If you’ve wondered exactly how other economic developers use impact data to evaluate deals or to communicate their consequences to community stakeholders, then you won’t want to miss this playback from the 2016 IEDC Conference in Cleveland. Impact DataSource’s own Paul Scheuren was joined by local economic developers John Bonnot, Andrea Roy, and Joey Grisham to pull back the curtain on their operations and explain how they use the deal impact analysis to move their communities forward.
In the session titled “Art of the Deal Impact Analysis”, Paul first began with the basics by putting numbers in their place. Economic development is an art – tables and charts are nice but demonstrating the benefits of a deal using an impact analysis is more art than science. Check out this short video for a quick refresher on what a deal impact analysis contains.
Director of Economic Development
Frisco Economic Development Corporation
Next up, John Bonnot of the Frisco, Texas EDC shared how his organization uses a deal impact analysis for primary employer projects and infrastructure deals. According to John, the city and ED organization’s main source of revenue comes from a 2% sales tax so the model’s ability to estimate taxable sales by new workers or construction activity is extremely important. John’s customized impact model includes a “What-if” page that allows him to evaluate a wide range of scenarios for any given deal. For primary employer projects, the Frisco EDC can utilize a job performance grant. John shared the results of an analysis related to a recent deal involving a headquarters relocation from outside of the state. The average salaries were $100,000 and the employer will occupy a brand new building in the business park. In total, this project serves as the catalyst for a developer to begin the next phase of construction in the business park. The economic development board in Frisco is keenly interested in the payback period for possible incentives – that is the length of time it takes the city and EDC to recoup the value of the incentive from net new tax revenues. Using the model, John is able to determine the incentive amount associated with a specific payback period. A typical starting point for a payback period is half of the project’s lease length – meaning the board would seek a five-year payback period on a project with a 10-year lease – although the organization has the flexibility to consider shorter or longer payback periods.
In addition to primary employer projects, the Frisco EDC seeks to direct growth in the community by offering incentives that reimburse infrastructure costs of desirable retail or other development. Based on a conservative estimate of taxable sales at the new development, the EDC can identify eligible infrastructure improvements that may be reimbursed. The new sales and property tax revenue support the ROI and payback period. “We can actually put in a desired percentage of qualified infrastructure so we put in different numbers we might put in a total incentive and run the analysis looking at the incentive and we’ll go back and put in a particular rate of return. Our board doesn’t really care about the rate of return; they focus truly on the payback period.”
Economic Development Manager
City of Carrollton, TX
In the City of Carrollton, Texas, economic developer Andrea Roy works to create jobs in a community that is 95% built out. Carrollton finds the model invaluable in its application of its job creation grant. “In an aging community where my buildings are already in existence and I’m trying to keep them filled, I’ve got tenants and office users coming in with zero capital investment but great jobs. So what the job creation grant does for us is to keep those jobs and compete with those other cities where there might be more of a capital investment.” Some of the recent job grants have been for jobs paying $80,000 up to $130,000 per year.
The economic development focus in Carrollton is value creation and preservation, and their model allows them to enter data about an existing employer and understand the benefits that the employer generates in the community. So by using the model for expansion deals, Carrollton is able to demonstrate not just the value of the new expansion but also the value of the existing operations in the city – extremely useful information in retention projects.
Additionally, the city council has grown accustomed to seeing certain graphs or metrics from the model. “I have a certain council member who will always ask me about return on investment. Another will always ask me about my payback period. Still another council member will ask me about the impact to the school district. So I’m sure everyone works with different groups and they have their own focuses. Overall, our focus is the property tax but these are certain things I can feed them before they even ask me and we can see those paybacks.”
Since every project is so different, Carrollton doesn’t have a set policy for incentive amounts. Andrea reports that the economic development department and city council confer based on the results of the impact analysis and develop unique incentive proposals for each project.
Director of Business Recruitment
Greater Irving-Las Colinas Chamber of Commerce
Joey Grisham of the Irving Chamber of Commerce also shared insight on how the Chamber uses a customized impact model to make economic development decisions and provide supporting data to the city council. “At Irving, we average 70 to 90 projects per year so obviously we had to have a model built. We use it every single day in some capacity.” The Chamber is the first point of contact for a prospect. “We will run the numbers in this model. We input all of the data [from the prospect] and that obviously will give us a report. You’ve heard about payback period, you’ve heard about all the inputs, what that does is gives us something tangible to show our city council and our economic development staff at the City of Irving. Anytime you’re dealing with any kind of project, you obviously want to be able to show what the numbers look like from here on out. That’s always important. One of the neat things about this is it looks at all revenue coming to the city. So we don’t just look at property tax, sales tax. We look at utility fees we look at permit fees, and hotel occupancy taxes. So we want to be able to show the full impact of this project and not just a couple things. We want to make sure that we truly encompass what this project will mean. In Irving, we’re a little different than most, we have a lot of office space and we have a lot of industrial space so we like having that flexibility in a customized model because an industrial deal looks a lot different than an office deal.”
“While we utilize the impact analysis for economic development deals, we do something a little different. We also do an organizational impact. So not only are we trying to justify economic development deals, we’re trying to justify ourselves. We’re a public-private partnership: we receive money from the City of Irving and we also have a group of investors.” The Chamber shows the value to the City of having this partnership with the Chamber by evaluating the economic and fiscal impact of the Chamber’s “wins”. The report helps the Chamber show the ROI on the city’s investment. For every $1 of economic development investment, the Chamber generates value in terms of economic output, workers’ earnings, local taxable sales and local property and sales taxes.
Banner Photo Credit: FreeImages.com/Andrzej Pobiedzinski