An Economic Impacts Analysis
![Picture](/uploads/2/6/0/6/26062495/3904442.jpg?1397757865)
analyzed for potential economic impacts.
What kinds of economic impacts will a rail system have in Northern KY? This is a complicated question, and the estimates are made with multiple assumptions and vary greatly depending on where the lines run and surrounding land use near station stops.
To get a general sense of potential impacts, we chose one potential line proposed that would connect to the new Cincinnati street car and run a loop through Newport, Covington and back into Cincinnati, much like the current successful Southbank Shuttle route.
Results of that analysis follows.
To get a general sense of potential impacts, we chose one potential line proposed that would connect to the new Cincinnati street car and run a loop through Newport, Covington and back into Cincinnati, much like the current successful Southbank Shuttle route.
Results of that analysis follows.
The purpose of an economic impact analysis is to estimate the monetary benefits from a potential project, in this case the Blue Line street car route shown in the map above.
COSTS. For this study, the construction costs of the streetcar route in Northern Kentucky were estimated by using the Cincinnati Streetcar project’s cost per mile of line, and applying that number to the miles in the potential NKY Blue Line route shown above (4.56 miles). , and that is the estimated construction cost used in this study. We are also estimating that the construction project will only occur over a single year, so the estimates are for one year.
METHODOLOGY. The economic impact that this study estimates is for the entire Cincinnati MSA, not just Northern Kentucky. So while Northern Kentucky will obviously benefit the most, there will be significant spillover effects that will benefit the entire region. Our method of analysis is the input-output multipliers using data information from the Implan Model. Implan currently uses 2007 data, which maintains a fair representation of industries in the present market. The definition of an input-output multiplier is a "single number for each sector which measures the total economic impact of a change in exogenous final demand on all endogenous sectors of the economy" (vom Hofe 2014). Essentially, this process is used to track the effect of a stimulus in the regional economy.
Explanation of data: Based on the economic data provided by Implan, we can calculate the direct, indirect, and induced effects of the project. The direct effect measures the initial immediate changes in output (delta X). The Indirect effect measures changes in output, employment, and income which occur as a result of the direct effect. Finally, the induced effect measures the portion of the total effect as a result of including households as endogenous parts of the system. This will be an important distinction between type I and type II multipliers (vom Hofe, 2014).
As mentioned, there are two types of multipliers: type I and type II.
Assumptions: The first assumption of this construction project is that the $187.23 million is exogenous. This means that this money is coming from outside of the region by way of federal or state grants. Exogenous accounts for government, investment and exports. Since in a real-life scenario a project would not be 100% funded by the federal or state government, then it is important to understand that there would be some local funding involved that would have stayed in the region and made an impact in some industry regardless of this construction project. The second assumption is that the project will hire locally; the jobs and spending of the workers will be from within the region. Assuming the money is from outside the region and the project employs local residents will maximize the overall economic impact. It is also important to note that all of these calculations also assume that the construction of the streetcar occurs over a single year. This is improbable, so to get a more accurate estimate of what the impacts would be, one could simply divide any of the estimated impacts by the number of years it might take to complete construction (3 or 4 perhaps).
RESULTS:
Major Industries Affected:
COSTS. For this study, the construction costs of the streetcar route in Northern Kentucky were estimated by using the Cincinnati Streetcar project’s cost per mile of line, and applying that number to the miles in the potential NKY Blue Line route shown above (4.56 miles). , and that is the estimated construction cost used in this study. We are also estimating that the construction project will only occur over a single year, so the estimates are for one year.
- Cincinnati Streetcar Project’s cost per mile: $41,058,333.33
- Miles in potential NKY Route: 4.56
- Total estimated cost for NKY: $187,226,000
METHODOLOGY. The economic impact that this study estimates is for the entire Cincinnati MSA, not just Northern Kentucky. So while Northern Kentucky will obviously benefit the most, there will be significant spillover effects that will benefit the entire region. Our method of analysis is the input-output multipliers using data information from the Implan Model. Implan currently uses 2007 data, which maintains a fair representation of industries in the present market. The definition of an input-output multiplier is a "single number for each sector which measures the total economic impact of a change in exogenous final demand on all endogenous sectors of the economy" (vom Hofe 2014). Essentially, this process is used to track the effect of a stimulus in the regional economy.
Explanation of data: Based on the economic data provided by Implan, we can calculate the direct, indirect, and induced effects of the project. The direct effect measures the initial immediate changes in output (delta X). The Indirect effect measures changes in output, employment, and income which occur as a result of the direct effect. Finally, the induced effect measures the portion of the total effect as a result of including households as endogenous parts of the system. This will be an important distinction between type I and type II multipliers (vom Hofe, 2014).
As mentioned, there are two types of multipliers: type I and type II.
- A type I multiplier is an "output multiplier for industry j measures the total value of an output in all industries required in order to meet a change in final demand in that industry of exactly one dollar" (vom Hofe, 2014). Type I multipliers can be calculated by the sum of direct and indirect effects over the initial stimulus.
- Type II multipliers include households in the equation. Households have their own factors of production, receive income from the firms and businesses, and spend this income on regional goods and services. The impact that households have on the economy depends on the initial stimulus (such as a $25 million construction project) because households depend on that stimulus for wages. What people buy directly depends on their income they receive, which is related to the level of local economic activities. Because of this, households can technically be classified as endogenous, therefore treated the same as another industry. The result in the inclusion of households in the output multipliers is larger numbers. The marginal increase resulting from the household inclusion can be reflected in the induced effect. Type II multipliers are the direct effect plus the indirect effect and the induced affect divided by the initial stimulus.
Assumptions: The first assumption of this construction project is that the $187.23 million is exogenous. This means that this money is coming from outside of the region by way of federal or state grants. Exogenous accounts for government, investment and exports. Since in a real-life scenario a project would not be 100% funded by the federal or state government, then it is important to understand that there would be some local funding involved that would have stayed in the region and made an impact in some industry regardless of this construction project. The second assumption is that the project will hire locally; the jobs and spending of the workers will be from within the region. Assuming the money is from outside the region and the project employs local residents will maximize the overall economic impact. It is also important to note that all of these calculations also assume that the construction of the streetcar occurs over a single year. This is improbable, so to get a more accurate estimate of what the impacts would be, one could simply divide any of the estimated impacts by the number of years it might take to complete construction (3 or 4 perhaps).
RESULTS:
- Type I Total Output: $266.32 million
- Type II Total Output: $496.15 million
Major Industries Affected:
Clearly, construction experiences the largest impact because of the direct effect of the project itself. These output multipliers show the overall effect that this Streetcar Project in Northern Kentucky could have on the economy. For the $187.23 million construction project, there will be an overall $266.32 million (Type I) or $496.15 million (Type II) generated. The additional tables show the breakdown of the impact on other industries as a result of the initial construction stimulus. For example, the $187.23 million construction project would result in a $27.83 million or $39.6 million impact on the Manufacturing industry sector.
Other Multipliers:
In addition to the output multipliers, we assessed other types of multipliers to show a more in depth picture of the impact of the NKY Streetcar Project. Each of the multipliers shows a different impact that the project will have on the regional economy.
Household Multiplier:
Household income multipliers describe how the final demand would result in additional household income. This is because a change in final demand would result in a change in industry output, thus translating into additional household income (vom Hofe & Wang, 2007).
Other Multipliers:
In addition to the output multipliers, we assessed other types of multipliers to show a more in depth picture of the impact of the NKY Streetcar Project. Each of the multipliers shows a different impact that the project will have on the regional economy.
Household Multiplier:
Household income multipliers describe how the final demand would result in additional household income. This is because a change in final demand would result in a change in industry output, thus translating into additional household income (vom Hofe & Wang, 2007).
In the case of the $187.23 million streetcar project, 35%, or $67.042 million, would go to the construction workers. The indirect effect shows the impact on household income for other industries. The induced effect includes households in the equation – it is the difference between Type II and Type I multipliers.
Household Employment Multiplier:
Household employment multipliers establish a relationship between jobs and output per industry. Employment multipliers measure the number of employees per monetary unit worth of output; i.e., how many people to hire per $1 million of output.
Household Employment Multiplier:
Household employment multipliers establish a relationship between jobs and output per industry. Employment multipliers measure the number of employees per monetary unit worth of output; i.e., how many people to hire per $1 million of output.
For the initial streetcar construction, 11 people would be employed for every $1 million spent, which would result in the creation of 2,181 jobs. 1,605 of these jobs would be created in the construction industry and 575 would be in other sectors. The induced effect is the number of jobs that would be created from the households’ additional purchasing power. For example, in this project, 3,135 jobs would be created using the Type II multiplier. 1,605 of those jobs would be construction jobs, 575 jobs would be in another industry, and 953 jobs would be created from the additional purchasing power of households, i.e. grocery store jobs, movie theater jobs, etc.
Household Indirect Business Tax Multiplier:
The household indirect business tax shows the additional household tax revenue being generated by each project. As a result of the $187.23 million streetcar construction, $4.658 million total in taxes will be generated. The direct effect is the additional taxes generated from the project itself. The indirect effect shows the additional taxes being generated in other industries due to this project. The induced effect is the amount of additional taxes generated due to households’ purchasing power.
Household Indirect Business Tax Multiplier:
The household indirect business tax shows the additional household tax revenue being generated by each project. As a result of the $187.23 million streetcar construction, $4.658 million total in taxes will be generated. The direct effect is the additional taxes generated from the project itself. The indirect effect shows the additional taxes being generated in other industries due to this project. The induced effect is the amount of additional taxes generated due to households’ purchasing power.
Therefore, $1.056 million in taxes will be generated directly from the construction project $3.603 million in taxes will come from an increase in other industries, and $4.804 million in taxes will come from households.
Conclusion: Overall, the potential Northern Kentucky Streetcar Project would have a significant impact on the Cincinnati region in terms of money generated for the area. Again, it is important to point out that money from outside the region being brought into the region will create a more significant economic impact. The initial $187.23 million construction project would result in $266.32 million generated.
In addition to trying to bring the initial stimulus from outside the region, it is also important to hire locally. In our analysis we assume that all jobs created will be filled by local residents and the additional income generated will then be spent in the region thus creating more local jobs.
Finally, each initial stimulus, whether it is in construction or another industry, will have positive spillover effects in other industry sectors, thus helping the overall health of the region. While the effects of the initial $187.23 million construction project are only temporary, the annual revenue and service that the streetcar would provide would sustain employment opportunities and positive financial impact in many industries.
References:
Vom Hofe, Rainer. Lecture Notes on Input-Output Analysis. Methods of Economic Development Planning, University of Cincinnati. Date given 01/06/2014.
Vom Hofe, Rainer and Xinhao Wang. Research Methods and Urban and Regional Planning. Springer: New York. Oct 2007. 450 pages.
Conclusion: Overall, the potential Northern Kentucky Streetcar Project would have a significant impact on the Cincinnati region in terms of money generated for the area. Again, it is important to point out that money from outside the region being brought into the region will create a more significant economic impact. The initial $187.23 million construction project would result in $266.32 million generated.
In addition to trying to bring the initial stimulus from outside the region, it is also important to hire locally. In our analysis we assume that all jobs created will be filled by local residents and the additional income generated will then be spent in the region thus creating more local jobs.
Finally, each initial stimulus, whether it is in construction or another industry, will have positive spillover effects in other industry sectors, thus helping the overall health of the region. While the effects of the initial $187.23 million construction project are only temporary, the annual revenue and service that the streetcar would provide would sustain employment opportunities and positive financial impact in many industries.
References:
Vom Hofe, Rainer. Lecture Notes on Input-Output Analysis. Methods of Economic Development Planning, University of Cincinnati. Date given 01/06/2014.
Vom Hofe, Rainer and Xinhao Wang. Research Methods and Urban and Regional Planning. Springer: New York. Oct 2007. 450 pages.