Determining the economic value of Flathead Lake

The following op-ed piece came from the staff at the Flathead Lake Biological Station at Yellow Bay on Flathead Lake.

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We love our big, beautiful lake for its stunning clarity. We enjoy swimming, boating, fishing, sunsets, storms, and creating family memories and friendships. The lake supports businesses and provides clean water for the wants and needs of all living creatures within its watershed.

It is a special, limited resource and living around it is highly desirable. These elements, subjective and objective, factor into the value of this remarkable jewel, Flathead Lake. But how do economists put a number value on all of this?

Although deemed by many to be very important, a comprehensive economic analysis of the value of the Flathead Lake-River system has not been done. Past proposals from the Flathead Lake Biological Station to do this work have not been funded, but FLBS researchers recently compiled the economic information that does exist for our Flathead Lake Facts handout (also available online at http://flbs.umt.edu):

“Economists estimate that Flathead Lake boosts shoreline property values by $6 billion to $8 billion. Nature-based tourism accounts for roughly 20 percent of the $7.8 billion annual economy of Flathead and Lake counties, and ecological services (e.g. water supply and purification, flood and drought mitigation) contribute another $20-plus billion in benefits to human society.”

Not included in this compilation are the difficult to quantify nonuse values, i.e. placing a value on existence, species preservation, biodiversity or cultural heritage. However, it is clear from numerous examples that ecological degradation corresponds to economic declines — lower personal incomes, depressed economic conditions and impaired human health.

On top of that, there are the costs to society associated with “fixing” ecological degradation. An example is Lake Tahoe in California and Nevada where $1.4 billion has been spent on water quality restoration and protection since the 1960s ($415 million since 2010).

The shoreline property valuation of $6 billion to $8 billion was calculated by University of Montana economists John Duffield and Chris Neher for a conference workshop. Their hedonic property value approach used the value per foot of shoreline around the lake (from Montana Department of Revenue) and the amount of private, developable shoreline for Flathead Lake. They then compared their calculated land values with similar land in Western Montana that is not lakefront. The $6 billion to $8 billion resultant value is what they call “residential property services” associated directly with the lake and its high water quality.

A widely used economic data source, IMPLAN, provided information about the magnitude of the Flathead’s tourism economy, and a 2007 book “Sustaining Rocky Mountain Landscapes: Science, Policy and Management for the Crown of the Continent Ecosystem,” edited by Tony Prato and Dan Fagre, provided the basis for ecological services.

Regarding the $20 billion of additional benefits to society, Prato and Fagre cite a leading ecological economist, Robert Costanza, that ecological services are often estimated at three times the gross GDP for a country or region. Given that IMPLAN reported the Flathead’s economy at $7.8 billion in 2007, three times that is nearly $24 billion.

For numerous reasons, including the economic ones articulated above, ecological degradation is the least desired outcome for Flathead Lake. It brings to mind Benjamin Franklin’s famous quote, “An ounce of prevention is worth a pound of cure.”

Since we all benefit directly from Flathead Lake, it is in all of our best interests to understand and sustain the lake for future generations. The most important thing that we can do is to continue to invest in the FLBS Flathead Lake Monitoring Program, which serves as society’s early warning system for the ecological health and water quality of the lake.