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

Restoration Appropriation State Tax Revenue Loss from $56.8 $30.0 $3.3 Reduced Visitor Spending Further Results... In addition to the need for beach restoration appropriations and lost tourism tax revenues, a disaster impacts the state through property damage and variable consumer spending. A report written in 2010 by Milliman, Inc. for the Florida Department of Financial Services13 addresses many of these additional economic impacts in the scope of a 1-in-100 year hurricane. This would be a high impact storm such that it does more damage than 99% of hurricanes. They estimate that such a storm would result in $159.5 billion worth of property damage, of which $80.4 billion would be uninsured. Furthermore, they estimate an initial loss of $400 million in sales tax collections, due to the disruption in spending habits, followed by an increase in consumer spending, due to recovery and rebuilding, leading to an increase in sales tax collections of $4.1 billion. In the event of a major storm, the state could expect to see immediate costs and decreased revenues followed by increased tax collections that far outweigh the initial loss in the short term. However, a previous analysis conducted by EDR14 has shown that the state spends more money in needed matches and costs for response, clean-up and restoration assistance than is generated by the temporary tax collection increase. The storm repairs also speed-up the typical pace of repairs and renovations, resulting in future losses. See APPENDIX D for additional details. 13 “A Report on the Economic Impact of a 1-in-100 Year Hurricane on the State of Florida,” Milliman, Inc., March 1, 2010. 14 State of Florida Long-Range Financial Outlook, Fiscal Years 2015-16 through 2017-18, Fall 2014 Report adopted by the Legislative Budget Commission. 15  RETURN ON INVESTMENT AS A PROJECT SELECTION CRITERION Evaluation... Finally, EDR was asked to make recommendations for ensuring the consideration of potential returns on the investment as either part of the criteria currently contained within statute or within the ranking process itself, including the feasibility of – and options for – doing so on a project-by-project basis. In theory, the idea of analyzing the return on investment on a project-by-project basis is reasonable, but may be impossible to implement properly in practice. There are a number of issues to consider before implementing project-by-project ROIs. First, EDR’s statewide economic model is not designed to be used regionally within the state and is best used to evaluate investments of $10 million or greater. It would be an extremely rare occurrence for a beach restoration project to require a state investment of $10 million. The duty of calculating the project-by- project ROI would fall on the local government where the beach restoration is needed. In most cases this would cause local governments to incur additional expenses, as they likely do not have an economic model capable of calculating an ROI of an individual beach restoration project. Additionally, this would yield project-by-project ROIs that would mostly all be calculated with unique methodologies that could be designed to favor localities, making comparisons arbitrary. While it may not be feasible to determine return on investment on a project-by-project basis, it is possible to include measures of economic benefit as part of the ranking process. As mentioned in OPPAGA report No. 14-12, measures could include the value of property protected as a result of the project or the value of tourist development tax revenues as a percentage of all county revenues. Alternatively, a comparative measure of each location’s attractiveness to visitors can be determined by developing county factors that weight sales tax collections by tourist accommodations. In addition, a possible economic measure could include county employees in tourism-related occupations as a percentage of all employees in the county. It is important to recognize that these measures will rank locations by tax revenues generated by visitors. In this regard, they will not vary project by project but rather county by county. Finally, from an economic perspective, it is important to quickly address severe storm-related damage. To maintain Florida’s brand, potential visitors need to observe recovery occurring quickly after a disaster. Theoretically, recovery (and the positive publicity associated with the recovery) taking place more quickly will result in less tourism revenue loss, thus greater tax revenues to the state. 16 APPENDIX A: DIRECTIVE LETTER 17 18  APPENDIX B: VISITOR SPENDING METHODOLOGY Below is an excerpt from EDR’s 2015 report on the Return on Investment for VISIT FLORIDA: This analysis assumes that beach restoration is essential to maintaining Florida’s brand. As such, the expenditures associated with beach visitors must be evaluated separately. While other state investments may serve a similar purpose, they have not been separately addressed in this report since they fulfill multiple functions for residents and tourists. Those expenditures would be needed for residents, regardless of tourists. VISIT FLORIDA’s Florida Visitor Study includes information regarding activities visitors undertook while visiting the state. EDR used this activity data to establish an estimate of the number of visitors who come to Florida for beach related activities and the corresponding expenditures associated with their existence. During calendar years 2010-2013, it is estimated that roughly 20 percent of all domestic visitor tourism spending was attributable to the existence of beaches. That is not to say that the spending occurred in and around Florida’s beaches, but that a portion of the overall trip was induced by the beaches. To gauge the number of visitors who visit Florida’s beaches as a result of marketing efforts, EDR applied the percentage of beach spending (roughly 20 percent in each year) to the number of marketing and non-marketing related visitors. 2010 2011 2012 2013 Total Number of Marketing Related Visitors 44,573,368 47,149,798 49,731,373 51,974,211 193,428,751 Number of Non-Marketing Related Visitors 37,741,632 40,158,202 41,679,627 41,688,789 161,268,249 Domestic Beach Spending Activity % 20.53% 20.16% 19.60% 20.66% Number of Marketing Related Beach Visitors 9,149,700 9,505,143 9,746,133 10,740,016 39,140,992 Number of Non-Marketing Related Beach Visitors 7,747,331 8,095,675 8,168,187 8,614,623 32,625,816 Total Beach Visitors 16,897,031 17,600,817 17,914,320 19,354,639 71,766,808 During the review period EDR estimated that 39.1 million visitors visited Florida’s beaches as a result of some form of marketing (state, local, private, etc). Given that EDR’s survey results indicate that Florida’s beaches are the most important feature of the state’s brand and the strongest in terms of attracting tourists, EDR assumed that the beach brand itself was responsible for attracting visitors to the state. As such, spending associated with those visitors could not be attributable directly to VISIT FLORIDA’s marketing efforts. In order to calculate the spending of beach visitors attributable to Florida’s beach branding, EDR used the state’s investment in beach restoration as a proxy of the state’s value of the beach as a brand. This value was estimated to be between 5.34-8.70 percent of total marketing-related expenditures, depending on 19  the year during the review period.15 The dollars produced by this percentage were proportionally subtracted from total visitor spending attributable to VISIT FLORIDA’s public marketing spend. The result is the total tourism spending that EDR attributed to VISIT FLORIDA’s public marketing efforts during the review period. This spending was then used the in the Statewide Model to determine the ROI for VISIT FLORIDA. Total Tourism Spending Attributable to VISIT FLORIDA’s Public Marketing Spend by Year 2010 2011 2012 2013 Total Visitors 3,026,223 3,517,526 5,253,559 5,535,254 Domestic Visitors 2,616,893 3,008,196 4,459,586 4,654,936 International Visitors 409,330 509,330 793,974 880,317 Total Spending $ 2,173,112,344 $ 2,110,621,364 $ 3,663,875,345 $ 3,992,137,253 Domestic Spending $ 1,784,930,636 $ 1,543,325,126 $ 2,809,539,035 $ 3,041,535,485 International Spending $ 388,181,709 $ 567,296,238 $ 854,336,310 $ 950,601,768 Less Beach Spending Attributable to Beach Restoration $ 188,993,133 $ 175,109,352 $ 187,321,597 $ 213,285,303 Total Spending Attributable to VISIT FLORIDA Public Marketing Spend $ 1,984,119,212 $ 1,935,512,012 $ 3,476,553,749 $ 3,778,851,951 15 This percentage was calculated by using beach restoration dollars as a share of total marketing funds, treating state, local, and federal beach investment separately. The result was applied to the total number of marketing related beach visitors to calculate the expenditures associated with those visitors. 20  APPENDIX C: INTERPRETING ROI INDICATORS Key terms used in Table 5 are described below: State Payments – Represents the state’s expenditure on the program in the fiscal year. Total Net State Revenues – Represents the change in state tax collections from all sources. Personal Income (Nominal $(M)) – Income received by persons from all sources. It includes income received from participation in production as well as from government and business transfer payments. It is the sum of compensation of employees (received), supplements to wages and salaries, proprietors' income with inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj), rental income of persons with CCAdj, personal income receipts on assets, and personal current transfer receipts, less contributions for government social insurance. Real Disposable Personal Income (Fixed 2009 $(M)) – Total after-tax income received by persons; it is the income available to persons for spending or saving. Real Gross Domestic Product (Fixed 2009 $(M)) – A measurement of the state's output; it is the sum of value added from all industries in the state. GDP by state is the state counterpart to the Nation's gross domestic product. Consumption by Households and Government (Fixed 2009 $(M)) –The goods and services purchased by persons plus expenditures by governments consisting of compensation of general government employees,