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

June 2015

Prepared by:

The PFM Group Two Logan Square, Suite 1600 18th & Arch Streets Philadelphia, PA 19103 Phone: 215-567-6100

Table of Contents

Executive Summary Page 3

Introduction Page 8

Economic and Population Trends in Bellingham and Whatcom County Since 2000 – Relevant to Considering Potential Local Economic Impacts of GPT Page 10

The Economic Benefits of Whatcom County’s “Second Paycheck” Page 14

Potential Economic Impact of Gateway Pacific Terminal Page 21

How GPT May Affect the Region’s “Second Paycheck” (and Could Already Be Affecting It) Page 24

Development of the Proposed Gateway Pacific Terminal Could Have an Impact on Bellingham City Finances Page 29

The Risks Identified in the 2012 Report Appear to Continue to be Present and May be Growing Page 32

Appendices Page 36

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Executive Summary

Whatcom County and Bellingham are “Second Paycheck” locations.

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% compared to a growth rate of 7.9% statewide) and retail trade (up 900 jobs or 10% 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

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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.

The development of GPT and the related increase in rail traffic could create risk for future trajectory growth in Bellingham and Whatcom County.

As discussed in PFM’s 2012 report, 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.

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Potential development of the Gateway Pacific Terminal may already be affecting population and economic growth in Bellingham and Whatcom County.

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.

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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 on GPT-related job creation may overstate the GPT-related job projections.

PFM 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 1.8.1

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

1 Job multipliers are used to assess how many additional jobs are created for every new job that is created. As a result, use of a larger multiplier would result in a greater number of projected indirect/induced jobs than would a smaller multiplier. Job multipliers for RIMS II data for Whatcom County category 48A000 showed a direct effect employment multiplier of 1.79. According to the BEA, this multiplier is based on 2002 benchmark input-output (I-O) data and 2010 regional economic data. Additionally, the multiplier was produced using older data sources – in one case the multiplier is slightly higher than 1.79 but less 2.0 (2002 benchmark I-O data and 2008 regional economic data) and in another case the multiplier is just over 2.0 (1997 benchmark I-O data and 2009 regional economic data).

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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.

The risks identified in PFM’s 2012 report appear to continue to be present and may be growing.2

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.

2 http://www.communitywisebellingham.org/wp-content/uploads/2012/03/Communitywise-Bellingham-Report-3.6.2012.pdf

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Introduction

In Summer 2014, Communitywise Bellingham (CWB) retained Public Financial Management, Inc. (PFM) to provide an independent analysis of the potential economic impacts associated with the operation of the proposed Gateway Pacific Terminal – specifically to analyze data pertaining to the potential impacts on Whatcom County’s local economy, City finances, job creation, and the region’s ability to continually attract and retain residents, tourists, and jobs.

PFM is a national consulting and financial advisory firm, headquartered in Philadelphia, Pennsylvania, that serves public-sector clients. With 37 offices and over 500 professionals located across the country, PFM is the nation’s leading provider of independent government financial advisory services.3

In 2012, PFM authored an independent review of the potential economic impacts on Whatcom County associated with the development of the Gateway Pacific Terminal (GPT) at Cherry Point. The report assessed certain GPT-related economic risks and costs to Whatcom County that were not considered in prior assessments of economic benefits associated with the development and operation of the Terminal.

In 2014, a team led by PFM also completed a report to the Puget Sound Regional Council (PSRC) on the economic effects of the proposed Gateway Pacific Terminal on King, Kitsap, Pierce and Snohomish counties. PSRC asked the project team to assess both regional economic opportunities and risks created by the terminal’s construction and operation, including effects on the central Puget Sound region’s transportation system, current and future domestic and international trade, current and future land use and environmental issues. Additionally, PSRC charged the project team to identify potential mitigation strategies related to probable economic risks such as infrastructure improvements and policy recommendations.

Summaries of the 2012 and 2014 PFM report findings, as well as other relevant reports, are included in Appendix A of this report.4

To conduct its work, PFM reviewed significant data, academic and professional works, and published news reports. Sources of data and information, cited throughout this report in footnotes, include: the U.S. Census Bureau, U.S. Bureau of Labor Statistics, U.S. Internal Revenue Service, Washington State Office of Financial Management, and Washington State Employment Security Department among others. PFM’s project team also conducted a series of meetings with Bellingham City Department Directors or their designees and community leaders.5

Current status of the proposed Gateway Pacific Terminal project

The Terminal’s developer – Pacific International Terminals, Inc. (PIT) – is a subsidiary of SSA Marine (SSA). In 2011, PIT submitted a Project Information Document (PID) to the State and Whatcom County that proposed to build an international dry-bulk commodity export-import facility in the Cherry Point Industrial Urban Growth Area. The proposed Terminal would be the largest facility of its type on the west coast of the United States, with capability to handle as much as 54 million metric tons of dry-bulk commodities.6

3 Throughout the remainder of this report, the professionals representing PFM in this engagement will be referred to as the project team or PFM. 4 Additional information regarding the proposed Terminal was provided in PFM’s 2012 report, which detailed the proposed development, construction, and operation of the Terminal. 5 Due to Whatcom County’s role as a co-lead agency on the SEPA process, the County elected to refrain from meeting with the project team. As a result, a portion of the report primarily focuses on the potential risks to local government that stemmed from conversations with City officials and the project team’s research. 6 2011 PID. PIT must obtain multiple permits from federal, state and local governments to develop the terminal.

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The 2011 PID outlined a two-phase construction process for the proposed Terminal – a first phase, originally estimated to begin in 2013 and be completed by 2015, and a second phase to attain full build out that was projected to be completed in 2017 and reach full throughput capacity by 2026. In February 2011, SSA and Peabody Energy (Peabody) announced an agreement to export up to 25 million metric tons of Powder River Basin (PRB) coal per year through GPT. The agreement provided Peabody with rights to throughput over the life of the operation of GPT and the ability to expand capacity in future years.

At full capacity, the proposed Terminal would add an additional 18 trains per day to the traffic on the Burlington North Santa Fe (BNSF) mainline through Bellingham (9 loaded trains traveling to the Terminal and 9 empty trains returning from the Terminal) – each approximately 1.6 miles in length.

After reviewing the proposal to develop the Terminal, regulatory agencies determined that granting permits to proceed could result in significant impacts to the human environment as a result of the proposed action. The Federal government, State of Washington and Whatcom County determined that an Environmental Impact Statement (EIS) was required.7

Development of the EIS report and analysis is set to begin. Upon completion, a draft of the joint EIS produced by the U.S. Army Corps of Engineers and Washington's Department of Ecology and Whatcom County will be shared with the public. Feedback will then be received and new findings and information may be incorporated into the final EIS. According to communication from the co-lead agencies, the final EIS is expected to be completed sometime in 2016.

In April 2014, PIT submitted a letter to Whatcom County and the Washington Department of Ecology indicating its intent to construct the proposed Terminal in a single phase, as opposed to the originally proposed two-phase schedule. The letter indicated that the central reason for single phase construction was that PIT had already contracted for more than 75 percent of the 54 million metric ton throughput capacity of the Terminal. The letter also indicated that the revised on-line date for the Terminal is 2019, at which time PIT projects the Terminal would operate at full capacity, if approved for construction. News reports at the time of this report (March 2015) indicate that the draft EIS is unlikely to be complete before mid-2016 and, if the project is approved, the Terminal may not reach operational status until as late as 2020.

7 This report should not, in any manner, be construed as supplanting the Environmental Impact Study (EIS) or any other official review of the project. The EIS agencies have been informed of this report’s research and compilation, and have asked for its formal submission to the agencies for consideration in the EIS’s preparation. In addition, it should be noted that the scope of the EIS includes only limited economic analysis, and upon this report’s writing, the agencies have made only limited information available to the public about the specifics on this component of the EIS.

It should be noted that exclusion of certain issues from this analysis should not be inferred as dismissing the importance of those issues. As with any such review, individual components of our analysis rely on the validity, accuracy, and comprehensiveness of the information supplied to us, and projections of future events and outcomes are inherently uncertain and subject to change. Similarly, time and resources limit the ability to consider all factors.

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Economic and Population Trends in Bellingham and Whatcom County Since 2000 – Relevant to Considering Potential Local Economic Impacts of GPT

The starting point for our analysis of potential economic impacts of GPT on the Bellingham and Whatcom County economies is a review of recent economic and population trends.

From 2000 to 2010, Bellingham and Whatcom County Outpaced Statewide Population and Employment Growth8

Between 2000 and 2010, population and employment grew in Bellingham and Whatcom County at a rate faster than the rest of the state.9

‘Baby Boomers’ and ‘Millennials’ drove growth. Two age demographics, “Baby Boomers” (ages 50 - 69 years old) and “Millennials” (ages 20 – 29 years old) accounted for three-quarters of the growth in Bellingham and the remainder of Whatcom County between 2000 and 2010.

The population growth rate in Bellingham among Millennials between the ages of 25–29 was nearly double the rate of growth statewide. Bellingham grew its population of 25 - 29 year olds by 36.0 percent, while the state’s growth was 19.0 percent and the remainder of the County’s growth was 26.7 percent. The increase in Millennials between the ages of 25 and 29 accounted for 14.0 percent of net growth in Bellingham and 5.6 percent of net growth in Whatcom County.

During the same period, the number of Baby Boomers in Bellingham grew by 60.1 percent, compared to 63.2 percent countywide. Baby Boomers accounted for 44.7 percent of net population growth in Bellingham and 55.0 percent countywide.

Population Change from 2000 - 201010 2000 Population 2010 Population Growth (%) Washington 5,894,121 6,724,543 14.1% Whatcom County 166,814 201,140 20.6% Bellingham 67,171 80,885 20.4% Remainder of Whatcom County 99,643 120,255 20.7% Source: U.S. Census Bureau 2000 and 2010 decennial census data.

Whatcom County’s Job Growth Outpaced the State’s Job Growth. From 2001-2010, Whatcom County grew jobs at nearly triple the rate of the State – 13 percent growth compared to 3.8 percent – and unemployment rates were consistently lower than the State’s unemployment rate.

Five sectors led Whatcom County’s growth in employment:

• Leisure and hospitality (growth of 1,700 jobs; sector growth of 22.7 percent); 11 • Education and health services (growth of 1,900 jobs; sector growth of 19.5 percent),

8 Please see Appendix A for additional context of the findings from the 2012 report. 9 According to Bellingham’s Planning & Community Development Department, annexations that occurred in Bellingham between 2000 and 2010 accounted for a population increase of 1,216 residents – or less than two percent of overall growth 10 A full table of showing the 2000-2010 population change stratified by ages in Washington State, Whatcom County, Bellingham, and the non-Bellingham portion of Whatcom County is included in Appendix B. 11 Those super sectors for which data were available accounted for the growth of 4,800 of the 8,100 jobs from 2001 to 2010. While data from the CES database were not available individually for all super sectors, calculations indicate the missing super sectors accounted for 12,000 jobs in 2001 and 15,300 jobs in 2010. Given the composition of Bellingham and Whatcom County’s economy, it could be argued that, of the super sectors that were not available at the Bellingham MSA level (and for the City of Bellingham in particular), education and health services sector was the most likely to be driving the significant increase in jobs during the 2001 to 2010 time period. At the time of the 2012 report, BLS Occupational Employment Statistic (OES) data available for the Bellingham MSA estimated there were approximately 73,420 jobs in the Bellingham MSA. OES defined jobs of these types accounted for 14.8 percent of the MSA's total jobs. Applying that percentage to the total estimated number of jobs in 2010, yields 11,550 jobs, or 75.5

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• Local government (1,400 jobs; sector growth of 17.3 percent); • Professional and business services (growth of 800 jobs; sector growth of 12.7 percent); and • Retail trade (growth of 900 jobs; sector growth of 10.0 percent).

Together, these categories accounted for nearly three-quarters of total net job growth in Whatcom County.

By comparison, during the same period, state job growth was concentrated in:

• Education and health services (90,700 jobs; 27.3 percent growth); • Professional and business services (29,700 jobs; 10.0 percent growth); • Other services (8,600 jobs; 8.9 percent growth); and • Leisure and hospitality (19,400 jobs; 7.9 percent growth).

Unemployment Rate - January 2001 - December 2013 12.0 Not Seasonally Adjusted

10.0

8.0

6.0

4.0

2.0

0.0 Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Jan 2011 Jan2011 Jan2001 Jan2002 Jan2003 Jan2004 Jan2006 Jan2007 Jan2008 Jan2009 Jan2010 Jan2012 Jan2013 Jan2005 WA Unemployment Rate Bellingham City Unemployment Rate Remainder of Whatcom (less Bellingham) Source: U.S. Bureau of Labor Statistics, Local Area Unemployment Statistics

Population increased despite the region’s comparative low wages and higher property costs

Bellingham and Whatcom County’s population grew between 2000 and 2010 despite the fact that wages were lower and property costs were higher.

Whatcom County jobs have historically trailed the State in average annual wages. Since 1987, data indicate that Whatcom County’s average annual job wages were approximately 20 percent less than the statewide average and nearly eight percent less than the rest of the state excluding King County.12

percent of the total jobs not included in a defined super sector. From 2001 to 2010, healthcare practitioner and technical operations occupations grew by 30.5 percent and healthcare support occupations grew by 52.6 percent. If applied to the CES data, it could be estimated that the health and education sector was responsible for job growth in the range of 1,900 jobs. While combining/comparing OES data and CES data is not a perfect or even ideal method for a variety of important reasons, the process suggests there is likely support to suggest that the education and healthcare sector (particularly healthcare) was an important driver of job growth in the Bellingham MSA from 2001-2010.

Education includes jobs in private higher education institutions. Jobs in public higher education institutions (i.e. WWU) were included in the ‘Government’ (specifically state government) super sector. 12 In 2013, the County trailed the State’s average annual wage by 22.1 percent and the State less King County by 4.7 percent.

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Average Annual Wage for Whatcom County Jobs $60,000 Adjusted for Inflation

$50,000

$40,000

$30,000

$20,000

$10,000 State State Less King Whatcom $0 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Source: WA OFM

Based on American Community Survey data for 2011-2013, the difference in wages was particularly significant for residents with higher levels of education attainment, who generally command higher incomes. Whatcom County residents with a bachelor’s degree earned approximately $5,200 less per year than the state median for those with a bachelor’s degree; in Bellingham, the disparity is even greater, where residents earned approximately $15,602 less per year.13

Whatcom County residents with a graduate or professional degree also earned less than the statewide median for individuals with the same educational attainment level. Whatcom County residents trailed the statewide median by approximately $9,800 in annual earnings and Bellingham residents trailed the statewide median by approximately $12,600 in annual earnings.

Median Earnings by Educational Attainment (Ages 25 and Over)

$80,000

$70,000 Median Earnings: WA: $38,697 $60,000 Whatcom: $33,743 Bellingham: $31,736 $50,000

$40,000

$30,000

$20,000

$10,000

$0 Less than high High school Some college or Bachelor's degree Graduate or school graduate graduate (includes associate's degree professional degree equivalency) WA Whatcom County Bellingham

Source: U.S. Census Bureau 2011-2013 ACS 3-year Estimates

13 U.S. Census Bureau 2011-2013 ACS 3-year Estimates. There may be some student-related impact in the bachelor degree data due to graduate students pursuing additional education and having little to no income.

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While Whatcom County residents earn less, they appear to be willing to pay more for housing. After historically trailing the state’s median home price, Whatcom County’s median home price has been higher than the state’s median home price since mid-2010.

Another – perhaps better – measure of the relationship between income and cost may be housing affordability. Washington State University’s Washington Center for Real Estate Research (WCRER) publishes housing-related data, including an affordability index and data on median sales prices. WCRER compiles an affordability index for home purchases that measures the ability of a typical family to make payments on a median price home. For example, if a jurisdiction had an affordability index of 110, it would mean that a family earning the median income would have 10.0 percent more income than the bare minimum required to qualify to purchase a median-priced home with a 20 percent down payment and a 30-year mortgage.

Since early 2004, the County’s home buyer affordability index has generally remained below the state’s index, meaning home purchases are slightly less affordable in the Whatcom County as compared to the state.14 Home Buyer Affordability Index - 1994-2014 200.0 180.0 160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0 2011:Q2 2011:Q2 2011:Q4 1994:Q2 1994:Q4 1995:Q2 1995:Q4 1996:Q2 1996:Q4 1997:Q2 1997:Q4 1998:Q2 1998:Q4 1999:Q2 1999:Q4 2000:Q2 2000:Q4 2001:Q2 2001:Q4 2002:Q2 2002:Q4 2003:Q2 2003:Q4 2004:Q2 2004:Q4 2005:Q2 2005:Q4 2006:Q2 2006:Q4 2007:Q2 2007:Q4 2008:Q2 2008:Q4 2009:Q2 2009:Q4 2010:Q2 2010:Q4 2012:Q2 2012:Q4 2013:Q2

WA - 1st Time Home Buyer Affordability Index Whatcom - 1st Time Home Buyer Affordability Index WA - Affordability Index Whatcom - Affordability Index

14 It is possible that Whatcom County’s lower wages as compared to the state average (discussed above) contributed to this affordability lag, though the wage trend existed for a significant period prior to 2004.

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The Economic Benefits of Whatcom County’s “Second Paycheck”

If wages were lower and housing cost were higher, what led to the increase in population between 2000 and 2010 and the accelerated increase in employment? In other words, why did people move to Bellingham and Whatcom County?

The Second Paycheck Theory

Bellingham and Whatcom County are examples of the phenomenon known as the “Second Paycheck” or what some in the region refer to as the “Bellingham Tax.”15 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 natural amenities that define living in the Whatcom County. 16 From the perspective of the County’s residents, consumption of these amenities – such as access to recreation, scenic views, and quality of life – creates a benefit that is worth the cost (lower wages, higher cost of living) to access and enjoy these amenities. The study suggested 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.

Furthermore, the study indicated that the Second Paycheck affects local and regional economies by influencing consumer activities and decisions – such as residential location and wages.17 Citing other research, the authors suggested that 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 authors suggested 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.

Another study explored two views of an economy – the extraction view and the environmental view.18 The extraction view “assumes that to spur development it is necessary to extract resources from the natural environment for export to external markets. The income generated from this export activity is multiplied throughout the economy and puts additional people to work.” The environmental view “argues that environmental quality is at the root of economic development. Improvements in environmental quality attract workers and businesses to move to the area and increase the amount of retirement income. The new economic activity leads to diversification of the economy and additional jobs and income.”19

15 During meetings with local stakeholders, elected officials, and residents – both in 2012 and 2014 – the project team heard references to the fact that Bellingham residents are more willing to accept lower paying jobs, pay for a higher cost of living, or commute long distances to higher paying jobs to enjoy the benefits of living in Bellingham. This fact was sometimes colloquially referred to as the “Bellingham Tax.” 16 A 1999 study by Niemi, Whitelaw, and Johnston first outlined this theory. They suggested that natural capital assets and the associated benefits – in economic terms – create consumption amenities. Consumption amenities can influence location decisions and influence consumer behavior because they create a benefit – such as access to recreation, scenic views, and quality of life – in excess of the cost to access the amenity. The additional benefit from easier access and lower barriers or costs to natural capital assets creates a net consumer surplus that was likened to a “second paycheck residents receive from living in a place where they have easy access to amenities…” Ernie Niemi, Ed Whitelaw, and Andrew Johnston “The Sky Did NOT Fall: The Pacific Northwest’s Response to Logging Reductions,” April 1999. 17 The study cites the early work by Rosen (1979) and Robak (1982) on consumption amenities’ influence in residential location. 18 Gary Paul Green, “Amenities and Community Economic Development: Strategies for Sustainability,” Journal of Regional Analysis & Policy, 2001. 19 Green, 2001 citing Michael Thomas Power, Lost Landscapes and Failed Economies: The Search for a Value of Place. Washington, DC: Island Press, 1996.

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Second paycheck in other cities

Two other cities – Asheville, North Carolina and Burlington, Vermont – demonstrate similar characteristics to Bellingham and also appear to be examples of the second paycheck theory in action.

Asheville, North Carolina: Located in the Blue Ridge Mountains, the City of more than 87,000 residents attracts many outdoor adventurers and those seeking a healthy and active life or getaway near the region’s rivers, streams, and mountains

Burlington, Vermont: Located on the eastern shore of Lake Champlain, the City of nearly 42,300 residents attracts and retains residents and tourists who seek proximity to the region’s woodlands, mountains, and waterways. The City was referred to as “The Perfect Small City” by National Geographic Traveler and, like Bellingham, is routinely noted as one of the top cities for outdoor recreation.

From 2000-2010, population growth in Asheville, Burlington, and Bellingham exceeded statewide growth.

Percentage of Population Growth from 2000-2010 NC Asheville VT Burlington WA Bellingham 18.5% 21.1% 2.8% 9.1% 14.1% 20.4% Source: U.S. Census Bureau, 2000 and 2010 Decennial data.

Like Bellingham, Asheville, NC and Burlington, VT are also “college towns” -- Western Washington University is an anchor institution in Bellingham, just as University of North Carolina at Asheville and the University of Vermont are in their respective cities. Each of the cities has college attainment rates that exceed respective statewide rates.

NC Asheville VT Burlington WA Bellingham

Bachelor's degree or greater 27.6% 46.1% 35.7% 50.4% 32.1% 38.7% Source: 2011-2013 ACS 3-year estimates

Still, the median earnings of residents 25 years of age and over in each city are below the respective statewide averages – with a notable lag among those with post-secondary education who may have more upward mobility to find a higher paying job elsewhere, but actively chose to live in their respective cities.

Median Earnings of Population 25 Years of Age and Over as Percentage of Statewide Median Earnings – by Educational Attainment Level Asheville as Burlington as Bellingham as % of NC % of VT % of WA Total: 93.7% 93.1% 82.0% Bachelor's degree 73.0% 86.3% 70.1% Graduate or professional degree 81.6% 96.2% 81.2% Source: 2011-2013 ACS 3-year estimates

The three cities each had median home values that were greater than the respective statewide median home values.

City Median Home Value as Percentage Greater than Statewide Median Home Value Asheville, NC Burlington, VT Bellingham, WA

Percentage Greater than Statewide Median Home Value 29.0% 20.9% 9.5% Source: 2011-2013 ACS 3-year estimates

From 2000-2010, the job market in each city grew faster than the statewide average.

Job Growth – 2000-2010 NC Asheville VT Burlington WA Bellingham 0.1% 4.4% 1.2% 2.5% 5.0% 22.9% Source: U.S. BLS Current Employment Statistics (CES) – Seasonally Adjusted data

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Understanding the Second Paycheck Phenomenon in Bellingham and Whatcom County

Before assessing GPT’s potential economic impacts to the Bellingham and Whatcom County economy, it is important to explore the current applicability of the Second Paycheck phenomenon to the region.

In Bellingham and Whatcom County, access to recreational opportunities – such as jogging and hiking trails, hunting, fishing, and winter sports among others – and scenic views are central to the region’s economic advances. Under the Second Paycheck theory, these amenities allow Whatcom County and Bellingham to attract talent at lower wages and despite higher cost – something important for the region’s employers and which continues economic growth.

Population and economic growth in Whatcom County and Bellingham has been based in part on the reputation of the area as a hub for an outdoor adventure and living—whether one’s interest is outdoor sports, boating, or golfing. These amenities may have also contributed to the region’s ability to attract new residents and residents with higher income.

New Whatcom County residents have a higher adjusted gross income (AGI) than those who are leaving the County. IRS migration data for tax years 2004 through 2010 suggested the important role that migration played in the County’s population and economic growth – creating new and diverse jobs in the regional economy (across the private, public, and not-for-profit sectors) that provide new and additional job opportunities for residents of all skill sets and backgrounds.20 From 2004-2010, the relative wealth (AGI) of the returns of taxpayers moving to Whatcom County outpaced the earnings of taxpayers leaving Whatcom County ($872 million vs. $699 million) – suggesting that those with greater wealth moved to Whatcom County.21

It appears a growing segment of the population voted with their feet and resides in Bellingham and Whatcom County for access to natural amenities and the corresponding lifestyle. Residents appear increasingly willing to commute to higher paying employment in order to take advantage of natural amenities. The growth in the number of Whatcom County residents who commute 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 economies is that residents who commute out of the county for work come back to Bellingham and Whatcom County to spend their earnings.

From 2002-2011, the number of employed County residents who commuted outside of Whatcom County for work grew at more than double the growth rate of employed County residents (39.6 percent growth versus 18.3 percent growth), while the proportional share of Whatcom County residents who lived and worked in the County decreased by 5.0 percent – from 78.2 percent to 74.3 percent.22

As of 2011, Whatcom County residents who worked in another County accounted for 25.7 percent of all employed residents – a 3.9 percentage point increase among those who commuted outside of the County since 2002.23 The most recent available data, for 2011, estimated that Whatcom County had a net

20 Bellingham and Whatcom County each experienced significant population growth from 2000 to 2010. The project team explored Internal Revenue Service (IRS) migration data to obtain a greater understanding of the previous location of newcomers to Whatcom County. IRS migration data is available on a County-to-County level and is based upon year-to-year address changes reported on individual income tax returns filed with the IRS. The data track inflows and outflows and where residents went. The IRS defines inflows as “the number of new residents who move to a county or state…” Outflows are defined as “the number of residents leaving a county or state…” The IRS data report both the location of origin and the new location. The IRS notes that the data represent between 95 and 98 percent of total annual filings (those filed prior to late September of each calendar year). 21 The large majority of inflow to Whatcom County was from other Washington counties (68.7 percent of all inflow); primarily King, Snohomish and Skagit Counties. The remaining residents migrated to Whatcom County from other states – with former Californians representing the largest portion, at 12.6 percent, of the total inflow to Whatcom County. 22 In Bellingham, the number of employed County residents who commuted outside of Whatcom County for work grew at nearly double the rate of employed County residents (22.2 percent versus 13.1 percent), while the proportional share of City residents who lived and worked in the City increased by 9.0 percent. 23 In 2011, jobs within the city limits of Bellingham accounted for 58.2 percent of the employment in Whatcom County, but only 38.0 percent of City residents worked within the City limits.

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outflow of approximately 2,918 workers; meaning that 2,918 more Whatcom County residents commuted outside of the County for work than non-Whatcom residents who commuted into the County for work.

More commuters (those residing in Whatcom County and working elsewhere) fall into a higher earnings category than residents who stay in Whatcom County to work or individuals who commute to work from outside locations into Whatcom County. In 2011, 41.8 percent of those who lived in Whatcom County and commuted to other jurisdictions for work earned more than $3,333 per month (nearly $40,000 annually) – compared to 38.8 percent of Whatcom residents who also worked in the County and 37.4 percent of non-Whatcom residents who commuted into the County for work. This, again, may be somewhat influenced – but not wholly explained by – overall population and migration data trends that suggest older workers may be moving to Whatcom County by choice.24

Residents who commuted outside of Whatcom County typically earned more for similar work, likely because of commutation to the higher wage paying area of the central Puget Sound.25 In 2011, Whatcom County residents commuting more than 50 miles to work comprised nearly one-fifth of total workers.26 More than 85 percent of all workers commuting more than 50 miles to their place of employment traveled south – likely to the central Puget Sound region.27

Commuters appeared to earn more than residents who stay in Whatcom County to work. From 1990 through 2012, Whatcom County residents who commuted to other counties for work, on average, earned more than those who lived and worked in Whatcom County and those who lived elsewhere and commuted to Whatcom County for work. In 2012, Whatcom County residents who commuted outside of Whatcom County for work earned $390.4 million in wages. Residents of other counties who commuted into Whatcom County for work earned $226.9 million, resulting in a net commuter earnings surplus for Whatcom County of $163.5 million.28

Between 1990 and 2012, the earnings of Whatcom workers leaving the County for work grew from 5.6 percent of net County earnings to 8.0 percent.

Whatcom County: Inflation-Adjusted Earnings Flows from Cross-County Commuters 10%

5%

Percent of County Earned Income Coming from Residents Working Outside the County Percent of Earnings from Jobs in the County Going to Workers Living Outside the County 0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: WA OFM

24 These more established employees may be choosing to relocate for quality of life ahead of retirement (and, as a result of their more advanced careers, may be more likely to have higher wages than younger workers). 25 U.S. Census Bureau, OnTheMap Application and LEHD Origin-Destination Employment Statistics (Beginning of Quarter Employment, 2nd Quarter of 2002-2011). 26 From 2002-2011, the number of total primary jobs in Whatcom County increased by 18.3 percent, while the number of jobs to which Whatcom County residents commuted more than 50 miles increased by 34.5 percent. 27 In Bellingham, nearly 90 percent of those who commute more than 50 miles to their place of employment traveled south. 28 1990-2012 WA OFM and ESD personal income data.

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In sum, the region’s natural amenities and lifestyle (Second Paycheck attributes) appear to be a driving force behind in-migration and the creation of new and diverse jobs, an increase in commuters who import higher wages and spending to the region, and individuals residing in Whatcom County who choose to earn lower wages while incurring a higher cost of living.

Amenities Drive Tourism And Retail Activity

The same amenities that have allowed the region to attract talent, jobs, grow its economy and employment base are also the foundation for a significant and growing tourism industry – fueled by both residents of nearby Washington counties and Canada. Tourists travel to Whatcom County and Bellingham to shop – especially Canadians who take advantage of lower prices when the exchange rate is favorable – stay for one or more nights, and enjoy the natural amenities of the region. Tourism boosts receipts to local business, the regional airport, and hotels and injects outside capital into the region’s economy.

Bellingham Whatcom County Tourism’s 2014 Destination Marketing and Media Plan, “Be Inspired,” noted that “Bellingham and Whatcom County are revered for their natural resources – scenic beauty, nature and an abundance of outdoor recreational activities including skiing/snowboarding, hiking, biking, sea kayaking, boating, and sailing” – precisely the type of activities associated with consumption amenities driving a Second Paycheck for many residents.29

In 2013, the direct county-wide visitor spending in Whatcom County was $573.9 million and supported 6,110 jobs (7.4 percent of all jobs based on OFM data), generated local earnings in excess of $128 million, and created approximately $8.2 million in local tax revenue for Whatcom County and local jurisdictions (including $1.2 million in Bellingham in 2013).30 Visitors who stayed in commercial lodging (hotels, motels, bed and breakfast establishments, etc.) accounted for more than 60 percent of total visitor spending – and spent, on average, $343 per day in the local economy.

The “Be Inspired” plan also noted that Whatcom County and Bellingham benefit from their proximity to British Columbia. Canadian tourists and shoppers stream to the region to take advantage of exchange rates, cheaper gas prices, and lower tax rates. Since 2000, the Canadian Dollar has increased its value relative to the U.S. Dollar. As a result, Canadian shoppers and tourists crossing the border are able to purchase more for their money – in addition to, at times, accessing cheaper gas and lower tax rates.

Historical Exchange Rate: Canadian Dollar to US Dollar January 2000 – December 201331

Source: Oanda historical exchange rate data

29 Bellingham Whatcom County Tourism 2014 Destination Marking and Media Plan: Be Inspired. 30 Summary of Washington State, County Travel Impacts 1991-2013 prepared by Dean Runyan Associations for Washington Tourism Alliance & Bellingham Whatcom County Tourism. 31 The Canadian Dollar’s to US Dollar exchange rate experienced a notable decrease in the second half of 2014 and first quarter of 2015 – decreasing from approximately $0.95 (July 2014) to approximately $0.78 (March 2015). This decrease – and future increases and decreases – may affect the number of shoppers and tourists in Whatcom County.

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Data in a recent report sponsored by the Whatcom Council of Governments and the Border Policy Research Center suggest that Canadians play an important role in the region’s economy. The report surveyed those crossing the U.S. – Canadian border (entering the U.S.) and found that the principal reason for crossing of approximately 30 percent of the population was ‘shopping’ and approximately 20 percent reported a principal reason as ‘recreation.’ While the data are not dispositive, they support the general thesis that the Whatcom County and Bellingham economies are enhanced by spending from Canadians who take day trips, shop, enjoy the region’s natural amenities, and/or stay overnight in the region.

The combined effect of tourism and population growth has also helped to drive retail activity as a central component of the local economy. As noted in PFM’s 2012 report, according to the U.S. Census Bureau’s 2007 Economic Census, Bellingham accounted for 76.1 percent of all retail sales in Whatcom County. In addition, Bellingham’s retail sales per capita ($25,169) was nearly double the sales per capita of the County ($13,254) – more than 75 percent greater than the State’s retail spending per capita ($14,380).

Viewed another way, Whatcom County accounted for approximately 1.2 percent of the State’s total population, but generated more than 2.1 percent of its total retail sales in 2007. Given the region’s lower wage paying status and comparatively higher cost of living, it appears likely that spending by tourists and resident commuters is at least partially responsible for the larger share of retail sales than proportional population as compared to the State’s figures.

The region’s economy and tourism are largely centered in and around Bellingham. As a result, what happens in Bellingham matters to Whatcom County. From 2002-2011, approximately 60 percent of jobs in Whatcom County were located in Bellingham. Countywide, jobs were concentrated in Bellingham and, within Bellingham, concentrated west of Interstate 5 (I-5) and clustered near the Central Business District and within short distance to the waterfront. 32

Whatcom County Jobs Per Square Mile Bellingham Jobs Per Square Mile

Source: US Census Bureau Local Employment Dynamics (LED), 2011.

From 2001-2010, Whatcom County employment grew at three times the statewide rate. 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, compared to a growth rate of -1.1 percent statewide).

32 U.S. Census Bureau Local Employment Dynamics (LED) 2002-2011 data show the figure to be approximately 58.3 percent.

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Bellingham’s accommodation and food services sales accounted for $226.6 million (55.6 percent) of the County’s total accommodation and food services sales of $407.8 million.33 As seen in the below map, it appears that a significant portion of the City’s accommodation and food services jobs were located in and around the waterfront area.

Accommodation & Food Service Jobs

Source: US Census Bureau Local Employment Dynamics (LED), 2011

Summary

Many 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 natural amenities that define living in the Whatcom County – a phenomenon known as the Second Paycheck Theory. From the perspective of the County’s residents, consumption of these amenities – such as access to recreation, scenic views, and quality of life – creates a benefit that is worth the cost (lower wages, higher cost of living) to access and enjoy these amenities; such 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 the area.

The region’s natural amenities and lifestyle (Second Paycheck attributes) appear to be a driving force behind in-migration and the creation of new and diverse jobs, an increase in commuters who import higher wages and spending to the region, and individuals residing in Whatcom County who choose to earn lower wages while incurring a higher cost of living.

Additionally, Whatcom County’s natural amenities appear to have an important impact on the region’s tourism spending, retail spending, and jobs – with much of the activity oriented in or around Bellingham. As a result, what happens in Bellingham, matters for Whatcom County.

Changes to the consumption amenities can change the current and future values of the region’s Second Paycheck, thereby affecting a region’s economy and – potentially – the variety and types of jobs in a region. For instance, potential impacts from GPT’s development could result in real or perceived stigma, access to and enjoyment of the Bellingham waterfront/recreational activities, downtown Bellingham, all of which would have an economic impact on the region.

As a result, it is important for policy makers and the public to discern the potential economic impacts (pro and con) of any development that could alter the region’s Second Paycheck phenomenon and its underlying access to and enjoyment of the region’s natural consumption amenities.

33 U.S. Census Bureau 2007 Economic Census. This is the most current available data as of November 2014.

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Potential Economic Impact of Gateway Pacific Terminal

As discussed in the PFM 2012 report, the development of GPT would likely lead to the creation of new jobs and other economic benefits – primarily related to the construction of the terminal.

Potential jobs and economic benefit from GPT

The potential economic benefits of GPT have been outlined in a series of reports commissioned by SSA Marine and authored by Martin Associates and Finance & Resource Management Consultants.34 As with the 2012 report, this report does not include an additional standard input-output economic model to measure the potential job creation and economic benefit from the proposed Terminal.

However, The Martin Associates’ 2011 report and a subsequent local review of the Martin report by Finance and Resource Management Consultants (FRMC), appear to use a larger job multipliers 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 1.8.35

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. For the purposes of continuing analysis, the following section uses the published data from the Martin Associates and FRMC reports. Given the fact that the Martin and FRMC studies used multipliers that appear to be higher than the BEA RIMS II multiplier, readers should note that the figures from these studies presented below may more likely represent an upper bound on potential job projections and additional analysis and review are necessary to determine updated job projections.

Martin Associates and Finance & Resource Management Consultants estimated that several thousand temporary construction jobs would be supported by construction of the terminal and, at full build-out and operation, that the terminal would support 430 permanent jobs. Additionally, the Martin report estimated that construction and the operation of the terminal would create millions in new state and local tax revenue. The recent acceleration of the construction and operation schedule could speed up some of the job and tax benefits associated with the terminal.

Based on the former two-phase approach for construction and operation, Martin Associates estimated that the operation of the terminal, upon completion of Phase One, would create 294 direct jobs and 569 induced and indirect jobs, for a total of 863 annual jobs. The Martin report also estimated that upon completion of Phase One of construction, the terminal’s operation would annually generate approximately $12.0 million of local purchases and the total state and local tax benefits associated with Phase One operation would be approximately $8.1 million per year.36

The study projected 1.8 million person hours supported by direct Phase Two construction (based upon input construction costs of $129 million) and 2.4 million person hours of indirect and induced activity. The

34 Summaries of the report findings, as well as other relevant reports, are included in Appendix A of this report. 35 Job multipliers are used to assess how many additional jobs are created for every new job that is created. As a result, use of a larger multiplier would result in a greater number of projected indirect/induced jobs than would a smaller multiplier. Job multipliers for RIMS II data for Whatcom County category 48A000 showed a direct effect employment multiplier of 1.79. According to the BEA, this multiplier is based on 2002 benchmark input-output (I-O) data and 2010 regional economic data. Additionally, the multiplier was produced using older data sources – in one case the multiplier is slightly higher than 1.79 but less 2.0 (2002 benchmark I-O data and 2008 regional economic data) and in another case the multiplier is just over 2.0 (1997 benchmark I-O data and 2009 regional economic data). An economic analysis of the potential impact of Millennium Bulk Terminals – Longview used the multipliers from the Washington State Input-Output Model (http://www.ofm.wa.gov/economy/io/2007/default.asp). It is unclear whether the State’s multipliers would have been appropriate in the GPT review, but could be included in future analysis to determine revised job projections. 36 Martin Associates. The Projected Economic Impacts for the Development of a Bulk Terminal at Cherry Point, July 2011. http://gatewaypacificterminal.com/wp-content/uploads/2011/11/MartinReport102711ForPrint.pdf

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analysis estimated that the operation of the terminal, upon full build-out, would create 430 direct jobs and 799 induced and indirect jobs, for a total of 1,229 annual jobs. The Martin report estimated that upon completion of Phase Two of construction, the terminal’s operation would annually generate approximately $17.1 million of local purchases and the total state and local tax benefits associated with Phase Two operation would be approximately $11.2 million per year.37

Risks to economic growth related to increased rail traffic

At the same time, as discussed in the PFM 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 Whatcom County.

During the last decade, daily rail traffic through Bellingham has approached the approximately 14-15 train practical capacity of the rail line; currently, rail traffic approaches this level.38 In addition to new freight rail trains shipping coal to GPT, the Washington State Rail Plan points to another potential new source of rail freight volume – shipment of crude oil from the Bakken Formation.39

Growth in Bakken oil drilling and rail transport has had a direct impact on the Pacific Northwest, in part due to the low cost of transporting via rail in comparison to other parts of the country. The lack of pipeline capacity to the Pacific Northwest means that crude oil is moved by rail. At present, U.S. produced oil can only be refined at U.S. refineries40 – two are located at Cherry Point (where the proposed Gateway Pacific Terminal would be located). Already, Bakken Oil has added approximately five trains per week traveling through Bellingham.41

By 2035, WSDOT estimates that the capacity of the rail line traveling through Bellingham – again without GPT – will be 14 to 15 trains per day and utilization of the rail line would approach this level – 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 2035.42

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 and resultant shifting of property tax burdens.

37 Ibid. 38 Data sourced from the Washington Public Ports Association and the Washington State Department of Transportation 2009 Marine Cargo Forecast, the Washington State 2010-2030 Freight Rail Plan. 2011 Marine Cargo Forecast Update, and the Washington State: 2013-2035 Freight Rail Plan. The 2013-2035 Rail Plan cited a practical capacity on the Burlington-Ferndale segment of 14.4 trains per day and a current volume of 14 trains per day. Data regarding coal train traffic sourced from: http://www.heraldnet.com/article/20130623/NEWS01/706239967 A temporary three-year increase in traffic (2004-2006) was largely due to an additional trains associated with the removal of tariffs on lumber from Canada during the peak of the U.S. housing bubble. During the early part of the last decade, coal trains sporadically traveled through Bellingham, before steadily increasing in late 2008/early 2009 according to U.S. Customs data. While overall rail volume fell, both in Washington State and the nation, during the most recent recession, the addition of steadier coal train traffic – three to four trains per day on average – maintained the daily volume of trains traveling through Bellingham. 39 Washington State 2013-2035 Rail Plan. 40 Washington State 2013-2035 Rail Plan. Washington State 2006 Statewide Rail Capacity and System Needs Study. 41 http://www.bellinghamherald.com/2014/06/24/3716444/crude-oil-rail-shipment-data-begins.html 42 Washington State 2013-2035 Rail Plan. The plan updated simulated rail traffic growth through 2035 to find segments that exceeded capacity. WSDOT estimated that the rail line traveling through Bellingham would routinely run near, but not exceed, its capacity. WSDOT was explicit that the 18 train trips per day required for GPT were not included in this analysis.

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Impact on waterfront development

The 2012 PFM report focused extensively on the waterfront redevelopment plans of Bellingham. The report presented an overview of the time, energy, and funding contributed by the State, Port of Bellingham (Port), City of Bellingham, and the City’s Public Development Authority (PDA).

At the time, the Port of Bellingham estimated that the full build-out of the project would occur over a 20 year period and include “a diversity of uses that are complimentary to the downtown Bellingham [CBD], Old Town, and surrounding neighborhoods; an infrastructure network that integrates with and connects the waterfront to the surrounding area; and, a system of parks, trails and open space that opens up the waterfront to the community.”43

The 2012 PFM report outlined potential economic impact associated with the six million square foot waterfront redevelopment plans, and the potential economic risks that may occur, if unmitigated, due to increased freight rail traffic from the proposed Gateway Pacific Terminal.

Since the 2012 PFM report, there have been developments affecting the analysis of potential risk to growth: • The Port’s stated timeline for full build-out of the waterfront redevelopment plan has shifted from 20-30 years to a longer, 40-50 year period. The Port projects the site could house approximately 6,500 jobs at full build-out, rather than initial projections of 7,200 jobs.44 • The Port now anticipates a reduced level of 5.3 million square feet of redevelopment at full build- out. • In 2013, the Port of Bellingham and City of Bellingham published a Waterfront District Master Plan (Sub-Area Plan) that identified the redevelopment of the City’s waterfront as a “’once in a century’ opportunity to restore public access along the shoreline and convert the upland area closest to the Central Business District to a vibrant mixed-use extension of downtown Bellingham.”45 The Port proposed a five-phase approach to waterfront redevelopment. The final phase of waterfront redevelopment calls for the relocation of the BNSF mainline to the eastern bluff in order to accommodate redevelopment and eliminate need for certain at-grade crossings. The relocation is controlled by BNSF and would be subject to negotiations with the Port. • In 2013, the Port and the Washington State Department of Ecology agreed to a separate cleanup plan for each of the north and south portions of the former Georgia Pacific site. The first phase will occur on the northern portion of the waterfront. • The Port of Bellingham’s waterfront redevelopment activity has progressed. As of March 2015, the Port and a private developer, Harcourt Developments, reached an agreement to develop a nearly 19 acre waterfront site – including the Granary.46

In sum, the additional information indicates that the waterfront redevelopment is advancing at a faster pace, but it is likely that full development will take longer and yield fewer jobs – yet still over 6,000 jobs – than originally projected.

To the extent that the waterfront development projects – and the associated job creation and economic growth – hinge on access to, and enjoyment of, the waterfront, increased train traffic that reduces access and/or safety (real or perceived) could reduce development potential if current access issues are not addressed. Prospective developers of the waterfront site – or investors – may be discouraged by the fact that there is even a pending proposal to increase rail traffic and further limit access, or seek discounts in sale prices that are unsustainable for public entities.

43 Port of Bellingham, FEIS. 44 The Waterfront District Redevelopment Project, 2012 EIS Addendum, Port of Bellingham, December 2012. 45 Waterfront Sub-Area Plan. Port of Bellingham/City of Bellingham. 2013. 46 Port of Bellingham: Harcourt can start to rebuild waterfront site, Granary,” The Bellingham Herald. March 31, 2015.

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How GPT May Affect the Region’s “Second Paycheck” (and Could Already Be Affecting It)

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 consumption amenities – particularly along the region’s waterfront and downtown areas – 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) and retention of current residents 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.

Potential stigma

Population and economic growth in Whatcom County and Bellingham has been based in part on the perception of the area’s reputation for outdoor living, recreation, quality of life, and access to natural amenities – aligned with the notion of the Second Paycheck. The region’s view of itself as economically prosperous, socially responsible, and environmentally sustainable was noted in a recent speech by Patagonia’s Vice President of Marketing, Vincent Stanley, who stated in reference to the region’s commitment to the Triple Bottom Line, that he “was impressed with what you’re doing in Bellingham and I think it’s a great model for other cities.”47

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 tourist attractions, accommodations, and food services jobs – namely along the Bellingham waterfront and adjacent downtown. 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.

Even those properties not directly affected by additional rail traffic could suffer from proximity to properties that are affected. Stigma – associated with proximity to the increase in rail traffic or even resulting specifically from the fact that the rail was increasingly being used to transport coal to a port in the region – could affect property value even if the properties would not be affected by additional noise; thereby affecting the region’s “brand” that has helped propel its economic growth in recent decades.48

Potential reduction in property value

The value of residential and commercial properties adjacent to the rail corridor could decrease due to additional freight rail traffic – including traffic traveling to and from the proposed Gateway Pacific Terminal.

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. A variety of factors related to train operations are cited to explain lower property values, including increased traffic congestion, reduced quality of access, perceptions of diminished safety, increased noise, and air pollution.

47 http://bbjtoday.com/blog/patagonia-marketing-vp-calls-bellingham-a-model-for-other-cities/29269. The triple bottom line (TBL) focuses on profit, people (i.e. social responsibility), and planet (environmental responsibility). The Bellingham/Whatcom Chamber of Commerce has placed an emphasis on the triple bottom line. 48 Two example studies reviewed were: Kevin J. Boyle, Nicolai V. Kuminoff, Congwen Zhang, Michael Devanney, and Kathleen P. Bell. “Does a Property-Specific Environmental Health Risk Create a ‘Neighborhood’ Housing-Price Stigma? Arsenic in Private Well Water.” September 2009. Kai-yan Lee. Federal Reserve Bank of Boston. “Examining REO Sales and Price Discounts in Massachusetts.” September 2010.

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A 2012 study suggested the following impacts to property values in northwest Washington as a result of increased freight rail traffic traveling to and from the proposed terminal: 49

• North of Everett, single-family residential properties could suffer a five to twenty percent decrease in value. • Commercial properties north of Everett could experience a five to ten percent reduction in property value.50 • Properties of all types south of Everett could be valued at approximately three to five percent less than similar properties in the region once trains begin traveling to and from the Gateway Pacific Terminal.51

A 2011 study, however, concluded that home values near a high volume freight corridor decreased on average by approximately two percent and that property values not near the rail line could increase, which could minimize the net impact to the region.52 If the theory holds true, the development of the proposed terminal could result in some residential property owners experiencing decreased property values (generally those closest to the rail line) while other residential properties may not be affected or could even experience an increase. It is unclear if any potential increase would offset the reductions in property values closer to the rail line.

Finally, a literature review included in the Point Defiance Bypass Project Socioeconomic and Environmental Justice Discipline Report evaluated economic impacts on value for properties located near a rail line.53 The conclusions from the literature review indicated that there may be a discount for houses within approximately 984 feet of the tracks. However, another study indicated that the issue was nuisance noise from train horns and that discounts in home values were not due specifically to the proximity of the home to tracks.

Potential development of the proposed Gateway Pacific Terminal may already be affecting population and economic growth in Bellingham and Whatcom County

There are multiple factors that affect a city and county economy and there is no easy way to discern whether changes in trends are due to any particular factor. 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

From 2000 to 2010, Bellingham’s population and Whatcom County’s population grew at significantly higher rates than that of the state. However, since 2010, Bellingham and Whatcom County lag the statewide population growth rate – with Bellingham 1.5 percentage points behind the state as of 2013.

49 Climate Solutions Increased Train Traffic and Real Estate Values: A study of the potential impact of increased train traffic on property values resulting from the proposed Gateway Pacific Terminal at Cherry Point, WA Eastman Company File No. 2036.1 2012. 50 Climate Solutions 2012. 51 Ibid. 52 Michael Futch Examining the Spatial Distribution of Externalities: Freight Rail Traffic and Home Values in Los Angeles 2011. 53 WSDOT Point Defiance Bypass Project Socioeconomic and Environmental Justice Discipline Report 2011.

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Cumulative Population Growth – 2010-2013 8.0%

7.0% 7.2%

6.0%

5.0%

4.0% 3.7% 3.0% 2.9% 2.0% 2.2%

1.0%

0.0% 2010 2011 2012 2013

Bellingham Remainder of Whatcom County Washington State Seattle Source: U.S. Census Bureau Decennial Census data and Single-Year ACS data

Job growth in Whatcom County is now at, and no longer ahead of, employment growth statewide.

From 2001 to 2010, Whatcom County employment grew at nearly three times the statewide rate of employment growth. Since 2010, the Whatcom County economy has grown at a slower rate than from 2000-2010 and is now roughly equal to growth of the State’s economy – achieving job growth of 5.6 percent as compared with the State’s 5.3 percent. Several sectors exhibited notable variances and, given the sector-specific dynamics, could face some level of potential risk just from the proposal for GPT’s construction and operation.

• Leisure and hospitality employment in Whatcom County grew by just 0.7 percent annually from 2010-2013, compared to an annual growth rate of 2.5 percent from 2001-2010; from 2001-2010, employment growth in the leisure and hospitality sector in Whatcom County outpaced annual statewide growth of 0.9 percent, but lagged behind the statewide increase of 2.5 percent annually from 2010-2013.54 • Retail trade employment in Whatcom County grew by an annual average rate of 1.1 percent from 2001-2010. During the same period, the state retail trade sector lost jobs at an annual average rate of 0.4 percent. From 2010-2013, Whatcom County grew retail trade jobs at an annual average rate above the state (4.0 percent versus 2.3 percent) and, in total, comprised more than 13 percent of all Whatcom County jobs in 2013.55 • Professional Services employment in Whatcom County, which grew by an annual average growth rate of 1.4 percent between 2001 and 2010, grew by just 0.5 percent annually from 2010-2013, lagging behind 3.5 percent annual growth statewide.

As noted, many factors may be contributing to the slower growth 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.

54 PFM’s 2012 report noted that the development and operation of GPT could create risk to growth related to tourism and the attraction of new residents. 55 Tourism and retail sectors are sometimes described as “soft sectors.” That is, some see them as sectors that do not provide significant full-time, create high wage paying jobs, and/or generate significant contributions to a regional economy. In general, wages in the retail and tourism sectors are typically at or below a region’s median wage and have a higher number of part-time employment opportunities than other sectors. However, the number and variety of such jobs provide additional employment opportunities – accessible to individuals with various levels of education levels and experiences – that would otherwise not exist if not for a robust tourism and retail market.

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Real estate values near rail tracks decreased in recent years

The property values in single family residences (SFR) – as measured in dollar value per square foot – sold in Bellingham census tracts 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.56

From 2006 to 2010 data suggest that Bellingham single family residences (SFR) 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 in value or slightly grew in value.57

$/Sqft of SFR Sold in Areas Adjacent to Rail, 2006 - 2013 $600

$500

$400

$300

$200

$100 Average Price per Square Foot Price perSquareFoot Average $0 2006 2007 2008 2009 2010 2011 2012 2013 Fairhaven/South Hill Edgemoor Chuckanut All Residential Areas Abutting Rail Bellingham neighborhoods not abutting rail

This finding could be indicative of increasing rail traffic, a change in the length and noise associated with train traffic (e.g. coal trains), the threat of strong future increases in rail traffic, and/or past and present rail traffic occurrences that continue to impact the housing markets in the city’s neighborhoods adjacent to the mainline.

As documented in PFM’s 2012 study, freight rail traffic is known to decrease adjacent property values – especially as volume increases.58 To some extent, the market should already include a certain “factor” for rail traffic in properties adjacent to the BSNF mainline. The extent to which the market experienced and/or anticipated additional volume may be responsible for the disparate experience in Bellingham’s neighborhoods adjacent to the tracks. If true, a significant increase in rail traffic – measured both in frequency, duration (length), and possibly weight (increased in noise resulting from heavier trains) – could further reduce these values and expand their impact.

56 Data sourced from Whatcom County Real Estate Research Committee’s 2007-2014 annual Whatcom County Real Estate Research Reports. BNSF is the only entity that has complete data on historical and current train volumes and commodity composition. As a result, the data are not dispositive; however, there appears to be some level of relation between train traffic/train length on the BNSF mainline and the real estate values in the City’s census tracts adjacent to the rail line. Similar data for condominium sales are also included in the reports. Additional research would be required to examine whether there is existence of a more detailed and conclusive relation. 57 Whatcom County Real Estate Research Committee’s 2007-2014 annual Whatcom County Real Estate Research Reports. Overall, from 2006-2013, the average selling price per sqft of SFRs in neighborhoods adjacent to rail dropped by 30 percent, almost twice the rate of the citywide market decline (18 percent). 58 Michael Futch, "Examining the Spatial Distribution of Externalities: Freight Rail Traffic and Home Values in Los Angeles, November 2011; Simons & El Jaouhari “The Effect of Freight Railroad Tracks and Train Activity on Residential Property Values,” The Appraisal Journal, 2004.

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While not dispositive, the data suggest some relationship and follow what published research has shown to be true in other jurisdictions – providing potential risk that residential and commercial properties adjacent to the rail corridor could decrease in value due to additional freight rail traffic, including traffic traveling to and from the proposed Gateway Pacific Terminal. At the very least, it may warrant additional consideration to better understand the potential economic impact on Bellingham and Whatcom County.

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 at least plausible that GPT could already be affecting the region’s economy. Additional research may assist policy makers and the public to examine 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 region’s economic trajectory.

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Development of the Proposed Gateway Pacific Terminal Could Have an Impact on Bellingham City Finances

In addition to the impact on the Bellingham and Whatcom County overall economy, Communitywise Bellingham also asked that the PFM team begin to explore potential impacts on local government.

Due to Whatcom County’s role as a co-lead agency on the State Environmental Policy Act (SEPA) process, the County elected to refrain from meeting with the project team. As a result, this section primarily focuses on the potential risks to local government that stemmed from conversations with City officials and the project team’s research. The project team met with Bellingham City officials and discussed the potential benefits, costs, and challenges associated with the construction and operation of the proposed Gateway Pacific Terminal.

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. Given Washington State’s property tax system, which is budget based, the amount to be raised from taxation is directly related to the amount necessary to support the budget and increased or decreased property values do not increase or decrease the total amount of property tax revenue collected by the City. Rather, 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.

However, 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 other tax revenue.

In 2014, sales tax revenue and business and occupation revenue combined to represent approximately nearly $24 million (34 percent) of the City’s $70.4 million in General Fund revenues. Both sales and business and occupation tax revenue are sensitive to local economic conditions. Potential risks to the retail and tourism sectors could result in loss of revenue in sales and business and occupation taxes – for instance, in 2014, sales tax revenue from food services and drinking places is projected to account for nearly $2 million in revenue for the City, while accommodation sales tax revenue is projected to generate more than $300,000. Thus, 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 slow 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 would have a detrimental effect on the City’s ability to deliver critical municipal services.

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In other west coast cities – such as Los Angeles, CA and Portland, OR – bulk export terminals centered around exporting coal did not develop as projected. For instance, in Los Angeles, unanticipated capital costs, foregone revenues, and litigation resulted from the proposed project’s failure – just six years after opening.59

Infrastructure

The PID for the proposed Terminal discussed potential infrastructure costs in the immediate surrounding areas of Terminal site at Cherry Point. However, infrastructure solutions to economic and safety risks likely would be necessary in other locations beyond the immediate Cherry Point site. Communities along the rail line in Whatcom County – including Bellingham – may require mitigation to alleviate adverse results associated with the increased rail traffic. However, the GPT PID did not address infrastructure- related costs along the rail line. Similarly, the PID does not discuss additional operation costs such as maintenance, emergency management, and public safety along the rail line.

Bellingham’s infrastructure cost risks likely include the following:

• Grade separations and other infrastructure needs. An outstanding question remains as to whether or not the need for additional grade separation projects at Cornwall Avenue, Wharf Street, and Commercial Street would be required as a result of the additional rail traffic. Similarly, there is a question as to the whether the increased rail traffic would necessitate additional infrastructure investments in bypasses, overpasses, or sound attenuation. If grade separations or other infrastructure are required to mitigate risks, it remains unclear who would bear the costs of those investments.

To the extent that taxpayers must fund such investments, it could result in a significant budget impact and amounts to a public subsidy for, largely, private gain.

• Traffic flow and road maintenance. Additional freight rail traffic will result in higher localized diversions of traffic onto side streets from arterials due to additional gate-down times at at-grade crossings. There is some concern that the additional gate-down time would result in traffic congestion at certain intersections along the waterfront in Bellingham – particularly near F Street. To the extent that additional car and truck volume travels on non-arterial roads, it may require the City to repave its roads ahead of its life cycle replacement, thus incurring costs before its planned budget for such expenditures.

Public safety performance and cost

Emergency response times may increase if more frequent and longer trains travel through Bellingham and other communities in Whatcom County.

Potential risks for City government related to public safety include:

• Increased response time. A primary concern is that police, fire, or emergency medical personnel may not be able to respond in as timely a manner if train traffic and length increase or – in a worst case scenario – a train becomes inoperable on the rail tracks along the City’s waterfront, effectively severing several critical access points to the remainder of the City. • Disaster response needs. An increased number of trains on the tracks in Bellingham – regardless of what the good(s) transported – inherently increases the potential risk associated with a derailment. In the event of a derailment within the City’s borders, emergency response personnel

59 http://articles.latimes.com/2003/jun/14/local/me-coal14 http://articles.latimes.com/2006/dec/14/local/me-settle14

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would be necessary and, to the extent there is damage to infrastructure, the City may face fiscal imperatives to repair such damage.60 • Fire. In the unlikely, but plausible, event that a coal train catches fire within the City’s borders, the Fire Department would need to be trained in the best way to contain such an event and minimize damage, while maximizing community safety. The potential costs to the City may include additional training and exercises necessary to ensure sufficient preparedness.

Limited access to recreation spaces

Potential risks for City government related to recreation and city planning include:

• Reduced value of investments. Bellingham has a strong track record of investing and cultivating planned recreation space and has significant plans to continue to build waterfront access and park space to connect the public with the water and recreational opportunities. If rail traffic is heavy during the recreational hours (thereby precluding some use and/or limiting return on investment), there is a risk that the City may not be able to, or may not be willing to, invest more in parks, bike trails, and pedestrian access to the water. • Limitations of access. Infrastructure investments may be required to ensure that recreational users and emergency services can access Boulevard Park at any time. Additionally, locations with limited access points could also be affected and have emergency response concerns (e.g. Ferry Terminal, Yacht Club Drive, etc.).

Concerns and Risks Related to Increased Rail Traffic are not Unique to Bellingham.

Economic Impacts: Various communities have attempted to assess the risk to their community in different ways. For instance, the City of Edmonds is seeking $1.0 million to $1.25 million from state or federal sources to conduct alterative analyses of options for improving the City’s two at-grade crossings. Additionally, Edmonds is planning to budget $50,000 for engineering and design work for a trackside warning system to help reduce the frequency with which trains must sound their whistles.

Rail Crossing Delays: A study of at-grade crossings in the Miami area concluded that rail crossings in the area caused delays of about 235,000 person-hours per year at a cost of $2.4 million.

Emergency Response Challenges: A fire recently destroyed a house in Baker, Montana because fire crews could not respond in a timely manner due to train traffic at crossings. Elsewhere, BNSF Railway trained St. Cloud, Minnesota firefighters on identifying rail cars and responding to an oil leak or spill as part of a preparedness exercise that involved a mock train derailment.

60 While the purview of this study is the potential impact of the proposed Gateway Pacific Terminal, it must be noted that the potential disaster response needs for the transport of Bakken oil by rail must be included in any assessment of the disaster response risks of increase rail traffic. In recent years, derailments have resulted in explosions causing deaths, damage, and economic losses in communities in the U.S. (including Seattle) and Canada.

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The Risks Identified in the 2012 PFM Report Appear to Continue to be Present and May be Growing

As noted in PFM’s 2012 report, researchers suggest that, “decisions are said to be risky because the outcome following a choice may result in a potential loss, including lost opportunities or sub-optimal outcomes.”61 Intuition and/or ad-hoc decisions where risk is present are unlikely to result in the best outcomes for decision makers – especially where decision makers hold the public trust. As a result, a focus on understanding the decision and its potential impacts – pro and con – is critical to develop a sophisticated understanding of the decision.

The risk graphs from PFM’s 2012 report are displayed in Appendix E. At that time, the study found that if GPT reduced otherwise projected job growth by between 13 and 17 percent, depending upon the time period considered, the project would be a net loss.

Since that time, no further economic analysis has been conducted on the number of jobs created by GPT’s construction and operation. The Terminal’s construction timeline, however, was changed from a multi-phase approach over a decade or more to a single phase approach over two or three years. As a result, the ability to compare data is hampered and does not readily allow for the production of a new risk analysis in the same manner as before.62 Absent a new projection of construction employment, we limit the risk analysis to jobs during operation – which would seem to be unchanged from the original projections.

Additional uncertainty has been introduced in considering if GPT will actually move forward. For instance, the recently announced climate accord between the United State and China requires China, by 2030, to stop its emission from growing. To reach that goal, China has pledged to have clean energy sources comprise at least 20 percent of the country’s total energy production by 2030. This likely requires that China curb some of its appetite for coal in coming years – suggesting a U.S.-based export market to China may cool in the near future and impact the financial viability of a long-term investment in exporting coal to China. This could directly affect whether or not constructing and operating GPT is a short-term investment or a long-term investment and the inherent risks associated with the proposed Terminal would need to be reviewed in such a manner.

Another recent development that complicates the analysis for GPT is that the proposed coal export Terminal at the Port of Morrow in Boardman, Oregon did not receive a project permit based on the fact that terminal construction would have interfered with Native American fishing waters. The Lummi Nation, whose fishing waters include those in the area of Cherry Point, have asked the Army Corps of Engineers National Environmental Policy Act (NEPA) lead agency to reject GPT’s permit application. Whether the Port of Morrow decision will affect the NEPA or SEPA assessment at GPT is unknown, but, again, it creates a risk that even if a project permit is issued, it could be subject to litigation and, ultimately, investments – or foregone opportunities – resulting from the proposed Terminal may not materialize for the region’s economy.

61 Martin T. Schultz, Kenneth N. Mitchell, Brian K. Harper, and Todd S. Bridges, “Decision Making Under Uncertainty, US Army Corps of Engineers”, Washington, DC, November 2010, p. 1. 62 The construction of the Terminal would create a significant number of temporary construction jobs; however, there is an important distinction to be made between the discussion of jobs during the construction phase and permanent jobs projected to be created during operation of the Terminal. Construction jobs are temporary in nature because once a structure or entity is built and operational, the construction ceases. On the other hand, jobs created during terminal operation are projected to be ongoing – and thus more likely to have a permanent impact on the local economy.

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Quantifying the Risk

PFM 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. The Martin Associates’ 2011 report and a subsequent local review of the Martin report by Finance and Resource Management Consultants (FRMC), 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 1.8.63

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. Given the fact that the Martin and FRMC studies used multipliers that appear to be higher than the BEA RIMS II multiplier, readers should note that the figures from these studies presented below may more likely represent an upper bound on potential job projections and additional analysis and review are necessary to determine updated job projections.64

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

Without the planned development of GPT, the State has already projected significant job growth for Whatcom County that build upon the County’s historical growth trend. These projections are outlined below. Based on the state’s projections, it is possible to present a baseline scenario for county job growth over a ten-year period when the proposed Terminal would be operational – from 2019 to 2028 – after the now projected two-year construction phase.65

Washington ESD’s published projections indicate that the northwest region of Washington (including Whatcom County) will see an average annual job growth of 2.15 percent from 2012-2017 and a 1.38 percent annual average job growth from 2018-2022.66 At the projected rates, Whatcom County would have 99,124 jobs by 2028, an addition of nearly 22,500 jobs from 2013 and 11,500 jobs from 2019 projections. Similarly, Bellingham would have 57,773 jobs by 2028, an increase of 13,100 jobs from 2013 and 6,700 jobs from 2019 projections.

63 RIMS II data for Whatcom County category 48A000 showed a direct effect employment multiplier of 1.79. According to the BEA, this multiplier is based on 2002 benchmark input-output (I-O) data and 2010 regional economic data. Additionally, the multiplier was produced using older data sources – in one case the multiplier is slightly higher than 1.79 but less 2.0 (2002 benchmark I-O data and 2008 regional economic data) and in another case the multiplier is just over 2.0 (1997 benchmark I-O data and 2009 regional economic data). An economic analysis of the potential impact of Millennium Bulk Terminals – Longview used the multipliers from the Washington State Input-Output Model (http://www.ofm.wa.gov/economy/io/2007/default.asp). It is unclear whether the State’s multipliers would have been appropriate in the GPT review, but could be included in future analysis to determine revised job projections. Additionally, there may be debate as to the “best” multiplier category to use for GPT. This report does not opine on the best category for GPT. 64 For contextual and illustrative purposes only, PFM used the – potentially overstated projections – published in the work by Martin Associates and FRMC to provide a methodological approach to quantifying the risk. Nothing in this contextual and illustrative example (found in Appendix D) should be construed as a substitute for the need of additional analysis and review beyond the scope of this report. 65 The most recent available information from PIT indicates that the Terminal is expected to be fully operational by 2019. 66 The project team used these annual average growth rates and applied them to the BLS OES data for 2013 jobs in Whatcom County. To calculate the number of Bellingham jobs, the project team took 58.3 percent of all jobs in the County (per 2011 LED data suggesting an average of 58.3 percent of all jobs in the County existed in Bellingham). The calculation did not include the estimated job growth for 2012 as the OES figure is from 2013. However, the project team did apply the 2013 growth rate to this figure so as to ensure it captured the possible net increase and not artificially lower job growth. For 2023-2024, the project team used the projected 1.38 percent average annual growth rate to estimate the number of jobs.

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Whatcom County Natural Trajectory Job Growth (2019-2028) Job Created Absent GPT 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Total Whatcom County 1,193 1,209 1,226 1,243 1,260 1,277 1,295 1,313 1,331 1,349 12,696

Bellingham Natural Trajectory Job Growth (2019-2028) Job Created Absent GPT 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Total City of Bellingham 695 705 714 724 734 744 755 765 776 786 7,400

According to Martin Associates’ 2011 report, at full build-out, GPT would employ 430 full-time employees. The State projects an increase in Whatcom County jobs of 12,696 between 2019 and 2028.

During the ten-year period from 2019 to 2028, the GPT permanent jobs would generate 4,300 jobs years, or 0.5 percent of the 932,675 forecasted job years in Whatcom County jobs.67

GPT Permanent Jobs Compared to Whatcom County Occupation Sectors Net Increase Job Years Occupation Sector 2019 2028 2019-2028 2019-2028 All Occupations 87,621 99,124 11,503 932,675

Office and Administrative Support Occupations 12,926 14,493 1,568 136,963

Education, Training, and Library Occupations 6,317 7,550 1,232 69,174

Construction and Extraction Occupations 5,173 6,215 1,042 56,797

Sales and Related Occupations 10,665 11,685 1,020 111,685

Food Preparation and Serving Related Occupations 9,124 10,068 944 95,892

Healthcare Practitioners and Technical Occupations 4,095 4,833 739 44,549

Production Occupations 6,425 7,027 602 67,223

Building and Grounds Cleaning and Maintenance Occupations 3,481 4,080 599 37,732

Transportation and Material Moving Occupations 5,404 5,931 527 56,638

Healthcare Support Occupations 2,438 2,875 437 26,513

Management Occupations 3,534 3,970 436 37,481

Business and Financial Operations Occupations 3,373 3,775 402 35,708

Installation, Maintenance, and Repair Occupations 3,568 3,940 373 37,511

Personal Care and Service Occupations 2,354 2,711 357 25,286

Arts, Design, Entertainment, Sports, and Media Occupations 1,303 1,544 242 14,205

Community and Social Service Occupations 1,535 1,769 234 16,491

Architecture and Engineering Occupations 1,485 1,705 220 15,929

Computer and Mathematical Occupations 1,454 1,673 219 15,616

Protective Service Occupations 1,751 1,932 181 18,398

Life, Physical, and Social Science Occupations 725 812 87 7,680

Legal Occupations 279 314 35 2,961

Farming, Fishing, and Forestry Occupations 343 356 13 3,493

GPT Direct Jobs 430 430 - 4,300

Understanding the Risk

The data in this report suggest that Whatcom County and Bellingham’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. Even minor alterations that may appear unrelated to the region’s natural capital assets could change its economic trajectory.

To date, there are potential economic risks that are worthy of additional review and discussion in order to more comprehensively understand potential impacts that may result from the development of the Terminal and – to the extent possible – identify whether the economic risks can be mitigated, and what entity should (and can) bear the costs of mitigation activities.

67 During the ten-year period, applying ESD forecasted growth rates to the OES data for all occupations, the County would have 932,675 job years.

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During the last decade, daily rail traffic through Bellingham has approached the approximately 14-15 train practical capacity of the rail line; currently, rail traffic approaches this level.68 The addition of up to 18 daily trains traveling to and from Gateway Pacific Terminal would result in a total traffic volume of more than double the current volume traveling through Bellingham in just two years’ time.

As a result, the primary questions for consideration by policy makers and the public are:

• Are there any risks to the net benefits of the baseline trajectory growth of the region’s economy and/or the redevelopment of the waterfront because of the proposed Gateway Pacific Terminal? • To the extent there are risks to the net benefits of the waterfront redevelopment and/or the region’s baseline economy trajectory, would the public 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, in-migration, and/or retention of current employers and residents?69 • Does additional freight rail traffic accelerate remediation needs sooner than later?

Regardless of one’s answer to the above questions, waterfront redevelopment, additional freight rail volume, and potential impacts to key sectors of the region’s economic trajectory require a broad discourse to examine their interplay – if any. One potential consideration in the analysis could be whether or not the current rail traffic risks the ability to develop the waterfront or affects key sectors of the region’s economy. However, a more impactful consideration may be whether future rail traffic volumes would require mitigation to manage risks to the waterfront, key sectors of the economy, or both.

This longer-term view seems an appropriate lens through which policy makers can consider the potential net economic benefits and risks associated with the proposed Gateway Pacific Terminal. That is, the short-term review may be important to the consideration, but the long-term economic implications may provide a more complete analysis upon which to make policy choices.70

Viewed in this lens, a 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 or other potential long-term economic developments (such as the waterfront) so as to create a net negative impact for the region’s economy.

68 Data sourced from the Washington Public Ports Association and the Washington State Department of Transportation 2009 Marine Cargo Forecast, the Washington State 2010-2030 Freight Rail Plan. 2011 Marine Cargo Forecast Update, and the Washington State: 2013-2035 Freight Rail Plan. The 2013-2035 Rail Plan cited a practical capacity on the Burlington-Ferndale segment of 14.4 trains per day and a current volume of 14 trains per day. Data regarding coal train traffic sourced from: http://www.heraldnet.com/article/20130623/NEWS01/706239967 A temporary three-year increase in traffic (2004-2006) was largely due to an additional trains associated with the removal of tariffs on lumber from Canada during the peak of the U.S. housing bubble. During the early part of the last decade, coal trains sporadically traveled through Bellingham, before steadily increasing in late 2008/early 2009 according to U.S. Customs data. While overall rail volume fell, both in Washington State and the nation, during the most recent recession, the addition of steadier coal train traffic – three to four trains per day on average – maintained the daily volume of trains traveling through Bellingham. 69 The project team spoke with representatives from the Port of Bellingham who indicated that they did not think the increased rail traffic would affect the build-out and redevelopment of the former Georgia Pacific site. 70 As with the 2012 report, individuals may reach different – yet valid – conclusions about the level of economic impact (including whether positive or negative).

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Appendices

Appendix A: Relevant Prior research on the Proposed Gateway Pacific Terminal

Martin Associates, 2011

Martin Associates study, “The Projected Economic Impact of Bulk Coal Terminal at Cherry Point,” analyzed the regional economic impacts of the Gateway Pacific Terminal.71

Overall Construction Findings:

• Martin Associates used SSA’s provided input costs of $536 million for Phase One construction and $129.0 million for Phase Two construction to project the employment impact of construction of proposed terminal on direct jobs, indirect jobs and induced jobs.72 • The study reported that construction of the terminal to full build-out would create a total of 5,221 job years – approximately 2,200 direct job years and 3,000 indirect/induced job years.73 • The study projected that approximately 80 percent of construction job years would be generated in Phase One construction of the proposed terminal (approximately 4,208 job years).

Phase One Construction Findings

• The analysis focused on four areas of impact: employment (direct, indirect and induced), business revenue, personal earnings, and tax revenue. • The study projected 7.4 million person hours supported by direct Phase One construction (based upon input construction costs of $536 million) and 10.1 million person hours of indirect and induced activity. • The direct jobs generated by Phase One construction would result in a projected $140.0 million of personal income (earnings) and an additional $191.0 million in re-spending/indirect personal income. • The construction of Phase One would generate approximately $92.4 million in state and local tax revenue. • Local purchases of construction supplies, support services and other services related to Phase One construction of the terminal were estimated to be $503.0 million.

Phase One Operation Findings

• The analysis estimated that the operation of the terminal, upon completion of Phase One, would create 294 direct jobs and 569 induced and indirect jobs, for a total of 863 annual jobs. • The 294 direct annual jobs were estimated to provide total projected annual earnings of $29.5 million (annual average salary of $100,300). • The report estimated that upon completion of Phase One of construction, the terminal’s operation would annually generate approximately $12.0 million of local purchases. • The total state and local tax benefits associated with Phase One operation would be approximately $8.1 million per year.74

71 The study was based on the assumption that the Terminal would begin operation in 2015 with permitting completed in 2012 and construction beginning in 2013. As the EIS is not yet complete and the permitting phase is still in process, the timeline of the economic impact detailed in the report would need to be shifted forward several years. It is unclear if the timeline shift would place terminal operations in a significantly different economic environment that would necessitate a revisiting of the modeling assumptions and following projections from Martin’s 2011 work. 72 Ibid. 73 Project impacts were estimated in terms of job years – the number of employees needed to complete the project in one year – as well as person-hours. Construction-related jobs are shown as workers hired per year. 74 Martin Associates. The Projected Economic Impacts for the Development of a Bulk Terminal at Cherry Point, July 2011. http://gatewaypacificterminal.com/wp-content/uploads/2011/11/MartinReport102711ForPrint.pdf

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Phase Two Construction Findings:

• The study projected 1.8 million person hours supported by direct Phase Two construction (based upon input construction costs of $129 million) and 2.4 million person hours of indirect and induced activity. • Martin Associates projected that Phase Two construction of the proposed terminal would result in 1,013 job years – 429 direct job years and 584 indirect/induced job years. • The direct jobs resulting from Phase Two construction were estimated to create $34.0 million in personal income (earnings) and an additional $46.0 million in re-spending/indirect personal income. • The construction of Phase Two would generate approximately $18.0 million in state and local tax revenue. • The report estimated that local purchases of supplies and support services related to the construction of Phase Two would be $121.0 million.

Phase Two (Full Build-out Operation) Findings:

• The analysis estimated that the operation of the terminal, upon full build-out, would create 430 direct jobs and 799 induced and indirect jobs, for a total of 1,229 annual jobs. • At full build-out, the report projected that the terminal’s 430 direct annual jobs would generate a $40.8 million in annual earnings (average salary of approximately $94,900). • Among the 430 direct jobs, the report estimated 213 would be members of the International Longshore and Warehouse Union, 66 would be railroad-related, 71 would be in maritime services, 44 would be terminal operators, and 36 would be for pilots and tugs. • The Martin report estimated that upon completion of Phase Two of construction, the terminal’s operation would annually generate approximately $17.1 million of local purchases • The total state and local tax benefits associated with Phase Two operation would be approximately $11.2 million per year.75

Martin Associates – Projected Direct Jobs, by Type Category Direct Jobs

Railroads 66

Terminal Operators 44

ILWU 213

Pilots/Tugs76 36 Maritime Services 71

TOTAL 430

Finance & Resource Management Consultants, 2011

SSA retained Finance and Resource Management Consultants, Inc. to review the Martin Associates economic impact report. Finance and Resource Management Consultants used a different modeling system to generate its employment estimates. The consultants used an input-output model to assess the assumed economic impact of Phase One construction costs of $536 million and Phase Two construction

75 Ibid. 76 It is unclear whether the proposed number of pilots and tug operators are consistent with the November 2014 Vessel and Traffic Risk Assessment Study issued as part of the EIS process. http://www.eisgatewaypacificwa.gov/sites/default/files/content/files/20141104_Vessel_Traffic_and_Risk_Assessment_Study- Glosten_small_0.pdf

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costs of $129 million. The economic impact model yielded a total that is reported in person hours, but the consultants also described person hours in worker-years. They assumed 2,080 hours worked per worker-year.

Key Findings

• The consultants found Martin Associates’ direct job growth projections to be reasonable. However, there was not consensus on the potential induced and indirect employment attributable to Phase One and Phase Two construction. • Finance & Resource Management Consultants’ estimate of 1,318 indirect and induced construction job years from Phase One was 45.7 percent – or 1,109 job years – below that of Martin’s assessment of 2,427 job years. • Due to this difference, and a slightly smaller direct construction of Phase One job years estimate (7.5 percent less, or 1,648 job years compared to Martin Associates’ projection of 1,781 job years), Finance & Resource Management Consultants’ estimate for total Phase One construction jobs was 29.5 percent below the Martin assessment (2,966 job years versus 4,208 job years).77 • As Finance & Resource Management Consultants noted, the variance could be due to classifications used as well as the different input-output models used in each analysis. • A similar variation between Martin Associates’ projections and Finance & Resource Management Consultants’ projections continued in Phase Two construction and operation projections. • Martin Associates estimated 429 direct job years resulting from construction of Phase Two and Finance & Resource Management estimated 372 direct job years – 13.3 percent lower. • Martin Associates estimated that 584 induced and indirect job years would result from Phase Two construction, while Finance & Resource Management estimated a result of 298 indirect and induced job years – 49.0 percent lower. • As a result, the Finance & Resource Management’s total Phase Two construction job year estimates were 33.9 percent below Martin Associates’ estimates (670 job years versus 1,013 job years). • Again, as Finance & Resource Management Consultants noted, the variance could be due to classifications used as well as the different input-output models used in each analysis.

Comparison of Phase One and Two Construction Job Year Estimates Phase One and Phase Two Direct Job Indirect/Induced Total Job Years Construction Assessments Years Job Years

Martin Associates 2,210 3,011 5,221

Finance & Resource 2,020 1,616 3,636 Management Consultants

Difference (190) (1,395) (1,585) (#) Difference (8.6%) (46.3%) (30.4%) (%)

Communitywise Bellingham, 2012

In November 2011, Communitywise Bellingham retained PFM to conduct an independent review of the potential economic impacts associated with the development of the Gateway Pacific Terminal (GPT) at Cherry Point.

77 Finance & Resource Management Consultants, Inc. Review of Martin Associates Economic Impact Study, October 2011. http://gatewaypacificterminal.com/wp-content/uploads/2012/04/FRMC-Review-of-Martin-Report-10.24.11.pdf

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Key Findings:

• A prior study by Martin Associates, conducted on behalf of the developers of GPT, projected the economic benefits that would result from the development and operation of the terminal. • The Martin Associates study and a subsequent review of the Martin analysis did not address either potential costs that could result from the development and operation of GPT or the degree to which the development of GPT could reduce potential benefits from other sources of economic development or job growth in Whatcom County. • PFM’s 2012 analysis suggested that the potential for cost is real. • To the extent that the development and operation of GPT would lead to an increase in rail traffic in Bellingham and other parts of Whatcom County, there would be costs to mitigate the impact – particularly given the number of active rail crossings in the City. • To the extent that GPT’s construction and operation could put other projected or planned growth at risk, it is possible that, even if all of the projected employment benefits of GPT were achieved, it could still have a net negative employment impact on Whatcom County’s economy. • At that time, the report found that if the development and operation of GPT led to the loss of more than 17 percent of projected job growth in Whatcom County between 2012 and 2021, or more than 13 percent in the ten year period after construction begins, the result would be a net loss in employment in the County.

Waterfront redevelopment risk:

• The report suggested that the planned development and operation of GPT could pose a specific risk to redevelopment plans for the Bellingham waterfront. • State and local agencies have committed more than $40 million to the redevelopment of the former Georgia Pacific site in downtown Bellingham. • The Port of Bellingham projected that over 25-30 years, redevelopment of the site could produce $1 billion in investment – including a net increase of 5,600 direct jobs alone. • To the extent that development and operation of GPT increases rail traffic, it could reduce the feasibility of redevelopment and projected resulting jobs.78

Rail traffic risk to economy:

• The risk of offsetting reductions in projected job growth is largely due to train traffic. • The operation of GPT would lead to a significant increase in rail traffic through Whatcom County – especially through downtown Bellingham. • Impacts to Bellingham – positive and negative – are significant for Whatcom County due to its role as the economic center of the County. • The report found that approximately 60 percent of all employment in the County is in Bellingham; Bellingham businesses generate more than three-quarters of all retail sales and more than half of all revenue related to accommodation and food services; in 2010, more than half of all residential home sales occurred in Bellingham; and, despite accounting for just 1.3 percent of total land in the County, 36 percent of total assessed county property value was in Bellingham.

Tourism and in-migration risks:

• The report identified additional potential risks to growth beyond baseline projections were related to tourism and the in-migration of skilled workers and entrepreneurs to the region’s economy.

78 The report noted potential risk related to the highest and best use of the former Georgia Pacific site. While this potential risk is not the subject or focus of this report, the discussion in the first report largely remains true – though there are some noted changes; particularly, that the Port of Bellingham entered into negotiations with a developer for a small segment of the property and the Port view full build-out over a 40-50 year period as opposed to a 25-30 year period.

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• Again, these risks were related to both the projected increase in rail traffic and stigma associated with the transport of large amounts of coal through Whatcom County.

Mitigation of risk:

• PFM noted that if the development of GPT proceeds, steps can be taken to reduce the impact of additional rail traffic through re-routing of rail traffic or new overpasses or changes to the street grid. • Those steps could reduce potential risk and thereby increase the likelihood of net economic benefits for Whatcom County and Bellingham. • Such steps, however, come at a cost that – to date – no party has assumed. • To the extent that those costs are assumed by the public, it would reduce the net fiscal benefit of the GPT development to the public – especially if local governments were asked to bear those costs.

Puget Sound Regional Council, 2014

PSRC commissioned a project team led by PFM to provide a comprehensive, independent evaluation of the economic effects of the proposed Gateway Pacific Terminal on King, Kitsap, Snohomish, and Pierce counties.

Overview:

• The study reviewed both regional economic opportunities and risks associated with development of the Terminal’s construction and operation – including transportation, domestic and international trade, land use, and environmental issues. • The report also included potential mitigation strategies and recommendations for consideration and discourse.

Key findings:

• Consistent with Communitywise Bellingham’s 2012 report, the PSRC report found that the proposed Terminal would lead to new jobs, mostly during the construction phase of the project and, mostly, in Whatcom County. • The proposed Terminal may have an impact on rail capacity in the central Puget Sound region – depending upon whether or not BNSF responds to increased demand for rail access with additional capacity investments. • Rail freight traffic is projected to grow in Washington and in the central Puget Sound region, even without the proposed Terminal, due to transport of Bakken Oil and other export traffic. • The most direct economic impacts on the central Puget Sound region would be the result of increased rail traffic (an estimated 18 new, 1.6 mile long trains per day – 9 loaded going to GPT and 9 empty returning from GPT) through communities with at-grade crossings that could cause adverse impacts to transportation, land use, property values, and access. • The proposed Terminal’s construction and operation would not impact all communities in the same way. A series of highly localized factors will play a significant role in determining the local economic impact to a given community • Mitigation is possible in most, if not all cases, but may be costly.

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Employment at Cherry Point, 2014

A recent Western Washington University study conducted for the Whatcom Business Alliance, reviewed the economic benefits of jobs at the Cherry Point Industrial Zone.79 The study found that the Industrial Zone accounted for approximately 2.5 percent of the total jobs in Whatcom County, but supported (directly or indirectly) approximately 11 percent of total jobs in the County. Additionally, the study noted that wages in the Industrial Zone represented nearly 9 percent of the total wages paid in the County, but supported (directly or indirectly) nearly 15 percent of total wages in the County – influenced notably by the presence of the refineries in the Industrial Zone.

The study shows that the addition, or loss, of jobs at in the Industrial Zone would be an important impact on the region’s economy. However, the study notes the challenges associated with determining the precise multipliers for certain sectors – including the petroleum industry. Multipliers – whether to employment, income, output or other measures – can vary and be used in manners that may skew reality, even if unintentional. The authors of the recent study correctly note these pitfalls and take care to provide words of caution to those using multipliers as gospel. For instance, the study notes that the use of multipliers for an industry that does not exist in a given region may not lend to being modeled accurately with multipliers. As a result, the comparative “job” impact of the proposed Gateway Pacific Terminal and other industries in the region are presented only in terms of actual direct jobs.80 Certainly, further research and analysis may be able to present additional context; however, that is beyond the scope of this report. Rather the contextual framework provided in earlier sections of this reports sets the backdrop for readers to draw their own conclusions as to the relative level of risk GPT presents to the regional economy.

Any economic ripple (multiplier), whether positive or negative, which results from the construction and operation of GPT would be a concern for not just higher earners, but for all earners as the region’s economy is inter-related. As a result, the discussion is much more about the whole of the economy and the potential benefits and risks to the whole of the economic trajectory of the region, than one sector or another.

79 Western Washington University Center for Economic and Business Research, “Employment at Cherry Point,” October 2014. 80 The project team notes that all jobs are not created equally and the economic impact of each job is not created equally. However, the number of long-term direct jobs can serve as an important departure point for policy makers and the public to assess the economic benefits versus the economic risks of development projects. As a result, discussions of short-term and long-term economic benefits and risks may be a useful point of departure for future community dialogue.

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Appendix B: Population Change – 2000 - 2010

Population Change from 2000 - 2010 WA 2010 WA 2010 Whatcom Whatcom Bellingham Bellingham Non-Bellingham Non-Bellingham Total Population vs 2000 vs 2000 County 2010 County 2010 2010 vs 2010 vs 2010 vs 2000 2010 vs 2000 (#) (#) (%) vs 2000 (#) vs 2000 (%) 2000 (#) 2000 (%) (%) Total Population 830,419 14.1% 34,326 20.6% 13,714 20.4% 20,612 20.7% Total Population Under Age 49,319 6.0% 1,080 5.0% 482 7.2% 598 4.0% 10 Total Population Age 10-19 37,557 4.4% 2,311 9.0% 993 10.4% 1,318 8.2% Total Population Age 20-29 148,073 18.7% 6,849 25.0% 4,256 25.1% 2,593 24.7% Total Population Age 30-39 (19,438) -2.1% 1,092 4.8% 1,133 13.5% (41) -0.3% Total Population Age 40-49 7,247 0.8% 544 2.1% (119) -1.4% 663 4.0% Total Population Age 50-59 271,120 40.0% 8,653 45.6% 2,548 38.6% 6,105 49.3% Total Population Age 60-69 265,261 68.5% 10,212 93.8% 3,585 99.5% 6,627 91.0% Total Population Age 70-79 25,165 8.3% 1,518 17.0% 67 1.8% 1,451 27.6% Total Population Age 80 and 46,115 25.3% 2,067 38.7% 769 26.1% 1,298 54.1% Over 0 Population Age 60 and Over 336,541 38.5% 13,797 54.8% 4,421 43.2% 9,376 62.8% Population Age 65 and Over 165,529 25.0% 7,240 37.3% 2,027 24.3% 5,213 47.2% Population Age 70 and Over 71,280 14.7% 3,585 25.1% 836 12.6% 2,749 35.9% Population Age 75 and Over 45,475 14.0% 2,405 25.1% 631 13.1% 1,774 37.4%

WA 2010 Whatcom Whatcom Bellingham Bellingham Non-Bellingham WA 2010 Non-Bellingham Working Age Population vs 2000 County 2010 County 2010 2010 vs 2010 vs 2010 vs 2000 vs 2000 (#) 2010 vs 2000 (#) (%) vs 2000 (#) vs 2000 (%) 2000 (#) 2000 (%) (%) Total Population 25-64 506,687 16.0% 20,194 24.2% 7,880 25.5% 12,314 23.5% Total Population Age 25-29 76,746 19.0% 3,348 31.4% 1,924 36.0% 1,424 26.7% Total Population Age 30-34 15,905 3.6% 1,392 12.9% 853 20.0% 539 8.3% Total Population Age 35-44 (66,782) -6.8% (423) -1.7% 435 5.3% (858) -5.3% Total Population Age 45-54 142,233 16.8% 3,311 13.8% 75 0.9% 3,236 21.1% Total Population Age 55-59 167,573 58.7% 6,009 76.9% 2,199 85.1% 3,810 72.8% Total Population Age 60-61 72,128 79.9% 2,783 114.9% 1,074 137.5% 1,709 104.1% Total Population Age 62-64 98,884 81.9% 3,774 112.4% 1,320 120.0% 2,454 108.7% Source: U.S. Census Bureau 2000 and 2010 Decennial Census data

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