Local Purchasing Percentage and other questions

Hi Alex. The correct answer to your question about Local Purchase Percentage (LPP) is statement #1. The Local Purchase Percentage is the percentage of the Event’s Industry Sales, Employment, Employment Compensation and Proprietor Income that you wish to have applied to the Multipliers. Thus Local Purchase Percentage is typically 100% because in most Scenarios you want all the Event values to be applied to the Multipliers. However, if you don’t know how much or whether the activity occurs locally, we generally recommend that you set the Local Purchase Percentage = to SAM Model Value, which is the RPC. Thus, we allow the model to estimate how much activity would occur locally in the region. The second part of your question in statement #1 deals with local/regional availability. The proportion of goods (i.e. refrigerators, etc. that are purchased locally by consumers from appliance dealers represent the amount of the demand for these goods that are obtained locally. This is referred to as the Regional Purchase Coefficient (RPC). So, the refrigerators may not all have been made locally but they were purchased locally from appliance dealers, etc. in the area. Concerning FTEs, if you have information on each program such as amount spent on new items, amount spent on recycling of old items, and the number of FTEs associated with each program, then you can enter the direct employment associated with each program into the employment field event and the model will derive additional indirect and induced employment plus show the direct jobs (your FTEs). Since I know very little about your programs, these are just a few casual observations for you to consider. Please let us know if we can be of further help.

Thanks for your advisory. A quick follow-up: In the previous refrigerator scenario, say a utility purchases their refrigerators from a contracted wholesaler outside the county of analysis, and then installs these out-of-county refrigerators for EE program participants. Where would I reflect this external expenditure?

Hi Alex. What you want to do is a Multi-Regional Input-Output Analysis (MRIO) between your counties. We have include a link to an article that describes how to do a MRIO analysis. http://implan.com/v4/index.php?option=com_multicategories&view=categories&cid=236:multiregionalanalysis&Itemid=71 This type of analysis allows you to show how an impact in your Study Area disperses into other regions, and see how these effects in surrounding areas create additional local effects. If you have additional questions, please call us.

Additional questions. To simplify my previous case: To receive a replacement, energy efficient refrigerator, a customer must purchase EE light bulbs and fixtures from retail distributor and replace current lighting. Once new lights are installed, the customer will receive the new fridge from the utility who purchased it directly from the manufacturer who is in another state. 1) About the customer's purchase of the light bulbs and fixtures, do we use the activity type "industry change" and then "fixtures, electric lighting, merchant wholesalers (NAICS: 423610)"? Do we then further apply margins? 2) For the utility's purchase of fridge, do we also use the activity type "industry change" and then "refrigerators, household type, merchant wholesalers (NAICS: 335222)"? Because this purchase came directly from an out of state manufacturer, do we no longer apply margins and do we set the LPP to 0 (because it was out of state)? I understand we must include an employment field for direct employees and also the cost savings associated with energy savings, but I think I have a firm grasp on these items. It is the purchase of goods, when to apply margins, and LPP that I am still having a bit of trouble with. Thanks for the help provided. Alex

Hi Alex, You would only want to use Sector 319 if the consumer was purchasing from a wholesaler. Most commonly consumers purchase through Retail Establishments (Sectors 320-331). It probably fits best under 322. For both 319 and 322 if you choose the default Gross Retail Sales you will be applying Margins appropriately. However, in both these cases since you know that it is specifically bulbs and fixtures that are being purchased, you will see more of an impact by going back and Margining the producer (259,260). To do this you will create an Event for each type of purchase and apply Margins via the Event Options> Edit Event Properties>Margins> Yes. In order to not capture more local value through the Value Chain than you should you will also want to set each of the Events to have a Local Purchase Percentage equal to the SAM Model Value. This is done via the [url=https://implan.com/v4/index.php?option=com_multicategories&view=article&id=567:567&Itemid=71#lpp]Event Options> Edit Event Properties>Set Local Purchase Percentage> SAM Model Value[/url]. However, it sounds like you may know with some of these purchases that Retail is local and production is not. You can edit the Local Purchase Percentage through the Edit Margins screen Event Options> Edit Event Properties>Margins> Edit screen. In regards to the refrigerators, if they are produced outside the region, what local economic impact are you anticipating for these? Do you think that they are transported by local trucking, did they come through a local wholesaler? Does the utility company make any money selling them to the consumer? Thanks for the additional information, and please let us know if you have any additional questions.

Thank you again for your help. This may be an iterative questioning process as I am still getting comfortable with the software. When you say "However, it sounds like you may know with some of these purchases that Retail is local and production is not", what if I know purchase is 100% local and manufacturing is 0% local. Is the LPP then 0%? Thanks!

Hi Alex, You are most welcome. Not a problem, we do a lot of iterative questions. We would much prefer to help you get to the right answer to your specific question. In this case, you would set the Event to SAM Model Value, then set Margins, then go into the Margin>Edit screen and make the Retail line 100% (1.00) and the production line 0%. The reason you still want to set the Event to SAM Model Value is that this will allow the model to estimate the LPP values for wholesale and transport. If you set the whole Event to zero, you shouldn't get these estimations. Please let us know if you have any additional questions. IMPLAN Support Team

I have estimated total expenditures for a sector (fruit farming) that I am analyzing. Please explain how I can input these expenditures for this sector in my state level IMPLAN model, creating a customized production function?

When I do this, I must rebalance and wholesale and transport go to 0. Should I: 1) Change retail to 1 and production to 0 and rebalance to remove transport and wholesale (don't think so)? 2) Change production to 0 and then rebalance thereby raising the percentag share of wholesale, transport and retail? 3) Change production to 0, maintain the same wholesale and transportation percentages and then make up the remainder with my increase in retail? In other words, add the production value to the retail value and maintain transport and wholesale shares.

Hi Alex, 1) We apologize, because it looks like our previous post might not have been clear. Since you are rebalancing, you must be changing the Margins instead of the LPP values. You do not want to change the Margins, but rather the LPP values in the far right column. Sorry again for not being more specific. 2) Again, it's not the Margin value you want to change, but the LPP value. The Margins should remain static, because even if the producer is not local, they will still get a fixed percentage of the sale. You want that fixed percentage of the sale to still go to the refrigerator manufacturer, you just don't want to take any credit for it locally- thus LPP = 0. Hopefully this helps to resolve the issue, and again we apologize that we did not specify the column. The only thing you need to do to change the LPP column is to put the cursor in the field and overwrite the Model estimate.

Hi Bruce, It sounds like you have a complete list of goods and services (budget) for fruit farming and are trying to create a custom Sector to reflect a subset of Sector 4 in IMPLAN is this correct?

This is great, thank you. If a utility buys refrigerators from a local wholesaler, should I use IMPLAN sector 319, the SAM LPP and then also turn on margins and edit them to 100% local?

Hi Alex. Based on your Forum Post, you could certainly use Sector 319 to model your event. However, we believe a more appropriate and better method would be as follows: Use Sector 263 for Refrigerator Manufacturing and not change the margin. Changing the margin for Sector 319 simply says that the refrigerator wholesalers gets more of each consumer's dollar, which gives less to the manufacturer! Since you know the exact items being purchased - refrigerators - you can (and should) apply the value to the producing sector (263). Using the producing sector allows you to capture part of the product margin, wholesale margin, transportation margin, and the retail margin. After applying the value to sector 263, you would then want to apply margins (Event Options > Edit Event Properties > Margins > Yes). You do need to change the LPP since it is set to 100% for the producing Sector and this will set all the LPP values to SAM Model Value. Next, when you go to Edit > Event Properties > Margins > Edit, you will notice that the margin going to Sector 263, Refrigerator Manufacturing, is actually 60.90%, which is the national average and which you probably would not want to change. Using Sector 319 would give much less (only 17.40%) of the consumer’s dollar to the refrigerator wholesalers in Study Area. You can easily prove that the second option is better by modeling the impact of your events using Sector 319 and Sector 263 and comparing the results. You can further prove that the alternate method of using Sector 263 is better by examining the margins for the two sectors. With Sector 319, you only get the Wholesale margin (17.9%); whereas, with Sector 263 you get margins for Household Refrigerator and Freezer Manufacturing (60.90%), Wholesale and Trade Businesses (7.46%), Retail Stores-Electronics and Appliances (30.38), and Transportation (1.17%). From the Edit screen, you will be able to make adjustments to the local purchase of the products. If you know that all of the Retail and Wholesale of the refrigerators occurs locally you can set LPP to 100% (1.00) for these two Sectors in the Margin>Edit screen, but leave the transport Sectors at the model’s estimated LPP value. Since you know the refrigerators are manufactured in Iowa, then you will want to zero out the LPP for the producing Sector. We hope this helps.

Really a great response here. Thanks. Need just a little more info. Scenario: To receive a energy efficiency rebate from the utility, a commercial business must purchase an energy star refrigerator. **We know all participating commercial businesses have purchased their refrigerators from wholesalers. In total, the rebates have caused $100,000 in new refrigerator purchases (we are keeping coinvestment complexities out of it and assuming because of the rebate, there was a $100,000 industry change). I want to use sector 263 and apply margins but how should I handle the retail sector being left out? Should I should go to Margins > Edit and rebalance the margins?

Hi Alex, That is correct. In the Event Options> Edit Event Properties>Margins> Edit screen, you can "0" out the Margin assigned to the 321 Retail Electronics Stores. When you edit the Margin, you will be forces to rebalance the remainder of the value through the remaining Margined Industries. Just as a note, you won't want to modify any of the other Margins unless you know something specifically about them, instead you would modify Local Purchase Percentage as we described before. Hope this helps!

Along the lines of Alex's question, I have data on actual in-state purchases for an electric generator. Using Sector 31, I want to model the overall impacts. (I do not have a breakdown of spending by industry). Do I need to change all of the affected RPCs, as shown in the Commodity Demand Balance Sheets to 100% to model the specific impact of that spending? If yes, is there an easier way of doing this or do I have to change every single RPC? Thanks. Jonathan

Hello Jonathan. Based on your Post, the most straight forward method would be to model this impact as an Industry Change Event where you can enter purchases that will be used as the Direct Effect to estimate the rest of the economic impacts on the community. You will first need to select your geographic model (county, state, or nation) and then you can use Sector 31 (Electric Power Generation, Transmission, and Distribution). You should set your event year first and then enter the expense value in the Model. As far as the RPCs are concerned, I would leave them set to current values and change the Local Purchase Percentage (LPP) to 100 percent. Setting the LPP to 100% means that the model will use all of the direct effect in the analysis. When you say that you have data on actual in-state purchases for an electric generator, which means 100% of these purchases occurred within the state. To model this, you would apply 100% of the purchases to the region multipliers - ie, LPP = 100%. Within that sector's multipliers, assumptions about what a sector buys locally are built in and will be estimated based on RPCs as determined by our trade flow model. The more the sector buys locally, the larger the multiplier and the bigger the local impact. Please let us know if we can be of further help to you.