Coastal Restoration Spending in Louisiana Economic Impact Analysis

Coastal Restoration Spending in Louisiana Economic Impact Analysis Louisiana Workforce Commission www.lmi.laworks.net/green September 2011

In 2009, Louisiana and Mississippi partnered to research economic development opportunities and workforce needs associated with the region s green economy. Through a $2.3 million grant from the U.S. Department of Labor, a consortium of the Louisiana Workforce Commission, Louisiana State University, Mississippi Department of Employment Security, and Mississippi State University conducted an extensive study of economic activity that is beneficial to the environment. This and other research products were developed as part of that effort. This workforce solution was funded by a grant awarded by the U.S. Department of Labor s Employment and Training Administration. The solution was created by the grantee and does not necessarily reflect the official position of the U.S. Department of Labor. The Department of Labor makes no guarantees, warranties, or assurances of any kind, express or implied, with respect to such information, including any information on linked sites and including, but not limited to, accuracy of the information or its completeness, timeliness, usefulness, adequacy, continued availability, or ownership. This solution is copyrighted by the institution that created it. Internal use by an organization and/or personal use by an individual for non-commercial purposes is permissible. All other uses require the prior authorization of the copyright owner.

Economic Impact Analysis Executive Summary...ii Introduction...1 Economic Impact...1 Conclusion...6 Notes...7 Contents Tables and Figures Table 1: 2010 Impact Summary... 4 Table 2: Future Low Spending Scenario Impact Summary... 5 Table 3: Future High Spending Scenario Impact Summary... 5 On the cover: aerial photo of coastal protection barriers along barrier islands in coastal Louisiana. Photo: Tim Carruthers, IAN Image Library (ian.umces.edu/imagelibrary/) i

Coastal Restoration Spending in Louisiana This report summarizes an analysis of the economic impact of coastal restoration spending in Louisiana. The analysis includes an estimate of spending during 2010 and two future funding scenarios based on low and high estimates of future levels of funding. The results for direct and indirect jobs characterize the magnitude of the contribution of spending on coastal restoration projects in Louisiana to the state s economy and an upper bound to its contribution to the green economy. Direct and indirect jobs in an economic impact analysis, however, do not align directly with the definitions of primary and support green jobs used elsewhere in the study of Louisiana s green economy. Spending in Louisiana on coastal restoration was estimated to be $618 million in 2010. Executive Summary 4,880 direct jobs and an additional 4,020 indirect jobs were associated with expenditures on coastal restoration in 2010, for a total impact of 8,900 Louisiana jobs. Future annual spending on coastal restoration in Louisiana was characterized by a low spending scenario of $400 million and a high spending scenario of $750 million. Accounting for both direct and indirect economic impacts, coastal restoration spending in future years would translate into roughly 5,500-10,300 jobs, $270-$520 million in wages and $720 million-$1.35 billion in sales per year, based on the two future funding scenarios. Average annual earnings of direct jobs will be approximately $56,000 per year. This is roughly 50 percent higher than the Louisiana average annual earnings across all jobs of $36,610. The average after including indirect jobs created in Louisiana by coastal restoration spending is approximately $50,000 per year, which is a third higher than the state average. ii

Economic Impact Analysis Introduction Economic Impact As part of the overall research effort to quantify and characterize the green economy in Louisiana, the economic impact of coastal restoration spending in the state was investigated. Louisiana s wetland loss accounts for more than 90 percent of all wetland loss in the continental United States and the highest rate of land loss in the world. 1 A variety of factors contribute to this incredible loss of wetlands from natural processes like hurricanes and sea level rise to direct human efforts such as dredging, levee and dam building, and the construction of transportation channels for ships and oil and gas pipelines. 2 The land loss created by this confluence of factors has led to a significant response by federal, state and local governments to conserve this natural resource, which in turn has provided a significant and unique contribution to Louisiana s green economy. This study seeks to measure how investments in Louisiana s coastline have added value to the Louisiana economy and created jobs, wages and output. Projects that are prominent in coastal restoration include marsh creation, shoreline protection, river diversions and beneficial use of dredging materials. The largest component of coastal restoration projects in terms of spending is construction. However, coastal restoration projects require significant planning and design in the developmental stages. After construction has been completed, restoration projects also often require operation, maintenance and monitoring, which lead to additional expenditures. The economic impact of spending in all phases of these projects was considered. Once completed, these coastal restoration projects have additional benefits including direct benefits to the environment and indirect benefits to the state through ecosystem services, such as hurricane protection and the protection of critical infrastructure. However, quantifying the impact of these additional benefits was beyond the scope of this study. An injection of dollars into an economy ripples throughout that economy. Spending on coastal restoration projects directly creates output in the state. Area businesses that benefit from that investment will in turn hire additional workers. Spending by those businesses and their employees then creates another round of sales, or output, for other businesses, and the process continues. Economic impact analysis provides the tools to quantify the full impact of these ripples in an economy using jobs, earnings and output multipliers. IMPLAN 3.0 software and statewide multipliers allow us to quantify the full impact of the coastal restoration spending included in this analysis in Louisiana s economy. The four major components of an impact analysis are the scale of the activity (measured by spending or employment), geography, type of activity and timing. The scale of activity is characterized in this study by projections for state spending and federal matching dollars from prominent programs that fund coastal restoration projects. The geographic area of interest for this impact study is the entire state of Louisiana. While construction activities are clustered in the southern part of the state, other phases of restoration projects can occur 1

Coastal Restoration Spending in Louisiana Dredge at work on the Bayou Dupont sediment diversion in Plaquemines Parish, where more than 500 acres of new marsh were created using dredged sediment piped in from the Mississippi River. Photo: www.coastal.la.gov elsewhere, and the indirect and induced effects can be seen throughout the state. Based on a review of the share of spending devoted to the various project phases, expenditures were assigned to industries using the North American Industry Classification System (NAICS) to reflect the types of activities in this study. The timing of interest is spending that occurred in Louisiana s 2010 fiscal year, as well as a hypothetical future period within the next decade characterized by scenarios for a high and a low level of spending on coastal restoration. Because actual expenditures for all coastal restoration projects are not reported in a centralized location, projected state expenditures were used as a basis of the study. The 2010 Annual Plan of the Coastal Protection and Restoration Authority of Louisiana (CPRA) presents projected state expenditures for the 2010 fiscal year of $478 million on coastal projects (excluding the Hurricane and Storm Damage Risk Reduction System). 3 In addition to the state expenditures included in that total, two funding sources also benefit from federal matching dollars: the Coastal and Wetland Planning, Protection and Restoration Act (CWPPRA) and the Water Resource Development Act (WRDA). Also, some engineering and design work is currently done out of state, and the projected Louisiana spending was reduced accordingly. After accounting for these adjustments, the projected level of expenditures in Louisiana for 2010 increases to $618 million. Several important qualifications of that projection should be made. First, the figure is a representation of expected spending based on historical expenditures and planned projects at the time the CPRA Annual Plan was published. However, that total amount of money may 2

Economic Impact Analysis not have been spent in 2010 due to delays or differences in timing between allocations of funds and spending in the economy. Also, some of the expenditures included in that total represent infrastructure improvement projects that may not qualify as coastal restoration within the overarching scope of the Louisiana green jobs study. Working in the opposite direction, there is also spending on coastal restoration that was not captured in this study, including parish-only projects and beneficial use of dredged material that is sometimes supported through the U.S. Army Corp of Engineers budget. In addition, there is output created by researchers and non-governmental organizations in support of coastal restoration that is not captured by these estimates and therefore not reflected in the estimates presented below. In future years, analogous projections of expenditures are anticipated to range from $400 million to $750 million. 4 Because most of this funding comes from the state and federal governments, uncertainty about future budgetary decisions introduces considerable variance into future projections. One recent change intended to significantly increase the level of funding for restoration projects was the passage of the Gulf of Mexico Energy Security Act (GOMESA). In 2017, GOMESA is scheduled to increase the state s share of revenues from Outer Continental Shelf oil and gas revenues in the Gulf of Mexico. The future level of activity that will support those revenues has become less certain by the interruption of oil and gas activities in the Gulf of Mexico following the BP Oil Spill. However, the two future scenarios account for the possibility of a higher and lower level of funding from this source after considering other expected changes to funding sources in the coming years. Not included in this study is the potentially significant infusion of money for coastal restoration that may result from the BP Oil Spill. As a consequence of the spill, BP is required to restore any damaged natural resources as well as compensate for the loss of services from those damaged resources. In addition, some portion of Clean Water Act fines may be used for coastal restoration. However, there continues to be considerable uncertainty about the timing and magnitude of those funding sources. Therefore, those funds were not considered in this analysis. According to the 2010 Annual Plan, during the 2010 fiscal year there were nine projects in the planning phase, 26 projects in design, 46 projects in construction and 87 projects in operation, maintenance and monitoring. 5 The distribution of spending across project phases, however, showed a pattern notably different from the number of projects at each phase. Construction constituted the largest share of expenditures making up 60 percent of overall expenditures. Ongoing program costs constituted 15 percent of restoration expenditures, while spending on operations, maintenance and monitoring constituted 13 percent of total expenditures. The other three categories of spending -planning, design and operation - combined for the remaining 14 percent of total expenditures with spending spread relatively evenly across these categories. These percentages were used as a first step toward allocating 2010 spending across industries. Expenditures were further divided by considering the specific activities included in each category. Finally, not all engineering and design work is done in Louisiana, so a portion of it is excluded in this Louisiana economic impact analysis. In the future, the share of expenditures dedicated to construction is anticipated to be closer to 70 percent. With that change, the share of spending across other categories will decrease. Also, it was assumed that virtually all engineering and design work will be done in 3

Coastal Restoration Spending in Louisiana Louisiana in future years. With the prospect of a large and consistent funding stream, some of the leading engineering and design firms have begun opening locations in Louisiana. These local operations are expected to expand over time to accommodate the future demand for services. For the two future funding scenarios considered in this study, the allocation of expenditures across industries was adjusted accordingly. The impacts of the projected 2010 expenditures identified above are shown in Table 1. This coastal restoration spending directly created 4,880 jobs and an additional 4,020 indirect jobs including induced effects, for a total job impact of 8,900. This is comparable to 6.8 percent of employment in the construction industry in Louisiana for the second quarter of 2010 (131,504). 6 To put these jobs in the context of the broader research effort to understand green jobs, it should be noted that direct and indirect jobs in the economic impact setting do not align with the notion of primary and support jobs used in the Louisiana green jobs survey. Primary green jobs are those requiring more than 50 percent of a worker s time to be engaged in a green activity while support jobs are those requiring 50 percent or less of a worker s time in green activities, but are essential to a firm s green activities. It is likely that a large share of the direct jobs created by coastal restoration spending would be primary green jobs, but possibly not all. In addition, because suppliers of unique inputs and services are included in the project s definition of green jobs, it is possible that some indirect jobs may qualify as primary green jobs. While support green jobs may appear in either group, there are certainly some jobs created through the indirect effects that would not be considered green. Table 1 also shows other economic impacts of the projected 2010 spending. Including direct and indirect effects, that level of coastal restoration spending is estimated to create more than $1.1 billion in sales. In terms of value added, that 2010 spending contributed $589 million to Louisiana s gross state product. That amount of value added is comparable to 5.5 percent of the total contribution of the construction industry ($10.7 billion) to gross state product (value added) in 2009. 7 Louisiana Coastal Restoration: 2010 Impact Summary ($Millions; 2011 Dollars) Impact Type Employment Wages Value Added Output Table 1 Direct Effect 4,880 $276 $305 $643 Indirect Effect 4,020 $170 $283 $514 Total Effect i 8,900 $446 $589 $1,157 i Direct and indirect effects may not sum to total due to rounding Source: LSU Division of Economic Development 4

Economic Impact Analysis Two scenarios characterize the potential future impact of coastal restoration spending in Louisiana. The first scenario assumes that future funding is lower than current levels and a comparable measure of state and federal spending to the 2010 projection would be $400 million of spending per year. The second scenario assumes that future funding is higher than current levels and a comparable measure of state and federal spending to the 2010 projection would be $750 million of spending per year. The economic impacts of the low and high scenarios are summarized in Tables 2 and 3 respectively. Direct jobs created by those future spending scenarios ranges from 3,040 to 5,690 annually. Including indirect jobs, the total employment impact of the future spending scenarios ranges from 5,510 to 10,320. Total output ranges from just over $700 million to $1.3 billion and value added ranges from $363 million to $681 million. Louisiana Coastal Restoration: Future Low Spending Scenario Impact Summary ($Millions; 2011 Dollars) Table 2 Impact Type Employment Wages Value Added Output Direct Effect 3,040 $169 $188 $400 Indirect Effect 2,470 $105 $175 $319 Total Effect 5,510 $274 $363 $719 Source: LSU Division of Economic Development Louisiana Coastal Restoration: Future High Spending Scenario Impact Summary ($Millions; 2011 Dollars) Table 3 Impact Type Employment Wages Value Added Output Direct Effect 5,690 $317 $353 $750 Indirect Effect 4,630 $198 $328 $598 Total Effect 10,320 $515 $681 $1,348 Source: LSU Division of Economic Development 5

Coastal Restoration Spending in Louisiana While the scale of future operations differs in each scenario, the distribution of spending across industries was assumed to be similar. Therefore, both scenarios indicate that the jobs created by coastal restoration spending will have average wages of $56,000 annually for direct jobs and $50,000 across direct and indirect jobs. In nominal terms, wages of direct jobs are roughly 50 percent higher than the state average earnings, which were $36,610 in 2009. 8 Average earnings among all jobs created by this spending are roughly a third higher than the state average. These high earnings reflect the types of jobs that will be created, which include legal services, engineering and design, and heavy construction. Conclusion Pictured on the right: East Grand Terre barrier island restoration along the Louisiana coastline. Photo: Governor s Office of Coastal Activities/ Chris Macaluso. This report summarized the economic impact to the Louisiana economy of several scenarios of coastal restoration spending. The 2010 spending estimate of $618 million was developed from the CPRA Annual Plan projection. In addition, two future funding scenarios were considered with annual spending of $400 million and $750 million for the low and high scenarios. The results of the economic impact analysis show that coastal restoration has a significant impact on Louisiana s economy through the creation of thousands of jobs, hundreds of millions of dollars of value added and more than a billion dollars of output in two of the three scenarios considered. In 2010, this spending created an estimated 8,900 jobs, including direct and indirect effects, while the future funding scenarios imply a range of 5,510 to 10,320 annual jobs, including direct and indirect effects. These jobs estimates provide a general order of magnitude for how coastal restoration spending contributes to the green economy. However, it is noted that direct and indirect jobs estimated by this analysis do not necessarily align with the definitions of primary and support jobs used elsewhere in the broader research effort to study green jobs in Louisiana. Continued spending on coastal restoration will sustain thousands of jobs with average salaries 33 to 50 percent higher than the state average. In addition, there are benefits that are beyond the scope of this study. Coastal restoration projects also provide a large lasting benefit not measured here in terms of direct benefits to the environment and indirect benefits to the state through ecosystem services such as hurricane protection and the protection of critical infrastructure. Furthermore, this study does not capture the potential for exports of goods and services to other states and countries that is created by the continued large-scale research and restoration activity in Louisiana. 6

Economic Impact Analysis 1 Louisiana. Coastal Protection and Restoration Authority of Louisiana. Fiscal Year 2011 Annual Plan: Integrated Ecosystem Restoration and Hurricane Protection in Coastal Louisiana. Baton Rouge: Office of Coastal Protection and Restoration, Apr. 2010. http://www.lacpra.org/assets/docs/fy2011annualplanfinal.pdf 2 Louisiana Coastal Area Ecosystem Restoration Study. U.S. Army Corps of Engineers New Orleans District. Web. 01 Mar. 2011. http://www.mvn.usace.army.mil/environmental/lca.asp. 3 Coastal Protection and Restoration Authority of Louisiana. Fiscal Year 2010 Annual Plan: Integrated Ecosystem Restoration and Hurricane Protection in Coastal Louisiana. Baton Rouge: Office of Coastal Protection and Restoration, 27 Apr. 2009. http://www.lacpra.org/assets/docs/fy2010%20annual%20plannew.pdf 4 5 Graham, Kyle; Deputy Director for Planning and Programs, Governor s Office of Coastal Activities. Interview, 21 Feb. 2011, 3 May 2011. Coastal Protection and Restoration Authority of Louisiana. Fiscal Year 2010 Annual Plan: Integrated Ecosystem Restoration and Hurricane Protection in Coastal Louisiana. Baton Rouge: Office of Coastal Protection and Restoration, 27 Apr. 2009. http://www.lacpra.org/assets/docs/fy2010%20annual%20plannew.pdf Notes 6 Employment and Wages 2nd Quarter 2010. Louisiana Workforce Commission. Web. 07 July 2011. http://www.laworks.net/labormarketinfo/lmi_wagedata2002topresentasp?year=2010&qtr=2 7 Gross Domestic Product by State. U.S. Bureau of Economic Analysis. Web. 07 July 2011. http://www.bea.gov/regional/index.htm 8 May 2009 OES State Occupational Employment and Wage Estimates - Louisiana. U.S. Department of Labor, Bureau of Labor Statistics. Web. 07 July 2011. http://www.bls.gov/oes/2009/may/oes_la.htm 7

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