Report: uptick in construction spending expected

Posted: Friday, February 18, 2011

Construction spending in Alaska is set to continue a pattern of stability this year, with an increase of 4 percent to $7.1 billion, according to an annual University of Alaska Anchorage forecast.

Last year's report forecasted a 3 percent downtick in spending from 2009. And while this year's report does predict growth, the margin of error is such that there may not be any net growth at all, said John MacKinnon, executive director of the Associated General Contractors of Alaska, which sponsored the study.

"To me, that's all within the margin of error and so I look at that as being flat, which, as I started saying a couple of years ago, in this economy, flat is good," he said.

The majority of the spending, as in previous years, is private sector. Some $4.5 billion, or 63 percent of total spending, is forecasted to come from private industry, wrote authors Scott Goldsmith and Mary Killorin of UAA's Institute of Social and Economic Research. This includes $2.91 billion in oil and gas spending, in addition to $305 million from mining activity and $615 million from utilities, among other sectors.

But MacKinnon said the state Legislature is largely to thank for the slight swell in spending, as the $2.8 billion state capital budget approved last year contains a wealth of work for contractors.

"I think we've got a Legislature that believes in investing in the capital budget. That's something you haven't seen in many other states, the ability to do that," he said. "That's one heck of a buffer when you look at it."

Oil and gas

The oil and gas estimate represents an increase of 3 percent from the previous year, and accounts for 41 percent of total spending for 2011. It takes into account uncertainty created by regulatory hurdles to future development, and a lack of new exploration from the North Slope's three big producers.

BP, ConocoPhillips and ExxonMobil will not be exploring in 2011, the report stated. BP will concentrate on bringing its Liberty field into production, and both it and ConocoPhillips will focus on developing existing reserves, according to the forecast.

But all of these projects may be slowed by legal and environmental obstacles, the report stated.

"With significant slippage, our forecast for oil and gas spending would be considerably lower," wrote the researchers.

Still, Eni, Pioneer and Shell maintain large North Slope budgets this year, and Marathon, Chevron and ConocoPhillips will be active in Cook Inlet, the report stated.

Utilities and hospitals

Utilities represent the second-largest source of spending, and will see a 28 percent swell, according to the report. New generating facilities in development by Railbelt utilities, in addition to expanded rural broadband infrastructure, are cited in the report as reasons for the growth.

A new gas-fired electric generation facility by Chugach Electric Association and Anchorage Municipal Light and Power is among projects noted. Cook Inlet Region Inc.'s Fire Island wind farm, which is scaling down its proposal to appeal to hesitant utilities, is also given mention.

Also noted is a project connecting 65 communities in Southwest Alaska to telecom operator General Communication Inc.'s existing broadband network. The project, dubbed TERRA-Southwest, is supported by $88 million in grants and loans from the U.S. Department of Agriculture's Rural Utilities Service.

Hospital construction is seemingly growing right along with employment in the health care sector, with a 38 percent increase to $305 million.

One is Providence Alaska Medical Center's expansion of its newborn intensive care unit and its cardiac surgery capacity. The $150 million project was to begin in January and finish in 2014. It is intended to increase the hospital's number of private NICU rooms from six to 50.

Large hospital projects in Nome and Barrow are continuing construction this year, as well as a new clinic in Fairbanks, the report stated.

Mining

This year's mining activity is slated to bring about as much spending this year as last, about $305 million. The report cites Red Dog Mine's expansion into its new Aqqaluk deposit as the only major mine development to be undertaken in 2011.

Other mines will see spending on normal maintenance and modest upgrades, the authors wrote.

"Mining has been fairly steady for the last five years," MacKinnon said.

National defense

Military spending is forecasted to account for $555 million of the $2.7 billion expected in publicly financed construction. The 1 percent growth in the military arena comes despite stimulus funds for military purposes having largely been spent, the authors wrote.

Construction in the Anchorage and Fairbanks regions account for the largest portion, with projects including aircraft hangars, housing replacement, training facilities, air support facilities and utility upgrades in the works.

The estimate includes civil works projects undertaken by the U.S. Army Corps of Engineers, despite the fact that much of this work is for the benefit of communities instead of national defense.

Transportation

Transportation spending is expected to decline for highways, as well as airports, ports and harbors.

Highway and road projects are expected to net a 5 percent downtick in spending in 2011, to $530 million. Though funding from a 2009 state transportation bond package is expected to hit the street this year, stimulus funding has largely been spent, the report stated.

The report anticipates that Alaska may receive less the federal funding if the current federal transportation funding formula is replaced, since mass transit may take a larger share.

The end of stimulus funds, in addition to the absence of new and large projects, will bring airport, port and harbor spending down 11 percent, to $310 million. Though federal grants from the Federal Aviation Administration will continue as before, no other funding will go to projects at Ted Stevens Anchorage International Airport or Fairbanks International Airport, the report stated.

Ultimately, activity in the construction industry weighs heavily on the economy as a whole, the report stated. Wage and salary employment in the field last year was nearly 16,000 workers, not including workers in the oil and gas, mining and government sectors, in addition to those who are self-employed.

"The payrolls and profits from this construction activity support businesses in every community in the state," the authors wrote.



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