NRPA Measuring Impact of Park & Rec

45 Measuring the Economic Impact of Park and Recreation Services www.NRPA.org National Recreation and Park Association © 2010 All Rights Reserved Interpreting Sales and Income Multipliers Three different types of economic impact measures are commonly reported: sales, personal income, and employment. A sales or output measure reports the direct, indirect, and induced effect of an extra unit of visitor spending on economic activity within a host community. It relates visitor expenditure to the increase in business turnover that it creates. Sales output is a rather esoteric measure with very limited practical value. It may be of some interest to economists interested in researching industry interdependen- cies or to business proprietors interested in sales impacts, but it does not offer insights that are useful for guiding policy decisions of local elected officials. The personal income measure of economic impact reports the direct, indirect, and induced effect of an extra unit of visitor spending on the changes that result in level of personal income in the host commu- nity. In contrast to the sales output indicator, the income measure has substantial practical implications for stakeholders because it enables them to relate the economic benefits received by residents to the costs they invested. The income coefficient reports the income per dollar of direct sales that accrues to residents and it includes employee compensation and proprietor income. Exhibit 1-1 and Exhibit 1-2 showed that the ratio of the economic benefits residents receive in return for costs they invested in an event, tourna- ment, or facility, provides the fundamental rationale for undertaking economic impact analysis. Exhibit 4-2 reported the sales output, personal income, and employment (jobs) multipliers for a selected city. The formula that used these data earlier in this chapter to calculate sales and income multipliers illustrat- ed that the values of sales indicators are substantially higher than those of personal income measures. For example, the formulas indicated that on average, each $1 expenditure by visitors (80 cents in direct effects) will generate 72 cents in personal income for residents of the city, but business activity in the city is likely to rise by $1.55. If analysts do not clearly define which economic impact measure is being discussed, then there is a danger that inaccurate, exaggerated, spurious inferences will be drawn from the data. In an analysis of a park and recreation agency special event, sports tournament, or facility, sales measures of economic impact are not of interest to local residents. The point of interest is the impact of visitors’ expenditures on residents’ personal incomes. Most government officials and taxpayers are likely to be interested only in knowing how much extra income residents will receive from the injection of funds from visitors. Their interest in value of sales per se is likely to be small because it does not directly impact residents’ standard of living. Further, the use of sales indicators may give a false impression of the true impacts of visitor spending because the highest effects on personal income are not necessarily generated from the highest increase in sales, and the income effect may not be uniform across income classes. The conceptual model shown in Exhibit 1-1, which illustrates the rationale for economic impact stud- ies, specifies that their purpose is to compare how much money residents invest in a park and recreation event or facility, with how much income they receive from it. The notion of sales transactions does not appear anywhere in the model and, from the perspective of residents and elected officials, it is irrelevant to the analysis. Nevertheless, because sales measures of economic impact are generally two or three times larger than personal income indicators, sponsors of economic impact studies invariably report economic impact in terms of sales outputs rather than personal income. The higher numbers appear to better justify the public investment that is being advocated, but they are meaningless for this purpose and mislead rather than inform those charged with using this information to guide public policy. The use of sales rather than income multipliers, probably means that inaccurate, exaggerated, spurious inferences will be drawn from the data, as most stakeholders are uninformed as to the differences between sales and personal income measures.