Kenai Peninsula economy started year low, ended high with lots of bumps in between

Wild ride of 2005

Posted: Friday, February 17, 2006

All in all, 2005 proved a relatively sweet ride for the Kenai Peninsula Borough’s economy, which enjoyed 12 months of slow and steady growth.

Things might well have turned sour.

At year’s beginning, state lawmakers were wringing their hands at blooming deficit numbers and threatening further cuts in state programs, while local government officials were crying foul over the loss of revenue sharing and other municipal aid.

By the end of the year, those same legislators were rubbing their hands in glee at the prospect of divvying up $1.2 billion in unexpected oil revenue surplus, and municipalities were demanding a fair share.

It was that kind of year — an emotional roller coaster of economic lows and highs.

Agrium began the year prepared to close its Nikiski operations for good by October after failing to secure an economically priced supply of natural gas. But an agreement reached with owners of the Cook Inlet Gas Gathering System pipeline pushed that deadline back to November 2006.

By year’s end, Agrium announced it was seriously studying a wholesale move to coal gasification technology that would not only supply feedstock to its fertilizer plant and the energy to run it, but would likely produce excess energy that could be marketed to the Railbelt energy grid.

Northern Dynasty Mines Inc., already boasting the known reserves at its Pebble Mine site northwest of Iliamna, began the year putting together a feasibility study company officials expected to have completed by early this year.

Over the course of 2005, however, core sampling in a region east of proposed open pit mine site, in what is being called Pebble East, revealed huge deposits of additional copper, gold and molybdenum in quantities to rival that of open pit site, now called Pebble West. The company plans further drilling and assaying this year. It has pushed completion of its feasibility study back into 2006 and likely won’t seek mining permits until next year.

Northern Dynasty has suggested some 2,000 people may be needed during the mine’s construction phase and perhaps 1,000 permanent jobs over 30 to 50 years.

Despite concerns about overspending, state lawmakers adopted a $2.16 billion capital budget in May, one of the largest in history. The peninsula got $66 million for a variety of nuts-and-bolts projects.

Facing growing deficits at home, however, the Kenai Peninsula Borough Assembly took the highly controversial step in June of adopting an ordinance raising the borough’s 2 percent sales tax rate to 3 percent, and instituting several other revenue-enhancement measures.

A grassroots initiative petition effort launched by the group Alliance of Concerned Taxpayers succeeded in putting the sales tax issue on the October municipal ballot, where 54 percent of voters promptly reversed the assembly’s action.

Borough Mayor John Williams, fresh from his runoff victory over John Torgerson, pulled no punches upon taking office, saying in December that the loss of the expected revenue would result in severe cuts to borough spending and programs in the current budget, and further cuts in future budgets — cuts that he promised would be painful.

Meanwhile, the other revenue enhancement measures adopted at the same time as the sales tax increase in June and now headed to the fall 2006 ballot where they, too, may be overturned. They included a provision to charge sales taxes on recreational package sales on a per-seat, per-day basis, and a method for annually withdrawing cash from the Land Trust Fund to cover general government expenses.

Atop the immediate loss of budgeted revenue resulting from the sales tax reversal, the borough’s ability to spend money was restricted when voters approved another October ballot measure, this one setting at $1 million the maximum the assembly could approve spending without a public vote. The level had been $1.5 million.

While all this was going on in the political realm, the peninsula’s economy was having its best year ever insofar as gross sales were concerned. For the first time in the borough’s history, third-quarter gross sales topped the $700 million mark, reaching nearly $713 million. Taxable sales also showed significant gains over the same period in 2004.

Meanwhile, not only did the number of people available to work increase over the previous summer, but the total number actually employed also increased, the report said. That resulted in a seasonal decline in the unemployment rate. Unemployment was 7.2 percent in September 2005, down from 7.9 percent during September 2004.

The city of Kenai, stung badly by the demise of the Big Kmart store in 2003, rebounded nicely in 2005, thanks to Home Depot, and is looking ahead to the possibility of a future Wal-Mart and Lowe’s Home Improvement.

Other communities enjoyed pockets of progress, including good construction years in Soldotna and Homer, as reported by borough analysts.

Elsewhere, Tesoro announced late in the year that it would refine low-sulfur fuels at its Kenai refinery in partnership with Flint Hills Resources Alaska. It could mean the addition of 200 construction jobs this year.

ConocoPhillips, Unocal (Chevron USA), Marathon and others continued exploring for and developing gas resources in the Cook Inlet region, efforts that are expected to continue in 2006.

Interest in the Beluga Coal fields grew during 2005, including the Chuitna project that would export low-sulfur, sub-bituminous coal to Pacific Rim nations.

Cook Inlet fisheries had a relatively good year. Upper Cook Inlet fishermen harvested more than 1.5 million sockeye, the fourth-largest haul on record, and at 90 cents per pound, the most valuable fishery since 1997.

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