1. The Impact of Cement Manufacturing on Economic Growth in the Cape Fear Region Craig S. Galbraith, MBA, MSc., Ph.D. and Curt H. Stiles, MBA, Ph.D.

2. Impact Study (4/16/2008) Presented County Supervisors, Basis for Incentives 160 new jobs proposed by Titan would pyramid into 720 new jobs within New Hanover County, it would bring an additional $235.7million dollars of economic activity to the county, and it would result in an additional $19.5million of rental and dividend income to the county.

3. What was Wrong with the 2008 Study? Only used IMPLAN – computer modeling ◦But used wrong assumptions about impacts or ability of region to provide inputs to Titan Performed on “possibly” wrong industry ◦Cement mixing versus manufacturing Didn’t look at any dispersive” or negative effects ½ page report, with no due diligence on Titan employment assumptions Didn’t pass the “sniff” test (firm with 160 employees creates 720 new jobs in a small county?)

4. Most Reported Economic Impact Studies Are Seriously Flawed Economic Impact Analysis is Poorly Understood ◦Based upon the idea that jobs within a region create other jobs within the region – the MULTIPLIER effect But ◦Need to understand economic structure of region ◦Need to understand that not all jobs create other jobs, in fact most industry sectors are the result of the economic system and do not create economic growth ◦Need to understand that most economic impact studies are simply political in nature and vastly over estimate the positive impacts

5. What Creates Positive and Long- term Regional Economic Impacts? Does it increase “final” demand in the Region High value-added activities ◦Take inputs and make them into something more valuable Pay good local wages ◦Wages are then “multiplied” by spending in the region Innovative high technology industries, R&D, financial services, many professional services, universities, etc. Purchase inputs regionally ◦Dollars leaving region is called “leakage” Companies are locally owned ◦Profits also stay in region Output is exported outside the region ◦Dollars then flow to community Output plugs previous “leakages” Activity is part of the strategy of sustainable community Hospitality, light mfg, export products, and firms that achieve the above factors.

6. Most industries are “embedded in the economy” and do not contribute significantly to economic development – even if they have significant employment Would adding another gas station or food store or drug store or hamburger restaurant or taxi cab firm increase the demand for gas, groceries, Rx, hamburgers, in Wilmington? – No it would most probably simply shift existing demand around between the providers. Employment would not substantially change, with no net economic impact – the “Sin of Exaggerating Sectoral Impacts” - in fact, it may actually hurt the regional economy

7. The “bad” of business activity Does the activity create negative Externalities that actually hurts the community?

8. What are the potential negative externalities of any business? Pollution and environmental degradation Infrastructure congestion from business Congestion of commuting employees Increase in input prices Anti-clustering and dispersive factors Activity is not compatible with long-term vision for community Decreases attractiveness (beauty) of community

9. Beauty is good business Well studied in research – we know what attracts industries and residents Attractive communities attract knowledge based business and hospitality visits ◦Beach communities, historic downtowns, attractive planning/design elements, universities, other technology clusters Cape Fear region well positioned to compete on “attractiveness” Community attractiveness must be created by ordinances (sign, landscaping, CUPs, proper zoning) Attractive communities are safer communities ◦Irvine and Mission Viejo, CA, safest communities each year; tough design standards.

10. City Beautiful - Study by the Federal Reserve Bank of Philadelphia (2008)  Study of leisure visits at all MSAs in the U.S.  “Beautiful cities” disproportionally attracted highly educated individuals and experienced faster housing price appreciation, especially in supply-inelastic markets. Investment by local government in new public recreational areas within an MSA was positively associated with higher subsequent city attractiveness... (p.1)  Leisure visitors are attracted by an area’s special traits, such as proximity to the ocean, scenic views, historic districts, architectural beauty, and cultural and recreational opportunities. But these are some of the very characteristics that attract households to cities when they choose where they will make their permanent homes (p. 32).

11. Our Study - Three different approaches - Used more recent data - Better understanding of the assumptions and limitations of traditional impact studies - Within the context of economic development theory and practice

12. What is the Economic Structure in the Region? Wilmington MSA economy is both narrow and unbalanced, essentially concentrated in three primary sectors: Sector 1: Retail trade, recreation, arts and entertainment, accommodation and food services; Sector 2: Manufacturing and utilities, and Sector 3: Real Estate and construction. It is weak in other sectors, such as information, professional services, scientific activity, and the various sectors generally described as "high/mid- technology."

13. What is the Impact of a Cement Plant? – 2 IMPLAN Models Model 1: Traditional Input-Output Analysis ◦Like most studies, generally overestimates real impact – assumes Wilmington would be like the general U.S. economy ◦Increase of 410 to 545 jobs (including 160 announced by Titan) in Wilmington MSA ◦Much lower for just New Hanover County, certainly lower than the 720 original new jobs predicted in 2008 study Model 2: Net Impact Analysis ◦Many Titan supplier industries not currently in Wilmington, not likely to move or expand here because of Titan ◦Increase of 366 jobs (including 160 announced by Titan) in MSA

14. IMPLAN models do NOT capture externalities – Look at real data Model 3: Incorporation of Spillover Effects and Continuous Externalities ◦Traditional regional economic impact analyses cannot account for the ways in which large plant locations and expansions might repel existing establishments or other potential entrants. Based on empirical study of manufacturing new plants in Georgia (real data) ◦Net increase of 110 jobs in MSA (or 50 non-Titan jobs will leave the area) ◦Net increase of only 48 in New Hanover County

15. Impact is probably lower than even Model 3 - perhaps negative Unfortunately, many negative impacts of business location can not be quantified with available data – 4 issues for Titan Can a strong amenity/clean economy coexist with a heavy manufacturing economy within a relatively small geographical region? ◦Generally amenity based and ambiance driven sectors have significantly greater economic and social impact. Negative externalities probably greater than average for Titan ◦Potential economic damage that might be caused by the perception of pollution or actual environmental disaster Firms generally hire fewer people than announced, Titan announced 160 (studies suggest 13.8% less, or 138 hired) Using Florida data, Titan salaries more likely to be $63k than the announced $75k.