Anchorage: Are You Ready for Three More Years of Recession?

In a (somewhat) unexpected reversal from its optimistic economic outlook in January, the Anchorage Economic Development Corporation (AEDC) is now forecasting three more years of recession for the city amid government uncertainty, population declines, and cuts to healthcare programs.

The AEDC’s newly-released 2019 3-Year Outlook gives readers a succinct summation of the organization’s updated position in its opening paragraphs:

“Last year’s 3-Year Forecast headline read: ‘A growing body of evidence indicates the recession is likely near its bottom and the local economy is poised for recovery.” Today’s reality no longer supports such optimism.

“Significant cuts to the State budget, as they stand now, essentially eliminate any chance of economic recovery and in fact promise to keep the local economy in recession for two to three more years. As we look ahead, while the news is not all bad, sources of renewal in the economy cannot compensate for the damage being done by Alaska’s ongoing policy-induced recession.”

The primary sticking point in the ongoing budget debate, which now sits in Governor Mike Dunleavy’s hands to approve or veto, is the Permanent Fund Dividend. Both the House and the Senate approved a $1,600 PFD payout in an effort to head off some of the extreme budget cuts proposed by Dunleavy, who is pushing for a $3,000 PFD.

Earlier this month the governor red-penned $409 million in vetoes that when combined with roughly $270 million in cuts already approved in the Legislature’s budget would remove $680 million in spending primarily from the University of Alaska (UA), Medicaid, senior benefits, and education.

The cuts would be particularly devastating to UA which was slated to see just more than $130 million removed its budget.

“In addition to harmful near-term economic impacts, gutting the university system will stunt for many years Alaska’s effort to build a high-quality resident workforce. Many Alaskan students and instructors may well seek more secure opportunities elsewhere in the country,” reports the AEDC in its new outlook.

“Unfortunately we had thought this year was going to turn out a little bit better. In January we had forecast the end of the recession. Probably by about this time. Numbers were looking good, a lot of trending heading in the right direction—tenuous but going in the right direction. Based on the last four weeks we have now taken a completely different tact based on the data analysis we have done,” AEDC President and CEO Bill Popp told a packed house at the 2019 3-Year Outlook Luncheon held July 31, 2019 at the Dena’ina Center.

Popp says the recession can be broken into two segments—the collapse of oil prices globally “which brought on an oil based recession in terms of its impacts on the state economy and jobs, state treasury, and a number of other elements” and a policy recession. “That recession has been rooted in the inability of our state government to come up with a long-term fiscal strategy… creating uncertainty in the business community in terms of willingness to invest.” Unclear tax policies and ambiguity surrounding government service levels over a period of several years have both contributed to today’s gloomy forecast.

Though Anchorage should have been in positive territory by a few hundred jobs, “we’ve been seeing a significant decline in the numbers that has got us very, very concerned,” said Popp during his presentation.

One dramatic and potentially calamitous change in direction Popp pointed out is healthcare jobs which have been a major driver in job growth for the past fifteen years—comprising nearly one-third of job growth in the city.

“Cuts in Medicaid funding (including loss in federal funds) total over $77 million. The healthcare sector has been the source of steady employment growth statewide and in Anchorage over the past decade. That growth has already slowed and cuts to Medicaid are likely to result in the first losses in healthcare employment in more than a decade. Healthcare and social services account for about 25,000 jobs in Anchorage and $1.4 billion in annual wages,” the report says.

According to the 2019 3-Year Outlook healthcare employment continued sustained growth through most of 2018, adding 200 jobs, the smallest increase in more than fifteen years. Outpatient services and hospital jobs expanded in 2018, employment in nursing and residential care weakened, and monthly employment for the first five months of 2019 has been flat compared to 2018.

While it’s not where most of the business community expected it to be by this summer, the economy is not complete doom and gloom; there are a few bright spots in the forecast.

Construction:

Construction is up by 600 jobs, however much of that is related to the November 30 earthquake, says Popp.

“That is a finite period of work activity. It’s going to go through the rest of this year, carry over into next year. There may be some projects on school sites [and] on the big major capital renovations side that will extend for a few more years. But the bulk of the broader economic impact of the earthquake in the construction sector is likely going to take place this year and carry over into next year,” Popp said.

Oil and Gas:

Oil and gas is up 100 jobs in Anchorage and up to nearly 10,000 jobs statewide. “We have started the recovery in the oil patch and that is a very, very positive sign thanks to major investments by a number of companies,” Popp said. He pointed out Alaska is just under 5,000 jobs away from being fully recovered to all the jobs the state reached as a record high before the recession. “So we’re on the path to recovery in the oil patch and that is very good news for the state.”

Tourism:

Another positive for the economy is tourism. The visitor industry is one of the “few bright spots in Anchorage’s economy.” The number of visitors to the area has been growing for several consecutive years, largely attributable to strong growth in cruise passenger volume, according to AEDC. Visitor-related tax revenues showed “healthy increases in 2018, with continued growth expected for 2019.”

“In summary we did forecast an end to the recession six months ago and today we are not. That is subject to change… Things are changing on daily basis and this is what we know today,” Popp said.

His words are reiterated in the report: “This forecast articulates AEDC’s deep concern that these glimmers of good news will not be enough to shine through the dark economic clouds forming from Alaska’s budget gridlock.”

To read the full report visit: aedcweb.com/project/2019-3-year-outlook-report