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A. ,(. ivRAGE, ~.LASKA 91J.5?~
Technical Report
Number 18
~~ Alaska OCS
Socioeconomic
~ Studies Program
-Sponsor :
Bureau of
Land Management
Alaska Outer
Continental Shelf r tl~. Office ~ -~"" ~ ~~
..A:~ ~~t
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Beaufort Sea
Petroleum Development Scenarios
Economic and Demographic Impacts
I Ill
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 off-shore 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 off-shore development. In Alaska, unique cultural
differences and climatic conditions create a need for developing addi-
tional socioeconomic and environmental information to improve OCS
decision 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 programs,
one of which is the Alaska OCS Socioeconomic Studies Program.
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 analysis addresses the differing effects
among various geographic units: the State of Alaska as a whole, the
several regions within which oil and gas development is likely to take
place, and within these regions, the local communities.
The overall research method is multidisciplinary in nature and is based
on the preparation of three research components. In the first research
component, the internal nature, structure, and essential processes of
these various geographic units and interactions among them are documented.
In the second research component, alternative sets of assumptions regard-
ing the location, nature, and timing of future OCS petroleum development
events and related activities are prepared. In the third research com-
ponent, future oil and gas development events are translated into quan-
tities and forces acting on the various geographic units. The predicted
consequences of these events are evaluated in relation to present goals,
values, and expectations .
In general, program products are sequentially arranged in accordance
with BLM's proposed OCS lease sale schedule, so that information is
timely to decision making. In addition to making reports available
through the National Technical Information Service, the BLM is provid-
ing an information service through the Alaska OCS Office. Inquiries
for information should be directed to: Program Director, Socioeconomic
Studies Program, Alaska OCS Office, P. 0. Box 1159, Anchorage, Alaska
99510.
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TECHNICAL REPORT NO. T3 CONTRACT NO. AA550-CT6-61
ALASKA OCS SOCIOECONOMIC STUDIES PROGRAM
BEAUFORT SEA PETROLEUM DEVELOPMENT SCENARIOS:
ECONOMIC AND DEMOGRAPHIC IMPACTS
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
BEAUFORT SEA PETROLEUM DEVELOPMENT SCENARIOS:
ECONOMIC AND DEMOGRAPHIC IMPACTS
Prepared by
INSTITUTE OF SOCIAL AND ECONOMIC RESEARCH
UNIVERSITY OF ALASKA
IV
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1. Report No. 2.
Technical Report No. 1~
4. Title aod Subtitle
Alaska OCS Socioeconomic Studies Program
Beaufort Sea Petroleum Development Scenarios:
Economic and Demogra~hic Impacts
7. Author(s)
9, Performing Organization Name and Address
Institute of Social and Economic Research
REPORT DOCUMENTATION PAGE
3. Recipient's Accession No.
5. Report Date
6,
8. Performing Organization Report No,
10. Project/Task/Work Unit No.
11. contract or Grant No.
12. Sponsoring Organi~ation Nam~ and Address
707 A Street, Suite 206 AA550-CT6-61
~-A_n_c_h_o_r_a_g_e_,_A_K_9_9_5_o_l ________________ --t 13. Type of Report
Bureau of Land Management
Alaska Outer Continental Shelf Office
P. 0. Box 1159
Anchorage, AK 99510
15. Supplementary Nctes
16. Abstract
14.
Using the model of the Alaskan economy and population developed in the Man-in-the-
Arctic Program of the Institute of Social and Economic Research, forecasts of the
economic, fiscal, and population effects of four alternative petroleum development
scenarios were made. The impacts of each of these scenarios is described in terms
of change in aggregate indicators, causes of this change, the fiscal sector of the
state, structure of the economy, composition of population, and the effect on
three regions of the state.
17. Originator's Key Words
OCS Development, Socioeconomic Forecast,
Petroleum Development Scenarios, Alaska
18. Availability Statement
National Technical Information
Service
5285 Port Royal Road
Springfield, VA 22161
19. U. S. Security C1aosif. of the Report I 20, U, S, Security Claaaif. of Thia Paae 121. No. of Pages J22. Price
l Unclassified Unclassified I
v
·. VI
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LIST OF FIGURES.
LIST OF TABLES
INTRODUCTION • .
TABLE OF CONTENTS
Background . . . . . • • . . .
The Structure of the Analysis.
NON-OCS BASE CASE. . • • • . •
Introduction • . . . • • • • • • •.•••
General Development Pattern. . •.••
The Base Base. . . . . . • • • • • • . . . • •
Characteristics of Growth ••••..••.
Growth of the Regional Economies .•••.•••
. . VI II
IX
1
1
3
13
. . . . . . 13
14
27
32
53
THE IMPACTS OF OFFSHORE DEVELOPMENT IN THE BEAUFORT SEA. . 75
The Development Scenarios ••..••..••••.
Economic Impacts of Beaufort Sea OCS Development •
Prudhoe High Scenario. • . . . . • • . •.•.
Regional Impacts ....•• ·. • • • •••
75
97
99
115
. . 132 Summary and Assessment of Impacts.
Prudhoe Low Scenario • • . . . • •
Regional Impacts ~ ..••.•..••
Summary and Assessment of Impacts •.
Camden-Canning Scenario .••••••
Regional Impacts •..•..•..
• • • . . 134
. . . . . . . . . 150
. • . . . . . . . .-163
Summary and Assessment of Impacts.
·Cape Ha 1 kett Scenar1 o. • • • • . •
Regional Impacts ....••.•.•••.
Summary and Assessments of Impacts •
SENSITIVITY ANALYSIS •.•.••..
Sensitivity to the Choice of Development Plan.
Sensitivity to State Expenditure Policy.
Sensitivity to Revenue Assumptions ••.••.
Sensitivity to Migration Response.
SUMMARY AND CONCLUSIONS .•..••
APPENDIX A: METHODOLOGY AND ASSUMPTIONS OF MAP MODEL
APPENDIX B: BASE CASE ASSUMPTIONS -1977-2000 •..
APPENDIX C: STATE REVENUE AND EXPENDITURE DETAIL
REFERENCES . . . • . • • . • • .
VII
. . . 165
. • • . . . 179
. • . . . . 193
. • • . . . 195
. . . . . . . . 208
• . 222
. 225
. . . 225
. . . 229
. . . 239
••. 242
. 245
. . 269
.. 279
291
LIST OF FIGURES
1 .1 MAN-IN-THE-ARCTIC PROGRAM REGIONS .•
A.1 STRUCTURE OF THE MAP ECONOMIC MODEL ..
A.2 STRUCTURE OF THE MAP ECONOMIC MODEL
A.3 MAP STATE GOVERNMENT MODEL STRUCTURE •.
A.4 MAJOR LINKAGES BETWEEN MAP MODEL COMPONENTS .
A.5 MAN-IN-THE-ARCTIC PROGRAM REGIONS ..... .
VIII
6
. . 255
. . . 257
. 259
. 263
. 265
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LIST OF TABLES
2.1 STATEWIDE MINING INDUSTRY EMPLOYMENT-BASE CASE ...•.... 17
2.2 STATEWIDE EXOGENOUS CONSTRUCTION EMPLOYMENT,
BY PROJECT -BASE CASE . • . • . . • • . . . . -.
2.3 OIL AND GAS PROPERTY TAX PAYMENTS -BASE CASE .
2.4 STATE ROYALTY REVENUES ... BASE CASE. ..•
2.5 STATE SEVERANCE TAX REVENUES -BASE CASE ..
2.6 AGGREGATE INDICATORS OF BASE CASE GROWTH -
STATE OF ALASKA. . • • . . • • . . . . .
2.7 BASE CASE INCOME VARIABLES -STATE OF ALASKA.
2.8 BASE CASE GROWTH OF THE FISCAL SECTOR -
STATE OF ALASKA. . . . . • . . • • . •
2.9 BASE CASE STRUCTURE OF THE ALASKA ECONOMY •.
2.10 HISTORICAL RATES OF POPULATION TO EMPLOYMENT-
1970-1975 -STATE OF ALASKA. . • • . •
2.11 ALASKA EMPLOYMENT SEASONALITY BY INDUSTRY .•..
2.12 AGE-SEX STRUCTURE OF THE POPULATION-BASE CASE ..
2.13 BASE CASE GROWTH OF THE ALASKAN POPULATION.
2.14 BASE CASE GROWTH OF THE ANCHORAGE ECONOMY ..
2.15 STRUCTURE OF THE ANCHORAGE ECONOMY-BASE CASE.
2.16 ASSUMED CAPITAL IMPROVEMENT PROGRAM OF THE
NORTH SLOPE BOROUGH. . . . . . .•
2.17 BASE CASE GROWTH OF NORTH SLOPE ECONOMY ••.
2.18 STRUCTURE OF THE NORTH SLOPE ECONOMY -BASE CASE.
2.19 BASE CASE GROWTH OF FAIRBANKS ECONOMY .....
2.20 STRUCTURE OF THE FAIRBANKS ECONOMY -BASE CASE.
'
3.1 ASSUMED RECOVERABLE RESERVE LEVELS ..•.....
.
.
.
.
. . . .
. . . .
18
20
23
24
28
33
37
46
48
49
52
54
58
59
64
66
67
71
72
79
3.2 DIRECT EMPLOYMENT REQUIREMENTS -PRUDHOE HIGH SCENARIO. . 80
IX
3.3 PRODUCTION SCHEDULE -PRUDHOE HIGH SCENARIO . . . . . . . • . . 82
3.4 DIRECT EFFECTS ON STATE PETROLEUM REVENUES -
PRUDHOE HIGH SCENARIO. . . . . • . . . . . • . . 83
3.5 DIRECT EMPLOYMENT REQUIREMENTS -PRUDHOE LOW SCENARIO .
3.6 PRODUCTION SCHEDULE -PRUDHOE LOW SCENARIO ..
3.7 DIRECT EFFECTS ON STATE PETROLEUM REVENUES -
PRUDHOE LOW SCENARIO . . • . . . • • . •
3.8 DIRECT EMPLOYMENT REQUIREMENTS -CAMDEN-CANNING SCENARIO ..
3.9 PRODUCTION SCHEDULE -CAMDEN-CANNING SCENARIO .
3.10 DIRECT EFFECTS ON STATE PETROLEUM REVENUES-
CAMDEN-CANNING SCENARIO. . • . . . . •..
3.11 DIRECT EMPLOYMENT REQUIREMENTS-CAPE HALKETT .
3.12 PRODUCTION SCHEDULE-CAPE HALKETI SCENARIO .
3.13 DIRECT EFFECTS ON STATE PETROLEUM REVENUES-
85
86
88
89
90
92
93
95
CAPE HALKETI SCENARI 0. . . . . . • . . . . . . . . . . 96
3.14 PRUDHOE HIGH SCENARIO IMPACT ON AGGREGATE
INDICATORS -STATE OF ALASKA . • . .
3.15 IMPACT ON THE STATE FISCAL SECTOR OF THE·
PRUDHOE HIGH SCENARIO -STATE OF ALASKA.
3.16 INCOME IMPACTS OF PRUDHOE HIGH DEVELOPMENT-
STATE OF ALASKA. . . . . . . • • . . .
3.17 INDUSTRIAL DISTRIBUTION OF THE PRUDHOE HIGH
EMPLOYMENT IMPACT -ALASKA . . •
3.18 AGE-SEX STRUCTION OF THE POPULATION -
PRUDHOE HIGH SCENARIO .•.•.. . . -. .
3.19 PRUDHOE HIGH SCENARIO TOTAL ECONOMIC IMPACT-
NORTH SLOPE REGION . • . . . . • . . . . . . . . . • . • .
3.20 INDUSTRIAL DISTRIBUTION OF THE PRUDHOE HIGH
EMPLOYMENT IMPACT -NORTH SLOPE REGION .
3.21 PRUDHOE HIGH SCENARIO TOTAL ECONOMIC IMPACT -
ANCHORAGE. . • . • . . . . . . . . • . •
3.22 INDUSTRIAL DISTRIBUTION OF THE PRUDHOE HIGH
EMPLOYMENT IMPACT -ANCHORAGE. . . . . •
X
100
105
110
112
116
119
120
126
127
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3.23 PRUDHOE HIGH SCENARIO TOTAL ECONOMIC IMPACT -
FAIRBANKS. • • . • .. . • . • . . . . . .
3.24 INDUSTRIAL DISTRIBUTION OF THE PRUDHOE HIGH
EMPLOYMENT IMPACT -FAIRBANKS ••..
3.25 PRUDHOE LOW SCENARIO IMPACT ON AGGREGATE
INDICATORS -STATE OF ALASKA • • • •
3.26 IMPACT ON THE STATE FISCAL SECTOR OF THE PRUDHOE
LOW SCENARIO -STATE OF ALASKA . . . . . • • .
3.27 PERSONAL INCOME IMPACT OF PRUDHOE LOW DEVELOPMENT -
129
130
135
140
STATE OF ALASKA .••••.•.••••••.•.•••.. 144
3.28 INDUSTRIAL DISTRIBUTION OF THE PRUDHOE LOW
EMPLOYMENT IMPACT -ALASKA . . . • • . . • . . . . . 146
3.29 AGE-SEX STRUCTURE OF THE POPULATION -
PRUDHOE LOW SCENARIO . . • . . • 149
3.30 PRUDHOE LOW SCENARIO TOTAL ECONOMIC IMPACT -
NORTH SLOPE REGION . • • . • • • • • • • . . . . . • . . . 151
3.31 INDUSTRIAL DISTRIBUTION OF THE PRUDHOE LOW
EMPLOYMENT IMPACT -NORTH SLOPE REGION ••...••... 152
3.32 PRUDHOE LOW SCENARIO TOTAL ECONOMIC IMPACT -
ANCHORAGE. • • • • • . . . • • . • • • •
3.33 INDUSTRIAL ·DISTRIBUTION OF THE PRUDHOE LOW
EMPLOYMENT IMPACT -ANCHORAGE. • • • •
3.34 PRUDHOE LOW SCENARIO TOTAL ECONOMIC IMPACT -FAIRBANKS.
3.35 INDUSTRIAL DISTRIBUTION OF THE PRUDHOE LOW
158
159
. . 161
EMPLOYMENT IMPACT -FAIRBANKS .•.••••••••..•. 162
3.36 CAMDEN-CANNING SCENARIO IMPACT ON AGGREGATE
INDICATORS -STATE OF ALASKA • . • • . •
3.37 IMPACT ON THE STATE FISCAL SECTOR OF THE CAMDEN-CANNING
SCENARIO -STATE OF ALASKA . • . • • • • • • . . .
3.38 PERSONAL INCOME IMPACT OF CAMDEN-CANNING
DEVELOPMENT -STATE OF ALASKA. . • .
3.39 INDUSTRIAL DISTRIBUTION OF CAMDEN-CANNING
.... 166
170
174
EMPLOYMENT IMPACT -ALASKA • • . • •.•..•.•.. 176
3.40 AGE-SEX STRUCTURE OF THE POPULATION -
CAMDEN-CANNING SCENARIO. • • . •
XI
. . . . . . -. . . . . . . 180
3.41 CAMDEN-CANNING SCENARIO TOTAL ECONOMIC IMPACT -
NORTH SLOPE. . . . . . . . . . . . . .
3.42 INDUSTRIAL DISTRIBUTION OF CAMDEN-CANNING
EMPLOYMENT IMPACT -NORTH SLOPE REGION
3.43 CAMDEN-CANNING SCENARIO TOTAL ECONOMIC
IMPACT -ANCHORAGE . . . . . . . . . .
3.44 INDUSTRIAL DISTRIBUTION OF CAMDEN-CANNING
EMPLOYMENT IMPACT -ANCHORAGE .....
3.45 CAMDEN-CANNING SCENARIO TOTAL ECONOMIC IMPACT -
FAIRBANKS. . . . . . . . . • . • . . •
3.46 INDUSTRIAL DISTRIBUTION OF CAMDEN-CANNING
EMPLOYMENT IMPACT -FAIRBANKS ..•.
3.47 CAPE HALKETT SCENARIO IMPACT ON AGGREGATE
INDICATORS -STATE OF ALASKA . . . .
3.48 IMPACT ON THE STATE FISCAL SECTOR OF THE CAPE
HALKETT SCENARIO -STATE OF ALASKA .
3.49 PERSONAL INCOME IMPACT OF CAPE HALKETT
. . . . . . . . 181
182
. . . . . . . 187
188
190
. . . . . 191
196
200
DEVELOPMENT -STATE OF ALASKA. . . . . . . . . . . . . . . . 203
3.50 INDUSTRIAL DISTRIBUTION OF CAPE HALKET
EMPLOYMENT IMPACT -ALASKA . . . .
3.51 AGE-SEX STRUCTURE OF THE POPULATION -
CAPE HALKETT SCENARIO. . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . .
3.52 CAPE HALKETT SCENARIO TOTAL ECONOMIC IMPACT .~
205
209
NORTH SLOPE. • . . . . . . . . . . . • • . . . . . . . . . 211
3.53 INDUSTRIAL DISTRIBUTION OF CAPE HALKETT
EMPLOYMENT IMPACT -NORTH SLOPE REGION ......•... 212
3.54 CAPE HALKETT SCENARIO TOTAL ECONOMIC IMPACT -
ANCHORAGE. . • . • . . . . . . . . .
3.55 INDUSTRIAL DISTRIBUTION OF CAPE HALKETT
EMPLOYMENT IMPACT -ANCHORAGE ....
3.56 CAPE HALKETT SCENARIO TOTAL ECONOMIC IMPACT -
FAIRBANKS. • . . . . . . . . . . . .
3.57 INDUSTRIAL DISTRIBUTION OF CAPE HALKETT
EMPLOYMENT IMPACT -FAIRBANKS .•..
XII
216
217
219
220
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4.1 EFFECT OF BEAUFORT SEA DEVELOPMENT ON VALUES
OF KEY VARIABLES IN THE YEAR 2000. . . .
4.2 DIRECT EMPLOYMENT REQUIREMENTS -EXPLORATION
ONLY SCENARIO ...........•...
4.3 IMPACT OF 11 EXPLORATION ONLY 11 SCENARIO ON MAJOR
228
230
ECONOMIC VARIABLES (1980-2000) ...•........•. 231
4.4 IMPACTS OF OCS DEVELOPMENT (PRUDHOE LOW SCENARIO)
UNDER ALTERNATIVE EXPENDITURE RULES ...•...•.... 233
4.5 MEASUREMENT OF COMPONENT OF TOTAL IMPACTS DUE TO
CHANGES IN STATE GOVERNMENT EXPENDITURE.
4.6 SENSITIVITY OF MEASURED IMPACTS TO ERRORS IN
PETROLEUM REVENUE ESTIMATES ...•...
4.7 IMPACT OF PRUDHOE LOW DEVELOPMENT ON STATE POPULATION
UNDER ALTERNATIVE MIGRATORY RESPONSES TO DIRECT
EMPLOYMENT IN CONSTRUCTION AND PETROLEUM .
5.1 SUMMARY OF·LONG RUN IMPACTS OF ALTERNATIVE
DEVELOPMENT SCENARIOS .....••...
5.2 SUMMARY OF DISTRIBUTION OF IMPACTS BY REGION.
A.1 INDUSTRIAL CLASSIFICATIONS, MAP STATEWIDE MODEL
A.2 REGIONAL MODEL INDUSTRIAL CLASSIFICATION. . . . .
B.1 NORTH SLOPE MINING INDUSTRY EMPLOYMENT-BASE CASE.
B.2 ANCHORAGE MINING INDUSTRY EMPLOYMENT -BASE CASE.
B.3 FAIRBANKS MINING INDUSTRY EMPLOYMENT -BASE CASE.
B.4 NORTH SLOPE EXOGENOUS CONSTRUCTION EMPLOYMENT,
BY PROJECT -BASE CASE . • • . . • . . •
B.5 ANCHORAGE EXOGENOUS CONSTRUCTION EMPLOYMENT,
BY PROJECT -BASE CASE . . . . . . • • .
B.6 FAIRBANKS EXOGENOUS CONSTRUCTION EMPLOYMENT,
BY PROJECT -BASE CASE . . . . . . . . .
B.7 OIL AND GAS PRODUCTION FROM PRUDHOE AND VICINITY -
BASE CASE. . . . . . . . • . . . . • • . .
B.8 WELLHEAD VALUE OF OIL AND GAS PRODUCTION FROM
236
. . . . . 241
243
. . . . 247
. . . . 249
. 253
.. 266
. . 270
. 271
272
273
274
275
276
PRUDHOE AND VICINITY -BASE CASE . . . . . . . . . . . . . 277
XIII
C.1 STATE REVENUE DETAIL-BASE CASE. o o
C.2 STATE EXPENDITURE DETAIL -BASE CASE. o
C.3 STATE REVENUE IMPACTS -PRUDHOE HIGH, 1977-2000 o o
Co4 STATE EXPENDITURE IMPACTS -PRUDHOE HIGH, 1977-2000 ..
C.5 STATE REVENUE IMPACTS -PRUDHOE LOW, 1977-2000 ....
C.6 STATE EXPENDITURE IMPACTS -PRUDHOE LOW, 1977-20000
C.7 STATE REVENUE IMPACTS -CAMDEN-CANNING, 1977-2000 . o
C.8 STATE EXPENDITURE IMPACTS -CAMDEN-CANNING, 1977-2000 .
C.9 STATE REVENUE IMPACTS -CAPE HALKETT, 1977-2000 . o .
C.lO STATE EXPENDITURE IMPACTS -CAPE HALKETT, 1977-2000 .
XIV
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I. INTRODUCTION
Background
The progressive depletion of U.S. domestic petroleum reserves and in-
creased concern over the reliability of foreign supplies have led to an
increasing concern in the United States about future energy sources.
The federal government has begun to establish policies aimed at increas-
ing domestic energy supplies. The U.S. Outer Continental Shelf (OCS) has
drawn considerable attention as a future source of petroleum supplies.
These areas, because of their high potential as a source of oil and gas,
figure importantly in the future energy program of the United States.
Historically, the role of Alaska in supplying energy has been small; total
cumulative production in Alaska through 1974 was less than 1 percent of
the U.S. total. Alaska has played a more important part in OCS produc-
tion; petroleum production in the Upper Cook Inlet accounted for about
7 percent of cumulative U.S. Outer Continental Shelf oil production by
the end of 1974 (U.S. Geological Survey, 1975). In the future, Alaska
will be a much more important source of U.S. energy supplies. Production
of oil at Prudhoe Bay and the potential oil and gas reserves in Alaska's
OCS will increase its importance as a source of future U.S. energy re-
sources.
Alaska accounts for over one-fourth of the identified oil and gas re-
serves in the U.S. The search for new domestic reserves will center im-
portantly on Alaska, since it is estimated that more than one-third of
1
all undiscovered recoverable domestic oil reserves are in the state.
Alaska•s importance in the OCS program is a result of the fact that over
60 percent of the undiscovered OCS reserves are in the Alaska OCS {U.S.
Geological Survey, 1975). Projections estimate that by 1985 as much as
25 percent of total domestic crude oil production could be from Alaska
{Federal Energy Administration, 1976).
Alaska•s new role as a major U.S. energy supplier has already brought
significaht changes to the Alaska economy and society. The prospect of
even further transformation looms large in the state•s future as planned
development extends to Alaska coastal waters. The first steps toward
development of Alaska•s coastal resources have already been taken with
recent federal lease sales in the Northern Gulf of Alaska and Lower Cook
Inlet. The next planned step involves the opening of the Beaufort Sea
area to oil and gas development with a joint federal/state lease sale.
Changes produced by past petroleum development in the state have been
major. The rapid changes in the Alaska economy and population associa-
ted with development in Upper Cook Inlet and Prudhoe Bay have created
strains on the Alaska society and environment. At the same time, these
petroleum developments generated the most prosperous economic period in
the state•s history and produced prospects of continued prosperity
throughout the next decade.
The nature of the changes induced by prospective new developments, how-
ever, will not necessarily resemble those characteristic of developments
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of the recent past. The technology, resource levels, and institutional
arrangements surround.ing the Beaufort development are subject to a wide
range of uncertainty. Consequently, the implications of Beaufort Sea
development for Alaskan economic and demographic processes can be accu-
rately assessed only by an analysis which incorporates both these unique
institutional and technological features, as well as the uncertainty
surrounding them.
The objective of this report is to provide the information needed to
anticipate the major dimensions of the economic and social impacts of
proposed oil and gas developments in the Beaufort Sea. The Institute of
Social and Economic Research, as part of the Bureau of Land Management•s
OCS Studies Program, has provided a series of economic and population
forecasts through the year 2000 under several alternative scenarios for
Beaufort Sea petroleum development. By contrasting these forecasts with
a base case forecast, which does not include the proposed developments,
it is possible to assess four major dimensions of the impacts of OCS
development~-population, employment, income, and state government fiscal
impacts. This report will provide an assessment of these impacts.
The Structure of the Analysis
THE ROLE OF SOCIOECONOMIC FORECASTS
The uncertainty of the future, though it may increase the problems asso-
ciated with making forecasts, increases the importance of these forecasts.
Decision makers in both the public and private sectors need information
about the future in order to plan their actions. The more uncertain the
3
future events, the more important is some forecast of them. Forecasts
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.
Two factors are important for making forecasts--knowledge of the
forces affecting growth (exogenous variables) and knowledge of the rela-
tionship between these forces and growth. The description of these rela-
tionships is referred to as a model. Once the model is determined .and a
certain growth pattern for the exogenous variables is assumed, a forecast
of the future levels of important variables can be made. Forecasts of
the level of population and employment have been used to estimate the
future needs for many public services, such as transportation and parks.
Models are also used to test the relative efficiency of alternative
policy choices. When forecasting 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
forecasts under various 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.
Forecasts used in the ways described above are useful for policy makers.
They increase the information available to decision makers for making
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policy choices. Many present policy choices have important future impli-
cations which must be considered by policy makers. For example, current
policy decisions regarding Beaufort Sea petroleum development will have
their major effect in the middle of the next decade. By providing de-
scriptions of the most probable future levels of important variables,
socioeconomic forecasts serve as a framework for making policy choices.
METHODOLOGY
The methodology used to assess the impacts of alternative petroleum de-
velopment scenarios in the Beaufort Sea OCS involves contrasting alterna-
tive forecasts of Alaska economic activity. An econometric model of the
Alaska economy developed by the Man-in-the-Arctic Program (MAP) currently
being conducted by the University of Alaska's Institute of Social and
Economic Research is used to provide the analysis for the state and three
of its regions--Anchorage, Fairbanks, and the North Slope.
The MAP model is an econometric model which describes the economy of the
state and seven regions, shown in Figure 1.1 (Kresge, 1976). The model
forecasts both economic and population variables. An econometric model
is a mathematical representation of the important economic and demographic
relationships. The mathematical expressions chosen for the model are
those which best describe past historical relations. Use of an econo-
metric model for making forecasts reduces the number of factors about
which assumptions are required. Those factors not described by the model
are known as the external, or exogenous, factors; assumptions about these
factors drive the model.
5
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North Slope
1·
Central
6
FIGURE 1.1 ~~N-IN-THE-ARCTIC PROGRAM REGIONS
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Three models were developed for the Man-in-the-Arctic Program--an economic
model, a fiscal model, and a demographic model; the output of the economic
model is input to the demographic model. The models provide information
for seven regions of the state. The model simultaneously estimates in-
dustrial output, employment, wages and salaries, and real disposable
income. A key element of the model is the determination of industrial
output, and determining relationships differ from one industry to another.
The most important difference is whether output is determined by factors
internal or external to the model. Assumptions about the external factors
are needed input to the model. The assumptions used in this report de-
scribe a scenario. Once output is determined for each industry, employ-
ment is projected as a function of output.
The three components of population change are births, death, and migra-
tion; the demographic model treats each of these components differently.
Estimates of births and deaths are derived from information about the
population age and sex distribution, fertility rates, and mortality rates.
Net migration is determined as a function of employment and real per
capita income relative to the U.S. real per capita income. This rela-
'
tionship is statistically derived from historical information. The net
sum of these components is used to determine state civilian population.
State population total is allocated to the regions as function of re-
gional employment. Total regional population is found by adding an
estimate of the level of military in each region.
7
Because of the central role of the federal, state, and local government
sectors in the determination of the overall level of economic activity,
and consequently state migration, in Alaska, the third component of the
MAP statewide model is devoted to an explicit modeling of the behavior
of the government sectors in Alaska. The functions of the fiscal model
within the larger MAP model are threefold: first, to calculate personal
tax payments in order to derive disposable personal income from personal
income; second, to provide a framework for the analysis of alternative
choices for explicitly modeled policy variables; and finally, to provide
the basis for estimates of state and local government employment which
result from such policy choices. {A complete description of the MAP
model is found in Appendix A.)
The use of models derived statistically from historical information to
forecast future activity relies on some important assumptions. Most
important of these assumptions is that past relationships will continue
to hold in the future. This means that the model must be specified to
account for any assumed structural changes which may occur. Models pro-
vide estimates of the level of activity but, because of their statistical
nature, should not be considered to project exact levels of variables.
USE OF MAP MODEL FOR BEAUFORT SEA ANALYSIS
For the analysis of the proposed Beaufort Sea developments, five cases
will be run using the statewide MAP model. In this section, we examine
the sets of assumptions required for each case, or scenario, and the
general methodology to be employed in the analysis of each scenario.
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Assumptions Constituting a Development Scenario
A development scenario consists of a consistent set of hypothetical
exogenous data assumptions which are used as input to the state model in
order to test the consequences of hypothetical developments on the struc-
ture and performance of the Alaska economy. A development scenario
consists of three major sets of assumptions--those related to exogenous
employment, those related to exogenous revenues, and those related to
state fiscal policy.
Exogenous Employment Assumptions. The first set of assumptions in-
volves estimates of employment in the exogenous sectors of the statewide
model. For petroleum and gas development scenarios, this usually is
limited to direct employment in the mining (petroleum) sector and related
employment engaged in facility construction. However, certain types of
developments may require exogenous components of employment to be added
to other exogenous, or even endogenous, sectors. Normally, however, data
requirements consist of direct construction and petro]eym sector employ-
ment by year for the life of the field.
Exogenous Revenue Assumptions. The second set of assumptions neces-
sary for the construction of a development scenario deals with the
exogenous components of state and local revenues. For petroleum and gas
developments such as those to be examined in the Beaufort Sea, these
assumptions consist of annual series of field production estimates,
severance tax rates, value of field equipment and facilities, and distri-
bution of reserveownership among the state, federal, and Native owners.
9
They result in estimates of ~tate and Native royalty payments, bonus
payments, and severance taxes, which are then used as input to the fiscal
model.
State Expenditure Policy. The final set of assumptions necessary
for a development scenario are concerned with the expenditure rules
adopted by the state government. These rules consist of a savings rate
or a spending rule, as well as an annual capital expenditures series in
addition to a set of tax cut variables where appropriate.
General Methodology for OCS Analysis
The general approach to be pursued in the analysis of OCS impacts will
be as follows: Initially, a scenario will be developed containing no
Beaufort Sea OCS development. This scenario will be run using the MAP
model for purposes of comparison with each of the OCS scenarios. Each
. of the four Beaufort deve 1 opment scenarios will then be run. Each run
will then be compared with the base r~n, examinfng the impact of the
hypothetical development on four dimensions of the Alaska growth process--
population, incomes, employment, and state and local government fiscal
position.
Overview
The remainder of this report will describe the use of this econometric
model to estimate the impacts of various alternative Beaufort Sea develop-
ment scenarios. Part II presents the forecasts of economic activity in a
base case which includes no offshore activity in the Beaufort Sea. Part
10
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III then turns to a description of the alternative scenarios for Beaufort
Sea development and the impact of these scenarios on each of the four
dimensions presented earlier. Part IV then attempts to capture the uncer-
tainty attached to these estimated impacts by examining the sensitivity
of the conclusions of Part III to several of the most uncertain elements
in the scenarios. Finally, Part V summarizes our major findings.
11
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II. NON-OCS BASE CASE
Introduction
Development of the petroleum resources in the Beaufort Sea will result in
changes to the Alaska economy. Petroleum development will affect both
the structure and size of the economy. Changes in the level of economic
activity which result from the development of the Beaufort Sea OCS can be
defined as an impact of this development. Beaufort Sea petroleum de-
velopment will impact the Alaska economy in two ways. First, the direct
effect of OCS development occurs because of increases in construction and
petroleum employment. Increases in employment and incomes lead to in-
creased demand for goods and services and labor, leading to growth in the
economy. Secondly, OCS development indirectly leads to growth by in-
creasing the revenues to the state government. However the state govern-
ment chooses to spend these extra revenues will lead to growth in the
economy. State expenditures increase employment and incomes and lead to
growth in much the same way as changes in mining employmP.nt. ThP sum of
these changes, both direct and indirect, which results from OCS activity
is the impact of development.
The impa.ct of OCS deve 1 opment must be described as changes from a certain
pattern of economic growth which would occur without this development.
The purpose of this chapter is to describe the base case from which the
impacts of OCS development will be measured. The impact of Beaufort
Sea OCS development will be examined for a forecast period between 1977
and 2000.
13
The base case scenario consists of three major components--assumptions
regarding levels of employment in the petroleum sector, the exogenous
component of the construction sector, and other exogenous sectors, assump-
tions regarding oil and gas revenues to state and local governments, and
an assumed rule for the determination of state and local government ex-
penditures. This chapter begins with a description of these assumptionsr
which define the scenario. The growth of the Alaska economy and popula-
tion which results because of these base case assumptions is described in
the last section of the chapter.
General Development Pattern
The basic premise on which the base case scenario depends is that very
little oil and gas or other mineral development beyond that implied by
current commitments occurs in Alaska. These current commitments include
Prudhoe Bay and several fields surrounding Prudhoe, Upper Cook Inlet,
Northern Gulf of Alaska OCS, and Lower Cook Inlet OCS, as well as exis-
ting coal and other mineral development. At Prudhoe Bay, it is assumed
that currently proven reserves are augmented by discoveries in the
Lisburne and Kuparuk formations. This production is assumed to lead to a
/
maximum flow of 1.785 million barrels of oil a day through the TAPS line
in 1985 (Dames and Moore, 1978). No significant new reserves are dis-
covered in the Upper Cook Inlet, so that production there continues to
decline over the forecast period. In the Norther~ Gulf of Alaska, it is
assumed that resource discoveries are minimal, although in Lower Cook
Inlet it is assumed that the mean levels of estimated recoverable reserves
are in fact discovered and produced.
14
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Exploration of NPR-4 is assumed to result in no commercial discoveries,
and other mineral development activity is assumed to remain at current
levels. With regard to major construction projects during the forecast
period, it is assumed that work on the TAPS line is completed on schedule
and that the Alcan gas pipeline is constructed between 1979 and 1983.
This scenario, while representing a consistent and plausible development
pattern, should not be construed in any senseas a 11 best guess 11 of de-
velopement likely to occur in Alaska during the forecast period. The
actual pattern likely to occur is subject to an enormous amount of uncer-
tainty concerned with technology, market prices, federal policies, and
so on. To forecast any specific development path as most likely would
at this point be little more than idle speculation. Rather, the MAP model
is designed to permit the formulation of ranges of scenarios which encom-
pass these uncertainties in order to trace out the range of possible out-
comes from alternative developments and policies. This base case should
be regarded as a very conservative development pattern which includes
only activities to which current commitments have been made.
EXOGENOUS EMPLOYMENT
The exogenous sectors of the Alaska economy are the petroleum sector, a
portion of the construction sector, the manufacturing sector, federal gov-
ernment, and the agriculture, forestry, and fisheries sector. Employment
in each of these sectors is determined outside ~f the model. Exogenous
employment estimates for mining and construction will vary by development
15
scenario and will be discussed in this section. Employment in both of
these sectors is influenced by the general development pattern discussed
above.
Table 2.1 shows the yearly assumed level of mining employment by project.
(The regional distribution of this employment is shown in Tables B.l-B.3
in Appendix B.) Fairly high levels of exogenous mining employment are
maintained throughout the forecast period. Mining employment reaches a
peak of 6,548 in 1981 and declines slowly until 1990, when it stabilizes
at 4,471. This level is maintaineduntil 2000. These initial high
levels of employment result from the staggered developmentof fields in
the Northern Gulf, Lower Cook Inlet, and the Lisburne and Kuparuk fields
near Prudhoe.
The exogenous construction employment is shown in Table 2.2. (The re-
gional distribution of this employment is shown in Tables B.4-B.6 in
Appendix B.) The major employment impacts of the TAPS line are over
after 1977, when employment drops from 5,775 to 900 in 1978. Construction
of facilities associated with petroleum development and production in
the Northern Gulf and lower Cook Inlet add small amounts of employment
throughout the 1980s; the maximum level of construction employment for
these projects is 551, which occurs in 1981. The major event influencing
the level of exogenous construction is the construction of the Alcan gas
line between 1979 and 1982. At its peak, construction employment on this
project reaches 8,942 in 1980.
16
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I TABLE 2 .1. STATEWIDE MINING INDUSTRY EMPLOYMENT l_,,
-BASE CASE-
~~ (Thousands of Persons)
I
l_-1 Upper
Cook Prudh~e Other N. Gulf L. Co~k Other
~-,
Inlet1 ALCAN5 Mining6 Total I Year Bay TAPS2 Prudhoe3 OCS ocs
I
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1977 .575 1.500 .000 .055 .740 .000 .000 1.694 4.564 ,., 1978 .575 1.100 .300 .055 1. 283 .255 .000 1.694 5.262
I 1979 .575 .900 .300 .874 1.298 .638 .000 1.694 6.279
•---1980 .575 .600 .300 .923 .799 1.107 .096 1.694 6.094
[ 1981 .575 .600 .300 1.619 .534 1.130 .096 1.694 6.548
1982 .575 .600 .300 1. 710 .429 .732 .096 1.694 6.136
1983 .575 .500 .300 1.801 .355 .562 .096 1.694 5.883
[ 1984 .575 .500 .300 1.892 .319 .623 .096 1.694 5.999
1985 .575 .450 .300 1. 983 .207 .604 .096 1.694 5.909
1986 .575 .450 .300 2.074 .211 .545 .096 1.694 5.945
~ 1987 .575 .450 .300 1.814 .211 .411 .096 1.694 5.551
I 1988 .575 .450 .300 .948 . 211 .417 .096 1.694 4.691 I
1989 .575 .450 .300 • 728 . 211 .417 .096 1.694 4.471
1990 .575 .450 .300 .728 .211 .417 .096 1. 694 4.471 ~---
1991 .575 .450 .300 .728 .211 .417 .096 1.694 4.471 ',
1992 .575 .450 .300 .728 .211 .417 .096 1.694. 4.471
1993 .575 .450 .300 .728 .211 .417 .096 1. 694 4.471
I, 1994 .575 .450 .300 .728 .211 .417 .096 1.694 4.471
1995 .575 .450 .300 .728 . 211 .417 .096 1. 694 4.471
1996 .575 .450 .300 .728 .211 .417 .096 l. 694 4.471
I • 1997 .575 .450 .300 .728 .211 .417 .096 1.694 4.471 ._ __ ,
1998 .575 .450 .300 .728 .211 .417 .096 1.694 4.471
1999 .575 .450 .300 .728 .211 .417 .096 1.694 4.471
~" 2000 .575 .450 .300 .728 .211 .417 .096 1. 694 4.471
=-:1
I
lAuthor•s estimate based on existing mining employment.
2Based on estimates in Issues in Alaska•s Development (Kresge, et al), ~'
Table B-1.
r--..
I 3Author•s estimates based on reserves and development schedules in
--~ 11 Developing Production and Price Estimates for Northern Alaska Oil and
Gas Supplies .. (Resource Planning Associates, 1975).
4Based on low scenario of Northern Gulf and moderate scenario for
Lower Cook in 11 The Economic Impact of Federal Energy Development on the
State of Alaska 11 (Porter, 1977}.
5Author•s estimate based on 11 Application of Alcan Pipeline for
Certificate of Public Convenience and Necessity .. to the Federal Power
I Commission, July 1976.
I -6Residual in statewide mining employment in 1976, L __ ..J
assumed to remain
--constant through 2000.
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TABLE.2.2. STATEWIDE EXOGENOUS CONSTRUCTION EMPLOYMENT, BY PROJECT [
-BASE CASE-
(Thousands of Persons) [
TAPS 1 ALCAN 2 N. Gu1f L. Cook [
Year ocs ocs3 Total
1977 5.775 .000 .000 .000 5. 775 r~
1978 .900 .000 .017 .000 .917
1979 .300 3.271 .077 .000 3.648
1980 .000 8.942 .1 07 .027 9.076 [
1981 .000 7.482 .257 .294 8.033
1982 .000 .390 .192 .365 .947 r· 1983 .000 .000 .022 .284 .306
1984 .000 .000 .011 .099 . 110
1985 .000 .000 .000 .444 .444 r
1986 .000 .000 .000 .426 .426 L
1987 .000 .000 .000 .000 .000
1988 .000 .000 .000 .000 .000 [ 1989 .000 .000 .000 .000 .000
1990 .000 .000 .000 .000 .000
1991 .000 .000 .000 .000 .000 [
1992 .000 .000 .000 .000 .000
1993 .000 .000 .000 .000 .000
E: 1994 .000 .000 .000 .000 .000
1995 .000 .000 .000 .000 .000
1996 .000 .000 .000 .000 .000 t lYY/ .uuu .uou .000 .000 .000
1998 .000 .000 .000 .000 .000
1999 .000 .000 .000 .000 .000 [ 2000 .000 .000 .000 .000 .000
[ -_..
lAuthor's estimate. L
2Author's estimate based on .. Application of Alcan Pipeline for
Certificate of Public Convenience and Necessity .. to the Federal Power
Commission, July 1976. L
3Based on scenarios in 11 The Economic Impact of Federal
Development on the State of Alaska 11 (Porter, 1977).
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OIL AND GAS REVENUES
For oil and gas developments on state lands and in coastal waters within
three miles of shore, oil and gas production generates four types of
state revenues--bonuses, property taxes, royalties, and severance taxes.
Bonuses are initial lump sum payments for drilling and production rights
on state property. Bonuses are determined by the bids of oil companies
and reflect their assumptions about the present value of the field.
Inasmuch as all state-owned developments in the base case occur on tracts
already leased, no new bonuses are paid during the forecast period.
Property taxes are based on the value of real property in oil and gas
production, such as production and transportation facilities. Table 2.3
presents the amounts of property tax payments, assumed for the base case.
Property tax revenues begin to decline in 1985 because production at
Prudhoe and the value of the property begin to decline.
Royalties and severance taxes reflect the production value of a field.
Royalties are the state's share of production, which is fixed in the terms
of the lease. Severance taxes are taxes set by the state on the com-
panies' portion of production. Both royalties and severance taxes are
based on the wellhead value of oil and gas production on state properties,
where wellhead value is defined as refinery price less transport costs.
Thus, before estimating either royalties or severance taxes, it is neces-
sary to make several assumptions to determine the appropriate wellhead
values and production quantities on which taxes are levied. The oil and
19
TABLE 2.3. OIL AND GAS PROPERTY TAX PAYMENTS
-BASE CASE-
(Millions of Dollars)
Year Total
1977 122.0
1978 168.3
1979 170.6
1980 193.2
1981 226.7
1982 251.8
1983 257.0
1984 261.4
1985 295.9
1986 281.1
1987 267.0
1988 253.7
1989 241.0
1990 229.0
1991 217.5
1992 206.6
1993 196.3
1994 186.5
1995 177.2
1996 168.3
1997 159.9
1998 151.9
l YYY 144.3
2000 137.1
SOURCE: Alaska Department of Revenue, internal memorandum, December 1977.
20
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gas production totals from state lands and coastal waters assumed for the
base case are shown, by site, in Table B.7 in Appendix B. The assumed
wellhead values for North Slope oil and gas are presented in Table B.8 in
Appendix B.
Royalty payments are set at 12.5 percent of the wellhead value of oil and
gas produced on state property. Royalty payments for the base case are
presented, by site, in Table 2.4.
Severance taxes are set at a maximum of 12.25 percent of the wellhead
value of non-royalty oil and 10 percent of the wellhead value of non-
royalty gas. Base case estimates of severance tax revenues, by site, are
presented in Table 2.5.
STATE EXPENDITURE POLICY
Because of the central role of state and local government in the Alaska
economy and because the behavior of thP.sP. governmental units depends
largely on policy choices to be made over the next several years within
a framework far different from that of the past, the treatment of ex-
penditures by state and local governments is a central feature of any
development scenario to be considered.
Over the forecast period, state government will receive revenues from oil
development which far exceed current levels of expenditures. The rate at
which state government chooses to spend these revenues and the composi-
tion of these expenditures will serve to determine not only direct
21
employment in the government sector, but, through the multiplier effects
of such expenditure, will have impacts on all of the endogenous sectors,
affecting the growth of employment, incomes, and prices and also serving
to induce or retard new irmnigration into the state.
· Two factors determine the current framework in which state expenditure
policy will be determined. First, the revenues from the state will in-
crease tremendously with the completion of construction of the Trans-
Alaska Oil Pipeline. State revenues will be increased by both royalties
and severance taxes from the Prudhoe oil fields (see Tables 2.4 and 2.5).
Secondly, the establishment of the Permanent Fund will place new con-
straints oil the use of certain petroleum revenue. 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:
Section 15. ALASKA PERMANENT FUND. At least twenty-five per-
cent 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 pro-
ducing 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.
The establishment of the permanent fund removes a minimum amount of cer-
tain petroleum revenues from state spending.
These changes in the structure of state spending limit the usefulness of
past spending policies in determining the spending rules to be used.
22
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. Year
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 2.4. STATE ROYALTY REVENUES
-BASE CASE-
(Millions of Dollars}
Site
UEEer Cook Inletl
Prudhoe Bay and Vicinit~2
Gas Oil Gas Oi 1
4.0 36.0 .09 60.1
4.4 33.1 .13 210.0
5.4 31.3 • 15 368.5
6.9 29.5 . 16 439.7
8.3 27.9 .88 500.0
9.0 26.4 1.35 544.9
9.1 24.6 24.30 638.8
9.3 22.9 25.90 794.1
9.4 21.2 27.20 884.4
9.4 19.9 27.20 842.2
9.4 18.7 27.20 814.1
9.4 17.6 27.20 859.4
8.5 16.5 27.20 806.6
T.7 15.5 27.20 732.3
6.9 14.6 27.20 749.1
6.2 13.7 27.20 748.0
5.6 12.9 27.20 767.9
5.0 12.0 27.20 606.1
4.5 11.4 27.20 704.7
4.1 10.7 23.10 665.9
3.7 10.0 19.60 685.9
3.3 9.4 16.60 645.9
3.0 8.9 14.10 676.0
2.6 8.3 12.00 628.1
Total
100.2
247.6
405.4
476.3
537.1
581.7
696.8
852.2
942.2
898.7
869.4
913.6
858.8
782.7
797.8
795.1
813.6
650.3
747.8
703.8
719.2
675.2
702.0
651.0
1From 11 The Permanent Fund and the Growth of the Alaskan Economy 11
(Goldsmith, 1977}, Table C.3.
2Based on a rate of 10.5 percent of the wellhead value of production
until the $500 million is contributed to ANCSA, then a rate of 12.5 per-
cent of the wellhead value of production.
23
Year
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 2.5. STATE SEVERANCE TAX REVENUES
-BASE CASE-
(Millions of Dollars)
Site
Prudhoe Bay and
UEEer Cook Inlet
Gasl Oi12
Vicinitl
Gas3 Qi14
2.0 36.0 . 15 72.2
2.3 33.1 • 21 240.7
2.8 31.3 • 25 400.4
3.6 29.5 • 27 439.7
4.4 27.9 1.47 500.0
4.6 26.4 2.27 544.9
4.7 24.6 40.82 615.3
4.8 22.9 43.51 667.1
4.9 21.2 45.61 742.9
4.9 19.9 45.61 707.5
4.9 18.7 45.61 677.4
4.9 17.6 45.61 708.2
4.4 16.5 45.61 658.2
3.9 15.5 45.61 591.7
3.5 14.6 45.61 605.3
3.2 13.7 45.61 604.4
2.9 12.9 45.61 620.5
2.6 12.0 45.61 489.7
2.3 11.4 45.61 569.4
2.1 10.7 38.85 538.0
1.9 10.0 32.97 548.7
1.7 9.4 27.93 516.7
1.5 8.9 23.73 540.8
1.4 8.3 20.16 502.4
Total
110.4
276.3
434.8
473.1
533.8
578.2
685.4
738.3
814.6
777.9
746.6
776.3
724.7
656.7
669.0
666.9
681.9
549.9
628.7
589.7
593.6
555.7
574.9
532.3
lFrom 11 The Permanent Fund and the Growth of the Alaskan Economy ..
(Goldsmith, 1977), Table C.3.
2Author•s estimate assumed equal to royalties with inclusion of
federal revenue sharing from production of federal properties.
3Author•s estimate based on assumed gas severance tax of 6¢ per mcf.
4Author•s estimate based on assumed severance tax of 11.5 percent of
wellhead value to 1979 with it rises to 12 percent; after 1987 severance
tax is assumed to fall until it reaches 11.4 percent of wellhead value by
2000.
24
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However, examination of past spending provides some help in assessing a
general pattern of response of state spending to increased revenues. Be-
tween 1960 and 1977 total state expenditures increased from $37 million
to $893 million. The average annual growth rate in expenditures has been
25 percent after the receipt of Prudhoe Bay bonuses in 1969, while before
the sale the rate of increase was 17 percent. Extremes have ranged from 2
percent between 1963 and 1964 to 59 percent between 1970 and 1971 . The .
ratio of real per capita expenditures to real per capita income has also
experienced rapid increases. This ratio had increased to 12 percent by
1969. After the Prudhoe lease sale, the ratio increased to 20 percent
between 1969 and 1971. Since 1971 this ratio has remained close to 20
percent (Goldsmith, 1977). These spending patterns point to two possible
conclusions. First, expenditures increase dramatically in response to
large increases in revenues. Second, the level of real per capita
expenditures once raised tends to remain at the new higher level.
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 relationships. Rather, it must be deter-
mined by a hypothetical expenditure "rule" which captures both the short-
and long-run features of expenditure determination in the state. First,
in the short-run, the establishment of a permanent fund into which a
portion of royalty and bonus revenue will be deposited sets the framework
for an expenditure rule which sets current expenditures equal to total
revenues less permanent fund contributions. Under such a rule, the per-
manent fund contribution may vary between 25 percent and 100 percent of
25
royalties and bonuses, but even if the rate approached lOOpercent, the
increased petroleum revenues due to severance and property taxes from
Prudhoe Bay would result in substantial expenditure increases by the
late 1970s and early 1980s, inducing employment growth. To sustain the
levels of per capita expenditures implied by such a policy in the long-run
as petroleum resources are depleted, however, will require eventually
either the consumption of any accumulated balances or the imposition of
substantial new tax programs, or both. The expenditure rule utilized for
the present analysis attempts to capture both features of state expendi-
ture policy--a fixed savings rate as petroleum revenues grow and an adjust-
ment to such policy as revenues decline. As petroleum· revenues grow, it
is assumed that bonuses and 60 percent of royalties are deposited in the
permanent fund and that current expenditures equal the remainder of current
revenues. This represents a middle level of savings--between the extremes
of 25 percent and 100 percent. As petroleum revenues eventually decline,
it is assumed that the state maintains per capita expenditure levels by
gradually reducing the savings rate to zero and eventually consuming the
accumulated balance. Such a program would be sustainable into the early
2000s under the assumptions of the base case.
Local governments are more constrained by revenues than is the state
government. Local government expenditures are assumed to equal revenues
in most cases. The only exceptions are those governments in which some
petroleum property is located. Alaska Statutes, Section 29.53.04~, TAX
ON OIL AND GAS PRODUCTION AND PIPELINE limits the rate municipalities can
tax petroleum property to $1,500 for each resident. This rules is
26
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explicitly modeled for the North Slope Borough where it is assumed, based
on the short historical period, that 75 percent of these revenues are
spent on current expenditures.*
Admittedly, these expenditure rules are highly speculative, but they must
remain so to adequately reflect the extremely wide range of policy choices
open to state government as a consequence of new oil revenues. Rather
than attempt to predict a specific expenditure path, the methodology used
here is to assume this hypothetical path tentatively for the base case,
measure impacts of OCS development from this base case, then test the
sen~itivity of these impact measurements to variations in this somewhat
arbitrary expenditure pattern. This will be done in Chapter IV.
The Base Case
AGGREGATE INDICATORS
This section summarizes the growth of four aggregate indicators of eco-
nomic activity--population, employment, personal income, and state expen-
ditures--during the forecast period, 1977-2000. The 1977 levels in all
tables are projections and will not necessarily agree with actual levels.
They are shown in Table 2.6. Projections are based on average historical
relationships between the projected variable and important exogenous
variables. There are two reasons why projects in any year may differ from
the actual levels. First, estimates of the level of important exogenous
*During the course of this study, the borough and the state agreed on an
.alternative formula allowed under this statute. See Alaska Statutes,
Section 29.53.045{c).
27
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[
TABLE 2.6. AGGREGATE INDICATORS OF BASE CASE GROWTH [
STATE OF ALASKA
1977-2000 r
Total Total Personal .Total State [ Year PoEulation Em lo ent Income ExEenditures
. (Thousands Thousands (Millions (Mi 11 ions
of Persons) of Wage of $) of $) [ Earners)
19771 399,968 190,988 4,128.73 980.65 [ 1978 402,357 187,828 3,947.64 1,231.14
1979 419,124 198,614 4,522.77 1,335.50
1980 449,203 218,532 5,561.03 1,562.77 f'
1981 466,927 226,705 6,052.76 1,766.84 L.
1982 463,198 218,665 5,709.98 1,987.56
1983 470,099 221,273 6,009.95 2,218.53 r
1984 479,525 226,057 6,440.03 2,434.07 L,
1985 491,934 233,677 7,031.58 2,661.16
1986 500,022 237,789 7,506.67 2,803.24 [
1987 503,990 238,965 . 7,831.86 2,905.72
1988 504,373 237,918 8,066.80 2,983.78 r 1989 508,403 240,470 8,509.24 3,096.86
1990 512,526 243,351 9,008.42 3,215.68 L
1991 . 518,104 247,590 9,603.92 3,353.03 E 1992 522,414 250,882 ]0,186.70 3,483.52
1993 528,300 255,556 10,872.60 3,634.20
1994 533,322 259,544 ll ,56L30 3,782.37 lJ 1995 539,760 264,729 12,358.10 3,950.65
1996 545,167 269,062 13,151.70 4, 114.77 [ 1997 552,447 274,925 14,085.00 4,304.71
1998 558,855 280,025 15,026.30 4,493.02
1999 567,344 286,779 16,134.70 4,711.63
2000 575,574 293,209 17,289.00 4,935.70 lJ
[
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lProjected value may differ from actual 1977 estimate.
SOURCE: MAP Statewide Model [
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variables may differ from the actual levels. Second, the relation
between these variables may differ in any year from the historical
average. In using such models for making projections, it is assumed that
these relations, while they may not predict actual levels in any particu-
lar year, describe the general trend of future growth.
These indicators, shown in Table 2.6, illustrate economic growth
throughout the period 1977-2000, which is less rapid than recent Alaska
experience. Population growth averages approximately 1.6 percent
annually throughout the period. This is moderate population growth when
compared with the 6 percent annual population growth the state experienced
between 1970 and 1975 (Alaska Labor Department, 1970-1975). Between 1977
and 2000, the base case shows a growth of 175,606 in population. More
than half of this growth occurs before 1990.
The moderate rate of population growth can be attributed to a relatively
slow increase in employment. Total employment grows at an annual average
rate of 1.9 percent throughout the period. This rate is closer to that
of the entire country, which averaged approximately 1.5 percent per year
between 1955 and 1972, than to recent Alaska experience (U.S. Department
of Labor, 1975). During the period between 1970 and 1975, employment in
Alaska grew at a rate of 11.8 percent per year; between 1965 and 1970,
employment grew approximately 6 percent per year (Alaska Department of
Labor). In the base case, the state economy is importantly influenced by
two events, the construction of the gas line route from Prudhoe Bay in
1979 and the decrease in petroleum-related employment after it peaks in
29
1980. These two events influence employment growth through the early
part of the base.case period. Employment increases to a peak of 226,705
by 1981, then falls about 3.5 percent in the following year with the
winding down of the gas line project. It takes three years for the eco-
nomy to pass this 1981 employment peak. The growth during the gas line
construction period is more than a third of the total growth in employment
during the base period. After 1984 the growth in employment is at an
annual rate of 1.6 percent.
The level of personal income in the state determines the demand for goods
and services, which affects the level of overall economic activity. In
nominal dollars, which are not corrected for inflation, personal income
increases by a factor of four by the year 2000. On average, personal
income increases at a rate of approximately 6.4 percent a year throughout
the period.
The other major determinant of economic growth is state spending. Be-
cause of the state expenditure rule assumed, state expenditures are
governed by increases in state revenues. This is reflected by the rapid
increase in expenditures in the early portion of the study period as the
level of petroleum revenues increases. State expenditures increase at an
average annual rate of 9.6 percent between 1977 and 1990; this rate slows
to 4.4 percent annually for the remainder of the period. Nominal state
expenditures increase by $3.96 billion between 1977 and 2000; the effect
of inflation is to reduce the impact of these expenditures on the Alaska
economy.
30
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CAUSES OF GROWTH
The growth of the Alaska economy is influenced 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 the level of state spending. Economic growth is directly
affected by the employment created in the exogenous sector. The source
of this growth is external to the Alaska economy; the most obvious recent
example of this is the construction employment associated with construc-
tion of the Trans-Alaska Pipeline. The second major cause of growth is
an increase in real disposable personal income. Increases in real
disposable personal income increase the demand for goods and services
which is reflected by increases in employment in the state economy.
Personal income is affected by the growth of wage rates and the growth
in number of wage earners. Because of this relation, personal income
both affects and is affected by the growth of the economy. The third
major cause of growth is state expenditures. State expenditures affect
state growth in two ways-~through capital expenditures on projects such
as highways and ports, which increase the output of the construction in.:..
dustry, and through state government employment, which, because it in-
creases wages and salaries, leads to increased demand and employment.
Each of these forces has a period in the base case in which it is impor-
tant. Until 1982 growth of employment in the exogenous sectors of mining
and construction plays an important role. The construction of the Alcan
gas line and increased mining outside of Prudhoe Bay are important deter-
minants of economic growth. Between 1977 and 1986 state expenditures are
31
also expanding rapidly and importantly affect growth. After 1986 real
per capita state expenditures are maintained at a constant level~ The
increase in revenues is no longer sufficient to support increases in the
level of real per capita expenditures, so real state expenditures in-
crease only with increases in population. After 1986 the main cause of
growth is the continued expansion of personal income. The effects of each
of these will be described in the following section.
Characteristics of Growth
INCOME CHARACTERISTICS
Growth in personal income increases the demand for the goods and services
produced in the economy and is an important factor in determining the
growth of the Alaska economy. Throughout the base period, personal in-
come is projected to increase approximately four times, at an annual
average rate of over 6 percent. The full force of this growth in personal
income is not translated through to the economy because of two factors.
First, both federal and state taxes reduce the amount of income people
can spend. Second, rising price levels reduce the impact of an extra
dollar of income by reducing the amount of goods and services which it
can buy. Table 2.7 shows the increase in income-related variables.
Progressive federal and state income tax schedules are assumed throughout
the base period; taxes increase their share of personal income, from 23
percent to 28 percent, as personal income rises. This slight increase in
the tax take reduces the rate of growth in disposable personal income to
slightly below the rate of personal income. Price level increases are
32
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--~ ------------~----~~-------------------------------------~---~-----. ·-~-~~--------·--~-·--------·------
TABLE 2.7. BASE CASE INCOME VARIABLES
STATE OF ALASKA
1977-2000
Real Disposable
Disposable Real Disposable Personal Income
Year Personal Income Personal Income Per Capita
(Mi 11 ions of $) (Millions of $)
1977 1 3,347.62 1,323.03 3,307.83
1978 3,215.15 1,234.09 3,067.14
1979 3,663.80 1,350.42 3,222.01
1980 4,483.11 1 ,571. 33 3,498.04
1981 4,864.54 1,645.07 3,523.18
1982 4,616.80 1,532.92 3,309.43
1983 4,847.43 1,562.74 3,324.27
1984 5,191.75 1 ,621. 30 3,381.06
1985 5,662.76 1,707.73 3,471.45
1986 6,026.91 1,762.13 3,524.10.
1987 6,296.02 1,789.97 3,551. 61
1988 6,474.25 1,793.85 3,556.60
1989 6,832.09 1,838.45 3,616.13
1990 7 ,211. 29 1,883.95 3,675.80
1991 7,684.48 1,946.28 3,756.54
1992 8,125.40 1,997.35 3,823.30
1993 8,666.30 2,064.98 3,908.74
1994 9,185.54 2,122.95 3,980.63
1995 9,808.64 2' 196. 61 4,069.60
1996 10,404.40 2,259.50· 4,144.59
1997 11 '128.20 2,340.90 4,237.33
1998 11,832.10 2,412.31 4,316.52
1999 12,684.70 2,503.60 4,412.85
2000 13,544.30 2,588.93 4,497.99
1Projected value may differ from actual 1977 estimate.
SOURCE: MAP Statewide Model
33
more important in reducing the impact of personal income on growth. The
real price level rises at an annual average rate of 3.2 percent for the
period as a whole. Because of the slow growth in the Alaska economy,
this increase is mostly a reflection of U.S. price increases. The in-
crease in the price level has the effect of reducing the growth in dis-
posable real personal income to less than half the rate of growth of
disposable personal income. Real disposable personal income grows faster
than does population, so that real per capita disposable personal income-
grows at an average annual rate of 2.9 percent throughout the period.
Real disposable personal income (OPIR) increases with increases in the
average real income per worker and with increases in the number of workers.
Average real income per worker is substantially made up of wages and sal-
aries, so it reflects changes in the real wage rate. The real wage rate
is affected by changes in the general wage rate because of price changes
and overall changes in outside wages. The average real wage will also be
affected by changes in,the structure of employment; as high wage sectors
such as construction and petroleum, increase their proportion of employ-
ment, the average real wage will rise. Throughout the forecast period,
OPIR is affected by each of these factors.
Changes in the level of OPIR in the period 1977..;1981 illustrate the impor-
tance of the high wage exogenous sectors; growth of OPIR is importantly
affected by changes in the level of exogenous employment. OPI~ falls by
$89 million after 1977, when the TAPS line is completed. It rises at an
average rate of 5.6 percent per year between 1978 and 1981, primarily as
34
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a result of increases in exogenous employment. Because of the construc-
tion of the Alcan gas line, exogenous employment increases by about 8,000
during this period. The effect on DPIR is more than proportional because
these employees are-in the high wage construction sector. The effect of
these high wages can be seen by looking at real per capita disposable
personal income, which rises to a peak of $3,523 with the peak in gas
line employment. During this same period, increasing state expenditures
are leading to expansion of state employment and construction employment.
This effect maintains the growth in DPIR. After 1985 real state expendi-
tures are increasing at a rate equal to population growth, and exogenous
mining employment continues to fall; both of these have dampening effects
on the growth of DPIR, which grows at an annual rate of 2.6 percent during
the period 1985-1990. Exogenous mining employment stabilizes in 1990;
growth during the remainder of the forecast period is at an average rate
of 3.2 percent annually. Growth in DPIR is a result of increases in em-
ployment and the wage rate. This leads to growth in DPIR, which is
greater than proportional to increases in employment.
Real wage rates increase after 1990 as a result of increases in the U.S.
real wages. The U.S. labor markets affect the real wage rate in Alaska
because of the small size of the Alaska labor market and the mobility of
Alaska workers. These factors lead to outmigration as the equilibrating
factor, which maintains the relation between Alaska and U.S. real wages.
The slowing of the Alaska economy leads to outmigration and a reduction
in the supply of labor and not to a reduction in the relative Alaska
wage differential.
35
--~---·-~--~~~~~---~----------~---------------~----------·---··---------~---------~----------------------~----------
FISCAL CHARACTERISTICS
Revenues
Revenues, expenditures, and fund balances are shown in Table 2.8. Total
revenues rise throughout the base period until 1989, when they peak, then
fall by $55.59 million and begin to rise again. The rise in total reve-
nues is rapid throughout the 1980s because of the revenues generated from
the petroleum sector and interest earned on the unspent general and per-
manent fund balances. By 1986 petroleum revenues have peaked, and they
decline throughout the remainder of the period. After 1988 earnings
from the general fund also begin to decrease. Overall, revenues follow
two periods: prior to the peak in 1989, revenues grow at an annual
average of 9.3 percent a year; after this peak, they increase at less
than 1 percent annually.
The most important sources of revenue are non-petroleum taxes, petroleum
revenues, and interest from the fund balances. Taxes fall in the second
year of the base case with the completion of the TAPS line because of the
general decline in economic activity and the decline in personal income.
They rise to peak at $257.08 million prior to the end of the gas line con-
struction in 1981. After that, they grow approximately 5.6 percent each
year. These cycles associated with increases in high wage exogenous
sectors show the importance of fluctuations in personal income to taxes.
The composition of taxes changes slightly through the period, with per-
sonal income taxes averaging around 55 percent of total taxes throughout
and corporate taxes growing from 11 percent to 16 percent of total by
2000. Petroleum royalty revenues from oil and gas reach a peak in 1986
36
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TABLE 2.8. BASE CASE GROWTH OF THE FISCAL SECTOR
STATE OF ALASKA
1977-2000
(Millions of Dollars)
Total General Permanent Total
Year Revenues Fund Balance Fund Balance Ex~enditures
1977 1 1~133.54 695.948 42.99 980.65
1978 1~225.48 695.948 147.33 1 ~231. 14
1979 1~391.29 674.967 343.23 1~335.50
1980 1~693.45 674.968 607.74 1~562.77
1981 1~926.87 674.969 911.75 1~766.84
1982 2~ 177.69 674.967 1~247.40 1~987.56
1983 2~450.06 674.967 1~630.95 2~218.53
1984 2,738.78 674.967 2,095.65 2~434.07
1985 3~029.67 674.968 2~633.97 2~661. 16
1986 3~177.57 674.968 3~186.24 2~803.24
1987 3~180.16 603.385 3~716.67 2~905.72
1988 3~245.69 519.749 4~251. 57 2~983.78
1989 3~290.81 378.468 4~783.29 3~096.86
1990 3~235.22 109.545 5~275.73 3~215.68
1991 3~241.97 0.000 5~486.85 3~353.03
1992 3~316.03 0.000 5~ 540.21 3~483.52
1993 3~394.13 0.000 5~530.45 3~634.20
1994 3~330.05 0.000 5,317.78 3~782.37
1995 3,328.75 0.000 4~946. 10 3,950.65
1996 3,430.28 0.000 4,522.14 4,114.77
1997 3,455.98 0.000 3,945.86 4,304. 7l
1998 3,482.01 0.000 3,219.12 4,493.02
1999 3,518.72 0.000 2,324.17 4, 711.63
2000 3,551.04 0.000 1 ~251.49 4,935.70
1Projected value may differ from actual 1977 estimate.
SOURCE: MAP Statewide Model
37
as production in the Prudhoe area begins to decline. Petroleum revenues
make up a continually changing portion of total revenues, rising from 44
percent in 1977 to 63 percent at its peak and falling to 39 percent by
the end of the period. Revenues from the interest on the general and
permanent fund balances account for 11 percent of total revenues in 1990.
By the end of the period, they account for qnly 4.6 percent of revenues.
The decrease in this source of revenues results from the state drawing
down these balances to maintain state spending at the constant real per
capita levels. The state begins using the general fund in 1987 and the
permanent fund in 1993 as a source of funds. As revenues from fund
balance interest and petroleum decline, the increase in total revenues
comes as a result of increases in taxes and other revenues. Other reve-
nues include federal transfers and fees for state services, which increase
as the population of the state grows. {Appendix C shows a breakdown of
revenues and expenditures.)
Expenditures
Expenditures grow at an annual average growth rate of 13.3 percent prior
to 1986 and 4.1 percent between 1986 and 2000. The slowdown in expendi-
tures results from maintenance of constant real per capita expenditure
after 1985; this per capita level is maintained because revenue increases
are not fast enough to allow increases in real per capita expenditures.
Expenditures increase only with inflation and population after 1985.
Real per capita expenditures can be considered a measure of the level
of state services received by an individual. Real per capita state
38
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expenditures grow 69 percent until 1986, after which time they remain
constant. The proportion of state spending on capital is reduced about
one-third during the base period, from 30 percent of total expenditures
to 20 percent, although yearly capital expenditures increase more than
three times during the forecast period.
This growth in state expenditures repeats over a much longer period the
experience of the state after the Prudhoe Bay lease sale. Rapid increases
in revenues led to increases in expenditures; expenditures by the state
increased by 59 percent between 1969 and 1970. This Prudhoe Bay expe-
rience may provide an indication of how the state will expand services
in the future. Despite the rapid growth of expenditures during the his-
torical period, the functional distribution of expenditure remained
fairly stable. We may be able to infer that the state will continue to
distribute increased expenditure between the nine functional categories
(education, social services, health, natural resources, public protection,
justice, development, transportation, and general government) as in the
past (Goldsmith, 1977).
The increases in expenditure are of two types, providing additional
services and providing the same level of services to an increased popula-
tion. Increases in services occur only in the period prior to 1985. After
1985 expenditures increase only to provide the same level of services to a
bigger population. During the period between 1977 and 1985, per capita
real expenditures rise $662, which is a 68 percent increase in the level
of services. This rise is less than that experienced after the Prudhoe
39
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lease sale, when between 1969 and 1973 real per capita expenditures rose
118 percent (Goldsmith, 1977).
Balances
The expenditure policy pursued by the state in the base case forces the
state to draw down its fund balances before the end of the forecast
period. The general fund balance has been completely depleted by 1990,
and only $1.25 billion is left by 2000 in the permanent fund. This
remaining amount is only 23 percent of the peak of $5,540.21 million,
which was reached in 1992. This depletion of the funds results from the
policy of maintaining real per capita expenditures in the face of de-
clining revenues.
The decline in petroleum revenues after 1986 results in a reduction in
the rate of increase in total revenues. The general fund must be drawn
on after 1986 to maintain real per capita state expenditures. By 1991
expenditures are greater than revenues and the portion contributed to
the permanent fund is reduced. By 1992 the permanent fund must be drawn
down. This has implications for any future spending pattern the state
develops which is tied to petroleum revenues. The cyclical nature of
the petroleum revenues and their importance as a part of total state
revenues means that expenditure policies which are tied to revenues will
eventually lead to spending in excess of revenues. The massive jumps
in services cannot be supported by normal revenues, and fund balances
must be drawn on. Changes in the rate of spending out of increased
40
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revenues will only affect the timing of this occurrence, not its even-
tuality (Goldsmith, 1977).
EMPLOYMENT CHARACTERISTICS
Increased demand for industrial output results in the growth of Alaska
employment. Depending on the source, growth will affect employment dif-
ferently in different industries. The source of growth for exogenous
sectors is external to the Alaska economy, while the growth of the endo-
genous sectors is influenced by the state economy. For the endogenous
sectors, employment is determined from the demand for labor needed to
produce a desired level of output. The demand for output is a function
of real disposable personal income. Increases in the level of real
disposable personal income lead to increases in the demand for goods and
services, and this increased demand is translated into an increase in
the demand for labor to be used as a factor of production. The state
government sector influences employment in a different manner, which
should be highlighted. First, state capital expenditures directly
affect the output of the construction sector and the demand for labor.
in that sector. Second, the state spends directly on employment.
The Exogenous Sectors
Five sectors can be considered all or partly exogenous; they are mining,
manufacturing, federal government, construction, and agriculture, fish-
eries, and forestries. Construction is a mixed sector, with both exo-
genous and endogenous components. By the end of the base period, mining
has 93 fewer workers than at the beginning. Over the entire period,
41
mining rises to a peak of 6,548 workers in 1981, then drops as a result
of entering the production phase in various projects. Mining's share of
total employment drops from 2.4 percent in 1977 to 1.5 percent by 2000.
Manufacturing grows by approximately 4,600 workers in the period, which
is an increase of about 40 percent. Manufacturing's share of total em-
ployment drops from 6.7 percent in 1977 to 5.7 percent by 2000. The
level of federal government employment remains constant throughout the
base period. The level of total federal government employment in Alaska
has remained fairly constant in recent history because of decreases in
military, which balanced increases in civilian employment. Because of
this·, its share of employment falls by almost 8 percent, to 14.5 percent
of total employment by 2000. Agriculture, forestry, and fisheries grows
approximately 36 percent during the period; its share of total employment
falls by approximately .1 percent, to .65 percent of total employment.
Exogenous construction employment is associated with major resource de-
velopment projects. Major growth in this sector is limited to the early
years of the period. The last major year of TAPS construction is 1977;
exogenous construction employment drops from 5,775 in 1977 to 900 in 1978.
The construction of the Alcan gas line is the next major project. Alcan
construction begins in 1979, and employment increases to a peak of 9,000
by 1980. After 1981 and completion of the major Alcan work, exogenous
construction grows because of OCS development on the Northern Gulf and
Lower Cook Inlet but never reaches more than 1,000 employees.
42
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Total exogenous employment decreases in importance throughout the base
period. By 2000 the exogenous sector is approximately the same size as
in 1977, so its share of total employment has decreased. The exogenous
sector impacts the growth of employment in two ways, it directly adds
to employment and, by increasing the demand for local goods and services,
increases employment in the local serving sector. The decrease in exo-
genous employment during the 1980s has a dampening effect on the Alaska
economy. By 1990 the fall in exogenous construction and mining has
stopped, and these sectors remain stable. Two factors reduce the impact
of this on the economy. First, the dynamic nature of the state economy
means that one-time major increases in e,mployment will have long-term
effects. Changes in person~l incomes and population which occur during
impact periods affect growth beyond this period. Second, wage rate in-
creases throughout the period decrease the impact of the decline in em-
ployment and lead to increases in personal income with a stable employ-
ment level.
The State Government Sector
Growth of state and local government employment in the base case occurs
as a response to increases in state revenues. A part of increases in
state expenditures is reflected as increases in wages and salaries in
state government. The other determinant of state employment is the wage
rate. Once state wages and salaries expenditures are determined, the wage
rate determines the maximum amount of employment.
43
State and local government employment increases to a peak of 40,783 in
1985, which is a growth of 10,367 employees for an annual average rate
of growth of 3.7 percent. After 1985 real per capita state expenditures
are maintained at a constant level. After. 1985 state and local government
employment falls until in 2000 there are 35,394 employees, which is
approximately the same level as in 1981. This reduction in employment
can be explained as a reaction of the state government when faced with
rising real wages and a constraint on the increase in expenditures. The
decrease is much less rapid than the increase to the peak, with employ-
ment falling at an average of .9 percent a year after the peak in 1985.
The Endogenous Sector
The majority of growth in the Alaskan economy in the base case occurs
in the endogenous sector. Growth in this sector results because of in-
creased demand for goods and services. Increases in real disposable
personal income lead to increases in demand. As we have seen, real dis-
posable personal income increases consistently throughout the period. A
greater than proportional increase in endogenous employment is a typical
observation in small developing economies. The Alaskan economy throughout
the base period is still relatively small, and this growth in the endoge-
nous sector is a continuation of the trend observed throughout the recent
economic history of the state.
The fastest growing sectors of Alaska's economy are finance, services,
and trade. Each of these sectors grows at an annual average rate greater
than twice the rate of the whole economy. Trade employment increases to
44
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20.4 percent of total employment by 2000. Finance increases to 4.9 per-
cent and services to 19.3 percent in the same period. Comparison with
the national average and other similar states shows that Alaska is par-
ticularly underserved in trade and services. The U.S. average is 20
percent of employment in trade and 24 percent in services (U.S. Depart-
ment of Labor, 1977). The growth of these sectors results as Alaska
provides a more normal share of its own goods and services. Other en-
dogenous sectors also experience a healthy growth throughout the period.
Transportation increases 67 percent during the base period. Endogenous
construction grows at an annual average rate of approximately 3 percent.
Table 2.9 details employment growth and structural change by sector for
the base case. The differential industrial growth rates lead to changes
in the structure of the Alaska economy. Limited growth in the exogenous
sector has decreased its importance. Trade, services, and other local ser-
vice sectors which are growing in response to rising personal incomes
increase their importance.
Unemployment
Examining the rates of growth of total employment and population provides
an indication of the possible impact on unemployment of base case growth.
Throughout the base case period, population grows at an average annual
rate of 1.6 percent, while employment grows at 1.9 percent. This slight
difference in the rate of growth reduces the ratio of population to
employment from 2.09 in 1977 to 1.96 by the year 2000.
45
TABLE 2.9. BASE CASE STRUCTURE OF THE ALASKA ECONOMY
1980, 1990' 2000
1980 1990
# % # % #
Mining 6,094 2.8 4,471 1.8 4,471
Construction 22,869 10.5 17' 187 7.1 22,547
Manufacturing 13,831 6.3 16,370 6.7 16,662
Transportation 9,965 4.6 11,760 4.8 14,763
Trade 32,003 14.6 41,636 17.1 59,759
Finane~ 7,279 3.3 9,681 4.0 14,323
Service 28,476 13.0 37,575 15.4. 56,538
Agriculgure,
Fisheries,
Forestry 1,500 .7 1,700 .7 1,900
Federal
Government 42,500 19.4 42,500 17.5 42,500
State and
Local
Government 33,659 15.4 38,693 15.9 35,394
Other* 20,356 9.3 21,778 8.9 24,352
*Includes Public Utilities, Communication, and Other.
SOURCE: MAP Statewide Model
46
2000
%
1.5
7.7
5.7
5.0
20.4
4.9
19.3
.6
14.5
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This reduction in the population to employment ratio could be assumed to
infer a decrease in unemployment, since there will be fewer people per
available job. However, the historical period will not support this
conclusion. Table 2.10 shows that since 1970 the ratio of population
to employment has decreased with little real effect on unemployment.
However, this decrease was in a period of rapid growth connected with
the construction of the Trans-Alaska Pipeline. This period was one of
rapid growth in employment in which the labor force participation rate
also rose. In periods of lesser growth, as in the base case, the labor
force participation rates may go down. If this happens, a decrease in
the ratio of popu1ation to employment could mean a decrease in unemploy-
ment.
Seasonality
Employment seasonality is a traditional problem of the Alaskan economy.
Table 2.11 shows a measure of the seasonality of Alaska industry.
Seasonality is examined by looking at the difference in peak and low
month employment from the average. The farther the spread between high
and low months, the more seasonal is the industry. Highly seasonal in-
dustries in 1975 are mining and construction; government, trade, and
services are industries with low seasonal components. Seasonality de-
fined in this way has decreased since 1950. Two probable causes of the
reduction are changing technology, which allows production through all
seasons, and a changing industrial structure, which makes less seasonal
industries more important to the economy.
47
TABLE 2.10. HISTORICAL RATES OF POPULATION
TO EMPLOYMENT 1970-1975
STATE OF ALASKA
Civil ian PoEulation* Unemployment
Year Employment Population Employment Rate
1970 98,500 302,400 3.07 9.0
1971 103.800 311 ,000 2.99 10.4
1972 110,000 . 322,100 2.93 10.5
1973 115,600 330,400 2.86 10.7
1974 134,000 351,200 2.62 10.0
1975 164,100 404,600 2.47 8.1
*Differences from model results because employment in the model
includes military.
SOURCE: MAP Statewide Model
48
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TABLE 2. 11. ALASKA EMPLOYMENT SEASONALITY BY INDUSTRY
% of % of % of % of
1950 Average 1965 Average 1970 Average 1975 Average
Total high 55,400 1.320 81,500 1.156 103,400 1.119 182,000 1.128
low 30,500 .730 60,000 .851 82,400 .892 130,100 .807
average 41,800 70,500 92,400 161,300
Mining high 2,700 1.421 1,300 1.182 3,500 1.167 4,500 1.184
low 1,100 .579 700 .636 2,500 .833 3,300 .868
average 1,900 1,100 3,000 3,800
Construction high 9,700 1. 540 9,400 1.469 9,300 1.348 35,900 1.386
low 2,500 .397 3,500 .547 4,500 .652 12,800 .494
average 6,300 6,400 6,900 25,900
Manufacturing high 13,000 2.281 11,000 1.746 13,600 1.744 14,300 1.490
low 1,500 .263 3,700 .587 5,200 .667 6,300 .656
average 5,700 6,300 7,800 9,600
Transportation, Conmunication and
Public Utilities high 4,700 1. 270 8,200 1.139 10,000 1.099 18,200 1.103
~ low 2,900 .784 6,300 .875 8,400 .923 13,800 .836
1.0 ·average 3,700 7,200 9,100 16,500
Trade high 5,700 1.163 10,900 1.090 16,300 1.065 28,400 1.084
low 4,100 .837 8,900 .890 13,900 .908 22,500 .859
average 4,900 10,000 15,300 26,200
Finance, Insurance and
Real Estate high 500 1.250 2,300 1.045 3,500 1.129 6,700 1.117
low 400 1.000 2,000 .909 2,700 .871 5,100 .850
average 400 2,200 3,100 6,000
Services high 3,200 1.067 8,000 1.067 12,000 1.053 26,800 1.068
low 2,700 .900 6,700 .893 10,800 .947 21,400 .853
average 3,000 7,500 11,400 25,100
Government high 16,400 1.045 32,000 1.077 37,000 1.039 49,200 1.042
low 15,000 .955 27,900 .939 33,700 .947 44,300 .939
average 15,700 29,700 35,600 47,200
Miscellaneous high 300 1.500 200 2.000 400 2.000 2,000 2.000
low 100 .500 0 0.000 100 .050 300 .300
average 200 100 200 1,000
SOURCE: Alaska Department of Labor, "Alaska Labor Force Estimate by Area" annual and
"\-/orkforce Estimates for Alaska" annual.
The base case described above projects tremendous growth in services,
trade, finance, and transportation. These industries were, except for
government, the least seasonal in 1975. Because of this change in indus-
trial structure, it can be assumed that the seasonality of Alaska industry
will decline throughout the period regardless of changes in technology.
POPULATION CHARACTERISTICS
Population increases at an average annual rate of 1.6 percent during
the base case period. There are two distinct periods of population
growth. Population peaks with employment at 466,927 when ALCAN con-
struction peaks in 1981. Prior to 1981, there is an annual growth rate
of 3.9 percent per year. After this peak, population drops by almost
4,000 people and grows at an annual rate of 1.2 percent until 2000.
Population growth closely parallels the growth in employment. The state
experience since 1970 has been a much faster population growth; average
annual growth between 1970 and 1976 was 5.4 percent.
Population growth is a result of natural increase and migration. In the
recent past migration has been an important cause of growth. Population
growth is affected by outmigration in the forecast period; for over half
the period, there is outmigration. Migration is determined by the
relative economic opportunities available in Alaska. Changes in employ-
ment opportunities or the relative per capita income in Alaska will
affect migration. Small increases in employment result in net outmigra-
tion, since jobs are taken up by the natural increase in the Alaska labor
force. Migration in the early years of the forecast period is affected
50
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by changes in exogenous construction associated with the TAPS and Alcan
pipelines. Migration is as high as 5 percent of total population during
this period. After the completion of the Alcan, there is a short period
of net inmigration; growth in the state government sector and in the
local serving sector is primarily responsible. After 1985 when the rate
of growth in state expenditures is decreased and large decreases in
mining occur, the state experiences net outmigration until 1998. During
this period, outmigration is never a very large component of population
change; at its largest, migration is 1.5 percent of total population.
Migration has considerable effect on the age-sex distribution. Table
2.12 shows the changes in this distribution in three periods. The most
noticeable trend is toward a general aging of the population. By 2000
the proportion of the population in the age groups over forty have in-
creased. This increase is a result of the migration process. Migration,
which is economically determined, affects primarily the age groups less
than forty. Migration after forty is a response to other factors, such
as retirement and the high cost of living (Seiver, 1975). Because of
this, the outmigration during the forecast period affects the younger
age groups. Table 2.12 shows the importance of this effect on the age
structure. By 2000, the proportion of the population in the 40 and older
age group is 20 percent greater than in 1990, which may be considered a
more normal year than 1980. This trend actually brings the Alaska age
distribution closer to the national norm.
51
TABLE 2.12. AGE-SEX STRUCTURE OF THE POPULATION
BASE CASE
(% of total population)
1980 1990 2000
Ma 1 e--Fema 1 e Male--Female Ma 1 e--Fema 1 e
0 - 1
1.19 1.19 1.05 1. 06 1.02 1.02
1 -4 4.49 4.09 4.23 4.00 3.78 3.59
5 -9 4.75 4.20 5.14 4.95 4.64 4.47
10 -14 4.33 4.22 4.54 4.38 4.42 4.25
15 -19 4.93 4.10 4.04 3.82 4.27 3.97
20 -24 8.55 5.68 5.40 3.72 5.52 4.02
25 -29 6.01 ·. 5.24 4.36 3.73 3.68 3.45
30 -34 4.67 4.49 4.57 4.08 3.40 3.26
35 -39 3.61 3.22 4.45 3.79 3.56 3.12
40 -44 2.54 2. 41 3.62 3.35 3.42 3.15
45 -49 2.04 1.84 2.81 2.64 3.19 2.94
50 -54 1.78 1.57 2.18 2.09 2.80 2.65
55 -59 1.49 1. 31 1.69 1.64 2.25 2.22
60 -64 1.19 1.06 1.35 1.34 1. 75 1.83
65 + 1.97 1.84 2.84 3.14 3.70 4.66
SOURCE: MAP Statewide Model
52
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Native population increases at an annual average rate of about 2 percent.
This rate reflects natural rates of increase from the historical period.
This is slightly larger than historical rates of growth found by Rogers
between 1960 and 1970; according to the Census between 1960 and 1970~ the
average annual growth rate was 1.8 percent (Rogers, 1971). Because Native
population is growing faster than total population, it increases from 17
percent of total population in 1977 to 19 percent in 2000. Table 2.13
details the population characteristics of growth.
Growth of the Regional Economies
State economic growth does not occur uniformly throughout the state but
varies by region. Regional growth depends on the factors causing growth.
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. Regions will also be influenced
by other factors; most importantly, the increase in state revenues and ex-
penditures will lead to growth in regions which do not include exogenous
growth. Changes in wage rates which result from employment growth will
53
TABLE 2.13 BASE CASE GROWTH OF THE ALASKAN POPULATION
1977 -2000
Year Total Po~ulation Net Migration Native Po~ulation
19771 399,968 -25,997 67,917
1978 402,357 -5,456 69,275
1979 419,124 9,277 70,661
1980 449,203 22' 177 72,074
1981 466,927 8,780 73,515
1982 . 463,198 -12,983 74,985
1983 470,099 -1,553 76,485
1984 479,525 1,148 78,015
1985 491,935 4,159 79,575
1986 500,022 -293 81 '166
1987 503,990 -4,329 82,790
1988 504,373 -7,641 84,446
1989 508,403 -3,581 86,134
1990 512,526 -3,316 87,857
1991 518,104 -1 '727 89,614
1992 522,414. -2,962 91,406
1993 528,300 -1,307 93,234
1994 533,322 -2,193 95,099
1995 539,760 -763 97,001
1996 545,167 -1,863 98,941
. 1997 552,447 ..;4 100,920
1998 588,855 -989 102,939
1999 567,344 1,032 104,997
2000 575,574 613 107,097
lProjected value may differ from actual 1977 estimate.
SOURCE: Map Statewide Model
54
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lead to increased personal income in a region not directly affected by
exogenous growth. Growth in regional centers, such as Anchorage and
Fairbanks, is also influenced by growth in other regions of the state.
The economies of Alaskan regions are not independent, but are interde-
pendent. 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 distrib-
ute 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 relation to its population. However, govern-
ment centers such as Anchorage and Juheau receive a greater than proper-
tionate share of state expenditures because of the administrative and
headquarters functions they serve. Second, changes in state wage rates
wi 11 affect growth in the regions. Increases in wage rates increase
personal incomes in each region and the demand for goods and services in
each region. Wage rate increases throughout the state can result from
rapid increases in construction employment in one 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 adminis-
trative center of the state, is the most obvious example of this, al-
though smaller centers such as Fairbanks also experience this type of
relation. Finally, migration between regions illustrates interaction of
55
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.
This section will describe the distribution of state growth in the base
case between three regions of the state--the North Slope Borough, Anchorage,
and Fairbanks. Anchorage is the largest urban center in the state which
serves as the financial, administrative, and distribution center for most
of the state. Because of this role, growth in most of the state is re-
flected in growth in Anchorage. Fairbanks is a smaller regional center
which recently experienced tremendous growth because of its role as
operations center for the pipeline. The North Slope region is basically
rural but is unique because of the tremendous petroleum activity which
occurs within its boundaries •. Petroleum activity at Pruchoe Bay, National
Petroleum Reserve, and possible activity in_ the Arctic Wildlife Refuge and
the Beaufort Sea all occur within the borough boundaries.
ANCHORAGE
Employment
Employment in Anchorage more than doubles during the base period, in-
creasing from 82,752 in 1977 to 168,310 by 2000. Rapid growth is expe-
rienced during the construction of the ALCAN gas line; from 1978 until
1981 when the peak employment on the ALCAN is reached, the average annual
growth of total employment is 5.7 percent, which is almost twice the
average annual growth rate for the whole forecast period. Direct Alcan
56
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employment is only 626 at its Anchorage peak in 1980; this is only .7
percent of the total Anchorage employment.
Growth in Anchorage is a result of increasing personal income and in-
creasing demand for local products. Throughout the base period, growth
of employment in Anchorage averages 3.1 percent per year. This is more
than a percent higher than the growth of state employment. Because
Anchorage is growing faster than the rest of the state, employment is
being concentrated in the state's main metropolitan center. The scale
of the Anchorage economy and its role as the financial, distributional,
and administrative center for the rest of the state account for both the
continued concentration of the state's employment in Anchorage and the
healthy growth Anchorage maintains in a period of only moderate growth
for the remainder of the state. Because of its size, more of the demands
for goods and services can be met in Anchorage. This means that greater
growth results from equal increases in personal income than in the smaller
regions of the state. Anchorage's role as the financial, distributional,
and administrative center of the state means that this region will provide
goods and services to other regions of the state. Increases in personal
income in other regions will, therefore, lead to increased demand for
goods and services in Anchorage and growth in Anchorage. Because of this
function, growth in the rest of the state leads to growth in Anchorage.
These two effects account for the faster growth in Anchorage. Tables 2.14
and 2.15 summarize the changes in Anchorage employment.
57
TABLE 2.14. BASE CASE GROWTH OF
ANCHORAGE ECONOMY
1977 -2000
Total Personal
Year Population Employment Income
{millions
of $)
1977 1 169,704 82,752 1,568.56
1978 178,166 83,200 1,626.21
1979 -183,832 86,742 1,790.62
. 1980 194,636 94,178 2,093.61
1981 205,468 98,363 2,308.42
1982 212,561 97,299 2,350.92
1983 218,881 99,726 2,520.34
1984 226,590 102,963 2,730.33
1985 234,393 106,942 2,986.72
1986 240,447 109,817 3,212.04
1987 244,764 111 ,484 3,395.37
1988 246,582 112,553 3,560.22
1989 250,617 114,733 3,787.27
1990 254,910 117,490 4,050.72
1991 260,327 120,833 4,360.86
1992 265,097 124,059 4,676.54
1993 271,092 128,139 5,055.18
1994 276,490 132,138 5,445.28
1995 283,070 136,744 5,891. 92
1996 289,277 141,555 6,369.37
1997 296,892 .147,193 6,923.64
1998 304,282 153,216 7,525.87
1999 313,361 160,346 8,233.04
2000 322,608 168,310 9,026.04
1Projected value may differ from actual 1977 estimate.
SOURCE: MAP Regional Model
58
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TABLE 2.15. STRUCTURE OF THE ANCHORAGE ECONOMY
-BASE CASE -
1980, 1990, 2000
1980 1990 2000
# % 1 % #-%
Mining 1,009 1.1 1,009 .9 1,009 .6
Construction 5,971 6.3 7 '1 01 6.0 10,392 6.2
Manufacturing 1,895 2.0 2,100 1.8 2,100 1.2
Transportation 5 '182 5.5 5,896 5.0 8,772 5.2
Trade 18,733 19.9 25,511 21.7 41,490 24.7
Finance 4,405 4.7 7,013 6.0 13,084 7.8
Service 14,416 15.3 23,598 20.1 45,847 27.2
State & Local Govt. 11,981 12.7 13,882 11.8 12,738 7.6
Federal Govt. 22 '100 23.5 22 '1 00 18.8 22,100 13. 1
Other* 8,486 9.0 9,280 7.9 10,778 6.4
*Includes Agriculture, Communications, Public Utilities, and Other.
SOURCE: MAP Regional Model
59
The fastest growing sectors in the Anchorage economy are services and
finance. The service sector grows at an annual average rate of 6.2 per-
cent throughout the period, while finance grows at a rate of 5.8 percent.
As in the state, the endogenous sector in Anchorage experiences the most
rapid growth; this is accentuated in Anchorage, because it provides many
of the services associated with the finance, trade, service, and transpor-
tation sectors for the rest of the state. Employment in the transporta-
tion sector more than doubles during the base period in Anchorage, as
does trade sector employment.
State and local government employment follows the same pattern in Anchorage
as in the rest of the state. Employment rises rapidly until 1985, aver-
aging 4.0 percent per year, after which it begins to fall. The fall in
employment is a result of the slowdown in the growth of state expenditures
which results from the tightening of revenues in the later years of the
period. The reduction in state and local government employment is at a
much slower rate than its growth, averaging less than 1 percent a year.
The reduction in employment does not necessarily reduce the impact of
state expenditures on the local economy, since wage rates increase
throughout the period.
The structure of the Anchorage economy has prevented seasonality from
becoming as important a problem in Anchorage as in the remainder of the
state. Peak employment was only 7 percent greater than the annual aver-
age in 1970 and 9 percent greater in 1975. The importance of trade,
services, and finance in the Anchorage economy is responsible for this.
60
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Since the base case projects an increase in the importance of these
industries, seasonality can be expected to remain a small problem in the
Anchorage economy.
Population
During the base period, population growth is, like employment growth,
centered in Anchorage. Anchorage increases its share of total state popu-
lation from 42 percent in 1977 to 56 percent in 2000. Anchorage popula-
tion ·grows smoothly throughout the period. Prior to 1990, the growth
rate in Anchorage is an annual average of 3.3 percent a year. This falls
to 2.4 percent after 1990, but population continues to rise throughout
the period. Because Anchorage growth results primarily from the expan-
sion in the support sector, it is not subject to major fluctuations in
population as are the other regions. Anchorage population growth is
shown in Table 2.14. ·
Personal Income
Changes in personal income in a region are as important to its economic
growth as changes in state spending and exogenous employment. Increases
in personal income lead to increases in demand and to increased employ-
ment. Anchorage experiences the fastest growth in personal income of
any region. Personal income grows at an annualaverage rate of 8.1 per-
cent throughout the period. Table 2.14 shows the growth in personal
income.
61
THE NORTH SLOPE
Employment
Total employment in the North Slope region experiences considerable fluc-
tuation during the base period. Total employment falls in 1978 with the
completion of the TAPS line. From 1978 to 1981 employment increases by
3,841 as a result of increases in construction employment related to the
Alcan line and increases in mining employment on state leases near Prudhoe
Bay. Reductions in employment at Prudhoe Bay and on the Alcan result in
a drop of employment, from 8,879 in 1981 to 5,644 by 1983. Employment at
other Prudhoe fields increases until 1986, when they account for the major-
ity of the mining employment in the North Slope. After 1990 the economy
continues to grow with a stable exogenous sector. Employment increases
at an average rate of 2.7 per year after 1990. The North Slope economy
is effectively two sectors, a local economy and an enclave petroleum eco-
nomy. Although some enclave sector jobs are 1n transportation and non-
pipeline construction, the percentage of total employment in mining and
pipeline construction gives some indication of the distribution between
local sector and enclave sector jobs. Over one-third of the jobs in the
borough are connected with the enclave sector in the early part of the
period. Once employment levels in this sector stabilize, its share of
total borough employment is reduced. By 2000 enclave employment accounts
for only 19 percent of the borough total.
A second major influence on the growth of employment in the North Slope
is expenditures by the borough. Borough expenditures take two forms--
capital expenditures and current expenditures. Capital expenditures are
62
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assumed to remain at the levels shown in Table 2.16. The levels assumed
are intermediate between those suggested in the borough's 1977 CIP (North
Slope Borough, 1977) and the CIP which could be undertaken if 25 percent
of the borough's revenues were spent on the CIP. The Capital Improvement
Program maintains employment at 127 until the 1977 program is completed
in 1990. After this, CIP-related employment drops to that which could be
financed by 25 percent of the borough's revenues. Current expenditures
by the borough provide a direct link between the production at Prudhoe Bay
and the local economy. According to state law (Alaska Statutes, Section
29.53.045), the borough is allowed to tax oil-related property at a rate
of $1500 for each person in theborough.* Increased employment at Prudhoe
Bay increases the borough's population, and this increases its revenues.
Increased revenues lead to greater expenditure on local government employ-
ment.
As on the state level, wage rates in the state and local government s~c
tor are influenced by wage rate changes outside the region. Increases in
the wage rate lead to decreased employment in the state and local govern-
ment sector even with increased expenditure on employment. State and
local government employment increases to a peak of 855 in 1983 and de-
creases during the remainder of the period. Decreases are a result of
increases in revenues and expenditures at both the state and local govern-
ment not keeping up with wage rate increases.
*During the course of this study, the borough and the state agreed on an
alternative formula allowed under this statute. See Alaska Statutes,
Section 29.53.045(c).
63
TABLE 2.16. ASSUMED CAPITAL IMPROVEMENT PROGRAM
OF THE NORTH SLOPE BOROUGH
CIP Average Annual
Year ExEenditure CIP EmEloyment
1977 $4,730,000 ' 70
1978 8,540,000 127
1979 8,540,000 127
1980 8,540,000 127
1981 8,540,000 127
1982 8,540,000 127
1983 8,540,000 127
1984 8,540,000 127
1985 8,540,000 127
1986 8;540,000 127
1987 8,540,000 127
1988 8,540,000 127
1989 5,921,000 88
1990 3,124,000 47
1991 3,189,000 48
1992 3,257,000 49
1993 3,326,000 50
1994 3,398,000 51
1995 3,472,000 52
1996 3,548,000 53
1997 3,626,000 54
1998 3,707,000 55
1999 3,789,000 56
2000 3,875,000 58
SOURCE: Estimated from North Slope Borough, Capital Improvement Program,
1977.
64
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Total employment by 2000 is 50 percent higher than it was in 1978 after
completion of the Trans-Alaska Pipeline. North Slope total employment
experiences two peaks during the base period, one in 1981 resulting from
construction of the gas line and a second smaller peak in 1986 which
results from increased petroleum activity on other state leases near
Prudhoe Bay. At each of these peaks, mining and pipeline construction em-
ployment are approximately 40 percent of the borough total. Total employ-
ment falls until 1990, when exogenous employment stabilizes at 1,414.
After 1990 total employment grows at an annual average rate of 2.7 percent
per year as a result of income increases in the local economy.
The fastest growing industrial sector in the North Slope is transportation
which more than doubles during the period. Transportation serves both the
exogenous sector and the local economy. Since most goods are imported in-
to the region, increased demand for goods resulting from increasing incomes
leads to increased demand for transportation services. Finance and services
increase by about 60 percent in the base period. The trade sector grows
slightly faster than total employment; it grows about 52 percent over the
base period. The expansion of these sectors is a response to increases
in incomes in the region. The expansion of the local support sector is
an expected trend in the growth of a small region. Tables 2.17 and 2.18
detail the employment growth and structural change in the regional economy.
Between 1970 and 1975, the seasonality in the North Slope was importantly
reduced. Peak employment in 1970 was 44 percent greater than the annual
average, while in 1975 it was only 17 percent greater. Measured by these
65
TABLE 2.17. BASE CASE GROWTH OF
NORTH SLOPE ECONOMY
1977 -2000
Total Personal
Year Population Employment Income
(mi 11 ions
of $}
1977 1 9,322 6,489 285.891
1978 7' 168 5,036 195.759
1979 8,515 6,605 292.150
1980 9,979 8,307 422.479
1981 10,678 8,878 476.940
1982 8,384 6,754 334.252
1983 . 8,190 6,743 345.954
1984 . 8,251 6,906 375.278
1985 8,273 7,042 406.686
1986 8,477 7,256 442.805
1987 8,258 7,013 440.614
1988 7,286 6,066 383.678
1989 7,079 5,785 377.085
1990 7' 110 5,768 392.798
1991 7,300 5,902 426.389
1992 7,448 6,015 458.188
1993 7,641 6,181 499.886
1994 7,796 6,321 539.225
1995 7,983 6,483 583.955
1996 8,157 6,650 631.854
1997 8,365 6,843 686.665
1998 8,561 7,045 745.823
1999 8,795 7,278. 813.812
2000 9,020 7,532 888.973
1Projected value may differ from actual 1977 estimate.
SOURCE: MAP Regional Model
66
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TABLE 2.18 STRUCTURE OF THE NORTH SLOPE ECONOMY
-BASE CASE -
1980, 1990, 2000
1980 1990 2000 #-% # % #-%
Mining 1,759 21.2 1,414 24.5 1,414 18.8
Construction 3,857 46.4 1,492 25.9 2,783 36.9
Transportation 341 4.1 384 6.7 610 8.1
Trade 164 2.0 180 3.1 230 3.1
Finance 79 0.9 83 1.4 112 1.5
Service 536 6.5 584 9.5 757 10.0
State & Local Govt. 714 8.6 789 13.7 711 9.4
Federal Govt. 425 5. 1 425 7.4 425 5.6
Other* 433 5.2 418 7.2 491 6.5
*Includes Communications, Public Utilities, and Other.
SOURCE: MAP Regional Model
67
peaks, seasonality was greater than in the state as a whole. One impor-
tant reason for this is the growth of government employment which is
less seasonal than employment in other sectors. In the base case, the
local support sector is projected to grow in importance. Because this
sector is less seasonal, seasonality should be reduced even more.
Population
In the North Slope, population decreases and increases dramatically with
changes in the exogenous employment associated with natural resource
development. Population in the North Slope increases to a peak of 10,678
with construction of the Alcan and falls, then rises to 8,477 in 1986
with increases in mining employment. By 1990 exogenous employment has
reached a plateau which it maintains throughout the remainder of the
period. After this period, population increases at an annual rate·of
2.2 percent a year. Employment in the enclave sector (mining and pipe-
line construction) merely works in the borough but does not require
services. The enclave population is 23 percent of the total in 1977; by
1981 when population peaks at 10,678, the enclave sector accounts for 34
percent of total population. At the end of the period in 2000, after
ten years of stable enclave sector employment, enclave population accounts
for 16 percent of total population. The share of the state population
in the North Slope falls from 2.3 percent in 1977 to 1.6 percent by 2000
(see Table 2.17).
68
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Personal Income
Personal income in the North Slope grows at an average rate of 7.1 per-
cent per year. This growth is significantly influenced by the growth of
the enclave sector. Prior to 1990, personal income on the North Slope
rises and falls with changes in the level of exogenous employment.
After 1990 when North Slope exogenous employment stabilizes, personal
income grows at an average rate of 8.5 percent per year (see Table 2.17).
FAIRBANKS
Employment
Total employment increases only slightly throughout the base period;
total employment increases by only 3,520 between 1977 and 2000. The most
important factors affecting the growth of Fairbanks are changes in the
exogenous sector of the economy. Employment falls in the first year of
the base period from 33,867 in 1977 to 28,347 in 1978. This fall is a
result of the completion of the Trans-Alaska Pipeline construction. Em-
ployment rises about 10,000 in the next two years because construction of
the Alcan gas line begins in 1979. With the completion of this construc-
tion, total employment falls by about 8,400, which is more than twice the
drop in direct construction employment of 3,191. After 1983 the Fairbanks
economy begins to grow; throughout the remainder of the period employment
grows at an average rate of 1.05 percent per year. Growth in state and
local government expenditures and personal income are responsible for this
growth.
69
Like Anchorage and the North Slope, Fairbanks experiences an increase during
the period of the local support sector. After the completion of the Alcan
line, employment in transportation, services, finance, and trade all in-
crease at more than twice the rate of growth of total employment. As in
the North Slope, the fastest growing sector is transportation. Employment
in transportation increases at an annual average rate of 3 percent afte·r
the end of the gas line construction. As incomes increase in small regions,
the demand for goods and services cannot be fully met within the region,
which results in an increased demand for transportation to import goods
and services. This explains the different structural changes in the small
regions, Fairbanks and the North Slope, and the larger region, Anchorage.
In larger regions, more of the increased demand for goods and services
can be met within the region. Tables 2.19 and 2.20 detail changes in
employment in the Fairbanks region.
The importance of trans-Alaska pipeline construction in Fairbanks in 1975
led to an increase in the seasonality of employment from 1970. In 1970
employment in Fairbanks in the peak month was 6 percent greater than the
annual average. In 1975 peak employment was 15 percent greater. Because
the TAPS project is not typical, it can be assumed that seasonality is less
of a problem in Fairbanks than in the remainder of the state. The local
support sector, which is not as seasonal as construction, will increase
in the base case. This will reduce the importance of seasonality.
70
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TABLE 2. 19. BASE CASE GROWTH OF
FAIRBANKS ECONOMY
1977 -2000
Total Personal
·Year Population Employment Income
(mi 11 ions
of $}
1977 1 70,015 33,867 811.354
1978 61,549 28,346 607.406
1979 68,212 32,081 766.243
1980 81,159 39,790 1 ,099. 960.
1981 81,018 39,238 1,128.070
1982 67,337 30,804 812.263
1983 67,734 30,797 843.960
1984 69,126 31,359 905.077
1985 70,234 32,000 975.649
1986 70,944 32,385 1,036.940
1987 71 ,416 32,564 1,085.760
1988 70,753 32,433 1 '119. 580
1989 70,670 32,574 1 '174. 080
1990 70,636 32,835 1,239.070
1991 70' 717 33,153 1,313.340
1992 70,638 33,431 1,386.890
1993 70,651 33,804 1,472.240
1994 70,509 34,137 1,557.430
1995 70,500 34,525 1,651.970
1996 70,315 34,898 1 '749. 180
1997 70,243 35,333 1 ,857. 590
1998 69,992 35,761 1,970.030
1999 69,831 36,256 2,095.590
2000 69,474 36,763 2,228.010
1Projected value may not agree with actual 1977 estimates.
SOURCE: MAP Regional Model
71
TABLE 2.20. STRUCTURE OF THE FAIRBANKS ECONOMY
-BASE CASE -
1980' 1990' 2000
1980 1990 2000
# % # % # %
Mining 309 .8 309 .9 309 .8
Construction 5,828 14.6 1,678 5.1 1 ,816 4.9
Manufacturing 635 1.6 712 2.2 712 1.9
Transportation 2,216 5.6 1,816 5.5 2,553 6.9
Trade 6,985 17.6 5,505 16.8 7,117 19.4
Finance 1,384 3.5 1,169 3.6 1,560 4.2
Service 5,486 13.8 4,014 12.2 5,309 14.4
State & Local Govt. 5,143 12.9 5,700 17.4 5,139 14.0
Federal Govt. 8,713 21.9 8,713 26.5 8,713 23.7
Other* 3,091 7.8 3,219 9.8 3,535 9.6
*Includes Agriculture, Communications, Public Utilities, and Other.
SOURCE: MAP Regional Model
72
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Population
As indicated in Table 2.19, the population of Fairbanks is also impor-
tantly influenced by exogenous employment. Fairbanks• population in-
creases to a peak of 81,159 with Alcan construction, then drops to
67,338, which is an increase of 9.4 percent over the low point following
the construction of the TAPS line. After 1982 population increases at
a rate of 1.2 percent a year until 1987, at which time it begins to fall.
Over the remaining thirteen years in the base period, population falls
by approximately 2,000 people. This fall in population is a result of
faster growth in other regions, which attracts Fairbanks residents.
Personal Income
During the base period, personal income in Fairbanks grows at a rate
of 6.1 percent per year. Personal income falls with the end of the
Alcan construction in 1981. After 1981 personal income grows at an
average rate of 5.8 percent per year (see Table 2.19}.
73
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III. THE IMPACTS OF OFFSHORE DEVELOPMENT
IN THE BEAUFORT SEA
In order to capture the important dimensions of the uncertainty surround-
ing oil and gas development in the Beaufort Sea, the development patterns
implied by four alternative resource discovery scenarios were examined
and contrasted with the base case projections presented above. The sce-
narios were designed to capture differences in resource quantities,
transport requirements, technology, and resource ownership, all of which
will affect the impacts of any developments which actually occur. This
section examines the assumptions which form the basis of the scenarios to
be examined and the next section presents the economic impacts implied by
each of these scenarios.
The Development Scenarios
Four offshore development scenarios were examined, based o·n geological,
technical, and employment data prepared by Dames and Moore (Dames and
Moore, 1978}. Three of these scenarios describe development associated
with the joint federal/state lease sale tentatively scheduled for 1979.
A fourth development scenario describes activities associated with a
currently unscheduled federal lease sale in the area of Cape Halkett, west
of Prudhoe Bay. In this part, we outline the major assumptions contained
in each of these scenarios.
ASSUMPTIONS COMMON TO ALL SCENARlOS
Five assumptions are incorporated into all four development scenarios:
75
First, it is assumed that any discoveries falling on properties whose
ownership is currently in dispute will eventually fall under federal,
rather than state, jurisdiction.
Second, it is assumed that all tracts leased in the joint federal/state
sale will be leased according to a conventional scheme of bonus bidding
with fixed royalty rates. The total bonus bid in the joint federal/
state sale is assumed to be $500 million, half of which goes to the
state. The royalty rate is assumed fixed at the federal rate of l/6 of
~ellhead value for all tracts, both federal and state.
Third, it is assumed that any discoveries of oil and gas on state-owned
properties will be subject to state production taxes at current rates.
Fourth, it is assumed that the state government spends incremental reve-
nues from offshore development according to the same expenditure rule
assumed in the base case.
Finally, it is assumed that all oil and gas production from the Beaufort
Sea area is transported via the TAPS and ALCAN pipelines rather than by
new pipelines or alternate modes such as ice breaking tankers.
Obviously, these assumptions are highly speculative. The state may win
its jurisdictional dispute with the federal government, alternative
leasing schemes such as royalty bidding are a distinct possibility, and
the production tax rate may well vary over time. The state's adjustment
76
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to changes in its fiscal position may differ from the process assumed
here, and alternative transport modes have been suggested as feasible.
As in the selection of a base case, the measured impacts are not insen-
sitive to these variations from our assumptions, and the effects of such
variations are taken up in the sensitivity analysis in Chapter IV.
SCENARIO SPECIFIC ASSUMPTIONS
Each development scenario consists of four sets of related assumptions
which describe a consistent development plan for each of the selected
areas. The first set of assumptions describes the estimated levels of
recoverable resources at each site. The second set of assumptions con-
sists of the direct employment requirements implied by a set of activi-
ties designed to explore, develop, and eventually bring the field into
production. The third set of assumptions relates to the timetable of
resource production implied by the development plan at each site.
Finally, a fourth set of assumptions describes the direct effects of the
development on state petroleum revenues.
Four scenarios were examined. The first three represent activities sur-
rounding the development of fields in the area of the joint federal/state
lease sale. Of these, two scenarios describe development of an offshore
field north of the existing onshore discoveries at Prudhoe Bay. The
first of these represents a high level of resource discovery and the
second a much smaller discovery. A third scenario describes the develop-
ment of a field offshore in the Camden Bay area to the east of Prudhoe,
also within the area of the joint sale. A fourth scenario describes
77
activities associated with the sale of tracts in a federal lease sale in
the Cape Halkett area west of Prudhoe, assumed to be held in 1984.
We now turn to the specific assumptions characterizing each of these
scenarios.
Offshore Prudhoe Bay (High Discovery Case)
The first Prudhoe scenario examined represents activity surrounding dis-
coveries on tracts leased in the joint federal/state sale, assumed held
in 1979. As shown in Table 3.1, it is assumed that 1.9 billion barrels
of oil and 4.75 trillion cubic feet of gas are discovered.
Exploration activity in this scenario begins in-1979, with facility con-
struction commencing one year later. Construction employment peaks at
over 1600 workers by 1986 but drops sharply in 1988 to a nominal crew of
5 workers as production commences. As construction declines, petroleum
employment in development and production activities peak at over 1200 in
1988, gradually declining to a permanent production work force of 935.
Over 800 of this permanent work force is located in the North Slope
Borough, with a small contingent of administrative personnel gradually
expanding in Anchorage as the development proceeds. The full schedule
of direct employment requirements implied by this scenario, by industry
and region, is presented in Table 3.2.
78
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TABLE 3.1. ASSUMED RECOVERABLE RESERVE LEVELS
Scenario Oil Gas
(Bill ion (Trillion
Barrels) Cubic Ft.)
Prudhoe (High) 1.9 4.75
Prudhoe (Low) 0.8 1.6
Camden-Canning 1.3 3.25
Cape Halkett 0.8 0
SOURCE: Dames and Moore, 1978
79
ex:>
0
TABLE 3.2.
Petroleum Sector
Year Region 1
19791 60
1980 108
1981 92
1982 33
19832 33
1984 33
1985 16
1986 165
1987 3 264
1988 1096
1989 1096
1990 1096
1991 1096
1992 976
1993 936
1994 831
1995 816
1996 816
1997 816
1998 816
1999 816
2000 816
~Exploration begins
Development begins
3Production begins
Region 5
6
11
11
11
11
11
11
26
36
119
119
119
119
119
119
119
119
119
119
119
119
119
SOURCE: Dames and Moore, 1978
r---
l '
State
66
119
103
44
44
44
27
191
300
1215
1215
1215
1215
1095
1055
950
935
935
935
935
935
935
DIRECT EMPLOYMENT REQUIREMENTS
-PRUDHOE (HIGH} SCENARIO-
Construction Sector
(Region 1 only) Region 1
0
60
18
86
86
99
240
1668
1422
5
5
5
5
5
5
5
5
5
5
5
5
5
Region 1 -North Slope
Region 5 -Anchorage
1:-:-:-J (""___.,
',, J 1-----,
I .)
60
168
110
119
119
132
256
1833
1686
1101
1101
1101
1101
981
941
836
821
821
821
821
821
821
Total
Region 5 State
6 66
11 179
11 121
11 130
11 130
11 143
11 267
26 1859
36 1722
119 1220
119 1220
119 1220
119 1220
119 1100
119 1060
119 955
119 940
119 940
119 940
119 940
119 940
119 940
,.._._._..,
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Oil and gas production at the site begin in 1988, peaking at a level of
.6472 million barrels of oil and 520 million cubic feet of gas per day
by 1992. The complete production schedule is presented in Table 3.3.
The new development has several effects on state petroleum revenues.
First, the state will receive some share of any initial bonus payments
derived from the joint sale. As mentioned above, this amount is assumed
to be $250 million received in two equal shares in 1980 and 1981. Second,
the state will receive increased royalty payments and production taxes
from any production occurring on state-owned offshore tracts. Third, in-
asmuch as all new production is assumed to flow through the TAPS and
Alcan lines, the tariff decrease produced by this increased flow will
increase the wellhead value of, and consequently the royalty and produc-
tion taxes from, existing bas~ case production from state lands. Finally,
the facilities required for the development are subject to state property
taxes on oil and gas properties, so that new facility construction will
generate increased property tax revenue.
In this scenario, the Prudhoe development at its peak increases total
annual state petroleum revenues by $958 million in 1993. Of this, ap-
proximately 7 percent is due to increased property taxes, 36 percent is
due to increased production taxes, and 57 percent is due to increased
royalty payments. Table 3.4 presents a complete breakdown of these
revenue effects. It should be mentioned that these are only the direct
effects on exogenous revenues. Other revenue items, such as personal
and corporate income taxes, fees, and federal grants tied to state
81
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TABLE 3.3. PRODUCTION SCHEDULE [
-PRUDHOE (HIGH) SCENARIO-
L
Year Oil Gas [ (MMBD) (MMCPD)
1988 .0839 520 r
1989 .3000 520
1990 .4648 520 r
1991 .6024 520 r-.
1992 . 6472 520
1993 .6350 520 f'
L
1994 .5650 520
1995 .4605 520 [
1996 .3599 520 f'
1997 .2730 520 L
1998 .2095 520 u
1999 • 1614 520
2000 .1227 520 L
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SOURCE: Dames and Moore, 1978 L
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TABLE 3.4. DIRECT EFFECTS ON STATE PETROLEUM REVENUES***
-PRUDHOE (HIGH} SCENARIO-
(Millions of$}
Bonus Property
Year Pa.l:ments Ro.l:a 1 t.l: Payments Production Taxes Tax Total
From New* From Old** From New* From Old**
Production Production Total Production Production Total
19791 0 0 0 0 0 0 0 0 0.0
1980 125 0 0 0 0 0 0 .7 125.7
1981 125 0 0 0 0 0 0 1.0 126.0
1982 0 0 0 0 0 0 0 2.2 2.2
19832 0 0 0 0 0 0 0 3.6 3.6
1984 0 0 0 0 0 0 0 5.3 5.3
1985 0 0 0 0 0 0 0 9.4 9.4
1986 0 0 0 0 0 0 0 37.9 37.9
1987 3 0 0 0 0 0 0 0 64.8 64.8
():) 1988 0 55.3 89.5 144.8 34.0 72.9 106.9 64.8 316.5
w 1989 0 183.7 82.1 265.8 112.3 66.4 178.7 64.8 509.3
1990 0 295.0 74.2 369.2 178.7 59.6 238.3 64.8 672.3
1991 0 403.6 72.3 475.9 244.5 58.1 302.6 64.8 843.3
1992 0 464.3 69.5 533.8 281.3 55.8 337.1 64.8 935.7
1993 '0 480.4 68.1 548.5 291.0 54.6 345.6 64.8 958.9
1994 0 454.9 58.3 513.2 275.6 46.8 322.4 64.8 900.4
1995 0 395.0 60.8 455.9 239.3 48.8 288.1 64.8 808.8
1996 0 329.4 52.9 382.3 199.5 42.5 242.0 64.8 689.1
1997 0 267.3 48.1 315.4 160.4 38.5 198.9 64.8 579.1
1998 0 219.2 41.8 261.0 131.5 33.5 165.0 64.8 490.8
1999 0 180.9 38.7 219.6 108.5 30.9 139.4 64.8 423.8
2000 0 147.7 33.5 181.0 88.6 26.8 115.4 64.8 361.2
*Assumes 61 percent state ownership 1Exploration begins
**Due,to pipeline tariff reduction 2Development begins
***Revenues on a calendar year basis 3production begins
SOURCE: Based on production estimates, Dames and Moore, 1978.
population, will all increase as a consequence of the development, al-
though these effects are captured endogenously within the model.
Offshore Prudhoe Bay (Low Discovery Case)
The second scenario examined involves activities surrounding a smaller
level of resource discoveries in the same area as assumed for the first
scenario. In this case, it is assumed that .8 billion barrels of oil
and 1.6 trillion cubic feet of gas are discovered in the offshore area
around Prudhoe Bay.
Exploration activity in this scenario begins in 1980, as does the con-
struction of required facilities. Construction employment peaks in 1987
with 855 workers, declining shraply thereafter; by 1994 construction
requirements amount to only 5 workers. Petroleum sector employment
peaks at 737 workers in 1994, eventually declining to 497 by 1998, with
85 percent of this work force at the North Slope site and the remaining
15 percent in Anchorage. Table 3.5 presents the complete schedule of
direct employment requirements.
Oil and gas production in this scenario begins in 1989, with production
peaking in 1996 at .193 billion barrels of oil and 220 million cubic feet
of gas per year. Table 3.6 presents the complete production schedule for
the scenario.
Qualitatively, the impact of the Prudhoe {Low) development on state
petroleum revenues is similar to the larger discovery scenario, although
84
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TABLE 3.5.
Petroleum Sector
Year Region 1
19791 0
1980 60
. 1981 108 .
1982 92
1983 33
. 19842 33
1985 16
1986 16
1987 148
.19883 264
1989 558
1990 558
1991 564
1992 570
1993 576
1994 662
1995 662
1996 602
1997 542
1998 542
1999 422
2000 422
1Exploration begins
Development begins
3Production begins
Region 5
0
6
11
11
11
11
11
11
24
36
65
65
66
66
67
75
75
75
75
75
75
75
SOURCE: Dames and Moore, 1978
State
0
66
119
103
44
44
27
27
172
300
623
623
630
636
643
737
737
677
617
617
497
497
DIRECT EMPLOYMENT REQUIREMENTS
-PRUDHOE (LOW} SCENARIO-
Construction Sector
(Region 1 only) Region 1
0
0
61
18
86
86
67
247
855
592
264
83
83
30
83
5
5
5
5
5
5
5
Region 1 -North Slope
Region 5 -Anchorage
0
60
169
110
119
119
83
263
1003
856
822
641
647
600
659
667
667
607
547
547
427
427
Total
Region 5 State
0 0
6 66
11 180
11 121
11 130
11 130
11 94
11 274
24 1027
36 892
65 887
65 706
66 713
66 666
67 726
75 742
75 742
75 682
75 622
75 622
75 502
75 502
TABLE 3.6. PRODUCTION SCHEDULE
-PRUDHOE (LOW) SCENARIO-
Year Oil Gas
(MMBD). (MMCPD)
1989 .0479 220
1990 .1064 220
1991 .1367 220
1992 .1700 220
1993 .1770 220
1994 • 1841 220
1995 .1928 220
1996 • 1930 220
1997 .1865 220
1998 . 1775 220
1999 • 1577 220
2000 • 1297 220
SOURCE: Dames and Moore, 1978
86
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the timing and magnitude of such effects vary. The maximum effect on
annual state petroleum revenues occurs in 1997 with a total increase of
$373 million, 13 percent from increased property taxes, 33 percent from
increased production taxes, and 54 percent from royalties. Table 3.7
presents a complete schedule of these revenue effects.
Camden-Canning Scenario
The third scenario examined involves a discovery to the east of Prudhoe
Bay in the area of Camden Bay and the Canning River. It also falls
within the boundary of the joint state/federal lease sale. In this
case, it is assumed that 1.3 billion barrels of oil and 3.25 trillion
cubic feet of gas are discovered.
Exploration and construction activities in this case do not begin until
1982. Construction employment peaks in 1988 at 1200 workers, then de-
clines sharply until reaching a permanent force of 5 persons in 1998.
Petroleum sector employment peaks in 1992 at 1110 workers, declining
slowly to a permanent contingent of 801 by 1999, with 87 percent of this
employment in the North Slope Borough and 13 percent in Anchorage.
Table 3.8 presents a complete schedule of direct employment requirements.
Oil and gas production begins in 1990, reaching a peak production of
.3378 million barrels of oil and 360 million cubic feet of gas per day
by 1995. The complete production schedule is presented in Table 3.9.
87
TABLE 3.7. DIRECT EFFECTS ON STATE PETROLEUM REVENUES***
-PRUDHOE (LOW) SCENARIO-
(millions of $)
Bonus Property
Year Pa~ments Ro~alt~ Payments Production Taxes Tax Total
From New* From Old** From New* From Old**
Production Production Total Production Production Total
19791 0 0 0 0 0 0 0 0 0.0
1980 125 0 0 0 0 0 0 0 125.0
1981 125 0 0 0 0 0 0 0.7 125.7
1982 0 0 0 0 0 0 0 0.9 0.9
1983 0 0 0 0 0 0 0 2.0 2.0
1984 0 0 0 0 0 0 0 3.2 3.2
19852 0 0 0 0 0 0 0 4.2 4.2
1986 0 0 0 0 0 0 0 7.9 7.9
1987 0 0 0 0 0 0 0 20.7 20.7
co 19883 0 0 0 0 0 0 0 30.9 30.9
co 1989 0 30.7 28.7 59.4 18.8 23.1 41.9 36.6 137.9
1990 0 68~7 25.8 94.5 41.7 20.7 62.4 39.7 196.6
1991 0 93~3 25.1 118.4 56.6 20.1 76.7 43.1 238.2
1992 0 123.1 24.1 147.2 74.6 19.3 93.9 46.0 287.1
1993 0 136.2 23.5 159.7 82.6 18.9 101.5 49.9 311 . 1
1994 0 150.7 20.0 170.7 91.4 16.0 107.4 49.9 328.0
1995 0 167.8 20.9 188.7 81.5 16.8 98.3 49.9 336.9
1996 0 178.2 18.2 196.4 108.0 14.7 122.7 49.9 369.0
1997 0 183.0 16.6 199.6 109.8 13.3 123.1 49.9 372.6
1998 0 185.0 14.5 199.5 111.0 11.6 122.6 49.9 372.0
1999 0 174.7 13.4 188.1 104.9 10.8 115.7 49.9 308.7
2000 0 152.5 11.6 164.1 91.6 9.3 100.9 49.9 314.9
*Assumes 64 percent state ownership 1Exp1oration begins
**From pipeline tariff reduction Development begins
***Revenues on a calendar year basis 3production begins
SOURCE: Based on productiorn schedules from Dames and Moore, 1978.
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TABLE 3.8. DIRECT EMPLOYMENT REQUIREMENTS
-CAMDEN-CANNING SCENARIO-
Petroleum Sector Construction Sector Total
Year Reg10n 1 Region 5 State {Region 1 only) Region 1 Region 5 State
1979 0 0 0 0 0 0 0
1980 0 0 0 0 0 0 0
19811 0 0 0 0 0 0 0
1982 76 8 84 12 88 8 96
1983 92 9 101 . 52 144 9 153
1984 108 11 119 30 138 11 149
1985 49 11 60 61 110 11 121
1986 2 49 11 60 224 273 11 284
1987 49 11 60 649 698 11 709
1988 105 16 121 1200 305 16 321
(X) 19893 280 34 314 754 1034 34 1068
\0 1990 690 75 765 581 1271 75 1346
1991 822 88 910 303 1125 88 1213
1992 1004 106 1110 83 1087 106 1193
1993 1010 107 1117 0 1010 107 1117
1994 . 1010 107 .· 1117 83 1093 107 1200
1995 976 107 1083 113 1089 107 1196
1996 868 107 975 0 868 107 975
1997 814 107 921 83 897 107 1004
1998 754 107 861 5 759 107 866
1999 694 107 801 5 699 107 806
2000 694 107 801 5 699 107 806
1Exploration begins Region 1 -North Slope
~Development begins Region 5 -Anchorage
Production begins
SOURCE: Dames and Moore, 1978
TABLE 3.9. PRODUCTION SCHEDULE
-CAMDEN-CANNING SCENARIO-
Year Oil Gas
(MMBD) (MMCPD)
1990 .0630 360
1991 .1650 360
1992 .2320 360
1993 .2887 360
1994 • 3213 360
1995 .3378 360
1996 .3356 360
1997 • 3171 360
1998 .2824 360
1999 .2419 360
2000 .2127 360
SOURCE: Dames and Moore, 1978
90
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Although the production of oil and gas in this scenario is spread over
a longer period than the large discovery Prudhoe case, so that produc-
tion rates are much lower throughout the early years of production, the
larger state share in the owriership of the Camden-Canning field results
in revenue impacts similar to those of the Prudhoe (High} scenario.
The maximum increase in annual state petroleum revenues occurs in 1996
with an increase of $875 million, 12 percent of increased property taxes,
34 percent from increased production taxes, and 54 percent from increased
royalties. Table 3.10 presents a breakdown of revenue effects for the
Camden-Canning scenario.
Cape Halkett Scenario
The final scenario examined is associated with development of an area
east of Prudhoe Bay in the Cape Halkett area, within th~ boundaries of
a currently unscheduled federal lease sale assumed to be held in 1984.
It is assumed that .8 billion barrels of oil are discovered in the Cape
Halkett area.
Exploration activity is assumed to begin in 1984, with facility construc-
tion commencing in 1985. Construction employm~nt peaks at 818 in 1990,
declining to a nominal crew of 5 workers by 1993. Petroleum sector em-
ployment peaks at 554 by 1994, declining slowly to 454 by 1999, 12 per-
cent in Anchorage and 88 percent in the North Slope Borough. Table 3.11
presents the schedule of direct employment requirements.
91
~
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TABLE 3. 10. DIRECT EFFECTS ON STATE PETROLEUM REVENUES***
-CAMDEN-CANNING SCENARIO-
(mill ions of $)
Bonus
Year Pa.l:ments Ro.l:alt.l: Payments Production Taxes
From New* From Old** From New*
Production Production Total Production
1979 0 rl 0 0 0 0
1980 125 0 0 0 0
19811 125 0 0 0 0
1982 0 0 0 0 0
1983 0 0 0 0 0
1984 0 0 0 0 0
1985 0 0 0 0 0
1986 2 0 0 0 0 0
1987 0 0 0 0 0
1988 0 0 0 0 0
19893 0 0 0 0 0
1990 0 63,6 61.3 124.9 38.4
1991 0 161.5 59.6 221.1 97.8
1992 0 237.8 57.1 294.9 144.0
1993 0 312.1 55.7 367.8 189.0
1994 0 368.0 46.9 414.9 222.9
1995 0 409.9 49.2 . 459.1 248.3
1996 0 431.8 42.8 474.6 261.6
1997 0 412.9 39.4 452.3 . 247.7
1998 0 409.6 34.3 443.9 245.6
1999 0 372.5 32.0 404.5 223.4
2000 0 347.5 . 27.6 375.1 208.4
*Assumes 87 percent state ownership lExploration begins
**From pipeline tariff reduction 2oevelopment begins
***Revenues on a calendar year basis 3Production begins
SOURCE: Based on production estimates, Dames and Moore, 1978
r-----,
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From Old**
Production
0
0
0
0
0
0
0
0
0
0
0
49.3
47.9
45.9
44.8
37.7
39.5
34.5
31.5
27.4
25.6
22.1
Property
Tax Total
Total
0 0 0.0
0 0 125.0
0 0 125.0
0 .2 .2
0 .8 .8
0 1.3 1.3
0 2.2 2.2
0 5.8 5.8
0 16.6 16.6
0 38.0 38.0
0 53.3 53.3
87.7 67.0 279.6
145.7 75.9 442.7
189.9 81.7 566.5
233.8 85.9 687.5
260.6 91.9 767.4
287.8 99.3 846.2
296.1 104.5 875.2
279.2 111.8 843.3
273.1 111.8 828.8
249.0 111.8 765.3
230.5 111.8 717.4
[---..
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1.0 w
TABLE 3. 11.
Petroleum Sector
Year Region 1
19841 30
1985 62
1986 79
1987 16
19882 16
1989 16
1990 66
19913 132
1992 492
1993 492
1994 498
1995 498
1996 498
1997 458
1998 458
1999 398
2000 398
lExploration begins
~Development begins
Production begins
Region 5
3
6
8
8
8
8
13
20
55
55
56
56
56
56
56
56
56
SOURCE: Dames and Moore, 1978
State
33
68
87
24
24
24
79
152
547
547
554
554
554
514
514
454
454
[~
DIRECT EMPLOYMENT REQUIREMENTS
-CAPE HALKETT SCENARIO-
Construction Sector
(Region 1 only)
0 .
21
34
13
119
416
818
474
35
5
5
5
5
5
5
5
5
Region 1 -North Slope
Region 5 -Anchorage
Region 1
30
83
113
29
135
432
884
606
527
497
503
503
503
463
463
403
403
Total
Region 5 State
3 33
6 89
8 121
8 37
8 143
8 440
13 897
20 626
55 582
55 552
56 559
56 559
56 559
56 519
56 519
56 459
56 459
Production at the site begins in 1992, peaking at .2599 million barrels
per day by 1997. Table 3.12 presents the production schedule for the
Cape Halkett case.
Because the Halkett development occurs on exclusively federal properties,
the effects on state petroleum revenues are much more limited than in
theprevious scenarios. The state receives neither bonuses, royalties
nor production taxes from any new production originating from an exclu-
sively federal sale area. However, the state may still tax any facili-
·ties located within three miles of shore or onshore, and to the extent
that such new production flows through TAPS and ALCAN, it will reduce
tariffs and increase the wellhead value, and therefore royalties and
production taxes, from production on state lands. This effect on the
value of existing production, combined with new property taxes, amounts
to an increase of as much as $60 million annually by 1996, with over 47
percent of this effect due to the property tax, 24 percent due to in-
creased production taxes, and 29 percent due to increased royalties. A
breakdown of the complete schedule of revenue effects is given in Table
3. 13.
94
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TABLE 3.12. PRODUCTION SCHEDULE
-CAPE HALKETT SCENARIO-
Year Oil Gas
(MMBD) (MMCPD)
1992 .0538 0
1993 . 1272 0
1994 .1747 0
1995 .2272 0
1996 .2573 0
1997 .2599 0
1998 .2409 0
1999 .2074 0
2000 .1636 0
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SOURCE: Dames and Moore, 1978
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TABLE 3.13. DIRECT EFFECTS ON STATE PETROLEUM REVENUES***
-CAPE HALKETT SCENARIO-
(mi 11 ions of $}
Bonus
Year Pa,tments Ro,ta 1 t,t Payments Production Taxes
From New* From Old** From New* From Old**
Production Production Total Production Production
1985 1 0 0 0 0 0 0
1986 0 0 0 0 .o 0
1987 2 0 0 0 0 0 0
1988 0 0 0 0 0 0
1989 0 0 0 0 0 0
1990 0 0 0 0 0 0
19913 0 0 0 0 0 0
1992 0 0 20.2 20.2 0 16.3
1993 0 0 19.4 19.4 0 15.7
1994 0 0 14.4 14.4 0 11.6
1995 0 0 15.7 15.7 0 12.7
1996 0 0 13.9 13.9 0 11.2
1997 0 0 13.5 13.5 0 10.8
1998 0 0 11.9 11.9 0 9.6
1999 0 0 11.8 11.8 0 9.4
2000 0 0 10.3 10.3 0 8.2
*No revenues from new production, since field is exclusively federal
**From pipeline tariff reduction
***Revenues on a calendar year basis
SOURCE: Based on production estimates, Dames and Moore, 1978
...-----.,
! J
Property.
Tax
Total
0 .3
0 .7
0 .9
0 2.6
0 8.6
0 21.2
0 29.6
16.3 31.7
15.7 31.7
11.6 31.7
12.7 31.7
11.2 31.7
10.8 31.7
9.6 31.7
9.4 31.7
8.2 31.7
~Exploration begins
Development begins
3Production begins
Total
.3
.7
.9
2.6
8.6
21.2
29.6
68.2
66.8
57.7
60.1
56 .. 8
56.0
53.2
52.9
50.2
in 1984
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-----~--------------~---~----~-----------·-~--~
Economic Impacts
of Beaufort Sea OCS Development
OCS development in the Beaufort Sea will lead to changes in those factors
which have previously been isolated as important causes of growth--exo-
genous employment, personal income, and state expenditures. The change
in these factors will result in changes in population, the state's fiscal
picture, the structure of employment, and the regional distribution of
population and employment. These changes are the economic impacts of OCS
development. This section will explore the impact on the Alaska economy
ofOCS development.
We will examine the impact of each of the four separate development
scenarios discussed above. The impact of each of these will vary, since
the scenarios vary in terms of their primary employment impact, timing,
and the revenues which accrue to the state. For the most part, only the
impacts will be discussed. The impacts will be measured as changes from
the base case described in Chapter I I. By examining only these changes,
we can consider the impacts of Beaufort development as separate from the
assumptions made in the base case.
Impacts were estimated by making runs of the MAP model, which included
the assumption of each scenario, then comparing the results to the base
case. One important assumption must be made in this type of analysis.
It must be assumed that the economy responds the same to employment and
revenues generated by Beaufort OCS development as it did to similar
changes in the past. This is the implicit assumption which underlies the
97
use of econometric models for projection and impact analysis, since these
models are estimated from the past.
The approach which will be taken in the following analysis is to ask six
questions concerning the changes which result from OCS development in
each scenario. Answers to these questions will provide a description of
the economic impact of this development. The questions are as follows:
1. How is the growth of each of the aggregate indicators affected
by OCS development? These indicators include employment, population,
personal income, and state expenditures.
2. What are the significant causes of the changes of these indi-
cators? The question will attempt to assess th~ importance of
exogenous employment changes and changes in state spending on growth.
3. How do the additional revenues change the fiscal picture of
the state? This question will examine whether the OCS development
leads to increased services and what its affect is on fund balances.
4. Does the composition of the change in employment differ from
the base case? This question will examine whether the OCS changes
support base case trends in structural changes, seasonality, and
unemployment.
98
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5. Does the composition of population change? Will changes be-
cause of OCS development support demographic trends in the base case?
6. What are the regional effects of these changes? This question
will examine the changes in employment, population, and personal
income which result in Anchorage, Fairbanks, and the North Slope be-
cause of OCS development.
Prudhoe High Scenario
The Prudhoe High Scenario has the greatest effect on the economy of all
the scenarios. Exploration begins in 1979 and lasts until 1983, with
peak exploration employment in 1980. Development begins in 1984 and lasts
through 1987, with peak development employment in 1986; this is also the
peak in direct employment for the entire period. Production begins in
1988 and lasts through the remainder of the forecast period.
AGGREGATE INDICATORS
Table 3.14 shows the impacts of each of the aggregate indicators of eco-
nomic activity. In each case, these indicatorsare greater than the
base case and the difference grows continually throughout the period.
Population is 40,156 greater by 2000 than in the base case. Each stage
of OCS activity affects population growth differently. By the end of the
exploration phase in 1983, 4.1 percent of the total population impact has
been achieved. By 1987, when the development stage ends, 27 percent of
the total impact has been reached. The major population impact occurs
in the production phase. Population growth rates differ from the base
99
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TABLE 3 .14. PRUDHOE HIGH SCENARIO IMPACT ON [
AGGREGATE INDICATORS
(Measured as Changes from the Base) f" STATE OF ALASKA
1979-2000
Total Personal Total State L
Year PoEulation EmEloyment Income Ex enditures
r ' (millions millions
of $) of $)
19791 289 221 8.738 1. 293 [ 1980 746 536 23.918 1. 629
1981 1 ,080 718 29. 101 11.881 L 1982 1,465 942 38.453 22.173
19832 1,664 997 42.378 24.114
1984 1,887 1 ,071 48.019 26.162 I 1985 2,458 1,410 71.015 30.213
L
1986 8,618 6,002 355.926 65.931
19873 10,881 6,947 407.227 83.734 [ 1988 13 '189 7,910 434.594 118.031
1989 17,086 10,140 563.926 221.092
1990 19,186 10,838 625.918 244.208 r
1991 21,426 11,646 698.113 270.910 L,,
1992 24,198 12,872 790.125 353.839
1993 26,167 13,460 858.676 382.667 [ 1994 27,469 13,571 896.637 405.757
1995 29,403 14,250 980.512 437.683
1996 31 ,290 14,921 1,070.750 470.207 E
1997 33,328 15 '721 1 '177 .310 507.098
1998 35,426 16,580 1,294.410 546.090 [ 1999 37,782 17,635 1,435.880 591.312
2000 40,156 18,696 1,587.780 638.793
L
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L ~Exploration begins
Development begins
3Production begins L
SOURCE: MAP Statewide Model
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case. During the exploration phase, growth is approximately the same
rate as in the base. Population grows about 22 percent faster in the
development phase than during the same period for the base case. The
growth rate in the production phase is 40 percent higher than during the
same period in the base case. By 2000 population is 7 percent greater
than in the base case.
Employment experiences the same type of growth pattern, being higher than
the base case by 18,696 jobs, or 6.4 percent, by the end of the period.
Approximately 6 percent of the impact has been reached by the end of the
exploration phase; 37 percent has been reached by the end of development.
From 1978, the year before exploration begins, employment grows at an
average annual rate of 2.3 percent. This is 19 percent greater than the
growth rate in the same period in the base case. Unlike population, the
greatest difference is in the development phase, when the growth rate is
2.6 percent compared to 1.9 percent in the base case. The growth rate
in the exploration phase is 3 percent greater than for the same period
in the base case, and the production phase experiences a growth rate 20
percent greater than in the base case.
Personal income is $1.59 billion higher by 2000 because of the Prudhoe
High development. This is 9.2 percent greater than in the base case.
Of this impact, 3 percent is achieved during the exploration phase and
23 percent in the development stage. Growth during the entire period
averages 7.4 percent per year, which is approximately 7 percent faster
101
than the annual average growth of 6.9 percent during the period 1978-2000
in the base case.
State expenditures are $.639 billion higher by 2000 than in the base case.
Total state expenditures are $5.57 bfllion, compared to $4.94 billion in
the base case. Over 86.9 percent of this impact occurs in the production
phase of activity, compared with 3.8 percent in exploration and 9.3 per-
cent in development. The annual rate of growth of state expenditures in
the production phase is 4.9 percent, which is 17 percent greater than in
the base case during the same period.
CAUSES OF GROWTH
The discussion in Chapter II isolated changes in exogenous employment,
changes in personal income, and changes in state expenditures as the major
causes of growth. Changes in these same variables are responsible for
generating impacts over the base case. The most important causes of the
changes discussed above are changes in exogenous construction and mining
employment, which result from the Beaufort deve1opment, and changes in
state expenditures. Each of these effects is dominant in different
periods of the analysis. The importance of the level of Beaufort OCS
employment and the associated changes in personal income are more impor-
tant during the exploration and development stages. At its peak in the
third year of development, exogenous employment accounts for 31 percent
of the total employment impact. By 2000, although Beaufort OCS employment
is still high at 940, it accounts for only 5 percent of total employment.
102
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State expenditures are greater than in the base case from the beginning
of exploration work in 1978. Expenditures increase for two reasons.
First~ increases in population will lead to increased expenditures as
state services are extended to this new population. Second~ state expen-
ditures increase as additional revenues are earned from petroleum develop-
ment. The same spending rule operates in the OCS scenarios as in the
base case: 60 percent of petroleum royalties and 100 percent of bonuses
are saved and all other revenues are spent; the savings rate is reduced
or dissavings takes place in order to maintain the level of real per
capita expenditures. The importance of this rule is that it presents
another way in which OCS development affects state growth. OCS develop-
ment produces revenues which increase state spending, which in turn affects
economic growth. The importance of this effect lasts throughout the pe-
riod because revenue increases generate permanent increases in per capita
state expenditures. The expenditure impact is much greater in the pro-
duction period when the flow of oil, which produces both royalties and
severance taxes~ begins and provides large increases in revenues over the
base period. These revenue increases cause expansion of the level of
services provided by the state and~ therefore, expenditures. During this
same period~ exogenous Beaufort Sea production emp1oyment is reduced.
These two effects make the expenditure impact more important.
The overall proportion of impact which results from either of these
causes is hard to determine. Interaction between these state expendi-
tures and employment and the dynamic nature of the economy prevent sepa-
ration. One way to estimate the proportion of impact caused by each
103
factor is to examine what would happen to the major variables if state
expenditures remained as in the base case. This is not a description of
what will happen, because state expenditures, as we have shown, will.
undoubtedly respond to increases in revenues. This test allows us to
see in some sense the direct impact of development following the Prudhoe
High Scenario. The sensitivity analysis in Chapter IV was undertaken to
show this. By 2000 private development is responsible for 38 percent of
the population impact, 32 percent of the employment impact, and 36 per-
cent of the impact on incomes. Slightly less than two-thirds of the
Prudhoe High impact on all aggregate indicators is a result of increased
state expenditures.
FISCAL IMPACTS
Table 3.15 illustrates the changes in the state fiscal posture. The
development of the Beaufort OCS according to the Prudhoe High Scenario
improves the overall state fiscal position during the forecast period.
By 2000 there is $7.7 billion more in the permanent fund than in the
base case. One reason for this is that after production begins in 1988
the change in revenues resulting from Beaufort development exceeds the
change in expenditure.
The change in total revenues because of OCS development is importantly
affected by production. Prior to the production stage, the increase in
revenues results from three sources, increases in the property taxes,
increases in non-petroleum taxes, and bonuses paid to the state for
leases in the state•s portion of the OCS area. The first major increase
104
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TABLE 3.15. IMPACT ON THE STATE FISCAL SECTOR OF
THE PRUDHOE HIGH SCENARIO
(Measured as Changes from the Base)
(in Millions of Dollars)
STATE OF ALASKA
1979-2000
General Permanent
Total Fund Fund Total
Year Revenues Balance Balance ExEenditures
19791 0.257 -0.925 0.000 1. 293
1980 126.338 -0.925 125.000 1.629
1981 136.453 -0.924 250.000 11.881
1982 21.580 -0.923 250.000 22.173
19832 23.431 -0.923 250.000 24.114
1984 25.373 -0.923 250.000 26.162
1985 29.149 -0.923 250.000 .30.213
1986 53.469 -9.343 250.000 65.931
19873 93.841 5.903 250.000 83.734
1988 238.795 89.540 293.441 118.031
1989 477.152 230.821 416.621 221.092
1990 682.060 487.773 607.121 244.208
1991 886.073 597.322 1,123.690 270.910
1992 1,068.580 597.324 1 ,851. 100 353.839
1993 1,184.520 596.135 2,668.160 382.667
1994 1,229.420 464.466 3,638.510 405.757
1995 1,218.210 179.654 4,720.350 437.683
1996 1,175.870 0.000 5,623.700 470.207
1997 1,119.900 0.000 6,256.240 507.098
1998 1,074.530 0.000 6,806.270 546.090
1999 1,046.020 0.000 7,284.710 591.312
2000 1,027.050 0.000 7,698.950 638.793
1Exploration begins
2oevelopment begins
3Production begins
SOURCE: MAP Statewide Model
105
in revenues results from the bonuses paid in 1980 and 1981. These reve-
nues, according to the state's expenditure policy, go into the permanent
fund; however, interest on these funds generates useable revenues. By
the end of exploration in 1983, property tax revenues increase to $2.9
million because of additional equipment and facilities required in ex-
ploration. The greatest proportion of increased revenues during explora-
tion results from interest earned on the permanent fund balance; only
12.4 percent of the change in total revenues by the end of the explora-
tion period is because of increased petroleum activity. At this time
revenues are only about 1 percent greater than in the base case.
The development of the fields which occurs from 1984 to 1987 increases
property tax revenues to $51.3 million over the end of the exploration
phase. Revenues from petroleum development have increased to approxi-
mately 55 percent of the increase in total revenues by the end of develop-
ment in 1987. Petroleum revenues increase dramatically once production
begins. Petroleum revenues directly associated with the Beaufort OCS
development rise to a peak of $947.3 million in 1993, the year following
the peak in production; at their peak, petroleum revenues from the
Beaufort account for 80 percent of the increase in revenues. The share
of petroleum revenues in the Beaufort-induced total revenues falls
through the remainder of the period; by 2000 it accounts for only 38
percent of the total. As petroleum production declines, petroleum
revenues fa 11 from a peak of $958.9 mi 11 ion to $392. 5 mi 11 ion by 2000.
{Appendix C has detailed revenue source information.)
106
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The development of the Beaufort OCS according t~ the Prudhoe High Scenario
has two separate impacts on the fiscal posture of the state. First, as
discussed above, it increases revenues. Second, it will affect state
expenditures. As new population is drawn into the state because of this
development, expenditures will be increased to provide a given level of
services to the increased population. The increased revenues may also
lead to increases in the level of services provided, which will increase
expenditures greater than the proportionate increase in population. Until
the final year of the development stage,·when property tax revenues in-
crease substantially, the increase in expenditures caused by OCS develop-
ment exceeds the increased revenues. In the first year of exploration
(1979), the increase in population is greater than the increase in reve-
nues, and the general fund must be drawn down to maintain per capita
expenditures. Until 1986 revenue growth exceeds population enough to
maintain modest increases in the real per capita level of services without
drawing down the fund balances. The population increases, associated with
the final years of development when direct Beaufort employment increases
more than sixfold, lead to an approximate $9 million drawdown of the
general fund. After production begins, the revenue increase exceeds ex-
penditure increases throughout the remainder of the period. This slows
the rate of decrease in the general fund and allows a build-up of the
permanent fund.
What is the overall effect of Prudhoe High development on the Alaska state
government fiscal position? First, development allows an expansion of
services provided residents. Real per capita state expenditures are $66
107
greater by the end of the period than in the base case. The major in-
crease in services comes in the second year of production when the level
of per capita expenditures increases to $43 over the base case. In 1992,
the peak production year, real per capita expenditure increases to $66
over the base. By 2000 the level of services is greater than in the base
case; real per capita expenditures are $1,705 per person, which is about
4 percent more than in the base case. More importantly, the extra Beau-
fort revenues have postponed the period when expenditures exceed revenues,
until 1997, which is six years later than in the base case. After 1997
expenditures once again are greater than revenues. What is important here
is that the eventuality of the drawdown of the fund balances as expendi-
tures exceed revenues has only been postponed, not eliminated. The prob-
lem is the same as in the base case--the cyclical nature of petroleum
revenues and expenditure responses to increases in revenues.
INCOME
The increase in personal income due to Beaufort OCS development can have
two effects. First, higher levels of personal income will increase the
demand for goods and services and lead to growth in the economy. In-
crease in personal income will have a greater impact on those industries
which serve local markets. Second, Beaufort OCS development could lead
to welfare increases. Personal income can increase because of increases
in the number of workers with the same wage or increasing wages for
workers. To the extent the second effect dominates, welfare will be in-
creased. The extent to which these personal income changes will have
108
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these effects will be determined by the increased taxes paid and the
increase in prices, which reduces the amount of goods and services an
extra dollar of income can buy.
Table 3.16 shows the effect of taxes and prices on the increase in per-
sonal income generated by OCS development. By 2000 personal income would
be $1.59 billio.n higher with Beaufort OCS development following the
Prudhoe High Scenario than in the base case. Progressive taxation at
both the state and federal levels would be expected to increase the tax
share because of higher incomes. Taxes take almost 25 percent of this
incremental income. Prices have a much larger effect on income available
to the population. Price increases resulting from Beaufort development
affect not only the additional income, but all income. To the extent
prices rise because of OCS development, the effect of the added income
will be reduced, and there will be a general decrease in the buying power
of all income. By 2000 the impact on disposable personal income is
reduced by 16 percent because of price increases.
Welfare, as measured by the increase in real per capita disposable in-
comes (DIRPA), increases because of OCS development. By 2000 DIRPA is
about $12 greater than in the base case. The maximum difference during
the period is in 1986, when DIRPA is $75 greater. The change in this
difference has a great deal to do with the composition of employment.
The greatest differences are achieved during the development stage, when
high wage construction and petroleum employment in the Beaufort rise to
109
TABLE 3.16. INCOME IMPACTS OF PRUDHOE HIGH DEVELOPMENT
(Measured as Changes from the Base)
Per Capita Real
Year Disposable Income
19791 2.854
1980 6.449
1981 5.341
1982 7.407
19832 7.077
1984 6.995
1985 11.133
1986 75.497
1987 3 72.615
1988 59.786
1989 67.859
1990 64.263
1991 60.186
1992 56.255
1993 49.294
1994 38.269
1995 32.775
1996 28.226
1997 23.695
1998 19.640
1999 15.695
2000 11 . 746
~Exploration begins
Development begins
3Production begins
SOURCE: MAP Statewide Model
STATE OF ALASKA
1979-2000
Disposable Real Disposable
Personal Income Personal Income
(Millions of $) (Millions of$)
6.799 2.130
18.523 5.511
22.527 6.305
29.886 8.292
32.906 8.873
37.281 9.750
54.968 14.037
273.340 68.774
313.277 76.033
334.703 77.852
434.344 97.444
481.328 104.694
536.785 112.960
606.324 123.270
658.777 129.614
686.637 130.808
750.332 138.315
817.184 145.957
897.453 155.105
983.723 164.593
1,089.460 176.226
1,200.650 187.856
110
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1,859. The importance of this employment can be seen by examining the
changes which result from decreasing the level of this employment. Each
time employment in the Beaufort is reduced, the difference in per capita
income over the base falls. The general decline in the difference by 2000
is a result of a reduction in the importance of this high wage employment
sector after the beginning of petroleum production.
EMPLOYMENT
While the primary employment levels associated with OCS development have
substantial effects, they also generate significant secondary impacts
throughout the state economy. The increase in the demand for goods and
services, which results because of changes in the level of personal in-
come, lead to increases in employment in other sectors of the economy.
State expenditures, which rise because of the increased revenues available
from OCS development, also generate demand for goods and services and
increases in employment. The effect on total employment has been dis-
cussed above; an equally important effect is on the growth of separate
sectors. The change which results will affect the structure of employ-
ment. Table 3.17 shows the ·distribution of this employment between indus-
trial sectors. In the base case, the general trend in the structure of
employment which was observed was an increase in the proportion of total
employment in the local serving sector, particularly trade and services.
The extra employment which results from OCS development in the Prudhoe
High Scenario supports this base case trend. We will examine the struc-
ture of this increased employment at three points in time, the end of
the forecast period, the end of the exploration, and the end of the
111
TABLE 3.17. INDUSTRIAL DISTRIBUTION OF THE PRUDHOE HIGH
EMPLOYMENT IMPACT
(measured as changes from the base)
ALASKA
1983 1987 2000
Employment % Employment % Employment
Mining and Beaufort
OCS Construction 130 13.0 l ,722 24.8 900
Other Construction 64 6.4 405 5.8 l ,546
Trade 196 19.7 l ,531 22.0 4,952
Services 194 19.5 1,553 22.4 5,333
Finance 49 4.9 385 5.5 l ,291
Transportation 38 3.8 276 4.0 758
State and Local Govt. 280 28.1 752 10.8 3,056
Other* 46 4.6 323 4.6 861
*Includes Public Utilities, Communications, and Other
SOURCE: MAP Statewide Model
112
%
4.8
8.3
26.5
28.5
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development period. The distribution of employment in 2000 supports the
overall trend found in the base case. Trade, services, and finance make
up 62 percent of the increased employment, mining and exogenous construc-
tion account for only 5 percent, while state and local government account
for 16 percent. These percentages are fairly stable during all stages of
petroleum activity. The major change is the declining proportion of
employment change accounted for by direct Beaufort employment. The other .
major change is the growth in the importance of state and local govern-
ment. After an initial period during exploration when it is dominant,
state government is only 11 percent of the increase in employment by the
end of the development stage. In the production stage, large increases
in petroleum revenues increase state expenditures. By the year 2000,
state and local government is 16 percent of the total change in employment.
By the end of the production phase, the structure of employment found in
the base case is reinforced by the OCS development. This should mean
that the reduction in seasonality will take place as discussed in the
base case. The increased proportion of employment in non-seasonal in-
dustries should reduce the overall seasonality in the economy. Direct
employment in the OCS development does have a seasonal component (Dames
and Moore, 1978). This should dampen the effect, but not prevent the
decrease in seasonality. Even in its peak year, over 50 percent of the
increased employment is in non-seasonal industries.
113
Will OCS development increase or decrease unemployment? In the base case
a possible trend toward a reduction in unemployment was assumed because
of the decrease in the ratio of population to employment. Although this
does not guarantee a reduction, it indicates the possibility of a de-
crease. The OCS development will support this trend if the ratio of
change in population to change in employment falls. This ratio initially
rises throughout the exploration phase, then falls when peak employment
is reached. It rises throughout the production phase until it reaches
2.14 in 2000; this is higher than the ratio found in 1977. This indicates
the impact employment leads to greater increases in population and a pos-
sible increase in unemployment.
POPULATION
By 2000 population is 7 percent higher because of development in the
Beaufort OCS. The greatest increase in population occurs in 1986, when
the extra population increases 6,000 as a result of peak increases in
direct OCS employment. The major factor changing this is the greater
levels of migration experienced because of OCS. Since migration is a
response to increased employment opportunities and income, the increase
in migration is not surprising. Inmigration resulting from OCS develop-
ment is not large enough to eliminate the general outmigration which
occurs throughout the period. The effect of OCS development is to re-
duce outmigration. In the period between 1986 and 1998, which is domi-
nated by outmigration in the base period, increased employment oppor-
tunities associated with OCS developement lead to inmigration in only
114
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four years. Only in 1986 is this substantial, with an inmigration of
approximately 5,800. The reduction in the outmigration is responsible
for the increased population.
Since migration is not assumed to affect Native population, one impact
of this increase is a reduction in the share of Native population in the
total. By 2000 Native population is 17 percent of the total, compared
.to 19 percent in the base case; this is approximately the same as the
Native share of total population in 1977.
The structure of population will be changed in the OCS case. Migration
response to changing economic opportunities most importantly affects the
young. The reduction in outmigration would be assumed to dampen the
aging in the population structure found in the base case. Table 3.18
shows the proportion of each age-sex classification in the total popu-
lation in 1980, 1990, and 2000. By 2000 the age structure has still
undergone aging, although not quite as rapid as in the base case. By
2000 the proportion of population which is greater than forty is 4 percent
less than in the base case. This age cohort, although it increases, in-
creases at a slower rate than the total population.
Region a 1 Impacts
This section will examine the impact of OCS development on three regions,
the North Slope, Anchorage, and Fairbanks. The impacts of OCS develop-
ment will be measured as changes in the population, employment, and
personal income growth in each region from the base case discussed in
115
TABLE 3. 18. AGE-SEX STRUCTURE OF THE POPULATION
PRUDHOE HIGH SCENARIO
(% of total population)
1980 1990
. Male Female Male Female Male
0 - 1 l. 19 l. 19 1.08 1.08 1.03
1 -4 4.28 4.09 4.23 4.02 3.84
5 -9 4.74 4.64 5.05 4.91 4.65
10 -14 4.32 4.22 4.46 4. 31 4.37
15 -19 4. 93 4.11 4.10 3.80 4.25
20 -24 8.58 5. 70 5.76 3.97 5.63
25 -29 6.01 5.24 4.63 3.97 3.95
30 -34 4.67 4.27 4.63 4.13 3.65
35 -39 3.60 3.21 4.38 3. 76 3.70
40 -44 2.54 2. 41 3.52 3.27 3.44
45 -49 2.04 l. 84 2.71 2.55 3.11
50 -54 l. 78 l. 57 2.10 2.01 2.68
55 -59 1.48 l. 31 1.63 l. 58 2.13
60 -64 l. 18 1.06 l. 30 l. 29 1.65
65 + l. 96 1.84 2.74 3.03 3.46
SOURCE: MAP Statewide Model
116
2000
Female
1.03
3.65
4.50
4.21
3.91
4.11
3.64
3.43
3.24
3.16
2.87
2.53
2.10
1.72
4.36
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Chapter II. OCS development in the Beaufort Sea affects all regions of
the state. The impact in any one region which results from OCS develop-
ment will be determined by the location of exogenous employment, the
strength of a region•s interaction with directly-impacted regions, and
the size of the local economy. Both the North Slope and Anchorage will
be directly affected by Beaufort OCS development. Since development
occurs in the North Slope region, the increase in exogenous employment
will have an important direct effect. The assumed enclave nature of
this development will minimize the effect on the local North Slope
economy. More important to the growth of all of these regions are those
processes of regional interaction previously described, distribution of
state expenditures, the effect on wage rates, importance as a trade
center, and interregional migration. The distribution of state and
.local employment is directly related to the distribution of state ex-
penditures. State expenditures are an important source of growth in
regions where the direct employment does not occur, such as Fairbanks.
The relation between the increased employment in state and local govern-
ment and the total impact employment is a proxy for the relation between
the distribution of state and local expenditures and total impact re-
sulting from the Beaufort OCS development. Growth of construction and
mining on the North Slope affects wage rates in all other regions. This
increase in wage rates leads to increased personal incomes and demand
for goods and services in the region. Both Fairbanks and Anchorage are
regional centers which are affected by growth in other regions. Growth
in the North Slope affects the Fairbanks economy as it provides goods and
services to this region. Anchorage; which serves as the administrative,
117
trade, and financial center for the state, reflects the growth of all
regions. Migrati6n has an important effect on the smaller economies;
as Anchorage expands rapidly, it attracts population from other areas of
the state. The size of the local economy will determine the extent to
which any of these factors leads to induced expansion of the economy.
Because of scale effects, larger economies will have larger induced
growth. This is important for the growth of Anchorage which provides
more of the increased demand for goods and services than in smaller
regions. These factors are responsible for regional growth and are not
changed by OCS development.
NORTH SLOPE REGION
Employment
Tables 3.19 and 3.20 show the changes in North Slope employment over the
base case and the industrial distribution of this change. The increase
over the base case does not grow smoothly throughout the period, but
experiences several small peaks and one large peak. By 2000 total employ-
mentis 1,575 greater than in the base, which is about 21 percent higher
than the base. When direct employment at the OCS site peaks in the
development phase, total employment is 4,464, or 62 percent higher. By
the end of the exploration phase in 1983, total employment is only 4 per-
cent higher than in the base.
Employment increases on the North Slope are of two kinds. First, petro-
leum and construction employment located at Prudhoe Bay are part of the
enclave sector which increases with OCS development. This increase has
118
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TABLE 3.19.
Year
19791
1980
1981
1982
19832
1984
1985
1986
1987 3
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
~Exploration begins
Development begins
3Production begins
PRUDHOE HIGH SCENARIO TOTAL ECONOMIC IMPACT
(measured as change from the base)
NORTH SLOPE REGION
1979-2000
Total Personal
Population Employment Income
(mi 11 ions
of $)
69 67 3.687
256 249 15.570
146 159 10.204
281 248 17.210
299 254 18.544
349 292 22.575
725 620 51.597
5,012 4,464 401.792
4,813 4,087 375.017
1,700 1,450 123.754
1,577 1,509 134.243
1,514 1,533 143.062
1,488 1,568 154.769
1,329 1,466 152.033
1,309 1 ,451 159.115
1 '197 1 ,341 154.758
1,219 1,356 164.879
1,263 1,389 178.019
1,308 1,426 192.884
1,348 1,470 209.398
1,393 1,520 228.351
1,436 1,575 249.198
SOURCE: MAP Regional Model
119
TABLE 3.20. INDUSTRIAL DISTRIBUTION OF THE PRUDHOE HIGH
EMPLOYMENT IMPACT
(measured as changes from the base)
NORTH SLOPE REGION
1983 1987 2000
Employment % Employment % Employment
Mining and Beaufort
OCS Construction 119 46.7 1,686 41.3
Other Construction 105 41.2 2,045 50.0
Trade 2 .8 25 .6
Services 10 3.9 134 3.3
Finance 1 .4 19 .5
Transportation 9 3.5 128 3.1
State and Local Govt. 8 3.1 44 1.1
Other* 1 .4 6 . 1
*Includes Public Utilities, Communications, and Other
SOURCE: MAP Regional Model
120
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454
19
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52.1
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.8
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only minimal impact on the local economy. Second, increases in employment
at Prudhoe Bay lead to increases in the local economy because local and
state government revenues and expenditures will increase, which will lead
to increases in the local economy. Personal incomes will also rise in the
local economy because of a general expansion in wage rates, which results
from OCS development.
The importance of growth in the local economy can be separated from total .
growth by examining the distribution of employment between these sectors
on the North Slope. The enclave sector actually includes a portionof
construction which is not directly related to development, as well as
other industries such as transportation. Because this proportion cannot
easily be separated, this analysis may overstate the growth of the local·
economy. During the exploration phase, there is very little effect
on the local economy. Of the 255 extra employees in 1983, 47 percent are
.-,
directly associated with OCS petroleum activity. The local sector of the
North Slope economy in the base case consists of 4,200 employees in 1983,
so during exploration the local sector increases by 3 percent. By the
end of the development phase in 1987, the total impact is 4,087; of this
1,833 is in the petroleum enclave sector. At this time in the base case,
the local sector is 4,513 employees. The largest impact on the local
economy occurs in this development stage with approximately 50 percent
increase in the local sector. During production, direct OCS impact
employment stabilizes at 821, which is its level in 2000, and is 52 per-
cent of the total employment impact. In the base case, the local sector
121
is about 6,061 in 2000, so that impact increases the local sector employ-
ment approximately 12 percent.
The overall distribution of this impact could either reinforce or impede
the trend toward increasing importance ·in the local support sector found
in the base case. By far the largest expanding industry is construction,
which ranges from 50 percent of the impact at the end of the development
stage to 29 percent at the end of the period. The share of the impact
in trade, services, and finance increases throughout the period, which
supports the trend found in the base case. After construction, trans-
portation is the most important sector in the local economy, which in-
creases its importance throughout the period as in the base case. Over-
all, though, the importance of exogenous employment in the employment
impact impedes the trend toward the increased importance of the local
serving sectors found in the base case. The growth caused by Beaufort
development may limit the reduction in seasonality suggested by the
structural change forecast in the base case. However, much of the em-
ployment in the highly seasonal construction and mining industries is in
the enclave sector; Beaufort development may reduce seasonality in the
local sector since the local support sector is seen to grow.
Population
Table 3.19 shows the population impact in the three study regions. By
2000 the North Slope Borough population has increased by 1,437 over the
base case. This total will not have as large an impact on the local
population, since over half of this increase is the extra employment in
122
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the enclave sector. The total population in the local sector is only
increased by 616 above the base levels; this is an 8 percent increase in
population. The population impact by the end of the exploration phase
is 181, which is 3.3 higher than the base. The effect on total population
is more important in the development stage. By the end of development,
the local population is 3,127, or 56 percent higher than in the base.
These population increases have two effects on the North Slope Borough.
First, the growth in the economy has the effect of reducing the outmigra-
tion of local residents, which has been found to be a past trend in vil-
lage and rural Alaska (Alonso, 1976}. Second, the increase in population
at Prudhoe leads to welfare increases by increasing the revenues available
to the borough. This increase in revenues can be considered an overall
increase in welfare, since, assuming the enclave nature of development,
there is no proportional increase in the demand for services.
Personal Income
By 2000 personal income is $249.2 million higher in the North Slope be-
cause of Beaufort OCS development. The impact is highest in the second
year of construction when incomes are 91 percent higher than in the base
case. By the end of exploration, personal income is 5.3 percent higher
than the base case. The peak during development shows the importance of
the high incomes of construction workers associated with Beaufort develop-
ment.
123
ANCHORAGE
Employment
Anchorage has in the past served as the Alaska headquarters for petro-
leum and petroleum support firms. Because of this past relation, it is
assumed that increased petroleum activity on the North Slope will lead to
increased support activity in Anchorage. This provides a direct link
between the level of OCS development and Anchorage economic _growth.
Additionally, Anchorage growth is affected by increases in demand for goods
and services, which result from increases in the personal income of the
region and increased state expenditures. Anchorage serves as a supply
source for many goods and services for the rest of the state; because of
this, Anchorage will experience growth as demand in the rest of the state
increases.
Total employment in Anchorage is 14,201 greater than in the base case by
2000; this is an 8.4 percent increase in employment over the base. By the
end of the exploration phase in 1983, employment in Anchorage is 485, or .5
percent higher than in the base, and by the end of development, employment
is 3,616, or 3.2 percent higher. The importance of impact-associated
employment increases throughout the period.
The development of the Beaufort OCS according to the Prudhoe High Scenario
increases the growth rate from 3.1 percent in the base case to 3.5 percent
per year between 1977 and 2000. The relation between the growth rates in
the base case and with Beaufort development is consistent throughout the
124
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forecast period. Average annual growth of total employment averages about
12 percent more in both the exploration-development and production phases.
The composition of the extra employment which results from OCS develop-
ment supports the structural changes found in the base case. Between 1977
and 2000 the base case saw an expansion of the importance of the Anchorage
local service sector, particularly trade and services. By examining the
structural component of this extra employment, we can see this trend is
supported. In all phases, exploration, production, and development,
trade, services, and finance are more than 50 percent of the impact.
Tables 3.2land 3.22 show the employment trends in Anchorage. The Beau~
fort impact should also support the reduction in seasonality of the
Anchorage economy suggested by the structural change in the base case.
Population
The development of the Beaufort OCS according to the Prudhoe High Scenario
increases the concentration of population in Anchorage. By 2000 popula-
tion is 28,097 higher in Anchorage than in the base case; this is almost
9 percent greater than in the base case. The majority of this impact
occurs in the production period. By the end of exploration, population
is less than 1 percent higher than in the base case. Population is 2.3
percent higher than in the base case because of OCS development by the
end of the development phase in 1987. By 2000 the population impact in
Anchorage is 70 percent of the total impact in the state; this is greater
than the 56 percent of total state population in Anchorage in 2000 in
125
TABLE 3.21.
Year
1979 1
1980
1981
1982
19832
1984
1985
1986
1987
19883
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
1Exploration begins
2oevelopment begins
3Production begins
PRUDHOE HIGH SCENARIO TOTAL ECONOMIC IMPACT
(measured as change from the base)
ANCHORAGE
1979-2000
Total Personal
Population Employment Income
(millions
of $)
150 73 2.426
353 175 5.994
570 292 9.675
758 446 14.867
866 484 16.844
987 531 19.308
1~255 729 27.799
4~219 3~ 115 125.919
5,554 3~616 152.142
7,890 3~780 169.753
10,274 5,025 230.582
11,635 5,477 260.485
13' 136 6,100 300.098
14,942 7,058 356.410
16~332 7,626 399.121
17,312 8,018 433.242
18,775 8, 722 488.266
20,255 9,427 547.160
21,929 10,259 617.637
23,731 11,316 704.891
25,838 12,631 814.355
28,097 14,201 945.973
SOURCE: MAP Regional Model
126
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TABLE 3.22. INDUSTRIAL DISTRIBUTION OF THE PRUDHOE HIGH
EMPLOYMENT IMPACT
(measured as changes from the base)
ANCHORAGE
1983 . 1987 2000
Employment % Employment % Employment
Mining 11 2.3 36 1.0 119
Construction 25 5.2 195 5.4 706
Trade 129 26.7 1,182 32.7 3,917
Services 125 25.8 1,084 30.0 5,567
Finance 36 7.4 304 8.4 1,486
Transportation 38 7.9 407 11.3 881
State and Local Govt. 100 20.7 262 7.2 1 '1 05
Other* 20 4.1 146 4.0 402
*Includes P.ublic Utilities, Co!T!!lunications, and Other
SOURCE: MAP Regional Model
127
%
.8
5.0
27.6
39.2
10.5
6.2
7.8
3.0
the base case. The effect of this will be to increase the population
concentration in Anchorage (see Table 3.21)~
Personal Income
By 2000 Anchorage personal income is $946 million higher than in the
base case. By the end of the exploration phase, personal income is .67
percent higher than in the base case. It is 4.8 percent higher by the
end of the development phase.
FAIRBANKS
Employment
Tables 3.23 and 3.24 illustrate the growth of employment in Fairbanks.
Fairbanks has the smallest proportionate employment impact of any of the
three regions described in this section. By 2000 employment is only 4.4
percent higher than in the base case. From 1978 to 2000 employment grows
at an average annual rate of 1.3 percent, compared to 1.2 percent in the
base case. The impact in Fairbanks is greatest during the production
phase. At the end of the exploration phase, employment is .2 percent
greater than in the base case; after production, employment is 1.4 per-
cent greater. The importance of state and local government expansion as
a result of OCS development is the reason for the growth in the production
phase. Since Fairbanks has only minimal connection with oil development,
increases in state and local expenditures resulting from revenue increases
are the major way the Fairbanks economy is impacted by OCS development.
Unlike the construction of the TAPS and Alcan projects, there is no direct
employment associated with Beaufort development which is located in
128
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(measured as change from the base)
[ FAIRBANKS
1979-2000
~ Total Personal
Year PoEulation EmElo~ment Income
L (millions
of $)
1979 1 59 23 1.177
[ 1980 127 51 3.032
J 1981 162 70 3.603
[ 1982 150 85 3.874
19832 169 90 4.285
1984 186 95 4. 775
[ 1985 166 107 6.115
1986 15 319 24.273
1987 3 398 444 31. 991 r· 1988 1,739 725 48.756
L 1989 2,300 968 64.392
1990 2,586 1,023 70.667
[ 1991 2,846 1,100 78.767
1992 3,102 1,230 89.136
1993 3,260 1,274 96.086
L 1994 3,322 1,282 99.832
1995 3,438 1,333 108.139
[J 1996 3,540 1,373 116.480
1997 3,632 1,413 125.584
1998 3,701 1,471 136.452
[ 1999 3,753 1,537 148.945
2000 3,764 1,605 162.407
[
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2oevelopment begins
L
3production begins
SOURCE: MAP Regional Model
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129
TABLE 3.24. INDUSTRIAL DISTRIBUTION OF THE PRUDHOE HIGH .
EMPLOYMENT IMPACT
(measured as changes from the base)
FAIRBANKS
1983 1987 2000
Employment % Employment % Employment
Construction 5 5.5 36 8.1 136
Trade 16 17.6 103 23.1 357
Services 13 14.3 89 20.0 305
Finance 4 4.4 27 6. 1 92
Transportation 7 7.7 48 10.8 180
State and Local Govt. 39 42.9 100 22.4 431
Other* 7 7.7 42 9.4 101
*Includes Public Utilities, Communications, and Other
SOURCE: MAP Regional Model
130
%
8.5
22.2
19.0
5.7
1L2
26.8
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Fairbanks. The impact associated with this development is entirely
through the interaction with the North Slope region and the induced re-
gional growth. This factor minimizes the impact of Beaufort development
on the Fairbanks economy.
The structural change shown in Table 3.24 reinforces the trend found in
the base case; The local support sector increases in importance because
of the Beaufort OCS development; over half of·the impact employment by
2000 is in trade, services, and state and local government. Since these
industries have been shown to be the least seasonal of Alaskan industries,
the OCS impact wili support the reduction in seasonality found in the
base case.
Population
The population impact in Fairbanks has the effect of reducing the decline
in population .found in the base case after 1987. Between 1987 and 2000
population experiences a positive though low rate of growth instead of
a negative rate as in the base case; population has increased by 1,424
during this period. The production phase is most important for providing
this additional growth; approximately 90 percent of the additional popu-
lation is achieved in this period. In both the exploration and production
phases of this development, the population impact is less than 1 percent
of base case population. Because of the small size of this population
impact, it has only minimal effect on the population decline associated
with the end of the construction of the Alcan pipeline (see Table 3.23).
131
Personal Income
By 2000 personal income in Fairbanks is $162.4 million greater than in
the base case. By the end of exploration, Fairbanks personal income has
increased only .5 percent over the base case. By 1987, at the end of
the development phase, personal income is 2.9 percent greater.
Summary and Assessment of Impacts
Relatively small impacts should result from development of the Beaufort
Sea OCS according to the Prudhoe High Scenario. While this scenario has
the largest impact of all those studied, compared to the recent Alaska
experience, the effects on all the aggregate indicators is relatively
small. The total population impact by 2000 is approximately 40,000.
According to estimates of the Alaska Department of Labor, the Alaska
population increased from 302,000 in 1970 to 405,000 in 1975. This is
an increase of over 100,000 in only five years; the extra 40,000 popula-
tion resulting from Beaufort OCS development is a twenty-year increase.
The largest one year population increase as a result of Prudhoe High
development is 6,000 between 1985 and 1986; this can be compared with
the estimated 50,000 population increase between 1974 and 1975. Though
the increase by 2000 over the base case is not minimal for any of the
aggregate indicators (7 percent for population, 6.4 percent for employ-
ment, 9.2 percent for personal income, and 13 percent for state expendi-
tures), the twenty-year period minimizes the overall impact.
Base case trends in the employment sector were, for the most part, sup-
ported by this development. Beaufort OCS development leads to increased
132
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importance of the local serving sectors. Those industries, trade, ser-
vice, transportation, which increased their shares of total employment in
the base case were an important part of the employment increase associated
with Beaufort development. The large share of these local support sectors
in the Beaufort-induced employment means that the trend toward reduced
seasonality is also supported by this development. The increased impor-
tance of those industries which are the least seasonal in the economy will
reduce the overall seasonality of employment. Beaufort development in-
duces a population increase which is greater than the induced employment
increase. Because of this, the overall population toemployment ratio
will increase; this will mean there are more people per job and a possible
increase in .unemployment.
The aging of the population will be slowed by Beaufort development. The
major reason for this is that the increased economic opportunities will
decrease the outmigration of young people. Another population trend which
will be reversed by Beaufort development concerns the Native share of popu-
lation which increased in the base case. Because of OCS development, the
share of population which is Native will remain approximately the same as
at the beginning of the period.
The revenues which flow to the state as a result of Beaufort development
have two significant impacts. First, they allow an expansion of the ser-
vices of state government. Real per capita state expenditures increase
about 4 percent over the base case. Second, the increased state revenues
delay the fiscal crisis, which occurs when expenditures exceed revenues
133
and the permanent and general funds must be drawn down to support ex-
penditures. Because of the expenditure response to these increased
revenues, Beaufort development only delays this crisis; it does not
eliminate it.
The regional concentration found in the base case continues with Beaufort
OCS development. Anchorage experiences the greatest proportion of the
impact in both employment and population. Major direct impacts take
place in the North Slope region, since the development is located there.
Almost 52 percent of the total employment impact on the North Slope is
direct Beaufort OCS development. Because there are no direct ties be-
tween Fairbanks and the OCS activity and it does not possess the economic
scale of Anchorage, Fairbanks is only minimally impacted by OCS develop-
ment. Employment is only 1.4 percent greater than in the base case.
Prudhoe Low Scenario
The Prudhoe Low Scenario has the third greatest effect on the economy of
all the scenarios. Exploration begins in 1980 and lasts until 1984,
with peak exploration employment in 1981. Development begins in 1985 and
lasts through 1988, with peak development employment in 1987; this is
also the peak in direct employment for the entire period. Production
begins in 1989 and lasts through the remainder of the forecast period.
AGGREGATE INDICATORS
Table 3.25 shows the impacts of each of the aggregate indicators of eco-
nomic activity. In each case, these indicators are greater than the base
134
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TABLE 3.25. PRUDHOE LOW SCENARIO IMPACT ON
AGGREGATE INDICATORS
(measured as changes from the base)
STATE OF ALASKA
1979-2000
Total State
Year Population Employment Personal Income Ex~enditures
{mill ions of $) (mi 11 ions
of $)
1979 0 0 0.000 0.000
19801 260 199 8.738 0.346
r---r 1981 1,075 793 33.965 10.895 I
I 1982 1,446 985 39.164 21.613
1983 1,550 962 41.066 22.694
.-·--., 19842 1,714 991 44.254 24.101
I 1985 1,743 920 41.996 25.379 ! L._.
1986 2,431 1,377 73.398 28. 818'
[~ 1987 6,069 4,040 238.059 58.656 .
I
I 1988 7,333 4,527 263.109 69.253 -~
19893 9,116 5,412 316.207 85.080
~~ 1990 9,493 5,167 306.012 89.275 I
I _,
1991 10,580 5,556 341.137 100.491
L 1992 11,329 5,688 360.770 109.041
1993 12,609 6,260 415.887 123.372
1994 14,071 6,952 477.543 140.114
1995 15,326 7,459 532.250 155.702
~~ 1996 15,999 7,515 555.422 165.875 ~=i
1997 16,565 7,529 577.074 175.723
L 1998 17,526 7,900 630.621 190.551
1999 17,482 7,493 617.180 194.793
2000 18,212 7,774 668.340 208.641
r-·
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[. 2oevelopment begins
lj 3Production begins
SOURCE: MAP Statewide Model
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case. Population is 18,212 greater by 2000 than in the base case. By the
end of the exploration in 1984, 9.4 percent of the total population im-
pact has been achieved. By 1988, when the development stage ends, 40
percent of the total impact has been reached; the population impact is
more evenly spread than in the Prudhod High Scenario. Population growth
rates differ from the base case. During the exploration phase, growth
is approximately 6 percent faster than for the same period in the base.
Population grows about 5o percent faster in the development phase than
during the same period for the base case. The growth rate in the pro-
duction phase is 9 percent higher than during the same period in the
base case. By 2000 population is 3 percent greater·than in the base case.
Employment experiences the same type of growth pattern, being higher than
the base case by 7,774 jobs, or 2.7 percent, by the end of the period.
Approximately 13 percent of the impact has been reached by the end of the
exploration phase; 58 percent has been reached by the end of development.
From 197~, the year before exploration begins, employment grows at an
average annual rate of 1.9 percent. This is slightly greater than the
growth rate in the same period in the base case. The greatest difference
is in the development phase, when the growth rate is 1.7 percent compared
to 1.2 percent in the base case. The growth rate in the exploration
phase is 4 percent greater than for the same period in the base case,
and the production phase experiences a growth rate similar to the base
case.
136
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Personal income is $668.3 million higher by 2000 because of the Prudhoe
Low development. This is 3.9 percent greater than in the base case.
Of this impact, 7 percent is achieved during the exploration phase and
32 percent in the development stage. Growth during the entire period
averages 7.1 percent per year, which is approximately 3 percent faster
than the annual average growth of 6.9 percent during the period 1978-2000
in the base case.
State expenditures are $208.6 million higher by 2000 than in the base case.
Total state expenditures are $5.14 billion, compared to $4.94 billion in
the base case. Over 66.8 percent of this impact occurs in the production
phase of activity, compared with 12 percent in exploration and 33.2 per-
cent in development. The annual rate of growth of state expenditures in
the production phase is 4.4 percent, which is 5 percent greater than in
the base case during the same period.
CAUSES OF GROWTH
The discussion in Chapter II isolated changes in exogenous employment,
changes in personal income, and changes in state expenditures as the major
causes of growth. Changes in these same variables are responsible for
generating impacts over the base case. The most important causes of the
changes discussed above are changes in exogenous construction and mining
employment, which result from the Beaufort development, and changes in
state expenditures. The level of Beaufort OCS employment and the asso-
ciated changes in personal income are more important during the explora-
tion and development stages prior to the rapid increase in state revenues.
137
At its peak in 1987 exogenous employment accounts for 25 percent of the
total employment impact. By 2000 Beaufort OCS employment accounts for
only 6.5 percent of total employment.
State expenditures are greater than in the base case throughout the
forecast period from the beginning of exploration work. The importance
of the state spending rule (see Chapter II) is that it presents another
way in which OCS development affects state growth. OCS development pro-
duces revenues which increase state spending, which in turn affects
economic growth. The expenditure impact is much greater in the production
period than in either exploration or development because the flow of oil
produces both royalties and severance taxes, which provide large increases
in revenues over the base period. These revenue increases cause expansion
of services provided by the state and, therefore, expenditures. During
production, direct Beaufort Sea employment is reduced from 887 to 502.
The reduction in direct employment and the increase in revenues and ex-
penditures after production begins make the expenditure impact a more
important cause of growth.
The overall proportion of impact which results from either of these causes
is hard to determine. One way to estimate the proportion of impact caused
by each factor is to examine what would happen to the major variables if
state expenditures remained as in the base case. This is not a descrip-
tion of what will happen, because state expenditures, as we have shown,
will undoubtedly respond to increases in revenues. This testallows us
to see in some sense the direct impact of development at Prudhoe Low.
138
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The sensitivity analysis in Chapter IV was undertaken to show this. By
2000 private development is responsible for 49 percent of the population
impact, 41 percent of the employment impact, and 45 percent of the impact
on incomes. The level of petroleum revenues available from Prudhoe Low
is less than in Prudhoe High; this increases the importance of private
development in the impact.
FISCAL IMPACTS
Table 3.26 illustrates the changes in the state fiscal position. (Discus-
sions in this section refer to fiscal years.) The development of the
Beaufort OCS according to the Prudhoe Low Scenario improves the overall
state fiscal position during the forecast period. By 2000 there is $3.7
billion more in the permanent fund than in the base case. One reason for
this is that after production begins in 1989 the change in revenues re-
sulting from Beaufort development exceeds the change in expenditure.
The change in total revenues because of OCS development is importantly
affected by production. Prior to the production stage, the increase in
revenues results from three sources, increases in the property taxes,
increases in non-petroleum taxes, and bonuses paid to the state for
leases in the state•s portion of the OCS area. The first major increase
in revenues results from the bonuses paid in 1980 and 1981. The interest
from bonuses provides revenues to the state, even though the bonuses go
into the permanent fund. During exploration; property tax revenues in-
crease to $2.6 million because of additional equipment and facilities
required in exploration. The greatest proportion of increased revenues
139
TABLE 3.26.
Total
Year · Revenues
19791 0.000
1980 125.243
1981 135.456
1982 21.019
1983 22.052
19842 23.381
1985 24.638
1986 27.736
1987 . 41.429
1988 59.789
19893 121.324
1990 210.137
1991 270.267
1992 330.437
1993 385.664
1994 429.596
1995 468.312
1996 515.194
1997 593.367
1998 627.918
1999 597.507
2000 599.341
1Exploration begins
2oeve1opment begins
3Production begins
IMPACT ON THE STATE FISCAL SECTOR OF
THE PRUDHOE LOW SCENARIO
(measured as changes from the base)
(in millions of dollars)
STATE OF ALASKA
1979-2000
General Permanent
Fund Fund Total
Balance Balance ExEenditures
0.000 0.000 0.000
0.000 125.000 0.346
0.000 250.000 10.895
0.001 250.000 21 • 612
0.001 250.000 22.693
0.001 250.000 24. 101
0.001 . 250.000 25.378
0.001 250.000 28.818
-14.328 250.000 58.656
-20.259 250.000 69.252
2.641 267.820 85.080
82.038 313.988 89.275
0.000 571.160 100.491
0.000 798.406 109.041
0.000 1,067.390 123.372
0.000 1,364.550 140.114
0.000 1,685.750 155.702
0.000 2,044.230 165.875
0.000 2,471.590 175.723
0.000 2,919.540 190.551
0.000 3,333.030 194.793
0.000 3,735.300 208.641
SOURCE: ~~p Statewide Model
140
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in this period results from interest earned on the permanent fund balance;
only 11.1 percent of the change in total revenues by the end of the
exploration period is because of increased petroleum activity. At this
time revenues are less than 1 percent greater than in the base case.
The development ofthe fields which occurs from 1985 to 1988 increases
property tax revenues to $25.8 million. Revenues from petroleum develop-
ment have increased to approximately 43 percent of the increase in total
revenues by the end of development in 1988. Petroleum revenues increase,
though not as dramatically as in the Prudhoe High Scenario, once production
begins. Petroleum revenues directly associated with the Beaufort OCS
development rise to a peak of $405.2 million in 1998; at this time petro-
leum revenues from the Beaufort account for 65 percent of the increase in
revenues. Petroleum revenues decline throughout the remainder of the
period, until they are $311.8 million in 2000.
The development of the Beaufort OCS according to the Prudhoe Low Scenario
increases revenues, and it will also affect state expenditures. As new
population is drawn into the state because of this development, expendi-
tures will be increased to provide a given level of services to the in-
creased population. The increased revenues may also lead to increases in
the level of services provided, which will increase expenditures greater
than the proportionate increase in population. Until the final year of
the development stage, when property tax revenues increase substantially,
the increase in expenditures caused by OCS development exceeds the increased
revenues. The population increases, associated with the final years of
141
development when direct Beaufort employment reaches its peak, necessitate
the drawing down of the general fund to provide services. By 1988 there
is $20 million less in the general fund than in the base case. After
production begins, the revenue increase exceeds expenditure increases
throughout the remainder of the period. Because of this, the permanent
fund grows throughout the production period from 1989 to 2000.
What is the overall fiscal. effect of Prudhoe Low development on the Alaska
state government? First, development allows a small expansion of services
provided residents. Real per capita state expenditures are $6 greater
by the end of the period than in the base case. By 2000 real per capita
expenditures are $1,645 per person, which is less than 1 percent more than
in the base case. The extra Beaufort revenues have postponed the period
when expenditures exceed revenues only slightly, until 1994, which is
three years later than in the base case. The cyclical nature of petroleum
revenues and increases in expenditures in response to increases in reve-
nues lead to the eventuality of the necessity of drawing down fund balances
to support these expenditure levels.
INCOME
The increase in personal income due to Beaufort OCS development can have
two effects. First, higher levels of personal income will increase the
demand for goods and services and lead to growth in the economy. Second,
Beaufort OCS development could lead to welfare increases. To the extent
personal income in~reases are a result of increasing wage rates, welfare
will be increased. The extent to which these personal income changes will
142
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have these effects will be determined by the increased taxes paid and the
increases in prices, which reduces the amount of goods and services an
extra dollar of income can buy.
Table 3.27 shows the effect of taxes and prices on the increase in per-
sonal income generated by OCS development. By 2000 personal income would
be $668 million higher with Beaufort OCS development following the Prud-
hoe Low Scenario than in the base case. Taxes take almost 25 percent
of this incremental income in 2000. Prices have a much larger effect on
income available to the population. To the extent prices rise because of
OCS development, the effect of the added income will be reduced, and there
will be a general decrease in the buying power of all income. By 2000 the
change in real disposable personal income is only 16 percent of the change
in disposable personal income, while at the end of exploration in 1983 it
is 26 percent.
Welfare, as measured by the increase in real per capita disposable in-
come (DIRPA), increases during the period because of OCS development but
is slightly less than in the base case by the end of the period. DIRPA
has risen to as much as $45 more than in the base at the peak of exogenous
employment in 1987. The influence of high wage sectors on per capita in-
come limits it as a measure of welfare. By 2000 these industries are
declining and they do not influence the measure as much. By 2000 DIRPA is
about $3 less than in the base case.
143
TABLE 3.27. PERSONAL INCOME IMPACT OF PRUDHOE LOW DEVELOPMENT
{measured as change from the base case)
Per Capita
Real Disposable
Year Income
19791 0.00
1980 2.43
1981 7.79
1982 7.79
1983 7.31
19842 6.62
1985 4.33
1986 10.95
1987 45.21
19883 42.27
1989 43.22
1990 32.22
1991 30.31
1992 25.69
1993 26.53
1994 26.47
1995 24.44
1996 18.26
1997 11.76
1998 9.44
1999 -0.82
2000 -3.12
lExploration begins
jDevelopment begins
Production begins
SOURCE: MAP Statewide Model
STATE OF ALASKA
1979 -2000
Disposable
Personal Real Disposable
Income Personal Income
(millions (mi 11 ions of $)
of $)
0.000 0.000
6.765 2.003
26.238 7.439
30.425 8.408
31.863 8.604
34.351 8.983
32.625 8.191
56.660 14.069
183.062 44.615
202.410 47.710
243.422 55.336
235.496 51.716
262.504 55.770
277.172 57.028
319.223 63.639
365.559 70.505
407.113 75.942
423.992 76.560
440.332 76.886
479.762 81.099
469.566 76.661
506.781 80.064
144
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EMPLOYMENT
Primary employment levels associated with OCS development generate signi-
ficant secondary impacts throughout the state economy. The increase in
the demand for goods and services, which results because of changes in the
level of personal income, lead to increases in employment in other sectors
of the economy. State expenditures, which rise because of the increased
revenues available from OCS development, also generate demand for goods
and services and increases in employment. The growth of employment will
affect the structure of employment. Table 3.28 shows the distribution
of this Beaufort-induced employment impact between industrial sectors.
In the base case, the general trend in the structure of employment which
was observed was an increase in the proportion of total employment in
the local serving sector, particularly trade and services. The extra
employment which results from OCS development in the Prudhoe Low Scenario
supports this base case trend. We will examine the structure of this
increased employment at three point in time, the end of the forecast
period, the exploration period, and the development period. The distri-
bution of employment in 2000 supports the overall trend found in the base
case. Trade, services, and finance make up 63 percent of the increased
employment, mining and exogenous construction account for only 7 percent,
while state and local government account for 13 percent. These percen-
tages are fairly stable during all stages of petroleum activity. The
major change is the declining proportion of employment change accounted
for by direct Beaufort employment.
145
TABLE 3.28. INDUSTRIAL DISTRIBUTION OF THE PRUDHOE LOW
EMPLOYMENT IMPACT
(measured as changes from the base)
ALASKA
1984 1988 2000
Employment % Employment % Employment
Mining and Beaufort
OCS Construction 130 13. l 892 19.7 502
Other Construction 64 6.5 277 6. l 645
Trade 200 20.2 l ,036 27.9 2, l 04
Services 199 20. l l ,051 23.2 2,259
Finance 50 5.0 260 5.7 547
Transportation 38 3.8 187 4. l 325
State and Local Govt. 264 . 26.6 608 13.4 l ,045
Other* 46 4.6 216 4.8 347
*Includes Public Utilities, Co~munications, and Other
SOURCE: MAP Statewide Model
146
%
6.5
8.3
27.0
29. l
7.0
4.2
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By the end of the production phase, the structure of employment found in
the base case is reinforced by the OCS development. This should mean
that the reduction in seasonality will take place as discussed in the
base case. The increased proportion of employment in non-seasonal in-
dustries should reduce the overall seasonality in the economy. Direct
employment in the OCS development does have a seasonal component, which
may dampen the effect, but will not reduce the decrease in seasonality.
Even in its peak year, over 50 percent of the increased employment is in
non-seasonal industries.
In the base case a possible trend toward a reduction in unemployment was
assumed because of the decrease in the ratio of population to employment.
Although this does not guarantee a reduction, it indicates the possibility
of a decrease. The OCS development will support this trend if the ratio
of change in population to change in employment falls. This ratio reaches
2.35 in 2000, which is higher than the ratio found in 1977. This indi-
cates the impact employment leads to greater increases in population and
a possible increase in unemployment.
POPULATION
By 2000 population is 3 percent higher because of development in the
Beaufort OCS. The greatest increase in population occurs in 1987, when
the extra population increases 3,640 as a result of peak increases in
direct OCS employment. The major factor affecting population levels is
the change in migration experienced because of OCS. Migration is a
147
response to increased employment opportunities and income. Throughout
the forecast period the effect of OCS development is to reduce outmigra-
tion. In the period between 1986 and 1998, which is dominated by out-
migration in the base case, increased employment opportunities associated
with OCS development never cause substantial inmigration, although they
do reduce the level of outmigration. In 1987 this is substantial; out-
migration is reduced by approximately 3,500. The reduction in the
outmigration is responsible for the increased population.
Since migration is not assumed to affect Native population, one impact
of this increase. is a reduction in the share of Native population in the
total. By 2000 Native population is 18 percent of the total, compared
to 19 percent in the base case; this is a larger share of total population
than in 1977.
The structure of population will be changed in the OCS case. Migration
response to changing economic opportunities most importantly affects the
young. The reduction in outmigration would be assumed to dampen the
aging in the population structure found in the base case. Table 3.29
shows the proportion of each age-sex classification in the total popu-
lation at the end of development in 1980, 1990, and 2000. By 2000 the
age structure has still undergone aging, although not quite as rapid as
in the base case. By 2000 the proportion of population which is greater
than forty is 2 percent less than in the base case.
148
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0 - 1
1 -4
5 - 9
10 -14
15 -19
20 -24
25 -29
30 -34
35 -39
40 -44
r~..., 45 -49 '
I 50 -54
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60 -64
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TABLE 3.29. AGE-SEX STRUCTURE OF THE POPULATION
PRUDHOE LOW SCENARIO
(% of total population)
1980 1990 2000
Ma 1 e--Fema 1 e Ma 1 e--Fema 1 e Male--Female
1.19 1.19 1.07 1.07 1.02 1.02
4.29 4.09 4.23 4.01 3.81 3.63
4.75 4.62 5.10 4.93 4.65 4.47
4.32 4.22 4.50 4.34 4.40 4.23
4.93 4.11 4.06 3.81 4.25 3.94
8.56 5.69 5.56 3.84 5.52 4.03
6.01 5.24 4.50 3.85 3.80 3.53
4.67 4.27 4.60 4.11 3.53 3.35
3.60 3.22 4.42 3.77 3.64 3.19
2.54 2.41 3.57 3.32 3.44 3.17
2.04 1.84 2.76 2.60 3.16 2.91
1.78 1.57 2.14 2.05 2.75 2.60
1.49 1.31 1.66 1.61 2.20 2.17
1.18 1.06 1. 33 1.32 1. 70 1. 78
1.97 1.84 2.79 3.08 3.59 4.52
MAP Statewide Model
149
Regional Impacts
This section will examine the impact of OCS development on three regions,
the North Slope, Anchorage, and Fairbanks. The impacts will be measured
as changes in the population, employment, and personal income growth in
each region from the base case. OCS development in the Beaufort Sea im-
pacts the state and regional economies by increasing exogenous employment,
personal income, and state expenditures. Each region will be influenced
differently by these growth factors_because of differences in the dis-
tribution of state expenditures, interaction with other regions, the size
of the local economy, and the location of exogenous employment. These
mechanisms for growth and its transmission between regions will not be
changed by OCS development but will distribute its effects to the regions.
NORTH SLOPE REGION
Employment
Tables 3.30 and 3.31 show the changes in North Slope employment over the
base case and the industrial distribution of this change. The increase
over the base case does not grow smoothly throughout the period, but ex-
periences several peaks. By 2000 total employment is 784 greater than in
the base, which is about 10 percent higher than the base. When direct em-
ployment at the OCS site peaks in the development phase in 1987, total
employment is 2,379, or 34 percent, higher than the base. By the end of
the exploration phase in 1983, total employment is only 3.7 percent
higher than in the base.
150
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l TABLE 3.30. PRUDHOE LOW SCENARIO TOTAL ECONOMIC IMPACT
{measured as change from the base)
[ NORTH SLOPE REGION
1979-2000
l Total Personal
Year Population Employment Income
(millions ~-,
of $) l ~
19791 0 0 0.000
{~ 1980 68 67 4.052 I
L~ 1981 274 260 17.301
[ 1982 168 167 10.756
1983 279 253 18.466
19842 301 260 20.067
1985 242 200 16.340 I
L 1986 755 650 56.748
1987 2.718 2,379 216.482 r-, 19883 2,293 1 ,941 178.271
L 1989 1,723 1,467 135.875
1990 1 '119 994 93.830
[ 1991 1,090 1,029 102.659
1992 901 899 93.275
1993 1,085 1,095 121.654 [ 1994 935 991 114.051
1995 931 1,015 123.186
p 1996 850 954 121.993
1997 779 892 120.190
1998 802 916 130.062 c 1999 643 761 113.901
2000 671 784 123.591
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Development begins
3Production begins
i '
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TABLE 3.31. INDUSTRIAL DISTRIBUTION OF THE PRUDHOE LOW
EMPLOYMENT IMPACT
(measured as changes from the base)
NORTH SLOPE REGION
1984 1988 2000
Employment % Employment % Employment
Mining and Beaufort
OCS Construction 119 46.0 856 44.1 427
Other Construction 111 42.5 881 45.4 222
Trade 2 .7 15 .8 9
Services 10 3.8 77 4.0 44
Finance 1 .4 11 .6 6
Transportation 9 3.4 71 3.7 49
State and Local Govt. 7 2.7 26 1.3 22
Other* 1 .4 4 .2 5
*Includes Public Utilities, Communications, and Other
SOURCE: MAP Regional Model
152
%
54.5
28.3
1.1
5.6
.7
6.3
2.8
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Employment increases on the North Slope are of two kinds. First, petro-
leum and construction employment located at Prudhoe Bay increases with
OCS development. Because of the limited interaction this sector has with
the local economy, this increase has only minimal impact on the local
economy. Second, increases in employment at Prudhoe Bay lead to increases
local government and state government revenue and expenditures, which
will lead to increases in the local economy. Personal incomes will also
rise in the local economy because of a general expansion in wage rates,
which results from OCS development. This will also increase local em-
ployment.
By removing direct petroleum and construction employment and examining
changes in the remainder of the economy, we can get an indication of the
effect of Beaufort development on the local economy. Elements in trans-
portation and construction also serve the enclave sector. This cannot be
separated, so the impact on the local economy may be overestimated.
During the exploration phase, there is very little affect on the local
economy. Of the 261 extra employees in 1984, 46 percent are directly
associated with OCS petroleum activity. The local sector of the North
Slope economy in the base case consists of 4,150 employees in 1984, so
during exploration the local sector increases by 3 percent. By the end
of the development phase in 1988, the total impact is 1,941; of this
856 is in the enclave sector. At this time in the base case, the local
sector is 4,305 employees. The largest impact on the local economy
occurs in this development stage with approximately 25·percent increase
in the local sector. During production, direct OCS impact employment
153
falls to 427 by 2000, which is 54 percent of the total employment impact.
In the base case, the local sector is about 6,119 in 2000; impact in-
creases the local sector employment approximately 6 percent.
By far the fastest expanding industry is construction, which ranges from
43 percent of the impact at the end of the development stage to 28
percent at the end of the period. The share of the impact in trade, ser-
vices, and finance increases throughout the period from 5 percent to 7.4
which supports the trend found in the base case. After construction,
transportation is the most important sector in the local economic impact,
which increases its importance throughout the period as in the base case.
Overall, though, the importance of exogenous employment in the employment
impact impedes the base case trend of the reduction of the importance of
this sector. Overall, the impact of OCS development may be to limit the
trend toward reduction in seasonality of employment forecast in the base
case. This results from the importance of construction in the impact
employment. Seasonality may still be reduced in the local economy, if
the expansion of construction is largely in the enclave sector.
Population
Table 3.30 shows the regional population impacts of Beaufort OCS develop-
ment. By 2000 the North Slope Borough population has increased by 672
over the base case. This total. will not have as large an impa~t on the
local population, since over 60 percent of this increase is the extra
employment in the enclave sector. The total population in the local
sector is only increased by 244 above the base levels; this is a 3.2
154
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percent increase in population. The effect on total population is more
important in the other periods. The population impact by the end of the
exploration phase is 183 higher than the base. By the end of develop-
ment, the local population is 1,437, or 25 percent, higher than in the
base.
These population increases have two effects on the North Slope Borough.
First, the growth in the economy has the effect of reducing the outmigra-
tion of local residents, which has been found to be a past trend in
village and rural Alaska (Alonso, 1976). Second, the increase in popula-
tion at Prudhoe leads to welfare increases by increasing the revenues
available to the borough. This increase in revenues can be considered an
overall increase in welfare, since, assuming the enclave nature of de-
velopment, there is no proportional increase in the demand for services.
Personal Income
By 2000 personal income is $123.6 million greater than in the base case
as a result of development of the Beaufort OCS following the Prudhoe Low
Scenario. By the end of exploration, personal income is 5.3 percent
greater than in the base. Peak impact comes in 1987 during development
when personal income is 49.1 percent greater than the base. This is pri-
marily a result of the increase in the high wage construction sector.
ANCHORAGE
Employment
Anchorage has in the past served as the Alaska headquarters for petroleum
155
and petroleum support firms. Because of this past relation, it is assumed
that increased petroleum activity on the North Slope will lead to in-
creased support activity in Anchorage. This provides a direct link be-
tween the level of OCS development and Anchorage economic growth. Addi-
tionally, Anchorage growth is affected by increases in demand for goods
and services, which result from increases in the personal income of the
region and increased state expenditures. Anchorage serves as a supply
source for many goods and services for the rest of the state; because of
this, Anchorage will experience growth if demand in the rest of the state
increases.
Total employment in Anchorage is 5,908 greater than in the base case by
2000; this is a 3.5 percent increase in employment over the base. The
increase over the base increases throughout the period. By the end of
the exploration phase in 1984, employment in Anchorage is 492 greater
than in the base, and by the end of development in 1988, employment is
2,395 higher. The importance of impact-associated employment increases
throughout the period. The development of the Beaufort OCS according to
the Prudhoe Low Scenario increases the growth rate from 3.1 percent in the
base case to 3.3 percent per year between 1977 and 2000.
The composition of this extra employment which results from OCS develop-
ment supports the structural changes found in the base case. Between 1977
and 2000 the base case saw an expansion of the importance of the Anchorage
local service sector, particularly trade and services .. By examining the
structural component of this extra employment, we can see this trend is
156
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supported. In all phases, exploration, production, and development, trade,
services, and finance are more than 60 percent of the impact. Tables
3.32 and 3.33 show the employment trends in Anchorage. The importance of
the less seasonal support sector industries in the impact employment
means that Beaufort development will reinforce the trend toward reduced
seasonality found in the base case.
Population
The development of the Beaufort OCS according to the Prudhoe Low Scenario
increases the concentration of population in Anchorage. By 2000 popula-
tion is 12,734 higher in Anchorage than in the base case; this is almost
4 percent greater than in the base case. The majority of this impact
(69 percent) occurs in the production period. By the end of exploration,
population is less than 1 percent higher than in the base case. Popula-
tion is 1.6 percent higher than in the base case because of OCS develop-
ment by the end of the development phase in 1988. The population impact
in Anchorage is 70 percent of total state population in Anchorage in 2000
in the base case. The effect of this will be to increase the population
concentration in Anchorage.
Personal Income
By 2000 Anchorage personal income is increased by $394.1 million over the
base case. The impact grows throughout the period but experiences greater
growth in the latter part of the period. At the beginning of production
in 1989, only 32 percent of the total 2000 impact has been reached.
157
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TABLE 3.33. INDUSTRIAL DISTRIBUTION OF THE PRUDHOE LOW
EMPLOYMENT IMPACT
(measured as changes from the base)
ANCHORAGE
1984 1988 2000
Em[:!1o~ment % Em[:!1oyment % Em[:!1o~ment
Construction 26 5.3 131 5.5 298
Trade 133 27.0 744 31.1 1661
Services 131 26.6 732 31.0 2316
Finance 37 7.5 205 8.6 620
Transportation 39 7.9 236 9.9 384
State and Local Govt. 95 19.3 215 9.0 378
Other* 31 6.3 132 5.5 251
*Includes Public Utilities, Communications, and Other
SOURCE: MAP Regional Model
159
%
5.0
28.1
39.2
10.5
6.5
6.4
4.2
------------~---
FAIRBANKS
Employment
Tables 3.34 and 3.35 illustrate the growth of employment in Fairbanks.
Fairbanks has the smallest proportionate employment impact of any of the
three regions described in this section. By 2000 employment is only 1.7
percent higher than in the base case. From 1978 to 2000 employment grows
at an average annual rate of 1.3 percent, compared to 1.2 percent in the
base case. Over half of the employment impact occurs in the exploration
and development phase. The size of the impact peaks in 1995, when it is
681 higher than in the base.
Changes in the structure of the economy are supported by OCS development.
Local service sector of trade, services, and finance is more important
in the impact than in the base, accounting for 53.5 percent in 2000.
One obvious difference is the importance of state and local government,
which is approximately one and a half times as important as in the base
case. Since the industries which are important in the impact are the
least seasonal, the impact should support the reduction in seasonality
suggested by the base case.
The impact in Fairbanks is small for two reasons. First, there is no
direct OCS employment assumed to locate in Fairbanks as there was with
the construction of the trans-Alaska pipeline. Second, because Fairbanks
is small, the support sector response is not as great as Anchorage for
either growth within the region or growth in other regions.
160
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-·--------
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L. TABLE 3.34. PRUDHOE LOW SCENARIO TOTAL ECONOMIC IMPACT
(measured as change from the base)
[ FAIRBANKS
1979-2000
[ Total Personal
Year Population Employment Income
(mi 11 ions
[ of $)
1979 0 0 0.000
[ 19801 58 23 1. 326
1981 140 72 3.958
[ 1982 195 96 4.397
1983 157 86 4.132
1984 170 88 4.431
19852 178 83 4.228
[ 1986 148 100 6.138
1987 201 262 18.959
r 1988 528 358 24.842
L 19893 1,030 488 34.262
1990 1,239 485 34.523
[ 1991 1,385 526 38.714
1992 1,521 537 40.941
1993 1 ,613 576 46.136
E 1994 1,820 643 53.458
1995 1,931 681 58.762
~ 1996 1,955 679 60. 621
1997 1,950 669 61.939 "
1998 1,979 693 66.842
1999 1,887 645 64.064
[ 2000 l ,859 658 68.324
[
[
[ 1Exploration begins
2oeve1opment begins
F' 3Production begins t SOURCE: MAP Regional Model
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TABLE 3.35. INDUSTRIAL DISTRIBUTION OF THE PRUDHOE LOW
EMPLOYMENT IMPACT
(measured as changes from the base)
FAIRBANKS
1984 1988 2000
Em~lo~ment % Em~lo~ment % Em~lo~ment
Construction 5 5.7 40 ll. l 7l
Trade 16 18.2 80 22.2 152
Services 14 15.9 69 19.2 129
Finance 4 4.5 21 5.8 39
Transportation 7 8.0 37 10.3 76
State and Local Govt. 37 42.0 83 23. l 147
Other* 5 5.7 29 8. l 44
*Includes Public Utilities, Communications, and Other
SOURCE: MAP Regional Model
162
%
l 0.8
23. l
19.6
5.9
11.6
22.3
6.7
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Population
The population impact in Fairbanks has the effect of reducing, but not
eliminating, the decline in population found in the base case after 1987.
Between 1987 and 2000 population declines less than 300 people, compared
to 1,942 in the base case. Population increases until after 1995. The
production phase is most important for providing this additional growth;
production phase is most important for providing this additional growth;
approximately 70 percent of the additional population is achieved in this
period. In both the exploration and production phases of this development,
the population impact is less than 1 percent of base case population.
Because of the small size of this population impact, it has only minimal
effect on the population decline associated with the end of the construc-
tion of the Alcan pipeline.
Personal Income
By 2000 personal income is $68.3 million greater than in the base case
because of Beaufort OCS development. By the end of exploration in 1984,
personal income is only .5 percent greater than in the base. It is 2.9
percent greater when production begins in 1989.
Summary and Assessment of Impacts
The Prudhoe Low Scenario is similar in most respects to the Prudhoe High
Scenario. The impact of this development supports most of the trends
found in the base case. The local serving sector of the economy is an im-
portant portion of the Prudhoe Low impact as it is in the Prudhoe High; this
supports the base case trend of the increasing proportion of employment in
163
these sectors. The regional concentration of both employment and popula-
tion continue in Anchorage. The most important trends not supported are
related to population. The aging of the population which is found in
the base case is diminished somewhat by the decrease in the outmigration
of the young~ which results because of the increased economic opportuni-
ties associated with the induced economic growth. The other trend which
is not supported is the possible decrease in unemployment found in the
base case. Population induced by Beaufort OCS development is greater than
the induced employment growth, which means the ratio of population to em-
P 1 oyment wi 11 be raised. S i nee this is a measure of the probabi 1 i ty of
finding a job~ it may mean increased unemployment.
Prudhoe Low provides smaller revenues to the state than the Prudhoe
High Scenario does. This has two consequences. First~ it provides only
minimal increases in the level of services over the base case. Secondly~
it postpones the period when expenditures exceed revenues by only three
years. The relative effects of this can be seen by comparing them to
Prudhoe High~ which provides almost six times the Prudhoe Low increase
in state services and postpones the fiscal crunch six years.
Anchorage has the major impacts in the Prudhoe Low Scenario; by 2000
Anchorage has almost seven times the population and employment impacts
in Fairbanks and the North Slope. The North Slope region experiences the
greatest direct impact; at its peak, 1,003 are employed in construction
and mining in connection with Beaufort development. The long-term second-
ary impacts of this development are small because of the enclave nature
164
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of the development; by 2000 55 percent of the North Slope impact employ-
ment is directly related to Beaufort development. The impact in Fairbanks
is affected importantly by the distribution of state and local government
expenditures; state and local government employment accounts for over 20
percent of the employment impact in each phase of OCS development.
For the most part, development of the Beaufort OCS following the Prudhoe
Low Scenario will support most trends in the base case. Because of this
and because of its relatively small overall effect on the level of employ-
ment and population (employment is 2.7 percent and population is 3 percent
greater than the base), Prudhoe Small cannot be assumed to have signifi-
cant impacts on the Alaska economy.
Camden-Canning Scenario
The Camden-Canning Scenario has the second largest effect on the economy
of the scenarios examined. Exploration begins in 1982 and lasts until 1985,
with peak exploration employment in 1983. Development begins in 1986 and
lasts through 1989, with peak development employment in 1989. Production
begins in 1990 and lasts through the remainder of the forecast period.
Peak direct employment is reached in 1990, after production begins in the
Canning field; development in the Camden field is still continuing.
AGGREGATE INDICATORS
Table 3.36 shows the impacts of each of the aggregate indicators of eco-
nomic activity. Population is 26,556 greater by 2000 than in the base
case. The major population impact occurs in the production phase. By
165
Year
1979
1980
19811
1982
1983
1984
1985
1986 2
1987
1988
19893
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
TABLE 3.36. CAMDEN-CANNING SCENARIO IMPACT ON
AGGREGATE INDICATORS
(measured as changes from the base)
STATE OF ALASKA
1979 -2000
Population Employment Personal Income
(millions of$)
0 0 0.000
1 0 0.035
317 242 8.308
1,064 794 31.300
1,477 1,024 43.882
1 '716 1,095 48.500
1 '723 990 45.746
2,381 1,407 74.730
4,421 2,833 166.434
8,034 5,282 325.520
9 '199 5,534 335.742
12,618 7,584 471.367
14,499 8,262 518.629
16,553 9,099 585.953
18,058 9,497 630.508
20,123 10,369 719.887
21,966 11,039 796.590
22,304 10,555 781.199
23,733 11 ,049 855.945
24,351 10,928 872.629
25,198 11,066 918.199
26,556 11,654 1,007.830
lExploration begins
2Development begins
3Production begins
SOURCE: MAP Statewide Model
166
Total State
Ex enditures
mill ions
of $)
0.000
0.003
9.152
19.394
21.382
22.772
23.707
26.913
43.761
73.826
83.989
114.741
132.835
153.484
170.082
193.164
215.292
222.652
242.859
254.980
270.875
293.758
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the end of the exploration phase, 6.5 percent of the total population
impact has been achieved. By 1989, before production begins, 35 percent
of the total impact has been reached. During the exploration phase, the
annual growth rate is approximately 8 percent higher than the base. Popu-
lation grows about 49 percent faster in the development phase than during
the same period for the base case. The growth rate in the production
phase is 22 percent higher than during the same period in the base case.
The larger relative increase during the development phase is a result of
both the size and timing of development. Development occurs in the period
1986-1989 in which population growth was extremely low in the base case,
averaging .8 percent per year. By 2000 population is 5 percent greater
than in the base case.
Employment experiences the same type of growth pattern, being higher than
the base case by 11,654 jobs, or 3.9 percent, by the end of the period.
Approximately 8.5 percent of the impact has been reached by the end of the
exploration phase; 47.5 percent has been reached by the end of development.
From 1981, the year before exploration begins, employment grows at an
average annual rate of 1.6 percent. This is 14 percent greater than the
growth rate in the same period in the base case. As in population, the
greatest difference between this scenario and the base is in the develop-
ment phase, when the growth rate is 1.2 percent compared to .7 percent in
the base case. The growth rate in the exploration phase is approximately
the same for the same period in the base case, and the production phase
experiences a growth rate 6 percent greater than in the base case.
167
Personal income is $1.01 billion higher by 2000 because of Camden-Canning
development. This is 5.8 percent greater than in the base case. Of this
impact, 4.5 percent is achieved during the exploration phase and 33 per-
cent by the end of the development stage. Growth during the entire
period averages 7.2 percent per year, which is approximately 4.3 percent
faster than the annual average growth of 6.9 percent during the period
1978-2000 in the base case.
State expenditures are $.294 billion higher by 2000 than in the base case.
Total state expenditures are $5.23 billion, compared to $4.94 billion in
the base case. Over 70 percent of this impact occurs in the production
phase of activity, compared with 8.1 percent in exploration and 20.5
percent in development. The annual rate of growth of state expenditures
in the production phase after 1989 is 4.6 percent.
CAUSES OF GROWTH
Changes in personal income, exogenous employment, and state expenditures
are responsible for generating impacts over the base case. The most im-
portant causes of the changes in the Camden-Canning Scenario are changes
in exogenous construction and mining employment, which result from the
Beaufort development, and changes in state expenditures. The importance
of the level of Beaufort OCS employment and the associated changes in
personal income are more important during the exploration and development
stages. At its peak in 1990 exogenous employment accounts for 18 percent
of the total employment impact. By 2000, although Beaufort OCS employment
is still high at 806, it accounts for only 7 percent of total employment.
168
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State expenditures are greater than in the base case throughout the fore-
cast period from the beginning of exploration work in 1978. OCS develop-
ment produces revenues which increase state spending, which in turn affects
economic growth. The importance of this effect increases throughout the
period because revenue increases generate permanent increases in per capita
state expenditures. The expenditure impact is much greater in the produc-
tion period than in either exploration or development. The flow of oil
produces both royalties and severance taxes, which provide large increases
in revenues over the base period, so state expenditures are a more impor-
tant source of growth after the beginning of production.
The overall proportion of impact which results from either of these
causes is hard to determine. One way to estimate the proportion of impact
caused by each factor is to examine what would happen to the major vari-
ables if state expenditures remained as in the base case. This is not a
description of what will happen~ because state expenditures, as we have
shown, will undoubtedly respond to increases in revenues. This test allows
us to see in some sense the direct impact of development at Camden-Canning.
The sensitivity analysis in Chapter IV was undertaken to show this. By
2000 private development is responsible for 51 percent of the population
impact, 44 percent of the employment impact, and 48 percent of the impact
on incomes. Almost half of the Camden-Canning impact on all aggregate
indicators is a result of the direct development in the Beaufort OCS.
FISCAL IMPACTS
Table 3.37 illustrates the changes in the state fiscal posture.
169
TABLE 3.37.
Total
Year Revenues
1979 0.000
1980 125.002
19811 134.022
1982 18.944
1983 20.750
1984 22.032
1985 22.958
1986 2 25.839
1987 36.539
1988 60.150
19893 85.288
1990 211.581
1991 421.934
1992 591.347
1993 750.483
1994 897.615
1995 1,033.980
1996 1,150.47
1997 1,217.250
1998 1,268.250
1999 1,304.450
2000 1 ,327. 770
lExploration begins
2oevelopment begins
3Production begins
IMPACT ON THE STATE FISCAL SECTOR OF
THE CAMDEN-CANNING SCENARIO
(measured as changes from the base)
(in millions of dollars)
STATE OF ALASKA
1979-2000
General Permanent
Fund Fund Total'
Balance Balance ExEenditures
0.000 0.000 0.000
0.000 125.000 0.003
0.000 250.000 9.152
0.001 250.000 19.394
0.001 250.000 21.382
0.001 250.000 22.772
0.001 250.000 23.707
0.002 250.000 26.913
-5.125 250.000 43.761
-14.864 250.000 73.826
-9.026 250.000 83.989
56.750 287.469 114.741
0.000 640.809 132.835
0.000 1,087.400 153.484
0.000 1,677.520 170.082
0.000 2,393.060 193.164
0.000 3,224.160 215.292
0.000 4,164.800 222.652
0.000 5,153.200 242.859
0.000 6,181.170 254.980
0.000 7,230.370 270.875
0.000 8,281. 350 293.758
SOURCE: MAP Statewide Model
170
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(Discustions in this section refer to fiscal years.) The development of
the Beaufort OCS according to the Camden-Canning Scenario improves the
overall state fiscal position during the forecast period. By 2000 there
is $8.3 billion more in the permanent fund than in the base case.
The change in total revenues because of OCS development is importantly
affected by production. Prior to the production stage, the increase in
revenues results from three sources, increases in the property taxes,
increases in non-petroleum taxes, and bonuses paid to the state for
leases in the state's portion of the OCS area. The first major increase
in revenues results from the bonuses paid in 1980 and 1981. These reve-
nues, according to the state's expenditure policy, go into the permanent
fund. Interest earned on these balances is an important source of reve-
nues and leads to increases in employment and population prior to the be-
ginning of exploration in 1982. During exploration, property tax revenues
increase to $1.75 million because of additional equipment and facilities
required in exploration. The greatest proportion of increased revenues
in this period results from interest earned on the permanent fund balance;
only 7.6 percent of the change in total revenues by the end of the
exploration period is because of increased petroleum activity. At this
time revenues are less than 1 percent greater than in the base case.
The development of the fields which occurs from 1986 to 1989 increases
petroleum revenues by $43.9 million over the end of the exploration
phase. Revenues from petroleum development have increased to approxi-
mately 53.5 percent of the increase in total revenues by the end of
171
~------------~~-~~~~""' -~"------~ ----"--~---~--~-~---
development in 1989. Petroleum revenues increase dramatically once
production begins. Petroleum revenues directly associated with the
Beaufort OCS development rise to a peak of $860.8 million in 1996; at
their peak, petroleum revenues from the Beaufort account for 75 percent
of the increase in revenues. As petroleum production declines, petroleum
revenues fall from the peak to $741.4 million by 2000.
The development of the Beaufort OCS according to the Camden-Canning
Scenario has two separate impacts on the fiscal posture of the state.
It increases both revenues and expenditures. Until the final year of
the development stage, when property tax revenues increase substantially,
the increase in expenditures caused by OCS development exceeds the
increased revenues. In 1987 and 1988, after a doubling of direct Beaufort
employment, the general fund must be drawn on to maintain expenditure
levels. The year before production begins (1989), the general fund is $9
million less than in the base case. After production begins, the revenue
increase exceeds expenditure increases throughout the remainder of the
period. This slows the rate of decrease in the general fund and allows
a build-up of the permanent fund.
What is the overall fiscal effect of Camden-Canning development on the
Alaska state government? First, development allows a modest expansion
of services provided residents. Real per capita state expenditures are
$5.60 greater by the end of the period than in the base case. The in-
crease in services comes prior to production. Revenues associated with
Beaufort production are not enough to increase the level of services.
172
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By 2000 the level of services is greater than in the base case; real per
capita expenditures are $1,644 per person, which is less than 1 percent
more than in the base case. More importantly, the extra Beaufort reve-
nues have postponed the period when expenditures exceed revenues, until
1999, which is eight years later than in the base case. The eventuality
of the drawdown of the fund balances as expenditures exceed revenues has
only been postponed, not eliminated by Beaufort development.
INCOME
The increase in personal income due to Beaufort OCS development can have
two effects. First, higher levels of personal income associated with
direct Beaufort employment will increase the demand for goods and services.
Second, Beaufort OCS development could lead to welfare increases if per
capita income increases.
Table 3.38 shows the effect of taxes and prices on the increase in per-
sonal income generated by OCS development. By 2000 personal income would
be $1.01 billion higher with Beaufort OCS development following the
Camden-Canning Scenario than in the base case. Taxes take almost 25 per-
cent of this incremental income in 2000. Prices have a much larger effect
on income available to the population. To the extent prices rise because
of OCS development, the effect of the added income will be reduced, and
there will be a general decrease in the buying power of all income.
Prices have a greater impact later in the period. By 2000 real disposable
personal income is only 16 percent of disposable personal income, while
at the end of exploration in 1985 it is 25 percent.
173
TABLE 3.38. PERSONAL INCOME IMPACT OF CAMDEN-CANNING DEVELOPMENT
(measured as change from the base case)
Per Capita
Real Disposable
Year Income
1979 0.000
1980 0.002
19811 1. 331
1982 6.942
1983 9.177
1984 8.448
1985 6.072
1986 2 11.884
1987 30.652
1988 60.404
19893 50.039
1990 64.085
1991 57.023
1992 54.213
1993 46.891
1994 47.169
1995 43.092
1996 26.679
1997 23.332
1998 12.066
1999 4.667
2000 1. 878
1Exploration begins
2Development begins
3Production begins
SOURCE: MAP Statewide Model
STATE OF ALASKA
1979 -2000
Disposable
Personal Real Disposable
Income Personal Income
(mi 11 ions (millions of $)
of $)
0.000 0.000
0.031 0.008
6.433 1. 741
24.285 6.745
33.996 9.239
37.589 9.869
35.460 8.981
57.644 14.363.
128.082 31.289
249.930 59.526
258.215 59.168
361.680 80.039
398.117 84.838
449.035 92.508
483.199 96.207
550.273 106.210
608.500 113.601
596.059 107.583
652.355 114.013
663.785 112.150
697.785 113.963
763.297 120.582
174
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Welfare, as measured by the increase in real per capita disposable in-
comes (DIRPA), increases because of OCS development. By 2000 DIRPA is
$1 greater than in the base case. The maximum difference during
the period is in 1990, when DIRPA is $64 greater. The change in this
difference has a great deal to do with the composition of employment.
The greatest differences in per capita incomes are achieved during the
development stage in 1990, when high wage construction and petroleum
employment in the Beaufort rises to 1,346. The importance of this employ-
ment to the level of per capita income can be seen by examining the changes
which result from decreasing the level of this employment. Each time
employment in the Beaufort is reduced, the increase in per capita income
falls. The difference in per capita income declines from $64 to $1 by
the end of the period; this results because of the decreasing importance
of high wage mining and construction employment in the economy.
H1PLOYMENT
While the primary employment levels associated with OCS development have
substantial effects, they also generate significant secondary impacts
throughout the state economy. The increase in the demand for goods and
services, which results because of changes in the level of personal in-
come, lead to increases in employment in other sectors of the economy.
State expenditures, which rise because of the increased revenues available
from OCS development~ also generate demand for goods and services and
increases in employment. Table 3.39 shows the distribution of this em-
ployment between industrial sectors. In the base case, the general trend
in the structure of employment which was observed was an increase in the
175
TABLE 3.39. INDUSTRIAL DISTRIBUTION OF CAMDEN-CANNING
EMPLOYMENT IMPACT
(measured as changes from the base)
ALASKA
1985 1989 2000
Employment % Employment % Employment
Mining and Beaufort
OCS Construction 121 12.2 ·1068 19.3 806
Other Construction 67 6.8 344 6.2 964
Trade 207 20.9 1284 23.2 3172
Services 208 21.0 1307 23.6 3410
Finance 52 5.3 323 5.8 826
Transportation 38 3.8 229 4.1 488
State and Local Govt. 251 25.4 718 12.9 1469
Other* 46 4.6 261 4.7 519
*Includes Public Utilities, Communications, and Other
SOURCE: MAP Statewide Model .
176
%
6.9
8.3
27.2
29.3
7.1
4.2
12.6
4.5
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proportion of total employment in the local serving sector, particularly
trade and services. The extra employment which results from OCS develop-
ment in the Camden-Canning Scenario supports this base case trend. We will
examine the structure of this increased employment at three points in
time, the end of the forecast period, the exploration and development
period. The distribution of employment in 2000 supports the overall trend
found in the base case. By 2000 trade, services, and finance make up 64
percent of the increased employment, mining and exogenous construction
account for only 7 percent, while state and local government account for
13 percent. These percentages are fairly stable during all stages of
petroleum activity. The major change is the declining proportion of em-
ployment change accounted for by direct Beaufort employment.
By the end of the production phase, the structure of employment found in
the base case is reinforced by the OCS development. This should also mean
that the reduction in seasonality will take place as discussed in the
base case. The increased proportion of employment in non-seasonal in-
dustries should reduce the overall seasonality in the economy. Direct
employment in the OCS development does have a seasonal component, which
should dampen the effect. Because of the small (7 percent) proportion of
the employment impact which is directly affected by OCS development, this
limits its impact on seasonality.
Will OCS development increase or decrease unemployment? In the base case
a possible trend toward a reduction in unemployment was assumed because
of the decrease in the ratio of population to employment. Although this
177
"-"~--~--------------
does not guarantee a reduction, it indicates the possibility of a de-
crease. The ratio of population to employment in the extra employment
is 2.28 in 2000; this is higher than the ratio found in 1977. This
indicates the impact employment leads to greater increases in population
and a possible increase in unemployment.
POPULATION
By 2000 population is 5 percent higher because of development in the
Beaufort OCS. Two large increases occur because of Beaufort development;
in 1988 and 1990 the impact population increases about 3,500 as a result
of major increases in direct OCS employment. The major factor affecting
this population change is the greater levels of migration experienced
because of OCS. Throughout the period, the effect of OCS development is
to reduce outmigration. Although outmigration is substantially reduced,
the development of Camden-Canning never results in inmigration during the
1986-1998 period dominated by outmigration in the base case. The reduc-
tion in the outmigration is responsible for the increased population.
Since migration is not assumed to affect Native population, one impact
of this increase is a reduction in the share of Native population in the
total. By 2000 Native population is 18 percent of the total, compared
to 19 percent in the base case; this is greater than the Native share
of total population in 1977.
The structure of population will be changed in the OCS case. Migration
response to changing economic opportunities most importantly affects the
178
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~~~--------------------------·--------~---------------
young. The reduction in outmigration would be assumed to dampen the
aging in the population structure found in the base case. Table 3.40
shows the proportion of each age-sex classification in the total popu-
lation at the end of development in 1980, 1990, and 2000. By 2000 the
age structure has still undergone aging, although not quite as rapid as
in the base case. By 2000 33.6 percent of the population is older than
forty which is less than in the base case.
Regional Impacts
This section will examine the impact of OCS development on three regions,
the North Slope, Anchorage, and Fairbanks. The impacts will be measured
as changes in the population, employment, and personal income growth in
each region from the base case. OCS development in the Beaufort Sea impacts
the state and regional economies by increasing exogenous employment, per-
sonal income, and state expenditures. Each region will be influenced dif-
ferently by these growth factors. The location of exogenous employment,
distribution of state expenditures, the size of the local economies, and
the region's interaction with directly-affected regions will determine
the impact in any region. These processes will not be changed by OCS de-
velopment, but serve to determine the regional impacts from it.
NORTH SLOPE REGION
Employment
Tables 3.41 and 3.42 show the changes in North Slope employment over the
base case and the industrial distribution of this change. The increase
over the base case does not grow smoothly throughout the period, but
179
0 - 1 .
1 -4
5 - 9
10 -14
15 -19
20 -24
25 -29
30 -34
35 -39
40 -44
45 -49
50 -54
55 -59
60 -64
65 +
TABLE 3.40. AGE-SEX STRUCTURE OF THE POPULATION
CAMDEN-CANNING SCENARIO
(% of total population)
1980 1990
Male Female Male Female Male
1.19 1.19 l. 07 1.07 l. 03
4.29 4.09 4.22 4.00 3.83
4.75 4.62 5.07 4.90 4.65
4.33 4.22 4.49 4.33 4.39
4.93 4.10 4.10 3.82 4.24
8.55 5.68 5.69 3.93 5.56
6. 01 5.24 4.53 3.89 3.87
4.67 4.27 4. 59 4.09 3.59
3.61 3.22 4.40 3.76 3.67
2.54 2.41 3.55 3.29 3.43
2.04 1.84 2.74 2.58 3.13
1.78 1.57 2.13 2.04 2.71
1.49 1.31 1.65 1.60 2.17
l. 19 1.06 l. 32 l. 31 l. 68
1.97 1.84 2. 77 3.07 3.54
SOURCE: MAP Statewide Model
180
2000
Female
1.02
3.65
4.50
4.22
3.92
4.05
3.58
3.39
3.21
3.16
2.89
2.57
2.14
l. 75
4.46
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l TABLE 3.41. CAMDEN-CANNING SCENARIO TOTAL ECONOMIC IMPACT
~
(measured as change from the base)
! NORTH SLOPE
I 1979-2000 L-
[ Total Personal
Year PoEulation EmElo_yment Income
[ (millions
of $)
1979 0 0 0.000
[ 1980 0 0 0.000
19811 1 4 0.299
[ 1982 132 123 8.023
1983 263 241 16.978
1984 232 216 15.701
r 1985 247 225 17.975
L, 1986 2 717 632 54.787
1987 1,983 1 '724 156.297
I' 1988 3,864 3,334 314.677 L. 19893 2,968 2,453 235.396
1990 3,057 2,568 254.599
[ 1991 2,360 2,038 208.795
1992 1,797 1 '651 173.656
1993 1,454 1,444 158.428 [ 1994 1 '714 1 '743 204.259
1995 1,795 1,843 228.347
D 1996 1,237 1 ,344 172.581
1997 1,506 1 ,600 218.810
1998 1,146 1 '267 180.695
[ 1999 1,082 1 '213 182.265
2000 1 '111 1 '251 198.094
[
[
[ ~Exploration begins
F-. 3oevelopment begins
l Production begins
SOURCE: MAP Regional Model
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[ 181
TABLE 3.42. INDUSTRIAL DISTRIBUTION OF CAMDEN-CANNING
EMPLOYMENT IMPACT
(measured as changes from the base)
NORTH SLOPE REGION
1985 1989 2000
Eme1o~ment % Emeloyment % Eme1o~ment
Mining and Beaufort
OCS Construction 110 48.8 1034 42.2 699
Other Construction 87 38.6 1159 47.2 345
Trade 2 .8 19 .7 14
Services 9 4.0 100 4.1 68
Finance 1 .4 14 . 5 9
Transportation 8 3.5 93 3.8 77
State and Local Govt. 7 3. 1 30 1.2 31
Other* 1 .4 4 .2 8
*Includes Public Utilities, Communications, and Other
SOURCE: MAP Regional Model
182
%
55.8
27.5
1.1
5.4
.7
6.2
2.5
.6
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experiences several peaks. By 2000 total employment is 1,251 greater
than in the base, which is about 17 percent higher than the base. When
direct employment at the OCS site peaks in 1988 in the development phase,
total employment is 3,335 or 55 percent higher. At the end of the ex-
ploration phase in 1985, total employment is only 3 percent higher than
in the base.
An indication of the relative effects on the local economy can be achieved
by separating mining and direct construction employment and examining
changes in the remainder of the economy. Since some enclave sector em-
ployment is in other construction and transportation, this analysis will
overestimate the growth in the local economy. During the exploration
phase, there is very little affect on the local economy. Of the 225 extra
employees in 1985, 49 percent are directly associated with OCS petroleum
·activity. The local sector of the North Slope economy in the base case
consists of 4,374 employees in 1985, so during exploration the local
sector increases by 3 percent. By the end of the development phase in
1989~ the total impact is 2,453; of this 1,034 is in the petroleum enclave
sector. At this time in the base case, the local sector is 4,371 employees.
The largest impact on the local economy occurs in this development stage
with approximately 32 percent increase in the local sector. During
production, direct OCS impact reaches 699 in 2000, which is 56 percent
of the total employment impact. In the base case, the local sector is
about 6,119 in 2000, so that impact increases the local sector employment
approximately 9 percent.
183
--~-----~--------·--~~---~----~----------------~-----~~-~~-----~-~------
The share of the impact in trade, services, and finance increases through-
out the period, although by 2000 these industries account for only 7 per-
cent of the employment impact. Other construction and transportation are
an important sector in the local economy, which increases its importance
throughout the period as in the base case, accounting for 34 percent of
the total employment impact by 2000. These sectors are more directly
affected by petroleum development than other sectors in the economy.
Overall, though, the importance of exogenous employment in the employment
impact impedes the trend of the reduction of the importance of this sector
found in the base case. Because of the importance of these highly sea-
sonal sectors found in the impact, the reduction in seasonality suggested
in the base case may be limited by OCS development. This may have little
effect on the local economy since the majority of the seasonal construe-
tion and mining employment is in the enclave sector.
Population
By 2000 the North Slope Borough population has increased by 1,112 over
the base case. This total will not have as large an impact on the local
population, since over half of this increase is the extra employment in
the enclave sector. The total population in the local sector is only
increased by 414 above the base levels; this is a 5.4 percent increase in
population. The effect on total population is more important in the
other periods. By the end of development in 1989, the local population
is 2,187, or 39 percent higher than in the base. The increased popula-
tion can be assumed to increase welfare in the borough for two reasons.
184
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First, the growth in the economy has the effect of reducing the outmigra-
tion of local residents, which has been found to be a past trend in vil-
lage and rural Alaska (Alonso, 1976). Second, the increase in population
at Prudhoe leads to welfare increases by increasing the revenues available
to the borough. The enclave nature of development means there is no
proportional increase in the demand for services.
Personal Income
The peak in the personal income impact on the North Slope comes in 1988
when it is $314.7 million greater than in the base case. This occurs
during the development phase and illustrates the importance of the high
wage construction and mining sectors to the impact. By the end of the
exploration phase in 1985, personal income is 4 percent greater than in
the base. Personal income is 22 percent greater by 2000.
ANCHORAGE
Employment
Anchorage has in the past served as the Alaska headquarters for petro-
leum and petroleum support firms. Because of this past relation, it is
assumed that increased petroleum activity on the North Slope will lead to
increased support activity in Anchorage. Additionally, Anchorage growth
is affected by increases in demand for goods and services, which result
from increases in the personal income of the region and the remainder of
the state.
185
Total employment in Anchorage is 8,841 greater than in the base case by
2000; this is 5.3 percent increase in employment over the base. By the
end of the exploration phase in 1985, employment in Anchorage is 489,
or .5 percent higher than in the base, and by the beginning of production
in 1990, employment is 4,025, or 3.4 percent, higher than the base. The
importance of impact-associated employment increases throughout the
period. The development of the Beaufort OCS according to the Camden-
Canning Scenario increases the growth rate from 3.1 percent in the base
case to 3.4 percent per year between 1977 and 2000.
The composition of this extra employment which results from OCS develop-
ment supports the structural changes found in the base case. Between 1977
and 2000 the base case saw an expansion of the importance of the Anchorage
local service sector, particularly trade and services. By examining the
structural component of this extra employment, we can see this trend is
supported. In all phases, exploration, production, and development,
trade, services, and finance are more than 60 percent of the impact.
Tables 3.43 and 3.44 show the employment trends in Anchorage. Because of
this, it can be assumed that Beaufort OCS development will support the
trend toward reduced seasonality suggested in the base case.
Population
The development of the Beaufort OCS according to the Camden-Canning
Scenario increases the concentration of population in Anchorage. By 2000
population is 18,690 higher in Anchorage than in the base case; this is
almost 5.7 percent greater than in the base case. The majority of this
186
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I,, TABLE 3.43. CAMDEN-CANNING SCENARIO TOTAL ECONOMIC IMPACT
(measured as change from the base)
" ANCHORAGE
L" 1979-2000
I Total Personal L~ Year Po~ul ati on Em~loyment Income
(mi 11 ions
l of $)
1979 0 0 0.000
[ 1980 0 0 0.000
19811 167 116 3.574
[ 1982 573 349 11.691
1983 790 459 16.257
1984 940 495 18.327
1985 941 489 18.509 r 1986 2 1,256 725 28.876 u
1987 2,263 1 ,515 63.325
r 1988 4,147 2,913 126.951
L 19893 5,017 3,003 136.136
1990 7,352 4,025 191.755
[ 1991 8,763 4,451 219.531
1992 10,344 4,897 251.719
1993 11 ,468 5,231 278.781 n 1994 12' 914 5,966 328.184
1995 14,251 6,605 375.441
D
1996 14,655 6,528 383.387
1997 15,802 7,207 436.953
1998 16,465 7,412 464.512
1999 17,346 7,915 512.203 t 2000 18,689 8,841 590.742
[
[
[ lExploration begins
2oevelopment begins
3production begins
['
L SOURCE: MAP Regional Model
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187
C
TABLE 3.44. INDUSTRIAL DISTRIBUTION OF CAMDEN-CANNING
EMPLOYMENT IMPACT
(measured as changes from the base)
ANCHORAGE
1985 1989 2000
Employment % Employment % Employment
Mining 11 2.2 34 1.1 107
Construction 25 5.1 163 5.4 445
Trade 132 26.9 939 31.3 2499
Services 134 27.3 937 31.2 3479
Finance 38 8.0 262 8.7 930
Transportation 39 8.0 295 9.8 587
State and Local Govt. 90 18.4 255 8.5 531
Other* 20 4. l 118 3.9 263
*Includes Public Utilities, Communications, and Other
SOURCE: MAP Regional Model
188
%
1.2
5.0
28.3
39.4
10.5
6.6
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impact occurs in the production period. By the end of exploration, popu-
lation is less than 1 percent higher than in the base case. Population
is 2 percent higher than in the base case because of OCS development by
the end of the development phase in 1989. The population impact in
Anchorage is 70 percent of the total impact in the state; this is greater
than the 56 percent of total state population in Anchorage in 2000 in the
base case. The effect of this will be to increase the population concen-
tration in Anchorage.
Personal Income
By 2000 personal income in Anchorage is $590.7 million greater than in
the base case. Approximately two-thirds of this impact occurs in the
production phase. By the end of exploration, personal income is .6
percent higher than in the base case. It is 3.6 percent greater when
development ends in 1989.
FAIRBANKS
Employment
Tables 3.45 and 3.46 illustrate the growth of employment in Fairbanks.
Fairbanks has the smallest proportionate employment impact of any of the
three regions described in this section. By 2000 employment is only 2.6
percent higher than in the base case. From 1978 to 2000 employment grows
at an average annual rate of about 1.3 percent, compared to 1.2 percent
in the base case. The impact in Fairbanks is greatest during the
production phase. At the end of the exploration phase, employment is .2
percent greater than in the base case; after development, employment is
189
TABLE 3.45.
Year
1979
1980
19811
1982
1983
1984
1985
19862
1987
1988
1989
19903
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
1Exploration begins
2oevelopment begins
3Production begins
CAMDEN-CANNING SCENARIO TOTAL ECONOMIC IMPACT
(measured as change from the base)
FAIRBANKS
1979-2000
Total Personal
Population Employment Income
(millions
of $)
0 0 0.000
0 0 0.001
32 27 1. 067
146 79 3.572
180 94 4.674
225 102 5.274
197 89 4.662
172 104 6.429
143 182 13.011
198 341 25.787
634 433 31.332
1,214 637 47.832
1,664 740 55.931
2,114 831 64.917
2,372 872 70.387
2,519 930 78.394
2,444 974 85.205
2 '721 941 84.314
2,707 955 89.605
2,747 946 91.471
2, 713 941 94.566
2,698 976 102.293
SOURCE: MAP Regional Model
190
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TABLE 3.46. INDUSTRIAL DISTRIBUTION OF CAMDEN-CANNING
EMPLOYMENT IMPACT
(measured as changes from the base)
FAIRBANKS
1985 1989 2000
Employment % Employment % Employment
Construction 6 6.7 47 10.8 111
Trade 16 18.0 99 22.8 227
Services 14 15.7 85 19.6 193
Finance 4 4.5 25 5.8 59
Transportation 7 7.9 46 10.5 114
State and Local Govt. 35 39.3 98 22.5 207
Other* 7 7.9 34 7.8 65
*Includes Public Utilities, Communications, and Other
SOURCE: MAP Regional Model
191
%
11.4
23.3
19.8
6.0
11.6
21.2
6.7
1.3 percent greater. The importance of state and local government expan-
sion as a result of OCS development is the reason for the growth in the
production phase. Since Fairbanks has only minimal connection with oil
development, increases in state and local expenditures resulting from reve-
nue increases are the major way the Fairbanks economy is impacted by OCS
development. Although the impacts are minimal, impacts during exploration
and development reduce the decline caused by decreases in Alcan construction.
State and local government play a much more important role in this impact
growth than in the growth in the base case. Local service sector of trade,
services, and finance is still important in the impact, accounting for 49
percent of the impact by 2000. However, state and local government
accounts for more than 20 percent of the impact in all three periods.
Approximately 70 percent of the increased employment which results from
OCS development in 2000 is in the least seasonal industries. The expan-
sion of the local support sector and state and local government will
support the general reduction in seasonality found in the base case.
The impact in Fairbanks is small for two reasons. First, there is no
direct OCS employment assumed to locate in Fairbanks, as there was with
the construction of the trans-Alaska pipeline. Second, because Fairbanks
is small, the support sector response is not as great as Anchorage for
either growth within the region or growth in other regions.
Population
The population impact in Fairbanks has the effect of reducing the decline
192
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in population found in the base case after 1987. Between 1987 and 2000
population experiences a positive though low rate of growth instead of
a negative rate as in the base case; population has increased by 614
during this period. The production phase is most important for provid-
ing this additional growth; approximately 80 percent of the additional
population is achieved in this period. In both the exploration and pro-
duction phases of this development, the population impact is less than 1
percent of base case population. Because of the small size of this
population impact, it has only minimal effect on the population decline
associated with the end of the construction of the Alcan pipeline. Table
3.45 shows the population impact in each region.
Personal Income
By 2000 personal income in Fairbanks is $102.3 million greater than in
the base case. Over half of this impact occurs in the production phase.
After exploration and development in 1989, personal income is only 2.7
percent greater than in the base case.
Summary and Assessment of Impacts
The impacts associated with the development of the Beaufort OCS following
the Camden-Canning Scenario can be assumed to be similar to those of the
other scenarios. The increase in the levels of major variables falls
between that of Prudhoe High and Prudhoe Low. Like these other scenarios,
the absolute levels of impact are low relative to the recent Alaska his-
torical period. The other factor which moderates the likely possibility
of substantial impacts coming from development following the Camden-Canning
193
Scenario is the nineteen year period over which they occur. This scenario
provides no major population increases in any single year; the largest
increase due to OCS development is between 1987 and 1988, when the popula-
tion impact increases 3,612.
The Camden-Canning scenario has the same overall impact on the trends
found in the base case. OCS development generally supports the structural
change found in employment in the base case. The local service sector of
trade, service, finance, and transportation is a majority of the impact
employment. By increasing the economic opportunities available in Alaska,
Beaufort development reduces outmigration of the young and reverses the
general trend toward aging of the population. Beaufort development en-
courages more population growth than increased employment so that the
ratio of impact population to impact employment is greater by 2000 than
the population to employment ratio found in the base. This could increase
unemployment since the number of people seeking jobs increases by more than
the number of jobs. The importance of this effect is diminished by the
small proportion of total population which is associated with the impact.
Beaufort OCS development postpones the state's fiscal crisis, when expen-
ditures exceed revenues, for eight years after it occurs in the base.
After 1999 expenditures once again exceed revenues. This postponement is
partially a result of the low increase in state services; real per capita
expenditures increase only $5.60 over the base. This can be considered
a positive fiscal effect of OCS development.
194
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Growth which results from Beaufort OCS activity supports the increased
concentration of population in Anchorage; the proportion of the impact
population in Anchorage is greater than the proportion in Anchorage in
the base case. The major impacts are in Anchorage, even though Anchorage
has only minimal direct Beaufort employment. The North Slope has the
majority of the direct employment impact; at its peak in 1990, the North
Slope has 94 percent of the direct OCS employment. Because of the en-
clave nature of this employment, its long-term secondary impact on the
North Slope is small; by 2000 approximately 56 percent of the impact
employment is directly related to the OCS development. Fairbanks has
only minimal impact from OCS development; the growth rate of employment
increases from 1.2 percent to 1.3 percent per year.
Cape Halkett Scenario
The Cape Hal kett Scenario has the smallest impact on the economy of all
the scenarios. Exploration begins in 1984 and lasts until 1987, with
peak exploration employment in 1986. Development begins in 1988 and
lasts through 1991, with peak development employment in 1996; this is also
the peak in direct employment for the entire period. Production begins
in 1992 and lasts through the remainder of the forecast period.
AGGREGATE INDICATORS
Table 3.47 shows the impacts on each of the aggregate indicators of eco-
nomic activity. In each case, these indicators are greater than the
base case and the difference grows continually throughout the period.
Population is 12,748 greater by 2000 than in the base case. By 2000
195
TABLE 3.47.
Year Population
1979 0
1980 0
1981 0
1982 0
1983 0
19841 149
1985 430
1986 685
1987 2 365
1988 776
1989 2,229
1990 4,972
1991 5,198
19923 6,685
1993 7,488
1994 8,370
1995 9,284
1996 10' 182
1997 10,788
1998 11 '627
1999 11 '990
2000 12,748
1Exploration begins
2oevelopment begins
3Production begins
CAPE HALKETT SCENARIO IMPACT ON
AGGREGATE INDICATORS
(measured as changes from the base)
STATE OF ALASKA
1979-2000
Employment Personal Income
(millions of$)
0 0.000
0 0.000
0 0.000
0 0.000
0 0.000
114 5.839
315 17.039
469 26.031
165 9.402
467 30.585
1 '529 103.441
3,442 236.539
3,172 213.148
3,976 260.625
4,215 284.355
4,531 317.062
4,870 353.547
5,201 391.766
5,305 413.887
5,621 455.902
5' 571 467.555
5,872 513.312
SOURCE: MAP Statewide Model
196
Total State
Expenditures
(mi 11 ions
of $)
0.000
0.000
0.000
0.000
0.000
0.223
1. 061
2.273
-0.410
2.906
15.106
38.821
40.515
54.286
62.216
71.392
81.430
91.832
99.699
110.648
116.836
128.129
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population is 2.2 percent greater than in the base case. Each stage of
OCS activity affects population growth differently. By the end of the
exploration phase, 2.9 percent of the total population impact has been
achieved. By 1991, when the development stage ends, 41 percent of the
total impact has been reached so about 60 percent of the population im-
pact occurs in the production stage.
Employment experiences the same type of growth pattern, being higher than
the base case by 5,872 jobs, or 2 percent, by the end of the period.
Approximately 2.8 percent of the impact has been reached by the end of the
exploration phase; 54 percent has been reached by the end of development.
From 1983, the year before exploration begins, employment grows at an
average annual rate of 1.7 percent. This is about 6 percent greater than
the growth rate in the same period in the base case. The greatest dif-
ference is in the development phase, when the growth rate is 1.2 percent
compared to .9 percent in the base case. The growth rate in the explora-
tion phase is 1 percent greater than for the same period in the base
case, and the production phase experiences a growth rate 4 percent
greater than in the base case.
Personal income is $.51 billion higher by 2000 because of the Cape Halkett
development. This is 3 percent greater than in the base case. Of this
impact, only 2 percent is achieved during the exploration phase and 42
percent by the end of the development stage. Growth during the entire
period averages 7.1 percent per year, which is approximately 2.6 percent
faster than the annual average growth of 6.9 percent during the period
1978-2000 in the base case.
197
State expenditures are $.128 billion higher by 2000 than in the base case.
Total state expenditures are $5.06 billion~ compared to $4.94 billion in
the base case. Over 68 percent of this impact occurs in the production
phase of activity. The annual rate of growth of state expenditures in
the production phase is 4.5 percent, compared to 4.4 percent in the base
case.
Causes of Growth
The most important cause of impacts has been shown to be two factors, in-
creased exogenous employment associated with the development of the
Beaufort OCS and the increase in state expenditures which results from
this development. Both of these increase personal incomes, the demand
for goods and services, and employment. State expenditures increase as a
result of the policy rule (described in Chapter II), which increases ex-
penditures in response to the increased revenues from petroleum development.
The rule has limited impact on the economy in the Cape Halkett Scenario
because the revenues received from this development are limited. Be-
cause the Cape Halkett field is entirely on federal leases, there are no
bonuses, royalties, or severance taxes paid to the state. Property taxes
will increase as a result of Cape Halkett development, and royalties and
severance taxes on Prudhoe Bay oil and gas will increase because of the
increased flow of oil and gas through the pipelines. This should reduce
the importance of state expenditures as a cause of growth.
Because of the dynamic and simultaneous nature of the economy, it is hard
to determine the impact of these causes separately. The sensitivity
198
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analysis in the next chapter has been undertaken to attempt to define the
proportion of impact which results from each of these factors. By using
the model to investigate what would happen if state expenditures were
held at their base case levels, we can get an idea of the proportion of
impact which is a direct result of development. The Cape Halkett Scenario
has the largest amount of impact directly related to Beaufort OCS develop-
ment. This private sector development accounts for 49 percent of the
employment impact, 56 percent of the population impact, and 54 percent of
the impact on incomes. Even with the reduced revenues, state expenditure
increases still account for close to 50 percent of the impact.
FISCAL IMPACTS
Table 3.48 illustrates the changes in the state fiscal posture. (Discus-
sions in this section refer to fiscal years.) The development of the
Beaufort OCS according to the Cape Halkett Scenario improves the overall
state fiscal position during the forecast period. By 2000 there is $28.6
million more in the permanent fund than in the base case. By the end of
the period, the permanent fund has been drawn down from a peak of $5.6
billion in 1993 to $1.3 billion in 2000.
Because neither royalties nor severance taxes are received from Cape
Halkett, the change in total revenues because of OCS development is not
greatly affected by production. Prior to the production stage, the
increase in revenues results from two sources, increases in the property
taxes and increases in non-petroleum taxes. There are no bonus payments
from this federal sale. During exploration, property tax revenues
199
TABLE 3.48.
Total
Year Revenues
1979 0.000
1980 0.000
1981 0.000
1982 0.000
19831 0.000 .
1984 0.156
1985 0.863
1986 1. 953
1987 2.256
19882 3.212
1989 9.747
1990 25.082
1991 40.211
1992 3 65.055
1993 88.480
1994 87.789
1995 88.821
1996 92.452
1997 93.758
1998 . 94.686
1999 95.423
2000 95.282
1Exploration begins
2oevelopment begins
3Production begins
IMPACT ON THE STATE FISCAL SECTOR OF
THE CAPE HALKETT SCENARIO
(measured as changes from the base)
(in millions of dollars)
STATE OF ALASKA
1979-2000
General Permanent
Fund Fund Total
Balance Balance Expenditures
0.000 0.000 0.000
0.000 0.000 0.000
0.000 0.000 0.000
0.000 0.000 0.000
0.000 0.000 0.000
0.000 0.000 0.223
0.000 0.000 1. 061
0.000 0.000 2.273
2.826 0.000 -0.410
3.503 0.000 2.906
-0.718 0.000 15.106
-11.847 0.000 38.821
0.000 -9.433 40.515
0.000 4.917 54.286
0.000 35.261 62.216
0.000 56.312 71.392
0.000 68.976 81.430
0. 000 . 75.527 91.832
0.000 76.015 99.699
0.000 67.167 110.648
0.000 53.254 116.836
0.000 28.607 128.129
SOURCE: MAP Statewide Model
200
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increase to only $.8 million because of additional equipment and facilities
required in exploration. Total revenue is only .07 percent greater than
in the base case in 1987; 40 percent of the change in total revenues by
the end of the exploration period is a result of increased petroleum
activity.
The development of the fields, which occurs from 1988 to 1991, increases
property tax revenues by $24.6 million over the end of the exploration
phase. Revenues from petroleum development have increased to approxi-
mately 63 percent of the increase in total revenues by the end of
development in 1991. Petroleum revenues directly associated with the
Beaufort OCS development rise to a peak of $67.5 million in 1993, the
first year of production. The share of petroleum revenues in the Beaufort-
induced total revenues is 54 percent by 2000. By 2000 petroleum revenues
have fallen to $51.6 million.
The development of the Beaufort OCS according to the Cape Halkett Scenario
has two separate impacts on the fiscal posture of the state. First, as
discussed above, it increases revenues. Second, it will affect state
expenditures. As new population is drawn into the state because of this
development, expenditures will be increased to provide a given level of
services to the increased population. The increased revenues may also
lead to increases in the level of services provided, which will increase
expenditures greater than the proportionate increase in population. In
the Cape Halkett scenario the only reason for increased state epxenditure
is the increased population. Real per capita expenditures are less than
201
the base case throughout the forecast period. The difference is small
($1 .70), but it means there is a reduction in the level of services pro-
vided by the state from the levels in the base case. By 1989 the general
fund must be drawn down to maintain per capita expenditures.
The extra Beaufort revenues do not postpone the period when expenditures
exceed revenues; in 1991, as in the base case, expenditures exceed reve-
nues. By 2000 the state has about 2 percent more in the permanent fund
than the base case, but the permanent fund is being drawn on to support
the level of services. What i's important is that this fiscal crunch
came without increases in the level of services as in the other cases.
Cape Halkett development led to increases in population which are similar
to the population increase resulting from Prudhoe Low development, when
the effect of state expenditures is removed (see Chapter IV). This in-
creased population must be provided services without similar increases
in revenues. To the extent the level of services is considered, Cape
Halkett development may leave the state in a poorer fiscal position even
though there is a larger balance in the permanent fund.
INCOME
Table 3.49 shows the effect of taxes and prices on the increase in per-
sonal income generated by OCS development. By 2000 personal income would
be $513.3 million higher with Beaufort OCS development following the
Cape Halkett Scenario than in the base case. The effect of this on the
economy depends on taxes and prices which determine the amount of goods
and services this increased income will bring. Taxes take almost 25
202
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TABLE 3.49. PERSONAL INCOME IMPACT OF CAPE HALKETT DEVELOPMENT
(measured as change from the base case)
Year
1979
1980
1981
1982
1983
19841
1985
1986
1987
19882
1989
1990
1991
19923
1993
1994
1995
1996
1997
1998
1999
2000
Per Capita
Real Disposable
Income
0.00
0.00
0.00
0.00
0.00
1.46
3.86
5.17
0.91
5.73
20.43
43.40
30.09
29.74
26.63
25.11
23.28
21 .47
16.93
15.00
9.07
7.20
1Exploration begins
2Development begins
3production begins
SOURCE: MAP Statewide Model
STATE OF ALASKA
1979 -2000
Disposable
Personal Real Disposable
Income Personal Income
(mill ions (millions of$)
of $)
0.000 0.000
0.000 0.000
0.000 0.000
0.000 0.000
0.000 0.000
4.507 1.208
13.128 3.396
20.027 5.007
7.289 1.760
23.511 5.658
79.289 18.497
180.898 40.738
163.297 35.276
199.457 41.299
217.645 43.541
242.199 46.924
269.918 50.571
298.414 54.128
315.121 55.252
346.184 58.746
354.848 58.168
388.359 61.580
203
percent of this incremental income. Prices have a much larger effect on
income available to the population. Prices have a greater impact later in
the period. By 2000 real disposable personal income is only 16 percent of
disposable personal income, while at the end of exploration in 1987 it
is 24 percent.
Welfare, as measured by the increase in real per capita disposable incomes
(DIRPA), increases because of OCS development. By 2000 DIRPA is about $7
greater than in the base case. The maximum difference during the period
is in 1990, when DIRPA is $43 greater. The change in this difference has
a great deal to do with the composition of employment. The peak level of
direct Cape Halkett employment also occurs in 1990. After 1990 the real
per capita income in this scenario moves toward those in the base case.
This results from a decline in the importance to the economy of this high
wage petroleum employment sector after the beginning of production in 1990.
EMPLOYMENT
The primary employment levels and the associated increases in state spen-
ding generate significant secondary impacts throughout the state economy.
The increase in the demand for goods and services, which results because
of changes in the level of personal income, lead to increases in employ-
ment in other sectors of the economy. The effect on total employment has
been discussed above; an equally important effect is on the growth of
separate sectors. The change which results will affect the structure of
employment. Table 3.50 shows the distribution of this employment between
industrial sectors. In the base case, the general trend in the structure
204
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TABLE 3.50. INDUSTRIAL DISTRIBUTION OF CAPE HALKETT
EMPLOYMENT IMPACT
(measured as changes from the base)
ALASKA
1987 1991 2000
EmEloyrnent % EmElo_yment % EmEloyrnent
Mining and Beaufort
OCS Construction 37 22.3 626 19.7 959
Other Construction 11 6.6 197 6.2 480
Trade 41 24.7 760 24.0 1617
Services 41 24.7 780 24.6 1735
Finance 10 6.0 192 6. 1 420
Transportation 7 4.2 133 4.2 250
State and Local Govt. 10 6.0 336 10.6 647
Other* 9 5.4 148 4.7 264
*Includes Public Utilities, Communications, and Other
SOURCE: MAP Statewide Model
205
%
7.8
8.2
27.5
29.5
7.2
4.3
11.0
4.5
of employment which was observed was an increase in the proportion of
total employment in the local serving sector, particularly trade and ser-
vices. The extra employment which results from OCS development in the
Cape Halkett Scenario supports this base case trend. We will examine the
structure of this increased employment at three points in time, the end
of the forecast period, the exploration and the development period.
The distribution of employment in 2000 supports the overall trend found
in the base case. Trade, services, and finance make up 64 percent of the
increased employment, mining and exogenous construction account for only
8 percent, while state and local government account for 11 percent.
These percentages are fairly stable during all stages of petroleum activ-
ity. The major change is the declining proportion of employment change
accounted for.by direct Beaufort employment.
By the end of the production phase, the structure of employment found in
the base case is reinforced by the OCS development. This should mean
that the reduction in seasonality will take place as discussed in the
base case. The increased proportion of employment in non-seasonal in-
dustries should reduce the overall seasonality in the economy. Though
direct employment in the OCS development does have a seasonal component,
its small proportion of total employment should reduce its impact.
In the base case a possible trend toward a reduction in unemployment was
suggested because of the decrease in the ratio of population to employment.
Although this does not guarantee a reduction, it indicates the possibility
of a decrease. The OCS development will support this trend if the ratio
206
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of change in population to change in employment falls. This ratio rises
throughout the production phase until it reaches 2.17 in 2000; this is
higher than the ratio found in 1977. This indicates the impact employ-
ment leads to greater increases in population and a possible increase in
unemployment.
POPULATION
By 2000 population is 2.2 percent higher because of development in the
Beaufort OCS. The greatest increase in population occurs in 1990, when
the extra population increases 2,700 as a result of peak increases in
direct OCS employment. The major factor which increases population above
the base case is migration experienced because of OCS. Since migration
is a response to increased employment opportunities and income, Beaufort
development will affect migration positively. Throughout the period, the
effect of OCS development is to reduce outmigration. In the period be-
tween 1986 and 1998, which is dominated by outmigration in the base period,
increased employment opportunities associated with OCS developement do not
lead to inmigration but the reduction in the outmigration which is
responsible for the increased population.
Since migration is not assumed to affect Native population, one impact
of this increase is a reduction in the share of Native population in the
total. By 2000 Native population is 18 percent of the total, compared
to 19 percent in the base case.
207
\
/ \
The structure of population will be changed in the OCS case. Migration
response to changing economic opportunities most importantly affects the
young. The reduction in outmigration would be assumed to dampen the
~ging in the population structure found in the base case. Table 3.51
shows the proportion of each age-sex classification in the total popu-
lation at the end of development in 1980, 1990, and 2000. By 2000 the
age structure has still undergone ·aging, although not quite as rapid as
in the base case. By 2000 the proportion of population which is greater
than forty is 1.5 percent less than in the base case. This age cohort,
although it increases, increases at a slower rate than the total popu-
lation.
Regional Impacts
This section will examine the impact of OCS development on three regions,
the North Slope, Anchorage, and Fairbanks. Each region will respond
differently to OCS development since they are influenced differently by
these growth factors. OCS deve 1 opment wi 11 not change the process
which determines regional growth. The location of exogenous employment,
interaction between regions, distribution of state expenditures, and
size of the local economy will affect the growth of any region resulting
from OCS development.
208
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0 - 1
1 - 4
5 - 9
10 -14
15 -19
20 -24
25 -29
30 -34
35 -39 ,.,
I ' . I 40 -44 'LJ
45 -49
50 -54
55 -59
[ 60 -64
65 +
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I:
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TABLE 3.51. AGE-SEX STRUCTURE OF THE POPULATION
CAPE HALKETT SCENARIO
(% of total population)
1980 1990 2000
Male Female Male Female Male
1.19 1.19 1.05 1.06 1.02
4.29 4.09 4. 21 3.99 3.81
4.75 4.62 5.11 4.99 4.64
4.33 4.22 4.52 4.36 4.39
4.93 4.10 4.08 3.82 4.26
8.55 5.68 5.56 3.84 5.57
6. 01 5.24 4. 41 3.80 3.80
4.67 4.27 4. 56 4.07 3.50
3.61 3.22 4.42 3. 77 3.60
2.54 2.41 3.58 3.33 3.41
2.04 1.84 2.78 2.61 3.15
1.78 1.57 2.16 2.07 2.75
1.49 1.31 1.67 1.62 2. 21
1.19 1.06 1.34 1.33 1.72
1. 97 1.84 2. 81 3.11 3.62
MAP Statewide Model
209
Female
1.02
3.62
4.48
4.23
3.94
4.05
3.54
3.33
3.16
3.15
2.90
2.60
2.18
1. 79
4.56
NORTH SLOPE REGION
Employment
Tables 3.52 and 3.53 show the changes in North Slope employment over the
base case and the industrial distribution of this change. The increase
over the base case does not grow smoothly throughout the period. By 2000
total employment is 709 greater than in the base, which is about 9 percent
higher than the base. When direct employment at the OCS site peaks in the
development phase in 1990, total employment is 2,354, or 40 percent higher.
By the end of the exploration phase in 1987, total employment is less
than 1 percent higher than in the base.
An important part of these employment increases on the North Slope are
increases in the enclave sector; petroleum and construction employment
located at Prudhoe Bay increases with OCS development. This increase has
only limited impact on the local economy. Beaufort OCS development also
leads to increases in the local sector; increases in local and state
government revenues and personal incomes, which result because of a
general expansion in wage rates, lead to growth in this sector.
The importance of growth in the local economy can be separated from total
growth by examining the distribution of employment between sectors on the
North Slope. The enclave sector includes portions of other construction
and transportation which cannot easily be separated. By including these
in the local sector, we will overestimate the growth of the local economy.
During the exploration phase, there is very little affect on the local
economy. Of the 58 extra employees in 1987, 50 percent are directly
210
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[ TABLE 3.52. CAPE HALKETT SCENARIO TOTAL ECONOMIC IMPACT
(measured as change from the base)
[ NORTH SLOPE
1979-2000
[ Total Personal
Year Population Employment Income
(millions [ of $)
1979 0 0 0.000
[ 1980 0 0 0.000
1981 0 0 0.000
[ 1982 0 0 0.000
19831 0 0 0.000
1984 36 35 2.464
1985 132 125 9. 791 r 1986 194 183 15.087 L.!
1987 2 62 58 4.992 r 1988 372 328 30.143
L 1989 1,308 1,132 108.654
1990 2,748 2,353 237.982
[ 19913 1,926 1 ,566 164.477
1992 960 785 81.572
1993 782 713 77.696 c 1994 742 736 84.492
1995 718 753 91.212
[J 1996 709 772 98.464
1997 652 734 98.832
1998 663 755 106.996
[ 1999 586 687 102.661
2000 606 709 111.605
c
[
6 1Exploration begins
2oevelopment begins
f' 3Production begins
L
SOURCE: MAP Regional Model
f'
t
211
l
TABLE 3.53. INDUSTRIAL DISTRIBUTION OF CAPE HALKETT
EMPLOYMENT IMPACT
(measured as changes from the base)
NORTH SLOPE REGION
1987 1991 2000
Employment % Employment % Employment
Mining and Beaufort
OCS Construction 29 50.0 606 38.7 403
Other Construction 21 36.2 788 50.3 195
Trade 1 1.7 13 .8 8
Services 3 5.2 69 4.4 38
Finance 0 0 9 .6 5
Transportation 2 3.4 65 4.1 42
State and Local Govt. 2 3.4 15 .9 14
Other* 0 0 0 0 4
*Includes Public Utilities, Communications, and Other
SOURCE: MAP Regional Model
212
%
56.8
27.5
1.1
5.4
.7
5.9
2.0
.6
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associated with OCS petroleum activity. The local sector of the North
Slope economy in the base case consists of 4,513 employees in 1987, so
during exploration the local sector increases by less than 1 percent.
By the end of the development phase in 1991, the total impact is 1,567;
of this 606 is in the petroleum enclave sector. At this time in the
base case, the local sector is 4,488 employees. During the development
I
stage, local employment increases approximately 21 percent. By 2000
direct OCS impact employment stabilizes at 403, which is 57 percent of
the total employment impact. In the base case, the local sector is about
6,119 in 2000, so that impact increases the local sector employment approxi-
mately 5 percent. The greatest growth in the local economy is during the
development stage; this is a result of the link between other construe-
tion, transportation, and the exogenous sector.
The overall distribution of this impact is different from both the base
and .the other scenarios. Direct Beaufort OCS employment and local con-
struction account for over 50 percent of the increased employment in all
stages of petroleum activity. This will impede the base case trend which
found trade, services, and finance employment increasing the proportion
of total employment. This will have adverse effects on the overall de-
crease in seasonality suggested in the base case. This may not be true
in the local economy, since the majority of the increase in the seasonal
industries will take place in the enclave sector.
213
Population
By 2000 the North Slope ~orough population has increased by 606 over the
base case. This total will not have as large an impact on the local
population, since over half of this increase is the extra employment in
the enclave sector. The total population in the local sector is only
increased by 203 above the base levels; this is a 2.7 percent increase
in population over the base. The effect on total popualtion is more
important in the other periods. By the end of development, the local
population is 1~320~ or 17 percent higher than in the base.
Personal Income
The personal income impact peaks in 1990 when it is $238 million greater
than in the base case. This is also the year that direct OCS employment
peaks. By 2000 personal income in the North Slope is 13 percent greater
than in the base case.
ANCHORAGE
Employment
Because of its past relation as the Alaska headquarters for petroleum
and petroleum support firms, Anchorage is assumed to experience increased
support activity as a result of North Slope development. This provides
a direct link between the level of OCS development and Anchorage economic
growth. Anchorage growth is also affected by increases in demand for
goods and services~ which result from increases in the personal income of
the region and the rest of the state.
214
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Total employment in Anchorage is 4,426 greater than in the base case by
2000; this is a 2.6 percent increase in employment over the base. The
increase over the base increases throughout the period. By the end of
the exploration phase in 1987, employment in Anchorage is 95 higher than
in the base, and by the end of development in 1991, employment is 1,882
higher. The importance of impact-associated employment increases through-
out the period. The development of the Beaufort OCS according to the Cape
Halkett Scenario increases the growth rate from 3.1 percent in the base
case to 3.3 percent per year between 1977 and 2000.
The composition of this extra employment which results from OCS develop-
ment supports the structural changes found in the base case. Between 1977
and 2000 the base case saw an expansion of the importance of the Anchorage
local service sector, particularly trade and services. By examining the
structural component of this extra employment, we can see this trend is
supported. In all phases, exploration, production, and development,
trade, services, and finance are more than 50 percent of the impact.
;
Tables 3.54 and 3.55 show the employment trends in Anchorage. Because
the industries which are less seasonal are important in the impact, the
trend toward reduced seasonality should be supported.
Population
The development of the Beaufort OCS according to the Cape Halkett Scenario
increases the concentration of population in Anchorage. By 2000 popula-
tion is 9,061 higher in Anchorage than in the base case; this is only
2.8 percent greater than in the base case. The majority of this impact
215
[
TABLE 3.54. CAPE HALKETT SCENARIO TOTAL ECONOMIC IMPACT
[
(measured as change from the base)
~ ANCHORAGE
1979-2000
Total Personal [
Year Po~ulation Em~lo~ment Income
(millions [ of $)
1979 0 0 0.000
1980 0 0 0.000 r-,
1981 0 0 0.000
1982 0 0 0.000 [ 19831 0 0 0.000
1984 93 44 1.847
1985 256 133 5.595 r
1986 403 208 8.913 L.
1987 2 230 95 4.080
1988 431 269 12.107 [
1989 1,185 907 41.564 L
1990 2,661 2,054 96.942
19913 2,909 1,882 91.671 L. 1992 4,224 2' 150 111.406
1993 4,811 2,334 125.180
[ 1994 5,431 2,593 143.641
1995 6,116 2,875 164.734
1996 6,792 3,191 188.816 [ 1997 7,293 3,411 208.156
1998 7,976 3, 777 238.129
1999 8,350 3,963 257.469 [ 2000 9,060 4,426 296.816
r:
L;
[
[ lExploration begins
2oevelopment begins I-3Production begins L
SOURCE: MAP Regional Model
r-
L
216
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TABLE 3.55. INDUSTRIAL DISTRIBUTION OF CAPE HALKETT
EMPLOYMENT IMPACT
(measured as changes from the base)
ANCHORAGE
1987 1991 2000
Emelo~ment % Emeloyment % Emeloyment
Mining 8 8.4 20 1.1 56
Construction 5 5.3 103 5.5 225
Trade 29 30.5 598 31.8 1267
Services 29 30.5 616 32.7 1743
Finance 8 8.4 171 9. 1 466
Transportation 9 9.5 185 9.8 303
State and Local Govt. 3 3.2 119 6.3 234
Other* 4 4.2 70 3.7 132
*Includes Public Utilities, Communications, and Other
SOURCE: MAP Regional Model I
217
%
1.3
5. 1
28.6
39.4
10.5
6.8
5.3
3.0
occurs in the production period. By the end of exploration, population
is less than 1 percent higher than in the state. Population is 1.1 per-
cent higher than in the base case because of OCS development by the end
of the development phase in 1991.
The population impact in Anchorage is 71 percent of the total impact in
the state; this is greater than the 56 percent of total state population
in Anchorage in 2000 in the base case. The effect of this will be to
increase the population concentration in Anchorage.
Personal Income
By 2000 personal income in Anchorage is $296.8 million greater than in
the base case because of OCS development. Over half of this impact
occurs in the production phase. At the end of the development phase,
OCS development has increased personal income by only .1 percent over
the base.
FAIRBANKS
Employment
Tables 3.56 and 3.57 illustrate the growth.of employment in Fairbanks.
Fairbanks has the smallest employment impact of any of the three regions
descr1bed in this section. By 2000 employment is only 1.4 percent higher
than in the base case. From 1978 to 2000 employment grows at an average
annual rate of 1.25 percent, compared to 1.19 percent in the base case.
At the end of the exploration phase, employment is 10 greater than in the
base case; after development, employment is .7 percent greater. Unlike
218
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l,
,.,
I I~ TABLE 3.56. CAPE HALKETT SCENARIO TOTAL ECONOMIC IMPACT
(measured as change from the base)
" FAIRBANKS
l" 1979-2000
[ Total Personal
Year Population Employment Income
(millions
[ of $)
1979 0 0 0.000
[ 1980 0 0 0.000
1981 0 0 0.000
[ 1982 0 0 0.000
19831 0 0 0.000
1984 22 8 0.617
1985 49 22 1. 627 r 1986 74 33 2.440 LJ
19872 41 11 0.815
r 1988 26 26 2.353
L 1989 -10 86 7.719
1990 11 210 18.393
L 19913 257 236 19. 170
1992 822 372 29.745
1993 975 396 32.610
6 1994 1 ,089 422 35.958
1995 1 '187 447 39.507
D 1996 1 ,266 472 43.273
1997 1 ,294 474 44.932
1998 1 ,338 495 48.842
c 1999 1,315 481 49.098
2000 1 ,319 500 53.066
L
[
L 1Exploration begins
2oevelopment begins
L 3Production begins
SOURCE: MAP Regional Model
r~
t
219
[
TABLE 3. 57. INDUSTRIAL DISTRIBUTION OF CAPE HALKETT
EMPLOYMENT IMPACT
(measured as changes from the base)
FAIRBANKS
1987 1991 2000
EmQlo~ment % EmQloyment % _EmQ 1 oyment
Construction 2 18.2 24 10.2 65
Trade 3 27.3 57 24.2 119
Services 2 18.2 49 20.8 101
Finance 1 9.1 15 6.4 30
Transportation 1 9.1 27 11.4 60
State and Local Govt. 1 9.1 46 19.5 91
Other* 1 9.1 18 7.6 34
*Includes Public Utilities, Communications, and Other
SOURCE: MAP Regional Model
220
%
13.0
23.8
20.2
6.0
12.0
18.2
6.8
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the other scenarios, state and local government does not play as important
a role in the expansion resulting from Cape Halkett development. The major
sectors in the impact employment are trade and services. The majority of
the impact is in the local support industries which are the least seasonal.
This should support the reduction of seasonality suggested in the base
case.
The impact in Fairbanks is small for two reasons. First, there is no
direct OCS employment assumed to locate in Fairbanks, as there was with
the construction of the trans-Alaska pipeline. Second, because Fairbanks
is small, the support sector response is not as great as Anchorage for
either growth within the region or growth in other regions.
Population
The population impact in Fairbanks as a result of Cape Halkett develop-
ment does not eliminate the decline in population found in the base case
after 1987. Between 1987 and 2000 population falls by 663; this is less
than the decline of 1,942 found in the base case. The production phase
is most important for providing this additional growth; approximately 80
percent of the additional population is achieved in this period. In both
the exploration and production phases of this development, the population
impact is less than 1 percent of base case population. Because of the
small size of this population impact, it has only minimal effect on the
population decline associated with the end of the construction of the
Alcan pipeline.
221
Personal Income
By 2000 personal income in Fairbanks has increased by $53.1 mi"llion over
the base case; this is 2.4 percent greater. More than half of this impact
occurs in the production phase. By the end of development, Fairbanks'
personal income is less than .1 percent greater than in the base case.
Summary and Assessment of Impacts
Development of the Beaufort OCS according to the Cape Halkett Scenario
will have minimal impacts. Cape Halkett has this effect because it is
one of the smallest fields of all the scenarios and there is no state share
of the production from this field. These two factors minimize the addi-
tional employment and population results from development. Cape Halkett
increases population and employment by approximately 2 percent over the
base by 2000. There are no major population increases in any year; in-
stead, growth is spread out through the entire period, which also minimizes
the impact.
Development according to this scenario has the same effect on the base
case trends as in the other scenarios. It supports the general structural
change which increases the importance of employment in the trade, service,
and finance sectors and, because of this, will likely reduce seasonality.
Because the increased economic opportunities reduce the outmigration of
the young, Cape Halkett development slows the general aging of the popu-
lation found in the base case.
The regional effects of OCS development following the Cape Halket scenario
are similar to the other scenarios. The concentration of activity in
222
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Anchorage is supported by this development; by 2000 71 percent of the
population impact is in Anchorage compared to 56 percent of the base popu-
lation. The North Slope also experiences the majority of the direct em-
ployment impact. As in the other cases, the long-term impacts on the
local economy are small, since almost 57 percent of the impact employment
is in the enclave sector. Fairbanks has very little impact, with total
employment being just over 1 percent greater than in the base case. The
main reason for this is the smaller state government response which is a
major transmitter of growth for Fairbanks.
223
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IV. SENSITIVITY ANALYSIS
As discussed earlier in both parts I and II, the assumptions forming the
basis for both the base and development scenarios are often highly spec-
ulative and in some cases extremely arbitrary. Consequently, it is
necessary to investigate the extent to which our major findings in part
III are sensitive to the most speculative and arbitrary of these assump-
tions.
The major assumptions to which we plan to test the sensitivity of the
part III analysis fall generally into four categories. First are the
assumptions concerning the development plan. These assumptions encom-
pass all aspects of the development plan affecting levels and timing of
direct employment and production at each site. Such assumptions would
include geology, location, resource levels, technology, and the timing
of various development activities. Second are those assumptions con-
cerning the state expenditure policy adopted throughout the forecast
period. Third are those assumptions regarding the level of state petro-
leum revenues induced by each development. Finally, we consider the
assumption implicit in the previous analysis that new direct employment
in the petroleum and construction sectors generates the same migratory
response as do employment changes in the endogenous and other exogenous
sectors of the Alaska economy.
Sens iti vi ty to the Choice of Deve.l opment Plan
The specific development plans chosen for analysis in part III were de-
signed to capture several elements of the uncertainty surrounding
225
offshore development in the Beaufort Sea. However, they do not by any
means capture the full range of uncertainty, and other development plans
are equally plausible. Two such_plans were examined--one which incor-
porates a· much larger scale of development than described by the part III
scenarios, and the other a completely pessimistic scenario in which
exploration yieldsno commercial discoveries.
MULTIPLE DISCOVERY SCENARIO
One alternate development scenario for the Beaufort region is one that
considers the prospect of.multiple discoveries and simultaneous develop-
ment of those discoveries. Because of the highly nonlinear nature of
the economic relationships represented by the model as well as the im-
portance of the fiscal policy response of state government in the total
impact, the impact of a development scenario involving overlapping de-
velopment of multiple discoveries is not simply the sum of the impacts
of individually considered discoveries. This suggests a test of the
sensitivity of the conclusions to this procedure of individual discov-
ery analysis by contrasting the impacts of part III with a composite
scenario in which all three developments (Prudhoe, Camden-Canning,
and Cape Halkett) occur simultaneously.
Two such multiple discovery scenarios were examined. In the first, the
11 High Composite 11 case, three developments corresponding to the Prudhoe
High discovery, the Camden-Canning discovery, and the Cape Halkett dis-
covery, all occur. In the second, the 11 Low Composite 11 case, the Prudhoe
Low discovery is developed a·long with the Camden-Canning and Cape Hal-
kett discoveries.
226
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As shown in Table 4.1, the impact of the multiple developments in the
11 High Composite 11 case is substantially greater than the sum of individ-
ually considered development impacts, while this effect is much less
pronounced in the 11 Low Composite 11 scenario.
These results suggest at least some caution in the interpretation of the
results of part III and may be suggestive of an alternative methodology
for future analysis. Table 4.1 illustrates that it would be erroneous
to interpret the impact of a large scale development program involving
discoveries at more than one of the selected sites as simply the sum of
the impacts of isolated developments. Whether or not this suggests a
deficiency in the methodology of part III depends on whether the composite
scenario is more or less likely to occur than is a single isolated
discovery. If the composite scenario is more likely, then the methodol-
ogy of part III will understate impacts, with the degree of understatement
dependent on the size of developments in the composite scenario.
11 EXPLORATION ONL Y11 SCENARIO
On the other hand, there is a great deal of uncertainty surrounding the
geology of the Beaufort Sea, and it is entirely possible that the ex-
ploration of the leased area may fail to yield any commercial discoveries
whatsoever, in which case any of the scenarios considered in part III will
have overstated the impact of the leasing program. Such a case, con-
sisting of a short spurt of exploration activity only, was developed by
Dames and Moore (Dames and Moore, 1978) and its impact assessed using
the MAP model. The direct employment requirements of such a program
227
TABLE 4.1. EFFECT OF BEAUFORT SEA DEVELOPMENT ON VALUES
OF KEY VARIABLES IN THE YEAR 2000
Variables
Scenario Population Employment Income
(Millions
of $)
Prudhoe (High) 40,157 18,697 1,587.8
Camden-Canning 26,556 11,654 1,007.8
Cape Halkett 12,748 5,872 513.3
Total 79,461 36 '220 3,108.9
Composite 11 High 11 93,366 44,590 3,792.6
Prudhoe (Low) 18,215 7,775 668.4
Camden-Canning 26,556 11 ,654 1,007.8
Cape Halkett 12,748 5,872 513.3
Total 57,519 25,301 2,189.5
Composite 11 LOW 11 58,548 25,973 2,231.5
SOURCE: MAP Statewi~e Model.
228
Fund
Balances
(Millions
of $)
7,699.0
8,281.4
28.6
16,009~0
10,207.5
3,657.0
8,281 .4
28.6
ll • 967.0
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are presented in Table 4.2. Exploration employment peaks in 1981 at
62 persons and ends by 1987. Construction begins in 1980, peaking at an
employment of 30 persons in 1982 and ceasing by 1987. Table 4.3 presents
the impact of this spurt in activity on total state employment, popula-
tion, income, and the state fiscal position.
The magnitude of the impacts induced by such a seemingly small and short-
lived spurt in employment may appear surprising. While direct employment
peaks at only 79 and then falls to zero, the long-run impact on total em-
ployment is forecast to be 730 and the long-run impact on population to
be 1710. Two points should be made regarding these results. First, with
such small numbers, we may be extending the model beyond what can reason-
ably be expected in terms of precision. Second, to the extent that such
an effect does occur, it consists almost entirely of the effects due to
changes in state government expenditure induced by the receipt of the
initial bonus payment and by the influx of population induced by the
spurt of exploration employment. The fiscal effect accounts for 89 per-
cent of the impact on population, 95 percent of the impact on employment,
and 93 percent of the impact on personal income in the year 2000. This
result points dramatically to the importance of the expenditure response
in the measurement of the impacts of offshore development. We turn now
to consider such effects.
Sensitivity to State Expenditure Policy
In the analysis of parts II and III, it was necessary to specify an expen-
diture rule to capture the essential features of state fiscal policy
229
Year
1979
1980
1981
1982
1983
1984
1985
1986
1987
TABLE 4.2. DIRECT EMPLOYMENT REQUIREMENTS
-EXPLORATION ONLY SCENARIO-
Petroleum Construction
Sector Sector
30 0
46 13
62 25
49 30
33 21
33 21
16 13
16 13
0 0
SOURCE: MAP Statewide Model.
230
Total
30
59
87
79
54
54
29
29
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TABLE 4. 3. IMPACT OF ,. EXPLORATION ONL yu SCENARIO ON
MAJOR ECONOMIC VARIABLES (1980-2000)
Persona 1 State State
Po~ulation EmQloyment Income Revenues S~ending
Fund
Balances
(million $)(million $)(million $)(million $)
1980 282 200 8.73 125.4 .5 125.0
1985 1 '243 643 27.68 19.9 20.4 250.0
1990 1,284 541 27.51 19.7 22.9 250.0
1995 1,475 618 39.35 18.9 29.2 212.4
2000 1 '71 0 730 58.22 15.6 37.8 132.7
SOURCE: MAP Statewide Model.
231
over the forecast period. Inasmuch as it is actually a matter of policy
choice, this rule might follow any of an infinite number of possible
specifications. However, the establishment of a permanent fund into
which some fraction of state petroleum revenues is to be deposited sets
the framework for a fiscal policy under which current expenditures equal
total revenues less permanent fund contributions. Thus, the expenditure
rule assumed for the base case has the state spending available revenues
less permanent fund contributions until such behavior would require
decreases in real per capita expenditures, at which point the state dis-
saves past accumulated balances in order to maintain such levels. How-
ever, even if we accept the general form of this expenditure rule, the
rate at which eligible revenues is deposited in the fund may vary con-
stitutionally anywhere from 25 percent to 100 percent. The choice of
60 percent in the analyses of parts II and III was arbitrary, and the sensi-
tivity of measured impacts to this choice needs to be tested.
Two extreme cases were examined to test this sensitivity. In the first
case, it was assumed that the minimum level of 25 percent was contributed
to the fund. In the second case, it was assumed that the rate was set at
100 percent. Using the Prudhoe Low discovery scenario as an example,
both the base case and the development case were rerun using the 25 per-
cent and then the 100 percent rule and the measured impacts compared with
those under the 60 percent rule used in the analysis of part III. Table
4.4 presents this comparison. Several points are worth noting in this
comparison. First, the level of the major economic variables is ex-
tremely sensitive to the choice of an expenditure rule. For example,
232
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TABLE 4.4. IMPACTS OF OCS DEVELOPMENT (PRUDHOE LOW SCENARIO)
UNDER ALTERNATIVE EXPENDITURE RULES
PoQulation EmQlo~ment Personal Income 1
25% 60% 100% 25% 60% 100% 25% 60% 100%
Year Rule Rule Rule Rule Rule Rule Rule Rule Rule
1980 258 260 297 198 199 227 8.742 8.738 9.602
1985 1 '732 1,743 1 '759 915 920 924 42.184 41.996 41.738
1990 9,890 9,493 9,494 5,439 5 '167 5,160 322.430 306.012 302.395
1995 15' 948 15' 326 15' 242 7,829 7,459 7.405 560.860 532.250 523.230
2000 19,165 18,215 17' 973 8,285 7' 775 7,625 715.410 668.420 649.860
1Millions of dollars
SOURCE: MAP Statewide Model.
Fund Ba 1 ances 1
25% 60%. 100%
Rule Rule Rule
125 125 125
250 250 250
355 396 357
1,555 1,686 1 '371
3,435 3,657 3, 797
population in the year 2000 is nearly 596,000 under the 25 percent rule,
576,000 under the 60 percent rule, and 554,000 under the 100 percent
rule. Nonetheless, despite these large differences in levels of the
major variables, the interesting point brought out clearly by Table 4.4
is that the measured impacts of the offshore development undergo only
minor variations in response to these major fiscal policy variations.
Thus, the choice of the 60 percent rule in the analysis of part III,
though arbitrary, appears to be innocuous in its effects on the measured
impacts of such development.
A second and more important issue arises concerning the choice of an
expenditure rule, namely, the assumption implicit in the analysis of
part III that the state chooses to spend new petroleum revenues induced by
OCS development according to the same expenditure rule adopted in the
base case. Should the state behave differently in the face of the new
revenues, our measured impacts might change significantly. Even if it is
implausible that the state's behavior is such as to differentiate in some
way between OCS and non-OCS petroleum revenues, it may be useful to dis-
tinguish for purposes of analysis that portion of the total impact due to
changes in state fiscal policy from that which is due to endogenous
changes in the private economy.
In order to isolate the component of the total measured impacts attribut-
able to state fiscal policy changes, two cases were examined for each of
the development scenarios. In the first case, we assume that the state
holds its absolute expenditure levels at the levels of the base case in
234
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the face of offshore development and the activity it induces. However,
because OCS development activity induces both migration and price changes,
such a policy would necessarily entail a cut in real per capita expendi-
tures. Consequently, a second case is examined in which the state is
assumed to hold the level of real per capita expenditures at their base
case levels as offshore development proceeds. Neither of these cases is
presented as plausible response patterns by the state--the state cannot
adjust its behavior in the face of the development to conform to some
hypothetical notion of what it would have done in the absence of the
development. Rather, these cases permit us to separate, for purposes of
analysis, the portion of the total impact due to fiscal policy changes
and, of this fiscal component, the portion required simply to maintain
the level of state services per capita at the levels which would have
occurred without the development.
The results of these simulations are presented in Table 4.5. The third
column presents the impact of each of the developments on the major eco-
nomic variables in the year 2000. These are the impacts presented in
part III which arise from state expenditure policy based on the 11 60 percent
rule 11 discussed earlier. Using this rule, the state changes both total
and real per capita expenditures in response to migration and new petro-
leum and non-petroleum revenues induced by the offshore development. The
first column presents the total impact which would have occurred had the
state maintained its absolute expenditure levels at their base case values.
This can be interpreted as the purely endogenous portion of the impact re-
sulting from changes in the private economy. However, this results in a
235
TABLE 4.5. MEASUREMENT OF COMPONENT OF TOTAL IMPACTS DUE
TO CHANGES IN STATE GOVERNMENT EXPENDITURE
Holding Total
Impact in the Year 2000
Holding Re~l Per Using 60%
Expenditures Capita Expenditures Expenditure ' . ~cenano Variable at Base Levels at Base Levels Rule
Prudhoe Population 15,341 28,350 40,157
(High) Employrent 5,915 12,621 18,697
Income 1 566.1 1,103.0 1,587.8
Fund Balances 14,600.3 11 ,408. 2 7,698.9
Prudhoe Population 8,985 16,680 18,215
(Low) Employment 3,189 7,087 7' 775
N I ncomel 304.7 614.9 668.4 w Fund Balancesl ()) 6,280.5 4,399.8 3,657.4
Camden-Population 13,674 25,034 26,556
Canning Employment 5,096 10,983 11 ,654
Incomel 485.6 955.2 1,007.8
Fund Balances1 11,523.1 8,861. 2 8,281 .4
Ha 1 kett Population 7' 186 12' 857 12,748
Employment 2,889 5,926 5,872
Incomel 276.4 517.9 513.3
Fund Balances1 1,035.2 -87.5 28.6
1Millions of dollars
SOURCE: MAP S ta tewi de Mode 1 .
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decline in real per capita state spending from the base levels. Should
the state maintain real per capita expenditures at the base case levels,
the impacts of column (2) would result.
In the Prudhoe High case, the state would accumulate new balances total-
ing $14.6 billion by 2000 if expenditures were held at their absolute
base case levels, and the impacts of the development would be limited to
slightly over one-third of the total impact which occurs as a consequence
of the 60 percent rule. Under that rule, the state spends nearly $7 bil-
lion of these induced revenues, about $3 billion of which is required to
maintain the level of per capita services which would have occurred
without the development, and the remaining $4 billion to increase the
level of real per capita expenditures.
In the Prudhoe Low case, the state spends $2.6 billion of new revenues
totaling $6.3 billion, about $1.9 billion of which is required to maintain
base levels of real per capita expenditures. This spending pattern re-
sults in a total impact on the major economic variables which is about
twice as large as the purely endogenous impacts.
In the Camden-Canning case, the state spends $3.2 billion of induced
revenues, of which $2.6 billion is required to maintain base levels of
real per capita expenditures, resulting in a total impact of about twice
the size of the purely endogenous effects.
237
In the tape Halkett scenario, the state spends all but $29 million of its
induced revenues of $1 billion but is still unable to maintain real per
capita expenditures at their base case levels. This expenditure pattern
induces impacts of less than twice the purely endogenous effect, but
maintaining real per capita spending at the base case levels would re-
quire even additional spending by the state. This insufficiency of
revenues to finance base case levels of real per capita expenditures
contrasts with the other three cases in which real per capita expendi-
tures rise under the 60 percent rule and stems from the fact that the
Cape Halkett development occurs on exclusively federal property, thus
failing to generate the royalties and production taxes characteristic
of the other developments.
These results point to a central feature of the impacts of offshore
development in Alaska. Because of the dominant role of the state and
local government sector in the state, and the magnitude of the fiscal
changes likely to be induced by offshore development, induced changes in
state fiscal behavior overwhelm the purely endogenous changes induced by
direct employment requirements. Furthermore, because of the responsive-
ness of state expenditures to induced revenue changes, an examination of
the sensitivity of the part III conclusions to our revenue assumptions is
in order. We turn now to such an examination.
238
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Sensitivity to Revenue Assumptions
For reasons discussed above, the fiscal response of state government to
the changes induced by offshore development will dominate the total eco-
nomic impact of such projects. Because this response is in part deter-
mined by exogenous petroleum revenues, the sensitivity of our major
impact measures to these revenue estimates needs to be examined.
Errors in the estimates of petroleum revenues presented in part III might
stem from any of a variety of sources, such as:
o variations in production rates from assumed levels;
o variations in wellhead value due to misestimation of market prices
or transport costs;
o variations in production tax rates or royalty rates due to tax law
changes or the introduction of royalty bidding; or
o variations in the distribution of federal/state resource ownership
from that assumed in part III.
Consequently, the estimates of part III must be considered highly specula-
tive and subject to wide margins for error.
Because of this, each of the development scenarios was rerun using petro-
leum revenue estimates 50 percent higher and 50 percent lower than those
assumed in part III. While these are extremely wide margins for error, they
are not unrealistic in light of the uncertainty surrounding the revenue
estimates. For example, should the state of Alaska win its jurisdictional
dispute with the federal government over the determination of the three-
mile boundary, its share of the Prudhoe High or the Prudhoe Low discovery
239
would increase by over 50 percent from that assumed in part III. Table
4.6 presents the results of these alternate simulations for each of the
four discoveries.
The table suggests that the measured impacts of the Prudhoe Low discovery
and the Cape Halkett discovery on population, employment, and income
are relatively insensitive to these wide variations in exogenous revenues.
The Camden-Canning scenario is particularly sensitive to underestimation,
but because of the small area of disputed ownership within the Camden-
Canning discovery area (a state victory in the jurisdictional dispute
would increase the state share of the discovery by only 8 percent), it is
not subject to as much risk of underestimation as the Prudhoe scenarios,
for example.
On the other hand, the Prudhoe High scenario impacts are extremely sensi-
tive to the exogenous revenue estimates. Should exogenous revenues be 50
percent larger than estimated in part III, the impact of such development on
the major economic variables would be over 50 percent larger than esti-
mated in part III. Should such revenues be 50 percent lower than estimated,
impacts would be some 33 percent lower than estimated. In summary, one
would have to conclude that given this extreme sensitivity, combined with
the fact that the state ownership of the Prudhoe High discovery could
easily increase by 50 percent or more with a favorable court decision,
the measured impacts of the Prudhoe High discovery reported in part III
must be regarded as extremely speculative.
240
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Scenario
Prudhoe
(High)
Prudhoe
(Low)
--'
., Camden-
Canning
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Halket
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TABLE 4.6. SENSITIVITY OF MEASURED IMPACTS TO ERRORS
IN PETROLEUM REVENUE ESTIMATES
With 50% With 50%
Overestimate Measured Underes ti rna te
of Petroleum Impact in of Petro 1 eum
Variable Revenues Part III Revenues
Population 27,597 40,157 61,136
Employment 12,235 18,697 29,554
Income 1 ,071 1,588 2,464
Fund Balances 4,754 7,699 8,024
, Population 17,144 18' 215 19,277
Employment 7,280 7,775 8,268
Income 629 668 707
Fund Balances 1, 261 3,657 6,054
Population 25,564 26,556 35,389
Employment 11 , 192 11,654 16,441
Income 971 1,008 1 ,391
Fund Balances 3,300 8,281 11 '383
Population 12,723 12,748 12,768
Employment 5,860 5,872 5,882
Income 512 513 514
Fund Balances -353 29 410
MAP S ta tewi de Mode 1
241
Sensitivity to Migration Response
The final test to which the conclusions of part III were put related to the
assumption implicit in the analysis of part III that changes in exogenous
construction and petroleum sector employment in response to offshore de-
velopment induce the same patterns of migration from the Lower 48 as do
changes in employment in any other sector. This has been the subject of
some criticism inasmuch as it is alleged that the new employment generated
by offshore development is highly specialized, and known to be so, so that
it does not induce the patterns experienced in the past when new employ-
ment was felt to be open to any migrant who appeared. Thus, it is argued
that the effects of such employment changes are likely to have minimal
effects on inducing migration.
Consequently, using the Prudhoe Low case as an example, a simulation
was performed in which it was assumed that changes in petroleum and exo-
genous construction sector employment have no effect whatsoever on net
migration throughout the forecast period. This is an extreme assumption
which undoubtedly overstates any reasonable case which could be made for
a diminished migratory response. However, even with this extreme assump-
tion, the total population impact of the development by 2000 is less than
3.2 percent different from the estimated impact assuming a normal res-
ponse, as shown in Table 4.7.
While such a difference matters in the initial development years, the
effect of the direct employment is quickly dominated by the effect of the
induced employment in determining net migration, so that the effect of
242
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TABLE 4.7. IMPACT OF PRUDHOE LOW DEVELOPMENT ON
STATE POPULATION UNDrR ALTERNATIVE
MIGRATORY RESPONSES TO DIRECT EMPLOYMENT
IN CONSTRUCTION AND PETROLEUM
Full No
Migratory Migratory %
Year Response Response Difference
1980 260 161 -38.1
1985 1,743 1,618 -7.2
1990 9,493 8,204 -13.6
1995 15,326 14,066 -8.2
2000 18,215 17,627 -3.2
SOURCE: MAP Statewide Model.
243
varying this assumption, even if information were available on how to do
so, would be insignificant in its effect on our final conclusions as to
measured impacts.
244
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V. SUMMARY AND CONCLUSIONS
In this report, we have set out to assess the major impacts that an off-
shore oil and gas development in the Beaufort Sea would have on the pro-
cess of Alaska economic growth and the distribution of these impacts among
the various regions of the state.
For all of the scenarios examined, the qualitative nature of the influence
of the development on the growth process is similar. The development pro-
gram generates a wave of direct employment activity in the construction
and petroleum sectors, building to a peak several years after the start of
development, then declining to a stable long-term level as production com-
mences. These activities generate streams of new private incomes and
public revenues, which induce a set of impacts which may be separated
conceptually into two parts. First, the expenditure of wages and salaries
earned in direct employment generates further income and employment in the
endogenous sectors of the economy through the increased demand for. the
output of these sectors. Second, the expenditure of new public revenues
by state and local governments generates a first round of employment in
both government and the construction industry (through capital expendi-
tures), which in turn induces multiplier effects throughout the endogenous
sectors. Of the two components, the analysis of part IV demonstrates that
the latter was generally the dominant effect. The increased incomes
generated by both effects have their greatest impacts on the growth of the
support sectors--trade, services, and finance, which increase in share of
total employment as a consequence of the development. Changes in both
245
income and employment, however, serve to induce increased net migration
into the state, so that despite short-term gains in per capita income at
the peak of development, the long-run impact of such development is to
increase the level of state population with per capita incomes virtually
unchanged.
With regard to the regional distribution of developmental impacts, we find
that virtually all of the direct employment activity associated with such
development will occur within the North Slope Borough. However, because
of the 11 enclave 11 type nature of these direct activities, combined with the
dominance of Anchorage as a statewide distribution and support center,
very little of the induced employment impacts of development occur in the
North Slope Borough, but rather are overwhelmingly concentrated in
Anchorage. The fiscal effect described above serves to reinforce this
dominance of Anchorage in absorbing the bulk of any impacts, as well as
to induce impacts in the Fairbanks region.
Quantitatively, the major long-run impacts of each of the scenarios ex-
amined ·are summarized in Table 5.1. As seen in the table, the single most
important determinant of the relative importance of the impacts of each
scenario was discovery size, with the 1.9 billion barrel discovery of the
Prudhoe High scenario dominating the scenarios with long-run impact of
over 40,000 on state population, over three times the impact associated
with the .8 billion barrel discovery at Cape Halkett. However, the effect
of resource ownership is also readily apparent from the table. For ex-
ample, the peak of direct employment requirements for the Cape Halkett
246
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TABLE 5.1. SUMMARY OF LONG RUN IMPACTS OF ALTERNATIVE
DEVELOPMENT SCENARIOS
Direct Discovery % State
Scenario Em~lo~ment Size Owned Im~act in the Year 2000
Fund
Peak 2000 Oil Gas Po~ulation Em~lo~ment Income Balances ----(BB} (TCF) (mi 11 ions (mi 11 ions
of $) of $)
Prudhoe
High 1 '759 940 1.9 4.75 61 40' 156 18,696 1 '587. 8 7,699.0
N Prudhoe -!==>
""-.! Low 1 ,027 502 0.8 1. 60 64 18,212 7,774 668.3 735.3
Camden-
Canning 1 ,346 806 1.3 3.25 87 26,556 11 '654 1,007.8 8,281.4
Cape
Halkett 897 459 0.8 0 0 12,748 5,872 513.3 28.6
SOURCE: MAP Statewide Model
scenario is about 12 percent lower than those associated with the Prudhoe
Low scenario, while the impacts associated with the Halkett scenario
are 30 percent lower than those of the Prudhoe Low case. This reflects
the dampened fiscal effect attributable to federal ownership of the
Halkett properties. With respect to the regional distribution of impacts,
Table 5.2 summarizes the effects of each of the four scenarios, clearly
pointing out the dominance of Anchorage in absorbing nearly 60 percent of
the income increases, over 75 percent of the employment impacts, and
about 70 percent of the population impacts of the development program.
As mentioned repeatedly throughout this report, many of the central fea-
tures of Beaufort Sea development remain unknown, and, consequently, many
of the assumptions incorporated into the scenarios must be regarded as
highly speculative. As the analysis of part IV illustrated, many of the
measured impacts presented here are insensitive to the more speculative
and arbitrary of our assumptions. However, other conclusions, such as the
impacts of the Prudhoe High case, are highly sensitive to very speculative
assumptions, such as the outcome of the federal/state jurisdictional dis-
pute, and must be regarded as tentative until more information becomes
available. In addition to the uncertainties brought out in the analysis,
several more basic variations could alter our analysis in fundamental ways.
First, projections regarding energy supplies over so long a period as the
twenty-three year forecast presented here risk neglecting major technolog-
ical changes, the discovery of substitute energy forms, or alternative
crude supply sources which would completely invalidate our implicit assump-
tion of continued demand for North Slope crude through the year 2000.
248
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Variable
Population
Employment
Income
TABLE 5.2. SUMMftRY OF DISTRIBUTION OF
IMPACTS BY REGION
Percent of Total Year 2000
Prudhoe Prudhoe Camden-
Region High Low ---Canning
Anchorage 70.0 69.9 70.4
Fairbanks 9.4 10.2 10.2
North Slope 3.6 3.7 4.2
Anchorage 76.0 76.0 75.9
Fa.i rbanks 8.6 8.5 8.4
North Slope 8.4 1 0. 1 10.7
Anchorage 59.6 59.0 58.6
Fairbanks 10.2 10.2 10.1
North Slope 15.7 18.6 19.6
SOURCE: MAP Regionai Modei
249
Impact
Cape
Halkett
71.1
10.4
4.8
75.4
8.5
12. 1
57.9
10.3
21.8
Second, it is possible, though.unlikely, that major new discoveries of oil
or gas in the Prudhoe area, in the National Petroleum Reserve, or in the
Arctic Wildlife Range would fill existing TAPS capacity prior to the on-
set of production from the Beaufort Sea, thus either requiring construe-
tion of new pipelines, utilization of alternative transport modes, or the
cutback of production from earlier discoveries to ration existing capacity.
Third, new legislation by Congress or the Alaska Legislature could signi-
ficantly alter the institutional arrangements surrounding OCS development
in ways which would substantially alter the impacts of such developments.
Finally, the introduction of changes in the regional structure of the
Alaska economy, such as would be introduced by a capital move, would alter
the regional distribution of impacts, most likely intensifying even further
the proportion of impacts occurring in Anchorage and the Southcentral
region.
However, within the existing structure of technology, market demand for
oil, regional economies, and institutional arrangements, the analysis pre-
sented above presents at least a plausible range of impacts to be expected
from Beaufort Sea development, as well as a methodology for the incorpora-
tion of additional information into the assessment of these impacts as
such information becomes available.
250
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APPENDIX A
METHODOLOGY AND ASSUMPTIONS
OF MAP MODEL
251
APPENDIX A: METHODOLOGY AND ASSUMPTIONS
OF MAP MODEL
The MAP Statewide Model
The basic model to be utilized in the analysis of the Beaufort Sea
development scenarios is the statewide econometric model of the Alaska
economy developed by the Man-in-the-Arctic Program (MAP) presently being
conducted jointly by the Institute of Social and Economic Research of
the University of Alaska and the Joint Center for Urban Studies of MIT
and Harvard University.1 The model consists of three major components--
an economic model of state incomes and employment, a demographic model
of state population, and a fiscal model of state and local government
revenues and expenditures and federal tax payments. We now proceed to a
description of each component and the linkages between them.
THE ECONOMIC MODEL
The economic component of the MAP model is designed to produce projections
of Alaska prices, incomes, output, and employment. In the model, the
state economy is broken down into fourteen sectors, as shown in Table
A-1. Of these, six sectors--agriculture, forestry, fisheries, federal
government, manufacturing, and mining (including petroleum)--are wholly
exogenous. That is, these sectors are affected primarily by influences
[
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lsee David T. Kresge, 11 Alaska 's Growth to 1990,11 Alaska Review of L··~,
Business and Economic Conditions, January 1976; Daniel A. Seiver, 11 Alaskan _
Economic Growth: A Regional Model with Induced Migration,11 Anchorage,
1975; Scott Goldsmith, 11 Fiscal Options and the Growth of the AlCI.skan
Economy,11 Anchorage, 1977; and David T. Kresge, et al, Issues in Alaska r·
Development, forthcoming 1978. L
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TABLE A.l. INDUSTRIAL CLASSIFICATIONS, MAP STATEWIDE MODEL
Exogenous Industries
1. Agriculture
2. Forestry
3. Fisheries
4. Manufacturing
5. Mining (Petroleum)
6. Federal Government
Endogenous Industries
7. Trade
8. Services
9. Finance
10. Transportation
11. Communications
12. Public Utilities
Mixed Industries
13. Construction
14. State & Local
Government
external to the Alaska economy so that output and/or employment in each
of these sectors must be estimated outside of the model and input exo-
genously for a model run. A development 11 Scenario 11 consists largely of
these exogenous sector employment and output assumptions. Six other
sectors--trade, finance, services~ transportation, communications, and
public utilities--are treated as wholly endogenous inasmuch as production
and employment in those sectors is aimed solely at satisfying local de-
mands. Other sectors, namely construction and state and local govern-
ment, have both exogenous and endogenous components. Construction sector
activity consists of both exogenous employment in such activities as
pipe 1 i ne and petro 1 eum sector faci 1 ity construction as we 11 as endoge-
nous employment involved in the construction of homes, offices, roads,
253
and other facilities designed to serve local demands. State government
grows largely in response to either revenue changes or population growth
induced both by the growth of endogenous state incomes (personal and
corporate income taxes, licenses, and fees), as well as the exogenous
growth of resource related revenues (bonuses, royalties, etc.).
Figure A-1 presents schematically the structure of the state economic
model. The model consists of a series of simultaneous equations, cali-
brated for the historical period 1961 to 1974. The variables in the
economic model are estimated roughly as follows: An Alaska price index
is estimated as a function of both the U.S. Consumer Price Index and the
growth in Alaska employment. Industrial employment is estimated outside
of the model for the exogenous sectors, and output for such sectors is
determined by historical relationships with employment in such sectors.
For the endogenous component of the construction sector and the other
endogenous sectors (except for state and local government, described
below), output is estimated as a function of state real disposable per-
sonal income. Sectoral employment is then estimated from historical
relationships between sectoral output and employment in the state. Sec-
toral wage rates are computed as a function of real average weekly earn-
ings in the U.S., as well as the Alaska price index, and in the case of
sectors particularly sensitive to exogenous "booms, .. such as transporta-
tion, petroleum, and construction, by the proportion of total employment
engaged in petroleum and exogenous construction. Alaska wages and
salaries are computed as the sum of the product of sectoral employment
and wage rates, and personal income is estimated as a function of wages
254
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Industry Output
• Exogenous Sectors .. ~, Support Sectors
' Federal Other State and Trans.,
~res try Fisheries Gov. Agriculture Mnfg. Local Gov. ~ Petroleum ~ Construction Trade Finance Services Comm., &
Pub. Util. I
.~ 1• ~' ~, , ,
,,
+ I Industry Employment I r--+ Industry
Wage Rates ~I
T_J. '
I
I Wages and Salaries I
Non-Wage I Income ~
N
(}1
j Personal ~I I (}1 Income Fiscal Model
...
Disposable
Personal
Income
~ Consumer Prices t .... I Real Disposable Income -----
Figure A.l STRUCTLRE OF THE MAP ECONOMIC MODEL
Source: Kresge, D.T., 11 Alaska 1 S Growth to 1990,11 Alaska Review of Business and Economic Conditions, January, 1976.
and salaries. Personal tax payments (calculated·from the fiscal model
described below) are subtracted from personal income to arrive at dis-
posable personal income. Real disposable personal income, by producing
local demands, then acts to determine endogenous industrial output. Be-
cause of this interrelationship between incomes and output, both are
simultaneously determined in each time period.
THE DEMOGRAPHIC MODEL
A second component of the MAP statewide model forecasts Alaskan popu-
lation growth. The structure of the demographic model is shown in Figure
A-2. Population growth is determined by two factors--the rate of natural
increase (excess of births over deaths) and the rate of net migration to
or from Alaska. Net migration to or from the state is determined by two
factors--changes in state employment and the ratio of Alaska non-Native
real per capita income to average U.S. real per capita income. The age-
sex distribution of the population, as altered by net migration, combined
with fertility and mortality rates, then determines the rate of natural
increase. The output of the state population model is an annual forecast
of total population. The model also provides the age-sex and Native-
non-Native distributions for the annual forecast of population.
THE FISCAL MODEL
Because of the central role of the federal, state, and local government
sectors in the determination of the overall level of economic activity,
and consequently state migration, in Alaska, the third component of the
MAP statewide model is devoted to an explicit modeling of the behavior
256
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Economic
Model
-~ )
~~ ---"-·----., Age-Sex
Distribution .._•-~---,
Real personal
Income
1_,.-----..,--'
I
~,.
Fertility
Rates
.. Mortality I Rates Employment
Growth
Real per capita ~
r-----1 income relative
to U.S.
--
Births
~
-·-Natural
Figure A.2
I
I Deaths
-~ !
J, I , ,
Increase J I_--· _ -~ Net Migration I
I
Civilian non-Native
Population Change
~-----~ --------~--------~ Native Military
Popu 1 at ion ·~--------::t::-------et;. Po pu 1 at ion
Alaska
Population ~---~-=·-~ -~· --------
STRUCTURE OF THE MAP ECONOMIC MODEL
Source: Kresge, D.T., 11 Alaska•s Growth to 1990,11 Alaska Review of Business and Economic Conditions,
January, 1976.
of the government sectors in Alaska. The functions of the fiscal model
within the larger MAP model are threefold: first, to calculate personal
tax payments in order to derive disposable personal income from personal
income; second, to provide a framework for the analysis of alternative
choices for explicitly modeled policy variables; and finally, to provide
the basis for estimates of state and local government employment which
result from such policy choices.
Figure A-3 represents schematically the structure of the MAP fiscal model.
Estimation of federal, state, and local tax and non-tax payments is accom-
plished by a set of equations which estimate the federal tax base in
Alaska from personal income, then estimate federal personal income taxes
as a function of this base. Inasmuch as the state income tax in Alaska
is tied to the federal tax, state income tax payments are estimated as
a function of federal income tax payments. Miscellaneous tax and non-tax
payments are then estimated as a function of personal income, and the
sum of federal, state, and miscellaneous tax payments constitutes the
difference between personal income and disposable personal income.
As mentioned above, a further function of the fiscal model involves c6m-
puting the levels of employment occurring within the government sectors.
For the federal sector, employment is exogenously set. However, the de-
termination of state and local government employment requires an explicit
modeling of state and local revenues and expenditures, where elements of
each involve policy choices rather than projections based on simple
258
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Key:.
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• Persona 1 In cor.~ Tax
• Corpor-ate lncor.>e Tax
• llotor Fue 1 s Tax
• Ousin~ss License Tax
<>----link
from Economic
Model
I 1----
C)----
State GovernP!ent
Nodel Component
link to
Econornic 1-todel
• usc Taxes------------lr--------:::..------------------------.., • Ad Valorem Taxes
• School Tax
• Other Taxes
• Fees--------------
• Airport Receipts---~----
• ferry Receipts
• lliscellaneous Receipts------
• Production Tax
• Property Tax
• Income Tax
• Other-Taxes
GEIIEAAL OBLIGATIO/I
BOUOS
GEIIERAL FU/10
DEBT SERVICE
HIGHriAY Cf,PITf.L
EXPWDITURES
11011-IIIGII\/,W Ct.PITAL
EXPEIIDITURES
CO:lSTP.UCiiOII !fiDUSTRY
OUTPUT
!)~-~~~ ! ·r~~:s" !i
I ~ . ~~ ....... -a
• State Royalties
e federal Shared P.ovaltles
• Bonus Sales ·
• lease Renta 1 s
-------ir:::-:=1
-~-......;;z:::::--...ot=:::z--:::: rt
PERli,IJIE!IT FUIID
ltiTEREST
CEtiEP.AL FU:IO
HITEREST
OPE?.ATIIIG EXPHIDITURES
• Ed~catlon
• Social Services
t l!'!a1th
, ~latural Resoun:cs and
En..-i rone1ental Conversation
• Pu~ l.i c Protect 1 en
• Administration of Justice
1 ~ve1orrr.ent
·, Transportation
• Genera 1 Govem;r.ent
TRAiiSFEP.S TO
!IIDIYIDUAL S
( TRA?ISFERS TO
\__LOCAL GOVER11'1ENT
PEP.MAriffiT rur;o
JIIVESTHEUTS
STATE GOVER:I~£11T"
WAGES A/10 SALARIES
FIGURE A.3 MAP STATE GOVERNMENT MODEL STRUCTURE
historical relationships. We turn now to an examination of how state
and local revenues and expenditures are modeled.
At the state level, revenues are of three types. First, there are
11 endogenous 11 taxes, such as the personal income tax, corporate income
tax, business license tax, and so on, which depend on the existing rate
structure and the overall level of economic activity in the state. Such
revenue items are modeled as functions of income, output, or some other
indicator appropriate to the relevant tax base. A second type of revenues
might be ca 11 ed 11 exogenous, 11 such as royalties, bonuses, and severance
taxes, which depend not only on tax rates and state leasing procedures,
but largely on factors outside the state•s control such as world oil
prices, transportation costs, geology, federal policy, and so on. These
revenue estimates are developed outside of the model as part of the de-
velopment scenario. A third type of revenues, mainly federal grants,
contains both endogenous and exogenous components (such as revenue
sharing being tied to population, while impact grants for coastal zone
management are exogenous).
State expenditure determination in the model consists largely of a series
of policy choices. First, the total expenditure level must be determined.
Second, the allocation of expenditures between capital and current expen-
diture level must be determined. In the model, total state expenditures
are given by an assumed expenditure rule to be specified as part of the
non-OCS development scenario. Such a rule might be to let real per capita
expenditures grow at an exogenously determined rate, to hold real per
260
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capita expenditures constant, or to save a fixed proportion of revenues so
long as real per capita expenditures fall above some maximum. Once the
total is determined, capital expenditures are specified exogenously, thus
determining total current expenditures. Current expenditures by func-
tional category are then determined as a function of total current
expenditures. Personal services expenditures by function are then deter-
mined as a function of current expenditures by function, and wages and
salaries of the state government are then determined from the sum of per-
sonal service expenditures for each functional category.
At the local go~ernmept level, revenues are received from four major
' sources--local prgperty taxes, other local taxes and fees, grants from
the state government, and grants from the federal government. Local
property taxes are estimated as a function of the local property tax base.
Other taxes and fees are estimated as a function of personal income.
State grants are estimated by a series of equations in which aid is tied
to local population, school enrollment, and several exogenous items.
Federal grants are simply exogenous.
The level of total expenditures of the local government, unlike the
state, is modeled not as a policy choice, but rather is simply set equal
to total revenues and divided between two categories, educational and
non-educational expenditures, according to historical relationship.*
*However, the model is set up to permit the introduction of an
exogenous amount of savings at the local level, which might occur as a
consequence of receipt of oil-related revenues (property taxes, etc.).
261
Capital expenditures are estimated as a function of educational expendi-
tures, and personal expenditures are estimated as a function of total
expenditures less capital expenditures. Wages and salaries of the local
government sector are then estimated as a function of personal expendi-
tures.
The sum of wage and salary payments by the state and local governments is
finally transmitted to the economic model and divided by the estimated
wage rate for the state and local sector to arrive at state and local
government employment.
LINKAGES BETWEEN MODEL COMPONENTS
Figure A-4 represents schematically the relationships between the various
model components. The economic model requires the total of wage and
salary payments by state and local governments from the fiscal model in
order to estimate state and local government employment and capital
expenditure to estimate a component of construction sector employment.
Furthermore, the economic model requires individual tax payments data
from the fiscal model to arrive at disposable personal income. On the
other hand, the fiscal model requires estimated personal income from the
economic model to estimate personal tax payments. The population model
requires estimated real non-Native per capita disposable income and
changes in employment from the economic model to estimate net migration,
and a total population estimate is required to estimate several items of
state and local revenues in the fiscal model.
262
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L," •. ,1 ,,J C--D L J
STATE & LOCAL GOVERNMENT WAGES & SALARIES
CAPITAL EXPENDITURES
I Personal Tax l
FISCAL Pavments ECONOMIC
MODEL L. MODEL
Personal Income
tion Real N
Per Ca
Change
DEMOGRAPHIC Employ
MODEL I
r-
~~~ '¥'.5!·
FIGURE A.4 MAJOR LINKAGES BETWEEN MAP MODEL COMPONENTS
on-Native
pita I nco me,
s in State
ment
}
The Regional Model
Unlike the statewide MAP model which contains full fiscal, demographic,
and economic components, the Beaufort version of the regional model
contains no fiscal component. It cannot be run independently, but rather
is designed to be run in tandem with the state model. The function of
the regional model is simply to disaggregate statewide totals to a re-
gional level.
THE REGIONS
Unlike previous versions of the MAP regional model, the current version
uses a slightly different regionalization to reflect changes in labor mar-
.\~
ket area definition beginning with the 1975 wages, salary, and employment
data by the Alaska Department of Labor•s Statistical Quarterly. Figure
A-5 presents the new regionalization used in the Beaufort.
The North Slope and Central regions are a disaggregation of the areas
formerly included in the Northwest and Interior MAP regions. Data for
the area containing these regions was used to estimate all of the equa-
tions in the regional model. The equations were disaggregated by adjus-
ting the constant in each equation to reflect the latest data point.
Separate equations for the North Slope region could not be estimated be-
cause data is only available for the region since 1975.
THE ECONOMIC MODEL
The economic component of the MAP model is designed to produce regional
forecasts of incomes, output, and employment. Within each region, indus-
tries are broken down into eighteen sectors, as shown in Table A-2.
264
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<.11
~ r-1 ~ L:J c::JTll c:r:::n r--J r----n c-.J c-J
I .J~~
North Slope
1
Central
6
FIGURE A.5. MAN-IN-THE-ARCTIC PROGRArl REGIONS
r--J
' '
J
TABLE A.2. REGIONAL MODEL INDUSTRIAL CLASSIFICATION
1. Agriculture
2. Forestry
3. Fisheries
4. Food Manufacturing
5. Lumber Manufacturing
6. Paper Manufacturing
7. Other Manufacturing
8. Air Transportation
9. Other transportation
10. Communications
11. Public Utilities
12. Wholesale Trade
13. Retail Trade
14. Finance
15. Services
16. Federal Government
17. State and Local Government
18. Construction
[
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Manufacturing is subdivided into food, lumber, paper, and other. Transpor-L_
tation is subdivided into air and other. Trade is subdivided into whole-
sale and retail.
Output in each endogenous sector is a function of regional wages and
salaries, rather than real disposable personal income. Sectoral employ-
ment is determined as a function of sectoral output, and wage rates are
determined as in the state model. Sectoral wages and salaries are then
calculated as the product of sectoral wage rates and employment. The sum
of sectoral wages and salaries is regional wages and salaries, which acts
to determine regional sectoral outputs.
The forecasts presented by the regional model are the regionalized equiv-
alents of the output, employment, and income forecasts presented by the
statewide model, subject to minor differences due to stochastic variation.
266
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THE DEMOGRAPHIC MODEL
The regional demographic model presents only total population estimates
by region. It does not estimate an age-sex distribution at the regional
level.
RELATIONSHIP TO STATEWIDE MODEL
As mentioned previously, the Beaufort version of the regional model can-
not be run independently of the statewide model. The run of the state-
wide model presents a pattern of wages and salary payments to state and
local government workers. The regional model, though having no fiscal
model, accepts this pattern as exogenous and uses it in the calculation
of regional state and local government employment.
267
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APPENDIX B
BASE CASE ASSUMPTIONS
1977 -2000
269
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TABLE B.l. NORTH SLOPE MINING INDUSTRY EMPLOYMENT [
-BASE CASE-
(Thousands of Persons) f~
( '
Prudhoe
TAPS2
Other
Mining5
~~ Year Bayl Prudhoe3 ALCAN4 Total I
('
1977 1.5 .000 .055 .000 .200 l. 755 ~-; 1978 1.1 .021 .055 .000 .200 l. 376 1979 .9 • 021 .874 .000 .200 l. 995 1980 .6 .021 • 923 .015 .200 l. 759 r ,
1981 .6 .021 1. 619 . 015 .200 2.455 L_
1982 .6 . 021 l. 710 • 015 .200 2.546
1983 .5 . 021 l. 801 . 015 .200 2.537 c 1984 .5 . 021 l. 892 . 015 .200 2.628
1985 .45 . 021 l. 983 . 015 .200 2.669
1986 .45 .021 2.074 .015 .200 2.760 [ 1987 .45 . 021 1. 814 . 015 .200 2.500 1988 .45 • 021 .948 . 015 .200 1. 634
1989 .45 .021 .728 • 015 .200 . 1.414 f' 1990 .45 • 021 .728 . 015 .200 1. 414 L
1991: .45 . 021 .728 . 015 .200 l. 414 r,,
1992 .45 • 021 .728 • 015 . 200 1. 414 I
1993 .45 . 021 .728 . 015 .. 200 1.414 L
1994 .45 • 021 .728 .015 .200 1. 414
[ 1995 .45 . 021 .728 . 015 .200 1 .414
1996 .45 • 021 .728 .015 .200 1. 414
1997 .45 . 021 .728 .015 .200 1.414 c 1998 .45 • 021 .728 . 015 .200 1. 414
1999 .45 . 021 .728 . 015 .200 1.414
2000 .45 .021 .728 .015 .200 1.414 [
1Based on estimates in Issues in Alaska•s DeveloQment
Table B-1.
(Kresge, et al), L
2Author•s estimate of operations employment. L 3Author•s estimate based on reserves and development schedule in
11 Deve1opin{ Production and Price Estimates for North Alaska Oil and Gas L Supplies 11 FEA, 1975).
4Author•s estimate of operations employment.
I 5Based on residual for 1975 mining employment estimates. L;
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TABLE B.2. ANCHORAGE MINING INDUSTRY EMPLOYMENT
-BASE CASE-
(Thousands of Persons)
Total
Mining
Year Employment
1977 1. 002
1978 1.002
1979 1. 002
1980 1. 009
1981 1. 009
1982 1. 009
1983 1. 009
1984 1. 009
1985 1. 009
1986 1. 009
1987 1. 009
1988 1.009
1989 1. 009
1990 1. 009
1991 1. 009
1992 1. 009
1993 1. 009
1994 1. 009
1995 1. 009
1996 1.009
1997 1. 009
1998 1. 009
1999 1. 009
2000 1 .009
SOURCE: Author's estimate based on 1975 mining employment estimate.
271
TABLE B.3. FAIRBANKS MINING INDUSTRY EMPLOYMENT
-BASE CASE-
(Thous.ands of Persons)
Other
Year TAPSl ALCANl
Mining
Employment3
1977 .000 .000 . 131
1978 . 135 .000 • 131
1979 . 135 .000 • 131
1980 .135 • 043 . 131
1981 . 135 .043 . 131
1982 • 135 .043 • 131
1983 . 135 .043 . 131
1984 . 135 .043 . 131
1985 • 135 .043 . 131
1986 .135 .043 . 131
1987 • 135 .043 . 131
1988 .135 .043 . 131
1989 . 135 • 043 . 131
1990 • 135 .043 . 131
1991 .135 .043 • 131
1992 .135 .043 .131
1993. • 135 .043 . 131
1994 • 135 .043 • 131
1995 • 135 .043 .131
1996 • 135 . 043 • 131
1997 • 135 .043 • 131
1998 • 135 .043 . 131
1999 • 135 .043 • 131
2000 • 135 .043 • 131
1Author•s estimate of operations employment.
2Author•s estimate based on 1975 mining employment.
272
Total
. 131
.266
.266
.309
.309
.309
.309
.309
.309
.309
.309
.309
.309
.309
.309
.309
.309
.309
.309
.309
.309
.309
.309
.309
I L,
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TABLE B.4. NORTH SLOPE EXOGENOUS CONSTRUCTION EMPLOYMENT, BY PROJECT
-BASE CASE-
(Thousanas of Persons)
Year TAPS 1 ALCAN Total
1977 .404 .000 .404
1978 .063 .000 .063
1979 . 021 .523 .544
1980 .000 1. 431 1.431
1981 .000 1.197 1. 197
1982 .000 .062 .062
1983 .000 .000 .000
1984 .000 .000 .000
1985 .000 .000 .000
1986 .000 .000 .000
1987 .000 .000 .000
1988 .000 .000 .000
1989 .000 .000 .000
1990 .000 .000 .000
1991 .000 .000 .000
1992 .000 .000 .000
1993 .000 .000 .000
1994 .000 .000 .000
1995 .000 .000 .000
1996 .000 .000 .000
1997 .000 .000 .000
1998 .000 .000 .000
1999 .000 .000 .000
2000 .000 .000 .000
-
1Allocation of state total based on estimate of miles of pipeline
in region.
273
TABLE B.5. ANCHORAGE EXOGENOUS CONSTRUCTION EMPLOYMENT, BY PROJECT
-BASE CASE-
(Thousands of Persons)
Year ALCAN 1 Total
1977 . 000 .000
1978 .000 .000
1979 .229 .229
1980 .626 .626
1981 .524 .524
. 1982 .027 .027
1983 .000 .000
1984 .000 .000
1985 .000 .000
1986 .000 .000
1987 .000 .000
1988 .000 .000
1989 .000 .000
1990 . 000 .000
1991 .000 .000
1992 .000 .000
1993 .000 .000
1994 .000 .000
1995 .000 .000
1996 .000 .000
1997 .000 .000
1998 .000 .000
1999 .000 .000
2000 .000 .000
1 .
Author's estimate of Alcan headquarters personnel.
274
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TABLE B.6. FAIRBANKS EXOGENOUS CONSTRUCTION EMPLOYMENT, BY PROJECT
-BASE CASE-
(Thousands of Persons)
Year TAPS 1 ALCANl Total
1977 2.599 .000 2.599
1978 .405 .000 .405
1979 . 135 1.472 1. 607
1980 .000 4.024 4.024
1981 .000 3.367 3.367
1982 .000 . 176 . 176
1983 .000 .000 .000
1984 .000 .000 .000
1985 .000 .000 .000
1986 .000 .000 .000
1987 .000 .000 .000
1988 .000 .000 .000
1989 .000 .000 .000
1990 .000 .000 .000
1991 .000 .000 .000
1992 .000 .000 .000
1993 .000 .000 .000
. 1994 .000 .000 .000
1995 .000 .000 .000
1996 .000 .000 .000
1997 .000 .ooo .000
1998 .000 .000 .000
1999 .000 .000 .000
2000 .000 .000 .000
1Allocation of state total based on estimate of miles of pipeline
in region.
275
TABLE B.7. OIL AND GAS PRODUCTION FROM PRUDHOE
AND VICINITY
-BASE CASE-
Year Gas 1 Oil2
(mmcfpd) (mmbpd)
1977 7.67 0.300
1978 10.69 1.000
1979 13.97 1. 600
1980 16.16 1. 600
1981 76.71 1. 664
1982 117.81 1. 665
1983 2129.86 1. 730
1984 2268.49 l. 730
1985 2380.00 1.785
1986 2383.56 1. 575
1987 2383.56 1.415
1988 2383.56 1. 390
1989 2383.56 1.215
1990 2383.56 1.030
1991 2383.56 0.985
1992 2383.56 0.920
1993 2383.56 0.885
1994 2383.56 0.655
1995 2383.56 0.715
1996 2027.39 0.635
1997 1723.29 0.615
1998 1463.01 0.545
1999 1243.84 0.537
2000 1057.53 0.470
lFrom 11 The Permanent Fund and the Growth of the Alaskan Economy ..
(Goldsmith, 1977), Table C.2.
2From 11 Beaufort Sea Petroleum Development Scenarios for the State-
Federal and Federal Outer Continental Shelf 11 (Dames and Moore, 1978),
Tablell.
276
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TABLE B.8. WELLHEAD VALUE OF OIL AND GAS PRODUCTION
FROM PRUDHOE AND VICINITY
-BAS.E CASE-
Year Gasl Oi1 2
($/mcf) ($/bbl)
1977 .25 5.23
1978 .25 5.48
1979 .25 6. 01
1980 .25 7.17
1981 .25 7.84
1982 .25 8.54
1983 .25 9.28
1984 .25 10.06
1985 .25 10.86
1986 .25 -11 . 72
1987 .25 12.61
1988 . .25 13.55
1989 .25 14.55
1990 .25 15.58
1991 .25 16.67
1992 .25 17.82
1993 .25 19.02
1994 .25 20.28
1995 .25 21.60
1996 .25 22.98
1997 .25 24.44
1998 .25 25.98
1999 .25 27.59
2000 .25 29.28
1Implicit in 11 The Permanent Fund and the Growth of the Alaskan
Economy 11 (Goldsmith, 1977), Table C.2.
2Author•s estimate assumes:
a. a 1977 refinery price of $12.86 increasing 5% annually;
b. a constant TAPS tariff of $6.20; and
c. a tankering charge from Valdez to the Lower 48 of $1.43
in 1977, increasing to $4.01 by 2000.
277
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APPENDIX C
STATE REVENUE AND EXPENDITURE DETAIL
(BASE CASE AND iMPACTS)
279
TABLE C. 1. STATE REVENUE DETAIL
BASE CASE
1977-2000
(Millions of Dollars)
Personal Total Direct General Permanent
Total Income Corporate Total Petroleum Fund Fund
Year Revenues Taxes Taxes Taxes Revenues Interest Interest
1977 1,133.540 112.151 22.244 205.879 503.300 34.023 0.000
1978 1,225.480 100.477 19.629 183.687 590.600 48.716 3.009
1979 1,391.290 103.475 19.534 187.307 724.500 48.716 10.313
1980 1,693.450 120.831 22.512 215.326 949.650 47.247 24.026
1981 1,926.870 138.086 28.126 248.523 1,093.050 47.247 42.541
1982 2,177. 690 139.973 31.181 257.077 1,291.150 47.247 63.823
1983 2,450.060 137.709 30.163 252.203 1,525.450 47.247 87.317
1984 2,738.780 145.205 32.070 264.961 1,745.550 47.247 114.166
1985 3,029.670 154.907 34.766 282.352 1,952.300 47.247 147.695
N
00
0 1986 3,177.570 165.951 38.627 303.759 2,005.200 47.247 184.378
1987 3 '180. 160 174.062 41.627 319.303 1,920.350 47.247 223.037
1988 3,245.690 179.246 43.872 329.558 1,913.300 42.236 260.167
1989 3,290.81 185.569 45.477 339.621 1 ,884. 050 36.382 297.609
1990 3,235.220 194.657 48.515 356.234 1,746.450 26.492 334.830
1991 3,241. 970 205.523 51.790 375.244 1,676.350 7.668 369.301
1992 3,316.030 217.102 55.869 396.986 1,676.450 0.000 384.079
1993 3,394.130 229.612 59.751 419.030 1,680.200 0.000 387.815
1994 3,330.050 243.010 64.592 444.200 1,539.250 0.000 387.132
1995 3,328.750 257.551 69.341 470.309 1,470.200 0.000 372.244
1996 3,430.280 272.945 75.145 499.559 1,507.750 0.000 346.227
1997 3,455.980 289.657 80.821 529.748 1,467.250 0.000 316.550
1998 3,482.010 307.627 87.854 564.359 1,427.750 0.000 276.210
1999 3,518.720 327.228 94.856 600.333 1,402.000 0.000 225.338
2000 3,551.040 348.646 103.530 641.879 1,370.800 0.000 162.692
SOURCE: MAP Statewide Model
...----...,
i --J
-,
TABLE C.2. STATE EXPENDITURE DETAIL
BASE CASE
1977-2000
Real Per
~ota 1 State Current Capital Capita State
Year x enditures Ex enditures Ex enditures Ex~enditures
millions millions millions
of $) ·of $) of $)
1977 980.650 690.650 290.000 968.992
1978 . 1~231.140 901.138 330.000 1,174.460
1979 1,335.500 988.899 346.603 1,174.460
1980 1,562.770 1,176.630 386.141 1,219.390
I
1981 1,766.840 1,350.420 416.422 1,279.650
1982 1,987.560 1,553.910 433.648 1,424.730 ~
1983 2,218.530 1~758.940 459.597 1 ~ 521.430
I 1984 2~434.070 1~946.720 487.344 1~585.150
L. 1985 2, 661.160 2~142.210 518.944 1 ~631. 380
1986 2~803.240 2~259.420 543.821 1~639.130 I 1987 2~905.720 2~345.020 560.708 1,639.130
L 1988 2,983.780 2,406.660 577.121 1,639.130
1989 3,096.860 2,500.040 596.819 1,639.120
p 1990 3,215.680 2,601.470 614.204 1 ~639. 120 L
1991 3,353.030 2,703.890 649.137 1,639.120
c 1992 3,483.520 2,802.610 680.903 1,639.120
1993 3,634.200 2~923.510 710.688 1,639.120
1994 3,782.370 3~041.820 740.551 1~639. 120
1995 3,950.650 3,176.670 773.971 1,639.120 c 1996 4 '114. 770 3~307.480 807.285 1,639.120
1997 4,304.710 3,459.630 845.082 1,639.120
[ 1998 4,493.020 3,609.750 883.265 1,639.120
1999 4,711.630 3,784.910 926.723 1 '639. 120
2000 4,935.700 3,963.980 971.720 1~639.120
[
[
[
~~
L SOURCE: MAP Statewide Model
ro
b
281
1-~
L
TABLE C.3.
Personal
Total Income Corporate
Year Revenues Taxes Taxes
1977 0.000 0.000 0.000
1978 0.000 0.000 0.000
1979 0.257 0.089 0.000
1980 126.338 0.351 0.042
1981 136.453 0.585 0.121
1982 21.580 0.735 0. 166
1983 23.431 0.886 0.222
1984 25.373 0.978 0.249
1985 29. 149 1. 253 0.287
N co 1986 53.469 4.249 0.417 N
1987 93.841 8.126 l. 981
1988 238.795 8.884 2. 377
1989 477.152 10.287 2.735
1990 682.060 12.239 3.690
1991 886.073 13.461 4.176
1992 1,068.58 14.945 4. 773
1993 1,184.520 16.416 5. 556
1994 1,229.420 17. 316 6.186
1995 1,218.210 18.268 6.597
1996 1,175.870 19.765 7.385
1997 1 '119. 900 21.454 8.216
1998 1,074.530 23.367 9.252
1999 1,046.020 25.573 10.378
2000 1,027.050 28.067 11.807
SOURCE: MAP Statewide Model
r--: r:
STATE REVENUE IMPACTS
(measured as change
from the base)
PRUDHOE HIGH, 1977-2000
(Millions of Dollars)
Total Direct
Total Petroleum
Taxes Revenues
0.000 0.000
0.000 0.000
0.116 0.000
0.547 125.350
1. 019 125.850
1.315 1. 600
1. 612 2.899
1. 781 4.449
2.200 7.349
6.163 23.649
14.175 51.349
16.012 190.649
18.839 412.899
23.264 590.800
25.747 757.799
28.786 889.499
32.148 947.300
34.498 929.648
36.397 854.599
39.759 748.949
43.403 634.100
47.729 534.950
52.540 457.300
58.300 392.500
General
Fund
Interest
0.000
0.000
0.000
-0.064
-0.064
-0.064
-0.064
-0.064
-0.064
-0.064
-0.654
0.413
6.267
16. 157
34.144
41 . 812
41.812
41.729
32.512
12.575
0.000
0.000
0.000
0.000
Permanent
Fund
Interest
0.000
0.000
0.000
0.000
8.750
17.500
17.500
17.500
17.500
17.500
17.500
17.499
20.541
29.163
42.498
78.658
129.577
186.771
254.696
330.424
393.658
437.937
476.439
509.929
-l
TABLE C.4. STATE EXPENDITURE IMPACTS
(measured as change from the base)
~ PRUDHOE HIGH, 1977-2000
I
Real Per
Total State Current Capital Capita State
Year Ex enditures Ex~enditures Ex enditures Ex~enditures
millions (millions millions
I' of $) of $) of $) l "
1977 0.000 0.000 0.000 0.000
1978 0.000 0.000 0.000 0.000
I 1979 1.293 1. 092 0.200 0.000
~-1980 1. 629 1.066 0.563 -1.509
[ 1981 11.881 10.576 1. 305 4.611
1982 22.173 20.074 2.098 9.831
1983 24.114 21.762 2.352 9.419
[ _.....,. 1984 26.162 23.522 2.640 8.906
1985 30.213 26.907 3.306 7.900
r 1986 65.931 56.358 9. 572 0.146
1987 83.734 70.190 13.544 0.146
L~ 1988 118.031 97.297 20.733 8.314
p 1989 221.092 188.749 32.343 43.033
L 1990 244.208 202.777 41.431 43.034
1991 270.910 233.091 37.818 43.294
L 1992 353.839 314.280 39.559 65.836
1993 383.667 339.260 43.406 65.837
1994 405.757 365.782 39.975 65.837
c 1995 437.683 401.024 36.659 65.835
-
1996 470.207 423.811 46.396 65.835
1997 507.098 446.670 60.428 65.835
~ 1998 546.090 480.247 65.842 65.836
1999 591.312 519.215 72.096 65.837
2000 638.793 560.072 78.718 65.835
[
[
[
r
L SOURCE: MAP Statewide Model
r
b
283
l
TABLE C.5. STATE REVENUE IMPACTS
(measured as change from the base)
PRUDHOE LOW, 1977-2000
(Millions of Dollars)
Personal Total Direct General Permanent
Total Income Corporate Total Petroleum Fund Fund
Year Revenues Taxes Taxes Taxes Revenues Interest Interest
1977 0.000 0.000 0.000 0.000 0.000 0.000 0.000
1978 0.000 0.000 0.000 0.000 0.000 0.000 0.000
1979 0.000 0.000 0.000 0.000 0.000 0.000 0.000
1980 125.243 0.087 0.000 0.112 . 125.000 0.000 0.000
1981 135.456 0.444 0.043 0.669 125.350 0.000 8.750
1982 21.019 0.806 . 0.188 1.448 0.800 0.000 17.500
1983 22.052 0.884 0.229 1.637 1.449 0.000 17.500
1984 23.381 0.927 0.241 1. 697 2.600 0.000 17.500
1985 24.638 0.927 0.265 1. 747 3.699 0.000 17.500
N co
~ 1986 27.736 1.187 0.263 2.062 6.049 0.000 17.500
1987 41.429 3.123 0.434 4.791 14.300 0.000 17.500
1988 59.789 5.305 1. 377 9.456 25.799 -1.002 17.499
1989 121.324 6.031 1. 586 10.837 84.399 -1.418 17.500
1990 210.137 6.477 1. 987 12.337 167.250 0.184 18.747
1991 270.267 6.590 1. 991 12.484 217.400 5.742 21.979
1992 330.437 7.087 2.274 13.674 262.650 0.000 39.981
1993 385.664 7. 719 2.462 14.816 299.100 0.000 55.888
1994 429.596 8.800 2.893 16.998 319.550 0.000 74.717
1995 468.312 9.871 3.403 19.357 332.450 0.000 95.519
1996 515.194 10.560 3.891 21.170 352.950 0.000 118.002
1997 593.367 10.875 -4.151 22.023 403.650 0.000 143.096
1998 627.918 11.439 4.430 23.206 405.150 0.000 173.011
1999 597.507 11.770 4.940 24.606 340.350 0.000 204.368
2000 599.341 11.910 4.985 24.758 311.800 0.000 233.312
SOURCE: MAP Statewide Model
~ . J
[
r-·
L TABLE C.6. STATE EXPENDITURE IMPACTS
(measured as·change from the base)
[ PRUDHOE LOW, 1977-2000
[ Real Per
Total State Current Capital Capita State
Year Ex enditures Ex enditures Exeenditures Exeenditures
millions millions (mi 11 ions
r of $) of $) of $) L
1977 0.000 0.000 0.000 0.000
[ 1978 0.000 0.000 0.000 0.000
1979 0.000 0.000 0.000 0.000
1980 0.346 0.158 0.187 -0.720
[ 1981 10.895 9.629 1.265 3.818
1982 21 • 612 19.547 2.065 9.432
1983 22.693 20.486 2.207 8.886
[ 1984 24. 101 21.683 2.417 8. 291
1985 25.378 22.850 2.528 8.169
r 1986 28.818 25.546 3. 271 6.525
1987 58.656 51.609 7.046 6.526
L 1988 69.252 60.144 9.108 6.529
p 1989 85.080 72.096 12.983 6.530
L 1990 89.275 72.785 16.489 6. 531
1991 100.491 90.333 10.157 6.532
[ 1992 109.041 93.431 15.608 6.531
1993 123.372 105.536 17.835 6.532
1994 140.114 119.663 20.451 6.533
E 1995 155.702 132.802 22.900 6.531
1996 165.875 141.332 24.542 6.531
1997 175.723 149.593 26.129 6.530
[ 1998 190.551 162.053 28.497 6.529
1999 194.793 165.567 29.225 6.529
2000 208.641 177.197 31.443 6.527
[
[
[
f SOURCE: MAP Statewide Model L
r
b
285
~~~
L
Personal
Total Income
Year Revenues Taxes
1977 0.000 0.000
1978 0.000 0.000
1979 0.000 0.000
1980 125.002 0.000
1981 134.022 0.081
1982 18.944 0. 410
1983 20.750 0.818
1984 22.032 1. 009
1985 22.958 1. 020
N co
0"1 1986 25.839 1. 250
1987 36.539 2.461
1988 60. 150 5.050
1989 85.288 6.982
1990 211.581 8.260
1991 421.934 10.163
1992 591.347 11.177
1993 750.483 12. 200
1994 897.615 13.344
1995 1,033.980 14.865
1996 1,150.470 15.391
1997 1,217.250 15.678
1998 1,268.250 16.447
1999 1 ,304.450 16.817
2000 1,327.770 17.860
SOURCE: MAP Statewide Model
,..---...,
t. .. J
TABLE C.7. STATE REVENUE IMPACTS
(measured as change from the base)
CAMDEN-CANNING, 1977-2000
(Millions of Dollars)
Total Direct
Corporate Total Petroleum
Taxes Taxes Revenues
0.000 0.000 0.000
0.000 0.000 0.000
0.000 0.000 0.000
0.000 0.000 125.000
0.000 0.107 125.000
0.053 0.646 0.100
0.183 1. 451 0.499
0.254 1. 839 1. 049
0.289 1. 932 1.750
0.282 2.186 3.999
0.441 3.997 11.200
0.962 8.239 27.299
1.892 12.544 45.649
2.056 14.524 166.450
2.973 18.896 361.150
3.414 21.104 504.599
3. 972 23.566 626.999
4.405 25.833 727.449
5.111 29.080 806.798
5.800 31.097 860.699
5.854 31.460 859.250
6.548 33.732 836.049
6.859 34.722 797.049
7.415 36.995 741.349
General
Fund
Interest
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
-0.358
-1.040
-0.631
3. 972
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
Permanent
Fund
Interest
0.000
0.000
0.000
0.000
8.750
17.500
17.500
17.500
17.500
17.500
17.500
17.499
17.500
17.500
20.122
44.856
76.117
117.426
167.514
225.691
291 . 536.
360.724
432.682
506.126
--J
~
I
'
l_ TABLE C.8. STATE EXPENDITURE IMPACTS
(measured as change from the base)
CAMDEN-CANNING, 1977-2000
Real Per
Total State Current Capital Capita State
Year Ex enditures Ex enditures Exeenditures ExQenditures
mill ions mi 11 ions (millions
of $) of $) of $)
1977 0.000 0.000 0.000 0.000
--~ 1978 0.000 0.000 0.000 0.000
I 1979 0.000 0.000 0.000 0.000
1980 0.003 0.001 0.001 -0.004
[ 1981 9.152 8.480 0. 672 5.415
1982 19.394 17.685 1. 708 9.376
1983 21.382 19.270 2.111 8.177
[ 1984 22.772 20.400 2.372 7.299
1985 23.707 21.260 2.446 7.150
,-1986 26.913 23.761 3.152 5.587
1987 43.761 38.329 5.432 5.586 L 1988 73.826 64.038 9.788 5.590
F 1989 83.989 71.827 12.162 5.590
L 1990 114.741 94.850 19.890 5.593
1991 132.835 116.236 16.599 5.593
L 1992 153.484 130.793 22.691 5.593
1993 170.082 144.745 25.336 5.594
1994 193.164 164.168 28.995 5.594
E 1995 215.292 182.769 32.523 5.593
1996 222.652 188.832 33.820 5.593
[ 1997 242.859 205.781 37.078 5. 592 .
1998 254.980 215.864 39.116 5.594
1999 270.875 229.149 41.726 5.593
2000 293.758 248.322 45.432 5.592
[
[
[
r
L SOURCE: MAP Statewide Model
r
b
287
E
L
Personal
Total Income
Year Revenues Taxes
1977 0.000 0.000
1978 0.000 0.000
1979 0.000 0.000
1980 0.000 0.000
1981 0.000 0.000
1982 0.000 0.000
1983 0.000 0.000
1984 0.156 0.057
1985 0.863 0.236
N
(X) 1986 1. 953 0.455 (X)
1987 2.256 0.400
1988 3.212 0.397
1989 9.747 1. 336
1990 25.082 3.434
1991 40.211 4.734
1992 65.055 4.817
1993 88.480 5.506
1994 87.789 5.995
1995 88.821 6.611
1996 92.452 7.271
1997 93.758 7.797
1998 94.686 8.303
1999 95.423 8.759
2000 95.282 9.161
SOURCE: MAP Statewide Model
r:
TABLE C.9. STATE REVENUE IMPACTS
(measured as change from the base)
Corporate
Taxes
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.031
0.094
0.149
0.055
0.171
0.590
1. 391
1. 332
1. 736
1. 953
2.225
2.547
2.884
3.133
3.527
3. 724
CAPE HALKETT, 1977-2000
(Millions of Dollars)
Total
Taxes
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.071
0.368
0.780
0.829
0.613
1. 994
5.405
8.656
8.675
10.503
11.540
12.833
14.276
15. 578
16.653
17.975
18.794·
[l
Total Direct
,,_-'\
l . i
Petroleum
Revenues
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.149
0.499
0.800
1. 749
5.599
14.899
25.399
48.899
67.500
62.249
58.899
58.449
56.399
54.599
53.049
51.550
General
Fund
Interest
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.197
0.245
-0.050
-0.829
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
~...,
' !
Permanent
Fund
Interest
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
-0.660
0.344
2.468
3.941
4.828
5.286
5.321
4.701
3.727
TABLE C.lO. STATE EXPENDITURE IMPACTS
(measured as change from the base)
CAPE HALKETT, 1977-2000
Real Per
Total State Current Capital Capita State
Year Ex enditures Ex enditures Ex enditures Exi:!enditures
mill ions millions mi 11 ions
of $) of $) of $)
1977 0.000 0.000 0.000 0.000
1978 0.000 0.000 0.000 0.000
1979 0.000 0.000 0.000 0.000
1980 0.000 0.000 0.000 0.000
[ 1981 0.000 0.000 0.000 0.000
1982 0.000 0.000 0.000 0.000
1983 0.000 0.000 0.000 0.000 [ 1984 0.223 0.101 0.122 -0.541
1985 1.061 0.681 0.379 -1.312
I' 1986 2.273 1. 629 0.644 -1.702
1987 -0.410 -0.806 0.395 -1.704 l,,
1988 2.906 2.099 0.807 -1.702
~ 1989 15. 106 12.665 2.440 -1.701
L. 1990 38.821 33.069 5.752 -1.699
1991 40.515 33.275 7.239 -1.698 c 1992 54.286 45.450 8.835 .., 1. 699
1993 62.216 52.076 10. 139 -1.699
1994 71.392 59.744 11.648 -1.698 c 1995 81.430 68.129 13.301 -1.700
1996 91.832 76.807 15.024 -1.700
c 1997 99.699 83.330 16.368 -1.702
1998 110.648 92.447 18.201 -1.703
1999 116.836 97.528 19.307 -1.703
2000 128.129 106.914 21.214 -1.705
[
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SOURCE: MAP Statewide Model
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REFERENCES
291
REFERENCES
Alaska Department of Labor. Various years. Current Population Estimates.
Alaska Department of Labor. Various years. Labor Force Estimates by
Industry and Area.
Alonso, W. and Rust, E. 1976. The Evolving Pattern of Village Alaska.
Federal-State Land Use Planning Commission. 70 pp.
Dames and Moore. 1978. Beaufort Sea Petroleum Development Scenarios
for the State-Federal and Federal Outer Continental Shelf, Draft
Report, prepared for the Bureau of Land Management, Alaska Outer
Continental Shelf Office.
Federal Energy Administration. 1976. National Energy Outlook.
Washington, D.C.
Goldsmith, S. 1977a. The Permanent Fund and the Growth of the Alaskan
Economy. Institute of Social and Economic Research, University of
Alaska. Report for the House Special Committee on the Alaska
Permanent Fund. 260 pp.
Goldsmith, S.
Economy.
1977b. Fiscal Options and the Growth of the Alaskan
Unpublished. Institute of Social and Economic Research.
Kresge, D. 1976. Alaska•s Growth to 1990. Institute of Social and
Economic Research, University of Alaska, Alaska Review of Busi-
ness and Economic Conditions, Vol. XIII, No. 1. 19 pp.
Kresge, D. 1978 (forthcoming). Issues in Alaska Development.
North Slope Borough. 1977. Capital Improvement Program Amendments.
Rogers, G. 1971. Alaska Native Population Trends and Vital Statistics,
1950-1985. Institute of Social, Economic, and Government Research.
Research Note. 19 pp.
Seiver, D. 1975. Alaskan Economic Growth: A Regional Model with
Induced Migration. Unpublished. Paper for presentation at the
meetings of the Regional Science Association Annual Meetings,
Cambridge, Mass. Institute of Social and Economic Research.
25 pp.
United States Department of Labor, Bureau of Labor Statistics. 1975.
The Structure of the U.S. Economy in 1980 and 1985. 495 pp.
United States Department of Labor, Bureau of Labor Statistics. 1977.
Employment and Earnings. Vol. 24, No. 12.
292
f!
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United States Department of the Interior, Geological Survey. 1975.
Geological Estimates of Undiscovered Recoverable Otl and Gas
Resources in the United States, Geological Survey Circular 725.
78 pp.
293
Glossary of Variable Names
Beaufort OCS Petroleum Development Scenarios:
Economic and Demographic Impacts
Regions -denoted by suffix R-
Rl North Slope
R2 -Southwest
R3 -Southeast
R4 -Southcentral
Scenarios
OCS.PL -Prudhoe High
OCS.PS -Prudhoe Low
OCS.CC -Camden-Canning
R5 -Anchorage
R6 -Central
R7 -Fairbanks
OCS.HK -Cape Halkett
OCS.SD -Smith-Dease
OBASE.26 -Base Case
When Suffix -ER this is change from the base case.
Variables
Symbol Variable Units
POP Total Population Thousands of People
POPC Civilian Population II II II
PON Native Population II II II
POPM Military Population II II II
ECONX Exogenous Construction
Employment II II II
EMP9 Mining Employment II II II
EM99 Total Employment Thousands of Wage Earners
EMP9 Mining II II II II
EMCN Construction II II II II
EMM9 Total Manufacturing II II II II
EMMF Food Manufacturing II II II II
EMMP Paper Manufacturing II II II II
EMML Lumber Manufacturing II II II II
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[ Symbol Variable Units
[ EMMO Other Manufacturing Thousands of Wage Earners
EMT9 Total Transportation II II II II
[ EMTA Air Transportation II II II II
EMTO Other Transportation II II II II
[ EMCM Communication II II II II
EMPU Public Utilities II II II II
[ EMD9 Total Trade II II II II·
[ EMDW Wholesale Trade II II II II
EMDR Retail Trade II II II II
[ EMFI Finance, Insurance,
Real Estate II II II II
r EMS9 Service II II II II
L~j
EMGF Federal Government II II II II
p
L EMGA State and Local Government II II II II
b PI Personal Income II II II II
DPI Disposable Personal Income II II II II
b PIPC Per Capita Personal Income II II II II
DPIR Real Disposable Personal
[ Income II II II II
DIRPA Real Disposable Personal
Income Per Capita II II II II [
R99S Total Revenues Mi 11 ions of Dollars
[ RTIS Personal Income Taxes II II II
RTCS Corporate Taxes II II II
[ RP9S Total Direct Petroleum
Revenues II II II
r RI!\!S General Fund Interest II II II
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Symbol Variable Units
RIPF Permanent Fund Interest Millions of Dollars
RT98 Total Taxes II II II
E99S Total State Expenditures II II II
EXCUR Current Expenditures II II II
EX CAP Capital Expenditures II II II
E99SRPC Real Per Capita State
Expenditures
The age and sex distribution of the population is described by a variable
of the following form:
POP(F or M)(l-15)
POP -Total Population
NATP -Native Population
CNNP -Civilian Non-Native Population
F -Female
M -Male
Age Group: 1 is 0-1
2 is 1-4
3 thru 14 are successive five year cohorts
15 is 65 and older
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