Using Economic and Fiscal Impact Analysis to Sell Projects

Transcription

1 Wisconsin Economic Development Association Using Economic and Fiscal Impact Analysis to Sell Projects June 4, 2013 Economic Development Technical Skills Symposium Wausau, WI Prepared By: 1 Agenda for the Day 8:00 9:00 Basics of Economic Impact Analysis 9:00 10:00 Using the ESMI Model for EIA Break 10:15 11:15 Hands on EIA Work 11:15 12:15 Selling EIA Results Lunch 1:15 2:15 Basics of Fiscal Impact Analysis 2:15 3:15 Samples and Case Studies Break 3:30 4:30 Hands on FIA Work 4:30 5:30 Selling FIA Results 2 1

2 Wisconsin Economic Development Association Part One: Basics of Economic Impact Analysis June 4, 2013 Economic Development Technical Skills Symposium Wausau, WI Prepared By: 3 What we are going to tell you. 1. Economic vs. Fiscal Impact Analysis 2. Why Would You Do One? 3. Key Terms & Mistakes to Avoid 4. How Do You Do One? 5. Impact Models Available for Use 4 2

3 Differences Between Economic & Fiscal Impacts ECONOMIC IMPACT STUDIES Area: Regional, State or National Economy Measures: Changes in Jobs, Output and Earnings FISCAL IMPACT STUDIES Governments: City, County, Town or School District Measures: Changes in Revenues and Expenditures Not to Mention: Social, Environmental, Cultural & Other Impacts 5 Why do an economic impact study? Compare proposed incentive packages and public outlays is it worth it? Help sell a project to a community. Understand long term impact on a community and help plan for a major change (e.g. loss of a major employer). Fulfill statutory requirements to award incentives. Use as mitigation during an environmental review process. A version of economic impact studies can be used to identify economic development opportunities by evaluating the economic base (i.e. which industries drive your economy) and missing industries in your region. 6 3

4 Direct Effects Jobs created as a result of a particular project or change in circumstances. Example: The gain of a major employer. Tourism is a special case and could have two direct effects. Example: A new casino being built that brings in many visitors. 1. The economic activity at the casino 2. All of the visitor spending on lodging, food, transport, entertainment (other than casino), etc. 7 Indirect Effects Business to business purchases that occur within the geography causing additional impacts and rounds of spending. Example: New office occupant purchases maintenance services to clean offices. 8 4

5 Induced Effects Employees spending wages in the geography (e.g. some employees live locally and purchase groceries), causing additional impacts and rounds of spending. Example: Some employees live locally and purchases groceries from local businesses. 9 Economic Impact Total of direct, indirect and induced impacts. Multipliers This is the ratio between direct jobs and total jobs. A ratio of 2.5 means one new direct job creates one and a half additional jobs for a total of

6 Change in Final Demand & Net New Jobs Exogenous Change Money is coming in from somewhere outside of your community. Usually occurs when a community exports a good or service elsewhere (or, for tourism or retail, people bringing outside dollars into your community to spend). Change in final demand creates jobs in an industry. 11 Change in Final Demand & Net New Jobs 12 6

7 But did you think about other changes in your economy? Did you think about net new? 13 Net New Single biggest pitfall to impact studies is failing to correctly calculate net new when thinking about change in final demand. Net new is the change in final demand once you have eliminated and accounted for all other changes. 14 7

8 How will this effect other employers? Will the new guy kill the local guy? Are we just selling all this stuff to ourselves? A new convenience store only serving local demand. Is this new tourism venue going to actually bring in new visitors? How much of this activity is actually done here? People do not visit the Grand Canyon because of the new hotel they just built. $10M in auto sales means $9M goes directly to Michigan and Tokyo. It s better to use new jobs than new sales to calculate impacts. What would happen if this business went away? Net New Avoided job losses can be net new if the jobs are truly at risk. 15 Fun with Net New Case Studies: What questions should you ask? Case #1 A parts manufacturer wants to expand by 10 jobs to serve the local lawn mower assembly plant. Case #2 Your town s only hospital is just about to close and build a new facility in the adjacent county. Case #3 A big new Target regional distribution center wants to locate in your industrial park. Case #4 Your local ATV club wants the County to spend $1 million to upgrade trails to promote use. 16 8

9 How to do an impact study. 17 Three ways to actually do an impact study. 1. Do It Yourself DIY method requires that you purchase software, data or subscription service (models discussed later) and train staff. Suitable for larger communities that can devote resources and who do many analyses each year. 2. Academia Some local colleges and universities can help if they have a strong economics department. Must be Lucky and Flexible Know the right people and avoid summer and scholastic holidays or be prepared to wait. 3. Consultants Most appropriate for large high profile projects that will garner intense scrutiny. You get the value of experience and a voice to respond to criticism. 18 9

10 TOP SECRET don t tell anyone! The Forth Way Pay your WEDA dues Take this training Use your free access to EMSI!!! Never waste money on a consultant again! 19 Steps involved in doing an impact study. Step 1 Select Geography Typically a single or multi county geography is used. Can also use MSAs and even ZIP Codes (not all models allow this). Think about the project s logical economic reach. Step 2 Select & Build Your Impact Model Choose what software you will use. Purchase data specific to your geography. Step 3 Data Gathering & Qualitative Analysis Discuss project with stakeholders and project sponsor to gather information for basic inputs to model customize the model based on results. May need to adjust for earnings per worker or regional purchase coefficients based on trade margins (only applies to certain models)

11 Steps involved in doing an impact study. Step 4 Estimate Direct Impacts Figure out how initial employment levels will change in the industry affected in your economy. For temporary jobs (e.g. construction), express in jobyears. For permanent jobs, use average or final employment count. Step 5 Apply to Model Enter job change in model to appropriate industry sector or sectors Run model Step 6 Report Results or Refine 21 Economic Impact Models Available RIMS II Put out by the U.S. Bureau of Economic Analysis Very cheap! You get a table of multipliers and the rest is up to you! You must do all calculations. Least sophisticated of the big four models uses a simplified method to arrive at multipliers. Good for DIY method if only a ballpark estimate is needed

12 Economic Impact Models Available IMPLAN University of Minnesota developed for the U.S. Forest Service Perhaps the best known and most common model, used by many consultants Must purchase software and datasets separately, must purchase and update datasets manually each year Data is significantly better than RIMS II yet still some problems DIY is possible, but requires staff training 23 Economic Impact Models Available REMI By far, the most complicated and comprehensive Good for understanding broad, macroeconomic events or policy changes Probably overkill for project level analysis extremely expensive and requires Ph.D. to run and interpret Uses Steven s Technique recognized as gold standard, for multipliers 24 12

13 Economic Impact Models Available EMSI Economic Modeling Specialists also uses Steven s Technique Subscription based service includes impacts module, can also include analyses on industry composition, labor force, education programs, GIS, economic base analysis, etc. (Data geeks love it.) Can perform analysis at 6 digit NAICS code for geographies as small as ZIP codes. 25 Data Quality Issues Certain industries or situations pose special problems: Agricultural industries (production more so than valueadded processing) generally do not have good data sets available. Low Density Areas Some industries has so little presence in a region that the underlying information on earnings and output per worker are not reliable; the jobs numbers seem odd

14 Data Quality Issues Certain industries or situations pose special problems: Construction and Capital Intensive Industries May have output related multipliers that are misleading (must discount based on trade margin). Be very wary when multipliers exceed 4x. Cutting Edge Technologies there may be no appropriate NAICS categories (or other categorization), purchasing is not well understood, impacts are of a second order 27 Questions?? Michael N dolo Camoin Associates (518) x103 michael@camoinassociates.com 28 14