THE LOUISIANA ECONOMIC OUTLOOK: 2016 AND 2017

Prepared by: Loren C. Scott Professor Emeritus in Economics James A. Richardson John Rhea Alumni Professor of Economics Louisiana State University And Judy S. Collins, Managing Editor Published by: Division of Economic Development E. J. Ourso College of Business Louisiana State University Baton Rouge, LA October, 2015

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ACKNOWLEDGEMENTS

This year’s LEO is 120 pages long, packed with data you will hopefully find useful in your planning efforts and in just understanding the economy in which we live and work. Keeping up with the Louisiana economy is a year-around endeavor and requires input from folks all over the state, and candidly our acknowledgements page is simply too small to thank everyone who made this 34th edition of the LEO possible. We must start by thanking our four generous sponsors, Cleco, ExxonMobil, Home Bank and our donor/printer---Blue Cross Blue Shield of Louisiana. Their donations not only help get the LEO out, but they also provide much needed support to the Economics Department at LSU. We contact hundreds of people around the state for data on their firm and/or industry. We are very grateful that you answer our calls each year and are generous with vital information. Few get to enjoy the kind of access you give us. Hopefully we continue to earn your trust. We especially want to thank the economic developers and their teams across the state that review our data and make critical suggestions that keep us from error. Among these fine servants in our communities are Michael Hecht, Adam Knapp, Larry Collins, Jon Grafton, Greg Gothreaux, George Swift, Rick Ranson, Eric England, Scott Martinez, Linda Prudhomme, Bob Fudickar, Stacey Neal, Lacey Toledano, Jason Elkoubi, and Michael Eades. All manner of helpful data come to us out of Stephen Grissom’s shop at the Louisiana Department of Economic Development. The plethora of new projects going up in Louisiana can be significantly traced back to the efforts put forth by the team at LDED. When it comes to the financial status of state our stalwart information source is Greg Albrecht in the Legislative Fiscal Office, and the very foundation of our forecasts derive from the employment data provided by the efficient staff of the Research Division under the direction of Ramona Robichaux at the Louisiana Workforce Commission. Connie Fabre at the Greater Baton Rouge Industrial Alliance liberally shares her great data base of industrial announcements with us. For many years now the release of the LEO occurs at the Top 100 Luncheon hosted by Rolfe McCollister and Julio Melara of Business Reports Magazine. We get to come out of the gate fast because of the support we receive from these two great entrepreneurs and civic leaders. Thanks guys. You are the best. As always there someone is working behind the scenes for us to catch grammatical errors, manage our subscription list, secure an excellent cover design, and just cover the bases. Managing Editor Judy Collins does this job supremely well. We are lucky to have you on the team! Finally, Dean Richard White of the E. J. Ourso College of Business is the ultimate backer and is also a terrific representative of the College. Dick, you make us want to “Love Purple and Live Gold”. ______________________________________________________________________________________ Economic Outlook Page 2

EXECUTIVE SUMMARY

“When she was good, she was really, really good. When she was bad, she was horrid.” Louisiana is a major energy producing state. In fact we are ranked #2 in production of both oil and natural gas if the Gulf waters are included. When energy prices are strong, the state prospers. When oil prices are declining, it is tough----especially for certain areas of the state. This year has been one of those bad years, and it is reflected in the 2015 employment numbers and the prospects for 2016. The Executive Summary Table provides a numerical summary of our background assumptions and our forecasts for each region of the state. Our forecasts are based on the following assumptions: 

Slowed by rapid increases in regulations and higher tax rates, the U.S. economy will continue its plodding pace of expansion with RGDP averaging 2.6% growth annually.



Inflation will remain in the modest 2.1% range, and minor increases in interest rates can be expected.

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We are projecting a rebound in oil prices to $55 in 2016 and $60 in 2017, though enormous uncertainty requires us to place a $30 to $90 a barrel range around those forecasts.



An increase in industrial demand combined with a reduction in supply due to much reduced rig counts, should put upward pressure on natural gas prices, with the price per mmbtu going to $3.50 in 2016 and $3.90 in 2017.



About half of the $125.1 billion in announced projects are under construction and about half are at the FEED and permitting stage. Viability of the FEED group is threaten by the EPA (1) lowering ozone standards in the U.S. and (2) imposing the Clean Power Plan that will radically raise industrial utility rates.

With the addition of the Hammond MSA, Louisiana is now home to nine metropolitan statistical areas. Prospects for each will dramatically turn on where the MSA is located. Essentially, we see the state split into three regions: (1) the rapidly expanding Baton Rouge and Lake Charles regions; (2) the languid northern tier of the state; and (3) an oil patch region that will decline through 2016. From the largest to the smallest MSA, we forecast as follows: 

Louisiana’s largest MSA---New Orleans---is projected to show meager growth of 0.5% (+2,900 jobs) in 2016 and a better 0.8% (+5,100 jobs) in 2017. Layoffs in the MSA’s oil sector and declining spending by the Army Corps will arrest growth that would be much better due to (1) the opening of two new, large hospitals, (2) $1.1 billion in industrial expansions underway, (3) expansion of the airport, (4) a condo building boom, and (5) a number of new firms coming to the

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region. New Orleans’ record could be much better in both years if some $23.5 billion in projects at the FEED and permitting level actually go “vertical”. 

After cracking the 400,000 employment level for the first time, the 9-parish Baton Rouge region is poised to enjoy two good years of growth, adding 8,900 jobs (+2.2%) in 2016 and 6,200 (+1.5%) in 2017. This MSA has about $8 billion in industrial projects under construction. The slightly slower growth rate in 2017 is due to several of those winding down and few firms at the FEED stage in this MSA. Several high tech firms are entering this market---led by IBM---and the remarkable 125% growth in tonnage at the Port will be repeated as the pellet exports evolve. The loss of two significant headquarters and threats from the EPA will stifle growth here.



After basically seven years of decline, the Shreveport-Bossier MSA will be dragged down again in 2016 by a suffering extraction sector (-800 jobs) but a modest rebound should occur in 2017 (+800 jobs) led by the Benteler Steel expansion at the Caddo-Bossier Port and additions at the Computer Sciences Corporation.



Persistent layoffs in the energy sector will drive employment lower in the Lafayette MSA for a second straight year in 2016 (-2,600 jobs), but if our oil price forecasts are near the mark, 2017 should be a recovery year (+2,000 jobs). The opening of the new Bell Helicopters plant and the addition of four new high tech firms will help this region.

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Like Lafayette, the Houma MSA is being pounded by the energy sector and energy-related firms. Edison Chouest and Gulf Island Fabricators alone have cuts 3,000 jobs. We expect the energy sector to be a drag into 2016 (-2,000 jobs) before recovering about 1,000 jobs in 2017 as oil prices hopefully rebound and stabilize. Substantial coastal restoration monies are about to reinvigorate this region as well.

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The hottest area of the state right now is the Lake Charles MSA. This region has a remarkable 39.6 billion in industrial projects under construction and an equally remarkable $45 billion at the FEED and permitting stage. A huge boom in industrial construction workers will drive this region up by 7,400 jobs (+7.1%) in 2016 and another 2,000 jobs (+1.8%) in 2017. This latter year’s growth rate could become much larger if the projects at the FEED stage move to construction. Other good news for this region came when the Golden Nugget Casino opened and actually grew the gaming market without cannibalizing business away from the other two casinos.

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Unfortunately the Monroe MSA has been languishing for 13 years and there seem to be few prospects of that changing over our forecast period. We expect the region’s employment to be flat in 2016 and expand by a modest 200 jobs in 2017. The area was rocked by the announcement that its largest employer---

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CenturyLink---was starting a round of layoffs. Fortunately only 55 jobs were targeted in this MSA. 

Our forecast for the Alexandria MSA is a continuation of the modest growth the region has experienced for the last two years---adding 500 jobs a year. This projection could turn out to be radically conservative if American Specialty Alloys follows through with their proposed new $2.4 billion, 1,400-person plant.

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Louisiana’s newest, and smallest MSA is Hammond. Composed of only Tangipahoa Parish, this university town is enjoying a very good 2015 due to enrollment and budget boosts at SLU and from an energetic healthcare sector. These same factors should enable the region to add an expected 700 jobs a year over 2016-17.

The combination for the forecasts for these MSAs, along with modest growth in the 29 rural areas of the state, should put the state on a path to add 15,400 jobs in 2016 (up 0.8%) and 19,600 jobs in 2017 (up 1%). If our forecasts are near the mark, sometime in the latter part of 2015 or early 2017 Louisiana will have more than 2,000,000 non-farm employees for the first time in Louisiana’s history.

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Executive Summary Table Item 2015 2016 BASIC ASSUMPTIONS: Real Gross Domestic Product: Growth 2.3% 2.6% Inflation Rate 0.3% 2.1% 30-Year Fixed Interest Rate 4.0% 4.5% Oil Price: barrel $55 $55* Natural Gas Price: mmbtu $2.90 $3.50 STATE PROJECTIONS: Non-Farm Employment (000s): Absolute Growth Rate Percent Growth Rate: Employment

1,995.3 14.6 0.7%

2,010.7 15.4 0.8%

2017 2.6% 2.1% 4.8% $60* $3.90 2,030.3 19.6 1.0%

MSA PROJECTIONS: EMPLOYMENT (000s) Alexandria 63.8 64.3 64.8 Absolute Change 0.3 0.5 0.5 Percent Growth Rate 0.5% 0.8% 0.8% Baton Rouge 402.6 411.5 417.7 Absolute Change 7.7 8.9 6.2 Percent Growth Rate 1.9% 2.2% 1.5% Hammond 44.9 45.6 46.3 Absolute Change 1.1 0.7 0.7 Percent Growth Rate 2.5% 1.6% 1.5% Houma 100.8 98.8 99.8 Absolute Change -0.8 -2.0 1.0 Percent Growth Rate -0.9% -2.0% 1.0% Lafayette 220.3 217.7 219.7 Absolute Change -1.0 -2.6 2.0 Percent Growth Rate -0.4% -1.2% 0.9% Lake Charles 104.0 111.4 113.4 Absolute Change 6.6 7.4 2.0 Percent Growth Rate 6.8% 7.1% 1.8% Monroe 77.3 77.3 77.5 Absolute Change -0.9 0.0 0.2 Percent Growth Rate -1.2% 0% 0.3% New Orleans 562.7 565.6 570.7 Absolute Change -1.7 2.9 5.1 Percent Growth Rate -0.3% 0.5% 0.9% Shreveport-Bossier 182.2 181.4 182.2 Absolute Change -1.5 -0.8 0.8 Percent Growth Rate -0.8% -0.4% 0.4% RURAL EMPLOYMENT 236.7 237.1 238.3 Absolute Change 5.1 0.4 1.2 Percent Growth Rate 2.2% 0.2% 0.8% Source: LSU forecasting team. *Around a wide range of $30 to $90 a barrel

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TABLE OF CONTENTS Page ACKNOWLEDGEMENTS…..........................................................................................2 EXECUTIVE SUMMARY………………………………………………………….... 3 OUTLOOK FOR 2016-17; UNDERLYING ASSUMPTIONS…………………….... 8 BRIEF HISTORY OF THE LOUISIANA ECONOMY……………………………….29 THE OUTLOOK FOR THE METROPOLITAN STATISTICAL AREAS….…..…… 44 The New Orleans MSA: Huge Construction Potential….................................. 37 Baton Rouge: Is Industrial Construction Peaking?..............................................56 Shreveport/Bossier: Oil & Gas – Another Year of Bloodletting…......................69 Lafayette: Sliding Down Another Oil Price Cycle….…………………………..78 Houma: There Is No Sugar-Coating This….……………………………….…...87 Lake Charles: The Boom Continues….………………………………………....95 Monroe: Languishing 13 years..………………….…………………………….108 Alexandria: With ASA On The Cusp of A Boom…......................................... 112 Hammond: The New Kid on The Block….…………..……….………….…….119 THE OUTLOOK FOR THE RURAL PARISHES: 2016-17……………..……...........124 THE OUTLOOK FOR THE STATE 2016-17……...…….…………..………………..128

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OUTLOOK FOR 2016-2017: UNDERLYING ASSUMPTIONS It is a forecaster’s dream to see nice straight historical trend lines. An example would be food consumption by year in the U.S. The series follows a nice straight upward trend that can be reasonably projected into the future with a pencil, a ruler and a piece of graph paper (does anyone remember graph paper?). There is no such luck when one resides in a state like Louisiana where energy plays a prominent role. As will be indicated in the paragraphs below, few things are more wildly erratic than oil and natural gas prices---a lesson learned with a vengeance in our state over the past year. The more erratic a series is, the more difficult it is to project accurately into the future. In Louisiana, 9.1% of the state’s gross state product is derived from oil and gas extraction and production; basically triple that for the nation as a whole. 1 The Louisiana Economic Outlook (LEO) forecasting team paid a price in forecasting accuracy this past year for living in such an environment. Our state’s future also is influenced by the national economy. The onset of a national recession pulls down Louisiana’s employment, while boom periods tug it up. However, Louisiana is not moved nearly as much by national business cycles as, say, its neighbor--- Mississippi. The reason? In Mississippi, 9.2% of employment is in durable goods manufacturing; in Louisiana the percentage is about half that at 4.6%. The first things people quit buying at the onset of a recession are durable goods, such as cars, furniture, electronics, and houses. Thus, a large chuck of Mississippi’s economy takes a hit when a national recession hits, while Louisiana feels the effects much more modestly. In this first section of the LEO, the background assumptions are presented that form the foundation of our forecasts. The National Economy – Tepid Growth, No Recession Lower reliance on durable goods manufacturing certainly protects the Louisiana economy from the full impact of national business cycles, especially downturns. Still, there is an effect. Our projections are based on a national economy whose growth might best be described as tepid, but fortunately does appear to be recession-free over the next two years. Real Gross Domestic Product Trends Data provided by David Hale of David Hale Global Economics provide a reference point on the bland nature of the performance of the U.S. economy in recent years. Data on the change in real gross domestic product (RGDP) in the five years after every recession since 1960 are shown in Table 1. 1

www.bea.gov

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Table 1 5-Year Recovery in U.S. RGDP after Every Recession Since 1960 End of Recession 1961 1970 1975 1980 1982 1991 2001 Average: 1961-2001 2009 David Hale Global Economics

RGDP Recovery 35.4% 16.7% 23.3% 19.9% 27.7% 16.7% 15.8% 22.2% 11.4%

Note that in the years since the Great Recession ended in 2009, the economy has grown at the slowest rate of any of the seven previous recoveries since 1960. Indeed, the growth rate (11.4%) has been almost half the 22.2% average over these past seven recoveries. RGDP: Why the Weak Growth – Regulatory Burden? An obvious question is why the weak growth post-2009? There are several possibilities, but at least one source is the direction of federal policies. The Obama administration has placed economic growth down the list of priorities and has elevated the rankings of social reforms such income inequality, climate change, and the administration’s perceptions of social justice. It is not that growth has no rankings; it is that other issues have higher rankings. As it turns out, attacking these other issues has often involved tools that are impediments to growth. For example, the passage of new rules and regulations---both via Congress and via the administration’s federal agencies---shifts the marginal cost curve upward in firms, causing them to produce less and hire fewer people. Even more growth arresting has been the constant flood of regulations coming from the various federal agencies that have left business owners highly uncertain about what is coming next. Uncertainty is the bane of economic growth. If you do not know what is coming next, you hunker down instead of expanding. Figure 1 documents the number of pages in the Federal Registry from 1960 through 2014. Two points are especially instructive about this chart. First, note the noticeable jump in the page count from 2000 through the present. The count moves around the 80,000-page level, a peak only achieved for only two years back at the end of President Carter’s term. It is instructive that the period from 2000-14 of high regulatory activity is also associated with the two weakest periods of RGDP since 1960 recovery documented back in Table 1 (including both the Bush and Obama administrations). The GAO also reports that the rules promulgated during the Obama administration have been ______________________________________________________________________________________ Economic Outlook Page 9

far more onerous than during the Bush administration. In its first six years, the Obama administration enacted 499 “major rules” across all federal agencies, a 43% increase over the first six years of the Bush administration. A major rule is one projected to cost the economy $100 million plus to implement.2 Fig. 1: Pages in the Federal Registry - 1960-2014 90,000 80,000 70,000 60,000 50,000 40,000

2008-14: Avg. = 78,880

30,000

1981-88: Avg.= 54,335

20,000 10,000 60

65

70

75

80

85

90

95

00

05

10

Source: www.llsdc.org/assets/sourcebook/fed-reg-pages.pdf

A second noteworthy point in Figure 1 is the comparison of the Obama period of a high-regulatory environment (an average of 78,880 pages a year so far) with the lowregulatory environment of the Reagan years (54,335 pages a year). Note back in Table 1 that the Reagan years were associated with the second highest RGDP recovery numbers 3, while the high regulatory environment is associated with the lowest RGDP numbers in the table. RGDP: Why the Weak Growth –Tax Burden? A second source of the weaker RGDP growth post-2009 has been the increased tax burden since that year. President Obama has made reducing income inequality a major mantra of his administration, and one tool for achieving that is raising the tax rate on higher income earners. This is illustrated in Figure 2 which shows the marginal tax rate for the highest and lowest income earners in the U.S. Note that during President Obama’s Administration, the top marginal tax rate was raised to 39.6% while the tax rate for lower income earners was lowered. In addition, higher income earners lost

2

Forbes, August 17,2015, p.104. RGDP recovery post-1961 show the highest numbers, but readers may recall that these numbers were boosted by Vietnam War spending.

3

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numerous deductions and exemptions, which effectively raised their marginal tax rate even higher. It may appear that the increase in the top marginal tax rate from about 35% to 39.6% is fairly minor, but this masks what occurred with two other key tax increases not captured in Figure 2. Two new taxes were passed to help fund the Affordable Care Act. First, the Additional Medicare Tax was imposed of 0.9%. For example, the threshold amount for married couples filing jointly is $250,000, and importantly it is without a cap. Secondly, a new Net Investment Income Tax of 3.8% was passed which hit those individuals with earnings from dividends, rental real estate, interest earnings, and other types of investments. Figure 2

One might argue that these tax increases were fair and needed in order to combat income inequality. The other side of the coin is that tax increases also arrest, rather than promote, economic growth. National Employment Effects Weak RGDP growth has also been reflected in the national employment numbers. Figure 3 illustrates the monthly change in employment in the U.S. from January 2008 through August 2015 (latest available at this writing).

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Both the length and depth of the Great Recession are vividly displayed in the first two years of data in Figure 3. The nation shed nearly 8.7 million jobs over 2008-09, a decline of 6.1%. What is also evident in this figure is that the recovery was not symmetrical. The deep recession was not followed by a robust recovery. From 2010 through the present, monthly employment gains have averaged about 185,000 jobs a month, but that number improved in 2014 to 260,000 a month. Fig. 3: Monthly Change in US Employment 600 400

August 2015: 173,000 Ur = 5.1%

1/08 to 12/09: -8,678,000 Jobs (-6.1% )

Thousands

200 0 Recovery Average: 2010 to present 185,000 2014 = 260,000

-200 -400 -600 -800 -1,000 2008

2009

2010

2011

2012

2013

2014

2015

Source: Bureau of Labor Statistics

Averaging 260,000 jobs a month may appear strong, but in reality it is not. It is instructive to make some comparisons between the recovery in the first five years of the “lower-tax-rates-reduce-regulation” Reagan administration and the “higher-tax-ratesmore-regulation” of the Obama administration. Some handy comparative statistics are provided in Table 2. Table 2 Months of High Employment Growth: First 5 Years of Recovery Administration Reagan (1983-87) Obama (2010-14) Source: www.bls.gov

Months of: 399,000>Months400,000 5 2

Note that with a labor force that was 41% smaller than in Obama’s administration, the Reagan period had five months with employment growth exceeding 400,000 and 14 months where employment grew between 300,000 and 399,000. By comparison, the five recovery years of the Obama administration enjoyed only two months of employment ______________________________________________________________________________________ Economic Outlook Page 12

growth of over 400,000 (and one of those was the hiring of census workers in 2010), and only five months of growth between 300,000 and 399,000. RGDP Forecasts for 2016-17 In recent months President Obama has signaled via his speeches and through regulatory actions of the agencies under his control that his plan is to soldier on with the policy agenda he followed in the past six and a half years of his administration. We will detail below actions he is proposing on climate change. His National Labor Relations Board is changing the rules about overtime pay for managers which will especially increase paperwork and costs in the retail and services sectors. These are just two initiatives that lead us to conclude that the growth rates of RGDP in the past few years are a pretty good indicator of what can be expected for 201617. Table 3 provides data on RGDP growth rates from 2011-14, along with our projections for 2016-17. Table 3 Actual (2011-14) and Projected (2015-17) Real Gross Domestic Product Growth Rates Year Growth rate 2011 1.6% 2012 2.2% 2013 1.5% 2014 2.4% 2015 2.3% 2016 2.6% 2017 2.6% RGDP averaged only 1.9% a year over 2011-14. We are projecting the economy will grow at a 2.3% rate in 2015. In the first two quarters of the 2015, RGDP grew at only 0.6% and 2.3%, respectively. Our forecasts for the Louisiana economy for 201617 are based on the U.S. economy expanding at a 2.6% rate annually. The Oil Market: Eating Humble Pie “Turmoil” is an apt word to describe the oil markets as we pen this year’s LEO. Few states feel the impact of this turmoil as much as Louisiana. Louisiana is the nation’s #2 producer of oil and its #2 producer of natural gas (if one includes federal offshore Gulf of Mexico (GOM), heavily supported via Louisiana ports). This state has the nation’s second largest refining capacity and there are enough miles of pipelines running under it to circle the globe 4 ½ times. Clearly, what happens in the energy markets will keenly impact this economy.

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The Forecast Miss in 2015 The past year has been one in which the authors---along with a large company of other forecasters---have had to eat humble pie. A year ago, our projections were for the price of oil to fall from $100 in 2014 to $95 and then $90 in 2015 and 2016, respectively. In mid-August 2015 that price was slightly below $44 a barrel and still drifting downward. What in the world happened? How can one explain a miss that large? One key is to just take a glance at the oil price trend in Figure 4. Actually “trend” is an inappropriate noun. Oil prices have fluctuated pretty wildly since 1980. It is a fundamental principle of forecasting that the more variable a series is, the more difficult it is to forecast accurately. The fact that about two-thirds of the oil reserves in the world lie under the lands of countries where the government runs exploration and production simply adds to forecasting complexity. If one constructed a similar chart of, say, food consumption in the U.S., it would be a nice straight line rising upward. Food consumption can be projected with a high degree of accuracy because it is so stable. On the other hand, projecting oil prices leads to a steady diet of humble pie. Fig. 4: Price of Louisiana Sweet Crude Oil 120

Price per Barrel

100

80

60

40

20

0 1980

1985

1990

1995

2000

2005

2010

2015

Prices began falling in August of last year and will average half of what they averaged in 2014. What caused this very sharp decline in oil prices? The answer is a story with many chapters. Chapter 1: Fracking Radically Changed the Landscape The ubiquitous application of an old technology---fracking---across the U.S. has radically changed the oil market. Active shale plays exist in up to 20 states, and the ______________________________________________________________________________________ Economic Outlook Page 14

impact on oil production in the country has been little short of amazing. Since 2008 U.S. oil production has risen a remarkable 85%, much larger than any other country in the world. There have been two important consequences of the rapid increase in U.S. oil production. First, there is the impact on U.S. imports of crude oil. As seen in Table 3, the percentage U.S. oil consumption that is imported had dropped from 66% in 2008 to an estimated 43% in 2015. Our nation’s imports plunged by 2.6 million barrels of oil per day (mmb/d) in just seven years. The data in Table 4 are vital to the story behind the recent sharp price decline. As huge part of the U.S. oil market was lost by foreign suppliers. The Saudis in particular lost 2 mmb/d in sales in the U.S. Table 4 U.S. Production & Imports of Crude Oil: 2008 v. 2015 U.S Production U.S. Imports U.S Production U.S. Imports

2015 2008

Millions of Barrels Per Day 9.4 mmb/d 7.2 mmb/d (43%) 5.0 mmb/d 9.8 mmb/d (66%)

Chapter 2: The Bakken Impact on Oil Prices---The First Bottleneck A second key to understanding the sharp price decline is to appreciate the impact that the large Bakken Play in North Dakota had on oil prices. This year, the Bakken Play in North Dakota, which was generating only 10,000 barrels per day (b/d) in 2003, is now producing 1.225 million b/d, only slightly behind second place Louisiana at 1.310 mmb/d. Bakken’s enormous production increase created two logistics bottle necks. Producers in this region had to get their production in North Dakota primarily to the massive refinery complex on the Texas and Louisiana Gulf Coasts (see Map 1). Unfortunately, the pipeline infrastructure was not in place to move the crude across this vast distance. A producer resorted to pipelines, and trucks, but mostly trains to move the crude to the large tank complex in Cushing, Oklahoma. It was in Cushing that the first bottleneck occurred. When this massive wave of oil came to Cushing, there was not a sufficient pipeline network in place to move the oil further south to its ultimate destination at the Gulf Coast refineries. A glut of oil piled up in Cushing. Cushing is where the price of West Texas Intermediate (WTI) oil is set on the NYMEX. The resulting impact on oil prices is shown in Figure 5.

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Map 1

Figure 5 West Texas Intermediate Crude Price vs World Price (Brent)

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When the glut of crude arrived in Cushing the price of WTI began to be sold at a substantial discount from the Brent price of crude which is the benchmark for the worldwide price of crude. The Brent price is actually the price of a mixture of crudes from the North Sea. Note that there were periods when the WTI was selling at as much as a $20 discount to the Brent price. Naturally, the producers of WTI were unhappy with this discount and measures were set into motion to alleviate the bottleneck at Cushing. About 18 months were taken to reverse the direction of the Seaway Pipeline which pushed product from the Gulf Coast to Cushing. At least two other pipelines were built to move products from Cushing southward to the Gulf Coast. By late summer or early fall of 2013, the bottleneck at Cushing was eliminated and the WTI and Brent came back together again (see Figure 5). Chapter 3: The Bakken Impact on Oil Prices---The Second Bottleneck As production from the Bakken Play continued to escalate a second bottleneck occurred when all that Bakken light crude showed up at the fences of the refineries on the Gulf Coast. These refineries were primarily designed to refine heavy crude. The problem was exacerbated by even more light crude arriving from the Eagle Ford and Permian Plays in Texas. Once again, the new bottleneck---now on the coast---created a divergence between WTI and Brent as seen in the right-hand portion of Figure 5. Producers of WTI crude had to sell at a discount again, a situation they were eager to change. Chapter 4: Permission to Export Crude If Gulf Coast refineries were not capable of refining this glut of crude, why not just export it? The problem is there has been a ban on exporting crude from the U.S. since the mid-1970s. Importantly, there is no such ban on refined products, such as gasoline, diesel, or jet fuel. In August 2014 a producing company approached the U.S. Department of Commerce (DOC) with a question. If the company built a relatively inexpensive facility in the field to strip off the volatile propane and butane gases from the barrel of oil, would the result be a “product”? After mulling the question, the DOC said yes. Another company approached the DOC with their own slightly refined product. Again the DOC gave approval to the “product”. Chapter 5: The Saudis Say “Enough Is Enough” It was at that point that oil prices began their sharp decline. Note that oil prices did not decline gradually as U.S. oil production rose over 2008-14. They dropped sharply staring in August 2014. The reason is that the Saudis looked at two phenomena: (1) a loss of 2 mmb/d in exports to the U.S. market (see Table 4) and now (2) the potential loss of international market share due to new U.S. exports. The Saudis basically said “Enough is enough.” The U.S. shale production which was causing the problem had ______________________________________________________________________________________ Economic Outlook Page 17

to be stopped. The way to do that was to quickly drive the price below the breakeven point in the shale plays. Chapter 6: The Response to Lower Prices in the U.S.—Attacking the “Edges” From the standpoint of the rig count in the U.S. the response was swift and dramatic. The rig count dropped from over 1,904 in August 2014 to 884 in August 2015.4 The impact on the rig count in each of the shale plays across the country has differed each of these shale plays is geologically different, which means that the breakeven point varies for each play as shown in Table 5. Table 5 Breakeven Points in Selected Shale Plays (Price per Barrel) Shale Play Eagle Ford (TX) Bakken (ND) Granite Wash (OK) Niobrara (CO) Tuscaloosa (MS) Tuscaloosa (LA) Source: Rodgers Oil & Gas Consulting

Breakeven Price $49 $50 $57 $66 $69 $92

It is important to note that the breakeven numbers in Table 5 are about 18 months old. Over time these numbers have all been dropping because exploration companies have become more and more efficient in both drilling and completing their wells. For example: 

In 2009 it took Anadarko 18 days to drill a shale well. By 2015 that number had been reduced to 7.5 days.



In 2012, EOG was taking an average of 22.7 days to drill a well in the Bakken Play. By 2015, efficiency gains had dropped that number to 7.1 days.



In 2012 it cost EOG $10.5 million to complete a Bakken well. By 2015, the cost had dropped to $8.2 million.



Once completed, output per day from a typical well jumped from 100 barrels or less 2007 in the Bakken and Eagle Ford Plays to over 500 by 2015.

Also, the breakeven numbers in Table 5 are great averages. Within each play, breakeven prices can vary dramatically. In the nice middle part of the play the shale may be at shallower depths and may have a rich flow to the top. However, on the edges of the 4

Baker Hughes rig counts

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plays, wells are much deeper than and not as productive as in the center region. The result is figures like those in Table 6 for the breakeven prices for various counties in the Bakken Play in North Dakota. Table 6 Breakeven Prices across Counties in the Bakken County Breakeven Price County Dunn $29 BOT-REN McKenzie $30 Burke Williams $36 Divide Stark $37 BOW-SLP Mountrail $41 McLean Billings $44 Source: North Dakota Department of Mineral Resources

Breakeven Price $52 $62 $73 $75 $77

The breakeven point is much higher on the “edges” of the plays. Indeed, in February 2015 only six on North Dakota’s 121 wells were running in the five counties on the right side of Table 6. It is the edges of the shale plays that are especially under attack by the Saudis. If the Saudis can drop the rig count in the U.S. shale plays, U.S. production will have to start falling, thus reducing the threat to the Saudi’s international markets. The reason U.S. production will have to start falling (the Energy Information Administration projects it started falling this summer) is because the decline curve for shale wells is extremely steep as shown in Figure 6. A typical Bakken well loses 65% of its production between the first and second year. Between the second and third year there is a 35% decline. This sharp decline curve means the only way to keep U.S. total production rising is to be drilling more and more wells, but the rig count has fallen---a lot---rather than increasing.

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Fig. 6:Typical Bakken Well Production 1,400 1,200

Barrels Per Day

1,000

Steep Declines: 65% 1st year 35% 2nd year 15% 3rd year 10% thereafter

800 600 400 200 0 5

10

15

20

25

30

35

40

45

Year Source: ND Dept of Mineral Resources

Chapter 7: The Response to Lower Prices in the U.S. Broadens Unfortunately, it is not just the edges of the shale plays that are now under attack. Exploration companies were somewhat encouraged when after dropping to the mid-40s oil prices staged a rally in the spring, rising back to near $60 a barrel. Then prices began another cycle downward, moving back into the mid-40s range again. This reversal sent another wave of pessimism through the industry, and the cutbacks began to broaden. For example: 

BP announced it was reducing its capital spending from $26 billion to $20 billion



Shell indicated it was laying off 1,500 employees and reducing its capital budget by $7 billion



Chevron announced it was eliminating 1,500 jobs and cutting its spending by $1 billion



ConocoPhillips indicated it was trimming its budget from $16 billion to $11.5 billion



Wood McKenzie consulting group reports oil companies have canceled or delayed $200 billion in projects since mid-2014

Oilfield service companies such as Halliburton and Baker Hughes were hammered from two sides. Not only was there less work to do because of the drop in the ______________________________________________________________________________________ Economic Outlook Page 20

rig count, but also the drilling companies were coming to them and demanding 35%+ cuts in there fees because of the large drop in oil prices. Chapter 8: Where Do Prices Go From Here? This is by far the most difficult chapter to write. Where are oil prices heading over the next two years? Figure 7 reveals the historical trend in oil prices since 1980 along with our team’s forecast for 2016-17. Our projections for the state are based on a modest recovery in oil prices from current levels, averaging $55 a barrel in 2016 and $60 a barrel in 2017. This forecast is comparable to that of the Moody’s forecasting team and slightly lower than that of the analysts at Credit Suisse. An indication of the level of uncertainty associated with forecasting this price is the very wide confidence range around our point forecast---a range from a low of $30 to a high of $90. One could easily create a scenario in which either of these limits could be reached.

Figure 7: Oil Prices 120

Price per Barrel

100 Average Low High

80

2015 $55

2016 2017 $55 $60 $30 $30 $90 $90

60

40

20

0 1975

1980

1985

1990 POA

1995

2000

POAL

2005

2010

2015

POAH

On what grounds might one project this modest recovery in oil prices? It is the price of something, so the key is demand and supply conditions. On the demand side there is reason to expect some additional growth, especially given the lower prices the market is enjoying. Table 7 contains demand projections by Credit Suisse from both OECD and emerging countries over 2016-17. Credit Suisse is expecting demand growth ______________________________________________________________________________________ Economic Outlook Page 21

to be led by the emerging countries over the next two years. This additional demand growth will put some upward pressure on oil prices. Table 7 Oil Demand Forecasts: 2016-17 Region OECD Countries Emerging Countries Total Source: Credit Suisse

2015 -1.0% 3.0% 1.0%

2016 0.9% 2.5% 1.7%

2017 0.5% 2.6% 1.6%

Estimating future oil supply changes is even iffier. There are two factors suggesting future supply declines which will put upward pressures on oil prices. First, we expect that the effects of the dramatically reduced rig count will begin to have an effect on U.S. oil production by early Fall of this year. In fact, the Energy Information Administration staff argues that decline actually began in late spring, though the data are not in yet to substantiate that projection. A less certain source of supply decline may come from OPEC. This cartel is comprised of 12 members, the largest by far being Saudi Arabia. We have argued above that it is the Saudis that have led the charge to lower oil prices in order to stymie the U.S. shale market. To some extent, the Saudis can bear up under the lower price environment for a while because of a large holding of reserve cash. However, the lower price environment is heartedly eating into those reserves, and the Saudis will eventually be forced by finances to reconsider their strategy. More importantly, the other 11 members of the cartel do not have the luxury of a reserve stash. They rely heavily on oil monies both to support their welfare and infrastructure programs and to explore for oil and maintain current production flows. Right now their economies are being hammered. The pressure is building to a crescendo to call a special meeting before the regularly scheduled meeting in December. The Saudis can easily boost prices by relenting on their strategy and pulling supply from the market. A countervailing wild card on the supply side is Iran, a country with the world’s fourth largest oil reserves. At this writing, President Obama has signed an agreement with Iran to remove sanctions on that country’s oil production. That treaty has not (as of August) been ratified by the U.S. Senate. If it is ratified, Iran has indicated it wants to put 45 properties on auction before international exploration companies in December and boost that country’s production from 3.1 mmb/d to 5.7 mmb/d. This would obviously put downward pressures on oil prices. Will the treaty be ratified? If so, how quickly can Iran ramp up its production? As we mentioned above, the supply side is very iffy.

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Natural Gas: Fueling a Massive Boom Fracking not only created a sudden abundance of oil in the U.S., but it also generated an abundance of natural gas. In fact, the new fracking thrust started first in natural gas fields---such as the Barnett, Haynesville, Fayetteville and Marcellus plays--and then gravitated to the oil shale plays. Those initial gas shale plays added large amounts of new natural gas to the country’s inventory, and then when fracking was used in the oil shales, there was another huge supply of “associated” natural gas that came up with the shale oil. Natural Gas Price Forecasts: Slight Bump Upward Not surprisingly, this abundant new supply had a major impact on natural gas prices as shown in Figure 8. After five years of very high prices, natural gas prices fell to the $2.50-$4 range.

Figure 8: Price of Natural Gas 9 8 7

PGA PGL PGH

2015 $2.94

2016 2017 $3.50 $3.90 $2.50 $2.50 $4.90 $4.90

Per MMBTU

6 5 4 3 2 1 0 75

80

85

90 PGA

95

00

PGAL

05

10

15

PGAH

Our team is forecasting a slight increase in natural gas prices over the next two years, rising from near $3 per mmbtu in 2015 to $3.50 in 2016 and $3.90 in 2017. ______________________________________________________________________________________ Economic Outlook Page 23

Unlike the case with oil prices, our confidence interval around our point forecasts is fairly narrow. We do not expect prices to fall below $2.50 or rise above $4.90. The abundant supply of gas will keep a lid on any rapid price increase. However, there will be demand side pressures coming from (1) greater use of natural gas in electric power generation as coal-fired plants are phased out, (2) growth in industrial gas consumption associated with the industrial boom documented below, and (3) general demand side growth due to natural gas’s role as a cheaper alternative to oil. A Mega Industrial Boom Lower natural gas prices in the U.S. have fueled a mega industrial boom like none other in Louisiana’s history. In conjunction with staff at the Greater Baton Rouge Industrial Alliance (GBRIA), we have tabulated the expansions announced in the state over the past two to three years. Capital expansions as of September 2015 sum to a remarkable $134.4 billion. These expansions are highly concentrated in two industries: (1) chemicals ($50.7 billion), and (2) LNG export terminals ($59.2 billion). They are also highly concentrated geographically. An estimated $85.6 billion is in the Lake Charles MSA and $44.5 billion is along the Mississippi from Baton Rouge to New Orleans. An obvious question is “How much of this is real?” Our tabulations indicate that almost half ($62.3 billion) of these projects have gone vertical. They are under construction at this time. The other half ($72.1 billion) is at the front end engineering and design (FEED) and permitting stage. Even if none of the FEED stage projects ever break ground, the $62.3 billion that have is a remarkable number compared to the typical $5 billion or so the state experienced in previously good years. Threat to FEED Projects from Europe & Asia It is important to note that it was not just low domestic gas prices that fueled all these announcements. It was also the fact that natural gas prices had not fallen in Europe and Asia---two significant competitors to the U.S. in the world chemical market. Note in Figure 9 that from about 2010 through well into 2014 the price of gas in Europe and Asia was much higher than in the U.S. U.S. chemical firms began to capture more and more of the international chemical market, because the natural gas-guzzling firms in Europe and Asia simply could not stay competitive. This was true even though chemical firms in Asia had a competitive advantage over U.S. producers in labor costs, taxation, and logistics. Why were natural gas prices so much higher in Europe and Asia? Because these regions had to import their natural gas, and their supply sources priced the natural gas off the price of oil. The high oil prices of 2010-mid-2014 generated very high natural gas prices in those regions.

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Figure 9

Careful observers will notice in Figure 9 what has happened to our country’s competitive advantage in natural gas prices in recent months. The gap between U.S. prices and those in Europe and Asia has narrowed substantially as their oil-price-based natural gas prices have plummeted. The U.S. comparative advantage in natural gas remains, but it is important to understand that regarding Asia, full equality in natural gas prices is not necessary to shift the advantage to Asia’s side, because their competitive advantage in labor costs, taxes and logistics remains. It is the “tails” on the foreign gas price lines in Figure 9 that has caused some of the companies at the FEED stage to move their foot from the accelerator to at least tapping on the brake. A classic example is the $3 billion suite of facilities announced by Axiall Corporation in Lake Charles that has been placed on temporary hold. Threat to LNG Export Facilities at FEED Stage There is another significant group of plants at the FEED stage that are being threaten by lower oil prices---proposed LNG export facilities. Table 8 lists the seven ______________________________________________________________________________________ Economic Outlook Page 25

LNG export terminals announced in the Lake Charles area, along with their expected capital expenditures. These are very capital-intensive facilities, with the total capital expenditures at a whopping $59.25 billion. Table 8 LNG Export Facilities Announced in Louisiana (Expenditures in Billions of Dollars) Company Proposed Capital Expenditures Cheniere Energy $20.0 Sempra $10.0 Lake Charles LNG $10.0 Magnolia LNG $3.7 Southern California Telephone & Energy $9.3 Venture Capital $4.25 Live Oak LNG $2.0 Total $59.25 Of these seven projects, only the two italicized---Cheniere and Sempra---are under construction. The other five, representing $29.25 billion in potential investments, are at the FEED and permitting stage or seeking additional financing. The data in Table 9 illustrate the dilemma facing these remaining five firms. LNG customers in Asia can get their LNG from one of these LNG exporters of from, say, Qatar. Qatar prices their LNG off of the price of oil, typically charging between 14.5% and 17% of the oil price. So if the price of oil is $100 a barrel, Qatar will charge approximately $15 per mmbtu ($100 X 15%) for its LNG. Our exporters, on the other hand, price their LNG off the Henry Hub price of natural gas, plus additions for the cost of liquefaction, capital recovery, and transportation to Asia. Note that this sums to a total charge of $9.53 per mmbtu by the Louisiana supplier. The Louisiana LNG firm enjoys a very nice competitive advantage over Qatar---$9.53 per mmbtu versus $15. Table 9 Relative Cost of LNG Foreign Supplier Charge (15% of Oil Price) Louisiana Supplier Charge Henry Hub Price 15% for liquefaction Capital Recovery cost Transportation to Asia Total Louisiana Supplier Charge

Oil Price = $100 $15 mmbtu

Oil Price = $60 $9 mmbtu

$3.50 $0.53 $3.50 $200 $9.53

$3.50 $0.53 $3.50 $200 $9.53

However, if the price of oil falls to $60, Qatar will now charge 15$ X $60 = $9 per mmbtu. The Louisiana’s firm’s competitive advantage has vanished ($9 versus $9.53). If the price of oil drops to $45 as it has at this writing, Louisiana LNG exporters ______________________________________________________________________________________ Economic Outlook Page 26

are suddenly at a significant competitive disadvantage. The price of oil matters a lot to these remaining five firms, which is why some of them may be moving the foot from the accelerator to the brake until it becomes clear where oil prices will finally settle. The EPA: Another Threat to the FEED Projects There is another very significant threat to the $72.1 billion in announced projects that are still at the FEED stage---the EPA. There are two proposals coming out of this agency that could radically impact the state’s ability to attract industry. EPA’s Ozone Mandates The EPA has proposed a change in ozone standards in the U.S. The National Ambient Air Quality Standard is at 75 parts per billion (ppb). The EPA took public comments through March 2015 on reducing this standard from 75 ppb to 70 or even 65 ppb. A decision is scheduled to be released by the agency on October 1, 2015, just before this publication is released. Map 2 illustrates what is at risk for the state. A standard of 65 ppb would place the entire southern region of Louisiana out of compliance. This is precisely that area where the great majority of the FEED stage projects are to be located. Map 2

One might reasonably ask why these FEED-stage firms could not simply relocate to the central part of the state where there is no compliance issue. The answer is that these potential companies need access to the Gulf via large ships to move their products. Central Louisiana does not offer that logistical advantage. ______________________________________________________________________________________ Economic Outlook Page 27

EPA’s Clean Power Plan As part of his climate change initiative, President Obama has announced a requirement that carbon emissions from power plants be reduced by 38% by 2022. The EPA’s Clean Power Plan involves the elimination of about 40% of the coal-fired power plants in the country. President Obama wants to substitute coal-fired power with power from renewables such as solar and wind. This move will unquestionably raise utility rates in the country. The consulting firm Energy Ventures Analysis has modeled how much industrial electricity rates will go up in each state. The firm’s estimate for Louisiana is 48% by 2020. Louisiana’s FEED-stage firms are prodigious consumers of electricity. A prospective 48% bump in utility rates is another factor moving the foot from the accelerator to the brake. BP Monies for Coastal Restoration While some of the drivers discussed above are either problems for the economy or providing it with little boost, there is one source of new monies coming to the state that is basically all good news. A settlement has been reached in the BP Deepwater Horizon case, and the result is a substantial, steady flow of money coming to Louisiana for coastal restoration. These monies will come from three different sources:  Criminal Penalties: Louisiana will receive a total of $1.272 billion to be administered by the National Fish and Wildlife Federation. $200 million of this amount has already been received and the rest will be paid in 2016. These funds can only be utilized for barrier island and river diversion projects that are approved by the NFWF Board and the Coastal Protection Restoration Authority (CPRA) Board.  Civil Penalties: $6.5 billion will be spread across five states. Louisiana’s share will be at least $929 million spread across 15 years. Plans must be submitted to the CPRA Board which will report to the NFEF. The construction of the Water Institute in Baton Rouge is being funded from these monies.  Natural Resources Damages: This $5 billion pot of money is to be used for restoration projects in the Barataria Basin, with lesser funds allocated to the east and west of the Basin. Louisiana’s share is expected to be approximately $319 million a year for 15 years. These three funding sources will be pumping a substantial amount of money into the New Orleans and Houma MSAs over the next 15 years and will hopefully begin to shelter these economies from the consequences of coastal erosion.

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A BRIEF HISTORY OF THE LOUISIANA ECONOMY We insert at this point in the LEO a brief history of the Louisiana economy so that readers can understand what forces have driven the economy over the past four decades. It also provides us with the opportunity to illustrate the profound impact that Hurricanes Katrina and Rita had on the state and the way the state has coped with the Great Recession. For a good visual reference, Figure 10 tracks non-farm employment in Louisiana over 1975-2015. The four downturns Louisiana has experienced are illustrated by the gray bars in the figure. From Heady Boom to the First Big Recession The years from 1975-81 were heady ones for the Louisiana economy. The price of crude oil had risen from only $7.09 a barrel in 1975 to a whopping $37.48 at one point in early 1981 (about $93.15 in 2011 dollars). The southern part of the state especially became like a gold mining town in the gold rush days. Employment in the oil and gas extraction sector rocketed up from about 50,000 in 1975 to just over 102,000 at one point in 1981. As seen in Figure 10, overall non-farm employment boomed as well, rising at an average rate of 4.1 percent a year over 1975-81. In 1978, employment jumped a remarkable 7.2 percent in one year. Then from 1982-87, Louisiana went through a terrible recessionary period, still the worst in its recorded history. Nearly 148,000 jobs vanished within the state, about 9% of the workforce. To get a feel for how bad it was compare that number to the 6.1% drop in U.S. employment during the Great Recession. Plunging energy prices cut the extraction workforce in half, and a huge run up in the value of the dollar virtually destroyed the export markets for our chemicals, prompting that industry to lay off a third of its workers. The negative multiplier effects of these firings added to the misery. Climbing Out of the Abyss: 13 Years of Growth As seen in Figure 10, the state in 1988 began the long climb out of the abyss into which it had fallen in the previous six years. The primary driver behind this recovery was the chemical industry. In 1985, a complete reversal in the trend of the exchange value of the dollar occurred. Now foreigners were observing U.S. chemical prices declining dramatically in terms of their own currencies. The result was a very strong resurgence in the demand for Louisiana chemicals. Chemical firms began large-scale capital expansion projects, augmenting employment not only in chemicals but also in the industrial construction sector. Fortunately, growth was occurring in other sectors as well, helping to diversify the economy and making it less vulnerable to negative trends in any one industry. The transportation equipment industry, once heavily tied to oil and gas related activities, diversified into defense contracting and more general shipbuilding. The textile industry ______________________________________________________________________________________ Economic Outlook Page 29

began a major expansion, led by Fruit-of-the-Loom, a firm which expanded so much that it became the largest manufacturing firm in the state, as measured by employment. Healthcare also enjoyed a major expansion during this period due to a huge injection of federal Medicaid monies into the state. Medicaid dollars rose from under one billion dollars in 1989 to over three billion by 1993. By 1993, the state had finally recovered all the jobs lost during the terrible recession of 1982-87 and began to set new employment records.

Fig. 10: Louisiana Non-Farm Employment: 1975-2015 2,100

2015: +14,600 jobs (0.7% ) X

2001-02: -22,100 Jobs (-1.2% )

2,000

Thousands

1,900 2005-06: Katrina-Rita -64,300 jobs (-3.4% )

1,800 1,700

2009-10: -52,800 jobs (-2.8% )

Jan. 2013 New Record (1 of only 14 States)

1,600 1,500

1982-87: -147,900 jobs (-9.0% )

1,400 80

85

90

95

00

05

10

15

Note in Figure 10 that the 5 years from 1994 to 1998 were especially good ones for the state. Employment grew at rates of 3.8, 2.9, 2.1, 2.2, and 2.1 percent, respectively. These were rates in excess of the nation’s performance. Several industries contributed to this nice spurt of very strong growth. After 12 years of employment declines, the oil and gas extraction sector began a solid recovery, which pulled along all those industries that sell products and services to it. In 1993, there was no casino industry in Louisiana. Pre-Katrina and Rita, about 19,713 jobs had been created in Louisiana’s 15 riverboat casinos, its four racinos, and its sole land-based casino. And this employment number does not include the people working at the three Indian casinos in the state. Changes in federal policies governing the harvest of timber on publicly owned lands in the Pacific Northwest drove several new lumber companies to Louisiana during this period. ______________________________________________________________________________________ Economic Outlook Page 30

These sectors provided an extraordinary boost to an economy which was, in general, doing well across several sectors. The result was unusually expansive employment in those five years. The ’99-‘00 Slowdown It is apparent from Figure 10 that 1999 was anything but a banner year for the state. In the early part of 1998 the price of oil began a slide that did not end until it moved below $10 a barrel---a level not seen since the horrendous recessionary year of 1986. For a while the extraction industry held on, but then the bloodletting began. Blue-collar jobs were eliminated as the rig count dropped from 218 to 125. Then mergers and consolidations among both exploration and services firms meant white-collar layoffs or relocations to Houston. Between 98-III and 99-III, 13,100 jobs were lost in Louisiana’s extraction industry. Ancillary firms, such as fabricators, machine shops, and ship builders, were pulled down along with the industry. As we will discover later in our report on the metropolitan areas, the Lafayette and Houma MSAs were especially impacted by these layoffs. Despite these blows, Louisiana’s employment actually grew marginally in 1999, though by only 0.4 percent. In the latter part of 1999 and early 2000, both oil and natural gas prices began an unexpected and remarkable move upward. By 2000-IV, oil prices had jumped to $32.57 a barrel and natural gas averaged $5.71 per mmbtu. At one point in the winter of 2001, natural gas was priced at over $10.50 per mmbtu at the Henry Hub. The extraction industry began its move back into the oil patch, slowly at first, then picking up momentum. The rig count rose back through its previous peak of 218 and attained 232 at one point. This nice stimulus from the extraction industry boosted the state’s employment back up by 1.2% (see Figure 10). This was still not very stellar growth, especially when compared to the 1994-98 period. 2001-02: The Second Recession in Three Decades It is clear from the picture in Figure 10 that, like the immediate post-911 national economy, the years 2001 and 2002 were not great ones for Louisiana. Employment fell by 2,300 jobs in 2001 and by 19,800 jobs in 2002. That is a total of 22,100 jobs over the 2-year period or a decline of 1.2%. However, there was some good news in the numbers. Louisiana did lose 1.2 percent of its jobs, but apparently most states endured even worse job losses. U.S. payroll employment fell by 2,598,000 jobs between March 2001 and June 2003. That represents a 2.0% decline---higher than the Louisiana loss. Why did the national recession hit Louisiana a bit more lightly than other states? Two factors were at work. First, when the nation enters a recession the first industry to ______________________________________________________________________________________ Economic Outlook Page 31

get hit is the durable goods industry. After all, people have to buy food and utilities, but they can postpone buying appliances, cars, homes, boats, etc. In the U.S., 6.4 percent of employment is in durable goods industries. In Louisiana that figure is only 4.6 percent, and much of that employment is in national defense shipbuilding or manufacturing platforms and rigs for the extraction industry---areas pretty immune from national recessions. Louisiana did not have a major durable goods manufacturing sector that was laying people off. As an aside, durable goods employment is 9.2, 9.0, and 7.6 percent of jobs in Mississippi, Alabama, and Arkansas, respectively. Employment cuts are typically much deeper and longer in these states as compared to Louisiana. A second aid to Louisiana was the fact that up until the very end of 2001, the extraction sector was doing quite well. That sector also enjoyed a mild recovery of sorts in 2003. This is a safety net that was enjoyed by only a couple of other states, like Texas and Alaska. 2002: The Toughest Year of the Recession As mentioned earlier, 2002 was the toughest year of the post-911 recession in Louisiana. Several events combined to make 2002 a pretty ugly one for the state. They are as follows: 

When oil prices fell to the $18 a barrel range in late 2001 and early 2002, the extraction industry pulled back some, shedding about 1,000 workers between June 2001 and June 2002.



High natural gas prices, weak demand, and weak chemical prices hammered the chemical sector.



Avaya Communications, Pennzoil Refinery, and Boeing Aircraft all shut down in Shreveport, laying off over 1,300 workers. Beaird Industries and Frymasters in the same city also engaged in significant layoffs.



Fruit-of-the-Loom shuttered its St. Martin Parish plant at a cost of 1,300 jobs.



The absence of expansion activity in the state’s huge chemical sector hurt industrial construction work. Construction employment fell by 6,200 jobs in 2002. 2003 to Mid-2005: Slow, Plodding Recovery

Note back in Figure 10 that the Louisiana economy began to grow again, though at a very modest rate. Non-farm employment rose only 0.5 percent in 2003. That was much better than some neighboring states as seen in Table 10. Mississippi, Alabama, and Arkansas all experienced employment declines one year longer than Louisiana, and their ______________________________________________________________________________________ Economic Outlook Page 32

overall decline was greater, except for Arkansas, whose decline matched that of Louisiana. Again, this fits the pattern of states that have a larger durable goods dependency than Louisiana. Table 10 Employment Declines in Louisiana, Mississippi, Alabama & Arkansas During the Post-911 Recession State Louisiana Mississippi Alabama Arkansas

Years of Decline 2001, 2002 2001, 2002, 2003 2001, 2002, 2003 2001, 2002, 2003

% Decline in Employment 1.2% 3.2% 2.9% 1.2%

Still, Louisiana’s recovery from the recessionary period was plodding at best. Not only did employment rise only 0.5 percent in 2003, the state grew only 0.7 percent in 2004 and by August 2005 Louisiana’s non-farm employment was rising at only a 1.9 percent rate. What was the problem? By far the biggest culprit was the chemical industry. This sector had lost 5,900 jobs since peaking in 1998, and much of that decline (4,500 jobs) had occurred since 2001. The chemical industry was hammered by high natural gas prices. Retrenching in this sector created problems in industrial construction and fabricated metal manufacturing as well. A second culprit was the extraction sector. In an almost remarkable reversal of historical precedence, Louisiana’s extraction sector experienced almost no bump from higher oil and natural gas prices---mainly due to a drag on the industry created by some high-profile legacy lawsuits. Weakness in extraction also had a negative impact on the fabricated metals sector and shipbuilding. With a pummeled chemical industry and a moribund extraction sector it was hard for the feeder sectors---such as trade, services, and finance---to muster much growth. The result was weak employment growth rates over 2003-05. Into the Abyss: Katrina and Rita Unquestionably the most dramatic economic events in Louisiana’s economic history occurred in August and September of 2005. Two highly destructive hurricanes hit Louisiana. Hurricane Katrina tracked right over Plaquemines and St. Bernard Parishes and on up the Louisiana-Mississippi border on August 29, 2005. Katrina was a category 4 hurricane when it made landfall, with maximum sustained winds of 143 mph and gusts up to 165 mph. Hurricane Rita made landfall about a month later on September 24, 2005, coming in right on the Louisiana-Texas border. Rita was a category 3 hurricane when it made landfall, with maximum sustained winds of 120 mph. ______________________________________________________________________________________ Economic Outlook Page 33

While the Lake Charles MSA sustained significant damage from Rita, the greatest destructive force by far was leveled on the New Orleans MSA. When Katrina hit, the levee system in New Orleans failed in several areas. The entire ninth ward on the east side of New Orleans was flooded. The 17th Street Canal was breeched sending flood waters into sections of old Metairie and the Lakefront. Before these waters were pumped out, most of the impacted homes had sat in four to ten feet of water for nine days to two weeks. Just as the Ninth Ward was pumped dry, Hurricane Rita came along and caused a water surge that re-flooded that area. In addition, the very low-lying parishes of Plaquemines and St. Bernard were swamped by water surges, especially by Katrina. (For an interesting visual track of the collapse of the levees and subsequent flooding see http://www.nola.com/katrina/graphics/flashflood.swf). A combination of high winds and water surges made these two storms the most destructive natural disasters in the modern history of the United States. Consider the comparative data in Table 11 below which does not even include Rita: Table 11 Top Six Natural Disasters in the U.S. Since 1980 Natural Disaster Costs Katrina $200 billion + 1988 Drought/Heat $61.6 billion 1980 Drought/Heat $48.4 billion Hurricane Andrew $27 billion 1993 Midwest Flood $26.7 billion Hurricane Charley $14 billion Source: National Oceanographic and Atmospheric Administration Impacts on Housing Katrina and Rita’s impact on housing was particularly severe as seen in Table 12. Numbers in the first two rows (destroyed/major damage) are homes rendered uninhabitable. The National Association of Home Builders has estimated that seven times more homes were rendered uninhabitable by Katrina alone than any other natural disaster in U.S. history. Note in this table that housing damage was highly concentrated in the New Orleans MSA. Almost 60 percent of the houses damaged in the New Orleans MSA incurred major or severe damage.

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Table 12 Impacts of Katrina and Rita on Housing in Louisiana Impact Statewide New Orleans MSA Lake Charles MSA Minor Damage 210,512 122,446 38,427 Major Damage 98,086 79,068 6,673 Severe Damage 106,651 102,898 2,284 Total 515,249 304,440 47,384 Percent with Major or Severe 39.7% 59.8% 18.9% Damage Source: FEMA, February 12, 2006. Impact on the Offshore Oil and Gas Industry When a hurricane like Katrina is poised to enter this region of the GOM, energy companies begin the process of shutting down the offshore platforms and evacuating personnel. How many platforms are evacuated depends on the path of the storm. Figures 11 and 12 track the shut-in statistics for crude oil and natural gas produced in the GOM. Shut-in oil and natural gas refers to output that was being produced but is not now because of damaged platforms, pipelines or onshore receiving units. In the case of Katrina, 95.2 percent of the crude oil and 88 percent of the natural gas production was shut-in by August 30th. By September 9th, the shut-in rates had dropped to about 56-58 percent for oil and about 33-37 percent for natural gas. Then the improvement stabilized. When Rita appeared, because it made landfall further to the west and more into the center of the GOM production region, 100 percent of crude and 80 percent of natural gas was shut-in. The last shut-in statistics released by the Minerals Management Service showed that 12.1 percent of oil and 9.3 percent of natural gas production was still shut-in as of June 6, 2006. In the case of both of these storms, return to total production was steady but not very swift. In fact, the shut-in rate for Katrina stabilized almost twice as high as was the case for Hurricane Ivan the previous year. For example, crude oil production after Ivan initially stabilized at about 480,000 bd while the comparable figure for Katrina was closer to 850,000 bd. Why wasn’t crude and natural gas production immediately restored to their prehurricane levels? Think of this production occurring in three primary zones---(1) offshore platforms, (2) underwater pipelines, and (2) onshore receiving units. Each of these suffered damages that needed repair before production could be restarted. Zone 1: Offshore platforms. One reason that production was not immediately restored was because of damage to offshore platforms. As seen in Table 13, Hurricanes Katrina and Rita---because they were stronger storms that hit more in the heart of the

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GOM production region---caused far more damage to these platforms than did Ivan which hit farther east. Figure 11 Shut-in Oil Production in the Gulf of Mexico Shut-in Oil (bbl/d)

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Figure 12 Shut-In Natural Gas Production in the Gulf of Mexico Shut-in Gas (mmcf/d)*

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Table 13 Impact on Offshore Platforms of Hurricanes Ivan, Katrina, and Rita Impact Ivan Katrina Rita Destroyed 7 46 69 Damaged 20 20 32 Source: Office of Electricity Delivery and Energy Reliability, U.S. Department of Energy, www.doe.gov, October 7, 2005, p.2. Of the platforms destroyed by Katrina and Rita, most were older platforms that were built under pre-1988 upgraded design standards, and were located on the “shelf” (shallow waters), where the wells were fairly depleted and producing little product. Still, there were a number of the larger, deepwater platforms that suffered major damages. For example, as a result of Katrina there were four deepwater platforms that accounted for about 10 percent of offshore crude oil production that were severely damaged. Among these were Mars, Ursa, Mansa, and West 143---all owned by Shell Oil Company. Mars was restored to service in May 2006. Among the casualties of Rita was Chevron’s Typhoon TLP (tension leg platform) which was turned upside down by the storm. Zone 2: Underwater pipelines Damage to underwater pipelines was one of the greatest concerns to the energy sector because checking and repairing these pipelines requires some of the scarcest resources in the oil patch---divers, boats, and power. Underwater mudslides caused by Ivan wiped out 102 pipeline systems. Katrina and Rita knocked out 655 more, a total of 20,000 miles of pipelines. Zone 3: The onshore receiving units Once the crude oil and natural gas reaches shore, these fuels are received by refineries, gas processing plants and onshore pipelines. The first two sets were the most problematic. Katrina caused the closure of eight refineries. Within two weeks after the storm passed, four of these had power restored and were refining crude oil. Four others not only lost power but were also damaged and were flooded. Three were in Louisiana: (1) the 350,000 bd ConocoPhillips Refinery; (2) the 183,000 bd ExxonMobil Refinery, and the 122,000 bd Murphy Oil Refinery. These three units were located in the heavily flooded areas of St. Bernard and Plaquemines Parishes. All of the refineries were re-opened by summer 2006. Rita closed three other refineries in the Lake Charles MSA: (1) Citgo (324,000 bd); ConocoPhillips (239,400 bd), and (3) Calcasieu (30,000 bd). These three units had mostly minor wind damage and power loss but fortunately, no flooding. They were all three back up by November 2005. What received little attention from the press was the damage to gas processing plants in the region. Natural gas produced offshore tends to be high in hydrogen sulfide and water. The processing plants refine these impurities out. Three were located near the mouth of the Mississippi River and were severely damaged by both wind and flood. Dynergy’s plant in Venice was so badly damaged that pipelines were rerouted from it to ______________________________________________________________________________________ Economic Outlook Page 37

other processing plants. Together these three plants processed about 2.8 bcfd of natural gas. Rita added another six plants to these three, though these six were not as badly damaged as the Katrina victims. All of these plants are back in operation. Impact on Non-Farm Employment One is also struck by the impact of these two storms on non-farm employment in the state. Back in Figure 10 we graphed the annual average employment levels in the state. Because these storms hit in the latter part of 2005, their influence does not fully show up until the 2006 numbers are shown. Employment experienced a total drop of 3.4 percent. Using these annual average figures, Louisiana lost 64,300 jobs as a result of these storms, almost half of the 147,900 jobs lost during the entire 1982-87 period. The great difference is that in the latter case, the job loss occurred over a 6-year period. The two hurricanes caused a loss half that size to occur virtually overnight. Even that last paragraph does not do justice to the employment blow Louisiana endured as a result of Katrina and Rita. That is because the employment change mentioned above was in terms of annual averages. The great Nobel Laureate in Economics---Milton Friedman---once commented that some people do not understand how a man six feet tall could drown crossing a river that was on the average only five feet deep! Examining the monthly change in Louisiana’s employment reveals that the state’s employment fell from 1,941,100 in August 2005 to 1,776,000 in October 2005---a huge decline of 165,100 jobs or 8.5 percent! A sharp recovery of jobs in the next 14 months helped bring the annual averages up smartly and hid just how deeply the job cut was. Out of the Abyss: Recovery Post-Katrina and Rita Given the devastation meted out by Katrina and Rita the recovery of the state as a whole from those two storms was in a sense quite remarkable. A quick glance back at Figure 10 shows that on an annual average basis the state had recovered all but 2,000 of the jobs lost due to Katrina and Rita by 2007. Largely this recovery was led by a huge construction boom. Massive amounts of recovery monies were pumped into the Louisiana economy by both the federal government and private insurance companies. Gulf Opportunity Zone (Go-Zone) legislation was passed by Congress to further incentivize companies to make capital expenditures in the affected regions. Go-Zone legislation provided either (1) an upfront 50 percent depreciation provision or (2) very low interest bonds for construction. A rough count showed over $20 billion in construction projects in the New Orleans area and $6.5 billion in the Baton Rouge MSA---construction figures that were 8-10 times larger than in normal years. A second boost came to Louisiana’s oil and gas extraction sector. Very high oil and natural gas prices pumped up the energy-dependent Lafayette and Houma MSAs. A couple of high-profile economic development wins---Union Tank Car in Alexandria and

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Steelcase (now Ternium) in Shreveport---gave a nice positive jolt to central and northwestern areas of the state. Impact of the Great Recession Back in our "Assumptions" section we spent a good bit of time describing at the national level the impact of what has become known as the Great Recession. Recall that this recession started in December 2007 and ended June 2009. During the recession the US economy began to lose jobs in January 2008 and by the end of 2009 had lost 8,363,000 jobs for a decline of 6.1 percent. RGDP fell by 6.1%, the worst recessionary decline experienced in the U.S. since the Great Depression. The impact of this recession---much like previous ones---was much more muted on the Louisiana economy. The data in Table 14 illustrate the impact of the recession on both the state and its eight Metropolitan Statistical Areas (MSAs). Note that: 

While the nation began losing jobs in January 2008, Louisiana did not lose its first job until a year later. Louisiana employment actually rose 1.1 percent in 2008.

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The U.S lost 6.1 percent of its jobs, while Louisiana's job loss was only 2.8 percent.

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The U.S. began adding jobs (but inconsistently) in January 2010; Louisiana did not begin to add jobs until June 2010.

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Job losses across Louisiana's MSAs ranged from a low of only 1.2 percent in New Orleans to a high of 6.2 percent in Lake Charles. Table 14 Impact of Great Recession on Louisiana & Its Eight MSAs: Non-Farm Employment

Area (Total Change) State (-2.8%) Alexandria (-5.6%) Baton Rouge (-3.1%) Houma (-5.0%) Lafayette (-3.0%) Lake Charles (-6.3%) Monroe (-3.0%) New Orleans (-1.2%) Shreveport (-2.1%)

Month 1st Loss 1/09 1/09 9/08 8/08 9/08 2/09 6/08 1/09 10/08

2009 % Change -1.9% -3.2% -1.1% -3.7% -2.2% -3.9% -2.0% -1.0% -2.3%

2010 % Change -0.9% -2.4% -2.0% -1.3% -0.8% -2.4% -1.0% -0.2% +0.2%

2009 Change -36,500 -2,100 -4,100 -3,600 -3,300 -3,700 -1,600 -5,400 -4,200

2010 Change -16,300 -1,500 -7,200 -1,200 -1,100 -2,200 -700 -1,300 +400

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` As in the past, Louisiana's lesser dependency on durable goods production protected the state from a serious decline, and the state was protected even more by the still lingering benefits of extra construction activity due to the Go Zone legislation. Regarding the Go Zone construction effect, Figure 13 illustrates construction employment in Louisiana over 1990-2010. Note that in the post 9-11 recession, Louisiana's construction employment fell sharply for four straight years, and that was a very minor national recession---lasting only 8 months. Contrast that experience with the employment trends during the Great Recession. Louisiana's construction sector actually grew in 2008, did not record its first job loss until April 2009, and fell 9.5 percent---less than the previous short, shallow national recession.

Fig. 13: Louisiana Construction Employment: 1990-2012 140

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Contrast that performance with what happened in the much more durable-goodsdependent Alabama. As shown in the inset in Figure 13, that state's construction employment was hammered, dropping 30 percent. Mississippi's construction decline was 20%, Arkansas's was 15.8%, and the overall U.S. construction employment fell 28.5% (three times more than in Louisiana). In no small respect, the Go Zone legislation spared Louisiana from a much sharper decline due to the Great Recession. Coming Out of the Great Recession: 2011-15 Finally, we come to Louisiana's recovery year from the Great Recession. The state's employment actually started to show positive numbers in 2010-IV and has ______________________________________________________________________________________ Economic Outlook Page 40

continued on a positive track. Louisiana has now enjoyed five straight years of growth and actually began to set new employment records in January 2013. One of the authors tracks the economies of ten states from Louisiana up to Arkansas across to the Carolinas. Only one of those ten states had more people employed in the summer of 2014 than in January 2008 – Louisiana. In the summer of 2015 neither Mississippi nor Alabama had recovered all the jobs lost during the Great Recession. Several factors are behind this fine performance. As we pointed out under the “assumptions” section dealing with natural gas prices, the state is enjoying an unprecedented industrial consumption boom. Until 2015, the oil and gas extraction sector was also fueling the growth with nice expansions in the oil patches of Houma and Lafayette. However, the latest drop in oil prices began to have an effect and layoffs in the exploration and services sector have begun to impact employment in a negative way in the oil patch region especially. In fact, of the states nine MSAs, only Baton Rouge, Lake Charles, Alexandria, and Hammond were enjoying employment growth in June 2015 as compared to June 2014. THE OUTLOOK FOR THE METROPOLITAN STATISTICAL AREAS There are 64 parishes in Louisiana, and the U.S. Bureau of Economic Analysis (BEA) has taken 35 and separated them into nine metropolitan statistical areas (MSAs). These parishes are all grouped around one or more major cities in the state. Map 3 shows the location of each and the parishes that are in each MSA. Important changes took place in 2015 when the definitions of three MSAs expanded: (1) Lafayette added Acadia, Vermillion and Iberia Parishes, (2) Shreveport-Bossier added Webster Parish, and (3) New Orleans added St. James Parish. For the first time in decades Louisiana added an entirely new MSA---Hammond---which is composed of Tangipahoa Parish.

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Map 3: Louisiana Metropolitan Statistical Areas

Like Children in the Family Each MSA Is Different In a family of nine children each was created from the same gene pool, yet typically each child is also unique, with his/her own appearance, personality, and intellectual gifts. Louisiana's nine MSAs are much like that. They are all part of the Louisiana economy, but each one is very unique and different from the others. Each has a different economic base. Each recovered from the Great Recession at a different pace. Each has different obstacles to overcome going forward, and the future prospects for each are quite different. New Orleans---with an estimated 563,700 non-farm workers---would be the counterpart of the oldest, largest child in the family. Though there have been some great advances in this region since the mid-2000s, this MSA’s employment still remains nearly 10% below its Pre-Katrine/Rita peak. Situated near the mouth of the Mississippi, the MSA’s system of ports ranks among the largest in the world in terms of tonnage moved. It houses a huge medical complex for veterans and non-veterans, and it is the home to several universities---the largest being the University of New Orleans and Tulane University. New Orleans proper is a tourism magnet, in some cases attracting tourists to its substantial gaming industry anchored by the state’s only land-based casino, two other riverboat casinos and the Churchill Downs Racetrack. A number of large refineries and chemical firms reside within this MSA’s boundaries, and recently the region has attracted a burgeoning tech sector. ______________________________________________________________________________________ Economic Outlook Page 42

Second in size, Baton Rouge provides jobs for about 408,800 non-farm workers. The petro-chemical industry looms large in this MSA with the largest concentration of chemical employment in the state, the country’s third largest refinery, and an unusually high concentration of industrial construction workers to support that base. Both LSU and Southern University are located in this MSA along with Baton Rouge Community College, which is now larger than Southern. This is also the location of the State Capitol, which means government employment plays a major role in this MSA. Its growing high tech sector is anchored by the new IBM complex in downtown Baton Rouge. It is the home of three riverboat casinos and has a healthy film and digital gaming sector. Now the fourth largest MSA is Shreveport-Bossier (182,200 jobs in 2015). This MSA contains the State’s largest gaming sector with six riverboat casinos and one racetrack. A very active port exists on the Red River in the Shreveport-Bossier area. It hosts a number of large employers including a 675-person steel mill that is under construction. With just over 7,500 military and civilian personnel, Barksdale Air Force Base gives this community a significant military presence. High tech is a growing presence in this region with the addition of Computer Science Corporation as the 800-job anchor of the MSA’s National Cyber Research Park. Shreveport-Bossier is in the heart of a huge deposit of natural gas called the Haynesville Shale If the “Louisiana family” had twins their counterparts would be the Lafayette (220,700 jobs) and Houma (101,100 jobs) MSAs. Both have an unusually high concentration of firms associated with the oil and gas extraction industry, so fluctuations in energy prices powerfully impact these two regions. They are, however, not identical twins. Lafayette is more diverse, hosting the nation’s largest jewelry settings manufacturer, a large, successful ambulance firm, and a firm that provides ER personnel to hospitals in several states. Because of its location closer to the Gulf, Houma supports major shipbuilding and fabrication firms and is home to Port Fourchon, a port that services over 90% of the structures in the Gulf. The most closely watched MSA in the state over the next few years is likely to be Lake Charles, (104,500 non-farm jobs). Like Baton Rouge, Lake Charles has an unusually heavy chemical and refining base---the second largest concentration in Louisiana after Baton Rouge. About two thirds of the $134.4 billion in announcement industrial expansions are scheduled to occur within this MSA. The industrial construction sector was already a major player in this region; now it is likely to expand very dramatically. With three casinos (two very large), a racetrack, and a large Indian casino nearby, Lake Charles is the state’s second largest gaming market. Another unusual characteristic of this MSA’s economy is the large aircraft maintenance and repair sector at Chennault Airpark. Located in the northeastern area of the state, Monroe (77,300 non-farm workers) is the third smallest of the nine MSAs. This MSA can brag of housing one of only two Fortune 500 firms in Louisiana----CenturyLink. Chase has a large mortgage facility

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Monroe. The large Graphics Packaging facility gives Monroe an out-sized presence in the paper and lumber sector. If in this 9-child Louisiana family there were two toddlers, one would be the oldest MSA---Alexandria. Located in the central part of the state, this MSA had 63,800 non-farm jobs in 2015. There is a diverse mixture of major players in this MSA including Cleco (a large utility company), Proctor & Gamble, Union Tank Car, Crest Industries, and Roy O. Martin Lumber. One of the MSA’s jewels is England Airpark, which houses Union Tank Car and recently became home of a 150-person Immigration and Customs Transfer Facility. Alexandria has a strong military influence due to nearby Fort Polk---the largest single employer in the state. The smallest of Louisiana’s nine MSAs is its newest member---Hammond. With employment at 44,900 in 2015, Hammond’s economic base is Southeastern Louisiana University and a significant healthcare sector anchored by the very large North Oaks Medical Center. Tangipahoa Parish is also a bedroom region for people who work in New Orleans, Baton Rouge, and in plants along the Mississippi River. Some 14% of income earned by Parish residents is earned outside of the Parish. In the sections below we will give a brief employment history of each of the state’s nine MSAs, along with the Louisiana Econometric Model (LEM) forecast for 2016-17. In each MSA, we will explain the key factors and companies driving the region’s future.

The New Orleans MSA: Huge Construction Potential; Dinged by Oil and Gas The New Orleans MSA is the largest in the state and is composed of eight parishes---Orleans, Plaquemine, Jefferson, St. Charles, St. John the Baptist, St. Tammany, St. James, and St. Bernard. Employment in this MSA is now at about 563,700---still about 38 percent larger than the Baton Rouge MSA. These nine parishes are located in “the toe of the boot” (see Map 3). It has been a wild ride for this MSA over the last 35 years. The good news is the MSA enjoyed a solid recovery from the Great Recession despite the drag of a 4,500-job loss at Huntington Avondale Shipyard. New hires in a hospital sector whose construction is nearing an end, major industrial construction projects, and new high tech firms are a plus for the future of the New Orleans MSA, but the oil and gas exploration sector is--and will be---dinging the region. History Pre-Katrina & Rita Figure 14 tracks the non-farm employment history in New Orleans from 1980 through 2015. New Orleans suffered mightily during the 1981-87 recession, losing 40,400 jobs or 8.3 percent of its workforce. This MSA had more extraction sector ______________________________________________________________________________________ Economic Outlook Page 44

employees than any other area in the state in 1981---20,600. By 1987, problems in the oil patch had driven that figure down by nearly 30 percent to 14,600, as many firms relocated their headquarters operations to Houston and employment in the industry in general declined. New Orleans’ manufacturing sector also took a beating, falling from 61,300 workers in 1981 to 41,700 by 1987. Much of this decline occurred in the shipbuilding segment of manufacturing which alone lost 6,900 jobs. Shipbuilding at the time was very energy-focused with little diversity in its orders. Multiplier effects from these shipbuilding layoffs dealt the MSA’s real estate, retail, services, and financial markets punches that would have them floored until well into the 1990s. Like the other MSAs with strong energy ties---Houma and Lafayette---New Orleans began a slow recovery in the late 1980s. Then another round of layoffs at Avondale Shipyards and the soft natural gas prices of 1991-92 flattened growth in 1992. A further blow occurred when the Challenger accident caused a slowdown in flights of that spacecraft. This meant fewer flights and fewer external fuel tanks to be built by what was then Martin Marrietta.

640

Fig. 14: New Orleans MSA Non-Farm Employment 1980-2015 1990: St. James Data Added

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The big jump in 1994 and 1995 shown in Figure 14 will look familiar to readers who carefully examine these same two years in the graphs of the other two major casino markets---Lake Charles and Shreveport/Bossier. Four riverboat casinos with about ______________________________________________________________________________________ Economic Outlook Page 45

3,300 workers opened during this time period. Secondly, the land-based casino opened at a temporary site, and construction began on the massive permanent location at the foot of Canal Street. This injection of new jobs was enough to generate healthy annualized growth rates of 2.6 percent per year during 1994-95. New Orleans’ employment trend from 1999 to 2001 was virtually flat. Then, in 2001, employment in the region responded to the national recession and other events with a one-year loss of 10,300 jobs, ranking it number five among the hardest hit MSAs in the state by the post-911 national recession. Note in Figure 14 that the two years after the recession---2003-04---were not particularly great recovery years. High natural gas prices led to the closing of some ammonia fertilizer plants in the area and to general sluggishness in the region’s large chemical industry. Employment rose at a moribund 0.5 percent rate a year. An important fact from examining Figure 14 is that for six straight years before Katrina and Rita hit, employment in this MSA was virtually flat. The Impact of Katrina & Rita Of course, the most profound message from Figure 14 is the impact of hurricanes Katrina and Rita on the MSA. On an annual average basis, Katrina and Rita caused employment to fall by a remarkable 133,700 jobs or 21.8 percent. These two storms effectively drove New Orleans MSA’s employment back to levels it had not seen since 1977. Three decades of employment growth were wiped out overnight. According to Figure 14, the New Orleans economy had recovered 72,100 of those jobs by 2015, but the MSA employment is still lower than it was in 1980 and is still 65,100 jobs (-10.4%) below its 2001 peak employment year. Actually, the use of annual average data in Figure 14 does a poor job of illustrating how badly these storms impacted the New Orleans economy. On a monthly basis the job-destruction was much greater than suggested by the annual average data. By the time Rita had re-flooded New Orleans, the region had lost 177,900 jobs, an astounding 29.5 percent decline. Recovery rate very slow: A disheartening factor has been the slow recovery since the storms. More frequently one would see a “V” pattern in employment right after a disaster as massive federal recovery and private insurance monies flow into the area for the re-build effort. We saw this “V” pattern, for example when observing the recovery in Lake Charles and Pascagoula, Mississippi. In New Orleans, the recovery looks like a “kindergarten L”. Why has the recovery rate been so slow? Few would dispute that housing has been a key factor. First, there is just the sheer size of the destruction. There were almost 182,000 homes in the New Orleans MSA that incurred either severe or major damage, i.e. damage bad enough to render the home uninhabitable. Some have estimated this is seven times more homes destroyed than in any other natural disaster in our country’s history.

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Secondly, these homes were rendered uninhabitable by flood waters. When flood waters enter a home, regular home owner’s insurance no longer applies. The owner must have purchased national flood insurance. As it turns out, 74 percent of these homeowners had no flood insurance. Those who did have flood insurance discovered that it covered only 80 percent of the pre-flood value of the home up to a maximum of $250,000. Virtually every home owner, even if they had flood insurance, was left with a gap in their coverage. To cover this gap in coverage, the generous taxpayers in the other 48 states agreed to send a pot of money to Louisiana and Mississippi to help homeowners bridge this gap--what was referred to in Louisiana as the “Road Home” monies. These monies were critical in rebuilding many of the homes. Still, there remain large swaths of New Orleans East and St. Bernard Parish where people have simply chosen not to return. Finally, consider four other issues. Recall from Figure 14 that in the six years before the storms hit the economy in New Orleans was basically flat. Families that had been dispersed by the storms to Dallas, Houston, San Antonio or even other parts of Louisiana, typically found themselves in much more robust economies with more, and higher-paying, jobs. Secondly, it is a fact that public schools in the New Orleans area were among the worst in the state (if not the nation). Dispersed families found themselves in cities with much better public school systems. The good news is that the advent of charter schools into the Orleans Parish system has apparently improved these schools significantly. Thirdly, dispersed families watched with alarm the deteriorating crime situation in New Orleans, and this no doubt retarded the return rate. The Drag of the Great Recession Finally, the Great Recession hindered this MSA's recovery. Bolstered by massive amounts of construction spending to rebuild houses, levees, locks, etc., and the boost from the availability of Go Zone funding, the New Orleans MSA actually enjoyed employment growth in 2008. However, the drag of the national economy finally had an impact in 2009 and 2010, when the MSA lost 6,700 jobs---a 1.3 percent decline. That was actually not a bad performance considering that the national economy fell by 6.1 percent. The performance of the New Orleans MSA economy during the Great Recession was actually the best performance relative to the state's other 7 MSAs (see Table 14). Solid Recovery from the Great Recession Recovery from the negative impacts of the Great Recession has been impressive for the New Orleans MSA. Note back in Figure 14 that the region enjoyed four straight years of solid growth. Indeed, the MSA had recovered all the jobs lost during the recession by 2012. This performance is particularly impressive given that it occurred against the backdrop of the 4,500+ layoffs at Huntington Avondale Shipyards, about two-thirds that ______________________________________________________________________________________ Economic Outlook Page 47

loss again at the Michoud Assembly Facility, and at least a $1 billion decline in Army Corps of Engineers spending on rebuilding the area’s levee system. 2015: Dinged by Oil & Gas It is unfortunate that the region could not stay on the steady growth path of 201114. The New Orleans is the home of many firms in the oil and gas industry or in industries closely aligned with exploration and production activities. The recent halving of oil prices has dinged the region enough that employment began declining in March 2015 and is on track for a slight decline in 2015 of 1,700 jobs or -0.3%. The careful reader should compare this decline to the one the MSA experienced over 1982-87 when the MSA over 40,000 jobs (-8.3%). Oil and gas companies are much more tightly run now, lenders are much more cautious, and thus the industry is less vulnerable than in that earlier crisis. Forecast for 2016-17: Boost from Construction, Drag from Oil Our projections for this MSA are shown down in Figure 15. While the healthcare sector will be adding substantial jobs to this area and there are even more potential and substantial industrial construction projects on the horizon, the floundering oil and gas extraction market will be a drag on the region’s economy through 2016. We are projecting that the New Orleans MSA employment will add only 2,900 jobs (+0.5%) in 2016, and 5,100 jobs in 2017 (+0.9%). This would rank the MSA’s performance fifth (in percentage growth) among the state’s nine MSAs over the two-year forecast period. The MSA will still be 55,200 jobs (-8.9%) below its previous 2001 peak. It is important to note that in this MSA there are a very large number of potential industrial projects. If most of these go vertical over the next two years, our forecasts for this MSA will be far too pessimistic. Major Boost from VA and New “Big Charity” The New Orleans MSA is poised to enjoy a major employment boost in a sector that is also high-wage---hospitals. After almost six years of construction work, the new “Big Charity”---now dubbed the University Medical Center---medical complex in downtown New Orleans began operations August 1st. This new 424-bed hospital will add an estimated 1,110 net new healthcare jobs to the region. In early 2016, the new Veteran’s Administration Hospital is scheduled to open after a ground-breaking that took place back in June 2010. The $995 million, 240-bed VA Hospital is also expected to add a net 1,100 new healthcare jobs in New Orleans. The addition of 2,200 high-wage healthcare jobs to the New Orleans region will go a long ways toward offsetting the negative impact of falling oil prices on this economy.

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Fig. 15: New Orleans MSA Non-Farm Employment Forecast: 2016-17

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2016: +2,900 (+0.5% ) 2017: +5,100 (+0.9% )

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Remarkable Industrial Construction Boom: Real v. Potential? As mentioned above there is the possibility that the New Orleans MSA performance over 2016-17 could turn out much better than or forecasts suggest. That is because there has been a remarkable $24.6 billion in industrial additions/expansions announced for the region, but well over 90% of these projects are still at the front-end engineering and design (FEED) stage or are seeking critical permits---that is these projects have not “gone vertical”. As discussed back in the basic assumptions part of the LEO, the turbulent energy market may be changing the go-no-go decision for these potential plants. The projects that are definite include one very large facility and one much smaller in size: 

The new $850 million Dyno Nobel International ammonia production plant at the Cornerstone Chemical (CC) site in Waggaman is about 75% complete. CC is also spending $175 million on maintenance and upgrades at the site. Once operational in 2016-III, Dyno will employ 65 people with an average annual wage of $55,700.

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At the Port of New Orleans, TCI Plastics is committed to constructing a $36 million logistics facility to package and ship PVC resins and polyethylene and to manufacture plastic film. The firm plans to open in 2018 to coincide with the

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opening of the new Sasol ethylene plant in Lake Charles. TCI will hire 160 employees at an annual wage of $33,400. Port officials estimate that the TCI facility will result in 9,000 new containers flowing through the Port, a 16% increase in container traffic. Of the $24.6 billion in projects that have been announced in this region, an unusual $23.5 billion have not pulled the trigger and begun construction. In our forecasts for 2016-17 for the New Orleans we have included little allowance for any of these projects coming to fruition. This contributes substantial conservatism to our projections for this MSA. The list includes some huge projects in St. James Parish, one of the few parishes with Mississippi River frontage acreage still available. For example:  Yuhuang Chemicals is examining a $1.85 billion, world-scale methanol plant in St. James Parish. The company would hire 400 workers at $85,000 a year. Yuhuang: (1) has signed a long term natural gas transportation capacity agreement with Transcontinental Gas Pipeline, (2) has finalized its land purchase at the site, (3) has let a contract with Air Liquide build a $170 million unit to supple oxygen to the plant and (4) has awarded Air Liquide the design engineering contract. Construction is expected to begin in 2016 on the $850 million Phase I with construction on the $1 billion Phase II to start right after Phase I is completed. As one of the state’s first wholly-owned Chinese companies, the methanol produced by this plant is primarily for export to China. Probability of being constructed: 95%  Formosa Petrochemical is studying the feasibility of building a $9.4 billion facility in St. James Parish to produce ethylene and other chemical products. A final investment decision is expected in mid-2016. Formosa would create 1,200 jobs at the site paying $84,500 a year. It would be built in two phases and would be one of the largest single-site ethylene production complexes in the world. Probability of being constructed: 85%  Also in St. James Parish, South Louisiana Methanol is near a final decision to build a $1.3 billion ethanol plant---the largest in North America---across from the Nucor plant. The company received its air permits in January 2014 and signed a 10-year agreement in July 2014 with Transcontinental Gas to transport gas to the site. It would employ 63 people at $66,500 a year. We place a 50% probability on this project proceeding.  In July 2014, Nucor opened the first phase of its iron production plant in St. James Parish. Phase II is a $400 million reduced iron plant (+100 jobs), and Phase III is a $500 million pellet plant (+200 jobs). Because of weakness in the steel market we place a very low probability on Phase II being started over 201617. We assign about a 50% probability to the pellet plant being started.  Gavilon Commodities has offered plans to build a $250 million greenfield grain elevator in St. James Parish that would employ 150. The company’s assets were ______________________________________________________________________________________ Economic Outlook Page 50

purchased in July 2013 by Marubeni, a Japanese corporation. Land was purchased for $10.4 million for the site in January 2013. We place an 80% probability on this project moving forward.  Zen-Noh Grain has filed an advance with the Louisiana Department of Economic Development to spend $150 million on a new dock extension and continuous barge unloading system at the company’s site in Convent. The project is expected to begin June 2016 and be completed by June 2017, hiring 48 new workers. Probability of proceeding: high  Syngas Energy is planning a $250 million methanol and ammonia facility in St. James Parish, though the exact location had not been settled at this writing. Nustar has filed air permits to expand methanol tanks and provide a rail facility to handle Syngas’s product. Employment at Syngas would be 50-60 employees. Probability of proceeding: 70% The Plaquemine Port may be the home to four new projects that have been announced. The probabilities of each facility materializing were provided by Port Officials.  Ram Terminals wants to construct a $150 million coal export terminal that would create 125 jobs. The company is at the permitting stage, but has struggling with the fact that Governor Jindal wants to run a Mississippi River diversion project right through Ram’s property. That issue has been resolved, and the company has reapplied to state agencies for permits. Probability of proceeding: 80%  Also at the Port, NOLA Tanking has indicated a desire to construct an $80-$100 million tank farm at the Myrtle Grove Plantation. The firm is at the permitting stage on this first phase. Probability of proceeding: 95%  In October 2014, Castleton Commodities announced plans for a $1.2 billion methanol plant at the former AMAX Nickle site near Braithwaite. The plant would hire 50 people at an annual wage of $72,000. Probability of proceeding: 95%  Louisiana LNG Energy has secured funding from ArchLight Capital Partners to build a mid-scale LNG export terminal just below the Port of New Orleans. The company was recently acquired by Parallux Energy, a company that wants to double the previously announced capacity. Applications for permits have been made to the Federal Energy Regulatory Commission. No capital expenditure value was provided on this project. Probability of proceeding: 95% In addition to the projects mentioned above, several other projects have been announced that fall within the boundaries of the Port of South Louisiana. (All the

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projects listed in St. James Parish above are also within the boundaries of this port.) These include:  Marathon Refinery in Garyville plans to complete a feasibility study and permitting for a proposed huge $2.5 billion residual oil upgrade expansion. The project would convert heavy residual oil into ultra-low sulfur diesel. If approved, the new unit would generate 65 new jobs at $115,000 a year when it becomes operational. We are unable to place a probability on this project.  In 2013, a Russian firm---Eurochem---announced plans to construct a $1.5 billion ammonia-urea production plant in either St. John Parish---where an option has been filed on land---or a site in Carville (in the Baton Rouge MSA) where a $12 million site has been purchased. In April, the company settled on the St. John site. If constructed the plant would hire 200 workers at $58,000 a year. We place a 40% probability on this investment occurring in Louisiana.  In St. Charles Parish, Valero Refinery is near a decision on constructing a $700 million methanol unit. If approved the project would ultimately add 24 jobs to Valero’s workforce. We are unable to place a probability on this project.  AM Agrigen Industries has FEED work underway for a $1.2 billion granulated urea plant in St. Charles Parish. Air permits have been secured, and water permits are pending. The firm would hire 150 permanent workers at $55,000 annually. Probability of proceeding: 80%  In Luling, Monsanto expects a final board decision in early 2016 on a proposed $1.2 billion expansion of a herbicide producing plant. The project would add 95 jobs at $76,500 annually to the facility’s 645-person workforce. Probability of proceeding: 80%  First Bauxite Corporation recently announced plans to build a $200 million bauxite processing plant to manufacture proppants used in fracking wells. Once constructed the plant at the Port’s Globalplex site in St. John the Baptist Parish would employ 100 employees at an average annual wage of $70,000. Given the state of the exploration industry, we place a low probability on this project moving forward.  Entergy Corporation is planning an $850 million expansion of its power plant located in Montz, Louisiana. We place a very high probability on this project proceeding.  Finally, Hexion has announced a $66 million upgrade of its plant in St. Charles Parish that will create 13 new jobs. We place a very high probability on this project proceeding.

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This is an impressive list of 18 projects that would demand a large number of industrial construction jobs on site. It clearly would not take many positive decisions within this group to seriously boost this MSA’s employment. Construction: Condos, the Corps, MSY, State/Local Described above were the industrial construction projects for this MSA. There are also other sizeable projects either underway over our forecast period, plus a bit of downsizing by the Army Corps. 

A bumpy bid process has surrounded the contract for an $826 million upgrade of the Louis Armstrong Airport (whose call name is MSY). This figure includes $546 million for a 30-gate terminal with three concourses and a parking garage on the north side of the airport. Construction should begin in 2016. Originally the project was to be completed in 2018 in time for the 300th anniversary of New Orleans. However, the start date of construction has slid so much due to the bid process that few believe that deadline can be met.

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Normally we do not report condo/apartment projects in the LEO, but the volume and size of five projects in New Orleans is so large---totaling nearly $1 billion--that we feel compelled to document them for our readers. o The 4-phase, $250 million South Market District development is well underway. The first phase---Paramount---is a $48.4 million building with 290 apartments and 22,000 square feet of retail that is fully leased up. A 7-story, 172,000 square foot building (Beacon) with apartments and retail is about 50% complete. $40 million has been obtained for a third 7-story, apartment/retail building and 500 Carondolet Street building---the Ace Hotel---is under-going renovation into a 234-room hotel. A fourth building will be a 15-story, 89-unit condominium.

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Four Seasons plans a $364 million renovation of the World Trade Center.

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Wishermann Partners is at the permitting stage on a 373-room Residence Inn and Springhill Suites at 400 Canal Street.

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Poydras Partners will spend $120 million to convert an office tower at 1250 Poydras into a Hyatt Extended Stay Hotel.

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The old Woolworth Building at 1031 Canal will undergo a $70 million renovation into luxury high rise condos.

The Army Corps of Engineers is continuing its extraordinary spending in this region on its Hurricane and Storm Damage Risk Reduction System; however the volumes---while still very large---will be noticeably smaller in 2016-17. Table 15

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shows that the Corps’ planned spending on the HSDRRS will decline by $150$200 million a year over the next two years. Table 15 Army Corps of Engineers Actual & Planned Spending: Hurricane and Storm Damage Risk Reduction System Fiscal Year Spend (Millions of Dollars) 2014 $942 2015 $970 2016 $740 2017 $795 Other significant construction projects planned for the area include a $250 million expansion at Oschner’s Hospital that will add six floors to the 8-story West Tower. This project will be completed in 2018. The state has let $302.5 million in road/bridge projects in this 8-parish MSA over 2016-17. Some $41.5 million is being spent on the North Ramparts/St. Claude streetcar line, a project that is scheduled for completion in 2016-III. A $600 million project for the Iberville redevelopment started in 2013-IV and will end in 2017-IV. About 600 of the 800 units to be rebuilt have been completed. Nice Gains on the North Shore Several companies are either starting up or expanding on the North Shore. Fedex has built a new 175,000 square foot distribution center in Covington, To be completed in early 2016, this facility will hire 120 people. Rain CII opened a new $56 million headquarters building in October 2014. The firm brought 71 high-wage ($102,700 annually) jobs to Covington. Trinity Medical Services is renovating a 25,000 square foot facility for a new toxicology lab. At 80 people now, the firm will add another 35 in Mandeville. In anticipation of Medicaid expansion in Louisiana, Centene is projecting an additional 120 people at its facility in Covington. Netchex is expanding its headquarters in Mandeville and plans to add 240 jobs to its workforce over the next 10 years. The company provides web-based human resources and benefits in the South. In a “bad-news-turned-good” story, Textron Marine and Land Systems dismissed about 100 workers at its armored vehicle plant in Slidell in October 2014. The good news is the company---employment now at 429---is planning on ramping employment back up to fill orders for its new line of COMMANDO armored vehicles. The company is building 500 COMMANDO Lite vehicles for Canada, and expects further contract awards in the very near term. A trickier issue for the North Shore is at least two key energy players. Chevron had planned on opening a new 35,000 square foot Gulf of Mexico headquarters building in Covington towards the end of 2016, adding 800 jobs to the North Shore. Also, there were indications that Chevron was to relocate 300 workers from its Lafayette location to ______________________________________________________________________________________ Economic Outlook Page 54

the North Shore. Given the turmoil in the energy markets and the company’s announced cutbacks, it is not clear whether these activities will proceed. Similarly, Pelican Energy Consultants had planned a $5 million investment and 195 new jobs by 2018 in Madisonville. We are assuming that time table is unrealistic at this time. Good String of Announcements for the “South Shore” New Orleans proper has also enjoyed a string of new job-producing announcements. Viking Cruises has announced that New Orleans will be its homeport for the company’s first North American cruise itineraries. Viking plans to add 416 operations and crew personnel. International Shipholders is moving its headquarters to the Warehouse District and will add 100 jobs to the region. High Voltage Software announced in December that it was opening a video game development studio in New Orleans and would hire 80 employees who would be paid from $50,000 to $120,000 annually. TriWest Healthcare Alliance plans to establish a 285-person call center for veterans in Jefferson Parish. Textron Marine & Land Systems has a facility in New Orleans east that presently employs 292 people. The company acquired a contract with the Navy for the Ship-to-Shore Connector (SSC) amphibious craft. The test craft is to be finished in 2017 with production of the series to start in 2018. The Navy wants 73 of these vessels. Textron will be adding workers to fulfill this contract. At the Michoud Assembly Center in New Orleans East work continues on the core stage for the Space Launch Vehicle and the Orion Capsule. Lockheed expects to add 80 jobs to its Orion Capsule labor force and could add up to 300 more in 2017 if the project is included in the federal budget. President Obama’s Clean Power Plan (discussed in the background assumptions section) will increase the demand for windgenerated electricity. This is good news for Blade Dynamics at Michoud, which wants to add space and ramp its employment up by 300. There are especially exciting possibilities at the USDA Finance Center at Michoud. Already at 1,700 employees, the Center is doing space planning for a possible new contract that would add 1,000 to 1,500 new employees. The Not So Good News Several pages have so far been devoted to the good news occurring in this MSA. A logical question is, “Why the modest growth forecast for the region?” By far the answer lies in the hit being taken by the energy-related companies in the MSA. Of the New Orleans MSA gross domestic product (GDP), about 8.1% comes directly from firms involved in oil and gas exploration/production activities.5 This is almost four times larger than for the U.S. as a whole (2.2%). This 8.1% does not include all the shipping, fabrication, manufacturing, and other jobs in the MSA that are indirectly tied to the energy sector. 5

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Two companies with a large presence in the New Orleans MSA deserve close watching. Shell has over 2,300 employees and contractors in One Shell Square, and the company has already indicated it will be laying off 6,500 worldwide. As mentioned earlier, Chevron employs about 720 people in Covington out of more than 2,000 in its Gulf of Mexico operations. That company has indicated another round of layoffs is eminent. It is the layoffs in these energy-related companies that have the MSA on a course to incur a net loss of 1,000 jobs in 2015. We expect the drag of these job loses to impact the region well into 2016, which is the primary reason for our anemic 0.5% job growth forecast for that year. Concerns are also arising from some other areas of the New Orleans economy. Lockheed Martin at Michoud was poised to manufacture LNG tanks for terminals and water-borne vessels, but will shut down operations by year end. Much excitement was generated by the announcement that Renaissance Rx was building a new headquarters and adding 425 jobs in New Orleans, but the company’s planned employment was suspended in February. The Times Picayune closed its print facility on Howard Avenue and terminated 100 workers. Finally, we believe a keen eye should be kept on Harrah’s Casino at the foot of Canal Street. Under its licensing agreement as the only land-based casino in Louisiana, Harrah’s is supposed to employ a minimum of 2,400 people. However, this spring, the New Orleans City Council passed a smoking ban that covers the casino as well. The result was very predictable given the history of smoking bans in other locales. Revenues at the casino dropped 30% in the first two months after the imposition of the ban. Realistically, the new employment minimum should be lowered to 1,800-1,900 according to officials in the industry. The City Council does not want to alter the employment minimum. We expect the casino to file suit to lower the minimum, which could cost the region another 500-600 jobs. Baton Rouge: Is Industrial Construction Peaking? For the first time in its history this MSA’s employment broke through the 400,000 level in 2015. There are an estimated 408,800 jobs in this MSA, the second largest behind New Orleans. It is the largest MSA in the state in terms of numbers of parishes---nine, including East Baton Rouge, West Baton Rouge, Livingston, Ascension, Iberville, St. Helena, Pointe Coupee, East Feliciana, and West Feliciana (see Map 3). In terms of population, East Baton Rouge Parish was the most populous in the state in 2013 at 445,227 according to the Bureau of Economic Analysis.6 The authors have been monitoring the Baton Rouge economy for 40 years. We have never seen an industrial expansion like the one underway in this MSA. We have tabulated $8.1 billion in announced industrial expansions in this MSA. What differentiates this MSA from New Orleans and Lake Charles---sites of other major industrial announcements---is that in the Baton Rouge MSA almost all the announced 6

www.bea.gov

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projects are under construction. Only about $155 million of this MSA’s announced project have still to break ground. What this means is industrial construction employment in this region will likely peak in 2016 and then drop off in 2017 as these projects near their completion. What is equally exciting are some of the significant non-industrial expansions or additions announced for the region. These will insure that 2017 will be a fine growth year for the MSA even though a significant decline in construction employment is expected in that year. Petrochemicals, Construction, Universities & Government The petrochemical industry is a huge factor in this MSA’s economy. This MSA has the largest concentration of chemical industry activity in Louisiana. Between the three of them, East Baton Rouge, Ascension, and Iberville Parishes had 9,943 chemical workers in 2014. Baton Rouge is home of the nation’s third (and the world’s twelfth) largest refinery---ExxonMobil---located just north of the state capitol building. Placid Refinery is also located in this MSA. Because the petrochemical industry is very capital-intensive, when it expands, so does the industrial construction. Industrial construction jobs are also closely tied to “turnarounds” at these plants, i.e., when the plants are shut down completely for scheduled maintenance. In June 2015 the Baton Rouge MSA had an unusually high 13.1% of its workforce in the construction sector, the second highest percentage in the state. Only Lake Charles was higher at 16.4%. The comparable percentage for the whole state was 7.1%. Turner Industries, Performance Contractors, CB&I, the Newtron Group, and Cajun Contractors are among the larger industrial construction companies in the area. The Baton Rouge MSA also is the location of the State Capitol and the vast office complex associated with it. Two major state universities---LSU and Southern University---are located in Baton Rouge, along with one of Louisiana’s largest community colleges. Baton Rouge Community College is actually larger than Southern University in terms of enrollment. This MSA is also home to an emerging high tech sector, led by Electronic Arts game company and the large IBM facility that is under construction. Recent History of Baton Rouge Figure 16 shows employment trends in the Baton Rouge MSA over 1980-15. This MSA was only mildly touched by the terrible recessionary years of 1982-87. Baton Rouge dropped 4,800 jobs or 2.2 percent of its workforce as compared to the 9 percent decline in the state as a whole over that same period. Note the distinct jump in the employment trend line in Figure 16 in 1990. This was due to the addition of five more parishes to this MSA by the Department of Labor.

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The really good years: The years from 1988 to 2000 were heady ones in the Baton Rouge MSA. This region had the most enviable growth record in the state in terms of both size and consistency. The MSA immediately recovered the 1982-87 losses with a banner year in 1988 when it gained 10,300 new jobs. Then the region’s employment went straight up for 13 straight years over 1988-00, adding a robust average of 7,500 jobs each time the calendar turned. The really weak years: The tables decidedly turned against Baton Rouge over the next four years. This 9-parish MSA lost 3,900 jobs or 1.1 percent of its workforce in 2001 due to the national recession---an unusually short and mild dip compared to what happened nationally. Its recovery from that dip was nothing like that of 1988. It took three years to recover the jobs lost in 2001, and those three years were ones of very modest growth as seen in Figure 16.

Fig. 16:Baton Rouge MSA Non-Farm Employment 1980-2015 440 Statewide Recession: -9.0% BTR: -2.2% -4,800 Jobs

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2015: +7,700 Jobs (+1.9% ) X

2005-06: The "Katrina Effect" +18,500 jobs (+5.4% )

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New Record: 10/12 2014: +9,300 (2.4% )

2009-10: -11,300 jobs (-3.1% ) 2nd Best in State

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The culprit behind this slow growth pattern was the chemical industry. We have already pointed out the dominant role played by this industry in the MSA’s economy. The chemical sector was hurt by two factors. Initially, the national recession hit sales in this sector very hard and weakened considerably the price of chemical products. However, the second factor was in many ways the most problematic. High natural gas ______________________________________________________________________________________ Economic Outlook Page 58

prices (see Figure 8) radically raised operating costs for these firms. Several chemical firms in the MSA announced layoffs or closed either temporarily, partially, or completely. The region’s ammonia fertilizer plants especially suffered. The Katrina Effect Evacuees in: Baton Rouge is the closest large MSA to New Orleans, so it initially absorbed a huge number of evacuees. From FEMA assistance applications, we estimate that the Baton Rouge MSA initially absorbed about 248,386 evacuees. This MSA’s population exploded by over 34 percent overnight. Traffic came to a standstill across the area, supplies vanished from grocery stores and gasoline stations, and every rental unit in the area was absorbed. There was a wild real estate period of about one month when realtors were selling more houses in a week than in the previous year. The median price for a single family home leapt 27 percent, the largest jump among the 151 MSAs surveyed by the National Association of Realtors. Sales tax collections in East Baton Rouge Parish rose by 34 percent in September 2005. Evacuees out: There was, of course, no way for the MSA to permanently absorb a quarter of a million people over such a short time span, if for no other reason than there were not enough jobs available to support that many people. For example, in November 2005, the traffic count on I-12 east of the I-12/I-10 split was up 22 percent over August 2005. By 2007 that count was up only 3.1 percent. On the I-10 bridge over the Mississippi, the count initially jumped by 26 percent, November over August. By 2007 that count was up only 2.9 percent. More importantly, the Census Department made an estimate of the area’s population as of July 2007. That estimate showed the MSA’s 2007 population of 770,037 was up 39,921 over July 2005---a 5.5 percent increase. As seen in Table 16, the bulk of that population increase occurred in East Baton Rouge (18,121), Ascension (10,000) and Livingston (9,100) Parishes. The area clearly experienced an “evacuees in – evacuees out” phenomenon. A similar phenomenon was experienced in Hattiesburg, Mississippi and Mobile, Alabama. Table 16 Population Change by Parish July 2005 – July 2007 Parish Absolute Change Percent Change East Baton Rouge 18,121 4.4% Ascension 10,000 11.2% Livingston 9,100 8.5% West Baton Rouge 1,091 5.1% Pointe Coupee 564 2.6% St. Helena 437 4.3% East Feliciana 276 1.3% Iberville 272 0.8% West Feliciana 60 0.4% Source: U.S. Census Bureau ______________________________________________________________________________________ Economic Outlook Page 59

Katrina boosted employment. Not only do the population numbers show that this MSA benefited from the storms, the employment numbers shown in Figure 16 confirm that as well. The employment line in Figure 16 took a distinct upward turn in 2005 and 2006. The MSA’s employment rose by 18,500 jobs or 5.4 percent over this period. Obviously such a rapid growth pattern could not be sustained long run. 2007: Construction Leads to a Strong Year As seen back in Figure 16, the Baton Rouge MSA managed to continue the postKatrina, torrid pace of adding 9,000-10,000 jobs a year. Incentivized by the Go Zone legislation, a massive amount of new construction work began in 2007. 2009-10: Impacts of the Great Recession It is clear from Figure 16 that the Great Recession had an impact on the Baton Rouge MSA, though the region performed better than most in the country and the state. To repeat, the national economy began losing jobs in January 2008 and U.S. employment fell by 6.1 percent. By contrast, the Baton Rouge MSA did not lose the first job until September 2008, and it lost only 3.1% of its jobs. This was the second lowest loss of any MSA in the state (see Table 14). The MSA was not without some serious job losses during the recession. For example: 

Dow Chemical in Iberville Parish closed one facility (-160 jobs) and laid off 400 contract workers.

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Trinity Marine closed its barge manufacturing facility in Port Allen (-190 jobs).

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Capital One Bank closed its call center at a cost of 180 jobs.

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Chase Bank closed its operations center, dismissing 247 people.

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Wells Fargo closed a call center, terminating 70.

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IEM moved its headquarters to North Carolina, taking with it 50 very highpaying jobs.

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Excide Batteries temporarily closed its shop, terminating off 132 people.

In addition to these announcements, budgetary shortfalls in state government led to layoffs in that sector of about 1,300 workers.

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Recovery from Great Recession Getting Stronger Each Year Recovery from the Great Recession in the Baton Rouge MSA has been getting stronger each year as seen back in Figure 16. Employment growth in 2011, 2012, 2013, 2014, and 2015 were 1.4%, 1.9%, 2.6%, 2.4%, and 1.9% respectively. By October 2012, the MSA had recovered all the jobs lost during the Great Recession and began setting new employment records. The MSA accomplished this despite a couple of significant setbacks. First, the region lost 925 call center and distribution center jobs, including the 400-person Home Depot call center. Secondly, state government faced some serious financial challenges as a result of the recession and other factors. Governor Jindal steadfastly refused to solve these budgetary issues by raising taxes, which meant cuts in government spending were the order of the day. As the state capital, Baton Rouge tended to bear the brunt of those cutbacks. Since July of 2009, state government has shed 5,100 workers (-13%). Forecast for 2016-17: Construction Drop off in 2017? Figure 17 contains our forecast of employment for this MSA for the next two years. We estimate that in 2016, the Baton Rouge region will add 8,900 jobs (+2.2%) and will follow that with an additional 6,200 jobs in 2017 (+1.5%). In percentage terms, this would place the Baton Rouge MSA #2 compared to growth rates in the other 8 MSAs in the state. In absolute terms, its growth of 15,100 new jobs is projected to be the fastest in the state. The primary reason for the lower growth rate in 2017 is that several industrial construction projects will peak in 2016 and begin using fewer workers in 2017. Record $8 Billion in Industrial Expansions Underway Baton Rouge’s five very strong years of growth in a row is largely due to the record industrial expansions in the area. Again, unlike the case in New Orleans and Lake Charles, the great majority of the announcements are under construction, whereas in those other two MSAs many announcements are at the FEED stage and are only “potentials”. As we pointed out back in the assumptions section, natural gas prices have fallen sharply in the U.S. but are significantly higher in Europe. Chemical firms are prodigious users of natural gas. The price advantage in the U.S. has been translated into a price advantage for our chemicals over those produced in Europe. Consequently, U.S. firms are cutting into Europe’s share of the world chemical market.

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Fig. 17: Baton Rouge MSA Non-Farm Employment Forecast: 2016-17 440 Cracked 400,000 barrier in 2015 X

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The Baton Rouge MSA is ideally situated to capitalize on this boom. There are numerous pipelines already in place to deliver natural gas to the plants. There is an abundance of available water (the Mississippi River), and there is an excellent waterway for transporting the bulk production of this industry by barge (the Mississippi River). These are the drivers behind the $8 billion in industrial announcements in the region. These projects include the following: 

Dow Chemical is spending $1.06 billion on two polyolefin plants and other capital upgrades. One project will be finished in 2015-III and another should be completed by the end of 2016. The projects will add 71 new jobs at an average annual wage of $49,000.

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In Ascension Parish the 1,600-person BASF plant is building four new facilities at a total cost of $500 million. One is underway, construction on two is about to start, and a third will start in early 2016. About 100 new jobs will be created.

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$2.1 billion is being spent by CF Industries in Donaldsonville to build the nation’s largest nitrogen fertilizer plant. It should be completed in 2016 and employ 93 people.

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Shintech announced in April a $1.4 billion expansion that will involve an ethane cracker and connections to PVC and VCM production lines in Iberville Parish. Completion is expected in 2018-II, and 100 new jobs at $68,500 annually will result.

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Also at the Shintech site, SE Tylose is about 60% along in constructing a $120 million chemical plant. The company held a job fair last summer to hire 30 workers for the new plant.

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Methanex Corporation announced it will spend $1.1 billion to move two idle methanol plants from Chile to Ascension Parish. The first plant opened in 2014, and equipment for the second plant is on site with a planned opening date in 2016-I. The 2-plant complex will employ 165 people at $56,000 annually. The firm is also examining the possibility of moving a third plant from Chile to the Ascension site which would involve another $600 million investment.

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Honeywell is spending $80 million on expansions at two of its sites in Baton Rouge and one in Geismar. The firm will retain 200 jobs and add another 10 to its workforce.

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Genesis Energy is nearing completion of a $150 million, 1.1 million barrel storage terminal for oil, intermediates, and refined products at the Port of Baton Rouge. The facility should be operational at the end of 2015. No employment numbers were provided.

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Momentive Specialty Chemicals will spend $30 million at its Geismar facility and add 5 new jobs.

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PSC Nitrogen announced in July that it will build a new urea plant in Geismar to be completed in mid-2018. No new jobs are projected with this expansion.

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At the USA Rail & Terminal Industrial Park in Port Allen, Thermaldyne will build a new $19 million waste remediation plant and add 45 jobs at $70,000 annually. Construction is to start 2015-III and open in 2016-II.

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Last year we indicated that NFR BioEnergy had announced it will move its headquarters from New York to White Castle and begin spending $312 million to build 10 sugar-refining hubs that would take bagasse and produce hardened energy pellets for use as fuel in global power plants. An initial plant in White Castle was to be ready for the 2015 harvest season. The firm would hire 127 by the end of 2016 and expected to be at 450 by 2019. The $312 million would be spent by the end of 2018. The firm is behind on this schedule but has begun initial hiring.

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Former officials with Shaw started up a new company---Epic Piping---and are building a $45.3 million, 200,000 square foot pipe fabrication facility in

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Livingston Parish. The firm will hire 560 people at an average annual wage of $56,500 and should open in 2016-III. 

Stepan Company is exploring the possibility of constructing a $60 million to $70 million plant in Geismar that would employ 33 people at an average annual wage of $70,000. The firm would need to buy property from and use raw materials from Shell’s Chemical plant. The firm is conducting FEED work now and expects a final decision in 2015-III.



Two new glass-oriented companies are coming to Baton Rouge. ClearEdge Wholesale Glass is relocating from New Orleans and will spend $2.65 million to renovate a 41,000 square foot building and employ 120 workers at $39,300 annually. Glaz-Tech is building a new $4 million glass manufacturing plant that will employ 50 people at $34,000 annually.



Renewable Energy Group is very close to reopening the old Dynamic Fuels site in Geismar. The firm is aiming for a 2015-III opening and will hire 60 people.



There is about a 90% probability that an unnamed company---assigned the moniker “Project ACE”---will spend $20 million to construct a facility that reprocesses materials from local plants. About 45 jobs at $30 per hour would be associated with this development.



A prospect at the very early stages of development comes from Huntsman Corporation in Geismar. The company is conducting preliminary FEED work on increasing its MDI production by 80%. The firm has not indicated how large the capital expansion would be money-wise, nor has it indicated the expected job creation.



We are less optimistic about the possibility that Emerald Biofuels will open a new facility in Plaquemine. The company secured a $70 million contract with the Department of Energy, the Department of Agriculture and the Navy to build a fats-to-diesel refinery. The Navy would agree to buy the two million gallons a year of production for five years.

All this new industrial activity in the Baton Rouge region has spurred a non-trivial boom in the rail sector. For example: 

In Port Allen, USA Rail Terminals is spending $11.3 million on a railroad facility and a 200-acre industrial park just south of the old Mississippi River Bridge. The site will have the capacity to store up to 1,200 railcars. Announced in February, the project will take 18 months to build out. Forty-three jobs will be created at a relatively high annual wage of $80,000.



Florida Fuel Connections has announced a $75 million petroleum terminal and rail transportation facility in East Feliciana Parish. The project would focus on

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transporting petroleum products by rail to Florida and Georgia and would employ about 50 new workers. 

At the Port of Baton Rouge, Union Pacific Railroad has started an 18-month, $19.6 million rail expansion project. The company will spend $7 million on longer receiving tracks and power switches to accommodate unit trains (trains with 100 railcars), and it will spend $12.6 million on a chambering yard for railcars waiting to be loaded or unloaded.

Grain & Pellets Transform the Port The Union Pacific project at the Port of Baton Rouge was requested by Drax Biomass and Louis Dreyfus Commodities. Louis Dreyfus made a major investment in a grain elevator at the Port, and Drax Biomass built the two white round-shaped drying facilities one sees on the left side of the Mississippi River Bridge when driving west. Drax Biomass has a facility in North Louisiana that makes wood pellets to be shipped to the Port for drying before being shipped abroad to burn in electrical power plants. The impact of these two firms on tonnage handled at the Port has, and will be, nothing short of dramatic, as seen in Figure 18. Note the 125% increase in 2014 as the Louis Dreyfus facility came online. The reason for this huge jump is seen in the grain tonnage numbers which rose from 577,627 tons in 2013 to 4,157,532 in 2014. When the data are released for 2015, there will be another large jump in tonnage moved through the Port as the wood pellets from Drax Biomass finally begin to be handled by the Port. Fig. 18: Tonnage Handled at Port Of Baton Rouge: 2005-14 9,000,000 2014:125% increase Grain 2013 2014 577,627 4,157,532 2015: add Pellets

8,000,000

Tons

7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Fiscal Year

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Good News in Livingston In addition to the large Epic Pipe project mentioned above, Livingston Parish will be adding some new tenants or enjoying expansions in others. Martin-Brower is building a new $16 million food distribution center in the Livingston Industrial Park that will retain 160 workers and add 30 more. Oxlean Manufacturing will spend $2.1 million to expand and modernize its steel manufacturing plant and will add 73 jobs at $55,000 annually. A company labeled “Project X” will soon start construction of a 140,000 square foot beverage distribution center just north of the Epic Pipe site. Approximately 150 jobs will be created at the center. Owners of a 28-acre tract are at the early stages of developing the Tuscany Technology Business Park. The owners plan to construct an initial 25,000 square foot building to house an expected high-tech company. Non-Industrial Construction: Hospitals, Bridges, Roads, Education Industrial construction is not the only construction sector booming. The Baton Rouge MSA economy is savoring a bump from non-industrial projects as well. Our Lady of the Lake will break ground in December on a new $200 million Children’s Hospital. This 2-year project will result in inpatient beds, an emergency room, a surgical unit, and a hematology/oncology unit. Construction began in November 2014 on a $110 million project to renovate the Patrick Taylor Hall at LSU. The project is scheduled for completion in June 2017. Construction is underway on the 3-building, $45 million Water Resources Institute (funded by fines resulting from the BP spill). The Louisiana Department of Transportation and Development has let $303.6 million in road projects for this 9-parish MSA over 2016-17. The $100 million face lift on the Huey P. Long (Old) Mississippi River Bridge should be completed during our forecast cycle. Work on the $54.4 million rebuild of Lee High School in Baton Rouge is nearing completion. Also, over the next two years, East Baton Rouge Parish will be spending $95.5 million to wind down its multi-year sewer system repair project. Is Construction Labor Demand Peaking? The great wealth of construction projects listed above has generated more business for local area construction firms than they can say grace over. Firms in the area such as Turner Industries, Performance Contractors, CB&I, Cajun Contractors and the Newtron Group are reveling in very active, profitable years. Indeed, another significant firm was added to their company this year when Brown and Root announced it was moving a headquarters office from Houston to Baton Rouge and would add 25 executives in 2015 and another 25 in 2016. The average annual salary for these executives will be an extraordinary $192,000. Executive Director Connie Fabre of the Greater Baton Rouge Industrial Alliance (GBRIA) has surveyed GRIA members as to their contract labor needs over the next 18 months. The results are shown in Figure 19. Between July 2015 and September 2016, contract labor demand will jump from 26,377 to 32,264, an impressive 5,887 increase in ______________________________________________________________________________________ Economic Outlook Page 66

contract labor demand. However, note that by December 2016, this demand measure will be back down to 26,900---little changed from 18 months earlier. In fact, a careful perusal of Figure 19 reveals that the big increase in contract labor demand arises from turnarounds, not new capital projects. Because many of the industrial expansions in this region are nearing completion, we are expecting contract labor demand in this MSA to drop off in 2017, which is the reason for the lower growth rate projected for this MSA in that year. Figure 19

Boosts from High Tech While economic activity in this Baton Rouge region has been dominated by the construction sector, the region is also basking in the glow of a burgeoning high-tech sector. Leading this stack of good news is the new 800-person IBM Technology Center. Work on IBM’s new $55 million office tower, residential complex and garage is nearing completion. The firm’s local employment is projected to reach 500 by the end of 2015 and 800 by the end of 2016. To ensure a supply of workers to IBM, the state is investing $14 million over 10 years in LSU’s computer science program. Another high-tech win for the region was the attraction of Stixis Corporation’s first U.S. development office to the Louisiana Technology Park. Stixis’ site name will be the AMIGOS (Agility Metamorphosis Incubator for Global Operations) Development Center, and the firm plans to add 230 jobs at $59,500 annually by 2019. Qualytics---a software testing company for the digital media industry---is also coming to the Louisiana Technology Park and will generate 34 jobs at $27,000 annually. Edgear is another software development company out of Shreveport. The company develops programs to help schools collect and manage student data. Edgear will spend $1.77 million on a site at the Baton Rouge Airport and will hire 33 people paying $64,000 annually. ______________________________________________________________________________________ Economic Outlook Page 67

The Bad News: The Three A’s, the EPA, and Trinity An abundance of good news for the Baton Rouge MSA does not mean the region is without its problems. There are the threats from the “three A’s” , the EPA and Trinity. The first of the “three A’s” is Amedisys Corporation. This large, 540-person firm is headquartered in Baton Rouge, but the firm’s newly installed CEO has indicated he will be moving 33 top executives to Nashville. Economic developers are nervously watching this development, not only because of the loss of very high-wage jobs, but also because of worry that Amedisys’ entire operations will ultimately go to Tennessee. In 2008, Albemarle Corporation moved its headquarters from Richmond, Virginia to Baton Rouge. Recently, the company, in a $6 billion deal, purchased Rockwood Holdings. Albemarle CEO Luke Kissam has announced the corporation is moving its headquarters to Charlotte, North Carolina and its refining solutions business to Clear Lake City, Texas. The company indicated that 120 employees would be included in the move which will take place in June 2016. The third “A” that has generated threats to the Baton Rouge economy is the Affordable Care Act (ACA). Though there are strong disagreements with the conclusion, there are reasonable arguments that the ACA will ultimately result in a single-payer system, as exists in Canada and Britain. A single-payer system would bring into jeopardy the existence of Blue Cross Blue Shield of Louisiana. BCBS is headquartered in Baton Rouge and has a 1,800+ workforce. Separate and apart from the single-payer issue, BCBS, and all health insurance companies, are being challenged by the complexity and implementation problems associated with the ACA. Closely related to the ACA was an announcement in February of the closure of the emergency room at the Baton Rouge General Hospital (BRGH) on Florida Boulevard. When the Earl K. Long Charity Hospital was closed, the Medicaid patients were supposed to go to Our Lady of the Lake (OLOL) Hospital for care. Because the Florida Boulevard hospital was closer, many indigents were showing up at its ER needing care but having no money. Baton Rouge General hemorrhaged losses because it was receiving no reimbursement. Those familiar with hospital finances will argue it is difficult if not impossible to keep a hospital the size of BRGH on Florida open without an ER. If the hospital ultimately closes, a loss of 1,000+ high-paying jobs in the area would not be out of the question. BRG announced 50-80 layoffs of administrative personnel. Another source of concern is the new rules on ozone levels being considered by the EPA and the consequences of that agency’s Clean Power Initiative---both of which are described in detail back on pages 20-12. If the EPA’s 65 ppb ozone level is adopted, all parishes in the Baton Rouge MSA will be out of compliance. If the Clean Power Plan survives its many court challenges, industrial electricity rates will increase to a level making the region very uncompetitive in the race to land new industry.

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Finally, Trinity Marine in Port Allen/Brusly announced this summer it would be closing its 283-person inland barge manufacturing facility by the end of November. It is not uncommon for this firm to shutter when no new contracts are on the horizon (the firm closed in 2005 and laid off 190 in 2009) and then to reopen when new contracts materialize. Hopefully that pattern will be repeated. Shreveport/Bossier: Oil & Gas – Another Year of Bloodletting This MSA is now the fourth largest MSA in Louisiana with an estimated 182,200 non-farm jobs in 2015. Located in the northwestern corner of the state, this MSA is now comprised of four parishes---Caddo, Bossier, Webster, and DeSoto. Webster Parish is a new addition to this MSA. All our employment numbers reflect the addition of this parish. Shreveport-Bossier has the highest concentration of durable goods manufacturing employment in the state, and that tends to make the area much more susceptible to national recessions than Louisiana’s other eight MSAs. Among the large durable goods manufacturers in the area are CellXion (a manufacturer of cellular towers), Frymaster (manufacturer of deep fryers and similar products for McDonalds and KFC), and Ternium, a steel components manufacturer. This group will soon be joined by Benteler Steel, which we will discuss in the forecast section for this MSA. It is also home of the state’s largest and most successful casino market. This MSA now has six large river boat casinos plus the Harrah’s Racetrack, which together employed about 5,870 people in 2014-IV. Bossier City is home for Barksdale Air Force Base, an employer of 7,577 military/civilian workers and an important economic driver for the area. Another big employer in the MSA is the LSU Health Sciences Center with 5,260 employees. The Caddo-Bossier Port is home to several firms including the Ternium steel firm, the Pratt recycling company, Ronpak, and Benteler Steel. Altogether, tenants at the Port employ over 1,100 people. This region was a huge beneficiary of an economic jolt from 2007 to about 2009 in the form of the Haynesville Shale---a very large deposit of natural gas. New fracking technology made possible the harvesting of this field. In 2008, exploration companies pumped $4.5 billion in new dollars, about $3.2 billion of that in the form of mineral lease payments, into the northwest section of the state. In 2009, that figure rose to $7 billion, of which about $1 billion was in the form of mineral lease payments. This largess radically reduced the influence of the Great Recession on this MSA's economy, as we will show below. We will also note a considerable tailing off of activity in the shale since 2010. Shreveport/Bossier Recent Employment History Figure 20 tracks the employment history of this MSA over 1980-2015. The Shreveport/Bossier area suffered through a prolonged, and deep, recessionary period ______________________________________________________________________________________ Economic Outlook Page 69

from 1985-89. While this decline was partially a result of a badly declining exploration industry, that was not the main culprit. 1985-89: The AT&T effect. Both the depth and length (this MSA was the last in the state to begin the recovery process) of the recession was due to one firm. AT&T had a large phone equipment manufacturing facility in Shreveport that employed 7,450 people at its peak in 1984. The firm then began a major downsizing effort that ultimately dropped its employment to near 1,100. Those layoffs, combined with their negative multiplier effects, caused the MSA’s employment to decline by 8.2 percent. Casinos to the rescue: In 1990, the Shreveport/Bossier area began a slow assent from the depths of its recession. Initially, job growth was positive, but anemic. Then in 1994, its employment began to rise rapidly---by an average of 4,600 jobs a year. The source was riverboat casinos. These casinos have been among the most successful in the state, because they have drawn heavily from the huge Dallas-Ft. Worth metroplex for their customers.

Fig. 20: Shreveport-Bossier MSA Non-Farm Employment 1980-2015 200

2015: -1,500 jobs (-0.8% ) 10,500 Jobs Below 2008 peak

190 2009 -4,200 Jobs (-2.3% )

Thousands

180 2001-03: 3,900 Jobs (-2.3% ) US Down 2 Years (-1.4% )

170 160

X

2012-13: GM Barksdale Haynesville Libby Glass

-8.2% (AT&T)

150

Webster added 2015

140 80

85

90

95

00

05

10

15

Casinos added jobs to the region in another important way as well---the construction of large hotels. Horseshoe Casino had a 25-story, 606-suite hotel; Casino Magic operated a 94-room, 94-suite hotel; and Isle of Capri operated a 300-suite hotel.

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These, of course, are pretty labor-intensive operations, so the MSA picked up a significant employment boost here as well. Durable goods dependence & national recessions: The years 2001-03 were particularly difficult ones for this MSA. The MSA lost 3,900 jobs over this three-year period or 2.3% of its workforce. In percentage terms and in length, it was the worst decline in the state, not unexpected in a very durable goods-dependent region. Several factors played a role in this rather poor record. First, there was the closure of some large manufacturing facilities in the area. In mid-2001, the Avaya Communications (formerly, Lucent Technologies) closed its Shreveport plant, costing the area 900 jobs. The Pennzoil Refinery was sold and dramatically cut back from 230 workers to only 85. Boeing closed its facility at the airport, terminating 162. Precision Response closed its 250-person call center in early 2001. General Electric began the process of transferring 400 positions at its industrial systems plant to another site in Monterrey, Mexico. These were permanent layoffs. Too, the state’s most successful casino market took a hit as business declined with the recession. The area’s newest casino, Hollywood, reduced its workforce from 2,200 to 1,800. Three of the area’s five casinos reduced employment due to the recession. Finally, a mixture of other firms, including Frymasters, Beaird, and Exide Technologies imposed significant layoffs in 2002. Beaird, in particular, went from a 700- to a 30-person workforce. GM, Beaird, and Frymaster stop the fall: The Shreveport/Bossier MSA turned the corner in 2004 and grew for five years in a row, expanding at an average rate of almost 2% a year over 2004-08. Initially, General Motors was a key player in this recovery. GM opened its new facility and hired 600 additional workers to begin testbuilding of the Hummer 3 at its old site. Its employment in the region jumped from about 2,400 to 3,600. However, a round of employee buyouts in 2007 dropped employment at this plant back down to 2,153. After taking over Beaird Manufacturing, the Eakin Company initially put that firm back on an expansion path. Employment at the location jumped from 30 to about 570. Frymaster came back at an all-time high employment level of over 600 employees. The new firm Steelscape (now Ternium)---a steel components manufacturer---opened at the Port of Caddo-Bossier, creating 240 new jobs in 2007. Haynesville & Barksdale Mitigate the Great Recession As we mentioned earlier, normally this MSA is the hardest hit when a national recession hits because of its high dependency on durable goods employment. For example, note in Figure 20 that during the post 9-11 recession the U.S. economy lost jobs for two years by a total of 1.4 percent. In contrast, the Shreveport-Bossier MSA's employment fell for three straight years by a total of 2.3 percent.

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When the Great Recession hit the result in Shreveport was almost turned on its head compared to past history. The U.S. economy began losing jobs in January 2008. Shreveport-Bossier did not lose its first job until 10 months later. The U.S. economy lost 6.1 % of its jobs; this MSA lost only 2.3 % and it only lost jobs in one year---the only MSA to pull that off. Instead of ranking dead last in the state, Shreveport-Bossier ranked 2nd in least jobs lost during the Great Recession. Haynesville flips recession effects: There were two key factors behind this unusual performance. First and foremost was the tremendous amount of money pumped into the economy by Haynesville Shale exploration over 2008-09. As we indicated earlier, these funds amounted to $3.5 billion in 2008 and $7 billion in 2009, an immense injection of economic activity into the region's economy. One indicator of how important the Haynesville Shale activity was during the Great Recession is shown in local government sales tax collections, which are illustrated for four northwest Haynesville parishes in Table 17. First note that during the last post 9-11 recession three of the parishes experienced declines in collections (we were unable to get the earlier data for Bossier Parish), just as normally happens in the face of a national downturn. However, despite the length and depth of the Great Recession, local sales tax collections rose in all four parishes over 2008-09, with unusually large increases in 2009 in Red River Parish (+205.1%) and DeSoto Parish (+82.2%). Table 17 Sales Tax Collections in Selected North Louisiana Parishes Parish Red River 2001 2008 2009 DeSoto 2001 2008 2009 Caddo 2001 2008 2009 Bossier 2002 2008 2009 Source: Author survey of parish finance offices

Percent Change In Sales Taxes -3.1% 71.1% 205.1% -0.8% 3.6% 82.2% -0.8% 7.0% 1.4% NA 4.1% 5.5%

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Similar findings occurred in property taxes collected in five Haynesvilleimpacted parishes as seen in Table 18. Not only did property taxes increase dramatically in all five parishes during the country's worst recession since the Great Depression, but also it is clear from the last two columns that almost all of that growth was energyrelated. In Desoto Parish, property taxes increased by 3 ½ times. In Red River Parish the increase was almost by a factor of seven. The Haynesville Shale was a huge factor in the treasuries of these local governments. Table 18 Property Tax Collections in 5 Haynesville Shale-Impacted Parishes: 2005 Versus 2013 Parish

Property Taxes

Property Taxes

% Energy-

% Energy-

2005

2013

Related 2005

Related 2013

Desoto

$22,395,351

$78,432,531

18.9%

62.4%

Red River

$3,549,617

$21,927,425

3.6%

47.8%

Webster

$15,728,690

$25,342,948

17.1%

26.0%

Bossier

$52,449,881

$97,054,727

8.5%

16.1%

Caddo

$158,347,601

$230,350,740

2.8%

10.5%

Source: Louisiana Tax Commission Barksdale deserves some credit. Of course, the awarding of the Global Strike Command to Barksdale Air Force Base also helped mitigate the impact of the Great Recession. By September 2009, 275 of the 900 jobs attached to the GSF had relocated to Barksdale. In addition to the Global Strike Force, Barksdale gained part of 700 positions it would ultimately secure via flight training jobs and the reopening of a weapons storage area that are coming to the MSA. Several closures still hit the area. The gains from the Haynesville Shale activity and the additions at Barksdale did not mean the region escaped the recession unscathed. Consider the following: 

Problems at General Motors dropped its workforce from over 2,000 to about 800.



Capitol One Bank closed a 150-person call center.



Verizon closed a 300-person call center.

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

Market conditions turned against Beaird Industries in 2008, and it was closed at a cost of about 400 jobs.



A weak U.S. housing market led to the closure of the Georgia Pacific plywood plant in DeSoto Parish (-280 jobs), and the firm laid off 400 at its plant in Springhill.

Recovering From the Great Recession: Not the Normal Pattern Note back in Figure 20 that the Shreveport-Bossier MSA actually started enjoying job gains in 2010. The increase was only 400 jobs or about 0.2%, but this was the only MSA in the state to grow that year. The region also had a good year in 2011, adding 2,100 jobs, a very respectable growth rate of 1.2%. This is the pattern one would normally expect to continue in a durable-goodsdependent economy---good solid growth on the recovery side of a recession. That however, was not the pattern that has continued. The Shreveport-Bossier MSA has been in a decline since 2012, losing 8,300 jobs (-4.4%). Several factors have contributed to this poor performance. First, the GM plant closed August 2012, costing the region 800 high-paying jobs. Area and state economic developers have been hustling to find a replacement at the GM site, something we will discuss in the forecasting section. The Haynesville Shale has played a significant role in the first 2 years of this employment decline. After being responsible for shielding the MSA from much of the effects of the Great Recession, activity in this shale dropped precipitously. After reaching a peak of 142 rigs in April 2010, the rig count in North Louisiana plummeted to only 23 in July 2013---an 84% decline. Rig activity has crept back up to the 26-30 range but has shown little signs of robustness. What caused this rig movement out of the Haynesville play? The answer lies in the rate of return on equity (ROI) data in Figure 21. Note that the ROI in the Haynesville Shale is far lower than in the other plays shown. There are two reasons for this differential. First, the wells in the Haynesville are deeper than in these other plays, so it was costing more to drill a typical well---about $9.5 million per well in the Haynesville versus $6 million in the Eagle Ford or Marcellus Plays. Secondly, the Haynesville Shale is a "dry" play, i.e., when you drill you get only natural gas. In parts of the Eagle Ford, Marcellus, Woodford, and Granite Wash exploration companies hit both natural gas and the more highly priced oil. The latter are "wet" plays. The Haynesville is simply at a serious disadvantage vis-à-vis other natural gas plays in the U.S.

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Fig. 21: Rate of Return on Equity: Various Shale Plays 50 45

48.3% Liquids-Rich basins

Dry Gas Plays

Percent

40 34.0%

35

34.5%

30 25

24.0%

22.9%

20 15.9% 15

Cana SW PA Woodford Marcellus

Eagle Ford

Granite Wash

NE PA HaynesMarcellus ville

Source: Credit Suisse

A third factor holding back this region’s economy has been a reduction in forces at Barksdale AFB. The troop count which was 8,655 in 2012 dropped to 7,577. A 24plane A-10C Wing was removed from the base in 2013. There were 500 jobs directly tied to that wing, but luckily about 400 of those were absorbed into the 307th Bomber Wing. Associated with all these reductions is obviously a reduction in spending in the MSA that contributed to the region’s poor job performance over 2012-15. Another contributor to the recent decline is Libbey Glass. This firm reduced its workforce by 200 in early 2013, moving these jobs to Toledo and Monterrey, Mexico. Readers may have noted back in Figure 20 that the Shreveport-Bossier MSA is on track to lose another 1,500 jobs (-0.8%) this year. The principle driver behind this loss is the oil and gas exploration industry. The U.S. Bureau of Economic Analysis estimated that in 2013 (latest data available) $4.9 billion of this MSA’s earnings came from oil and gas extraction and production. That is over 20% of the MSA’s gross domestic product. The funk the oil and gas industry is in, which is heavily documented in the background assumptions section, is having its negative impacts on this northwestern region of the state. Unfortunately, we expect that funk to linger into 2016. ______________________________________________________________________________________ Economic Outlook Page 75

Shreveport/Bossier Forecast for 2016-17: Dinged by Energy Sector Figure 22 shows our employment forecast for this MSA over the next two years. We are projecting that the Shreveport/Bossier MSA will drop another 800 jobs in 2016 (-0.4%) and add 800 jobs back in 2017 (+0.4%). The weak performance in 2016 will be driven by an exploration industry that will remain under attack. The MSA would rank 7th in employment growth rate among the nine MSAs in Louisiana.

Fig. 22: Shreveport-Bossier MSA Non-Farm Employment Forecast: 2016-17 200 190

Thousands

180 170 160

2016: -800 (-0.4% ) 2017: +800 (+0.4% ) 7th Best in State

150 140 80

85

90

95

00

05

10

15

Over 2015 and 2016 the Shreveport-Bossier MSA will be pushing against a wave of layoffs in the oil and gas extraction industry. A classic case is the announcement by Enable Midstream that the company will lay off 109 oilfield workers over MayDecember 2015. If our forecasts for natural gas prices ($3.50 in 2016 and $3.90 per mmbtu in 2017) are near the mark, we expect activity in the Haynesville Shale to begin picking up near the end of 2016. In the meantime, the extraction industry will be a dragging anchor on this region. Aside from its extraction industry problems, Shreveport-Bossier can expect some positive boosts from other sectors of the economy. A careful reading of this entire report, however, will uncover that this positive news pales compared to the announcements in Baton Rouge, New Orleans and Lake Charles.

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One of the real bright spots in this MSA’s economy is the activity at the Port of Caddo-Bossier. There are 17 tenants at the Port employing over 1,100 people. This number does not include employment at the new Benteler Steel facility that is under construction and discussed below. This was a tough year at the Port due to flooding on the Red River. The Port lost 6-8 months of revenues due to the lack of rail and barge activity associated with the flood. It appears the Port will be dinged for about $3.5 million in damage repair, dredging, and lost revenue. The downturn in the extraction industry had an indirect impact on the Port when Hexion---a manufacturer of synthetic fracking materials---mothballed its plant and terminated 90-100 employees. Apart from these considerable financial blows there was notable good news at the Port. For example: 

Benteler Steel completed construction this summer on its $665 million tube mill. Benteler presently employs 325 people and will be staffed to 500 by the end of 2015. Even more important---and exciting---is that the company has moved up the construction start date to 2016 (from 2020 initially) for its $227 million mini steel mill. This will drive Benteler’s employment to 675.



After moving its headquarters to the Port in 2013 and employing 136, Ronpak’s employment is projected to rise to 275 by the end of 2018.



There are three companies that are close to announcements at the Port. Company X will spend $40 million on a 300,000 square foot manufacturing facility. Company Y will build a $7 million 40,000 square foot steel processing, sales and distribution facility. Company Z will construct a 300,000 square foot facility and invest $12 million in an existing facility at the Port.

Aside from the good news at the Port, other areas in Shreveport-Bossier picked up some gains: 

Perhaps the most exciting piece of good news for this region was the announcement in February 2014 that Computer Sciences Corporation would be bringing an integrated technology center to the National Cyber Research Park. CSC is the anchor tenant at the Park and will bring a total of 800 new jobs to the MSA by 2017. CSC’s annual payroll is projected at $39 million.



Centric Pipe is spending $32.5 million to renovate the old Northwest Pipe facility in Bossier City. All improvements should be completed by 2017. The firm will make welded steel pipe and tubular products for the oil and gas industry. The investment will allow the firm to retain 52 employees and hire an additional 82 people.



Module X Solutions is constructing a $7.4 million, 750,000 square foot manufacturing facility to make modular buildings for the telecommunications industry. Construction work will be completed by 2015-IV, and the firm will initially employ 257 with plans to go to 357 jobs by 2019.

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

An expansion has been announced for Fibrebond’s concrete shelter business. The company will spend $2.5 million to renovate an old paper mill in Webster Parish. Approximately 225 new jobs will ultimately be created at the facility, topping out with 75 new jobs in 2016 and 25 in 2017.



The state has let $115.1 million in state road projects for 2015-16 up from $88.5 million previously.



In October, TSE International announced plan to spend $1.18 million to expand the company’s manufacturing plant and add 30 jobs to its existing 62-person workforce.



Finally, in July Gulf Coast Spinning (parent company Zagis)---a textile firm--has expressed an interest in space at the old GM plant. No capital or prospective employment numbers have been released.

Concerns: Barksdale & Caesars We continue to monitor movements at Barksdale Air Force Base. Last July the Air Force announced it would be cutting 167 positions at the base over a 5-year period. Added to that is the Obama Administration’s general tendency toward reducing the size of the military. On a more positive note for the base, the Chief of Staff of the Air Force and the Secretary of the AF have recommended that the Global Strike Command at the base be led by a 4-star general which insiders suggest would mean more jobs (but not necessarily more troops). A second large player to watch in this market is Caesar’s Entertainment, a company which owns Louisiana Downs Racetrack and the Horseshoe in the MSA. Because of its financial difficulties, Caesars has broken its holdings down into two groups: (1) “life raft” and (2) “down the tubes”. Louisiana Downs and Horseshoe are in the “down the tubes” grouping. What exactly this means ultimately for these two units is unclear. What is clear is that (1) the company employs about 1,480 people at these two gaming sites and (2) the company will be stifling reinvestment at these two sites. Lafayette: Sliding Down another Oil Price Cycle This MSA, located in south-central Louisiana (see Map 3), is composed of five parishes---Lafayette, St. Martin, Vermillion, Acadia, and Iberia. With the addition of the latter three parishes, Lafayette is now the third largest MSA in the state with 220,300 people employed in 2015. A key to understanding this region’s economy is its geographic location. Located in an oil-rich area and not far from the coast, Lafayette became a prime spot to locate service firms, fabricators, and other companies that do business with extraction firms

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exploring South Louisiana and in the Gulf of Mexico. Consequently, like Houma, the Lafayette MSA is closely tied to all aspects of the oil and gas exploration industry. The MSA derives 9.7% percent of its jobs directly from the exploration industry, the highest concentration among the state’s nine MSAs (the comparable number for Houma is 6.5%). Countless other jobs in the MSA are tied to the extraction industry through the multiplier effect. There are four deviations from this pattern. Stuller Settings is a 1,215-person facility that is the nation’s largest jewelry settings manufacturer. Acadian Ambulance is another large employer in the area whose ties are not all directly related to the extraction industry, although the firm provides air-med helicopter services and offshore rig/pipeline safety training to the industry. This company also monitors over 200,000 alarms in 40 states and monitors businesses and houses via videos, eliminating the need for guards. A third, growing firm is the Schumacher Group, which provides ER and hospital medicine doctors to hospitals in 23 states. Finally, Lafayette is the home of one of the state's larger public universities---the University of Louisiana at Lafayette. Until the mid-90s this area also hosted the largest manufacturing employer in the state---Fruit-ofthe-Loom---which had a huge facility near St. Martinville. That facility has been shuttered. Recent History of Lafayette Figure 23 displays the recent employment history in Lafayette and demonstrates vividly the close ties this MSA has to the extraction industry. When oil prices plummeted in the early 80s, so did the Lafayette economy. Remarkably, a fifth of the MSA’s jobs disappeared over 1982-87. It was the worst downturn in Lafayette’s recorded history. However, unlike similarly extraction-dependent Houma---which took 10 years to recover its losses from that recession---Lafayette came out of its “V” much quicker. The key was diversification. In the late 1980s, the previously mentioned Fruitof-the-Loom constructed very large facilities in the area and in a short period of time became the state’s largest manufacturing employer. By 1994, Lafayette had recovered all its lost jobs and began setting new employment records. (This does not show up clearly in Figure 23 because of the adjustment in the makeup of the MSA in 1990.) Soft gas prices in 1992 set Lafayette back a bit, but like Houma, the hit was nothing like the 1982-87 period. Surging employment at Fruit-of-the-Loom pushed employment up briskly for the next couple of years. Then Lafayette entered a “bad news-good news” period. The bad news: As a result of the North American Free Trade Agreement, Fruit-of-the-Loom began a round of massive layoffs. The good news: Layoffs at Fruit-of-the-Loom coincided almost exactly with two important events. One was a jump in oil and gas prices that sent the exploration industry on a hiring binge. The other was a new entrant that both diversified the ______________________________________________________________________________________ Economic Outlook Page 79

economy even more and was labor-intensive to boot---Stuller Settings. Stuller hired enough employees that it became the largest jewelry settings manufacturer in the U.S. Lafayette employment expanded right through the Fruit-of-the-Loom layoffs.

Fig. 23: Lafayette MSA Non-Farm Employment 1980-2015 240

New Record: 9/11 Earliest in the State

220

2015: -0.4% (-1,000 jobs) X

Thousands

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Late 2001: Closure of F-O-L

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X MSA Changes 2015: +Iberia, Acadia, & Vermillion 2009-10 -9,200 Jobs (-4.3% )

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The year 1999 was a bad one for Lafayette. Oil prices fell to under $10 a barrel, and that sent the extraction industry into the layoff mode again. Forty-three hundred jobs disappeared from the MSA (see the decline for 1999 shown in Figure 23). For the next two years, Lafayette was back in the growth mode, setting new employment records in 2001 when most other MSAs in the state were being depressed by the national recession. Help in this recovery came from two sectors. Several significant distribution centers, including the large Wal-Mart distribution center near Opelousas and Magnolia Distribution Center in Lafayette, opened during this period. Then in 2001, the MSA attracted the Cingular Wireless call center, which hired 1,200 employees. Unfortunately, Lafayette experienced a big blow in November 2001 when Fruitof-the-Loom’s Martin Mills plant was shuttered, terminating 1,300. By this time, the post 9-11 national recession was also impacting Stuller Settings, which laid off about 175 employees. In 2003, Devon Energy transferred 60 employees out of Lafayette, and Fleming Company---a wholesaler supplying the troubled K-Mart---closed its ______________________________________________________________________________________ Economic Outlook Page 80

distribution center there as well. The combination of these events, coupled with a lackluster response of the extraction industry to high energy prices, kept this MSA in a funk (-2,500 jobs) for three straight years. The Impact of Katrina & Rita It is obvious from examining the 2005 and 2006 data points in Figure 23 that something special happened in this MSA in those two years. Non-farm employment spiked upward by 10,800 jobs or 8.2 percent over those two years. What caused this nice rebound in employment in Lafayette? One factor was resurgence in the oil patch. The rig count rose from about 165 to over 201, which meant (1) new exploration jobs, (2) new exploration servicing jobs, and (3) new oilfield-fabrication-associated jobs for the Lafayette area. Indirect energy effects: But a larger factor by far was the impacts of Katrina and Rita. These two storms impacted the Lafayette area in two broad ways. First, there were the spillover effects of the destruction of the offshore energy infrastructure. Both Katrina and Rita were very destructive to the energy infrastructure in the Gulf of Mexico. A total of 115 offshore platforms were destroyed and another 52 were damaged by the two storms. Underwater pipeline systems were also damaged. Lafayette is the home to several fabricators and oilfield service firms that garnered some of the repair work on these facilities. Evacuee effects: Secondly, Lafayette became a home to many evacuees after the storms---about 34,336 by one estimate. Evidence from the Census Bureau suggests that Lafayette experienced the same population adjustment as Baton Rouge except on a smaller scale. Census data indicate that between July 2005 and July 2007, the Lafayette MSA population increased by 9,033---a heady 3.7 percent increase in only two years. 2007 to Early 08: $140 Barrel Oil Pumps Up the Region Data indicate that the employment growth rate slowed from about 5,400 jobs a year in the previous two years to a slower 4,000 jobs a year over 2007-08. Still, this represented a very healthy growth rate of 2.8 percent a year---second only to Houma among the state’s eight MSAs. This slowdown was partially due to the completion of much of the Gulf of Mexico rebuild effort, but also, Morton Salt closed its 197-person facility at Weeks Island in 2007, one of the few bits of negative news coming out of this region. That was somewhat offset by the Nucomm call center coming to Lafayette in 2007, adding 500 new jobs. Growth in 2008 was initially spurred by a very robust oil patch as oil prices reached record levels in the fall of 2008, and natural gas prices were unusually high as well. Also, Acadian Ambulance built a $15 million expansion that led to 300 more jobs. ______________________________________________________________________________________ Economic Outlook Page 81

High Energy Prices and Job Declines in Lafayette A problem arose near the end of 2008. After peaking at $132.61 a barrel in September 2008, the price of oil began a rapid, but temporary, slide down to a bottom of $39.06 in March 2009. Employment in the Lafayette MSA responded as it always does to declining oil prices. The state rig count fell from the 190 level to near 170. The MSA began recording job losses in the latter half of 2008. But there was another factor in the MSA’s employment decline. Beginning in April 2009 oil prices began to rise again and were at a very profitable $46.72 by May 2009. By August 2009 oil prices were over $70 a barrel, where they stayed well above that level through mid-2014. Despite these unusually high and very profitable energy prices, the rig count in south Louisiana continued to fall. For example in August 2008, when oil prices nudged $140 a barrel, the rig count in south Louisiana (land and water) was 56 rigs. It fell to only 30 rigs in August 2009 despite very high oil and natural gas prices. As seen in Figure 23, the Lafayette MSA lost jobs in 2009 and 2010---a total 2year decline of 4,400 jobs (-3%). We are unaware of any other time in the history of the Lafayette economy when energy prices have been high and this economy actually lost jobs. We believe there are two factors behind this poor behavior. First, our conversations with decision makers in this field and region indicate that President Obama’s proposed $36 billion tax on the extraction industry sent a chill through this sector and pushed down the rig count despite the presence of higher and very profitable oil prices. We gave a detailed analysis of this tax proposal in the 2010 LEO. This tax was proposed in President Obama's FY10 budget, but Congress was so absorbed in the healthcare debate that this legislation did not come up for debate. However, the administration has continued to promote it, so the threat to the industry still lingers. Of course, a second factor was the difficulties associated with the BP oil spill. Recovery from the Great Recession: From Unbelievable to Believable Numbers The Lafayette MSA has had a very healthy recovery from the recession, adding 14,200 jobs (+6.9%) over the four years from 2011-14. It is important to note the fact that this MSA (1) was the first to set new employment records (in September 2011) after the losses incurred during the Great Recession and (2) had the best recovery record of all nine MSAs over 2010-14. Ogre of Low Oil Prices Raises Its Ugly Head Unfortunately, it was Lafayette’s lot to face another down cycle in oil prices. The decline from +$100 a barrel in August 2014 to a figure testing $40 a barrel a year later has had its usual effect on the very oil-dependent Lafayette MSA. Job losses began to be recorded in April of this year (-800 jobs) and then began to pick up steam after the second round of price declines started in June. In July, this MSA was losing jobs at a 1,800 a year rate. As seen back in Figure 23, we are estimating the region will be ______________________________________________________________________________________ Economic Outlook Page 82

down 1,000 jobs (-0.4%) in 2015 as compared to 2014. While this is certainly unhappy news, it is suggested that readers take another hard look Figure 23 and what happened in this MSA in the early 80s. Barring a really unforeseen catastrophe, no one is expecting a repeat of the level of job-hemorrhaging that occurred over 1982-87. Forecast for 2016 and 2017: Energy Decline Hits Hard Here Figure 24 provides the reader with our projections for employment for this region over the next two years. We are forecasting further job losses totaling 2,600 (-1.2%) in 2016 as the depressing effect of lower oil prices persists. The year 2017 is projected to be one of recovery with 2,000 new jobs (+0.9%) being added. Note that the recovery in 2017 is not expected to be vigorous enough to return the region to its previous 2014 peak. Among the nine MSAs, only Houma is expected to have a weaker performance. The two years of job declines can be traced directly to the woes created by plummeting oil prices. In the assumptions section (page 13) we documented the cutbacks underway by many of the major oil companies. Inside the Lafayette MSA the following pieces of bad news have been delivered: 

Frank’s International indicated in April that it would be laying off 400-500 employees worldwide. Approximately 150 of those terminations have occurred in the Lafayette area.



In February, Parker Drilling divulged it was furloughing 50-297. Thirty-five were reported terminated at the company’s New Iberia location.



Exterran closed its plant in Broussard, resulting in 75 workers losing their jobs.



In late 2014 Hercules Offshore indicated the firm would lay off 450 employees, although the exact number terminated in the Lafayette area is uncertain. Hercules sold its lift boat division, and the office personnel associated with the company’s drilling division were all moved to Houston.



There are rumors that Chevron plans to move 300 jobs from the Lafayette area to its new facility in Covington over 2016-17.

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Fig. 24: Lafayette MSA Non-Farm Employment Forecast: 2016-2017 240 220

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In addition to these announced cuts, there have been earlier announcements in the last year by firms associated with the oil and gas industry, and we are anxious about whether the announcements will be fully adopted. For example: 

In February 2014, Danos reported it planned to start constructing a $23.2 million, 172,000 square foot offshore equipment and piping plant at the Port of Iberia. The company expected 100 new jobs at the site. It is our understanding that this project has now been delayed.



Halliburton has been building a $45 million “super campus” in Iberia Parish. It is to be a major manufacturing and operations facility to be built in stages. Phase 1 is complete and employs 375. We have no direct information from the company, but given that the firm is reducing its workforce world-wide, our expectation would be that further phases would be delayed and possible layoffs may occur at this site.



A new $41.1 million expansion of the Newpark Mats and Integrated Services Company doubled its space in Carencro and added several new jobs at $43,500 a year. The company provides leading edge matting solutions and well site construction services to the oil and gas industry. The company’s new R&D

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facility is under construction with hiring scheduled to begin in 2015-III. Will the company’s hiring targets be met in this new low oil price environment? 

In October 2014, Del Corporation a $4.3 million, 40,000 square foot expansion of its tank filtration system. The firm announced it would retain 50 people and add 90 employees at $52,600 annually.



In June 2015, Insitu Data Solutions gave notice of development of a new manufacturing and service center at Louisiana Technology Immersive for casehole data acquisition. Plans are to hire 17 employees at $46,400 annually.

The firms listed in the five bullet points above may implement their plans to the fullest. One cannot help but feel some unease about those prospects with oil prices near $40-$45 a barrel. Lafayette has been through these oil-price cycles before. The good news is we do not expect the total number of layoffs to be catastrophic. Still, the region will feel the pain well into 2016. Countervailing News from Bell, High Tech & Centene There is actually other good news that will be aiding the Lafayette economy and helping to arrest the overall job loss in the region. This MSA’s economy is moving towards more diversification away from its oil and gas base. A really nice acquisition for the Lafayette region was the decision by Bell Helicopters to spend $11.5 million on a plant to assemble new lines of SLS helicopters. The new facility opened in late summer 2015 in a new $26.3 million hangar at the Lafayette Airport. Hiring is well underway for 115 jobs at an average of $55,000 annually. Like Baton Rouge, New Orleans, and Shreveport-Bossier, Lafayette has also been successful in attracting new high tech firms to the area. For example: 

A 38-year old Canadian information technology company---CGI---will be leasing a 50,000 square foot $13.1 million building in ULL’s Research Park that will be constructed between now and the end of 2015. CGI will hire 400 employees over the next four years for these jobs that will pay, on the average, $55,000 a annually. At 100 jobs filled already, GCI is expected to add 200 jobs in 2016 and 100 jobs in 2017.



Enquero is a new software technology center that is coming to the Lafayette Economic Development Authority through the latter’s business accelerator and incubator. The company will use 2,000 square feet of space and will hire 165 workers by 2017. These will be high-wage jobs, paying an average of $64,300

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annually. Already at 55 employees, Enquero plans to add 55 jobs a year over 2016-17. 

Perficient---A St Louis based company---has opened a new software development firm in Lafayette. The firm will begin hiring in 2014-IV and has 51 people on board now. Hiring plans are for 35 more jobs in 2016 and 40 more in 2017. The firm plans to have 245 employees at the Lafayette site within six years.



CSE ICON is a U.S.-based consulting, engineering and technology integrated services firm whose customers are in the energy and utility sectors. At 59 employees, the firm plans to add another 25 workers in at its Lafayette office.

These high tech firms are great additions to the Lafayette region’s economy and are certainly a step in the right direction toward diversifying the economy and making it less vulnerable to energy price swings. However, despite the fact that these are generally high-wage positions, in terms of sheer numbers the new employment will not begin to be enough to fully offset the losses on the energy side. Another firm that will be adding jobs in the Lafayette region over our forecast period is Centene. Headquartered in St. Louis, this fortune 500 firm provides health insurance solutions for the insured and under-insured. The Louisiana brand for Centene is Louisiana Healthcare Connections. The company plans to add 80 people to its 65person workforce. More will be added if Medicaid is expanded for the developmentally disabled and for long-term support services in nursing homes. Also, Bayou Companies announced in August that it would spend $39 million on a new 56,000 square foot pipecoating facility at the Port of Iberia. The firm would initially employ 15-20. The Three Stalwarts Remain Solid---Sort of There are three other very large companies that add a great deal of stability to the Lafayette region economy. Their very large staffs have been a solid source of dependable jobs in the region. Only one has direct ties to the oil and gas industry and that company is feeling the impact:  Acadian Companies now has about 1,175 people employed in the Lafayette MSA. The company employs 2,265 statewide and approximately 4,000 nationwide. Acadian’s core business is ambulance service, and that sector is booming---especially in Texas. Its alarm monitoring arm---Acadiana Total Security---is also doing well. The firm’s one connection to the extraction industry is their newer unit, the provision of programs for offshore rig and pipeline safety. This unit is down 20%, meaning a loss of about 75 jobs in the Lafayette region and another 75 elsewhere.  Stuller Settings is the nation’s largest jewelry setting manufacturer. Because of the moribund U.S. economy (see the assumptions section above) jewelry sales

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are down 3% nationwide, but Stuller is picking up market share. As a result, its 1,215-person workforce is expected to be stable over 2016-17.  Another big player in the Lafayette economy is the Schumacher Group. This company provides out-sourced ER and hospitalist doctors (ones who take care of patients in hospitals) to healthcare facilities in 29 states. Employment in Lafayette is expected to remain stable at 568, with additions being made in other states. This region will also benefit from $287.2 million in new state road projects over 2016-17---a significant $100 million increase over what was reported for the region last year. Houma: There Is No Sugar-Coating This The Houma MSA is composed of two parishes---Lafourche and Terrebonne---and this is one of the MSAs whose composition did not change when the Census Bureau generated new MSA designations. Located in the south-central coastal area of the state (see Map 3), Houma is highly dependent on the oil and gas extraction industry and the spillover sectors---machinery, fabrication, shipbuilding, water-borne transportation---that feed off of extraction activities. In July 2015, 6.5% of the MSA’s employment was directly in oil and gas extraction, more than double the statewide average of 2.4%. The key word in that last sentence was "directly". There are many fabricators and shipbuilders in the MSA that cater almost exclusively to the extraction industry. Plus, Terrebonne Parish is the home of Port Fourchon, basically a small city on the Gulf, which services about 90 percent of the offshore platforms and drill ships in the Gulf of Mexico. Houma’s Recent History Figure 25 tracks the non-farm employment history of this MSA over 1980-2015. What strikes an observer most in this graph is the unusually wild fluctuations in the region’s employment over time. Because of its heavy dependency on the extraction industry (the second heaviest of any MSA, behind Lafayette), wild fluctuations in energy prices over the past 45 years have dramatically impacted Houma. The influence of energy prices can be seen in the big “V” and the little “Vs” shown in this graph. The BOOM years: The first, and biggest, “V” occurred after one of the greatest bull runs for any MSA in Louisiana history. From 1975-81, this MSA enjoyed a remarkable period of growth in response to oil prices that peaked at $37.50 a barrel for Louisiana crude in 1981. That would be about $108.60 a barrel in today’s prices.

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The BUST years: A big “V”---covering the period from 1981-91---followed this boom period. The marked decline in oil and gas prices between 1982 and 87 sent this region into a free-fall. Some 17,200 jobs or nearly a quarter of the workforce vanished. Car dealerships, restaurants, banks, and any retail establishment suffered through a terrible period as the MSA shed a quarter of its jobs. Houma was the worst hit MSA in the state by this recession. It took a decade for Houma to recover all the jobs lost during this dramatic downturn. The long road back: When oil and gas prices recovered somewhat from 198791, this metro area rose up the other side of the “V”. Exploration activity in Louisiana has been moving southward across the state since the 1950s, indeed, heading further and further offshore in the Gulf. Houma’s geographic location on the coast made it the ideal site from which to launch offshore exploration.

Fig. 25: Houma MSA Non-Farm Employment 1980-2015 110 2015: -0.9% (-800 jobs) X

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The little “Vs”: Still, every time energy prices got soft, Houma’s employment declined. The MSA lost 1,500 jobs in 1992 when natural gas prices declined as a result of two straight unusually warm winters, and it lost 3,100 jobs in 1999 due to low oil prices. Interestingly, Houma went through the post-911 U.S. recession unscathed. In ______________________________________________________________________________________ Economic Outlook Page 88

fact, the MSA picked up 5,000 new jobs over 2001-02 when most of the other regions of the state were in absolute decline. Note in Figure 25 that the “Vs” have been getting shallower and shallower. This is primarily because the extraction industry is running much leaner now and has learned not to respond too strongly to rising energy prices. The firms that lend money to extraction firms have learned the same lesson. Still it is important to note in Figure 25 that there has always been a left side to the “V”. That is, after energy prices have remained high for an extended period, the extraction industry has always responded by returning to the oil patch to take advantage of the higher prices. At least that was true until 2004. Response to the run up in oil and natural gas prices at that time was more tepid than expected in 2004, with little change in the rig count. In fact, Houma was the worst performing MSA in Louisiana in that year. Legacy lawsuit effects: We believe this poor response resulted from industry fears generated by “legacy” cases, in particular the Corbello case. In the time since the Corbello case, the industry has been lobbying hard for tort reforms to correct their perception of abuses arising out of the Corbello case. A degree of success has been achieved. One of the factors that made the Corbello case so onerous to the industry was that much of the settlement was based on allegations that drilling had impaired the ground water supplies. The great majority of the Corbello award was for this damage, and the plaintiff could simply pocket the award and was not required to use the award to correct the problem. Act 1166 required that if damage was alleged to have occurred to a water aquifer, the award must be used to correct the problem. That eliminated a lot of the incentive for suing extraction companies. Secondly, in the Terrebonne Parish School Board v Castex case the School Board was suing to require the oil company to backfill canals that were dredged years ago. This was especially troubling to the extraction companies because there are thousands of miles of these canals across the southern part of the state and the cost of filling them would be astronomical. The Louisiana Supreme Court over-ruled this judgment and said firms cannot be required to backfill a canal unless it was specified in the initial contract to drill. It was also determined that when permission is given to drill, there will always be a “footprint” that will be left that is reasonable to that activity. If the footprint is excessive and not reasonable to that activity, the landowner has a right to sue. Despite the reforms and legislation passed in the regular session of the State Legislature during 2006, several legacy lawsuits are still active in the state. The Katrina & Rita Effects Like Lafayette, Houma received a nice injection of activity as a result of the two hurricanes. Over the three years of 2005-07, Houma gained a whopping 12,400 jobs, a remarkable increase of 14.9 percent or 5 percent per year. It was the fastest growing area of the state. In fact, growth in Houma was so strong that in 2007, Houma moved past Lake Charles to the fifth largest MSA in the state. Effects of the recent oil ______________________________________________________________________________________ Economic Outlook Page 89

price drop, coupled with an industrial boom in Lake Charles, has moved the latter MSA back above Houma again. The source of this employment reversal is much the same as occurred in Lafayette. First, there was finally a response in the oil patch to higher oil and natural gas prices. As an MSA heavily laden with exploration companies, oil service firms, and shipbuilders for the offshore sector, Houma benefited from this resurgence. Too, this MSA is home to many fabricating and repair/maintenance firms that benefited from the rebuild effort of offshore energy infrastructure that was damaged by Katrina and Rita. Finally, Houma also benefited somewhat from an influx of evacuees. Houma, at 58 miles, is the closest MSA to New Orleans (Baton Rouge is 79 miles from New Orleans). Based on FEMA assistance applications, we estimated that this MSA’s population ballooned upward by 62,810 people in the first two weeks after Katrina--second only to Baton Rouge in attracting evacuees. However, like Baton Rouge, Houma experienced the same population adjustment as did Baton Rouge and Lafayette. Census Bureau data show that between July 2005 and July 2007, the Houma MSA population increased by 3,449 people or about 1.7 percent. This is slightly more than the MSA tends to grow anyway. Thus, there was an exodus of evacuees from the MSA, but a number remained there as new residents, giving a bit of an extra boost to the retailers, real estate firms, and service providers in the area. 2008-09: High Energy Prices & Job Losses?? The experience in the Houma MSA over these two years pretty much mimics that of the Lafayette MSA. 2008 started out strongly as oil prices climbed to a high of $132.61 a barrel in September 2008. Then the price of oil began a rapid slide down to a bottom of $39.06 in March 2009. Beginning in April 2009 oil prices began to rise again and were at a very profitable $46.72 by May 2009. Oil prices continued to rise through 2013 and the first half of 2014 as seen back in Figure 4. However, despite these very profitable energy prices, the Houma MSA was the first MSA in the state to begin losing jobs during the Great Recession---recording its first job loss in August 2008. Over 2009-10 the MSA lost 4,800 jobs---a 4.9 percent decline--ranking its performance 6th among the eight MSAs in the state. It is historically unprecedented for this MSA to be losing jobs in the face of relatively high energy prices. We believe the reason for this poor performance mirrors a similar weak performance in nearby Lafayette: the chilling effect of President Obama's proposed new taxes on the extraction industry. In addition to the extraction firms cutting back, Gulf Island Fabricators and nearby J. Ray McDermott laid off workers in 2009, and Offshore Specialty Fabricators laid off 90 workers that year.

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2011: Oops - Forgot about BP In our 30 years of producing the Louisiana Economic Outlook, few things have surprised us more than the performance of the Houma economy in 2011. In the LEO released in the fall of 2010---six months after the oil spill and in the middle of the moratorium on drilling---we projected significant job losses for the area. Eleven deepwater drill ships left the Gulf, and activity at Port Fourchon dropped 35-40% below pre-spill levels. Normally, that would translate into a major decline in employment in the MSA. What we failed to take into account was the massive amount of money that BP would pump into the area's economy for the cleanup effort and to pay out on claims for losses due to the spill. While we do not have a good handle on the cleanup spending (which we know was quite large), we do have relatively good information on the amount BP paid to businesses and individuals who claimed losses due to the spill. As of August 2011, BP had paid out $132.1 million in claims in Terrebonne Parish and $81 million in claims in Lafourche Parish. As a reference point, that is about 3.1% of Terrebonne Parish personal income and about 2.1% of personal income in Lafourche Parish. The combination of BP's cleanup expenditures and its payouts to claimants was sufficient enough to overcome slowdowns in exploration and cause a very modest 100-job loss in 2011 instead of the 1,500-job loss we predicted in the 2011-12 LEO. 2012-14: Strong Bounce Back As seen back in Figure 25, the years 2012-2014 were very good years for the Houma MSA. The MSA added 8,700 jobs over those three years. That is an average growth rate of 3.1% a year, an enviable achievement compared to most MSA’s in the country. Its growth rate in 2014 was 2.1%---tying Lafayette as the third highest among Louisiana’s nine MSAs. Only the exceptionally booming Lake Charles and Baton Rouge MSAs performed better. Note in Figure 25 that (1) in 2013, the Houma MSA blew past its previous employment peak of 2008 and (2) in 2014 the MSA crossed the 100,000 employment mark for the first time in its history. The comeback in the Gulf is largely responsible for this surge. Not only did exploration activity return and surpass its previous peak, but also Gulf Island added several hundred workers and Chouest's new shipyard, LaShip opened and grew to 1,200 employees. The major port servicing the offshore industry, Port Fourchon, turned from retrenching to bustling. It was a very good three years indeed. 2015: Sliding Down another “V” Oil prices have entered another steep decline, and the Houma economy does what it always does---it is sliding down the left side of the “V”. There is no sugar-coating the impacts when declining oil prices are visited on this region. In the first few months of ______________________________________________________________________________________ Economic Outlook Page 91

2015 the MSA was losing jobs at a rate of about 500 a year. However, when oil prices started their second decline in June, the job-loss rate more than doubled to 1,100. We estimate that on an annual basis the Houma MSA will be down 800 jobs in 2015, a decline of 0.9%. Unfortunately, as will be documented below, 2015 is unlikely to be the bottom of the “V”. Forecast for 2016-17: Further sliding in 2016; Starting Up the “V” in 2017 Houma’s forecasts are shown in Figure 26. We are projecting that the impacts of declining oil prices will impact the Houma economy well into 2016. We expect the MSA to shed another 2,000 jobs in 2016 (-2%) before beginning to start the trip up the right-hand side of the “V” in 2017, adding 1,000 jobs (+1%) in that year. The region will slip below its much coveted 100,000 employment mark throughout the forecast period. This will rank the MSA 9th among the MSAs in the state in economic growth. Importantly, we are not expecting anything like the decline in the early 80s that devastated this region---a decline so deep it took 10 years to recover.

Fig. 26: Houma MSA Non-Farm Employment Forecast: 2016-17 110 100

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New Record: July 2013 Past 100,000 in 2014 Below 100,000 in 2016

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To appreciate the reaction to plummeting oil prices by of some of the firms in the Houma MSA a few examples are offered: ______________________________________________________________________________________ Economic Outlook Page 92

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Edison Chouest, a company that both builds and operates supply boats working the offshore oil and gas market is in a serious retrenching mode. The company has 52 of its boats tied up at dockside, and of that number 30 were operating specifically in the Gulf of Mexico (GOM). In order to maintain its crew levels, Chouest has gone from a “28 days on; 14 days off” schedule to “14 days on; 14 days off”. Crews get to work fewer hours (and earn less) but they remain employed. Chouest has released 2,000 from its shipyards and is now at about 5,000 employees total and is still fine-tuning its workforce.

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Bollinger Shipyards was recently acquired by Chouest. Bollinger is in the midst of a $1.5 billion, 32-boat contract with the Coast Guard to build the Fast Response Cutter. That contract will keep 800 employees busy into 2020. The company’s articulated tug barge market (tugs that mainly work the inland waterways) also remains solid. It is the company’s repair/conversion work---mainly associated with work in the GOM---that is down considerably. Bollinger has filed a WARN notice with the Louisiana Workforce Commission to lay off 275 workers.



Work at a huge fabricator in the area---Gulf Island Fabricators---is off so much that the company’s workforce has declined from 2,000 to 1,100. The future is muddy for GI; success on some significant bids is critical to the company’s immediate future. GI is short-listed on a bid to build two cruise ships (with options for two more) for Viking Cruise Lines. The company is also bidding on constructing large jackets for offshore Rhode Island wind projects. GI has already built five of these jackets.

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At Port Fourchon the evidence of the energy downturn is being manifested in a number of ways. First, the Port has been approached by its tenants for a reduction in lease rates, since the companies for which the tenants provide services are pushing rates for the tenants down. The Port Commission Board has approved a 20% rate reduction from April 2015 through March 2016. Secondly, tenants are taking a step back on planned capital projects at the Port. On the other hand, the 7,000 foot Slip C is 75% leased up and the other 25% is at right of first refusal. The port is beginning a 5-7 year plan to develop Slip D and will be spending $90 million on this project over the next two years.



Baker Hughes announced in February it was closing its 60-person wire-line facility in Houma.



HIS Petrodata reports the August 2015 rig count in the GOM had dropped from 78 to 56 over the past 12 months. As the permit data in Figure 27 illustrate since the first half of 2013 the drilling permits in the deepwater GOM have remained fairly stable, but permits in the shallow waters have declined significantly. This suggests that the GOM has “edges” just like the shale plays and those edges are in the shallow waters of the Gulf. In fact, HIS reports only 7.1% of jackup time (rigs used in shallow waters) is presently booked, and none are booked for the

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longer term. On the other hand drillships---used in the deeper waters---are 83% booked (equivalent to 1,852 rig-months) and six other drillships are scheduled to arrive in the GOM soon.

Figure 27



In March Huntington Energy Services made public its plans to invest $62 million in an expansion of its wireline, coiled tubing, and completion accessories facility near Houma. The firm plans to add 30 jobs to its existing 103-person workforce. We are hopeful this project is proceeding as planned, but given market conditions we are anxious as well.

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As mentioned in the assumptions section of the LEO, the federal government is not making it easier for the GOM activity to rebound. The new rules being proposed by BSEE for offshore oil exploration involving specific mandates for the design of wells and blowout preventers could make some wells financially impossible to drill.

Clearly, Houma is entering another cyclical downturn associated with energy prices. As seen in the bullet points above, the sliding down the “V” is already underway. There are some pieces of positive news that will very partially offset all the bad news listed above. Virdia Corporation is planning to spend $60 million on a biochemical plant located next to the Raceland Raw Sugar Mill. The company will turn bagasse from sugar cane into high-value industrial sugars and biofuels. The plant should be completed ______________________________________________________________________________________ Economic Outlook Page 94

by the end of 2016 and employ 81 people at $55,000 annually. In the assumptions section we documented the huge amount of BP fine money that will be pumped into this region on a regular basis for the next several years for coastal restoration. Specifically, the region will receive $100 million from the Restore Act to build a permanent flood control structure on Bayou Chene. The Louisiana Offshore Oil Port (LOOP) will spend $25 million to add three above ground storage tanks at the Clovelly Hub. Finally, the state DOTD has let $92.3 million in road projects for this 2-parish region over 201617.

Lake Charles: The Boom Continues Located in the far southwestern corner of Louisiana (see Map 3), the Lake Charles MSA is composed of two parishes---Calcasieu and Cameron. This MSA is dominated by three industries. One is what is broadly referred to as the petrochemical industry. This phrase handily combines two closely related industries---chemicals and refining. The Lake Area Industry Alliance reports that Calcasieu Parish was the home to 16 different chemical plants, two refineries, one LNG export facility, and three industrial gas processing plants. Total employment in these facilities was 6,180 direct employees and 3,656 contractors in 2014 according to the LAIA. Like the Baton Rouge area, this huge capital-intensive petrochemical complex supports a very large industrial construction industry. A second major industry in Lake Charles is gambling. Pre-Rita, Lake Charles was home to five riverboat casinos. Now there are three in operation, plus the Delta Downs Racetrack. The two largest operational casinos are L’Auberge du Lac, which opened in the summer of 2005, and the Golden Nugget, which opened in December 2014. Hurricane Rita badly damaged both of the casinos owned by Harrah’s. Harrah’s sold its two licenses to Pinnacle Entertainment, owner of L’Auberge du Lac. Pinnacle moved a license to Baton Rouge. Isle of Capri closed one of its smaller riverboats and moved that license to Shreveport. Total employment at the three casinos and the racetrack is at about 6,464 as of 2015-I. With the closest gambling establishments to the Houston metroplex, Lake Charles’ riverboat casinos were an instant success when they opened in the mid-1990s. When Delta Downs added slot machines and became a “racino”, it added another 1,057 workers to the area’s gambling industry, a number that has drifted down to 716. A third key sector is aircraft repair. There are now two significant employers located at Chennault Industrial Airpark---Northrop Grumman and AAR. Changes in tenants at Chennault have had a major impact on the MSA’s employment pattern over time. Closely allied with the aircraft industry, two significant employers at Lake Charles Regional Airport are Era Helicopters with 750 employees and PHI---another helicopter service firm. A relatively new firm---CB&I Modular Solutions (formerly Shaw)---is

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estimated to employ about 1,000 workers whose main focus to date has been manufacturing modular equipment for the nuclear power industry. A History of Ups and Downs A history of the Lake Charles economy is depicted in Figure 28. This MSA suffered mightily between 1981 and 1986 as the chemical industry reeled from a huge loss of sales in its foreign markets. The region lost a whopping 17.9 percent of its nonfarm jobs. This loss was caused by a large run up in the exchange value of the dollar. Not only did the industry itself reduce employment by one-third, but capital expansion plans were also halted, hammering the industrial construction sector at the same time. Coincidentally, the Reagan administration fully deregulated the price of crude oil in the early 1980s. One side effect of this action was that several marginal refineries found it increasingly difficult to remain competitive and shut down. The loss of jobs in the two highest-wage industries in Louisiana’s manufacturing sector, combined with a shuddering halt to industrial construction and other negative multiplier effects, sent the Lake Charles economy into a serious 5-year dive. Lake Charles was actually the first MSA in Louisiana to begin recovering from the terrible statewide recession of 1982-87. The key was the attraction of Boeing Aircraft to Chennault Field. Boeing created over 2,000 jobs to refurbish K-135 transport airplanes for the Air Force. That helped set Lake Charles off on a recovery mode. The recovery was further aided by a sudden drop in the exchange value of the dollar, which rejuvenated foreign markets for the chemical firms and set them off on a new round of hiring and capital expansions. (Note the magnitude of this recovery is distorted in Figure 28 by the addition of Cameron Parish employment data to this MSA’s job statistics.) In 1992, Boeing announced the closure of its facility, and the job loss there caused Lake Charles’ employment to slide sideways for two years. The next three years were excellent growth years for Lake Charles. Three factors powered this expansion. First, there were some unusually large capital projects under construction in the petrochemical sector. Citgo and Conoco/Pennzoil combined for $1.6 billion in expansions during this period. Secondly, it was during this period that the riverboat casinos came to Lake Charles. Thirdly, Boeing was replaced at Chennault Airpark by Northrop Grumman--a facility that took 707s, stripped them down, and installed the Joint System Target Attack Radar System (JSTARS) in them. This was an addition of 1,900 good-paying jobs for the Lake Charles economy. It is obvious from Figure 28 that the good times ended for Lake Charles in 1999. The MSA lost 2,800 jobs in that year and was essentially flat for the next six years. There were several contributors to this poor performance. The first involved hits at the aircraft repair facilities at Chennault Airpark. As Northrop Grumman came near the end of its JSTARS contract, the firm began handling fewer aircraft and consequently began ______________________________________________________________________________________ Economic Outlook Page 96

terminating workers. NG reverted to doing maintenance, repair and overhaul (MRO) work on the JSTARS aircraft, and its workforce dropped all the way down to 350. The attraction of EADS to Chennault helped offset NG layoffs somewhat, but even that firm reduced its workforce from about 350 down to 160 before selling to Aeroframe Services. Fig. 28: Lake Charles MSA Non-Farm Employment 1980-2015 110 2015: +6.8% (+6,600 jobs) X 100

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Secondly, a combination of 9/11 and the national recession reduced trips to the area gambling establishments, prompting layoffs there. Thirdly, Xspedius moved its headquarters office in Lake Charles to St. Louis. But by far the most important contributor to the downturn was the funk in the chemical industry. High natural gas prices forced this vitally important industry in Lake Charles to hunker down and look for ways to reduce costs. One way was to reduce the number of employees. Too, the industry placed capital expansion projects on hold and delayed maintenance/repair work as much as was safely feasible. The result was a significant reduction in industrial construction employment. The Surprising “Rita Effect” What may surprise readers the most about the data in Figure 28 is the growth in 2005 and 2006. Despite being hit by a vicious storm, this MSA’s employment actually grew---adding 2,700 jobs over those two years. The larger portion of that growth occurred in 2005, the year of the hurricane. ______________________________________________________________________________________ Economic Outlook Page 97

Rita's impact on housing: There were 47,384 homes damaged by Rita in this MSA---but only 2,284 incurred severe damage and 6,673 major damage. Residents could and did return to the Lake Charles area fairly quickly. Normally one would be aghast at these figures, but against the backdrop of the housing destruction in New Orleans, they pale. It is very important to note that with the exception of lower Cameron Parish (the most sparsely populated parish in the state) there was virtually no flood water damage in Lake Charles. That means regular homeowner’s insurance was applicable to the damage. As a result, all the impediments to rebuilding that existed in New Orleans due to standing flood waters did not exist in Lake Charles. Rita’s impact on Lake Charles manufacturing: It is the nature of the manufacturing industries in Lake Charles that they would seemingly be very vulnerable to a powerful storm like Rita. Chemical plants and refineries are very capital-intensive, and all their capital is outside and exposed to the elements. In fact, three refineries in the area were damaged and shut down: (1) Citgo (324,000 b/d); ConocoPhillips (239,400 b/d), and (3) Calcasieu (30,000 b/d). All three were back up by December 2005. Also, the aircraft industry, which operates in large hangers, seemed likely victims of high winds. Despite these vulnerabilities, these industries made it through the storm without losing much downtime. There was $40 million in damage to hangers at Chennault, but the two firms operating there continued to do so despite the inconvenience. Importantly, staffing was not as difficult a problem as in New Orleans because most housing remained intact in Lake Charles. Rita’s impact on the Lake Charles gaming sector: As a result of Rita the two Isle of Capri-owned casinos and the L’Auberge du Lac encountered minor damage and were reopened by November 2005. However, the two Harrah’s riverboats were badly damaged by the hurricane. Again, Pinnacle Entertainment, which owns L’Auberge du Lac, purchased both of Harrah’s licenses in Lake Charles. Pinnacle returned one license to the Gaming Control Commission and moved the other license to Baton Rouge. Rita’s impact on other sectors: A look at other sectors in Lake Charles indicates a solid recovery in the aftermath of the storm. By January 2005, all hospitals in the MSA except one in Cameron Parish were fully operational. The Lake Charles Regional Airport began operating at an even higher level than pre-Rita. By contrast, the it was 2014 before the New Orleans airport was operating pre-Katrina levels. Within a month of Rita’s landfall, all of the public schools in the MSA had reopened and virtually all hotel room space was back to normal by the end of 2006. The Port of Lake Charles escaped any flooding by Rita. However, it did experience about $40 million in wind damage and initially had no power. Within a few days power was restored and the port was open to receive shallow water vessels.

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Careful reviewers may have noticed another important fact back in Figure 28. In 2007 Lake Charles MSA set a new record in employment---exceeding the previous peak by 2,100 jobs. Construction associated with the storm recovery was still robust in 2007, about 2,200 jobs higher than just after Rita. However, construction’s growth peaked in 2007 and was slightly lower in 2008, constituting something of a temporary drag on the area economy. The Great Recession Felt Hardest Here Among Louisiana's eight MSAs, none suffered more than the Lake Charles MSA from the Great Recession. Although this MSA's employment began to slide later than the national economy---in February 2009 as compared to January 2008---2009 was particularly harsh on the region. In that year the MSA shed 3,900 jobs and then it lost another 2,200 in 2010---an employment drop over two years of 6.5%. This is a worse decline than that experienced at the national level (6.1%). What was behind this poor performance over 2009-10? factors, including:

There were several

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In 2008 Citgo announced it was closing its 192-peron lube plant which added to the drag of reduced construction spending.

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Aeroframe, which does maintenance work for FedEx and US Airways aircraft had to reduce its workforce from 475 to 250 as both firms idled many of their jets due to the sagging global economy.

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The weak national economy hurt business at the area's important casino industry.

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The region was delivered a blow in the Summer of 2010 when Pinnacle announced it was stopping construction on the Sugarcane Bay Casino and was turning in that license to the Gaming Control Board. It should be noted that the combination of the Great Recession and the unusually weak recovery negatively impacted the casino market. As seen in Figure 29, casino revenues statewide dropped 8.7% between FY08 and FY11, and rose only 0.3% in FY12 before picking up a bit to 1.3% in FY13 and 2.5% in FY14.

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During this period the region's petrochemical firms really tightened their belts especially with regard to capital projects. This is illustrated below in Table 19 which contains data supplied by the Lake Area Industry Alliance which shows an almost 3,000-job decline in contractor jobs at area plants over 2007-10. Fortunately, the data for 2011-12 show this downward trend was reversed, and in the case of contract workers has almost increased over 50% from the 2010 trough.

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Table 19 Employment in Lake Charles Area Petrochemical Plants Year Full Time Employees 2005 6,401 2006 6,158 2007 6,221 2008 6,070 2009 6,042 2010 5,961 2011 6,683 2012 6,754 2013 6,083 2014 6,180 Source: Lake Area Industry Alliance

Contract Employees 3,003 2,830 5,412 3,572 3,070 2,456 3,265 4,273 3,611 3,656

Fig. 29: Louisiana Riverboat Casino Revenues by Fiscal Year 1,900,000,000 1,800,000,000

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Finally: A Growth Year in 2012 Referring back to Figure 28, readers will notice the beginnings of a recovery in 2011 (+600 jobs) and very good growth over 2012-14. In fact, the latest data indicate Lake Charles is the fastest growing MSA in the state. We estimate that employment in the Lake Charles MSA will grow by 6.8% in 2015---nearly ten times faster than the state as a whole. What is particularly impressive about this performance is it was accomplished ______________________________________________________________________________________ Economic Outlook Page 100

despite the fact that a major employer---Dynamic Industries---basically shut down its 500-person operation in Lake Charles in 2013. The firm won phase I work on manufacturing components for the Marine Well Container project. However, the company was unsuccessful in landing phase II, so terminated its operations in this region. On a far more positive note, during this period Shaw Modular Solutions opened its new facility and now has an estimated 1,000 employees now. Aeroframe added employees as one of its key customers---FedEx---began to fly more planes. Importantly, turnover work at area petrochemical firms rose from $350 million in 2010 to over $800 million in 2012, and area chemical firms in general were enjoying an increase in business due to increased exports. Note back in Table 19 that LAIA surveys indicate direct employment in petrochemical firms jumped by 793 employees over 2011-12 and contract employment rose a whopping 1,817 jobs over that same time period. Ground-breaking took place on the $500 million Golden Nugget Casino in July of 2012. Work began on a $176 million expansion at Sasol and at the Lake Charles Port, IFG started construction on phase I of a new $59.5 million grain elevator. Even more importantly, $5.6 billion worth of work began on the first two “trains” at Cheniere’s new LNG export terminal. We will have more to say about this project below. 2014-15: The Real Boom Begins As Lake Charles entered 2014, we began to see the first evidence of a massive boom in this corner of the state unlike any we have ever seen before. Note how the employment line in Figure 28 moves up markedly in 2014 and 2015. Specifically: 

In 2014 employment in the Lake Charles MSA set a regional record for the first time since 2008.

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In 2015, employment passed the 100,000 mark for the first time in the MSA’s history and it passed Houma to become the fourth largest MSA in the state.

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Lake Charles has now been the fastest growing MSA in the state for two straight years, adding 11,300 jobs and expanding by more than 6% a year. In 40 years of monitoring the Louisiana economy we have never seen back-to-back job performances like that in any MSA in the state.

What was the source of this remarkable performance? By mid-year 2015 we had tabulated almost $85.6 billion in announced industrial projects for the MSA. We have been monitoring the state’s economy for four decades; this figure exceeds the best year of announcements for the whole state by a factor of at least 10. Of this total, we estimate that $39.6 billion of these projects are already underway, and approximately $46 billion are at the financing, permitting or FEED stage (that is, they are still “potential” projects). This means that if these projects go vertical, Lake Charles will see record setting growth well into 2017. Our projections for this ______________________________________________________________________________________ Economic Outlook Page 101

region are based on the very conservative assumption that few of these projects will go forward. If just one or two break ground, our forecast for 2017 will be too conservative by far. Forecast for 2015-16: Will the Boom Tail Off in 2017? Figure 30 shows our forecasts for the Lake Charles MSA over the next two years. We are expecting Lake Charles to add 7,400 jobs in 2016 and another 2,000 jobs in 2017---a stellar total increase of 8.9%. No other MSA in the state is expected to come close to this growth rate. The closest should be Baton Rouge at 3.7%. Lake Charles’ growth rate is expected to be five times greater than the state as a whole. The slower growth rate in 2017 is based on some of the projects underway beginning to tail off as completion nears. However, our forecast for 2017 assumes almost none of the projects at the FEED stage will go forward to construction. This is a very conservative position and one that could make the 2017 projection far too conservative.

Fig. 30: Lake Charles MSA Non-Farm Employment Forecast: 2016-17 120 110 100,000+ for first time

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Projects “Gone Vertical” As indicated above, capital projects for this MSA can be broadly broken down into two categories; (1) those that have gone vertical (i.e. construction is underway), and (2) those that have been announced and are at the FEED stage or are temporarily delayed. The first category contains some massive capital investments, which is why the area’s employment has exploded in the last two years. 

The largest of the construction projects underway is the Sabine Pass LNG by Cheniere Energy. The company will be building six “trains”----groups of machinery than take natural gas from a gas to a liquid form for shipping. The first two trains are about 76% complete. Construction began on trains three and four in 2013, and notice to proceed on the 5th train was approved in July 2015. FEED and permitting are in progress on the 6th train. Cheniere has six, 20-year contracts in hand for buying its product. Importantly, the company also has a permit from the Department of Energy to export to non-free trade partners of the U.S., a permit that is absolutely vital before one of these terminals can begin construction. Cheniere will spend $20 billion on this 6-train project. This would make it the largest single capital investment in Louisiana history, if not U.S. history. The project will create 148 new, high-paying ($100,000 a year) jobs and retain 77 jobs.

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Sempra Energy began construction on its Cameron LNG project in August 2014. This export terminal will be a 3-train unit and cost $10 billion to construct. In February 2014, Sempra received final approval in September to export to non-free trade partners of the U.S. Some $7.5 billion in financing is being provided by Japanese lenders. Sempra has filed information with FERC to add two more trains at this site. The firm estimates 190 people will be employed at the site at an average wage of $80,000.

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Sasol broke ground in March 2015 on its $8.9 billion ethylene cracker and derivatives project. Once completed the facility would employ 528 Sasol employees plus 358 contract workers with a $58.9 million annual payroll. Sasol’s planned hiring schedule is these levels: 2015 -100; 2016 – 200; 2017 – 350; 2018 – 500. Matheson Tri-Gas will construct a state-of-the-art air separation unit to supply gases to Sasol. This project will create 27 new hires at $76,900 annually. No capital expenditure number was revealed for this unit.

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Westlake Chemicals is spending $330 million to expand its ethylene production. Work on this project should be completed in late 2015 or early 2016. The firm will hire 25 more employees, a process that began in late 2014.

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Juniper LNG is building a $100 million plant to manufacture diesels, waxes, and naphtha at a Praxair site in Westlake. The company is renovating dormant steam methane reformer, and 29 new jobs would be associated with the new plant.

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Advanced Refining Technologies---a joint venture of W.R. Grace and Chevron--is constructing a $135 million residue hydro-processing catalyst production plant and additional alumina capacity at the Grace site. Construction will start in late 2015 and finish in 2018 adding 30 new jobs.

Given the size of these projects it is little wonder that a prodigious demand for industrial construction workers is developing. The Lake Area Industry Alliance (LAIA) has generated estimates of the demand for construction workers needed over the next year to build these projects for which there is an engineering/procurement/construction (EPC) in place. LAIA’s results are summarized in Figure 31. Estimated employment will grow from 9,500 in July 2015 to a peak of about 16,500 in April 2016---a remarkable bump of 7,000 additional workers. Figure 31 Estimates of the Demand for Industrial Construction Workers In the Lake Charles MSA

Source: Lake Area Industry Alliance The LAIA has done the development community a further service by also projecting the path of permanent employment at these facilities as they come on line. LAIA staff project these plants will add 1,445 new employees over 2016-18 according to the following schedule: 2016 – 373; 2017 – 850; 2018 – 220. Clearly, a harvest of new jobs is coming Lake Charles’ way.

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Projects at FEED and/or Permitting It is important to note that LAIA’s construction and permanent employment estimates are based on projects for which an EPC exists. There are massive projects in the area at the FEED or permitting stage that may pull the construction trigger---with varying degrees of probability---over the next two years. These include: 

Lake Charles Exports or Trunkline has received conditional approval to export to non-free trade partners. LCE plans to build a 3-train facility at a cost of $10.96 billion. The firm has filed an advanced notice with the Louisiana Department of Economic Development to start construction in January 2016 and finish at the end of 2021. Financial support for the project has been secured from BG Group and Southern Union. We place a high probability on this project proceeding.

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An Australian company---Magnolia LNG---is very close to construction start on a 4-train LNG export facility at the Port of Lake Charles. An EPC was let with SK E&C USA in December 2014 to build the first two trains for $1.98 billion. Mid-November 2015 is the anticipated date for issuance of the final environmental impact statement for this project. Total construction cost of all four trains is estimated at $3.7 billion. Financing was completed in May 2014 with the sale of 90,000 shares of stock. We place a high probability on this project proceeding to construction.

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Live Oak LNG is a proposed 4-train unit that is a Cheniere/Parallax Enterprises project. This $2 billion project would be located on the western side of the Calcasieu Ship Channel and would employ 100 workers at an average annual pay of $75,000. The site will actually be designed to hold eight trains and five metric tons of exports. This group anticipates a late 2016 construction start. Because of the Cheniere involvement, we place a fairly high probability on this project going forward.

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Southern California Telephone & Energy (SCTE) signed a 99-year lease on 232 acres on Monkey Island to build a 6-train, $9.3 billion liquefaction plant. The company filed a permit with FERC and submitted a permit to the Department of Energy for permission to export to non-free trade partners. SCTE also has a memorandum of understanding with a natural gas company for a long-term, fixedprice supply of gas. The company projects construction will start in 2016.

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In December 2014, Venture Global announced plans to build a $4.25 billion LNG export facility on 938 acres at the mouth of the Calcasieu Ship Channel. Venture Global has received DOE permission to export to Free Trade countries and its application to export to non-FTA countries is pending. The company is aiming for a 2016-III construction start date.

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One of Lake Charles’ larger employers---Axiall Corporation---with 1,250 employees presently in the area has chosen the MSA for a proposed $3 billion

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suite of facilities. The new units would include a world-scale ethane cracker and an ethylene derivatives plant. This project would be a joint venture with Lotte (a South Korean company), and would ultimately employ 250 people. This project has been delayed, but the FEED work is completed. CB&I Corporation has been signed on to conduct the early engineering and services work. A final investment decision (FID) required from both boards is expected in the second half of 2015. Construction would start shortly after the FID with an opening date of late 2018 or early 2019. 

The larger of Sasol’s two projects is its proposed $11-$14 billion Gas-to-Liquids facility. The company would take natural gas and produce from it 96,000 b/d of diesel, naphtha, and other chemical products. This huge facility would employ 700 people. The company announced in January 2015 that this project would be delayed until (1) an evaluation is made of any cost overruns at the $8.9 billion ethylene plant now under construction and (2) the price of oil, diesel, and the state of the global economy.

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Another large plant proposed for the Port of Lake Charles is a $1.5 billion GTL plant by G2X Energy. The firm’s intent is for an end-of-2015 construction start date. Air permits have been secured but water (and some other) permits are still pending. This plant would have three modules: (1) one to convert natural gas into methanol (Big Lake Fuels), (2) a second to refine methanol into liquid propane and 87-octane zero sulfur gasoline and (3) a unit composed of cooling towers, waste treatment and other auxiliary units. Methanol Holdings Trinidad Limited (MHTL) announced it will partner with G2X on the Big Lake Fuels module, with plans to start construction in late 2015. Once operational, the Big Lake Fuels module would employ 125, and once all three units are built the modules would employ 243 workers at an average annual wage of $66,500.

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To support all the action taking place in this region, Entergy Corporation is planning to start a $187 million transmission project in the area that would be one of the largest in the company’s history. We place a high probability on this project coming to fruition.

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We are watching the Phillips Refinery closely for a decision on whether to make the $800 million investment to produce a low sulfur content diesel. At this writing no decision had been made on this large project.

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Also to support all the new industrial activity, the Port of Lake Charles is examining a possible $35 million new bulk dock facility. This summer the Port added a short line railroad---Port Rail. The Port expects to spend $27.7 million this year, $30 million in 2016, and possibly $30 in 2017 on dredging its waterways.

There are other non-industrial construction projects underway or soon to start in the region. The state has let $190.1 million in road projects over 2016-17 for this 2______________________________________________________________________________________ Economic Outlook Page 106

parish region. Lake Charles Memorial Hospital will spend $55 million over 2014-16 to (1) expand its GI unit, (2) add a second MRI, (3) add a new medical office building, and (4) expand the emergency departments and extensive care unit. Delta Downs Racetrack, Casino and Hotel announced a $45 million expansion project that would (1) add a new hotel tower with 167 rooms, (2) redesign the current 200-room hotel, and (3) expand its special events center. A Surprise at the Golden Nugget The new, $700 million Golden Nugget Casino opened in Lake Charles in December 2015. This new casino with its 740-room hotel employs a whopping 2,337 people. What has surprised analysts has been the impact on the other two casinos in Calcasieu Parish. The concern was that the Golden Nugget would simply cannibalize business away from the other two casinos and there would be little impact on total casino employment in the region. That is exactly what happened when a new casino opened recently in the Shreveport-Bossier area. Remarkably there has been essentially no negative impact on the other two casinos as seen in Table 20. Employment has held up at both casinos and in May 2015, L’Auberge’s revenues were up 6.9% over May 2014, and Isle of Capri’s revenues were up 2.7%. It appears the new casino actually grew the market in the area. Table 20 The Lake Charles Casino Market Employment Casino 2014-III 2014-IV Golden Nugget 0 2,188 L’Auberge du Lac 2,564 2,423 Isle of Capri 1,060 995 Source: Louisiana Gaming Control Commission

2015-I 2,337 2,402 1,009

Solid Progress at the Airpark Two of Lake Charles’ significant employers operate out of Chennault Airpark. AAR is the largest aircraft maintenance, repair, and overhaul (MRO) organization in the U.S. and the third largest in the world. The firm can do MRO work on wide-bodied aircraft up to the Airbus A380. Presently, the firm employs about 400 and is well above targets the firm had set to date for the area. AAR’s facility at Chennault is basically full. The firm’s target is to boost employment to 750. An even bigger player at Chennault Airpark is Northrop Grumman which presently employs 730. NG does MRO work on the military’s JSTARS and KC-10 aircraft. NG’s employment should remain steady through 2017. The firm has rebid the KC-10 contract and expects an announcement in early 2016. To address the capacity issues at Chennault, the Calcasieu Parish Police Jury, the city of Lake Charles, and the Chennault International Airport Authority have signed a ______________________________________________________________________________________ Economic Outlook Page 107

memorandum of understanding to embark on a $257 million airport expansion. At this writing the City Council has yet to approve the MOU. The expansion will be built on 220 acres that is now the Mallard Cove Golf Course. The expansion would involve new aircraft hangers, rail-served warehouses and a light industrial park. Monroe: Languishing for 13 Years Located in the northeast corner of the state (see Map 3), the Monroe MSA is comprised of two parishes---Ouachita and Union. Monroe is the third smallest MSA in the state (ahead of Alexandria and Hammond), with an estimated 77,300 non-farm jobs in 2015. Until the turn of the century, this MSA had the highest concentration of employment in the broad category called “finance/insurance/real estate” (FIRE) of any MSA in the state. Partly that was because of the 2,400-person JPMorgan Chase Mortgage facility, the service part (400 employees) of which was spun off to Wing Span Portfolio. Another big contributor to this ranking was the 1,200-person State Farm claims center. The latter closed its doors in 2005, and Chase absorbed the Bank One documents depository, so FIRE’s influence in this MSA’s economy has been reduced somewhat. Other large employers in the region include Graphic Packaging, a paper/carton plant that employs about 1,340 people at its three sites. CenturyLink---one of Louisiana’s Fortune 500 Companies--- also plays a key role in this MSA’s economy with its 1,970-person workforce. Delphi Lighting was a major player until it closed its 800person headlight manufacturing facility in June 2007. Monroe Employment History Figure 32 traces Monroe’s employment history from 1980 to 2015. Like Baton Rouge this MSA was only lightly tapped by the deep recession of 1982-87. Monroe only lost jobs for two years---1986 and 1987---and even then the decline was only 2 percent as compared to the 9 percent statewide job loss. The reason for the light hit is that Monroe has almost no jobs in extraction or chemicals, which were the two industries that suffered the most during that recession. By 1989, Monroe had retrieved all those lost jobs and was setting new employment records. Between 1987 and 2002, this region enjoyed a 14-year stretch of growth, with five of those years registering 2.5 percent plus annual growth rates. (The increase in 1990 is distorted by the addition of Union Parish to the MSA’s numbers.) The years from 2002 through 2011 were not good ones for the Monroe MSA as evident in Figure 32. Remarkably, Monroe did not have a growth year during this entire 9-year period. The decline was not horrendous, but it was steady. After going flat in 2003, the MSA lost 4,300 jobs over 2003-11, a 5.4 % decline. (The three years ______________________________________________________________________________________ Economic Outlook Page 108

from 2005-07 were flat.) During the "Great Recession" the region lost 2,300 jobs, a decline of 3.0 percent---tied with Lafayette as the third best performance in the state.

Fig. 32: Monroe MSA Non Farm Employment 1980-2015 85 80

Thousands

75 70

Losses: Wingspan Portfolio State Farm IP-Bastrop Shaw Fabrication Pilgrim's Pride Accent Marketing Guide Group Coca Cola

X

2009-11: -2,300 (-3.0% )

65 60 Union Parish Added X 55 50 1980

2015: -900 jobs (-1.2% ) 3,000 Jobs Below 2002 Peak 1985

1990

1995

2000

2005

2010

2015

Consider the body blows this region took during those nine years: 

The biggest hits came with the initial layoffs at, and then total closure of, the State Farm Insurance claim office, costing the area 1,100+ jobs.



Guide Corporation reduced the workforce at its headlight plant, and then totally shuttered the facility in 2007, at a cost of 650 jobs with an annual payroll of $53 million.



Graphic Packaging also engaged in workforce reductions



Holsum Bakery closed its facility in Monroe, terminating 50 employees in the process.



In 2008, International Paper closed its 550-person paper mill in nearby Bastrop.



In 2009, Shaw closed a pipe fabrication plant that had 202 employees and an $11 million annual payroll.

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

In 2008, Pilgrim’s Pride closed a chicken processing plant in Union Parish that cost the region an estimated 1,500 jobs.



In early 2010, Accent Marketing lost a major client and dismissed 340 workers at its call center.



Coca Cola closed its bottling plant, laying off 85 people.

That is a remarkable list of 9 significant closures during those 9 years. It is a wonder that the job loss was not much greater. 2012: An End to the Blood-Letting As seen back in Figure 32, Monroe actually experienced net job growth in 2012 for the first time in nine years, and it was a healthy boost of 1,000 jobs. There were no more major layoff announcements in that year, and the region received a shot in the arm from a number of sources. 

CenturyLink continued to move like a freight train in its acquisition efforts. In 2014, the company made a commitment to keep its headquarters in Monroe through 2020 and added to its Monroe workforce.



Foster Farms reopened the shuttered Pilgrim's Pride plant and is now back up to 1,200 employees in Union Parish.



Gardner Denver Thomas relocated operations in Wisconsin to the Monroe area in 2010, generating 67 jobs initially and now employs 300.



As a sign of a longer run commitment to the region, Graphic Packaging brought in new equipment from a mill in Colorado to increase productivity of its workforce, which it plans to keep stable for now.



Angus Chemical has invested about $100 million in its plant in Sterlington over the past few years, including a $10.8 million investment in 2011 in a new electrical substation and general electrical system, which helped the firm remain productive enough to retain its 174 jobs.

Fortunately, that growth pattern in 2012 continued through 2014. averaged 800 new jobs a year over 2012-14.

The MSA

2015: Return of the Slump Unfortunately the enviable growth pattern of the last three years was not to be repeated in 2015. The Monroe MSA is on a path to lose 900 jobs this year, a decline of 1.2%. An important contributor to this slump was Wingspan Portfolio Advisors, the company that purchased JPMorgan’s customer service center in Monroe. At the time ______________________________________________________________________________________ Economic Outlook Page 110

there were 400 people in that division, and Wingspan promised to bring 900 more jobs to the region. Not only did the additional 900 jobs not materialize, but also in October 2014 the company laid off “hundreds” of employees. Wingspan’s job count dropped to about 100, and in late August the company sent notices to those 100 people still employed at the site. JPMorgan, which owns the building in which Wingspan was located has told the regional economic development officer to start marketing the site. This region was rocked in mid-August by an announcement that the region’s anchor company---CenturyLink---would be terminating 1,000 employees from its 64,000-person worldwide workforce. Luckily only 55 of these layoffs will occur in Monroe. The job losses in 2015 mean this MSA will be 3,000 jobs below its previous peak reached 13 years ago in 2002. No other MSA in the state has experienced this long of an employment slump. Forecast for 2016-2017: Some Help from IBM Our projections for this MSA are shown in Figure 33. We project that employment in the Monroe MSA will be stable in 2016 and the region will add 200 jobs in 2017 (+0.3%). This growth rate will rank Monroe sixth among the nine MSAs in Louisiana over this two year period. A primary reason for this weak employment pattern is the almost singular lack of development projects listed for the region, especially as compared to the other MSAs in the state. Monroe received really good news that IBM will create a new applications development and innovations center on 88 acres across from CenturyLink. IBM’s unit will bring 400 high-wage jobs to Monroe. The state is funding a $12 million building for the company and is giving $4.5 million to Louisiana Tech, ULM, and Grambling to upgrade their computer programs to generate a qualified workforce for IBM. About $73.2 million in state road projects have been let by DOTD for this region over 2016-17. While this is a non-trivial and much welcomed injection of money into the region it is important to note that this figure is down almost 31% from the number we reported last year.

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Fig. 33: Monroe MSA Wage & Salary Employment Forecast: 2016-17 85 80

Thousands

75 70

2016: Flat (0.0% ) 2017: +300 jobs (+0.3% )

65 60 55 50 80

85

90

95

00

05

10

15

Alexandria: With ASA on the Cusp of a Boom? Alexandria is the second smallest of Louisiana’s nine MSAs with about 63,800 non-farm employees in 2015. This MSA is comprised of two parishes---Rapides and Grant. Alexandria derives the lowest percentage of its employment from the “basic” sectors---mining and manufacturing---of all the MSAs in the state except Hammond. Located in the central part of Louisiana (see Map 3), it has typically served as the retail/services center for the north/central part of the state. Alexandria also has the second highest percentage of employment in the government sector (21.2%) of all the MSAs as well---even larger than Baton Rouge (17.1%), which is the state capital and home to two large state universities. Among the significant state agencies in the area was the Huey P. Long Medical Center, the 400person charity hospital for this region---taken over by two of the private hospitals in the region---and Pinecrest Support and Services Center---which provides care for the mentally disabled and employs about 1,300 people. Central State Hospital for the mentally ill has about 300 workers at the present time. Nearby Fort Polk is the largest military installation in the state. While not actually located in the Alexandria MSA, this huge base has a noticeable impact on this MSA’s economy. ______________________________________________________________________________________ Economic Outlook Page 112

Procter & Gamble has a significant 1,200-person operation in this MSA, as does a relatively new firm---Union Tank Car with 640 employees. The utility company Cleco, with 1,200 employees, is also a major force in this MSA’s economy, and Roy O. Martin employs about 1,200 at various wood processing sites in the region. Crest Industries---which is the umbrella firm for DisTran, CNR, Beta Engineering and Mid State Supply---makes steel poles and substations for electric power generation and employs about 600. Alexandria’s Recent Employment History Alexandria’s employment history is illustrated in Figure 34. Five key points will be noticed by the careful reader when viewing this figure. First, note that there was a slight bump upwards in 1990. The Department of Labor revised the employment statistics only back to that year to take into account the addition of Grant Parish to this MSA. Secondly, note that this MSA enjoyed an almost recession-free history until 2001. Except for a mild decline in 1982, its employment track had basically been a line moving constantly upward for the last two decades of the 20th century. Even the post-9/11 national recession in 2001 only mildly impacted the Alexandria MSA, causing a meager loss of only 200 jobs (-0.3 percent). This means the Alexandria MSA was the least impacted of all the state’s nine MSAs---not a surprising finding given the lower manufacturing base and the government-orientation of the region. Note thirdly that there is a distinct kink in the graph starting in 1992. Two factors contributed to this nice boost in Alexandria’s growth rate. The first was a seemingly negative event---the closure of England Air Force Base. Civic and governmental leaders turned this economic lemon into lemonade by gaining control of the base assets and turning it into an industrial park/retirement village. England Industrial Airpark is now almost totally reoccupied. Several businesses have moved to the site, and the regional airport has been relocated there. A new, 150-person Immigration and Customs Transfer facility was opened at the Airpark in the summer of 2014 and serves as a domestic transportation hub for moving detainees. Too, during this period I-49 was being constructed through the heart of the city, adding an unusual injection of construction jobs to the economy. There was a slight slowdown in 1996-97 when one of England’s newest and largest tenants---J.B. Hunt Trucking---shut down their operation there.

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Fig. 34: Alexandria MSA Non-Farm Employment 1980-2015 70 2015: +0.5% (+300 Jobs)

65

X

Thousands

60 55 2009-13: -4,200 (-6.3% )

2001: Recession -200 jobs (-0.3% )

50 45 40 80

85

90

95

00

05

10

15

2005-08: Great Growth Years Fourthly, note that the recovery from the 2001 recession was initially lackluster at best. Employment was basically flat from 2002 through 2004. However, as seen in Figure 34 the next four years were very good ones for this MSA. Employment jumped by 6,100 or a strong 2.5 percent annually. This was one of the best performances in the state over that 4-year time frame. During this rapid expansion phase there was (1) a doubling of the size of the federal prison at Pollock, (2) significant capital expenditures at England Airpark, (3) $132 million on the construction phase of Union Tank Car (UTC), (4) UTC began a hiring process that resulted in 670 workers at its new plant, (5) the huge $1 billion+ Cleco Rodemacher plant was under construction at the time, creating about 1,700 construction jobs, and (6) a new $60 million MARTCO plant was constructed in the southern part of the MSA. On the outer edges of the MSA, there was a $100 million addition to the Paragon Casino in nearby Avoyelles Parish, and a large amount of construction spending took place at Fort Polk. While these two projects are outside of the MSA’s borders, they ______________________________________________________________________________________ Economic Outlook Page 114

created extra earnings which were often spent in Alexandria’s retail and service establishments. Offsetting all this good news was the closure of Parta Systems, a 110person pharmaceutical parts manufacturing plant. 2009-13: A Pounding from the Great Recession & State Government The fifth lesson from Figure 34 is the continuous drop in employment over the four years from 2009-13. During that period, this MSA lost 4,600 jobs---a 6.9% decline. Great Recession Effects: The Great Recession was partly the culprit. Alexandria’s employment took quite a hit over 2009-10, losing 3,500 jobs or a 5.6 percent decline. Only Lake Charles at 6.3% had a worse record during the Great Recession. There were several factors behind this drop. The attraction of a large, highpaying, durable goods manufacturer like Union Tank Car is great for an area. However, when the national economy goes south, durable goods manufacturers get hit the hardest. After reaching a peak employment of 670 in early 2008, orders for UTC tank cars dropped so much that the firm reduced its employment to 270. Eight to nine companies that lease cars from UTC went bankrupt and returned their cars. Plus, demand for new railcars was down as always happens when you have a recession as bad as the Great Recession. For example, in 2006 about 60,000 rail cars were sitting idle; by spring 2009 this number was up to 540,000. Secondly, the region’s lumber industry came under attack due to the weak national housing market. Specifically, Louisiana Hardwood in Lemoyen halted its second shift in 2009, and International Paper closed its container board plant in late 2009, terminating 230 people. Thirdly, the huge $1 billion+ Cleco Rodemacher plant construction project was finished in 2009, resulting in the loss of those 1,700 construction jobs. Also, on a lesser scale, Dresser Industries began moving from a manufacturing orientation towards assembly, and reduced its workforce by 75 in early 2010. Finally, Star-Tech lost a major customer and laid off 300 people. State/Local government layoffs: What is odd about this region’s employment since the end of the Great Recession was that its employment continued to trend downwards well past the recession time frame. From 2011 to 2013, this MSA lost another 800 jobs despite the fact that most of its key manufacturers have been in an expansion mode and the Jena Indian Tribe opened a 46,000 square foot, class II casino in February 2014 that employs 300 people. A different culprit was responsible for this decline. We mentioned earlier that this region has a higher percentage of employment in the government sector than any other MSA in the state. More often than not that lends an extra measure of stability to a region, but not when state and local governments are having budgetary problems. Since 2010,

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state government employment in the MSA is down 1,000 jobs and local government has declined by 200 jobs. Forecast for 2016-17: The Potential of ASA Figure 35 contains our forecasts for the Alexandria MSA for the next two years. We are projecting that this MSA will add 500 new jobs a year over 2016-17 or a 0.8% annual growth rate. This growth rate will place Alexandria in 4th place among the nine MSAs in the state. It is important to note that this forecast makes no allowance for two major projects to break ground. If these projects come to fruition, Alexandria will enjoy a much larger growth rate.

Fig. 35: Alexandria MSA Non-Farm Employment Forecast: 2016-17 70

2016: +500 jobs (0.8% ) 2017: +500 jobs (0.8% )

65

Thousands

60 55 50

X Grant Parish added ASA? Sundrop? Cool Planet?

45 40 80

85

90

95

00

05

10

15

Investimus, Roads & Plastipak Add a Shot in the Arm There are some new monies coming to the Alexandria MSA, which while small compared to what is happening in the lower part of the state, are non-trivial for an MSA of this size. The largest of these is the decision by Investimus Foris---a Lithuanian Company---to invest $265 million to convert an idled biofuels refinery in Grant Parish into an ammonia manufacturing plant. The company is aiming to produce 500,000 tons ______________________________________________________________________________________ Economic Outlook Page 116

of ammonia annually and hire a workforce of 85 at a $55,000 annual wage. A construction start date of 2016-II has been set with the completion scheduled for 2018-III. A much smaller $9 million investment by Plastipak will add three production lines for its rigid plastic containers. The company will add 20 jobs to its existing 205-job workforce. On the public works side, the DOTD has let $65.2 million in road and bridge projects for this MSA, and a 18-month, $23 million makeover of the Rapides Parish Coliseum was begun this summer. At England Airpark, some $64 million in capital expenditures are scheduled for the next two years. These monies will be spent on airside improvements (ramps, runway, and signage replacement) and landside improvements (a west side 1,500 acre industrial park with streets and industrial utilities). Airpark officials also announced the creation of a new 1,600 acre mega-site. Almost $16 million will be invested in developing the site. Helpful Stability among the Big Private Companies Alexandria is host to five key private companies that are projecting stable workforces over the next two years: 

Cleco is one of the largest employers in this region at 1,200 employees. The Alexandria community has watched nervously over the past year as the “due diligence” proceedings have been taking place by a consortium made up of (1) Macquarie Infrastructure & Real Assets (an Australian investment bank), (2) British Columbia Investment Management Corporation, and (3) John Hancock Financial to purchase Cleco. As this purchase has progressed it appears assurances have been secured that the CEO and other senior management will be Louisiana residents, as well as four members of the Board including the Chair. Since the buyers are investment companies, not utility operators, little change is expected in Cleco’s operations.



Similar in size to Cleco are the three Roy O. Martin (Martco) plants in the area that employ 1,200. This very successful company has secured a strong market share in the wood-oriented building materials market. Further expansions depend upon a more robust U.S. housing market, which is not expected over 2016-17.



Proctor & Gamble’s large plant employs about 1,200 direct and contract employees. The company is shifting powder detergent operations from Georgia to Alexandria and plans to add about 50 at its site.



Modest growth (+15-20 jobs) is expected at the 600-employee Crest Industries. Crest is the umbrella company for Dis-Tran, CNR, Beta Engineering, and MidState Supply. The company’s makes steel poles and substations for the electrical utility industry.



An Alexandria company that is doing particularly well now is Union Tank Car, located at the England Airpark. Because of (1) new regulations for railcars and

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(2) an evolving need for railcars to move all the new chemicals coming on line in South Louisiana and Southeast Texas, this company is poised to keep its 640person workforce busy through 2017. This region is anxiously awaiting the fate of Dresser Industries which operates a 344-person site in Pineville. Dresser was purchased by GE, and in January GE announced it would be consolidating operations and transferring this site to Jacksonville, Florida. This transfer had not transpired at this writing, and indeed, rumors were afloat that there were issues with the Jacksonville site and the Pineville plant is safe for the next five years. Hopefully those rumors will ring true. ASA, Sundrop & Cool Planet: Big Potential for Alexandria Among Louisiana’s smaller MSAs, few have a greater potential for a breakout two-year period than Alexandria. There are two potential projects that could radically improve this MSA’s growth in the immediate future and another that could give it some solid gains. The most exciting of these by far is the announcement by American Specialty Alloys (ASA) that it would spend $2.4 billion on a new mill and campus at the old International Paper site in Pineville. ASA plans to make strong, light-weight aluminum metals for the automotive/aerospace sector. There would be 850 ASA employees at the site and another 600 workers at corporate partners. An average annual wage of $70,500 is expected for these employees. Ground is expected to be broken at the site in late 2015, with a scheduled opening of 2020, but significant hiring for the aluminum mill is expected in 2016. Note that we have not built the possibility of ASA going vertical into our forecast, but we place a 75% chance on this project becoming “real”. We have been reporting for about two years on the possibility of Sundrop Fuels building a facility in this region. Sundrop is perfecting a technology that combines forest waste with hydrogen to produce fuel. In conversations with Sundrop’s CEO he indicated the company plans to construct a $25 million test facility in 2016. The test facility will take one year to build and will employ 30+ people. The company is at the pre-FEED stage on a $2-$2.5 billion plant. This stage is required to secure a loan guarantee for DOE. A full FEED process is expected to occur in 2016 with the hope of closing financing in 2017 and beginning construction in late 2017 or early 2018. To Sundrop’s advantage their fuel can be used to meet renewal fuels standards (RFSs). Companies refining petroleum-based fuels must use cellulose-based fuels in their process to meet their RFSs. Finally, Cool Planet Energy is considering building three biomass-to-gasoline refineries in north-north-central Louisiana. One of the plants would be at the Port of Alexandria. Indeed $8.5-$14 million in infrastructure improvement were begun at the Port in February 2015. In addition to fuel the firm will also make CoolTerra, which is a bio-char that when put in the ground enables a farmer’s land to retain water so that 40% less water is needed via irrigation. Cool Planet garnered $100 million in Series D ______________________________________________________________________________________ Economic Outlook Page 118

financing for its project, which is a positive step toward a “go” decision on this project, and a $90 million loan guarantee was secured October 2014 (this loan guarantee is tied to producing both fuel and CoolTerra). Cool Planet plans to begin building the CoolTerra unit in 2016 and start up later that year with about 24 employees. Construction on the fuel unit is expected shortly afterwards. Obviously, Alexandria’ outlook depends significantly on these three projects going forward. Hammond: New Kid on the Block For the first time in decades, Louisiana has added a new MSA to its ledger. The Hammond MSA is composed of one parish---Tangipahoa---and is located from the northwestern edge of Lake Ponchartrain north to the Mississippi line and between Baton Rouge on the west and Slidell on the east (see Map 3). This parish is perhaps best known as the “Strawberry Capital of the World” and is host to a famous strawberry festival each year. In 2015 approximately 44,900 people were employed in this MSA, making it the smallest of the nine in Louisiana. The two largest employers in the parish (aside from the School Board) are North Oaks Medical Center (2,450 employees) and Southeastern Louisiana University (1,398 employees). Bringing up a close third to SLU is North Lake Division Evergreen Life Services (1,100 employees) which provides services to about 214 residents with intellectual and developmental disabilities. Evergreen Presbyterian Ministries manages NLDELS for the Louisiana Department of Health and Hospitals. The dominance of these three players means healthcare and educational services play a larger role in this economy than in the state as a whole. Healthcare represents 22.1% of employment in this MSA versus 15.3% at the state level, and educational service is 11.8% versus 8.7% at the state level. Manufacturing is not as large an element in this MSA (3.8% of employment) as is the case at the state level (7.6%), and manufacturing has a larger food processing component than the other MSAs, headed up by the 550-person Sanderson Farms poultry processing plant and the 164-person (and growing) Elmer’s Candy plant. There are two significant distribution centers in this region. A large 800-person Walmart Distribution Center is located in Tangipahoa Parish as is the 376-person SNS Wholesale Grocers (formerly Winn-Dixie). The city of Hammond enjoys a unique location only 40 miles from the state capitol to the west and about the same distance to the North Shore business region to the east. Residents in the southern part of the parish are a relatively easy commute to New Orleans via I-55 or to the plants along the Mississippi River. As a consequence, a relatively high percentage (14%) of this parish’s residents earns their income outside of the parish. ______________________________________________________________________________________ Economic Outlook Page 119

History of Hammond MSA: After 7 Years of Stagnation - Growth The history of this MSA from 1990 through 2015 is illustrated in Figure 36. It is apparent from a casual glance at this chart that the Hammond MSA has been through two distinct periods---a period of solid upward growth from 1990-2007 followed by seven years of stagnation from 2008-13.

Fig. 36: Hammond MSA Non-Farm Employment 1990-2015 48

New Record: 9/14 2015: +2.5% (+1,100 jobs) X

44

Thousands

40 36

2005-06: The "Katrina Effect" +1,600 jobs (+3.9% )

32 28

No Impact 2001 Recession

24 20 1990

1995

2000

2005

2009-10: -800 jobs (-1.8% )

2010

2015

In a College Town Enrollments Matter What is behind this peculiar pattern? It is important to note that the largest city in this MSA---Hammond---is very much a university town. SLU is one of its largest employers at 1,398. However, the university attracts ten times that many students to the region, students who bring a great deal of spending power to the community. The powerful influence that SLU has on this MSA is seen when comparing the MSA employment data in Figure 36 with SLU’s enrollment data in Figure 37 and the university’s budget data in Figure 38. Hammond’s growth phase from 1990-2007 was mirrored by a huge growth in fall enrollment and budget at SLU. Enrollment at the university jumped by 5,670 students over 1990-2005, an impressive rise of 54.5% and the budget rose a whopping 175.4%. ______________________________________________________________________________________ Economic Outlook Page 120

Fig. 37: Southeastern Louisiana University Enrollment Fall 1990 - Fall 2014 17,000 2005 Peak: 16,068 X

Enrollment Fall Semester

16,000 15,000 14,000 13,000

1990-2005: +5,670 (+54.5% )

12,000

2006-14: Down 1,570 (9.8% )

11,000 10,000 90

92

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96

98

00

02

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06

08

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Source: SLU Office of Institutional Research & Assessment

Fig. 38: Southeastern Louisiana University Budget Fall 1992 - Fall 2015 130,000,000 2008 Peak: $122.7 million X

Budget as of the Fall Semester

120,000,000 110,000,000 100,000,000 90,000,000 80,000,000

1992-2008: +$78 mm (+174.5% ) 2009-13: Down $16.3 mm (-13.3% )

70,000,000 60,000,000 50,000,000 40,000,000 92

94

96

98

00

02

04

06

08

10

12

14

Source: SLU Office of Institutional Research & Assessment

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Hammond’s seven years of stagnation from 2008-2014 were accompanied by an actual decline in enrollment and funding at SLU. Enrollment declined from a peak of 16,068 students in the fall of 2005 to 14,498 in fall 2014---a 9.8% decline. The university’s funding dropped by 13.3% over 2008-13, and employment declined from 1,692 to 1,398 (-17.4%). The combination of declining enrollment and funding was the primary reason behind the lethargy in this MSA from 2008-14 shown in Figure 36. Healthcare Keeps MSA’s Head above Water Economic conditions would have been much worse for this region had it not been for an energetic healthcare sector. Unfortunately, data on this small MSA’s healthcare sector are sparse. The U.S. Bureau of Economic Analysis and Bureau of Labor Statistics and Louisiana’s Workforce Commission only provide data back to 2005 and up to 2013 on the Hammond MSA healthcare sector. Those data do reveal, however, why this MSA’s employment was basically stagnant rather than declining since 2007. In 2007, when SLU’s enrolment started its decline, there were 5,182 people employed in the healthcare sector; by 2013 that number had risen to 7,456---an increase of almost 44%. A strong healthcare sector enabled Hammond to keep its head above water despite the anchor-weight of SLU’s decline. Almost Impervious to Recessions Figure 36 reveals another unique characteristic of the Hammond MSA over 19902015: This MSA is almost impervious to the impact of national recessions. There was a short U.S. recession from July 1990 to March, 1991 during which this MSA’s employment actually grew. Employment rose again during the 2001 recession, then during the Great Recession---when the U.S. lost 6.1% of its jobs---the Hammond MSA’s employment only declined 1.8%, a loss of only 800 jobs. This resilience can largely be traced to the makeup of the region’s economy. Its huge healthcare and educational services sectors are typically touched only lightly, if at all, by national downturns. On the other hand, the durable goods manufacturing sector that typically gets hammered by a national recession is largely absent from the Hammond region. Only 3.8% of its employment is in manufacturing (as compared to 7.6% at the state level), and even then employment is heavily concentrated in nondurable goods manufacturing such as food processing. 2015: Out of the Doldrums A quick glance back at Figure 36 will show that after seven years in the doldrums, the Hammond region is on a very solid growth track for 2015. The region is projected to add 1,100 jobs this year for a 2.5% growth rate. Only two of Louisiana’s nine MSAs should experience higher percentage growth rates (Lake Charles and Baton Rouge). Unfortunately, the size of this MSA limits severely the detail-level of employment data on the region. Data at the highly aggregated level indicate that this growth is ______________________________________________________________________________________ Economic Outlook Page 122

originating in the private services sector of the Hammond economy. We suspect this growth is largely emanating from the healthcare firms in the region. Also, the budget at SLU, after several years of decline is expected to increase from $106.4 million in FY14 to $113.8 million in FY 15. The government sector employment is basically flat; while employment in the region’s small manufacturing sector is actually down this year. Forecast for 2016-17: Breaking the 45,000 Barrier Figure 39 contains our forecasts for the Hammond MSA over 2016-17. We are projecting that the region will add 700 jobs a year over the next two years which will mean a growth rate of about 1.5-1.6% a year. In terms of percentage growth this will rank the MSA third among Louisiana’s nine MSAs. In absolute terms, is 1,400 new jobs will rank fourth. Sometime in 2016, this MSA should break through the 45,000 employment level for the first time in its history. Several factors are behind this projected growth number: 

SLU’s budget is on track to rise again in FY16 from $113.8 million in FY15 to $115.6 million. This of course, assumes no mid-year budget cuts.



North Oaks Medical Center will begin construction on a $15-$20 million Women’s and Children’s Wellness Center in Mid-2016. It will open sometime in 2018.

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Elmer’s Candy has announced a $40 million expansion in Ponchatoula that will enable the firm to retain 164 jobs and add 10 new jobs at an average of $42,500 per year.

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J&M Industries will engage in a $4.5 million, 120,000 square foot expansion of its tarp manufacturing facility. The firm will retain 107 jobs and add 30 at an average wage of $33,700.

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Universal Plant Services is moving into the old 84 Lumber site. This company performs fabrication, maintenance and installation work for plants. The firm plans to add 80-100 workers by the end of 2015.

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Niko Industries is spending $2 million on a powder coating facility for machinery and boating companies. The firm plans to hire 20 people.

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The Louisiana DOTD has let $20.6 million in road and bridge projects for this MSA over 2016-17.

One area of concern for this region is Bradken Foundry. At one point this firm employed about 380, but now its workforce is closer to 150. ______________________________________________________________________________________ Economic Outlook Page 123

Fig. 39: Hammond MSA Nonfarm Employment Forecast 2016-17 48 2016: Break 45,000 for 1st Time X 44

Thousands

40 36 2016: +700 jobs (1.6% ) 2017: +700 jobs (1.5% )

32 28 24 20 90

92

94

96

98

00

02

04

06

08

10

12

14

16

Year

THE OUTLOOK FOR THE RURAL PARISHES: 2016-17 Back in Map 3 we illustrated where the nine MSAs are located in Louisiana. With the recent expansions to three of our MSAs and the addition of the Hammond MSA, there are now 35 of the state’s 64 parishes located in these nine MSAs. The remaining 29 parishes are designated as “rural”. With few exceptions, most of these rural parishes have a distinctly agricultural economic base. Among the exceptions are Lincoln and Natchitoches Parishes---which are homes to relatively large universities---the coastal parish of St. Mary---which has a significant attachment to the oil and gas extraction industry---and Vernon Parish on the central Texas border which is the home parish for Fort Polk, a very large military base. A little less than 12% of the state’s employment exists in these 29 parishes. Figure 40 tracks employment trends since 1990 in these rural parishes and provides forecasts for 2016-17.

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Recession Impact on Rural Parishes Hard Note in Figure 40 is how sensitive employment in this rural area has been to national recessions. In the early 1990s’ recession rural employment fell for three straight years. Rural parishes lost 15,200 jobs, a drop of 6.6 percent. Then in the post9/11 recession, rural region employment fell hard for two years---a loss of 17,100 jobs or seven percent. In both cases the percentage job loss in the rural areas was worse than in the nation. However, during the Great Recession Louisiana’s rural parishes losses were slightly less, losing 5.5% of its jobs compared to 6.1% compared to the nation as a whole. One sector in the rural areas did get hammered during 2009-10. Bursting of the housing bubble led to layoffs and closing in several of Louisiana’s large wood products firms. These firms tend to be concentrated in rural parishes. For example: 

Weyerhaeuser Corporation laid off 185 at its facilities in Lincoln and Winn Parishes.

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Weyerhaeuser Corporation laid off 39 at its Bienville Parish site.

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Hunt Forest Products temporarily idled its Natalbany facility in Tangipahoa Parish.

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Boise Cascade indefinitely curtailed 130 workers at its plywood veneer plant in Allen Parish.

Bad news in the wood products area was partially offset by good news in those parishes with ties to the extraction industry. Red River Parish had an especially good 2009-10 due to flourishing drilling activity in the Haynesville Shale in the northwestern part of the state. In the coastal parishes, offshore drilling in the Gulf was strong until the BP spill, then large sums of money came flowing into these parishes for cleanup work or in claims payments made to businesses and individuals. This was enough to keep rural losses from their typical routine of experiencing losses greater than the nation.

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Fig. 40: Non-Farm Employment - Rural Parishes 1990-2015: Actual; 2016-17: Forecast 245

2016: 400 Jobs (0.2% ) 2017: 1,200 Jobs (0.8% )

240

Thousands

235 1991-93: 230

-15,200 Jobs (-6.6% )

225 220

2001-02: -17,100 Jobs (-7% )

215 210 1990

1995

2000

2005

2007-11: -13,200 Jobs (-5.5% )

2010

2015

Still not recovered from the Great Recession Note that the rural area of the state has almost fully rebounded from the devastating impact of the Great Recession. By 2015, this region of the state was still 4,000 jobs below its previous peak reached back in 2006. Having noted that, it is important to note that the area has recovered 9,200 of the jobs lost during the great Recession. Among the positives that have occurred since the bottom in 2011 are: 

In Bogalusa General Dynamics opened a call center that handles government healthcare calls. GD opened its facility in the summer of 2013 and now employs over 600 people.

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Gulf Coast Spinning has spent $130 million on a new cotton spinning facility at the Bunkie Industrial Park. Over 300 jobs were created at the plant, paying an average annual wage of $30,100.

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

In Urania, German Pellets GmbH constructed the world’s largest wood pellets manufacturing plant, capable of producing 1.1 million tons of pellets a year. About 150 people are employed at this plant in LaSalle Parish.

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Universal Plant Services recently completed its $3.9 million plant in Jena in LaSalle Parish. The firm hired 95 employees who work on welding, fabrication, and equipment overhaul and repair.

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A real success story for Ruston in Lincoln Parish is Mortgage Contracting Services, a firm that protects and preserves vacant properties for mortgage companies. MCS doubled the size of their facility to 200,000 square feet and added 90 new jobs.

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Conagra built a 2-phase sweet potato processing plant in Richland Parish adding several hundred jobs.

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Metal Shark Boats in Jeanerette secured a $192 million contract with the Coast Guard to construct 500 patrol boats. The firm added 100 workers to its workforce.

Rural Forecast for 2016-17: Continued Modest Growth Note in Figure 40 that we are projecting rural employment will rise by 400 jobs in 2016 (+0.2%) and by another 1,200 jobs (+0.8%) in 2017. For an area of its geographic size these are modest job additions. The following are firms that will be bolstering job growth in the rural parishes: 

Monster Moto is coming to Ruston and spending $4 million on a headquarters and manufacturing facility for mini-bikes and go-carts. The firm expects to add 287 jobs over 10 years.

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In Florien, Boise Cascade will be spending $43 million to upgrade its plant. No additional jobs are expected at this 400-person facility.

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An advance has been filed with the Department of Economic Development by BOE Midstream for a $127.8 million railcar storage, repair, and cleaning facility in Lacassine that is expected to yield 300 new jobs paying an average annual salary of $40,000.

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Urania Lumber also filed an advance with the LDED for a new $86 million sawmill to be located adjacent to an existing pellet plant in Olla. Construction is to start in early fall 2015 and open the end of 2017 with 80 new jobs at $37,500 annually.



In Jennings, Metalplate Galvanizing will make a $9.75 million investment that is expected to create 104 new jobs paying $46,300 annually.

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

A new food canning plant operated by Providence Foods is planned in the former LP grocery store in Lake Providence. The firm will invest $490,000 in the site and employ 24 people at $26,300 annually.



The construction industry in these rural areas will also get a boost from $428.5 million in state road projects that will be let over 2016-17. This figure is considerably larger than was let for this region in last year’s publication.

There are two issues that will limit growth in the state’s rural area, especially in 2016. Louisiana dodged a major bullet this year when the Army released its ruling on the Supplemental Programmatic Environmental Assessment for the Army 2020 Force Structure Realignment. Initially, the proposal was that the troop force at Fort Polk be reduced by 6,500 from its present level of 10,836---a stunning 60% reduction. It would naturally follow that a significant reduction would also occur in the civilian workforce at the base. This would have been a massive blow for Vernon Parish. Fortunately, the Army settled on a much smaller reduction of 388 troops. The announcement was a great relief to civic leaders in the parish, but it still involves a substantial 388-person troop reduction. In addition, Northrop Grumman has filed a WARN notice with the Louisiana Workforce Commission that it would be terminating 426 civilians at the base. A second factor limiting growth in the rural area, especially in St. Mary and Assumption Parishes in the southern part of the state, is the slowdown in the oil and gas extraction industry. As mentioned in earlier sections a weakened extraction sector will have an impact well into 2016. THE OUTLOOK FOR THE STATE: 2016-17 In the pages above we have reviewed the prospects for each of Louisiana’s nine MSAs and its rural parishes for 2016-17. Figure 41 illustrates the results of summing up these individual area forecasts to get the outlook for the state as a whole. We are forecasting very modest growth for the state over the next two years, adding 15,400 jobs in 2016 and 19,600 jobs in 2017. As seen in the chart, Louisiana began setting employment records in January 2013 and has been steadily growing ever since. Equally exciting is a new record on the horizon. If our forecasts are near the mark, sometime in the latter part of 2015 or early 2016 Louisiana will have more than 2,000,000 nonfarm employees for the first time in Louisiana’s history.

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Fig. 41: Louisiana Non-Farm Employment Forecast: 2016-17 2,100 Over 2,000,000 for first time

2,000

X

Thousands

1,900 1,800 1,700 1,600

2016: +15,400 jobs (0.8% ) 2017: +19,600 jobs (1.0% )

1,500

January 2013: New Record Set

1,400 80

85

90

95

00

05

10

15

These projected growth rates for 2016 and 2017 are about half of what was projected for the state in last year’s LEO---a reflection of just how damaging the slowdown in the energy sector has been to the state. We have also seen that the state can be broken into three parcels: (1) the remarkable industrial boom areas of Baton Rouge and Lake Charles (and to some extent New Orleans), (2) the declining oil patch in Lafayette and Houma, and the (3) lethargically moving northern tier of Louisiana. The blessings will not be evenly spread over the next two years.

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