AshevilleCity - County Gov.

Is Project X a Scam? – Part 2


By Robert Malt –

Project X, Buncombe County’s latest foray into economic development, is already well underway. The plan to give taxpayer money (directly and indirectly) to a mystery company already operating here in Buncombe will cost many millions of dollars. Contracts have been drafted, property has been acquired, and, most importantly, taxpayer money has already begun to be spent. So Project X is off and running, but are Buncombe County taxpayers getting a good deal for their investment? Two weeks ago, in this paper, I suggested that the economic incentives (taxpayer money) were most likely not even necessary to retain the company behind Project X. Today, for the sake of argument, we’ll assume that these incentives are necessary, at least for the new jobs promised to be created. So are we taxpayers getting a good deal, or are we being scammed?

On Tuesday, May 14, the Buncombe County Board of Commissioners voted to move ahead with Project X after a brief presentation by John Creighton, Director of Planning & Development. His presentation consisted of a total of two slides, summarizing the benefits of Project X. One of these slides shows the number of jobs expected to be created, both directly (52) and indirectly (59). The other shows an estimated annual…repeat…annual…return on investment of $8,500,000, or $76,500 per job per year. Since the wages for these jobs are around $40,000 (for the direct jobs created) and around $30,000 (for the indirect jobs created), Mr. Creighton would have you believe that the return on investment is more than double the gross salary…a preposterous suggestion by any stretch of the imagination.

When you peel back the façade, and look at how these rosy numbers were calculated, you get….well…stonewalled. Despite the fact that State law requires the disclosure of the methodologies and assumptions behind the analysis (NCGS 132-1-11), Buncombe County Attorney, Michael Frue has refused to allow the public disclosure of this information.

We do know how these wonderful projections were generated, though. A computer program called IMPLAN was used to calculate the economic impact of Project X. Computer programs such as IMPLAN are widely used across the country by state and local governments for economic impact studies. This is the same program that was used to justify the selective tax breaks for the film production industry. Even if you are a believer in IMPLAN’s ability to produce a dependable analysis, the quality of the analysis depends upon reasonable assumptions being entered into the program. If bad information is put in, you get bad information out. This is commonly known as the garbage-in, garbage-out problem. For example, Scott Lindall, one of the original developers of IMPLAN, suggests an “output multiplier” number of 1.3 to 1.8. The backers of the film production tax credit used a multiplier of 8.99…or 5 times higher than the highest number that is supposed to be used. Of course, this makes the “benefits” of this tax break look outstanding….even though it is complete fiction.

Economist Donald A. Coffin, who is experienced with economic forecasting models, called the multipliers used by IMPLAN for local economic analysis “wildly unreasonable” in an article published by the Carolina Journal. He went on to say that IMPLAN was “designed to generate large impact numbers to please a client who wants to lobby someone.” The short version…it’s a scam!

So what multiplier did Project X’s backers use? Oh, don’t you remember? Mr. Frue won’t release the information. Have I mentioned that before?

If that wasn’t bad enough, IMPLAN is based on a modeling technique that is referred to as an input/output (I/O) type of model. The fatal flaw of these I/O models is that they do not take into account the negative effect of taking money out of the hands of taxpayers to fund these economic incentive programs. Jon Sanders, Research Director at the John Locke Foundation, highlighted this flaw in a recent article, saying “they are robbing Peter to pay Paul, and claiming the program increased total spending because now Paul spends more, but they ignore accounting for Peter.”

Even folks who are in the business development business, and are generally supportive of economic development incentives, are skeptical of I/O models like IMPLAN. Greg Ortale, former CEO and President of Meet Minneapolis, the city’s convention and visitors association, called these models “an unnecessary inflation of reality” and their conclusions “ridiculous.”

So the Buncombe County Commissioners want to spend approximately $20 million of taxpayer money on a secret plan, that benefits a secret company, based on a secret economic impact study, derived from a deeply flawed computer program easily subject to error and manipulation, in exchange for 52 jobs that pay $20/hour, that might start being filled in 2015, and can’t be guaranteed to remain filled for the long term. Does anyone still think Project X is a good idea?

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