NORTH CAROLINA BEACH AND INLET UPDATE MANAGEMENT PLAN FINAL REPORT DECEMBER 2016

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1 NORTH CAROLINA BEACH AND INLET MANAGEMENT PLAN UPDATE FINAL REPORT DECEMBER 2016

2 EXECUTIVE SUMMARY North Carolina s oceanfront beaches and active tidal inlets play a dominant role in promulgating the state cultural heritage and providing significant economic impact to the state. The state recognized that to maintain and enhance these valuable resources necessitated the development of a management strategy that would evolve with changes to the State oceanfront beaches and tidal inlets. Through legislation passed by the General Assembly in 2000 (Section 13.9c of HB 1840) and recommendations presented in the Coastal Habitat Projection Plan of 2005), the North Carolina Department of Environmental Quality commissioned the development of a comprehensive Beach and Inlet Management Plan (BIMP) that was completed in An update to the BIMP was authorized in 2015 (HB 97) to incorporate new coastal and socio-economic data and reflect policy changes that had been implemented since the original report. The updated BIMP would also include supplemental studies conducted by the Departments of Commerce, Environmental Quality, and Revenue on the benefits of state s beaches and beach nourishment projects. The primary focus of the update to the BIMP was to incorporate beach nourishment and dredging activities completed over the past seven years as well as refine the historical data evaluated in the initial report in order to develop an updated accurate estimate of the funding needed to maintain the State s beaches and inlets. The more comprehensive data set served as the basis for refining the volume and cost projections of dredging and beach nourishment for current and future managed shorelines. Potential funding sources to establish a statewide beach preservation fund were identified and evaluated. Similarly, the funding for appropriations to the state s deep draft navigation fund were also identified. Revisions to the socio-economic impact study of the state s beaches and inlets were conducted to highlight the importance of these vital resources and the need for the state to increase their participation in preserving them. Socio-Economic Value of State Beaches and Inlets Citizens of the State and visitors derive considerable benefits from the coastal region. Beaches and inlets support millions of beach recreationists every year, provide billions in economic value through business and tourism as well as residential and commercial property value. They also provide a direct source of employment and generate associated jobs in the coastal communities. The direct expenditures generated by the beaches and inlets amounts to $2.5 billion. When multiplier effects are added, these numbers rise to $6.1 billion supporting almost 65,000 jobs. The total State tax revenue from all these sectors is $188.4 million/yr. The recreational consumer surplus resulting from beaches and inlets is over $214 million. ES-1

3 The value of coastal property at risk in the eight oceanfront counties as defined by the Ocean Erodible Area was $11.73 billion using the 1998 setback factors and $11.12 billion using the 2012 setback factors, indicating that beach and inlet management strategies have been effective in reducing risk ($600.8 million reduction). If only the five counties that actively complete nourishment are considered the reduction in risk is even greater at an approximate $818.8 million. Non-NC residents own less than half of the parcels at risk in the eight coastal counties but own more than half of the parcel value at risk. Data Collection and Refinement Dredging Projects or parts of projects where material was not used for beneficial reuse (each nourishment specifically) but placed on disposal islands or at offshore disposal sites were categorized as dredging projects. This database was updated for the 2008 to 2015 timespan and included additional historical data. Statewide dredging volume has decreased from 6 million cy/yr historically to under 4.5 million cy/yr in the past 5 years. Separating shallow and deep projects in the statewide trends; deep draft volumes have remained constant around 3 million cy/yr while shallow draft volumes have reduced from 3 million cy/yr historically to around 1.5 million cy/yr in the past five years. The reduction in dredged volumes is to a corresponding reduction in federal funds for shallow draft projects in NC. The total cost of dredging in 2015 dollars is $25 to $30 million, with federal deep draft spending averaging $21 million annually over the last five years and statewide shallow draft inlet spending averaging $7 million over the same time period. Historically, shallow draft spending averaged $17.5 million when the AIWW and other shallow draft inlet channels were routinely dredged to their authorized depth. Beach Nourishment The beach nourishment database was updated to include new data from 2008 to 2015 as well as complete data gaps prior to Total volumes, distances, and costs (total and average cost/yr) for beach nourishment events that occurred between 1955 and 2015 were summarized statewide and by region. Historically, the beach nourishment volume placed statewide has been between 1 and 2 million cubic yards (cy) but has increased to 4 to 5 million cubic yards over the last five years. The total statewide cost have reached approximately $50M; with Federal and State/Local share split evenly at approximately $25M each. ES-2

4 Projection of Funding Needs Dredging The state used to receive substantial federal funding to maintain shallow and deep draft inlets, however federal funding has declined in recent years, especially for shallow draft projects. In 2013, the state established a Shallow Draft Navigation Channel and Lake Dredging (SDI) Fund to compensate for the loss of federal funding. Current funding levels for the SDI are low ($6.6 million/yr) but funding level may rise to $20 to $25 million/yr if historical maintenance levels were achieved. Some increases have already been seen in the present year (e.g. Oregon Inlet). The Shallow Draft Navigation Channel and Lake Dredging Fund has a total appropriation (with the local cost share included) of $28.5 million/yr. All shallow draft projects including those associated with the AIWW can be maintained at present levels with present funds. Federal funding of the state s deep draft channels has been problematic as of late and has resulted in increased draft restrictions as dredging volumes have not kept pace with the increase in authorized dredge depths. The most challenging sections to maintain authorized depths are the ocean bars of the Wilmington Harbor and Morehead City Harbor projects where shoaling is a constant issue. Dredging of inland sections of deep draft navigation projects appear to receive adequate fund to maintain these portions. The General Assembly has recognized the need to maintain the two deep draft navigation projects in the state by establishing a deep draft fund but monies for this fund were not appropriated. These studies suggest that a conservative funding estimate of $17.5 million/yr may be needed to maintain the ocean bars of these deep draft harbor channels. The proposed split in the fund would be $10 million/yr for Wilmington Harbor and $7.5 million/yr for Morehead City Harbor. Beach Nourishment The total shoreline in North Carolina is 326 miles long and the total historically managed shoreline is approximately 74.8 miles. Currently there is a near 50% split in Federal managed and State/Local managed shoreline, each contributing approximately $25 million annually. The current total managed shoreline may increase from 74.8 miles to 85.3 miles with State/Local managed shoreline increasing from 38 to 57.1 miles after projects that are planned but not permitted are implemented. This would increase the state/ local s cost share to approximately $40 million annually. Assuming a gradual reduction in federal funding of Coastal Storm Damage Reduction Projects and taking into consideration storm impacts that occur on average every 4 years and other upfront engineering/environmental costs, the preliminary recommendation for a State/Local beach nourishment fund is $40 million to $60 million annually. Cost share scenarios between the state and local sponsors were identified for the recommended funding ES-3

5 levels. A minimum target of $25M annually is recommended for the state beach nourishment fund which would allow for some buffer and a minimum 50/50 cost share between State/Local interests. The ultimate need for beach nourishment and associated funding was projected based the management of all developed shoreline, a shoreline distance of miles. The ultimate State/Local funding need may increase to $92 million /yr for a projected total of $95 to $115 million, allowing for a buffer for some CSDR and storm funding or upfront engineering/environmental studies. Potential Funding Sources Dedicated Shallow Draft Dredging Fund As has been shown previously, the current shallow draft fund ($19 million/yr) is adequate to meet both current and future projected needs and should be kept as is. This fund is more than justified given the amount of economic impact provided by the inlets to our State. Based on results from Section II, the inlets in NC provide $651.8 million in direct impact, $908.8 million in indirect impact, and 13,220 jobs. This approximates a ROI of $34.3/$1 to $47.8/$1 depending on whether economic multiplier effects are considered or not. Dedicated Deep Draft Dredging Fund The Deep Draft Port fund should be a recurring appropriation of $17.5 million/yr by the legislature as part of its investment in our ports. As a condition of fund use, all beach compatible material must be placed directly on adjacent beaches. As discussed previously, the ports bring an estimated economic impact of $ million (direct) and $ million (indirect) with 2,973 jobs. This approximates a ROI of $12.7/$1 to $23.8/$1 depending on whether economic multiplier effects are considered or not. Dedicated Beach Nourishment Fund The documented benefits of beach preservation projects as identified the socio-economic analysis supports the creation of dedicated State funding sources to supplement local investment. Since the private sector and consumers in North Carolina s eight coastal counties already generate between $1 to $26 billion in taxable sales, meals, short-term lodging, real estate transfer, and non-resident property taxes, an increase to taxes on each of these revenues sources in the eight coastal counties may generate additional tax revenue as high as: ES-4

6 $25 million from seasonal 0.5% State sales tax $15.1 million from a new 1% State meals tax $10 million from an additional land transfer fee of $1/$500 $21.2 million from a new 2% State OT $26.4 million from a new $0.10 ad-valorem tax per $100 of valuation non-resident properties. To fund a Statewide beach preservation fund of $20M to $30M ($25M minimum target) annually based on a minimum 50% state cost share of the non-federal share of all beach preservation project, three preferred revenue options were further refined. 1) A single source: a. A new 0.5% seasonal State sales tax, which will generate $25 million. b. A new state ad-valorem property tax on property owned by non-nc residents ($0.10/$100), which will generate $26.4M 2) A combined source: a. A new 1% State meals tax, which will generate $15.1 million, and b. An additional land transfer fee of $1/$500, which will generate $10 million. 3) Reallocation of 50% of existing State sales tax collections revenues from shortterm lodging sales, which will generate $25.2 million. Each recommended funding source will keep pace with the State s beach preservation needs for the foreseeable future. The revenues generated by each funding source are ONLY the revenues generated in the eight coastal counties. If a new State tax were to be implemented statewide, ONLY that portion generated in the coastal counties would be deposited into the beach preservation fund. These funding strategies could be applied statewide if desire to also fund other regional needs. In any case, the development of a state dedicated beach nourishment fund is justified. Even if one were to just consider the economic impact to the counties outside of the eight coastal counties, the investment of $25 million provides $1.406 billion in indirect economic impact (ROI = $56/$1) and just over 10,000 jobs. If the eight coastal counties are included, the economic effect goes to $1.66 billion direct impact (ROI = $66.5/$1) and $4.74 billion indirect (ROI = $189.9/$1) with 48,718 jobs. Recommendations The current trend indicates that the scope and costs associated with beach nourishment and dredging projects in the state will continue to increase in the foreseeable future. Federal participation in beach nourishment and dredging projects has waned over the past decade as the federal government transfers the burden to the state and local ES-5

7 sponsors. The State of North Carolina has been actively supporting its shallow draft inlet dredging projects with the development of a dedicated Shallow Draft Navigation and Lake Dredging Fund which is projected to cover both current and future needs. Companion dedicated deep draft dredging and beach nourishment funds are needed. A recurring appropriation from general funds of $17.5 million/yr is recommended for the deep draft dredging fund with the condition that all beach compatible material must be placed directly on adjacent beaches. To support beach nourishment projects a State fund of a minimum of $25 million annually is recommended. There are three preferred options to generate revenue for the beach preservation fund including single and combined source new taxes or the reallocation of existing state sales tax within the eight coastal counties. The selection of the appropriate revenue source shall be made by the General Assembly with input from stakeholders in the eight coastal counties. These discussions should also include how the potential funding will be distributed amongst the regions and whether a simple (direct allocation to regions (counties) based on managed beach mileage) or complex (funding allocated to projects based on various criteria) decision tree should be followed. ES-6