IMPACTS OF THE BAYOU METO PROJECT

OVERALL IMPACT OF THE BAYOU METO PROJECT

Eric J. Wailes and Kenneth B. Young
Department of Agricultural Economics and Agribusiness
Division of Agriculture, University of Arkansas, Fayetteville

Definition of Terms

Total Economic Impact
Original expenditures on duck hunting, wildlife watching and on project construction and the value of agricultural production generate rounds of additional spending throughout the economy.  This results in numerous direct, indirect and induced impacts where the sum of these impacts is the total economic impact resulting from the original expenditures.  Indirect impacts occur when the agricultural sector, for example, purchases goods and services from local businesses.  The production of certain farm machinery and equipment for example, is an indirect impact of agricultural production.  Agriculture’s induced impacts are measured by increases in economic activity to satisfy the personal consumption by employees of firms that provide inputs to the agricultural sector.


Multiplier Impacts
The ratio of total economic impact to the direct spending, eg. on duck hunting or value of crop production is usually larger than one and is described as a multiplier  Since the state only has to pay 35% of the import system construction cost, there is a large multiplier effect from the state investing in this project.

Employment Impact
The total economic impact included generation of new jobs in the economy that are generally measured in terms of person years.

Tax Impacts
The total economic impact includes the generation of new tax payments including federal, state and local tax payments.  Attention is focused on state tax payments that are of special interest to citizens of Arkansas.

Components of Project
Major features of the Bayou Meto Basin Project include:  (1) construction of on-farm and water import system infrastructure over the period 2006-2011 to provide a sustainable irrigation water supply to replace declining ground water use on 290,061 acres of crop and aquaculture land, and (2) improved environmental management and flood control in the Bayou Meto WMA which will enhance timber health and food supply for wildlife.
Analysis of the Bayou Meto Project was expanded beyond that reported in a former Preliminary Report in July 2005 to include assessment of the economic impact of project construction, the economic impact of improved habitat and food supply for duck hunting, and the economic impact of improved habitat and food supply for wild life watching.  Wildlife watching is becoming more popular in Arkansas and a growing source of income for the state as well as duck hunting.  The improved wildlife habitat and food supply in the Bayou Meto WMA may also improve other hunting such as deer and turkey hunting; however, data did not appear to be available to project what the impact may be with and without the project.

Calculation of Overall Economic Impact
Economic projections of the crop sector with and without the Bayou Meto Project were developed in Table 10 of the Preliminary Report for this project that was completed in July 2005.  The IMPLAN model was formerly applied to estimate the multiplier effects and tax payment implication of maintaining a high level of irrigated crop production compared with allowing the Bayou Meto Basin crop sector to revert to mostly dryland crop production as the ground water became depleted.  The projected tax payment flow with the Bayou Meto Project was formerly shown in Table 9b in the Preliminary Report.  
Major steps in developing a more complete economic impact assessment of the Bayou Meto Project included:
1)Input of annual net crop income data with and without the project from Table 10 of the Preliminary Report and crop impact data from estimated input-output multipliers and the estimated tax payment Table 6 of the Preliminary Report.  Employment benefits are also assessed.
2)Application of a new input-output analysis to estimate the multiplier effects, employment and tax payment impacts of the Bayou Meto Project construction.
3)Assessment of the effect of the Bayou Meto Project on duck hunting and wildlife watching activities.  Multiplier and tax payment effects are calculated from previous input-output assessments of duck hunting and wild life watching.
4)Impacts of changes in net crop income, project construction, duck hunting and wildlife watching are merged together on an annual basis to project the overall impact of the Bayou Meto Project from 2006 through 2061 (Appendix Tables).
5)Annual projections from the detailed annual appendix tables are grouped into sets of 3 two-year projections during the project construction phase from 2006 through 2011, and then in five-year projections thereafter to give viewers a perspective on the timeline of payback of benefits on this project.  The investment costs and projected benefits are not corrected for inflation in the summarized two-year and five-year projection tables.

Discussion of Overall Economic Impact Values
Table 1shows economic impact projections for two-year periods during the project construction phase, 2006-2011, and for five-year periods thereafter.  The analysis presented shows the projected returns in direct economic impacts, total economic impacts, increased state tax revenue and jobs created as a result of the state investing in the water import system for the Bayou Meto Project.  The on-farm portion of this project will benefit farmers by increasing their field irrigation efficiency and enabling more farm surface water runoff to be utilized for irrigation.  It is understood that irrigation farmers will ultimately be responsible for paying all annual O&M costs when the project is completed and water is delivered so O&M is not included as a state investment in this project.  Both the on-farm and the import system O&M costs are annual recurrent costs that will be paid for as farmer receive benefits for the project.
The 2006-07 projections in Table 1 show a state investment of $16.93M for that two-year period.  Other project investments come from the federal government and irrigation farmers that will receive immediate benefits from the on-farm improvements.
Returns in 2006-07 include a direct impact economic value of $63.25M, an overall economic impact value of $118.41M, increased state tax revenue of $4.39M and 1,434 additional jobs in person years.  The overall economic impact is nearly seven times the state investment in the first two years of construction because of the substantial financial leverage involved in cost sharing federal money for all construction.  The multiplier on state investment is 6.99.
For 2008-09, the state investment is $67.81M compared with a direct economic impact of $181.51M, a total economic impact value of $361.43M, $13.41M in state tax revenue and an employment gain of 4,771 person years in jobs.  The multiplier on state investment for 2008-09 is 5.33 as the state share in investment is increased for the import system in this time period.
For 2010-11, the state investment is $17.13m as less money is spent on the import system construction.  The return is $101.60M as a direct economic impact, $185.78 as a total economic impact, $9.98M in state tax revenue and 4,708 jobs in person years.
Over the six-year construction period from 2006-2011, the state will spend $101.87M as a cost share in the import system investment cost to support development of the Bayou Meto Project.  As a result of this support, the direct economic impact is estimated at $346.36M, the total economic impact is $665.62M, state tax revenue is $27.78M and the project generates 7,241 person years of jobs over the six-year period of construction.
During the six-year construction phase of the Bayou Meto Project, the difference in net crop income with and without the project is not substantial, as the ground water supply is not yet depleted.  During this period, the value of duck hunting from the project is estimated to exceed the crop income value as the project should rapidly improve the food supply for ducks and stem the current decline in food supply due to prolonged flooding conditions in the Bayou Meto WMA.
Project O&M costs over the first six years total $6.37M, averaging a little over one million per year.  On-farm O&M costs total $2.60M and the import system O&M costs $3.78M.  Import system O&M costs are not due to be paid until the last two years of the construction period.
The five –year projection for 2012-2016 in Table 10A shows a cost for project 0&M of $17.35M and returns of 10,738 jobs $310.45M total economic impact value and $19.87M increase state tax revenue.  Over 70% of the jobs are generated from the crop sector, which would have declined rapidly with the continued depletion of ground water reserves.
The five-year projection for 2017-2021 in Table 10A shows an 0&M cost of $17.48M and a return of 19,248 jobs, $509.77M total economic impact value and $37.31M in increased state tax revenue.
For 2022-2026, the 0&M cost is $17.35M compared with returns of 25,111 jobs, $653.93M total economic impact and $45.09M increased state tax revenue.
For 2027-2031, project 08M spending is $18.58M and returns are 28,226 jobs, $748.09M total economic impact and $50.88M tax revenue.
For 2032-2036, 08M spending is $17.47M and returns are 30,471 jobs, $820.09 total economic impact and $55.14M in state taxes.
For 2037-2041, spending is $17.35M and returns are 33,745 jobs, $905.57M and returns are 33,745 jobs, $905.57M total economic impact value and $61.82M state tax revenue.
For 2042-2046, spending is $17.47M and returns are 36, 107 jobs, $973.71M total economic impact and $65.36M increased state tax revenue.
For 2047-2051, cost is $18.58M and returns are 38,404 jobs, $1,098.88M total economic impact and $70.90 OM tax revenue.
For 2052-2056, cost is $17.35 M and returns are 41,405 jobs, $1,111.96M total economic impact and $73.74M tax revenue.
For 2057-2061, cost is $18.47M and returns are 41,955 jobs, $1,146.46M total economic impact and $75.06M tax revenue.
Economic Impact of Non-Federal Investment in the Bayou Meto Basin Project

State Obligation: To use state bonding authority to secure construction funds and guarantee repayment.  THE ENTIRE NON-FEDERAL INVESTMENT IN WATER SUPPLY AND FLOOD CONTROL WILL BE REPAID WITH INTEREST BY THE BAYOU METO WATER MANAGEMENT DISTRICT THROUGH THE SALE OF WATER AND AN ASSESSMENT ON THE BENEFITED AREA.  

State Return: Over the period 2009-61, the state will receive: 
Over $6.2 BILLION in total economic impact benefit, 
The State will receive $462 MILLION in  increased state tax revenue and 
The State will receive 316,305 increased jobs in person years from supporting this project.

Excluding interest and inflation from 2009-61, each non-federal dollar invested will return:
$84.57 in total economic impact value to the state.
$5.40 increased state tax revenue.

The reason for high returns on non-federal investment in this project is the large cost share in all construction provided by federal dollars.

Major sector contributors to the total economic impact are:
Improved duck hunting from the project provides over $1.9 billion.
Net crop income gains from the project provide over $3.8 billion

Major contributors to increased state taxes generated from the project are:
The gain in net crop income provides $391 million.
The gain in duck hunting provides $74 million.



Major contributors to increased state employment as a result of the project are:
Sustaining net crop income with the project provides additional employment of 235,753 person years.
Increased duck hunting from improved wildlife habitat and flood control in the project will provide 
   additional employment of 71,111 person years.
Project construction will generate 5,026 jobs.

NOTE:  This economic information was taken from a report entitled, “Regional Economic Evaluation and Verification Study at the Bayou Meto Basin, Arkansas” by Dr. Eric Wailes of the University of Arkansas, Department of Agriculture Economics and Agriculture Business, Division of Agriculture, University of Arkansas, Fayetteville, Arkansas.