Representative Merrill Nelson requested that the Office of the Legislative Fiscal Analyst validate the calculations and findings of the economic study prepared by MGT of America regarding the economic benefits of moving the state prison from Draper and commercially redeveloping the current prison site.
The LFA Report, dated July 8, 2015 (below), reveals that changing the assumptions can reduce the economic benefits cited by MGT.
The MGT study, using a statistical modeling program called IMPLAN, concluded that a mixed development of commercial, retail, light industrial/high tech, and residential uses would yield, after a development period of 10-12 years, approximately 18,000 new jobs, wages of $834 million, economic activity/GDP of $1.2 billion, and annual local and state tax revenue of $94 million. (Table 1, Column 1.)
Using MGT’s assumptions and the same IMPLAN program, our LFA was able to reproduce or confirm these figures. (Table 1, Column 2.) Using a different statistical modeling program called REMI, which allows for finer tuning than IMPLAN, the LFA again approximated MGT’s conclusions, again using MGT’s assumptions, finding that the GDP and tax revenue numbers are even slightly higher. (Table 1, Column 3.)
However, the LFA’s year-by-year analysis of those economic projections shows that they occur over a long period of development. Assuming that the current prison property is vacated by 2019 (the expected completion date for a new prison), the full economic benefit of redevelopment would not be realized until 2029. (Table 2.) Moreover, only about 70 percent of the projected tax revenue would go to the state.
Accordingly, the state would have to rely on other sources of revenue for actual prison construction costs of $550 million between 2016 and 2019, including long-term bonding.
Most importantly, however, the LFA found that changing three key assumptions of the MGT projections significantly reduces the projected economic benefits. Those assumptions relate to 1) whether new development competes with existing development and may occur whether the prison moves or not; 2) whether new retail development creates new households; and 3) whether induced capital investment occurs in addition to the initial capital investment.
The LFA Study, based on different assumptions and using the REMI modeling program, yielded economic benefits significantly lower than those found by MGT. By the end of the 10-year redevelopment period in 2029, the vacated prison property would produce only 3,700 jobs (one-fifth the MGT estimate), wages of $315 million (a third of the MGT estimate), GDP of $557 million (less than half the MGT estimate), and combined state and local tax revenue of $36 million (about one-third of the MGT projection). (Table 3.) According to the LFA, most of the downward-adjustment from the MGT projections is attributable to changing MGT’s first assumption, relating to competition with existing development. The LFA Report also emphasizes that merely moving the prison does not cause or guarantee the projected economic growth.
In summary, the LFA Report shows that MGT’s economic projections for redevelopment of the current prison site hinge upon three critical assumptions that may not be valid or as reliable as other assumptions. Moreover, any economic benefit from redevelopment of the vacated property is so distant in time as to be of limited immediate benefit in funding actual reconstruction of the prison. Given the uncertain and unreliable economic impact of moving the prison to a different location, any decision regarding prison reconstruction should be based primarily on what is best for the prison, for the Department of Corrections, and for needed criminal justice reform, rather than on economic redevelopment of the existing site. In any event, because the Legislature will necessarily rely on cost and revenue projections of the LFA in formulating budgets for the prison reconstruction period, greater reliance should be placed on the LFA Report than on the MGT analysis.
Representative Nelson commented, “I requested the LFA do this study to ensure that we are carefully examining all assumptions. Their findings demonstrate that MGT’s initial economic development projections can be questioned. We must be cautious moving forward on this critical issue and be sure that moving the prison is in the best interest of the state.”
