Chapter 14 – Economic Development – CLRTP 2035

Chapter 14 - Economic Development - CLRTP 2035

Economic development has been a key considerati on in metropolitan transportati
on planning from the beginning. In the most basic sense, a region’s
transportati on system and its economy are intrinsically linked, as it is the
transportati on system that shapes a region’s ability to move goods from
producer to consumer and all steps in between. Regional transportati on
networks also shape and infl uence local land use, infl uencing the value
of properti es and someti mes opening properti es to more profi table uses.
There is ample evidence of a strong relati onship between the design and
functi on of a region’s transportati on network and its overall competi ti veness
in the economy.
The SAFETEA-LU Reauthorizati on Bill, which authorizes the federal surface
transportati on programs for highways, highway safety, and transit for the
5-year period 2005-2009, further emphasized the importance of economic
development as a key planning factor to consider in metropolitan planning.
SAFETEA-LU conti nues the Transportati on Equity Act for the 21st Century
requirement of supporti ng economic vitality as one of the factors in metropolitan
transportati on planning, but it also expands the requirement to
assert that transportati on plans must refer to eff orts to promote consistency
with state and local land use plans or economic development plans.
Furthermore, SAFETEA-LU requires that planners add “economic development”
as a criterion for applicati on and selecti on of New Starts transit-related
capital investments.
This chapter will focus primarily on analyzing the 11 projects selected for
Pre-Environmental Screening for indirect and induced economic impacts
based on the initi al project investment. This analysis will uti lize a regional
economic impact model built on data provided by the Minnesota IMPLAN
Group in Sti llwater Minnesota.
214 RVAMPO – CLRTP 2035 – APPROVED JUNE 23, 2011
Economic Impact Modeling
IMPLAN, a regional economic input-output model for regional economies and economic
impacts, was created in the 1970’s through a joint partnership between the US
Forest Service and the University of Minnesota. The Forest Service needed a tool to
effectively describe the impacts of its operations on local and regional economies.
IMPLAN version 2.0 was developed in 1999 by the Minnesota IMPLAN Group. The
data was improved through the late 1980s and eventually made accessible to a wider
number of users and data applications by the Minnesota IMPLAN Group in the mid-
IMPLAN models include a complete set of social accounting matrices to provide economic
impact estimates of new fi rms moving into a region, ensuring increased accuracy
of results over traditional Type II multipliers. The IMPLAN software reads database
data provided by the Minnesota IMPLAN Group to determine the economic
impacts, and data is updated frequently to ensure greater accuracy. The model used
by RVARC staff in estimating impacts for CLRTP 2035 uses 2007 data for the localities
represented in the MPO area (the Counties of Bedford, Botetourt, and Roanoke,
and the Cities of Roanoke and Salem).
The IMPLAN model is an economic input-output model used to estimate the volume
of supporting economic activity that might be expected to result from a certain
direct impact. This supporting activity might also be referred to as the multiplier
effect. Whenever a positive impact is made on a regional economy, supporting activity
is spurred on by those organizations that have benefi ted when those recipient
organizations (organizations or businesses receiving the bulk of the initial impact)
purchase goods and services. There is also re-spending of wages and income received
by individuals paid in providing this economic activity. These supporting
economic activities or multipliers occurs in two different ways: indirect spending
and induced spending. Indirect activity is activity related to suppliers (both those
suppliers directly serving recipient organizations and those serving other more immediate
suppliers to the initial recipient organizations) purchasing goods (in several
rounds of purchases) within the regional economy to provide services and goods to
recipient organizations. Induced activity represents the re-spending of wages and
salaries paid to workers who are employed directly by recipient organizations and
by suppliers providing goods and services to recipient organizations.
In the case of most transportation projects, funding comes primarily from two sources:
federal transportation funding from the US DOT and state transportation funding
from the State Transportation Trust Fund. Both sources originate from outside
the MPO area and represent new money being infused and invested in the region.
However, not all project money goes directly to construction activities. RVARC staff
controlled for the expenditure of Right-of-Way acquisition, which represents a transfer
of capital investment and not necessarily new money that will circulate in the regional
economy. Staff used a VDOT planning cost estimate worksheet to estimate the Rightof-
Way costs for each project. The table below illustrates the assumed costs for various
land uses.
Staff also formulated an estimated proportion of project leakage as there is a great
deal of potential for leakage of the project funds. Leakage is essentially the proportion
of the initial economic impact that leaves the project area through the substitution of
imported goods or labor, primarily the utilization of construction and construction
management fi rms that are based outside the MPO area to build projects.
The model’s regional purchase coeffi cient estimated leakage in transportation construction
at around 5%. This estimate was based on the structure of the regional
economy. Staff realized that this assumption was untenable and that many of the
largest projects of the type listed in the LRTP go to vendors outside the project area.
When outside contractors are chosen, an impact is still made to the RVAMPO regional
economy — albeit a lesser one. For instance, while the bulk of the funds would
leak out of the study area to managers and laborers who live outside the region,
many materials would be sourced locally, and local contractors may still get work
through subcontracts. A quick poll of local transportation construction fi rms led staff
to an assumed leakage value of 60% for projects of the type in the LRTP.
An important assumption made is that most of the projects in the LRTP will be multiyear
projects. The assumption is that disbursements will take place over a minimum
of two years for each project. This is an important assumption because the IMPLAN
model assumes that all impacts occur during a single year. Since construction projects
are a one-time impact, this does not have any effect on output estimates but it
does affect employment. If, for instance, a project requires two years to complete the
employment, impact is effectively halved.
The table below illustrates the model’s results.
216 RVAMPO – CLRTP 2035 – APPROVED JUNE 23, 2011
Please note that the direct economic effect felt in the RVAMPO region is signifi cantly
lower than the project cost. This is because the estimated proportion of project costs
going to Right-of-Way acquisition have been removed and the assumed leakage has
been removed to arrive at a direct regional impact.
The indirect effect represents the impact resulting from spending by suppliers to
supply construction fi rms with needed goods and services. The indirect spending
category includes several rounds of spending going down the supply chain within
the study region until all activity is accounted for through leakage.
The induced effect category represents activity related to the spending of wages by
those individuals (households) employed by fi rms in both the direct spending and
indirect spending categories.
The table includes estimates of jobs supported through the public expenditures
made on the LRTP projects within the region. These are not necessarily new jobs and
include both full and part time positions. The LRTP projects will support these jobs
only as long as expenditures are being made on the project. The total number of jobs
includes jobs supported through direct, indirect, and induced expenditures.
Examining economic impact of projects is both useful and interesting, but a number
of limitations hamper further analysis of impact. It should be noted that the analysis
above does not include any notion of increased development or commercial activity
that may be induced through increased transportation effi ciency or increased traffi c
demand on the regional network. The impact estimate is based solely on estimations
of project cost and the proportion of which one might expect to be spent through
fi rms located in the Roanoke Valley Metropolitan Area.

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