Tax Revenue Impacts and Marketing Northern Minnesota’s Iron Trail Tax Revenue Impacts and Marketing Northern Minnesota’s Iron Trail Jim Skurla, Bill Fleischman, Mike Mageau Bureau of Business and Economic Research UMD School of Business and Economics Grand Rapids, MN May 12, 2003

In this presentation About the project Background Background Deliverables DeliverablesSummary Social Impact Social Impact Economic Impact Economic Impact Environmental Impact Environmental Impact Benefits to communities Benefits to communities See report, p. 4

About the project Background Background To further the discussion of a possible new tax on food, beverage and hotel/motel facilities in the ten communities served by the Iron Trail, the UMD Bureau of Business and Economic Research (BBER) was asked to estimate the impact of these proposed taxes for purposes of planning to expand tourism in the region Research Question Who pays what tax, and who benefits? See report, p. 4, 5, 6

About the project Deliverables Report estimated fiscal, social, and environmental impacts of users within the Iron Trail region. Report estimated fiscal, social, and environmental impacts of users within the Iron Trail region. Report estimated tax revenue earnings from a general sales tax, an excise tax on hotels, motels, and eating and drinking places, and an excise tax on eating and drinking places only. Report estimated tax revenue earnings from a general sales tax, an excise tax on hotels, motels, and eating and drinking places, and an excise tax on eating and drinking places only. See report, p. 4

Summary Summary Social Impacts Impacts vary according to stakeholder group and tax option. Impacts vary according to stakeholder group and tax option. Table 1 presents primary impacts associated with proposed changes in the tax on food and beverage, lodging, and/or retail expenditures Table 1 presents primary impacts associated with proposed changes in the tax on food and beverage, lodging, and/or retail expenditures Stakeholders include Stakeholders include Area Residents Area Residents Area Businesses Area Businesses Pleasure Visitors Pleasure Visitors Business Visitors Business Visitors Other Communities Other Communities See report, p. 7, 8

Summary Summary Social Impacts Residents and visitors: Costs are incurred by local residents and visitors who make purchases in the tax categories. Costs are incurred by local residents and visitors who make purchases in the tax categories.Businesses: There are virtually no costs to the businesses that provide the services or facilities that would generate the tax revenue. There are virtually no costs to the businesses that provide the services or facilities that would generate the tax revenue.Communities: Benefits from tax revenue for marketing the target area amenities would be distributed and would benefit communities Benefits from tax revenue for marketing the target area amenities would be distributed and would benefit communities Local residents: Local residents benefit indirectly from the proposed tax, and benefit from the possibility of some increased employment Local residents benefit indirectly from the proposed tax, and benefit from the possibility of some increased employmentVisitors: Visitors would bear the brunt of the increased cost in lodging, while local residents would provide a larger portion of the increase in the revenue generated by an increase in food/beverage and retail sales tax. Visitors would bear the brunt of the increased cost in lodging, while local residents would provide a larger portion of the increase in the revenue generated by an increase in food/beverage and retail sales tax. See report, p. 7, 8

Summary Summary Economic Impacts Measurement steps: 1) Develop an estimation of the possible impacts of an advertising campaign in the region 2) 2) Develop inputs to the model including: Capacity Assumptions; Iron Trail Tax Ratios; Iron Trail Tourism Assumptions; Sector Breakdown of New Visitor Expenditures 3) 3) Given the above inputs, impacts are estimated and reported by the model: Employment, Output, and Value Added 4) Tax revenue earnings are computed from economic impacts See report, p. 12, 13

Summary Summary Economic Impacts Medium range (of high, medium and low estimates): Eating & Drinking Employment 90 Output $3,011,658 Eating & Drinking + Lodging Employment 104 Output $3,479,075 Retail Employment 363 Output$12,149,541 See report, p. 22 Source: medium range inquiry-to-visitor rate from Iron Trail Convention and Visitors Bureau; IMPLAN

Summary Summary Environmental Impacts Measurement steps: 1) 1) Environmental impacts of increased economic activity in the ten communities were analyzed using an input- output system 2) 2) Environmental impacts (externalized costs) were estimated 3) 3) Economic impact data generated by IMPLAN is translated into environmental damages expressed in monetary terms 4) 4) 1st step: estimation of a damage function – the environmental stress per dollar’s worth of economic activity 5) 5) 2 nd step: increases in environmental stress are converted to monetary values 6) 6) Quantify the magnitude of damages See report, p. 22

Summary Summary Environmental Impacts Medium range (of high, medium and low estimates): Eating & Drinking Output $ 59,759 Eating & Drinking + Lodging Output $ 68,998 Retail Output$ 241,077 See report, p. 24 Source: medium range inquiry-to-visitor rate from Iron Trail Convention and Visitors Bureau; IMPLAN; BBER; Economic Input-Output: Life Cycle Assessment (EIO-LCA) method devised by H. Scott Matthews and Lester B. Lave at Carnegie Mellon University; ISF

Benefits to the communities can include:  Increased profit, larger revenue stream  Increased employment  Increased investment in services, facilities and/or product lines.  Increased quality of options for local residents. See report, p. 4

Benefits to the communities can include:  Increase of funds spent on local projects  Lodging tax on visitors not locals  Additional economic activity flowing to community businesses  Possible compensation from sharing of environmental costs from businesses who receive most of the economic benefits See report, p. 4

For more information For more information Bureau of Business and Economic Research 19 School of Business and Economics University of Minnesota Duluth 10 University Drive Duluth, MN Phone (218) Fax See also See report, p. 4