Maryland’s Horse Industry Turns a Corner

Toward a Competitive Regional Playing Field

There was a time when the outlook for Maryland’s horse industry was rather bleak. Augmented racing purses in West Virginia, Delaware and Pennsylvania were pulling activity away from Maryland. In 1994, the State authorized slots at four racetracks. Focus groups conducted by Sage in 2015 generated a strong consensus that among Maryland’s neighbors, Pennsylvanians represented the fiercest competitors. From 2007 to 2010, which represents the four years after slots arrived in Pennsylvania, the Commonwealth added 20 Thoroughbred stallions while Maryland lost 29.

The industry’s reemergence as a Maryland growth engine is traceable to the Maryland Slot Machines Amendment, also known as Question 2, which was on the November 4, 2008 ballot as a legislatively referred constitutional amendment. The measure approved the placement of 15,000 slot machines at five locations throughout the state.

This set the stage for augmented Thoroughbred and Standardbred horse racing purses. According to the State of Maryland’s formula, 7 percent of slot machine proceeds are directed toward the Purse Dedication Account and another 2.5 percent is invested in the Racetrack Facilities Renewal Account.

Revenues from table games are not allocated to support purses or the horse industry.

Helping Legislators & other Stakeholders Understand

Though delighted by the new formula, many stakeholders remain concerned that policymakers will see fit to alter it. In order to help the industry convey its story, Sage conducted two studies. The first took place in 2015. Given a lack of analyzable data at that time, the Maryland Horse Breeders Association working in conjunction with other organizations sponsored a series of focus groups and interviews. Sage collected qualitative information regarding how various industry participants were spending the money they were receiving directly or indirect from slot machine proceeds. Sage found that many industry participants were taking care of deferred maintenance issues that had developed over the course of decades and were in the initial stages of expanding their operations.

That exercise set the stage for Sage’s 2016 report. Sage conducted a survey of hundreds of industry participants, ultimately generating a survey response rate in excess of seventy percent with the assistance of roughly a dozen organizations. The survey supplied the data used to generate estimates of economic and fiscal impact. Based on its analysis, Sage concluded that:

• As of 2015, Maryland’s Horse Industry directly supported approximately 5,800 full-time jobs statewide;
• Once multiplier effects are considered, the total number of FTE jobs stands at more than 9,100;
• These approximately 9,100 FTE positions are associated with nearly a half a billion dollars in wage and salary income (measured in $2016).
• Direct horse industry spending exceeded $660 million in 2015.
• Once multiplier effects are considered, the industry supports about $1.15 billion in economic activity in Maryland each year, significantly more than the $930 million in statewide economic impact generated in 2010.
• If the current pace of industry expansion persists though 2020, by that time the industry will be associated with nearly $1.5 billion in economic impact and support more than $620 million in employee income and more than 11,000 jobs.
• The industry will also contribute nearly $90 million in annual State and local government revenue by that time.
• Industry spending on equipment, personnel, and physical structures is on the rise, but would rise even more quickly if there was less uncertainty regarding the State’s commitment to the current slots funding formula.

The Press Conference

The project ended with a press conference held at Goucher College. The press event translated into coverage by the Washington Post, Baltimore Sun, Daily Record, Baltimore Business Journal as well as television coverage. Sage announced its findings. The Maryland Horse Breeders Association also announced that it would be shifting its headquarters from Timonium to Goucher College, home of one of the nation’s premier college equestrian programs.

Federal Construction Disputes

Construction Firms are not always at Fault

Sage serves the chief economist function for numerous organizations across the nation. One of these organizations is the Construction Financial Management Association, which is headquartered in Princeton, NJ. The Association is largely populated by chief financial officers and other high ranking financial professions who work in or with the construction industry.

One of the ongoing efforts of the Association has been to help members engage in best practices to avoid lawsuits and other hazards of doing business. In support of this effort, Sage was asked to conduct an analysis of the extent to which courts attribute fault to contractors as opposed to government agencies when disputes arise and are adjudicated. Public opinion often concludes that cost overruns and chronic delays are the fault of construction firms, but as with all things, reality is far more nuanced.

In order to conduct this research, Sage Policy Group, Inc. searched for disputes involving federal government agencies and private contractors from administrative court systems across the United States. Among other things, Sage’s CEO is a graduate of the University of Maryland’s School of Law and worked with University students to identify cases susceptible to analysis. Ultimately, Sage’s database included 107 cases.

Among Sage’s key analytical findings were the following:

• Contractors are at least partially vindicated more than half the time. Slightly less than a majority of cases (53 out of 107) were decided in favor government agencies. In roughly 16 percent of cases, all negative or disappointing project outcomes were effectively attributed to the public agency.
• Among the agencies encompassed by the analysis, the General Services Administration (GSA) is least likely to prevail. In cases involving the GSA, contractors totally prevailed 38 percent of the time and received at least partial satisfaction in 9 out of 13 cases.
• Perhaps counterintuitively, design-build manifests no advantage over design-bid-build in terms of producing better legal outcomes for contractors..
• The frequency of lawsuits seems to increase in the midst of a recessionary economic environment.
• On September 29, 2005, CFMA held a press conference featuring Sage economist Anirban Basu at the National Press Club. The event can be viewed at:

Remaining Committed to Our Schools

Howard County, MD is Home to One of the Nation’s Finest School Systems

State and/or local governments are dealing with a host of issues ranging from underfunded pensions and surging Medicaid expenditures to the need to continue to invest in public safety and retain competitive tax structures. Accordingly, communities are often searching for ways to save money, which requires those who receive funding to help policymakers understand the value proposition.

This is also true in the world of public education.

In order to help Howard County policymakers and other stakeholders understand the contributions of its award-winning public school system (HCPSS), Sage deployed a hedonic pricing model to establish the statistical impact of student achievement on assessed property values. To operationalize its model, Sage developed a dataset containing in-depth statistical information for 1,719 randomly selected homes situated throughout Howard County.

To proxy student achievement, the Sage study team utilized results of the 2013 Maryland School Assessment of 4 th grade students. Sage’s model was associated with an R-squared of 0.91, indicating that the model did a good job of explaining sources of variability in home prices. . The coefficient of greatest interest is the one associated with the variable TEST. The variable is statistically significant and has a coefficient of +0.00242.

This means that for each one point advance in average test score at the elementary school level, the average consumer (including families with no school age children) is willing to pay 0.242 percent more for a home. Given the sample average value of $429,005, this means that a one point increase in test score will raise the price of a home by $1,038.19.

This implies a per home difference in value of $56,270 between homes in the top performing school district and bottom performing school district because of higher average 4 th grade test scores. It is quite possible that other school attributes not measured here also impact home values in Howard County, including the perceived safety of schools, technology offered, prestige, and the capacity of area high schools to promote college readiness. All of this inures to the benefit of county revenues and homeowner equity.

But that is only where the economic impacts begin. Higher home prices are associated with greater wealth and income effects. In addition, the operations of the Howard County Public School System support significant levels of economic impact in the county.

To estimate the annual economic impact of Howard County’s public schools, the Sage study team used IMPLAN modeling software that embodies multipliers specific to the local economy. In total, HCPSS provides support for 14,453 jobs, or 12,846 jobs measured in full-time equivalents. Annual employee compensation associated with these jobs is more than $550 million. The system also supports $1.85 billion in local business sales. In other words, the economic impact of HCPSS on Howard County’s economy is equivalent to approximately 8 percent of total annual county output.

The Post-Study Event

HCPSS was so thrilled with the quality of the study that they organized an event to announce study findings. The event took place on January 7, 2016. Sage CEO was one of the headline speakers along with UMBC President Freeman A. Hrabowski III, Ph.D and Howard County Public School System Superintendent Renee A. Foose, Ed.D. A few months later, Sage delivered a report quantifying the economic impact of UMBC on the state’s economy on the occasion of the 50^th anniversary of its founding.

An Economic Development Strategy for One of Pennsylvania’s Most Historic Communities

A Quintessential American Town

The Borough of Middletown is Dauphin County, Pennsylvania’s oldest town and was founded in 1755. Quaint Victorian structures line its main street. Splendid views of the Susquehanna River and Swatara Creek are available along with multiple recreational opportunities. The town is tranquil. It is also proximate to the rapidly expanding Penn State Harrisburg campus.

Despite these myriad sources of advantage, the Borough’s economic performance has been mediocre. Middletown’s population declined 3.4 percent between 1990 and 2012. There is evidence of substantial retail vacancy downtown and many formerly owner-occupied units have been turned into lower cost rentals.

In order to generate a meaningful set of representations for Borough leadership, Sage engaged in the following activities:

• Extensive data analysis of Middletown and comparable communities;
• A series of focus groups with townspeople, including many who disagreed vociferously with one another regarding the community’s desired trajectory; and
• A comprehensive SWOT analysis.

Ultimately, Sage developed four recommendations:

Recommendations

1. We are Penn State (Harrisburg) – Forge More Meaningful Ties with One of
   Pennsylvania’s Most Rapidly Expanding Educational CommunitiesPenn State Harrisburg arguably represents the single greatest opportunity for rejuvenation in the borough. The campus’ population is expanding rapidly, which creates both opportunities to provide retail, services and housing downtown.
2. Provide Special Treatments for Historic Properties
   In each focus group, local stakeholders bemoaned the deteriorated condition of many of the borough’s most historic and beautiful structures. Many of these structures were originally constructed for affluent families, but have since been sub-divided many times for rental purposes. The community’s homeownership rate is only 52 percent.
3. Attract More Visitors through Marketing
   Nearly 60 percent of visitors to the Harrisburg Hershey area come to visit the Hershey Park and other Hershey sites. Because of its charm and its historic appeal, there is an opportunity for Middletown to capture a greater share of visitors. There is, however, no magic solution other than expanded marketing. Accordingly, the study team recommended the creation of an organization that would be charged with (among other things) creating greater online presence for Middletown in key markets such as Harrisburg, Philadelphia and Baltimore.
4. Establish a Middletown Chamber of Commerce or at least a Visitors’ BureauThe study team repeatedly heard from key stakeholders that communication with Borough government is challenging. Correspondingly, the study team recommended the establishment of a Middletown Chamber of Commerce. Among other things, the Chamber would also be responsible for implementation of Recommendation 3 above, sensible since many members of the organization would directly benefit from greater visitation.Though the study was completed more than a year ago, it can still be found on the Press and Journal’s website. Sage has completed studies of this type for many communities, including Albany (NY), Cambridge (MD), Gaithersburg (MD), Greenbelt (MD), Caroline County (MD), Talbot County (MD), and the City of Baltimore. Sage will soon begin work on a study of economic development in the African-American community in New Orleans, LA.