MEMA Rept Final

7/29/2019 MEMA Rept Final

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Economic Impact Report

The Economic Impact on South Portlandand the Greater Portland Region

of the Waterfront Protection Ordinance

Proposed in the City of South Portland, Maine

For: Maine Energy Marketers

From: Planning Decisions, Inc.

477 Congress Street, Suite 1005

Portland, ME 04101-3406

September 23, 2013


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Executive Summary

South Portlands wholesale oil products storage and distribution system is

critical to the Citys and the Greater Portland regions economic health:

Directly, it maintains taxable assets of over $85 million, provides 85 jobsand spends nearly $38 million annually in the local economy, including

nearly $9 million in pay and benefits and approximately $7 million in

capital improvements;

Indirectly, this spending becomes nearly $26 million in sales to hundredsof area vendors supporting an additional 250 jobs;

The industrys total commercial impact on South Portland and its regionaleconomy amounts to over $64 million in sales supporting 335 jobs earning

over $20 million in pay and benefits.

Beyond its direct commercial impacts, the terminal industry serves as the anchor

for the entire Port of Portland, accounting for 84% of the ports cargo vessels and

94% of its total cargo. Loss of this business would be a devastating blow to the

port, vastly reduce its size and thus its ability to maintain the level of support

and safety services now available. This loss would, over time, seriously impede

the Ports efforts to expand bulk cargo and container shipping and put at risk

recent investments in the Ocean Gateway terminal and the International Marine

Terminal and delay or make less likely proposed investments in marinas and

boat repair facilities.

Finally, replacement of the current waterborne-based oil product distribution

system with a new truck and highway system that would have to be developed

would increase energy costs drastically and cost South Portland, its larger region

and the state as a whole thousands of jobs. Over a ten-year period, Maine would

lose approximately 5,600 jobs producing a net reduction in annual earnings of

approximately $252 million. This income loss would translate into a loss of

approximately $12 million to local governments across the state and

approximately $18 million to state government.


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Introduction & Purpose

The purpose of every business enterprise is to respond to unforeseen changes in

costs, technologies and regulatory conditions in order to deliver to its customers

the goods and services they want in the most cost effective manner. When the

cost of responding exceeds the return from sales, the business cant longcontinue. Some oil terminal operators have stated publicly that the Waterfront

Protection Ordinance proposed for the City of South Portland would so restrict

their operational and investment flexibility that they could not continue to

operate their businesses in a compliant and effective manner. If the ordinance

passes and is upheld by the judicial system, they would be forced to undertake

the orderly closure of their businesses.

The purpose of this report is not to evaluate such a decisionthat is the right

and responsibility of business owners. It is, rather, to trace the likely economicconsequences of such a decision out from the docks of South Portland through

the City and its taxpayers, on to the Port of Portland, the Greater Portland region

and out to energy consumers throughout the State of Maine.

Wholesale distributionbe it of general merchandise through the Walmart

Distribution Center in Auburn, of food through the Hannaford centers in South

Portland and Scarborough, or of beverages and candies through the Pine State,

Nappi and Seltzer & Rydholm centers across the stateis not a glamorous

business. But it is a critical business for consumers who rely on the products it

provides. And any radical change in wholesale distribution will have farreaching effects.

Part 1 delineates the businesses directly affected by the proposed ordinancethe

oil products wholesaling and distribution business. Part 2 examines the indirect

linkages of this business through its vendor supply chain and its worker

spending patterns. Part 3 examines the scale and shared facilities effect on the

Port of Portland. Part 4 examines the energy cost effects on the broader state

economy of replacing a wholesale distribution system based on waterborne

transportation with one based on truck and highway transportation.


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Part 1 Greater Portlands Current Oil Product Wholesale Distribution Business

Figure 1 identifies and locates the South Portland enterprises whose operations

would be directly affected by the proposed Waterfront Protection Ordinance.

Figure 1 South Portlands Pipeline and Oil Terminal Operations

Source: City of South Portland Tax Maps.

The properties identified in Figure 1 encompass 29 parcels covering 380 acres.

According to the most recent city assessment records, these properties have an

assessed value of $84.6 million and pay just over $1.4 million in annual property

taxes to the City of South Portland.1 In addition, the industry pays another $8

million in state and local taxes and fees associated with their operations.

On an annual basis, these companies employ 85people, pay wages and benefits

of approximately $8.9 million and spend approximately $21.7 million on non-

labor operating expenses. In addition, they spend millions annually on capital

1City of South Portland, Assessing Records,

http://data.visionappraisal.com/SouthPortlandME/DEFAULT.asp .


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improvements to upgrade buildings and equipment and meet changing safety

and security standards. While totals vary by year depending on individual

capital needs, over the past three years, annual capital expenditures by the group

as a whole has averaged nearly $7.0 million. 2 Thus, total annual spending by the

industry in the Greater Portland Region totals approximately $37.6 million.

Part 2 Businesses Linked to the Oil Wholesale Distribution Industry

a. indirect economic effects

The industrys direct spending is not the end of its economic impact. The $37.6

million in direct spending flows into the local and regional economy through a

complex web of supply chain interconnections and employee spending. The

non-labor spending flows to hundreds of local businessestrades people,

machine shops, equipment dealers, electricity and telecommunications suppliers,

safety and environmental security specialists, engineering firms, providers ofindustrial and office supplies, fuel dealers, insurance agents, bankers and

marketing professionals.

At the same time, industry employees and the employees of all its vendors are

consumers in the local and regional economy. They make mortgage and rent

payments, buy groceries, pay utility bills, eat at area restaurants, patronize local

stores and pay state and local taxes. And all of this spending, in turn, cycles

further through the economy as these vendors and consumer businesses pay

their vendors, etc. etc. in further rounds of spending.

To estimate these indirect multiplier effects, PDI used the IMPLAN model of

Cumberland County Maine.3 Table 2 summarizes the results.

2Employment totals are full-time equivalents measured on an annual basis, actual numbers varywith changing volumes of activity; data come from Maine Department of Labor reports verified

by company officials; Non-labor operating expenditures come from U.S. Bureau of the Census

and U.S. Bureau of Economic Analysis data verified by company officials,3IMPLAN (IMpact Analysis for PLANing) is a computer based input-output modeling program

originally developed by the U.S. Department of Agriculture Forest Service for resource

management planning. It contains a mathematical representation of the purchasing patterns that

take place between sectors of an economy. Built into the IMPLAN data files are all of the

industry sales, employment and income data for 506 sectors of the Cumberland County economy.


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Table 2

The Indirect Economic Impact of Wholesale Distribution of Oil

Impact Type Spending Jobs Labor Income

Direct Effect $37,600,000 85 $8,900,000

Indirect Effect $26,600,000 250 $12,000,000Total Effect $64,200,000 335 $20,900,000

Multiplier 1.7 3.9 2.1

The nearly $38 million in annual spending by the terminal operators becomes

revenue of over $26 million for local vendors (and their vendors down the

supply chain) and for the local consumer businesses (and their vendors) who sell

to both the industrys employees and those of its suppliers. This revenue

supports the equivalent of 250 FTE jobs earning approximately $12 million in pay

and benefits.

The total economic impact of the industry, therefore, amounts to sales for

Portland area businesses of over $64 million, supporting 335 FTE jobs earning

nearly $21 million in pay and benefits. It is particularly interesting to note here

the very high (3.9) employment multiplier for the industry. This reflects both

the extent of local suppliers serving the industry and the above average pay

associated with both the industry itself and its direct suppliers. These good jobs

generate an above average employment multiplier because of the volume of

consumer spending they provide to local retailers and service providers.

b. regional interdependence

The indirect economic impacts noted above illustrate one aspect of the industrys

web of connections to the broader regional economy. The other side of that coin

is the intricate interconnection between the City of South Portland and the

regional economy. Figure 2 illustrates that reality.


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Businesses in South Portland provide 22,217 jobs. Of these, only 2,468 are filled

by residents of South Portland. At the same time, South Portland residents hold

11,659 jobs2,468 fortunate enough to work in the city where they live and

another 9,191 who have to commute outside the city to get to their jobs.

Clearly in the most basic economic terms, South Portland is not an island. Its

economic fate is intimately tied to the economic vitality of the larger region. Its

residents rely overwhelmingly on jobs outside the city, and its businesses rely

overwhelmingly on employees coming from beyond the Citys borders. If South

Portland hurts the regional economy, it hurts itselfnot merely by the direct loss

of 85 jobs and $1.4 million in property tax revenue, but by the threat to the larger

regional economy of which it is a part.

Figure 2


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Part 3 Consequences for the Port of Portland

Traditional economic impact analysis deals with commercial relationships for

which there are clearly marked price tagsbusiness sales, payroll checks, vendor

invoices. There are other relationships, however, which have significant

economic impact but no readily identifiable price tags. One such is the scaleimpact of the wholesale oil business on the entire Port of Portland/South

Portland. Figure 3 illustrates the point.

Figure 3

Source: Federal Maritime Administration,

http://www.marad.dot.gov/library_landing_page/data_and_statistics/Data_and_Statistics.htm .

In 2011, oil tankers accounted for 84% of all the cargo vessels arriving and

leaving the Port of Portland. This total was up from 80% in 2002. In terms of

total volume of cargo, oil tankers accounted for 94% of the Ports total traffic, up

from 83% in 2002. Even adding the 59 cruise ships that arrived last year to the

total cargo vessel calls, the oil transport industry accounted for 68% of the Ports

total calls. By existing volume of traffic, Portland ranks 41st among the 132 ports

monitored by the Maritime Administration. Without tanker traffic, Portland

would drop 40 spots to 81st, just below Red Dog Arkansas.

The question of the impact of scale arises when considering the loss of 84% to

94% of the volume of business in the port. Tanker traffic doesnt account for all

of the business for pilots, tugs, shipping agents, ship chandleries, specialized

ship and engine repair businesses, fuel suppliers, but its loss would undoubtedly

put a major dent in their operations. The Port of Portland (including both

municipalities of Portland and South Portland) has 35 businesses providing over


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100 jobs in support activities for water transportation and freight transportation

management. Total payroll for these businesses amounts to nearly $6.0 million.

In addition, many specialized welding and repair businesses, specialized

construction businesses, fuel suppliers, engineering, insurance and legal jobs not

formally classified as port-related nevertheless depend on port activities for

major shares of their sales. The Casco Bay Ferry Line, the International Marine

Terminal, the Merrill Marine Terminal, the new $20 million Ocean Gateway

Terminal, all of the vacation cruise ships that visit Portland and many

recreational boaters may not have direct commercial exchanges with the oil

tanker business, but they depend on the same port facilities and services

available to all boaters using the Port of Portland.

Finally, South Portland is home to a major U.S. Coast Guard installation (Sector

Northern New England)4 responsible for over 5,000 miles of coastline and 11,000squarenautical miles of water, including the ports of Portland, Portsmouth,Bar

Harbor, five other deep draft ports and Lake Champlain. Its ar ea of

responsibility spans Maine, New Hampshire, Vermont and a portion of

northeastern New York. SNNE has a staff of 475 active duty memb ers, 260

reservists, 17 civilians, and 415 auxiliarists. Its budget is over $3.0 million

annually.

SNN carries out over 100 tank-vess el inspections and conducts safety and

se curity deep-draft ves sel boardings to ascertain compliance with domesticandinternational regulations and protocols. It conducts land-side safety and

security examinations at oil terminals and cargo facilities, conducts training

in spill prevention and maintains a response department at the ready in the

event of a marinecasualty, spill, or environmental incident.

Wer e the oil terminals and associated traffic cease operations, the Coast

Guard would undoubtedly reassign some people and assets to other

locations.

In sum, loss of the oil tanker, terminal and pipeline business would be a

devastating blow to the ports of Portland and South Portland. One shipping

agent said, You might as well put a padlock on my door. While not all port-

related businesses would suffer such a drastic impact, at least not immediately, it

4 Email communication with Commander Alan Moore September 16, 2016.


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is clear that such a loss would vastly reduce the size of the port and thus its

ability to maintain the level of support and safety services now available. Such

an outcome would, over time, seriously impede the Ports efforts to expand bulk

cargo and container shipping and put at risk recent investments in the Ocean

Gateway terminal and the International Marine Terminal and delay or make less

likely proposed investments in marinas and boat repair facilities.

Part 4 Consequences for Maines Energy Consumers

Finally, and perhaps most importantly, loss of the wholesale oil terminals and

pipeline would increase fuel oil and gasoline costs across Maine, particularly in

the southern, western and central regions of the state where there are no

alternative sources of waterborne transport.

Since the end of World War II, Maine has built a wholesale distribution systemfor oil products around the Port of Portland. Large ocean going tankers bring

fuel oil and gasoline to the tanks in South Portland where it is stored for

distribution by truck to residential, commercial and industrial oil dealers and

consumers across the state. The Portland Pipe Line Corporation provides a

similar service for transporting crude oil to refineries in Montreal, Quebec and

Ontario.

If this distribution system is barred by regulation from operating, an alternative

system would have to be developed, one based on trucking fuel oil and gasoline

from Portsmouth or Boston to users in Maine, possibly supplemented byexpansion of port facilities and activity in Searsport and Bangor. In effect one

240,000-barrel ocean-going tanker would be replaced with 1,000 trucks, each

carrying 240 barrels of oil product. The direct effects of this change would be

threefold:

1. First, the cost to consumers would rise to cover the increased cost oftransportation and logistics5;

2. Second, the volatility of prices would increase as the buffer provided by5 How much this increase will be depends on the costs of buying more trucks, hiring more

drivers and building new storage facilities. Based on conversations with trucking firms on the

likely effects of this hypothetical change in the oil delivery system, PDI assumed an increase of

$0.10 per gallon in the price to end users. Because the ultimate impact over a longer adjustment

period will depend on numerous major investment decisions both in the alternative ports and in

the storage decisions of Maine users, this trucking only estimate of the cost increase to end

users in Maine is likely to be very conservative.


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tanker supplied oil storage facilities was replaced by a just in time

inventory system based on truck transport and smaller retail storage

facilities; and

3. Third, reliability of supply would be reduced because of the increasedtraffic on the roads and the increased congestion at the loading/transferfacilities in Boston, Portsmouth, Bangor and Searsport and because of the

danger of weather-related disruptions to truck traffic. Flights from the

Portland Jetport could be delayed or cancelled because a heavy

snowstorm kept trucks from delivering jet fuel; consumers could spend a

cold night when the same storm delayed truck transport on the Turnpike;

traffic congestion would increase as other ports scrambled to adapt to the

vastly increased demand for their facilities.

The economic effects of this change in distribution systems would be fourfold:1. Households across Maine would pay more for heating oil and gasoline

and therefore spend less for other items in their budgets;

2. Maine businesses would pay more to cover their energy costs and thusloose ground to non-Maine competitors;

3. Water-based transportation and related support employment would fall;4. Truck related transportation employment would rise, although much of

the increase would benefit for contract truckers many of whom are based

closer to port terminals than in Maine.

To estimate the cumulative effect of these changes, PDI used the Regional

Economic Model, Inc. (REMI) model of the Maine economy maintained by

Professor Charles Colgan of the Muskie School at the University of Southern

Maine. Table 3 summarizes the results of this model simulation.


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Table 3

Estimated 10-Year Impact of Closing Existing Oil Distribution System

Impact Area Jobs IncomeWater Transport -200 -$12,000,000Truck Transport

400

$15,000,000

Consumer Spending -2,000 -$65,000,000Commercial/Industrial Cost -3,800 -$190,000,000Total -5,600 -$252,000,000Local Taxes & Fees -$12,000,000State Taxes & Fees -$18,000,000

Sources: REMI model of Maine and U.S. Bureau of the Census, State and Local Government

Finances, FY 2010. Forecast figures are rounded to avoid the impression of false precision.

Over the ten-year period following commencement of the terminal shut down

process, Maine would lose approximately 200 jobs in the water transportindustry and gain approximately 400 jobs in the trucking transport industry. As

consumers reduced spending on the goods and services they currently buy to

cover the higher cost of energy, the states retail and service businesses would

lose approximately 2,000 jobs. As existing customers of Maines commercial and

industrial businesses, including tourists visiting the state, reduced their

purchases of Maine goods and services or switched to alternative, less expensive

providers, these businesses would lose approximately 3,800 jobs.

Overall, Maine would lose approximately 5,600 jobs. At current average wagesfor each of the affected sectors, this job loss would translate into a net reduction

in earnings of approximately $252 million. At current average tax rates, this

income loss would translate into a loss of approximately $12 million to local

governments across the state and approximately $18 million to state government.

Documents

MEMA Rept Final