The Potential Loss in Gross National Product and Gross State Product from a Failure to Maintain California’s Beaches

A Report prepared for the California Department of Boating and Waterways

Philip King, Ph.D.  

Douglas Symes, M.A

Fall 2003

This report looks at how much the U.S. and the State of California would lose if  California's beaches disappeared--our analysis avoids the most serious problem with Economic Impact Reports--that people can substitute into other goods and services.

The report was refereed by Rodney Weiher of NOAA and Bill Stronge of Florida Atlantic University, both of whom are recognized experts in the fields.

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Key Findings

• While previous studies have documented the significant economic impact created by California’s beaches, the U.S. Office of Management and Budget’s (OMB’s) current policy limits the Federal interest in California’s beaches since they believe visitors who decide not to attend California’s beaches will spend their dollars elsewhere in the US, creating no net economic or tax impact for the Federal government.
• This study carefully examines the OMB’s assumption and quantifies the net loss to the State of California and to the US from a failure to maintain California’s beaches.  We analyze the economic loss to California’s Gross State Product (GSP) and US Gross National Product (GNP) should California’s beaches cease to exist. 
• During July, August and September of 2002, we randomly surveyed 2,370 household groups at nine Southern California beach locations in San Diego, Orange, Los Angeles and Santa Barbara counties.  An additional 349 household groups were surveyed at non-beach tourists’ locations in San Diego and Hollywood.
• More than two-thirds of overnight visitors surveyed at beaches said that they would either not come to the area or would come less often if there were no beaches. 
• Visitors to Southern California beaches expressed a strong preference for out-of-state and foreign travel as a substitute for beach recreation if California’s beaches were unavailable.  At all beaches surveyed, three quarters of respondents said that they would travel outside California more than they do now if California beaches were unavailable.
• Our analysis indicates that, with no beaches, California would lose $5.5 billion in Gross State Product (GSP) annually, while the US economy would lose $2.4 billion in Gross National Product (GNP) annually.  Please note that these are not economic impact estimates, but instead reflect the decisions of beachgoers to spend their money in other states and countries.  Unlike economic impact estimates, where substitution is possible, these estimates represent a net loss to the US and State economy.
• We estimate the total annual economic loss, including direct, indirect and induced effects to the California economy at $8.3 billion, and $6 billion to the US economy.
• The State of California would lose $509 million in direct tax losses annually.  If we include indirect and induced effects, the loss increases to $761 million.
• The Federal Government would lose $299 million in direct tax losses.  If we include indirect and induced effects, the loss increases to $738 million.  The California Department of Boating and Waterways estimates the annual Federal cost of shore protection for California beaches will be between $12 and $18 million per year, approximately 4-6% of the direct Federal tax loss.
• Foreign and out-of-state visitors comprise a significant percentage of attendance at key beaches in California.  For example, we found 26% of visitors to Venice Beach were foreign and 29% were from out of state.  At Mission beach in San Diego, 41% were from out of state and 9% were foreign.
• Our analysis does not include the impact of foreign investment in California real estate on the shore and near beaches.  We expect that a significant loss to the US economy would also occur if this investment declined but we have not attempted to quantify it in this study.  To the extent that foreign investment is significant, our estimates understate the loss to the US economy.