Poised for profits at end of the road?

Pioneer road leads to property owned by state's top highway official

Posted: Wednesday, December 13, 2006

Even though he has officially stepped out of the decision process, Alaska's top transportation official is positioned for profit from land at the end of a controversial access road leading north from Juneau.

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The 23-mile, gravel "pioneer" road, a preliminary step toward building a highway connecting the capital with the rest of Alaska, would be built with $45 million in state money. The road also would stop at John MacKinnon's family property, which holds a potential gold mine leased to the Kensington Mine near Berners Bay.

MacKinnon, acting commissioner of the Department of Transportation and Public Facilities, said he has taken all appropriate measures to avoid a conflict of interest.

"The first thing I did was try to eliminate any of those potential conflicts," MacKinnon said. "It is best to know where the edge of the cliff is."

MacKinnon has attended only informational meetings about the road, he and transportation officials said.

"That is what the law requires, and that is what common sense requires, but it is just not enough," Juneau attorney Joe Geldhof said. "What any sensible person should have done was stay completely out of the meetings and deliberations on that issue."

The link

Since February 2003, MacKinnon has served as a deputy commissioner for the department. He has applied for a full-time appointment under new Gov. Sarah Palin.

The department is pushing hard to build the 18-foot-wide pioneer road, which would begin at Cascade Point and end at another road that serves the both the Kensington Mine and Hyak Mining Co., a MacKinnon family business.

According to public records, John's elder brother, Neil Mac- Kinnon, is president, treasurer, director and primary shareholder of Hyak, which owns the property near Berners Bay.

Neil MacKinnon owns a 28 percent interest in Hyak. John MacKinnon owns 21.5 percent. Others listed as shareholders or officers are Carol MacKinnon of Woodland, Calif., Kathleen (MacKinnon) Sund of Seattle; Jane MacKinnon of Juneau; John Sund of Seattle; and Sam Smith of Juneau.

John MacKinnon asked the attorney general's Ethics Law Department more than three years ago whether he had taken the necessary steps to avoid a conflict. A response dated April 9, 2004, said he had.

The letter noted that "development of Hyak mining properties would financially benefit the company and its shareholders."

The pioneer road also would lead to the Kensington Mine, which is being readied to open in 2007. Kensington's parent company, Coeur Alaska, is leasing the MacKinnons' Jualin Mine property. The two sites will be connected by a tunnel that's under construction.

The profit

Hyak appears to have a bright future. In August 2005, company officials signed a $3 million deal with Coeur Alaska to lease the Jualin property for a mill site and an exploratory drilling program, according to a filing with the Securities and Exchange Commission.

Coeur will pay Hyak an annual $231,000, adjusted for inflation. The lease has a 15-year term with an option to renew as long as Kensington is profitable, according to the SEC filing. On Aug. 5, 2009, Coeur could extend the agreement until 2035 for an additional $3 million.

The lease requires Coeur Alaska to drill on the Jualin property, Neil MacKinnon said. If gold is discovered, Hyak receives an undisclosed portion of the profits.

"Only time will prove whether one property is better than the other in terms of gold," said Neil MacKinnon. "I think historically, the Jualin is the better property. Better grade, smaller veins. Grade is king when it comes to gold."

Transportation officials have said the pioneer road will be closed to public use. Nevertheless, former Gov. Frank Murkowski said during his final days in office that building the road was important to the Kensington Mine and would benefit the Juneau economy. He suggested that mine employees could use it to get to work.

Kensington officials have refused to comment on whether the road would be preferable to the current plan of ferrying and flying in supplies and crews.

"We prefer not to comment on speculative questions about what the road could mean or might mean for us," company spokesman Scott Lamb said. Officials have consistently said that their transportation plan does not require a road.

While Neil MacKinnon supports the main Juneau Access Road project and is the treasurer of a pro-road group, First Things First, he said he sees the pioneer road as a burden.

"I am a supporter of the road from a Juneau access point of view," he said. "From a mine access point of view, I see the road as a negative. Once we connect to the road system I see our (property) taxes go up 50 percent."

He said that the property is secluded, and "that weeds out about 90 percent of the possible people who would go out there. ... It cuts down on vandalism, trespassing and insurance worries."

The family history

The MacKinnon brothers founded Hyak in 1980, and within weeks of being appointed deputy commissioner, John resigned from any decision-making posts at the company.

"I have not been up there for a long time. I can't remember when I was up there last," he said.

"We put up a Chinese wall, and all I do is give him his report at the end of the year," said Neil MacKinnon. "He's always second-guessing me anyway and I'd just as soon as him not telling me what to do."

Besides his share in his family mining industry, John MacKinnon's income comes from commercial rental properties in Juneau, according to his financial disclosure statement to the Alaska Public Offices Commission.

His career has included several stints as a public official, and he worked several years as a building contractor. He is a former Juneau city manager and served multiple terms on the Juneau Assembly and Planning Commission.

"I have been in public office appointed and elected for years. I know what some of those boundaries are," John MacKinnon said.

"It isn't worth it to even try and play any games. We don't need to," Neil MacKinnon said. "Besides, his reputation is worth more than any nickel he could ever make."

Ethical conflict

While some states require that public officials avoid any appearance of a conflict of interest, Alaska law requires them only to avoid actual conflict, said state ethics attorney Judy Bockmon.

"In the general sense, it is always the responsibility of the public employee to identify actual or potential conflict of interests," she said. "There has to be an actual conflict, not just an appearance for there to be a violation."

That's not good enough for opponents of the road project or those skeptical of the way public business is done in Alaska.

"I would tell you that any appearance of impropriety further clouds this decision that has been made to flout the rules and move forward with the pioneer road," said Mike LeVine, an attorney with Earthjustice.

While John MacKinnon may not have broken any laws, public officials in Juneau all too often try to get by with just the minimum standards of ethics, Geldhof said.

"Only adhering to the lowest popular standard doesn't make it OK," he said. "That is not what the public really should expect or what they should receive."

Advocates of the overall road project take a more lenient view.

"The DOT's charge is statewide," said Rich Poor, a former transportation official and Juneau Access Road advocate. "As long as he stays away from the decision-making, I think that is OK. He shouldn't quit his job just because of that. There are thousands of projects around the state that he doesn't have a personal stake in."

John MacKinnon has a right to sit in on information-only meetings, Poor said. The MacKinnons' property and prominence act as a natural check, he said.

"Everybody is aware of it," Poor said. "That makes it easy to make sure no hanky-panky is taking place."

• Brittany Retherford can be reached at brittany.retherford@juneauempire.com.



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