Artificial Project Time Horizons In The Absence Of Discounting: The Case Of Canyon Forest Village

Abstract

In the summer of 1997, the Kaibab National Forest released the Draft Environmental Impact Statement for Tusayan Growth. This report analyzed various scenarios involving the transfer of National Forest land at the boundary of the Grand Canyon National Park to a private developer, in exchange for private inholdings scattered throughout the Kaibab National Forest in northern Arizona. The resulting private development was to be called Canyon Forest Village, and would include hotels, visitor facilities, private housing, community facilities and a transportation center for tourists accessing the Grand Canyon. The proposed build out of Canyon Forest Village (CFV) was to take place from 1999 to 2010. Consequently, the Forest Service analysis used that time frame as the basis for calculating the economic impacts CFV would be expected to have on local economies in the northern Arizona region. The Draft Environmental Impact Statement (EIS) concluded that overall growth in demand for lodging in northern Arizona would be robust over those years, and that CFV would have no net negative impacts. The results of the Draft EIS were sharply contested during the public comment phase, and, in the summer of 1998, a Supplement to the Draft Environmental Impact Statement for Tusayan Growth was issued. This document used a different modeling procedure and changed its primary focus to two, smaller, CFV proposals, involving only 900 and 1,270 hotel rooms. The Supplement did conclude that there would be some negative impacts to the communities surrounding Grand Canyon. The results of the Supplemental Draft EIS were also contested during the public comment phase following its release, although a year later, in the summer of 1999, the Forest Service issued a Final EIS and adopted the CFV proposal for 1,270 rooms. One peculiarity of the Forest Service reports, throughout this process, was the failure to identify an explicit discount rate of interest in order to identify costs and benefits in terms of their present value. While EIS documentation has been required for many years, the obvious focus is on purely environmental concerns and the analyses tend to be based on scientific findings. The inclusion of a socioeconomic analysis necessitates a careful accounting of benefits and costs. While this EIS is not the first to include an explicit accounting of economic benefits and costs, it may serve as a harbinger of more reporting of this type. Unless those with an appreciation of the discounting process, especially economists and accountants, are included in these analyses, present values may be employed only on an erratic basis, making the results of such reports difficult, if not impossible, to adequately interpret. This article applies basic and commonly accepted time value of money principles to an EIS report. Although an economic analysis was provided as part of the report, the time value of money was ignored. In order to present a viable economic impact, these basic financial tenants must be employed. The authors used basic time value of money principles with reasonable discount rates. The result is that impacts could be as much as six times greater than the values given by the Forest Service, representing upwards of one hundred and fifty million dollars.