Economic Impact Report or 'Siren Call'?

In a recent article for MinnPost, Marlys Harris explains one way the political impact of economic development studies plays out: “Almost invariably, it predicts that the new project, whatever it is, will produce goodies beyond compare — jobs in the hundreds or thousands, spending in the millions, higher real-estate values and plushy tax revenues. Impressed, we say, ‘OK, let's do it.’”

Harris’s concerns about the “siren call” of economic development studies arise in part as a response to a new report by Donjek and Anton Economics measuring the economic impact of a $50 million renovation of Nicollet Mall in downtown Minneapolis. “A modernized Nicollet mall, says the 16-page report, would generate $105 million in new spending and 860 full-time-equivalent jobs downtown,” reports Harris.

Harris’s point is that the report’s rose colored outlook can be misleading if taken at face value. For instance, Harris takes umbrage with the assumed power of the multiplier effect. “In case you're a little rusty on the multiplier effect, it consists of three components: direct impact — that is the expenditure of the original $50 million; indirect effect — the amount of dollars recirculating as a result of the original expenditure; and induced impact — the spending that occurs when employees, business owners and others spend money they earned. Nobody should mistake that for sustained economic improvement. That would only occur if the renovated mall draws more visitors, shoppers and tourists — and there's no real way to predict that.”

Questions of the accuracy of economic development reports are made even more salient in the case of Minneapolis when considering the city’s bid to host the 2018 Super Bowl. Minnesota Governor Mark Dayton has stated that the Twin Cities could gain an economic benefit of $500 million if the were hosted in Minneapolis. Harris’s article concludes by analyzing on how those numbers might be misleading.