Economic impact studies: Should journalists rely on them?

 
NASCAR Hall of Fame
NASCAR Hall of Fame in Charlotte, N.C. (James Willamor/Flickr)
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One of journalists’ most important jobs is to scrutinize decisions made by governing bodies such as a state legislature, county council or school board. One facet of local government that journalists should pay particular attention to is how government leaders use and respond to economic impact studies — analyses that attempt to measure the impact a project such as a new tourist attraction or highway would have on economic activity in a given area.

Sometimes, economic impact studies will be commissioned before elected officials take a vote. Private individuals or groups typically present their own studies as they seek permission to build facilities such as factories or plants, or when they ask the government to partner with them on a project such as an athletic stadium. It is common for public colleges and universities to fund economic impact studies as a way to demonstrate their financial contribution to surrounding communities. Those studies sometimes coincide with the launching of fundraising campaigns.

It’s important to note that the quality of economic impact studies can vary as can the level of scrutiny government leaders themselves give to these documents. Sometimes it isn’t until after a project fails to live up to expectations in job creation, tourism growth, business income and property values that elected officials and others question the reliability of these forecasts. It’s important for reporters to recognize the claims an impact study is making — and notice what information, if any, is left out of the report. Journalists also need to understand how financial projections are made.

Some important questions to ask when writing about an impact study, also known as an Economic Impact Analysis (EIA), are:

  • Where did the numbers come from? Ask the individuals who completed the study to explain how they made their calculations. What are they basing their projections on? What assumptions are they making as part of their calculations?
  • How have similar proposals fared in other parts of the country? For example, if you’re writing about a county council that is considering allowing an expansion of a local convention center, do a quick internet search to find other counties that have taken on the same issue in recent years. Were convention-center expansions successful in those places? Did they meet the projections outlined in their economic impact studies?
  • Have the people who did this economic impact study performed studies elsewhere? Check them out. It is important for the public — and public leaders — to know whether these authors have done a good job or a bad job predicting economic impact in other scenarios. Journalists also should read these other studies, if they exist, to look for problems and patterns. Do the studies look very similar even though the projects and circumstances are very different?

Even after a project is completed, news organizations can refer back to an impact analysis to gauge its success. A 2016 report from the Reno Gazette-Journal highlights the shortcomings of a Tesla-Panasonic battery gigafactory in Nevada, based on projections outlined in a study commissioned by the Governor’s Office. Several years earlier, the Charlotte Observer reported that “wildly inflated projections of economic impact” were used to justify the construction and expansion of a convention center that did not draw nearly as many visitors or as much business as elected leaders expected. The result, according to the article: “The city of Charlotte, Mecklenburg County and the state may make as little as 35 cents for every dollar they spend on the convention business.”

To help journalists write about economic impact studies, we’ve pulled together research that offers additional insight into their value and usefulness. We’re also including other resources that might be helpful, including links to scholars with expertise in this area.

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“How Long Does an Economic Impact Last? Tracking the Impact of a New Giant Panda Attraction at an Australian Zoo”
Driml, Sally; Ballantyne, Roy; Packer, Jan. Journal of Travel Research, 2017. DOI: https://doi.org/10.1177/0047287516656916.

Abstract: “A concerning issue with Economic Impact Analysis (EIA) is that many EIAs give results for one year, without being explicit about how long impacts are expected to last. New tourism attractions should not be assumed to provide continuing positive impacts into the future. For instance, the Giant Pandas at Adelaide Zoo generated a positive economic impact in their first year of residence (22 percent of a sample of tourists visited Adelaide ‘due to pandas,’ additional tourism expenditure in the region was $27.7 million, with $2.3 to $4.6 million captured by the zoo); however, increased numbers visiting to see the pandas lasted only two years. Investment decision makers expected larger, longer-term economic benefits than eventuated, and the zoo experienced financial difficulties. This study provides advice for predictive EIA of new tourism attractions and prompts a call for tourism EIA studies to be explicit about the time period for which results are relevant.”

 

Suggestions for the Needed Standardization of Determining the Local Economic Impact of Professional Sports
Wassmer, Robert W.; Ong, Ryan S.; Propheter, Geoffrey. Economic Development Quarterly, 2016. doi: 10.1177/0891242416636685.

Abstract: “An effort to secure a local government subsidy for a professional sports venue or event typically cites findings from a private consultant’s economic impact analysis on its purported benefits to the jurisdiction(s) offering the subsidy. Scholars have consistently expressed concerns regarding the ability of the public, and the officials that represent them, to detect the deficiencies that often plague such an analysis. We review the previous academic research to identify a common set of concerns regarding this form of analysis. These concerns are the basis for a list of 20 evaluative questions to consider in a critical assessment of an economic impact study. To illustrate the practicality of these questions, we ask them of previous studies regarding the economic impact of different professional sport venues or events in five different U.S. cities.”

 

The Potential Influence of Researchers’ ‘Hidden’ Procedure Decisions on Estimates of Visitor Spending and Economic Impact
Jeong, Ji Youn; Crompton, John L.; Dudensing, Rebekka M. Journal of Travel Research, 2015. doi: 10.1177/0047287515605932.

Abstract: “The potential influence of eight decisions made by researchers that are unlikely to be reported in economic impact analyses are identified and empirically tested. The data set was comprised of studies undertaken at nine state parks in Texas. Four of the decisions were categorized as being potentially relatively malignant in that they used obviously inappropriate procedures and were likely to substantially exaggerate expenditure estimates: using group weighting rather than individual weighting; omitting a measure of the extent to which visiting a park was the primary trip purpose; retaining outlier values; and aggregating different visitor segments. The four relatively benign decisions were: convenience or probability samples; managers’ or samples’ estimates of number of nonlocal visitors; treating nonresponses as missing data or as zero expenditures; and sector selection for assignment of government expenditures.”

 

Economic Impact Studies: Instruments for Political Shenanigans?
Crompton, John L. Journal of Travel Research, 2006, Vol. 45. doi: 10.1177/0047287506288870.

Abstract: “Most economic impact studies are commissioned to legitimize a political position rather than to search for economic truth. Often, this results in the use of mischievous procedures that produce large numbers that study sponsors seek to support a predetermined position. Examples are selected primarily from the reports of ostensibly expert consultants that illustrate 10 of these mischievous procedures: including local residents; inappropriate aggregation; inclusion of time-switchers and casuals; abuse of multipliers; ignoring costs borne by the local community; ignoring opportunity costs; ignoring displacement costs; expanding the project scope; exaggerating visitation numbers; and inclusion of consumer surplus. The political payoff of these shenanigans is discussed.”

 

Convention Myths and Markets: A Critical Review of Convention Center Feasibility Studies
Sanders, Heywood T. Economic Development Quarterly, 2002, Vol. 16. doi: 10.1177/08942402016003001.

Abstract: “American cities are seeing a boom in the development of convention centers. In city after city, massive public investment in convention facilities has been justified by feasibility and market studies that consistently portray a booming national demand for exhibition space. These studies also suggest that the demand for convention center space has and will outrun increases in the supply of space. This article reviews studies for more than 30 cities and demonstrates that they have been consistently flawed and misleading. Some analyses argue that successful convention centers need to expand to remain competitive. Others conclude that failing centers need to add space to succeed. Studies repeat the same positive findings verbatim from one city to another and fail to account for contradictory data. These market and feasibility studies thus offer no real basis for public investment and serve to bias public decision making and choice.”

 

Assessment of Economic Impact Studies: The Cases of BMW and Mercedes-Benz
Connaughton, John E.; Madsen, Ronald A. The Review of Regional Studies, 2001, Vol. 31. ProQuest document ID: 1690838746.

Abstract: “In 1992, the state of South Carolina offered an incentive package in excess of $120 million for the possible location of a BMW auto assembly plant. As part of the location effort, the state of South Carolina sponsored an impact study that appeared to be very optimistic. This paper evaluates this very optimistic impact study. The results presented in this paper fail to support the assumption made in the South Carolina impact study that 21 net new supplier chain firms would accompany a new BMW plant opening. Our findings suggest that the impact studies overestimated the total impact on the state economy.”

 

A Theoretical Comparison of the Economic Impact of Large and Small Events
Agha, Nola; Taks, Marijke. International Journal of Sport Finance, 2015. SSRN: http://ssrn.com/abstract=2709537.

Abstract: “In response to the increasing debate on the relative worth of small events compared to large events, we create a theoretical model to determine whether smaller events are more likely to create positive economic impact. First, event size and city size are redefined as continuums of resources. The concepts of event resource demand (ERD) and city resource supply (CRS) are introduced, allowing for a joint analysis of supply and demand. When local economic conditions are brought into the analysis, the framework determines how a city resource deficiency or surplus affects the economic impact of an event. This resource-based approach assists public officials and event organizers in making more rational decisions for hosting events when they pursue positive economic impacts. Specifically, we find small events have a higher potential for positive economic impact and hosting multiple smaller-sized events is a better strategy than hosting a big event.”

 

Economic Significance of Recreational Uses of National Parks and Other Public Lands
Stynes, Daniel J.; National Park Service; U.S. Department of the Interior. Social Science Research Review, 2005, Vol. 5. http://digitalcommons.usu.edu/govdocs/423.

Abstract: “This paper reviews concepts and methods for estimating the economic significance of recreational uses of public lands and reports estimates of recreation values and economic impacts from recent studies. Aimed primarily at non-economists, the review clarifies the distinction between valuation and impact studies, defines key concepts, summarizes the most accessible approaches, and discusses conceptual and practical issues related to choosing among available methods and interpreting and applying the results. Terms that may be unfamiliar to the reader are highlighted in bold face and defined in a glossary at the end of the paper.”

 

Assessing the Economic Impact of College Football Games on Local Economies
Baade, Robert A.; Baumann, Robert W.; Matheson, Victor A. Journal of Sports Economics, 2008. doi: 10.1177/1527002508318363.

Abstract: “This article provides an empirical examination of the economic impact of spectator sports on local economies. Confirming the results of other ex-post analyses of sports in general, this article finds no statistically significant evidence that college football games in particular contribute positively to a host’s economy. Our analysis from 1970 to 2004 of 63 metropolitan areas that played host to big-time college football programs finds that neither the number of home games played, the winning percentage of the local team, nor winning a national championship has a discernable impact on either employment or personal income in the cities where the teams play. An examination of a subset of 42 smaller college towns finds that winning seasons actually reduce the growth rate of per capita personal income. Although successful college football teams may bring fame to their home towns, fortune appears to be a bit more elusive.”

 

Do Economists Reach a Conclusion on Subsidies for Sports Franchises, Stadiums, and Mega-Events?
Coates, Dennis; Humphreys, Brad R. Working paper for the North American Association of Sports Economists, 2008.

Summary: “Both academic economists and consultants reach a conclusion about the economic impact of professional sports franchises and facilities, but these two groups reach opposite conclusions. The clear consensus among academic economists is that professional sports franchises and facilities generate no ‘tangible’ economic impacts in terms of income or job creation and are not, therefore, powerful instruments for fostering local economic development. The clear consensus among consultants who produce ‘economic impact studies’ is that professional sports franchises and facilities generate sizable job creation, incremental income increases, and additional tax revenues for state and local governments.”

 

Other resources:

 

 

Journalist’s Resource would like to thank multiple scholars and experts for their input on this post, including Heywood Sanders, professor of public administration at The University of Texas at San Antonio; David Luberoff, senior project advisor at the Radcliffe Institute for Advanced Study at Harvard; Steven Poftak, executive director of Harvard’s Rappaport Institute for Greater Boston; Chris Roush, professor in business journalism at UNC-Chapel Hill; and Michael Leeds, economics professor at Temple University.

 

This photo by James Willamor was obtained from Flickr and used under a Creative Commons license.

Last updated: April 17, 2018

 

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