• 2015 Alaska's Construction Spending Forecast

      Goldsmith, Oliver Scott; Cravez, Pamela (Institute of Social and Economic Research, University of Alaska Anchorage, 2015-01-01)
      OVERVIEW The total value of construction spending “on the street” in Alaska in 2015 will be $8.5 billion, down 3% from 2014.1,2,3 Wage and salary employment in the construction industry, which increased an estimated 6 percent last year, to about 17,600, will decline slightly in 2015.4 Oil and gas sector spending will fall 2% to $3.8 billion from its record level of $3.9 billion last year. Other spending will be $4.7 billion, a decline from $4.9 billion last year. Private spending, excluding oil and gas, will be about $1.7 billion, down from $2.0 billion last year—while public spending will increase from $2.9 to $3.0 billion. Construction spending in Alaska in 2015 is expected to be strong in spite of the drop in the price of oil from more than $100 per barrel in the summer of 2014 to between $45 and $50 today. However, the longer the price stays low, the greater the risk that some projects will be cancelled or postponed. It is impossible to predict what will happen to the oil price, because world supply has outstripped demand. The price will stabilize, and perhaps begin to increase, only when the low price stimulates more demand and eliminates high cost production, a process that could take more than a year. A further complication is the unpredictability of the role of OPEC in determining oil supply. In particular Saudi Arabia, the largest producer, could decide to restrict supply for political or strategic reasons. Because of the drop in the price of oil, the state is facing a general fund budget deficit of about $3 billion for the current fiscal year (FY2015) and is projected to have a similar deficit in FY2016 (which begins July 1 of this year). However, this will not have a large negative impact on state government construction spending this year for several reasons.
    • 2016 Alaska's Construction Spending Forecast

      Goldsmith, Oliver Scott; Cravez, Pamela (Institute of Social and Economic Research, University of Alaska Anchorage, 2016-01-01)
      The total value of construction spending “on the street” in Alaska in 2016 will be $7.3 billion, down 18% from 2015.1,2,3 Oil and gas sector spending will fall 25% to $3.1 billion from its record level of $4.2 billion last year. All other construction spending will be $4.2 billion, a decline of 11% from $4.7 billion last year. Private spending, excluding oil and gas, will be about $1.4 billion, down 24% from $1.8 billion last year—while public spending will decline 6% to $2.8 billion from $2.9 billion. Wage and salary employment in the construction industry, which increased an estimated 6 percent last year to almost 18,000, will decline slightly in 2016.4 The decline in construction spending in Alaska in 2016 can be traced directly to the precipitous drop in the price of oil over the last 18 months, after the previous period of unprecedented high prices a few years earlier. In mid- 2014 the price was above $110 per barrel, but as this report is being written the price has fallen below $30 for the first time in 12 years. Furthermore, the short-term outlook is for the price to remain low, or even decline further, because supply continues to outstrip demand and inventories continue to accumulate. The longer term outlook for price also continues to fall, because of the resilience of production in the face of the falling price. The high price stimulated increases in construction spending across all sectors of the Alaska economy, particularly among oil and gas companies and the state government. The low price is now beginning to reduce construction spending within the economy, except for federal spending and spending by basic industries that benefit from lower oil prices. So far the price drop has been felt most directly in the oil and gas sector. Although many companies announced optimistic investment programs for 2016, most, if not all, have recently announced cutbacks or postponements. The longer the price remains low, the greater the likelihood of further cutbacks in the oil patch. Because of the oil price drop, a deficit of $2 billion opened in the state general fund in FY2014, and it has increased to $3.5 billion for each of the last two years. Although the state has been fortunate to have sufficient cash reserves to offset this revenue shortfall in the short term, it has meant a dramatic decline in new state funding for capital projects. Whereas the general fund capital appropriation in FY2013 was more than $2 billion, in this past year it was only enough to cover the required match on federal transportation grants. And looking ahead, there is very little prospect for a significant increase in the capital budget in the coming years. But the sharp decline in the state capital budget over the last three years has so far had limited effects on construction spending. This is because it takes considerable time for appropriated funds to become “cash on the street.” Several billion dollars of capital appropriations remain “in the pipeline,” which will keep state spending from falling dramatically this year. However, the amount of construction spending will be winding down in many communities like Juneau, Kodiak, and Fairbanks (excluding Eielson Air Force Base) because of declining state spending. Because of the size of the state budget deficit, it is possible that some projects in the pipeline that have not yet been approved could be cancelled. However, this will be moderated by concern over the negative impacts on the economy from such cancellations. Spending for national defense will be higher this year. And fortunately, federal spending not related to defense—mostly consisting of grants, both to the state for transportation (roads, harbors, railroad and ferry system) and sanitation projects and to non-profits for health facilities and housing—is not sensitive to the price of oil. Since 2013 the Alaska economy has underperformed compared with the national average in spite of the stimulus of high oil prices that led to record high levels of employment in the oil and gas and construction sectors. Job growth has been less than 1% annually and is forecast to be negative in 2016. State population has not increased in the last two years. This slowdown, combined with the heightened uncertainty about the future direction of the economy, brought on by the sudden fall in the oil price, will slow new private investment—particularly in the commercial and residential construction sectors as investors adopt a “wait and see” attitude, in regard to both the private economy and the ability of the state government to deal with the deficit. The decline in private construction spending this year is also partially due to the completion of a number of large utility and hospital projects. As in past years, some firms are reluctant to reveal their investment plans, because they don’t want to alert competitors; also, some have not completed their 2016 planning. Large projects often span two or more years, so estimating “cash on the street” in any year is always difficult because the construction “pipeline” never flows in a completely predictable fashion. Tracing the path of federal spending coming into Alaska without double counting is also a challenge, and because of the complexity of the state capital budget, it is always difficult to follow all the flows of state money into the economy. We are confident in the overall pattern of the forecast. However, as always, we can expect some surprises as the year progresses.
    • 2017 Alaska's Construction Spending Forecast

      Goldsmith, Oliver Scott; Cravez, Pamela (Institute of Social and Economic Research, University of Alaska Anchorage, 2017-01-01)
      The total value of construction spending “on the street” in Alaska in 2017 will be $6.5 billion, down 10% from 2016.1, 2,3 Oil and gas sector spending will fall 15% to $2.4 billion, from $2.9 billion last year. All other construction spending will be $4.0 billion, a decline of 7% from $4.3 billion last year. Private spending, excluding oil and gas, will be about $1.6 billion, up 2% from last year—while public spending will decline 12% to $2.5 billion. Wage and salary employment in the construction industry, which dropped by 8.5% in 2016 to 16.2 thousand, will drop another 7.4% in 2017 to 15 thousand, the lowest level in more than a decade.n 2016 the Alaska economy slipped into a recession that is expected to continue at least through 2017. Total wage and salary employment fell in 2016 by 6.8 thousand, about 2%. This year it is anticipated the decline will be 7.5 thousand, or 2.3%, which will return the economy to the 2010 level.5. Weakness in the economy is also reflected in a net outmigration of population over the last four years.
    • The Case for Strengthening Education in Alaska

      Hill, Alexandra; Gorsuch, Lee; Cravez, Pamela (Institute of Social and Economic Research, University of Alaska., 2006)
      Alaska’s public education system has been transformed since Alaska became a state. Opportunities for education have been expanded in many ways and many places. But at every level, from pre-school on up, the education systems in Alaska and the U.S. have serious troubles. Many American children don’t have access to early education; can’t do math and science as well as those in other countries; can’t pass basic reading, writing, and math tests; and don’t finish high school. Boys are less likely than girls to go on to college. And in Alaska, there are fewer early-education programs than nationwide. Elementary and high-school students— especially Alaska Natives and those from low-income families—are falling below U.S. averages. Since statehood, Alaska’s education system has grown and improved enormously. But the remaining challenges are also very big. Alaska has the resources to deal with those challenges, and some efforts are in fact already underway. The question now for all Alaskans—not only educators and parents—is this: how do we come together to create what our state and our children need?
    • The Economics of University Research

      Cravez, Pamela; Goldsmith, Scott (2004)
      Alaska ranks near the bottom among the states in the total amount of R&D activity. Most research in Alaska is conducted by the University of Alaska and directly by the federal government, and very little is done by industry. Alaska ranks 47th among the states in total research, 50th in industry research, and 42nd in University research (Table 2). Alaska’s performance is better in per capita terms, but spending on R&D per person is only half the U.S. average. Only federal R&D is above the per capita U.S. average. In terms of the “intensity” of R&D spending (R&D/Gross Product), Alaska is ranked number 41. About 1 percent of Alaska Gross State Product is devoted to R&D spending. The small amount of private industry spending on R&D in Alaska is due to several factors. The first is the absence of manufacturing industry within the state, except for seafood processing. Second is the dominance of the public sector within the economy both in terms of jobs and resource ownership. Third is the absence of Alaska based resource businesses large enough to financially support investments in R&D. Finally, Alaska has not been an attractive location for private research facilities due to cost and distance from clients and customers. "
    • Summary of 2006 Southcentral Energy Forum

      Cravez, Pamela; Goldsmith, Scott; Larsen, Peter (Institute of Social and Economic Research, University of Alaska., 2006)
      Nearly 70% of Alaskans rely on relatively inexpensive natural gas from Cook Inlet. That gas heats homes and businesses, generates electricity, and fuels industrial processes. But growing demand has depleted 80% of the known Cook Inlet gas reserves. Many Alaskans are concerned about where Southcentral Alaska will get affordable energy in the future. The information presented here is not a product of ISER research. It is a summary of statements, opinions, and projections of those attending the forum.
    • Understanding Alaska: People, Economy, and Resources

      Foster, Mark; Cravez, Pamela; Cole, Terrence (Institute of Social and Economic Research, University of Alaska., 2006)
      Understanding Alaska is a special series of studies by the Institute of Social and Economic Research (ISER), to examine economic development issues and help Alaskans understand how their economy works. The studies began in 2001, and here we highlight some of the work so far. The University of Alaska Foundation has provided most of the funding for Understanding Alaska which examines how Alaska’s economy works, why it’s different from those in other states, and how Alaska’s unique circumstances affect economic development. This publication divides Understanding Alaska research into three categories: People, Economy, and Fisheries. At the end of each section is a list of the full reports or presentations excerpted for this overview. In some cases, we’ve updated information specifically for this publication.