NRPA Measuring Impact of Park & Rec

41 Measuring the Economic Impact of Park and Recreation Services www.NRPA.org National Recreation and Park Association © 2010 All Rights Reserved Interpolating the numbers from Exhibit 4-2 to the formula indicates that the total personal income coefficient is .72 .29 + .08 + .21= .58 = .72 .80 The personal income coefficient indicates that for every 80 cents of direct effects or $1 of total spending injected by visitors into the economy of this city, 72 cents of personal income accrues to residents in the form of employee wages and salaries and proprietary income. Sometimes studies replace the “direct effects of visitor expenditures” denominator with “direct effects on income.” If very high multipliers are reported, for example an income multiplier higher than 1, then it is probably because this type of ratio formula has been used. Over three decades ago, one of the pioneers of economic impact analysis in this field advocated “general abandonment of this approach and conse- quent removal of the confusion which it creates. It is difficult to envisage how or why such an inappropri- ate approach has gained such wide usage. It has no basis in economic theory and it provides misleading policy prescription” (Archer, 1984). One reason it is used by some, even though it is confusing, is because it results in some multipliers, especially personal income multipliers, being larger numbers. For example, if the personal income data from Exhibit 4-2 are interpolated using “direct effect on income” as the formula’s denominator, then the multiplier is shown to be 2.48 instead of .72. This could mischievously be interpreted to mean that for every $1 of visitor expenditure (80 cents of direct effects), $2.48 in income is generated. This is inaccurate. It really means that $1.48 in secondary income is generated for every $1 of direct income. Capture Rates When visitors purchase retail goods, their total expenditures typically are considered to be new money injected into the economy and, thus, they are entered into a multiplier model. However, if the goods were manufactured outside the community, their cost immediately leaks out of the local economy. Multipliers generally should be multiplied by direct effects which excludes the costs of sales, rather than by total visi- tor spending. Consider the following example: Suppose a visitor purchases a camera for $100 and the retail margin is 30% or $30. If it is assumed that the wholesaler, shipper, and manufacturer all reside outside the local area, the final demand change in the local region is only $30, not $100. A sales multiplier of 1.5 leads to a sales output of $45 not $150. If an income multiplier of, say, .6 is applied, the impact on residents’ income is $18 not $60. (Stynes, 2001) Including all retail spending rather than only retail margins accruing to local firms and failing to omit the cost of goods that are not made locally greatly exaggerates the economic impact: “Rarely will the gasoline that visitors purchase be locally refined and, except for local arts and crafts and agricultural products, the souvenirs that visitors buy are imported from outside the region” (Stynes, 2001). Margins are associated with all commodities that are sold at the retail level and IMPLAN (which is per- haps the most widely used multiplier model) does have an option that can be specified by the researcher to identify these margins. However, this is rarely used either out of ignorance or because clients want high sales output numbers to legitimize their position. The margin issue does not apply to services that are produced by a business at the time they are purchased because there is no out-of-area cost involved. In the case of, for example, hotels or restaurants, margins are not likely to be a critical issue (except for food purchased outside the area) since most of the purchase price reflects purchase of a service rather than a commodity.