Hard data for hard times: Economic Impact Analysis for community business loss
The year 2013 brought improved economic news to much of Minnesota, but a few towns took some hard knocks.
- In Ada, a fire broke out at the Triple Crown Nutrition elevator, destroying a 10-story elevator and an adjacent building.
- In Brainerd, Wisconsin-based Wausau Paper announced plans to close the paper mill, leaving 134 employees without jobs.
- In International Falls, Boise, Inc. announced plans to shut down two of the four paper machines at the paper mill. More than 260 union and salaried jobs were at stake.
- In Hoffman, the Good Samaritan Society nursing home closed, leaving behind 48 employees, a vacated building, and dislocated residents.
Crises like these create tough times in local economies. Town and business leaders are left asking, "What now?" while employees and their families must make critical decisions about their future — decisions that could result in a loss for neighborhoods, schools, churches and more.
Facing the shock
"Communities tend to go through stages similar to grief when they face an economic hit," says Connie Loden, an economic and community development professional who has led communities in Wisconsin and California through business loss. "First, there's shock. Then people get angry, and they do get depressed."
Loden believes the job of leaders at this critical time is to help communities not get stuck. "It's fine to express grief and anger," she says. "But if communities don't find some positive steps forward, they can sit in that depression and anger. People who get stuck typically believe that somebody or something will come to save them — that it's not in their ability to do anything themselves. When no one does save them, they move back into grief and anger. Then it becomes part of their culture. That's the worst outcome a town can get."
To avoid that, Loden recommends reviewing case studies of communities that acted to move their town forward — such as a town that developed tourism or attracted a business by touting its workforces' skills. "Case studies change the conversation," she says. "They move people from helplessness to action. People are suddenly able to say, 'You know that town in Oregon? We could do something like that."
Informing the conversation
For the past year, Extension Community Economics educators have had the opportunity to join with economic developers like Loden, providing them with another tool to help communities move forward — an economic impact analysis.
"Hard data doesn't provide solutions," says Neil Linscheid, leader of the Emergency Economic Impact Analysis (EIA) program that delivered reports to Ada, Brainerd, International Falls and Hoffman, "but it does describe the problem in illuminating ways. We want to help town leaders focus. Data can accelerate and expand a community's response."
As we reported here, economic impact analyses use IMPLAN software to analyze economic impacts. For towns facing economic emergencies, Extension responds quickly with a free analysis providing key data about:
- Current employment numbers by industry, as well as wages.
- Comparisons of this economy to other communities in Greater Minnesota.
- The extent of expected economic impacts on local jobs, sales and wages.
- Estimates regarding industries that will be most affected by the loss.
Brigid Tuck, Extension economic impact analyst, notes that this data can surprise leaders and residents. "Sometimes, a town's economy is more robust than people assume. Yes, the analysis shows economic loss, but sometimes the response is 'This isn't going to be as bad as we thought.'"
Illuminating the unseen
"The data can also illuminate things that towns aren't thinking about during a tough time," says Tuck. "For instance, the importance of other businesses that have been underappreciated, or a ripple effect the town hadn't considered before."
For instance, in one Minnesota town, the analysis predicted a loss of jobs not just from the closing business, but for their business suppliers and local retailers as well. A local workforce development program manager took note, and expanded benefits beyond those recently unemployed.
"Hopefully, these other losses can be mitigated in some way. But if not, at least the town is ready," Tuck notes.
Ways to use data
Linscheid notes that data is a small contribution at a time when towns have big decisions to make. "But the information can be used a number of ways."
- Expanding the focus of local action. As noted, looking at the inter-dependency of industries in an economy can broaden the response of an intervention. It can also remind a town the important nuts and bolts of economic development. "It's typical of businesses to not ask the community for help before they close. They just announce and they're gone. They are naturally guarded," says Loden.
"One way to take action during an economic emergency is to prevent the next one," says Linscheid. "Seeing the economic contribution of businesses that stay in town moves communities to offer support through business retention and expansion activities." For instance, after reviewing the report, community leaders in Ada drafted a letter to affected businesses inquiring about their specific needs.
- Increasing productive communication. When economic crisis occurs, rumors run rampant. EIA research replaces rumors with data and more constructive conversations. In Ada and International Falls, economic developers report that they are "talking with people we've never talked to before" because they are armed with credible information exactly when the community needs answers.
- Increasing economic literacy. Economic crisis provides an opportunity for leaders and residents to explore the fundamentals of economic development. EIA reports reveal the interconnectedness within an economy, encouraging the community to, for example, increase business-to-business purchases.
- Gathering data for loans and grants. The crisis of economic loss is also an opportunity to seek funding from outside resources, especially after the community develops a vision to move forward. Using EIA data for grant proposals helps leaders quickly seize those opportunities.
Finding assets — and resilience
Loden focuses on Asset-Based Community Development when she helps towns. "As a community leader, the data that is most helpful to me shows me assets we can build on. It's helpful to bring in outside expertise to help identify opportunities — from local workforce assets to global trends. And it's important that they engage local people in naming those assets. Community members learn a lot about their community in the process."
If there is a silver lining to business loss, it may be that crisis motivates community members to get involved. "Economic success can bring civic apathy," warns Loden. "Often, a community abdicates their civic decisions to the local businesses they rely on. A crisis can get a community moving and functioning with a united front — supportive of each other and their community."
"Communities need economic vitality," says Linscheid. "But knowledgeable and inspired residents create that. A business loss is a tough juncture, but resilient communities write the next chapter."
- Learn about Extension's Economic Impact Analysis programs
- Learn about Extension's Business Retention and Expansion program
- Get to know Extension resources for families in tough times.
- Read and listen to Minnesota Public Radio's coverage of business closings in Hoffman and International Falls.
- Contact your local Extension educator to take advantage of programs offered by the Extension Center for Community Vitality.
Reviewed in 2014