Legislature(1993 - 1994)
02/11/1993 09:05 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES SENATE FINANCE COMMITTEE February 11, 1993 9:05 a.m. TAPES SFC-93, #25, Side 2 (360-end) SFC-93, #27, Side 1 (000-end) SFC-93, #27, Side 2 (575-565) CALL TO ORDER Senator Steve Frank, Co-chair, convened the meeting at approximately 9:05 a.m. PRESENT Sen. Frank, Co-Chair Sen. Pearce, Co-chair Sen. Rieger Sen. Kelly Senators Jacko and Kerttula arrived soon after the meeting began. Senator Sharp did not attend. ALSO ATTENDING: Senator Mike Miller; John Boucher, Labor Economist, Dept. of Labor; Neal Fried, Researcher, Dept. of Labor, Anchorage; Tina Lindgren, Executive Director, Alaska Tourism Marketing Council; John Kelsh, INTRA Consulting; Mike Greany, Director, Legislative Finance Division; Karen Rehfeld and Dave Tonkovich, Fiscal Analysts, Legislative Finance Division; and aides to committee members and other members of the legislature. SUMMARY INFORMATION ECONOMIC OVERVIEW A presentation was made by John Boucher and Neal Fried of the Dept. of Labor ALASKA TOURISM MARKETING COUNCIL A presentation was made by Executive Director Tina M. Lindgren ECONOMIC OVERVIEW - DEPT. OF LABOR JOHN BOUCHER, Labor Economist, Alaska Dept. of Labor, and NEAL FRIED, Research and Analysis, Alaska Dept. of Labor, Anchorage, came before committee. Mr. Boucher explained that he and Mr. Fried are the primary analysts and producers of employment and unemployment statistics and labor market information published in Alaska Economic Trends. He advised that they would present both a brief overview of Alaska's 1992 economic performance and the outlook for 1993 and 1994. Directing attention to a handout entitled "Alaska's Job Growth Moderates," (copy appended to these minutes), Mr. Boucher characterized 1992 as a "year of slower employment growth." He then noted significant negatives in the state economy for 1992: 1. Major consolidation in the oil and gas industry. This primarily involved the two major producers and oil field service employees, i.e., VECO, drilling companies. The majority of the loss was "in the contractors." 2. Impact from closure of the Anchorage Times and loss of approximately 400 jobs. 3. Contraction in the timber industry. 4. Little or no growth in construction and hard-rock mining. Mr. Boucher next spoke to sectors that offset negative events, noting specifically: 1. Service industries, led by a strong performance in tourism and health care. 2. Retail trade expansion in urban areas (primarily concentrated in Fairbanks and Anchorage. 3. Growth in the seafood industry stemming from: A. A rebound in crab harvests. B. Better Salmon prices. C. Continued expansion of the bottom fish industry. 4. Public sector employment growth, primarily in education-related areas (school district and University of Alaska response to an increasing school age population). In reply to a question from Co-chair Pearce, Mr. Boucher acknowledged that retail employment is characterized by lower wage and part-time employment. In terms of total economic impact, 100 jobs gained at Costco do not have the same weight as 100 jobs lost at ARCO. Speaking to the outlook for 1993/94, Mr. Boucher advised of expectations of "fragile growth with some potential wild cards which could either trip the economy up or assist it to some unexpected growth." Positive impact will result from: 1. Retail trade expansion (movement of Walmart and K- mart into the Alaska market as well as expansion of existing retailers: Fred Meyer, Sears, Carrs). 2. Continued tourism and health care growth. 3. Construction, including a $1.5 billion project scheduled for the North Slope (the GHX-2, the gas handling facility), the Alaska Native Hospital in Anchorage, the hotel at Girdwood, etc. 4. Continued enrollment pressures on educational institutions requiring the hiring of additional teachers and the building of additional facilities. Discussion followed between Co-chair Pearce and Mr. Boucher regarding categorization of activities as construction or oil related. Mr. Boucher noted that both state government and hard-rock mining show no evidence of growth. Three major mining projects all appear to be more than two years away. But, the timber industry may hold its own over the next two years. An increase in the price of timber and reopening of the Chugach sawmill are positive signs. Discussion followed between Senator Kerttula and Mr. Boucher regarding the impact of pollution problems at Southeast Alaska pulp mills. Mr. Boucher said that pulp mill employment is expected to remain steady. Environmental pressure at the mills has existed for some time. While enforcement efforts by the new administration in Washington may become more active, market pressure for needed timber will also be felt. Pointing to possible wild cards that could significantly impact the economy, Mr. Boucher said that four to six months ago he would have placed the oil and gas industry in a "continued downward spiral." Recent developments on the slope and positive response to the Cook Inlet oil sale may have changed the psychology of the industry so that the outlook is not quite so negative. Mr. Boucher voiced his believe that the military is a potential source of concern. The new administration in Washington may "change the face of Alaska's military entirely." With probable cuts on the horizon, none of Alaska's military facilities can be taken for granted. In response to a question from Senator Kerttula concerning potential for posting troops returning from overseas in Alaska, Mr. Boucher said that the department had not reviewed that possibility. He commented, however, that Ft. Richardson "has long been speculated as being a potential target for closure . . . ." On the plus side, Elmendorf was designated as the site for a major military hospital. Mr. Boucher attested to difficulty in projecting activity in the seafood industry due to uncertainty surrounding fish returns and salmon prices. The department continues to predict expansion of the bottom fish industry in Southwest Alaska. In his concluding remarks, Mr. Boucher predicted slow, fragile economic growth with "some question marks that could swing the economy either way." NEAL FRIED, Research and Analysis, Dept. of Labor, next spoke before committee. He said he would focus upon the labor force, job market, and employment opportunities for the next few years. He directed attention to a graph entitled "Regional Picture Mixed at Year's End" and noted that the economy for the gulf coast region, which appears stuck in neutral, includes Kodiak, Kenai, and Valdez/Prince William Sound. While tourism and fishing expanded in this area, gains were offset by losses in the oil industry in Cook Inlet and on the Kenai. It is expected that this situation will turn somewhat, due to oil activity in Cook Inlet for the next several years. Economic expansion in Southwest Alaska results from bottom and crab fishery growth in Unalaska and Dutch Harbor. This growth could spread to communities in Bristol Bay as well. The negative economic direction shown for Northern Alaska reflects loss of 800 to 1,000 jobs on the North Slope. The department believes that will turn positive this year due to the GHX-2 project and other exploration and development activity. Growth in Fairbanks and Interior Alaska results from a retail trade boom and construction of several large facilities. In response to a question from Co-chair Frank, Mr. Fried said that "uniform military numbers are not counted in these wage and salary numbers." The civilian military is, however. Responding to a question from Senator Jacko, Mr. Fried said that Alaska is "just sort of catching up" to discount retail expansion in other states. Alaska is a good retail market since wages and disposable income tend to be high, and the overall population is young. End, SFC-93, #25, Side 2 Begin, SFC-93, #27, Side 1 Below par performance in Southeast is largely related to the timber industry. That may turn around in the coming year due to firmer and increasing prices as national and worldwide economies improve. Tourism and fisheries will also contribute to growth. Mr. Fried next addressed employment and Alaska's labor force, noting that Alaska's unemployment rate "always seems to be higher than the national average." That has traditionally been true since "a lot of Alaskans only work part of the year." The state has the most seasonal economy in the nation. Further, in large mostly rural regions of the state, employment opportunities are scarce year round. Higher unemployment figures in 1991 and 1992 moved the state from the labor shortage of 1989 and '90 to a labor surplus. Unemployment has increased because growth in the state economy has not been strong enough to absorb "all of the new entrants into the job market." Migration of "economic refugees" from other states to Alaska reflects lack of employment nationwide. Another dynamic is the fact that for Alaskans who have lost their jobs, there are "not many options for them elsewhere in the country." The department expects moderate growth in employment. It will not be sufficient to absorb all of the new job seekers. The national economy remains weak. The recovery has been termed "a jobless recovery." Pointing to the final page of the department handout, Mr. Fried noted that Californians continued to make the most job inquiries in 1992. That is because the labor market there has been so poor. He acknowledged that an influx of unemployed workers from California could easily overwhelm the small Alaska market. It does not take much change in the national economy to have a big affect on state unemployment. Discussion followed between Senator Rieger and Mr. Fried concerning the impact of migration. Mr. Fried voiced reluctance to estimate the affect due to lack of "hard numbers." He acknowledged that the number of interstate claimants has increased over the last two years. Alaska traditionally experiences strong in-migration when the state economy is "booming or when the lower Forty-eight economy is in tough shape." Upon the conclusion of Mr. Fried's presentation, Co-chairman Frank directed that the meeting be briefly recessed. RECESS - 9:45 a.m. RECONVENE - 9:50 a.m. Co-chair Drue Pearce reconvened the meeting at approximately 9:50 a.m. TINA LINDGREN, Executive Director, ALASKA TOURISM MARKETING COUNCIL, came before committee. She advised that in 1951 Alaska visitors totaled 7,000. In 1964 there were 385,000. This past year there were over 950,000. Tourism is big business. It is now the world's largest industry. It is the fastest growing in the nation and in Alaska as well. This growth trend is expected to continue. Ms. Lindgren noted that the component of the visitor industry that is relevant to other basic industries is the tourism component--visitors who arrive from out of state and bring in new dollars. One of the reasons tourism has been unrecognized or undervalued as a basic industry is due to the standard industrial classification system. National data is collected based on a system that does not show a separate category for tourism. Tourism is composed of three classifications: 1. Service 2. Transportation 3. Retail Sectors Service-related tourism jobs total 5,000. Transportation employs 3,500, and the retail sector provides 5,000 jobs. Nationwide, the third largest category for retail business is tourism. In Alaska, tourism is the second largest private sector employer with peak season employment of 19,000, and average year-round employment of 13,500. When the standard multiplier for service sector jobs attributable to tourism is applied, the total is 20,000. That is a $244 million annual payroll, and another 52,000 jobs are impacted (construction jobs building infrastructure, etc.). The Alaska visitor industry has the highest in-state Alaskan employment rate--84%. That is exceedingly high when one considers that one in four people working in the state are nonresidents. Over the past four years, tourism has grown approximately 6.6% per year. The average, long-term growth has been slightly less than 4%. Growth last season was 8%. There was 14% growth in highway traffic. Ms. Lindgren next spoke to the "Destination Alaska" project to be released this week. It plots long-term growth and direction for the industry and provides a blueprint for where the industry should be headed. The marketing council also conducted a statewide accommodation occupancy study. It determined that Alaska is reaching sold-out capacity two months of the year at Denali, Anchorage, and Fairbanks. There is room, however, in outlying areas to accommodate visitors. Large projects are also underway in all three areas to expand accommodations. Four out of five Alaskans believe that tourism and fishing will be critical to the state as oil revenues decline. The Council seeks to ensure that the seasonal nature of tourism is lessened, and the visitor season continues to lengthen. Promotion of the state creates demand which the private sector then fills via development of services and infrastructure. Ms. Lindgren stressed need for the state and legislature to recognize the value of tourism as a basic industry. She then noted items that could hinder growth and development for the future: 1. Competing budgets 2. Other destinations, worldwide, that have discovered the value of tourism The cost of travel to Alaska means that it is not in competition with other states. It is instead in competition with other countries. That places the state in a worldwide arena. In response to an inquiry from Senator Jacko, Ms. Lindgren advised of the following expenditures by visitors: 1. Southcentral $168 million 2. Southeast $ 56 million 3. Interior/Far North $ 52 million 4. Southwest $ 9 million Senator Jacko next inquired concerning the concentration of marketing dollars. Ms. Lindgren said that marketing is targeted to areas outside of Alaska that produce the best return on investments. "Overall the plan is network cable television for a very board audience." The council does not target geographically so much as by demographic market. The council conducts domestic and Canadian marketing. The division of tourism markets internationally. Slightly over 10% is spent overseas. The emphasis is on the domestic market. The division of tourism budget is $2.2 million while the council budget totals $7.5. Approximately 96% of the visitors come from the domestic market. Senator Miller said he had been critical of where marketing dollars are being spent. He then voiced his belief that there is potential for unlimited growth in the "R.V. trade." Those travelers tend to spend dollars throughout the state, especially at mom and pop operations. The Senator then asked what the council is doing to appeal to this type of traveler. Ms. Lindgren explained that the council attempts to provide exposure to Alaska as a destination. It does not market individual modes of transportation. The state vacation planner allows for advertising by mom and pop operations. Senator Miller voiced need to see the ad campaign for the coming year. Discussion followed between Senator Miller and Ms. Lindgren regarding tour ship advertisements. Ms. Lindgren noted that the council has never done an ad that promotes cruise ships. Co-chairman Frank stressed need to promote access to Alaska and educate visitors on the availability of all modes of transportation--cruise ships, airlines, and highways. JOHN KELSH, INTRA Consulting, subsequently came before committee. He said that the council is effectively reaching highway travelers in the marketplace. When people write the state requesting information, the most often indicated category is highway travel. It surpasses both cruise ships and air travel. Ads are placed in magazines oriented toward highway traffic. The state also purchases direct-mail lists of those owning R. V.s. Co-chairman Frank suggested that the state could do more to encourage highway travel. He stressed need to ensure that the marketing program works for all Alaskans--larger companies as well as mom and pop businesses. Senator Kelly inquired regarding the composition of the council. Mr. Lindgren explained that ten members are appointed by the Governor and ten are appointed by the visitor's association. They are appointed regionally and represent a wide variety of businesses. They must have at least one of three qualifications: 1. Substantial involvement in the tourism industry. 2. A marketing or business background. 3. Membership in a regional or community organization. Discussion followed between Senator Rieger and Ms. Lindgren regarding council involvement in fishery issues. Further comments followed by Ms. Lindgren regarding the generic nature of Alaska's advertising. BRITISH PETROLEUM SETTLEMENT Senator Rieger voiced his understanding that windfalls such as the British Petroleum Settlement would accrue to the constitutional budget reserve fund. He then registered surprise that the administration has taken the position that the settlement is general fund money. Co-chair Pearce noted that Jim Baldwin, Assistant Attorney General, Dept. of Law, drafted a legal opinion for the Governor last year. She then acknowledged discussion of whether or not the legislature should go to court over the issue. End, SFC-93, #27, Side 1 Begin, SFC-93, #27, Side 2 The Co-chair indicated that the matter would be an ongoing topic of conversation. She also voiced her feeling that the constitutional fund was to be the depository of such windfalls but noted Senator Randy Phillips desire to appropriate the moneys directly to the corpus of the permanent fund. Co-chair Pearce said she had discussed the issue with Co- chair Frank and advised that it is their intent that the money "is not on the table" for the operating budget. ADJOURNMENT The meeting was adjourned at approximately 10:20 a.m.
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