Okaloosa County BOCC — March 17, 2015 — 76127 economic evaluation of florida s investment in beaches — reading text

OFFICE OF ECONOMIC & DEMOGRAPHIC RESEARCH Economic Evaluation of Florida’s Investment in Beaches Identifying the State’s Brand, Calculating the Return on Investment of Beach Restoration and Assessing the Risk of Disasters 1/15/2015  Table of Contents EXECUTIVE SUMMARY .................................................................................................................................. 1 OVERVIEW OF BEACH RESTORATION AND ROI............................................................................................. 3 FLORIDA BEACHES AND THE STATE BRAND .................................................................................................. 8 RETURN ON THE STATE’S INVESTMENT IN BEACH RESTORATION.............................................................. 10 ASSESSING THE ECONOMIC RISK OF DISASTERS ......................................................................................... 14 RETURN ON INVESTMENT AS A PROJECT SELECTION CRITERION ............................................................... 16 APPENDIX A: DIRECTIVE LETTER ................................................................................................................. 17 APPENDIX B: VISITOR SPENDING METHODOLOGY ..................................................................................... 19 APPENDIX C: INTERPRETING ROI INDICATORS ............................................................................................ 21 APPENDIX D: ADDITIONAL STORM DAMAGE RESOURCES .......................................................................... 22  EXECUTIVE SUMMARY Introduction… At the request of Speaker Will Weatherford, the Office of Economic and Demographic Research (EDR) undertook an economic evaluation of the state’s investment in beach management and restoration projects. The evaluation:  identifies the strength of the relationship between Florida’s beaches and the state’s attractiveness as a tourism destination, including the impact on the state’s brand;  calculates the state’s overall return on investment from its current expenditures on beach management and restoration projects; and  assesses the impact of the potential shocks such as major storm damage or other disasters, including a discussion of the state’s economic risk. See APPENDIX A for a copy of the letter from the Speaker. This analysis develops a return on investment for the Beach Management and Restoration Program and evaluates the key factors that affect this return. The state’s return on investment includes all direct, indirect and induced effects of the state’s investment in the Beach Management and Restoration program. This measure does not address issues of overall effectiveness or societal and ecological benefit; instead, it focuses on tangible financial gains or losses to state revenues. The review period covers Fiscal Years 2010-11, 2011-12, and 2012-13. In this report, EDR assumes that the Beach Management and Restoration program is one of two direct investments made by the state to support Florida’s brand related to beaches, and that the two (advertising the brand and program investment) generate tourists. Overall Results and Conclusion… EDR determined that the state’s brand is made up of nine features that attract visitors. Beaches are the most important feature of Florida’s brand, accounting for 25.5% of the state’s attractiveness to visitors. The state appropriates funds yearly to repair storm damage and ensure the high quality of the beaches. The state’s investment in the Beach Management and Restoration Program generated a positive return on investment of 5.4. The ROI was estimated using tax revenues resulting from visitor spending induced by the state’s investment in beaches. A return of greater than 1 means that the tax revenue generated by tourists to the state of Florida more than covers the state’s expenditure on beaches. Factors that affect the positive return on investment are:  Tourists purchase many products that are taxable.  Money generated from the purchase of tourism-related products is generally kept within the local economy.  The investment in Florida’s beaches is relatively low compared to the amount of economic activity generated by tourists. 1 If the state were to increase its investment in beaches, it does not necessarily mean that the ROI will increase or that Florida would gain additional tourists. Maintaining the beaches at a level of high quality is important, but once the beaches have reached that level, there are diminishing economic returns to beach investment. This is because additional spending on beaches that are not in need of maintenance will attract little to no additional visitors. Similarly, if the state were to reduce or eliminate funding for beaches, the result would not necessarily be an immediate reduction in tourism. Rather, any reduced tourism would likely occur over time, if at all, depending on the degree of erosion to Florida’s beaches. Hurricanes, tropical storms and other shocks have a negative effect on the attractiveness of the state to visitors and state tax revenues. Depending on the magnitude of the shock, the state may need to spend additional dollars to restore the beaches while also experiencing reduced revenues. In summary, the state invested $44 million in the Beach and Management Restoration Program during the review period resulting in an average increase in GDP of $2.4 billion per year. This, in turn, increased the overall collection of state revenues by $237.9 million over the three year period. 2  OVERVIEW OF BEACH RESTORATION AND ROI Background and Purpose... Recognizing the importance of beaches, the Florida Legislature created a comprehensive beach management and planning program in 1986. Managed by the Department of Environmental Protection (DEP), the program provides funding for beach and inlet management projects. This funding is provided by the state to local governments to protect, preserve and restore Florida’s beaches. No other state and very few countries can boast such an abundance of high quality beaches. With 852 miles of sandy coastline, Florida’s beaches are primarily responsible for attracting approximately 18.6 million tourists to the state each fiscal year. In addition to providing a valuable economic resource, the beach and dune system protects coastal development from storms and protects critical habitats for a variety of wildlife species. According to the Florida Department of Environmental Protection, over 485 miles, or approximately 57% of the state’s beaches, are experiencing erosion. Beaches are naturally prone to ongoing erosion; however, storms, such as hurricanes, can also cause significant damage to beaches. Beach nourishment restores the eroded beaches. Maintenance and nourishment is then required to maintain the pristine nature of the beaches. Program Description… The Department of Environmental Protection’s Beach Management Funding Assistance Program1 was established for the purpose of working together with local, state and federal governmental entities to achieve the protection, preservation and restoration of Florida’s beaches. The Florida Department of Environmental Protection has a strategic beach management plan for the restoration and maintenance of areas it has designated as critically eroded. The state currently does not fund projects that provide only recreational benefits. In order to receive funding, the projects must have a need for beach erosion control or beach nourishment. Under the program, the state provides an amount up to 50 percent of the project’s costs to Florida’s county and municipal governments, community development districts or special taxing districts for beach management and restoration projects located on the Gulf of Mexico, Atlantic Ocean or Straits of Florida. Eligible activities include beach restoration and nourishment activities, project design and engineering studies, environmental studies and monitoring, inlet management planning, inlet sand transfer, dune restoration and protection activities and other activities related to beach erosion prevention that are consistent with the adopted Strategic Beach Management Plan. Project costs are shared between the state and local governments. Many project costs qualify for federal funding in areas authorized by Congress. Beach and inlet management projects follow four phases – feasibility, design, construction and post- construction monitoring. The Beach Management Funding Process runs from June until DEP submits its Local Government Funding Request (LGFR) to the Legislature in January. Any funds appropriated are for the fiscal year beginning in July. The funding request includes projects at various stages in development and may include new projects for areas that have never been nourished as well as ongoing projects that 1 The Beach Management Funding Assistance Program is authorized by Section 161.101, F.S. 3 periodically renourish beaches. Beach management projects are evaluated on a case by case basis. DEP annually reviews and ranks all projects requested by eligible governmental entities for the next fiscal year, and maintains a project listing in priority order. The projects are ranked on a variety of factors, including but not limited to the severity of erosion, threat to upland structures, recreational and economic benefits, the availability of federal funds, the extent of local government financial commitment, previous state commitment, mitigation of inlet effects, innovative technologies, enhancing sea turtle refuges and significance of the project.2 Federal and Local Investment… The federal government and local governments have a vested interest in beach management and restoration. The federal government funds certain projects to reduce storm damage and mitigate coastal erosion.3 Beach management projects authorized by Congress for federal financial participation are cost shared between state and local governments such that Florida funds up to 50% of the non- federal share. In total, the funding shares for projects are split approximately 28.5% federal, 30.5% state and 41.0% local. The funding split for individual projects can be different depending on the extent of local and federal involvement. Many beaches with high impact storm damage receive federal funding which may reduce the need for local or state funds; however, not all projects are federally funded. For projects that are not federally funded, the local or state share is much higher. See Figure 1 for the federal, state and local shares of total beach restoration expenditures. Figure 1. Approximate Beach Restoration Expenditures Federal State 28.45% 30.48% Local 41.07% Source: DEP Current Project Requests for Funding Explanation of Return on Investment... In this report, the term “return on Investment” (ROI) is synonymous with economic benefit, and is used in lieu of the statutory term. This measure does not address issues of overall effectiveness or ecological or societal benefit; instead, it focuses on