Governor Releases Executive Summary on Hyundai Project - WSFA.com Montgomery Alabama news.

April 5, 2002

Governor Releases Executive Summary on Hyundai Project

The assembly plant that's coming to Alabama will eventually create much more than the immediate 2000 jobs at the plant.  Governor Don Siegelman released figures (See Below) Friday that say about 8,000 jobs will come into the area with the plant, counting those at the plant and at all other business, which may follow.  It is estimated that it will take the state until 2011 to break even on the incentive package that was put together to lure the automaker to the state. 

This Executive Summary of the Economic Impact and Cost/Benefit Analysis of the Hyundai Motor Manufacturing Company, LLC. Project was prepared by M. Keivan Deravi, Chief Economist, University Outreach and Professor of Economics, School of Business, Auburn University Montgomery.

Purpose and Assumptions

The purpose of this study of the Economic Impact of the Hyundai Motor Manufacturing
Company (HMMC) Project:

1. To estimate the economic impact of a potential $ I billion investment on
2,000-worker automobile manufacturing plant in Alabama-

2. To evaluate the total value of the statutory incentive package applicable to
HMMC project

3. To analyze the benefits and costs associated with the project

4. To estimate the annual average rate of return from this project for the State of Alabama

In conducting this study it was necessary to make several assumptions. The assumptions we made are as follows:

1. Direct Investment by HMMC $ 1 billion
2. Direct Employment by HMMC 2000
3- Direct Payroll $99m
4. Production Start Up Date 2005

Executive Summary of Results

1. Our conservative estimate of potential economic impact of the HMMC investment
is as follows:

Total employment impact 8000 jobs
Direct employment 2000 jobs
Indirect employment 6000 jobs
Total earnings $280m
Direct earnings $99m
Indirect earnings $180m
Average annual earning for HMMC employee $49,400
Average annual earning for indirect employment $28,000

2. It is estimated that 58% of the total employment will be created in the manufacturing sector. This will provide a positive reinforcement to Alabama's ongoing transition to a more skill-oriented .economy.

3. The cumulative value of the state and local statutory tax incentive expressed in present value, applicable to HMMC is estimated to be approximately $76m by year 2021. This figure will include:

Corporate income tax abatement $29m
Sales and use tax abatement $29m
Property tax abatement $27m
Mortgage deed and record tax abatement $1

4. The cumulative total value of the state and local incentive package, which is the statutory incentive and discretionary site preparation investment expressed in present value, is estimated to total $l89m by 2021. This total does not include private sector and in kind contributions.

5. In terms of the benefit analysis, we estimate the present value of the cumulative benefits at all levels of government in Alabama to total $270m by 2021.

6. The break-even point for the project is estimated to be 2011 for the state government investment.

NOTES

A large-scale economic development model was used to estimate information for the economic impact and cost/ benefit analysis ofHMMC project. The model uses RIMS II economic multipliers from the U.S. Bureau of Economic Analysis. The multipliers are industry specific for Alabama and are used in conjunction with the local demographic and economic data to reflect the economy of the area in which the project is located. For
the purpose of estimating the economic impact of this project demographic, economic, and housing market information was compiled from:

The U.S. Department of Labor

The U.S. Census Bureau

The U.S. Bureau of Economic Analysis

The Alabama Department of Industrial Relations

The Alabama Department of Revenue

We made a number of assumptions that aided us in deriving the above estimates. First, we used 4.0 percent as the effective average tax rate for the state corporate income tax. Secondly, we assumed a 10 percent return on capital as the average annual corporate taxable income. Thirdly, we assumed 60 percent of the construction
material and required capital investment to be purchased from within the state and the rest redirected to out of state entities. Finally, we assumed a discount rate of 7 percent and a 20-year horizon in order to compute the present value of the statutory and discretionary incentives. All of these assumptions are consistent with the standard practice and are in line with the assumptions used in previous industrial projects in the state.

Source:  Governor's office

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