How Petroleum Has TransformedHow Petroleum Has Transformed the Alaska Economy the Alaska Economy

byby

Scott GoldsmithScott Goldsmith

Institute of Social and Economic Research Institute of Social and Economic Research University of Alaska AnchorageUniversity of Alaska Anchorage

ANCHORAGE CHAMBER OF COMMERCEANCHORAGE CHAMBER OF COMMERCE

““MAKE IT MONDAY”MAKE IT MONDAY”July 6, 2009July 6, 2009

Anchorage, AlaskaAnchorage, Alaska

How Oil Has TransformedHow Oil Has Transformed the Alaska Economy the Alaska Economy

Primary Financial Support fromPrimary Financial Support from

A Short Reminder:A Short Reminder:The Alaska Economy in 1960The Alaska Economy in 1960

• SMALL: 90 thousand jobs

• THIN: limited support businesses

• SEASONAL: summer private jobs 2x winter

• FEDERAL DOMINATION: ½ jobs with fed

• INFRASTRUCTURE UNDERDEVELOPED

• LIMITED REVENUE CAPACITY

The Alaska State SealThe Alaska State Seal

660

24

361

0% 25% 50% 75% 100%

PEOPLE(000)

INCOME(BILLION $)

JOBS (000)

Alaska Indicators:Alaska Indicators: Then and Now Then and Now

230

3

90

0% 25% 50% 75% 100%

PEOPLE(000)

INCOME(BILLION $)

JOBS (000)

Growth of Seal Industries: Growth of Seal Industries: Not Enough to Account for Today’s EconomyNot Enough to Account for Today’s Economy

•Tourism

•Seafood

•Mining

•Agriculture

•Timber

•Air Cargo-5

0

5

10

15

20

25

Job Growth, 1961-2006 (Thousand)

The “Updated“ Alaska State SealThe “Updated“ Alaska State Seal

Indicators of Petroleum’s ImportanceIndicators of Petroleum’s Importance

State General Fund RevenuesState General Fund Revenues 85%85%

Industrial Property Tax BaseIndustrial Property Tax Base 80%80%

Value of Resources Produced 1867-2009Value of Resources Produced 1867-2009 74%74%

Private investment spending (Direct)Private investment spending (Direct) 60%60%

Gross State Product (Direct)Gross State Product (Direct) 33%33%

Oil Sector JobsOil Sector Jobs 3%3%

What Would Alaska Look Like What Would Alaska Look Like Today Without Petroleum?Today Without Petroleum?

GedankenexperimentGedankenexperiment

No Production--Part 1No Production--Part 1The Oil PatchThe Oil Patch

No Production--Part 2No Production--Part 2Government SpendingGovernment Spending

$$$

PETROLEUM REVENUE SPENDING

$$$

STATE GOVERNMENT EMPLOYEES

16 Thousand

LOCAL GOVERNMENT EMPLOYEES

15 Thousand

PRIVATE SECTOR JOBS

18 Thousand

TOTAL JOBS = 49 THOUSAND.

Assumption: All Spent Petroleum Revenues Pay for Operations.

No Production—Part 3No Production—Part 3The PF DividendThe PF Dividend

2008 DIVIDEND BASICS

$3,269 Dividend

611 Thousand Recipients

$2 Billion Distribution COMPARE 2007 EARNINGS (Billion $)

$1.4 Retail Trade $1.6 Federal Civilian $1.7 Construction $1.8 Oil + Mining $2.0 Health $2.2 Military

Petroleum and the 3 Legged Petroleum and the 3 Legged StoolStool

Job OpportunitiesJob Opportunities Business OpportunitiesBusiness Opportunities High IncomesHigh Incomes Low TaxesLow Taxes Low PricesLow Prices New PeopleNew People Public servicesPublic services Public InfrastructurePublic Infrastructure Business infrastructureBusiness infrastructure Consumer goods and Consumer goods and

servicesservices

PETROLEUM BENEFITS: SPILLOVERS & MATURATION

• VALUE ADDED

• STABILITY

• SIZE

3 Petroleum Characteristics 3 Petroleum Characteristics Generating Spillover BenefitsGenerating Spillover Benefits

Value Added : State ShareValue Added : State Share

Lighter Tax Burden Greater Public Spending

$54 Billion $52 Billion

$141 Billion

59-08 in 2008 $

SAVE $35

Billion

SPEND $106 Billion

Impact on Resource Industries from Impact on Resource Industries from Lighter Tax BurdenLighter Tax Burden

State & Local Revenues from Seafood, Tourism, Mining, Timber

Actual (avg 05-07) $200 mill

If Oil $ Disappeared $900

Incremental Burden, no Oil $

$700

Increase in Tax Rate 4 X

Impact on Resource Industries from Impact on Resource Industries from Greater Public SpendingGreater Public Spending

• CAPITAL SPENDING

• Targeted Development

• General Infrastructure

• Household Infrastructure

• OPERATIONS SPENDING

• CAPITALIZING SPECIAL FUNDS

Impact on HouseholdsImpact on Households from Lighter Tax Burden from Lighter Tax Burden

34%*

$13,150 Per Capita in 2006

* Average State Income Tax Rate to Replace Oil Revenues—1970 to 2006.

Impact on Stability: Part 1 Impact on Stability: Part 1

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

1 2 3 4 5 6 7 8 9 10 11 12

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

1 2 3 4 5 6 7 8 9 10 11 12

Bristol Bay

Denali Borough

Impact on Stability: Part 2Impact on Stability: Part 2

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1 2 3 4 5 6 7 8 9 10 11 12

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1 2 3 4 5 6 7 8 9 10 11 12

Bethel

North Slope Borough Matsu Borough

0

5,000

10,000

15,000

20,000

25,000

1 2 3 4 5 6 7 8 9 10 11 12

Size Drives Economic Maturation Size Drives Economic Maturation

1960 1965 1970 1975 1980 1985 1990 1995 2000 20050

50

100

150

200

250

300

350

400

450

0

50

100

150

200

250

300

350

400

450

Alaska Growth Since Statehood Alaska Growth Since Statehood

230

$3

90

136

$9

99

294

$12

172

0% 25% 50% 75% 100%

PEOPLE (000)

INCOME(BILLION $)

JOBS (000)

**NEW** **NEW** Oil Importance IndicatorsOil Importance Indicators

Jobs Today from Oil Production & PFDJobs Today from Oil Production & PFD 33%33%

Economy Today without OilEconomy Today without Oil 50%50%

Economic Growth since StatehoodEconomic Growth since Statehood 66%66%

State GF Operating ExpendituresState GF Operating Expenditures 100%100%

Without Petroleum:Without Petroleum:Today’s Alaska Economic BaseToday’s Alaska Economic Base

MilitaryMilitary 35%35%

Federal CivilianFederal Civilian 23%23%

TourismTourism 20%20%

FishingFishing 16%16%

MiningMining 3%3%

Air CargoAir Cargo 3%3%

TimberTimber 0%0%

Candidates for Comparison ?Candidates for Comparison ?

OklahomaOklahoma New MexicoNew Mexico South DakotaSouth Dakota WyomingWyoming

MontanaMontana IdahoIdaho FloridaFlorida

NevadaNevada HawaiiHawaii

Maine Is Not Maine Is Not Like AlaskaLike Alaska

Physically attached to Lower 48Physically attached to Lower 48 Federal land ownership 1%Federal land ownership 1% Native American population 1%Native American population 1% Lobsters instead of crabsLobsters instead of crabs Unusual accentUnusual accent Presidential hangoutPresidential hangout

Maine is Like Maine is Like AlaskaAlaska

Many mooseMany moose Few humansFew humans ColdCold RemoteRemote Independent streakIndependent streak

Maine and AlaskaMaine and Alaska

Fish / Tourism / Timber / Mining / AgricultureFish / Tourism / Timber / Mining / Agriculture Limits on sustainable harvestsLimits on sustainable harvests Challenged by globalizationChallenged by globalization Small and declining manufacturingSmall and declining manufacturing Dependence on federal $$$sDependence on federal $$$s

Conflicting visions about use of resourcesConflicting visions about use of resources ““Zero Sum Game” development mentalityZero Sum Game” development mentality

Maine Economic History in a Maine Economic History in a NutshellNutshell

Throughout the second half of the twentieth century, Maine has struggled to find a proper balance between resource-based industrial development and environmental protection. The state has come to rely heavily on tourism, small manufacturing enterprises and defense-related activities and installations for much of its economic base.

Maine Economic Performance: Maine Economic Performance: Some EvidenceSome Evidence

Gross State Product per capita: 43Gross State Product per capita: 43rd rd (Ak 7th)(Ak 7th) Job Growth: 66% (Ak 144%)Job Growth: 66% (Ak 144%) Population Growth: 46Population Growth: 46th th (Ak 5th) (Ak 5th) Median Age: 1Median Age: 1st st (Ak 49th) (Ak 49th) Housing Built Before 1939: 31% (Ak 2%)Housing Built Before 1939: 31% (Ak 2%)

Median Paycheck: 77% as high as AlaskaMedian Paycheck: 77% as high as Alaska

Projected Population Growth = 1/3 US average (Ak 30% Projected Population Growth = 1/3 US average (Ak 30% above)above)

Typical Family ComparisonTypical Family Comparison

$55,641$55,641 WagesWages $72,750$72,750

-$7,077-$7,077 State TaxesState Taxes $0$0

$0$0 DividendDividend $6,800$6,800

$29,995$29,995 Public SpendingPublic Spending $49,064$49,064

$78,560$78,560 TotalTotal $128,614$128,614

ALASKA “BONUS”ALASKA “BONUS” +$50,054+$50,054* Adjusted for lower cost of living in Maine.

The Economic Future of Alaska:The Economic Future of Alaska:50 Years of Statehood Has Not 50 Years of Statehood Has Not

Changed the ChallengesChanged the Challenges Oil Oil $19 $19 78%78%

Mining Mining $ 2.5 $ 2.5 10%10% Seafood $ 1.4Seafood $ 1.4 6%6% Timber $ .1Timber $ .1

Tourism Tourism $ 1.5 $ 1.5 6% 6%

Average values 04-09 in 2008$.

Petroleum Resources for a Petroleum Resources for a Sustainable Economic FutureSustainable Economic Future

(Billion Barrels of Oil)(Billion Barrels of Oil)Production History:

North Slope 15.4 Cook Inlet 1.3

Reserves Today: Central North Slope 5.9 Cook Inlet .1

Potential Additional Reserves (Technically Recoverable—USGS, MMS):

ANWR 10.4NPRA 10.6OCS 23Central North Slope 4

The Alaska Economy Without The Alaska Economy Without Petroleum?Petroleum?

How Oil Has TransformedHow Oil Has Transformed the Alaska Economy the Alaska Economy

byby

Scott GoldsmithScott Goldsmith

Institute of Social and Economic Research Institute of Social and Economic Research University of Alaska AnchorageUniversity of Alaska Anchorage

ANCHORAGE CHAMBER OF COMMERCEANCHORAGE CHAMBER OF COMMERCE

““MAKE IT MONDAY”MAKE IT MONDAY”July 6, 2009July 6, 2009

Anchorage, AlaskaAnchorage, Alaska