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Al as ka’s
Co nst ru ct io n
S pending
2 0 1 0 F o re c a s t
Annual Report f or th e
Construction Industry
Progress Fund
and th e
Associated General Contractors
of Alaska
By Scott G ol ds m i t h and M a r y K i l l o r i n
I ns t i t ut e of Social and Economic Re s ea rc h
Un i v er s i t y of Alaska A nc h or a g e
if the national economy is impact construction spend-
Dear Alaska Resident, starting to recover from the ing, so we assume no further
For the seventh consecutive year, the recession, and if it does, how federal action.
Construction Industry Progress Fund (CIPF) strong that recovery will be. The Alaska economy con-
and the Associated General Contractors Although Alaska has been tracted in 2009 for the first
of Alaska (AGC) are gratified to provide “Alaska’s insulated from the worst time in 22 years—but the
Construction Spending Forecast” for your reading and use. effects of the recession—the reduction in employment
This publication provides an informative review and crash in the housing market, was only about 1%. Forecasts
estimate of construction activity in Alaska for 2010. high unemployment, and for Alaska’s economy in 2010
Compiled and written by Scott Goldsmith and Mary lack of credit—concerns vary from further moderate
Killorin of the University of Alaska’s Institute of Social and about the national recovery declines in employment to a
Economic Research (ISER), the “Forecast” reviews construction will continue to influence resumption of growth. This
activity, projects and spending by both the public and private investment decisions in the difference of opinion under-
sectors for 2010. state, particularly in the scores the sense of caution
The construction industry is Alaska’s third largest industry, commercial and residential in the business community
paying the state’s second highest wages, employing nearly markets. Local government about the near-term
21,000 workers with a payroll over $1 billion, accounting for capital spending is also prospects for the economy.
20 percent of Alaska’s economy and currently contributing vulnerable to reductions in As the year begins, petrole-
approximately $7 billion to the state’s economy.
tax revenues from activities, um and precious metal (gold
I hope this publication is of value to you. When the like tourism, driven by the and silver) prices are strong
construction industry is vigorous, so is the state’s economy. national economy. and rising, and base metal
The passage of the American prices (zinc) have rebounded
Recovery and Reinvestment from the lows of last year.
Act (ARRA) in early 2009 Petroleum and mining capital
Roger Hickel has provided an important budgets are particularly sensi-
CIPF Chairman boost to construction spend- tive to these prices, which are
ing this year. A second stim- likely to continue to fluctuate
Overview gas sector spending will be ulus may be undertaken later throughout the year. We
flat. Spending will increase this year, but it is too soon to assume these prices remain
The total value of con-
in the utilities and hospitals4 speculate on how that might strong throughout the year.
struction spending “on the
categories but will decline
street” in Alaska in 2010 will
in mining, residential, other
be $7.0 billion, down 3% Alaska Construction Spending
commercial, and the other
from 2009.1,2,3
Wage and salary employ-
rural basic sector categories. 2010 Forecast
Public construction Level Change
ment in the construction
spending will be down 5%, TOTAL $ 6,999,000,000 –3%
industry will continue the
to $2.6 billion, in spite of Total without Oil and Gas $ 3,984,000,000 –4%
slow decline which began in
2006, but the level remains the infusion of cash from the
American Recovery and PRIVATE $ 4,386,000,000 –1%
above the long-term average
for the industry. Reinvestment Act (ARRA). Oil and Gas 3,015,000,000 0%
Excluding the oil and gas Although some categories of Mining 307,000,000 %–9%
sector—which accounts for federal spending will be high-
er, many will be lower and
Other Rural Basic Industry 0 –100%
43% of the total—construc-
state spending will also be Utilities 482,000,000 +23%
tion spending will be $4.0 bil-
lion—down 4% from 2009. lower because of the lean FY Hospitals 221,000,000 +57%
Private-sector construction 2010 capital budget. Other Commercial 153,000,000 –31%
spending will be down only Uncertainty in this year’s
forecast comes from several Residential 208,000,000 –21%
1% from 2009, to $4.4 billion,
in spite of the slowdown in sources. As we start 2010 Private without Oil and Gas $ 1,371,000,000 –3%
the Alaska economy. Oil and there is no clear indication PUBLIC $ 2,613,000,000 –5%
1 Our revised projection for 2009 was $7.2 billion. National Defense 548,000,000 +9%
2 We define construction spending broadly to include not only the construction
industry as defined by the U.S. Department of Commerce and the Alaska
Highways 610,000,000 –8%
Department of Labor but also other activities. Specifically, our construction spend- Airports and Ports 323,000,000 –19%
ing figure encompasses all the spending associated with construction occupations
(including repair and renovation), regardless of the type of business where the Alaska Railroad 43,000,000 –34%
spending occurs. For example, we include the capital budget of the oil and gas and
mining industries in our figure, except for large, identifiable equipment purchases Denali Commission 61,000,000 –32%
such as new oil tankers. Furthermore, we account for construction activity in gov-
ernment and other private industries. The value of construction is the most com- Education 246,000,000 –12%
prehensive measure of construction activity across the entire economy.
3 “On the street” is a measure of the level of activity anticipated during the year. It Other Federal 388,000,000 +20%
differs from a measure of new contracts because many projects span more than a Other State and Local 394,000,000 –10%
single year.
4 A portion of hospital funding comes from public sources. Source: Institute of Social and Economic Research. Percent change based on revised 2009 estimates.
2
The progress of a number of federal spending coming to
large projects this year hinges Alaska without double counting
on companies getting the is also a challenge.
necessary permits and avoiding We are confident in the
litigation. An example is the overall pattern of the fore-
plan by Shell Oil to drill in the cast—but as always, we can
Beaufort and Chukchi seas. expect some surprises as the
In these cases our forecast is year progresses.
conservative. We assume
delays will postpone some of PRIVATELY
this spending. If these projects FINANCED
all move forward without CONSTRUCTION5
delay, actual spending will The private sector will
exceed our forecast. spend $4.4 billion on con-
In spite of the uncertainty struction-related activities in
associated with the economy Alaska in 2010. That is 63%
this year, there is little down- of total construction spend-
side risk to the forecast. ing, and a decrease of 1%
Private construction spend- compared with 2009.
ing will be dominated by a
petroleum industry that Oil and Gas:
invests strategically and is $3.015 Million
not overly influenced by the
current recession. Public Oil and gas industry
construction spending will spending, which will account
for 43% of all construction
be driven by money hitting
spending in 2010, is expect-
the street from the ARRA.
ed to be about the same as
Public construction spending Anchorage International Airport Covered Walkway
last year. Spending will be
estimates are perennially com- lower on the North Slope,
plicated by consistent delays in but higher in Cook Inlet and down this year. BP will con- Alpine West prospect contin-
passage of the budget for the in petroleum manufacturing. centrate on bringing the ues to be delayed. Exxon will
federal fiscal year (October None of the three major Liberty field into production, concentrate on drilling at
through September). producers on the North developing existing reserves, Point Thomson.
As in past years, some firms Slope—British Petroleum and maintaining infrastruc- Three other companies—
are reluctant to reveal their (BP), Conoco Phillips, and ture. Conoco Phillips will ENI, Pioneer, and Shell—will
investment plans, because they Exxon—will be exploring, also concentrate on develop- have large North Slope budg-
don’t want to alert competitors, and their spending will be ing existing reserves, since its ets this year. ENI will resume
and some have not completed
their 2010 planning. Large
projects often span two or
more years, so estimating cash
on the street in any year is
always difficult—because the
construction “pipeline” never
flows in a completely predictable
fashion. Tracing the path of
5 We try to include in this category all
spending that is financed primarily
from private sources. Although this is
relatively straightforward for oil and
gas, mining, fishing, timber, manufac-
turing, and tourism, it is not so easy
for hospitals, utilities, and other com-
mercial construction. We include
spending from all sources in our hospi-
tal and utilities categories. However, in
some years most hospital spending is
financed by the federal government,
and the state provides some of the
funding for electric utility investment.
Construction activity reported by local
governments as residential or commer-
cial often includes projects financed in
whole or in part by public sources.
Dowling Road Extension, Anchorage
3
Mining:
$307 Million
Spending by the mining
industry—on exploration,6
development, and upgrading
existing mines—will be down
9% this year. The record
high price of gold and the
recovery of base metal prices
are not enough to offset the
PHOTO COURTESY KIEWIT PACIFIC COMPANY
completion of a number of
large projects last year.
With the exception of
Pogo, the other three world-
scale metal mines will have
significant development
budgets this year. The Red
Dog mine is working to
move operations to the adja-
cent Aqqaluk site by 2011,
although it could be delayed
Gravina Island Road Development, Ketchikan due to a court challenge of
its water discharge permit.
Because of the high gold
work to bring the Nikaitchuq field. Shell has plans to drill discharge permit from the and base metal prices, there
field into production, and offshore in the Beaufort and Environmental Protection are plans to reopen several
Pioneer will continue the Chukchi seas, although it Agency, and its Beaufort plan smaller mines including
development of the Oooguruk has yet to receive a final air faces a legal challenge. Rock Creek, Lucky Shot,
Two small companies— and Galore Creek.
Brooks Range Petroleum and Donlin Creek and the
Savant—are planning to drill Pebble prospect have both
exploratory wells. moved past the exploration
In Cook Inlet, Marathon, phase and are being analyzed
Chevron, and Conoco Phillips for development, so their
will all be active, as well as construction budgets this
Armstrong Petroleum, which year are quite modest.
has just signed a contract with
Enstar to supply gas. Also, we Other Basic
assume that Escopeta will be Industries in
successful in bringing a jackup
rig to Cook Inlet to drill dur-
Rural Alaska:
ing the summer. $0 Million
Plans for a gas storage Investments in facilities to
facility in Cook Inlet, to deal support tourism, the seafood
with the challenge of having industry, timber processing,
enough gas to meet demand and other natural resource
in Southcentral during the industries often occur in
high-demand winter months, rural parts of the state,
are moving forward rapidly. “hidden” from view. The
The hope is that storage will only major project in this
be in place by the time the category is the continued
LNG export license expires development of the dock
in 2011, since that facility and cold storage complex
currently functions to meet at Dutch Harbor, but it is
the winter peak demand for currently on hold with
gas in Cook Inlet. Finally, no expenditures expected
refinery upgrades are planned this year.
at the Tesoro refinery in
Nikiski (benzene unit) and
6 Excluding exploration and develop-
will continue at the Petrostar ment costs associated with environ-
refinery in Valdez (ultra-low- mental studies, community outreach
sulfur diesel). and engineering.
Clark Middle School, Anchorage
4
Utilities: plex in Anchorage again lead-
$482 Million ing the way. Construction of
the new hospital at Nome is
Spending in this category the other large project that
will be up 23% this year, will begin this year. In addi-
primarily because of the con- tion, the first phase of con-
struction of the new gas-fired struction of the new hospital
electric generation facility by in Barrow will also get started.
Chugach Electric Association
and Anchorage Municipal Other Private
Light and Power. The Fire Commercial:
Island wind farm project is $153 Million
also moving forward.
The budgets for the major Private commercial con-
telecommunications firms struction spending consists
will be lower this year, and of a wide range of building
no significant gas utility proj- types, including retail, office,
ects are planned. The first medical, hotel, and ware-
phase of a project to provide house space.7 The level of
high bandwidth Internet serv- spending from year to year
ice to rural Western Alaska can be influenced by a few
will get underway this year. large projects—which is one
There will be numerous reason we project spending
smaller electric generation will be down this year.
facilities—mostly wind and Several large projects in
hydroelectric—constructed Anchorage were finished
throughout the state using in 2009 and very little
funding from the state is planned for this year.
renewable energy program The absence of large proj-
appropriation. ects reflects both the slow-
down in the overall economy
Hospitals: and the uncertainty regarding Goose Creek Correctional Center, Mat-Su
$221 Million future prospects in general
and specifically for the con- both, and consequently we Residential:
Hospital spending will be
struction of a gas pipeline. forecast the level of privately
considerably higher than it
Investors in new commercial funded commercial activity
$208 Million
was last year, with new facili- Although Alaska has been
facilities have adopted a wait- across the state to be down
ties at the Providence com- largely insulated from the
and-see attitude regarding considerably from last year.
national housing market
crash—both in terms of
prices and foreclosures—
residential construction
will decline again this year,
continuing a trend that
began in 2007. The decline
is the result of the fall in
employment and uncertainty
about the future growth of
the Alaska economy.
7 Our commercial construction figure
is not comparable to the published
value of commercial building permits
reported by Anchorage and other com-
munities. Municipal reports of the
value of construction permits may
include government-funded construc-
tion, which we capture elsewhere in
this report. We have also excluded hos-
pitals and utilities from commercial
construction to provide more detail
about the composition of private
spending (even though some hospital
and utility spending is funded from
Weeks Field Estates Phase I, Fairbanks public sources).
5
new facilities, construction of A large share of transporta-
which falls under the MILCON tion funds comes as a formula
PHOTO COURTESY AMERICAN MARINE CORPORATION
program. The largest share of grant from the federal govern-
new construction this year is ment. That program has not
scheduled to occur at Eielson yet been reauthorized and is
Air Force Base and Fort currently operating on a
Wainwright in Interior Alaska. month-to-month basis, with
The Corps of Engineers allocations to the states at
provides funds for civil works 70% of the former formula
such as flood control and rate. Consequently the state
environmental remediation. is receiving less than in years
We include these corps activities past. However, this loss is
in the national defense total, currently being offset by a
although they primarily benefit significant amount of funding
communities rather than the from the ARRA.
national defense mission. Locally funded highway
Trading Bay Subsea Diffuser projects will be funded at a
Transportation— level similar to past years.
PUBLICLY complexity of the state budg- Highways: Transportation—
FINANCED et, an increasing share of $610 Million
state-financed construction is
Airports, Ports
CONSTRUCTION coming out of other funds. Spending for highways and and Harbors:
Publicly financed construc- An important source of roads will be 8% lower than $323 Million
tion8 spending in 2010 is local government spending is last year, primarily due to the Spending for airports,
expected to be $2.6 billion, grants from the state. For the small size of the state capital ports, and harbors will be
5% lower than last year, in larger communities, current budget in FY 2010. But a large lower than in past years
spite of the stimulus to capital revenues and bond proceeds portion of the proceeds of the because of the absence of
spending provided by the also contribute to construc- recent state transportation funding of projects in the FY
American Recovery and tion spending. bond issue will be available. 2010 state capital budget and
Reinvestment Act of 2009. Finally, state and local
Historically, the majority of enterprises like the state air-
funding for public construc- ports and local wastewater
tion has come from the feder- and sewer utilities generate
al government, and much of funds for capital expenditures
it flows through state govern- from current revenues and the
ment as grants, thus showing sale of revenue bonds.
up in the state budget. Once There are numerous ways
in the state budget, these fed- to categorize public construc-
eral funds are often combined tion spending. We present
with state appropriations. them by function.
Federal funds also flow
directly to non-profit organi- National Defense:
zations, like the Alaska Native $548 Million
health organizations, and to a
Spending for national
modest extent directly to local
defense will be up 9% from
governments. Federal agencies,
last year. Military spending is
both military and civilian, also
divided into three basic cate-
have their own capital budgets.
gories—MILCON (Military
Non-federal funds for state
Construction), civil works,
capital spending have histori-
and environmental remedia-
cally come primarily from the
tion, including FUDS
state General Fund and bond
(Formerly Used Defense
sales. With the growth in
Sites). The missile defense
8 This category includes all spending
system at Fort Greely is
financed by federal, state, and local budgeted outside these basic
government sources, except hospitals categories, and this year the
and electric utilities. Public dollars
often fund the investments of private ARRA is an important source
and non-profit organizations. This of funding augmenting all the
spending is included here. Funding
for some projects comes from multiple basic categories.
public sources, or from a combination The number of active duty
of public and private sources. We try military assigned to the state
to account for these multiple funding
sources in this analysis. continues to grow and require Sand Lake Water and Sewer Upgrades, Anchorage
6
federal construction spending
in Alaska. We forecast an
additional $388 million
of federally funded capital
spending in Alaska for other
types of projects—20%
higher than last year.9
Excluding transportation,
the largest program funded
by federal grants to state gov-
ernment is the Village Safe
Water program of rural sani-
tation. These funds come
from a number of agencies,
including the Environmental
Protection Agency and the
Indian Health Service.
Funding from these agencies
has fallen, but this initiative
will again contribute $100
Anchorage Museum At Rasmuson Center Expansion million to state construction
spending because of stimulus
the completion of significant Greely, if funding can be to reimburse urban districts funds from ARRA.
upgrades at both the identified in the Department for most of the interest on The federal government
Anchorage and Fairbanks of Defense budget. school bonds. also provides grants and
international airports last University of Alaska con- other construction funding
year. Federal funding in the Denali struction will be down due to to Alaska tribes, non-profit
form of grants from the Commission: the completion of a number organizations, and local gov-
Federal Aviation $61 Million of large buildings. Several ernments across the state.
Administration will be about buildings are in various stages The most important recipi-
the same as in past years. The Denali Commission, of planning, but none are ents of these grants are
Spending for publicly created by former U.S. ready for construction this year. Alaska Native non-profit
funded port and harbor Senator Ted Stevens to more corporations, housing
upgrades will be about the efficiently direct federal capi- Other Federal: authorities, and health-care
same as last year, unless the tal spending to rural infra- $388 Million providers. The largest of
Port of Anchorage receives a structure needs, will spend
around $61 million for con- The categories already 9
It is difficult to track all the federal
large grant under ARRA—in discussed—national defense, dollars that find their way into con-
which case the port will be struction—down consider- struction spending in the state because
ably from last year. transportation, education and there are so many pathways, and they
able to move its development the Denali Commission — change every year. The possibility of
schedule forward. The commission supports double counting funds as they pass
a broad range of projects, together make up the largest from agency to agency, or become part
including transportation, and most visible part of of a larger project, also creates difficul-
Alaska Railroad: ties for the analyst.
$43 Million health, and energy-related
infrastructure, with funds
The capital construction provided by other federal
program for modernizing agencies. The loss in funding
and upgrading the Alaska has primarily impacted ener-
Railroad will continue this gy and health facilities.
year at a slower pace than last
year. Project funding comes Education:
from a variety of federal
sources as well as retained
$246 Million
earnings. The focus of the Education project funding
program continues to be will be down 12% from last
track rehabilitation, siding year. Spending will be up for
extensions and upgrades, primary and secondary
bridge replacement and school construction and
upgrades, passenger equip- upgrades, which are financed
ment, and a collision-avoid- by a combination of direct
ance system. It is possible state appropriations for the
that work could begin on the rural school districts and
Tanana River bridge as part debt finance for the urban
of the rail extension to Fort districts. The state continues Minnesota Drive Resurfacing, Anchorage
7
these programs is the Native Other State
American Housing Self and Local:
Determination Act (NAHS- $394 Million
DA), which provides funds
for housing construction in State and local government
PHOTO COURTESY CRUZ CONSTRUCTION
Native communities through capital spending, excluding
many Native housing author- transportation, education,
ities statewide. These pro- and energy (electric utilities)
grams will be significantly will be about 10% lower
augmented this year by than last year due to the
ARRA funds. smaller state capital budget
We expect the level of of FY 2010 and constraints
direct construction spending on local government budgets
by other federal departments from the downturn in the
to be about the same as in economy. The largest state
2009. This includes spending project will be continuation
by the Department of the of construction of the new North Slope Ice Road
Interior (National Park Goose Creek prison in the
Service, U.S. Fish and Mat-Su Borough. weatherization could be high- in the construction industry
Wildlife Service, and Bureau Other important categories er if federal ARRA weather- in 2009 was about 16.6
of Land Management), the of state capital spending are a ization funds are leveraged in thousand workers, with
Postal Service, the number of smaller projects an AHFC bond package. average annual earnings of
Department of Agriculture, funded by the cruise ship tax Local government capital $60 thousand per worker.
and the National Oceanic and small projects funded by spending, from general funds Missing from this total are
and Atmospheric the state weatherization and as well as enterprise funds, the “hidden” construction
Administration (NOAA). rebate programs. Spending on will be about the same as last workers employed in other
year, as no significant new industries like oil and gas,
projects are anticipated. But mining, and government
tighter finances will be offset (force account workers). In
by ARRA funds. addition, this total does not
account for the large number
WHAT’S DRIVING of construction workers who
SPENDING? are self-employed—estimated
Construction activity— to be about 9,000 in 2009.
measured by total spending, Construction spending
jobs, payroll, or gross product generates activity in a num-
—has experienced strong ber of industries that supply
growth for more than a inputs to the construction
decade, driven largely by process. These “backward
growing federal capital grants linkages” include, for exam-
to Alaska, large federal agency ple, sand and gravel purchas-
capital budgets, oil and gas es (mining), equipment pur-
spending, and more recently, chase and leasing (wholesale
large state capital budgets. trade), design and adminis-
These large external sources tration (business services),
of construction funds not only and construction finance and
fuel public spending and oil management (finance).
patch spending but also give a The payrolls and profits
general boost to the economy from this construction activi-
—and thus add to the aggre- ty support businesses in every
gate demand for new residen- community in the state. As
tial, commercial, and private this income is spent and cir-
infrastructure spending. culates through local
economies, it generates jobs
CONSTRUCTION in businesses as diverse as
IN THE OVERALL restaurants, dentists’ offices,
and furniture stores.
ECONOMY
Construction spending is Cover:
one of the important con- UAA ConocoPhilips Integrated
tributors to overall economic Science Building Photo by Chris Arend
activity in Alaska. Annual All other photos by Danny Daniels
Hicks Creek Glenn Highway Road Improvement wage and salary employment Photography except as otherwise credited
The 2010 Forecast is generously underwritten by Northrim Bank
