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HomeMy WebLinkAboutAPA8091::::~ ~ ~ Technical Report Number 38 ' 5 AlaskaOCS Socioeconomic m ~ Studies Program ft. ~ :~;~;~;~~ Sponsor: Bureau of Land Managemen t A'JE Alaska Outer rt 'I~-Continental Shelf Office --~ . ~~~~ ~ ~1 Western Gulf of Alaska Petroleum Development Scenarios Economic and Demographic Impacts I " The United States Department of the Interior was designated by the Outer Continental Shelf (OCS) Lands Act of 1953 to carry out the majority of the Act's provisions for administering the mineral leasing and develop- ment of offshore areas of the United States under federal jurisdiction. Within the Department, the Bureau of Land Management (BLM) has the responsibility to meet requirements of the National Environmental Policy Act of 1969 (NEPA) as well as other legislation and regulations dealing with the effects of offshore development. In Alaska, unique cultural differences and climatic conditions create a need for developing addi- tional socioeconomic and environmental information to improve OCS deci- sion making at all governmental levels. In fulfillment of its federal responsibilities and with an awareness of these additional information needs, the BLM has initiated several investigative pro$rams, one of which is the Alaska OCS Socioeconomic Studies Program (SESP). The Alaska OCS Socioeconomic Studies Program is a multi-year research effort which attempts to predict and evaluate the effects of Alaska OCS Petroleum Development upon the physical, social, and economic environ- ments within the state. The overall methodology is divided into three broad research components. The first component identifies an alterna- tive set of assumptions regarding the location, the nature, and the timing of future petroleum events and related activities. In this component, the program takes into account the particular needs of the petroleum industry and projects the human, technological, economic, and environmental offshore and onshore development requirements of the regional petro~eum industry. The second component focuses on data gathering that identifies those quantifiable and qualifiable facts by which OCS-induced changes can be assessed. The critical community and regional components are identified and evaluated. ,Current endogenous and exogenous sources of change and functional organization among different sectors of community and region- al life are analyzed. Susceptible community relationships, values, activities, and processes also are included. The third research component focuses on an evaluation of the changes that could occur due to the potential oil and gas development. Impact evaluation concentrates on an analysis of the impacts at the statewide, regional, and local level. In general, program products are sequentially arranged in accordance with BLM' s proposed OCS lease sale schedule, so that information is timely to decisionmaking. Reports are available through the National Technical Information Service, and the BLM has a limited number of copies available through the Alaska OCS Office. Inquiries for informa- tion should be directed to: Program Coordinator (COAR), Socioeconomic Studies Program, Alaska OCS Office, P. 0. Box 1159, Anchorage, Alaska 99510. [ [ [ r L. [ [ [ r L. [ ~ § Q l c [ b L [ L...< TI.CIINIC/\1. I{Lf~Oin NO. JH ALASKA OCS SOCIOECONOMIC STUDIES PROGRAM WESTERN GULF OF ALASKA PETROLEUM DEVELOPMENT SCENARIOS: ECONOMIC AND DEMOGRAPHIC IMPACTS r (1"'a··-R A R~y;-;---- • HABITAT DIVISION AlASKA o:::pT OF FISH ~ . & GAME 333 Raspberry Road Anchorage, Alaska 99502 PREPARED FOR BUREAU OF LAND MANAGEMENT ALASKA OUTER CONTINENTAL SHELF OFFICE DOCUMENT IS AVAILABLE TO THE PUBLIC THROUGH THE NATIONAL TECHNICAL INFORMATION SERVICE 5285 PORT ROYAL ROAD SPRINGFIELD, VIRGINIA 22161 III NOTICE This document is disseminated under the sponsorship of the U.S. Department of the Interior, Bureau of Land Management, Alaska Outer Continental Shelf Office, in the interest of information exchange. The United States Government assumes no liability for its content or use thereof. ALASKA OCS SOCIOECONOMIC STUDIES PROGRAM WESTERN GULF OF ALASKA PETROLEUM DEVELOPMENT SCENARIOS: ECONOMIC AND DEMOGRAPHIC IMPACTS Prepared by Lee Huskey and William Nebesky Institute of Social and Economic Research University of Alaska August 1979 IV [ [ [ ~ ~ [~ [ r~ l~ ~~ ~ [ ~ l n c r L~~ b [ [ [ [ l [ [ [ [ [ [ [ c c [ [ LIST OF TABLES LIST OF FIGLJf{ES INTRODUCTION Background . The Purpose of the Study Study Design Overview. TARLE OF CONTENTS THE ALASKAN ECONOMY, 1965-1976 Introduction Growth of Aggregate Indicators The Causes of Growth. Structural Change in the Alaskan Economy Population . Unemployment Personal Income Summary: The Effects of Economic Growth Existing Economic Conditions . \ ' . The Economies of the Gulf of Alaska Region, The Causes of Growth 1965-1976' Summary . THE ALASKAN ECONOMY IN THE BASE CASE The Purpose of the Base Case . Base Case Assumptions The Alaskan Economy t~oderate Base Case Growth Alternative Base Cases . Summary and Conclusions. THE IMPACT OF WESTERN GULF OCS DEVELOPMENT ON THE ALASKAN ECONOMY: THE MODERATE BASE CASE The Development Scenarios . Definition and Measures of Impact Summary of the Moderate Base Case The Impacts of Western Gulf OCS Development: Mean Scenario The Impacts of Western Gulf OCS Development: 5% Scenario The Impacts of Western Gulf OCS Development: 95% Scenario Summary and Conclusions. v vii xiii 1 1 2 4 14 17 17 18 . '. 21 . .35 44 48 52 55 56 59 63 107 109 109 111 129 161 173 175 175 188 191 192 . 224 • 230 232 TilE IMP/\CT OF WESlTI~N GULF OCS DEVELOPMENT: TilE CUMULATIVE C/\SE 0 The Impact of \~estern Gulf OCS Development at the 5X Level: The High Base Case . 0 The Impact of Western Gulf OCS Development at the 95% Level: The Low Base Case 0 SENSITIVITY ANALYSIS Sensitivity to Major Changes in the Base Case . The Sensitivity to State Expenditure Pol icy . SUMMARY AND CONCLUSIONS APPENDIX A: HISTORICAL GROWTH, 1965-1976 APPENDIX B: MAP MODEL ASSUMPTIONS . APPENDIX C: A PROCEDURE TO DETERMINE THE SHARE OF OCS EMPLOYMENT TO ALASKAN RESIDENTS . APPENDIX D: SELECTED MODEL OUTPUT . APPENDIX E: CENSUS DIVISION PROJECTIONS . REFERENCES . VI 235 235 . 242 . 245 . 246 . 248 . 257 . 261 \ 257 . ' . 287 . 295 359 ~ 379 [ [ [ [ [ [ [ r~ LJ [ [ 5 c r u B [ c t:= L r~ LJ E [ [ [ [ [ [ [ [ [ G c c [ r- 6 l LIST OF TABLES 1. Growth of Employments Population, and Personal Income, Alaska, 1965-1976 . 2. Alaska Economic Grmvth by Sector, 1965-1976 3. Alaska Fisheries Activity, 1970-1975 . 4. State Real Per Capita Operating and Capital Expenditures, 1970-1977. 5. The Effect of Structural Change, Alaska, 1965-1976 6. Distribution of Employment, Alaska, 1965, 1970, 1975, and 1976. 7. The Economic Structure of Small States 8. Economic Structure of Small States, 1977. 9. Population Growth, Alaska, 1965, 1970-1976 . 10. Alaska Population Age-Sex Distribution, 1970, 1976 11. Unemployment, Alaska, 1965-1976. 12. Seasonality of Employment, Alaska, 1950, 1960, 1965. 1970, 1975, and 1976. 13. Anchorage Consumer Price Index . 14. Alaska Growth of Real Per Capita Income, 1965, 1970-1976 15. Growth of Employment, Population, and Personal Income, Anchorage, 1965-1976 . 16. Civilian Employment Growth, Anchorage, 1965-1976 . 17. Location Quotients, Anchorage, 1965, 1970, 1975, 1976 18. Anchorage Basic Sector Growth, 1965, 1970, 1973, 1975, and 1976. 19. Anchorage Distribution of Employment, 1965, 1970, and 1916. 20. Anchorage Population Growth, 1965, 1970-1976 VII 19 25 30 33 38 39 41 42 46 47 49 51 53 54 62 64 68 70 72 74 21. Anchor-age Age Distribution of Nonmilitary l3ase Populiltion 2?.. /\nchOt'll~Je UnelllploynJent and SeasorwlHy, ·1%~>. 1970-1976. 23. Anchorage Growth of Real Per Capita Income, 1965, 1970~1976 24. Growth of Employment, Population, and Personal Income, Southcentral Region, 1965-1976 25. Employment by Industry, Southcentral Alaska. 26. Estimated Fish Harvesting Employment . 27. Basic Sector Growth, Southcentral Alaska, 1965, 1970, 1973, 1975, and 1976. 28. Employment Distribution by Industry, Southcentral Alaska, 1965, 1970, and 1976 . 29. Population Growth, Southcentral Alaska, 1965, 1970-1976. 30. Unemployment and Seasonality, Southcentral Alaska, 1965, 1970-1976 31. Growth of Real Per Capita Income, Southcentral Alaska, 1965, 1970-1976 32. Growth of Aggregate Indicators, Small Economies, 1965. 1970, and 1976. 33. Distribution of Intrastate Flows of Freight and Mail from Southcentral Origins, 1973 34. The Structure of Local Economies 35. Lower Cook Inlet Employment Scenarios. 36. Beaufort Sea OCS Employment Scenarios. 37. Northern Gulf of Alaska OCS Employment Scenarios 38. Aggregate Indicators of Economic Growth, Moderate Base Case, Alaska, 1977-2000 . 39. The Structure of Employment, Moderate Base Case, Alaska, 1978, 1980, 1985, 1990, 1995~ 2000 40. The Components of Population Change, Moderate Base Case, Alaska, 1977-2000. VIII 76 71 79 82 84 4 87 89 91 93 95 96 99 102 105 120 121 122 131 135 138 [ ,1 l ~ r [' [~ r1 L [· r L.l [ r 8 c c L ' [ l L f ~ ~ ' L...l n l [ [ [ [ r L~ [ C' L r L.J [ c r c c l L L 41. Age-Sex Structure of the Population, Moderate Base Case, Alaska, 1980, 2000. 42. Real Per Capita Income, Moderate Base Case, Alaska, 1977-2000. 43. State Revenues, Moderate Base Case, Alaska, 1977-2000 44. State Expenditures, Moderate Base Case, Alaska, 1977-2000 140 141 144 146 45. State Fund Balances, Moderate Base Case, Alaska, 1977-2000. 149 46. State Fiscal Position, Moderate Base Case, Alaska, 1977-2000 47. Aggregate Indicators of Economic Growth, Moderate Base Case, Anchorage, 1977-2000. 48. Economic Structure, Moderate Base Case, Anchorage. 49. Aggregate Indicators of Economic Growth, Moderate Base Case, Southcentral, 1977-2000. \ 50. Economic Structure, Moderate Base Case, Southcentral. 51. Aggregate Indicators of Economic Growth, Low Base Case, Alaska, 1977-2000. 52. Structural Characteristics, Lriw and Moderate Base Cases. 53. Aggregate Indicators of Economic Growth, High Base Case, Alaska, 1977-2000. b4. Structural Characterist·lcs, Hlyh and Moderdle Bct~e Cctses 55. Estimated Share of Alaska Resident Employment by OCS Task 56. Direct Employment Requirements~ Mean Scenario 57. Direct Employment Requirements, 5 Percent Scenario 58. Western Gulf OCS Property Tax Revenues .. 59. Direct Employment Requirements, 95 Percent Scenario 60. Employment Impact, Western Gulf OCS Mean Scenario, Alaska 61. The Structure of the Economy, Mean Scenario, Alaska . 62. Population Impact, Western Gulf OCS Mean Scenario, Alaska IX 152 154 156 158 160 163 167 169 172 180 < 183 186 187 189 196 198 200 63. The Migration Component of Population Change, Western Gulf ~1ean OCS Scenario, 1981-1992 64. Age-Sex Structure of the Population, Western Gulf Mean OCS Scenario, Alaska . 65. Personal Intome Impact, Western Gulf OCS Mean Scenario, Alaska 66. Real Per Capita Income Impact, Western Gulf OCS Mean Scenario, Alaska 67. State Revenue Impact, Western Gulf OCS Mean Scenario, Alaska 68. State Government Expenditure Impacts, Western Gulf OCS Mean Scenario, Alaska . . 69. Impact on State Fiscal Position, Western Gulf OCS Mean Scenario, Alaska 70. Impact on Aggregate Indicators of Economic Growth, Western Gulf OCS Mean Scenario, Anchorage 71. Economic Structure, Western Gulf OCS Mean Scenario, Anchorage 72. Impact on Aggregate Indicators of Economic Growth, Western Gu 1 f OCS Mean Scenario, Southcentra 1 , . 73. Economic Structure, Western Gulf OCS Mean Scenario, Southcentral 74. The Impact on Major Economic Indicators, Western Gulf OCS 5 Percent Scenario, Alaska. 75. Structural Characteristics of the Alaska Economy, Western Gulf OCS 5 Percent Scenario 76. The Impact on Major Economic Indicators, Western Gulf OCS 95 Percent Scenario, Alaska 77. The Impact on Major Economic Indicators, Western Gulf OCS, 5 Percent Scenario/High Base Case 78. Structural Characteristics of the Alaska Economy, Western Gulf OCS, OCS-Moderate Base Scenario/ 5 Percent OCS-High Base Scenario. X 202 203 205 207 210 212 214 217 219 221 223 225 229 231 237 241 r L F' L [ [ {' L [ L [ [ [ [ [ [ [ [ [ c E L [ L L 79. 80. 81. 82. 83. 84. The Impact on Major Economic Indicators, Western Gulf OCS 95 Percent Scenario/Low Base Case 244 Capital Move Scenario . 247 The Impact of Western Gulf OCS Development With Three Alternative Base Cases: Basic Case, No-ALCAN Construction, and the Capital Move, Mean Scenario 249 The Effect of Alternate State Expenditure Policies on the Impact of Western Gulf OCS Development, Mean Scenario 251 The State Expenditure Impact, Western Gulf OCS Mean Scenario . 255 Summary of the Long-run Impacts of Alternative Development Scenarios (Impacts in the Year 2000) . 260 XI XII [ [ E c [ L r~ L [ [ [ [ [ [ [ r Ll [ [ c [ [ L [ c LIST OF FIGURES 1. Structure of the Basic MAP Model 2. MAP Regions . 3. Alaska Census Divisions 4. Western Gulf of Alaska, Location of Study Area 5. Determination of OCS Employment Estimates Used in the MAP Model XI II \ 7 10 60 . 177 179 [ [ [ r L [ [ [ [ c c [ [ L [ r L I. INTRODUCTION Ba~ound The United States, because of the progressive depletion of U.S. petro- leum reserves, has become increasingly reliant on foreign energy supplies. Concern over the reliability of these foreign supplies has led the fed- eral government to establish policies aimed at increasing domestic energy supplies. Because of its high potential as a source of oil and gas, the U.S. Outer Continental Shelf (OCS) figures significantly in the future energy program of the United States. Although Alaska has historically played a small role in the U.S. energy supply, production at Prudhoe Bay and future development of the Alaska OCS will increase its importance. It has been projected that by 1985 over 25 percent of total domestic crude oil production could be from Alaska {Federal Energy Administration, 1976). Through 1974, Alaska had produced only one percent of the total cumulative petroleum production in the United States (U.S. Geological Survey, 1975); however, the devel- opment of existing oil and gas reserves and the exploration for additional reserves will center importantly on Alaska. Alaska accounts for over one-fourth of the identified oil and gas reserves in the United States, and an estimated one-third of all undiscovered recoverable domestic oil reserves are in the state. Since over 60 percent of the estimated undiscovered OCS reserves in the United States are in Alaska, Alaska is particularly important to the OCS program (U.S. Geological Survey, 1975). The development of Alaska•s petroleum reserves is also important to the Alaskan economy. Changes produced by past petroleum development in the state have been major. The rapid changes in the Alaska economy and popu- lation associated with the development in Upper Cook Inlet and Prudhoe Bay created strains on the Alaskan society and environment. At the same time, these developments generated the most prosperous economic period in the state•s history as well as prospects of continued prosperity through the next decade. The development of petroleum reserves in Alaska•s OCS will also affect the population and economy of Alaska. The Purpose of the Study The nature of the changes which result from Alaskan OCS development will not necessarily t'esemble those caused by past petroleum development. One objective of the current study being undertaken by the Institute of Social and Economic Research (ISER) for the Bureau of Land Management•s OCS Studies Program is to provide the information needed to anticipate the major dimensions ot the economic and sue ictl iHIIJaL-ts of the proposed oil and gas developments in the Western Gulf of Alaska. To achieve this objective, ISER will provide a series of economic and population forecasts through 2000 under several alternative scenarios for petroleum development in the Western Gulf. By contrasting these forecasts with a base case forecast which does not include the proposed development, it is possible to assess the major dimensions of the impacts of OCS develop- ment on population, employment, income, and the state•s fiscal position. 2 r· L [ L L l [ [ [ c [ [ [ [ L [ 8 5 t L [ L [ r: Lji This study is part of the Bureau of Land Management•s Alaska OCS Socio- economic Stucl·ies Program. The objective or this rro~Jram is to ass('SS the potential impacts of proposed lease sales in the federal offshore areas of Alaska. The study of the impacts of OCS development in the Western Gulf of Alaska is one of a series of studies describing lease sale impacts. Already completed is a study of the impact of the joint federal-state sale in the Beaufort Sea (ISER, 1978) and the federal sale in the Northern Gulf (ISER, 1979); future studies will be conducted for lease sales in the Lower Cook Inlet and the Bering Sea-Norton Sound. The studies program is concerned with many aspects of OCS impact on many different levels. The major objective of this study i~ to examine only a portion of OCS impact, the statewide and regional economic and demo- graphic impacts. In order to assess the impact of the proposed Western Gulf OCS develop- ment, the study must accomplish two additional objectives. First, an understanding of the existing state and regional economies must be de- veloped. The important economic relationships need to be understood in order to say anything about future growth and the effect of OCS develop- ment on the economy. Secondly, the study will develop a process for economic impact assessment. Rapid growth associated with OCS development will affect most economic variables; a much smaller number is important, and information on these dimensions of impact will describe the ~ffect of rapid growth on the state and regional economies. The process of economic impact assessment will consist of the selection of the nmjor variables to analyze and the appropriate questions to ask about each of these. 3 Th·is study consists of three major· parts: a baseline study of the economies of the state and its Gulf of Alaska region, a base case projec- tion describing the future economy without Western Gulf development, and an examination of the impact of Western Gulf development. This section describes the relationship of each of these parts to the impact assessment and the methodology chosen to make the necessary projections. EXAMINATION OF PAST ECONOMIC GROWTH Examining the past growth of the Alaska economy and the economy of the Gulf of Alaska region provides an understanding of the'..way the economy works. This type of examination is implicit in the development of eco- nomic models. Making this analysis explicit will emphasize those aspects of economic growth which are important. The two aspects of the economy which will be emphasized in such a process are the important causes of growth and the economic relationships which transfer growth between sectors of the economy. An examination of the historical pedod will provide an indication of the types of response we can expect to OCS petroleum development. In addition, the historical grawth and develop- ment of these economies provide a point of comparison for future economic growth, both OCS and non-OCS related. THE BASE CASE Petroleum development in the Western Gulf of Alaska will affect both the structure and size of the Alaska economy. Changes in the economy which result from the development of the OCS resources can be defined 4 [ [ L [ L L L [ r L r· L.> [ [ [ [ [ [ [ r L-' [ [ c u c c L c L L ....... [ as the impact of this development. This impact can only be described as changes from a certain pattern of economic growth which would have occurred without OCS development. The non-OCS base case is developed to provide a reference point for the analysis of the impacts of OCS development. Comparing a projection of economic activity with OCS development to the base case will isolate the impacts of development. THE ROLE OF SOCIOECONOMIC PROJECTIONS The uncertainty of the future, though it may increase the problems associ- ated with making projections, increases the importance of these projections. Decision makers in both the public and private sectors need information about the future in order to plan their actions. The more uncertain the future events, the more important is some projection of them. Projections serve two important purposes--they serve as a means of determining future demands and needs for services, and they allow policy makers to test the alternative effects of various policies. Models are used to test the relative efficiency of alternative policy choices. When models explicitly include policy variables, such as tax rates, or variables directly affected by policy, such as the level of petroleum employment, they can be used to test the effects of policies described by these variables. By making separate projections under vari- ous assumptions about policy choices, the effects on important variables such as population or employment can be compared. Alternative policy choices can be compared in terms of their relative costs and benefits. 5 Projections increase the information available to decision makers for making policy choices. Many present policy choices have important future implications which must be considered by policy makers. For example, current policy decisions regarding Western Gulf OCS petroleum develop- ment will have their major effect in the middle of the next decade. By providing descriptions of the most probable future levels of important variables, socioeconomic projections serve as a framework for making policy choices. METHODOLOGY This section describes the methodology used to make the projections of Alaskan economic growth in both the base case and OCS development cases. Two econometric models, statewide and regional econometric models, are used to make the projection. This section will describe the models used and their strengths and weaknesses. The Statewide Econometric Model The basic model to be utilized in the analysis of the OCS development scenarios is the statewide econometric model of the Alaskan economy developed in the Man-in-the-Arctic Program (MAP) presently being con- ducted by the Institute of Social and Economic Research of the University of Alaska. There are three comporients of this model: an economic model, a fiscal model, and a demographic model. The basic structure of the model is shown in Figure 1. 6· [ [ b 0 c L [ c l [" ~ f-----____ L_ __ ·r-:-J ~~~ ~') .. -... '"' t·• ::;J H OCJ> •< t:j ·-: :< (J) t-l t'J (")(/') 0 1-] :~ ~ en ~1 t-) t:J ~ 7. > ~-~ •-] Y. <.: () 71'-H i_--i :xo >;j () t:j :.tJ 1-1 >-] C! (.~ u t• 0 t;j () :.::: > I f-1 8 H 0 :G ~L __ _ t:j X 'U t:J ~~ BL8 :;1 >'1 c;J _ c: .-::; (]' >--j ~" :> (, ~ ti (J) IG t:l L-~-1 .:n ;," ::.• .. ,, oc nz C:CJ ·~ c:: t• :;,.. t-J H 0 ·z ~ tl ~ r>~; ~\I . ., t~J r-] ~1 :;:.. 01 ;;<0 t::i L! ...... (J) >' t• H z 0 0 ~3 >'j t::l (h 0 z 'J 8 tJ H (f} >;j 0 Ul 6 ~ (g >' t"l 6 c-•j'< {J) -·----"1 i --~--~:j_j· d t·::l Ul 1-.-1 t:J t~l t:1 1'1-.----------;::. t. (!} H 8 •. () ..... t~ :< ..... ~ ·-. -----r/ ~·' ~j J ti l ~---I [___'j' ·_ · .. __ --~ I. [~_\-__ I!_ r: I -~<----~,:) 0 •J t. '•.J .... , ·~ --~~--1 -r:-i G) •·J 0 t-J 1-1 0 :;.~ !<:---c ({) ,,, ~j H 0 t:J (f) n 0 ~ [!) c.: •.~ l-3 !.t.l L / i-...--/ c.: I ~) II 0 ~----Y. r· II ::..-:: ""/. ., ' II Y. () 0 --.. --___ __~,-·-"-· ·--r·· (-) ;:-, ~-~ .--·~ !-~ .l J ::-• ~;' (J) l' l'J --·}";;:-.. I [;; ___ ':l ,_, ~: ~­:;::. >' t--1 C) :,;. t:1 :;:1 (.fJ H t:1 Ul ~~ -i----------1 t:1 rj l-f 0 >< ·l<. >1 z 1-:] r-'o/ lcJ H ~J ~~ 0 t:1 tJ c c: Ul () •·3 t-3 •·j H (.i 0 ~.1 ~ t-i :c;.l ___ _ ~ t-3 t:J (J) > .. -· ~ Cl t:J ___ J 1.\ .. ~ (,! -.\ (. • c· . . . OJ l300W JVW JISV8 3Hl ~0 3~n!Jn~!S "l 3~nSI~ ~l l l 1 J J 8 A ~J J ] ] J ] ] ] J J J ] The economic model is divided into exogenous or basic sectors and endoge- no us or nonbas i c sectors. The 1 eve 1 of output, in the exogenous sectors is determined outside the state•s economy. The primary reason for the nonbasic sector is to serve local Alaskan market~, so the level of out- put is determined within the Alaskan economy. The basic industries in the model are mining, agriculture-forestry-fisheries, manufacturing, federal government, and the exogenous components of construction and transportation. The model can accommodate exogenous sectors in other industries, such as a tourist sector in services. The nonbasic industriE;s are transportation-communication-utilities, wholesale and retail trade, finance-insurance-real estate, services, and the remainder of construction. In the model, industrial production determines the demand for labor and employment; employment is that level needed to produce the required output. Employment and the wage rate determine wages and salaries, the most impot·t- ant component of personal income. The Alaskan labor market is an open one with equilibrium achieved through migration of individuals. Because of this, the most important determinant of Alaskan wage rates are U.S. wage rates; wages are also affected by rapid growth of employment in Alaska. An estimate of disposable personal income is made by adding an estimate of nonwage income to wages and salaries and adjusting this by deducting income taxes. The level of real disposable income is found by deflating disposable personal income by a relative price index; the major deter- minants of Alaskan prices are U.S. prices, the size of the economy, and the growth rate of the economy. Incomes determine the demand for local production; incomes and output are simultaneously determined. 8 [ [ r r--.. L r-, L.J [ L E c C c L L l L [ [ c [ [ c [ [ L [ l··.·. ·• .~ Population is detennined based upon a projection of each of its components-- births, deaths, and migration. The model uses a~e-sex-race specific sllr- vival rates and age-race specific fertility rates to project births and deaths for the civilian population. Total civilian population is found by adding civilian net migration to the natural increase. Net migr~tion is determined by the relative economic opportunities in Alaska. In the model, these are described by employment changes and the Alaskan real per capita income relative to the real per capita income of the United States. An exogenous estimate of military population is added to deter- mine total population. \ \ The fiscal model, which provides important pieces of information for the economic model, also provides a framework for analyzing the effects of alternate fiscal policies. The fiscal model calculate~ personal tax pay- ments in order to derive disposable personal income. The fiscal model, based on an assumed state spending rule, also calculates personnel ex- penditures, state government employment, and the amount spent on capital improvements which determines a portion of employment in the construction industry. All three submodels are linked through their requirement for information produced by the other submodels. The Regional Econometric Model The regional model provides an allocation of employment, income, and population in the state to seven regions of the state. These regions are shown in Figure 2. The economic component is similar in each region to that of the state model. The major difference is that some regional 9 I I ; '• .......... lilt •• ' -.. -.... ~ ----.......... .. r: North Slope 2 Southwest 7 Fairbanks FIGURE 2. MAP REGIONS -~ ) [ f '~ c-.1 c 0 c c [ l L L ._., economies are influenced by economic activity in other regions; the most notable of these is Anchorage. The demographic component of the regional model is much simpler than that component of the state model. Regional population is estimated as a function of employment. Regional population is estimated in two components--enclave and nonenclave population. A weighted average of the nonenclave population to nonenclave employment ratio for the state and the lagged value in the region is multiplied by the nonenclave employment to estimate nonenclave population in the current year. The weights used to determine regional population in this study equal the proportion of state population for the lagged regional popula- tion to employment ratio and one minus this proportion for the state ratio. Enclave employment is added to nonenclave population to determine total regional population. Enclave employment includes the military and major construction projects such as the trans-Alaska pipeline. , The regional model has no fiscal component and must accept an exogenous pattern of wage and salary payments to state and local government workers. Usually the pattern of wage and salary payments used is taken from a similar state model projection. Estimates of regional employmeht, population, and income in the regional model are constrained to total to equivalent variables from the state model results. STRENGTHS AND LIMITATIONS The models used in this analysis have several strengths and weaknesses which must be considered when examining the reported results. The prin- cipal strength of the MAP models is that they capture the essence of the Alaska growth process. Export base industries and government 11 create growth directly through IIi r·i ng and i ndi rcctly thl~ough tile demand generated by their employees for l0cally produced goods and services. Incomes earned by these export base workers and the workers who supply the goods and services provide the base of the economy. Compared to two alternative forms, the economic base and input-output models, the econometric specification of the MAP model type is preferred since it captures the dynamics of industry growth. The economic base model is useful for projecting marginal changes but assumes that changes in the support sector are proportional to changes in basic sector employment. This misses both the feedback effect of the growth of the support sector incomes and the change in the responsiveness of th~ support industries over time. While input-output models more precisely define the inter- industry flows of purchases of goods and services, they represent the economy only at a particular point in time. The econometric approach ·can capture some of the changing relationships over time, as these are described by historic changes or incorpm~ated by the modeler. The limits on the econometric method define the limits on the acceptance of the resulting projections. No model is able to capture revolutionary changes which violate the assumptions upon which the model is built, un- less structural change has been foreseen and incorporated by the modeler. The limitations of the model increase the more the model is extended into the future and the more locationally precise the model is expected to be. In other words, more confidence should be placed in the 1985 results than 12 [ [ [ b c [ [ L L [ [ [ [ r~ L [ [ [ [ [ c c c [ L L in those for 1995, and statewide projections are more likely to be "con·ect" than regional results. Another important limitation of this model is that the projections should be considered contingent. The accuracy of the projections depends on the continued relevance of the model's historical structure and the accuracy of the assumptions about the level, timing, and distribution of the exogenous variables. One result of this contingency is that the pro- jections may-not necessarily agree with the actual levels of the projected variables for any given year. Projections are based on the average historical relationships between the projected variabl~s and important exogenous variables. This leads to two reasons why projections in any year may differ from the actual levels of projected variables. First, estimates of the level of important exogenous variables may differ from the actual levels. Secondly, in any given year, the relation between projected and exogenous variables may differ from the historical average. Cyclical effects may cause yearly divergence from the general trend of economic growth. The relationships described by the model, while they may not predict actual levels in any particular year, describe the general trend of future Alaskan economic growth. The final limitation of the results concerns the projection of the regional distribution of state growth. These results are merely allocations of the projected statewide totals to the regions. This should not be assumed to be a detailed analysis of the regional economies and should not replace such analysis. 13 ASSUMPTIONS Once the model is given, the base case is defined by th(~ assumptions about the future levels of the exogenous variables. There are four major types of assumptions required to define a development scenario. First, there are assumptions about the growth of exogenous industries in both the petroleum and nonpetroleum sectors. Secondly, assumptions about the level of state petroleum revenues are needed. Thirdly, assumptions about the change in certain national variables are needed. Finally, an assumption must be made about the way state expenditures grow in the future. \ GENERAL METHODOLOGY FOR ANALYSIS The general approach to be pursued in the analysis of the impacts of Western Gulf OCS development will be as follows: A se~ of scenarios will be developed which contain no Western Gulf OCS development. These scenarios will be run using the MAP model and will serve as points of comparison for each alternate Western Gulf scenario. Each of the Western Gulf development scenarios will then be run. Each of these runs will then be compared to the appropriate base run to examine the impact of this hypothetical development on the major dimensions of the Alaskan economy. Overview The remainder of this report will analyze the historical growth of the state and regional economies and the projections of future growth, both with and without OCS activity in the Western Gulf. The effect of 14 r~ L [ G c [ L [ L [ [ c [ [ [ [ [ [ r-· LJ r, L-' alternative Western Gulf development scenarios will be exam·ined. Part II describes the historical growth in Alaska and its Gulf of Alaska region. Part III presents the projection of economic activity in a base case which contains no offshore activity in the Westerl'l Gulf~ Parts IV-VI then describe the impacts of alternative Western Gulf development scenarios. Part VII attempts to capture the uncertainty attached to these estimated impacts by examining the sensitivity of the results to several of the uncertain elements of the scenario. Finally, Part VIII summarizes our major findings. 15 16 [ [ f~ [ f' [~ .[ r-· L" [ [ Fi [j E L [ L [ ~ ' Ll [ r· L, [ [ [ L L ~~ 'L.~ [-, ,' [ [j 0 t [- [ L [ L '-" II. THE ALSAKAN ECONOMY, 1965-1976 Introduction The historical period serves as a point of reference for discussing poten- tial future growth. Examining past economic changes provides us with information not only on what happened, but also on how things happened. By understanding how things happened in the past, we can acquire an under- standing of the process of growth in the Alaskan economy. Without some specific assumption about how this process would change in the future, we would not expect the future growth to be qualitatively different. Knowledge of the changes in the levels of and the relationships between economic variables in the past allows us to assess the possible future economic effects of potential changes. In this section, we will examine the Alaskan economy between 1965 and 1976. This was a period associated with tremendous growth and was chosen to pro- vide a long-te\~m look at the changes in the economy. ThP pPriorl r.ontnins three significant events: the major Upper Cook Inlet oil development, the Prudhoe lease sale, and the construction of the trans-Alaska oil pipeline. -we--are interested in the comparative ac:tivity in three separate_p_e_riod_s: before 1970, after 1970, and 1973-1975 (the peak years of Trans-Alaska Pipeline System (TAPS) construction). The Prudhoe Bay lease sale in 1969 marked the beginning of Alaska as a major petroleum economy. Comparing the economy before and after this date will illus\rate the effects of this change. The years 1973 to 1975 are the years of most rapid expan- sion of TAPS construction. Examining this period in comparison with the 17 entire post-1970 period will allow us to assess the short-run response of the economy to this rapid expansion. This section has three objectives. The first objective will be to describe what happened during this period in terms of major economic variables. The second objective of this section will be to describe the Alaskan economy's growth process. The growth process includes both the factors causing growth and the response of the economy to these changes. Finally, we will attempt to describe the effects of the past growth on indicators of economic welfare such as unemployment and per capita income. Gaining an understanding of the economy during this period wilJ allow us to under- stand better the probable effects of future potential OCS activity. Growth of Aggregate Indicators Economic growth is a multidimensional process for which" there is no single summary measure of either the level of growth or the welfare associated with that growth. Economic yr·uwLh is usually defined in tm~ms of thC! change in the level of certain economic indicators. This is only one aspect of growth; the effects of growth on the process of change and the level of economic welfare are also important. This section will describe the change in some major economic variables, while the other aspects of growth will be discussed later. Table 1 describes the change in the level of three aggregate indicators of economic activity: employment, population, and personal income. These do not exhaust all of the possible indicators of economic activity, but they do describe the general economic trends during the period. 18 [ [ [ [ [ [ f .~, -" c [ [ [J E e c [ [ L r: • ..... ; [ TABLE 1 . GROWTH OF EMPLOYMENT, POPULATION AND PERSONAL INCOME, ALASKA 1965-1976 1 2 Personal Income 3 Population Employment ($ Million) 1965 265,192 70,530 858 1970 302,361 92,476 1 .412 1971 312,930 97,584 1 ,557 1972 324,281 104 ,243 1 .698 1973 330,365 109,851 2,008 1974 351 ,159 128,178 2,436 1975 404,634 161 ,313 3,514 1976 413 ,289 171,714 4,133 Annual Average Percent Change 1965-1976 4.12 8.43 15.36 1970-1976 5.35 10.87 19.60 1All estimates State of Alaska Department of Labor, Research and Analysis Section, Population Estimates by Census Division, except 1970 which is April 1970 Census of Population. 2Alaska Department of Labor, Statistical Quarterly, various years. 3u.s. Department of Commerce, Bureau of Economic Analysis, Regional Economic Information System, July 1978 printout. 19 1 Population grew at an annual average rate of 4.1 percent throughout the period. The state experienced over a one percent greater growth rate in population after 1970. Of the growth in population between 1965 and 1976, over 75 percent occurred after 1970. The most rapid increase occurred during the period of trans-Alaska pipeline construction when total population increased by 15.2 percent between 1974 and 1975. Growth in population is determined by the growth in employment. Total nonagricultural wage and salary employment grew by almost 150 percent [ [ [' f .. , -' between 1965 and 1976. Employment growth averaged a rate of 8.43 percent ~ L~ per year during the period. After 1970 employment grew at a faster aver- age rate of 10.9 percent per year. More than 78 percent of the growth in [~ employment occurred after 1970. Personal income is the final measure of aggregate economic growth. Per- sonal income is shown in Table 1 in nominal dollars. Its growth reflects both real economic growth and Lhe increases in prices. Nominal personal income increased at an average rate of 15.4 percent per year throughout the period. As in population and employment, the major growth in personal income occurred after 1970. 1The average annual percent change or average annual rate of growth is used extensively throughout this paper as an indicator of the function- ing of the economy. This term is equal to that yearly percentage change which would have to occur to obtain the year-end projection. This indicator is calculated as follows: Let B = A(l+r)t where A and B are the start and end values of some variable; t is equal to the duration of the period of interest; and r is the average annual percent change. Given A, B, and t, solve for r. 20 [ L: L [ L L [ [ [ [ [ [-, _, f -, --" r \._j [ [ u E t [ [ L [ L 1.-i Overall, these aggregate indicators illustrate a rapidly growing economy. The major growth in the period occurred after 1970 when the economy was influenced significantly by the construction of the trans-Alaska pipeline. Growth in the population occurred at a rate which was slower than the growth of either employment or personal income. The Causes of Growth Three major events shaped the growth of the state during this period. The first was the development of the Upper Cook Inlet oil and gas fields during the late sixties. The second major event was the Prudhoe Bay lease sale in 1969, which produced a major source of revenue\for the state and began an era when the state became a major oil producer. Finally, the construction of TAPS beginning in 1974 led to the most rapid growth during the period. This section will examine the Alaskarl gro~th process in an attempt to relate these events and other factors to the/growth of the Alaskan economy. Traditionally, the growth of regional economies is described by economic base theory; the practical application of this theory is widely used in regional analysis. Economic base theory states that a region grows pri- marily as a re?ult of increased export activity to other regions. The demand for these exports is not influenced by activity within the region, so the level of economic activity is fixed by external factors. The local support sector exists to serve the basic sector and the population associated with it. Growth occurs as a two-part process; the expansion of the export sector leads to an expansion of the local support sector. 21 One of the strongest statements in support of this theory was made by North. He argued that the growth of exports was the most important reason for growth in a region; he presented economic base theory as a long-run theory of economic growth (North, 1955). In response, ,Tiebout argued this theory was not a theory of economic development and it was only valid in the short run. Tiebout pointed out that nonexport sectors such as government and local investment may generate growth even in the short run. Tiebout argued that the importance of exports as a determi- nant of regional income is inversely related to the size of the region (Tiebout, 1956). Anything whi~h increases regional income would lead to economic growth through the expansion of the support sector. Tiebout expanded the explanation of the causes of growth. Regional growth may result not only from an expansion of th.e export base but a 1 so from improved technology, an increase in trade within the local economy, and the expansion of nonexport sectors. This section will attempt to assess the role of each of these factors in the growth of the Alaska economy. BASIC SECTOR GROWTH The growth of the export base or basic sector is one of the major causes of economic growth. The basic sector was still a major force determining the growth of the Alaskan economy during the period between 1965 and 1976. This section will examine the growth of the various industries which make up the Alaskan basic sector. By examining the growth in each industry, we can see the relative importance of the basic sector to Alaskan economic growth. 22 [ [ r~ !' f-: . r· ',-' r· (_ __ . [ ~-, L __ . [ [j c~ l-::o E L [ b L r L [ [ [ [ [ [ r \....~ [ [ 6 ~ E c [ L L r~ ._, A major problem in examining the relation between the economy•s basic sector and its growth is determining which industries in a region are basic industries. Traditional multiplier analysis is importantly depen- dent on this, since the size of the multiplier is determined by this disaggregation. The problem arises because every industry has both basic and nonbasic sectors. An Alaskan example is the construction industry which includes a basic component such as pipeline and federal government- sponsored construction, a nonbasic component such as housing construction, and an investment component which is exogenous in the short run while it is endogenous in the long run. Even an important support sector industry such as services has a relatively large basic component in hotel and motel service which serves the tourist industry. Many methods exist for defining industries as either basic or nonbasic. Leven suggested that, other than conducting a survey, most traditional methods for separating these sectors incorrectly estimate the importance of the basic sector (Leven, 1964). In this section, we will determine the basic sector by definition. Those industries where the level of activity is affected most significantly by external factors will be considered basic industries. Mining, agriculture-forestry-fisheries, manufacturing, federal government, and construction are basic industries. The demand for . the products of both mining and agriculture-forestry-fisheries is deter- mined in national and international markets not within the Alaskan economy. The most important components of manufacturing are food processing and petrochemicals which are extensions of the fishing and mining industries. The level of federal government activity in Alaska is determined by 23 decisions made outside the state. Construction has both basic and non- basic components; however, major changes in cons truct·i on activity are determined by outside agencies and firms. The most important recent example of this is the construction of the trans-Alaska pipeline. Table 2 illustrates the growth of the Alaskan economy by sector. Industry growth is described by the growth of employment and wages and salaries. Growth of employment i 11 ustrates the direct effect of the industry on the growth in the number of jobs. Wages and salaries are an important component of both personal income and industrial output. This measure allows us to estimate the broader effect of the industry on the economy. The growth in wages and salaries can differ from employment growth for three reasons. First, the growth of wage rates can differ between industries. Wage rates are determined by the industrial productivity, as well as differential demand. Secondly, the hours worked in different industries could differ. ·During the construction of the TAPS, the hours worked increased consider- dbly 111 construction, raising average wages becausP nf nvPrtime. Finally, wages and salaries can increase at a different rate than employment because the composition of industrial employment changes. The distinction between employment and wage and salary growth is important when examining the relative growth of the basic sector. Overall employment in the basic sector grew much less rapidly than the remainder of the economy in all but the pipeline years, 1973-1975. Between 1965 and 1976, basic ·sector employment increased at an average annual rate of only 2.9 percent per year, compared to 6 percent for the entire economy and 10.2 percent 24 N ()1 TABLE 2. ALASKA ECONOMIC GROWTH BY SECTOR 1965-1976 Average Annual Rate of Change 1965 -1976 1970 -1976 Wages & Wages & 1973 -1975 Wages & Em~loyment Salaries Em~lo~ment· Salaries Em~lo:tment Salaries Basic Sector 1 2.9 16.7 4.7 23.6 13.8 54.2 Mining 12.5 23.1 -4.9 16.3 37.8 68.8 Construction 15.2 29.1 27.9 50.6 82.2 157.8 Manufacturing 4.6 11.1 4.7 13.0 1 . 1 15.5 F edera 1 Civil ian .3 7.6 .8 8.0 3.5 12.7 Federal Military -2.7 5.7 -4.1 4.3 -4.1 2.5 Support Sector 10.2 18.6 12.3 24.1 23.7 52.5 Transportation- Comm.-Util ities 7.4 16.9 9.6 22.8 26.0 58.7 Trade 9.7 16.4 10.2 19.3 19.7 38.9 Finance-Insurance- Real Estate 11.2 18.5 14.8 24.4 18.1 30.3 Services 12.6 24.3 16.0 30.9 28.5 68.1 Other State Government 6.6 15.7 5.4 15.8 6.0 23.0 Local Government 10.1 18.8 11.1 21.7 11.9 20.5 Total Nonagricultural Wages and Salaries2 6.0 17.5 ]-.8 23.4 16.5 47.5 1Agriculture-forestry-fisheries is left out of this table. During the peri oct, changes in the coverage of fisheries employment distorts the real growth in this industry. 2 rncludes military wages and salaries from U.S. Department of Commerce, Bureau of Economic Analysis, Regional Economic Information System, July 1978 printout. SOURCES: Alaska Department of Labor, Alaska Labor Force Estimates, Estimates of Total Population, various years. Alaska Department of Commerce and Economic Development, The Alaska Economy: Year End Performance Report 1977. for the support sector. After 1970 industrial growth rates were much closer; basic sector employment grew at a rate of 4.7 percent, compared to 7.8 percent for the entire economy. The growth rates are much closer when wages and salaries are considered. Between,l965 and 1976, the wages and salaries earned in the basic sector grew only .8 percent less than the economy-wide average of 17.5 percent. After·l970 basic sector wages and salaries grew slightly faster than the economy as a whole. The effect of pipeline construction on the growth of the economy can be seen in the period 1973 to 1975. Employment in the basic sector grew at 13.8 percent annually, while the economy grew at 16.5 percent. Wages and salaries increased more rapidly, increasing at a rate of 54.2 percent annually in the basic sector, compared to 47.5 percent for the economy as a whole. One of the major reasons for the overall character of the basic sector Wd!> Lhe ueL.lining role of the federal governmont in the state economy. The federal government has played a major role in the economy of Alaska. Between 1965 and 1976, federal government civilian employment increased from 17,400 to 17,900. Employment grew faster between 1973 and 1975 in response to TAPS construction's reaching a peak of 18,300 in 1975. The average growth rate of federal civilian employment was less than one per- cent per year over the entire period. Military employment actually declined throughout the period with an average growth rate of -2.7 percent per year. Wages and salaries in this sector increased, but at ra~es much less than 26 [ f [ [ r L~ [ G c c c [ [ [ [ [ [ [ [ [ [ I' \._.i [ [ G E f c [ c [ L [ the growth of the economy in general. Federal government employment con- tinued to supply a stable base for the economy but was not responsible for the tremendous growth in the econ01ny th1·ou~hou L the period. The most rapidly growing basic industry was construction. Employment grev~ at an average rate of more than 15 percent throughout the period; this was more than twice the growth rate of the economy. The obvious reason for this growth was the construction of the trans-Alaska pipeline beginning in 1974. The most rapid increase in construction employment came between the period 1973 and 1975 when con?truction employment increased at a rate of 82.2 percent per year. The state has estimated that in 1976 construction employment connected with the Alyeska project was approxi- mately 15,000, or 50 percent of the total state construction employment (Alaska Department of Labor, 1977). Wages and salaries mirrored the growth in employment, increasing at an average annual rate of 50.6 per- cent after 1970. Mining employment also increased at a rapid rate throughout the period; its average annual rate was 12.5 percent. Unlike construction, mining experienced cyclical growth during the period. Mining employment in- creased between 1965 and 1970 to 3,000, then fell to 2,000 in 1973 before increasing to 4,000 in 1976. The early growth in mining resulted from discovery, development, and production of oil and gas from the Kenai Peninsula and Cook Inlet fields. Oil was discovered in 1957 at the Swanson River; production increased from one million barrels per month 27 in 1966 to a peak in 1970 of 7.5 million barrc:l:. per month. Employment associated with these fields grew at an annual ratP of approximatc:ly 40 percent in the late sixties, causing,min·ing employment to triple between 1965 and 1969 in the Cook Inlet Region (Anchorage, Kenai, Matanuska-Susitna, Seward) (Scott, 1978). Employment associated with this development dropped after this peak production. During the 1970s, the development of the Prudhoe Bay fields resulted in the expansion of the mining industry. This development led to growth in both exploration and production employment and headquarters employment in Anchorage. The most rapid expansion of the mining industry came between 1973 and 1975 when both employment and wages and salaries incr~ased at rates more than three times as great as the economy. Manufacturing in Alaska has traditionally been associated with the fish- ing industry because of the large component of food processing employment. The composition of manufacturing changed over the period with food proc- essing becoming less important; this chdllye in LUIIIIJusiLion accounts fOI~ the differential growth in employment and wages and salaries since food processing is a traditionally low-paying sector.· Between 1970 and 1976, employment in manufacturing grew at a rate of 4.6 percent annually, while wages and salaries grew at 11.1 percent. Food manufacturing, because of its relation to the fishing industry, showed cyclical growth; employment fell between 1973 and 1974 and did not rise again until 1976. The fastest growing sector of manufacturing was 11 other 11 manufacturing which consists principally of petroleum refining,.petrochemical, and printing and publishing. Between 1965 and 1976, employment in 11 0ther 11 28 [ ~ [ [ [ r , I t .. r~ L .. [ [ [ L [ L [ r Ll [ [ c c r [ [-, -~ L L L ..__, l! manufacturing increased at an average annual rate of 6.5 percent, which meant that this sector was increasing its share of manufucturing employment. Agriculture-forestry-fisheries depends on the development of the state•s renewable natural resources. The growth of these industries depends to some extent upon the natural resource cycles. State Labor Department estimates do not include all of the employment in this industry since a large proportion of the workers are self-employed. Independent esti- mates of employment in these industries suggest little growth. Forestry employs only about 22 people statewide; most of the logging employment is accounted for in lumber and wood products manufacturing (Scott, 1979). One indicator of agricultural activity is employment reported in a yearly agricultural survey. This survey reports a decline in total agricultural employment from 900 in 1965 to 750 in 1975 (USDA). The fishing industry has tradition ally been important to Alaska. Based on estimates from Fish and Game fish ticket data, employment was estimated to have increased from about 4,340 in 1970 to about 5,720 in 1976. This is an annual growth rate of 1.3 percent (Rogers and Listowski, 1978); Table 3 shows some additional indicators of the growth of the fisheries industry. The catch and value statistics shown in this table illustrate the cyclical nature of the fishing industry. The real value of fish- eries catch peaked in 1973 at $117,842 (in 1967 dollars). 29 [ TABLE 3. ALASKA FISHERIES ACTIVITY, 1970-1975 1970 1971 1972 1973 1974 1975 Catch (million 1 bs) 533.6 471.0 422.5 513.1 454.2 442.4 Value ($.000) 97,497 85,585 92,431 142,353 144,809 129,402 Real Value ($.000) 88.957 75,735 79,751 117,842 108,147 84,965 SOURCE: Alaska Department of Commerce and Economic Development, The Alaska [ Economy, 1977, 1 978. The major growth in the basic sector was in mining and~construction. The traditionally important fishing industry did not keep up with growth in other basic sectors. Federal government employment, while it provided a stable base for the economy, actually declined. Overall, employment in the basic industries grew rapidly but not as rapidly,~s the total economy. The differential growth in average wages led to increases in basic sector wages and salaries at rates close to state averages. THE GROWTH OF STATE GOVERNMENT The growth of nonexpert sectors may also be responsible for the growth of a regional economy. An important sector contributing to the growth of Alaska between 1965 and 1976 was the expansion of state government. There are two reasons for selecting state government as a growth-initiating sector. First, state government experienced rap~d growth in the early [ [ l L [ [ [ 1970s. Secondly, this growth was funded by the growth in revenues \'Jhich t_, were exogenous to the econon~. The lease bonus from the Prudhoe Bay 30 [ [ [ [ [ [' I L; [ [ c 0 C c [ L [ [ lease sale in 1969 resulted in the increased state revenues. This placed state government in a position equivalent to the basic sector. Growth in exogenous revenues led to increased expenditures which caused growth in the economy. Because of this, state and local gov·ernment could be a pos- sible source of economic growth. The growth of state government expendi- tures vlill influence the economy in two ways. First, increased state expenditures will lead to increased employment in state and local govern- ment. Secondly, state capital expenditures will increase employment in the construction industry. State expenditures on construction of highways and ports provide increased activity in the construction industry. Examin- ing the growth of state expenditures during the period will provide an indication of the state government•s contribution to growth. Since statehood, total state expenditures have increased at an average annual rate of 21 percent (Goldsmith, 1977). Examination of expenditures shows there are three distinct periods of expenditure growth: prior to the 1969 Prudhoe Bay lease sale, between 1970 and 1972 when the init\al adjustment to these revenues occurred, and after 1972. The primary interest is in the period after the state received the lease bonus in 1970. In examining expenditures in this period, Scott (1978) found: 1. The constant dollar increase was 62 percent of the nominal dollar increase. 2. 3. The rate of increase.was more rapid between 1970 and 1972 than between 1972 and 1977 .. Operating expenditures have grown more rapidly over the whole period, while capital expenditures grew more rapidly between 1970 and 1972. These suggest that each type of expenditure may be sensitive to different factors, with operating expenditures respond- ing to increases in demand and capital expenditures responding more to available revenues. 31 The question of whether state expenditures responded to growth or were grm<Jth inducing co.n be examined in Table 4 (from Scott, 197B), which shows the growth of real per capita state expenditures. If expenditures increased but real per capita expenditures remained constant, the growth of expenditures, in the absence of significant economies of scale, could be assumed to be simply keeping up with the growth in demand. If real expenditures grew faster than population, state government could be con- tributing to growth. Both real per capita operating and capital expend- itures increased between 1970 and 1972. Real per capita operating expenses increased at an average rate of 19.9 percent in this period, while capital expenditures increased at a rate of 32.3 percent per year. After 1972 and the initial response to the Prudhoe Bay lease sale revenues, operating expenditures increased at a rate of 3.4 percent and capital expenditur~s actually decreased at a rate of -6 percent. Between 1970 and 1972, state government expenditures expanded much more rapidly than either population or prices. After 1972. expenditures have grown more in line with population and prices. The expansion of real per capita expenditures between 1970 and 1972 is an indication that state government was a contributing factor to the growth during this period. The growth of real per capita expenditures reflected the initial response to the large increase in revenues from the Prudhoe Bay lease sale. State government contributed to growth since it distributed exogenous revenues to the economy. This extra demand resulted in economic growth. The long- term consequences result from the change in the relationship between state expenditures and economic growth as defined by real per capita expenditures. 32 [ [ [ [ [ L I , L,..; [ [ l~ [ [ [ [ [ r LO [ [ c G E b [ [ [ [ c TABLE 4. STATE REAL PER CAPITA OPERATING AND CAPITAL EXPENDITURES 1970-1977 (Constant 1967 Dollars) Operating Capital Total Fiscal Resident Expenditures Expenditures Expenditures Year Po~ul ati on 1 Per Ca~ita Per; Ca~ita Per Ca~ita 1970 294,560 $ 722.20 $317.02 $1,039.22 1971 302,361 990.64 374.77 . 1 .365,41 1972 312,930 1 ,038. 74 555. 11 1,593.85 1973 324,800 1 , 108.15 497.07 1,605.22 1974 330,600 1 '168. 14 475.66 1.643.80 \ 1975 351,159 1,199.92 548.54 1,748.46 1976 404,635 1 '156. 97 486.57 1 ,634. 54 1977 413,289 1,224.88 409.17 1 .634.05 Average Annual Rate of Increase / 1970-1977 5.0% 7.8% 3.7% 6. 7% 1972-1977 5.7% 3.4% -6.0% 0.5% 1970-1972 3.1% 19.9% 32.3% 23.8% 1state's estimate from Research and Analysis Section, Employment Security Division, Alaska De artment of Labor, State of Alaska Current Po~ulation Estimates by Census Divisions, July 1 year . The population as of the beginning of the fiscal year was used. 33 This h·istor·ical period illustrates the state'~, UllHJUP financidl pn~;ition. The revenues associated with Prudhoe Ba; production will be availahlc to the state to increase economic gr·owth. HovJeVCI', Prudhoe revenues are a fixed flow of resources v1hich v1ill not be affected by economic growth. Since they are fixed, growth will reduce the share of these revenue~ available to existing residents. This relation makes the ability of the economy to generate revenues to replace Prudhoe revenues an important future consideration. SUMMARY Two major factors have been responsible for the growth\of the Alaskan economy since 1965. The expansion of basic industries and the growth of state government were the most important growth-initiating factors. Unlike most states, the Alaskan government had an exogenous source of revenues in the early 1970s which it could use to expand government spending in more than a proportionate response to the growth of the economy. The rapid increase in government spending v1as important as a I source of growth in the early 1970s. The most important basic sectors during this period were mining and construction .. These industries experienced particularly rapid growth after 1973 with the construction of TAPS and development of Prudhoe Bay. The traditionally important basic sectors of federal government and agricult4re-forestry-fisheries expanded at a much less rapid pace. The expansion of state government and the basic sector was important to growth of the economy, because this expansion led to an increase in 34 ~~ 1.' I' I l _ _.- [ [ [ [ [ [ [ r LJ [ [ E E E c [ [ l [ t: incomes. Factors which cause incomes to i nct·ease i ndcpcndentl y .of ex pan- sian of either the basic sector or state government can also result ·in the expansion of the economy. Income can increase because of an increase in the productivity of labor or increased demand for labor not associated with an incfease in the basic sector. One factor that is important for Alaska incomes is the influence of overall U.S. wage rates. Since Alaska is an open economy, Alaska is part of the U.S. labor market. Growth is transmitted from its initiating source through the economy by increased demand for local goods and services. As incomes increase, a portion of this income is spent on goods and services in thelocal economy. This additional expenditure leads to increasing employment in the support sector. This growth in employment leads to incr.eased incomes which generate new increases in demand. The simultaneous nature of this process can be seen as growth in income leads to increases in d~mand and further income growth. Structural Change in the Alaskan Economy The relation between the growth-initiating sectors and the remainder of the economy is an important part of the economic growth process. In our analysis of Alaskan growth, one thing was evident: the growth of employment in the basic sectors stimulated a greater-than~proportional response in the remainder of the economy. One measure of this response is the ratio of total-to-basic sector employment; the larger this ratio, the more im- portant is the economy's response to basic sector growth. In 1965, the ratio of total-to-basic employment was 2.25; it had risen to 2.95 by 1973 prior to the trans-Alaska pipeline construction. Even in 1976 with the 35 tremendous amount of basic construction employnH~nt, the ratio was 2.69. The change in this ratio shows that along with the rapid growth in the levels of economic activity, there has been a qualitative change in the relationships in the economy. This qualitative change is a change in the structure of the economy which will be described in this section. STRUCTURAL CHANGE The economic relationships which determine the flow of income, goods, and services are determined by the structure of the economy. The struc- ture of the economy's productive sector can be defined by the distribu- tion of employment or gross product among industries. The economy's structure influences its overall level of activity, the level of prices, and seasonal and cyclical stability. The structure both affects and is affected by growth. The growth of the economy leads to changes in its structure. Structural change can result from a change in the structure, of demand as changes in incomes and prices affect the structure of consumption. However, changes in demand may only change the distribution of imports unless supply con- ·. ' . ditions lead to the production of goods locally. If economies of scale are obtained in production, regional growth will alter the production costs. As economies grow and achieve economies of scale, they will substitute local production for imports of goods or services. When the economic change is large relative to the local economy, structural change may result. 36 [ [ [ [ [ [ [ [ .Ll [j [ [ [ b [ . r . ....._. c [ [ [ [ [ [ [ [ [ [J 0 0 c [ c [ The structure of the economy also affects growth. Chinitz suggested that the structure of the export sector influences important determinants of growth such as bank lending patterns and entrepreneurship (Chinitz, 1961). The structure of the export sector may also influence growth through its propensity for backward and forward linkages. The Alpetco project is a recent example of a forward linkage from the Alaska petroleum sector. The structure will influence the economy's response to major exogenous changes. The region's industrial structure will determine how much of the incomes generated by export activity will be ·spent locally. ALASKA STRUCTURAL CHANGE \ The ratio of total-to-basic employment has steadily increased from the early fifties (Goldsmith and Huskey, 19788). This growth in the nonbasic or support sector of the Alaskan economy means that equivalent increases in basic employment will lead to greater growth. Table,-5 illustrates the effect of structural change on growth. The last two columns show what growth would have been with the given basic sector growth and the main- tenance of 1965 and 1970 total-to-basic ratios. In all cases, these ratios underestimate the economy's real growth. Table 6 provides a detailed description of the structure of Alaska indus- try in 1965, 1970, and two pipeline years--1975 and 1976. The support industries as a group expanded. Trade and transportation-communication- utilities remained constant after 1970. The service industry grew sig- nificantly in this period, increasing from 10.7 percent to 16.1 percent of total employment. Business services increased from 1.97 percent to 37 Year ---- 1965 1970 1971 1972 1973 1974 1975 1976 TABLE 5. THE EFFECT OF STRUCTURAL CHANGE, ALASKA, 1965-1976 Total Total Non-Civilian Ratio of Employment Agricultural Total Basic Total/ Hhen Using Employment Employment Basic 1965 Ratio 70,530 31 ,393 2.25 92,476 35,028 2.64 78 ,697 .· 97,584 35,447 2.75 79,638 104,243 36,137 2.88 81 '188 109,851 35,849 3.06 80,541 128,178 45,698 2.80 102,668 161,313 58,592 2.75 131,637 171,714 63,732 2.69 143,185 Total Employment When Using 1970 Ratio 82 ,879 93,582 95~404 94,643 120,645 154,686 168,256 Basic Employment includes: Mining, Contract Construction, Manufacturing, Agri culture-Forestry-Fisheries, Federal Government, and t~i 1 itary. SOURCE: Alaska Department of Labor, Statistical Quarterly, various quarters {primarily third), 1966-1977. 38 [ [ u 0 8 u [ [ [ 6 [ [ [ [ [ [ [ r·· r L._jj [ [ E c [ TABLE 6. DISTRIDUTJOH OF EMPLOYMENT, ALASKA 196S, 1970, 1975, and ·19/G Total \·:age and Sa 1 ary Employ.nent l·li ni ng Contr~ct Construction J.tanufactu ring Food logging lu;nber and Pulp Other Manufacturing Transportation, Communication, 1965 ~ of Total fmr~U~r~~:r.~J. 100.00 1.54 9.15 8.90 4.26 3.27 1.36 and Public Utilities 10.30 Trucking and Warehousing 1.72 Water Transportation 1.47 Air Transportation 2.72 o·thf:r Transportu t ion . 76 Communications and Public Utilities 3.63 Trade 14.11 Wholesale 2.63 Retail 11.48 General Mdse. and Apparel 2.69 Food Stores 1.65 Automotive f, Service Stations !lA Eating/DI'inl:ing Establ isha::ents 2. 77 Other Retail 4.35 Finance, Insurance, and · Real Estate Services Hotels, Motels, and lodges Persona 1 Business l·ledical Other Government Federal State local 1\griculture, Forestry, and Fisheries 3.08 10.65 1.46 .96 1.97 2.03 4.22 42.06 24.72 9.87 7.47 .20 1970 X of Total .D:u~.l.o...Y 111 ~.!:IJ:.- 100.00 :,L24 7.4!i 8.48 4.04 2.98 1.45 9.85 1.79 .90 3.32 .95 2.89 16.61 3.51 13.10 3.63. 1.85 1.81 3.02 2.78 3.35 12.37 l. 57 .92 I 2,16 2.35 5.37 38.45 18.50 11.21 8.73 • 21 1975 % of Total ~~~nt_ 100.00 2.35 16.04 5.98 2.68 2.09 1.20 10. 21~ 2.45 .86 2.96 1.13 2.69 16.25 3.66 12.58 2.55 1.62 1.77 3.88 2.76 3.74 15.58 1.96 .5/ 4.54 2.68 5.83 29.22 11.34 9.59 8.30 .63 1976 ~ of Total I!!PlC:..lil!en~ 100.00 2.31 l7 .61 6.02 2.98 1.89 1.14 9.18 1.89 • 78 2.70 1.08 2.73 16.05 3.55 12.50 2.tf8 l. 74 1.63 3. 76 2.84 4.14 16. ll 1.87 . : . .; 5.04 2.92 5.75 27.89 10.45 8.22 9.21 .70 SOURCE: Statistical Quartel'ly_, /\1askil Department of Labor, various issues. 39 5.04 percent and were the major component of service sector change. Finance-insurance-real estate also increased as a proportion of total employment. (The employment levels are found in Appendix A.) The Extent of Future Structural Change The Alaska support sector has increased its share of -employment since 1965, which is part of a much longer trend. An important question when examining potential future growth is what the extent of future structural change will be. If the support sector were to continue to expand its share of employment at its past rate of about 2.5 percent per year, the support sector would account for 85 percent of employment in 2000 and almost 100 percent six years later. This~ of course, cannot happen; however, there are reasons to expect future growth in the support sector. The most important reason is that economic growth will increase market size, which will allow more local production of goods and services. Tables 7 and 8 give some insight into the limits to the growth of the support sector. Table 7 compares the Alaskan distribution of employment to the United States and some other states. Only in finance-insurance- real estate and transportation does Alaska come close to the employment shares of other states. The shares of trade and services are well below those of other states. If the only thing determining industrial produc- tion were scale economies, the structure of a region could be assumed to grow toward the structure of similar regions. The average of other states is similar to the U.S. distribution and supports this hypothesis. 40 [ r -, ·" l \_ .. ~~ [. l ' [ .. ., -" r·-· l._) [ [ 6 D L: c [ [ [ [ ~ Alaska ·'n'yor.~~r.g Vcrcont North Dakota South Dakota Dcl.:1•.•nrc. Mont~na Idaho Ncv:J.dn Nc.•.., Hampshira Ho.~-.•aii Rhode Isla:1d Maine Nc·,., Mexico Utah Nebraska Hcst Virginia Arkansns Missis::;ippi Arizona Knnso.s Oregon Okhho~ Color~do '\ohu:hi n8 ton Total · Employment _(thous:mds)' 151.7 168.7 179.5 227.8 227,0 234.3 263,7 . 305.5 323.7 348,1 362.2 383.0 384.3 430.9 500.2 583.6 549.2 714.5, 778,1 829.8 878.5 962.7 1,001.6 l,COS.l i,4os:6 Average (excluding Alaska) u.s. Avcrncc -:1-, r-1 [j Table '1 •. · THE ECO~O~!IC S'l'Rt:CTURE OF SNJ\.'LL STATES Percent 'in Services 15.2 13.9 23.4 19.3 21.1 . 16. 9 18.4 17.5 40.8 18.3 24,0 18,8 17.0 19.5 .17. 4 17.4 15.8 111,0 14.3 18,2 17.5 17.5 16.6 19' '• 18.4 19.0 13.8 Pzrccnt :!.n Trade 17.5 21.9 20.7 29.0 27.5 22.0 25.2 25.1 19.8 21.5 25.4 19.9 21.1 22.9 /.ll. 0 2~: .• 5 22.1 2.:.. 3 19.7 23.8 23.7 23.4 23.4 23.7 23.3 22.~ Percent in :Financc- Insur.:~nce­ Real F.::;tntc 5.1 3.4 4.0 I~ t 5 4.4 l;. 0 4.4 5.3 4.2 4.9 6,9 5.0 3.9 3.6 4.2 ?.• 9 5 ,(\ 4,9 6,2 5.0 6.1 5.6 4,8 5.1 Percent in Tro.nsportation- Cor:"u...:unica tion- Public Utilities 9.0 5.4 5.2 7.8 6.0 6.0 3.6 7.8 3.5 4.5 6.0 6.1 · i.2 . 6. 6 .5.4 4.7 5.2 6.6 5 •. 7 6.0 6 .• 5 5.7 5.8 s.s Source: U.S, DC?O.~t~c~t of in~or~ ]urcau of ~abor St~tistic~, Emoloi~~~t nnd E~,n~n~s, June 1978, !'crec!\t i~ Govc!':'l~C~~ :J4,5 22.7 18.2 ~, " /.IJoO '24.9 17.8 27.8 21.8 16.1 16 .. : 24.2 , " .. ..._;) ' I 21.3 26.9 23.8 22.2 20.9 10 (I _,. ..... 21.2 23.2 20.9 20 • .3 22,4 22.2 ZO.i n . .s l.S.S TABLE 8. ECONOMIC STRUCTURE OF SMALL STATES 1977 Total Regional Personal Support/ Index Emp 1 oyment 1 Support Industry Income Personal of Costs (Thousands) (Million$) Income (U.S.=l) Alaska 71,100 4,311 16.5 1.42 Wyoming 79,100 3,073 25.7 .90 Vermont 94,700 2,814 33.7 1.02 North Dakota 136,600 4,044 33.8 .92 South Dakota 132,700 4 '104 32.3 .92 Delaware 114,700 4,477 25.6 1.02 Montana 147 ,300 4,661 31.6 .90 Idaho 164 ,600 5,128 32.1 .90 Nevada 228,800 5,059 45.2 '..99 New Hampshire 168,400 5,547 30.4 1.02 Hawaii 234,600 6,773 34.6 1.21 Rhode Island 181,000 6,332 28.6 1.02 Maine 178,300 6,221 28.7 1.02 New Mexico 227 ,400 6,970 32.6 .'88 Utah 256,300 7,510 34.1 .98 ,- Nebraska 336,500 1 0 ,491 32.1 .93 West Virginia 264,000 11 '129 23.7 .85 Arkansas 321,100 11 .878 27.0 .89 Mississippi ·331 ,800 12,019 27.0 .89 Arizona 446,600 14,943 29.9 .99 Kansas 464,700 19,802 23.5 .93 Oregon 511 .500 16 ,651 30.7 .998 Oklahoma 510,400 17,839 28.6 .98 Colorada 558,900 18,752 29.8 .98 Washington 755,900 27 .534 27.5 .998 Support Emp 1 oymen t/ Regionally Deflated Personal Income 23.4 23.1 34.4 31.1 29.7 26.1 28.4 28.9 44.7 31.0 41.8 29.2 29.3 28.7 33.4 29.9 20.1 24.0 24.0 29.6 21.9 30.6 28.0 29.2 27.4 [ [ r L [ ~- L G c p [ r~ L 1support sector includes: Services, Trade, Finance-Insurance-Real Estate, [' and Transportation-Communication-Public Utilities. . SOURCES: U.S. Department of Labor, Bureau of Labor Statistics, Employment and Earnin~, June 1978. U.S. Department of Labor, Bureau of Labor Statistics, Monthly Labor Review, April 1978. 42 [ [ [ [ [ [ [ r u c E c [ L L ~= "--' Examining Table 7 shows that the variation around the U.S. average cannot be explained simply by scale. Table 8 shows that real personal income may explain some of the differences; when personal income is adjusted to reflect regional cost differences, there is a sin)ilarity among states. The ratio of support employment to personal income is close to 30.00 for most states independent of their size, although the ratio is lower for some states larger than Alaska. Alaska's ratio is less than this. Both Tables 7 and 8 indicate that the support sector in Alaska has room for expansion. What explains the support sector's relative underrepresentation in the Alaska economy? One explanation might be a certain threshold size which Alaska has not yet reached after which the support sectors grow somewhat proportionately. A second explanation could be the composition of the export sector. Large petroleum and mining operations and government pro- vide much of the support activity internally leading to an underdeveloped support sector. A third reason could be the high cost of doing business in Alaska which dampens the effects of scale and reduces the competitive- ness of Alaska production. The extent of the state could be another reason for Alaska's underdevelopment of the support sector. The dis- tribution of population may make it more profitable to serve some areas such as Southeastern and Western Alaska from outside the state. The most optimistic reason would be that it is merely an information problem. If outside investors do not know the Alaska market, they will underinvest. That, coupled with the slow reaction of investment in the support sector to the recent rapid growth, would mean that Alaska could· expect future 43 growth in these sectors merely to catch up with the existing growth in the basic industry. SUMMARY This section has described the second part of the process of economic growth, the response of the economy to changes in those sectors which initiate growth. This response has changed in the Alaska economy since 1965; an important indicator of this is the increased share of the support sector. Relative to other states, Alaska is underserved by the support sector. Because of this, there is some reason to believe the support sector will continue to expand as a portion of\total employment. This understanding of structural change and its relation to economic growth increases our awareness of the effects of the scale and the timing of future economic activity. Population Industrial growth and the change in the structw~e of the economy are not the only aspects of economic growth. Population growth is another com- ponent. The level of population is influenced by the level of economic activity. Migration is a major component of population change, and the relative economic opportunities within Alaska determine levels of in-and out-migration. The population of a region also influences the economic activity. The characteristics and size of the population determine the region's local demand for goods and services and its labor force composi- tion. This section will discuss the growth and composition of the Alaska population. 44 [ r [ [ [ [ [ r__, l c E L [ L L [ [ [ [ [ r r: r L__; [ [ [ c C c [ L [ 6 [ Table 9 shows the growth in population between 1965 and 1976. As would be expected, population increased most rapidly with the construction of TAPS; between 1973 and 1974, population increased 6.29 percent, while it increased by 15.23 percent between 1974 and 1975. Population increased by 148,100, or 55.8 percent, between 1965 and 1976. The age and sex distribution of the population determines the demand that population places on both public and private se~vices. A population with a large school-age component will have a higher demand for schools than the same population with a different distribution. The age-sex distribution will also influence the size of the labor force produced by a given popula- tion. Table 10 describes the age-sex distribution in 1970 and 1976. Comparing the age-sex distribution between 1970 and 1976 shows two observ- able trends. First, the proportion of males in the population has declined. The second trend is the increase in working-age population relative to the remainder of the population. The surprising observation is that the age- sex distribution has maintained relative stability. The tremendous growth in the population between 1970 and 1976 seems to have affected the distribu- tion only slightly. Population has grown rapidly since 1965, although the growth has been less rapid than the growth in employment. This differential growth has resulted in a fall in the dependency ratio (population/employment). The ratio of population-to-employment has fallen from 3.76 in 1965 to 2.41 by 1976. TAPS construction may be largely responsible for the low ratio in 1975 and 1976, since the pipeline has attracted single workers. The 45 Number of Births 1965 7 ,063 1970 7,560 1971 7 ,312 1972 6,948 1973 6,611 1974 7,006 1975 7,470 1976 7,834 TABLE 9. POPULATION GROWTH, ALASKA 1965, 1970-1976 Estimated Number Natural Net l of Deaths Increase Migration l ,400 5,663 4,538 l ,431 6,129 l ,672 l ,455 5,857 4·, 712 l ,467 5,481 5,870 l ,464 5,147 937 l ,468 5,538 15,256 l ,522 5,948 47,527 l , 713 6,121 2,534 Population as of July l 265,192 302.361 2 312,930 324,281 330,365 351,159 404,634 413,289 1Difference between change in population and natural increase. 2 April 1970. 3Average annual percent increase between 1965 and 1970. % Increase over Previous Year 3.84 2.66 3 3.50 3.60 1.88 6.29 15.23 2.14 SOURCE: Alaska Department of Labor and the Division of Economic Enterprise, Department of Commerce and Economic Development, as reported in. The Alaskan Economy, Year-end Performance Report, 1977, except 1970 population which is from U.S. Department of Commerce, Bureau of Census, 1970 Census of Population. 46 [ [ [ r [ [ r tJ [j c [ [ [ L ~.~ L-' [ [ [ [ [ [ [ [ r~ L_.i [ f G D E c [ L L ~ L..i [ TABLE 10. ALASKA POPULATION AGE-SEX DISTRIBUTION 1970, 1976 1970 1976 Males Females Total Males Females Total Age All ages 54.2 45.7 51.6 48.4 0-13 16.5 15.7 32.2 14.1 13.2 27.3 14-19 5.7 5.2 10.9 6.6 6.0 12.6 20-29 12.4 8.7 21.1 11.2 10.4 21.6 30-39 7.7 6.5 14.2 7.8 7.8 15.6 40-54 8.1 6.6 14.7 7.7 7.2 14.9 55-64 2.5 2.0 4.5 3.1 2.6 5.7 64 + 1.3 1.0 2.3 1.1 1.2 2.3 SOURCES: U.S. Department of Commerce, Bureau of the Census, 1970 Census of Population. U.S. Department of Commerce, Bureau of the Census, 1976 Survey of Income and Education Microdata Tape. 47 dependency ratio had fallen substantially before construction on the pipeline began; in 1973 the ratio was 3.01. The dependency ratio has fallen as the proportion of the population which is working has increased. This increase results from a change in the proportion of the population which is of working age; the proportion of the population between 14 and 64 has increased from 65.4 percent in 1970 to 70.4 percent in 1976. The in- creased labor force participation of this population is also responsible. Population growth results from the net effect of births, deaths, and in- and out-migration. As would be expected in a region with a small popula- tion which is experiencing rapid economic growth, migration was the ·most important component of population change throughout the period. Migration accounted for 69 percent of the total change in population between 1970 and 1976. In 1975. it accounted for 89 percent of the increase in population. Unemployment Unemployment has always been an important problem for the Alaska economy. Table 11 shows the dimensions of the problem. Since 1970, the unemploy- ment rate has remained close to 10 percent; only in 1975 did it fall below 10 percent. The unemployment rate remained constant even though employ- ment was increasing throughout the period. This illustrates a particular Alaska dillema. Increases in employment lead to., increases in· migration, which increase the labor force and leave the unemployment rate high. This has important welfare effects when skill levels are considered. If migrants [ r~ L. [ r' L [ L are more qualified and take the new jobs, employment growth may do little [_ to increase the welfare of original res1dents. The other factor which 48 r [ r L [ [ {j D l L [ L [ \-~ Li C Year 1965 1970 1971 1972 1973 1974 1975 1976 TABLE 11. UNEMPLOYMENT, ALASKA 1965-1976 Total Unemployment Unemployed Rate (%) 7,700 8.6 9,700 9.0 12 '1 00 10.4 12,900 10.5 13 ,900 . 10.8 14,900 10.0 14,900 8.3 21 ,000 10.5 Labor Force Participation Rate (%) 38.16 39.94 40.97 41.27 42.78 \ 46.00 47.40 52.65 SOURCES: Alaska Department of Labor, Labor Force Estimates, and Alaska Department of Labor, Estimates of Total Resident Population, various years. 49 [ maintained the high unemployment rate was the increase in labor force participation. The labor force participation rate responds, like migration, [~ to economic opportunities. As the employment opportunities expand, more people enter the labor force. The labor force participation rate increased from about 40 percent in 1970 to 53 percent in 1976. One factor influencing unemployment in Alaska isthe seasonality of em- ployment. Economies which are dependent on natural resource production often have seasonal cycles. This has been accentuated in Alaska by the severe winters which limit activity. Since the seasonal decline usually occurs in the winter months, one measure of seasonality is defined by the ratio of the fourth-quarter employment to the third-quarter employ- ment. The closer this index is to one, the less seasonal is the industry. Table 12 shows the seasonality of Alaska industries. Seasonality has decreased in importance throughout the historical period. In 1960, the overall seasonality index was .8313. In 1975 the seasonality index for total employment was .9402; the increase in seasonality in 1976 was due to the pipeline construction employment in the summer of 1976. The decrease in seasonality since 1960 has been a result of three factors. First, the increased importance of support sector industries with smaller seasonal components resulted in lowering the average seasonality. The seasonality index of services, trade, and F.I.R.E. has always been close '( to one. Secondly, the technology became available to work through the winter in construction. Finally, market forces made it profitable to empfoy these technologies in Alaska. 50 r 0 .fl lJ L [ L L r: L.i [ [ [ r -~ __ j [ [ [ r L- [ [ u c n t c [ [ l h L-i [ TABLE 12. SEASONALITY OF EMPLOYMENT, ALASKA 1950, 1960, 1965, 1970, 1975, and 1976 1950 1960 1965 1970 1975 1976 Mining Construction Manufacturing Transportation, Communication, and Public Utilities Trade Finance, Insurance, and Real Estate Services Government Total .6267 .7900 .2440 .8248 .9226 1 .0000 .9583 .9632 .7505 .7143 .5862 .5137 .9683 .9718 1 .0000 .9123 .. 9815 .8313 .7949 .6460 . 6531 .9125 .9905 .9706 .9664 .9617 .8718 .8556 . 7279 .5457 .8851 .9733 ' .8942 .9716 .9810 .8800 ' / .9009 .8374 .6886 .9887 1 .0048 1. 0000 .9812 1. 0049 .9402 SOURCE: State of Alaska, Alaska Labor Force Estimates, various years. 51 .9690 .6906 .6714 .8871 .9120 .9270 .9387 .9689 .8733 Personal Income Growth of personal income increases the demand for goods and services and is an important determinant of the growth of the Alaska economy. Growth in personal incomes is also a measure of the benefits received from economic growth. Personal income has grown at an average rate of more than 15 percent throughout the period. The best measure of the welfare effects of personal income is real per capita income. Increasing incomes will only increase welfare-if it is increasing faster than prices and population. Real per capita personal income measures the command of the average individual over goods and services. Table 13 shows the effect of price increases in Alaska as measured by the Anchorage CPI. By comparing the growth in the Anchorage index to the United States, we can assess one impact of rapid development. Prior to 1974, the Anchorage CPI was increasing at a slower rate than the U.S. CPI, which meant the price differential between Alaska and the United States was falling. With the TAPS boom, this trend was reversed. Prices rose relatively faster in Alaska after 1975 because of bottlenecks and the rapid increase in demand. Bottlenecks resulted when the rapid increase in demand was met by the relatively fixed supply system. Table 14 shows the growth in real per capita personal income. The maximum increases came in 1973 and in 1975 when real per capita income in Alaska increased by over 10 percent. In all but 1972, the growth of real per capita income was greater in Alaska than in the United States. This shows that an average Alaskan's command over goods and services has increased at a rate much greater than in the United States as a whole. 52 [ r [, r ,, L~ [ [ E c D L L [ L [i [ [ [ f [' Year [ 1965 1970 c 1971 L 1972 r 1973 L~ [ 1974 1975 [ 1976 [ c t L [ b [ ~-~ ~ C TABLE 13. ANCHORAGE CONSUMER PRICE INDEX (1967 = 100) Anchorage Index 94.2 109.6 112.9 115.9 120.8 133.9 152.3 163.3 % Change Over Previous Years 3.07 1 3.01 2.66 4.23 10.84 13.74 7.22 United States Index 94.5 116.3 121.3 125.3 133.1 \ 147.7 161.2 170.2 1Average annual rate of price increase 1965-1970. % Change Over Previous Years 4.23 1 .4.30 3.30 6.23 10.97 9.14 5.58 SOURCE: Alaska Department of Commerce and Economic Development, Jhe Alaska Economy Year End Performance Report, 1978. 53 Year 1965 1970 1971 1972 1973 1974 1975 1976 TABLE 14. ALASKA GRO~ITH OF REAL PER .CAPITA INCOME 1965,1970-1976 Real Per Capita Income in Mi 11 ions Alaska United States % Increase % Increase Over Over Total Previous Year Total Previous Year 3,435 2,895 4,260 4.40 1 3,348 2. 95 1 4,407 3.45 3,406 1.73 4,518 2.52 3,585 5.26 _.. ' 5.031 11.35 ·3,742 4.38 5,180 2.96 3,675 -1.79 5 '701 •. 10.06 3,636 - 1 .06 6 '124 7.24 3,755 3.27 1Average annual percent increase between 1965 and 1970 SOURCES: U.S. Department of Commerce, Bureau of Economic Analysis, Regional Economic Information Center, July 1977 printouts. U.S. Department of Commerce, Bureau of the Census, Statistical Abstract of the United States, 1966 and 1967. U.S. Department of Labor, Handbook of Labor Statistics, 1972 and 1977. 54 [ L [ [j [ [ [ L L f. L [ [ [ [ [ [ [ L f' LJ [ 1.' E § l c [ L L L 1....-.i Summary: The Effects of Economic Growth During the period between 1965 and 1976, the Alaska economy experienced rapid growth. The expansion of the economy during this period is symbolized by the growth in three aggregate indicators of economic activity: personal income, employment, and populat·ion. Personal income, which measures the command of residents over goods and services, expanded by 382 percent during the period from $858 million to $4,133 million. Employment expanded by 144 percent from 70,530 to 171,714 between 1965 qnd 1976. Population grew from 265,192 in 1965 to 413,289 in 1976, an increase of 56 percent. Growth did not occur evenly during the period; the most rapid growth occurred after 1970. For each of the aggregate indicators, the growth rate was more rapid after 1970. Population grew at an average annual rate of 5.4 percent after 1970 compared to 2.7 percent between 1965 and 1970. Employment grew at an average rate of 10.9 percent per year between 1970 and 1976, compared to 5.6 percent prior to 1970. ·Personal income grew at almost twice its pre-1970 rate between 1970 and 1976. Economic growth during the period examined in this section resulted from expansion of the basic sector. The industries which were most important in the basic sector growth were mining and construction. The expansion of these sectors was directly related to petroleum development in the state. Prior to 1970, development of oil fields on the Kenai Peninsula and in Upper Cook Inlet \'/ere primarily responsible for growth. The development of the Prudhoe Bay fields after the lease sale in 1969 resulted in mining employment growth both at Prudhoe Bay and in Anchorage. The construction 55 of the trans-Alaska pipeline to transport the oil from Prudhoe Bay was responsible for a 158 percent increase in construction employment between 1973 and 1975. This major petroleum-related growth occurred after 1970, contributing to the more rapid growth in the latter part of the study period. Two other factors contributed to state economic growth. First, the additional state revenues available after the Prudhoe lease sale in 1969 allowed the state to increase expenditures. The increase in state gov- ernment employment and capital improvement expenditures were partially responsible for state growth in the early 1970s. Secondly, as the scale of the economy increased, the relation between the support sector and basic sector growth changed. Increased scale allowed more local produc- tion of goods and services, which meant that increased basic sector activity resulted in greater-than-proportional growth in the support sector. Existing Economic Conditions The existing economic conditions in Alaska reflect the end of work on the TAPS project. The project was completed in 1977, but the peak employment on the pipeline project occurred in 1976. The fall in construction employ- ment between 1976 and 1977 illustrates the significance of this to the economy. Construction employment fell by 35.4 percent from 30,200 to 19,500 in 1977 (Alaska Department of Labor, 1978). 56 r--.. ) L, E [ [' i j r~. b [ [ L [ [ [ r~ [ [ l~ r~ L; E [ 6 ~ C c [ [ L L '-' Although the economy experienced a fall in total employment, the drop was not so great as would have been expected given the response the economy experienced during the pipeline buildup. Nonconstruction employment actually rose between 1976 and 1977. Total nonagricultural wage and salary employment fell by only 7 .000, or only 65 percent of the fall in construction employment; nonconstruction employment increased by 3,700. This increase was a result of the expansion of both the basic sector and the support sector. The major basic sector to increase was mining, which increased by 1 ,000 employees. This increase was a result of the continued development of the Prudhoe Bay fields and the preparation for further exploration activity. This included substantial expansion of headquarters employment in Anchorage. Trade and finance-insurance-real estate accounted for 1 ,500 of the increased employment. This was an unexpected response from the support sector, given decreasing basic s~ctor employment. Local government added significantly to this growth, expanding employment by about 2,000. Two delayed adjustments could be responsible for growth in the post- pipeline period. The first may have been a delayed response by the support sector to the larger economy. The full expansion of this sector may have been prevented during the pipeline period; the larger economy which existed even after the completion of the pipeline required a larger support sector. The expansion of this sector during the period may have been constrained by the tight labor market and high wages available in other sectors. Another factor which may have been responsible for the delayed response was the rapid growth of the economy; the 1977 response 57 was the delayed investment response. The second delayed adjustment which prevented the proportional drop in the economy in the post-pipeline period was the spending of accumulated savings and capital gains. This dissaving lengthened impact of the pipeline beyond the period of direct employment impact. The economy has adjusted to the end of the pipeline. Future growth can be expected to be at much lower rates than in the past. Future growth will depend on the expansion of the basic sector and whatever structural change may occur. One of the most important basic industries for the future will be mining. With the beginning of productibn at Prudhoe Bay, Alaska became the third largest oil producing state. Continued develop- ment at Prudhoe Bay and exploration in NPRA, as well as the OCS areas, . will be responsible for the continued future gro~t1th of this industry. The 200 mile fisheries limit will increase the importance of the fishing industry. Alaska•s current domestic catch accounts for only 7 percent of the fishery resource (Alaska Pacific Bank, 1979). The near-future growth may be limited because of the investment required to move into bottomfishery. In the near future, construction will be dependent on ' ' government projects. The next major project planned is the construction of the ALCAN natural gas pipeline in the early 1980s. If constructed, this project should have impacts similar to the TAPS project. 58 [ r·' l. t' r~ I l.._, c [ [ c L [ l L [ [ [ [ [ [ [ r~ L, E [ [ 5 c c [ L L L L.; [ The Economies of the Gulf of Alaska Region, 1965-1976 OVERVIEW The major impacts from OCS development in the \·Jestern Gulf of Alaska are projected to occur in the Gulf of Alaska region of the state. The Gulf of Alaska region contains two major subregions, Anchorage and Southcentral. The Anchorage region consists of the Anchorage Census Division. South- central includes six census divisions: Kenai, Seward, Matanuska-Susitna, Valdez-Chitina-Whittier, and Cordova~McCarthy. It also includes the Yakutat portion of the Skagway-Yakutat Division. (Figure 3 shows the Alaska Census Divisions.) The character of each of these subregions differs. Anchorage is the urban center of the state. The Southcentral region consists of a series of small, rural economies. The Gulf of Alaska region is the most populous region of the state. It contains almost 60 percent of the state•s population. Many of the events which have influenced the growth of the state octurred in the Gulf of Alaska region. The Cook Inlet oil and gas fields are located in that region, and the terminus of the trans-Alaska pipeline is also in the Gulf of Alaska region at Valdez. This region also contains one of the major fishing ports in the state at Kodiak. Anchorage, the state•s major metro- politan center is in the region. The region and its subregional economies experienced rapid growth between 1965 and 1976. The Gulf of Alaska region grew faster than the state and increased its share of state employment from 53.6 percent to 56.5 percent. This section will examine the growth of the Gulf of Alaska•s two subregions during the 1965-1976 period. 59 0'1 0 '-... ~ '• '\;::> '• ............ ____ .. ,•" '• ., ,, .. \ ............ ................ , ______ _ .,,,, ____________________________ \ \ ~ \ 0 .. c • ...: ~U~~OKWIM ~ l ...... ,, .}o r-----: ' ; FIGURE 3. ALASKA CENSUS DIVISIONS LEGEND ~CAI.E Sf.....,.,.b~P~ ~~ .?J!kiLES • ~ l -·-··-----=----··-·-··---~---·-··-------- .-----,. J [ [ [ r~ [ [""' [ r \. __ ; [ ANCHORAGE The position of Anchorage as the major metropolitan center of Alaska and the administration and distribution center for much of the state means that growth in Anchorage reflects the growth in the rest of the state. This factor explains why Anchorage, while having no actual pipeline construction, experienced rapid growth during the pipeline period. As an urban area, the past and future expected growth in Anchorage differs importantly in its causes and effects from the state as a whole. This section will describe the historical growth of Anchorage and will attempt to isolate the important causes of growth which are unique to Anchorage. Growth of Aggregate Indicators Table 15 shows the growth of three indicators of aggregate economic activity: employment, population, and personal income. Total employment increased by about 42,440 during the period; over 73 p~rcent of this increase occurred after 1970. After 1970, the average growth rate of employment was 9.7 percent compared to the overall 8.2 percent rate. Between 1973 and 1975, the period of the most rapid TAPS growth, total employment increased by 38 percent. Population followed the same path as employment, increasing more rapidly in the last six years of the period. Population grew at an average rate of 5.54 percent per year between 1965 and 1970; for the period after 1970, the rate was 6.58 percent. Unlike employment, population grew faster in Anchorage than in the state, which grew at 5.3 percent. This meant 61 TABLE 15. GROWTH OF EMPLOYMENT, POPULATION, AND PERSONAL INCOME, ANCHORAGE 1965-1976 Personal Income Population Employment ( $ Mi 11 ion) 1965 102,337 30~678 371.0 1970 126,333 41,995 634.9 1971 135,777 45,452 732.9 1972 144,215 48,252 800.2 1973 149,440 50,627 883.1 1974 153,112 58' 713 1111.6 1975 177,817 69,645 1577.6 1976 185,179 73 '113 1799.1 Average Annual Percent Change / 1965-1976 5.54 8.22 15.43 1970-1976 6.58 9.68 18.96 SOURCES: All estimates State of Alaska Department of Labor, Research and Analysis Section, Population Estimates by Census Division, except 1970 which is Census of Population. Alaska Department of Labor, Statistical Quarterly, various years. U.S. Department of Commerce, Bureau of Economic Analysis, July 1978. 62 [ [ r~ lJ L [ [ [ L r: L.__; L r L..i [ [ [ 6 c c [ L L I' L.J that population was concentrating in Anchorage even though the pipeline construction had slowed the trend tm-Jard employment concentration. Personal income experienced growth similar to state growth; personal income increased at close to 15 percent annually in Anchorage and the state. For the entire period, the annual rate of growth was slightly higher for Anchorage. After 1970 the higher incomes associated with the pipeline construction led to a slightly faster rate of growth in the state. The Causes of Growth The Anchorage economy expands for reasons similar to those causing expan- sion in the state economy. One cause of growth is the expansion of the basic industries of agriculture-forestry-fisheries, mining, manufacturing, construction, and federal government. For the local economy, state government growth can also be seen as a basic sector, since the factors determining its growth are political decisions external to the region. The growth of the basic industries is sho~n in Table 16 which describes the growth of all industrial sectors in Anchorage. Over the period 1965-1976, the fastest growing basic sector was mining. Mining grew at an average annual rate of 12.91 percent over the period. Between 1965 and 1970, mining employment increased by an average rate of 20.9 percent per year. The growth of mining was the result of the develop- ment of regional headquarters and administrative staffs to support the 63 TABLE 16. CIVILIAN EMPLOn1ENT GROWTH ANCHORAGE, 1965-1976 Average Annual 1\verage Annual Percent Increase Percent Increase Indus.!.!:.1'_ 1965-1976 1970-1976 Total 8.22 9.68 Agriculture, Forestry, and Fisheries 10.48 11.33 Mining 12.91 6.63 Contract Construction 8.39 13.69 Manufacturing 6.78 8.14 Transportation, Communication, and Public Utilities 9.92 11.26 Transportation 10.68 10.77 Air 11.93 10.29 Other 9.52 11.29 Communication 8.60 13.92 Public Utilities 7.75 8. 77 Trade 10.58 10.82 Wholesale 11. 94 11.39 Reta i 1 10. 13 10.61 Finance, Insurance, and Real Estate 11.42 13.61 Services 13.69 15.81 Hotels 10.96 11.41 Personal 3.81 2. 12 Business 18.09 26.71 Medical 13.17 14.17 Other 13.53 13.51 Federal Government .40 .53 State Government 8.38 8.97 Local Government 7.97 6.96 Average Annual Percent Increase 1973-1975 17.29 15.82 30.09 29.94 10.58 26.01 31.60 19.28 47.32 16.74 5.22 18.32 28.33 15.12 13.56 27.23 28.77 4.97 78.67 7.08 19.99 3.41 5.61 13.06 SOURCE: Department of Labor, Statistical Quarterly, various issues. 64 L [ [ [ [ L [ L L [ [ [ [ [ r· L [ L t [ development of the Cook Inlet and Prudhoe Bay fields. The growth of mining employment in Anchorage, as in the state, was cyclical, falling after 1970 when peak development of Upper Cook Inlet was reached. After 1973 mining employment grew at an average rate of 22.3 percent per year. The growth during this period included headquarters growth necessary for the development of the Prudhoe Bay fields. Over the period, Anchorage averaged more than one-third of the statewide mining employment. Construction was the second fastest growing major component of the basic sector.1 Construction grew at an average annual rate of 8.39 percent between 1965 and 1976. Between 1973 and 1975 when the\most rapid buildup resulting from the pipeline occurred, the growth rate averaged 29.94 per- cent. In Anchorage, the construction industry did not include major projects connected with resource development such as TAPS. Construction in Anchorage was largely an investment response to expected future grm'l'th and an expansion of .the capacity of Anchor.age housing and private sectors to meet the rapid growth in population. The government component of the basic sector experienced minimal growth between 1965 and 1976. Federal government remained almost constant throughout the period, growing at an overall rate of less than one per- cent per year. State government employment grew at a rate slightly greater than growth in total employment, an annual average rate of 1Agriculture-forestry-fisheries, while experiencing a very rapid rate of growth, had 1 i ttl e impact on the Anchorage economy. . In 1976, employment in this industry was only 100 people. 65 8.38 percent between 1965 and 1974. As on the state level, state gov- ernment is partially responsive to local demands. However, since the determinants of its growth are outside the region and a large component of state government is administrative for programs outside of Anchorage, state government can be considered basic. The most rapid period of growth of state government in Anchorage was in the beginning of the 1970s. Between 1970 and 1972, state government employment grew at a rate of 20.2 percent per year. This reflects the rapid growth of total state government at the time. The final basic sector is manufacturing which grew at ,an average annual \ rate of 6.78 percent between 1965 and 1976. When the period after 1970 is considered, the growth rate increases; but it is still less than the growth rate of total employment. · Manufacturing experiences a steady increase throughout the period, not a cyclical increas~ as at the state level. This is because the manufacturing in Anchorage has only a small component of food manufacturing which reflects cycles of the fishing industry. Anchorage: The Administration and Distribution Center for Alaska Anchorage serves as the administration and distribution center for Alaska. Because of this, traditional service functions such as trade, services, transportation-communication-utilities, and finance-insurance-real estate have important basic components. These sectors are support sectors at the state levels since they respond primarily to grov1th in 66 [ [ [ f --, -.--' ·c 0 [ L f' ld r.: L [ [~ [ c u [ [ [ l~ L [~ ~· state incomes. The distinction arises because the location of support activities is not spread uniformly with basic activities; economies of scale are one primary reason activities would concentrate in one place. Because a portion of these sectors in Anchorage responds to demands from outside the region, they can be considered part of the Anchorage basic sector. This response of the Anchorage support sector provides a major link between the economies of Anchorage and the state. There are many ways of distinguishing the basic and nonbasic components of an industry. The most accurate would be by survey. In a survey, a sample of firms in each industry would be asked the portion of their output sold inside and outside the region. Another method involves the use of location quotients. A location quotient for industry i is defined as the ratio of the percent of total employment in Anchorage in industry i to the percent of total employment in the state in industry i. The use of location quotients to measure the basic components of support industries requires the assumption that consumption in all parts of the state is similar and that this average consumption is reflected in the proportion of employment in these industries at the state level. This is an extreme assumption since consumption levels will most probably differ across regions because of income and environmental differences. Location quotients provide no more than an indication of the basic component of industries. Its major advantage is that it is inexpensive to use. Table 17 shows the Anchorage location quotients for the four support industries: transportation-communication-utilities, trade, finance- insurance-real estate, and services. 67 TABLE 17. LOCATION QUOTIENTS, ANCHORAGE 1965, 1970, 1975,1976 Transportation, Communication, and Public Utilities Trade Finance, Insurance, and Real Estate Services Location Quotient = - "1965 19/0 l97~:i 19/6 ---------------·----·---- .8284 .9485 1.0323 1. 1039 1.2927 1.2354 1 . 3191 1. 3548 1.3706 1.4074 1. 3877 1 .4058 1.1531 1.2326 1. 2407 1. 3117 Total Anchorage Employment in Industry i Total Anchorage Employment Total State Employ~ent in Industry i Total State Employment SOURCE: Alaska Department of Labor, Statistical Quarterly, various issues. 68 [ [ L [ [ [ [ [ L [ [ [ [ ~ [ c [ L t r Table' lR shows the 1\nchorage basic sector as r.stirnat(~d us·in~l location quotients to estimate the basic sector portion of the service, trade, finance, and transportation industries. The portion of support industry employment which is basic is equal to !-QLQ 1 The location quotient methodology does not provide an exact description of the basic component of these industries. This method may overestimate the basic ~omponent if the assumption of similar consumption is not true. The location quotient may underestimate the true amount of export component since it considers only the net difference in regional consumption and does not allow for interregional trade (Hoover, 1970). For example, the location quotient method estimates no basic component of transportation prior to \ 1975. This is surely an underestimate since the Port of Anchorage serves as the entrance source of supply for approximately 80 percent of the state's population (Municipality of Anchorage, 1978). This analysis is useful in pointing out the relationship of the Anchorage support sector to the state economy. Table 18 shows the trends in this campo- nent of the Anchorage basic sector. The component of the basic sector made up of transportation-communication-utilities, trade, finance- insurance-real estate, and services has been increasing. In 1965. this component accounted for 12 percent of the civilian basic sector; and by 1976, it accounted for 28 percent. Overall, the importance of the basic sector to the Anchorage economy decreased as it did at the state level. The civilian basic sector decreased from 57 percent of total employment in 1965 to 47 percent in 1976. 69 [ l~ TABLE 18. ANCHORAGE BASIC SECTOR GROWTH 1965, 1970, 1973, 1975, and 1976 ~~ lJ!dustry 1965 1970 1973 1975 1976 r, Agriculture, Forestry, r-· L and Fisheries 33 52 82 110 100 Mining 371 958 769 1 ,301 1 ,409 [ Contract Construction 3,127 3,514 4,178 7,054 7,587 Manufacturing 791 1,018 1 ,286 1 ,573 1,629 [ Transportation, Communication, \ -and Public Utilities -0 - -0 --0 -230 697 "'-' Trade 1,195 1,642 2,239 3,611 4,195 r-· Finance, Insurance, and -~ Real Estate 350 573 825 1 ,010 1 ,229 Services 500 1,208 1 ,323 2,612 3,510 L Federal Government 9,395 9,509 9,558 10,222 9,813 [ State Government ] ,672 2,421 3,667 4,056 4,053 Total Civilian Basic Employment 17,434 20,895 23,927 31 , 779 34,222 L Total Military Employment J5, 190 }2 ,884 14,049 J 2,642 ]2,179 Total Basic Employment 32,624 33,779 37,976 44,421 46,409 [ Total Basic/ L Total Employment .7113 .6155 .5872 .5398 .5440 Civilian Basic/Total [ Civilian Employ~ent .5683 .4975 .4726 .4563 .4680 L SOURCE: Alaska Department of Labor, Statistical Ouarterl~, various issues. L r L__, 70 C [., ___ 1 c 6 8 [ c [ L L L .___.. [ The Economic Structure The growth of the /\nchor·a~e economy has resulted not only in a change in the levels of economic indicators but also in a change in the process by which growth is transmitted. This change is similar to that experienced in the state economy. The decreasing proportion of basic employment, as illustrated in Table 18. is one result of this change. Total basic employ- ment fell from 71 percent to 54 percent of employment between 1965 and 1976. (This assumes the basic component of services, finance, trans- portation, and trade is found using the location quotient.) The increase in the support sector means the economy will have a greater response to growth in the basic sector. Table 19 details the change in the economy's structure as measured by employment distribution. The changing structure of the Anchorage economy can easily be observed from this table. The traditional support sector industries of services, finance, trade, and transportation increased their share of total em- ployment from 42.2 percent in 1965 to 58.9 percent in 1976. This is a result of the increased importance of the support sector in both the state and Anchorage economies. The share of government has decreased. This is primarily because of the limited growth of federal government. The share of federal government fell from 30.6 percent in 1965 to 13.4 percent in 1976. Total government's share fell from 43.7 percent in 1965 to 26.4 percent in 1976. The share of employment in construction increased between 1970 and 1976, reversing the trend between 1965 and 1970. This reversal may be a short-run phenomenon reflecting only the increased activity connected with TAPS construction. 71 TABLE 19. ANCHORAGE DISTRIBUTION OF EMPLOYMENT 1965, 1970, AND 1976 % of Total Non-Agricultural Wage & Salary Employment Industry 1965 1970 1976 Agriculture, Forestry, and Fisheries .11 . 12 . 14 Mining 1.21 2.28 1. 93 Contract Construction 10.19 8.37 10.38 Manufacturing 2.58 2.42 2.23 Food • 59 .47 .46 Lumber . 06 .11 • 19 Paper . 01 .01 .03 Other 1. 92 1.83 1. 56 Transportation, Communication, and Public Utilities 8.53 9.30 10.13 Transportation 5.52 6.67 7.07 Communication 2.20 1.82 2.28 Public Utilities .81 .82 .78 Trade 17.21 20.52 21.83 Wholesale 4.00 5.29 5.80 Retai 1 13.21 15.23 16.03 Finance, Insurance, and Real Estate 4.22 4. 71 5.82 Services 12.28 15.25 21.13 Hotels 1.50 1.80 1.97 Personal 1.31 1.27 .83 Business 2.57 2.83 6.72 Medical 2.22 2.85 3'.63 Other 4.71 6.49 7.97 Federal Government 30.62 22.64 13.42 State Government 5.45 5. 77 5.54 Local Government 7.59 8.61 7.40 r L [ [ I . r r \- (_ SOURCE: Alaska Department of Labor, Statistical Quarterly, various issues. r: '----' 72 [ [ [ [ [ [ [ [ [ L 6 [ c [ L L [ ........ Anchorage, like the state, has been experiencing and should continue to experience an increusc~d ·importance of the support sr~ctor. This structural change is a result of the increased size of the econon~ which allows the production of more goods and services for local consumption. This process affects Anchorag~ in a twofold manner since it provides support sector goods and services for the state as well as the region. Population Table 20 shows the growth of population in the Anchorage region. Anchorage experienced major population growth since 1965. Of the 82,842 population increase since 1965, 71 percent occurred after 1970. Migration accounted for 70.6 percent of the increase between 1970 and 1976. The major migra- tion increase occurred in 1975 at the height of pipeline activity when the state estimated migration of 22,222 to Anchorage. As in the state, migration was the most important component of population growth. The dependency ratio in Anchorage fell during this period, although the fall was not so great as at the state level. The dependency ratio in Anchorage fell from 3.01 in 1970 to 2.53 in 1976, a drop of 16 percent, compared to a 36 percent drop at the state level. The reason for the fall was the same as at the state level, an increased proportion of the population in the labor force. Since Anchorage serves as home to many workers in other areas of the state, the ratio will be higher. \ Anchorage does have comparative age distributions of the population in 1970 and 1975. These illustrate one reason why the population~to- 73 Number TAGLE 20. ANCHORAGE POPULATION GROWTH 1965' 1970-197fi Estimated Population Number Natural Net as of % Increase over of Births of Deaths Increase Migration Jul,Y 1 Previous Year 1965 102,337 1970 3,285 489 2,796 126,333 1 1971 3 '192 473 2,719 6,725 135,777 1972 3 '119 490 2,629 5,809 144,215 1973 4,247 424 3,823 1 ,402 149,440 1974 3,123 481 2,642 1 ,030 153 '112 \ 1975 2,990 507 2,483 22,222 177,817 1976 3,472 519 2,953 4,409 185 '179 1u.s. Department of Commerce, Bureau of the Census, 1970 Census of Population, April 1970 estimate. 2Percent average annual increase. 4.302 7.48 6.21 3.62 2.46 16.14 4.14 SOURCES: Alaska Department of Labor, Estimates of Total Resident Population and Estimates of Civilian Population, various years. Alaska Department of Health and Social Statistics, in communication with the Municipality of Anchorage. 74 (' I l. [ [ ~ B [ [ [ L t k L.i employment ratio has fallen. Comparing these figures shows a relatively stable age distribution when the major growth which took place is con- sidered. However, the proportion of nonworking-age population has fallen. The population under fifteen accounted for 33.9 percent of the population in 1970 and for 29.3 percent in 1975 .. This reflects a rela- tive decrease in family size and a decreased demand for services such as schools. The percentage of the population available for the labor force, ages 15-64, increased from 64.6 percent in 1970 to 68.6 percent in 1975. This is one reason for the decreased dependency ratio. Table 21 compares the age distribution in the two periods. Unemployment Anchorage, like the state, has a serious unemployment problem, although the unemployment rate is less than the state. The unemployment rate has remained less than 10 percent through the period. The unemployment rate rose to a high of 9.7 percent in 1973 prior to the construction of the pipeline; the rate then fell to a low of 6.7 percent in 1975 and rose again in 1976 as pipeline construction came to an end. Except for 1975, the total number of unemployed increased throughout the period. Increases in employment opportunities encourage increases in the labor force in a corresponding manner. The increased labor force results from two forces: increases in the population from migration and increases in the proportion of the population in the labor force. Table 22 shows the increased labor force participation throughout the period. This increased labor force participation rate is partially an effect of the increase in the age group available for work. 75 TABLE 21. ANCHORAGE AGE DISTRIBUTION OF NONMILITARY BASE POPULATION % of 1970 ___M_e_ Population 0 - 4 10.40 5 -14 23.50 15 -30 28.10 30 -40 15.50 40 -50 12.40 50 -64 8.60 65 + 1.50 % of 1975 Population 9.50 19.80 34.10 15.30 11.90 7.30 2.10 SOURCE: Patricia L. Dolezal and Richard L. Ender, 1976 Population Profile, Municipality of Anchorage, September 1976. 1970 Census of the Population PC(l)-B3 Table 35. 76 [ [ [ [ [ [ [ [ [ [ c 0 E c [ L [ [ [ Year 1965 1970 1971 1972 1973 1974 1975 1976 TABLE 22. ANCHORAGE UNEMPLOYMENT AND SEASONALITY 1965,1970-1976 Labor Force Total Unemployment Participation Unemployment Rate ( %) Rate (%) 2.249 6.2 41.44 3,267 6.7 43.21 4,418 8.2 44.43 5,140 8.9 44.68 5,818 . 9.7 44.40 5,980 8.6 49.66 \ '. 5,279 6.7 47.85 7,372 8.4 50.56 Seasonality Index .9406 .9526 .9680 .9738 .9281 .9914 .9818 .9920 SOURCE: Alaska Department of Labor, Alaska, Labor Force Estimates. 77 Seasonality has not been a major factor in the Anchorage economy. Anchora9e is less dependent on traditionally seasonal industries and has a larger proportion of the less seasonal support sector employment. Only in 1973 is the seasonality index less than .95, which may reflect more cyclical than seasonal problems. Since the beginning of pipeline construction, the seasonality index has remained above .98 which reflects the technology and profit factors on Anchorage's most highly seasonal industry, construction. Personal Income Personal income incre~sed at an average annual rate of\approximately 15.4 percent between 1965 and 1976. The grov1th of personal income is only one determinant of the command over goods and services. In order to increase the command over goods and services, personal income must increase faster than both population and prices. Real per capita income reflects the effects of population and prices on incomes. Table 23 shows the growth of real per capita income over time. The growth has been about 4 percent per year over the entire period. At the height of pipeline activity between 1973 and,l975, real per capita personal income increased at a rate of 9.12 percent per year. Summary Anchorage experienced rapid growth between 1965 and 1976. During this period, the proportion of state population in An~horage increased. Employment grew more rapidly outside of Anchorage. The differential 78 [~ [ [ [ [ [ [ r '--' [ c 6 c [ c [ L L L t Year 1965 1970 1971 1972 1973 1974 1975 1976 TABLE 23. ANCHORAGE GROWTH OF REAL PER CAPITA INCOME 1965, 1970-1976 Real Real Persona 1 Personal Per Capita Income Income Personal Income ($ Thousands) ($ Thousands) (1967 $) 371 ,037 393,882 3,849 634,884 579,274 4,585 732,881 649 '142 4,781 800,201 690,424 4,788 883,144 731,079 4,892 1,111,635 830,197 5,422 1,577,614 1 ,035,859 5,825 1,799,125 1,110,173 5,950 % Annual Average Increase 1965 -1976 15.43 9.88 4.04 1970 -1976 18.96 11.45 4.44 1973 -1975 33.65 19.03 9.12 SOURCES: U.S. Department of Commerce, Bureau of Economic Analysis, Regional Economic Information System, July 1978 printouts. Alaska Department of Labor, Estimates of Total Resident Population. 79 growth \<Jas a result of the rapid employment grm-1th associated with T/\PS construction outside of Anchorage. Expansion of the traditional basic sector was an important cause of the growth of the Anchorage economy. However, the support sector in Anchorage also has an important basic component. The support sector industries in Anchorage have a basic component responding to growth outside of Anchorage. This relation- ship, along with the increased scale of the economy, was responsible for the change in the structure of the economy which took place. The population of Anchorage expanded rapidly during this period. The major component of growth was migration which was induced by increased economic opportunities. As at the state level, the increased economic activity had little effect on the Anchorage unemployment problem; only in the peak TAPS year did the unemployment rate fall belm<~ 8 percent. Real per capita did expand during this period as a result of the in- creased activity. SOUTHCENTRAL Anchorage, because of its link to the rest of the state through the suppo:t function, is indirectly affected by resource deve·lopment; the remainder of the Gulf of Alaska region is directly affected by resource development. The Southcentral region contains both the historically important natural resource industries and the new natural resource industries. Fisheries of Southcentral are some of the most important in the state, accounting for close to half the catch of the state•s fishing industry. The Upper Cook Inlet region was the state•s first major oil producing region and con- tributed to the development of the petrochemical industry in Kenai. 80 [ [ [ [ I' t_~: L L L L c [ [ [ [ [ r~ I L. l-~ -·' r ..__. [ [ c 6 { -, -· [ [ L [ r: ""--" t The oil port built as the terminus of the trans-Alaska pipeline at Valdez contributed to the economic grmvth of the Southcentral region during construction and will contribute to its growth in the future. This section will examine the historical growth of the region. Growth of the Aggregate Indicators The aggregate indicators of economic growth illustrate the importance of TAPS construction to the economy of this region. (See Table 24.) Between 1973 and 1976, the population of the region increased by almost 20,000; employment, by more than 10,000; and personal income, by $330 million . Population grew at an overall average rate of 6.34 percent per year between 1965 and 1976. Population in the region grew by almost 29,196 between 1965 and 1976. Over 67.5 percent of this growth occurred after the beginning of the pipeline construction in 1974. Population growth followed a pattern established by employment growth. Employment grew at an annual average rate of ll .26 percent during the period; in the post-1970 period, the rate increased to 15.7 percent. The employment growth rates are greater than the population growth rates. This reflects the type of employment growth in the region at this time. Employment connected with mining and construction is more transient than employment in other sectors and does not bring dependents to the area. This pattern also results from shift schedules which allow workers, par- ticularly in mining, to live in other regions. The short-term enclave 81 TABLE 24. GROWTH OF EMPLOYMENT, POPULATION, AND PERSONAL INCOME, SOUTHCENTRAL REGION 1965-1976 Population Employment 1965 30,235 7,124 1970 37,809 9,582 1971 39,227 10 '127 1972 39,148 10 '735 1973 39 '716 12 '131 1974 41 ,986 13,645 1975 51 ,923 18,300 1976 59,431 23,030 Annual Average Percent Change 1965-1976 6.34 11.26 1970-1976 7.83 15.74 Personal Income ($Million) 90.1 157.3 165.1 172.9 210.2 264.4 414.0 548.7 17.85 23.15 SOURCES: All estimates State of Alaska Department of Labor, Research and Analysis Section, Population Estimates by Census Division, except 1970 which is Census of Population. Alaska Department of Labor, Statistical Quarterly, various years. U.S. Department of Commerce, Bureau of Economic Analysis, July 1978. 82 [ [ [ . [~ [ c [ [; [ [ [ L L r~ L..J t [ [ [ 6 c Q [ c [ l-, _, L L t nature of the employment, such as construction of the TAPS line, was another reason for the decreased dependency ratio in the region. Personal income grew at an average annual rate of 17.9 percent between 1965 and 1976. Most of this growth came after 1973 with pipeline con- struction. Personal income increased at an annual rate of 37.7 percent after 1973. There are two reasons the economies of Southcentral did not feel the full impact of this growth in income. First, the transient and enclave nature of pipeline construction and mining employment means that less of the income is spent in the region. Secondly, because they are smaller economies, the leakages from the economy are greater and there is less induced response to growth in incomes. Causes of Growth The major cause of growth in the Southcentral region was the expansion of the traditional basic industries. Table 25 provides information on employment growth by industry and on the basic sector. The three major industries affecting the growth of Southcentral Alaska are mining, construction, and fisheries. The fisheries industry includes both actual harvesting and food processing. The growth rate of mining averaged 8.27 percent over the entire period. Mining experienced cyclical growth, declining after 1970 and rising again after 1973. The recent growth of the industry is a result of exploratory activity and increased petrochemical activity (Kenai Borough, 1977). 83 TA~LE 25. EMPLOYMENT BY INDUSTRY SOUTHCENTRAL ALASKA Annual Average Percent Increase Industry 1965 -1976 1970-1976 1973-1975 Agriculture, Forestry, and Fisheries Mining Contract Construction Manufacturing Food Transportation, Communication, and Public Utilities 'Transportation Communications Public Utilities Trade Wholesale Retail Finance, Insurance, and Real Estate Services Hotel Personal Business rvtedi ca 1 Other Government Federal · State and Loca 1 Total 38.44 8.27 20.71 9.53 6.30 9. 51 9.15 22.71 5.90 10.88 11.95 10.47 10.57 12. 12 11 . 61 3.37 18.49 11.60 9.64 -3.80 8.49 11.26 37.87 1.37 85.19 11.90 8.65 2.09 34.50 19.69 8.38 11.22 10.59 11.46 14.68 16.72 20.09 4.28 37..07 9.15 11.54 -4.28 7.50 15.74 / 5.16 18.59 131.70 .55 .20 32.62 49.33 2.86 12.66 31.72 60.82 23.95 25.86 21.56 24.77 -1.01 78.12 -6.89 24.90 5.65 6.33 22.82 SOURCES: Estimated from Alaska Department of Labor, Research and Analysis Section worksheets. Alaska State Housing Authority, Alaska, Yakutat, Comprehensive Development Plan, Anchorage 1971. Alaska Consultants, Inc., Anchorage, Alaska, Yakutat, Comprehensive Development Plan, December 1976. 84 [ [ [ [: --i [ L [ I __ ; [ L L [ [ [ [~ ~ r [' t~ r ·-· [ [ c c (~ c [ [~ [ L~ l The major mining development occurred early in the period with the develop- ment of the Kenai-Upper Cook Inlet fields. Petroleum activity in the Kenai fields can be described in two periods: Field development occurred between 1961 and 1968; this phase included the development of both onshore and offshore fields. During this phase, mining employment increased by over 600 percent. Major construction of petrochemical facilities also took place during this period. Three petrochemical plants and seven pipelines were completed between 1961 and 1968. The second major phase was production. By 1970, all the major components of the petroleum industry had begun production (Math Sciences, 1976). The oil production phase is less employment intensive than the development phase. The begin- ning of production resulted in a fall in mining employment to approximately 600 in 1971. Employment in mining remained at approximately 600 until 1975 when employment increased rapidly to 900. This increase came as a result of OCS exploratory activity, the construction of TAPS, and expansion of refinery and petrochemical capacity in Kenai (Scott, 1979). Construction employment increased at an annual average rate of 20.7 percent throughout the period. The major increase occurred between 1973 and 1975 when construction employment increased at an annual rate of 131.7 percent. This increase was a result of the construction of the trans-Alaska pipeline and the Valdez Port facility. Construction activity in Valdez accounted for almost 70 percent of total regional employment in 1975 and 78 pe~cent in 1976. Although this is not all TAPS-connected employment, it shows the magnitude of the effect of this project on the region. Regional construction employment prior to 1970 was influenced importantly 85 by petrochemical development in Kenai. Construction of five petrochcmir.al facilitie~~ and seven pipelines increased Kenai's construction employment to a peak of 1,209 in 1968 (Math Sciences, 1976). By 1970, construction employment had decreased until its regional total was 583. The final basic.industry in the Southcentral region is the fisheries industry. This industry consists of fish harvesting employment and fish processing employment. Fish processing is a major component of manufac- turing. The full impact of fisheries cannot be observed from employment data. Employment reported in nonagricultural wage and salary employment excludes self-employed which is a major component of fishery employment. (The rapid growth in agriculture-forestry-fisheries employment is pri- marily a result of a redefinition of the employment category in 1972.) Employment itself may not. be a good indicator of the industry's health; in most industries, employment may be a good indicator of income, but fisheries• incomes depend upon the catch and its market value. Independent estimates of fishery employment have been made based on catch and gear statistics. The totals for three regions--Prince Hilliam Sound, Cook Inlet, and Southwest--are shown in Trble 26. These regions include more than Southcentral; however, the figures provide an indication of the probable pattern of industry growth in the South- central region. Employment in 1976 was only 9 percent higher than in 1970. These figures show the cyclical behavior of fishery employment. Employment fell until 1972. After that, it peaked at 2,235 in 1973. 86 [ [ F b l ' ·' [ [ [ [ [ [ [ [ r~ '----' [ [ c 6 [ L [ L L L L TABLE 26. ESTIMATED FISH HARVESTING EMPLOYMENT 1970 1971 1972 1973 1974 1975 Emp 1 oyment 1 2,193 2,052 1 ,853 2.235 1 ,998 2,031 Catch 2 269.3 256.6 233.8 362.6 254.5 256.8 (mi 11 ion 1 bs. ) Value 2 40,681 36,658 44 '773 73 .496 65,912 60,971 (thousand $) Real Value 37,117 32,469 38,631 60,841 49,225 40,033 (thousand $) 1Rogers and Listowski, 1978. 2 Alaska Department of Commerce and Economic Development, 1977. Value is deflated by the Anchorage CPl. 1976 2,388 245.4 93.668 57,080 After falling slightly, employment then rose to its present level of 2,388. Information on the value and catch show a similar cyclical growth. Since 1970, catch in the Central region peaked at 362.6 million pounds in 1973 and fell to 256.8 million pounds in 1975. Except for the bonanza year in 1973, catch has varied relatively little from an average of 253 million pounds. The real value of this catch was only 7.8 percent higher in 1975 than in 1970; its peak was $60.8 million in 1973. The catch statistics provide an indication of the importance of the region to Alaska fisheries. 87 The manufacturing sector, because of the large fish processing component, was affected by the fish harvesting activity in the region. Manufacturing increased at an average annual rate of 9.5 percent per year. This was well over the average rate of increase in the state. Manufacturing has experienced cycles similar to fisheries, but they have not been as pro- nounced. The main reason for this is that manufacturing includes compo- nents of the petrochemical industry in Kenai. The petrochemical industry is not cyclical, so it stabilizes the Southcentral manufacturing industry. The final basic sector is federal government employment. Federal govern- me-nt employment actually fell during the period from 975 in 1965 to 637 in 1976. The lowest point was in 1974 when employment was 595. Military employment in the region also followed the same pattern. Military employ- ment in 1976 was l ,660 less than in 1965. The primary reason for this was the closure of the Kodiak Naval Station. Table 27 summarizes the basic sector in the Southcentral region. The basic sector more than doubled between 1965 and 1976. (The year 1973 has been included in order to observe the non-TAPS trend.) While the total basic sector (including the military) remained constant between 1965 and 1973, the civilian basic sector grew by approximately 1,600 employees. The growth of the civilian basic sector replaced the lost military and federal government employment. 88 [ [ [ [ [ [ [ [ [ [ [ c B [ [ [ L l [ c TABLE 27. BASIC SECTOR GROWTH, SOUTHCENTRAL ALASKA 1965,1970, 1973, 1975, and 1976 Industry 1965 1970 1973 1975 Agriculture, Forestry, and Fisheries 19 99 491 543 Mining 345 762 640 900 Contract Construction 880 583 681 3,656 Manufacturing 1 '188 1,647 2,627 2,656 Federal Government 975 828 602 672 Tota 1 Civilian Basic Employment 3,407 3,919 5,041 8,427 .. Total Military Employment _?,651 2,110 1,039 747 Total Basic Employment 6,058 6,029 6,080 9,174 Total Basic/ Total Employment .6197 .5157 .4617 .4817 Civilian Basic/Total Civilian Employment .4782 .4090 .4155 .4605 1976 680 827 6,978 3,234 637 12,356 991 13,347 .5556 .5365 SOURCES: Estimated from Alaska Department of Labor, Research and Analysis Section worksheets. Alaska Department of Labor, Estimates of the Population. Alaska State Housing Authority, Alaska, Yakutat, Comprehensive Development Plan, Anchorage, 1971. Alaska Consultants, Inc., Yakutat, Comprehensive Development Plan, Anchorage, Alaska, 1971. 89 The Economic Structure Table 27 shows the basic-to-total employment ratios; between 1965 and 1973, this ratio fell. During this period, the support sector increased its importance relative to the basic sector. With the construction of TAPS, the support sector did not expand as rapidly as the basic sector. The enclave nature of pipeline employment meant that the suport services were mostly provided by the enclave sector. This limited the necessary expansion of the support sector to accommodate pipeline employment and reversed the trend of decreased basic sector importance. Table 28 illustrates the structure of the Southcentral economy as defined by its employment distribution. The non-TAPS trend can be seen by examin- ing the change between 1965 and 1970. Between these periods, the support sectors either increased their share of employment or remained constant; the overall change was not so great as in the state or Anchorage. Only trade expanded its share significantly from 11.4 percent to 14 percent. One interesting trend is the reduction of importance of food manufacturing. The 1976 figures are skewed because of the pipeline construction; in 1976, construction accounts for over 30 percent of the total civilian employment. Population Population in the Southcentral region increased by over 28,000 between 1965 and 1976; over half of this increase came after 1973. The major growth in the Southcentral region was a direct result of the construction of the trans-Alaska pipeline beginning in 1974. Such rapid growth in the 90 I L , r-· L- [ . { - [ [ L [ [ [ [ [ [ [ f' '--' r L [ [ 6 c c [ [ [ f~ L TABLE 28. EMPLOYMENT DISTRIBUTION BY INDUSTRY SOUTHCENTRAL ALASKA 1965, 1970, AND 1976 Percent of Total Employment Industr.z:: 1965 1970 1976 Agriculture, Forestry, and Fisheries .27 1.03 2.95 Mining 4.84 7.95 3.59 Contract Construction 12.35 6.08 30.30 Manufacturing 16.68 17.19 14.04 Food 15.24 13.49 9.24 Transportation, Communication, and \ Public Utilities 7. 61 7.93 6.39 Transportation 5.24 5.44 4.24 Communication .36 .89 1.07 Public Utilities 1.85 l . 61 1.08 Trade ll . 41 13.96 ll. 00 Wholesale 1.43 2. 01 l. 53 Retail 9.99 ll. 95 9.47 Finance, Insurance, and Real Estate 2.23 2.20 2.08 Services 10.36 10.72 ll. 28 Hotel 1.94 1.61 2.01 Personal .35 .29 . 16 Business 1.64 l. 19 3.28 Medical l. 95 2.87 2.02 Other 4.48 4.76 3.81 Federal Government 13.69 8.64 2.77 State and Local Government 20.56 24.29 15.60 SOURCES: Estimated from Alaska Department of Labor, Research and Analysis Section worksheets. Alaska State Housing Authority, Alaska, Yakutat Comprehensive Development Plan, Anchorage 1971. Alaska Consultants Inc., Anchorage, Alaska, Yakutat Comprehensive Development Plan, December 1976. 91 relatively small region meant that migration was the most important component of growth. Between 1973 and 1974, migration accounted for 90 percent of the increase in population. Table 29 shows the employment growth in Southcentral. The dependency ratio in Southcentral fell dramatically from 1965 to 1976. The ratio dropped from 4.24 in 1965 to 2.58 in 1976, a 40 percent decrease. The enclave nature of the ~APS construction affected this significantly; the ratio fell 22 percent after 1973. The nature of pipeline construction meant that workers in the region would not be accompanied by their families. The trend had been established prior to this. Increased labor force par- ticipation is primarily responsible for this change. An increase in the proportion of employment covered in these employment statistics was also responsible for the decrease in this ratio as fishing became less important. Unemployment The unemployment rates were high even during the period of rapid employment growth in connection with TAPS. Unemployment was highest in 1972 when the unemployment rate reached 15.0 percent. With the beginning of pipeline construction, the unemployment rate began to fa 11 • reaching its 1 owest point in 1975 at 12.4 percent. Even though the percentage of unemployed fell throughout the period, the number of unemployed grew. As in the state, the seemingly contradictory growth in employment and unemployment is a result of two factors. First, the increased employment 92 [ r r [ [ [ [ r L--' [ [ [ c [ c [ L L f' t TABLE 29. POPULATION GROWTH, SOUTHCENTRAL ALASKA, 1965, 1970-1976 Estimated Number Number Natural Net of Births of Deaths Increase Migration 1965 1970 863 215 648 1971 505 139 366 926 1972 505 138 367 -406 1973 718 173 545 -31 1974 768 231 537 1,667 1975 634 244 390 9,828 1976 993 227 766 6,436 1April 1970 population estimate. 2 Annual average increase from 1965 to 1970. Population as of July 1 30,235 37,540 1 38,832 38,739 39,253 \ 4i ,457 51,675 58,877 % Increase over Previous Year 4.4 2 3.4 -0.2 1.3 5.6 24.6 13.9 SOURCE: State of Alaska, Department of Health and Social Services, Health Information System Section. 93 opportunities led to increased migration. Secondly, the increased employ- ment opportunities were responsible for increased labor force participation. As can be seen from Table 30, the labor force participation rate increased from 38.2 percent in 1970 to 54.8 percent in 1976. This increase resulted from an increased participation among existing population and a high rate of participation among migrants. The seasonality index remained close to .80 throughout the period. Only during 1974 and 1975, did the index rise, indicating a fall in seasonality. The fall in the seasonality index in 1976 is a result of peak employment on the pipeline being reached in the summer of 1976. Personal Income Personal income is an important economic indicator since it influences demand and growth of the support sector. It is also a measure of the growth of residents' economic welfare. The effect of price increases (measured by the Anchorage CPI) and popul~tion increases on the real per capita income of residents is shown in Table 31. The real per capita incomes of the Southcentral region increased at an overall average yearly rate of 5.42 percent; this is less than one-third the rate of increase of personal income. The most rapid growth occurred between 1973 and 1975, the period of peak TAPS construction. Summary The construction of the trans-Alaska pipeline was the most important factor determining the economic growth of the Southcentral region. The 94 [ [ [ [ f'" ~-, [~ I L_ _ _, L r [ 5 [ [_; [ [ [ r ~ l [ [ [ [ [ [ [ r~ [ [ c E [ [ [ [ L [ t Year 1965 1970 1971 1972 1973 1974 1975 1976 TABLE 30. UNEMPLOYMENT AND SEASONALITY SOUTHCENTRAL ALASKA 1965' 197 0-197 6 Labor Force Total Unemployment Participation Unemployment Rate {%) Rate (%) 1 ,172 10.30 41.38 1 ,835 13.44 38.24 2 '135 14.66 38.90 2,257 15.03 39.17 2,336 14.07 42.94 2,744 14.80 45.09 3,094 12.42 48.68 4,502 13.83 54.78 Seasonality Index .8322 .7959 .8375 .7815 .8242 .9481 .9971 .7722 SOURCES: Alaska Department of Labor, Labor Force Estimates, various years. Alaska Department of Labor, Estimates of the Population. Alaska State Housing Authority, Yakutat, Alaska Comprehensive Development Plan, Anchorage 1971. Alaska Consultants Inc., Anchorage, Alaska, Yakutat Comprehensive Development Plan, December 1976. 95 TABLE 31. GROWTH OF REAL PER CAPITA INCOME SOUTHCENTRAL ALASKA 1965, 1970-1976 Real Per Capita Personal Real Personal Personal Income Income Income Year .{$ Thousands) ($ Thousands) (1967 $) 1965 90,128 95.677 3,164 1970 157,316 146,234 3,796 1971 165,099 143,536 3,728 1972 172,916 149,194 3,811 1973 210,235 174,036 4,382 1974 264,428 197,482 4,704 1975 414,045 271 ,861 5,236 1976 548,661 335,983 5,653 Annual Average Percent Increase 1965 -1976 17.85 12.10 5.42 1970 -1976 23.15 14.87 6.86 1973-1975 40.34 24.98 9.31 SOURCES: U.S. Department of Commerce, Bureau of Economic Analysis, Regional Economic Information System, July 1978 printouts. Alaska Department of Labor, Labor Force Estimates, various years. Alaska Consultants, Inc., City of Yakutat, Comprehensive Development Plan, December 1976, U.S. Department of Labor, Bureau of Labor Statistics. Alaska State Housing Authority, Alaska, Yakutat, Comprehensive Development Plan, Anchorage, 1971. 96 l [ [ [ l, l ' [~ L [ ! j l [ [ [ [ [ [ [ [ C [' c G l c [ L [ r: t' majority of the growth in employment, population, and personul income occurred after 1973. Prior to the construction of the pipeline, South- central was experiencing a structural change similar to the state. The basic sector was playing a less important role in the Southcentral economy. The magnitude of pipeline employment and its enclave nature reversed this trend. The growth of employment was much greater than population, indicat- ing an increased labor force participation of the population. Per capita incomes rose with growth. Growth in employment did not dramatically affect the Southcentral unemployment rate. The Regional Economy in the Southcentral Alaska Region\ Southcentral Alaska is made up of a number of local economies. These economies differ in their size and economic structure. The economies range from the largest, Valdez with a 1976 employment of 7,818, to the smallest, Yakutat with employment in 1976 equaling 241 .. The economies not only differ in size but also in the factors determining their growth. A question of some interest is whether the region can be treated as a single economy. This is important because in our projections Southcentral is treated as a single economy. In this section, we will examine the small economies which make up Southcentral and show why Southcentral can appropriately be treated as a single region. In Alaska, the spatial order of the economy is that all local economies have a position in a regional structure. The link through transportation and support services in Anchorage makes a large portion of Alaska a region centered on Anchorage. Our aim in defining economic regions is to provide 97 some spatial disaggregation of this major region. There are two approaches which have been taken to define regions. The first approach is based on the principle of functional integration. This notion would group economies which are interrelated and integrated. The second approach is based on the principle of homogeneity. This approach forms regions which are as much alike as possible and different from other regions (Nourse, 1968). This section will investigate the Southcentral subregions in terms of these principles. The Local Economies This section will describe the local economies in terms of their size and growth since 1970. Although each census division is not an individual economy, the analysis must concentrate on census divisions because of data limitations. Table 32 shows the employment, population, and personal income of each subregion in 1965, 1970, and 1976. Table 32 shows that the growth in the region has been concentrated in three areas: the Kenai Census Division, the Matanuska-Susitna Census Division, and Valdez. Between 1965 and 1970, the major growth in the region was centered in Kenai with the petroleum development in Cook Inlet. Between 1965 and 1970, employment in Kenai grew at an annual average rate of 15.3 percent per year. Kenai increased its share of regional employment from 31.9 percent in 1965 to 36.6 percent in 1970. After 1970, Valdez was the fastest growing region. Between 1970 and 1976, employment in Valdez increased by over eight times. The construction of 98 J l . r L [ [ L [ [ [ L [ L L [ [ [ [ [ [ [ [ [ [ c E [ c [ L L [ l TAI3LE 32. GROWTH OF AGGREGATE INDICATORS SMALL.ECONOMIES 1965, 1970, AND '1976 Em~lo,lment 1 Personal Income Pof2ulation (Million $) Cordova-McCarthy 1965 1 • 991 604 7.5 1970 1 ,857 702 9.8 1976 2,353 1 ,041 17.7 Valdez-Chitina-Whittier 1965 2,396 452 6.1 1970 3,098 831 9.7 1976 13,000 7,818 163.0 Matanuska-Susitna 1965 6,125 1,083 13.4 1970 6,509 1 '145 24.3 1976 14,010 2,269 108.9 Seward 1965 2,213 620 5.7 1970 2,336 692 8.4 1976 3,395 1 '136 25.9 Kenai 1965 8,446 1,753 26.7 1970 14,250 3,576 57.2 1976 16,753 6,465 156.0 Kodiak 1965 9,064 2,310 30.6 1970 9,409 2,469 45.0 1976 9,366 4 '153 72.9 Yakutat 1965 1970 350 193 3.0 1976 550 241 4.2 1civilian nonagricultural wage and salary employment. SOURCES: Alaska Department of Labor. Po~ulation Estimates by Census Divisions, various years. Alaska Department of Labor, Statistical Quarterly, various years. U.S. Department of Commerce, Bureau of Economic Analysis, Regional Economic Information System Prin~outs, July 1~78. 99 TAPS was responsible for this growth. The fastest growing economy after Valdez wos Matanuska-Susitna which increased employment at a 1?. 1 percenL rate. Kenai grew at an average annual rate of 10.4 percent after 1970. During this period, Kodiak and Seward also experienced rapid average annual growth rates of close to 9.0 percent. One noticeable trend was nonproportionate growth in population in Matanuska- Susitna and Kodiak. In Matanuska-Susitna, population was determining the growth of employment. Matanuska-Susitna experienced suburbanization from Anchorage which actually encouraged growth of employment to serve the suburban population. The population of Kodiak fell slightly between 1965 and 1976; this was a result of the closure of the Kodiak Naval Station during the period. Civilian employment growth actually replaced the decline in military employment. The three major economies in terms of personal income were Valdez, Kenai, and Matanuska-Susitna, all with more than $100 million in personal income in 1976. Functional Integration Economies can be functionally integrated even though they are physically separate if they interact in the production and distribution process. Any set of economies which are open, allowing the exchange of goods and the flow of productive factors, are functionally integrated. The extent of these flows between the individual economies in Southcentral Alaska is one measure of how integrated are the economies. The Southcentral Alaskan economy will not have perfect functional integration; the smallness of these economies and their separation in distance will assure this. In 100 [ [ [ r~ L [ L L L [ [ [ [ [ [ [ [' [ [ c c u c [ [ [ [ t this section, we will attempt to determine the degree of integration of these economies. Transportation links and trade flows are measures of the degree of exchange between economies. The Southcentral region, relative to the rest of the state, has highly developed transportation links. Most larger communities in the region are linked by roads and/or ferry and by a highly developed communications system. There are numerous deepwater ports and commercial marine freight service. The communities of the Kenai, Seward, Matanuska-Susitna Census Divisions, and Anchorage are linked by the Seward, Sterling, and Glenn Highways. Valdez is linked through the Richardson Highway. Ferry service connects Cordova, Valdez, Kodiak, Seward, Whittier, Homer, and Seldovia. Van container service is available in Cordova, Valdez, Kodiak. and Seward (ISER, 1978). .' The trade flows between these areas were described in a census of trans- portation conducted by the Institute of Social and Economic Research (ISER, 1976). Table 33 shows the distribution of intrastate freight from Southcentral points of origin. This is not a pure measure of trade flows since it includes transshipments of goods, but it does pro- vide an indication of the trade links between the economies of the region. Freight and mail measure the flow of goods between communities, which include both final goods and material inputs. It is not a perfect measure of integration since it does not indicate the flow of labor and capital between communities. Of all the census divisions, Skagway-Yakutat is the least tied to the Gulf of Alaska region of the Southcentral economies. 101 .... 0 N DESTINATION ORIGIN Anchorage Anchorage 5.84 Cordova 63.88 Kenai 39.90 Kodiak 76.96 Matanuska- Susitna 10.59 Seward 12.36 Ska9way- Yakutat . 14 Valdez-Chitina- Whittier 41.14 TABLE 33. DISTRIBUTION OF INTRASTATE FLOWS OF FREIGHT AND MAIL FROM SOUTHCENTRAL ORIGINS, 1973 (Percent of flows from Southcentral origins) Matanuska- Cordova Kenai Kodiak Susitna Seward .86 6.04 4.14 1.32 1.03 13.54 .38 7.17 .48 0 .62 15.50 2.64 . 17 . 15 .02 11 . 87 6.73 0 . 01 0 32.46 0 .50 25.91 . 08 5.53 0 0 0 .02 28.80 0 0 0 7. 77 15.05 5.46 .73 7.97 SOURCE: ISER., Census of Ala~ka Transportation, September 1976. Skagway- Yakutat . 07 .65 . 15 0 0 0 .67 2.93 .Valdez-Chitina- i~hi tti er 2.63 1.17 23.20 .26 5.71 68.60 0 .60 -, -·-, I. j Total 21.93 87.27 82.33 95.85 75.17 86.57 29.63 81.65 r [ [ [ [ [ u [ [' L [ [ Only 30 percent of the freight leaving Skagway is shipped to other areas of Southcentral Alaska. For a number of the divisions (Valdez, Kodiak, Kenai, and Cordova), Anchorage is the destination for major portions of their flows; while, as an illustration of the role of Anchorage in the statewide transportation system, less than 30 percent of Anchorage goods flows to other regions of Southcentral. The existing transportation links and the flows of freight show that the economies of Southcentral Alaska, when Anchorage is included, do exhibit a degree of functional integration. The integration described by the trade flows means that changes affecting one area will have corresponding effects in the other economies of the region. \ Homogeneity The economies of the Southcentral region vary in two ways which signifi- cantly affect their structure--size and basic sectors. 'Size will determine the economies of scale which can be reached in a region and the structure of the support sector. Larger economies can support larger, more diverse support sectors. The basic sectors also provide an irifluence on the support sectors and the economic structure. The economies of the South- central region can be separated into groups based on size and the basic sector. Kenai, Matanuska-Susitna, and Valdez are relatively large economies with nonfishing basic sectors. Mining and manufacturing are important for Kenai; construction and transportation, for Valdez; and the suburban phenomenon, for Matanuska-Susitna. The growth of these economies will not be affected by natural resource cycles. The remaining economies are significantly influenced by fisheries, and their attendant 103 cyclical behavior. These classifications are not distinct. Kodiak and Yakutat may experience significant petroleum development in the future which will change their economic base. Table 34 describes a measure of the structure of these local economies. The per capita employment in the support sector measures the relative size of the support sector (transportation-communication-utilities, trade, finance-insurance-real estate, services, and state and local government). This ratio provides an indication of how the economy would respond to exogenous changes in its population caused by expansion of the basic sector. The similarity among the structures of the local economies can be seen. Except for Valdez and Matanuska-Susitna, the ratio is close to .2. Valdez has a lower value because a large propor- tion of the population was enclave construction employment associated with TAPS which did not make full demand on the support sector. The low level of the ratio in Matansuka-Susitna results because of its sub- urban link to Anchorage. Comparison of the per capita support sector levels to the Anchorage level of .28 shows that the support sector, at least by this measure, is relatively undeveloped. The similarity of per capita support sector levels means that these economies may respond to future expansion of their populations in a similar manner. Southcentral Alaska is treated as a single region in our projections. The major question addressed in this section was whether it is valid to treat Southcentral Alaska as a single economy for projection. This is different than asking whether Southcentral Alaska is a single economy. 104 [ [ L r .. '( L r [ [ L c L_ [ L [ [ [ [ [ [ [' [ t 6 [ c [ L [ c L TABLE 34. THE STRUCTURE OF LOCAL ECONOMIES (The per capita level of support sector employment, 1976) Support Sector Per Capita Census Division Po2ulation Em2lo,Yment Su22ort Em2lo,Yment Kenai 16,753 3,521 .21 Seward 3,395 681 .20 Cordova-McCarthy 2,353 522 .22 Valdez-Chitina-Whittier 13,000 2,327 . 18 Matanuska-Susitna 14,010 1 ,888 .13 Kodiak 9,366 1,870 .20 Yakutat 550 122 .22 Anchorage 185,179 52,540 .28 SOURCES: Alaska Department of Labor, worksheets, except for Yakutat which is from Alaska Consultants, Yakutat, Comprehensive Plan, 1976. 105 Although the area is not fully integrated, we have shown that trade links do exist between the local economie~. Between 30 and 96 percent of the freight leaving Southcentral ports goes to other areas in the Gulf of Alaska region. The importance of Anchorage as a regional center should not be understated; Anchorage serves the region as the center for administrative, distributive, and financial servi~es. This both ties the region together and limits the growth of the support sectors in the local economies. The local economies were shown to have similar struc- tures. The relative importance of the support sectors in these economies was shown to be similar. Except for the Matanuska-Susitna Census Division, the ratio of support employment to population was around .20. This structural similarity means that the response of these local economies to exogenous change will be similar. Although we cannot assume that the response to exogenous change is completely independent of location, the above analysis of trade links and structural similarity shows that we can expect similar regional responses to exogenous change. By making the additional assumption that future changes will follow historical patterns, Southcentral Alaska can be used as a region for projection purposes. 106 r r L r-· I \ r- I l L [ [ [ [ [ L [ [ [ r~ [ [ [ [~ [' ~j B [ c [ [' [ L t ~-~~!~~~~TY. The econon~ of Alaska expanded rapidly during the period 1965 to 1976. The major industries responsible for this growth were construction and mining. Development of the Cook Inlet fields was important to gro\"lth in the early part of the period, while the development of Prudhoe Bay influenced economic growth significantly during the latter part of the period. The expansion of state government between 1970 and 1972 was also responsible for a portion of the economy's growth. The construc- tion of the trans-Alaska pipeline was the most important factor influenc- ing growth during the period. The economy experienced its fastest growth during the period of peak pipeline employment. \ The Alaska growth process consists of growth-initiating factors and the response of the economy to these factors. The major cause of growth was expansion of the basic sector industries--mining, construction, manufac- turing, agriculture-forestry-fisheries, and federal government. The response to change in these sectors occurs with the expansion of activity in the support sectors. Over the historical period, the response of the support sector has been nonproportional to the growth in the basic sector. The support sector has expanded its share of the economy as a result of the increased scale of the economy which allows a more local production of the goods and services consumed. This type of structural change can be expected to continue in the future. The growth associated with this period affected population, unemployment, and personal income. Population increased primarily because of in-migration 107 ·in response to the increased economic opportun·ities. Population did not respond as rap·idly as employment growth; this Vfas a result of a change in the character of the population. The increase in the population occurred mostly in the working ages. Unemployment was only minimally affected during the period, and the unemployment rate fell only during the period of most rapid growth in 1975. The seasonality component of unemployment fell throughout the period primarily as a result of the increased impor- tance of the less seasonal support industries. Growth increased real personal incomes; so that for most of the period, it increased faster than the U.S. average. Finally, prices exhibited a trend toward the U.S. level as the scale of the economy expanded. The r~pid expansion [ [ L r· with the TAPS caused this trend to be reversed. l~ 108 r u r L L r- ._, [ [ [ t c [ c [ L L c L...li [ III. THE ALASKAN ECONOMY IN THE BASE CASE This chapter will describe the projected growth of the Alaskan economy without the development of the Western Gulf of Alaska Outer Continental Shelf (sale no. 46). In order to examine the effect of previous OCS activity on the impacts of Western Gulf development, three alternative base cases will be examined. Each of these cases will have similar assumptions concerning future non-OCS developments, but they will have different assumptions about the development of OCS activity in Lower Cook Inlet, the Beaufort Sea, and the Northern Gulf of Alaska. The Purpose of the Base Case. Petroleum development in the Western Gulf of Alaska may affect both the structure and the size of the Alaska economy. Changes in the economy which result from the development of OCS resources can be defined as the itnpact of this development. The impact can only be described as changes from a certain pattern of economic growth which would have occurred without OCS development. The base case describes the projected growth of the economy without the development for which the impact is to be measured. Comparing two projections of the economy, the base case and the OCS case, will define the impact of OCS development. The base case scenarios described below are consistent, plausible patterns of development; however, they should not be mistaken for best-guess pat- terns of development in any sense. The actual pattern likely to occur is subject to an enormous amount of uncertainty determined by technology, 109 market prices, federal policies, and other uncertain events. To project any one economic future would be little more than idle speculation, since at this point many major events and decisions affecting Alaska are un- certain. The MAP model is designed to permit the formulation of ranges of scenarios which reflect these uncertainties in order to trace out the range of possible outcomes. This study does this in respect to various alternative OCS scenarios. The same approach could be used to determine the range of alternative non-OCS assumptions. To estimate the impacts of OCS development~ a single base case is needed. This must be selected on the basis of the consistency and plausibility of the assumptions, consis- tency with historical growth, and consistency with assumed future patterns \ of economic relations. The effect of this base case choice will be measured by testing the sensitivity of the results to certain of the more important assumptions. / The purpose of establishing a base case must be kept in mind when examin- ing the results. The base case ~s run in order to isolate the changes resulting from OCS development; this should influence the variables we examine. Rapid growth associated with OCS development will affect most economic variables. Although many variables will be affected, a much smaller number is important, and information on these dimensions of impact will describe the effect of rapid growth on state and regional economies. The base case will be analyzed to provide a point of refer- ence for these dimensions. 110 f [ f- ( L [ r 5 E L L [ L L r [ [ [ [ L L r~ L_; [ G [j' c c [ l L [ [ Base Case Assumptions The base case is defined by assumptions about the future levels of certain exogenous variables. The set of assumptions necessary for a base case scenario includes three important compo~ents. The first· involves assumptions about the level of employment in those industries whose level is assumed to be influenced by factors outside the economy, the exogenous industries. Those industries include manufacturing, agriculture-forestry-fisheries, federal government, mining, and a portion of the construction industry and the transportation industry. The second set of assumptions involves the level of certain exogenously determined revenues which result from the production of the petroleum industry. These include royalties, production taxes, property taxes, and corporate income tax. The final assumption concerns the rule which defines an assumed spending pattern for the state. The uncertainty surrounding the future petroleum and world energy markets, as well as economic decisions which influence state economic growth, means that any assumption about the appropriate base case scenarios is subject to criticism. An extensive development of a base case scenario which required considerable tin1e and research would, because of the uncertainty, be subject to the same type of criticism. The uncertainty involves such major factors as the construction and timing of the ALCAN gas line and future state spending policy. Because of this, an extensive development of the base case scenario was not undertaken in this study; instead, a reasonable set of assumptions was developed which placed emphasis on lll consistency of assumptions and reasonableness of approach. This section describes the set of assumptions used in the base case. NON-OCS ASSUMPTIONS Industry Assumptions There are two special groups of industry assumptions which are required. First, assumptions about employment connected with special projects, mainly resourcede-velopment projects, are needed. Secondly, assumptions about the growth of the major exogenous industries--manufacturing, agriculture-forestry-fisheries, and federal government--are required. Special projects include petroleum projects, major construction projects, and the operations of these projects. Petroleum activity is assumed to continue at Prudhoe Bay with further exploration and development of the Kuparak and Lisburne formations. Mining employment peaks in this area at 1,783 in 1980. The Upper Cook Inlet fields are the other major area of petroleum activity. Employment is assumed to increase from its present level between 1985 and 1990 as the oil fields are shut down. Gas production continues after 1990 but with a reduced work force. There is little other new mining activity in the state with other mining maintaining current levels throughout the projection period. Major construction projects in the state during the projection period include the Trans-Alaska Pipeline Service (TAPS) and the ALCAN gasline. TAPS is completed in 1977, after which the line's capacity is assumed to 112 r r f L -r· [ [ r~ E L [ [ L L I-- ., '---' [ [ r G [j [ [ [ c [ c ......., t be increased by the addition of four pun1p stations between 1979 and 1982. The ALCAN gasline is assumed to be built between 1981 and 1984 with peak employment of 4,800 in 1982. The only other special construction project in the state during the projection period is the construction of the Pacific LNG plant between 1980 and 1983; this project employment peaks in 1982 with 1,300 employees. TAPS is assumed to require 850 workers per year for its long-term operations. ALCAN operations employment is assumed to be 96 beginning in 1985. TArs• higher operations employment can be accounted for, since TAPS has more pipeline in Alaska, Valdez port employment is part of TAPS employment, \ and TAPS has substantial Alaska headquarters employment. Operations employment for the Pacific LNG plant is 60 beginning in 1984. The level of employment in federal government and agriculture-forestry- fisheries and output in manufacturing is set exogenously. Federal govern- ment employment is assumed to follow its general historical trend and remain constant at the 1976 level throughout the forecast period. The trend in the historical period reflected increases in civilian employment offsetting decreasing military employment. Employment in agriculture- forestry-fisheries is assumed to be dominated by increases in fisheries. Given favorable conditions, employment in Alaska fisheries has been pro- jected to increase by almost four times between 1975 and 2000. This will result with the establishment of an American trawl fishery which com- pletely replaces foreign fishing off Alaska (ISER, 1979). The opposite extreme would be an assumption of no employment growth without bottomfish 113 development. In this study, we assume an average rate of growth of 3 percent per year. This is consistent with moderate replacement of the foreign fishery by Alaskans (Scott, 1979). Output in manufacturing is assumed to increase at an average annual rate of 4 percent, which is consistent ~ith both the historical trend and the assumed growth in the fisheries industry. National Variables Alaska is part of the larger U.S. economy, and it is affected by changes in the national economy. Three assumptions about the future growth of the U.S. economy are needed. These assumptions are based upon the long- term projections of the consumer price index by Data Resources, Inc. Assumed U.S. rates were those from DRI 1 s TRENDLONG0678'forecast (DRI, 1978). This assumption assumes the continuation of long-term trends in important exogenous variables. The average annual rate over the period of the forecast was used as our assumption. The consumer price index was assumed to grow at 5.5 percent per year. The U.S. real per capita disposable income, adjusted to reflect consistent tax assumptions, was assumed to grow at 2.2 percent per year. Finally, DRI does not provide a projection of U.S. weekly compensation. U.S. weekly compensation was assumed to increase at a rate of 6.8 percent per year. Petroleum Revenues The petroleum revenues received by the state consist of royalties, pro- duction taxes, property taxes, and the corporate income tax. The major 114 r L, c L L r: ~ [ [ [ [ [ [ [ [ [ t B c [ [ L t source of these revenues in the projection period is the Prudhoe fields. The revenues are determined by the assumed rate of production of oil and gas and its wellhead value. Prudhoe oil production is assumed to peak in 1985 at 641.5 million barrels, while gas_production is assumed to maintain its peak production of 912 billion cubic feet per year once this is reached in 1987. The wellhead value of Prudhoe oil is deter- mined by the following assumptions: constant real West Coast market price of $12 per barrel, constant real vessel and processing costs of $1.75 per barrel, and a TAPS tariff of $5.25 in 1978. The nominal TAPS tariff is assumed to remain constant until 1990 when increasing operating costs are assumed to dominate decreasing capital costs; after 1990 the real tariff is assumed to remain constant. The wellhead value of gas was assumed to equal $1.00 per MCF in 1978; this assumes the producers pay a $.45 per MCF processing cost.2 These wellhead values are only part of an array of many possible wellhead values. The range of wellhead values is a function of the uncertainty about the future levels of those factors influencing these values. Revenues are determined by existing state laws describing royalties, production taxes, property taxes, and corporate income taxes. THE STATE EXPENDITURE RULE Because of the central role of state and local government in the Alaska economy and because the behavior of these governmental units depends largely on policy choices to be made over the next several years within 2These base case assumptions were selected prior to the passage of the 1978 Energy Bill which sets a ceiling of $1.68 per MCF on Prudhoe gas. 115 a framework far different from the past, the treatment of expenditures by state and local gover~ments is a central feature of any development scenario. Two factors determine the current framework in which state expenditure policy will be determined. First, revenues to the state will increase tremendously with the completion of the trans-Alaska oil pipeline. These revenues will follow closely the pattern of production from Prudhoe Bay. Secondly, the establishment of the Permanent Fund will place new con- straints on the use of certain petroleum revenues. The Permanent Fund was adopted in 1976 as a constitutional amendment. It established that a minimum of 25 percent of all mineral lease rentals, royalties, royalty sale proceeds, federal mineral revenue sharing payments, and bonuses received by the state would be placed in the fund. This forced savings is only a portion of the revenues available to the state. Revenues accumulating in the General Fund will be greater than in the Permanent Fund for most of the period. These changes in the structure of state spending limit the usefulness of past spending policies in determining the spending rules to be used. The rate of state expenditures, because it is a matter of policy choice to be made within a framework far different from past experience, cannot be modeled simply from past experience. However, past experience can provide a guide for developing the hypothetical spending rule used in the simulation. Scott, in his paper 11 Behavioral Aspects of the State of Alaska•s Operating Budget FY 1970-FY 1977,11 found two major factors 116 c [ [ L J_ L-i t [ [ [ r· l~ l_. [ r ·~ [ ~ 6 [ 6 [ b L b t responsible for the growth of state expenditures. First, real per capita state expenditures increased in response to real per capita income growth, a demand effect. Secondly, expenditures increased in relation to the available funds for state expenditures. The pattern between capital and operating expenditures differed. Capital expenditures increased strongly in response to available fund growth but the higher levels were not main- tained. The higher levels of operating expenditures were maintained. Adjustments to available funds seemed to provide a new base for the growth of these expenditures. Based on this analysis, the following pattern of state,expenditures was assumed. Expenditures were assumed to increase in response to increases in personal income. The income elasticity of both capital and operating expenditures was less than one to reflect assumed increases in scale economies associated with the production of state services. The major difference was that the real level of state operating expenditures was assumed to be maintained when real per capita income falls, while the level of capital expenditures was assumed to fall in response to this change. The response to fund availability was composed of two parts. Expendi- tures responded to changes in the general fund balance. The response was weighted depending on the existing surplus; the weight equalled the previous year fund balance divided by general fund expenditures. In other words, the response to a change in the general fund was weighted by the number of years of existing expenditures which could be taken out of the 117 general fund. The response of capital expenditures was greater than the operating expenditure response. Most relationships in the model are derived from historical relations. The elasticities in the operating and capital expenditure equations cannot be derived in this manner since the structure .will be uniquely different in the future. Assumptions about these elasticities must be made. The elasticities in both sets of equations are chosen so that the elasticity of real per capita income equals .5. Real per capita expenditures in- crease at half the rate that real per capita incomes increase. This rate was chosen both to reflect economies of scale in production of \ government services and to reflect a decreased importance of state gov- ernment in the Alaskan economy. Alaska has a much h.i gher ratio of state expenditures to personal income than other states, and it was assumed that this ratio should fall toward the other states. The elasticities for that portion of state expenditure growth which was affected by the fund availability were determined by examining the changes in the period 1970 to 1971 which was the last period of rising general fund balance. Changes in this period served as a guide for making assumptions about the fund balance elasticity of state expenditures. Elasticities on the increase in the general fund of 2 percent for the operating budget and 10 percent for the capital budget were used. Admittedly, these expenditure rules are highly speculative, but they seem to reflect the wide range of policy choices open to state govern- ment as a consequence of new oil revenues. It is impossible to predict 118 r- l_j [ [ b r ·~ [ [ l L L [ r- t.J 6 L c [ [~ [ r~ L the specific expenditure path. Because of this, we assume a hypothetical rule which is reasonable. The sensitivity of the impacts measured with this rule will be tested. ALTERNATIVE OCS SCENARIOS Three alternative scenarios describing OCS activity prior to the Western Gulf Lease sale will be described in this section. Three lease sale areas--the Lower Cook Inlet, Beaufort Sea, and the Northern Gulf of Alaska--are involved. The first Lower Cook lease sale took place in 1977. The Beaufort sale is scheduled for 1979. The Northern Gulf sale is sched- uled for 1980. The three alternative scenarios describe low, moderate, and high levels of activity in each area. The employment levels in each of these scenarios are described in Tables 35, 36, and 37. These scenarios differ in timing as well as magnitude. The Lower Cook scenarios range from an exploration-only case to a high case with peak employment of almost 2,500. The timing differs significantly between the moderate and high scenarios, with the moderate scenario reaching peak employment three years prior to the high scenario. The high Lower Cook scenario also contains the development of an LNG plant with 60 employees during its operation. All three Beaufort scenarios contain production of oil and gas. There is less variation in the Beaufort scenarios than in Lower Cook. In all cases, peak employment occurs in 1989; it ranges from 740 in the low scenario to 1 ,344 in the high scenario. Since the Beaufort is a joint 119 T/\BlT 3~i. Lm-111{ COOK INLET EMPLOYMENT SCENAIUOS Low 1 2 H" h 1 Moderate lg --- Mining Mining Construction Mining Construction Manufacturing 1978 84 70 0 84 0 0 1979 126 321 88 126 0 0 1980 252 664 162 252 0 0 1981 210 804 108 486 213 0 1982 126 572 38 776 213 0 1983 84 523 0 1 ,285 543 0 1984 42 622 0 1,590 858 0 1985 42 604 0 1,548 317 0 1986 0 545 0 1,347 0 60 1987 0 411 0 1 '139 0 60 1988 0 417 0 1 '139 0 60 1989 0 417 0 1 ~ 139 0 60 1990 0 417 0 1 '139 0 60 1991 0 417 0 1 '139 0 60 1992 0 417 0 1 '139 0 60 1993 0 417 0 1 '139 0 60 1994 0 417 0 1 '139 0 60 1995 0 417 0 1 '139 0 60 1996 0 417 0 1 '139 0 60 1997 0 417 0 1 '139 0 60 1998 0 417 0 1 .139 0 60 1999 0 417 0 1 '139 0 60 2000 0 417 0 1 '139 0 60 1Based on scenarios in Lower Cook Inlet, Final Environmental Impact Statement, 1976. 2Based on Lower Cook Inlet scenario in Beaufort Sea Petroleum Develop- ment Scenarios. Economic and Demographic Impacts, Technical Report No. 18, Alaska OCS Socioeconomic Studies Program, 1978. pistribution between off- shore/onshore and industry was based on the distribution in the Lower Cook EIS. 120 [ [ 6 L [ [ [ L r : '-' [ r [ TABLE 36. BEAUFORT SEA OCS EMPLOYMENT SCENARIOS r Low Moderate High [ Mining Construction Mining Construction Mining Construction L 1981 67 49 67 49 67 49 1982 198 198 198 198 198 198 1983 198 247 198 247 198 247 1984 232 247 232 247 232 247 r 1985 67 99 67 99 67 99 .J 1986 70 281 112 304 70 403 c 1987 123 331 276 333 148 642 1988 228 395 479 466 321 810 1989 345 395 616 466 583 761 r~ 1990 387 132 595 155 710 254 \~ . .J 1991 434 132 524 155 . 758 254 [ 1992 388 66 503 77 748 127 1993 355 132 432 155 681 254 1994 333 132 535 155 647 254 1995 334 59 438 77 616 127 [ 1996 333 18 440 22 . 572 36 1997 332 0 417 0 551 0 fJ 1998 330 0 393 0 547 0 1999 327 0 393 0 548 0 2000 325 0 394 0 542 0 E c c [ L [ SOURCE: BLM-A1aska OCS Office. G 121 L 1981 1982 1983 1984 1985 1986 1987 ...... 1988 N N l9B9 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 TABLE 37. NORTHERN GULF OF ALASKA OCS EMPLOYMENT SCENARIOS Low 1 Monufocturing and Mining Construction Trans po rtnti on Mining 149 0 82 106 149 0 82 171 114 0 62 271 21 0 17 284 0 0 0 315 0 0 0 286 0 0 0 305 0 0 0 576 0 0 0 779 0 0 0 1 '114 0 0 0 1 ,198 0 0 0 1 ,034 0 0 0 939 0 0 0 840 0 0 0 865 0 0 0 965 0 0 0 990 0 0 0 1 ,015 0 0 0 1 '01 5 0 0 0 1 '015 1 Sear adjusted Moderate 1 Con stru cti on 0 0 0 0 254 533 915 777 627 622 88 0 0 0 0 ~-- 0 0 0 0 0 Manufacturing and Tronsportation ,...--, i. .1 68 87 146 155 173 290 248 262 367 325 286 261 285 285 285 285 285 285 285 285 Mining 166 266 340 418 391 370 399 798 1 ,539 2,300 2,461 2,279 2,248 2,154 2,014 2,044 2 '144 2 '194 2 ~ 194 2,156 Highl Manufoctu ring and Construction Transportntion 0 82 0 144 0 185 765 227 2 '1 01 430 2,208 340 2,222 363 1,888 713 998 621 444 820 449 830 139 689 0 671 0 695 0 695 0 695 0 695 0 695 0 695 0 683 ;--'1 [ r~ [ [~ '. [~ [ [ r ~~ [ [ [ 6 c c [ [; L E t state-federal lease sale, it also provides increased revenues to the state. These include bonus, royalty, severance tax, property tax, and corporate income tax revenues. They are described in Appendix B. Only the moderate and high scenarios for the Northern Gulf contain produc- tion. The low scenario, as in the Lower Cook, is an exploration-only case. Peak employment occurs in 1990 in the moderate case and 1991 in the high case. Peak Alaskan resident employment equals 3,740 in the high case and 2,061 in the moderate case. Developing these alternative base case scenarios &llows us to assess the effects of the level of previous OCS activity on the impacts of the sale under consideration. The uncertainty of the level of OCS activity makes this necessary. By comparing the impact of a Western Gulf scenario with different base case scenarios, we can assess the sensitivity of development to previous OCS activity. The Causes of Economic Growth The growth of the Alaskan economy is determined by three separate but interrelated factors: changes in the level of employment in the exogenous sectors of the economy, changes in the level of personal income, and changes in state expenditures. If we measure economic growth as the expansion of employment, the effect of these factors can be seen. Growth of the exogenous sector directly affects economic growth by the employment it creates. The growth of this sector is determined by 123 external demand for Alaskan products. The most obvious example of this type of growth is the employment associated with the construction of the trans-Alaska pipeline. The employment generated by this project was determined by demand for Alaska 1 s petroleum resources. The growth of state expenditures is another source of economic growth. State expenditures are a source of growth since they translate revenues raised outside of the Alaskan economy such as petroleum-related revenues into demand for Alaskan products. State expenditures influence employ- ment growth in two ways. First, state capital expenditures on projects such as ports and highways increase the output of the construction indus- try. This increases the demand for construction employment. Secondly, state operating expenditures are partially spent on personnel expenditures. This determines the level of state government employment. State spending will be determined by two influences which are proxies for demand and supply effects. Growth of income will generate demand for in- creased government services. The second influence on expenditures is a supply influence. With the flow of revenues from Prudhoe Bay oil and gas, Alaska will begin to accumulate a surplus in its General Fund. This surplus, unlike the surplus in the Permanent Fund, can be used for state government expenditures. This fund balance is assumed to have a supply effect on expenditures, causing them to be increased as funds accumulate in the balance. This is an assumption which is required about future state spending patterns. The effect of state expenditures on employment is determined by the wage rate of state employees. Once 124 state personnel expenditures are determined, the wage rate determines the number of state employees. Employment in each of these sectors influences the growth of the economy through the increased demand for goods and services produced in Alaska. For endogenous sectors, employment is determined by the demand for labor needed to produce a desired level of output. The demand for output is a function of real disposable income. Demand is income elastic, so that increases in personal income lead to increased demand. This effect is simultaneous; increased incomes lead to increased'demand which increases employment. This increased employment generates its own demand, and the process continues. The process stops when leakages outside the economy dominate the flow of income. Income increases with increases in the average income per worker and with increases in the number of workers in the economy. The average income is substantially determined by wages and salaries, so it reflects changes in the wage rate. The real wage rate is determined by changes in prices, bottlenecks in the economy associated with rapid growth, and changes in outside wages. The U.S. labor market affects the Alaskan real wage rate because of the small size of the Alaskan labor market and the mobility of Alaskan workers. Because of these factors, migration becomes the equilibrating factor maintaining the relation between Alaska and U.S. wages. Changes in the sectoral composition of employment will also affect the average wage. As high wage sectors such as construction and mining increase in importance, wages and salaries will increase more than proportionally to employment growth. 125 The response of the economy to increases in income will be determined by the structure of the economy. Larger economies provide more of their own goods and services, there are fewer leakages, and the multiplier is larger. This results because economies of scale allow lowered produc- tion costs and the substitution of local production for imports. Growth, by affecting the structure of the economy, will also influence the response of the economy to increases in income. The effect of an increase in personal income on growth will also depend on the increase in prices resulting from growth. Real income determines the demand for goods and services. The price level of the Alaskan economy is determined by U.S. prices since Alaska imports most of its goods. The size of the economy also affects the price level; larger economies provide economies of scale which reduce the cost of production and reduce prices. The rate of growth also affects prices. Rapidly growing regions are more subject to bottlenecks and supply constraints which lead to price increases. Employment and income growth influence the growth of population in the state. Population grows as a result of natural increase and migration. Natural increase (the excess of births over deaths) is a function of the age distribution of the population. Migration is determined by the rela- tive economic opportunities available in Alaska. Changes in employment opportunities and the relative per capita income between Alaska and the rest of the United States will determine migration. Migration has a con- siderable effect on the age-sex distribution of the population. Migration 126 [ L r· r G f-·, _j [ [ [ L [ L [ [ [ 6 c c [ L L t L which is determined by economic opportunities primarily affects the age group under forty. Migration after forty years of age is a response to other factors such as retirement and the high cost of living {Seiver, 1975). State economic growth does not occur uniformly throughout the state but varies by region. Regional growth depends on the factors causing grovvth. Factors which have a similar influence on state growth may affect the growth in each region differently. For example, equal growth in state government employment and exogenous employment, although they may affect state growth the same, will differ in their regional impacts, depending on the concentration of exogenous employment and the dispersion of state government expenditures. · The causes of regional growth are the same as those at the state level-- increases in exogenous employment, increases in personal income, and in- creases in state expenditures. Growth of any of these factors within the region will lead to growth in the region. The economies of Alaskan regions are not independent, but are interdependent. Because of this, growth in one region will affect growth in other regions. Four processes reflect this interaction; the strength of the interdependence of the Alaskan regional economies depends on the strength of these processes. First, government spending works to distribute growth between the regions. Increases in state revenues which result from growth in one region will be translated into growth in other regions through the distribution of state expenditures. State expenditures are distributed to a region in 127 relation to its population. However, government centers such as Anchorage and Juneau receive a greater-than-proportionate share of state expendi- lures hccattse of the administrative and headquarters functions they serve. Second, changes in state wage rates will affect growth in the reg·ions. Increases in wage rates increase personal incomes in each region and the demand for goods and services in each region. Third, regions which serve as regional centers will reflect growth in other regions, since they provide goods and services to other regions. The growth of Anchorage which serves as the financial, distributional, and adminstrative center of the state is the most obvious example of-this, although smaller centers such as Fairbanks also experience this type of relation. Finally, migra- tion between regions illustrates interaction of the regional economies. Residents of one region respond to employment opportunities in another region by migrating to it, so that employment growth in one region determines the population of other regions. 128 [ [ c [ [ [ [ b [ L c [ [ [ [~ [' r [ c [ [~ E [ [ [ L [ The Alaskan Economy Moderate Base Case Growth The base case describes the general pattern of the Alaska economic growth without development in the Western Gulf of Alaska OCS. The impact of Western Gulf development will be measured as changes from this base case pattern of growth. In analyzing the projected base case growth, we will examine the change in the magnitudes of the important economic variables, as well as changes in the economic structure or process of growth. The historical economic growth serves as a reference for describing future projected growth. Between 1965 and 1976, the Alaska economy experienced rapid growth. Employment grew at an annual average rate of 8.4 percent throughout the period. Expansion of the mining and construe- tion was largely responsible for this growth. Economic growth also produced some structural changes. The most significant of these were the increased importance of the support sector and the aging of the population. Population grew at an annual rate of 4.1 percent over the period; migration was responsible for the large proportion of this growth. Growth had little effect on unemployment but did improve real per capita incomes of Alaskans relative to the U.S. average. Historical growth had opposite effects on prices. As the scale of the economy grew, the price level relative to the United States fell; however, the ·rapid growth connected with the impact of TAPS reversed this trend. The overall growth of the state economy in the future will be affected by growth in its basic sector. Rapid increases or declines in this 129 sector provide interesting periods for our analysis. The early 1980s are important for basic sector growth. Two special construction proj- ects, the ALCAN gas line and the Pacific LNG plant, have peak construe- '- tion years between 1981 and 1983. Mining activity is also important. Prudhoe employment is assumed to fall from about 1800 in 1980 to about 900 in 1983 and then begin to rise; Lower Cook OCS activity peaks in 1981; and Beaufort and Northern Gulf OCS development begin in 1981. Another event of importance is the shutdown of the Upper Cook Inlet oil production in 1990. This reduces mining employment by 450, an 11 percent fall. Peak Prudhoe oil production occurs in 1985; the effect of this on revenues to the state government makes this an important point in time to consider. THE STATE The General Pattern of Development Economic growth is a multidimensional process which no one indicator can describe. While population, employment, and personal income do not describe the full range of growth, they can be used to describe the general pattern of growth. Employment measures the ability of the economy to create jobs; personal income measures the effect of the economy on residents' command over goods and services; and population growth describes the response of people to these changing economic opportunities. Table 38 shows the projected levels of population, employment, and personal income. Overall, there is substantial growth although not so rapid as in the 1965-to-1976 period. 130 ( L [ c [ [ .[~ ·' f' L [ c 6 c c [ c L L l 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 TABLE 38. AGGREGATE INDICATORS OF ECONOMIC GROWTH MODERATE BASE CASE, ALASKA 1977-2000 Personal Income Po~ulation Employment (Millions of Nominal 410,660 185' 508 4,072 406,667 178,526 4,236 418,656 185,225 4,743 434,173 194,054 5,395 456,078 206,859 6,420 487,441 225,394 7,958 504,694 231,506 8,645 503,802 224,632 8,360 513,372 227,742 9,008 530,903 236,983 10' 155 551,736 248,235 \ 11 '535 573,044 259,246 12' 979 593,590 269,355 14,453 612,523 278,055 15' 919 626,140 282,828 17 '082 639,242 287,596 18,420 655,575 295,033 20,171 672,781 303,083 22, 121 692,017 312,619 24,367 713,324 323,534 27,051 734a418 334,057 29,785 756,187 344,923 32,888 780,692 357,663 36,514 805,725 370,496 40,496 SOURCE: MAP Model. 131 $) Population is projected to be approximately 805,700 by 2000. Between 1978 and 2000, the population grows at an annual rate of almost 3.2 percent. This rate is approximately 25 percent less than the average annual growth rate experienced between 1965 and 1976 but faster than the average rate of 2.8 percent experienced prior to the construction of TAPS. Population falls after the completion of both TAPS in 1977 and ALCAN in 1983. In each case, population declines by less than 1 percent; and the peak population is exceeded the following year. The most rapid period of population growth occurs between 1978, the year TAPS is completed, and 1982, the peak year of ALCAN construction. During this period, population increases at a rate of 4.6 percent per year. \ Employment is projected to grow at an average annual rate of 3.4 percent, reaching approximately 370,500 by 2000. Like population, employment ex- periences its greatest growth between 1978 and 1982 when"it grows at a rate of 6.0 percent per year. These projected growth rates are not so great as the 8.4 percent rate of growth experienced between 1965 and 1976. Employment is projected to decline after completion of both the TAPS and ALCAN projects. The decline is more substantial than the decline in population, which is approximately 4 percent in each case. The 1983 employment level is not reached until 1986. Employment is pro- jected to grow faster than population throughout the forecast period; this supports the trend observed in the historical period. The dependency ratio falls from 2.28 in 1978 to 2.2 by 2000. 132 r, L [ L c [ [ [ L L I ~ "-' [ [ L 6 c c [ [ [ r: ...__, t The growth in personill income is re lilted to the growth in e111p l oyment, since wages and salaries at~e a majm· component of personal income. Changes in the composition of employment, changes in the productivity of labor, and changes in the level of prices will result in differential rates of growth between personal income and empl6yment. Personal income is in nominal dollars, so it reflects both the real growth of the economy and increases in prices. Personal income grows at an annual average rate of 10.8 percent. Personal income grows faster in the period prior to the 1983 ALCAN peak construction. Between 1978 and 1982, personal income grows at a rate of 17.1 percent per year; which is twice the average yearly rate after 1983. This illustrates the importance of the high-wage pipeline construction employment to growth in personal income. Between 1978 and 2000, personal income grows at a~ annual average rate of 10.8 percent, which is less than the 15.4 percent rate experienced between 1965 and 1976. Although population, employment, and personal income do not experience growth at so rapid a rate as they experienced between 1965 and 2000, economic growth is projected to be substantial. Employment is projected to increase by 107 percent, population by 98 percent, and personal income by 856 percent between 1978 and 2000. The difference between the projection and the historical period is caused by the major role pipeline construction played in the historical period. 133 Emp~ment and the Structure of the EcononlY_ The increased demand for industrial output will result in growt~ of 1\laska employment. Total 1\laska employment is projected to more than double by the end of the projection period. He saw in the historical period that growth does not occur in all industrial sectors evenly. Between 1965 and 1976, we observed structural change which increased the importance of the support sector in the economy. The projected economic growth continues the structural change observed in the historical period. Table 39 illustrates the changing structure of the -Alaska economy. This table shows the growth of three sectors of the Alaska economy--the support sector which includes transportation-communication-utilities, trade, finance, and service employment; the government sector which includes state, local, federal civilian, and federal military employment; and the basic sector which includes mining, manufacturing, agriculture- forestry-fisheries, and construction. The sector which is projected to grow most rapidly is the support sector. This sector grows at an annual average rate of approximately 5.1 percent bet\-Jeen 1978 and 2000; this is faster than the growth of total employment. The support sector expands more rapidly in all parts of the period. This sector expands its share from approximately 37 percent of total employment in 1978 to 53 percent by 2000. Expansion of this sector is consistent with past trends in the Alaska economy. This projected expansion of this sector does not exceed the limits suggested by national comparisons. The projected share is close to the average share of this 134 [ 1978 1980 1985 1990 1995 2000 TABLE 39. THE STRUCTURE OF EMPLOYMENT MODERATE BASE CASE, ALASKA 1978,1980, 1985, 1990, 1995,2000 Support Sector Government Basic Employment % of Total Employment % of Total Employment 66,504 37.3 68,862 38.6 43,159 76,658 39.5 69,783 36.0' 47,612 97,786 42.9 74,546 32.7 55,410 130,174 46.8 80,037 28.7 67,844 155 ,621 49.8 82,001 26.2 74,997 197,090 53.2 84,669 22.9 88,737 Sector % of Total 24.2 24.5 24.3 24.4 24.0 24.0 Support Sector includes transportation-communication-public utilities, trade, finance~ and service employment. Government includes state, local, and federal employment. Basic Sector includes mining, manufacturing, agriculture-forestry-fisheries, and construction employment. SOURCE: MAP Model 135 sector in the U.S. economy and several small states described in Table 7. The support sector expands because of increased demand for goods and services. Demand increases as incomes increase. The nonproportional response of this sector occurs as the scale of the economy expands and allows more local production of these goods and services. The nongovernment basic sector maintains a relatively constant share of total employment throughout the projection period. Its share is close to 24 percent in all but the years connected with large special projects. The share of total employment is between 25 and 26 percent in the period with ALCAN construction. Employment in the nongovernme'nt basic sector expands at an average annual rate of 3.3 percent between 1978 and 2000. Employment in this sector reaches a peak of over 58,000 in 1982 and 1983 when both the ALCAN and Pacific LNG projects are at their peak. After completion of these projects in 1983, basic sector employment falls by almost 7 percent. The peak level is not reached again until 1987. Growth in this sector after the ALCAN project ends in 1984 averages an annual rate of 3.1 percent. Growth is mostly a result of the expansion of manufacturing and construction since there is only limited expansion of special projec~ construction and mining. The growth of the government sector is a result of the expansion of state and local government since federal employment is assumed to follow its historic trend and remain constant. State and local government employ- ment increases by almost 16,000 between 1978 and 2000. The growth of state and local government is not strong enough to maintain the share of 136 [ [ [ ,~ [ [ c [ [ L [ r: L L [ [ [ [ [ [ L [--, _, [ (' [ 6 [ L [ ~ L the government sector. The share of government employment falls from almost 39 percent in 1978 to 23 percent in 2000. Population Population grows through natural increase and net in-migration. Natural increase occurs when there is an excess of births over deaths. Migration results in population increases when in-migrants outnumber out-migrants, and population decreases when the opposite is true. Each of these factors affects not only the size of the population but the age and sex distribu- tion as well. The projected population increase of 399,000 between 1978 and 2000 is significantly affected by migration. Population growth in the base case also continues the aging of the population. Table 40 shows the components of population change. As in most small regions experiencing rapid growth, migration is the most important component of population change. Table 40 shows net migra- tion from the previous year. Between lq78 anrl ?nnn, almn~t half nf thP population growth is net in-migration. Net in-migration occurs in all but three years of the projection period; net out-migration occurs in 1977, 1978, and 1984, years following the completion of major TAPS and ALCAN construction. The economic opportunities associated with ALCAN and Pacific LNG construction are also responsible for major in-migration in 1981 when migration is responsible for 68 percent of the population growth, and 1982 when migration accounts for 76 percent of the popula- tion growth. Migration also plays an important part in population growth between 1986 and 1990 when the Northern Gulf is developed. Migration is 137 TABLE 40. THE COMPONENTS OF POPULATION CHANGE MODERATE BASE CASE, ALASKA . 1977-2000 Net Migration Natural Increase 1977 -24,935 6,383 1978 -11 '241 7,202 1979 5,268 6,697 1980 8,650 6,870 1981 14,768 7' 144 1982 23,727 7,654 1983 8,784 8,501 1984 -9,582 8,697 1985 1,383 8,163 1986 9,400 8' 127 1987 12,437 8,403 1988 12,531 8,788 1989 11 '392 9", 165 1990 9,453 9,491 1991 3,888 9,735 1992 3,344 9,754 1993 6' 561 9,767 1994 7,288 9,918 1995 9,140 10,097 1996 10,959 10' 351 1997 10,423 10,676 1998 10,801 10 '972 1999 13,230 11 ,280 2000 13,357 11,682 SOURCE: MAP Model 138 [. ~ L [ [ [ c [ c [ L [ responsible for over fifty percent of population growth in each of these years. Population growth results in changes to the age-sex distribution of the population. Table 41 compares the age-sex distribution of the population in 1980 and 2000. The aging of the population is projected to continue~ with the cohorts over 30 gaining as a proportion of the population. The proportion of the population over 30 increases from 37.6 percent in 1980 to 43 percent in 2000. One reason for the fall in the dependency ratio can be easily seen; between 1980 and 2000~ the proportion of children (0-14) falls from 29.6 percent to 28.1 percent. Personal Income Personal income is projected to increase at an average rate of 10.8 percent per year. Increase in personal income is one of the benefits of growth; it measures the command of residents over goods and services. The full effect of increases in personal income is diminished by increases in prices; as prices of goods and services increase~ a dollar can buy less. Economies which increase real personal income may not be increasing benefits if it does not increase as fast as population. Increases in real per capita income measure real increases in the command of the average resident over goods and services. Table 42 shows the projected change in th~ price level (RPI) and real per capita income. 'The Alaska relative price index measures the increase in Alaska prices relative to a 1957 U.S. average. RPI increases at an average annual rate 139 TABLE 41. AGE-SEX STRUCTURE OF THE POPULATION MODERATE BASE CASE, ALASKA 1980, 2000 1980 2000 Age Cohorts Males Females Males Females 0 -14 15.08 14.56 14.27 13.81 15 -29 18.47 14.33 15.84 13.09 30 -49 13.35 12.12 14.83 13.37 50 -59 3.31 2.92 3.83 3.70 60 + 3.06 2.81 3.37 3.90 SOURCE: MAP Model 140 [ [ [ [ [ [ [ L l_. ~ . L- -L- r L [ [ [ c r~ L L r L r L [ c D c L [ L L r: i..i [ TABLE 42. REAL PER CAPITA INCOME MODERATE BASE CASE, ALASKA 1977-2000 Real Per Capita 1 Alaska Relative Price Index Income ($ 1957 us = 100) . 1977 3,924 252.71 1978 3,724 279.75 1979 3,862 293.36 1980 4,029 308.40 1981 4,323 325.62 1982 4,721 345.81 1983 4,737 361.63 1984 4,448 373.05 1985 4,511 389.00 1986 4,687 408.12 1987 4,873 429.09 1988 5,026 450.64 1989 5 '151 472.73 1990 5,250 495.08 1991 5,282 516.52 1992 5,347 538.94 1993 5.461 563.47 1994 5,579 589.39 1995 5,706 617.10 1996 5,864 646.66 1997 5,988 677.29 1998 6,132 709.32 1999 6,290 743.61 2000 6,448 779.46 1Deflated by Alaska Relative Price Index SOURCE: MAP Model 141 of 4.8 percent, between 197B and 2000. Over the period, RPI moves toward the U.S. average since United States CPI is assumed to increase faster, at a rate of 5.5 percent per year. This supports the pre-pipeline trend; as the scale of the economy increases and more goods and services are produced locally, the price level falls relative to the U.S. average. During the buildup of the ALCAN and Pacific LNG, RPI increases faster than the United States CPl. This diverging price level is a result of the rapid growth connected with development. Overall. the price level follows trends similar to the historical growth. Real per capita income expands by 73 percent between 1978 and 2000. The average rate of growth is 2.5 percent per year. This is less than the 5.4 percent growth in real per capita income between 1965 and 1976 and the 3.5 percent annual growth rate prior to TAPS construction between 1965 and 1973. This rate is slightJy greater than the 2.2 percent increase assumed for the United States in general. The high wage of special project construction workers affects real per capita incomes-- real per capita income peaks in 1982 and 1983 and falls by 6 percent after the peak ALCAN year. The rise in real per capita incomes shows an increase in benefits of growth; however, this does not address distributional questions concerning personal income. The State Fiscal Position. Over the projection period, state government will receive revenues from petroleum development which exceed current levels of expenditure. State government•s decision on the expenditure of these revenues will influence the growth of the Alaska economy. In 142 r: r - r - [j [ L L [ [ [ [ [ [ [ r L [ [ B - ' [ [ [ L l r: L...i [ the historical period, we observed state government's role in the growth process. State government contributes to growth by the expenditure of revenues directly through state government employment and indirectly through capital expenditures which influence the level of activity in the construction sector. When revenues from outside the economy such as exogenous petroleum revenues are spent, this extra demand causes growth. This section describes the projected revenues to the state, the state's projected expenditures, and the overall fiscal position of the state in the projection period. State Revenues. The State of Alaska has two major sources of revenues: exogenous petroleum revenues which are determined by the flow of oil and gas on state lands and endogenous revenues which are determined by the state's economic activity. Endogenous revenues include income tax, busi- ness taxes, and other revenues determined by the growth of the economy.1 Table 43 shows the growth of state government revenues between 1977 and 2000. Total revenues are almost $7.0 billion larger in 2000 than in 1977. Overall, these revenues increase at a rate of 10.4 percent per year. Prudhoe oil revenues peak in 1985. Prior to 1985, the rate of increase in revenues averages 20.9 percent per y&ar, while this slows to 5.2 percent following 1985. The pattern of revenues follows the pattern of petroleum revenues received by the state. 1other tax revenues include revenues from the personal income tax, nonpetroleum corporate income tax, business license tax, motor fuels tax, alcohol tax, cigarette tax, school tax, ad valorem tax, and other mis- cellaneous taxes. 143 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 SOURCE: MAP Model TABLE 43. STATE REVENUES MODERATE BASE CASE, ALASKA 1977-2000 (Millions of Nominal Dollars) General Fund Petroleum Revenues Revenues 796 197 1,054 471 1 ,441 861 1,625 996 1,989 1 ,278 2,331 1,476 2,655 1,643 3,230 2,122 3,639 2,422 3,833 2,431 4,100 2,482 4,377 2,523 4,665 2,571 4,804 2,467 4,975 2,414 5,202 2,438 5,457 2,467 5,686 2,435 5,911 2,381 6,213 2,373 6,555 2,374 6,911 2,372 7,316 2,378 7,773 2,379 ~44 Other Tax Revenues 214 207 274 313 356 438 554 654 688 r i 751 l_ 820 914 1,006 1,095 1 '172 1 ,258 1 ,364 1 ,482 1 '614 1 ,789 1 '991 2,213 2,478 2,790 L [ r L [ l~ [ [ L [ E f [ L [ L L [ The most important source of revenues to the state during the period between 1977 and 2000 are petroleum revenues. Petroleum revenues include royalties, production taxes, property taxes, and petroleum corporate income taxes from petroleum production. Petroleum revenues are earned from production on state lands in Upper Cook Inlet, Prudhoe Bay, and the Beaufort Sea. Because of their importance, Prudhoe Bay production domi- nates these revenue flows. Petroleum revenues increase until 1989, after which their general pattern is declining revenues. The decrease~in reve- nues reflects declining production at Prudhoe Bay. Between 1977 and 1989, yearly petroleum revenues increase at an average rate of over 23.8 percent a year. After 1989 petroleum revenues fall, falling 7.5 percent by 2000. Other tax revenues, which include personal and business taxes, increase throughout the projection period. The increase in these revenues results from the growth of the economy. These revenues grow at an average rate of 11.8 percent between 1977 and 2000. Other tax revenues fall after comple- tion of TAPS in 1977. The increase in these revenues after 1990 counter- acts the decline in petroleum revenues. ~tate Expenditures. State government expenditures increase during the projection period; they are shown in Table 44. The increase in state expenditures is a result of two forces. First, expenditures grow as a response to the general growth of the economy. Increased population and prices result in increasing expenditures to provide the same level of services as measured by real per capita expenditures. The growth of income is assumed to increase the demand for the level of services provided. The second force operating on state expenditures is the 145 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 TABLE 44. STATE EXPENDITURES MODERATE BASE CASE, ALASKA 1977-2000 Total Expenditures (Millions of Nominal Dollars) 1 '161 1 ,311 1 .415 1,567 1 ,744 2,019 2,380 2,595 2,762 3,099 3,454 3,873 4,288 4,713 5,092 5,419 5,797 6,254 6,733 7,268 7,888 8,561 9,296 10,135 1oeflated by Alaska Relative Price Index SOURCE: MAP Model 146 Real Per Capita1 Expenditures 1 '119 1 '152 1 '152 l, 170 1 '174 1 '198 1,304 1 ,381 1,383 \ 1 ,430 1.459 1 ,500 1,528 1 ,554 1 '575 1 ,573 1 '569 1 ,577 1 ,577 1 .576 1,586 1 ,596 1 ,601 1 ,614 r L r [ [ [ [ [ I • .. ~ .. [ [ L 6 [ c [ L [ l L accumulation of unspent revenues. These revenues will place pressure on the government to increase expenditures. State expenditures increase more than eight times between 1977 and 2000. The average annual growth rate during this period is 9.9 percent per year. After 1989, when petroleum revenues peak, the growth of expenditures is at a rate ofonly 8.1 percent per year. The projected growth in state expenditures repeats, over a much longer period, the experience of the state after the Prudhoe lease sale. The Prudhoe Bay experience may pro- vide an indication of how the state will expand services in the future. Despite the rapid growth of expenditures during the historical period, the functional distribution of expenditures remained fairly stable .. From this, we may be able to infer that the state will continue to distribute expenditures between the nine functional categories (ed~cation, social services, health, natural resources, public protection, justice develop- ment, transportation, and general government) as in the pas·t (Goldsmith, 1977). Real per capita expenditures can be considered a measure of the level of state services received by an individual •. Increases in state expenditures \ are of two types--providing additional services and providing the same level of services to an increased population. Increases in services occur throughout the period. Real per capita expenditures increase by 44.2 percent between 1977 and 2000. This is a modest expansion when it is compared to the rise in real per capita expenditures of 118 percent between 1969 and 1973 (Goldsmith, 1977). The growth in real per capita 147 ·expenditures is not even throughout the period; almost 83 percent of the increase occurs between 1977 and 1989 when oil revenue~ peak. Balances. The huge increases in revenues which result from the produc- tion of oil and gas place the State of Alaska in a unique position. The excess revenues available allow the state to build up its fund balance. These funds not only provide a source of future revenues; they also gen- erate interest earnings which increase yearly revenues. There are two types of fund balances: the permanent and general funds. (See Table 45.) The permanent fund is a legislated savings account for the state. In 1976 Alaska adopted a constitutional amendment which established the permanent fund. The relevant section of the constitution is Article IX, Section 15, which reads: ALASKA PERMANENT FUND. At 1 east twenty-five percent· of all mineral lease rentals, royalties, royalty sale proceeds, federal mineral revenue sharing payments, and bonuses received by the State shall be placed in a permanent fund, the principal of which shall be used only for those income producing investments specifically designated by law as eligible for permanent fund investments. All income from the permanent fund shall be deposited in the general fund unless otherwise provided by law. This establishes the permanent fund as a minimum amount of petroleum revenues which cannot be spent. The permanent fund grows continually throughout the projection period. By 2000 there are $4.9 billion in the permanent fund. The general fund includes the remainder of the state's unspent revenues. For most of the period, the general fund is more important than the permanent fund. At its peak in 1996, the general fund has almost $12 billion, which is greater than three times the amount in the permanent fund. The decline in petroleum revenues after 148 [ [ ~ [ L [ L L [ [ [~ r r· [ L r \ _ _, r~ L [ [ c- L L ., ' [ L L r~ ._, [ 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 SOURCE: MAP Model TABLE 45. STATE FUND BALANCES MODERATE BASE CASE, ALASKA 1977-2000 {Millions of Nominal Dollars) General Fund Permanent Fund Balance Balance 668 2 617 49 815 153 1,054 275 1 ,501 411 2,055 563 2,627 732 3,550 949 4,738 1,188 5,852 1,437 6,947 1,684 7,972 1,936 8,934 2,193 9,687 2,445 10,294 2,689 10,844 2,937 11,330 3,188 11 ,667 3,437 11,833 3,681 11 ,851 3,924 11,695 4,168 11,342 4,413 10,790 4,660 10,006 4,907 149 Fund Balance Interest 35 47 47 69 94 136 186 239 320 421 517 613 703 790 861 922 979 1,032 1,074 1,104 1,124 1 , 131 1 , 125 1 '1 05 1989 reduce the rate of increase in the general fund. Beginning in 1997, the general fund is drawn down for expenditures. Between 1996 and 2000, the general fund is reduced by almost $2 billion. The cyclical nature of petroleum revenues and their importance as a part of state revenues mean that when expenditure policies are tied to revenues, they will eventually lead to expenditures in excess of revenues. Since the increase in ser- vices cannot be supported by normal revenues, the fund balance must be drawn on. Changes in the rate of spending out of revenues will only affect the timing of this, not its eventuality (Goldsmith, 1977). These fund balances provide an additional source of revenue to the state. The general fund is assumed to earn interest at the rate of 7 percent per year. while the permanent fund earns a slightly higher rate of 7.5 percent. These rates reflect the diverse portfolio held by the state which includes both long-and short-term bonds as well as in-state loans. At their peak in 1998, these revenues are about 16 percent of the state's general fund revenues. The interest revenues fall as the general fund is decreased. State Fiscal Position. The state's fiscal position is determined by two factors. First, the Prudhoe Bay petroleum revenues are the major portion of state revenues which are a fixed flow of resources through time. Growth in the economy will not affect the level of these revenues. Secondly, economic growth increases expenditures without the same response in nonpetroleum revenues. These factors lead to the pattern of the fund balances shown in the previous section. 150 I" L [ [ c [ lJ [ L L r - l__, r [ [ [ r: [~ [ r~ .____, [ [ [ 6 [ C [ L L L t Table 46 contains two indicators which illustrate the statets fiscal position. The first is the excess of general fund revenues over general fund expenditures. As long as this is positive, the general fund balance will increase; when it is negative, the fund balances must be drawn down to meet expenditures. The excess of revenues over expenditures increases until 1985, after which it falls. After 1985 expenditures are increasing faster than revenues. After 1998 expenditures are greater than revenues, and the fund balance must be drawn down. This pattern has long-range effects since it affects not only the level of the general fund but also the interest earned on the fund balances. This interest is an important part of revenues to the state. The other factor,affecting the value of the fund balances to the state is prices. As prices increase, the purchasing power of the fund will decrease. Table 46 shows the value of the total general and permanent fund balances in constant 1977 dollars. The effect of prices is to reduce the real value of the fund earlier. The real value of the fund peaks in 1993 at $6.5 billion; this is four years before the nominal fund balance peaks. By 2000, the real fund balance has fallen 26 percent from its peak; this compares to the 6 percent fall the nominal fund balance experiences by 2000. The real fund balance illustrates the effect of price increases on the fixed flow of revenue which is included in the fund. GROWTH OF THE REGIONAL ECONOMIES The regions of Alaska do not uniformly reflect state growth. Differ- ences reflect the location of exogenous employment growth as well as the 151 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 SOURCE: MAP Model TABLE 46. STATE FISCAL POSITION MODERATE BASE CASE, ALASKA 1977-2000 General Fund Revenues Minus General Fund Expenditures Fund Balance (Millions of (Millions of 1977 Nominal Dollars) Constant Dollars) -137 671 -4 602 302 835 361 1,090 583 1 ,486 707 1 , 916 740 2,3?0 1,140 3,051 1 ,426 3,854 1,364 4,519 1,342 5,089 1 ,276 5,562 1,219 5,955 1 ,004 6' 199 851 6,359 798 6,469 738 6,519 586 6,484 409 6,360 262 6,172 88 5,926 -109 5,619 -305 5,256 -536 4,841 152 [ [ [ [ [ [ [ I L~ [ c c B c c [ [ L [ size and structure of the regional economy. This section will describe the distribution of state growth in the base case between two of the state's regions, Anchorage and Southcentral. As we have seen in the historical analysis, Anchorage and Southcentral, while closely related, are different types of economies. Anchorage is the state's major region. Its growth is largely affected by its role as the administrative and dis- tributive center for the state. This provides an indirect link between the Anchorage economy and the state's resource industries. Because of this role, growth in other parts of the state is reflected by growth in Anchorage. Southcentral is a combination of many small, local economies which are significantly dependent on the resource industries; both petro- leum development and fisheries are important to these economies. These small economies, while physically separated, form a regional economy with similar structure and important trade and transportation links. Anchorage Aggregate Indicators. Table 47 shows three indicators of the growth of the Anchorage economy during the projection period. Employment, popula- tion, and real disposable income show that the state growth is reflected in Anchorage even though there is no major exogenous resource development. Population grows at an annual average rate of 3.6 percent during the period. Anchorage grows faster than the state, and the concentration of population in Anchorage continues throughout the projection period. In 1977, 46.3 percent of the state's population is in Anchorage; by 2000, that has increased to 53.5 percent. Population does not fall after completion of TAPS but experiences a slight decrease in 1984 after the 153 [ T/\BLL '17. 1\(;(;I~I:G/\TE INDICATORS 01 LCONOf.liC GIW\·Jill r~ MODERATE 13ASE C/\SF, ANCIIOR/\CE 1977-2000 l : r -~ Real Disposable I Personal Income Population Employment (Millions of Constant$) [ 1977 190,188 85,523 573 1978 197,348 84,128 586 j ' 1979 201 ,235 87,606 626 1980 207,323 91,938 677 1981 218,549 98,521 743 r·· I 1982 235,361 107 '641 828 \_. 1983 245,371 111,732 874 1984 244,577 109,304 867 r, 1985 249,962 111 ,258 899 I L~ 1986 259,583 116,354 958 [ 1987 271,446 122,666 1 '032 1988 283,370 128,846 1 '1 02 1989 295,031 134,617 1 '171 1990 305,932 139,743 1,235 [ 1991 314,949 143' 103 1 '281 1992 323,997 146,538 1 '330 [ 1993 334,571 151 ,342 1 '397 1994 345,660 156,519 1,466 1995 357,795 162,462 . 1 '547 c 1996 371,182 169,227 1 '639 1997 384,828 275,961 1 '729 1998 399,234 183,020 1,824 [ 1999 415,315 191 '184 1, 938 2000 431 ,026 199' 012 2,047 L [ [ SOURCE: MAP Model L I: L 154 [ [ [ [ [ [ L L [ [ c c c c [ b L [ peak ALCAN year. Between 1984 after the ALCAN is completed and 2000, the population grows at an average annual rate of 3.6 percent. Population follows the pattern of employment growth. Employment grows at an average annual rate of 4.0 percent between 1978 and 2000. As with population, employment experiences a slight decrease in 1984 when the ALCAN construction is in its final year. After 1984, employment grows at an average of 3.8 percent per year. Throughout the projection period, the dependency ratio (the ratio of population to employment) falls; this ratio is 2.22 in 1977 and 2.17 by 2000. This small decline results from the aging of the population and the increased participation in the labor force of the working-age population. The final indicator of regional economic growth in the projection period is the total regional real disposable income. This accounts for the effect of prices and taxes on incomes. Total real disposable income increases at an average of 6.0 percent per year between 1978 and 2000. It experiences a slight peak in 1983, the final peak ALCAN year. The Economic Structure. Table 48 shows the changes in structure of the Anchorage economy as measured by the distribution of employment. The major exogenous industries of mining and exogenous construction grow only slightly after completion of TAPS; this employment is made up of headquarters mining employment. Growth over this sector occurs with the expansion of headquarters employment for the development of Lower Cook, Beaufort, and Northern Gulf OCS development. The major growth occurs in 155 -' (.]'1 0'1 TABLE 48. ECONOMIC STRUCTURE HODERATE BASE CASE ANCHORAGE Support Sector I Support Sector II Government Basic Sector Employment % of Total fmployment % of Total Employment % of Total Employment 1978 36,835 43.9 12 '153 14.5 31 ,427 37.4 3,439 1980 42,516 46.4 13,652 14.9 31 '763 34.6 3,746 1985 54,917 49.7 17,453 15.8 33,527 30.3 4,632 1990 74,018 53.6 22,850 16.5_ 35,580 25.8 5,692 1995 89,403 56.0 27,195 17.0 36,368 22.8 6,780 2000 114,667 58.9 34,495 17.7 37.,427 19.2 8,107 Support Sector I includes trade, services, and finance-insurance-real estate employment. Support Sector II includes transportation-communication-public utilities and other construction employment. Government includes state, local, and federal employment. Basic Sector includes manufacturing, agriculture-forestry-fisheries, mining, and exogenous construction employment. SOURCE: MAP Model [-J L'l % of Total 4. 1 4. 1 4.2 4. 1 4.3 4.3 [ [ [ L [ [ c c [ c [ L ( : L--' [ the local support sector. This sector is composed of two components: 1) local construction and transportation-communication-utilities and 2) trade, services, and finance-insurance-real estate. Each component of the support sector increases its share of total employment during the projection period. Local construction and transportation-communication- utilities increase from 14.0 percent in 1977 to 17.7 percent by 2000; while trade, service, finance-insurance-real estate increases from 43.9 percent to 58.9 percent. These changes are a continuation of his- torical changes in the structure of the Anchorage econ?my. These shares are greater than the shares of similar industries on the state level be- cause of the important administrative and distributive role of Anchorage. Southcentral Aggregate Indicators. Unlike Anchorage, the growth of Southcentral depends largely upon the growth of the regional exogenous sector. The exogenous sector is influenced significantly by four events: the con- struction of the Pacific LNG plant between 1980 and 1983, the develop- ment of the Lower Cook OCS, the development of the Northern Gulf OCS, and the shutdown of the Upper Cook oil fields in 1990. Three aggregate indicators--population, employment, and disposable real income--are shown in Table 49. Population falls after the completion of th~ trans- Alaska pipeline in 1977. Between 1978 and 2000, population is projected to grow at an average annual rate of 2.2 percent. Population falls slightly (less than one percent) in 1991 when the Upper Cook Inlet oil fields are closed. 157 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 TABLE 49. AGGREGATE INDICATORS OF ECONOMIC GROWTH MODERATE BASE CASE, SOUTHCENTRAL 1977-2000 Rea 1 Di sposab 1 e Personal Income Population Employment (Millions of Constant $) 58,958 23' 117 180 53,826 20,898 145 55,799 21 ,946 159 59,054 23,745 184 62,075 25,688 214 63,464 26,915 237 63,425 26,528 224 64,866 26,732 221 66,203 27,497 235 68,340 28,810 256 69,987 30,024 279 72' 143 31,149 294 74,454 32,310 310 76,801 33,520 . 329 76,095 32,987 318 75,663 32,788 318 76,558 33,299 329 77,470 33,824 340 78,879 34,629 355 80,669 35,635 373 82,006 36,400 388 83,321 37 '158 403 84,802 38,046 421 86,386 38,978 439 SOURCE: MAP Model 158 [ r [ L r--, I I . [ [ [ [ [ [ .r L [ [ [ : L.., [ [ [ [ [ [ [ [ [ [ r, b [ L t [ Employment grows faster than population in Southcentral during the pro- jection periods. Employment falls after TAPS is completed in 1977. After this, it grows at an average rate of 2.9 percent per year. The ratio of population to employment was much higher in 1978 in Southcentral (2.58) than in the state (2.27). The Southcentral ratio falls toward the state ratio by 2000 (2.22 for Southcentral and 2.17 for the state). This trend was experienced in the historical period; the population-to- employment ratio fell from 4.24 in 1965 to 3.07 prior to the TAPS con- struction in 1974. The declining dependency ratio results from a change in the character of the population. As at the state level, the population is aging and the labor force participation is increasing~ These factors account for the greater proportion of employed in the population. Disposable real income grows throughout the period after falling with the completion of the trans-Alaska pipeline; in 1978 it is almost 20 percent lower than in 1977. Between 1978 and 2000, disposable real income increases at an annual average rate of 5.2 percent. The Economic Structure. Table 50 shows the changes in the structure of the Southcentral economy during the projection period as described by changes in the distribution of employment. Two important trends can be observed from this table. First, those exogenous sectors which have recently been important to the region's growth, construction and mining, decrease their importance throughout the projection period. After com- pletion of TAPS, this exogenous construction decre~ses, then·increases to a peak of 2,578 in 1982 with construction of the Pacific LNG plant 159 --' 0"1 0 TABLE 50. ECONOMIC STRUCTURE MODERATE BASE CASE SOUTHCENTRAL Support Sector I Support Sector II Government Basic Sector Employment %of Total Employment % of Total Employment % of Total Employment 1978 8,134 38.6 3 '1 01 14.7 4,717 22.4 5,146 1980 9,173 38.2 3,515 14.7 4,837 20.2 6,462 1985 10,792 38.8 4,316 15.5 5,412 19.4 7,317 1990 13,321 39.1 5,338 15.7 6,058 17.8 9,358 1995 14 ,641 41 .4 5,442 15.4 6,265 17.7 9,040 2000 17 '155 42.6 6,157 15.3 6,548 16.3 10,369 Support Sector I includes trade, services, and finance-insurance-real estate employment. Support Sector II includes transportation-communication-public utilities and other construction employment. Government includes state, local. and federal employment. Basic Sector includes manufacturing, agriculture-forestry-fisheries, mining, and exogenous construction employment. SOURCE: MAP Model r----1 L ' % of Total 24.4 26.9 26.3 27.5 25.5 25.8 -,-1 J .: [ L r~ [ [ [ [ ~· L~ [ [ b 6 [ L [ L L L L and development of the Lower Cook OCS. After the Cook Inlet oil fields are shut down in 1990, mining employment is reduced. The second trend is the increasing importance of the support sector in the region. Trade, services, and finance-insurance-real estate increase their share of total employment from 38.6 percent in 1978 to 42.6 percent in 2000. This follows a historical trend. The increased scale of the Southcentral economy during the projection period leads to a greater-than-proportional increase in support sector employment. Alternative Base Cases \ Two additional base case projections were made. These base cases differ in the assumed level of OCS activity in the Lower Cook Inlet, Beaufort Sea, and Northern Gulf of Alaska. The major difference between these base cases is one of magnitude; the high base case assumes a higher 1 evel of OCS activity than the moderate base case. The 1m., base case assumes only exploration activity in the Lower Cook and Northern Gulf and lower develop,ment activity in the Beaufort. The major difference between the projected growth of the base cases in these three scenarios will also be in magnitude. Each alternative base case will be described by four major variables: employment, population, total state expenditures, and the fund balance. These cases affect the structure of the economy in a manner similar to the moderate case. (The detailed scenarios are shown in Appendix C.) 161 LOW BASE CASE SCENARIO The minimum base case scenario includes the same non-OCS assumptions as the moderate scenario. The d·ifference between these cases involves the assumptions about OCS activity in the Lower Cook Inlet, Beaufort, and Northern Gulf. The minimurr1 development scenario assumes only exploration activity in the Lower Cook and the Northern Gulf. Lower Cook OCS employ- ment occurs between 1978 and 1985 with a peak of 252 in 1980. In contrast, the moderate case has a Lower Cook OCS employment peak of 912 in 1981 and operations employment of 417 remains throughout the period. The level of activity assumed in the low Beaufort sc~nario is much closer to the moderate scenario. The low Beaufort scenario contains production and has employment through the entire projection period. Peak employment of 740 occurs in 1989; this is 68 percent of the peak in the moderate Beaufort scenario. Operations employment is approximately 82 percent of the moderate case by the end of the period. Since Beaufort OCS production occurs in state waters, Beaufort will also generate tax, bonus, and royalty revenues to the state. Northern Gulf exploration activity is over by 1985; in the moderate case, peak Alaska employment of 2,061 is reached in 1990. General Pattern of Growth Table 51 describes four indicators of the magnitude of economic growth projected for the low base case. Population is projected to increase at an annual average rate of growth of 3.0 percent between 1978, the year after the TAPS project is complete, and 2000. The most rapid period of growth is between 1978 and 1983, the peak ALCAN year; growth averages 162 r· ) \ __ . [ [ [ [ [ [ [ [ f'. L~ [ [ c E [ c [ L t F .._ .. L 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 TABLE 51. AGGREGATE INDICATORS OF ECONOMIC GROWTH LOW BASE CASE, ALASKA 1977-2000 State Expenditures (Mi 11 ions of Population Employment Nominal Dollars) 410,660 185,508 1 '161 406,709 178,557 1 ,311 417,661 184,486 1 ,415 . 431,495 192 '187 1,559 452,241 204,393 1 '723 483,427 223,073 1,993 500,077 228,948 2,356 498',073 221,443 2,567 505,276 223,064 2,733 ' 518,872 229,850 3,046 534,660 238,100 3,363 551.766 247,041 2,732 569,539 256,222 4 '116 586,227 264,339 4,521 601 ,891 271,666 4,872 617,622 278,987 5,252 635,402 287,820 5,671 653,250 296,526 6 '145 672,192 305,953 6,629 691,214 315,284 7,154 712,212 325,991 7,723 733,838 336,928 8,404 757,989 349,560 9 '135 782,602 362,233 9,966 1sum of permanent and general funds SOURCE: MAP Model 163 Fund Balance 1 (Millions of Nomina 1 Do 11 a rs) 671 666 967 1.330 1 ,921 2,639 3,389 4,540 5,975 7,352 8,716 10,301 11 ,287 12 ,314 l3 '193 14,008 14,742 15,310 15,694 15,916 15,973 15,820 15,460 14,858 4.4 percent per year during this period. Population falls after comple- tion of TAPS in 1977 and the last peak ALCAN year in 1983; in both cases, the decrease is less than one percent. The rate of population growth is slightly less than the 3.2 percent rate in the moderate base. By the peak ALCAN construction year, 1983, population is approximately 4,600 greater in the moderate base case. This is mainly a response to the more rapid Lower Cook development in the moderate case. By 2000, population is 23,000 less in the low base case. Employment is projected to be 362,223 by 2000 in the low base case. This is 8,300 less than in the moderate base case. Employment falls from 185,500 in 1977 to 178,560 in 1978 with the completion of TAPS in the low base case. After 1978, employment grows at an annual rate of 3.27 percent. Like population, employment is projected to grow most rapidly with the buildup before the ALCAN. Between 1978 and 1982, employment increases at the average rate of 5.7 percent per year. The overall growth is less than the growth in the moderate base case. As in the moderate base case, population is projected to increase less rapidly than emp 1 oyment. Throughout the projection period, state expenditures in the low base case are only slightly less than in the moderate base case. By 2000, expenditures in the low base case are $9,966 million, which is almost two percent lower than in the moderate base case. In 1981, at the peak of Lower Cook moderate development, moderate case expenditures are only slightly more than one percent higher. The lower base case also has a 164 [ [ r L [ [ E [ [ [ L L [ similar effect on the fund balances. The fund balance in the low base case is $55 million less than the fund balance in the moderate case by 2000. This is a difference of only one percent. The moderate base case has a larger fund balance even though it has larger expenditures because of the greater revenues received from the Beaufort OCS. The pattern of the fund balance is similar in both cases. In the low base case, the fund balance increases at an annual average rate of 17.2 percent until 1997, when it peaks. Between 1997 and 2000, the fund falls by 7 percent in the low case because fund balances are drawn down to meet state expenditures. This is similar to the pattern found in the moderate base case. The growth projected for the low base case is similar in magnitude to that projected in the moderate base case. There is significant differ- ence in the major variable by 2000. The difference varies from popula- tion, which is 3 percent smaller, to state expenditures, which are only .4 percent smaller. The difference results because of development in the Lower Cook and Northern Gulf OCS which occurs in the moderate case but not in the low case. Structural Differences and Similarities. The main difference between the low and moderate base cases involves the magnitude of the variables. The effect of·economic growth on the process of change is similar in both base cases. Four major structural changeS, were observed in the moderate base case. These were measured by changes in the employment distribution, the dependency ratio, the regional distribution of the 165 population, and the fund balance. The change in the employment distribu- . tion measures the increased importance of the support sector in the Alaska economy. As the economy grows larger, the support sector experi- ences a greater-than-proportional growth because more goods and services are produced locally. The dependency ratio decreases as a greater pro- portion of the population is employed. This results from increases in the proportion of the population of labor-force age and increased labor-force participation of this population. The concentration of population in Anchorage was also observed in the moderate base case. Anchorage's role as the administrative and distributive center for Alaska assures the continuing growth of Anchorage even if the major cause of growth continues to be resource development outside the region. The final structural characteristic observed in the moderate base case concerns the state fiscal sector. The influence of petroleum revenues on state expenditures leads to expenditures which increase faster than revenues. Eventually, the fund balances must be drawn down to meet expenditures. Table 52 compares these structural characteristics in the low and moderate scenarios. This table shows that, while the base cases differ in magni- tude, they are quite similar in the important structural characteristics. The support sector expands to about 53 percent of total employment in both cases. The dependency ratio (population/employment) falls by about 4 percent between 1980 and 2000 in both cases. Similarly, Anchorage is projected to contain almost 54 percent of the state's population by 2000. The projected pattern of general fund revenues net of general fund expen- ditures is similar in both cases. In the early part of the period, 166 r r ( - L ( c I l. [ [ [ [j L L [ L L I - L_l [ l 6 [ L [ L ~ [ TABLE 52. STRUCTURAL CHARACTERISTICS LOW AND MODERATE BASE CASES 1980 Percent of Total Employment low base case 39.4% in Support Sector moderate base case 39.5% Dependency Ratio low base case 2.25 moderate base case 2.24 Percent of Total Population low base case 47.8% in Anchorage moderate base case 47.8% General Fund Revenues Minus \ General Fund Expenditures low base case 363 (millions of nominal $) moderate base case 361 167 1990 2000 46.1% 53.0% 46.8% 53.2% 2.22 2.16 2.20 2.17 50.0% 53.5% 50.0% 53.5% 1 ,027 -602 1,044 -536 revenues exceed expenditures; the fund is being built up. By the end of the period, expenditures are greater than revenues; and the fund must be drawn down to make up the difference in expenditures. HIGH BASE CASE SCENARIO The high and moderate base case scenarios differ only in the assumptions made about OCS development in the Lower Cook, Beaufort Sea, and Northern Gulf. The Lower Cook development scenarios differ in both magnitude and timing between the two cases. Peak employment does not occur in the high case until 1984; the peak level of employment is 2,448. Peak employment occurs in the moderate case in 1981~ moderate case employment is greater [ r r [ than high case for the first four years of the period. Operations employ-\~, ment in the high case is almost three times as high as in the moderate case; it includes operation of an LNG plant. The Beaufort high scenario peaks in 1989 at 1,344, which is 24 percent greater than the moderate Beaufort peak. By 2000, employment is 38 percent greater in the high case. The higher Beaufort production also means greater revenues from production in state waters. Northern Gulf development in the high sce- nario peaks in 1991 with 3,740, while the moderate scenario peaks in 1990 with 2,061. This is a difference of 81 percent. General Pattern of Development. Table 53 shows four indicators of the magnitude of economic growth in the high base case. Population is pro- jected to be 837,888 in 2000. This is 32,163, or 4.0 percent, greater than in the moderate base case. The population falls after TAPS is completed in 1978 but does not experience a similar fall after ALCAN in 168 r L~ [; L [ L [ l l [ [ f TABLE 53. AGGREGATE INDICATORS OF ECONOMIC GROWTH [ HIGH BASE CASE, ALASKA 1977-2000 [ Stat~ E~penditures Fund Balance 1 (Millions of (Millions of r-· PoEulation EmElo~ment Nominal Dollars) Nominal Dollars) _, 1977 410,660 1 , 161 185,508 671 [ 1978 406,709 178,557 1 ~311 666 1979 417,661 184,486 1 ,415 967 1980 431,495 192,187 1,559 1,330 [ 1981 454,273 205,895 1 '723 1 ,924. 1982 486 '141 224,856 2,011 2,635 1983 509,747 235,658 2,376 3,387 r~ 1984 520,191 236,585 2,653 4,521 L-.j 1985 540,357 245,927 2,904 5,922 r 1986 560,731 255,056 3,325 7,222 1987 582,340 264,996 3,665 8,509 L 1988 605,100 275,525 4,071 9,745 [ 1989 623,917 283,001 4,490 10,967 1990 639,451 288,328 4,877 12,021 1991 656,425 295,235 5,206 12,968 L 1992 670,490 300,080 5,617 13,836 1993 686,752 306,934 5,993 14,658 1994 704,358 314,864 6,452 15,346 [~ 1995 723,291 323,807 6,945 15,868 -~ 1996 742,659 333,013 7,479 16,258 L 1997 764,683 344,153 8,062 16,514 1998 787,251 355,465 8,738 16,597 1999 812,471 368,566 9,489 16,490 2000 837,888 381,508 10,343 16 '164 6 [ L 1sum of permanent and general funds t SOURCE: MAP Model r~ ...... [ 169 1984. The moderate base case experiences a fall between 1983 and 1984. This increase is a result of development activity in the Lower Cook which increases employment from 989 in 1982 to its peak of 2,448 in 1984. This increase counteracts the fall in population after ALCAN is complete. The growth rate of population between 1978 and 2000 is an average of 3.3 percent per year which is slightly higher than in the moderate base case. Unlike the moderate base case, employment does not fall after the peak ALCAN year 1983. The OCS development of both Lower Cook and Northern Gulf prevent the loss of employment after ALCAN. Because of the earlier Lower Cook development in the moderate base case, employment in the high case is less than in the moderate case until 1983. Employment in the high case grows at an annual average rate of 3.5 percent between 1978 and 2000. By 2000, employment is almost 11,000 greater than in the moderate base case. The state•s fiscal position is affected in two ways by the different base cases. First, different rates of growth in population, prices, arid personal income will affect the level of expenditures. Secondly, differ~ ential production in the Beaufort Sea will mean different revenue streams to the state. By 2000, state expenditures are projected to have reached $10.3 billion in the hiah base case. This is 2.1 percent greater than the projected state expenditures in the moderate base case. Expenditures are greater in the moderate base case until 1984 because of the earlier Lower Cook OCS activity. Overall, expenditures increase at an average 170 [ [ r: rate of 10.0 percent per year in the high case. The fund balance is greater in the hiah base case by $1.3 billion in 2000. The larger fund balance is due to larger Beaufort Sea OCS revenues and the larger expen- ditures early in the period in the moderate case. These early expendi- tures reduce the fund and the interest earned on the fund. The fund experiences the same pattern of growth in the high as in the moderate base case, rising to a peak and then falling. The peak in fund balance is reached in 1998, which is one year later than in the moderate base case. Structural Similarities and Differences. Table 54 shows the indicators ' of the major structural characteristics of the high and moderate base cases. The structural changes which occur because of the projected growth are similar in both the high and moderate cases. The support sector will include over 53 percent of total employment; the dependency ratio will fall to about 2.2 people per employee; and Anchorage will contain about 54 percent of the state•s population. The excess of general fund revenues over expenditures is larger in the high case, although it is still nega- tive in 2000. The pattern of the fund balance growth is similar in both cases. 171 TABLE 54. STRUCTURAL CHARACTERISTICS HIGH AND MODERATE BASE CASES 1980 Percent of Total Employment high base case 39.4% in Support Sector moderate base case' 39.5% Dependency Ratio high base case 2.25 moderate base case 2.24 Percent of Total Population high base case 47.8% in Anchorage moderate base case 47.8% General Fund Revenues Minus General Fund Expenditures high base case 363 (millions of nominal $) moderate base case 361 172 1990 47.1% 46.8% 2.22 2.20 50.0% 50.0% 1,054 1,004 2000 53.4% 53.2% 2.20 2.17 53.5% 53.5% -326 -536 [ E c [ L [ L l I- ·~ [ [ [ r [~~ r r~ L [ Summary and Conclusions The growth of the Alaska economy between 1977 and 2000 is projected to be substantial, although the economy is not projected to grow so rapidly as it did between 1965 and 1976. This section presented three alternative base cases, each with different assumptions about the level of OCS activity in the Beaufort Sea, Lower Cook Inlet, and Northern Gulf of Alaska. By 2000, population is projected to be between 782,602 and 837,888, depend- ing upon the level of OCS activity assumed. Employment is projected to be between 362,233 and 381,508. The three base case scenarios differ only in magnitude; they exhibit simi- lar patterns of development. This pattern was illustrated by the growth in the moderate base case. The economy•s growth is not projected to be constant throughout the period. The most rapid period of growth occurs during the construction of the ALCAN gasline between 1978 and 1982. During this period, the average annual growth of employment is 6.0 percent. compared to 3.4 percent for the whole period. Population grows 44 percent faster than over the entire period when ALCAN is constructed. Economic growth provides increases in two measures of individual benefits: real per capita income and real state expenditures. Real per capita income increases by 64 percent between 1977 and 2000. This means that the real purchasing power of the average Alaskan increases with economic growth. Real per capita expenditures are a proxy for the level of services provided by the state government. Real per capita state expenditures increase by 44 percent over the projection period. Over 82 percent of the increase occurs prior to 1989 when petroleum revenues peak. 173 Economic growth in all three base case scenarios results in similar structural characteristics. Sturctural changes caused by growth affected each scenario in a similar fashion. In all scenarios~ the importance of the support sector is projected to grow throughout the period. The pro- portion of the population which is employed is also projected to increase over the period. Population is projected to concentrate in Anchorage in all scenarios. The final structural pattern which is similar in all cases is the relationship between state revenues and expenditures. In all cases, expenditures exceed revenues by the end of the period, necessitating the reduction in the fund balance. \ 174 [. [ [ [ [ [ [ f' l.i [ [ c [ L L [ IV. THE IMPACT OF WESTERN GULF OCS DEVELOPMENT ON THE ALASKAN ECONOMY: THE MODERATE BASE CASE In order to capture the important dimensions of uncertainty surrounding oil and gas development in the Western Gulf of Alaska, the development patterns implied by three alternative resource discovery scenarios were examined and contrasted with the base case projections presented above. The alternate OCS scenarios were designed to capture differences in re- source quantities, transport requirements, and technology, all of which will affect the impacts of any development which actually occurs. The three scenarios which were examined included the level of development which would occur if the mean, 95 percent, and 5 percent probability resource levels were discovered in the Western Gulf lease sale area. This chapter will describe the impacts of each of these scenarios rela- tive to the moderate base case. The impact of the 95 percent discovery relative to the low base case and the 5 percent discovery relative to the high base case will be discussed in the following chapter. The first section of this chapter examines the petr.oleum development sce- narios, and the next section presents the economic impacts implied by each of these scenarios. The Development Scenarios Three offshore development scenarios were examined based upon geological, technical, and employment data prepared ·by Dames and Moore (Dames and Moore, 1978). The petroleum development scenarios are for the proposed Gulf of Alaska OCS lease sale no. 46, currently scheduled for Autumn 1980. 175 The scenarios discussed below are for the 5 percent, 95 percent, and statistical mean levels of U.S.G.S. resource estimates. These scenarios will affect the Alaska economy through the direct employment associated with the field development and production and the additional revenues earned by the state. Figure 4 shows the location of the study area. DIRECT EMPLOYMENT The development of the Western Gulf OCS will have two types of employment effects: direct employment in the field and headquarters employment. Headquarters employment is assumed to increase with development to pro- vide the engineering support, coordination, and administration necessary for the level of activity in the field. All headquarters employment is assumed to be located in Anchorage. The effect of direct OCS employment on the Alaska economy will depend on the extent to which the incomes earned in OCS development are spent in Alaska. Two factors limit the impact. First, the probable enclave nature of the development will limit the extent of the interaction with the economy when workers are on the job. If OCS development follows the pattern established by Prudhoe Bay development, workers will be located in camps where their direct interaction with the 1 oca 1 economy wi 11 be limited. The isolated location of these OCS developments near small, existing communities increases the probability of enclave development since small Alaska communities do not have the infrastructure needed to support OCS development. Secondly, the international character of many offshore petroleum firms means they have regular, experienced crews which 176 f" [ r: r L I , \ [ [ [-~- -, ~ L [ f. [ L L [ [ [ [ [ [ [ [ I l.i [ [ [ [ L [ /l"J·• / _, ....... ------z~~-:;1 ,__ ~:l ' -...:..._:; .· '·-r::J.-'' SOURCE: FIGURE 4. WESTERN GULF OF ALASKA, LOCATION OF STUDY AREA Dames and Moore, 1978. 177 ... OIIII"IV'S 0 ' Ill ., X. .., Jl) b-4.__:~,_;~::).,-,,d :~:: __ j--=,.; r".-"" ·~• 0 • 0 ~ ~ ~ i--,,.:LA~~·-·:'''~· .. ·1---,-~ are dispatched to jobs around the world (Dames and Moore, 1978). The internaLional chc~r·actl~t· of" Lhese crews may lll(~iltl Ult~L wiil'n they are not. working, they will be outside Alaska. The first step in estimating the overall impact of Western Gulf OCS development 1s to estimate the share of direct employment which will reside in Alaska and interact with the economy. Figure 5 illustrates the process used to derive the direct OCS employment impact on the Alaska economy. Table 55 shows estimates of the share of direct employment to Alaska residents (SEAR) which were used to adjust the direct employment estimates provided by Dames and Moore (Dames and Moore, 1978). In this context, Alaska resident means any employee who resides in Alaska and interacts with the economy during the duration of the project task. SEAR adjust- ments were made to the direct field employment only; headquarters employ- ment is all assumed to reside in Alaska. The SEAR-adjusted employment is used in the scenarios provided to the MAP model to generate impacts. I SEAR coefficients were determined by the characteristics of the task and considerations of labor supply and demand. Such task characteristics as rotation, duration of the job, and specialized skills requirements were considered. It was assumed that the longer the task's off-duty rotation, the smaller was the probability that an employee would be an Alaska resi- dent since he could travel from the site to a residence outside the state. For the short-duration jobs, it was assumed ther~ was little reason for workers to reside in Alaska or for Alaskans to move into these jobs. Finally, the more specialized the skills required, the greater the chance 178 [ [ r~:. t-~ E r· L_j L [ L L [ [ [ ~ [ [ [ L I' C.; [ [ 6 c [ c [ L t r ;__, [ FIGURE 5. DETERMINATION OF OCS EMPLOYMENT ESTIMATES USED IN THE MAP MODEL Direct OCS Field Employment X Share of Direct Employment To Alaska Residents 'V Direct Alaska Resi~ent OCS Field Employment + -------------- OCS Related Headquarters Employment \ ll OCS Employment Estimates Used in MAP Mod~l 179 __, co 0. Task Onshore l. Service Base 2. Helicopter Service 3. Service Base Construction 4. Pipe Coating TABLE 55. ESTIMATED SHARE OF ALASKA RESIDENT EMPLOYMENT BY OCS TASK Phase 1979-1984 all phases l. 00 exploration & development .50 production l. 00 development .50 development .20 5. Onshore Pipeline Construction development .20 6. Oil Terminal Construction development .50 7. LNG Plant Construction development .50 8. Oil Terminal Operations production l. 00 9. LNG Plant Operations production l. 00 Offsh6re 1 . Surveys exploration .20 2. Rigs exploration . 20 3. Platforms development . 10 production l. 00 4. Platform Installation development . l 0 5_,. Offshore Pipeline Construction development . l 0 6. Tugboats exploration .40 development .80 production .80 Time Period 1985-1989 1990-2000 1.00 l. 00 .53 .58 l. 00 l. 00 .53 .58 . 21 .23 .21 .23 .53 .58 .53 .58 l. 00 l. 00 l. 00 l. 00 . 21 .23 .21 .23 .30 .33 l. 00 l. 00 .l 05 .116 .105 .116 .42 .46 .88 .97 .88 .97 [ [ [ [ [ r~ [' r~ \__~ L [ L c L L [ L [ r; "---" L the skills would not be available in Alaska and outside workers would be hired. This meant a smaller probability that the worker would reside in Alaska. These factors change in a systematic fashion through the phase of development~ so that the probability of workers residing in Alaska increases from the exploration to the production phase. The final factor considered was time. It was assumed that over time~ as more OCS projects occur and present non-OCS petroleum projects wind down, the supply of labor for each of these tasks within Alaska will increase. This will increase the probability that workers will reside in Alaska. This is reflected by the increase in SEAR coefficients through time. Appendix C describes the detailed assumptions behind the SEAR coe~ficients. REVENUE Unlike the OCS activity proposed for the Beaufort Sea, production in the Western Gulf OCS occurs only in federal waters. Becaus& of this, the state will not earn royalty, bonus~ or severance tax revenues from the project. The major source of additional revenues will be the property tax revenues from onshore facilities. The property tax revenues earned by the state were based on the estimates of construction cost provided by Dames and Moore (Dames and Moore~ 1978). The property tax which the state receives is 20 mills on certain oil and gas prop~rties. The prop- erty tax specifically excludes such property as oil refining property, gas processing ~roperly, and in Ler·es t or· r-ights to pt'oduce oil. The property value taxed is depreciated over the life of the field and increased with inflation (Alaska Department of Revenue, 1977). 181 ALTERNATIVE WESTERN GULF SCENARIOS The Mean Probability Resource Level Scenario The mean scenario represents activity surrounding exploration and develop- ment of tracts assumed to be leased in the 1980 sale. It is assumed that 0.2 billion barrels of oil and 0.7 trillion cubic feet of gas are discovered. In this scenario, the discoveries are located in two separate fields, the Albatross and Tugidak Basins. Only one economic field is discovered in the Albatross Basin which contains .16 billion barrels of oil (Dames and Moore, 1978). Exploration activity in this scenario begins in 1981 and lasts for three years. Field development and the construction of facilities begin in 1984. Production begins in 1987. Total direct construction employment peaks in 1984. The resources are insufficient to justify construction of an onshore terminal, so development activity consists of the construe- tion of a single platform, service base, and offshore loading system. The largest mining employment occurs during exploration. Petroleum employment maintains a permanent workforce of only 64 after 1991. Pro- duction ends in 1999. Transportation activity peaks in the first year of exploration (1981) with 98 employees. (Employment levels are shown in Table 56.) The nonproportional relation between Alaska resident employment and direct employment results from the changing task composition of industry employment. Alaska resident construction employment peaks at 260 in 1984, the same year as the peak in total construction employment. After 182 ( . I .. (' t_: f L. L [ L L [ __, co w Construction Total SEAR Direct Adjusted Employment Employment 1981 0 0 1982 0 0 1983 0 0 1984 521 260 1985 467 49 1986 300 32 1987 0 0 1988 0 0 1989 0 0 1990 0 0 1991 0. 0 1992 0 0 1993 0 0 1994 0 0 1995 0 0 1996 0 0 1997 0 0 1998 0 0 1999 0 0 2000 0 0 TABLE 56. DIRECT EMPLOYMENT REQUIREMENTS MEAN SCENARIO Mining 1 Manufacturing Total SEAR Total SEAR Direct Adjusted Direct Adjusted Employment Employment Employment Employment 280 92 ' 0 283 93 0 137 42 0 10 10 0 63 50 0 275 118 0 271 81 0 206 80 0 41 41 0 39 39 0 39 39 0 64 64 0 64 64 0 64 64 0 64 64 0 64 64 0 64 64 0 64 64 ./ 0 " 52 52 0 0 0 0 .~ ·~ JJ Transportation Total SEAR Direct Adjusted Employment Employment 98 41 98 41 49 21 0 0 40 33 34 29 12 10 24 22 24 22 24 22 24 22 24 22 24 22 24 22 24 22 24 22 24 22 24 22 24 22 0 0 1 Includes headquarters employment based on 2.67 persons per exploration well, .6 persons per development well, and 40 persons per 2,000,000 barrels per day during production. Once peak is reached, production employ- mentis maintained (Alaska OCS Office). SOURCE: Dames and Moore, 1978 1984, the major construction activity is platform installation which is offshore work, assumed to have a low Alaska resident share because it requires specialized skills and is temporary. Alaska resident mining employment peaks in 1986, although total mining employment peaks in the exploration phase. By 1989, all mining employment is production employ- ment, all of which is assumed to be Alaska resident. Transportation employment, like mining, has a much smaller Alaska resident component during exploration. However, peak resident employment occurs in the first year of exploration in 1981 when 41 Alaska residents are employed in transportation. \ There are no direct state revenues generated by this development. Only shore-based facilities (taxed by the Kodiak Borough) are located on shore. The 5 Percent Probability Resource Level Scenario / This scenario describes the activity surrounding the exploration, devel- opment, and production in the largest assumed find discussed in this report. It is assumed that 1.2 billion barrels of oil and 3.5 trillion cubic feet of non-associated gas are discovered. Oil and gas are found in both the Albatross and Tugidak Basins, although gas found in the Tugidak Basin is uneconomical and is not developed. Exploration begins in 1982 and lasts five years. Mining employment reaches an early peak of 1,097 in 1984 during exploration. Field development begins in 1985 and lasts until 1989. Construction employment begins in 1983 and reaches a peak of 2,410 in 1987. Mining_ employment peaks after 184 [ ! ~- [ __ [ [ L L L t exploration at 1,254 in 1990 and maintains a permanent employment of approximately 740. Production of oil begins in 1990 and gas in 1986. This scenario also includes an LNG plant which begins production in 1986 and has a long-term employment of 50. Transportation employment peaks in 1985 during development, with 457 employees. Table 57 shows the employ- ment levels in this scenario. As in the mean scenario, the Alaska employment share is greatest in the production phase and smallest during exploration. Alaska mining employ- ment peaks at 880 in 1990, when total mining employment peaks. Alaska employment plays a relatively small part in the exploration peak in 1984. The Alaska resident construction employment peaks in 1985, two years prior to total construction employment. This is a result of the increased importance of platform installation after 1985. Peak Alaska resident construction employment is 647. The shifting task composition of transportation employment accounts for the increased importance of Alaska resident employment after production begins. After peaking in 1985 at 373, transportation employment maintains a permanent employment of about 191. This scenario produces property tax revenues from onshore facilities. Property tax revenues begin in 1987. Revenues decline after 1987. By 2000, property tax revenues have fallen to $2.4 million. (See Table 58.) . 185 ..... 00 0'1 Construction Total SEAR Direct Adjusted Employment Employment 1981 0 0 1982 0 0 1983 207 364 1984 1 ,547 587 1985 1,579 647 1986 1 ,527 315 1987 2,410 530 1988 1,547 205 1989 933 98 1990 467 54 1991 0 0 1992 0 0 1993 0 0 1994 0 0 1995 0 0 -1996 0 0 1997 0 0 1998 0 0 1999 0 0 2000 0 0 TABLE 57. DIRECT EMPLOYMENT REQUIREMENTS 5 PERCENT SCENARIO Mining 1 Manufacturing Total SEAR Total SEAR Direct Adjusted Direct Adjusted Employment Employment Employment Employment 263 91 0 552 171 0 539 161 0 1,097 345 0 1,083 395 0 705 313 50 50 490 314 50 50 768 634 50 50 1,036 797 50 50 1,254 880 50 50 1 '007 812 50 50 737 729 50 50 696 658 50 50 685 685 50 50 710 710 50 50 735 735 50 50 735 735 50 50 735 735 50 50 735 735 50 50 735 735 50 50 Trans~ortation Total SEAR Direct Adjusted Employment Employment 90 38 196 82 196 82 432 260 457 373 298 276 249 226 219 200 207 191 201 185 186 184 196 191 196 191 196 191 196 191 196 1 91 196 191 196 191 196 191 196 191 1Includes headquarters employment based on 2.67 persons per exploration well, .6 persons per development we 11 , and 40 persons per 2, 000,000 barre 1 s per day during production. mentis maintained (Alaska OCS Office). Once peak is reached, production employ- SOURCE: Dames and Moore, 1978 --1 .. _, ' . c. • -~J ' . [ [ [ [ r [ [ ~' L [ [ c E [ [ [ [ SOURCE: L r: L [ TABLE 58. WESTERN GULF OCS PROPERTY TAX REVENUES (Millions of Nominal Dollars) 5 Percent Scenario 1987 6.4 1988 6.4 1989 6.3 1990 6.1 1991 6.0 1992 5.8 1993 5.5 1994 5.3 1995 4.9 1996 4.6 1997 4.1 1998 3.6 1999 3. 1 2000 2.4 \ Based on construction cost from Dames and Moore, 1978. 187 The 95 Percent Probability Resource Level Scenario The 95 percent probability resource level for the lease sale area in the Western Gulf is no oil or gas resources. Because there are no resources, this scenario describes an exploration-only case. Exploration begins in 1981 and lasts three years. The maximum employment occurs in the first two years with 405 mining employees and 147 transportation employees. The Alaska share of this employment is low; at its maximum, it includes 120 mining employees and 62 transportation empl~yees. Because there is no production, there are no property taxes generated by this project. (See Table 59.) \ Definition and Measures of Impact OCS development will lead to changes in those factors which have been isolated as important for economic growth: exogenous employment, personal income, and state expenditures. Changes in these factors will result in changes in population, the structure of employment, the state•s fiscal position, and the regional distribution of growth. These changes are the economic impact of OCS development. We will examine the impact of each of the three petroleum scenarios. The impacts will be compared to economic growth in the moderate case. The impact will vary since the scenarios vary in terms of their primary employment impact, timing, level of production, and revenues which accrue to the state. The impacts will be measured as changes from the base case. In making this comparison, it must be assumed that the economy responds the same to employment and revenues generated by Western Gulf OCS develop- ment as it did to past exogenous changes. 188 r l . r L . l~ . [ I l~ L r· L [ I L [ [ [ [ [ [ [ [ I L [ [ [ L [ L [ r· [ r-1 • .-.. ) [ TABLE 59. DIRECT EMPLOYMENT REQUIREMENTS 95 PERCENT SCENARIO M" . 1 1 mng Transportation Total Direct SEAR Adjusted Total Direct SEAR Adjusted Employment Employment Employment Employment 1981 405 120 147 62 1982 405 120 147 62 1983 137 41 40 21 1984 0 0 0 0 1 Includes headquarters employment based on 4 persons per exploration well, .6 persons per development well, and 40 persons per 2,000,000 barrels per day during production. Once peak is reached, production employment is maintained (Alaska OCS Office). SOURCE: Dames and Moore, 1978 189 Rapid economic growth associated with OCS development will affect most economic variables. Although many variables will be affected, a much smaller number is important; and information on these dimensions of impact will describe the effect of rapid growth on the state economy. Petroleum development in the Alaska OCS can have two major types of impact. First, OCS development will affect the magnitude of the eco- nomic indicators. OCS development will expand the economY. Secondly, OCS development may change the process of growth. OCS development may change certain structural trends observed in the base case. Both of these dimensions will be considered when the impact of OCS development is examined. The impact of any specific scenario can be discussed by referring to the following set of questions: 1. How has the magnitude of economic indicators been changed by OCS development? a. How has the growth of the aggregate indicators of economic activity--employment, population, personal income--been affected by OCS development? b. How has OCS development affected the state's fiscal position? Have state rev~nues and expenditures \ changed? What is the effect on the fund balance? c. What is the effect of OCS development on the earn- ing power of individuals, as measured by real per capita income? 190 r L [ [ l [ [, [ 1 - L.. [ [ [ [ [ [ [ [ [ [ c [ [ c [ L L [ 2. d. What is the effect of OCS development on the average level of services, as measured by real per capita state expenditures, provided by the state? Has OCS development changed the process of growth? a. Are the components of population growth changed in relative importance? b. Are past trends in the age-sex distribution and its effect on the dependency ratio changed by OCS development? c. Are past trends in the composition of employment changed by OCS development? d. Does OCS development change the interaction among regions? Summary of the Moderate Base Case The moderate base case is one of three base cases used in this report. The alternative base cases used in this study differ by the assumed level of previous OCS activity; the non-OCS assumptions in all three base cases are similar. The moderate base case includes moderate devel- opment scenarios of the first Lower Cook OCS lease sale area, the Beaufort Sea OCS lease sale area, and the Northern Gulf OCS lease sale area .. Substantial growth is projected over the period 1978 to 2000 for the moderate base case. Employment is projected to reach 370,496 by 2000 191 and grow at an annual average rate of 3.4 percent. The most rapid growth occurs with the construction of the ALCAN gasline between 1981 and 1984. Population is projected to grow at a rate slightly less than employment and reach 805,725 by 2000. Personal income is projected to expand at an average annual rate of 10.8 percent between 1978 and 2000. The growth of these aggregate variables, while substantial, is less than the growth during the period 1965-1976. Four structural characteristics of this projected growth were observed. First, as the scale of the economy expands, the importance of the support sector increases. Secondly, the changing age distribution of the popula- tion and increased labor force participation lead to decreases in the dependency ratio (population/employment). Third, as the state grows, more of this growth is concentrated in Anchorage. Fin~lly, the state's fund balance increases to a peak and then falls as expenditures exceed revenues and the fund balance is used to make up the difference. The Impacts of Western Gulf OCS Development: Mean Scenario This section will describe the economic impact of the mean Western Gulf OCS development scenario. The mean scenario impacts will be described in detail in this section, while the impacts of the 5 percent and 95 percent scenarios will be described as they relate to this scenario. The major difference between these scenarios is in the magnitude of impact; the structural characteristics are similar. 192 I 1, [ [ L [ [ L L I Li [ [~ [ [ r L r c [ [ c [ [ L [ [ The phases of activity in the development of the Western Gulf exploration, development, and production are not distinct. Exploration begins in 1981; development begins in 1984; and production begins in 1987. This schedule of activity provides two significant time periods to examine: 1980-1986, when development and exploration occur, and 1987-1999, when only produc- tion activity occurs. The Western Gulf mean scenario differs significantly from previous development scenarios we have examined (ISER, 1979). The most important difference for the results discussed in this report is the small size of production employment associated with the lease area. \Long-term produc- tion employment in both mining employment and transportation averages only 88. Mining also drops significantly after development; Alaskan resident employment in mining falls from a peak of 118 'in 1986 to 39 by 1990. The final major difference is that production ends in 1999, one year prior to the end of our normal projection period in 2000. The differences, particularly the small size of long-term OCS employment, necessitate some caution in interpreting the model results. The small size of the direct employment associated with the project increases the relative importance of the state expenditure response to the overall impact. Western Gulf development according to the mean scenario is projected to have a negative impact on state expenditures. This pro- jected reduction of state expenditures reduces state employment and dampens the impact of the direct OCS employment on the economy. We are not assuming that the reduction of state expenditures with increased 193 population would be the state•s response. The negative expenditure impact is a result of the expenditure rule assumed in the model. This rule determines the growth in real per capita expenditures as a function of the growth in real per capita income. Expenditures are reduced in the OCS case because real per capita income grows slower after its peak than in the base case. This, combined with the small size of the direct employment, produces a decline in expenditures. In all cases, the level of expenditures in the OCS case cannot be considered significantly dif- ferent from the level in the base case. Reference to the level of OCS development in the case where there is no expenditure response will allow us to assess the effect of the expenditure rule on OCS impact. In this case, we assume that there is no state expenditure response to OCS development and that expenditures remain at their base case levels. The difference in the impacts in the two cases is a result of the expen- diture rule. EMPLOYMENT This section will examine the impact of OCS development on employment. Employment is one of the aggregate indicators of economic growth. OCS development increases the growth of employment over most of the projection period. OCS development not only affects the magnitude of employment growth but may also change the structure of employment observed in the base case. If OCS development affects the growth of industries differ- \ ently from the base case, the structure will change. l~ [ 6 I . L, [ I. r [ r [ [ [ [ r L.; [ [ E ·[ [ [ L [ [ t The long-term employment impact of Western Gulf development is insigni- ficant. By 1999, employment is projected to be only 15 greater than in the moderate base case. (See Table 60.) The average growth rate between 1980 and 1999 is 3.3 percent per year, the same as in the base case. The peak impact occurs in 1984 when employment is 1 ,304, or .6 percent greater than in the base case. This is the same year that total direct Alaska resident employment reaches its peak. The overall general pattern of employment impact follows the pattern of direct Alaska resident employment. Direct employment is close to 20 percent of the total impact in 1984 when direct employment peaks. Development of the Western Gulf OCS does not prevent the fall in employ- ment in 1983 after the peak ALCAN construction years. The growth of employment from 1980, the year of the OCS lease sale, to 1986, the end of both the exploration and development, averages 3.43 percent per year. This is only slightly faster than the 3.39 growth rate in the base case. The growth rate after 1986 is less than in the base case. The reduced rate of growth in the production period is a result of the decrease in employment impact after its peak in 1984. Western Gulf development according to the mean scenario has insignificant long-term effects on total Alaskan employment. The projected impacts aftet~ 1989 are close to the direct OCS employment levels. In some years (1989-1991), the employment impact is negative. The major reason for this result is the projected decline in state and local government employment which results from the decline in state expenditures. After 195 1980 1984 1 1985 1986 2 1990 1995 1999 TJ\f3LE GO. EMPLOYMENT IMPACT WESTERN GULr OCS MEAN SCENARIO, J\LASKJ\ Base Case Mean OCS Scenario Employment Employment 194,054 194,054 224,632 225,936 227 ,742 228,576 236,983 237,589 278,055 277,993 312,619 312,695 357 ,663 357,679 1Peak direct Alaska resident employment. 2The end of the exploration-development phase. SOURCE: MAP Model . 196 Impact 0 1 ,304 834 606 -62 75 15 [ [ r L [ [ E I L I . L [ t r [ [ r ~ [ l r- c [ [ c [ [ c [ L [ t 1990, state and local government employment averages about 100 less than in the base case. The effect of eliminating this expenditure impact is to increase the growth of total employment. With constant expenditures case, the employment impact of Western Gulf development is 278 in 1999, which is .8 percent greater than the base. The growth caused by OCS development does not significantly change the structure of employment from that observed in the base case. Table 61 compares the structure of the economy, as described by the employment distribution in the base and impact cases. The major change in the structure of the economy observed in the base case is ~upported by the introduction of the mean Western Gulf OCS development scenario. The support sector increases in importance throughout the projection period, increasing to approximately 53 percent in both cases. POPULATION Population is an aggregate indicator of economic activity which measures the response of people to increased employment opportunities. OCS develop- ment will increase the magnitude of population growth. OCS development may also change the characteristics of the population such as the age-sex distribution or the importance of the components of change. This section will examine the impact on population of Western Gulf OCS development. Population is only 376 greater by 2000 because of Western Gulf OCS development. Population impact peaks in 1984 at about 1 ,900 which is less than one percent greater than the base case. This is the year in 197 Support Sector Moderate Base Mean Scenario Government Moderate Base Mean Scenario Basic Sector Moderate Base Mean Scenario TABLE 61. THE STRUCTURE OF THE ECONOMY MEAN SCENARIO ALASKA Proportion of Total Employment 1980 39.5 39.5 36.0 36.0 24.5 24.5 1985 42.9 43.0 32.7 32.7 24.3 24.3 1990 --r-- 46.8 46.8 28.8 28.8 24.4 24.4 1995 49.8 49.8 26.2 26.2 24.0 24.0 2000 53.2 53.2 22.9 22.8 24.0 24.0 Support Sector includes transportation-communication-public utilities, trade, finance, and service employment. Government includes state, local, and federal employment. Basic Sector includes mining, manufacturing, agriculture-forestry-fisheries, and construction employment. 198 [ ' l_, [ [ r I L_: r: l. I L I , L r L r [ [ [ [ [ [ r- c [ [ 6 [ c [ [ L [ L which both, the . .employment impact and. t.he l ev.e.l of direct Alaska resident employrn.ent on the project reach their peak. ·The average growth rate between 1980 .and 1999 is 3.1 percent.per year. This is not significantly different from the growth rate in the base case. As in the base case, pqpul ati on gra,wssl i ghtly s 1 ower than employment; the dependency ratio falls from 2.28 jn 1978 to 2.~ 18 in 1999. Table, 62 describes the popula- tion impact .. This pattern, of populatiqn impact i$ also affected byJhe reduc:tionjs state government employment. . When state expe~djtures .are held constant between the base and mean scenario cases, the 1~99 popula~ tion impact more.than doub}es. The pattern of growth is affected by OCS development. The development of the Western Gulf OCS does reverse the decrease experienced after the peak ALCAN construction year, 1983. The peak populatio·n impact of the Western Gulf occurs in 1984. The addition of this employment results in a slight increase in population between 1983 and 1984. Population, like employment, grows faster than in the base case in the period from the beginning of exploration to the end of development and slower after that. Between 1980 and 1986, the .average annual rate of growth is 3.5 percent in the mean scenario and 3.4 percent in the base case. Between 1986 and 1999, the rate of growth in the mean scenario is 3.2 percent compared to 3.3 percent in the base case. The main reason for this differential growth is that impact population increases throughout exploration and development. Once production begins, impact population stabilizes at a level lower than the peak. 199 1980 1984 1 1985 1986 2 1990 1995 1999 TABLE 62. POPULATION IMPACT WESTERN GULF OCS MEAN SCENARIO, ALASKA Base Case Mean OCS Scenario Population Population 434,173 434,173 503,802 505,702 513,372 514,895 530,903 532,225 612,523 612,961 692,017 692,525 780,692 781 ,069 1Peak direct Alaska resident employment. 2The end of the exploration-development phase. SOURCE: MAP Model 200 Impact 0 1,900 1,523 1 ,321 438 508 376 r r f ' f " L_ [ f L [ r L r= L~ f.- L L L t [ [ [ .r L [ [ [ .r L [ 6 [ [ [ 6 L Table 63 compares the role of migration in population change between 1981 and 1992. These years cover the peak development years when the population impact from OCS development increases to its peak in 1984 and then falls to a constant level of approximately 500 by 1989. The importance of migration as a component of population change does not significantly differ from the base case during this period. Migration accounts for over 50 percent of the population change between 1981 and 1983 and between 1986 and 1990 in both case. After 1990, migration is less important to population growth than natural increase. The decrease in level of employment in the Northern Gulf and Western Gulf and the higher number of births resulting from high population are responsible for this effect. The small size of the Western Gulf employment impact results in its having little effect on the overall components of popula- tion growth. The major effect of this development occurs in 1984 when it reduces out migration by 1,386, or 14 percent. Two related trends concerning the structure of the population were ob- served in both the base case and the historical period. The first was the reduction in the dependency ratio. This trend is also projected to occur in the Western Gulf development case. By 2000, the dependency ratio in both the base and OCS development cases has fallen. The depen- dency ratio is 2.18 in 2000 with OCS development. The major reasons for this are an increase in the labor force participation of the working-age population and an increase in the proportion of working-age population in the population. This is related to the second observed change in the structure of the population, the aging of the population. Table 64 201 TABLE 63 .. THE MIGRATION COMPONENT OF POPULATION CHANGE WESTERN GULF MEAN OCS SCENARIO 1981-1992 Migration as a Percent of Total Population Change Moderate Mean OCS Base Case Scenario 1981 67.4 68.0 1982 75.6 75.7 1983 50.8 50.4 1984 1 1985 14.5 10.2 1986 53.6 52.8 1987 59.7 58.6 1988 58.8 58.4 1989 55.4 54.9 1990 50.0 49.6 1991 28.5 28.7 1992 25.5 25.6 1End of ALCAN. Net out-migration occurs. SOURCE: MAP Model 202 r· l L l. [ E [ r . L r· L L l l [ [ [ [ [ [ [ [ [ c [ c ~~ .. t::J [ c [ [ [ L t TABLE 64. AGE-SEX STRUCTURE OF THE POPULATION WESTERN GULF MEAN OCS SCENARIO ALASKA 980 2000 Age Cohorts Males Females Ma es Females 0-14 15.08 14.56 14.27 13.81 15-29 18.47 14.33 15.82 13.08 30-49 13.35 12.12 14.84 13.38 50-59 3.31 2.92 3.83 3.71 60 + 3.06 2. 81 3.37 3. 91 \ SOURCE: MAP Model 203 shows the age-sex distribution prior to OCS development and at the end of the projection period. As in the base case, the population is projected to age. The population over 30 increases from 37.6 percent in 1980 to 43 percent in 2000. PERSONAL INCOME The final aggregate indicator of economic growth is personal income. The overall impact of OCS development is to increase personal income slightly relative to the base case. (See Table 65.) By 1999, Western Gulf OCS development will have increased the level of personal income by one million, less than one percent above the base case. Personal income is projected to increase at an average annual rate of 10.6 percent be- tween 1980 and 1999. This is in both the OCS and the base cases. The levels. In 1999, the impact is $40 million in this case. Even correct- ing for the effect of state expenditures, the ~estern Gulf impact on personal income is small. The impact of Western Gulf OCS development on personal income rises to its 1984 peak, then falls until 1991. This coincides with the decrease in the level of project employment. OCS development is not enough to prevent the fall in personal income after the peak ALCAN year in 1983. The magnitude of the fall is similar in both the base and impact cases. Growth in personal income averages a rate of 11.2 percent per year during 204 [ r r L [ r , L r~ L. [· L t [ [ [ [ r [ L [ r~ L [ [ [ L L t 1980 1984 1 1985 1986 2 1990 1995 1999 TABLE 65. PERSONAL INCOME IMPACT WESTERN GULF OCS MEAN SCENARIO ALASKA (Millions of Nominal Dollars) Base Case Mean OCS Scenario Personal Income Personal Income 5,395 5,395 8,360 8,461 9,008 9,063 1 0 '155 10 '198 15,919 15,914 \ 24,367 24,375 36,514 36,516 1Peak direct Alaska resident employment. 2The end of the exploration-development phase. SOURCE: MAP Model 205 Im~act 0 . 100 55 44 -5 9 1 the development and exploration phase. After the end of this phase in 1986, the average rate of growth is 10.3 percent per year. As with em- ployment and population, the rate of growth of personal income is faster during the exploration-development phase than during the same time period in the base case and slower than in the base case after this period. The growth in personal income reflects the ability of the economy to generate increased returns to factors. It is not the best measure of the welfare of the region because it reflects both the growth of employ- ment and prices. One measure of welfare is real per capita income. This measures the command of the average individual over goods and services. Real per capita income accounts for the effect of prices and population on the growth in personal income. Ta~le 66 shows the impact of Western Gulf development on real per capita income. The development of the Western Gulf OCS has two differential periods of impact. OCS activity has a positive effect on real per capita incomes until 1986; after this, the impact on real per capita income is negative. The impact on real per capita income is greatest in 1984, the year of the peak direct Alaska resident construction employment; real per capita income is $30, or 0.6 percent greater than in the base case. By 1999, real per capita income is less than but not significantly different from the base case. The differential between the OCS development and base cases is affected by the composition of employment. The greatest differ- ence occurs when the peak in high wage construction employment occurs, not when the peak in total employment occurs. Real per capita income as a measure of welfare does not consider the distribution of income. 206 [ r~ r· c L r t [ [ r· L L L [ [ [ c [ [ [ [ [ [' [ c B [ c [ r L L t TABLE 66. REAL PER CAPITA INCOME IMPACT 1 WESTERN GULF OCS MEAN SCENARIO ALASKA Real Per Capita Income Relative Price Index Mean Mean Base Case Scenario Impact Base Case Scenario Impact 1980 4,029 4,029 0 308.4 308.4 1984 2 4,448 4,479 30 373.0 373.6 1985 4,511 4,521 10 389.0 389.3 1986 3 4,687 4,692 6 408.1 408.4· 1990 5,250 5,245 -5 495.0 495.0 1995 5,706 5,704 -2 617.1 617.1 1oeflated by Alaska RPI. 2Peak real per capita income impact. Peak direct Alaska resident employment. 3The end of the exploration-development phase . . SOURCE: MAP Mode 1 207 0 .6 .3 .2 0 0 ThP OCS development of the Western Gulf has no significant effect on Alaskan price levels because of the small size of the direct employment effect. The relative price index is less than one point greater than in the base by 1986, the end of the exploration-development phase. After 1986, the economy in the OCS development case is projected to expand less rapidly than in the base case. Because of this, prices do not increase so fast in the OCS case, and the price differential between the cases is eliminated. THE STATE FISCAL POSITION The development of the Western Gulf OCS will affect the state fiscal position in two ways. First, OCS development will affect the revenues received by the state. Although the state will not receive direct revenues from the OCS activity in this scenario, the extra economic growth which will result because of OCS activity will generate additional state revenues. Secondly, OCS development will affect the state's fiscal position through its impact on state expenditures. The change in population and economic activity which will result from OCS development may change the determinants of state expenditures. The interaction of expenditures and revenues will affect the fund balance and the level of services provided by the state. This section will describe the impact of OCS development on the state's fiscal position. REVENUES The OCS development of the Western Gulf of Alaska produces no direct revenues for the state. This major source of revenues are those revenues 208 [ r ' . [' [ L [ L , . ·L [ [ [ r L~ [ [ [ [ L generated by the growth of the economy and earnings of the permanent fund. Table 67 illustrates the impact of OCS development on total general fund revenues and endogenous revenues, which is the component of general fund revenues. By 1986, total general fund revenues are about $3.8 billion. This is $4 mill~on greater than in the base case. The revenue impact falls with the decrease in direct employment until 1992, when direct resident employment stabilizes. After 1995, the revenue impact increases. By 1999, the impact on total general fund revenues is $13 million. Total general fund revenues grow only slightly faster because of OCS develop- ment over the 1980-to-1999 period. \ Prior to 1990, the major component of the impact revenues are the endo- genous revenues, those revenues generated by the growth of the economy.1 These revenues include income taxes and business taxes: The income taxes paid by OCS resident Alaska employees are included in these revenues. When the impact on general fund revenues peaks initially in 1985 at $7 million, endogenous revenues account for 86 percent of the revenue impact. By 1999, the majority of the revenue impact is projected to result from increased earnings on the fund balances. In 1999, the extra earnings on the fund balances account for approximately 92 percent of the additional revenues. 1Endogenous revenues include personal income taxes, nonpetroleum corporate income taxes, business license t~xes, motor fuels tax, alcohol tax, cigarette tax, ad valorem tax, school tax, fees and license revenues, ferry revenues, and miscellaneous taxes and revenues. 209 TABLE 67. STATE REVENUE IMPACT WESTERN GULF OCS MEAN SCENARIO ALI\SKA (t1i"ll·ions of Nomincd Dollctrs) Genera 1 Fund Revenues Endogenous Revenues Mean Mean Base Case Scenario Impact Base Case Scenario Impact 1980 1 ,625 1 .625 0 231 231 0 1984 1 3,230 3,234 4 452 455 3 1985 3,639 3,646 7 458 464 6 1986 2 3,833 3,837 4 515 519 4 1990 4,804 4,806 2 945 944 -1 1995 5,911 5,918 8 l ,647 l ,647 l 1999 7,316 7,330 l3 2,761 2,761 l "·· 1Peak direct Alaska resident employment~ 2The end of the exploration-development phase. SOURCE: . MAP Model 2.10 f c L f'' [ r· [_· ~~~ \_._,- [' L r [ [i [ [ [ l L L L [ [ [~ [' [ r.-~ . . L [~ f~ c G [ [ [ [ L [ STATE EXPENDITURES The pattern of projected state expenditure impacts has a significant effect on the overall impact pattern projected for Western Gulf OCS development. Table 68 shows the expenditure impact of OCS development. Two distinct periods of impact occur. Prior to the end of the development phase in 1986, expenditure impacts are positive; after 1986, total state expenditures are reduced by Western Gulf OCS development. State expendi- ture impacts peak in 1985 at $10 million. By 1999, state expenditures are $19 million less than in the base case. At both its peak in 1985 and at the end of production in 1999, the difference from the base case is insignificant; in both cases, the difference is less than 0.5 percent of the base level. The OCS development of the Western Gulf according to the mean scenario has little effect on state expenditures. Expenditures increase for two reasons. First, expenditures increase be- cause of increases in population and prices. As population and prices increase, expenditures must increase to maintain the same level of service. Secondly, expenditures will increase if the level of service provided by state government increases. Real per capita expenditures are a measure of the level of services provided by the state. Table 68 shows the impact of OCS development on the real per capita expenditures. Real per capita expenditures are less than in the base case throughout the period. The difference is less than one percent throughout the period. The maximum difference in real per capita expenditures is in 1984, when they are $5 less than in the base case. By 1999, real per capita expenditures are only $4 less with OCS development. 211 TABLE 68. STATE GOVERNMENT EXPENDITURE IMPACTS WESTERN GULF OCS MEAN SCENARIO ALASKA Total State Expenditures (Millions of Nominal Dollars) Real Per Capita 1 State Expenditures Mean Mean Base Ca:se Scenario Impact Base Case Scenario Impact 1980 1 ,567 1 ,567 0 1,170 1 ,170 0 1984 2 2,595 2,598 3 1 ,381 1,375 -5 1985 2,762 2,772 10 1,383 1,383 0 1986 3 . 3,099 3,099 0 1,430 1,426 -4 1990 4,713 4,703 -10 1,554 1,550 -4 1995 6,733 6,723 -10 1 ,577 1 ,573 -4 1999 9,296 9,277 -19 1 ,601 1,597 -4 1oeflated by Alaska RPI. 2Peak direct Alaska resident employment. 3The end of the exploration-development phase. SOURCE: MAP Model 212 [ L \' L. [ [~ [ [ [ r r, I~ L __ .i [ [ c E [ c [ L t L t FUND BALANCE The state's fund balance consists of the total of the permQnent and general fund. The permanent fund will not be affected by Western Gulf OCS development because OCS development on the Western Gulf does not produce the type of revenues subject to the permanent fund. The fund balance impact will be on the general fund. The fund balance follows the same pattern as in the base case, rising to a peak in 1997 and then falling as the fund balance is drawn on to meet expenditures. However, development of the Western Gulf OCS according to the mean scenario increases the level of the fund balance. This is not a suprising result since state expenditures are reduced and revenues increased because of this development. By the end of the exploration-development phase in 1986, the fund balance i$ projected to be $3 million greater than in the base case. By the end of the production period in 1999, the fund balance is $204 millirin, or almost one percent less than in the base case. The increased fund balance generates more interest revenue which contributes to the increased fund balance. Table 69 shows the same pattern when the fund balance is adjusted for price increases. By 1999, the real fund balance is increased by $69 million. General fund revenues minus general fund expenditures describe the balance between revenues and expenditures. The addition of the Western Gulf OCS development according to the mean scenario increases general fund revenues net of expenditures above the base case levels. During this period, the revenue impact of OCS develop- ment is greater than the expenditure impact. This is responsible for the positive fund balance impact in this scenario. 213 1980 1984 1 1985 1986 2 1990 1995 1999 TABLE 69. IMPACT ON STATE FISCAL POSITION WESTERN GULF OCS MEAN SCENARIO ALASKA General Fund Revenues Minus Real Fund Balance General Fund Expenditures (constant 1977 dollars) (millions of nominal dollars) Mean Mean Base Case Scenario Impact Base Case Scenario Impact 1 ,090 1 ,090 0 361 361 0 3,051 3,046 -5 1 '140 1 ,141 1 3,854 3,849 -5 1,426 1 ,426 0 4,519 4,518 -1 1 ,364 1 ,369 5 6,199 6,219 20 1,004 1 ,016 12 6,360 6,405 45 409 426 17 5,256 5,326 69 -305 -276 29 1Peak direct Alaska resident employment. 2The end of the exploration-development phase. SOURCE: MAP Model 214 ',, [ [' r' [ [ [' r . j L r \_ _ _; f' l L t= L L L t [ [ [ r L L [ [ E L 6 [ [ [ L l The overall impact of Western Gulf OCS development on the state fiscal position is ambiguous. The fiscal position is a combination of the impact on state services as measured by real per capita expenditures and the fund balance. According to these projections, Western Gulf develop- ment causes each of these measures to move in opposite directions. The fund balance is increased because of OCS development. The increase results because of a reduction in state expenditures which results partially from decrease in the level of real per capita expenditures. THE REGIONS This section examines the regional impacts of OCS develppment on two regions, Anchorage and Southcentral Alaska. Different types of impact can be expected in each region since the character of the regions differs. Anchorage is the metropolitan center of the state. OCS development will impact Anchorage both through the direct OCS headquarter-s employment and· through Anchorage's role as the administrative and distributive center for the state. Southcentral will be mainly affected by the direct OCS development; Western Gulf activity occurs within Southcentral Alaska. This section will describe the impact of OCS activity on each region in terms of the growth of the aggregate indicators of economic growth-- population, employment, and disposable real personal income--and changes in the structure of the economy as measured by the distribution of employment. 215 Anchorage Table 70 shows the impact on Anchorage of developing the Western Gulf OCS according to the mean scenario. The pattern of these indicators is similar to that found for the state. The pattern of increase is deter- mined by the pattern of direct resident employment impact and the level of state government expenditures. The projected reduction in state government expenditures is important for Anchorage since Anchorage growth is not directly influenced by OCS activity. Population is projected to increase to 415,474 by 1999 with Western Gulf OCS development. This is only an 158 increase over the. base case. Population grows at an average annual rate of 3.7 percent from 1980 to 1999. This is approximately the same as the rate in the base case. The Anchorage population impact peaks in 1984, when population is 1.016 greater than in the base case. Even though the major direct employment occurs in the Southcentral region, Anchorage has almost half of the population impact. In 1984, 53 percent of the state population impact occurs in Anchorage; by 1999, the Anchorage impact is 42 percent of the statewide impact. As in the base case, population continues to concentrate in Anchorage. By 1999, Anchorage contains 53.2 percent of the state population in both the base case and the OCS development case. The reduction in state expenditures influences the pattern of OCS employ- ment impact in Anchorage. By 1999, employment is projected to be 191,176, which is approximately the same as in the base case. The Anchorage employment impact also peaks in 1984 at 613 which is 0.5 percent greater 216 r· l_ -~ [ ~ F f~ r· [ [ [ L L [ [ [ TABLE 70. IMPACT ON AGGREGATE INDICATORS OF ECONOMIC GROWTH [ WESTERN GULF OCS MEAN SCENARIO ANCHORAGE [ Populatioo Base Case Mean Scenario ImQact [ 19801 207,323 207,323 0 1984 244,577 245,593 1 ,016 L 19852 249,962 250,689 726 1986 259,583 260 '177 594 1990 305,932 306,153 221 [ 1995 357,795 358,002 207 1999 415,315 415,474 158 r, Employment Base Case Mean Scenario ImQact r 1980 91,938 91,938 0 L.; 1984 109,304 109,917 613 [ 1985 111 .258 111 ,642 384 1986 116,354 116,606 253 1990 139,743 139,698 -45 1995 162,462 162 ,481 18 c 1999 191,184 191.176 -8 5 Real Disposable Personal Income 3 (Millions of Constant Dollars) [ Base Case Mean Scenario Im~act 1980 677 677 0 1984 867 874 7 L 1985 899 903 4 1986 958 961 2 1990 1 ,235 1,235 0 r 1995 1 ,547 1 ,547 0 . ~ 1999 1,938 1,937 0 [ l 1Peak direct Alaska resident employment. 2The end of the exploration development phase. r: 3Deflated by Alaska RPI~ SOURCE: MAP Model [ 217 Lltcllt th<· bct·.r• r:c~';(• populalion. Between l~Ji\0 illlrl lCJHG, f'l11ploym<'nl qrm·r, al about ~ IH'tTUitL in l>olh th(~ base and OCS casl~S. /\s in Utl~ bitS(~ case, population increases slower than employment, and the dependency ratio has fallen to 2.17 by 1999. Real disposable income is projected to approximately $2.0 billion in 2000. Real disposable income increases at an average rate of 5.7 percent per year from 1980 to 1999 in both cases. There is no long-term impact on real disposable income projected. Economic Structure. The impact of OCS development in the Western Gulf may not affect all industries equally. Table 71 illustrates the effect of OCS development on the structure of employment. All 'of the industrial sectors grow with OCS development. As in the base case, the most rapid growth occurs in the support sector. Over the impact period, 1980-2000, transportation-communication-utilities and local construction increases its share of employment from 14.9 percent to 17.7 percent; and trades servicess and finance-insurance-real estate increases its share from 46.4 percent to 58.9 percent. The basic sector maintains a relatively constant share of employment; the increase in this sector comes mainly from the growth in manufacturing. Although government employment increases, its share falls from 34.6 percent to 19.2 percent between 1980 and 2000. The development of the Western Gulf OCS supports the changing structure of the economy projected in the base case. 218 [ r [ [ [ L [ L L L t -L " N ..... 1.0 -I , ' r---fi • jJ r----11 \, ' TABLE 71. ECONOMIC STRUCTURE WESTERN GULF OCS MEAN SCENARIO ANCHORAGE --' ' ' Support Sector I Support Sector II Government Basic 'Sector Employment % of Total Employment % of Total Employment % of Total Employment 1980 42,516 46.4 13,652 14.9 31,763 34.6 3,746 1985 55,173 49.7 17,524 15.8 33,574 30.3 4,642 1990 74,004 53.6 22,852 16.6 35,541 25.7 5,705 1995 89,431 56.0 27,207 17.0 36,338 22.7 6,793 2000 114,587 58.9 34,495 17.7 37,400 19.2 8 '1 07 Support Sector I includes trade, services, and finance-insurance-real estate employment. Support Sector II includes transportation-communication-public utilities and other construction employment. Government includes state, local, and federal employment. Basic Sector includes manufacturing, agriculture-forestry-fisheries, mining, and exogenous construction employment. SOURCE: MAP Model % of Total 4.1 4.2 4.1 4.3 4.2 Southcentral Alaska Table 72 describes the impact of Western Gulf OCS development according to the mean scenario on the Southcentral region of Alaska. This table shows three aggregate indicators of economic growth which are projected to increase with OCS development. The lease sale area is located in the Southcentral region so that the major direct impact will occur in this region. The relatively underdeveloped support sector of the region will limit the impact of OCS development. Population is projected to grow at an average annual rate of 1.9 percent from the lease sale in 1980 to 1999. By 1999, the population is 85,053, which is 251 greater than in the base case. The peak population impact occurs at the end of the exploration-development phase in 1986. Popula- tion is almost 611 greater than in the base case. Employment is projected to increase to 38,142 by 1999, which is only 96 greater than in the base case. With Western Gulf development, employment increases at an annual rate of 2.5 percent between 1980 and 1999 in both cases. Peak employment impact occurs in 1984 when peak direct Alaska resident employment occurs. In 1984, employment is 405 greater than in the base case. Direct resident OCS employment accounts for 64 percent of the total employment impact in 1990 and 64 percent in 2000. The employment impact is always positive in Southcentral; state government employment plays a smaller role in this region than in Anchorage. 220 [ [ [ [ r~ c [ [ c [ 0 6 [ c [ [ [ L L TABLE 72. IMPACT ON AGGREGATE INDICATORS OF ECONOMIC GROWTH WESTERN GULF OCS MEAN SCENARIO SOUTH CENTRAL Population Base Case Mean Scenario Impact 19801 59,054 59,054 . 0 1984 64,866 65,404 538 1985 66,203 66,667 464 1986 68,340 68,952 611 1990 76,801 77,022 221 1995 78.879 79 '181 301 1999 84,802 85,053 251 Employment · Base Case Mean Scenario Impact 1980 23,745 23,745 0 1984 26,732 27,137 405 1985 27,497 27,737 240 1986 28,810 29,091 280 1990 33,520 33,590 70 1995 34,629 34,744 115 1999 38,046 38,142 96 Real Disposable Personal Income 2 (Millions of Constant Dollars) Base Case Mean Scenario 1980 184· 184 1984 221 228 1985 235 239 1986 256 260 1990 329 329 1995 355 356 1999 421 423 1Peak direct Alaska resident employment. 2oeflated by Alaska RPI. SOURCE: MAP Model 221 Jmpact 0 7 3 4 1 2 1 Real disposable personal income in 1999 is only $1 million greater than the base case because of OCS development. As with the employment impacts, the peak real disposable personal income impact occurs with peak Alaska resident project employment in 1984. Real disposable personal income is $7 million, or 3 percent greater than in the base case in 1990. The importance of the high wage OCS employment results in this increase. Western Gulf OCS development has its major impact on Southcentral Alaska. ECONOMIC STRUCTURE Western Gulf OCS development according to the mean scenario supports the structural change which was projected in the base case. All sectors increase employment between 1980 and 2000; however, the rate of increase differs between industries. As in the base case, government's share decreases from 20.2 percent in 1980 to 16.3 percent. Trade, service, and finance-insurance-real estate expands its share of employment from 38.2 percent to 42.6 percent between 1980 and 2000. This response is expected since the local economy will expand the goods and services pro- duced locally as its scale increases. With the buildup of OCS activity in the Northern and Western Gulf, the ba~ic sector increases its share from 26.9 percent in 1980 to 27.5 percent in 1990. After the peak in Northern Gulf activity and the shutdown of the Upper Cook Inlet fields in 1990, the basic sector's share of total employment is reduced to 25.5 percent. Table 73 describes these structural changes. 222 r [ L [ r I f' \ _, N N w TABLE 73. ECONOMIC STRUCTURE WESTERN GULF OCS MEAN SCENARIO SOUTH CENTRAL Support Sector I Support Sector II Government Basic Sector Employment % of Total Employment % of Total fmployment % of Total Employment 1980 9,173 38.2 3,515 14.7 4,837 20.2 6,462 1985 10,865 38.7 4,380 15.6 5,427 19.3 7,406 1990 13,345 39.1 5,370 15.7 6,046 17.7 9,384 1995 14,678 41.3 5,480 15.4 6,256 17.6 9,091 2000 17 '155 42.6 6,155 15.3 6,539 16.3 10,369 Support Sector I includes trade, services, and finance-insurance-real estate employment. . - Support Sector II includes transportation-communication-public utilities and other construction employment. Government includes state, local, and federal employment. Basic Sector includes manufacturing, agriculture-forestry-fisheries, mining, and exogenous construction employment. SOURCE: MAP Model % of Total 26.9 26.4 27.5 25.6 25.8 The Impacts of Western Gulf OCS Development: 5 Percent Scenario The five percent probability resource level scenario projects a higher level of oil and gas discovery than the mean scenario. The higher level of discovery requires greater development activity than in the mean scenario. The most important difference between these scenarios is the magnitude of direct employment; differences in magnitude are also the major differences between the impacts associated with each scenario. This section will describe the magnitude of the impact associated with the 5 percent scenario in terms of four measures of economic activity: employment, population, state expenditures, and the fund balance. We \ will also compare the structural similarities and differences between the mean scenario and the 5 percent scenario. The five percent scenario includes the development of two fields. Oil and non-associated gas are developed in the Albatross Basin, and only oil r [ r· is developed in the Tugidak Basin. For our analysis, we will concentrate ~~ on the period between the lease sale in 1980 and the end of development in 1990. Peak direct resident employment occurs in 1985. The period after 1990 is dominated by production. GENERAL PATTERN or GROWTH The general pattern of development projected with the inclusion of the 5 percent Western Gulf scenario is shown in Table 74. Four indicators-- employment, population, state expenditures, and the real fund balance-- are shown. The other variables mentioned in the discussion can be found 224 L [ [ f-, l_, r· [ [~ [ I. '--· [ [ c; 6 [ c [ L t L t 1980 1985 1 1990 2 1995 2000 1980 1985 1990 1995 2000 TABLE 74. THE IMPACT ON MAJOR ECONOMIC INDICATORS WESTERN GULF OCS 5 PERCENT SCENARIO ALASKA Population Employment 5% 5% Base Case Scenario Impact Base Case Scenario 434,173 434,173 0 194,054 194,054 513,372 523,415 10,043 227,742 234,154 612,523 622,824 10,301 278,055 282,362 692,017 699,740 7,723 312,619 314,665 805,725 813,749 8,025 370,496 372,859 }mpact 0 6,412 4,307 2,045 2,363 State Expenditures Real Fund Balance 3 (Millions of Nominal Dollars) JMillions of Constant Dollars) 1,567 1,567 0 2,762 2,806 44 4,713 4,753 40 6,733 6,730 -3 10,135 1 0 '121 -14 1Peak direct resident employment. 2End of exploration and development phase. 3Deflated by Alaska RPI. 1,090 1 .090 0 3,853 3,821 -32 6,199 6,178 -21 6,360 6,406 45 4,841 4,982 141 SOURCE: MAP Model 225 in Appendix D. This scenario, like the mean scenario, increases employ- ment, population, and state expenditures throughout the projection period. In this section, we will discuss the impact of ~estern Gulf OCS develop- ment according to the 5 percent scenario. Population is projected to be 813,749 by 2000. This is 8,025, or 1.0 pel~- cent greater than population in the base case population. Between 1980 and 2000, the population growth rate averages 3.2 percent per year, which is greater than the 3.1 percent rate in the base case for the same time period. The maximum increase in population resulting from OCS development occurs in 1988 when population is almost 10,400 greater than in the base case. This is after direct resident construction employment reaches its peak and results from a combination of increased natural increase. By 1990, when development ends, population impact is approxi- mately the same, 10,300. The growth rate between 1980 and the end of development averages 3.7 percent per year, compared to 3.5 percent in the base case. After the major development and exploration activity is over in 1991, the growth slows to 2.7 percent per year, which is slightly less than the base case growth rate during this same period. The pattern of population growth and impact can be explained by the growth of total employment. Total employment is projected to be 2,363 or 0.6 percent greater than in the base case by 2000. The inclusion of the Western Gulf 5 percent development scenario increases the growth rate between 1980 and 2000 from 3.1 percent per year in the base case to 3.3 percent per year. The maximum increase in employment occurs in 1985, the year of peak direct employment 226 ~ - '-- I Ll [ L L [ [ f~ [~ [~ r·· [ t [ [ c E c [~ [ [ c [ t~ The state fiscal position is affected by Western Gulf OCS development according to the 5 percent scenario. This impact is shown by state expenditures and the real fund balance. State expenditures are projected to increase to $10.1 billion by 2000; this is less than in the base case by 0.1 percent. This insignificant difference is a result of growth in real per capita income similar to the moderate case. The growth rate between 1980 and 2000 is only slightly different from the base case. State expenditures grow at approximately 9.8 percent per year over the period in both cases. The average rate of growth in expenditures is 11.2 percent per year between 1980 and 1990 and that falls to 7.9 percent per year between 1991 and 2000. Expenditures grow slightly faster in the base case after 1991. As in the mean scenario, all determinants of the growth in expenditures--population, prices, per capita real income--grow slower during this period as the adjustment from peak impact to production employment is made. The growth in expenditures is not $0 rapid as either population or prices. Because of this, real per capita expendi- tures are lower than in the base case. By 2000 real per capita expendi- tures are $20 less than in the base case. The pattern of the real fund balance growth in this scenario is similar to the base case pattern. The real fund rises to a maximum amount in 1993, then falls in both cases. With Western Gulf OCS development, the real fund balance rises to a maximum of almost $6.5 billion by 1993. After this, the fund is drawn down as the general fund is used to make up the difference between expenditures and revenues. The pattern of 227 fund balance growth with Western Gulf OCS development in the 5 percent scenario differs in two ways from the base case .. First, the peak in 1993 is greater. The real fund balance is $14 million greater in 1993 with OCS development. Secondly, the real fund balance does not fall by as much after 1993. By 2000, the real fund balance is actually greater by $141 million than in the base case; the fund balance is 2.9 percent greater in 2000 because of OCS development. STRUCTURAL SIMILARITIES AND DIFFERENCES The major structural characteristics of the projected economic growth which were observed to be important in the base case were the increased importance of the support sector, the decreasing dependency ratio, the concentration of population in Anchorage, and the pattern of fund bal- ance growth. The mean Western Gulf OCS development scenario was shown to support the base case trends. Table 75 compares indicators of these structural characteristics between the mean scenario and the 5 percent scenario. Similar structur~l changes occur in both the mean and 5 percent scenario cases. Both of these scenarios support the base case trends projected in these characteristics. 228 I L. E [ L [ [ [ L C TABLE 75. STRUCTURAL CHARACTERISTICS OF THE ALASKA ECONOMY WESTERN GULF OCS 5 PERCENT SCENARIO 1980 1990 2000 Percent of Employment in the Support Sector Mean Scenario 39.5 46.8 53.2 5% Scenario 39.5 47.0 53.3 Dependency Ratio {Population/Employment} Mean Scenario 2.24 2. 21 2.18 5% Scenario 2.24 2.21 2.18 Percent of Population in Anchorage Mean Scenario 47.8 50.0 53.5 5% Scenario 47.8 49.9 53.5 General Fund Revenues Minus General Fund Expenditures {Millions of Nominal Dollars} Mean Scenario 361 1 ,016 -504 5% Scenario 361 1 ,017 -428 229 The Impact of Western Gulf OCS Development: 95 Percent Scenario Table 76 shows the impact of the 95 percent Western Gulf OCS development scenario on employment, population, state expenditures, and fund balance. This scenario describes the exploration-only case when no petroleum i resources are found. The scenario has only minimal impact on the Alaska economy. Exploration occurs between 1981 and 1983. There is direct OCS employment only in those years. The scenario increases employment and population by less than one percent. The maximum population impact occurs in 1982 when population is .2 percent greater than in the base case. At its maximum difference, employment is only .2 percent greater than in the base case. The long-term impact is a result of adjustments during the exploration phase. For example, the growth during exploration phase increases state expenditures. State expenditures increase from this new base throughout the projection period. The major long-term impact of this development scenario is on the fund balance. By 2000, the real fund balance is $9 million less than in the base case. The increased expenditures and the reduced interest revenues account for the growing negative impact on fund balances. The minimal impact of this scenario means that it will not affect the structural changes found in the base case. 230 [ ~ [ r: ~-­ L - [ [ [ [ [ [ [ r: L-' [ c E [ ~ [ [ t L L 1980 1981 1982 1983 2000 1980 1981 1982 1983 2000 TABLE 76. THE IMPACT ON MAJOR ECONOMIC INDICATORS WESTERN GULF OCS 95 PERCENT SCENARIO ALASKA Population Employment 95% 95% Base Case Scenario Impact Base Case Scenario 434 '173 434,173 0 194,054 194,054 456,078 456,530 452 206,859 207,193 487,441 488,154 712 225,394 225,883 504,694 505,236 542 231,506 231 ,820 805,725 805,825 101 370,496 370,508 \. State Expenditures Real Fund Balance 1 Impact 0 334 489 313 12 ~Millions of Nominal Dollars} JMillions of Constant Dollars} 1 ,567 1,567 0 1,090 ' 1,090 0 1.744 1,744 0 1,485 1,485 0 2,019 2,022 4 1 ,916 1 ,914 -2 2,380 2,385 5 2,350 2,347 -3 10 '135 10 '136 1 4,840 4,831 -9 1Deflated by Alaska RPI. SOURCE: MAP Model 231 Summary and Conclusions Western Gulf OCS development will change the magnitude of economic indicators. In all three cases--the 5 percent~ mean~ and 95 percent scenarios--the aggregate indicators of economic activity increase. Even though the aggregate indicators increase, the long-term inpact of Western Gulf OCS development will be insignificant. If the Western Gulf OCS is developed according to the 5 percent scenario~ employment will be 0.6 percent larger than the base case in 2000; population will be 1.0 per- cent larger; and personal income will be 0.9 percent larger. The mean scenario increases employment by only 12 over the base case at the end of production in 1999; population, by 376; and personal_ income, by $1 million. The 95 percent scenario is the exploration-only case, and it increases the aggregate indicators by less than one percent. The pattern of overall impact is due to two factors. First, the direct impact of Western Gulf development is small. In the mean case, long- term direct employment is only 86. Secondly, the pattern of the growth of real per capita income results in a decrease in state expenditures in the final years of both production cases. This fall dominates the moderate case and dampens the impacts in the high case. This effect cannot be assumed to describe the reaction of the state to increased growth; it is a technical result of our assumed state spending rule~ Because expendi- tures are reduced, the impact of OCS development on the fund balance is positive in both the production cases. 232 r· ( L [_ [ L L [ [ [ [ [~ [ f r k~ [ [ ~ E [~ c [ c L l~ L Two measures of individual welfare are real per capita income and real per capita state expenditures. In both development cases, the impact on real per capita income is positive during exploration and development. Once production begins, the changing composition of employment and higher prices lead to a reduction in real per capita incomes below the base case levels. Real per capita expenditures are less than in the base case in both production cases. Overall~ the process of growth remains unchanged by OCS development. The structural changes and changing relationships projected in the base case are supported by OCS development. The increased proportion of employees in the population is also observed in both development cases. As in the base case, the increased scale of the economy increases the importance of the support sector as the economy provides more of its own goods and services. Finally, development of the Western Gulf OCS increases the concentration of population in Anchorage~ 233 [~ f' [ ! . i i I \_ ____ . ,~ t ·' [ [ [ r [ i': [ L L l' '---' 234 [ [~ [ [ c [ c [ [ L f' "-' L V. THE IMPACT OF WESTERN GULF OCS DEVELOPMENT: THE CUMULATIVE CASE The impact of Western Gulf OCS development will depend on the base case to which it is compared. In Chapter III, we developed three base cases, each containing a different level of previous OCS lease sale activity. Varying the base case by the level of previous OCS activity will allow us to bracket the range of possible Western Gulf OCS impact. The sen- sitivity of the Western Gulf OCS impacts to the level of previous OCS activity is of interest. In the last chapter, we provided an analysis of the impact of OCS development relative to the moderate base case. \ In this chapter, we will examine the range of impacts from the 5 percent scenario on the high base case and the 95 percent scenario on the low base case. For the most part, these impacts will differ only in magnitude from those discussed in the mean scenario. The changes in magnitude will be described by the general pattern of grm<Jth. Structural similarities and differences will also be discussed. The Impact of Western Gulf OCS Development At the 5 Percent Level: The High Base Case THE HIGH BASE CASE The major difference between the high and moderate base cases is the level of activity assumed in the Lower Cook, Beaufort, and Northern Gulf .OCS lease sale areas. The high case has a peak direct employment which is more than one-and-one-half times greater than'in the moderate case 235 in the Lower Cook, 24 percent greater in the Beaufort, and 81 percent r L . greater in the Northern Gulf. The high Lower Cook scenario also includes f- constr·ur:t:ion and opc-~raUon of an LNG facility. ThP hiuh ba~;<~ ca~;<~ has i greater levels of economic activity than the moderate case. Population is projected to be 837,888 by 2000 in the high base ca.se, with a 3.3 per- cent average annual growth rate. Employment is projected to increase to 381 ,508 by 2000. This is almost ll ,012 greater than employment in the moderate base case. The overall state fiscal position differs between the cases. Expenditures by 2000 are about two percent greater in the high base case than in the moderate case. The larger Beaufort revenues also lead to an increase in the fund balance between the high and moderate base cases. By 2000, the real fund balance in the high base case is $5.2 billion, which is $480 million greater than in the moderate base case. The change in the structural characteristics found in the moderate base case are also found in the high base case. THE GENERAL PATTERN OF GROWTH Table 77 examines the economic growth with Western Gulf OCS development according to the 5 percent scenario relative to the high base case. Comparing these cases shows us the impact of OCS development. The impact is similar to that projected in the other cases; population, employment, and state expenditures all increase as a result of OCS development. The fund balance is reduced because of OCS development, but the negative impact decreases by the end of the period. 236 r-- \ [ ( r- L_. ('' r \_j r- L_ [ L [ [ [ [ [ [ [ L L r-, l. ~ ~ [ [: _i E L c [ L [ L [ 1980 1985 1 1990 2 1995 2000 1980 1985 1990 1995 2000 TABLE 77. THE IMPACT ON MAJOR ECONOMIC INDICATORS WESTERN GULF OCS 5 PERCENT SCENARIO/HIGH BASE CASE Population Employment 5% 5% Base Case Scenario Im~act Base Case Scenario 431 ,495 431 ,495 0 192' 187 192,187 540,357 551,243 l 0,886 245,927 252,964 639,451 650,925 ll ,473 288,328 293,324 723,291 732,263 8,972 323,807 326,410 837,888 847,577 9,689 381,508 384,591 Im~act 0 7,036 4,997 2,603 3,083 State Expenditures Real Fund Balance {Millions of Nominal Dollars) {Millions of Constant 1977 1,559 1,559 0 2,904 2,972 68 4,877 4,948 71 6,945 6,973 28 l 0,343 l 0,389 46 1Peak direct Alaska resident employment. 2The end of the development phase. l '094 l ,094 3,779 3,736 6,090 5,997 6,451 6,370 5,210 5' 161 Dollars) 0 -43 -93 -81 -49 SOURCE: MAP Model 237 Population increase~ at an average rate of 3.4 percent per year from the beginning of OCS development in 1980 to the end of the period in 2000. In 2000, population is projected to be 847,577, which is 1.2 percent greater than in the base case. The maximum increase in population as a result of OCS development occurs in 1988 when population is 11,544 or 2 percent greater than in the base case. The growth rate during the exploration-development phase (1980-1990) averages 4.2 percent per year. After 1991, when production is the dominant activity, the growth rate averages 2.7 percent per year. The economy grows faster than in the base case during the exploration and development phase and slower during the production phase. Employment is projected to increase to 384,591 by 2000. This is 3,083- greater than in the base case. The overall growth rate is approximately 3.5 percent per year in both the base and OCS cases. The peak employment impact occurs in 1985 when total employment is 7,036 or 2.9 percent greater than in the base case. Direct OCS resident employment peaks in 1985. Employment, like population, increases faster in the exploration- development phase (1980-1990) than after 1990 when production is the dominant activity. The state's fiscal position is affected by Western Gulf OCS development. By 2000, state expenditures are projected to be $46 million or less than one percent greater than in the base case; total expenditures are projected to be $10.4 billion by 2000. The maximum impact of OCS development on state expenditures occurs in 1986 when expenditures are 238 l (_ r-- 1 \ _j [ L f l -< L [ L L L [ [ [ [ [ [ [ [ [ [ 6 [ b [ [ L r· ........_. [ $91 million greater than in the base case. The maximum expenditure impact occurs after the maximum population impact because of the lags built into the expenditure rule. The pattern of expenditure growth differs between the base case and the 5 percent scenario. Expenditures increase faster with Western Gulf OCS development than in the base case, 12.2 percent per year compared to 12.1 percent, during the exploration- development phase (1980-1990). After 1990, the increase in expenditures is more rapid in the base case, 7.8 percent compared to 7.7 percent per year. The incfease over the base case is not so great as the combined increase in prices and population, so OCS development has a negative impact on real per capita state expenditures. Real per capita state expenditures are $14 less than in the base case by 2000. The pattern of real fund balance growth is similar in both the base case and the OCS development case. In both cases, the real fund balance rises to a peak in 1994 and then falls as the fund balance is drawn down to make up the difference between revenues and expenditures. At its peak in 1994, the real fund balance with OCS development is $6.5 billion, which is $85 million less than in the base case. By 2000, the real fund balance is $49 million, or one percent less than in the base case because of OCS development. The relative impacts of the 5 percent developmen4 scenario are differ when they occur with the moderate or high base case. The major cause of this difference is the expenditure impact projected in the moderate base case. The population impact in 2000 differs between these cases by 239 20.7 percent; the population impact is 8,025 with the moderate base case and 9,689 with the high scenario. The employment impact in 2000 is 2,363 with the moderate base case and 3.083 with the high base case, a differ- ence of 30 percent. The expenditure impacts differ in sign in 2000; the impacts are negative with the moderate base case and positive with the high base case. The fund balance impact is positiv~ with the moderate base case and negative with the high base case. The pattern of fund balance impact is similar in each case, with the negative fund balance impact being reduced by the end of the period. STRUCTURAL SIMILARITIES AND DIFFERENCES \ •, Table 78 compares certain structural characteristics of economic growth in the mean OCS-moderate base case scenario and the 5 percent OCS-high base case scenario. These indicators describe tne four types of struc- tural change found in the base case: first, the increased importance of the support sector as the scale of the economy increases; second, the increasing proportion of the population which is emp]oyed; third, the continuing concentration of population in Anchorage; finally, the pattern of state expenditure which results in their being greater than revenues. The development of the Western Gulf OCS, according to the 5 percent see- nario given the high base case, experiences the structural change which is similar to that found in the mean scenario case. The support sector increases its share of employment to about 54 percent in both cases. The dependency ratio decreases through the projection period, although it is slightly higher in the 5 percent scenario. By 2000, Anchorage has 240 [ r~ L [ [ L L [ [ L L [ [ [ [ [ [ [ [ [ [ [ E c [ L [ [ t r: C TABLE 78. STRUCTURAL CHARACTERISTICS OF THE ALASKA ECONOMY WESTERN GULF OCS OCS-MODERATE BASE SCENARIO/ 5% OCS-HIGH BASE SCENARIO 1980 1990 2000 Percent of Employment in the Support Sector Mean Scenario 39.5 46.8 53.2 5% Scenario 39.4 47.3 53.5 Dependency Ratio {Population/Emploxment) Mean Scenario 2.24 2.21 2.18 5% Scenario 2.25 2.22 2.20 \ Percent of Population in Anchorage Mean Scenario 47.8 50.0' 53.5 5% Scenario 47.8 49.9 53.4 /' General Fund Revenues Minus General Fund Expenditures {Millions of Nominal Dollars) Mean Scenario 361 1 ,016 -504 5% Scenario 363 1,039 -309 241 increased its share of state population to about 54 percent in both cases. In both the mean OCS-moderate base scenario and the 5 percent OCS-high base case scenario, general fund revenues minus expenditures are negative by 2000. In both cases, the fund balance must be drawn on to meet expenditures by 2000. The Impact of Western Gulf OCS Development At the 95 Percent Level : The Low Base Case THE LOW BASE CASE The low base case scenario contains the same non-OCS assumptions as the moderate and high base case scenarios. It differs from these cases in its assumptions about OCS activity in the Lower Cook, Beaufort Sea, and Northern Gulf. Lower Cook and Northern Gulf are assumed to have explora- tion-only in this scenario. Production occurs in the Beaufort. Peak employment in the Beaufort reaches 740 in 1989; this is 68 percent of the peak in the moderate Beaufort scenario. The growth in the low base case is less than in the moderate case. Over the period 1978-2000, population is projected to increase at an average rate of 3 percent per year. Population is projected. to be 782,602 by 2000. Employment is projected to increase to 362,233 by 2000 in the low case. State expendi- tures are less than one percent lower than in the moderate case by 2000. They are projected to be almost $10 billion by 2000. The fund balance is $300 million less than in the moderate base case by 2000. In 20DO, the fund balance is projected to be $14.8 billion. The pattern of fund balance growth is similar in both cases, rising to a peak of almost 242 [ [ L L [ [ [ [ [ [~ [. r~ L-~ [ [ ~ 6 [ c [ [ L L t $16 billion in 1997, then falling as funds are used to make up the difference between expenditures and revenues. The structural changes found in the moderate base case are also found in the low base case. THE GENERAL PATTERN OF GROWTH The 95 percent scenario describes the activity associated with only exploration in the Western Gulf OCS. The development has minimal impact on the Alaska economy. Table 79 shows the impact of exploration on population, employment, state expenditures, and the fund balance. The maximum increase in population occurs in 1982 when OCS exploration activity increases population by 714, or .2 percent. 1-he maximum employ- ment impact occurs in 1982. Employment is 489 or 0.2 percent greater than in the base case because of exploration activity. The expenditure impact follows the same pattern. Expenditures are $5 million or 0.2 per- cent greater in 1983. By 2000, expenditures are still $1 million greater than in the base case. The extra expenditures throughout the period result in the fund balance being $26 million less by 2000. These impacts are similar to those experienced with the moderate base case. Because of the small impacts associated with OCS exploration, the struc- tural change projected in the base case is not affected. 243 1980 1981 1982 1983 2000 TABLE 79. THE IMPACT ON MAJOR ECONOMIC INDICATORS WESTERN GULF OCS 95 PERCENT SCENARIO/LOW BASE CASE Population Employment 95% 95% Base Case Scenario Impact Base Case Scenario 431 ,495 431 ,495 0 192 '187 192,187 452,241 462,693 452 204,393 204 ,726 483,427 484,141 714 223,573 223,563 500,077 500,620 543 228,948 229,261 782,602 782,698 96 362,233 362,243 \ State Expenditures Real 'Fund Balance Impact 0 334 489 314 10 1 (Millions of Nominal Dollars) (Millions of Constant Dollar~ 1980 1.559 1 ,559 0 1 ,094 1 ,094 0 1981 1,723 1 ,723 0 1,497 1 ,497 0 1982 1,993 1 ,997 4 1 .936 1 ,934 -2 1983 2,356 2,361 5 2.378 2,375 -3 2000 9,966 9,967 1 4,850 4,841 -9 1Deflated by Alaska RPI. SOURCE: MAP Model 244 r· 1 __ , [. [ r: I_-; [ L [ [ [ L [ [ f [ [ [ [ r L__C r [ 6 [= _j [ c [ c [ [ t VI. SENSITIVITY ANALYSIS Our knowledge of future events is uncertain. In spite of this uncertainty, we need to make assumptions about certain future events. Events which are important to the future economy must be incorporated in our projec- tions. These assumptions which form the basis for both the base case and OCS development scenarios are uncertain. The uncertainty surrounding these assumptions makes it necessary to investigate the extent to which our major findings are sensitive to the more important of these assumptions. The previous sections tested the sensitivity of Western Gulf OCS impacts to OCS-related assumptions. By examining the alternate OCS scenarios, we saw the effect of varying resource discovery levels on impacts. Examining the cumulative cases provided an indication of the sensitivity of our results to the level of previous OCS activity. In this section, we will test the sensitivity of our results to two general categories of assumptions. The first set of assumptions to be examined concerns the state expenditure policy which was assumed to be adopted in the forecast period. Changes in the assumed expenditure policy will alter the effect of OCS development on state expenditures and may change the impacts on the economy. The second set includes the assumptions about the level of activity in the base case. We will examine the effect on the OCS impact results of major changes in the base case assumptions. In this section, six specific sensitivity tests were conducted on the mean Western Gulf OCS development scenario. Comparing these results to 245 the mean results in our basic case will allow us to assess the sensitivity of our results to these major sets of assumptions. The sensitivity test will also expand our understanding of the assumed state expenditure rule and the negative expenditure impacts found in the mean scenario. Sensitivity to Major Changes in the Base Case The base case assumptions used in this study contain an element of uncer- tairity concerning two major construction projects, the ALCAN gasline and the state capital move from Juneau to Willow. ALCAN construction is included in our assumptions; the capital move is not. This section tests the sensitivity of our results to these assumptions. In the base case, the ALCAN 9asline is assumed to be constructed between 1981 and 1984 to transport natural gas from Prudhoe Bay to the "Lower 48." There is uncertainty concerning not only the timing of this construction but also the eventuality of construction. For a variety of reasons, including the recent recognition of substantial oil and gas reserves in Canada and Mexico, the outlook concerning the feasibility of the ALCAN line has changed since it was approved (Tussing and Barlow, 1979). Because of this uncertainty, it is necessary to test the effect on OCS impact of changes in the ALCAN assumptions. We examine the effect on the OCS impact of eliminating ALCAN construction from the base case. Eliminating ALCAN has two types of direct effects. First, major exogenous employment will be eliminated from 1981 to 1984. Secondly, eliminating ALCAN will reduce state revenues. Without the ALCAN, there will be no gas production in either Prudhoe or the Beaufort Sea. The state will 246 ~- L _.' [ r·: f ; [ L L [ [ [ 6 [ [ [ [ L not earn royalties, production taxes, or corporate income taxes from this gas. The reduction in revenues will affect economic activity through its effect on state expenditures. The sensitivity of our findings to increased levels of exogenous base case activity was also tested. The base case assumptions did not include the capital move from Juneau to Willow. Although Alaskans voted to move the capital in 1974, recent cost estimates and disagreement over the method of paying for the move have made it less likely. In the sensiti- vity test, the major direct effect of the capital move is assumed to be the increased construction activity connected with the\move. State government employment is not assumed to be affected by the move. (See Table 80.) The capital move is assumed to occur between 198l.and 1984, which is at the same time as the ALCAN construction. TABLE 80. CAPITAL MOVE SCENARIO 1980 1981 1982 1983 1984 1985 . Construction Employment 0 869 664 1 '185 1 '135 716 SOURCE: Alaska Department of Labor, Alaska's Economic Outlook to 1985, 1978. 247 Table 81 compares the impact of the mean Western Gulf OCS devclopn1ent scenario on three sets of base case assumptions--the basic case, the no- ALCAN case, and the capital move case. These tests show that the magni- tude of OCS in1pact is relatively insensitive to the addition of the capital move to the base case assumptions, but sensitive to the removal of ALCAN. Since the base case is changed in each case, the relative effect of OCS development will differ in each case. During the ALCAN and capital construction period (1980-1984), the impacts in all three cases vary by small amounts. By 1990, the population and employment impacts of the no-ALCAN ar~ much larger, while the capital move cases vary by less than 22 people from the base case. State'·expenditures increase in the no-ALCAN case. The major reason for this concerns the growth rate of real per capita income. The pattern of growth of real per capita income in both the base case and the OCS case is similar when ALCAN is excluded. By 2000, the state expenditure impact is greater in the no-ALCAN case than in either of the other cases; this determines the difference in the other variables. The Sensitivity to State Expenditure Pol~ In the previous analysis, it was necessary to specify an expenditure rule which captured the essential features of state fiscal policy. Inasmuch as state expenditures are actually a matter of policy choice, the expenditure rule could follow any one of an infinite number of possible specifications. The expenditure rule chosen in the analysis assumes that real per capita expenditures grow at a rate equal to one- half the rate of growth in real per capita income. Expenditures are 248 ~ t ; r l ~ l l l . r L_ I L [ r L [ [ l_ L [ [ r TABLE 81 . THE IMPACT OF WESTERN GULF OCS DEVELOPMENT [ WITH THREE ALTERNATIVE BASE CASES: BASIC CASE, NO-ALCAN CONSTRUCTION, AND THE CAPITAL MOVE [ MEAN SCENARIO [ 1981 1983 1990 1999 [ Po~ulation Im~act Basic Case 396 536 438 376 No ALCAN 387 500 972 1 ,018 L Capital Move 402 541 460 447 I Employment Impact l _; Basic Case 293 319 -62 15 No ALCAN 286 295 220 293 [ Capital Move 279 323 -35 51 [ Personal Income Impact {Millions of Nominal Dollars~ c Basic Case 15 18 - 5 1 No ALCAN 14 16 18 43 < Capita 1 Move 15 19 - 3 7 C State Expenditures Impact [ 1Millions of Nominal Dollars) Basic Case 0 3 -10 -19 No ALCAN 0 4 2 3 6 Capital Move 0 3 - 9 -16 [ Fund Balance Impact (Millions of Nominal Dollars) Basic Case 0 - 3 38 204 L No ALCAN 0 - 3 -24 -20 Capital Move 0 - 3 34 183 L L SOURCE: MAP Model ~ c 249 also assumed to increase with increases in th~ available general fund balance. Past pattern of state expenditures points to these factors as determinants of expenditure growth (Scott, 1978). Even if we accept the general form of this rule, the relative effect of any one component may vary and the sensitivity of the measured impacts to this variation needs to be tested. Three alternative formulations of the basic expenditure rule were tested. Each alternate rule differed by the assumed influence of real per capita income and the available general fund balance on the growth of state expenditures. Two cases examine the sensitivity of our measured impacts to the effect of real per capita income on expenditures. The expenditure elasticity of real per capita income is the percentage increase in state expenditures resulting from a one percent increase in real per capita income. In the basic rule, the expenditure elasticity of real per capita income was .5;.two extreme elasticities were tested: the expenditure elasticity of real per capita income equal to 0 (EL3=0) and equal to 1 (EL3=l). The final rule tested the sensitivity of our results to· the removal of the effect of the available general fund balance on expendi- tures (EX6=0). The major difference in all of the variables examined will result from differences in the expenditure impact. Table 82 compares the relative OCS impacts of the various expenditure rules. The sensitivity of OCS impact to the expenditure elasticity of real per capita income can be seen by examining the impacts produced by 250 I ( [' [ [ TABLE 82. THE EFFECT OF ALTERNATE STATE EXPENDITURE [ POLICIES ON THE IMPACT OF WESTERN GULF OCS DEVELOPMENT MEAN SCENARIO [ 1985 1990 1999 [ Population Impact L Basic Case 1 ,523 438 376 EL3=1 1 ,568 -140 -1 '136 EL3=0 1 ,595 924 1,034 [ EX6=0 1,499 445 270 [ Employment Impact Basic Case 834 -62 15 EL3=1 870 -424\ -762 [ EL3=0 906 232 317 EX6=0 831 .•. -49 -39 [ Personal Income Impact (Millions of Nominal Dollars) c Basic Case 55 -5 •' 1 EL3=1 58 -36 -118 EL3=0 59 19 45 6 EX6=0 55 -4 -6 [ State Expenditures Impact (Millions of Nominal Dollars) C Basic Case 10 -10 -19 EL3=1 11 -29 -85 EL3=0 13 2 5 EX6=0 9 -9 -17 [ Fund Balance Impact [ (Millions of Nominal Dollars) Basic Case -2 38 204 [ EL3=1 -6 79 606 EL3=0 -3 -8 1 EX6=0 -2 34 206 r: SOURCE: MAP Model L 251 the basic rule, the full income effect rule (EL3=1), and the no-income effect rule (EL3=0). The relative pattern of expenditure impacts can be explained by the pattern of real per capita income growth. The basic pattern of real per capita income growth in the impact case rel~tive to ! the base case was shown in Chapter IV. Real per capita income increases faster than in the base case as direct OCS employment builds to a peak. After the peak employment is reached, real per capita income increases at a slower rate. The growth rate of real per capita income is slower after the peak direct employment occurs than for the same period in the base case. This effect, combined with the sma 11 size of direct emp 1 oyment, 1 eads to a reduction of state expenditures in the mean scenario case. The tests in Table 82 illustrate the importance of this effect. In 1985, the impacts in all [ [ ~~ L __ __, I' I {_j indicators are similar. By 1990, after peak employment has been reached, [_; the state expenditures impact is negative in all cases with positive income elasticities. This is because the rate of real per capita income [ growth after 1984 is lower than in the base case. The negative impact is r- greater the larger the elasticity. By 1999 the case with no income effect on expenditures has a much larger impact. The impact on population, employment, personal income, and the fund balance is influenced by the expenditure effect. The case with the full income effect has negative population, employment, and personal income impacts. 252 L [ [ I' l [ l r [ [ [ [ [ [ r [ [ c u [ [ [ [ L L l The final expenditure rule tested removed the influence of the available fund balances from the determination of state expenditures. The impacts of OCS development are lower when the fund balance does not influence expenditures. This can be seen by comparing the impacts of the no-fund balance effect case (EX6=0) and the basic case. The population, employ- ment, and personal income impacts are greater in the basic case by 1999. The differences between these cases cannot be considered significant. A more important issue concerning the choice of the expenditure rule is the assumption implicit in our analysis that the state will choose to respond to changes caused by OCS development as it responded in the base case. If the state should behave differently in the face of OCS activity, the measured impacts may change significantly. To ascertain the impor- tance of this to our results, it may be useful to distinguish that portion of the total impact due to changes in state spending from that which is due to changes in the private sector of the economy. In order to isolate the component of our measured impact which is due to changes in state expenditures, we examined the impacts of the case in which the base case level of state exp~nditures was maintained. OCS development was not assumed to affect state expenditures in this case. Since OCS development increases both population and prices, such a policy would mean a reduction in the level of real per capita expenditures. This case is not presented as a plausible response of the state. However, it does permit us to separate for purposes of analysis that portion of impact due to state expenditures. 253 Table 83 illustrates the state expenditure impact. The proportion of impact due to state expenditures is equal to the proport-ion of impact not accounted for in the constant expenditure case. By comparing the basic rule with the constant expenditure case, we can estimate the pro- portion of the reduction caused by the negative expenditure impacts. The state expenditure impact is greater in 1999 than in 1990. In 1990, decreases in state expenditures account for 50 percent of the population in1pact, 75 percent of the employn1ent impact, and 75 percent of the personal income impact. By 1999, state expenditure decrease accounts for a 58 percent reduction of the population, 85 percent reduction of employment, and ~8 percent reduction of personal income. Comparing the impacts of OCS development under our assumed expendi- ture rule and with constant expenditures illustrates the sensitivity of our results to our assumptions about expenditures. In this case, the important assumption is not about the form of the expenditure rule in general, but in the state's response to OCS development. If the state does not respond to OCS dev~lopment as it does to other development, impacts will differ from those projected in this study. 254 [ r . l . [ " [_, [ [ [ f' L [ F-' L [ l L L [ [ [ [ [ [ c~ L [ f~ L [ c u [ c [ [ L L L TABLE 83. THE STATE EXPENDITURE IMPACT WESTERN GULF OCS MEAN SCENARIO 1985 1990 Population Impact Basic Rule 1,523 438 Constant Expenditure 1 ,245 772 Employment Impact Basic Rule 834 -62 Constant Expenditure 654 185 Personal Income Impact (Millions of Nominal Dollars) Basic Rule 55 -5 Constant Expenditure 44 15 255 1999 376 904 15 278 1 40 256 ,--- 1 . l _ _, [' L [. - c [ l [ L L l L [ [ [ [ [ [ [ [ f c c c r_, 6 [ L L L t VII. SUMMARY AND CONCLUSIONS In this report, we have assessed the major impacts that offshore oil and gas development in the Western Gulf of Alaska will have on the process of Alaska economic growth. These projected impacts were assessed in terms of both an assumed base case growth without the project and the historical economic growth. Relative to both historical growth and projected economic growth, development of the Western Gulf will have only minor effects on the economy of the state. For all of the scenarios, the qualitative nature of th~ influence of OCS development on the growth process is similar. Development generates direct employment activity in the construction, mining, manufacturing, and transportation industries which builds to a peak during the develop- ment phase, then declines to a stable, long-term level as production dominates the activity. This development activity generates both new private incomes and public revenues which induce impacts. Expenditure of wages and salaries earned in OCS activity generates further income and employment in the endogenous sector of the economy through the in- creased demand for the output of these sectors. The increased economic activity also influences public expenditures which affect economic activity. The qualitative nature of the impacts is also similar across scenarios. Four major structural changes were observed in the base case and the historical period. First, as the scale of the economy increased, more 257 90ocls and sPrvices were procluced locally and the importance of the support sector increased. Secondly, the population aged and labor force participation increased over time; this led to an increase in the propor- tion of the population which is employed. Thirdly, the role of Anchorage as the administrative and distributive center of Alaska resulted in population growth continuing to center in Anchorage. Finally, state expenditures and revenues were projected to follow a pattern in which expenditures would increase faster than revenues after the major petroleum revenues peaked. This pattern of expenditure and revenue increase would necessitate drawing down the general fund balance. This results from the declining importance of the petroleum revenues throughout the period. All of the Western Gulf OCS development scenarios support these trends. The qualitative impact of OCS development on individual welfare was also similar across scenarios. In all scenarios, real per capita incomes increased significantly over the base case levels during the buildup to the peak employment. After this, increases in population and prices led to no real significant increases in real per capita income. The level of real per capita state expenditures is also reduced by OCS development relative to the base case. The red~ction in real per capita state expenditures is responsible for a fall in expenditures with OCS develop- ment. This fall dominates the direct OCS effects in the mean scenario and dampens the impacts in the high case with the moderate base case. In the high OCS case with the high base case, this effect does not occur. 258 [ [ r I . [ r-- L_ [ [ [ [ L [ L .L [ [ [ [ [ [ [ f~ L~ r~ L .. .i [ [ lJ t [ L [ L t L t Quantitatively, the impacts across scenarios differ. The single most important determinant of impact is the size of the field. The 5 percent scenario has larger development activity and so has a larger impact. The 95 percent scenario contains only exploration and has only minimal impact on the major economic variables. Table 84 shows the relative year 2000 impacts across the five OCS scenarios. The major dimensions of both base case growth and OCS development are uncertain. By examining the three alternate development scenarios, we get some feeling for the range of impacts possible from OCS development in the Western Gulf. 259 N "' 0 Moderate Base Case Mean OCS Scenario 5% OCS Scenario 95% OCS Scenario High Base Case 5% OCS Scenario Low Base Case 95% OCS Scenario SOURCE: MAP Model r----" L .. TABLE 84. SUM~IARY OF THE LONG-RUN It~ PACTS OF ALTERNATIVE DEVELOPMENT SENARIOS (IMPACTS IN THE YEAR 2000) State Expenditures (Millions of · Population Employment Nomina 1 Do 11 ars) (1999) 376 15 -19 8,025 2,363 -14 101 12 1 9,689 3,083 46 96 lO 1 " r-----1 ' j Fund Balance (Millions of ~aminal Dollars) 204 458 -28 -119 -26 -. -, I [ [ [ [ [ [ r~ 'L_. [ [ [ [ [ [ c [ L L I: t APPENDIX A Historical Growth, 1965-1976 261 Inc!ustr:,Y-_ 1965 Nining 1 ,1 00 Contract Construction 6,400 ~!ilnufacturi r.g 6,300 Food Processing 3,000 Logging-Lu:nber and ?ulp 2,300 Other Manufacturing 1,000 ".,)Transportation, Communication " and P~blic Utilities 7,200 ·v Tr~cking and ~arehousing 1,200 ~ater Transportat1on 1·,000 Air Transportation 1,900 Other irans portati on 500 Com1~nications and ?ublic Utilities 2,600 Trade 10 ,'000 Who1CS<l]C 1,900 ?.etai1 8,100 Fin~nce, Insurance and RN1 Est.:!tC 2,200 Services 7,500 Hotels, Motels, etc. 1,000 ?crsonal 700 Business 1,400 :-:edicul 1 ,400 Other 3,000 TABLE A.l. GRO\HH IN EI'~PLOY~I,ENT, ALASKA, 1965-1976 1970 1971 3,000 2,400 6,900 7,400 7,800 7,800 3,700 3,500 2,800 2,800 1,300 1,400 9,100 9,800 1,700 1,500 . 800 800 3,000 2,800 900 1. coo 2, 700 3,700 15,400 1G,200 3,200 3,200 12,200 12,900 3,100 3,2co·· 11,400 12 ,CJC 1,400 l,G08 800 sco . 2' 000 2,100 2,200 2,GCO 5,000 5,1',00. Averaqe ~~onth 1 ~ Emp1 ovment 1972 2,100 7,900 s, 100 . 3,800 2,800 1 ,500 10,000 l,GCO BOO 3,000 1,000 3,600 17.100 3,300 13,800 / 3,700 14,000 1,800 900 2,100 3,000 6,200 1973 2,000 7,800 9,400 4,600 3,200 1,500 10,400 1,500 900 3,300 1,100 3,600 18,300 3,400 14',900 4,300 15,200 1,900 90(.' 2,1UU 3,300 7,000 r---="1 l. J 1974 1975 1976 3,000 3,300 4,000 14,100 25,9CO 30,200 9,600 9,6C: 10,300 4,300 4,30j 5, l·Ja 3,600 3,400 3,200 1,700 1 ,30:l 2,00Q 12,400 16,5GC i5,8CO 2,200 4,000 3,200 1,000 1,400 1 ,300 4,000 4,808 t,, 700 1,300 ~.800 1 ,900 3,900 4,5C~ 4,700 21.100 2G,2CO 27,600 4,000 5·,SCQ 6,1 co 17,100 2D,3VQ 21,500 4,900 6,CC:J 7.1 co 13,300 25' ~co 27,700 2;500 3 ,20·: 3,20J 800 9·:~ 9CO 3,000 7,3:0 8,7CO 3,800 .. """'""" ~-r,..J'~oo~...,' 5,CQO 8,200 9,~00 Q C"''t ... , ... \.1~ :-l rr-: TABLE A;l. (continued) !ndustr:L_ 1965 1970 Government 29,000 35,600 Federal 17,400 17,100 State 7,000 10,300 Local 5,300 8,1 co Agriculture, Forestry and F1 s:1eri es 100 800 . Total Civ'ilian Non-Agricultural ) 1-.'age and Salary Employment 70,500 93,100 ) 1971 38,000 17,300 11 '700 9,000 900 98,300 ·----, l .J · Average Monthll EmEloyment 1972 1973 40,500 41,600 17;200 17,100 13,300 13,800 10,000 10,700 900 1,000 104,200 110,000 ,...._...., l J 1974 43,800 18,000 14,200 11,600 1,000 128,200 ) Total Civilian Basic 31,300 35,600 35,800 313,200 37,300 45,700 Military 33,000 31,400 30,100_ 26,500 27,500 _]_7-!500 Totai Bas·ic 64,300 137,000 135,900 62,700 64,800 73,200 Total Support Sector 26,900 39,000 41,800 44,800 48,200 56,700 Tot.Jl Emplo,p.ent 114,000 129,900 133,900 136,500 143,200 161,500 Basic Employr.1ent Includes: Mining; Construction; ~lanufacturing; Federal Government; Agriculture, Forest1·y and Fisheries, and l•lilitary. Support Sector Includes: Transportation, Communication and Public Utilities; Trade; Finance, Insurance ar.d Real Estate; and the Services. SOURCE: Alaska Department of Labor, Alaska Labor Force Esti~ates, various years. Alaska Department of Labor, Estimates of Total Resi~ent Population and Estimates of Total Civilian Po~ulation. :-----, ' J 1975 1975 47,200 47,200 18,300 17,900 15,500 14,1 co 13,400 15,200 1,000 1,200 161,300 171 '1 00 58,600 53,600 25,300 24,500 83,900 88,100 73,800 78,2CO 190,200 .. 203,20~ Industrv Total Agri cul tur·e, Forestry and Fisheries ~lining Contract Construction }:ar.ufacturi ng Transportation, Communication and P~biic Uti1itie~ Transportation Air Other Co;:-.~.un i cation Public Utilities Trade :·:holesale Retail Finance, Insurance and R~al Estate Services Hotels Personal Business r·~cd i ca 1 o:r.er Federal Govern~ent State Government Local Government 1965 30,678 33 371 3,127 791 2,618 1,694 773 921 674 250 5,280 1 ,226 4,053 1,295 3,767 t,GO 402 789 681 1,41:.4 9,395 1,672 2,329 T~?~E A.2. ANCHORAGE CIVILIAN EMPLOYMENT ~ROWlH, ALASKA, 1965-1976 1970 41,995 52 958 3,514 1, 018 3,907 2,800 1,482 1, 318 76~. 343 8,6~7 2,220 6,397 1,980 6,403 755 535 1 ': 88 1 '200 2, 725 9,509 2,421 3,515 1971 45,452 53 915 3,924 1 .• 117 4,591 2,805 1,455 1,350 1 ,411 374 9,334 2,292 7,042 2·,087 7,027 709 SSG, 1,194' 1, '~EO 3,038 9,530 3,020 3,845 1972 48,252 76 806 4,272 1 '215 4,522 2,8?.1 1,529 1,192 1 '289 411 9,948 2,423 7,52S 2,415 7' 725 7 ~,., .:Jc. 556 1 '120 1 '759 3,459 9,435 3,500 4,349 1973 50,527 82 769 4,178. 1,286 4,525 3' 129 1,835 1 '29~. 1,045 451 10,663 2,475 8,188 2,303 8,319 811 567 1 '190 1, 993 . 3,758 9,5~S 3,667 4,677 SO~~C£: Department of Labor, Statisti~al Qu~~~cr1v; vario~s issues. ..... -l r--': r___, •• .J 1974 53,713 100 1 ,035 5,882 1 ,379 5,383 3,938 2,123 1,814 1 '163 483 12,298 2,860 9,438 3' 151 10,119 1,114 57.2 1,680 2,283 4,471 .. 9, 925 3,985 5,257 1975 59,645 110 1 ,301 7,054 1 '571 7,343 5,419 2,610 2,80:? 1 ,426 499 14,928 4,077 10,852 3,615 13,465 1 ,345 62~ 3, 795 2,:8G 5,410 10.222 4,056 5,979 __ ...., - 1975 72,113 7,5£7 'i ,529 7,~09 5 'i 72 2 ,5G8. 2,5:~ 1 ,670 553 15,958 4,24Q 4,257 15,l..51J ~, 4,14 S!Ji 1;,91~ 2,~37 o,;zs Industry Agriculture, Forestries and Fisheries :·iining Contract Construction ~:anufacturing Food Transportation, Cc!t'.rr . ..:ui cation and ?ub1ic Utilities Trar.sportation Coe'.~un i cations Fublic Utilities TABLE A.3. EMPLOYMENT BY INDUSTRY, SOUTHCENTRAL ALASKA . 1965, 1970-1976 1965 1970 1971 1972 1973 19 . 99 85 356 491 345 762 633 611 640 880 583 895 763 1581 1,188 1,647 1,627 1,818 2,627 1,086 1,293 1,229 1 ,456 1,995 542 760 796 793 896 373 521 502 442 tf97 26 85 132 175 209 132 154 .63 176 189 :rr<!de 813 1 ,338 1, 31 g 1 ,383 1,460 1 \~h~lesale 102 193 .275 162 133 Retail 711 1,145 1,134 1,221 1,327 Finance, Insurance and Real Estate 159 211 204 220 233 Services 738 1,027 1,099 1,228 1,440 !-:cte1 138 154 230 297 300 ?ersona 1 25 28 29 39 50 Business 117 11t, 94 87 139 t·ied i cal 1.39 275 286 315 451 Other 319 t,56 4[)0 ' 490 ./ 500 "' G~ve1·r.;,~~n t Federal 975 828 742 62!3 602 State and Local 1,455 2,327 2,725 2,932 3,056 Total 7,124 9,582 1 0' 127 10.735 12,131 SCUKCE: Estimated fror.1 Alaska Dep~rtmcnt of Lat-or, Research and Analysis Section ~lorksheets. A1as~a Stat:? Housing Authority, Alusk.:~, Ynkutnt_~_J:.?EJ>J:e>_l!~_;;ivc Development Plan, Anchorage 1971. Alas"a Consultants, Inc., A!"'choragc, Alaska, Yakutat, C~n~ive Development Plan, December 1976. r-; l ' J 1974 492 580 1,239 2,522 2,013 1,329 708 218 03 .1.611 202 1,459 308 1,709 427 40 178 400 664 so~ ... :> 3,180 13,645 1975 543 900 3,656 2,656 2,003 1,576 1 '1 06 233 2~1 .), 2,337 34t, 1,983 3.77 2,128 467 49 441 ~o• J-i 780 672 3,455 18,300 ,,____.., ' J __ll7_6_ 680 827 . 6,973 3,234 2,127 1 (472 977 44i 242 2,533 353 2 '180 4·SO 2,597 .452 3S 755 455 c-~ ... o..;/0 637 3,592 23,.030 ;---, ' J [ [ [ [ [ [ r ', -~ ,~ L r L [ t c [ [ [ L L [ APPENDIX B MAP Model Assumptions A set of assumptions about the level of exogenous variables determines a development scenario; this section describes the assumptions in the non-OCS base case scenario. There are four major types of assumptions required for a scenario. First, there are assumptions about the growth of exogenously determined employment in both the petroleum and nonpetroleum sectors .. Secondly, assumptions about exogenously determined petroleum revenue.s received by the state are needed. Thirdly, there are assumptions about national variables. Finally, an assumption about the way the state spends its money is needed. Once these assumptions are set, the set of projections is determined by the model. EMPLOYMENT ASSUMPTIONS Employment assumptions include those associated with special projects and those associated with industry growth in manufacturing, agriculture- forestry-fisheries, and federal government. Special Projects Special projects include three basic types--petroleum projects, major construction projects, and operations of the major projects. Tables B.l and 8.2 show the project employment assumptions. The methods used to determine these levels are described below. 267 f ,~ !. TABLE B.l. MINING EMPLOYM~NT 1 f~, Prudhoe, 2 Lisburne N. Gulf Upper 3 4 f" and and Lower Other Year Kuparak Cook OCS Cook Mining 1977 1 ,586 271 575 2,082 l 1978 1 ,624 0 575 2,082 1979 1,585 0 575 2,082 1980 1 ,783 0 575 2,082 ) - 1981 1 ,402 0 575 2,082 1982 1 '149 0 575 2,082 1983 897 0 575 2,082 1984 904 0 575 2,082 1985 987 0 575 2,082 1986 963 0 610 2,082 r· 1987 985 0 645 2,082 l' 1988 985 0 680 2,082 1989 1 ,009 0 715 2,082 r- 1990 1,009 0 750 2,082 L 1991 1 ,020 0 300 2,082 r 1992 1 ,020 0 300 2,082 1993 940 0 300 2,082 h 1994 886 0 300 2,082 1995 886 0 300 2,082 [J 1996 886 0 300 2,082 1997 886 0 300 2,082 u 1998 886 0 300 2.082 1999 886 0 300 2,082 ~; 2000 886 0 300 2,082 [ 1Based on employment scenarios from Alternatives for the L Future: Petroleum Develo ment Stud , North Slo e of Alaska Department of Natural Resources, 1977 . Scenarios for 1 and 5 billion barrel reserves were adjusted to reflect reserves L and production schedules of these fields. 2Exploration activity drilled 9.6 wells; assumed employment L per well equaled 90 man-years from OCS Technical Report No. 17 (Dames and Moore, 1978). 3Estimate by the author based on current employment. L 4Net employment in mining. r L 268 [ L TABLE B.2. CONSTRUCTION EMPLOYMENT ECONX 1 ECONX 2 Year TAPS ALCAN 3 Total p .f. 4 ac1 1c LNG 1977 5,300 1 0 5,300 0 1978 0 0 0 0 1979 90 2 0 90 0 1980 90 0 90 146 1981 90 1 .425 1 ,515 844 1982 90 4,763 4,853 1 ,323 1983 0 4,663 4,663 420 1984 0 265 265 0 1985 0 0 0 / 0 1Based on estimate of TAPS construction employment by the Alaska State Labor Department. 2Assumed construction of four pump stations to increase capacity by 1982. Pump Station construction employment estimate from The Beaufort OCS Petroleum Development Scenarios, Dames and Moore~978. 3Northwest Energy Company manpower estimate, July 17, 1978. 4Based on letter to the Department of Natural Resources from S. California Gas, March 17, 1978, estimating peak construction employment of 1,500. Four-year construction period from E.I.S. for Pacific Alaska LNG Project, November 1974. \ 269 • Prudhoe Bay, Lisburne, and Kuparak mining employment was estimated from two sources of information. Employment scenarios were based on the scenarios described in the Alaska Department of Natural Resources, Alternatives for ~he_fy_tur~: Petroleum Development Study, North-Slo~e o~­ Alaska~]l. The employment schedules were adjusted based on the estimated reserves, productivity, and the production schedules in Beaufort Sea Region Petroleum Development Scenarios (Technical Report No. 6, Alaska OCS Socioeconomic Studies Program, 1978). • Northern Gulf OCS employment is an estimate of 1977 exploration employment. This was based on information in Monitoring Petroleum Activities in the Gulf of Alaska (Technical Report No. 17, Alaska OCS Socioeconomic Studies Program, 1978). Total employment associated with explora- tion was divided by the total wells drilled to obtain a man-years-per-well figure of approximately 90. Approximately 9.6 wells were drilled in 1977. Total exploration employment was adjusted by the percentage of Alaskan resident employment assumed in the report. There is no activity assumed after 1977. . • Upper Cook employment was an estimate of current employment made by the author. Employment was assumed to increase slightly between 1985 and 1990 as the oil fields are shut down. Gas production is assumed to continue after 1990. • Other mining was assumed to maintain its 1976 level, except in Anchorage and Fairbanks which were adjusted to an esti- mate of the 1977 mining employment. · Table 6 shows special project construction emplo~ment. • ECONXl are highly paid construction workers associated with major projects, long hours, and extreme working conditions~ Two projects are assumed in this category, the trans-Alaska pipeline and the ALCAN gasline. TAPS is completed in 1977. The 1977 employment is based on an actual estimate made by the Alaska Labor Department. After 1917 the line's capacity is assumed to be increased by the addition of four pump sta- tions. Pump station construction employment estimates made in Technical Report No. 6 (Alaska OCS, 1978) were used to estimate employment. With completion of the TAPS construc- tion in 1977, the line's capacity is assumed to be 1.2 million barrels per day. The capacity must be expanded to deliver the assumed base case North Slope production, which is 1.73 million 270 [ [ [ l: L [ [ [ [ [ L [ [~ r~ 'b L L [ L L r: i...• barrels per day by 1983. Four additional pump stations \'Jere assumed to be needed to deliver this production. This was based on the ratio of capacity to pump stations (.15 million barrels per pump station) with eight pump stations. With this ratio, twelve pump stations would be needed to deliver 1:73 million barrels per day. These additions would also allow the line some additional capacity. The ALCAN gasline is assumed to be built between 1981 and 1984. The estimates are based on the most recent construction manpower estimates made by Northwest Energy Company in a letter to the state (July 1. 1978). • ECONX2 employment is associated with special construction projects which are assumed to have regular employment sched- ules and be able to draw on local labor markets. One project of this type is assumed to be built, the Pacific LNG project. Pacific LNG is scheduled to begin construction in 1980 and operations in 1984 (Anchorage Daily News, Septemb~r 23. 1978). The construction schedule is based on an estimated peak con- struction employment of 1,500 (letter from S. California Gas to Alaska Department of Natural Resources, May \7, 1978) and the four-year construction period from the 1974 E.I.S. for the Pacific LNG project. Operations employment for these projects is transportation employment for the pipelines and manufacturing for the petrochemical projects. Alyeska estimated an operations employment of 300 for startup in 1977 and 850 per year for the long-term operations (Alaska Construction and Oil, October 1976). ALCAN operations employment is assumed to be 96 beginning in 1985. This estimate was based on ALCAN's 1976 application to the Federal Power Commission. The difference in operations employment is accounted for because TAPS has more pipeline in Alaska, the Valdez port employment is part of the TAPS employment, and TAPS has substantial Alaska headquarters employment. Operations employment for the Pacific LNG plant is 60 beginning in 1984. 271 Employment for these special projects is allocated to MAP Regions as follows: 1. Prudhoe, Lisburne, Kuparak employment to Region 1 2. Upper Cook N. Gulf OCS, Pacific LNG employment in Region 4 3. Other mining at its appropriate regional level 4. ALCAN and TAPS construction based on miles of pipe in region plus 300 TAPS headquarters in Anchorage in 1977 5. ALCAN operations is allocated by the miles of pipeline in each region 6. TAPS operations employment will be allocated as follows: 300 in Anchorage, 200 in Valdez, and the remainder based on the regional distribution of the pipeline. · Industry Growth The level of employment in federal government and agriculture-forestry- fisheries is set exogenously. Federal government employment is assumed to follow its general historical trend and remain constant at the 1976 level throughout the forecast period. The trend in the historical period reflects increases in civilian employment offsetting decreasing military employment. The regional allocation will also remain constant. Employment in agriculture-forestry-fisheries will be assumed to increase at a rate of 3 percent per year. This reflects an assumption of little \ growth in agriculture and a modest increase in fisheries. The South- central Water Study estimated approximately a 5 percent annual increase with maximum fisheries development. Employment will be assumed to in- crease at this rate in each region. 272 I I [ [ [ b E [ c [ [ L [ Output in manufacturing must be determined exogenously. It is assumed to increase at an average annual rate of 4 percent which is consistent with both the historical trend and the assumed gro\'Jth in the fisheries industry. Regional growth will be determined by the mix of industries with food manufacturing growing at the same rate as fisheries, 3 percent; lumber growing at 4 percent; paper growing at 2.5 percent; and other manufactur- ing bringing the growth rate into line with the overall 4 percent per year. PETROLEUM REVENUE ASSUMPTIONS Petroleum revenues to the state consist of royalties, production taxes, property taxes, and the corporate income tax. This se·ction will examine the revenue assumptions chosen for the base case. Where it was possible and did not conflict with other assumptions made in this study, we used revenue estimates made by the state; in other cases, revenues were esti- mated based on assumptions about the wellhead value and'production. COOK INLET REVENUES Table B.3 details the royalty and severance revenues from oil and gas production in Upper Cook Inlet. The overall assumption is that oil production would be over in 1995, while gas production will continue throughout the projection period. The specific assumptions are: • Oil royalties and production tax are from a Legislative Affairs Agency memo of July 14, 1977. Revenues were estimated through 1985; after that a 15 percent decline was assumed in the value of oil produced. The average production of the well was assumed 273 TABLE B.3. COOK INLET REVENUES 1 Oil Oil Gas Gas Royalties Production Tax Royalties Production Tax Fiscal Year (Millions) (Millions) (Millions) (Millions) 1978 33.1 16.3 4.4 2.3 1979 31.3 14.4 5.4 2.8 1980 29.5 12.7 6.9 3.6 1981 27.9 10.9 8.3 4.4 1982 26.4 9.1 9.0 4.6 1983 24.6 7.3 9.1 4.7 1984 22.9 5.5 9.3 4.8 1985 21.2 3.7 9.4 4.9 1986 20.1 3.0 9.4 4.9 1987 19.1 2.0 9.4 4.9 1988 18.2 1.0 9.4, 4.9 1989 17.3 0 8.5 4.4 1990 16.4 0 7.7 3.9 [ 1991 0 0 6.9 3.5 1992 0 0 6.2 3.2 1993 0 0 5.6 2.9 1994 0 0 5.0 2.6 1995 0 0 4. 5 '' 2.3 1996 0 0 4.1 2.1 1997 0 0 3.7 1.9 1998 0 0 3.3 1.7 1999 0 0 3.0 1.5 2000 0 0 2.6 1.4 1same as The Permanent Fund and the Alaskan Economy (Goldsmith, 1977) study except oil royalties which are the same until 1985, then decline at 1- 15 percent to be eliminated in 1996. --· 274 [ [ [ f~ [ [ r~ L [ [ L [ L 6 L w to decline below the taxable rate in 1989, and production was assumed to stop in 1995. • Gas royalties and production tax are based on estimates of production through 1985 made by the Revenue Department in Revenue Journal, Vol. 1, No. 2, October 1976. Decline after 1985 was assumed by the author to be at a rate of 10 percent per year. The 1977 ratio of royalties an~ production taxes to production was assumed to hold throughout the projection period. PRUDHOE BAY REVENUES Prudhoe Bay will produce the major petroleum revenues for the state in the projection period. To arrive at revenue estimates, estimates of production and the wellhead value are needed. These estimates are shown in Table B.4 and Table B.5. • Production of oil was assumed to equal estimates made in Technical Report No. 6 (Alaska OCS Socioeconomic Studies Program, 1978). • The wellhead value per barrel of oil was calculated based on discussion with BLM-OCS. These assumptions reflect those made with respect toN. Gulf oil. 1. West Coast market price is $12/bbl. This reflects a $1.50 discount from a $13.50/bbl Gulf Coast price. The discount is for transport costs. The real market price stays constant. 2. Vessel costs equal $1.00/bbl from Valdez to the West Coast and $.75/bbl processing costs. These costs remain constant in real terms. 3. The TAPS tariff is $5.25 in 1978. The nominal tariff remains constant until 1990 when it is assumed the increased 275 TABLE 8.4 .. PRUDHOE BAY OIL 1 Total Wellhead Wellhead Production Price Value Fiscal Year -----(Million Bbls) ( $/Bb 1) (Mi 11 ion$) 1978 237.3 5.00 ll86. 5 1979 474.5 5.56 2638.2 1980 584.0 6.16 3597.4 1981 595.7 6.79 4044.8 1982 607.5 7.45 4525.9 1983 619.6 8.15 5049.7 1984 631 .5 8.88 5607.7 1985 641.5 9.66 6196.9 1986 613.2 10.48 6426.3 1987 545.7 11.35 6193.7 1988 5ll .9 12.25 6270.8 1989 475.4 13.22 6284.8 1990 409.7 14.24 5834.1 1991 367.7 15.02 5522.9 1992 347.7 15.85 5511.0 1993 329.4 16.72 5507.6 1994 299.3 17.64 5279.7 1995 268.3 18.61 4993.1 1996 246.4 . 19.63 4836.8 1997 228.1 20.71 4724.0 1998 211.7 21.85 4625.6 1999 197.5 23.05 4552.4 2000 183.8 24.32 4470.0 1 1 . See text for exp anat1on. 276 Royalties (Million$) 148.3 329.8 449.7 505.6 565.7 631 .2 701 .0 774.6 803.3 \ 774.2 ' 783.9 785.6 729.3 690.4 688.9 688.5 660.0 624.1 604.6 590.5 578.2 569.1 558.8 Production Tax {Million$) 124.6 277.0 377.7 424.7 475.2 530.2 588.8 650.7 674.8 650.3 658.4 659.9 561.5 531 .6 530.4 530.1 508.2 480.6 465.5 454.7 445.2 438.2 430.2 [ r· I r: ~-~ ( [ r· I__ [ L [ c t _: l_" L \ L [ [ [ TABLE B.5. PRUDHOE BAY GAS 1 r [ Wellhead Wellhead Production Production Price Value Royalties Tax Fiscal Year (Billion C. Ft} ($/MCF} (Million$) (Million$} (Mill ion$) [ 1978 3.9 1.00 3.9 .5 .4 1979 5.1 1.06 5.4 .7 .6 [ 1980 5.9 l.ll 6.5 .8 .7 1981 28 1.17 32.8 4.1 3.4 [ 1982 43 1.24 53.3 6.7 5.6 1983 50 1.31 65.5 8.2 6.9 1984 780 1.38 1076.4 134.6 113.0 1985 830 1.45 1203.5 150.4 126.4 ['" 1986 870 1.53 1331.1 166.4 139.8 L 1987 912 1.62 1477.4 184.7 155.1 r 1988 912 1.71 1559.5 194.9 163.7 1989 912 1.80 1641.6 205.2 172.4 L 1990 912 1.90 1732.8 216.6 181.9 [ 1991 912 2. 01 1833.1 229.1 192.5 1992 912 2.12 1933.4 241.7 203.0 1993 912 2.23 2033.8 254.2 213.5 c 1994 912 2.36 2152.3 269.0 226.0 1995 912 2.48 2261.8 282.7 237.5 [; 1996 912 2.62 2389.4 298.7 250.9 1997 912 2. 77 2526.2 315.8 265.3 1998 912 2.92 2663.0 332.9 279.6 [ 1999 912 3.08 2809.0 351.1 294.9 2000 912 3.25 2964.0 370.5 311 .2 L [ L L 1see text for explanation. I " L [ 277 operating costs dominate the decreasing capital costs. After 1990, the tariff remains constant in real terms. This assumption reflects only one of a number which could be made concerning oil wellhead values. 1 Production of gas at Prudhoe is assumed to increase follow- ing the Department of Revenue assumed production until 1987 when the peak production assumed by Dames and Moore (Beaufort OCS Petroleum Scenarios, 1978) is reached. This production level is assumed to remain throughout the period. 1 The wellhead value of gas was calculated assuming the com- promise energy bill is adopted so that Prudhoe gas could sell at a wellhead value of $1.45 per MCF. This assumes the ability to roll this gas with other gas. It is assumed that producers pay $.45 processing costs for a net of $1 .00 wellhead. A constant real price of gas is assumed.l Revenues from these are determined based upon state laws. Royalties are 12.5 percent of the wellhead value of oil and gas. The production tax in each case is a fraction of the nonroyalty value. This fraction depends upon the productivity of the average well in the field. The production tax on oil was assumed to equal 12 percent through 1989 when production declines and the rate falls to 11 percent. The production tax on gas is assumed to equal 12 percent throughout the projection period. 1sase case was selected prior to final adoption of Federal Energy Act of 1978 which set a ceiling for Alaskan gas wellhead price. 278 r· I [ . ( ~- 1 . [ I L [ [ [ [ [ [ [ [ b b L [ L L MISCELLANEOUS REVENUES There are three important miscellaneous petroleum revenues: the property tax, the reserves taxes, and the corporate income tax. Table 8.6 shows the assumed value of these taxes. • The property tax taxes all petroleum-related property except oil refining and gas processing property and leases at a rate of twenty mi 11 s. We used the property tax revenue series estimated by the Department of Revenue in Alaska Oil and Gas Structure. This assumed construction of the TAPS and ALCAN lines. • The reserves tax involves the repayment by the state of taxes • paid by petroleum producers in 1976 and 1977. Credits of up to 50 percent of the production taxe? are given until the $499 million collected is repaid. This tax affects only producers at Prudhoe. / The Alaskan corporate income tax was changed in the last legislative session so that no state projection of this revenue stream is available. The corporate income tax on petroleum is 9.4 percent of taxable petroleum income. Taxable income· is gross income minus capital and operating costs and Alaskan taxes. The figure is not net of federal taxes. The tax was based on estimates of net income determined by the following procedure. 1. ALCAN and TAPS income was based on an assumption that these lines would be guaranteed a 20 percent after- tax return on their equity by the rate structure. It 279 TABLE B.6. OTHER REVENUES Property Tax 1 Reserves Tax 2 ANCSA 3 Corporate 4 Income Tax Fiscal Year (Million$) (Million$) (Million$) _{Million$) 1978 173.0 (83.3) (23.8) 33.5 1979 185.0 (166.4) (52.9) 127.8 1980 193.2 (204.8) (72.1) 167.3 1981 226.7 (44.8) ( 81 . 6) 188.5 1982 251.8 0 ( 91 . 6) 212.8 1983 257.0 0 ( 1 02.3) 265.1 1984 261.4 0 (68.8) 348.9 1985 295.9 0 0 384.8 1986 281.1 0 0 405.1 1987 267.0 0 0 407.2 1988 253.7 0 0 421.6 1989 241.0 0 0 428.7 1990 229.0 0 0 421.4 1991 217.5 0 0 409.7 1992 206.6 0 0 416.5 1993 196.3 0 0 425.7 1994 186.5 0 0 418.8 1995 177.2 0 0 410.1 1996 168.3 0 0 410.7 1997 159.9 0 0 409.9 1998 151 . 9 0 0 411.0 1999 144.3 0 0 416.6 2000 137.1 0 0 418.5 1Based on estimates in Alaska Oil and Gas Tax Structure, Department of Revenue. 250 percent of Prudhoe production taxes. 32.0 percent of wellhead value at Prudhoe until $500 million is paid to the fund. 4Actual fiscal year 78 value; afterwards estimated as explained in the text. 280 r· I I ( [ f c L [ [ [ [ L [ L [ [ was assumed that 15 percent of the capital cost of both projects was equity. The TAPS project was assumed to cost $10.5 billion and the Alaskan portion of the ALCAN line was assumed to cost $4.3 billion. The equity portion was depreciated in a straightline return on the remaining equity adjusted for an assumed 48 percent Federal tax rate. 2. Corporate taxable income for Prudhoe Bay gas and oil production was derived by estimating the components of revenues and costs. Revenues are derived above. The cost assumptions were derived from Technical Report No. 6 (Alaska OCS Socioeconomic Studies Program, 1978). The assumptions are shown below: Total Costs Debt Proportion Interest on Debt Project Life Total Throughput Prudhoe Oil $9.45 billion 25 % 9.0%. 25 years 10.5 billion bbls Prudhoe Gas $2.6 billion 25 % 9.0% 26 years 26 billion MCF Capital costs per barrel were found with this information. Per barrel costs were used to account for the flow of in- vestment over the life of the field. Capital costs equalled debt service plus depreciation costs. Operating costs were added for total costs. These costs were: Capita 1 Costs Operating Costs Prudhoe Oil $1.24/bbl $1.00/bbl Prudhoe Gas $.14/MCF $.08/MCF In addition, $.12 per barrel and $.02 per MCF were allowed for overhead as per the legislation. Taxable income was found by subtracting these costs and allowable Alaska taxes from revenues. 3. The ratio of oil and gas taxable income to severance taxes at Prudhoe Bay was applied to Cook Inlet to estimate taxable income from this production. 4. Estimated corporate income tax was found by applying the .094 rate to this income. 5. A final portion of the tax includes a redistribution of multistate corporate profits. This portion allocates 281 worldwide corporate profits based on three factors: non- production property in Alaska as a percent of worldwide property, nonproduction payroll in Alaska as a percent of worldwide payroll, and Alaskan sales as a percent of worldwide sales. The average of these was taken as the proportion of worldwide profits which were taxed at 9.4 percent. Conversation with Alaska Department of Revenue led us to the conclusion that this component would be extremely small, so it was ignored in this study. BEAUFORT OCS REVENUES Tables B.7 through B.9 show the revenues associated with each of three Beaufort scenarios. Revenues are based on production estimates provided by the Alaska OCS Office of BLM. Wellhead values are determined by the wellhead value at Prudhoe minus transport costs from the Beaufort. These real 1978 transport costs were $.60 per barrel for oil and $.15 per MCF for gas. Other assumptions included: l. Half of the production and offshore capital facilities would be located in state waters. 2. A conventional scheme of bonus bidding was used with $100 million being bid. 3. Discoveries on state-owned properties will be subject to state royalties and production taxes at current rates. 4. Oil and gas production from the Beaufort is transported via TAPS and ALCAN rather than new pipelines or alternate modes. 282 [ I ( . ~~ I [_. [ 1 -: _, L L [ [ [ c L L L L L r ' '"-• [ 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 TABLE B.7. BEAUFORT MINIMUM SCENARIO DIRECT REVENUE EFFECTS (Millions of Nominal Dollars) Production 3 Property 4 Corporate 5 Bonus 1 Ro,Yalties 2 Tax Tax Income Tax 50 0 0 0 0 0 0 0 0 0 0 . 31 0 0 0 .44 0 0 0 .70 0 0 0 .71 0 0 0 .48 0 0 0 2. 01 0. 0 0 4.75 0 0 0 8A2 0 9.10 7.60 13.29 0 24.10 20.30 15.05 0 33.00 27.70 16.77 0 42.80 35.90 17.58 0 45.10 37.90 19.04 0 44.00 40.00 20.43 0 5.0.20 42.20 20.92 0 50.60 42.50 20.37 0 50.70 42.60 19.70 0 49.40 41.50 18.89 0 46.30 38.90 17.94 0 42.80 35.90 16.82 1BLM-Alaska OCS Office. 2Royalties estimated at 12.5 percent of total wellhead value. 3Production tax equals 12 percent of the nonroyalty portion of 0 0 0 0 0 0 0 0 0 0 .42 3. 77 5.66 7.84 9.27 9.10 9.06 9.21 8. 72 8.18 7.14 5.81 total wellhead value. 4Tax at 20 mills of petroleum property value. 5corporate·income tax at 9.4 percent of taxable petroleum income. 283 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Bonus 1 50 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 TABLE B.8. BEAUFORT MODERATE SCENARIO DIRECT REVENllr fTfECTS (Mi"llions of Nonlin<1l Dulldr~;) Production 3 2 Property Royalties Tax Tax 0 0 0 0 0 0 0 0 .31 0 0 .44 0 0 .70 0 0 .71 0 0 .82 0 0 3.03 0 0 6.21 0 0 11 >Ol 12.50 10.50 16.22 33.10 30.10 18.49 51.00 42.90 20.69 54.70 46.00 22.06 57.80 48.50 24.18 61.00 51.20 26.37 63.20 53.00 27.60 65.40 55.00 28.03 67.70 56.80 28.00 65.90 55.40 27.81 62.20 52.30 27.50 58.10 48.80 27.08 1BLM-Alaska OCS Office. 4 Corporate 5 Income Tax 0 0 0 0 0 0 0 0 0 0 .43 7.12 10.41 11.13 11.96 12.74 11.29 12.41 12.77 11.79 9.87 7.63 2Royalties estimated at 12.5 percent of total wellhead value. 3Production tax equals 12 percent of the nonroyalty portion of total wellhead value. 4Tax at 20 mills of petroleum property value. 5corporate income tax at 9.4 percent of taxable petroleum income. 284 r L r .. ( I L. [ [ [ [ [ [ [ [ L L f' L~ [ 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 TABLE B.9. BEAUFORT HIGH SCENARIO DIRECT REVENUE EFFECTS (Millions of Nominal Dollars) Production 3 Property 4 Corporate 5 B . 1 onus Ro~al ties 2 Tax Tax Income Tax 50 0 0 0 .0 0 0 0 0 0 0 . 31 0 0 0 .44 0 0 0 .70 0 0 0 . 71 0 0 0 .82 0 0 0 3.78 0 0 0 9.21 0 0 0 16.71 0 37.50 31.40 24.88 0 67.10 56.40 28.60 0 85.10 71.40 32.35 0 90.70 76.20 34.72 0 95.60 80.30 38.43 0 100.80 84.70 42.18 0 106.40 89.30 44.34 0 112.20 94.30 45.13 0 115.90 97.30 45.23 0 112.70 94.60 45.21 0 101.50 85.20 45.04 0 91.70 77.00 44.73 1BLM-Alaska OCS Office. 2Royalties estimated at 12.5 percent of total wellhead value. 3Production tax equals 12 percent of the nonroyalty portion of 0 0 0 0 0 0 0 0 0 0 4. 51 15.54 19.48 20.43 21.95 23.09 21.97 23.18 23.90 20.42 17.62 13.19 total wellhead value. 4Tax at 20 mills of petroleum property value. 5corporate income tax at 9.4 percent of taxable petroleum income. 285 [ L [ f [ L [. [ [ [ c [ b [ [ L c Ll r= APPENDIX C A Procedure to Determine the Share of OCS Employment to Alaskan Residents The direct total employment estimates made by Dames and Moore in the Northern Gulf OCS petroleum scenarios (Dames and Moore, 1978) have been refined to refl~ct resident/nonresident composition of this employment. Resident, in the context of these refinements, refers to an individual that resides in Alaska for the duration of employment (including offsite). Resident employees do not need to live in Alaska before the project begins. Resident employment·is assumed to have full impact on the Alaska economy, \ while the impact of nonresident employees is assumed to be negligible. To assist in the determination of the share of employment to Alaska resi- dents (SEAR), a cross section of information regarding the classification, structure, duration, and impact of OCS petroleum development-related employment is presented in Table C.l, 11 Characteristics of OCS Employment by Task,11 which accompanies this appendix. A brief outline of the table's format and information content will pre- cede a discussion of the assumptions used to provide consistency and accuracy in the interpretation of this information. TABLE FORMAT Columns one and two categorize employment by sector (or task) and by phase of development, respectively. Column three lists the rotation factor 287 TP.SLE c .1. CHARI\CTERIST ICS OF ocs EMPLOYNENT BY TASK 7 Payments Allocation 8 5 Coefficients Es~-::~:-!tc Poten:iol Share to Share of :::,;;,~ioy;;:~:'lt 2 3 AK Resident 6 AK Residents 8 To A1as%;;n r{CS i c!::~t.S Employment Sectors 1 Pha~r. of 2 Rotation 4 Share f"rc:n Employment 6 In Years: ('::'~·I 'OJ_,., \I For Petroleum Operations Deve l op!llent_ Factor3 Duration 4 Indus tl·y5 t~ulti pl i er 1 5 10 1979-84 1SS5-29 1990 -+ ONSHORE Exploration 1 ,~a 1.0 1.0 1.0 • :J 17 , Service Base Development 1 p .2 1.5 NA 1.0 1. 0 i.Q .. Production ,. 1.0 1.0 1.0 1.0 Explorction 2 a ( .3) b .5 .525 .578 2. Helicopter Service Deve: opn:.:nt . 1 • 5 p .2 1.5 NA .!' .525 .S73 Prodt.:ction 1 1.0 1 1'1 , .-. ·~ I ,V 3. Sel·vi ce Base Con st. 1.11 T .5 1.5 1 .5 .525 .573 4. Pipe Coating 1.11 T .2 1.1 .2 .2 .21 .231 5. Onshore Pipeline Con st. 1.11 T .2 1.1 .2 .2 .21 ?'l1 .... <J • ~ Deve 1 opment .25 .25 • 25 N 6. Oil Terminal Canst. 1.11 T .5 1 • 1 .2 .5 .525 .5i8 co 7. LNG Plant Canst. , 1.11 T NA 1 • 1 .2 . 5 .o2:; !:7-:J co Concrete Platform Const.'P t..JIV 8. NA NA NA NA' NA NA 1.1"' ,,; ~. ,,("\ ''" 9. Oil Terminal Operations ~Production p 1.0 1. 5 } .75 .75 9 1.0 l.Q 1 .0 .75 10. U\G Plant Operations J p 1. 0 1.5 1.0 1.0 i.G OFFSHORE n. Surveys } Exp 1 orotic.' .,. .2 1.1 .2 } .15 .2 .21 .231 ' ,~·"' .55 ,55 12. Rigs 2 T • 1 1.1 .2 .2 . 21 .231 { Deve1cp:nent 2 . 1 (. 3) b 1.2c .4 } .75 • 1 . 3 "''l 7-9 . .-... 13. Platforms p 1.4d .75 • :J Production 1.0 .8 1.0 , " 1.0 •• v 14. Platform Installation } 2 T • 1 1.1 .2 .25 .25 .25 • 1 . 1 C5 .116 DevelopMent 15. Offshore Pipeline Canst. 2 T • 1 1.1 .2 .25 .25 .25 • 1 • 1 C5 • • r '.~ ....... Exp1oraticn 1. 5 . 15 c .4 .4 .~2 .~~~2 15. Supply-Anchor-Tugboats De!vclo;:r::cnt 1.5 T .~ 1 .• 2d .8 NA .8 .32 :,::. • i:l 1.4d *""'"' .... Produc;:icn 1.5 .5 1.4 .8 .8 iD c~: :· .~ .... • J V\J a Approximation 6Numbers in parer.t.hcscs indicate second 5-yeur per-iod r--! . r~ r----~.,,--, r:--:not ~ .. ., , ,j cubrr-l :!! c--:1 l! :·! .~,....., .,.....___., ,.--j ·-J , .... lFl rs, . .·ee ~ l Jr~,;:a I··· J ! [ [ [ [ ' L r L [ [ L L [ L r· L TABLE NOTES Characteristics of OCS Employment by Task 1. These are the employment sectors (or tasks) requested by Tom Smythe of Alaska Consultants in his November 21 correspondence with Richard Schmidt of Peat, Marwick, Mitchell and Co. 2. Dames and Moore, 11 Alaska OCS Socioeconomic Studies Program, Northern Gulf of Alaska, Petroleum Development Scenarios,11 Draft Report, Task 9BA, October 24, 1978, Table 5-4, pages 119-122. · 3. Ibid. 4. Based on discussions found in Planning for Offshore Oil Development, Gulf of Alaska OCS Handbook, Division of Community Planning, ADCRA, 1978, pages 40-41 and 223-224. Note: P = permanent; T = temporary. 5. Interview: Max Beazley, Staff Engineer at Mobil Oil Corporation, Exploration and Producing. Mr. Beazley is currently working in the Prudhoe Unit, a planning team for future development in Prudhoe Bay. 6. 11 Planning for Offshore Oil Development,11 Division of Community Planning, Alaska Department of Community anQ Regional Affairs, October 1977, Table 12, pages 17-18. 7. Column 6 shows the task-specific employment multipliers assumed by Commu.nity and Regional Affairs (lefthand number). The right- hand number in this column is the implicit proportion of resident employment when a resident multiplier of 1.5 is assumed. 8. 11 A Socia·l and Economic Impact Study of Offshore Petroleum and Natural Gas Development in Alaska: Phase II,'' Mathematics Science Northwest, Inc., and Alaska Consultants, Inc., for BLM, October 1976, page 19. 9. Amendments suggested by Ed Phillips, Alaska DNR. 10. Concrete Platform Construction is not considered feasible in the Gulf of Alaska. 289 associated with each task. The rotation factors are taken from Dames and Moore (see Table Note 2) and are calculated as follows: 1 + Number of days off duty Number of days ·on duty ' They are used to determine the on-and offsite employment for a given task. Employment duration (permanent or temporary) by task is listed in column four. The information in columns one through four characterize employment ~-- L-by task. They are intended to provide qualitative limits for the SEAR estimates. ~~- The SEAR estimates shown in column eight of Table C.l are based partly on other estimates of the resident share of OCS employment. Columns five through seven provide alternative implicit and explicit estimates of the SEAR. Column five includes an industry perspective on the resident potential of Alaska OCS employment. Column six provides estimates of the share of resident employment implicit in multipliers estimated by Community and Regional Affairs. The lefthand numbers are the task- specific OCS employment multipliers. The implicit SEAR (righthand number) is found by comparing these task-specific numbers with the resi- dent multiplier (1 .5) assumed in the study. The payment allocation coefficients found in column seven were developed for use in a regional input-output analysis designed to capture the socioeconomic impacts of OCS petroleum development in the Yakutat area. (See Table Note 8.) An even distribution of skills across resident and nonresident groups is required in order to reinterpret the payment allocation coefficients in the context of employment and residency. This assumption is, perhaps, 290 [ [ [ [! L [ L L I L [ [ r~ I L, [ [ c [ [ L unrealistic during exploration and petroleum field development; Under this interpretation, the payment allocation coefficients will overstate the SEAR for tasks relevant to those phases of ~evelopment. METHODOLOGY AND ASSUMPTIONS The task-specific information just outlined has been mapped into a final SEAR estimate (in column eight) for each task using the following methodology: 1. The SEAR estimates contained in columns five, six, and seven are used to bracket a reasonable SEAR range for each task.· For example, the SEAR range for offshore platform installation (task 14) extends from .1 to .25. 2. In the interest of consistency, an additional set of general, phase-specific SEAR guidelines are developed. Here, a given employment task is examined in the con- text of its phase of development. Tasks subsumed under exploration (Onshore: service base, helicopter service; Offshore: surveys, rigs, supply-anchor-tugboats) are temporary, require "extreme specialization," and usually embrace a reparatory work crew having "international character."1 These conditions imply a low SEAR (of approximately .1 to .2) for exploration employment. Of course, exceptions to these guidelines occur. For example, helicopter service during exploration may be contracted through Anchorage-based firms.2 1oames and Moore, "Alaska OCS Socioeconomic Studies Program, North- ern Gulf of Alaska, Petroleum Development Scenarios,11 Draft Report, Task 9BA, October 24, 1978, pp. 106-107. 2Dames and Moore, "Alaska OCS Socioeconomic Studies Program, Monitor- ing Petroleum Activities in the Gulf of Alaska and the Lower Cook Inlet Between April 1975 and June 1978," Technical Report #17, August 1978, p. 38. 291 The offshore development phase, including platform installation (14) and operation (13) offshore pipeline construction (15), and supply-anchor-tug boats (16), is assumed to retain the descriptive and structural character- istics mentioned above for the case of exploration. Onshore development includes various types of construction employment. Although the work force is generally seasonal (not unusual in the Alaska construction industry), the potential for civil construction work by Alaska-based contractors is more likely than that of offshore development or of exploration, particularly as the overall sphere of OCS development broadens. It is assumed that a SEAR of about .4 to .5 is consistent with these conditions. During production, employment is generally permanent and oriented toward less specialized, more routine entry-level positions. These employment characteristics appear to be compatible with Alaska residency. Overall, we attach a SEAR o·f 1. 0 to tasks subsumed under the production phase. Table C.2 summarizes the general SEAR guidlines outlined above. TABLE C.2. PHASE-SPECIFIC SEAR GUIDELINE Exploration Development Production Onshore . 1 -• 2 .4 - . 5 1.0 292 Offshore • 1 -• 2 . 1 -• 2 1.0 [ r L - [ l . [ [--. -- l__j [ [ l [ [ [ [ [ [ [ [ [ [ I c c [ c [ l L r - '----' Additionally, there are two principal relationships which influence the trend in the share of OCS employment to Alaska residents (SEAR). First, the internal supply of labor that is qualified to perform the variety of tasks delineated in column one of Table C.l is assumed to increase in response to earlier 11 layers 11 of OCS petroleum development, as a function of other mining activity, a~d to more general growth in the Alaska economy. Second, for those OCS employees that initially accept nonresident status, it is likely that a certain percentage shift to Alaska residency over time. We consolidate the combined effects of these employment dynamics into an assumption calling for a one percent annual average rate of growth in the SEAR for all tasks having an initial SEAR of less than\one. For simplicity, the continuous compounding of growth per period is replaced by a five per- cent increase between 1985 and 1989 and a ten percent increase thereafter. This assumption corresponds to the figures in the three subcolumns under column eight. 293 [ [ [ L [~~ [ [ [ r~ L..: [ b c [ c [ [ [ r t APPENDIX D Selected Model Output Variable Definitions POP MIGNET NINCTOT EM99 EMSPP EMG9P EMNSP EMA9 EMGF EMP9 EMT9 EMS9 EMPU EMM9 EMFI EMD9 EMCN EMCNl EMGA EMOT PI PIRPC RPI E99S EXOPS EX CAP E99SRPC REVGF RP9S RT98 RENS Population (103 persons) Net migration (103 persons) Natural increase (103 persons) Total employment (103 persons) Proportion of employment in the support sector Proportion of employment in the government sector Proportion of employment in the basic sector Employment in agriculture-forestry-fisheries (103 persons) Employment in federal government (10 3 persons) Employment in mining (lo3 persons) Employment in transportation (103. persons) Employment in services (103 persons) Employment in utilities (103 persons) Employment in manufacturing (10 3 persons) Employment in finance-insurance-real estate (10 3 persons) Employment in trade (103 persons) Employment in construction (103 persons) Employment in local construction (103 persons) Employment in state and local government (103 persons) Other employment (103 persons) Personal income (millions of nominal dollars) Real per capita personal income Relative price index {$1957 US = 100) Total state expenditures (millions of nominal dollars) Total state operating expenditures (millions of nominal dollars) Total state capital expenditures (millions of nominal dollars) Real per capita state expenditures Total general fund revenue (millions of nominal dollars) Total petroleum revenues (millions of nominal dollars) Total nonpetroleum tax revenues (million~ of nominal dollars) Total endogenous revenues (millions of nominal dollars) 295 Yar:_i_a_b_l e _D_e_f_i_n_it i _o_ns (continued) GFBAL PFBAL RINS FUND FUND77 SIMP EXBITES VIABL2 RENSRAT General fund balance (millions of nominal dollars) Permanent fund balance (millions of nominal dollars) Fund balance interest (millions of nominal dollars) Total fund balance {millions of nominal dollars) Real fund balance {millions of real 1977 dollars) General fund revenues minus general fund expenditures {millions of nominal dollars) State total expenditure as a percentage of personal income Nonpetroleum revenues as a percentage of general fund expenditures Endogenous revenues as a percentage of personal income 296 ~- \ r- L L [ l L L [ [ [ [ r~ L [ L. r- L-' [ [ [ c [ c [ L L r: ..__. 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"76 2•.)0!) 0. 20 1 0.531 0.079 [-_ -; [ [ [ [ [ [ [ r L [ [ c L c [ L L L t 5% WESTERN GULF OCS DEVELOPMENT SCENARIO - HIGH BASE CASE (Levels and Differences from the Base Case) 337 S1~~li.li~ION OU'I'PDT DY DS~T ll!! rnP x::..G~ ::T ~:n:TOT I:::'l'l'l E ~s I?P E:-IG'lP EMNSI? EMA9 1CJ 7 7 41'~.Fifi -2 I~ • ') J ~ 6. 3 !l J 1n'i.SOA 0.3 63 o. J78 0.259 1-1 1 '• i fl lll'i(i. 7 on -1i.1rlr; 7. 202 1/fl. 557 a. 37 3 o. Jil5 0.242 1. 2 1')71 4'17.(ifi1 II. 2 3 h.i)'J') 1illl.litl6 O.Jd2 C.376 0.2112 1. 2 1 'in" IJJ 1.49 5 7. ·~I) 5 6.fl2G 192. 1 !17 O.JIJ4 0. 3 b) 0.2411 1.2 V·P1 4 ~~~ ,65"7 16.12J'> 7 • !)~ 206.178 0.409 0. ) lj 0. 2 51 1. 3 nq2 4fl7.141 24.8')3 7. fi 11 225.563 0.424 0.318 •J .250 1.) 1 CJ A] 51:1.05 17.43!1 a. 5os 237.99 6 0.11) o. 3 12 0.7.50 1. 4 1<1Rll 'i7 7. 5A 5 ·'' CJ 9 9. 052 2111.64 o. 437 0.315 o. 248 1. 4 19 tl s 55 1. 2111 1!i,'iC,8 9. 11Hi 2 5:?.. 'Hi 4 0.45 0. 3 02 0.249 1.11 1 '' n 6 571,0:?6 10.251 9.54'1 2(,0.'121 0.454 0.299 0.2~7 1. 5 1'J R 7 5'lJ.!J06 13.001 9.787 271.22 0.1162 0.291 a. 247 1. 5 1Cf.'.'! 6 Hi .554 12.719 10. 141 2fl1.274 O.ll60 o. 2 85 0 .241'1 1.6 10ilQ 635.JQ1 fl .277 1(1.472 2118. 3 0.47 0.282 0. 2110 1. 6 F)!)(\ 651.97.5 li, CJ 2 11''.fi1!l 293.3211 0.473 0.279 0.240 l. 7 .1 C) '1 1 667.113) f>.tlC.R 10. 6 )II 2'Jf'l.641 o. 479 0.273 0.247 1.7 1992 6R1.148 1. 004 1 0:711 30ll.06 0. 48 3 0.271 o. 246 1. 8 t:)9J li C)ll. 27 4 II, 4117 1~.1i73 3~9.955 0.489 0.2 66 0.245 1.8 1 r, '1 !j 713.1'15 (i .2 06 10.711 317.35 0. 49 5 0. 2 6 0.245 1.6 1 C) CJ 'i 732.2n3 n. 2 3 a 11).029 32 h. 41 0. !'. C2 0.2 54 0. 244 1. 9 1 ') '}(, 751 .834 8.538 11. 0 35 3 35.773 o.soo 0.248 0.244 2. 1'1'17 774.043 10.957 11 • 2 54 347.04 0.515 0.241 0.244 2. 1 1999 790.724 11.112 1 1. 5 74 3 58.1124 0.522 0.235 0.244 2. 1 199q 822.055 13.44 11.1395 37 1. 59 0. 529 o. 228 0.2114 2.2 2000 847.577 13.224 12.307 3 84.591 ·0.535 0.222 0.243 2. 2 w w E:-!G!'" EM P'l EMT9 EMSq EMPU EMOT EMM 9 EMFI 00 1977 42.921 4, 514 Q, 842 22.649 1 • 1 e 4 14.5 5 11 • 3 56 5. 7 79 1978 42.'121 (1,365 10.296 21.905 1. 19.4 14. 2 7 11.906 5. 7 39 lQ 79 42.9?. 1 11.3 6 S 10.728 23.533 1.244 14.5 09 12.411 6. 1 33 1')iJI) 112.921 4.5Q2 1 1. 2R 4 25. 552 1.308 14.1313 12 .896 5.6 54 1 '1 (> 1 ~2 ·''2 1 4 .n 1~ q 1 2. 3 on 211. 1. 40 2 15. 3 51 13. 37 7. 4 91 1 CJ i'l ~ 42.<)21 4, I> ~9 13.556 J3. 77 1 • 51 3 1&.06& 13.043 8.582 t'HD 42.921 C,,U')[l 111.)01 )h.25fi 1 • 5 ~) 1 16.5011 14.32 9.316 1., n~ 42.921 5.97 15.1)1 Jli .9'15 1.6ll7 16. b 36 1~.867 9.7112 1 ()A') 4:?.. 921 5. 7Y 1 16.267 (j "). 125 .1 .731 17.025 15.~24 10.575 1 C) 116 42.'121 5. 53 5 16,1151 4 2. 15 1. 77'1 17.2'14 15.'137 11.0112 1 <J .'J7 47.. 921 5.Gl6 17. 00:1 . 45.09H 1. Bll 9 17.635 1&.548 11.827 19AR 112. =12 1 6.5% 17. flO~> 4 7. GOS 1. Q07 17.%2 17.092 12.462 1 ''~'' Q 42 • '12 1 7 • 71' 1r>.O~H 4'1. J3 1 1. 'J 4 7 18. 187 17. 7R7 12. 9 0 9 1'1<)1) 4}.,q21 B.798 1 0. tl(, 7 ;,I).~,JCJ t.'J?H 1B ·.J ll6 18.365 13. 2 4 7 1 C) <J 1 4~.921 n.s 18. '12CJ r,2,(,J1 2.0~5 tr.Sll4 1A,9G 1J.7fl) 1 'I 'l :?. ,, 2 • 'J2 1 !1 • :! lj 6 1 (J. l)'}lj 54.003 2.057 1 il • (j fl 1 19.577 14. 1112 1')') J 4 2. <J 2 1 7.7S2 19.')')7 %. 059 2. 1 10.tl6) 20.213 14.661 1 ') 9 ~ li/.,'121 7.:-,13 20.025 SF'. 4 2 3 2. 151 1Ci.0Flfl 20.07 15.266 19 <) c, 42. n 1 7.!!5 20.1)17 1'>1.~76 2.212 19.36 21.5119 16.002 1 t; 'l (i q2.921 7.4f>1 21.20~ 64. 1 4 2. 2 71 1q,()37 22.251 16.738 1'1')7 4~.Q21 7.54 21.'1011 67.676 2.342 19.%6 22.976 17.641 t<JCJ:I 42,q::'1 7. r,n r, 2~.51J'l 71.2 :>3 ~ .4 1 1 20.292 23.725 18.539 1'1'19 112,q21 7.:.~~7 :u. 11 /') 1 75.36r~ 2. [IQ 20. 6 6) 211.499 19.597 ?.000 11~.921 7. ') 113 24. 1 61 79.454 2.566 21.023 25.2':19 20.634 .. r::: [~ r:l r---"' r-'-., rr-' ,-----, rl r--: ll r-, ~---. -. _, ~· --, ,-.-.., 'J l l ,, j l J L J J J F.!'l 11'1 ~Mt~4 P.~<:N 1 !-.:M <; r, 1<'1 7 7 24.l'1'J 1 fi. 5 '>9 1 1. 1 09 27.2 56 1 97R 2/J • 7 7 1 11. 4 ~6 11.JI)CJ 25.941 1'l7Q ?G • ?. 4 7 12.129 11.912 26.421 BB:l 2R. 1fl 1 3. 2~ 3 12. 84 26.81 1901 31 .?15 1f,.fl44 14.0% 27. 2'11 1~1 A 2 J:..Of..<J 22 .5n 1S.IHi2 . 28.723 1 <J 83 37 .6'12 23.6 2 17. 256 31.363 10~4 3'1.2fl4 21.1')6 113.307 33.145 1Q q 5 42.215 23.242 19. CJ')1 J3.JU 9 1CI% 43.9(,] 24. lli 21. 1 07 35. 1% 19R7 4Ci.525 2 5 ~ 7 73 22.252 35.889 19 013 4R.692 26. 41~ 2 3. 4 1 37. 1 (j() 1'fP.CJ 50.213 26.163 24.21fl 3!!. 2!) 1!)<)() ')1. 372 ?.'l.fi74 24.n75 3A.BG3 1!JQ1 53.1!12 2r •• uo7 2'i. 6% 3U. q·r4 1 'l 'l 2 '14.)'11 26.564 26.249 39.493 Fl 9 3 56. 1 2 5 27. 3 59 27.')5') 39.466 1CJ'l4 5A. 1J 9 2P .3 5 2fl. () 45 3° • 642 19'l'i (il).'}fl 29.443 29.264 39.912 19 9 6 63.f•"!5 30.5113 30. 4 C) 4 40.34U 1C1 1H Ci!i • % 1 32. OP 6 32.1).12 40. 66 5 1 9 <) !l 11!1.!179 33.645 3J.5CJ 41.219 w 1'}1)<) 72.29 6 35.S35 35. 479 41. G 77 w 1.0 2000 I 5. 62 2 37.1111 )7 • .3 5.1 42.35 !:XC A!' I::~)'~ s E99S!lPC Rl-!VGF 1CJ77 27'1.326 1160.!32 . 11111.'}6 7 96.2 7 1Cl78 2HO. 1311.13 1152.37 1053.134 1'17'1 2'1:). 1414.71 115':i.B6 1439.75 Bf30 3 2Q. 27 1 1 558. " 1 1 71~ • 1 (, 1 62 n. 1 '1 'l 1 367.356 1723.3Q 1165.':17 1'1P 3. 22 19>12 44'l. llt;2 2014.31 11<)5.116 2330.62 J:l[l3 5:>'3. 3 ?7 23!33.44 1275.67 266Q.76 1 q ~ 4 5 RH • J 4 5 2 (i(l 4 • 4 ') 133'1.')!) J2Q0.76 19 .'J "i ?OR. 292 2972.3!) 13:-n.si )7£iiJ.24 1 <J llG !147 .or,J 311 1(,. 1 2 14.11. ]') 39'12. n 1'11'1 H 113 .4 3733.0fl 1 4.33. 5 4265.2 191!£1 g r.4. 9 8 4 1 'if!. 0 5 14f,G.59 4'i49.93 1CI>iC) 1017 .49 45fi5.4(• 1 4'<11. S! 7 4 fl p 0. 0 1 J:)C)-J 1o6q. rn 4'94 7. !l 1 151S.4G %31.01 1CJ91 1Qf1.LI.2R 5274.86 150B.f>P. 5202.6 2 1 Q q 2 1123.13 5676.111 1S25.Jfi 54 h 5 • 3 D91 11511.43 61'1J?. ~(, 1t;?.3. 1!'i. '1731.!13 11'1 'l 4 121LG3 o4P? .~ 2 152!l.2q 5 1i70.72 1q 'J 5 12'>'J.0!) 6972-~CJ 1 '126. '>7 621 d.21 1 9 9(i 131.l.:l1 . 7 'i 1?.. 29 1'.iJ1, 3B G5J7. 91 1qi'J7 13fJ 1 .(i<l P C~'~'l .fl 1 1530.fHi · Cid9U.38 1CJ!)(l 14f.9.67 878':'. 41 E>3CJ. JG 7207.94 1CJ99 1591.33 9'j33.02 1545.1'1 171f•.37 2()00 1731.07 10309.4 1550.53 02 05 .D I~ .....---, l J r 1 PIHPC unn .313 39 24.32 4237.4 2 3124.2!:'1 47 07. 3!ll15. 713 5301 .R4 3994.15 iiJ04. 47 4323.01 7970.25 rn 35.18 9097.1 4df•9. :)7 9576.59 4778.'J5 11)UB5. 1 4946. 11<JB7.G 5') 22. 'l q 13441.7 5161.73 14fl94. 3 5253.48 16116.2 5276. ') 7 17232.7 5278.2 1U72'l. 2 5355.7 20064.4 5391.96 2 17 35 • 2 54 7J .j 5 2371().6. 5579.40 25996. SG 93.09 28522.9 5rl14.~5 31515.2 5CJ%. 37 3 4 U C6. 2 . 611)4!.24 3BG2U. 1 6261.26 42700.4 6417.62 RPGS RT9!3 197.201 21'4.301 4 71. 4 206.933 !160.7 273.:122 9%.3 310.3U 1 27f! • Lj 1 352.416 1475.74 4J8.079 1 6 42. 7 563.112 2121~71 G'l1.571 2LI22.22 765.f:l82 2 4J2. 2 !355.042 2'l'JO. 05 g 26. Lj 2 2533.9 1n1.% 2o2G.5A 1122.16 2 5 59. 2 5 1199.51 2513.44 1269.fJ 25112.27 1373.33 2576.65 14131.4 25 50. 0 7 15 !}~. 9 9 2 51)3. 02 17 37. 1 2501.94 1913.99 2505.57 2116.86 24 9~. 2 2J 59.27 2Lifl7.79 2643. 4CJ 2475.54 2975.29 I;?l 252.71 27<J.75 29 3. 049 3')7.633 325.34!1 345.89 364.172 379.83'+ 39'J.25 417.G45 43CI. 555 45':1.769 4fl:l.G64 5)1.579 523. ll4B 5116.312 570.277 5%.008 623.587 652.479 6133.555 715.92 7!i0.493 7U6.49U nENS 27!3.522 21~0. 213 a 222.013 227.772 . 2 5CJ. G 52 337.714 431 .501 4%.856 555.644 651.069 742.184 857.12U 970.346 1071.08 117&.66 1305. 8fl 1435.12 15'1&.513 1790.33 2019.23 2282.46 .2598.59 2959.47 3386.95 I::XOPS -. --, j a 10. G44. 10 1'1. 1114.32 12 J~. 2 2 14J0.02 17 C4.'i3 19 26. 2075. f) 3 2356.23 26 12. 11 2927.52 3252.18 35 50.3 5 JP.2P..fl6 4156.16 4461.74 4815.GA 5215. 27 5660.54 61 3~. n 66UU.84 72fJJ.43 7961.62 G FDf..L 6 613. 1 6 5 617.245 813. 7 89' 1055.05 1512.75 20 7· 1. 4 2 2655.19 356G.U7 4707.99 5723.91 67 50.55 7711.25 8&52. 9431.27 1010<).5 1070Y.6 11260.5 11GU7. 11959.3 120.9A.7 12104.2 119313.4 11587.2 110 22. 6 ,------., J P:"!l:\L R r~; =:; ru::n F'Ut:D77 EXD!'l'EL HCi')L E99L S!:'! p 19 77 2.4 3<;. 3~3 6 :r,. 6 671.Jii9 (). 131 531.912 557.16 -137.~52 107!1 4!l.'i7"; f.;(:. fJ r;r.; 66fl,. 22 6C2.515 o. 134 51ifl. 5 O'J 5'15.272 -4. 3 fl 1tJ7Q 1 'i1. 77~. 4 (, • .>P) %7. or,~ 1'1().'1!)1 0.132 &22.5U1 6'i0. 9 t; 9 JOO.o!;4 1 () 'l ~ 7.7 'i. (oll.11t)1 1:.'13).~5 1)43.fl'i 0.135 714.74 7114.611 362.9 87 19l'l1 411.47'> Q(!.!J?lj , '1 24 • 2 2 11+'1 6. 33 il. 125 7'16. 626 f!2fl.501 S9t:. 1 6Y 1CJ q 2 563. 112'"> 136.7'l:l 2foJ4 • U!l 1')27.25 0.,, 4 9 (\9 • 9 4 9 4 3. 7 28 710.623 1901 711 .(,')C) 1a1.~~r. 1:1Hf>.R9 2:152.% 0. 1 1 5 1047.25 10113.06 752.0116 l"lfl4 q!j fJ. &4 'l 2~(1.7!:11 !;')15.52 J0\)7. 7 0. 12J 1175.64 1213.& 112!1. (j ll 1G n c; 1Hl7.'i'; :17.".0) 5n9'5.54 )7)5.93 (1.119 1299.114 1339.68 13i!C.02 1 C) A(, 14 37 • .l'i lo Hl. (o2""• 7161.26 4]]').01 o. 122 , 45'!. n 1501.115 1265.72 1'l II 7 HJllll.2 "">Oil.!; 711 ~.If.; )/l • 7 ') llfl(o5 .96 0. 1 1U 1 sns. H 1630.29 1273.49 19 '1 R 19 J').(.l ~9fl.853 '1647. '.'5 'i30fl. 54 0. 11 7 1749.64 1797.57 1212.31 1'lWI 21'l'l.32 61!4 .97 3 1 on 51. 3 5711.b5 0.11'l. 1911.69 1962.49 1204.27 19C) 0 211 'ill. fi 770.589 1H!d'J.9 5<J97.34 \).12 20'59 .113 2113.28 103(3.55 1<l91 2711.47 1\44.5114 121321. 6192.0fJ 0. 1 1 H 2203.51 2260.59. . 431.12') 1 fl 'l2 2G6fl.J5 '?11.027 1367H. 633!:1.36 0. 1 19 2378.54 2439.05 856.9 9& 19 C) .l 3229. 32 972. 3') 1 , ''4 89. 8 642B.32 0. 117 25~0.21 2604.35 811.816 199U 34fHl.02 11)30 .!l.l 1';175.1 !'>441.67 0. , 15 21 n. 9 a 21300.97 6Fl5.25A 19') 5 37112. 45 1079.69 15701.7 6370.46 0.114 29'35.85 3027.91 526.676 19 q 6 3997 • .1'> 1117.8) 16(1G6. 6241.27 o. 1 1 J 3216.8 3293.19 394.301 1 fl ')7 425J.fl2 1146.71 1635f!. 6~54. 47 0. 1 1 1 34'16.71 3577.68 261.926 1990 4~11).59 11tdi.]) 1(,449. 5012.92 0.11 3825.81 3911.64 90. 9 9 6 11'1')9 4766.77 1173.1Jfl 16J51l. 5513.11 0.10~ 4178.71 4269.69 -95.0 16 20(11) 5022.66 1168.6 , 1 61) 4 5, 2 5161.41 0.107 4587.1 4683.54 -308.7 38 'EXDITES VIADL2 F.ENSRAT w ~ 1977 1'1.?.29 0. (>·) 4 0. 'HiS 0 1<l7P, 0.25 0.51)6 0.057 1979 0.24:! o.u(,? 0. 0117 . 1 CJ0'1 0.237 0.442 0.043 1C) p 1 0.217 0.4JC) 0.1)41 19n (' • 2'"1 ] ".443 0 • .)!:12 1 9 flJ 0.211 0.430 o. 01:7 19R 4 0.22(> O.U29 1).052 1 g 8 5 0. 219 !).427 ').051 1 q ~ (i 1).22fl 0.41'1 o.o:,u 19137 ').223 0.4?.3 0.()55 1'JR8 •'l.224 0. 4 25 a. o sn 19r>9 0.22fl 0.426 0.06 / 1 fl') 0 ".232 /).4:J.(i " t1 •. ; 62 ' 1 <J 91 0. 220 0.11.12 0.063 199 2 0.23 o.r.:J7 0.065 1)!}3 , • 226 C.444 (). !)66 1Cl'l4 1).223 0.452 0.067 1 q ') 5 1}.21<.1 0.4 6 J 0. 06'J 1 ') lJ6 o. 215 0.475 0.071 1')97 0.21 I).Uf>CJ 0.072 199fl 1). 20 7 0 • 5') 3 0.~175 H99 0.202 0.519 o. 077 2 !J OCI 0.191) 0.5)(, o. 07C'l I~ r-, ~,-, ~ r.:-:-: r--Ll rl rr-l rl rJ ~ rJ ,..___ [~ ....-...-.... ,---..., .....--, :-l ,--, :-1 lJ L~ .J l ' I j I '· ,I SIM nt. 71T ION CU':' P 'lT ny DS'ET -FRRCfl .,..!{_ r:n I'O j) :1IGNP.T :':I NCTOT y.;ll C) C) ~:i h? E:1P9 EMGF EI1T9 1<177 I~ • 0. o. o. o. o. o. o. 1978 "· ~. ·). n. lj. o. 1). o. 11)79 I) • o. 0. •). tJ. o. o. o. 11f90 '). 0. o. o. o. 0. o. o. 1 ~1'l1 ':1. JO 4 0.363 f). ·).2fl3 0. 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(i 2 J Ji.151 31.096 40.i73 32. 9 3 7 32.fl81 40.649 34.7 32 34.67.4 41. 324 ~G9S E9<J'>IlPC R ~VGF 1160.8:.> 1118.56 7%.7.69 1J11.1J 11')2.37 11)53.84 1!;14.71 1155.>16 143'1.75 15SB.6 1174.16 16 2 0. 1723.39 1172.26 1980. A 1 '''16 .so 11'l'j.03 2322.64 231l').69 1]·17.2 261Jil.76 2co'J.74 1386.118 321'1.66 27]S.0fl 1 3 Q7. CJ 3&22.02 .1C 47. 3 c; 144<J.35 JH~2.21 J 3 (,!, • 3 j 14fiJ.23 4046. '13 ]732.54 1'11H.78 42 9il. 6 7 4 11 (j. r: 5 1547.81 1-l557. 79 457.1.56 1<:,77.26 4 f) 6 5. f! ') 1~872. 'l(i 151:12. 'i8 482'1.76 5252.8 2 15119. 75 50fl0.9 5(}71.04 1593.64 5348.71 614S.71J 16)!J.71 5578. 1 [) (if2~ .1•2 16()6 .4 3 ')fl 01. 64 71)4.23 161 O.f-7 (.080.46 7723.45 1610.59 6390.26 1.•40S.02 1621."17 67 39.32 91Jt:.,.71 162·1. A9 7131.09 9')66.71 16112.119 7569.P. ? j t' 1 h :•c 4072.3H 3Y2~. 32 42 J7. 42 3724.25 ~·07. 3f~ij':i.7fl 53 '!1. Bq J<l 91!. 1 5 (,] 0!1. 5 £42 ~11.;! 7il '>5. 9 1 4702.!.6 r! ') 1.: • 16 ~71'<.66 S;1f!3.95 4416.93 fi 701). 9 7 44 !17. Q 4 'Jb3J.29 45HO.J4 1~715.1 ll717.(;4 11951.4 4!\63.15 1 J2 99. ':"1000.07 1464(). 3 51J7.J5 1(,J5d.9 5216.42 17 'j<l'j. 7 ~325.35 194~9.2 54'>9.37 211~00.1 5537.78 2351q.3 5715.48 259fd.3 5845.32 2~714.3 5<J no. 3 317 54.9 61 35.6 1 35287.3 6295.68 39159.2 6455. RP9S RT98 197.2 214.301 471 • 4 2')6.933 1J flO. 7 . 273.822 9<;5.3 310.38 127fl. 41 351.:>21 1475.74 4 33. 2 24 1642.7 548.731 2121.71 6lj6. 7 4 4 2421.88 677.362 ~42'). 91 731.2 79 247".G5 7 p 5. 6 05 2SH.62 !.162.938 2553.89 9~3.1 01 24 30.95 1018.9 3 7.364.37 1'.:'92:28 2400. 5H 11'13. 45 2 4 2d. 1 4 1309.74 2393.23 1429.12 2341.42 1561.4 2327.77 17 24. 1 4 2323. 5 1 906.94 2321.79 2126.31 2329.04 2383.66 2331.7 2 26135.13 r-~. F. !'I 252.71 279.75 2'13.049 3J"/.1)33 324.755 34':J.094 3hC.735 371.779 387.031 4 us. 0118 424.&5B 44S.259 466.875 4H8.t:!8 511.355 534.1l65 559.993 586.169 6 13. 7 77 642.503 673.172 705.177 739.372 775.01l5 RENS 278.522 240.208 222.013 227.772 258.257 331.518 415.195 442.724 443.802 48:!.9 560.598 645.552 743.502 !351.445 964.503 101Jr!.06 1228.36 1395.63 1 sa 1. 56 1794.29 2034.66 2318.83 2644.75 3031.36 :.;;..ui'::i 8 10. 9 4~ • 101«. 11 1-l. J 2 1232.22 1417.06 1b ciG. 7 1 1 P J r~. 'J 9 113<.15. 29 2050.H 1 ;aq':J.'JH <:569.22 2H73.1 1 J2C0.39 3521.29 Je4H.~5 4196.03 4590.89 5003.57 5447.72 5'? 1 fJ. 7 6453.32 7035.4 7699.78 G FBAL 6f.8.165 617.245 813.789 1055.05 1510.35 2075.1 2654.5!1 351n. 1 r. 47 tiC. 9 8 5907.36 7022.<) 1 801J5.08 90!!3.46 9!;!61.07 10!199. 11 Ob!J.4 11552.7 11874.1 12016.7 11997.3 11812.9 11417.1 10813.1 9965.A2 .--------., ----.--, i ·~ [ [ c E [ c [ t" L r t APPENDIX E Census Division Projections The purpose of this appendix is to describe the methodology chosen to allocate the MAP projections for the Southcentral Region to census· divisions within the region. Projections of employment, population, and income for the Southcentral Region were made through the year 2000. Within the Southcentral Region, it is necessary to disaggregate the results to census divisions. The following seven census divisions are included: Matanuska-Susitna, Kenai-Cook Inlet, Seward, Valdez-Chitina-Whittier, Kodiak, Cordova-McCarthy, and Yakutat (a portion of the. Skagway-Yakutat Census Division). Population, income, and employment by the five regional industrial sectors was allocated to each census division. Census division projections were made consistent with projections made by Alaska Consul- tants (1979). The approach described below produces only allocations of regional projec- tions and cannot be assumed to substitute for a detailed analysis and forecast of local economic growth. Two types of information are used to make the census division allocations: historical information on the census divisions and the regional projections made by the MAP model. Judgmental review of the historical period is used to set starting parameters for each census division. These parameters are adjusted throughout the pro- jection period to account for changes in relationships at the regional level. This process allows the census division allocations to reflect changes in relationships such as scale effects projected by the MAP model. 359 The allocation of population and income to the census divisions depends upon the allocation of employment. Census division allocations of employ- ment follow traditional economic base theory. This theory assumes the main cause of regional economic growth is the growth in the region's basic sector; growth in the basic sector is determined by factors external to the region. Employment in the nonbasic sector responds to growth in the basic sector since it serves the basic sector. Once the relation between these sectors is known and basic employment is known, nonbasic employment is determined. For this allocation process, industrial sector I (mining and exogenous construction), sector II (manufacturing and agriculture- forestry-fisheries). and sector III (government) are basic. Sector IV (construction and transportation-communications-utilities) and sector V (trade, services, and finance) are nonbasic. Employment was allocated in the following six steps: • ~djustment for Census Division of Direct Impact. c For the base case and each OCS scenario, the regional totals were adjusted by subtracting the projections made by Alaska Consultants for the census divisions of impact. Alaska Consultants• projections were used for Yakutat, Cordova, Seward, and Kodiak.1 • Allocation of Employment in Industries I .and II and Federal Government. Employment in these industries was allocated to each census division exogenously. This allocation will reflect assumptions regarding particular 1vakutat and Cordova are assumed to be unaffected by Western Gulf OCS development and remain at their base case level throughout. 360 . r· f, r . t I L [ L [ [ L L L [ [ f [~ [ [~ [, ~ [~ [ [ [ [ [ c L: [ [ r· L projects and developments such as a bottrnnfishery in Kodiak or construction and operation of an LNG in Kenai. Alaska resident OCS employment in excess of Alaska Consultants' resident employment estimates were allocated to the other census divisions based on the proportion of population in the census division. • Allocation of State and Local Government Employment. Regional projections of government employment in the base case were allocated to the census divisions using the shift- share technique. Shift-share analysis assumes that the growth rate of subregions is related to that of regions. The sub- regional growth rate is made up of a share component equal to the regional rate plus a shift component which describes the subregion's comparative advantage. The comparative advantage term for each census division was found by examining the growth rate of government employment in each census division over four periods: 1965-1970, 1965-1976, 1970-1976, and 1972-1976. The average annual growth rates for government employment for each census division and the region are shown in Table E.l. After examining the differential in growth rates from Table E.l, the differences shown in Table E.2 were selected for the pro- jection period. For each census division, except Valdez, the average differential over all periods was used. The period 361 TABLE E.l. GROWTH RATES OF STATE AND LOCAL GOVERNMENT EMPLOYMENT FOR SELECTED PERIODS Census Divisions 1965-1970 1965-1976 1970-1976 Kodiak ~. 089 1. 078 1.098 Kenai 1.122 1.108 1 .096 Matanuska-Susitna 1 .061 1.107 1.147 Seward 1.038 1. 053 1. 066 Cordova 1 .071 1. 078 1 .084 Valdez 1 .070 1. 075 1.079 Southcentral Region 1 .097 1. 085 1.075 1972-1976 1.029 1 .062 1 .1 03 1 .1 00 1.060 1.104 1.052 SOURCE: Alaska Department of Labor, Labor Force Estimates, various years: TABLE E.2. YEARLY GOVERNMENT EMPLOYMENT GROWTH RATES FOR THE PROJECTION PERIOD Census Division Growth Rate Kodiak R _, . 04 Kenai R + .02 Mat-Su R + .03 Seward R -. 01 Cordova R Valdez R Yakutat R Where: R is the Southcentral regional rate of growth from the MAP regional model. 362 r: t -; . r: [ ~-~ L_ [ [ [ L [ L r: L L. t [ [ f r' [ r· L r~ .._, __ , [ [ [ c [ [ [ [ L [ [ 1972-1976 was dropped for Vuldez to abstract from pipeline- induced increases. Yakutat was assumed to resemble the Cordova Census Division since separate information was not available for this area. A check against the Lynn-Canal Icy Straits labor market area which contains Yakutat shows that this is a reasonable assumption. Excess government employment was allocated to the census divisions based on the proportion of government employment in the initial allocation. 1 Allocation of Nonbasic Employment. Economic base theory is operationalized through the development of nonbasic/basic multipliers which describe the relationship bet0een the sectors. Two multipliers are developed to allocate nonbasic employment to the region, one describing Sector IV and one describing Sector V. The long-run multipliers for a change in basic employment are assumed to equal the average nonbasic-to- basic ratios found for the period 1972-1976 (except Valdez, where 1975 and 1976 were ignored because of the pipeline). Table E.3 shows the nonbasic/basic ratios used in the projec- tion. (Yakutat is assumed to be the same as Cordova. A check against a 1976 employment survey in Yakutat conducted by Alaska Consultants showed these ratios to be similar.) The major cause of growth in the Matanuska-Susitna Census Division (without the capital move) is assumed to be the growth of this area as a suburban community of Anchorage. Because of this assumption, nonbasic employment is assumed 363 TABLE E.3. NONBASIC/BASIC MULTIPLIERS FOR THE PROJECTION PERIOD Multiplier for Sector IV Multiplier for (Construction and Sector V Transportation-(Trade, Services, and Communications-Finance-Insurance- Census Division Utilities) Real Estate) Kodiak . 18 .35 Kenai .39 .57 Seward .11 .33 Cordova . 18 .32 Valdez .25 .38 \ Yakutat . 18 .32 to grow as a function of population. Estimates of Matanuska- Susitna (Mat-Su) Census Division nonbasic employment are based on the following approach: 1. Mat-Su population is estimated as a function of Anchorage population using the following regression equation: Mat-Su Population= -9851 + .1269 x (Anchorage Population) R2 = .986 This was estimated in "The Effects of Regional Population Growth on Hunting for Selected Big Game Species in South- central Alaska, 1976-2000" (ISER, 1978). 2. Nonbasic employment is estimated using multipliers relating the change in population and the change in employment. These multipliers are assumed to equal the average from the period 1970-1976; they were · .03 for industry IV and .06 for industry V. 364 I r l t::; [ L L [ L r [ [ [ [ [ [ f [ [ [ c [ [ [~ [ L [ [ The extra regional nonbasic employment was allocated to the census division based on the proportion of employment in the census division. This captures any scale effects projected at the regional level since multipliers in larger regions will change. t Allocation of Regional Population. Except for the Matanuska- Susitna Census Division, population was allocated as a function of total civilian employment. Population-to- employment ratios were found from two sources. For Kodiak, Kenai, Seward, and Valdez, population/emp1oyment ratios were found by comparing Alaska Labor Department estimates of popu- lation and employment. In all but Valdez, the ratios used are the average of the 1972-1976 ratios. For Valdez, the 1975 and 1976 ratios were not included in the average because of the pipeline. The population-to-employment ratios for Cordova and Yakutat were based on estimates made by Alaska Consultants. Table E.4 shows these estimates. The extra population in the region was allocated based on .the proportion of total population occurring in each census division. For this allocation, the population in Matanuska- Susitna was assumed to equal that found by multiplying the population/employment ratio by total employment. 365 TABLE E.4. POPULATION-TO-EMPLOYMENT RATIOS FOR THE PROJECTION PERIOD Census Division Kodiak Kenai Seward Cordova Valdez Yakutat Population-to-Employment Ratio 2.3 2.6 2.3 2.1 2.6 2.2 SOURCES: Alaska Department of Labor, Labor Force Estimates by Industry and Area and Population Estimates by Census Division. Alaska Consultants, Inc, fordova Comprehensive Development Plan, 1976, and Yakutat Comprehensive Development Plan, 1976. 1 Allocation of Real Disposable Personal Income. Real dispos- able personal income by place of residence was allocated to each census division by the proportion of the total popula- tion in the census division. Tables E.5 through E.8 include the estimates of growth in each census division in the Southcentral region in five-year increments.2 These 2Low scenario projections are provided for only the period of sig- nificant impact. 1981-1984. 366 l : r c t ' L u [ [ [ [ [ [ [ r L~ [ [ 6 c [ [ [ [ [ [ C projections are consistent with the census division projections made for the co~nunities of impact (Alaska Consultants, 1978) and the MAP projections for the Southcentral region. However, the variables will not add to the Southcentral totals. Since a portion of the growth in the Matanuska-Susitna Census Division is assumed to be Anchorage metropolitan area growth, a portion of the Matanuska-Susitna population is assumed to be projected in the Anchorage region. 367 [~ TABLE E.5. CENSUS .DIVISION PROJECTIONS r WESTERN GULF DEVELOPMENT SCENARIO l MODERATE BASE CASE r· { 1980 1985 1990 1995 2000 Seward L~ EM1EX 3" 440 5 7 9 EMRR 223 354 51,0 543 568 I EMG9 404 463 510 545 602 EMS4 93 144 263 155 175 [ EMS5 433 511 510 736 957 POP 3,468 4' 135 4,775 5.056 5,768 DPIR 10.8 14.7 20.4 22.7 29.3 t . Kodiak ( EM1EX 2 9 9 I 7 9 1... EMRR 1 ,867 2,382 2,734 2,932 3,082 EMG9 2,031 2,184 2,269 2,366 2,414 r EMS4 495 778 863 959 1 ,048 EMS5 1,302 1 , 917 2,306 2,803 2,998 [ POP 10,856 13 ,851 15.668 17 ,967 19 ,556 DPIR 33.8 49.2 67.0 80.8 99.3 [' Cordova EM1EX 2 3 557 17 24 E EMRR 697 749 812 902 969 EMG9 359 420 475 495 523 ~- EMS4 97 119 313 324 332 L EMS5 281 329 439 530 652 POP 2,872 3,240 4,098 4,536 5,000 L . DPIR 8.9 11.5 17.5 20.4 25.4 Yakutat [ EM1EX 2 2 12 20 20 L EMRR 94 111 164 197 204 EMG9 90 107 179 188 198 EMS4 44 129 554 395 520 L EMS5 71 104 231 250 263 POP 604 815 2,148 2,175 2,306 L DPIR 1.9 2.9 9.2 9.8 ii.7 368 L [ [ TABLE E.5. (Continued) [ 1980 1985 1990 1995 2000 Kenai [ EMlEX 851 1,055 1.602 712 787 EMRR 2,100 2,278 2,644 3 ,319 4,202 EMG9 856 1,031 1 ,270 1 ,357 1,497 [ EM 54 1,870 1,736 1.783 1,890 2,165 EM 55 4,378 4,738 5,787 5,690 6,686 [ POP 27 ,046 28.900 33 ,794 32,191 34,404 DPIR 84.2 102.7 144.6 144.8 174.7 r· Matanuska-Susitna I EMlEX 6 230 469 187 235 EMRR 100 94 141 167 215 L. EMG9 622 681 761 734 730 [ EM 54 622 669 721 949 1 , 151 EM 55 1 ,991 2,500 3,199 3.908 4,866 [ POP 16,458 21 ,869 28,972 35,553 44,846 DPIR 51.2 76.4 118.7 145.8 189.7 [ Valdez EMlEX 417 387 451 376 388 c EMRR 41 45 56 72 95 EMG9 475 527 594 580 584 [ EM 54 293 245 228 231 228 EM 55 716 693 769 724 732 POP 5,222 5,058 4,048 3,345 4,547 c DPIR 16.3 18.0 17.3 15.0 23.1 [ EMlEX includes exogenous construction, m1n1ng, and all direct OCS employment. L EMRR includes other manufacturing and agriculture-forestry-fisheries. EMG9 includes federal, state, and local government. L EMS4 includes local construction and transportation. EMS5 includes trade, services, and finance-insurance-real estate. r~ POP is population. DPIR is real disposable personal income (millions of constant dollars). L 369 [ TABLE E.6. CENSUS DIVISION PROJECTIONS L WESTERN GULF DEVELOPMENT SCENARIO MEAN CASE 1985 1990 1995 2000 f' Seward L EM1EX 440 5 7 9 EMRR 354 510 543 568 r· EMG9 466 510 545 602 L EMS4 164 263 155 175 EMS5 515 510 736 975 [ POP 3~699 4 ~775 5,056 5,768 DPIR 13,238 20~422 22,752 29,273 ! Kodiak ,. EM1 EX 8 12 17 15 I l. .. EMRR 3~214 3,689 3~957 4 ~ 159 EMG9 2 ~ 187 2~299 2,370 2,414 L EMS4 801 882 1 ,048 978 EMS5 1 ,923 2~312 2,810 2,998 [ POP 12,612 14,353 16,455 17,844 DPIR 45 ~ 136 61 ~387 74,049 90 ~561 [: Cordova EM1EX 3 557 17 24 G EMRR 749 812 902 969 EMG9 420 475 495 523 EMS4 119 313 324 332 [ EMS5 329 439 530 652 POP 3~240 4,098 4,536 5,000 L DPIR 11 ~595 17.527 20~412 25.376 Yakutat [ EM1EX 2 12 20 20 L EMRR 111 164 197 204 EMG9 107 179 188 198 EMS4 129 554 395 520 L EMS5 104 231 250 263 POP 815 2 '148 2,175 2~306 i DPIR 2,918 9 ~ 187 9 "700 ,, /()") , I UU I I 'I V,J L 370 L [ [ TABLE E.6. (Continued) [ 1985 1990 1995 2000 Kenai [ EMl EX 1 '1 07 1,626 749 787 EMRR 2,278 2,644 3.319 4,202 EMG9 1,088 1 ,250 l,350 1,492 [ EMS4. 1,858 1,958 2,017 2,294 H1S5 4,824 5,819 5.689 6,679 [ POP 29,971 32,822 31 .• 543 34 ,633 DPIR 107 ,261 140,376 141 ,948 175,769 ['' Matanuska-Susitna .~ EMlEX 261 484 210 235 [ EMRR 94 141 167 215 EMG9 657 749 730 728 [ EMS4 702 791 1 ,018 i' ,221 EMS5 2,492 3,218 3,933 4,866 [ POP 21 '961 29,000 35,579 44,847 DPIR 78,595 124,031 160 '1 09 227,605 c Valdez EMlEX 397 455 393 388 c EMRR 45 56 72 95 EMG9 502 585 577 582 EMS4 251 264 248 242 [ EMS5 677 820 730 732 POP 5,029 5,538 4,855 4,569 c DPIR 17,999 23,688 21,848 23,189 [ EMlEX includes exogenous construction, m1n1ng, and all direct OCS employment. EMRR includes other manufacturing and agriculture-forestry-fisheries. L EMG9 includes federal, state, and local government. EMS4 includes local construction and transportation. L EMS5 includes trade, services, and finance-insurance-real estate. r POP is population. DPIR is real disposable personal income (millions of constant dollars). [ 371 [ TABLE E.7. CENSUS DIVISION PROJECTIONS r-- WESTERN GULF DEVELOPMENT SCENARIO !' HIGH CASE f-: 1985 1990 1995 2000 Seward ~~ l EM1EX 469 5 7 9 EMRR 353 511 543 568· ~-EMG9 478 520 550 607 EMS4 247 336 191 211 I EMS5 535 604 743 964 L. POP 35960 3,940 4,003 4,525 OPIR 15,070 17,151 19,406 23,076 r-- I_ Kodiak r- EM1EX 7 9 9 9 i l -: EMRR 3,214 3,689 3,957 4,159. EMG9 2,184 2,296 2,366 2,414 [ EMS4 778 863 959 1 ,048 EMS5 1,917 2,306 2,803 2,998 r POP 13,851 15,668 17,967 19,556 OPIR 52 .712 68,202 87,100 99,729 [ ·' / Cordova EM1EX 3 557 17 24 [' EMRR 749 812 902 969 b, EMG9 420 475 495 523 [ EMS4 119 313 324 332 EMS5· 329 439 530 652 POP 3,204 4,098 4,536 5,000 L DPIR 12,330 17,838 21,989 25,498 Yakutat [ EM1EX 2 12 20 20 L EMRR 111 164 197 204 EMG9 107 179 188 198 EMS4 · 129 554 395 520 L EMS5 104 231 250 263 POP 815 2.148 2,175 2,306 L OPIR 3,102 9,350 i0,544 il ~760 372 f· [ r TABLE E. 7. (Continued) [ 1985 1990 1995 2000 Kenai [ EMlEX 1 ,741 1 ,992 971 1 , 100 EMRR 2,278 2,644 3 ,319 4,202 EMG9 1 ,044 1 ,265 1 ,347 . 1 ,487 [- EMS4 2,442 2,181 2,228 2,534 EMS5 5,431 5,954 5,937 7,029 [' POP 31 ,801 33,964 32,755 36,272 --DPIR 121.024 147,848 158,788 184,977 [ Matanuska-Susitna r· EMlEX 638 713 348 426 EMRR 94 141 167 215 \.__) EMG9 690 758 729 T25 [ EMS4 836 934 1,096 1,303 EMS5 2,542 3,489 3,995 4,942 [ POP 22,398 29,595 36,034 45,350 DPIR 85,239 128,825 174,684 231,269 c Valdez EMlEX 518 516 495 449 c EMRR 45 56 72 95 EMG9 534 592 576 580 [ EMS4 341 306 289 269 EMS5 789 869 802 776 r--' POP 5,488 5,907 5,301 4,811 6 DPIR 20,886 25.712 25,700 24,535 [ EMlEX includes exogenous construction, mining, and all direct OCS employment. [ EMRR includes other manufacturing and agriculture-forestry-fisheries. EMG9 includes federal, state, and local government. L EMS4 includes local construction and transportation. EMS5 includes trade, services, and finance-insurance-real estate. [ POP is population. · DPIR is real disposable personal income (millions of constant dollars). L 373 [ TABLE E.8. CENSUS DIVISION PROJECTIONS r- WESTERN GULF DEVLOPMENT SCENARIO L MODERATE BASE CASE r- 1981 1982 1983 1984 Seward r' EM1EX 3 4 i 4 4 EMRR 224 204 245 291 EMG9 413 421 431 440 EMS4 104 130 122 128 I -EMS5 440 445 460 474 L POP 2,720 2,764 2,846 2,964 DPIR 9,378 10,312 11,039 10,094 r ~ ( Kodiak r- I EM1EX 2 4 5 6 I Li EMRR 2,644 2,766 2,916 3,062 EMG9 2,099 2,120 2 '141 2,163 [ EMS4 533 588 643 733 EMS5 1,416 1 '540 1,672 1 ,801 [ POP 11 ,447 12,017 12,614 13,278 DPIR 39,467 44,833 44,494 45,218 L Cordova EM1EX 2 2 2 3 [ EMRR 707 717 727 749 EMG9 404 408 412 416 [ EMS4 102 106 111 115 EMS5 290 296 311 320 POP 3,010 3,068 3,126 3 '182 L DPIR 10,378 11,446 11 .027 10,836 Yakutat r EM1EX 2 3 3 2 L EMRR 96 98 109 111 EMG9 93 94 102 102 EMS4 75 85 124 129 L EMS5 79 83 93 96 POP 690 726 810 810 I DPIR 2,379 2,709 2.857 2,758 '---' 374 H L [ [ [ L [ [ L [ I' l_; [ [ [ [ [ [ [ [• L L TABLE E.8. (Continued) Kenai EMlEX EMRR EMG9 EMS4 EMS5 POP OPIR 1981 1 ,621 1 ,234 850 1 '720 4,599 29,083 99,122 Matanuska-Susitna EMlEX EMRR EMG9 EMS4 EMS5 POP OPIR Valdez EMlEX EMRR EMG9 EMS4 EMS5 POP OPIR 52 56 605 626 2,291 17,540 60,475 339 25 464 246 686 5,085 17,405 1982 2,139 1 ,294 907 1 '751 4,985 30,588 112,092 77 58 634 676 2,251 18,622 69,475 346 26 486 261 657 4,840 1 7 • 971 1983 1 ,303 1 ,357 1,050 1,542 4,486 26,987 96,209 120 60 719 630 2,506 19 '705 69,507 358 28 554 250 757 5,566 19,235 1984 892 1 ,484 l '1 08 l ,452 4,293 26,533 90,292 126 62 746 666 2,695 20,787 70,782 359 29 575 257 791 5,756 19,677 EMlEX includes exogenous construction, mining, and all direct OCS employment. EMRR includes other manufacturing and agriculture-forestry-fisheries. EMG9 includes federal, state, and local government. EMS4 includes local construction and transportation. EMS5 includes trade, services, and finance-insurance-real estate. POP is population. OPIR is real disposable personal income (millions of constant dollars). 375 r TABLE E.9. CENSUS DIVISION PROJECTIONS . l WESTERN GULF DEVLOPMENT SCENARIO L. LOW CASE 1981 1982 1983 1984 L Seward L EM1EX 3 4 4 4 EMRR 224 204 245 291 L EMG9 417 425 432 440 EMS4 131 157 131 128 EMS5 447 452 462 474 r POP 2,796 2,840 2,872 2,964 DPIR 19,664 10,623 1 0,145 10,096 I ( Kodiak r· EM1EX 2 4 5 6 f \ __ ; EMRR 2,644 2,766 2 ,916 3,062 EMG9 2,099 2,120 2,141 2,163 I L EMS4 533 588 643 733 EMS5 1 ,416 1 ,540 1 ,672 1 ,801 j: POP 11 ,447 12,017 12,614 13,278 L DPIR 39,565 44,949 44,560 45.230 f . c Cordova EM1EX 2 2 2 3 L EMRR 707 717 727 749 EMG9 404 408 412 416 EMS4 102 106 111 115 L EMS5 290 296 311 320 POP 3,010 3,068 3,126 3,182 I b DPIR 10,404 11 ~476 11 ,042 10,840 f' Yakutat L_. EM1EX 2 3 3 2 r EMRR 96 98 109 111 L EMG9 93 94 102 102 EMS4 75 85 124 129 [ EMS5 79 83 93 96 POP 690 726 810 810 L DPIR 2,384 2,7i6 2,861 2,759 376 t 378 l: [ [. 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