Communicating the Value of Development Projects Through Economic Impact Analysis

By Dennis McAndrew, MBA, CPA, Silverlode Consulting Corp.

In today’s economic environment, economic impact, and specifically, job creation has become a primary measure for development projects.  This is especially true when economic incentives and other public funding sources may be involved.  Stakeholders such as government officials and the general public want to know what their investment in a project will return.  In fact, numerous federal stimulus programs and other non-stimulus federal programs such as the New Markets Tax Credit program now require that the economic impact of a project be estimated in applications for assistance and economic impact is a major consideration during the evaluation of applications for these programs.

Economic impact modeling methodologies such as IMPLAN and REMI, two of the most widely used, were developed decades ago to guide significant public policy decisions and found applications primarily among governmental and academic users.  Today, their use has expanded widely in the private sector.  Utilizing these tools, the impact of projects can be reliably predicted and analyzed in detail. 

Using basic development project parameters such as construction budgets, timetable, and end-use, economic impact modeling can estimate the following:

• The number of jobs that will be created directly as a result of the construction activity brought about from a development project
• The industries in which these new jobs will be created
• The pay rates for these new jobs
• The tax collections resulting from the project
• The number of households supported
• The buying power of the households supported.

In addition, the construction activity results in increased economic activity at the companies and organizations that serve and depend upon the construction industry.  This “indirect” activity positively impacts material suppliers and manufacturers, transportation firms, stores and restaurants, and many other industries.  Similar to the “direct” impact, the indirect impact can be accurately predicted and quantified in detail using economic impact modeling tools and techniques.  The same economic measures that can be estimated for the direct jobs, such as jobs and payroll created/retained, tax collections, households supported, and buying power, can be determined for indirect jobs as well.

Similarly, once construction is complete and the day-to-day operations of the project have commenced, the economic impact of the continuing operations can be measured in terms of the same economic indicators.

Impact analysis models incorporate current economic data for the region being modeled, and the geography and timeframe can be varied to meet the users’ needs.  This allows for measuring impacts in geographies, ranging from a small area comprised of one zip code to the whole nation. Similarly, the economic impact model can reflect changes over multi-year time periods.  Models also account for differences between project types.

Some of the most common applications of economic impact modeling are:

• Market evaluation: Economic impact analysis can provide a snapshot of the composition of the local economy which can be compared to other regions to support (or disprove) the feasibility of a development project.  For example, economic impact analysis can identify the presence of a large base of transportation-heavy industries within a region, as well as estimate their economic output and shipping volumes to help support the decision to undertake investment in an intermodal development.  The same data can be used to support financing decisions by the project’s funders.
• Environmental and other permitting: Demonstrating the economic impact of a project can be used to support zoning decisions, rapid permitting, and to counter resistance to development projects.  For example, economic impact analysis could estimate the number of jobs created by the above intermodal project and help to put concerns about increased traffic into context.
• Financial assistance:  Economic impact analysis can estimate the impact of the same proposed intermodal project on property, sales, income, and other taxes at any governmental level- local, state, provincial, federal, which can be used to support governmental decisions regarding investment in the transportation infrastructure necessary to make a project possible.

Impact analyses can range in cost from under $10,000 to over $100,000 and offer a unique opportunity to provide custom, detailed, and accurate information about a project that can help the development team to communicate the project’s value to the community, generate enthusiasm and goodwill, help with fundraising efforts, and negotiate with government entities for approvals or financial support.

About the Author:

• Dennis McAndrew is a founder of Silverlode Consulting which provides lucrative economic development solutions and game-changing analysis for public and private sector organizations across the business spectrum and across North America.
• He can be reached via telephone at (216) 263-9000 or by e-mail at dennis@silverlodeconsulting.com