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Southeast's economy rallies.

Like an old-fashioned revival, economic activity in Southeast Alaska started to rise in intensity this year, a rebirth based partly on faith that everything will turn out for the best.

As in most of Alaska, the region weathered an economic slump in the mid-1980s, the result of declining oil prices. Spending by the state government, which relies on oil revenues for 85 percent of its intake, was curtailed. Businesses failed. Homes were lost to foreclosure. Thousands fled the state in search of work.

In 1989, the slump slackened. Southeast's employment increased 4.4 percent, state economists say. Government spending rose and Alaskans, who had been mired in a gloomy mood, began to speak of the future as holding promise again.

The outlook for Southeast now depends on answers to three questions: Will mining in the Juneau area make a comeback? Will state government employment grow with windfall revenues coming from the Persian Gulf crisis? And will reforms related to management of the Tongass National Forest derail the region's logging industry?

This year, from Sitka to Saxman, Southeast's economy has been on the move. Tourism, logging, fishing and mining exploration are the mainstays behind the acceleration. The number of luxury cruise ships visiting Southeast rose. One hard-rock mine has been in operation for a year, and others in Alaska and across the Canadian border are being explored.

Fishermen hauled in a better-than-average catch and expect possibly to have a larger harvest next year. In Juneau, Craig and Ketchikan, facilities for fish processing were being built or pondered.

LOGGING. Industry watchers say logging this year continued at a cut slightly below that of last year, due to declining prices. Logging is the region's largest employer. Only the seafood industry, 3,990 jobs, and state and federal government, 4,400 jobs, come close.

According to a study for the Alaska Loggers Association (expected to be renamed the Alaska Forest Association) by the McDowell Group/Data Decision Group of Juneau, the Tongass provides a total of about 3,500 jobs, including federal Forest Service slots, in Southeast. Another 1,000 jobs are created by logging on private lands, mostly Native corporation timber. State economist Brian Rae predicts employment in the timber industry will stay nearly the same the next two years.

Last year both the House and Senate passed Tongass reform bills and a conference committee developed a compromise from the two conflicting plans. The legislation, signed into law in November sets aside 1,018,000 acres, of which roughly 300,000 is designated wilderness and the rest is designated as roadless/no-timber-harvest management areas. The removal of allowable timber sale acreage, through the additional set aside and new buffer strip requirements, is estimated at 40 million board feet. Most important, long-term timber contracts with the state's two pulp mills were preserved.

Thyes Shaub, legislative liaison for the Alaska Loggers Association, notes that the industry is relieved to see the debate come to an end. It created an artificial market meltdown, she says. Because banks were reluctant to lend with the prospect of the long-term contracts being canceled, logging operations, particularly small businesses, were unable to get financing.

I don't think any compromises coming are going to bring the industry crashing down,' says Juneau economist Eric McDowell. Likely to be as significant for the timber industry is the gradual shrinking of private timber sales, as Native corporations and other interests deplete their timber resources.

Sealaska Corp., Southeast's Native regional corporation, has perhaps 10 years left of timber resources on its lands, McDowell says. Other areas, such as Prince of Wales Island near Ketchikan, have as little as three years of supply.

MINING. The extent of the mining comeback in Juneau hinges largely around the efforts of Echo Bay Exploration Ltd., a Toronto-based mining firm, to reopen two historic gold mines near the capital city. Both of the formerly mined properties, the Kensington and the Alaska-Juneau, could be in production by 1993.

The Kensington, which is just north of Berner's Bay, could bring as many as 340 mining jobs to Juneau. The A-J could mean as many as 450 jobs.

Opposition to the A-J mine has been considerable, particularly because the mine is within spitting distance of downtown. Environmentalists say until Echo Bay comes up with an alternative plan to filling Sheep Creek Valley with mine tailings, its future will be in doubt. The company is reworking its production plan to meet some of the concerns. Echo Bay has estimated that project would cost $240 million to develop and would produce 370,000 ounces of gold a year.

The Kensington has had less visibility and appears to be moving more smoothly toward reopening. Echo Bay and its partner, Coeur d'Alene Mines, plan to spend $150 million reopening the smaller mine. The Kensington would produce about 200,000 ounces of gold a year.

The Greens Creek mine on Admiralty Island quietly passed its first year of operations in 1990, after 14 years in the making. The $114 million Greens Creek project looks small compared to its potential sister mines, but on its own the multimineral project provides 250 full-time, permanent jobs. Greens Creek is owned by Kennecott Inc., the American subsidiary of RTZ Inc.

The mine's annual payroll is estimated to be $15 million, and Juneau is the home of most of the Greens Creek miners. Greens Creek turned out 5.2 million ounces of silver; 23,530 ounces of gold; 19,843 metric tons of zinc and 9,585 metric tons of lead its first year.

Mining activity in other areas of Southeast also is picking up. In British Columbia, Cominco Ltd., also the operator of the Red Dog mine in northern Alaska, is moving along with plans to develop a mine on Snip Mountain near the Iskut Valley. The company brought a huge hovercraft to Wrangell to move freight up the Stikine River to the mine site. Wrangell is likely to be the transportation hub for the mine, which is planned to open in 1991.

The Cominco mine comes at the right time for Wrangell; Skyline Exploration closed its nearby Johnny Mountain mine. The company's announcement this past summer had sent a shock wave through the small community, which served as a hub for that operation.

During the winter months, anything we potentially may have lost will be picked up by Cominco," says Wrangell economic development director Jim Gove. "Even though we may lose some Skyline business, Cominco is going to be going in the spring. They're going to continue to trade out of Wrangell."

Other prospects for development in Southeast include the Tulsequah Chief project up the Taku River and the Windy Craggy mine in British Columbia near Haines.

TOURISM. Another of Southeast's basic industries - tourism - also was turning golden in 1990. In most communities visited by cruise ships, dockings were up and the number of visitors increased.

Juneau set a record for cruise passengers in 1990. According to the Juneau Convention and Visitors Bureau, 225,400 people departed cruise ships for a look at the capital city. Those passengers visited community businesses, purchasing trinkets, flight-seeing trips and raft adventures, to name a few.

"Overall it was a good year, a gigantic year, a thank-God-it's-over year, says Frank Pival, Juneau manager for the tour company Gray Line of Alaska. But it was wonderful.'

Anne Demaree of the Sitka Convention and Visitors Bureau says Sitka saw 208 cruise ship dockings in 1990, up from 120 the year before. That, plus an added ferry stop in Sitka by the Alaska Marine Highway System's Columbia, produced a banner year for visitors in Sitka.

According to McDowell, Alaska is a hot market for cruise lines because it is the only cool destination in the summertime. It is also cheaper than many exotic locales because of its closeness to the United States.

An added plus for Juneau was the October announcement by a Canadian air transportation firm of its intentions to start passenger service between Vancouver, British Columbia, and Juneau. CAIR Custom Air Freight of Vancouver has applied for permission with Canada's National Transportation Agency and the U.S. Department of Transportation to conduct regular passenger service between the two towns.

The firm would offer 30,000 seats annually with four flights weekly from May to September and three flights weekly the rest of the year. Service would begin May 15, 199 1, according to a letter sent to the Juneau Economic Development Council.

FISHING. Fishermen also had a good year in Southeast, although not as prosperous as in 1989, McDowell says. Seiners and trollers were happy, but gillnetters had some complaints.

Don Ingledue, a commercial fishing biologist for the state Department of Fish and Game, reports the pink salmon catch was about half of last year's record 59 million fish, but still twice the long-term average in the Southeast area. The haul of coho, or silver, salmon was about the same as last year, with 2.2 million caught. Fishermen more than doubled the average harvest of sockeye salmon with 2.1 million fish, and the king salmon catch was about average with 318,000 chinooks.

The following spotlights the present-day economic prospects of the largest Southeast communities.

KETCHIKAN. C.L. Chesire of the University of Alaska Southeast's Economic Development Center says the Gateway City is coasting along on a timber high, which peaked in 1989. Fishing continues to be respectable, but much of the money is banked on tourism and services.

Several resorts and lodges have opened up in the area in recent years, the newest being the 70-room Cape Fox Hotel. The Plaza Mall, Ketchikan's biggest shopping center, plans to put in a marina and almost double mall space, according to Chesire. Ketchikan also continues to be a prime service provider for many of the towns on Prince of Wales Island, which has grown tremendously in the past 10 years.

But the city's welfare depends heavily on whether Ketchikan Pulp Mill can survive the Tongass reforms. The mill is Ketchikan's biggest employer, and the McDowell study concluded that without it, the city's economy would shrink by about a third.

Other potential stars in Ketchikan's future are a Navy submarine facility on Back Island and U.S. Borax's ill-fated plans to mine molybdenum at Quartz Hill, 45 miles east of town. The U.S. Environmental Protection Agency recently reversed a ruling that would have allowed the mining giant to dump tailings in Smeaton Bay. U.S. Borax has spent $100 million seeking approval for the mine, only to be sent back to the drawing board.

SITKA. In Alaska's first capital city, the story is nearly the same: The economy has been consistent and has enjoyed growth in tourism, but without the Alaska Pulp Mill, Sitka would have a tough time surviving. According to Demaree of the visitors bureau, Princess Cruise Lines plans to bring more ships to town, which should increase tourist traffic.

Compared to other communities in Southeast, Sitka's climate is very good," says Sharon Hansen, director of the town's chamber of commerce. But all eyes are on the Tongass reform and the changes it could bring. It's just kind of a wait-and-see picture," she adds.

JUNEAU. A tragedy a world away is going to help the Juneau economy, most speculators say. The invasion of Kuwait by Iraq drove up oil prices, which should boost state revenues by a healthy margin. Many cuts instituted by Gov. Steve Cowper in July could disappear when a new legislature meets in January, and most political predictors think lawmakers will not show much restraint with the windfall.

Capital spending could benefit, as well as the operation of state government. Government forecasters predict the oil revenues will be between $2.6 billion and $4.5 billion this year. Original predictions had called for a more modest take between $2.1 billion and $2.9 billion.

Even so, Rae of the state Department of Labor said in a recent forecast that the production decline at Prudhoe Bay is going to force state government to reduce over the next decade. He notes, though, that as more responsibilities are transferred to local governments from the state, municipal employment could grow. Juneau's biggest economic hope for the future lies underground. If just the A-J mine develops as planned, it would become the capital city's largest private employer. It could also pump between $5 million and $7 million into the municipal treasury, according to an Echo Bay study.

The A-J, according to the study, also would indirectly create another 540 jobs in Juneau in fields including retail, banking, education and government support. Total payroll from the jobs could be as large as $33 million.

Another industry affected by the mine would be housing. Juneau already has become a seller's market, says Konrad Reinke, president of the Southeast Board of Realtors. Adding another estimated 2,000 people from the mine would strain the home supply and force more new construction, he explains.

The housing market in Juneau is so taut now that real estate agents say rentals are almost full and the area's low-cost home stockpile is about gone. Reinke notes that an increase in home prices is a good sign for the Juneau economy, showing confidence in the community.

Voters also signaled confidence in tourism during the municipal election in October, approving the issuance of $7 million in bonds to improve cruiseship docking facilities.

Other bright spots for Juneau's future include the construction of a new middle school, a temporary federal office building to stand in for the old building while asbestos is being removed and the proposed construction of a women's prison.

ELSEWHERE. Haines would benefit from the Windy Craggy copper mine in British Columbia, which is being proposed by Geddes Resources Ltd. The copper mine would send ore trucks through town to a port facility for shipment. Tourism and logging have been keeping the community's economy strong.

Skagway also relies on tourism and benefits from the transshipment of ore from the Cyprus-Anvil lead and zinc mine in the Yukon.

Wrangell's economy should stabilize with the local sawmill's winning of a tideland fill permit that allows it to reduce a mountain of waste left by a predecessor. The Alaska Pulp Corp. mill had shut down briefly in recent months because it had no place to store the waste. Some wood waste is being used to create a track for the high school and to improve the local rifle range.

Petersburg has always depended on fishing, and the strong season should keep the town high and dry again this year.

Regarding the future of Southeast as a whole, economist Rae predicts the region's economy will continue its slow, methodical growth. Mining and construction look to be the strongest growth industries, but service industries could also do well. He expects Southeast employment to increase about 3.5 percent in 1991.

In many respects, it is a matter of faith that the big question marks in Southeast's future will be resolved positively. Says Realtor Reinke, The great turnaround was a point in time when the citizens of Juneau realized the bottom had hit." The economy was bound on a revival course then, he notes.

Provided that effects of Tongass reform are not too drastic, that state government spending is sustained and that the proposed mines are allowed to operate, Southeast Alaska just might find itself resurrected.
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Title Annotation:Economic Review & Forecast; Southeast Alaska
Author:Miller, Dirk
Publication:Alaska Business Monthly
Date:Dec 1, 1990
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