Legislature(2007 - 2008)HOUSE FINANCE 519
10/26/2007 02:00 PM House ECONOMIC DEV., TRADE, AND TOURISM
| Audio | Topic |
|---|---|
| Start | |
| Alaska's Economy - Past, Present & Future | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON ECONOMIC DEVELOPMENT, INTERNATIONAL
TRADE AND TOURISM
October 26, 2007
2:06 p.m.
MEMBERS PRESENT
Representative Mark Neuman, Chair
Representative Carl Gatto
Representative Wes Keller
Representative Andrea Doll
Representative Mike Doogan
MEMBERS ABSENT
Representative Kyle Johansen
Representative Bob Lynn
OTHER LEGISLATORS PRESENT
Representative Bob Buch
Representative Anna Fairclough
Representative Peggy Wilson
COMMITTEE CALENDAR
ALASKA'S ECONOMY - PAST, PRESENT & FUTURE
- HEARD
PREVIOUS COMMITTEE ACTION
See HEDT minutes dated 10/25/07
WITNESS REGISTER
NEAL FRIED, Economist
Research and Analysis
Department of Labor & Workforce Development
Anchorage, Alaska
POSITION STATEMENT: Presented a report titled "Alaska's Economy
2007."
MICHAEL BLACK, Deputy Commissioner
Office of the Commissioner
Department of Commerce & Community Development
Juneau, Alaska
POSITION STATEMENT: Presented a report titled "Alaska Economic
Performance Report 2006."
HARRY MCDONALD, President
Carlile Transportation Systems
Anchorage, Alaska
POSITION STATEMENT: Presented information on the transportation
industry in Alaska.
BILL POPP, President; Chief Executive Officer
Anchorage Economic Development Corporation
Anchorage, Alaska
POSITION STATEMENT: Presented a report titled "Anchorage
Economic Update."
JIM JACKSON, President
Alaska Home Builders Association
Anchorage, Alaska
POSITION STATEMENT: Presented information on the home building
industry in Alaska.
WAYNE STEVENS, President; Chief Executive Officer
Alaska State Chamber of Commerce
Juneau, Alaska
POSITION STATEMENT: Presented information on economic
development.
ACTION NARRATIVE
CHAIR MARK NEUMAN called the House Special Committee on Economic
Development, International Trade and Tourism meeting to order at
2:06:00 PM. Representatives Neuman, Gatto, Doll, Doogan, and
Keller were present at the call to order. Also present were
Representatives Buch, Fairclough, and Wilson.
^ALASKA'S ECONOMY - PAST, PRESENT & FUTURE
CHAIR NEUMAN announced that Neal Fried would give his
presentation to the committee.
2:06:36 PM
NEAL FRIED, Economist, Research and Analysis Section, Alaska
Department of Labor & Workforce Development, introduced himself
and told members he would move quickly through his presentation
and would answer questions afterward. He began:
... I have I guess you'd say the history of Alaska
since Statehood and that's what sort of this first
slide - I could actually spend the whole 20 minutes on
this slide very, very easily because it is sort of our
economic history since Statehood but I won't. I just
want to point out a few things on this one particular
slide. One is employment has grown a lot over the
long run, generally speaking, much faster than the
rest of the nation and much faster than most other
states. And that's over the long run. We'll talk a
little bit about more recent years.
We are very often referred to as the boom-bust economy
and we really only have had two booms since Statehood
and one bust and, in fact, that bust up there, that's
in the wrong spot. The bust should be where the 20
years of growth begins, right in that little spot
there. And then, the other thing I just wanted to
point out is the fact that we have been growing now
th
for 20 years. We're finishing up our 20 year right
now, which is a pretty amazing run. It's the longest
run we've ever had. It's one of the longest runs any
other state in this country has had in recent years.
So, in that sense, it's been a very interesting time
and also in some sense sort of a boring time in our
economy but we'll look at some of the details that
might make it a little more interesting.
2:08:36 PM
MR. FRIED continued:
This here - and you know the only reason I put this
slide on here is because it's sort of the opposite of
the other one. If you look back and forth on it, and
you know if you had an economist run a model, you
could almost probably correlate the decline in oil and
economic growth because actually our economy started
to grow again the year that oil...production started
to decline. I think it was a pure coincidence and you
really could run statistical models and prove that the
two are related, although I don't think there's any
relationship - well there is a relationship but that's
not the relationship that exists.
What is amazing to me is that our economy has grown as
much as it has in spite of the fact that we are
producing that much less oil than we were during our
last bust.
This here is the other sort of, I think, the other
important slide that I'm going to share with you today
because this is the slide that sort of ultimately
determines the standard of living that our workforce,
our population in this state, has or enjoys because
most income, probably over 80 to 85 percent of our
income, comes from jobs, the earnings from people's
jobs. And this represents the kinds of jobs that
exist in Alaska's economy today. Let me just point
out a few that aren't obvious because some of these
are sort of confusing. That trade up there, that 12
percent, represents mostly retail trade, not
construction or the trades, and a little bit of
wholesale is thrown in there. Oil, I know some people
are wondering where the heck is oil and that is under
natural resources. Most of that is oil - a little
timber, a little mining in there. Let me just see if
any of the other ones need any explanation. Leisure
and hospitality is your bars, your restaurants, your
hotels, sort of a tourism indicator. Government is
federal, state, local and includes the University and
the school districts. Education health is the other
one that can be misleading. That is almost all
healthcare and social services. A little bit of that
is private education, private college and secondary
and elementary education but most of it is health care
and social services, probably 85 to 90 percent of
that.
I think most of the other ones are fairly obvious
except for the military. What I mean by that are the
folks that are in uniform, the uniform military, which
is becoming a - we'll look at that a little more as we
move along.
2:11:20 PM
CHAIR NEUMAN asked, "Mr. Fried ... look at education and health
because you said a lot of that is social services and government
.... How much of those numbers could be added together?"
MR. FRIED explained that number pertains to private education.
Public education is counted under government, both local and
University education. School districts are typically the
largest employer in most communities in Alaska. He stated,
"This pie here, this distribution of jobs, changes a little bit
each year but over the long run has seen some pretty significant
changes and we'll look at that a little bit."
2:12:27 PM
MR. FRIED continued his presentation:
This here is sort of the, in some ways to me, it's
almost - I guess it's kind of a miracle. Every year
we've seen a net increase in the number of new jobs in
Alaska's economy. All this is saying ... is that when
2007 is over, there will be 3,900 jobs in Alaska's
labor force that did not exist the year before. These
are all just the net increase of each year. If you
added them all up, that's the cumulative number of
jobs we would have experienced during that period of
time. This has been happening since 1988. It comes
obviously from a mixture. Some years it may be oil
that's driving it. Some years it may be health care.
Usually it's a mixture of a lot of different
industries. The complexion changes each year,
sometimes a little bit, sometimes quite dramatically.
We'll talk about that as well.
2:13:23 PM
CHAIR NEUMAN noted he would like to provide members the
opportunity to ask questions as Mr. Fried continues but asked
members to keep their questions short.
2:13:37 PM
REPRESENTATIVE GATTO asked if the new jobs are low paying retail
jobs versus engineering jobs.
MR. FRIED replied that job growth is from a mixture of sources
but during the last four years, very few new jobs were in the
retail industry. Retail was largely flat. In 1996, the slowest
year on a percent growth basis, ARCO and BP laid a lot of people
off, however a lot of large stores opened in that year, creating
a net increase in jobs.
2:14:51 PM
MR. FRIED continued:
This here - the only point I'd like to make on this
slide ... well you can make two points, one is
historically we have grown much faster than we have
during the last 15 years or basically since 1988. You
can see the 1970s, and this is true of the 1960s as
well, we were growing at 5, 6 percent per year. That
was very impressive growth, about twice as fast as the
rest of the country. Even in the 1980s when we had
our biggest busts, our only bust since Statehood, we
still managed to grow significantly faster than we are
today and about twice as fast as the rest of the
nation. In the '90s we grew about the same rate as
the rest of the nation and in the last 7 years -
that's kind of an unfair comparison because the U.S.
had a recession in there. Right now the U.S. labor
market and our labor market are probably growing at
about the same rate, but they had a recession in there
and we did not.
This here is just another one of those nice historical
graphs that ... is one of those pictures that I think
really is worth a million words. It just talks about
our population. The red is natural increase, in other
words births minus deaths, and we have lots of that up
here. Then the blue is migration - the number of
people moving in minus the number of people leaving.
You can see during some of the very big economic
events in this state we had some of the largest
increases in our population in history. For example,
during the 1980s, during that boom, where the largest
number of, absolute number of people moving through
the state and, of course, shortly after that, we had
the largest decline in our population, although I have
to say that after that bust, our economy was still
significantly larger than it was previous to the bust
so although we lost 30 or 40,000 jobs during that
period of time, we still had a net increase in jobs at
the end of that than we did prior to the boom.
... We look at our labor market today, we look at
growth in our economy, we look at employment growth
[which] has been very moderate. Well, you can see
that by looking at this, changes in our population
have also been very moderate, sort of characterized
our economy during the last 15 years or so.
2:17:31 PM
MR. FRIED continued:
This here just gets to ... that idea I was talking
about yesterday about how that pie is constantly
changing and over the long run changes significantly.
If I had been a prodigy in talking to this body in
1970, and I definitely was not a prodigy, but ... more
than half of our labor force in 1960, and that was
true in 1970 as well in the public sector when half
the public jobs - and this includes the uniformed
military where you can see how that has slowly
declined over time and it's not because our public
sector has necessarily gotten smaller in absolute
terms. It's just the rest of the economy has grown a
lot faster. Parts of our public sector have actually
gotten smaller in absolute terms. One of them is the
federal government in the last 10 years but that
doesn't mean the federal influence has gotten any
smaller because we know that's grown but the federal
workforce has gotten smaller.
2:18:39 PM
MR. FRIED continued:
Moving on here, I heard Mr. Bradner talking yesterday
about how crowded the North Slope was. Our numbers
certainly bear that out and actually we've shared
these numbers with Tim. You can see in fact, with
Prudhoe Bay, and I'm just going to find some slides of
where some industries are going right now, Prudhoe Bay
is the most crowded that we've seen it since we've
been keeping numbers as far as number of jobs that
exist right now in Prudhoe Bay, a very busy place. It
started to climb in 2005 and just kept on climbing the
last two years. We believe that that number will
probably level off and stay there for at least the
next year.
This year is sort of a relatively new development and
I think it's sort of a nice lesson that there are
certain industries in our economy that wax and wane
over time. This was an industry that by the mid 1990s
we figured we had seen its biggest influence pass -
that the military would permanently have a smaller
influence on Alaska's economy. Little did we realize
that two or three years later, the military would
start growing and its influence in our economy would
start growing. Those numbers have been growing quite
dramatically over the last three or four years. A lot
of people look at our military numbers and they see
low wage jobs and I think that's the wrong way of
looking at it nowadays. Some of you that may have
served in the military 20 or 30 years ago, they
probably were low wage jobs. That's changed and the
pay in the military can be very, very significant. So
those jobs can have a significant influence on our
economy. These, again, are just those that are in the
uniforms, not the civilians or contractors that are
also working for the military.
This here is construction. The real story here is we
saw steady growth for the last 15 years but that
growth appears to have peaked in 2005, fell off
slightly in 2006, appears to continue to slow off in
2007 and probably will continue to slow down next year
as well. I know in many of our communities it's hard
to believe. We see all of those cranes out there but
there's a lot of residential construction and in some
other parts of the state, construction has slowed
down. We don't expect a dramatic change in the next
year but this is no longer a source of growth, just
like federal dollars are no longer a source of growth
in our economy. So those are two important
ingredients that have helped our economy grow in
recent years that are not there today.
2:21:41 PM
MR. FRIED continued:
This is just that federal dollar. I know you were
talking a lot about this yesterday when Scott
presented so I don't want to spend much time with
this. The weird thing is that the most recent data we
have is really for 2005. They don't even have 2006
data available. We certainly don't know about 2007
but we do know earmarks fell off dramatically in 2007
and, because of that, we assume that federal dollars
probably began to at least flatten out or maybe even
decline slightly in 2007 after this nice long run of
almost doubling in eight years - well it did double in
eight years and that's a lot faster than what was
experienced in the rest of the country. I think the
rest of the country saw an increase of 55 to 60
percent and ours doubled.
This here, the only point I'd like to make with this
slide is yes, we've grown for 20 years, the state has,
but not all parts of the state have grown for 20 years
and not all parts of the state have grown at the same
rate. There have been different experiences.
Southeast, for example, if you took Juneau out would
probably be negative. The Gulf Coast, which is your
Valdez, Cordova, Kenai, Cordova region, including
Kodiak, has grown very little. I mean 5 percent
growth is not very much for a six-year period.
Southwest is really - some rebound in the salmon
industry and a little bit of other growth. Northern,
which is the Nome region and the North Slope Borough
and the Northwest Arctic Borough, almost all that
growth there is Prudhoe Bay. If I took that growth
out, if I took Prudhoe out of the northern part of the
state, that growth would be significantly more
moderate but, for example, for some of those
communities like Kotzebue or Barrow, in fact in some
of those places employment may have actually declined.
So that's really being affected very much by Prudhoe
Bay.
2:23:41 PM
MR. FRIED continued:
This here is just population and this may even be a
better indicator of what parts of the state are
growing and what aren't. We all know Mat-Su is a
stand-out as far as growth. It's really the only
place in the state you can describe that has been
booming in recent years. Southeast has actually lost
population, so has the northern part of the state.
Other parts have grown very slowly. I mean 1 percent
growth over a six-year period for population is very,
very small and very moderate.
Now I'm just going to a different part of the story,
the wage story in this state. The only point I want
to make here is in 1994, average earnings in Alaska
were 22 percent above the national average and now are
basically average for the rest of the nation. This is
probably the reason, this helps explain it, is that
pie that we looked at earlier has changed a little
bit, it hasn't just changed a little bit, it's changed
significantly over time. We've probably had more
growth in those industries where wages tend to be
lower or below that red line and less growth in some
of the other industries, probably more on the bottom
and less in the others. That affects that overall
statewide average. That average has been going up but
it hasn't been going up as rapidly as it's been going
up elsewhere in the country.
2:25:07 PM
CHAIR NEUMAN referred to the previous slide that said Alaska's
wage advantage has disappeared and noted Alaska's cost of living
is higher. He asked about that comparison.
2:25:39 PM
MR. FRIED replied:
That's a good question. If we just looked at this the
story is even less pretty than this because I would,
again, what's an average for Alaska, I mean the
difference in the cost of living between Alaska and
the rest of the country definitely has narrowed but it
is still there. Urban Alaska is probably 10 or 15
percent; obviously in rural Alaska it's much more than
that. So, yea, you can draw an inference from this
that, from a wage standpoint, we've certainly become
less attractive relative to the rest of the country.
2:26:15 PM
MR. FRIED said the biggest reason people move is for economic
opportunities so Alaska is not as attractive as it used to be.
2:26:33 PM
REPRESENTATIVE GATTO asked if the university and public school
system fall under the government category on that slide.
MR. FRIED replied yes.
REPRESENTATIVE GATTO opined that those entities should be
distinguished in that category because school district employees
always speak of the need for a raise.
2:27:13 PM
MR. FRIED pointed out those numbers reflect total payroll
divided by the total number of jobs. He said it is a blunt
instrument but it does tell a story.
2:27:27 PM
MR. FRIED continued his presentation:
This just sort of tells you that wages, and you can
see this is why that pie changed significantly.
Between 1990 and '97 we were losing some of those high
wage jobs, we were gaining a lot of lower wage jobs.
After you adjust that for inflation, wages actually
declined during that period and then basically sort of
flattened out and have increased a little bit over
time over the last four or five years.
2:27:56 PM
REPRESENTATIVE DOLL asked, regarding the average annual earnings
slide, how the State of Washington's numbers would look if they
were superimposed over Alaska's numbers.
MR. FRIED said he would have to guess, but thought Washington's
annual average would be higher than Alaska's, particularly in
certain industries. For example, Alaska has had very little
growth in the computer software industry while Washington has
had a lot. The construction industry numbers would probably be
fairly close but Washington might look more attractive in most
cases if one just looked at the wages.
2:29:07 PM
REPRESENTATIVE DOLL asked if that has a lot to do with
recruitment.
MR. FRIED said it certainly could.
2:29:16 PM
MR. FRIED continued:
This here is per capita income. This goes way, way
back. Of course some people say those years in the
1970s were very unusual. We were building a pipeline
where our income was so much higher that that wasn't
sustainable. But basically the story there with per
capita income is we're flat with the rest of the
country - a little bit above the rest of the country.
But then when we go to household income, we look a lot
better. There are a number of reasons why that is or
we think that is. One is we don't have a large
population of over 65 because income falls
significantly over 55. So we have a smaller
proportion of our population in that category. We
also have more two-wage earner families in Alaska so
those are probably the two big significant things that
keep our household income relatively high to the rest
of the nation. ... There was a 23 percent premium
compared at when we looked at wages or we looked at
per capita income. So there's a number of different
ways you can slice and dice this but, when we look at
households and their total income, Alaska comes out
looking pretty good. The other part of the story this
doesn't tell us is we have relatively high disposable
income because our tax burden is relatively low so we
have more money to spend on things. So it's sort of a
mixed story there.
2:30:45 PM
MR. FRIED continued:
This is our unemployment rate. The nice story about
the unemployment rate, it's been coming down
significantly and we have a very tight labor market.
I know many of you hear complaints from employers
having a difficult time finding workers. This ...
kind of describes that problem. This, of course, to
some extent mirrors the rest of the nation.
But this is an additional reason, I think, why that's
happened. When we look at the last 10 years, during
more years than not, we've had actually negative out-
migration in Alaska than in-migration. Our overall
population has grown each one of these years. That's
because of natural increase but babies don't compete
in the labor market so we have this steadily growing
economy or labor market. The number of workers is
growing more slowly and, so in essence, is creating a
tighter and tighter labor market. The blue lines
there, the reason why they're probably blue during
those years is because those are the years of the
national recession and typically during a national
recession, fewer Alaskans leave the state and more
people from outside move to the state. But those are
very small numbers. I mean relative to our total
population of over 600,000, these are very small. If
we remember that old graph - those numbers were as
high as 20, 30,000. With a smaller population, again,
we're talking about small changes. That's my last
slide.
2:32:19 PM
CHAIR NEUMAN announced that committee members present are
Representatives Doll, Gatto, Neuman, Keller, and Doogan and
Representative Fairclough was in attendance also. He related
his observation that a trend in discussions lately is that
Alaska's economy is flat. He said Mr. Fried's chart of
population changes shows a migratory population but not a
dramatic increase in numbers. He asked if the two situations
are connected.
MR. FRIED said he thinks they are. Almost all indicators have
been very moderate. He thought if Alaska's economy was growing
at 4 percent per year rather than 1 percent, Alaska would be
attracting more workers. The other side of the story is that
the national economy is doing quite well so it is harder to
attract workers than it was in the '70s and '80s. Tremendous
in-migration happened during the boom times in Alaska because
the rest of the country was experiencing a very deep recession
at the same time. He pointed out that another factor may be
that baby boomers are aging and are less likely to move.
Migration around the country has declined in general.
2:34:31 PM
REPRESENTATIVE DOOGAN noted Mr. Fried has used net numbers but,
in the real world, a significant amount of churn occurs.
MR. FRIED said that number is about 30 to 40,000 per year in and
out.
REPRESENTATIVE DOOGAN asked whether job growth equates to
population growth because a certain amount of Alaskan workers
are not residents.
MR. FRIED said that is correct.
REPRESENTATIVE DOOGAN said the numbers look "tidy" but, in
reality, a lot of changes are occurring within those numbers.
MR. FRIED agreed and said the number of individuals moving in
and out is much larger. He pointed out the gross migration rate
of the number of people moving in and out has declined over time
so more churning occurred in the '60s, '70s, and '80s.
2:36:03 PM
REPRESENTATIVE DOOGAN asked if the population is becoming more
stable and whether the job market is becoming less lucrative.
He thought those occurrences are counter intuitive because he
believes a person who loses a good paying job in Alaska is more
likely to pursue a good paying job elsewhere than take a low
paying job in Alaska.
MR. FRIED responded that he thought some of that is occurring.
2:36:52 PM
CHAIR NEUMAN stated that 85-90 percent of revenue coming into
Alaska comes from oil and gas. He surmised that only 3 percent
of the jobs in Alaska are in natural resources so only 3 percent
of the jobs provide 80-95 percent of the state's revenue.
MR. FRIED said in some sense those numbers are misleading. Less
than 3 percent of jobs are direct oil industry jobs. However,
the oil industry also employs a lot of construction workers,
security workers, food services workers, etcetera so obviously
the oil industry employs more people than the 3 percent shows.
He added the expenditure of oil revenues requires many
government jobs, and jobs in other sectors as well from the
multiplier effect. He pointed out the oil industry is
incredibly efficient in the sense that the number of employees
in Alaska is very low because the oil fields are very large.
2:39:42 PM
CHAIR NEUMAN said he sees that pictorially as spokes from a hub.
MR. FRIED agreed but said some spokes are less dominant than
others and that the economy is much more diverse today than it
was 20 years ago.
2:40:13 PM
CHAIR NEUMAN thanked Mr. Fried for his fascinating presentation.
The committee took an at-ease from 2:40:39 PM to 2:41:25 PM.
CHAIR NEUMAN called the meeting back to order and asked Mr.
Black to begin his presentation.
2:41:30 PM
MR. MICHAEL BLACK, Deputy Commissioner, Department of Commerce,
Community & Economic Development (DCCED), called the committee's
attention to a document entitled "Alaska Economic Performance
Report 2006." He acknowledged that the Department of Labor &
Workforce Development is the gatherer and developer of the
statistics that are used in economic development reports issued
by the DCCED. He related that his experience is 28 years
working for the state, primarily in communities and rural
communities. Mr. Black, the deputy commissioner in charge of
community development, economic development, and the Division of
Investments, offered to discuss how the economy is affecting
communities.
CHAIR NEUMAN concurred.
2:43:06 PM
MR. BLACK pointed out that the report indicates a modest, but
steady, increase in economic growth. In 2006, the state ranked
48th in growth among the 50 states. Payroll growth was
strongest in the natural resource and mining areas; in fact,
for first time Alaska exports exceeded 10 percent of its gross
product. Personal income growth in Alaska was ranked at 16th
among other states and climbed 4.8 percent. Furthermore,
Alaska is ranked sixth among all states by Gross Domestic
Product (GDP), and is the highest ranking of the resource
development states. Additionally, there has been economic
diversification as indicated by the increase in professional and
technical services and information technology of 41 percent. He
opined that growth in the professional element of the economy is
a change from earlier years.
2:46:26 PM
CHAIR NEUMAN asked whether there has been a change over the last
five years in the 84 percent contributed by oil and gas. He
further asked for Mr. Black's estimate of any change in the next
five years.
2:46:47 PM
MR. BLACK stated his belief that there has been more growth in
other sectors besides oil and gas. Further, in the next five
years, he opined that the trend would continue, due to the fact
that other industries are projected to grow at the same rate, or
greater, than the oil and gas industry.
2:47:40 PM
CHAIR NEUMAN observed that the state is rated the 48th in
growth; however, the GDP has risen significantly, but salary,
wage, and population have not shown much growth.
2:48:06 PM
MR. BLACK remarked:
... it does seem that the economy is growing
significantly, but maybe wage income is not keeping up
with the growth that we see. And, of course, growth
in the sense of the amount of revenue being derived
from the various industries, itself, seem to be
growing at greater than the wage, ... or personal ...
household income levels are.
2:48:35 PM
CHAIR NEUMAN asked whether that was because of service
industries or jobs at big box stores [that pay] $24,000.
2:48:52 PM
MR. BLACK stated that he was not an expert in that area, but
encouraged the committee to look further at the statistics. He
then explained that the fortunes of resource development are
improving, yet the improvement may not have been reflected in
household incomes or employment yet. He stressed that there is
a very improved picture for mining due to the demand in Asia for
minerals, coal, and other materials needed for manufacturing.
2:49:50 PM
CHAIR NEUMAN recalled testimony by former governor Sheffield
that there are no large mines on state lands. Thus, the Pebble
Mine would increase the contribution of mining in the future.
2:50:23 PM
MR. BLACK stated his agreement. He added that there are mines
being developed around the state, some of which are on state
land. In fact, the DLWD anticipates a demand for labor. He
directed the committee's attention to page 23 of the report and
pointed out that the most dominant mine in the state is the Red
Dog Mine, which is also the richest zinc mine in the world. The
Red Dog produces the largest amount of income and employment
from mining. Furthermore, mining statewide production values
between 2004 and 2006 have more than doubled, and Mr. Black said
that he expects that growth to continue for the foreseeable
future.
2:52:30 PM
REPRESENTATIVE DOOGAN referred to page 23 of the report and
asked whether selling gravel is still the most profitable mining
venture in the state.
2:52:46 PM
MR. BLACK said that is correct.
REPRESENTATIVE DOOGAN surmised that gravel production is
supported by building roads and airports, and by the
construction industry.
MR. BLACK said that is correct.
2:53:01 PM
CHAIR NEUMAN opined that less federal money for federal highway
projects will result in a reduction of that industry.
2:53:17 PM
MR. BLACK stated that that could be true depending upon the
demand by private industry for road construction. He agreed
that a lot of demand for sand and gravel comes from public
projects, especially in the areas of the state dealing with
permafrost conditions. He continued the presentation and
stressed the importance of the production of zinc ore from the
Red Dog Mine that comprises 27 percent of the total value of
Alaska metals. Mr. Black advised that the general theme is that
by industry there is growth, and that future growth is almost
certain in mining. Also, there are improvements in the fishing
and seafood industry, as well as obvious growth in the oil
industry. An industry that is doing less well is timber.
However, tourism is still showing significant growth, statewide.
2:54:57 PM
REPRESENTATIVE GATTO referred to page 23, of the report and
asked what are included in "Alaska Metals."
2:55:10 PM
MR. BLACK explained that Alaska metals include coal and gravel,
as well as metals such as gold, silver, zinc, and lead. He
encouraged the committee to review the economic performance
report and cautioned that the averages are statewide and do not
reflect regions of the state. For example, the Northwest Arctic
region, along with Anchorage and the Mat-Su valley, are
benefitting from the Red Dog project. His experience with
remote and rural communities is that the problems they face are
related to the high cost of energy. The dependency of certain
portions of the state on diesel fuel for generating electricity
and for heating has resulted in a severe impact on areas of the
state. In fact, the price of energy may be the biggest
challenge facing the state, despite the fact that Alaska
produces hydrocarbons. Regional centers in Western Alaska are
highly dependent on diesel fuel and the cost is a threat to
rural economies. In addition, retailers and small businesses
are having a difficult time competing with Internet and mail
order sales because of energy costs as well. Mr. Black
continued to explain that municipalities and tribal entities in
the public sector are also suffering from the high cost of
providing water, sewer, and electricity.
2:59:12 PM
CHAIR NEUMAN recalled previous testimony that rural Alaska is
feeling a greater impact of energy costs than are urban areas,
although there is an increased growth in lower wage jobs.
2:59:54 PM
MR. FRIED stated that he would like to provide statistics on
the percentage of household income that is being used for
lights, heat, and transportation, compared with the same
expenses five years ago. He opined that more disposable income
is going into those costs in rural and urban Alaska, to the
point of imperiling some communities. He emphasized the
importance of revenue sharing from the state to enable
communities to provide public services.
3:01:09 PM
CHAIR NEUMAN expressed his belief that the rapid increase in the
capital budget has somehow superheated the economy; there is
more money flowing out in capital projects than there are
Alaskans to do the jobs. He reported on the overinflated cost
of housing in the Mat-Su valley.
3:01:58 PM
MR. BLACK said that that is an interesting point. In Fairbanks
the construction trades and the mining industry are suffering
from a shortage of available trained labor. In addition, the
capital budget is a reflection of the building of buildings, but
not the heat and light that keep the building functional.
3:03:05 PM
REPRESENTATIVE DOLL asked Mr. Black to explain the information
provided [regarding International Trade] on page 39 of the
report and to speak to the prospects for the future.
3:03:25 PM
MR. BLACK explained that in exports, such as natural resources,
there is nothing but growth in demand, primarily from Asia and
China, in terms of the resources they need to keep their
manufacturing competitive. The latest example of that is the
agreement with Chinese companies for coal resources in the Cook
Inlet area. Further, the export of zinc from the Red Dog will
end up in Asian manufacturing, as well.
CHAIR NEUMAN asked Mr. Black for his opinion on Alaska's status
five years from now.
3:04:50 PM
MR. BLACK said that he sees a very bright future for Alaska
barring a worldwide catastrophe or recession. Alaska will be
looked to by other countries for resource development. There
are concerns to be addressed by the legislative body, but the
demand is there and growing.
3:05:34 PM
REPRESENTATIVE DOLL expressed her interest in increasing trade
with the western states and asked whether Alaska is "taking a
bigger piece of that pie."
3:05:59 PM
MR. BLACK responded that Alaska continues to import finished
goods from the Lower 48. At the same time, it has increased its
exports to the Lower 48, especially in the seafood industry.
The challenge is how to derive more benefit from value added
manufacturing instead of selling the raw products to other
countries and other states where the manufacturing occurs,
thereby improving Alaska's employment and wage picture.
3:07:37 PM
CHAIR NEUMAN invited testimony from Harry McDonald.
3:08:11 PM
HARRY MCDONALD, President, Carlile Transportation Systems,
informed the committee that he was the President and majority
stockholder of Carlile Transportation Systems which is an
Alaskan-owned trucking company.
3:08:23 PM
CHAIR NEUMAN asked Mr. McDonald to discuss the recent past and
future growth of the transportation industry.
3:08:39 PM
MR. MCDONALD advised that the transportation industry has grown
in excess of 5 percent per year, which is more than the economy
in general. Part of that is not due to more work, but due to
the increase in the fuel surcharge. He opined that the next
five years has a bright outlook if the legislature makes some
good decisions this session. There is a lot of growth potential
on the North Slope and his personal opinion is that we should
not make changes until 2011, or not for at least the next two
years.
3:10:00 PM
CHAIR NEUMAN assumed that Carlile Trucking does a lot of
business in Prudhoe Bay.
3:10:07 PM
MR. MCDONALD stated that his company has 500 employees in Alaska
and 150 outside of Alaska, that serve Alaska. Further, 40
percent of its revenue is directly billed to oil companies and
oil service companies. There are 150 employees based in
Fairbanks and 40 trucks run exclusively to the North Slope. In
addition, Carlile Trucking picks up freight all over the country
for Alyeska Pipeline Service Company, ConocoPhillips Alaska,
Inc., BP of Alaska, Consolidated Oil Corporation, and the
general economy. Most of the freight comes by barge.
3:11:18 PM
CHAIR NEUMAN asked for a description of change, as far as
trucking up the highway compared to the use of barge lines.
3:11:31 PM
MR. MCDONALD said that there is a bigger percentage of freight
coming up the highway than 10 years ago, as now the roads and
the trucks are better. The rates are competitive for higher
priced commodities; however, anything that is heavy comes by
water.
3:12:12 PM
REPRESENTATIVE DOLL asked whether a railroad line or more barges
would facilitate transportation.
3:12:25 PM
MR. MCDONALD stated his preference for use of the highway. He
said that he did not support a government owned railway. He
responded to a further question from Representative Doll and
explained that his company uses "multi-mobile;" nevertheless, it
is not feasible to put in a rail link overland, as compared with
the efficiency of the existing rail link to water.
3:13:17 PM
CHAIR NEUMAN asked Mr. McDonald for his opinion on Alaska's
economy.
MR. MCDONALD said that the housing construction industry is down
somewhat although there are large commercial projects coming.
His company hauls a lot of fresh fish southbound to Boston, the
Midwest, and Seattle, but overall, 2007 has been "pretty flat."
He remarked, "We're not taxed, by any means, as we were a couple
of years ago."
3:14:33 PM
CHAIR NEUMAN asked for comments from truckers about government.
3:14:38 PM
MR. MCDONALD said that they want more and better maintained
roads.
REPRESENTATIVE DOOGAN asked whether Mr. McDonald's company was a
big trucking company by Alaska's standards.
MR. MCDONALD indicated that his company was "significant."
Carlile and Lyndon Transport are the two largest Alaska-owned
transportation companies in Alaska.
3:16:17 PM
CHAIR NEUMAN informed the committee that Mr. McDonald came here
on his own dime because he is concerned about Alaska. He
expressed appreciation for his testimony.
3:17:02 PM
MR. MCDONALD, speaking for himself and his employees,
recommended that the legislature not make any rash decisions.
3:17:32 PM
REPRESENTATIVE WILSON asked, "What do you think will happen, I
mean literally, if we went ahead and did a 25 percent tax?"
3:17:52 PM
MR. MCDONALD remarked:
I know there's projects being discussed now, not one,
but a number of them, that, you know, are marginal ...
they waver back and forth. And some of them have to
get partners to sign off, and one partner thinks it
won't work, and one does, so it doesn't happen. I
know there's an ultra-low sulfur diesel plant that I
happen to have about 50 or 60 loads of steel stored in
my yard that was ... they thought they were going to
build it and there were some partner issues ....
The committee took an at-ease from 3:24 p.m. to 3:26 p.m.
3:26:16 PM.
CHAIR NEWMAN called the meeting back to order and asked Mr. Popp
to begin his presentation.
3:26:20 PM
BILL POPP, President/CEO, Anchorage Economic Development
Corporation [AEDC], thanked members for the opportunity to speak
to committee members on the status of the economy in Anchorage
and Southcentral Alaska. He told members AEDC, a not-for-profit
corporation, was founded in 1987 with a mission to grow and
diversify the Anchorage economy and economies of Alaska. The
AEDC acts as a resource for local businesses and businesses
interested in Alaska and seeks to be a catalyst for new
companies to find opportunities in Alaska. The membership of
AEDC is comprised of more than 180 investor companies, he
related. He began his PowerPoint presentation, as follows:
3:27:41 PM
th
So Anchorage is currently in its 19 consecutive year
of job growth. We've enjoyed modest, steady economic
growth - 1 or 2 percent per year, partially due to the
fact that our economy is becoming increasingly
diversified, following many of the trends that you've
heard discussed earlier today. Our primary economic
sectors include construction, government, oil,
business and professional services, leisure and
hospitality, trade, air transportation and health
care. In 2006 Anchorage saw stronger employment
growth than AEDC had forecasted. We do an annual
forecast every January. We predicted 1,900 new jobs
and actual growth in 2006 was 2,600 new jobs, an
increase of 1.8 percent of 2005. Most of that growth
was in the leisure and hospitality industry, air
transportation and the trades, retail and wholesale.
In January 2007, using research services of the
McDowell Group, AEDC forecasted that the Anchorage
economy would add 2,500 new jobs this year, an
increase of 1.7 percent over 2006. Based on the first
five months of the year, employment is up by 1,940
jobs, an increase of 1.3 percent compared to the same
time period in 2006.
3:29:06 PM
MR. POPP continued:
Sectors experiencing the largest increases in job
growth in their first five months of 2007 included
business and professional services, the architectural
trades, accounting, legal practices with 460 new jobs.
The leisure and hospitality trades, tourism in effect,
restaurants, hotels, etcetera - 360 new jobs, and in
health care - 340 new jobs.
It's important to note that uniform military personnel
are not included in the jobs forecast; however troop
levels at Ft. [Richardson] are expected to remain
about the same in 2007. Self employed workers are
also not included in the forecast. One of the
contributors to this job growth in Anchorage is a more
competitive cost of living than in previous years.
The cost-of-living index for the first quarter of 2007
revealed that Anchorage's cost of living ranks near
those of other West Coast cities. Anchorage is ranked
126.1 overall, with the national overall ranking of
100. Other cities scoring similarly include Portland,
Oregon, with a 121.7, Fresno, California, with a
122.3. The most expensive city in the United States
is New York, New York, at 213.7 and the least
expensive city in the U.S. is Joplin, Missouri at
81.6.
Now let's dig into the details on the different sectors.
AEDC predicted an increase of 400 jobs in the health care
sector in 2007 and that prediction is on track with 340 new
jobs in the first five months of 2007, an increase of 2.4
percent compared to the same period in 2006. This
continued growth is the result of increased federal
spending, increasing health care needs of the aging
population, and an overall increase in the population in
Anchorage and statewide. Anchorage Regional Hospital,
Alaska Native Tribal Health Consortium, Southcentral
Foundation and Providence Hospital make up the majority of
health care employment in Anchorage. Additionally a new
long term acute care hospital cancer center opened in
Anchorage at the end of 2006 and Anchorage remains the
primary center of health care services for most Alaskans.
The health care statistics presented from 2003 to 2006 is
the time period, because prior to 2003, health care was
combined with social services.
3:31:33 PM
MR. POPP continued:
AEDC predicted that the business and professional
services sector would add 400 new jobs in 2007 and, in
the first five months of the year, the business and
professional services sector added 460 new jobs, an
increase of 2.8 percent. Now with the expectation of
several future mining developments, as well as
construction and oil development around the state,
more businesses and professional services employment
growth is taking place to meet a growing demand. This
is especially true with the strong gains seen in
engineering, architectural and related services
created by this increased demand. Growth in other
parts of the sector, such as consulting, accounting,
computer and legal services, have been more modest in
2007. These and other professional services should
continue to grow gradually.
AEDC predicted that the leisure and hospitality sector
would add another 300 jobs in 2007, bringing
Anchorage's total to approximately 15,700 workers.
This prediction is on track, with 360 new jobs added
to the sector so far in 2007, an increase of 2.4
percent. The leisure and hospitality sector, which
includes accommodations, food services, arts,
entertainment and recreation, is once again seeing a
boost from visitor activity.
3:32:47 PM
REPRESENTATIVE DOOGAN asked if the numbers reflect full-time
jobs.
MR. POPP said they are.
3:32:56 PM
MR. POPP continued:
The total Alaska cruise visitation in 2007 is likely
to be around 990,000 due to an increase in capacity of
approximately 30,000 passengers from 2006. The
construction of a new Embassy Suites hotel in midtown
began in late 2006 and is expected to open in early
2008. At least one and possibly two other major
hotels are planned to begin construction in the next
two years but, because none of the new hotels will
open before 2008, their employment impacts will not be
seen until 2009. Hotel reservations in Anchorage for
the summer months were higher in 2007 than in 2006,
and we also had several new restaurants open in the
area.
3:33:37 PM
MR. POPP continued:
AEDC predicted 150 new government jobs in 2007. This
prediction is on track with 200 new government jobs
through the first five months of the year, primarily
the result of increasing state government employment.
As a result of oil revenue surpluses, state government
employment will continue to grow modestly in the
second half of 2007.
Federal employment is falling in 2007, continuing a
three-year trend of decreasing employment. The
Municipality of Anchorage employment is expected to
remain relatively stable in 2007. The Anchorage
School District's enrollment fell slightly for the
2006, 2007 school year and enrollments could also fall
in 2008, based on recent media reports. However, the
district's employment is unlikely to change and is
expected to remain stable in 2007.
The dips that we see in 1994 are due to federal
cutbacks. Federal government jobs in Anchorage have
remained relatively stable since then. The growth you
see is due mainly to increased jobs at the state and
city levels over the last period of time represented
in the graph.
Turning to the oil industry, employment in Anchorage
was also expected to increase in 2007. Through May,
employment was up by about 80 jobs, an increase of 4
percent in direct employment based in Anchorage. This
is exclusive of employees who travel to and from the
Slope or elsewhere in the state on oil and gas
employment.
3:34:58 PM
CHAIR NEUMAN asked if those numbers pertain only to oil industry
jobs in Anchorage.
3:35:00 PM
MR. POPP said that is correct. He continued:
While Anchorage has not yet achieved direct employment
growth to the levels AEDC predicted in January, oil
industry employment in Alaska overall has grown by
1,500 jobs over the past year and 2,600 jobs over the
past two years. A large number of those employees
reside in Anchorage and bring those paychecks back to
our local economy.
As measured by land and cargo weight, Ted Stevens
Anchorage International Airport (TSAIA) is the third
busiest cargo airport in the world, just behind Hong
Kong and Memphis. Ted Stevens Anchorage International
Airport accounts for one in eight jobs in Anchorage,
according to a recent study by the Institute of Social
and Economic Research [ISER] commissioned by the
airport. Employment at the airport is estimated at
10,222 annual, average full-time equivalent jobs.
Adding the off-site jobs generated by airport
businesses, the total economic significance of the
airport is 18,434, according to the ISER report.
This is up from the last ISER study completed in 2004,
which showed the TSAIA accounted for one in nine jobs,
as opposed to the one in eight we now see, and a total
of 9,792 and total economic significance of 15,766
jobs in 2004. That's a 16.8 percent growth rate in
three years.
The key driver of growth at TSAIA is cargo,
specifically in the Asia to North American market,
where the rate of growth for international cargo
operations is forecasted to increase 5.2 percent
annually. In 2006, more than 5 million passengers
passed through the Anchorage airport and, on a weekly
basis, an average of 650 wide-bodied cargo jets land
there, making Anchorage the number one airport in the
United States for landed weight of cargo aircraft and
number three in the world for cargo throughput. In
the first five months of the year, transit cargo has
increased by 1.7 percent compared to the same period
in 2006.
Federal Express, UPS, Northwest Airlines and other air
cargo carriers continue to add significant numbers of
parking spaces for planes to accommodate their growing
fleets and UPS plans to base 80 or more of its pilots
in Anchorage, which could mean more of the company's
high wage pilots will relocate to the city.
3:37:19 PM
MR. POPP continued:
As predicted, the construction sector is stable with
about 40 new jobs, half a percent increase. An
increase in commercial construction is apparently
being offset by a slight decline in residential
construction. Construction of a $100 million mall in
Anchorage's Mountain View area is expected to be
completed by the end of 2007, while construction of a
second $100 million shopping center, including a
Target store, has recently commenced and is expected
to be completed by the end of 2008.
Pending projects include construction of a second
Target and a super Wal-Mart. Both projects are in the
planning processes and completion is not expected
until 2009. Residential construction has declined
slightly in the first five months of 2007 and is
expected to continue that decline. Residential
construction has not been a factor in the expansion of
Anchorage's construction industry since homebuilding
activity peaked in 2003.
Increasing building material costs and the lack of
available land for development will continue to
constrain growth. AEDC expects to see a continuing
trend towards more multi-family structure projects.
Employment increases are also occurring in a mix of
sectors, including transportation other than air
transportation. Manufacturing, education and other
miscellaneous services, these sectors combined added
approximately 440 jobs to the Anchorage economy in the
first five months of 2007.
3:38:44 PM
MR. POPP continued:
Now the economic forces and issues that will be
affecting the Anchorage economy in the next year and
in the coming decade will include many of the typical
resource based developments we have seen in the past.
Those include several major capital construction
projects in Anchorage and Alaska, increased investment
in oil and gas exploration and development, major
investments in several mining projects across Alaska,
and significant expansion of the retail base.
I'd now like to turn to the Railbelt energy situation.
With all this potential investment and economic growth
looming in the next decade, energy will be a key issue
to the successful development of these billions of
dollars in projects.
In the last few years, the natural gas supply and
deliverability situation in Cook Inlet has been
receiving quite a bit of attention, and rightly so.
But our future economic growth rests heavily on other
key energy sources, specifically crude oil supplies
for our refineries and the increasing demand for
refined petroleum products.
I'd now like to examine in brief the current state of
the Southcentral energy supplies and several
challenges Alaska will face regarding these supplies
in the coming decade. Cook Inlet natural gas
continues to be a growing concern. Reserves
replacement continues to lag behind demand and
deliverability has reached a crisis point.
Interruptible price natural gas basically no longer
exists as a component of the supply picture in Cook
Inlet. While prices appear to be leveling off at the
home level and at the commercial level, demand
destruction has begun to take place. The clearest
example of that demand destruction is the closure of
the Agrium nitrogen plant with a corresponding loss of
nearly 300 direct high paying jobs over the last four
years in the slow motion process of closing the plant.
In addition, Aurora Gas unexpectedly cancelled its
supply contracts last fall with several major business
customers, as well as the Fairbanks natural gas
utility, creating several ripple effects on price and
supply in the local gas markets. Tesoro, faced with
curtailment of their interruptible gas supply
contracts for plant power generation last winter, was
forced to fuel switch to propane. This created an
unexpected shortage of propane in Alaska markets with
a corresponding price spike.
3:41:00 PM
MR. POPP continued:
Based on recent conversations with industry, this
winter is not looking any better and if we infer an
extended peak demand period of extreme cold weather,
there are serious concerns about the possible
consequences.
Here's a graphic visualization of the natural gas
supply demand outlook. This is an updated graph that
was presented at the 2006 Energy Forum, hosted by the
Alaska Oil and Gas Conservation Commission. Though
slightly dated and subject to further refinement, the
graph provides several points for consideration.
Utilities will be facing severe supply challenges
within the next eight years given the current supply
situation. Utilities are actively seeking new supply
contracts with producers, but the situation still
remains unclear. Exacerbating the current supply
demand problems are future increases in demand. As an
example, if the Pebble Mine project goes forward as
planned, it could create a significant spike in
electricity demand from the Railbelt power grid as
represented by this graphic in 2015. Add in other
projects, such as the Chulitna coal project, or other
mining projects in the Railbelt region, and you begin
to see the future problem. If we cannot provide the
necessary energy sources to generate enough power to
meet future large project demand, those projects may
not go forward.
3:42:17 PM
CHAIR NEUMAN interjected to say the chart is quite powerful and
shows a huge spike in 2014. He asked Mr. Popp if he said the
gas reserves in Cook Inlet are inadequate to provide for
industry expansion in Alaska.
3:42:52 PM
MR. POPP replied that he is saying that based on the current
reserves replacement rate, over the last six years two years
worth of reserves have been replaced based on industry effort,
market demand and other factors. If that trend continues, it
will be difficult for the utilities to deliver power at a price
that projects along the Railbelt can use. He said he is trying
to raise a big question mark because the situation can be
addressed in a timely manner, but that time period grows shorter
with each passing year. He noted he is speaking to several
projects that could be affected. He pointed out:
... The utilities, at this point, are still trying to
work with industry, based on the conversations that
I've been having with several industry players, and
industry is a little bit perplexed as to how they're
going to approach the situation based on what happened
to the marathon Enstar contract this last fall. The
previous price signal from the State of Alaska given
through the Regulatory Commission of Alaska with the
Henry Hub connection was basically repudiated by the
Regulatory Commission of Alaska [RCA] but no new
signal was provided to replace it. So industry has
kind of got their head up in the air trying to figure
out which way the wind is blowing and what they should
invest in and they don't have clear guidance on that
so that's an issue that needs to be resolved in a
fairly timely manner. I know that industry is very
hesitant to go before the RCA again anytime soon. At
least that's the opinion I'm getting from several
industry players.
3:44:55 PM
CHAIR NEUMAN thanked Mr. Popp for the response and noted the
importance of that information.
3:45:14 PM
MR. POPP continued his presentation:
Equally important ... though mostly ignored in the
face of the natural gas crisis is Cook Inlet crude
oil. Cook Inlet used to produce a huge amount of oil
in the 1970s but not anymore. Cook Inlet produced
246,000 barrels a day in 1972. This year Cook Inlet
will be lucky to average 14,000 barrels per day. This
decline has tremendous implications for the future
energy security of Southcentral and Alaska that has
been largely overlooked in the face of the natural gas
supply crisis. Today the total Cook Inlet crude
production is just a shadow of its past peak
production, even though estimates exist that there are
billions of barrels of oil in place yet to be
discovered or developed through new exploration or
developed in existing fields using new enhanced oil
recovery technologies. This raises an important
question: How are we meeting today's refined fuel
demands in Alaska? The answer may surprise you.
As you can see by this graph, the bulk of Alaska's
crude oil consumed by the in-state refineries that
serve the commercial and military markets comes from
the North Slope. What is not readily recognizable is
the fact that three out of four of the in-state
refineries are 100 percent dependent on North Slope
crude oil with no other option for crude oil supplies
from other sources. Today 18 percent of the crude oil
supply to Alaska's refineries comes from foreign
sources. Unless steps are taken soon to increase in-
state production, particularly in Cook Inlet, the
percentage will only grow and Alaska's energy security
will continue to erode and become more susceptible to
the whims and calamities that affect world oil and
refined fuels markets and prices.
Our energy security that we Alaskans are so proud of
is eroding rapidly. Energy security, in the form of
crude oil supplies that our refineries rely on to
produce the fuels, we must have to keep Alaska's
economy moving, and I mean that in the most literal
sense. As a first example, the Tesoro Refinery, a key
source of jet fuel, heating fuel, gasoline and fuels
for power generation, is now reliant on sources
outside the Cook Inlet for 78 percent of its crude
supply. More importantly, 40 percent of Tesoro's
crude oil now comes from foreign sources such as
Indonesia, Australia, Norway and Africa. While this
mix of crude source has saved our bacon in
Southcentral Alaska when Prudhoe Bay was shut down
last year, it has become glaringly apparent that
Alaska's growing less and less energy independent with
each passing year.
3:47:40 PM
MR. POPP continued:
Consider the fact that Alaska is a net importer
annually of nearly 11 million barrels of jet fuel and
7.6 million barrels of distillate, or diesel fuels,
for transportation, heat and power generation in 2005.
Alaska is the fourth largest consumer of jet fuel out
of the 50 states and the seventh largest consumer of
aviation gasoline in the United States. Inversely,
th
Alaska ranks 50 in the nation for gasoline
consumption, though we did beat the District of
Columbia and exported 2 million barrels of gasoline
and related products in 2005. The three refineries in
Fairbanks and Valdez, which are 100 percent dependent
on ANS crude, consume 54 percent of the total crude
used by refineries serving the commercial and military
markets of Alaska and play an important role in our
energy security. How will these refineries operate
safely, profitably, and continue to produce the same
volumes of the important fuels they produce for
Alaska's economy if the TAPS system is forced to ship
crude in batches, perhaps within the next five years?
I'm sure the refiners are looking at these questions
very closely and will be making some very tough
decisions if the decline in ANS crude volumes
continues.
If our in-state production capacity is curtailed for
any reason, our options for replacing these refined
fuels are limited. In 2004, for example, the West
Coast refinery system had an excess production
capacity of approximately 9 million barrels of
distillate fuels. When you look at jet fuels
production, the West Coast region was a net importer,
over 3.6 million barrels in 2004. This difference was
made up through foreign refinery imports.
With the tight nature of refinery output capacities on
the West Coast region for these fuels, what happens if
our 100 percent North Slope dependent refineries lose
their crude supply for whatever reason? Is there
enough surplus capacity in the world of refined fuels
markets to make up any lost production? What will the
pricing impacts be if we have to import significantly
increased volumes of these fuels for Alaska consumers
and businesses? The answers aren't clear. We don't
have a clear answer on that situation.
3:49:52 PM
CHAIR NEUMAN asked if the price of fuel is so high in Alaska
because a lot of it is coming from "outside."
3:50:20 PM
MR. POPP said Alaska is a net exporter of gasoline. He said the
problem in Alaska is caused by the economy of scale. Gas in the
Kenai Peninsula tends to be 15 or 20 cents higher than in
Anchorage. A large chunk of that cost is due to sales tax and
the cost goes down in the summertime because of tourist traffic.
3:51:24 PM
CHAIR NEUMAN said his constituents want an answer.
MR. POPP said that is not an answer they like to hear.
3:51:33 PM
MR. POPP continued:
So, let's set aside the issue of refining capacities.
There is still the question is there more crude oil to
be found in Cook Inlet and I believe the answer is
yes. In September 2006, the Alaska Oil and Gas
Conservation Commission held the Southcentral Energy
Forum in Anchorage. This two-day conference took a
comprehensive look at the current state of energy
supplies in Southcentral Alaska. In three different
presentations, it was estimated there is combined
potential for an additional 2.6 billion barrels of
yet-to-be discovered or recovered Cook Inlet crude.
Ten years ago these estimates were considered unlikely
at best but, with new research, the potential of
enhanced oil recovery technology and with the new
world price realities, these reserve estimates appear
to have merit. The real challenge though is cost.
These oil reserves will not be cheap to find or
develop. Billions of dollars will need to be invested
in the next 20 to 30 years to make these potential oil
reserves a reality.
Can we attract this kind of new industry investment to
Cook Inlet? There are some positive signs that
industry is interested. Several hundred million
dollars in new investments over the next four to five
years is under consideration by industry. We must
watch this crude oil supply issue closely and be
prepared to consider how to jump start this important
investment if they are not forthcoming.
3:52:51 PM
MR. POPP continued:
Last topic - turning now to a related subject, I want
to offer a perspective on workforce development in
Alaska. I don't have time to go into all the aspects
of this looming workforce crunch, so I'll focus on the
roots of the looming challenge, the oil and gas mining
industries.
For AEDC, workforce development is a key issue for the
Alaska economy. All business sectors in Alaska are
feeling the pinch of tighter labor markets in one form
or another; professional services, health care,
logistics, tourism, oil and gas, and mining are just
some of the industries facing workforce shortages of
one form or other. In the coming decade, Alaska could
see huge investments in resource development projects
across the state, the likes of which we have not seen
in decades. Oil and gas and mining projects large and
small could combine to create a perfect storm of
projects. These projects, if they reach the point of
sanction and commence construction, will have a
significant ripple effect through the Alaska economy
and no business sector will likely be unaffected.
If you want a clear example of what I mean, just take
a look at Alaska's history and the impacts of the TAPS
project on the cost ... and availability of labor in
the 1970s.
I would offer that there's a clear analysis of this
history compiled in the Stranded Gas Development Act
Municipal Impact Analysis that was authored in 2004.
The study, put together with the help of all the
municipalities that were indirectly or directly
affected by the potential gas pipeline contract that
was being developed under the Murkowski
Administration, offers a concise, historical
perspective of what we may face in the coming decade.
3:54:32 PM
MR. POPP continued:
So, in my previous life as oil and gas and mining
liaison for the Kenai Peninsula Borough, I developed
this representation of the possible future of projects
on the horizon for Alaska.
Using accounts in the media and direct dialogs with
the oil and gas and mining industries, as well as the
training industry, I compiled a list of likely or
reasonably possible projects and stacked them in this
timeline to try and represent an understandable,
though admittedly simplistic, picture of the
challenges Alaska faces in meeting its future labor
needs. This is not a complete list of projects with
several additional projects under development that are
not listed here. If, and I repeat if, all of these
projects were to go forward as planned, they represent
just over 49,000 positions that will need to be
filled. Now of course in a lot of cases, workers will
move from project to project but look closely and you
will see several projects slated to overlap
chronologically.
3:55:30 PM
So, basically, looking at this graph, these are the
timelines represented for the different issues or
projects and the timeframe they represented at the
time that this graph was developed, which was updated
in February earlier this year and then, of course, the
different column years. You can start to see the
density get pretty thick out here in the middle part
of the next decade. Keep that in mind as we go
through this last part of the presentation and you'll
see why it's going to become a real challenge for us.
AEDC is doing what it can to bring together and
attention to this challenge and to seek and facilitate
cooperation between industry, educators, and training
providers to make assured we will need a large number
of out-of-state workers if we are to see these
projects develop successfully. That has ramifications
for the general economy. We must begin to understand
and prepare if we are to avoid the mistakes and
growing pains of the past and reap the opportunities
in the future.
3:56:22 PM
MR. POPP continued:
The point of this part of my presentation today is the
challenge that Alaska faces if we are going to bring
off any and all of these future mining and oil and gas
projects. That challenge is finding or developing
enough workers with the skill sets necessary to
successfully construct and operate these projects.
That is the real challenge given the growing shortages
across North America and for practically every
category of skilled workers needed for the mining and
oil and gas industry combined with the dramatic growth
and investment being seen in several energy producing
regions in North America. There is no sign that that
continent-wide shortage will ease any time soon. One
clear example of the competitive challenge we face in
obtaining enough qualified workers for future Alaska
projects is the energy and mining sector in Alberta.
I want to offer the following information using
several parts of a PowerPoint provided to me by the
Alberta Provincial Government as a snapshot of the
massive development that is currently ongoing in
Alberta, as well as a look forward on the potential
impacts that development will have on Alaska in the
coming decade. I recently toured the oil industry in
Alberta in September for the second time in the last
three years and I can tell you the level of investment
and the scope of the current development plans for oil
sands is stunning, even just in the growth that
they've seen in the last three years.
First let me give you a little recap of what oil sands
are and how they are currently being developed and
then I'll discuss what the future holds for developing
this massive resource.
Oil sands are just that - sand saturated with heavy
oil or bitumen, 14 API to be exact for those of you
familiar with weights of oil. Alberta currently has
an estimated 1.7 trillion barrel equivalent in place
in the oil sands regions of the province, with just
over 175 billion barrels in proven reserves. Alberta
is soon expected to surpass Saudi Arabia in proven
reserves and is arguably one of the largest, if not
the largest, foreign supplier of crude oil or
equivalence to the United States.
This graphic demonstrates the oil sands on a number of
levels. Currently most efforts are focused on the
mining of bitumen to depths of approximately 200 feet.
This represents about 20 percent of the resource.
That's what their current focus is on.
The bigger prize is the remaining 80 percent lying at
depths of up to 3,000 feet that must be developed
using enhanced oil recovery drilling techniques, such
as SAGD, or steam assisted gravity drainage. All of
these methods are labor and capital intensive.
3:58:51 PM
Just to put the reserves in perspective, here's a
graph demonstrating eight other of the largest proven
reserves by country when compared to Alberta. Saudi
Arabia is the largest. Iran is the third. We're down
at number eight.
With over 60 billion invested in Alberta in each of
the last two years, strong GDP and population growth
and a very favorable taxing regime, Alberta is the
economic powerhouse of Canada. I would note that the
taxation figures were provided to me prior to
yesterdays announced provincial tax increase of 1.45
billion by the Albertan government.
These are the oil sands regions of Alberta and these
are the projected production levels Alberta expects
over the next two decades based on current industry
sanctioned project plans. With over $100 billion in
new oil sands, mining and extraction projects and
another $100 billion plus in upgraded and pipeline
projects in various stages of development, Alberta is
seeing massive investments to "capture the window of
opportunity." This is the Albertan government's
current catch phrase for encouraging this development
in the next decade to become the United States key
energy provider of liquid petroleum products.
4:00:10 PM
MR. POPP continued:
This graphic describes the broader picture of how that
strategy will be implemented in the delivery of those
liquids to market via existing or significantly
expanded pipeline infrastructures to the U.S. East
Coast, Gulf Coast, Midwest, Southwest and West Coast
markets; again, billions of dollars worth of new
infrastructure projects in the next decade with a
corresponding demand for skilled workers, equipment
and resources.
The final view of these investments is this graph that
describes the recent massive increase in investment
compared to the previous decade and the huge levels of
investment planned for the future in just the
extraction of bitumen in the ... oil sands. This does
not include "upgrader" or pipeline projects. This
strictly represents the production of bitumen. The
checkerboard pattern bars are the stated investment
plans of industry through the next two decades. The
green bar represents the more conservative view of the
Alberta government on what is likely to happen. As
you can see, either model represents hundreds of
billions of dollars in new investment for the
foreseeable future for Alberta.
With this investment come huge demands for skilled
workers in mining, oil and gas, and petrochemical
industries. Each of these three industries is often
competing for the same workers with similar skill sets
that are in short supply in North America. This is
leading to a significant increase in labor costs and
the cost of living in Alberta. During my recent
visit, workforce recruitment was the top priority of
nearly every sector of the Alberta economy. Every
other radio ad was a recruitment ad of one kind of
another for different businesses. Every fifth booth
at the heavy oil conference I attended was an employee
recruitment exhibit. McDonalds was paying $12 an hour
for their night shift workers. To really put the
Alberta labor shortage into perspective, let me share
with you the following graphic.
4:02:03 PM
MR. POPP continued:
This is the outlook just through the end of this
decade for industrial construction workforce demands
in Alberta. In early 2010, that demand peaks at over
36,000 workers for projects that have been sanctioned
and are either already under construction or are
mobilizing for construction. The Alberta government
official who provided this projection made it very
clear that anyone viewing this slide should not be
fooled by the fact that worker demand trails off
towards the end of the graph. The graph does not
include future projects that have been sanctioned for
start up beyond 2010. The officials stated the demand
will continue to rise beyond these current levels of
demand well into the next decade. I would also note
that at a recent presentation in Anchorage at the
Pacific Northwest Economic Region conference last
August, another Alberta government official stated
that by the end of the next decade, Alberta projects a
109,000 overall worker shortage in their economy.
That same official proceeded to hold up some paperwork
in the air and said, "And I have immigration paperwork
here with me today and if I can get one of you folks
in this room to fill out this paperwork, I've done my
job." This was a roomful of government officials from
other provinces and other states.
4:03:25 PM
CHAIR NEUMAN asserted the cost of labor will increase in
proportion to the inability to find qualified workers.
4:03:35 PM
MR. POPP said one of the newest oil sands development projects,
Albee and Sands, is offering a hiring bonus of 15 percent of
one's base wage within 30 days, a $15,000 housing allowance, a
$380 per month transportation allowance, contributions to three
different retirement accounts varying from a 2 to 6 percent
employer match, an increased health care package, $12,000 worth
of continuing education credits for any family member in a
career field that will benefit the conditions in Alberta. He
stated inversely, a double-wide trailer on a city lot was
selling for almost $400,000.
4:04:45 PM
MR. POPP continued:
Why is the situation in Alberta so important to the
future of Alaska's ability to develop its own
projects? Several reasons. There's a shortage across
North America for skilled workers important to the
mining, oil, and gas and construction related
industries. Alaska must compete with the rest of
North America for these workers in regions such as the
Gulf of Mexico, Nova Scotia, western states, such as
Wyoming, Montana, Colorado and Utah, Alberta, and
British Columbia are all seeing significant increases
in demands for these increasingly scarce workers. Now
with the Canadian dollar enjoying an equal or stronger
value to the U.S. dollar, we are seeing a greater
interest by U.S. and, yes, Alaskan companies in
getting in on the action in Alberta. This could
create an even greater challenge for Alaska's ability
to provide enough workers for future oil and gas and
mining projects in our state. While Alaska has come a
long way in providing worker training programs
compared to where we started, AEDC believes it is
important that we take our policies and strategies to
an even higher level of coordination between industry,
government, training and education providers to make
sure we are offering the most efficient and effective
training programs possible to maximize Alaskans'
opportunities in the coming decade in all sections of
our economy.
4:06:01 PM
While the Southcentral economy is healthy, as are
other regions of Alaska, we cannot be complacent on
the issues I presented today. Energy security with a
corresponding need for an energy policy that addresses
our future planning and investments in a more
diversified, stable energy mix is key to Alaska's
future economic growth. To successfully develop those
new energy resources as well as supporting the
newfound growth and expansion of our oil and gas and
minerals extraction industries, Alaska must make every
effort to elevate the level of coordination and focus
in our future worker training and recruitment efforts.
This effort will require an even closer relationship
between industry and training providers to maximize
the value of our training investments and focus on key
job skills training Alaska will need in the future,
otherwise we may see projects curtailed or cancelled
due to spiraling labor costs or the simple lack of
enough workers to do the job.
I want to thank you for the opportunity to share these
views with you today and, as you can tell, I could go
on probably quite a bit more but I won't. The time
won't allow me so without any further ado, I'd be
happy to answer any questions from members of the
committee.
4:07:18 PM
CHAIR NEUMAN thanked Mr. Popp and noted the numbers he presented
are stunning.
4:07:31 PM
MR. POPP noted when he first plotted the number of jobs for
Alaska on the graph four years ago; people did not want to
believe the numbers. However, he has been working with the
Putting Alaska's Resources to Work Coalition, which has been
working with the Alaska Process Industry Careers Consortium, and
pushed the graph through a recent peer review of primarily human
resources directors in different industries. He was told to add
another 2,000 jobs. The demand for Alaska's resources is
growing rapidly. If those resources can be developed, Alaska
may see the next great immigration wave and a decade or more of
significant investment.
4:09:13 PM
CHAIR NEUMAN thought all members agree that developing Alaska's
resources is a priority. He asked Mr. Jackson of the Alaska
Homebuilders Association, to begin his presentation via
teleconference.
4:09:36 PM
JIM JACKSON, President, Alaska Home Builders Association, told
the committee the building industry in Alaska represents 25
percent of its economy. The building industry employed 14,000
people across the state and 7,800 in the Anchorage area last
year. He said construction is down by 35 percent or more this
year.
4:10:29 PM
REPRESENTATIVE DOLL noted that 35 percent in one year is not a
gradual decrease.
CHAIR NEUMAN asked Mr. Jackson what he sees happening in the
next two or three years.
MR. JACKSON said that depends on what the economy does as far as
oil and gas development. If nothing is developed in that
industry, he does not know whether the military will bring in
more personnel to buy homes, or whether FedEx is going to bring
its pilots to Alaska. He said many factors are involved but it
depends on whether people are going to be out there to buy
homes. People seem to be very cautious right now even though
interest rates are still at an all-time low. He said some
builders in the Anchorage and Mat-Su areas have reduced their
profits down to zero just to move their inventory. He said the
situation is very devastating.
4:11:55 PM
CHAIR NEUMAN asked how many jobs have been affected by the
downturn.
MR. JACKSON said he didn't have any current numbers. He
believed the Alaska Homebuilders Association is down 35 Mat-Su
members and 17 Anchorage members. He said the number of workers
affected depends on how many employees each builder had but
construction employment is way down. He said builders and
people in the industry are cutting back on everything because
this is a very difficult time.
4:12:49 PM
CHAIR NEUMAN recalled that an earlier testifier showed the
construction industry as paying the third or fourth highest
wages in the state. He asked if those wages are likely to
decline.
MR. JACKSON said new construction is down 35 percent and
approaching 50 percent. He said the inventory of new houses is
large; once bankers start foreclosing on the builders that have
not sold the homes, the banks will sell those homes at a
discount, which will make it even more difficult for builders to
sell their existing inventory. If the average wage of a
construction worker was $54,000, his/her annual income would be
way down this next year, he predicted.
4:14:49 PM
REPRESENTATIVE FAIRCLOUGH said Chair Neuman has wisely
recognized that the sectors of Alaska's economy are interlinked
so any oil and gas tax decisions the legislature makes will
affect other industries. She asked Mr. Jackson if he can draw
any conclusions or relationships between the oil and gas
industry as it affects the housing market.
MR. JACKSON said he has been in Alaska 57 years and watched many
price declines. In the mid-1980s, the price of oil was below
$10 a barrel. Right now the price is at a record high of $92.
He believes that buyers lack confidence in what Alaska's economy
is going to do in the near future because the ads on television
say the pipeline is only one-third full and oil sales represent
80 percent of Alaska's revenue. They are reluctant to upgrade
and are waiting to see what will happen.
4:18:01 PM
REPRESENTATIVE FAIRCLOUGH said even though the price of oil is
at an all-time high, because production is low people are
holding back from making any major financial moves until they
know what the economy is going to do.
MR. JACKSON said he believes that is correct.
REPRESENTATIVE FAIRCLOUGH repeated that she appreciates Chair
Neuman's desire to look at the impacts of the oil and tax
decision on other sectors of the economy.
4:18:56 PM
CHAIR NEUMAN asked Mr. Jackson what advice he would give to
legislators regarding the housing situation.
MR. JACKSON said he didn't want to give advice and believes
legislators know what they are doing. He just hoped legislators
keep the interests of their constituents in mind and instill
confidence about the economy moving forward.
4:19:55 PM
REPRESENTATIVE DOLL asked if the Anchorage and Mat-Su areas have
been overbuilt at this time.
MR. JACKSON said yes, but more so in the Mat-Su area. In
addition, the price of lots skyrocketed so the prices of homes
jumped to $350,000 to $400,000. Anchorage has a 34-month
inventory of $1 million plus homes right now.
4:21:08 PM
REPRESENTATIVE DOLL asked if the builders who are trying to sell
these homes are paying property taxes as well as interest on the
home loans.
MR. JACKSON said they are paying property taxes on the homes for
which they hold ownership. He noted the interest on a $1
million home is about $8,000 per month.
4:21:33 PM
REPRESENTATIVE DOLL asked what impact the property tax payments
have on those businesses.
MR. JACKSON said he is paying property taxes on his home, valued
at over $2 million a year, which equals a lot of money. He said
he has no children living at home so he and his wife do not
impact the economy like other families do.
4:22:22 PM
CHAIR NEUMAN thanked Mr. Jackson for joining the committee. He
then asked Mr. Stevens to begin his presentation.
4:22:36 PM
MR. WAYNE STEVENS, President and CEO, Alaska State Chamber of
Commerce, gave the following testimony.
Good afternoon - Wayne Stevens, President and CEO of
the Alaska State Chamber of Commerce. Thank you, Mr.
Chairman and members of the committee, for the
invitation. I have some thoughts on economic
development I wanted to share. You've heard certainly
from lots of resident experts and lots of charts and
graphs and I will leave that to those experts.
The Alaska State Chamber of Commerce is a business
advocacy organization whose mission is to drive
positive change for Alaska's business environment and
to improve our member organizations by providing
leadership, advocacy, connectivity and support. As
such, we do not gather or collate specific economic
indicators. We use readily available data and offer
our thoughts on those data points.
I'd like to take this opportunity to suggest that
perhaps we need to stop for a moment, take a deep
breath, and ask ourselves what it is we really are
trying to accomplish when we speak of economic
development. We all want a healthy economy, vibrant
and thriving communities, industry that is successful
and a government that supports those goals. But if we
stop to take a careful look at what we have, it is
disappointing at best.
4:23:59 PM
MR. STEVENS continued:
We have communities that are threatened with a loss of
their local government services. We have industry
that is under attack on many fronts, whether it be
over local, state, federal tax structures,
environmental issues, a regulatory environment that is
not conducive to business, or the rising cost of doing
business, including insurance, fuel, labor and taxes.
We have a plethora of government programs all
competing to help us but with what appears to be no
clear vision of who is doing what to help whom.
Additionally there is great debate in our state about
what some call the urban-rural divide. How do we make
sure that rural communities survive into the future?
It is almost enough to make one hang their head in
defeat and give up efforts to make Alaska the best
place on earth to live, work and play.
4:24:56 PM
I personally believe that we have a tremendous
opportunity ahead of us. We have high oil prices, the
potential to finally build a gas line to bring our
great gas resources to market. We have a growing
mining industry and a demand for a construction labor
force that is projected to outstrip our ability to
fill those jobs with Alaskans.
The fishing industry has gone through much
consolidation and our fish products are now of a
higher quality and prices for that higher quality fish
are increasing as well. Our position as a global
competitor in the airfreight transportation business
is creating great growth.
4:25:28 PM
MR. STEVENS continued:
So which is it, you say - bleak or rosy, rosy or
bleak? I would say it's both and it will only be
determined by our willingness to roll up our sleeves
and work together. Opportunity is all in how each of
you perceives the same situation. I submit that
opportunity abounds in the state of Alaska but how do
you perceive that this is so? Are those rocks in the
road or nuggets of opportunity? I believe it is how
you view the big picture.
Here's a simple tale that I think illustrates how
perception can affect your outlook. A shoe company
sends two salesmen into the far reaches of the Amazon
jungle. After a week in the jungle, the first
salesman calls in to the home office and laments that
what an uphill struggle this is going to be as no one
wears shoes. Shortly thereafter the second
salesperson reported in. He went on at great length
about what a wonderful opportunity he had stumbled
upon as no one owned any shoes. Your perspective on
the situation clearly dictates your outlook.
4:26:36 PM
MR. STEVENS continued:
I believe that all regions of Alaska, urban and rural,
need to have better communication, focus and
collaboration. There appears to be duplication and
sometimes confusion among government and non-profit
organizations that deliver services to both areas. In
the economic development arena, I would suggest that
we inventory our existing programs and services before
we start anything new. Each organization that
delivers services needs to focus on their mission. As
mission drift occurs, the organization loses focus and
confusion sets in for everyone involved. We need to
determine who brings what to the table, for whom, and
where is the overlap. Sometimes overlap is necessary
but I suspect that there could be consolidation of
programs and services. I believe there's too much
confusion over areas of coverage and responsibilities.
We need to reassess who was doing what for whom, how,
and when. None of this can happen without
communication and no one is going to communicate
unless they trust each other.
4:27:41 PM
So how do we accomplish that review? Many years ago I
took over a newspaper route in my hometown as I was
growing up as a kid. I delivered 27 newspapers to all
four quadrants of that old New England town, north,
south, east and west along the route structure. It
took me over 2.5 hours to deliver those 27 papers. My
dad, a mail carrier, wondered why there were others
delivering newspapers in our very neighborhood when I
was off traipsing around somebody else's neighborhood.
After a period of me arriving home late for dinner or
whatever I was supposed to be doing, he called the
newspaper circulation manager and volunteered to help
the newspaper review who was delivering newspapers to
whom and where. In a matter of a few evenings, they
were able to sort out those customers, divide the
customer base up equitably among all carriers and what
once took me 2.5 hours to deliver could now be
accomplished in a little under 30 minutes. Now I had
the opportunity to grow my business by asking others
in the neighborhood if they wanted home delivery. I
was now able to grow those 27 newspapers to over 150
papers delivered and still able to deliver them in
under an hour. By collaborating, communicating, and
review, I gave up old customers, took on new customers
and grew my business by over 500 percent.
4:29:01 PM
MR. STEVENS continued:
I encourage you to ask the Department of Commerce,
Community and Economic Development to undertake such a
review. Create a listing of all agencies involved in
economic development in our state, including state,
federal and local programs. List the many programs
and expected outcomes. List the constituencies for
each of those programs and see if, indeed, there are
opportunities to shed programs, shift
responsibilities, and make each program stronger and
more responsive to the needs of those constituents.
There might even be, in some instances if the
evaluation so warrants, that we decide to eliminate
duplicate and overlapping efforts and programs. We
need to see and know what others are doing. We need
to be willing to pass off projects or issues to the
appropriate agency. We shouldn't worry about who gets
credit for doing or accomplishing a project. We need
to worry more about who will do it and are they the
right agency or organization to accomplish it.
A presenter at a recent conference, in his prepared
remarks, suggested that such a review might include
asking the question: If it isn't accomplishing what
we believe it should be, why do we keep spending money
on it? With a clearer focus, fewer competing agencies
and programs, we can begin the process of working to
make sure the communities can be viable into the
future. The evaluations can make programs better,
more effective and perhaps even more responsive to the
different needs of individual communities. I'm not
here to suggest that this evaluation is a panacea to
all that ails small communities, but perhaps it will
bring a sharper focus to what is good and what is
worth saving in our communities.
Conversely, it may mean that, like when the interstate
commerce system went in across the Lower 48, not every
community got access to the on-ramp to the highway.
Over time, many of those communities were absorbed and
consolidated into neighboring communities. Some
communities may go away. The communities that remain
may become stronger, more economically viable, and
able to provide the infrastructure for business to be
successful in their community. There are no
guarantees in life or business but hard work, strong
plans, and enthusiasm for the future will go a long
way to make us successful.
To those of you from larger or more urban communities
who think to themselves why should I care what happens
to these small communities? I say rest assured.
There's a bigger community upstream saying the same
thing about your community. It's not about providing
a hand out; it's about providing a hand up. We need
to help each other to succeed. We need to
collaborate. A recent Anchorage Economic Development
Corporation study shows that roughly one in eight jobs
in Alaska depends on rural Alaska. In 2004, the
Southwest Alaska Municipal Conference contracted with
Northern Economics to conduct an economic geography
study. Their report shows that each year more than
$350 million flowed from Southwest Alaska to
Southcentral Alaska. Should rural Alaska shrink in
size or stature, or go away, will those Anchorage jobs
still be as important or needed? Will the freight
forwarder, the shipping clerk, the airline pilot and
support personnel still have jobs or will they go by
the wayside as well? We are dependent on one another
and need to look out for each other's best interests.
4:32:41 PM
MR. STEVENS continued:
Rural Alaska frequently sees development projects
stymied by urban protagonists who, on one hand, say we
need to create an economy in rural Alaska but, when a
project is being development, they quickly point out
that the economic development project as it is impacts
their recreational use of rural lands. We can't have
it both ways. An evaluation of our economic
development programs is necessary and will serve to
help make us a stronger, more focused place for
business to do business. The challenge is to improve
the productivity of Alaska's economy and the need for
state government to work with municipalities, the
private sector, labor groups, and Alaskans as a whole
to ensure that our state remains prosperous in years
to come.
This is about greater opportunity and a better quality
of life for Alaskans and, as such, is a worthy topic
of an open and vigorous public discussion. Certainly
this committee is to be commended for undertaking such
a beginning process. We talk of the importance of
education but not much changes. We ask the school
system to do more each year but give them no more time
in which to accomplish it.
4:33:56 PM
We still have school days and a school year too short
to accomplish all that is being asked of our education
system. We add programs but add no more time to
impart the additional knowledge. According to the
National Center for Public Policy and Higher
Education, for every 100 ninth grade students, 61
graduate four years later. Of the 61 high school
graduates, 30 immediately enter college. Of those 30,
12 go on to graduate within 150 percent of the time
with either an Associate's degree within three years
or a Bachelor's degree within six years. What are we
doing for the 88 who dropped out, graduated, and did
not go to college or did not finish college? Our
vocational education programs must be improved to
prepare students for work opportunities beyond high
school.
4:34:50 PM
MR. STEVENS continued:
As we prepare to build a gas line project, we must
ensure that we have Alaskans trained and ready to
enter the workforce. We must establish, in
collaboration with private sector employers, a clearly
articulated career and technical education program
that:
Is funded over the long term,
Utilizes existing education facilities more fully,
including evenings, weekends and summers,
Uses a broad range of educational resources not
limited to only the University of Alaska and
Includes a broad range of options including
apprenticeship, internship, and private career and
technical education programs,
Specifically targets rural Alaskans and out-of-school
youth,
Uses distance learning capabilities where available.
The state chamber has advocated for decades for a
state fiscal plan. We applaud the identification of
the fiscal dilemma our state faces and the willingness
of many to check spending. A clear plan, however, is
not guiding spending or revenue collection or the
question of how the state can invest new revenues in
projects that will render a return on investment. We
believe the development of a statewide business plan
that incorporates the fundamentals of a fiscal plan
would provide guidance and direction to the
Legislature, the Administration, the business
community and citizens alike. It would provide a
roadmap for all to use as we work to diversify and
move our economy forward.
As government looks at how to sustain and grow our
economy, it becomes more important than ever to
develop a business plan. We believe a well-written
business plan is an invaluable tool for any
organization, for both internal and external issues,
internal management, external funding. Business
planning looks at both the mission and the revenue
bottom line. A well-written business plan provides a
strategic vision, initiatives, operating assumptions,
and measurements. We can all use the document to
measure future requests for support and funding.
4:37:02 PM
MR. STEVENS continued:
Our economy is changing. Our workforce is changing.
Technology is changing the way we work and interact
and we must change the way we plan for the future.
Government should lay the foundation for the private
sector to succeed. We can no longer just look at our
small corner of the world. We are an important part
of the global economy. What happens in the world
impacts what happens to Alaska and its economic
future. In this changing world, we must find ways to
encourage investment in our state. We need to look at
what makes a good climate for investment: stable tax
rates, a trained workforce, good infrastructure -
roads, ports, communication systems. We need to level
the playing field and make rules to encourage
investment in our state, not discourage it.
We must have a stable regulatory environment, a stable
investment climate. Stability is critical to any
company looking to relocate in our state and
communities who are looking to invest in the future of
our economy. We must work to ensure that our
infrastructure is in good condition and ready to
expand its carrying capacity, whether that be our
roads, our ports, our sewer and water systems, our
electrical systems. They must be ready to accept
additional capacity.
We must work to ensure that our education system and
our health care systems are top notch. We must work
to improve our telecommunications system to encourage
new technology businesses to locate in our state. We
have the components to attract new investment into our
state. We have an unequaled opportunity to sell our
state as a great place to do business. We have an
obligation to portray our communities and state in the
best possible light. We need to acknowledge that we
have challenges but we must not let these challenges
overwhelm us. Thank you.
4:38:59 PM
CHAIR NEUMAN thanked Mr. Stevens and opened the meeting for
questions.
4:39:03 PM
REPRESENTATIVE DOLL observed that when talking about business
incentives, particularly to start businesses, she can't think of
a greater disincentive than bringing in box stores. She said
she was not sure what has been done to encourage box stores to
open in Alaska.
MR. STEVENS said he cannot comment other than to say that at
some point there is this magical line between being a
successful, locally owned business that has expanded and
becoming a "box" store. He thought a person with a good, viable
idea should be encouraged because those businesses create
employment opportunities and investor returns.
4:40:41 PM
REPRESENTATIVE DOLL responded, "I guess, just a follow-up to
that, would certainly be encouraging vocational training because
where people have something where they're skilled in then can
work in that skill and get a higher wage. That would be another
way of doing that."
MR. STEVENS said he grew up in an educational system that
determined he was college prep material although his inclination
was to work with his hands and be involved in industrial arts.
He said he doesn't think [the education system] does enough to
recognize that not everyone needs to go to college. Some people
are far better suited and more excited about working with their
hands. He said the numbers [of college bound students] he
quoted show that something is not working and that those
students who do not fit into the narrow band of opportunity fall
to the wayside.
4:42:42 PM
CHAIR NEUMAN asked Mr. Stevens to leave a copy of his
presentation and then commented that the discussion among House
Oil and Gas Committee members always reverts to industry
stability, and that the speakers during the past two days have
all told the committee that everything is connected. He said:
I just hope legislators take out of this discussion
what I have. Talking to all of these leaders of
industry, all of these economists, what they've told
us, and again, it goes back to the instability, trying
to make sure that we show the world Alaska is a good
place to work. Alaska is a good place to start a
business. It's a good place to live. I don't know
how we're going to go about doing that and the best
way - I know that we all have our own objectives and
we all have our own ideas of how we're going to get
there. There's going to be a lot of changes in the
future of Alaska. I can feel that...in my blood. You
know I've been here for not that long but long enough.
With that, any other comments from the committee?
Thank you and that will close the hearing. Thank you.
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Economic Development, International Trade
and Tourism meeting was adjourned at 4:45:23 PM.
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