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Appalachian Theatre Economic and Tax Revenue Impacts

   

August 2014    

 

Center for Economic Research & P o l i c y A n a l y s i s Appalachian State University

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Table of Contents    Executive Summary 3  I. Introduction 4  II. Measuring the Economic and Tax Revenue Impact of the Appalachian Theatre 5  III. Appalachian Theatre’s Impacts on the Region Economy 8  IV. Concluding Comments 11  V. Biography for Michael McKee 12  VI. Reference List 13                          

The Author  Michael McKee, PhD Professor of Economics Senior Research Fellow and Associate Director Center for Economic Research & Policy Analysis Appalachian State University    Note: This study was provided free of charge as part of the community outreach program of the Center for Economics Research and Policy Analysis (CERPA) of Appalachian State University. All statements are the responsibility of the author.      

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Executive Summary    The Appalachian Theatre of the High Country (hereafter Theatre) is located in downtown Boone, NC. Built in 1938, the Theatre opened as a movie house with Vaudeville stage. For years, the Appalachian Theatre was the center for activity in Boone, hosting current movies, community events and bringing live acts to its stage. From its beginnings the Theatre has gone through several transformations. It closed in 2007 due to financial difficulties on the part of the then owner. Recently, the Theatre property was acquired by a non-profit and the current plans call for the expansion and enhancement of the stage which will allow uses as a multi-purpose venue offering live music, live theater and opera, video streaming of various events, movies that may not otherwise be shown in the area, and community events. When the renovations have been completed and the Theatre is running at the projected long-term rate, it will play host to some 200 events per year. Of these, approximately 60 will be of the sort that can be labeled destination draws (live music and live theater). Local spending by those attending Theatre events will inject $3.055 million into the region (Ashe, Avery, and Watauga counties). These direct expenditures will, in turn, circulate through the regional economy with the result that total economic activity in the region will increase by $4.512 million each year and employment will increase by more than 50 full time equivalent jobs.1 The Theatre’s economic impact will be considerable for this region. Not included in these numbers are the intangible benefits such as livability, extended nightlife, and enhanced quality of life and image for the residents and visitors to the High Country region. Briefly, the Theatre will result in the following: Total Events 200 “Destination” Events 60 Attendance at Destination Events 17,000 Total Direct Spending Injected into Region $3.055 million Total Direct plus Indirect Economic Impacts $4.512 million Additional Jobs 53 Additional (State and Local) Tax Revenues $300,000 (rounded)

                                                                                                                         1  Some numbers are rounded for the purposes of the Executive Summary.  

2  The auditorium and Balcony will accommodate an audience of 650. An approximate 2000 square foot Community room will allow the Theatre to accommodate meetings, receptions, dinners and small theatre productions. The Theatre

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I. Introduction    The Appalachian Theatre of the High Country (hereafter Theatre) is located in downtown Boone, NC. Built in 1938, the Theatre opened as a movie house with Vaudeville stage. For years, the Appalachian Theatre was the center for activity in Boone, hosting current movies, community events, and bringing live acts to its stage. From its beginnings the Theatre has gone through several transformations. It closed in 2007 due to financial difficulties on the part of the then owner. Recently, the Theatre property was acquired by a non-profit and the current plans call for the expansion and enhancement of the stage which will allow uses as a multi-purpose venue offering live music, live theater and opera, video streaming of various events, movies that may not otherwise be shown in the area, and community events. These events will result in increased visits to the region and many of these visitors will stay in the area overnight, enjoy restaurant meals, and shop in the various retail establishments in the area.2

There is currently no other performing arts center in Watauga County that is not owned by Appalachian State. The Theatre is also in between the size of the University's Rosen Concert Hall and the Schaefer Center for the Performing Arts and it will see use by several university and non-university groups that need a performing arts venue of its size and configuration.

The purpose of this study is to analyze and quantify the economic impacts that are projected to accrue to the region (Ashe, Avery, and Watauga counties in western North Carolina) from the operations of the Theatre. In conducting this study we utilize methods applied to many other similar studies. When the renovations have been completed and the Theatre is running at the projected long term rate, it will play host to some 200 events per year. Of these, approximately 60 will be of the sort that can be labeled destination draws (live music and live theater). Spending by those attending Theatre events will inject $3.055 million into the region (Ashe, Avery, and Watauga counties). These direct expenditures will, in turn, circulate through the regional economy with the result that total economic activity in the region will increase by $4.512 million each year and employment will increase by more than 50 full time equivalent jobs. These impacts will accrue in the Recreation Services (or Hospitality) and Retail Trade sectors, as expected, but other sectors such as Business Services and Personal Services sectors will also experience additional jobs and economic output. The Theatre's economic impact will be considerable for this region.

                                                                                                                         2  The auditorium and Balcony will accommodate an audience of 650. An approximate 2000 square foot Community room will allow the Theatre to accommodate meetings, receptions, dinners and small theatre productions. The Theatre has the potential to provide a stage for local talent as well as performing acts of national prominence. A long list of potential user groups has been identified.  

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I. Measuring Economic and Tax Revenue Impacts of the Appalachian Theatre    Research Method The first step in this type of analysis is to define the region to be studied. The Theatre is located in Boone, NC but those who will be affected by the spending of those attending events at the Theatre will include businesses and individuals located in Watauga and the surrounding counties. For the purposes of our analysis we focus on the impacts in adjacent mountain counties in North Carolina – Ashe and Avery Counties – as well as Watauga County. Constructing the region on this basis is known as the “policy criterion” approach (see Berrens, et al, 1999). The analytical tool for calculating the economic impacts is known as the input-output model.

Input-output (IO) models, developed by the Nobel Laureate Wassily Leontief are the most widely used tool for conducting regional economic impact analyses.3 The essential feature of the IO model is that it captures the economic linkages in the region. That is, each industry within the region purchases some of its inputs from other industries in the region. This is known as the backward linkage. Further, for each industry some of the output produced is sold to other industries in the region for further processing before the product is sold to consumers. This is known as the forward linkage. Finally, in each industry in the region workers receive income and some of this income is spent on the products of the industries in the region. This is known as the final demand linkage.

We aggregate the regional industry database to construct a 12 sector IO model of the region to investigate the overall effects of direct spending of those attending Theatre events. The model is based on the county-level database generated by the Minnesota IMPLAN Group (MIG). These data incorporate adjustments using regional purchase coefficients accounting for leakages from the local economy. IMPLAN is also used to estimate the final economic impacts resulting from the Theatre operations. The model generates projections of the employment, output, and tax impacts generated by the Theatre activity.

There are two sources of direct impacts to the regional economy generated by the Theatre operations. These consist of visitors from outside the region who travel to the region primarily for the purpose of attending an event, perhaps staying in the area overnight, and local residents who attend an even at the Theatre rather than traveling outside to attend an event elsewhere. The first impact constitutes an export (of entertainment or recreation services) by the region while the second is an example of import substitution. Both sources result in injections of money to the region. The total effect of these injections consists of these direct impacts of the local spending and the subsequent indirect and induced impacts as these dollars circulate through local businesses                                                                                                                          3  This approach has been used for many purposes including valuing electricity reliability (McKee, et al, 1992), impacts of forest fires (Starbuck, et al, 2006), economic growth (McKee, 2001), the value of surface mine reclamation (Talberth, et al, 2001), and the economic impacts of universities (Cherry, et al, 2007; McKee and Morgan, 2012).

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and are, in turn, spent locally again. The initial injections of money and subsequent spending would not occur in the region in the absence of the Theatre.

 

The Appalachian Theatre Direct Economic Impacts

We base the impact analysis on the projected use of the Theatre when it reaches a steady state of usage (the third full year of operation). The physical configuration of the Theatre will allow for a variety of types of events – full theater productions as well as smaller events in the community use room. Projected events include the Mountain Home Music Series (14 events), individual concerts (28 events), film series (32 events), and a variety of miscellaneous events such as Appalachian State University Hayes Music School and Opera productions and local independent theater productions (25 events).4

Each of the activity types is expected to provide a mix of out of town attendees and in town attendees. Further each type of event is projected to result in different visit characteristics such as the propensity to stay overnight, visit local restaurants, and so on. Based on studies of comparable theaters we have constructed a table (Table 1) of the mix of events and the direct expenditures for a visitor day associated with each type of Theatre event. Each year these events will occur and each year the region will experience an economic impact arising from these activities.

The usual approach when computing the impacts of institutions such as the Theatre is to construct representative “visitor day” spending patterns. In the case of existing venues we can conduct surveys to obtain data on visitor spending patterns.5 Since the Theatre is not operating as yet, we must utilize the alternative approach of transferring estimates from similar venues. For the types of events provided in Table 1 we estimate visitor day spending for each type of event based on data for similar existing venues.

For individual concerts and plays that are likely to represent destination events for out-of-town visitors we use local costs for accommodation and restaurants to obtain expenditure estimates: hotel ($75, double occupancy), meals ($30), ticket ($25), and miscellaneous spending ($95) for a total of $225 per overnight visitor day. For day-trippers this amount is $150. The Mountain Home Music program has typically offered afternoon concerts and so the likelihood of an overnight stay is lower but for those who do the expenditure is the same as for individual concert or play. Based on the number of events and the distribution of out of town, in town and day-trippers shown in Table 1, the total direct expenditures generated by the Theatre is for these two destination oriented events is $2,309,125. This is allocated to the Recreation Services Sector in our model with 50% of the miscellaneous spending allocated to Retail Trade.6

                                                                                                                         4  Other proposed uses include weddings, church services, and broadcasts of Appalachian State football games.  5  See Stoddard, et al, (2003) for an example applied to Watauga County, NC.  6  Of course, many of those attending Theatre events make the trip to the area for multiple purposes. Thus, we cannot attribute all of the spending by these persons as solely attributable to the Theatre. There are many ways to handle this that would rely on a survey of those attending Theatre events. Since the Theatre is not yet in operation, (continued…)

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Table 1 – Events, Attendance, Spending Event Type Attendance % Out

of Town % Overnight Stay

Number of Events

Visitor Day Spending

Total Direct Spending

Individual Concert/Play

350 40% 30% 28 D: $150

O: $225

$1,029,000

$661,500

Movies 250 20% 0% 32 D: $30

$240,000

Church Related Events

250 0% 0% 90 D: $10 $225,000

Mountain Home Music Program

250 40% 10% 14 D: $150

O: $225

$210,000

$78,750

Independent Local Theater Productions

250 20% 20% 16 D: $120

O: $225

$384,000

$180,000

Community Events – Meetings, Gatherings, etc.

75 0% 0% 25 D: $25 $46,875

Totals $3,055,125

Note: Under Visitor Day Spending the values refer to Overnight (O) and Day Trip visitors (D)

The attendance figures are based on projections derived from similar entertainment in the High Country region and adjusted to reflect the extent of multi-purpose trips.7 A recent study commissioned by the Barter Theatre in Abingdon, VA provides some useful benchmarks although we have adjusted for some differences. Abingdon is located directly off Interstate 81, which improves transportation to and from the venue. While this may increase attendance at events, it also reduces the fraction that may stay overnight. Boone, as is fairly well known, is not an easy place to get to but this may lead to greater likelihood that out of town patrons will remain in the area overnight leading to greater expenditures on hotels and meals per visitor.

                                                                                                                                                                                                                                                                                                                                                                                                                 (… continued) we chose an alternate approach of employing conservative estimates of total visitors.    We assume that, absent the Theatre, 50% of the local residents attending Theatre events would have gone out of town to consume entertainment. This import substitution is a direct economic impact. The fraction that would have gone elsewhere within the region is not a direct impact since it is a transfer from an alternate source of entertainment. 7 Many visitors plan their trips to include multiple events and it is standard practice in studies such as this to adjust for this. For this study we assume that one half of the out of town visitors plan their trip primarily to attend the Theatre.

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III. Appalachian Theatre’s Impacts on the Regional Economy  

Due to the economic linkages described above, a dollar of injected spending into the region results in both indirect effects (the spending by the establishment on other inputs produced in the region) and induced effects (spending from the earnings of those employed in activities supporting the Theatre). Thus, the direct spending impacts circulate throughout the regional economy and generate additional indirect spending through economic linkages (suppliers to the directly affected industries) and induced spending by those who earn income through the Recreation Services and Retail Trade sectors. The combined effects of these circulations constitute the multiplier effect. The multipliers for aggregated sectors in the Region are reported in Table 2. Type II multipliers include the “indirect” effects, resulting from purchases of one industry for inputs being the output of the industry supplying the good or service, and the “induced” effects as the wages earned by the additional labor required are spent within the region. These multipliers can be interpreted as the overall impact of an additional $1 being spent in the region in the particular sector. For example, the multiplier for the Recreation Services Sector, which includes entertainment facilities such as the Theatre, is 1.50 indicating that for each dollar spent in the region in this sector the economy grows by $1.50.

Table 2 – Regional Economic Output Multipliers by Sector

Industry Name Direct Effects

Indirect Effects

Induced Effects

Type II Multiplier

Primary Industry 1.00 0.24 0.36 1.61

Construction 1.00 0.20 0.22 1.42

Food & Beverage Manufacturing 1.00 0.25 0.10 1.35

Non-food Manufacture 1.00 0.19 0.13 1.31

Wholesale & Retail Trade 1.00 0.19 0.27 1.46

TCU 1.00 0.23 0.14 1.37

FIRE 1.00 0.26 0.07 1.33

Business Services 1.00 0.23 0.22 1.45

Health & Education 1.00 0.25 0.34 1.59

Personal Services 1.00 0.25 0.38 1.63

Recreation Services 1.00 0.25 0.25 1.50

Government Services 1.00 0.26 0.25 1.52

Note: The industry names are those assigned when we aggregated the regional dataset into 12 industry sectors.

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The direct expenditures associated with the Theatre are assigned to the Recreation Sector (includes accommodation and food services industries) and the Wholesale and Retail Trade Sector.

Table 3 reports the overall annual economic impacts associated with the projected use of the Theatre at the steady state level attained in year three of operations. The direct spending by visitors and residents who attend Theatre events rather than travel elsewhere is projected to be $3.055 million per year. The total impact on economic output in the region (direct plus indirect plus induced effects) is $4.512 million per year. This additional economic activity would generate 53 new full time equivalent jobs with total additional labor earnings of $1.446 million per year.

Table 3 – Annual Economic Impacts Summary: Appalachian Theatre

Impact Type Employment Labor Income Dollar Value of Output Direct Effect 42 $1,065,422 $3,055,172

Indirect Effect 5 $162,044 $690,627

Induced Effect 6 $218,360 $768,032

Total Effect 53 $1,445,826 $4,512,036

While most of the employment effects accrue to the Recreation and Retail Trade sectors, since these are the sources of the direct spending, as these additional dollars circulate through the local economy there are employment and output effects elsewhere. For example, the Business Services, health and Education Services, and Personal Services sectors are each projected to add two additional full time equivalent jobs. These jobs are permanent additions to the labor force.

The spending by visitors and those residents who choose to attend a Theatre event rather than venture outside the region also generates tax revenue from a variety of sources: State and Local Sales Tax, Hotel and ABC taxes, Property Taxes, as well as Income and Payroll taxes. Annually these add up to more than $300,000. Sales and Property taxes are especially relevant since these are largely local and these taxes annually amount to $165,030 and $118,948 respectively.

Overall, the annual economic impacts generated by the Appalachian Theatre are considerable.

 

 

 

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Table 4 – Annual Tax Impacts: Appalachian Theatre

Description Employee Compensation

Tax on Production and Imports

Households

Social Ins Tax- Employee Contribution

$1,162

Social Ins Tax- Employer Contribution

$2,058

Tax on Production and Imports: Sales Tax

$165,030

Tax on Production and Imports: Property Tax

$118,948

Tax on Production and Imports: Motor Vehicle Licenses

$4,294

Tax on Production and Imports: Other Taxes

$14,683

Tax on Production and Imports: S/L Non-taxes

$14,540

Personal Tax: Income Tax

$27,194

Personal Tax: Non-taxes (Fines- Fees)

$4,462

Personal Tax: Motor Vehicle License

$1,298

Personal Tax: Property Taxes

$369

Personal Tax: Other Tax (Fish/Hunt)

$187

Total State and Local Tax $3,220 $317,465 $33,510  

                     

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IV. Concluding Remarks   The results presented above demonstrate that the potential economic impacts attributable to the Theatre are quite large. An injection of over $4.512 million dollars and 53 new jobs constitutes a significant impact to the regional economy. It is important to note that these estimates are quite conservative. The Theatre capacity is 650 in the main theater but we have held attendance projections well below that. Further the daily spending patterns and levels are lower than those used in comparable studies such as the recently completed report for the Barter Theatre in Abingdon, VA. We have not included the impacts associated with the renovations to the Theatre. While these are expected to generate jobs and economic activity in the Construction sector for the duration of the renovation activity, these are not permanent additions to the regional economy. Nor have we included the many intangible benefits of having a venue such as this in the region. The economic base of the mountain region of western NC has been shifting from resource extraction and agriculture to greater reliance on the service sector. Recently, the NC Arts Council published a book (Fussell, 2013) and an accompanying map detailing the rich musical offerings of the western portion of North Carolina. The Theatre and its region will add to this and the overall impacts will be enhanced. The region stands ready to reap the gains from the agglomeration economies associated with this strong regional entertainment sector. Further, live theater in the region is a growing activity. Boone, of course, hosts the annual Horn in the West production and the Town of Blowing Rock has recently announced plans to construct a theater in town and having multiple event venues within a region will serve to attract larger attendance to all venues, as visitors will be able to enjoy multiple performances as a part of their travel.

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V. Bio for Michael McKee, PhD   Dr. McKee has held the position of Professor of Economics at Appalachian State University (ASU) since August 2007. Prior to moving to ASU, Dr. McKee held several academic appointments including the J Fred Holly Professor of Economics at the University of Tennessee, Knoxville, the Arthur Child Professor of Defence Economics at the University of Calgary (Alberta, Canada), and Professor of Economics at the University of New Mexico, Albuquerque, NM. He has been conducting regional economic impact analyses since the mid-1980s. Previous clients include Los Alamos National Laboratories, Los Alamos, NM; Bernalillo County Government, NM; the US Fish and Wildlife Service, Washington DC; the US Forest Service, Flagstaff, AZ; the US Geologic Survey, Reston VA; Appalachian State University, Boone, NC; and Mission Health Services, Asheville, NC. Dr. McKee has published more than 75 papers in academic journals including the American Economic Review and the RAND Journal of Economics. He has served as co-editor and/or member of the editorial board of several academic journals including Economic Inquiry, the Journal of Environmental Economics and Management, and Public Finance Review. Dr. McKee’s research has been funded by the US Internal Revenue Service, US Forest Service, the US Fish and Wildlife Service, Oak Ridge National Laboratories, the US Environmental Protection Agency, Los Alamos National Laboratories, the US Office of Naval Research, and the National Science Foundation.

   

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VI. References    

Berrens, R., M. McKee, and M. Farmer, 1999, “Incorporating Distributional Considerations in the Safe Minimum Standard Approach: Endangered Species and Local Impacts,” Ecological Economics, 30 (3): 461-474.

 Brookshire, D., M. McKee, and C. Schmidt, 1994. “Valuing Electricity and Natural Gas Service

Interruptions: A Method and Case Studies,” submitted to Los Alamos National Laboratory. Cherry, T., M. McKee, and S. Millsaps, (2008), “Appalachian State University Economic and Tax

Revenue Impacts FY 2006,” Center for Economic Research and Policy Analysis, Appalachian State University.

Cherry, T., D. McEvoy, M. McKee and A. Morgan, 2009. “The Economic Impact of Graduate

Education and Research at University of North Carolina System Universities,” submitted to UNC General Administration.

 Destination Services, Inc, 2013. “Economic Impact of the Barter Theatre,”  Fussell, Fred, 2013, Blue Ridge Music Trails of North Carolina, UNC Press, Chapel Hill, NC.  Leontief, W. (1986). Input-Output Economics. New York: Oxford University Press. McKee, Michael and Ash Morgan, 2012. “Appalachian State University: Economic and Tax

Revenue Impacts for FY 2010-2011,” Appalachian State University Office of the Provost McKee, Michael, David Brookshire, Frederick Roach, Gerald Romero, Matt Medina, and Chris

Boyd, 1992. “Issues in Measuring the Value of Electric Power Reliability: Customer Valuation and Economic Damages,” Los Alamos National Laboratory.

McKee, Michael, 2001. “The Benefits of Growth in Bernalillo County – 2000 - 2020,” Report

submitted to Bernalillo County Council.

Minnesota IMPLAN Group, 2012. 2012 Database for North Carolina, Stillwater, MN.  Starbuck, M., R. Berrens, and M. McKee (2006), “Simulating Economic Impacts from Hazardous

Fuels Treatment and Forest Restoration Management Activities,” Forest Policy and Economics, 8 (1): 52-66.

 Stoddard, J., D. Dave, and T. Cherry, 2003. “The Economic Impact of the Arts in Watauga County,

North Carolina,” Walker College of Business, Appalachian State University. Talberth, J., R. Conn, R. Berrens, and M. McKee, 2001. “A Framework for Assessing the

Economic Benefits of Mine Reclamation,” Ecology and Law Institute, Santa Fe, NM.