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Home My WebLink About6 H High Cost of Living-Alaska-Nome4 ALASKA ECONOMIC TRENDS JULY 2006 he high cost of living in Alaska is part of the state’s folklore. Stories are told of eggs being sold for a dollar each in Skagway during the Klondike gold rush and of converted garages renting for $1,000 a month in Fairbanks during construc- tion of the trans-Alaska oil pipeline. Even during more stable economic periods, the unique ben- eﬁ ts of living in the 49th state – a rugged and expansive land more remote from the nation’s population centers than every other state except Hawaii – come with unique costs. This article takes a look at some of those costs by examining the most current information from a variety of cost-of-living studies and concludes that although it’s still more expensive to live in Alaska than in much of the rest of the country, the gap is gradually narrowing. Two ways to look at cost of living Cost-of-living measures come in two basic types. One looks at the change in prices over time in a speciﬁ c location. The Consumer Price Index, considered the broadest and most comprehen- sive measure of inﬂ ation, is the best example of this type of measure. Landlords, workers, unions and employers use the CPI to adjust rents and salaries, among other things, and the Alaska Permanent Fund Corporation uses the CPI to determine how much money must be added to the principal of the Permanent Fund every year to keep up with inﬂ ation. Other cost-of-living studies compare prices in different locations for a speciﬁ c time period. These studies are used primarily by employ- T ers and beneﬁ t providers who want to equalize wages or payments to people in different loca- tions – and by employees and beneﬁ t recipients who want to make a case for why their wages or beneﬁ t payments should be raised. A number of these types of measures will be examined. Highest inflation in 12 years For the ﬁ rst time since 1993, inﬂ ation as mea- sured by the Anchorage CPI1 crested the 3 percent mark in 2005. (See Exhibits 1 and 2.) The city’s 3.1 percent increase was lower than the national inﬂ ation rate of 3.4 percent, but well above Anchorage’s 10-year average of 2.2 percent. Prices rose in nearly all major categories in 2005, with the biggest increase coming in the transportation component. (See Exhibit 3.) The only decline among the major categories was in apparel and upkeep, where prices have fallen in seven out of the last 10 years, due mostly to the dramatic increase in cheaper imports from China. In general, national inﬂ ation exceeded Anchorage’s, continuing a long-running trend of a slowly narrowing gap between Alaska prices and average prices for the nation as a whole. Housing costs, which have the largest impact on 1 Because a Consumer Price Index is not calculated for any other Alaska city, the Anchorage CPI is often used as the best substitute for a statewide inﬂ ation measure. All references to the CPI in this article are to the CPI-U (Consumer Price Index for all Urban Con- sumers). The CPI-U covers about 87 percent of the U.S. population and nearly all of the Anchorage population. The U.S. Department of Labor’s Bureau of Labor Statistics also produces an index called the Consumer Price Index for all Urban Wage Earners and Clerical Workers, or CPI-W, which covers a subset of the CPI-U population who work in clerical or wage occupations. by Neal Fried and Dan Robinson EconomistsThe Cost of Living in Alaska The gap is narrowing between Alaska and the U.S. 5ALASKA ECONOMIC TRENDS JULY 2006 the overall CPI, rose by 2.7 percent, compared to 3.3 percent for the U.S. High oil and natu- ral gas prices are reﬂ ected in a number of CPI categories. Fuels and utilities, a subcategory of housing, rose by 8.2 percent in 2005 after an even higher increase of 9.2 percent in 2004. Overall, energy prices, which are scattered throughout a number of other categories, rose by 12.8 percent in 2005, the largest single-year increase for the category in the last decade. Nationally, energy prices rose even more – 17.0 percent – in 2005. How the inflation rate is calculated As noted above, the Consumer Price Index mea- sures price changes over time. More speciﬁ cally, it measures the average change over time in the prices paid by urban consumers for a combina- tion of consumer goods and services referred to as the “market basket.” Anchorage is one of 27 local areas nationwide for which a CPI is calcu- lated. CPI data for Anchorage is available on a semi-annual basis back to 1984. To produce the Anchorage CPI, the U.S. Depart- ment of Labor’s Bureau of Labor Statistics con- ducts detailed surveys of Anchorage consumers’ spending habits. Survey responses determine the makeup of the city’s market basket as well as the weight each item will have in the overall index. A category’s weight represents its per- centage of the average consumer’s total expen- ditures. (See Exhibit 4.) Not surprisingly, the CPI weights housing high- est.2 As a result, housing has the most inﬂ uence on the overall index. Housing’s dominant weight also gives the CPI a local ﬂ avor, since housing prices can differ substantially throughout the 2 The CPI measures housing prices according to “rental equiva- lency,” which looks at the current rental values of houses rather than actual sale prices or appraised values. This method has been criticized as not being reﬂ ective of the actual increases in consumer expenditures for housing, since rental prices have not increased as much as sale prices for homes in recent years. One of the Bureau of Labor Statistics’ responses has been that some of the increase in home values is due to investment buying and investments are excluded from CPI calculations. Anchorage Consumer Price Index 3.1% inﬂ ation is the highest in 12 years Source: U.S.Department of Labor, Bureau of Labor Statistics 1 6.2%4.6%3.4%3.1%2.1%2.9%2.7%1.5%1.5%1.0%1.7%2.8%1.9%2.7%2.6%3.1%90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 0% 1% 2% 3% 4% 5% 6% 7% Inflation Rate country depending on local market forces. When local CPI numbers differ substantially from national CPI numbers (see Exhibits 2 and 3), housing prices are the most likely culprit since other CPI categories such as transporta- tion, food, clothing and recreation costs are dictated more by national and international conditions than local ones. One example of this was during the late 1980s when Anchorage’s real estate market crashed. Falling housing prices kept Anchorage’s overall CPI nearly ﬂ at in 1987 and 1988 – 0.4 percent for each of the two years. (See Exhibit 2.) During this same period, the national housing market was robust and as a result the national inﬂ ation rate was considerably higher than Anchorage’s – 3.6 percent in 1987 and 4.1 percent in 1988. Medical costs available again CPI data for Anchorage medical care were published again in 2005 after being unavailable since the ﬁ rst half of 2002 due to an insufﬁ cient sample of medical costs.3 The lack of annual data from 2002 through 2004 makes it impos- 3 Although medical care costs were not separately published, they were still incorporated into the overall CPI. 6 ALASKA ECONOMIC TRENDS JULY 2006 sible to calculate yearly percentage increases over that period, but there is no doubt that health care prices have been soaring. Between 2001 and 2005, medical costs increased by 22 percent. Over the longer term, no other component of the CPI comes close to matching the increase in costs for medical care. (See Exhibit 5.) Since 1984, medical care has increased by a whop- ping 226 percent. Nationally the story is much the same, with an increase of nearly 203 per- cent over the same period. Whether medical costs will continue to rise at such a pace is uncertain, but one factor suggesting they might is increasing demand, fueled by the aging baby boomer population. CPI can’t be used for geographic comparisons National and city-speciﬁ c CPI data are released as index numbers from which percent changes are then calculated. In 2005, for example, the U.S. index was 195.3 and Anchorage’s was 171.8. (See Exhibit 2.) The reference base for both areas is 1982-1984, which means that since those base years, U.S. prices have risen 95.3 percent and Anchorage prices have risen 71.8 percent. What the higher U.S. number does not mean is that U.S. prices are higher than Anchorage’s. The only conclusion that can be drawn from the higher U.S. number is that, since the 1982-1984 period, prices have increased more nation- ally than they have for Anchorage. As other cost-of-living studies show, prices in Anchorage and other Alaska cities are still higher than the national average. What these studies and the CPI data conﬁ rm, however, is that the difference between Alaska prices and nationwide averages is signiﬁ cantly smaller than it used to be. Food costs especially high in Southwest Alaska Four times a year the University of Alaska Fair- banks’ Cooperative Extension Service surveys food costs in about 20 Alaska communities and Portland, Ore. (See Exhibits 6 and 7.) The food 2 Consumer Price Index - Urban U.S. city and Anchorage averages, 1960 to 2005 Year Anchorage Average Percent Change from Previous Year U.S. Average Percent Change from Previous Year 1960 34.0 29.6 1961 34.5 1.5% 29.9 1.0% 1962 34.7 0.6% 30.2 1.0% 1963 34.8 0.3% 30.6 1.3% 1964 35.0 0.6% 31.0 1.3% 1965 35.3 0.9% 31.5 1.6% 1966 36.3 2.8% 32.4 2.9% 1967 37.2 2.5% 33.4 3.1% 1968 38.1 2.4% 34.8 4.2% 1969 39.6 3.9% 36.7 5.5% 1970 41.1 3.8% 38.8 5.7% 1971 42.3 2.9% 40.5 4.4% 1972 43.4 2.6% 41.8 3.2% 1973 45.3 4.4% 44.4 6.2% 1974 50.2 10.8% 49.3 11.0% 1975 57.1 13.7% 53.8 9.1% 1976 61.5 7.7% 56.9 5.8% 1977 65.6 6.7% 60.6 6.5% 1978 70.2 7.0% 65.2 7.6% 1979 77.6 10.5% 72.6 11.3% 1980 85.5 10.2% 82.4 13.5% 1981 92.4 8.1% 90.9 10.3% 1982 97.4 5.4% 96.5 6.2% 1983 99.2 1.8% 99.6 3.2% 1984 103.3 4.1% 103.9 4.3% 1985 105.8 2.4% 107.6 3.6% 1986 107.8 1.9% 109.6 1.9% 1987 108.2 0.4% 113.6 3.6% 1988 108.6 0.4% 118.3 4.1% 1989 111.7 2.9% 124.0 4.8% 1990 118.6 6.2% 130.7 5.4% 1991 124.0 4.6% 136.2 4.2% 1992 128.2 3.4% 140.3 3.0% 1993 132.2 3.1% 144.5 3.0% 1994 135.0 2.1% 148.2 2.6% 1995 138.9 2.9% 152.4 2.8% 1996 142.7 2.7% 156.9 3.0% 1997 144.8 1.5% 160.5 2.3% 1998 146.9 1.5% 163.0 1.6% 1999 148.4 1.0% 166.6 2.2% 2000 150.9 1.7% 172.2 3.4% 2001 155.2 2.8% 177.1 2.8% 2002 158.2 1.9% 179.9 1.6% 2003 162.5 2.7% 184.0 2.3% 2004 166.7 2.6% 188.9 2.7% 2005 171.8 3.1% 195.3 3.4% Note: The base years are 1982 to 1984. Source: U.S. Department of Labor, Bureau of Labor Statistics 7ALASKA ECONOMIC TRENDS JULY 2006 3The Consumer Price Index in Anchorage and the U.S. Annual averages for selected components, 1983 to 2005 ALL ITEMS EXCEPT SHELTER HOUSING TRANSPORTATION Year U.S. Average Percent Change from Prev. Year Anchor- age Average Percent Change from Prev. Year U.S. Average Percent Change from Prev. Year Anchor- age Average Percent Change from Prev. Year U.S. Average Percent Change from Prev. Year Anchor- age Average Percent Change from Prev. Year 1983 99.8 3.7% 99.9 3.7% 99.5 2.7% 99.0 0.8% 99.3 2.4% 98.5 1.8% 1984 103.9 4.1% 103.8 3.9% 103.6 4.1% 102.7 3.7% 103.7 4.4% 104.6 6.2% 1985 107.0 3.0% 107.5 3.6% 107.7 4.0% 103.0 0.3% 106.4 2.6% 108.2 3.4% 1986 108.0 0.9% 111.2 3.4% 110.9 3.0% 102.6 -0.4% 102.3 -3.9% 107.8 -0.4% 1987 111.6 3.3% 115.1 3.5% 114.2 3.0% 97.5 -5.0% 105.4 3.0% 111.3 3.2% 1988 115.9 3.9% 117.8 2.3% 118.5 3.8% 95.4 -2.2% 108.7 3.1% 113.0 1.5% 1989 121.6 4.9% 122.3 3.8% 123.0 3.8% 96.3 0.9% 114.1 5.0% 116.7 3.3% 1990 128.2 5.4% 128.0 4.7% 128.5 4.5% 103.9 7.9% 120.5 5.6% 120.7 3.4% 1991 133.5 4.1% 131.9 3.0% 133.6 4.0% 111.2 7.0% 123.8 2.7% 121.7 0.8% 1992 137.3 2.8% 134.6 2.0% 137.5 2.9% 116.6 4.9% 126.5 2.2% 123.3 1.3% 1993 141.4 3.0% 137.9 2.5% 141.2 2.7% 121.1 3.9% 130.4 3.1% 128.8 4.5% 1994 144.8 2.4% 140.3 1.7% 144.8 2.5% 122.9 1.5% 134.3 3.0% 136.9 6.3% 1995 148.6 2.6% 144.6 3.1% 148.5 2.6% 124.9 1.6% 139.1 3.6% 143.8 5.0% 1996 152.8 2.8% 148.4 2.6% 152.8 2.9% 127.9 2.4% 143.0 2.8% 147.2 2.4% 1997 155.9 2.0% 150.6 1.5% 156.8 2.6% 129.4 1.2% 144.3 0.9% 147.0 -0.1% 1998 157.2 0.8% 152.6 1.3% 160.4 2.3% 131.0 1.2% 141.6 -1.9% 144.9 -1.4% 1999 160.2 1.9% 153.5 0.6% 163.9 2.2% 132.7 1.3% 144.4 2.0% 143.7 -0.8% 2000 165.7 3.4% 156.1 1.7% 169.6 3.5% 134.2 1.1% 153.3 6.2% 150.5 4.7% 2001 169.7 2.4% 160.6 2.9% 176.4 4.0% 139.0 3.6% 154.3 0.7% 153.0 1.7% 2002 170.8 0.6% 162.2 1.0% 180.3 2.2% 143.5 3.2% 152.9 -1.0% 151.5 -1.0% 2003 174.6 2.2% 166.5 2.7% 184.8 2.5% 146.8 2.3% 157.6 3.1% 158.3 4.5% 2004 179.3 2.7% 171.7 3.1% 189.5 2.5% 149.1 1.6% 163.1 3.5% 162.7 2.8% 2005 186.1 3.8% 177.5 3.4% 195.7 3.3% 153.1 2.7% 173.9 6.6% 171.7 5.5% FOOD and BEVERAGES MEDICAL CARE1 APPAREL and UPKEEP Year U.S. Average Percent Change from Prev. Year Anchor- age Average Percent Change from Prev. Year U.S. Average Percent Change from Prev. Year Anchor- age Average Percent Change from Prev. Year U.S. Average Percent Change from Prev. Year Anchor- age Average Percent Change from Prev. Year 1983 99.5 2.3% 99.7 2.6% 100.6 8.8% 99.7 5.2% 100.2 2.5% 101.6 5.2% 1984 103.2 3.7% 103.2 3.5% 106.8 6.2% 105.5 5.8% 102.1 1.9% 101.7 0.1% 1985 105.6 2.3% 106.2 2.9% 113.5 6.3% 110.9 5.1% 105.0 2.8% 105.8 4.0% 1986 109.1 3.3% 110.8 4.3% 122.0 7.5% 127.8 15.2% 105.9 0.9% 109.0 3.0% 1987 113.5 4.0% 113.1 2.1% 130.1 6.6% 137.0 7.2% 110.6 4.4% 116.6 7.0% 1988 118.2 4.1% 113.8 0.6% 138.6 6.5% 145.8 6.4% 115.4 4.3% 119.1 2.1% 1989 124.9 5.7% 117.2 3.0% 149.3 7.7% 154.4 5.9% 118.6 2.8% 125.0 5.0% 1990 132.1 5.8% 123.7 5.5% 162.8 9.0% 161.2 4.4% 124.1 4.6% 127.7 2.2% 1991 136.8 3.6% 127.7 3.2% 177.0 8.7% 173.5 7.6% 128.7 3.7% 126.6 -0.9% 1992 138.7 1.4% 130.3 2.0% 190.1 7.4% 183.0 5.5% 131.9 2.5% 130.2 2.8% 1993 141.6 2.1% 131.2 0.7% 201.4 5.9% 189.6 3.6% 133.7 1.4% 131.2 0.8% 1994 144.9 2.3% 131.9 0.5% 211.0 4.8% 197.8 4.3% 133.4 -0.2% 128.9 -1.8% 1995 148.9 2.8% 138.5 5.0% 220.5 4.5% 211.6 7.0% 132.0 -1.0% 130.0 0.9% 1996 153.7 3.2% 143.4 3.5% 228.2 3.5% 231.1 9.2% 131.7 -0.2% 128.7 -1.0% 1997 157.7 2.6% 145.8 1.7% 234.6 2.8% 248.9 7.7% 132.9 0.9% 127.0 -1.3% 1998 161.1 2.2% 147.3 1.0% 242.1 3.2% 255.7 2.7% 133.0 0.1% 125.6 -1.1% 1999 164.6 2.2% 148.4 0.7% 250.6 3.5% 260.8 2.0% 131.3 -1.3% 125.8 0.2% 2000 168.4 2.3% 151.7 2.2% 260.8 4.1% 272.1 4.3% 129.6 -1.3% 124.5 -1.0% 2001 173.6 3.1% 156.4 3.1% 272.8 4.6% 282.9 4.0% 127.3 -1.8% 131.1 5.3% 2002 176.8 1.8% 157.9 1.0% 285.6 4.7% ------ ------ 124.0 -2.6% 126.7 -3.4% 2003 180.5 2.1% 161.8 2.5% 297.1 4.0% ------ ------ 120.9 -2.5% 123.2 -2.8% 2004 186.6 3.4% 168.9 4.4% 310.1 4.4% ------ ------ 120.4 -0.4% 123.9 0.6% 2005 191.2 2.5% 173.1 2.5% 323.2 4.2% 344.2 ------ 119.5 -0.1% 121.3 -2.1% 1 No index was created for medical care for Anchorage for the years 2002 to 2004. Source: U. S. Department of Labor, Bureau of Labor Statistics 8 ALASKA ECONOMIC TRENDS JULY 2006 limited to food, which is only part of the aver- age consumer’s expenditures, it should be used with caution when it is used as a substitute for a more comprehensive cost-of-living comparison. The fact that food costs in St. Paul are twice as expensive as food costs in Ketchikan, for exam- ple, does not necessarily mean that the overall cost of living in St. Paul is twice as high as in Ketchikan. Another limitation of the survey is that it uses the same market basket of food items for all areas, despite the fact that there may be signiﬁ - cant differences between the list of food items consumed by a family in Anchorage and that consumed by a family in Bethel. The survey recently began including the cost of having grocery items delivered by mail, but it does not account for subsistence-harvested meat, ﬁ sh, berries and other items that often replace store- bought food. Within Alaska, food costs were the lowest in the Mat-Su area, Fairbanks and Anchorage, al- though all of the Alaska communities surveyed had at least slightly higher food costs than Portland, Ore. (See Exhibit 6.) The highest cost areas tend to be the most remote, requiring delivery of food by air for much of the year and by barge during the summer months. St. Paul, Naknek-King Salmon, Dillingham, Bethel and Dutch Harbor all fall into this category. The next tier consists of relatively small com- munities that lie on a major transportation system – either a road system or the Alaska Marine Highway. Among those included in this group are Kodiak, Haines, Cordova and Seward. Other important factors in the cost of food are proximity to larger population cen- ters, the year-round stability of a community’s population and the level of competition within the local market. High rents in Kodiak and Juneau Housing costs can be a good proxy for an area’s cost of living because they make up such a large percentage of total household expendi- tures. A 2005 survey of rental prices for hous- ing in 10 areas around the state, conducted by 4 Consumers Spend Most on Housing Consumer Price Index weighting1 5 Health Care in its Own League Anchorage Consumer Price Index 1 As of December 2005 Source: U.S. Department of Labor, Bureau of Labor Statistics Note: The base years are 1982 to 1984. Source: U.S. Department of Labor Statistics, Bureau of Labor Statistics Housing 43.6% Transportation 19.0% Food and beverage 12.3% Recreation 7.0% Medical care 6.2% Education and communication 5.5% Other goods and services 3.7% Apparel and upkeep 2.7% items selected are based on a national survey of eating habits and are meant to represent a low- cost, balanced diet. Prices are also gathered for electricity, heating oil, automobile gas, lumber and propane. The survey is especially useful because it cov- ers so many different Alaska communities. In many of the areas, the survey is the only source of cost-of-living information. It is important to note, however, that because the survey is mostly 1985 1990 1995 2000 2005 50 100 150 200 250 300 350 Index Values All Items Housing Medical Energy 344.2 185.4 171.8 153.1 9ALASKA ECONOMIC TRENDS JULY 2006 the Alaska Department of Labor & Workforce Development for the Alaska Housing Finance Corporation, shows that renting a house was most expensive in Juneau and renting an apartment was most expensive in Kodiak. (See Exhibits 8 and 9.) According to the survey, the median rent and utilities for a three-bedroom single-fam- ily home in Juneau was $1,617, a 6 percent increase from 2004 and more than double the median cost in the Wrangell-Petersburg Census Area. Kodiak Island Borough saw the biggest increase in housing rental costs from 2004 to 2005, rising from $1,180 to $1,305 – a jump of 11 percent. Wrangell-Petersburg, the Kenai Peninsula Borough and Sitka all experienced reductions in housing rental prices and the remaining areas surveyed had moderate in- creases. Kodiak apartment rentals also increased sub- stantially in 2005, jumping 9 percent from $1,015 to $1,111. The median rental price of a two-bedroom apartment in eight of the other nine areas surveyed increased much more modestly and in the Wrangell-Petersburg Cen- sus Area the median rent actually fell by $70. 6Rural Alaskans Pay More for Food Food costs at home for a week, December 2005 Source: University of Alaska Fairbanks’ Cooperative Extension Service What would $100 in 1980 equal today? The Anchorage Consumer Price Index can help determine how much money it would take today to equal a dollar amount from some earlier year. To illustrate, this equation shows how $100 in 1980 would be equal to $201 in 2005. 2005 Anchorage CPI (see Exhibit 2) 171.8 = 2.01Divided by 1980 Anchorage CPI 85.5 The 2.01 is then multiplied by the number of 1980 dollars in order to ﬁ nd the 2005 equivalent ($100 x 2.01 = $201). Another way to describe this is to say that $100 in 1985 had the same purchasing power as $201 had in 2005. The formula can also be reversed to deﬂ ate current dollars to some earlier year (for example, $100 in 2005 would equal about $50 in 1980). Inﬂ ation calculators that require only the years and a dollar amount are available at several Web sites, including ours: almis.labor.state.ak.us. (Click on “Cost of Living” in the left margin; then click on “Inﬂ ation Calculator,” which is based on the U.S. Consumer Price Index.) $245 $227 $224 $203 $171 $171 $165 $159 $148 $136 $136 $135 $129 $125 $122 $118 $114 $111 $109 St. Paul Naknek-King Salmon Dillingham Bethel Haines Dutch Harbor Cordova Homer Kodiak Seward Delta Junction Sitka Kenai Juneau Ketchikan Anchorage Fairbanks Mat-Su area Portland, Ore. Cost for a family of four, children ages 6 to 11 $0 $50 $100 $150 $200 $250 Communities 10 ALASKA ECONOMIC TRENDS JULY 2006 Juneau down to second at $281,000. (See Exhibit 10.) Strong economic growth and a shrinking in- ventory of undeveloped land help explain the 11 percent increase in Anchorage’s numbers. It is important to recognize, however, that aver- age sales price data do not necessarily represent the average prices for an area’s total single-family housing stock, but merely the portion that was 7 The Cost of Food at Home for a Week in Eight Alaska Cities Cost for a family of four with children ages 6 to 11, 1978 to 20051, 2 Year 3 AnchorageFairbanksPercent ofAnchorageJuneauPercent ofAnchorageBethelPercent ofAnchorageNomePercent ofAnchorageKodiakPercent ofAnchorageKenai 4 /SoldotnaPercent ofAnchorageTokPercent ofAnchorage 1978 $76.67 $84.15 110% $73.72 96% $114.05 149% $118.85 155% - - $82.48 108% - - 1979 4 $82.18 $89.39 109% $74.88 91% $129.16 157% $128.67 157% - - $100.41 122% - - 1980 $88.44 $90.54 102% $85.92 97% $130.87 148% $131.14 148% $99.42 112% $120.84 137% $108.82 123% 1981 $86.69 $98.47 114% $93.95 108% $138.66 160% $150.27 173% - - - - $114.80 132% 1982 $77.30 $92.09 119% $99.98 129% $125.50 162% $149.04 193% - - - - - - 1983 $81.66 $83.79 103% $88.62 109% $128.30 157% $130.14 159% $104.94 129% $86.98 107% - - 1984 $84.22 $91.26 108% $91.66 109% $136.54 162% $142.07 169% $115.97 138% $87.97 104% $121.66 144% 1985 $89.06 $90.08 101% $106.61 120% $138.13 155% $152.41 171% $108.17 121% $91.47 103% $116.19 130% 1986 $87.25 $90.61 104% $87.65 100% $137.96 158% $142.04 163% $105.49 121% $92.78 106% $124.18 142% 1987 $88.90 $85.12 96% $88.24 99% $140.81 158% $147.96 166% $104.39 117% $96.95 109% $117.51 132% 1988 $90.99 $94.74 104% $92.95 102% $137.57 151% $147.69 162% $116.68 128% $95.53 105% $119.69 132% 1989 $93.80 $94.33 101% $96.73 103% $140.65 150% - - $124.61 133% $104.20 111% $139.43 149% 1990 $98.73 $103.49 105% $100.86 102% $146.92 149% $155.48 157% $154.55 157% $103.21 105% $131.03 133% 1991 $102.84 $114.65 111% $104.21 101% $152.49 148% $150.29 146% $127.96 124% $111.88 109% $143.45 139% 1992 $100.46 $92.31 92% $102.62 102% $142.51 142% $158.08 157% $124.61 124% $109.60 109% $132.94 132% 1993 $97.89 $93.42 95% $103.70 106% $147.84 151% $145.94 149% $125.19 128% $111.61 114% $136.96 140% 1994 $91.32 $94.96 104% $104.09 114% $133.47 146% $140.22 154% $123.99 136% $105.51 116% $140.78 154% 1995 $89.30 $93.26 104% $99.38 111% $140.68 158% $148.55 166% $123.04 138% $102.48 115% $122.89 138% 1996 $101.43 $96.65 95% $96.93 96% $148.70 147% $162.61 160% $125.71 124% $105.01 104% $142.46 140% 1997 $96.57 $97.73 101% $98.89 102% $150.42 156% - - $123.92 128% $104.87 109% - - 1998 $98.74 $98.35 100% $103.08 104% $155.24 157% $174.27 176% $130.04 132% $104.13 105% $144.67 147% 1999 $99.87 $98.52 99% $104.45 105% $163.11 163% $155.29 155% $143.81 144% $109.58 110% $132.61 133% 2000 $100.89 $100.63 100% $104.55 104% $162.63 161% $157.40 156% $133.89 133% $112.01 111% $139.31 138% 2001 $106.43 $103.61 97% $112.53 106% $180.89 170% $176.56 166% $140.23 132% $119.55 112% $141.73 133% 2002 $100.61 $100.80 100% $110.52 110% $187.96 187% $179.76 179% $143.36 142% $119.12 118% $126.92 126% 2003 $105.54 $112.77 107% $117.78 112% $186.07 176% $177.38 168% $144.13 137% $122.39 116% $126.37 120% 2004 $117.33 $118.73 101% $122.48 104% $198.33 169% $183.46 156% $140.70 120% $127.38 109% $120.85 103% 2005 $121.50 $123.72 102% $123.60 102% $202.08 166% $199.08 164% $147.77 122% $128.05 105% $126.03 104% 1 Sales tax included in food prices. 2 A hyphen means data are unavailable. 3 Data are for September of each year. 4 September 1979 data for Kenai/Soldotna are not available; December 1979 data are used instead. Source: University of Alaska Fairbanks’ Cooperative Extension Service, “Cost of Food at Home for a Week in Alaska.” The food survey can be found at www.uaf.edu/ces/fcs/index.html. Average selling price for houses highest in Anchorage Prices for single-family homes have skyrocketed in recent years. Another survey conducted for AHFC shows that the average sale price rose 9 percent from the second half of 2004 to the second half of 2005. For the ﬁ rst time, Anchorage had the highest average sales price at $294,000, bumping 11ALASKA ECONOMIC TRENDS JULY 2006 sold in the given time period. Average sales prices were lowest among the speciﬁ c areas surveyed in the Kenai Peninsula Borough ($195,000) and Fairbanks ($200,000). Housing is among the most affordable in Fairbanks Housing affordability indexes combine the sales price data above with average wages in the same area to determine how many wage earn- ers are necessary to afford the average home. In Fairbanks, for example, it takes 1.3 wage earners to buy an average-priced single-family Fairbanks home. (See Exhibit 11.) Higher index numbers represent less affordable housing. Although housing in the Matanuska-Susitna Borough is relatively inexpensive, lower than average wages make housing less affordable for those who live and work there than it is in many other areas of the state. At the other end of the spectrum, Anchorage’s high housing costs are partially offset by higher than average wages, making housing slightly more affordable for those who live and work there. Not surprisingly, many Mat-Su residents com- mute to Anchorage to get the best of both worlds – inexpensive housing and high wages. This group shares honors with Fairbanks for the most affordable housing in the state. Housing in Bethel is the least affordable among the areas studied due to a combination of high average housing costs and relatively low average wages. Statewide, the affordability index rose to 1.5 in the second half of 2005, up from 1.4 a year earlier. The last time the index was as high as 1.5 was in 2000. With the exception of Kodiak, all areas surveyed saw increases in their index numbers. Kodiak enjoyed an improvement in housing affordability due to a higher than aver- age increase in wages – 7 percent compared to the statewide average of 4 percent. ACCRA focuses on high-income households Every quarter the ACCRA (formerly the Ameri- can Chamber of Commerce Researchers Associ- 8Rent for a Three-Bedroom Home Highest rents in Juneau and Valdez/Cordova 1 For a single-family home Sources: Alaska Department of Labor & Workforce Development, Research and Analysis Section; and the Alaska Housing Finance Corporation’s 2005 Rental Market Survey 9Rent for Two-Bedroom Apartments Rental costs are highest in Kodiak and Juneau Sources: Alaska Department of Labor & Workforce Development, Research and Analysis Section; and the Alaska Housing Finance Corporation’s 2005 Rental Market Survey $1,617 $1,587 $1,410 $1,407 $1,305 $1,280 $1,248 $1,247 $1,006 $800 Juneau Borough Valdez-Cordova Census Area Fairbanks North Star Borough Municipality of Anchorage Kodiak Island Borough Ketchikan Gateway Borough Matanuska-Susitna Borough Sitka Borough Kenai Peninsula Borough Wrangell-Petersburg Census Area Median rent including utilities, 20051 $1,111 $1,045 $958 $944 $875 $867 $866 $746 $706 $653 Kodiak Island Borough Juneau Borough Sitka Borough Valdez-Cordova Census Area Municipality of Anchorage Fairbanks North Star Borough Ketchikan Gateway Borough Matanuska-Susitna Borough Kenai Peninsula Borough Wrangell-Petersburg Census Area Median rent including utilities, 2005 12 ALASKA ECONOMIC TRENDS JULY 2006 ation) Cost of Living Index provides comparisons of living costs for about 300 urban areas in the United States. ACCRA looks at costs for profes- sional and managerial households with incomes in the top 20 percent for the area. In recent years ACCRA data have consistently shown that for this speciﬁ c group of house- holds, Alaska cities are from 15 percent to 33 percent more expensive than the average of all cities surveyed. For the ﬁ rst quarter of 2006, the four Alaska cities covered by AC- CRA ranged from about 17 percent to about 33 percent more expensive than the average city. (See Exhibit 12.) ACCRA data are collected by organizations in the cities that volunteer to participate and meet certain minimum standards. As a result, there is more room for error than in some surveys and ACCRA encourages users not to use percentage differences as exact measures. This may partly explain why ACCRA data show that Fairbanks housing costs exceed those for Anchorage, despite the fact that the AHFC data discussed above show that Fairbanks housing is signiﬁ - cantly less expensive than Anchorage’s.4 Runzheimer looks at lower-income households The Runzheimer Plan of Living Cost Standards provides useful information about households on the lower end of the income spectrum.5 Runz- heimer data are designed to show how much more or less it would cost in different cities to maintain the standard of living a speciﬁ c income level would provide in a standard U.S. city. The data show that maintaining the living standards of a household with $32,000 in income in the standard city would require $40,289 in Juneau, $36,884 in Anchorage, and $34,645 in Fair- banks. (See Exhibit 13.) 4 There are other possible explanations based on the surveys’ dif- ferent target groups and methodologies, but it seems likely that at least part of the reason for the unusually high Fairbanks housing costs is survey error, given all of the other available housing cost data. 5 The Alaska Department of Labor’s Workers’ Compensation Divi- sion contracts with Runzheimer International to survey geographic cost differentials for households with speciﬁ c annual incomes every two years in order to equalize workers’ compensation pay- ments. 10 The Cost of Single-Family Homes Prices in Anchorage surpass Juneau $294,000 $281,000 $249,000 $238,000 $232,000 $215,000 $214,000 $202,000 $200,000 $195,000 Anchorage Juneau Statewide Bethel Ketchikan Mat-Su Kodiak Rest of State Fairbanks Kenai Peninsula Borough Average sales prices for July to December 2005 Sources: Alaska Department of Labor & Workforce Development, Research and Analysis Section; and the Alaska Housing Finance Corporation’s 2005 Survey of Lender’s Activity 11 Housing Affordability Wage earners needed to buy average house 1.3 1.3 1.4 1.5 1.6 1.6 1.7 1.8 1.8 2.2 Fairbanks Kenai Peninsula Borough Alaska Anchorage Kodiak Mat-Su Juneau Ketchikan Bethel For July to December 2005 Anchorage worker buys a Mat-Su house Sources: Alaska Department of Labor & Workforce Development, Research and Analysis Section; and the Alaska Housing Finance Corporation’s 2005 Alaska Affordability Index 13ALASKA ECONOMIC TRENDS JULY 2006 12Professional and Managerial Households with Incomes in the Top 20% ACCRA1 Cost of Living Index for selected cities, First Quarter 2006 Region City Items Index Costs Grocery Items Housing Utilities Transpor- tation Health Care Misc. Goods and Services Anchorage 117.4 125.2 122.6 88.2 102.0 135.1 121.1 Fairbanks 124.1 123.9 130.7 139.3 106.7 135.8 118.3 Juneau 132.6 140.0 146.3 130.6 116.7 151.2 121.9 Kodiak 126.4 145.9 125.7 129.0 128.7 135.3 117.4 West Seattle 116.3 110.0 136.8 93.6 108.7 117.1 110.6 Vancouver, Wash. 97.9 92.7 95.8 83.9 104.5 111.8 102.1 Los Angeles-Long Beach 158.2 135.8 271.7 102.9 115.0 116.6 108.7 San Francisco 170.6 145.3 283.9 86.6 112.0 126.9 135.1 Las Vegas 106.1 96.7 123.1 116.4 107.8 102.3 93.2 Southwest/Mountain Boise, Idaho 98.0 93.6 89.3 92.7 98.8 102.2 107.5 St. George, Utah 98.2 93.4 102.5 77.7 92.4 89.7 105.1 Phoenix 103.8 99.1 113.4 90.4 101.4 100.8 102.7 Denver 100.4 103.7 106.7 94.3 94.7 102.5 97.1 Dallas 95.8 105.8 78.4 119.1 102.6 99.7 97.0 Midwest Rochester, Minn. 99.7 88.9 89.5 128.1 97.6 103.8 103.9 Cleveland 98.0 106.4 92.0 112.4 99.1 100.9 95.0 Chicago 111.9 109.4 133.5 107.2 105.2 107.5 99.3 Southeast Orlando, Fla. 102.9 94.9 108.0 91.2 107.0 94.4 104.8 Montgomery, Ala. 95.1 92.9 89.0 98.5 98.8 87.1 99.6 Atlanta 97.5 97.8 96.3 86.2 102.0 101.2 99.9 Raleigh, N.C. 93.1 101.1 75.9 95.7 100.1 118.1 98.3 Atlantic/New England New York City - Manhattan 201.2 144.6 373.6 135.1 108.6 127.8 138.2 Boston 133.6 112.6 163.2 126.0 111.5 130.4 126.4 Philadelphia 124.0 123.7 144.7 115.2 110.0 115.9 115.1 Note: Index numbers represent a comparison to the average for all cities studied. For example, 117.4 means that city has 17.4 percent higher costs than the average. 1 ACCRA, founded in 1961 as the American Chamber of Commerce Researchers Association, is a nonproﬁ t professional organization. The ACCRA Cost of Living Index’s stated purpose is to compare the cost of maintaining a standard of living appropriate for moderately afﬂ uent professional and managerial households. It has been published quarterly since 1968. Source: ACCRA Cost of Living Index Compared to the ACCRA survey, the percentage difference between Alaska cities and the respec- tive averages for cities covered is not dramati- cally different with the exception of Fairbanks where the 24 percent ACCRA difference shrinks to 8 percent in the Runzheimer data. Of the three cities studied, Juneau’s relatively low-in- come households face the highest costs. The military’s cost-of-living index In order to roughly equalize payments to military personnel, the Department of Defense produces a cost-of-living index for areas where troops are or may be stationed outside the Lower 48. (See Exhibit 14.) The index com- pares prices for about 120 goods and services, 14 ALASKA ECONOMIC TRENDS JULY 2006 13 Gap is Smaller for Low-Income Households Runzheimer Plan of Living Cost Standards, December 20041 Total Costs Percent of Standard City Taxation Percent of Standard City Trans- portation Percent of Standard City Housing Percent of Standard City Misc. Goods and Services Percent of Standard City Alaska Composite 37,273 116.5% 2,448 77.4% 4,648 106.5% 18,972 135.2% 12,572 110.4% Anchorage 36,884 115.3% 2,448 77.4% 4,759 109.0% 18,648 132.9% 12,503 109.8% Fairbanks 34,645 108.3% 2,448 77.4% 4,668 106.9% 16,458 117.3% 12,606 110.7% Juneau 40,289 125.9% 2,448 77.4% 4,517 103.5% 21,812 155.4% 12,606 110.7% West Astoria, Ore. 33,802 105.6% 3,390 107.2% 4,367 100.0% 16,386 116.8% 11,383 99.9% Bellingham, Wash. 35,976 112.4% 2,448 77.4% 4,684 107.3% 17,835 127.1% 11,836 103.9% Corvalis, Ore. 33,880 105.9% 3,390 107.2% 4,358 99.8% 16,458 117.3% 11,398 100.1% Hilo, Hawaii 36,636 114.5% 3,123 98.7% 5,582 127.9% 16,207 115.5% 12,931 113.5% Lakeport, Calif. 41,802 130.6% 2,448 77.4% 5,272 120.8% 22,993 163.8% 12,141 106.6% Los Angeles 57,446 179.5% 2,448 77.4% 6,488 148.6% 36,888 262.8% 12,556 110.2% Yakima, Wash. 31,293 97.8% 2,448 77.4% 4,680 107.2% 13,188 94.0% 11,836 103.9% Southwest/Mountain Cody, Wyo. 27,961 87.4% 2,448 77.4% 4,539 104.0% 11,305 80.5% 10,850 95.3% El Paso, Texas 27,649 86.4% 2,448 77.4% 4,643 106.4% 11,035 78.6% 10,746 94.3% Flagstaff, Ariz. 34,974 109.3% 2,719 86.0% 4,670 107.0% 16,753 119.4% 11,815 103.7% Jackson, Wyo. 51,455 160.8% 2,448 77.4% 4,539 104.0% 34,691 247.2% 10,850 95.3% Lewiston, Idaho 30,521 95.4% 2,790 88.2% 4,482 102.7% 13,822 98.5% 10,551 92.6% Reno, Nev. 35,262 110.2% 2,448 77.4% 4,953 113.5% 17,147 122.2% 11,584 101.7% Provo, Utah 30,676 95.9% 3,175 100.4% 4,660 106.8% 12,755 90.9% 11,122 97.6% Midwest Grand Rapids, Minn. 30,360 94.9% 2,583 81.7% 4,960 113.6% 13,228 94.3% 10,930 96.0% Lansing, Mich. 36,102 112.8% 2,744 86.8% 5,535 126.8% 17,717 126.2% 11,236 98.6% Oklahoma City 28,317 88.5% 3,215 101.6% 4,548 104.2% 10,316 73.5% 11,068 97.2% Springﬁ eld, Mo. 27,588 86.2% 3,215 101.6% 4,509 103.3% 9,756 69.5% 11,142 97.8% Southeast Nashville, Tenn. 28,806 90.0% 2,448 77.4% 4,168 95.5% 11,703 83.4% 11,195 98.3% New Orleans 30,524 95.4% 3,091 97.7% 5,475 125.4% 12,033 85.7% 10,924 95.9% West Palm Beach, Fla. 37,478 117.1% 2,448 77.4% 5,433 124.5% 19,155 136.5% 11,559 101.5% Wilmer, Ala. 27,471 85.8% 3,433 108.5% 4,211 96.5% 10,313 73.5% 10,692 93.9% Atlantic/New England Boston 48,062 150.2% 3,241 102.5% 6,361 145.7% 27,570 196.4% 12,335 108.3% Elmira, N.Y. 29,160 91.1% 3,099 98.0% 4,659 106.7% 11,303 80.5% 11,036 96.9% Trenton, N.J. 45,624 142.6% 2,754 87.1% 5,453 124.9% 27,391 195.2% 11,436 100.4% 1 Runzheimer International is a private consultant that provides geographic cost compaisons on a contract basis. The data in this exhibit were produced by Runz- heimer for the Alaska Department of Labor’s Workers’ Compensation Division for the purpose of equalizing workers’ compensation payments. Runzheimer’s Web site is www.runzheimer.com. Source: Runzheimer International including food, clothing, personal care, vehi- cles, transportation, medical care and utilities. The index does not include housing, which is treated separately by the military with speciﬁ c housing allowances for different locations. It also does not cover taxes or insurance. The military index is a helpful addition to the library of Alaska cost-of-living information because it includes data for so many Alaska locations – 27 in 2006 – and also because it is updated frequently. For the goods and services included in the index, Barrow, Bethel, Dill- ingham, Galena, Kotzebue, Metlakatla, Nome and Wainwright had the highest prices. Wasilla had the lowest prices, with Anchorage a close second. Fairbanks and Juneau were also rela- tively inexpensive, conﬁ rming that goods and 15ALASKA ECONOMIC TRENDS JULY 2006 14Military Cost-of-Living Allowances OCONUS1 Index, Alaska 2006 Location Index Anchorage 122 Barrow 152 Bethel 152 Clear Air Station, USAF (south of Nenana) 124 College (near Fairbanks) 124 Cordova 134 Delta Junction 126 Dillingham 152 Fairbanks 124 Galena 152 Homer 134 Juneau 128 Kenai/Soldotna 134 Ketchikan 138 Kodiak 128 Kotzebue 152 Metlakatla 152 Nome 152 Petersburg 138 Seward 134 Sitka 136 Spruce Cape (on Kodiak Island) 128 Tok 132 Unalaska 128 Valdez 134 Wainwright 152 Wasilla 120 1 OCONUS is an acronym for Outside the Continental U.S.; Alaska is counted as an OCONUS location. Source: Department of Defense, as posted in June 2006 services are generally cheaper in the state’s population centers. Geographic pay for state workers A 1986 study of geographic cost differences done by the McDowell Group, a research and consulting ﬁ rm, is still used in state workers’ salary schedules and, though dated, remains helpful for the general information it gives on cost-of-living differences around the state. (See Exhibit 15.) The study’s authors noted that the areas studied fell into distinct groups, with the least expensive group consisting of the larger urban communities and the most expensive consisting of remote, small communities and villages with minimal retail development, small but expensive housing and a lack of ground transportation access. The same factors cer- tainly apply 20 years later. Federal COLA is changing For decades, most federal workers in Alaska have received a 25 percent tax-free cost-of- living adjustment. Originally, the ﬁ gure was based on the cost differences between living in Washington, D.C., and Alaska, but over time the number became less and less defensible on economic grounds. After years of study, the federal government has decided to phase out the ﬂ at 25 percent supplement and replace it with more speciﬁ c locality supplements. Eventually, federal work- ers in Anchorage will receive a 14 percent supplement, Fairbanks 16 percent and Juneau 18 percent.6 The new percentages are based on surveys conducted in 2003 and will apply to all areas within a 50 mile radius of the three communities. All other areas of the state will continue to receive the 25 percent supple- ment. The percentages will be updated every three 6 Federal workers will have their supplemental pay reduced by a percentage point a year until the new percentages are reached. 16 ALASKA ECONOMIC TRENDS JULY 2006 15 Geographic Pay Differential 1 State of Alaska Cost-of-Living Differential Aleutian Islands 112 Aniak, Galena and McGrath 130 Anchorage 100 Barrow and Kotzebue 142 Bethel 138 Bristol Bay 127 Cook Inlet and Kenai 100 Cordova, Glennallen and Valdez 111 Delta Junction and Tok 116 Fairbanks 104 Fort Yukon 142 Haines, Skagway and Yakutat 105 Juneau 100 Ketchikan 100 Kodiak 109 Nenana 120 Nome 134 Palmer and Wasilla 100 Seward 100 Sitka 100 Wade Hampton Census Area 130 Wrangell and Petersburg 100 1 Based on a 1986 McDowell Group study Source: Alaska Department of Administration years based on new survey information and since a new round of surveys is currently be- ing conducted, they could change in the near future. There is also the possibility of delay in implementation since some of the affected federal employees have sued to prevent the planned changes from going forward. Alaska is still expensive – but less so than it used to be Each of the many surveys and studies discussed in this article provides useful information about the cost of living in Alaska. Taken as a whole, they clearly indicate that it generally costs more to live in Alaska than in the average U.S. city. Alaska Cost-of-Living Information on the Internet Aside from the information in the preceding article, there are Web sites that can provide quick cost-of-living comparisons. Most of the data provide little detail but the Web sites can be a handy quick reference. The Alaska Department of Labor & Workforce Devel- opment’s relocation site offers cost-of-living informa- tion, plus general information about Alaska, the state’s employment opportunities and traveling to Alaska. labor.state.ak.us/research/relocate/relocmap.htm The U.S. Department of Labor’s Bureau of Labor Sta- tistics’ Consumer Price Index site provides CPI data for Anchorage and other areas throughout the U.S., as well as general, technical and research information on the index. The site also has an inﬂ ation calculator. www.stats.bls.gov/cpi/home.htm Other private Web sites include ACCRA, which was mentioned in the preceding article, and CityRating.com. www.cityrating.com/costoﬂ iving.asp www.accra.org