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FAIRSANK. N OROUGH Box .'-r-b s, A99707 IMPACT INFO%NIATION CENTER Special Report No. 3 QUESTIONS AND ANSWERS ABOUT THE COST OF LIVING IN FAIRBANKS Prepared by Mim Dixon, Impact Information Center With Assistance From Dan Kupiscewski, AZaska State Dept. of Labor ... Monica Thomas, Dept. of Economics, University of Alaska Richard Solie, Dept. of Econonrics, University of Alaska December 12, 1975 Borough Mayor John A. Carlson Impact Advisory Committee Impact Information Center Larry Carpenter 514 Second Avenue David Crockett Box 1267 Claude Demientieff Fairbanks, Ak. Leslye Korvola Phone: 452-4002 Charles Parr J.C. Thomas Mim Dixon, Ph.D., Information Officer Jeanne Wilson George Wise Cindy Quisenberry, Information Assist. Phil Younker A manager wants to know how much more he should pay his employees who are being moved to Fairbanks from Anchorage. A worker wants to know bow much the cost of living has increased in Fairbanks in the last year before new wage negotiations begin. Federal admin- istrators experiencing a high turnover in employees need to substantiate their observation that a 25% cost of living allowance is inadequate. A business is establishing a new office in Fairbanks and the owner wants to know what salary in Fairbanks would be comparable to salaries he is paying his employees in Los Angeles. A traveling journalist observes the price of milk in the supermarket and wants to have more conclusive evidence of the high cost of living in Fairbanks for a story he is writing for a magazine, newspaper, or television station which receives national coverage. A sanitarian is considering taking a job in Fairbanks and he wants to know whether the salary he is being offered will be an improvement over his present salary after the cost of living is taken into consideration . . . These situations, and many like them, occur commonly in Fairbanks as its economy expands to meet the demands created by pipeline construction activities. Often people who are seeking cost of living information request assistance from the Impact Information Center. This special report has been prepared to answer some of the most commonly asked questions about the cost of living in Fairbanks. What is the cost of Ziving in Fai2,barks? Nobody knows. The most accurate cost of living information is the annual three-budget series and consumer price index (CPI) prepared by the Bureau of Labor Statistics (BLS). The Bureau of Labor Statistics is the division of the U.S. Department of Labor designated to collect data, analyze, and interpret economic indicators related to wages and prices. The three-budget series is a standard procedure to determine the cost of living for average families living on three diff- erent incomes. BLS produces a yearly three-b ud get series for retired couples, as well as the series for families with employed heads of households. The three-budget series are updated annually by the conspmer price index, which measures the rates of inflation. The BLS conducts these studies on a regular basis in 44 cities within the United States. Anchorage is one of the cities, Fairbanks is not. Prior to 1970, the BLS conducted a CPI in Fairbanks and an inter- city index which compared the cost of goods in Fairbanks, Anchorage. Juneau and Ketchikan. The BLS studies are based upon econometric prac- tices in which prices are weighted according to local consumer expenditure patterns. In 1970, it was felt that the consumer expenditure patterns had changed in Alaska to the point that the data were being weighted inaccurately and a new consumer expenditure survey was needed. The funds were not available for this costly undertaking, except for the Anchorage area. The cost of living data collected by the BLS prior to 1970 are now obsolete due to rapid economic change resulting from construction of the trans Alaska oil pipeline. What is the difference in cost of living between FaiPbanks and Anchorage? This is a difficult question to answer, because, although there is accurate cost of living information for Anchorage, there is no good comparative data for Fairbanks. The University of Alaska's Institute of Social, Economic, and Government Research produced a study entitled, "Consumer Prices, Personal Income and Earnings in Alaska." Although this study was published in 1974, it is based upon data which are, for the most part, pre-pipeline. Based upon 1972 data, the report shows that the cost of housing was 9-18% greater in Fairbanks than in Anchorage, and food cost 7-8% more in Fairbanks. Using 1970 data, the report indicates that total costs of goods and services in Fairbanks were 12% greater than in Anchorage. Some other indicators of differences in cost are the cost per unit of low rent public housing constructed by the U.S. Department of Housing and Urban Development in 1973 was 6.6 percent greater in Fairbanks than Anchorage, and the military has found that it costs 20% more for construction in Fairbanks than in Anchorage. There has been no accurate data base on which to compare cost of living in Fairbanks and Anchorage since pipeline construction began. During the first year of construction, Fairbanks probably.experienced a greater housing shortage-and thereby a greater increase in housing costs than Anchorage. However, by the summer of 1975, Anchorage was experienc- ing a housing shortage which probably increased housing prices to the point that the relative difference between Fairbanks and Anchorage began to approximate the difference prior to the pipeline. For the purpose of cost of living adjustments, the State of Alaska provides for a 4-step differential in pay between Anchorage and Fairbanks for classified employees in the University and general govern- ment employees working for the State, who are represented by the Alaska Public Employees Association. On the average, this is a 15.2% difference in wages between Anchorage and Fairbanks. I-,'hat is the difference in cost of living between Fairbanks and cities in the "lower 48" states? One way to calculate the difference in cost of living between Fairbanks and cities in the "lower 48" states is to use the BLS data to determine the difference between Anchorage and one of the 44 cities studied by the BLS which is geographically near to the city in question. The difference between Anchorage and the designated city may then be added tothe difference between Fairbanks and Anchorage to obtain the difference between Fairbanks and the designated city. 2 difference between difference between difference Anchorage and the + Fairbanks and between designated city Anchorage Fairbanks and designated city figures for autumn 1974 for each of the three budgets are appended to this report. Thesefigures show Anchorage to be 28-48% above the 'U.S. urban average and 29-44.`.' above Seattle, depending upon the budgetary level. Based upon figures for retired couples for the high budget only, Anchorage was 23% higher than the U.S. urban average and 17% higher than Seattle in autumn 1974. More recent BLS figures for the difference in cost of living between Anchorage and the other 43 cities may be obtained by writing to BLS - U.S. Dept. of Labor, Box 36017, 450 Golden Cate Avenue, San Francisco, California 94102 or by calling 415-556-4678. BLS reports suggest that in October 1975, Anchorage was 34-55% above the U.S. urban average. The Federal aovernment gives employees in Anchorage a 22.5% cost of living allowance (COLA). Employees in Fairbanks receive the maximum COLA allowed by law, 25%. COLA means that federal employees in Fairbanks are receiving 25% more pay than their counterparts in the lower 48 states. In addition, that 25% COLA is non-taxable, which means that it results in a greater than 25% after-taxes income, depend- ing upon the base pay. Federal executives in Fairbanks, who are experiencing a high turnover rate in their employees feel that the 25% COLA is inadequate for Fairbanks. A bill (S.2482) is currently before the U.S. Senate to eliminate the 25% maximum COLA in Alaska and review the civil service studies used to determine COLA. HOW much has the cost of Uving increased in Fairbonks? Again, there is no answer. 'Host people who ask this question are seeking a figure for the increase in cost of living over a year's period starting and ending when a particular wage contract started and ended. In general, the two annual periods which are used most commonly are the calendar year (January through December) and the fiscal year (July through June). The closest figures available are those for Anchorage, which showed a 6.7% increase in cost of living from January 1974 to July 1974, a 6.6% increase in cost of livinR from July 1974 to January 1975, and a 7.6% increase in cost of living from January 1975 to July 1975. From July 1975 to October 1975, there has been a 2.3% increasez The Impact Information Center has conducted a Fairbanks market basket survey since September of 1974. In the last quarter of 1974, at home food prices increased by almost 6%. During the first six months of 1975, food prices increased by 10% (this figure does not take seasonal adjust- ments into consideration). For these same periods in Anchorage, at home food prices increased by 3.7% for the last quarter of 1974 and by 1.9% for the first six months of 1975. 3 Of course, food is only one component in the cost of living. Housing probably consumes a greater percentage of income in Fairbanks than in Anchorage and the rest of the nation. With the pipeline-related housing shortage, the cost of housing has probably increased more rapidly in Fairbanks than in other places, thereby driving up the overall cost of living at a faster rate. Since cost of living increases are used primarily in deter- mining wages, some figures on increases in wages are presented here. Between August 1973 and January 1974 the State of Alaska granted increases totalling a 13.9Z increase in wages. In August of 1974, the state granted a 4% cost of livLng increase. In February of 1975, the state granted another 4% cost of living increase and this was subsequently made retroactive to January 1, 1975. In August of 1975, the state granted a 9% cost of living increase which was retroactive to January, 1975. In addition, Fairbanks received a 3.75% cost of living adjustment. This is a 39.3Z increase over a two year period, although it must be noted that there 'had been no increases in state wage� from 1970 to 1974. Fairbanks city employees received a 50-60% increase in vages in 1974, and a 15", increase in 1975. Where can T find additionaZ information on the cost of Ziving in Fairbanks.? Sources which have already been cited in this report include: Bureau of Labor Statistics Publications: (see Appendix II) Location: 450 Golden Cate Avenue, San Francisco, Calif. Mailing: Box '36017, San Francisco, Calif. 94102 TeLephone: 415-556-4678 Institute of Social, Economic and Government Research Publication: Alaska Review of Business and Economic Conditions Location: 8th floor Gruening Bldg, U of A, Fairbanks Mailing Address: Box 95451, Fairbanks, Ak. 99701 Telephone: 479-7420 In Anchorage: 3211 Providence Drive, Anchorage, Ak., 99504 C@ Other organizations are engaged in research and have produced publications which may be helpful. These include: Cooperative Extension Service Publication: Quarterly Food Price Comparative Survey for 13 Communities in Alaska Location: Eielson Bldg., U of A, Fairbanks Mailing Address: Box 95151, Fairbanks, Ak. 99701 Telephone: 479-7246 4 Department of Labor, State of Alaska Publication: Alaska Economic Trends Mailing Address: P.O. Box 3-700, Juneau, Ak. 99802 Telephone: 586-1347 or 586-1349 Division of Personnel, Dept. of Administration, State of Alaska Publication: Survey of Salaries & Benefits, Housing & Food Costs and Salary Recommendations (December 1972) Mailing Address: Pouch C, Juneau, Alaska 99811 Telephone: 465-4421 Department of Community and Regional Affairs, State of Alaska Publication: Regional Cost Indexes, Alaska House Districts (February 1974) Mailing Address: Pouch B, Juneau, Ak. 99811 Telephone: 465-4700 Other people and organizations engaged in economic research C, which may be helpful include: Department of Labor, State of Alaska Economist: Dan Kupiszewski Location: State Office and Court Bldg., Fairbanks Mailing Address: Box 1010, Fairbanks, Ak. 99707 Telephone: 452-1501 Department of Economics, University of Alaska, Fairbanks Economists: Dr. Richard Solie, Monica Thomas Location: 6th Floor Gruening Bldg., U of A Mailing Address: Box 95301, Fairbanks, Ak. 99707 National Bank of Alaska, Economics Department Economists: Bob Richards, Bill Hall Location: 6th & Cushman Mailing Address: Pouch 1000, 6th & Cushman, Fairbanks 99701 Telephone: 452-4733 Eielson Air Force Base - Cost of Living Allowance Survey Director: Fred Brantingham, Comptroller EAFB C. Location: Eielson Air Force Base Mailing Address: 5010 Combat Support Group/AC, Eielson AFB, Alaska 99702 Telephone: 377-4233 5 Statistical Reporting Service, U.S. Department of Agriculture Statistician in charge: "Swede" Severson Location: Hillstrom Bldg., Chugach & Fireweed, Anch, Ak. 0 Mailing Address: P.O. Box 799, Palmer, Ak. Telephone: 907-745-4271 Alaska National Bank Economist: Chris Stephens Location: 4th & Lacy, Fairbanks Mailing Address: 4th and Lacy, Fairbanks, Ak. 99701 Telephone: 456-6691 [Mat can we do to obtain better information on the cost of Ziving in Fairbanks? Other people in the community are also looking for better answers to questions about the cost of living. They include the Fairba-nks Chamber of Commerce, the Federal Executive Association, and the labor unions. Better information about the cost of living is a key to controlling the wage-price spiral of inflation in Fairbanks. Everybody would benefit from steps to control inflation. The Bureau of Labor Statistics estimates that it would cost $150,000 to do an initial study before a regular cost of living informa- tion program could be instituted in Fairbanks. It would then cost $50,000 each year to collect and analyze the cost of living data. A C@ report from the Senate Committee on Appropriations submitted during the first Session of the 94th Congress in relation to the 1976 budget states, "The committee recommends that Bureau of Labor Statistics initiate development of a quarterly Consumer Price Index measure of price change over time - not between areas - for the urban area of Fairbanks, Alaska, and directs that $150,000 be used for this purpose" (p. 20). However, this does not insure that a program to measure prices in Fairbanks will be conducted by the BLS. You can express your need for cost of living information by @,rriting to U.S. Senators Ted Stevens and Mike Gravel, Alaska's Representative Don Young, and the U.S. Commissioner of Labor John T. Dunlop. 6 Appendix I Comparison of Three Budgets for Selected Urban Areas (Note: This information, prepared by the Bureau of Labor Statistics from data gathered In Autumn 1974, is based upon annual total budgets for a precisely defined urban family of four, a 38-year-old husband employed full time, his non-working wife, a boy of 13, and a girl of 8. After about 15 years of married life, the family is well established and has average inventories of clothing, house furnishin-, major durables and other equipment. The budgets are not intended to represent a minimum level of living.) Low Budget Medium Budget High Budget Area Budget Index Budget Index Budget Index Anchorage, Alaska $13,687 149 $19,092 133 $26,595 128 Honolulu, Hawaii 11,383 124 17,019 119 25,572. 123 San Francisco-Oakland, California 9,973 108 15,127 106 21,980 106 Boston, Massachusetts 9,933 108 16,725 117 24,708 119 New York-Northeastern New Jersey 9,952 107 16,648 116 25,470 123 Hartford, Connecticut 9,811 107 15,501 108 21,604 104 Washington, D.C. -Maryland-Virginia 9,723 106 15,035 105 21,725 105 Seattle-Everett, Washington 9,630 105 14,487 101 20,477 99 Chicago, Illinois-Northwestern Indiana 9,571 104 14,797 103 21,178 102 Los Angeles-Long Beach, California 9,524 104 14,068 98 20,801 100 Champaign-Urbana, Illinois 9,496 103 14,587 102 21,073 .101 Baltimore, Maryland 9,496 103 14,398 100 20,886 101 Portland, Maine 9,436 103 14,697 103 20,367 98 Philadelphia, Pennsylvania-New Jersey 9,433 103 14,757 103 21,299 103 Minneapolis-St. Paul, Minnesota 9,366 102 14,917 104 21,700 104 Buffalo, New York 9,332 101 15,364 107 22,096 106 U.S. METROPOLITAN AREAS 9,324 101 14,645 102 21,381 103 Milwaukee, Wisconsin 9,300 101 15,024 305 21,794 105 San Diego, California 9,284 101 13,977 98 20,409 98 TJRBAN UNITED STATES 9,198 100 14,334 100 20,777 100 Lancaster, Pennsylvania 9,173 100 14,130 99 19,927 96 Detroit, Michigan 9,138 99 14,390 100 21,142 102 Cleveland, Ohio 9,124 99 14,617 102 20,732 100 WEST NO.N-.%1ETPOPOLITA_N AREAS 9,059 98 12,863 90 18,215 88 Missouri-Kansas -20,351 98 Kansas City, , 9,051 96 13,939 97 NORTHEAST NON74ETROPOLlTAN AREAS 9,().',l 98 14,196 99 19,478 94 Indianapolis, Indiana 9,026 98 14,120 99 20,020 96 Denver, Colorado 8,965 97 13,606 95 19,673 95 Durham, North Carolina 8,929 97 13,927 97 19,878 96 Pittsburgh, Pennsylvania 8,913 97 13,876 97 19,999 96 NORTHCENTRAL NONMETPOPOLITAN AREAS 8,892 97 13,223 92 18,603 90 Green Bay, Wisconsin 8,870 96 14,180 99 21,016 101 Cedar Rapids, Iowa 8,867 96 14,092 98 20,324 98 St. Louis, Missouri-Illinois 8,862 96 13,859 97 19,848 96 Orlando, Florida 8,799 96 12,804 89 18,381 88 Wichita, Kansas 8,782 95 13,302 93 19,074 92 Dayton, Ohio 8,764 95 13,391 93 19,489 94 Bakersfield, California 8,701 95 13,000 91 18,414 89 Cincinnati, Ohio-Kentuck-Indiana 8,683 94 13,753 96 19,203 92 U.S.'NONMETROPOLITAIN AREAS 8,639 94 12,946 90 18,081 87 Atlanta, Georgia 8,608 94 13,098 91 18,825 91 Houston, Texas 8,483 92 12,872 90 18,469 89 Dallas, Texas 8,405 91 12,917 90 18,784 90 Nashville, Tennessee 8,402 91 12,996 91 18,668 90 Baton Rouge, Louisiana 8,307 90 12,928 90 19,034 92 SOUTH NO',METROPOLITAN AREAS 8,210 89 12,306 86 17,187 83 Austin, Texas 8,108 88 12,388 86 17,914 .86 7 Appendix II U.S. Dept. of Labor, Bureau of Labor Statistic NOAA COASTAL SERVICES CTR LIBRARY PUBLICATIONS AND LIST 3 6668 14112855 5 Mailing List Code and PACIFIC REGION MAILING LIST Domestic (U.S.) Frequency Subscription of Price (Year) Issue Regional Announcement of Publications ------------------------------------------------ A 1 per month Union Wage Scales, Building Trades ----------------------------------------------------------- B Quarterly Qua Consumer Price Index - Pacific Cities & U.S. Average ------------------------------------------ C Monthly (S.F. Oak., L.A.-L.B., San Diego, Portland, Seattle, Honolulu, Anchorage) Pacific States Employment -------------------------------------------------------------- E Monthly (Alaska, Arizona, California, Hawaii, Idaho, Neveda, Oregon, Washington) Retail Food Prices - Pacific Cities ----------------------------------------------------------- F Monthly F Monthly (S.F.-Oak., L.A.-L.B., San Diego, Portland, Seattle, Honolulu) Anchorage Consumer Price Index Index (Press Release) --------------------------------------- G Quarterly Productivity (Press Release) --------------------------------------- -- -------------- K Quarterly PUBLICATIONS CONTAINING SURVEYVEY FINDINGS - WASHINGTON, D.C. Consumer Price Index (Press Release) ------------------------------------------------- Monthly Department Store Inventory Price Indexes --------------------------------------------- Semiannual Estimated Retail Food Prices by Cities ----------------------------------------------- 300 Monthly Labor Turnover in Manufacturing (Press Release) -------------------------------------- 305 Monthly Major Collective Bargaining Settlements (Press Release) ------------------------------- 317 Quarterly. Occupational Outlook (Announcements) ------------------------------------------------ 322 Occasional Occupational Safety & Health & Work Injuries ----------------------------------------- 309 Annual Productivity Studies ---------------------------------------------------------------- 310 Annual Real Earnings (Press Release) -------------------------------- ---------------------- 325 Monthly Retail Food Price Index - Washington, D.C. (Press Release) ------------- ------------- 333 Monthly Retail Prices and Indexes of Fuels and Utilities -------- - ---------------------------- 306 Monthly Standard Family Budgets ------------------------------------------------------------- 388 Occasional Special Labor Force Reports ----------------------------------------------------------- 308 Occasional The Employment Situation (Press Release)--------------------------------------------- 365 Monthly Tuesday Spot Market Price Indexes and Prices ----------------------------------------- 332 Weekly Union Scales for Seven Selected Building Trades in 100 Cities------------------------ 313 Quarterly U.S. Department of State Indexes of Living Costs Abroad ----------------------------- 391 Quarterly Wholesale Prices and Price Indexes (Summary) ----------------------------------------- - 304 Monthly York Stoppages (also Annual Report) -------------------------------------------------- 313 Monthly ANNOUCEMENTS OF REPORTS-WASHINGTON,D.C. Announcement of Publications for Sale------------------------------------------------ 350 Occasional Annoucement of New Publications on Wage and Industrial Relations ------------------ 314 Occasional Automation and Technical Change (Announcement) ---------------------------------------- 380 Occasional Catalog of BLS Publications --------------------------------------------------------- 321 Semiannual MAJOR SALE PERIODICALS* Consumer Price Index ----------------------------------------- - ---------------------- $11.55 Monthly Wholesale Prices and Price Indexes --------------------------------------------------- 23.75 Monthly Current Wage Developments ------------------------------------------------------------ 18.00 Monthly Employment and Earnings --------------------------------------------------------------- 37.20 Monthly Monthly Labor Perview - ---------------------------------------------------------------- 22.35 Monthly Chartbook on Prices, wages, and Productivity ----------------------------------------- 14.40 Monthly Occupaitonal Outlook Quarterly ---------- - ------------------------------------------- 5.40. Quarterly Occupational Outlook Handbook -------------------------------------------------------- 8.70 Bieannial Digest of selected Pension Plans ------- ----------------------------------------------- 8.15 Occasional Including a year of revision sheets) Digest of Health and Insurance Plans - ------------------------------- ---------------- 14.00 Occasional (Including a year of revision sheets) Directory of National Unions Employee Associations --------------------------------- 4.45 Occasional Subject to price change 8