ECONOMY: 2013 Economic Outlook
Alaska’s budget position is solid. We have a Triple AAA bond rating, more than $16 billion in budget reserves, and nearly $43 billion in the Permanent Fund. With plans for paying down our unfunded liabilities, and having been named the sixth best-run state in the nation, we will remain solid because we are committed to being a responsible and responsive state.
As we prepared the budget for Fiscal Year 2014, we had to face the facts: oil production is down, and oil prices too, have decreased. That profoundly impacts Alaska’s revenue. For Fiscal Year 2014, I have proposed a budget fully $1.1 billion dollars leaner than the current year.
—Governor Sean Parnell
Increasing change and activity in the Arctic has resulted in added emphasis on and attention to northern issues. Alaska is in a key, strategic position to respond and take a leadership role in next steps and future development. 2013 will see the first meetings of the Alaska Arctic Policy Commission, the beginning of the Canadian Chair of the Arctic Council, and continued participation in the Pacific Northwest Economic Region Arctic Caucus. We can expect to see progress made on an International Maritime Organization Polar Code and the signing of the Arctic Marine Oil Pollution Preparedness and Response Instrument. All of this means that Alaskans must work to fully understand Arctic issues, challenges and opportunity.
Executive Director, Institute of the North
While there are positive economic signs—such as an unemployment rate on the decline and increased housing starts—I am still concerned about the direction of the American economy. The Obama Administration continues to impose burdensome and excessive regulations that will hamper development, kill resource production, and ultimately make it more difficult for Americans to start businesses. These regulations are yet another ‘fiscal cliff’ for this country.
—U.S. Rep. Don Young
I’m very optimistic going into 2013. I expect Shell Alaska’s offshore development to move forward, which represents jobs and opportunity for Alaskans in the region and in our cities. I’m working with federal regulators and permitting agencies to make sure good projects like this get developed. Our mining industry is also strong. The tourism sector continues its steady growth year-over-year and Alaska has the best fishing industry in the world. Alaska has one of the lowest unemployment rates in the country and we need to make sure we keep the state’s business climate friendly to development of all kinds.
—U.S. Sen. Mark Begich
Alaska has some big opportunities on the horizon. Shell will return to the Arctic this coming summer to finish the two wells it started in the Chukchi and Beaufort seas. If Shell is successful in finding oil, it will bring major economic benefits to the state in the form of employment, a new source of oil for TAPS, and hundreds of millions of dollars in investment. As for our fisheries, we look forward to improved research that will make our waters not only more plentiful for our people, but a more robust economic engine and provider for the nation.
—U.S. Sen. Lisa Murkowski
Alaska’s stable state economy, healthy housing market and responsible lending practices helped Alaska bank deposits grow by $800 million from 2011 to 2012, home loans exceeded $1.5 billion for all mortgage companies in Alaska, and Wells Fargo provided a record $500 million in loans to Alaskan businesses. As the economy recovers, we anticipate that demand for loans will increase, especially with interest rates at record lows. Looking ahead, the industry will continue to improve the customer experience with innovative services such as check deposits via mobile device.
—Joe Everhart, Alaska Region President, Wells Fargo Bank
There will be a substantial decline in Defense spending for 2013 that is partially mitigated by state bonds and capital spending for the building sector. Civil construction sector continues to be healthy. All sectors of construction are highly competitive and contractors’ margins are thin. Smart project owners see this as an opportunity and are advancing their construction projects to take advantage of the competitive market.
—John MacKinnon, Executive Director
Associated General Contractors of Alaska
Construction: Military and Civil Works
The Alaska District’s program is rapidly changing with a declining military workload, evolving civil works mission, continuing environmental program, and growing but volatile opportunity for providing services overseas. After a decade of work valued at close to $500 million, fueled mainly by military construction, the district is returning to previous levels of approximately $300 million per year, or less. With a national policy of no new starts in civil works, the district is reshaping its workload toward assisting other federal, state and local governments with their projects, while building support for the U.S. Pacific Command in Asia where the district currently is working on a $150 million project to design and construct infrastructure facilities for the Indian Air Force’s C-17 aircraft bed-down at Hindan Air Force Station near New Delhi.
—Col. Christopher D. Lestochi, Commander
Alaska District, U.S. Army Corps of Engineers
We expect to harvest a total of about 180 million board feet from State, federal and private lands in 2013. The State forests will provide about 17 million board feet, the federal lands another 55 million board feet and the rest from private timberlands. This is about the same as 2012, but we expect the timber harvesting to increase over time as the Governor’s Timber Task Force recommendations are implemented and begin to take effect.
—Owen Graham, Executive Director, Alaska Forest Association
We forecast 2013 to be another solid year for Alaska’s international trade economy, with exports to overseas markets in the $4.5 to $4.7 billion range. Not a record year, but still at historically high levels. Alaska continues to benefit from the Three Rights: the Right Place with our geographic proximity to fast growing emerging markets in Asia-Pacific; the Right Time in History as hundreds of millions of people move up economically and join the middle class; and, with us being blessed with the Right Commodities for export, an abundance of vital natural resources that are the building blocks of economic expansion and modernization.
—Greg Wolf, Executive Director, World Trade Center Alaska
Consultant, U.S. Department of Commerce
I have polled a number of our members and we are cautiously optimistic subject to passing legislation this session with meaningful tax reform that reverses the decline in oil production.
Executive Director, Alaska Trucking Association
I expect clean energy development in both renewable generation and energy efficiency to grow in 2013, with an emphasis on heating solutions. As diesel fuel prices remain high or even increase, there will be continued renewable energy activity in non-hydro rural areas of the state, with dozens of wind, biomass and heat recovery projects supported by the Alaska Renewable Energy Grant Fund in the planning, design or construction phases.
In the Railbelt, increasing natural gas prices will drive demand to increase the size of the Fire Island wind farm, explore for geothermal resources near Mount Spurr and study large hydro options, all of which could provide stably priced electricity.
There will also be continued strong demand to cut energy costs through energy efficiency, using the state’s popular weatherization and rebate programs and other financing mechanisms to make buildings more efficient.
—Chris Rose, Executive Director, Renewable Energy Alaska Project
For Anchorage, the indicators continue to lean positive. Unemployment rates should continue at near record lows while overall employment should continue to see steady growth. Professional services, retail, construction, tourism, health care, transportation, oil and gas should continue to see growth in jobs while state, local and federal government employment will likely remain flat or decline in the coming year.
—Bill Popp, President and CEO
Anchorage Economic Development Corp.
The economic outlook in Juneau is positive. Government jobs look to remain steady while we see growth in the private sector. In 2013, we look for continued improvement in mining and mining support services. Tourism will benefit as cruise passenger arrivals continue to rebound after recent declines. The seafood industry will continue as an important contributor to our economy, as more value-added opportunities are captured by local firms. Population in Juneau is growing again, which provides additional opportunities for entrepreneurs to pick up on increased demand for services.
—Brian Holst, Executive Director, Juneau Economic Development Council
We’re coming off gains in 2012, and with expectations that both domestic and international visitation will be up, the outlook for 2013 is positive as well. Cruise capacity in Alaska is expected to increase in 2013. We will have new flights from Icelandair, JetBlue and Alaska Airlines adding to robust returning service. It will be even easier to visit Anchorage specifically and Alaska as a whole.
—Julie Saupe, President and CEO
Assuming that the U.S. economy does not take a downward trend and is fairly stable or slightly improving, which will allow for consumers to continue making discretionary spending, I estimate the total visitors will increase from the summer of 2012. My estimate for next year’s summer travel season is that actual numbers we will be up about somewhere in the vicinity of 4 percent to 5 percent from a total in 2012 of 1,586,600 visitors to about 1,650,000 visitors in the summer season of 2013. In my estimation, the two main reasons for the growth will be because of: 1) a strong tourism marketing budget by the State of Alaska which continues to raise the awareness and interest in Alaska as a destination, and 2) the additional cruise ships coming to Alaska because of the reduced tax burden on the industry.
—Ron Peck, President and COO, Alaska Travel Industry Association
The Alaska Department of Labor and Workforce Development had no comment on the 2013 economic outlook for Alaska except 2013 jobs forecast numbers were unavailable at press time in mid-December.
Oil & Gas
The harsh reality is this: Alaska continues its accelerated decline in oil production, currently about 6 to 8 percent per year—or about 40,000 barrels per day. The newer fields are producing about half that amount, so while important, they are not making up the current rate of decline. And, even though exploration is expected to occur this year on the North Slope, this exploration does not guarantee production.
Whatever the respective oil and gas companies decide to invest in the future, we need to be laser-focused on what those investments will do to oil production in the short term because, as has been well-established, Alaska needs production from fields currently under development or evaluation, or our production could dip below 300,000 bpd in just 10 short years. With the oil and gas industry providing almost 90 percent of our state spending, Alaska needs to implement a tax policy that encourages not only exploration, but also production from all fields, especially existing fields as those fields will provide more oil sooner rather than later. We look forward to the 2013 legislative session, and encourage lawmakers to craft a new tax policy for Alaska to allow for the maximum long-term development of our natural resources.
Executive Director, AOGA
2013 promises to be an exciting year for telecommunication users in Alaska. Two significant trends will occur in the wireless and wired Internet segments. In wireless, a national carrier will initiate facilities-based services in major metropolitan areas. This added competition will prove beneficial to consumers as the two major Alaska-based carriers will combine their wireless assets to compete head-on against the national carriers. This new entity will continue to deploy a seamless wireless network across the state with LTE, 4G, 3G and 2G services. In the wired Internet segment, consumers will receive greater access to high-speed broadband services. In rural Alaska, terrestrial connectivity will be extended for the first time to Nome. Kotzebue will receive the same connectivity the following year. In Anchorage, broadband services will get considerably faster, with the roll-out of 50 Mbps services in the Anchorage bowl. Other regions are being evaluated for the super fast Internet connections.
—Ron Duncan, President & CEO, GCI
Alaska Business Monthly salutes these 18 Alaskan leaders for sharing their views on the economy for our annual economic outlook.