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Software helps communities weigh incentives to attract new industryLincoln Bates Economic Development Institute Companies increasingly seek incentives, such as waste treatment, tax abatements or infrastructure enhancements, to locate in communities where their presence will mean more jobs and a better tax base. Government officials in those communities must weigh the costs against the benefits of granting such incentives. To help with this crucial evaluation, economists at Georgia Tech’s Center for Economic Development Services (CEDS) have developed software to provide a detailed fiscal and economic analysis. LOCI (for Local Impact Model), a fiscal impact model formulated by Bill Riall and Robert Lann, estimates how government costs and revenues will change from adding new investment to a local economy, such as a new manufacturing plant, distribution center, tourist attraction or office headquarters. The model fills a gap left by traditional input-output models that are both unreliable for small economies and exclude the all-important cost side of the equation. For example, landing a new firm will stimulate the local economy, but with that growth comes more demand for services. According to Lann, manager of research services for CEDS, LOCI: 1) provides the information to know how far a community can go in granting incentive demands; 2) supports the community’s side in negotiations by supplying data about how government costs may change; and 3) helps communicate how a local economy works. “We think LOCI levels the playing field by giving communities a tool to estimate the fiscal and economic impacts from a new business location for themselves. They no longer have to rely only on the claims of the prospect,” Lann said. LOCI has become an important instrument in the state’s economic development toolbox. Since 1995, Georgia communities have had to conduct a fiscal impact analysis to apply for a Regional Economic Business Assistance (REBA) grant from the state Department of Community Affairs (DCA). Noted Brian Williamson, director of DCA’s Office of Economic Development, “It is imperative for local governments and development authorities to demonstrate that public benefit from an undertaking will exceed public costs. While handling diverse projects of all kinds and complexity, the LOCI model has proven itself very useful in assisting local governments to know ‘how much is enough’ when granting local incentives.” During the fiscal year ending June 1999, 50 LOCI projects were completed in 44 Georgia counties. If company locations/expansions actually occur from these projects, they would mean a total planned investment of more than $190 million and an estimated 15,689 new jobs. LOCI, said Riall, also estimates other impacts, such as the increase in new employment, income, households, commercial and industrial establishments and retail purchases. LOCI’s calculations are based on two primary sets of data. One is a community profile involving such items as tax rates, government fees, utility usage and demographics. The second contains information about the new investment, including construction and operating costs, inventories and payroll.
Later versions of LOCI, said Riall, will improve how government costs are allocated to
residential, commercial and industrial sectors based on the demand each sector exerts on
government services. Researchers also are exploring ways to use statistical methods to
estimate government costs and revenues based on a community’s population, number of
businesses and other characteristics. In addition, CEDS researchers are working on an
offshoot of LOCI, a state-level impact model using a similar design. It should be
completed this fall.
Approved by the Office of External Affairs on 09/24/97
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