Deepwater Energy Impacts on Economic Growth and Public Service Provision in a Louisiana Parish J. Matthew Fannin and Walter Keithly, LSU CNREP David Hughes, Clemson University Williams Olatubi, American Express Jiemin Guo, Bureau of Economic Analysis CNREP Conference May 21, 2007 New Orleans, LA

Policy Challenge Outer-continental shelf energy production activities grew in 1990s and today as further deepwater and ultra-deepwater discoveries found Support industries located on coast have major impacts on labor force and public services How do we quantify long term impacts?

The Approach Community Policy Analysis Modeling (COMPAS) (Johnson, Otto, Deller 2006) –A system to translate development and policy scenarios into long-term projections of labor force and fiscal variables –Conceptual framework based on labor force, consumer, and public choice theories

Change in Demand for Local Industry Multiplier Effects in Local Economy, Direct, Indirect, and Induced Effects on Employment Changes in Local Government Revenue Changes in Demand for Public Services COMPAS Modeling System

Empirical Model Louisiana Version –Louisiana Community Impact Model (LCIM) First stage – input-output module (IMPLAN) Second stage – labor force module Third stage – fiscal module Based on cross-section of Louisiana parishes First iteration 2001, revised 2006

Input-Output Module Use regression on changes in exploration intensity to estimate fluctuation in mining and oil and gas support service employment Direct employment treated as demand to determine total employment changes Total employment changes (direct, indirect, and induced) from IMPLAN used as exogenous driver of labor force module

Labor Force Module Three equations – incommuter earnings, outcommuter earnings, total labor force, and population Place-of-work employment from I-O module serves as explanatory variables in regressions Dependent variables serve as exogenous variables in revenue capacity equations

Fiscal Module Consists of revenue capacity equations (assessed value, retail sales) and revenue generating variables (ad voloreum, sales, severance tax revenues, state and federal transfer revenues) Public service expenditures include education, transportation, public safety, environment and housing, govt. administration, social service and income maintenance, and utilities

Scenario Application Lafourche Parish –Metropolitan parish in South Central LA –Mix of agricultural, manufacturing and mining activity in economic base –Home of major OCS-support port – Port Fourchon –Faces major pressures on public infrastructure – roads, water and sewer, etc

I-O Module Results

Public Revenue Changes

Public Expenditure Changes

Net Effects Deepwater energy (DEI) scenario compared to baseline scenario (3% POW employment growth rate) –Baseline revenues exceeded DEI scenario Driven by greater number of incommuters driving down sales taxes –DEI scenario expenditures lower than baseline Higher population growth rates lowering per capita expenditures for given level of public services

Future Research More extensively model DEI scenarios containing new ultra-deepwater activities (MMS) Break out fiscal sector decision making unit revenues and expenditures (general parish government, school districts, hospital districts, etc) Incorporate panel and or spatial econometric techniques

Conclusions LCIM three stage model constructed to project long-term impacts on labor force and public service impacts Results showed public revenues exceeded public services throughout projection period DEI scenario resulted in lower revenues and lower expenditures relative to baseline Extensions include detailed fiscal decision unit projections and econometric techniques