AEDC predicts deeper downturn if budget cuts prevail
Whether the state’s recession bottoms out this year and economic growth gradually renews, or whether the recession will deepen and extend for three or more years basically depends on Gov. Mike Dunleavy. Anchorage Economic Development Corp., working with McDowell Group, the consulting firm, laid out a gloomy scenario for the regional economy if deep budget cuts proposed by the governor actually happen (see page 3 for the current situation). In January, in its one-year forecast, AEDC forecast a modest turnaround in 2019. On July 31 the group rolled out its 3-year forecast that was updated with predicted effects of the proposed budget cuts. The University of Alaska’s Institute of Social and Economic Research has made similar forecasts.

Whether the cuts really happen depends on how the governor deals with House Bill 2001, a bill recently passed by the Legislature in special session. The bill restores most funds cut through Dunleavy’s vetoes of a budget bill passed earlier. The governor can be expected to veto parts of the bill but if the vetoes go deep, similar to Dunleavy’s earlier actions, AEDC’s forecast may become reality. A certain amount of damage has already been done.
That’s mainly due to the intense political debate this spring, which shaped perceptions among consumers and businesses. AEDC’s July 31 forecast noted a dip in consumer confidence after increases last year although the overall index is still over 50 percent positive. Confidence in the economy, near-term, has dipped below 50 percent, however.

Despite that, AEDC pointed to continued stability in key sectors such as building permits; housing starts; air passenger and cargo traffic, and tonnage landed at the Port of Alaska; and modest upticks in petroleum, construction, professional and business services. Even in retail, where losses are predicted this year, AEDC noted that much of this is due to corporate decisions, not so much a local economic softening. Jobs lost by the closure of Nordstrom, for example, are offset by expansion of Anchorage’s midtown mall, AEDC said.

State budget: Waiting for the vetoes
Gov. Mike Dunleavy signed the state capital budget, SB 2002, which provides the needed state match for federal transportation funds. The bill restored a “sweep” of special program funds, which will now allow those to continue. Particular attenion has focused on the Power Cost Equalization fund, which supports rural residential electricity service. That will continue, at least for now.The focus now is on what the governor will do with HB 2001, a bill that restores many of the state budget cuts the governor has made. He may veto funds again, and it is unlikely the Legislature will be able to override the vetoes. Particular concern is on the University of Alaska, where the governor had imposed a very large reduction. All this is still in play, however. The Legislature did not approve a $3,000 Permanent Fund Dividend Dunleavy wanted, although a smaller $1,600 PFD was okayed.

Regional economy: Strengths and weaknesses
Here are key points from AEDC’s 3-year forecast and discussion:
Anchorage has lost 20,000 of its population to the Lower 48 in the last four years (people departing vs. arriving). Federal data and rising apartment vacancies suggests many of these are working-wage adults. This has contributed to situation in a lackluster economy where employers report shortages of qualified applicants for job openings.
• Anchorage building permit values are up slightly in 2019 compared with 2018, or $385 million vs. $379 million
• New residential home construction is also slightly up, or 450 units vs. 436
• Mat-Su new home building has dropped: 813 (2019) from 1,005 (2018)
• Anchorage average home sale prices have dipped: $375,000 to $365,000
• Personal income appears stable: $19.4 billion in 2019, estimated to rise to $20.9 billion in 2022 (roughly with inflation)
• Air cargo transiting Anchorage’s internation airport: 3.08 billion pounds (2018) to 3.02 billion pounds (2019), down 2.2 percent. Note: This reflect the U.S.-China trade war. One in four cargo planes landing to refuel in Anchorage originates in China.

Specific industries in Anchorage, 2019:

Up:		Down:
Construction	+600	Retail	-400
Food services	+200	Local gov’t	-300
Health care	+100	Info services	-200
Oil and gas	+100	Other service	-200
Wholesale trade	+100	Finance	-100
Manufacturing	+100	Federal	-100
Accomodations	+100	State	-100
		Education	-100
Total:	+1,300	Total:	-1,500