Sand cost-benefits

By on March 21, 2010

I’m a numbers guy. I hate to admit that given the time and effort I put in college taking subjects that avoided the use of numbers. But even as a Political Science major I found myself drawn to the ‘dark’ side of the discipline — polling and empirically based studies. The 30 years I spent as a banker also contributed to my “numbers problem.”

In our sit-down discussion with Chairman Paul Tine and President John Bone at The Outer Banks Chamber of Commerce, one of the first questions we asked was to supply a number justification for beach nourishment projects — dollars spent on nourishment versus dollars saved. For the true business news junkie, we were looking for a return on investment argument.

Tine mentioned how complicated it was to measure all of the aspects of the economic impact of potentially lost beaches. And, after writing an article on the economic impact of one small house in Nags Head, I am somewhat inclined to agree with Mr. Tine. Basically, I analyzed the tax and gross rental income for one oceanfront cottage and extrapolated the numbers to about two dozen homes in Nags Head scheduled for removal.

Our readers, posting comments, ran with those numbers in all manner of interpretation. Some decided the entire $36 million project must be for the benefit of those 24 homes only. Others chose to compare writing off a home to writing off a depreciated business asset without noting that old business assets are typically replaced. Others tried to guess at the total tax value covered by the project, underestimating by as much as 60 percent in some cases.

The numbers game is a tough hurdle for nourishment proponents. Let’s take all of Nags Head as an example. According to town staff, all property east of the “Beach Road,” or in South Nags Head, east of Old Oregon Inlet Road, is considered “oceanfront.” Obviously, this includes some non-oceanfront homes in places like the Village district and most of South Nags Head proper.

Regardless, the town and county assign an assessed value on the Nags Head oceanfront at just over $1.1 billion. So, do we think spending $36 million to save $1 billion in tax value is worth it? Since the Nags Head project is expected to last five years at minimum, perhaps the equation should be $36 million in expense to save $5 billion of tax assessments over the course of the project’s expected life.

But tax value is just that . . . a number. A billion dollars in tax value doesn’t generate a billion dollars in revenue to the town or the local economy. As far as the town is concerned, those properties generate about $1.6 million in property tax. Over five years, that would rise to about $8.3 million, not even close to the project amount. However, the county also collects $2.8 million annually from the Nags Head oceanfront. Add the town and county take from property taxes together for five years and we have $22 million in property taxes at risk. We still haven’t reached the level of expense for nourishment.

Local and state government currently collects 12.75% in sales tax on all rentals in the project area. Not hard to measure, but since the data would have to be segregated from the non-project area it would consume considerable staff time.

Going forward, the numbers become much easier to imagine than to measure. We would need to consider the gross rental income on each property, a significant portion of which is captured by the local economy in the form of profits and operating expenses. Operating expenses pay the salaries of local workers who arrange rentals, man the desk at the hotel or repair the air conditioning at a rental home.

Beyond these numbers, which I suspect would easily surpass the cost of the nourishment project, we come to intangibles. For example, each renter spends a certain sum of money on dining, groceries, entertainment and shopping. While opponents of nourishment believe that lost rental space on the oceanfront merely shifts to other existing rental properties (under the theory that we are never 100 percent leased up in the summer), proponents of nourishment might respond that there is a finite limit to such shifting and eventually the loss of rental space would begin to outstrip our ability to absorb these renters in other properties.

Settling on such a number would be subjective and open to debate.
And, it is fair for critics to point out that every property in the proposed project zone is not currently threatened, nor are those properties likely to be threatened even over the next five years. This argument places nourishment proponents in the unenviable position of having to sell a $36 million insurance policy.

On the other side of the equation, the entire oceanfront of Nags Head accounts for 37 percent of the town’s total property tax collections. Even if the town could cut expenses as properties are lost, it is safe to assume that full time residents on the west side of U.S. 158 can ill afford to absorb the property tax increases they would face if 37 percent of the current town revenue from that source washes out to sea; not to mention the loss in gross revenues and sales taxes.

As one can see, there seem to be infinite possibilities in measuring the true economic numbers relative to nourishment. Yet, in spite of the difficulty in determining those numbers and the fact that many citizens might be confused by their complexity, it seems to me that our elected officials have not done a good job in justifying the expense of nourishment and defining the hard dollars at risk if we do nothing. It should be within their grasp to identify all of the property tax, sales tax, gross rental income, and even the average amount of money each visitor spends while vacationing here. We should be able to identify the true number of properties that are reasonably expected to be lost over the course of five years if we don’t replenish the sand.

Projections on how much taxes would rise on the west side of each town if oceanfront property washes away can be conservatively estimated. The number of local jobs directly tied to the oceanfront and the dollar value of those jobs is also a number we should be able to uncover.

Sure, some people might be confused. And those who believe nourishment is folly because of ecological damage or the futility of fighting the forces of nature aren’t going to be swayed by economic arguments in any event.

While not a scientific sampling, the comments sections of our stories on nourishment reveal the public is looking for economic answers and they are not convinced by the current “just do it” argument proffered by nourishment advocates. As expensive as these projects are, justifying the huge price tag on a leap of faith that the economic return is there, somewhere, is not enough. Show me. Show us.

Related: Hedge that bet »

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NOTICE OF PUBLIC MEETING TO REVIEW PLANS FOR AN OUTER BANKS EVENT CENTER
County Dare, North Carolina
Dare County Tourism Board

NOTICE IS HEREBY GIVEN that the Visitors Bureau will hold a public meeting to review the plans for an Outer Banks Event Center. The meeting will take place on Monday, June 6, 2022 from 9:30 a.m. to 11:00 a.m. at the Keeper’s Galley building at Haven on the Banks, 115 Dove Street, Nags Head North Carolina 27959.

Still in the conceptual phase, the Event Center is intended to provide suitable and flexible space for year-round events, concerts, sports, meetings, smaller tradeshows, galas and any number of other uses. Learn more about the benefits for visitors and residents and how the Event Center is planned to complement the new Soundside boardwalk that is being designed.

Staff will be on hand to answer any questions. For additional information, please visit our Event Center FAQ page.


 



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