GOVERNMENT TECHNOLOGY/Economic analysis tool aids planning
Cities rarely turn away a business that is looking for a new home. Officials know that a company looking to relocate will bring more jobs, additional household income and a better tax base to their cities. To ensure that the company takes root, governments frequently offer incentives — such as land, tax abatements or infrastructure enhancements — but they must make sure their investment pays off to protect the city’s economy.
To help weigh the cost of granting those incentives vs. the overall benefits a new company may offer, many local governments are using technology. Software tools can help calculate the fiscal impact and also enable a government analyst to organize data. In Georgia, several communities have used the LOCI (local impact) software program to evaluate their economies with regard to new businesses. The program was developed by economists Bill Riall and Robert Lann for the Center for Economic Development Services, a state-funded unit of the Georgia Institute of Technology, Atlanta. It provides information to communities so that they can grasp how government costs may change with the addition of a new business and better understand how their local economies work.
For example, Catoosa County, Ga., recently welcomed American Recycling Technology after a LOCI analysis revealed that the company’s relocation would mean $1.5 million to $2 million in capital investment and up to 400 new jobs for the county. Calculations were based on two primary sets of data: * a community profile containing data on tax collections, tax rates, annual government revenues and costs, utility usage, demographics and retail activity; and * a profile of the new investment through analysis of construction and operating costs, utility usage, investment in real and personal property, inventories, employment and payroll.
“We think LOCI levels the playing field by giving communities a tool to estimate the fiscal and economic impacts from a business location or expansion. [Cities] no longer have to rely on the claims of a prospect,” Lann says.
Most communities conduct a 10-year analysis, Riall notes. Annual revenues and costs are calculated over the selected period, and then a net present value is figured from annual net revenues. Once the data profiles are completed and incentives are determined, the community can examine various potential impacts of a new business.
For example, in Griffin-Spalding County, results of a LOCI analysis helped persuade voters to approve a special sales tax that funded an industrial park and helped officials decide what level of incentives to offer Caterpillar, which recently relocated there. According to the assessment, the venture could equal a $50 million capital investment and 300 new jobs for the county.
In addition to aiding locals, the software has become important to Georgia’s economic development. Communities applying for Regional Economic Business Assistance (REBA) grants from the state Department of Community Affairs are now required to conduct a LOCI analysis (or an equivalent) as part of the application process.
In Savannah, a LOCI analysis paved the way for a state-supplied REBA grant that funded a road into the Crossroads Business Park, where Lummus is locating. The Swiss-owned manufacturer of cotton-cleaning equipment will employ 250 workers. In fiscal year 1999, there were 46 LOCI projects in Georgia communities. If all those projects reach fruition, they will translate into 15,800 jobs with a total payroll of more than $417 million.
For more information on LOCI projects, visit www.ceds.gatech.edu.