Look at the Net Effect of Economic Development Investments

We have been watching the City of Columbia’s decision-making on the Bull Street Neighborhood Development, the sale and development of the SC Department of Mental Health properties.  A significant piece of the sales pitch for that is an analysis prepared by Miley and Associates of The Economic Impact of the Transformation of the Bull Street Property (June 27, 2013) for the Greater Columbia Chamber of Commerce. That analysis concludes that “The total economic impacts of the development of Bull Street would generate more than $1.2 billion of economic activity per year, $581 million in labor income and more than 11,000 new jobs when completed.” (p. 18)

At the July 1 public telling, Mayor Steven Benjamin presented a slideshow comparing these returns favorably to Boeing expansion in North Charleston on a bang for the buck basis. Such a comparison is simply wrong-headed and underlines the fundamental flaw in the use of this kind of economic impact analysis. The Boeing project and its investment and employment impacts is essentially all new. No other plane maker in South Carolina is losing business because we invested in Boeing. Nobody in South Carolina who was going to buy another kind of plane won’t because they decided to buy a Dreamliner from Boeing. Such incentives to recruit manufacturers who will export practically all of their output without competing with existing South Carolina businesses can be a good deal for South Carolina.

But that kind of analysis, if applied to Columbia and its environs, does not apply to the Bull Street Project. The bulk of the economic activity is the result of construction of homes, apartments, offices and parking garages in that chunk of Columbia.  Unless you assume that the Bull Street project will cause people to move to the Midlands, everyone buying or renting a home in the development would have bought or rented a home somewhere in the Midlands. This may be economic activity, but it’s not necessarily new economic activity. Likewise, the new offices in the Bull Street Neighborhood would have been built (or remained occupied) somewhere else in the Midlands, much as the people employed there would have been employed somewhere else. It would take a pretty complex analysis to determine the net regional benefit or loss of creating in this particular place and time a large inventory of new homes, apartments and office buildings. We suspect that the net economic activity is fairly small at best. You’re just moving around economic activity that would take place in any case.

Likewise, the study looks at Estimated Annual Property Tax Revenues at page 15, assuming a $60 million increase in assessed value. That includes an increase to the county of $2.2 million annually. But that assumes that none of these buildings would have been built in Richland County and that the housing and office stock buildup does not undermine the value of existing buildings, thus lowering county taxes. The same applies to school taxes. Clearly, replacing a large chunk of untaxed land within the City with taxed properties helps the City’s coffers, as long as providing services to the neighborhood costs less than the $4.3 million estimated increase of revenues. That $4.3 million number also assumes that none of the development that would have taken place within City limits absent the Bull Street Neighborhood Development.

Miley and Associates used appropriate data and methodologies in their study.  They used the respected IMPLAN model to develop their estimates. We don’t quibble with their numbers. But public officials who read these studies have to understand what they are … and what they are not. Perhaps the Greater Columbia Chamber of Commerce should be embarrassed for not asking their economic consultants to look at the net impact of this development.

Saying you brought a billion dollars in economic activity to your community is a great campaign speech. But City planners and elected officials have an obligation to ask about the net benefit when looking at a project like this. They may well conclude that it’s worth doing. But they should not be doing it based on only half the story. They should always insist on careful assessment of the net benefit—how the economy of the City and its environs will be better if they do the project or make the investment as opposed to not doing the project. Secondly, they should look at the opportunity cost of the investment. Can something else be done with the dollars, including leaving them with taxpayers to spend, that would provide a better return to taxpayers and the community? Does making this investment block you from more productive investments down the road? The public trust demands no less.

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