Economic impact of construction of a new hospital on the economy of Seiling, Dewey County, Oklahoma.

              The Economic Impact of Construction of a New Hospital on the Economy of Seiling, Dewey County, Oklahoma
Oklahoma State Department of Health
Office of Rural Health
Oklahoma Cooperative Extension Service
Oklahoma State University
May 2010
AE-10014
The Economic Impact of Construction of a New Hospital on the Economy of Seiling, Dewey County, Oklahoma
Website: www.okruralhealthworks.org
Lara Brooks, Assistant Extension Specialist, OSU, Stillwater
Phone: 405-744-6083, Fax: 405-744-9835, Email: lara.brooks@okstate.edu
Brian Whitacre, Assistant Professor and Extension Economist, OSU, Stillwater
405-744-6083
Stan Raltsin, Area Extension Rural Development Specialist, OSU, Enid
580-237-7677
Michael Weber, Dewey County Extension Director, Taloga
580-328-5351
Corie Kaiser, Health Consultant, Oklahoma Center for Rural Health, Oklahoma City
405-945-9197
Val Schott, Director, Oklahoma Center for Rural Health, Oklahoma City & Tulsa
405-945-9197
Oklahoma State Department of Health
Office of Rural Health
Oklahoma Cooperative Extension Service
Oklahoma State University
May 2010
The Economic Impact of Construction of a New Hospital on the Economy of Seiling, Dewey County, Oklahoma
Table of Contents
Page
I. INTRODUCTION .........................................................................................................1
II. TRENDS IN THE HEALTH CARE INDUSTRY ........................................................1
A. National Trends ..................................................................................................1
B. Dewey County and Seiling Trends ....................................................................3
III. STATISTICS – SEILING COMMUNITY HOSPITAL .............................................14
IV. THE IMPACT OF CONSTRUCTION OF NEW HOSPITAL ..................................15
A. The Multiplier Effect .......................................................................................16
B. The Impact of the New Hospital Construction ................................................17
C. The Impact of the New Hospital During Operation .........................................18
V. SUMMARY .................................................................................................................22
Appendix A. Model and Data Used to Estimate Employment and Income Multipliers
Appendix B. Selected Demographic and Economic Data
1
INTRODUCTION
Across Oklahoma, hospitals provide access to vital health care services 24 hours a day, seven days a week, 365 days a year. But the role hospitals play as a major contributor to the community economy is often overlooked. Leaders in Seiling, Oklahoma, have realized the importance of a hospital and health services to their economy and future growth. Because of the need for quality health services and for economic development growth and expansion, leaders in Seiling will construct a new hospital. The objective of this report is to measure the economic impact the construction and operation of the hospital and associated centers will have on the Seiling economy. More specifically, the report will:
1. Review economic trends of the health sector employment and payroll for the U.S., Dewey County, and Seiling;
2. Present statistics for the Seiling Community Hospital;
3. Measure the economic impact the new hospital and associated centers will have on the local economy during construction; and
4. Measure the economic impact the new hospital and associated centers will have on the local economy when operational.
2
TRENDS IN THE HEALTH CARE INDUSTRY
Health Services and Job Growth
A factor important to the success of rural economic development is job creation. The health care sector is an extremely fast growing sector, and based on the current demographics, there is every reason to expect this trend to continue. Data in Table 1 provide selected health expenditures and employment data for the United States. Several highlights from the national data are:
 In 1970, health care services as a share of the national gross domestic product (GDP) were 7.2 percent. This increased to 16.2 percent in 2008;
 Per capita health expenditures increased from $356 in 1970 to $7,681 in 2008;
 Employment in the health sector increased almost 341.0 percent from 1970 to 2008; and
 Annual increases in employment from 2003 to 2008 ranged from 2.0 percent to 4.0 percent.
In addition, the Bureau of Labor Statistics projects substantial increases in health care expenditures from 2009 through 2018. In fact, the U. S. Department of Health and Human Services, Centers for Medicare and Medicaid Services predict that health care expenditures will account for 18.9 percent of GDP by 2015 and increase to 20.3 percent of GDP in 2018. Per capita health care expenditures are projected to increase to $10,929 in 2015 and to $13,100 in 2018. Total health expenditures are projected to increase to almost $4.4 trillion in 2018.
Figure 1 illustrates that health services accounted for 16.2% of all national expenditures (as repeatedly the gross domestic product). This figure also breaks the amount spent on health services into various categories. The largest health service type was hospital care, representing 31.0 percent of the total. The next largest type of health services was physician services with 3
21.0 percent of the total. Community health centers are allocated in “other” category, which accounts for 32.0 percent.
SOURCES: Bureau of Labor Statistics; 20010 Bureau of Economic Analysis; 2009 Centers for Medicare & Medicaid Services, National Health Expenditures 1970-2008 and National Health Expenditure Projections 2009-2018 (http://www.cms.hhs.gov/NationalHealthExpendData [January 2010]). 4
Table 1
United States Health Expenditures and Employment Data
1970-2008; Projected for 2009, 2012, 2015 & 2018
Total
Per Capita
Health
Health
Ave. Annual
Year
Health
Health
as %
Sector
Increase in
Expenditures
Expenditures
of GDP
Employment
Employment
($Billions)
($)
(%)
(000)
(%)
1970
$74.9
$356
7.2%
3,052
a
1980
253.4
1,100
9.1%
5,278
a
7.3%
1990
714.1
2,814
12.3%
7,814
a
4.8%
2000
1,352.9
4,789
13.6%
10,858
a
3.9%
2001
1,469.2
5,150
14.3%
11,188
a
3.0%
2002
1,602.4
5,564
15.1%
11,536
a
3.1%
2003
1,735.2
5,973
15.6%
11,817
b
N/A
2004
1,855.4
6,328
15.6%
12,055
b
2.0%
2005
1,982.5
6,701
15.7%
12,314
b
2.1%
2006
2,112.5
7,071
15.8%
12,602
b
2.3%
2007
2,239.7
7,423
15.9%
12,946
b
2.7%
2008
2,338.7
7,681
16.2%
13,469
b
4.0%
Projections
2009
2,509.5
8,160
17.6%
2012
2,930.7
9,282
18.0%
2015
3,541.3
10,929
18.9%
2018
4,353.2
13,100
20.3%
SOURCES: Bureau of Labor Statistics (www.bls.gov [January 2010]); 2010 Centers for Medicare & Medicaid Services, National Health Expenditures 1970-2008 and National Health Expenditure Projections 2008-2018 (http://www.cms.hhs.gov/nationalhealthexpenddata [January 2010]).
N/A - Not Available.
a Based on Standard Industrial Classification (SIC) codes for health sector employment.
b Based on North American Industrial Classification System (NAICS) for health sector employment. 5
Seiling and Dewey County Trends
Seiling and Dewey County are located in northwestern Oklahoma. Data relative to the health sector for the county are provided on Tables 2 through 4. Two secondary data sources are utilized to show trends in the health sector which illustrate the magnitude of the importance of the health sector on the Dewey County economy. These sources are based on different data definitions and thus cannot be directly compared with each other. However, both sources demonstrate the importance of the health sector and hospital on the Dewey County economy. Data specific to the Seiling Community Hospital medical service area are not directly available, thus county data used to illustrate the trends and magnitude of the health sector relative to the total county economy.
6
Table 2
Employment and Payroll for County Business Patterns*
Dewey County and the State of Oklahoma
Employment
Based
Health
Total
Health Services
Health Services
on
Services
County
as a % of Total
as a % of Total
NAICS1
Employment
Employment
County Employment
State Employment
1999
83
735
11.3%
14.2%
2000
80
745
10.7%
14.1%
2001
71
712
10.0%
14.3%
2002
78
717
10.9%
15.1%
2003
87
698
12.5%
15.2%
2004
100-249**
775
**
15.4%
2005
83
723
11.5%
15.4%
2006
71
755
9.4%
15.1%
2007
20-99**
845
**
15.3%
% Change '99 - '07
-14.5%
15.0%
Payroll
Based
Health
Total
Health Services
Health Services
on
Services
County
as a % of Total
as a % of Total
NAICS1
Payroll ($1,000s)
Payroll ($1,000s)
County Payroll
State Payroll
1999
1,309
19,283
6.8%
14.1%
2000
1,330
16,276
8.2%
14.0%
2001
1,428
15,701
9.1%
14.5%
2002
1,435
13,738
10.4%
15.2%
2003
1,333
13,759
9.7%
15.2%
2004
(D)
22,241
**
15.7%
2005
1,333
16,975
7.9%
15.5%
2006
1,399
19,696
7.1%
15.1%
2007
(D)
24,824
**
15.3%
% Change '99 - '07
6.9%
28.7%
Source: U.S. Census Bureau, County Business Patterns; 1998-2007 data (www.census.gov [April 2010]).
1 The Health Care and Social Assistance NAICS sector comprises establishments providing health care and social assistance for individuals. The sector includes both health care and social assistance because it is sometimes difficult to distinguish between the boundaries of these two activities. Industries in this sector are arranged on a continuum starting with those establishments providing medical care exclusively, continuing with those providing health care and social assistance, and finally finishing with those providing only social assistance. The services provided by establishments in this sector are delivered by trained professionals. All industries in the sector shared this commonality of process, namely, labor inputs of health practitioners or social workers with the requisite expertise. Many of the industries in the sector are defined based on the educational degree held by the practitioners included in the industry.
* Data from County Business Patterns exclude self-employed persons, employees of private households, railroad employees, agricultural production workers, and for most government employees (except for those working in wholesale liquor establishments, retail liquor stores, Federally-chartered savings institutions, Federally-chartered credit unions, and hospitals).
** Due to nondisclosure of confidential data, no percentages are available.
7
Table 3
Full-Time and Part-Time Employment
by Type of Employment and by Major Industry (NAICS)
for Dewey County, OK, 2007-2008
2007
2008
No. of
% of Total
% of Private
No. of Jobs
% of Total
% of
Jobs
Private
Total Employment
2,977
100.0%
3,147
100.0%
Wage and salary employment
1,464
49.2%
1,560
49.6%
Proprietors employment
1,513
50.8%
1,587
50.4%
Farm employment
731
24.6%
737
23.4%
Nonfarm employment
2,246
75.4%
2,410
76.6%
Private employment
1,733
58.2%
100.0%
1,926
61.2%
100.0%
Forestry, fishing, & related
(D)
N/A
N/A
(D)
N/A
N/A
Mining
(D)
N/A
N/A
(D)
N/A
N/A
Utilities
(D)
N/A
N/A
(D)
N/A
N/A
Construction
143
4.8%
8.3%
165
5.2%
8.6%
Manufacturing
56
1.9%
3.2%
66
2.1%
3.4%
Wholesale trade
(D)
N/A
N/A
(D)
N/A
N/A
Retail trade
349
11.7%
20.1%
346
11.0%
18.0%
Transportation & warehousing
(D)
N/A
N/A
(D)
N/A
N/A
Information
24
0.8%
1.4%
27
0.9%
1.4%
Finance & insurance
(D)
N/A
N/A
(D)
N/A
N/A
Real estate, rental & leasing
(D)
N/A
N/A
(D)
N/A
N/A
Prof & technical svcs
(D)
N/A
N/A
(D)
N/A
N/A
Mgmt of cos and enterprises
15
0.5%
0.9%
15
0.5%
0.8%
Administrative & waste services
(D)
N/A
N/A
(D)
N/A
N/A
Educational servces
(L)
N/A
N/A
(L)
N/A
N/A
Health care & soc asst incl HOSPITALS
91
3.1%
5.3%
93
3.0%
4.8%
Arts, entert, & rec
18
0.6%
1.0%
(D)
N/A
N/A
Accommodation & food svcs
76
2.6%
4.4%
(D)
N/A
N/A
Other svcs, except public admin
206
6.9%
11.9%
217
6.9%
11.3%
Govt & govt enterprises
513
17.2%
29.6%
484
15.4%
25.1%
Source: 2010 Regional Economic Information System, Bureau of Economic Analysis, based on the North American Industrial Classification System (NAICS).
D - Not shown to avoid disclosure of confidential information, but the estimates for this item are included in the totals
L - Less than 10 jobs, but the estimates for this item are included in the totals
na - No percentages would be calculated due to nondisclosure of data for confidentiality. 8
Table 4
Earnings by Major Source and by Industry (NAICS)
for Dewey County, OK, 2007-2008
2007
2008
Income ($1,000s)
% of Total
% of Private
Income ($1,000s)
% of Total
% of
Private
Total earnings by place of work
58,626
100.0%
75,576
100.0%
Wage and salary disbursements
41,768
71.2%
48,805
64.6%
Proprietors' income
5,070
8.6%
13,760
18.2%
Other
11,788
20.1%
13,011
17.2%
Earnings by Industry
Total earnings by industry
58,626
100.0%
75,576
100.0%
Farm earnings
-4996
-8.5%
3492
4.6%
Nonfarm earnings
63,622
108.5%
72,084
95.4%
Private earnings
43,623
74.4%
100.0%
52,442
69.4%
100.0%
Forestry, fishing, & related
(D)
N/A
N/A
(D)
N/A
N/A
Mining
(D)
N/A
N/A
(D)
N/A
N/A
Utilities
(D)
N/A
N/A
(D)
N/A
N/A
Construction
3,503
6.0%
8.0%
4,248
5.6%
8.1%
Manufacturing
2,939
5.0%
6.7%
3,897
5.2%
7.4%
Wholesale trade
(D)
N/A
N/A
(D)
N/A
N/A
Retail trade
6,298
10.7%
14.4%
6,729
8.9%
12.8%
Transportation & warehousing
(D)
N/A
N/A
(D)
N/A
N/A
Information
567
1.0%
1.3%
638
0.8%
1.2%
Finance & insurance
(D)
N/A
N/A
(D)
N/A
N/A
Real estate, rental & leasing
(D)
N/A
N/A
(D)
N/A
N/A
Professional & technical services
(D)
N/A
N/A
(D)
N/A
N/A
Management of companies & enterprises
(L)
N/A
N/A
(L)
N/A
N/A
Administrative & waste services
(D)
N/A
N/A
(D)
N/A
N/A
Educational services
63
0.1%
0.1%
63
0.1%
0.1%
Health care & soc asst incl
HOSPITALS
1,182
2.0%
2.7%
1,233
1.6%
2.4%
Arts, entertainment, & recreation
(L)
N/A
N/A
(D)
N/A
N/A
Accommodation & food services
716
1.2%
1.6%
(D)
N/A
N/A
Other services, except pub. Admin.
3,690
6.3%
8.5%
4,645
6.1%
8.9%
Government and government enterprises
19,999
34.1%
45.8%
19,642
26.0%
37.5%
Source: 2010 Regional Economic Information System, Bureau of Economic Analysis, based on the North American Industrial Classification System (NAICS).
D-Not shown to avoid disclosure of confidential information, but the estimates for this item are included in the totals.
N/A-No percentages would be calculated due to nondisclosure of data for confidentiality. 9
Data in Table 2 are from the U. S. Census Bureau, County Business Patterns, to illustrate how the health sector is growing over time in Dewey County. Since detailed 2007 data is not available for Dewey County, 2006 data will be analyzed to calculate percent change in employment and income. From 2000 through 2006, employment in the health services sector decreased by 14.5 percent, while total employment in the county grew by 15 percent. However, health services payroll has been increasing (despite having fewer jobs), increasing 6.9 percent over this same time period. The health services sector has consistently been a significant contributor to the Dewey County economy over this time period, comprising consistently around 10 percent of the total county employment and 8-10 percent of the total county payroll. These percentages are lower than the Oklahoma state averages.
Data in Tables 3 and 4 are from the Regional Economic Information System, Bureau of Economic Analysis, for the years 2007 and 2008 and are based on the North American Industrial Classification System (NAICS). This data source has a broader definition of employment than does the U. S. Census Bureau County Business Patterns which is why total county employment in 2007 is more detailed in Table 3 rather than Table 2. The purpose of Tables 3 and 4 is to demonstrate the importance of the health sector as compared to the entire economy. In 2008, the health care sector (which includes hospitals) accounted for 93 full-time and part-time employees or 5.3 percent of the private employment in Dewey County (Table 3). The health care sector was the fifth largest sector of the private employment (of the sectors reported). Government accounted for the largest percentage of 29.6 followed by retail trade with 20.1 percent. Other services and construction both composed 11.9 percent and 8.3 percent of private employment, respectively. In 2008, the health care sector accounted for over $1.2 million in total earnings 10
which was 1.6 percent of the total earnings for the county (Table 4). The largest earning sector was government with 26.0 percent and retail trade with 8.9 percent of total earnings for the county.
Population data for Seiling and Dewey County are presented in Table 5. The data illustrate that the community has declined in population since 2000. This is common for many communities in western Oklahoma. Seiling experienced a decrease of 15.13% over the ten-year period between 1990 – 2000, while Dewey County also experienced a decrease rate of 14.56% during the same time period. Between 2000 and 2010, both Seiling and Dewey County are projected to decrease in population with very similar rates of 2.86% and 3.01%, respectively. Seiling projects a decrease for 2010 through 2030 to be comparable to the county with around a 5 percent decrease from the 2000 census to 2030. Detailed data for Seiling from the 2000 Census are provided in Appendix A, as are county-level data for 2008.
Table 6 displays the current economic impact of the health care sector divided into the major components. Currently, the hospital employs 30 FTEs at an annual payroll of $1,247,479. The existing health care sector does have significant employment and income effects on the local economy. After the appropriate multipliers are applied, the total employment impact increases to 41. In addition, the income impact increases to $1,469,812. For a more detailed description, please refer to AE-10013, The Economic Impact of the Health Sector on the Seiling Community Hospital Medical Service Area, May 2010. These values will be compared to those that will occur after the new hospital is constructed later in this report.11
Table 5
Census Population and Population Estimates and Projections
for City of Seiling and Dewey County, OK, 1970-2030
City of Seiling
Dewey
State of
County
Oklahoma
1970 Census
1,033
5,656
2,559,229
1980 Census
1,103
5,922
3,025,290
1990 Census
1,031
5,551
3,145,585
2000 Census
875
4,743
3,450,654
2006 Estimates
780
4,369
3,577,536
2007 Estimates
771
4,368
3,617,316
2008 Estimates
782
4,416
3,642,361
2010 Projection
850
4,600
3,707,000
2020 Projection
830
4,500
3,963,800
2030 Projection
830
4,500
4,192,400
1990-2000
-15.13%
-14.56%
9.70%
% change
2000-2010
-2.86%
-3.01%
7.43%
% change
2000-2020
-5.14%
-5.12%
14.87%
% change
2000-2030
-5.14%
-5.12%
21.50%
% change
Source: U.S. Census Bureau; 1970, 1980, 1990 & 2000 Census; 2006, 2007, & 2008 Census Estimated Populations; 2010, 2020 and 2030 Census Population Projections
12
Table 6
Seiling Community Hospital Medical Service Area Health Sector Impact 2010
on Employment and Income, and Retail Sales and Sales Tax
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Employment
Income
Retail
1 Cent
Health Sectors
Employed
Multiplier
Impact
Income
Multiplier
Impact
Sales
Sales Tax
Hospitals
30
1.35
41
$1,247,479
1.18
$1,469,812
$209,742
$2,097
Physicians, Dentists, & Other Medical Professionals
8
1.24
10
$862,840
1.08
$935,081
$133,436
$1,334
Nursing and Protective Care
107
1.08
115
$3,280,139
1.09
$3,570,734
$509,544
$5,095
Other Medical & Health Services
12
1.16
14
$248,335
1.12
$277,342
$39,577
$396
Pharmacies
7
1.21
8
$455,100
1.09
$498,304
$71,108
$711
Total
164
188
$6,093,894
$6,751,273
$963,407
$9,634
SOURCE: 2008 IMPLAN database, Minnesota IMPLAN Group, Inc.; Local data for employment, employee compensation and proprietor's income; income estimated based on state average incomes if local data not available
* Based on the ratio between Dewey County retail sales and income (14.27%) – from 2009 County Sales Tax Data and Personal Income Estimates from the Bureau of Economic Analysis.
13
STATISTICS – SEILING COMMUNITY HOSPITAL
The economic impact of the construction of the new hospital as measured by employment and payroll, is huge. The new hospital will be primarily constructed in during the year of 2011, and the construction is expected to take 1 year from the start date to complete. Since the construction has not started, it is very possible that the project could take longer than 12 months. If that does happen, the impacts could be greater. However, this study will analyze current data from community leaders suggesting 12 months. Project leaders estimate that a total of $14,000,000 will be spent on the construction of the new hospital. Construction projects generally spend money on 1) salaried work (labor) and 2) material used in the project (capital). Since most material used (such as steel, concrete, etc.) will likely be purchased from suppliers outside Dewey County, the dominant economic impact to the local economy will come from the labor portion of the construction. The industry-specific labor share associated with the appropriate construction sector in Dewey County is estimated at 31.27 percent of the expenditures using 2008 IMPLAN tabulations. 1 This implies that $4.37 million of the $14 million total project cost will be in labor. This labor share will include all employment, such as laborers and management positions. Therefore, this converts to 125 FTE construction jobs with an average salary of $35,040 (Table 7) for all FTE construction employees. This is representative to the Bureau of Labor Statistic’s state average for all construction occupations including management. The state average for construction helpers and laborers is $27,510 and $25,620, respectively; while wages for managers and supervisors can exceed $50,000.
1 The IMPLAN model contains detailed statistics on over 450 specific industries. More information on IMPLAN is available in Appendix B. The industry-specific labor share is calculated by looking at the ratio of value-added by labor to the total output for the sector that deals with construction of health care facilities. 14
The construction phase only occurs once, but is a sizeable impact on the Seiling economy. Although many of the construction workers will be from out of town, they will purchase items such as food, gas, and drinks in Seiling. Also, on occasion they will spend the night at a hotel. Some workers will be local and will have an even larger impact as they spend a bigger portion of their paycheck locally. All purchases will significantly impact the Seiling economy during the construction of the hospital.
Table 7
Selected Statistics
for New Hospital in Seiling
Employment
Payroll
Construction
125
$4,377,800
Operational
17
$524,440
Source: Local Seiling Leaders
The operational phase will begin by no later than 2013 and will have an on-going impact on the local economy. The professionals who will operate the hospital expect to employ 17 new employees and have a payroll (including salary and benefits) of $524,440 (Table 7). Most of these will be local residents and thus will purchase many items locally. Likewise, the hospital and center’s daily operations will purchase inputs locally and thus impact the Seiling economy. The impact on other businesses in Seiling will be discussed and estimated in the following section of this report.
15
THE IMPACT OF SEILING COMMUNITY HOSPITAL
As presented in the previous section, the economic impact of the Seiling Hospital, measured by their employment and payroll, is significant. However, this does not tell the complete story as secondary economic impacts are created when the hospital construction workers and the hospital employees spend money across the local economy. These secondary benefits are measured by using “multipliers” from an input-output model and data from a regional modeling software known as IMPLAN. The model and data are widely used by economists and other academics across the U.S. The IMPLAN model and data are further discussed in Appendix B.
The Multiplier Effect
To further explain the concept of a multiplier, consider, for instance, the closing of a hospital. If the hospital can no longer pay employees, and dollars going to these households will stop. Likewise, the hospital cannot purchase goods from other businesses, and the dollar flowing to those other businesses will stop. As a result, household income and revenues for other businesses in the economy will be decreased. Since earnings would decrease, households and businesses decrease their purchases of goods and services from other businesses. This, in turn, decreases these businesses’ purchases of labor and inputs. Thus, the change in the economic base works its way throughout the entire economy. From the opposite perspective, the addition of a new business and new employees also works its way through the economy as the business purchases supplies and the employees buy local goods and services.
A measure is needed that yields the effects created by an increase or decrease in economic activity. In economics, this measure is called a “multiplier.” An employment multiplier of 2.0 indicates that if one job is created by a new industry (such as a new construction job), an 16
additional 1.0 job is created in other sectors due to business and household spending. The IMPLAN model calculates employment, income, and output multipliers associated with changes in economic activity and provides results specific to the industry and counties they involve.
The Impact of the New Hospital
The construction of a new hospital and centers has a huge impact on a community’s economy. This impact is often overlooked. Project leaders indicated that all construction on the new hospital and centers in Seiling will take place during 1 year.
Table 8 displays the total impacts of the new hospital construction. The total construction costs are estimated to be $14,000,000. Calculating the labor share of this portion involves using IMPLAN’s earnings-to-output ratio for the construction sector which suggests that 125 construction workers will be employed for this phase. The employment multiplier for the construction industry in Dewey County is 1.23, implying that for every one person employed in construction, an additional .23 jobs are created throughout the economy. Therefore, the construction phase of the hospital will create an additional 20 jobs throughout the Dewey County economy. Thus, the total employment impact for the construction of the new hospital is 145. The earnings-to-output ratio also suggests that a total of $4,377,800 will be paid out in wages (the rest will go towards construction materials, which are likely to be purchased outside of Dewey County). The income multiplier of 1.16 will work the same as the employment multiplier by creating an additional $700,448 in income throughout the local economy. Therefore, the total income impact of the new hospital construction is $5,078,248. This additional income also impacts local retail sales and local tax revenue. Historical tax data from 2008-2009 indicates that local residents of Dewey County spend around 14.27 percent of their 17
personal income on retail items locally. When that is applied to the total income impact for this phase of the project, it is estimated that $724,666 additional retail sales will occur in Seiling and Dewey County. The local city tax rate is 4.0 percent which could generate an additional $29,987 in sales tax from this construction.
Table 8
Total Employment , Income, and Retail Sales Impact
of the New Hospital on the Seiling Economy
during Construction
Hospital Construction
Total Construction Cost:
$14,000,000
Employment
Estimated Employees
125
Construction Employment Multiplier
1.23
Secondary Employment Impact
29
Total Employment Impact
154
Income
Estimated Payroll
$4,377,800
Construction Income Multiplier
1.16
Secondary Income Impact
$700,448
Total Income Impact
$5,078,248
Estimated Impact on Retail Sales
$724,666
City Sales Tax Collections (4%)
$28,987
The Impact of the New Hospital During Operation
Once the hospital is operating, it will generate employment and payroll every year. These are the long run benefits to the economy of Seiling. It was estimated that the hospital will employ 17 people and have a payroll of $524,440. The economic impact of these numbers on 18
Seiling’s employment and income are presented in Table 9. The employment multiplier is 1.40, which means that for each hospital job, another .40 job is created in other businesses in the Seiling economy. The jobs in other businesses are referred to as the secondary impact. The secondary employment created due to the operation of the hospital is estimated at 7, making a total impact of 24 jobs.
Table 9
Total Employment, Income, and Retail Sales Impact
of the New Hospital on Seiling Economy
during Operation
Employment
Estimated Employees
17
Hospital Employment Multiplier
1.40
Secondary Employment Impact
7
Total Employment Impact
24
Income
Estimated Payroll
$524,440
Hospital Income Multiplier
1.18
Secondary Income Impact
$94,399
Total Income Impact
$618,839
Estimated Impact on Retail Sales
$88,308
City Sales Tax Collections (4%)
$3,532
The income multiplier is 1.18, which means that for each dollar in payroll another .18 cents is generated in other businesses. The estimated secondary income impact of the hospital when in operation is $94,399, for a total income impact of $618,839. The impact on retail stores is estimated by how much of the income is spent in stores locally that collect sales taxes. It is estimated that 14.27 percent of payroll is spent locally making an annual retail sales impact of 19
$88,308. Seiling collects a 4 percent city sales tax. Thus, the impact on city sales taxes is estimated at $3,532.
Table 10 displays the economic impact of the health care sector post construction during the operational phase. Most likely, the operational phase will begin no later than 2013. Therefore, the new direct hospital employment has increased to 47, and the new hospital annual payroll has increased to $1,771,919. IMPLAN multipliers were estimated using new hospital employment and payroll projections. After applying the new hospital employment multiplier of 1.40 to the direct employment of 47, the total employment increases to 66. The income multiplier did not change for this sector. Therefore, the total income impact is $2,087,720 after the hospital income multiplier of 1.18 is applied.20
Table 10
Seiling Community Hospital Medical Service Area Health Sector Impact 2013
on Employment and Income, and Retail Sales and Sales Tax
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Employment
Income
Retail
1 Cent
Health Sectors
Employed
Multiplier
Impact
Income
Multiplier
Impact
Sales
Sales Tax
Hospitals
47
1.40
66
$1,771,919
1.18
$2,087,720
$297,918
$2,979
Physicians, Dentists, & Other Medical Professionals
8
1.24
10
$862,840
1.08
$935,081
$133,436
$1,334
Nursing and Protective Care
107
1.08
115
$3,280,139
1.09
$3,570,734
$509,544
$5,095
Other Medical & Health Services
12
1.16
14
$248,335
1.12
$277,342
$39,577
$396
Pharmacies
7
1.21
8
$455,100
1.09
$498,304
$71,108
$711
Total
181
213
$6,618,334
$7,369,182
$1,051,582
$10,516
SOURCE: 2008 IMPLAN database, Minnesota IMPLAN Group, Inc.; Local data for employment, employee compensation and proprietor's income; income estimated based on state average incomes if local data not available
* Based on the ratio between Dewey County retail sales and income (14.27%) – from 2009 County Sales Tax Data and Personal Income Estimates from the Bureau of Economic Analysis. SUMMARY
The construction and operation of a new hospital have a huge impact on the economy of a small community. Often overlooked is the economic impact during the construction of the hospital. This report measures the impact of the Seiling hospital and associated centers during the year of construction as well as the impact it will have annually when it is operational.
During the construction year, 125 jobs will be created and over $4.3 million will be paid directly from the project. When secondary impacts are measured, the total impact is 145 jobs and about $5.4 million in wages and salaries. This impact occurs only during the year of construction, but will be a nice economic stimulus for Seiling. More importantly, however, is the continuing impact that the new hospital employees will have on the Seiling economy each year. When operational, it is estimated the hospital will employ 17 new workers with an additional payroll of $524,440. If the secondary benefits are included, the total employment impact is 24 new jobs and the total additional payroll impact is $618,839. It was also estimated that the hospital will generate $88,308 in local retail sales and $3,532 in city sales taxes.
It must be emphasized that only the economic impacts of the new hospital and associated centers are shown in this report. The operational employment and income impacts are annual and will continue each and every year that the hospital operates in the future. These are the long term economic benefits of the new hospital. The fact that Seiling will have a quality hospital with outstanding technology and services will enhance the opportunity for Seiling to attract new business and industry. This could, in turn, result in new jobs and new families moving into the community. All of these factors illustrate that the new Seiling hospital is vitally important for the economic growth of Seiling. The Seiling hospital is also important to the community as it contributes to the health and well-being of the residents within Seiling and the surrounding rural areas.
As the differences between Tables (6) and (10) indicate, the new hospital will increase the overall economic impact of the health sector to over $7 million and will result in over 210 people being employed as a result of the health sector activity. This thriving health sector should support the local business environment and even encourage migration to Seiling.
References
Alward, G., Sivertz, E., Olsen, Dl, Wagnor, J., Serf, D., and Lindall, S. Micro IMPLAN Software Manual. Stillwater, MN. University of Minnesota Press. 1989.
Miernyk, W.H. The Element of Input-Output Analysis. New York, NY; Random House. 1965.
Doeksen, Gerald A., Johnson, Tom, and Willoughby, Chuck. Measuring the Economic Importance of the Health Sector on a Local Economy: A Brief Literature Review and Procedures to Measure Local Impacts. Southern Rural Development Center. SRDC Pub. No. 202. 1997.
Minnesota IMPLAN Group, Inc. User’s Guide, Analysis Guide, Data Guide: IMPLAN Professional Version 2.0 Social Accounting & Impact Analysis Software, 9th Edition, June 2007.
Appendix A
Selected Demographic and Economic Data
Table 1. Demographic Profile Highlights: 2005-2007.
Geographic area: Dewey County, Oklahoma.
Table 2. Demographic Profile Highlights: 2000.
Geographic area: Seiling, Oklahoma.
*For more detailed data pertaining to economic, health/behavioral, educational, crime, and traffic data, please refer to the 2009 Dewey County Data and Information Report- available at: www.okruralhealthworks.org
Appendix B
Model and Data Used to Estimate
Employment and Income Multipliers
A computer spreadsheet that uses state IMPLAN multipliers was developed to enable community development specialists to easily measure the secondary benefits of the health sector on a state, regional or county economy. The complete methodology, which includes an aggregate version, a disaggregate version, and a dynamic version, is presented in Measuring the Economic Importance of the Health Sector on a Local Economy: A Brief Literature Review and Procedures to Measure Local Impacts (Doeksen, et.al., 1997). A brief review of input-output analysis and IMPLAN are presented here.
A Review of Input-Output Analysis
Input-output (I/O) (Miernyk, 1965) was designed to analyze the transactions among the industries in an economy. These models are largely based on the work of Wassily Leontief (1936). Detailed I/O analysis captures the indirect and induced interrelated circular behavior of the economy. For example, an increase in the demand for health services requires more equipment, more labor, and more supplies, which, in turn, requires more labor to produce the supplies, etc. By simultaneously accounting for structural interaction between sectors and industries, I/O analysis gives expression to the general economic equilibrium system. The analysis utilizes assumptions based on linear and fixed coefficients and limited substitutions among inputs and outputs. The analysis also assumes that average and marginal I/O coefficients are equal.
Nonetheless, the framework has been widely accepted and used. I/O analysis is useful when carefully executed and interpreted in defining the structure of a region, the interdependencies among industries, and forecasting economic outcomes. The I/O model coefficients describe the structural interdependence of an economy. From the coefficients, various predictive devices can be computed, which can be useful in analyzing economic changes in a state, a region or a county. Multipliers indicate the relationship between some observed change in the economy and the total change in economic activity created throughout the economy.
MicroIMPLAN
MicroIMPLAN is a computer program developed by the United States Forest Service (Alward, et al., 1989) to construct I/O accounts and models. Typically, the complexity of I/O modeling has hindered practitioners from constructing models specific to a community requesting an analysis. Too often, inappropriate U.S. multipliers have been used to estimate local economic impacts. In contrast, IMPLAN can construct a model for any county, region, state, or zip code area in the United States by using available state, county, and zip code level data. Impact analysis can be performed once a regional I/O model is constructed.
Five different sets of multipliers are estimated by IMPLAN, corresponding to five measures of regional economic activity. These are: total industry output, personal income, total income, value added, and employment. Two types of multipliers are generated. Type I multipliers measure the impact in terms of direct and indirect effects. Direct impacts are the changes in the activities of the focus industry or firm, such as the closing of a hospital. The focus business changes its purchases of inputs as a result of the direct impacts. This produces indirect impacts in other business sectors. However, the total impact of a change in the economy consists of direct, indirect, and induced changes. Both the direct and indirect impacts change the flow of dollars to the state, region, or county’s households. Subsequently, the households alter their consumption accordingly. The effect of the changes in household consumption on businesses in a community is referred to as an induced effect. To measure the total impact, a Type II multiplier is used. The Type II multiplier compares direct, indirect, and induced effects with the direct effects generated by a change in final demand (the sum of direct, indirect, and induced divided by direct). IMPLAN also estimates a modified Type II multiplier, called a Type III multiplier that also includes the direct, indirect, and induced effects. The Type III multiplier further modifies the induced effect to include spending patterns of households based on a breakdown of households by nine difference income groups.
Minnesota IMPLAN Group, Inc. (MIG)
Dr. Wilbur Maki at the University of Minnesota utilized the input/output model and database work from the U. S. Forest Service’s Land Management Planning Unit in Fort Collins to further develop the methodology and to expand the data sources. Scott Lindall and Doug Olson joined the University of Minnesota in 1984 and worked with Maki and the model.
As an outgrowth of their work with the University of Minnesota, Lindall and Olson entered into a technology transfer agreement with the University of Minnesota that allowed them to form MIG. At first, MIG focused on database development and provided data that could be used in the Forest Service version of the software. In 1995, MIG took on the task of writing a new version of the IMPLAN software from scratch. This new version extended the previous Forest Service version by creating an entirely new modeling system that included creating Social Accounting Matrices (SAMs) – an extension of input-output accounts, and resulting SAM multipliers. Version 2 of the new IMPLAN software became available in May of 1999. For more information about Minnesota IMPLAN Group, Inc., please contact Scott Lindall or Doug Olson by phone at 651-439-4421 or by email at info@implan.com or review their website at www.implan.com.