Transportation Investments and Tourism Development at the Pine Ridge Indian Reservation

Corridors in Shannon and Jackson Counties, South Dakota

Prepared for the Federal Highway Administration

Summary Report

May 2003

ICF Consulting
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OVERVIEW

This study focuses on the Pine Ridge Indian Reservation in South Dakota, an area with limited private economic activity and a transportation network that suffers from chronic under funding of construction and maintenance needs (as determined by the Bureau of Indian Affairs). The transportation conditions facing Pine Ridge Reservation do not currently support opportunities for economic development. Specifically, the sub-system of the reservation transportation infrastructure needs improvement in order to provide both efficient linkages to the regional system and internal connectivity. Not only does the resulting lack of accessibility hinder residents' access to goods and services, but also the ability of the area to realize the economic gains that improved accessibility can support.

This study establishes a framework for analyzing the linkages between transportation investments and economic development by focusing the analysis on tourism, a key sector that offers great potential for economic development and that is dependent on improvements to transportation infrastructure. The study pursues a five-step approach that focuses on determining the transportation needs of the tourism sector and evaluating the economic impacts of sector development that are linked to highway investments.

Existing socio economic conditions

Pine Ridge Reservation, situated in the southwestern region of South Dakota, is home to the Oglala Lakota/Sioux. The reservation boasts a rich culture and history, as well as stunning natural scenery. The north part of the reservation includes the South Unit of Badlands National Park, which is an area of dramatic ridges, peaks, and mesas.

Despite the cultural and natural assets of the reservation, socio-economic indicators demonstrate a profound need for economic development. In 1989, Shannon County, which is entirely within the boundaries of the reservation, was the lowest-income U.S. County with 63% of the population below the poverty line (1). By 1999, this had improved only marginally, with 53.4% of the population continuing to live below the poverty line, compared to 13.2% for the state as a whole (2). According to a 1995 Statistical Brief by the U.S. Census, 18.2% of native American households living on the Pine Ridge Reservation lack complete kitchen facilities, and 58.6% do not have a telephone in their homes (3). Furthermore, there are limited opportunities for residents and visitors to spend money on the reservation, resulting in excessive leakage from the economy and limited circulation of money within the economy. The Rapid City SMA is the center of the Region's economy, accounting for 92% of total personal income and 93% of total employment in the three-county region of Jackson, Pennington and Shannon (4).

With limited resources, few reservation employment opportunities, excessive leakage of dollars from the reservation economy, elevated unemployment, and the majority of the population living below the poverty line, improving the quality of life for the approximately 20,000 reservation residents represents a challenge.

STUDY APPROACH

The study examines how transportation investments can support local economic development. As depicted in Exhibit 1, rather than starting with a set of pre-defined transportation improvements and estimating the associated economic benefits, the approach used in this study seeks first to examine the region's economic development strategy, and then to determine the transportation investments that would be needed to support this strategy. In this study, investment in transportation infrastructure is treated as a necessary, but not sufficient, condition for economic development. Our approach estimates the benefits of a realistic scenario of economic activity that could be generated in a key sector (tourism), assuming that all necessary factors have been implemented, and discusses the transportation infrastructure that would be necessary to support that sector.

Exhibit 1:Study Approach

Step 1: Assess Region's Economic Development Potential

The first step identified potential areas of economic growth at the reservation, so as to understand the potential positive impacts of investments in infrastructure. The economic development projects in the reservation region that are currently at some stage of progress were assessed, with the objective of determining the focus of the economic benefits to be measured. This involved site visits to Pine Ridge, interviews of key local officials, and reviews of relevant studies and data.

Findings

Projects identified were in the following sectors: tourism, manufacturing, waste management, and services (including business, education and health). In consultation with local stakeholders, [1]the following measures were identified as goals of economic development for the Pine Ridge Reservation:

• Job creation
• Increase the numbers of businesses
• Increase revenues to tribe
• Increase 'turnover' or 'circulation' of dollars within the reservation
• Improve access to services, e.g. education and health

Step 2: Towards An Economic Sector Strategy

The second step focused on identifying a sector that would offer economic development benefits to Pine Ridge. To effectively examine the links between transportation investments and economic development, this sector should represent an area in which transportation improvements could play a key role. In consultation with local stakeholders, economic development projects and plans for the study area were reviewed. Once a sector was identified based on a review of local economic data, additional research of comparable data was conducted to determine the potential of the selected sector to generate economic gains.

Findings

In consultation with the stakeholder group, it was determined that this study should focus on the tourism sector and its linkages to transportation improvements. A review of economic development projects and plans demonstrated that the preponderance of initiatives were in the tourism sector. Furthermore, analysis of relevant data supported the hypothesis that tourism offers the potential for economic benefits to Pine Ridge.

Capitalizing on assets: Tourism Development

There is a strong regional tourism market in Southwestern South Dakota from which Pine Ridge can draw. The combination of such nearby destinations as Badlands National Park, Crazy Horse Memorial, Mt. Rushmore, the Black Hills and Wall Drug (a mega tourism shop) attract more than two million visitors each year. As shown in Exhibit 2, these tourists have higher levels of expenditures than do tourists in any other region in South Dakota.

Exhibit 2:Visitor Expenditures by Volume and Regional Share

Furthermore, Pine Ridge itself boasts notable cultural and natural resources, which include the rich Oglala Lakota/Sioux culture, the stunning South Unit of Badlands National Park, the historically significant site of the Wounded Knee massacre, the Prairie Winds Casino, and the proposed Lakota Heritage and Education Center.

Despite such on-reservation and nearby assets, tourism is limited at Pine Ridge, and the economic benefits to Pine Ridge from tourism are minimal. Although the South Unit of Badlands National Park, which is in the reservation, offers views that are equal to those of the North Unit, which is not in the reservation, the North Unit receives 27 times more visitors than does the South Unit. Much of the reason for this disparity can be traced to the fact that the North Unit's infrastructure supports tourism, while the South Unit has almost no such infrastructure.

The lack of visitation at Pine Ridge converts into limited spending, a pattern compounded by the lack of opportunities that exist for tourists to make purchases. Unlike nearby tourist areas, there are few hotels, motels, restaurants, gift shops or other tourism-related goods and services located on the reservation. Current visitor sales for lodging, eating and drinking establishments (including non reservation spending) in the Pine Ridge Counties of Shannon and Jackson are $480,241 and $6,467,501, respectively. This compares to $151,685,199 for the adjacent Pennington County, where Mount Rushmore, the North Unit of Badlands National Park and Wall Drug (a retail tourism related store) are located. Indeed, Wall Drug alone, which lies within 20 minutes of the northern border of the reservation, takes in more than $10 million a year and draws some two million annual visitors (5).

Past and current initiatives show that local stakeholders envision the potential of tourism as an economic driver at Pine Ridge. These initiatives include: 1) Lakota Heritage and Education center, which would also serve as a visitor center to the South Unit of Badlands National Park; 2) expanded Prairie Winds Casino; 3) establishment of a second casino, near I-90; 4) guided driving circuits, such as the Crazy Horse Scenic Byway; and 5) appropriate treatment of the Wounded Knee site.

The tourism sector represents an area in which transportation improvements could play a key role. Local stakeholders also requested that accessibility to basic goods and services not be ignored in this study, as it is such an important element in both economic development and transportation. Infrastructure improvements and economic growth that support tourism would also bring substantial benefits to basic accessibility.

Assessing the potential of the tourism sector: projected visitation

The number of visits is the key driver of both the transportation analysis and the calculation of economic benefits for this study. Therefore, considerable time was spent in projecting the number of tourists that could be expected given a fully developed tourism sector. Sources of this projection included: 1) analyzing current visitation to regional tourism attractions, (6); 2) reviewing related forecasts from feasibility studies for the Lakota Heritage and Education Center and the Prairie Winds Casino expansion; and 3) obtaining comparable statistics from other Indian reservations and state tourism agencies, e.g. Hualapai Nation, AZ, Navajo Nation, AZ; and Great Lakes Inter-Tribal Council, WI, Yakama Nation, WA.

Drawing on the above information, it was projected that by year 15, visitations would be comparable to the current Badlands National Park visitation of approximately one million visitors per year. As discussed under Step 3 (below), this visitation estimate was then used to derive an estimated Average Daily Traffic (ADT). The projected traffic volume was then used to determine the adequacy of the current road infrastructure to accommodate increased tourism traffic and to assess the infrastructure upgrades that would be necessary.

Step 3: Assess Transportation Needs And Investments Relevant To Economic Sector

The inadequate transportation conditions facing Pine Ridge Reservation do not currently support economic development. Although there is a good regional network of roads serving the larger area, including Interstate 90 and the planned Heartland Expressway (a project that focuses on widening SD 79 from a two to a four lane facility), the sub-system of the reservation's transportation infrastructure needs improvement in order to provide efficient linkages to the regional system and to provide internal connectivity, particularly east-west. There is a chronic short- and long-term under-funding of construction and maintenance needs. [2]

To determine the transportation investments that are needed to support the economic benefits associated with a mature tourism sector, discussions were held with the key transportation stakeholders, including representatives from the Bureau of Indian Affairs Indian Reservation Roads program, Oglala Sioux Transportation, Federal Highway Administration, and South Dakota Department of Transportation (SD DOT). In addition, the following key transportation planning documents that are relevant to the area were reviewed: the Statewide Transportation Improvement Plan (STIP), the Indian Reservation Roads Transportation Improvement Plan (IRR TIP), the Heartlands Expressway Feasibility Study, and the Crazy Horse Scenic Byway Proposal.

Based on these consultations and document reviews, and in combination with an understanding of the locations of key potential tourism attractions, it was determined that the following routes would form the basis of a transportation network that would serve tourism on the reservation: SD 18, 73, 44, 79 and BIA 2, 27, 28, 33 and 41.

To gauge the impact of the increased tourism visitation on the network, the analysis involved estimating the average daily traffic (ADT) at the upper limit of visitation. That upper limit is expected to occur in the peak tourism month (August) in the final year (year 15) of this study's projections (please refer to Exhibit 3).

Exhibit 3: Estimating Peak Monthly Traffic Volume

1. Estimate Year 15 Annual Traffic Volume

2. Estimate Year 15 Peak Season Monthly Traffic Volume.

3. Determine monthly ADT

The projected increased traffic volume of 5,200 ADT was then applied to the key state and local roads mentioned above so as to ascertain whether these roads, in their current conditions, could sustain such an increase in traffic, and the levels of investments that would be needed to provide adequate levels of service to tourists, residents, and other users.

Regional/State Roads

At the regional level, the impacts of increased ADT in terms of necessary improvements and investments were discussed with South Dakota DOT, taking into account improvements that were already planned and detailed in the statewide transportation improvement plan.

Local/BIA Roads

Given the current under-funding of construction and maintenance of BIA IRR roads, it was expected that increases in ADT at the sub-system level (BIA on-reservation roads) would require substantial investments both in terms of construction and maintenance to ensure adequate levels of service.

The impacts of increased ADT at the sub-system level were investigated using a model developed by BIA that generates estimated costs-to-improve. These costs are a function of traffic volume, road functional class, surface type, and terrain. Together, these factors are combined to arrive at an "adequacy design standard". The estimated 'costs-to-improve' represent the investments that are needed to improve the roads to specified adequacy design standards.

For the purpose of this study, the model estimated the costs-to-improve based on an increase in tourism traffic volumes, higher road functional class, improved surface type, and revised adequacy design standards. Given the higher ADTs projected, all key roads were assigned asphaltic cement concrete surfaces and elevated to Class 2 (from Class 4) in terms of their functional systems. These estimated costs-to-improve associated with the tourism sector were then subtracted from BIA's previously established baseline estimated costs-to-improve (which were based on the expected growth in traffic volume over the period without the potential effects of the projected growth in tourism) to yield marginal construction costs invested in Year 1. Final total costs were determined by adding the additional maintenance costs over the fifteen-year period to the additional construction costs.

Findings

Regional (System)

Based on feedback from SD DOT, it was determined that the regional system of roads (SD 18, 73, 44, 79) could adequately support the projected increase in traffic. Per SD DOT, the threshold for major road improvements (e.g., widening from 2 to 4 lanes) is traffic volume above 6,000. SD DOT believes that the projected increases in traffic from a mature tourism sector may eventually require improvements to turning lanes and signage, and these potential needs can be examined once the traffic flow increases.

Local (Sub-System)

Using the BIA 'estimated costs-to-improve' model, the marginal costs-to-improve for BIA Routes 2, 27, 28, 33 and 41 were projected as $61,326,000 (using a 7% discount rate). It was also estimated that $11,982,000 would be needed over the 15-year period to fill the current funding gap in maintenance of $3200 per mile (BIA current maintenance costs are $1300 per mile compared to needed maintenance costs of $4500 per mile). As shown in Exhibit 4, this study estimates that a total of $73,308,000 in transportation investments (construction plus maintenance) would be required to provide adequate service.

Exhibit 4: Construction and Maintenance Costs Associated with Tourism Traffic ($000ms)

Features of an improved road network would include better pavement quality, road dimensions and characteristics, lighting, and signage.

Step 4: Analyze Economic Benefits of Tourism

To estimate the economic benefits of a mature tourism sector to the reservation, a spreadsheet model was used that estimates visitor spending in the region and uses multipliers to project secondary effects. The analysis sought to derive an estimate of: 1) the number of jobs created, additional income, and additional sales revenue generated from the additional tourists, and 2) the secondary effects on the local economy.

The study estimated the economic impact of visitor spending on the reservation economy that could be associated with a growing tourism sector over a 15-year period. For this part of the analysis, the Michigan Tourism Economic Impact Model (MITEIM) was used. This model is especially well suited to assess the effects on increased tourism in rural areas with limited economic development. [3]

Developed at Michigan State University, the model relies on specific profiles of visitor spending (either default values or project-specific profiles can be used) for each type of traveler, each of which is a "visitor segment." The types are divided according to whether the visitor stays at a hotel, camps, or is simply a day visitor. Surveys show that these segments have different spending profiles. The spending profiles are used to estimate total direct spending by visitors and are then combined with a set of sector-specific multipliers to produce an estimate of secondary and, then, total economic impacts of visitor spending. The model estimates spending in up to 12 categories for as many as 12 visitor segments.

In sum, using the number of visits projected, the breakdown of visitor segment, and the average spending per visitor (by segment), the model applies economic ratios and multipliers to derive an estimate of direct, secondary, and total effects measured in terms of jobs, sales, total income, and value added.

Determining model inputs

Using a series of assumptions for each input, the study projected the number of visits over the 15-year period, the breakdown of visit segments, and associated spending per visit. The following assumptions were made for this study:

• Visits:the number of visitors increases as more tourism facilities and attractions are developed, arriving at final-year visitation that is comparable to the current visitation of approximately 1 million at the Badlands National Park. (Note that this study does notproject that the reservation will receive the far-higher number of visitors that go to Mt. Rushmore).
• Visit segment:the percentage of total visitors who spend one night or more at the reservation increases over the 15-year period, as the reservation offers more options to overnight visitors.
• Spending:the average spending per person increases over the 15-year period, as the local economy becomes more complex and offers more opportunities for visitors to spend.

Findings

As shown in Exhibit 5, at the end of the 15-year analysis period, the cumulative economic benefits of a mature tourism sector are estimated at $153,026,000 (using a 7% discount rate). By 2020, job created would be 1,375.

Exhibit 5: Economic Benefits of a Mature Tourism Sector ($000ms)

To capture the increasing economic benefits over the period, it is anticipated that the tourism sector on the Pine Ridge Reservation would mature to offer a range of goods and services that could include the following: restaurants; hotels; arts and crafts shops; other goods and services located in the main centers of economic activity (e.g., retail); development of related industries that are needed to support the tourism industry through backward linkages (e.g., linen services and food producers); and tourism-related services (e.g., travel services and tour operators).

Though the businesses and institutions offering goods and services are not tourism attractions by themselves, their development is key to supporting a thriving tourism sector. Thus, as the economy becomes more complex and offers more opportunities for tourists to spend, the economic benefits rise over the 15-year period, generating the extent of direct and secondary effects estimated by the analysis.

Step 5: Linking Economic Benefits To Transportation Investments

Improvements in transportation infrastructure represent one of the key investments that would support development of a successful tourism sector. The study assumes that without the identified highway improvements, a mature tourism sector at Pine Ridge would not develop. Capturing the full benefits of tourism is therefore linked to and dependent on these transportation improvements. However, as highway economic development studies have shown, improved highways need to be part of a suite of investments, programs, and policies that together can generate sustained economic development benefits. As such, the study also examines the additional features of a successful tourism sector.

Findings

To develop a tourism sector that attracts one million tourists per year, local BIA roads on the Pine Ridge Indian Reservation will need to be upgraded and maintained. Therefore, realizing the full economic benefits of a mature tourism sector is, in part, dependent on transportation improvements that form a core tourism asset network (see Exhibit 6).

Exhibit 6: Pine Ridge Reservation and Vicinity: the Badlands are on the Northern Border of the Reservation and the Black Hills, Rapid City and Mt. Rushmore are just Northwest of the Reservation. I- 80 is Just North of the Reservation Serves Rapid City

By enhancing accessibility to the Pine Ridge Indian Reservation and internal connectivity within the reservation, transportation improvements can help the reservation capitalize on its comparative advantage in tourism. Improved accessibility will support an increased number of tourists and total spending within the local economy, enhance residents' access to basic goods and services, and support the long-term development of other industries, thereby promoting economic development.

Nonetheless, transportation improvements, by themselves, will not bring about the projected economic benefits. Other actions that will need to be taken include: full development of "anchor" destinations; implementation of a communications and marketing strategy; and creation and organization of local tourism related institutions. As a result, the full costs of developing the tourism sector are greater than the $73 million in transportation investments that this study estimates as necessary.

On the other hand, the full benefits of those transportation investments are also not captured here. Other benefits from such investments (not analyzed in this study) include: better access to basic goods and services, including health and education services and greater support for non-tourism economic activities. As a result, the full potential benefits of the transportation investments that are needed to support a mature tourism sector would be greater than the $153 million that this study estimates from tourism alone.

SUMMARY

Insufficient transportation infrastructure is one of the key obstacles to the development of a tourism industry in the Pine Ridge Reservation. Elements of this insufficiency include limited access to key tourism regions within the reservation, a severe lack of informational signage and other marketing tools targeted to tourists; and poorly maintained and inadequate road conditions on the reservation. The problems with transportation combine with a lack of well-developed tourism facilities to produce a highly under-performing sector relative to its potential, in terms of economic benefits.

This study finds that, assuming implementation of a suite of supportive initiatives, a mature tourism sector at Pine Ridge could attract more than one million visitors each year, translating into an estimated total economic effect of more than $153 million over a 15-year period. By year 15, tourists would generate more than one million auto trips/year. An average of 5,200 vehicles day would be added to the reservation road network during the peak tourism month.

Local transportation infrastructure enhancements that would be needed to provide adequate levels of service include upgrading the functional class of key roads and performing adequate maintenance throughout the life-cycle of the improved roads. The costs of these transportation investments are estimated at $73.3 million.

REFERENCES

1. Aoki and Chatman. An Economic Development Policy for the Oglala Nation, Harvard Project on American Indian Economic Development, Harvard University, 1997, Book 2, Page 7; citation from County Income and Poverty Estimates; 1990 Census Estimates: South Dakota, 1989.
2. United States Department of Commerce, Census Bureau. Census 2000.
3. U.S. Department of Commerce. Housing of American Indians on Reservations - Equipment and Fuels. Bureau of the Census, Economic and Statistics Administration, April 1995.
4. Propst, Dennis, Stynes, Daniel and Sun, Ya-Yen. Economic Impacts of Badlands National Park Visitor Spending on the Local Economy, 2000 Michigan State University, January 2002.
5. New York Times, 1999 as posted on the Wall Drug website, http://www.walldrug.com/

[1]A key feature of the study was the establishment and involvement of a stakeholder advisory committee. Members included economic development and transportation officials from the Oglala Sioux Tribe (OST); the superintendent of Badlands National Park; the Director of the local Empowerment Zone; representatives of the Bureau of Indian Affairs Indian Reservation Roads; the Director of the Lakota Fund, a non-profit micro-enterprise venture capital fund. Local representatives of FHWA were also involved, as was South Dakota Department of Transportation.

[2]The Bureau of Indian Affairs Indian Reservation Roads (IRR) program oversees the local road system.

[3]The model has been applied previously to visitation at Badlands National Park.