Overview and Methodology
The Florida Institute for the Commercialization of Public Research generates significant and quantifiable impacts that benefit the economic development of the State of Florida each year. Economic impacts are estimated by making use of the professionally accepted IMPLAN methodology, and the impacts are presented in the form of Employment, Household Income, Gross Domestic Product, Total Economic Impact and Fiscal Revenues. This Brief for FY-2017 updates the previously-presented economic impacts through FY-2016.
Each year, the Institute assists in the commercialization of increased levels of research undertaken in Florida’s universities and research institutions. These ongoing activities, combined with Institute’s operational activities, result in positive and increasing economic impacts to Florida while strengthening the Strategic Plan for Economic Development of the State. However, the Institute generates economic impacts that extend beyond those directly related to these ongoing activities. These “spillover” or multiplier impacts are the result of each business activity’s supply relationships with other firms operating within Florida, the proportion of business value added[1] that accrues to households in the form of labor and capital income, and the propensity of households to spend income on goods produced within the local area.
[1]“Value added” refers to the difference between business revenues and the cost of non-labor and non-capital inputs used to produce goods and/or services.
Methodology
Economic models that explicitly account for inter-industry linkages (supply relationships), the generation of labor and capital income and the spending of household income have been used since the 1960’s to estimate the contribution that a particular business or industry makes to the general economy. These “input-output” models recognize that, as an industry experiences an increase in the demand for its products or services, it in turn needs more goods and services from its suppliers and must increase its purchases from other industries in the economy. The effect on regional production resulting from successive rounds of inter-industry linkages is referred to as the indirect effects. The resulting increases in regional production also lead to expansions in employment and Household Income, and the increases in Household Income lead to increases in consumer spending, further expanding sales and production throughout the regional economy. The latter economic impacts are referred to as the induced effects. The successive waves of production, spending and more production result in economic multiplier effects, where the final or total increase in regional production, income and employment, respectively, is larger than the initial (or “direct”) increase in production, income and employment. The total quantitative economic contribution of these activities, therefore, is comprised of a direct effect, an indirect effect and an induced effect.
The Institute provided information on total expenditures as well as employment data for firms where the organization provided initial support and funding, and subsequently, assistance to support their ongoing expansion. Utilizing the direct economic impacts from each operating year from FY-2011 to FY-2017, the indirect and induced economic impacts of these recurring activities were calculated using an extended input-output (I/O) model of the State of Florida economy. These comprehensive economic impacts were then totaled and are presented in the sections that follow.
Summary of the Economic Impacts
In its first year (FY-2011), the Institute and funded companies’ operations supported 91 jobs throughout the State. Additional companies have been funded each year, and companies funded in prior years have grown as well, especially within the high-wage, high-skill Knowledge-Based Services sector of the Florida economy. This has resulted in an annual Total Economic Impact which has been steadily increasing since 2011 due to the Institute’s efforts in the selection and support of companies established through the commercialization of public research.
Additionally, Institute funding programs require a 1:1 private investment match, and funded companies raised in excess of $175 million between 2011 and 2017, a 7:1 ratio of additional private investment to state funds provided. By showcasing investment opportunities that were previously “below the radar”, Institute programs have increased the amount of capital flowing to Florida businesses.
The Total Economic Impact of the Institute’s operations and growth of funded companies in FY-2017 is $340 million, a 35 percent increase from the Total Economic Impact of $251 million in FY-2016. Throughout the seven-year period from FY-2011 through FY-2017, the Institute has contributed a cumulative total of $970 million in Total Economic Impact to the State of Florida. These results are summarized in Table 1.
The Institute Contributes Significantly to Employment, Household Income and GDP in the State of Florida
The Institute has a significant impact on Employment, Household Income and GDP (Value-Added) throughout the State. A majority of these impacts are created in the Knowledge-Based Services industry, which includes Software, Information Technologies and Life Sciences. The jobs created in the Knowledge-Based Services sector have higher wages than the statewide average ($62,000 a year versus a statewide average of $47,000[2]) and support Florida’s Strategic Plan for Economic Development. Of the 2,214 jobs supported in FY-2017, a significant 1,568 or 71 percent are in the Knowledge-Based Services sector. This is followed the Manufacturing sector, another targeted industry of the State. These results are summarized in Tables 2 through 4 that follow.
[2]http://www.floridajobs.org/labor-market-information/data-center/statistical-programs/quarterly-census-of-employment-and-wages
*Major industries under this category are: Software, Information Technologies, Life Sciences, Professional, Administrative Services and Arts, Entertainment & Recreation, among others.
*Major industries under this category are: Software, Information Technologies, Life Sciences, Professional, Administrative Services and Arts, Entertainment & Recreation, among others.
The Total Economic Impact of the Institute is Steadily Increasing Each Year: A Positive Outcome in the Commercialization of Public Research
A comprehensive measure of the Total Economic Impact of the Institute’s ongoing operations and commercialization of public research is Gross Economic Output, representing the sum of gross revenues (receipts) of private firms plus the value of government services (valued at cost).
In FY-2017 alone, more than $340 million of Total Economic Impact was generated by the ongoing activities of the Institute and the funded companies. This is up significantly from $251 million in FY-2016 (a 35 percent increase), primarily due to a large increase in direct hires for funded companies in FY-2017. These total economic impacts have increased strongly since the Institute started deploying seed capital and advisory services in FY-2011.
*Major industries under this category are: Software, Information Technologies, Life Sciences, Professional, Administrative Services and Arts, Entertainment & Recreation, among others.
Table 5 and Figure 1 on the previous page show the industry distribution of the Total Economic Impact between FY-2011 and FY-2017, with the Knowledge-Based Services and the Manufacturing sectors being the top economic impact generators. Over the past seven years, the cumulative Total Economic Impact for the Institute and its funded companies totaled over $970 million, providing important contributions to the creation of an innovation and knowledge-intensive economy.
At the outset of the Institute’s seed funding activities in FY-2011, the Total Economic Impact of the Institute and the funded companies was a modest close to $16 million. Since then, the Total Economic Impact has grown substantially as the Institute (as well as most of its funded companies) have grown and continued to raise capital and increase their payroll. In FY-2017 alone, the Total Economic Impact of these ongoing operations on the Florida economy was more than $340 million as shown in Table 5. This is more than a 20-fold increase since the onset of the Institute’s activities in FY-2011, and up from $251 million in FY-2016. Figure 2 below displays the steady increase in Total Economic Impact since FY-2011.
The Institute Indirectly Generates Significant Contributions to Federal, State and Local Fiscal Revenues
In addition to the principal economic impacts arising from the Institute’s activities and the funded companies, the Institute’s ongoing activities have resulted in significant recurring Fiscal Revenues for Federal, State and local governments as shown in Table 6 on the next page. At the start of the Institute’s seed funding activities in FY-2011, the operations and funding activities generated close to $2 million in total Fiscal Revenues. In 2017, the total Fiscal Revenue impacts increased by over 23 times to more than $40 million, with the cumulative 7-year Fiscal Revenue impacts totaling over $112 million.
The Estimated Economic Return on Investment (ROI) to the State of Florida from the Institute’s Operations and Funded Companies
A key challenge facing public policy makers when deciding among competing projects is determining which projects merit the allocation of scarce taxpayer resources. One approach to this decision-making process is to determine the economic Return on Investment (ROI) to the taxpayers of Florida and to rank the projects based on the size of return. The greatest funding and support is offered to those with the greatest returns first. In this section, WEG estimates and updates the economic ROI based on current funding levels in FY-2017 based on two different methodologies:
1. The more strict and financial-oriented methodology used by the State to allocate resources, and
2. The Economic Development ROI that takes into account the Household Income generated for Florida residents due to Institute activities.
State of Florida ROI
This method of calculating ROI is the same as the one used by the Florida Office of Economic and Demographic Research (EDR) in evaluating potential revenues to the State. This return compares the estimated State Fiscal Revenues generated to the investment that the State made in the Institute to produce these revenues. Thus, this excludes Household Income impacts for Florida residents as well as Fiscal Revenues to local jurisdictions within the State. Based on funding in FY-2017, the ROI calculation includes the estimated State Fiscal Revenues ($6.0 million) from the additional economic activity generated by the Institute and funded companies. The EDR “standard” ROI formula and results are as follows, based on the latest fiscal year that the Institute received funding.
Even under this strict definition of ROI, the benefit to the State is positive at 1.1x. This is largely due to increases in the revenues and employment of funded companies since FY-2011, resulting in greater State revenues. In addition, the ROI is expected to grow year after year as more companies are funded and existing companies funded or assisted by the Institute continue to expand.
Economic Development ROI (EDROI)
It is important to consider that in evaluating ROI to the State of Florida, there are other quantifiable benefits to be considered aside from direct Fiscal Revenues to the State. These include resulting Household Income for Florida residents and Fiscal Revenues that flow to local jurisdictions within Florida.
Based on these variables, WEG estimated the ROI utilizing a standard formula. This return compares the estimated State and Local Fiscal Revenues plus Household Income generated by the investment that the State made to the Institute to produce these benefits. In FY-2017, the Economic Development ROI (EDROI) calculation includes the estimated Household Income ($131.5 million) benefiting Florida residents plus State and Local Fiscal Revenues ($11.0 million) from the additional economic activity generated by the Institute and funded companies. These benefits are then compared to the investment made by the State in FY-2017 ($5.5 million) to support the Institute and funded companies. The EDROI formula and results are as follows:
The ROI of 26x is a notable increase from the ROI of 22x calculated for FY-2016. The Economic Development ROI is also expected to grow, and is more comprehensive relative to economic development impacts than the strict definition used by the State.