3. The Alaska Salmon Industry
Alaska Fiscal Realities, Infrastructure Projects and Economic Development
Gunnar Knapp Director and Professor of Economics Institute of Social and Economic Research University of Alaska Anchorage [email protected] Tanana Chiefs Conference Annual Convention March 16, 2015
Conclusions • Alaska faces change – Less influence on the federal government – Much lower state oil revenues • Change will affect your region – Less federal spending – Less state spending – Keeping things the same is not an option • There are new opportunities – Roads, mining, oil, tourism . . . – They have pros and cons – If you want them you have to work for them • The choice many villages face – No new development and harder times – New development with pros and cons 2
Parts of your region—particularly the villages— are very economically dependent on federal and state spending . . . S ha re o f A nnua l A v e ra g e E mp lo y me nt, 2013 YukonKoyukuk Census Area
Southeast Fairbanks Census Area
Denali Borough
Fairbanks North Star Borough
T o ta l 100% 100% 100% 100% Go v e rnme nt 63% 34% 18% 30% Federal 4% 17% 11% 8% State 5% 5% 1% 14% Local 55% 13% 7% 8% P riv a te S e c to r 37% 66% 82% 70% Mining 18% 4% Tourism 6% 55% 11% Source: Alaska Department of Labor & Workforce Development
3
Government spending affects the economy in many ways beyond government jobs • • • • • •
Construction projects Grants to private non-profits (including health care) Medicaid Permanent fund dividends Other direct payments to individuals Transportation subsidies
4
Federal spending in Alaska has been falling and will probably continue to fall
• There is growing pressure to cut federal spending • Alaska has less political power than we used to
5
A very steep drop in oil prices has caused a drastic drop in state revenues. • The state is facing huge deficits • The savings we are using to pay for these deficits could run out in a few years • There is enormous pressure to cut state spending – This year’s cuts are only a start • In coming years we will probably see pressure to: – use part of Permanent Fund earnings to pay for government – reduce dividends
7
Alaska is extremely dependent on oil revenues to fund state government.
8
Oil prices and state oil revenues have fallen drastically.
9
We ran big surpluses from 2005 to 2012. Since 2013 we have been running big deficits.
Historical
Projected
This year’s projected deficit is huge. FY15 unrestricted general fund spending $5.9 billion
$3.4 billion (57% of spending)
$2.6 billion
$8,000 per Alaskan
Projected deficit
Projected revenues
$4,500 per Alaskan
$3,500 per Alaskan
At the start of FY15, we had $12.2 billion in savings available to pay for deficits.
Available savings of $12.2 billion
Deficit of $3.4 billion
At this year’s spending level and projected future revenues, we would drain our savings in 7 years
Projected available savings Projected deficits
We can’t run deficits without savings to pay for them. Unless oil prices rise dramatically and unexpectedly . . . • We will have to adjust our spending or revenues. • The debate is just starting about – HOW TO ADJUST • Spend less? • Find new revenues? – WHEN TO ADJUST • As soon as possible? • Gradually?
14
The pressure to cut the deficit is causing . . .
• Enormous pressure to cut spending – Capital projects – State government operations • A search for new revenues – Higher fees – Taxes? • Talk of cutting dividends
All of these would affect rural Alaska!
15
“The forester behind the decision to cut 16 seasonal positions from the base in McGrath said the state’s staggering $3.5 billion deficit precipitated the need for big changes. “We were asked to look at programmatic reductions and not shave off the top,” said the state’s forestry director. “We were looking for the biggest bang for our buck.”
With Alaska facing big declines in oil revenues, Gov. Bill Walker has been looking for places to cut the state budget. He recommended an 18 percent cut for public broadcasting, which last year received $4.4 million, mostly in grants to the state's couple dozen public stations. But in the Legislature, a subcommittee went far deeper, cutting 59 percent from the budget. 17
New Alaska Gov. Bill Walker announced Saturday that he’d put six high-profile state infrastructure projects on hold, citing Alaska’s $3.5 billion budget deficit that’s grown as oil prices have steeply dropped. The projects include a small diameter gas pipeline project , . . .the bridge over the Knik Arm, the Susitna-Watana hydroelectric dam, the Juneau access road, the Kodiak rocket and missile launch complex, and the Ambler road . . . The halt in spending is “pending further review.”
Getting funding for large capital projects like the Ambler Road is going to be a lot more difficult than in the past.
• The state faces major cash flow problems • The state is likely to demand that industry shares more of the costs
Supporters of large capital projects will have to make a strong and effective case for them.
19
Changes in federal and state spending will affect your region. I fear but expect there will be less money for many things:
• • • •
Capital projects Local government support Grants to non-profits Subsidies – Bypass mail – Transportation – Broadband • Dividends ???
Keeping things the same is not an option.
Economic changes could accelerate population decline in some areas.
The future is not all gloom and doom. There are many new economic opportunities in your region.
• • • • •
Roads Mining Oil Tourism Science
22
Selected potential projects in your region
• Roads – Ambler – Tanana • Mines – Ambler mining district – Tetlin project
23
Gas pipeline from the North Slope • It is still very uncertain: – Whether any gas pipeline will happen – When it would happen – How big it would be – The State’s role in building, owning and operating it – What it would cost us and how much it would earn for us • Whether and when a gas pipeline will happen depends on: – Project economics: • Construction costs • Projected Asian export markets – Politics: state investment, control and taxes • If it happens: – It will be a major construction project – It is still many years away 24
Economic development projects have pros and cons
• Pros – Transportation access • Lower costs – Jobs – Tax base • Cons – Newcomers – More competition for hunting and fishing – Potential environmental impacts
25
Resource development projects can bring significant economic benefits to rural Alaska • North Slope Borough – North Slope oil fields • NANA Region – Red Dog Mine • Bethel Region – Donlin Creek Mine exploration
26
Red Dog Mine
28
My advice about economic development projects . . . • Think about what future you want for your region • Learn about the projects – Think about the pros and cons • Learn and think for yourselves – Don’t assume what supporters or opponents say is true • Learn from experience with other projects / in other regions – Talk to people directly involved – Visit the places if you can
30
My advice about economic development projects . . . • Think about the risks – Nothing is certain—neither the pros or the cons • Know the process – What are the key decision points? – When do you need to be involved? • If you want projects you have to work for them – Demonstrate political support – Native corporation investment and support – Keep looking for ideas
31
Gunnar Knapp Director and Professor of Economics Institute of Social and Economic Research University of Alaska Anchorage [email protected] Tanana Chiefs Conference Annual Convention March 16, 2015
Conclusions • Alaska faces change – Less influence on the federal government – Much lower state oil revenues • Change will affect your region – Less federal spending – Less state spending – Keeping things the same is not an option • There are new opportunities – Roads, mining, oil, tourism . . . – They have pros and cons – If you want them you have to work for them • The choice many villages face – No new development and harder times – New development with pros and cons 2
Parts of your region—particularly the villages— are very economically dependent on federal and state spending . . . S ha re o f A nnua l A v e ra g e E mp lo y me nt, 2013 YukonKoyukuk Census Area
Southeast Fairbanks Census Area
Denali Borough
Fairbanks North Star Borough
T o ta l 100% 100% 100% 100% Go v e rnme nt 63% 34% 18% 30% Federal 4% 17% 11% 8% State 5% 5% 1% 14% Local 55% 13% 7% 8% P riv a te S e c to r 37% 66% 82% 70% Mining 18% 4% Tourism 6% 55% 11% Source: Alaska Department of Labor & Workforce Development
3
Government spending affects the economy in many ways beyond government jobs • • • • • •
Construction projects Grants to private non-profits (including health care) Medicaid Permanent fund dividends Other direct payments to individuals Transportation subsidies
4
Federal spending in Alaska has been falling and will probably continue to fall
• There is growing pressure to cut federal spending • Alaska has less political power than we used to
5
A very steep drop in oil prices has caused a drastic drop in state revenues. • The state is facing huge deficits • The savings we are using to pay for these deficits could run out in a few years • There is enormous pressure to cut state spending – This year’s cuts are only a start • In coming years we will probably see pressure to: – use part of Permanent Fund earnings to pay for government – reduce dividends
7
Alaska is extremely dependent on oil revenues to fund state government.
8
Oil prices and state oil revenues have fallen drastically.
9
We ran big surpluses from 2005 to 2012. Since 2013 we have been running big deficits.
Historical
Projected
This year’s projected deficit is huge. FY15 unrestricted general fund spending $5.9 billion
$3.4 billion (57% of spending)
$2.6 billion
$8,000 per Alaskan
Projected deficit
Projected revenues
$4,500 per Alaskan
$3,500 per Alaskan
At the start of FY15, we had $12.2 billion in savings available to pay for deficits.
Available savings of $12.2 billion
Deficit of $3.4 billion
At this year’s spending level and projected future revenues, we would drain our savings in 7 years
Projected available savings Projected deficits
We can’t run deficits without savings to pay for them. Unless oil prices rise dramatically and unexpectedly . . . • We will have to adjust our spending or revenues. • The debate is just starting about – HOW TO ADJUST • Spend less? • Find new revenues? – WHEN TO ADJUST • As soon as possible? • Gradually?
14
The pressure to cut the deficit is causing . . .
• Enormous pressure to cut spending – Capital projects – State government operations • A search for new revenues – Higher fees – Taxes? • Talk of cutting dividends
All of these would affect rural Alaska!
15
“The forester behind the decision to cut 16 seasonal positions from the base in McGrath said the state’s staggering $3.5 billion deficit precipitated the need for big changes. “We were asked to look at programmatic reductions and not shave off the top,” said the state’s forestry director. “We were looking for the biggest bang for our buck.”
With Alaska facing big declines in oil revenues, Gov. Bill Walker has been looking for places to cut the state budget. He recommended an 18 percent cut for public broadcasting, which last year received $4.4 million, mostly in grants to the state's couple dozen public stations. But in the Legislature, a subcommittee went far deeper, cutting 59 percent from the budget. 17
New Alaska Gov. Bill Walker announced Saturday that he’d put six high-profile state infrastructure projects on hold, citing Alaska’s $3.5 billion budget deficit that’s grown as oil prices have steeply dropped. The projects include a small diameter gas pipeline project , . . .the bridge over the Knik Arm, the Susitna-Watana hydroelectric dam, the Juneau access road, the Kodiak rocket and missile launch complex, and the Ambler road . . . The halt in spending is “pending further review.”
Getting funding for large capital projects like the Ambler Road is going to be a lot more difficult than in the past.
• The state faces major cash flow problems • The state is likely to demand that industry shares more of the costs
Supporters of large capital projects will have to make a strong and effective case for them.
19
Changes in federal and state spending will affect your region. I fear but expect there will be less money for many things:
• • • •
Capital projects Local government support Grants to non-profits Subsidies – Bypass mail – Transportation – Broadband • Dividends ???
Keeping things the same is not an option.
Economic changes could accelerate population decline in some areas.
The future is not all gloom and doom. There are many new economic opportunities in your region.
• • • • •
Roads Mining Oil Tourism Science
22
Selected potential projects in your region
• Roads – Ambler – Tanana • Mines – Ambler mining district – Tetlin project
23
Gas pipeline from the North Slope • It is still very uncertain: – Whether any gas pipeline will happen – When it would happen – How big it would be – The State’s role in building, owning and operating it – What it would cost us and how much it would earn for us • Whether and when a gas pipeline will happen depends on: – Project economics: • Construction costs • Projected Asian export markets – Politics: state investment, control and taxes • If it happens: – It will be a major construction project – It is still many years away 24
Economic development projects have pros and cons
• Pros – Transportation access • Lower costs – Jobs – Tax base • Cons – Newcomers – More competition for hunting and fishing – Potential environmental impacts
25
Resource development projects can bring significant economic benefits to rural Alaska • North Slope Borough – North Slope oil fields • NANA Region – Red Dog Mine • Bethel Region – Donlin Creek Mine exploration
26
Red Dog Mine
28
My advice about economic development projects . . . • Think about what future you want for your region • Learn about the projects – Think about the pros and cons • Learn and think for yourselves – Don’t assume what supporters or opponents say is true • Learn from experience with other projects / in other regions – Talk to people directly involved – Visit the places if you can
30
My advice about economic development projects . . . • Think about the risks – Nothing is certain—neither the pros or the cons • Know the process – What are the key decision points? – When do you need to be involved? • If you want projects you have to work for them – Demonstrate political support – Native corporation investment and support – Keep looking for ideas
31
