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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 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
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 Assessing 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 Taxing Practices
Sample Revenue Project • $3,920,400 in land • $16,500,000 in Property • $14,579,600 in Machinery & Equipment Total = $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
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