Variety makes the Kenai healthy

Posted: Monday, November 08, 2004

While many Alaska communities find it a struggle to diversify their economies, the Kenai Peninsula Borough has enjoyed that state of affairs for years, according to an article in the November issue of Alaska Economic Trends, published by the Alaska Department of Labor.

Department economists Neal Fried and Brigitta Windisch-Cole analyzed the borough's economy and credited its generally healthy nature to a variety of factors. The peninsula's strong visitor industry, its good-paying jobs in oil and gas production and refining and the stabilizing effect of government employment, which accounts for better than one out of every four jobs, were part of that equation.

So were the continuing importance of its fishing industry, despite its struggles, and the attractiveness of the peninsula's climate and lifestyle to a growing number of retirees.

That is not to say the peninsula's economy hasn't had hills to climb or that it won't face challenges in the future.

"The peninsula's diversity does not guarantee economic health," the authors wrote. "Struggles and periods of economic woe do come, and the past five years furnish plenty of examples. But when one of the sectors goes through a period of difficulty, the others keep the overall economy afloat."

The analysis looked at where people work on the peninsula, finding that some 26.3 percent of all employment is in government jobs, making government the largest by far of all employment sectors. The figure mirrors the statewide average. Two of every three government jobs are with local government and more than half of those are in education, Trends said.

The Kenai Peninsula Borough School District is the largest single employer. In 2002, that employment fell along with school enrollment, but the rest of local government employment grew to offset losses, the authors said.

Part of the reason the government sector is so significant has to do with South Peninsula and Central Peninsula General hospitals. Both are borough owned and counted under local government.

Retail trade accounts for 13.8 percent of the local employment, though the sector is not growing. The sector has done some shifting in recent years, most notably downward because of the closure of Kmart in Kenai, but then upward again when Home Depot opened.

A close third is the 13.5 percent working in the leisure and hospitality industry. Windisch-Cole and Fried said it was no exaggeration to characterize the peninsula's visitor industry as the most diverse in the state and one of the most developed.

"It reaches out to every corner of the borough," they said. "Its location and wide variety of attractions make for an unbeatable combination."

The peninsula tends to attract all manner of visitors, unlike destinations reliant on a single type. For instance, the peninsula sees cruise ship passengers, independent travelers from around the country and the world, as well as "a heavy dose" of Alaska residents, mostly from Anchorage and the Matanuska Valley. In 2003, visitor-related taxable sales reached $71.9 million, nearly 10 percent of all taxable sales in the borough, an analysis showed.

Trends tabbed sportfishing as the single largest attraction on the peninsula, noting that the Kenai and Russian river system is the most heavily used.

The authors also noted the loss of half the cruise ships normally docking at Seward. They now go to Whittier.

"This will be a significant hit for Seward, but the city's visitor industry is diverse enough to weather this big loss," they said.

The borough's oil and gas sector is seen as struggling in the Trends article. The discovery and production of oil in the Cook Inlet region was a factor leading to statehood, but the inlet's fields are mature now. Oil production peaked at 226,000 barrels per day in 1970. That compares to 29,000 barrels today. Natural gas has remained far more stable and prevented steeper employment declines, the authors said.

"Despite its status as Alaska's 'over-the-hill' oil province, the local industry remains an important economic factor, particularly on the central peninsula," Windisch-Cole and Fried said.

Indeed, the oil and gas industry remains the largest source of high-paying jobs, they said.

The commercial seafood industry, once the most important source of income to borough residents, has seen the size of annual harvests and prices fall. In 2002, the most recent data recorded by the Commercial Fisheries Entry Commission, peninsula fishers landed 30 percent fewer fish than in 1992. The value had fallen even faster a drop of 61 percent in harvester earnings without factoring in inflation, the Trends article reported.

Fishery earnings for 2003 and 2004 have yet to be computed. However, preliminary data indicates Cook Inlet fishers had two good years, the authors said. A tempering factor in 2004, however, was high fuel prices.

The Trends article pointed to the peninsula's service sector as key to a slow but steady increase in employment. Growth in healthcare and social assistance jobs was a major factor. That sector has grown by more than 30 percent in the past three years. Similar numbers are being seen all over the state.

A population trend showing retirement-aged people either staying here when they retire or moving here from other parts of the state indicates how attractive the peninsula is as a place to live. According to Trends, the median age in the borough in 2002 was 36.7 years, four years older than the state's median age. The peninsula has a larger share of people over 55 and a smaller share of children younger than 5 years than other regions, Trends said.

"Nearly 18 percent of the borough's population is over 55 versus 14 percent statewide," the authors said, going on to speculate that without this trend the peninsula might actually have lost population.

"From an economic standpoint, attracting retirees may be an emerging force in parts of the borough," they said.

Breaking the analysis down to the level of cities, the Trends article said the Kenai-Soldotna economic area was "a near mirror" of the entire borough, having some of all the industry sectors analyzed. The region is home to nearly two-thirds of the borough's wage and salary employment. The work force of the area has grown by 460 since 2000.

At the southern end of the peninsula, the once quiet community in and around Homer no longer qualifies as the "hamlet" it once was, the authors said. It has developed from a fishing community to a tourist Mecca and a commercial center serving some 11,600 residents connected to it by road and 840 more living in villages across Kachemak Bay, the authors said.

Here, too, government-related jobs account for a large percentage of the total wage and salary employment (one in five jobs). The community has the highest percentage of self-employed workers, as well as the highest number of local residents dependent on the commercial fishing industry.

The impact of the visitor industry, assumed to be large but hard to measure accurately, has spawned a rapid growth of cottage industries, such as bed-and-breakfast operations, as well as hotels and eateries.

Across the peninsula in Seward, the basic industries are government, tourism and commercial fishing. However, according to the labor department analysis, the area's average monthly wage and salary employment has not advanced in the past four years and actually has registered a slight decline. Most job losses occurred in seasonal industries. Government jobs provide a stabilizing factor, Trends said.

While the cut in cruise ships has had an effect, Seward's visitor industry is not entirely dependent on those passengers, thanks to visitors from Anchorage and other parts of Alaska who flock there for the region's recreational opportunities, Trends said.

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