CHARLOTTE – Mecklenburg County officials are looking at a proposal to spend $50,000 in upfront costs and $10,000 annually to replace $500-a-year software that models the economic benefits and drawbacks of offering industries incentives to move or expand here. But no one is certain if the county will get more and better usable information out of it.
Republican Matthew Ridenhour, who represents District 5 on the Mecklenburg Board ofCounty Commissioners and also is chairman of the board’s economic development committee, says the county’s current software is too simplistic and that by using more complex programs, the county can look at more detailed fiscal outcomes. The economic development committee began looking at alternatives to its current software at its April 1 meeting.
The county’s current program is called LOCI, short for Local Impact modeling. Ridenhour wants to switch to REMI, which stands for Regional Economic Models Inc. District 3 Commissioner George Dunlap, a Democrat who is a five-year member of the committee, said he and the other two committee members – District 1 Republican Karen Bentley and Trevor Fuller, chairman and at-large member –all want to take a harder look at the software program used.
The county’s economic development director, John Allen, who uses LOCI to conduct fiscal impact studies, says he’s not sure REMI will produce better results. So do two UNC Charlotte professors who study economic development from geographic and economic standpoints.
Fiscal impact studies differ from economic impact studies, in that the latter measures only what Harrison Campbell, a UNC Charlotte assistant professor of geography who specializes in analyzing regional economic development, calls “the benefit and the benefits” of incentivizing businesses.
Allen likes LOCI, which both he and UNC Charlotte economics professor John Connaughton say is the simplest of the four leading programs that evaluate the costs and benefits a prospective business will bring.
Running LOCI, or the three similar but more costly and complex leading software programs, is particularly important in the case of Mecklenburg County, Allen said.
The county is one of few local governments in the state to do its own modeling, in part because when the city and county divvied up the services provided by the cooperative Charlotte-Mecklenburg form of government, the county wound up with human services, such as health care, social work and schools, costly services that grow more so while more and more humans come to live in the area.
Employed or unemployed, more humans bring a heavier burden on services.
An unusually large number of people move to Charlotte without a job in hopes of getting one in the area’s relatively dynamic economy, said Allen. “Would you rather be unemployed in Buffalo, or Charlotte?” he asked.
Allen said LOCI is a very conservative program, tending to assign less importance in its calculations on the benefits and more on the costs.
“LOCI provides the worst-case scenario,” he said. “The Charlotte Chamber-types are not fond of our model; they disagree with some of the underlying assumptions.” Charlotte Chamber officials joined the economic development committee’s discussion at the April 1 meeting.
As an example of its conservatism, Allen said, LOCI “assumes that every new job that’s created in the county that’s not filled by someone who is unemployed induces someone from somewhere else” to move here.
On the more positive other hand, after they get jobs, prosper and perhaps buy a house, those people will start paying taxes. But that does not mean they won’t still need services.
As a conservative Republican in his first elected term representing District 5, Ridenhour said he can appreciate LOCI’s similarly conservative approach. He also likes the fact that LOCI costs only about $500 a year, one-twentieth the annual bill for REMI.
But, Ridenhour said: “I don’t want just a worst-case scenario. I want somewhere in the middle. Every time we get a proposal, it’s a simple spreadsheet. I’ve always thought that was woefully inadequate.”
Ridenhour also said he can point to no instance in which LOCI has let the county down. Yet he had staffers in the county manager’s office prepare a report that was presented at April 1 meeting of his committee, along with sales pitches from two of the other three leading software companies.
One of them, IMPLAN – Impact Analysis for Planning – recently moved its headquarters to Huntersville (without incentives from the county). But Ridenhour admitted he is already biased in favor of REMI, the most costly economic development software available.
“Yeah, it’s expensive, but it’s a tool we can use not only for fiscal impact (analyses), not just the relocation of companies, but (by) a number of departments. You input changes in tax rates, see what the impact (a new company) would have down the road. LOCI and the others are just snapshots.”
In fact, Ridenhour and Dunlap both said that other local governments, as well as nongovernment agencies such as the Charlotte Chamber of Commerce, might also be able to share using the software, helping to defray the cost. The committee’s next step is exploring those possibilities, Dunlap said. The committee is not yet scheduled to vote on whether to recommend a switch to the Board of County Commissioners, Ridenhour said, “though I imagine we will in the next month or two.”
Although the ex-Marine says he has no experience in economic development work – that “requires people who are smarter than I am” – Ridenhour’s assessment of REMI is fairly accurate, Campbell and Connaughton said.
“REMI, first of all, not that this is always a good thing, its methodology is much more elaborate,” Campbell said. “Instead of just measuring the before and after, it can show you how you get from point A to point B. It is more dynamic.”
Elaborate can be good because a company moving into the county is like throwing a stone into a pond, creating a ripple effect, except that each stone creates multiple ripple effects that intersect, Campbell said.
“We still like that old stone-and-pond comparison,” Campbell said. “Employee wages circulate around the job, creating new demand for goods and services, creating more jobs to support the jobs that are created directly – the multiplier effect.”
Everyone involved says REMI is more fluid and has the potential to better track the ripples and is the only one that can forecast where they will go.
But Campbell and Connaughton say that the operator of the software and how he does his job are more important than the program he runs.
And the complexities of REMI also make it harder to understand, Campbell said, especially for public officials such as Ridenhour who have little in the way of economic development experience.
LOCI, on the other hand, can analyze the same data, but “is specifically designed to be relatively user-friendly by non-technical persons,” Allen said.
All of the programs, including REMI, are restricted by the assumptions they make about factors including the amount of materials the company will buy in the local market versus elsewhere; and whether the work force will live in the county or in an adjacent one – an especially important factor in a multicounty metro area like Charlotte.
“The deep, dark, dirty secret of all these programs is that is assumes any company moving to the county will be located smack dab in the geographical center,” Connaughton said.
The programs, Connaughton concluded, are “better than sticking your wet finger in the air to see how the wind blows, but they are very limited.”
But, Campbell and Connaughton said, no matter how good the operator is, and no matter what software he operates, it is not possible to go back and evaluate the performance of either one.
“Situations are fluid, things change, an area’s economy moves on in directions not before predictable by anyone or any software,” said Connaughton, who added that he uses IMPLAN in his studies because he personally finds it the easiest to use.
That makes it impossible to tell who, if anyone, or what is to blame for investing millions in state and local funds to what Connaughton called one of the most disastrous corporate moves in N.C. history: Dell Inc.’s 2005 new location in Winston-Salem.
Dell was “the poster child of economic development gone bad,” Connaughton said. “It closed in 2009 – guess what? who buys a desktop computer anymore? – and all 900 jobs were lost.”
Although Allen worked for Winston-Salem in 2005, the city did not perform economic development studies on the Dell project.
On Dec. 16, 2009 – two months after Dell shuttered – Gov. Bev Perdue and Charlotte Chamber officials announced the biggest corporate relocation to Charlotte in a quarter-century: Electrolux. By running numbers through LOCI, Allen and the county determined that the company’s potential benefits to the region outweighed any drawbacks.
Ridenhour and just everybody else contacted for this story agreed that Electrolux has turned out to be worth $5.2 million in economic incentives pledged to the company thus far.
But figuring out how much of the secret project’s success was luck and how much was skill in manipulating LOCI’s cheap, simple digital engineering – not even REMI could do that.