Strategic Importance of Alaska Means Major Economic Impacts

ANCHORAGE, Alaska — Long before there was an oil boom in Alaska, the U.S. military was the main driver of the state economy and while its impact has lessened from Cold War peaks, it remains an indispensable part of life in the Last Frontier.

Eighteen months before Pearl Harbor was attacked in 1941, the first military personnel arrived in Anchorage and by 1943 there were 152,000 troops in Alaska. World War II spurred the construction of the Alaska-Canada Highway as well as Elmendorf Air Force Base and Fort Richardson in Anchorage.

The terrorist attacks of 9/11 and the increasing importance of national defense in the Pacific theater from threats such as an unpredictable regime in North Korea created another military build-up in Alaska that has contributed billions to the state economy over the past decade through increased wages and massive construction projects.

Troop levels at Fort Richardson doubled from 2002 to 2005, once again making uniformed military personnel the largest segment of the Anchorage workforce. As of 2010, nearly 30,000 of the state’s 40,000 federal employees are employed by the Department of Defense.

Of the 29,714 employed by the Defense Department in the state, 7,313 were civilians with a total payroll of some $433 million in 2010. Active duty military wages total more than $1 billion.

In Anchorage, uniformed military employment is about 12,787, or about 4.4 percent of the population. In Fairbanks, between Eielson Air Force Base and Fort Wainwright there are 8,166 active duty military, or about 8.4 percent of the population.

The U.S. Coast Guard base in Kodiak, the largest in the nation, employs 950 personnel, or about 7 percent of the population.

While there aren’t firm numbers for the combined economic impact of Fort Richardson and Elmendorf Air Force Base, the Air Force has estimated the indirect contribution of Elmendorf to the Anchorage economy at $882 million annually as of 2005.

The annual economic impact of Eielson Air Force Base in Fairbanks is estimated at $252 million.

Since the middle of the last decade, military construction has continued to pump billions into the local economies as well.

Scott Goldsmith and Mary Killorin of the Institute of Social and Economic Research, or ISER, at the University of Alaska Anchorage estimated that $460 million of $2.58 billion in public funds for construction in Alaska this year will be national defense spending.

That’s down about 17 percent from 2011 according to the ISER estimates for national defense construction spending, which were a total of $1 billion in 2010 and 2011. According to ISER, national defense construction spending peaked at $760 million in 2006.

“The bases have really been rebuilt in some ways,” said Neil Fried of the Alaska Department of Labor and Workforce Development. “There is so much new infrastructure on these military installations, you’d hardly recognize them if you hadn’t been there in 15 years.”

As the broader environment for construction has declined more than any other segment of the Alaska economy over the past several years, military spending on construction and other contracting has gained increasing importance for state businesses.

State businesses also benefit from other Defense Department contract work, particularly Alaska Native corporations that enjoy preferential status for awards. Defense contracts awarded in Alaska totaled $2.1 billion in 2008, topped by Arctic Slope Regional Corp. with $150.8 million.

Lynden Transport Inc., which has 350 employees and corporate offices in Anchorage and Seattle, was awarded nearly $108 million in Defense Department work in 2008.

Another lasting impact of the military in Alaska is the veteran population.

With about 15 percent of the state population as veterans, Alaska ranks No. 1 in the nation per capita. Impacts to the state flow from some $170 million in benefits paid to military retirees in 2009.

The Department of Veterans Affairs is also one of the largest federal agencies in Alaska, with 627 employees and a payroll of nearly $42 million in 2010.

Military activity touches nearly every part of the state economy, with 15 percent of employment and resident personal income directly or indirectly related to national defense.

When 4,000 troops deployed to Afghanistan from Fort Wainwright last summer, the event was significant enough that Anchorage telecom General Communications Inc. had to report thousands of phone and cable disconnects to investors in its quarterly statements.

The most recent ISER analysis of the state economy published earlier this year estimated the direct military contribution to the state’s gross domestic product at nearly $2 billion, with just more than $1 billion of that in wages and other compensation.

Calculating the impact of military wages is difficult for analysts, as salaries spent on base don’t benefit local economies. As of 2004, about 46 percent of Anchorage active duty military lived off base. However, increasing rates of pay and generous housing allowances are no doubt having an impact with expanding retail, dining and entertainment options.

The average total compensation for active duty military in Alaska has increased from $32,600 in 1990 to $72,300 in 2005.

The average Department of Defense civilian employee makes about $59,200 annually.

“These are good paying jobs,” Fried said. “That wasn’t true in the ‘50s, ‘60s and ‘70s. They’ve become increasingly high-paying jobs for both uniform and non-uniform personnel. Their disposable income is quite high.”