Legislature(1993 - 1994)

02/11/1993 09:05 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                                                                               
                             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.                        
                                                                               
                                                                               

Document Name Date/Time Subjects