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CEDBR Fiscal Benefit-Cost
Model 2010 - 2011
Kasey Jolly, Senior Research Economist
Center for Economic Development and Business Research
Wichita State University
History of Model Development
 Court of Tax Appeals (COTA) requires analysis for tax
  abatements and IRBs
 State model developed and funded by Kansas Inc. and
  Kansas League of Municipalities in 1993, but not kept
  up-to-date
 GWEDC provided funding for development of new
  model
Why was the new model developed?
 Old model outdated
    SIC not NAICS
    Other limitations
 Allow greater flexibility
 Local technical support
 Available for use throughout ED process
Two Versions of the Model
DESKTOP MODEL                   FULL MODEL
 Given to regional partners     CEDBR - $600 fee to run the
 Returns output for City and     model
  County                         Returns output for
 User Friendly                   City, County, State and School
                                  District
                                 Created to be flexible;
                                  therefore, more complex
                                  than Desktop model
Data Provided by CEDBR: Community Data
 Tax rates                       LOB (local option budget) mill levy
                                   rate
 Mill levy rates
                                  LOB percentage of general budget
 Budget information
                                  Capital outlay mill levy rate
 Number of residents
                                  Number of students
 Number of employed residents
                                  General Fund Budget
 Avg. market value of new
  residential property
 Avg. wage all jobs
Multipliers
 Calculated by the US Dept. of Commerce, BEA
 Measure the impact of business operations on other
  businesses in the community
 Measure the impact of payroll expenditures on other
  businesses in the community
 Direct, Indirect and Total jobs/and or payroll
Worker Spending Patterns
 A major source of revenue for taxing jurisdictions is retail sales taxes
 To account for these revenues, we must know what percentage of a
  company’s sales and purchases are subject to sales tax; it is also
  necessary to estimate these percentages for company
  employees/payroll
 Captured retail sales
     County – “County Pull Factors” (KSU)
     City – city pop. is divided by county pop.
     State – the model assumes 100% is subject to tax
Substitution
 Individual industries (each NAICS) have been given a predetermined
  substitution rate
 Rates were based on the nature of the industry:
    We have two types of industry:
       Base – brings outside dollars in
       Support – reshuffles existing dollars
       Base industries and support industries may look very different
         from one community to the next.
    In addition, specialization within the industry – specifically skill
     sets – impact substitution rates
Data Needed from Company
 NAICS code
 Capital investment
    Land, buildings, machinery and equipment
 Number of new jobs
 Average wages of new jobs
 Firm payments to the city or county
Data Needed from Community: Incentives
 Dollar value of incentives by type and taxing
  jurisdiction
    Tax abatement (years/percentage)
    Forgivable loan
    Training dollars
    Infrastructure improvement
    Cash value of all other incentives
Print Out Sheet
 Project summary
 Incentive summary
 Tax abatement parameters
 Construction impact
 Substitution
 Firm multipliers
 Economic impact of firm operations
Fiscal Impact – Presented Using 3 Measures
Return on investment
Benefit Cost Ratio
Net Present Value

BENEFITS                    COSTS
   Property Taxes             Incentives
   Retail Sales Taxes         Cost of providing
   Transient Guest Taxes       city/county services
   Other Fees & Taxes
Limitations
 Quantitative vs. Qualitative
 Relies on information given to us
 The desktop version purposely underestimates
  benefits to the community
 Depending on the situation, can under- or over-
  estimate impacts
    Example – large capital expenditure with tax
     abatement may outweigh benefits seen from new
     jobs

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Basics of the Fiscal Desktop Model

  • 1. CEDBR Fiscal Benefit-Cost Model 2010 - 2011 Kasey Jolly, Senior Research Economist Center for Economic Development and Business Research Wichita State University
  • 2. History of Model Development  Court of Tax Appeals (COTA) requires analysis for tax abatements and IRBs  State model developed and funded by Kansas Inc. and Kansas League of Municipalities in 1993, but not kept up-to-date  GWEDC provided funding for development of new model
  • 3. Why was the new model developed?  Old model outdated  SIC not NAICS  Other limitations  Allow greater flexibility  Local technical support  Available for use throughout ED process
  • 4. Two Versions of the Model DESKTOP MODEL FULL MODEL  Given to regional partners  CEDBR - $600 fee to run the  Returns output for City and model County  Returns output for  User Friendly City, County, State and School District  Created to be flexible; therefore, more complex than Desktop model
  • 5. Data Provided by CEDBR: Community Data  Tax rates  LOB (local option budget) mill levy rate  Mill levy rates  LOB percentage of general budget  Budget information  Capital outlay mill levy rate  Number of residents  Number of students  Number of employed residents  General Fund Budget  Avg. market value of new residential property  Avg. wage all jobs
  • 6. Multipliers  Calculated by the US Dept. of Commerce, BEA  Measure the impact of business operations on other businesses in the community  Measure the impact of payroll expenditures on other businesses in the community  Direct, Indirect and Total jobs/and or payroll
  • 7. Worker Spending Patterns  A major source of revenue for taxing jurisdictions is retail sales taxes  To account for these revenues, we must know what percentage of a company’s sales and purchases are subject to sales tax; it is also necessary to estimate these percentages for company employees/payroll  Captured retail sales  County – “County Pull Factors” (KSU)  City – city pop. is divided by county pop.  State – the model assumes 100% is subject to tax
  • 8. Substitution  Individual industries (each NAICS) have been given a predetermined substitution rate  Rates were based on the nature of the industry:  We have two types of industry: Base – brings outside dollars in Support – reshuffles existing dollars Base industries and support industries may look very different from one community to the next.  In addition, specialization within the industry – specifically skill sets – impact substitution rates
  • 9. Data Needed from Company  NAICS code  Capital investment  Land, buildings, machinery and equipment  Number of new jobs  Average wages of new jobs  Firm payments to the city or county
  • 10. Data Needed from Community: Incentives  Dollar value of incentives by type and taxing jurisdiction  Tax abatement (years/percentage)  Forgivable loan  Training dollars  Infrastructure improvement  Cash value of all other incentives
  • 11. Print Out Sheet  Project summary  Incentive summary  Tax abatement parameters  Construction impact  Substitution  Firm multipliers  Economic impact of firm operations
  • 12. Fiscal Impact – Presented Using 3 Measures Return on investment Benefit Cost Ratio Net Present Value BENEFITS COSTS  Property Taxes  Incentives  Retail Sales Taxes  Cost of providing  Transient Guest Taxes city/county services  Other Fees & Taxes
  • 13. Limitations  Quantitative vs. Qualitative  Relies on information given to us  The desktop version purposely underestimates benefits to the community  Depending on the situation, can under- or over- estimate impacts  Example – large capital expenditure with tax abatement may outweigh benefits seen from new jobs