Reinvestment Analysis/Impact

Hello Roxane, We apologize but after discussing this we are not sure exactly what you are intending when you refer to reinvestment. Could you possibly provide us with an example for what you are intending in regards to the reinvestment (i.e. reinvested in what, when, etc.). This will help us to determine if your question is something that can be addressed directly in the I-O framework of the software or something that will require some additional outside framing. Thanks!

At the Department of Insurance, COIN has a unique CDFI Tax Credit program that allocates a 20% tax credit on a qualified investment that is held for 60 months. Reinvestment of funds from the qualified investment will continue until the 60 month term has been satisfied. Overall, the CDFI has full use and control of the proceeds of the entire amount of the investment as well as any earnings on the investment for its community development purposes during the 60-month period. Here is an examples of the COIN CDFI Reinvestment Process that we need more help on understanding the economic impact of: Affordable Housing Example: If the average percent of reinvestment for affordable housing projects is 76% with a corresponding reinvestment term of 21.18 months, then in a 5 year period (60 months), the CDFI will reinvest the funds approximately 2.83 times (multiplier). This multiplier and % reinvestment is then applied to the total investment to determine the investment + reinvestment funds, and applied an output multiplier using RIMS II data to arrive at total economic impact for the State of California with reinvestment. Formula for the Economic Impact of a $1MM Tax Credit Investment that is Reinvested 2.83 Times: -A, Initial investment and economic impact: $1MM x 2.2894 (multiplier) = $2,289, 400 -B Reinvestment, 76% reinvested: .76($2, 289, 400)= $1,739,944 -C Reinvestment, 76% reinvested, 83% of an investment period: .83[.76($2, 289, 400)]= $1,444,153.52 Total of the investment and reinvestment impact (A+B+C)= $5, 473, 497.52 Formula: ($1,000,000 x 2.2894) + .76($2, 289, 400) + .83[.76($2, 289, 400)]= $5, 473, 497.52

Hi Roxane, We are still looking into your question, and verifying our response to make sure that it will best meet your needs. We apologize for the inconvenience.

Hi Roxane, Sorry for delay, it took some time to work through our suggestions for this. Unfortunately, IMPLAN does not “account” for the investment and reinvestment in the sense that the base study area data will not include those expenditures until they occur. In other words, a 2011 IMPLAN model reflects all economic activity that took place in 2011. If the investment isn’t going to take place until 2012, then it will show up only in the 2012 model. In this, Implan and RIMs are similar models in that they are both based on input-output. To initiate impact, you would specify investment as a change in production by an industry (in this case I assume residential construction). I-O multipliers then capture the economic activity of the construction and all local backward linkages (ie, suppliers and services that support that construction). Implan would allow you to apply the 2012 investment in $2012, 2013 investment in $2013, etc. Implan will also estimate share of property tax associated with new economic activity. However, IMPLAN is an alternative to RIMS – i.e., it is also a multiplier model – thus, you would not want to use the multiplied values you’ve calculated and model them in IMPLAN – this would re-multiply the already-multiplied values again. As regards the “reinvestment of funds”, we apologize but we are still unclear. Is the 76% an assumption? You apply the 76% to the entire output impact, but that impact has already accounted for the spending and re-spending of the initial 1 million through the economy. There is no more left of that initial 1 million, it has left the local region through imports and other leakages. What we are understanding your “reinvestment” to be in this case, is that all local property tax increases in the local region after the initial investment are given to the investor to reinvest. So we have property tax increases associated with initial investment and associated indirect and induced effects: Round 1) 1 million * 2.8 = Output Change. The tax impact report would show the associated property tax change, let’s say that the associated property tax impact is 10,000 (a total guess). The impact would not; however, show the “operation” of the housing – ie, spending of income by the new residents, including payments of property tax for the new housing that they live in. It is necessary to do an external calculation of the property taxes on the $1 million in new housing. If the property tax on that million in new housing is $12,000, then money for reinvestment in round 2 would be $22,000 (10,000 plus 12,000) in new residential construction. Round 2) $22,000 * 2.8 = Output change, yields property tax on impact, plus property tax on new housing (22,000 worth). Round 3) We apply the new housing property taxes from round 1 and round 2 plus the impact property tax from round 2 to the multiplier. Construction activity is temporary, so the share of property tax associated with round 1 construction has dissipated. I think a more important source of property tax revenue for reinvestment would be the defined area’s share of normal increases in property taxes to fund the local government. You could use historical local budget increase applied to that share. If the local government lowers the budget, does the investor have to return money? Hopefully this will help. Please let us know if you have any additional questions.