AEDC outlook darkens over gridlock, spending cuts

  • Hundreds attended the Anchorage Economic Development Corp. 3-Year Outlook Luncheon at the Dena’ina Civic and Convention Center on July 31. Budget vetoes cast a grim outlook on the state’s largest city emerging from a multi-year recession, according to its forecast. (Photo/Bill Roth/Anchorage Daily News)

Prolonged indecision in Juneau is stifling economic recovery in Anchorage, according to the Anchorage Economic Development Corp.

CEO Bill Popp recalled that at the start of the year AEDC officials thought the city’s economy would finally be pulling out of what has been a three-plus year recession by midsummer; however, the data indicates that’s not the case, he said at the group’s three-year economic forecast presentation July 31.

According to figures compiled by AEDC, Anchorage’s economy — which usually reflects what’s happening statewide — has lost roughly 100 jobs in the first half of 2019. Popp acknowledged the number is on the edge of the margin of error, but said other indicators support the belief that the economy has again turned for the worse.

“We should’ve been in positive territory at this point by about a few hundred jobs, but we’ve seen the start of a significant decline that’s got us very, very concerned,” Popp said.

While the long-struggling construction industry has added roughly 600 jobs in the first half of 2019, Popp attributed most of the growth to repairs from the November 2018 earthquake and much of that work will fade after next year, he said.

The historically strong health care sector added just 100 jobs so far this year, the slowest growth in about 15 years and likely a response to cuts to the state’s Medicaid funding, according to Popp.

On a positive note, companies in the professional and business services sector — engineering, architectural, financial, law firms and the like — are finally slowing their job reductions. The sector lost about 200 jobs in 2018 after shedding about 3,000 jobs since late 2014. According to AEDC, early data for this year shows the losses are continuing at a reduced rate.

“To reach a point where they’re flattening out, that is great news for a sector that provides great jobs for our economy,” Popp said of professional and business services. “Hopefully, we will see this flat turn into growth with new investment in the oil patch and federal military spending in our state.”

AEDC leaders have and other economists have previously said the recession that cost Anchorage more than 5,000 jobs and nearly 12,000 statewide started when North Slope oil companies responded to the oil price crash of late 2014 by cutting their labor force about a year later.

But it was extended and deepened by the inability of state lawmakers to agree on a long-term fix for the state’s budget deficits that exceeded $3 billion annually in recent years, they contend.

Popp said economic optimism generated a year ago by rebounding oil prices and the Legislature’s move to approve a long-debated annual endowment-style draw from the Permanent Fund to provide a new, steady source of revenue for government services has mostly evaporated in a new political climate.

“We are on the precipice of taking a three-and-a-half-year recession that is now fully fledged as a policy-driven recession and we are talking about extending it another three years, maybe more, because this does not take into account potential cuts in next year’s budget cycle that have been talked about,” he said, noting the conclusions also assume the Legislature ultimately doesn’t override Gov. Michael J. Dunleavy’s $444 million of vetoes to the state operating budget.

Dunleavy has repeatedly said the roughly $650 million in budget cuts this year — his vetoes combined with about $200 million in reductions passed by the Legislature — get the state roughly halfway towards closing its ongoing deficit while paying Permanent Fund dividends and via the traditional formula and he hopes to enact further cuts next year.

The final tally indicates Anchorage lost about 900 jobs last year and AEDC expects the city will shed another 700 this year and about 1,000 next year as the budget cuts take full effect. Another 200 job losses could be seen in 2021 as the negative trend flattens, according to Popp. If AEDC’s forecast is correct, Anchorage would end up losing nearly 8,000 jobs, or about 5 percent off the city’s 2013 employment peak of 156,100 jobs.

University of Alaska Anchorage economist Mouhcine Guettabi estimated in early July that the state budget cuts would cost Alaska’s economy as a whole more than 4,000 jobs over the coming years.

Economist Ed King, who worked in the Dunleavy administration for a brief time, wrote July 10 that he believes the Alaska will add approximately 800 jobs over the coming year primarily due to growth in the oil and gas sector from new, large North Slope projects.

If AEDC’s forecast proves true, the Anchorage economy would regress to 2007 job levels over the next three years.

Dunleavy has stressed a belief that cutting government spending will spur growth in the private sector and paying larger PFDs will inject money into the Alaska economy as well. The “full,” statutorily calculated 2019 PFD of approximately $3,000 per person would transfer $1.9 billion from the Permanent Fund to Alaska residents.

However, economists, including King, have said they cannot find a significant link between the size of the PFD and job growth in the state.

Popp said the PFD provides a short-term boost to the retail sector each fall, but little more, a sentiment shared by UAA’s Guettabi.

“The PFD has had little or no appreciable effect in terms of major employment bumps in our community,” he said. “From our view that proposition (of the PFD supporting job growth) is a canard; it is a false premise.”

AEDC’s predicts the job losses will coincide with continued population loss for Alaska’s largest city as those searching for new job opportunities continue to migrate to the Lower 48. Popp said the long-term trend of Anchorageites seeking more affordable housing options in the Mat-Su Borough is starting to slow, but the city has experienced a net loss of approximately 4,000 residents to the Lower 48 each of the past five years.

“We’ve got a pretty good sense that a substantial portion of that 20,000 is adult, working-age individuals. It’s a brain-drain for our city; it’s an absolute brain-drain,” he said.

Births have largely offset the outmigration, leading to less population decline.

The belief that many working-age adults are leaving Anchorage is supported by the fact that the city’s unemployment rate has stayed fairly steady in the 5 percent range throughout the recession. Those in need of jobs are often moving south rather than applying for unemployment benefits and looking for work locally.

Further, many employers still cite a lack of qualified workers as an impediment to growth despite the mediocre to poor economic conditions, according to Popp.

“We are not competing effectively to retain the workforce that we have or to attract the workforce that we need to fill the jobs that we need for our community,” he said.

Overall, Anchorage’s population is likely to shrink back to less than 293,000 residents before in 2021 after peaking at more than 301,000 in 2013, according to AEDC. If the projection proves true, it would take the city back to a population level not seen since 2010.

In addition to the hard numbers, Popp said AEDC leaders are also very concerned about consumer confidence in the Anchorage economy, given it is service-driven and therefore very sensitive to consumer spending.

The group’s second quarter 2019 consumer optimism survey conducted by Alaska Survey Research in conjunction with Northern Economics indicates a sharp decline in residents’ confidence in the Anchorage economy, with respondents most concerned about the future as opposed to the immediate situation.

“We’re now in what we believe is the ‘we’re not sure territory’ of 45-55 (on a scale of 0-100) but the trending is definitely towards the negative,” Popp said of consumer economic confidence, which is now measured at 53 compared to 59.3 a year ago.

The “future expectations” response dipped to 49.3, a drop of more than 8 points compared to 57.7 in the third quarter of 2018.

The turn towards the negative comes just a year after a near-term peak in the third quarter of last year when oil prices were higher and the state had just approved the structured use of Permanent Fund income to support government services, an action that drastically reduced the budget deficit.

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Elwood Brehmer can be reached at [email protected].

Updated: 
08/07/2019 - 9:40am

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