PDF - ECONorthwest

The Potential Economic Effects of the Proposed Water Bottling
Facility in McCloud
October 2007
Prepared by
99 W. 10th Avenue, Suite 400
Eugene, OR 97401
Phone: (541) 687-0051
www.econw.com
© ECONorthwest 2007
CONTACT INFORMATION
This report was prepared by Kristin Lee, Cleo Neculae, Ernie Niemi, and
Sarah Reich, economists and analysts at ECONorthwest, which is solely
responsible for its content.
ECONorthwest specializes in the economic and financial analysis of
public policy. ECO has analyzed the economics of resource-management,
land-use, development, and growth-management issues for
municipalities, state and federal agencies, and private clients for more
than 30 years.
For more information, please contact:
ECONorthwest
99 W. Tenth, Suite 400
Eugene, Oregon 97401
(541) 687-0051
www.econw.com
info@econw.com
Prepared for:
McCloud Watershed Council
www.mccloudwatershedcouncil.org
Funding provided by the Bella Vista Foundation
Correction
The report, as it was originally released, contained a typographical error. On
page 31, the second bullet should have read “200 HE per month at an HE rate
of $17.60 per month,” rather than “200 HE per month at an HE rate of $17.60
per acre-foot.”
In addition, this revised report contains revisions to Table 4, on page 32.
A revised copy is available for download as of August 2008 at
http://www.econw.com/reports/ECONorthwest_McCloud%20Economic%20Analysis.pdf
ECONorthwest
2
TABLE OF CONTENTS
Executive Summary .................................................................................................. 4
Introduction ............................................................................................................... 7
I.
Conceptual Economic Model for Evaluating the Impacts of Nestlé’s
proposal ............................................................................................................... 9
Commercial Demands......................................................................................... 10
Consumer Demands ........................................................................................... 10
Tracing the Consequences of a Water-Resource Decision ................................ 12
II. Long-Run Trends Affecting Economic Conditions in McCloud, Siskiyou
County, and California...................................................................................... 14
III. Trends Affecting the Value Of Water in McCloud and Throughout
California............................................................................................................ 17
Population Growth Will Increase Demands for Water......................................... 17
Demands for Natural Amenities Will Continue to Shape McCloud’s Future ....... 18
Changes in Precipitation & Drought Will Tighten California Water Supplies....... 19
State and Federal Policies May Restrict Water Withdrawals .............................. 20
Increasing Knowledge of Ecosystem Services Will Heighten Their Importance . 21
IV. Background on the Bottled Water Industry and Nestlé ................................. 23
Growth in the Industry ......................................................................................... 23
Spring Water, Tap Water, and Flavored Water................................................... 25
Issues Affecting the Future of the Industry.......................................................... 26
Implications for McCloud..................................................................................... 27
V. The Nestlé-MCSD Contract and Other Water Purchases................................ 28
Water Quantities in the Contract ......................................................................... 28
Prices and Other Payments in the Contract........................................................ 29
Prices Paid by Water Bottlers Elsewhere............................................................ 31
Prices Paid for Leasing or Purchasing Water for Other Uses ............................. 32
Implications for McCloud..................................................................................... 33
VI. Local Economic Effects of the Proposed Facility .......................................... 35
A. Employment.................................................................................................... 35
B. Population, School Enrollment, Housing ........................................................ 43
C. Other Potential Local Effects .......................................................................... 51
D. Implications for McCloud ................................................................................ 60
Appendix.................................................................................................................. 62
ECONorthwest
3
EXECUTIVE SUMMARY
Much of the debate over a proposed water-bottling facility in McCloud has
focused on the potential for the community of McCloud to derive economic
benefits from its endowment of spring water through jobs created at the
facility, payments made to the McCloud Community Services District
(MCSD), and property taxes paid to Siskiyou County.
An evaluation of the economic consequences of the Nestlé proposal, which
includes a contract for a period of 50 to 100 years, must take into account
trends that are shaping economic conditions in California and across the
globe. One such trend is the evolving economic value of natural resources,
including water. High-quality natural resources remain important to an
area’s economic health, but they contribute to the economy in multiple
and more complex ways than in the past.
Old demands for water—typically tied to commodity-oriented, resourceintensive industries—are becoming weaker relative to new demands, such
as the demand for quality-of-life amenities provided by natural resources.
Recreational opportunities, scenic vistas, and healthy environments
contribute directly to the well-being of people who have access to them
and influence both where people choose to live and where firms choose to
locate. Such amenities can exert a powerful influence on economic growth.
And, these influences are increasingly evident in McCloud, as the
exceptional natural environment attracts residents, visitors, and
economic activity to the area.
To evaluate the economic consequences of the proposed Nestlé facility and
contract, decision makers must weigh the risks associated with making
binding decisions in the face of uncertainties. Trends indicate that water
will only grow in importance to the area’s economy, and there is
considerable uncertainty about the ability of future water supplies to
meet demands. Population growth, changes in precipitation and drought,
and the accompanying regulations on streamflows and water diversions
will increase the strain on California’s water supplies. Nestlé’s proposed
extraction of water would reduce the availability of water for competing
uses—municipal, industrial, agricultural, and environmental—over the
period of 50 to 100 years.
Nestlé is currently the world’s largest water bottler, and analysts predict
continued growth in sales of bottled water. The bottled-water market,
however, is evolving into new types of products using treated municipal
water instead of mountain spring water. This trend, plus new concerns
about plastic bottles, water quality, and fuel emissions from water
shipments, create uncertainties about the potential for Nestlé to generate
economic prosperity in McCloud over the life of the contract.
ECONorthwest
4
Available information, though incomplete, indicates that the price Nestlé
intends to pay the MCSD for water is less than (a) the prices Nestlé and
other bottlers have paid for water in other places under roughly
comparable circumstances and (b) the value of water when used for other
purposes in California. Plus, without contract provisions to respond to
changes in the uses and values of water in McCloud and the greater
Sacramento Basin that will likely arise during the potential 100-year
duration of the contract, there is great risk that the MCSD will be giving
away too much for too little in return.
Proponents of the facility claim that it would provide jobs for many local
residents and boost the local economy. We find that these expectations
lack substantiation, however, and evidence indicates that the facility
would likely impose a number of costs on residents and taxpayers. Our
key findings include the following:
•
Most positions at the proposed Nestlé facility would likely be filled
by people who do not currently live in McCloud. Given the wage
level and experiences at other facilities, the majority of these
positions would not attract new residents.
•
The projected employment at the facility would amount to
approximately one-half of one percent of all employment in the
county.
•
The facility would likely displace current employment at existing
firms and employment that would have materialized in the future.
•
Demographic changes in McCloud reflect strong national trends,
and the jobs and revenues from the proposed Nestlé facility are
unlikely to reverse these trends.
•
Recent growth in McCloud indicates that the natural amenities of
the area are important economic assets, as they attract people and
firms.
•
Depending on the eventual assessed value of a water bottling
facility, it might generate over $1 million in property taxes
annually. Studies, suggest, however, that large facilities may
cause losses of other jobs, firms, and residents in the county—and
therefore, the accompanying property taxes.
•
Should periods of prolonged drought arise in the next 50 to 100
years, MCSD, its ratepayers, and nearby landowners may bear the
costs of acquiring new water supplies, including deepening wells or
drilling new wells.
•
Heavy truck traffic on SR-89 would approximately double at full
build-out of the proposed Nestlé facility, and it would be difficult to
ECONorthwest
5
exclude all truck traffic from traveling through town. Hidden costs
of truck traffic include traffic accidents, congestion, air pollution,
negative health effects, increased road maintenance, and possibly
the need for additional law-enforcement services.
•
The proposed Nestlé facility would generate wastewater. If Nestlé
elects to send the wastewater to the MCSD treatment system, it
would consume approximately one-twelfth of the remaining
capacity of the system. If Nestlé treats the wastewater on its own
site, it may pose a risk of contamination to the area’s groundwater.
•
Although Nestlé would reimburse MCSD for the direct costs
MCSD would incur in providing services to Nestlé, other
communities have found that a large facility occupies the time of
public officials and consumes public resources, which usually are
not reimbursed.
We find that rather than provide an engine for economic growth, Nestlé’s
proposed facility would impose costs and obligations on the community
that would likely outweigh the benefits, particularly given the duration of
the contract, uncertainties about the future, economic trends, and
potential risks. Nestlé’s proposed facility would consume one of the area’s
most economically valuable assets in a way that seems unlikely to
maximize the economic contribution of that asset to local residents or
others downstream that also value the goods and services it provides. In
so doing, Nestlé’s facility and related activities may also degrade the
amenities—natural and otherwise—that are now primarily responsible
for attracting economic activity to McCloud.
ECONorthwest
6
INTRODUCTION
The natural springs that supply the community of McCloud, California
with its drinking water originate in the glaciers and volcanic soils of Mt.
Shasta. These springs flow into Mud Creek and Squaw Valley Creek,
which ultimately join the McCloud River. Mud Creek flows into the Upper
McCloud River above the McCloud Reservoir, and Squaw Valley Creek
flows through the community of McCloud and joins the Lower McCloud
River below McCloud Dam and Reservoir. The McCloud River eventually
joins the Sacramento River at Shasta Lake, and flows through the
Central Valley of California, emptying into the Pacific Ocean at the San
Francisco Bay-Delta and providing water for the San Joaquin Valley. The
water flowing from Mt. Shasta provides economically valuable goods and
services as it travels from its headwaters to population, agricultural, and
industrial centers downstream.
Much of the debate over a proposed water-bottling facility in McCloud has
focused on the potential for the community of McCloud to derive economic
benefits from its endowment of spring water through jobs created at the
facility, payments made to the McCloud Community Services District
(MCSD), and property taxes paid to Siskiyou County. From an economics
perspective, the foregoing list of economic consequences is incomplete.
Two documents that purport to identify the economic consequences of the
proposal—the Draft Environmental Impact Review (DEIR) and an
economic report sponsored by Nestlé—focus narrowly on only these kinds
of effects. In so doing, they provide an incomplete view of the economics.
In contrast, this report examines both the potential costs and the
potential benefits. And, it places these economic consequences in the
context of the economic trends shaping the role that water and other
natural resources play in the overall economy.
In Section I, we present a conceptual framework for analyzing
natural-resource decisions in the context of trends shaping the
demands for natural resources such as water from the springs near
McCloud.
In Section II, we describe broad, long-run economic and social trends
that are shaping the U.S. economy. These trends have implications for
economic decisions in McCloud.
In Section III, we describe several trends affecting the use and value of
water.
In Section IV, we provide some background information on the waterbottling industry. Such information increases our ability to
understand the potential of this industry to generate economic costs
and benefits in both in McCloud and downstream now and in the
future.
ECONorthwest
7
In Section V, we summarize our understanding of the components of
the contract with Nestlé as it relates to water quantities and prices,
and we report prices paid elsewhere to acquire water for bottling and
for other uses.
And in Section VI, we evaluate the likely effects of the proposed
facility on jobs, property taxes, population, housing, schools, traffic,
and other public services.
ECONorthwest
8
I.
CONCEPTUAL ECONOMIC MODEL FOR EVALUATING THE IMPACTS OF
NESTLÉ’S PROPOSAL
At the center of the decision facing the community of McCloud, there are
questions about the extent and nature of the tradeoffs posed by the
proposed Nestlé facility and the water-supply contract with MCSD.
Opinions differ about the likely effects of the project and how it will
influence life in McCloud. From an economic perspective, the decision is
essentially a decision about allocating water resources—and the economywide ripple effects of that allocation.
In this section, we lay the economic groundwork for understanding the
consequences of approving the Nestlé proposal. A key message is that
there are far more economic consequences than the jobs and tax revenues
that have been the focus of previous discussions. To evaluate fully the
potential consequences over the next 100 years, one must consider not
only the possible gains—such as jobs and tax revenues—but also the
possible losses—such as other opportunities and hidden costs. Given
current trends, and the uncertainties inherent over a period of 100 years,
the risks must also be considered.
Over the next few pages we outline a simple framework for describing the
economics of water. Central to this framework is the idea that water can
be used in many different ways, but water used one way generally
precludes using that same water another way. The conceptual framework
outlined in the next few pages involves recognizing the impacts on the
evolving market for water resources and how these initial impacts will
affect the overall economy. Moreover, these impacts must be viewed in the
context of regional, national, and even global forces and trends that are
fundamentally altering the role of water resources in supporting jobs,
creating wealth, and shaping entire economies.
Old demands for water—typically tied to commodity-oriented, resourceintensive industries—are becoming weaker relative to new demands that
lack the commodity orientation. Without a full understanding of these
trends and their economic implications, resource managers, community
leaders, and individuals trying to manage water resources to benefit local
economies easily can make mistakes. The punishment for such mistakes
usually falls most heavily on the individuals, families, and communities
at the bottom of the economic ladder.
An important implication of these trends is that the role of natural
resources, including water, in the economy has changed and will continue
to change. High-quality natural resources remain important to an area’s
economic health, but natural resources contribute to the economy in
multiple and more complex ways than in the past. Figure 1 illustrates one
way to distinguish among the types of demand for the goods and services
that water resources provide.
ECONorthwest
9
Figure 1. Competing Demands for Water
Commercial Demands
The most easily identifiable commercial demands entail the extraction of
water. As the left side of Figure 1 shows, the commercial demands for
water can be divided into two groups.
A Dominant Commercial Use directly uses and depletes a water resource,
and it has a dominant position relative to other uses. Its economic
importance usually is expressed in terms of jobs and incomes for local
residents, tax revenues for local governments, and profits for local firms.
It is usually assumed to be the only or at least the primary means of
generating economic activity via the water resources. Nestlé’s proposed
water-bottling facility would be a dominant commercial use.
Other Commercial Uses may compete against the dominant commercial
use. Jobs, incomes, and tax revenues from the dominant commercial use
may only replace the potential jobs, incomes, and tax revenues from
alternative commercial uses. Given the intended scale and duration of
Nestlé’s proposal, other commercial uses for the springwater that might
otherwise have materialized over the next 100 years—both in McCloud
and downstream—may be jeopardized. One provision of the contract
identifies in stark terms just such a possibility: other water bottling and
beverage businesses would be unable to use MCSD’s spring water for the
duration of the contract.
Consumer Demands
The right side of Figure 1 shows there are two types of demand for water
resources coming directly from consumers. These types of demand are
economically important for how they contribute directly to economic wellbeing.
ECONorthwest
10
Quality-of-Life Amenities such as recreational opportunities, scenic
vistas, and healthy environments contribute directly to the well-being of
people who have access to them. These amenities influence both where
people choose to live and where firms choose to locate.1,2 Residents and
visitors attracted to amenity-rich areas create demand for goods and
services and increase the labor pool. Thus, the quantity and quality of
water-related amenities can affect the levels and types of jobs, incomes,
profits, and economic activities throughout the local and regional
economies. Such amenities can exert a powerful influence on economic
growth. One study found that amenities accounted for about one-half of
the interstate differences in job growth.3 These influences are likely to
grow.
McCloud’s endowment of water resources contributes to the area’s scenic
natural setting and provides fishing and other recreational opportunities.
These water-related amenities are increasingly valuable assets that
contribute to the area’s quality of life and attract visitors and residents,
both of which are important to the economy. After the water leaves
McCloud, it continues to provide amenities downstream. From the
recreational opportunities on Shasta Lake to water for urban and
agricultural uses in the Sacramento Basin and San Joaquin Valley, the
water flowing from McCloud helps support the region’s quality of life.
Environmental Values. The lower right corner of Figure 1 represents the
demand associated with environmental values that do not necessarily
entail a conscious, explicit use of the area’s water-related goods and
services. These values arise in two ways. First, they arise whenever
individuals place a value on maintaining the existence of a species, scenic
waterfall, or other resource for its own sake, or on the prospect that the
resource will be useful, for example, to future generations. Second, they
arise when natural resources provide valuable services that people
generally consume without being aware of them—that is, resources are
valuable for their life-sustaining services. These values are difficult to
Knapp, T.A. and P.E. Graves. 1989. “On the Role of Amenities in Models of Migration
and Regional Development.” Journal of Regional Science 29 (1): 71-87.; Mathur, V.K. 1993.
“The Role of Amenities in a General Equilibrium Model of Regional Migration and
Growth.” Southern Economic Journal 59 (3 January): 394-409.; and Mueser, P.R. and P.E.
Graves. 1995. “Examining the Role of Economic Opportunity and Amenities in Explaining
Population Redistribution.” Journal of Urban Economics 37: 176-200.
1
That location-specific consumption amenities are an important influence in residential
location decisions is well documented. The early contributions are Rosen (1979) and
Roback (1982). For more recent work on this topic see Beeson (1991), Berger and
Blomquist (1992), Blomquist et al. (1988), Brady (1995), Brown (1994), Browne (1984),
Cooper (1994), Cromartie (1998), Cushing (1987), Figlio (1996), Gabriel et al. (1996),
Gottlieb (1994), Greenwood et al. (1991) and Sherwood-Call (1994). For a list of full
citations, see Appendix A.
2
M. Partridge, and D. Rickman. 2003. “The Waxing and Waning of Regional Economies:
The Chicken-Egg Question of Jobs Versus People.” Journal of Urban Economics 53: 76-97.
3
ECONorthwest
11
measure, but they can be large, as people both near and far may hold
these values.
Tracing the Consequences of a Water-Resource Decision
This simple framework demonstrates the complex and growing
competition for water resources. A central message to be drawn from the
framework is that, when water is put to one use, some competing uses go
without. In this context, there are economic tradeoffs that ripple through
local and regional economies from any use of water. Hence, when trying to
trace the economic consequences of decisions such as those embodied by
the Nestlé proposal, one cannot look solely at the historical use of the
resources but, instead, must also look at the impacts on the competing
uses—now and in the future. These impacts materialize through two
mechanisms: direct displacement and subsidies.
Direct displacement of other water uses can materialize in two ways.
First, an increase in one use of water, other things equal, reduces the
opportunity for—or the value of—other uses. For example, the 1600 acrefeet of water that Nestlé proposes to extract and bottle may reduce the
opportunity for competing commercial uses of water, the quality of life for
residents, the environmental value of the resources, or perhaps all three.
Second, displacement also occurs when one use is accompanied by
negative spillover effects. Nestlé’s proposal would generate effects such as
increased truck traffic and alteration of the visual landscape of McCloud.
Subsidies of one use of water can distort prices and production levels,
imposing costs on alternative uses. Subsidies draw money away from
other commercial industries, restricting output and profits. They also
lower the disposable incomes of households. Subsidies may be
conspicuous, as when states give tax breaks to dominant commercial
industries or protect them from competition,4 but they may be more
hidden, as when firms in other sectors of the economy subsidize
unemployment insurance in some highly cyclical industries.5 In the case
of the proposed Nestlé facility, subsidies may come in the form of publicly
provided goods and services such as road maintenance and repair.
Regardless of their visibility, subsidies suppress the level of production in
other industries and lower the well-being of affected households. These
effects may materialize near McCloud, but not necessarily.
Black, A. and J. Smillie. 1988. A Comparison of Non-Renewable Natural Resource
Taxation in Colorado, Montana, North Dakota and Wyoming. Billings, MT: Western
Organization of Resource Councils. December.; and Nauth, Z. 1992. The Great Louisiana
Tax Giveaway. Baton Rouge, LA: Louisiana Coalition for Tax Justice, Louisiana Coalition,
Inc.
4
Meyer, B.D. and D.T. Rosenbaum. 1996. Repeat Use of Unemployment Insurance. NBER
Working Paper Series. Cambridge, MA: National Bureau of Economic Research, Inc.
January.
5
ECONorthwest
12
The importance of the economic framework outlined in this section lies in
its recognition of the evolving competition for water. Decisions about
allocating McCloud’s endowment of spring water should be made in the
context of these complex competing demands, which arise both in
proximity to McCloud but also downstream. Decisions should not be based
on old patterns of water use. Given the duration of the contract, and the
considerable uncertainties over that period, one must consider the
potential risks. As we describe in the next sections of this report, long-run
economic trends, many of which are already evident in McCloud, are
altering the ways in which water resources can deliver the most economic
value.
ECONorthwest
13
II. LONG-RUN TRENDS AFFECTING ECONOMIC CONDITIONS IN
MCCLOUD, SISKIYOU COUNTY, AND CALIFORNIA
Future economic growth in McCloud will occur in the context of trends
that are shaping economic conditions across the globe. These trends will
influence—and they are already influencing—all facets of economic
activity: from employment patterns to prices for goods and services. For
this reason, an evaluation of the economic consequences of the Nestlé
proposal—particularly because it involves a period of 100 years—must
take these trends, and the risks and opportunities they suggest, into
account. Although no one can predict the future with certainty, current
trends provide strong signals about the future. One need look no further
than the pending contract with one of the world’s largest corporations,
based halfway across the globe, to understand the reality of global
economic forces and their magnitude on the economy in places from the
size of McCloud to the entire state of California.
The most important of these trends include:
Overall population growth, the aging of the baby boom generation, and
increases in life expectancy. The number of people age 65 and older will
double by 2050, while the number of people under age 65 will grow only
12 percent. The economic effects of this demographic change include a
slowing of the growth of the labor force, an increase in the demand for
healthcare services, and an increase in the percent of the federal budget
dedicated to Social Security and Medicare.6
The growing importance of education as a determinant of wages and
household income. According to the Bureau of Labor Statistics, a
majority of the fastest growing occupations will require an academic
degree, and on average they will yield higher incomes than occupations
that do not require an academic degree. In addition, the percentage of
high school graduates that attend college will increase.7
Continued growth in global trade and the globalization of business
activity. With increased global trade, both exports and imports will rise.
Faced with increasing domestic and international competition, firms will
The Board of Trustees, Federal Old-Age and Survivors Insurance and Federal Disability
Insurance Trust Funds, 2006, The 2006 Annual Report of the Board of Trustees of the
Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds,
May 1; Congressional Budget Office, 2006, The Budget and Economic Outlook: Fiscal
Years 2007 to 2016, January; and Congressional Budget Office, 2005, The Long-Term
Budget Outlook, December.
6
Daniel E. Hecker, “Occupational Employment Projections to 2014,” Monthly Labor
Review 128: 11, November, pp. 70-101.
7
ECONorthwest
14
seek to reduce costs and some production processes will be outsourced
offshore.8
Innovation in electronics and communication technology, and its
application to production. Advancements in communication and
manufacturing technology increase worker productivity, meaning less
labor is required per unit of output. There will be growth in the
production of both services and goods, but the economy’s emphasis on
services will increasingly dominate.9
Continued shift of employment from manufacturing and resourceintensive industries to the service-oriented sectors of the economy.
Increased worker productivity and the international outsourcing of
routine tasks lead to declines in employment in the major goodsproducing industries. Projections from the Bureau of Labor Statistics
indicate that U.S. employment growth will continue to be strongest in
professional and business services, healthcare and social assistance, and
other service industries. Construction employment will also grow.10
The combination of rising energy costs, strong energy demand, and
requirements to reduce emissions and increase use of renewable fuels.
Output from the most energy-intensive industries will decline, but growth
in the population and in the economy will increase the total amount of
energy demanded. Energy sources will diversify and the energy efficiency
of automobiles, appliances, and production processes will increase.11
Continued westward and southward migration of the U.S. population.
Although there are some exceptions at the state level, a 2006 U.S. Census
report documents an ongoing pattern of interstate population movement
from the Northeast and Midwest to the South and West.12
The importance of high-quality natural resources. The relationship
between natural resources and local economies has changed as the
economy has shifted away from resource extraction. Increases in
population and in households’ incomes, plus changes in tastes and
Jay M. Berman, 2005, “Industry Output and Employment Projections to 2014,” Monthly
Labor Review 128:11, November, pp. 45-69.
8
Jay M. Berman, 2005, “Industry Output and Employment Projections to 2014,” Monthly
Labor Review 128:11, November, pp. 45-69.
9
Jay M. Berman. 2005. “Industry Output and Employment Projections to 2014,” Monthly
Labor Review 128:11, November, pp. 45-69; and Daniel E. Hecker, 2005. “Occupational
Employment Projections to 2014,” Monthly Labor Review 128: 11, November, pp. 70-101.
10
11
Energy Information Administration, 2006, Annual Energy Outlook 2006 with
Projections to 2030, U.S. Department of Energy, DOE/EIA-0383(2006), February.
Marc J. Perry. 2006. Domestic Net Migration in the United States: 2000 to 2004,
Washington, DC, Current Population Reports, P25-1135, U.S. Census Bureau.
12
ECONorthwest
15
preferences, have dramatically increased demands for outdoor recreation,
scenic vistas, clean water, and other resource-related amenities. Such
amenities contribute to a region’s quality of life and play an important
role in attracting both households and firms.13
These are some of the most important trends shaping today’s economy
and tomorrow’s. Individuals, firms, and communities that align
themselves with these trends—whether by chance or by intention—will be
better positioned to thrive and, not incidentally, to weather economic
downturns. Given the inherent uncertainties about the future, these
trends provide a starting place for considering the potential risks of a
binding contract with a possible duration of 100 years. In Section III we
focus on the ways that these trends and others are shaping the value of
water resources in McCloud and throughout California.
For a more thorough discussion of relevant research, see, for example, Power, T.M. and
R.N. Barrett. 2001. Post-Cowboy Economics: Pay and Prosperity in the New American
West. Island Press, and Kim, K.-K., D.W. Marcouiller, and S.C. Deller. 2005. “Natural
Amenities and Rural Development: Understanding Spatial and Distributional Attributes.”
Growth and Change 36 (2): 273-297.
13
ECONorthwest
16
III. TRENDS AFFECTING THE VALUE OF WATER IN MCCLOUD AND
THROUGHOUT CALIFORNIA
Many of the long-run trends identified in Section II have implications for
the use and value of water in McCloud and across the state. In this
section we highlight how many of these trends are likely to affect the
region’s water resources. Any evaluation of the economic consequences
and risks of a 100-year water-supply agreement should consider these
trends, which include population growth, increasing water demands,
climatic cycles and trends, as well as the regulatory setting.
Population Growth Will Increase Demands for Water
As Figure 2 depicts, population has been growing, and forecasters expect
population growth to increase in Siskiyou County, neighboring Shasta
County, and throughout California. As population grows, both commercial
and consumer demands for water will also grow. More water will be
required for municipal and domestic uses, agricultural irrigation, and
instream uses such as recreation. In a state where water supplies are
already highly constrained in many places, those areas with greater
quantities of water available will not be unaffected.
Figure 2. Population trend and forecast, 1960-2100
Source: ECONorthwest, with data from the U.S. Census 1960-2000 and Landis, J.D. and Reilly, M. No
date. How We Will Grow: Baseline Projection of the Growth of California’s Footprint through the Year
2100; Appendix B-2. Working Paper 2003-04. California Resource Agency, California Energy Commission,
and Institute of Urban and Regional Development, University of California, Berkeley. Retrieved on May 17,
2007, from http://repositories.cdlib.org/cgi/viewcontent.cgi?article=1025&context=iurd.
In addition to growth in the McCloud area, population growth in the
Central Valley is also relevant to the downstream demands on water that
ECONorthwest
17
originates in McCloud and enters the Sacramento River. Much of
California’s future growth is expected to occur on valley floor areas.14
Demands for Natural Amenities Will Continue to Shape McCloud’s
Future
Many people come to McCloud to enjoy the area’s natural resource
amenities: the McCloud River and its tributaries offer world-class fishing,
whitewater rafting, hiking, camping, and other recreation activities.
People are also drawn to McCloud for its scenery: McCloud sits in the
shadow of Mt. Shasta, and is a stop along the Volcanic Legacy Scenic
Byway. Winter recreation also draws visitors to the area, creating the
potential for McCloud to be a year-round recreation destination.
While the McCloud River supports many kinds of recreation, it is perhaps
best-known for its trout fishing. The McCloud was the site of California’s
first fish hatchery,15 where McCloud rainbow trout were propagated and
distributed around the world. Anglers come to the McCloud River to fish
its trout in their native waters. The State of California recognized this
unique resource when it protected parts of the McCloud River under the
California Wild and Scenic Rivers Act in 1989.
McCloud is surrounded by other recreation amenities. The Mt. Shasta Ski
and Snowboard park is only a few miles away; the Shasta Sunset Dinner
Train, operated by the McCloud Railway, draws visitors year-round to
enjoy the scenery of the area; and the Volcanic Scenic Byway follows
highway 89 through McCloud. All of these amenities, in concert with the
small-town and historic atmosphere, contribute to the attractiveness of
McCloud as a destination for visitors, retirees, and new residents.
There are indications, however, that McCloud has the potential to benefit
even more than it already does from the visitors who come to the area to
enjoy nearby recreation opportunities and scenery. One website warns
anglers against relying on the town of McCloud to stock up on supplies,
noting that “the closest fly shops are not in McCloud,” but in Mt. Shasta
and Dunsmuir. It adds that while McCloud is a good last stop for supplies,
Mt. Shasta has more restaurants, hotels, and fishing supply stores.16 Mt.
Shasta also draws much of the business from winter skiers, even though
McCloud is the closest town to the ski park.
California Department of Water Resources. 2006. Progress on Incorporating Climate
Change into Management of California’s Water Resources. Technical Memorandum Report.
July.
14
U.S. Forest Service, Shasta-Trinity National Forest, Shasta-McCloud Management
Unit. 1998. Lower McCloud River Watershed Analysis. March 18.
15
Troutsource.com. 2007. “McCloud River.” Retrieved July 3, 2007, from
http://www.troutsource.com/RiversFolder/McCloud.htm
16
ECONorthwest
18
Changes in Precipitation and Drought Will Tighten California Water
Supplies
Climatic cycles and trends threaten to change the pattern of water
availability in Siskiyou County and throughout California. Recent
forecasts suggest that annual precipitation will decrease throughout the
state (see Figure 3).17 Scientists predict that rising temperatures will also
cause a shift in precipitation patterns throughout the seasons. During the
winter, more precipitation will fall as rain rather than snow. And, spring
snowmelt will start earlier, with drier conditions beginning earlier in the
year and persisting longer.18 Less water and more demand will present
even greater challenges for water management. Decisions made now that
do not account for changing demands, changing supplies, and the
associated uncertainties and risks will preclude future opportunities.
Figure 3. Annual Precipitation Forecast: 2021-2040 as a Percent of 1950-2000
Source: R. Seager. 2007. An Imminent Transition to A More Arid Climate In Southwestern North America.
Retrieved June 29, 2007, from http://www.ldeo.columbia.edu/res/div/ocp/drought/science.shtml
R. Seager, M. Ting, I. Held, et. al. 2007. “Model Projections of an Imminent Transition to
a More Arid Climate in Southwestern North America.” Science. 316 (5828) pp. 1181-1184.
Retrieved June 28, 2007, from
http://www.sciencemag.org/cgi/rapidpdf/316/5828/1181.pdf?ijkey=CAlzmuA008O0.&keytyp
e=ref&siteid=sci
17
J. Dracup and S. Vicuna. 2005. “An Overview of Hydrology and Water Resources
Studies on Climate Change: the California Experience.” In R. Walton, P.E., ed.,
Proceedings of the 2005 World Water and Environmental Resources Congress, May 15-19,
2005, Anchorage, Alaska. Reston, VA: ASCE/EWRI.
18
ECONorthwest
19
Uncertainty pervades scientists’ current understanding of the McCloud
River’s hydrology. The area is dominated by volcanic soils and lava tubes.
This geology is highly porous, characterized by rapid infiltration and
complex systems of underground rivers and aquifers. The uncertainties
and complexities make it difficult to predict how changes in precipitation
and runoff would affect water supplies or the timing and quantity of
flows. There are also uncertainties about how new wells might affect
existing wells, springs, and other water supplies.19
While water seems plentiful in McCloud today, water shortages have
occurred in the past. Most recently, McCloud experienced a drought
between 1987 and 1992, and voluntary cutbacks in water use were
requested.20 Drought has also recently affected the northern parts of
Siskiyou County, where wells ran dry and water conservation measures
were requested. Scientists and policy makers expect that such events may
increase in frequency and duration in the future.
State and Federal Policies May Restrict Water Withdrawals
Over the last century, California has engineered an extensive network of
reservoirs and aqueducts to move water from where it falls as snow or
rain to population, agricultural, and industrial centers. The largest of
these systems is in the Central Valley, where much of the state’s
agricultural production occurs. As part of the Sacramento Basin, the
McCloud River’s water is part of this larger system of supply and demand
as it flows south toward the San Francisco Bay-Delta. On the whole,
California is experiencing serious water supply challenges, which have
renewed discussions about raising dams or building new dams and
canals.21
In addition to the policies and infrastructure established to provide water
to California’s agricultural regions and dry southern cities, policies and
laws are in place to provide California’s ecosystems and wildlife with
water they need to survive and to provide goods and services valuable to
people. Given population growth and changes in water availability, water
policies will increasingly mandate conservation and maintaining
T. Myers. Review of Nestlé Waters North America Inc. Water Bottling Project Draft
Environmental Impact Report/Environmental Assessment. McCloud Watershed Council.
19
The Source Group, Inc. 2006. Water Supply Assessment Report, McCloud, California.
McCloud Community Services District. Report No. 01-MCD-003. April 12. Available as a
Technical Appendix No. 3.11-1 to the Nestlé Waters North America Inc. Draft EIR/EA.
20
See, for example, G. Lucas. 2007. “GOP Cites Warming in Bid for New Dams.” San
Francisco Chronicle. February 1. Retrieved June 29, 2007, from http://www.sfgate.com/cgibin/article.cgi?f=/c/a/2007/02/01/BAGB8NSRS81.DTL and P. Rogers. 2007. “Delta Pumps
Idled to Save Smelt.” Mercury News. June 1. Retrieved June 29, 2007, from
http://www.mercurynews.com/lifestyle/ci_6035871
21
ECONorthwest
20
sufficient instream flow to support healthy ecosystems. If the MCSD is
faced with such mandates in the future and finds the need to curtail use,
it may be faced with raising water rates or paying users to leave water
instream.
Increasing Knowledge of Ecosystem Services Will Heighten Their
Importance
Natural resources provide many valuable services that most people,
perhaps all, take for granted. Some, such as microscopic activities that
cycle energy, carbon, and nutrients, help sustain life. Others make living
in a place less costly by controlling pests, capturing floodwater, diluting
waste, and removing pollutants from surface water. Both human and
natural systems benefit from these ecosystem services. Table 1 depicts the
range of services provided by water-related ecosystems.
In McCloud, the McCloud River and its tributaries provide many waterrelated ecosystem services. By supporting a thriving trout population, the
McCloud River also contributes to McCloud’s economy as anglers who are
drawn to the area because of the fishing also purchase goods and services
from local merchants. The trees and vegetation around the river clean the
air, and sequester carbon dioxide. The McCloud River and its tributaries
also provide aesthetic, cultural, and recreational services directly to the
people of McCloud as they hike, swim, and relax around the river. Water
originating near McCloud continues to provide ecosystem services as it
becomes the Sacramento River and flows to the San Francisco Bay-Delta.
As the understanding of ecosystem services grows, demands to sustain
them also grow. As the National Research Council recently concluded,
“there is a much greater danger of underestimating the value of
ecosystem goods and services than over-estimating their value.”22
22
National Research Council, Committee on Assessing and Valuing the Services of Aquatic and
Related Terrestrial Ecosystems. 2004. Valuing Ecosystem Services: Toward Better Environmental
Decision-Making. National Academies Press.
ECONorthwest
21
Table 1. Summary of All Functions, Goods, and Services of Water-Related
Ecosystems (Current Understanding)
Functions
Examples of Goods and Services Produced
1
Production and
regulation of water
Natural and human-built features capture precipitation; filter, retain,
and store water; regulate levels and timing of runoff and stream
flows; influence drainage; and provide water for diverse human uses.
2
Formation & retention
of soil
Wetlands and biota accumulate organic matter, and prevent erosion
to help maintain productivity of soils.
3
Regulation of
atmosphere & climate
Biota produce oxygen, and help maintain good air quality and a
favorable climate for human habitation, health, and cultivation.
4
Regulation of
disturbances
Wetlands and reservoirs reduce economic flood damage by storing
flood waters, reducing flood height, and slowing velocity of flood.
5
Regulation of nutrients
and pollution
Wetlands and riparian vegetation improve water quality by trapping
pollutants before they reach streams and aquifers; natural processes
improve water quality by removing pollutants from streams.
6
Provision of habitat
Wetlands, riparian vegetation, streams, and reservoirs provide
habitat for economically important fish and wildlife.
7
Food production
Biota convert solar energy into plants and animals edible by humans.
8
Production of raw
materials
Streams and biota generate materials for construction,
manufacturing, fuel, and fodder; streams possess energy convertible
to electricity.
9
Pollination
Insects facilitate pollination of economically important wild plants and
agricultural crops.
10 Biological control
Birds, bats, and microorganisms control pests and diseases.
11 Production of genetic
& medicinal resources
Genetic material in wild plants and animals provide potential basis
for drugs and pharmaceuticals.
12 Production of
ornamental resources
Products from plants and animals provide materials for handicraft,
jewelry, worship, decoration, and souvenirs
13 Production of aesthetic
resources
Wetlands, riparian vegetation, streams, and reservoirs provide basis
for enjoyment of scenery from roads, housing, parks, trails, etc.
14 Production of
recreational resources
Streams, reservoirs, riparian vegetation, fish, waterfowl, and other
wildlife provide basis for outdoor sports, eco-tourism, etc.
15 Production of spiritual,
historic, cultural, and
artistic resources
Wetlands, riparian vegetation, streams, and reservoirs serve as
basis for spiritual renewal, focus of folklore, symbols of group
identity, motif for advertising, etc.
16 Production of scientific
and educational
resources
Wetlands, riparian vegetation, streams, and reservoirs provide inputs
for research and focus for on-site education.
Source: Adapted by ECONorthwest from De Groot, R., M. Wilson, and R. Boumans. 2002. “A Typology for the Classification,
Description and Valuation of Ecosystem Functions, Goods and Services.” Ecological Economics 41: 393-408; Kusler, J.
2003. Assessing Functions and Values. Institute for Wetland Science and Public Policy and the Association of Wetland
Managers, Inc.; and Postel, S. and S. Carpenter. 1997. “Freshwater Ecosystem Services.” in Nature's Services: Societal
Dependence on Natural Ecosystems. Edited by G.C. Daily. Washington, D.C.: Island Press, pgs. 195-214.
ECONorthwest
22
IV. BACKGROUND ON THE BOTTLED WATER INDUSTRY AND NESTLÉ
In this section we present data about trends in the bottled water industry
to help decision-makers assess the costs and benefits of the proposed
Nestlé facility and the Nestlé-MCSD contract. As decision makers weigh
the costs and benefits of committing a portion of the area’s water
resources to this use, they should also consider the potential risks. Key
characteristics of the industry include:
•
Bottled water sales have grown steadily over the last twenty years
and analysts predict sales growth will continue. Nestlé is the
world’s largest bottled water manufacturer.
•
Bottled water products range from spring water to bottled
municipal water to flavored waters, which are also usually made
with municipal water. The flavored waters are the fastest-growing
category of bottled water products.
•
Concerns about manufacturing processes, product packaging,
water quality, and other issues have led to boycotts and bans of
bottled water.
Growth in the Industry
As Figure 4 shows, sales of bottled water have grown steadily over the
last twenty years. In the United States in 2006, sales exceeded 8.25
billion gallons, which represents an increase of 9.5 percent over 2005.23
Growth in the sales of bottled water has outpaced all other beverage
categories, and bottled water is expected to exceed carbonated soft drinks
in overall sales volume in the next decade. The sales volume of bottled
water surpassed that of milk, and nearly overtook that of beer in 2006.24
Nestlé is the world’s largest water bottler,25 with 72 brands of bottled
water in 37 countries. Nestlé held a 38.5 percent share of the North
American bottled water market in 2006.26 In 2005 it led the industry with
International Bottled Water Association. 2007. “Bottled Water: More than Just a Story
About Sales Growth.” Press Release. April 9. Retrieved May 31, 2007, from
http://www.bottledwater.org/public/2007_releases/2007-04-09_bevmkt.htm
23
“A U.S. First: Bottled Water Outsold Milk in 2006.” 2007. Water Technology Online.
Retrieved June 29, 2007, from http://www.watertechonline.com/news.asp?N_ID=67248
24
J. Alexander. 2007. “Nestlé Raises Stakes in Bottled Water Battle.” Muskegon
Chronicle. January 7, Section A, pg. 1.
25
Nestlé Waters. 2007. “Nestlé Waters is accelerating its development in enriched waters
and healthy beverages, having once again consolidated its worldwide leadership of the
bottled water market in 2006.” Press Release. March 6. Retrieved May 31, 2007, from
http://press.Nestlé-waters.com/NR/rdonlyres/DCFB5EFB-C07C-4B56-9BC483C65AFA45B4/75782/20070306_compresNWres2006_EN1.pdf
26
ECONorthwest
23
a 42.7 percent share of the U.S. single-serving bottled-water market.27
Nestlé markets its bottled water in multiple ways. It has regional brands,
such as Poland Spring and Arrowhead; international brands such as
Perrier and S.Pellegrino; and national brands, including Nestlé Pure Life.
In 2003, Nestlé extracted an estimated 1.86 billion gallons of spring water
for bottled water production in the United States.28
Figure 4. Sales of Bottled Water (1986-2006)
Source: Beverage Marketing Corporation, as reported in Beverage World. 2007. “Bottled Water.” State of
the Industry Report ’07. April. Pp. 15-16. Retrieved June 29, 2007, from
http://www.beverageworld.com/SpecialReports-2006/State-Industry-2007.pdf
Industry analysts describe intense competition among producers.29 Nestlé
is known in the industry as a low-cost producer, employing efficiencies
across its production process that Nestlé officials believe allow the
company to maintain its competitive edge. Most of its facilities are less
than 15 years old, and they use high-speed, vertically integrated
manufacturing processes.30 For example, in many of its facilities, Nestlé
H. Miller. 2006. “Nestlé’s Water Unit Springs a Leak as Activists Block New Wells.”
Bloomberg.com. July 26.
27
T. Clarke. 2005. Inside the Bottle: An Expose of the Bottled Water Industry. Canada: The
Polaris Institute, p.16.
28
T. Williams. 2006. “Making a Go of it in Bottled Water.” Water Technology Online.
Retrieved June 29, 2007, from
http://www.watertechonline.com/article.asp?indexid=6636435
29
S. Theodore. 2004. “Nestlé Waters North America: Focused on Performance.” Beverage
Industry. September 1.
30
ECONorthwest
24
manufactures its own bottles from plastic “preforms,” and its production
lines run with just three to four employees per line. Although cost
efficiencies are welcomed by shareholders, they raise concerns about the
ability of Nestlé to generate the types of employment opportunities
residents of McCloud may be expecting.
Spring Water, Tap Water, and Flavored Water
Nestlé’s core focus area within the bottled water market has been—and
continues to be—spring water. The International Bottled Water
Association defines spring water as “bottled water derived from an
underground formation from which water flows naturally to the surface of
the earth.”31 Spring water may be collected at the surface, or pumped to
the surface via a well or borehole from the aquifer that feeds the spring.
Some consumer research has shown that U.S. consumers claim to prefer
spring water over other kinds of bottled water.32 In practice, however,
U.S. consumers purchase large amounts of bottled water that is not
considered spring water. In 2006, one study estimated that 40 percent of
bottled water sold in the United States was processed municipal tap
water,33 up from 25 percent reported in a 1999 study.34 This water,
usually labeled as “drinking water” or “purified water” is drawn from
municipal systems, purified or treated, and then bottled. Coca-Cola sells
treated municipal tap water under the Dasani label; Pepsi’s brand is
Aquafina; and Nestlé sells it as Nestlé Pure Life.
In recent years, the bottled water industry has introduced flavored water
and enhanced water—water with added vitamins, herbs, and extracts.
These new products represent a small, yet rapidly-growing segment of the
bottled water market: in 2005, sales volume of enhanced water grew by
41.7 percent and flavored water grew by 197 percent.35 Although spring
water has historically been its core focus, Nestlé is positioning itself to
play a leading role in these new product categories,36 which typically rely
International Bottled Water Association. 2004. Frequently Asked Questions. February
25. Retrieved June 29, 2007, from http://www.bottledwater.org/public/faqs.htm
31
32
“Leading the Way.” 2007. Bottled Water World. Issue 40, January-February, pp. 26-29.
E. Arnold and J. Larsen. 2006. Bottled Water: Pouring Resources Down the Drain. ECOEconomy Update. Earth Policy Institute. February 2. Retrieved June 29, 2007, from
http://www.earth-policy.org/Updates/2006/Update51.htm.
33
Natural Resources Defense Council. 1999. Bottled Water: Pure Drink or Pure Hype?
March. Retrieved June 29, 2007, from https://nrdc.org/water/drinking/bw/bwinx.asp
34
35
“State of the Industry ’07: Bottled Water Report.” 2007. Beverage World. April.
Nestlé Waters. 2007. “Nestlé Waters is accelerating its development in enriched waters
and healthy beverages, having once again consolidated its worldwide leadership of the
bottled water market in 2006.” Press Release. March 6. Retrieved May 31, 2007, from
http://press.Nestlé-waters.com/NR/rdonlyres/DCFB5EFB-C07C-4B56-9BC483C65AFA45B4/75782/20070306_compresNWres2006_EN1.pdf
36
ECONorthwest
25
on municipal tap water or well water rather than spring water. These
trends indicate that Nestlé does not require access to spring water for all
of its endeavors, and there is uncertainty about how market trends and
conditions will affect Nestlé’s operations in the future.
Issues Affecting the Future of the Industry
In 2004, Nestlé projected steady growth in its bottled water sales over the
next decade, expecting to build one new plant every year from 2004 to
2014 to keep up with demand.37 Since then, growth of Nestlé’s bottled
water business has remained strong. In a January 2007 interview Nestlé
Waters North America’s CEO noted that this future growth will be
realized only if the current downward trend in sales of carbonated soft
drinks continues.38 Other factors may also affect the long-term growth
predictions for the bottled water industry. Rising fuel costs, for example,
may diminish the profitability of bottlers located far from urban markets.
Information regarding the industry’s environmental and social impacts,
felt in local communities across the world, are beginning to emerge in the
mainstream media and may affect consumer choices in the future. The
bottled water industry is coming under increased scrutiny for a number of
its practices. These include the inefficiency of the water bottling process
(Nestlé reports that it requires 1.86 liters of water to produce one liter of
bottled water39); environmental impacts of plastic bottles (over 75 percent
of which are never recycled40); the fuel usage and emissions that arise
from trucking so many billions of gallons of water around the country;
questions regarding the purity of bottled water compared to tap water;41
and the local impacts on communities whose aquifers are being tapped by
the bottled water companies.
Several recent articles in the New York Times42 and Fortune43 have
highlighted the environmental consequences of the bottled water
S. Theodore. 2004. “Nestlé Waters North America: Focused on Performance.” Beverage
Industry. September 1.
37
38
“Leading the Way.” 2007. Bottled Water World. Issue 40, January-February, pp. 26-29.
Nestlé S.A. 2007. The Nestlé Water Management Report. March. Retrieved June 26,
2007, from
www.Nestlé.com/SharedValueCSR/Environment/Water/Report/Intro/Introduction.htm
39
J. Gitlitz and P. Franklin. 2007. Water Water Everywhere: The Growth of NonCarbonated Beverages in the United States. Container Recycling Institute. February.
Retrieved June 29, 2007, from http://container-recycling.org/assets/pdfs/reports/2007waterwater.pdf
40
Natural Resources Defense Council. 1999. Bottled Water: Pure Drink or Pure Hype?
March. Retrieved June 29, 2007, from https://nrdc.org/water/drinking/bw/bwinx.asp
41
M. Burros. 2007. “Fighting the Tide, a Few Restaurants Tilt to Tap Water.” New York
Times. May 30. Retrieved May 31, 2007, from Lexis-Nexis.
42
ECONorthwest
26
industry. These concerns have begun to materialize in ways that affect
consumer behavior and may ultimately affect the market for bottled
water. For example, in June 2007, the mayor of San Francisco ordered all
city departments to phase out the purchase of bottled water in the City.
Since then, other cities have taken similar steps. Also, some restaurants
in California and New York have stopped offering bottled water to their
patrons to underscore their commitment to offering more sustainable
products. Whether the rising concerns over bottled water will strike a
chord with the public and begin to soften the market for bottled water
remains to be seen.
Implications for McCloud
Nestlé is not just a large bottled water company. It has multiple lines of
business operating in markets all over the world. It faces competitive
conditions in all its markets and reports to shareholders intent on
maximizing profit. Driven by the constant need to reduce costs, its
manufacturing facilities are likely to continue to automate production
processes. Nestlé monitors market conditions continuously and makes
strategic decisions to enter new lines of business and exit less profitable
ones. Although these characteristics may epitomize business practices,
they raise concerns for the community of McCloud. For example, how
would Nestlé respond to changes in the bottled water market that do not
favor the product that brought Nestlé to McCloud—spring water? The
contract does not bind Nestlé to ongoing payments to MCSD if business
conditions change.
M. Gunther. 2007. “Bottled Water: No Longer Cool?” Fortune. April 25. Retrieved June
16, 2007, from
http://money.cnn.com/2007/04/24/news/economy/pluggedin_gunther_water.fortune/
43
ECONorthwest
27
V. THE NESTLÉ-MCSD CONTRACT AND OTHER WATER PURCHASES
In this section we compile the available information about Nestlé’s
potential use of water in McCloud. That is, based largely on the MCSD
contract, the DEIR, and other publicly available documents, we
summarize current descriptions of water sources, quantities, uses, and
prices that characterize Nestlé’s proposed project. For comparison
purposes, we provide some information about prices other water bottlers
pay or have paid elsewhere. We also provide prices paid for leases or
purchases of water for other uses in California and other places in the
U.S.
Water Quantities in the Contract
Table 2 provides a summary of the water sources and quantities available
to Nestlé through its contract with the MCSD and through water rights it
acquired separately.
Nestlé’s contract with the MCSD establishes an initial amount of water
that Nestlé could use for bottling. According to the contract, however,
Nestlé could also purchase additional water from the MCSD to meet the
needs of its employees (e.g. restroom facilities), the factory (e.g.
landscaping and maintenance), and to run its bottling equipment (e.g.
water for cooling, lubrication, bottle washing, and sterilization). According
to the contract, water used for these purposes would not be included in
the “maximum take” of 1600 acre-feet of qualified water designated for
bottling purposes in the contract.44 The contract also includes a provision
that would, at Nestlé’s request, compel the MCSD to install groundwater
wells on the bottling facility site, allowing Nestlé to draw additional water
from the area for use in other beverage products.
Independent of the contract with the MCSD, Nestlé has acquired rights to
water from the McCloud River—over five times the amount it plans to
purchase from the MCSD.45 These rights were historically owned by the
lumber mill in McCloud. As we understand, these water rights are
governed by the nuances of California water law, and we do not know
whether Nestlé would be able to exercise these rights or to what use the
water would be put.
44
See Section 6.5.4 on pg. 17 of the contract.
Water right permits obtained through the Water Rights Information Management
System (WRIMS), maintained by the California Environmental Protection Agency, State
Water Resources Control Board, Division of Water Rights. Retrieved June 22, 2007.
45
ECONorthwest
28
Table 2. Water Resources Nestlé Might Extract in McCloud
Anticipated Use
Water Source
Maximum Quantity
Source of Information
Water for bottling
MCSD Springs
1600 acre-feet/year
Contract with MCSD
Additional water for
bottling
MCSD Springs
Not specified
Contract with MCSD
Water for domestic
and manufacturing
purposes
MCSD Springs
(via MCSD system)
224 acre-feet/year
Water for drinking
water products or
products utilizing
b
drinking water (but
not spring water)
Groundwater
Unlimited
Contract with MCSD
Unknown
McCloud River
8941 acre-feet/year
California Water Right
Permit Nos. 002155 and
c
010083
a
Contract with MCSD
and DEIR
Source: ECONorthwest, based on contract, California water rights records, and DEIR.
a
Based on the anticipated needs of the bottling facility at full build-out, as outlined in Section 3.11 of the DEIR.
b
See pp. 16-17 of the contract.
c
Water right permits obtained through the Water Rights Information Management System (WRIMS), maintained by the
California Environmental Protection Agency, State Water Resources Control Board, Division of Water Rights. Retrieved June
22, 2007.
Prices and Other Payments in the Contract
Table 3 outlines the various rates, fees, and other payments as stipulated
in the contract. These include payments for water purchases, fees for
water and sewer connection and disposal, and other payments to the
MCSD and a community program.
•
Some fees, such as the connection fees, are one-time payments for
services, which Nestlé would pay at the rate prevailing at the time
that MCSD would provide the service.
•
Other rates, such as the rate for some water purchases, would rise
as the household equivalent (HE) rate is adjusted for all
customers.
•
Other payments are fixed or adjusted upwards only periodically. In
both cases, these payments may not keep pace with inflation. For
example, Nestlé would contribute a fixed $100,000 per year to the
Arrowhead Community Enhancement Fund. This amount in 2057
would be worth less, in inflation-adjusted dollars, than the same
amount in 2007. Another example of this is the exclusivity
payment, which increases in years 6 and 11, but stops increasing
automatically in year 25, rising in successive years only if water
rates increase.
ECONorthwest
29
Table 3. Payments Specified in the Nestlé-MCSD Contract
Contract Component
Rate
Amount ($)
Direct Water Purchases
$42,240 per year
Spring Water
up to 1600 acre-feet
200 times HE Rate (per year)
a
HE rate in contract is $17.60/month
Additional Spring Water
in excess of 1600 acrefeet
$120 per acre-foot
Rate is subject to adjustment
Domestic Water (from
MCSD)
1 times the HE rate (per year)
a
HE rate in contract is $17.60/month
Groundwater
Metered at Golf Course Irrigation Rate
b
Current rate is $0.0002/gallon
Unknown
depends on usage
Water Connection Fee
200 times HE rate (one-time)
HE rate in contract is $1,300
$260,000 one-time
Domestic Water
Connection Fee
1 times the HE rate (one-time)
HE rate in contract is $1,300
$1,300 one-time
Sewer Connection Fee
21 times the HE rate (one-time)
HE rate in contract is $1,300
$27,300 one-time
Sewer Disposal Fee
21 times HE rate (per year)
c
Current HE Rate is $37.60/month
Unknown
depends on usage
$211.20 per year
Related Fees
$9,475.20 per year
Other Payments
Exclusivity Payment
Per year, years 1-5
Per year, years 6-10
Per year, years 11-25
Per year, after year 25 (plus rate
adjustment factor)
Contingency Payment
90 days after signed contract
Years 1-4 after signed contract per year
Total contingency fees
$25,000 one-time
$56,250 (for 4 yrs)
$250,000
Arrowhead Community
Enhancement Program
Per year
fixed rate
$100,000 per year
$150,000 (for 5 yrs)
$200,000 (for 5 yrs)
$250,000 (for 15 yrs)
$250,000+ (yr 25+)
Source: ECONorthwest, based on contract.
a
Here we use the household equivalency (HE) rate as of the date of the contract. We understand that the HE rate is adjusted
periodically, and Nestlé would pay based on the current HE rate.
b
The contract does not state the golf course irrigation rate. We use the current rate, based on information provided to us.
c
The contract specifies that the sewer disposal rate is based on a fixture count user classification. As we understand, the
fixture count user classification is the method used to calculate the appropriate HE of the facility. The number of fixtures
(toilets, sinks, etc.) in the facility are counted, and divided by an average fixture count of 11 (the average number of fixtures in
a household in McCloud) to arrive at the HE for the facility. To approximate the sewer disposal fee in this table, we use the 21
HE estimated for the sewer connection, and the current HE sewer rate, as of June 29, 2007. The actual fixture count user
classification may differ from 21 HEs.
ECONorthwest
30
Prices Paid by Water Bottlers Elsewhere
The price that water bottlers pay for water varies, depending on the type
of water, the ownership of the water source, and the details of the
contract. For example, companies that use municipal water usually pay a
per-gallon rate more or less equivalent to that which other customers pay;
this rate is usually publicly disclosed, even if the amount of water the
company uses is not. On the other hand, companies that purchase water
from springs held in private ownership typically do not disclose the rate
paid for spring water or the amount extracted. Finally, there are many
instances where companies pay little to nothing for water from
groundwater sources, usually because the company owns the land and the
right to extract water from the underlying aquifer. These factors make it
difficult to identify current market rates paid by bottlers for spring water.
Table 4 presents prices that water bottlers, including Nestlé, pay or have
paid for water. Some prices are for spring water, while others are for
municipal tap water. This list is not exhaustive, nor is it necessarily a
representative sample of prices; it merely presents the data available to
us.
As Table 4 shows, the price Nestlé intends to pay MCSD is much lower
than the prices Nestlé and others pay or have paid for water in some
other locations. We acknowledge that the rate we calculated is based on
these assumptions:
•
1600 acre-feet of water
•
200 HE per month at an HE rate of $17.60 per month
As we understand, Nestlé would pay at the HE rate in effect at the time of
its payments, and we understand the HE rate is already slightly higher
than the rate identified in the contract. Some might also be tempted to
include in the calculation of the price per acre-foot the other payments
Nestlé would make. We find, however, that Nestlé would likely be
receiving benefits (other than the water itself) for those additional
payments, and it would be inappropriate to include them in the
calculation. We have also excluded the estimated amount of water (up to
224 acre-feet) for which Nestlé would be able to access at a rate of 1 HE.
ECONorthwest
31
Table 4. What other sellers have received for water to be bottled
Seller
Purchaser
MCSD-proposed
Marietta, GA
Nestlé
Coca-Cola or Pepsi
Source
Type
Spring
Municipal
Price
Quantity
(gallons)
($/gal)
521,362,284
$0.000081
a
$26.40
$0.002
b
$652
c
$1,629
Unknown
($/acre-ft)
Maine Department
of Conservation
Nestlé
(Poland Spring)
Spring
Unknown
$0.005
City of Dunsmuir
Dunsmuir Bottling Co.
Spring
50,000,000
$0.005
d
to $0.01
$1,629
to $3,258
Unknown
Sierra Spring Water
Spring
Unknown
$0.005
e
to $0.015
$1,629
to $4,888
Pure Mountain
Spring Co.
Nestlé
(Poland Spring)
Spring
450,000,000
$0.0067
f
$2,183
Source: ECONorthwest, based on the indicated sources.
a
Contract between the McCloud Community Services District and Nestlé Waters. The price per gallon rate show here is
calculated using only Nestlé’s annual water rate payment based on 200 HE and the rate in effect as of the date of the contract,
excluding the other payments included in the contract. If we include the other payments (the exclusivity fee and the community
enhancement payment), the rate increases to $0.0005 per gallon or $182.65 per acre-foot.
b
T. Clarke. 2005. Cited Previously. Pg. 29. Rate effective in 2007.
c
Maine Department of Conservation contract with Nestlé Waters for Range Pond State Park water extraction, as reported by
H2O for ME. Retrieved June 25, 2007, from http://waterdividendtrust.com/information/waterprofit.php
Date in which rate was effective is unknown.
d
Metcalf & Eddy, Inc. 1997. Evaluation of Dannon Corporation’s Spring Water Purchase Offer. City of Mt. Shasta. August 20.
Rate effective in 1997.
e
Metcalf & Eddy, Inc. 1997.Cited Previously. Rate effective in 1997.
f
T. Turkel. 2007. “Water Deal Too Sweet?” Portland Press Herald/Maine Sunday Telegram. April 1. Retrieved June 14, 2007,
from http://pressherald.mainetoday.com/business/stories/070401cover.html
This rate is an estimate based on Pure Mountain Springs Co.’s reported revenue generated between 2003 and 2007, which
was approximately $3,000,000, divided by an estimated 450,000,000 gallons sold to Poland Spring during that same period.
Prices Paid for Leasing or Purchasing Water for Other Uses
In an attempt to determine the marginal value of streamflow from
national forests, an economist with the U.S. Forest Service summarized
existing studies on the value of different uses of water and analyzed data
from water leases and purchases in the U.S.46 He found that in California,
the median price paid for both water leases and water purchases that
occurred between 1990 and 2003 was $96 per acre-foot per year for
municipal purposes, $45 per acre-foot per year for irrigation purposes,
and $64 per acre-foot per year for environmental purposes.47 These
A purchase entails a one-time payment for permanent transfer of the right to the water;
with a lease, the underlying water right remains unchanged, but the short-term usage of
water is transferred from the seller to the purchaser for an annual payment.
46
ECONorthwest
32
estimates embody considerable uncertainty, but they provide estimates of
the value of water in California.
Another study examined water transactions across the western U.S.
between 1999 and 2002.48 The authors of the study indicate that most of
the transactions in their analysis involve urban interests purchasing or
leasing water from agricultural interests; the remainder generally involve
acquisitions of water to accomplish environmental objectives associated
with instream flows. The transactions recorded in California involved a
total of 3,354,000 acre-feet of water. Of the total, 3,127,000 acre-feet of
water were leased, while 227,000 acre-feet of water were sold. The
average lease price in California was $80 per acre-foot, and the average
sale price in California was $1,207 per acre-foot (in 2004 dollars). The
average lease price across western U.S. was $86 per acre-foot and the
average sale price was $1,299 per acre-foot (in 2004 dollars).
These numbers should be used with caution, for they give, at best, a
rough indication of the prices people would be willing to pay for water
from the McCloud River and its springs. The prices at which water is
leased or sold elsewhere reflect particular economic conditions that may
not exist in the area. Some of the prices may, indeed, reflect values in the
McCloud area, but before reaching that conclusion, one would have to
determine that the conditions that triggered a particular transaction at a
particular price someplace else are similar to conditions in McCloud.
Implications for McCloud
Available information, though incomplete, indicates that the price Nestlé
intends to pay the MCSD for water is less than (a) the prices Nestlé and
other bottlers have paid for water in other places under roughly
comparable circumstances and (b) the value of water when used for other
purposes in California. Of course, in many places, bottlers that possess
water rights pay nothing, which is a price that exists only as a relic of a
time when water supplies were not as constrained and demands were not
as intense as they are now—such a price does not reflect the value of the
underlying resource. To evaluate the economic consequences of giving
Nestlé the right to extract these volumes of water in exchange for
contractual obligations, one must examine the alternative uses and values
of that water and weigh the risks associated with making binding
decisions in the face of uncertainties.
Brown, T.C. 2004. The Marginal Economic Value of Streamflow From National Forests.
Discussion Paper DP-04-1, RMRS-4851. U.S. Forest Service, Rocky Mountain Research
Station. December 28. http://www.fs.fed.us/rm/value/docs/
marginal_economic_value_streamflow_forests.pdf, accessed June 25, 2007.
47
Howitt, R. and K. Hansen. 2005. “The Evolving Western Water Markets.” Choices. 20:1
(1st Quarter), pp. 59-63. Retrieved June 29, 2007, from
http://www.choicesmagazine.org/2005-1/environment/2005-1-12.pdf.
48
ECONorthwest
33
Nestlé’s proposed extraction of water would reduce the availability of
water for competing uses—particularly over the period of 100 years. Such
alternatives include uses for other commercial purposes, uses that
enhance quality of life, and uses that enhance environmental values.
Given the period of the contract, decision makers must evaluate whether
Nestlé’s proposed use is now—and whether it would continue to be—the
highest valued use of all the possible alternative uses over the next 100
years.
At a minimum, these data indicate that water has no universal price.
Instead, its value is dependent upon the circumstances of time and place.
Without contract provisions to respond to changes in the uses and values
of water in McCloud and the greater Sacramento Basin that will likely
arise during the 100-year duration of the contract, there is great risk that
the MCSD will be giving away too much for too little in return.
ECONorthwest
34
VI. LOCAL EFFECTS OF THE PROPOSED FACILITY
In this section we describe the likely local effects of the facility in light of
existing conditions and trends in McCloud and Siskiyou County. We focus
on employment, population, schools, housing, and effects on public
infrastructure and services.
To provide greater context for evaluating the potential impacts, we
searched for information about bottling plants at the four sites shown in
Table 5. We selected two of these facilities, Crystal Geyser in Weed and
CCDA Waters (a division of Coca-Cola) in Mt. Shasta, because of their
proximity to McCloud. We selected the other two facilities—one in Maine
and one in Tennessee—because they are both newer Nestlé facilities
located in relatively rural communities.
Table 5. Background Information on Case Study Sites
Company
Location
Population
(2000)
Opening
Date
Facility Size
(sq.ft)
Number of
Employees
Nestlé
Hollis, ME
4,114
2000
828,000
375
Nestlé
CCDA Waters
Crystal Geyser
Red Boiling Springs, TN
Mt. Shasta, CA
Weed, CA
1,023
3,640
2,978
2004
380,000
a
76/229
c
2001
161,373
100
1998
f
d
246,000
90
Water
Quantity
(gallons)
350,000,000
b
870,000
e
Unknown
Unknown
Source: ECONorthwest
a
Number of employees when operating at peak capacity.
b
Number hired at opening/Estimated number at full build-out.
c
Number of employees when operating at peak capacity.
d
Number of employees in 2001.
e
Amount withdrawn from springs on-site. Could process additional water from springs located nearby the facility.
f
The building inspector reports that the plant is comprised of 3 buildings that amount to 246,000 sq. feet (A. Cook, personal
communication, Oct. 2007).
A. EMPLOYMENT
Job creation has been touted as one of the benefits of approving Nestlé’s
plans to extract and sell water from the springs in McCloud. In this
section we:
(1) report Nestlé’s projections of the number of jobs and the wages at its
proposed facility in McCloud,
(2) provide information about employment experiences at other bottling
facilities,
(3) summarize findings from studies of the county-wide employment
effects from large, new facilities, and
ECONorthwest
35
(4) examine whether the jobs at a bottling plant in McCloud would lead to
overall job growth in Siskiyou County.
Proponents of the facility claim that it would provide jobs for many local
residents. We find that these expectations lack substantiation, however,
and evidence indicates that few local residents would work at the plant.
Our key findings include the following:
•
Most positions at the proposed Nestlé facility would likely be filled
by people who do not currently live in McCloud. Given the wage
level and experiences at other bottling facilities, the majority of
these positions would not attract new residents.
•
The projected employment at the facility would amount to
approximately one-half of one percent of all employment in the
county.
•
The facility would likely displace employment at existing firms,
meaning that job gains at the facility would be offset, in part, by
job losses at other firms.
1. Nestlé’s Projections of Employment Levels and
Wages at its Proposed Facility in McCloud
By entering into an agreement with Nestlé, MCSD expects to “restore
economic vitality to the community” by facilitating the creation of new
jobs.49 Nestlé is under no obligation or commitment, however, to provide a
specific number of jobs, or to hire people living in McCloud. In this section
and in Table 6 we summarize the information about the potential jobs at
Nestlé’s proposed facility.
Temporary construction employment. The DEIR reports that the Phase I
facility would require 30 to 60 construction jobs for approximately six
months and that Phase II and Phase III would require similar levels of
construction labor.
In 2004, a Nestlé representative said that Nestlé would use an out-oftown engineering firm to design the McCloud facility and oversee the
construction process. For other aspects of construction, though, Nestlé
would open the bidding and select a contractor based on professional
qualifications, availability, and cost.50 Although some local contractors
P.J. Kampa. 2004. Frequently Asked Questions Relating to the Agreement for the
Purchase and Sale of Spring Water Between McCloud Community Services District and
Nestlé Waters North America Inc. McCloud Community Services District. December.
Retrieved June 21, 2007, from
http://www.mccloudarrowheadproject.org/docs/MCSD_FAQ_Dec_2004.pdf
49
50
D. Clayton. 2004. “Nestlé Answers Citizen’s Questions.” Mt. Shasta News. August 4.
ECONorthwest
36
may have an opportunity to bid on portions of the construction, there is no
guarantee that they would win the contracts.
When the bottling facilities in Mt. Shasta and Dunsmuir were built,
outside contractors oversaw design and construction. According to a local
contractor, local builders were hired toward the end of the construction
process as deadlines neared. They were not hired through bidding
processes but at daily crew rates for a few days or weeks at a time. If
similar circumstances develop in McCloud, it seems unlikely that many of
the construction jobs would be awarded to residents of McCloud.
Operational employment. The Nestlé facility, as initially constructed,
would employ approximately 60 people. According to Nestlé’s projections,
the water-bottling plant would employ up to 240 people at “full build
out”—that is, 4 to 10 years after construction of the initial bottling facility
and during the peak season. Operations at full build-out would run 24
hours a day with three shifts, with roughly half of the positions during
the day, one-quarter from 4 pm to midnight, and one-quarter from
midnight to 8 am.51
Neither the DEIR nor any other publicly available document provides a
detailed breakdown of the types of jobs that would be provided, by job title
and by wage level. Nestlé has also provided no information about the
percentage of the jobs that would be full-time, part-time, temporary, or
seasonal.
In 2005, however, a Nestlé representative suggested that 30 to 40 percent
of the jobs would be entry-level positions with starting wages of $10 per
hour.52 In 2002, the average wage of production workers at bottled-water
facilities (workers up through the line-supervisor level) was about $11 per
hour in California and about $13 per hour in the U.S.53 These data
indicate that production wages at the McCloud facility likely would not
climb much above this level.
As evidence from other bottling facilities indicates, employment levels
would vary by season. The DEIR acknowledges this seasonality directly.
DEIR 3.13-4; 129 positions from 8 am to 4 pm; 59 from 4 pm to 12 am; and 59 from 12
am to 8 am.
51
D. Clayton. 2005. “Nestlé hears concerns and support in McCloud.” Mt. Shasta News.
December 14.
52
U.S. Census Bureau. 2005. Bottled Water Manufacturing: 2002. 2002 Economic Census,
Manufacturing, Industry Series. January. Report No. EC02-311-312112 (RV). Retrieved
May 31, 2007, from http://www.census.gov/prod/ec02/ec0231i312112t.pdf Production
workers include workers through line-supervisor level engaged in fabricating, processing,
assembling, inspecting, receiving, storing, handling, packing, warehousing, maintenance,
repair, janitorial, guard services, product development, recordkeeping, and other services
closely associated with the production of bottled water. Employees above the workingsupervisor level are excluded from this number.
53
ECONorthwest
37
First, the DEIR states that “actual employment numbers may vary from
time to time based on economic conditions, seasonal markets and
technology.”54 Second, the DEIR states that the summertime is the peak
season “when operations would be accelerated to meet greater product
demand,” and when the facility would generate the highest levels of
traffic.55 For example, 50 percent more water-freight trucks per day are
expected in the peak season than in the non-peak season.56 We expect
that employment would be lower during non-peak periods and higher
during peak periods.
Table 6. Projected Employment at Nestlé’s Proposed Facility in McCloud
Possible Expansions
Phase I
Phase II
(2-5 yrs after Phase I)
Phase III
(2-5 yrs after Phase II)
Facility Construction Jobs
Temporary (6 months)
30-60
30-60
30-60
Pipeline Construction Jobs
Temporary (unknown duration)
15-20
None
None
60
Unknown
240
Facility Operations Jobs
Source: DEIR, Economic Impact Study
2. Employment and Wages at Other Bottling Facilities
In this section we provide information about employment at the waterbottling facilities listed in Table 5. This information may help citizens and
decision makers gain a better understanding of how employment might
materialize at a facility in McCloud.
Mt. Shasta CCDA Waters Facility. The bottling facility in Mt. Shasta
employs 100 people at peak capacity. These include production workers,
warehouse workers, maintenance workers, and a small number of office
support staff. Approximately 45 to 50 of the jobs at the CCDA facility are
seasonal, non-employee workers hired during the peak season.
Transportation workers, such as truck drivers, are not hired directly by
54
DEIR 3.13-4
55
DEIR 3.3-21
200 water-freight trucks (400 trips) per day are expected at full build-out in non-peak
season, and 300 water-freight trucks (600 trips) are expected at full build-out in peak
season (DEIR 3.3-22 (Table 3.3-10)).
56
ECONorthwest
38
CCDA, and thus are not included in these numbers. The annual payroll is
approximately $1.5 million.57
Recent Job Openings at Siskiyou County Water-Bottling Facilities. Both
the Crystal Geyser facility in Weed and the CCDA Waters facility in Mt.
Shasta regularly advertise jobs in the Mount Shasta Herald. During the
weeks of June 6th, 13th, and 20th (2007), they advertised for production
workers, forklift operators, and maintenance technicians. Crystal Geyser
advertised 25 job openings at $8.50 an hour plus benefits. CCDA Waters
advertised jobs for three shifts, also at $8.50 an hour plus benefits.
Calls to the job-placement services handling responses to the newspaper
ads indicated that the facilities are almost always seeking production
workers. Management and supervisory positions are not, however,
advertised the same way. Such positions are advertised within the
company and through national channels.58
Nestlé’s Poland Springs Facility in Hollis, Maine. Nestlé’s water-bottling
facility in Hollis, Maine opened in 2000 with 75 employees.59 Nestlé
conducted a statewide job search and attracted many employees from out
of the area and a “handful” from Hollis. The facility expanded over the
next five years, trucking in additional water from other sources.
According to a Nestlé spokesperson, 375 employees currently work fulltime at the facility.60 The employees include production workers,
warehouse workers, office support staff, managers, and some truck
drivers. Additional temporary production workers and contract truck
drivers are hired during the peak summer season. According to one
source, approximately 50 employees today live in Hollis.61 Information on
the range of wage levels, including the starting wage, was unavailable.
Employment at Nestlé’s Facility in Red Boiling Springs, TN. Local
residents of Red Boiling Springs, a rural community in Tennessee, have
expressed disappointment at employment patterns at the local Nestlé
facility. It was projected to open with 85 employees in 2004 and to
increase to 229 within seven years. Nestlé conducted a nationwide job
search, and according to a City Councilor “only between 12 to 15 people
Telephone interview with Tina Martin, Assistant to Jim Peterson, CCDA plant
manager. June 18, 2007.
57
Telephone call with Personnel Preference for Crystal Geyser and Spherion for CCDA
Waters.
58
G. Murphy. 2000. “Jury Out on Poland Spring Traffic.” Portland Press Herald.
September 26. Pg. B1. Retrieved June 5, 2007, from Lexis-Nexis.
59
Telephone interview with Jane Lazgin, Spokesperson, Nestlé Waters North America.
June 8, 2007. Follow-up comments provided by email, June 14 and June 15, 2007.
60
Telephone interview with Irving “Ben” Severance, Selectman, Town of Hollis. June 8,
2007.
61
ECONorthwest
39
from Red Boiling Springs” were among the initial 76 hired at the
facility.62,63 This anecdotal information seems consistent with experiences
at other Nestlé facilities. Nestlé states that employees at its facility in
Cabazon, California live within a 50-mile radius of the facility. Almost
half of Nestlé’s employees at its Ozarka water-bottling facility in Texas
live in the surrounding county, and the rest live in a neighboring county.64
3. Implications for McCloud
McCloud was a company town that grew up around the local timber mills.
With changes in the timber industry, and the closure of the area’s mills,
local employment is no longer dominated by timber jobs. Figure 5 shows
that unemployment rates in McCloud have been higher than the state
and county, even prior to closure of the last mill.65 Some have endorsed
Nestlé’s proposal as a way to improve employment conditions in McCloud
and Siskiyou County. In this section we examine whether it is likely that
bottling jobs in McCloud would stimulate employment growth.
Effect of Bottling Facilities on Unemployment Rates in Siskiyou Co.
Figure 5 shows the unemployment rates for nearby communities, the
county and the state during 2000-2006. Although we have not attempted
to identify all events that might have affected unemployment rates, the
opening of water-bottling facilities does not appear to have had a
noticeable or lasting effect on unemployment rates in either Weed or Mt.
Shasta.
Associated Press. 2003. “New Plant Could Employ 229 Workers.” Macon County Times.
October 31. Retrieved on June 7, 2007, from Lexis-Nexis.
62
S. Brabant. 2003. “Caught between a Rock and a Hard Place.” Macon County Times.
March 23. Retrieved on May 31, 2007, from
http://www.maconcountytimes.com/articles/2004/03/23/news/newsa.txt.
63
64
Nestlé Waters. 2005. “A Look Across the Country.” Project Update. December. p. 3.
65
The state of California did not track unemployment rates in McCloud before 2000.
ECONorthwest
40
Figure 5. Unemployment Rates in McCloud and the Surrounding Area
Source: ECONorthwest based on data from California Employment Development Department. 2007. Labor Force &
Unemployment Data: Sub-County Area (Cities and Towns), Historical Data. Retrieved on May 30, 2007, from
http://www.labormarketinfo.edd.ca.gov/cgi/databrowsing/?PageID=4&SubID=164.
Note: Unemployment data before 2000 are not directly comparable to data from 2000-2006.
Employment Opportunities for McCloud Residents. Residents of
McCloud are not limited to employment opportunities within the
community of McCloud. Census data from 2000 indicate that, even before
the mill closed, over half of McCloud’s employed residents have been
taking advantage of favorable commutes to opportunities in areas such as
Mt. Shasta (12 miles away), Dunsmuir (16 miles away), Weed (20 miles
away), and Redding (68 miles away).66,67 Figure 6 shows the travel time to
work reported by residents of McCloud in 2000. Over 85 percent reported
travel times of less than 30 minutes.
66
Distance estimates based on Google maps.
67
U.S. Census. 2000.
ECONorthwest
41
Figure 6. McCloud residents’ travel time to work, 2000
Source: ECONorthwest, with data from the U.S. Census Bureau.
Indirect Employment Effects in Hollis, Maine. According to a local official
in Hollis, seven years after Nestlé’s Poland Springs facility opened, the
town has not experienced additional businesses—or jobs—moving to
town. The Town’s Comprehensive Plan Update, prepared in 2005,
corroborates the lack of new business: “There has actually not been a
great deal of commercial development along Hollis’ major roads. In fact,
home occupations continue to dominate commerce in town.”68 Newspaper
accounts indicate that business increased at some establishments along
truck routes from the increased truck traffic.69 Other businesses
experienced interruptions during road construction projects that were to
required to support the increase in trucking.70
Studies of Employment Effects of Large, New Facilities. It would be
inappropriate to conclude that current residents of McCloud would occupy
all—or even most—of the potential jobs at the proposed Nestlé facility. In
addition to the experiences at other bottling facilities, economic studies
have shown that most new jobs in an area do not go to the existing local
population.71 Other economic studies have shown that large new facilities
Town of Hollis Comprehensive Planning Committee. 2005. Town of Hollis
Comprehensive Plan Update. April. Retrieved June 7, 2007, from
http://www.maine.gov/spo/landuse/plans/hollis/HollisCompPlanFINAL04-05-05.pdf
68
G. Murphy. 2000. “Jury Out on Poland Spring Traffic.” Portland Press Herald.
September 26. Pg. B1. Retrieved June 5, 2007, from Lexis-Nexis.
69
G. Murphy. 1999. “Bottling Up Business?” Portland Press Herald. November 25. York
County Extra, Pg. 1E. Retrieved June 5, 2007, from Lexis-Nexis.
70
T. Bartik. 1993. “Who Benefits from Local Job Growth: Migrants or the Original
Residents?” Regional Studies 27 (4): 297-311; and T. Bartik,.2005. “Solving the Problems
of Economic Development Incentives.” Growth & Change 36 (2): 139-166.
71
ECONorthwest
42
in an area do not tend to increase the overall number of local jobs or
population. One of the most comprehensive studies on the effect of new
facilities on employment found that, on average, jobs provided by new
firms are offset by job losses in the same region. For example, the study
found that for every 100 workers at a new, large plant, the county lost 71
existing workers, meaning that the county gained only 29 total jobs
overall.72 The author suggests that these effects appear to be caused by
negative spillover effects—that is, industrial sites tend to make areas less
attractive as residential locations and they repel existing establishments
by congesting local infrastructure.73
Conclusions. In summary, if 60 jobs materialize at a bottling facility in
McCloud, some local residents would probably fill some of the jobs, but
most would be filled by residents from outside McCloud but living in
Siskiyou County. Production jobs would have wages around $10 an hour,
and evidence indicates that such positions are already difficult to fill in
the area, given the frequent advertising of other similar facilities. 60 jobs
would increase county employment by less than one-half of 1 percent. At
full build-out, 240 employees would increase county employment by
approximately 1 percent. If the Nestlé facility causes employment and
population effects like large, new firms elsewhere, then we would expect
that the county would also lose jobs in existing firms and lose jobs that
would have materialized without the facility. The literature shows that
the net job increase at full build-out likely would be closer to 70 jobs (240
jobs gained at the Nestlé facility minus 170 jobs—71 percent of the new
jobs—lost at other firms).
Given the local experience with other bottling facilities, evidence from
experiences in communities with new bottling facilities, and findings from
economic studies, it is likely that Nestlé’s facility would not improve
unemployment rates or overall employment levels in McCloud or Siskiyou
County.
B. Population, School Enrollment, Housing
An oft-repeated concern in McCloud is the lack of young families with
children. The decrease in school enrollment, the presence of “vacant”
homes, and an increase in the percentage of the population that is retired
are characteristics of McCloud’s population that have been cited as
evidence that the town is dying. There is an expectation that jobs at the
K.D. Edmiston. 2004. “The Net Effects of Large Plant Locations and Expansions on
County Employment.” Journal of Regional Science 44(2): 289-319. See also K.D. Edmiston.
2007. “The Role of Small and Large Businesses in Economic Development.” Federal
Reserve Bank of Kansas City Economic Review 92 (2): 73-97.
72
73
K.D. Edmiston. 2004. (cited previously)
ECONorthwest
43
Nestlé facility would reverse these trends by attracting families to
McCloud and thereby boost both the economy and the community.
In this section we present data on characteristics of McCloud’s
population—including overall population numbers, age profiles, school
enrollment, and housing status. We find that McCloud’s experience
reflects powerful statewide and national trends, and the proposed Nestlé
facility is unlikely to reverse them.
Our key findings include:
•
McCloud’s population has, indeed, changed over the last several
decades. Many changes reflect national population trends.
•
A variety of factors have contributed to the decline in enrollment
in McCloud’s public schools.
•
Housing trends provide an indication of the economic importance
of natural amenities to McCloud’s future.
Trends in McCloud’s population
Major trends in McCloud’s population over the last few decades include
an overall decline in population, a shift toward an older population, and
an increase in the number of part-time residents. The increase in
retirement-age people as a percentage of the population echoes a
widespread demographic shift that is occurring across the nation and that
is predicted to continue into the future.
Table 7 shows the census population of McCloud, nearby towns, Siskiyou
County, and California. McCloud’s population has decreased since 1980,
while the populations of Mount Shasta and Siskiyou County have
increased. To our knowledge, McCloud’s population is not tracked
annually. In areas of Siskiyou County with annual data available, the
data indicate that populations have remained fairly steady between 2001
and 2006.
ECONorthwest
44
Table 7. Census Population, 1980-2000
Area
1980
1990
2000
McCloud CDP
1,656
1,555
1,343
Mount Shasta
2,837
3,460
3,621
Weed
2,879
3,062
2,978
39,732
43,531
44,301
23,667,764
29,758,213
33,871,648
Siskiyou County
California
Source: U.S Census Bureau, 2000 Census of Population and Housing. 2003. Population and Housing Unit Counts. PHC-3-6,
California. Table 5: Population and Housing Units: 1980 to 2000; and Area Measurements and Density: 2000. Washington,
D.C. Retrieved on June 4, 2007, from http://www.census.gov/prod/cen2000/index.html
Figure 7 shows a demographic shift in McCloud over the period 1990 to
2000. The most pronounced shift is the reduction in the percentage of the
population in the 25-to-44 age bracket and an increase in the percentage
of the population in the 45-to-64 age bracket—those in the baby boom
generation who are approaching retirement age or are already retired.
Figure 7. Age profile of McCloud in 1990 and 2000
Source: ECONorthwest, with data from the U.S. Census Bureau.
ECONorthwest
45
Figure 8 shows the age profiles of McCloud, Siskiyou County, and the
United States in 1990 and 2000. The age profile of McCloud closely
matches that of Siskiyou County, with a slightly smaller proportion of the
population in McCloud in the 25-to-44 age category, but a slightly higher
proportion in the over-65 age category. Nationally, the baby boom
generation is poised to shift the age distribution. As this generation grows
older, the United States will see a relative decline in the proportion of the
population in younger age groups and an increase in the proportion of the
population in older age groups. Rapid growth in the population 65 years
and older will begin in 2011, and the growth is expected to continue into
the 21st century.74
Figure 8. Age profiles of McCloud, Siskiyou County, and the United States,
1990 and 2000
Source: ECONorthwest, with data from U.S. Census Bureau.
School Enrollment and Population
Figure 9 depicts school enrollment in McCloud’s Elementary (K-8) and
High School (9-12) from 1998 to 2006. Enrollment in both schools has
declined since 1998, but the reasons behind these declines are not clear.
The mill closure in 2002 could have contributed to the decline, but the
downward trend in enrollment began several years prior to that.
U.S. Census Bureau. 2002. Demographic Trends in the 20th Century. U.S. Census
Special Reports. November. Retrieved June 27, 2007, from
http://www.census.gov/prod/2002pubs/censr-4.pdf.
74
ECONorthwest
46
Figure 9. Enrollment in McCloud High and McCloud Elementary 1998-2006
Source: ECONorthwest, with data from Education Data Partnership.
Although we do not have data on where high school students from
McCloud attend school, we understand that Mt. Shasta High, Weed High,
and Golden Eagle attract high school students from McCloud. In addition,
other high-school-age students in McCloud are home-schooled. Other
findings from our research include:
•
The trend of declining school enrollment is not unique to McCloud.
During the same period, public school enrollment in Siskiyou
County dropped by 1,500 students, or about 20 percent.75
•
During the same period when McCloud’s high school enrollment
dropped, Mt. Shasta High’s enrollment increased. Bussing between
McCloud and Mt. Shasta began in 2001-02. From the 2002-03
school year to the 2004-05 school year, Mt. Shasta’s enrollment
increased by 57 students, while McCloud’s dropped by 40 students.
•
There are five traditional high schools in the Siskiyou Union High
School District. The district has an open enrollment policy, which
allows students a choice of district high schools to attend.
California Department of Education, Educational Demographics Unit. 2007. DataQuest:
K-12 Public School Enrollment: Siskiyou County. Retrieved June 23, 2007, from
http://data1.cde.ca.gov/dataquest/s
75
ECONorthwest
47
•
A charter school—Golden Eagle Charter—also draws students
from Siskiyou County. It opened in 2004-05 with 102 students in
grades 9-12, and 107 students in grades 9-12 in 2005-2006.
These various factors appear to account for some, if not all, of the decline
in the number of students attending schools in McCloud. It is unlikely
that Nestlé’s plant would affect these factors.
Vacant Homes and Population
As Table 8 indicates, the vacancy rate of homes in McCloud almost
doubled between 1990 and 2000—increasing from 11 percent to 21
percent. The reason most of these units are classified as vacant, however,
is not because they fail to attract buyers or renters. Rather, in McCloud
the majority of these so-called vacant units are units used for “seasonal,
recreational, or occasional use.”
These data signify a growing trend of part-time residents and vacation
rentals, which corresponds to the role that natural resources and other
amenities play in attracting people to McCloud and the surrounding area.
The number of units in this category increased to nearly 14 percent of all
units in 2000 from approximately 2 percent in 1990. A similar trend is
evident for all of Siskiyou County, although to a lesser degree. These
kinds of homes maintain connections to public services but tend to use
them less than homes with full-time residents. People who currently own
second homes, consider themselves part-time residents, or vacation in the
area may become permanent residents as they retire or change jobs.
Table 8. Housing Vacancy Status for McCloud and Siskiyou County
McCloud
1990
Total Units
Siskiyou County
2000
1990
2000
704
754
20,141
21,947
11%
21%
14%
15%
Seasonal, Recreational or Occasional Use
15%
66%
35%
47%
For Rent
16%
13%
16%
17%
For Sale
8%
8%
9%
13%
61%
13%
39%
24%
1.6%
13.7%
4.9%
7.3%
Percent of Total Units Classified as Vacant
Vacancy Status
Other
Percent of Total Units that are Seasonal
Source: ECONorthwest, with data from the U.S. Census Bureau.
ECONorthwest
48
Retirement Population
The DEIR describes the “influx of retirees from outsides areas” to
McCloud. A 2005 study in Mt. Shasta also identified a similar trend and
noted that those retirees bring significant capital with them.76 This is
evidence of a finding in the DEIR that “McCloud is in transition toward
an economic base focused on tourism and services.”
Communities across the country have embraced attracting retirees as an
economic development strategy. The Economic Research Service of the
USDA has endorsed this strategy as a viable way to infuse rural areas
with a valuable economic resource.77 Retirees bring retirement income
and other assets, which they tend to spend on local services. This demand
for local services creates jobs, without the same drain on public services or
requirement of public subsidies that often accompanies economic
development through new large-scale businesses. They also demand
amenities that in turn attract visitors and others to the area. In addition
to their monetary assets, retirees bring human capital to a community:
many are highly skilled and may work part-time or volunteer their time
in the community.78
Nestlé’s Potential Effect on McCloud’s Population
Figure 10 shows the trend in population levels in Weed and Mt. Shasta.
In each, the opening of a bottling plant had little effect on the town’s
population. Nestlé’s proposed bottling plant in McCloud may likewise
have little impact on McCloud’s population. The DEIR assumes that only
25 percent of the employees will come from McCloud. Of the remainder,
the DEIR assumes 60 percent will come from SR 89 west (from the
direction of I-5) and 15 percent will come from SR 89 east.79 The
experiences of Weed, Mt. Shasta, and other communities indicate that
Nestlé’s facility likely would not infuse McCloud with new young families
or reverse other population trends.
Bay Area Economics. 2005. Housing Development Opportunity: City of Mount Shasta.
July 25.
76
R.J. Reeder. 1998. Retiree-Attraction Policies for Rural Development. Agricultural
Information Bulletin No. AIB741. July. Retrieved June 28, 2007, from
http://www.ers.usda.gov/publications/aib741/
77
E.H. Warren. No Date. Attracting Retirees as Economic Development. Thomas, Warren +
Associates. Retrieved June 26, 2007, from
http://www.twaaconsulting.com/docs/Attracting%20Retirees%20as%20ED.pdf
78
79
DEIR Chapter 3.3 p. 23
ECONorthwest
49
Figure 10. Effect of Bottling Plants on the Population of Mt. Shasta and Weed
Source: ECONorthwest with data from State of California, Department of Finance. 2007. E-4 Population Estimates for Cities,
Counties and the State, 2001-2007, with 2000 Benchmark. May. Retrieved June 22, 2007, from
http://www.dof.ca.gov/HTML/DEMOGRAP/ReportsPapers/Estimates/E4/E4-01-06/HistE-4.asp; and State of California,
Department of Finance. 2002 Revised Historical City, County and State Population Estimates, 1991-2000, with 1990 and 2000
Census Counts. March. Retrieved June 22, 2007, from
http://www.dof.ca.gov/HTML/DEMOGRAP/ReportsPapers/Estimates/E4/E4-91-00/E-4text2.asp
ECONorthwest
50
C. OTHER POTENTIAL LOCAL EFFECTS
In this section we describe several other potential effects of Nestlé’s
proposed facility. These range from increased truck traffic, which might
affect McCloud’s quality of life, to strains on public infrastructure and
public services. Our key findings include:
•
Property tax assessments vary by county, and assessed values
depend on characteristics of each facilities. Five California waterbottling facilities were assessed property taxes of $300,000 $1,500,000 in recent years.
•
A facility in McCloud might generate the $1 million in property
taxes that Nestlé estimated, but these taxes would be offset by
losses of property taxes from firms or residents displaced by the
facility.
•
Should periods of prolonged drought arise in the next 50 to 100
years, MCSD, its ratepayers, and nearby landowners may bear the
costs of acquiring new water supplies, including deepening wells or
drilling new wells.
•
Heavy truck traffic on SR-89 would approximately double at full
build-out of the proposed Nestlé facility, and it would be difficult to
exclude all truck traffic from traveling through town. Hidden costs
of truck traffic include traffic accidents, congestion, pollution,
health effects, increased road maintenance, and possibly the need
for additional law-enforcement services.
•
The proposed Nestlé facility would generate wastewater. If Nestlé
elects to send the wastewater to the MCSD treatment system, it
would consume approximately one-twelfth of the remaining
capacity of the system. If Nestlé treats the wastewater on its own
site, it may pose a risk of contamination to the area’s groundwater.
•
Although Nestlé would reimburse MCSD for the direct costs
MCSD would incur in providing services to Nestlé, other
communities have found that a large facility occupies the time of
public officials and consumes public resources, which usually are
not reimbursed.
Property Tax Revenues
A Nestlé-sponsored report indicates that a Nestlé facility in McCloud
would generate approximately 1 million dollars per year in property tax
revenues for Siskiyou County. Until such a facility is built, however,
actual tax revenues are uncertain. They depend on the county tax rate,
the assessed value of the land, personal property, and improvements.
Table 9 lists recent property taxes for several water-bottling facilities in
California. Tax rates vary across the counties, and the facilities also vary.
ECONorthwest
51
Table 9. Property Tax Revenues from Other Bottling Facilities in California
Facility
County
Recent Property
Taxes
Nestlé - Arrowhead
San Bernardino Co.
$ 804,447
Nestlé - Calistoga
Napa Co.
$ 314,817
Nestlé - Cabazon
Riverside Co.
CCDA Waters - Mt. Shasta
Siskiyou Co.
$ 339,907
Crystal Geyer - Weed
Siskiyou Co.
$ 497,619
$ 1,524,000
Sources: (1)San Bernardino County, Office of the Assessor. Property Information Management System.
Retrieved August 6, 2007, from http://nppublic.co.san-bernardino.ca.us; San Bernardino County,
Treasurer-Tax Collector/Public Administrator. Property Tax Information. Retrieved August , 2007, from
http://www.mytaxcollector.com/
(2) Napa County Assessor's Office. Napa County Website, eService, Assessor Parcel Data. Retrieved
August 6, 2007, from http://www.co.napa.ca.us/eServices/AssessorParcelData.asp; Personal
Communication with the Napa County Tax Collector's Office on August 6, 2007.
(3) Riverside County, Assessor-County Clerk-Recorder. Riverside County Website, Property Information
Center. Retrieved August 6, 2007, from http://pic.asrclkrec.com/Default.aspx; Personal communication
with the Riverside County Assessor-County Clerk-Recorder's Office and the Treasurer-Tax Collector's
Office, August 6, 2007 and August 27,2007. (I06-07 taxes for some categories and 07-08 for others)
(4)Personal Communication with the Siskiyou County Treasurer Tax Collector's Office. August 6, 2007.
To our knowledge, the Cabazon facility is the newest and largest on the
list. Riverside County has assessed its land (over 100 acres) at $4,050,908,
its improvements at $24,691,053, and its business personal property at
approximately $95,000,000. It seems possible that a large, new facility in
McCloud could generate the $1 million per year in property taxes that
Nestlé estimates, at least initially. As plant and equipment ages, assessed
values change.
Given the research on the displacement effects of large facilities, however,
property taxes from the proposed Nestlé facility would be offset by losses
of property taxes from firms or residents that are directly or indirectly
displaced—now and in the future—by the Nestlé facility.
Drought Contingency Plan
MCSD has stated that stream flows in the three area springs have been
reduced by regional droughts in the past.80 The large, new demand by the
proposed Nestlé facility raises concerns about the potential effects of
future droughts and the potential costs to MCSD and other landowners to
prepare for, respond to, and mitigate such effects.
MCSD. 2004. Frequently Asked Questions Relating to the Agreement for the Purchase
and Sale of Spring Water between McCloud Community Services District and Nestlé
Waters North America, Inc. December. Accessed at http://www.mccloudarrowheadproject.
org/mcsd.php. Page 19.
80
ECONorthwest
52
The contract specifies that any time MCSD is unable to provide Nestlé
with “qualified” spring water, Nestlé’s payments to MCSD would be
reduced proportionally.81 This suggests that, particularly during times of
reduced supply, MCSD might allow Nestlé to utilize available spring
water and serve other customers by other sources as needed and as
available.82
The contract also specifies that MCSD and Nestlé develop a water supply
plan for emergencies such as droughts, fires, earthquakes, etc. “to identify
additional sources of water supply for District’s residential, municipal and
industrial customers.”83 Whether the additional water would come from
new wells or surface-water sources, there would be costs to develop these
sources. There might also be effects on other landowners and on natural
resources in areas where new supplies were located. The contract states
that Nestlé would “cooperate” with MCSD, but it does not state that
Nestlé would bear the costs for providing additional water.84
The DEIR states that the reduced flow to Squaw Valley Creek, as a result
of the bottling facility, “can also affect groundwater recharge and water
levels on adjacent lands along the waterway.”85 With the Nestlé project,
the DEIR states that during drought conditions, there would be a
proportionally greater impact on flows in Squaw Valley Creek.86
Therefore, under drought conditions, nearby landowners with private
wells—particularly but not exclusively those in the Squaw Valley Creek
area—might also bear the costs to deepen their existing wells or drill new
wells as lower stream flows affect groundwater levels.
An MCSD contingency plan indicates that, at least in the early stages of
drought, voluntary and mandatory measures to conserve water would
include asking MCSD customers to limit landscape irrigation, to serve
water only upon request to restaurant customers, to prohibit car washing,
etc.87 These measures support MCSD’s statement that Nestlé would be
81
Contract, 5.4.2 and 5.4.3 (p. 13).
MCSD states that non-spring water rights (from the McCloud River, see Table 2 of this
report) that Nestlé acquired from the Cal Cedar property “could be included in the water
contingency plan benefiting all District customers” (MCSD. 2004. Frequently Asked
Questions Relating to the Agreement for the Purchase and Sale of Spring Water between
McCloud Community Services District and Nestlé Waters North America, Inc. December.
Accessed at http://www.mccloudarrowheadproject.org/mcsd.php. Page 11).
82
83
Contract, Pages 17-18.
84
Contract, Pages 17-18.
85
DEIR p. 3.9-38
86
DEIR, p. 3.9-38.
MCSD. 2006. Water Supply Contingency Plan, McCloud, California. Prepared by the
Source Group. April 12.
87
ECONorthwest
53
“treated like any other customer of the District.”88 That is, to the extent
that Nestlé’s proposed water extraction would reduce water availability
throughout the area, particularly under drought conditions, the increased
risks and costs would not be borne by Nestlé alone but also by MCSD and
others.
Traffic
Nestlé projects that the facility would generate 600 water-freight truck
trips89 and 10 other facility-associated truck trips per day at full buildout
during the peak season.90 Approximately 85 percent of these trips would
involve SR 89 west and 15 percent would involve SR 89 east. These truck
trips would take place throughout the day and night; with 40 of these
trips during the morning and evening peak hours, which are the hours
that experience the highest volumes of traffic—usually coinciding with
morning and evening commutes.
A traffic study conducted for the DEIR recorded the existing level of
traffic:
•
3,106 total vehicle trips, of which approximately 21 percent or 650
vehicles were trucks with 2 or more axles. This information was
gathered on SR 89, east of the City of Mt. Shasta.
•
At the intersection of SR 89 and Broadway Avenue in McCloud,
the California Department of Transportation recorded 435 average
annual daily truck trips, which represented 17 percent of all
traffic.91
Based on these findings, the truck traffic generated by the Nestlé facility
would approximately double the existing level of truck traffic.
The Nestlé facility would also generate employee-related traffic. At
project buildout, during both the peak season and the non-peak season,
Nestlé projects 480 daily trips by employees. Of these, 25 percent would
come from within McCloud itself, and the remaining 75 percent would
come from SR 89—60 percent from the west and 15 percent from the east.
MCSD. 2004. Frequently Asked Questions Relating to the Agreement for the Purchase
and Sale of Spring Water between McCloud Community Services District and Nestlé
Waters North America, Inc. December. Accessed at http://www.mccloudarrowheadproject.
org/mcsd.php. Page 18.
88
89
A trip is one-way.
90
DEIR Section 3.3-22
State of California, Department of Transportation. 2004. 2002 Annual Average Daily
Truck Traffic on the California State Highway System. February. Retrieved June 7, 2007,
from http://www.dot.ca.gov/hq/traffops/saferesr/trafdata/truck2002final.pdf
91
ECONorthwest
54
Nestlé anticipates that the truck traffic would arrive at the facility via a
private road accessible from SR 89 to the west of McCloud. According to
Nestlé, “all truck traffic will use the private access road and not travel
through McCloud.” This would not, however, be the only access to the
facility. The DEIR also indicates there would be access to and from
McCloud via Mill Road. Nestlé intends that this point of access would be
used by employees and serve as a secondary emergency access to the
plant. Because the plant would be accessible by this second route
connected directly to the middle of town, some truck traffic might also
travel through downtown McCloud. Although Nestlé has stated that no
trucks would enter the downtown area, other communities in a similar
position to McCloud have found that Nestlé’s assurances did not prevent
trucks from using alternate routes.
Truck traffic introduces several hidden costs including pollution, which
affects human and environmental health, and an increased risk of
accidents. A recent study of the costs of freight transport in California
estimated that freight transport contributed 30 percent of the total
statewide nitrogen oxide emissions and 75 percent of all diesel particulate
matter emissions in the state. These pollutants have a profound impact
on human health: the South Coast Air Quality Management District
estimates that 70 percent of all airborne cancer risk comes from breathing
diesel exhaust. Diesel exhaust is also linked to asthma and other
respiratory problems. Communities that host distribution centers and
that are located near trucking corridors are most likely to experience the
adverse effects of diesel exhaust.92
Hollis, Maine experienced a significant increase in heavy vehicle traffic
after the Poland Springs facility opened—from 431 truck trips on local
roads in 2000 to 843 truck trips in 2002.93
Nestlé and town officials advised truck drivers to use designated routes to
minimize disruption in residential areas. In fact, the town planning board
stipulated in Nestlé’s building permit that the company give its drivers a
written policy instructing them to stay on designated routes and not to
use engine braking.94 Despite these provisions, a senior planner with the
Southern Maine Regional Planning Commission reported that although
route 117 “was supposed to be the major trucking route…we are hearing
M. Palaniappan, S. Prakash, and D. Bailey. 2006. Paying With Our Health: the Real
Cost of Freight Transportation in California. Pacific Institute. November. Retrieved June
22, 2007, from
http://www.pacinst.org/reports/freight_transport/PayingWithOurHealth_Web.pdf
92
Town of Hollis Comprehensive Planning Committee. 2005. Town of Hollis
Comprehensive Plan Update. April. Retrieved June 7, 2007, from
http://www.maine.gov/spo/landuse/plans/hollis/HollisCompPlanFINAL04-05-05.pdf
93
G. Murphy. 1999. “Bottler Gets OK to Build in Hollis.” Portland Press Herald.
September 1. Pg. 1A. Retrieved June 5, 2007, from Lexis-Nexis.
94
ECONorthwest
55
from people at public hearings that trucks are using other roads.”95
Residents also reported that trucks have blocked intersections, crashed
into signs,96 violated speed limits, and woken them at night.97
Although Nestlé attempted to work through the issues with the
community and its drivers, it had difficulty enforcing the recommended
routes, especially with its third-party contract drivers.98
Red Boiling Springs, Tennessee also experienced traffic impacts due to
increased truck traffic after the water-bottling facility opened. Truck
drivers coming into town were missing the turn to the plant. This caused
highway hazards, as truck drivers attempted to turn around or back up
on the busy highway. The State Department of Transportation had agreed
to post signs to the Nestlé facility. It is unknown whether the signs were
installed, or whether they made a difference in reducing the confusion
and associated road hazards.
Roads
Heavy truck traffic is one of the most influential factors in how quickly
pavement deteriorates. According to the Sacramento Area Council of
Governments, one fully-loaded 80,000-pound truck causes as much
pavement wear as 10,000 passenger vehicles.99 Thus, the increase in
vehicle traffic, and particularly heavy truck traffic generated by the
Nestlé plant may have substantial implications for the conditions of the
roads in and around McCloud, for others using the roads, and for the
taxpayers who fund road construction projects.
In preparation for the Nestlé plant in Hollis, the Town of Hollis and the
Maine Department of Transportation invested in road improvements
along the routes that truck drivers would use to access the plant. The
state Department of Transportation widened the road, increased the
thickness of the roadbed, and improved five miles of one state highway to
make the roadway safer and able to handle the influx of truck traffic
T. Cohen. 2004. “Plant Prompts New Look at Hollis.” Portland Press Herald. January
30. Pg. B1. Retrieved June 5, 2007, from Lexis-Nexis.
95
S. Harkness. 2005. “Residents Rattled by Truck Traffic” Portland Press Herald.
September 2. Pg. B1. Retrieved June 5, 2007, from Lexis-Nexis.
96
G. Murphy. 2000. “Jury Out on Poland Spring Traffic.” Portland Press Herald.
September 26. Pg. B1. Retrieved June 5, 2007, from Lexis-Nexis.
97
S. Harkness. 2005. “Residents Rattled by Truck Traffic” Portland Press Herald.
September 2. Pg. B1. Retrieved June 5, 2007, from Lexis-Nexis.
98
Sacramento Area Council of Governments. No Date. MTP2035 Issues Papers: Road
Maintenance. Metropolitan Transportation Plan 2035. Retrieved June 7, 2007, from
http://www.sacog.org/mtp/pdf/MTP2035/Issue%20Papers/Road%20Maintenance.pdf
99
ECONorthwest
56
generated by the Nestlé plant.100 The Town of Hollis also invested in
major improvements to the local road leading to the Nestlé facility after it
was built. As a result of protests from residents living along the road, the
town did not complete the entire project at first. At the request of Nestlé,
however, the Town ultimately agreed to complete the remaining mile of
improvements. Of the total $700,000 project costs incurred by the Town of
Hollis for the remaining mile of road, Nestlé contributed $400,000.101
Law Enforcement
The Siskiyou County Sheriff’s Department provides law enforcement
services in McCloud. According to the DEIR, a private security firm would
provide security services around the Nestlé site. Because of this, the
DEIR suggests that the effect of the Nestlé facility on police services
would not be significant. The DEIR fails, however to consider the impacts
on law enforcement services from the considerable increase in truck
traffic—not just in McCloud, but throughout Siskiyou County. If this
increase in truck traffic leads to an increase in accidents, break-downs,
and possibly an increased need for speed patrols, then the Siskiyou
County Sheriff and the California Highway Patrol would incur the related
costs.
Sewer
Nestlé would generate domestic and sanitary wastewater (i.e. water from
restroom facilities) and process wastewater (i.e. water used in the
manufacture of plastic bottles and in the bottling process). It would
dispose of this wastewater either through a wastewater treatment plant
or an on-site treatment system. The process wastewater will contain a
number of contaminants, including oils and grease, detergents,
lubricants, and other chemicals. Prior to treatment it will contain several
contaminants at levels that exceed regulatory limits. The DEIR reports
that the facility would generate up to 5,000 gallons per day of wastewater
at full buildout. This amount represents 1/12 of the remaining sewer
capacity left in McCloud’s treatment facility.
For its process wastewater, Nestlé has the option in its contract with
MCSD to send this water to the MCSD’s sewer system or to dispose of it
on-site. According to the DEIR, Nestlé currently plans to dispose of its
process wastewater on-site in treatment wetlands and infiltration ponds
and fields. Both disposal options impose hidden costs on the citizens of
McCloud. These costs include reduced opportunity to serve additional
residents and businesses because of reduced sewer capacity, and
environmental costs and risks associated with on-site disposal.
G. Murphy. 1999. “Bottling Up Business?” Portland Press Herald. November 25. York
County Extra, Pg. 1E. Retrieved June 5, 2007, from Lexis-Nexis.
100
101
Interview with Irving “Ben” Severance, Selectman, Town of Hollis. June 8, 2007.
ECONorthwest
57
Other water bottling facilities throughout the country dispose of their
domestic and process waste water through a variety of mechanisms: by
connecting to the municipal sewage system, by an on-site treatment
system, or by trucking the sewage to nearby municipal sewage systems.
Nestlé’s Hollis water bottling facility trucks its sewage 15 miles from
Hollis to a municipal wastewater treatment system in the Town of Old
Orchard Beach because Hollis is not served by a sewer system. Nestlé
considered disposing of its wastewater on-site, but decided this option
would risk contaminating the underlying aquifer, from which it extracts
the water it sells. Under a contract with Old Orchard Beach, Nestlé pays
a disposal fee of $0.006 per gallon, plus an annual fee of $4,375 that
covers laboratory testing and waste stream monitoring. In 2006, Nestlé
paid Old Orchard Beach $173,290 for wastewater disposal.
Although Nestlé pays the Town of Old Orchard Beach for processing its
wastewater, some town officials question whether they are receiving full
compensation for the full costs of accepting Nestlé’s waste, which
represents 16 percent of the total wastewater processed by the system.
According to one Town Councilor, the Town has had to deny building
permits due to lack of capacity in the sewer system. During wet weather
events, the pumps often run at full capacity, and a failure would risk
dumping untreated waste into local waterways. In his words, “We have
concerns for new economic development projects in this town because we
do not have sewer capacity. We are ignoring our own needs.”102
The City of Mt. Shasta also experienced hidden costs related to sewage
capacity issues. After it opened in 2001, the CCDA facility outside the
City of Mt. Shasta initially disposed of its wastewater in the City’s
wastewater system. Facing capacity constraints, the City Council noted
that CCDA was sending 27,000 gpd to the City’s sewer system, and
pointed out that by accepting CCDA’s process wastewater, the City was
essentially giving up the opportunity to serve a significant number of
additional households or businesses.103 The CCDA bottling facility had a
permit to operate an on-site treatment system, and ultimately elected to
use it instead of the City’s sewer system to dispose of its waste in the
City’s system.
On-site systems come with their own hidden costs: they increase the
likelihood of groundwater and surface water contamination. Nestlé
Town of Old Orchard Beach. 2007. Town Council Meeting Minutes. March 20. Retrieved
June 20, 2007, from http://www.oobmaine.com/vertical/Sites/%7BD1C05230-602C-414C9CDA-461ECEEF8A91%7D/uploads/%7B273F2022-3D1F-445C-840A86E71398C4FB%7D.DOC
102
P. Boerger. 2002. “Mount Shasta Water and Sewer System Needs Major Upgrades.” Mt.
Shasta Herald. November 20. Retrieved June 14, 2007, from
http://www.mtshastanews.com/articles/2002/11/20/news/export6111.txt
103
ECONorthwest
58
recognized this risk when it elected to transport—at considerable cost—
its wastewater away from its Hollis facility. A California Regional Water
Quality Control Board inspection of the Mt. Shasta CCDA facility in 2006
revealed numerous violations: effluent was flowing over the leachfield and
off the site, potentially contaminating surface waters.104
Use of Other Public Services
Between the terms of the Nestlé-MCSD contract and the realities of
interacting with a large facility, Nestlé’s operations would impose a
variety of costs on MCSD, MCSD ratepayers, California taxpayers, and
others.
Several provisions of Nestlé’s contract with MCSD require MCSD to
provide a variety of goods and services to Nestlé. In many cases, the
contract specifies that Nestlé would reimburse MCSD for the costs MCSD
would incur to provide such services. Reimbursement of only direct costs,
however, would likely undercompensate MCSD and its ratepayers. For
example, an MCSD employee who performs services for Nestlé would be
diverted from providing services to the rest of MCSD ratepayers. Even if
MCSD is reimbursed for the hours its employee spends providing services
for Nestlé, diversions or delays are hidden costs borne by MCSD and its
ratepayers.
In the contract, Nestlé requires the district to pursue public, state, and
local funding for the construction of the collection system improvements.
Nestlé’s reimbursement to the district for these improvements would be
reduced by an amount corresponding to the grant amount successfully
received. The contract does not specify whether Nestlé would also
reimburse MCSD for the direct and indirect costs incurred in securing the
grants—costs that would be borne solely by the district.
The contract also specifies that Nestlé would reimburse MCSD for only
the “actual and reasonable costs” of the district, and MCSD would have to
submit documentation to support its costs. The contract does not define
“actual and reasonable.” The contract raises concerns that MCSD would
not be fully compensated for all costs incurred while providing assistance
to Nestlé.
In Hollis, Maine, the town council meets with Nestlé every month.105 Such
meetings do not appear to be reimbursable under the terms of the NestléMCSD contract, but they clearly would impose costs if similar meetings
California Regional Water Quality Control Board, Central Valley Region. 2006.
Executive Officer’s Report. June 22-23. Retrieved June 20, 2007, from
http://www.swrcb.ca.gov/rwqcb5/monthly_board_report/0606eo.pdf
104
105
Interview with Irving “Ben” Severance, Selectman, Town of Hollis. June 8, 2007.
ECONorthwest
59
were held in McCloud. In Hollis, the City also handles complaint calls
about the Nestlé facility.
D. IMPLICATIONS FOR MCCLOUD
We find that rather than provide an engine for economic growth, Nestlé’s
proposed facility would impose costs and obligations on the community
that would likely outweigh the benefits, particularly given the duration of
the contract, uncertainties about the future, economic trends, and
potential risks. Table 10 provides a summary list of potential costs and
obligations.
Nestlé’s proposed facility would consume one of the area’s most
economically valuable assets in a way that seems unlikely to maximize
the economic contribution of that asset to local residents or others
downstream that also value the goods and services it provides. In so
doing, Nestlé’s facility and related activities may also degrade the
amenities—natural and otherwise—that are now primarily responsible
for attracting economic activity to McCloud.
ECONorthwest
60
Table 10. Potential Costs and Obligations of the Nestlé Proposal
MCSD and ratepayers
Contractual obligations to provide water
Use of infrastructure (water piping, etc.)
Use of sewer system and treatment facility
Provision of staff time and resources
Loss of other opportunities
Increased uncertainty over water supplies
Siskiyou County and taxpayers
Increase in road maintenance costs
Increase in law enforcement services
Loss of jobs and incomes from other firms, and
accompanying loss of property taxes
Increased uncertainty over water supplies
State, taxpayers, public
Increased congestion and traffic accidents
Increased emissions from heavy trucks
Negative health effects from emissions
Loss of jobs and incomes from other firms
Increased uncertainty over water supplies
ECONorthwest
61
APPENDIX: RESEARCH THAT DOCUMENTS THE IMPORTANCE OF
LOCATION-SPECIFIC CONSUMPTION AMENITIES IN RESIDENTIAL LOCATION
DECISIONS.
Beeson, P.E. 1991. “Amenities and Regional Differences in Returns to
Worker Characteristics.” Journal of Urban Economics 30: 224-241.
Blomquist, G. 1988. “Valuing Urban Lakeview Amenities Using Implicit
and Contingent Markets.” Urban Studies 25: 333-340.
Brady, P. 1995. Interregional Compensating Differentials and Incentives
to Migrate: A Study of Locational Decisions by Young Adults. Madison,
WI: University of Wisconsin-Madison, Department of Economics.
November 8.
Brown, R.J. 1994. “Do Locational Amenities Equalize Utility Across
States?” The Journal of Economics XX (1): 25-30.
Browne, L.E. 1984. “How Different Are Regional Wages? A Second Look.”
New England Economic Review (March/April): 40-47.
Cooper, J.M.R. 1994. “Migration and Market Wage Risk.” Journal of
Regional Science 34 (4): 563-582.
Cromartie, J.B. 1998. “Net Migration in the Great Plains Increasingly
Linked to Natural Amenities and Suburbanization.” Rural Development
Perspectives 13 (1): 27-34. Retrieved July 3, 2007, from
http://www.ers.usda.gov/Publications/rdp/rdp298/.
Cushing, B.J. 1987. “Location-Specific Amenities, Topography, and
Population Migration.” The Annals of Regional Science XXI (2): 74-85.
Gabriel, S.A., J.P. Mattey, and W.L. Wascher. 1996. Compensating
Differentials and Evolution of the Quality-of-Life Among the U.S. States.
Federal Reserve Bank of San Francisco. June.
Gorte, R.W. 1992. Economic Considerations in Natural Resource
Production and Protection. CRS Report for Congress. Washington, D.C.:
Congressional Research Service, Library of Congress. September 18.
Gottlieb, P.D. 1994. “Amenities As an Economic Development Tool: Is
There Enough Evidence?” Economic Development Quarterly 8 (3): 270285.
Greenwood, M.J., P.R. Mueser, D.A. Plane, and A. M. Schlottmann. 1991.
“New Directions in Migration Research: Perspectives from some North
American Regional Science Disciplines.” The Annals of Regional Science
25: 237-270.
ECONorthwest
62
Roback, J. 1982. “Wages, Rents, and the Quality of Life.” Journal of
Political Economy 90 (6): 1257-1278.
Rosen, S. 1979. “Wage-Based Indexes of Urban Quality of Life.” In P.
Mieszkowski and M. Straszheim, eds., Current Issues in Urban
Economics. Baltimore: Johns Hopkins Press. Pp. 74-104.
Sherwood-Call, C. 1994. The 1980s Divergence in Per Capita Personal
Incomes: What Does It Tell Us? Federal Reserve Bank of San Francisco.
August 15.
ECONorthwest
63