Government reform doesn’t just mean booting out the self-serving or criminals. Sometimes, it simply means making government work. Some agencies have very clear mission statements but their performance doesn’t measure up.

Let’s look at the Alaska Industrial Development and Export Authority, AIDEA. John Kelsey ably chaired AIDEA until his recent retirement. John and my mother, Brideen Crawford Milner, a pioneer Alaskan banker, served on the Board of Directors of the Alaska State Development Corporation in the 1960’s. John also chaired the Alaska Permanent Fund. He was an excellent pick to chair AIDEA’s Board. AIDEA has huge potential due to the contribution of the State of Alaska of over one billion dollars.

AIDEA is a commercial lender, developer and houses the Alaska Energy Authority, (AEA should be spun off but that’s another column). AIDEA’s staff of 65 appears to be qualified, motivated and knowledgeable of their mission. The mission of AIDEA is “to promote, develop and advance economic growth and diversification in Alaska by providing various means of financing and investment.”

Why can’t this well funded, well-staffed state agency with an experienced Board of Directors awaken the sleeping giant and kick-start the economy of Alaska?

First, let me disclose that I was a commercial underwriter for AIDEA a decade or so ago. I underwrote the loans for the Rural Development Initiative Fund (RDIF) program that were subsequently transferred to DCED’s Division of Investments. Greg Winegar, Director of that Division indicated that RDIF losses were minimal and the program performs well. I do not recall losing any RDIF loans to default. My old Executive VP at Bank of the North in Fairbanks where I trained as a commercial lender would say we didn’t lend enough if we didn’t have any losses. He was right. Lenders have to take risk with money they manage. If they do not, they kill our economy.

Here are the results of AIDEA’s last ten years’ loan production from their financials:

AIDEA FY New originations Loan Participation portfolio
# Loans $ Loans # Loans $ Loans
2009 11 $26,714,875 239 $340,346,000
2008 18 $48,242,113 260 $356,939,000
2007 30 $56,929,505 277 $360,083,000
2006 33 $63,481,000 271 $335,874,000
2005 40 $69,253,000 268 $304,763,000
2004 46 $80,572,000 260 $272,001,000
2003 46 $61,011,000 242 $215,113,000
2002 34 $41,573,000 241 $196,631,000
2001 14 $9,878,000 229 $188,245,000
2000 20 $33,022,000 243 $205,007,000

Loan volume plummeted from $80 million in 2004, to $26.7 million in 2009, a 67% decline in AIDEA loans. Only 11 loans were written in 2009. That is alarming for the health of our economy.

The banks that are supposed to participate in the AIDEA Loan Participation Program, aren’t participating, lending either their own funds or AIDEA’s. Banks are the only ones who can present loans to AIDEA.

With AIDEA’s program on life support, small businesses are locked out of the capital markets, denied access to AIDEA and to SBA loans. Alaska Growth Capital, owned by Arctic Slope Regional Corporation and Alaska’s #1 SBA lender, is not an allowed AIDEA lender. But, Alaska Growth and others could, if allowed, sell off loans and replenish funds through AIDEA, and materially boost small business and development lending in Alaska.

Only supervised depositories are allowed membership in the exclusive AIDEA club. Removing artificial and political restraints on AIDEA’s lending is the first step toward awakening the sleeping giant. Then, sign up lenders who want to lend.

My old Valdez friend, John Kelsey's successor and the Board of AIDEA have a challenge. The Legislature and the Governor need to help them get it done. Alaska’s economy is at stake. Today, small businesses are paying the price. Projects are going begging for lack of long-term financing and sufficient equity. AIDEA is the billion-dollar agency whose mission is to solve those problems but cannot.

Let’s:

1. Strategically redeploy AIDEA’s tools for economic development.
2. Remove the impediments on lending and reap the economic rewards.
3. Stop talking about economic development and do some.