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

(FY2012-13) Funding Source Group A Group C State Beach Restoration $15,519,767 $15,519,767 Fed/Local Beach Restoration* $35,391,334 $35,391,334 Advertising** $511,176,127 $0.00 Total Spent to Induce Tourist Group $562,087,228 $50,911,101 State Beach Restoration Share of Total 2.76% 30.48% Sources: LASPBS Ledger, DEP Current Project Requests for Funding and EDR Visitor Study *Fed/Local spending is imputed from the actual state expenditures and the state share of total restoration spending **Estimate based on 2012 actual advertising spending. The EDR study of state funded advertising provides a yearly tourist breakdown of ad-related visitors, beach visitors, and international and domestic spending habits derived from data provided by VISIT FLORIDA. The study provides a total dollars spent figure for the visitors of group A and group C. Using the above methodology, this value can be further reduced to represent the amount of tourism revenue generated that is credited to the state’s expenditure on beach restoration. This results in state beach restoration being credited for $1.8 billion of tourist spending in Fiscal Year 2010-11, $1.8 billion in Fiscal Year 2011-12 and $2.0 billion in Fiscal Year 2012-13, as shown on Table 3. Results... With the direct benefit and direct cost to the state estimated, the state’s return on investment from beach restoration was determined using EDR’s statewide economic model. It is calculated that, for every dollar spent by the state of Florida on beach restoration between Fiscal Year 2010-2011 and Fiscal Year 2012-2013, $5.40 of additional tax revenue was generated, or an ROI of 5.4. Additional economic impacts of the tourism revenue generated due to the state’s investment in beach restoration over the three year period can be seen below in Table 5. A guide to interpreting these indicators can be found in APPENDIX C. 12  Table 5. Statewide Economic Model Impact Projections FY2010 FY2011 FY2012 - 2011 - 2012 - 2013 Total State Payments in the Window $ (M) 12.5 16.0 15.5 44.0 Total Net State Revenues $ (M) 78.3 75.4 84.2 237.9 Return-on-Investment by Year 6.3 4.7 5.4 Return-on-Investment for the 3 year period 5.4 FY2010 FY2011 FY2012 Average - 2011 - 2012 - 2013 Total per Year Personal Income Nominal $ (M) 2,425.7 2,391.5 2,586.3 7,403.5 2,467.9 Real Disposable Personal Income Fixed 2009 $ (M) 2,079.1 2,001.6 2,130.8 6,211.4 2,070.5 Real Gross Domestic Product Fixed 2009 $ (M) 2,481.3 2,322.3 2,418.6 7,222.2 2,407.4 Consumption by Households and Government Fixed 2009 $ (M) 2,027.0 2,013.9 2,163.2 6,204.1 2,068.0 Real Output Fixed 2009 $ (M) 3,161.9 2,867.1 2,950.6 8,979.6 2,993.2 FY2010 FY2011 FY2012 Average - 2011 - 2012 - 2013 Minimum Maximum per Year Total Employment Jobs 18,592 16,117 14,993 14,993 18,592 16,567.2 Population Persons 864 3,536 7,040 864 7,040 3,813.3 Comments... It is worth noting that, unlike many economic incentive programs, an ROI of 5.4 does not necessarily indicate that the state would increase the ROI or gain new tourists from additional restoration funding. Recall that beach restoration is essentially quality control for a product Florida offers to visitors. Additional quality control does not create additional product, or, in this case, more spending on restoration does not create new beaches. It is necessary, however, to maintain a certain level of beach quality or else visitors will travel elsewhere. 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 or damage to Florida’s beaches. This analysis considers tourism as the only economic return from beach restoration. It may also be worth considering the impact on ad valorem collections from beach front properties. Beach restoration may increase the value of these properties, generating greater ad valorem revenues for local governments while reducing disposable income of the property owners from higher taxes. The overall effect on the economy is indeterminate. Regardless, state revenues likely benefits very little, if at all, from increased ad valorem revenues and thus the direct effects are not included in the statewide model. 13  ASSESSING THE ECONOMIC RISK OF DISASTERS Purpose... EDR was tasked with assessing the impact of potential shocks such as major storm damage or other disasters, including a discussion of the state’s economic risk. A number of hurricanes have impacted Florida’s beaches in recent history, and the BP oil spill is a prime example of a non-natural disaster that can affect the state’s beaches. This analysis utilizes available data relating to beach restoration for Fiscal Years 2003-2004 through 2013-2014. Storm History and Appropriations... Due to the lengthy application process for beach restoration, funds are often appropriated for restoration of beaches that were damaged by hurricanes or storms that occurred in the summer and fall of the previous fiscal year. During the 2004 hurricane season, Florida was impacted by one category 3, two category 4 and one category 5 hurricanes (Jeanne, Charley, Frances and Ivan, respectively.) All four hurricanes hit in 2004, making it one of the worst storm years in recent history. This led to a special session by the Florida Legislature, and $64.6 million was appropriated for beach restoration to repair damage from the storms. The 2005 hurricane season included 2 tropical storms, (Arlene and Tammy,) two category 4 and two category 5 hurricanes impacting Florida (Dennis, Wilma, Katrina and Rita, respectively.) Many of these storms impacted the state from a distance or were weaker at the time of impact, resulting in less damage to the beaches than the previous year. The 2005 storms led to an appropriation of $11.3 million for beach restoration to repair damage from those storms. Lastly, the 2012 hurricane season included two tropical storms, (Beryl and Debby,) one category 1 and one category 3 hurricane impacting Florida (Isaac and Sandy, respectively.) Florida’s beaches primarily incurred damage from Debby and Sandy and $33.6 million was appropriated to mitigate the damage from those storms. These three appropriations for storm damage give a rough estimate of the beach restoration cost to the state from a low, medium and high damage storm season. Non-storm Disasters... In addition to hurricanes, manmade disasters can strike and damage the beaches. On April 20, 2010 the Deepwater Horizon oil drilling rig caught fire and burst in the Gulf of Mexico, spilling approximately 4.9 million barrels worth of oil into the gulf over the course of the 87-day spill. While this did not result in beach restoration in the traditional sense, tar balls on the beach led to negative publicity and many tourists decided to travel elsewhere. The negative publicity was felt statewide as many travelers from abroad were unaware that the gulf oil spill did not affect the east coast beaches of the state. In a 2012 report conducted by the University of Florida and sponsored by the Florida Legislature,12 approximately 14% of gulf coast visitors cancelled their trips to Florida in response to the oil spill. Methodology and Results... Using the same percentage of visitors canceling a trip and the total revenue generated from beach restoration, an estimated loss in revenue can be determined. Recall that in estimating the ROI from the state’s spending on beach restoration, a value of tourism revenue resulting from state beach restoration was determined. In the case of a disaster, the value of tourism revenue resulting from local government and federal government spending on beach restoration must also be considered. Applying the same methodology that was used to determine the level of tourism spending in the ROI analysis, it is estimated that, for Fiscal Year 2012-2013, $921.1 million in visitor spending in Florida would have been 12 “Contract for Analytical Services Related to the Deepwater Horizon Disaster: Estimation of lost indirect and passive use economic values to Floridians,” Food and Resource Economics Department, University of Florida. March 30, 2012. 14 lost. This would have resulted in approximately $55.3 million in reduced state revenues. This methodology may overstate the revenue loss from an average disaster as it reduces the visitors for the entire year. It does, however, serve as a reasonable estimate of the revenue loss due to a high impact disaster. If instead it is assumed that the approximately 14% of all beach visitors are lost for just 3 weeks surrounding the disaster, the relative loss for Fiscal Year 2012-2013 would be $53.1 million of visitor spending, or $3.2 million of state revenues. This serves as a reasonable estimate for the revenue loss due to a low impact disaster. Consider the average of these, $487.1 million in visitor spending or $29.2 million in state revenues, to approximate the loss due to a medium impact disaster. Table 5 illustrates the costs to the state from potential shocks, in terms of beach restoration appropriations and state revenues lost, expressed in 2014 dollars. For example, it is estimated that a high-impact disaster would require the state to appropriate $79.9 million to beach restoration while still losing approximately $56.8 million in tax revenues. Table 6. Estimated Impact of Potential Shocks in Millions of 2014 Dollars High-impact Disaster Medium-impact Disaster Low-impact Disaster Storm-specific Beach $79.9 $33.9 $13.1