The!Economic!Impact!of!Potential!Water! Shortages!on!San!Antonio s!economy!!

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1 TheEconomicImpactofPotentialWater ShortagesonSanAntonio seconomy SanAntonioChamberofCommerce Winter2014

2 January31,2014 Mr.RichardPerez President SanAntonioChamberofCommerce 602E.Commerce SanAntonio,Texas78205 DearMr.Perez: ThankyoufortheopportunitytoprovideconsultingservicestotheChamberrelatedtothepotential economicimpactsoffailingtoinsureanadequatewatersupplyinsanantonio. Theeconomicanalysisthatfollowsprovidesillustrationofthepotentialeconomicpitfallsoffailingto secureadequatewatersupplytomeettheneedsofagrowingregion.inthatlight,thisworkisdesigned tobeillustrative,ratherthanpredictive,assanantoniohasanopportunitytomakepolicyand investmentdecisionsthatcanturnwateravailabilityfromapotentialchallengeintoanopportunityto createacompetitiveadvantageversusotherareasthathavenotadequatelyprovidedforfuturewater needs.decisionsmadetodaywillhaveanenormousimpactontheeconomyoftomorrow,with investmentsinbasicinfrastructurelikelytopayincreasingdividendsgoingforward. Bestregards, JonHockenyos President 1310 South 1 st Street, Suite 105 Austin, Texas (512) phone (512) fax

3 Summary ThisanalysisreliesonacombinationofprojectionsfromSAWSregardingdemandand supplyofwaterinitsserviceterritory,secondaryinformationfromseveralsources regardingthesensitivityofdifferentsectorsoftheeconomytochangesinthe availabilityofwater,andstandardregionaleconomicimpactmodelstoprovidean assessmentofthepotentialimplicationstothelocaleconomyofdifferinglevelsof watershortages.thiseffortisdesignedtoprovideillustrationinsupportofpolicy development,ratherpreciseprojections,andthereforemakesaseriesofsimplifying assumptionsthatareunlikelytooccurasactualeventsunfold.inreality,droughtsoccur atuncertainintervals,individualcustomersrespondinuniquewaystowatershortages, andthecapacitytoreducedemandthroughconservationandtechnologycontinuesto evolve.nevertheless,someimportantconclusionscanbedrawn. 1) Therearelikelytobenegativeeconomicimpactsassociatedwithsustainedwater shortagesatevenmodestlevels.thekeyhereisthedurationoftheshortage,as mostcompaniescanfindwaystoadjustoperationsand/orproductionprocessesto accommodatetemporaryshortfalls.however,demanddoeshardenatsomepoint, reducingthecapacitytoadjustandcreatingeconomicconsequences. 2) Negativeimpactsaccelerateasthelevelofshortageincreases.Astheseverityof shortagerises,theimpactsincreaseexponentiallybeforelevelingofftosome degree.at11.0percentshortage,totaljobslostareestimatedatapproximately 6,700,23.9percentshortageyieldsalossofalmost34,000,and43.2percent pushestotallostjobstojustunder135,000insanantonio.whiletheseestimates areapproximations,theyillustratetheorderofmagnitudeofthepotentialnegative consequencesofinadequatewatersupplytothelocaleconomy. 3) Additionalsupplyisanecessarypartofthesolution.Acombinationof technologies,utilityprogramsandincentives,changesinbusinesspractice,and overallcustomerawarenesshaveservedtofacilitateincreasedconservationin recentyears.whilethereisgoodreasontobelievethatgainscancontinuetobe madeinthisarea,thereisalsolittledoubtthatadditionalsupplyiscriticalto insuringthatsanantoniohasadequatewatertomeetfutureneeds. AsSanAntonioconsidersitswaterplanningfuture,therehasbeenmuchdiscussion surroundingtheneedforadditionalwatersuppliestomeettheneedsofagrowing populationandeconomy.thisanalysissuggeststhatwatershortagescanhaveadirect negativeimpactontheeconomy,andthatthedurationandseveritywilldirectly influencethesizeandscopeofthatnegativeimpact.however,ifbothindividualsand businessareassuredanadequatewatersupply,anareaofpotentialweaknesscould turnintoanadvantageatatimewhenmanyothercommunitiesarestrugglingto providewaterinfrastructure.asaresult,sanantonioshouldseektomaximizeits competitiveadvantagebyinvestinginadditionalsupply. EconomicImpactofWaterShortagesinSanAntonio Winter2014 1

4 Overview Insomeways,thecombinationofdrought,continuedpopulationandeconomicgrowth, andinfrastructurefinancingconstraintshavecreateda perfectstorm aroundwater supplyinsanantonio.txphasbeentaskedbythesanantoniochamberofcommerce withevaluatingthelocaleconomicimplicationsoffailingtoprovideanadequatewater supply.overthepastfiveyears,residentialcustomershaveaveragedabout71.3 percentofsanantoniowatersystem(saws)demand,commercialhasbeen23.5 percent,industrialaccountedfor3.9percent,andmunicipal/otherrepresentedthe remaining1.3percent.forpurposesofthisanalysis,shortagesareassumedtobe allocatedproportionatelyacrossallcustomerclasses.sawsisthesourceofwater supplyanddemandprojections(whicharedrivenbyestimatesofpopulationgrowth anddefactopercapitausage);thisinformationisusedtocreateforecastsofdifferent levelsofwatershortagethatcanthenbemodeled.however,inordertoisolatethe impactofwatershortagesontheeconomy,theanalysisispredicatedontheestimated economyofthesawsserviceterritoryasof2012. ProjectInputs SAWShasproducedaseriesofprojectionsonoverallwaterdemandusingtheir populationforecastfortheirserviceterritorythedrivingfactor.theseprojectionsalso assumeabaselineconsumptionlevelthatistheequivalentof135gallonspercapitaper day(gpcpd).thisisbasedonconsumptionpatternsfrom2011,adryyearconsistent withthedroughtofrecord.analternativescenariothatassumestheequivalentof169 gallonspercapitaperdayisalsoprovided,basedonawiderrangeofhistoricaldata. Currently,theEdwardsAquiferaccountsforthevastmajorityofSAWSsupply.Overthe period2012z2020,sawsprojectsthatedwardssupplywouldbereducedbyanaverage of28percentannuallyduetotheimpactofadroughtofrecord.incombinationwith projectedpopulationgrowth,thiswillcreateshortages;evenwithanumberofsources ofadditionalsupplyincludedinthecurrentplanningprocess,demandwillexceed supplyby2020.thefollowingtableshowsthepercentageshortfallforthetwo scenariosoutlinedabove.notethatthesearepointestimatesforindividualyears,and shouldnotbeconsideredcumulative. EconomicImpactofWaterShortagesinSanAntonio Winter2014 2

5 TABLE1 PercentageShortfallunderTwoScenarios(AssumesNoNewSupply) 135 gpcpd 169 gpdpd % 29.0% % 34.0% % 36.2% % 39.2% % 43.2% Sources:SAWS,TXP EstimationofDirectImpacts Aspreviouslymentioned,theassumptionisthatpatternsofdemandbycustomerclass remainconsistentwithrecentsawshistory,andthatanyshortfallwillalsobeallocated proportionatelybetweenandwithincustomerclasses.asaresult,thebulkoftheinitial impactofanysupply/demandimbalancewillfallonhouseholds.thereissome literatureontheimplicationsforoverallhouseholdwelfare,buthouseholdshortages havelittledirectlinktotheeconomy,atleastintheshortrun.bythesametoken,the impactstothenonzresidentialsidehavebeensubjecttorelativelylittleanalysis.pera forthcomingstudy: TheabilityoftheCII(commercial/industrial)sectortoreducewaterinfuture droughtislessclearthanforresidentialcustomers.untilthedriversoftheongoing declineinciiwaterusearebetterunderstood,waterutilitiesshouldbecautious aboutaskingciicustomerstosharplycurtailwateruse,otherthanlandscaping,in allbutseveredroughtconditionsandwatershortages. Whiletheimpactofwatershortagesfallsonbothbusinessandhouseholds,thefocusof thisanalysisisontheimplicationsforthenonzresidentialsector. CommercialandIndustrialImpacts Thefirststepintheprocessofevaluatingtheimpactofwatershortagesistodetermine whatindustriesorsectorswillfeeldirectimpacts,andatwhatlevel.directimpactsare reductionsinoutputbyindustriesexperiencingwatershortages.forexample,without adequatecoolingandprocesswaterarefinerywouldhavetocutbackorcease operation,carwashesmayclose,andhotelswillstruggletoadequatelyservicetheir customers.basedontheliteratureandprimaryresearch,thefollowingsectorsare includedasbeingdirectlyaffected(accountingforalittlelessthan24percentofthe SAWSterritoryeconomy),alongwiththeirestimatedlevelofoutput(sales)for2012. EconomicImpactofWaterShortagesinSanAntonio Winter2014 3

6 TABLE2 SAWSServiceTerritoryEstimatedEconomicOutput(2012) IndustrialSector 2012Output(Sales) WATERTINFLUENCED $52,522,068,974 Agriculture&Mining $792,075,206 Manufacturing $20,710,821,569 Food/KindredProducts $3,674,141,292 Stone/Clay/GlassProducts $400,299,539 ElectronicComponentsMfg. $292,041,026 OtherManufacturing $16,344,339,712 Commercial $31,019,172,199 Hotels $1,289,937,453 WaterTIntensiveConsumer 1 $609,039,135 OtherCommercial 2 $29,120,195,611 TotalEstimatedOtherSectors $166,650,839,418 TotalEstimatedAllSectors $219,172,908,392 1 WaterTIntensiveConsumerIndustries:includeslandscapearchitectsandservices,carwashes,golf courses,andlaundries 2 OtherCommercial:includesmedical,entertainment,andfoodservices Sources:BureauofEconomicAnalysis,CensusBureau,TXP WaterShortagesandDirectEconomicActivity Theimpactofwatershortageslikelywillvarybasedonseverityandduration.Following thetexaswaterdevelopmentboard(twdb)convention,shortagesareassumedtobe pointestimatesforanalysispurposes,buttohavebeensomewhatdurableintermsof customerresponse.bythesametoken,asmallshortagerelativetototalwateruse wouldlikelyhaveaminimalimpact,butlargeshortagescouldbecritical.forexample, hotelsfacingsmallshortagesmightcombinenewtechnologyandincentivesfor customerstoreducedemandforlaundryfacilities.however,moresevereshortageswill bemoredifficulttoovercome.this hardening ofdemandtranslatesinto proportionatelylargerreductionsineconomicactivity.thisanalysisaddressesthis issuethroughtheconceptofelasticity.elasticityisanumberthatshowshowachange inonevariablewillaffectanother.inthiscase,itmeasurestherelationshipbetweena percentagereductioninwateravailabilityandapercentagereductioninoutput.for example,anelasticityof1.0indicatesthata1.0percentreductioninwateravailability wouldresultina1.0percentreductionineconomicoutput.anelasticityof0.50would indicatethatforevery1.0percentofunavailablewater,outputisreducedby0.50 percentandsoon.thereisrelativelylittleinformationintheliteraturethatquantifies theoutputelasticitiesofreducedwatersupply,andwhatisavailableislargelydated. Forexample,theestimatesusedinthe2010TWDBSocioeconomicImpactAssessment ofwatershortagesforregionl(whichincludessanantonio)reliesonestimates EconomicImpactofWaterShortagesinSanAntonio Winter2014 4

7 developedincaliforniabyspectrumeconomicsmorethan20yearsago.thetwdb parametersarelistedbelow. ifwaterneedsare0to5percentoftotalwaterdemand,nocorresponding reductioninoutputisassumed; ifwaterneedsare5to30percentoftotalwaterdemand,foreachadditional onepercentofwaterneedthatisnotmet,thereisacorresponding0.50 percentreductioninoutput; ifwaterneedsare30to50percentoftotalwaterdemand,foreachadditional onepercentofwaterneedthatisnotmet,thereisacorresponding0.75 percentreductioninoutput;and ifwaterneedsaregreaterthan50percentoftotalwaterdemand,foreach additionalonepercentofwaterneedthatisnotmet,thereisacorresponding 1.0percent(i.e.,aproportionalreduction). ThisstudycombinesinformationfromtheSpectrumStudy,astudybyMHBConsultants forthesanfranciscopublicutilitycommission(sfpuc)ontheimpactoncommercial andmanufacturingcustomerswithtxp ssubsequentprimaryresearchforsfpucto refinetheinformationlistedabove.inaddition,theimpactofevolvingtechnologyto reducedemandisconsidered,althoughthisimpactissomewhatoffsetbyconservation effortsthathavealreadybeenimplemented.theresultisthefollowingoutput elasticityestimatesbysector.forexample,awatershortageof10percenthasno impactonhotels,butat40percentwatershortagewouldreducesalesby20 percentagepoints.similarly,a20percentshortageofwaterwouldreduceagricultural outputby10percent(2percentagepoints),butshortagesgreaterthan50percent wouldreducesalesbyacorrespondingamount. TABLE3 OutputElasticitiesbySector LevelofShortage Sector 0T5% 6T15% 16T30% 31T50% 51%+ Food/KindredProducts Stone/Clay/GlassProducts ElectronicComponents Mfg. OtherManufacturing Hotels WaterTIntensiveConsumer OtherCommercial Agriculture Mining Source:TXP EconomicImpactofWaterShortagesinSanAntonio Winter2014 5

8 Thefollowingtablesillustratethedirecteconomicimpactofwatershortagesbasedon differentscenariosonpercapitaconsumption.asthetablesindicate,theeffects increasedramaticallyasthelevelofshortagerises,whichisprojectedtooccurifno newsupplyisadded.forexample,anelevenpercentshortageyieldsslightlymorethan $417millionindirectlossesin2020underthe135gpcpdscenario,afigurethatrises almostsixzfoldoverthenexttwentyyears,toover$2.6billion.thesituationismore graveunderthe169gpcpdscenario,asdirectlossesamounttoover$8.5billionin 2040.Usingthisdataasinputs,itisthenpossibletocalculatetheoverallregional economicimpactofwatershortagesatdifferentlevels. TABLE4 DirectOutputLossesbySector:135gpcpdScenario($2012) Sector 11.0% 20.2% 28.9% Food/KindredProducts $40,415,554 $244,918,259 $350,402,855 Stone/Clay/GlassProducts $4,403,295 $26,683,967 $38,176,567 ElectronicComponents $3,212,451 $14,748,072 $21,099,964 Mfg. OtherManufacturing $179,787,737 $825,389,155 $1,180,878,544 Hotels $14,189,312 $65,141,841 $93,197,981 WaterTIntensiveConsumer $6,699,430 $40,598,549 $58,084,062 OtherCommercial $160,161,076 $588,227,951 $841,573,653 Agriculture $972,776 $8,931,849 $12,778,735 Mining $7,740,052 $46,904,713 $67,106,248 TOTALS $417,581,683 $1,861,544,356 $2,663,298,609 Source:TXP TABLE5 DirectOutputLossesbySector:169gpcpdScenario($2012) Sector 29.0% 36.2% 43.2% Food/KindredProducts $351,615,322 $864,525,446 $1,031,698,875 Stone/Clay/GlassProducts $38,308,666 $94,190,481 $112,404,110 ElectronicComponents $21,172,974 $52,859,426 $63,080,862 Mfg. OtherManufacturing $1,184,964,629 $2,958,325,488 $3,530,377,378 Hotels $93,520,465 $233,478,679 $278,626,490 WaterTIntensiveConsumer $58,285,045 $143,306,908 $171,018,189 OtherCommercial $844,485,673 $2,635,377,703 $3,144,981,126 Agriculture $12,822,952 $24,009,872 $28,652,665 Mining $67,338,449 $127,359,031 $151,986,468 TOTALS $2,672,514,175 $7,133,433,034 $8,512,826,162 Source:TXP EconomicImpactofWaterShortagesinSanAntonio Winter2014 6

9 EconomicImpactMethodology InaninputZoutputanalysisofneweconomicactivity,itisusefultodistinguishthree typesofexpenditureeffects:direct,indirect,andinduced. Directeffectsareproductionchangesassociatedwiththeimmediateeffectsorfinal demandchanges.thepaymentmadebyanoutzofztownvisitortoahoteloperatorisan exampleofadirecteffect,aswouldbethetaxifarethatvisitorpaidtobetransported intotownfromtheairport. IndirecteffectsareproductionchangesinbackwardZlinkedindustriescausedbythe changinginputneedsofdirectlyaffectedindustries typically,additionalpurchasesto produceadditionaloutput.indirectimpactsinvolvechangesininterzindustry transactionsassupplyingindustriesrespondtodecreaseddemandsfortheirservices, andhowseeminglynonzrelatedbusinessesareaffectedbydecreasedincomesand spendingduetodirectimpacts.forexample,ifacarwashcurtailsoperationsduetoa lackofwater,theywouldlikelyreduceexpendituresonsupplies,laborandequipment, andbusinessesthatprovidethesegoodswouldsufferaswell. Inducedeffectsarethechangesinregionalhouseholdspendingpatternscausedby changesinhouseholdincomegeneratedfromthedirectandindirecteffects.boththe hoteloperatorandtaxidriverexperienceincreasedincomefromthevisitor sstay,for example,asdothecleaningsuppliesoutletandthegasstationproprietor.induced effectscapturethewayinwhichthisincreasedincomeisinturnspentbytheminthe localeconomy. Theinterdependencebetweendifferentsectorsoftheeconomyisreflectedinthe conceptofa multiplier. Anoutputmultiplier,forexample,dividesthetotal(direct, indirectandinduced)effectsofaninitialspendinginjectionbythevalueofthat injection i.e.,thedirecteffect.thehigherthemultiplier,thegreaterthe interdependenceamongdifferentsectorsoftheeconomy.anoutputmultiplierof1.4, forexample,meansthatforevery$1,000injectedintotheeconomy,another$400in outputisproducedinallothersectors. EconomicImpactofWaterShortagesinSanAntonio Winter2014 7

10 FIGURE1 TheFlowofEconomicImpacts Direct + Indirect + Induced = Total Impact Aneconomycanbemeasuredinanumberofways.Threeofthemostcommonare Output whichdescribestotaleconomicactivityandisequivalenttoafirm sgross sales, EmployeeEarnings whichcorrespondstowagesandbenefits,and Employment whichreferstopermanentjobsthathavebeencreatedinthelocal economy.usingthesevariables,thetotalimpactofdecreasedoutputlevelsassociated withseverallevelsofwatershortageareshownasfollowsinthreescenarios;awater shortageof11.0percent,ashortageof23.2percent,andashortageof43.2percent. ThesefiguresrepresenttherangeofshortagereportedinTableOne,aswellasa midpoint. TABLE6 TotalAnnualLossDuetoan11.0PercentWaterShortage($2012) NAICS Output Earnings Employment Agriculture, Forestry, Fishing, & Hunting $5,216,846 $889, Mining $11,380,517 $2,834, Transportation/Utilities $31,131,639 $9,778, Construction $9,497,184 $3,627, Manufacturing $274,137,866 $72,133,267 1,210 Trade $54,934,534 $18,486, Information $26,426,805 $6,211, Finance and Insurance $49,344,554 $13,742, Real estate $65,841,189 $4,993, Professional/Scientific/Technical Services $27,929,337 $12,854, Management Companies & Enterprises $15,003,600 $6,184, Admin./Waste Management Services $25,988,738 $9,780, Educational Services $4,274,251 $1,738, Health Care & Social Assistance $33,098,523 $15,757, Arts, Entertainment, & Recreation $4,049,523 $1,564, Accommodation & Food Services $32,636,564 $10,160, Other Services $179,010,837 $55,041,195 2,215 TOTALS $849,902,508 $245,778,493 6,687 Source: TXP EconomicImpactofWaterShortagesinSanAntonio Winter2014 8

11 TABLE7 TotalAnnualLossDuetoan23.9PercentWaterShortage($2012) NAICS Output Earnings Employment Agriculture, Forestry, Fishing, & Hunting $38,663,156 $6,598, Mining $74,175,487 $18,694, Transportation/Utilities $165,484,033 $51,810,191 1,072 Construction $45,158,632 $17,257, Manufacturing $1,562,011,099 $402,416,998 6,865 Trade $289,011,835 $97,149,224 2,864 Information $136,598,102 $32,156, Finance and Insurance $248,911,716 $69,220,466 1,254 Real estate $337,382,976 $25,795,551 1,110 Professional/Scientific/Technical Services $143,427,503 $65,898,472 1,061 Management Companies & Enterprises $84,277,077 $34,733, Admin./Waste Management Services $147,397,456 $53,424,100 2,026 Educational Services $21,955,243 $8,922, Health Care & Social Assistance $171,141,157 $81,475,296 2,195 Arts, Entertainment, & Recreation $20,916,364 $8,081, Accommodation & Food Services $172,726,750 $53,742,526 2,702 Other Services $791,804,092 $243,464,775 9,796 TOTALS $4,451,042,675 $1,270,841,336 33,786 Source: TXP TABLE8 TotalAnnualLossDuetoan43.2PercentWaterShortage($2012) NAICS Output Earnings Employment Agriculture, Forestry, Fishing, & Hunting $129,779,186 $22,143,790 1,388 Mining $224,845,043 $55,987, Transportation/Utilities $637,932,106 $200,087,055 4,130 Construction $189,545,229 $72,412,096 1,853 Manufacturing $5,686,983,763 $1,463,685,818 24,982 Trade $1,118,761,461 $376,317,889 11,163 Information $533,346,410 $125,362,855 1,969 Finance and Insurance $994,590,571 $276,803,311 5,016 Real estate $1,329,663,556 $100,992,962 4,368 Professional/Scientific/Technical Services $564,991,801 $259,737,580 4,182 Management Companies & Enterprises $314,038,521 $129,422,772 1,688 Admin./Waste Management Services $565,310,121 $207,524,989 7,964 Educational Services $86,234,112 $35,059,676 1,463 Health Care & Social Assistance $668,242,937 $318,127,268 8,570 Arts, Entertainment, & Recreation $81,757,233 $31,565,930 1,658 Accommodation & Food Services $651,166,420 $202,743,937 10,271 Other Services $3,525,378,039 $1,083,964,071 43,616 TOTALS $17,302,566,508 $4,961,939, ,954 Source: TXP 8 EconomicImpactofWaterShortagesinSanAntonio Winter2014 9

12 Conclusions ThisanalysisreliesonacombinationofprojectionsfromSAWSregardingdemandand supplyofwaterinitsserviceterritory,secondaryinformationfromseveralsources regardingthesensitivityofdifferentsectorsoftheeconomytochangesinthe availabilityofwater,andstandardregionaleconomicimpactmodelstoprovidean assessmentofthepotentialimplicationstothelocaleconomyofdifferinglevelsof watershortages.thiseffortisdesignedtoprovideillustrationinsupportofpolicy development,ratherpreciseprojections,andthereforemakesaseriesofsimplifying assumptionsthatareunlikelytooccurasactualeventsunfold.forexample,the projectionsonsupplyanddemandassumea droughtofrecord occurseveryfiveyears fortheperiodfrom2020to2040.thisconventionisusedtofacilitateareasonable worstcase evaluation,whichisthestandardinwaterpolicyplanning.inreality, droughtsoccuratuncertainintervals,individualcustomersrespondinuniquewaysto watershortages,andthecapacitytoreducedemandthroughconservationand technologycontinuestoevolve.nevertheless,someimportantconclusionscanbe drawn. 1) Therearelikelytobenegativeeconomicimpactsassociatedwithsustainedwater shortagesatevenmodestlevels.thekeyhereisthedurationoftheshortage,as mostcompaniescanfindwaystoadjustoperationsand/orproductionprocessesto accommodatetemporaryshortfalls.overtime,permanentchangescanbe implemented,alongwithnewtechnologiesthatmayfurtherreduceneedforwater asaninputorfactorofthebusiness.however,demanddoeshardenatsomepoint (especiallyforhighlyzwaterintensivesectors),reducingthecapacitytoadjustand creatingeconomicconsequences. 2) Negativeimpactsaccelerateasthelevelofshortageincreases.Astheseverityof shortagerises,theimpactsincreaseexponentiallybeforelevelingofftosome degree.at11.0percentshortage,totaljobslostareestimatedatapproximately 6,700,23.9percentshortageyieldsalossofalmost34,000,and43.2percent pushestotallostjobstojustunder135,000insanantonio.whiletheseestimates areapproximations,theyclearlyillustratetheorderofmagnitudeofthepotential negativeconsequencesofinadequatewatersupplytothelocaleconomy. 3) Additionalsupplyisanecessarypartofthesolution.Acombinationof technologies,utilityprogramsandincentives,changesinbusinesspractice,and overallcustomerawarenesshaveservedtofacilitateincreasedconservationin recentyears.whilethereisgoodreasontobelievethatgainscancontinuetobe madeinthisarea,thereisalsolittledoubtthatadditionalsupplyiscriticalto insuringthatsanantoniohasadequatewatertomeetfutureneeds. EconomicImpactofWaterShortagesinSanAntonio Winter

13 AsSanAntonioconsidersitswaterplanningfuture,therehasbeenmuchdiscussion surroundingtheneedforadditionalwatersuppliestomeettheneedsofagrowing populationandeconomy.thisanalysissuggeststhatwatershortagescanhaveadirect negativeimpactontheeconomy,andthatthedurationandseveritywilldirectly influencethesizeandscopeofthatnegativeimpact.however,ifbothindividualsand businessareassuredanadequatewatersupply,anareaofpotentialweaknesscould turnintoanadvantageatatimewhenmanyothercommunitiesarestrugglingto providewaterinfrastructure.asaresult,sanantonioshouldseektomaximizeits competitiveadvantagebyinvestinginadditionalsupply. Legal Disclaimer TXP reserves the right to make changes, corrections and/or improvements at any time and without notice. In addition, TXP disclaims any and all liability for damages incurred directly or indirectly as a result of errors, omissions, or discrepancies. TXP disclaims any liability due to errors, omissions or discrepancies made by third parties whose material TXP relied on in good faith to produce the report. Any statements involving matters of opinion or estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that such opinions or estimates will be realized. The information and expressions of opinion contained herein are subject to change without notice, and shall not, under any circumstances, create any implications that there has been no change or updates. EconomicImpactofWaterShortagesinSanAntonio Winter

14 Appendix EconomicImpactofWaterShortagesinSanAntonio Winter

15 Prepared in Support of the 2011 South Central Texas Regional Water Plan Socioeconomic Impacts of Projected Water Shortages for the South Central Texas Regional Water Planning Area (Region L) StuartD.Norvell,ManagingEconomist WaterResourcesPlanningDivision TexasWaterDevelopmentBoard Austin,Texas S.DougShaw,AgriculturalEconomist WaterResourcesPlanningDivision TexasWaterDevelopmentBoard Austin,Texas June2010

16 TableofContents Section Title Page Introduction Methodology EconomicImpactsofWaterShortages GeneralApproach... 8 GeneralAssumptionsandClarificationsoftheMethodology ImpactstoAgriculture... 9 Irrigation Livestock ImpactstoMunicipalWaterUserGroups DisaggregationofMunicipalWaterDemands DomesticWaterUses CommercialBusinesses WaterUtilityRevenues HorticultureandLandscaping RecreationalImpacts ImpactstoIndustrialWaterUserGroups.. 20 Manufacturing.. 20 Mining Steamelectric SocialImpactsofWaterShortages Results OverviewofRegionalEconomy ImpactstoAgriculturalWaterUserGroups ImpactstoMunicipalWaterUserGroups ImpactstoManufacturingWaterUserGroups ImpactstoMiningWaterUserGroups ImpactstoSteamelectricWaterUserGroups SocialImpacts DistributionofImpactsbyMajorRiverBasin.. 28 Appendix1:EconomicDataforIndividualIMPLANSectors Appendix2:ImpactsbyWaterUserGroup Tables 1 CropClassificationsandCorrespondingIMPLANCropSectors SummaryofIrrigatedCropAcreageandWaterDemand AverageGrossSalesRevenuesperAcreforIrrigatedCrops DescriptionofLivestockSectors WaterUseandCostsParametersUsedtoEstimatedDomesticWaterDemandFunctions EconomicLossesAssociatedwithDomesticWaterShortages ImpactsofMunicipalWaterShortagesatDifferentMagnitudesofShortages RegionalBaselineEconomybyWaterUserGroup EconomicImpactsofWaterShortagesforIrrigationWaterUserGroups EconomicImpactsofWaterShortagesforMunicipalWaterUserGroups EconomicImpactsofWaterShortagesforManufacturingWaterUserGroups EconomicImpactsofWaterShortagesforMiningWaterUserGroups EconomicImpactsofWaterShortagesforSteamelectricWaterUserGroups SocialImpactsofWaterShortages DistributionofImpactsbyMajorRiverBasin. 28 2

17 Introduction Watershortagesduringdroughtwouldlikelycurtailoreliminateeconomicactivityinbusiness andindustriesreliantonwater.forexample,withoutwaterfarmerscannotirrigate;refineriescannot producegasoline,andpapermillscannotmakepaper.unreliablewatersupplieswouldnotonlyhavean immediateandrealimpactonexistingbusinessesandindustry,buttheycouldalsoadverselyaffect economicdevelopmentintexas.fromasocialperspective,watersupplyreliabilityiscriticalaswell. Shortageswoulddisruptactivityinhomes,schoolsandgovernmentandcouldadverselyaffectpublic healthandsafety.foralloftheabovereasons,itisimportanttoanalyzeandunderstandhowrestricted watersuppliesduringdroughtcouldaffectcommunitiesthroughoutthestate. Administrativerulesrequirethatregionalwaterplanninggroupsevaluatetheimpactsofnot meetingwaterneedsaspartoftheregionalwaterplanningprocess,andrulesdirecttwdbstaffto providetechnicalassistance: Theexecutiveadministratorshallprovideavailabletechnicalassistanceto theregionalwaterplanninggroups,uponrequest,onwatersupplyanddemandanalysis,including methodstoevaluatethesocialandeconomicimpactsofnotmeetingneeds [( 357.7(4)(A)].Staffofthe TWDB swaterresourcesplanningdivisiondesignedandconductedthisreportinsupportofthesouth CentralTexasRegionalWaterPlanningGroup(RegionL). Thisdocumentsummarizestheresultsofouranalysisanddiscussesthemethodologyusedto generatetheresults.section1outlinestheoverallmethodologyanddiscussesapproachesand assumptionsspecifictoeachwaterusecategory(i.e.,irrigation,livestock,mining,steamelectric, municipalandmanufacturing).section2presentstheresultsforeachcategorywhereshortagesare reportedattheregionalplanningarealevelandriverbasinlevel.resultsforindividualwaterusergroups arenotpresented,butareavailableuponrequest. 1. Methodology Section1providesageneraloverviewofhoweconomicandsocialimpactsweremeasured.In addition,itsummarizesimportantclarifications,assumptionsandlimitationsofthestudy. 1.1 Economic Impacts of Water Shortages General Approach Economicanalysisasitrelatestowaterresourcesplanninggenerallyfallsintotwobroadareas. Supplysideanalysisfocusesoncostsandalternativesofdevelopingnewwatersuppliesorimplementing programsthatprovideadditionalwaterfromcurrentsupplies.demandsideanalysisconcentrateson impactsorbenefitsofprovidingwatertopeople,businessesandtheenvironment.analysisinthisreport focusesstrictlyondemandsideimpacts.whenanalyzingtheeconomicimpactsofwatershortagesas definedintexaswaterplanning,threepotentialscenariosarepossible: 1) Scenario1involvessituationswheretherearephysicalshortagesofrawsurfaceorgroundwater duetodroughtofrecordconditions.forexample,cityareliesonareservoirwithaverage conservationstorageof500acrefeetperyearandafirmyieldof100acrefeet.in2010,thecity usesabout50acrefeetperyear,butby2030theirdemandsareexpectedtoincreaseto200 3

18 acrefeet.thus,in2030thereservoirwouldnothaveenoughwatertomeetthecity sdemands, andpeoplewouldexperienceashortageof100acrefeetassumingdroughtofrecordconditions. Undernormaloraverageclimaticconditions,thereservoirwouldlikelybeabletoprovide reliablewatersupplieswellbeyond ) Scenario2isasituationwheredespitedroughtofrecordconditions,watersupplysourcescan meetexistinguserequirements;however,limitationsinwaterinfrastructurewouldpreclude futurewaterusergroupsfromaccessingthesewatersupplies.forexample,citybreliesona riverthatcanprovide500acrefeetperyearduringdroughtofrecordconditionsandother constraintsasdictatedbyplanningassumptions.in2010,thecityisexpectedtouseanestimated 100acrefeetperyearandby2060itwouldrequirenomorethan400acrefeet.Buttheintake andpipelinethatcurrentlytransferswaterfromtherivertothecity streatmentplanthasa capacityofonly200acrefeetofwaterperyear.thus,thecity swatersuppliesareadequate evenunderthemostrestrictiveplanningassumptions,buttheirconveyancesystemistoosmall. Thisimpliesthatatsomepoint perhapsaround2030infrastructurelimitationswould constrainfuturepopulationgrowthandanyassociatedeconomicactivityorimpacts. 3) Scenario3involveswaterusergroupsthatrelyprimarilyonaquifersthatarebeingdepleted.In thisscenario,projectedandinsomecasesexistingdemandsmaybeunsustainableas groundwaterlevelsdecline.areasthatrelyontheogallalaaquiferareagoodexample.insome communitiesintheregion,irrigatedagricultureformsamajorbaseoftheregionaleconomy. WithlessirrigationwaterfromtheOgallala,populationandeconomicactivityintheregioncould declinesignificantlyassumingtherearenooffsettingdevelopments. Assessingthesocialandeconomiceffectsofeachoftheabovescenariosrequiresvariouslevels andmethodsofanalysisandwouldgeneratesubstantiallydifferentresultsforanumberofreasons;the mostimportantofwhichhastodowiththetimeframeofeachscenario.scenario1fallsintothegeneral categoryofstaticanalysis.thismeansthatmodelswouldmeasureimpactsforasmallintervaloftime suchasadrought.scenarios2and3,ontheotherhandimplyadynamicanalysismeaningthatmodels areconcernedwithchangesoveramuchlongertimeperiod. Sinceadministrativerulesspecifythatplanninganalysisbeevaluatedunderdroughtofrecord conditions(astaticandrandomevent),socioeconomicimpactanalysisdevelopedbythetwdbforthe statewaterplanisbasedonassumptionsofscenario1.estimatedimpactsunderscenario1arepoint estimatesforyearsinwhichneedsarereported(2010,2020,2030,2040,2050and2060).theyare independentanddistinct whatif scenariosforaparticularyearandshortagesareassumedtobe temporaryeventsresultingfromdroughtofrecordconditions.estimatedimpactsmeasurewhatwould happenifwaterusergroupsexperiencewatershortagesforaperiodofoneyear. TheTWDBrecognizethatdynamicmodelsmaybemoreappropriateforsomewaterusergroups; however,combiningapproachesonastatewidebasisposesseveralproblems.forone,itwouldrequirea complexarrayofanalysesandmodels,andmightrequiredevelopingsupplyanddemandforecastsunder normal climaticconditionsasopposedtodroughtofrecordconditions.equallyimportantisthenotion thatcombiningtheapproacheswouldproduceinconsistentresultsacrossregionsresultinginasocalled applestooranges comparison. Avarietytoolsareavailabletoestimateeconomicimpacts,butbyfar,themostwidelyused todayareinputoutputmodels(iomodels)combinedwithsocialaccountingmatrices(sams).referredto asio/sammodels,thesetoolsformedthebasisforestimatingeconomicimpactsforagriculture (irrigationandlivestockwateruses)andindustry(manufacturing,mining,steamelectricandcommercial businessactivityformunicipalwateruses). 4

19 Sincetheplanninghorizonextendsthrough2060,economicvariablesinthebaselineare adjustedinaccordancewithprojectedchangesindemographicandeconomicactivity.growthratesfor municipalwaterusesectors(i.e.,commercial,residentialandinstitutional)arebasedontwdbpopulation forecasts.futurevaluesformanufacturing,agriculture,andminingandsteamelectricactivityarebased onthesameunderlyingeconomicforecastsusedtoestimatefuturewateruseforeachcategory. Thefollowingstepsoutlinetheoverallprocess. Step1:GenerateIO/SAMModelsandDevelopEconomicBaseline IO/SAMmodelswereestimatedusingproprietysoftwareknownasIMPLANPRO TM (Impactfor PlanningAnalysis).IMPLANisamodelingsystemoriginallydevelopedbytheU.S.ForestryServiceinthe late1970s.today,theminnesotaimplangroup(miginc.)ownsthecopyrightanddistributesdataand software.itisprobablythemostwidelyusedeconomicimpactmodelinexistence.implancomeswith databasescontainingthemostrecentlyavailableeconomicdatafromavarietyofsources. 1 UsingIMPLAN softwareanddata,transactiontablesconceptuallysimilartotheonediscussedpreviouslywereestimated foreachcountyintheregionandfortheregionasawhole.eachtransactiontablecontains528economic sectorsandallowsonetoestimateavarietyofeconomicstatisticsincluding: totalsalestotalproductionmeasuredbysalesrevenues; intermediatesalessalestootherbusinessesandindustrieswithinagivenregion; finalsales salestoendusersinaregionandexportsoutofaregion; employmentnumberoffullandparttimejobs(annualaverage)requiredbyagivenindustry includingselfemployment; regionalincometotalpayrollcosts(wagesandsalariesplusbenefits)paidbyindustries, corporateincome,rentalincomeandinterestpayments;and businesstaxessales,excise,fees,licensesandothertaxespaidduringnormaloperationofan industry(doesnotincludeincometaxes). TWDBanalystsdevelopedaneconomicbaselinecontainingeachoftheabovevariablesusing year2000data.sincetheplanninghorizonextendsthrough2060,economicvariablesinthebaseline wereallowedtochangeinaccordancewithprojectedchangesindemographicandeconomicactivity. Growthratesformunicipalwaterusesectors(i.e.,commercial,residentialandinstitutional)arebasedon TWDBpopulationforecasts.Projectionsformanufacturing,agriculture,andminingandsteamelectric activityarebasedonthesameunderlyingeconomicforecastsusedtoestimatefuturewateruseforeach category.monetaryimpactsinfutureyearsarereportedinconstantyear2006dollars. Itisimportanttostressthatemployment,incomeandbusinesstaxesarethemostuseful variableswhencomparingtherelativecontributionofaneconomicsectortoaregionaleconomy.total salesasreportedinio/sammodelsarelessdesirableandcanbemisleadingbecausetheyincludesalesto otherindustriesintheregionforuseintheproductionofothergoods.forexample,ifamillbuysgrain fromlocalfarmersandusesittoproducefeed,salesofboththeprocessedfeedandrawcornarecounted 1 TheIMPLANdatabaseconsistsofnationalleveltechnologymatricesbasedonbenchmarkinputoutputaccountsgeneratedbythe U.S. Bureau of Economic Analysis and estimates of final demand, final payments, industry output and employment for various economic sectors. IMPLAN regional data (i.e. states, a counties or groups of counties within a state) are divided into two basic categories:1)dataonanindustrybasisincludingvalueadded,outputandemployment,and2)dataonacommoditybasisincluding final demands and institutional sales. Statelevel data are balanced to national totals using a matrix ratio allocation system and countydataarebalancedtostatetotals. 5

20 as output inaniomodel.thus,totalsalesdoublecountoroverstatethetrueeconomicvalueofgoods andservicesproducedinaneconomy.theyarenotconsistentwithcommonlyusedmeasuresofoutput suchasgrossnationalproduct(gnp),whichcountsonlyfinalsales. Anotherimportantdistinctionrelatestoterminology.Throughoutthisreport,thetermsector referstoeconomicsubdivisionsusedintheimplandatabaseandresultantinputoutputmodels(528 individualsectorsbasedonstandardindustrialclassificationcodes).incontrast,thephrasewateruse categoryreferstowaterusergroupsemployedinstateandregionalwaterplanningincludingirrigation, livestock,mining,municipal,manufacturingandsteamelectric.eachimplansectorwasassignedtoa specificwaterusecategory. Step2:EstimateDirectandIndirectEconomicImpactsofWaterNeeds Directimpactsarereductionsinoutputbysectorsexperiencingwatershortages.Forexample, withoutadequatecoolingandprocesswaterarefinerywouldhavetocurtailorceaseoperation,car washesmayclose,orfarmersmaynotbeabletoirrigateandsalesrevenuesfall.indirectimpactsinvolve changesininterindustrytransactionsassupplyingindustriesrespondtodecreaseddemandsfortheir services,andhowseeminglynonrelatedbusinessesareaffectedbydecreasedincomesandspendingdue todirectimpacts.forexample,ifafarmerceasesoperationsduetoalackofirrigationwater,theywould likelyreduceexpendituresonsuppliessuchasfertilizer,laborandequipment,andbusinessesthatprovide thesegoodswouldsufferaswell. Directimpactsaccruetoimmediatebusinessesandindustriesthatrelyonwaterandwithout waterindustrialprocessescouldsuffer.however,outputresponsesmayvarydependinguponthe severityofshortages.asmallshortagerelativetototalwaterusewouldlikelyhaveaminimalimpact,but largeshortagescouldbecritical.forexample,farmersfacingsmallshortagesmightfallowmarginally productiveacreagetosavewaterformorevaluablecrops.livestockproducersmightemployemergency cullingstrategies,ortheymayconsiderhaulingwaterbytrucktofillstocktanks.inthecaseof manufacturing,agoodexampleoccurredinthesummerof1999whentoyotamotormanufacturing experiencedwatershortagesatafacilityneargeorgetown,kentucky. 2 AswaterlevelsintheKentucky Riverfelltohistoriclowsduetodrought,plantmanagerssoughtwaystocurtailwaterusesuchas reducingrinseoperationstoabareminimumandrecyclingwaterbyfunnelingitfrompaintshopsto boilers.theyevenconsideredtruckinginwateratacostof10timeswhattheywerepaying.fortunately, rainsattheendofthesummerrestoredriverlevels,andtoyotamanagedtoimplementcutbackswithout affectingproduction,butitwasaclosecall.ifrainshadnotreplenishedtheriver,shortagescouldhave severelyreducedoutput. 3 Toaccountforuncertaintyregardingtherelativemagnitudeofimpactstofarmandbusiness operations,thefollowinganalysisemploystheconceptofelasticity.elasticityisanumberthatshowshow achangeinonevariablewillaffectanother.inthiscase,itmeasurestherelationshipbetweena percentagereductioninwateravailabilityandapercentagereductioninoutput.forexample,anelasticity of1.0indicatesthata1.0percentreductioninwateravailabilitywouldresultina1.0percentreductionin 2 Royal,W. HighAndDryIndustrialCentersFaceWaterShortages. inindustryweek,sept, Theeffortsdescribedabovearenotplannedprogrammaticorlongtermoperationalchanges.Theyareemergencymeasuresthat individualsmightpursuetoalleviatewhattheyconsideratemporarycondition.thus,theyarenotcharacteristicoflongterm managementstrategiesdesignedtoensuremoredependablewatersuppliessuchascapitalinvestmentsinconservationtechnology ordevelopmentofnewwatersupplies. 6

21 economicoutput.anelasticityof0.50wouldindicatethatforevery1.0percentofunavailablewater, outputisreducedby0.50percentandsoon.outputelasticitiesusedinthisstudyare: 4 ifwaterneedsare0to5percentoftotalwaterdemand,nocorrespondingreductioninoutputis assumed; ifwaterneedsare5to30percentoftotalwaterdemand,foreachadditionalonepercentof waterneedthatisnotmet,thereisacorresponding0.50percentreductioninoutput; ifwaterneedsare30to50percentoftotalwaterdemand,foreachadditionalonepercentof waterneedthatisnotmet,thereisacorresponding0.75percentreductioninoutput;and ifwaterneedsaregreaterthan50percentoftotalwaterdemand,foreachadditionalone percentofwaterneedthatisnotmet,thereisacorresponding1.0percent(i.e.,aproportional reduction). Insomecases,elasticitiesareadjusteddependinguponconditionsspecifictoagivenwateruser group. Onceoutputresponsestowatershortageswereestimated,directimpactstototalsales, employment,regionalincomeandbusinesstaxeswerederivedusingregionalleveleconomicmultipliers estimatingusingio/sammodels.theformulaforagivenimplansectoris: D i,t =Q i,t *, S i,t *E Q *RFD i *DM i(q,l,i,t) where: D i,t =directeconomicimpacttosectoriinperiodt Q i,t =totalsalesforsectoriinperiodtinanaffectedcounty RFD i, =ratiooffinaldemandtototalsalesforsectoriforagivenregion S i,t =watershortageaspercentageoftotalwateruseinperiodt E Q =elasticityofoutputandwateruse DM i(l,i,t) =directoutputmultipliercoefficientsforlabor(l),income(i)andtaxes(t)forsectori. Secondaryimpactswerederivedusingthesameformulausedtoestimatedirectimpacts; however,indirectmultipliercoefficientsareused.methodsandassumptionsspecifictoeachwateruse sectorarediscussedinsections1.1.2through Elasticitiesarebasedononeofthefewempiricalstudiesthatanalyzepotentialrelationshipsbetweeneconomicoutputandwater shortagesintheunitedstates.thestudy,conductedincalifornia,showedthatasignificantnumberofindustrieswouldsuffer reducedoutputduringwatershortages.usingasurveybasedapproachresearchersposedtwoscenariostodifferentindustries.in thefirstscenario,theyaskedhowa15percentcutbackinwatersupplylastingoneyearwouldaffectoperations.inthesecond scenario,theyaskedhowa30percentreductionlastingoneyearwouldaffectplantoperations.inthecaseofa15percentshortage, reportedoutputelasticitiesrangedfrom0.00to0.76withanaveragevalueof0.25.fora30percentshortage,elasticitiesranged from0.00to1.39withaverageof0.47.forfurtherinformation,see,californiaurbanwateragencies, CostofIndustrialWater Shortages, SpectrumEconomics,Inc.November,

22 GeneralAssumptionsandClarificationoftheMethodology Aswithanyattempttomeasureandquantifyhumanactivitiesatasocietallevel,assumptions arenecessaryandeverymodelhaslimitations.assumptionsareneededtomaintainalevelofgenerality andsimplicitysuchthatmodelscanbeappliedonseveralgeographiclevelsandacrossdifferenteconomic sectors.intermsofthegeneralapproachusedhereseveralclarificationsandcautionsarewarranted: 1. Shortagesasreportedbyregionalplanninggroupsarethestartingpointforsocioeconomic analyses. 2. Estimatedimpactsarepointestimatesforyearsinwhichneedsarereported(i.e.,2010,2020, 2030,2040,2050and2060).Theyareindependentanddistinct whatif scenariosforeach particularyearandwatershortagesareassumedtobetemporaryeventsresultingfromsevere droughtconditionscombinedwithinfrastructurelimitations.inotherwords,growthoccursand futureshocksareimposedonaneconomyat10yearintervalsandresultantimpactsare measured.given,thatreportedfiguresarenotcumulativeinnature,itisinappropriatetosum impactsovertheentireplanninghorizon.doingso,wouldimplythattheanalysispredictsthat droughtofrecordconditionswilloccureverytenyearsinthefuture,whichisnotthecase. Similarly,authorsofthisreportrecognizethatinmanycommunitiesneedsaredrivenby populationgrowth,andinthefuturetotalpopulationwillexceedtheamountofwateravailable duetoinfrastructurelimitations,regardlessofwhetherornotthereisadrought.thisimplies thatinfrastructurelimitationswouldconstraineconomicgrowth.however,sinceneedsas definedbyplanningrulesarebaseduponwatersupplyanddemandundertheassumptionof droughtofrecordconditions,itimpropertoconducteconomicanalysisthatfocusesongrowth relatedimpactsovertheplanninghorizon.figuresgeneratedfromsuchananalysiswould presumea50yeardroughtofrecord,whichisunrealistic.estimatinglosteconomicactivity relatedtoconstraintsonpopulationandcommercialgrowthduetolackofwaterwouldrequire developingwatersupplyanddemandforecastsunder normal or mostlikely futureclimatic conditions. 3. Whileusefulforplanningpurposes,thisstudyisnotabenefitcostanalysis.Benefitcostanalysis isatoolwidelyusedtoevaluatetheeconomicfeasibilityofspecificpoliciesorprojectsas opposedtoestimatingeconomicimpactsofunmetwaterneeds.nevertheless,onecouldinclude someimpactsmeasuredinthisstudyaspartofabenefitcoststudyifdonesoproperly.sincethis isnotabenefitcostanalysis,futureimpactsarenotweighteddifferently.inotherwords, estimatesarenotdiscounted.ifusedasameasureofeconomicbenefits,oneshouldincorporate ameasureofuncertaintyintotheanalysis.inthistypeofanalysis,atypicalmethodof discountingfuturevaluesistoassignprobabilitiesofthedroughtofrecordrecurringagainina givenyear,andweightmonetaryimpactsaccordingly.thisanalysisassumesaprobabilityofone. 4. IOmultipliersmeasurethestrengthofbackwardlinkagestosupportingindustries(i.e.,those whosellinputstoanaffectedsector).however,multiplierssaynothingaboutforwardlinkages consistingofbusinessesthatpurchasegoodsfromanaffectedsectorforfurtherprocessing.for example,ranchersinmanyareassellmostoftheiranimalstolocalmeatpackerswhoprocess animalsintoaformthatconsumersultimatelyseeingrocerystoresandrestaurants.multipliers donotcaptureforwardlinkagestomeatpackers,andsincemeatpackersselllivestockpurchased fromranchersas finalsales, multipliersfortheranchingsectordofullyaccountforalllossesto aregion seconomy.thus,asmentionedpreviously,insomecasescloselylinkedsectorswere movedfromonewaterusecategorytoanother. 5. Cautionsregardinginterpretationsofdirectandsecondaryimpactsarewarranted.IO/SAM multipliersarebasedon fixedproportionproductionfunctions, whichbasicallymeansthat inputuseincludinglabormovesinlockstepfashionwithchangesinlevelsofoutput.ina 8

23 scenariowhereoutput(i.e.,sales)declines,lossesintheimmediatesectororsupportingsectors couldbemuchlessthanpredictedbyanio/sammodelforseveralreasons.forone,businesses willlikelyexpecttocontinueoperatingsotheymightmaintainspendingoninputsforfutureuse; ortheymaybeundercontractualobligationstopurchaseinputsforanextendedperiod regardlessofexternalconditions.also,employersmaynotlayoffworkersgiventhat experiencedlaborissometimesscarceandskilledpersonnelmaynotbereadilyavailablewhen watershortagessubside.lastlypeoplewholosejobsmightfindotheremploymentintheregion. Asaresult,directlossesforemploymentandsecondarylossesinsalesandemploymentshould beconsideredanupperbound.similarly,sinceprojectedpopulationlossesarebasedonreduced employmentintheregion,theyshouldbeconsideredanupperboundaswell. 6. IOmodelsarestatic.ModelsandresultantmultipliersarebaseduponthestructureoftheU.S. andregionaleconomiesin2006.incontrast,watershortagesareprojectedtooccurwellintothe future.thus,theanalysisassumesthatthegeneralstructureoftheeconomyremainsthesame overtheplanninghorizon,andthefartheroutintothefuturewego,thisassumptionbecomes lessreliable. 7. Impactsareannualestimates.Ifoneweretoassumethatconditionspersistedformorethanone year,figuresshouldbeadjustedtoreflecttheextendedduration.thedroughtofrecordinmost regionsoftexaslastedseveralyears. 8.Monetaryfiguresarereportedinconstantyear2006dollars Impacts to Agriculture IrrigatedCropProduction ThefirststepinestimatingimpactstoirrigationrequiredcalculatinggrosssalesforIMPLANcrop sectors.defaultimplandatadonotdistinguishirrigatedproductionfromdrylandproduction.once grosssaleswereknownotherstatisticssuchasemploymentandincomewerederivedusingimplan directmultipliercoefficients.grosssalesforagivencroparebasedontwodatasources: 1)countylevelstatisticscollectedandmaintainedbytheTWDBandtheUSDAFarmServices Agency(FSA)includingthenumberofirrigatedacresbycroptypeandwaterapplicationper acre,and 2)regionalleveldatapublishedbytheTexasAgriculturalStatisticsService(TASS)including pricesreceivedforcrops(marketingyearaverages),cropyieldsandcropacreages. CropcategoriesusedbytheTWDBdifferfromthoseusedinIMPLANdatasets.Tomaintain consistency,salesandotherstatisticsarereportedusingimplancropclassifications.table1showsthe TWDBcropsincludedincorrespondingIMPLANsectors,andTable2summarizesacreageandestimated annualwateruseforeachcropclassification(fiveyearaveragefrom ).table3displays average( )grossrevenuesperacreforimplancropcategories. 9

24 Table1:CropClassificationsUsedinTWDBWaterUseSurveyandCorrespondingIMPLANCropSectors IMPLANCategory Oilseeds Grains Vegetableandmelons Treenuts Fruits Cotton Sugarcaneandsugarbeets All other crops TWDBCategory Soybeansand otheroilcrops Grainsorghum,corn,wheatand othergraincrops Vegetables andpotatoes Pecans Citrus,vineyardandotherorchard Cotton Sugarcaneandsugarbeets Foragecrops,peanuts,alfalfa,hayandpasture,riceand allothercrops Table2:SummaryofIrrigatedCropAcreageandWaterDemandfortheSouthCentralTexasRegionalWaterPlanningArea (average ) Sector Acres (1000s) Distributionof acres Wateruse (1000sofAF) Oilseeds 2 1% 2 1% Grains % % Vegetableandmelons 34 14% 39 12% Treenuts 3 1% 7 2% Fruits <1 <1% <1 <1% Cotton 32 13% 45 14% All other crops 70 28% % Total % % Distributionofwater use Source:Waterdemandfiguresarea5yearaverage( )oftheTWDB sannualirrigationwateruseestimates.statisticsforirrigated cropacreagearebaseduponannualsurveydatacollectedbythetwdbandthefarmserviceagency.valuesdonotincludeacreageorwater useforthetwdbcategoriesclassifiedbythefarmservicesagencyas failedacres, golfcourse or wastewater. 10

25 Table3:AverageGrossSalesRevenuesperAcreforIrrigatedCropsfortheSouthCentralTexasRegionalWaterPlanningArea ( ) IMPLANSector Grossrevenuesperacre Cropsincludedinestimates Oilseeds $178 Basedonfiveyear( )averageweightedbyacreagefor irrigatedsoybeans and irrigated other oilcrops. Grains $235 Based on fiveyear ( ) average weighted by acreage for irrigated grain sorghum, irrigated corn, irrigated wheat and irrigated other graincrops. Vegetableandmelons $5,725 Based on fiveyear ( ) average weighted by acreage for irrigated shallow and deep root vegetables, irrigated Irish potatoes and irrigatedmelons. Treenuts $3,374 Basedonfiveyear( )averageweightedbyacreagefor irrigatedpecans. Fruits $26,423 Based on fiveyear ( ) average weighted by acreage for irrigated citrus, irrigated vineyards and irrigated other orchard. Cotton $543 Basedonfiveyear( )averageweightedbyacreagefor irrigatedcotton. All other crops $359 Based on fiveyear ( ) average weighted by acreage for irrigated forage crops, irrigated peanuts, irrigated alfalfa, irrigated hay andpasture and irrigated allother crops. *Figuresarerounded.Source:BasedondatafromtheTexasAgriculturalStatisticsService,TexasWaterDevelopmentBoard,andTexas A&MUniversity. 11