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BP oil spill: Claims can't make up losses for many Gulf residents

The BP oil spill has cost the company almost $150 million and counting in compensation for damages to Gulf Coast workers and businesses. But replacing millions in undocumented income from the tourist-driven Gulf economy may prove impossible.

By Staff writer / July 6, 2010

Shrimp-seller Scott Jones, at Billy’s Seafood in Bon Secuer, Ala., says he hasn’t filed a claim to BP because he hasn’t been able to calculate future losses.

Patrik Jonsson/The Christian Science Monitor

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Orange Beach, Ala.

The US government has no idea how much money Sam Smith, a bartender in Orange Beach, Ala., socks away during the 100 days of summer that define the Gulf Coast high season. Let’s just say it’s a fair amount.

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But not this year. The BP oil spill has seen to that, as the usual stream of tourists has become a trickle. Likewise for Mr. Smith’s hours on the job and tips from customers.

BP has promised to make “whole” those whose livelihoods are curtailed because of the gargantuan spill. But now the claims process is being taken over by Kenneth Feinberg, the Obama-appointed manager of BP’s $20 billion escrow account aimed at settling damages from the Gulf oil spill, and Smith suspects that his inability to document his prior years’ earnings means his bid to recoup what’s likely to be a catastrophic loss of wages will probably be denied.

“I might not get fully compensated, but at least I’d get a check from BP,” says the father of a 10-month-old girl, who asked that his last name be changed for this story. “With the government involved, my chances of recovering what I might have made are going to be just about nil.”

Here on the bucolic Gulf – pink sunsets, sand between toes – cash-in-pocket defines the rhythms of life and commerce for Smith and many of the nearly 400,000 yearly and seasonal tourism workers, as well as tens of thousands of fishermen and dockworkers.

At least $1.4 billion of income is likely kept off the books every year along this stretch of Texas, Louisiana, Mississippi, Alabama, and Florida – a system that’s prevailed for generations on well-worn docks and restaurant patios, far from the eyes of IRS agents.

With tourism business down by 80 percent along much of the oil-tainted coast, those least able to handle a crimp in wages are likely to be hit hard under any new Gulf Coast-Feinberg Fund guidelines. The reality is that BP’s compensation promise, with a federal administrator in charge, may fall short for the denizens of the Gulf Coast’s vast underground economy.

“The bottom line is we need to be worrying about today and tomorrow,” says Jimmie Fry of the nonprofit Legal Services Alabama, which represents low-income residents. “Let’s don’t take bread out of these people’s mouths so we can cross t’s at the IRS.”

The underground economy on the Gulf is largely unquantifiable, never captured on the IRS’s 1099 forms.

But there are educated guesses about its size. It is generally thought to make up about 10 percent of gross domestic product (GDP). The Gulf region’s tourism and fishing economy is worth $14 billion, meaning about $1.4 billion churns under the table. (The underground economy nationwide has grown to about $600 billion over the past decade, and the recession has accelerated that growth – all at a time when the government is gasping for tax revenue.)

The figure is probably bigger. The percentage of cash income going untaxed in tourist areas tends to be higher than 10 percent, says Adam Sacks, managing director of Tourism Economics, a consulting firm in Wayne, Pa.

Making matters worse, “Those people make 70 percent of their yearly income within those three months,” Mr. Sacks says. “It’s a highly seasonal income curve that’s being hit at a particularly bad time.”

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