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Measuring Impacts: Building Support for
Economic Development
Kenneth E. Poole, Ph.D.President/CEO
2010 Best Practices ConferenceMAEDCMay 6, 2010
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About the Council for Community and Economic Research
• National membership group, created 1961
• Data products– ACCRA Cost of Living Index– Business Finance and
Incentives Database– Economic Development
Organizations Survey
• Training resource– Regional economic analysis
research methods training– LMI Training Institute
• Technical assistance– Statewide survey of green
jobs– Local community & economic
research support for projects
• Advocacy for local community and economic data
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Overview
• Why Measure? Why Evaluate?
• Ways to Measure Performance and the Logic Model
• Case Examples
• Tools for Measuring Impact
• A Few Key Issues & Some Words of Advice
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THREE KEY APPROACHES
Evaluate, Benchmark, or Project: What’s the Difference and Why Does It Matter?
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Why Bother?
• Key Thesis:– Performance builds credibility for and
confidence in your economic development efforts
• Options for building credibility…– Money– Friends– Data – Our focus today
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What is “Performance”?
• How has the economy or the fiscal situation changed over time?
• How well did you achieve public goals with your economic development investments?
• How can you improve your economic development programs?
• What can you predict about future impacts resulting from your investment?
• How does your community compare with others?
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Key Distinctions
• Evaluation – Examining investments made to assess
impact• Benchmarking
– Monitoring socioeconomic measures to identify challenges or opportunities
• Projection– Using known or speculated impacts to
predicting the most likely future result
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Key Differences Between Evaluation & Benchmarking
Evaluation• A process, not a single
event• Compares “What is” with
“What would have been” or “What should be”
• Search for answers from the program itself
• Applied research related to ongoing investments and/or programs
• Practical solutions, not to be sit on the shelf
• Data based on program information
• A snapshot, often repeated periodically
• Compares across places• Often, exploratory, seeking
to identify problems or successes
• Focuses on identifying resource gaps to address problems
• Data based on independent statistics
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Benchmarking
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Making Your Case: Key Issues in Selecting the Right Approach
Projecting Investment Impacts• Do the assumptions pass
the smell test?• Are you accounting for
expected dislocation?
• Have you selected the right measures to compare?
• Does your planned investments contribute significantly in affecting those metrics?
Measuring Program Impacts
• How much did investment really influence (or “cause”) business behaviors?
• How strong is the data available?
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Benchmarking Progress
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Challenges in Conducting Evaluations
• Concern about how evaluation research will be used
• Lack of credibility given to internal evaluations
• Lack of expertise among program managers in:
– Evaluation techniques
– Data collection process
• Lack of resources to conduct evaluation
– Concern that diverted resources take away from program success
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Creating an Evaluation Logic Model
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Inputs /Resources
• Funding Provided
• Staffing
• Facilities Available
• Partners Engaged
Program Outputs
Program measures
tied to specific
Program Objectives
Combined report of program
impacts (or “predicted” program impacts)
Activities
Milestones and
Deliverables
Generated from
tactics or tasks
designed to achieveparticularresults
Socio economic Outcomes
Benchmarkindicators of progress towards a Strategic
Vision.
Might not be directly tied
to any program,
but should betied toVision
•Guiding•Detecting•Formulating
Linked to Strategic Objectives
Types of Measures
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What Do We Measure?
• Jobs created or retained
• Private investment leveraged
• Total public investment
• Tax revenues generated
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Need for More Compelling : Lessons from Benchmarking
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• Knowledge Jobs (“Quality Jobs”)– Information tech jobs– Mgt, prof, & tech jobs– Workforce education– Immigration of knowledge workers– US migration of knowledge workers– Mfg value-added– High-wage traded services
• Globalization (“Quality Markets”)– Export focus of mfg and services– Foreign direct investment
• Economic Dynamism (“Vitality”)– ‘Gazelle’ jobs– Job churning– Fastest-growing firms– Initial public offerings– Entrepreneurial activity– Inventor patents
• The Digital Economy (“New Infrastructure”)
– Online population– Internet domain names– Technology in schools– E-government– Online agriculture– Broadband telecommunications– Health information tech
• Innovation Capacity (“Emerging Opportunities”)
– High-tech jobs– Scientists and engineers– Patents– Industry investment in R&D– Non-industry investment in R&D– Movement to a Green economy– Venture Capital
Source: 2008 State New Economy Index Indicators
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Challenges with Measuring
• Sporadic and inconsistent data collection
• Rarely validated by a third party
• Data not always relevant or used
• Limited priority given to data collection (or analysis)
• Concern about negatively impacting business relationship 14
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EXAMPLES TO HELP YOU FRAME YOUR THINKING
Case Studies: Benchmarking & Projections and Evaluation
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Indicators & Benchmarks
Census Bureau
Local Employment Dynamics (LED)
Community Economic Development Hot Reports
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Benchmarking Over Time
Maine Economic Growth Council
Measures of Growth
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Projections / Impacts
• Example:• 200 new distribution jobs in Milwaukee /
Madison– What is the likely job impacts – 468 includes:
• 256 in the transportation and warehousing• 32 in retail trade• 31 in health care
– What is the likely regional economic impact -- $25.8 million
• Construction of facility is considered separately
• Dislocation is not often considered at all
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Model for Evaluation: Portfolio
• Maine Comprehensive Economic Development Evaluation System
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2 parts – innovation and traditional econ dev programs1. Innovation (i.e., technology
programs) completed for past 9 years
2. Traditional business development -- first completed in 2009
Benchmark outcome measures tied to:o Comparator stateso Annual Maine Economic
Growth Council benchmark report
Third-party survey of business and community clients
Funded by an annual assessment on every program being evaluated
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Impact Scenario: Sample
Ownership ScenarioAnnual Impact on
Value AddedAnnual County-WideEmployment Impact
Community Wind (5%opportunity cost of capital)
$1,259,188 14.5
Community Wind (8%opportunity cost of capital)
$639,739 8.2
Corporate Wind $249,388 4.3
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Economic Impact of Local vs. Corporate Ownership of Wind Energy Production in Big Stone County, MN (operations phase)
Source: Arne Kildegaard and Josephine Myers-Kuykindall, University of Minnesota, Morris, “Community vs. Corporate Wind: Does It Matter Who Develops the Wind in Big Stone County, MN?, Sept. 2006
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Model for Evaluation: Program
NIST Manufacturing Extension Partnership
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• Program Objectives– Reduce business costs– Expand business revenues– Also tracks…
• Jobs created and retained• Measures program efficiency (e.g.,
dollars invested per client assisted)
• Evaluation includes:– 3rd party business survey of
assistance recipients– Minimally Acceptable Impact
Measures (MAIM) index– Panel reviews – colleagues
assessing other centers– Case studies of successful
venturesSample MAIM Scores
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THE NITTY GRITTY DETAILSTools and Techniques for Evaluating or Projecting Impacts
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Using Economic and Fiscal Impact Analysis as an Evaluation Method
Economic Impacts• Jobs created/retained• Payroll generated
(average wages)• Private investment
leveraged• Businesses or
entrepreneurs assisted• Jobs per dollar invested
Fiscal Impacts• Tax revenues
generated– Examples: Sales taxes,
property taxes, income taxes, etc.
• Government costs occurred– Direct or indirect one-time
or on-going expenses
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Understanding Importance of Economic Interdependencies
Inter-industry linkages (purchasers )
Direct Consumption
Inter- industry linkages (sellers)
Business-to-business purchases (indirect impact)Examples:
Autos buying plastic partsMedical buying instruments
Retail sales
Sales to out-of-area customers
Purchases of Labor & Value Added
WagesInterestProfits
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Economic Multipliers
• Recognizes inter-industry linkages (“pebble in a pond”)
• Quantifies “recycling” of dollars within and “leakage” of dollars from the local economy
• Forces the analyst to consider BENEFITS and COSTS associated with “indirect” impacts
• Provides “simple” tool for estimating overall economic impacts (current or future)
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Calculating a Multiplier
• Differs depending on “unit of measure”– Employment
– Business Revenues
– Personal Income (e.g., wages, transfer payments)
• Multiplier = (Direct + Indirect + Induced)
Direct
• Includes the direct effects
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Rules of Thumbs
• For metros-employment multipliers of greater than 3.0 are VERY unusual
– Manufacturing: • Typical range = 2 to 2.5
– Non-manufacturing: • Typical range = 1.3 to 1.8
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Common Errors in Using Multipliers
Made up or misunderstood….Regional preferences differDefining the industry (“What’s the multiplier for manufacturing?”)Defining the study area (The “region” matters….)Changes in technology
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Common User Errors in Conducting Impact Analyses
• Emphasizing benefits without recognizing negative consequences – Displacement issues
(What were residents doing before there was a baseball stadium?)
– Multiplier effects (What are the public services required for immigrants to the community?)
• Emphasizing costs without recognizing positive consequences– Displacement issues
(What are the true costs if we are not adding a lot of new economic activity?)
– Multiplier effects (What are the revenues being generated from new business activity, especially increased retailing?)
• Timing of Impacts– Investment Today, Impacts Tomorrow
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Fiscal Impact Analysis – Summary of Costs
• Additional public services required for project success
• Additional public services required to respond to added population
• Expanded infrastructure needed to handle new business activity
• Cost of incentives –– Direct, indirect, and tax benefits funded through public
investment– Allocation of incentive – the “public” benefit vs. the
“private” benefit from the investment
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The Key Issues in Conducting Fiscal Impacts
• Generating good estimates of economic impacts
• Defining relevant costs• Estimating costs (average vs. marginal costs)• Balancing the presentation of benefits and
costs• Equity issues (who is impacted is important)• Difficulty in generalizations across
jurisdictions
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Software: Economic Impact Models
• U.S. Bureau of Economic Analysis (RIMS II)– http://www.bea.gov/bea/regional/rims/
• Minnesota Implan Group, Inc. (IMPLAN)– www.implan.com
• Regional Economic Models Inc. (REMI)– www.remi.com
• Local university analysts – proprietary models
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Software: Fiscal Impact Models
Federal Reserve Board “Fiscal Impact Tool”http://www.federalreserve.gov/community.htm
Local university analysts – proprietary models
Budget, planning, or economic development offices combine commercial models with their own tweaks
e.g., Maryland Resource Allocation Model
Other proprietary models
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Modeling or Tools Used To Measure Impacts
• Frequently used economic modeling tools– RIMS II – U.S. Bureau of Economic Analysis– Implan – Minnesota Implan Group, Inc.– Analyst – Economic Modeling Specialists, Inc.
(EMSI)– Policy Insight – Regional Economic Models,
Inc. (REMI)
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RIMS II – U.S. Bureau of Economic Analysis
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• Strengths–Models are built using
unsuppressed gov’t data–Lots of Industry detail
(473)–The only model with
general public name recognition (BEA)
• Weaknesses–Relatively simple technique
used to develop multipliers–No software; user interface
for a series of spreadsheets–No forecasting or historical
data–No access to underlying
data
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Implan: Minnesota Implan Group
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• Strengths–Lots of industry detail;
500+ industries–Detailed agricultural
sectors –Flexible model
configuration–Multi-region capabilities
• Weaknesses–Somewhat simple
modeling techniques–No time series or
forecasting capabilities
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Analyst : Economic Modeling Specialists, Inc.
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• Strengths–Web subscription–More than 700 industries; 800
occupations–Can adjust estimated exports
(relevant for small areas)–Zip level data allows easy-to-
build sub-county models– Includes basic cluster analysis
(using pre-defined clusters from other research)
–Part of a suite of products “Forecaster” and “Career Pathways”
• Weaknesses–Static model–Relatively new to the economic
development market (released in 2005)
–Not well known and greatly tested for this purpose
–Initially created as a workforce training product
–Academic articles available, but not comparative
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Policy Insight: Regional Economic Models, Inc. (REMI)
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• Strengths–Attempts to model a
great deal of economic behavior
–Can model multiple regions
–Includes a 50-year forecast (for transportation planning)
–Most well known of dynamic modeling system
• Weaknesses–Difficult to use correctly–Very limited industry detail–Most expensive
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Which Tool Should You Use?
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For the “best” multipliers – all provide relatively similar results – RIMS II typically largestFor simple impact studies – all can be useful, cost may be a factorFor lowest cost – RIMS II, followed by IMPLANFor brand recognition – RIMS II, REMI, and IMPLANFor forecasting – REMIFor geographic detail – IMPLAN and EMSI (zip code level)For the “most up-to-date” data – EMSI (quarterly)Web access – EMSI, REMIFor phased projects or policy analysis -- REMIFor cluster analysis -- EMSIFor fiscal impacts – crude tools in several of the models
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Fiscal Impact Tool
• Federal Reserve Fiscal Impact Tool (FIT) Free
• Useful to evaluate fiscal impacts of local economic development projects– This tool was developed to enable local economic and
community developers to learn more about the local tax impacts of economic development projects.
– The Excel workbook provides defaults and simple assumptions enabling the user to input specifications of a project and quickly ascertain what sales and property (and other) tax gains will accrue to an area.
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Fiscal Impact Tool (cont.)
• In addition to performing an automated tax revenue assessment, this tool can be used for many data purposes.
• The workbook provides:– Census of Retail Trade data on the number of retail
establishments, amount of retail sales, and the retail sales per capita and dollar of income of counties and cities,
– Historical city and county population estimates, and – County per capita income figures.
• The tool is available at http://www.federalreserve.gov/forms/fiscalimpactrequest.cfm• Not being fully supported by the Fed in the future
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A FEW TIPS AND OTHER WORDS OF ADVICE
Lessons Learned From Experience
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What ‘s Next – How to Tell the Story of Econ. Dev. Impacts
• Communication Strategies– Written vs. oral
• Know Your Audience – Policy makers, legislators, media, general public, program managers, clients
• K.I.S.S. (Keep It Short and Simple)• Importance of an Independent Evaluation
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Why We Often Can’t Determine Economic Development Success
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1. Lack of a clear vision or goals– What’s the logic behind
the intervention?– What’s the best
measure - jobs?
2. Policies not aligned to state’s vision or goals
3. Lack of program resources– Can’t do enough of
anything to have an impact OR
– Trying to do everything
4. Policy and program design excludes evaluation component
5. Lack of resources for evaluation
6. Success expected too quickly
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Recommendations for Moving Forward
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• Demand a “vision”; toward which one can benchmark
• Require measures; but don’t get hung up on “jobs”
• Measure public return on public investment (ROI)
• Reward actions rather than promises
• Examine the entire investment portfolio; don’t get hung up on individual programs
• Invest in the evaluation system, including data management and third-party assessments
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Some Words of Advice
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• Spin-off impacts– Real, but often
overstated– Question earnestly any
“multiplier impacts” over 2 times the direct impact
• Measuring “good jobs”– 120% average wage
rule of thumb– Certain occupations are
more likely to offer benefits
• Legislators or councilors who play “gotcha” won’t get cooperation
• Use qualitative as well as quantitative measures– Case studies– Capacity building
• Evaluate for continuous improvement