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The Economic and Fiscal Effects of the Closure of the Motorola Plant in Harvard, IL
Client: City of Harvard, IL
dashed line separator The construction and operation of Motorola's cellular telephone plant in Harvard generate jobs and income directly and indirectly through the multiplier effect of those direct economic effects. The plant and its employees also generate revenues to the City of Harvard's General Fund and induce municipal service costs. The 1.5 million square foot plant is expected to close in April 2003. Over 4,200 jobs will be lost when the plant closes. One of the many questions raised by the plant closing is: "What are the economic and fiscal effects of the plant closure?" The City of Harvard engaged Gruen Gruen + Associates (GG+A) to analyze the fiscal and economic impact that the current plant has on the City of Harvard. The study approximates the magnitude of that potential problem and explains its long-run dimensions. The information and estimates presented provide the City with a framework to evaluate and take budgetary and economic development actions to deal with the potential problem in a timely and effective manner.

GG+A analyzed the operating revenues and expenditures of the City of Harvard. An estimate of the net fiscal impact that the Motorola Plant has on the City's General Fund was made for the 2001 fiscal year and at plant closing in 2003. The Plant's closure will affect City revenues faster than City expenditures. Revenues generated by the Motorola Plant will decline immediately while some municipal costs induced by the Motorola Plant are fixed or will not decline upon the Plant's closure. The analysis also shows that the costs of providing Plant employee residents of Harvard with municipal services are less than the revenues contributed or induced by these employees.

GG+A's analysis also assessed the effects of the Plant on Harvard's businesses and housing market. As the economy slows due to the closure of the plant, the demand for housing and therefore the value of housing will tend to decrease. The potential exists that the value of some business assets, including commercial and industrial properties may also tend to decline. These secondary or cumulative effects on taxable assets represent another fiscal effect that will potentially erode the local revenue base. These potential results will be significantly influenced by the degree of the success the City has in replacing Motorola and in avoiding the decline in the quality of local public services that could result from the direct fiscal effect.

A third portion of GG+A study examined the direct and indirect economic impacts of Motorola on the economies of the Chicago metropolitan region, McHenry County and the City of Harvard. These estimated economic impacts are quantified in terms of jobs, income and output. The plant closing will cause the loss of jobs beyond the plant's own layoffs. Secondary effects will include the loss of jobs in associated industries and also in retail and service sectors because of the loss of earnings spent locally or within the region by individual workers. GG+A employed the use of a model developed by the Regional Economics Application Laboratory (REAL), a joint venture between the University of Illinois and the Federal Reserve Bank of Chicago, to estimate the multiplier effect of jobs and income in the Chicago region and McHenry County. This model was adjusted to provide an estimate of the impacts associated with the 295 employees who live or lived in Harvard on the McHenry County economy.




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