Deepwater Energy Impacts on Economic Growth and Public Service

Provision in a Louisiana Parish

J. Matthew Fannin and Walter Keithly, LSU CNREPDavid Hughes, Clemson UniversityWilliams Olatubi, American Express

Jiemin Guo, Bureau of Economic Analysis

CNREP ConferenceMay 21, 2007

New Orleans, LA

Policy Challenge

• Outer-continental shelf energy production activities grew in 1990s and today as further deepwater and ultra-deepwater discoveries found

• Support industries located on coast have major impacts on labor force and public services

• How do we quantify long term impacts?

The Approach

• Community Policy Analysis Modeling (COMPAS) (Johnson, Otto, Deller 2006)– A system to translate development and

policy scenarios into long-term projections of labor force and fiscal variables

– Conceptual framework based on labor force, consumer, and public choice theories

Change in Demand forLocal Industry

Multiplier Effects in Local Economy, Direct, Indirect, and Induced Effects on Employment

Changes in Local Government Revenue

Changes in Demand for Public Services

COMPAS Modeling System

Empirical Model

• Louisiana Version– Louisiana Community Impact Model (LCIM)

• First stage – input-output module (IMPLAN)• Second stage – labor force module• Third stage – fiscal module• Based on cross-section of Louisiana

parishes• First iteration 2001, revised 2006

Input-Output Module

• Use regression on changes in exploration intensity to estimate fluctuation in mining and oil and gas support service employment

• Direct employment treated as demand to determine total employment changes

• Total employment changes (direct, indirect, and induced) from IMPLAN used as exogenous driver of labor force module

Labor Force Module

• Three equations – incommuter earnings, outcommuter earnings, total labor force, and population

• Place-of-work employment from I-O module serves as explanatory variables in regressions

• Dependent variables serve as exogenous variables in revenue capacity equations

Fiscal Module

• Consists of revenue capacity equations (assessed value, retail sales) and revenue generating variables (ad voloreum, sales, severance tax revenues, state and federal transfer revenues)

• Public service expenditures include education, transportation, public safety, environment and housing, govt. administration, social service and income maintenance, and utilities

Scenario Application

• Lafourche Parish–Metropolitan parish in South Central LA–Mix of agricultural, manufacturing and

mining activity in economic base– Home of major OCS-support port –

Port Fourchon– Faces major pressures on public

infrastructure – roads, water and sewer, etc

Table 3. Direct, indirect, and induced changes in output due to DEI activity in Lafourche Parish, 2003 – 2010. (Thousands of Dollars) IMPLAN Sector 2003 2004 2005 2006 2007 2008 2009 2010 1 Agriculture, Forestry, Fishing, and Hunting 5.7 6.1 6.0 6.2 6.2 6.4 6.7 6.4 19 Mining 2,352.3 2,513.2 2,463.3 2,514.5 2,565.8 2,598.0 2,738.2 2,620.2 28 Support Activities – Oil and Gas Operations 17,438.3 15,511.7 23,657.2 26,613.6 26,005.1 21,321.7 17,356.9 14,091.4 30 Utilities 306.6 348.0 337.1 346.4 350.2 363.7 387.5 367.9 33 Construction 845.1 933.1 911.0 934.4 948.2 972.5 1,029.8 980.1 46 Manufacturing 1,547.9 1,693.4 1,659.6 1,703.5 1,734.4 1,767.51 1,871.5 1,777.4 357 Ship Building and Repairing 9,083.6 15,447.1 13,970.3 14,122.3 11,902.7 15,738.3 15,848.7 16,242.0 390 Wholesale Trade 2,319.4 2,648.1 2,536.7 2,611.0 2,663.8 2,769.8 2,994.4 2,824.9 391 Transportation and Warehousing 169,640.1 177,466.9 173,812.2 175,784.2 178,410.5 180,589.6 187,944.3 182,800.3 393 Water Transportation 237,597.2 281,703.3 260,676.8 271,778.2 286,966.6 299,232.4 341,292.0 312,080.5 401 Retail Trade 884.6 973.0 936.3 958.9 984.9 1,009.3 1,086.4 1,030.2 413 Information 3,270.9 3,551.9 3,447.7 3,527.3 3,613.7 3,681.9 3,927.9 3,736.5 425 Finance and Insurance 3,273.6 3,746.4 3,559.8 3,683.3 3,818.4 3,946.4 4,351.1 4,049.0 431 Real Estate and Rental 4,308.2 4,810.9 4,663.6 4,782.1 4,939.9 5,054.4 5,495.9 5,143.6 437 Professional, Scientific, and Technical Services 6,458.4 7,288.7 6,967.5 7,190.2 7,432.8 7,650.3 8,365.6 7,824.2 451 Management of Companies 5,155.8 5,814.4 5,954.6 6,291.4 6,430.4 6,414.0 6,794.8 6,188.5 452 Administrative and Waste Services 1,472.9 1,624.0 1,567.9 1,602.6 1,632.7 1,680.3 1,792.2 1,710.0 461 Educational Services 11.8 13.1 12.5 12.9 13.2 13.6 14.8 13.9 464 Health and Social Services 5.0 5.1 5.1 5.1 5.1 5.1 5.1 5.1 475 Arts, Entertainment, and Recreation 94.8 105.4 107.0 112.1 114.3 114.4 120.6 111.3 479 Accommodation and Food Services 4,692.4 4,807.8 4,762.6 4,791.8 4,822.6 4,855.2 4,951.1 4,879.9 482 Other Services 1,658.0 1,878.0 1,790.1 1,842.1 1,894.6 1,961.6 2,137.3 2,010.1 495 Government 782.8 874.3 838.4 862.6 889.1 913.5 992.2 933.2

Total 473,205.6 533,763.9 514,613.6 532,076.7 548,145.3 562,659.9 611,504.8 571,427.0

Source: IMPLAN.

I-O Module Results

Public Revenue Changes

Table 5. Predicted changes in local government revenues for Lafourche Parish under DEI development, 2003-2010. (Thousands of Dollars) 2003 2004 2005 2006 2007 2008 2009 2010 Item Sales Tax Revenue 45,124 45,266 45,588 45,795 46,011 46,193 46,239 46,531 Advoloreum Tax Revenue 66,668 67,600 68,597 69,568 70,552 71,535 72,483 73,525 Severance Tax Revenue 751 751 751 751 751 751 751 751 State Transfer Revenue (Transport) 751 757 764 770 777 784 792 799 State Transfer Revenue (School) 54,949 55,450 55,908 56,402 56,900 57,413 57,967 58,465 Federal Transfer Revenue 12,095 12,205 12,306 12,414 12,524 12,637 12,759 12,869 Other Tax Revenue and Charges 206,288 208,439 210,524 212,687 214,870 217,093 219,396 221,623 Other State Transfer Revenue 32,202 32,476 32,814 33,114 33,420 33,715 33,964 34,302 Total 418,829 422,945 427,251 431,503 435,807 440,123 444,350 448,865 Source: LCIM.

Public Expenditure Changes

Table 4. Predicted changes in local government expenditures for Lafourche Parish under DEI development, 2003-2010. (Thousands of Dollars) 2003 2004 2005 2006 2007 2008 2009 2010 Item Education 128,957 130,212 131,394 132,646 133,907 135,198 136,563 137,837 Transportation 22,378 22,589 22,807 23,023 23,243 23,463 23,682 23,910 Public Safety 25,806 26,084 26,358 26,640 26,924 27,213 27,509 27,800 Environment and Housing 33,498 33,851 34,194 34,549 34,907 35,271 35,648 36,014 Government Administration 110,650 111,659 112,580 113,576 114,579 115,613 116,726 117,729 Social Services and Income Maintenance 68,582 69,309 70,017 70,750 71,489 72,240 73,015 73,771 Utilities 20,328 20,547 20,762 20,983 21,207 21,433 21,667 21,895 Total 410,198 414,250 418,113 422,168 426,256 430,432 434,810 438,956 Source: LCIM.

Net Effects

• Deepwater energy (DEI) scenario compared to baseline scenario (3% POW employment growth rate)– Baseline revenues exceeded DEI scenario• Driven by greater number of incommuters

driving down sales taxes– DEI scenario expenditures lower than baseline• Higher population growth rates lowering per

capita expenditures for given level of public services

Future Research

• More extensively model DEI scenarios containing new ultra-deepwater activities (MMS)

• Break out fiscal sector decision making unit revenues and expenditures (general parish government, school districts, hospital districts, etc)

• Incorporate panel and or spatial econometric techniques

Conclusions

• LCIM three stage model constructed to project long-term impacts on labor force and public service impacts

• Results showed public revenues exceeded public services throughout projection period

• DEI scenario resulted in lower revenues and lower expenditures relative to baseline

• Extensions include detailed fiscal decision unit projections and econometric techniques