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Background on the Economic Impact Methodology Used in the Analysis
Approach and Models Developed
A. Strauss-Wieder, Inc. (ASWinc) constructed a multi-regional input-output model using the IMPLAN ver-sion 3.0 software for this assessment. Implan is a complete economic assessment package including data and software. More information on Implan can be found at http://implan.com/V4/
Multi-Regional Input-Output models (MRIO) capture the economic impacts occurring in several con-nected economic regions, along with “trade flows.” Trade flows are defined as the purchase of goods and services among each of the identified regions. In addition to the trade flows, the models consider and reflect the purchase of goods and services from sources outside the identified regions. These lea-kages reduce impacts. For example, some suppliers and workers may come from outside of New Jersey. The impacts associated with these expenditures accrue to the locations outside of the State rather than to New Jersey.
The economic impacts associated with each of the development scenarios in the project are identified for each of the regions. For this project, the impacts of new development in Somerset County were assessed at the County, NJTPA and New Jersey State levels. The three geographical areas are shown in Figure A1. The impacts shown are total impacts at each geographical level, with the impacts originating in Somerset County. The MRIO model runs are the economic impact basis for the customized Impact Calculator spreadsheet provided for this project by ASWinc.
MRIO analyses require several considerations and reviews beyond single region economic im-pact models:
· Each region within a MRIO model is separate and do not overlap. For exam-ple, for the Somerset MRIO model, the NJTPA region within the MRIO model excludes Somerset County, and the New Jersey State model excludes both Some-rset County and the NJTPA region. If
Figure A1: Geographic Areas in the Assessment – Somerset County, the NJTPA Region (which
Page 2 Somerset County had been included in the NJTPA region, then a duplication of impacts would have occurred.
· In general, the economic characteristics within each region in a MRIO model should be standar-dized. For example, employment/output ratios should be the same to ensure that trade flows (purchase of goods and services). In general, individual regions have different ratios. The ferences increase as the size and diversity of the regions increase (e.g., the US ratio may be dif-ferent than the NJ ratio for a given industry). For this project, all of the regions are within the State of New Jersey. As such, it is assumed that the majority of the economic characteristics in the individual regions within the MRIO model are sufficiently similar.
Definitions
The economic impact assessment estimates the total impacts, which are defined to include:
• Direct – the spending at the site of the development. Direct effects are the focal point of an im-pact analysis.
• Indirect – the purchases of goods and services by suppliers. By definition, the first round of inrect impacts includes the purchase of supplies and services that are required to produce the di-rect effects. Subsequent purchases of supplies and services generate other rounds of indidi-rect impacts. Such purchases continue to ripple through the economies of each of the regions in the MRIO model.
• Induced – the purchases (of such items as food, clothing, personal services, vehicles, etc.) that arise, in turn, from the increase in the aggregate labor income of households.
The total economic impact consists of the direct, indirect and induced effects. The economic measurements included in this analysis are:
• Employment Effects –Jobs generated or supported , including:
– Direct employment: onsite full- and part-time equivalent jobs or jobs in the initial Indus-try/business development.
– Total employment: The total number of full-time equivalent jobs (direct, indirect and in-duced) generated in each of the geographically defined regions.
• Business Output/Revenue – Output represents the value of industry production. In IMPLAN, these are annual production estimates for the year of the data set and are in producer prices. For manufacturers this would be sales plus/minus change in inventory. For service sectors pro-duction = sales. For Retail and wholesale trade, output = gross margin and not gross sales.
Page 3 • Personal Income Effects – Includes all forms of employment income, including Employee
Com-pensation (wages and benefits) and Proprietor Income.
• State and Local Tax Effects – defined as revenues collected by state and sub-state governments. The taxes include employee, personal, proprietor, business, household and corporate taxes. • Federal Tax Effects – defined as revenues collected by the federal government from corporate
income, personal income, social security, and excise taxes.
Translating Development Scenarios into the Initial Impact Scenarios for Impact Analysis ASWinc used a six-step process to translate each development scenario:
· Obtain total square footages by type of development.
· Use average workers per 1,000 square feet ratios to translate the square footages into antic-ipated direct employment for each type of development.
· Translate the development types into the corresponding IMPLAN sectors.
· Use the anticipated direct employment by IMPLAN sector as the starting point for the economic impact assessment.
· Enter information into the MRIO model constructed for this project.
The square footage information was provided by Parsons Brickerhoff by type of development. The types of development included:
· Hotels
· Health Care Offices and Laboratories (e.g., doctors’ and dentists’ offices, testing facilities, etc.) · Apartment Housing
· Professional Offices · Retail Stores
· Restaurants
Through discussions with the County, municipalities and team members, it was decided that profession-al offices would be assumed as primarily servicing legprofession-al and accounting business services. Similarly, it was assumed that the retail stores would be primarily assumed to be apparel and health care establish-ments.
Single-family homes, while, part of some of the development scenarios, were not included in the eco-nomic impact assessments. Apartment and multi-family developments were included. Multi-family de-velopments tend to use outside management and service companies to maintain common areas. Such maintenance services may be done by the homeowners of single-family residences.
ASWinc conducted research into typical workers per thousand square feet for the different develop-ment types. The primary source used was the US Departdevelop-ment of Energy, US Energy Information
Admin-Page 4 istration’s Commercial Buildings Energy Consumption Survey (CBECS). According to the Department’s website, the Commercial Buildings Energy Consumption Survey (CBECS) is a national sample survey that collects information on the stock of U.S. commercial buildings, their energy-related building characteris-tics, and their energy consumption and expenditures. Commercial buildings include all buildings in which at least half of the floor space is used for a purpose that is not residential, industrial, or agricultural, so they include building types that might not traditionally be considered "commercial," such as schools, correctional institutions, and buildings used for religious worship.1
The most current CBECS data available is from the 2003 survey, which covered over 4,600 non-mall buildings. Work on the 2012 year survey is anticipated to begin in 2013. The uses included within the surveyed buildings included all of the development categories with the exception of apartment build-ings.
Additional sources of workers per thousand square feet were also identified and reviewed, including work undertaken by Rutgers University and other research institutions. ASWinc determined that the CBECS provided a sound and conservative foundation for the translations. The multi-family workers per 1,000 square feet was based on research previously undertaken by ASWinc for similar developments in Hudson County, NJ and reviewed against the much more labor intensive hotel information in the CBECS. Once ASWinc had translated the development information into the associated on-site workers by devel-opment type, the information was used as inputs to the IMPLAN model. The sectors selected for each development type were also reviewed and approved by Parsons Brinckerhoff and Somerset County staff. The IMPLAN sectors used were:
· Hotels – IMPLAN sector 411 (Hotels and motels, including casino hotels)
· Health Care Offices and Laboratories (e.g., doctors’ and dentists’ offices, testing facilities, etc.) – IMPLAN sectors 394 (Offices of physicians, dentists and other health care professionals) and 396 (Medical and diagnostic labs and outpatient and other ambulatory care services)
· Apartment Housing – IMPLAN sector 388 (Services to buildings and dwellings)
· Professional Offices – IMPLAN sectors 367 (legal services) and 368 (Accounting, tax prepara-tion, bookkeeping, and payroll services)
· Retail Stores – IMPLAN sectors 325 (Retail stores – health and personal care) and 327 (Retail stores – clothing and clothing accessories)
· Restaurants – IMPLAN sector 413 (Food services and drinking places) Background on Input-Output Analysis
Input-output (I-O) modeling is among the most accepted means for assessing economic impacts. The approach provides a concise and accurate means for articulating the interrelationships among industry sectors. I-O modeling focuses on the interrelationships among sectors in an economy. Within the I-O
Page 5 model, the economy of an area is mapped out in table form, with each industry listed across the top as a consuming sector (or market) and down the side as a producing sector.
The basic framework for I-O analysis originated nearly 250 years ago when François Quesenay published Tableau Economique in 1758. Quesenay’s “tableau” graphically and numerically portrayed the relation-ships between sales and purchases of the various industries of an economy. More than a century later, his description was adapted by Leon Walras, who advanced input-output (I-O) modeling by providing a concise theoretical formulation of an economic system (including consumer purchases and the econom-ic representation of “technology”).
Wassily Leontief greatly advanced Walras’s theoretical formulation and was awarded the Nobel Prize in 1973. Leontief first used his approach in 1936 when he developed a model of the 1919 and 1929 U.S. economies to estimate the effects of the end of World War I on national employment. Recognition of his work awaited wider acceptance and use of the approach. This meant development of a standardized procedure for compiling the requisite data (today’s national economic census of industries) and en-hanced capability for calculations (i.e., the computer). The federal government immediately recognized the importance of Leontief’s development and has been publishing input-output tables of the U.S. economy since 1939.
The models can be quite detailed. The current U.S. and IMPLAN models have more than 400 sectors. This level of detail provides a consistent and systematic approach, as well as a more accurate means for assessing the multiplier effects of changes in economic activity.
I-O Analysis makes several key assumptions. First, the information used to create an input-output mod-el is for a given point in time. The information in the modmod-el reflects a “snapshot” of the technical re-quirements and industry relationships at a given point in time. Because of this, input-output models are regularly updated.
Regional input-output models, such as the one used in this economic impact assessment, need to ac-count for the percentage of the demand for an industry’s output or the requirements for a transporta-tion project that can be readily supplied by firms within the specified region. Firms within the specified region may not be able to supply all the products needed. Therefore, goods and services may need to be purchased from outside of the specified region. The default “regional purchase” coefficients within the IMPLAN model were used for this analysis.
Estimated Economic Impacts Model Results
The following seven pages show the results of the multi-regional input-output model conducted by ASW. Results are displayed for each of the seven preferred redevelopment sites.
