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The Economic Value of the Associated Branch Pilots on the Louisiana Economy Prepared by: INTRODUCTION The Associated Branch Pilots (or the Bar Pilots) are an integral part of the water transportation system of the Port of New Orleans and all ports on the Mississippi River from Plaquemines to Baton Rouge. The Bar Pilots facilitate commerce by piloting ocean-going vessels through the treacherous waters from the shallow waters of the Gulf of Mexico through the various river passes to Pilot Town, where they are transferred to other pilots on their journey upriver. The Bar Pilots are an organization that has been assisting vessels for years. Their job is a difficult one. Not only are the passes of the Mississippi River shallow and ever changing but also the ship traffic is enormous. According to MARAD, in their latest report to Congress, the Mississippi River system of ports was second in the United States in the number of vessel calls in 1998 with 6,762 ship calls (second only to Houston by a scant 41 ship calls). Furthermore, the Mississippi River system of ports was first in tonnage with 276,493,000 deadweight tons (second place was Los Angeles with 229,034,000 tons). The Bar Pilots perform a valuable service not only to the maritime community but also to the Louisiana economy. Their record of safety is significant. In 2000, there were only three incidents reported to the Coast Guard by the Bar Pilots out of 41,000 vessel movements and none of the incidents were pilot related. This record of safety is critical to the ship owners to protect their crew and cargo. It is also critical to the maritime economy of the state of Louisiana and the Mississippi River port system. Accidents and incidents slow or stall commerce. The delays that other vessels have as a result of an accident or grounding of one vessel can slow the entire system down. Not only can this mean significant additional costs for the companies shipping the cargo but it can also make the port system less efficient and more costly. That can cost us business and have a significant impact on the local economy. The purpose of this report is to estimate the impact of the Bar Pilots activities on the Louisiana economy. That impact consists of several components:
PILOTAGE FEES The first part of the economic impact analysis is the impact of the fees paid to the pilots by the shipping companies. All of these dollars come from out of the Louisiana economy (most, in fact, come from international companies and are thus from out of the country) and are thus considered net, new dollars to the Louisiana economy. In calendar year 2000, the Bar Pilots handled 11,982 vessels. For the most part, each vessel paid $1,522 on average for pilot tariff, $140 for pilots’ pension, $62 as a capital charge, and $275 on average for a launch fee. The total fees related to pilotage were $1,999 per vessel on average. Table 1 presents these fees. TABLE 1 PILOTAGE FEES, 2000 Category Fees Pilot Tariff $1,522 Source: Associated Branch Pilots The economic impact as estimated in this study is made up of three components: the direct, or primary, spending; the indirect spending; and the induced spending. The direct spending is the initial increase in output, or total spending, of the pilots themselves through the fees paid. This direct or primary spending produces additional spending in the economy, referred to as indirect and induced spending. Indirect spending includes the spending of local firms that provide inputs or supplies to the firms involved in the direct spending. The induced spending is a result of the income produced in the local area by the direct and indirect spending. When these dollars are spent, they produce income for someone else in the local economy. The recipients of that income then spend part of their new income in the local economy, thus producing income for still other local residents. The process continues to third, fourth, and further rounds of spending. The indirect and induced spending are added together to produce secondary spending. The secondary spending is sometimes referred to as the "ripple effect" or the multiplier effect. The multipliers used in this study are calculated by the Bureau of Economic Analysis, U.S. Department of Commerce. The multipliers are industry specific. Thus, each area of spending -- i.e., spending on wages and salaries and pensions, capital, and launch fees. -- has a different multiplier. The BEA study cited above also estimates multipliers for earnings and employment related to the direct spending in each industry. Based on these per vessel spending figures, we can estimate the total new direct spending that is due to the pilots operations in Louisiana. In 2000, the total new direct spending on these four categories was $23.95 million. Table 2 presents the direct, secondary, and total spending related to the pilotage fees. TABLE 2 TOTAL SPENDING RELATED TO PILOTAGE FEES, 2000 (In millions) Category Direct Secondary Total Pilot Tariff $18.24 $22.13
$40.37 Source: Associated Branch Pilots and Author’s Calculations Thus, in 2000, the pilotage fees created a total of $23.95 million in new direct spending in the Louisiana economy. That spending includes $18.24 million in fees to the pilots, $1.67 million in pension payments, $0.74 million in capital payments, and $3.30 million in launch fees. The secondary spending related to the $23.95 million is $30.29 million for a total impact of $54.24 million. In addition to the new spending created, the pilots’ activities also create jobs and income for local residents. In 2000, the pilotage fees and related spending created a total $28.74 million in annual income for residents in the state of Louisiana. Finally, the industry supports the employment of 491 people in the Louisiana economy. Note that not all of the jobs are for pilots and their staff but they do rely in whole or in part on the economic activity created by the pilotage industry. Table 3 presents these figures by category. TABLE 3 EARNINGS AND EMPLOYMENTRELATED TO PILOTAGE FEES, 2000 (Earnings in millions) Category Earnings Employment Pilot Tariff $24.73
372 TOTAL $28.74 491 Source: Associated Branch Pilots and Author’s Calculations In addition to the direct fees paid to the pilots, the pilots create significant new economic activity by allowing ocean-going vessels to carry additional cargo than would otherwise be possible. Because they use the passes on a day-to-day basis and because they have special monitoring facilities in the passes and the paths they travel, the Bar Pilots are able to navigate waters that others would not be able to. Specifically, the Bar Pilots can pilot ships that carry additional cargo in very shallow water safely due to their familiarity with the waters. Most of the passes in the Mississippi River are dredged to a depth of 45 feet. The Coast Guard recommends a safety margin of 2 feet. Thus, most vessels can only be loaded to navigate a 43-foot maximum depth. Given their unique expertise, the Bar Pilots can handle ships at greater depths, up to 47 feet. In fact, in 2000, the Bar Pilots handle 343 vessels with over 43 feet depths for a total of 544 feet in extra depth. This allows the ship owners to load additional cargo, increasing their profitability and making the Mississippi River port system more competitive than it would be otherwise. The 544 extra feet allowed the shippers to carry an additional 1,077,664 extra tons of valuable cargo. That cargo was valued at $23.98 million in additional profits for the shipping companies. More importantly to our analysis, the extra cargo also required additional handling and created additional economic activity in the Louisiana economy. Furthermore, it is possible to estimate the impact of the 1.08 million tons of additional cargo on the New Orleans economy using the Port Impact Model developed by the University of New Orleans in conjunction with the Port of New Orleans. Hundreds of firms are located in Louisiana simply because of the existence of the port and the maritime industry. These firms include providing longshoremen services; railroads, tugboat, barge, and trucking companies that ship the goods to and from the port; freight forwarding companies; law firms that hire maritime attorneys to handle legal work for the maritime industry; and insurance companies that write marine insurance. These firms are referred to as the port industry, which includes the following kinds of businesses: 1. Ship services:
2. Inland transportation:
In addition to the port industry identified above, many firms use the port as a means of transporting raw materials and finished products. These include warehouses that store goods for export or import and manufacturing firms that locate in Louisiana because they need the Mississippi River and the port to transport their goods out of the country or to more populated regions of the United States. These firms are referred to as port users. The Port Impact Model calculates the spending per ton on each of these categories. The per ton spending can then be multiplied by the extra tonnage created to estimate the impact of the extra tonnage. Based on the 1.08 tons of additional cargo, the total impact on the Louisiana economy of the additional port-related services in 2000 was $23.14 million in additional direct spending in the Louisiana economy. The secondary spending related to the $23.14 million of direct spending was $42.63 million for a total impact related to extra cargo of $65.77 million. TABLE 4 NEW SPENDING CREATED BY EXTRA CARGO, 2000 (Earnings in millions) Category Direct Second Total Port Services $6.22 $9.01
$15.23 Total $23.14 $42.63 $65.77 Source: Associated Branch Pilots and Author’s Calculations As was the case with the pilots’ activities, the extra cargo also creates jobs and income for local residents. In 2000, the extra cargo created a total $10.96 million in annual income for residents in the state of Louisiana. Finally, the industry supports the employment of 267 people in the Louisiana economy. Table 5 presents these figures by category. TABLE 5 EARNINGS AND EMPLOYMENT RELATED TO EXTRA CARGO, 2000 Category Earnings Employment Port Services $2.40 46 Total $10.96 267 Source: Associated Branch Pilots and Author’s Calculations The total economic impact of the Bar Pilots operations in Louisiana is the sum of the two components presented above: the impact of the pilots’ fees themselves and the impact of the extra cargo. Tables 6 and 7 present the direct, secondary, and total spending as well as earnings and employment. TABLE 6 NEW SPENDING CREATED, 2000 Category Direct Second Total Pilot Tariff $18.24
$22.13 $40.37 Total $47.09 $79.92 $120.01 Source: Associated Branch Pilots and Author’s Calculations Thus, in total the Bar Pilots contributed $47.09 million in new direct spending, $79.92 million in new secondary spending, and $120.01 million in total impact. That spending created a total of $39.70 million in new earnings and supported 759 jobs in the state’s economy. TABLE 7 EARNINGS AND EMPLOYMENT, 2000 Category Earnings Employment Pilot Tariff $24.73
372 Total $39.70 758 Source: Associated Branch Pilots and Author’s Calculations In 2000, the activities of the Bar Pilots created a total of $39.70 million in income for Louisiana residents and supported 758 jobs in the state. Only part of the jobs are the jobs of the pilots themselves. The rest are of workers in the state whose jobs are supported by the dollars generated by the Pilots. As the activities of the pilots and the extra cargo they make possible generate income in the state, the people who receive this income spend a part of it paying state and local taxes. At the state level, they pay state income taxes directly on the income received, and as they buy goods and services, they pay the taxes that apply to those purchases. The purchase of certain goods and services is taxable under the retail sales tax and under various other taxes -- such as the gasoline tax, the insurance premium tax, the soft drink tax, the beer tax and the like. The assumption for the estimation of all of these taxes is that the recipient of this income is an average Louisiana consumer; thus, the proportion of that income that is paid in these taxes is equal to the average for the state as a whole. The businesses that are located in the state because of the existence of the port also pay state business taxes; specifically corporate income taxes, corporate franchise taxes and sales taxes on business purchases. At the local level, local sales tax and the local property taxes paid by businesses are generated by the economic impact created by the port and the maritime industry. State income taxes that are paid on the income generated can be estimated by determining the proportion of income that the average person in Louisiana pays in state income taxes. The average Louisiana resident paid 1.067 percent of his or her income in state income taxes. That proportion is applied to the total income created by port activities to estimate the total income tax revenues due to the port and the maritime industry. To estimate the amount of sales tax revenue attributable to the spending caused by the port, it is necessary to estimate the proportion of income that is spent on taxable commodities in Louisiana. The United States Department of Labor conducts a massive survey of consumer spending upon which it bases the Consumer Price Index. This Consumer Expenditure Survey for 1996-97, recently released, reveals that consumers spent approximately 48.52 percent of their income on commodities that were taxable under the Louisiana retail sales tax. Applying this proportion to the total income generated and then applying the sales tax rate of 4 percent yields state tax revenue. Many goods and services are taxable under special excise taxes, which should also be included in the estimates. The Louisiana taxes considered here are the motor fuel tax, the public utilities tax (here it is assumed that the tax is passed on to consumers), the tobacco tax, the insurance premium tax, the beer and alcoholic beverage tax, the pari-mutuel tax, the soft drink tax, the special fuels tax, and vehicle license fees. Dividing total state tax revenue from these sources by the total personal income in the state in that year yields the excise tax proportion used to estimate excise tax revenues. Multiplying this rate times the income generated produces the total excise tax revenue. Finally, the firms that are located in the area and in the state that are supported by the pilots operations in the state pay various forms of business taxes to the state. Foremost among those are sales taxes on business purchases, corporate income taxes and corporate franchise taxes. The methodology employed to estimate these taxes involves several steps. First, total sales for an average firm must be related to the purchases made by those firms on taxable items, the total corporate franchise tax base of the firm (the corporate franchise tax base is equal to the value of the firm's capital stock plus long-term debt), and total earnings subject to tax. These data were obtained from several sources: The 1998 Census of Manufacturing, Louisiana; the Internal Revenue Service, Statistics of Income, Corporate Income Tax Returns; and unpublished data from the Louisiana Department of Revenue and Taxation. The methodology to estimate local sales tax revenue is very similar to that used to estimate state sales tax revenue. The only difference is that the average local sales tax rate in Louisiana is 4 percent. The methodology to estimate the sales and property taxes paid by the port-related business is similar to the methodology used to estimate the state business tax revenue. TABLE 8 STATE TAX REVENUES DUE TO THE ECONOMIC ACTIVITIES OF THE PILOTS Tax Source Tax Revenues State Taxes:
Local Taxes:
TOTAL TAX REVENUES $2,959,300 Source: University of New Orleans In 2000, the Bar Pilots and their related economic activities generated a total of $2,140,700 in tax revenues for the state of Louisiana (see Table 8) and a total of $818,600 for hard-pressed local governments in the state. In total, the economic activities of the Bar Pilots and their related economic activities created a total of $2,959,300 in state and local tax revenue in 2000. That is revenue that will recur every year. PILOTS’ FEES AS A PERCENTAGE OF THE TOTAL VALUE OF CARGO The Bar Pilots are responsible for a great deal of cargo – both in volume and in value – during the most treacherous part of the journey. The Pilots’ fees – a total of $24.73 million in 2000 – are a very minor part of the value of the cargo. According to Bar Pilots’ records, the Pilots handled a total of 11,982 vessels in 2000. Those vessels carried an average of 1,981 tons per foot. Assuming the average size of a vessel in 2000 was 35 feet (note that the channel can handle vessels up to 43 feet and beyond, so the assumption of 35 feet I very conservative), the average vessel handled by the Branch Pilots carried 69,335 tons of cargo. According to the U. S. Maritime Administration, the average value of foreign cargo shipped into and out of the United States in 1999 was $595.44 per ton. Thus, the average vessel handled by the Pilots carried cargo worth $41.28 million. Thus, the total value of cargo carried by the 11,982 vessels was $494.68 billion. The total fees charged by the Bar Pilots in 2000 were $24.73 million. Thus, the fees of the Pilots were worth .0048% of less than one half of 1/100th of one percent. In other words, the Pilots’ fees accounted for $4.84 cents for each $100,000 worth of cargo. That seems to be a very small price to pay to insure the entire value of the cargo. CONCLUSION The Associated Branch Pilots (or the Bar Pilots) are an integral part of the water transportation system of the Port of New Orleans and all ports on the Mississippi River from Plaquemines to Baton Rouge. The Bar Pilots facilitate commerce by piloting ocean-going vessels through the treacherous waters from the shallow waters of the Gulf of Mexico through the various river passes to Pilot Town, where they are transferred to other pilots on their journey upriver. The Bar Pilots are an organization that has been assisting vessels for years. Their job is a difficult one. Not only are the passes of the Mississippi River shallow and ever changing but also the ship traffic is enormous. According to MARAD, in their latest report to Congress, the Mississippi River system of ports was second in the United States in the number of vessel calls in 1998 with 6,762 ship calls (second only to Houston by a scant 41 ship calls). Furthermore, the Mississippi River system of ports was first in tonnage with 276,493,000 deadweight tons (second place was Los Angeles with 229,034,000 tons). The impact of the Bar Pilots consists of several components:
In 2000, the activities of the Bar Pilots contributed $47.09 million in new direct spending, $79.92 million in new secondary spending, and $120.01 million in total impact. That spending created a total of $39.70 million in new earnings and supported 759 jobs in the state’s economy. In 2000, the activities of the Bar Pilots created a total of $39.70 million in income for Louisiana residents and supported 758 jobs in the state. In 2000, the Bar Pilots and their related economic activities generated a total of $2,140,700 in tax revenues for the state of Louisiana and a total of $818,600 for hard-pressed local governments in the state. In total, the economic activities of the Bar Pilots and their related economic activities created a total of $2,959,300 in state and local tax revenue in 2000. That is revenue that will recur every year. |
