The Role of Metal Mining in the Alaskan Economy
a report prepared for the
Southeast Alaska Conservation Council
Northern Alaska Environmental Center
by
THOMAS MICHAEL POWER
Professor of Economics
Economics Department
University of Montana
Missoula, Montana 59812
406 243 4586
tom.power@mso.umt.edu
February 2002
Note: The affiliation of the author is provided only for identification. This is not an
official publication of the University of Montana. This report was prepared by the author
as an independent economic consultant. The conclusions reached are solely the
responsibility of the author and do not necessarily reflect the position of the University of
Montana, its Economics Department, or either the Southeast Alaska Conservation
Council or the Northern Alaska Environmental Center.
1. Introduction and Summary
This report explores the role that metal mining currently plays in the Alaskan economy
and the economies of the Fairbanks and Juneau areas. Metal mining played a very
important part in the original European settlement of Alaska, and, more recently,
revenues from North Slope oil development have played a very important role in the
development of the modern Alaskan economy. Because of these important historical
roles of mineral development, it is often assumed that the future development of the
Alaskan economy will also depend on the further development of the State’s metal
deposits. This report investigates the factual basis of metal mining’s assumed
importance in Alaska’s economic future.
The analysis contained in this report supports the following conclusions:
1.
2.
3.
4.
5.
6.
7.
8.
Metal mining is directly responsible for only about one-half of one percent of
Alaskan jobs and personal income: about 2,000 of Alaska’s 400,000 jobs and
$87 million of Alaska’s $18.6 billion of personal income in the year 2000. Even
after applying any reasonable “multiplier” to these numbers, metal mining would
continue to provide only a small sliver of total Alaskan jobs and income.
In the “mining dependent” cities of Fairbanks and Juneau, metal mining is directly
responsible for about one and two percent of total jobs, respectively.
This very modest role of metal mining is often obscured by exaggerated
estimates of metal mining’s impact built around double and triple counting or
counting value that is not created in Alaska. Such exaggerated estimates of
impacts ignore basic economic accounting rules established almost a century
ago.
Because of its capital and land intensive nature and relatively modest use of
labor, the payroll associated with Alaska metal mining represents only about 8
percent of the $1.1 billion value of metal mine production.
During the 1990s, while the real value of metal production in Alaska rose 83
percent, from about $600 million to $1.1 billion, metal mine payroll rose only 5
percent.
Although metal mining, because of its capital intensity, contributes significantly to
local governments’ property tax bases, its contribution to total local government
revenues, including all revenue sources, is much smaller. The Fort Knox Mine
contributes about one percent of the total revenues received by local
governments in the Fairbanks-North Star Borough. The Greens Creek Mine
contributes about one-half of one percent of the revenues received by local
governments in the City and Borough of Juneau.
Mine license taxes and production royalties on state owned minerals yield only a
few million dollars each to total state revenues that total almost $6 billion even
without counting the revenue flows into the Permanent Fund. Together these
two sources of revenue from metal mining contribute less than one-tenth of one
percent of total Alaskan government revenues.
Despite the high wages paid in metal mining, that industry is not usually
associated with prosperous communities across the nation because (1.) metal
1
9.
10.
11.
commodity prices are unstable, causing instability in employment and payroll; (2.)
the life of a contemporary metal mine tends to be relatively short, 5 to 15 years;
(3.) the labor needs of metal mining operations are constantly falling as
technological change displaces workers; only constant expansion of mine
production can offset this; and (4.) environmental damage associated with metal
mining discourages people and businesses from locating near mining operations.
Inadequate reclamation laws and reclamation bonding requirements can leave
state governments with large reclamation financial obligations and near
permanent damage to the natural environment. Both have negative long-term
economic impacts.
The popular economic base approach to thinking about the Alaskan economy
that focuses on the assumed special role of oil production and transportation,
mining, other natural resource industries, manufacturing, and the federal
government as key economic drivers is incomplete and inadequate. It cannot
explain the ways in which the Alaskan economy has been changing. For
instance, during the 1990s while employment in these key sectors declined 25
percent, employment in other sectors expanded 25 percent. While real income
from these sectors declined 7 percent, income from other sectors expanded by
31 percent. The Alaskan economy is more diverse and resilient than the popular
economic base view suggests.
In Alaska, across the western United States, and in many regions of the nation,
high quality natural landscapes have become an increasingly important source of
local economic vitality. Because people care where they live, and act on those
preferences, and economic activity follows those residential choices, the
attractiveness of communities and landscapes has become an increasingly
important part of a local area’s economic base. To the extent that metal mining
activities threaten this, they can undermine rather than enhance the local
economic base.
These conclusions about the limited role of expanded metal mining in supporting the
ongoing economic development of Alaska are not new. In 1969 the Institute of Social,
Economic and Government Research at the University of Alaska at Fairbanks published
a report on “Mining and Public Policy in Alaska: Mineral Policy, the Public Lands and
Economic Development.”1 That report also concluded that mineral development had
limited capacity to support economic development because the mineral industries were
becoming less and less labor intensive and were playing a steadily shrinking role in the
overall economy. That earlier report also pointed out that mineral developments in
isolated areas were unlikely to stimulate economic development in the area surrounding
the mineral site because very few of the mineral development expenditures would flow
through the local economy. Finally, that report emphasized that while the role of
mineral production in the overall economy was shrinking, natural amenities such as
clear water and air, open space, wildlife, and outdoor recreation opportunities were
playing an increasingly important role in the determination of economic well-being. The
relative economic values associated with the natural landscape were shifting from
1
Mining and Public Policy in Alaska: Mineral Policy, Public Lands and Economic Development, Arlon R.
Tussing and Gregg K. Erickson, SEG Report No. 21, June 1969.
2
extractive toward non-consumptive natural resource values. Over thirty years later, all of
these points remain very important when it comes to the crafting of rational natural
resource policy in Alaska.
2. The Relative Importance of Alaska Metal Mining
A. Metal Mining in the State Economy
Because the discovery of gold and the “gold rush” that followed is so important in
explaining the European settlement of Alaska, it is natural to see metal mining as a vital
part of Alaska’s economic base. As the Fairbanks’ University Park Elementary students
put it on their website: “If it weren’t for gold, we wouldn’t even be here.”
The resources and economic activities that supported Alaska’s economic development
in centuries and decades past are important in understanding the state’s history, but
they are unlikely to be a very good guide to the current and future economy of Alaska.
Successful economies change and develop. Those that stay stuck in their early
developmental history are likely to stagnate and fail. “More of the same” is rarely a
prescription for the development and/or maintenance of a prosperous economy. That is
the reason that mining, timber, and agricultural towns are rarely vital, prosperous
economies. For the last two decades, it has been rural counties that are mining and
farming dependent whose economies have lagged the most.2 For example, the timberdependent counties of northern Maine, the mining counties of Appalachia and copper
towns of the West, and the farm counties of the Great Plains have all seen ongoing
economic depression and population loss.
If we look at just from where Alaskan residents receive their money income and where
they are employed, the role of metal mining appears to be relatively minor, a small sliver
in comparison to the overall economy. In 1999 (the last year with complete data) only
about 1 in 200 jobs and dollars of personal income flowed directly from metal mining
activities in Alaska. See Figures 1 and 2. 3
2The
Revised ERS County Typology: An Overview, Peggy J. Cook and Karen L. Mizer, Rural
Development Research Report No. 89, Economic Research Service, USDA, December, 1994, pp. 8-9;
“Economic Geography of the Heartland,” Alan D. Barkema, Center for the Study of Rural America,
Federal Reserve Bank of Kansas City, presentation to the Beyond Agriculture: New Policies for Rural
America National Conference Westin Crown Center Hotel Kansas City April 27- 28, 2000, p. 15.
3
Figures 1 and 2 are primarily based on the Regional Economic Information System data of the Bureau
of Economic Analysis, US Department of Commerce. The estimate of tourism employment and income is
based on “Visitor Industry Economic Impact Study, “ May 1999, McDowell Group, Prepared under Alaska
Visitor Statistics Program for State of Alaska Division of Tourism. Also see Alaska Visitor Arrivals Summer
1999. McDowell Group, 2000. http://www.dced.state.ak.us/cbd/toubus/pub/impact99.pdf . “Other mineral
production” is primarily oil and gas production (96 percent), but coal, gravel, and other mineral extraction
are also included.
3
Fig. 1: The Sources of Alaskan Personal Income, 1999
Metal Mining
0.5%
Other mineral production
4.1%
Investment,
Retirement,& Income
Support
27.9%
Trade, Services &
Finance
25.4%
Manufactuing and
Other
4.2%
Construction,
Transportation &
Public Utilities
12.7%
Fed Govt.
11.0%
Tourism
1.8%
St.&Loc. Govt.
12.4%
Figure 2: Sources of Alaksan Jobs, 1999
Manufacturing &
Other
8.4%
St.&Loc. Govt.
13.8%
Tourism
4.4%
Fed Govt.
10.0%
Other Mineral
Production
2.2%
Metal Mining
0.5%
Construction,
Transportation &
Public Utilities
13.2%
Trade, Services
& Finance
47.5%
4
Although there was some growth over the last two decades in the relative importance of
metal mining as a source of jobs and income, it has remained a very small part of the
overall Alaskan economy. See Figure 3.
Figure 3: Metal Mining and Other Jobs in Alaska
400,000
Number of Jobs
350,000
300,000
250,000
Jobs outside of Metal Mining
200,000
150,000
100,000
50,000
-
Metal Mining Jobs
82 83 84
85 86 87
88 89
90
91
Year
92
93
94
95
96
97
98
99
B. Metal Mining and Local Economies
In some Alaska communities, metal mining has been more important than in others.
Because Alaska is such a huge state, it is possible that averaging metal mining payrolls
and jobs over the whole state has the impact of hiding the local economic impacts of
metal mining. In general this is not the case. Table 1 shows the estimated metal
mining employment in various Alaskan communities. Even focusing on individual
regional economies within Alaska, metal mining provides only one to two percent of total
jobs.4
The obvious exception shown in Table1 is the Northwest Arctic Borough where metal
mining represents 15 percent of total employment. This high percentage of employment
is tied to two factors. First, the mine is located in one of the more remote and lightly
4
Table 1 is based on the Alaskan Labor Market Reports and includes only employment covered by the
unemployment insurance program. The self-employed and those working for very small firms are not
included. The federal government’s Regional Economic Information System estimates total employment
including those not counted in the “covered” employment. The different employment data sources can
provide slightly different estimates of the relative importance of various industries.
5
settled areas of Alaska. Second, a significant part of the population is not in the
commercial labor force and therefore is not counted when the percentage of total
employment is calculated. Almost 90 percent of the population is Alaska Native and
most continue to engage in traditional subsistence activities. Only 55 percent of those
over 16 seek paid employment. For the state as a whole 72 percent of this group seek
paid employment. In addition, of those who seek paid employment about 16 percent do
not find it. The unemployment rate in the NW Arctic Borough is regularly twice that in
the state as a whole, and it often has the highest unemployment rate in the state. The
combination of those who do not seek paid employment and those who do but cannot
find it total over half of the potential adult workforce.5 That is, there are more working
age adults who do not work for pay than those who hold paid jobs. As a result, the
percentage of the potential workforce employed by the Red Dog mine is exaggerated by
as much as a factor of two. In any case, the Red Dog mine, as Table 1 indicates, is a
dramatic exception to the pattern found elsewhere in Alaska.
Table 1
The Number and Location of Metal Mining Jobs in Alaska, 1999
Location
Employment
Metal Mining
Total
Metal Mine
as % Total
Anchorage
71
128,295
0.1%
Bethel
9
5,821
0.2%
Fairbanks North Star
373
32,538
1.1%
Juneau Borough
277
16,660
1.7%
Nome CA
6
3,484
0.2%
NW Arctic Borough
413
2,696
15.3%
SE Fairbanks CA
1
1,660
0.1%
Yukon-Koyukuk
21
1,998
1.1%
Undertemined Location
14
2,947
0.5%
Total
1,185
196,099
0.6%
State Total Metal Mining
1,185
274,570
0.4%
Source: The Alaskan Labor Market Report
It should be clear that whatever the historical importance of metal mining was, it is not
now playing a dominant or significant role in the state or the larger urban areas’
economies.
“Northwest Arctic Borough,” Neal Fried and Brigitta Windisch-Cole, Alaska Economic Trends, 19(1):39, January 1999, Alaska Department of Labor.
5
6
Table 2
Percentage of Alaska Metal Mine Employees Who Were Non-Residents
Company
1999
Jobs
Cominco Alaska Inc.
FBKS Gold Mining Inc.
Greens Creek Mining Co.
Nana/Dynatec JV
Subtotal: Larger Metal Mines
Subtotal: Smaller Metal Mines
Alaska Metal Mining Total
527
315
313
88
1243
322
1565
Percentage of Employees Who Were Non-Residents
1999
1998
1997
Average
1997-99
16.9%
18.5%
21.2%
18.9%
4.1%
4.6%
5.1%
4.6%
14.1%
16.3%
18.5%
16.3%
52.3%
54.7%
44.2%
50.4%
15.4%
17.0%
18.0%
16.8%
30.4%
26.5%
26.9%
27.9%
18.5%
19.8%
20.9%
19.7%
Source: Residency Analysis of Alaskan Workers by Firm, 1999. Alaska Dept. of Labor and Worker
Development,Research and Analysis, February, 2001.
In judging the impact of metal mining on Alaskan residents, it is also important to
determine whether the mining jobs that are created go to residents or whether they are
filled by in-migrants. Because of concern about whether the higher paid jobs that are
created in Alaska are being filled by current Alaska residents, the state government
collects data on the residency of employees. For metal mining that data indicates that
for the larger established metal mines that are in active production, about one in six
employees are non-residents. As time passes, the percentage of miners that are nonresidents declines. For metal mining operations that are in the exploration and
development stages, between a quarter and a third of the employees are non-residents.
See Table 2. When mining jobs are filled by outsiders migrating in, the positive
economic impact of the mine on the existing local economy is reduced. In addition the
pressure on the community to expand infrastructure and services to serve the new
workers and their families increases.
3. Mis-Measuring Local Economic Impacts
A. Sales Value, Value Added, and Local Income
The economic impacts that matter most to local residents are impacts on jobs and
incomes. Yet local economic impacts are often measured in quite different terms that
produce a bigger number but tell us little about how that economic activity contributed to
the well being of Alaskans. For instance, local economic impacts are often measured in
terms of changes in the total dollar volume of business or by the overall level of local
spending. Because all local businesses import from outside the local economy
substantial amounts of what they sell, much of the dollar volume of sales does not flow
to local residents but, instead, quickly leaves the local economy to support incomes and
jobs in distant manufacturing and trade centers. The volume of that spending tells us
nothing about local jobs and incomes. That is why we do not describe the national
economy in these terms. Similarly, depending on how sophisticated the local economy
7
is, dollars spent in one business move to other local businesses that supply goods and
services to local businesses. Counting all of those transactions can lead to double or
triple counting of the value that is actually being produced locally and the income that
residents earn. That too is why specific economic accounting rules were adopted for
evaluating the overall performance of the national economy that prohibits such
misleading double counting. Measuring economic activity in terms of the total value
added by economic activity within the local economy (gross state product or gross
domestic product) avoids both of these problems. But even with that measure the
impact on residents can be exaggerated because often a significant part of that value
added, for instance the value of petroleum produced on the North Slope, does not stay
in Alaska but flows to the stockholders of the oil companies, most of whom live outside
of Alaska. There are appropriate uses for data on gross state product, but measuring
local economic impacts is not one of them. Use of total volume of sales is also an
inappropriate measure of local impacts. Local impacts should be measured in terms of
direct benefits to Alaskans. That is the reason for using the jobs filled by Alaskan
residents, the dollar earnings of Alaskan residents, and net government revenues that
exceed the costs of necessary mine-related government services.
Consider one economic consulting firm’s description of the economic impact of the Fort
Knox Mine outside of Fairbanks. The McDowell Group concluded that: “All told, mine
spending has a $107 million impact on the Fairbanks economy, including direct and
indirect payroll and local spending on goods and services. Over 1,200 Fairbanks
residents are either directly or indirectly dependent on the mine.” 6
In 1999 the Fairbanks Borough had about 40,000 wage and salary jobs receiving
aggregate pay of about $1.3 billion. Interpreted literally, the described “impact” of the
Fort Knox Mine on this economy was clearly significant. But the mine directly employed
an average of 260 workers and had a payroll of $13.3 million. These direct, factual,
impacts are only a tiny fraction, one-fifth for jobs and one-eighth for payroll, of the
impacts estimated by the McDowell Group.
McDowell gets the larger numbers by doing two things. First, it applies a “multiplier” to
the direct impact to account for the spending associated with the mine and its workers.
The payroll was multiplied by 1.5 and employment by 2.2.7 This brings the “direct and
indirect” payroll and employment to $20 million and 570 jobs. Still well below the
McDowell impact estimates. To that payroll is added $87 million in “local spending” to
bring the total to the $107 million in claimed total impacts. But the impact of that local
spending on payroll and employment had already been accounted for by using the
multipliers. The $87 million does not represent new income earned by Fairbanks
residents. It is a measure of gross dollar flows through the economy whose impact has
already been accounted for. As a result, the $107 million “local impact” figure is actually
6
Economic Impact of the Fort Knox Mine on the Fairbanks North Star Borough, McDowell Group,
February 1, 1999, p. 1; True North Mining Project Economic Impact Study, prepared for Fairbanks Gold
Mining Company, January 2001, by McDowell Group, Inc., Juneau, Alaska, p. 3.
7 If one is going to use multipliers, these multipliers are within the reasonable range for a relatively small
and isolated city.
8
over five times larger than any reasonable estimate of local impact. Finally, the 1,200
Fairbanks residents are not all workers; they are the workers and members of their
families who are likely to “depend” on other economic activities in addition to the Fort
Knox mine.
B. The Payroll Associated with Alaska Metal Mine Production
The difference between the gross value of metal mine production and the part of that
value that actually becomes pay for Alaskan residents is huge. In 1999 only 8 percent
of the total value of metal mine production in Alaska was actually paid out to workers in
Alaska.8 Forty-four percent of the gross value of metal mine production was not value
created in Alaska at all but value associated with machinery, material, managerial
supervision etc. imported into Alaska. The remaining 48 percent of the gross value of
the metal mine products may or may not have flowed to Alaskans depending on who
owned the mineral rights, loaned the capital, or invested in the mining company stocks.
If those were non-residents, that portion of the value created (almost half) did not stay in
Alaska either. See Figure 4. Finally, about a fifth of the employees of metal mining
companies in Alaska are non-residents. Depending on where these workers families are
located, this may reduce the small fraction of total sales value that is paid as wages that
circulate within the Alaskan economy. Even before exaggerations associated with
estimated multiplier impacts, the impact analysis could be off by 12 fold ($8 in payroll
out of each $100 in mineral value produced).
8
US BEA Gross State Product and Personal Income Statistics for 1999. The Economic Census data for
1997 also showed that only 7.75 percent of the value added in metal mining in Alaska went to wages;
EC97N21S-GS, pp 7-12, US Census Bureau, April 11, 2001.
9
Figure 4
Disposition of the Gross Value of
Alaska Metal Mining Production, 1999
AK Payroll
8%
Non-AK Value
44%
AK[?] NonPayroll
48%
Between 1992 and 1999 the real value of metal mine production in Alaska increased by
83 percent but metal mining payroll hardly increased at all (+5 percent). The expansion
in metal mining was not significantly expanding the benefits to Alaska workers. Clearly
one cannot use the gross value of metal mine production to describe the impact of
mining on the Alaskan economy. See Figure 5.
10
Figure 5: Disposition of the Real Value of
Alaskan Metal Mine Production
Real Dollar Value ($1,000s)
$1,200,000
Total Value
$1,000,000
$800,000
$600,000
Non-Alaska
Part of Value
$400,000
AK (?) NonPayroll Value
$200,000
Payroll
$1992
1993
1994
1995
1996
1997
1998
1999
Year
In Figures 4 and 5 the question mark in the label “AK Non-Payroll Value” refers to the
fact that the value of the metals created in Alaskan metal mines that does not flow to
workers as payroll is likely to flow out of the state as profits, interest, depreciation, and
other returns associated with the capital invested in the mine. It is value created by
economic activity in Alaska but a substantial portion of it does not flow to Alaskan
residents.
The data for individual mines show the same pattern. Only a small part of the total
dollar value produced by the mine is paid out as payroll. For the Red Dog Mine, the
world’s largest operating lead-zinc mine, for instance, in 1999 about 7 percent of total
mine revenues of almost $400 million, or $27 million, was paid out to Alaskan
employees. In addition to the local payroll, Red Dog also makes royalty payments to
NANA Regional Corporation. Between 1988 and 1998 those averaged $3 million per
year. At the same time about $163 million was returned to investors as depreciation,
interest, or profit. Red Dog is operated by Teck Cominco Ltd., a Canadian company
with operations and stockholders worldwide.
The Fort Knox Mine near Fairbanks is operated by Kinross Gold Corporation, another
Canadian company with operations on five continents. About 14 percent of the dollar
value of its production in 1999 was paid out in payrolls.
11
The Greens Creek Mine near Juneau is operated by a Rio Tinto subsidiary, Kennecott
Minerals. Rio Tinto is the world’s largest mining company, operating on six continents.
It owns about 70 percent of Greens Creek. The other 30 percent is owned by Hecla
Mining Company that is headquartered in Idaho but also operates in Mexico and South
America. Because of the complex ownership, revenues and payroll can only be
approximated. It appears that in 1999 about 23 percent of total revenues were paid out
in payroll. See Table 3.9 For this group of three large mines about one out of every 10
dollars of metal value sold was paid out to workers.
Table 3
Metal Mine Production and Payroll: Three Large Alaskan Mines, 1999
Mine
Gross
Revenue
($millions)
Red Dog
$394.0
Fort Knox
$98.3
Greens Creek
$90.0
Three Mines
$582.3
Source: See footnote 8.
Alaskan
Payroll
% of Revenue
Going to
Payroll
($millions)
$27.0
$13.3
$20.7
$61.0
6.9%
13.5%
23.0%
10.5%
Depreciation,
Depletion,
Amortization,
Interest, and
Operating Profit
($millions)
$163.0
$70.0
NA
NA
4. Metal Mining’s Impact on Local and State Governments
A. Local Governments as Partners in Metal Mining: Impacts on Government
Revenues
Even when the contribution metal mining makes to total payroll and total jobs is quite
small, state and local governments often come to a quite different conclusion about the
relative “economic” importance of metal mining. This may be tied to the ways in which
metal mining contributes to government revenues. Because modern metal mining is a
capital-intensive industrial operation that involves large investments in site preparation
and equipment, a metal mine can represent a significant part of a local government’s
property tax base. The Fort Knox Mine in the Fairbanks area, for instance, involved
9
Red Dog information comes from a presentation made to the 1999 Alaskan Economic Summit on behalf
of Dr. N. B. Keevil, President and CEO of Teck Corporation, operators of the Pogo Project in central
Alaska near Delta Junction; and Mr. D. A. Thompson, President and CEO of Cominco Ltd., partner with
NANA in the Red Dog Mine near Kotzebue, byDr. N. B. Keevil and D. A. Thompson. Feb. 9, 1999,
Juneau, Alaska; Cominco 2000 Annual Report pp. 39, 50, & 51 were also used. The Fort Knox data came
from the Kinross Gold Corporation 2000 Annual Report, pp. 8, 9, & 48 as well as the McDowell Group
analysis of socioeconomic impacts. The Greens Creek data came from State of Alaska data on
employment and earnings in metal mining in Juneau Borough and Hecla Mining Company 2000 SEC 10K
Report, p. 11.
12
$373 million in capital construction costs.10 The assessed value of the mine’s property
was $243 million in 2001, adding about 6 percent to the total assessed value of property
in the Fairbanks North Star Borough and about 10 percent to the value of property
outside of the cities.11 Only the Alyeska pipeline was a larger property tax payer.12
Similarly, the Greens Creek Mining Company is the largest property tax payer in the
City and Borough of Juneau, four times larger than the next largest taxpayer. Its
assessed value of $77 million represented almost 4 percent of the Borough’s total
assessed property value.13
Clearly metal mines can contribute to a local government’s property tax base in a way
that is more than proportional to the jobs and payroll they generate. This can make
local governments almost a partner in the successful opening and operation of a metal
mine.
This, however, is an incomplete way of looking at the contribution that metal mines
make to local government finances. Property taxes are just one source of revenue for
local government agencies. In general, those property taxes represent a relatively small
portion of all local government agency revenues.
Fairbanks North Star Borough, for instance, had total revenues in fiscal year 2000/2001
of $90 million but only $57 million or 63 percent came from property taxes. 14 Within the
geographic area of the Borough there are also the cities of Fairbanks and North Pole.
In addition, there is the Fairbanks North Star School District. Each of these other local
governments levies its own taxes, obtains other revenues, and operates within its own
budget. The Borough levies local taxes in support of the school district, but the school
district also receives funds from the state and federal government. The 1997 Census of
Governments provides information on the revenues and expenditures of all units of local
government combined within the boundaries of the Fairbanks North Star Borough.
Property taxes represented 18.8 percent of total revenues received by local
governments in the Fairbanks area.15 In that setting, even the Fort Knox Mine’s six
percent of the property tax base represented only about one percent of total local
government revenues in the Fairbanks area (6% of 18.8% = 1.1%).
The City and Borough of Juneau, unlike the City of Fairbanks and the Fairbanks North
Star Borough, operate as a unified government. In the year 2000, it had operating
revenues of $152 million, only $26 million or about a sixth of which came from property
taxes.16 Local sales and excise taxes, user fees, interest, state and federal support
provided the rest of the revenues. The Juneau schools are supported by local taxes
levied by the City and Borough of Juneau but also receive funds from other sources.
The 1997 Census of Governments indicated that only 13.5 percent of total local
10
McDowell Group, op. cit. p. 3.
Fairbanks Community Research Quarterly, 24(2), Summer 2001, p. 18.
12 Comprehensive Annual Financial Report for Fiscal Year Ended June 20, 2000, p. 223, Table XII.
13 Comprehensive Annual Financial Report, Fiscal Year Ended June 30, 2000, p. 201, Table 12.
14 Fairbanks North Star Borough, FY2001-2002 Budget, Revenue Summary, p. 23.
15 U.S. Census website; 1997 Census of Governments, County Area Finance & Employment FastFacts.
16 City and Borough of Juneau, FY02 Revised Budget, Summary of Operating Revenues by Source, p.30.
11
13
government revenues in the area of the City and Borough of Juneau came from
property taxes. The Greens Creek Mine’s 4 percent of the local property taxes
represented only about one-half of one percent of total local government revenues (4%
of 13.5% = 0.54%).
In addition, the local taxes paid by metal mining companies are not “pure revenue” or
“pure benefit” to local government units. Taxes are levied to cover the costs of services
that local governments provide to businesses and citizens. Metal mining operations
consume local government services, directly or indirectly, and therefore impose costs
on local governments. Mines rely on roads as well as police, fire, and other emergency
services. Their employees also require local government services including education
for their children and the basic urban infrastructure that supports the local economy.
Because metal mines both pay taxes to and impose costs on local government
agencies, the net fiscal benefit they confer on local governments is substantially less
than the total tax dollars they contribute to total local government revenues.
Looking at all units of local government in evaluating the tax contribution of metal mining
is appropriate if one is trying to understand the role of that particular type of economic
activity and those particular companies in supporting all local government activities. But
some local government units are more dependent on property tax revenues that others.
For that reason, one can expect some local government units to perceive a higher level
of dependence on metal mining than the data above indicates. As the data above
indicated, the Fairbanks North Star relied on property taxes for 63 percent of its
revenues but the City and Borough of Juneau relied on property taxes for only about 17
percent of its because the City and Borough operate as a unified government and
makes heavier use of local sales and excise taxes.
In calculating the impact of metal mining on local government fiscal balance, some have
included the tax payments made by workers and the businesses in which those workers
spend their wages. Such a calculation assumes that if a particular mine were not
operating, the workers and their families would not reside in the area, would not own
property there, and the commercial infrastructure would have to shrink proportionally
because they would not be spending their wages locally. The value of such a calculation
depends upon two questionable assumptions. First, it assumes that these workers,
residents, and businesses required no public services from local government and, as a
result, the taxes they paid were not made to cover the costs of those services but were
entirely “gifts” they made to the local governments. Secondly, it assumes that all
changes in employment lead mechanically to changes in population. The possibility, for
instance, that residents act as entrepreneurs, creating jobs for themselves and their
neighbors, is ignored. Residents are assumed to be passive and helpless, waiting for an
outside company to come along and provide employment opportunities for them.
Neither of these assumptions is economically appropriate and for that reason, extending
the fiscal contribution of mining companies in this way is economically inappropriate.
14
B. Metal Mining’s Contribution to State Government Revenues
Metal mining operations pay a mining license tax to the State of Alaska, but that tax is
reduced or offset in two ways. First, the tax does not have to be paid for three and a half
years after production begins and various tax credits against this tax are allowed for
various types of investments that are made in the mine. In fiscal year 2000 this mining
tax generated net income (after tax credits) of $3.5 million. Over the three years 19982001 the net revenues from this tax averaged $2.1 million.17 The fiscal year 2001 state
budget included revenues totaling $7.3 billion. This total state revenue, however,
includes revenues that flow into the Permanent Fund. If that $1.9 billion in Permanent
Fund revenue is excluded, state revenues totaled $5.6 billion. The average mining tax
revenues over the previous three years represented less than four hundredths of one
percent (0.038 percent) of annual state government revenues.
In addition, all non-fuel mining that takes place on state-owned lands is required to pay
the state a 3 percent of net income as a production royalty. In calculating the royalty
owed to the state, the costs of developing the mine, the costs of operating the mine,
investment in upgrading the mine, and mine company overhead costs can all be
deducted from the value of the minerals produced. In addition, a “non-cost,” the fact
that the value of the mine declines as minerals are removed (“percentage depletion”)
can also be treated as a cost and deducted. As a result of the extensive allowed
deductions from the mineral value produced, many mines pay no royalty to the state.
For instance, the Fort Knox Mine, at the time it poured its millionth ounce of gold in
September of 1999, had not yet had to pay any royalties to the State of Alaska because
its deductions of “costs” allowed it to show no taxable “net income.” Across the state, in
1997, $13.7 million was paid under this royalty provision including $8.7 million that was
paid to municipalities. This too represents a very tiny portion of the total state and local
government budgets.
5. Metal Mining and Local Economic Development
Mineral production (generically referred to as “mining” in federal statistics) is the highest
paid major industry in the nation as well as in Alaska. “Mining” includes oil and gas
exploration and development as well as metal and coal extraction operations. The high
pay is all the more impressive given that mining jobs, in general, are blue-collar jobs
that do not require a college education or advanced degree. It is this high pay that
makes mining jobs attractive to communities.
Historically, mining often laid the basis for the original European settlement of relatively
remote areas of North America including Alaska. Often, however, that settlement was
temporary, lasting only until the mineral deposit was exhausted and the miners moved
on, leaving behind “ghost towns.” Where mining activities persisted over several
decades, the commercial and civic infrastructure to support mining developed locally.
Local fortunes were earned and many of the cultural trappings of an opulent population
also developed: opera houses, theaters, art museums, and up-scale retail stores. But
17
Department of Revenue, Tax Division, FY 2000 Annual Report, p. 38 and Table 2.
15
even in these permanent mining towns, prosperity rarely persisted. The early mining
towns that did persist and prosper, including Juneau and Fairbanks, successfully
diversified their economies away from primary reliance on metal mining. That is clear
from the very small percentage of total income and employment in these cities that now
comes from metal mining. Recall Table 1.
Despite the high pay and enormous wealth associated with metal mining, it is rare to
find a modern metal mining dependent community that is prosperous. Continued
specialization in metal mining rarely leads to ongoing economic development.18 This
anomaly is explained by the fact that community reliance on metal mining jobs also has
significant economic drawbacks. Mining jobs and payrolls tend to be unstable; they
tend to support only very limited local economic development; and they are not likely to
be sources of additional economic activity. Each of these drawbacks will be discussed
in turn.
A. Instability in Metal Mining and Smelting
As Alaska and many of its communities have experienced first hand over the last
several decades, metal mining jobs and payroll are quite unstable. The metals
produced are sold on international markets in competition with other metal producers
worldwide. That competition, as with other commodities like wheat, oil, and seafood,
can lead to over-production. Reliance on the world economy also makes those prices
vulnerable to economic downturns elsewhere in the world such as the “Asian Flu” of the
1990s. The profitability of any particular metal mining, processing, and refining
operation depends upon the international price of the commodity as well as the local
costs of production. International commodity prices can fluctuate widely, leading metal
mines, mills, and smelting facilities to shut down when prices are low and bringing new
producers and competitors online when prices are high. Figure 6 shows the dramatic
declines in inflation-adjusted (“real”) gold, silver, and copper prices over the last decade.
Even when falling prices do not disrupt mining operations, the active life of modern gold
mines is relatively short, 5 to 10 years.19 Figure 6 shows the change in metal prices
over time by setting the prices in 1988 at 1.0 and then tracking how they fell relative to
that reference point. The declines to 0.4 represent a 60 percent decline in the price.
18
This is not to say that metal mining dependent communities cannot escape that dependency. Many
previous “mining towns” have. Juneau and Fairbanks, Alaska, Coeur d’Alene, Idaho, Helena, Montana,
Park City, Utah, and Aspen, Colorado, are just a few examples of towns whose economies now are
hardly tied at all to mining. Breaking the dependency on this one industry has been crucial to these
communities’ successes. Of course there are also many mining towns that did not make that transition
away from mining dependence and became “ghost towns.”
19 The Red Dog zinc and lead mine does not fit that gold mine pattern. If zinc and lead prices stay high
enough, Red Dog has reserves that would allow it to operate for many decades.
16
Figure 6: Changes in Real Metal Prices 1988-2001
1.20
Index of Change (1988 = 1.0)
1.00
Copper
0.80
0.60
Silver
0.40
Gold
0.20
Source: US Geological Survey
88
89
90
91
92
93
94
95
96
97
98
99
0
1
Year
The result is wide cyclical fluctuations in the industry with regular layoffs. The Greens
Creek silver and gold mine outside of Juneau, for instance, opened in 1989 but shut
down after a little more than four years of operation in 1993 because of low metal
prices, laying off 250 workers. It returned to operation in 1996. The Illinois Creek gold
mine near Galena began operation in 1997 but suspended operations just two years
later when falling metal prices forced the mining company into bankruptcy. 20 The Nixon
Fork gold mine near McGrath began operation in 1996 but also declared bankruptcy in
1999 due to low metal prices.
This is not a situation that is unique to Alaska. This same instability and decline are
found throughout the western states and the nation as a whole. In 1999 metal mining
employment in the Mountain West region was down 70 percent from its level in 1980
and down 50 percent nationwide. That is a loss of 22,000 and 50,000 metal mining jobs,
respectively.21 If metal smelting employment were included in the total, the decline
would be larger and steeper. Problems have not only plagued gold mining, they have
also curtailed silver and copper mining and smelting operations.
20
In July 2000 some mining resumed at Illinois Creek under the administration of American Reclamation
Group LLC. That mining is part of a “mining to reclaim” operation under agreement with the State of
Alaska that will finish processing ore stockpiles.
21 US Department of Commerce, Bureau of Economic Analysis, Regional Economic Information System,
SA27 files, wage and salary employment.
17
The history of metal mining and metal ore processing over the last twenty years in the
western states and the nation is one of instability and decline. There is no evidence that
that pattern will be reversed. That pattern of economic disruption has a very negative
impact on the economic development of the communities that come to depend upon
these industries.
B. The Economic Cost of Dependency on Metal Mining and Processing
When the income associated with an economic activity is not stable and reliable,
economic actors respond in ways that seek to protect themselves against that
instability. In particular, if a community is quite dependent on an industry that has
proved to be unstable in the past, investors will be very hesitant to risk their capital
there. Existing business owners will hesitate before investing in the upgrade or
expansion of their businesses. Workers will be hesitant to invest their limited savings in
a home whose value may be threatened by a mine or smelter closing. Even local
government agencies such as school boards will be hesitant to invest in new
infrastructure for fear that a downturn will make it impossible to pay off the bonds that
financed the public investments.
When the economic activity on which the community depends also significantly
damages the natural environment, there is likely to be additional hesitancy to invest.
Ongoing degradation of air and water quality and damage to the surrounding natural
landscape makes an area a less attractive place to live, work, and do business. As a
result, property values decline. Study after study has documented the negative impact
that pollution has on property values.22 People care where they live and are very
careful about where they make what for most is the largest investment of their lives, the
investment in their homes.
Economic instability and environmental degradation discourages local investments in
communities that are overly dependent upon mining and mineral processing. As a
“Stigma of Environmental Damage on Residential Property Values,” Gordon C. Rausser, University of
California at Berkeley, EPA Grant Number: R825995, August, 1998, final report available at
http://es/epa/gov/ncerqa/final/rausser.html. Also see “Property Values, Stigma, and Superfund,” Working
Paper prepared for US EPA, OERR, by Environmental Management Support Inc., July, 1999. Also see:
Been, V. 1994. "Locally Undesirable Land Uses in Minority Neighborhoods: Disproportionate Siting or
Market Dynamics?" Yale Law Journal 103:1383; Clark, D.E. 1992. "Do Noxious Facilities Influence
Migration Rates? Evidence from a Countywide Model." Paper presented at the Annual Meeting of the
Regional Science Association Int'l. Marquette University. Chicago, IL; Meyer, S.M. 1992.
"Environmentalism and Economic Prosperity: Testing the Environmental Impact Hypothesis." Project on
Environmental Politics and Policy. Massachusetts Institute of Technology; Blomquist, G.C. et al., 1988.
"New Estimates of Quality of Life in Urban Areas." American Economic Review 78(1):89-108; Hoch, I.
1978. "Variations in the Quality of Urban Life Among Cities and Regions." In L. Wingo and A. Evans,
Public Economics and the Quality of Life. Johns Hopkins; Ullman, E. 1954. "Amenities as a Factor in
Regional Growth." Geographical Review 44:119-132; Harrison, David, Jr., and Daniel L. Rubinfeld.
1978. ``Hedonic Housing Prices and the Demand for Clean Air.'' Journal of Environmental Economics 5:
81-102; Mendelsohn, Robert, and Guy Orcutt. 1979. ``An Empirical Analysis of Air Pollution.'' Journal of
Environmental Economics and Management 6: 85-106.
22
18
result economic development is retarded in mining and processing towns despite the
high wages paid. That is why it is hard to find prosperous mining towns. Often the
opposite is true; mining has come to be synonymous with under-development,
economic failure, and poverty as in Appalachia and the Ozarks and the mining “ghost
towns” that are found throughout the West including Alaska and the Yukon.23
C. The Limited Long Term Economic Potential of Metal Mining
The employment and income potential of metal mining in Alaska can be broken down
into several different pieces: 1. the physical potential for new mining, 2. the economic
potential for new mining, and 3. the long term potential associated with existing and new
mines.
1. Because of its huge size, remote location, and highly mineralized
landscape, Alaska is often portrayed as a virtual “treasure trove” of commercial mineral
potential.24 Physical presence of minerals, however, does not by itself represent feasible
economic opportunity. Many other regions of the United States and the world also have
high mineral potential that either has not been developed, was developed and
abandoned, or was developed but poverty, not prosperity, followed. Most states in the
US have energy, metal, and other mineral potential, but, despite this “potential,” mining
production has not become a significant part of the actual economy.
2. It is not just the physical presence of minerals that matters but the
economic characteristics of the deposits and the international markets into which they
would be sold. If a deposit has higher exploration, development, extraction, processing,
and delivery costs than other deposits around the nation and the world, it is likely to
remain undeveloped. Only the most economically attractive mineral sites get
developed, not all sites. In addition, as already discussed, commodity prices determine
whether a deposit gets developed and, if developed, whether it continues to be mined.
For almost two decades mineral prices have been low and mineral development
discouraged. This is no clear evidence that this economic situation will soon change.
3. Even when mines are operating, the employment and income potential
associated with them is likely to be either relatively short term and/or shrinking. This is
tied to two factors. First, many modern metal mines operate for only five to ten years
before exhausting the deposit. For instance, counting not only the “proven” but also the
23For
instance, Dawson City had a population of over 30,000 people at the peak of the Klondike Gold
Rush at the end of the 19th century. It now has a permanent population of about 2,000 and is mostly
focused on seasonal tourism and placer mining. Alaska’s McCarthy and Kennecott originally serviced the
Kennecott Copper Company’s mining operations. The area had a peak population of about 1,500 but
now has only 35 permanent residents and is surrounded by the Wrangell-St. Elias National Park.
24 The Fraser Institute of British Columbia, for instance, annually polls mining companies operating in
North and South America on the geological potential for mining in 35 political jurisdictions (Western
states, Canadian provinces and Territories, and Central and South American nations). Using top ranked
Nevada as a reference point scored at 100, other jurisdictions were rated for their mineral potential.
Alaska was tied for third with Quebec at a score of 94 just below Chile that scored 97. “Annual Survey of
Mining Companies 1999/2000,” Vancouver, BC.
19
“probable” gold ore reserves and including the reserves associate with the recently
permitted True North Mine as well as the Fort Knox Mine, at Kinross Gold Corporation’s
planned rate of production, those reserves will last about 8 years.25 The Greens Creek
Mine estimates current reserves can support 12 more years of mining. This is in
dramatic contrast with some historic mines that have operated for a century or more
such as those in Butte, MT, Kellogg, ID, Silver City, NM, and Lead, SD. Of course, if
metal prices are high enough and/or technological developments allow cost to be cut
enough and/or additional reserves are discovered, these contemporary mining
operations could last significantly longer. On the other hand, if metal prices fall further or
remain low, the mines could shut down sooner as several Alaskan metal mining
operations did during the 1990s.
Second, metal and other mineral extraction is a mature industry in which
technological developments are constantly displacing workers. Worker productivity has
been rising more rapidly in metal mining and processing than in almost any other major
industry. Put the other way around, the number of workers needed to produce a given
quantity of metal from metal ores has fallen rapidly. Just over the last ten years the
labor requirements in gold and silver mining have fallen by 40 percent. Longer term
statistics on labor productivity in this sector are not available but the statistics on other
types of mining tell the long term story: In copper mining in the late 1990s, labor
requirements per unit output were only a fifth of what they were in 1955; in coal mining
they are only a quarter of what they were in 1955. There is no reason to believe that
Figure 7: The Decline in Jobs per Unit Output in
Mining: Gold, Silver, and Copper
Index of Jobs per Unit Output
1.2
1
Copper
0.8
Gold
0.6
Gold and Silver
0.4
0.2
Source: US Dept. of Labor, BLS, Productivity Measures for
Selected Industries, Bull. 2421, 1993.
0
87
88
89
90
91
92
Year
25
Kinross Gold Corporation, Annual Report, pp. 6, 8 and 9.
20
93
94
95
96
97
this decline in labor requirements is at an end in mining. See Figures 7 and 8.
Figure 8:The Decline in Jobs per Unit Output
in Mining: Copper and Coal
Index of Jobs per Unit Output
1.2
1
Copper
0.8
0.6
Coal
0.4
0.2
Source: US Dept. of Labor, BLS, Productivity Measures for
Selected Industries, Bull. 2421, 1993.
97
94
91
88
85
82
79
76
73
70
67
64
61
58
55
0
Year
As a result of these improvements in labor productivity, much larger quantities of
minerals can be extracted while the mining workforce continues to decline. The point is
that even if markets supported a significant increase in gold production that does not
necessarily mean a significant increase in employment or payroll. Both could actually
decline over time despite increased output. See Figure 9. The same pattern is seen in
Alaska. Between 1992 and 1999 the real value of metal mine production in Alaska
increased by 83 percent but metal mining payroll hardly increased at all (+5 percent).
See Figure 10a. The dramatic expansion in metal mining was not significantly
expanding the benefits to Alaska workers.
Gold mining in Nevada provides dramatic evidence of how mining jobs can disappear
even as mine production expands. Between 1990 and 2000, gold production in Nevada
expanded by 50 percent, but metal mining jobs shrank by 3,700, a decline of 27
percent.26 See Figure 10b.
26
In addition to gold mining, there is also silver and copper production in Nevada. Most of the silver
production is related to the gold production. The copper production is relatively small and was at the
same level at the end of the 1990s as it was at the beginning although there was a brief expansion in
1997-1999 as the BHP operation started up and then shut down.
21
Figure 9: US Metal Mining Employment and Output
120,000
120
100,000
100
80,000
80
60,000
60
Metal Mining Employment
40,000
20,000
40
Sources: Employment from BEA REIS; Index
of Industrial Production from Federal
Reserve System.
-
20
Metal Mining Industrial Production
Index
Metal Mining Jobs
Index of Metal Mining
Production
0
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99
Year
The coal industry in Utah provides another dramatic example of how significant
expansions in mineral production can take place while mining jobs disappear. Between
1981 and 1997 coal production in Utah more than doubled from 13.8 to 28.6 million
short tons. The number of employees in the coal industry, however, was almost cut in
half, from 4,200 to 2,200 workers.27 The net result was that the labor requirements to
produce a ton of coal were cut to a quarter of what they had been in less than two
decades. A similar pattern can be found in Wyoming coal operations.
27
State of Utah, Natural Resources Department, Office of Energy and Resource Planning.
22
Figure 10a: Changes in the Real Value of
Alaskan Metal Production and Payroll
Index of Change: 1992 = 1.0
2
Value of Output
+83%
1.8
1.6
1.4
1.2
Payroll
+5%
1992 Level
1
0.8
0.6
1992
1993
1994
1995
1996
1997
1998
1999
Year
D. The Environmental and Financial Risks of Metal Mining to Taxpayers
Because metal mining involves major disturbances of the natural landscape, both
federal and state laws require that after mining activity ceases the disturbed land be
restored or “reclaimed” and that threats to water and air quality be eliminated. Given
the massive size of many open pit operations and their related waste piles and tailings
impoundments, reclamation can be very expensive. When exposure of previously
buried rock to air and water leads to acid mine drainage a serious, very long-term,
environmental problem can be created. In addition, and usually accelerated by the
acidic water, heavy metals can leach out of the rock, creating an additional serious
environmental problem. It is often very difficult and expensive to stop or reverse these
mining-related water pollution problems once they are created.
The size of these reclamation and environmental restoration costs can be seen in
various public and private efforts to assure the financial capacity to cover them. In the
year 2001 the New Mexico Mining and Minerals Division estimated that $759 million in
financial assurance would be required to cover Phelps Dodge’s Chino copper mine
closeout plan, including its reclamation and environmental stabilization plan, outside of
Silver City, New Mexico. The Silver City environmental group, Gila Resources
Information Project hired a mining engineer to provide an independent estimate of what
it could cost to close this one mine. He estimated that a financial assurance of $987
million was required. Phelps Dodge estimated the required bond to be only about $100
23
million. In addition Phelps Dodge also has to fund a close out plan for the adjacent and
equally large Tyrone copper mine.28
The reclamation costs being discussed for the Chino mine are not unusually large when
compared to the provisions that other mining companies have made for reclamation and
environmental protection. Rio Tinto, for instance, the parent company of Kennecott
Minerals Company, the operator of the Greens Creek Mine, has estimated that its “close
down and restoration and other environmental obligations” for all of its operations will
total $2.6 billion. It lists as a liability on its balance sheet $1.4 billion, its estimate of the
discounted present value of that cost.29 This reclamation liability has increased almost
a billion dollars since 1996 when it was $484 million.30
The Atlantic Richfield Company (Arco) before it merged with BP Amoco carried $870
Figure 10b: Gold Production and
Metal Mine Employment in Nevada
300,000
18,000
Gold Production
+89,000 kg or +50%
Gold Production (kg)
250,000
17,000
16,000
15,000
200,000
14,000
13,000
150,000
12,000
11,000
100,000
Metal Mining Jobs
-3,700 or -27%
50,000
10,000
9,000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Year
28
See High County News, Vol. 33, No. 23, December 3, 2001, p. 1.
2000 Annual Report and Financial Statements, Note 17, footnote c, p. 87.
30 Use of Financial Surety for Environmental Purposes, A paper prepared for the International
Council on Metals and the Environment. George Miller, 1998, p. 33.
http://www.icme.com/icme/LimitedEditions/finsurety.htm
29
24
million in reserves for environmental remediation of its operations and another $1.1
billion for reclamation and restoration of the old Anaconda Copper Company mining and
smelting sites in Montana and elsewhere. It warned investors that its analysis indicated
that the environmental remediation costs might be as much as $500 million higher than
the $870 million reserved for these purposes. That would put its total environmental
liability between $2 and $2.5 billion. These Arco environmental remediation costs were
largely associated with discontinued mining operations in New Mexico, Utah, and
Montana.31
These reclamation and restoration costs are as huge as they are because they are
associated with mining and smelting operations that have stretched over most of the
twentieth century or longer and continued into the present when they became subject to
contemporary environmental regulation and mine cleanup and reclamation
requirements.
But mining operations of shorter duration can also create environmental problems that
are very costly to clean up. That is why states have increasingly required that metal
mining operations provide substantial financial guarantees in the form of bonds or
insurance policies or other financial assurances to make sure that when the mine
ceases operation, there are substantial funds available for reclamation and restoration.
Such bonding is extremely important because mining companies increasingly are legally
structured so that they hold almost no assets beyond the mine itself. When the mine
ceases to be economically feasible to operate, the local mining company is left with
almost no remaining assets. Profits from past operations are regularly transferred to a
parent company or stockholders so that there are no reserves left within the local mining
company itself. In this situation, a local mining company can declare bankruptcy when
market conditions and/or mine depletion render the operation no longer profitable. If the
company has not been required to provide a sufficient bond ahead of time, there may
not be resources available to support reclamation and restoration. In that setting
citizens either have to accept the ongoing environmental damage associated with the
un-reclaimed mine site or fund the reclamation and restoration themselves using
general taxpayers’ funds.
This is not an empty fear. For example, in 1998 the Pegasus Gold Corporation declared
bankruptcy, abandoning its adjacent Zortman and Landusky mines and two other mines
in Montana. The State of Montana had required a bond of $22 million for the Zortman
and Landusky mines, but the reclamation costs are estimated to run as high as $204
million. The state government will have to pick up the part of the reclamation bill not
covered by Pegasus’ inadequate bond, forcing Montana to tradeoff strains on the state
budget against leaving much of the environmental damage un-repaired. The State of
31
BP Amoco PLC and Atlantic Richfield Company merger financial documents: Note 15, p. 114, Other
Commitments and Contingencies and Part VII, Section 7, p. 215, “Environmental Protection and
Remediation Costs.” www.bp.com/downloads/79/BP_Listing.pdf
25
Montana is currently proposing a $52 million reclamation plan that would leave the
people of the state with a $30 million bill and $150 million in un-repaired damage.32
An Alaskan example is provided by the Illinois Creek Mine. USMX Alaska, a wholly
owned subsidiary of Dakota Mining Corporation, began construction of the mine in mid1996 and began production in early 1997. With gold prices at about $400 per ounce the
mine was expected to have a 6 to 8 year life. But when gold prices fell to $300, the
mining company was not able to cover its operating costs and shut down during the
summer of 1997 after only a few months of operation. The mine soon returned to
production under a court-appointed receiver with USMX continuing as operator. In May
of 1998 USMX Alaska declared bankruptcy. The State of Alaska seized the $1.6 million
reclamation bond that had been required, but the reclamation costs were estimated by
the state to be $2.65 million. The State of Alaska also seized the mine and contracted
with a new operator to continue with the mining in hopes that it will generate enough
profit to cover the shortfall between reclamation costs and the reclamation bond.
Reclamation is supposed to take place simultaneously with the continued mining. To
cover the reclamation costs of a bankrupt mining company, the State of Alaska has had
to go into the mining business itself, increasing the disturbed area and the potential size
of the reclamation problems. The alternative would have been for taxpayers to shoulder
the reclamation bond short fall themselves. 33
The size and character of the metal mine reclamation problems that will be faced in
Alaska could be different depending on the type of mining (e.g. underground versus
open pit), the location of the mine, and the specific local geological features that
determine the extent of the water pollution problems. It is unlikely, however, that the
cost of effective reclamation will be lower in Alaska than in the lower forty-eight states.
Isolation, rugged geography, cold temperatures, small population, etc. are likely to raise
the cost of reclamation just as they have raised the cost of mining.
These are not isolated problems. Here is how mining and reclamation engineer Jim
Kuipers described the size of the problem:
American taxpayers are faced with significant liability for mines left un-reclaimed,
shifting the economic burden from the companies that profited from the mines
and leaving environmental disasters behind for the public to clean up. The
number of bankrupt or abandoned mines has increased significantly, with state
and/or federal agencies presently potentially responsible for at least some portion
of the cleanup costs of 13 mines in Nevada, five in Montana, and additional
mines in South Dakota, Alaska, Idaho, Colorado and New Mexico. Given the
32
The $204 million is the estimated cost of the reclamation environmental groups insist is required
(“Defining Reclamation,” Down to Earth, Nov. 2001, p. 10, Montana Environmental Information Center).
Pegasus forfeited its $30 million reclamation bond when it went bankrupt; the $52 million is the preferred
alternative of the Montana Department of Environmental Quality in its “Draft Supplemental Environmental
Impact Statement for Reclamation of Zortman and Landusky Mines,” May 7, 2001.
33 Hardrock Reclamation Bonding Practices in the Western United States, James R. Kuipers, PE,
Center for Science in Public Participation, Bozeman, Montana, for the National Wildlife Federation,
February 2000, p. 30
26
potential for a major collapse within the gold and copper mining industry (as
demonstrated by recent metals prices at 20-year lows), the potential for public
liability of an even greater magnitude certainly exists. The relatively obscure
regulatory principal of reclamation bonding has recently become more important
and warrants both public and regulatory scrutiny. 34
Mining engineer Kuipers had specific concerns about Alaska’s reclamation laws. His
general conclusions after evaluating various aspects of those laws were the following:
In its present form, Alaska’s Reclamation Act fails to protect the public from
paying the potential costs associated with reclamation of the mines currently
active in the state. Issues with respect to surface and groundwater contamination
are not being currently addressed. Also, existing bond amounts do not reflect the
state’s cost to conduct reclamation and closure in the event a mining company
fails to fulfill its obligations. Urgent and significant reform of the Alaska
Reclamation Act should be a priority to encourage responsible mining practices
and to protect against public liability.35
Without adequate reclamation requirements and bonding, metal mining operations can
leave citizens and their governments with very large financial obligations and nearpermanent environmental damage. This, as will be discussed below, can have longterm negative implications for local economic development.
6. Metal Mining as a “Basic Industry” That Energizes the Alaskan Economy
Despite the fact that metal mining provides only about one-half of one percent of the
jobs held by Alaskans and provides a similarly tiny percentage of the total income
received by residents, some believe that metal mining holds a special place within the
Alaskan economy that makes it much more important than these numbers suggest.
This belief in the importance of metal mining is partially tied to the historical role the
industry played in the European settlement of Alaska and the Fairbanks and Juneau
areas. But economic history is not usually a good guide to the economic present or
future. Trying to explain current day Pittsburgh, Chicago, Denver, or Portland in terms of
steel, meat packing, ranching, or timber, respectively, would not be very useful.
Another reason that metal mining is assumed to play a special role in the economy, far
in excess of its size, is the prevalence of metals in almost all of the goods we use,
especially in the manufacturing sectors of the economy. Without metals, it is hard to
imagine an industrial or, even, a high-tech society. But that is also true of food, air,
water, energy sources, education, science, technology, vitamins, antibiotics, and
innumerable other things. Knowing that something is necessary for economic activity
tells us nothing about how important it is to produce more of it. Food and metals may
be necessary, but it is quite possible to over-produce them, driving the value of
additional production so low that it is not economically rational to produce more.
34Ibid,
35
p. 3.
Ibid, pp. 322-329.
27
Another reason that some believe that metal mining is special and more important that
the direct employment and income numbers suggest is that metal mining, like oil
production and fisheries, brings income into the Alaskan economy from the outside
through its export of products to the rest of the world. Industries that “inject” income into
the local economy are often depicted as the engines that drive the rest of the economy.
They are special because, it is believed, without them, only truly subsistence economic
activity could take place locally. From this point of view, industries like metal mining are
seen as providing the money that circulates in the local economy, allowing people to
make purchases at local businesses and pay taxes to support local public services.
Without that money proponents of this “economic base” view believe that there would
be no local businesses or local public services, only a dispersed population living off the
land.
Because this latter view of metal mining and other natural resource industries is so
prevalent in economic discussions in Alaska, it is important to look more closely and
critically at the particular way in which metal mining is believed to be special.
A. Basic Industry: Economic activities that bring income in from the outside are
often called “basic” economic activities because they are seen as the source of the
income that then makes possible the locally oriented economic activities. Basic
economic activity is seen as causing or facilitating locally oriented economic activity. In
that sense basic economic activity is believed to have a local economic impact that is
larger than just the number of jobs or the size of the payroll associated with it. There
are said to be “spin-off” or “ripple” or “multiplier” impacts associated with basic economic
activities that amplify their ultimate impacts on the local economy.
B. The Failure of the Economic Base Approach to Explain Economic Changes:
The more popular version of the “economic base” approach to explaining changes in the
local economy focuses on certain industries that are assumed to make up the state or
local area’s economic base. In Alaska those basic sectors include mineral production
(oil, gas, coal, and metal mining), the construction and operation of the Alyeska pipeline,
the federal government, agriculture, fishing, and logging and the manufacturing
associated with them. It is these industries that are assumed to drive the rest of the
Alaskan economy. Although this popular view of the economy has intuitive appeal, it
does not do a very good job of explaining changes that have taken place in the Alaskan
economy over the last two decades.
Between 1988 and 1999 real income earned in these “basic sectors” declined by about
seven percent or $400 million. But the rest of the Alaskan economy, instead of
following this downward trend, expanded significantly, adding $3 billion or 31 percent in
real terms. Between 1969 and 1999 these “basic sectors” added about 5,300 jobs or 8
percent, but total employment expanded by 241,000 or 220 percent. During the 1990s
employment in the basic sectors declined by 15,600 jobs or 17 percent while jobs in the
28
rest of the economy moved the opposite direction, growing by 56,400 jobs or 22
percent. See Figures 11 and 12.
The industries in which these job losses and job gains too place are shown in Table 4.
It is important to note that the shift in employment that took place during the 1990s
cannot be accurately characterized as a loss of high-paid natural resource jobs and
their replacement with low paid “tourist” or “burger-flipping” jobs. Among the industries
with the largest gains in employment were construction, transportation,
communications, finance, health services, educational and social services, engineering
and management services, state and local government. Tourism-related sectors did
gain jobs, 3,600 in eating and drinking places, 2,600 in hotel and lodging, and 3,400 in
amusement and recreation. All of those job gains, of course, are not tied to tourists
since these businesses also serve local residents. Even so, these jobs gains
represented only one-sixth of the 57,000 new jobs shown in Table 4.
Part of the reason that this popular view of the economic base is not very good at
predicting changes in the local economy is that the economic base is often not
accurately defined. For instance, although Alaskan Permanent Fund dividend
payments to Alaskan residents are likely to be included in the economic base, federal
Social Security and Medicare reimbursement payments are usually ignored. Also, the
part of Alaskan state government spending that is financed from oil royalties should be
treated as part of the economic base. Other property income (rent, interest, dividends,
etc.) received by individuals and spent in Alaska should also be accounted for. A final
example of income flows that are sometimes ignored is the spending of tourists,
something that is not easily measured because much of it flows into businesses that
also serve residents.36 However, even when the economic base is carefully specified
and includes all of these, it is often the case that the rest of the economy moves
independently of the economic base for reasons that will be discussed below. The
“economic base,” including metal mining, does not have the predictable and reliable
impact suggested by advocates of this theoretical view of the local economy.
36
A 1998 estimate of the direct employment associated with tourism was 16,400 jobs and $315 million in
earnings. This would add about 8 percent to basic earnings and 23 percent to basic jobs when those are
crudely estimated as they were in Figures 10 and 11. The wide difference between these two
percentages is due to the seasonal, part-time, and relatively low-paid nature of many tourist jobs. See
Visitor Industry Economic Impact Study, May 1999, McDowell Group, Prepared under Alaska Visitor
Statistics Program for State of Alaska Division of Tourism. Also see Alaska Visitor Arrivals Summer 1999.
McDowell Group, 2000. http://www.dced.state.ak.us/cbd/toubus/pub/impact99.pdf.
29
Figure 11: Alaskan Real Basic and Non-Basic Income
$14,000,000
Real Income ($1,000s)
$12,000,000
The Rest of the Economy
+$3 billion or +31%
$10,000,000
$8,000,000
$6,000,000
Basic Income
-$400 million or -7%
$4,000,000
$2,000,000
Basic: Mineral Production, Pipeline, Permanent Fund Dividends, Federal
Government, Heavy Construction, Manufacturing, Fishing, Forestry, and
Agriculture
$88
89
90
91
92
93
94
95
96
97
98
99
Year
C. Being Cautious about Multiplier Impacts: The direct employment and payroll
associated with a particular economic activity like metal mining are known and
measurable quantities. Those economic facts are what we reported on above. Multiplier
impacts are estimated impacts based on a particular economic theory that may or may
not be appropriate. In many ways, multiplier impacts are speculative and are easily
manipulated for political purposes. For that reason they should not be treated as
economic facts.37
37For
a discussion of the limitations of the economic base approach to the local economy see Chapter 7,
“The Economic Base: Distracting Vision, Distorting Reality,” in the author’s Environmental Protection
and Economic Well-Being: The Economic Pursuit of Quality, M.E. Sharpe Publishers, 1996; also
Chapter 1, “Thinking About the Local Economy,” in Lost Landscapes and Failed Economies: The
Search for a Value of Place, Island Press, Washington, DC, 1996.
30
Figure 12: Changes in Alaskan Basic and
Non-Basic Jobs ,1988-1999
1.3
The Rest of the Economy
+22% or +56,400 jobs
Index of Change: 1988 = 1.0
1.2
1.1
1
Basic Sector Jobs:
-17% or -15,600 jobs
0.9
0.8
Basic Sectors: Agriculture, Fishing, Forestry,Mineral Industries,
Manufacturing, Pipeline & Transportation Services, Federal
Government, Heavy Construction.
0.7
91
92
93
94
95
96
97
98
99
Year
Job “losses” calculated through multiplier analysis often are not losses at all but just
slightly slower rates of job growth. Often no one actually loses a job; job creation is
simply smaller than it might otherwise be projected to be. For instance, between 1989
and 1999 the Fairbanks area economy added an average of 700 jobs a year for a total
gain of about 7,000 jobs. The True North Mine development is projected by Kinross
Gold Corporation to add about 250 new jobs once “multiplier” impacts are accounted
for. If job creation in the future takes place at about the same rate as over the past
decade and the True North Mine is not developed, the job growth might be 6,750
instead of 7,000. To most people there is a big difference between projecting that 250
jobs will be “lost” if a particular action is taken and projecting that average annual job
growth in a particular area over a decade will be 675 jobs instead of 700. One
description might suggest serious disruption for families and communities while the
other might sound reassuring. Yet job loss statements often actually mean the just such
a slightly slower rate of growth rather than job losses.
31
Table 4: Losses and Gains in Alaskan Employment: 1991-1999
Job Losses
Oil & Gas Extraction
Heavy Construction
Lumber & Wood Products
Pulp & Paper
Food Processing
Other Manufacturing
Military
Federal Civilian
Job Gains
-2,875
-895
-921
-813
-2,512
-525
-7,655
-2,126
Manufacturing, not food or forest prodt.
Fishing
Other construction
Transportation
Communications
Trade
Eating & Drinking Places
Finance
Services
Hotel & Lodging
Amusement & Recreation
Health Services
Social Services
Educational Services
Engineering & Management Services
Native American Government
State Government
Local Government
525
1,623
5,988
3,168
1,512
12,332
3,627
3,423
24,737
2,622
3,383
5,226
2,318
1,007
2,043
3,666
1,382
2,492
Source: REIS, BEA, USDOC, CD-ROM
7. Moving Beyond the Economic Base View of the Local Economy:
Amenity Supported Local Economic Vitality
Within the context of the economic base view of the local economy, local economic
health is determined by the health and profitability of those export-oriented businesses
that the local community is blessed with. In that context, any government regulations
that might reduce that profitability can be depicted as threatening local economic health.
That way of looking at the economy is the source of the claim that environmental
regulation damages the economy. From this perspective, enforcing water quality
standards or imposing reclamation requirements on metal mines can be depicted as
threatening local jobs and income. This dichotomy between environmental protection
and economic well-being, however, is a false one, largely created by the incomplete
nature of the way the economic base approach encourages us to think about the local
economy.
Discussions of the Alaskan economy are almost exclusively carried out in the context of
the economic base view of the state and local economies. In that view business firms
are assumed to locate in a particular area because of certain site-specific resources
such as oil and natural gas fields, gold ore, fisheries, timber, etc. These business firms
create jobs to which the workforce responds. Workers and their families move to where
the jobs happen to be located. The distribution of these export oriented natural resource
32
firms explains why people live where they do. Or so this incomplete view of the local
economy assumes.
To many this is just hard-nosed economic realism. “That’s the way the economy is.”
But this approach implicitly makes two assumptions that, when stated, appear very
questionable. The first is that people do not care where they live. They simply move to
where the economy demands. The second is that business firms do not care either
about where workers live or would like to live or where the markets for those business
firms’ products are located. The location of the population determines both of these, but
firms are assumed to ignore both and choose their location on some other basis.
Neither of these assumptions can be defended on either theoretical or factual grounds.
Abandoning them introduces residential location choice as an important economic force
in determining the location of economic activity and seriously undermines the economic
base approach.
During the second half of the twentieth century, changes in the economy have made
residential location choices increasingly important in the determination of the location of
economic activity. These changes have made both people and businesses more
“footloose.” Those changes include the following:
(i.) Improvements in transportation and communications that have
drastically reduced the costs associated with geographic distance from economic
centers. These changes include improved highway systems, the extension of regular
airline service to small cities, the development of modern telecommunications networks
and technology, the development of national and international television networks that
reach the most isolated locations, and the emergence of competing next-day courier
service. These changes significantly reduce the sense of isolation from the national
economy and culture associated with locations far removed from the nation’s largest
metropolitan areas. Alaska is no longer an isolated state cut off from the rest of the
nation.
(ii.) Changes in what it is the economy produces have also had an
important impact on the location of economic activity. With the shift from the dominance
of extractive and heavy industry to light manufacturing and services, the relative
importance of transportation costs has declined as the value to weight ratio has risen
dramatically. Transportation costs no longer tie economic activity as tightly to particular
locations.38
These two changes explain why retail trade and services that used to be provided by
Seattle and other west coast cities are now successfully provided by Alaska’s own trade
centers. During the 1990s, almost 40,000 jobs were added in trade and services. In
38
Mills, Edwin S., and Gary Chodes. 1988. "Non Extractive Employment Outside Metropolitan Areas" in
National Rural Studies Committee: A Proceedings. Hood River, Oregon. May 24-25, 1988. Corvallis,
OR: Western Rural Development Center, Oregon State University. Edited by Emery Castle and Barbara
Baldwin, pp. 29-36. Mills, Edwin S. 1987. The Determinants of Small Area Growth. Lecture Series 1.
Corvallis, OR: Oregon State University, Graduate Faculty of Economics.
33
addition, 3,200 transportation, 1,500 communication, and 3,400 finance jobs were
added. The ongoing growth in the commercial infrastructure (as well as modest
population growth) also supported 6,000 construction jobs outside of heavy
construction.
As a result of these changes and the relative mobility of economic activity, it is less
costly for citizens to act on their preferences for certain types of living environments.
Similarly, it has made it more feasible for economic activity to follow the population as it
makes residential location decisions. The result is that economic activity increasingly
follows people rather than people passively following businesses. Consider the shift
from center cities to suburbs: First people fled those centers of employment and
commercial activity and commuted back for work and shopping. Later the
manufacturing base followed the population to the suburbs, as did the shopping centers.
Similar things can be said about the move to the Sunbelt or the current resettlement of
the Mountain West.
Since the mid-1950s economists have emphasized the importance of residential
location decisions as a powerful economic force. They focused on the role of local
environmental “amenities” such as climate and natural landscapes in the settlement of
the desert southwest (including Southern California and Arizona), Florida, and the
Pacific Northwest.39 Tiebout (1955) underlined the fact that people “shop around” for
the social amenities produced by different levels of local government taxation and
different public spending patterns.40 Borts and Stein (1964) argued that in a mobile,
open economy, it would be an area’s ability to attract and hold a labor force without
bidding labor costs up that would determine the geographic distribution of economic
activity.41 These economic forces tied to local amenities continue to operate in
important ways today, helping to explain the above average economic performances of
the Pacific Northwest and Mountain West states over the last decade.42
Conventional regional economic analysis now regularly takes into account the role of
social and natural amenities in explaining migration patterns and regional development
patterns. The US Department of Agriculture, for instance, which long has used farm,
manufacturing, and mining to classify the major economic characteristic of
nonmetropolitan counties in harmony with the simple economic-base approach, has
expanded its economic classification to include “amenity” counties. This became
necessary in the 1980s when a group of nonmetropolitan counties showed ongoing
growth despite the economic difficulties most nonmetropolitan counties were having.
39
Ullman, Edward, 1954, “Amenities As a Factor in Regional Growth, Geographic Review, 44(1): 119132.
Tiebout, Charles, 1956, “A Pure Theory of Local Expenditures, Journal of Political Economy, 64(2):
160-164.
41 Borts, G.H., and J.L. Stein, 1964, Economic Growth in a Free Market, New York: Columbia
University Press
42Thomas M. Power and Richard Barrett, Post Cowboy Economics: Pay and Prosperity in the New
American West, Island Press, forthcoming, Spring 2000; Power, Thomas M., 1995, editor, “Economic
Well-Being and Environmental Protection in the Pacific Northwest: A Consensus Report by Pacific
Northwest Economists, Department of Economics, University of Montana, Missoula, MT, December.
34
The common denominator in these counties was their attractive landscape and climatic
features that attracted recreationists, retirees, and other new residents. This impact of
amenities has accelerated in the 1990s.43 Similarly, most migration modeling now takes
into account the role of local amenities along with employment and income opportunities
and cost of living.44
Of course, most areas are not “amenity” magnets that draw national attention. That,
however, does not mean that the attractiveness of a particular area to current and
potential residents is unimportant. Most small towns and rural areas in the West have
gained population and the new economic activity that supports it during the 1990s. 45
The characteristics of a local area that allow it to attract and hold people are an
important part of the area’s economic base. If this is not recognized, that part of the
economic base may be irreversibly damaged.
When we recognize the importance of social and natural amenities to local economic
vitality, a quite different picture of the forces driving the local economy emerge. The
ability of an area to attract and hold residents is central to its economic vitality. In that
context, those locally specific qualities that make a particular area an attractive place to
live, work, and do business are not just of aesthetic interest, they are part of the local
area’s economic base. High quality living environments attract and hold people and
businesses. That in turn triggers a series of dynamic changes that support ongoing
local economic vitality. The quality of the social and natural environments have
profound economic implications.
The local economic development case for protecting natural landscapes can be
summarized very directly: People care where they live. They care about the qualities of
the natural and social environments that make up their living environment, and they act
on those preferences. They are willing to make sacrifices to obtain access to these
natural amenities. High quality natural environments draw people and businesses to
areas even when economic opportunities are otherwise quite limited. As a result,
economic activity shifts towards those preferred living environments.
43
U.S. Department of Agriculture (USDA), 1996, Economic Research Service, Rural Conditions and
Trends, 7(3):40-44, p. 9. See also Deavers, K., 1989, The Reversal of the Rural Renaissance,
Entrepreneurial Economy Review, 3-5; Beale, C.L. and G.V. Fuguitt, 1990, Decade of Pessimistic
Nonmetro Population Trends Ends on Optimistic Note, Rural Development Perspectives, 6(3): 14-18;
Peggy J. Cook and Karen L. Mizer, The Revised ERS County Typology: An Overview, Rural
Development Research Report Number 89, Economic Research Service, USDA, 1994; Johnson,
Kenneth M., and Calvin L. Beale, Nonmetropolitan Recreational Counties: Identification and Fiscal
Concerns, Demographic Change and Fiscal Stress Project, Loyola University, Chicago, January,
1995.
44 Greenwood, Michael J., G.L. Hunt, D.S. Rickman, and G.I. Treyz, 1991,”Migration, Regional
Equilibrium, and the Estimation of Compensating Differentials,” Journal of Regional Science, 26(2):223234. Berger, M.C. and G. C. Blomquist, 1992, “Mobility and Destination in Migration Decisions: The Roles
of Earnings, Quality of Life, and Housing Prices,” Journal of Housing Economics 2: 37-59.
45 See the special issue of Rural Development Perspectives on the rural West, 14(2), August 1999,
USDA, Economic Research Service.
35
Because this aspect of community economic development shifts the emphasis away
from exclusive focus upon natural resource industries, it might be interpreted as
suggesting that natural resources do not matter as much to these communities any
longer. But the primary message is quite different. It is that the role of natural
resources in the local economic is not diminishing but changing from extraction and
export to non-consumptive and environmental. Communities' economic health
continues to depend on the surrounding natural landscapes, but in a fundamentally
different way. Our natural landscapes are no longer primarily warehouses from which to
extract commercially valuable resources nor a playground where commercial
companies can entertain temporary visitors. They are now the source of flows of
increasingly valuable environmental services: clear water and air, cultural and historical
preservation, recreational opportunities, wildlife, scenic beauty, biodiversity,
environmental stabilization, etc. Those environmental services provided by protected
landscapes make the communities embedded in them attractive places to live, work,
and do business. This supports and enhances local economic vitality and well-being.
Extractive industry, including metal mining, by itself has generated ghost towns in the
past. When it was only the employment opportunities in mining or logging or agriculture
that drew people to an area, the ultimate decline in employment opportunities in those
sectors meant there was nothing else to hold people in the area. As a result, those
communities lost population or were abandoned. Alaska and the Yukon and a good
deal of the Mountain West have their mining ghost towns. The northern tier of the nation
has many examples of logging ghost towns. The Great Plains has hundreds of
agricultural ghost towns. High quality living environments, on the other hand, prevent
ghost towns by holding and attracting economic activity. Because of this, it is vitally
important to check just where it is that public land management policy is focused and
insist that that focus shift away from the rear-view mirror and the emphasis on the
economic base of the past as we seek to steer our communities towards a safe and
prosperous future.
8. Looking Towards Alaska’s Economic Future
Over the last three decades, Alaska has primarily based its economic development
strategy on the extraction of mineral wealth, especially North Slope oil. This generated
enormous wealth, providing thousands of high paid jobs, massive flows of revenue to
state, local, and Alaska Native governments, and significant flows of income to all
Alaskan residents. At the beginning of the 21st century, however, the sustainability of
this economic base is questionable. The flow of oil and oil revenues is declining as is
the employment associated with oil production, transmission, and shipping. The
declining oil revenues have forced the state into a fiscal crisis. Also, during the 1990s
employment growth slowed, average real pay declined, and average income fell relative
to the national average, declining from about 20 percent above the national level to
about equal to the national level.
Some believe that only the expanded development of other Alaskan mineral resources
can get the state economy back on track. Clearly mineral development can and will
36
continue to make important contributions to the Alaskan economy. But if the
development and exhaustion of North America’s largest oil field did not bring a
sustainable level of prosperity to Alaska, the development of other, smaller mineral
deposits, is unlikely to do so either.
In general, sustainable economies do not rely on the export of just one or a few
products. Nor is economic development built around “more of the same.”
Over-specialization on the export of unprocessed natural resources is largely the
characteristic of an under-developed “colonial” economy. As discussed above, it
exposes the economy to several serious problems that discourage sustained
development: Fluctuations in international commodity prices cause fluctuations in
export earnings; international competition leads to over-productions and downward
pressure on prices and export earnings; ongoing technological change steadily reduces
the employment opportunities associated with the mineral extraction.
To moderate or buffer these problems, natural resource economies have to supplement
their economies with other types of economic activities. Diversification of the economy
both by developing new value-added exports and through import substitution is called
for. A new economy has to develop along side the old.
One difference between the new and old economies is that the old economy was based
on fixed natural resources located in Alaska. The new economy, to the extent it is not
going to be built around natural resource extraction, will have to compete with the rest of
the nation, other North American countries, and other countries around the world as the
location of this new economic activity. That raises the question of whether Alaska can
successfully compete for economic activity that is not tied to extracting its natural
resources. Some of those who insist that Alaska has to continue to focus primarily on its
traditional natural resource industries do so because they see natural resources as a
“sure thing” and any “new” economy as speculative and unlikely given Alaska’s
remoteness and harsh climate.
However, as discussed above, advances in transportation and communications and
changes in what it is that the economy produces have dramatically reduced the costs
associated with geographic isolation. As more economic activity has become relatively
“footloose,” a different set of local characteristics, other than the presence of extractable
natural resources, becomes important in determining the location of economic activity:
the quality of the local labor force, the quality of the public infrastructure, including
schools and research organizations, and the quality of the social and natural
environments. In the jargon of economics these factors can be labeled human, social,
and natural capital.46 Those areas across the nation that have been successful at
attracting significant amounts of new economic activity over the last decade were not
those that continued to specialize in natural resource extraction. In fact, as pointed out
above, such areas lagged behind all other community economic categories. It was
See, for instance, “Alaska’s Economy: Where Is It Going?,” Scott Goldsmith and Patrick Burden,
Commonwealth North, www.commonwealthnorth.org/transcripts/burden2000 .
46
37
areas that were perceived to have the human, public, and environmental resources that
made them attractive locations for new or expanding businesses that prospered. 47
High quality natural amenities contribute in a dynamic way to the location of economic
activity. Areas that have been able to retain and attract a high quality labor force are
attractive because of those human resources. Areas that do not have that labor force
but have attractive characteristics that allow the recruitment of the necessary skilled
workforce without paying inflated wages also have an advantage.
The ongoing growth in employment and real income despite the shrinkage in the
traditional “basic” industries makes clear that Alaska can compete as the location of
new economic activity. See Table 4 on page 32. Symbolic of Alaska’s potential to
attract new economic activity has been the ongoing expansion of its tourism sectors.
Over the last two decades the number of jobs in tourism has steadily expanded while
employment in the natural resource sectors has stagnated and then declined. As a
result, estimated tourist employment now exceeds employment in the natural resource
sectors. See Figure 13.48
The point here is not to suggest that tourism is a substitute for mineral extraction.
Rather, the point is that there is ongoing growth in economic activity associated with
non-extractive uses of the natural landscape. Tourism is only part of that natural
amenity-related economic activity. In the long run tourism is likely to represent only a
small part of the economic activity that is supported by protected natural amenities.
Natural amenities not only draw temporary visitors to Alaska, but they also draw new
permanent visitors and firms and the economic activity associated with them. Tourism
may introduce visitors to what Alaska has to offer, but the largest impact ultimately is in
the relocation of new people and economic activity. That has been the pattern
elsewhere in the western part of the lower forty-eight states.49 Given Alaska’s
impressive, world-class natural landscapes and the ongoing changes in technology and
the American economy, that pattern will become more and more visible and prominent
in Alaska too.
For supporting evidence from the Western states see: “Amenities Increasingly Draw People to the
Rural West,” Gundars Rudzitis, and “Jobs Follow People in the Rural Rocky Mountain West,” Alexander
C. Vias, Rural Development Perspectives, 14(2), August 1999. For the Great Plains see “Net Migration
in the Great Plains Increasingly Linked to Natural Amenities and Suburbanization,” John B. Cromartie,
Rural Development Perspectives, 13(1), June 1998. For the South see “Migrants in the Rural South
Choose Urban and Natural Amenities, John B. Cromartie, Rural Development Perspectives, 14(4),
February 2001.
48 Looking only at employment is incomplete and can be seriously misleading. As mentioned earlier,
tourism jobs tend to be seasonal, part-time, and relatively low paid. Natural resource jobs are much
higher paid. As a result, while employment is about equal in the two sectors, payroll in the natural
resource sectors is three times as large as that in tourism.
49 See footnote 46.
47
38
Figure 13: Alaska Natural Resource and Tourism Jobs
20,000
18,000
16,000
Oil & Gas, Forest Products, & Mining
Employment
14,000
12,000
10,000
8,000
6,000
Tourism
4,000
2,000
97
96
95
94
93
92
91
98
19
19
19
19
19
19
19
89
88
87
86
85
84
83
81
90
19
19
19
19
19
19
19
19
19
19
19
82
Source: ISER MAP Data Base, Table 18, U. of AK, Anchorage.
-
Year
The challenge represented by metal mining is that it is a landscape-intensive activity
that almost always has had significant negative impacts on the natural environment.
That means that it has the potential to damage one part of the local economic base,
environmental quality, while developing another, the mineral deposit. To the extent that
the environmental damage could be significant and permanent while the mineral
development, in contrast, is relatively temporary, significant public economic policy
issues are raised: Is there a net gain or loss to the local economic base as a result of
the mineral deposit? Can the development of the mineral deposit be modified in such a
way as to reduce the threat to other current and future economic values and activities?
The environmental record of metal mining, including that of many relatively recently
closed mines, clearly indicates that these questions have to be explored carefully and
critically. This is not “merely” a matter of aesthetics or the impractical preservation of
“prettiness,” it goes to the heart of the future economic vitality and sustainability of the
39
Alaskan economy. That is the reason that rational public regulation of metal mining
should be an important part of Alaska’s economic development policy.
40