EconSouth (Third Quarter 2006)

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Volume 8, Number 3
Third Quarter 2006


The Energy Debate: Is Ethanol the Answer?

The Gulf Coast’s Tourism Comeback: Playing for Even Higher Stakes?

Hurricanes Spawn
Insurance Rate Increases

Katrina Update: One Year After


Fed @ Issue


Q & A

State of the States

Research Notes & News

Southeastern Economic Indicators




The Gulf Coast’s Tourism Comeback: Playing for Even Higher Stakes?

As cleanup and reconstruction from last year’s hurricane damage continue, tourists are starting to flock back to New Orleans’ and the Mississippi Gulf Coast’s attractions. While staffing shortages are dampening tourism’s resurgence somewhat in New Orleans, Mississippi’s reopened coastal casinos are making a lucrative showing, promising enormous returns for the bigger and better casinos already on the drawing board.

When last year’s hurricanes shuttered Gulf Coast casinos, the area’s economies suffered. But tourism officials expect that new casinos, built on land and more lavish than before, will go a long way toward restoring an industry that has become indispensable to the region.

The casinos of coastal Mississippi are humming, the golf courses are open, and the fishing is the best in years.

In New Orleans, some 60,000 conventioneers are booked for the fall, all but three of the major hotels are open, cruise ships are returning, and the first post-Katrina Mardi Gras in February and Jazz and Heritage Festival in April–May drew a combined 1.1 million people, a lower than normal but encouraging turnout. Even the city’s beloved football Saints marched back into a refurbished Superdome on Sept. 25.

Along the Mississippi Gulf Coast and in New Orleans, signs of rebirth are emerging in the tourism and hospitality industry. Hurricane Katrina in August 2005 crippled the travel and tourism-related businesses vital to those coastal economies. A year later, the communities and their attractions are stirring, and, in Mississippi especially, the future gleams with the promise of more and glitzier casino resorts.

For now, though, the economic lifeblood of tourism is only beginning to flow through the Mississippi Gulf Coast and New Orleans. Tourism in both areas remains plagued by several problems, notably shortages of hotel rooms for visitors and housing for residents who work in hotels, casinos, and restaurants.

Related Links
On the Web:
Mississippi Gaming Commission
Mississippi Gulf Coast Convention and Visitors Bureau
New Orleans Convention and Visitors Bureau

A tourism recovery is essential for both. In Mississippi’s three coastal counties—Hancock, Harrison, and Jackson—the gaming and hospitality industries employ more people and generate more direct and indirect tax revenue than any other economic sector, according to the final report of the Mississippi Governor’s Commission on Recovery, Rebuilding, and Renewal, published in late December 2005. The 12 coastal casinos operating before Katrina, for example, produced $500,000 a day in tax revenue for the state and local governments. In 2004, 11.4 million people visited the area and spent $1.9 billion, according to the Mississippi Gulf Coast Convention and Visitors Bureau.

Tourism is likewise the economic bedrock of New Orleans. Pre-Katrina, tourism employed 85,000 people and produced taxes that accounted for 35 percent of the city’s operating budget, said Kelly Schulz, vice president of communications and public relations for the New Orleans Metropolitan Convention and Visitors Bureau. “Having tourists in town means funding for the city for garbage pickup, for firemen and police to work, for teachers and schools,” she said. New Orleans is the nation’s fifth-largest convention site, and the city’s economy lost roughly $2 billion during the nine months that most of the city’s Ernest N. Morial Convention Center was closed in the wake of Katrina, officials estimate.

Mississippi casinos turning up aces
Coastal Mississippi’s casinos reverberate with the dinging of slot machines, the buzz of excited conversation, and the hammering of workers making repairs. These are the sounds of recovery.

Katrina wrecked the floating gaming houses, shutting down all 12 that were in business and preventing the opening of the Hard Rock Resort, which was scheduled to occur a few days after the storm hit. This devastation put 15,000 casino employees out of work. Mississippi State Tax Commission data show that state and local tax revenues from gaming statewide fell 18 percent, from $334.6 million to $273.6 million, during the July 2005ÐJune 2006 fiscal year. Job losses at casinos, hotels, restaurants, and tourist attractions that were washed away in the hurricane sent the three coastal counties’ unemployment rate soaring from about 6 percent to more than 20 percent in September and October 2005 before gradually subsiding to around 10 percent in recent months, according to Mississippi Department of Employment Security data.

New Orleans Superdome
Photo courtesy of FEMA
The Louisiana Superdome is back in business now that post-Katrina repairs—including replacing a half-million square feet of ceiling tiles and 800,000 square feet of drywall—have been completed.

Nevertheless, the gaming houses returned quickly. So did their customers, according to Mississippi officials. By August this year, five casinos had reopened. The Mississippi Gaming Commission’s statistics show that, during the April–June 2006 quarter, the first three coastal casinos to return—the Imperial Palace, the New Palace, and the Isle of Capri—generated $187.49 million in gross revenue, 58 percent of the total that a dozen casinos rang up in the corresponding period a year earlier. During the same year-over-year period, the state and local tax intake from casinos (including those in other parts of the state) was down just 15 percent—from $86.6 million to $73.3 million—even with just three coastal casinos operating for the entire quarter.

Those numbers are drawing plenty of company. By the end of October, said Larry Gregory, the gaming commission’s executive director, 10 of the 12 casinos will reopen, albeit some in temporary quarters. Those facilities are expected to bring back about 13,000 of the 15,000 pre-Katrina gaming jobs. “The market is returning very swiftly,” Gregory said. “That’s good news. But the great news is the numbers are coming in so strong, you’ve got potential developers interested in new projects.”

Six additional casinos are proposed, some in very preliminary stages, in coastal Mississippi, according to the Mississippi Gulf Coast Convention and Visitors Bureau. Those include the Bacaran Bay Casino Resort, a $500 million project of the Torguson Gaming Group scheduled to open in 2009 with a 21-story condo tower and seven restaurants, and Harrah’s Entertainment’s planned $1 billion-plus project at the site of the old Casino Magic Biloxi. Harrah’s acquired the land in May and plans to use the 18-acre site “to pursue long-term development opportunities on the Mississippi Gulf Coast,” according to the company’s second-quarter earnings news release, dated July 27.

Among the six proposed projects, those two are farthest along in the various planning and permitting processes, said Allen Godfrey, director of compliance at the gaming commission, which regulates and permits casinos. None of the other four had, as of early August, filed any official documents with the gaming commission, Godfrey said. Plenty of proposals over the years have never materialized, he added.

Bigger and better than ever
But Gregory notes that the conditions seem ripe for more and much larger casino resort development. A major reason is that soon after Katrina the Mississippi state legislature passed a law allowing the casinos to build on dry ground within 800 feet of water; the new law negated 1990 legislation requiring that casinos be built only offshore (see “Mississippi Gamblin’ ”). Many of the casino operators had expressed concerns about rebuilding the floating barges that would be easy targets for another hurricane.

Wyndham Hotel
Photo courtesy of FEMA
Hotels and other tourist accommodations along the Gulf Coast are reopening, albeit slowly. As recently as last summer, about a quarter of New Orleans’s hotel rooms remained closed.

These concerns became clear two weeks after Katrina, when Gregory and Gaming Commission Chairman Jerry St. Pé traveled to Las Vegas to meet with gaming industry executives to try to secure commitments to return to the Mississippi Coast. “We pretty much got that,” Gregory said.

But those commitments came with a caveat, spelled out by Harrah’s Chairman and CEO Gary Loveman, who told St. Pé and Gregory that he could not recommend to his company’s shareholders that Harrah’s rebuild on the water. Katrina ripped several barge-based casinos from their moorings and tossed them ashore like toys. Most gaming companies had no appetite for a repeat.

The new state law permitting casinos on terra firma, tax breaks designed to encourage post-Katrina development, and the impressive early revenue numbers from the first casinos to reopen have helped accelerate the return of other operators, Gregory said.

But the new law has done more than allow the casinos to reopen in the short term. It also means that the gaming concerns can build far more lavish buildings than the makeshift barge-based casinos that squatted in the Gulf of Mexico surf. “In probably two or three years, we’ll have a new face on the Gulf Coast,” Gregory said. “With the permanent facility concept, it’s not like the old cut and paste they used to do to add to barges. They were limited in what they could do. They’re coming back with these $1 billion projects that are going to be huge.”

In the first few months since the coastal casinos reopened, most of the customers have driven from nearby states, said Steve Richer, executive director of the Mississippi Gulf Coast Convention and Visitors Bureau. Some have been construction and cleanup workers. And more gamblers are likely on the way from Florida. During the summer AirTran Airways resumed direct flights, which had stopped after Katrina, between Gulfport-Biloxi International Airport and Tampa and Fort Lauderdale.

Served by five carriers, Gulfport-Biloxi International Airport actually had slightly more flights arriving in July than before Katrina, Richer said, mainly because of people coming for reconstruction-related work. Before the storm, 55 percent of fliers were coming for business, compared with 90 percent during the summer of 2006.

While gambling has become the major draw on the Mississippi Coast, it’s not the only one. In fact, the governor’s commission’s goal, said Richer, is to develop extensive meeting and convention space, high-class amenities, and attractions while retaining the coast’s local color and history. The commission’s report says that golf and fishing could help bring tourists back in the short term after Katrina.

To that end, 17 of the coast’s 19 golf courses opened in early August, according to the Mississippi Gulf Coast Convention and Visitors Bureau and the course Web sites, with the other two scheduled to reopen by November. Meanwhile, the fishing, according to newspaper reports, has been excellent, and much of the charter fleet weathered the storm intact. But a lack of marinas—just one of five had reopened by early August—was crimping the fishing business during the late summer, Richer said, and the shortage of rooms limited the number of fishermen and golfers.

Fewer rooms at the inns
In August, only 40 percent—6,863 out of 17,358—of the Gulf Coast’s pre-Katrina hotel rooms were available. That number should climb, Richer notes, as another 3,000 rooms open by the end of 2006. And he figures new casino resorts expected to be built will give the area a total of 30,000 rooms in four years. Availability is also a problem in New Orleans, which was without 24 percent of its rooms as of late summer.

The outlook is good for the coastal gaming business, Gregory said, “but housing is a critical issue. It’s a big challenge we’re trying to overcome. I don’t want to leave the impression that it’s all great and hunky-dory.”

throwing dice

Katrina destroyed or heavily damaged 133,966 housing units in Mississippi, according to the Federal Emergency Management Agency, while another 100,318 homes suffered minor damage. Virtually every home in the three coastal counties suffered at least some damage. In Louisiana, Hurricanes Katrina and Rita together destroyed some 280,000 homes and damaged another 329,000, according to figures from the Red Cross cited in USA Today.

To house workers, Mississippi Coast casino operators are considering buying or building apartment complexes or other housing developments, Gregory said. For a while at least, he noted, many coastal gaming and tourism employees will probably have to cope with longer commutes than they have been accustomed to.

Meanwhile, much of New Orleans’ population remains displaced because their homes are not livable. Under 200,000—fewer than half the 485,000 residents—of Orleans Parish, in which the city lies, had returned as of the first of August. This housing crunch creates staffing shortages for restaurants and hotels. But Schulz, of the city’s convention and visitors bureau, points out that visitors may not notice the staff shortages because they are mostly in behind-the-scenes jobs like housekeeping and dishwashing.

Still, staffing problems are among the reasons why some hotels and restaurants remain closed. While most of the city’s hotels had reopened by August, the city’s restaurants have been slower in returning. By August only 28 percent of the 3,841 retail food establishments in Orleans Parish were licensed to reopen, according to the state’s Department of Health and Hospitals. In suburban Jefferson Parish, whose population has increased since Katrina, 55 percent of 2,767 food establishments had been recertified.

gambling table
Mississippi Gamblin’

The Mississippi Gaming Control Act of 1990 was largely a compromise between lawmakers and gambling opponents, who wanted to limit casinos to waterfront locations and prevent them from opening throughout the state, recalls Deanne S. Nuwer, an assistant professor of history at the University of Southern Mississippi who has traced the history of gambling in the Magnolia State.

The 1990 act limited casino gambling to counties along the Mississippi River and the Gulf Coast, provided the voters in those areas approved it. In December 1990, coastal Hancock County, home of Bay St. Louis, was the first county to sanction gambling. Neighboring Harrison County, whose main towns are Gulfport and Biloxi, quickly followed suit. Two years after the Gaming Control Act passed, the Isle of Capri Casino opened in Biloxi as the first of the coast’s new gaming houses.

Mississippi’s current gambling establishments have lasted longer than some earlier ventures. In 1926 the Isle of Caprice Hotel and Resort was built on Dog Key, which had become a haven for bootleggers. The popular resort featured illegal roulette wheels, dice tables, and other games, according to Nuwer. But the prophetically named resort’s luck didn’t hold. By 1932, storms, gulf currents, and the removal of erosion-preventing sea oats by visitors left the tiny island, resort and all, completely submerged.

Battling perceptions
For tourists who want to go, getting to the Big Easy is still not as easy as it used to be. At Louis Armstrong International Airport, only 69 percent of daily flights have resumed since Katrina. In August, the airport had 111 daily flights, compared to 160 before the hurricane, Schulz said.

Even considering the practical issues, the biggest hurdle faced by Schulz and others selling the city to potential visitors is the perception that New Orleans is paralyzed or dangerous, Schulz said. While parts of the area are still scarred from Katrina, the places tourists generally stay and visit remain mostly intact. The French Quarter, Uptown, the Garden District, and the central business district are largely functioning normally, Schulz said.

The perception battle often determines whether convention planners stick with plans to come to New Orleans. Schulz said many of the organizations that have elected to keep conventions in the city have sent representatives to scout for themselves. “We’ve had more site visits in the last eight months than we probably have in 20 years,” she said.

New Orleans’ convention bookings for fall 2006, when some 60,000 people are expected for major meetings, equal about half a normal autumn before Katrina, “which is pretty good considering where we were a year ago,” Schulz said.

The first major meeting in the Morial Convention Center after the storm was a convention of 17,000 librarians in June. New Orleans officials viewed that gathering as a crucial test of the city’s ability to accommodate a major convention. It turned out well, according to media reports. One of the few reported complaints was a lack of flights into and out of the city.

In early August, 16,000 members of the Louisiana Restaurant Association gathered in New Orleans. The city’s biggest convention of the year will come in November, when the National Association of Realtors (NAR), the nation’s largest trade association, is expected to bring 30,000 people to town. A June NAR press release reports that advance registration for the convention is outpacing all previous NAR conventions.

In mid-October, Norwegian Cruise Lines’ (NCL) Norwegian Sun will become the first cruise ship to make New Orleans its home port since Katrina struck. NCL also announced in June that the ship will sail Caribbean cruises out of New Orleans beginning in November 2007 and through April 2008. Three other ships stopped in the Crescent City during the past winter and spring, said Chris Bonura, spokesperson for the Port of New Orleans.

Tourism officials and everyone else in southern Mississippi and Louisiana hope to be spared by the 2006 hurricane season, which began in June and ends in November. The thinking is to get through the fall so that recovery in the industry can continue. In Mississippi, the promise of a casino resort building bonanza could remake the once-sleepy coast into a tourist magnet busier than ever. In the Crescent City, the hopes are that tourism and les bons temps can just get back to the way they used to be.

This article was written by Charles Davidson, a staff writer for EconSouth.