Demonstrating ROI. Western Canada. June 3, Jamie Vann Struth Vann Struth Consulting Group Inc.

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1 Economic Analysis & Demonstrating ROI Western Canada Economic Development Course June 3, 2011 Jamie Vann Struth Vann Struth Consulting Group Inc.

2 2 Main Topics 1. Economic Impact of Community Projects 2. Demonstrating ROI in Economic Development

3 Economic Impact Analysis

4 What is Economic Impact? Changes in economic outputs t in response to some new input Typical outputs: Employment Output Gross Domestic Product (GDP) Tax revenue (Federal, Provincial, Local) Sometimes wage income Comparing 2 alternative ti scenarios With the new input/event/shock/development and Without

5 What isn t Economic Impact? Not financial impact on an organization Not socio-economic impacts E.g., Crime, traffic, housing, price impacts, family dislocation, social cohesion, etc. etc.

6 Introduction to Input-Output tp t Analysis Let s keep this brief Input-output tables give you the recipe for each industry Intermediate inputs from other industries Imports Labour Plus how each commodity is used Input into other industries Final demand (consumed) Exported

8 Hundreds of Pages Like This

9 Ingredients to make Professional/Scientific Services* Admin & support, waste management $3.6 billion Information & cultural industries $2.0 billion Manufacturing $782 million Wholesale trade $649 million Government sector $614 million Transportation & warehousing $549 million Retail trade $484 million Utilities $246 million Arts, entertainment, recreation $148 million Finance, insurance, real estate, rental $117 million Etc. + Wages, Imports, Value-added *Actually, it s professional, scientific, technical, computer, administrative, support, and related services for BC in 2006

10 And Professional/Scientific Services as ingredients in other industries Finance, insurance, real estate, rental $3.0 billion Construction $2.8 billion Professional/scientific services $2.2 billion Government sector $1.7 billion Manufacturing $1.3 billion Wholesale trade $1.2 billion Retail trade $1.0 billion Information & cultural industries $729 million Transportation & warehousing $520 million Mining and oil & gas $368 million Forestry and logging $155 million Etc. + Exports, Household consumption

11 Start with a Shock Initial Impact: New manufacturing plant, new New Revenue in Direct tourist attraction, new Industry/ Industries mine, etc. New Demand for the ingredients, New Demand for ingredients of the ingredients and so on. Wages and Other Income Earned in Direct & Indirect Industries New Revenue in Indirect Industries Impacts peter out through leakage imports, final consumption, etc. Extra income leads to extra household spending This is the induced impact

12 Economic Impacts Cheat Sheet Direct (Initial Shock) Indirect (Suppliers) Induced (Personal spending)

13 BC Input-Output Model BC Version of StatsCan Model BC recipes for industries Imports/Exports t from BC perspective Three Ways You Might Use It 1. Provincial Economic Multipliers report 2. Local Area Economic Dependencies report 3. Custom use of BCIOM through BC Stats

14 1. Provincial Economic Multipliers

15 First Steps 1. Identify the direct impact 2. Convert to a dollar impact on one or more industries i 3. Refer to multipliers handout

16 Interpreting Provincial Multipliers Small vs. Medium Aggregation Only difference is Medium is more detailed 80% Recycling Rate Standard d assumption for how much personal income is spent in BC Not appropriate in some cases (e.g., migrant workers, higher imports, more/less savings, etc.) Output = Total Spending in the Economy GDPF/Output = Gross Domestic Product (always smaller than Output) Employment (Jobs/$M) = Jobs per $1 million in direct output SN = Safety Net / NSN = No Safety Net SN or NSN = Do workers have income even when unemployed (EI)? Generally, shortterm use SN, long-term use NSN

17 Example: Crop and Animal Prod. Top line in table above is Crop and Animal Production Assume new orders for $10 million in product (This is Direct Output) Output multiplier: Direct (1.00) + Indirect (0.75) + NSN Induced (0.33) = 2.08 Total Output: $10 million x (2.08) = $20.8 million GDP multiplier: Direct (0.36) + Indirect (0.31) + NSN Induced (0.19) = 0.86 Total GDP: $10 million x (0.86) = $8.6 million Employment multiplier: Direct (9.16) + Indirect (4.96) + NSN Induced (2.86) = Total employment = 10 x (16.98) = jobs Very Important: These are total BC Impacts, not Local

18 Interpreting Provincial Multipliers 2 Note separate tables for Safety Net vs. No Safety Net Crop and Animal Production Example Federal tax multiplier: li = Federal tax: $10 million x (0.071) = $710,000 Provincial tax multiplier: = Provincial tax: $10 million x (0.056) = $560,000 Municipal tax multiplier: = Municipal tax: $10 million x (0.018) 018) = $180, Again, these multipliers valid at BC level only

19 2. Local Area Economic Dependencies

20 Local Area Dependencies Can be calculated only for Census years (and maybe never again) Provides LOCAL employment multipliers li for 63 areas Local multipliers vary based on: Use of local suppliers of goods and services Average incomes higher-income industries have higher local induced impacts

21 First Steps 1. Identify the direct impact (same as before) 2. Determine the direct employment impact You may know this easily You can calculate it using provincial multipliers 3. Refer to employment ratios handout

22 Interpreting Local Area Employment Ratios Table 3.3 combines indirect + NSN induced (long-term impacts) Agriculture Example We earlier calculated 92 direct jobs. (Need to verify it s reasonable these are all local.is all of the $10 million in sales produced locally?) Total local jobs: 92 direct x 1.30 multiplier = 120 total local jobs

23 3. Custom Use of BCIOM 1. Generally used for large projects 2. Uses project-specific recipes, not industry averages 3. Results valid at Provincial level ONLY

26 BCIOM Input Data for hundreds of commodities.

27 Custom BCIOM Results The key BC Stats contact for BCIOM

28 General Guidelines MUST have a clear idea of two things: 1. TIME 2. GEOGRAPHY Most of the work is estimating the direct activity Start with facts Number of tourists Number of jobs Volume of sales

29 General Guidelines 2 Estimate growth or change Again, try to link to facts Scale of expansion is X, so assume job growth is X Past growth rates Similar projects elsewhere Business feedback (beware over-optimism) Official growth projections Convert to $$ or jobs Remember comparing two alternative states One with shock, one without Examine differences in these two states

30 Special Case: Tourism Project Tourism is not a distinct industry, so direct jobs often elusive Best data is often growth in # of tourists t Can therefore estimate new spending

31 tca ca/research/

32 Tourism Spending per Day

33 Tourism Spending by Industry (in Provincial Multipliers report)

34 See also Tourism Discussion in Provincial Multipliers report Different treatment of taxes Special multipliers for some components of tourism details t il not necessary today

35 A more complex example... Large construction project Some construction spending is local, some provincial, i some outside BC Construction duration is 3 years

36 A more complex example...2 Say $10 million construction budget $5 million local $2 million BC $3 million outside BC Calculate direct local jobs (p. 35): Multiplier (6.04) x 5 $M = 30.2 Calculate local indirect/induced (p. 32): Multiplier (1.44) x 30.2 = 43.5 That s 30.2 direct local indirect/induced local

37 A more complex example...3 Say $10 million construction ti budget $5 million local $2 million BC $3 million outside BC Calculate total provincial jobs (p. 35 again): Direct Multiplier (6.04) + Indirect Multiplier (4.01) + Induced Multiplier (SN: 1.52) = Total Multiplier (11.57) x 7 $M = 81.0 jobs We know 43.5 jobs are local, so 37.5 jobs are nonlocal Project duration is 3 years, so this is 81.0 person-years of employment (average 27 jobs per year)

38 Caveats / Limitations Assumes standard industry recipes always apply Assumes linear impacts Can t evaluate alternatives Can t account for quality As much art as science

39 Group Exercise Economic Impact of Attendance at WCEDC & EDABC (Let s pretend we re in Pitt Meadows) Questions: 1. Do you live in Metro Vancouver? 2. Is course/conference your primary reason for visiting? 3. What is the total spending of your travel party on the trip? A. Food and beverage spending (restaurants, pubs) B. Accommodation C. Entertainment/recreation (Ignore transportation, retail, etc. for now)

40 Return on Investment (ROI) in Economic Development

41 Possible desired outcomes Financial return (ROI) usually a minor consideration Employment Quality of employment Investment Tax base Income Education and skills Number of visitors, visitor spending, occupancy rates Number of businesses, new businesses, expanding businesses Floorspace growth, land absorption, amount and type of development Area revitalization (e.g., downtown, harbour) Exporting Value-added production Customer & stakeholder satisfaction Community reputation, awareness Link to other, non-economic goals (environmental sustainability, stainabilit social objectives)

43 Practical considerations 1. Start with objectives, goals, strategies 2. Inputs & Outputs relatively easy to measure 3. Outcomes very difficult to measure Broad economic statistics typically not useful for measuring EDO performance 4. Have a regular schedule at least annual 5. Think about tracking BEFORE projects start 6. Performance measurement has costs Incorporate tracking into program design Use information already being tracked 7. Communicate the results

44 Extending Performance Measurement to Local Economy 1. Uses broad economic statistics 2. Much greater insight through benchmarking

45 Don t Just Collect Data, Compare Data

46 BC Progress Board Benchmarks to 10 provinces, sometimes 50 states

47 Greater Victoria Regional Indicators Compared to 20 largest metro areas So much more powerful results: ranks 2 nd in Canada in job growth income rank is falling 3 rd in per capita federal wage earners shortest commutes in Canada

49 Comox Valley Benchmark Groups 1. Closest 24 Census Agglomerations in Canada in population 2. All Regional Districts i t in BC

50 Census Agglomeration 2006 Population Norfolk, Ont. 62,563 Charlottetown, P.E.I. 58,625 Cornwall, Ont. 58,485 Shawinigan, Que. 56,434 Saint-Hyacinthe, Que. 55,823 Vernon, B.C. 55,420 Wood Buffalo, Alta. 52,644 Leamington, Ont. 49,741 Courtenay, B.C. 49,214 Victoriaville, Que. 48,893 Sorel-Tracy, Que. 48,295 Brandon, Man. 48,256 Rimouski, Que. 46,807 Truro, N.S. 45,077 Joliette, Que. 43,595 Penticton, B.C. 43,313 Timmins, Ont. 42,997 Duncan, B.C. 41,386 Prince Albert, Sask. 40,766 Orillia, Ont. 40,533 Rouyn-Noranda, Que. 39,924 Salaberry-de-Valleyfield, ll ld Que. 39,672 Brockville, Ont. 39,668 Campbell River, B.C. 36,459 New Glasgow, N.S. 36,288

54 Ucluelet Benchmark Group 15-community comparison group Population between 1,000 and 5,000 Not part of metro area or Census Agglomeration (mini-metro area like Courtenay) Located on Vancouver Island OR mainland coast OR BC resort municipality

55 Comparison Group 1. Ucluelet e 9. Golden 2. Tofino 10. Invermere 3. Port Hardy 11. Radium Hot Springs 4. Port McNeill 12. Valemount 5. Gold River 13. Rossland 6. Lake Cowichan 14. Osoyoos 7. Gibsons 15. Harrison Hot Springs 8. Fernie

56 Median Age of the Population, 2006 (Source: Statistics Canada Census)

57 Building Permit Values per capita Ranks, (Among 15-community benchmark group)

58 Total Building Permit Values per capita, $47,523 (Source: BC Stats) $30,299 $2,052

59 Uses of benchmarking 1. For competitive purposes We are #1 in BC among. 2. For insight into local economy Identify unexpected strengths and weaknesses 3. Use information to inform strategies & initiatives 4. Raises profile of economic development (people love comparing their community!)

60 Contact Me with Questions Jamie Vann Struth Twitter: JamieVannStruth

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