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6 Community and Economic Development Bulletin 21 analysis generally is straightforward, the intricacies and complexities of individual models will vary, requiring users to have specialized knowledge and skills to calibrate the models and interpret their results correctly. For example, a novice user might not realize that standard input-output models have a significant limitation to the extent that they do not reflect how an economy adjusts over time to changes in macroeconomic conditions, regional industrial struc- ture, public policies, and technological advances. More sophisticated, integrated models such as REMI address this shortcoming but are more expensive to operate and require greater user expertise. One of the major concerns about economic impact analysis is that multipliers are often mis- understood and used inappropriately. The tendency to overstate the ripple effect of a develop- ment project by using multipliers that are too large can be lessened with prepackaged economic impact models such as those discussed above. When used "off-the-shelf" with their default values, different models are likely to produce widely varying multipliers for the same project in the same geographic area s This inconsistency in estimating multipliers across models decreases when default values and assumptions are adjusted to better reflect Local conditions.10 Research- ers have created benchmarked versions of RIMS II, IMPLAN, and REMI to control for varia- tions in estimation methods and data sources and found no significant differences in the size of multipliers generated by the three models.ll In addition, standard, off-the-shelf economic impact models (with the exception of REMI) do not explicitly consider possible displacement impacts that could occur if a new firm competes directly with existing businesses for the same local customers. In this case the new firm gains at the expense of existing businesses and a smaller net impact on the jurisdiction results. For some projects, particularly in retail and certain service industries, the potential displacement effect can be significant iz Perhaps the most significant limitation of economic impact analysis is that it represents only the economic benefits of a development project and does not address local government costs. Public officials must utilize the fiscal impact analysis techniques discussed in the next section to understand what effect a development project will have on the local government budget. How Will a Development Project affect Local Government Changes in economic activity can lead to predictable fluctuations in local government revenues and expenditures. Economic growth can boost public revenues, but it also can increase costs in the form of expanded public services. While some economic impact models can be adjusted to produce estimates for how a development project will affect tax revenues, the models discussed in this bulletin generally are not designed to measure the various costs to local governments 9. William buncombe and Wilson Wong, °Building State and Local Government Analytic Capacity: Using Regional Economic Models for Analysis of Public Policy," State and Local Government Review 30, no. 3 (1998): 165-80. lO.Ibid. 11. Dan S. Rickman and Keith R. Schwer, "A Comparison of the Multipliers of IMPLAN, REMI, and RIMS II: Benchmarking Ready-Made Models for Comparison," Annals of Regional Science 29 (1995): 363-74. 12. George Erickcek, "Preparing a Local Fiscal Benefit-Cost Analysis," ICMA IQ Report 37, no. 3 (2005). ©2010 School of Government. The University of North Carolina at Chapel Hill