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IMPLAN Blog

Ask an Economist: FAQs for New Business Location Economic Impacts

February 22, 2021 by Joe Demski

Our webinar, The Economic Impact of a New Business Location, walked through the process for modeling the economic impact of a new business location. In the presentation, considerations for the construction and operations impacts were covered and examined in the context of the Lowe’s Design Center Tower project. If you missed the live presentation, you can watch the recording here. The discussion generated a number of questions highlighting important points about running these analyses. Check out what our economists had to say below:
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Modeling Questions Construction Questions Tax questions


Modeling Questions

How does a region benefit from incentivizing new businesses to locate there?

The straightforward answers are job creation, stimulation of the local supply chain, and increased tax revenue. Additionally, opportunities for grants, improved job training, and development programs for the local workforce also present regional benefits.

How does Output differ from Value Added and GDP?

Output is simply a measure of the total value of all goods produced. Value Added, which is commonly referred to as GDP, is a subset of Output and is a useful measure of wealth created by an economy.  Valued Added is the difference between Output and cost of Intermediate Inputs. You can read a more detailed explanation of the differences here.

Lowe’s has stated they will house 2000 employees at their new Charlotte HQ. They will fill 1600 new jobs, and move 400 employees from their current Mooresville, NC location. Wouldn't the 400 moved jobs also support the local area? Why are only the 1600 new jobs included in the economic impact analysis?

Those 400 employees are not represented in the impact analysis because their contribution is already accounted for in the Charlotte MSA. Modeling the 1600 new positions provides the economic impact or the new effect that these jobs will have on the local economy. The 400 existing jobs could be analyzed, but this should be considered a contribution analysis.

What is the easiest way to find the correct industry to use in the modeling process?

First, you must identify the business functions (for operations) and the type building that may be needed (for construction). If you have North American Industry Classification System (NAICS) codes, IMPLAN furnishes documentation to bridge the NAICS figures to one of IMPLAN’s 546 industries. If you do not have NAICS codes, the bridge provides detailed descriptions of each industry in order to allow you to identify which best represents the one you’re modeling. The same goes for construction, but is based on the type of the structure being built, based on Census descriptions.

Can you only analyze impacts at the state, county, and MSA levels? What if the event affects multiple counties?

Impacts can be analyzed at the national, state, Congressional district, MSA, county, and zip code level. To demonstrate the impact on multiple counties, you can build combined regions with multiple counties or you can link the regions using Multi-Region Input-Output (MRIO).

Construction Questions

What value should be entered as Output in a Construction Impact?

Output for construction is the total cost of the structure, including hard and soft costs, excluding land and equipment purchases. The sale of land has very little impact on the economy aside from fees associated with the sale because the land value itself is an asset transfer. The construction industry is not impacted by this transfer.

Why are there no Indirect or Induced effects to construction industries in IMPLAN?

No industries make purchases from new construction industries because new construction is considered a capital purchase. An industry's production function only includes current accounts, it does not include capital investments. Capital purchases are included in a separate portion of Output. Similarly, households do not make purchases of new residential construction. Household payments to capital represent net savings, which includes paying down debt (i.e., principle).

If you have a construction build that will span multiple years, but the cost was quoted in current year dollars, does IMPLAN make adjustments when splitting the project out by year?

IMPLAN runs the impact based on the Dollar Year you select in your Group. If your project occurs over multiple years, you can run this in multiple ways. If you know the total expected spend, you can run the project in a single event. If the expected length of the project is known, dividing the results by the number of years calculates the average effects each year during that time period.

If the expected spending per year is known in the dollar values of the year in which the spending will occur, the study can be run more accurately by setting up the impact to be with separate Groups specifying each year of the project as the Dollar Year, paired with the corresponding Event(s) for that project year. The results will be adjusted to current year Dollar Years by default (specified by the Dollar Year filter). You can read an example of this here.

Why are construction jobs supported instead of created?

Construction jobs differ from jobs in most industries because when a new project is being built, a new job is not created. For most construction jobs, workers move from project to project, so new jobs are not created in the process. Rather these jobs already exist and are supported by the new projects.

Aren't construction soft costs an indirect impact of the hard cost expenditure? Isn’t there the potential for double-counting if soft costs are included as a change in demand?

The direct expenditure or Direct Output of a construction project includes the total value of the new structure, which entails all costs associated with the build. The difference between Direct Output and Direct Value Added in the construction industry is the cost of all the Intermediate Input purchases. These include Construction hard costs, like materials, and soft cost purchases made by the construction industry, like architectural design services. Therefore, all hard and soft construction costs should be counted in the new construction industry Output. 

Intermediate Inputs generate Indirect effects, therefore the spending on these hard and soft costs are included in the Direct Output, and effect this spending has on other industries is included in the Indirect Effects. To avoid concern around the iterative nature of dollars captured as Output in your results, we recommend reporting Valued Added. Value Added is the contribution to GDP in the region.

If you cannot find the exact industry that represents your construction project, how can you go about modeling the impact of this construction?

If construction spending details are available then costs can be analyzed by spend category through the corresponding industries/commodities. This could include multiple construction/maintenance & repair industries, or if a bill of goods is available materials and services can be analyzed individually.

How would you model mixed-use construction?

You would need to identify the types of construction being performed for the project and the associated cost for each. Then you can analyze multiple construction events. Spending will need to be split appropriately between each type of construction to generate an accurate result. This is also true for the operations of the property once complete.

Tax questions

Tax revenues are very specific to individual cities and counties. How does IMPLAN's tax results account for this specificity?

They are. We source the data from the Annual Survey of State and Local Government Finances.

Are taxes literally just 'taxes'? Do they include local government revenues like fees and fines?

No, there is a great deal that goes into the tax impacts. Fees and fines paid to localities are included. There’s a detailed table that breaks down what specific payments are incorporated in taxes here.

Takeaways

Interested in learning more about running an impact study on your business’ new location? Check out our webinar and see how Lowe’s Design Center Tower in Charlotte, NC is expected to impact the economy. In the meantime, hopefully these questions help guide you no matter where you are in the process. 

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Topics: Data, Economics, Employment, Methodology, "Taxes", Impact, Economic Development, Corporation, Government

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