Forecast: $8.4B in construction spending

Photo/Courtesy/STG Inc.

The upcoming construction season should be a busy one in Alaska. Construction spending in the state is expected to increase 8 percent versus 2012 to nearly $8.4 billion, according to a University of Alaska Anchorage Institute of Social and Economic Research, or ISER, forecast.

Scott Goldsmith of ISER presented the annual forecast at a Feb. 28 joint presentation with Associated General Contractors of Alaska Executive Director John MacKinnon.

ISER’s revised forecast for last year anticipated $7.8 billion to be spent on construction work in Alaska.

This year marks the first time the forecast has exceeded $8 billion, Goldsmith said. The spending equates to more than $10,000 for every Alaskan, or more than $20 million per day, he said.

MacKinnon said consistent state capital budgets have helped keep the construction industry strong in Alaska while other state governments have cut infrastructure investment amid budget troubles.

“Spending from the public sector has been flat; and that’s not a bad thing,” MacKinnon said. “In the private sector, you began seeing an uptick in spending a couple years ago largely due to oil and gas interests.”

Goldsmith said oil and gas development has been an uncertainty for the 10 years ISER has prepared the forecast. This year is no different. On Feb. 27, Shell announced it would be suspending its Arctic drilling exploration for 2013. The move will mean a “slight adjustment to the forecast,” Goldsmith said, which was prepared prior to the announcement. Any adjustment would not be significant enough to change the overall forecast, he said.

Prior to Shell’s decision, oil and gas interests were expected to spend more than $3.6 billion on construction costs, up 13 percent over 2012 and making for easily the largest spending sector in the state.

ExxonMobil’s Point Thompson project on the North Slope and general up-keep of aging oil and gas infrastructure will drive spending, Goldsmith predicted.

Private sector spending outside of oil and gas should remain steady at about $2 billion.

Combined state and federal construction spending in the state is expected to increase 6 percent to more than $2.7 billion. Goldsmith said approval of both the federal Surface Transportation Extension Act and the state general obligation, or GO bonds, last year means a significant increase in transportation funding this year.

Primarily federally funded highway spending is expected to be up more than 40 percent to $820 million and air and seaport spending should be up nearly 30 percent to about $480 million.

MacKinnon reminded the audience of industry representatives that the $453 million GO bond package passed by Alaska voters in the November elections leaves the state with about $270 million in unfunded commitments.

“I’m optimistic we’ll get a good capital budget,” MacKinnon said.

Utility construction spending should be up 5 percent and approach $830 million, Goldsmith said, largely due to growth in the telecommunications industry.

“With the move of Verizon into the market — telecoms always spend a lot of money and this year appears to be no exception,” Goldsmith said.

Continued stability in Alaska’s housing market should push residential construction up 7 percent in 2013 to $440 million. The state’s housing market was mostly insulated from the national market’s 2008 collapse.

Commercial construction in Anchorage to accommodate new sporting goods retailers Bass Pro Shops and Cabela’s — as well as a new Sam’s Club — will mean a 15 percent increase in commercial construction spending to $15O million, according to the forecast report.

Percentage-wise, federal defense spending will take the biggest cut in the coming year. What had been about a $500 million budget in Alaska for several years has been cut 55 percent to $209 million, Goldsmith said.

“The hit is in one area of defense spending that we call mil-con, that’s military construction — primarily on the bases,” he said.

Mil-con spending is down to $33 million this year, Goldsmith said, from about $200 million in recent years.

The completion of three large hospital projects in Nome, Barrow and Fairbanks will have the health care industry “catching its breath” in 2013, Goldsmith said.

Spending on health care construction is expected to be down 17 percent to about  $230 million. Goldsmith said the $150 million multi-year expansion at the Providence Alaska Medical Center in Anchorage along with the prospect of a new hospital in Ketchikan should be the foundation for industry spending in the near future.

The tourism and seafood industries are lumped together for purposes of the forecast and spending in these areas is expected to remain flat, at about $20 million over the next year.

Money spent on mining work is expected to dip slightly — about 4 percent — to $330 million.

“I refer to mining as a sleeper. Most of the mines are out in remote Alaska,” MacKinnon said. “They’re providing a lot of jobs, but we don’t see those. Who does see them are the equipment vendors.”

MacKinnon said the impact of down years in residential and commercial construction can be mitigated by consistent mine work.

While no new major projects are expected for several years, several large mining prospects throughout the state — Livengood along the Dalton Highway; the Bokan mine on Prince of Wales Island; and Pebble and Donlin Gold in Southwest — mean the future is bright for the industry. MacKinnon pointed to a proposed 330-mile gas pipeline from Cook Inlet to power Donlin Gold’s project in the Kuskokwim River drainage as one example of the type of work new mines could provide.

“The opportunities in this sector are just mind-boggling,” Goldsmith said.

MacKinnon said taking advantage of Alaska’s resources will be a key to the state’s success going forward.

“We have abundant natural resources that we just need to tap and monetize,” he said.

Elwood Brehmer can be reached at [email protected].

03/06/2013 - 12:30pm