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2013 Alaska's Construction Spending Forecast

Mouhcine Guettabi and Scott Goldsmith
The Economic Importance of the Bristol Bay Salmon Industry

Gunnar Knapp, Mouhcine Guettabi, and Oliver Scott Goldsmith

By any measure, the Bristol Bay sockeye salmon fishery is very large and valuable. It is the world’s most valuable wild salmon fishery, and typically supplies almost half of the world’s wild sockeye salmon. In 2010, harvesting, processing, and retailing Bristol Bay salmon and the multiplier effects of these activities created $1.5 billion in output or sales value across the United States. In 2010, Bristol Bay salmon fishermen harvested 29 million sockeye salmon worth $165 million in direct harvest value alone. That represented 31% of the total Alaska salmon harvest value, and was greater than the total value of fish harvests in 41 states. Salmon processing in Bristol Bay increased the value by $225 million, for a total first wholesale value after processing of $390 million. The total value of Bristol Bay salmon product exports in 2010 was about $250 million, or about 6% of the total value of all U.S. seafood exports. In 2010, the Bristol Bay sockeye salmon fishery supported 12,000 fishing and processing jobs during the summer salmon fishing season. Measuring these as year-round jobs, and adding jobs created in other industries, the Bristol Bay salmon fishery created the equivalent of almost 10,000 year-round American jobs across the country, and brought Americans $500 million in income. For every dollar of direct output value created in Bristol Bay fishing and processing, more than two additional dollars of output value are created in other industries, as payments from the Bristol Bay fishery ripple through the economy. These payments create almost three jobs for every direct job in Bristol Bay fishing and processing. United States domestic consumption of Bristol Bay frozen sockeye salmon products has been growing over time as a result of sustained and effective marketing by the industry, new product development and other factors. This growth is likely to continue over time, which will result in even greater output value figures for the industry’s economic impacts across the U.S. The economic importance of the Bristol Bay salmon industry extends far beyond Alaska, particularly to the West Coast states of Washington, Oregon and California.
Sealaska Plaza Wood Pellet Boiler Benefit-Cost and Sensitivity Analysis

Sohrab Pathan

Executives at Sealaska Corporation's headquarters, Sealaska Plaza, in Juneau decided to replace existing oil fired boilers with a wood pellet boiler for heating as a part of the Corporation's green initiative.1 By introducing green energy, the Corporation hopes to reduce its carbon footprint, encourage other business entities in Southeast Alaska to use green energy, help to establish a local wood pellet industry in Southeast Alaska, increase local employment, and reduce the impacts of oil price volatility. Currently there is no wood pellet industry in southeast Alaska and Sealaska Corporation is assuming the leading role to develop the demand for wood pellets by promoting this renewable technology and using the Corporation's building as a demonstration location. The wood pellet boiler that the Sealaska Plaza building is using to heat the building is a Viessmann PYROT boiler that is powered by KÖB biomass technology. The publicly visible silo in front of the Corporation’s headquarters in downtown Juneau is an indication that this is a signature project to increase the public awareness about biomass technology. This paper provides a technical summary of benefit-cost ratios and sensitivity analyses of the biomass project given different fuel price projections and estimates of the social costs of carbon. The costs driving the benefit-cost ratios of this 20-year project are calculated by using the data provided by the Sealaska Corporation. In order to conduct these analyses, some economic assumptions were made and are presented below.
Energy Policy Recommendations

Sohrab Pathan, Steve Colt, Ginny Fay, and Matthew Berman

The Senate Finance Committee, through its Senate Energy Working Group, has asked a series of important questions about energy prices, energy costs, and energy use. The Committee also asks the “overarching” question of what can be done to reduce gasoline and heating fuel prices in Alaska? Which of these strategies has the greatest likelihood of success for the least cost to state government? This report contains our responses to both the overarching and specific questions posed. Our answers and recommendations are based on reviews of the most current, publicly available data regarding fuel prices and fuel use. We interviewed numerous agency officials, businesspeople, and residents participating in a range of energy related programs supported by the State of Alaska.
Trends in Allegations and Investigations of Child Abuse and Neglect in Alaska

Diwakar Vadapalli and Virgene Hanna

Rates of child abuse and neglect in Alaska have been high for years, compared with national averages and under various measures. To find ways of better protecting children in our state, it’s important for Alaskans to understand more about child maltreatment —which includes neglect, mental injury, physical abuse, and sexual abuse. Neglect is by far the most common type of maltreatment, in Alaska and across the country. This is the first in a series of papers that will examine child abuse and neglect in Alaska, to focus more attention on this very serious problem and uncover potential reasons why rates are so high. Here we discuss trends in allegations of child abuse and neglect and subsequent investigations, from 2006 through 2012. We use publically available data from the Office of Children’s Services (OCS), the state agency that deals with most reported child maltreatment in Alaska.
Does the YLS/CMI help to predict recidivism?

Teresa W. Carns and Stephanie Martin

In June, 2010, the Alaska Division of Juvenile Justice (Division) invited the Alaska Judicial Council and the Institute of Social and Economic Research (ISER) at University of Alaska Anchorage to assist “in understanding how scores on the Division’s assessment instrument for juveniles, the Youth Level of Service/Case Management Inventory (YLS/CMI), reflect the actual recidivism of juveniles who’ve received services from the Division.” Other states had shown that YLS/CMI scores could be helpful in predicting recidivism among the youths they served, but Alaska had not yet done the comparable research. ISER and the Council agreed that the questions proposed would provide valuable information and help the Division to better address the reasons for youth recidivism.
Katmai National Park and Preserve Economic Significance Analysis and Model Documentation

Neal Christense and Ginny Fay
All-Alaska Rate Electric Power Pricing Structure

Ginny Fay and Alejandra Villalobos Meléndez

Economists at the Institute of Social and Economic Research, University of Alaska Anchorage were asked to research the potential options and impacts of establishing an All-Alaska Rate as an alternative to the current Power Cost Equalization (PCE) program funding formula. We were asked to provide a history of the PCE program and information on electricity rates and patterns of consumption across regions of Alaska. This report provides the results of this analysis. Alaska is unique in many ways, including its consumption and pricing of electricity. There are large regional differences in consumption and prices that result from proximity to different types and quantities of resources. Differences in remoteness and population size also influence costs. Urban areas in the southern Railbelt benefit from larger economies of scale and access to natural gas and hydroelectric resources; the majority of hydroelectric facilities are located in Southcentral and Southeast Alaska. Most communities in rural Alaska depend on volatile and high price fossil fuels for the generation of electricity. The Alaska statewide weighted average residential rate for electricity (17.6 cents per kilowatt (kWh) in CY2011) is higher than the U.S. average of 11.8 cents per kWh (U.S. EIA, 2012). Alaska now trails behind Hawaii (34.5 cents), New York (18.4 cents) and Connecticut (18.1 cents) based on ranking of average residential price per kWh. Hidden in the Alaska statewide average is considerable variation with some communities paying less than the national average and some paying considerably more.
Alaska Energy Statistics 1960-2010 Final Report

Ginny Fay, Alejandra Villalobos Meléndez, and Amber Converse

Prior to 1985, the federal Alaska Power Administration published the Alaska Electric Power Statistics. Then, the Alaska Energy Authority (formerly the Alaska Power Authority) began gathering statistical data and publishing this annual report. In 1988, the Alaska Electric Power Statistics report became a combined effort between the Alaska Systems Coordinating Council and the Alaska Energy Authority. Beginning in 1993, the report became a joint effort between the Alaska Systems Coordinating Council and the Alaska Department of Community and Regional Affairs, Division of Energy. After the 1995 report, no further reports were published until 2003 when a report was prepared by the Institute of Social and Economic Research (ISER), University of Alaska Anchorage (UAA), with funding provided by the Alaska Energy Authority (AEA), the Regulatory Commission of Alaska (RCA), and the Denali Commission.The purpose of this report is to present electric power reference data for Alaska; it is not intended to provide detailed analysis of energy production, consumption or uses.
Alaska Fuel Price Projections 2012-2035

Ginny Fay, Alejandra Villalobos Meléndez, and Sohrab Pathan

This and previous Alaska fuel price projections were developed for the Alaska Energy Authority (AEA) for the purpose of estimating the potential benefits and costs of renewable energy projects. Project developers submit applications to AEA for grants awarded under the Alaska Renewable Energy Fund program process. The fuel price projections are not price forecasts but a statistical estimation of potential future utility avoided fuel costs based on the relationships between historic utility fuel prices and crude oil and refinery prices reported by the U.S. Department of Energy, Energy Information Administration (EIA). These statistically estimated relationships are used to project potential future fuel prices based on EIA’s published Annual Energy Outlook crude oil and natural gas price forecasts. In addition to developing these low, medium and high fuel price projections, estimates of the social cost of carbon (previously included as estimates of potential carbon taxes), and a price differential for home heating fuel are provided and are incorporated into the Renewable Energy Fund benefit-cost model for evaluating potential projects. Previously, a five cents premium for low sulfur fuels was added to the projections in anticipation of implementation of low sulfur fuel air quality requirements. However, the low sulfur fuel requirement was implemented in 2010; hence recent prices reflect the effects of the rule and a premium is no longer necessary. The fuel price projections are limited in their applicability to the modeling of project benefits and costs and should not be considered fuel price forecasts.
Power Cost Equalization Funding Formula Review

Ginny Fay, Alejandra Villalobos Meléndez, and Tobias Schwörer

The purpose of this study is to examine the current Power Cost Equalization (PCE) program formula’s impacts on incentives for implementation of energy efficiency and renewable energy measures. In addition, it examines if alternative formula structures might improve market signals that are more conducive to investment in energy efficiency and renewable energy in rural Alaska. As part of the analysis we also present information on the history of the PCE program and levels and patterns of electricity consumption across regions of Alaska. Alaska has large regional and intra-regional differences in energy consumption and prices that result from a number of factors including proximity to different types and quantities of resources, community population, remoteness, and transportation costs. Most communities in rural Alaska depend on volatile and high priced fossil fuels for the generation of electricity, space heating and transportation. The Alaska statewide weighted average residential rate for electricity (17.6 cents per kWh in CY2011) is substantially higher than the U.S. average of 11.8 cents per kWh (U.S. EIA, 2012). Yet in Alaska the average residential rate per kWh is currently lower than in Hawaii (34.5 cents), New York (18.4 cents) and Connecticut (18.1 cents). Hidden in the Alaska statewide average is considerable variation with some communities paying less than the national average and some—generally those least able to afford it—paying among the highest in the country. The Railbelt and Southeast regions have the lowest average residential electric rates (Appendix I map). North Slope residential customers also have lower average rates because of access to natural gas and North Slope Borough energy payments in addition to PCE disbursements. Most other regions have rates two to three times as high as Alaska urban rates. Some communities with hydroelectric power have notably low rates but customers are not paying the full, true cost of power because the cost of construction was heavily subsidized by state and federal governments. In Table 3 (p. 20) we present average annual residential electricity consumption and rates for different regions of Alaska.
Alaska Energy Statistics 1960-2011 Preliminary Report

Ginny Fay, Alejandra Villalobos Meléndez, and Corinna West

Prior to 1985, the federal Alaska Power Administration published the Alaska Electric Power Statistics. Then, the Alaska Energy Authority (formerly the Alaska Power Authority) began gathering statistical data and publishing this annual report. In 1988, the Alaska Electric Power Statistics report became a combined effort between the Alaska Systems Coordinating Council and the Alaska Energy Authority. Beginning in 1993, the report became a joint effort between the Alaska Systems Coordinating Council and the Alaska Department of Community and Regional Affairs, Division of Energy. After the 1995 report, no further reports were published until 2003 when a report was prepared by the Institute of Social and Economic Research (ISER), University of Alaska Anchorage (UAA), with funding provided by the Alaska Energy Authority (AEA), the Regulatory Commission of Alaska (RCA), and the Denali Commission. Beginning in 2008, Alaska Electric Energy Statistics updates have been prepared by ISER in partnership with AEA. The purpose of this report is to present electric power reference data for Alaska; it is not intended to provide detailed analysis of energy production, consumption or uses.
Federal Spending in Alaska: Running Out of Steam?

Oliver Scott Goldsmith

After nearly a decade of explosive growth, federal spending in Alaska has turned flat, except for the temporary boost from the stimulus package—the American Recovery and Reinvestment Act—that pumped more than $2.2 billion into the state economy in 2009 and 2010. (Shown in black in the figure below.) Total federal spending in Alaska was $11.2 billion in 2009 and $10.9 billion in 2010, compared with about $9.4 billion in 2008. But without the stimulus funds, federal spending in 2009 and 2010 would have been no higher than in the previous four years. Alaska was first among the states in per capita stimulus funds, with more than $3,000 per capita, or nearly four times the national average. Spending is no longer growing for either defense or grants—the largest categories of federal dollars coming into the state. Still, the special characteristics that have historically kept Alaska near the top of the state rankings for federal funds per capita will continue to guarantee a strong role for federal dollars in the economy. Here we discuss the composition of federal spending in Alaska, comparing it with spending in other states, and also review stimulus spending and provide examples of the importance of federal funds to particular sectors of the state economy. In an appendix, we correct a serious reporting error in data from the U.S. Department of Commerce on federal spending in Alaska. Because of the difficulties in sorting out temporary stimulus spending in 2009 and 2010—and because of errors in federal data for those years—2008 spending provides the best picture of recent federal spending in Alaska.
Managing Alaska’s Petroleum Nest Egg for Maximum Sustainable Yield

Oliver Scott Goldsmith

Web Note #7 (How Much Should Alaska Save? February 2011) suggested we should think of Alaska’s petroleum wealth as an asset from which we should spend only the earnings—thus preserving that wealth for future generations, while at the same time providing a sustainable annual flow of income for current Alaskans. Based on the value of state financial assets and a projection of future petroleum revenues, in early 2011 we estimated total petroleum wealth—the Petroleum Nest Egg—to be $126 billion. That total could generate an annual sustainable flow of income, or Maximum Sustainable Yield, of $5 billion. That year actual state spending from petroleum revenues, along with the Permanent Fund dividend, was $5.5 billion, or $.5 billion more than the sustainable amount. This put a Fiscal Burden on future generations of Alaskans because it reduced the size of the nest egg. The state could have avoided that burden either by increasing non-petroleum revenues $.5 billion, or by reducing spending that much. Doing one or the other would have added $.5 billion of saving to the nest egg and so maintained its value. This Web Note revisits the calculation of the Petroleum Nest Egg, the Maximum Sustainable Yield, and the Fiscal Burden, taking into account both changes in expectations of future revenues and the size of the state budget. The estimated size of the nest egg has increased since last year, to $155 billion, because of higher oil prices and more optimistic production assumptions, so the estimated sustainable yield is up to $6.2 billion a year. But that growth has been more than offset because spending of petroleum revenues has also increased. The FY 2012 state budget exceeds the Maximum Sustainable Yield by $.8 billion, passing a Fiscal Burden of that amount on to the next generation of Alaskans. Looking beyond FY 2012, continued spending growth would have dramatic effects on the Nest Egg and Sustainable Yield. For example, if spending growth of 6% a year were to go on year after year and the growth was funded by petroleum revenues, the currently estimated Nest Egg would shrink at an accelerating rate and the Fiscal Burden would grow at an increasing rate. The Maximum Sustainable Yield for the next generation of Alaskans would drop by half in 20 years. Looked at another way, sustaining spending growth of 6% a year would require a Nest Egg of $350 billion—more than twice the current estimate. To put that amount in perspective, $350 billion is more than half the current size of the Norwegian government’s pension fund.
Managing Extractive Resource Wealth for Sustainability: Lessons from Alaska Seen Through the Lens of Maximum Sustainable Yield

Oliver Scott Goldsmith

Alaska has enjoyed a generation of unprecedented economic growth and prosperity driven by crude oil production primarily from one giant field, Prudhoe Bay, on the North Slope. Through a number of financial savings accounts, including the Alaska Permanent Fund, the Statutory Budget Reserve, and the Constitutional Budget Reserve, the state has successfully converted a share of petroleum wealth into $55 billion in financial assets. It has been less successful in diversifying the economic base away from dominance by oil and gas production. Now oil production has fallen to less than 1/3 of its peak and this decline is projected to continue—reducing public revenues and private economic activity. This paper will explore whether the state of Alaska has the resources to be able to transition successfully to a Post-Prudhoe Bay economy, how that transition could take place, and what impediments might prevent a successful transition. This analysis will be of interest to other natural resource dependent economies that are trying to manage the cycles that resource extraction generate.
TAPS at 35: Accounting for the Oil Revenues

Oliver Scott Goldsmith

Thirty-five years ago, on June 20, 1977, oil from state-owned land on the North Slope began flowing through the trans-Alaska pipeline. Since then, the state has collected $170 billion in oil revenues, in today’s dollars.i Petroleum (both oil and gas) still in the ground might generate another $100 billion for the state.ii What has Alaska done with its oil wealth so far?
2012 Alaska's Construction Spending Forecast

Oliver Scott Goldsmith and Mary Killorin

The total value of construction spending “on the street” in Alaska in 2012 will be $7.7 billion, up 3% from 2011.1,2,3 Wage and salary employment in the construction industry will be stable at the same level as last year— 15,800. This is down from a peak of 18,300 in 2005. Excluding the oil and gas sector—which accounts for 41% of the total—construction spending will be $4.6 billion, up 4% from 2011 and about the same rate of increase as last year. Oil and gas spending will be $3.2 billion, 1% higher than in 2011. Private spending for construction will be up in 2012. Public spending for traditional government purposes will be down somewhat, but public funds also help finance some projects in the utility and health sectors, which are primarily private. So overall, an increase in state spending for construction will offset a decline in federal spending.
Snapshot: The Home Energy Rebate Program

Oliver Scott Goldsmith, Sohrab Pathan, and Nathan Wiltse

Alaska’s state government has spent an estimated $110 million since 2008 for better insulation, new furnaces, and other retrofits for roughly 16,500 homeowners—10% of all homeowners statewide.1 That spending was under the Home Energy Rebate Program, which rebates homeowners part of what they spend to make their houses more energy-efficient and less expensive to heat.2 The state legislature established the current program in 2008, as energy prices were spiking. The Alaska Housing Finance Corporation (AHFC) administers it, and the Institute of Social and Economic Research and the Cold Climate Housing Research Center did this analysis for AHFC, assessing the broad program effects from April 2008 through September 2011. Changes in fuel use and heating costs reported here are estimates from AHFC’s energy-rating software; figures based on actual household heating bills aren’t currently available. The software uses house characteristics and location-specific information on weather and other factors to produce the estimates—but remember they are estimates.3
Economic Impact of UAA

Scott Goldsmith
Shareholder Employment at Red Dog Mine

Sharman Haley and David Fisher

Under the Alaska Native Claims Settlement Act of 1971, Iñupiat of northwest Alaska organized as shareholders in the NANA1 Regional Corporation, Inc., and received title to 2,258,836 acres, including rights to the rich Red Dog zinc deposit. In 1982, NANA signed a joint-venture agreement with Teck2 to develop the mine, including provisions for preferential hire for qualified NANA shareholders. The agreement aimed for 100% shareholder hire by 2001. As of 2010, Teck had 220 NANA shareholders in full-time employment, which is 53 percent of the workforce. Other mines around the world have similar indigenous or local hire agreements with mixed success. The Voisey’s Bay mine sets the high mark for Canada with an Aboriginal hire rate of 54 percent (AETG 2008), followed by Ekati diamond mine at 50 percent (BHP Billiton 2011). So the track record for indigenous employment at Red Dog is high by global standards, although it falls short of NANA and Teck’s goal. What are the continuing barriers to increasing shareholder hire, retention and promotion?
Food System Assessment

Virgene Hanna, Rosyland Frazier, Khristy L. Parker, and Irena Ikatova

Food assessments are conducted for different reasons such as creating a more sustainable commercial food production system or to target particular policies. The main focus of this effort was to locate indicators that could be updated regularly so current information would be readily available and so that changes or trends could be monitored. Without knowing the current state of food-related indicators it’s difficult to make informed decisions about which issues and goals are priorities. We start with an overview of the food system model we used. Chapter 2 is a demographic overview of Alaska’s residents. The next five chapters present the indicators for each of the components of the food system. Chapter 8 contains the data we think would be need to develop a better picture of Alaska’s food system. The final section of this report is an index of the indicators: the name of the indicator, where the indicator appears in this report, the years of data included, the source (the agency or organization thatproduced the data), the source title for the data, and the location of the data, usually a Web address.
Kids Count Alaska 2011-2012

Virgene Hanna, Irena Ikatova, Patricia DeRoche, Kent Spiers, Darla Silver, Lily Sloth, and Erin Johnson

Kids Count Alaska is part of a nationwide program, sponsored by the Annie E. Casey Foundation, to collect and publicize information about children’s health, safety, education, and economic status. We gather information from many sources and present it in one place, trying to give Alaskans a broad picture of how the state’s children are doing and provide parents, policymakers, and others with information they need to improve life for children and families. Our goals are: • Distributing information about the status of Alaska’s children • Creating an informed public, motivated to help children • Comparing the status of children in Alaska with that of children nationwide, and presenting additional Alaska indicators (including regional breakdowns) when possible.
From Northern Village to Global Village

Heather Hudson

The digital divide, which originally signifed the gap between those with Internet acces and those without, now applies to broadband. As other software and applications, such as health records, government documents, and educational materials are moving to the cloud rather than being installed on local devices, people in developing regions will need affordable broadband to access them.
Toward Universal Broadband in Rural Alaska

Heather E. Hudson, Virgene Hanna, Alexandra Hill, Khristy Parker, Suzanne Sharp, Kent Spiers, and Kyle Wark

The TERRA-Southwest project is extending broadband service to 65 communities in the Bristol Bay, Bethel and Yukon-Kuskokwim regions. A stimulus project funded by a combination of grants and loans from the Rural Utilities Service (RUS), TERRA-Southwest has installed a middle-mile network using optical fiber and terrestrial microwave. Last-mile service will be through fixed wireless or interconnection with local telephone networks. The State of Alaska, through its designee Connect Alaska, also received federal stimulus funding from the National Telecommunications and Information Administration (NTIA) for tasks that include support for an Alaska Broadband Task Force “to both formalize a strategic broadband plan for the state of Alaska and coordinate broadband activities across relevant agencies and organizations.” Thus, a study of the impact of the TERRA project in southwest Alaska is both relevant and timely. This first phase provides baseline data on current access to and use of ICTs and Internet connectivity in rural Alaska, and some insights about perceived benefits and potential barriers to adoption of broadband. It is also intended to provide guidance to the State Broadband Task Force in determining how the extension of broadband throughout the state could contribute to education, social services, and economic activities that would enhance Alaska’s future. Results of the research could also be used proactively to develop strategies to encourage broadband adoption, and to identify applications and support needed by users with limited ICT skills.
Assessing Ecological Risk of Proposed Mines: Can Valid Assessments be Done Pre-Design?

Bob Loeffler

Large resource development projects take years to plan. During that planning time, the public frequently debates the potential benefits and risks of a project, but with incomplete information. In these debates, some people might assert that a project would have great benefits, while others might assert that it would certainly harm the environment. At the same time, the developer will be assessing different designs, before finally submitting one to the government permitting agencies for evaluation and public scrutiny. For large mines in Alaska, the government permitting process takes years, and often includes an ecological risk assessment. This assessment is a data-intensive, scientific evaluation of the project’s potential ecological risks, based on the specific details of the project. Recently, some organizations have tried to bring scientific rigor to the pre-design public discussions, especially for mining projects, through a pre-design risk ecological risk assessment. This is a scientific assessment of the environmental risks a project might pose, before the details of project design, risk-prevention, and risk-mitigation measures are known. It is important to know whether pre-design risk assessment is a viable method for drawing conclusions about risks of projects. If valid risk predictions can be made at that stage, then people or governments would not have to wait for either a design or for the detailed evaluation that is done during the permitting process. Such an approach could be used to short cut permitting. It could affect project financing; it could affect the schedule, priority, or even the resources that governments put toward evaluating a project. But perhaps most important: in an age where public perceptions are an important influence on a project’s viability and government permitting decisions, a realistic risk assessment can be used to focus public attention on the facts. But if the methodology is flawed and results in poor quality information and unsupportable conclusions, then a pre-design risk assessment could unjustifiably either inflame or calm the public, depending on what it predicts.