6/30/2009 by Beth Bily

Early in June, economists at the University of Minnesota Duluth unveiled an impact study to mixed reviews.

The study by the Labovitz School’s Bureau of Business and Economic Research examined the economic effect of the Duluth Public Schools Long Range Facilities Plan, also called the Red Plan. Unveiled at a Duluth Area Chamber of Commerce luncheon on June 1, the study estimates the district’s $285 million construction plan will have an overall $442 million impact — direct, indirect and induced — using a widely accepted 1.6 multiplier.

First-year construction in 2008 put 152 construction workers on the job — a workforce that will increase to 797 this year and nearly 1,600 in 2010, when construction peaks. The study also concludes the Red Plan has provided a timely shot in the arm for the local real estate market. As of May 21, the school district had spent a total $5.9 million in the real estate sector, $4.25 million for needed property purchases.

The controversial plan includes closing one of the city’s three public high schools, shuttering six more school buildings and constructing four new schools. Red Plan opponents at the unveiling challenged the conclusions and the impartiality of the research bureau, given that the Duluth Chamber commissioned the study.

Bureau director James Skurla, who led the research effort, countered by asserting the study used a nationally recognized economic impact model, adding his professional reputation speaks for itself.

He said other institutions also use the IMPLAN modeling system to gauge the economic impact of both development projects as well as business closings. The Red Plan impact was measured no differently than other studies he’s conducted, Skurla said. “I used the same methodology I’ve used for the mining industry and Excelsior Energy studies. It’s a generally accepted approach,” he said.

Chamber officials said they have no hidden agenda.

“We thought this issue to be too important to leave to speculation,” said David Ross, Duluth Chamber president and CEO. The Red Plan study was commissioned to “quantify what could be quantified,” he said.

He said the chamber has supported the school district’s long-range facilities plan initiative, but never endorsed one of the three options — red, white and blue — that district administrators developed. The school board ultimately selected the red option.

Ross also declined to take a position on the plan as it currently stands or judge its overall impact to membership. “We have 1,150 members and I suspect it (Red Plan) will impact 1,150 ways,” he said.

There are obvious gains for the area’s construction and design sector with the nearly $300 million in construction scheduled between 2008-2012.

Drew Digby, regional labor analyst for the Minnesota Department of Employment and Economic Development, worked with Skurla on the research. He noted that architecture and engineering firms have become an important part of Duluth’s economy, providing 731 jobs, or 1.3 percent of total employment, at the end of 2008. This industry sector grew rapidly — 72.4 percent — from 2003 to 2008.

Digby also said the recession-induced construction downturn makes the Red Plan timely. “The timing of this project couldn’t be better,” he said. “Estimates (construction bids) are generally coming in lower, there’s a lot of capacity in construction,” he said.

Meanwhile, Harry Welty, spokesman for Red Plan opposition group Let Duluth Vote, criticizes the plan for its “regressive” funding through property taxes. According to the Duluth Public Schools Web site, www.duluth.k12. mn.us, property taxes will finance about half the funding for the facilities plan. In 2008, a homeowner with property assessed at $125,000 paid an additional $109 in taxes to finance schools modernization. That special property tax will remain in effect for 20 years.

Let Duluth Vote unveiled its alternative plan, known as Plan B, to the Duluth School District on June 23. That plan would cost about $100 million less than the Red Plan, but cost taxpayers slightly more, about $25 more each year on a $125,000 home. The cost difference is due to channeling operational savings into additional programming.

Welty argues the estimated economic benefits of the Red Plan will have little impact beyond the construction industry.

“Sure (the report) is true, but it would also be true if we took $300 million and spent it on something else,” he said. “Bonnie and Clyde could have created the same multiplier effect if they’d stole that much money from a bank.”

While the impact from a bank robbery may be overstated, the analogy does have merit.

Skurla acknowledged that spending $285 million would create economic stimulus in any area industry. The multiplier effect, however, might be different, he said.

Skurla said this study was simply an economic benefit analysis, not a cost-benefit analysis. A cost-benefit report could take into account other factors such as environmental and social impacts — or the impact of spending the same money elsewhere. UMD’s Bureau of Business and Economic Research is funded primarily through grants and contracts, and seldom takes on more comprehensive and expensive cost-benefit studies.

The Duluth Chamber, the study’s sole funder, paid the business research bureau $2,489 for the study, Skurla said.

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