Oil spill's impact: How about $10.9 billion?

Just how much might the Deepwater Horizon spill cost Florida's economy? The latest estimate from one Central Florida economist: an eye-popping $10.9 billion.

But economic studies are notorious for one potential weak link: assumptions. And indeed, with no oil having yet reached Florida's beaches, the all-important “total damages” question is far from being answered.

So Coffee Talk spoke with Sean Snaith, director of the University of Central Florida's Institute for Economic Competitiveness, to understand just how realistic his group's estimate might be.

For Snaith, it all begins with the Gulf Coast's hospitality industry.

The study's first objective was to estimate the size of the hospitality industry in the state's 23 Gulf Coast counties, both in jobs and in dollars. Snaith found that Gulf Coast hospitality contributes $12.4 billion to the state's revenues, and accounts for more than 268,000 jobs.

Next, his analysis considered two arbitrary levels of industry impact to calculate a loss estimate: a “bad” case, which assumes a 10% loss in hospitality output, and a “worse” case, which assumes a 50% drop.

A little bit of economics magic, and then — poof — Snaith suggests the 10% loss would cost Florida $2.2 billion in revenues, and more than 38,900 jobs, and that a 50% cut would cost the aforementioned $10.9 billion, along with more than 194,600 jobs.

Instead of just multiplying $12.4 billion by 50%, Snaith assumes that a portion of hospitality revenue would be reinvested in the state economy. Simple division reveals his assumption is that for every Gulf Coast hospitality dollar lost, the state could actually lose roughly $1.75.

We need to know more about the timing and scale of the oil spill's impact on Florida's coastline before firmly stating what it will cost the state. Perhaps the main takeaway from this latest study: the actual loss will be much bigger, perhaps close to double, what businesses report.