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

tangible financial gains or losses to state revenues and is ultimately conditioned by the state’s tax policy. 2 For a detailed discussion of the Beach Management Funding Assistance program, including a discussion of the ranking criteria see OPPAGA report No. 14-12. 3 See U.S. Army Corp of Engineers report EM 1110-2-1100, June 2006. 4 The ROI is developed by summing state revenues generated by a program less state expenditures invested in the program, and dividing that calculation by the state’s investment. It is most often used when a project is to be evaluated strictly on a monetary basis, and externalities and social costs and benefits—to the extent they exist—are excluded from the evaluation. The basic formula is: (Increase in State Revenue – State Investment) State Investment Since EDR’s Statewide Model4 is used to develop these computations and to model the induced and indirect effects, EDR is able to simultaneously generate State Revenue and State Investment from the model so all feedback effects mirror reality. The result (a net number) is used in the final ROI calculation. As used by EDR for this analysis, the returns can be categorized as follows:  Greater Than One (>1.0)…the program more than breaks even; the return to the state produces more revenues than the total cost of the investment.  Equal To One (=1.0)…the program breaks even; the return to the state in additional revenues equals the total cost of the investment.  Less Than One, But Positive (+, <1)…the program does not break even; however, the state generates enough revenues to recover a portion of its cost of the investment.  Less Than Zero (-, <0)…the program does not recover any portion of the investment cost, and state revenues are less than they would have been in the absence of the program because taxable activity is shifted to non-taxable activity or the state is paying more than the return it receives. The numerical ROI can be interpreted as return in tax revenues for each dollar spent by the state. For example, a ROI of 2.5 would mean that $2.50 in tax revenues is received back from each dollar spent by the state. The basic formula for return on investment is always calculated in the same manner, but the inputs used in the calculation can differ depending on the needs of the investor. Florida law requires the return to be measured from the state’s perspective as the investor, in the form of state tax revenues. In this regard, the ROI is ultimately shaped by the state’s tax code. All of the issues contained in this report shape EDR’s calculation of ROI. Some of them are further addressed in the assumptions and findings. Methodology… EDR used the Statewide Model to estimate the return on investment for the program under review. The Statewide Model is a dynamic computable general equilibrium (CGE) model that simulates Florida’s economy and government finances.5 Among other things, it captures the indirect and induced economic activity resulting from the direct program effects. This is accomplished by using large amounts of data specific to the Florida economy and fiscal structure. Mathematical equations6 are used to account for 4 See section on Methodology for more details. 5 The statewide economic model was developed using GEMPACK software with the assistance of the Centre of Policy Studies (CoPS) at Monash University (Melbourne, Australia). For further details, see: http://edr.state.fl.us/Content/statewide-policy- analysis-tools/index.cfm 6 These equations represent the behavioral responses to economic stimuli – to changes in economic variables. 5 the relationships (linkages and interactions) between the various economic agents, as well as likely responses by businesses and households to changes in the economy.7 The model also has the ability to estimate the impact of economic changes on state revenue collections and state expenditures in order to maintain a balanced budget by fiscal year. When using the Statewide Model to evaluate economic programs, the model is shocked8 using static analysis to develop the initial or direct effects attributable to the programs funded by the state. In this analysis, the annual direct effects (shocks) of the program took the form of:  Removal of the program funding from the state budget.  Removal of expenditures attributable to visitors. The model was then used to estimate the additional—indirect and induced—economic effects generated by the program. This includes the supply-side responses to tourism activity, where the supply-side responses are changes in investment and labor supply arising from that activity. Indirect effects are the changes in employment, income, and output by local supplier industries that provide goods and services to support the direct economic activity. Induced effects are the changes in spending by households whose income is affected by the direct and indirect activity. All of these effects can be measured by changes (relative to the baseline) in the following outcomes:  State government revenues and expenditures  Jobs  Personal income  Florida Gross Domestic Product  Gross output  Household consumption  Investment  Population EDR’s calculation of the return on investment used the model’s estimate of net state revenues and expenditures. Other required measures for this report include the number of jobs created, the increase or decrease in personal income and the impact on gross state product, all of which are included in the model results. Spending associated with in-state tourism is not included in the return on investment analysis. The tangible economic benefits of tourism on the economy are primarily the result of an influx of new spending by out-of-state visitors. 7 The business reactions simulate the supply-side responses to the new activity (e.g., changes in investment and labor supply). 8 In economics, a shock typically refers to an unexpected or unpredictable event that affects the economy, either positive or negative. In this regard, a shock refers to some action that affects the current equilibrium or baseline path of the economy. It can be something that affects demand, such as a shift in the export demand equation; or, it could be something that affects the price of a commodity or factor of production, such as a change in tax rates. In the current analyses, a shock is imposed to simulate the effect of tourist-related spending in the economy. 6 In-state residents do not generate new spending; rather, in-state resident tourism leads to reduced spending in other sectors of the economy. In other words, residents will substitute limited disposable income of one purchase for another: a day at the beach versus a day at an amusement park. Key Assumptions… The following key assumptions are used in the Statewide Model to determine the outcomes of the program under review. Some of the assumptions are used to resolve ambiguities in the literature, while others conform to the protocols and procedures adopted for the Statewide Model. 1. The analysis assumes all data provided by VISIT FLORIDA and the Department of Environmental Protection was complete and accurate. The data was not independently audited or verified by EDR. 2. The analysis assumes that given the time span under review, applying discount rates would not prove material to the outcome. 3. The analysis assumes that any state expenditure made for beach management and restoration projects is a redirection from the general market basket of goods and services purchased by the state. Similarly, any revenue gains from increased business activities are fully spent by the state. 4. The analysis assumes the relevant geographic region is the whole state, not individual counties or regions. The model accounts and makes adjustments for the fact that industries within the state cannot supply all of the goods, services, capital, and labor needed to produce the state’s output. 5. This analysis assumes that not all visitors to the state of Florida come as a result of Florida’s beaches and that other factors influence visitors’ destination decisions. 6. This analysis assumes that while some visitors to the state come as a result of Florida’s beaches, not all beach visitors are attributable to the beach management and restoration program spending. 7. This analysis assumes that a portion of the state spending on beaches does not stay within Florida. Many of the firms responsible for the construction phase of beach restoration are located outside of the state. 7  FLORIDA BEACHES AND THE STATE BRAND Purpose... EDR was tasked with identifying 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. Consumers have many destination choices, and what sets one location apart from others is a strong and clearly defined image or brand. Preferences for particular tourism destinations are largely dependent on the positive perceptions of those destinations. According to Larry Dwyer: “The infrastructure in which a country’s tourism industry relies, such as its roads, railways, airports and terminals, accommodation facilities, shopping, entertainment, restaurants, currency exchange facilities, telecommunications and so on are major determinants of its overall destination competitiveness including destination ‘experience’.”9 The State of Florida has many features that appeal to visitors. From beaches and state parks to theme parks and sporting events, Florida provides tourists with a variety of enticing attractions. These features naturally have varying degrees of attractiveness to visitors, but collectively make up the state’s brand. Data and Methodology... In order to evaluate the relationship between Florida’s beaches and the state’s attractiveness as a tourism destination, EDR surveyed the various local governments and/or their respective Destination Marketing Organizations (DMO) that levy the Tourist Development Tax authorized in s. 125.0104(3), Florida Statutes. Respondents were given a list of 10 tourism related activities10 and asked to rank the activities in order of importance with 1 being highest, or the primary reason that tourists visit the respondent’s area. Responses were received from representatives of 28 DMOs, including those representing Florida’s most popular tourist destinations. Due to limited responses and limited activities in certain counties, only the top three activities were considered in our rankings. The attractiveness rankings were then quantified by giving 3 points to each primary feature, 2 points to each secondary feature and 1 point to each tertiary feature. This accounts for the attractiveness of activities within each area, but does not consider that each geographic area draws in a different number of tourists. Tourist counts were unavailable for the exact locations of the respondents. The count of motel and hotel rooms in each county, however, is available from