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  Fish & wildlifeIndependent      scienceIEAB

### Review of Local Economic Impact Studies: Tri-Port Economic Impact 	  Study

**document IEAB 1997-1**
**Independent Economic Analysis 	  Board:**Emery N. Castle, Chair      Joel R. Hamilton, Vice-chair      Kenneth C. Boire      Daniel D. HuppertLon L. Peters      Jack A. Richards      Anthony D. Scott      Paul C. Sorensen

prepared by**University of Idaho Center for Business Development and ResearchCollege of Business and Economics**Principal Authors: Steven Peterson and Lawrence H. MerkReviewed by Paul Sorensen, BST Associates
The Economic Impact of SteelheadFishing and the Return of Salmon Fishing in Idaho	  prepared by Don Reading, Consulting Economist**Ben Johnson Associates**Reviewed by Anthony Scott, University of British Columbia1. General statement2. Critique of the Tri-Port Study3. Critique of the Economic Impact of Steelhead Fishing Study
**1. General statement.**1.1. Introduction

This report summarizes the reviews by members of the IEAB of the **Tri-PortEconomic Impact Study** and the **Economic Impact of Steelhead Fishingand the Return of Salmon Fishing in Idaho.** These two reports provideglimpses at what is at stake in future decisions about the water managementallocation of the Snake River. Our review starts with a comment on the place ofsuch studies in the framework for the decisions that face the Council. Then weprovide some information about the special assumptions and results of each ofthe studies, judged primarily from their local point of view.

1.2. Framework for Decisions.

Local economic impact studies, such as the **Tri-Port Economic ImpactStudy** and the **Economic Impact of Steelhead Fishing and the Returnof Salmon Fishing in Idaho**, can provide useful comparisons of therelative importance of specific economic sectors within the local economy.However, while there is much useful information in each study, these types ofstudies do not provide decision makers with the information needed to evaluatesystem modifications for fish and wildlife mitigation or enhancement, or morespecifically, dam removal.

Local economic studies can provide some measure of the "impact" onlocal business turnover and jobs of opportunities such as a port or a sportsfishery. When everything else remains the same, the more port business, or themore anglers, the greater the measured impact. In this limited sense,calculation of the impact does provide a verifiable numerical estimate of thevalue of keeping the navigation and the angling opportunity. Furthermore, it isnot unlikely that when the resource opportunity is changed by some act of rivermanagement, the local "impact" will change proportionately.

Calculating the impact can be useful to the locality. For example, if acommunity was trying to decide whether to spend tax money to improve thefacilities for steelhead anglers or to improve a park for campers, it would beuseful to know which kind of spending would have the greater impact on localtaxpayers. Members of the IEAB, who have themselves participated in making suchestimates, believe that these two reports are superior to many. In particular,the authors have, with great ingenuity, overcome some of the data deficienciesthat can plague local impact studies. But data problems are not the maindeficiency of local impact studies from the IEAB’s point of view.

The question is whether such a calculation has value for decision making whenthe economic benefits from alternative projects or policies are scattered acrossthe whole Columbia/Snake River basin, or, indeed, the whole nation.

The impacts being calculated here are intended to measure the benefits from aparticular set of Snake River levels and flows, and thus, basically, from asingle selection among sets of proposed dam modifications or retirements. Thatis, the impacts were evaluated at the specific time that the surveys, on whichthey were based, were undertaken. Thus, to judge these calculations, we shouldconsider whether the estimates can even be relevant to the selection proceduresdeveloped in the IEAB-reviewed Council staff report on Methods of EconomicAnalysis.

**First. "With" and "without" project considerations**

Economic selection must consider the benefits or costs in the locality"with" and "without" the "Natural River" or otherproposals. The two studies attempt only the "with" calculation. Theyscarcely hint at how the various localities would make out "without."What would a later survey show, with different levels and flows? To what extentwould local individuals and firms respond profitably? The implication of the twostudies’ impact calculations is that there would be no response: the entireimpact as calculated "with" the project would be lost. This means thateven from a local point of view, the two calculations could over-estimate thepredicted loss of impact in changing from with to without. Indeed, it istheoretically possible that the loss of "impact" from a change couldbe close to zero. A zero loss would result if all the economic actors in thelocality made a smooth dynamic response and eventually undertook equallyproductive activities. For example, with a dam drawdown, Tri-port boat builderscould well find an expanded market.

The main point here is that a single snap-shot of one situation tells theCouncil next to nothing about what would be lost in changing to anothermanagement strategy. What is needed is a measure of the loss or change.

**Second. Impact change versus income change**.

Even from a local point of view the best measure of the benefit from a changein a set of river levels and flows is the change in local income. The economicimpact of a river change includes spending and re-spending on inputs and canrise or fall whether or not local incomes rise. For example, when the price offuel rises, truckers and guides must charge more. Their higher charges show upas an increase in the "impact "of port activity and the"impact" of steelhead fishing. But the actual incomes in theseactivities will remain about the same. The Council will find approximations tocalculations of income changes stemming from changes in the management of majorparts of the Columbia basin (i.e., studies surveyed in the IEAB’s Task 2report). The IEAB’s report suggests the need for more such studies, eachlinked to particular proposed changes in projects.

**Third. The Council’s point of view versus the local point of view**.

If the local studies reviewed had calculated changes in income stemming froma new river regime, they would have real value for local decision-making. Theywould also be valuable from the Councils’ river-oriented point of view,especially if such calculations were available for most localities. For thewhole basin, the net costs of a change in river management are the total of theincome decreases in the places that are hurt (i.e., where economic activitydeclines), minus the increases in places where there is an improvement (i.e.,where there is an increase in economic activity).

However, most of the Council’s changes in river management must be judgedby their cost effectiveness or perhaps net benefit as seen from a nationaleconomic point of view. This point of view requires that significant income andwelfare changes for individuals, businesses and communities outside the basinalso be taken into account. These could be very numerous. In the case of riverchanges in the Tri-port region and the steelhead fishery, they may include costor income changes for users of electricity, users of transportation services,tourists, sports fishermen, plus changes for outside suppliers of inputs andequipment for these activities. It is worth noting that where markets for thesethings are not perfect, for some river projects the gains or losses outside theriver region could actually offset those experienced locally.

**2. Critique of theTri-Port Study**

With this overview in mind, we would first like to briefly comment on thechief strengths and weaknesses of the **Tri-Port Economic Impact Study**,which was sponsored by the Ports of Clarkston, Lewiston, Whitman County and theNPPC.

2.1. Strengths and weaknesses of theTri-Port Study

The authors provide a useful assessment of the existing trends that affectthe tri-ports’ area economy and the impact from major industries. Thefollowing observations are intended to pinpoint the report’s strengths andweaknesses.

2.1.1. Survey Methodology andProcess

Conducting a mailed survey with follow-up telephone calls is a legitimateprocess to obtain the variables required to undertake an economic impact report.However, the results of the individual surveys are considered"confidential", which makes it difficult to verify direct employmentcalculations.

In addition, there is little explanation of how survey results werecategorized and classified, which raises a concern about double counting. Forexample, many jobs are included in business services, boat repair, andconstruction, among other sub-sectors. These jobs may be indirectly related tomanufacturing, water transportation or other sectors, in which case they shouldnot be included in the direct employment calculations. Rather, they should beincluded in the indirect employment calculations. The discussion of methodologydoes not investigate categorization/classification issues in sufficient detail.

The report presented some very useful insights into the definition ofsub-regions of the economy. The linkage between expenditures in the economy isdirectly related to the location of major retail/service centers. The authorspresent a good description of attraction centers and how this influencedcreation of the community-based input-output models.

The multipliers seem to be reasonable (+/- 2 for total impacts) but, thereare different community-based models used for each port region. Because thecommunity-based regions are defined differently (some are larger regions), a jobin Whitman County may create more total impact than a job in Lewiston simplybecause it is being judged in a larger region.

2.1.2. Water DependencyConsiderations

An attempt to determine the dependency of firms to water transportation isconsidered in the report. However, the linkage to dependence on watertransportation is not explicitly stated. Rather, it is implied in an indirectmanner. The central questions that should be asked (and answered) are:
How much of the local economy is dependent on water transportation at      the present time and after implementation of the Natural River      alternative?
What is the net impact on the community of the services provided by the      dams?

**This report was not intended to address the net loss (or gain) of jobswith and without the dams. As a result, it does not address some of the centralissues that the NPPC and IEAB is concerned with.**

The reasons why firms value water-dependence from both the transportation andaesthetic points of view are briefly considered. However, it is a much moredifficult issue to evaluate how much dependency exists and how firms wouldactually respond to the lack of water transportation, recreation, aesthetics orother amenities provided by the dams.

In the case of Potlatch, the authors state that they would not cease businessdue to the loss of barging because the company would divert the shipments totruck and rail. No detailed analysis is presented to illustrate how grainshippers would respond. This discussion and the consequences of the shift (i.e.,factors such as higher rail rates, potential car shortages and other impacts)are alluded to but not sufficiently addressed or quantified.

In addition, some "water-dependent" firms may have an improvementin sales without the dams (e.g., some manufacturers of water craft may sell moreboats with white water conditions).

There is an implication that there will be a net loss of jobs (i.e.,especially water dependent jobs and potentially other jobs) as a result of theloss of the dams. However, the report does not really evaluate the possibleeconomic scenarios if the dams are removed. As a result, discussion of netimpacts after dam removal are not properly defined or verified.

2.1.3. Consideration of Dam RemovalImpacts

The weakest portion of the report was the consideration of impacts frompotential drawdowns in the final section of the report. Considerations appear atthe end of this section which have different levels of justification, including:
One useful observation is the differentiation between the average wage      and multipliers in manufacturing versus tourism sectors. Manufacturing has      a much larger average wage and higher multipliers than tourism-related      jobs. This difference is well documented but must be tempered by the      relative increase in retail/service sector jobs compared with those in the      agriculture/manufacturing sectors.
The authors present an estimate of the impacts of the "Natural      River Option" but these are not properly documented:

- loss of $35.6 million in income from water transportation (it is          unclear whether this is a net loss or whether there will be a          diversion to other forms of transportation which would mitigate or          outweigh the loss),
- loss of $81.3 million to port industrial parks and economic          development (it is unclear how some firms that are non-water dependent          would be impacted by dam removal)
- loss of 1,580 jobs in water transportation and 3,249 jobs in          industrial parks and economic development (again, it is unclear how          this impact is calculated and there is no justification)

several legitimate considerations are raised but not discussed in      sufficient detail, such as: potentially increased rail rates if capacity      is unavailable, additional capital costs to ship grain efficiently from      river elevators by rail, additional road maintenance costs for grain to      elevator locations, aesthetic concerns about the appearance of Lewiston      without the Lower Granite Dam, loss of economic competitiveness without      water transportation options for both grain growers and Potlatch      Corporation, concern that the improvements would take substantial sums of      dollars that may not be available, potential for environmental damage from      taking out the dams.

As stated above, these impacts are discussed but not fully developed. Hence,it is difficult to relate the economic impact estimates to the potential impactsof the Natural River option.

2.2. Overall Review of the Tri-PortEconomic Impact Study

This report was intended to provide an economic impact snapshot of thetri-port region. It was not intended to address the economic impact of theregion under existing conditions versus those that might occur with the NaturalRiver option. It is useful to provide an insight into the importance of theports to the local region. However, it does not address the more difficultquestions about how the community will change in the future as a result ofpotential water budget allocations.

Unfortunately, the report has been used in a manner that is unwarranted. Tosome degree, this mis-representation was engendered by the report’s authorsdiscussing potential impacts without fully developing (and quantifying) thechanges in the communities. In any event, the report does not providedecision-makers with the level of information that is required to address thisdifficult issue.

**3. Critique of theEconomic Impact of Steelhead Fishing Study**

3.1. Purpose, Surveys and Data.

The study was commissioned by the Idaho Fish & Wildlife Association. TheAssociation is chiefly interested in showing that the fishery is economicallyworth maintaining at its present level. To this end Don Reading has estimatedthe "economic value" or impact of steelhead by a calculation of thepayments and jobs stemming from the spending of steelhead anglers.

The study uses a 1992-3 Idaho Fish and Game survey of anglers’ (a)steelhead catches and (b) spending on food, transport, guides etc. It also usestwo sets of input-output models of the economic impacts of spending for rivercommunities (a) in Northcentral Idaho and (b) upper Salmon region. These models,developed by Robison and associates, were also used in the Tri-Port study.Ingeniously combined by Reading, they report direct and indirect impacts almostmile by mile, town by town, along the Snake River and in the rest of Idaho.

3.2. Methods and results.

Reading first assigned the anglers’ spending to the nearest community/city.Then, using non-Idaho data, he made two adjustments. First, he added to theexpenditures reported above a guess about the anglers’ "hard’ orequipment expenditures. Second, he assigned a percentage share of eachexpenditure to the larger cities in the state as a whole rather than to thecommunity nearest the reach where the angler had fished/camped.

Next he used the input-output models to estimate the further spending of theoriginal direct expenditures. For example his data showed that anglers had spent$ 4.5 million in the thirteen steelhead regional cities. Using an I-O model, heestimated that the spending and re-spending of such outlays had resulted in afurther $8.8 million impact in those same cities.

For the state as a whole, $35 million in anglers direct spending hadmultiplied to a further $100 m impact on the state economy. Reading alsoestimated the total of direct spending and further impact as creating almost2,700 jobs. About ten percent of the jobs were located in the angling region;and the rest elsewhere in the state.

The author also uses the steelhead results as the basis for a rough estimateof the community impact of a possible revived recreational salmon fishery in theSnake region. State-wide, the salmon fishermen might create about 1800 morejobs, with, again, ten percent in the riverside communities..

3.3. Criticisms of the steelheadstudy.

It can be argued that such small-community estimates as in this study arebetter than whole-state estimates, because state lines cut across natural marketareas, and across river-basins. To meet this small-community need, Reading hasbeen resourceful. His adaptation of the state-of-the-art Robison input-outputmodel means that from many points of view it would be difficult to producebetter estimates.

So much local and community detail means that assumptions and short cuts areunavoidable. IEAB members feel that if some of the flaws criticized were dealtwith, this study could be of even greater local interest, and also moderatelyhelpful to the Council. It must be noted that the report’s brevity preventedIEAB members from understanding all the assumptions and from confidentlytracking the calculations. So several of the following points might turn out tobe over-severe.

3.3.1. Idaho community estimates.

Unfortunately Reading’s Idaho geographical estimates could be substantiallyin error. For example, the study predicts that anglers fishing steelhead nearbymust have spent about $100,000 in Grangeville. For this single allocation, awide range of error would not be surprising. From this sum, the study goes on topredict how and where the supposed Grangeville recipients will spend on"inputs." As the underlying linear models have never been verified,these further geographical predictions could be wildly wrong. In short, Reading’slocal estimates are much shakier than is his estimate of the impact of steelheadangler’s spending on the state or region as a whole.

3.3.2. In-state versus out-of-stateimpacts.

The study’s methods seem not to handle correctly the anglers’ impact onspending that crosses state borders. Long tables are presented, but do notclarify these three questions.

a. Original spending. In the Reading study, the anglers’ originalexpenditures are attributed either to on-river communities or to the rest ofIdaho. It is not explained why some of this spending, for car travel forexample, was not made in other states. The answer may be that in the originalIdaho questionnaire, anglers were told to mention only their in-Idaho spending.If so, the reliability of their responses needs to be touched on.

b. Indirect job impacts. The study’s input-output modeling led to anestimate of secondary or indirect impacts throughout Idaho. Again, it is notmade clear why the impacts shown ( sales of inputs to the original suppliers tothe anglers) were only within the state. One would imagine that Idahoeating-places and lodging places must be buying some current supplies fromsources out of state. The answer is probably that the underlying input-outputmodels did measure this "leakage" of local spending to other statesand regions. But the subject is not dealt with here.

c. Out-of-state visitors. The data used by the Reading study apparently donot disclose whether the anglers were from Idaho or out of state. To the extentthey were from Idaho, the study’s estimate of the total dollar or job impactcould be a serious exaggeration. To see why, imagine that the steelhead fisherywas closed. Then standard economic and business reasoning asks how the Idahofishermen will "adjust" to this lost recreational opportunity. Thelikely answer distinguishes between Idaho and other anglers.

Many from Idaho will find something else to do close to home, and will spendmoney on it --- perhaps even more than they had spent on steelhead fishing. Thefinal job and spending impact of closing the fishery to them may be small ornegative. The rest of the anglers from Idaho will now go fishing and spending inother states. The impact of closing the fishery to them will be roughly assuggested in the Reading study. Similarly, anglers from other states willprobably now not visit Idaho at all. The impact of closing the fishery to themwill also be roughly as in the Reading study. To summarize: if most steelheadanglers are from out of state, the Reading estimates may be relevant. But ifmost are from Idaho, the economic impact on the whole state of opening orclosing the steelhead fishery could be small, even trivial. Only the rivercommunities might suffer.

d. Summary. If much of the anglers’ direct and indirect spending is forgoods and services procured outside Idaho, Reading may have over-stated theimpact of steelhead fishing. One hopes the study took care of these problems ina professional fashion. If many of the anglers are from Idaho, and would staythere whatever the fishing situation, Reading may again have over-stated thelong-run impact of steelhead fishing. One suspects that the study did not dealwith this source of error.

3.3.3. Expenditures on boats andmajor equipment.

The study apparently assumes that the guessed-at purchases of boats and majorequipment were spending caused by the anglers’ fishing activities. Since thenumber used is only a rounded add-on to other spending, it is hard to criticize.But it should be noted that people in Idaho make such expenditures in order togo camping, hunting, and fishing in other places. In other words, even ifReading’s guessed value of steelhead anglers’ boat spending is right, thatvalue may over-state the amount that should be credited to the impact ofsteelhead fishing.

3.3.4. The regional economy.

The Reading study, having defined the angler-derived jobs as benefits, goeson to sketch how the Snake region’s other industries are declining. Theimplication is that steelhead dollars and jobs are especially valuable in thatthey can replace farming and logging in the local economy. This seemsreasonable, but depends on two implicit assumptions.

(a) The angler spending and its re-spending goes to former farmers andloggers, not to newcomers who are attracted by the recreation industry. Nothingis said on this matter.

(b) The anglers are from out-of-state. The old community industries wereexporters and pulled in income from outside. If the new anglers are localpeople, their spending does little to offset a fall in exports. Their income isjust transferred to other Idahoans. This question, partly technical, is passedover. Of course, even if all the steelhead anglers are from Idaho, the rivercommunities will welcome these transfers.

3.3.5. River-management choices.

Unlike the references to dam drawdowns in the Tri-port study, the steelheadstudy says nothing to relate the size of the steelhead catch to dam retention orretirement, or to other changes in levels and flows. Nor does it address thequestion of increasing or decreasing hatchery investment.

The same is true of the study’s calculations for a restored salmon fishery(discussed below). Nothing is said about the changes in the downstream fishery,hatcheries, dams, habitat or flows that would give the greatest restored-salmonfishery economic impact, or even whether these would be compatible with acontinued steelhead fishery.

3.3.6. A restored salmon fishery.

An attractive goal of the Reading study is its attempt to estimate the jobsand dollars that would follow the restoration of a harvestable salmon run.Chinook is taken as an example.

3.3.6.1. Data and Method.

Reading assumes that the 1960s fishery, on which there is some data, isresumed. A catch of 23,000 chinook annually from the river banks involved150,000 fishing days. He reasons that the direct and indirect economic impactsof a chinook angler’s day should resemble those of a 1990 steelhead angler.

Reading rightly refrains from in-depth explorations of this unresearchedsalmon fishery. Where would it be? Could it employ the same people and capacityas the steelhead (hotels, guiding, boats ?) Assuming that the two fisherieswould be independent, the salmon jobs created would turn out to be abouttwo-thirds of the steelhead jobs mentioned above (2,700) leading to 4,400fishing jobs altogether in the state. Of these, about 10 percent would be in theregional river-side communities. It is fair to say that this calculation of theimpact of a restored salmon fishery is, so far, just an easy, though suggestive,by-product of the steelhead study.