Legislature(1993 - 1994)
02/11/1993 09:05 AM Senate FIN
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* first hearing in first committee of referral
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= 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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