Organizers of the USA Pro Challenge in 2012 said the bike race made a $99.6 million economic impact in the state, but it’s unlikely Durango saw much of that.
Did a recent film festival pour $333,000 into the local economy? Does the rafting industry give us a $10 million annual shot in the arm? Recent studies suggest they did, but experts warn to treat such figures with skepticism.
Economic impact reports, such as the one on the Pro Challenge by sports research firm IFM North America, can estimate a college, event or construction project has delivered or will deliver millions to the local economy in terms of jobs and personal income. However, forecasts and impact reports can overly inflate numbers, use inaccurate estimates and make simple mistakes.
Don’t assume that all reports are untrustworthy, but an understanding of how the findings were determined and a little common sense can help decide whether they pass the smell test.
Tourism is one of Durango’s biggest economic drivers, and there are many reports about events hosted in the city every year. Economic impact reports on events can be especially difficult to get an accurate conclusion using the economic models and multipliers from the U.S. Bureau of Economic Analysis, said Ian Mead, an economist with the bureau.
Roger Zalneraitis, executive director of the La Plata County Economic Development Alliance, said he’s cautious when event organizers show up with their own forecasts of the local economic impact.
“You’re trying to promote yourself,” Zalneraitis said. “You’re not going to get a consultant to do a study that shows you have no impact.”
An economic impact means an increase in someone’s personal income or a job was created, and it can have direct, indirect and induced effects. A direct impact is a business owner hiring an employee. The employee then uses his wages to buy lunch at a local restaurant, so the restaurant is indirectly affected by the new job. A vendor for the restaurant feels an induced impact from the restaurant ordering more food because of its increased business. Indirect and induced impacts are estimated by using multipliers to figure out how many times $1 turns over in the local economy. Multipliers vary by region and industry.
Use the wrong assumptions or multiplier, and the report becomes meaningless or overstates the actual impact.
Some reports aren’t transparent about how findings were reached.
For tourism studies, it’s important to capture people coming from outside the area to the event, Mead said. If the attendees are local and the economist uses the multiplier that counts household spending, that would inflate the numbers.
“Then you’re going to get some double counting,” he said.
Durango hosted the start of the bicycle race in August 2012, expecting the event to draw between 20,000 and 25,000 spectators, hopefully many from outside Durango. However, city officials later estimated the race had drawn about 13,000 people, many of those locals. The city spent $536,141 hosting the event, including $50,000 up front as a financial backstop.
Tim Walsworth, executive director of the Business Improvement District, was president and CEO of United Way of Southwest Colorado at the time of the bike race. His personal opinion is that while the event wasn’t completely successful, it was positive.
“What was really valuable for Durango, by my way of thinking, was the number of mentions that we got on the television broadcast,” he said.
Because the economic model is based on yearlong average relationships, determining the impact of short-term events is tough. The model assumes that more businesses, such as restaurants, are going to move into the area, more goods will be produced locally and more jobs created, which is unlikely to happen for a weeklong event, Mead said.
“The model is good at a lot of things, but like any model, it’s got assumptions built into it, and sometimes those assumptions just don’t work well for the specific case that you’re looking at,” he said.
A 2013 report on annual commercial rafting on the Animas River said the industry brought in $10.4 million last year to Durango. The report multiplied the amount spent by one rafting customer in one day by the number of user days and by a multiplier of 2.56, which meant $1 was turned over more than 2½ times in the local economy.
The multiplier seemed high to Robert Sonora, associate professor of economics and director of the Office of Business & Economic Research in the School of Business Administration at Fort Lewis College.
“That’s like a three-month-out-of-the-year thing,” Sonora said. “What are they buying in the local economy? Are they coming here specifically to raft?”
Sonora and economics professor Deborah Walker have produced economic impact reports on different parts of Durango’s economy, including the college, events and industries. Some reports are done by students under supervision.
A 2010 report on FLC by Sonora said the college contributed $70 million to the local economy. The multiplier was 1.33.
That sounds like an incredibly big number, but La Plata County’s personal income for 2012 was nearly $2.4 billion, Sonora said. Personal income makes up about 80 to 90 percent of the gross domestic product of the state of Colorado, about $237.4 billion, according to Bureau of Economic Analysis numbers.
The assumptions in the model also can significantly change the conclusions.
A 2012 economic impact report on the Durango Independent Film Festival that ran for about five days in late February and early March made two assumptions. The report, written by FLC students, assumed that all the money spent at the festival in La Plata County wouldn’t have been spent if there wasn’t a festival. The report, written under Walker’s supervision, calculates the impact under that assumption at $333,303. The second assumption assumed the money spent at the festival would have been spent in the county anyway and figured the impact was $38,712.
“Most likely, the true impact lies somewhere in between these two numbers,” the report said.
smueller@durangoherald.com
