Alaskanomics

October Employment Update

October employment was down roughly 1,100 jobs compared to 2017. This is a decrease of approximately 0.3 percent. Retail continued to have large losses and was down 800 jobs over last year. Health care continued its growth, adding 600 jobs this year. Construction was also up due to increased activity in both Anchorage and Fairbanks. Construction added 300 jobs. The public sector was flat with the Federal government adding 100 jobs and local government adding 100 jobs. State government remained flat.

Seasonally-adjusted unemployment was 6.4 percent in October, which is down one-tenth of a percent from September. Non-seasonally adjusted rates rose in many areas as the tourist season winds down for the year. Denali and Skagway’s unemployment rates rose significantly because of the areas reliance on tourism. Rural areas continue to have the highest unemployment of the state, a half-dozen areas have over 10 percent unemployment.

Complete employment data can be found online at the Alaska Department of Labor’s website.

The 39th Annual Alaska Resources Conference

Last week, the Resource Development Council (RDC) hosted its 39^th Annual Resources Conference in Anchorage. The event is the chance for leaders from the tourism, fishery, oil and gas, mining, and forestry industries to come together and share highlights and frustrations from the past year and look forward to the coming year.

There was clear optimism throughout the conference as many in the room had worked hard on the campaign to defeat Ballot Measure 1. Many of the industry leaders expressed their gratitude to volunteers, donors and voters who helped defeat the initiative.

This is the third year where presenters were optimistic about the future of resource development in Alaska. This year’s optimism was even stronger, especially in oil and gas, mining, and tourism. Fishing is still a bit cautious because of the uncertainty around tariffs and imports/exports with China. The timber industry still has a lot of challenges with federal regulations. There are opportunities for timber, but it will take time to sort those out.

Each year, Neal Fried presents his look at the past year and a look forward to the year ahead for the State’s economy. He looks at all aspects of Alaska’s economy and provides a great overview for conference attendees. Alaska is still in a recession, and while this is the longest recession that the state has faced, it is not the worst. Employment continues to fall, but it is moderating and many believe that 2019 will be the end of the recession. Fried’s presentation has a lot of valuable data and is worth watching if you missed the conference.

Dr. Ian Mead, Assistant Administrator for Energy Analysis with the US Energy Information Administration shared global energy trends and where Alaska fits in. His presentation outlined that global energy consumption continues to rise, especially throughout non-OECD Asia. Fossil fuels remain dominant and will supply 77% of the world’s energy consumption in 2040.

Governor-Elect Dunleavy wrapped up the first day with remarks to the crowd regarding his administration’s focus on bringing business to Alaska and his desire to work with the resource development industry to grow Alaska’s economy. He also announced the Corey Feige would be the Commissioner for the Department of Natural Resources. The Governor-Elect made it clear that he wanted to work with industry as a partner not as an adversary.

Keith Meyer highlighted the work that was being done to move the Alaska Gasline forward. He noted that the project has momentum and Alaska should get ready for the mega-project to kick into high gear. The focus for 2019 is accelerate. His slides show the progress that has been made to date and how Alaska has a competitive advantage over global competition when it comes to the natural gas market. Meyer noted that the gasline would be beneficial for not only the oil and gas industry, but other resource development sectors throughout Alaska. Gas will power Alaska’s growth.

This year’s conference was much more optimistic than the recent past and industry leaders are working hard to make sure that all resources are safely and responsibly utilized throughout Alaska. There was a lot to celebrate a week after the election and presenters and attendees seemed to be reenergized to move forward with projects that have been on hold or slowed because of the recession and uncertainty around Ballot Measure 1. There will always be areas of concern for the resource development industries, but you could feel a sense of relief moving into 2019.

All presentations, including videos of each session, are located on RDC’s website.

Post-Election PFD Discussion

By Tim Bradner

What’s significant about the state 2018 state elections wasn’t who got elected – Alaskans have seen Republican governors and Republican-led Legislatures before – but rather how much of the campaign centered on how big the Permanent Fund Dividend will be.

Instead of talking about challenges facing our state government – how to improve schools, slow the growth of health care costs, or how to pay for the $2 billion backlog of maintenance on state facilities – the candidates focused how much cash the state could give away. And this is in a time when Alaska’s finances are still precarious.

In 2015 the state’s revenues were took a nosedive after oil prices collapsed. Alaska’s oil revenues dropped from about $5 billion to $1 billion that year. It was a scary time. To preserve cash Gov. Bill Walker vetoed part of a $1.4 billion appropriation for the PFD, trimming it to $700 million.  That cut the dividend amount, of course, and voters noticed. As governor, Walker took responsibility for his veto. Legislators did same thing the following year, reducing the PFD by about the same amount through an appropriation action in the budget.

As 2018 approached candidates in the elections were quick to take advantage of this with promises to “fully fund” the PFD. Commitments were made not only to fully fund future PFDs but to go back and refund amounts that would have been paid over the last three years. These promises were made without fully reckoning the costs, but voters now expect them to be fulfilled. The amount of money involved is substantial.

According to estimates from the state Office of Budget Management, if the state were to send out a supplemental PFD payment for the current year and the previous two years, the check would amount to $3,701 per recipient at a cost of $2.4 billion.

The money would be taken from the Permanent Fund’s Earnings Reserve, the same account we now depend on to partly support our state budget.

Some background: “Fully funding” the PFD refers to a state law that guides how the PFD amount is to be calculated. That’s if there is a PFD, and the money is available.

This is important. The statute doesn’t guarantee a dividend, it only says how the payment is to be calculated. Essentially, it’s about half of the Permanent Fund’s cash income averaged over the previous five years.

Most Alaskans are confused about this and the campaign talk this year didn’t help. Under our state Constitution only the Legislature can appropriate funds (not the governor) and legislators can vary the amount. They can follow the statute (“fully” funding), appropriate less or even more. It’s totally up to them. The PFD is only a line item in the state budget, no more important than funding for education, state troopers or fish and game management. The Legislature has to decide among these budget items.

What’s important is that we only have a finite amount of income. If we spend more on dividend, following the formula in the statute, there’s less available for traditional public services, schools, troopers and so forth.

Of course, we can always raise taxes. We could enact a personal income tax or raise oil and gas taxes to get new revenue to offset the higher PFD. But if we don’t want to do that the choice is a higher PFD or cuts to public services.

The money involved is considerable, too. That’s why elected officials may come to regret easy promises made during the campaigns.

What’s needed is a discussion of what the PFD really is. Do we want it to be an entitlement, like Social Security? Many now look on it as an entitlement. Or should it be something that mainly helps lower income and middle-lower income Alaskans?

Many Alaskans use their PFDs for basic necessities and many save it for college tuitions, and those are worthy uses. There’s a darker side, too, however. Alcohol-related violence and domestic abuse tend to spike at PFD time, when checks are distributed in the fall.

More affluent Alaskans, upper middle income and upper income, often say they don’t need the PFD. A lot of these dividends are spent on vacations, or simply saved. That is money that doesn’t enter the economy.

Maybe we should have a means test, which is commonly used for many public safety-net programs, so that people in certain income categories get the PFD. This would leave more money available to support public services.

This conversation needs to happen because if we do “fully fund” the PFD in the future the funds lost to the state budget will get large, about $1.2 billion a year by 2023 according to the OMB. That’s as much as we spend to support K-12 education.

The dividend will grow, of course. By 2023 it would be $3,760 per recipient and growing. For a family of five, that $18,800 per year. A dividend that large could really start to attract people to move to Alaska just to get the dividend. Under the state’s residency rules, which have been upheld by the courts, we can’t deny their eligibility.

Interesting, and challenging, questions. Our politicians may regret having made some of these promises.

Tim Bradner is co-publisher of the Alaska Legislative Digest and Alaska Economic Report