I wanted to let everyone know that I have temporarily suspended posting to this blog during my time in Africa with the Peace Corps. You can follow up on me with my Peace Corps blog. I will be back in late 2011.
I have a customized google news section with the following search string: ‘economic impact create jobs.’ It does a good job of bringing me the latest in estimates of economic impacts for different projects. Today’s headlines include an Amazon.com facilities in Bradley and Hamilton Counties (in Tennessee) that will employ 1400 people over three years and a development project titled ‘Cornerstone’ in Illinois that will create 9,800 jobs.
Details are sparse on the Amazon deal. The link above gushes without providing any details on what it will cost the state, county, and municipality. From the Chattanooga Times Free Press we find: “Both entities [Hamilton County and Chattanooga City] approved financial incentives for the project that will last over the next decade, while the state is expected to provide tax credits and training.” A little searching turned up an estimate of $30 million in incentive costs, with the county giving up almost 500,000 in property tax revenue (though receiving nearly the same amount in school taxes from Amazon) and the city giving up in excess of $700,000 in revenue, though these values probably went up with further bargaining.
A little back of the envelope estimating: 2,000 jobs (including holiday seasonal workers) at an average of $30,000 (from the articles) means $60 million in earnings to area workers. Tennessee’s individual income tax is 6% of taxable income, which works out to a maximum revenue of $1.2 million per year. Though it is surely lower than this because much of the year Amazon will only have 1,200 employees and it is certain that not all of the $30,000 income is taxable.
Of course there are additional tax impacts that aren’t included in this, and we can’t really conclude much with a back of the envelope calculation, but ballpark suggests it will take 20 or more years before the state will begin to see a benefit. Assuming Amazon.com stays there that long.
This deal is pretty typical of the incentive/investment game, though I was impressed with the provision that has Amazon contributing its portion of school taxes. With more information we could really start to make some fiscal impact estimates, but that will do for now.
I’m ignoring a lot of arguments about network effects, further investment by Amazon’s partners as result, the improved quality of life that will result from the jobs Amazon will offer, and other things of that nature. Those things are particularly hard to measure, especially in a simple blog post without access to much information. But I welcome discussion on those matters if you feel like commenting.
As for the Grayslake village project, I stopped reading after this line made me laugh out loud:
Ellis [Grayslake village manager] said that the Cornerstone project will play a major role in the village’s goal of creating a significant economic development area for the community to create jobs, increasing economic activity, adding a tax base for its schools to reduce the need for increases in homeowner property taxes and to provide additional retail and service options for the area.
Does he think all of the new people won’t have children who will increase the burden on the schools as much as or more than the tax base will increase their revenue?
As my new volunteer post gives me regular access to internet, I thought it was about time to make a small return. From time to time I’ll be posting again, though most of my posts will still be on my Peace Corps blog until I finish in September 2011.
In my free time I am working on an open source economic model. When it gets to a slightly usable point I will release it into the wild. It’s the first time I’ve really rolled up my sleeves and started programming (unless you count a laughable attempt to create a web site with RoR). I’m having a blast, I’m learning a lot. But mostly, I’m trying to realize that if something seems hard it’s because it is, but that I can chip away at it little by little until I understand it and it becomes easier and easier.
So from time to time I will be here, posting some trivial thing I have learned or thought about that most of the world already knows.
On a related note, it was refreshing to read about the estimate of economic impacts from an Amazon distribution center. The study takes into account that Amazon won’t be drawing a lot of suppliers into the region, and their impact multipliers are on the reasonable order of 1.5 to 1.75. From time to time I plan on taking a look at studies like this to highlight good estimates and point out flaws in bad estimates.
Till next time.