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Riding the wave of capital spending.

Riding The Wave Of Capital Spending

On a stretch of road about 14 miles from downtown Juneau, Ed Sessions and his crew in September were doing the Alaskan shuffle--six to seven days a week of long, hard work, trying to fit a $4 million road project into Alaska's short construction season.

Fosco Construction Inc. of Juneau had been blasting, bulldozing, digging, surveying and welding pipe against the clock on this 2.7-mile vital stretch of the Glacier Highway, which separates Juneau proper from home and recreational sites north of the city. The road rehabilitation from Point Louisa to Tee Harbor is the biggest road project Juneau has seen in years.

Fosco's situation is not unique. Across the state, builders, road crews and other construction firms raced the advent of winter. But the race this year was bigger than it had been in recent years. Economists say that's been a good sign that Alaska is recovering from an economic slump that began with oil price declines in the mid-1980s.

This year, the state's capital construction budget was $264 million, the biggest expenditure on concrete, steel and lumber by the state in two years. It could have been larger, but Gov. Steve Cowper sliced off $95 million worth in July because of falling oil prices.

Because of the conflict over Iraq's occupation of Kuwait, oil prices have since rebounded from lows of about $14 a barrel when Cowper made his cuts. Lawmakers had based their $3 billion spending plan on oil selling for $19.33 a barrel. By the end of September, North Slope crude had risen to highs above $30 a barrel, prompting state economists to predict that any deficit would be closed.

Government spending has always been an important part of Alaska's economy. While other industries have boomed and busted, government dollars have been a little easier to gauge. Military spending, for instance, in the past has profited both Anchorage and Fairbanks, the state's two biggest cities. This year is no exception.

In Fairbanks, work on projects for the 6th Light Infantry Division and a change of command from Anchorage to Fairbanks have created many jobs. In the Anchorage area, the construction of a $26 million National Guard Armory on Fort Richardson Army Base is probably the biggest military project being completed this year.

Last year, military construction accounted for more than $25 million in Anchorage, according to Elmendorf Air Force Staff Sgt. Stephenie Manwaring. Across the state, total military spending in Alaska reached $227 million in 1989. In mid-September, the U.S. Army estimated its 1990 construction in Alaska, including ongoing projects, to be roughly $133 million.

Surf's Up. All those projects mean jobs. If 1989 is to be remembered as the year of the oil spill (and the miniboom of cleanup jobs it created), 1990 will likely go down as the year construction began something of a comeback.

State labor economist John Boucher says the industry is on a rebound. The department keeps track of the number of jobs in each industry. During construction's golden years in the 1970s when the trans-Alaska pipeline was built, the industry averaged more than 25,000 jobs statewide.

Those numbers had begun to tail of by 1977, but the momentum kept many employed for years afterward. It all started to go flat in 1985, Boucher says. When oil prices dropped in 1986, construction, like so many other sectors, took its lumps. By 1987, the labor department was estimating that there were only 10,000 construction jobs in Alaska.

"I wouldn't say it happened slowly," Boucher adds. "It got hammered. The construction industry just isn't what it was in the mid-80s."

The state's capital spending really took off in the pipeline years. In 1979, the capital budget was $171 million, two years later it was $565 million. Capital spending peaked in 1985 with $1.2 billion in projects and then began a sharp decline. By last year, the state was spending only $127 million on construction projects.

This year's influx of capital dollars is sure to help steer the state's construction industry back in the right direction. By July of this year, the state labor department figured construction jobs had put more than 13,000 people to work. That is an increase of 700 jobs since July 1989. "What we're looking at now is construction is growing," Boucher says.

Henry Springer, executive director of the Associated General Contractors of Alaska, says 1990 has been kind to the construction industry. Government projects are fueling part of the growth, and residential construction, which virtually disappeared the past several years, is back. He noted perhaps 80 new homes wee being built this season in Anchorage.

"It is encouraging; the state really needs a psychological lift," he says. Cowpoer's vetoes, though, took a bite out of projects contractors had hoped would put them to work, Springer adds. "It put a damper on it. There were sure a lot of projects the legislature put a priority on for fast work."

Not everyone thinks the ailing construction industry is out of critical condition. Gary Baugh, the owner of Baugh Construction and Engineering of Anchorage, says he has not seen much of an increase in construction activity, despite the pronouncements of economists and the media.

"It sure doesn't coincide with what people in the industry are saying," Baugh says. His company is the main contractor of the Hiland Drive bridge in Eagle River, one of the biggest road projects in Alaska in recent years.

Always on the lookout for work, Baugh says he bid for parts of the Wishbone Hill coal project only to be stymied by a recent Superior Court ruling. The ruling said that property from the state's mental health lands trust cannot be used in the coal project until the state settles the lawsuit brought by mental health groups over the dissolution of the trust.

Baugh feels the cuts by Cowper were not as noticeable as some believe. In making the cuts, Cowper said he tried to spread them evenly across the state, to ease the loss. The Ketchikan area was hardest hit, losing funding for new school construction, water projects, port work, airport repairs and a civil center. It should be noted that many of the projects cut were put in the budget by individual legislators without much public scrutiny.

Juneau lost about $5 million in projects, including work on Riverside Drive, a cruise ship float and recreational cabin construction. Among other things, Anchorage lost money for improvements to Lake Otis Parkway and Chinook Avenue, water utility work, a senior center in Chugiak, a housing development and upgrades for its military schools.

Schools and Transportation. Even with the cuts, though, state spending has put many folks to work this season and will be doing the same next year. School construction, for instance, got its first big boost in years, says Sue Miller, the facilities coordinator at the state Department of Education.

"We did get more than last year and the year before," she notes. "When oil price went down, school construction was delayed. There were some pretty lean years."

About $30.2 million in school projects approved by lawmakers was left untouched by Cowper's veto pen -- everything from a new $825,000 roof for the Tanana School in the Interior to the $3.5 million replacement of Emmonek's elementary school and the building of a $6.5 million school in Stebbins.

In Anchorage, $50 million worth of new schools, renovations, additions and roofs is scheduled over the next year. Nearly $35.7 million of that is from city bonds.

In Juneau, the biggest school project in the future is an $18.6 million middle school to be located between town and the Mendenhall Valley.

Lawmakers also have been putting their money on the road. The state Department of Transportation and Public Facilities is overseeing perhaps 400 miles of highway work across the state this season, enough pothole patching and road renovation to put hundreds of people to work. The total worth of the projects, including federal dollars, will surpass $70 million.

The road projects include 41.8 miles of surfacing on the Elliot Highway for about $6 million, 21 miles of rehabilitation on the Richardson Highway for about $5 million and 2 miles worth of work on the Raspberry Road-Minnesota Drive intersection in Anchorage for about $10.8 million.

Those figures don't even take into account more than $28 million of airport work being done across the state or more than $15 million worth of work on state buildings and facilities. These include $2 million worth of work to a Sitka hatchery, $3.8 million worth of renovations to the Anchorage International Airport and $5.7 million worth of work to the Selawik Airport.

Last May, after a series of closed-door bargaining sessions, lawmakers dipped into a pool of money that has tempted them many times over the lean years. They cracked open the $230 million Railbelt Energy Fund, which was created to help pay for the massive Susitna hydroelectric project.

Ever since the Susitna dam project died, the Railbelt money has been the focus of considerable debate. Railbelt communities, those towns from Fairbanks to Homer, wanted the money spent in the Railbelt, while others sought the money for statewide projects.

In the end, nearly every region got a piece of the Railbelt fund in weatherization, energy efficiency, energy conservation and home improvement money. The biggest taps on the fund, though, were $25 million for a Healy coal-cogeneration power plant, $9.5 million for a Seward power line and $9 million for Alaska Railroad coal cars to be used in developing the Wishbone Hill coal mine.

Industry Expenses. Those numbers look nice to contractors, but Springer says they could be misleading. He explains more money is being spent nowadays on pre-construction activities. The figure used to be between 8-15 percent of a project's cost. Now, he says, the pre-construction is likely to cost almost half of a project.

"More and more money is being spent on environmental impact studies, project designs and right of ways," Springer adds. "Appropriations are not really a good indicator of construction spending."

Anogher problem with appropriations is there isn't always a way to tell when the money will be spent. Some projects approved by lawmakers won't be constructed until next year, or even later. Many of the state construction projects that are under way this year were approved in prior years, such as the road rehabilitation at Tee Harbor.

That's the case with the Hiland Drive bridge in Eagle River. The four-lane, 600-foot bridge is expected to help ease traffic congestion between Anchorage and the Matanuska and Susitna valleys.

Baugh says the project has employed between 75 and 100 workers. He holds a $13 million contract for the bridge, scheduled to be completed in mid-June of next year.

At Tee Harbor, the project was expected to be completed by the beginning of November. The workers endured rain, wind, traffic and long hours away from home on a job that began in March with a peak of 26 workers and a late season low of 6.

Fosco Construction's Sessions says, "The hardest part of the job was traffic. The thing I missed most was not seeing the kids and the wife."
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Title Annotation:Special Section: 1990 Associated General Contractors of Alaska Annual Conference; Alaska's construction industry
Author:Miller, Dirk
Publication:Alaska Business Monthly
Date:Nov 1, 1990
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