Alaska will see an estimated $7 billion in construction spending in 2007, a 7 percent increase over last year's building budgets, according to a forecast study released by an industry trade group.
Private building is expected to reach nearly $4.56 billion, while public spending should be at $2.45 billion, a slight decline. Unlike spending in previous years, however, several sectors will experience big declines in spending this year.
The Associated General Contractors of Alaska and the Construction Industry Progress Fund commission the University of Alaska Anchorage's Institute of Social and Economic Research to develop the annual forecast.
Overall, the number of construction jobs for the year should be flat compared to 2006, but increases in the costs of materials is expected to bring the total to higher levels, researchers said.
Increases in materials and labor costs have dampened potential growth for the year, and may continue to have an effect as the year progresses, the study said.
Wavering oil prices add a level of uncertainty to the forecast. Researchers said the recent declines in oil prices may cause some oil firms to rethink their capital budgets and reduce their exploration and development spending lines.
Also public-sector spending may change after the federal budget is passed. Public agencies generally planned on program funding at the same levels as last year, researchers said. Alaska's capital budget enacted for 2007 was much larger than that in 2006, but the new governor may decide not to fund some projects and delay others.
This is the fourth year of the study, which surveys various organizations about their construction plans for the coming year. Researchers also surveyed the previous year's spending to see how accurate their estimates were.
ISER issued revised spending figures for 2006, putting last year's spending at $6.6billion. It had predicted $6.5 billion. Researchers increased the total for residential and commercial building to account for higher construction costs and decreased the estimate for mining to reflect a slowdown in development at the Kensington and Rock Creek mines.
The cost of building materials continued to rise throughout 2006, prompting some industries to hold off on or reduce the scope of several projects.
Estimates in the study comprise most occupations associated with the building of a project, and with repair and renovation, researchers noted. Projections do not include design and planning costs.
Some projects take place over several years, so estimates represent money that is projected to be spent during 2007 only.
Private-sector construction should see nearly $4.55 billion in work, a 15 percent increase over 2006. The increase is largely driven by a 30 percent boost in spending by the oil and gas sector.
The oil and gas industry again tops the big-spender list in the forecast study, with more than $2.55 billion in projected construction spending this year, a 30 percent increase over last year.
Much of the budget increase should be spent in exploration and development activity on the North Slope and in Cook Inlet, the report said.
The major North Slope operators — BP, ConocoPhillips and Exxon — expect to invest $1.6 billion in Alaska this year, mainly on Slope exploration and development. Money from previous years that was budgeted toward buying new tankers is now being spent in Alaska.
Companies have announced plans to add workers and drill more wells, and the oil giants are working to build an ultra-low sulfur diesel production facility.
Spending from independent North Slope producers is up sharply this year, to about $813 million. Shell, Anadarko, Pioneer and Eni are among others that have announced plans to work in Alaska this year.
Marathon Oil and Chevron are among companies that plan to invest some $182 million in exploration and development activities in Cook Inlet, a slightly higher figure than last year.
The mining industry is expected to spend about $195 million this year, about the same as the revised figure for 2006. The industry plans to invest in exploration, development and construction at several key projects this year.
The bulk of the money will be spent at the Kensington mine, located near Juneau, and the Rock Creek mine, near Nome. Construction schedules for both mines have been delayed by legal battles.
Exploration work at the Pebble and Donlin projects, both in Southwest Alaska, will continue. If these projects are eventually approved, major construction work would still be several years out, however.
An estimated $20 million will be spent in what researchers dub “other rural basic industries,” a new category in the study. This area focuses on projects relating to tourism, seafood, timber and manufacturing in areas located outside the urban regions. The sector spent about $50 million last year.
Spending by private utilities is expected to see 4 percent drop in 2007, to $385 million. Telecommunications companies will spend slightly more this year, at about $160 million, while natural gas utilities will spend about $23 million, slightly higher thanks to a project to augment service to Fairbanks with liquefied natural gas trucked from the North Slope.
Electric utility spending will be down after the completion of the Golden Valley Electric Association capacity expansion.
The state's hospitals should see about $200 million in work, a 9 percent drop when compared to last year. Providence Alaska Medical System has further plans, while construction on a new Veterans Administration clinic in Anchorage is expected to start this season. Several others clinics and hospitals around the state have plans to expand.
New hospitals planned for Barrow and Nome are on hold this year, awaiting word on federal funding, the study said.
Private commercial construction — which includes retail, office and hotels, among others — should reach about $350 million. Big ticket commercial projects are centered in Anchorage, and include the museum expansion and the new convention center. A few large office buildings and several retail outlets are also planned in the city.
Retail building will be the main driver in the Matanuska Valley, while Fairbanks will see virtually all forms of commercial growth.
Residential construction spending is expected to reach $750 million, a slight increase over 2006, despite the softer market seen in the past year.
Residential spending in Alaska is difficult to determine, as many communities — including the fast-growing Matanuska-Susitna Borough — don't require building permits. But researchers expect single-family building to continue its migration from Anchorage to the Valley.
Anchorage will see more multi-family units and more renovations of existing homes. Activity in Fairbanks will continue to soar as the community works to house a growing population of mostly military families. Other strong areas are Juneau and the Kenai Peninsula.
Activity in the rest of the state will be mixed, depending on local economic conditions.
Government agencies plan to spend about $2.45 billion this year, a 6 percent decline over 2006, the study said.
Building relating to national defense is expected to drop $160 million, to $570 million. The decline is due to the completion of a large military hospital project at Fort Wainwright and a decision to slow the pace of spending for construction at the main Alaska bases, the study said.
Overall spending is primarily work contracted by the U.S. Army Corps of Engineers' environmental remediation and civil works projects, in addition to its military work.
Alaska has greatly benefited from federal spending in recent years, and levels should remain high for a while longer. In 2005, Alaska received more than 7 percent of the U.S. Corps of Engineers' total funding, making Alaska the third-largest recipient of Corps funds.
Spending on the state's planes, trains, roads and ports is expected to total $885 million, an increase over 2006.
Highway spending should reach $425 million, up from last year's $450 million. Federal funding for roads is down this year, by about $125 million, primarily because in the uncertainty of federal money that was earmarked for two major projects, the Knik Arm and the Gravina Island bridges. The drop in federal money will be partly offset by increases in state funding.
Funding for airports and harbors is expected to see a slight increase, to $360 million. The Federal Aviation Administration will spend about $200 million across the state, while large state projects are underway at the Anchorage and Fairbanks airports.
The Port of Anchorage is expected to spend $36 million on renovations and upgrades. The port is putting together a huge expansion project, totaling upward of $300 million, that will be reflected in construction spending estimates for several years.
The Alaska Railroad Corp. is planning to spend $100 million this year, primarily in upgrades and track realignments.
Education spending for construction is expected to be slightly higher this year, at $350 million. Funding last year more than doubled as a result of the state budget surplus and from bonds passed for maintenance and renovations.
The state school priority list has projects totaling more than $1 billion.
The University of Alaska will spend about $105 million, most of which will be spent on the integrated sciences building in Anchorage.
A broad category, other state and local spending, should total $185 million, a $45 million increase over last year. State-funded projects fall under the agencies of the state departments of Commerce, Health and Social Services, Corrections, Military Affairs and Public Safety, the report said.
Local-government-funded projects should comprise the rest.
Denali Commission and other federal projects
The Denali Commission received $100 million in federal funding for 2007, and generally focuses on energy projects and health care facilities.
Other federally funded projects are expected to total about $365 million, down from the $400 million a year ago.
The largest scheduled project is $100 million in grants from the departments of Indian Health Service, Housing and Urban Development and the Environmental Protection Agency, among others, for rural sanitation projects.
Several other federal agencies have projects planned or are currently underway.
Melissa Campbell can be reached at melissa.campbell@alaskajournal.com.
