Regional Economics Institute Center for Disaster and Risk Analysis Colorado State University 2 October 2013 Recent flooding has had tremendous impacts across Colorado. Lives have been lost. Homes destroyed. Thousands of people have been displaced. For many Coloradoans, life will never be the same again. Beyond their human costs, natural disasters such as floods have significant economic and environmental impacts. Although it is far too early to fully quantify these effects, there are some general economic issues that policy makers and the public need to consider as Colorado begins its recovery process. In this brief we do two things. First, we identify some of the major topics that Coloradoans will find themselves grappling with over the course of the recovery. These include repairing roads and bridges, rebuilding homes and businesses, mitigating environmental damages, adjusting to decreased tourism, and helping displaced workers find new employment opportunities. In doing so we lay out areas for further data collection and analysis. Second, we provide a preliminary estimate of one dimension of the flood s potential economic impact. In particular, we use a model for Colorado developed by a team of economists at Colorado State University to estimate how changes in tourism in Estes Park due to the flood could impact the state s economy. We suggest that the impacts could be quite large, for both the over all state economy, and Estes Park in particular, if road and bridge damage limits access to Rocky Mountain National Park through the main (summer) tourist season of 2014. For example, should Estes Park see a 30 percent reduction in out-ofstate tourism expenditures in 2014 (a loss of $31.4 million), then 335 jobs will be lost statewide (primarily in Estes Park) and household income will fall by 0.01 percent a total of $13.9 million statewide. State tax revenue will decline by $1.8 million and local tax revenue by $1.3 million. If the reduction in out-of-state visitor spending is larger, impacts will be more substantial as detailed below. Part 1: Economic Issues of Flood Recovery Devastated infrastructure will hurt Colorado businesses Economic development research has long recognized the importance of quality transportation infrastructure. Much of America s economic growth history is driven by reductions in transportation costs, first through its canal systems, then its railways, then its interstate highways. The floods had a tremendous impact on many of the states roads and bridges. The Colorado Department of Transportation estimates 200 miles of state highways and 50 bridges were destroyed. Some 1
communities have been effectively isolated. Others have seen significant traffic rerouting. Between surveying, engineering and construction, it will take a long time until the affected roadways are back to pre-flood capabilities. The destruction of transportation infrastructure affects state businesses in many ways. Some will see significant increases in transportation costs and new scheduling difficulties. For example, many agricultural producers will have a harder time getting their products to markets. Some manufacturing companies will need to reroute their shipping. Other employers will find that their workers commute times will increase, potentially impacting the productivity of their workforce. The price increases necessary to recoup these costs may have important effects on these businesses relative competitive position. As the state plans the rebuilding of its transportation infrastructure it is important to prioritize assorted projects. One method is to examine the potential benefits of various projects according to the economic benefits that each provides. These benefits are calculable for both businesses and households. Colorado will see a reduction in tourism Although the state is heading into its fall shoulder season, Colorado s tourism economy will still suffer. Perhaps most problematic is the fact that the two most traveled roads to Estes Park and Rocky Mountain National Park have suffered significant damage, and will take a long time to repair. For many vacationers, this area will no longer be a viable destination until the roads are fixed. This has many important implications. First, jobs and income in Estes Park will be lost, as businesses will struggle with low visitor counts. This will also affect the Town s public finances, which rely heavily on retail sales tax revenues generated by tourism expenditures. But Estes Park and its surrounding communities will not be the only places affected. Rocky Mountain National Park is one of Colorado s brightest beacons, receiving more than 3.1 million visitors each year. Should reduced accessibility persist into 2014 then many potential visitors will reconsider their vacation plans. This reduces not only visitation to Rocky, but complementary destinations in Colorado as well, ranging from Fort Collins to Colorado Springs along the Front Range and from Steamboat Springs to Aspen in the mountain areas. In the second section of this document we briefly describe the potential economic impacts of the flood in Colorado through reduced visitation to Estes Park. Displaced workers face serious job market challenges People will lose their jobs because of the flooding. Businesses have been damaged and destroyed. Because Colorado s economy is still feeling the lingering effects of the Great Recession some displaced workers will find it challenging to find new opportunities that fully utilize their capabilities. 2
In this situation it is reasonable to expect people to turn to the state s workforce system for help. Some individuals might need assistance with the job search or resume writing. Others may need training to enter a new occupation. A related concern is that job losses and unexpected expenses will increase financial stress for households and the state alike. The number of unemployed workers is sure to increase. Lower household incomes will also lead to higher enrollments in the Supplemental Nutrition Assistance Program (food stamps). Research is needed to help better understand the options available to workers displaced by the floods. This can include 1) identifying the industries and occupations most likely to be affected both negatively and positively by the floods; and 2) a review of declining and emerging occupation opportunities in order to identify opportunities for re-training. Damages will reduce business output Business and property owners have been hard hit by the flood. In the canyons, floodwaters washed away motels and cabins, bars and restaurants. In other places retail and commercial establishments suffered extensive damage. Farther east, farmers lost their crops and oil wells were damaged or shut down. All of this means a state-level drop in business output, which negatively affects the state s economic and fiscal situation. Although some of this lost activity will be made up by expansion in other sectors, not all will. As the agricultural and tourism sectors see a contraction in economic activity, there will be reductions in employment, real household income and tax revenue collected by the state and local municipalities. Additional research is needed to quantify these impacts, however. For example, a survey instrument could be constructed and sent to targeted businesses to obtain information about the hardships that many of these firms face in order to understand and estimate the economic losses. The recommended survey should be longitudinal. By carefully observing the recovery efforts of selected businesses in time, the state can evaluate and identify policies and practices that accelerate or encumber the bounce back of businesses. The primary aim of a Business Recovery Survey is to learn from tragedy, implementing and strengthening mechanisms that work to improve the resilience of Colorado s business community going forward. Household losses will be substantial The Colorado Office of Emergency Management estimated that 17,494 homes have been damaged and 1,502 destroyed. Irreplaceable heirlooms, photographs, family drawings, and favorite toys have been lost. Most of the affected homes are not covered by flood insurance. This means that many Coloradans will end up paying for their losses out of their own pockets. Although spending on lumber, carpeting and appliances will positively impact some economic sectors in Colorado, others will see less activity. For 3
example, if a family needs to spend $7,000 to shore up their house s foundation, then this money is no longer available for purchasing items such as guitars, camping gear, and movie tickets. Time, for work and recreation, is also lost. Over the next year or more Coloradoans will be working hard to salvage any belongings that they can. They will spend time rebuilding their decks, repairing damaged outbuildings and landscaping their lawns. Time spent on leisure activities will decrease. Although these time allocation costs are difficult to quantify, they are real. Worker productivity and individual health can decline In addition to the loss of life, disasters impose measurable short and long-term physical and psychological injury on survivors. Individuals and households that suffer a disaster-related injury experience negative income and employment outcomes. The economic costs of poor physical and mental health are sizable and reflected in rates of absenteeism and disability, as well as deterioration in on-thejob productivity (or presenteeism). Direct and indirect productivity losses from disaster-related injuries are typically distributed unevenly in the population, with low-income residents experiencing slower income and employment recovery. Economic out-migration can hinder regional recovery efforts Lasting economic consequences of disaster events are reflected in post-disaster migration behavior. Severely damaged areas typically experience short-term reductions in population size with evacuation of at-risk residents. If recovery efforts are stalled, the loss in population size is longer lasting. Sizable fractions of dislocated populations never return to their homes, and rates of out-migration increase as households seek safety and employment opportunities elsewhere. Economic regions feature unique mixes of fixed non-tradable amenities alongside taxes to finance these place-specific goods. Because cataclysmic storms and floods damage local amenities, the flow of future inmigrants typically decreases. Decreases in net-migration substantially weaken the ability of an economic region to recover. Environmental damages impose significant costs The St. Vrain, Poudre, and Big Thompson Rivers converge with the South Platte River near Greeley. The combined flows resulted in a band of water exceeding a mile wide in many areas. This flow then proceeded down the South Platte, affecting the communities of Evans, La Salle, Greeley, Weldona, Fort Morgan, Brush, Merino, Atwood, Sterling, Iliff, Proctor, Crook, Sedgwick and Julesburg. On-site surveys show a large amount of acreage was inundated with floodwaters. Crop production in the affected areas (estimated 23,000 acres from Boulder County through Logan County) consists mainly of corn, sugar beets, and alfalfa. The land is also used for livestock production and specialty vegetable crops. 4
One major concern is the release of treated and untreated water from overwhelmed sewage treatment facilities. Colorado Gov. John Hickenlooper (KOA Radio, Sept. 27, 2013) estimated the floods released 20 million gallons of untreated waste and another 200 million gallons of partially treated waste, which translates into over 5,000 acre feet. Thus, water and solid contamination issues could be quite significant, affecting not only agricultural production but also drinking water quality throughout eastern Colorado. It is yet unknown how long the associated problems with the contamination could persist. Collecting and organizing relevant information is a significant undertaking critical to understanding the full impact of the flood. In addition to affecting agricultural production with the inflow of sewage, flood waters may have dislodged or breached storage and disposal facilities of hazardous waste. In Weld County, home to 20,554 active oil and gas wells (40 percent of the statewide total), preliminary aerial assessments show upended chemical holding tanks and submerged storage facilities, prompting the Colorado Department of Public Health and Environment to caution residents against contact with flood waters. If indeed storage and disposal facilities have been compromised, the state faces a costly hazardous waste cleanup problem. Rebuilding efforts will stimulate the economy The floods have changed Colorado in many negative ways. As the recovery process unfolds, however, new economic activity will be created. This activity will cover a wide variety of areas, including: Clean up and salvage activities Environmental damage mitigation Water treatment and management system repair Home construction and rebuilding Road construction and rebuilding (estimated at $475 million) o Surveying o Engineering and design o Construction Commercial building and rehabilitation To the extent to which new money is injected into the state, either from the Federal government, charitable organizations or insurance companies, the floods can actually serve as a stimulus program. Conversely, money internal to the state will simply be redistributed from one sector or activity to another or one household to another, which does not create new economic activity. As an example of the stimulus effect of disaster recovery, the Federal Highway Administration has already pledged $100 million in emergency assistance to help repair and replace damaged roadways and bridges. This is new money to the state, that will be used to hire construction workers and civil engineers. 5
Similarly, insurance payments to homeowners will allow them to hire carpenters, masons and electricians. These workers, so beleaguered by the housing market bust, will once again see their skills and talents in great demand. Part 2. Estimating How Reduced Tourism to Estes Park will Affect the Colorado Economy Rocky Mountain National Park is one of the National Park Service s crown jewels. Annually, the park receives more than 3 million visitors, most from outside of Colorado. Accordingly, it is an important part of the state s tourism economy, especially in summer. The Town of Estes Park is RMNP s eastern gateway. Fairly sedate in the cooler months, Estes Park thrives when the visitors arrive. A recent economic impact 1 commissioned by the Town suggests that tourismrelated activity accounts for about 43 percent of total local employment and 65 percent of total sales and use tax revenue. The two major roads leading to Estes Park are U.S. Highway 34 from Loveland, and Highway 36 from Boulder. Both suffered significant flood damage, and it is unknown how long it will take to repair them. (The state hopes to have all roads open in some capacity by Dec. 1, 2013; many repairs, however, will be temporary.) With the roads essentially impassable, a large component of the Estes Park economy will simply shut down. The local implications include lost businesses, lost jobs and lost tax revenues. However, the impacts could reverberate statewide. Over the next 6 months people across the country will begin planning their 2014 summer vacations. When people plan extended road trips they typically choose multiple destinations, with a major draw and some side trips. For many, RMNP is the major draw, and places such as Steamboat Springs and Fort Collins are the side trips. If, over the next few months, vacation planners expect RMNP to be inaccessible next summer, then they will choose an alternative destination, such as Grand Tetons, Yellowstone or Glacier National Parks. Of course Estes Park will be adversely impacted, but so too, will the side trip communities. In the remainder of this document we provide a rough estimate of the potential economic and fiscal losses to Colorado due to reduced tourism in Estes Park. Our analysis uses spending estimates and number of out-of-state visitor counts from previous tourism studies commissioned by the Town of Estes Park and the State of Colorado as our basis. We derive our estimates from an economic model of Colorado, examining a series of what if scenarios. The model has been developed by a team of economists at Colorado State University throughout the past 1 Summit Economics. 2012. The Economic and Fiscal Impact of Tourism on the Estes Park, Colorado Economy. 6
15 years and has been used to estimate a variety of economic development issues at both the state and local levels. The model improves on previous economic models because it is built specifically for Colorado and offers more flexibility than more traditional modeling approaches. Issues we have addressed at the state level include the potential impacts of increasing the amount of renewable fuels used in electricity generation and analyzing various tax reform measures. At the regional/city level, some issues we have examined include the economic impacts of tourism, and the fiscal impacts of alternative land use activities and alternative energy policies. Here, we simply identify a range of impacts to state employment counts and tax revenue collections that might arise from reduced tourism into Estes Park. We consider 3 scenarios for 2014: 1) a 100 percent reduction in out-of-state tourism spending, 2) a 70 percent reduction, and 3) a 30 percent reduction. Part of the purposes of this exercise is to demonstrate the economic urgency of repairing these particular highways. Summit Economics estimated that Estes Park saw approximately $187 million in tourism expenditures in 2011, with approximately 56 percent of visitors from out of state. Even though the impacts will be primarily felt in Estes Park, impacts are estimated at the state level. If there is a 100 percent loss in out-of-state sourced tourism expenditures ($104.7 million), we estimate that 1,588 jobs will be lost, state economic activity will fall by $129.1 million (0.04 percent) and real household income will fall by $66.1 million (0.05 percent). State tax revenue will fall by $8.3 million and local tax revenue will by $6.3 million. If the loss in out-of-state sourced tourism expenditures is 70 percent ($73.4 million), then 1,111 jobs will be lost, state economic activity will fall by $90 million (0.03 percent) and real household income will fall by $46.1 million (0.03 percent). State tax revenue will fall by $5.8 million and local tax revenue will by $4.4 million. If the loss in tourism expenditures is 30 percent ($31.4 million), then 335 jobs will be lost, state economic activity will fall by $27.2 million (0.01 percent) and real household income will fall by $13.9 million (0.01 percent). State tax revenue will fall by $1.8 million and local tax revenue will fall by $1.3 million. Preliminary research reports indicate that any reduction in tourist visits to Estes Park will have an impact on the state s broader economy. The findings in this report only consider the economic impact of the loss of tourism in Estes Park and do not fully reflect the scope and scale of expected economic changes for the state; thus, the findings should not limit additional research. Projections will be updated as new information becomes available at the end of the quarter. A complete evaluation of the economic impact of the floods will not be available until early to mid-2014. 7
The Regional Economics Institute (REI) at Colorado State University provides research-based information, analysis and strategies to decision makers across Colorado as they work to strengthen regional and state economies. REI projects include economic and fiscal impact analysis, regional employment forecasts, economic development planning assistance, workforce development analysis and tax policy analysis. Martin Shields, Director http://csurei.colostate.edu The Center for Disaster and Risk Analysis (CDRA) at Colorado State University is dedicated to reducing the harm and losses caused by natural, technological, and human-caused disasters. CDRA staff conduct interdisciplinary research on natural hazards risk and disaster impacts; help prepare the disaster professionals of the future by teaching and mentoring undergraduate and graduate students; and engage in outreach efforts geared to government, non-profit organizations, and private entities to improve disaster planning and response and to promote individual and community resilience. Sammy Zahran, Director http://disaster.colostate.edu This document prepared by: Harvey Cutler, Professor of Economics, Norm Dalsted, Professor of Agricultural Economics Martin Shields, Professor of Economics, Sammy Zahran, Associate Professor of Demography 8