November 13, 2005
OF THE FINANCIAL FEASIBILITY
AND POTENTIAL ECONOMIC BENEFITS
OF THE PROPOSED
BRIGHT ANGEL FRONTIER VALLEY
This paper makes a preliminary calculation of the financial feasibility of the proposed Bright Angel historic valley. It also attempts to calculate the potential benefits that the valley might bring to individual businesses and to the local economy. This is a preliminary calculation, and it relies on a number of assumptions (such as the average daily expenditures) that appear to be reasonable, but that lack a strong empirical basis. This document should therefore not be thought of as providing definitive answers to our questions. It is more properly an effort to produce some reasonable initial estimates, and to begin thinking systematically about how to structure a more detailed inquiry.
Numbers should be adjusted for inflation since the date of the study.
The inquiry can be divided into two main questions. Can the historic area be financially viable under some reasonable combination of visitation rates and daily expenditures? And will the area in fact attain those conditions? Of the two questions, the first one is the easier, since it is basically a calculation from assumed facts, with the only issue being whether the assumed facts are approximately reasonable. The second question is harder because it requires an estimate of what the facts actually will be. It thus requires an assessment of future consumer behavior in response to unfamiliar circumstances.
That said, there are at least some provisional conclusions that can be suggested for each issue. It appears that under reasonable assumptions the historic area will attract total annual expenditures of just under $40 million. That averages out to $300,000 for each resident family that is making a living in the area. Even allowing for costs of doing business, expenditures at this level could sustain a variety of viable enterprises, thus making the area attractive to both residents and visitors. The overall management of the area can also be on a sound financial footing. If investors are willing to pay at least $ 50,000 for a building lot, then all the capital infrastructure can be financed without outside support.
The visitation rates needed to ensure these levels of expenditure and investment are hard to guarantee, but do seem reasonably attainable. They can be reached as long as the area has an overnight visitation at least 10 percent of the total visitation at Death Valley. The design and architectural parameters can support that goal by making the area attractive to visitors and investors while still preserving its historic character. Provisionally, and by way of example only, one might imagine the following types of building principles: (1) An existing gravel through road will be retained along the length of the valley, across from the towns and as far out of sight from them as possible. (2) Spur roads will run to each town, and will be open to motorized vehicles for some practical minimum amount for service (perhaps one day per week) although otherwise closed. (3) Buildings in the first towns will be required to follow historical models in their general layout, but will be given a fairly generous menu of historic models to use, such as buildings that existed somewhere in Nevada or Utah as of the reference date. (4) Buildings in the later towns will have to follow a more restrictive, place-specific set of models, such as buildings existing in a one to three county area as of the reference date. (5) Modern appliances are permissible as long as they do not use electricity. (6) Building materials will be specified with substantial but not impossible rigor, precluding distinctively modern materials such as plywood and plastic, but not necessarily requiring use of objects or techniques that are very expensive (scarf joints) or functionally unsatisfactory (period windows).
The more detailed figures on the economic feasibility of the area are set out in the five tables below.
The first table deals with the numbers of expected visitors, and the total expenditures that they can be expected to make. The overnight capacity of the frontier area will be about 2400 people at a time. The table divides this population into a number of subgroups: permanent residents earning their income in the area; permanent residents with outside income; vacationers renting houses by the week; hotel guests; day-trippers; and backpackers. For each of these groups we assign an appropriate visiting season, occupancy rate, and estimate of daily per capita expenditures. While the resulting chart is relatively complex, the high points are simple enough. We estimate the income of the frontier area on the assumptions that the largest classes of visitors will be hotel guests and house renters; that they will have a season of 200 days; that within this season they will produce an occupancy rate of 60 percent; and that when present they will spend an average of $150 per person per day. On these assumptions the frontier area will receive total annual expenditures of $38,950,000.
The second table shows what this level of expenditure suggests about the economic viability of private businesses in the frontier area. These businesses are of two general types. First are the traditional entrepreneurial businesses and proprietorships. The total expenditures, divided among the 400 people who are making their living in the area, will result in income of $97,000 per person, or $291,000 per household of three. Even recognizing that businesses have expenses, and that not all this income is profit, it seems sufficient to support a variety of successful enterprises. The second type of business involves the operation of owning houses and renting them out by the week. Visitors will be spending a total of $6,480,000 on house rentals. Divided among 275 rental houses, and with deductions for various other expenses, the property owners should on average receive sufficient rental income to make $17,700 in annual mortgage payments, which will enable them to finance a principal of about $150,000.
The third table gives figures on the economic self-sufficiency of the task of initially organizing and developing the Bright Angel towns. It shows that the frontier area will have total public infrastructure costs of about $30,000,000. This figure is made up of $12 million for rail line, $3 million for water and sewer, and $15 million for all other items. Divided by the 600 building lots in the frontier area, it shows that the area will be self-sustaining as long as the lots can be sold for an average price of $50,000. A higher price on the lots will naturally allow for more elaborate capital investments. The target price of $50,000 appears to be reasonably attainable. It is toward the modest end of the range of prices in the old mountain towns of Colorado, where lots in the historic districts range from $40,000 in Georgetown to $250,000 in Telluride. The target price also appears feasible in light of the capitalized value of the expected income stream that can be realized on the building lots, both for businesses and for owners of rental properties. If $40,000 of the $291,000 in household income per business is profit, then the facility to produce that stream of profits has a present capitalized value of about $400,000, which should fairly readily support a price of $50,000 for the underlying land. If the house rental payments cover a mortgage of $150,000, and if the owner has put up a further $50,000 in down payment, then the rental houses will have a value of at least $200,000, which will again reasonably support a value of $50,000 for the underlying lot.
The fourth table gives figures on the ability of the frontier area to conduct its ongoing day to day operations without subsidies. This table again begins with the figure of $38,950,000 for total visitor expenditures. If these gross expenditures are subject to a municipal tax at a rate of 7 percent, that will generate annual revenues of $2,726,000 for the frontier authority. Those revenues will support a public payroll of 27 people to provide necessary governmental services. That should be sufficient to run the fairly simple infrastructure. That assumes that the average cost of each public employee is $100,000, including salary, benefits, and tangible equipment. We further assume that the Interior Department takes on the regular Park Service function of running a very small visitor center, and that operation of the train is carried on the budget of the Steamtown NPS site as it presently is.
Finally, the fifth table takes up the last and most critical question of whether the frontier area can actually attain the rates of visitation that will bring this theoretical economic viability into being. The table begins by translating the number of visitors in the area at any one time into annual visitation rates. If the average visitor remains for three nights (a reasonable assumption in light of the slow transportation involved) then the area will be at its target population of 1440 — 60 percent of total visitor capacity — if just 480 visitors arrive each day. That number is 20 percent of the visitation at the Mojave National Preserve, or 10 percent of the visitation at Death Valley, or 2 percent of the total visitation to the National Wilderness System. This seems like a reasonably attainable goal. It seems particularly attainable because a recent survey by the Utah Tourism Office found that almost as many visitors came to that state to visit historic sites as to visit scenic national parks — 21 percent versus 25 percent — and the proposed frontier area would offer a combination of both those experiences.
It is important to note that there are also management techniques by which we can improve the flexibility of the project and make it less dependent on hitting particular targets for sales or visitation. Useful techniques here might involve scaleability and phasing. The towns and the infrastructure might be designed to be appealing and effective even if they have not attained full size, so that facilities would not have to be developed too far in advance of the visitation revenues to pay for them. This might lead to a decision to develop a particular town in stages, or to initially develop only some rather than all of the planned towns. It might also lead to a decision to first use a vintage bus for a few years, and then a diesel-powered streetcar, before introducing a full steam train. The feasibility study might also consider whether there are ways to relax some of the historical rules of the area, without doing undue harm to the overall atmosphere, if those rules prove a truly grave impediment to development of the towns. We should be slow to reach this conclusion, but in some circumstances it might make sense to permit something like 1940s-vintage trucks to make occasional deliveries of bulky items such as furniture, ice, or heating oil.
In some important ways, the financial success or failure of the frontier area really lies in our own hands. While there is certainly room for more careful polling about a priori consumer dispositions, we will have a considerable opportunity to actually shape those consumer preferences through our own actions. Visitors’ inclinations to visit the area, and to remain for certain periods of time, will largely depend on how skillful a job we have done in selecting a beautiful site and then creating in it an interesting, unique destination that encourages and supports a wide variety of outdoor activities.
NUMBERS AND ANNUAL EXPENDITURES
BY VISITORS AND RESIDENTS
OF DIFFERENT TYPES
Overview of the population: 2400 people when the area is fully occupied. This number includes a house-dwelling population of 1200, and a further 1200 hotel guests. The house population is derived from the total design population of all of the towns (1100) plus an additional 100 people on outlying ranches. The house population is subdivided into three groups: 600 house renters, 400 permanent residents making their living in the frontier area, and 200 permanent residents who live on the basis of income received from elsewhere. The ratio among these numbers is derived from the experience of Nantucket, which seems like a generally similar model in that it is a neo-traditional resort community that is somewhat difficult to reach and that caters to extended stays. On Nantucket, the total maximum population on the island is four times the permanent population. (See Report of the Nantucket Sustainable Development Corporation, p.62.) That same ratio will exist here if the permanent residents and hotel guests are at the hypothesized figures.
Permanent residents relying on local income: 400 people when the area is fully occupied. These will be the people who are living in the frontier area and making a living by providing goods and services there; for the most part they will be involved in the travel business. Their number is one-third that of the peak hotel guests, and one-sixth the maximum overnight population of the towns. These ratios seem plausible and consistent with the Nantucket experience, but might call for further research. We assume that these people are full-time residents, with a season of 365 days, but that they are actually in residence only 70 percent of the year.
Permanent residents relying on outside income: 200 people when the area is fully occupied. This category includes all other types of permanent residents, who receive their money from elsewhere and whose income is income coming into the frontier area. They include retirees, government employees, college students, or people in the crafts who sell their products outside the frontier area. We assume for this group a relatively modest income of $20,000 per person ($40,000 per couple) in the belief that they will include many retirees. We assume further that they will spend only 70 percent of their year here, and therefore apportion their expenditures the same way.
House renters: 600 people when the area is fully occupied. They will account for half of the residential population. We assume that they arrive during a season of 200 days, that the average rental property is rented 60 percent of the time, and that renters spend an average of $150 per person per day in the frontier area. House rental rates in other outdoor- or historically-oriented vacation towns are commonly about $250 a night: (1) At Bryce Canyon, two-bed cabins rent for $125 a night; a family would need two of them to replicate a house. (2) At Rehoboth Beach, Delaware, a three-bedroom house rents for $200-250 per night in the season. (3) In Chautauqua, houses that size rent for about $250-400 per night. (4) In Colonial Williamsburg, one can rent free-standing houses in the historic area, as well as staying in the inn. Two bedroom houses rent for $600 a night, and three-bedrooms for $730 a night. These are high season rentals, and the houses at Williamsburg are relatively elaborate, so the figures will have to be adjusted somewhat, but are broadly consistent with the expenditure levels assumed here.
Total hotel guests: 1200 people when the area is fully occupied. In the chart below we assume that hotels will operate on a 200-day season, and at 60 percent capacity, catering to guests who spend an average of $150 per person per day in total. That figure would let a couple spend $200 per night on hotels, and a further $100 per day on meals, which seems like a reasonable average. Specific hotels might be more or less costly, of course. Bed & breakfast establishments in Chautauqua rent for about $125 per night.
Day trippers: 500 people on an average day during the season. This figure seems reasonable because on Nantucket there are 1200 day trippers on any one day, but the area here will be less convenient to population centers and so the number should be lower. On the other hand, the number is only 8 percent of the visitation for Death Valley, and so it does not seem unreasonably large. We hypothesize that day trippers will have a season of 150 days and will make per capita expenditures of $40.
Backpackers: 250 people on an average day during the season. In a season of 100 days, that would represent 25,000 visitor nights, a number one-half of the visitor nights in Shenandoah Park. We hypothesize that backpackers will each spend $30 per day in the area for supplies or the occasional night�s lodging.
These groups can be collectively represented on a table as follows:.
|Type of visitor||Number of this type||Length of season||Percentage of category capacity actually used||Visitor days||Expenditures per day||Expenditures per year per person||Expenditures per year total|
|Total house-dwelling population||1200||—||—||—||—||—||—|
|Permanent residents with outside income||200||365 days||70 percent||—||—||$20,000||$2,800,000|
|Permanent residents with local income||400||365 days||70 percent||—||—||0||0|
|House renters||600||200 days||60 percent||—||$150||—||$10,800,000|
|Hotel guests||1200||200 days||60 percent||—||$150||—||$21,600,000|
|Day trippers||500||150 days||—||—||$ 40||—||$ 3,000,000|
|Backpackers||250||100 days||—||25,000||$ 30||—||$ 750,000|
TOTAL EXPENDITURES: $ 38,950,000
Further justification for projected daily visitor expenditures
To further support the supposition in Table 1 above, that most groups of visitors will spend $150 per person per day, we can also look to some broader samples of comparable activities.
One comparable group consists of visitors to working ranches — not typical dude ranches, but places that actually run cattle and involve guests in that work. See Conde Nast Traveler, p.153 (Feb. 2005). The Hideout at Flitner ranch offers gourmet food and charges $1800-2400 per person per week (thehideout.com). The Box “R” Ranch in Wyoming has no phones or televisions in the rooms but charges $1095-1595. The Hunewill Guest Ranch in California makes 5-day, 60-mile cattle drives and charges $1128-1385 (hunewillranch.com).
Another reference group consists of abbeys and monastaries, some of which receive visitors and offer their own sort of non-modern, immersive experience. St. Joseph’s Abbey in Spencer, Massachusetts is the source of Trappist Preserves and receives donations averaging $450 for a six-day week; rooms are generally filled six months in advance (spencerabbey.org). New Melleray Abbey in Iowa is another Trappist institution, this one receiving both men and women with a suggested donation of $40 per day (newmelleray.org). The epicenter of Christian monasticism, the semi-autonomous monastic republic of Mount Athos on Greece, restricts visitors to 110 per day, but attracts many world leaders, including Prince Charles, Vladamir Putin, and President Jimmy Carter (macedonian-heritage.gr/Athos).
A third reference group is places offering “luxury camping.” This is a particularly useful comparison, since, if we worry that the Bright Angel valley will offer towns that are too austere or inconvenient, we can reframe the issue by thinking of the non-modern Bright Angel towns as a particularly comfortable form of camping, and there seems to be a strong demand for such services. Luxury camping received a major writeup in USA Today (Sept. 9, 2005, p.9D). Thirty tent cabins in a California wildlife preserve rent for $225 per night for two people. Antique-furnished safari tents in a Vancouver Island wilderness rent for $3998 per person, all inclusive for a three-night stay (wildretreat.com). Wood-and-canvas “tent bungalows” in California’s Big Sur, adjacent to state parks, start at $130 for two on weekdays (costanoa.com).
A last reference group consists of the historically-oriented forms of adventure travel. Hikes in places like Tibet and Tuscany are a travel-industry staple. Sea kayaking trips in the Sea of Cortez, with catered meals, sell for $1195 per person per week (CNN Travel, Nov. 10, 2005). One especially well-documented example involving new construction is a trail along Hadrian’s Wall, in the north of England, which was completed in 2003 at a cost of 6 million pounds. It has since attracted over a million visitors, over 400,000 walkers, and about 3000 long-distance walkers each summer. The walkers have collectively made almost 4.5 million pounds of expenditure already (BBC News, Jan 28, 2005).
OF PRIVATE BUSINESSES
IN THE FRONTIER AREA
PRIVATE ENTREPRENEURIAL BUSINESSES
Total expenditures in the frontier area $38,950,000
Persons depending on income from area 400
Expenditures per person 97,000
Assumed number of persons per household 3
Visitor expenditures per household 291,000
Number of rental-house dwellers 600
Number of rental houses 275
Total expenditures by house renters 10,800,000
Expenditures on house rental (60% of total) 6,480,000
Income to rental-property owners 6,480,000
Percentage of income available for mortgage 75 percent
Money available for mortgage payments 4,860,000
Mortgage money per house 17,700
Monthly mortgage money per house 1,475
Loan principal carried by rental income 150,000
CAPITAL COSTS AND REVENUES
FOR CONSTRUCTING THE BRIGHT ANGEL TOWNS
TOTAL ESSENTIAL CAPITAL COSTS
Railroad cost per mile $ 1,500,000
Total railroad track costs 12,000,000
Water and sewer systems per town 300,000
Total water and sewer for all towns 3,000,000
Total major utilities 15,000,000
All other infrastructure (stations, dirt roads, etc.) 15,000,000
Total essential capital costs 30,000,000
TOTAL NUMBER OF BUILDING LOTS
Total residential population, all towns 1200
Total residential building lots 550
Total commercial building lots 50
Total number of building lots 600
AVERAGE BUILDING LOT
TO COVER CAPITAL COSTS $ 50,000
OF DAY-TO-DAY GOVERNMENTAL FUNCTIONS
IN THE BRIGHT ANGEL TOWNS
REVENUES TO THE FRONTIER AREA
Total expenditures in frontier area $38,950,000
Assumed tax levied by frontier area 7 percent
Operating revenues for frontier area $2,726,000
EXPENSES OF THE FRONTIER AREA
Assumed cost per employee (including benefits) $100,000
Number of employees affordable 27
THRESHOLD OVERNIGHT VISITATION RATES
NEEDED FOR THE ECONOMIC VIABILITY
OF THE BRIGHT ANGEL TOWNS
WITH THE ACTUAL RATES IN OTHER NATIONAL PARKS
VISITATION NEEDED FOR ECONOMIC VIABILITY OF BRIGHT ANGEL
Maximum total capacity (house dwellers plus hotel guests) 2400
Total inhabitants needed for viability (at 60 percent of capacity) 1440
Assumed average stay 3 days
Number of new arrivals per day 480
Total new arrivals in a 200-day season (i.e., visitation) 96,000
Total number of visitor days need for viability 288,000
ACTUAL VISITATION AT EXISTING PARKS
Annual visitation at Death Valley 1,000,000
Annual visitation at Mojave National Preserve 500,000
Overnight visitation at Dartmoor National Park (England) 872,000
Total visitor days in the National Wilderness System 16,000,000
LIKELIHOOD OF ATTAINING TARGET FIGURES
Percentage of Death Valley that we would have to achieve 10 percent
Percentage of Mojave that we would have to achieve 20 percent
Percentage of wilderness days that we would have to achieve 2 percent