2020 Year in Review: Pandemic upends Alaskan economy

  • Downtown Anchorage was quiet as people stayed away hours before a city “hunker down” order took effect on March 22. The beginning of shutdowns across the state in response to the COVID-19 pandemic turned the Alaska economy upside down with negative effects on nearly every sector and sending the state back into a recession. (Photo/Bill Roth/Anchorage Daily News)

There is only one top story for 2020, but the tentacles of the COVID-19 virus have proven so far-reaching that it cannot be summed up with a single headline, despite the countless internet memes attempting to do so. The 2020 Year in Review looks back at the top 10 stories as the pandemic touched every reach of Alaska.

1. Job losses, shutdowns return Alaska to recession

COVID-19 made its presence felt across Alaska’s economy even well before it actually reached the many corners of the state.

The state economy started the year as it ended 2019; with incremental growth it appeared to be on a long, slow journey to recovery following three-plus years of recession. According to state Labor Department figures, Alaska had job growth of 0.4 percent and 0.3 percent in January and February, respectively, compared to 2019.

However, the script flipped in March when — coinciding with “hunker down” orders first by the Municipality of Anchorage and then the State of Alaska — the state lost approximately 1,000 jobs, or about 0.3 percent of its workforce.

Congress passed the $2.2 trillion CARES Act in late March, which sent most Americans checks of up to $1,200, boosted unemployment payments by up to $600 per week and directed roughly $1.5 billion to Alaska in anticipation of the challenges ahead. The lawmakers guessed right.

The losses accelerated rapidly in April as business and travel restrictions persisted, cruise sailings were canceled, oil prices fell to near zero and it became clear the pandemic would not simply be a weeks-long inconvenience.

At the typical time Alaska starts adding thousands of seasonal fishing and tourism industry jobs, the state instead lost nearly 40,000 jobs compared to March and approximately 44,000 jobs year-over-year.

As of October, Alaska was still down nearly 29,000 jobs year-over-year, according to the Labor Department, with the most severe impacts to the oil and gas and hospitality sectors — some of the largest and most impactful industries in the state. The oil and gas industry directly employed about 6,800 workers in October, which was down more than 30 percent from a year prior. The hospitality sector was down 9,600 jobs, or about 27 percent of its workforce in October.

Acting Anchorage Mayor Austin Quinn-Davidson ordered dine-in service and restaurants and bars closed in December along with other restrictions on gatherings in an attempt to respond to increasing COVID-19 case counts and limited hospital capacity, so it remains to be seen exactly what added impact the latest surge in cases will have on Anchorage and the state economy as a whole.

— Elwood Brehmer

No. 2 Health care system responds

The pandemic has put the spotlight on Alaska’s health care industry, for better or for worse, as the state tries to control outbreaks.

With its small population, Alaska has a tightly limited number of available hospital beds and staff for in-patients care, particularly those in intensive care units. That’s especially true when some of those ICU patients are highly contagious and staff has to be extra careful going in and out of care wards for COVID-19 patients.

Though the disease was slow to come to Alaska, it has made up for lost time, surging in the summer and again in the late fall, with cases topping 40,000 in December with 175 resident deaths and nearly 900 hospitalizations.

Local officials responded quickly, with Gov. Mike Dunleavy’s emergency declaration limiting elective surgeries and closing down hospitals to most of the public. That put a financial strain on hospitals, which make most of their cash flow from elective and outpatient surgeries, but freed up more staff and beds for COVID-19 patients. Later, when hospitals reopened for those procedures, they required negative tests for all patients.

The University of Alaska Anchorage graduated some nursing students a little ahead of schedule in April, allowing them to move directly into the workforce to help during the pandemic response. The students were largely only a few hours away from receiving their diplomas and licenses, and with approval from the Board of Nursing, they were able to get temporary licensure and jump immediately into the workforce.

But even with those relatively lower case counts and few extra workers, the strain on health care staff has been difficult since March. Health care workers have reported some burnout from wearing PPE for long shifts, extra time to take pandemic precautions, and the high level of stress.

As community spread has increased, too, the number of infected health care workers has increased, putting strain on their healthy coworkers, who have to fill in those shifts because there’s no one else to fill the gap.

— Elizabeth Earl

3. Oil industry rides rollercoaster

Not likely a coincidence, the price of Alaska North Slope crude started the year similarly to the Alaska economy, on a very gradual increase.

But the price for the state’s oil began falling sooner as the consequences from Chinese economic restrictions and a subsequent price war between Saudi Arabia and Russia were first reflected in February, when the average price for Alaska oil fell $11 per barrel from January. The decline accelerated in March when the price averaged $33 per barrel, or just about half of what it was in January.

ConocoPhillips, Alaska’s largest producer, responded by announcing a cut of about $200 million from its budget for North Slope projects in mid-March. Oil Search, which is developing the large Pikka Unit prospect, similarly decided to cut its 2020 Alaska spending by about $70 million.

Oil Search later announced it would push back the timeline for first oil from the Pikka Unit from late 2022 to 2025 as part of a revised design for the several billion-dollar development.

The situation turned unprecedented in late April when the markets for domestic oil briefly went negative at the height of pandemic-induced restrictions. ConocoPhillips told its North Slope drilling contractor, Doyon Drilling, to turn off all of the rigs working in ConocoPhillips’ fields even before oil prices hit rock bottom and responded to their primary product being “worthless” for a time by curtailing North Slope production by approximately 100,000 barrels per day in late May and June.

The company resumed normal operations — sans drilling — on the Slope in July after oil prices returned to and stabilized in the $40 per barrel range. Prices have since risen to about $50 in recent weeks on the hopes that COVID-19 vaccines will help push global demand significantly higher once again.

ConocoPhillips also announced it would gradually restart its drilling program in late December.

North Slope production bottomed out in June with an average daily throughput in the Trans-Alaska Pipeline System of about 393,000 barrels, but jumped to average 477,000 barrels per day in August — the most in years for that month.

Industry experts said the brief production boost, which has since subsided, was likely due to a slight buildup in reservoir pressure from ConocoPhillips’ curtailment as well as the deferment of numerous small mechanical field projects that historically reduce summer oil production on the Slope.

— Elwood Brehmer

4. Tourism bust

2020 was the year that wasn’t for what had been the second largest private employment sector in the state after roughly a decade of growth.

More than 1.3 million visitors who were scheduled to visit Alaska via cruise ship this year didn’t as all but a couple small vessel voyages to the state were canceled. And while tallies on visitors using other modes of travel are harder to quickly collate, it is clear that the prohibition of general border crossings into and out of Canada and a broad reticence to air travel resulted in a fraction of the roughly 2.3 million travelers expected in Alaska this year actually showing up.

Leisure and hospitality employment peaked at more than 44,000 jobs in July 2019 after years of increasing visitor numbers but this year the industry’s employment peaked in February and was at just 28,000 jobs in July, according to the state Labor Department.

The situation has been worse in Southeast, where the lack of cruise ships cut the industry’s workforce nearly in half. Leisure and hospitality businesses in the region employed approximately 2,400 workers in October, compared to about 4,100 a year ago.

— Elwood Brehmer

No. 5: Markets and mitigation take bite out of seafood

When the pandemic first made headlines across the country in February, commercial fishermen didn’t imagine that they’d be digging into one of the strangest seasons in recent memory.

Processors across the state rushed to make plans to get their thousands of workers, often foreign, to tightly packed plants in rural communities. Vessel owners and captains wrung their hands about how to get crewmen into the state or on board, who should pay for quarantine and how to safely deliver fish to dock every period.

Prior to the season in Bristol Bay, some communities and members of the fleet called for a closure of the season to prevent COVID-19 from reaching the remote communities around the bay and their limited health care system capacities.

However, the fleet and processors rushed to put together mitigation plans. As the season progressed, it seemed to work; outbreaks at processing plants were identified and contained, and though cases were reported across the region during the season, the health care system was never overrun.

And then, after they’d gone through the headache and expense of how to operate safely in a pandemic, fishermen were left with uncertain international markets. Seafood prices tumbled, and the estimated value for the statewide salmon harvest came in at $295.2 million, 56 percent less than the 2019 value and the lowest annual value since 2006 after adjusting for inflation.

Heading into the 2021 season, industry leaders see reduced inventory as an encouraging sign for prices. Demand for Alaska seafood at grocery stores has remained high, as buyers have still been looking for seafood but aren’t buying it from restaurants in 2020.

— Elizabeth Earl

No. 6: Schools go virtual with mixed results

One of the most widespread effects of the pandemic this year has been for K-12 education. When many students and teachers said farewell before spring break in March, they had no idea they wouldn’t see each other again until at least August. Dunleavy declared a state of emergency in mid-March, closing K-12 schools across the state as a precaution and forcing many students and teachers into full remote classes for the first time.

From the beginning, the decision has been controversial. For one, it caught many parents on a back foot, with no access to affordable child care and no way to work without someone to watch their children.

At the same time, virtual learning — especially for very young students, like those in kindergarten through fifth grade — was not very common before this spring. Many parents, including those in Alaska, are not happy with results as they juggle work, monitoring their children’s schooling, and other responsibilities.

School districts in Anchorage, Fairbanks, the Mat-Su Valley, and the Kenai Peninsula all made plans to go back to school in person this fall, depending on the rates of virus transmission in various communities, including sports.

Almost immediately, schools began having to quarantine, with some connected to youth sports and others due to community spread. Anchorage pushed back its timeline for bringing all students back in person several times, keeping all students online, while the Kenai Peninsula divided its schools into regions and closed or opened them based on regional community spread.

Mat-Su closed and opened some individual schools as cases warranted, but the result was similar: parents were unhappy and felt students weren’t keeping up with the education they would get in person.

With the holidays possibly leading to case increases as people gather, school districts are cautious about bringing students back in person, even as parents push harder for it as students approach a full year without regular in-person schooling in many regions of the state.

— Elizabeth Earl

7. Airlines grounded

The travel restrictions imposed by the state and local governments in spring quickly led to the — ultimately temporary — demise of Ravn Alaska, the largest passenger airline in the state.

State officials sharply restricted in-state travel in late March and by April 5 Ravn leaders had suspended operations and filed for Chapter 11 bankruptcy protection. Ravn executives said the airline lost 90 percent of its revenue nearly immediately after travel was disrupted by the pandemic.

The decision to ground Ravn’s 72-plane fleet also meant its approximately 1,300 employees were immediately out of work as well.

The year was better at Alaska’s namesake airline at least for the fact that they kept flying, but Alaska Airlines was forced to cut its workforce significantly to match the drop in air travel.

Despite the fact that the pandemic did not tangibly take hold in much of the U.S. until mid-March, Alaska reported a $232 million loss in the first quarter and a cash burn rate of up to $400 million per month in the second quarter as the ostensive suspension of air travel continued.

Alaska attempted to backfill some of the void left by the sudden grounding of Ravn by starting its seasonal service to Southwest Alaska in mid-May, roughly a month ahead of normal.

Alaska also began year-round jet service to Dillingham and King salmon in October with smaller planes from regional sister carrier Horizon Air before.

While it added some service in Alaska, as of September the airline had cut its workforce through voluntary leave and retirement packages and direct layoffs by more than 6,100 employees, or nearly 30 percent.

A new Ravn ownership group has since restarted scaled-back service to the Aleutians and several Southcentral communities. As of mid-November the airline had hired back more than 300 employees, according to a statement from Ravn.

Ravn Alaska was sold for $9.5 million in August following a bankruptcy auction to a new management team led by former commercial pilots and backed by California investor and entrepreneur Josh Jones.

— Elwood Brehmer

8. CARES Act funds distributed, but not without difficulty

The State of Alaska received about $1.5 billion in federal aid to mitigate the impact of the pandemic after Congress quickly passed the $2.2 trillion CARES Act in late March, but getting the money allocated and dispersed via multiple levels of government proved to be a slower process.

State lawmakers who’d adjourned from the spring session because of the pandemic had the Legislative Budget and Audit Committee largely approve Dunleavy’s plan for the CARES Act money in their stead during a mid-May meeting.

The Budget and Audit approval sparked a lawsuit from former University of Alaska regent and public interest advocate Eric Forrer, in which he and attorney Joe Geldhof argued the full Legislature needed to convene and appropriate the money.

Legislators ultimately gathered in Juneau and approved the administration’s plan May 19, just six days after the suit was filed in state court.

Rollout of AK CARES, the state’s primary small business aid program, was slower than anticipated as hang-ups in the application and review process delayed disbursements.

State Commerce Department officials initially selected Anchorage-based Credit Union 1 in May to administer $290 million in grants of up to $100,000 each for small businesses in the state.

However, the small community lender was soon overwhelmed with grant applications and when the state revised the program to simplify requirements for the grants in early August, CU1 had approved 511 applications totaling about $20 million from more than 2,500 applications with requests totaling $114 million.

Commerce Department officials at the time also opened a new AK CARES application website and recruited additional administrative support from organizations statewide.

— Elwood Brehmer

9. Legislature adjourns early

The then-young pandemic gave lawmakers sufficient reason to pass a largely status quo budget and suspend the session March 29 without addressing any of the state’s structural budget imbalances.

Many legislators started the session with relative optimism that some long-sought compromises could be reached on major budget issues, taxes and the Permanent Fund dividend with the prospect of running out of savings being a tangible threat and no longer an existential worry.

That changed quickly in March when it became clear large gatherings were a hindrance to good public health.

The Legislature formally adjourned May 20 following the harried approval of Gov. Mike Dunleavy’s plan to spend the state’s CARES Act money.

Dunleavy vetoed $210 million from the budget in April but lawmakers did not attempt to override his vetoes when they briefly met in May.

The early exit from Juneau meant the big issues remained unresolved and nearly $1 billion more is needed from the Constitutional Budget Reserve to fill the 2021 fiscal year deficit. The CBR is expected to hold $586 million at the start of fiscal year 2022, when the state is projected to have a deficit of more than $2 billion, according to the Legislative Finance Division.

When legislative leaders declined to make a second round of PFD payments despite Dunleavy’s urging, the governor instead opted to start dispersing the $992 checks on July 1, the start of the state fiscal year and the first day the administration could access the money.

The Legislature also did not vote on any of the board and commissions appointments Dunleavy made earlier this year, most notably the appointments of Abe Williams and McKenzie Mitchell to the Board of Fisheries. Dunleavy announced the new Board of Fisheries selections, along John Jensen’s reappointment April 1, after lawmakers had left Juneau.

Williams is a Bristol Bay commercial fishermen and also the regional affairs director for the Pebble Partnership and as such his appointment has drawn intense scrutiny.

Kodiak Rep. Louise Stutes, a vocal opponent of the Williams pick, has said that if the appointments are not confirmed by the time the next Legislature meets in mid-January — a near certainty at this point — the process starts over.

— Elwood Brehmer

10. Light at the end of the tunnel

One of the bumpiest trips around the sun in recent history seemed to be smoothing Dec. 15 as the first doses of COVID-19 vaccines were distributed to healthcare workers in the state.

The preventative treatments came many months ahead of even the most optimistic projections made at the start of the pandemic and arrived as the state was in the middle of its most severe rise in cases of the virus.

News of the impending vaccinations boosted energy and financial markets in the weeks prior. Alaska oil hit $50 per barrel Dec. 10 for the first time since February and the Permanent Fund had recovered from first-half turmoil to exceed $72 billion in value for the first time by early December.

In mid-November ConocoPhillips Alaska leaders announced the company would resume North Slope drilling operations by the end of the year after laying down all of its rigs in April in response to health concerns for workers at remote camps and collapsed oil prices.

— Elwood Brehmer

12/16/2020 - 9:10am