Measuring Economic Impacts: Science, Art or Voodoo? Presentation to URBPL 5/6020 Jan Crispin-Little, Senior Economist Bureau of Economic and Business Research University of Utah April 12, 2005

4/12/2005Jan Crispin-LittlePage 2 What is Economic Impact? The effects that occur when the level of business activity within a region changes Effects can be negative or positive Economic impact analysis measures the degree of change

4/12/2005Jan Crispin-LittlePage 3 Economic Impact Process Customers outside the region send income to the region Local Business Employs residents of the region Purchases inputs from other local firms Increases Employment Increases Income Increases Output Injection of Income Economic Impacts Local Spending Leakage

4/12/2005Jan Crispin-LittlePage 4 What is measured….. Business Output: Full (gross) level of business revenue (costs of labor, materials, and net business profit Value Added: Sum of wage income and corporate profit. Roughly equivalent to Gross State Product Jobs: Full-time, part-time, self-employed and partners Income/Earnings

4/12/2005Jan Crispin-LittlePage 5 Impacts Are Measured With Input-Output Models Most Commonly Used: Most Commonly Used: –RIMS II – developed by the Bureau of Economic Analysis –ImPlan – developed by the U.S. Forest Service –REMI – developed by Regional Economic Models, Inc. ALL IMPACT MODELS ARE DATA HOGS!!

4/12/2005Jan Crispin-LittlePage 6 From RIMSII Handbook, Final Demand Multipliers for the Food Products Machinery Industry, Kansas City, MO-KS Economic Area

4/12/2005Jan Crispin-LittlePage 7 Language of Economic Impact Direct Effects: Direct Effects: –Purchases of goods and services from local suppliers –Firm employment –Wages, salaries and benefits paid to employees of the business

4/12/2005Jan Crispin-LittlePage 8 Language of Economic Impact Secondary Effects Secondary Effects –Indirect Effects: changes in sales, income and jobs in sectors within the region that supply goods and services to the firm. –Induced Effects: The increased sales within the region from household spending of income earned by employees of the firm and spending of income earned by individuals employed in supporting sectors

4/12/2005Jan Crispin-LittlePage 9 Language of Economic Impact Calculating Total Effects $250,000 Direct Effect + $320,000 Secondary Effects = $570,000 Total Effect This would result in a multiplier of 2.28 $570,000 ÷ $250,000 = 2.28

4/12/2005Jan Crispin-LittlePage 10 Nuts and Bolts of the Analysis Step 1: Identify the Study Activity Step 1: Identify the Study Activity – Will the activity really impact the economy? If yes….. –Assessments may be Ex Ante: the likely impacts of a hypothetical action, i.e. new soccer stadium or increased state spending for Medicaid Ex Post: the impacts associated with an ongoing activity, i.e., impact of a university

4/12/2005Jan Crispin-LittlePage 11 Nuts and Bolts of the Analysis Step 2: Identify a reasonable area of interest –What area will be affected County, Multi-county, State, Region, Country –Make the area reasonable County level is the smallest regional area Small areas typically have smaller multipliers More difficult to track revenue and spending Greater leakage, smaller impacts

4/12/2005Jan Crispin-LittlePage 12 Nuts and Bolts of the Analysis Step 3: Gather Data Step 3: Gather Data –Employment Full-time and part-time –Wages, salaries and benefits –Sources of revenue Local vs non-local = export ratio –Spending patterns Local vs non-local

4/12/2005Jan Crispin-LittlePage 13 Nuts and Bolts of the Analysis Step 4: Model Time!!! Step 4: Model Time!!! –Put purchases into appropriate industrial sectors –Include only purchases from local vendors –Apply trade margins –Apply export ratio to local purchases –Apply export ratio to employment and wages

4/12/2005Jan Crispin-LittlePage 14 Results The results will be in the form of: Changes in Employment Changes in Income/Earnings Changes in Output

4/12/2005Jan Crispin-LittlePage 15 University Impact Study 1. Identify Study Activity 1. Identify Study Activity University Operations Technology Transfer State-sponsored Construction 2. Define Study Area 2. Define Study Area State of Utah to include U of U and USU spending

4/12/2005Jan Crispin-LittlePage 16 University Impact Study 3. Data Collection 3. Data Collection –Revenue Annual Reports Interviews with department heads to identify “new money” –Non-resident student tuition, university press, bookstore sales, non-resident student living, Red Butte Gardens, Athletic Departments, Extension Services

4/12/2005Jan Crispin-LittlePage 17 University Impact Study Revenue Source Combined Revenue Non-Local Revenue Patient Services $620,460,000 $250,375,147 State Appropriations 351,869,756 0 Federal C&G 321,443, ,443,696 Sales and Services 273,849, ,582,170 Tuition and Fees 155,152,409 40,294,266 Auxiliary Enterprises 96,133,680 8,255,391 Other Revenue 77,163,798 33,452,650 Agency C&G 73,776,612 73,776,612 Private Gifts 64,041,722 64,041,722 State/Local C&G 24,624,368 0 Capital Grants and Gifts 11,927,103 11,927,103 Adds to Endowments 8,159,657 8,159,657 TOTALS $2,078,601,989 $981,308,414 EXPORT RATIO: $981,308,414 ÷ $2,078,601,989 = 47.2% Revenue Analysis Source: University of Utah, Utah State University; calculations by Crispin, BEBR 2005

4/12/2005Jan Crispin-LittlePage 18 University Impact Study Total Local % Made Spending Spending Locally University of Utah $1,478,937,000 $1,066,723, % Utah State University 372,047, , % Totals $1,850,984,699 $1,357,562, % New money supported $640,769,542 of combined University purchases from local vendors. Spending Analysis $1,357,562,589 x 47.2% = $640,769,542 Source: University of Utah and Utah State University. Calculations by Crispin, BEBR

4/12/2005Jan Crispin-LittlePage 19 University Impact Study Sector Local Purchases Trade Margin Modification Export Ratio Modification Output Multiplier Output Generated Utilities$17,095,599 $8,069, $14,666,438 Electronic Man.781, , ,267 Printing3,990,082 1,883, ,675,673 Wholesale Trade36,852,8597,370,5723,478, ,961,9945 Retail Trade25,348,6698,872,0344,187, ,945,970 Broadcasting9,744,449 4,599, ,378,596 Information Svcs1,723, , ,774,018 Professional Svcs30,902,772 14,586, ,447,043 Food Svcs11,943,634 5,637, ,814,363 Payroll605,852, ,962, ,628,095 Total$744,234,776$698,275,854$329,586,203$484,040,457 Direct Impact$329,586,203 Indirect and Induced$484,040,457 Total Output Impact$813,626,660 Sample Output Calculation

4/12/2005Jan Crispin-LittlePage 20 University Impact Study University of Utah and Utah State University Summary of State-Wide Impacts Operations, Construction and Technology Commercialization 38,867 jobs in Utah $1.25 billion in wages $2.2 billion in business output $101 million in state tax revenues $18.2 million in local tax revenues Impact Analysis Summary

4/12/2005Jan Crispin-LittlePage 21 Words of Advice Be Conservative Be Conservative –Make your work defendable Be Honest –Integrity, Integrity, Integrity Be an Educator Be an Educator –Economic Impact is loosely used Be Clear and Concise Be Clear and Concise –An educated lay person should “get it”