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The Alaska Permanent Fund Dividend: A Case Study in Implementation of a Basic Income Guarantee
Oliver Scott Goldsmith
The Alaska Permanent Fund Dividend program has attracted considerable interest because it is a unique example of a BASIC INCOME GUARANTEE. In this paper, I describe the structure of the dividend program, its economic effects, some of its unintended consequences; and I close with a number of observations about how the dividend might be structured differently. My objective is to give the reader insights into the factors to consider in implementing a BASIC INCOME GUARANTEE in other places. However, before beginning it is important to present a short description of Alaska because the structure of any BASIC INCOME program and its impacts are contingent upon the particular institutional, economic, political, and social environment in which it is located. Alaska is the largest of the 50 United States measured by land area—but among the smallest measured by population. Its 700 thousand residents comprise only about twotenths of one percent of the total U.S. population. As a state within the United States, its border is open to the rest of the nation for the free movement of goods and services, people, capital, and information. Furthermore, it is subject to the laws, regulations, and policies established by the federal government. As I will discuss below, these connections create some challenges for the dividend program because the state cannot totally control its own economic and political environment.
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2010 Alaska's Construction Spending Forecast
Oliver Scott Goldsmith and Mary Killorin
The total value of construction spending “on the street” in Alaska in 2010 will be $7.0 billion, down 3% from 2009.1,2,3 Wage and salary employment in the construction industry will continue the slow decline which began in 2006, but the level remains above the long-term average for the industry. Excluding the oil and gas sector—which accounts for 43% of the total—construction spending will be $4.0 billion— down 4% from 2009. Private-sector construction spending will be down only 1% from 2009, to $4.4 billion, in spite of the slowdown in the Alaska economy. Oil and gas sector spending will be flat. Spending will increase in the utilities and hospitals4 categories but will decline in mining, residential, other commercial, and the other rural basic sector categories. Public construction spending will be down 5%, to $2.6 billion, in spite of the infusion of cash from the American Recovery and Reinvestment Act (ARRA). Although some categories of federal spending will be higher, many will be lower and state spending will also be lower because of the lean FY 2010 capital budget. Uncertainty in this year’s forecast comes from several sources. As we start 2010 there is no clear indication if the national economy is starting to recover from the recession, and if it does, how strong that recovery will be. Although Alaska has been insulated from the worst effects of the recession—the crash in the housing market, high unemployment, and lack of credit—concerns about the national recovery will continue to influence investment decisions in the state, particularly in the commercial and residential markets. Local government capital spending is also vulnerable to reductions in tax revenues from activities, like tourism, driven by the national economy. The passage of the American Recovery and Reinvestment Act (ARRA) in early 2009 has provided an important boost to construction spending this year. A second stimulus may be undertaken later this year, but it is too soon to speculate on how that might impact construction spending, so we assume no further federal action. The Alaska economy contracted in 2009 for the first time in 22 years—but the reduction in employment was only about 1%. Forecasts for Alaska’s economy in 2010 vary from further moderate declines in employment to a resumption of growth. This difference of opinion underscores the sense of caution in the business community about the near-term prospects for the economy. As the year begins, petroleum and precious metal (gold and silver) prices are strong and rising, and base metal prices (zinc) have rebounded from the lows of last year. Petroleum and mining capital budgets are particularly sensitive to these prices, which are likely to continue to fluctuate throughout the year. We assume these prices remain strong throughout the year.
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The Foraker Group Report on the Alaska Nonprofit Economy: 2010 Update
Oliver Scott Goldsmith and Tobias Schwörer
A report on the economic importance of Alaska’s nonprofit sector conducted by the Institute of Social and Economic Research University of Alaska Anchorage
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Report on the Benzene Study of 2008-2009
Mary Ellen Gordian
The purpose of this study was to determine whether reducing the amount of benzene in gasoline, which is scheduled to take place in 2011, will effect a change in indoor air benzene levels in Anchorage, Alaska. This is an interim report that discusses the first phase of a two-phase study. The first phase measured benzene levels in homes and garages every month for over one year. Due to the lack of chemical markets, the gasoline refined in Alaska contains 5% or more of benzene. Over the past two decades, volatile organic compounds (VOCs) measured in Anchorage, Alaska, have had higher concentrations in both indoor and ambient air than most other cities in the United States. Previous studies in Anchorage have shown that attached garages are a significant source of benzene and other VOCs in the living space of homes. In 2007-2008 we conducted a randomized study of houses with attached garages in Anchorage, Alaska, to determine whether there were associated respiratory health risks. We asked the resident owners of these houses to measure the benzene, toluene, ethyl benzene, and xylenes (BTEX) in their homes for one week using a passive vapor monitor badge. The results of that study showed that 47% of the houses had indoor-air benzene levels that—if they were maintained throughout the year—would exceed the minimal risk levels for inhalation set by the Agency for Toxic Substances and Disease Registry (ATSDR). Sixteen percent of the houses exceeded the acute risk. The results also showed that the BTEX measured in the indoor air came from gasoline fumes. We conducted this second study to determine whether levels found on a single, weekly measurement adequately represented the actual annual exposure in that house. We also wanted to see what the ratio was between levels in the garage and levels in the house since most of the exposure was thought to be coming into the house from the garage. We were also interested in any seasonal variation in the exposure to indoor benzene concentrations. This study would give us that sense of seasonal variability to be able to approximate long-term exposure and to guide future study. We were getting baseline data that could demonstrate the effect of the reduction in benzene in gasoline on the indoor air quality in Anchorage. It is expected that the level of benzene in gasoline will be reduced starting as soon as next year.
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Indigenous Employment, Training and Retention: Successes and Challenges at Red Dog Mine
Sharman Haley and David Fisher
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The Political Economics of United States Marine Aquaculture
Gunnar Knapp
Government leasing and regulatory policies are critically important for the development of marine aquaculture to a scale far below its economic potential. Two extreme examples are the State of Alaska's ban on all finfish farming, and the absence of an enabling regulatory framework for aquaculture in offshore federal waters. This paper suggests five broad reasons for which U.S. policies have been unfavorable towards marine aquaculture: (1) Marine aquaculture is new and small; (2) Fish and marine waters are traditionally public resources; (3) Many Americans perceive potential negative effects of marine aquaculture without offsetting positive effects; (4) MGOs have systematically and effective opposed marine aquaculture; and (5) The governance system for leasing and regulation is structurally biased against U.S. marine aquaculture. The paper suggests four broad strategies for addressing these political challenges: (1) Fix real problems; (2) Demonstrate benefits; (3) Argue effectively; and (4) Reform Governance.
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Youth in Crisis Characteristics of Homeless Youth Served by Covenant House Alaska
Stephanie Martin and Alejandra Villalobos Meléndez
This research is the result of a partnership between Covenant House Alaska and the Institute of Social and Economic Research at the University of Alaska, Anchorage, as part of a national effort, initiated by Covenant House Institute, to create partnerships between Covenant House service providers and academic institutions. This report documents trends in use of Crisis Center at Covenant House Alaska and the characteristics of its clients. Use of Crisis Center, measured by visits and length of stay, has been increasing since 2003. The number of youth coming to Covenant House Crisis Center from outside of Anchorage is increasing, as is the number Alaska Natives served by Covenant House. Data indicate that many after aging out of foster care, many youth end up at Covenant House. Similarly many who receive mental health care outside of the state, return to Alaska and end up at Crisis Center. Few have high school diplomas or GED and three out of four are unemployed.
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Youth in Crisis: Characteristics of Homeless Youth Served by Covenant House Alaska
Stephanie Martin and Alejandra Villalobos Meléndez
This research is the result of a partnership between Covenant House Alaska and the Institute of Social and Economic Research at the University of Alaska, Anchorage, as part of a national effort, initiated by Covenant House Institute, to create partnerships between Covenant House service providers and academic institutions. This report documents trends in use of Crisis Center at Covenant House Alaska and the characteristics of its clients. Use of Crisis Center, measured by visits and length of stay, has been increasing since 2003. The number of youth coming to Covenant House Crisis Center from outside of Anchorage is increasing, as is the number Alaska Natives served by Covenant House. Data indicate that many after aging out of foster care, many youth end up at Covenant House. Similarly many who receive mental health care outside of the state, return to Alaska and end up at Crisis Center. Few have high school diplomas or GED and three out of four are unemployed.
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Alignment of Alaska’s Educational Programs from Pre-School through Graduate Study: A First Look
G. Williamson McDiarmid and Alexandra Hill
Too many Alaska students leave formal education unprepared for their next steps in life. Too many drop out of high school; too few high-school graduates go on to post-secondary education; and too few of those who do enroll in post-secondary education graduate in a timely manner. Employers report that a substantial number of young people who enter the work world directly after graduating from high school (or after dropping out) lack the reading, writing, and math skills necessary for many of today’s jobs, even at entry level. Ideally, the various components of the education system would be structured so that as children or young people complete each step, they would be adequately prepared for the next. In practice, this is often not the case. Students arrive at kindergarten and again at college, vocational training, or work unprepared for the challenges they face and without the skills their teachers, professors, or employers expect. Alaska is not alone in these problems, and many states are focusing on alignment as a possible response. Policymakers and others are studying how students progress through the entire education system—from pre-school through college, graduate study, or career training. As defined above, alignment would coordinate the work of institutions providing different levels of education. Educators in K-12 and early childhood programs would agree on what children should know and be able to do when entering kindergarten (or first grade)—and on how those skills and abilities would be taught and assessed. Likewise, employers, institutions of higher education, and K-12 schools would work together to reach similar agreements on what young people need to know to enter the workforce or college. Alignment efforts bring together policymakers and practitioners from all levels of education to identify what needs to be done to achieve this coordination and to oversee the work. The first section of this report looks at alignment of early childhood programs and K-12 education. Why is it important to begin alignment at the level of early childhood education? Research has demonstrated the strong effect of quality early childhood education on later educational outcomes. Among the best-known research is the High/Scope Perry Preschool study, which followed 120 children from the time they attended that preschool in the 1960s, at ages 3 or 4, until they were age 40.1 Schweinhart, et al. (1993) looked at program participants through age 27 and estimated that the program had produced savings to taxpayers of over $7 for each dollar spent. Program participants were less likely to need special education services throughout their school careers, less likely to commit crimes, and less likely to receive welfare—and they alsoearned more and paid higher taxes than non-participants. Other studies have found that children who participate in quality early childhood education programs are less likely to be retained in grade, placed in special education, or drop out of high school (Schweinhart 1994). In Alaska, public early childhood education is limited to federally mandated special education and federally funded (with state supplemental funding) Head Start programs. These programs together enroll about 16% of 3-year-olds and 22% of 4-year-olds in the state. Many more students in urban areas are enrolled in some form of private pre-school. Head start programs exist in more than 75 Alaska communities and are run by 16 different grantees, which have varying degrees of coordination with their local K-12 districts and with each other. The second focus of this report is readiness of Alaska high-school graduates for post-secondary education or work. Alaska’s colleges and universities find that many of their entering students— even those with good grades in high school—aren’t ready for college-level work. Again, national research affirms that Alaska’s problems are not unique. Callan, Finney, Kirst, Usdan, and Venezia (2006) report “The more difficult challenge for students is becoming prepared academically for college coursework. Once students enter college, about half of them learn that they are not prepared for college-level courses. Forty percent of students at four-year institutions and 63 percent at two-year colleges take remedial education. Additionally, high-school students face an incredibly complex system of placement tests and college admissions requirements.” A national survey of 431 employers about workforce readiness found that “When asked to assess new workforce entrants, employers report that many of the new entrants lack skills essential to job success… Over 40 percent (42.4 percent) of employer respondents rate new entrants with a high school diploma as ‘deficient’ in their overall preparation for the entry-level jobs they typically fill. Almost the same percentage (45.6 percent) rate the overall preparation of high school graduate entrants as ‘adequate,’ but almost no one (less than ½ of 1 percent—0.2 percent) rates their overall preparation as ‘excellent.’ ” 2 Anecdotal information from Alaska employers indicates that many young people entering the workforce in Alaska aren’t prepared for work, either. This report brings together available data on the scope of these problems in Alaska and discusses what other states have tried and what we can tell so far about what has worked. We identify areas that need more research and where there may not even be data to conduct research. Finally, we suggest steps the state can undertake now, while conducting research, to fill in the gaps.
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Economic Feasibility of North Slope Propane Production and Distribution to Select Alaska Communities
Tobias Schwörer and Ginny Fay
Could propane from Alaska’s North Slope reduce energy costs for electric utilities and residential space heating, water heating, and cooking demands? We explored the hypothesis that propane is a viable alternative for fourteen selected communities along the Yukon and Kuskokwim Rivers, coastal Alaska, and Fairbanks. Our analysis forecasts propane and fuel prices at the wholesale and retail levels by incorporating current transportation margins with recent analysis on Alaska fuel price projections. Annual savings to households associated with converting to propane from fuel oil can be up to $1,700 at $60 per barrel (bbl) of crude oil, and amount to $5,300 at $140 per barrel.1 Fairbanks residents would benefit from switching to propane for all applications at crude oil prices of $60/bbl. Interesting to note is that switching to propane for domestic water heating makes more sense at lower oil prices than conversions for home space heating. Three of the fourteen communities are projected to benefit from switching to propane for home heating at crude oil prices greater than $80 per barrel, and four communities at crude oil prices of more than $110/bbl. On the other hand, nine communities would benefit from conversion to propane for water heating as crude oil prices reach $50 and above. The realized household savings are also sensitive to assumptions surrounding the operating cost of the production facility and barge transportation delivery costs.
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Components of Alaska Fuel Costs: An Analysis of the Market Factors and Characteristics that Influence Rural Fuel Prices
Nick Szymoniak, Ginny Fay, and Alejandra Villalobos Meléndez
Many Alaskans face extremely high, volatile fuel prices. Little is publicly known about the actual structure of Alaska’s rural fuel markets and what drives prices at the community level. The Alaska State Senate Finance Committee asked economists at the University of Alaska Anchorage, Institute of Social and Economic Research (ISER) to investigate rural Alaska fuel markets and identify policy options that could be considered for legislative action to reduce fuel prices. This study is both an update and an evolution of previous ISER Components of Fuel Costs studies.1 It does not include road-accessible communities.
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Market Factors and Characteristics Influencing Rural Alaska Fuel Prices
Nick Szymoniak, Ginny Fay, Alejandra Villalobos-Melendez, Justine Charon, and Mark Smith
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Economic Importance of Sportfishing in the Matanuska-Susitna Borough
Steve Colt and Tobias Schwörer
We have estimated the economic benefits of sport fishing activity occurring within the Matanuska-Susitna (Mat-Su) Borough, using data from year 2007. Our estimates are based on the recent study entitled, Economic Impacts and Contributions of Sportfishing in Alaska, 2007. 2 It contains estimates of angler spending patterns within three regions: Southcentral, Interior, and Southeast. We also used year 2007 data from the ADFG annual Statewide Harvest Survey (SWHS).3 These data allow us to allocate economic benefits to the Mat-Su Borough.
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Nature-Based Tourism in Southeast Alaska
Darcy Dugam, Ginny Fay, Hannah Griego, and Steve Colt
In this report we calculate the economic importance of nature-based tourism in Southeast Alaska as measured by business revenue. Our estimates are based on field research conducted during 2005, 2006 and 2007. We define nature-based tourism as those tourism activities for which the natural environment is a significant input.1 Our key findings include the following: • Nature-based tourism generates about $277 million per year of direct business revenues in Sitka, Juneau, Chichagof Island, Prince of Wales Island, Petersburg and Wrangell. This number is most likely an underestimate of total revenues because not all naturebased tourism businesses and business sectors could be included in our estimates. Our numbers do not include tips – which in some businesses might add 25% to revenues – or taxes and fess paid directly to local governments. In addition, the especially rainy weather of 2006 probably caused abnormally low sales for some businesses. • Average revenue per visitor varies considerably among communities and activities; ranging from about $140 per visitor in Juneau to more than $2,600 per visitor on Prince of Wales Island. These differences reflect the range of activities offered -- from half-day excursions to multiple, overnight all-inclusive lodge stays. • Nature-based tourism expenditures create a significant economic ripple effect that keeps money circulating through the economy. This money supports jobs in marketing, support services, food and beverages, accommodations, fuel sales, government, and other sectors. • Communities are clearly striving to differentiate themselves and capitalize on local amenities such as the Stikine River, Anan Creek, the LeConte Glacier, Tracy Arm, Glacier Bay, Pack Creek and exceptional fishing and scenic opportunities. • A large and growing portion of Southeast Alaska’s visitors are cruise ship passengers. Both cruise passengers and independent travelers are similarly interested in nature-based tourism services. The majority of cruise ship shore excursions offer nature-based activities, from hikes and glacier viewing to flightseeing and forest canopy zip lines. • Communities hosting large numbers of cruise passengers are actively developing new and creative tourism products such as forest canopy zip lines and mountain biking while those with fewer visitors tend to be focused on sport fishing. This appears to be the case even if local amenities exist to support a broader range of business and visitor activities. Thus, there appear to be unrealized opportunities in some communities, but these may also reflect an inadequate visitor base upon which to risk additional investment. • There is a complex and competitive system for pre-booking cruise ship shore excursions. Businesses with exclusive cruise line contracts make price and tour information available only to cruise passengers and often agree to sell tours only through the cruise line.• The tourism businesses in cruise ports of call that appear to be most successful either have a cruise ship shore excursion contract or are catering to overnight (non-cruise) guests with high-quality and high-value services. Examples of these types of businesses include sport fishing lodges and multi-day yacht cruises. • It is difficult to compete with established businesses holding existing cruise line contracts. Despite this hurdle, a number of companies are offering creative new products including zip lines through the forest canopy, glass-bottomed boats, and an amphibious “duck” tour. • Some operators attribute the increased interest in adventure activities to a change in cruise ship clientele. In recent years, cruise companies have been catering to a younger crowd, targeting families. In any event, increasing numbers of passengers are interested in more active pursuits. • Competition for cruise passengers exists both within and between communities, as people are booking their shore excursions in advance and look at all the options. Sitka companies mentioned they were carefully tracking zip line activity in Juneau and Ketchikan, dogsled tours on the Mendenhall Glacier, and other activities to see which market niche they could capture. • There is some evidence that visitors are willing to pay premium prices for higher quality experiences in more pristine environments. However, it is not clear what specific attributes (seclusion, fishing experience, food, services, perceived exclusivity, and environmental amenities) are the key components of this higher market value. • It is possible to design a community-based tourism program that provides employment to local residents as is occurring in Hoonah. However, Elfin Cove appears to bring in more in gross revenues than Hoonah with about one-eighth as many visitors because Hoonah’s operation relies on volume while Elfin Cove businesses rely on higher-priced fishing lodge experiences. Day trips seem to be relatively higher cost, lower profit operations. • Independent travelers appear to try to avoid crowds and many are repeat visitors. Most tend to stay longer and have more open itineraries than those on cruise ships or organized tours. These characteristics make independent travelers more difficult to contact. • Independent travelers also appear to seek communities with fewer visitors and those that they perceive to be more “authentic,” such as Petersburg, Wrangell, and communities on Chichagof Islands. A lack of transportation capacity, whether on scheduled jets or on ferries, may be limiting the opportunities for these smaller communities. Less marketing may also be a factor limiting visits by independent travelers. • The primary marketing mechanisms for smaller, non-cruise related businesses are the internet and word of mouth. In addition, many customers return to the same fishing lodge, yacht tour, or charter business year after year. • Wildlife viewing is highly attractive to visitors due to spectacular scenery and abundant wildlife including whales and other marine mammals. Companies in several communities expressed a desire to move toward more wildlife viewing and sightseeing and away from sport fishing. These operators preferred wildlife viewing as it was less stressful due to less pressure to catch fish. Some operators were making this shift, while others thought they would not be able to match the revenue generated by sport fishing. • Weather has a significant impact on business for companies whose tours are not prebooked on cruise ships. Operators noted a marked difference between the sunny, dry summer of 2004 and the remarkably wet summer of 2006. Visitors walking off a ship in the rain were much less likely to go on marine tours or hikes in soggy conditions, and seasonal revenues were down. Businesses with cruise contracts did not experience this setback as passengers are not reimbursed for pre-sold tours when weather conditions are poor. The one exception was flightseeing, where companies had to cancel tours due to unsafe weather conditions. • Promoting wildlife watching is an important marketing strategy for Southeast Alaska communities. Visitors bureaus currently produce pamphlets with charismatic large animals, such as whales and bears. Bureau staff cited studies showing the desire to see wildlife was attracting a large portion of out-of-state visitors. • A significant policy question emerging from this research is how the public lands might be managed to increase the economic returns from tourism to residents of Southeast Alaska communities, especially the smaller communities that can only accommodate smaller numbers of visitors at one time. Bear viewing is one example of a high-value activity that depends on controlled access to specific infrastructure.
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Study of the Components of Delivered Fuel Costs in Alaska: January 2009 Update
Ginny Fay, Ben Saylor, Nick Szymoniak, Meghan Wilson, and Steve Colt
This is an update of our previous report titled “Components of Delivered Fuel Prices in Alaska.”1 We provide more recent data on actual fuel prices in ten rural communities that we first examined in fall 2007. Rural communities across Alaska face extremely high fuel prices. People in these remote, cold places need large quantities of fuel for heat, electricity, and transportation. The estimated household cost for energy use in remote rural Alaska has increased significantly since 2000—increasing from approximately 16% of total household income to 47% in 2008 for the lowest income households. It is a higher portion of income for all income levels in remote rural Alaska as compared to Anchorage.2 In addition to the high price of fuel in rural Alaska, villages and communities have high unemployment rates, limited local economic bases, and local governments that are struggling to provide basic services to residents and businesses.3 A 2008 report done by the Alaska Division of Community Advocacy stated that the price of gasoline in 100 Alaska communities ranged from $2.75 (Fairbanks) to $9.00 (Arctic Village) per gallon with a mean of $5.80.4 In many areas of Alaska, transporting bulk fuel by air, barge, truck or a combination of these methods increases the price of fuel, most of which must be purchased prior to “freeze up” in cold winter months in order to allow time for delivery to remote villages. High remote rural fuel prices appear to be the result of a number of factors. These include high transportation costs to remote locations, limited and costly storage, small market size, and the financing costs associated with holding large inventories. The main purpose of this research is to identify the components of the cost of delivered fuel across rural Alaska. By understanding these cost components, it may be possible to identify opportunities to address them and reduce the overall cost of fuel.
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How Hard Is It for Alaska’s Medicare Patients to Find Family Doctors?
Rosyland Frazier and Mark A. Foster
In the past few years, Alaskans have been hearing reports that some primary-care doctors won’t see new Medicare patients. Medicare pays these doctors only about two-thirds of what private insurance pays—and that’s after a sizable increase in 2009. But most Americans 65 or older have to use Medicare as their main insurance, even if they also have private insurance. Just how widespread is the problem of Alaska’s primary-care doctors turning away Medicare patients? ISER surveyed hundreds of doctors to find out—and learned that so far there’s a major problem in Anchorage, a noticeable problem in the Mat-Su Borough and Fairbanks, and almost no problem in other areas.
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Alaska without Petroleum: A Preliminary Run of a Gendanken Experiment
Oliver Scott Goldsmith
For the purposes of this study, I have used a simple economic base model to describe the structure of the Alaska economy.1 In the model each component of the economic base (the economic drivers) supports a certain number of jobs and generates a certain amount of personal income, not only directly but also through indirect and induced effects. All of the jobs and income in the economy are then accounted for when the contribution of each component of the economic base is included. The jobs and income attributed to a component of the economic base represents the potential loss to the economy if that part of the base were to disappear. For example, mining is an important industry in Alaska, consisting almost entirely of primary production for export outside the state. The contribution of the mining sector to total Alaska employment consists of miners as well as workers at Alaskan businesses that supply goods and services to the mining industry and workers at Alaskan businesses that supply goods and services to the families of the miners and workers at the Alaskan supplier businesses. If all of the mines in the state were to close, the loss in jobs and income would include those at the businesses supplying the mines and the families of the workers.
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Economic and Demographic Projections for Alaska and Greater Anchorage 2010–2035
Oliver Scott Goldsmith
This report describes three economic, demographic, and fiscal projections for the state of Alaska and the Greater Anchorage region consisting of the Municipality of Anchorage and the Matanuska- Susitna Borough. These projections have been prepared by the Institute for Social and Economic Research (ISER) of the University of Alaska Anchorage as part of the development of the Seward Highway to Glenn Highway Connection (H2H) Environmental Impact Statement (EIS) for the Department of Transportation and Facilities. These projections will be used to estimate future travel demand within the study area. The assumptions driving the three projections were developed by ISER in consultation with the study team and planners and economic development staff from Anchorage and Mat-Su. The BASE CASE projection is driven by a set of assumptions that together represent a likely future scenario for employment and population growth. The HIGH and LOW CASES are each driven by a set of assumptions that together represent the range of possible outcomes around the likely BASE CASE. The assumptions are based upon the best information available at the time that they were developed—the fall of 2009. The economic and demographic projections, contingent upon the assumptions for the different cases, were prepared using the MAP economic and demographic model developed by ISER. The main body of this report is a description of each of the three projection cases. This is followed by short sections comparing the three projections to one another and to an earlier projection prepared by ISER for KABATA (Knik Arm Bridge and Toll Authority) in 2005. There is also a brief description of the structure of the MAP model. A number of appendices contain detailed tables of model output as well as a detailed description of the assumptions for each of the three cases.
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2009 Alaska’s Construction Spending Forecast
Oliver Scott Goldsmith and Mary Killorin
Construction spending “on the street” in Alaska in 2009 will be $7.1 billion, down 3% from 2008.1,2,3 Lower construction spending, combined with higher material and labor costs, will result in a modest reduction in the level of construction employment in 2009. Although this will be the fourth year of decline, the level remains considerably above the long-term average. Excluding the oil and gas sector—which accounts for 43% of the total—construction spending will be $4.1 billion—down 1% from 2008. Private-sector construction spending will follow the slowdown in the Alaska economy. Excluding oil and gas, we expect private spending to be $1.3 billion in 2009, a decline of 24% from 2008. But strength in the oil and gas sector will keep the overall private sector decline to only 12%. Mining, utilities, and commercial spending will be down, mostly because a number of large projects have been completed. However, commercial —as well as residential— spending will be weaker, in response to the slowdown in the U.S. economy. Public construction spending will be up 16%, to $2.7 billion, offsetting much of the decline in private spending. That growth will mainly be due to the large FY 2009 state capital budget. But strong federal spending— both military and civilian— and the federal stimulus package will also contribute to the increase. Uncertainty in this year’s forecast comes from several sources. Volatility in commodity prices has affected construction spending in two important ways. The lower petroleum and metals prices in early 2009 have made investment in some prospects less attractive. Also, companies that finance construction activities out of their current cash flow are dealing with shrinking capital budgets. The national economy continues to deteriorate as we enter 2009.
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Anchorage Port Intermodal Expansion Program (PIEP) Benefit Cost Analysis of Proposed TIGER Discretionary Grant Funds
Oliver Scott Goldsmith and Tobias Schwörer
The Port of Anchorage (POA) has exceeded its design life and has been operating beyond its capacity for a number of years. It is in need of replacement to both minimize operating costs and avoid potential damage in the event of an earthquake. It is in need of expansion to meet the needs of the growing South Central Alaska economy1. In response to these needs the POA has embarked on a multi-year expansion project—the Port Inter-modal Expansion Program (PIEP)2. In early 2009, in the midst of this expansion program, the federal government passed the American Recovery and Reinvestment Act. The Recovery Act appropriated $1.5 billion of discretionary funds to be awarded by the Department of Transportation for capital investments in surface transportation infrastructure (including ports) that would provide long-term economic benefits as well as preserve and create jobs and promote economic recovery3. In support of its request for a “Grant for Transportation Investment Generating Economic Recovery” (TIGER Grant), the POA asked the Institute of Social and Economic Research (ISER) to prepare a Benefit-Cost Analysis (BCA) demonstrating the long term economic benefits that would flow from expenditure of grant funds in support of the PIEP. This BCA follows the guidelines set forth in the Federal Register notice announcing the TIGER grant program. It measures the increase in national income that would result from the expenditure of the grant funds in support of the PIEP. Since the POA funding request would pay only a portion of the cost of the entire PIEP, this BCA is limited to measuring the benefits from the expenditure of the TIGER grant funds rather than the total benefits of the entire PIEP.
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Propane from the North Slope: Could It Reduce Energy Costs in the Interior?
Oliver Scott Goldsmith and Nick Szymoniak
Could propane from the North Slope cut energy costs in Fairbanks and other Interior communities that heat buildings or generate electricity with fuel oil or naphtha? The Alaska Natural Gas Development Authority (ANGDA) thinks it could. That’s because a North Slope producer has agreed to sell ANGDA propane for considerably less than what it might otherwise cost, if there were a natural gas pipeline. Propane is a component of North Slope natural gas—and right now there’s no way to get that gas to market.* Naphtha and fuel oil, by comparison, are refined from oil—so their prices are closely tied to the volatile price of crude oil. ANGDA hopes getting a price break on propane could make it cheaper, at least until a pipeline is built—and it asked ISER to analyze the potential effects of one idea.
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Economic Analysis of Future Offshore Oil & Gas Development: Beaufort Sea, Chukchi Sea, and North Aleutian Basin
Scott Goldsmith, Leah Cuyno, Kent Kovacs, Nancy Mundy, Anne Bunger, and Terri McCoy
This study describes and quantifies the potential economic benefits to the State of Alaska and local communities from developing oil and gas resources in Alaska’s Outer Continental Shelf (OCS) areas. The findings of this study are not predictions of the future for Alaska, but rather they describe a reasonable approach that one might expect for OCS development. The findings also provide a basis for thinking about potential actions that state and local governments, industry, and other stakeholders might undertake to deal most effectively with the effects that do occur. While there have been other studies in the past that looked at the potential effects of OCS development, this study is based on more recent information and represents the current state of knowledge in OCS resource estimates, exploration, development, and production activities; recent technology improvements; and state and local government fiscal systems. The economic benefits described here are based on assumptions about when and how OCS development, as well as other economic development in the state, might occur during the next 50 years. The magnitude of the economic effects of OCS development are contingent on assumptions about petroleum prices, volumes of OCS resources that might be economically recoverable, the levels of investment that the petroleum industry would be willing to spend to develop in the OCS areas, and the fiscal regime or tax structure that would be in effect as OCS oil and gas development occurs.
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Propane from the North Slope: Could It Reduce Energy Costs in the Interior?
Scott Goldsmith and Nick Szymoniak
Could propane from the North Slope cut energy costs in Fairbanks and other Interior communities that heat buildings or generate electricity with fuel oil or naphtha? The Alaska Natural Gas Development Authority (ANGDA) thinks it could....We analyzed how fuel prices in Fairbanks might compare, under those assumptions and at different crude oil prices. We estimated the price of propane delivered to Fairbanks, the wholesale price of fuel oil in Fairbanks, and the price of the naphtha that Golden Valley Electric Association (the Fairbanks utility) burns to generate electricity. These aren’t prices residential customers would pay. The propane price doesn’t include costs of storing and distributing propane in Fairbanks, and we tried to make the fuel oil price comparable to that. This analysis is intended just to show relative fuel prices, given ANGDA’s assumptions.
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