Assessing the Economic Impact of the Fayetteville, Arkansas Smoking Ban. Produced for the Northwest Arkansas Tobacco-Free Coalition

Transcription

1 Assessing he Economic Impac of he Fayeeville, Smoking Ban Produced for he Norhwes Tobacco-Free Coaliion Cener for Business and Economic Research Reynolds Cener Building 217 Sam M. Walon College of Business 1 Universiy of Fayeeville, (479) Conac: Dr. Jeffery T. Collins, Direcor May 2006

2 Execuive Summary This repor is he hird in a series of sudies examining he impac of he implemenaion of he smoke-free ordinance in Fayeeville, in March of The ban on smoking in public places in Fayeeville provides an opporuniy o scienifically invesigae he economic impac of his change in public policy. By comparing pre-ban hisorical economic growh raes o pos-ban growh raes boh wihin he ciy of Fayeeville and in comparable communiies, some measure of he impac can be developed. Variables of ineres include hoel, moel, and resauran (HMR) axes, employmen, and sales axes. The changes in hese variables need o be conrolled for changes in oher variables ha affec economic aciviy like populaion growh and changes in gross domesic produc. The firs ediion of his repor deailed he relevan se of hisorical economic daa o he Fayeeville siuaion. In he second version of he projec, he daa have been updaed o reflec economic aciviy in This repor includes daa on he economic aciviy of year 2005 as well as revised daa for he previous years. Two years of informaion has become available since he implemenaion of he smoking ban, so some picure of he immediae effecs on he local economy can begin o be seen. The Norhwes region, including Fayeeville, coninued o experience significan economic growh during Employmen increased a healhy raes, along wih sales and HMR axes in all Washingon and Benon Couny communiies. Alhough only wo years worh of daa is available, hus far here is no discernable difference beween Fayeeville s economic growh pah prior o and since he insiuion of he smoke free ordinance. In fac, for he year 2005, same-sore sales a Fayeeville resaurans open a leas a year increased almos 15 percen. This growh rae was almos double compared wih he growh in 2004 (8.4 percen). Three regression models were esimaed o show he effec of he Fayeeville smoking ordinance on HMR and Supplemenal Beverage ax collecions. In none of he models did he imposiion of he ordinance have any saisically significan effec. However, he resuls of he esimaion sill should be viewed wih cauion as hey are based on relaively few daa poins. As more daa become available in he coming years, more definiive answers abou he naure of he economic impac of Fayeeville s smoke free ordinance can be made. ii

3 Table of Conens Execuive Summary... ii Table of Conens...iii Lis of Figures...iii Lis of Tables...iii Inroducion... 1 Daa Review... 1 HMR Tax Collecions... 1 Fayeeville Economic Indicaors... 5 Regional, Sae, and Naional Economic Indicaors... 5 Benonville, Rogers, Springdale, For Smih, and Lile Rock Economic Indicaors... 6 Mehodology Conclusions Lis of Figures Figure 1: Monhly Fayeeville HMR Tax Collecions... 2 Figure 2: Annual s in HMR or A&P Receips... 3 Figure 3: Same-Sore Resauran HMR Tax Collecions in Fayeeville and Benonville... 4 Figure 4: Non-farm Employmen by MSA... 8 Figure 5: Employmen s by MSA... 8 Figure 6: Unemploymen s by MSA... 9 Lis of Tables Table 1: HMR or A&P Tax Collecions Correlaion Marix ( )... 3 Table 2: Fayeeville Same-Sore Resauran Saisics... 4 Table 3: Fayeeville Economic Indicaors... 5 Table 4: Sae and Naional Economic Indicaors... 5 Table 5: Fayeeville-Springdale-Rogers Economic Indicaors... 6 Table 6: Per Capia Personal by MSA... 7 Table 7: Non-farm Employmen and s by MSA... 7 Table 8: Unemploymen s by MSA... 9 Table 9: Ciy A&P Collecions Table 10: Baseline Regression Resuls iii

4 Inroducion The ciy of Fayeeville, holds a unique saus in he sae. As he home of premier research universiy, he ciy is full of groundbreaking ideas. On March 11, 2004, he ciy became he firs municipaliy in he sae of o insiue a ban on smoking in public places. The decision was made by Fayeeville voers in a referendum afer an ofen conenious public debae. Broadly, here were wo schools of hough abou wheher Fayeeville should ban smoking in public places. On one side was a coaliion of organizaions and individuals who argued ha he known healh risks associaed wih smoking and second-hand smoke made he ban on smoking imperaive for he sake of public healh. On he oher side of he issue were a group of resauran owners and individuals who mainained ha because obacco use is a legal aciviy, each privae business should reain he righ o decide wheher an esablishmen would permi obacco consumpion. Ulimaely, he voers in Fayeeville decided o make heir public places smoke-free. This decision mean ha resauran and oher business owners were no free o se smoking policies wihin heir places of business, bu raher had o abide by he limiaions se forh in he saue. Whenever business decision makers are faced wih a new consrain on heir business pracices, here will be some consequences as consumers change heir buying habis o comply wih he new public policy. The purpose of his sudy is o compare pos-ordinance economic aciviy wih a pre-smoking ban baseline daa se. Daa Review HMR Tax Collecions Economiss use a wide variey of variables o measure economic aciviy. In he case of he Fayeeville smoking ban, emphasis has o be placed on he sales of food and beverages in resaurans. The bes indicaor ha is available of hose sales is he ciy s Hoel/Moel/Resauran (HMR) ax collecions. Researchers a he Cener for Business and Economic Research (CBER) obained a daa se from ciy of Fayeeville saff deailing monhly HMR collecions from January 1994 hrough February 2006, revising he daa from he previous repors. From 1994 o 2005, Fayeeville HMR monhly collecions more han doubled. Toal annual collecions for 1994 were $925,907. A decade laer, in 2003, oal annual collecions were $1,538,023. This implies an annual average growh rae of 6.5 percen, alhough acual annual growh raes had more variabiliy. Figure 1 deails he rend of Fayeeville HMR collecions over he period of No seasonal adjusmens were made o he daa and a rend line was added. In 2004, wih he implemenaion of he resricions on smoking in public places in March, oal annual collecions were $1,734,301, which implies an annual growh rae of 7.9 percen for he period of In 2005, Fayeeville HMR annual collecions were $1,918,371, growing by 10.6 percen from

5 Figure 1: Monhly Fayeeville HMR Tax Collecions (January 1999 February 2006, rendline added) $190,000 $180,000 $170,000 $160,000 $150,000 $140,000 $130,000 $120,000 $110,000 $100,000 $90,000 $80,000 Jan-99 May-99 Sep-99 Jan-00 May-00 Sep-00 Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 CBER researchers also colleced HMR daa or adverising and promoion (A&P) receips from oher communiies in for he sake of comparison. Daa were colleced from boh Benonville and Rogers in Benon Couny, from Springdale in Washingon Couny, from For Smih in Sebasian Couny, and from Lile Rock in Pulaski Couny. Figure 2 deails he annual growh raes in HMR or A&P collecions for hese communiies for he period of In Fayeeville, from 1999 o 2000, even as HMR receips grew, he rae a which hey increased declined. Lile Rock followed he same rend in For Smih experienced a grea deal of volailiy in he growh raes of is A&P collecions. In 2001 and 2002, Fayeeville, Springdale, Lile Rock, and For Smih all experienced increases in he growh rae of collecions. Among he comparison ciies, Benonville alone failed o realize he emporary bump in From 2003 o 2004, all of he ciies examined showed posiive growh raes. Excep for Rogers (which is no shown on he graph due o exceedingly high growh raes in A&P collecions ha mask he changes in he oher ciies), Fayeeville had he highes growh rae in HMR receips from 2003 o Year 2005 showed anoher cyclical decline in growh of ax collecions in Fayeeville and Springdale. However, Fayeeville sill had he growh rae higher han he growh rae in all oher ciies excep Rogers and Benonville. 2

6 Figure 2: Annual s in HMR or A&P Receips 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% % Fayeeville Benonville For Smih Lile Rock Springdale Fayeeville collecions generally follow similar pahs as he oher ciies in he sae, alhough he correlaions are no perfec beween or among any of he municipaliies. Table 1 deails he correlaion coefficiens among seleced ciy HMR or A&P ax receips from Of he seleced ciies, Fayeeville correlaes wih For Smih leas closely. For Smih does no have a hamburger ax, so he A&P collecions are made from overnigh says only. Addiionally, Rogers and Springdale do no collec special axes on resauran food purchases, bu heir A&P commissions collec revenues from hoel and moel says only. Table 1: HMR or A&P Tax Collecions Correlaion Marix ( ) Fayeeville Benonville For Smih Lile Rock Rogers Springdale Fayeeville 1.00 Benonville For Smih Lile Rock Rogers Springdale I can be argued ha he remendous growh rae in new resauran esablishmens masks some of he effecs of he curren economic climae (including he smoking ban) on exising resaurans. Therefore, CBER researchers examined same-sore HMR ax collecions on resaurans. Year afer year, resauran collecions were mached up and growh raes were calculaed only for hose ha were open a leas a year. If a resauran wen ou of business during a year, he year-o-dae revenues were included. This has he 3

7 effec of producing a very conservaive lower bound for he growh rae in same-sore HMR ax collecions. The only wo ciies in Norhwes ha collec resauran axes are Fayeeville and Benonville. Figure 3 compares he performance of same-sore resauran ax collecions in he wo ciies for he period of based on revised daa. I demonsraes ha he growh rae of HMR ax collecions a resaurans in Fayeeville open a leas a year declined in 2003 and However, in 2005, same-sore sales growh saged a clear recovery in Fayeeville. Benonville resauran axes, on he oher hand, experienced he highes growh rae in 2004, reurning o is usual level of growh in Figure 3: Same-Sore Resauran HMR Tax Collecions in Fayeeville and Benonville 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Fayeeville Benonville The aggregae effecs of same-sore resauran ax collecions in Fayeeville are presened in Table 2. In 2004, here were 259 resaurans ha had been open since A oal of 66.4 percen of hese resaurans had higher sales han in In 2005, here were 261 resaurans in Fayeeville ha were also open in Of hese, 67.4 percen had higher HMR ax receips in 2005 han in This is he highes proporion among he same-sore resaurans during he period of The number of resaurans open a leas a year was also he highes in 2005, increasing from 181 in 2001 o 261. Table 2: Fayeeville Same-Sore Resauran Saisics Resaurans Open a Leas a Year Resaurans wih Posiive in HMR Receips Percenage 57.5% 60.6% 53.9% 66.4% 67.4% 4

8 Fayeeville Economic Indicaors Flucuaions in HMR collecions are dependen on a wide variey of economic variables. Table 3 presens he values for some Fayeeville variables ha have poenial o affec HMR collecions. I is reasonable o believe ha sales ax collecions migh move similarly o HMR ax collecions, bu a single glance a Table 3 indicaes ha Fayeeville sales axes and HMR axes are no correlaed in he same way ha HMR axes are correlaed across communiies. The large jump in sales ax collecions in 2001 was due o an increase in he ax rae, raher han any change in underlying axable sales. Similarly, as he populaion of Fayeeville increases more quickly or less quickly, i is reasonable o believe ha HMR collecions migh follow sui. However, he magniude of he change in populaion does no appear o have any correlaion wih he HMR axes colleced in he same year. Table 3: Fayeeville Economic Indicaors HMR Tax HMR Tax Collecions Collecions Sales Tax Collecions Sales Tax Collecions Fayeeville Populaion Fayeeville Populaion 2000 $1,220, % $14,935, % 58, % 2001 $1,312, % $24,929, % 59, % 2002 $1,444, % $23,278, % 60, % 2003 $1,538, % $23,495, % 62, % 2004 $1,734, % $25,895, % 64, % 2005 $1,918, % $27,833, % NA NA Regional, Sae, and Naional Economic Indicaors The economy of Fayeeville does no exis in a bubble, bu raher, is affeced enormously by wha happens in he wider economy. Therefore, when examining changes in Fayeeville s economic indicaors, i is imporan o consider he saus of he wider economy. Table 4 presens available daa for some imporan sae and naional economic indicaors. Gross domesic produc (GDP) is he sandard measure of he naional economy s oupu and is growh rae is probably he single bes indicaor of he healh of he macro economy. Likewise gross sae produc (GSP) measure he oupu of he sae. Per capia personal income demonsraes he consumpion power of he average ciizen of he sae of and is growh rae is an indicaor of changes in overall sandard of living. Table 4: Sae and Naional Economic Indicaors U.S. Per Real U.S. Per Capia GDP Capia Personal Real GDP (in billions) Real GSP (in millions) Real GSP Per Capia Personal Per Capia 1994 $7, % $22, % $53, % $17, % 1995 $8, % $23, % $56, % $18, % 1996 $8, % $24, % $58, % $18, % 1997 $8, % $25, % $62, % $19, % 5

9 Real GDP (in billions) Real GDP U.S. Per Capia Personal U.S. Per Capia Real GSP (in millions) Real GSP Per Capia Personal Per Capia 1998 $9, % $26, % $63, % $20, % 1999 $9, % $27, % $66, % $21, % 2000 $9, % $29, % $66, % $21, % 2001 $9, % $30, % $66, % $23, % 2002 $10, % $30, % $68, % $23, % 2003 $10, % $31, % $69, % $24, % 2004 $10, % $33, % $73, % $25, % 2005 $11, % $34, % NA NA $26, % Addiionally, Fayeeville is grealy influenced by he healh of he enire Norhwes region. As he area has experienced above average growh raes in per capia income and employmen and below average unemploymen raes for he pas decade, Fayeeville has shared in he prosperiy. Table 5 deails how he Fayeeville- Springdale-Rogers MSA has fared since Employmen and personal income growh have been brisk. The annual unemploymen raes have no risen above 3.7 percen, while he naional unemploymen raes have reached 6 percen and higher during he same period. The region has been relaively shelered from he swings of he naional business cycle due o is unique mix of reail, rucking, and manufacuring employmen. Table 5: Fayeeville-Springdale-Rogers Economic Indicaors Per Capia Per Capia Employmen Personal Employmen Unemploymen Unemploymen Change 1994 $18, % 131, % 2.6% $18, % 138, % 2.5% $19, % 142, % 3.0% $20, % 146, % 3.1% $21, % 150, % 3.1% $21, % 155, % 2.5% $22, % 162, % 2.9% $24, % 170, % 3.0% $24, % 176, % 3.3% $25, % 181, % 3.7% $27, % 188, % 3.6% NA NA 198, % 3.0% -0.6 Benonville, Rogers, Springdale, For Smih, and Lile Rock Economic Indicaors For comparison purposes, i is useful o see how he economic indicaors of he ciies and regions wihin differed during he pas decade. Tables 6-9 demonsrae he differences among he regions. Table 6 presens he levels and changes in per capia personal income in Norhwes, For Smih, and Lile Rock since Table 7 presens he levels and changes in non-farm employmen during he same ime period. Ineresingly, Norhwes has experienced smaller per capia personal income 6

10 compared o Lile Rock-Norh Lile Rock MSA since 1994, while is employmen growh far oupaced oher areas of. This suggess ha Norhwes is creaing a wide variey of jobs, bu ha he average wage rae for hese new jobs is no necessarily as high as he average wage rae elsewhere in he sae. Boh Figures 4 and 5 deail employmen comparisons by MSA. Table 6: Per Capia Personal by MSA Fayeeville- Springdale-Rogers MSA Per Capia Personal For Smih MSA Per Capia Personal Lile Rock-Norh Lile Rock MSA Per Capia Personal 1994 $18, % $16, % $20, % 1995 $18, % $17, % $21, % 1996 $19, % $17, % $22, % 1997 $20, % $18, % $23, % 1998 $21, % $19, % $24, % 1999 $21, % $20, % $25, % 2000 $22, % $21, % $26, % 2001 $24, % $22, % $28, % 2002 $24, % $22, % $29, % 2003 $25, % $23, % $29, % 2004 $27, % $24, % $31, % 2005 NA NA NA NA NA NA Table 7: Non-farm Employmen and s by MSA Fayeeville- For Smih Springdale-Rogers MSA MSA Lile Rock-Norh Lile Rock MSA , % 103, % 286, % , % 106, % 295, % , % 108, % 302, % , % 109, % 308, % , % 111, % 314, % , % 114, % 319, % , % 116, % 321, % , % 117, % 324, % , % 115, % 320, % , % 115, % 323, % , % 116, % 328, % , % 119, % 333, % 7

11 Figure 4: Non-farm Employmen by MSA 200, , , , , ,000 Fayeeville, For Smih 170, , , , , , , , , ,000 Lile Rock 120, , , , , Fayeeville-Springdale-Rogers For Smih Lile Rock-Norh Lile Rock 250,000 Figure 5: Employmen s by MSA 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% % -2.0% Fayeeville-Springdale-Rogers For Smih Lile Rock-Norh Lile Rock 8

12 Undersanding unemploymen raes is also helpful when examining he economic saus of a communiy. Table 8 and Figure 6 presen he recen hisory of unemploymen raes in he regions of. The Norhwes MSA consisenly has had unemploymen raes beween 1.0 and 1.5 percenage poins lower han Lile Rock. The unemploymen rae in For Smih has someimes been double ha in Norhwes. These saisics poin o dramaically expanding employmen and a labor force base ha has no been able o keep up wih he demand for employees in he Norhwes region. Table 8: Unemploymen s by MSA Fayeeville- Lile Rock- For Smih Springdale-Rogers Change Change Norh Lile Change MSA MSA Rock MSA % % % % % % % % % % % % % 0 5.3% % % % % % % % % % % % % % % % % % % % % % % -0.7 Figure 6: Unemploymen s by MSA 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% Fayeeville-Springdale-Rogers For Smih Lile Rock-Norh Lile Rock 9

13 Finally, Table 9 deails he collecions and growh raes in collecions in he HMR and A&P ax collecions wihin seleced ciies of. These daa were used o calculae he correlaion marix presened earlier and again demonsrae he differences in economic growh raes wihin he sae. Table 9: Seleced Ciy A&P Collecions Benonville For Smih Lile Rock Rogers Springdale 2000 $643, % $324, % $6,676, % $78,895 NA $206, % 2001 $707, % $379, % $6,776, % $93, % $210, % 2002 $753, % $511, % $7,028, % $153, % $232, % 2003 $813, % $522, % $7,263, % $261, % $234, % 2004 $893, % $541, % $7,934, % $357, % $252, % 2005 $1,006, % $596, % $8,701, % $398, % $267, % Mehodology Once baseline daa were colleced for he wide variey of variables ha influence he economic aciviy in he ciy of Fayeeville, several models were developed o help idenify he relaionships among hese variables and o provide a conex for deermining wheher he ban on smoking in public places in Fayeeville has an idenifiable impac. Iniial regressions were esimaed for hese models wih annual daa from he years While i would have been preferable o use monhly or quarerly daa, in many cases no all variables were available in hese forms. in populaion was found o co-vary so highly wih some of he oher economic daa series ha i is no included in he models because of mulicollineariy issues. Three alernaive specificaions of an economic model are provided. The firs model invesigaes he relaionship beween HMR ax collecions, per capia personal income levels, real GDP levels, employmen growh, and he exisence of a smoking ban wihin he communiy. Model 2 demonsraes he relaionship beween he growh in HMR collecions and he growh raes of per capia personal income, real GDP, and employmen, as well as he exisence of a smoking ban. Finally, Model 3 esimaes how changes in per capia personal income levels, GDP growh, employmen growh, and he imposiion of a smoking ban affec he level of HMR collecions. The models are deailed below. Model 1: HMR β + β PCPI + β RGDP + β Emp + β SmokingBan + ε = Model 2: HMR = 0 + β1pcpi + β 2 RGDP + β 3Emp + β 4 β SmokingBan + ε Model 3: HMR β + β PCPI + β RGDP + β Emp + β SmokingBan + ε =

14 Table 10 presens he resuls of he iniial esimaion of he hree regression models. The -saisics for each coefficien esimae are provided in parenheses below he esimae. Saisical significance a he 95 percen level is denoed wih an aserisk. The Model 1 and Model 3 specificaions do he bes job of explaining he variaion in HMR axes wih he variaion in he explanaory variables. Each of he variables has a significan impac, alhough he covariance among he explanaory variables makes he signs of he coefficiens differen han expeced. The resuls obained here are similar o he resuls of 2005 projec, while more observaions allowed explaining he economic impac beer in 2006 (R squares increased). Model 2 does no fi he daa nearly as well, which is consisen wih he las year resuls as well. Table 10: Baseline Regression Resuls Variable Model 1 Model 2 Model 3 Consan -8,068,530 (-0.41) 0.20 (2.08*) -2,018,338 (-0.33) Per Capia Personal -266 (-0.18) (0.94) Real GDP 1, (0.35) Employmen -75,113,143 (-3.41*) 0.53 (0.35) -74,872,039 (-3.40*) Smoking Ban 642,958 (0.35) (-0.04) 728,513 (0.40) Per Capia Personal (-1.04) Real GDP (0.08) -7,690,843 (-0.21) R Square In none of he models is he coefficien on he smoking ban dummy variable saisically significan. This indicaes ha for he limied amoun of daa available he effecs of he public policy change are dwarfed by oher economic facors. Since i can be argued ha alcohol sales are mos affeced by he smoke-free ordinance, CBER researches ran addiional regressions for his repor. In hese regressions Fayeeville Supplemenal Beverage axes were used insead of HMR axes (he Supplemenal Beverage ax of 5% is included in he percenage charged for mixed drinks and any mal liquor conaining over 5% alcohol). The resuls were very similar o hose repored in Table 10, indicaing no saisically significan effec of smoking ban variable on alcoholic beverage sales. Conclusions The resuls show ha in wo years afer is implemenaion, he smoke-free ordinance in Fayeeville has had no saisically significan effec on he amoun of HMR axes 11

15 colleced. The years 2004 and 2005 were ones of significan economic growh for all of Norhwes. The drivers of ha growh appear o ouweigh any effecs ha he smoke free ordinance migh have had on economic aciviy. Many oher variables, many ha are no readily available as daa, influence he level of collecions of HMR axes and he impac of he policy change may be dwarfed by he influence of hings like changes in per capia personal income, naional oupu, and regional employmen growh. Addiionally, he resauran business is inherenly risky and managemen decisions may affec he economic oucome of any paricular esablishmen. This sudy provides a firs look a he afer-effecs of he ordinance, bu he resuls should be viewed wih cauion as conclusions are drawn from a small number of daa poins. 12