Alaska 2011 outlook: continued stability expected.

• Author: Bohi, Heidi
• Position: ECONOMY

Some Alaska business leaders and government agency representatives shared their outlooks on the economy for the new year. We've compiled their comments in our annual economic outlook.

While most sectors of the economy desire continued stability and some semblance of growth, uncertainty remains due to the lack of definitive State and federal tax and regulation changes conducive to a more positive business model.

It is with much resiliency and resolve those doing business in Alaska continue to do so. The questions we asked and the answers we received follow.

* How are things looking in your industry for the first half of 2011?

* What trends do you expect to see over the next two years?

* What is the most significant thing going on in your sector?

* Is there anything being done to prepare for 2011?

ALASKA NATIVE CORPORATIONS

By Carl Marrs

Chief Executive Officer

Old Harbor Native Corp.

One of the top priorities of Old Harbor Native Corp. and other Alaska Native corporations (ANCs) continues to be the 8(a) program and our ability to continue to rely on this in the future because it brings money from the Lower 48 states to help fund Alaska Native social programs in Alaska, whether it's for health, education or providing dividends, which all are very helpful to Alaska Natives. Maintaining the program is the No. 1 priority, though Sen. Claire McCaskill is trying to cut the program, but only for Alaska Natives --not for other tribes or benefactors. Why only Alaska Natives? That's the million dollar question. It is unclear how much of a problem she presents because the bureaucracy will continue to function as it was intended to until the law is changed. What will happen with the legislation she has introduced? I don't want to predict anything about Washington, D.C., but I hope that most of those on Capitol Hill understand the importance of the program and all the good it does for Alaskans and all other minority groups such as the Hawaiians.

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The Native community is trying to put together program changes that help how the 8(a) program is being administered and to make sure there aren't any abuses within the program. It is coming up with self-policing actions McCaskill may or may not accept and put into legislation. In the past, there have been abuses in the program, but not very many and to throw the baby out with the bathwater is a terrible thing to do when you have so many needy people who are so dependent on it. Historically, too, there have been problems with government contracts with others besides the minority groups, but they didn't throw the whole thing out--yet they want to throw Native corporations under the bus. The argument is that we are costing taxpayers money. It is the opposite because fewer people in Alaska are on welfare programs--more people are being educated because of Native corporations and programs like this. The fact is the government is going to contract this work out either way. We are just a very small piece of the overall contracting, including the Department of Defense programs. The returns Native corporations get on these contracts are very slim, 2 percent to 5 percent on the average, so the argument we are costing taxpayers money is ridiculous, it is a net benefit--American Indians can prosper and bring to their members pride and self-determination.

Although business is going well for the ANCs, because of these issues being raised it is harder and harder to negotiate contracts. Those that participate in the 8(a) program are doing okay, but there are still plenty of village corporations not participating because they are not big enough to be able to do anything.

In terms of the state's economy, I am very worried about where Alaska is headed, especially as it applies to the investments of ANCs statewide. Resource development is pretty much non-existent for several reasons. Alaska does not have a stable tax policy, so companies that invest millions of dollars do not know what their future costs are going to be from a tax standpoint. This can be seen especially with the oil industry, which is withdrawing from continued exploration. The same holds true with the projected gas pipeline. Unless there is long-term stability in our tax structure, companies will be discouraged from investing.

In general, resource development is being held hostage by Alaska's permitting process, which can be seen in mining, timber, and oil and gas--basically all sectors of business. Because it takes so long and requires the developer to jump through so many hoops, the costs are not conducive to encouraging new business in the state. If at the end of the day a company has to spend $100 million to get through the permitting process, chances are they are not going to be able to afford to develop it. The federal permitting process is no better. Here, too, we need to have some sort of stability built into the system. Governor Scan Parnell is working on that, but it's going to take time. ConocoPhillips is going elsewhere, which means the state's largest industry will not be opening new development and providing jobs--a sure sign the economy is going to be in trouble in the future, if we can find a solution to stabilize it. The State tries to send a message to consumers and businesses we're open for business, but once again, CNBC ranked Alaska at or near the bottom state for business due to the high cost of living, high cost of doing business, and weak infrastructure. To Outside companies wanting to do business in Alaska, this is a dismal message on the future of the state.

COMMERCIAL CONSTRUCTION

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By John MacKinnon

Executive Director

Associated General Contractors of Alaska

Alaska's highway program will be as robust as last year, the last of the stimulus projects will be completed, and the construction industry has its federal aid program, which is more than $425 million. Several of the 2010 highway projects are also ready to go out to bid. Several projects from the 2008 $315 million bond package are also ready to begin, so there will be signs of those hitting the streets statewide, including the Dowling Road connection, Port of Anchorage, Seward Highway, Fairview Loop in Wasilla, Dalton Highway improvements, and bridge repairs. It's going to be a good time in Alaska to be a dirt contractor.

On the building side, things are also looking up. The governor committed to spending $500 million worth of deferred maintenance on State facilities over the next five years. Almost $400 million worth of education facility bonds passed in November and we may see some of that hitting the street this summer, or at the very latest it will be under construction by 2012. This helps the building side, which has been down for a few years, and supplements the loss of private investments.

President Obama's announcement to open up exploration in the outer continental shelf will eventually lead to platforms, pipelines and production, which could mean a considerable amount of new work for the construction industry. Projected activity on the North Slope is still uncertain, though: for the second year in a row ConocoPhillips announced it won't be doing anything and BP Alaska is suspending construction of its Liberty oil field project in the Beaufort Sea, with no timeline for resuming it, which all adds up to reduced Slope activity that the construction industry relies on. At the same time, the U.S. Defense Department spending will continue to be good, along with mineral exploration, which comes with the hope of additional development.

It is expected there will also be some action in the legislature this year to try and address ACES legislation that has had a negative impact on oil exploration, though if the legislature spins it around could turn out to be a positive. In terms of mining-related construction, we've seen some very responsible development with Kensington Mine, which was built almost exclusively with Alaska contractors. There are also several other small and large mine projects going through exploratory and pre-permitting phases, which bodes well for further development.

The recent election was important for the construction industry. The election of Governor Sean Parnell means a lot of positives for the construction industry as he makes significant changes in his administration and continues to see a healthy capital budget as an investment, while tightening up the operating budget. Looking ahead, 2011 is going to be just as good if not better than last year.

MILITARY CONSTRUCTION

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By Col. Reinhard W. Koenig

Commander--Alaska District

U.S. Army Corps of Engineers

The U.S. Army Corps of Engineers program in the Alaska District remains strong for 2011. Military programs will be strong through Fiscal Year 2013 and then begin decreasing--civil works programs are already tapering down. Midway through Fiscal Year 2011, the Alaska District is executing a total of 336 projects and activities worth $696.7 million. The military program consists of 18 projects valued at $427 million. Our goal is to have all these projects awarded to general contractors by March 31.

A military project of interest is the Aviation Task Force Complex at Fort Wainwright, which supports the modular Army conversion to an Aviation Task Force (ATF) by constructing permanent facilities meeting Army standards for approximately 1,300 additional soldiers. Phase IIA, to be awarded this fiscal year, includes an aircraft maintenance hangar and rotary-wing parking apron.

Another large Army program is the Maneuver Enhanced Brigade (MEB) Complex at JBER-Richardson. This program begins with Phase I in FY11. Additional Brigade Combat Team (BET) projects are programmed for JBER-Richardson between FY 12-FY 16.

The Alaska District's FY11 civil works program consists of 66 projects and activities totaling $88 million. Ongoing construction projects include a new harbor at Akutan and adding new floating...