DECD and REMI

1. DECD and REMI Stan McMillen, Ph.D., Managing Economist Joan McDonald, Commissioner

2. REMI Studies • CCEDA – CT Convention Center, Front Street, Science Center, parking complex • CT CCC - Film Tax Credit • CCEF - RE/EF Industries & Jobs • CCIC – Impact of CT Private Colleges & Universities • OPM – Estate Tax Study • DOT – I-84/Rte. 8 Interchange Impact • CI – Investment Portfolio Impact • CT CCC – Culture & Tourism Impact • UConn – Impact of University of CT system • Mystic Seaport – Impact of Current Operations & Proposed Buildout • Dairy Industry Impact • CT Rail Impact • The Contribution of Bradley International Airport to CT’S Economy • The Contribution of the Groton Naval Sub Base and the Electric Boat Company to the Economies of Connecticut and Southeastern Connecticut • The Economic Impact of a Cruise Ship Visit on Connecticut's Economy • The Economic Impact of Avian Influenza on Connecticut’s Egg Industry • Agency business development projects, CHFA housing projects, in-house tax analysis

3. REMI Studies • CT Convention Center, Science Center, Front Street & parking complex • Counterfactual analysis for CCC • Buildout analysis for future phases & phases in progress • Use credible sources for retail sales and visitor spend, detailed construction spend available • Separate parking analysis

4. REMI Studies • CT CCC - Film Tax Credit • Use 2006 statute to assess first year impact of FTC • Comb through production companies expenditure records for qualified expenditures • Use conservative assumptions about ATL vs BTL expenditure and leakages.

5. REMI Studies • CCEF - RE/EF Industries & Jobs • Survey literature for definitional help • Work with Navigant survey results • Define RE/EF industries using 6-digit NAICS • Examine CT industry size, composition & trends • Use counterfactual to estimate impact

6. REMI Studies • CCIC – Impact of CT Private Colleges & Universities • Use IPEDS & CCIC survey data to estimate direct employment, CT purchases, student & visitor spend, research spend • Counterfactual approach

7. REMI Studies • OPM – Estate Tax Study • Literature survey • DRS survey • Range of assumptions • Results inconclusive

8. REMI Studies • DOT – I-84/Rte. 8 Interchange Impact • To help Waterbury decide on which configuration to focus for EIS, design work & impact on local business • Two highway reconfigurations, two buildout scenarios each with & w/out ITC • Worked with DOT’s TDM to converge to pop/jobs equilibrium given each buildout scenario. • Used GIS to determine precise location & land area for buildouts relative to defined highway reconfig maps (Wilbur Smith) • Identified principal properties that would be taken in each highway configuration & property tax and job consequences for each buildout in each config.

9. REMI Studies • CI – Investment Portfolio Impact • Surveyed each firm in CI’s portfolio to understand how CI helped & jobs created due exclusively to CI’s investment • Used CI’s portfolio data to estimate type & amount of assistance (FY1995 – FY2008) • Referenced 2003 portfolio impact study by Nexus Associates

10. REMI Studies • CT CCC – Culture & Tourism Impact (2006) • Looked at CT arts, tourism, film & heritage/historic ‘industries’ • Defined industries by NAICS & occupations by SOC in each • Used visitor intercept survey to derive visitor spend by region, by commodity, by visitor type (marina, camper, business, tourist) • Counterfactual approach

11. REMI Studies • UConn – Impact of Univ. of CT system • Obtained detailed data on purchasing, research spend, visitors, direct jobs, • Estimated student spend (by place of residence), visitor spend, retirees’ spend, community outreach (free clinics, prison pop., screenings, public ed., student volunteers) • Estimated value of residents & interns to local hospitals • Counterfactual approach

12. REMI Studies • Mystic Seaport – Impact of Current Operations & Proposed Buildout • Obtained data on current operations & visitors • Counterfactual • Estimated construction & subsequent increased (net new) visitor spend

13. REMI Studies • CT Dairy Industry Impact (statutorily req’d) • Used REMI and IMPLAN (counterfactual) • Looked at fluid milk producers & processors and support industries (direct jobs) • Looked at amenity value of open space for dairy farms • Worked closely with UConn Ag. Econ. faculty & DoAg

14. REMI Studies • DOT - CT Rail Impact for State Rail Plan (Counterfactual) • Subtracted direct jobs in rail transport industries • Reduced commodity access using fraction of rail shipments by weight to, from and within CT • Reduced labor access based on passenger rail fraction of VMT plus passenger rail miles

15. REMI (Internal) Business Assistance Studies • Business development impacts (URA, Job Creation Tax Credit, Film Tax Credit, CDA loans & sales tax exemptions, EZ, CI loans, CCEF loans, Urban Act) • Adjustments for commuting patterns, avg. compensation differences from REMI baseline • Assume max allowable tax credits taken pursuant to Sec. 12-217zz • Allow only direct CT spend except working capital • Most FF&E, computer & office equipment purchases assumed to wholesale at 20% gross margin.

16. Counterfactual Analysis • Used when firm/institution exists • Subtract current jobs, purchases, (ignore commuting patterns), visitor/student spend & other relevant direct effects • Assume no alternative use for real property, i.e., no opportunity cost • Assume current plant & equipment (incl. animals) remain in place (no reclamation of value) • All activity stops - direct employees, students & visitors walk away, purchases (cash flow) stops.

17. Counterfactual Analysis • Demand-side approach – assumes firm/institution no longer needed so relevant firms shed all workers & B2B expenditure • Some released labor is absorbed into other industries • LFPR may decline if some workers leave labor force • When firms reduce head count, wages decline & out-migration occurs

18. Counterfactual Analysis • Supply-side approach implies workers voluntarily leave employment • In this case, wages are driven up

19. Economic Impact • Consists of direct, indirect & induced effects (total effect is the sum of all three) • Direct effect - arises from initial spending by the industry studied, such as payroll for employees and contract workers, goods and services purchases, and rent and permit fees. Direct impacts include the jobs and/or sales in the industries under consideration. • Indirect effect - arises as the businesses and governments that supply the goods, services, permits, rents to an industry in turn buy goods and services from other CT businesses. • A caterer buying produce from a local supplier to serve food on a movie set is an example of this kind of impact. • Induced effect - represents the additional income earned & spent by workers and business owners due to their participation in and support of a particular industry. • The profits and wages earned by a catering business supplying a movie production create additional income for the caterer and his/her employees. When these workers spend the income they earn in Connecticut to buy local goods and services, they generate induced impacts for the state.

20. Multipliers • Type I multipliers address the direct and indirect effects of a change in the regional economy. • Capture inter-industry effects only, that is, industries buying from local industries. They do not capture induced effects (new household spending). • Type II multipliers take into account the direct, indirect effects and the income and expenditures of households (induced effects) due to changed economic activity in the region, but they do not capture inter-institutional transfers. • Type II multipliers assume that as incomes rise, spending on all goods and services increases.

21. Multipliers • Type SAM (social accounts matrix) multipliers account for direct, indirect and induced effects, and they capture inter-institutional transfers to account for commuting, social security tax payments, as well as household income taxes and savings. • REMI uses SAM (broadest measure of regional economic activity) • Rickman and Schwer (1995) document the multiplier differences in REMI, IMPLAN and RIMS II (from the U.S. Department of Commerce).[1] They explain the different methods used to regionalize the national input-output matrix and the different methods used to estimate multipliers. [1] Rickman, D. and Keith Schwer (1995). “A comparison of the multipliers of IMPLAN, REMI, and RIMS II: Benchmarking ready-made models for comparison,” Annals of Regional Science, 29(4), p. 363-374.

22. Multipliers • Multipliers exist in RIMS II[1] and IMPLAN for employment, output (sales) and value added shocks. • Specific to the industry chosen and the industry level, that is, the level of industry detail or more precisely defined industry within a larger group. • E.g., violin making is a subset of manufacturing. Specific multipliers exist for each smaller industry subgroup in manufacturing. Therefore, depending on the industry specificity available in the model, one obtains different multipliers across different models. • [1] The U.S. Department of Commerce, Bureau of Economic Analysis (BEA) maintains an input-output modeling system for which paying clients may obtain customized multipliers for various sub-regions of the United States from the RIMS II model. BEA publishes a set of multipliers for 39 designated industry groups for each state (User Handbook, USDC, BEA, 1992). See: http://www.bea.gov/bea/regional/rims/.

23. Multipliers • Multipliers are region-specific, i.e., they are larger the larger the region considered. • They are larger the larger the quantity of locally supplied labor and goods and services supporting the industry studied. • Therefore, a “shock” (for example an employment change) to a given industry in one region may have significant differences from applying the same shock to the same industry in a different region. This implies that multipliers are not comparable across regions (or across studies).

24. Multipliers • In a regional model such as REMI, in which shocks (inputs) are described as demand side and/or supply side (such as productivity or LFPR changes), and in quite complex terms, multipliers have little meaning • For cases in which the shock is simple and demand driven such as an industry employment change, one can impute an employment multiplier for the state or the county as the region of analysis

25. Measures of Success • Jobs created • New state gross domestic product • New output (sales in all industries) • New personal income • Net new state revenue • New gross state revenue from indigenous sources • Less new gross state expenditure for all domestic uses (incl. tax expenditure and debt service) • Net new local revenue • DECD developed a CT model to estimate • Imputed multipliers

26. Documentation • “Regional Economic Modeling: A Systematic Approach to Economic Forecasting and Policy Analysis,” George I. Treyz, Kluwer Academic Publishers, 1997. • Fan, Wei, Frederick Treyz, and George Treyz. 2000. “An Evolutionary New Economic Geography Model,” Journal of Regional Science, Vol. 40(4), 671-695. • Fujita, Masahisa, Paul Krugman, and Anthony J. Venables. The Spatial Economy: Cities, Regions, and International Trade. Cambridge, Massachusetts: MIT Press, 1999. • Greenwood, Michael J., Gary L. Hunt, Dan S. Rickman, and George I. Treyz. 1991. “Migration, Regional Equilibrium, and the Estimation of Compensating Differentials,” American Economic Review, Vol. 81(5), 1382-1390. • Rickman, Dan S., Gang Shao, and George Treyz. 1993. “Multiregional Stock Adjustment Equations of Residential and Nonresidential Investment in Structures,” Journal of Regional Science, Vol. 33(2), 207-219. • Treyz, Frederick, and George I. Treyz. 1997. “The REMI Multi-Regional U.S. Policy Analysis Model,” paper presented at the North American Regional Science Association Meetings.

27. Documentation • Treyz, George I., Ann F. Friedlaender, and Benjamin H. Stevens. 1977. “Massachusetts Economic Policy Analysis Model.” • Treyz, George I., and Lisa M. Petraglia. 2001. “Consumption Equations for a Multi-Regional Forecasting and Policy Analysis Model,” Regional Science Perspectives in Economic Analysis. Elsevier Science B.V., 287-300. • Treyz, George I., Chris G. Christopher, Jr., and Chengfeng Lou. 1996. “Regional Labor Force Participation Rates,” Regional Economic Models, Inc. • Treyz, George. I., Dan S. Rickman, Gary L. Hunt, and Michael J. Greenwood. 1993. “The Dynamics of U.S. Internal Migration,” The Review of Economics and Statistics, Vol. LXXV, No. 2, May 1993, 209-214. • Weisbrod, Glen, Donald Vary, and George Treyz. 2001. “Project 2-21 – Final Report: Economic Implications of Congestion.” Transportation Research Board, National Cooperative Highway Research Program Report 463. Washington, DC: National Academy Press, 2001. • And see: http://www.remi.com/uploads/File/Documentation/PI+_v1-1_Model_Equations.pdf

28. Other REMI Studies • The CT Center for Economic Analysis (http://ccea.uconn.edu/ccea_studies.htm) • Regional Economic Models, Inc. (www.remi.com)