Trend shows slowing economy

Posted: Friday, November 02, 2001

The state of Alaska, just over 40 years old, is entering middle age, and just as humans do, it is slowing down a bit.

'We'll have to work through the post-Prudhoe blues.'

--Scott Goldsmith, University of Alaska Anchorage

Changing demographics, types of jobs, what they pay, the decline of traditional industries and the emergence of new ones all are conspiring to change the face of the aging last frontier.

And, according to Scott Goldsmith, professor of economics at the Institute of Social and Economic Research at the University of Alaska Anchorage, the changes statewide are reflected here on the Kenai Peninsula. Goldsmith spoke at the Kenai Chamber of Commerce luncheon Wednesday.

"Oil and government really dominate the economy," he said, "and much more so than people realize."

Goldsmith used money flowing into Alaska households, rather than gross product, as his barometer of the state's economic situation.

He said there are five sectors he's identified that pump about $18 billion into Alaskans' pockets a year. They are oil and gas, federal government, traditional resources, new resources and personal assets.

Oil and gas account for $6.1 billion of Alaskans' income. Of that, $1.7 billion is attributed to getting the resources out of the ground, processed and shipped to market.

"There are not a lot of people directly involved, but there is a huge support and service industry," Goldsmith said.

Royalty payments and taxes to state and local governments account for $2.04 billion, while earnings from oil revenue in past years -- the Alaska Permanent Fund and the Constitutional Budget Reserve -- contribute $2.3 billion yearly.

Military spending accounts for $2.1 billion of the federal government sector. It includes local purchases as well as wages for employees and active duty personnel. Civilian federal spending, including grants to state and local governments and to nonprofit corporations, is $4.17 billion a year.

Goldsmith describes the traditional resource sector as commercial fishing, timber and mining. The seafood industry produces $860 million a year; mining, $400 million; and timber, $200 million. Agriculture is on his list, too, but its contribution is so small, he didn't even mention its value.

The new resource sector industries are tourism and international air cargo. The first creates more income than commercial fishing, at $900 million a year, while air cargo is right up there with mining at $200 million.

"These are relatively new industries with a lot of growth potential driving them," Goldsmith said.

Personal assets account for $3.69 billion in Alaskans' pocketbooks. A lot of that stems from the aging of the state's population and the retirement income that brings.

"Alaskans are getting older over the last two decades," he said. "Alaska is adding senior citizens faster than every other state but one, Nevada."

Alaska's senior population is 6 percent of the state's population. Goldsmith said the contributions of seniors is becoming a stabilizing factor in the economy. Though it grew at up to three times the national average during the 1960s, '70s and '80s, Alaska's population under 40 showed negative growth in the 1990s. The United States' average growth of people under 40 still increased, but at a slower rate than past decades. The overall growth rate of Alaska's population is now comparable to the rest of the nation.

The Kenai Peninsula's economic base is roughly a microcosm of the state's.

Based on figures from 1997, the latest available, Goldsmith said, federal spending provides 25 percent of the peninsula's income at $271 million a year.

The petrochemical industry makes up 15.9 percent, or $175 million, while Cook Inlet oil and gas production contributes $142 million, or 13 percent. North Slope oil production contributes $84 million to the peninsula economy, mostly from companies and workers based here, who work there.

Commercial fishing produces $170 million of income for peninsula households and accounts for 15.5 percent of the total economy here.

Tourism trails at $94 million and 8.6 percent. The permanent fund dividend is at $87 million, or 8 percent. Miscellaneous income accounts for the last $71 million, accounting for about 7 percent.

Real personal income growth in the Kenai Peninsula Borough since 1990 mirrors that of the state. More of the growth came from increases in permanent fund dividends, government spending and investment income. Less came from job income.

During the decade of the '80s, Alaska gained 16,000 new jobs, mostly in tourism, oil and gas and well as seafood.

During the '90s, tourism continued to add jobs, as did air cargo, seafood and mining. However, oil and gas, timber, federal civilian and military jobs shrank. The net effect was a loss of 4,000 of what Goldsmith calls "basic" jobs, those associated with the five main sectors of the economy.

The overall job rate is now growing slower than the national average.

And Alaskans' paychecks compared to the U.S. average are down.

"The average paycheck has been falling for two decades," Goldsmith said. "The average was quite high in the '60s and '70s, but now Alaska is closer to the national average."

He said the erosion of relative purchasing power comes from growth of lower paying jobs.

He said the increase in overall jobs while wages stagnate is based on two factors, in his opinion.

One is the increase in federal aid to Alaska. In 1995, Alaska received about $2,000 per person from the federal government. By 1999, it was $3,000 per capita.

"I guess I don't need to tell you why," Goldsmith told the nodding chamber audience.

He meant Sen. Ted Stevens, R-Alaska, whose largess has greatly benefited the state. The increase of federal spending coincides roughly to when the Republicans took control of the U.S. Senate in 1994, and when Stevens became chair of the powerful Senate Appropriations Committee in 1997.

The other economic driver is the permanent fund dividend, which adds nearly $2,000 per person to the economy each year.

Goldsmith cautioned, however, that federal spending and the dividend probably cannot drive the economy for the next 10 years as it has the last 10.

"We can't be too out of line with the rest of the U.S. for too many more years," he said of federal spending in Alaska.

Alaska's income from the federal government is about $1,000 more per capita than in Wyoming, which is No. 2, and about $1,500 more than New York, North Dakota and Montana. It is $2,000 more per capita than the U.S. average.

As North Slope oil production continues to decline, Goldsmith said there is little that can take up the slack. Oil revenue peaked at $20 billion a year in early '80s.

"We'll have to work through the post-Prudhoe blues," he said.

The natural gas pipeline, if it is built, will not take up the slack, he said. The trans-Alaska oil pipeline provided 54,000 "man-years" of work, he said, while the most expensive gas pipeline option, an in-state line with liquefied natural gas plants at the terminus, would only create 18,000 "man-years" of work.

"If gas happens, the economic impact will be much less than the trans-Alaska oil pipeline," he said. "It's big, but it's not on the same scale."

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