Industries, households and government all make capital purchases. In IMPLAN, Capital simply refers to durable assets and devices that can be thought of as an investment for the purchaser. Per the BEA, a capital asset is something that lasts more than one year. For Industries, this includes purchases that are used but not consumed in production like Intermediate Inputs. For households, this includes all purchases that are used but not consumed in household daily life (consumables include things like food, electricity, water and clothes). Capital purchases are things that will be used on an ongoing basis and depreciate and degrade over time until it needs to be repaired or replaced (through an expenditure of capital).
Capital Expenditures are not assumed and analyzed for you when using IMPLAN’s most common Event Types. For example, when analyzing an Industry Event, IMPLAN estimates the impact of Intermediate Expenditures and Labor Income spending by the Industry. IMPLAN also estimates how much the Industry will spend on Taxes on Production and Imports, Less Subsidies (TOPI) and Other Property Income (OPI). However, IMPLAN will not estimate the impact of the TOPI and OPI being spent. This is because this would require assumptions to be made about where, when, and how these dollars would be reinvested. For this reason, IMPLAN leaves it up to each analyst to separately analyze how the government may use tax revenue via TOPI or how the Industry and their stakeholders will invest OPI. Perhaps you know the government will be using the property taxes gained within TOPI towards building a new highway, or perhaps you know the Industry will be using some of their Direct OPI to buy a new piece of equipment. These are capital expenditures that can be analyzed independently from an the businesses operations as these are one-time purchases.
There are three Institutional Spending Pattern Event Types in IMPLAN designed to analyze capital expenditures: Federal Government Investment, State/Local Government Investment, and Capital. These Events are recommended when little to no information is available about the specific capital expenditure. This article details additional options and when each is most appropriate to use.
Capital expenditures may be invested in new construction. In this case, the capital expenditure going towards cost of construction should be entered in one of the IMPLAN Construction Industries via an Industry Output Event. Note that new construction is different than repair and maintenance of facilities and needs to be analyzed appropriately. Learn more about analyzing construction impacts here.
Only the cost of a structure itself should be analyzed through an IMPLAN construction Industry. The Furnishings, Fixtures and Equipment (FF&E) that will be added to the structure to make it fully operational are not captured in construction spending.
Machinery, Technology, & FF&E
Non-construction capital investments include durable tools and appliances purchased and used again and again over time by businesses, households, or government. They can include technology, equipment, or machinery. The first consideration with this is whether or not the capital purchase can be made in your Region. Often times, these large items are not produced locally and therefore should be excluded from your analysis (as they are considered leakages).
Furniture, Fixtures, and Equipment (FF&E) are large, movable investments that businesses make. Like any purchase, choosing the right Event Type & Event settings for your analysis can be confusing. Follow the questionnaire and corresponding chart in the Industry vs. Commodity article to better understand how to enter an FF&E purchase as an Event in IMPLAN.
If you do not have enough information to categorize your capital purchase using the questionnaire, either do not analyze the purchase or skip to the next section of this article to explore a couple more options.
Investment and Institutional Spending Patterns
When little is known about the purchase being made you could consider using an Investment Spending Pattern to model the FF&E expenditures. This file has the general capital investment spending patterns for FF&E alone and for FF&E and construction for consolidated Industries. These spending patterns can be put into IMPLAN by analyzing a list of the associated Commodity Events (these can be copied about pasted into a the Commodity Event tab of the Event Template).
If you have no idea where the investment will be spent, there is one final option. You can use an Institutional Spending Pattern Event. The Federal Government Investment and State/Local Government Investment Spending Patterns are appropriate for analyzing general government investment in capital. Although not typically recommended, a general capital investment could be analyzed with the Capital Spending Pattern Specification. The Institutional Spending Pattern Event Type represents a general spending distribution for measuring broad Institutional activity in your Region. The Capital Institutional Spending Pattern reflects the distribution of Commodity purchases for capital investments by all Industries in the Region and Data Year. In an Institutional Spending Pattern Event, enter the total investment amount Value. That Value is then split across a list of Commodities (which can be viewed in the Menu under Advanced). This Event Type will analyze the purchases of local Commodities based on the rate in which each Commodity is purchased in your Region in that Data Year.
Written February 21, 2020