Favoring Local Businesses in Government Purchasing has Economic Benefits, Study Finds

A new study commissioned by Local First Arizona reports that a purchasing contract with an independent local supplier recirculates three times as much money in the local economy as the same contract with a national firm.

Local First Arizona sought the study after noticing that local businesses were losing government contracts to national retailers.

"At a time when our state faces dramatic budget cuts, we must ensure that every dollar spent is invested responsibly," Local First Executive Director Kimber Lanning said. "This study shows that state, county, and municipal contracts have a profound ripple effect on their citizens: creating jobs, providing benefits and ensuring that our tax dollars remain in state."

The study, "Procurement Matters: The Economic Impact of Local Suppliers," was conducted by Civic Economics, an economic analysis and strategic planning firm.

The study focuses on a specific case in which the state of Arizona switched its office supply contract from Wist Office Products, a third-generation family-owned business based in Tempe, to Office Max Contract, a subsidiary of the retail chain Office Max.

Relying on surveys, annual reports, and SEC filings, Civic Economics found that only 11.6 percent of Office Max Contract's total revenue remained in the local economy, compared to 33.4 percent of Wist's total revenue, or nearly 3 times more. The study notes that this disparity would be even greater for the contract supply divisions of Staples and Office Depot, which, unlike Office Max Contract, do not maintain distribution centers in Arizona.

Civic Economics reported that major factors behind Wist's higher contribution to the Arizona economy included 1) a larger local payroll (while Office Max Contract has staff at its corporate headquarters in Illinois, all of Wist's 60 employees are in Arizona and receive full health benefits); 2) a larger share of profits remaining in the state; 3) more goods and services purchased from other Arizona-based businesses; and 4) greater involvement and contributions to local charity.

Government entities, as well as private-sector firms, "might benefit from giving additional consideration to the enhanced economic impact of truly local firms," the study concludes. "Additional dollars recirculating in the local economy generate taxable transactions, employ local citizens, and promote the economic vitality of the community."

Local First Arizona is using the study to galvanize support for a legislative measure that would keep more of the public dollars spent on state contracts in Arizona. SB 1233, which is currently in the Arizona State Senate, would require state contracts to go to in-state businesses when their bids are equal to or less than those of out-of-state bidders. The bill also includes a reciprocal preference clause, which requires state agencies to adjust a bid by an out-of-state companies to reflect the local purchasing preference given by the bidder's home state (e.g., if the bidder's home state provides a 5 percent preference for local businesses, then Arizona officials would add 5 percent to the bid).

For more information on municipal and state purchasing preference policies that give preference to local businesses, please see the Local Purchasing Preferences section of the New Rules website.

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