Spring 2005, Vol. 11 No. 2
In this issue...
Water Cleanup: What's the Economic Impact for Iowa Communities?
Catherine L. Kling
Many of Iowa's public lakes have been adversely affected by sediment, nutrients, or other nonpoint pollution. Iowa is grappling with the pressures of balancing federal water quality requirements, tight conservation budgets, concern for environmental preservation and restoration, and economic viability of rural areas. Efforts to improve water quality in many lakes are likely to entail significant economic costs. These costs can be public, such as when state resources are used to fund cleanup efforts, or private, such as altering land uses or farming practices, expanding municipal treatment facilities, or other investments. Before scarce funds are invested in cleaner water, it is imperative to know how much Iowans value cleaner water.
The value of cleaner water is often missing from discussion of state water quality problems. What value do Iowans place on the protection of water resources in the state? What value would they place on improvement in quality levels? Conceptually, the economic value of water quality improvements in Iowa lakes is the maximum amount the citizenry is willing to pay to obtain those improvements. This is the standard economic definition of the value of a good, as it represents the value of other goods and services that people are willing to forgo in order to acquire or preserve the good in question (water quality in this case). This "willingness-to-pay" concept can appropriately be used by policymakers in deciding how to spend limited public monies. While difficult to measure, economists and limnologists (who study water biology and chemistry) at Iowa State have a large research project underway to generate estimates of this value for water quality improvement at over 125 lakes in the state (for details, visit www.card.iastate.edu/research/resource-and-environmental/).
In addition to the value of water quality improvements, citizens of local communities and regions are often interested in another measure related to environmental improvements. They want to know the amount of economic activity those improvements might stimulate. Typically, this economic impact is measured in total dollars of spending generated locally by the environmental improvement or the number of jobs created. This type of information is particularly relevant for those interested in promoting and maintaining the viability of local communities.
The City of Storm Lake in Buena Vista County is one such community. Community leaders in the Storm Lake area have pursued an aggressive water quality and community development effort that has been termed "Project Awaysis" (see the project Web site: www.awaysis.com). This proposal encompasses both water quality improvements in the lake and substantial economic development for the local community. Included in the plans are a new public beach, a lighthouse, a redesigned municipal golf course, a renovated campground, family cabins, an 80-room lodge, an indoor/outdoor water park, a countywide bike trail, an interpretive center, and other amenities.
Economic Impact Analysis
As part of their planning efforts, members of the Storm Lake Area Development Corporation were interested in having an economic impact analysis undertaken. They wanted to estimate the effects of spending by an increased number of visitors that would likely result after dredging of the lake and construction of these additional facilities and attractions. The first step in the analysis was to take advantage of information already collected by the statewide lake valuation study by economists at CARD and Iowa State University. The study, which was jointly funded by the Environmental Protection Agency and the Iowa Department of Natural Resources, included data on annual visitation rates to Iowa lakes, as well as on-site surveys in Storm Lake that collected data on visitor activities and spending patterns during these visits. The primary activities engaged in on these visits included boating, fishing, camping, and hiking. Based on this information, we were able to estimate that over 267,000 visitors came to the area because of the lake in 2003. We estimated the aggregate spending of these Storm Lake visitors to be over $22 million.
In the lake valuation study, visitors were further asked how improvements to Storm Lake would affect the number of visits they make to the area. For purposes of the economic impact analysis, this question was interpreted to apply to water quality improvements as well as amenity investments such as lodging to take advantage of the cleaner lake. Based on their responses, we estimate that visitation rates would increase by about 55 percent. At current spending rates, the lake improvements are expected to increase direct tourism spending by $12.6 million during the summer season.
Since lake development is aimed at year-round usage of the facilities by including trails and an indoor water park, we develop estimates of additional spending occurring during the remainder of the year. In addition to the water park activities, other winter attractions include snowmobiling, ice fishing, and cross-country skiing on multi-purpose trails. The proposed lodge would also be promoted as a conference facility intended to draw visitors during the winter season. Winter visitation rates are expected to be lower, however; we estimate visitors and spending to be only half of the level seen during the summer months. Using these rates, we estimate additional spending of $6.3 million during winter months. Adding this to the summer totals, lake improvements are expected to result in an estimated annual increase of $18.9 million in direct spending in the Storm Lake area once the effects from a fully developed set of facilities are realized.
Based on the state averages for the different retail and service sectors, we expect about 27 new businesses to be supported by the increase in sales activity. The expenditure survey suggests that about $3.5 million will be spent on lodging in the region. Based on the marketing analysis for the new lodge, which estimated 80 rooms and 70 percent occupancy at $85 per night, about $1.74 million will be spent at this facility. This implies that about $1.76 million will spent at other lodging facilities, supporting two to three additional facilities based on state averages.
Income and employment associated with expanded visitation can be estimated using an input-output (I-O) model for the region. An I-O model is essentially a general accounting system tracking expenditures and purchases among sectors in the local economy. We use the IMPLAN data and modeling system to configure an I-O model for the economic region of Buena Vista County. After the project is completed, the local economy is stimulated by new visitors making retail purchases. The I-O model takes these estimates of new tourism spending, tracks them through the rest of the economy, and summarizes the secondary and overall purchases. Overall, we estimate that the total economic impacts on the region will be $28.4 million of sales, $10.7 million of new income, and 690 new jobs. Most of this activity, including the indirect and induced effects, is focused in the retail and service sector, as indicated by the initial spending survey. We estimate, after adjusting for full-time equivalence, that the earnings support about 490 full-time positions.
An Essential Component
With the help of this impact report, the community was able to acquire an $8 million Vision Iowa grant to assist with developing the project. Awaysis Project Manager Mike Wilson says the economic impact study, based upon the survey results and willingness-to-pay estimates, was critical to the effort. "Project planners had long believed that the Awaysis development would spur economic activity in Storm Lake and Buena Vista County," he says. "The study provided independent, third-party quantitative estimates of the economic impact. Being able to refer to that study was key to our effort to help the community understand the promise of Project Awaysis." The project's development committee plans to use the report to assist with further marketing in the community and the region. ♦