WOODS COUNTY PROPOSED INDUSTRIAL PARK AVARD, OK REVISED. Dave Shideler - Extension Economist, OSU, Stillwater (405)

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1 AE WOODS COUNTY PROPOSED INDUSTRIAL PARK AVARD, OK REVISED Dave Shideler - Extension Economist, OSU, Stillwater (405) Stan Ralstin - Area Extension Community Development Specialist, OSU, Enid (580) Karen Armbruster Woods County Extension Director, OSU, Alva (580) Sonja Cook Woods County Economic Development, Alva (580) Neal Williams Oklahoma Department of Commerce, Alva (580) RURAL DEVELOPMENT OKLAHOMA COOPERATIVE EXTENSION SERVICE OKLAHOMA STATE UNIVERSITY January 2009

2 WOODS COUNTY PROPOSED INDUSTRIAL PARK AVARD, OK Dave Shideler, Extension Economist Oklahoma State University 323 Ag Hall Stillwater, OK Karen Armbruster, County Extension Director Woods County Extension Office 407 Government Street, Room 11 Alva, OK Stan Ralstin, Area Rural Dev. Specialist Oklahoma Cooperative Extension Service 316 E. Oxford Enid, OK Sonja Cook, Director Woods County Economic Development 1801 South 11 th Street Alva, OK Neal Williams, Rural Dev. Specialist Oklahoma Department of Commerce 1805 South 11 th Street, Box 2 Alva, OK Neal_williams@okcommerce.gov ABSTRACT This paper provides insights into the potential economic contributions of a proposed industrial park located in Avard, OK. With reference to the existing economy in Woods County, estimates of job and payroll creation are provided for each of several potential occupants of the proposed site. In addition, impacts derived from the construction of facilities at the park are also presented. The results contained in this report represent a reasonable approximation to how the local economy would change given the establishment of potential tenants, but it does not address feasibility issues of the potential tenants. "Oklahoma State University, in compliance with Title VI and VII of the Civil Rights Act of 1964, Executive Order as amended, Title IX of the Education Amendments of 1972, Americans with Disabilities Act of 1990, and other federal laws and regulations, does not discriminate on the basis of race, color, national origin, sex, age, religion, disability, or status as a veteran in any of its policies, practices or procedure. This includes but is not limited to admissions, employment financial aid, and educational services." "Readers may make verbatim copies of this document for non-commercial purposes by any means."

3 Background Woods County Economic Development (WCED) is contemplating the creation of an industrial park in Avard, OK. This location is strategic for several reasons, see figure 1. First, Avard is located at the intersection of two active railroads owned by Burlington Northern Sante Fe Railway, one running north-south between Amarillo, TX and Kansas City, KS, the other running east from Avard through Tulsa, OK to cities further east. These railroads provide access to critical markets and modes of transportation (e.g., Port of Catoosa). Such a location may be well suited for distributional activities. Second, Avard is centrally located within the wind corridor and wheat production, and it is proximate to oil and gas extraction activities in western Oklahoma. WCED anticipates continued growth in wind energy production in northwestern Oklahoma, as well as other alternative energy sources such as solar energy. They desire to develop a cluster of component manufacturers that is in the midst of the growth of these industries, as the proximity to end users may promote research and development of components and to take advantage of the transportation infrastructure mentioned above. Similarly, as fuel costs continue to be high, such a centralized location with access to efficient modes of transportation for bulky items like grain and oil could aid to lower producer costs in getting their commodities to market. Third, there is demand for rail accessible sites by businesses considering locations in Oklahoma. Woods County Economic Development and Oklahoma Department of Commerce supplied data of potential occupants of the industrial park. These data are presented in Table 1. In addition to using these data, we made the following assumptions: Only 53% of the construction investment would be fulfilled by Woods County employment; this assumption reflects the realities that firms will need specialized contractors unavailable from Woods County and that the local labor pool simply does not have enough construction workers. All firms, except the oil distribution firm and grain cooperative, were not locally owned;

4 While it is anticipated that the industrial park tenants will draw labor and interact with other firms from up to 100 miles away, we were restricted by time and data to focusing only on the impacts for Woods County. All equipment used by the potential tenants will be purchased from outside of Woods County. The impacts will be discussed in two sections. First, the impact of the construction of the facilities associated with the industrial park will be discussed. Second, the impact of each of the potential tenants will be examined. Before presenting the results, however, a brief overview of the methodology used to compute the results is presented. Figure 1: Location of Avard, OK

5 Table 1: Potential Occupant Data for the Proposed Industrial Park Potential Tenant Building Investment Equipment Investment Employment Average Salary Renewable Energy Facility $270,000,000 not provided 550 $57,273 Solar Cell Manufacturing & Energy Distribution $45,000,000 $160,000, $43,261 Fiberglass manufacturing $20,000,000 $10,000, $28,000 Wind Turbine Components Manufacturing (year 1) not provided not provided 100 $30,000 Wind Turbine Components Manufacturing (year 4) not provided not provided 220 $30,000 Food Manufacturer $10,000,000 $3,000, $25,000 Steel Recycling $40,000,000 not provided 50 $30,000 Grain Elevator $5,000,000 not provided 20 $30,000 Oil Distribution not provided not provided 20 $50,000 Wind Energy Distribution not provided not provided 20 $60,000 Salt Mining Expansion not provided not provided 10 $30,000 County Government not provided not provided 5 $30,000 Gravel Wholesaler $200,000 not provided 5 $30,000 Grain Cooperative $2,000,000 not provided 10 $36,000 Total $392,200,000 $173,000,000 1,770 Methodology Local economies can be summarized in a circular flow diagram, like the one presented in Figure 2. There are three institutions in a given community, and these institutions are represented by the circles in Figure 2. Industries or businesses that produce goods primarily for sale outside the economy are called basic industries. Two other major components of economic systems are service firms and households. Interaction between these three institutions represents what is typically called the local economy. The interaction between each pair of institutions is now discussed. Basic industries purchase labor from households and reimburse them with dollars. Other inputs used by basic industries are purchased from local service firms. Local service firms also provide goods and services to households (consumers). Naturally, each of these three sectors of an economy purchase goods and services from outside the economy. But it is the local transactions which determine the economic impact of a new firm to a local economy. The more inputs and labor the firm will purchase from other local firms and households, the greater will be the firm s impact and multiplier effect.

6 To see how this works, consider a new firm entering a local economy. The new firm will create jobs, and thereby increase local income. This is known as the direct impact of the new firm. Additionally, this firm will purchase some of inputs from existing local businesses. The purchases by the new firm increases the demand for the output of the existing firms, which may cause the existing firms to hire additional employees or buy additional inputs from local sources themselves. This is known as the indirect impact. A third effect also occurs: the households receiving the income from the new firm and the additional jobs at existing firms spend the payroll at local stores. This household consumption is known as the induced impact. One way to quantify the three impacts associated with an economic event is to use input-output analysis to generate multipliers. Input-output analysis is a system of organizing local demand and supply of goods in an economy, so that one can trace the linkages between firms and households in a locality. By tracing expenditures across firms, one can estimate the change in output (or income, or employment) generated by the introduction of a new firm. The estimates can then be converted into multipliers to summarize the overall impact one new job will have on the local economy. For example, a multiplier of 1.5 suggests that one new job (i.e., a direct impact) will generate an additional 0.5 jobs in the economy (via indirect and induced impacts). IMPLAN is a software package that facilitates inputoutput analysis and the generation of multipliers, and it is used in this project.

7 Figure 2: Overview of Community Economic System Inputs $ $ Basic Industry Products Labor $ $ Inputs Goods & Services Households $ Services $ $

8 Construction Impacts Table 1 presents the estimated investment by some of the potential residents of the proposed industrial park in Avard. This investment typically involves the purchase of land and construction of facilities for the firm. Therefore, we model these investment amounts as construction expenditures. To the extent possible, the values were given by actual firms considering sites in Oklahoma. One will note, also, that not all prospects provided investment amounts. To remain conservative, we have omitted these firms from our construction portion of the analysis. As mentioned above in the assumptions, the analysis excludes a portion of the total investment amount. The reason for this exclusion is that some of the construction will be done by specialty contractors and laborers from outside of Woods County. Based on data available, we estimate that 53% of the investment amount will be fulfilled by firms in Woods County; also, $20,000,000 of the investment amount comprises land purchases. Since this represents a transfer of wealth, and not a productive activity, we exclude this from the analysis as well. Therefore, the analysis assumes that $197,266,000 of construction expenditures will directly impact Woods County, if all the firms were to locate in the industrial park. This amount corresponds to 3,073 jobs with an approximate payroll of $50,095,000. These expenditures are likely to generate an additional $7,264,168 in household income and 366 jobs in indirect and induced impacts. These results are summarized in Table 2. If one wanted to know the impact of a single firm, one would simply multiply the value of construction by the employment-value ratio provided in Table 2. Table 2: Construction Impacts of the Proposed Industrial Park Employment Payroll Direct 3,073 50,094,633 Indirect 101 1,994,007 Induced 265 5,270,161 Total 3,439 57,358,801 Multiplier Employment-Value Ratio

9 Operational Impacts The analysis considered ten different potential occupants of the proposed industrial park, as well as county government employment associated with managing the site. A brief description of each firm is given, along with anticipated employment and average salary, in Table 1. The reader is reminded that the analysis assumes that none of the private firms analyzed, except the oil distribution firm, are local firms. The implication is that any profit associated with a firm is assumed to leave Woods County. Also, the analysis below presumes the viability of the firms analyzed and the accuracy of the data provided. While diligence was taken to identify likely occupants and provide realistic data, this report only speaks to the linkages firms like those proposed could have with existing firms and institutions in Woods County. The report is forward-looking in this way. On final caveat is that the Woods County labor pool alone will not be able to fill all of these jobs, if the all the firms hired at the same time. The implication of this is that the analysis likely overstates the induced impact of the firms, since out-of-county residents working in these new jobs will probably split their spending between Woods County and his/her home county. As the analysis is presented, it assumes that all new employment goes to Woods County residents. Table 3 presents the employment and payroll impact for each of the ten firms and the county government employees at the industrial park. The results are presented by industry to show the reader what the independent impact of each potential occupant s operations could be for Woods County. The results vary across industries due to the potential linkages each firm has with the local economy. For example, the Oil Distribution firm has the highest employment multiplier, reflecting the fact that oil and gas extraction is a significant component of Woods County s economy. Conversely, the County Government employment has a small multiplier effect because the types of services provided by these employees are not linked to other businesses in Woods County. One should use caution, however, in

10 using the multiplier numbers to justify the recruitment of any one of these firms, because these values address the connectedness of an industry to the local economy but they do not speak to viability. That is to say, a firm with a lower multiplier might actually be a more profitable, and therefore, more viable firm than another firm with a higher multiplier.

11 Table 3: Operational Impacts of Potential Occupants of the Proposed Industrial Park Renewable Energy Facility Solar Cell Manufacturing & Energy Distribution Fiberglass Manufacturing Wind Turbine Components Manufacturing Food Manufacturer Employment Payroll Employment Payroll Employment Payroll Employment Payroll Employment Payroll Direct 550 $40,949, $26,206, $7,280, $3,900, $3,250,000 Indirect 201 $7,623, $5,995, $716, $727, $1,563,438 Induced 148 $3,637, $5,744, $713, $249, $482,175 Total 899 $52,210, $37,946, $8,709, $4,876, $5,295,613 Multiplier Steel Recycling Wind Energy Distribution Oil Distribution Grain Elevator Salt Mining Expansion Employment Payroll Employment Payroll Employment Payroll Employment Payroll Employment Payroll Direct 50 $1,950, $1,222, $1,300, $780, $390,000 Indirect 21 $668,501 8 $264, $326,773 1 $21,017 2 $54,627 Induced 9 $200, $392,444 8 $206,557 2 $38,332 2 $41,301 Total 80 $2,818, $1,879, $1,833, $839, $485,929 Multiplier County Government Gravel Wholesaler Grain Cooperative Employment Payroll Employment Payroll Employment Payroll Direct 5 $195,000 5 $195, $468,000 Indirect 0 $0 0.8 $20, $50,941 Induced 0 $8, $57, $140,253 Total 5 $203, $272, $659,194 Multiplier Source: Direct impacts come from Woods County Economic Development/Oklahoma Department of Commerce; Indirect and Induced impacts were generated using IMPLAN software.

12 Tax Impacts In addition to creating jobs and income in Woods County, the rail park will also increase local sales tax revenues, because some portion of the payroll generated by the new jobs in the rail park will be spent in the local community. Table 4 presents the likely increase in sales taxes due to jobs created at the rail park. In order to calculate the values in Table 4, several assumptions were made. First, it was assumed that 59% of income created would be spent locally; this percentage represents the ratio of total taxable sales in Woods County to total personal income. Second, taxable sales were distributed across the three cities levying a sales tax by estimating the percentage of county taxable sales that occurred in each municipality. Fifty-one percent of taxable sales occurred in Alva, one percent of taxable sales occurred in Freedom and seven percent occurred in Waynoka. The sales tax rates of 0.5%, 4.25%, 2% and 4% were applied to Woods County, Alva, Freedom and Waynoka sales estimates respectively. Table 4: Sales Tax Revenue Generated Due to Payroll at the Avard Railpark 1 Construction Operations Taxable Sales in Woods County $33,842,341 $103,313, Sales Tax Revenue, Woods County $169,212 $516,569 Sales Tax Revenue, Alva $730,578 $2,230,306 Sales Tax Revenue, Freedom $6,402 $19,544 Sales Tax Revenue, Waynoka $100,039 $305,399 Total Sales Tax Revenue $4,078,049 When the companies purchase their lots, build buildings, and install new equipment in the railpark, property tax revenues are generated. Table 5 presents the anticipated annual tax impact from the railpark, assuming that all the tenants discussed above move into the railpark and invest the 1 If one wanted to know the sales tax implications of a single employer in the railpark, one would multiply the total payroll impact by 59; this represents the amount of taxable sales in the county that will occur as a result of the new income. The resulting product is then multiplied by the amount of taxable sales occurring in each jurisdiction and the local sales tax rate to compute the sales tax resulting from that employer. 12

13 amounts stated in Table 1. A total of $565.2 million of property investments will occur, if all 12 companies invest in the industrial park as described in Table 1. Given an assessment rate of 11.5% in Woods County, this represents an addition of just under $65 million to the tax roll and will generate an estimated $5.3 million annually in tax revenues across all jurisdictions. The impact of one company in the railpark can be calculated by multiplying its stated total investment (building plus equipment) by 11.5% to generate the assessed value. The assessed value is then multiplied by the millage, which is applied per $1,000 of assessed value, to arrive at an estimate of the property tax revenue generated. Table 5: Property Tax Revenue Generated Due to the Avard Railpark Total Real Property $565,200,000 Assessed Value, 11.5% of Market Value $64,998,000 Property Tax Revenue, County General Fund (10.56 mills) $686,379 Property Tax Revenue, County Health Dept. (1.37 mills) $89,047 Property Tax Revenue, School District #3(51.63 mills) $3,355,847 Property Tax Revenue, County-wide School Mill (4.22 mills) $274,292 Property Tax Revenue, Vo-Tech (13.73 mills) $892,423 Total Property Tax Revenue $5,297,987 Less Estimated Tax Payments from Current Land Use $1,406 Net New Property Tax Revenue $5,296,581 Summary Basic industries have considerable economic impacts not only as a result of their operations, but also from the secondary economic activities that they generate. This report attempts to help local leaders and concerned citizens understand the basic concepts of community economics and how employment at the proposed industrial railpark in Avard, Oklahoma might impact their economic wellbeing. In general, results of an economic impact analysis show sizable local impacts given the assumptions set forth. Estimates of the sales and property tax impacts generated from the presence of the industrial park are also presented. If further information or assistance is required, please contact the authors. 13