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OPINION: Forecast for Alaska small businesses is promising

June 6th 11:59 am | Chris Kolerok Print this article   Email this article   Create a Shortlink for this article

Starting a small business takes many moving parts: you need a product, financing, plans, but these are all meaningless if you don't have time on your side. An expensive luxury idea in the middle of a recession, or a money saving idea in the middle of an economic boom are both victims of bad timing regardless of how "good" the idea may be. So let's explore the current economic situation. In Alaska, there are three large factors that affect the economy: the federal government, the state of Alaska, and the private sector.

Let's start with the really good news. The state of Alaska is awash in money. The state Senate drafted a capital budget of $2.68 billion for fiscal year 2012, on top of an operating budget of $9 billion. The state budget is murky (a large portion are federal matching funds) but the impact is clear: the state is spending a lot, but not without stashing away some money. This year alone the state will save billions of dollars in its savings accounts to use later when a "rainy day" comes. That money will allow future Alaska administrations to smooth out the turbulence of low-oil prices, which are about 90 percent of state general fund revenues (for comparison, in the late 1990s when oil was $9 a barrel, it still accounted for about 70 percent). At least for the next several years Alaska's government spending will help ensure Alaska doesn't experience a recession. Economies of government centers (think hub communities in rural Alaska, or the big three of Anchorage, Fairbanks and Juneau) should stay fairly healthy in large part to the state of Alaska.

The private sector is another bright spot for Alaska. Though the rest of the country is slowly inching toward recovery, Alaska has an unemployment rate that has been below the national average for two years. The private sector payroll is roughly 41 percent of our economy, according to the Institute of Social and Economic Research at UAA in 2003. What's more, the state of Alaska in its April Alaska Economic Trends publication shows the hiring trend is increasing. More people are getting jobs, and a particularly good point is that more people are getting oil/gas jobs that pay significantly higher than the state average wage. The pace of recovery from the 2009 downturn has surprised many including the Alaska Department of Labor and the Anchorage Chamber of Commerce. As the national economy improves, all else being equal, so too should Alaska's; a good economy is great news for entrepreneurs.

The last leg of Alaska's economy is federal spending. This is roughly 41 percent of our economy according to ISER at UAA. Unfortunately, this leg will probably shrink. Alaska enjoyed benefits of having a very senior senator in Ted Stevens, along with Frank Murkowski who also enjoyed seniority until his departure for governor in 2002. During the 1990s and the early 2000s, this team directed billions to Alaska through earmarks, appropriations and in some cases specific bills aimed at Alaska. Two big changes have occurred of late. First, our senior senator started her job in 2002 and our long-serving representative is no longer on powerful committees. Second, the federal deficit is so large that no program is safe as the country begins discussions of how to rein in spending. Small businesses and entrepreneurs who cater to federal employees or contracts will have to come to terms with a smaller, though still large, federal impact in Alaska's economy.

What does this all mean for starting a small business, or keeping it going? Most likely it means times will get easier. Record low interest rates should make borrowing cheaper, and if you held your breath for the past two years, then you should be able to breathe a bit easier for the next two. Long story short, the timing is right: now you just need to sort out your products, financing and business plans.

Chris Kolerok is consulting associate with Alaska Growth Capital, a non-depository lender in Anchorage that specializes in small business lending and participates with the SBA and USDA guarantee programs.

 


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