Historical, current, and future economic benefits and costs relating to Lake Waco, Texas

Abstract

Lake Waco is an important economic asset for Central Texas. Since 1964, Lake Waco has been utilized as a multiple-purpose reservoir, providing flood protection (more than $258 million in damages prevented), a public drinking water source for 200,000 Central Texans (the City of Waco Utilities Department budget is $40 million per year), and recreational area by up to 2 million people per year. A rise in the conservation pool level increased the drinking water yield by 26 million cubic meters per year but temporarily interfered with recreation. Despite a drop in recreational usage for several years (2001–2005) and significant increases in the quality and quantity of recreational facilities during the pool rise project, the economic impact to local communities remained between $8 and $27 million dollars per year, depending on the method applied. Results from application of the Money Generation Model Version 2 indicate that approximately 750 local jobs are supported by recreational spending. There is a substantial economic return on investments in the enhancement and protection of Lake Waco.

Key words:

• economic recreation model
• lake value
• Lake Waco

Lake Waco has been a significant area resource and economic asset for Central Texas since the 1920s and is expected to figure prominently in the future of this area. The important economic benefit from recreational use is evaluated in this report. The economic benefits of a sustainable public drinking water source for the next 50 years, the effect on property values, and prevention of flood damage, while not included in this report, are also important when considering the overall economic value of Lake Waco.

This paper summarizes the initial economic impact report that attempted to define a specific economic value for Lake Waco to assist in evaluating the benefit–cost ratio for projects that will protect and preserve water quality in Lake Waco, as required by the US Corps of Engineers (Corps) for such projects. Economic impact is a critical consideration for competing projects and limited budgets. A 5 yr comprehensive study of Lake Waco and its immediate watershed, costing nearly $2 million, was conducted, and the initial economic assessment was part of that benchmark study.

Lake Waco is strategically located within Central Texas, with 5 million Texans, or roughly 25% of the Texas population, living within 164 km (100 mi) of the lake. Tom Kelly, a Baylor University economist, reported (Waco Tribune Herald, 10 Oct 2003) that McLennan County and Waco are one of the top 10 economic growth areas in the state.

In 1998, the Waco City Council voted to increase the lake's conservation pool water level 7 ft as a part of the city's 50 yr water plan in reaction to the Texas Legislature's Senate Bill 1 (1997) that required specific water plans to be developed for the state. By increasing the lake level, Lake Waco guaranteed a sufficient drinking water supply for most of Central Texas to 2050. This resulted in the City of Waco being designated as a regional water supplier and brought economic benefits and recreational opportunities to the region.

The City of Waco and the Corps (Waco Lake Project Office) were required to relocate some recreational facilities when the conservation pool was raised. The main upgrades or relocations include

•	raising 5 existing boat ramps,
•	constructing 3 new boat ramps,
•	developing 2 new swimming areas,
•	adding 60 new picnic sites,
•	adding 50 new camp sites, and
•	constructing several miles of new or raised roads and new parking.

In addition, the Corps gained funds to make major renovations at Airport Park. A new beach was built, campsites were increased from 50 to 70 and amenities were improved for recreational vehicles, such as larger pads and upgraded utilities. Kathy Gately, Lake Manager for the Corps in 2003, stated, “[Improvements] will bring more people to Waco,” and “Those people will spend money. The surrounding communities that offer gas and groceries will reap the benefits of this.” (K Gately, USACE, May 2003, pers. comm.) In 1999, Lake Waco received 1.77 million visitor/days (averaging 4 hr at the lake) for the year, making the lake a tremendous asset to Central Texans.

Methods

Michigan State University's Department of Park, Recreation and Tourism Resources developed the Money Generation Model Version 2 (MGM2) for use by the National Park Service and other agencies to project economic impacts (Stynes et al. 1998). This MGM2 model is based on 1999 dollars (version utilized by the Corps to report visitation to the City of Waco annually) and is used to provide economic impacts as direct effects on the local economy by activities available at Lake Waco.

The MGM2 program uses multiple matrices defining park size and metropolitan area to assign conservative multiplier values for recreational visits. Direct effects (local economy) and taxes are 2 additional matrices based on a 73% capture rate. Calculations include “Day Spending,” “Camper Spending” and “Direct Taxes.” Based on the model projections, Day Spending assumes the visitor spends $27.44 (direct spending) to get to Lake Waco, participate in the recreational opportunities of his/her choosing and to return home. Camper Spending assigns a daily impact to the local economy of $47.42 per person per day, and the Direct Taxes results from adding the annual totals of Day Spending and Camper Spending and multiplying by 8.25% percent, the current sales tax rate. These figures are average spending factors in 1999 dollars and provide an additional or alternative economic impact projection.

The Corps provided the total “gate” visits for 1999 through October 2005 (J Boutwell, USACE, Waco Lake Project Office, Oct 2005, pers. comm.). These figures were separated by lake user (single day) and camper (overnight). The camper to total visit ratio is 25 campers for every year except 2005, when the camper percentage was 1%.

The visit figures for 1999 through 2005 were entered into the model using the basic assumptions of MGM2, with no changes for local conditions. In addition, projections for 5 years (until 2010) were included, based on a 5% visit increase per year. This is considered a conservative projection because visitation increased by nearly 100,000 (11%) from 2004 to 2005 due to opening some of the improved camping and recreational areas developed as part of the pool rise project. These projections are compared to the actual data for 2006–2009 (C Smith and E Haskell, USACE, Jan–Feb 2010, pers comm.).

A local tax rate of 8.25% (the current sales tax rate) was used for all model runs. The 1999 Corps report (J. Boutwell, USACE Oct 2005, pers comm.) is based on a 6.0% local tax, so there is a slight variation between the 1999 results and the model results used in this report.

Results

No economic evaluation can quantify the aesthetic value of Lake Waco or the economic potential and growth value associated with a guaranteed and sustainable public water supply for an estimated 50 years. The City of Waco Water Utilities Department budget is about $40,000,000 per year. Other Central Texas communities utilize City of Waco potable water throughout the year. No other viable drinking water sources exist to address expanding needs should Lake Waco not be available. Groundwater resources are already in decline.

What this evaluation can provide is a probable economic impact on the local economy by recreational activities by those enjoying Lake Waco. The average tax benefit from recreational activities associated with Lake Waco over an 11 year period, including projections to 2010, is about $2.4 million annually. The impact on the local economy is $25 million, according to the Corps (C Smith and E Haskell pers comm. Jan2010.). Because these figures are based on 1999 dollars, they are underestimates.

Corps annual visit totals for Lake Waco by year (Table 1; Fig. 1) are projected using a 5% per year increase for 2006 until 2010. Reported visitation for 2006–2009 became available after the predictions and are included. Initially, the 5% per year increase was considered a conservative projection, given the new facilities. The decrease in annual visit figures after 2000 is partially the result of beginning the pool rise improvements. These required closing some park areas and roads and other actions that reduced accessibility and use. Park fees increased in 2005 to $4.00 per car, from a minimum fee of $1.00 per person up to a maximum of $3.00 per car in 2004. This fee increase did not adversely affect visits between 2004 and 2005. The increase of nearly 100,000 visits per year between 2004 and 2005 was due to opening the new or remodeled use areas, in particular the Airport Park Beach Complex accounted for significant increased usage.

Table 1 Lake Waco annual visits.

Year	Total Day Visits	Campers	Total Visits
1999	1,734,963	35,407	1,770,371
2000	1,456,216	29,718	1,485,935
2001	910,006	18,571	928,577
2002	830,121	16,941	847,063
2003	853,748	17,423	871,172
2004	876,585	17,889	894,475
2005	974,760	9,846	984,607
2006	982,145 (1,298,982)	51,691	1,033,837
2007	1,031,251 (1,108,102)	54,276	1,085,528
2008	1,082,813 (929,295)	56,990	1,139,804
2009	1,136,954 (574,000)	59,839	1,196,794
2010	1,193,801	62,831	1,256,633
Note: Years 2006–2010 are estimated projections, based on previous use levels, with the actual reported visits in parentheses for comparison.

Figure 1 Annual visits to Lake Waco.

Actual data, however, indicate the climatic conditions and economic recession had significant impacts on visitation rates in more recent years. Nonetheless, 2006 (300,000 more visits than the estimate) and 2007 (105,000 more visits) seemed to support the contention that projections were conservative, especially considering a flood in 2007 required imposing no access or limited access for several months at lake facilities.

The decline in 2008, which is minimal, and in 2009, which is substantial, are the result of economic conditions; however, the mechanism for park gate attendants to count and report visitors was changed in autumn 2008 and subsequent years. Prior to the change, gate attendants counted vehicle occupants or estimated occupants. The current process uses a manual counter that records each vehicle.

Using annual visits reported and projected visitation numbers for 2006–2010, the model provides overall economic impact to the Central Texas communities (Table 2). The model outputs presented are limited to the Sector/Spending (Direct Effects category) “value added” total that has a 73% capture of spending projections; the jobs supported by the value added sector spending; and the total taxes resulting from sector spending.

Table 2 MGM2 sector spending projections.

Year	Sector Spending	Jobs Supported	Total Taxes
1999	27,877,000	1,289	8,275,000
2000	23,398,000	1,082	6,946,000
2001	14,788,000	683	4,391,000
2002	13,490,000	623	4,006,000
2003	13,874,000	641	4,120,000
2004	14,245,000	658	4,230,000
2005	15,466,000	715	4,590,000
2006	16,279,000	753	4,166,000
2007	17,093,000	790	4,374,000
2008	17,948,000	830	4,593,000
2009	18,845,000	871	4,822,000
2010	19,788,000	915	5,063,000
Average	16,391,615	757	4,582,769

While different economic impact projections are derived, the projections could be considered as bracketing the high and low levels of actual impact. The MGM2 does have a jobs/salary multiplier for tax revenues for an effective tax recovery of 29.6% per dollar spent (Table 2). Average daily spending estimates provide a secondary means to project economic impact (Table 3) and serve as supporting information for the MGM2 projections.

Table 3 Average activity spending projections.

Year	Day Spending	Camper Spending	Direct Taxes
1999	47,607,400	1,679,019	4,066,129
2000	39,958,575	1,409,260	3,412,846
2001	24,970,549	880,662	2,132,725
2002	22,778,540	803,354	1,945,506
2003	23,426,860	826,219	2,000,879
2004	24,053,506	848,320	2,054,400
2005	26,747,439	466,900	2,245,183
2006	26,950,062	2,451,227	2,425,606
2007	28,297,543	2,573,786	2,546,884
2008	29,712,410	2,702,475	2,674,228
2009	31,198,025	2,837,598	2,807,939
2010	32,757,909	2,979,476	2,948,334
Average	27,573,755	1,573,715	2,404,666
Note: Table 3 projections for 2006–2010 assume a 5% camper use of the total visits rather than the 2% in the previous years (more and better facilities). These calculations use $27.44 spent per day visit and $47.42 per camping visit.

Discussion

The American Sportfishing Association (2008) reports that more than 2.5 million anglers spent over 41 million “fishing days” in Texas. Those fishing days provided a $3.37 billion-dollar boost to the Texas economy. About 10% of these anglers are from out of state. Lakes can have a significant positive value increase on the aesthetic and economic desirability of houses. Thus, although projections for the Central Texas economy can seem high at first glance (Table 2), these are consistent with other assessments of economic benefits of lakes.

Shapiro and Kroll (2004) found 71% of New Hampshire residents plan trips to lakes for recreation annually. Of those residents, 15% stopped using their local lakes when water clarity, quality and purity declined. They further reported that freshwater lake use contributed $1.2 billion to the New Hampshire economy.

Dziuk and Heiskary (2003) provided estimates of the economic impact of lakes. Their study was based in lake-rich (945 lakes, ∼75,000 ha) Itasca County, Minnesota. In their assessment of lake economic impact (Table 4) they note the increased value for homes adjacent to lakes, and those homes represent 56% of the local tax base. They used a multiplier to project additional economic impact of spending by people in jobs created by the lake. Dziuk and Heiskary (2003) identified this as an indirect impact that is added to the direct model annual average. In comparison, Lake Waco is about 3530 ha and is located in a relatively lake-poor region. Using the economic impact per hectare, Lake Waco, although smaller in surface area, should generate more economic impact due to the lower number of available lakes for recreation.

Table 4 Economic impact of lakes in Itasca County, Minnesota, and of Lake Waco.

Economic	Per Acre	Total	Total
Impact	of Lake	Impact	Impact
		Itasca County	Lake Waco
Number of jobs sustained	0.0067	54 jobs	148 jobs
Direct consumer purchases	$371	$3,008,144	$8,244,000
Direct and indirect impacts	$605	$4,906,296	$13,446,000
Total value added	$270	$2,193,712	$6,012,000

A similar study by the US Environmental Protection Agency of 5 southeastern lakes in Alabama and Georgia (McGinnis and Bell 2003) reported total expenditures for lake related activities to be between $4.9 and $145.8 million per year. Five lakes of varying size (1,036–13,760 ha) and proximity to large metropolitan areas (Atlanta to less developed areas) were included in the assessment. Although surface area affected the amount of impact (the 13,760 ha lake had a $201 million impact), proximity to a large population had a greater effect (Lake Tarpon is near St. Petersburg, FL and is 1,036 ha with an impact of $50.4 million). The economic impact from Lake Waco (completely within the city limits) should be greater than a more remote lake.

Lake Waco has a beneficial economic impact on Central Texas; however, natural resources are often not considered as an economic factor in budget and allocation decisions. Water quality and resource integrity is “assumed,” and that is a poor decision for surface waters; eutrophication and threats to drinking waters are increasing. The reasons for conducting this economic analysis included

•	defining Lake Waco's value to the local economy,
•	placing the cost of resource preservation in perspective, and
•	providing information municipal and political leaders can use to make more informed policy and management decisions relative to Lake Waco and its watershed.

Using only the Corps annual budget of $1.6 million as the “cost” and the low projection of an average annual tax revenue of $2.4 million, the lake's immediate annual net value is nearly $1.0 million in tax revenue. The tax revenue is based on the dollars spent as a direct effect of people using Lake Waco; the economic impact from sales is significantly higher and the MGM2 model projects more than 750 jobs in Central Texas are supported by activities associated with Lake Waco. Several methods to quantify the economic impact of Lake Waco on the local economy generate varying results (Fig. 2); however, even using the most conservative method (Dziuk and Heiskary 2003), the sales impact is more than $8 million dollars annually. Revisiting the $1.6 million dollar Corps lake budget, through a comparison with the conservative $8.2 million direct sales projection, Lake Waco provides $6.6 million in economic gain for Central Texas.

Figure 2 Annual average economic impacts by method. Dziuk estimate based on approach of Dziuk and Heiskary (2003).

Using the MGM2 model projection of annual average economic impact, the cost-benefit ratio is 1:10, or a gain of $10.00 in direct positive impact for every $1.00 spent at Lake Waco. The tax revenue projections for each $1.00 spent range from $1.50 to $3.00. The MGM2 projections are more favorable than those presented in Dziuk and Heiskary (2003), with tax revenues in excess of $4.5 million and spending totals exceeding $16 million annually.

Note that property value increases associated with Lake Waco were not included in these economic projections. The increases in property values would make the tax revenue cost–benefit ratio more favorable.

Altering the depth of the pool can potentially have a negative economic impact. Because the average depth of newly inundated shoreline is □7 ft (the depth increase associated with the pool rise), there is a potential for invasive aquatic plants and algae to dominate the shoreline. Invasive plants like Hydrilla must be controlled through either biological agents, chemical treatments or a combination of both. Shallow near-shore areas may provide improved habitat for nuisance algae species (e.g., cyanobacteria) that often prefer warmer, shallower and more nutrient-rich water of the shallow shelf areas, in contrast to the deep open-water portions of the lake. Lake Waco is already algae dominated and has experienced significant taste and odor episodes due to algal blooms.

In times of tighter budgets and greater competition for scarce resources, the value of Lake Waco as a secure public drinking water source (sustaining economic vitality) and as a significant positive economic asset makes implementing protection strategies an easier and wiser decision. Spending $1.00 to get $10.00 in benefits is a good investment, and even spending that dollar to prevent the loss of benefits with no additional gain makes sense, given the value of the lake as a water supply.