C2ER Monthly Webinar Series June 19, 2012

1. The Cost of Living Index: Applications for Business and Community C2ER Monthly Webinar Series June 19, 2012

2. Today’s Presentations Module Topic • Cost of Living Index • Business Uses • Community Uses • Academic Uses • Introduction • Methodology • JonesLangLaSalle • Kiplingers • Greater Memphis Chamber • SE Louisiana University Business Center

3. Introduction – Cost of Living Index • Published by Council for Community and Economic Research • Published Continuously Since 1968 •  Three Quarters per Year • Participants’ Input/Community Volunteers

4. What is the Cost of Living Index? • Measure of relative price differences among urban areas • Designed for professional and managerial households in the top income quintile • Prices are collected at a specified time, in strict conformance with standard specifications

5. Our Methodology • C2ER Does Not Believe that End Users are Well-Served Unless Methodology is Understood • Data Collection Practices • Formulas • Average Prices Used • Technical Advisory Board

6. Items by Categories

7. A Specific Standard of Living • Designed for a Specific Standard of Living • For first 30 Years, it was a ‘Mid-Management’ SOL • Designed Specifically for Professional/Managerial Households • Top Income Quintile (20th Percentile) • Due to Regional Salary Variation, No One Income is Specified • One Salary Does Not Fit All Locations • Salary Range is $70,000 to $100,000 • Expected to be Higher in ‘Traditionally’ More Expensive Communities • San Francisco, Boston, New York City, Washington DC, Los Angeles, etc.

8. Who Participates? • Open to All Places for 23 Years • Influx of Small, Rural and Semi-Rural Communities Forced a Change • Difficulties of Adhering to Standards and Specifications • Participation Restricted to Federally Designated Metropolitan Statistical Areas – Census Bureau • Participation is Open to Other Areas Meeting Certain Criteria • Community Population of 35,000 or More • County Population of 50,000 or More • Some Small Communities ‘Grandfathered’ In • Many Communities Cannot Participate • Famous Examples

9. How Do We Know the Data Are Accurate? • Three-Stage Review Process • First Stage Review • Look for Computational Errors • Atypical Prices • Unexpected Quarter-to-Quarter Price Shifts • Prices Not in Keeping with State, or Regional Averages • Second Stage Review • Each Report Reviewed Again for Problematic Prices Not Verified in First Stage • Preliminary Report is Run at This Stage • Third Stage • Project Manager Reviews Prices and Calculations Out of Line Regionally or Historically • No more than 2 Standard Deviation Points Difference • Outside Influences May Affect Prices • National Economy

10. Sampling Size • Samples Vary with Size of MSA • Largest Communities at Least 10 Samples • Micropolitan Areas at Least 3 Samples • More Data Gathered, More Accurate the Report • Wide Price Variations Can Reflect Not Enough Samples

11. Weights • Grocery Items Index (13.36%) • Housing Index (28.64%) • Monthly principal and interest payment for new home represents 23.50% of the Composite Index • Utilities Index (10.46%) • Transportation Index (10.66%) • Health Care Index (4.44%) • Miscellaneous Goods and Services Index (32.44%)

12. How to Use the Index • The most common application of the Index is to compare the differences between two places • MSA #1 and MSA #2 – For Example • Subtract MSA #2’s Index from MSA #1’s Index, Divide the Result by MSA #2’s Index, and Multiply the Answer By 100% • [((115.0-90.0)/90.0)*100%] • =(25.0/90.0)*100% = 28% • Fairly Small Differences Don’t Indicate Any Measurable Difference • Sampling and Non-Sampling Errors • Non-Probability Samples Means No Precise Confidence Interval

13. What Can the Index Tell Us About Dollar Amounts? • U.S. National Average

14. What Can the Index Tell Us About Dollar Amounts? • Area A

15. What Can the Index Tell Us About Dollar Amounts? • Area B

19. Business uses • When evaluating (re)location options • COLI is a key measurement tool in the decision process to help determine competitive wages • Also used to measure the Cost of doing business for retailers/manufacturers. • Helps industries assess the overall economic health of an area • Helps determine if location is a viable option • Thanks to JonesLangLaSalle

20. Business Uses • Most private industries may use some aspects of COLI • Housing costs and transportation costs are key • Overall COLI may not be applicable to their needs. • Real Estate investors tend to use all of COLI’s features • Residential investors • Determine achievable rental rates and • Housing prices • When working with government agencies • Determining levels of need for grant/program funding • Thanks to JonesLangLaSalle

21. Business Uses • Helps with personal finance data • Government Policy • Environmental issues • Technology • Use of COLI as the research basis • Market outlook stories • Make reliable predictions • State of various economies • Use with Census Data • Analyze cost of doing business in different metro areas • Thanks to Kiplingers

22. Business Uses • Use in business reporting • Concentrations of small businesses • Patents and venture capital • Business costs • Use of COLI to break out data on the self-employed • Impact on entrepreneurship and small businesses • Important tool for helping determine location • Changing demographics • Influx of retirees into the economy • COLI data helps businesses adjust • Thanks to Kiplingers

23. Business Uses • Kiplingers’ Best Cities series • Best Cities for Singles: • http://www.kiplinger.com/slideshow/best-cities-for-singles/1.html • 10 Best Value Cities for 2011: http://www.kiplinger.com/slideshow/best-value-cities-2011/1.html • 10 Best Cities for Cheapskates: http://www.kiplinger.com/slideshow/10-best-cities-for-cheapskates/2.html#top • 10 Great Cities for Starting a Business: http://www.kiplinger.com/slideshow/10-great-cities-for-starting-a-business/1.html • Thanks to Kiplingers