The Sparks Bureau of Business and Economic Research/Center for Manpower Studies The University of Memphis

Transcription

1 Prepared for: Tennessee Department of Economic and Community Development Prepared by: The Sparks Bureau of Business and Economic Research/Center for Manpower Studies The University of Memphis December 2017

2 The material in this report was prepared for the Tennessee Department of Economic and Community Development. Researchers undertaking such projects are encouraged to freely express their professional judgment. Therefore, the points of view or opinions stated in this document do not represent the official position or policy of the State of Tennessee. This report was not supported by a contract and reflects resources provided only by the University of Memphis. ii

3 TABLE OF CONTENTS List of Tables List of Maps Executive Summary iv v vi Introduction Methodology Assumptions Auto Industry and Economic Conditions in the MRM Labor Market Impacts: Construction Impacts: Ongoing Operations Other Benefits Summary iii

4 LIST OF TABLES 1. Annual Unemployment Statistics, Tennessee and Selected Counties, Per Capita Income and Percentage of Persons Below Poverty Level in the Past 12 Months, Five-Year Estimates, Tennessee And Selected Counties, Total Construction Impact Summary, Auto Maker and Auto Supplier Plants Combined Top Ten Sectors Affected by Labor Income from Construction Allocation of MRM Construction Jobs, Earnings, and Tax Impacts Total Annual Ongoing Operations Impact Summary, Auto Maker and Auto Supplier Plants Combined Top Ten Sectors Affected by Labor Income from Annual Ongoing Operations Allocation of MRM Auto and Supplier Plants Jobs, Earnings, and Tax Impacts iv

5 LIST OF MAPS 1. Auto Industry Presence in Tennessee Memphis Regional Megasite Labor Market v

6 EXECUTIVE SUMMARY The purpose of this analysis is to estimate the potential economic impact of the Memphis Regional Megasite (MRM) on the Tennessee economy. The MRM is owned by the State of Tennessee and is situated near the city of Stanton, between the cities of Memphis and Brownsville along the north side of Interstate 40. The primary assumption of the analysis is that a major automobile manufacturer will locate at the site and spend $1.6 billion on initial construction and plant development effectively the same as the formerly proposed Toyota-Mazda joint venture that Toyota recently turned down. Once complete, the plant will employ 4,000 workers with earnings of approximately $176.0 million while producing approximately $6.9 billion worth of automobiles. In addition to the auto maker, an auto parts supplier is assumed to invest in a $132.5 million factory at MRM and employ 450 workers who will earn an estimated $19.8 million. The Tennessee auto industry is well established, with major automobile manufacturing plants in Springhill, Smyrna, and Chattanooga and suppliers spread across the state and is able to acquire 41.3 percent of required goods and services from within and across the state while importing the remainder from out of state. Labor employed by the auto maker and the supplier at MRM would come from a much more limited, twelvecounty area in West Tennessee within a one-hour drive time. Compared with Tennessee averages, the twelve counties are generally characterized by relatively higher rates of poverty and unemployment. All counties in the area would share in the benefits from the construction and operation of the two plants. There will be an economic impact from construction and another economic impact from ongoing operations once the plants are operational. During the entire time of construction for both plants, capital expenditures of $1,732.5 million are estimated to result in a total of $3.0 billion in the production of goods and services, labor income of $1.3 billion, and 23,050 full- and part-time jobs. It is further estimated that $78.7 million in state and local taxes and an additional $254.5 million in federal taxes will be generated as a result of the construction of these two plants. The results would be one-time impacts associated with construction only. While the impacts from construction of the two plants would be substantial, it is the impact of ongoing operations that over time will yield the largest benefits to Tennessee. On an annual basis, the auto maker s direct output of $6.9 billion worth of cars would result in an estimated 18,871 jobs, $1.1 billion in labor income, $3.2 billion of value added (the difference between the final price and the costs of inputs), and total output (the value of goods and services produced because of the auto maker s MRM operations) of $9.7 billion. Additionally, it is estimated that these operations will result in an increase in state and local taxes of $180.5 million and in federal taxes of $399.3 million. The expansion of employment and income opportunities will help each county reduce its unemployment, underemployment, and poverty rates. The additional income and employment opportunities will generate new tax revenues for each county and will set the stage for additional growth in population, in addition to growth in commercial and retail developments. The potential benefits to each county and to the state are far in excess of the cost of constructing an attractive site for employers at MRM. vi

7 Introduction The purpose of this report is to estimate the potential economic impact of the Memphis Regional Megasite (MRM) on the Tennessee economy. The MRM is owned by the State of Tennessee and is situated near the city of Stanton, between the cities of Memphis and Brownsville along the north side of Interstate 40. The MRM is being marketed by the Tennessee Department of Economic and Community Development (ECD) as a potential home for an automobile manufacturer and auto suppliers, in addition to other industries. At the request of ECD, the Sparks Bureau of Business and Economic Research at the University of Memphis created a scenario analysis of potential economic impacts of likely development at MRM that included (1) an automobile manufacturer and (2) a major automotive parts supplier to the auto manufacturer. The results of this analysis are presented in this report. Like other public and private investments, one measure of a successful public/private investment is its contribution to the local economy as a result of its operation. Assuming successful recruitment of the desired tenants, MRM should generate measurable, positive economic returns, including employment, earnings, economic output, and tax revenue. Methodology For this analysis, a combination of expert opinion, self-reported data from MRM, and secondary data where available were utilized. Using the IMPLAN (IMpact Analysis for PLANning) model and data for similar industrial categories, estimated total economic contributions from MRM were calculated. The IMPLAN methodology was used to provide estimates of the economic effects on the community of MRM-introduced economic changes. These changes included such factors as normal MRM operations, construction of new facilities at MRM, expansion of existing services, or the introduction of new services. Data used within IMPLAN models come from a variety of sources including the U.S. Bureau of Economic Analysis (BEA), the U.S. Bureau of Labor Statistics, and the U.S. Bureau of the Census. More information on specific sources of data is available at Of note, according to IMPLAN/BEA data for Tennessee, approximately 41.3 percent of

8 the inputs necessary for automobile manufacturing can be purchased within the state. The remainder of the materials and services needed for production, then, are imported into Tennessee. IMPLAN 1 was developed by MIG, Inc., in cooperation with the USDA Forest Service, the Federal Emergency Management Agency, and the U.S. Bureau of Land Management. Its data and accounts closely follow the accounting conventions used in the Input-Output Study of the U.S. Economy by the Bureau of Economic Analysis. The IMPLAN model is used by a variety of public and private entities including, but not limited to: U.S. Army Corps of Engineers Booz, Allen, Hamilton, Inc. Ernst & Young Bureau of Economic Analysis Bureau of Land Management Economic Research Services Environmental Protection Agency Fish & Wildlife Service Specifically, the IMPLAN methodology provides estimates of changes in output (the dollar value of changes in the production of goods and services), earnings, and employment brought about because of an economic change in the industry being considered. The methodology examines the link between the industry in question and other local industries, in addition to the impact on local households. Examples of the IMPLAN methodology include: Implications on Health Care Manpower. Memphis, Tennessee: The University of Memphis, January Available online at: 2.pdf. Harrison, Haskel, Lee Grehan, and Jeffrey Wallace. The Economic Impact of Community College Career and Technical Education Expenditures in Tennessee. American Institute of Higher Education: Proceedings, Vol. 1(1), pp , April Gourley, Dick, Shelley White-Means, and Jeff Wallace. The Economic Impact of a College of Pharmacy. American Journal of Pharmaceutical Education, Vol. 72(1), pp. 1-10, February Hallegatte, Stéphane. "An Adaptive Regional Input Output Model and Its Application to the Assessment of the Economic Cost of Katrina." Risk Analysis 28, no. 3 (2008): For more information on IMPLAN, see 2

9 Assumptions The primary assumption of the analysis is that a major automobile manufacturer will locate at the site and spend $1.6 billion on initial construction and plant development. Once complete, the plant will employ 4,000 workers with earnings of approximately $176.0 million while producing approximately $6.9 billion 2 worth of automobiles. Effectively, this assumption is the same as that for the formerly-proposed Toyota-Mazda joint venture that recently turned down the opportunity to locate at MRM due to a lack of completeness of MRM, including the lack of wastewater treatment and disposal facilities. The assumed dollar value of automobile production in this analysis was derived by using total annual automobile manufacturing output per employee derived from IMPLAN/BEA estimates of output and employment for the automobile manufacturing sector in Rutherford and Hamilton counties. These data produce an estimate of approximately $6.9 billion. In comparison, using automobile production data for the whole of Tennessee produces a higher estimate of $7.2 billion. The lower estimate was chosen in an effort to be more conservative. In either case, these estimates are consistent with current automobile manufacturers in Tennessee. In addition to the auto maker, an auto parts supplier is also assumed to invest in a $132.5 million factory at MRM and employ 450 workers who will earn an estimated $19.8 million. Similarly, the values for the auto parts supplier are averages derived using IMPLAN/BEA estimates of auto parts suppliers in Tennessee. As was the case for the assumptions about the automobile manufacturer, these basic assumptions were provided by ECD. To avoid the problem of double counting and to simplify the analysis, it is assumed that all output of the supplier is purchased by the auto maker. The analysis is divided into three main sections: (1) the auto industry and economic conditions in the MRM labor market, (2) construction impacts, (3) annual operations impacts, and (4) the distribution of impacts, including areas most likely to benefit from operations at MRM. It is important to note that construction impacts are one-time impacts and limited to the actual period of construction, while annual operations impacts will occur as long as the auto manufacturer continues operations at MRM and are expected to be long-term. 2 See for more information on the raw data. 3

10 Auto Industry and Economic Conditions in the MRM Labor Market The Tennessee auto industry is well established, with major automobile manufacturing plants in Springhill, Smyrna, and Chattanooga and suppliers spread across the state (Map 1). As discussed previously, the automobile industry is able to purchase 41.3 percent of required goods and services within the state while importing the remainder from out of state. With this limitation accounted for, the impact estimates shown in this analysis are limited strictly to Tennessee and as such, all of the economic impacts shown would occur in Tennessee (the location of persons employed in addition to services and goods produced). Labor employed by the auto maker and the supplier at MRM, however, would come from a much more limited area. Map 1. Auto Industry Presence in Tennessee Source: Tennessee Department of Economic and Community Development. The primary labor market area of focus for this study is shown in Map 2. This includes Haywood County, where MRM is located, in addition to all counties within an approximate onehour commute time. The full list of the counties in this labor market, along with selected economic demographic data for each, is presented in Tables 1 and 2. 4

11 Map 2. Memphis Regional Megasite Labor Market As shown in Tables 1 and 2, the state of Tennessee had a labor force of 3.1 million and an annual unemployment rate of 4.8 percent in Of the twelve counties in the MRM labor market area, Lauderdale County had the highest unemployment rate at 7.8 percent and Madison the lowest at 5.0 percent for the same time period. All the counties had unemployment rates higher than the state s level. The five-year estimated per capita income for the state was $26,019 for Only Shelby County had a larger per capita income than did the state at $26,963. Hardeman County had the lowest per capita income during the period of $16,178. The state s poverty level during this time period was 17.2 percent. Fayette and Tipton counties were the only counties from the MRM labor market area to have poverty levels lower than the state s level. 5

12 Table 1. Annual Unemployment Statistics, Tennessee and Selected Counties, 2016 (Not Seasonally Adjusted) Area/County Labor Force Employment Unemployment Unemployment Rate Tennessee 3,135,102 2,984, , % Chester 8,442 8, % Crockett 6,966 6, % Dyer 16,507 15,471 1, % Fayette 18,087 17, % Gibson 21,317 20,043 1, % Hardeman 9,166 8, % Haywood 7,724 7, % Henderson 12,086 11, % Lauderdale 9,475 8, % Madison 47,677 45,311 2, % Shelby 435, ,862 23, % Tipton 27,752 26,145 1, % Source: Bureau of Labor Statistics. Table 2. Per Capita Income and Percentage of Persons Below Poverty Level in the Past 12 Months, Five-Year Estimates, Tennessee and Selected Counties, Area/County Per Capita Income Percent Below Poverty Level Tennessee $26, % Chester $19, % Crockett $20, % Dyer $23, % Fayette $29, % Gibson $20, % Hardeman $16, % Haywood $19, % Henderson $20, % Lauderdale $16, % Madison $23, % Shelby $26, % Tipton $24, % Source: U.S. Bureau of the Census, American Community Survey. Allocation of employment, labor income, and local tax impacts was assigned by each county s proportion of the labor market area population. While Haywood County will receive the 6

13 lion s share of property taxes generated as a result of this project, the precise amount is unknown as it likely will be a result of negotiations between the auto maker and local governing officials for a PILOT (Payment In Lieu of Taxes) grant. For the sake of simplicity, all tax impacts were allocated proportionately by population among all counties shown in Map 2. Impacts: Construction Combining capital investment for both the auto maker and the auto parts supplier yields total capital investment of approximately $1,732,500,000. This amount was used in the IMPLAN economic impact modeling process to generate the estimated economic impacts of construction of both plants (see Table 3). During the entire construction period for both plants, capital expenditures (direct output in this case) of $1,732.5 million are estimated to result in a total of $3.0 billion in the production of goods and services (output), labor income of almost $1.3 billion, and 23,050 fulland part-time jobs. It is further estimated that $78.7 million in state and local taxes and an additional $254.5 million in federal taxes will be generated as a result of the construction of the two plants. These results are estimated one-time impacts associated with the construction phase only. Table 3. Total Construction Impact Summary, Auto Maker and Auto Supplier Plants Combined Impact Type Employment Labor Income Value Added Output Direct Effect 14,649 $832,597,198 $890,921,356 $1,732,499,914 Indirect Effect 2,147 $135,829,719 $218,504,406 $409,890,036 Induced Effect 6,254 $303,674,933 $495,134,321 $864,755,439 Total Effect 23,050 $1,272,101,850 $1,604,560,082 $3,007,145,475 The economic impact of capital investment expenditures to build both plants would extend throughout Tennessee s economy. The top ten industry sectors directly and indirectly affected by MRM construction expenditures are shown in Table 4. The impacts would occur over the entire range of the area s economy as employees spend their earnings and the construction-related businesses working at MRM make their own supplier purchases. 7

14 Table 4. Top Ten Sectors Affected by Labor Income from Construction Labor Description Employment Income Value Added Output Construction of new manufacturing structures 14,649 $832,597,198 $890,921,356 $1,732,499,914 Wholesale trade 555 $44,990,186 $89,702,375 $140,668,242 Full-service restaurants 390 $8,865,263 $9,578,840 $18,498,874 Limited-service restaurants 374 $6,996,240 $15,425,131 $28,513,535 Real estate 357 $10,457,076 $49,851,253 $68,948,826 Hospitals 308 $39,154,752 $34,089,290 $54,121,764 Employment services 257 $8,065,472 $12,120,826 $16,170,923 Truck transportation 251 $15,299,490 $17,752,104 $42,692,007 Retail - General merchandise stores 214 $5,947,049 $9,884,092 $15,095,546 Offices of physicians 205 $21,152,304 $20,046,835 $29,209,838 As discussed previously, the employment, labor income, and local tax impacts from construction were allocated by each county s proportion of the labor market area population. These allocations are presented in Table 5. While actual plant construction would occur in Haywood County, Shelby County would benefit the most in terms of labor-related impacts since it has the largest population in the labor market area. However, all counties in this area would share in the benefits from the construction of the two plants. Table 5. Allocation of MRM Construction Jobs, Earnings, and Tax Impacts Percent of County Population Population Jobs Labor Income Local Taxes* Shelby 934, % 15,957 $880,664,441 $18,150,430 Madison 97, % 1,667 $92,026,595 $1,896,661 Tipton 61, % 1,047 $57,765,032 $1,190,533 Gibson 49, % 843 $46,549,930 $959,391 Fayette 39, % 676 $37,305,150 $768,856 Dyer 37, % 644 $35,531,766 $732,307 Henderson 27, % 475 $26,216,314 $540,316 Lauderdale 26, % 457 $25,227,855 $519,944 Hardeman 25, % 434 $23,967,075 $493,960 Haywood 17, % 305 $16,822,653 $346,714 Chester 17, % 298 $16,445,738 $338,945 Crockett 14, % 246 $13,579,301 $279,868 Total 1,350, % 23,050 $1,272,101,850 $26,217,926 * The dollar amount in this column is local taxes only. Estimated total state and local taxes were $78,732,512. State taxes would account for approximately 2/3 of the total, with the remaining 1/3 being accounted for in the local areas. Source: 2016 population estimates from U.S. Bureau of the Census. All other values from IMPLAN model estimates. 8

15 Impacts: Ongoing Operations While the impacts from construction of the two plants would be substantial, it is the impact of ongoing operations that over time will yield the largest benefits to Tennessee. Whereas construction expenditures would result in a one-time benefit, ongoing operations would result in long-term economic benefits. As discussed previously, once complete, the automobile manufacturing plant will employ 4,000 workers and produce approximately $6.9 billion worth of automobiles, while the auto parts supplier will employ 450 workers and will sell all of its production to the auto maker (this last assumption helps to avoid double counting of total output in the impact analysis as the supplier s output is accounted for via the output of the auto maker). Using the assumptions just described as input into the IMPLAN economic impact model yields the results shown in Table 6. Thus, on an annual basis, the auto maker s direct output of $6.9 billion worth of cars would result in an estimated 18,871 jobs, $1.1 billion in labor income, $3.2 billion of value added (the difference between the final price and the cost of inputs), and total output (the value of goods and services produced as a result of the auto maker s MRM operations) of $9.7 billion. Additionally, it is estimated that these operations will result in an increase in state and local taxes of $180.5 million and federal taxes of $399.3 million. Table 6. Total Annual Ongoing Operations Impact Summary, Auto Maker and Auto Supplier Plants Combined Impact Type Employment Labor Income Value Added Output Direct Effect 4,450 $195,800,000 $1,754,039,039 $6,900,000,000 Indirect Effect 7,665 $531,221,202 $877,899,675 $1,827,340,273 Induced Effect 6,756 $328,290,432 $534,966,587 $934,606,318 Total Effect 18,871 $1,055,311,634 $3,166,905,301 $9,661,946,591 The top ten industry sectors directly and indirectly affected by ongoing operations of both the auto maker and the parts supplier are shown in Table 7. While the lion s share of activities and impacts occur within the automobile industry itself, the impacts are spread across the Tennessee economy. 9

16 Table 7. Top Ten Sectors Affected by Labor Income from Annual Ongoing Operations Labor Description Employment Income Value Added Output Automobile manufacturing 4,390 $513,225,454 $1,760,147,250 $6,924,028,198 Wholesale trade 2,542 $206,069,967 $410,866,613 $644,307,181 Management of companies and enterprises 696 $76,817,126 $93,701,641 $157,631,223 Truck transportation 598 $36,484,421 $42,333,124 $101,806,865 Real estate 467 $13,694,471 $65,284,651 $90,294,622 Full-service restaurants 462 $10,522,900 $11,369,903 $21,957,815 Limited-service restaurants 453 $8,463,593 $18,660,314 $34,493,807 Employment services 344 $10,791,247 $16,217,134 $21,635,985 Hospitals 335 $42,527,392 $37,025,611 $58,783,606 Retail - General merchandise stores 236 $6,554,257 $10,893,282 $16,636,837 As was the case with construction, the employment, labor income, and local tax impacts from ongoing operations were allocated by each county s proportion of the labor market area population. These allocations are presented in Table 8. Table 8. Allocation of MRM Auto and Supplier Plants Jobs, Earnings, and Tax Impacts Percent of County Population Population Jobs Labor Income Local Taxes* Shelby 934, % 13,064 $730,582,563 $41,618,440 Madison 97, % 1,365 $76,343,522 $4,348,993 Tipton 61, % 857 $47,920,778 $2,729,860 Gibson 49, % 691 $38,616,941 $2,199,857 Fayette 39, % 553 $30,947,647 $1,762,967 Dyer 37, % 527 $29,476,481 $1,679,160 Henderson 27, % 389 $21,748,559 $1,238,931 Lauderdale 26, % 374 $20,928,551 $1,192,218 Hardeman 25, % 356 $19,882,632 $1,132,636 Haywood 17, % 250 $13,955,755 $795,005 Chester 17, % 244 $13,643,074 $777,193 Crockett 14, % 201 $11,265,131 $641,731 Total 1,350, % 18,871 $1,055,311,634 $60,116,989 * The dollar amount in this column is local taxes only. Estimated state and local taxes were $180,531,499. State taxes would account for approximately 2/3 of the total, with the remaining 1/3 being accounted for in the local areas. Source: 2016 population estimates from U.S. Bureau of the Census. All other values from IMPLAN model estimates. 10

17 While actual operations would occur in Haywood County, Shelby County would benefit the most in terms of labor-related impacts since it has the largest population in the labor market area. However, all counties in this area would share in the benefits from ongoing operation of the two plants whether supplying labor, goods, or services to facilitate auto production at the site. Other Benefits The estimated impacts shown in this analysis represent the most direct benefits of having an auto maker and an auto parts supplier locate in Memphis Regional Megasite. There are other potential benefits that may come to the local area as both the auto maker and the parts supplier become active and engaged corporate citizens. Many large corporations choose direct corporate giving specifically to the communities around their plants. In 2016, Hyundai donated approximately $402,000 to charities in Montgomery, Alabama. 3 In 2016, Nissan s donation of $100,000 put their total contribution over the past ten years at the $1.0 million mark to Second Harvest, a Middle Tennessee food bank. 4 The Nissan Foundation has awarded $290,000 in 2017 to various organizations in Tennessee. 5 In 2017, General Motors Spring Hill manufacturing plant provided $80,000 in grants to support seven organizations within their local community. 6 These are just a few of many examples of the additional economic impact automobile manufacturing plants have made in the communities where they are located

18 Summary In summary, all counties in West Tennessee stand to gain from the Memphis Regional Megasite development. Each county s share of the benefits will depend upon its proximity to the site, its population base, its available labor force, and its ability to support and absorb the growth that will be generated by the massive development. The expansion of employment and income opportunities will help each county reduce its unemployment, underemployment, and poverty rates. The additional income and employment opportunities will generate new tax revenues for each county and will set the stage for additional growth. Additional commercial and retail development will be generated as a direct and indirect outcome of the Megasite. Population growth will be stimulated as a result of the opportunities associated with the project. Infrastructure projects that currently lack support will be feasible under the powerful pull of the project. Additional economic development opportunities will be generated as a result of retaining current employers and attracting new employers to West Tennessee. The benefits to each county and to the state are far in excess of the cost of constructing an attractive site for employers. 12