Post on 02-Jan-2016
description
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 5th 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
ExpensiveExample:Community Population: 7,700 /19.25 PolicemanNew company raises population by 220 (19.8 Policeman)Community B: 8,500 people /22 PolicemanCommunity C: 5,500 people /16 PolicemanCommunity 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: .014706/100
Tax Burden: $214,407
Sample Revenue Project• $3,920,400 in land• $16,500,000 in Property• $14,579,600 in Machinery & EquipmentTotal = $35,000,000
• 120 Jobs @ 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 BenefitsDistribution
of New Jobs
Average Expendable
Income
Propensity to
Consume Locally
Industry /Community Specific Multiplier
Economic Benefit
Residents 120*32.3 49,000*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)
• www.REMI.com
– Bureau of Economic Analysis (Industry)• http://www.bea.doc.gov/bea/dn2/i-o.htm
Key Decision ParametersIndicator Formula
Cost /Benefit Direct Revenues /Direct Costs
Incentives /Job Incentives /Number of Jobs
ROI Private Investment /Public Investment
Incentives /Wages
Ratio
Total Incentives /Total Wages
Break Even Point Total Incentives /Net Annual Revenue
End of Presentation