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The Alaska Economy

Past, present, and future


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The past thirty years witnessed Alaska’s economic growth through climbing and falling oil prices, growing pains of Alaska Native corporation prosperity, and a position in global logistics eyed by not only businesses but also the US military.

Predicting those changes in advance tends to be more than an economist’s powers endow, says Neal Fried of the Alaska Department of Labor and Workforce Development. Looking back, political, environmental, and social events erupted and altered what were thought to be predictable economic turns.

“In 1985 and into the 90s, we were writing about Alaska’s military influence declining in a dramatically smaller role, while two other industries were growing: the visitor and oil industries,” Fried says. “Then thousands of troops were sent to Alaska after 9/11. We never could have forecast that. Who knows what the federal government might do in the next ten years?”

Interest in Alaska gold mining and production came as a huge surprise in the past decade, Fried says. “Gold production had declined for fifty years and it seemed dead. Now we’re producing as much as the Gold Rush. It took one hundred years to make a comeback.”

Salmon fisheries saw woefully low prices in the previous decade. “What we didn’t realize was that the demand for wild salmon would grow,” Fried says.

Fried makes modest forecasts that oil and gas, the visitor industry, and fisheries will continue to play important economic roles in the years to come. “Those industries will be important. How important is the big question.”

Fried celebrates thirty years as an Alaskan economist this year. “In that thirty years, a lot of waxing and waning goes on, factors we had no input on,” he says. What proved constant were the three pillars of the Alaska economy: oil and gas, government spending, and tourism. He doesn’t foresee federal spending going away. “The feds are a major land owner, and they will have a continued presence due to the federal trust relationship with Alaska Native tribes.”

 

Unknowns and Presumptions

Like Fried, Bill Popp, president and CEO of the Anchorage Economic Development Corporation, says forecasting carries a lot of unknowns. Yet reading the writing on walls of the next thirty years does carry a few presumptions worth keeping in mind, he says.

“I think we can look at international trade as one place where our opportunities lie in the immediate future and beyond, and Alaska will continue to have a resource extraction-based economy for generations to come,” Popp says. Alaska’s small population spread over a huge geography will continue to influence its limitations and opportunities.

“The ability to sell our resources to a global marketplace—our minerals, oil and gas, and wild seafood—will be a major driver,” he says. The immediate years ahead, however, put Alaska in a precarious position in the downward direction of oil prices, the consequent need to ratchet down state spending, and a debt-riddled federal government.

“Use the wealth wisely: that will be our challenge, in [this year’s] new fiscal reality of $60 to $70 a barrel of oil,” Popp cautions. “Alaska’s location and global logistics and position in the supply chain—that’s an opportunity for us. After the global recession, the ability to take advantage of the logistics supply chains could present opportunities we don’t expect.”

Alaska’s preeminence as a seafood source is one such opportunity. “If we can maintain the integrity of our seafood industry, we will continue to see Alaska seafood command premium prices,” Popp says. “A vast amount of protein comes from here. We can continue to grow in markets like China, given the awful environmental conditions there that present an opportunity because they value pristine, wild seafood.”

Climate change in Arctic and sub-Arctic conditions also bodes challenges and opportunities well into the next thirty years, Popp notes. The ability to develop technologies offers small clusters of growth in the years ahead.

These days, even when it’s tough, the market shows more resiliency than in the 70s and 80s and less vulnerability to boom-and-bust doom historically true of Alaska, Popp says. “[Alaska] is in a better fiscal situation in terms of the overall economy. We have to be mindful of what is going on, protect ourselves when we need to, and be smart with our dollars and smart with our policies.”

Popp predicts solving the energy challenges of rural Alaska will be one of the “greatest issues facing our state in the next thirty years.

“It shouldn’t take that long to solve. It’s an intractable issue—it slows economic growth or reverses the economies of rural communities. We have to address that issue,” Popp says. “I hope that we solve it. If the challenges are overcome, then we will see significant activity that we can’t even begin to fathom.”

The Knik Arm Crossing, the giant Susitna-Wantana Hydro Project, and new roads to resources are all future possibilities with economic and government hurdles to overcome. A variable that could impact these projects and others is how Alaska’s population growth pans out in the decades ahead, Popp says.

 

Population Factors

Many large-cost projects are difficult to justify for a relatively small population when it comes to investors and government financing.

A lot of speculation centers on when Alaska might reach 1 million in population. State Demographer Eddie Hunsinger has projected Alaska’s baseline population out to the year 2042 as growing to about 925,000 from today’s 736,000. That’s a growth of only about 189,000 people in the next three decades, based on consistent mortality, birth, immigration, population loss, and upward shifts in aging populations.

“That’s faster growth than the nation as a whole,” Hunsinger says. “We do project the population will grow slower. The birth-to-death ratio will slow down, as will the fast growth we see right now in numbers of those moving here.”

On the high end of the baseline projection is a forecast of 1.2 million people—a chance Alaska will pass the 1 million population hurdle. It’s not a large chance, Hunsinger says, but is one within the realm of possibilities.

Consider that thirty years ago, in 1985, Alaska was mid-way between its 1980 census of 420,000 and the growth to 550,000 in 1990—an addition of 130,000, and that growth slowed to 80,000 the next decade to the year 2000. Between 2000 and 2014, another spurt brought the census an additional 73,600. Based on this rate of growth, Hunsinger developed the baseline projection of 925,000 by the year 2042.

The implication of a larger aging population has meant more services will be needed in the healthcare field and businesses that serve that group. On the other end, children and teen services could see a decline consistent with that slowing demographic growth, including education funding.

Alaska’s Native population is expected to continue to grow over the projection period, from 122,944 in 2012 to 161,483 in 2042. Like the state as a whole, the Alaska Native population’s growth is expected to slow as the population ages.

 

Alaska Native Corporations

Of the Alaskan-owned companies that self-report gross revenue to Alaska Business Monthly, the top four are all Alaska Native Corporations, with Arctic Slope Regional Corporation remaining in the lead with its $2.5 billion in gross revenue. Following closely is the Bristol Bay Native Corporation (BBNC)in the second slot ($1.8 billion), NANA Regional in the third ($1.7 billion), and Chenega Corporation in fourth ($1 billion). In fact, of the twenty highest grossing Alaska Business Monthly Top 49er companies, fifteen are Alaska Native Corporations formed under the 1971 Alaska Native Claims Settlement Act.

Alaska Native Corporations saw a lot of changes in the past thirty years to build today’s present rate of success, says Jason Metrokin, president and CEO of the BBNC. One of the most important moves was the ability to find diverse investments to buffer against downturns in any one segment. Today, there is a new shift at BBNC and other corporations to add home-grown investment opportunities into the mix.

“We’ve all had the experience in the Lower 48 and even internationally in finding opportunities to diversify our portfolios. Now there’s a sharper focus on small business growth and expansion, such as the Alaska cottage industry businesses that have done well.”

BBNC’s investment in Peak Oil Field Services was one of the biggest Native corporation acquisitions. Investing in-state makes sense. The expertise and resources are here, while Outside investments may prove difficult to manage from afar, Metrokin says.

“This doesn’t mean we’re turning our backs on our business emphasis of diversification,” he says. “Other Native corporations are following a similar strategy, looking for new opportunities. Oil field support is going to be a boon for Alaska, given our new tax structure. You’ll see several regional corporations are building new commercial real estate complexes, such as Calista and CIRI. One of the big areas of investment is government contracting. On the flip side, the federal government is looking for ways to pull back spending. There are regulatory challenges. We are having to look at new ways to contract for the federal government.”

The pitfall for any corporation is to focus on too few sources of income. Oil field services, real estate, and tourism are good ways to diversify, Metrokin says. “You cannot be overly focused on just one industry. There has to be diversified income stream. I’ve seen it happen time and again where a larger or smaller corporation counts on one sector and sees a significant downturn for a year or two. It brings their own house down.”

If there were a lens to look at thirty years down the road, Metrokin believes that Native corporations can sustain their high levels of success if they strive for multiple sectors, including involvement in large scale opportunities such as the Alaska natural gas pipeline project from the North Slope to the Kenai Peninsula. Training and education options for shareholders, an unique aspect of the Alaska Native corporation role that sets it apart from traditional corporations, is part of that picture to ensure jobs. They must also balance the need for profit against protecting their heritage lands and resources, he says.

Public enemy number one is the exorbitant energy costs of rural Alaska, Metrokin notes. Getting the gasline built should help in that direction, plus provide jobs and economic development opportunities. Other partnerships with private entities and government to bring down those costs also will prove important to the future of economic success for Bush Alaska.

“When you look at the [building of] the early trans-Alaska oil pipeline project [in the 1970s] compared to today’s opportunities, it’s a whole different environment,” Metrokin says.

 

Construction

The biggest news in the construction outlook for the coming decade includes the plans for a trans-Alaska gas pipeline, a project the Kenai Peninsula Borough, for one, is already trying to foresee in a number of sectors. Borough Mayor Mike Navarre, in his successful 2014 campaign for a second term, spoke of the need to look at possible infrastructure needs due to the anticipation of five thousand construction jobs related to the Nikiski LNG (liquid natural gas) facility. Roads, schools, housing, and small businesses will all likely need to expand in Nikiski in the coming years, Navarre says, a prospect that will require also anticipating for the time when most of those jobs go away.

The construction trade is Alaska’s third largest industry paying the second highest wages. In the October 2014 issue of Alaska Economic Trends, construction forecast 1,087 new jobs would be added between 2012 and 2022.

On another front, residential and nonresidential building construction is expected to increase by 14.9 percent and 14.5 percent respectively, according to the Trends, in the years to 2022. “These come mostly from population increases and replacement of Alaska’s aging housing stock,” according to the Trends report.

 

Employment

Healthcare jobs will grow the most, according to an Alaska Department of Labor and Workforce Development analysis that measures growth to 2022. The expectation is for 3,515 new jobs in this decade. That fact won’t come as much surprise for those anticipating the continued trend of an aging Alaska and its anticipated healthcare service needs or the market created by the Affordable Care Act. These jobs range from caregivers to X-ray technicians, from nurses to more physicians. A possible offset would be the implementation of the Affordable Care Act, which some predicted would increase the demand for healthcare services. This contention likely hinges on how many previously uninsured Alaskans enroll in coverage plans, something that has not yet happened en masse.

What may strike as more of an eye-opener is how retail trades continue growth, injecting another 3,374 jobs anticipated in the coming decade. Even so, the Trends report forecasts a slowing of retail investment over the previously fast-paced two years. In 2014, growth came from new megastore openings, which include Cabela’s, Bass Pro Shop, a new and much larger Natural Pantry, a Three Bears, and an expanded Fred Meyer. A new Walmart opened in Anchorage in fall 2013. The number of new jobs from these stores alone could total 700 to 900, according to the University of Alaska Center for Economic Development’s 2014 annual report. In Fairbanks, several new businesses started operations, such as REI, Walgreen’s, and Kay Jewelers.

The state’s outlook forecasts mining job growth holding a firm number three slot. These include oil and gas employment anticipation of 3,280 jobs. The accommodation and food services category sits at number four top job growth: 2,784 jobs created through to 2022. The hospitality industry growth could be linked to a bright outlook in the Alaska visitor industry.

Technology is projected to produce another 1,747 jobs, holding at number five top job growth projections. Transportation and warehousing ride closely behind at 1,590 jobs.

Government employment, not surprisingly after about 900 jobs were lost in the previous two years due to federal cutbacks, shows a near-future loss of 1,297 jobs projected through 2022. Meanwhile, local governments are expected to add only 41 more jobs in the same period. State employment forecasts a more optimistic need for another 942 jobs added.

 

Energy

A lot has happened on the non-fossil fuel energy front in Alaska the past thirty years. Today there are more than fifty hydro projects around the state, according to the Alaska Energy Authority.

The Alaska Energy Authority is looking at an inventory of alternative renewable resources that in the next thirty years could bring more savings by harnessing extreme wind conditions in places such as Bering Sea communities and the Yukon-Kuskokwim Delta, which is already seeing new wind power, coupled with its diesel generation, bring down costs of living in a few villages. Wind has proven a more immediately reality than other options. The first phase of the Fire Island Wind project by CIRI Native Corporation, which began operation in September 2012, is expected to provide up to 17.6 megawatts of electricity to the Chugach Electric utility in Anchorage. CIRI announced an expansion of capacity to be installed by 2015.

Tidal and geothermal possibilities, however, remain in the hypothetical.

Core test results for geothermal have proved challenging so far. The proposed Mount Spurr geothermal project, located about seventy-five miles west of Anchorage, has the potential to produce fifty to one hundred megawatts of electricity annually. The prospective developer, Nevada-based Ormat Technologies, was testing new sites last summer (2014) after previous areas did not prove “hot” enough, according to a report to Chugach Electric by Ormat. Current efforts focus on trying to find a location in the central region that satisfies all major requirements of providing a commercial resource, the ability to mitigate volcanic hazard risks, and access to a road to connect it at a reasonable cost to the grid.

Geothermal power is highly site-specific and requires a ratio-combination of heat, water, and rock permeability that can only be found in particular locations, Ormat has said. Another promising geothermal site is in Mount St. Augustine on lower Cook Inlet.

Also in the exploratory-feasibility stages are a series of tidal studies. The East Foreland site at Nikiski looks at a tidal energy project in a collaboration between Ocean Renewable Power Co., or ORPC, and Homer Electric. Another tidal prospect is at a Fire Island site, also by ORPC. After performing environmental and design work, the company submitted a draft license application for this project with FERC, but instead chose to move forward with the East Foreland site in Cook Inlet. A Point Possession site, called the Turnagain Arm Tidal Electrical Energy Project, also was under consideration.

A host of questions need to be answered about both geothermal and tidal energy, among them the environmental, marine mammal, and fisheries impact potential. But the investment has begun by government, co-ops, and private companies.

 

Fisheries

Fisheries was a solid employer at 70,000 jobs, including fisheries management, research, and education, as well as the myriad processing and fishing jobs, according to the November 2014 Economic Trends.

Salmon composes 60 percent of all jobs, while ground fisheries at 13 percent and halibut at 11 percent together form the bulk of jobs. Optimism came more recently after 2013 grew to levels not seen since 2000, with peak employment at 25,854 jobs in July 2013, the last year calculated.

Andy Wick, an analyst with the McDowell Group, says given the high world demand for Alaska’s wild salmon and an abundant catch the past two summers, there is cause for optimism. The 5.5 billion pounds caught this summer provided for a banner season. Even if most of those employed gain only short-term jobs, “that’s a lot of pounds to deal with,” he says.

But there are many variables related to temperature and climatic causes, drivers that are not easily understood when trying to predict fisheries economic contributions in years to come.

“For a look into the future, the short answer is that no one knows what [climate change] will do to the volume of what we catch or the species compositions of what we catch,” Wick says. The Bering Sea and Alaska Gulf are fertile cold water environments.

“If water warms up—and it was this summer warmer—there is some data that suggests warmer water can improve the survival rates for young salmon in the early life stages. It improves things like plankton and food sources they eat when they are very young. That could help out, but other side of that coin is that you might also have higher rates of predators in the area that maybe you wouldn’t have otherwise.”

Commercial halibut harvests are trended down, Wick notes, due largely to a slower growth rate in halibut size than occurred in the past. When harvest numbers are released this month, the International Pacific Halibut Commission will get an idea of how to adjust harvest levels. So far, the news each year hasn’t proven good news to commercial halibut or the sport-charter halibut fleet of fishers.

Still, Alaska’s history is built on fisheries, and Wick sees that staple of the Alaska economy continuing for decades to come. Fisheries have weathered a lot of historical ups and downs, he notes.

“A big part of achieving statehood was motivated by the urge to protect our fisheries, such as getting rid of commercial fish traps. Even other fisheries, such as over-fishing of pollock by the Japanese before the Magnuson-Stevens [Conservation and Management] Act and a couple of examples of over-fishing,” Wick says. “Overall, we’ve had the benefit from mistakes made in other areas. We have a lot more fish than people.”

Alaska has a good infrastructure in place and the state funds fish management “probably better than just about anywhere else in the [United States] to keep it sustainable. I’m not sure if there’s more we can do at this point,” he says.

Another note for optimism is that Alaska has a corner on the wild fish market. “The wild capture fisheries aren’t expected to make a drastic increase anywhere else,” he says. “That makes our niche more valuable and more important. The number of pristine environments in the world do not seem to be growing. They’re shrinking.”

 

Healthcare

Alaska’s healthcare industry has grown steadily during the past twenty years and that trend is expected to continue. Even in Alaska’s smallest rural communities, where jobs are often scarce, healthcare offers year-round employment opportunities. In 2010, the industry provided 31,800 jobs and had a payroll of $1.53 billion.

As baby boomers turn sixty-five, Alaska will have more senior citizens than at any other time in history. If current projections are accurate, there could be 124,857 people age sixty-five and older by 2034. With a major customer base for healthcare likely to increase by more than 125 percent, the population growth will most likely equate to continued industry growth. The ongoing expansion of the state’s hospitals and clinics and the adaptation of new technologies, will also contribute to industry growth.

 

Mining

The Alaska Mining Association is looking at projections to the year 2022 that indicate a continuation in the number of jobs increases, says Deantha Crockett, executive director of the Alaska Miners Association (AMA). According to an economic report issued by Alaska Department of Labor and Workforce Development, a leap of 24.8 percent, or the addition of 683 new jobs, is expected from 2012 to 2022. This will be a result of a combination of increasing mineral commodity prices and the expansion of existing mines.

“The projects that are in advanced exploration now have begun permitting or are expected to become permitting soon. We know that there are some very large mines coming on line in the next ten to fifteen years that will multiply the number of workers in the mining industry,” she says.

At this fall’s AMA convention in Anchorage, Crockett says the organization reported 4,600 directly employed in Alaska’s mines with a combined 9,100 total direct and indirect jobs. The jobs are held by residents in over eighty communities around the state, paying out $630 million last year. Over the next decade or more, mining industry jobs are expected to be topped only by healthcare service sector job growth projected at more than 25 percent, according to the Alaska Department of Labor and Workforce Development.

The AMA commissioned an annual report by the research firm McDowell Group which summarizes the amount of jobs offered or potentially offered at advanced exploration projects around the state. This report itemizes from the rare earth elements in Southeast Alaska’s Bokan-Dotson Ridge to the Chuitna Coal, Donlin Creek gold’s potential, and a big Livengood gold comeback. It also includes Pebble Mine; the Niblack copper, gold, and silver prospect; the Upper Kobuk Mineral Project; and Wishbone Hill Coal.

“In terms of gold production comeback,” Crockett says, “we saw a large increase due to some really impressive commodity prices over the last three years or so. We also had Kensington come online in 2010 [which was not related to gold prices] and a number of new placer mines [related to gold prices and peaked interest], which accounts for the increase in production.”

But for gold production, as well as other minerals in Alaska, the decades ahead are unclear, Crockett says. “We have a number of barriers, including lengthy permitting timelines, regulatory uncertainty on the federal level, limited capital for risky ventures like mines that makes for a cold investment climate, huge expenses due to lack of infrastructure and skilled labor, and so on. That doesn’t help in the short term.”

In the long term, if those barriers are at least partially resolved, “we have great opportunity,” Crockett says. Alaska has been ranked number one for mineral potential in its world-class deposits. “That will keep Alaska on many investors’ radar screens. We have supportive state government with the Legislature, and by all signs, with the Governor-elect as well,” she says.

 

Oil and Gas

Oil and gas extraction employment is projected to increase by 15.3 percent over the next decade, according to the Alaska Economic Trends forecast in October. But there is a wide range of possible outcomes in the industry, after a “wild ride” in big price swings, declining production, and relatively strong job growth in this decade, according to the Trends report.

Neal Fried, state economist, points out that though less oil flows through the trans-Alaska oil pipeline today than previous decades, it takes more labor. “Oil isn’t gushing out. Now operators have to work harder, so it takes more people working it,” Fried says. That translates to more jobs, not less.

The industry—including exploration, production, and distribution—employs more than 20,000 workers. It spreads across 270 occupations, according to the Trends report.

How the new Senate Bill 21 tax structure implemented in 2014 impacts the picture will take a number of years to assess, he says.

 

Visitor Industry

Alaska hit a new record in tourism—nearly 2 million visitors came in the previous year’s count. Tourism officials will receive 2014’s numbers early this year, which could prove last summer’s visitor count surpassed the state’s new record. Total visitor spending reached $1,145,100,00 in 2013.

Given that Alaska’s three main industries of oil and gas, fisheries, and tourism are considered the state’s mainstay into the coming thirty years, that bit of good news in 2014 gives reason for an optimistic outlook for the seasons to come.

A growing number of visitors to Alaska points to a healthy 2014 for the tourism industry and for the near future. Sarah Leonard, President and CEO of the Alaska Travel Industry Association, says, Alaska Travel Industry Association members from around the state have communicated that business is strong and bookings from both domestic and international markets have increased.”

One of the bigger news announcements recently is the agreement between the United States and the People’s Republic of China that extends the validity of tourist and business visas. “Travelers from China are a hugely important and growing international market for Alaska,” Leonard says. “Policies and partnerships that make it easier for international visitors to travel to the United States help grow Alaska tourism businesses.”

The US Travel Association points to additional indicators for continued steady growth in both domestic travel and international arrivals, with a plus 5.7 percent increase in overseas arrivals to the United States.

In Alaska, other markets show modest increases for 2015 as well. The cruise segment projects an increase in capacity of 2.8 percent with bigger ships replacing smaller vessels in the next year, according to McDowell Group and Cruise Line Agencies of Alaska.

Alaska could see continued movement in air traffic, if the trend continues from 2014 when Alaska saw the increased presence of Delta arriving in Juneau. Other communities saw increases in domestic arrivals including Fairbanks, Ketchikan, and Sitka, with only Anchorage realizing a slight decrease in traffic (minus 2.5 percent).

Alaska Marine Highway ferry travel by non-residents also saw an increase of 4 percent in 2014 from numbers dipping in the previous years. Tourists are drawn to Alaskan hospitality, as well as to an experience among glaciers, pristine wilderness, and wildlife that is like nowhere else, she says.

“With continued strong investments in tourism marketing dollars at both the state and federal levels,” Leonard says, “Alaska can continue to attract visitor numbers and realize important economic benefits for businesses and communities.”

Naomi Klouda is the former editor of both the Homer Tribune and previously the Tundra Drums. She is a lifelong Alaskan and freelances from Anchorage.

This first appeared in the January 2015 print edition of Alaska Business Monthly magazine.

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