1. C2ER Monthly Webinar Series June 19, 2012 1 T HE C OST OF L IVING I NDEX : A PPLICATIONS FOR B USINESS AND C OMMUNITY

2. T ODAY ’ S P RESENTATIONS 2 Cost of Living Index Business Uses Community Uses Academic Uses Introduction Methodology JonesLangLaSalle Kiplingers Greater Memphis Chamber SE Louisiana University Business Center ModuleTopic

3. I NTRODUCTION – C OST OF L IVING I NDEX  Published by Council for Community and Economic Research  Published Continuously Since 1968  Three Quarters per Year  Participants’ Input/Community Volunteers 3

4. 4  Measure of relative price differences among urban areas  Designed for professional and managerial households in the top income quintile  Prices are collected at a specified time, in strict conformance with standard specifications What is the C ost of Living Index?

5. 5  C2ER Does Not Believe that End Users are Well-Served Unless Methodology is Understood  Data Collection Practices  Formulas  Average Prices Used  Technical Advisory Board Our Methodology

6. 6 Items by Categories

7. 7  Designed for a Specific Standard of Living For first 30 Years, it was a ‘Mid-Management’ SOL  Designed Specifically for Professional/Managerial Households Top Income Quintile (20th Percentile)  Due to Regional Salary Variation, No One Income is Specified One Salary Does Not Fit All Locations  Salary Range is $70,000 to $100,000 Expected to be Higher in ‘Traditionally’ More Expensive Communities o San Francisco, Boston, New York City, Washington DC, Los Angeles, etc. A Specific Standard of Living

8. 8  Open to All Places for 23 Years Influx of Small, Rural and Semi-Rural Communities Forced a Change o Difficulties of Adhering to Standards and Specifications  Participation Restricted to Federally Designated Metropolitan Statistical Areas – Census Bureau Participation is Open to Other Areas Meeting Certain Criteria o Community Population of 35,000 or More o County Population of 50,000 or More Some Small Communities ‘Grandfathered’ In  Many Communities Cannot Participate Famous Examples Who Participates?

9. 9  Three-Stage Review Process First Stage Review o Look for Computational Errors o Atypical Prices o Unexpected Quarter-to-Quarter Price Shifts o Prices Not in Keeping with State, or Regional Averages  Second Stage Review Each Report Reviewed Again for Problematic Prices Not Verified in First Stage Preliminary Report is Run at This Stage  Third Stage Project Manager Reviews Prices and Calculations Out of Line Regionally or Historically No more than 2 Standard Deviation Points Difference o Outside Influences May Affect Prices o National Economy How Do We Know the Data Are Accurate?

10. 10  Samples Vary with Size of MSA Largest Communities at Least 10 Samples Micropolitan Areas at Least 3 Samples  More Data Gathered, More Accurate the Report Wide Price Variations Can Reflect Not Enough Samples Sampling Size

11. 11  Grocery Items Index (13.36%)  Housing Index (28.64%) Monthly principal and interest payment for new home represents 23.50% of the Composite Index  Utilities Index (10.46%)  Transportation Index (10.66%)  Health Care Index (4.44%)  Miscellaneous Goods and Services Index (32.44%) Weights

12. 12  The most common application of the Index is to compare the differences between two places MSA #1 and MSA #2 – For Example  Subtract MSA #2’s Index from MSA #1’s Index, Divide the Result by MSA #2’s Index, and Multiply the Answer By 100% [((115.0-90.0)/90.0)*100%] =(25.0/90.0)*100% = 28%  Fairly Small Differences Don’t Indicate Any Measurable Difference Sampling and Non-Sampling Errors Non-Probability Samples Means No Precise Confidence Interval How to Use the Index

13. 13  U.S. National Average What Can the Index Tell Us About Dollar Amounts?

14. 14 Area A What Can the Index Tell Us About Dollar Amounts?

15. 15  Area B What Can the Index Tell Us About Dollar Amounts?

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19. B USINESS USES  When evaluating (re)location options COLI is a key measurement tool in the decision process to help determine competitive wages Also used to measure the Cost of doing business for retailers/manufacturers.  Helps industries assess the overall economic health of an area Helps determine if location is a viable option Thanks to JonesLangLaSalle 19

20. B USINESS U SES  Most private industries may use some aspects of COLI Housing costs and transportation costs are key Overall COLI may not be applicable to their needs.  Real Estate investors tend to use all of COLI’s features Residential investors  Determine achievable rental rates and  Housing prices  When working with government agencies Determining levels of need for grant/program funding Thanks to JonesLangLaSalle 20

21. B USINESS U SES  Helps with personal finance data Government Policy Environmental issues Technology  Use of COLI as the research basis Market outlook stories Make reliable predictions  State of various economies Use with Census Data Analyze cost of doing business in different metro areas Thanks to Kiplingers 21

22. B USINESS U SES  Use in business reporting Concentrations of small businesses Patents and venture capital Business costs  Use of COLI to break out data on the self-employed Impact on entrepreneurship and small businesses  Important tool for helping determine location  Changing demographics Influx of retirees into the economy COLI data helps businesses adjust Thanks to Kiplingers 22

23. B USINESS U SES  Kiplingers’ Best Cities series Best Cities for Singles: http://www.kiplinger.com/slideshow/best-cities-for-singles/1.html 10 Best Value Cities for 2011: http://www.kiplinger.com/slideshow/best-value-cities-2011/1.html http://www.kiplinger.com/slideshow/best-value-cities-2011/1.html 10 Best Cities for Cheapskates: http://www.kiplinger.com/slideshow/10-best-cities-for- cheapskates/2.html#top http://www.kiplinger.com/slideshow/10-best-cities-for- cheapskates/2.html#top 10 Great Cities for Starting a Business: http://www.kiplinger.com/slideshow/10-great-cities-for-starting-a- business/1.html http://www.kiplinger.com/slideshow/10-great-cities-for-starting-a- business/1.html Thanks to Kiplingers 23