Borough economy fit, but not without weaknesses

Posted: Sunday, July 07, 2002

The economy of the Kenai Peninsula Borough appears to be on fairly solid footing, according to the latest analysis of trade and industry data by the borough's Community and Economic Development Division.

But that doesn't mean everything's coming up roses. Some borough officials pointed to areas of concern, including the current state of the Cook Inlet fishing industry and the relatively slow pace of growth in high-paying jobs.

The CEDD gathers and analyzes data from various sources including the borough and its cities and issues a document called the Quarterly Report of Key Economic Indicators four times a year. That report is available to businesses, agencies, government divisions and the general public and is often used in making planning and management decisions, according to a division spokesperson.

The first quarter of 2002 proved better than the first quarter of last year in almost every category, according to the quarterly report released in June. For instance, gross and taxable sales were up virtually everywhere in the borough and the employment picture also improved over the previous year's first quarter, the report said.

"We're just doing awesome," an elated Mayor Dale Bagley said. "I harp on this all the time, but we have a diverse economy and a diverse tax base. Our economy is doing great and the borough is doing great."

Bagley acknowledged that the outlook for commercial fishing isn't good this year, but noted that steps are being taken to try and improve that particular area of the economy, including a salmon-branding project meant to produce a better product and raise the stature of Cook Inlet-caught salmon in the eyes of consumers.

"Commercial fishing continues to suffer, but oil and gas are doing well," he said. "And tourism, as a whole, will, I think, end up being good this summer."

Among the report's clear first-quarter winners was the economy's mining sector, which includes oil and gas extraction and production. Its gross sales reached more than $31.5 million, an 11.8-percent gain. More important for the borough, mining sales showed the greatest growth of all sectors in first-quarter taxable sales of over $1.47 million, a 20-percent boost over the first quarter of 2001. That figure directly impacts the borough's coffers.

Jeanne Camp, an economic analyst with the division, said the gap between the mining sector's gross sales and taxable sales was largely due to one company selling a lot of product either for resale or in excess of the sales tax cap at $500, both of which exempt sales from the sales tax.

In raw impact, however, even mining's rapid gains pale in comparison to the engines doing most of the driving in the Kenai Peninsula Borough's diverse economy.

The retail and service sectors, traditionally the largest industries according to the study, each reported measurably important gains. Retail's taxable sales reached $75 million for a 2.8-percent gain over last year, while the service sector saw $18.5 million in sales for a 2.4-percent increase.

While those percentage increases don't come close to that of mining, the actual dollar-values they represent are huge in comparison and that translates into a strong revenue stream for the borough, according to borough and city officials.

Meanwhile, manufacturing, which includes oil and gas manufacturing and fish processing, doubled its gross sales over last year's first quarter, but actually showed a decline in taxable sales. But that was the only sector that did.

Others, including agriculture, forestry, fisheries, finance, insurance, real estate, construction and wholesale all registered gains in taxable sales.

All in all, taxable sales in the first quarter of 2002 reached $131.3 million, a 4.4-percent increase over the first quarter of 2001.

Camp agreed with Bagley that generally the borough's economic picture is good. Still, she said, there was room for concern about the largest sectors of the economy.

While the retail and service sectors provide many jobs, they are mostly low paying. They neither add much to the overall tax base nor provide much in the way of discretionary cash, the money people spend on things other than the necessities, she said.

"It concerns me that we have so much in the service and retail. I wish we had more growth in the upper-end jobs," she said.

The good fortune appears to be broadly spread around the borough. For instance, Homer's taxable sales jumped 4 percent in the first quarter compared to the first three months of last year, the largest percentage jump of all borough municipalities. Sales there reached nearly $18.5 million, marking the 10th straight year of growth in taxable first-quarter sales.

In percent growth, Soldotna was a close second to Homer at 3.2 percent. But in terms of raw dollars, Soldotna's taxable sales were nearly double those of Homer, some $33.5 million.

Kenai saw almost $28.7 million in taxable sales for a 2.9-percent boost over last year's figure. Both Soldotna and Kenai have records of steady growth at least since the mid-1990s.

Meanwhile, even in the unincorporated areas of the borough, taxable sales registered a very respectable 8.2 percent growth with total taxable sales of just over $41.1 million.

Only Seward and Seldovia reported decreased taxable sales of 1.8 percent with sales of $8.9 million and $572,780 respectively, the report said.

Jeff Sinz, borough director of finance, said the numbers are indicative of the general health of the peninsula economy.

"For a lot of years, we've had steady growth of taxable sales ranging from 2.5 percent to 4 percent a year," he said. "Despite dips in one sector of the economy or another, it speaks well for the diversity of the borough economy."

Another indication of the economy's overall health can be found by looking at first-quarter construction permits issued by borough cities. Permits are not required outside the cities.

The city of Kenai issued a permit for the Kenai Youth Facility, a $3.57 million state facility to be built on Marathon Road. That tended to skew the overall numbers, but the trend was decidedly upward in any case.

In all, permits totaling $6.5 million were issued for construction within the borough cities during the first quarter, including $4.29 million in new commercial construction (youth facility included). That compares to the $2.95 million issued in the first quarter of 2001. New residential permitting jumped nearly 66 percent over the previous first quarter.

The borough's employment data also demonstrates an improving picture, the report said. Comparing equivalent months in 2001 and 2002, unemployment fell during January and February 2002 and remained generally unchanged in March.

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