November 29, 2023
When I was in graduate school at the University of Pittsburgh, I worked at a university center which did policy work for a variety of government agencies. I helped do the economic impact modelling using the Regional Economic Model Inc (REMI) model.
REMI was a very sophisticated model which used real world data customized to local areas to replicate the structure of the local economy. Our job was to input the spending associated with a new project PLUS the costs (negative input) to get educated guestimates of a range of possible impacts - including which sectors would most be impacted.
We would create projections for a range of scenarios - not just one "best case" possibility. Then we would provide the range of possible impacts to the clients, with the key assumptions and caveats that the estimates were not FACTS or guarantees.
There are serious limitations with the estimates of the REMI model - the most important of which is that it is static- the structure of the economy does not change in response to the new project.
Yet the REMI model (or IMPLAN) is far superior to the naive approach used by for-hire consulting firms which simply apply some basic spending multipliers to tourist activities or construction activity. These do not account for the idiosyncrasies of the local economies nor do they consider COSTS or displacement spending impacts. The simple multiplier estimates ALWAYS generate a positive impact b/c they don't subtract out the costs.
I could have had a career doing impact modelling - REMI recruited me on numerous occasions to join their firm. I chose not to follow this path.
The main reason I did not stick with impact modelling was due to how clients used the results to mislead the public and to fit a desired narrative.
Bottom line: there are better models (REMI, IMPLAN) and there are naive approaches (basic spending multipliers). All leave a lot to the modelers regarding input assumptions and tend to be used to estimate a single project's impact rather than ask which sort of project would give biggest bang for the buck.
Evaluating how projects actually played looking a real world data shows just how off base typical impact model estimates tend to be. It is startling that so much public policy is based on what private consulting firms say will happen, when such estimates tend to be so far off base (inflated) compared to what is actually observed to happen. Consulting firms are in the "what do you want the answer to be boss" world. They have to get paying gigs.
Hiring a company to create unreliable and unrealistic estimates is dereliction of public duty. Hiring a company to look at one aspect of a project (do the TIF numbers cover debt) without looking at overall budget impacts, is also failure of due diligence.
With Arena 1.0, council DID take the time to assess the content of the various studies provided by OU Foundation and friends. The 3rd party consultant gave an honest assessment that the city did not have info needed to understand impacts. (I was vindicated here).
Folks, the statutory review committee failed to get analysis of financial impacts on the city, which is supposed to be part of the process. Last time it made a recommendation without the key analysis needed to guide the city. Fortunately, city council DID put in the effort to assess the reports it was presented.
I understand the finances of the proposed arena project are not hashed out (hard to make the finances work for an arena because these are not money makers in a market like Norman's).
Yet, somehow, Team Norman KNOWS how much private spending will occur in the UNP north district. Of course, this is because housing, retail, commercial office, hotels, do not NEED an infusion of public spending (we see the proposed Sooner Village just south of the OU sports complex, for instance).
OU knows what it wants - a new publicly financed arena to anchor a new bar/restaurant strip in the UNP North. This will create a windfall for them. Will it help the City of Norman's budget? Not likely.
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