Q&A with AEDC’s Bill Popp

Insight into 2017 COLi

On April 19 the Anchorage Economic Development Corporation (AEDC) released the “2017 Anchorage, Alaska Cost of Living Index,” sharing Anchorage-centric data from the nationwide Cost of Living Index (COLi), which gathers information from 269 areas.

According to the report, “Anchorage’s overall index in 2017 was 128.4, or 128.4 percent, of the national average. Another way of looking at it would be to say that the cost of living in Anchorage is 28.4 percent higher than the average American city.. That ranks Anchorage as the 21st most expensive city of the 269 that participated, an improvement of one rank from last year, when Anchorage was the 20th most expensive city in the index.

AEDC President and CEO Bill Popp spoke with Alaska Business Associate Editor Tasha Anderson to provide more insight into the data contained in the report.

Q: What’s your overall sense of the data from the 2017 COLi?

A: We’re seeing some slight improvements to the major metrics. We did see our overall ranking drop just a little bit. It’s nice to be out of the teens and into the twenties in terms of the national ranking. That still puts us at a fairly significant disadvantage to other communities that we’re competing against in the Lower 48 when we look at the national cost of living average. That does make it a bit of a challenge for us in terms of attracting business investments and in particular attracting needed workforce to fill the jobs that we can’t fill out of a local labor pool.

Q: The AEDC release notes that the cost of utilities in Anchorage has risen by 13 percent in one year. Anchorage residents recently voted yes to Proposition 10, which allows the city and Chugach to negotiate for the electric utility to acquire ML&P. How does that relate to the COLi data?

A: We saw increases in costs that took us above the national average for utilities—for the longest time we were fairly well below the national average, if you look at the recent trending on that particular element, and we’ve only had a couple of years where we were above national average. What drove it up this time around, for 2017, was a modest increase in natural gas rates and a more pronounced increase in electrical rates.

The timing on Proposition 10 was reflective of a little bit of sticker shock on the part of consumers in regards to the recent, fairly significant increases that have taken place at Municipal Light and Power. [Because it passed] now the city and Chugach Electric Association are in active negotiations, and those negotiations will hopefully result in a deal in the very near future that will go before both the assembly and the Chugach Electric Board of Directors in the next few months. Once those two steps are done it will go before the Regulatory Commission of Alaska for a final approval.

Q: Anchorage is ranked #3 in healthcare, making is the third most expensive city surveyed for healthcare costs; how’s that affecting business here?

A: When we look at healthcare and being the third most expensive city in the survey for healthcare costs, it is remarkable to note that the most expensive city was Juneau, the second most expensive city was Fairbanks, and then the fourth most expensive city was Kodiak. Those are the four Alaska communities that are participating in the COLi survey nationally. The next closest city to us was Boston, and it’s a pretty substantial difference: we’re at 144 and they’re 135.8, so they are about 8 points from Anchorage.

Boston is a major biotech and medical research center, which normally means costs would be higher there because there are cutting-edge, leading entities in the area of healthcare. When you look at that and you look at our competitiveness in regards to that expense, that’s a challenge.

In our 2017 Business Confidence Index Report that we released in January, we asked the question, “What is the biggest barrier to growth for your business in the coming year?” Number one was the state’s fiscal crisis, number two the cost of healthcare.

Healthcare is a double-edged sword. It’s fabulous for us in terms of job growth. It’s been our one area of growth through the recession, and prior to the recession almost a third of our total jobs added in the last decade-plus have been coming from the growth of healthcare jobs. But on the other hand, how much longer can we afford this escalation cost which is so far above the already high cost of the national average? That’s going to be a challenge for us to balance those two. We want jobs but also we need to have healthcare that is affordable for employers to provide to their employees.

Q: Of the categories ranked (housing, grocery, healthcare, miscellaneous goods and services, transportation, utilities), which do you think are the most important for Anchorage to address?

A: Healthcare and housing. In the Anchorage area, at least, we have the ability to affect the cost of housing development, to a degree, through policy.

We still have to work through discussions on policy: there are things going on in regards to a stormwater utility which could make for a fairly significant difference in Anchorage. If we were to establish one that would take responsibility for some of the drainage issues that are currently keeping a lot of acreage out of being developed… that gets us more construction, which we desperately need.

The market is a little bit out of balance; that’s keeping prices up at near record high levels for single family homes though rents have come down modestly, and we’re happy to see that. But we have to be careful about them going back up into a super tight rental market once the economy turns around and we need housing in all forms.

We need new strategies for housing that aren’t necessarily predicated on the acre lot and 3,000- to 5,000-square-foot home on the Hillside model… We believe, with the really rapidly growing senior population in Anchorage, that the housing market is not addressing their needs. A lot of seniors that we talk to anecdotally tell us they don’t’ want a big house with a big yard: it’s just the two of them, the kids are out of the house, and they want a place that’s less maintenance but well appointed. It’s the same thing on the other end of the spectrum. Young professionals that don’t have kids, they don’t want the big house either. They want something smaller, something that fits their very active travel-oriented lifestyle.

In the next ten years we’re going to see some hopefully very positive changes that’ll start to generate more activity in the housing market and flatten out the growth curve of the cost of housing in Anchorage.

Healthcare, that’s a much bigger issue, and unfortunately it’s probably going to have to start at the state and work its way down into the local level, but at the same time at the local level we’re going to have to be actively engaged in a community dialogue in terms of making sure that we don’t have a healthcare system that basically businesses can’t afford to fund anymore.

We’re seeing any number of businesses and healthcare plans that are now starting to point their employees and their policyholders toward out-of-state services. I know of at least a couple of businesses that have laid down a policy that they will not pay for surgical procedures of any kind here in Anchorage unless they are of an emergency nature. They will pay people to go out of state, pay for a hotel, pay for meals and transportation, and end up saving money. It’s a rather precarious situation that we’re facing, and market forces will eventually take hold. Wages are not keeping up and profits are not keeping up with the rate of growth and the cost of healthcare in our city and our state. There will come a point in time where the model is not going to work anymore, and where it’s going to go from there is going to be a real big question unless we start to get our hands on this and start to help guide it toward a safer path forward for all, both the healthcare providers and for users of healthcare services.

Q: What’s your general sense, considering the last few years of low oil and fiscal uncertainty, of Anchorage today?

A: There’s a little bit of uncertainty, but it’s improving in the minds of our citizens and in the minds of our business leadership. I think a lot of it pivots on the state coming to grips with a fiscal solution in some form so that businesses can start to make legitimate calculations about investments. Right now the tax line item is just unknown because the legislature and governor have not given clear guidance on whether or not there are going to be broad base taxes, who they’re going to affect, or how they’re going to be calculated. All of those things are question marks that we need to get some answers on for business to be able to have the confidence to go out and drop hundreds of thousands or millions or even potentially billions of dollars-worth of investments in our state.

We’ll start to see that happen through a decision in Juneau; we’ll start to see businesses then be able to make reasonable calculations and we’ll start to see money come off of the sidelines. That will create jobs, starting to reverse the recession, if you will, and return to growth. I think it is going to be all pivoted on whether or not the legislature and the governor can come to a solution.

Everything else is lining up fairly nicely. Oil prices are recovered into a range where companies can be profitable in the state under current tax law. We are seeing good growth in tourism and good growth in air cargo numbers, although the trade war is bringing into question where that may be headed. We’re still in a little bit of uncertainty there at the moment, but for now things are looking really good at the airport as far as Anchorage goes… Those are all positive signs but we need a little more momentum, and I think that momentum is going to come from a fiscal solution, if one can be had.