Milton Freewater Economic Impacts of

Water Allocation*February 20, 2006

*Note: When we presented these findings, additional information on employment was offered. We are incorporating that information into the study and we believe the employment impact will modestly increase.

Purpose of the Analysis

• Look to the future and its potential impacts on the Milton Freewater/Walla Walla regional economy

• Profile the Milton Freewater economy.• Summarize direct effects of reallocating an additional

25 cfs of the Walla Walla River for in-stream and away from irrigated agriculture.

• Estimate the economic impacts that the reallocation of water away from irrigated agriculture might be in the community of Milton Freewater.

Questions or Suggestions Contact: Bruce SorteOSU Rural Studies ProgramPhone: 541.231.6566Email: bruce.sorte@oregonstate.edu

Major Factors Affecting the Short Run (next 10 years)

• Oil – Recreation, Construction and Communications/Software

• Construction remains important though not as important as it has been - Portland Housing Prices Increased 22.5% last year

• Manufacturing to Service Sector Employment in Recreation Based Economies (Extremely Competitive) – Hours Worked, Work Cycles, Per Capita Income, Health Care and Crime

• Baby Boomers Retiring – Healthy People Looking for Ways to Spend Their Money and Communities to Join, Jobs Opening, and Consultants

Major Factors Affecting the Long Run (10+ years)

• Convergence of Real Wages Internationally – Low and High Paying Jobs, Work Schedules and Discretionary Income, Trade Protection with More Expensive Consumer Goods, Education – Delphi/GM/Ford

• More Stressed and Less Caring Society – Environment, Grants, Schools, and Roads

• Health Care becomes the Dominant Public Policy Issue

• Oil – Alternative Fuels/Ethanol/Biodiesel/Biomass and Mass Transit

• Interest Rates – Baby Boomers Excess Capital is Gone and Migrate Back to Metro Areas to Be Close to Children/Friends, Lots of Housing Stock Turns Over with a Net Impact of Reduced Construction, Taxes Decline

• Recreation Even More Inward – increase from 40 to 60% leisure time at home

Milton Freewater

Walla Walla River Basin

Source: Walla Walla Basin Watershed Council 2006. http://www.wwbwc.org/ and USDA Natural Resources Conservation Service 2005. ftp://ftp-c.sc.egov.usda.gov/OR/HUC/basins/johnday/17070102_12-05-05.doc

WA

Needs and Constraints?

Source: USDA Natural Resources Conservation Service 2005. ftp://ftp-fc.sc.egov.usda.gov/OR/HUC/basins/johnday/17070102_12-05-05.doc

Population

Milton Freewater & Oregon Population Change 1970 to 2004

100.00%

110.00%

120.00%

130.00%

140.00%

150.00%

160.00%

170.00%

180.00%

1970 1980 1990 2000 2004

Milton Freewater

Oregon

Source: Portland State University Population Research Center 2005. http://www.pdx.edu/prc/annualorpopulation.html & U.S. Census Bureau.

Income

Per Capita Income 2000

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

Milton Freewater Nonmetro Oregon Oregon U.S.

Umatilla County

Source: Smith, Gary 2006. Northwest Income Indicator Project, Washington State University Extension Service. http://niip.wsu.edu.

Approach

• Purchased a zip code level model for Milton Freewater 97862. Zip code models require interpolation/ estimation to protect the confidentiality of individual businesses.

• Constructed an IMpact PLANning (IMPLAN) input-output basic model for the Milton Freewater economy using IMPLAN’s 1999 data adjusted to 2006 dollars.

• Ground-truthed the model visiting with agricultural producers, other business owners, and Tom Darnell and using data bases that reach to the zip code level.

• Categorized and aggregated the expenditures by IMPLAN sector.

• Estimated the output or sales, employment and value-added economic impacts to the community for the irrigation dependent agricultural industry. Tried to predict ways people and the economy may adapt to the changes.

• Limitations – scale/estimation, static and linear

Milton Freewater Economy

Milton Freewater Output, Employment and Value AddedFebruary 2006

Industry Employment/Jobs Total Industry Output* (Full & Part-Time) Value Added*

Agriculture 40.776 710 13.991Forestry & Logging 5.675 28 2.187Mining 0.566 8 0.359Construction 52.359 350 23.410Manufacturing - Food, Beverages & Related 43.563 664 25.314Manufacturing - Other 8.609 71 3.066Transportation & Warehousing 10.916 110 7.186Utilities 41.237 151 24.531Wholesale Trade 10.250 126 7.273Retail Trade 22.478 479 18.878Accommodation & Food Services 7.976 212 4.241Finance & Insurance 16.466 96 11.739Real Estate & Rental & Leasing 30.248 133 22.334Other Services 17.637 255 6.234Information 8.294 209 5.568Administrative and Support Services, etc. 0.763 8 0.322Health Care and Social Assistance 12.821 261 7.596Professional, Scientific, and Technical Services 3.991 113 2.973Educational Services 16.800 235 15.600Public Administration 23.086 404 23.086Total 374.512 4,623 225.888

*Millions of dollars

Base Year: 1999 in 2006 Dollars Report SA050Version: 2.0.1025Copyright MIG 2006

Milton Freewater Export Base

Sectoral Export-Dependent

SectorJobs % Jobs %

Agriculture 710 15.4 709 15.3Forestry & Logging 28 0.6 48 1.0Mining 8 0.2 12 0.3Construction 350 7.6 482 10.4Manufacturing - Food, Beverages, & Related 664 14.4 888 19.2Manufacturing - Other (e.g. Sheet Metal Products) 71 1.5 106 2.3Transportation & Warehousing 110 2.4 90 1.9Utilities 151 3.3 192 4.2Wholesale Trade 126 2.7 42 0.9Retail Trade 479 10.4 34 0.7Accommodation & Food Services 212 4.6 8 0.2Finance & Insurance 96 2.1 9 0.2Real Estate & Rental & Leasing 133 2.9 13 0.3Other Services 255 5.5 88 1.9Information 208 4.5 164 3.5Administrative and Support Services, etc. 8 0.2 2 0.0Arts, Entertainment & Recreation 0 0.0 0 0.0Health Care and Social Assistance 261 5.6 1 0.0Professional, Scientific, and Technical Services 113 2.4 14 0.3Educational Services 235 5.1 267 5.8Public Administration 404 8.7 491 10.6Households (e.g. Social Security/Dividends/Rents) 964 20.9Total 4,623 100.0 4,623 100.0

Types of Economic Effects

• Direct Effects – Producers of goods or services that are exported outside the region

• Indirect Effects - Suppliers• Induced Effects – Expenditures by

directly and indirectly affected businesses’ and agencies’ employees or households (e.g. food, medical services, etc.)

Impact Measures or Metrics:Output, Employment and Income

Output: Total sales of goods and services

Employment: Full and Part-Time Jobs

Value-Added: Salaries/wages of employees, proprietors’ incomes, rents and leases and business permits

Economic Event

Irrigators would give up an additional 25 cfs for a total of 50 cfs. This would result in 900 acres(Pleasantview) using WW River water to shift over to wells. The District has 3,800 acres of which 1,900 would not get water. The 1,900 acres “dried up” would be 1,330 acres of tree fruits and 570 misc crops like pasture, hay, grapes (T. Darnell 7/20/05).

Reduced Sales

Economic Sectors Affected by 25 cfs Irrigation Reduction

Sector Amount (000)

Fruits $6,000Vegetables $1,200Hay & Pasture $750Fresh Tree Fruit Packing $7,500Frozen Vegetables $1,200Total $16,650

Net Economic Impacts

Direct Indirect Induced Total

Output $16,650,000 $2,380,000 $2,250,426 $21,280,426 1.28

Value-Added $9,973,681 $1,538,015 $1,488,658 $13,000,354 1.30

Employment 348 45 36 429 1.23

Multiplier

Impacts of Reducing Irrigation by Leaving an Additional 25 cfs in the Walla Walla River

Wine Grapes and Wineries• Wine market is highly segmented. If real wages

converge internationally, how will the wine market be affected?

• U.S. red wine demand is elastic both in terms of its own price and the effects of price changes in European wines (Seale, James, Jr., Mary A. Marchant, and Alberto Basso 2003. Imports versus Domestic Production: A Demand System Analysis of the U.S. Red Wine Market. Review of Agricultural Economics, V25, No. 1, pp 187-202).

• Dr. Buccola suggests price cuts by California producers could hurt Oregon producers in the Popular Premium segment…a 10 percent drop in price of California red or white wine, from $10 to $9, would lead to a 20 percent drop in the volume of Oregon case sales (Cross, et. al 1999. Wine Industry Study. Northwest Farm Credit Services).

• Does Walla Walla wine follow the same trends?• What goods can you identify that have not matured to

become commodities – lack of differentiation and moving from price setters to price takers?

Tax Comparisons

State Government Tax Collections per Capita: 2004

Tax Oregon Washington

Individual Income 1,189.29 0.00

General Sales and Gross Receipts 0.00 1,750.38

City of Walla Walla issued about the same number of new residential building permits

(~175) in 2004 as Umatilla County

Sources: Fridley, Dallas 2005. Oregon Building Permit Data Through November 2004. OLMIS, Oregon Employment Department. U.S. Census Bureau and the Port of Walla Walla/Planning Depts. Of Walla Walla County, City of Walla Walla & City of College Place.

Initial Findings from this Analysis

• At least one third of the Milton Freewater economy is dependent on the agricultural industry and one third to half of that industry ($16.65 million) could be eliminated by the reallocation of 25 cfs of Walla Walla water to summer stream flows.

• 90% of the economic sectors (105/116) in Milton Freewater will be disrupted some temperarily and some permanently.

• Estimating tourism impacts from fishing and wildlife observation that may be increased from enhanced fish runs is very difficult at best and may have minimal potential to offset the agricultural impacts.

• Transition to grape and wine production and deep water wells could offset a portion of those impacts. However, there is a great deal of uncertainty as to the income elasticity of premium wines. Also, the long-run impacts even with a strong wine market will be disproportionately distributed.

• Tax and zoning advantages in Washington will constrain Miltion Freewaters opportunities for residential development to significantly offset the impacts to agriculture.

Considerations

• Diverse economies are more resilient than concentrated economies.

• Commodity agriculture, although less profitable than many industries is also more stable than many industries.

• You have an excellent reputation in both states and with the federal government.

• Work with Oregon to modify zoning/land use and tax constraints to capture residential opportunities and retail sales opportunities from Walla Walla’s growth.

• Recruit and retain retirees, second home owners and adaptive farmers

• Develop water markets• Create a regional strategy at least watershed-wide –

Lower Columbia Gorge example – Dallas Fridley

What’s next?

• Please contact me, if I can help you analyze issues or project impacts of economic shocks or opportunities.

• Let me know, if there are other groups where you would like me to present this information.

Rural Studies Program

Oregon State University

213 Ballard Extension Hall

Corvallis, OR 97331

(541) 737-1442

rsp@oregonstate.edu

http://arec.oregonstate.edu/ruralstudies