Economic Impact of the Boeing Ground-based Midcourse Defense (GMD) Program: Alaska Operations 2007

Transcription

1 Economic Impact of the Boeing Ground-based Midcourse Defense (GMD) Program: Alaska Operations 2007 By Hans Geier, Economist Department of Resources Management School of Natural Resources and Agricultural Sciences University of Alaska Fairbanks Fairbanks, AK Tel: (907) Fax: (907)

2 Acknowledgements Completion of this project was due to the contributions of many people. We are grateful to the officers and staff at the Boeing Company, Boeing Services Company, Bechtel Corporation, and other GMD Program suppliers for supplying critical data used in the analysis. Critical support was also provided by UAF administration including Jake Poole and Carol Lewis. Many thanks are also due to the editing support provided by Deirdre Helfferich at the SNRAS/AFES Information Services Office. GMD photo of the missile defense complex at Ft. Greely with the Alaska Range in the background. 2

3 Contents Executive Summary 4 Introduction 5 Economic and Fiscal Impacts 7 Conclusions 9 Appendix: MethodologyóEconomic Impact Analysis 10 Photo of the SBX Radar platform while underway in the North Pacific. The home port for this vessel is Adak. 3

4 Executive Summary 4 The Boeing Company is the Prime Contractor for the Ground-based Midcourse Defense (GMD) Program in Alaska. Bechtel is the subcontractor responsible for engineering, construction, and scheduling of activities contracted to Boeing. This study presents the impact of the Boeing Company s Alaska operations (Boeing Ground-based Midcourse Defense Program, or GMD Program) in the State of Alaska. GMD Program operations are located or most evident in the Southeast Fairbanks Census Area (SFCA) (Fort Greely), the Fairbanks North Star Borough (FNSB), the Aleutians West Census Area (Shemya and Adak), and the Anchorage Borough (Municipality). Except for FNSB and SFCA, the geographical areas in which GMD Program operations are located are noncontiguous. For this reason, the state of Alaska was evaluated as one region instead of treating the four county-equivalent areas of direct employment and impact by Boeing and its subcontractors as a study region. In 2007 the GMD Program employed 323 Alaskan workers (250 Boeing employees and 73 subcontractors) with a $51,653,042 payroll and benefits package. The GMD Program also made instate non-payroll purchases and expenditures of $100,233,000. Thus, the company had total in-state expenditures of $151,886,000, much of it in remote, rural areas of Alaska where good-paying jobs for local residents are very scarce. Total 2007 economic impacts of the GMD Program on the Alaska economy were $246,192,000, about 716 direct, indirect, and induced jobs, and $71,891,688 in Alaska Labor income.* Total taxes paid by Boeing and its associated economic activities (employees) included $19,465,517 in federal taxes (personal income taxes, social insurance payments, customs duties, etc.), and about $9,608,489 in state and local government taxes (corporate profits tax, motor vehicle licenses, property taxes, sales tax, hunting and fishing licenses, etc.). The high-skill, high-income GMD Program workforce s base income was approximately $100,000 per worker, with an additional $60,000 in benefits, in 2007 in Alaska. This is nearly double the average base wage of $57,148 for an Alaskan worker. (IMPLAN). Many of the GMD Program jobs occur in rural, isolated, and high unemployment areas of Alaska. Significant benefits accrue to the communities where the GMD Program is located, including local businesses as well as employees and their families. Significant expenditure is made by Boeing in Alaska to Alaska Native owned businesses for goods and services. $31,871,000 was spent by the GMD Program in 2007 for this purpose, accounting for much of the nonpayroll expenditure ($100,233,000). As well as the monetary and job benefits the GMD Program brings to Alaska, the company is also actively involved in community and workforce development. Boeing approaches each community with five investment focus areas: Civic, Education, Health & Human Services, Arts & Culture, and Environment. The 2007 total investment in Alaska was $135,200. * The IMPLAN Professional Version 2.0 Social Accounting and Impact Analysis Software and Database, developed by the Minnesota IMPLAN Group, Inc. is used to estimate the impacts.

5 Introduction This report presents the 2007 economic impacts of the Boeing Ground-Based Midcourse Defense Project operations on the State of Alaska. Most of the GMD Program impacts occurred in a four-county region* that covers Southeast Fairbanks Census Area (Unorganized), Fairbanks North Star Borough, Anchorage Borough (Municipality), and the Aleutians West Census Area (Unorganized). This area will be referred to as the GMD Program area in the remainder of this report. Only two of the counties are contiguous geographically. Since the GMD Program had its groundbreaking in Alaska in April 2002, it has provided numerous high-paying jobs in both rural and urban areas of the state. Through these jobs, the Boeing Company has had a significant presence in Alaska and has played an important part of the United States national space and defense Programs. Map of Alaska showing GMD Program areas. Main areas of impact include Fort Greely in Southeast Fairbanks Census Area and installations in Western Aleutians Census Area (Adak and Shemya s Eareckson Air Station). The Boeing Company is the prime contractor for the Ground-based Midcourse Defense (GMD) Program in Alaska. As prime contractor, Boeing is designing, producing, integrating, testing, and sustaining all GMD components. Key subcontractors include Raytheon, which provides kill vehicles and radars; Orbital Sciences Corp., which supplies interceptor boosters; and Northrop Grumman, which provides the battle management. Boeing Services Corporation (BSC) is a business unit focused on postproduction support to nonaircraft systems to operate, maintain, and sustain customers systems at the GMD Program sites in Alaska. Bechtel is Boeing s GMD Program subcontractor, and is responsible for all engineering, construction, and scheduling activities contracted to Boeing. GMD Program Alaska (including The Boeing Company and subcontractors Bechtel and BSC) in 2007 employed 323 workers in Alaska with a total payroll of $51,653,000 including benefits (Table 1, next page). Most of these employees were located in the GMD Program four-county region delineated in the previous paragraph. The company s payroll for workers in Alaska was approximately $100,000 per worker with an additional $60,000 in *While Alaska does not use the county system of local government, in this publication the term county is used to refer to the countyequivalent geographic areas in Alaska. Organized local governments defined as counties are boroughs, and unorganized geographic areas (census areas) defined as counties have no unifying local government or taxing authority. 5

6 benefits in The average employee working in Alaska made $21.12 per hour while the average employee in the US made $18.94 per hour in (See Table 1: Boeing Alaska 2007 Employment and Expenditures Alaska Employment 323 Payroll Expenditure ($ Millions) $51,653,000 Nonpayroll Expenditure ($Millions) $100,233,000 Total Expenditure ($ Millions) $151,886,000 Average Boeing worker earnings ($/hr) $77 ($50 wage + $27 benefits) Average Alaska worker earnings, 2006 ($) no benefits included $21.12 Boeing 2007 to Alaska 2006 worker earnings ratio 2.35 Data in Table 1 are derived from information received from Boeing, BSC, and Bechtel. Average Alaska worker earnings are from Alaska Dept. of Labor and Workforce Development. In addition to its payroll, GMD Program Alaska made $100,233,000 in nonpayroll expenditures in the state in Nearly all of the expenditures were in the four-county area where most industry in Alaska is located, including major military installations. Included in nonpayroll expenditures is payment of $32,871,000 to Alaska Native Businesses in 2007, a significant dollar amount. Spending by GMD Program Alaska provides good, high-paying jobs with benefits, generates business for its suppliers, pays taxes, donates to local charities, and stimulates other economic activities in local economies of rural and urban Alaska. Spending by GMD Program Alaska workers provides jobs and business activity in different sectors of the Alaska economy. Of particular interest is the effect in rural areas of Alaska where the economic activity stimulated by Boeing has offered stable, high-paying employment for residents whose options are very limited. This has allowed many families to remain in these local and rural communities, supporting property values, preserving indigenous businesses, local governments, and other services. These large infusions of cash to the Alaska economy by GMD Program Alaska have significant impacts on the Gross State Product (GSP, the value of goods and services produced in the state). GSP is often referred to as output and such reference is made in this report. Estimates of output, earnings, and employment impacts are presented together with earnings based income, property, and sales tax revenues. The economic impacts indicate the total impact Boeing Alaska has on Alaska in general. The methodology used is presented in the appendix. 6

7 Economic and Fiscal Impacts To accurately represent the economic activity of GMD Program in Alaska, it was necessary to classify the economic activity properly. Addy and Ijaz (2006) used the aircraft and missile equipment, engines, and industry parts National Association of Industrial Classification System (NAICS) code to classify Boeing in their Year 2005 Economic Impact of the Boeing Company: Alabama Operations. Direct conversation with Boeing employees and the company s primary subcontractors determined the proper NAICS code for GMD Program in Alaska to be Missile Facility Construction, which is part of NAICS Other Heavy and Civil Engineering Construction. The IMPLAN sector 40, which includes mainly underground heavy construction activities, was used to contain and estimate the economic impacts of the GMD Program. Certain IMPLAN model sectors were adjusted to more accurately reflect their importance to elevated costs in the Alaska economy, most notably the energy and transportation sectors, reflecting the higher costs of construction activity in Alaska when compared to the contiguous US. The economic multipliers were derived in this fashion. To determine the total economic impacts of the GMD Program in Alaska, two types of economic impacts are estimated. The first type includes those impacts that are derived through the expenditure by GMD Program in Alaska. These include direct effects (the changes in the industries associated with Boeing expenditures), indirect effects (changes in interindustry purchases as they respond to the new demands of Boeing-affected industries), and induced effects (reflecting changes in spending from households as income increases or decreases due to the change in Boeing spending). Two types of aggregated multipliers are used to describe total economic impacts. The first includes the fiscal and economic impacts of the spending behavior of the GMD Program employees. The second focuses on the impacts of nonpayroll expenditures (such as in-state purchases and taxes). The second type of economic impact is fiscal, and includes those impacts from income, sales, property, and other government fees. Payroll, employment, and nonpayroll expenditure data provided by the GMD Program (Table 1) were used for the analysis. The IMPLAN software and database used to describe the impact of GMD Program in Alaska includes regional social accounting matrices (SAM) to describe market transactions between firms, consumers, institutions, and other forms of final demands. SAMs provide information on non-market financial flows, payments of taxes, transfers of government funds to people and businesses, and transfer of funds from people to people. The SAM multiplier is used in this report to capture the multiplier effect on economic impact by the GDM Program. Household Impacts Household impacts are the economic and fiscal impacts derived from GMD Program employment and payroll in Alaska. Average earnings of GMD Program employees were derived directly from the data provided by GMD Program contractors (including The Boeing Company, Boeing Services Company, and Bechtel Corporation). Sector 40 of the Alaska IMPLAN model was modified to reflect this data, associated production functions, and regional purchase coefficients. The household (earnings) economic impact on Alaska from GMD Program in Alaska was $71,891,688 and 716 direct and indirect jobs. The direct employment impact includes 323 jobs with total earnings of $51,653,000 (including benefits). Many of these jobs are in areas of Alaska where there are few employment or business opportunities, such as the Southeast Fairbanks Census Area and the Western Aleutians Census Area. The Direct Effect Employment Multiplier for Boeing activity in Alaska is (see Table 2). This means that for every 1 job that Boeing brings to Alaska, an additional jobs are created as a result, for a total of Thus, because the Boeing GMD Project is responsible for 323 direct employees, using the multiplier (323 x )=716 total jobs. The earnings and employment impacts generate tax revenues. While Alaska does not have a state personal income tax, the Fairbanks North Star Borough and Anchorage (a major supply and service center for the SFCA as well as the rest of the state) have property taxes, and the nearest community to the Fort Greely project site between Fairbanks and Delta Junction (North Pole) has a 4% sales tax. While Alaska in general has comparatively low state 7

8 and local taxes, tax revenue to state and local governments accounted for $9,608,489. This included the payment of licenses and fees, sales tax, property tax, and corporate income taxes (9.4%). In addition to state taxes and fees, the GMD Program generated $19,465,517 for the federal government. Purchases and Expenditure Impacts Total payroll and nonpayroll expenditures were used to derive the output impact. GMD Program purchases power, energy, transportation services, equipment, materials, and other inputs in Alaska, and pays taxes and other fees. According to the final demand (output) multiplier, the 2007 in state expenditure output impact was $ million. Table 2: GMD Program Alaska 2007 Household and Total Output Economic Impacts Employees 323 Payroll (Earnings) $51,653,000 Total Output $151,886,000 Direct Effect Multipliers Employment Earnings Total Output Economic Impacts Employment 716 Earnings $71,891,688 Total Output $246,192,000 Fiscal Impacts Federal Taxes $19,465,517 State and Local Taxes and Fees $9,608,489 Note: Rounding errors may be present. Source: Minnesota IMPLAN Group Inc., The Boeing Company, Boeing Services Company, Bechtel Corporation, State of Alaska Dept. of Labor and Workforce Development, and the University of Alaska Fairbanks. Boeing approaches each community as a complex system. The company works to positively affect all parts of the system on an integrated basis, looking for connections and synergies to achieve the greatest possible impact on the system as a whole. The parts of the system are represented by five investment focus areas: Civic, Education, Health & Human Services, Arts & Culture, and Environment. Each focus area has corresponding objectives that provide further definition to Boeing s community investment efforts. These objectives are then tailored by Boeing s representatives according to local community priorities. The figures below represent Boeing s 2007 contributions to the state of Alaska. Civic - $85,000 Education - $26,500 Health & Human Services - $16,200 Arts & Culture - $6,000 Environment - $1, Total: $135,200 8

9 Conclusions This report presents the 2007 economic impacts of the Boeing Groundbased Midcourse Defense Program in Alaska. While the components of the project are located in four non-contiguous county equivalent areas of Alaska, (the Southeast Fairbanks Census Area (SFCA) (Fort Greely), the Fairbanks North Star Borough (FNSB), the Aleutians West Census Area (Shemya and Adak), and the Anchorage Borough), it was more logical to evaluate the impacts of the GMD Program on the whole state instead of confining it to these areas. Since 2002 the GMD Program has had a significant presence in Alaska. Boeing has played, and will continue to play, an important role in national space and defense Programs. The GMD Program is one of Alaska s largest construction projects, contributing significant benefits to the state and its residents. The GMD Program provides good, high-paying jobs, generates business for its suppliers, and pays taxes and other fees in Alaska. Spending by the company s workers provides jobs and business activity in goods and service-producing sectors of the Alaska economy, and also generates significant tax revenue for the state and local governments in Alaska. Total payroll and nonpayroll expenditure impacts in the state were $ million in In that year, the high-skill, high-income GMD Program worker in Alaska earned salary and benefits nearly three times what the average Alaska worker earned. The Boeing Company in Alaska is also involved in community and workforce development, in some very rural communities where high unemployment would predominate without the GMD Program. The GMD Program in Alaska statewide employment, payroll, and nonpayroll expenditures for 2007 were 323 Alaska workers, $51,653,000, and $100,233,000, respectively. This large infusion of cash into Alaska s economy has impacts on gross state product (output) and generates earnings and employment beyond those of the company. Total 2007 economic impacts of the GMD Program on the Alaska economy were $246,192,000 in output, 716 direct and indirect jobs, and $71,891,688 in Alaska labor earnings. The 2007 earnings impacts also generated $9,608,489 in state and local government tax revenue. The Input-Output (I-O) modeling software and database used to estimate the impacts was the IMPLAN Professional Version 2.0 Social Accounting and Impact Analysis Software developed by the USDA Forest Service, and the Minnesota IMPLAN Group, Inc. The IMPLAN database provided the information necessary to create the Alaska IMPLAN model. The IMPLAN software performed calculations using the study area data as well as data acquired from previously listed data sources. Substantial modification of the IMPLAN database and model were undertaken during analysis, to more accurately reflect the Alaska economy and the GMD Program. Please contact the author for specific information regarding these modifications. 9

10 Appendix: Methodology Economic Impact Analysis Economic Impact Analysis measures the effects of an economic activity or event on a geographic area. Examples include the effect of opening a proposed mine, closing an industrial plant, or perhaps the construction of a major transportation artery, such as the proposed natural gas pipeline in Alaska. In particular, in Alaska, federal laws have required economic impact studies of the impacts of implementation of fisheries and other federal policies. In general, impact studies are designed to provide information to facilitate positive economic impact and/or to mitigate negative impacts. Economic impact analysis is thus an important tool to enhance the quality of decisions made by both private and public sectors. This study focuses on output, employment, and income in most of the road/railbelt region of Alaska, plus the Aleutians West Census Area, regions of the state where the GMD Program most affects the Alaska economy Economic impacts are generally classified into two types: direct and indirect impacts. Direct impacts include the wages, salaries, and benefits directly paid to employees working for a firm or industry, as well as other expenditures like taxes, profits, and returns on investment. Indirect economic impacts (often called ripple or multiplier effects) occur because of the additional demands arising from new income and expenditures for inputs and products related to the activity being studied. New income creates demand for consumer products and services, and their associated indirect impacts are called induced impacts. Indirect and induced impacts may stimulate demand for the output of the firm or industry under study. Because of the insularity of the Alaska market, this effect is negligible from GMD Program in Alaska. However, because of the industry which GMD Program represents in often remote areas of Alaska, certain suppliers of GMD Program have been able to achieve economies of scale, allowing them to better serve other industries including mining and construction. The total economic impacts of GMD Program in Alaska capture these effects as well and are the combined direct, indirect, and induced impacts. The ratio of the total economic impact to the direct impact is the multiplier used to summarize the effects of Boeing on the regional economy of the parts of Alaska where the impact study is performed. Economic relationships do not obey strict geographic boundaries. Workers and their incomes and industry purchases flow across these boundaries enabled by transportation and communication. Thus, a portion of purchases and expenditures may occur beyond the boundaries of the specified region. The occurrence of these leakages, as opposed to linkages (supplier/purchaser relationships) is endemic in the Alaska economy, due to its relative lack of development and manufacturing base. Although Alaska is a very large geographic region, the lack of a concentrated industrial base leads it to behave like a much smaller geographic area. This is due to its high likelihood of leakage closely associated with its transportation and communication networks based on import of goods into the state. 10 Determining the Multiplier Estimation of economic impacts occurs through several methodological approaches. These include the construction of econometric, economic base, computable general equilibrium (CGE), and input-output (I-O) models. Econometric and CGE models can be very time-consuming to construct. Economic base models require a very detailed set of information that may not be available, especially for small, rural economies like Alaska. I-O models are the most time and cost effective for economies like Alaska. The I-O modeling framework is used in this study, specifically the software package and database, IMPLAN. The technique generates multipliers for the economic activity of interest focusing on economic interactions among all industries and all other economic transactions in the specified region including households and governments. Interindustry transactions exist in both a backward (suppliers and other upstream linkages and leakages) and a forward (distributors, retailers, customers, and other downstream linkages and leakages) relationship to industry. The number and strength of these backward and forward linkages and leakages determines the multiplier effects of the industry in question. In general, products that require a small number of inputs and little additional processing (little value added) will have smaller multiplier effects than complex products that require lots of inputs and extensive processing.

11 The three main types of multipliers output, income or earnings, and employment are defined here. Output multipliers represent the total dollar change in all industries that results from a $1 change in output delivered to final demand (final consumption) by the industry under study. Earnings (income) multipliers represent the total dollar change in earnings of households employed by all industries for each dollar of payroll expenditure or each dollar of output delivered to final demand by the industry whose economic impact is being estimated. Employment multipliers represent the total change in the number of jobs in all industries for each direct job by the industry whose economic impact is being estimated. The nature of the product (or service) and the technology it uses largely determines the degree of interindustry linkages and leakages, and the specific impact on a region depends upon the degree to which these interindustry relationships are localized. Technology determines inputs, and economics determines the geographic sources of supply. Because Alaska s economy is so underdeveloped when compared to other more urban states in the US, there are many leakages for even basic commodities used in construction, like steel and cement. However, even with disproportionate leakage for commodities and manufactured goods due to Alaska s lack of development, some of the leakage may be offset by the high price of services, particularly transportation. While this cost may be detrimental to the attraction of industry, for politically mandated economic activity like the GMD Program, it provides sources of linkage which may offset the leakages and raise the multiplier. The IMPLAN I-O modeling technique allows the incorporation of economic factors unique to a particular economy, as we experience in Alaska. To estimate the impact of the GMD Program on the Alaska economy, first the geographic areas that the project directly affects were defined. The Fort Greely installation located near Delta Junction, the central place for the Southeast Fairbanks Census Area (Unorganized Borough) is the main location for GMD Program construction activity. The Fairbanks North Star Borough provides the nearest urban area and provides many of the local services needed by GMD Program, including vehicle and equipment leasing, purchase of construction materials, and other project supplies including housing and labor. Anchorage naturally is included as the main origin of imported goods for the project, and also the home office for many of the service firms as well as Boeing s main Alaska offices. Finally, the Western Aleutians Census Area contains the Adak navy base, the home port of the SBX radar. While the four areas may not be geographically adjacent, they are connected by transportation routes and offer subcontractors, service providers, and residential areas where workers who work for Boeing generally live. These areas account for 377,466 people, 56% of the Alaska population. Within the four county area defined in this study, and the rest of the state of Alaska, linkages between the GMD Program and all its suppliers and customers were traced. For this task, the I-O software and database called IMPLAN was used. The IMPLAN national (US) model consists of 509 industry sectors including households, governments, and other economic actors in the economy. Due to its present state of development, the State of Alaska IMPLAN model consists of 261 sectors, mostly concentrated in service industries, plus several critical natural resources, most notably oil and gas. The model encompassing the aforementioned four geographical counties in Alaska accounts for 238 sectors, and 377,466 people, well over half of the population of Alaska (670,059). For example, data for the gold mining industry shows the value of each input per dollar of product (or service) produced in the geographic area in question. Since the rows (outputs) are produced by specific industries they are also columns (inputs). Demand for a particular input will cause supply from the industry that produces it. This then creates demand for the inputs that are used to produce the particular product (or service) and so on. The round-by-round impacts as generated by running the model decrease and provide convergence. The I-O model captures the total effect of these rounds of spending as the multiplier effect. IMPLAN multipliers for an economy account for linkages within and leakages from that economy, including households, government, and other noncommercial sectors. I-O models are based on a table of transaction balances, which ensures economy-wide accounting consistency. Total payments equal total receipts for each sector. Multipliers were determined mathematically from IMPLAN tables that are constructed from the IMPLAN database augmented to more accurately depict the sectors in Alaska affected by GMD Program. The Alaska economy is divided into 261 sectors that sell or purchase goods and services to and from each other (interindustry or intersectoral flows), which provide key data to the model. Goods and services are purchased by domestic consumers (households), government (local, state, and federal), and for private investment purposes. For some sectors, international customers purchase goods and services, but in Alaska these sectors are comparatively few. Purchases which are external to production are for direct use and are termed final demand. Assume an economy with n sectors and let X i represent total 11

12 output for sector i, Y i represent final demand for sector I products, z ij represent interindusty flows. This is represented mathematically as: X i = Σ n Z ij + Y i (1) Then, if aij represents the I-O technical coefficients j=1 where aij = z ij / X j so that sectors use inputs in fixed proportions (constant returns to scale Leontief production function) then the above equation becomes X i = Σ n a ij + X i + Y i (2) The standard formulation of the basic I-O i=1model and its application in matrix notation is: Transactions balance: X = AX + Y (3) Solving for X: X = (I - A) -1 Y (4) For a change in Y: X = (I - A) -1 Y (5) Where X is the gross output column vector, A is the matrix of fixed I-O coefficients, Y is the final demand column vector, and I is the identity matrix. With this basic model the resulting output is computed given changes in final demand levels (consumption, investment, government, or exports). The Leontief inverse, (I A) -1, is the source of multipliers for determining impacts in the I-O methodology. The elements of the matrix are important, each captures in a single number an entire series of direct and indirect effects. Gross output requirements are translatable into employment coefficients in a diagonal matrix that is used with the Leontief inverse to generate employment impacts. Income and earnings multipliers are generated with similar manipulations. Bibliography 12

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14 The University of Alaska Fairbanks is accredited by the Commission on Colleges of the Northwest Association of Schools and Colleges. UAF is an AA/EO employer and educational institution. AFES/SNRAS Report