Valley faces economic slump, population rise

PALMER — A workshop on Mat-Su Valley demographics with several state economists turned into a lengthy discussion about choppy economic forecasts ahead for the state Friday morning.

Alaska demographer Eddie Hunsinger and state economist Neal Fried — who carried but did not wear his signature bow tie — delivered presentations that covered points familiar to Mat-Su residents at the borough school district building. Valley growth will continue, they said, even amid possible layoffs on the North Slope. In fact, the population growth in the borough is outpacing both the state and national economies.

However, that growth could be imperiled by further inaction on the state’s fiscal crunch, warned UAA Institute of Social and Economic Research Economics Professor Gunnar Knapp.

“We are probably already in, or entering into, at least a mild recession,” he said.

Declining federal and state funding and the capital budget cuts have affected construction jobs, and uncertainty in multiple economic sectors overshadowed upbeat news about North Slope job growth and rising public school enrollment. Funds spent but not yet allocated were still blunting the fallout from the capital budget reductions.

That economic uncertainty should motivate legislators to address the budget before the 2014 elections, Knapp suggested.

Alaskan lawmakers have multiple financial tools to deal with the situation. They have the Constitutional Budget Reserve — Knapp compared that to the state’s savings account — with an Oct. 31 balance of $9.14 billion (what the state is presently spending to make up for declining revenues). They have also have the Permanent Fund, the state’s investment portfolio funded by oil and gas royalties. The investments are worth about $52 billion altogether, and produced a return of about 5 percent ($2.6 billion) in the 2015 fiscal year.

Regardless of political feasibility — at one point, Knapp jokingly suggested a lynching might be the result of changing the PFD formula, which didn’t get many laughs — lawmakers have five options. According to Knapp, they are: do nothing; tax people; tax the oil industry; eliminate the Permanent Fund Dividend; or spend Permanent Fund earnings. Four of the five options have potentially negative economic consequences.

For example, doing nothing eats into the state’s ample savings, but it also imperils the state’s bond rating, meaning borrowing money for things like school construction could become more expensive. Doing nothing also creates investor uncertainty. That, in turn acts as a brake on private business investment.

“For example, I heard a talk recently by the president of GCI, who said ‘We have more than $100 million in investments planned for next year, but we’re not going to do those unless the Legislature makes significant progress and shows us it’s got the situation under control, because if we think that they’re going to crash the economy, it wouldn’t be responsible to our shareholders,’” he said.

Placing the sole burden on the oil industry would effectively shut down the oil patch, Knapp said. Taxing people wouldn’t generate enough to close the gap and could imperil the state’s consumer economy, and eliminating the permanent fund dividend payment would remove a massive annual stimulus. Taxing marijuana would net $20 million at most. Cutting government positions also eliminates paychecks, which in turn imperils the consumer economy, Knapp said.

Only one choice doesn’t have a negative impact on the economy, Knapp said.

“If you spend Permanent Fund earnings, it is injecting money into the economy without taking it from somewhere else,” he said. “I’m talking about spending Permanent Fund earnings without cutting dividends. If you do that, then you are keeping spending closed, going into the economy, without taking it out of some other part of the economy.”

Ultimately, a combination of spending cuts, some taxation, and earnings reserve spending will be necessary, Knapp said. Gov. Bill Walker has pitched a similar plan to legislators called the sovereign wealth fund, which would use oil royalties to pay the annual dividend while using the Permanent Fund earnings reserve to fund government, effectively trading one for the other.

Population booming

The borough’s population has grown by about 2,000 people per year since 2010, to about 98,000 people, said Eddie Hunsinger, the state demographer for the Department of Labor and Workforce Development. Growth has slowed from rates seen the early 2000s, when borough could sometimes pick up 3,000 people from net migration alone.

Despite the relative plateau, borough growth has not stopped, Hunsinger said.

“Mat-Su borough is the fastest growing region in the state, or the fastest growing borough in the state,” he said. “It’s the one borough in the state that has positive and significant net migration predictably from year to year.”

The roughly 2 percent growth rate is just one portion of a much larger story, Hunsinger said.

“There’s a big turnover each year,” he said. “Even though we see some of these what look like small changes going on from year to year, there’s a lot more going on under the surface. The big question is: what will 2015 look like?”

Officials aren’t yet sure whether those numbers —slated for release in January — will top the big round 100,000 mark, Hunsinger said.

Within that growth, the population characteristics are also changing, Hunsinger said. The population is getting older as percentage of residents older than 65 grows, though the Kenai borough is likely to remain the grayest part of the state, Hungsinger said.

“Most of that big increase in that 65 plus population is people aging, it’s not moving,” he said.

Demographers also say some portions of the borough are growing faster than others. Knik-Fairview is the fastest-growing area, followed by Point MacKenzie, though figures can be misleading, Hunsinger noted.

“Point MacKenzie had big growth, but that was the prison,” he said. “I think about 1,200 of the 1,500 was the prison.”

Gateway (an unincorporated community south of Palmer), the Meadow Lakes area, and Tanaina — an unincorporated area bounded to the south by Spruce Avenue, on the West by Church Road, and backing up against eastern foothills of the Talkeetnas to the north — round out the top 5.

Fried sped through a series of minor updates to Valley jobs figures. The local economy is expected to grow by 600 jobs next year, he said, despite possible layoffs among high-salaried North Slope workers, which likely haven’t yet shown up in government statistics. The borough accounted for a third of the state’s new housing starts despite accounting for only 13 percent of the state’s total population, according to figures compiled.

Fried’s rather up-tempo presentation clashed with Knapp’s grimmer presentation

“You’re still growing a little faster than the rest of the country, and I know that makes you feel really good,” he said. “I’m not here to make you feel good. I don’t like to make people feel good. It’s not my job, that’s not my profession, but that’s what the numbers tell us.”

Contact reporter Brian O’Connor at 352-2270, brian.oconnor@frontiersman.com, or on Twitter @reporterbriano.