ECONOMIC IMPACT ANALYSIS OF PAJARO DUNES SOUTH

Transcription

1 ECONOMIC IMPACT ANALYSIS OF PAJARO DUNES SOUTH NOVEMBER 18, 2009 Prepared for Pajaro Dunes South Geologic Hazard Abatement District Prepared by Applied Development Economics 100 Pringle Avenue, Suite 560 Walnut Creek, California (925) River Plaza Drive, Suite 168 Sacramento, CA (916)

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3 CONTENTS Executive Summary... 1 Introduction... 5 Economic Impact Analysis... 7 Fiscal Impacts Conclusion: Community Benefits from Pajaro Dunes are Widespread Appendix A: About Applied Development Economics Appendix B: INPLAN Input-Output Model... 25

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5 EXECUTIVE SUMMARY This report provides an analysis of the economic benefits of the Pajaro Dunes South development in southern Santa Cruz County. Pajaro Dunes South consists of 256 residential units on the coast west of the City of Watsonville, and provides a residential and recreational setting for permanent residents and visitors to Santa Cruz County alike. The additional economic benefit from the 309 condominiums in Pajaro Dunes North (Shorebirds) is addressed in a separate report. The Pajaro Dunes South development is currently seeking approvals to reconstruct the seawall protecting the development along the beach. (The seawall protecting Shorebirds is not affected). The report addresses the economic benefit of this project as well as the ongoing business activity generated by the residential units themselves. EMPLOYMENT AND INCOME The Pajaro Dunes South development employs about 46 workers, either directly or through contracts with outside services companies. Some of these positions are part time or seasonal. This direct employment, combined with business to business transactions and employee household spending, supports 51 full time equivalent jobs with $1.7 million in total worker income annually. This activity supports about $4.2 million in business revenue in Santa Cruz and Monterey counties. In addition, residents of the development are estimated to spend $1.4 million per year on retail goods and services. Visitors in the vacation rentals in the project add another $4.2 million annually in retail and entertainment spending. This combined spending supports 63 jobs in the retail and services sector, of which nearly 70 percent are in Santa Cruz County. Economic multiplier effects generated by related business to business transactions, as well as employee household spending, generate another 17 jobs in local businesses, for a total of $2.6 million in direct and indirect worker incomes per year and another $1.0 million annually in indirect business income. Thus, the development in total generates $10.8 million per year in private sector economic activity, mostly in Santa Cruz County, and supports 132 jobs with payrolls of $4.3 million per year (Table 1). TABLE 1 SUMMARY OF ECONOMIC IMPACTS OF PAJARO DUNES SOUTH(DOLLARS IN MILLIONS) Business Revenue Generated by Category of Spending Non-Accommodation Spending Employment Labor Income Visitor $ $2.1 Residential $ $0.5 Operational $ $1.7 Total $ $4.3 Source: ADE, Inc. Applied Development Economics, Inc. 1

6 The proposed re-construction of the seawall protecting the development would cost about $18 million and take approximately one year to build once approvals have been secured. It is estimated that this project would support about 131 construction jobs, and generate another 90 jobs in supplier businesses as well as retail and service businesses. The total economic activity generated by the project could reach $29.6 million in Santa Cruz and Monterey counties, and create $12.7 million in labor income in the region. FISCAL IMPACTS The Pajaro Dunes South development and its residents and visitors pay significant tax revenues that support local government services. Property taxes, sales taxes, and transient occupancy taxes alone amount to more about $2.56 million annually. Key tax benefits include the following: The school district receives the largest share of tax revenue paid by the development, with base property taxes of about $754,000 annually and additional bond debt service payments of $49,000 per year. The development sends only two students to local schools, so its net revenue benefit is far greater than most residential developments in the area. The County General Fund receives about $741,800 per year, including $428,000 in property taxes, $308,000 in TOT taxes and about $5,800 in sales taxes. Among other County services and local government agencies, the support from Pajaro Dunes South of the Fire Station is significant, at $535,000 per year. This fire station is regularly involved with mutual aid support to other fire agencies throughout the County and responds to as many calls outside the development as it does inside. The County library, County parks and recreation, County road maintenance, the Pajaro Valley Water Management Agency and a host of other local agencies also receive property taxes or parcel taxes from Pajaro Dunes South. The cities of Watsonville and Santa Cruz receive an estimated $10,700 and $18,500, respectively, in sales taxes from resident and visitor retail expenditures. In addition, a number of the indirect jobs in these communities, with related tax revenues, are supported from the economic activity discussed above. ECONOMIC ENGINE AND COMMUNITY PARTNER The development provides exceptional recreation opportunities to Santa Cruz County residents and visitors alike. The tourism industry is estimated to generate $640 million 2 Applied Development Economics, Inc.

7 in direct spending from visitors throughout Santa Cruz County (2007 figure from Dean Runyan Assc.). Pajaro Dunes is a major attraction helping to support Santa Cruz County s position as a premier tourist destination on the west coast. Based on the annual vacation rental occupancy for Pajaro Dunes South, it draws more than 35,000 people per year to Santa Cruz County beaches, at lower cost generally than many other resorts along Monterey Bay. The development offers a number of recreational amenities for visitors and local residents including tennis and basketball courts, a Nature Gallery, interpretive signs around Watsonville Slough, a spa and meeting and event facilities that are used by the community in addition to residents. Pajaro Dunes South is a good community partner, making its facilities available to local school groups and other community organizations at no cost. So far this year, the facility has hosted 22 events at no charge to community groups, including Loaves and Fishes, the Watsonville Rotary Club, Cal Fire, as well as student groups. The seawall protecting Pajaro Dunes South is an important project for the regional economy, not just the homeowners in the development. The economic opportunity and local government revenues it provides would leave a significant gap if the development cannot continue to be protected from storms and tides as it has been for the past thirty years. Applied Development Economics, Inc. 3

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9 INTRODUCTION PAJARO DUNES The Pajaro Dunes South development consists of 256 dwelling units along a one mile stretch of the coast west of Watsonville, at the southern end of Santa Cruz County. Most of the units have been in place for more than 30 years, and range from onebedroom condominiums to five- bedroom homes. About 40 percent of them are periodically rented as vacation units and the complex includes 13 tennis courts, playing fields, a recreation center, meeting rooms, walking trails, a spa, and offices. Severe storms in eroded the dunes protecting the front row units to such an extent that a seawall needed to be constructed, which was completed in In addition to the rock seawall along the ocean frontage, a river wall was constructed to protect the southern end of the development, consisting of the Pelican Point condominiums, from the Pajaro River. In 1998, the Santa Cruz County Board of Supervisors formed a Geologic Hazard Abatement District (GHAD), which was requested through a petition of the membership of the Pajaro Dunes Association (PDA). The purpose of the GHAD is to provide a means for the membership in Pajaro Dunes South to raise and expend funds for the purpose of constructing and maintaining facilities to protect the development from natural hazards (e.g. the seawall). The GHAD developed and implemented an assessment formula whereby the owners of the dwelling units pay into a fund for the maintenance of the seawall based on their benefit from the wall. The GHAD is currently preparing plans and has made application to the California Coastal Commission to rebuild the seawall protecting Pajaro Dunes South to correct design deficiencies in the current wall and to provide longer term protection for the dwelling units. The construction of the new wall is currently estimated to cost about $18 million and would take about a year to complete once approvals have been granted. PURPOSE AND ORGANIZATION OF THE REPORT This report discusses Pajaro Dunes and the proposed seawall construction from an economic perspective. The construction of the seawall will have a short-term economic benefit to the County terms of generating construction jobs and payrolls as well as related business revenues. But it will have a long term benefit in terms of protecting the continued operation of the Pajaro Dunes South community. That community Applied Development Economics, Inc. 5

10 generates a wide range of revenues for the local economy by attracting visitors to the area that patronize local restaurants and stores and visitor attractions in both Santa Cruz and Monterey counties. Those visitors, as well as the unit owners who reside at Pajaro Dunes South, pay substantial tax revenues to Santa Cruz County in terms of property taxes, sales taxes, and transient occupancy taxes. In addition, the development helps to support the County Service Area #4 Fire Station as well County Parks and Recreation services and other public services. 6 Applied Development Economics, Inc.

11 ECONOMIC IMPACT ANALYSIS ECONOMIC IMPACT DEFINITIONS This economic impact analysis section documents several aspects of Pajaro Dunes South economic impact on the regional economy. Much of this economic impact assessment centers on spending by Pajaro Dunes South residents and overnight visitors. The other components of the analysis will look at the economic impact of ongoing property management operations at Pajaro Dunes South, and the economic value of the proposed seawall construction project. The analysis documents both direct impacts that will occur as a result of activity onsite, as well as identifying how this activity creates ancillary economic benefit to the regional economy in Santa Cruz and Monterey counties. Most of the calculations were performed using an input-output model (IMPLAN Impro Professional) and a specific dataset keyed to the regional trade flows for Santa Cruz and Monterey counties. These off-site multiplier impacts work on the premise that the economic activity that occurs at Pajaro Dunes South will help initiate demand for products and services provided by other businesses throughout the region. In addition, the new jobs created by this economic activity will spur additional demand through household spending. The documentation of economic impacts accounts for how these buyer-supplier relationships and household spending benefit a geographic area by estimating the economic multipliers. IMPACTS IN THE ANALYSIS The economic impacts in the analysis are divided into three parts: Residential impacts represent the economic value of the household spending generated by full-time and part-time Pajaro Dunes South residents. These impacts account for the demand for retail goods and local services created by residential spending. The impacts also estimate the multiplier benefits that increased household demand creates for other businesses throughout the region. Visitor impacts represent the economic value of spending generated by overnight visitors to Pajaro Dunes South. These impacts account for the demand for retail goods, recreational spending, and other visitor services generated by Pajaro Dunes South visitors. The impacts also include multiplier benefits. Operational impacts represent all of the economic activities that are generated on an ongoing basis by Pajaro Dunes South property management and maintenance activities. These impacts also account for economic activity generated through buyersupplier relationships with other regional businesses, and the household spending generated through new employment. Applied Development Economics, Inc. 7

12 ECONOMIC MEASURES The analysis calculated the multiplier impacts based on three economic measures employment, industry output, and employee compensation. These measures are defined as follows: Employment indicates the number of jobs created through residential and visitor activity at Pajaro Dunes South. Industry output represents the value of all economic activity generated by Pajaro Dunes South, and its residents and visitors. This activity includes all commodity inputs, labor income, property income, and other value added components. Output also includes the value of commodities produced by supplier businesses and demand created by local workers. Labor income represents the income generated through payroll. 1 ECONOMIC MULTIPLIERS The multiplier impacts for these measures come from the Type II multipliers. These multipliers include the direct, indirect, and induced impacts. These multiplier descriptions are summarized below. Direct impacts represent the jobs and other economic impacts that will be directly generated through residential and visitor spending, ongoing facility operations, and activity generated during the construction phase. Indirect impacts represent the jobs and other economic effects that would be generated throughout the Santa Cruz and Monterey County region as a result of supplier purchases. Suppliers would include any vendor of consumables, durable goods, services, building materials, and other commodities necessary to support the direct economic activities such as construction and ongoing business operations. Induced impacts represent the economic effects that will be generated through household purchases made in Santa Cruz and Monterey counties as a result of employee spending. These induced impacts most typically occur in retail and other local-serving industry categories such as personal services, education, real estate, and health care. 1 Labor income includes self-employment or other proprietor income. 8 Applied Development Economics, Inc.

13 RESIDENTIAL SPENDING IMPACTS Pajaro Dunes South currently has a total of 256 residential units. These units range in size from attached condominium developments to larger scale detached units. Based on records provided by the Pajaro Dune Association, 18 of the housing units are owner occupied full-time, with an additional 131 housing units occupied by their owners on a part-time basis (see Table 2). Agencies that rent Pajaro Dunes South housing units as vacation rentals account for another 90 units. The remaining housing units are likely units rented out through other channels. TABLE 2 PAJARO DUNES SOUTH HOUSING UNITS BY TENURE Total Units Pelican Point Condominiums 87 Houses 146 Cypress Grove Townhomes 23 Total 256 Full-Time Occupied Units 18 Part-Time Occupied Units 131 Agency-Listed Rentals 90 Other Rentals 17 Source: ADE, Inc., data from Pajaro Dunes Association. Using a household spending model, ADE estimated the spending by Pajaro Dunes South residents for local-serving retail stores and services businesses. The household retail spending totals are calculated from an analytical model developed by ADE. This model estimates spending for more than 40 different retail store types and 100 product categories. The model also estimates demand for various services sectors such as rental, repair, personal services, health care, entertainment, and professional services. The analytical model was developed from U.S. Economic Census data and the Bureau of Labor Statistics Consumer Expenditure Survey database. As shown in Table 3, Pajaro Dunes South residents generate a total of $1.47 million in household spending at retail stores and service businesses. Much of this demand comes from motor vehicles, food stores, gas stations, general merchandise stores, and restaurants. Full-time residents account for about $521,200 in household spending, Applied Development Economics, Inc. 9

14 while part-time residents contribute approximately $952,600 in annual spending. 2 TABLE 3 SUMMARY OF PAJARO DUNES SOUTH HOUSEHOLD SPENDING (NON-VISITOR) Industry Description Full-Time Household Spending Part-Time Household Spending Total Household Spending Total Commercial Spending $521,223 $952,601 $1,473,824 Retail Trade $424,272 $775,411 $1,199,683 Motor Vehicles and Parts Dealers $94,159 $172,088 $266,247 Furniture and Home Furnishings Stores $14,855 $27,149 $42,004 Electronics and Appliance Stores $9,693 $17,716 $27,409 Building Material and Garden Equipment Dealers $22,797 $41,664 $64,460 Food and Beverage Stores $69,135 $126,353 $195,488 Health and Personal Care Stores $17,483 $31,952 $49,435 Gasoline Stations $48,516 $88,670 $137,186 Clothing and Clothing Accessories $23,614 $43,157 $66,771 Sporting Goods, Hobby, Book and Music $8,575 $15,671 $24,246 General Merchandise Stores $64,211 $117,355 $181,566 Restaurants and Eating Places $32,608 $59,596 $92,204 Miscellaneous Store Retailers $18,625 $34,040 $52,666 Services $96,951 $177,190 $274,141 Automotive Equipment Rental $11,786 $21,541 $33,327 Consumer Goods Rental $644 $1,177 $1,821 Video Rental $1,474 $2,694 $4,168 Legal Services $4,525 $8,270 $12,796 Accounting $2,046 $3,740 $5,786 Doctors, Dentists, and Other Health Services $14,693 $26,854 $41,547 Home Health Care $2,141 $3,913 $6,054 Residential Care $9,427 $17,229 $26,656 Performing Arts and Movies $3,312 $6,053 $9,366 Spectator Sports $1,219 $2,229 $3,448 Fitness and Recreation $3,665 $6,699 $10,364 Auto Repair $18,070 $33,025 $51,095 Electronic Equipment Repair $224 $410 $634 Personal and Household Goods Repair $1,956 $3,575 $5,530 Personal Services $6,175 $11,286 $17,461 Death Care Services $3,008 $5,497 $8,505 Laundry Services $4,342 $7,935 $12,277 Other Personal Services $4,948 $9,043 $13,991 Non-Profit Organizations $3,294 $6,021 $9,315 Source: ADE, Inc., data from U.S. Census, U.S. Bureau of Labor Statistics, and IMPLAN input-output model. Spending by Pajaro Dunes South residents (full-time and part-time) creates a cumulative positive annual impact of about $1.4 million for the Santa Cruz and Monterey regional economy, as shown in Table 4. The multiplied economic impact, which accounts for all indirect and induced effects, also includes 14 total jobs and $565,400 in labor income. The direct economic impacts from just the consumer spending totaled $863,800 in industry output in By definition, industry output represents the combined value 2 The analysis assumed that full-time residents would be year-round residents, while part-time residents would live at Pajaro Dunes South for 25 percent of the year. 3 The retail spending represented as the industry output was calculated based on the gross margin of sales rather than the gross demand revenue. 10 Applied Development Economics, Inc.

15 of the business commodity purchases, employee payroll, proprietor income, property income, profit margins, and taxes. This household spending creates the equivalent of about 11 jobs, with an annual payroll of about $378,400. The indirect impacts result from business supplier activity that supports the direct spending categories. This activity creates about 1-2 jobs with $215,200 in industry output, and $76,400 in labor income. In addition, the jobs and income created through household spending by Pajaro Dunes South residents in turn generates additional demand for local goods and services by those employees. These induced impacts have an industry output of $324,000 and support about two new jobs, with $110,500 in labor income. TABLE 4 HOUSEHOLD SPENDING IMPACTS BY PAJARO DUNES SOUTH RESIDENTS Full-Time Residential Spending Impacts Direct Impacts Indirect Impacts Induced Impacts Total Employment 4 <1 1 5 Total Industry Output $305,329 $76,076 $114,515 $495,919 Labor Income $133,762 $27,023 $39,058 $199,843 Part-Time Residential Spending Impacts Direct Impacts Indirect Impacts Induced Impacts Total Employment 7 <2 1 9 Total Industry Output $558,473 $139,149 $209,457 $907,079 Labor Income $244,661 $49,428 $71,441 $365,530 Total Residential Spending Impacts Direct Impacts Indirect Impacts Induced Impacts Total Employment 11 < Total Industry Output $863,803 $215,224 $323,972 $1,402,999 Labor Income $378,423 $76,451 $110,499 $565,373 Source: ADE, Inc., data from IMPLAN Impro Professional input-output model. Notes: Retail spending impacts are calculated based on the gross margin of sales, which reduces the impact totals from the spending demand. Data columns might not add up due to rounding. VISITOR SPENDING IMPACTS In 2008, overnight visitors to Pajaro Dunes South accounted for a total of 11,186 room-nights. As shown in Table 5, these room-nights potentially generate about $7.3 million in annual visitor spending. 4 Using benchmark spending information from Dean Runyan Associates, ADE estimates that the non-accommodations spending for Pajaro Dunes South visitors totals about $4.2 million annually. 5 4 This analysis is based on an average California benchmark of $499 in total spending per party for a one-night stay. This data comes from the DK Shifflet & Associates 2007 travel survey prepared for the California Travel and Tourism Commission. ADE used the Dean Runyan Associates 2008 travel impacts data for Santa Cruz and Monterey counties to estimate the distribution of all expenditures, except for accommodations which relied on direct data from Pajaro Dunes about annual rental room nights. The Dean Runyan spending distribution is based on average lodging rate of $121, while actual rates for the vacation rentals average $275. With the higher daily room rate paid for Pajaro Dunes accommodations, the analysis assumes that Pajaro Dunes overnight visitors will average $653 in total daily spending per party. 5 The more detailed distribution of demand by retail and services category utilized the industry output information from the IMPLAN input-output model. Applied Development Economics, Inc. 11

16 Among the various visitor non-accommodations spending categories, the most prominent areas where visitors spend money are restaurants, gas stations, and amusement and recreational activities. The visitor spending shown in Table 5 creates a total economic impact on the regional economy of about $5.2 million in industry output after accounting for direct, indirect, and induced effects. Visitor spending also supports about 66 jobs and $2.1 million in labor income annually (Table 6). TABLE 5 SUMMARY OF PAJARO DUNES SOUTH OVERNIGHT VISITOR SPENDING Total Occupied Room-Nights 11,186 Total Pajaro Dunes Visitor Spending $7,304,029 Estimated Accommodations Spending $3,078,151 Total Non-Accommodations Visitor Spending $4,225,878 Pajaro Dunes Visitor Distribution of Overnight Visitor Spending Spending Retail Stores $3,363,459 Food Stores $179,217 Gas Stations $441,167 Clothing and clothing accessories $372,450 Sporting goods- hobby- book and music $125,574 General merchandise $355,685 Miscellaneous retail $311,512 Restaurants and eating places $1,577,853 Arts and Entertainment $845,997 Performing arts and movies $291,334 Spectator sports companies $31,098 Museums- historical sites- zoos- and parks $67,562 Fitness and recreational sports $37,438 Amusement centers and other recreation $418,565 Air Transportation $16,423 Totals may not add due to rounding. Source: ADE, Inc., data from U.S. Census, U.S. Bureau of Labor Statistics, Dean Runyan Associates, DK Shifflet & Associates, and IMPLAN input-output model. The direct economic impacts from just the visitor spending totaled $3.3 million in industry output in 2008, as shown in Table 6. 6 The visitor spending also directly creates the equivalent of about 52 jobs, with an annual payroll of about $1.4 million. The indirect business activity creates about six jobs with $766,100 in industry output, and $282,300 in labor income. In addition, the jobs and income created through visitor spending by Pajaro Dunes South guests creates induced impacts with an industry output of $1.2 million, with nine new jobs and $406,800 in labor income. 6 The retail spending represented as the industry output was calculated based on the gross margin of sales rather than the gross demand revenue. 12 Applied Development Economics, Inc.

17 TABLE 6 SPENDING IMPACTS BY PAJARO DUNES SOUTH OVERNIGHT VISITORS Pajaro Dunes Visitor Spending Impacts Direct Impacts Indirect Impacts Induced Impacts Total Employment Total Industry Output $3,299,068 $766,079 $1,192,802 $5,257,948 Labor Income $1,392,472 $282,310 $406,853 $2,081,634 Source: ADE, Inc., data from IMPLAN Impro Professional input-output model. Notes: Retail spending impacts are calculated based on the gross margin of sales, which reduces the impact totals from the spending demand. Data columns might not add up due to rounding. OPERATIONAL IMPACTS Support operations at Pajaro Dunes South encompass activities such as security, property management, operations and maintenance. The operations also include onsite facilities such as the gift shops and spa facilities as well as about 100 days per year in rentals of the meeting facilities, with accompanying catering and entertainment activities. Most of these jobs are employed directly by business entities at Pajaro Dunes South, but a portion are contracted through outside service companies. These operations support about 46 jobs, some of which are seasonal and part time. 7 Based on the available information, we estimate this workforce is equivalent to 44 full time employees. As shown in Table 7, this activity directly supports an industry output of about $2.6 million, with $1.1 million in labor income. After accounting for the indirect and induced impacts, the support operations have a cumulative economic impact of $4.2 million on the regional economy, with 51 total jobs and $1.7 million in labor income. TABLE 7 ECONOMIC IMPACT SUMMARY OF PAJARO DUNES ONGOING OPERATIONS Pajaro Dunes Operational Impacts Direct Impacts Indirect Impacts Induced Impacts Total Employment Total Industry Output $2,635,876 $538,698 $1,013,400 $4,187,975 Labor Income $1,143,595 $197,815 $345,650 $1,687,060 Source: ADE, Inc., data from IMPLAN Impro Professional input-output model. Notes: Data columns might not add up due to rounding. 7 Carol Turley, Manager, Pajaro Dunes Association, personal communication. Applied Development Economics, Inc. 13

18 CONSTRUCTION PHASE IMPACTS Construction of the proposed seawall at Pajaro Dunes South will have an estimated budget of $18 million, with a construction phase of 12 months. The wall would be constructed of steel sheet pile and rock. The steel, which represents about 65 percent of the materials cost for the wall, would be imported, while the rock would be obtained from Monterey or Santa Cruz county. Some of the labor to manufacture the sheet pile would occur outside the region, but much of the labor cost would be associated with the onsite construction, particularly the rock work. Several local construction firms in the two county region would be capable of completing this project although no bids have been requested or awarded at this time. If the construction is contracted locally, the project would create about 131 jobs, with a labor income of about $8.5 million as shown in Table 8. Multiplier impacts for the construction phase impacts increase the annualized value of the economic activity to about $29.6 million. These multipliers increase the employment impact to 221 jobs, with $12.7 million of labor income. TABLE 8 CUMULATIVE ECONOMIC IMPACT SUMMARY OF PROPOSED SEAWALL CONSTRUCTION Cumulative Seawall Construction Impacts Direct Impacts Indirect Impacts Induced Impacts Total Employment Total Industry Output $18,000,000 $4,291,820 $7,294,704 $29,586,524 Labor Income $8,516,571 $1,725,732 $2,488,085 $12,730,389 Source: ADE, Inc., data from IMPLAN Impro Professional input-output model. Notes: Data columns might not add up due to rounding. 14 Applied Development Economics, Inc.

19 FISCAL IMPACTS The development contributes a number of public revenues to local jurisdictions, including property taxes, sales taxes, transient occupancy taxes and others. These revenues help support local government services provided by the County of Santa Cruz, local school districts, Cabrillo Community College, the City of Watsonville and other agencies. The local jurisdictions and agencies most significantly affected are discussed below. SANTA CRUZ COUNTY The Pajaro Dunes South development generates substantial discretionary revenues for Santa Cruz County. The County General Fund receives about $428,000 per year in property tax, while the County Library receives about $51,300 annually. In addition, the use of Pajaro Dunes South units as vacation rentals generates transient occupancy taxes (TOT) for Santa Cruz County. The county tax rate is ten percent of room revenues, which are estimated at about $3.08 million per year, based on records of 11,186 room nights rented in This creates about $308,000 per year in revenues for the County General Fund. As shown in Table 9 this represents nearly eight percent of total TOT revenues for the County. TABLE 9 COUNTY GENERAL FUND REVENUES GENERATED BY PAJARO DUNES SOUTH Category of Tax Annual Revenue Percent of County Total Property $428, % Sales $5, % Transient Occupancy $308, % Total $741, % Source: ADE, Inc. Finally, retail purchases by project residents and visitors generate sales tax for the County General Fund, estimated at about $5,800 per year. The methodology for estimating the sales tax is described in more detail later in this section of the report. The County General Fund revenues from the project are available mainly to help support costs of the Sheriff s Department, and the county share of costs for health and social service programs, very little of which is accessed by Pajaro Dunes residents or visitors. As shown in the discussion of other property tax revenues below, the project also pays taxes and assessments for road maintenance, county parks and recreation, storm drain maintenance and other services provided by special districts under the jurisdiction of the County. Applied Development Economics, Inc. 15

20 SCHOOLS AND EDUCATIONAL AGENCIES The property taxes from the project are allocated to a variety of local schools and educational agencies, as shown in Table 10 below. In addition, the project pays additional charges toward local school bonds. The total educational contribution is more than $1 million, with about $800,000 going to the Pajaro Valley Unified School District. Currently only two students from Pajaro Dunes South attend school in the Pajaro Valley USD. Cabrillo Community College receives $113,000 per year in base property taxes and the development also pays about $60,700 to help pay off two bond issues for the college. TABLE 10 PROPERTY TAX AND PARCEL TAX DISTRIBUTION TO EDUCATIONAL AGENCIES FOR PAJARO DUNES SOUTH Agency Annual Revenue Base Property Tax Pajaro Valley USD $754,549 Cabrillo Community Col $113,078 County Schools Services $48,773 Sub Total $916,400 School Bonds Cabrillo Bonds $60,664 Pajaro Val USD Bonds $49,020 Subtotal $109,684 Total $1,026,084 Source: ADE, Inc. FIRE PROTECTION Pajaro Dunes County Service Area #4 funds the fire station and fire protection services at the development. This station also provides mutual aid support to areas in Watsonville and the surrounding area, as well as the State Beach area. In 2008, the Pajaro Dunes Fire Station responded to 128 calls inside the development (both North and South) and 112 calls outside, while so far in 2009 there have been 99 calls inside the development and 102 outside the station. The development pays a total of $535,300 in property taxes and other charges to support this facility. In addition, Pajaro Dunes has funded a training program for new firefighters which has benefitted the entire county. The total property tax and sales tax revenues from the development are discussed below. 16 Applied Development Economics, Inc.

21 PROPERTY TAX The property tax rate for the Pajaro Dunes area is percent of the assessed value, although there are a number of additional voter approved parcel taxes and assessments that raise the effective tax to nearly 1.17 percent of assessed value. This does not count the special assessments paid by the property owners to maintain the seawall or to service the debt on the GHAD loan. The current assessed value for the Pajaro Dunes South development is about $182.5 million. This generates $1.8 million in base property taxes and another $109,700 per year in payments on local school bonds. In addition, other voters approved charges and assessments amount to $239,800 per year. Table 11 indicates the public agencies that share in these revenues. In addition to the agencies discussed above, other County services and local taxing agencies receiving funds include road maintenance (CSA#9), parks and recreation (CSA #11) storm drain and flood control services, the Pajaro Valley Cemetery, the Water Management Agency, the Resource Conservation District and the Mosquito Abatement District. Applied Development Economics, Inc. 17

22 TABLE 11 PROPERTY TAX AND PARCEL TAX DISTRIBUTION BY AGENCY FOR PAJARO DUNES SOUTH Agency Allocation Factor Annual Tax Distribution of 1% County General Fund $428,040 County Library $51,263 Pajaro Valley USD $754,549 Cabrillo Community Col $113,078 County Schools Svs $48,773 County Highway CSA # $4,076 Pajaro Storm Drain $38,629 Pajaro Dunes CSA # $356,081 Parks and Rec CSA # $4,438 SC FLD CT & WC ZN $3,985 SC FLD CT & WC GEN $3,396 Pajaro Val Cemetery $18,567 Resource Cons Dist $362 Sub Total $1,825,236 School Bonds Cabrillo Bonds $60,664 Pajaro Val USD Bonds $49,020 Subtotal $109,684 Other Charges Parcel Rate County - Refuse CSA 9C $56.94 $14,747 9D3 - Road Repair $56.40 $14,608 Mosquito Abatement $11.58 $2,999 CSA 53 Mosq. Cont. Assmt. $4.40 $1,140 County Highway CSA #9 $16.60 $4,299 Paj Val Water Mgmt Ag. $18.00 $4,662 Parks and Rec CSA #11 $6.58 $1,704 Pajaro Dunes CSA #4 $ $179,202 SC FLD CT & WC ZN7 $63.36 $16,410 Subtotal $239,772 Grand Total $2,174,692 Source: ADE, Inc. SALES TAX The retail expenditures estimated in the previous section of the report generate sales taxes for the jurisdictions in which they occur. Residents of the development are estimated to spend $1.2 million per year on retail purchases and another $274,100 on various services, some of which generate sales taxes. Visitors to the development are estimated to spend an additional $3.4 million on retail goods (of which about $75,000 is spent at onsite gift shops) and about $846,000 on entertainment services. Table 12 shows the recent distribution of taxable sales by jurisdiction in Santa Cruz County. The City of Santa Cruz gains the largest portion of sales tax, followed closely by the unincorporated areas of Santa Cruz County, including the areas of Aptos, Live Oak, Soquel and the San Lorenzo Valley. The City of Watsonville is third but has been increasing its share as new retail centers have been developed. Conversely, Capitola has seen a decline in its share as increased competition has developed in the other jurisdictions. 18 Applied Development Economics, Inc.

23 TABLE 12 TAXABLE SALES APRIL 2008 THROUGH MARCH 2009 Percent Jurisdiction Amount Share Santa Cruz City $8,630, % Santa Cruz County $8,246, % Watsonville $5,993, % Capitola $4,419, % Scotts Valley $2,029, % Santa Cruz County Total $29,318, % Monterey County $52,323,550 Total $81,642,507 Source: ADE, Inc. With Pajaro Dunes South located at the southern edge of Santa Cruz County, it may be expected that visitors and residents alike spend some of their retail dollars in Monterey County. Total retail sales in Monterey County are about double those in Santa Cruz County, but there are not many competitive retail outlets in northern Monterey County in terms of attracting residents dollars. It is more likely that visitors patronizing tourist outlets on the Monterey Peninsula would spend some of their taxable dollars there. As shown in Table 13, we have estimated that residents would spend 80 percent of their retail dollars in Santa Cruz County while visitors would spend about 65 percent. Table 13 also estimates spending distributions for both residents and visitors to the jurisdictions within Santa Cruz County. In general we have shown higher spending in the City of Santa Cruz where many of the visitor attractions and fine restaurants are located. We have shown no spending in Scotts Valley. For residents we have weighted spending toward Watsonville for household items while we expect visitors would spend more money in Capitola and some of the unincorporated areas with visitor attractions. TABLE 13 TAXABLE RETAIL SALES ALLOCATION FOR PAJARO DUNES SOUTH Share Distribution Taxable Retail Sales Percent Share Jurisdiction Residents Visitors Residents Visitors Total Santa Cruz City 35% 40% $288,870 $769,110 $1,057, % Santa Cruz County 10% 20% $82,534 $384,555 $467, % Watsonville 40% 20% $330,137 $384,555 $714, % Capitola 15% 20% $123,801 $384,555 $508, % Scotts Valley 0% 0% $0 $0 $0 0.0% Santa Cruz County Total 100% 100% $825,341 $1,922,775 $2,748, % Santa Cruz County 80% 65% $825,341 $1,922,775 $2,748, % Monterey County 20% 35% $206,335 $1,035,340 $1,241, % Total $1,031,677 $2,958,115 $3,989, % Source: ADE, Inc. The corresponding dollar figures in Table 13 represent 70 percent of total spending, which is approximately the taxable portion of retail and services expenditures. Applied Development Economics, Inc. 19

24 Groceries, pharmaceuticals, and labor for services, among other items, are not taxable. Total taxable spending from the Pajaro Dunes South development, both from residents and from visitors, is estimated to total $4.0 million per year, with $1 million going to the City of Santa Cruz and $714,700 to the City of Watsonville. Capitola and unincorporated Santa Cruz County would receive lesser amounts at $508,400 and $467,100, respectively. Local jurisdictions receive a portion of the total sales tax, equivalent to about 0.75 percent of taxable sales. This amount is allocated to local jurisdictions by the State of California. In addition, voters in each jurisdiction, as well as the County as a whole, have approved additional sales tax levies. Countywide, there is a 0.25 percent levy for the library system and a 0.50 percent levy for public transit. The cities of Santa Cruz and Scotts Valley have local 0.50 percent levies to help fund City services, while in Capitola and Watsonville these local rates are 0.25 percent. In addition, all local jurisdictions receive a portion of the statewide Public Safety sales tax levy, which is approximately 0.50 percent. As shown in Table 14 below, Pajaro Dunes South generates about $78,800 per year in local sales tax to support a wide range of government services. TABLE 14 SALES TAX TO LOCAL JURISDICTIONS FROM PAJARO DUNES Jurisdiction Local Jurisdiction Rate Annual Sales Tax Santa Cruz City 1.75% $18,515 Santa Cruz Co. Unincorporated 1.25% $5,839 Watsonville 1.50% $10,720 Capitola 1.50% $7,625 Scotts Valley 1.75% $0 Santa Cruz Countywide 0.75% $20,611 Total Santa Cruz Jurisdictions 1.42% $63,310 Monterey County 1.25% $15,521 Total $78,831 Source: ADE, Inc. SUMMARY OF FISCAL BENEFITS The three major tax revenues generated by Pajaro Dunes South amount to about $2.56 million in annual revenue for local public agencies. The school district receives the largest share of this with base property taxes of more than $754,000 annually and additional bond debt service payments of $49,000 per year. The County General Fund receives about $743,000 per year, including $428,000 in property taxes, $308,000 in TOT taxes and about $5,800 in sales taxes. Among other County services and local government agencies, the support from Pajaro Dunes of the Fire Station is significant, at $535,000 per year. This fire station is regularly involved with mutual aid support to other fire agencies throughout the County and responds to as many calls outside the Pajaro Dunes development as it does inside. 20 Applied Development Economics, Inc.

25 CONCLUSION: COMMUNITY BENEFITS FROM PAJARO DUNES ARE WIDESPREAD This report has documented the economic benefits of the development at Pajaro Dunes South for businesses, households, and local governments in Santa Cruz County. On an annual basis, the development creates about $10.8 million per year in economic activity in Santa Cruz and Monterey Counties, supporting 132 full time jobs with payrolls of $4.3 million annually. The proposed seawall re-construction, in addition to protecting this economic engine for the County, will infuse nearly $30 million into the two-county economy during the year it is constructed. In addition, the development provides exceptional recreation opportunities to Santa Cruz County residents and visitors alike. The tourism industry is estimated to generate $640 million in direct spending from visitors throughout Santa Cruz County (2007 figure from Dean Runyan Assc.). Pajaro Dunes South is a major attraction helping to support Santa Cruz County s position as a premier tourist destination on the west coast. Based on the annual vacation rental occupancy for Pajaro Dunes South, it draws more than 35,000 people per year to Santa Cruz County beaches, at lower cost generally than many other resorts along Monterey Bay. The development offers a number of recreational amenities for visitors and local residents including tennis and basketball courts, a Nature Gallery, interpretive signs around Watsonville Slough, a spa and meeting and event facilities that are used by the community in addition to residents. Pajaro Dunes South is a good community partner, making its facilities available to local school groups and other community organizations at no cost. So far this year, the facility has hosted 22 events at no charge to community groups, including Loaves and Fishes, the Watsonville Rotary Club and Cal Fire, as well as student groups. The seawall protecting Pajaro Dunes South is a critical project for the regional economy, not just the homeowners in the development. In these difficult economic times, the economic opportunity and local government revenues it provides would be sorely missed if the development cannot be protected from storms and tides as it has been for the past thirty years. In addition, significant public safety issues, and resulting public expenditures, could arise if the development is not protected. These costs can be avoided by a sound public policy that is preventative rather than reactive. Applied Development Economics, Inc. 21

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27 APPENDIX A: ABOUT APPLIED DEVELOPMENT ECONOMICS Applied Development Economics, Inc. (ADE) is a consulting firm specializing in economic planning and development services. Since its founding in 1985, the firm has established a distinguished body of work resulting in tangible benefits for our clients. Our base of private- and public-sector clients includes government agencies, economic development organizations, foundations, businesses, and private investors. ADE s services include: Economic Development Services Economic and Market Research Industry Cluster-based Economic Development Business Attraction and Retention Strategies Marketing Plans and Implementation Real Estate Feasibility Analysis Tourism Analysis Analysis and Forecasting Economic Forecasting and Analysis Environmental Economics Labor Market Analysis Fiscal and Economic Impact Analysis Survey Research Planning Services General and Specific Plan Preparation Strategic Planning Downtown Revitalization Funding Services and Financial Analysis Funding Services Infrastructure Financing Plans ADE has worked on local and regional projects throughout the western United States. The firm also has experience on national projects and in the Midwest. Over the years, the firm has received numerous critical accolades, including 15 state and national awards since ADE has substantial experience with economic development projects in Santa Cruz and Monterey Counties. The firm prepared the 2007 Comprehensive Economic Development Strategy (CEDS) for Santa Cruz County and continues to serve as the economic consultant to the CEDS Committee, completing annual CEDS updates and other economic studies as directed. In addition, the firm has completed market and fiscal studies for Watsonville, Capitola and Scotts Valley in recent years. The firm s President, Doug Svensson, was the lead author on this study. His resume may be found on the following page. Applied Development Economics, Inc. 23

28 DOUGLAS SVENSSON, AICP President Doug Svensson is a planner and economist with thirty years experience in economic development, community redevelopment, fiscal impact and financial feasibility analysis, socioeconomic analysis, and growth management planning. Mr. Svensson has worked with a variety of public and private clients including the State of California, regional air quality districts, city and county governments, and nonprofit community development corporations. He has also prepared plans for development projects proposed by several major universities. Mr. Svensson has prepared market research and financial feasibility studies and fiscal impact analyses for large-scale, mixed-use private sector projects including residential, marine, commercial, and industrial uses. He has managed regional industry cluster studies for use in both economic development strategies and workforce development programs. He has also conducted numerous downtown revitalization plans, coordinating market research with physical design and financing elements. Mr. Svensson has participated in a wide range of general plan updates for both cities and counties, including employment and population projections, fiscal impact analyses, and infrastructure financing. He developed ADE s fiscal impact model and has prepared a number of fiscal and economic impact studies. He has also prepared financing strategies for a variety of projects including downtown improvements, parks facilities, transportation improvements, and residential and commercial development. Mr. Svensson holds Bachelor s degrees in Environmental Studies and Political Science from the University of California, Santa Barbara, where he was a Regent Scholar. He also holds a Master s degree in City and Regional Planning from the University of California, Berkeley with an emphasis in Housing and Economic Development. He is a member of the American Planning Association and the American Institute of Certified Planners. 24 Applied Development Economics, Inc.

29 APPENDIX B: INPLAN INPUT-OUTPUT MODEL The application used to interpret the data and generate the impact calculations is IMPLAN Impro Professional 2.0. This application was developed by the Minnesota IMPLAN Group (MIG) and calculates impacts and buyer-supplier relationships for 440 individual industry and commodity categories. This is a widely used and reliable application that has been used in a large range of contexts, including private sector organizations, universities, research organizations, and government agencies. For example, the U.S. Department of Agriculture in 2009 selected the IMPLAN application to track the job creation effects of the federal economic stimulus American Recovery and Reinvestment Act (ARRA). The industry classification system used in the IMPLAN model is also used by the Bureau of Economic Analysis (BEA) to create the BEA Benchmark IO Study. This sectoring system roughly approximates, but still differs significantly from the commonly used Standard Industry Classification (SIC) and North American Industry Classification System (NAICS). The input-output matrices that form the main IMPLAN database come from the same BEA and Bureau of Labor Statistics (BLS) data sources used to create the BEA Benchmark IO Study. The analysis used an aggregated dataset that included Santa Cruz and Monterey counties. The matrices in this dataset contain the assumptions regarding economic output per primary employee, the amount of commodity input that is purchased locally, and the production functions, which define the inputs and supplier services for each industry category. The economic impacts estimated by the model fall into one of two categories -- primary (direct) and secondary (indirect and induced). These impacts are calculated on the basis of annual impacts. In this analysis, primary impacts represent the estimated jobs, labor income, and industry output that result directly from spending by Pajaro South residents, visitors and operations. The secondary impacts include a combination of the indirect and induced impacts. Indirect impacts represent the estimated effects that result from demand for commodities and services provided by suppliers (that is, business to business transactions). Examples of supplier industries include business services, machinery, and other equipment. Induced impacts represent the potential effects resulting from household spending at local businesses by the workers. These impacts generally affect retail businesses, health services, public services, and personal services providers. The input-output model data files for the region contains default assumptions regarding the economic relationships between different industries. In particular, the default data contains an estimate for the average industry output and labor income per Applied Development Economics, Inc. 25