oil was 137 a barrel we received a 900 dividend in the last year, when oil average 43 a barrel, alaskans received a 1002 dividend. After making that tough decision, i was approached by a gentleman who had worked in government bill begins administration. He thanked me for making this unpopular but necessary decision. He said governor egan for me very unpopular decision. And governor egan drastically reduced fishing openers in order to rebuild the fisheries. The fisheries and the canneries suffered in the short run and heavy opposition mounted area but eventually the runs began to turn around. In 2015 the catch was 260 million, a tenfold increase from governor egans day. A pivotal reason for this is that egan demonstrated leadership rather than doing what was popular, he did the right thing for the state. No one could have foreseen that oil would drop below 40 a barrel and that alaskans would be hit by the financial crisis we are in. When youre in a crisis you use whatever options available to avoid disaster. I cannot solve alaskas fiscal problem. It will take legislation to solve the problem. Only you have the power to pass legislation. You possess the power and the opportunity to solve our challenges. As i said last year, we were warned of this day. In 1976, governor hammond and carson, we did not change our ways, alaska would arrive at this day of reckoning. He said while the time to pay the piper may be some 20 or 30 years away, if we continue to build a governmentfunded primarily on one resource alone, what a terrible legacy we would leave our children. We must Work Together to advance a responsible plan to close the fiscal gap this year. While the fiscal gap as taking a lot of time and energy, weve made progress and are working to overcome other challenges. Despite the cloud of uncertainty weve seen some positive Economic Developments in this past year. In my administration continue to support and continues to pursue economic diversification. Tourism is thriving with over 2 million visitors to the state last year. The Tourism Industry is working to create a tourism Improvement District to provide marketing funds with less report. I applaud the leadership and initiative. Our fisheries continue to provide a livelihood or thousands of alaskans. Last summer i celebrated the harvest of the 2 million family of the 153 year history of the official bay fishery. The fish was symbolic of the abundance and quality for alaskas subsistence and commercial renewable resource economies and it was delicious. [laughter] in february, i established the task force to develop a shellfish and seaweed industry that is environmentally sound and respectful of traditional uses. A healthy Construction Industry is critical to alaskas economy. This coming season we will see over half 1 billion worth of Construction Projects already awarded. Another half 1 million will likely go to fish this year. While we have reduced state funding of Construction Projects we are working hard to maximize federal dollars to projects. This estimate will employ hundreds of alaskans in the Construction Industry. Our alaskan settlement act corporations are an important economic engine, and corporations provide hundreds of millions of dollars of profits, shareholder dividends to alaskans. These corporations have worldwide operations. Our Fiscal Health would help bring more of their investments back to alaskans. Agriculture has a strong potential to diversify our economy and increase ready for alaskans. Alaska has 43 farmers markets around the state. A threefold increase in 2004. If every alaskan at five dollars a week on alaskan grown products, that would translate to 188 million through the alaskan economy every year. Mining continues to be an important one. We celebrated the 20th anniversary of the fort knox mind which employs 650 alaskans. This is is a great example of local job creation through responsible Resource Development. Our Timber Industry has been in decline mostly due to restrictive federal politics. We negotiated an agreement that allows the state to manage federal timber sales under state authority. This agreement will also offer the full allowable timber harvest in the southeast corridor and will enable and support land exchanges through a diversified ownership course. In the oil patch this year we celebrated the 40th anniversary of the transplant and Pipeline System on the reason for optimism. We saw an increase in Oil Production this past year and have a plan to support increases. Last year led by exxon mobil, oil had the flow from point thompson. Most recent north scope oil and gas sales demonstrated how much resource potential in alaska there is. The department of Natural Resources continue to support armstrong and Hill Corporation as they work to bring their respective new developments online. In 2016 by administration took a new step by nominating both beaufort seas for leasing. We did this to protect the states longterm interest in that region. We have new opportunities with new administrations in dc to stay active to the cultural region of analogue, also known as the 1002 region. This region represents eight percent of the refuge as adjacent to the new infrastructure point thompson. The three quarters empty oil pipeline within 50 miles of the 10 million barrel oil reserve. The Outgoing Administration could see fit to allow offshore drilling, surely the Incoming Administration will see the wisdom of allowing on shore drilling in this region. [applause] we have already restocked for the incoming president on this issue. Finally, consultations for those living in the region, i will advocate to bring this opposition to reality. I was troubled to learn that wyoming has billed 16,000 exploration wells and weve only drilled about 5000 in the north slope since the 1960s. Why are we not doing better . Our drilling and commitment bill is determined in part by the weather due to the necessity of building temporary ice roads. Traditional yearround roads. Why cant we as the owner of the resource build gravel roads as toll roads . Similar to what the state did for the red dog mine in the 1980s and drill yearround. My administration is exploring this opportunity. On the gas line, with the support of our Industry Partners alaska is in the lead on the l kg project. We are actively working to bring Market Participants into the project as partners. We are requesting no new appropriation for the budget. It is not todays gas prices that will bring the market to this project but projected prices of 23 to 2025. This is the market window for the ak lng. Some may remember the price of oil was less than five dollars a barrel when