memphis stone and gravel analysis december 31,...

Final Report:Memphis Stone and Gravel Analysis

Prepared byJohn E. Gnuschke, Ph.D.

Prepared forMemphis Stone and Gravel Company

October 27, 2010

1Final Report: Memphis Stone and Gravel Analysis

T his report is related to a request by Memphis Stone and Gravel Co. to extend its currently

permitted Atoka aggregate facility in Tipton County to adjacent property in Shelby County.

The expansion will entail 173 acres of leased property in Shelby County which is part of

an aggregate deposit of sand and gravel that is one of the few remaining in Shelby County. Mining

of the property would occur in the future—13–15 years. The extraction process would be designed

to minimize disruption to area home owners and maximize safety on county and state roads. Over

70.0 percent of the sand and gravel generated from this deposit will serve the needs of Shelby

County businesses. The future of Memphis Stone and Gravel Co. operations in Shelby County may

be at stake. The North Plant operations that exist in Shelby County will be exhausted over time, and

the sand and gravel operations will shift to the Atoka site, currently permitted in Tipton County,

and its site in DeSoto County.

Based on a review of data on market conditions for stone, sand, and gravel, an analysis of condi-

tions in the industry in Shelby County, and a review of information on the impact of developing new

extraction sites, the following observations are made:

1. Sand and gravel and aggregates, in general, are essential ingredients in the construction

industry throughout the nation, and Shelby County is no exception. Every construction

project requires large amounts of sand and gravel for concrete, asphalt, and other uses. The

data in Table 1 show the consumption of sand and gravel in the nation, its average price, and

total employment for the period 2005–2009. It is clear that the economic recession had a

tremendously negative impact on this industry. Consumption fi gures fell by 37.8 percent

between 2005 and 2009, and employment levels fell 19.4 percent over the same period.

With the recovery and the stimulus packages, employment and sales numbers will rise over

time, but the rise may be delayed because of the pressure to deal with other economic is-

sues like government debt and defi cit levels.

The price of sand and gravel continued to rise over the period as the costs of develop-

ment and extraction rose. One of the critical factors in highly-constrained natural resource

Table 1. Sand and Gravel Construction in U.S., 2005–2009

Salient Statistics 2005 2006 2007 2008 2009E

Consumption (Apparent) 1,290 1,320 1,240 1,050 802

Price (Average Value, Dollars Per Ton) 5.86 6.47 7.01 7.48 7.70

Employment (Mines, Mills, and Shops) 37,700 38,500 38,000 35,200 30,400E=Estimate

Source: Mineral Commodity Sumaries 2010, U.S. Geological Survey.


markets is that demand can fall, and supply limitations and cost of production increases can

result in price increases for fi rms still seeking the resource. This will be the case locally if

supply constraints limit local options for sand and gravel and production and transportation

costs increase. (See Figure 1).

The data in Table 2 indicate that similar issues have existed for years in Tennessee. Since

2000, the metric tons of sand and gravel sold in Tennessee have declined by 21.7 percent,

while the unit value of average price per metric ton has increased by 45.8 percent. If sup-

ply constraints continue to limit the production of sand and gravel in urban markets, price

increases for sand and gravel will continue. Subsequently, the cost of construction projects

will rise and be refl ected in production, price, and profi t conditions for businesses, consum-

ers, and government. Sand and gravel costs tend to be a small factor in the total cost of most

construction projects. An inelastic demand for sand and gravel is refl ected in the pricing

power of producers.

Figure 1. Sand and Gravel Short-Term Supply and Demand


Tabl

e 2.

Con

stru

ctio

n Sa

nd a

nd G

rave

l Sol

d or

Use

d in

Ten

ness

ee, 2

000–

2001

and

200

7–20

08

2000

2001

2007

2008

Qua

ntity

(0

00

Met

ric

Tons

)Va

lue

($00

0)U

nit

Valu

e

Qua

ntity

(0

00

Met

ric

Tons

)Va

lue

($00

0)U

nit

Valu

e

Qua

ntity

(0

00

Met

ric

Tons

)Va

lue

($00

0)U

nit

Valu

e

Qua

ntit

y (0

00

Met

ric

Tons

)Va

lue

($00

0)U

nit

Valu

e

Tenn

esse

e8,

760

$47,

000

$5.3

78,

350

$46,

400

$5.5

67,

310R

$52,

200R

$7.1

46,

860

$53,

000

$7.8

3R =

Revis

ed.

Sour

ce: S

and

and

Grav

el, C

onst

ruct

ion—

2008

(Adv

ance

Rele

ase)

, U.S

. Geo

logica

l Sur

vey.


Tables 3–5 include data on the consumption, value, price, and use of sand and gravel

in the U.S., Tennessee, and West Tennessee (the latest data available). The cost of sand

and gravel is a factor in every construction project and is particularly important for large

infrastructure projects like airports, roads, streets, sewers, bridges, utilities, environmental

projects, large buildings, warehouses, and retail shopping malls where asphalt and concrete

are used extensively. In each market, the primary uses of sand and gravel are for concrete,

asphalt, road base, and fi ll.

Sixty-fi ve to 70.0 percent of the sand and gravel produced at Memphis Stone and Grav-

el’s two current facilities, one operating in Shelby County and one in DeSoto County, is

used for concrete and asphalt production in this community. This is consistent with the

state and district data use patterns for sand and gravel shown in Tables 4 and 5.

Table 3. Construction Sand and Gravel Sold or Used in the U.S. by Major Use,1 2008

UseQuantity (000 Metric Tons)

Value(000)

UnitValue

Concrete Aggregates (Including Concrete Sand) 207,000 $1,710,000 $ 8.28

Plaster and Gunite Sands 9,250 82,300 8.91

Concrete Products (Blocks, Bricks, Pipe, Decorative, etc.) 3,280 27,600 8.41

Asphaltic Concrete Aggregates and Other Bituminous Mixtures 50,500 541,000 10.71

Road Base and Coverings 106,000 677,000 6.38

Road Stabilization, Cement 3,110 22,600 7.25

Road Stabilization, Lime 2,190 13,900 6.36

Fill 60,300 272,000 4.50

Snow and Ice Control 4,180 28,800 6.89

Railroad Ballast 711 7,740 10.89

Roofi ng Granules 129 2,910 22.52

Filtration 401 4,840 12.07

Golf Course Maintenance Sand 1,050 10,900 10.39

Other Miscellaneous Uses 5,620 59,100 10.51

Unspecifi ed:2

Actual 202,000 1,490,000 7.39

Estimated 385,000 2,830,000 7.34

Total or Average 1,040,000 $7,780,000 $ 7.48 1Data are rounded to no more than three signifi cant digits; may not add to totals shown.2Reported and estimated production without a breakdown by end use.

Source: 2008 Minerals Yearbook: Sand and Gravel, Construction (Advance Release), U.S. Geological Survey.


Table 4. Construction Sand and Gravel Sold or Used in Tennessee by Major Use Category,1 2007

UseQuantity (000 Metric Tons)

Value(000)

UnitValue

Concrete Aggregate and Concrete Products2 2,820 $21,300 $ 7.55

Asphaltic Concrete Aggregates and Other Bituminous Mixtures 285 1,750 6.14

Road Base and Coverings 400 2,100 5.24

Fill 94 1,020 10.83

Unspecifi ed:3

Actual 1,160 8,170 7.02

Estimated 2,400 17,000 7.00

Total or Average 7,140 $50,900 $ 7.141Data are rounded to no more than three signifi cant digits, except unit value; may not add to totals shown.2Includes plaster and granite sands3Reported and estimated production without a breakdown by end use.

Source: 2007 Minerals Yearbook: Tennessee (Advance Release), U.S. Geological Survey.

Table 5. Construction Sand and Gravel Sold or Used in West Tennessee by Use,1 2007 (000 Metric Tons and $000)

Use

West Tennessee

Quantity ValueUnit

Value

Concrete Aggregate and Concrete Products2 1,780 $11,500 $ 6.46

Asphaltic Concrete Aggregates and Road Base Materials 535 2,860 5.35

Fill 94 1,020 10.85

Unspecifi ed:3

Actual 748 6,020 8.05

Estimated 1,280 8,960 7.00

Total or Average 4,430 $30,300 $ 6.83

W=Withheld to avoid disclosing company proprietary data; included in “Total or Average.”—Zero.1Data are rounded to no more than three signifi cant digits, except unit value; may not add to totals shown.2Includes plaster and granite sands3Reported and estimated production without a breakdown by end use.

Source: 2007 Minerals Yearbook: Tennessee (Advance Release), U.S. Geological Survey.


As the state and local population and economies grow, the demand for sand and gravel

grows. The rapid growth in the utilization of existing deposits and the exhaustion of current

facilities makes the need for fi nding and permitting new sites an imperative for the commu-

nity if the cost increases for sand and gravel are to be avoided. While unit value fi gures tend

to be lower in West Tennessee than in the state in general and in the nation, limitations on

production at sites close to the urban core of the Memphis metro area will increase prices

in the local market.

Maps 1–3 provide aerial views of the locations of current operations at the North Plant

of Memphis Stone and Gravel and also the planned Atoka facility. Map 1 shows the locations

of the sand and gravel operations of Standard Construction and Memphis Stone and Gravel.

The gravel operations are surrounded by residential developments in spite of the fact that

largely undeveloped tracts of land are in abundance in the area.

Map 2 shows the residential properties that surround the operating extraction facilities

and the general dates of the developments. Memphis Stone and Gravel’s operations were

started in 1983, and Standard Construction’s operations were started around 1993. Many

of the residential areas have been developed since the extraction facilities were put in place.

In fact, many of the surrounding properties were developed after 1990 and 17.8 percent

were developed after 2000. The presence of the extraction sites did not prevent the devel-

opment of the surrounding area.

Map 3 shows the Atoka facility already permitted in Tipton County and under consider-

ation in Shelby County and indicates that a number of residential properties exist in the sur-

rounding area. Much like the area around the Memphis Stone and Gravel North Plant that

had properties in the area prior to development, the Atoka site is in an area that is partially

developed but is still primarily rural agricultural land. It is true that for most urban areas, it

is nearly impossible to locate any extraction site or any industrial site that does not impact

a property owner. The confl ict over property rights always exists when two sets of property

owners have confl icting interests.

The data in Tables 6 and 7 are for both the existing North Plant of Memphis Stone and

Gravel and the Standard Construction facility in Northern Shelby County and the proposed

site that exists in both Tipton and Shelby County. The data indicate that 43 homes were

constructed with a quarter mile of the existing facilities in Shelby County since 2000. Of

the properties surrounding the facilities in 2010, average appraisal values had increased

from $88,687 in 2000 to $129,617 in 2010, a 47.0 percent increase in value over the


Map 1. Standard Construction and Memphis Stone and Gravel


Map 2. Standard Construction and Memphis Stone and Gravel, Surrounding Date of Home Construction


Map 3. Atoka Aggregate Facility


ten-year period. The maximum appraised value for a home in the immediate area rose from

$435,900 to $642,400, a $206,500 increase in value. It is easy to see from the data that the

presence of a sand and gravel facility did little to constrain the growth of the housing market

or the value of housing in the surrounding area.

The data in Tables 6 and 7 also show that the properties that surround the proposed

site are primarily in Tipton County (69.0 percent) and only 56 properties were close to the

proposed site in Shelby County. The properties have a 2010 maximum appraisal value of

$473,000 and a minimum appraisal value of $17,000. The presence of properties in the

surrounding area does not mean that property values will fall or that other residential prop-

erties will not be constructed in the area. Area growth patterns should follow the patterns

of current property.

Property values should continue to refl ect broader market conditions and not be con-

strained by the presence or absence of the sand and gravel extraction facility. Other research

on the impact of extraction facilities on property values is mixed, some showing small nega-

Table 6. Appraised Values for Surrounding Parcels, 2010

Number of Residential

Properties within .25 miles*

Average Appraisal

Total Appraisal

Maximum Appraisal

Minimum Appraisal

Standard Construction and Memphis Stone and Gravel* 242 129,617 31,367,200 642,400 1,400

Atoka Aggregate Facility 179 154,529 27,660,700 473,000 17,000

Atoka Aggregate Facility (Shelby County) 56 193,542 10,838,400 473,000 17,000

Atoka Aggregate Facility (Tipton County) 123 136,766 16,822,300 321,400 12,000

*Includes Arlington Way subdivisions for Memphis Stone and Gravel.

Note: Calculated from 20101 Shelby and Tipton counties assessor data.

Table 7. Appraised Values for Surrounding Parcels, 2000

Number of Residential

Properties within .25 miles*

Average Appraisal

Total Appraisal

Maximum Appraisal

Minimum Appraisal

Standard Construction and Memphis Stone and Gravel 199 $89,687 $17,847,900 $435,900 $7,700

Note: Calculated from 20101 Shelby and Tipton counties assessor data.


tive impacts and others showing little impact at all. In general, the studies indicate insignifi -

cant impacts on property values for most facilities.

2. Sand and gravel deposits are limited to a few sites in Shelby County and West Tennessee

(see Maps 4–7). Those sites are frequently constrained by the expansion of housing into

previously all rural areas used for agricultural activities. The intersection of the highly lim-

ited sites for the extraction of sand and gravel and the increasing transition of agricultural

land into residential property creates confl icts between property owners, especially during

permitting and the initial phases of development.

Numerous residential developments surround extraction sites like those in North Shel-

by County. Many of those developments took place after the extraction process was well

underway. Other sites in Shelby County, like the Standard Construction site in Collierville,

have been shown to co-exist with high-value residential areas without unusual problems.

The Collierville site is adjacent to expensive residential areas that were developed long after

the sand and gravel extraction process started.

Sand and gravel extraction facilities can be good neighbors and great community citi-

zens, and Memphis Stone and Gravel Co. fi ts that description. Memphis Stone and Gravel

has policies and practices in place that address many of the issues raised by opponents.

Crushed stone, sand, and gravel producers are regulated by a number of state and local

agencies. Producers are well versed in the safe operation, conservation, and reclamation

requirements in areas surrounding each facility.

3. Memphis Stone and Gravel Co. is a local company with a long history of being a respon-

sible employer, taxpayer, and signifi cant contributor to the economic strength and vitality of

Memphis and Shelby County. Memphis Stone and Gravel’s facilities are estimated to have

supplied approximately 65.0 percent of the concrete aggregate in this area between 2005

and 2009. The economic impact of the operation of Memphis Stone and Gravel is shown

in Tables 8 and 9. The direct expenditure of $11,815,666 in 2010 resulted in over $21.4

million in total economic activity, $5.7 million in earnings and 96 jobs. The expenditures

and the economic impact were primarily in the Memphis MSA with over $16.1 million in

output, $4.3 million in earnings, and 72 jobs associated with Memphis Stone and Gravel

operations.


Map

4. P

oten

tial A

reas

of C

rush

ed S

tone

Agg

rega

te a

nd P

redo

min

ant B

edro

ck T

ypes

in T

hese

Are

as

Sour

ce: U

.S. G

eolog

ical S

urve

y.


Map

5. P

oten

tial A

reas

in th

e M

Id-S

outh

of C

rush

ed S

tone

Agg

rega

te a

nd P

redo

min

ant B

edro

ck T

ypes

in T

hese

Are

as

Sour

ce: U

.S. G

eolog

ical S

urve

y.


Map

6. P

oten

tial S

ourc

e Ar

eas

of S

and

and

Gra

vel A

ggre

gate

by

Geo

grap

hic

Reg

ion

Sour

ce: U

.S. G

eolog

ical S

urve

y.


Map

7. P

oten

tial S

ourc

e Ar

eas

in th

e M

id-S

outh

of S

and

and

Gra

vel A

ggre

gate

by

Geo

grap

hic

Reg

ion

Sour

ce: U

.S. G

eolog

ical S

urve

y.


It should be noted that the expenditures and sales for Memphis Stone and Gravel have

been down dramatically as a result of the Great Recession. Sales declines of 60.0 percent

from pre-recession levels have been experienced by Memphis Stone and Gravel. If the

2010 impact estimates were increased to pre-recession levels, the output, earnings and

employment levels reported in Tables 8 and 9 will more than double. While the return to

pre-recession sales and expenditure levels will not occur in 2011, over time the impact of

Memphis Stone and Gravel will grow from the levels reported for 2010.

In addition to the $11.8 million operating expenditures, Memphis Stone and Gravel

has an annual expenditure level for administrative services of approximately $770,000 for

the Memphis area. This will increase the impact estimates by an additional 7.0 percent

and will increase total impacts for output to $22.92 million, earnings to $6.12 million, and

employment to 103 people. As the operating expenditures grow in this area, the impact of

administrative expenditures will also grow.

At the current time, initial estimates of the cost of constructing the new facility in

Tipton and Shelby County will be in excess of the $3.4 million in expenditures from the

last plant constructed by Memphis Stone and Gravel. Those initial plant construction costs

were not included in the impact estimates shown in Tables 8 and 9.

Table 8. Economic Impact of Memphis Stone and Gravel Company Expenditures, Nominal Dollars in Millions

Direct Expenditures Total Impacts

Year Amount Output Earnings Employment

2010 $11,815,666 $21,420,621 $5,721,145 96

Table 9. Economic Impact of Memphis Stone and Gravel Company Expenditures in the Memphis MSA, Nominal Dollars in Millions

Direct Expenditures Total Impacts

Area Amount Output Earnings Employment

Memphis MSA $8,907,831 $16,149,006 $4,313,172 72


With two of the facilities closed and the other two having three- to fi ve-year estimated

use lives, it is important that Memphis Stone and Gravel be allowed to develop alternative

sites in Shelby County. The availability of locally-produced sand and gravel provided by

multiple competitors keeps prices low and the quality of services high in West Tennessee.

Locally-produced sand and gravel reduces construction costs and generates tax revenues

in state and local governments. Travel related costs could double or triple if the Memphis

market has to be served from locations in Mississippi. Reducing the distance to the market

increases the safety of the community by reducing the mileage necessary for trucking sand

and gravel to fi nal end-user sites. Low-cost sand and gravel increases the viability of some

construction projects and increases construction activity and employment in Shelby County.

Having to go to Mississippi for sand and gravel increases construction costs, reduces lo-

cal taxes, and reduces local employment. During the current recession, job creation is our

number one priority, and sending jobs to Mississippi should be the last alternative for Shelby

County. Tennessee, and particularly Shelby County, needs the jobs, and they need the tax

revenues generated by both the extraction process and the sales tax revenues. Previous

estimates of tax revenues generated from a much smaller extension of the North Plant site

were over $662,000 annually and did not account for cost reductions for the industry of

over $1.2 million annually. The currently proposed addition would generate tax revenues far

in excess of these estimates. Clearly, the industry, the citizens of Shelby County, and local

government stand to gain from the approval of this project.

4. Nationally and locally, residential property starts and permits are currently down 25.0 and

33.0 percent, respectively, from their 2006–2007 peaks. The construction industry has

been one of the hardest hit by the recession. Recent discussions about federal and state bud-

get defi cits, rising interest rates, declining mortgage tax benefi ts, and continued declines

in housing and retail property prices are a bad omen for the recovery of the construction

industry.

Employment levels in construction statewide have fallen from 106,000 in September

2009, just after the recession was declared to be over, to 101,600 in September 2010, a

loss of 4,400 jobs that provide middle-class families opportunities for economic success.

The economic impact of $1 million in construction spending is shown in Tables 10 and

11. The estimates shown in Table 10 are in 2006 dollars, and the estimates in Table 11 are

for 2010. The data for 2010 show that for every million dollars in construction spending,


$2.26 in total output or economic activity would be generated, which means that $725,900

in earnings and 20 jobs would be created. It is easy to see that the impact of construction

spending is very positive for the state and local economies, and further declines in this in-

dustry should be avoided.

The poor condition of the state’s economy is a clear refl ection of the problems of the

construction industry and all the people employed in construction jobs. Employment de-

clines in the construction industry have led the economy in its decline. Nothing can or will

happen with construction employment until the economy and the construction industry

recover. Many of the stimulus dollars provided to state and local areas were intended to

promote the recovery of the construction industry. The growth in the demand for sand and

gravel is an integral part of the recovery process.

Table 11. Economic Impact of Construction Expenditures in the Memphis MSA, Nominal Dollars in Millions

Direct Construction Expenditures Total Impacts

Year Amount Output Earnings Employment

2010 $1,000,000 $2,263,300 $725,900 20

Note: $1,000,000 in construction expenditures in the Memphis MSA is estimated to result in an indirect output impact of over $1.2 million for a total output impact of $2.26 million (the production of goods and services), while supporting a total of 20 jobs and total earnings of over $725,000 during the construction period.

Table 10. Economic Impact of Construction Expenditures in the Memphis MSA in 2006 Dollars

Expenditures

Mulitpliers Impacts

Final-Demand Output (1)

Final-Demand Earnings (2)

Final-Demand Employment (3)

(Number of Jobs) Output Earnings Employment

$885,053 $2.2633 $0.7259 $11,500 $2,003,141 $642,460 20

(1) Each entry in column 1 represents the total dollar change in output that occurs in all industries for each additional dollar of output delivered to fi nal demand by the industry corresponding to the entry.

(2) Each entry in column 2 represents the total dollar change in earnings of households employed by all industries for each additional dollar of output delivered to fi nal demand by the industry corresponding to the entry.

(3) Each entry in column 3 represents the total change in number of jobs that occurs in all industries for each additional $1 million of output delivered to fi nal demand by the industry corresponding to the entry.

Note: Expenditures were adjusted to 2006 dollars since the multipliers are expressed in 2006 values. Failing to do so would overstate all impacts.

Source of Multipliers: U.S. Bureau of Economic Analysis, Regional Economic Analysis Division.


5. Memphis Stone and Gravel Co. needs to develop one of its few remaining sand and gravel

sites in order to accommodate the expansion of the local economy. Property owners should

be allowed to use their property and develop it as they see fi t. Otherwise, they suffer a fi nan-

cial loss because of the decline in the value of the property. The Memphis Stone and Gravel

site cannot be developed without someone being impacted. Locating extraction facilities

near urban communities simply cannot be done without impacting some property owners.

Properties closest to the facility are impacted the most, but the impacts on property values

are typically small, if they exist at all.

Minimizing the negative impact on existing property owners while maximizing the posi-

tive benefi ts should generate substantial net long-term benefi ts for the community in gener-

al. If the site is developed, used for producing low-cost sand and gravel for the local market,

and then reclaimed for subsequent use, the community stands to gain from all aspects of

the project. If zoning prevents local and minimum cost production, then everyone in the

community will pay the price of increases in production and distribution costs. Large price

increases will occur if stone and gravel have to be imported from Tate County, Mississippi

(one alternative site for Memphis Stone and Gravel). Competing land use plans, zoning

requirements, and regulations work against any site near an urban area in spite of the fact

that urban areas generate most of the demand. Assuring that adequate supplies of sand and

gravel are available to support urban expansion in the future will require leadership, long-

range planning, and concern for the welfare of the community.

6. The economic impact on the community from price increases for sand and gravel may not be

large, but it will make all construction projects cost more money. Construction of an aver-

age home requires about 250 tons of aggregate, and a 100,000-square-foot offi ce building

requires 5,000 tons of aggregate. A 100,000-square-foot retail center would require 2,500

tons of aggregate without counting roads and parking lots. Increases in the price of sand,

gravel, and concrete will have a negative impact on construction in Shelby County if costs

rise as estimated. If average prices were to rise $3–$5 per ton, the cost of a retail center

would increase by $7,500 to $12,500.

memphis stone and gravel analysis december 31,...

Documents