The Governor has proposed to issue $1,347,250,000 in bonds in order to finance spending on road construction, school buildings, and other construction projects. This note estimates the effect of this capital spending program on the Georgia economy

David Sjoquist

Kelly D. Edmiston

English

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GEORGIA STATE UNIVERSITY ANDREW YOUNG SCHOOL OF  POLICY STUDIES FISCAL RESEARCH PROGRAM JANUARY 10, 2002  ECONOMIC IMPACT ANALYSIS: Proposed Bond Funded Capital Spending  Analysis Prepared by David Sjoquist and Kelly Edmiston   Issue  The Governor has proposed to issue $1,347,250,000 in bonds in order to finance spending on road construction, school buildings, and other construction projects.  This note estimates the effect of this capital spending program on the Georgia economy.  Analysis  The proposed capital spending will generate employment and income as the firms hired to implement the construction projects begin the actual construction.  In addition, this direct increase in employment and income will result in additional impacts, i.e., multiplier effects, as the construction firms purchase inputs and the workers purchase goods and services.  Using IMPLAN, we calculated the total economic effects on the state’s economy of the $1.347 billion in spending.  These effects are:   Direct Effect Total Effect Economic Activity $1.347 billion $2.369 billion Income $477.0 million $864.0 million Employment 12,381 workers 25,408 workers Tax Revenue (state and local)  $83.7 million   These calculations assume that the sale of bonds does not reduce current spending.  For example, if the state bonds reduce capital funds available for investment by businesses located in the state, then that would reduce or eliminate the economic impact of the state program.  However, this outcome is unlikely since the bond market is a national market and the proposed magnitude of the capital projects is a very small part of the total market.  Eventually the bonds will have to be paid off, and that will require either an increase in taxes or a reduction in state government spending.  This will result in a reduction in economic activity in the future.  If the capital program was financed through current taxes,   the   current   economic   impact  of  the  capital  projects  on  the  state  would  be 2essentially zero, since the taxes would reduce spending by households and businesses,thereby offsetting the stimulative effect of the capital spending.  Thus, the effect of theproposed capital spending is to increase economic activity now as spending occurs, andto reduce economic activity in the future as the bonds are paid off.  The impact on the state’s economy will not happen instantaneously.  First, the actualcapital spending will occur over time.  Thus, the timing of direct effects depends uponthe timing of the capital expenditures, i.e., how quickly the projects are initiated andcompleted.  Second, the multiplier effects take time to work, and the timing of theseeffects is dependent on the timing of the capital spending.  There is no feasible way ofaccurately estimating the timing of the economic impact.  Thus, we are unable todetermine the total economic effect after, say, one year, or how long it will take for thefull economic effects of the projects to be felt.   

Proposed Bond Funded Capital Spending

https://www.issuelab.org/resources/5223/5223.pdf

Proposed Bond Funded Capital Spending

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