Multipliers (or ChamberMath (tm) 101)
In the recent Trace Engines story, a ChamberMath (tm) figure was thrown out:
"Trace's impact since November 2006 has been $26.5 million with direct and indirect salaries, taxable sales and equipment,"
Traditionally, economic development impacts are estimated using various multipliers. Now, these multipliers vary depending on the industry, so I found a report from Oklahoma that estimates the multiplier for the aircraft manufacturing industry. According to the report, the multiplier for the impact of direct salaries in aircraft manufacturing is 1.725. As an aside, these multipliers come from a company called IMPLAN, which is a commercial interest that sells economic development data to consultants for a fee. The fee to get the Midland County dataset is $265 if anybody is interested.
So, lets see if we can get $26.5 Million!
Trace set up shop in 2007 and according to the reports they have employed about 23 people for all those years and had an average salary of about $60,000. I'll be generous and calculate a whole 3 years and 25 employees:
25 x $60,000 x 3 Years = $4.5 Million * 1.725 = $7,762,500 direct and indirect salary impact
From the Appraisal District equipment and land = $6,918,330
Finally there are the sales. According to Aero-News a Trace Engine goes for around $200,000. The article goes on to say the Midland facility can produce up to 100 engines per year. Many reports suggest multipliers for out of area taxable sales are around 1.4.
Well, I can't very well calculate this number because nobody knows how many engines have been produced, or sold. So, let's see if we can back into the MDC's number with a reasonable number of engine sales.
$26.5 Million Impact - $7.7625 Income Impact - $6.91830 Property & Equipment = $11,819,170
Divide by 1.4 to remove the multiplier gives about $8.4 million in sales or 42 engines.
So, to believe the economic impact of Trace Engines is $26.5 Million dollars you have to believe multipliers developed by companies such as IMPLAN aren't Chamber Faerie Dust Black Boxes running advanced ChamberMath (tm) algorithms and that Trace Engines has sold 42 engines since inception.
0 TrackBacks
Listed below are links to blogs that reference this entry: Multipliers (or ChamberMath (tm) 101).
TrackBack URL for this entry: http://www.jessicaswell.com/cgi-bin/mt/mt-tb.cgi/3039
5 Comments
I doubt they have sold ANY engines since moving to Midland.
Have we seen...ever...any information on the viability of Trace"s engine as a product in the marketplace that has come from a source other than Trace or the MDC?
It may be a good product, but so was the Betamax.
And the fact that the company who had the technology initially chose to sell it seems more relevant.
I'm not so concerned with the product as with the continuing involvement of the MDC and the State. I've run across some non-Trace/MDC sources and the engine seems to be a winner for the aircraft segment they are after. The engines are lighter, more fuel efficient and provide more power than other designs, so they should sell well, now that they are fully FAA certified.
I just think the MDC should have written off Trace as an improper and overly optimistic investment like the State did. At this point I would howl, but wouldn't object, to hitting Trace with a paltry $30 ~$40K clawback to get them off the dole.
You see I have an ulterior motive, it is easier to disband the entire MDC if they have a string of failures and no incentive contracts to monitor. Like I've said, I think this dance with Trace isn't as much about Trace as the survival of the MDC.
Look at it this way, what's a little penalty on $400,000 when your investors are on record considering an action to pump another $8 million into this thing.
OR, look at it this way, the MDC could have just purchased two engines and given Trace the same amount of money.
Ospurt,
It seems highly possible that the aviation fuel that this engine uses (100LL) will soon be a very scarce commodity compared with the various types of commercial jet (turbine) fuel. Perhaps some suitable substitute will become apparent. Owners of high horsepower normally aspirated and turbocharged engines are becoming worried. Trace may be too late to the party. A much different time than when this engine was originally developed.
I hope their aircraft tug business is better.
I doubt they have sold ANY engines since coming to Midland.