Know it to Grow it: The Analytical Tools of Economic Development
Eugenia Larmore, MBA, CMA, AVA, CFFA

Economic development has recently been on the minds of many Nevadans as we focus on creation of jobs.

We are not alone. Many states are turning to economic development as an answer for high unemployment and budget shortfalls. The majority are focusing on the same industries those that show high potential for future growth and have higher than average wages — aerospace and defense, medical services and bioscience, information technology, manufacturing, and financial services. Competition is high.

A region can benefit from attracting a large company from one of these clusters. In Washoe County in 2010, according to the Nevada Department of Employment, Training and Rehabilitation, annual wages for manufacturing jobs were $51,903, $54,009 for IT jobs, and $52,855 for finance and insurance jobs. This compares to an average Washoe County wage of $42,406.

Businesses in highly desired industries have many choices regarding their location, and there are other considerations besides low tax involved with the decision. If low taxes were the only concern, all businesses would be located in Wyoming, South Dakota and Nevada, and none would be located in California, New York and New Jersey.

Low tax rates and encumbrances, access to a productive workforce, and lowered transportation and operating costs due to the proximity to suppliers and customers help businesses reduce costs. A region must not only offer savings through low tax rates and incentives, it must provide a source of qualified labor, access to a wide client base, availability of suppliers, and adequate utilities and infrastructure such as roads, power, water and police protection.

As a result, an economic development entity must understand what its region has to offer to potential businesses. Some analytical tools include:

1. Asset mapping: This provides an analysis of all regional assets — its infrastructure, climate, natural resources, public services, education institutions, existing industries — and provides high-level list of everything a region can offer to a business. One cannot have an oil exploration company without oil resources or grow fruit in a cold climate.

2. Shift-share: This is a good tool for identifying the causes for employment growth or declines by analyzing national and regional trends. The analysis can help narrow down industries that grew due to regional strengths. For example, in Washoe County, employment in the management of companies and enterprises sector grew by 30 percent between 2006 and 2011 due to regional factors, which indicates the county possesses some characteristics that made this sector more successful locally than nationally.

3. Location quotient: This analysis looks at employment figures in each industry compared with national data. Regions usually specialize in an industry due to some competitive advantage. For example, Washoe County has a location quotient of 33.44 in the casino-hotel sector. This means that Washoe County has 33 times more employees in this sector than the national average.

4. Commodity and industry imports and linkages: These tools identify gaps in local production and the ways that industries interact. They help identify opportunities for companies to meet regional needs.

5. Occupational analysis: This determines what industries can be supported by the skills in the local workforce. If occupations required by targeted industries are lacking, the community can work with universities and trade schools to provide training.

6. Economic impact analysis: Some industries have a higher positive impact on the region than others. If a new company moves to an area and creates jobs, the economic impact analysis can estimate the direct, indirect, and induced impact of the company’s spending and jobs on the regional economy using multipliers. For example, according to the IMPLAN analysis package, a biofuel project in Nevada can generate 4.3 additional (indirect and induced) jobs in the region for each job it creates directly. A hotel project can generate 0.68 additional jobs for each direct job. Depending on locations of customers and suppliers, the same project will have different impacts in different locations.

7. Fiscal impact analysis: This estimates the impact of a project on local and state government revenues and costs. Some projects generate higher levels of revenue or require high levels of public services. On the other hand, a project may require utilities, public safety or other services beyond current levels, necessitating additional construction and operating costs. It is important that the project fits with the tax-collecting structure of the region and that it does not put a strain on the region’s public services.

Overall, it is important for the region or economic development entity to understand what it can offer a business in each industry and that industry’s impact if relocated. Because economic development’s purpose is to create a lasting, long-term positive impact on the region, it is important to have a clear plan for targeting industries. This does not mean that businesses interested in moving to the area should be discouraged from doing so; it means that economic development efforts should be organized and directed towards a specific goal.

In addition, I would recommend taking to heart a number of suggestions regarding economic development:

1. Whenever possible, use local resources. Paying a consulting company from out of the region to conduct an economic development analysis defeats the point of economic development. The money paid to these consultants goes outside of the region, creating or supporting no local jobs. Additionally, local consultants are experts in the region in which they provide services, while outside consultants face a steep learning curve in becoming familiar with the area.

2. Focus on a smaller area. Nevada’s economy is diverse, with large differences not only from North to South, but also between counties in the same region. An economic development plan for the entire state is likely to focus mainly on the competitive advantages of Clark County due to its size compared to the rest of the state. Similarly, focusing on the entire Northern Nevada region may overlook the competitive advantages of smaller counties.

3. The more detailed, the better. Industries are defined using the North American Industry Classification System. Using detailed codes within the NAICS system to analyze industry data provides a better picture.

As our state and the rest of the country are attempting to mitigate the recessionary impacts through economic development, it is important to ensure that economic development efforts are focusing on realistic and sustainable industries; industries that will maximize the positive impacts on the region.

As Published in the Northern Nevada Business Weekly, April 2012.