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$7.7 Billion Construction Forecast

Increased spending expected in 2012

Missing breakfast doesn’t usually upset me. I hardly ever make time for it, except on weekends. However, I was dismayed to discover one morning last month that I’d completely forgotten to attend the early morning annual AGC/CIPF Construction Spending Forecast presentation. I read about the $7.7 billion announcement online. I got the forecast in the mail the next week. I devoured it, reading about all the money that’s hitting the street this year.

Every year for the past nine years, the Construction Industry Progress Fund (CIPF) and the Associated General Contractors of Alaska (AGC) have teamed up to produce “Alaska’s Construction Spending Forecast,” an appraisal of expectations for the coming year. Economists Scott Goldsmith and Mary Killorin of the Institute of Social and Economic Research at the University of Alaska Anchorage compiled and wrote the $7.7 billion forecast of what is to be spent on construction in 2012. The new figure represents a 3 percent increase of about $200 million over last year’s revised estimate. The forecast was underwritten by Northrim Bank.

The biggest spender is, of course, the oil and gas industry. Construction related work in Alaska’s oil patch, the North Slope and Cook Inlet, accounts for 41 percent—a hefty $3.2 billion. The authors cited “regulation, litigation and taxation issues” as factors keeping Point Thomson, Alpine West, Liberty and offshore Chukchi and Beaufort seas projects out of the mix this year. The big three—BP, ConocoPhillips, Exxon—are sustaining, maintaining and developing what they’ve already got and spending less doing it. No exploratory work planned—again.

Drilling and feasibility work is planned by Eni, Pioneer, Linc, Anadarko, Brooks Range Petroleum, Savant, Great Bear, Repsol, the North Slope Borough, and possibly Shell. That’s all up north. In Cook Inlet, where spending is up, the list of companies with planned construction activity includes Furie (formerly Escopeta), Buccaneer, Linc, Nordaq and Apache.

The other $2 billion categorized under private spending is listed as utilities $794 million (up 29 percent), followed by residential $400 million, mining $340 million, health $325 million, other commercial $120 million, and rural other basic industry $10 million. It’s noted that some of the health and utilities projects are supported by public funds. Which brings me to the public side of this year’s spending forecast, which, at $2.6 billion, is more than half a billion dollars less than forecast construction in the oil and gas sector alone, and only about half of all private spending.

Highways, at $585 million, top the forecast public spending list and while that may sound like a lot of money, it doesn’t build very many miles of roads. The rest of the public spending categories and amounts are: other state and local $474 million; national defense $460 million (down 17 percent); education $408 million; airports, ports and harbors (mostly airports) $375 million; other federal $207 million (down 27 percent); Alaska Railroad $55 million; and Denali Commission $20 million (down 67 percent). Ouch!

Goldsmith and Killorin attribute private investment (mostly petroleum and mining), federal spending (military, grants to state and local government, and nonprofits) and state capital spending (dependent on petroleum) as the three main drivers of construction spending. As for jobs, the authors stated there were 16,000 workers in 2011 with an average annual payroll of $70,000 per worker, an estimated 9,000 self-employed in the industry, plus “hidden” construction workers in other industries (i.e., oil and gas, mining, utilities and government).

It’s a really great forecast, and if you haven’t already read it you should. It’s a quick read and available online (iser.uaa.alaska.edu or agcak.org). That way you’ll know what’s going on when the heavy construction season commences. Don’t miss our Building Alaska Special Section this month—we’ve brought you details on a few projects that are already under construction.

This column originally appeared in the March 2012 print edition of Alaska Business Monthly magazine.

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