Coastal Services Center

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Distribution of Project Benefits by Income Level and by Beneficiary Group

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Introduction

The benefits of any given publicly funded beach nourishment project are not uniformly distributed across the population. Some project benefits, such as storm damage reduction derived from beach nourishment, are limited geographically. Other benefits, such as recreational benefits, are widely distributed from a geographic perspective. Projects may also generate benefits that accrue to socioeconomic sectors of the population such as the poor, the aged, or business owners.

Three main forms of benefits resulting from beach nourishment are cited in economic literature: Hurricane and Storm Damage Reduction (HSDR) benefits, recreational benefits, and other benefits. HSDR benefits represent the protection against storm damage to the beach, upland property, and infrastructure. These benefits accrue to the owners of beachfront property. Recreational benefits accrue to beach visitors who enjoy the beach. Regional economic benefits accrue to businesses, such as restaurants, lodging, food and beverage, gasoline, and gift shops that provide goods and services to beach visitors. Other benefits, such as option benefits, are cited less frequently.

Since federal, state, or local governments typically pay for beach nourishment, tax money must be raised to finance the project costs. Governments can borrow to finance the beach nourishment, but borrowing only delays the inevitable tax increase that will be required to repay the debt incurred. So the question becomes, "Who should be taxed to pay for the beach nourishment?" Generally, government financing for beach nourishment projects is shared between federal and state and local governments, with the federal portion being 65 percent of the cost¹. Payment of the non-federal share varies from state to state. The State of Delaware pays 100 percent of the non-federal portion of project costs; the local sponsors (that is, municipalities) pay zero percent. In Florida, the state pays up to 50 percent of the non-federal costs; local sponsors pay a minimum of 50 percent or 17.5 percent of the total project cost (Robinson 2001, pages 135 to 137). In states where there is no dedicated funding for beach nourishment projects, local sponsors may have to pay 100 percent of the non-federal share.

The question raised at the federal level is "Should the local sponsors pay such a small fraction of the cost of beach nourishment?" The equity question, "Who should pay?" is a consideration in any discussion of the distribution of benefits from a publicly funded project. While there are many definitions of equity, the concepts of absolute equity, the ability to pay, and the benefit principle have been discussed and debated for a long time (Stiglitz 1999).

Absolute equity implies that if a beach nourishment project's cost is $1,000,000 and there are 100 people who benefit from the project, each person would pay $1,000. This is a simple concept and works well with small groups, such as when a group of friends go out for dinner and split the check. It does not generally work well with large diverse groups, as in funding a beach nourishment project. The second approach is the ability to pay principle. It allocates costs to the payee according to the individual's ability to pay. Generally, the higher the individual's income or the larger the individual's asset base, the more the individual is asked to pay. Federal income taxes work this way. A third approach to achieving "equity" for cost allocation is the benefits principle. Those espousing the benefits principle believe that it is fairer to tax individuals on the basis of the benefits they receive. The benefits approach implies fees for publicly provided services. Explicit examples of this approach are tolls on highways and bridges and parking fees at publicly owned beach parking lots. The tax on gasoline may be considered an indirect benefit type tax. Road usage is measured by gasoline usage, and gasoline usage is taxed.

The benefit approach is typically cited in discussions of beach nourishment. This may be because many people believe that beach nourishment benefits accrue to wealthy beachfront property owners, and accordingly those beachfront property owners should pay² the costs for these projects. To these people, subsidizing the wealthy beachfront property owners with general tax revenues such as federal funds appears to violate both the benefits principle and the ability to pay principle.

Recreational Benefits

Recreational benefits accrue to beach visitors. The change in recreational benefits resulting from the beach nourishment project depends upon how the demand for beach visitation and the value of a beach experience change. recreational benefits may have a wide geographic distribution. Anyone who visits the beach, be they local residents, non-local residents of the state in which the beach is located, non-state residents, or residents of foreign countries, benefits from the visit. The geographic distribution of recreational benefits is typically estimated by conducting a survey of the beach users to determine their home location. The geographic distribution of visitor residences is beach specific. In 1997, it was estimated that the percentage of visitors to Ft. Pierce Beach in St. Lucie County, FL that were from Florida but resided outside of St. Lucie County was 16.67 percent; 20.83 percent were from the U.S. but resided outside of Florida; and 2.65 percent were foreign visitors (Curtis 1997). Stronge conducted a beach user survey for Broward County, FL in 1995 to 1996 and found 8.6 percent of all beach visits were made by visitors who lived in Florida but resided outside Broward County, 30 percent from U.S. residents residing outside Florida, and 13.2 percent were foreign visitors (Stronge 1997).

Regional Economic Benefits

It makes no difference where the beach user lives when determining the direct recreational value of a beach nourishment project. If there is additional visitation to the beach or if the beach experience is enhanced as a result of the nourishment project, then there is an increase in the value of services provided by the beaches. This is considered a national economic development (NED) benefit unless part of the increase in visitation is a transfer of beach visitation that would have occurred somewhere else. Increases in NED are increases in the value of national output of goods and services. The increased NED benefits measure increased value provided by beaches including storm damage reduction benefits, recreational benefits, and other NED benefits such as the reduction in emergency and facility maintenance costs. However, there may also be a regional economic development (RED) benefit that is a result, for example, of certain types of tourist spending, where a tourist is defined as a visitor who resides outside the region. A simplistic example would be a beach tourist buying lunch at a beach restaurant. This spending increases economic activity at the beach, but NED benefits do not increase because the tourist would have had lunch anyway. From a national perspective, economic activity that would have occurred in the tourist's home region has been transferred to the beach location. There is no national net economic effect, although there is a local net effect, usually called a regional effect.

In estimating the RED effect it is important to determine whether the beach visitors are local residents or tourists. Spending by local residents is usually disregarded on the theory that they would have spent the money on locally provided goods and services even if they had not visited the beach. Spending by beach tourists on basic activities such as food, lodging, gasoline for automobiles, entertainment, gifts and souvenirs, and general shopping becomes income to the local suppliers of these goods and services. As tourist spending increases, the local business may hire additional local employees. A portion of the wages and salaries earned by these additional employees is spent on locally provided goods and services, providing secondary additional income to local suppliers of goods and services. As income is spent and re-spent a portion of the income "leaks" out of the region. This process continues, with each round of re-spending smaller than the previous round, until there is no more income to be re-spent. Each round of re-spending will increase the RED benefit. It is not generally practical to attempt to trace through all these rounds of re-spending. Instead economists use a multiplier that was developed for this purpose. In this manner, the initial, secondary, and total tourist spending and corresponding tax collections can be estimated.

RED benefits are the net value-added impacts that occur in the region as a result of tourist (non-resident) spending at the beach. For purposes of determining the RED benefits for a beach nourishment project, the definition of "tourist" depends on the geographic boundaries of the region for which RED benefits are estimated. Only spending by visitors from outside the region contributes to an increase in RED benefits. The RED benefits for the beach region are the net value added impacts within the beach region due to spending by all beach visitors residing outside the beach region. The RED benefits for the state region are the net value added impacts occurring in the state as a result of spending by non-state residents. The RED benefits for the rest of the nation result from spending by foreign beach visitors. RED benefits also qualify as NED benefits if they are not simply the result of transfers, that is, if they are not offset by disbenefits at some other beach elsewhere in the country.

Storm Protection Benefits

Storm protection benefits include hurricane and storm damage reduction benefits and land loss prevention benefits. Project benefits associated with storm damage reduction and erosion loses are generated for properties that front the ocean. Benefits will accrue to properties in the project area (that is, fronting the nourishment project) and may accrue to oceanfront properties adjacent to the project area that will benefit from the spreading of sand "downdrift" from the project area. Projected storm protection benefits are project specific. They will depend upon the engineering design of the project; the types and value of upland improvements and land, the location of oceanfront buildings and coastal erosion control structures, such as seawalls and revetments, ownership of beachfront property, and the local erosion rates. Storm protection benefits are based on the prevention of damage to structures, the anticipated cost savings realized by not having to build erosion control structures, or by not having to repair erosion control structures (refer to companion papers "Types of Economic Benefits Associated with Beach Nourishment Projects" and "Federal Methods to Compute Primary Project Benefits").

The distribution of storm damage reduction and land loss prevention benefits is local in the sense that benefits are generally confined to the geographic area of the beach nourishment project. Local private property owners benefit and government benefits to the extent that the beach protects public infrastructure and "publicly" owned property (parks and preservation areas). Since the beach nourishment project protects federal property and infrastructure such as roads, the benefit is nationwide. By the same token, to the extent that state property and infrastructure are protected, the benefit is statewide.

USACE Model

The U.S. Army Corps of Engineers, Institute for Water Resources (IWR) presented its model of beach benefit distribution in The Distribution of Shore Protection Benefits (Robinson 2001). The model identifies National Economic Development (NED) benefits as storm damage reduction benefits, recreational benefits, and other benefits such as reduction in emergency expenditures. Further, the model identifies Regional Economic Development (RED) benefits as the net value-added. Net value-added is the sum of employee compensation, proprietors' income, property income, and indirect business taxes (value added) adjusted for the transfers of commuters' income and tax revenues and for the local costs of managing and maintaining the beaches.

In the IWR model, the NED benefit from nourishing a "typical" beach was $1.6 million. This amount is comprised of storm damage reduction at $920,000 (57.5 percent), recreational benefits at $609,000 (38.1 percent), and other benefits at $123,000 (7.7 percent). Storm damage reduction and recreational benefits have been discussed elsewhere; other benefits include reductions in maintenance and emergency costs³. The simulation estimates that 33 percent of the benefits accrue to local residents and 67 percent of the benefits accrue to non-local residents. This "typical" 1/3 to 2/3-distribution of benefits depends on the beach characteristics. For a rural beach, the distribution is 50 percent locally derived and 50 percent non-locally derived benefits and, for an urban beach, the distribution is 40 percent local and 60 percent non-local⁴.

The NED benefits of shore protection accruing locally not only varied between one-third and one half, but the benefits were not consistent for the beach regions considered; the study found that the local proportion of NED benefit was greater for both the rural and urban regions than for the "typical" beach region. Given the variability found here, it is extremely important to understand that the distributional patterns of the NED benefits for shore protection projects depend on the residential patterns of the property owners and the beach users. These patterns are specific to each community and, as a consequence, the distribution of NED benefits is also site-specific for each project. It should be noted that the NED benefit estimates for the "low" energy beach areas were smaller than for the hypothetical nourishment project areas and larger for the "high" energy beaches, as would be expected, because the NED benefit estimates were related to the quantity of sand placed. However, the distribution of benefits between the beach region and the rest of the nation did not change much (Robinson 2001).

Interestingly, the model predicts that while increases in visitation or increases in the value of a beach visit raised the level of NED benefits, neither increase will change the distribution of NED benefits.

Summary

There is no "one size fits all" approach to estimating the distribution of beach nourishment benefits. The ratio of storm protection benefits to recreational benefits is sensitive to the type of beach conditions and the severity of the erosion problem. Storm protection benefits are generally greater in urban, developed beaches and relatively lower in rural or undeveloped beaches. The geographic distribution of the storm protection benefits depends upon the geographic distribution of beach property ownership. The greater the non-local ownership percentage, the greater the geographic distribution of storm damage reduction. Storm protection benefits accrue to government for public and infrastructure properties protected by the beach nourishment project. The percentage depends upon the percentage of governmental owned beachfront land and the proximity of government owned infrastructure to the beachfront. The geographic distribution of the storm damage reduction benefits depends on the distribution of government ownership of property and infrastructure. The more federal ownership, the greater the national benefit. The greater the local ownership, the greater the local benefit that will accrue from a project.

recreational benefits accrue to visitors to the beach. The visitors may be local residents or come from outside the local area. The distribution of visitors by place of residence is specific to each beach. As visitors from outside the local area spend money on beach related activities, local area income is increased. The extent of this increase depends upon the ability of the beach to attract non-local residents. The distribution of RED benefits is lower to the national region and greater to the local region.

References

Curtis, T. D., and R. L. Moss. 1997. Economic and Fair Share Analysis of the Ft. Pierce Shore Protection Project.

Curtis, T. D., and R. L. Moss. 2000. Economic Analysis of Recreational Benefits for the Boca Grande Shore Protection Project.

Robinson, D. P., L. Zepp, and H. M. Shoudly. 2001. The Distribution of Shore Protection Benefits: A Preliminary Examination. U.S. Army Engineer Institute for Water Resources. Alexandria, VA.

Stiglitz, J. E. 1999. Economics of the Public Sector. Third Edition. W. W. Norton & Company. New York.

Stronge, W. B., and R. R. Schultz. 1997. Broward Country Beaches: An Economic Study 1995-96. Technical Report 97-03. Department of Natural Resources Protection, Biological Resources Division. Broward County, FL.

Footnotes

1. While most projects are partially federally funded, there are projects such as the Beach Nourishment project at Longboat Key, FL (1990) that do not use federal funds.
2. For example see "You Bought This Beach" in the St. Petersburg Times, April 10, 2002.
3. Emergency costs include emergency evacuation, public cleanup cost, temporary relocation costs, and the costs of increased police and emergency patrol. Maintenance cost is the cost of maintaining existing structures.
4. There was a high degree of variability in the simulation's NED estimates. NED benefits were greater for both the urban and rural beaches than they were for the "typical" beach. But the typical beach need not be an average of the urban and rural beach. For example, the rural beach might be a national seashore attracting mostly tourists. The urban beach might have a high number of beach resorts attracting tourists, while the "typical" beach might be a residential beach attracting local residents.