Maximizing Community Resources Through an Economic Impact Analysis

As a local government leader, you face tightening budgets, rising construction costs, and increased interest rates, making strategic decision-making more crucial than ever. How can you determine where to allocate limited resources or which economic development project to support? This is where an economic impact analysis (EIA) can help. It offers a robust framework for assessing, quantifying, and communicating the economic benefits of various initiatives.

What Is an Economic Impact Analysis?

An EIA is a systematic approach to estimating the changes in economic activity within a specific area resulting from a particular project, event, or policy. It measures the direct, indirect, and induced effects on the economy to provide a comprehensive understanding of the project’s overall economic benefit.

• Direct effects: These are the immediate consequences of the project, such as jobs created and spending on materials.
• Indirect effects: These arise from secondary economic activities that are generated by the direct effects, such as increased demand for local suppliers.
• Induced effects: These occur as new income from the direct and indirect effects is spent in the local economy, supporting additional jobs and services.

Leveraging Economic Impact Analysis To Inform Decision-Making

An EIA provides essential insights that can help inform community leaders’ and stakeholders’ decision-making, especially in light of the limited pool of resources. It offers a detailed view of the tax impacts, employment impacts, labor income, and the value added for each project, breaking each down by direct, indirect, and induced and also providing the overall total impact. This comprehensive view goes beyond the immediate benefits of a project and looks at its long-term ramifications. Equipped with this level of data, government leaders can make better-informed decisions and can ensure resources are allocated effectively, benefits are maximized, and waste is minimized.

By understanding the total economic impact, communities can also strategically plan and prioritize projects that offer the most significant economic benefits to their community. In the early stages of planning, an EIA can also offer a thorough analysis of a project’s potential economic benefits and costs, which enables better-informed decisions.

Enhancing Storytelling and Gaining Support Through Economic Impact Analysis

Sharing the results of an EIA can significantly boost transparency and storytelling efforts in a community. By clearly outlining the costs and benefits of a project, an EIA fosters transparency, which builds trust and support among community members. When the expected economic benefits are communicated effectively, public support increases, and opposition decreases. An EIA can also be a powerful tool for securing grants and funding by demonstrating the project’s potential economic benefits and return on investment.

Case Study

To illustrate the practical application of an EIA, consider the following case study, which features a typical economic development project.

A prominent food manufacturing company is relocating to the Indianapolis metropolitan area, bringing with it a substantial capital investment of $100 million. This move is expected to create 200 new jobs, each offering an average wage of $28 per hour. The company’s arrival promises significant economic growth for the region and new opportunities for its residents.

Economic Impact Results Summary:

• Construction of the food manufacturer’s facility supports 1,003 direct, indirect, and induced jobs. This results in $75 million in labor income and $183 million in total direct, indirect, and induced output for the Indianapolis metropolitan area.
• Taxes generated on the construction of the new facility total $11.8 million in direct taxes at the subcounty, county, state, and federal levels.
• One year of full operations at the facility supports 479 direct, indirect, and induced jobs, which results in $32 million in labor income and $152 million in total direct, indirect, and induced output.
• The top industries impacted by this project include food manufacturing, fruit farming, vegetable and melon farming, flour milling, dairy cattle, milk, poultry production, and wholesale grocery operations.

The data points above show the significant impact this project would have on the Indianapolis area for one year. Additional modeling shows the top industries impacted by the project, creating a strong narrative for the ecosystem impact of the project – and for future community planning opportunities. Finally, assuming the state and local incentives being provided on the project do not exceed direct state and local benefit, the project will show a positive return on investment.

What’s Next?

An EIA can be pivotal in guiding strategic investments and fostering sustainable growth. By leveraging EIAs, communities can prioritize projects that promise the greatest economic benefits, ensuring smart use of limited resources. The transparency and clarity provided by EIAs will also play a crucial role in building public support, paving the way for future initiatives that drive economic prosperity and enhance community well-being.

Do you need help evaluating your economic development projects? Contact us today to discover how our experienced team of government consultants can support your community’s growth and success.