ECONOMIC IMPACT ANALYSIS

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ECONOMIC IMPACT ANALYSIS

• Presented by
• Mike D. Woods Suzette Barta
• Oklahoma Cooperative Extension Service
• Oklahoma State University

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can help community leaders predict changes in
local output, employment and income resulting
from a change in economic activity.
ECONOMIC IMPACT ANALYSIS
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ECONOMIC IMPACT MODELS

• Input/Output Models
• Econometric Models
• Fiscal Impact Models
• Simulation Models

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INPUT-OUTPUT MODELS

• An input/output table quantifies the transactions
  between sectors in an economy.
• Its a snap-shot of the economy for a one-year
  period.
• By understanding these linkages, we are able to
  predict how a change in one sector will affect
  the other sectors.
• Multipliers can be estimated.

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Input-Output Table
Rows Represent Sales Columns Represent Purchases
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IMPLAN Software

• A talented person could probably figure out these
  connections for an 8 sector economy.
• An economy with more than 500 sectors is another
  story.
• IMPLAN software does the work for us and
  calculates multipliers.

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Examples of Applications

• Tourists visit your town for a festival. How
  will their expenditures will impact the economy?
• A new manufacturing plant is opening in your
  town and will employ 200 people with a payroll of
  5 million. What will the total impact be?
• Your local hospital is destroyed by a tornado.
  Sixty jobs are immediately lost, but how many
  more?

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Drawbacks of I-O Models

• Does not directly assess the impact of government
  costs.
• It is a static model and does not count for the
  inherent changes over time in a dynamic economy.

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ECONOMETRIC MODELS

• A statistical method called multiple regression
  analysis is used on either time-series or
  cross-sectional data to estimate the relationship
  between various economic variables.
• The relationships estimated by this method are
  used to predict future impacts.
• Numerous software applications, including MS
  Excel, can run regression equations.

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Examples of Applications

• Across the country, urban highways have increased
  property values. How much will property values
  increase in our city?
• Through the years, increased municipal spending
  on economic development projects has been
  associated with increases in sales tax
  collections.
• Dr. Dan Rickman at OSU predicts state gross
  domestic product, employment, etc, using a
  complex type of econometric model.

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Drawbacks of Econometric Models

• Large data requirements may be restrictive.
• Knowledge of statistical methods is necessary.

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FISCAL IMPACT ANALYSIS

• An effort to estimate the impact of a development
  or land use change on local government costs and
  revenues.
• There are 4 basic procedures
• Determine population generated by growth
• Translate population into public service costs
• Project revenues induced by growth
• Compare development induced costs with revenues

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LOCI Software

• Directly assesses the impact a project has on
  government costs.
• Calculates net present value of a project.
• Calculates impact at either the county or city
  level.
• Is not as good at producing multipliers for
  income, output and employment.

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Examples of Applications

• A new housing development will raise property tax
  collections for the school district, but there
  are operating costs associated with each new
  student in the school district . What is the net
  fiscal impact for the district?
• Should the Corps of Engineers build a dam? What
  are the costs and benefits of such a project?

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Drawbacks to Fiscal Analysis

• Does not always consider secondary or indirect
  effects.
• Is concerned only with public costs and revenues
  and does not always consider private costs or
  benefits.
• Not as good at estimating income, output, and
  employment multipliers.

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SIMULATION MODELS

• A complex system that includes both an
  Input-Output model and other economic,
  demographic, and fiscal variables.
• I-O models are statica one time snapshot, but
  simulations are dynamic.
• The addition of the forecasting element allows
  economic impacts to be measured over time.

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REMI Software

• Combines the I-O model with complicated equations
  that describe the relationship between many
  economic variables.
• These equations forecast changes over time as a
  result of the project in question.
• Without these equations, REMI acts just like an
  I-O model with results similar to IMPLAN.

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Drawbacks to simulation models

• Does not always assess the impact on government
  costs.
• Due to huge data requirements, county-level
  models are not always available in REMI.
  Available at the state and regional levels.

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Comparing Models
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Bottom line

• No single model can answer all the questions.

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Important Considerations for Private Sector
Impact Measurement

• How many workers will be hired, and what is the
  expected payroll and expected value of
  production?
• What is the multiplier effect?
• When will the items listed in 1 go into effect?
• Is the new economic activity associated with the
  operation of the business or the construction?
• Will the new economic activity stimulate
  construction in related businesses, housing, and
  other sectors of the economy?

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Important Considerations for Private Sector
Impact Measurement

• Do the changes in employment, income and sales
  represent net or gross additions to the
  communitys economic base?
• How does the new economic activity compliment the
  local economic situation?
• Which people and businesses will benefit which
  will bear the costs?
• Source John Gordon in How Extension Can Help
  Communities Conduct Economic Impact Analysis,
  1982.

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Important Considerations for Govt Sector Impact
Measurement

• Within what governmental jurisdictions will new
  families live?
• How many in-migrant families are expected what
  is their expected income level?
• How many school age children are expected?
• How well will the public services and schools be
  able to handle the expansions?
• Are there migration fees to cover additional
  public service costs?

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Important Considerations for Govt Sector Impact
Measurement

• Will state and federal aid increase if population
  grows?
• When will project be completed?
• Does the expenditure estimation procedure include
  only the additional costs associated with the new
  growth?
• How will new revenues be divided between city,
  county, and school district?
• When will public expenditures for the project
  begin and when will the community begin seeing
  project-generated revenues?

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Important Considerations for Govt Sector Impact
Measurement

• Will changes in demand for services change tax
  rates or levels of service?
• Who benefits and who loses from project?
• Will tax abatements (or other inducements) be
  used to encourage this growth?
• Is the project capital or labor intensive?
• What is the probability that the firm will remain
  in the area for an extended time?

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Important Considerations for Govt Sector Impact
Measurement

• What are the income and multiplier effects of the
  new industry?
• How will this development affect state aid to
  education and local property tax revenues in your
  state?
• Source George More George McDowell in How
  Extension Can Help Communities Conduct Impact
  Analysis, 1982.

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Important Considerations Related to Non-market
Impacts

• Distribution who will be affected?
• Will effects vary geographically?
• How will different income groups be affected?
• Which economic sectors will be affected?
• Will the impacts vary over time?
• Employment Related Impacts
• Will the jobs be satisfying?
• Will commuting time and distance be affected?
• Will the jobs be permanent or will they be
  sensitive to economic trends?
• Will the workers perceive the new jobs as an
  improvement?

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Important Considerations Related to Non-market
Impacts

• Population-Related Impacts
• Demographic
• How much in-migration will occur?
• Will the newcomers be very different from the
  typical families in the community?
• What value changes might occur?
• Can the newcomers be easily assimilated into the
  community?
• Housing
• Will housing value change?
• Will housing quality change?
• What changes in housing ownership will occur?
• Will new housing be needed?

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Important Considerations Related to Non-market
Impacts

• Community Ecology
• Will communications networks be affected?
• Will religious organizations be affected?
• Will participation in community affairs be
  affected?
• Will different internal-external links appear?
• Will satisfaction with the community change?

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Important Considerations Related to Non-market
Impacts

• Political and Local Government
• Will leadership changes occur?
• Will voter participation change?
• Will public recreation facilities and use change?
• Will physical safety of workers and residents
  change?
• What short and long term health effects could
  occur?
• Source Ron Shaffer in How Extension Can Help
  Communities Conduct Impact Analysis, 1982

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Economic Impact Analysis

• What is the question you are asking?
• What data are available?
• How much time do you have to respond?
• Resources Funding?
• How will you deliver the results?

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For more info

• www.economicanalysis.com
• (IMPLAN home page)
• www.remi.com
• (REMI home page)
• http//www.ceds.gatech.edu/loci/loci_overview.html
  
• (a LOCI overview page from the Georgia Institute
  of Technology)

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For more info

• www.rupri.org/cpan/ (Rural Policy Research
  Institute Community Toolbox)
• www.rd.okstate.edu/health/ok/okindex.html (Rural
  Health Works - economic impact studies of the
  health care sector for Oklahoma counties.)

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QUESTIONS?