Tobacco buyout should mean double in Pitt

By Brian McDearmon, The Daily Reflector

Tuesday, June 21, 2005

The federal tobacco buyout will bring more than $200 million to Pitt County in the coming 10 years, but economists disagree on how thatmoney will impact the local economy.

Michael Walden, an economics professor at NC State University, said every dollar of buyout money will create another dollar's worth of economic impact. Walden also expects every $1 million of buyout money to create 20 new jobs.

"Yes, I believe this will be a major deal for Pitt County," Walden said Monday.

The $9.6 billion dollar buyout was approved by Congress last fall to compensate growers and quota owners for the termination of thefederal tobacco program, which had kept prices artificially high in the United States by limiting the how much tobacco could be grown since the 1930s.

Another economist said the buyout would have little to no effect, however.

"It may be closer to a wash than people think," John Bishop, an economics professor at East Carolina University, said.

Bishop believes the $220 million Pitt is slated to receive will be canceled out by dropping land values.

In the middle sits associate director for economic development at ECU's Regional Development Office, Dick Brockett, who believes the upshot from the buyout will be somewhere between Bishop and Walden's assessments. The impact will be more of a blip than a spike, he said.

The impact of buyout dollars on the local economy hinges on the waythey are used – whether recipients spend their money on consumer goods like cars and appliances, which would have the greatest impact, or putit in banks and invest in the stock market, doing little locally.

Some of the new money coming into the county also could be offsetby a drop in tobacco revenue resulting from lower crop prices.

This year, Pitt County growers are expected to produce 7 percentless leaf than last year and sell it for an average of 50 cents lessper pound, producing an approximately $12 million dip in 2005 tobaccorevenue, Mitch Smith, director of the local cooperative extensionoffice, said.

With prices and demand uncertain in the next 10 years, it's hard to estimate if cultivation revenue will go up or down.

But, despite the potential drain, Walden said he expects the buyoutwill create jobs, particularly in health care, education and otherservice industries – the sectors growing the most in North Carolina andnationally.

One caveat to Walden's prediction is that it presupposes that thosereceiving buyout checks will spend their extra cash the way the averagehousehold does.

But that likely will not be the case, Bishop said.

Gains from the buyout likely will be absorbed by the depreciation of tobacco-producing land, he said.

With the loss of that asset, many landowners will be inclined to put their money away.

"They are not richer," Bishop said," It's just changing the way they hold their wealth."

With the first checks yet to hit the mail, it is too early to guess where the money will end up, Brockett said,

"It's hard to draw a picture when you don't know how the money will be used after it gets to the individual."