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Potential Impact of Increased Smoking Restrictions in New York City December 2. 1994 0 Sponsored by: United Restaurant, Hotel. Tavern Association of New York Stare t.~ 0 ~ Price Waterhouse LLP w ~ ~ ~ ~ cr~

Potenval lmpact ot Increased Smoking Restrictions in New York City I Executive Summary The City Council has proposed an ordinance that would increase smoking restrictions in enclosed public places in New York City. This ordinance. entitled the "Smoke-Free Air Act," would further restrict smoking in restaurants. hotels. convention halls, sports arenas. and other public meeting places. ` Increased smoking restrictions could motivate consumers to redirect their expenditures, decreasing retail and service expenditures in the city. Given that smokers represent a significant portion of residents and visitors to the city, these shifts in consumer spending could negatively affect the economy. Price Waterhouse LLP ("Price Waterhouse") analyzed the potential impact of increased smoking restrictions on the followina: •  Eating Places  Hotels and Motels  Visitor and Convention Delezate Expenditures To assess the potential economic impact of increased smoking restrictions, we surveyed management of businesses within these areas. We asked survey respondents how their businesses would be affected if the City Council increased restrictions in enclosed public places. Restaurant management is responsible for enforcing current restrictions while meeting customer demand for smokinQ and non-smoking sections. Therefore, restaurant owners and operators can be expected to be able to assess the potential shifts in customer behavior resulting from increased smoking restrictions. Additionally, hotel management is able to t sess the behavior of their customers because customers convey their preferences when aking room reservations and entertainment plans. - At the time of this report. the City Council is drafting the specific smoking restrictions for the proposed Smoke-Free Air Act. Our survey findings are intended to measure the magnitude of the potential impact of increased smoking restrictions on the economy of New York City. The results of our survey indicate that increased smoking restrictions are expected to have a.neQative effect on sales. ~ © ~ 'The City Council is drafting the specific restrictions of the proposed Act. Proposed restrictions include a ~ smoking ban in enclosed public places. separate areas with ventilation systems. and increased percentages of area W seating capacity banning smoking. ~' ~ to Price Waterhouse LLP Ot C

Potential Imoact of Increased Smoking Restrictions in New York Citv 2 Eating Places The Bureau of the Census estimates that approximately $5.1 billion in sales were generated from 10,335 eating places in New York City in 1992. These eating places had, on average, approximately 11 employees per outlet for a total of 114,401 emplovees throughout the city. From the results of our survev, eating place management indicated that, on average, parties with smokers eenerate 37.0 percent of their total annual sales. Respondents also indicated that smokers constitute 35.1 percent of their customers. We found that 36.0 percent of restaurant owners and managers expected that increased smoking restrictions would cause a decrease in sales. Approximately 54.3 percent of respondents did not expect a change in sales. Only 6.7 percent of respondents thought that increased smoking restrictions mizht increase sales in their establishments. On average, respondents expected an approximately 8.1 percent decrease in sales if the City • Council enacts increased smoking restrictions. In Figure 1, we present the potential impact of _ this expected loss of sales in New York City. Figure 1: Estimated Losses in New York City Expected by Eating Place Survey Respondents Category 8.06 Percent Decrease in Consumer Expenditures Lost Sales ($mti) $410.1 Lost Payroll (Smti) $117.3 Lost City Sales Tax Revenue (Smii) $16.4 Last Jobs I 9,217 Basea an 1992 aata trom tne cureau at tne t:ensus. Saies tax revenue was oemeo from tax uuormation provmea oy tne City of New York Oeoartment of Finance. We have assumea a linear retationsnro between oecreases in saies and payroU. tax revenues. and empmvment. The results of our survey indicate the opinions expressed by restaurant owners and managers. Actual losses sustained from increased smoking restrictions would depend on the specific restrictions put in place and consumer responses to these restrictions. In Figure 2, we provide the potential economic effects of increased smoking restrictions on New York City for a range of sales declines from 1 to 15 percent. Price Waterhouse LLP ~

Potentiat Impact of Increased SmoKmg Restrictions in New York City Figure 2: Potential Impacts of Decreased Sales in Eating Places provmea oy tne wty ot New rarK Oepartment ot rmance. ~Ye Basea have on 1992 a G near data near irom tne relationship nureau or between (ne ~ensus. decreases in aaies sales tax and revenue payroll. was tax aerivea revenuesL from tax and information employment. Hotels and Motels ~The Bureau of the Census estimated that approximately 52.1 billion in sales were generated From 315 hotels and motels in New York City in 1992. These hotels and motels averaged approximately 100 employees per outlet for a total of 31,347 employees. Increased smoking restrictions in the city could reduce the business volume in these establishments and potentially cause job losses and reduced tax revenues. From the results of our surn•e~• of hotel and motel management. respondents indicated that. on average, parties with smokers generate 45.2 percent of their sales. Respondents also indicated that -I8._ 'percent of their customers smoke. We found that 25.7 percent of establishments expected that increased smoking restrictions would cause a decrease in sales. Approximately 66.3 percent of respondents did not expect a change in sales. Only 3 percent of respondents thought that increased smoking restrictions misht increase sales in their establishments. e 3 Category - 1 Percent - 5 Percent - 10 Percent - 15 Percent Lost Sales ($mil) $50.9 $254.5 $508.9 $763.4 Lost Payroll I$mill $14.6 $ 72.8 $145.5 $218.3 Lost City Sales Tax Revenue I$miil $2.0 $10.2 $20.4 $30.5 Lost Jobs 1,144 5,720 11,440 17,160 Price Waterhouse LLP . ft

Potenttal Impact of Increased Smoking Restrictions n New York City 4 On average, respondents expected a 5.8 percent decrease in sales if the City Council enacts increased smoking restrictions. In Figure 3, we present the potential impact of the expected loss of sales on New York City. Figure 3: Estimated Losses in New York City Expected by Hotel and Motel Survey Respondents 5.80 Percent Decrease in Category Consumer Expenditures Lost Sales (Smii) Lost Payroll (Smii) Lost City Tax Revenue ISmii1 Lost Jobs • $123.3 $40.6 $10.6 1,815 asea on t data tram tne oureau or tne Census. i ax revenue was aerrvea tram tax inrornration aroviaea by tne l.ity of New York Oepartment of Finance. We have assurnea a linear relattonship between aecreases m sates and payrotl, tax revenues. and emproyment. In Figure 4, we provide the potential economic effects of increased smoking restrictions on New York City for a ranQe of sales declines from 1 to 15 percent. Figure 4: Potential Impacts of Decreased Sales in Hotels and Motels Category J- - 1 Percent ( - 5 Percent I - 10 Percent Lost Sales (Smi1) I $21.3 ~ $106.5 $212.9 Lost Payroll ($mii) Lost City Tax Revenue ($mil) $7.0 1 $35.1 1 $70.2 $1.8 1 $9.2 f $18.4 Lost Jobs I 313 1 1,567 1 3,135 - 15 Percent $319.4 $105.3 $27.6 4,702 Basea on 1992 data trom tne 6ureau ot tne i.ensus. : at revenue was aerrvea rrom tax iniormation proviaea oy tne tity or New toru Oepartment ot Finance. We nave assumea a linear relationship between decreases in sales aea payroll. tax revenues, and ertipioyment. s Price Waterhouse LLP

Potential Impact of Increased SmoKing Restrictions in New York City Visitor and Convention Delegate Expenditures Visitor expenditures contribute significantly to the economy of the city. Accordina to the New York Convention & Visitors Bureau, Inc. (NYCVB), approximately 24.4 million visitors, includina 5.6 million foreign visitors, traveled to the city in 1992. These visitors spent a total of 510.5 billion in the city. Convention and convention delegate spending are an important component of visitor expenditures in New York City. The NYCVB estimates that approximately 2.2 million delegates attended 597 conventions in the New York City in 1992 and spent a total of $1.7 billion. We did not conduct a survey to address expenditures within this sezment of the economy. However, aiven the magnitude of visitor and convention deleQate spending, even a relativelv small percentage decrease in expenditures could cause a significant reduction in economic activity in New York Cit}•. For example. for each one percent reduction in visitor ~ expenditures. we estimate that businesses in the city could lose S105 million in sales. For a one percent reduction in delegate spending we estimate that businesses in the citv could lose $17.4 million in sales. In addition. the NYCV B estimates that 131.000 jobs are supported by visitor spending in the city. It is possible that a decrease in visitor spending could reduce the number of these jobs. Consequently. New York Cin• could lose a significant source of income taxes as a result of increased smokina restrictions. 0 t1Z v ~ c?.a ~ ~ ~ Price Waterhouse LLP 00 ~ \IIP ~