The Proposed Gateway Pacific Terminal and Key Impact Issues for the Whatcom County Economy

Editor’s note: Communitywise Bellingham commissioned this report, released June 17, from Public Financial Management Inc. of Philadelphia, PA. PFM has written other reports for the group. This report is of limited scope, addressing the probable impacts of a single issue, rail, of the proposed Gateway Pacific Terminal on aspects of Bellingham’s and Whatcom County’s economy. This issue is one among the many to be scoped by the Environmental Impact Statements being conducted on GPT under the State and National Environmental Policy Acts.

Whatcom County is a “Second Paycheck” location

Bellingham and Whatcom County demonstrate strong evidence of the phenomenon known as the “Second Paycheck.” Simply put, the region’s residents are willing to accept a lower wage, pay more for property or bear the cost — in real dollars and time — of commuting to higher paying employment in order to take advantage of the region’s natural amenities — such as mountains, bodies of water, topography, forestation, and more.

Several demographic data points indicate a Second Paycheck phenomenon in Whatcom County. Between 2000 and 2010, population and employment grew in Bellingham and Whatcom County at a faster rate than the rest of the state. The region’s population is growing despite the fact that its wages are lower and its property costs are higher.

Whatcom County jobs have historically trailed the State in average annual wages (on average, by approximately 20 percent). This is particularly true for residents with higher education. Whatcom County residents with a bachelor’s degree or higher earn $5,200 less per year than the state median — in Bellingham it is even more pronounced and residents with a bachelor’s degree or higher earn $15,602 less per year than the state median.

After historically trailing the State median home price, since mid-2010, Whatcom County’s median home price is higher than the state’s median home price. Whatcom residents are also willing to, on average, spend a higher percentage of their income on new homes than state residents overall.

The economic benefits of Whatcom County’s natural amenities and “Second Paycheck” phenomenon are an important component of the city and county’s overall thriving economy, and GPT could create risks to these assets.

Research on the Second Paycheck phenomenon suggests that the presence of consumption amenities — such as access to a multitude of recreational opportunities (e.g. skiing, kayaking, fishing, hunting, biking, jogging, etc.), scenic views, and quality of life — creates a benefit to residents that is worth the cost (lower wages, higher cost of living) to access and enjoy these amenities. A primary study of Second Paycheck phenomenon suggests that the sum of the primary paycheck (the monetary compensation an individual earns in his or her job) and the Second Paycheck reflects the overall standard of living for an area.

The research also suggests that changes to the consumption amenities can change the current and future values of the Second Paycheck, thereby affecting a region’s economy and — potentially — the variety and types of jobs in a region. As a result, any potential changes to consumption amenities due to Gateway Pacific Terminal (GPT) operation and the associated increase in rail traffic, could alter the region’s economic benefits from the Second Paycheck.

For businesses, lower real wages resulting from the presence of consumption amenities create opportunities for firms that can take advantage of the lower real wages — thus impacting what goods and services are produced in certain locations — and, as a result, the variety and strata of jobs in a given region.

The region’s natural amenities also appear to have attracted strong in-migration of new residents, who bring important income to the region — helping grow the economy.

Overall, Whatcom County employment grew at three times the statewide rate between 2001 and 2010. More than half of the net private sector job growth was in leisure and hospitality (up 1,700 jobs or 22.7 percent compared to a growth rate of 7.9 percent statewide) and retail trade (up 900 jobs or 10 percent percent compared to a growth rate of -1.1 percent statewide).

The increase in the number of county residents who are commuting to work — especially higher paying work — outside the county has the effect of exporting talent and importing wages. The benefit to the county and city economy is that residents who commute out for work come back to Bellingham and Whatcom County to spend.

The same amenities that have allowed the region to attract talent and have increased the value of property have established a significant and growing tourism industry — fueled by both residents of nearby Washington counties and Canada.

Increased Rail Traffic Could Create Risks for Future Growth

As discussed in PFM’s [Public Financial Management Inc.] 2012 report, [see: http://www.communitywisebellingham.org/cwb-studies/ the development of GPT will likely lead to the creation of new jobs and other economic benefits — primarily related to the construction of the terminal. At the same time, as discussed in the 2012 report, the development of GPT could also trigger a series of risks to economic growth that could offset potential benefits. Much of the potential risk is associated with projected increases in rail traffic through Bellingham and other towns.

GPT’s potential train-related impacts — increased noise, vibrations, diesel exhaust and traffic congestion — could be concentrated in the same geographic area as much of the region’s economically significant tourist attractions, accommodations, and food services jobs — namely along the Bellingham waterfront. The risk to the city, county, and private sector is that GPT-related impacts could not be sufficiently mitigated in this area — therefore harming the area’s perceived reputation that has helped attract new residents, businesses, and jobs and support a growing tourism industry.

During the last decade, daily rail traffic through Bellingham has cyclically approached the approximately 14–15 train practical capacity of the rail line; currently, the rail traffic approaches this level.

By 2035, Washington State Department of Transportation (WSDOT) estimates that the capacity of the rail line traveling through Bellingham — again without GPT — would routinely run near capacity — meaning that the operation of GPT would more than double the current rail traffic through Bellingham and double the daily forecasted train volume for the city in 2035.

The potential increase in GPT-related rail traffic could have various economic impacts on the Whatcom County and Bellingham economy — such as waterfront access and redevelopment, stigma, and property value decreases with resultant shifting of property tax burdens.

There could be stigma, justified or not, attached to the increase in rail traffic due to transportation of coal, and proximity to a large coal export facility, that would make some individuals less likely to move to Whatcom County or more likely to leave. Population and economic growth in Whatcom County and Bellingham has been based in part on the perception of an area with robust natural amenities lending to a myriad of recreational opportunities (e.g. hiking, biking, hunting, fishing, skiing, etc.) and supporting sustainable living — both aligned with the notion of the Second Paycheck. Any potential risk to the region’s Second Paycheck attributes could result in a slowing of the broader economy — present and future.

Should GPT negatively alter the real or perceived access to, or enjoyment of, the region’s consumption amenities, then there is a potential that projections for continued in-migration and retention of current residents could be at risk and pose economic challenges for the region.

Increased rail traffic related to GPT could impact real estate values, especially for those properties closest to the rail lines. Prior studies suggest that residential and commercial property values adjacent to freight rail lines are generally lower than comparable residential and commercial properties located farther from freight rail lines.

GPT Maybe Already Affecting Economic Growth

To the extent that some of the population inflow to Bellingham and Whatcom County is due to its amenities, the proposed plan puts that at risk. Any potential risk to the region’s Second Paycheck attributes could result in a slowing of the broader economy — present and future. There is a potential that, if GPT negatively alters the access to, or enjoyment of, the region’s natural amenities (real or perceived), then projections for continued in-migration (especially, those who appear to be choosing Whatcom County and Bellingham as a destination and bring comparatively more aggregate wealth than those residents who leave the county) could be at risk and pose economic challenges for the region (e.g. reduced levels of economic growth; diminished talent-to-pay-level benefit for employers; less diversification of jobs/job creation, etc.), thereby presenting a risk to both local residents and local businesses as well as the broader local economy.

There are multiple factors that affect a city and county economy, and there is no easy way to test whether changes in trends are due to one factor or another. Nevertheless, in assessing whether the risks associated with the development of the Gateway Pacific Terminal are real, it is worth noting the following developments since the announcement of the GPT in 2011:

• Population growth in both Bellingham and Whatcom County has now slowed and growth rates lag behind the state and Seattle, a notable change from 2001 to 2010 when each growth rate significantly outpaced the state.

• Job growth in Whatcom County is now at, and no longer ahead of, employment growth statewide; also a considerable departure from Whatcom County’s 2000 to 2010 performance when the County outpaced statewide employment growth by approximately three to one from 2001 to 2010.

Many factors may be contributing to the slowing of the Bellingham and Whatcom County economy. One indicator, however, that may be the most closely related to the planned development of the Gateway Pacific Terminal is real estate value, particularly real estate value for those neighborhoods closest to the BNSF rail tracks.

The property values in single-family residences (SFR) — as measured in dollar value per square foot — sold in Bellingham census tracts that are adjacent to the rail line appear to have decreased in some relation to the change in composition and number of trains on the rail line, and possibly even the announcement of GPT.

From 2006 to 2010, data show that Bellingham single-family residences values decreased — likely significantly impacted by the recession at the end of the decade. However, from 2010 to 2013, SFR values in areas near the rail line — among the highest value properties in Bellingham and Whatcom County — continued to decline while the remainder of SFRs stabilized, or even slightly grew, in value.

Due to limited data and viable alternative explanations, it is impossible to reach firm conclusions regarding whether or not GPT is currently affecting the region’s economy in the manners outlined above — however, it appears to be plausible that GPT is already affecting the region’s economy. Additional research is required to provide policy makers and the public with an assessment of whether or not GPT is already impacting the region’s economy and identify ways — expected and unexpected — that it could positively or negatively alter the economic trajectory.

Development of the Gateway Pacific Terminal could have an impact on Bellingham city finances.

A potential slowing of the local economy in Bellingham could negatively impact city revenues. The proposed development of GPT may have an impact that affects overall market interest in Bellingham as a place to live that could affect tax revenue.

A potential slowing of the local economy in Bellingham could negatively impact city revenues. The city of Bellingham primarily relies on three sources of local tax revenue: property tax, business and occupation tax, and sales tax.

Property tax is generally viewed as a relatively stable source of revenue and is less volatile based on shifts in the local economy. Data related to declining value in home prices in the areas proximate to the BNSF line, however, suggest that development of the GPT may have — and may already have had — an impact on property value. In the 2012 study, the project team noted that any decline in value near the BNSF line may be offset by increased demand in other neighborhoods — and thus, a zero sum outcome in assessed value. Shifts in comparative value can transfer some of the tax burden among different homeowners. For instance, if the assessment of higher value homes decreases, that incremental decrease results in an incremental increase to other homeowners.

The proposed development of GPT may have a larger impact that affects overall market interest in Bellingham as a place to live that could affect the other tax revenues.

Potential risks to the retail and tourism sectors could result in loss of revenue in sales and business and occupation taxes and — to the extent that the pace of economic growth in Bellingham slows or is altered as a result of the GPT or related rail volume increases — it would produce a slowing in revenue as well.

In addition to potentially affecting local government revenue streams, the proposed GPT could also lead to increased costs for local governments — most prominently, mitigating the impact of GPT and additional rail traffic. The city’s limited resources are increasingly pressured to provide core public services. Additional reductions in city revenues — or increases in necessary expenditures — resulting from GPT could have a detrimental effect on the city’s ability to provide its current level of municipal services.

There are also a number of costs related to mitigating the impact of GPT and additional rail traffic that the city may need to bear, including infrastructure (e.g. grade separations, additional road maintenance), public safety performance and cost, and limited access to recreation facilities.

As a result, Bellingham could see less revenue and more cost related to the development and operation of GPT.

Prior Studies May Have Overstate the GPT-Related Job Projections

PFM [Public Financial Management Inc.] was not able to do a full recasting of a GPT job creation-loss threshold in the 2012 report due to concerns about the accuracy of the input data for jobs. For example, the 2011 Martin Associates report, commissioned by SSA Marine, and a subsequent local review of the Martin report by Finance and Resource Management Consultants (FRMC), also commissioned by SSA Marine, appear to use a larger multiplier for the operation of GPT than the multiplier provided by the U.S. Bureau of Economic Analysis RIMS II data for Whatcom County — according to the FRMC report, Martin used a multiplier of 2.93, and FRMC’s two analyses used 2.8 and 2.96, respectively, while the BEA RIMS II multiplier was 1.8.

In light of this potential overstatement of the job creation, the GPT-related job projection data warrants additional analysis and review beyond the scope or resources of this study.

PFM attempted to contact SSA Marine to obtain additional information for this analysis; however, SSA did not respond to communication.

The region’s economy has likely prospered because of its consumption amenities. Any alterations to access, enjoyment or existence, could affect the region’s economic trajectory — either negatively (if reducing access, enjoyment or existence) or positively (if enhancing access, enjoyment or existence). The region’s consumption amenities appear to be at the core of its economic engine – with particular significance in Bellingham’s economy (waterfront, downtown) that drives an important portion of the county’s economic engine — and which are in close proximity to the rail line resulting in potential negative impacts. Even minor alterations that may appear unrelated to the region’s natural capital assets could change its economic trajectory.

Previously Identified Risks Appear to Continue and May Be Growing

The primary questions for consideration by policy makers and the public — for which individuals may reach different, yet valid, conclusions — are:

• Are there any risks to the net benefits of redevelopment of the waterfront or to the baseline trajectory growth of the region’s economy because of the proposed Gateway Pacific Terminal and/or any other increase in rail freight traffic?

• To the extent there are risks to the net benefits of the waterfront redevelopment and/or the region’s baseline economy trajectory, what entity would pay for mitigation actions to limit the potential negative impact(s)?

• Could risks to the utilization and enjoyment of water access lead to a diminution of public and private development along the waterfront? Could the same risks affect tourism and in-migration?

• Does additional freight rail traffic accelerate remediation needs sooner than later?

The central question for policy makers and the public to consider is whether or not the development of GPT presents significant risk to the region’s long-term economic growth and/or other potential long-term economic developments (such as the waterfront) so as to create a net negative impact for the region’s economy.