Urban, rural cost divide widens

Big box retailers have driven down city living costs since 1985 study

Posted: Sunday, November 08, 2009

It will cost Alaska about $35 million to implement a new cost-differential study for various Alaska communities, the Parnell administration told the Legislature last week.

The study, completed earlier this year by Juneau's McDowell Group, will be part of numerous union contract negations that are now underway, Commissioner of Administration Annette Kreitzer told the House Finance Committee on Thursday during an interim meeting in Anchorage.

The study, made public earlier this year, found an increasing gap between the cost of living in urban and rural areas in Alaska, McDowell's Jim Calvin told the committee.

The study found that in some rural communities, it cost 50 percent more to live than it did in the baseline community of Anchorage.

Rep. Mike Hawker, R-Anchorage, said the study and the decision on how it should be used are likely to be controversial.

The three most controversial issues in Alaska are "subsistence, abortion and cost differential," he said.

Rep. Beth Kerttula, D-Juneau, said the study could be a mixed blessing for communities outside Anchorage. While it may result in state employees being paid more if they work outside Anchorage, it also could bring pressure to move more state jobs to Anchorage.

"Once you say Anchorage is the cheapest place, everything starts to move there," she said.

Still, she said, it is good to have an accurate picture of what is happening in the state.

"I'm glad we have some valid data on it, and the Legislature can take steps to even it out," she said.

Calvin provided detail to the Legislature on how the report was developed, including surveys of 2,500 Alaska households and other research. Cost of housing, energy and food were key elements, with wide differences.

Much of the increase between Anchorage and more rural areas was due to the introduction of discount and big-box retail stores moving into the urban areas since the last such study was done in 1985. That held down costs for urban residents, but rural residents did not similarly benefit.

Fred Meyer and the Alaska Commercial Company provided highly detailed cost data to help with the study, Calvin said.

In many areas, housing costs played the key role in cost of living changes.

In Juneau, the cost of living is 11 percent higher than Anchorage, he said.

"That's really a function of housing," he said.

Juneau's housing costs are 15 percent higher than Anchorage, but with big retail stores, the cost of food is only 3 percent higher, Calvin said.

Cheap housing is why the Mat-Su Borough's cost of living was only 95 percent of that in Anchorage. It has access to the same retailers, but with lower housing costs.

In Southeast's smaller communities such as Gustavus and Pelican, the cost of living was less than in Juneau, and only 2 percent higher than Anchorage.

"People aren't just paying that much for housing," Calvin said.

While the quality of the housing may be an issue, "what they do pay is significantly less."

The lower cost of housing in Southeast's rural communities may even outweigh the higher cost of groceries, he said.

The key factor in cost of living around the state, he said, was access to the road system, which brings access to lower cost shopping.

In Southeast, he said, ferry service helps hold down the cost of living in rural communities.

Rep. Bill Thomas, R-Haines, agreed.

"I go to Juneau to get groceries from Costco," he said, and also carries back drums of fuel in his truck.

One anomaly Calvin said they discovered in Southeast was the differences between Sitka and Ketchikan. The two cities, both with histories in fishing and timber, are in the same size range and were initially grouped together by McDowell.

What they found, though, was that the cost of living was significantly higher in Sitka, driven by the high housing costs, he said.

"Once the Californians discovered Sitka the cost of housing went way up," he said.

• Contact reporter Pat Forgey at 523-2250 or patrick.forgey@juneauempire.com.

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