The Economic Value and the Possible Changing Role of Military Bases in the Coastal Bend

June 2012

Final Report

Prepared for

Prepared by

Jim Lee

College of Business Texas A&M University-Corpus Christi

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TABLE OF CONTENTS

Description Page

EXECUTIVE SUMMARY ……………………………………………………………………… iv

SECTION I ………………………………………………………………………………………. 1 INTRODUCTION ……………………………………………………………………………….. 1 Purpose of the Report ……………………………………………………………………... 1 Scope of the Study ………………………………………………………………………… 2 Data Sources …………………………………………………………………….………… 4 Overview of Installations ……………………………………….…………………………. 4 Regional Background ………………………………………………………………….…. 5

SECTION II ……………………………………………………………………………………... 7 DIRECT ECONOMIC CONTRIBUTIONS ………………………………………………..….. 7 Direct Employment ……………………………………………………………………...…. 7 Direct Employee Earnings ……………………………………………………………..…. 9

SECTION III …………………………………………………………………………………….. 10 REGIONAL ECONOMIC IMPACTS …………………………….…………………………... 10 Multiplier Effects ………………………………………………………………………..….. 11 Direct Economic Impact …………………………………………………………………... 12 Secondary Economic Impacts ……………………………………………………………. 13 Total Economic Impacts …………………………………………………………………... 14 Property Tax Impacts ……………………………………………………………………… 15

SECTION IV …………………………………………………………………………………….. 16 EMPLOYMENT IMPACTS BY INDUSTRY AND OCCUPATION ………………………... 16 Employment Impact by Industry ………………………………………………………….. 16 Employment Impact by Occupation ……………………………………………………… 19

SECTION V ………………………………………………………………………….………….. 21 BRAC AND NON-BRAC REALIGNMENT SIMULATIONS ………………………………. 21 Background …………………………………………………………………………………. 21 Scenario One: 10% Cut …………………………………………………………………… 22 Scenario Two: 50% Cut …………………………………………………………………… 24 Scenario Three: Base Closures ………………………………………………………….. 25 Tax Consequences ………………….…………………………………………………….. 27

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LIST OF EXHIBITS

Description Page

Exhibit 1: Counties of the Coastal Bend Region ……………………………………………. 3 Exhibit 2: Military Population ………………………………………………………………….. 5 Exhibit 3: Military and Civilian Employment …………………………………………………. 6 Exhibit 4: Local Civilian Job Impact of BRAC 2005 ……...…………………………….…… 6 Exhibit 5: Direct Employment ……...…………………………….………………………….… 7 Exhibit 6: Direct Employment of NAS Corpus Christi ……...……………………………….. 8 Exhibit 7: Direct Employee Payroll ……………………………………………………….…… 9 Exhibit 8: Schematic Diagram of Economic Impacts …………………………………….…. 10 Exhibit 9: Direct Economic Impact ……………………………………………………………. 12 Exhibit 10: Secondary Economic Impacts .……………...…………………………………….. 13 Exhibit 11: Total Economic Impacts ……………………………………………………………. 14 Exhibit 12: Impact on Total Property Tax Revenues ……………………………….………… 15 Exhibit 13: Regional Employment Impact by Sector …………………………………………. 16 Exhibit 14: Regional Employment Impact by Industry ……………………………………….. 18 Exhibit 15: Regional Employment Impact by Occupation …………………………………… 20 Exhibit 16: DOD Planned End Strength ……………………………………………………….. 21 Exhibit 17: 10% Cut in Direct Employment ……………………..…………………………….. 22 Exhibit 18: Direct Economic Impact of 10% Cut ……………………..………………………. 23 Exhibit 19: Total Economic Impacts of 10% Cut ……………………..………………………. 23 Exhibit 20: 50% Cut in Direct Employment ……………………..…………………………….. 24 Exhibit 21: Direct Economic Impact of 50% Cut ……………………..…………………….…. 24 Exhibit 22: Total Economic Impacts of 50% Cut ……………………..………………………. 25 Exhibit 23: Direct Employment Impact of Base Closures ……………………..…………….. 26 Exhibit 24: Direct Economic Impact of Base Closures ……………………..………………... 26 Exhibit 25: Total Economic Impacts of Base Closures ……………………..……………….. 26 Exhibit 26: Tax Consequences of Base Closures ……………………..………………….….. 27 Exhibit 27: Realignment Breakeven Point ……………………..………………………….…... 28

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THE ECONOMIC VALUE AND THE POSSIBLE CHANGING ECONOMIC ROLE OF MILITARY BASES IN THE COASTAL BEND

EXECUTIVE SUMMARY

The military presence is key to the vitality of the Coastal Bend economy in South Texas. With two additional rounds of BRAC in sight, this study first provides a quantitative assessment of the current economic role of the three major military installations in the Coastal Bend, namely Naval Air Station Corpus Christi, Corpus Christi Army Depot, and Naval Air Station Kingsville. Next, simulation exercises are conducted to evaluate the potential impacts on the regional economy under three alternative hypothetical scenarios about realigning or closing those military installations.

 The military communities in the Coastal Bend play a vital role in the local economies. Military personnel and their families are sizable segments of the regional population. In addition to employees working directly at those facilities, a significant portion of economic activity in Corpus Christi and Kingsville are inextricably tied to the operation of the military bases. The three military installations together generate over 12,000 direct jobs with a total employee payroll of approximately $785 million. The value-added output that these military installations directly contribute to the economy equals $811 million. The military installations in Corpus Christi together account for over 10,000 direct jobs, or 5 percent of total area employment.

 Including the spin-off or secondary effects that the operation of the military facilities bring to local businesses and residents, their total economic impact on the regional economy is approximately $1.7 billion in value-added output, 22,600 jobs, $1.1 million in wage earnings, and $51.4 million in local indirect tax revenues. The installations in the Corpus Christi metro area together generate 18,564 jobs and $1.4 billion in value-added economic activity, capturing about one-tenth of the local economy.

 A wide variety of industries and occupations are tied to the military presence in the Coastal Bend, particularly those in the service and trade sectors. Nearly 900 jobs in restaurants and other eating and drinking places, as well as nearly 700 jobs in schools across the region are associated with the operation of the local military bases. In addition to military personnel, those facilities support large numbers of business and computer specialists, as well as engineers and manufacturing workers.

 Under the hypothetical scenario of a 10 percent cut in the military installations’ workforce, the Coastal Bend economy will experience a potential loss of $173 million in value-added economic activity and nearly 2,300 jobs. A 50 percent cut in their workforce will result in a potential loss of $865 million in economic activity and nearly 11,300 jobs across the Coastal Bend region. Under the worst case scenario of base closure for all three installations, the region will experience a potential loss of $1.7 billion in economic activity and over 22,000 jobs. For local taxpayers collectively, the benefits versus the costs of a base closure depend on the size of savings from the BRAC process in comparison with its adverse effect on the local economy.

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SECTION I

INTRODUCTION

Military bases in the Coastal Bend play a vital role in the regional economy of South Texas. The major military base in Corpus Christi is operated by Naval Air Station (NAS) Corpus Christi, along with Corpus Christi Army Depot (CCAD) as its largest tenant. The city of Kingsville is home to Naval Air Station-Kingsville. Those military installations serve as major employers of a skilled workforce as well as major consumers of local resources.

The 2005 round of Base Realignment and Closure (BRAC) recommendations resulted in the closure of Naval Station Ingleside and a realignment for NAS Corpus Christi and CCAD. The eventual closure of Naval Station Ingleside in 2010 has adversely affected its surrounding communities. The federal government’s plan for further cuts in military expenditures has generated much discussion about how future rounds of BRAC or non-BRAC realignments will affect the military bases in the Coastal Bend and its economy. Against this background, the objective of this study is to help local community leaders stay current with the significance of those three major military installations to the regional economy. Local workforce development officials are also interested in potential changes to the local labor markets in an event of realignment or closure of any of those major military installations in the area.

Purpose of the Report

This report presents the findings of an economic impact study for the major military installations in the Coastal Bend region of Texas. The study is commissioned by the Workforce Solutions of the Coastal Bend. Jim Lee, a professor of economics at Texas A&M University-Corpus Christi, is the principal investigator of the research work in this study. The purpose of the report is twofold. First, it provides a quantitative estimation for the impact of those military installations on the regional economy, particularly its labor market. The study complements previous studies on military bases in the region with more detailed data on the industries and occupations that are associated with the operation of those facilities.1 Second, the report provides an assessment of the potential impacts of alternative scenarios about possible realignment and closure of those military installations in the Coastal Bend. The cases under

1 “The Annual Economic Impact of Military Facilities in the Corpus Christi, Texas Region” (2001), and “A Report of the Annual Economic Impact During Fiscal Year 2010 of the Corpus Christi Army Depot” (2010), both prepared by ImpactData Source for Corpus Christi Regional Economic Development Corporation.

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investigation range from cuts in the local base budgets in line with prospective defense budget cuts to the worst-case scenario of a complete closure of all local military bases.

Scope of the Study

This study contains two parts. The first part of the study is to evaluate the current roles of the three military installations in the local economies of the Coastal Bend. Those installations are NAS Corpus Christi, CCAD, and NAS Kingsville. This report details the impact of those individual installations on local employment, value-added output, wage earnings, and tax revenues. In addition, the employment impact will be broken down by industry and occupation.

The second part of the study involves economic simulations under alternative hypothetical scenarios of realignment and closure of those three military installations. The alternative hypotheses include a 10 percent cut and a 50 percent cut of the installations’ direct employees, and complete base closures. The economic impact calculations will be drawn from expenditures associated with the operation of military facilities.

The relevant region in this study is the Coastal Bend Workforce Development Area (WDA), which consists of 12 counties: Aransas, Bee, Brooks, Duval, Jim Wells, Kenedy, Kleberg, Live Oak, McMullen, Nueces, Refugio, and San Patricio. NAS Corpus Christi and CCAD are located in the Corpus Christi Metropolitan Statistical Area (MSA), which includes Aransas, Nueces, and San Patricio Counties. NAS-Kingsville is located in Kleberg County. Exhibit 1 shows a map of the counties in the Coastal Bend region as the geographical area of this study. In addition to the Coastal Bend WDA as a whole, economic impacts will be analyzed for the Corpus Christi MSA in the case of NAS Corpus Christi and CCAD, and for Kleberg County in the case of NAS Kingsville.

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Exhibit 1 Counties of the Coastal Bend Region

Military base

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Data Sources

Aggregate staffing and budget data were obtained from the liaison offices of the three military installations and the Department of the Navy. Such data are supplemented with secondary data sources, including the U.S. Census Bureau, Bureau of Economic Analysis, Texas Comptroller of Public Accounts, and the Texas Workforce Commission. To calculate various measures of the regional economic impacts, the IMPLAN regional input-output software program is applied to the data of the local study areas. All data, except where noted, are estimates for the period between 2011 and 2012. The Fiscal Year 2011-2012 is the most recent period for which financial and employment data are available.

Overview of Installations

Naval Air Station Corpus Christi

Since 1941, the primary command assignment of NAS Corpus Christi has been pilot training and operations. The base is located in Flour Bluff of Nueces County, covering 158 acres and 2.2 million square feet of industrial space in 40 buildings. In addition to being home to Chief of Naval Air Training using Truax Field and outlying airfields, the base is home to several tenant commands, including the Corpus Christi Army Depot (CCAD), Marine Aviation Training Support Group, Armed Forces Reserve Support Center, U.S. Customs and Border Protection, and U.S. Coastal Guard. The main function of NAS Corpus Christi is to maintain and operate base facilities, provide services and materials to support the aviation activities of the Naval Air Training Command, Training Air Wing IV, and other tenants. In this report, most data for NAS Corpus Christi refer to the combined facilities of the U.S. Navy, Marine Corp and other government departments, such as U.S. Coast Guard, and Customs and Border Protection. Together, the Navy and its tenants on the base (except CCAD) directly employs a total of 5,109 military, civilian and contract employees, with an estimated total annual payroll of $331 million.

Corpus Christi Army Depot

CCAD is the largest tenant at the Naval Air Station in Corpus Christi, utilizing 140 acres of the base. The installation operates the Center of Industrial and Technical Excellence as the world’s largest rotary wing repair facility. This facility offers maintenance, repair and overhaul services for helicopters and Department of Defense and other tenants’ rotary wing aircraft. CCAD directly employs a total of 4,989 military, civilian and contract employees, with an estimated total annual payroll of $323 million.

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Naval Air Station Kingsville

NAS Kingsville is located in Kleberg County approximately 44 miles southwest of the city of Corpus Christi. When it was commissioned in 1942, the base was one of three advanced air-training bases of the Naval Air Training Command. As home to Training Air Wing II and several military tenant commands, the facility’s primary function is to provide jet aviation training for pilots in the Navy and Marine Corps. The station directly employs 2,009 military, civilian and contract employees, with an estimated total annual payroll of $130 million.

Regional Background

Military Population

The importance of the military bases to the Coastal Bend communities can be realized by the share of the military personnel and their accompanying family members in the local populations. Exhibit 2 shows the total numbers of military personnel and their families associated with the three installations in the Coastal Bend. Each military person brings an average of 1.6 additional family members to the region. The military population in NAS Corpus Christi and CCAD accounts for approximately 1 percent of the Nueces County population. By comparison, given the smaller population of Kleberg County, the share of military personnel and their families in NAS Kingsville is 5 percent. Together, the military personnel and their families of the three installations represent approximately 1 percent of the regional population of the Coastal Bend.

Exhibit 2 Military Population Military Installation Area Military & Family Share of Area Population NAS Corpus Christi & CCAD Nueces County 3,120 0.9% NAS Corpus Christi & CCAD Corpus Christi MSA 3,120 0.7% NAS Kingsville Kleberg County 1,594 5.0% All installations Coastal Bend WDA 4,714 0.8%

Source: U.S. Department of the Navy, 2010 Census, and author’s calculations.

Military and Civilian Employment

Military service is a major economic sector of the Coastal Bend region, and the Corpus Christi MSA in particular. As shown in Exhibit 3, a total of 5,905 military and civilian personnel (excluding contractors) are directly employed by NAS

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Corpus Christi and CCAD. They account for 3.5 percent of total employment in Nueces County and 2.9 percent of employment in the Corpus Christi metro area. A total of 1,224 military and civilian employees work in NAS Kingsville, accounting for 7.4 percent of total employment in Kleberg County. Together the military and civilian employees in those three military installations account for over 3 percent of total employment in the Coastal Bend WDA.

Exhibit 3 Military and Civilian Employment Military & Civilians as a Military Installation Area Base Employment Share of Local Employment NAS Corpus Christi & CCAD Nueces County 5,905 3.5% NAS Corpus Christi & CCAD Corpus Christi MSA 5,905 2.9% NAS Kingsville Kleberg County 1,224 7.4% All installations Coastal Bend WDA 7,129 2.6%

Source: U.S. Department of the Navy, Texas Workforce Commission, and author’s calculations.

Impact of BRAC 2005

An assessment of the significance of an existing military installation in the Coastal Bend may benefit from the experience of the most recent BRAC process. The 2005 round of BRAC resulted in the complete closure of Naval Station Ingleside, as well as realignment of NAS Corpus Christi and CCAD. Exhibit 4 summarizes the estimates of accumulated local employment impacts of the changes to the three military installations.2 The Coastal Bend area lost an estimated total of 445 direct jobs from civilians and contractors working at those installations. Including the secondary (indirect) impacts, the 2005 round of BRAC resulted in an estimated loss of 4,135 jobs, or nearly 2% of the area’s total employment.

Exhibit 4 Local Civilian Job Impact of BRAC 2005 Civilian & Total Loss as a Secondary Total Civilian Military Installation Contractor Share of Local Job Impacts Jobs Jobs Employment NS Ingleside 325 2,550 2,875 1.24% NAS Corpus Christi 28 982 1,010 0.55% CCAD 92 158 250 0.10% Total 445 3,690 4,135 1.89%

Source: Jim Lee and Impact Data Source (2008).

2 “A Report of the Impact of the 2005 Base Realignment and Closure Committee Actions for Naval Station Ingleside, Naval Station Corpus Christi, and Corpus Christi Army Depot,” 2008 report prepared by Jim Lee and Impact Data Source for Workforce Solutions of the Coastal Bend.

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SECTION II DIRECT ECONOMIC CONTRIBUTIONS

In addition to serving the nation’s military needs, such as pilot training and repairing military aircraft, the military bases in the Coastal Bend benefit the regional economy by acting as major employers of the local workforce as well as consumers of local resources. As the largest employers in the local communities of the Coastal Bend, those facilities play a key role in promoting economic development and the overall quality of life in South Texas.

The three military installations benefit the regional economy primarily through their expenditures in maintaining their operation and services. The economic contributions work through two channels. First, it is a major source of employment and income for local residents. Second, to provide military-related services, those facilities bring business activities and thus dollars to the local communities. As a result of additional rounds of circulation of those dollars within the local communities, those military bases help promote the vitality of the regional economy in the Coastal Bend.

Direct Employment

The three military facilities in the Coastal Bend area benefit the regional economy through their direct employment of local residents and their purchases of goods and services provided by local business vendors in order to sustain their operation. Exhibit 5 shows their direct employment, including military personnel and civilians working on the bases, as well as contracting firms and their employees working directly for the facilities. For CCAD, in particular, those contracting firms include Boeing Company, General Electric Aircraft, Honeywell International, L3, and Sikorsky Aircraft Corporation.

Exhibit 5 Direct Employment Military Civilian Contractors Total Direct Jobs NAS Corpus Christi 1,192 738 3,179 5,109 CCAD 8 3,967 1,014 4,989 NAS Kingsville 613 611 785 2,009 Total 1,813 5,316 4,978 12,107

Source: U.S. Department of the Navy.

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The three military installations together directly support a total of 12,107 full-time-equivalent job positions, equivalent to 4 percent of the Coastal Bend WDA workforce. CCAD directly employs 4,989 persons. This installation employs a total of 3,975 military and civilian personnel. Its aircraft repair and other services are also supported by 1,014 local contract employees. With nearly 5,000 direct jobs, CCAD is one of the largest employers in the Corpus Christi MSA, behind the Corpus Christi Independent School District (over 5,200) and Christus Spohn Health System (over 5,000).3

The other divisions on the base of NAS Corpus Christi employ a total of 5,109 persons, including 2,166 contractors working for the entire base instead of specific government departments. Exhibit 6 shows a breakdown of employees by division and by employment type. The Navy and Marine Corps together employ 1,192 military personnel. Together, those government departments and civic organizations employ 738 civilians and 3,179 contractors.

Exhibit 6 Direct Employment of NAS Corpus Christi Division Military Civilian Contractors Total Navy/Marine Corps 1,186 381 883 2,450 Other Government Dept’s 6 60 16 82 Homeland Security – 164 81 245 Civic Organizations – 133 33 166 Base Contractors – – 2,166 2,166 Total 1,192 738 3,179 5,109

Source: U.S. Department of the Navy.

With a total direct employment of 10,098 military, civilian personnel and contractors, the military installations in Corpus Christi collectively account for 5 percent of the Corpus Christi metro area workforce.

NAS Kingsville employs 613 military personnel and 611 civilians. Along with its 785 contract employees, the base generates 2,009 direct jobs. Despite its smaller size relative to the base in Corpus Christi, direct employment in this base accounts for 12 percent of the Kleberg County workforce.

3 Corpus Christi Regional Economic Development Corporation.

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Direct Employee Earnings

Direct employment of military and civilian personnel, as well as contractors contributes to household earnings in the form of wages, salaries and other types of incomes. As shown in Exhibit 7, the total annual payroll for direct employment is estimated at $331.1 million for NAS Corpus Christi, $323.4 million for CCAD, and $130.2 million for NAS Kingsville. The employee payroll for the all three installations together is $784.7 million per year.

Exhibit 7 Direct Employee Payroll Amount Per Year NAS Corpus Christi $331,156,020 CCAD $323,377,840 NAS Kingsville $130,219,700 Total $784,753,560

Source: U.S. Department of the Navy and author’s calculations.

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SECTION III

REGIONAL ECONOMIC IMPACTS

In this report, the economic impact of the three Coastal Bend military installations on the regional communities is measured alternatively by value- added output, employment, wage earnings (or payroll) and local tax revenues. This study determines the extent of regional economic impacts primarily through “spending.” The two types of spending that determine the installations’ economic roles in the region are: (1) their personnel expenditures as wages, salaries and benefits for its employees; and (2) the spending on the goods and services provided by local business vendors, including their contractors.

Output refers to value-added economic activity that is generated from utilizing local resources, as opposed to resources located outside this region. This concept is equivalent to Gross Regional Product (GRP) in national income accounting. Not all expenditures generate value-added effects locally as some of those expenditures (e.g. machines and tools) accrue to resources located outside this region.4 For comparison, the GRP of the Corpus Christi MSA was $16 billion in 2011.

Exhibit 8 Schematic Diagram of Economic Impacts

Secondary Effects

Indirect Induced Direct Impact Impact Impact Military (spending by (income spent (operating suppliers & on goods & expenditures) employees) services)

4 The output impact estimates in this report are appreciably smaller than the corresponding estimates reported earlier by ImpactData Source (2010). This discrepancy is largely due to the different measures for the concept of “output.” The 2010 study is based on an arbitrary assumption that 85% of the military operating expenditures are produced by local resources. In the present study, the shares of local resources that support the operation of the military bases are determined by IMPLAN. The local shares of the local military expenditures, which generate “value-added” output, are on average less than 85%.

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The expenditures on the military facilities are, however, only part of the total regional economic impact. Exhibit 8 above depicts a schematic diagram of the regional economic impact. The amount of economic activity generated directly by the U.S. Department of Defense’s expenditures on the installations and their immediate suppliers is referred to as the direct impact. When the dollars associated with the direct impact are spent within the community, secondary impacts on the regional economy occur as well.

Multiplier Effects

The expenditures for the operation of local military facilities generate two types of secondary impacts. The first is the indirect impact, which occurs as a result of the increased input needs of business vendors and suppliers (e.g., banks, business services, hardware stores, and other retail stores and food suppliers) from which the military bases and their contractors directly purchase goods and services. To satisfy the goods and services purchased by the military installations and their contractors, these immediate suppliers must hire more workers and replenish inventory stock. Some new business orders are directed to businesses within the region, increasing the demand for jobs to be filled by the local workforce, thus creating more business-to-business transactions and new rounds of additional expenditures within the local community. The direct and indirect impacts represent these increases in spending (or final demand) within the local community due to the presence of local military bases.

The second type of secondary impacts is the income-induced impact, which represents the change in local economic activity as a result of the changes in income earnings and spending associated with the direct and indirect economic impacts. When the employees of the military bases as well as the employees of their local contractors and business suppliers spend some of their earnings on goods and services provided locally, there are additional rounds of economic activity and thus income earnings within the Coastal Bend region. Because of the indirect and induced effects, the military installations’ direct expenditures ultimately generate a multiple of spending and income earnings across different industries and households in South Texas.

The secondary, or multiplier, economic effects cannot be observed directly. To estimate those secondary flows of spending associated with the presence of the local military installations, this study employs IMPLAN’s regional input-output model for the Coastal Bend region and the military installations’ most relevant communities (i.e., Kleberg County for NAS Kingsville; the Corpus Christi MSA for NAS Corpus Christi and CCAD).

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Direct Economic Impact

Direct economic impact is measured alternatively by changes in regional value- added output, employment, payroll (wage and salary earnings) and local tax revenues directly associated with the economic activity of the three military installations. As depicted by Exhibit 8 above, the economic activity that the military bases benefit the local communities stems from activities that are related to the operating expenses (personnel and other expenses) for running the installations and their facilities.

Exhibit 9 presents the alternative estimates of the direct economic impact of the three installations on their individual communities—Kleberg County for NAS Kingsville, and the Corpus Christi MSA for NAS Corpus Christi and CCAD. The last column shows the combined economic impact of the three military installations on the Coastal Bend WDA.

Exhibit 9 Direct Economic Impact NAS CCAD NAS Local WDA Corpus Christi Kingsville Total Total Output ($mil) 332.8 325.0 130.9 788.7 811.1 Employment (jobs) 5,109 4,989 2,009 12,107 12,290 Payroll ($mil) 331.2 323.4 130.2 784.8 796.5

Source: U.S. Department of the Navy and IMPLAN.

NAS Corpus Christi

NAS Corpus Christi employs a total of 5,109 military, civilian and contract employees. Economic activity of this installation is equivalent to $332.8 million in value-added output, which generates a total of $331.2 million in employee payroll per year. As a federal government entity, the installation is exempt from taxes, although its employees and business vendors do pay taxes.

Corpus Christi Army Depot

CCAD employs a total of 4,989 military and civilian local residents and contractors. Economic activity at the base is equivalent to $325 million in value- added output, which generates a total of $323.4 million in employee payroll per year. As a federal government entity, this installation is also exempt from taxes, although its employees and business vendors do pay taxes.

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NAS Kingsville

NAS Kingsville employs a total of 2,009 military, civilian and contract employees. Economic activity at the base is equivalent to $130.9 million in value-added output, which generates a total of $130.2 million in employee payroll per year. As a federal government entity, this installation is also exempt from taxes, although its employees and business vendors do pay taxes.

Direct Impact on the Region

Together, the three military installations in the Coastal Bend generate a direct employment impact of 12,107 jobs within their local communities. The military installations in the Corpus Christi metro area account for 10,098 jobs. Including employees living outside Kleberg County and the Corpus Christi metro area, the direct employment impact on the Coastal Bend WDA equals 12,290 jobs, along with $796.5 million in annual employee payroll. Those three military installations collectively generate an estimated total of $811.1 million in value-added output for the Coastal Bend. In the Corpus Christi metro area, the military installations on the naval base collectively account for 5 percent of the area’s $16 billion gross regional product, the overall measure of the size of its economy.

Secondary Economic Impacts

Secondary economic impacts, including indirect and income-induced impacts, occur as a result of the three military installations’ direct impact on the regional economy. Exhibit 10 present estimates for the secondary economic impacts of the three installations on their individual communities, as well as the Coastal Bend WDA as a whole.

Exhibit 10 Secondary Economic Impacts NAS CCAD NAS Local WDA Corpus Christi Kingsville Total Total Output ($mil) 376.8 367.9 148.2 892.9 918.2 Employment (jobs) 4,283 4,183 1,684 10,151 10,304 Payroll ($mil) 130.5 127.4 51.3 309.2 313.9 Indirect Taxes ($mil) 21.1 20.6 8.3 49.9 51.4

Source: U.S. Department of the Navy and IMPLAN.

Together, the three military installations in the Coastal Bend generate a secondary employment impact of 10,151 jobs on their local communities. This means that each direct job at one of the military installations supports another

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0.84 job in its local community. Including those employees living outside Kleberg County and the Corpus Christi metro area, the secondary employment impact on the Coastal Bend WDA equal 10,304 jobs, which generate $313.9 million to wage earnings per year. Those military installations collectively generate an estimated total of $918.2 million in value-added output for the Coastal Bend WDA. Such secondary economic impacts support an equivalent of $51.4 million in local tax revenues annually.

Total Economic Impacts

Total economic impacts are the sum of direct and secondary economic impacts. Exhibit 11 presents estimates for the total economic impacts of the three installations on their individual communities and on the Coastal Bend WDA as a whole.

Exhibit 11 Total Economic Impacts NAS CCAD NAS Local WDA Corpus Christi Kingsville Total Total Output ($mil) 709.6 692.9 279.0 1,681.56 1,729.34 Employment (jobs) 9,392 9,172 3,693 22,258 22,593 Payroll ($mil) 461.6 450.8 181.5 1,094.0 1,110.4 Indirect Taxes ($mil) 21.1 20.6 8.3 49.9 51.4

Source: U.S. Department of the Navy and IMPLAN.

Together, the three military installations in the Coastal Bend generate a total employment impact of 22,258 jobs on their local communities. Including those employees living outside Kleberg County and the Corpus Christi metro area, the total employment impact on the Coastal Bend WDA equals 22,593 jobs, which contribute $1.1 billion to wage earnings per year. Those military installations collectively generate an estimated total of $1.7 billion in value- added output per year and $51.4 million in annual indirect tax revenues for different taxing entities in the Coastal Bend WDA. The installations in the Corpus Christi metro area together generate 18,564 jobs and $1.4 billion in value-added economic activity, both represent about one-tenth of the local economy.

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Property Tax Impacts

The impact on local tax revenues as presented above refers to indirect taxes that are generated through sales and other taxable transactions as a result of increased business activity. This section further discusses the impact on tax revenues collected directly by local taxing entities, including the city and county governments, and the local school districts. The particular tax is the property tax on residential homes. While the military bases are not subject to property taxes, the real estate property of the affected business owners and employees is.

The military bases in the Coastal Bend are responsible for a sizable population of the community, including direct employees on the bases and those employees and business owners as part of the secondary impact. As shown in Exhibit 11 above, the two military installations in the Corpus Christi metro area generate a combined total of 18,564 jobs, and NAS Kingsville is responsible for another 3,693 jobs. Such employment impacts also raise the housing needs in the local communities, thereby raising the values of residential property. All else being equal, an increase in property valuations leads to a larger tax base for the local taxing entities, and thus more local tax revenues.

Drawing on the methodology of the most recent study on the local military bases,5 Exhibit 12 illustrates the impact of the three military installations on direct local taxes by showing the impact on local property tax revenues. NAS Corpus Christi and CCAD together account for $33.1 million in property tax revenues for the taxing entities in Nueces County. NAS Kingsville generates a corresponding total of $6.9 million for Kleberg County. The Coastal Bend WDA as a whole benefits from $42.4 million in local property tax revenues.

Exhibit 12 Impact on Total Property Tax Revenues $ millions Nueces County 33.1 Kleberg County 6.9 Corpus Christi MSA 34.8 Coastal Bend WDA 42.4

Source: ImpactData Source (2010) and author’s calculations.

5 “A Report of the Annual Economic Impact During Fiscal Year 2010 of the Corpus Christi Army Depot” (2010), prepared by ImpactData Source for Corpus Christi Regional Economic Development Corporation.

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SECTION IV

EMPLOYMENT IMPACTS BY INDUSTRY AND OCCUPATION

Employment Impact by Industry

Exhibit 13 Regional Employment Impact by Sector County Employment Corpus WDA Industry NAS CCAD NAS Christi Total Corpus Christi Kingsville MSA Natural Resources, Mining, Utility, Construction 89 436 135 387 694 Forestry, Fishing 0 1 0 1 1 Mining 0 0 0 0 0 Utilities 2 8 2 7 12 Construction 87 428 132 379 682 Manufacturing 11 40 14 47 64 Trade 134 632 198 581 1,006 Wholesale Trade 6 22 8 26 35 Retail Trade 128 610 190 555 972 Transportation, Information, Financial 59 262 84 255 417 Transportation & Warehousing 6 27 8 25 42 Information 10 46 15 45 73 Finance, Insurance 17 70 23 73 111 Real Estate, Rental, Leasing 26 120 38 112 190 Services 315 1,543 477 1,370 2,460 Professional, Technical Services 25 112 36 110 179 Management of Companies 1 1 1 2 2 Admin, Waste Services 34 158 50 148 252 Educational Services 19 88 28 81 141 Health Care, Social Asst 81 449 133 353 715 Arts, Entertainment, Recreation 23 107 34 99 171 Accommodations, Food Services 71 333 104 307 531 Other Services (excl. Government) 62 295 92 269 470 Public Administration 2,074 5,663 2,222 9,005 9,024 State & Local Government 144 682 213 624 1,086 State Government 33 159 50 145 253 Local Government 110 523 163 479 833 Federal Civilian 738 4,981 1,396 5,719 7,115 Federal Military 1,192 8 613 1,200 1,813

Total Employment Impact 4,612 13,564 5,138 18,564 22,593

Source: IMPLAN and author’s calculations.

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To illustrate the extent to which different parts of the regional economy in the Coastal Bend are affected by the military installations, Exhibit 13 above breaks down the regional employment impact by broad industry sector. In addition to the Coastal Bend WDA, the findings are also listed for the counties of Nueces and Kleberg, and the Corpus Christi metro area, respectively. Other than the public administration sector that includes federal military and civilian employment, much of the employment impact occurs in the services sector, particularly accommodations and food services.

Exhibit 14 below shows the employment impact on the Coastal Bend WDA for the top 50 narrowly defined industries, excluding the military itself. A total of 893 jobs in local restaurants and other eating and drinking places in the Coastal Bend are associated with the military installations in the region.

Along with their families, the military personnel and other employees require local educational and health care services. An estimated total of 672 jobs in education and 332 jobs in medical offices are tied to the operation of the military bases in the region.

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Exhibit 14 Regional Employment Impact by Industry NAS Rank Industry Corpus CCAD NAS Total Christi Kingsville 1 Food services and drinking places 377 368 148 893 2 State & Local Education 284 277 111 672 3 Offices of physicians- dentists- and other health 140 137 55 332 4 Food and beverage stores 139 136 55 331 5 General merchandise stores 136 133 54 323 6 Hospitals 124 121 49 294 7 Nursing and residential care facilities 121 118 48 287 8 Wholesale trade 120 117 47 283 9 Private households 113 110 44 268 10 Motor vehicle and parts dealers 107 104 42 253 11 Automotive repair - except car wash 88 86 35 208 12 Commercial and institutional buildings 86 84 34 205 13 Home health care services 79 77 31 188 14 Real estate 76 74 30 179 15 Social assistance- except child day care services 71 69 28 167 16 New residential 1-unit structures- nonfarm 65 63 26 154 17 Clothing and clothing accessories stores 65 63 26 154 18 Child day care services 64 63 25 153 19 State & Local Non-Education 64 62 25 151 20 Miscellaneous store retailers 60 59 24 143 21 Legal services 60 59 24 143 22 Building material and garden supply stores 59 58 23 140 23 Employment services 51 50 20 121 24 Other amusement and recreation industries 50 48 19 117 25 Monetary authorities and depository institutions 49 47 19 115 26 Health and personal care stores 48 47 19 114 27 Gasoline stations 44 43 17 105 28 Services to buildings and dwellings 43 42 17 102 29 Hotels and motels- including casino hotels 42 41 16 99 30 Federal Non-Military 39 38 15 93 31 Other ambulatory health care services 38 37 15 91 32 Insurance carriers 38 37 15 90 33 Other new construction 37 36 15 88 34 Non-store retailers 37 36 15 88 35 Architectural and engineering services 36 35 14 85 36 Scenic and sightseeing transportation & support 33 32 13 79 37 Personal care services 32 31 13 76 38 Other educational services 32 31 12 75 39 Sporting goods- hobby- book and music stores 29 28 11 69 40 Truck transportation 28 27 11 65 41 Accounting and bookkeeping services 28 27 11 65 42 Civic- & social- professional organizations 28 27 11 65 43 Furniture and home furnishings stores 26 25 10 61 44 Business support services 26 25 10 61 45 Telecommunications 25 24 10 59 46 Insurance agencies- brokerages- and related 25 24 10 58 47 Other State and local government enterprises 25 24 10 58 48 Electronics and appliance stores 24 23 9 56 49 Dry-cleaning and laundry services 23 22 9 54 50 Securities- commodity contracts- investments 22 21 9 52

Source: IMPLAN and author’s calculations.

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Employment Impact by Occupation

Exhibit 15 below lists the top 60 occupations in the Coastal Bend WDA that are tied directly or indirectly to the local military installations. In addition to military personnel, the operation of those military facilities supports a wide variety of occupations in the region. A total of 2,954 jobs in material recording and dispatching are associated with the operation of the facilities, including those working in the bases. The total number of jobs in this occupation alone exceeds the total number of military personnel (1,813) in the region. Those military facilities also support large numbers of business (1,588) and computer specialists (951), as well as engineers (1,109) and other manufacturing workers.

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Exhibit 15 Regional Employment Impact by Occupation NAS NAS Occupation Corpus CCAD Kingsville Total Christi Material Recording, Scheduling, Dispatching, & Distributing 470 1,862 622 2,954 Military 1,192 8 613 1,813 Business Operations Specialists 253 1,001 334 1,588 Engineers 176 699 233 1,109 Information & Record Clerks 153 605 202 960 Computer Specialists 151 600 200 951 Assemblers & Fabricators 142 561 187 890 Metal Workers & Plastic Workers 132 521 174 827 Other Management Occupations 113 449 150 713 Financial Specialists 100 395 132 626 Construction Trades Workers 98 390 130 619 Other Production Occupations 93 368 123 583 Other Office & Administrative Support Workers 91 362 121 574 Drafters, Engineering, & Mapping Technicians 77 305 102 483 Secretaries & Administrative Assistants 75 299 100 474 Other Installation, Maintenance, & Repair Occupations 74 294 98 466 Operations Specialties Managers 63 249 83 395 Material Moving Workers 60 238 80 378 Health Diagnosing & Treating Practitioners 58 232 77 368 Other Protective Service Workers 57 227 76 361 Financial Clerks 53 208 70 331 Vehicle & Mobile Equipment Mechanics, Installers 51 202 67 320 Legal Support Workers 50 197 66 312 Law Enforcement Workers 41 164 55 260 Motor Vehicle Operators 41 161 54 255 Top Executives 37 147 49 233 Building Cleaning & Pest Control Workers 37 145 48 230 Equipment Mechanics, Installers, & Repairers 36 143 48 226 Lawyers, Judges, & Related Workers 34 135 45 214 Supervisors, Production Workers 32 127 42 202 Sales Representatives, Wholesale & Manufacturing 31 122 41 194 Life, Physical, & Social Science Technicians 28 113 38 179 Supervisors, Office & Administrative Support Workers 28 111 37 176 Life Scientists 26 104 35 165 Health Technologists & Technicians 26 104 35 164 Physical Scientists 26 101 34 161 Social Scientists & Related Workers 23 93 31 147 Other Sales & Related Workers 23 89 30 142 Air Transportation Workers 22 87 29 138 Media & Communication Workers 19 74 25 118 Advertising, Marketing, Public Relations, & Sales Managers 18 71 24 113 Retail Sales Workers 17 68 23 108 Supervisors of Installation, Maintenance, & Repair Workers 15 61 20 97 Supervisors, Sales Workers 15 60 20 96 Art & Design Workers 14 54 18 85 Supervisors, Transportation & Material Moving Workers 13 53 18 84 Plant & System Operators 12 49 16 77 Other Healthcare Support Occupations 12 47 16 74 Food & Beverage Serving Workers 11 43 14 68 Textile, Apparel, & Furnishings Workers 10 38 13 60 Supervisors, Construction & Extraction Workers 9 37 13 59 First-Line Supervisors/Managers, Protective Service 9 35 12 56 Media & Communication Equipment Workers 9 34 11 55 Nursing, Psychiatric, & Home Health Aides 8 33 11 53 Other Teachers & Instructors 8 33 11 52 Grounds Maintenance Workers 8 32 11 51 Mathematical Scientists 8 32 11 51 Architects, Surveyors, & Cartographers 8 31 10 49 Water Transportation Workers 8 30 10 47 Transportation, Tourism, & Lodging Attendants 7 29 10 46

Source: IMPLAN and author’s calculations.

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SECTION V

BRAC AND NON-BRAC REALIGNMENT SIMULATIONS

This section presents the findings of simulation exercises for three alternative hypothetical scenarios. Those scenarios are associated with widely anticipated cuts in national defense spending, which in turn would trigger further realigning and closing of military installations across the U.S. The objective of those exercises is twofold. First, the findings will highlight the extent to which particular restructuring decisions will potentially affect the regional economy of the Coastal Bend. Second, the findings will provide guidance to local workforce and economic development officials in the case of any restructuring decisions on the local military installations.

Background

According to the U.S. Department of Defense (DOD), the federal budget for military spending will reduce by $487 billion in the next decade.6 The DOD base budget for FY 2012 is $530.6 billion. This means that the base budget is expected to reduce by over 9 percent each year in the near future. To absorb the planned budget cuts, DOD has officially set the timeline for the next two rounds of restructuring its military bases across the U.S. The first round of base realignment and closure (BRAC) recommendations will be announced by an independent commission no later than May 17, 2013, and the second round will be announced no later than May 15, 2015.

Exhibit 16 DOD Planned End Strength End Strength Division FY 2012 FY 2013 FY 2017 FY 2012-2017 (plan) Change Army 562,000 552,100 490,000 -12.8% Navy 325,700 322,700 319,500 -1.9% Marine Corps 202,100 197,300 182,100 -9.9% Air Force 332,800 328,900 328,600 -1.3% Total 1,422,600 1,401,000 1,320,200 -7.2%

Source: U.S. Department of Defense, FY 2013 Budget, Figure 4-2.

Exhibit 16 lists DOD’s planned end strength, as documented in its FY 2013 budget. Accordingly, all military divisions are expected to experience a reduction in their personnel between FY 2012 and FY 2017. The Army is

6 Michael Collins, “Officials set date for base advice,” Corpus Christi Caller Times, April 7, 2012, page 1A.

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expected to reduce its end strength by nearly 13 percent in the next five years, while the Air Force is expected to experience the least reduction of 1.3 percent. The average reduction in end strength among the four military divisions between FY 2012 and FY 2017 is expected to be approximately 7 percent.

Against the above background, simulations for the BRAC or other realignment decisions on the major military installations in the Coastal Bend are conducted for three alternative hypothetical scenarios. All three installations were subjected to one or more previous rounds of BRAC realignment. From this perspective, there is no overwhelming reason to speculate that any of those installations would be exempt from further realignment.

The first scenario is an across-the-board 10 percent cut of the military and civilian personnel in each of the three regional military installations. This scenario is in line with the end strength reductions shown in Exhibit 16 above. The second scenario is a 50 percent cut of the military and civilian personnel. This scenario reflects a major realignment of the military bases in the Coastal Bend. The third scenario is a complete closure of all three military installations in the region. This represents the worst-case scenario that cannot be ruled out, particularly given the recent closure of Naval Station Ingleside as a result of the 2005 round of BRAC.

Scenario One: 10% Cut

Exhibit 17 presents the direct employment impact on the local communities under the scenario of a 10 percent cut in each of the three military installations’ personnel expenditures. The table lists the impact on the individual installations’ community—the Corpus Christi MSA for NAS Corpus Christi and CCAD, and Kleberg County for NAS Kingsville. The cut is assumed to be shared equally in percentage terms among the military installations’ military and civilian employees, and contractors.

Exhibit 17 10% Cut in Direct Employment Military Civilian Contractors Total Direct Jobs NAS Corpus Christi -119 -74 -318 -511 CCAD -1 -397 -101 -499 NAS Kingsville -61 -61 -79 -201 Total -181 -532 -498 -1,211

Source: IMPLAN and author’s calculations.

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Given the current sizes of workforce in those military installations, as presented in Section II above, the hypothetical 10-percent workforce reduction will generate an estimated total loss of 181 military personnel, 532 civilian employees, and 498 contractors. This scenario will result in a potential loss of 1,211 direct jobs within the local communities of the military installations.

Exhibit 18 presents the direct impact on the regional economy in the case of a 10 percent cut in the workforce of the three military installations. Under this scenario, the 12-county Coastal Bend WDA as a whole will lose 1,229 direct jobs, $81.1 million in value-added output, and $79.6 million in employee payroll per year.

Exhibit 18 Direct Economic Impact of 10% Cut NAS CCAD NAS Local WDA Corpus Christi Kingsville Total Total Output ($mil) -33.3 -32.5 -13.1 -78.9 -81.1 Employment (jobs) -511 -499 -201 -1,211 -1,229 Payroll ($mil) -33.1 -32.3 -13.0 -78.5 -79.6

Source: IMPLAN and author’s calculations.

Because many local businesses and other organizations, such as schools and government departments, benefit from the presence of the military personnel and the operation of the military bases in the region, any restructuring of the local military installations will cause a ripple effect throughout the rest of the local economy. Exhibit 19 presents estimates for the total regional economic impacts under the scenario of a 10 percent personnel reduction in those three military installations. This scenario will potentially cause a total loss of 2,259 jobs, $172.9 million in value-added output, and $111 million in employee payroll per year in the Coastal Bend WDA.

Exhibit 19 Total Economic Impacts of 10% Cut NAS CCAD NAS Local WDA Corpus Christi Kingsville Total Total Output ($mil) -71.0 -69.3 -27.9 -168.2 -172.9 Employment (jobs) -939 -917 -369 -2,226 -2,259 Payroll ($mil) -46.2 -45.1 -18.2 -109.4 -111.0

Source: IMPLAN and author’s calculations.

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Scenario Two: 50% Cut

Exhibit 20 presents the direct employment impact on the local communities under the scenario of a 50 percent cut in the military installations’ personnel expenditures. As for the previous scenario, the cut is assumed to be shared equally in percentage terms among the military installations’ military and civilian employees, and contractors.

Exhibit 20 50% Cut in Direct Employment Military Civilian Contractors Total Direct Jobs NAS Corpus Christi -596 -369 -1,590 -2,555 CCAD -4 -1,984 -507 -2,495 NAS Kingsville -307 -306 -393 -1,005 Total -907 -2,658 -2,489 -6,054

Source: IMPLAN and author’s calculations.

Given the current sizes of workforce in those military installations, the hypothetical 50 percent reduction will generate an estimated total loss of 907 military personnel, 2,658 civilian employees, and 2,489 contractors. This scenario will result in a potential loss of 6,054 direct jobs within the local communities of the military installations.

Exhibit 21 presents the direct impact on the regional economy in the case of a cut of half of the workforce in the three military installations. Under this scenario, the 12-county Coastal Bend WDA as a whole will lose 6,145 direct jobs, which will generate a total loss of $405.6 million in value-added output, and $398.2 million in employee payroll annually.

Exhibit 21 Direct Economic Impact of 50% Cut NAS CCAD NAS Local WDA Corpus Christi Kingsville Total Total Output ($mil) -166.4 -162.5 -65.4 -394.4 -405.6 Employment (jobs) -2,555 -2,495 -1,005 -6,054 -6,145 Payroll ($mil) -165.6 -161.7 -65.1 -392.4 -398.2

Source: IMPLAN and author’s calculations.

Because many local businesses and other organizations like schools and government departments benefit from the presence of the military personnel

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and the operation of the military bases in the region, a cut in the workforce of the local military installations will cause a ripple effect throughout the rest of the local economy. Exhibit 22 presents estimates for the total regional economic impacts under the scenario of a 50 percent personnel reduction in the three military installations. This scenario will potentially cause a total loss of 11,297 jobs, $864.7 million in value-added output, and $555.2 million in employee payroll per year in the Coastal Bend WDA.

Exhibit 22 Total Economic Impacts of 50% Cut NAS CCAD NAS Local WDA Corpus Christi Kingsville Total Total Output ($mil) -354.8 -346.5 -139.5 -840.8 -864.7 Employment (jobs) -4,696 -4,586 -1,847 -11,129 -11,297 Payroll ($mil) -230.8 -225.4 -90.8 -547.0 -555.2

Source: IMPLAN and author’s calculations.

Scenario Three: Base Closures

The third scenario under investigation is a possible BRAC decision to close all three military installations in the Coastal Bend. While the likelihood of this scenario remains debatable, this simulation exercise is instructive given the closing of one military base in the Corpus Christi metro area—Naval Station Ingleside—in the last round of the BRAC process. All three military installations have some dynamic dependency on each other due to their geographic locations. Some other relative assumptions may still be made about individual base closures based on the data estimates below or based on their economic impacts described previously in this report.

Exhibit 23 presents the direct employment impact on the local communities under the scenario of closing the three major military installations in the Coastal Bend. Given the current sizes of workforce in those military installations, the hypothetical closure of all three military installations will generate an estimated total loss of 1,813 military personnel, 5,316 civilian employees, and 4,978 contract employees. This scenario will result in a loss of 12,107 direct jobs within the local communities of the military installations.

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Exhibit 23 Direct Employment Impact of Base Closure Military Civilian Contractors Total Direct Jobs NAS Corpus Christi -1,192 -738 -3,179 -5,109 CCAD -8 -3,967 -1,014 -4,989 NAS Kingsville -613 -611 -785 -2,009 Total -1,813 -5,316 -4,978 -12,107

Source: IMPLAN and author’s calculations.

Exhibit 24 presents the direct impact on the regional economy in the case of base closures. Under this scenario, the 12-county Coastal Bend WDA as a whole will lose 12,290 direct jobs, $811.1 million in value-added output, and $796.5 million in employee payroll annually.

Exhibit 24 Direct Economic Impacts of Base Closure NAS CCAD NAS Local WDA Corpus Christi Kingsville Total Total Output ($mil) -332.8 -325.0 -130.9 -788.7 -811.1 Employment (jobs) -5,109 -4,989 -2,009 -12,107 -12,290 Payroll ($mil) -331.2 -323.4 -130.2 -784.8 -796.5

Source: IMPLAN and author’s calculations.

Because many local businesses and other organizations, such as schools and government departments, benefit from the presence of the military personnel and the operation of the military bases in the region, a cut in the workforce of the local military installations will cause a ripple effect throughout the rest of the local economy. Exhibit 25 presents estimates for the total regional economic impacts under the scenario of closing all three military installations. This scenario will potentially cause a total loss of 22,593 jobs, $1.7 billion in value- added output, and $1.1 billion in employee payroll per year in the Coastal Bend WDA.

Exhibit 25 Total Economic Impacts of Base Closures NAS CCAD NAS Local WDA Corpus Christi Kingsville Total Total Output ($mil) -709.6 -692.9 -279.0 -1681.6 -1729.3 Employment (jobs) -9,392 -9,172 -3,693 -22,258 -22,593 Payroll ($mil) -461.6 -450.8 -181.5 -1,094.0 -1,110.4

Source: IMPLAN and author’s calculations.

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Tax Consequences

The main goal of the BRAC process is to reduce the total amount of military expenditures by restructuring the nation’s military bases. In the long run, the current and future generations of U.S. taxpayers pay for all government expenditures. According to the Department of Defense’s BRAC Final Report, the 2005 round of BRAC would generate in a total saving of $49 million in the following 20 years.7

For the next two rounds of BRAC, DOD has planned for a total saving of $487 billion in the following 10 years.8 This translates into an annual saving of $157.6 in federal taxes for each U.S. resident. Assuming that such savings indeed materialize, the future two rounds of BRAC would generate a combined reduction of $90.1 million in tax dollars each year for residents in the Coastal Bend WDA. However, the BRAC process also reduces local governments’ tax revenues due to its adverse effect on the economic activity of local communities whose military installations are subject to consolidation or closure. For a given amount of local government budgets, a loss of tax revenue associated with base restructuring will increase the tax burden of existing tax payers. Exhibit 26 compares the tax consequences of the worst-case scenario of base closures (Scenario 3) on the local communities.

Exhibit 26 Tax Consequences of Base Closures Tax Savings ($mil) Tax Losses ($mil) Net Savings ($mil) Nueces County 53.6 37.5 16.1 Kleberg County 5.1 8.3 -3.2 Corpus Christi MSA 67.5 41.6 25.8 Coastal Bend WDA 90.1 51.4 38.8

Source: U.S. Department of Defense, IMPLAN, and author’s calculations.

Given the 2010 Census estimates of local populations, the next two rounds of BRAC would potentially save residents in Nueces County a combined total of $53.6 million in taxes each year. In the case of closing NAS Corpus Christi and CCAD, the taxing entities of Nueces County would suffer a loss of $37.5 million annually. As such, the county would potentially benefit from a net saving of $16.1 million in local tax dollars. Similarly, the Corpus Christi metro area and the

7 The underlying assumption is that the savings from BRAC would also result in net savings in federal taxes. In reality, however, this would not be the case if the savings are followed by more government spending elsewhere. 8 Michael Collins, “Officials set date for base advice,” Corpus Christi Caller Times, April 7, 2012, page 1A.

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Coastal Bend WDA as a whole would experience a net tax saving of $16.1 million annually from the BRAC process.

However, in the case of closing NAS Kingsville, the total loss in local tax revenues of Kleberg County would exceed the total tax savings for county residents. As a result of the relatively larger economic role of its military base, the county would suffer a net loss of $3.2 million in local tax revenues per year.

The above simulation exercises for local tax consequences highlight the fact that the costs versus benefits of the BRAC process depend on the relative role of a particular military installation in the local economy as compared to the population of the community. It is also important to keep in mind that the eventual budget savings by DOD’s next two rounds of BRAC will most likely be smaller than the planned amount of $487 billion. This view is supported by the fact that the 2005 round of BRAC has reportedly resulted in a total saving of $49 million, which is a small fraction of the planned savings for the next two BRAC rounds.

To provide a more realistic perspective on the tax consequences of the BRAC process on the Coastal Bend communities, Exhibit 27 displays the breakeven points for DOD’s budget savings from its BRAC decisions or other realignment processes. Each breakeven point represents the minimum amount of tax savings that a realignment process must contribute to the local community in order to offset the local tax losses from closing its military installation. For Kleberg County, it requires nearly $80 billion in realignment savings to fully offset the loss of tax revenues due to a possible closing of NAS Kingsville. In the case of Nueces County, which has a population 10 times that of Kleberg County, the breakeven point is much lower at $34 billion. As compared to Kleberg County, Nueces County and thus the Corpus Christi MSA would require less than half of the budget savings from BRAC or other realignment processes to offset the loss of local taxes associated with closing its military facilities.

Exhibit 27 Realignment Breakeven Point Break Even Savings ($mil) Nueces County 34,044 Kleberg County 79,861 Corpus Christi MSA 30,056 Coastal Bend WDA 27,743

Source: Department of Defense, IMPLAN, and author’s calculations.

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