Kenai Peninsula Borough
Community and Economic Development Division
Quarterly Report of Key Economic Indicators for Period Ending June 30, 2004

Taxable sales are up but gross sales are down.  Total construction values have increased while permit volume is down.  The labor force is increasing, yet unemployment is decreasing.  So what is the trend?  Let’s look at the details of these facets, and more, of the Kenai Peninsula Borough economy as of June 2004.

Second quarter gross sales declined 5.7% from $484,197,715 during second quarter 2003 to $456,412,349 during 2004, a $27,785,366 decline.  However, taxable sales gained 4.2% to reach $203,010,654, up from $194,901,770 one year ago, an $8,108,884 increase.  When the KPB was incorporated forty years ago, industry sector sales were not tracked because there was neither a sales tax nor a requirement for reporting sales.  The KPB sales tax was first enacted on April 20, 1965 with a three percent tax rate and $500 cap on taxable sales.  Currently, the KPB rate is two percent with the $500 cap.  Homer, Kenai, Seldovia, Seward and Soldotna each impose a sales tax as well.

Construction activity gained momentum as permit values for the period increased 12.5% to $20,882,287 with Seward permit values showing significant strength for a second consecutive quarter.  Volume decreased 14.6% from 123 permits a year ago to 105 for second quarter 2004.  An increase in value, coupled with a decrease in volume, indicates larger projects are being permitted.  Building permits were not required anywhere in the KPB until 1986, twenty-two years after incorporation.  During that year Homer, Kenai, Seldovia and Soldotna each began to require permits.  Two years later, Seward also began processing permits.  The KPB has not passed an ordinance requiring building permits for areas outside the incorporated cities. 

The KPB labor force set new highs, as April, May and June each recorded the highest count on record.  Unemployment counts are down for each month of the quarter, a trend begun during September 2003, while employment is at all time highs for each of the first six months of 2004.  With employment at all time highs, even with the larger labor force, unemployment rates are down.  The record high April 1992 unemployment rate was 17.4% while the April 2004 rate was 11.5%.  May’s highest historical rate was 15.2%, also in 1992, while the 2004 rate was 9.7%.  The June rate, 9.3%, compares to the 1992 high of 13.7%.  Each 2004 monthly rate was the lowest since 2001.

The Kenai Wild brand is set for its third harvest, continuing to build both supply and demand for the high quality value-added sockeye salmon.  Kenai Wild set a goal of 300,000 pounds of program fish for the year.  To meet this goal, participation by both fishermen and processors must continue, but harvest timing is crucial.  Due to a lack of sufficient icing equipment for large amounts of fish, the harvest must be spread over time if Kenai Wild sockeye are to be produced.  When fish are harvested and processed in massive amounts such as occurs when a large run is being harvested, there is neither sufficient ice-making equipment nor time available for efforts necessary to provide the care required for production of the top quality product Kenai Wild is marketing.

The oil & gas industry has had several positive new developments recently.  Unocal continues forward with plans to drill multiple wells in the lower Kenai Peninsula and work is progressing to extend the Kenai-Kachemak Pipeline 14 miles in order to supply electric and natural gas utilities with new reserves of natural gas.  Marathon Oil has announced preliminary results at the Cape Kasilof prospect that may result in an announcement of a commercial discovery at the prospect.  The industry's focus continues to be directed towards expanding natural gas exploration and reworking of existing fields to increase proven natural gas resources.  The State of Alaska's Cook Inlet oil & gas lease sale in May resulted in over $2.0 million in bids for the largest amount of acreage bid for in over a decade in the Cook Inlet Basin.  Industry interest was particularly strong for lease tracts in the Anchor Point region and the west side of Cook Inlet.

On a less positive note, the Minerals Management Service canceled lease sale 191 in the Federal waters of Lower Cook Inlet due to no bids being offered for lease tracts by the bid deadline for the scheduled sale in May.  Initial indications are that potential bidders did not feel that risk reduction incentives were strong enough for the exploration phases of the lease terms.  The Minerals Management Service has indicated it will be reviewing lease and bid terms with potential bidders to identify areas where adjustments can be made in anticipation of the next scheduled lease sale in May, 2006.

SALES

Second quarter 2004 gross sales of $456,412,349 were 5.7% less than the $484,197,715 in sales occurring during 2004, a difference of $27,785,366.  Taxable sales increased 4.2% from $194,901,770 during 2003 to $203,010,654 during the most recent quarter, with six of ten sectors experiencing sales declines.  The increase in the other four sectors was great enough to overcome the declining sectors, resulting in an overall sales increase led by the retail sector, which reported a $8.5 million increase in sales.  Because businesses that consistently report less than $500 in taxable sales per quarter may be allowed to report sales on an annual basis, quarterly sales data may skewed in certain industries.

Quarterly Sales

Gross by Industry.  Retail sales increased 8.7% in this large sector, from $170,198,898 during second quarter 2003 to $184,939,223 during the most recent quarter.  Services, the second largest sector, experienced 6.2% growth with sales of $82,678,342, surpassing second quarter 2003 sales of $77,879,853 by $4,798,489.  Mining sales of $31,899,092 were 27.2% greater than last year’s $25,083,685.  The sizeable gains in these three sectors were not enough to overcome declines in the other seven sectors. 

The greatest sales decline came in the construction industry with sales of $39,125,543, down $28,583,120 from the $67,708,663 of 2003, a 42.2% drop.  Manufacturing sales experienced the greatest percentage loss, 56.4%, as sales dropped from $34,259,747 to $14,952,357 for a $19,307,390 decline.  Finance, Insurance and Real Estate (FIRE) sales of $13,489,962 were down 11.7% from the $15,274,129 in sales reported one year ago.  Agriculture, Forestry and Fishing (AFF) saw sales decline from $4,045,723 to $3,627,939, a 10.3% decline.  Three sectors experienced single-digit declines as Transportation, Communications and Public Utilities (TCPU) sales were down 9.8% from $38,896,586 to $35,083,336.  Sale of wholesale goods declined 0.5% from $50,841,751 to $50,608,034.  The 1.8% drop in government sales is inconsequential, at $8,521 in sales.

Taxable by Industry.  Taxable sales continued their seemingly constant trend upward, gaining 4.2% over a year ago, with sales of $203,010,654.  Sales during second quarter 2003 reached $194,901,770, a gain of $8,108,884 for the quarter.  Retail sales make up 59.4% of total taxable sales, and gained 7.6% over 2003 with sales of $120,553,067.  Last year, those sales totaled $112,007,335.  The $8,545,732 retail sales gain was greater than the overall gain in taxable sales.  Sales of wholesale goods increased 4.0% from $6,296,538 to $6,547,054.  Service sales increased 3.3% from $41,774,239 to $43,153,735.  Manufacturing sales of $2,654,083 were 1.8% greater than sales of $2,607,213 during second quarter 2003.

While overall taxable sales increased, the number of sectors with declining sales outnumbered gainers.  Construction sales were down 13.2% from $3,121,111 to $2,708,812.  AFF sales declined 10.2% from $1,577,278 to $1,416,681.  Mining sales of $1,059,508 dropped 9.5% from $1,170,493.  With $5,438,300 in sales, FIRE sales were down 9.0% from $5,974,212.  TCPU sales reached $19,470,893, down 4.4% from last year’s $20,364,671.  Finally, the $8,521 in government sales marked a 1.8% decrease. 

Gross by Area.  With gross sales down 5.7%, three areas reported gains and three had losses.  Seldovia had the greatest percentage gain, 20.2%, with sales of $1,957,703, up from $1,628,427 one year ago.  As Kenai recovers from Big KMart’s closure, Home Depot’s opening helped boost taxable sales to a 10.6% increase with sales of $74,520,626, up from last year when sales totaled $67,366,655.  Lastly, Soldotna sales gained 3.8%, increasing from $85,130,729 to $88,399,337.

Homer businesses saw sales decline 9.3% to $68,181,433, down from $75,141,288.  Seward area sales of $41,541,109 were 11.6% less than the $46,973,274 of second quarter 2003.   Sales in the unincorporated area of the KPB decreased 12.6% to $181,812,141, down from $207,957,342 one year ago.  (See detail on page 17.)

Taxable by Area.  Four of six areas reported increased sales, resulting in a 4.2% gain in taxable sales.  Kenai led the charge with $36,249,992, a 21.6% increase over second quarter 2003 sales of $29,822,651, providing a sign of recovery from BigKMart’s closure.  Homer sales increased 5.8% from $36,945,003 to $39,093,244.  Soldotna’s $48,565,804 in sales marked a 3.3% increase over last year when sales reached $47,012,050.  Finally, Seward sales reached $22,655,484, a 2.6% increase over 2003 sales of $22,080,008.

Only Seldovia and the unincorporated area experienced sales declines.  Seldovia sales of $936,222 were down 2.8% from the $962,966 of one year ago.  Sales in the unincorporated area decreased 4.4% to $55,509,908 from $58,079,092. 

Year-to-Date 6/30 Sales

Gross by Industry.  Year-to-date June 30 sales of $821,202,912 declined from those of one year ago when sales reached $837,449,825.  The 1.9% drop is equivalent to $16,246,913 in sales.  While Mining sales increased $27,356,659, retail sales increased $18,320,061, and service sales increased $10,805,890, these gains were more than matched by the $43,220,394 decline in construction sales and the $31,787,862 drop in manufacturing sales. 

Mining sales, $71,700,486, were 61.7% greater than one year ago when sales reached $44,343,827.  Service sales increased 9.0% from $119,624,276 to $130,430,166.  Sale of wholesale goods increased 6.5% from $86,760,176 to $92,390,805.  Retail sales gained 6.3% as sales increased from $292,982,569 to $311,302,630.  Inconsequential government sales of $22,184 were up 5.6%.

Construction sales declined 39.0% from $110,689,250 to $67,468,856.  Manufacturing sales of $41,048,333 were 43.6% less than the $72,836,195 of a year ago.  TCPU sales declined 4.0% from $77,149,056 to $74,083,738.  AFF sales were down 1.6% with sales of $5,965,639, down from $6,065,662.  Lastly, FIRE sales decreased 0.7% from $26,977,815 to $26,790,075.  

Taxable by Industry.  Five of ten industries report sales gains during the first six months of 2004 over those of 2003 with sales of $821,202,912.  Wholesale sales increased 9.6% from $11,314,549 to $12,404,238.  The large retail sector increased 6.1% from $191,734,970 to $203,340,703.  Services gained 3.0% from $60,758,278 to $62,575,708.  The 2.9% increase in manufacturing sales brought sales to $4,161,475 from $4,046,100.  Lastly, government sales increased 5.3% to $22,119.

The 12.2% decline in Mining brought YTD sales to $2,110,176 down from $2,404,111 last year at this time.  FIRE sales dropped 8.4%, with sales of $10,329,880.  TCPU sales are down 3.6% at $40,532,000, from $42,040,778 a year ago.  AFF sales of $2,303,324 marked a 1.6% decrease from sales of $2,340,323 one year ago.  

Gross by Area.  Kenai’s 5.4% gain, Soldotna’s 6.5% increase and the Seldovia 35.9% increase were not enough to overcome declines in Homer, 7.1%, Seward 6.3%, and 5.7% in the unincorporated area.  The 1.9% overall decline is a $16,246,913 decrease in sales. 

Sales in the unincorporated area dropped $20,654,553 from $362,311,178 to $341,656,625.  Homer sales, $117,085,417, were down $8,887,644 from the $125,973,061 of one year ago.  Seward sales declined $4,303,695 from $67,898,066 to $63,594,371.

Kenai sales reached $136,416,824, greater than a year ago when sales were $129,460,524.  Soldotna sales increased to $159,086,993 from $149,332,373.  Seldovia sales moved up from $2,474,623 to $3,362,682 with strength in construction sales.  

Taxable by Area.  As KPB taxable sales increased 3.5% overall, Kenai taxable sales gained 8.0% over a year ago with sales of $65,800,514, compared to $60,931,587.  Homer sales, $62,834,429, were 5.8% greater than the $59,387,902 in sales reported last year.  Soldotna sales increased 5.5%, moving upwards from $81,468,790 to $85,931,454.  Finally, Seward sales increased 2.5% to $32,152,266 from $31,369,781 a year ago.

Only Seldovia and the unincorporated areas experienced declining sales as Seldovia sales dropped 3.7% to $1,503,902 and sales in the unincorporated area were down 2.0% to $94,471,034.  

Annual Sales

KPB 2003 annual gross sales of $1,917,904,805 were 2.2% above those of 2002 as seven sectors had improved sales while three sectors had declining sales.  This gain recaptures some of the 4.6% sales decline from 2001 to 2002.  Each of the five cities reported gains while sales by businesses in the unincorporated area declined 0.2%.

Taxable sales increased 1.1% from 2002 to 2003 with sales of $731,980,241, following a 2.6% increase one year ago and 5.7% from 2000 to 2001.  Four cities increased taxable sales from 2002 to 2003, with Kenai and the unincorporated areas reporting declines.

Gross by Industry.  Annual Gross sales increased 2.2% for 2003.  The AFF sector had the largest percentage gain, 31.4%, with sales of $22,009,310; the construction sector gained 12.6% with sales of $257,305,116; and FIRE increased sales 5.6% to reach $57,998,647.  The large retail sector gained 3.1%, or $19,243,299, to total $642,801,465.  Sale of wholesale goods increased 3.2% to $194,212,922 while sales in the service sector rose 0.6% to $278,893,331.  The inconsequential $41,980 in government sales marked an 85.9% increase. 

TCPU sales of $158,642,931 indicate an 8.2% decrease while mining sales dropped 6.1% to $106,561,739.  Manufacturing sales declined 0.8% from 2002 with sales dropping from $201,047,383 in 2002 to $199,437,364 during 2003. 

Taxable by Industry.  Taxable sales increased 1.1% during 2003.  AFF sales rose 12.3% while sale of wholesale goods increased 11.3% with sales of $5,010,961 and $24,139,455, respectively.  Construction sales rose 5.2% to $11,261,356 while retail sales increased 2.3% to $427,771,497 and service sector sales gained 0.2%, or $305,826, to $145,308,439.  Government’s 85.9% sales gain is inconsequential at $41,980.

Taxable sales in the mining sector decreased 16.5% to $4,885,262.  FIRE sales were down 5.6% to $22,742,851 while manufacturing sales were down 4.0% to $9,235,045.  TCPU sales of $81,583,395 decreased 3.0%.  

Gross by Area.  As KPB sales grew by 2.2%, Seldovia gross sales expanded 50.7%, reaching $7,255,878 for the year, due to strength in the construction sector.  Seward, with $156,916,192 in sales, marked a 10.3% gain.  Homer sales increased 3.8% while Soldotna sales rose 3.6% to reach $272,843,775 and $337,624,575, respectively.  Kenai taxable sales increased 1.3% to $282,742,611. 

KPB’s unincorporated area is the only region to see a decline in gross sales for 2003, declining 0.2% to $860,521,774, a decrease equivalent to $1,334,111 in sales. 

Taxable by Area.  Homer sales increased 8.5% to $131,242,348 while Soldotna sales gained 7.7% to total $190,580,931.  Seldovia sales of $3,377,262 marked a 3.2% increase while Seward sales increased 1.0% with $76,375,636 in reported sales.  Across the KPB, sales increased 1.1%.

Kenai taxable sales were down 11.2% for the year, dropping to $121,380,836 as Big KMart completed its plans to go out of business on the Kenai Peninsula and all of Alaska.  Sales in the KPB unincorporated area decreased 0.6% to $209,023,228. 

CONSTRUCTION PERMITTING

Quarterly Permitting

By Area, Value.  Seward permitting provided 37.8% of quarterly value, issuing permits totaling $7,889,400 as two large projects were permitted – a new Safeway store and renovation of the Gateway Apartments.  Homer’s total permit value of $7,433,711 provided 35.6% of the borough-wide total as three exempt facilities were permitted.  Soldotna issued $3,505,576 in permit value while Kenai issued $1,897,400, adding 16.8% and 9.1% of the total, respectively.  Seldovia issued building permits with a total assessed value of $156,200.  

By Area, Volume.  Homer issued 25 permits, nine fewer than one year ago.  Kenai issued 30 permits, ten fewer than one year ago.  Seward issued 20 permits, seven more than second quarter 2003 when 13 were issued.  Lastly, Soldotna issued 27 permits, down from the 36 that were issued one year ago.  The remote community of Seldovia issued three construction permits. 

By Type, Value.  New commercial permit values provided 53.7% of value with $11,223,615 in assessed value permitting during second quarter 2004, including permitting of the Safeway store in Seward and three exempt facilities in Homer.  UAA has been issued a permit for construction of a $2.6 million expansion; a new animal shelter valued at $900,000 has been permitted; and an assisted living project valued at $850,000 has been permitted.  New residential permits added 30.5% of the total with $6,374,487 in value.  Commercial alteration/addition permit values of $2,822,287 provided 13.5% of the total while residential alteration permits issued during the quarter had a total value of $462,122.  

By Type, Volume.  Of the 105 permits issued during the quarter, 34 were issued for construction of new homes and ten were issued for new commercial structures.  An additional 32 permits were issued for commercial alterations and 29 for residential alteration.  

Year-to-Date Permitting

Year-to-date June 30 permit values jumped to $37,742,230, second highest to 1995 values when the Seward SeaLife Center was permitted.  The third highest YTD value occurred just two years ago when total values reached $24,511,904.  Permit volume of 143 is off the high of 173 permits issued YTD 2002.

By Area, Value.  Following two strong quarters, Seward reported $15,631,000 in permit value, 41.4% of the Borough total.  Homer is not far behind with a total permit value of $11,147,731 and 29.5% of the total.  Soldotna, issuing 22.7% of the value, permitted $8,577,899 in construction projects, while Kenai issued $2,209,400 for 5.9%.  Seldovia has issued permits totaling $176,200 in assessed value, to date.  

By Area, Volume.  While Seward has the greatest YTD permit value, Homer has the greatest volume, 41 permits.  Soldotna issued 37 permits, followed closely by the 34 issued in Kenai.  Seward issued 27 and Seldovia issued four permits YTD.  

By Type, Value.  Generally, new commercial structures have a higher value than new residential structures so it is not surprising that new commercial permitting has provided 64.3% of total value YTD, $24,253,641.  Exempt projects are included in the commercial category.  This value includes two sizeable projects in Seward and three in Homer.  New residential total value was also strong with $9,831,284 being permitted, just over $5 million issued by Homer.  Commercial alteration added $2,933,663 and residential alteration another $723,642 to the total.  

By Type, Volume.  Of the 143 permits issued during the first two quarters of 2004, 59.5% were for residential projects.  Fifty-one permits were for new homes while 34 were issued for alterations or additions.  Commercial alterations added 40 permits and new commercial permits provided the other 18.  

Annual Construction - Year 2003

Construction permits are required by KPB cities, but not by the KPB, resulting in incomplete construction activity data.  Permit values during 2003 totaled $43,606,177, a 5.8% decrease from 2002 but the fourth highest total value on record, behind 2002, 2001 and 1995 when Seward’s SeaLife center was permitted for a total value of $61,510,032, the highest on record. 

There were 336 permits issued during 2003, 4.3% fewer than the 351 issued during 2002, but second highest on record.  Kenai issued the greatest number of permits and has done so in all but four years since 1986 when permitting was first recorded.

By Area, Value.  Homer permitting provided 35.1% of KPB annual value; issuing permits totaling $15,326,815, a 52.5% increase over 2002.  Kenai’s $10,441,800 total value added 23.9% to the KPB total but marked a 37.8% decrease from 2002.  Seward permit values increased 0.9% for the year to $7,982,765, providing 18.3% of the total.  Soldotna permit values dropped 28.8% to $7,952,297, providing 18.2% of the KPB total.  Seldovia’s $1,902,500 value provided the remaining 4.4%. 

By Area, Volume.  During 2003 Kenai issued 114 of the 336 permits, providing 33.9% of the KPB total.  Homer issued 86 permits while Soldotna issued 74 permits, 25.7% and 22.0%, respectively.  Seward issued 50 permits, 14.9% of the total and Seldovia’s 12 permits added 3.6% of the volume.  Homer and Seldovia increased permit volume over 2002 with Homer issuing 28.4% more permits than one year ago and Seldovia’s count increased by 50.0%.  Those areas with declining permit activity include Seward, down 21.9%, Soldotna was down 18.7% and Kenai issued 5.8% less than one year ago.  

By Type, Value.  New projects provided 72.4% of permit activity with commercial and residential permits providing 36.3% and 36.1% of the total, respectively.  New commercial values of $15,820,201 were slightly greater than new residential permit values, which totaled $15,729,888.  Commercial alteration/addition permit values totaled $9,775,309 or 22.4% of the total.  Finally, residential alteration/addition permits added $2,280,779 for 5.2% of the KPB total.  New residential permit values were 9.6% above 2002 while commercial alteration/ addition values were up 25.0%.  New commercial values declined 27.4% and residential alteration/addition total value was down 1.1%.  

By Type, Volume.  Commercial alteration/addition annual activity for 2003 increased 9.1% as 96 permits were issued, setting a new record high.  New residential activity shows 104 permits were issued for the second year in a row, and resulting in a three-way tie with 1994 for highest volume in a year.  Ninety-four residential alteration/addition permits were issued, 19.0% less than 2002.  New commercial activity decreased 2.3% to 42 permits.  

EMPLOYMENT

KPB’s labor force continued to increase, reported at 24,446 during June 2004, 2,460 greater than one year ago, and highest count on record.  The May labor force of 22,687 also marked a new high, gaining 690 workers over one year ago.  Available workers during April were second highest on record, 21,986, only eight workers less than 1995 when there were 21,993 members in the labor force.

Two thousand two hundred seventy-five persons were listed as unemployed in the KPB during June 2004, down 259 persons from June 2003.  May unemployment was reported at 2,210, that is 145 less than during 2003.  April data indicated 2,534 persons were unemployed, 158 less than April 2003.

KPB’s 2004 unemployment rates have trended downward all year, beginning at 15.1% during January, moving step by step, month by month to 14.7%, 12.8%, 11.5%, 9.7% and finally to 9.3% during June.  The June 2004 rate is more than two percentage points below the June 2003 rate of 11.5%.

As unemployment has decreased, employment has increased – step-by-step, month by month.  Employment during January 2004 was reported at 18,420 persons.  Each month moved higher with February at 18,775, to 190,044, 19,452, 20,477 and on up to a new high, 22,171 during June.  The previous high employment occurred during 2000 when 21,492 persons were employed in the KPB. 

POPULATION