Community economic development strategies and priorities are really choices, communities expressing hopes and values through tactics and resource allocation for economic development. In times of competing priorities and multiple stakeholder perspectives it is more important than ever to articulate value in terms that are meaningful to the audience. When economic developers want to communicate value clearly and objectively, economic impact analysis is a way to convert the potential for positive economic outcomes to precise dollar figures and employment numbers which can illustrate the value proposition for many different perspectives.
Activities which can benefit from a formal economic impact analysis include estimating how spending from an event, industry, or project flows through an economy. Looking at effects of a new major employer may be a frequent use of impact analysis, but many types of development and economic activity are well-illustrated this way including: plant closings, downtown development, historic preservation, regulatory changes, sporting events, and festivals. While impacts on the local area is typically of interest to economic developers and civic leaders, the analysis can also include broader geographies which give perspective on how the impacts ripple through the regional economy.
Most impact analysis looking at a new economic enterprise: a new stadium in a community, a new employer, or investments in redevelopment of a certain area, will begin with quantifying the construction impacts. When new construction, or even modest renovations and upfits, are carefully considered, they include additional jobs and investments that support the construction itself. In cases of significant public infrastructure or new industrial buildings, the construction impacts can be considerable. These are also the first impacts to be felt, beginning as soon as construction does, while often the direct benefits of the new employment will be felt a year or more in the future. It is important to note that the constructions impacts will be ‘one-time’ benefits to the economy, though, while the impacts from a new employer will often be repeated each year of operation.
The key to economic impact analysis is seeing how the activity in question – the new plant, development or event – will have its impacts ‘multiplied’ throughout an economy. This is accomplished by looking at an economic model of the study area and precisely measuring the resulting changes when the new activity is introduced. These models have been constructed over time (usually by the federal government), and are now routinely employed by consultants and economists looking to quantify the ‘multiplier effect’ of subject events.
Defining Impact Terms
Direct Impact: This is the known or predicted change in the economy that is being studied. For instance, the number of new jobs created by a company.
Indirect Impact: These are secondary impacts caused to industries in the supply chain of the direct impacts. For example, the jobs created by supplier companies to meet the demand of the direct impact.
Induced Impact: These are the direct and indirect employment and spending created by additional household spending on goods and services. For example, the jobs created in the service sector to serve the new employees (direct jobs) at the subject company.
In an environment of pressing priorities and intense competition for new investments, an economic impact analysis is an economic developer’s tool for translating potential to quantifiable benefits. Armed with total job impacts in the local area and the region as well as changes in payrolls and output in the same areas, a clearer value proposition can be presented to an elected official, a grant review committee or a bank. The best analysis will come from accurate and comprehensive inputs. Sometimes, these inputs cannot be completely obtained due to lack of access to company records or to the short timeframe. And, even the very best models do not measure every type of impact – the value of media coverage of a good – or bad – event, the civic engagement and contribution of a major employer, or the morale effect on a community or group when economic decisions affect them. These are just some of the ‘unmeasurable’ effects of changes in development.
Notwithstanding these, economic impact analysis is a valuable tool, and economic developers are wise to explore its use in the face of multiple or conflicting priorities or to illustrate complicated economic factors. A straightforward impact analysis can provide clarity and a rallying point for moving forward toward shared goals in a community.
Creative EDC has performed economic impact analysis on manufacturing, retail, breweries, downtown districts, and is currently working with Fayetteville State University to model impacts of potential military base reductions. Contact us for more information.