The Regional Importance Of Reelfoot Lake – Tennessee - Center for ...

The University of TennesseeCenter for Transportation ResearchAugust 30, 2007Dr. Larry Bray, EconomistLuke Jones, Graduate Research AssistantDr. Mark Burton, Director of Transportation Economics1

Executive SummaryReelfoot Lake is a shallow natural lake located in the northwest corner of Tennessee inLake and Obion counties. The northern reaches of the lake extend slightly into Kentucky.It is the largest natural lake in Tennessee. It was created by a 19th century earthquake andis currently sustained by a spillway constructed about 70 years ago. The spillway is nowvery difficult to operate, but more importantly, it is leaking badly and could fail at anytime. Such an occurrence could possibly turn Reelfoot Lake into a mud flat and take withit the bridge on State Route 21, which is the most convenient route from the east intoTiptonville in Lake County.Loss of the pool in Reelfoot Lake would have an important economic impact on Lake andObion counties, with the greatest relative impact being on Lake County, which is moreheavily dependent on lake visitation than the more broadly based economy of ObionCounty. Given a spillway failure, a protracted period of lost visitation would occur due tothe time required for spillway and bridge construction, the time required for the lake torefill through rainfall, the fish restocking process, and the time required for plant andanimal growth. During this period, virtually all of the income, jobs, and tax revenueassociated with recreational activity on the lake will be lost. In the longer term, it is notcertain that the lake would ever return to the unique environmental treasure that it is.Experts in biology and park and refuge management speculate that fishing in ReelfootLake might not return to present productivity for possibly 15 years given a spillwayfailure. Lost visitation will also depress property values, further exacerbating the impactof a spillway failure on the two counties.The combined Reelfoot Lake State Park and Reelfoot Lake National Wildlife Refuge(NWR) visitation data indicate that the Reelfoot Lake area registered 928,422 visitordaysin 2005 or 603,903 visits or trips. Visitors were estimated to have spent $21,772,000on trip expenditures within 30 miles of the lake in 2006. Lake and Obion counties arevery small counties in terms of population and economic base, thus not all of theexpenditures remain in the community. It is estimated that about $5,446,000 will leak outof the community annually leaving approximately $16,759,000 per year to be capturedwithin 30 miles of the lake.The estimated total annual impact on personal income of these expenditures in Lake andObion counties is approximately $7,882,000, while the total impact on value added isestimated at $12,333,000. The number of total annual jobs associated with visitorexpenditures is estimated to be 385. Total annual tax collections (less multiplier effects)associated with the Lake is approximately $2,801,000 annually. Of these, state sales taxcollections dominate (approximately $1,712,000), followed by federal collections(approximately $623,000), and local tax collections (approximately $466,000). Afterapplication of the local sales multiplier, local tax collections yield approximately$617,000 annually within 30 miles of Reelfoot Lake.3

To gauge the total impact on Lake and Obion counties, given a prolonged absence of lakerecreational activity, annual expenditures at the lake were discounted at the mandatedfederal discount rate with 2006 as the base year. Total sales, including the multipliereffect, range from the estimated annual value of $22,463,000 to $246,604,000 over a 15-year period. The five year and 10 year discounted values are approximately $102,348,000and $183,019,000 respectively. Local sales tax revenue associated with the Lake rangesfrom the annual value of approximately $617,000 to $6,356,000 over 15 years. The fiveand 10 year discounted local sales tax collections total an estimated $2,638,000 and$4,717,000 respectively. Estimated lost income impacts total $35,900,000 for five years,$64,200,000 for 10 years, and $86,500,000 for 15 years. The Center for TransportationResearch (CTR) estimates the loss in annual sales tax receipts to Lake County to be in therange of $123,400 to $230,000 annually.In addition to the loss in sales tax revenue, property values would definitely be reducedby the loss of pool in Reelfoot Lake and the resulting mud flats, isolated pools, and lostcommercial trade in the two counties. 1 Economic literature suggests that absence of alake view alone could cause a 50 percent reduction in property values; and given that15.68 percent of Lake County consists of inland water areas, a large portion of the countywould be impacted. This large penetration of surface water area, in combination withpoor water quality, degraded visual appeal and lost commerce, would certainly result in amajor reduction in property values in Lake County and a lesser, but significant, impact onObion County.The fiscal implications of the lost sales and property tax revenue can be fairly dire. Lakeand Obion counties currently have combined property tax revenue of $10,585,578. But,given a failure of the spillway, property values and their assessed valuations shoulddecline. Since the magnitude of this decline is unknown, CTR assumes that propertyvalues will decline by 25 percent in Lake County and 10 percent in Obion County 2 .Given these declines, property tax revenue would fall to approximately $9,352,737,leaving a shortfall in property tax revenue of approximately $1,300,000. In Lake County,the rate required to generate lost sales and property tax collections would riseapproximately 40 percent to $0.98 per $100 of assessed valuation. In Obion County, theproperty tax rate would rise approximately 15.5 percent. However, if additionalbusinesses cease operations due to lost visitation at Reelfoot Lake, the tax rate wouldhave to rise even further to the level that would meet expenditures.If property taxes cannot be raised to pay for needed goods and services, the fiscalimplications of the reduction in tax collections can be disastrous. Certain governmentfunctions must be funded. These include debt service and education. Cutting roadprograms is undesirable due to the opportunities for receiving matching funds from the1 The condition of the Lake given a spillway failure was discussed with the manager of the State Park andthe National Wildlife Refuge.2 These declines in property values and assessments seem conservative given the literature on the relationbetween property values and lake view and access. Additionally, the economy of Lake County is moreoriented to Reelfoot Lake than Obion County, and a failure of the spillway would essentially wipe out themajor industry in the county, causing businesses to close and individuals to have diminished employmentopportunities.4

state. This leaves solid waste, sanitation, and the general fund as candidates forreductions in service. The general fund includes public safety, public health, andambulance and emergency services.5

AcknowledgementsThe Center for Transportation Research would like to thank several individuals who wentout of their way to provide their time and the information needed to complete the study.These people were most helpful and made the study experience very enjoyable:Paul Brown, Park Superintendent, Reelfoot Lake State ParkTim Broadbent, State of Tennessee, Wildlife Manager IIIDr. Wen-Hui Chang, U.S. Army Corps of Engineers, Institute for Water ResourcesRandy Cook, U.S. Fish & Wildlife Service, Refuge Complex Manager, Reelfoot NationalWildlife RefugeRob Goad, Northwest Tennessee Rural Planning Organization Coordinator7

Table of ContentsExecutive Summary........................................................................................................ 3Acknowledgements......................................................................................................... 7Table of Contents............................................................................................................ 9List of Tables ................................................................................................................ 10Reelfoot Lake Spillway Impacts....................................................................................... 11History and Problem Statement .................................................................................... 11Description of Area....................................................................................................... 12Population ................................................................................................................. 12Prison Inmates........................................................................................................... 13Employment.............................................................................................................. 13Per Capita Personal Income...................................................................................... 14Commuting Patterns.................................................................................................. 15Educational Attainment ............................................................................................ 15The Proposed Plan ........................................................................................................ 16Study Purpose ............................................................................................................... 16The Literature................................................................................................................ 16Methodology................................................................................................................. 17Spillway Compromise and Ecosystem Disruption ................................................... 17Data............................................................................................................................... 19Visitor Volume.......................................................................................................... 20Expenditures ............................................................................................................. 22Economic Impacts......................................................................................................... 24The Simulations ........................................................................................................ 24Consistency with Environmental Impact Statement................................................. 26Fiscal Impacts ............................................................................................................... 26Sales Tax Revenue.................................................................................................... 26Property Tax Revenue............................................................................................... 27Monetary Losses ....................................................................................................... 28Summary and Conclusions ........................................................................................... 30Bibliography ................................................................................................................. 339

List of TablesTable 1: Lake and Obion Population Estimates.................................................................13Table 2: National and Regional Labor Force and Unemployment Data ...........................14Table 3: National and Regional Per Capita Income Data..................................................14Table 4: National Wildlife Refuge and State Park Visitation............................................20Table 5: Distribution of Reelfoot Lake Visitors ................................................................22Table 6: Estimated Travel Expenditures per Trip..............................................................22Table 7: Estimated Annual Equipment Purchases by Activity..........................................23Table 8: Estimated Tourism Expenditures, Jobs, and Tax Impacts From ThreeSources (2006 Dollars) ...................................................................................23Table 9: Estimated Direct and Total Impacts of Visitor Spending (2006 Dollars) ...........25Table 10: Estimated Tax Receipts Associated with Visitor Expenditures Within30 Miles of Reelfoot Lake (2006 Dollars).......................................................25Table 11: Estimated Local Sales and Local Sales Tax Revenue Within 30 Miles ofReelfoot Lake (2006 Dollars) ..........................................................................26Table 12: Estimated Comparisons of Center for Transportation Research DataWith the U.S. Fish & Wildlife Service Environmental ImpactStatement..........................................................................................................26Table 13: Estimated Fiscal Implications of Lost Sales and Property Tax Revenue ..........2910

Reelfoot Lake Spillway ImpactsHistory and Problem StatementReelfoot Lake is a shallow natural lake located in the northwest corner of Tennessee inLake and Obion counties. The northern reaches of the lake extend slightly into Kentucky.The lake was formed when the region subsided after the New Madrid earthquakes of1811-1812. These were the most powerful earthquakes recorded in North America 3 .Reelfoot is the largest natural lake in Tennessee, with approximately 10,427 acres at anormal pool elevation of 282.2 feet above sea level. Bathymetric contour maps created in1983 and 1984 suggest that the lake has a volume of approximately 80,300 acre-feet, anda mean depth of approximately 5.2 feet at the normal pool elevation. But 43 percent ofthe total lake area has a depth of 3 feet or less at this stage. 4 Reelfoot Lake has threemajor tributaries: Reelfoot Creek, Indian Creek, and Running Slough. It has one majoroutflow: Running Reelfoot Bayou.Approximately 70 years ago, a spillway was constructed on the lower reach of RunningReelfoot Bayou to maintain the pool of Reelfoot Lake at 282.2 feet above sea level. Thisspillway operates to control lake elevations by causing rising lake waters to flow over it.This caused the Tennessee Wildlife Resources Agency (TWRA) to determine that “thespillway is almost inoperable and it is difficult to control lake levels and amount of waterleaving the spillway.” 5 Farmers and land owners have complained about lost crops as thewater released from the lake often floods their fields and causes crops to ruin. 6Dwarfing the issue of flooding and operational inflexibility is the almost universalopinion that the old spillway is leaking badly and could fail at any time. Such anoccurrence would turn Reelfoot Lake into a mud flat and take with it the bridge on StateRoute 21, which is the most convenient route from the east into Tiptonville in LakeCounty. Loss of the pool in Reelfoot Lake would have an important economic impact onLake and Obion counties, with the greatest relative impact being on Lake County, whichis more heavily dependent on lake visitors than the more broadly based economy ofObion County.Given a spillway failure, a protracted period of lost usage would occur due to the timerequired for spillway and bridge construction, the time required for the lake to refillthrough rainfall, the fish restocking process, and the time required for plant and animalgrowth. During this period, virtually all of the income, jobs, and tax revenue associatedwith recreational activity on the lake will be lost.3 U.S. Fish & Wildlife Service, August 2006. www.fws.gov/southeast/pubs/rlfpubgn.pdf4 U.S. Geological Survey (1985). Hydrology of the Reelfoot Lake Basin, Obion and Lake Counties,Northwestern Tennessee (Water Resources Investigation Report 85-4097). Nashville, TN: Robins, C.H.5 Krone, K. (2007, Feb. 22). TDOT Presents Plans for New Spillway, Bridge at Reelfoot. State Gazette.6 ibid11

In the longer term, it is problematic that the lake would ever return to the uniqueenvironmental treasure that it is. Among other distinctions, Reelfoot Lake has beendeclared to be Outstanding National Resource Waters by the Tennessee Department ofNatural Resources (Tennessee Department of Environment and Conservation (TDEC)), aState Natural Area (TDEC), a state Natural Resources Recreation Area (TennesseeGeneral Assembly (TGA)), a state Wildlife Observation Area (TGA), and a TennesseeRare Plant Protection Area (Rare Plant Protection and Conservation Act of 1985). 7 Lossof this diversity could reduce the economic potential of the lake for years to come.A reasonable list of potential impacts that might occur with a collapsed spillway includeslost income, jobs, tax revenue, the further impacts of lost revenue on services, and thediminution of property values. Additionally, one should include increased driving timebetween Lake and Obion counties, which would further impact commuters, tourists, andcommercial traffic. Increased driving time would result in an increase in the cost of doingbusiness and degrade the quality of life and the environment in the area.Description of AreaLake and Obion counties would bear much of the economic impact in the event of aspillway failure. Examining some basic economic and demographic characteristics ofthese counties can provide an idea of how robust local economies would be to the shockof losing the pool in Reelfoot Lake.PopulationEven though Lake County’s population is less than one fourth of Obion’s, both of thesecounties are relatively small for Tennessee in terms of population. The U.S. CensusBureau’s Population Estimates Program estimated Lake County’s 2006 population to bejust 7,406, compared with Obion’s estimated population of 32,184 for the same year.Table 1 shows population data for Lake and Obion counties for the years 2000 through2006. Despite both counties exhibiting stable migration patterns (U.S. Census Bureaumigration data shows that both Lake and Obion counties had small net inflows between1995 and 2000), the population table nonetheless reveals declining populations for Lakeand Obion counties between 2000 and 2006. Lake County’s population increased slightlybetween 2000 and 2001 and then turned downward and steadily decreased through 2006.Overall, Lake County’s population fell by about 7 percent between 2000 and 2006.Obion’s population has been more stable, exhibiting a consistent up and down pattern andfluctuating around an average annual population of 32,327 for the years 2000-2006. Still,the overall trend for Obion’s population has been downward, decreasing by about 1percent between 2000 and 2006.7 Letter to Mr. Ronald J. Mikulak, Chief Wetlands Regulatory Section of U.S. EPA from Renee VictoriaHoyos, Executive Director of the Tennessee Clean Water Network, October 13, 2006.12

Table 1: Lake and Obion Population EstimatesPopulation 2000-2006 for Lake and Obion counties2006 2005 2004 2003 2002 2001 2000Lake CountyPopulation 7,406 7,544 7,625 7,870 7,883 7,954 7,942Obion CountyPopulation 32,184 32,177 32,319 32,301 32,411 32,397 32,502Source: U.S. Census Bureau, Population Estimates ProgramPrison InmatesThe population of Lake County includes all residents living in the county as of the date ofthe census. Prison inmates are included in the census count, thus the 2,291 inmates at theNorthwest Correctional Complex in Tiptonville are recorded in the population base.Removing the prison inmates from the population count actually leaves 5,115 residents toabsorb the economic impacts that would result from loss of the pool at Reelfoot Lake. Inother words, 31 percent of the population of Lake County resides in the prison.EmploymentLake County — and in recent years, Obion County — has experienced relatively highunemployment rates. Table 2 shows labor force numbers for Lake and Obion counties,and unemployment rates for Lake, Obion, Tennessee, and the U.S., for the years 2000 –2006. During this period, the average annual unemployment rate in both the U.S. andTennessee was about 5.1 percent. In comparison, the average annual unemployment ratein Obion County for the same period was 5.5 percent, and even higher was LakeCounty’s average annual unemployment rate of 6.9 percent. Both Lake and Obioncounties saw their lowest annual unemployment rates in 2000, with rates of 6.3 percentand 4.4 percent respectively. Lake County’s unemployment rate reached a high in 2005 at8.2 percent before improving to 7 percent in 2006. Obion County’s unemployment raterose steadily from 2000 through 2003, reached a peak of 6.9 percent in 2003, and thenfell steadily through 2006 to 5.6 percent, a level which was still about 3 percent higherthan Obion’s 2000 low mark.During this same period, labor force growth looked more favorable for Lake County.Lake and Obion both experienced growth in their labor forces in the early years of 2000.Lake County’s labor force climbed from 2,560 in 2000 to 2,760 in 2003 before slidingback to 2,680 in 2006. Even though Lake’s population fell by 7 percent between 2000and 2006, it is encouraging that the county’s labor force expanded by almost 5 percentover the same period. Conversely, Obion County’s labor force saw an overall decreasebetween 2000 and 2006. Obion’s labor force reached a maximum value at 16,830 in2002, and fell every year afterwards until 2006, when it finally turned back up and hit15,620, which was still 4 percent less than Obion’s labor force in 2000.13

Table 2: National and Regional Labor Force and Unemployment DataAnnual Labor Force and Unemployment Data 2000-2006 (Not Seasonally Adjusted)2006 2005 2004 2003 2002 2001 2000Lake CountyCivilian Labor Force 2,680 2,580 2,730 2,760 2,730 2,580 2,560Unemployment Rate (%) 7.0 8.2 6.5 7.0 6.7 6.5 6.3Obion CountyCivilian Labor Force 15,620 15,440 15,760 16,300 16,830 16,550 16,350Unemployment Rate (%) 5.6 6.0 6.5 6.9 4.9 4.5 4.4TennesseeUnemployment Rate (%) 5.2 5.6 5.4 5.5 5.2 4.6 4.0U.S.Unemployment Rate (%) 4.6 5.1 5.5 6.0 5.8 4.7 4.0Source: Tennessee Department of Labor and Workforce Development, Division of Employment Security, Research andStatisticsPer Capita Personal IncomeTable 3 displays per capita income data for Lake, Obion, Tennessee, and the U.S. for theyears 2000-2005. Between 2000 and 2005, Lake County’s per capita personal incomeincreased by roughly 14 percent, from $15,167 (2006 dollars) in 2000 to $17,284 (2006dollars) in 2005. Over the same period, Obion County’s per capita personal income fellby about 2 percent, from $28,491 (2006 dollars) in 2000 to $28,019 (2006 dollars) in2005. Even though Lake County gained some ground during this period, it still has thelongest way to go. Lake County’s 2005 per capita personal income was still less thantwo-thirds of Obion’s per capita income, just over one-half of Tennessee’s per capitaincome, and less than one-half of the U.S. per capita income.Table 3: National and Regional Per Capita Income DataPer Capita Personal Income, Lake, Obion, Tennessee, and the U.S. 2000-2005(2006 Dollars)2005 2004 2003 2002 2001 2000Lake CountyPer Capita Personal Income $17,284 $16,625 $15,983 $14,794 $15,093 $15,167Obion CountyPer Capita Personal Income $28,019 $27,485 $27,315 $26,904 $27,516 $28,491TennesseePer Capita Personal Income $31,968 $31,634 $31,062 $30,816 $30,588 $30,551U.S.Per Capita Personal Income $35,583 $35,315 $34,476 $34,510 $34,790 $34,938Source: Regional Economic Information System, Bureau of Economic Analysis, Tables: CA1-3; SA30*Adjusted for inflation using the Bureau of Labor Statistics Consumer Price Index-All Urban Consumers-U.S. City Average-AllItems (Not Seasonally Adjusted)As noted, Lake County has a substantial prison population, which unfortunately iscounted in the population base, artificially depressing per capita income. However, thepoint is well made that Lake County is a relatively poor area. In terms of median family14

income, Lake County ($21,995) is well below the rural county average of $31,293 andthe statewide average of $36,360. The prison population is not counted in median familyincome.Commuting PatternsU.S. Census data on county-to-county worker flows provide an overview of commutingpatterns in Lake and Obion counties for the year 2000. In 2000, Lake County had 2,317resident workers over the age of 16 in its commuter flow. Of these resident workers, 756commuted out of Lake County for work, 62 percent traveled to Dyer County, and 22percent traveled to Obion County. In the same year, 678 workers commuted into Lakefrom other counties, 53 percent of non-resident commuters traveled from Obion County,and 29 percent traveled from Dyer County. Of the 2,317 resident workers in thecommuter flow, 81 percent drove alone in a car, truck or van; 13 percent carpooled in acar, truck or van; 2 percent walked; less than 1 percent used public transportation; and theremaining individuals either worked at home or used other means of transportation. Themean travel time to work for a Lake County resident commuter was 20.4 minutes.In 2000, Obion County had 14,515 resident workers over the age of 16 in its commuterflow. Of these resident workers, 3,600 commuted out of Obion County for work, 24percent traveled to Dyer County, 22 percent traveled to Weakley County, 20 percenttraveled to Fulton County, and 10 percent traveled to Lake County. In addition, 4,838workers commuted into Obion from other counties. Of the workers commuting intoObion, 36 percent traveled from Weakley County, 15 percent traveled from FultonCounty, 12 percent traveled from Gibson County, and just 3 percent traveled from LakeCounty. Further, 83 percent of Obion’s resident workers drove alone in a car, truck orvan; 12 percent carpooled in a car, truck or van; 1 percent walked; less than 1 percentused public transportation; and the remaining individuals either worked at home or usedother means of transportation. The mean travel time to work for an Obion Countyresident commuter was 18.3 minutes 8 .Educational AttainmentConsidering all equal, higher levels of educational attainment should make Lake andObion more resilient in the event of a spillway failure. Unfortunately, both Lake andObion have lower levels of educational attainment relative to Tennessee and the U.S. In2000, 80.2 percent of 18 – 64-year-olds in Tennessee, and 82.5 percent of 18 – 64-yearoldsin the U.S. had a high school diploma, compared with just 60.2 percent of LakeCounty’s 18 – 64-year-olds, and 77.8 percent of Obion County’s 18 – 64-year-olds. Bothcounties lag at the postsecondary level as well. In 2000, 5.5 percent of 25 – 64-year-oldsin Tennessee had an associate’s degree, and 21.4 percent had a bachelor’s or higher. Inthe U.S., 7.2 percent of 25 – 64-year-olds had an associate’s degree, and 26.5 percent hada bachelor’s or higher. In Lake County, however, just 2.1 percent of 25 – 64-year-oldshad an associate’s degree, and only 5.5 percent had a bachelor’s degree or higher.Although still lagging, the numbers are somewhat better for Obion County, where 3.28 U.S. Census Bureau, Census 2000, County to County Worker Flow Files, and Summary File 3.15

percent of 25 – 64-year-olds had an associate’s degree, and 11.6 percent had a bachelor’sdegree or higher. 9The Proposed PlanThe existing bridge over the spillway, Tennessee Primary Road 21, is considered“functionally obsolete” in that it no longer meets state bridge standards. It is narrow andthe maintenance costs will soon exceed replacement costs. The U.S. Army Corps ofEngineers (USACE) has estimated that construction of the new bridge and spillway willcost $31,000,000. The new bridge and spillway will be separate structures and will belocated about 1,000 feet west of the existing spillway. A 3,000 – 3,500-foot canal willconnect the new spillway to Running Reelfoot Bayou. 10Study PurposeState Representative Phillip Pinion, State Senator Roy Herron, and Congressman JohnTanner asked the County Technical Assistance Service (CTAS) at the University ofTennessee (UT) to study the potentially adverse impact on the tax base of Obion andLake counties, should the spillway at Reelfoot Lake collapse. The purpose of this study,undertaken by CTR at UT, is to determine the impacts as requested by the legislators.The LiteratureConcern over the deteriorating spillway has existed for years, and in 1989 the U.S. Fish& Wildlife Service (USFWS) completed an Environmental Impact Statement (EIS) thatestimated the impact of Reelfoot Lake on the local economies. This study linked visitorexpenditures with area income 11 . The goal was to estimate the economic impact of aspillway failure. EIS results are compared with CTR study estimates below.In September 2005, USFWS published a study of the economic impacts of the WestTennessee Refuge Complex that includes Reelfoot Lake. The goal of the study was toassess the economic benefits of maintaining and operating the NWR relative to theeconomic benefits derived from the refuge. The study area incorporates the refuges ofReelfoot Lake, Lake Isom, Chickasaw, Lower Hatchie, and the Hatchie. The authors usedas data sources USFWS’s National Survey of Fishing, Hunting, and Wildlife-AssociatedRecreation (2002), and the 2004 visitor data collected at each refuge. Visitor data consistof car counts maintained in the Division of Refuge’s Refuge Management InformationSystem (RMIS). Combining visitation data with expenditures per visitor from 2002survey data by type of activity provides a profile of NWR spending in the localcommunities. The IMPLAN ®12 economic impact model is then used to calculate the finaleffects of these expenditures. Total expenditures in 2004 were estimated to be9 Source: Educational Needs Index.10 Krone, K. (2007, Feb. 22). TDOT Presents Plans for New Spillway, Bridge at Reelfoot. State Gazette.11 U.S. Fish & Wildlife Service. (1989). Reelfoot Lake Water Level Management Final EnvironmentalImpact Statement. Atlanta, GA.12 IMPLAN is a product of the Minnesota Implan Group, Inc. (MIG, Inc). IMPLAN is an economicmodeling system that provides the tools, data, and support to do in-depth examinations of state, county ormulti-county regions.16

$4,800,000, with the IMPLAN-generated final demand estimated to be $6,000,000 (2004dollars). This final demand generated 74 jobs with a total job income of $1,650,000.MethodologyThe current study follows the classic model of regional analysis based on regional inputoutputmodeling. The modeling methodology operates as follows: a change in finaldemand expenditures (i.e., expenditures from outside Lake and Obion counties) isestimated, and the input-output model then translates this change into impacts on allmajor business sectors and households within the two counties. The total impact of thepossible spillway failure is estimated, including indirect and induced effects. The U.S.Army Corps of Engineers’ Regional Economic Assessment System (REAS) modelingsystem is used to make the calculations in the current study 13 .The study builds on the REAS output data to estimate the present value of spending andlocal tax revenue. This represents the fiscal loss to the community given a failure of thespillway. Since the time required for lake regeneration is unknown, present values forfive, 10, and 15-year increments are provided. Additionally, the fiscal implications of thelost tax revenue are discussed.The study differs from the 1989 EIS in two ways. While the EIS provides estimates ofstate and local taxes attributed to travelers to Lake and Obion counties, the fiscal impactsof the loss of this revenue associated with the possible compromise of the spillway arenot discussed. This current report discusses these impacts, including lost property taxrevenue. This report further considers the very important environmental and economicimpact of the delay in the regeneration of the lake to pre-failure conditions. Assuming thespillway is compromised and that the lake drains, the assumption is made that the average5-foot depth of the lake will fall to a very low level, turning the lake into essentially amud flat. The ducks and geese will find other areas to feed and the fish population willlargely die, with only a few fish surviving in muddy ponds. The current study discountsthe annual loss in tourism spending such that this loss can be compared to theconstruction cost of a new spillway and bridge, essentially forming the components of abenefit-cost ratio. However, extending the results to this final stage may be inappropriatebecause final construction cost data are not available at this time.Spillway Compromise and Ecosystem DisruptionIf the spillway is compromised and Reelfoot Lake drained to the banks of the Bayou duChien, restocking the fisheries would be necessary to re-establish popular sport fishpopulations. The most popular sport fish in Reelfoot Lake are crappie and bluegill.However, catfish and largemouth bass are also sought by local anglers.To regenerate the lake, a new spillway would first be constructed, which might requireone to two years. The lake would then have to refill through rainfall, requiring possiblyanother year. If hatchery space is available, it might take two to three years to produce13 The REAS model is based on the MGM2 model developed by the Park, Recreation, and TourismResources at Michigan State University. The REAS model incorporates multiplier estimates from IMPLANand expenditure data from the U.S. Army Corps of Engineers Gateway system.17

enough fish to satisfy stocking rates at Reelfoot Lake. Crappie and bluegill would becollected and produced in hatchery ponds the first fall following spillway failure. The fishproduced would be stocked in Reelfoot Lake, and, according to growth rates, crappiewould reach sizes currently harvested by anglers at age three to five years and bluegill atage four to six years following re-stocking. Largemouth bass would need four to fiveyears to reach the minimum size limit of 380 mm (15 inches) currently enforced atReelfoot Lake.If all factors were to fall into place and there were no complications in raising sufficientfish, water quality, or angler cooperation, one could estimate that the fishery would notreturn to the current quality for at least five years after completion of the new spillwayand the time required for the lake to refill. It would more than likely require 10 – 15 yearsfollowing stocking for lake productivity to reach current levels.The refilling of the lake would be similar to creating a new lake, where growth rateswould be good after refilling, the fish populations would benefit from the “new habitat,”and catch rates of anglers would be good, although the quality of the fish would be low.The return of the fishery would be dependent upon the available food which impactsgrowth (plankton and macro-invertebrates would probably be abundant, but theavailability of shad and other prey fish would be limited unless stocked). If fishingpressure was high, additional size limit and creel limits would be imposed to provide amore quality fishing experience for anglers and to prevent the over-harvest of soughtspecies. This would also impact the fishing trip quality enjoyed by anglers.Thus, it is clear that, if the spillway fails, an indeterminate amount of time would berequired for Reelfoot Lake’s ecosystem to regenerate and for quality fishing and huntingto return. This time period is dependent on many variables, including weather, rainfall,availability of sport and prey fish, growth, fishing pressure, angler cooperation, angleropinion, and the regeneration of wild bird migration patterns. The problem is thatReelfoot Lake is a natural lake with no substantial in-flows other than those created byrainfall. When created, the lake was stocked and continually restocked with water fromthe Mississippi River until the levees were built. After construction of a new spillway, thelake could require six months to a year to refill, depending on the time of year the oldspillway was compromised. After refilling, the lake would have to be restocked with fishand then could possibly be fished again after five years. But over-fishing of the newlystocked lake could push back the time frame for quality fishing to 10 – 15 years. Fishingpressure has doubled at Reelfoot Lake the past few years and the present pressure effecton a new fishery would inhibit establishment of a quality fishery as now seen withbluegill, crappie, and, to a smaller extent, largemouth bass. 14No one really knows the time period required for lake regeneration, and those queried onthe subject were reluctant to make a prediction. However, some estimate must be made toassess the economic impact of a spillway failure. It should be stressed that a 10 – 15 yearperiod is only an opinion. Because of this uncertainty, the economic impact simulations14 Information concerning the time required for lake regeneration was obtained from a composite of expertson Reelfoot Lake. The technical biological information was furnished by Tim Broadbent.18

are presented for lake regenerations requiring five, 10, and 15 years. CTR makes no pointestimate of economic impacts and instead provides a range of possible impacts to guidepolicymakers.DataData input for the economic impact analysis is based on several information sources:1. Reelfoot Lake State Park visitation 2005/20062. Reelfoot Lake Refuge Management Information System (RMIS) NWR visitationand activities report3. Recreation Visitors Spending Profiles for 16 Corps of Engineers lakes (per partyday) 154. The Economic Impact of Travel on Tennessee Counties 2005 165. Retail Trade Establishments, Sales, Payroll, and Employees by Kind of Business:1997 and 2002 176. Consumer Price Index (CPI-U) 187. County Business Patterns 198. The 1989 USFWS Final Environmental Impact Statement 209. The Economic Impact of Waterfowl Hunting in the United States 2110. 2001 National Survey of Fishing, Hunting, and Wildlife-Associated Recreation 22This wide variety of data sources was used because, like most data sources, the visitordata collected in NWR and Reelfoot State Park were never designed to support aneconomic impact analysis. Rather, these data are collected to validate the utilization offederal and state resources in the area of Reelfoot Lake. Note the USFWS 2005 studydiscussed above. The State Park data are collected by vehicle counters, and the NWRdata are basically vehicle counts. Both data sources are based on average observedpassengers per vehicle. Neither data set includes information on expenditures. It is alsopossible that double counting exists between the two data sets and it is certainly possiblethat some visitors are omitted from the total visitor count. It is also possible that thevehicle counter could count a visitor while on a trip in route to the NWR. Conversely, the15 Natural Resources Management Gateway. (2007, July 29). Recreation Visitor Profiles for 16 Corps ofEngineers lakes (per party-day). Retrieved April 30, 2007, from http://corpslakes.usace.army.mil/nrm.cfm).16 The Impact of Travel on Tennessee Counties 2005, Research Department of the Travel IndustryAssociation of America, Washington D.C. (2006).17 Table 1254. Retail Trade—Establishments, Sales, Payroll and Employees by Kind of Business: 1997 and2002, U.S. Census Bureau, 2002 Economic Census,http://www.census.gov/econ/census02/data/comparative/uscs.htm.18 U.S. Department of Labor, Bureau of Labor Statistics, Consumer Price Index, U.S. City average,Washington D.C. 20212.19 U.S. Census Bureau, County Business Patterns for Lake and Obion Counties.20 U.S. Fish & Wildlife Service. (1989). Reelfoot Lake Water Level Management Final EnvironmentalImpact Statement. Atlanta, GA.21 U.S. Fish & Wildlife Service. (2005). Economic Impact of Waterfowl Hunting in the United States:Addendum to the 2001 National Survey of Fishing, Hunting, and Wildlife-Associated Recreation (Report2001-9). Arlington, VA: Henderson, E.22 U.S. Fish & Wildlife Service. (2002). 2001 National Survey of Fishing, Hunting, and Wildlife-AssociatedRecreation, State Overview.19

vehicle counters do not count trips to the launch ramps, thus there may be a tendency forvisits to be undercounted. Further, UT CTR economists are somewhat skeptical about thevalidity of the decline in 2006 State Park visits when visits at the NWR did not declineduring this same period. There seem to be periods when the counters do not work,possibly depressing visitation counts.The data for the State Park and the NWR were apparently added together in the 1989USFWS EIS to create a Reelfoot Lake visitor estimate of 1,100,000. This is not an idealway to generate such an estimate, but apparently is the only credible way to avoid amajor research effort that would be very expensive and require one year of datacollection. Whatever the case, thousands of people visit the State Park and the NWR, andthe addition of the two traffic counts is the only tenable way to estimate visitor numbers.Data made available to the CTR suggest that visitation at the State Park and the NWR hasfallen somewhat since the 1989 EIS was completed. The approximately 18 percentdecline in visits between 1989 and 2005 seems to have resulted from three factors: 1)high gasoline prices, 2) the elimination of commercial crappie fishing, and 3) milderweather that has affected duck migration patterns. Reelfoot Lake is very isolated andrequires a long drive that has become more expensive with higher gasoline prices.Attendance dropped as prices rose. Additionally, many visitors to Reelfoot Lake come tosee the birds of prey, which would congregate around the commercial fishing vessels asthey cleaned their catches. When commercial crappie fishing was banned, eagle watchingvisits declined. With the milder winters that have occurred in the last few years, ducksthat historically flew to the Reelfoot Lake area are wintering farther north in CentralIllinois. With a lower duck population, fewer hunters are coming to Reelfoot Lake, thusfewer ducks are being taken in the hunts. The eagles then have fewer wounded ducks toprey upon, thus there are fewer eagles to view in the Reelfoot Lake area. Thecombination of the three factors seems to be the cause of reduced visitor numbers.Visitor VolumeVisitor data for 2005 and 2006 are provided in Table 4. Traffic for the State Park and theNWR totaled 928,422 visitor days in 2005, and 774,648 visitor days in 2006. The declinein 2006 State Park visitors does not reflect current attendance levels. Local officials tellCTR that traffic counters may have been malfunctioning.The thought is that, if the NWR data did not fall in 2006, then the State Park trafficcounts should also have remained fairly constant between 2005 and 2006. Thus, the CTRdid not use the 2006 traffic count, and instead, based the economic impact analysis on2005 data.Table 4: National Wildlife Refuge and State Park VisitationArea 2005 2006State Park 658,347 503,613NWR 270,075 271,035Total 928,422 774,64820

Survey work has been done concerning the distribution of Reelfoot visitors. The NWRdatabase is disaggregated by type of visitor, while the State Park data is not. However,certain statistics are available for anglers and hunters visiting the State Park. In 1986,angling was the most common reason for coming to the lake and accounted for 32percent of total visitors. Photography and tours accounted for 32 percent. Other statisticsrelating to the fishermen interviewed during the annual creel survey are as follows:• 42 percent stayed more than two days• 50 percent traveled more than 250 miles• 37 percent came from Tennessee, with 76 percent of Tennessee visitors residingin Lake and Obion counties• 50 percent came from Illinois, Ohio, and IndianaThe State Park Annual Report also had some disaggregated data concerning the type ofhunting. The State Park Superintendent provided the data in a telephone interview.Using a combination of the various sources of information, the CTR estimated visitorcategories that matched those used in the USACE REAS simulation model. This model isused by the USACE to estimate the impacts of lake-based recreational activity. At theReelfoot Lake Wildlife Management Area (WMA) and NWR, the day boaters are thelocal fishermen who reside in Lake and Obion counties. Note that fishing in the WMAdwarfs fishing in the NWR. Overnight boaters are comprised of total fishermen less thosefishing in Lake and Obion counties. Survey data show that waterfowl hunting occurs inthe WMA, while game hunting occurs in both parks. The total number of visitors in thecombined day and overnight non-boater category is equal to total visitors less angling andhunting.Unfortunately, a necessary data element is unavailable: the number of non-angling, nonhuntingvisitors who spend the night. CTR estimated this data element by referencing thenumber of visitors to the occupancy rate of the camper hookups and motel rooms in Lakeand Obion counties. Dyer County is included in the room count since localestablishments refer visitors when all local facilities are sold out. In very rough fashion,assuming an occupancy rate of 60 percent 23 and 3.2 people per room, about 50 percent ofthe visitors seem to be staying overnight during their visits to the lake.The REAS model requires input estimates for visits in the categories of day boater, daynon-boater, overnight boater, and overnight non-boater. The model can accommodateother categories and CTR used waterfowl hunter and game hunter. The estimates areshown in Table 5. Day boaters are local fishermen, while overnight boaters are non-localfishermen. Waterfowl hunters and game hunters data are provided by the NWR databaseand from estimates in the State Park Annual Report 24 .23 One local large motel did provide to the CTR an occupancy rate of 60 percent.24 Certain of the data were obtained in telephone conversations with the superintendents.21

Table 5: Distribution of Reelfoot Lake VisitorsVisit types State Park NWR Total VisitorsDay Boater 59,421 47,80 64,021Day Non-boater 218,075 125,518 343,590Overnight Boater 151,430 12,219 163,650Overnight Non-boater 218,073 125,518 343,590Waterfowl Hunter 10,230 0 10,230Game Hunter 1,300 2,040 3,340Total 658,349 270,075 928,422ExpendituresFrom the USACE Natural Resources Management Gateway, recreation profiles for 16Corps of Engineers lakes are provided for six expenditure categories in 1999 dollars fortwo alternatives: 1) per person trip, and 2) per party day. It seems reasonable that thesurvey data are not for per person trips because cars are counted each day and could becounted each day of the trip. Expenditure data built into the REAS model are for trips,thus the visitor-day data were converted to trips. Table 6 provides the travel expendituresestimates per trip for lake visitors by type of visitation.As noted, the combined State Park and NWR visitor data indicate that the Reelfoot Lakearea registered 928,422 visitor-days in 2005. As noted, USACE survey data built into theREAS model were used to adjust the visitor-day data to visits or trips that were estimatedto be 603,903 in 2005. Again, using survey data built into the REAS model, visitors wereestimated to have spent $21,772,000 within a 30-mile radius of Reelfoot Lake.Table 6: Estimated Travel Expenditures per TripVisit typesEstimated Travel Expenditures(2006 Dollars)Day Boater $1,705,000Day Non-boater $5,330,000Overnight Boater $7,321,000Overnight Non-boater $7,052,000Waterfowl Hunter $272,000Game Hunter $89,000Total $21,769,000 – $21,772,000An additional activity related to the lake recreation is equipment purchases. Hunters,anglers, and bird watchers each purchase equipment to enhance their recreation activity.By far, hunters spend the most money annually on their hobby ($1,492,000). Fishing andbird watching follow at $271,000 and $132,000 respectively. Table 7 provides averageannual expenditures in each activity in Tennessee by United States residents. These dataare shown for reference but are not used in the study, which only considers tripexpenditures.22

Table 7: Estimated Annual Equipment Purchases by ActivityTypes of Activities Estimated Equipment PurchasesPer Visitor (2006 Dollars)Hunting $1,492,000Fishing $271,000Bird Watching $132,000In 2005, the visitors to the State Park and the NWR are estimated to have spent$21,772,000 on travel expenditures. These visitors certainly spent money on ammunition,firearms, fishing tackle, bait, decoys, apparel, and other activity accessories.Unfortunately, the pattern of these expenditures is unknown to the CTR study team. First,the total amount of expenditures is unknown. Second, the CTR team does not know thelevel of expenditures that would continue if the spillway gate was compromised. Localfishermen would continue to fish at other local lakes, and some hunting would continueto occur. These fishermen and hunters would continue to purchase some equipmentlocally.As noted above, an environmental impact statement was finalized regarding theimportance of Reelfoot Lake to Lake and Obion counties. The CTR estimate of$21,772,000 is approximately 10 percent below the EIS number of $23,900,000 (adjustedfor 2006 prices). It is interesting that the percentage discrepancy is about equal to thepercentage discrepancy between the 1989 visitation estimate and the 2005 visit estimate.The Travel Industry Association of America also estimates tourism visitation impacts.Their estimate for Lake County is $8,840,000, while Obion County, with a more diverseeconomic base, is estimated at $38,350,000. Part of the higher Obion County numberwould be Reelfoot Lake visitors. A comparison of the expenditure estimates made in thevarious studies is shown in Table 8.Table 8: Estimated Tourism Expenditures, Jobs, and Tax Impacts From Three Sources(2006 Dollars)Study Authors Estimated DirectTravel ExpendituresYear 2040 Estimateddue to SiltationCTR $21,700,0001989 EIS $23,300,000 $17,500,000Travel Industry $47,190,000AssociationLake $8,840,000Obion $38,350,00023

Economic ImpactsThe SimulationsThe combined State Park and NWR visitor data indicate the Reelfoot Lake arearegistered 928,422 visitor-days in 2005. USACE survey data built into the REAS modelwere used to adjust the visitor-day data to visits or trips that were estimated to be 603,903in 2005. Again, using survey data built into the REAS model, visitors were estimated tohave spent $21,772,000 within a 30-mile radius of Reelfoot Lake.Lake and Obion counties are very small counties in terms of population and economicactivity. USACE survey data class the combined two-county region as “smallmetropolitan.” Region size then determines the “capture rate,” which is the amount ofvisitor expenditures that actually occur within a 30-mile radius of the ultimatedestination. This rate is related to the diversity of activity in the destination area, which isdetermined by the size of the region as measured by population. The larger the region, themore likely that goods and services purchased by visitors will be supplied locally. Forexample, if an automobile needs service, will the mechanics and needed parts be suppliedwithin the 30-mile region or does the vehicle need to be towed to the next largest urbanarea for service? Capture rates are based on national survey data at 16 USACE lakes.The REAS model predicts that the capture rate at Reelfoot Lake is 72 percent. This mayor may not be true at Reelfoot Lake, but in the absence of any other information, thiscapture rate forms the basis of the simulation analysis. With total expenditures estimatedto be $21,772,000 per year, it is estimated that $16,800,000 per year will be spent in the30-mile radius area.Table 9 summarizes the annual direct and total impacts of local visitor expenditures.Total impacts on personal income are approximately $7,882,000, while total impacts onvalue added are estimated to be $12,333,000. Value added is simply the value of theoutput or sales produced less the intermediate inputs used to produce the output. Thenumber of annual jobs associated with visitor expenditures is estimated to be 385. Theeffective spending multiplier, estimated total sales ($22,463,000) divided by estimatedtotal visitor spending ($21,772,000), is approximately 1.03.Table 9 also indicates that visitor expenditures in Lake and Obion counties areresponsible for 385 total jobs and approximately $12,333,000 in income. Employmentand income multiplier values are fairly low, reflecting the small size of the areaeconomies and the implied expenditure leakages.24

Table 9: Estimated Direct and Total Impacts of Visitor Spending (2006 Dollars)Economic Measure Direct Effects Multiplier Total EffectsOutput/Sales $16,759,000 1.43 $22,463,000Personal Income $5,446,000 1.45 $7,882,000Value Added $8,147,000 1.51 $12,333,000Jobs 303 1.27 385Total Visitor Spending $21,772,000Capture Rate 72%Effective Spending1.03MultiplierTable 10 summarizes the estimated tax implications of Reelfoot Lake visitorexpenditures. Excluding property taxes, total tax collections (less multiplier effects)associated with the Lake is approximately $2,801,000 annually. Of these, state sales taxcollections dominate (approximately $1,712,000), followed by federal collections(approximately $623,000), and local tax collections (approximately $466,000). Afterapplication of the local sales multiplier, local tax collections yield approximately$617,000 annually within 30 miles of Reelfoot Lake.Table 10: Estimated Tax Receipts Associated with Visitor Expenditures Within 30 Miles of ReelfootLake (2006 Dollars)Estimated DirectSales TaxEstimated TotalSales TaxFederal $623,000State $1,712,000Local $466,000 $617,000Total $2,801,000Table 11 shows the discounted values of sales and local sales tax revenue for the periodsof five, 10, and 15 years. The appropriate discount rate for evaluating water and land useprojects (and required by federal agencies including the USACE and the TennesseeValley Authority) is defined by the Water Resources Development Act (WRDA 1974Section 80(a)). This rate in 2007 now stands at 4.875 percent and is the rate used in thisanalysis 25 .Total sales, including the multiplier effect, range from the estimated annual value of$22,463,000 to $246,604,000 over a 15 year period. The five year and 10 year discountedvalues are approximately $102,348,000 and $183,019,000 respectively. Local sales taxrevenue associated with the Lake ranges from the annual estimated value of $617,000 to25 The various discount rates are published on the U.S. Department of Agriculture, Natural ResourcesConservation Service’s Web page: www.economics.nrcs.usda.gov/cost/priceindexes/rates.html25

$6,356,000 over 15 years. The five and 10 year discounted local sales tax collections total$2,638,000 and $4,717,000 respectively.Table 11: Estimated Local Sales and Local Sales Tax Revenue Within 30 Miles of Reelfoot Lake(2006 Dollars)Discount Rate for 2007 0.04875Type of Effect Annual 5 Year 10 Year 15 yearTotal Sales (including $22,463,000 $102,348,000 $183,019,000 $246,604,000Multiplier Effect)Total Local Sales TaxRevenue (IncludingMultiplier)$617,000 $2,638,000 $4,717,000 $6,356,000Consistency with Environmental Impact StatementAs noted, concern about the spillway has existed for a number of years, and the USFWScompleted an EIS in 1989 that addressed the spillway issue. Economic impacts wereprovided to the USFWS by the Tennessee Department of Tourist Development, with theultimate source being the Travel Data Center, which supplies this data to the state bycounty. As noted above, the CTR estimated visitor expenditures to be $21,772 ,000,while the expenditures in the EIS in 2006 dollars are $23,300,000. The EIS predicted thatdirect jobs associated with Reelfoot Lake are 303, while CTR’s estimate is 305. The EISestimate of local taxes is $466,000, while the CTR estimated local taxes to be $520,000.The estimates were made over the period 1989 to 2007 with different methodologies butappear remarkably similar. These data are shown in Table 12.Table 12: Estimated Comparisons of Center for Transportation Research Data With the U.S. Fish &Wildlife Service Environmental Impact StatementStudy Direct Jobs Local Taxes ExpendituresCTR 303 $466,000 $21,772,0001989 EIS 305 $520,000 $23,300,000Fiscal ImpactsSales Tax RevenueOne use of this study is to assess the fiscal impacts on Lake and Obion counties given afailure of the Reelfoot Lake spillway. The study provides the estimated impacts on thecombined two counties but does not separate the impacts by county. This is an importantomission given the dependence of Lake County on tourism expenditures related toReelfoot Lake. However, the data are not available to separate the effects leaving CTR toestimate a range of possibilities. In the 2002 County Business Patterns, accommodationand food services data are published for each county. No other industrial category ispublished for each region that is related to tourism. In this category, Lake County26

accounts for approximately 20 percent of total employment. Using 20 percent ofemployment as a proxy variable for the allocation of sales tax revenue in Lake County,CTR estimated an annual sales tax receipts loss to Lake County of $123,400 annually.In the Travel Industry Association of America report, Lake and Obion are estimated tohave had $8,350,000 and $38,350,000 in travel expenditures respectively. Interestingly,Lake County accounts for approximately 20 percent of the total. However, the 20 percentis applied to a higher base. Assuming that travel expenditures in Lake are related toReelfoot Lake, then the loss in sales tax revenue to Lake County would be $229,625.Thus, the possible sales tax losses to Lake County could be in the range of $123,000 -$230,000 annually.Property Tax RevenueEconomic studies have shown a consistent and robust relationship between propertyvalues and proximity to water, and further, with the quality of this water. Homes withlake frontage receive a large premium, which can range from 72 percent 26 to 125percent 27 . Homes located within 300 feet of water sell for up to 28 percent more thancomparable homes outside this range. 28 If water quality declines, those properties with aview of the water may also suffer a decline in value. 29In this study, CTR assumes that property values would definitely be reduced by the lossof pool in Reelfoot Lake and the resulting mud flats, isolated ponds, and loss of businessfor commercial establishments. About 15 percent of Lake County is accounted for byinland water areas, and much of the commerce in the county serves the lake visitors.Since the magnitude of this decline is unknown, the CTR assumes that property valueswill decline by 25 percent in Lake County and 10 percent in Obion County 30 .Data derived from this assumption provides a “bookmark” for a very real impact ofspillway failure that is very difficult to quantify. This assumed decline in property valuescan be challenged and additional impact levels can be estimated. But in the analysis, it isimportant not to lose sight of this aspect of the consequences due to spillway failure.26 Lansford Lansford, Jr., N.H. & Jones, L.L. (1995). Recreational Aesthetics Value of Water UsingHedonic Price Analysis. Journal of Agricultural and Resource Economics, 20(2), 341-355.27 Benson, E.D., Hansen, J.L., Schwartz, Jr., A.L., & Smersh, G.T. (1998). Pricing Residential Amenities:The Value of a View. Journal of Finance and Economics, 16(1), 55-73.28 Bond, M., Seiler, V.L., Seiler, M.J. (2002). Residential Real Estate Prices: A room with a View. Journalof Real Estate Research, 12(1/2), 129-137.29 Michael, H.J., Boyle, K.J. & Bouchard, R. (1996). Water Quality Affects Property Prices: A Case Studyof Selected Maine Lakes. Maine Agricultural and Forest Experiment Station.30 These declines in property values and assessments seem conservative given the literature on the relationbetween property values and lake view and access. Additionally, the economy of Lake County is moreoriented to Reelfoot Lake than Obion County, and a failure of the spillway would essentially wipe out themajor industry in the county, causing businesses to close and individuals to have diminished employmentopportunities.27

Monetary LossesAs noted, it is reasonable to assume that property values (and assessed values) would bedepressed in conjunction with the loss in sales tax revenue. To maintain county services,the reduction in sales and property tax revenue would have to be made up by increases inproperty tax rates. Since it is impossible to determine how property values will beaffected by the draining of Reelfoot Lake, CTR assumes (very conservatively) thatproperty will lose 25 percent of its assessed value in Lake County and 10 percent of itsassessed value in Obion County.The fiscal implications of the lost sales and property tax revenue are shown in Table 13.Lake and Obion counties currently have combined property tax revenue of $10,585,578.With a 25 percent reduction in assessed values in Lake County and a 10 percent reductionin Obion County, property tax revenue would fall to $9,352,737, leaving a shortfall inproperty tax revenue of approximately $1,300,000. In Lake County, the rate required togenerate lost sales and property tax collections would rise by 40 percent to $0.98 per$100 of assessed valuation. In Obion County, the property tax rate would rise by 15.5percent. However, if some businesses cease operations due to lost visitation at ReelfootLake, the tax rate would have to rise to the level to meet expenditures.But expenditures might have to be reduced. Loss of sales and property tax revenue wouldobviously be a hardship on the two counties, and important decisions would have to bemade. Lake County, with a median family income of $21,995, is relatively poor incomparison with other rural areas and the state of Tennessee. The average rural familyincome level is $31,293 and the statewide income level is $36,360. Family income inObion County, $32,764, is higher than the rural county average but well below theTennessee statewide income level. Increasing property taxes in these two economicallychallenged communities would not be a good option.28

Table 13: Estimated Fiscal Implications of Lost Sales and Property Tax RevenueProperty Tax RevenueCurrentlyProperty Tax RevenueAfter ReducedAssessmentLoss in Property TaxRevenueLoss in Sales TaxRevenueTotal Loss in TaxRevenueTax Rate Required toCompensate for LostProperty and Sales TaxesIncrease Over CurrentRateLake County@ 25% ReductionIn Assessed ValueObion County@ 10% ReductionIn Assessed ValueLake Countyand ObionCounty Totals$1,428,288 $9,156,690 $10,585,578$1,111,716 $8,241,021 $9,352,737$370,572 $915,669 $1,286,241$123,400 $493,600 $617,000$493,972 $1,409,269 $1,903,2410.98 0.3440.00 % 15.54 %Cutting services would also not be a good option, but the candidates for reductions arefound in the broad budget categories used in Tennessee government:1. General fund (includes public safety, public health, and ambulance andemergency services)2. Solid waste and sanitation3. Highways and public works4. General purpose schools5. General debt serviceObviously, the interest on debt incurred must be paid. Secondly, revenue to supporteducation in any year must be budgeted in the next year at a level at least as great as inthe previous year. Thus, if a shortfall occurs in sales and property tax revenue at a leveltoo low to support education at the required level, a reserve fund must be created so theshortfall is made up in the next year. Given a failure of the spillway gate, tax rates mustbe raised in the next year to cover the reserve. Thirdly, highway projects funds arematched by the state. Thus, for each dollar not budgeted for highway improvements, thematching dollar from the state will not be forthcoming. The incentive is thus to spendmoney on highway projects to receive the matching funds. This leaves solid waste,sanitation and the general fund as candidates for reductions. And the general fund, asnoted, includes public safety, public health, and ambulance and emergency services.29

Summary and ConclusionsReelfoot Lake is a shallow natural lake located in the northwest corner of Tennessee inLake and Obion counties. The northern reaches of the lake extend slightly into Kentucky.It is the largest natural lake in Tennessee. It was created by a 19th century earthquake andis currently sustained by a spillway constructed about 70 years ago. The spillway is nowvery difficult to operate, but more importantly, it is leaking badly and could fail at anytime. Such an occurrence could possibly turn Reelfoot Lake into a mud flat and take withit the bridge on State Route 21, which is the most convenient route from the east intoTiptonville in Lake County.Loss of the pool in Reelfoot Lake would have an important impact on Lake and Obioncounties, with the greatest relative impact being on Lake County, which is more heavilydependent on lake visitors than the more broadly based economy of Obion County. Givena spillway failure, a protracted period of lost visitation would occur due to the timerequired for spillway and bridge construction, the time required for the lake to refillthrough rainfall, the fish restocking process, and the time required for plant and animalgrowth. During this period, virtually all of the income, jobs, and tax revenue associatedwith recreational activity on the lake will be lost. In the longer term, it is problematic thatthe lake will ever return to the unique environmental treasure that it is. Experts in biologyand park management speculate that fishing in Reelfoot Lake might not return to presentproductivity for possibly 15 years given a spillway failure.The combined Reelfoot Lake State Park and Reelfoot Lake NWR visitation data indicatethat the Reelfoot Lake area registered 928,422 visitor-days in 2005 or 603,903 visits ortrips. Visitors were estimated to have spent $21,772,000 on trip expenditures within 30miles of the lake in 2006. Lake and Obion counties are very small counties in terms ofpopulation and economic base, thus not all of the expenditures remain in the community.It is estimated that about $5,446,000 will leak out of the community annually leavingapproximately $16,759,000 per year to be captured within 30 miles of the lake.The estimated total annual impact on personal income of these expenditures in Lake andObion counties is approximately $7,882,000, while the total impact on value added isestimated at $12,333,000. The number of total annual jobs associated with visitorexpenditures is estimated to be 385. Total annual tax collections (less multiplier effects)associated with the Lake is approximately $2,801,000 annually. Of these, state sales taxcollections dominate (approximately $1,712,000), followed by federal collections(approximately $623,000), and local tax collections (approximately $466,000). Afterapplication of the local sales multiplier, local tax collections yield approximately$617,000 annually within 30 miles of Reelfoot Lake.To gauge the total impact on Lake and Obion counties given a prolonged absence of lakerecreational activity, annual expenditures at the Lake were discounted at the mandatedfederal discount rate with 2006 as the base year. Total sales, including the multipliereffect, range from the annual value of approximately $22,463,000 to $246,604,000 over a15-year period. The five year and 10 year discounted values are approximately$102,348,000 and $183,019,000 respectively. Local sales tax revenue associated with the30

Lake ranges from the annual value of approximately $617,000 to $6,356,000 over 15years. The five and 10 year discounted local sales tax collections total approximately$2,638,000 and $4,717,000 respectively. Estimated lost income impacts are estimated forfive years ($35,900,000), 10 years ($64,200,000), and for 15 years ($86,500,000).The fiscal implications of the lost sales and property tax revenue are dire given theassumptions made by CTR. Lake and Obion counties currently have combined propertytax revenue of $10,585,578. With a 25 percent reduction in assessed values in LakeCounty and a 10 percent reduction in Obion County, property tax revenue would fall to$9,352,737, leaving a shortfall in property tax revenue of approximately $1,300,000. InLake County the rate required to generate lost sales and property tax collections wouldrise by 40 percent to $0.98 per $100 of assessed valuation. In Obion County the propertytax rate would rise by 15.5 percent. However, if some businesses cease operations due tolost visitation at Reelfoot Lake, the tax rate would have to rise to meet expenditures.If property tax rates cannot be raised to the full shortfall in tax revenue, services must becut. But certain government functions must be funded. These include debt service andeducation. Cutting road programs is undesirable due to the opportunities for receivingmatching funds from the state. This leaves solid waste, sanitation, and the general fund ascandidates for reductions in service.31

BibliographyBond, M., Seiler, V.L., Seiler, M.J. (2002). Residential Real Estate Prices: A room witha View. Journal of Real Estate Research, 12(1/2), 129-137.Benson, E.D., Hansen, J.L., Schwartz, Jr., A.L., & Smersh, G.T. (1998). PricingResidential Amenities: The Value of a View. Journal of Finance andEconomics, 16(1), 55-73.Krone, K. (2007, Feb. 22). TDOT Presents Plans for New Spillway, Bridge at Reelfoot.State Gazette.Lansford, Jr., N.H. & Jones, L.L. (1995). Recreational Aesthetics Value of Water UsingHedonic Price Analysis. Journal of Agricultural and Resource Economics,20(2), 341-355.Michael, H.J., Boyle, K.J. & Bouchard, R. (1996). Water Quality Affects PropertyPrices: A Case Study of Selected Maine Lakes. Maine Agricultural and ForestExperiment Station.Natural Resources Management Gateway. (2007, July 29). Recreation Visitor Profilesfor 16 Corps of Engineers lakes (per party-day). Retrieved April 30, 2007, fromhttp://corpslakes.usace.army.mil/nrm.cfmThe Impact of Travel on Tennessee Counties 2005, Research Department of the TravelIndustry Association of America, Washington D.C. (2006).U.S. Fish & Wildlife Service. (1989). Reelfoot Lake Water Level Management FinalEnvironmental Impact Statement. Atlanta, GA.U.S. Fish & Wildlife Service. (2002). 2001 National Survey of Fishing, Hunting, andWildlife-Associated Recreation, State Overview.U.S. Fish & Wildlife Service. (2005). Economic Impact of Waterfowl Hunting in theUnited States: Addendum to the 2001 National Survey of Fishing, Hunting, andWildlife-Associated Recreation (Report 2001-9). Arlington, VA: Henderson, E.U.S. Fish & Wildlife Service (2006). Reelfoot National Wildlife Refuge [Brochure].Union City, TN.U.S. Geological Survey. (1985). Hydrology of the Reelfoot Lake Basin, Obion and Lakecounties, Northwestern Tennessee (Water Resources Investigation Report 85-4097). Nashville, TN: Robins, C.H.33

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