Alaskanomics

President of Iceland: U.S. Would Not be at the Table on Arctic Policy if Not For Alaska

At the Arctic Imperative Summit in Girdwood this week, President Olaf Ragnar Grimsson of Iceland urged Alaskans to get more involved in Arctic policy, saying that the U.S. would not be at the table if not for Alaska. Grimsson said that involvement in Arctic policy could give Alaskans "a new form of power in the U.S."

Ambassador David Balton of the U.S. State Department reiterated that point in his remarks, saying "The U.S. is an Arctic nation because of Alaska." Balton said that Arctic policy should be developed in partnership with the people of Alaska, State government and other stakeholders working in Alaska. 

The Arctic Imperative Summit features dignitaries and experts in Arctic policy and science from around the world discussing infrastructure, policy and economic opportunities in the Arctic. The Summit is a project of the Alaska Dispatch and its publisher Alice Rogoff.

Alaska Leisure and Hospitalty Jobs Recover Slightly; Industry Highly Seasonal

In the June issue of Alaska Trends, the State of Alaska Department of Labor analyzed Alaska's leisure and hospitality industry. Jobs in that industry - which includes accommodations, bars, restaurants, and recreation businesses - grew just under 1% in 2010, to about 31,500 jobs. For years, the industry grew at an annual rate of 2%, but growth slowed dramatically in 2008 and the industry lost jobs in 2009. This sector provides goods and services not only to visitors, but to residents; McDonalds is the top employer, with Taco Bell, Subway, Pizza Hut, the Bear's Tooth and the Moose's Tooth restaurants all in the top 20.

Leisure and Hospitality is the second most seasonal Alaska industry. This seasonality contributes to the industry's position as the lowest wage private industry in Alaska, with average annual wages just under $20,000.

Alaska's Foreclosure Rate Lowest in Nation

The first quarter 2011 survey by the Mortgage Banker’s Association shows that Alaska has the lowest level of residential foreclosures started this year, and the lowest level of total foreclosure inventory in the country.

For the last two years in Alaska the percent of foreclosures started in a given quarter were about 0.5% of the total number of mortgages outstanding. This is about half the national average which was just under 1% at the end of March 2011. This is an improvement for the U.S. from one year ago when the rate of new foreclosure starts was 1.5%.

The total inventory of foreclosures in process is only 0.8% in Alaska, while the country has a much larger lingering foreclosure inventory at 3.4% due to higher rates during the recession and longer resolution times.

Subprime lending to traditionally non-qualified borrowers was a large contributing factor to the national mortgage problems. The rate of delinquencies and foreclosures on subprime loans is significantly higher. However, Alaska is in a far better position and again leads the nation in this important category. Subprime foreclosures in Alaska are at 4.5% while the national average is more than three times higher at 14.7% and the second lowest state is Missouri at 7%.

Alaska’s subprime delinquency rate is 10.5% compared to the national average of 22.9%. Delinquent loans are more than 30 days past due, but not yet in foreclosure. Alaska’s rate is more than 6% lower than the second place state Colorado at 16.8%.

Alaska does trail North and South Dakota in the level of overall delinquent loans, ranking third best out of 50 states. Alaska’s delinquency rate is 4%, while the U.S. average is 7.8%.

 

Alaska is the Most Productive State in 2010

Alaska led the nation in 2010 with the highest per capita real gross domestic product (GDP).  At $63,424 per person in value added economic output Alaska was 49% above the national average.  Mississippi rated the lowest at $29,345 or 31% below the national average.

Though Alaska’s output was impressive on a per capita basis, the size of our total GDP was $49 billion, which accounted for only 0.3% of the entire $14.6 trillion U.S. economy.

The Federal Bureau of Economic Analysis considers this report the most comprehensive measure of U.S. economic activity.  It calculates the total of what consumers, businesses and the government spends on final goods and services, plus investment and net foreign trade.  For example, it counts the wages earned by workers, the income generated by businesses and the sales, property and excise taxes paid.

Alaska’s real GDP grew by 1.9% in 2010 following and impressive 8.9% gain in 2009 in the midst of a national recession.  By comparision, the U.S. GDP increased 2.6% in 2010 after declining 2.5% in 2009.  In 2009 Alaska was the third fastest growing state economically and one of only 10 to increase. 

In 2010 the recovery was widespread, with 48 out of the 50 states showing improvement.  North Dakota was the fastest growing with a 7.1% gain due to a very active energy sector.  Second was New York, improving 5.1% mainly from a rebound in finance and insurance, which also helped Connecticut.  Nationally, durable goods manufacturing was the source of the largest overall improvements for the U.S. economy.  Retail trade also was a positve driver in 2010.  However, construction activity declined for the sixth straight year and affected Nevada the most.

In Alaska, the 1.9% growth in GDP was led by government spending, followed closely in improtance by mining (which includes oil & gas).  The third largest positive driver was health care, follwed by real estate.  Unlike the rest of the nation, construction activity was positive in Alaska.  The only significant decline in Alaska was the transportation and warehousing sector.

It is important to note that these national figures do include government spending.  Federal deficit spending has been over a $1 trillion dollars a year, meaning much of this “stimulus” spending is not sustainable over the long run and will need to decrease in future years.  Private sector economic growth will have to make up for this short-term government excess spending if GDP figures are going to continue to rise in the future.

The complete report can be read at: http://www.bea.gov/newsreleases/regional/gdp_state/2011/pdf/gsp0611.pdf

Oil Production: What we can agree on

I believe that declining production is the biggest long-term risk to our economy and to state government revenues. Just slowing the rate of decline will require significant new investment by the oil industry.

Northrim took an active role in advocating for changes in the State’s tax policies in the last year, including helping to found the Make Alaska Competitive Coalition to educate more Alaskans about the critical need to increase oil production. The results of the most recent legislative session were mixed, with the Governor stepping up to propose changes to ACES and the House of Representatives passing a version of the Governor’s bill. The Senate, on the other hand, continued the divisive politics of the past, pitting Alaskans against our most important industry.

While other states must grapple with economic forces outside of their control, Alaska’s policymakers have the ability – and the responsibility – to take a long term view of Alaska’s revenues and expenses. We need to create better alignment between the State of Alaska and the oil industry.

We hope that over the next few months our leaders can return to a productive dialogue about this issue – starting with the points I believe we can all agree on:

• We need to increase oil production to support our private sector economy and state government. There is a real risk that in just a few years, production may decline to a point where the pipeline is not technically viable, and we will have no way to get our resources to market. We are closer to that point than we want to be.
• We can get increased oil production through new exploration, more development in older fields, and new technology to produce heavy oil, but all of these will require significant additional investment because the easy oil is gone and operating costs have increased significantly.
• The three major items under the State’s control that impact investment decisions are taxes, regulation, and access to resources. We need to make meaningful changes to all of these things.

If we can start from these points of agreement, we can move forward to the more difficult discussions, and decisions, that must be made soon to increase oil production. The Governor’s “million barrels per day” goal is a good one – let’s all work together as Alaskans to achieve it.