The Alaska economy: past, present, and future.

• Author: Klouda, Naomi
• Position: SPECIAL SECTION: Economic Outlook

The past thirty years witnessed Alaska's economic growth through climbing and falling oil prices, growing pains of Alaska Native corporation prosperity, and a position in global logistics eyed by not only businesses but also the US military.

Predicting those changes in advance tends to be more than an economist's powers endow, says Neal Fried of the Alaska Department of Labor and Workforce Development. Looking back, political, environmental, and social events erupted and altered what were thought to be predictable economic turns.

"In 1985 and into the 90s, we were writing about Alaska's military influence declining in a dramatically smaller role, while two other industries were growing: the visitor and oil industries," Fried says. "Then thousands of troops were sent to Alaska after 9/11. We never could have forecast that. Who knows what the federal government might do in the next ten years?"

Interest in Alaska gold mining and production came as a huge surprise in the past decade, Fried says. "Gold production had declined for fifty years and it seemed dead. Now we're producing as much as the Gold Rush. It took one hundred years to make a comeback."

Salmon fisheries saw woefully low prices in the previous decade. "What we didn't realize was that the demand for wild salmon would grow," Fried says.

Fried makes modest forecasts that oil and gas, the visitor industry, and fisheries will continue to play important economic roles in the years to come. "Those industries will be important. How important is the big question."

Fried celebrates thirty years as an Alaskan economist this year. "In that thirty years, a lot of waxing and waning goes on, factors we had no input on," he says. What proved constant were the three pillars of the Alaska economy: oil and gas, government spending, and tourism. He doesn't foresee federal spending going away. "The feds are a major land owner, and they will have a continued presence due to the federal trust relationship with Alaska Native tribes."

Unknowns and Presumptions

Like Fried, Bill Popp, president and CEO of the Anchorage Economic Development Corporation, says forecasting carries a lot of unknowns. Yet reading the writing on walls of the next thirty years does carry a few presumptions worth keeping in mind, he says.

"I think we can look at international trade as one place where our opportunities lie in the immediate future and beyond, and Alaska will continue to have a resource extraction-based economy for generations to come," Popp says. Alaska's small population spread over a huge geography will continue to influence its limitations and opportunities.

"The ability to sell our resources to a global marketplace--our minerals, oil and gas, and wild seafood--will be a major driver," he says. The immediate years ahead, however, put Alaska in a precarious position in the downward direction of oil prices, the consequent need to ratchet down state spending, and a debt-riddled federal government.

"Use the wealth wisely: that will be our challenge, in [this year's] new fiscal reality of $60 to $70 a barrel of oil," Popp cautions. "Alaska's location and global logistics and position in the supply chain--that's an opportunity for us. After the global recession, the ability to take advantage of the logistics supply chains could present opportunities we don't expect."

Alaska's preeminence as a seafood source is one such opportunity. "If we can maintain the integrity of our seafood industry, we will continue to see Alaska seafood command premium prices," Popp says. "A vast amount of protein comes from here. We can continue to grow in markets like China, given the awful environmental conditions there that present an opportunity because they value pristine, wild seafood."

Climate change in Arctic and sub-Arctic conditions also bodes challenges and opportunities well into the next thirty years, Popp notes. The ability to develop technologies offers small clusters of growth in the years ahead.

These days, even when it's tough, the market shows more resiliency than in the 70s and 80s and less vulnerability to boom-and-bust doom historically true of Alaska, Popp says. "[Alaska] is in a better fiscal situation in terms of the overall economy. We have to be mindful of what is going on, protect ourselves when we need to, and be smart with our dollars and smart with our policies."

Popp predicts solving the energy challenges of rural Alaska will be one of the "greatest issues facing our state in the next thirty years.

"It shouldn't take that long to solve. It's an intractable issue--it slows economic growth or reverses the economies of rural communities. We have to address that issue," Popp says. "I hope that we solve it. If the challenges are overcome, then we will see significant activity that we can't even begin to fathom."

The Knik Arm Crossing, the giant Susitna-Wantana Hydro Project, and new roads to resources are all future possibilities with economic and government hurdles to overcome. A variable that could impact these projects and others is how Alaska's population growth pans out in the decades ahead, Popp says.

Population Factors

Many large-cost projects are difficult to justify for a relatively small population when it comes to investors and government financing.

A lot of speculation centers on when Alaska might reach 1 million in population. State Demographer Eddie Hunsinger has projected Alaska's baseline population out to the year 2042 as growing to about 925,000 from today's 736,000. That's a growth of only about 189,000 people in the next three decades, based on consistent mortality, birth, immigration, population loss, and upward shifts in aging populations.

"That's faster growth than the nation as a whole," Hunsinger says. "We do project the population will grow slower. The birth-to-death ratio will slow down, as will the fast growth we see right now in numbers of those moving here."

On the high end of the baseline projection is a forecast of 1.2 million people--a chance Alaska will pass the 1 million population hurdle. It's not a large chance, Hunsinger says, but is one within the realm of possibilities.

Consider that thirty years ago, in 1985, Alaska was mid-way between its 1980 census of 420,000 and the growth to 550,000 in 1990--an addition of 130,000, and that growth slowed to 80,000 the next decade to the year 2000. Between 2000 and 2014, another spurt brought the census an additional 73,600. Based on this rate of growth, Hunsinger developed the baseline projection of 925,000 by the year 2042.

The implication of a larger aging population has meant more services will be needed in the healthcare field and businesses that serve that group. On the other end, children and teen services could see a decline consistent with that slowing...