Partners, Volume 15, Number 3, 2005

Mississippi in the Wake of Katrina

Hurricane Katrina battered the Mississippi Gulf Coast. Whatever one remembers is gone. Estimates of Katrina’s damage exceed $100 billion, making it the most devastating storm on record. However, the rebuilding effort will probably fuel an economic rebound.

Photo by Mark Wolfe courtesy of FEMA.

In the meantime, the devastation is extensive: the damage in Mississippi alone has been estimated at between $30 and $50 billion. Two months after the storm, much of the coast remains buried under a mountain of rubble. A profound lack of housing persists and schools are meeting in tents. Mississippi Power estimates that nearly 20,000 of their customers are still unable to take power because the building is gone or so severely damaged that restoring power would be dangerous.

Economic recovery spurred by rebuilding efforts
Looking at the longer-term economic effects of the storm, the outlook becomes much more promising. The billions of dollars required to rebuild the area will generate significant economic activity and may well set the stage for a complete revitalization of the Mississippi Gulf Coast. This is the hope of Governor Haley Barbour and the newly formed “Commission on Recovery, Rebuilding and Renewal” charged with the task of bringing a renaissance to the coast. If this plan is successful, Hurricane Katrina may act as a catalyst for an economic boom on the coast and in the state as a whole.

Despite the economic downturn immediately following the storm, it is becoming increasingly clear that the decline is likely to be small relative to the growth sparked by rebuilding. Though the latest employment figures show a five percent decline in the total number of people employed in the state, tax collections exceeded the pre-Katrina estimate during the two months following the hurricane.

Strong tax collections are a result of the refugees from New Orleans and the coast dispersed throughout the state who are spending money for rooms, food, clothes and other items—money they would not spend if Katrina had not occurred. Additionally, many people have already begun to rebuild and that activity is also generating increased sales tax. As the rebuilding progresses, the state can expect to see a robust rebound of economic activity.

Coastal economy key to state’s recovery
Central to the economic rebound will be the revitalization of the Coast, which suffered the worst storm damage. The three coastal counties make up roughly 14 percent of the state’s economy. They rely heavily on tourism, with 20 percent of the workforce directly or indirectly involved in the industry.

Since the mid-1990s, gaming has been the centerpiece for coastal tourism. Before Katrina 12 casinos operated on the coast and another was scheduled to open soon. All 13 suffered significant damage. Obviously, the closing of the coastal tourism industry results in a loss to the state’s coffers. Though the state is losing sales tax from the tourism dollars, losses from gaming taxes and fees are even greater.

This pirate-themed casino resort on the Mississippi Gulf Coast (above) was ravaged when Hurricane Katrina hit Biloxi. The photo below shows the casino after the storm.

Before Katrina the coastal casinos were generating roughly $8 million per month for the state through gaming fees and taxes alone. Closure of the coastal casinos will cost the state most but not all of this revenue. Some gambling activity will move to the 17 casinos in River County and this will offset some of the coastal loss.

Casino gambling in Mississippi
A key component in the Gulf Coast revitalization plan has been to move casinos on shore to more secure facilities. Legal obstacles have already been addressed and at least two casinos are scheduled to reopen by early in 2006.

For someone not familiar with the history of gaming in Mississippi, moving the casinos onshore may seem an

obvious solution. But legalization of gambling in Mississippi has long been controversial. Mississippi has never embraced the gambling industry with open arms. While gambling opponents were fighting a very public war against the establishment of a state lottery, bills that would permit dockside gaming were quietly making their way through the legislature. No one, including the casinos who initially invested in the state, anticipated the extent of the industry’s success.

Mississippi experienced tremendous economic growth between 1992 and 1994 as the state built its casino industry. Strong expansion continued through the next few years as the state added more hotels, and bigger, more luxurious casinos came into the Mississippi market. The 1990s were by far the most economically prosperous period the state has seen in recent decades. Some anticipate that moving the casinos on shore will create a similar boom.

However, it is unlikely that rebuilding land-based casinos will single-handedly create an economic boom for the state. During the 1990s, casinos were being built along the Mississippi River as well as on the Coast. In addition the 1990s enjoyed a strong national economy, and Mississippi was in part riding that wave.

Coastal economy likely to rebound
The coastal economy is nevertheless poised to prosper in the coming years. In fact, land speculators are already bidding up the price of real estate, and it is possible that some residential property will give way to high-dollar condominiums. The casinos are expected to reinvest heavily to make the Gulf Coast an even more popular destination than before the storm, and this will benefit the entire state.

Rebuilding efforts in other damaged areas will also contribute to the state’s growth. In addition, some New Orleans businesses have relocated to Mississippi. For some the move will be temporary, but others will choose to remain.

The economic outlook for Mississippi in the wake of Katrina is decidedly positive. The state is expected to outperform the nation over the next few years as construction activity fuels strong expansion.

Longer term prospects are more mixed. While the coast’s economy is likely to enjoy an economic renaissance, the rest of the state will probably return to its long-term growth pattern characterized by prosperous population centers and struggling rural areas.

This article was written by Darrin Webb, Ph.D., senior economist at the Mississippi Institutions of Higher Learning.

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