The Role of Metal Mining in the Alaska Economy

A report by Dr. Tom Power at the University of Montana.

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The Role of Metal Mining in the Alaska Economy

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.         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.

2.         In the “mining dependent” cities of Fairbanks and Juneau, metal mining is directly responsible for about one and two percent of total jobs, respectively.

3.         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.

4.         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.

5.         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.

6.         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.

7.         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.

8.         Despite the high wages paid in metal mining, that industry is not usually associated with prosperous communities across the nation because (1.) metal 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.

9.         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.

10.      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.

11.      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 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…