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444 S. Flower Street, 34th Floor Los Angeles, CA 90071 (888) 4-LAEDC-1 www.LAEDC.org Los Angeles County Economic Development Corporation THE ECONOMIC IMPACT OF CONSTRUCTION PROJECTS TO BE FUNDED BY THE ARRA TIGER PROGRAM July 20, 2009 ---PAGE BREAK--- LAEDC Consulting Practice This page intentionally left blank. ---PAGE BREAK--- LAEDC Consulting Practice OCTA - 1 INTRODUCTION Ten member agencies of the Southern California Consensus Group (SCCG) are applying for funding under the American Recovery and Reinvestment Act of 2009 (ARRA) TIGER program to be used towards a series of infrastructure and transportation projects in Southern California. Projects include such work as grade separation, rail access improvements, bridge construction and freeway improvements. In this study, the Consulting Practice of the Los Angeles Economic Development Corporation (LAEDC) has estimated the total economic impact of the proposed projects based on the methodology described below. For each agency which has submitted projects for the ARRA TIGER application, we first estimate the total construction impact for all projects submitted by the agency. The regional impacts are estimated for the total project budget and for the amount to be funded through the ARRA TIGER application. For each individual project, we estimate the economic impact at the county level for the project budget and for the amount to be funded. The output and employment impacts are then disaggregated by industry sector. This allows an estimation and industry identification of “follow-on” jobs and business revenues. The potential employment impact on economically-distressed communities by industry sector is estimated based on underlying employment patterns. Thereafter, we disaggregate the total potential employment impact on individual economically-distressed communities. Finally, for each project we report the number of businesses and employees within a five- mile radius in each industry sector. We also list the number of households within this radius who are below the threshold used for identifying economically-distressed communities. METHODOLOGY The total estimated economic impact includes direct, indirect and induced effects. Direct activity includes the employees hired by SCCG agencies and their contractors during the project construction period. Here we account for construction workers which have been added due to the project and the materials purchased for the project. Indirect effects are those which stem from the employment and business revenues motivated by the purchases made by SCCG agencies and their contractors. For example, indirect jobs are sustained by the suppliers of the office supplies and insurance purchased by the contractors hired for the construction. Induced effects are those generated by the spending of employees whose wages are sustained by both direct and indirect spending. ---PAGE BREAK--- The Economic Impact of ARRA TIGER Funded Construction Projects LAEDC Consulting Practice OCTA - 2 We used information supplied by SCCG agencies for initial spending, and estimated the direct, indirect and induced effects using multipliers from the Regional Input-Output Modeling System (RIMS II) developed by the Bureau of Economic Analysis at the U.S. Department of Commerce. In all cases, we have proceeded as if the spending will take place within a single year, as is customary when using RIMS II multipliers, although many of the proposed projects are anticipated to last several years. The estimated economic impacts are based on spending within the identified region. For county-wide impacts, we isolate the spending that occurs within the county and report the expected economic impacts within the county. In some instances, spending related to a project may occur in neighboring counties and thus generate additional economic impact that spills over from those neighboring counties. This spillover is not captured by our county- level analysis. However, the regional analysis includes all economic impacts that are expected within the Southern California region of Los Angeles, Orange, Ventura, Riverside and San Bernardino due to the project spending. Full-time Equivalent (FTE) Employment RIMS II input-output models are based on full-time equivalent (FTE) employment, or one year’s worth of full-time work. FTEs measure the amount of work involved, not the actual number of workers. For instance, one FTE could be two people each working half-time (20 hours a week) for a year, or twelve people each working full-time for a month. Because the work associated with construction activities may involve term contracts or part-time work, each FTE likely represents several people. Potential Job Impacts in Economically Distressed Communities According to the definition of Economically Distressed Areas (EDAs) established by 42 U.S.C. § 3161 as used by the Federal Highway Administration of the U.S. Department of Transportation, using the most recent data available, the counties of Los Angeles, Riverside and San Bernardino are Economically Distressed Areas. Therefore, all of the employment impacts at the county-level in these three counties will occur in EDAs. However, county-level data masks considerable community-level variation. The State of California identifies Disadvantaged Communities (DACs) using a state-level threshold. For each of these identified communities, we obtained employment levels within each industry sector from the 2000 Census. We calculate the share of the county’s industry employment that each community represents. The estimated employment impact of the project for each industry sector is then multiplied by the share of the county’s employment that occurs in the community. This yields an approximation of the distribution of new or saved jobs related to the project among these communities. We implicitly assume, therefore, that the industry employment distribution among communities has remained relatively stable since 2000. This may understate the potential job gains in communities that have experienced fast growth and may overstate the potential job gains in communities that have been growing more slowly relative to the county average. ---PAGE BREAK--- The Economic Impact of ARRA TIGER Funded Construction Projects LAEDC Consulting Practice OCTA - 3 ORANGE COUNTY TRANSPORTATION AUTHORITY SUMMARY OF CONSTRUCTION IMPACT The Orange County Transportation Authority (OCTA) has proposed one project for funding under the ARRA. The table below shows the total initial spending and economic impact for the total project budget and for the requested funding. Southern California Regional Economic Impact of Construction Project for OCTA Initial Spending Total Economic Impact Project Name Type Amount million) Output million) Jobs (FTEs) Earnings million) Project total $ 75.0 $ 189.6 1,470 $ 61.1 I-5 Gene Autry Way Interchange construction ARRA funding 29.0 73.3 570 23.6 Sources: SCCG; LAEDC The project has a budget of $75.0 million, of which $29.0 million is being requested under the ARRA TIGER program. ¾ Total project spending will sustain economic activity in Southern California of $189.6 million, generating 1,470 annual full-time equivalent jobs with earnings of $61.1 million. ¾ ARRA TIGER funding for the project will sustain economic activity in Southern California of $73.3 million, generating 570 annual full-time equivalent jobs with earnings of $23.6 million. Analysis at the project level follows. For each individual project: Table 1 describes the total economic activity preserved and/or created in Southern California, including output, employment and earnings. This includes direct activity, which is directly attributable to the construction spending, and indirect and induced activity (or “follow-on” activity) which stems from the direct activity. ---PAGE BREAK--- The Economic Impact of ARRA TIGER Funded Construction Projects LAEDC Consulting Practice OCTA - 4 Table 1 also presents the share of the impact that takes place within the county where the project is located. The county-level impact is the basis for the analysis that follows. Table 2 shows the distribution of the jobs (including direct and “follow-on”) within the county by industry sector. Table 3 shows the estimated distribution of employment creation and preservation in disadvantaged communities (DACs) within Orange County by industry sector. Table 4 shows the distribution of these same jobs among individual disadvantaged communities. Table 5 provides additional information on the economic context in the areas surrounding the project. Within a 5-mile radius of the project (or corridor center point), the table shows the number of households, the percentage of households that meet the state threshold for a disadvantaged community 80 percent of the state median household income for 2009). Table 5 also shows the number of businesses and employees located within the same area, broken down by industry. We expect that these businesses would compete for the job creation associated with the construction project, especially follow-on jobs such as those in retail trade, wholesale trade, and accommodation and food services. ---PAGE BREAK--- The Economic Impact of ARRA TIGER Funded Construction Projects LAEDC Consulting Practice OCTA - 5 I-5 GENE AUTRY WAY INTERCHANGE CONSTRUCTION Regional and County-Level Economic Impact Table 1 Total Economic Impact of Proposed Project Spending million) Output million) Jobs (FTEs) Earnings million) Southern California Regional Impact Project total $ 75.0 $ 189.6 1,470 $ 61.1 ARRA funding 29.0 73.3 570 23.6 Orange County Impact Project total $ 75.0 $ 154.2 950 $ 39.6 ARRA funding 29.0 59.6 370 15.3 Sources: SCCG; LAEDC Impact of Construction Project by Industry Sector Table 2 Impact of Project Spending in Orange County by Industry Sector Project Total ARRA Funding Industry Sector Output million) Jobs (FTEs) Output million) Jobs (FTEs) Agriculture $ 0.2 2 $ 0.1 1 Mining 0.1 0 0.0 0 Utilities 1.2 1 0.4 0 Construction 75.5 461 29.2 178 Manufacturing 16.0 51 6.2 20 Wholesale trade 5.5 23 2.1 9 Retail trade 8.8 96 3.4 37 Transportation and warehousing 1.7 11 0.7 4 Information 3.5 10 1.4 4 Finance and insurance 7.8 25 3.0 10 Real estate 9.0 19 3.5 7 Professional, scientific and technical 8.8 60 3.4 23 Management of companies 2.0 10 0.8 4 Administrative and waste management 3.2 41 1.2 16 Education services 0.7 10 0.3 4 Health care and social assistance 3.9 36 1.5 14 Arts, entertainment and recreation 0.7 10 0.3 4 Accommodations and food services 2.7 49 1.0 19 Other services 2.9 26 1.1 10 Households n/a 6 n/a 2 Total * $ 154.2 950 $ 59.6 370 * May not sum due to rounding Source: LAEDC ---PAGE BREAK--- The Economic Impact of ARRA TIGER Funded Construction Projects LAEDC Consulting Practice OCTA - 6 Potential Job Impacts in Economically Distressed Areas The Federal Highway Administration of the U.S Department of Transportation defines Economically Distressed Areas (EDAs) in accordance with 42 U.S.C. § 3161 as areas where unemployment is 1 percent or more above the national average, or where the per capita income is 80 percent or less than the national average. Using the most recent data available from the Bureau of Economic Analysis for 2007 per capita income, and from the Bureau of Labor Statistics for a 24-month average unemployment rate to March 2009, Orange County is not an EDA. However, the Economic Development Administration of the Department of Commerce allows projects to be eligible for Economic Adjustment investment assistance if the region is designated as “Special Need.” Under the criteria published under 13 C.F.R. § 300.3, the proposed projects in Orange County will be eligible pursuant to a “Special Need” because they are located in a region which has experienced actual closure or restructuring of industrial firms within the past twelve months resulting in job losses in excess of 500. The data below is provided to demonstrate this claim. Industrial Employment Changes in Orange County June 2008 to June 2009 Industry June 2008 June 2009 Increase/ Decrease Percent change Civilian employment 1,550,700 1,477,700 -73,000 -4.7% Construction 91,000 78,500 -12,500 -13.4% Specialty trade contractors 62,400 52,500 -9,900 -15.9% Financial activities 114,200 108,800 -5,400 -4.7% Nondepository credit intermediation 11,000 8,500 -2,500 -22.7% Source: California employment Development Department Civilian employment fell from 1.55 million in June 2008 to 1.48 million in June 2009, a loss of 73,000 jobs or 4.7%. Two particularly hard-hit industry sectors are highlighted. In the Construction sector, there was a loss of 12,500 jobs over the 12 month period, a decline of 13.4%. Within this sector, the industry most negatively impacted was Specialty Trade Contractors, which experienced a loss of 9,900 jobs over the 12-month period. In the Financial Activities sector, there was a loss of 5,400 jobs, a decline of 4.7%. Within this sector, the industry most negatively impacted was Nondepository Credit Intermediation, which experienced a loss of 2,500 jobs over the 12-month period. Over the past twelve months, there has been a loss of 73,000 jobs in Orange County. Of these, two industries undergoing restructuring or closure were specialty trade contractors and nondepository credit intermediation, both of which experienced a loss of over 500 jobs. ---PAGE BREAK--- The Economic Impact of ARRA TIGER Funded Construction Projects LAEDC Consulting Practice OCTA - 7 Therefore, under the criteria established by 13 C.F.R. § 300.3, all projects in Orange County are eligible for Public Works or Economic Adjustment investment assistance pursuant to a “Special Need.” In addition, the State of California identifies a Disadvantaged Community (DAC) as any community where the median household income is below 80 percent of the statewide household income, relying upon 2000 Census data. According to this definition, there is one disadvantaged community in Orange County. The potential employment impact of the project construction in the Orange County DAC is shown in the following two tables. Table 3 projects the number of jobs preserved or created by industry sector in the DAC based on underlying employment patterns. For example, in 2000 there were 40 people employed in the construction industry in the DAC. This represented less than 0.1 percent of the county-wide construction industry employment. Of the 461 jobs estimated to be created or preserved by the project (from Table 1 will be in the DAC. Table 3 Impact of Project Spending in Orange County DACs by Industry Sector Potential Job Gain Industry Sector Employed % of County Project total ARRA funding Agriculture, forestry, fishing and mining 0 0.0 - - Construction 40 0.0 0.2 0.1 Manufacturing 166 0.1 0.0 0.0 Wholesale trade 72 0.1 0.0 0.0 Retail trade 229 0.2 0.1 0.1 Transportation, warehousing and utilities 56 0.1 0.0 0.0 Information 91 0.2 0.0 0.0 Finance, insurance, real estate and leasing 270 0.2 0.1 0.0 Professional, scientific, management, 400 0.2 0.3 0.1 Education, health and social services 454 0.2 0.1 0.0 Arts, entertainment, accommodation & food 187 0.2 0.1 0.0 Other services 185 0.2 0.0 0.0 Total * 2,150 0.2 1 0 * May not sum due to rounding Sources: 2000 Census; LAEDC ---PAGE BREAK--- The Economic Impact of ARRA TIGER Funded Construction Projects LAEDC Consulting Practice OCTA - 8 Potential Job Gains in Individual DACs Due to the Construction Project Table 4 uses the same methodology applied in Table 3 to estimate the distribution of preserved or created jobs among individual DACs in Orange County. Table 4 Employment in DACs in Orange County in 2000 and Potential Job Gains Due to Project Potential Job Gain Disadvantaged Community Employed Project total ARRA funding Laguna Woods 2,150 1.1 0.4 ALL DACs in county* 2,150 1 0 * May not sum due to rounding Sources: 2000 Census; LAEDC ---PAGE BREAK--- The Economic Impact of ARRA TIGER Funded Construction Projects LAEDC Consulting Practice OCTA - 9 Job Opportunities in Proximity to Project by Industry Sector Table 5 Within 5-mile Radius of Project Total Residential Population: 792,386 Total Households: 198,421 Households Under $50,000 Annual Income: 41.6% Total Employees: 320,119 Total Businesses: 32,986 Businesses Employees Industry Number Percent Number Percent Retail Trade 5,336 16.2% 38,398 12.0% Health Care and Social Assistance 2,301 7.0% 33,673 10.5% Accommodation and Food Services 1,886 5.7% 32,426 10.1% Real Estate and Rental and Leasing 2,085 6.3% 31,214 9.8% Educational Services 492 1.5% 24,319 7.6% Professional, Scientific, and Technical Services 2,746 8.3% 21,543 6.7% Other Services (except Public Administration) 3,459 10.5% 21,524 6.7% Finance and Insurance 1,916 5.8% 20,731 6.5% Manufacturing 662 2.0% 19,895 6.2% Construction 1,971 6.0% 18,268 5.7% Admin. & Support & Waste Mgt & Remediation Serv. 2071 6.3% 16,949 5.3% Arts, Entertainment, and Recreation 3,692 11.2% 15,402 4.8% Wholesale Trade 1,750 5.3% 8,924 2.8% Information 598 1.8% 5,426 1.7% Public Administration 603 1.8% 4,738 1.5% Transportation and Warehousing 374 1.1% 3,911 1.2% Unclassified Establishments 948 2.9% 1,994 0.6% Utilities 27 0.1% 378 0.1% Agriculture, Forestry, Fishing and Hunting 42 0.1% 193 0.1% Management of Companies and Enterprises 18 0.1% 128 0.0% Mining 12 0.0% 85 0.0% Totals 32,989 100.0% 320,119 100.0% Sources: U.S. Census Bureau; ESRI Forecast 2009 ---PAGE BREAK--- LAEDC Consulting Practice A - 1 APPENDIX ALTERNATE MEASURES OF NEED Unemployment Rates Unemployment Rate Annual Period 2007 2008 2009 Area 2007 2008 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 United States 4.6 5.8 4.8 4.4 4.7 4.6 5.3 5.2 6.0 6.6 8.8 California 5.4 7.2 5.3 5.0 5.5 5.6 6.4 6.5 7.6 8.5 11.0 Los Angeles County 5.1 7.5 4.9 4.7 5.4 5.3 6.1 6.7 8.4 8.9 11.0 Riverside County 6.0 8.6 5.4 5.5 6.7 6.5 7.1 7.6 9.5 10.2 12.7 San Bernardino County 5.6 8.0 5.1 5.3 6.0 5.9 6.5 7.2 8.7 9.5 12.1 Orange County 3.9 5.3 3.6 3.7 4.2 4.1 4.4 4.7 5.7 6.2 6.2 Ventura County 4.9 6.3 4.6 4.4 5.2 5.3 5.5 5.4 6.8 7.4 9.4 Source: Bureau of Labor Statistics Foreclosure Sales Foreclosures (Trustees Deeds Recorded/ REOs) 2007 2008 2009 Area Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 United States n/a 110,252 n/a 156463 222391 249,500 241,985 190543 California 17,458 24,209 31,676 47,221 63,031 79,511 46,183 43,620 Los Angeles County 2,581 3,627 4,536 7,054 9,609 11,690 6,744 6,907 Orange County 821 1,280 1,538 2,233 3,085 3,997 2,088 2,146 Riverside County 2,517 3,462 4,520 6,519 8,814 10,813 5,791 6,388 San Bernardino County 1,505 2,255 3,058 4,525 6,251 7,930 4,609 4,814 Ventura County 316 454 542 801 1,123 1,420 718 652 Sources: DataQuick;