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2014 Economic Outlook for Alaska

ALASKA

With much of the country still working to dig out from underneath an economic recession, Alaska’s economy is strong and growing stronger. Alaska’s private sector is growing, and we’re already seeing increased Alaskan job opportunities in response to the More Alaska Production Act. Companies have been announcing billions in new development plans creating new opportunities and jobs for Alaskans.

We’ve made historic progress on making affordable energy available to Interior Alaska and on a gas pipeline. Between energy and transportation projects, infrastructure development will continue to spur private investment and economic strength.

My administration remains committed to making Alaska a great place to live and work. We’ll continue making smart decisions to bring new money to our state so innovative, hardworking Alaskans can better secure their future and grow Alaska’s economy. Alaskans can grow Alaska’s economy.

—Governor Sean Parnell

 

ALASKA NATIVE CORPORATIONS

At Arctic Slope Regional Corporation, we leave 2013 with a very optimistic outlook. Using our Iñupiaq values as our guide, we have set very aggressive goals for ourselves as a corporation and find ourselves with a very strong balance sheet, which positions us for future sustainable growth. I am encouraged by the passage of Senate Bill 21, which has created a new sense of optimism and investment climate for not only North Slope oil producers but also their partners, and strongly believe this new tax structure is a giant step toward reversing the decline in North Slope oil production. As we head into 2014, look for ASRC to play a role in outlining the long-term benefits to Alaskans by keeping SB21 in place.

—Rex Rock, Sr., President and CEO, Arctic Slope Regional Corporation

 

For the first half of Fiscal Year 2014, I see many positive developments on the horizon. Bristol Bay Native Corporation recently acquired Peak Oilfield Services Company, and we are looking forward to the benefits this acquisition will bring to Bristol Bay Native Corporation, its shareholders, and the state of Alaska. As a whole, Alaska’s economy is faring well and the diversity of work that Native corporations provide helps stimulate the economy while increasing its financial strength for the future.

Overall, real estate investments are looking up. Alaska continues to be a marketplace where creative and disciplined investment opportunities can be found for those willing to put in the work. Bristol Bay Native Corporation looks forward to more to come.

—Jason Metrokin, President and CEO, Bristol Bay Native Corporation

 

Calista Corporation sees some operational opportunities for 2014. We are successfully widening our economic footprint into a variety of industries. We acquired complementary businesses that perform work outside of federal contracting to stabilize our revenues, like Yukon Equipment in 2010 and STG Incorporated in late 2013. These companies provide core support in building Alaska’s economy and infrastructure.

Wind energy projects and other renewable energy efforts are gaining both attention and funding. STG Inc. has in-depth experience in wind projects, having installed approximately 80 percent of all operational utility-scale wind projects in the state. Brice Incorporated recently earned an Excellence in Construction Award for its Eva Creek Wind Farm support.

Rural Alaska faces extreme challenges in energy costs. Because the state and federal governments are responsible to support all its citizens, including rural Alaskans, we expect their strong support for energy projects off the road system.

—Andrew Guy, President and CEO, Calista Corporation

 

Doyon continues to operate positively in the state of our national economy. Doyon’s success is due in large part to our forward-thinking board of directors and the hard work of our thousands of Alaska-based employees. Additionally, recent Doyon seismic and drilling operations in Interior Alaska on state and Doyon lands would not have happened without state oil and gas exploration incentive credits. We applaud the action taken by the Legislature in 2013 to extend certain exploration credits for several additional years. Those incentives will be a major factor in Doyon’s forward planning efforts for underexplored Interior basins.

—Aaron Schutt, President and CEO, Doyon, Limited

 

I am optimistic about Alaska Native Corporation prospects statewide. Alaska Native Corporations have become substantial economic drivers for Alaska, with consolidated revenues approaching $9 billion in 2012. ANCs operate nationally and globally, but are Alaska companies with profits distributed throughout the state. This year is one of exciting transition for Chugach, as we adopt a new organizational structure to expand our portfolio of businesses. We are adapting the company to drive long-term shareholder value and deliver on our mission of profitability, celebration of our heritage, and ownership of our lands. Our federal customers are struggling to regain traction following the recent shutdown and ongoing sequestration. Despite the tough conditions facing our federal business, Chugach is poised for growth. Our financial position is strong and we are looking for quality Alaska businesses who could benefit from a long-term partner because we believe this state will continue to enjoy its long history of steady growth.

—Gabriel Kompkoff, CEO , Chugach Alaska Corporation

 

Sealaska is proud to be a contributor to a healthy Alaska economy, particularly in our home region of Southeast Alaska. Our wholly owned subsidiary Haa Aaní, LLC is an innovation leader for small business development, whether providing access to financing and technical expertise for entrepreneurs or building new relationships to revitalize existing industries. Sealaska’s core Native values continue to guide the company as we seek a large scale acquisition in 2014 that is aligned with our Native identity, ideally in the state of Alaska or the Pacific Northwest. But just as important as economic development is for Alaska, so too is the protection of the rights of our first peoples. Recent legal activity on voting and subsistence rights threaten the health of our communities as greatly as any economic challenges. Sealaska remains committed to strengthening our people, culture, and homelands in 2014 and beyond.

—Chris E. McNeil, Jr., President and CEO, Sealaska

 

ARCHITECTURE & ENGINEERING

The construction industry outlook is for more of the same, with little to any growth. There do not appear to be any new large design projects, at least in the vertical construction portion of the industry. The military and other federal agency work has slowed down, even before sequestration and the furlough. The State Capital Budget is unlikely to be as big as it was last year, which was significantly less than recent years. Municipal and School District work consists primarily of small remodel and system upgrade projects that can be accomplished in a summer’s construction season. Private sector development has a few new retail facilities but the work in this area is mainly remodels and additions.

—Colin Maynard, PE, BBFM

 

ARCTIC POLICY

Having just seen visiting delegations from Norway and Iceland in Alaska in late 2013, the state continues to expand its activity in the Arctic. The Alaska Arctic Policy Commission will deliver its draft report to the Legislature in January 2014, which will provide the impetus for expanded outreach, public comment and education on the State of Alaska’s Arctic.

Alaska’s Arctic regions—the Aleutians, Bering Strait, Northwest Arctic and North Slope—are all working to evaluate and plan for opportunities, leverage individual strengths, and provide a strong voice for local input into decision making. 2014 will bring renewed attention to the Arctic Deep Draft Port, a trans-shipment port, and other maritime and resource development projects.

The federal implementation plan for the National Strategy for the Arctic Region will have an impact on Alaska’s Arctic, though the extent remains to be seen. Also, the Arctic Council’s Circumpolar Business Forum may soon prove a good venue for northern industry input.

There’s a lot going on around the Arctic, but Alaska is well-positioned to take advantage of best practices, emerging opportunities and the increased attention.

—Nils Andreassen, Executive Director, Institute of the North

 

BANKING & FINANCE

Alaska’s stable economy, healthy housing market, and responsible lending practices have resulted in flat to moderate growth for Alaska banks in 2013. While we continue to face regulatory headwinds with implementation of the Dodd-Frank Act, Alaska’s banks are well positioned to fuel Alaska’s economy in 2014 and beyond by making every good loan we can to businesses and consumers. The Alaska Bankers Association is optimistic about Alaska’s future with the potential for increased oil and gas exploration and production activity on the horizon. The ABA supports SB 21 as a means to grow Alaska’s economy over the long term.

—Joe Everhart, President, Wells Fargo Alaska Region, Chairman, Alaska Bankers Association

 

CONGRESSIONAL DELEGATION

As Alaska continues to make substantial progress in developing our natural resources, I am optimistic that our state’s economic outlook will continue to grow in the coming year. Billions in new investments on our North Slope will once again boost one of our state’s economic lifelines and fill the Trans-Alaska Pipeline to capacity. This means more jobs, higher pay, and a brighter future. Other opportunities present themselves through my work to further limit the federal government’s overbearing and harsh regulations on Alaska businesses and industries. If this year’s successes—our record-setting commercial fishing season, above average tourism numbers, and the announcements of future research and development projects—are any reflection of the future, I’m positive 2014 will be successful.

—Don Young, US Representative

 

Alaska has fared better than the rest of the country during the downturn, and the Alaskan economy continues to show signs of relative strength. Currently the unemployment rate in Alaska is 6.5 percent compared to 7.3 percent for the rest of the country. Last year, according to NOAA, Alaska accounted for 5.3 billion pounds, or $1.7 billion worth of fish, leading the nation in both categories. And just recently, Shell announced plans to resume Arctic drilling this summer. All of this is welcome news. There’s still much more to do, though. We’ll need critical investment in transportation infrastructure, particularly ports and roads, to ensure capacity to move Alaska exports. And we’ll need continued investment in career and technical education to ensure the next generation of workers is prepared to participate fully in the Alaska economy.

—Mark Begich, US Senator

 

The coming year holds a great deal of promise for the state. Besides the hope of continued movement on a gas line project for Southcentral, construction will begin on the first oil field in the National Petroleum Reserve-Alaska, CD-5, which should be in production in 2015. We can expect further progress on finding and producing new gas resources on the Kenai, and Shell is planning to return to the Chukchi to continue oil exploration this summer. The next year will also have new challenges for coal and mineral development, but I’m hopeful we’ll see Fort Knox’s access to minerals expanded, movement on an extension of the Greens Creek Mine in Southeast, and progress on rare earth element development at Bokan Mountain. Add to that the fact that we just had a record-breaking commercial salmon season, and there is much to be optimistic about for our Alaskan economic outlook next year and beyond.

—Lisa Murkowski, US Senator

 

CONSTRUCTION

I’m relatively optimistic. A renewed confidence in Alaska’s economy, including the political leadership and pent-up demand, are spurring some aggressive levels of private investment. This investment is on the Slope, in mineral properties around the State, and especially visible Anchorage and Fairbanks. Projects from the generous capital budgets and bond issues of the recent past will contribute to this activity. The Civil construction sector will continue to be robust, as DOT advances a number of projects, and addresses a longstanding backlog.

This year will see a recovery in defense spending from last year’s low, including Missile Defense at Fort Greely. The market continues to be very competitive in all sectors, and owners are taking advantage of good prices.

—John MacKinnon, Executive Director, Associated General Contractors of Alaska

 

In fiscal year 2014, we expect to execute 378 projects valued at $526.4 million. Much of this workload is attributed to seven Army projects worth $103 million that will provide infrastructure for the Aviation Task Force at Fort Wainwright. An emphasis on missile defense will result in construction of eight projects valued at $90 million at Fort Greely. Under civil works, $23 million in operations and maintenance at ten sites will make up more than half of the program’s budget. Meanwhile, environmental work remains steady with two hundred projects at $115 million. Of that total, the Formerly Used Defense Sites program will address more than fifty properties with $65.4 million. Lastly, we plan to build 107 projects worth $170 million on behalf of US Pacific Command and other United States agencies in Asia, while providing vital facilities to support humanitarian assistance and the Indian Air Force’s newly-acquired C-17 aircraft via the Department of Defense Foreign Military Sales Program.

—Col. Christopher D. Lestochi, Commander, US Army Corps of Engineers, Alaska District

 

EMPLOYMENT

Job growth in 2013 was less robust than 2012, suggesting that Alaska’s economy is already feeling the effects of pinched government spending. Modest private sector growth coupled with public sector job losses indicate that 2014’s employment level will be flat with possibilities of decline depending on the severity of cuts across all levels of government. Federal spending is an important economic driver in Alaska, and reductions will likely impact both goods-producing and service-providing industries. Dynamic markets for Alaska’s natural resources generate uncertainty about employment growth in the state’s extractive industries. Health care and social services job growth will likely continue, particularly because of Alaska’s aging population.

—Caroline Schultz, Economist, Alaska Department of Labor, Research & Analysis Section

 

ENERGY

Positive developments on the horizon for the energy sector include continued investment in new, energy-efficient and clean generation. The old equipment has served Alaskans for many decades. Replacement now provides safe and reliable service for years to come. New technology also helps clean the air and conserve precious gas resources in the Cook Inlet. Altogether, Railbelt utilities will have invested about $1 billion. Within the past year, four utilities have built three new plants. This spring, Municipal Light and Power will begin to build what will be one of the world’s most energy efficient plants in Anchorage. As a state, we’re also moving along the edge of technology to help integrate variable fuel sources, such as wind, into the electric grid with battery and fly-wheel technology. And, we’re moving forward with strengthening our interconnectedness through transmission system upgrades.

—James M. Posey, General Manager Municipal Light and Power

 

Efforts by residential and commercial consumers to reduce energy use and cost through efficiency measures will increase. Given the new reality of lower state revenues, the state itself will also begin to look seriously at breaking down the Alaska mind-set that prefers grants to loans so that state public buildings begin to utilize loans to finance efficiency retrofits.

In the Railbelt, the utilities’ lack of natural gas contracts beyond 2019 will drive efforts to build more renewable energy projects that hedge against the uncertainty and volatility surrounding gas. Pressure from private sector power producers who wish to build projects across the state and sell the electricity to local utilities will likely increase. Finally, more and more people will come to see affordable heating as the biggest energy issue in the state, particularly in rural Alaska.

—Chris Rose, Executive Director, Renewable Energy Alaska Project

 

ECONOMIC DEVELOPMENT

The outlook for Anchorage is steady, modest growth for the next few years. Positives include very low unemployment (4.8 percent through August 2013), good private sector job growth (1,900 year to date through August of 2013), solid building permit growth ($541 million year to date through October 2013), a strong 2013 summer tourism season, steady air cargo volumes (top 5 highest volumes globally) and strong average annual wages ($52,740, up 2.5% in 2012).

Headwinds that can or will inhibit growth in the future include growing housing costs for both single family and rentals (21st highest cost nationally), extremely high health care costs (4th highest cost nationally), and most importantly, the rapid decline of North Slope oil production (-184,100 barrels per day, FY2008 to FY2013).

Professional and business services, health care, oil and gas, construction and manufacturing continue to be solid performing employment sectors. The only sector seeing significant declines is government, down eight hundred jobs as of August 2013. Government losses are split evenly between local education and federal employment.

—Bill Popp, President & CEO, AEDC

 

HIGHER EDUCATION—ALASKA ECONOMY

The underlying value proposition of higher education in Alaska will persist in 2014. Access and affordability will remain guiding principles. State funding of higher education is expected to hold flat at best. Revenue and enrollment growths are expected to be muted. Changes to federal student aid programs and research funding are expected. Strong governance and management leadership will be needed to navigate this period of intensified change and challenge in higher education.

Let me now turn to the economic forecast for Alaska. The recovery of the United States economy from the Great Recession will continue and broaden across the sectors of the economy. GDP growth is expected to accelerate. Employment growth is expected to be modest. The stock market, represented by the Dow Jones Industrial Average, will chart an upward path. The Alaska economy will remain susceptible, however, to shocks from political uncertainties, soft oil prices, and international market anxieties. Interest rates will rise, the question is when and how we all see a longer-rate increase. This will mean that the cost of debt will rise too.

In light of volatility in the economy and politics, it becomes all the more imperative that Alaska should diversity its revenues. I have mentioned this need to diversify revenues via monetizing assets, attracting top human capital and businesses to the state, etc. in a number of my recent articles. There will be pressure on overall state revenues which, in turn, will translate into restrained spending.

—Dr. Ashok K. Roy, VP Finance & Admin/CFO, University of Alaska System

 

FISHING

Alaska’s 2013 commercial salmon harvest was estimated at $691.1 million, a 20 percent increase over 2012, and the second most valuable harvest on record. Total statewide harvest volume was the highest on record. Southeast harvest values hit $219 million; higher than any other region. Pinks were major contributors to high revenues in Southeast and Prince William Sound, while high prices aided the mediocre sockeye run in Bristol Bay.

The halibut fishery closed on November 7, 2013, leaving 5 percent of total quota unharvested. Fishing was reported to be slow in areas around Kodiak, but very good in the Southeast.

Politics may threaten the future of Southcentral Alaska’s salmon industry—a ballot initiative to ban commercial set-net fisheries in urban areas is gaining momentum.

In spite of the federal government shutdown, Alaska’s Bering Sea red king crab fishery appears on track to harvest its quota in time for the holiday season.

—Marcus Hartley, Vice President and Senior Economist, Northern Economics

 

MINING

Despite the softening commodities prices experienced by the mining industry in 2013 and the generally bearish market sentiment that came along with it, I have seen a refreshing resurgence of optimism that always presages the beginning of the end of a down-cycle for the mining industry. Despite bankruptcies, mine closures, negative feasibility studies and the exodus from Alaska of companies large and small, all of which occurred over the last ten months, the unmistakable signs of a 2014 resurgence are at hand. Having personally experienced five of these down cycles, I have learned to pay attention to those small changes that come before the markets turn, including increased web site traffic, an increase in risk-capital stock transactions, flat or rising stock prices, a decrease in the number of large company write-downs, and an increase in the number of companies looking at new acquisition opportunities, the “tire kickers” who feel the markets have bottomed and now is the time to invest.

—Curt Freeman, President, Avalon Development Corp.

 

NONPROFIT CORPORATIONS

The forecast for charitable nonprofits in Alaska will be mixed in 2014. Individual charitable giving should continue to increase due to more nonprofits using best practices to identify, cultivate, approach, solicit and steward donors. Efforts like Pick.Click.Give. have increased the level of awareness of the public on ways to contribute to their favorite charity. With investments growing, foundation giving will increase as should contributions from businesses. However, since many charitable nonprofits rely significantly on government grants and contracts, many will be challenged to adapt to a reduction in federal and state funding. After five decades of growth, the number of nonprofits in Alaska will decline. Most of the decline is a result of organizations with no employees and budgets under $50,000 going out of business. However, due to the volatility of government funding, some larger organizations may also be forced to close.

—Dennis McMillan, President and CEO The Foraker Group

 

TRANSPORTATION

We see clear indications of increased activity in the oil patch and are encouraged by this sign. Scheduled state construction activities are up from last year. Other freight indicators look good yet we remain cautiously optimistic for 2014.

—Aves Thompson, Executive Director, Alaska Trucking Association

 

 

OIL & GAS

Alaska’s economic future looks more promising than just one year ago. Last year, my members were concerned about continued high taxes on the oil and gas industry in Alaska, and the crippling effect they had on attracting new capital investment to the state’s oil patch, which arguably acts as the lifeblood of Alaska’s economy.

This year, with new oil tax reform passed this session, I am happy to say that companies have announced billions of NEW investment into our North Slope fields. Competitive regimes do work. Over the last year, production in Cook Inlet has increased by over 30 percent thanks in large part to the additional incentives added a few years ago. It truly is an exciting time in the industry.

Unfortunately, the cloud hanging over this good news is the referendum (Ballot Measure 1) on tax reform that will appear on the August 2014 ballot. If repealed, Alaska will return to the old, failed tax regime that did nothing to stop the rate of decline in the Trans Alaska Oil Pipeline. That’s why I urge all Alaskans to vote NO on 1 on August 19.

—Kara Moriarty, Executive Director, Alaska Oil and Gas Association

 

TOURISM

The Alaska tourism industry is one of the top three private industry employers in the state. Annually, over 1.8 million visitors come to Alaska, spending $3.72 billion dollars on visitor activities, transportation and related expenses.

We expect continued positive growth in visitor numbers and economic benefit nationally and in Alaska. Tourism is a bright spot in our national economy as it sees faster employment rates and growth compared to other industries. The travel industry has generated direct travel employment of 7.7 million. Last year, the travel industry posted a record $50 billion in trade surplus, larger than those generated by other industry sectors.

Projections for Alaska’s travel industry is also positive as we benefit from public and private investments including $16 million from the State of Alaska to support a successful tourism marketing campaign, growth in domestic travel and international arrivals, new and expanded air service and cruise ship berths.

—Sarah Leonard, President and COO, Alaska Travel Industry Association

This first appeared in the January 2014 print edition of Alaska Business Monthly magazine.

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