Construction spending forecasted to rise 10%

  • Employees with Cruz Construction work on the Tok Cutoff culvert replacement in 2017. Public construction spending is expected to increase 7 percent this year. (Photo/Courtesy/Cruz Construction)

The coming year should be better than last for Alaska’s construction industry and the state economy as a whole.

Construction spending across the state is expected to increase about 10 percent this year over last to a grand total of more than $7.2 billion, according to the Associated General Contractors of Alaska’s annual industry forecast.

AGC of Alaska Executive Director Alicia Siira said the trade group is “cautiously optimistic” about 2019 after some very tough times.

“Our industry has really taken a beating over the past few years with this recession and we could really use some good news,” Siira said. “We’re hopeful this trend continues and we start to see some dollars moving through the state to help support the economy.”

Alaska’s construction workforce averaged a little more than 15,000 workers the past two years and employment levels that low hadn’t been seen since 2001-02, according to state Labor Department data. The industry was doubly hit by Alaska’s three-year oil price-induced recession. Not only did oil companies sharply curtail capital spending, but the state also cut its capital budget allocations from more than $2 billion to less than $200 million in recent years.

Restoring some of that state capital spending is a top priority for AGC.

State economists expect Alaska to officially climb out of the recession towards the end of the year. The construction industry is correspondingly expected to add roughly 900 jobs in 2019.

Most of the spending growth is expected to come via the oil and gas industry and Department of Defense projects at Interior military installations. Both sectors are pegged for 13 percent growth; however, in oil and gas that means an increase to $2.7 billion and roughly $700 million overall for Alaska Defense spending in 2019.

On the oil side, many companies have managed to reduce their operating costs to where they can afford to resume investing in larger projects at current prices in the $60-70 range — a price band that is being predicted for several years. The discovery of the now-prolific Nanushuk oil formation on the North Slope has also spurred some oil prospects with development costs pegged at upwards of $5 billion. As a result, oil industry spending is projected to increase for several years, according to the forecast.

Military construction in the state continues to center on Eielson Air Force Base near Fairbanks, which is readying for two new squadrons of F-35 fighters that are planned to start arriving in 2020.

“Some of the larger elements of the (F-35) ‘bed-down’ are a flight simulator, new maintenance buildings, aircraft weather shelters, new utilidor, as well as renovation of many existing structures,” the forecast states.

Additional missile defense projects are ongoing at Fort Greeley near Delta Junction and Clear Air Force Station near Nenana.

While not as significant in terms of overall dollars, the mining industry is projected to increase its capital spending by 18 percent this year to $265 million as three of Alaska’s six big large mines — Red Dog in the Northwest and Pogo and Fort Knox in the Interior — have major expansions planned.

Siira said she is hopeful political forces will continue to support the resource industries.

“For increased spending to continue we feel that we need some stability in our stat and timely review of resource development projects which support the economy and, of course, construction spending,” she said.

Overall private industry spending is expected to be about $4.4 billion, a 9 percent year-over-year increase; Alaska public construction expenditures should grow about 7 percent, with about $200 million or more coming as a result of the Nov. 30 earthquake.

“Our industry, both vertical and road construction, did see an increase in activity due to the earthquake and although it was unfortunate, it maybe highlighted some of the projects that have been overlooked over the years,” Siira noted.

She added that private building damage from the earthquake is more difficult to quantify.

State and local government officials have emphasized since the earthquake that additional damage will likely be revealed with the arrival of spring.

Longer term, the state still has a $2 billion-plus deferred maintenance list that it must address and new cost estimates to rehabilitate the Anchorage port have shot up dramatically to nearly $2 billion as well.

 

Elwood Brehmer can be reached at [email protected].

Updated: 
01/31/2019 - 11:36am

Comments