Economic Impact Analysis Analyze – Negotiate – Close!

Definition Economic Impact Analysis… Is the projection of the direct, current, public costs and revenues associated with growth to the local jurisdiction(s) in which this growth is taking place.

Why? To avoid being the 5 th member of the “Star Trek landing party” Economic Impact Analysis uses your technical skills to guide the local leadership into sound decision making

Methodology Marginal Costing Comparable Community Average Costing

If you come in contact with a company who can’t explain in one sentence what their company actually does…..be very afraid

Marginal Costing Good: Relies on demand /supply relationships of local service providers Bad: Can lag or lead Average Costing practices Example: Community Population: 7,700 Police /Resident Ratio: 1:400 (19.25 Policeman) Currently 20 policemen on force New company raises population by 220 (19.8 Policeman) No real cost to community safety?

Comparable Community Good: Provides Real Life Examples for Comparison Bad: Extremely Time Consuming and /or Expensive Example: Community Population: 7,700 /19.25 Policeman New company raises population by 220 (19.8 Policeman) Community B: 8,500 people /22 Policeman Community C: 5,500 people /16 Policeman Community D: 10,000 people /25 Policeman

Average Costing Good: Creates the best average allocation of costs in the short term Bad: Works well in general rather than specific situations. Example: Community Population: 7,700 Police Budget: $2,800,000 or $286/person Currently 20 policemen on force New company raises population by 220 Assigned cost: $286*220 people = $62,857

Key Point In the extremely long run, the Marginal Cost, Average Cost and Comparable Communities Methods will yield similar estimates of economic impact analysis. Yet, Average Costing produces defensible results with the minimum amount of demand on your time.

Adelphia Communications? The owner and his two sons took $1,000,000,000,000

Key Constraints to Remember Percentage of new employees building homes: 20% (National Studies) Value of homes as a factor of income: 2.3 Percent of new employees assumed to be residents: 32.3% After-tax income available for non-essentials 33% Propensity for local resident consumption: 85% Propensity for non-resident consumption: 10%

Projecting Revenue What You’ll Need –Assessing Practices –Tax Rates –Investment by Category Land Real Personal

Assessing Practices Real, Personal, Land Purchase Value = Market Value Conversion Factors (100%, 50%, 33%) of market value Personal Property Depreciates over time depending upon usable life to a residual value. Example: Company A purchases a new piece of equipment. Purchase Value: 14,579,600 Assessment Rate: 100% Net Value: $14,579,600

Taxing Practices Levied by multiple jurisdictions (city, county, schools, state, etc.) but at a consistent rate Rate is either $/100 of assessed value or $/1000 of assessed value (mills). Often quoted as a percentage Tax Rate: /100 Tax Burden: $214,407

Sample Revenue Project $3,920,400 in land $16,500,000 in Property $14,579,600 in Machinery & Equipment Total = $35,000, average pay of $49,000 Property Tax Rate is $15/1000 (1.4% or 0.15) Income Tax Rate is 5%

Dennis Kozlowski ? (Tyco Corporation) $16,000 to purchase an umbrella stand, and a $6,000 shower curtain

Projecting Costs What You’ll Need –Your Most Recent Non-Grant, Non-User Fee, Budget for the Unit of Government –Population Figures from the same year –Incentive Package

Sample Costs 24,331 residents $12,606,905 General Fund Budget $518 /resident

Sample Costs 120 jobs 32.3% will be residents 39 new residents 3.30 people /household 129 new residents Additional Costs are: 129*518 = $66,822/year

Secondary Benefits Distribution of New Jobs Average Expendable Income Propensity to Consume Locally Industry /Communit y Specific Multiplier Economic Benefit Residents120*32.349,000*33%85%1.96%$1,044,164 Non- Residents 120*49,000*33%10%1.96%$697,250 Total Secondary Benefits$1,741,414

In college, my economics class was taught at 8:00am which really didn’t work for me

Secondaries Bankability –Only directs can be banked for improvements Challengeability –Different assumptions yield different results Credibility –I’d rather be known as conservative than exaggerating

Tips on Multipliers Industry vs. Community Specific Best Sources: –REMI (Community) –Bureau of Economic Analysis (Industry)

Key Decision Parameters IndicatorFormula Cost /BenefitDirect Revenues /Direct Costs Incentives /JobIncentives /Number of Jobs ROIPrivate Investment /Public Investment Incentives /Wages Ratio Total Incentives /Total Wages Break Even PointTotal Incentives /Net Annual Revenue

End of Presentation