Alaskanomics

Alaska’s Per Capita Income Growing Fast

According to the Bureau of Economic Analysis (BEA), Alaska’s personal income rates have grown for eight straight quarters. In 2010, Alaska added $1.2 billion in personal income, up 3.9%. This made Alaska the 4th fastest growing state for income and placed it 8th overall for per capita income at $44,174.

Growth in wage earnings was the largest contributor in Alaska (+$660 million, +3%), though government transfer payments rose the fastest in percentage terms (+$443 million, +10%). Income from dividends, interest and rents increased slightly (+$89 million, +2%) and was passed by government transfer payments as the second most important source of personal income nationally for the first time in history. The BEA said this was due to:

1. longer unemployment benefits and more claims;
2. the burgeoning retiree population using more social security and Medicare benefits; and
3. increased public assistance such as food stamps, refundable tax credits, Pell Grants, and Medicaid. Many of these programs increased with the Federal stimulus plan.

 
 

$5 Billion Maximum Draw from Oil Revenues Preserves Wealth for Future Alaskans

In a Web Note published by the University of Alaska Anchorage Institute of Social and Economic Research, economist Scott Goldsmith calculates that State government can draw $5 billion per year from petroleum wealth while preserving that wealth in perpetuity for future Alaskans. Any state spending above the $5 billion annual draw would need to be funded by non-petroleum taxes and other revenues.

Goldsmith's calculations assume that our current petroleum wealth includes the $45 billion currently in the Alaska Permanent Fund, Constitutional Budget Reserve and other accounts - plus $81 billion of oil and gas revenues still in the ground. He also assumes that Alaska's population will grow at 1% annually, and that we can invest our petroleum wealth at a 5% return, net of inflation.

Goldsmith suggests Alaskans adopt a target of "equal and sustainable wealth for all generations of Alaskans" with a $5 billion annual benchmark - if we draw and spend more than the $5 billion, future generations will enjoy less per-capita petroleum wealth than we do today. If we draw less, future earnings will be higher and future generations will be better off than us.

Because more than half of the wealth in this calculation is based on oil still in the ground, the benchmark could be higher or lower depending on how much is ultimately produced, the price of oil, and the state's fiscal terms.

Read the full 18-page Web Note here.

Small Businesses Account for 55% of Alaska's Private Sector Jobs; Establishments and Employment Trend Down

The Small Business Administration (SBA) published its Small Business Profile for Alaska in February, based on government data through 2009. According to the Profile, there are 68,200 small businesses in Alaska - defined as a business with less than 500 employees. Of these, about 16,000 have employees and these accounted for 55% of the private sector jobs in Alaska.

In 2009, the number of small businesses and employment trended down, with more businesses closing than opening, and more businesses "contracting" (losing jobs) than "expanding" (gaining jobs). Jobs created when new businesses opened in 2009 exceed those lost when businesses closed, but total employment was down because jobs lost in contractions exceeded jobs both gained in expansions and in new openings.

 
 

 

Video Clip: Summary of the 2011 Alaska Construction Spending Forecast

Professor of Economics Scott Goldsmith from UAA’s Institute of Social and Economic Research discusses the total expected Alaska construction spending in 2011 during the recent Associated General Contractors annual Alaska Construction Spending Forecast.

Chevron and Shell Review Major Capital Project Plans: Alaska Not on the Maps

Chevron and Shell each made presentations to investors this week, reviewing 2010 results and outlining their strategies and plans for 2011 and beyond. In each presentation, the companies' top executives highlighted exploration and production successes for 2010 and mapped out major capital projects for the next three years. Alaska was notably absent from the companies' maps and charts, and executives' descriptions of promising major projects across the world.

Chevron plans a 20% increase in their upstream capital budget, to $22.6 billion. This includes $2.6 billion in exploration spending, in part on 60 appraisal and development wells worldwide. They also plan more than $13 billion in major capital projects, including 70 wells in the Marcellus Shales, which according to Chevron executives, has "some of the lowest gas development costs in North America."

Shell plans more than $20 billion per year in upstream capital investment each year through 2014, just under 40% of which will be in the Americas. In 2011 for North America natural gas, Shell plans $3 billion in spending for more than 400 wells, half in Canada and the other half in the Lower 48.

Separately, Shell released their annual report for 2010. Alaska's operations were described in a single paragraph that documented the setbacks Shell has had in their drilling program in the Beaufort and Chukchi Seas, where the company holds 410 federal leases.  The U.S. offshore drilling moratorium and adverse rulings on EPA Air Quality permits have pushed drilling back to 2012 at the earliest, according to Shell.

Chevron presentation

Shell presentation

Video Clip: Alaska Highway Funding and State Transportation Bill

Associated General Contractors’ John MacKinnon discusses the future of federal highway funding in Alaska as well as the benefits of a state transportation bill during a presentation at the AGC 2011 Alaska Construction Spending Forecast.

 

Salmon Harvest for 2010 Higher than Forecast; State Predicts Strong Runs for 2011

Alaska's salmon harvest totaled 171 million fish, 34 million greater than the preseason forecasts, according to a report published in February by the State of Alaska Department of Fish & Game.

 

The Division of Commercial Fisheries is expecting an increase in commercial salmon catches in 2011 primarily due to a 25% projected increase in pink salmon over 2010's catch.

 

Housing Delinquencies, Foreclosures Remained Low Through 2010

Alaska continues to have one of the lowest levels of foreclosures and delinquent residential mortgage loans in the country according to the Mortgage Bankers Association fourth quarter 2010 survey. Alaska ranked third best in the nation behind North and South Dakota as having the lowest percentage of mortgage loans delinquent.

Alaska’s fourth quarter delinquency rate of 4.25% was significantly better than the national average of 8.9%. The U.S. improved 0.5%, while the delinquency rate in Alaska improved 0.7% from 4.95% in the third quarter of 2010. The highest rate for Alaska was the third quarter 2009 survey at 5.1% and the recent low was 2.7% in the third quarter of 2008.

Alaska ranked 2nd best of all 50 states in both total foreclosures in progress and those started in the fourth quarter of 2010. Alaska’s total foreclosure rate remained unchanged at 1.1%, compared to 4.6% nationally. Alaska’s rate had averaged 0.9% in 2008 and then began to rise in 2009 to a high of 1.4%. It remained at that level in 2010 until it began improving in the third quarter. Nationally the foreclosure rate was 2.8% in 2008 and continued to rise each quarter, reaching 4.6% by year end 2009, where it remains.

Subprime loans to traditionally unqualified borrowers were a major source of the mortgage problems that plagued the country recently. However, Alaska continues to have the lowest level of subprime loans delinquent or foreclosed in the nation. Alaska’s subprime delinquency rate is 10.9% while the national average is 25.3%. The second lowest state is Colorado at 18.4%, so Alaska is far ahead of the pack in this key category. Alaska’s rate dropped from 12.3% to 10.9% in the last quarter of the year, but is still higher than the recent low of 6.3% in the third quarter of 2008.

Oil Pumps Alaska's Economy to Twice the Size - But What's Ahead?

In a new paper published by the University of Alaska's Institute of Social and Economic Research, economist Scott Goldsmith explains the importance of oil money to Alaska's economy. In earlier research, ISER estimated that one-third of Alaska jobs are oil related, but close to 20% more jobs can be traced to the "spinoff" benefits of oil weath, including:

• A stable economy that's twice the size it would be without oil revenue
• Economies of scale from a population that's double what it would be
• No state income tax for individuals, and much lower taxes for non-oil businesses
• The nation's highest per capita state government spending

ISER's analysis shows that the State of Alaska has collected $157 billion (in today's dollars) from oil since 1959. Where has it gone?

• $70 billion went to new and expanded operating programs, including Permanent Fund dividends
• $37 billion went into savings, mostly in the Permanent Fund and the Constitutional Budget Reserve
• $31 billion provided tax relief for households, which pay no state income or sales tax 
• $19 billion provided tax relief for non-oil businesses, which pay less than half of the taxes they'd pay if their taxes made up the same share of revenues as in other states

ISER concludes that, while other economic drivers are critical to Alaska's economy, Alaska's future prosperity depends on continued oil production - because none of the other economic drivers can replace the economic value of oil. There is still a lot of oil on the North Slope and offshore, but how much of that oil is produced will depend on a number of factors - including politics. ISER suggests that Alaskans focus on a strategy to maximize the long-term benefits, considering the following:

• Alaskans need to have realistic expectations about future oil production - we aren't likely to have another Prudhoe Bay
• Policy makers need to find the "sweet spot" of oil taxation that provides maximum long-term benefits in oil production, employment and state revenues
• Alaska's leaders must resist the temptation to use the state's oil wealth for economic diversification projects, considering the state's lack of past success.