Slide1: Integrated Finance Framework & Regional Economic Impact Model Federal Reserve Bank of St. Louis May 2-4, 2007 Stan Halle, HHCG Frank Knott, President, ViTAL Economy, Inc. 410-321-1484 fknottmd@earthlink.net Exploring Innovation A Conference on Community Development Finance


Slide2: Agenda 9:00 - Welcome, Introductions and Objectives 9:10 – Role of an Integrated Finance Framework for Regional Rural Economies 9:40 – Role of a Regional Economic Model in Transforming an Economy 10:15 – Adjourn


Slide3: The ViTAL Economy Approach Components


Challenges to Growing Rural Regional Economies: Challenges to Growing Rural Regional Economies Access to specialty finance services and early stage venture capital networks Networks that encourage entrepreneurs and allow businesses to share ideas Intermediary resource networks that support new businesses Perception that quality managers do not live nor come to such economies Increased financial literacy of prospective users and providers of capital Capacity to evaluate intellectual property versus traditional asset-based risks Community environments which encourage entrepreneurship and risk taking Market research capabilities that allow businesses to expand to new markets and that allow entrepreneurs to turn ideas into viable new products Sources: NGA Center for BEST PRACTICES, RUPRI and ViTAL Economy Research


What Challenges have Your Communities Facedin Accessing Capital to Transform Your Regional Economy?: What Challenges have Your Communities Faced in Accessing Capital to Transform Your Regional Economy? Your Thoughts:


Slide6: Rural Community Refrain “We are risk averse and opportunity handicapped” Industry Cluster Participant Olympic Peninsula, Washington


Sustainable Economic Development is Inhibited by Funding Gaps Faced by Growing Companies: Sustainable Economic Development is Inhibited by Funding Gaps Faced by Growing Companies Insider Financing Angels Micro-loans/Grants Venture Capital


Conducting an Integrated Finance Assessmentfor a Rural Regional Economy: Conducting an Integrated Finance Assessment for a Rural Regional Economy What are the specific finance needs of entrepreneurs, early stage businesses and established companies located in the economic region? What are the funding requirements for implementing the regional economic strategy and addressing private and public infrastructure deficits? What are the finance products, finance advisory services and risk assessment capacities available in the economic region? What gaps exist between what the regional economy needs and what finance products, capacities/capabilities and finance advisory services are available? Given the above, what funds, or finance products and services does the region need to develop locally, or access regionally and nationally? What is the recommended legal structure for managing a family of integrated fund structures and finance services to serve the region?


Sample Equity and Specialty Capital Requirements: Sample Equity and Specialty Capital Requirements Angel Investors $3.1M EDC Micro-Loans/ Micro-Grants $14.7M Venture Capital $4.8M Private Investors $145.7M EDC Revolving Equity& Loan Fund $26.1M Bank Loans $107.0M Ag. Development Loans $33.3M Port Authority Loans $1.5M Economic Development Financing = $336.2 Million Community Development Financing = $100 Million +


Slide10: Regional Intermediary Finance Facility Regional Board of Directors Non-Profit Financing and Advisory Entity Equity & Specialty Debt Financial Services Business Development & Marketing Best Practice Strategy & Resource Services National Finance Network Local Finance Partners Micro-Loans • Angel Pools Grants • VC Funds Specialty • Infrastructure Financing Funding Public Finance • Sale lease back Loan Pools • Participations Risk Analysis • REITS Economic and Finance Vehicle Development Community Development Asset Finance Services Early Stage Company Business Advisory Services Global Market Research Promote Services to Business Market Financing Services Build Innovation Climate Grow Entrepreneur Interest Increase Financial Literacy Support Business Incubation


A Self-Sustaining Finance Framework for Regional Rural Economies: A Self-Sustaining Finance Framework for Regional Rural Economies


Slide12: Regional Economic Impact Model Frank Knott, President, ViTAL Economy, Inc. 410-321-1484 fknottmd@earthlink.net Foundational Tools for Transforming Rural Regional Economies


Why We Need an Economic Model for Measuring A Regional Economy!: Why We Need an Economic Model for Measuring A Regional Economy! Nations measure and manage their economy with an economic model States and provinces measure their economies with an economic model Rural economic regions typically don’t have an economic model Makes it difficult to manage a rural regional economy Difficult to plan without benchmarks Impossible to reliably assess progress without a model Forecasting impact of competing economic strategies is impossible Without measurement and benchmarks there is no accountability If You Don’t Know Where You Are Going, Any Road Will Get You There! Alice in Wonderland


What is Economic Impact?: What is Economic Impact? Measure of spending and employment Associated with a business, sector of the economy, or a specific project Common ways to measure economic impact: Jobs or person years of employment Spending in the region (economic output) GDP, value-added or value of capital used


Types of Economic Impact: Types of Economic Impact Direct Economic Impact Employment within the region Indirect Economic Impact Employment in downstream industries that result from employment in the region Induced Economic Impact Employment generated from expenditures by individuals employed directly or indirectly Total Economic Impact = Direct + Indirect + Induced


Methodology for SI Economic Analysis: Methodology for SI Economic Analysis The Base: Bureau of Economic Analysis (BEA) RIMS II multipliers Multipliers created to allow for regional analysis of jobs and earnings BEA created a specialty run of multipliers for the 20-county Southern Illinois region; most rural region multipliers are from multiple MSA GDP for multipliers was developed using a ratio method recommended by BEA (state industry jobs : state industry GDP) Induced impacts not included in RIMS II multipliers Model driven by BEA jobs data at the county level Multipliers are applied to the jobs data to generate earnings, GDP and output measures Use of multipliers was checked with BEA staff to ensure correct application


Slide17: VE Regional Economic Model Launched in Southern Illinois February 2007 Foundational Tools for Transforming Rural Regional Economies


Uniqueness of VE Economic Model: Uniqueness of VE Economic Model Refined to calculate Jobs, Earnings, and GDP by County & Region It also can instantly calculate the economic impact of capital investment Specific BEA multipliers have been built that are tied to Southern Illinois and, therefore, are not distorted by large Metro-areas nearby The data is easily updated, but not directly accessible to the users Will be web-based for open access to all Allows for easy scenario-comparisons & forecasting re job creation, percentage wage growth Developed a specific micro-model for assessing the economic impact of building a new health-care institution Model is applicable to other economic regions with different multipliers


Slide19: Analysis by County or by Sub Region


Slide20: Industry Sector — by Jobs


Slide21: Industry Sector — by GDP


Slide22: Scenarios — by Jobs or Capital Investment


Discussion — Feedback: Discussion — Feedback Your Comments?