On June 19, 2013, the Bureau of Economic Analysis, U.S. Department of Commerce, announced the elimination of its RIMS II product (Regional Input-Output Modeling System) due to budget cuts. RIMS II provides modeled estimates to the private sector and federal, state and local governments on the impact of a change in economic activity on a specific region’s economies. For example, RIMS II was used to estimate the economic impacts of Hurricane Katrina and the Deepwater Horizon Event.
RIMS II is based on an accounting framework called an I-O table. For each industry, an I-O table shows the distribution of the inputs purchased and the outputs sold. According to the RIMS II Handbook, the Department of Defense uses it to estimate the regional impact of military base closings, and State departments of transportation use it to estimate the regional impacts of airport construction and expansion. In the private sector, analysts, consultants and economic development practitioners use RIMS II to estimate the regional impacts of a variety of projects, such as the development of theme parks and shopping malls.
This is the methodology most used in the EB-5 Investor visa program because on average, given the same level of inputs, it will show more job creation than other models such as IMPLAN. Developers who are looking to attract EB-5 capital will ask the economic impact economists which models will produce the highest job counts as that will influence how much capital they can raise (each investor's investment must produce 10 U.S. FTE jobs) and RIMS II is often the one that can deliver the highest job creation numbers.
The model has also been in use since the inception of the program so USCIS adjudicators at the EB-5 processing centers which oversee both the Regional Center I-924 and immigrant investor's I-526 and I-829 petitions are familiar with it, so it has many fans in the EB5 visa program.
RIMS II is not without its critics however
“The problem with the input-output model is that it is based on a theory that was outdated 50 years ago, it’s results are untestable, and it is widely used to “prove” dramatically unrealistic benefits from dramatically stupid projects,” wrote Bill Conerly in a March issue of Forbes.
“The model begins with an input-output table, which says that, for example, the steel mill industry uses the output of the iron ore industry, the electric utility industry, as well as labor and some lesser inputs. If there is an increase in steel production, that triggers an increased demand for iron ore, electricity, and labor. Those increases, in turn, trigger increases in the production of the inputs to the iron ore industry, electric utilities, etc. Some of these ripple effects are felt inside the region, others outside. All of these secondary effects feed further secondary effects. Eventually the total impact can be calculated.
“The approach sounds cool, and technically it is. What’s wrong, though, is substantial. First, the model assumes no price changes. For instance, if there’s an increase in demand for labor, the model assumes that wage rates do not change, and thus the tightening labor market does not impact actual employment changes.
“Second, the input-output model assumes fixed relationships over the time of the forecast horizon. So there is no fracking driving down natural gas prices. There are no new social media companies connecting consumers and businesses in different ways. Books have not been replaced by Kindles, not even in part.
“The third problem is that economic impacts are untestable. They are stated as changes from what the economy would otherwise have done, but that is unknowable. If the model says that a new convention center will add 5,000 jobs in the restaurant sector, you cannot test the result a few years later, because you cannot see what the number of jobs would have been without the convention center,” Conerly wrote.
The RIMS II program will continue to accept and process orders, which are fulfilled on a cost-recovery basis, through the end of the fiscal year.