Chapter 5. The Remote Rural Economy

Chapter 5. The Remote Rural Economy Nearly 150 small, mostly Native villages are scattered across the remote expanses of northern, interior, western, and southwestern Alaska. This remote part of the state has an economy that is much smaller and quite different from that in urban Alaska. In this chapter we examine the economic structure of remote rural Alaska. This is essentially an assessment of the economic well-being of Native communities; it s a complement to Chapter 4, which reported on the well-being of individuals. We define remote rural Alaska as the Wade Hampton, Bethel, Nome, Dillingham, and Yukon- Koyukuk census areas, and the North Slope, Northwest Arctic, and Lake and Peninsula boroughs. As of 2000, about 41 percent of Alaska Natives lived in remote rural Alaska, in villages and in five larger regional centers. Most of the places where Alaska Natives are in the majority are in this part of the state. In fact, there are few places in remote rural Alaska where Natives are not in the majority. 1 Economic conditions in remote rural areas aren t as good as in Anchorage and other urban areas. That s because economic development opportunities in rural areas are limited, a large share of the earnings generated in rural areas leaks out of the local economy, and costs of living are high. Subsistence continues to be an important source of well-being among all Alaska Natives, but especially for those in the remote parts of the state. Data Sources and Organization of Chapter Here we rely primarily on four sources of data: the U.S. Bureau of the Census, the U.S. Bureau of Economic Analysis, the Alaska Department of Labor, and the Alaska Department of Fish and Game. Keep in mind that figures say, for example, figures on income from different sources are not always exactly the same. That s because different agencies use different definitions, collect data differently, and include different things in their calculations. We note such differences in the text and on the figures. Below we first summarize our findings about the remote rural economy. Then we report on the economic structure in remote rural Alaska: levels and sources of income, jobs and wages, the importance of subsistence, and the high costs of living. 1 See Appendix B for a complete listing of the Native population of every community in the state. Nenana is the only community in remote rural Alaska with a population greater than 200 that is not majority Alaska Native. 5-1

Summary of Findings The entire remote rural region has an economy about the same size as Juneau s, if we use personal income as a measure. With some notable exceptions, the billion-dollar petroleum, mining, and seafood industries in remote rural Alaska produce little economic benefit for local residents. But the Red Dog zinc mine and the CDQ program for federally-managed fisheries are important exceptions that provide significant employment and personal income for the region. And in the North Slope borough, the petroleum industry provides very substantial tax revenues for the local government. Local residents get only a small share of the value of the world-class salmon fisheries in southwest Alaska about 10 percent in 2002. Still, even that small share is very important to local residents, and thousands of area residents work in the salmon fisheries. Federal money makes up the biggest share of outside money coming into remote rural areas. About $670 million came into the region in 2000 as wages, purchases, grants, and transfers to individuals. But not all that money stays in the region, so its economic effects are hard to trace. Permanent Fund dividends are also an important source of cash for remote rural Alaska, bringing about $93 million into the region in 2002. Government and service jobs make up much bigger shares of jobs in remote rural areas than in Anchorage. Many of those service jobs are with non-profit Native organizations that now manage most health care and other federal programs for Alaska Natives. Small remote communities with low cash incomes can sustain very few trade and other local support jobs that are common in urban areas. Most jobs have to be sustained with money from outside sources. Job growth in remote rural Alaska in the 1990s was overwhelmingly in service jobs a change from the 1980s, when job growth was more evenly divided among the basic sector, local government, and services. Unemployment is high in remote rural areas, but the published unemployment figures still under-estimate the job shortage in remote rural areas. The figures include only people actively looking for work and local residents don t look for work when they know there are no jobs. The average worker s pay is lower in remote rural Alaska than in Anchorage, for all sectors of the economy. That s due to a combination of lower-wage occupations and fewer hours worked. Per capita income in remote rural areas remains little more than half of Anchorage s, because the average worker s pay is lower and because the share of the population with jobs is smaller. Transfer payments now make up nearly a third of per capita income in remote rural areas, up from about a sixth in 1970. Transfer payments continued to grow in the 1990s, even as real adjusted for inflation earnings declined slightly. About 90 percent of rural households (Native and non-native) do subsistence hunting and fishing, with annual harvests as high as 664 pounds per person in parts of remote rural Alaska. The cost of living in rural Alaska remains much higher than in urban areas the residential electricity rate in southwest Alaska is four times that of Anchorage and food costs are in the range of 50 percent or more. A combination of high transportation costs, severe climate, small local markets, and other structural problems keeps the cost differential stubbornly high. 5-2

Levels and Sources of Income Map 5-1 on the next page shows the eight census areas that make up the remote rural region described in this chapter. Outside the five regional centers which all have populations of several thousand the U.S. census counts 147 small communities in this region. The largest of those has a population of just over 1,000, but the median population is 211 meaning half have larger populations and half have smaller (Figure 5-1). Most places are not joined by road to surrounding communities, so travel between places is mainly by air, boat, or snow machine. Figure 5-1. Size Distribution of Places in Remote Rural Alaska, 2000 1,000 900 800 700 600 500 400 300 200 100 0 Source: U.S. Census The small size of these villages is both a reflection and a consequence of the economic realities in remote rural Alaska. On the one hand, there is very little private sector economic base in most villages. On the other, the small population means that the local market for business enterprises is quite limited. 5-3

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The small size of the remote rural economy, as measured by personal income, is illustrated in Figure 5-2. 2 In 2000, the combined personal income in the eight census areas in remote rural Alaska was $1.269 billion. That was a bit larger than the personal income of just the city of Juneau ($1.047 billion) or of the Matanuska-Susitna Borough ($1.194 billion), but smaller than that of the Kenai Peninsula Borough ($1.384 billion). Within remote rural Alaska itself there is also considerable variation in total personal income, with Bethel having the largest economy as measured by personal income and Lake and Peninsula Borough the smallest. Figure 5-2. Size of Economy, Measured by Personal Income, 2000 (In Millions of Dollars) $1,268.59 $1,046.93 $1,194.29 $1,383.89 $306.78 $127.16 $37.48 $195.82 $220.34 $152.93 $99.77 $128.32 Bethel Dillingham Lake & Peninsula Nome North Slope NW Arctic Wade Hampton Yukon-Koyukuk TOTAL Juneau Mat-Su Boroough Kenai Pen.Borough Source: U.S. Department of Commerce, Bureau of Economic Analysis Two census areas of remote rural Alaska do have large private sector economic bases and consequently higher average wages. The average wage of the North Slope Borough is the highest in the region, largely because the borough includes the North Slope oil fields. The next highest wages are in the Northwest Arctic Borough, home to the Red Dog zinc mine. Unfortunately, petroleum and mining are two of the most capital-intensive industries, and as a consequence they create limited demand for local labor, even though their combined output is several billion dollars a year. The other census areas in this region have much smaller private sector economic bases, as reflected in their lower average wage. In all these census areas there is commercial fishing, small-scale mining, tourism and recreation, timber, trapping, agriculture, and handicraft manufacture. But all these activities are on a modest scale and are mostly seasonal while the oil 2 The definition of personal income we use in this section is that of the U.S. Department of Commerce, Bureau of Economic Analysis. It is a more inclusive definition than that used by the U.S. census. 5-5

production on the North Slope and the zinc mining in northwest Alaska are major, year-round operations. Figure 5-3 compares average private-industry wages in the eight remote census areas and in Anchorage in 2000. Figure 5-3. Annual Average Wage and Salary Earnings in Private Industry, 2000 Wade Hampton $16,081 Yukon-Koyukuk $23,691 Bethel $24,911 Lake & Peninsula $26,342 Nome $26,457 Dillingham $28,829 NW Arctic $45,015 NSB $70,905 Anchorage $34,404 Source: Alaska Department of Labor Even in the two remote census areas where there are high-paying oil industry and mining jobs, many of those jobs are held by non-residents. In the North Slope Borough, 79 percent of total earnings $421 million in 2000 leaves the region, as non-resident workers return to their homes. (However, while few Native residents of the North Slope Borough work in the petroleum industry, local residents benefit indirectly because the oil fields constitute a major tax base for the borough and the borough has used its tax revenues for capital improvements and other projects that create local jobs.) In the Northwest Arctic Borough, about 30 percent of earnings, or $34 million in 2000, leaks out of the region (Figure 5-4). The reported share of earnings that leaks out of the other census areas is much smaller but as we will see, this is misleading. Much economic activity in remote rural Alaska passes directly out of the region, without even appearing in reported income accounts. 5-6

Figure 5-4. Shares of Earnings Leaving and Staying in Remote Rural Alaska, 2000 (In Millions of Dollars) Wade Hampton Census Area Yukon-Koyukuk Census Area Bethel Census Area Lake and Peninsula Borough Nome Census Area Dillingham Census Area North Slope Borough Northwest Arctic Borough $(500) $(400) $(300) $(200) $(100) $- $100 $200 NSB NW Arctic Dillingham Nome Lake & Peninsula Bethel Yukon- Koyukuk Wade Hampton Share Leaving 78.9% 30.0% 7.4% 2.4% 2.3% 2.0% 29.0% 11.4% Leave $(421) $(34) $(5) $(2) $(0) $(3) $(15) $(4) St ay $113 $80 $64 $95 $17 $160 $38 $33 Commercial Fishing Commercial fishing has always been an important part of the private economy of this part of Alaska, but local residents get only a small share of the fishery value and the overall value of the fishery itself has been falling in recent years. 3 The largest salmon fishery is centered in Bristol Bay, and three remote rural census areas have close access to that fishery. But local residents capture only a small share of the value of that fishery. For example, in 2002 the value of the salmon fisheries in waters surrounding the Lake and Peninsula Borough was about $37 million, but local residents captured only about $4 million, with the remainder going to other Alaskans (some from surrounding census areas, but many from urban areas) and to fishermen from outside the state (Figure 5-5). The value of the salmon fishery accessible for residents in most of remote rural Alaska was quite small. For example, in Nome it was less than $2 million, and locals captured almost none of that value. 3 In this discussion about the commercial fisheries, we exclude the North Slope Borough but include the Bristol Bay Borough. There is no commercial fishery on the North Slope. The Bristol Bay Borough is outside what we have defined as remote rural Alaska, but it borders on the remote rural area, it depends heavily on commercial fishing, it is at the center of the commercial fishing activity in Bristol Bay, and many remote rural residents participate in this commercial fishery. 5-7

Figure 5-5. Value of Commercial Fishery and Share to Local Residents, 2002 (In Millions of Dollars) Bristol Bay Non-Local $30.52 $0.00 $28.99 $32.83 $1.58 $0.00 $0.08 $0.02 Local $1.51 $0.32 $3.04 $3.81 $0.02 $0.02 $1.51 $0.01 Source: Alaska Department of Fish and Game Bethel Dillingham Lake/Penin Nome NW Arctic Wade Hampton Yukon- Koyukuk Residents of the region are able to harvest other seafood in addition to salmon, and some fish for salmon outside the region. Even so, the gross earnings of residents from state-managed commercial fisheries are quite modest. Figure 5-6 shows that in 2002, those earnings were less than $2 million in all census areas except Dillingham and Lake and Peninsula Borough. (Gross earnings are the value of the harvest as it comes off the boat, but before the cost of catching the fish is taken out.) Figure 5-6. Resident Gross Earnings from State-Managed Commercial Fisheries, 2002 (In Millions of Dollars) Bristol Bay Bethel Dillingham Lake/Penin Nome NW Arctic Wade Hampton Yukon- Koyukuk $1.56 $1.01 $3.15 $4.69 $0.67 $0.02 $1.55 $0.09 Source: Alaska Department of Fish and Game Note: Value is defined ex-vessel. 5-8

But even though the value of the commercial harvest for local residents is modest, many regional residents are involved in fishing. In 2002, 1,780 resident fishermen (excluding those from the Bristol Bay Borough) participated in the harvest, as Table 5-1 shows. The average gross earnings per resident permit holder, from all state-managed fisheries, were $6,280 (excluding earnings of fishermen from the Bristol Bay Borough). Earnings of fishermen from the Lake and Peninsula Borough alone accounted for about half the gross earnings of permit holders from throughout the remote rural areas. By contrast, total non-resident participation in the salmon fisheries within the region produced $33.7 million of gross earnings, for gross revenues of $21,000 per permit fished. Table 5-1. Resident Participation in Commercial Fishing in 2002 RESIDENT PARTICIPATION NONLOCAL RESIDENT PARTICIPATION Residents in Local Salmon Fishery Salmon Fishermen Gross Earnings/ Earnings/ Permits Fishery Resident Who Fished Earnings Permit Earnings Permit Fished Earnings Adjacent to Census Area # (000 $) (000 $) (000 $) (000) % % Census Area Bethel 635 $1,005 $1.58 $3 $0.60 1.2% 0.9% Kuskokwim Dillingham 396 $3,153 $7.96 $28,988 $19.22 80.6% 90.5% Bristol Bay Nome 72 $674 $9.36 $1,582 $2.96 96.6% 98.9% Lower Yukon/ Norton Sound Northwest Arctic 6 $23 $3.83 $0 na 0.0% 0.0% Kotzebue Wade Hampton 535 $1,554 $2.90 $83 $2.37 6.5% 5.2% Lower Yukon Yukon-Koyukuk 18 $85 $4.72 $21 $1.08 79.2% 75.9% Upper Yukon Subtotal [net BB & Lake Peninsula] 1,662 $6,494 $3.91 $33,692* $21.03 55.2% 87.3% Lake and Peninsula 118 $4,689 $39.74 $32,831 $18.20 94.4% 89.6% Bristol Bay/ Chignik Total [net BB] 1,780 $11,183 $6.28 Bristol Bay 160 $1,556 $9.73 $30,521 $17.82 91.6% 95.3% Bristol Bay *Non-local earnings total counts each fishery only once. Note: Includes gross earnings from salmon, crab, halibut, herring, other finfish, bottomfish, and shellfish. Source: Alaska Department of Fish and Game In recent years, the total value of the commercial salmon harvest has fallen precipitously (Table 5-2). This is the case both for the larger fisheries around Bristol Bay and for the smaller fisheries in western Alaska, on the Kuskokwim and Yukon Rivers, and further north. 5-9

Table 5-2. Value of Commercial Salmon Harvest in Western Alaska, 1994-2002 (In Millions of Dollars) Alaska Year Bristol Bay Kodiak Chignik Peninsula Subtotal 1994 $193.6 $27.0 $11.0 $38.1 $269.7 1995 $190.2 $53.9 $15.1 $50.1 $309.3 1996 $140.9 $24.2 $11.4 $16.5 $193.0 1997 $66.4 $20.8 $5.2 $27.8 $120.2 1998 $71.2 $29.8 $7.5 $25.2 $133.7 1999 $155.1 $35.7 $23.1 $34.5 $248.4 2000 $81.1 $21.4 $12.1 $22.5 $137.1 2001 $41.0 $22.2 $8.4 $8.5 $80.1 2002 $32.4 $13.3 $5.4 $8.6 $59.7 Year Kuskokwim Yukon Norton Sound Kotzebue Subtotal 1994 $5.4 $5.0 $1.0 $0.3 $11.7 1995 $4.5 $8.1 $0.4 $0.3 $13.3 1996 $2.9 $4.7 $0.3 $0.1 $8.0 1997 $1.1 $6.1 $0.3 $0.2 $7.7 1998 $1.7 $2.0 $0.5 $0.1 $4.3 1999 $0.6 $5.1 $0.1 $0.2 $6.0 2000 $1.3 $0.8 $0.2 $0.3 $2.6 2001 $0.8 $0.0 $0.1 $0.3 $1.2 2002 $0.4 $1.8 $0.0 $0.0 $2.2 Source: Alaska Department of Fish and Game Many of the coastal communities in remote rural Alaska participate in the Community Development Quota (CDQ) program. The federal government established that program in 1992 to allocate a share of the lucrative Bering Sea and Aleutian Islands fisheries pollock, halibut, sablefish, cod, mackerel, and crab to small Alaska communities. Bottomfish harvesting and processing has grown into a major source of private basic sector income for these communities, operating through six regional associations. Through investments of royalties and income, it has also created additional job opportunities within the region. Table 5-3 shows that 55 communities in remote rural Alaska are members of these regional associations, and 10 other communities in the Aleutian Islands and Bristol Bay Borough are also part of the program. In 2002, the CDQ program accounted for $12 million in wages and 1,897 jobs for an average wage per job of $6,312 (Table 5-4). Net income and royalties, based on gross income of $70 million, had grown to $21 million and $46 million by 2002 (Table 5-5). 5-10

Table 5-3. CDQ Community Membership, 2002 Census Area Number of Percent of Census Communities Area Communities Nome 15 92% Dillingham 9 86% Wade Hampton 8 74% Bethel 17 35% Lake and Peninsula 5 25% Yukon-Koyukuk 1 3% Northwest Arctic 0 0% North Slope Borough 0 0% Total 55 Source: An Assessment of the Socioeconomic Impacts of the Western Alaska Community Development Quota Program, Northern Economics, 2002. Table 5-4. CDQ Employment and Wages, 1993-2002 Jobs Wages Wage/Job ($ millions) 1993 371 $2.196 $5,919 1994 1,068 $5.084 $4,760 1995 836 $5.569 $6,661 1996 1,153 $6.327 $5,487 1997 1,212 $8.109 $6,691 1998 1,350 $8.176 $6,056 1999 1,339 $10.586 $7,906 2000 1,834 $12.509 $6,821 2001 1,720 $12.218 $7,103 2002 1,897 $11.974 $6,312 Source: CDQ Program Office, Alaska Department of Community and Economic Development Table 5-5. CDQ Net Income and Royalties, 1992-2002 (In Millions of Dollars) Gross Revenues Net Income Royalties 1992 $15.11 $13.65 $13.16 1993 $16.77 $10.15 $16.04 1994 $17.41 $6.72 $14.28 1995 $20.88 $7.88 $15.06 1996 $25.34 $11.80 $19.02 1997 $26.53 $8.35 $19.72 1998 $33.79 $13.59 $24.76 1999 $54.42 $28.99 $35.59 2000 $46.84 $25.43 $40.40 2001 $76.97 $40.98 $42.56 2002 $70.43 $20.87 $46.37 Source: CDQ Program Office, Alaska DCED 5-11

Mining Aside from the Red Dog Mine, the contribution of the mining industry to the regional economy has been modest. Spending for exploration and development in this part of the state in 2002 was concentrated in two areas (Table 5-6). Exploration centered on the gold deposits in the Donlin Creek region of the Middle Kuskokwim River near Bethel. Development was centered in the area close to Fairbanks, which is adjacent to remote rural Alaska. Table 5-6. Mining Expenditures, 2002* (In Millions of Dollars) 1 2 3 5 6 North Western Eastern Alaska Southwestern Interior Peninsula Exploration $1.60 $3.00 $5.80 $12.30 $0.00 Development $2.10 $0.30 $23.80 $0.10 $0.00 Total $3.70 $3.30 $29.60 $12.40 $0.00 *Mining activity is reported for five regions that overlap the remote rural census areas. Southwest exploration is mostly Donlin Creek; Eastern Interior development is mostly Fort Knox, True North, Usibelli, and Pogo. Source: Alaska Department of Natural Resources, Division of Geological and Geophysical Surveys, SR #57 In 2002, mineral production outside the Fairbanks area was centered at the Red Dog Mine and the Illinois Creek Placer mine in the Nome area (Table 5-7). These two projects accounted for 633 of the 723 jobs attributed to the industry. The rest were associated with placer gold mining sites scattered across the rest of the region. The total production of placer gold, the majority of which was from Illinois Creek, was about $18 million. We do not have figures on the share of employment or gross value of production that went to residents of the region. Table 5-7. Alaska Mining Production, 2002 Mining District Number of Operators Jobs Gold Production Gold Value Other Value (ounces) (million $) (million $) North placer gold 9 16 685 $0.21 Red Dog zinc 1 580 $503 lead $62 silver $0 Western Illinois Cr. gold mine 1 53 35,465 $10.99 placer gold 8 10 8,965 $2.78 Eastern Interior placer gold 25 50 10,845 $3.36 Southwest placer gold 6 14 1,733 $0.54 Alaska Peninsula 0 Total 723 57,693 $17.88 $565 Notes: We attribute the entire state production of lead but none of the silver production to Red Dog. Both lead and silver are also produced at Greens Creek in southeast Alaska. Gold price per ounce = $310 Placer employment for the Eastern Interior estimated by author. Source: Alaska Department of Natural Resources, Division of Geological and Geophysical Surveys, SR #57 5-12

Other Private Industry Good information on the level of jobs and income that tourism and recreation, 4 handicrafts manufacture, timber production, trapping, and agriculture contribute to the regional economy is not available mostly because that contribution is quite small as a percentage and in total. The limited available information suggests that of these sources, tourism and recreation bring in the most money but as with other private basic industries in the region, much of the money leaks out to non-resident workers. Federal Spending The largest share of outside money coming into the remote rural economy is from the federal government as wages, purchases, grants, and transfers to individuals (Figure 5-7). In 2000, the Bethel census area received $200 million in federal spending, and the remote rural region overall received about $670 million far surpassing the money coming into the region from private natural resource-related activities. The largest share of federal spending, close to 70 percent, was in the form of grants for capital projects and for operations of local governments, tribal entities, and other non-profit organizations. A small share of spending was for federal military operations and agencies such as the Fish and Wildlife Service and the Bureau of Land Management. This amounted to about 900 jobs in 2000, and also generated some spending for goods and services those agencies use. And around 12 percent went directly to individuals, in a variety of transfer payments. Figure 5-7. Federal Money in Remote Rural Census Areas, 2000 (In Millions of Dollars) Million $ $250 $200 $150 $100 $50 $0 Bethel Yukon- Koyukuk Nome NW Arctic Wade Hampton Dillingham North Slope Lake/ Penin. Procurement $5.28 $57.73 $4.15 $3.79 $1.80 $2.91 $8.85 $0.64 Wages $8.32 $7.24 $6.17 $3.98 $2.08 $2.91 $1.73 $1.51 Transfers $18.67 $13.70 $12.35 $8.60 $10.15 $8.26 $7.23 $3.83 Grant s $176.69 $72.48 $54.59 $52.30 $42.09 $35.25 $27.39 $6.22 Source: Consolidated Federal Funds Report 4 We define visitors from outside the state as tourists and visitors from within Alaska as recreational users. 5-13

The importance of federal spending for the regional economy is reflected in the high per capita amounts. Real (adjusted for inflation) per capita federal spending in remote areas was about $7,500 in the early 1990s, but by 2000 had jumped above $10,000 (Figure 5-8). Most of the growth was the result of a sharp increase in grants per capita. The composition of federal spending changed in the last decade, with a decline in procurement (purchasing) offset by an increase in grants. The growing importance of federal spending to the remote rural economy is mirrored in the Anchorage economy. During the first part of the 1990s, per capita spending by the federal government in Anchorage was about the same as in remote rural areas, although the composition was different. Wages made up a bigger share, and grants a smaller share, in Anchorage. Per capita spending in Anchorage by 2000 was close to $9,000. Figure 5-8. Real Per Capita Federal Spending, 1985-2000 (In 2000 Dollars) 1985 1990 1995 2000 1985 1990 1995 2000 Procurement $3,241 $1,810 $1,660 $1,267 $1,047 $878 $1,430 $1,831 Wages $891 $1,140 $647 $535 $2,670 $3,955 $3,060 $2,810 Transfers $682 $748 $1,463 $1,254 $761 $1,275 $1,550 $1,900 Grant s $2,196 $3,823 $3,390 $7,300 $1,045 $1,001 $1,396 $2,080 Remote Rural Net of North Slope Anchorage Source: Consolidated Federal Funds Report Tracing the impact of federal spending on the rural economy is difficult, because not all of the money gets spent in the region. For example, purchases are often made outside the region, simply because many goods and services aren t available locally. Grants for construction projects may be contracted to firms from outside the region, which then bring in workers. 5 Other Sources of Cash There are other flows of cash into the regional economy. Income residents earn outside the region for example, from firefighting is included, in theory, in Figure 5-4, but no estimate of the size of such earnings is available. Dividends paid by ANCSA corporations are one type of 5 Also, when local residents get these jobs, and the local economy benefits, the jobs may be reported in urban Alaska because that s where the businesses doing the work are headquartered. 5-14

non-wage income that comes into the region. But during the 1990s, most of the income from dividends (83 percent of all dividends) went to shareholders in three corporations Cook Inlet, Sealaska, and Arctic Slope (Figure 5-9). Of those, only Arctic Slope is in this region. Figure 5-9. Annual Average ANCSA Corporation Dividends Distributed, 1990-2001 (In Millions of Dollars) Ahtna Aleut Arctic Slope* Bristol Bay* Bering St rait s* Chugach Calista* Alaska Cook Inlet Doyon* Koniag NANA* Sealaska Dividends $0.47 $0.15 $10.98 $3.18 $0.24 $0.00 $0.08 $51.81 $4.89 $3.25 $2.47 $11.71 Share All Corps 0.5% 0.2% 12.3% 3.6% 0.3% 0.0% 0.1% 58.1% 5.5% 3.6% 2.8% 13.1% *Totally or partially within remote rural Alaska. Source: ISER calculation Alaska s state government also provides support for many public services in remote areas like schools and provides cash directly to households through the Permanent Fund Dividend program. Although the dividend in 2002 was less than it had been in some years, it still amounted to a cash flow of about $93 million into the region (Figure 5-10). Figure 5-10. Permanent Fund Dividend Amount Distributed to Remote Rural Areas, 2002 (In Millions of Dollars) Bethel Nome NSB NW Arctic Wade Hampton Yukon- Koyukuk Dillingham Lake/ Penin. $24.67 $14.17 $11.38 $11.11 $10.83 $10.10 $7.58 $2.81 Source: ISER calculation 5-15

Job Mix in Remote Areas The mix of jobs in remote rural Alaska reflects the sources of cash coming into the region (Figure 5-11). Excluding the North Slope Borough (because so many of its jobs are in the enclave oil and gas sector), the largest shares of jobs in the region are in government, at 29 percent, and in services, at 23 percent. Proprietors people working for themselves as fishermen or in other occupations make up an additional 23 percent. Half the remaining 25 percent of jobs are in either trade or infrastructure (transportation and utilities). A large share of the service jobs are in non-profit Native organizations and other businesses that are funded largely by federal contracts and grants. Figure 5-11. Jobs in Seven Remote Rural Census Areas,* 2000 Total Government 29% Other 46% Services 23% Total Trade 7% Proprietors 23% Military 2% Transportation, Comm & Utilities 6% Finance, Insurance & Real Estate 4% Manufacturing 3% Mining 2% Construction 1% Ag, For, Fish 0% *Excludes North Slope Borough, where many jobs are in the enclave petroleum sector. Source: Alaska Department of Labor and ISER The job mix in remote areas is heavily weighted toward government and service employment, compared with the mix in an urban area like Anchorage where trade and other jobs are a much larger part of the mix (Figure 5-12). 5-16

Figure 5-12. Share of Jobs in Remote Rural Alaska* and Anchorage, 2000 Shares of: Proprietors All Other Transport/Util. Trade Services Government Numbers of: 7 Remote Census Areas Anchorage Proprietors 5,916 32,493 All Other 3,002 30,364 Transport/Utilities 1,492 15,225 Trade 1,952 31,248 Services 5,903 36,949 Government 7,945 27,655 *Excluding the North Slope Borough, where many jobs are in the enclave petroleum sector. Source: Alaska Department of Labor and ISER Growth in the number of jobs in remote rural Alaska (excluding the North Slope Borough) has been in the range of 400 to 600 per year in the 1990s, with considerable fluctuation from year to year (Figure 5-13). Figure 5-13. History of Job Growth in Remote Rural Alaska* (5-Year Moving Average) 1,400 1,200 1,000 800 600 400 200 0 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 *Excluding the North Slope Borough, where many jobs are in the enclave petroleum sector. Source: U.S. Department of Commerce, Bureau of Economic Analysis and ISER 5-17

Job growth has been dominated by new service jobs in the last 10 years (Figure 5-14), with close to 4,000 new jobs added between 1990 and 2000. The second biggest gainer but a very distant second during that period was private basic industries (mining and others), which added over 700 jobs. Local government and trade added smaller numbers and the state and federal governments lost jobs (mostly military). This pattern differed from what had happened in previous decades. The growth in service jobs was much stronger than in earlier decades. The contributions to job growth from the economic base and local government were much weaker than in earlier decades. Growth in trade jobs continued to slow, as did jobs in state government, which went from adding jobs in the 1970s and 1980s to losing jobs in the 1990s. The number of federal government jobs has been falling in this region for at least three decades. Figure 5-14. Composition of Job Growth in Remote Areas,* 1970-2000 5,000 4,000 3,000 2,000 1,000 0-1,000-2,000 Private Economic Base Trade Service Local Government State Government 1970-1980 1,780 795 1,955 2,293 430-576 1980-1990 2,192 606 1,989 2,326 311-737 1990-2000 722 385 3,970 521-133 -922 *Excluding the North Slope Borough, where many jobs are in the enclave petroleum sector. Source: U.S. Department of Commerce, Bureau of Economic Analysis, and ISER Federal Government The average worker s pay is lower in remote rural Alaska than in Anchorage, for all sectors of the economy, even without an adjustment for the higher costs of living in remote areas (Figure 5-15). The lower average wage in remote areas is due to a combination of lower-wage occupations and fewer average hours worked. 5-18

Figure 5-15. Average Wage by Sector, Remote Areas* and Anchorage, 2000 Private Ownership Total Government Proprietor Military 7 Remote Census Areas $28,318 $26,794 $9,990 $15,551 Anchorage $34,403 $44,089 $28,693 $46,144 Remote as % of Anchorage 82.3% 60.8% 34.8% 33.7% *Excludes the North Slope Borough, where many jobs are in the enclave petroleum sector. Source: Alaska Department of Labor and ISER The share of the population working in rural Alaska is low, and this is reflected in the published unemployment rate for the region which is still high, despite the fact that it doesn t count people who might want jobs but have given up looking for them (Figure 5-16). 6 Figure 5-16. Alaska Unemployment Rates, Remote Rural Areas and Anchorage, 1975-2000 16% 14% 12% 10% 8% 6% 4% 2% 0% 1975 1980 1985 1990 1995 2000 Anchorage Remote Rural Census Areas Source: Alaska Department of Labor 6 The Alaska Department of Labor bases its figures on a national methodology that defines unemployed as only those actively looking for work. This method underestimates unemployment in remote rural Alaska, where many people who might want jobs aren t actively looking because they know jobs aren t available. 5-19

The combination of low average wages and a smaller share of the population with jobs keeps per capita incomes in the region low. In 2001, only the North Slope came close to matching Anchorage income, but that was with no adjustment for the higher costs in remote areas (Figure 5-17). Real per capita income in remote areas grew rapidly in the 1970s, but more slowly since. The gap between remote rural and Anchorage per capita incomes remained the same in 2000 as in 1980, with remote income just over half that of Anchorage (Figure 5-18). Figure 5-17. Per Capita Personal Income, Remote Rural Areas and Anchorage, 2001 NSB Dillingham NW Arctic Nome Yukon- Koyukuk Lake/ Penni. Bethel Wade Hampton Anchorage Invest. Earnings $4,644 $2,740 $1,603 $2,164 $2,923 $2,703 $1,626 $1,056 $6,021 Transfers $4,566 $5,267 $6,911 $6,822 $8,865 $5,629 $6,505 $7,635 $4,967 Net Earnings $25,010 $18,021 $14,830 $12,913 $9,837 $12,814 $12,381 $6,602 $26,675 Source: U.S. Department of Commerce, Bureau of Economic Analysis Figure 5-18. Real Per Capita Personal Income, Remote Areas and Anchorage, 1970-2000 (In 2000 Dollars) 1970 1980 1990 2000 Remote Rural net NS $9,509 $15,719 $18,385 $19,856 Anchorage $22,403 $28,510 $33,375 $35,307 Remote as % of Anchorage 42.4% 55.1% 55.1% 56.2% Remote Decade Growth 65.3% 17.0% 8.0% Anchorage Decade Growth 27.3% 17.1% 5.8% Source: U.S. Department of Commerce, Bureau of Economic Analysis 5-20

Real per capita growth in net earnings (wage and self-employment income, after netting out the share going to non-residents) has followed the same pattern as total personal income increasing most rapidly in the 1970s and more slowly after that (Figure 5-19). The gap in real earnings between Anchorage and remote rural areas has remained at about 50 percent. Figure 5-19. Real Per Capita Net Earnings, Remote Areas and Anchorage, 1970-2000 (In 2000 Dollars) 1970 1980 1990 2000 Remote Rural net NS $7,679 $11,790 $12,280 $11,560 Anchorage $19,900 $24,501 $25,355 $24,762 Remote as % of Anchorage 40.8% 55.6% 53.7% 51.3% Remote Decade Growth 53.5% 4.1% -5.9% Anchorage Decade Growth 23.1% 3.5% -2.3% Source: U.S. Department of Commerce, Bureau of Economic Analysis Real per capita transfers, mostly federal payments but also Permanent Fund Dividends, have grown rapidly in remote areas but also in Anchorage (Figure 5-20). They still contribute more to income in remote areas, but the gap narrowed dramatically between 1980 and 1990. Figure 5-20. Real Per Capita Transfers, Remote Areas and Anchorage, 1970-2000 (In 2000 Dollars) 1970 1980 1990 2000 Remote Rural net NS $1,568 $3,007 $4,176 $6,369 Anchorage $647 $1,177 $3,036 $4,713 Remote as % of Anchorage 242.3% 255.5% 137.5% 135.1% Remote Decade Growth 91.8% 38.8% 52.5% Anchorage Decade Growth 81.9% 157.9% 55.2% Source: U.S. Department of Commerce, Bureau of Economic Analysis 5-21

Real per capita investment earnings contribute much less to incomes in remote areas than to those in Anchorage (Figure 5-21). The differential has not changed much in the last 20 years. Figure 5-21. Real Per Capita Investment Earnings, Remote Rural and Anchorage, 1970-2000 (In 2000 Dollars) 1970 1980 1990 2000 Remote Rural net NS $262 $921 $1,929 $1,927 Anchorage $1,856 $2,832 $4,984 $5,832 Remote as % of Anchorage 14.1% 32.5% 38.7% 33.0% Remote Decade Growth 251.5% 109.5% -0.1% Anchorage Decade Growth 52.6% 76.0% 17.0% Source: U.S. Department of Commerce, Bureau of Economic Analysis Net earnings remain the largest part of per capita income in Anchorage and remote areas, but that share has been falling, especially in remote areas. Between 1970 and 2000, the importance of transfers doubled in remote areas and the investment share doubled in Anchorage. In 2000, net earnings made up 58 percent of per capita income and transfers 32 percent in remote areas. Figure 5-22. Real Per Capita Income Shares in Remote Rural Areas and Anchorage, 1970-2000 Anchorage Remote Rural Net of North Slope 1970 1980 1990 2000 1970 1980 1990 2000 Investments 8.3% 9.9% 14.9% 16.5% 2.8% 5.9% 10.5% 9.7% Transfers 2.9% 4.1% 9.1% 13.3% 16.5% 19.1% 22.7% 32.1% Net Earnings 88.8% 85.9% 76.0% 70.1% 80.8% 75.0% 66.8% 58.2% Source: U.S. Department of Commerce, Bureau of Economic Analysis 5-22

The economy of remote rural Alaska is small from several perspectives including average size of community, average household income, total income, and the large share of natural resource (and probably federal spending) earnings that directly leave the region. As a result, it can support only a very limited number of jobs that are not funded by outside sources. Most of these jobs will be in trade, some services, and some infrastructure and construction businesses. This is reflected in the small ratio of jobs in these businesses, compared with total personal income (Figure 5-23). 7 For example, in Anchorage there are 3.4 jobs in trade per $1 million of personal income. In the four remote rural census areas that have regional centers, there are 1.9 trade jobs per $1 million of personal income. In the three remote census areas without regional centers, there are only 0.6 trade jobs for every $1 million of personal income. Figure 5-23. Support Jobs per $1 Million of Income, Anchorage and Remote Rural Areas Anchorage 4 Remote Rural Census Areas with Regional Centers 3 Remote Rural Census Areas with No Regional Center Services 4.02 6.27 1.27 Trade 3.40 1.90 0.60 Transport 1.65 1.54 0.37 Source: Alaska Department of Labor and ISER 7 This is equivalent to saying that the economic multiplier in remote rural Alaska is small. 5-23

Importance of Subsistence For many reasons including economic but also cultural and others subsistence hunting and fishing are very important to Alaska Natives and Native communities. An estimated 60 percent of rural households statewide (about half Native and half non-native) harvest game and 80 percent harvest fish (Figure 5-24). Figure 5-24. Percentage of Rural* Households Participating in Subsistence 86% 83% 95% 60% Harvesting Game Using Game Harvesting Fish Using Fish *Rural includes both Native and non-native households in western, southwestern, interior, and parts of southeast Alaska. Source: ADFG, Subsistence in Alaska: A Year 2000 Update The amount harvested varies considerably around Alaska, with residents of more remote rural areas reporting a higher annual harvest (Figure 5-25). Figure 5-25. Wild Food Harvest (In Pounds per Person, Average for 1990s) 613 664 516 373 153 155 178 16 19 27 33 35 40 Fairbanks-Delta Anchorage Mat-Su Ketchikan Juneau Kenai Peninsula Rural Southcentral Kodiak Rural Southeast Southwest-Aleutian Arctic Rural Interior Western RURAL Source: Alaska Department of Fish and Game, Subsistence in Alaska: A 2000 Update 5-24

Fish make up the largest share of the subsistence harvest by weight, at 60 percent, followed by land mammals (Figure 5-26). Figure 5-26. Share of Alaska Subsistence Harvest by Weight Land mammals 20% Marine mammals 14% Birds 2% Shellfish 2% Plants 2% Fish 60% Source: Alaska Department of Fish and Game, Subsistence in Alaska: A 2000 Update The subsistence harvest of salmon is higher in the remote rural part of the state than elsewhere. In 2000, it varied between 102 fish per subsistence permit in the Chignik management area and 24 in the Unalaska district (Figure 5-27). In the rest of the state, the average was 22 fish per subsistence permit. Most, but not all, of these fish were harvested by residents in the regions where they lived. Figure 5-27. Alaska Subsistence Salmon Harvest, per Participating Family, in Remote Rural Management Areas, 2000 101.0 97.5 101.7 Number of Fish 46.1 68.3 47.5 24.3 21.5 Alaska Peninsula Bristol Bay Mgmt. Area Chignik Mgmt. Area Kuskokwim Mgmt. Area Northwest Alaska Unalaska District Yukon Mgmt. Area Rest of State Note: These are Department of Fish and Game management areas in remote rural Alaska. Source: Alaska Department of Fish and Game, Alaska Subsistence Fisheries 2000 Annual Report 5-25

The salmon subsistence harvest in remote rural Alaska fluctuates with the size of the run, and in recent years has been low (Figure 5-28). Figure 5-28. Alaska Subsistence Salmon Harvest per Participating Family, Remote Rural Alaska, 1994-2000 1994 1995 1996 1997 1998 1999 2000 # of Fish 56.9 56.1 54.1 44.7 40.1 40.8 37.9 Source: Alaska Department of Fish and Game, Alaska Subsistence Fisheries 2000 Annual Report The drop in the harvest has been especially pronounced on the Yukon River (Figure 5-29). Figure 5-29. Subsistence Harvest of Salmon, Yukon and Kuskokwim Rivers, 1980-2000 (Thousands of Fish) 700 600 Yukon 500 400 300 Kuskokwim 200 100 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 Source: Alaska Department of Fish and Game, Alaska Subsistence Fisheries 2000 Annual Report 5-26

High Costs of Living Food and other necessities that require cash continue to cost more in rural areas, and because of structural problems including high transportation costs, severe climate, and small size of communities the cost of living differential shows little if any trend downward over time. For example, Figure 5-30 compares weekly grocery costs for the same market basket in Bethel and Anchorage from 1983 through 2002 and it shows prices in Bethel holding at more than 50 percent above those in Anchorage. 8 100% Figure 5-30. Food Costs in Bethel: Percent Above Anchorage, 1983-2002 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Source: University of Alaska Cooperative Extension Service Costs get higher the further one moves from urban Alaska. We can see this by comparing the residential electricity rate in Anchorage to that in Bethel and also to that in the rest of Southwest Alaska, composed of smaller outlying communities (Figure 5-31). The price of a kilowatt hour is 11 cents in Anchorage and 28 cents in Bethel. The average for the rest of southwest Alaska is 44 cents, before rate relief from the state Power Cost Equalization (PCE) program. That program helps pay some of the high costs of electricity in rural areas, bringing the actual cost paid by the consumer in these communities down, but not as low as the rate in Anchorage. We show the rates before the PCE adjustment, in order to show how much higher actual costs are in remote rural areas. 8 In fact, in the most recent years the differential actually increased somewhat, because competitive pressure in the Anchorage grocery market held down food costs in Anchorage. 5-27

Figure 5-31. Residential Electricity Rate Per KWH, 1990 and 2000 (Before Power Cost Equalization Adjustment) Anchorage Bethel Rest of Southwest 1990 $0.08 $0.21 $0.41 2000 $0.11 $0.28 $0.44 Source: ISER Because of the higher rate, the annual cost of electricity for the average residential customer is higher in Bethel and the rest of southwest Alaska than it is in Anchorage (Figure 5-32). And because personal income is lower, the share of the household budget going to electricity in these rural areas is higher than in Anchorage (again, before the Power Cost Equalization adjustment). Figure 5-32. Annual Average Residential Electricity Expenditures, 1990 and 2000 (Before Power Cost Equalization Adjustment) Anchorage Bethel Rest of Southwest 1990 $690 $1,034 $1,618 2000 $920 $1,759 $1,956 Source: ISER 5-28

The average residential customer in remote areas uses less electricity than urban Alaskans, even though rural residents devote more of their household budget to paying for electricity. Figure 5-33 shows that average electricity consumption in southwest Alaska in 2000 was about 60 percent of average consumption in Anchorage. Figure 5-33. Annual Average Residential Electricity Consumption, 1990 and 2000 Anchorage Bethel Rest of Southwest 1990 8,515 5,020 4,402 2000 8,286 6,241 4,827 Source: ISER Overview of Remote Rural Alaska We ve seen that remote rural Alaska has fewer jobs, lower wages, smaller incomes, and more poverty than any other part of the state but at the same time, it also has the highest living costs. The private economic base is unevenly distributed across communities and is concentrated in just a few areas. The North Slope Borough has been able to indirectly capture some benefits of petroleum development through property taxes on oilfield facilities. A number of coastal villages have seen growing employment and income as a result of the federal CDQ program. The Red Dog zinc mine employs a number of residents of the Northwest Arctic Borough. But overall, relatively little of the income from the billion-dollar petroleum and seafood industries stays in the region. Also, the geographic isolation, harsh climate, high costs, and small markets severely limit the number of jobs that can be created locally. Like the rest of Alaska but even more so remote rural areas rely on federal and state government spending, particularly federal grants. However, as we noted in Chapter 4, the state government faces ongoing budget deficits and federal spending is unlikely to continue growing at the pace it has in recent years. We reported in Chapter 2 that in the next decade the size of the Alaska Native labor force will increase at least 25 percent. A significant amount of that growth will be in remote areas, where four in ten Natives live. The small remote economy will face major challenges, as thousands more people begin looking for jobs in an area where jobs are already hard to come by and economic development opportunities are limited. 5-29

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