THE ECONOMIC IMPACT OF THE NEW MEXICO DIVISION OF VOCATIONAL REHABILITATION 2006

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The Economic Impact of the New Mexico Division of Vocational Rehabilitation (FY06)

New Mexico State University College of Agriculture Department of Agricultural Economics and Agricultural Business September 2006
Published by New Mexico Division of Vocational Rehabilitation

Contents Acknowledgements............................................................................................................. ii Executive Summary ........................................................................................................... iii Introduction......................................................................................................................... 1 NMDVR Client Database.................................................................................................... 2 Net Gain in Income............................................................................................................. 5 Net Increase in State and Local Taxes................................................................................ 7 Reduced Public Assistance ................................................................................................. 8 Benefit-Cost Ratio of NMDVR............................................................................ .............. 9 Economic Impact of Federal Expenditures for the NMDVR............................................ 10 Summary of State’s Benefits and Costs............................................................................. 11

Tables Table 1. Work Status and Weekly Earnings at Referral and Closure for NMDVR Clients in FY06 Who Were Closed Successfully Rehabilitated ..... ........................................... 3 Table 2. Public Assistance at Referral and Closure By Category Of Public Assistance, NMDVR Clients FY06 Who were successfully Rehabilitatied................................ 4 Table 3.Reductions in State Funded Public Assistance Due to NMDVR Rehabilitations in FY06 ........................................................................................................................... 9 Table 4. NMDVR In-State Spending (FY06) ................................................................... 11 Table 5. NMDVR Impacts (FY06)............................................................. ...................... 12

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Acknowledgements This report could not have been completed without the participation of the dedicated staff of the New Mexico Division of Vocational Rehabilitation (NMDVR). Thank you to Assistant Secretary Gary Beene who has reviewed and commented throughout the preparation of this report. The data used in this report were largely provided by Chris Garcia, Gloria Gonzales, Sandra Alva and Susan Alarid. Thank you for your responsiveness to my myriad of requests. Jim Crews and Veronica DeLeon-Dowd also played crucial roles in making things happen. I also must acknowledge the assistance of Andy Winnegar and Kelly Davis who provided valuable insights into the workings of various NMDVR programs. Thanks are extended to Herb Greenwall and Michelle Doran of the New Mexico Department of Labor. Herb and Michelle have worked closely with me in trying to build a better picture of the employment history of the NMDVR case-closed clients. Also key to this assessment were the data provided by Dr. Pao Her of the New Mexico Human Services Department, Medical Assistance Division. New Mexico State University Agricultural Economics and Agricultural Business staff member Nick Ashcroft was instrumental in running the IMPLAN model used in the impact estimation. And AEAB faculty members Drs. Bill Gorman and Terry Crawford reviewed the document and provided support administratively. Finally, I wish to extend a special acknowledgement of thanks to Richard Jiron of NMDVR who acted as the liaison between NMDVR and AEAB. As the “point person” on this project, Richard has been an exceptional working partner. Robert Grassberger, Ph.D.

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The Economic Impact of the New Mexico Division of Vocational Rehabilitation (FY06)
Executive Summary Of the 1,872 clients successfully rehabilitated during FY06, 1,195 were not working at the time of their initial referral. At closure, however, all 1,872 clients were engaged in gainful economic activity. This represents an important measure of success of the NMDVR – 1,872 New Mexicans with a disability are now contributing members to the state’s economy. At referral the total weekly earnings of these 1,872 clients totaled $236,995. At closure their total weekly earnings were $644,781 - a 172 percent increase. Much of this increase stems from the previously unemployed 1,195 clients who, after receiving rehabilitation services, are now gainfully employed. Over their estimated work lives these net gains in weekly earnings are expected to be maintained for these 1,872 clients. In present value the total increase in future personal income was estimated at $172.526 million. The State of New Mexico will benefit financially from the successful rehabilitation of these 1,872 clients via (a) higher state and local tax collections on the additional personal income and (b) reduced public assistance expenditures for these disabled persons. Over their work lives these 1,872 clients are expected to pay an additional $19.151 million in state and local taxes in present value. It is also estimated that these clients will reduce their state-funded public assistance (TANF payments, Medicaid and general assistance) by $5.359 million in present value over their lifetimes. Thus, the total financial benefit of the successful rehabilitation of these 1,872 clients to the state of New Mexico is $24.510 million. The total FY06 expenditures of the Division of Vocational Rehabilitation were $28.838 million. Of this amount, the federal government provided $24.063 million while the State of New Mexico’s general fund provided the other $4.775 million. For the 1,872 NMDVR clients successfully rehabilitated in FY06, the State of New Mexico achieved a benefit/cost ratio of 5.13 - $24.510 million in present value benefits for an expenditure outlay of $4.775 million. The $24.063 million in federal monies expended by the New Mexico Division of Vocational Rehabilitation also had an economic impact on the state’s economy. These federal expenditures paid the salaries of NMDVR employees as well as the NMDVR’s outside purchases of goods and services which benefit local vendors and suppliers.

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It is estimated that the federal share ($24.063 million) of the FYO6 funding supported 431 total jobs in New Mexico and $15.573 million in annual wage and salary income. New Mexico state and local taxes derived on wage and salary income from this federally supported NMDVR jobs were estimated at $1.545 million per year. In the course of operation, NMDVR also made goods and services purchase from New Mexico businesses. The federally supported portion of these goods and service purchases amounted to $11.7 million. The generated gross receipts tax from these federally supported purchases was estimated at $820,724. Thus, the state benefits from increased revenues due to taxes from new wage and salary income ($1.545 million) and gross receipts taxes from local purchases ($820.724) totals to $2.366 million. Combining all the state’s benefits from the operation of the Division of Vocational Rehabilitation--$19.151 million in taxes on the higher lifetime earnings of rehabilitated clients, $5.359 million in reduced public assistance and $2.366 million in taxes generated by federal expenditures for the NMDVR--resulted in a total benefit/cost ratio of 5.63 to the state of New Mexico from the operation of the NMDVR in FY06.

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The Economic Impact of the New Mexico Division of Vocational Rehabilitation (FY06)
R. Grassberger, PhD Introduction The New Mexico Division of Vocational Rehabilitation (NMDVR) directly provides services or arranges for outside services for eligible persons who a) have a physical or mental impairment; b) which for the individual constitutes or results in a substantial impediment to employment; c) can benefit in terms of employment outcome from vocational rehabilitation services; and d) vocational rehabilitation services are required in order for the individual to prepare for, enter, engage in, retain or regain employment. The Vision Statement of NMDVR is that, “Every New Mexican with a disability has the opportunity to contribute to the quality of life and the economic prosperity of the state.” The NMDVR has 64 caseloads located in 24 offices around the state. The NMDVR evaluates the vocational capacity of each client, develops an individualized plan for services which may include specific job training, education, and physical or mental rehabilitation services, and the NMDVR offers employment placement services. The organization is part of New Mexico’s Public Education Department. The NMDVR works cooperatively with the federal government to meet its mission objectives. During the state fiscal year 06 (July 1, 2005 – June 30, 2006), the federal government shared 83.44 percent 1 of the cost of NMDVR’s activities, while the remaining 16.56 percent is contributed from the state general fund. NMDVR sources of funds and an explanation of the funding sources is presented in Appendix A. The purpose of this study is to document the economic impact of the activities during state FY06 of the New Mexico Division of Vocational Rehabilitation. This is the fifth assessment of the economic impact of the NMDVR over the last 15 years.2 All of the analyses have been prepared by agencies external to the NMDVR using data from the NMDVR closed-case files. 3 The current report was prepared by the staff of New Mexico State University’s Agricultural Economics and Agricultural Business Department (AEAB). AEAB has retained the methodology used in the previous reports. However, because of changes in both policy and economic circumstances over the past 15 years, much of the data used in the analysis required updating. Major data updates included: State and local tax rates Gross receipts tax assumed on NMDVR purchases
This ratio is a weighted average and varies from period to period based on the receipt of grant funds from the federal government. Grant funds carry differing requirements for state matching consequently; the obligations of the state vary from year to year depending on the types of funds awarded. 2 Previous assessments were for FY91, FY94, FY99, and FY03. These analyses were completed by the University of New Mexico’s Bureau of Business and Economic Research. 3 These data are provided by NMDVR in an aggregated and sanitized form. Thus, all individual client files remain confidential.
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Discount rates used in determining the present value of revenues and savings The real rates of annual earnings growth for closed case clients The determination of the worklife of the closed case clients Federal matching rates for Medicaid and TANF State policy changes in services such as the Medicaid Buy-In program Thus, while the approach and method used have not changed, the model with these updated data now better reflects the world as it exists today. The consequence of this updating however is that the results for the FY06 study are no longer directly comparable with the results of previous years of this study. 4 While a comparative of the years has been provided in Appendix D, it should not be used as a longitudinal gauge of the progress or performance of the NMDVR – the FY06 results should be considered independently. Two components were considered in the assessment of the economic impact. First, through the rehabilitation efforts of the NMDVR the employability of persons with a disability was enhanced, as evidenced by higher annual earnings and higher rates of employment. Any net gain in personal income generates additional taxes to state and local governments which would not have been collected if these NMDVR clients had remained unemployed or underemployed. Also, many of the clients prior to referral to NMDVR received some form of public assistance. After rehabilitation, their personal financial situation improved enough so that they no longer need such public assistance. Thus, one economic impact of NMDVR activities was the benefit to the taxpayers of New Mexico of higher tax collections from and reduced public assistance to successfully rehabilitated NMDVR clients. Secondly, the budget of NMDVR was composed of a federal/state match. While the federal government provided 83.44 percent of the NMDVR budget, actual cash outflows (expenditures) were the relevant metric for this study. In terms of spending during FY06, the federal government provided 83.44 percent of NMDVR’s total $28.838 million FY06 spending. This $24.063 million in federal monies received by NMDVR had an economic impact on the state’s economy because it represents dollars brought into the state from an outside source. These federal expenditures paid, in part, the salaries of NMDVR’s 235 employees as well as for the NMDVR’s outside purchases of goods and services which benefited local vendors and suppliers. And then through the successive rounds of spending, the economic multiplier of these federal dollars benefited retail and services establishments in New Mexico. This economic impact of federal spending for NMDVR services was measured in terms of total jobs, personal income, and state and local taxes generated. NMDVR Client Database In FY06 the New Mexico Division of Vocational Rehabilitation successfully rehabilitated
See appendix D for a discussion of the updates. Because many of these data are used as variables in the analysis, to attain strict comparability would require reestimation of the previous years’ impacts using these updated data.
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1,872 clients. 5 To be successfully rehabilitated means that a person with a disability completed his/her plan for rehabilitative services and training, was placed in an employment situation and was determined to be suitably employed for a minimum of 90 days. At that point the NMDVR closes the case file. These 1,872 successfully rehabilitated clients had an average age of 39 at referral to NMDVR and were involved in the NMDVR programs for an average of 18.5 months. Of the rehabilitated clients, 55.8 percent were males and 44.2 percent were female. Table 1 provides information on the work status6 and weekly earnings of these NMDVR clients at the time of referral and again at closure. As shown in Table 1, at referral 1,195 (64%) of the Status 26 client cohort were reported as “not working”. However, at closure all 1,872 NMDVR clients were placed in a gainful economic activity whether that might be a competitive job, self-employed, unpaid family business or homemaker. These data highlight the key to improving the economic circumstances of persons with a disability and getting them into the labor force. Data for March 2005 from the US Bureau of the Census 7 show that males, age 16 - 64 with a work disability, have a labor force participation rate of only 27.2 percent compared to 87.4 percent for males without a work disability. Similar data for females with a disability is 23.4 percent compared to 73.9 percent for females without a work disability. Census Bureau data also indicate that males with a work disability who work year around, full-time earn 82.9 percent of year round, full-time males without a work disability. Similar data for females is 89.4 percent of those without a work disability. Thus, the major economic obstacle faced by persons with a disability is not necessarily lower paying jobs, but rather having a job and participating in the labor force. And it is that goal which is central to the mission of the NMDVR. At referral these 1,872 NMDVR clients had average weekly earnings of $127. Of course, this average was pulled down by the significant numbers who were not working and therefore had no earnings. At closure the average weekly earnings of these 1,872 clients had increased to $344. The total weekly earnings at referral of these 1,872 clients were $236,995; at closure their total weekly earnings had increased to $644,781 – a 172 percent increase.

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The data for these 1,872 clients was based on a statistical compilation of individual case files contained in NMDVR’s information database. These data were provided by the NMDVR in a cleaned and sanitized format to prevent disclosure of client identity. 6 Work status definitions are presented in the appendix of this document. 7 US Department of Commerce, Bureau of the Census. Table 2 “Labor Force Status of Civilians 16 to 74 Years Old, by Educational Attainment and Sex: 2005” and Table 3 “Work Experience and Mean Earnings in 2004 – Work Disability Status of Civilians 16 to 74 Years Old, by Educational Attainment and Sex: 2005.” www.census.gov/hhes/www/disability/cps.

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Table 1. 1. Work Status and Weekly Earnings at Referral and Closure for NMDVR Clients in Table Work Status and Weekly Earnings at Referral and Closure for NMDVR Clients in FY06 Who Were Closed Successfully Rehabilitated FY06 Who Were Closed Successfully Rehabilitated
Work Status Employment with supports in integrated setting Employment without supports in integrated setting Employment in integrated setting Extended Employment Homemaker Not Working Not working: All other students Not working: Student in secondary education Self Employment (Except BEP) Trainee, Intern, Volunteer Unpaid family worker TOTAL At Referral Ave Weekly Persons Earnings 138 482 6 2 1,171 13 11 38 7 4 -----1,872 267.64 395.32 32.67 16 At Closure Ave Weekly Persons Earnings 1,739

345.42

401.71 13.71 -------126.60

116 1 -----1,872

347.37 -------344.43

Table 2 displays information on the number of these 1,872 NMDVR clients who were receiving some form of public assistance at referral and at closure. 8 These data indicate that at referral 464 were receiving public assistance, representing 24.8 percent of the total. At closure, however, only 332 were still receiving public assistance, representing 17.7 percent of the total. The largest decrease was in NM Works (TANF) which fell by 68 recipients. In FY06, the state paid for 21.9 percent of NM Works programs with the remaining 78.1 percent paid for by the Federal government. 9 NM Works recipients are also eligible for Medicaid. The state covers 28 percent of Medicaid expenses.10 Table 2. Number of Persons Receiving Public Assistance at Referral and Closure by Category of Public Assistance, and and Successfully Rehabilitated, FY06 Category of Public Assistance, Successfully Rehabilitated, FY06
Type SSI NM Works General Assistance TOTAL
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At Referral 306 98 60 ---464

At Closure 287 30 15 ---332

NM Works is synomous with Temporary Aid to Needy Families (TANF)

This table includes only clients receiving public assistance that is either directly or indirectly supported by the state. For example, several clients are beneficiaries of VA however; this program is funded entirely by the federal government. 9 NM Works (TANF) is a block grant provided in lump sum to states by the federal government. States block funding is discretionary now to some extent -- the states can determine how to spend the funds. The stipulation is that the state must spend 75% of what it spent on AFDC in 1994. The figures used here to derive this ratio are from the LFC budgets for SFY07 “Report of the Legislative Finance Committee to the Forty-Seventh Legislature Second Session: Volume III, Legislating for Results.” 10 Federal Medical Assistance Percentage (FMAP) data for SFY06 obtained from HSD’s Medical Assistance Division.

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Reductions in the number of persons receiving General Assistance (GA) were achieved as well. GA is a 100% state funded program. Finally, a decrease was seen in the number of clients receiving SSI at closure. 11 SSI is entirely funded by the Federal government however; SSI recipients are eligible for Medicaid. As is the case with NM Works, the state is responsible for 28 percent of benefits paid to the eligible recipients of Medicaid. Net Gain in Income The NMDVR database documents the net gain in weekly income between referral and closure for these 1,872 clients with a disability, successfully rehabilitated during FY06. It is assumed that this net gain in personal income will continue throughout the remaining useful work life of these 1,872 clients. Thus, the task of calculating the total benefit to those 1,872 clients in terms of increases in personal income requires projecting this net gain in income through their future work life and then discounting these future values back to present value using an appropriate interest rate. The present value of the future stream of net gains in income represents the total economic benefit to these 1,872 clients. Based upon the data in Table 1 and other assumptions outlined below, the total economic benefit to these 1,872 clients in terms of increased work life earnings, expressed in present value, has been estimated at $172.526 million. That is, these 1,872 clients are expected to receive $172.526 million in additional personal income over their remaining useful work lives as a result of their successful rehabilitation by the NMDVR, expressed in present value terms. The following assumptions were used to calculate the income stream: An estimate of the net gain in income is based upon the data in Table 1. The annual net gain in personal income is estimated at $11,327 per client. An adjustment to this $11,327 annual gain in income is made to account for an underestimate of reported weekly earnings at referral. Based upon a study conducted in Oregon, 12 it was noted that weekly income at referral, recorded in NMDVR records, may be an underestimate of the client’s true prerehabilitation income because unemployment is a major factor in the decision to seek assistance at NMDVR. Thus, at referral the client may be recently unemployed with no earnings. 13 By researching the prior year’s income for rehabilitation clients, the Oregon study recommended that the recorded net gain in income between referral and closure be reduced by 39.0 percent to account for this underestimation. 14 This
This is a departure from the results in the studies done in previous years. In the past SSI numbers have risen and there have been additional Medicaid costs incurred by the state. 12 “A Client Level Economic Analysis of Vocational Rehabilitation”, Ross T. Moran, Ph.D., Oregon Vocational Rehabilitation, 1979. 13 The issue of earnings understatement was also raised by Dean and Dolan in “Issues in the Economic Evaluation of the Vocational Rehabilitation Program,” p 16, 1987. 14 To confirm this assumption, research has been initiated by NMSU AEAB with the New Mexico Department of Labor to longitudinally assess the earnings history of NMDVR’s rehabilitated clients.
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procedure was adopted in the current study for New Mexico. The adjusted, annual net gain in income per client is thus $6,910. The adjusted, annual net gain per client is projected to increase in real terms (adjusted for inflation) at a 0.44 percent annual rate.15 This figure was derived using the Employment Cost Index (ECI) 1984-2005 presented in “The Economic Report of the President, 2006” and the average rate of consumer price inflation for the same time frame. The future stream of annual net gains in income per client was discounted to present value using a real interest rate of 2.31 percent.16 The use of a risk free interest rate is appropriate here because it estimates the borrowing rate for the state of New Mexico. A real, inflation adjusted interest rate is used so as to be consistent with the real increase (0.44 percent) assumed for the annual net gain in income. The expected future worklife of these 1,872 rehabilitated clients was accounted for by the use of worklife tables. 17 An individual’s worklife represents the number of years an individual of a particular age is expected to remain active (i.e., in the labor force). As these clients age, some will drop out of the labor force due to retirement, death or reoccurrence of a disability – from the worklife tables we can estimate the average time the 1,872 clients remain in the workforce based on their current age and other demographic characteristics. At closure, the average age of the status 26 clients was just over 41 years old. The tables provide expected worklife values for three levels of education; no high school diploma, high school diploma, and an Associate’s Degree or greater. Of the 1,872 clients in the FY06 cohort, 34.9 percent did not have a high school diploma, 31.9 percent had a high school diploma, and 33.2 percent held an AA or better. As might be expected, the more education one has, the longer the worklife expectancy. Thus, the average years of worklife according to education were weighted according to the number of status 26
from three previous fiscal years. These data will show the percentage of successfully rehabilitated clients who actually had no earnings in the quarter prior to referral. Additionally, this study will provide earnings growth rates for clients post NMDVR closure. At the time of this writing this study is in process but the results were, as yet, unavailable. 15 In previous studies a real rate of 3.05 percent was used. This rate came from a 1989 study by the US Department of Labor using longitudinal data from 1975 to 1983. While the previous report specifically tracked the earnings growth of the disabled, no updated report providing a comparable assessment could be located. While the ECI represents the entire US workforce, the age of the data used in the 1989 USDOL study makes its continued use tenuous. The data from the NMDOL research currently in process should provide a more specific estimate of this value. 16 This is based upon the average US Treasury Bill rate (risk free rate) in the 1982-2005 time period less the average rate of consumer price inflation in the same time period. 17 “Estimating Worklife Expectancy: An Econometric Approach.” Millimet, Nieswiadomy, Ryu, and Slottje. January 10, 2002.

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clients in each category to derive an average number of remaining work years. 18 Following this method, the average client in the FY06 cohort was 17.74 years. 19 To determine the present value of the total annual net gain in personal income was derived for each of the remaining 17.74 years for the cohort as a whole. The net gain in personal income for each successive year was inflated by the real wage increase. The Net Present Value of the stream was then calculated. One final adjustment was made to the results here to account for the fact that some of these 1,872 successfully rehabilitation NMDVR clients at closure live and work in another state. What is of final interest is the present value of the net increase in New Mexico personal income. NMDVR records for FY06 indicate that 6.11 percent of the 1,872 clients lived and worked in a state other than New Mexico at the date of closure. Thus, a 6.11 percent reduction was made to arrive at the final figure of a $172.526 million net increase in New Mexico personal income due to the successful rehabilitation of these NMDVR clients. Net Increase in State and Local Taxes Key to this analysis were the additional revenues generated from state and local taxes on the marginal increases in income for the FY06 closed-case cohort. These were new tax revenues generated over and above those already generated through any work that was being done by these clients prior to case closure (thus, the analysis was based on marginal increases in income). Tax rates charged by New Mexico state and local governments were determined using rates published by the Institute on Taxation and Economic Policy. 20 This publication provides tax rates for sales and income tax, property tax, and income tax as a percentage of income by different income classes. For example, the income group making less than $13,000 annually pays a composite average of 12.1 percent of their income in New Mexico state and local taxes; those making between $13,000 and $23,000 annually pay 11.1 percent; the $23,000 to $36,000 group averages 10.4 percent; and so on. The average annual income from earnings for these 1,872 NMDVR clients at closure was estimated at $17,911 – a marginal increase in the annual earnings of the NMDVR rehabilitated client of $11,327 per year. Some clients have other sources of income (SSI,
Using an average recognizes that some clients will remain in the workforce only a few years while others may work well in excess of the estimated 17.74 years. Factors such as death, drop out, and inability to continue to work are considered in these estimations. 19 In previous years a survivorship rate was used that was based upon the results of a 1989 US Department of Education study that followed successfully rehabilitated persons with a disability for 8 years after they had left the workforce. Because these data were collected in the 1980’s we sought an alternative method. These worklife tables used in this report were not specific to the disabled. However, running both methods side-by-side produced no appreciable differences in the results. 20 “New Mexico State and Local Taxes, 2002.” Institute on Taxation and Economic Policy, 2003. These data were obtained from the Chief Economist at the Legislative Finance Committee (LFC).
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social security disability income, etc.) and because family income may be higher where there are two wage earners, total household income is likely to be greater than $17,911 average. It was assumed that even with these additional sources of income, these clients would still fall within the $13,000-23,000 annual income class. Assuming that these successfully rehabilitated clients pay 11.1 percent of their personal income in New Mexico state and local taxes and assuming that the present value of the total net gain in personal income is $172.526 million,21 then over their work lives these 1,872 persons with a disability will pay in present value an additional $19.151 million in New Mexico state and local taxes. Reduced Public Assistance Table 2 earlier presented data on the number of these successfully rehabilitated clients who were receiving public assistance at referral and then again at closure. By closure 68 fewer were receiving NM Works payment, 45 fewer were receiving general assistance welfare and 19 fewer were receiving SSI-disabled payments. The NMDVR provided data showed that the 68 client reduction from the NM Works roles yielded an annual savings of $262,738 (an average of $3,864 per client) to state in FY06. The state match for NM Works averages 21.9 percent, thus the state saved $57,540 per year in savings from the clients who no longer received NM Works support. NM Works clients were also eligible for Medicaid. Data obtained from the Human Services Department indicates that the average annual cost of Medicaid for a NM Works eligible case during FY06 was $2,008. 22 Both NM Works and Medicaid are federal block grant programs. In FY06 the federal government share was 78.1 percent of NM Works and 72 percent of Medicaid costs. 23 Consequently, for the reduction of 68 NM Works cases, the state saved a total of $95,774. NMDVR data also showed a reduction of 45 persons from the General Assistance (GA) roles. This yielded a total savings of $157,390 during FY06. Those receiving general assistance are not eligible for Medicaid so there is no savings derived from Medicaid reduction. The general assistance program is entirely state-funded. Thus, the savings to New Mexico for the reduction of 45 general assistance cases is $157,390 per year. Finally, SSI-disabled payments are a federal block grant program. SSI clients are also eligible for Medicaid. In FY06 the annual cost of Medicaid for the average SSI-disabled recipient was $15,900 24 with the federal government paying 72 percent. During FY06,

Using a real rate of 2.39 percent to discount the stream. The average cost of Medicaid can be determined from the federal HCFA 2082 reports. It is assumed that those leaving the NM Works roles are eligible to receive Medicaid benefits for 1 year under the Medicaid Buy-In program and after this year, these clients will no longer receive Medicaid benefits. Thus, exclusive of the first year, the state saves 28% of this annual cost as a reduction in state outflows for each successive year the client is in the workforce. 23 See footnotes 8 and 9. 24 Derived from the federal HCFA 2082 reports for SFY05.
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the number of clients receiving SSI-disabled decreased by 19 persons. Hence, the state savings amounted to 28 percent of the total cost reduction or $84,588. Table 3 summarizes these annual savings to the state of New Mexico from the reduction in public assistance due to NMDVR activities in FY06, which total $337,752 per year. The annual $337,752 in public assistance savings to the state of New Mexico were projected through the expected work lives of these 1,872 NMDVR clients in the same fashion as were the annual net gains in personal income above. 25 However, future public assistance payments were assumed to grow with the inflation rate so that future real increases are 2.39 percent. Table 3.Reductions in in State Funded Public Assistance Due to NMDVR Rehabilitations in Table 3.Reductions State Funded Public Assistance Due to NMDVR Rehabilitations in FY06 FY06
Program NM Works NM Works Medicaid General Asst. SSI TOTAL
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Reduction Annual NM in Cases Works
1

Annual GA

Annual Medicaid

State Share 21.9% 28.0% 100.0% 28.0%

Savings to State Government $57,540 $38,234 $157,390 $84,588 $337,752

68 68 45 19

$3,864 $2,008 $3,498 $15,900

NM Works is synomous with Temporary Aid to Needy Families (TANF)

It is estimated then that the present value of future savings to the state of New Mexico from the reduction in public assistance of these 1,872 successfully rehabilitated persons is $5.359 million. Benefit-Cost Ratio of NMDVR As outlined above, the state of New Mexico benefits in two ways from the rehabilitation of persons with a disability--higher tax collections on their increased personal income and reduced public assistance for those now living independently. For FY06 it was estimated above that for the 1,872 successfully rehabilitated NMDVR clients the state of New Mexico would receive $19.151 million more in tax collections and would save $5.359 million in reduced public assistance. This totals $24.510 million in financial benefits to the state of New Mexico for the successful rehabilitation of 1,872 persons with a disability during
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The worklife tables used in determining the length of the net gain were again used. Using the average worklife based on the average client age takes into account attrition from death, retirement, or withdrawal from the workforce.

In previous studies, a survivorship factor was used to determine the number of persons “still in the workforce” for each consecutive year from the average age of the rehabilitated cohort until age 65. This survivorship rate is incorporated in the worklife tables and reflected in a reduction in work years rather than in the number of persons who move to the next age category. Both methods were run concurrently to assess if the results were variant – the difference in the present values derived using the two methods amounted to only 0.014%.

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FY06. Letting $24.510 million represent the benefit to the state from the operation of the New Mexico Division of Vocational Rehabilitation in FY06, this can be compared to the state’s cost to operate the NMDVR to obtain a Benefit-Cost (B-C) ratio. In FY06 the total NMDVR budget was $28.838 million. Of this amount, the federal government provided 83.44 percent, or $24.063 million. Thus, the state’s general fund in FY06 provided $4.775 million for the operation of the NMDVR. This then represents a 5.13 benefit/cost ratio to the state of New Mexico from the operation of the NMDVR. For every dollar spent by the state, it receives back $5.13. Economic Impact of Federal Expenditures for the NMDVR As discussed above, the federal government in FY06 contributed $24.063 million of the total NMDVR budget of $28.838 million. This represents a positive economic impact on the New Mexico economy because it is an injection of money into the local economy from an outside source. This federal expenditure supports jobs, creates income and pays taxes in New Mexico. In FY06 NMDVR payroll expenditures for 235 employees were $9.959 million. 26 Using the 83.44 percent federal share ratio, federal spending directly supported 196 NMDVR workers and a total direct payroll of $7.513 million.27 Within the NMDVR budget there are expenditure categories for the purchase of outside goods and services from local vendors and suppliers. The major expense categories are illustrated in table 4 below. Based upon data from the BEA RIMS II model 28 and wage data for New Mexico, 29 an estimate of the number of jobs in New Mexico supported by the $14.052 million in NMDVR outside purchases was made. This estimation procedure used a ratio of payroll dollars to total sales, and then divided payroll dollars by average salary to obtain an employment estimate. Adjusting for the 83.44 percent federal share, it was estimated that the federal spending for the NMDVR supports another 159 jobs in New Mexico indirectly with purchases made from outside vendors and suppliers to the NMDVR.

Total payroll inclusive of employee benefits was $12.449 million. In estimating impact, the benefits portion was removed as most benefits, e.g. FUTA, FICA, and Social Security, as these “leak” from the state and consequently create no economic impact here. The one benefit that does create an impact in state is the portion of health care insurance benefits paid by NMDVR (the employee portion is included in the $9.959 million). The NMDVR paid portion of health care insurance was included and the impact was tracked as an indirect effect. 27 The other 58 FTE NMDVR employees are directly funded by the state share. 28 US Department of Commerce, Bureau of Economic Analysis – direct requirements tables. 29 New Mexico Department of Labor, Economic Research and Analysis Bureau, Quarterly Census of Employment and Wages, 2004.

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Table 4. 4. NMDVR In-State Spending (FY06) Table NMDVR In-State Spending (FY06)
Spending Category Care / Support Professional Services Rent Telecommunications Health Insurance Office Supplies Building Maintenance TOTAL Expenditure 9,026,860 832,199 2,303,434 527,701 1,128,448 232,988 0 14,051,629

Finally, through successive spending rounds of the personal income of NMDVR employees and the employees of NMDVR outside vendors and suppliers additional economic multiplier effects are created within the state’s other goods and services providers. These induced economic impacts were estimated using the IMPLAN 30 input-output (I-O) model of the New Mexico economy. The unemployment and earnings of the federally supported 196 NMDVR employees and 159 NMDVR outside vendor/supplier employees were added to a baseline model solution, which was then re-solved to simulate the multiplier effects on other sectors. According to the model’s results the multiplier effects of NMDVR federal spending in the New Mexico economy support an additional 76 jobs. Thus, a total of 431 jobs within the New Mexico economy are supported by the $24.063 million federal expenditures for the state’s NMDVR program. This includes 196 NMDVR employees, 159 employees in vendors and suppliers’ organizations to NMDVR, and 76 employees in sectors such as retail trade and consumer-oriented services. According to the results of the IMPLAN model simulation these 431 jobs also generate $15.573 million in New Mexico wage and salary income. This wage and salary income generates state and local taxes of $1.545 million. In addition, it is assumed that New Mexico gross receipts taxes (at 7 percent on average) are paid on the $14.052 million in NMDVR outside purchases of goods and services. Assuming the 83.44 percent federal share, New Mexico gross receipts taxes of $820,742 are paid on the federal share of NMDVR outside purchases. Thus, in total, the federal expenditures for the NMDVR programs generated $2.366 million per year in state and local taxes. Summary of State’s Benefits and Costs Above it was demonstrated that the state of New Mexico benefits in several ways from the operation of the Division of Vocational Rehabilitation. Persons with a disability who are successfully rehabilitated earn higher lifetime incomes, pay additional state and local taxes on this increased income, and receive less state-funded public assistance. And because a significant portion of the NMDVR budget comes from federal sources, these federal expenditures represent an economic impact to the state’s economy in terms of income, jobs, and state and local taxes generated. These benefits are summarized below for FY06:
30

See Appendix C for an explanation of IMPLAN and I-O modeling.

11

State and Local Taxes On Higher Lifetime Earnings of NMDVR Clients Reduced Public Assistance State and Local Taxes on Federal Expenditures for NMDV TOTAL

$19.150 million $5.359 million $2.366 million $26.875 million

As shown in Table 5 in FY06 New Mexico’s share of NMDVR spending was $4.775 million, with an additional $24.063 million matched by the federal government. With $26.875 million in estimated benefits, the implied Benefit-Cost ratio is 5.63 to the state of New Mexico from the operation of the NMDVR. For every dollar spent by New Mexico, it receives back $5.63. Also shown in Table 5 is the net benefit to the state per NMDVR employee. This calculation subtracts the cost to the state ($4.775 million) from the benefits derived by the state ($26.875 million) to arrive at the net benefit to the state ($22.1 million). Dividing the net benefit to the state by the total number of NMDVR employees (235) yields a net benefit to the state per NMDVR employee of $94,043. Based on an FY06 payroll of $12.449 million, the NMDVR employee average annual pay amounts to $52,974 including all benefits. Table 5.5. NMDVR Impacts (FY06) Table NMDVR Impacts (FY06)
Item Number of Cases Average Weekly Wage At referral At closure Net Change Wage Increase in Percent NMDVR Employees Net Benefit to State per NMDVR Employee Benefits NM Tax Revenues Reduced PA Spending State & Local Taxes on NMDVR Expenditures Total Benefits Costs State of NM Spending B-C Ratio FY06 1,872

127 344 218 172% 235 94,043

19,150,355 5,359,385 2,365,544 26,875,284

4,775,200 5.63

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APPENDIX A: SOURCES OF NMDVR FUNDS AND NMDVR PROGRAMS

13

Appendix Table 1. Rehabilitation Services Sources of Funds Ending 6/30/06
FY06 TOTAL EXP & OBLIGATIONS NAME OF GRANT BASIC SUPPORT 24,852,150 SUPPORTED EMPLOYMENT 244,500 IN-SERVICE TRAINING 23,620 OAAAA STATE 7,374 TECHNOLOGY ASSISTANCE 365,350 JPA MEDICAL PROGRAM 122,020 SUCCEED 61,063 TRACE 233,583 CAREERS 121,209 WIN 155,139 NMICIE 258,184 LINCS 696,352 WIT 331,154 CASA SW DISABILITY 88,511 MIGRANT & SEAS WRKRS 165,757 DOL NAVIGATORS 482,612 REGENTS of UNM MOU NEON-MOU MENTORING FOR TRANSITION YOUTH 432,070 NEW ASSISTIVE TECH 274,420 TOTAL 28,915,068 FY06 FED RCVD 19,049,200 244,500 27,670 383,200 126,200 234,700 159,100 227,300 620,100 259,900 120,700 278,200 167,600 21,898,970 FY06 SSA RCVD 263,580 263,580 FY06 INDIRECT COST 1,124,335 1,124,335 FY06 GEN FUND 4,585,500 1,900 25,000 16,300 4,628,700 TRANSFER FROM COMMISSION FOR THE DEAF & HH TO FY06 OTHER MATCH BASIC SUPP TRANSFERS 146,500 113,722 204,155 96,264 192,321 114,600 55,200 146,500 776,262 GRAND TOTAL REVENUE 25,169,115 244,500 29,570 25,000 383,200 113,722 126,200 234,700 159,100 227,300 204,155 620,100 259,900 96,264 137,000 192,321 114,600 55,200 278,800 167,600 28,838,347

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Computer and Accommodations Resources in Entrepreneurship and Rehabilitation Sites (CAREERS) October 2000 - September 30, 2006
The Purpose: To increase self-employment opportunities for Native Americans (and others) with disabilities. Services are provided through partnerships with the New Mexico Small Business Center network and private contractors. Eligibility:
Individuals with disabilities (Strive for 85% Native Americans) Helps to be a VR client (NMDVR generally, but also Jemez Pueblo VR Project, Navajo VR and the NM Commission for the Blind.

Services Offered:
Assistive Technology Small Business Plan Development Peer Mentoring Assistance with marketing and advertising your small business In some cases, start up funds Networking and training opportunities through the Enterprise Exchange Clubs (small groups of consumers who meet monthly)

How to Access Referrals are made by New Mexico NMDVR, Jemez Vocational Rehabilitation, Navajo
OSERS, American Indian VR Program under New Vistas, the New Mexico Commission for the Blind and other private and public entities. CAREERS can be reached at 1-800-964-3798, by website at www.nmcareers.org or at physical address: Workforce Training Center, 5600 Eagle Rock Ave, NE Albuquerque, NM 87113 TTY phone number is 1-800-964-3798

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Leveraged Integrated Networks of Consumer Supports-LINCS September 2001 - September 2006
To provide employment related rehabilitation services for individuals receiving Public Assistance by partnering with the Human Services Department – Income Support Division – New Mexico Works Program. LINCS is funded by the United States Department of Education – Office of Special Education and Rehabilitation Services. In addition to LINCS employment services, the program conducts ongoing program evaluations to determine if the services make a difference in quality and duration of employment. There is also a system analysis component to the evaluation to identify changes in service delivery and the impact of the changes on employment outcomes for individuals with disabilities on public assistance.

Purpose:

Eligibility:
Individuals receiving Public Assistance who have a mental and/or physical disability

Program Design:
Partnerships An Interagency Consortium that includes: Dept. of Labor, Commission for the Blind, Dept. of Human Services, Dept. of Health, and NMDVR Consumer Advisory Board that includes 21 consumers with statewide representation reflecting the ethnic diversity of New Mexico. Service Delivery Five area offices co-located with New Mexico Works programs in Albuquerque, Las Cruces, Roswell, Las Vegas and Rio Rancho. Services include: screening, assessment, supports, referrals, job development and job placement. Linkage/partnering with Information Centers that provide benefits management and employment services for individuals with disabilities

How to Access: Referrals are made through the New Mexico Works program to LINCS.

The following is a listing of the LINCS staff and the areas they cover: http://www.state.nm.us/hsd/home.html (see website)

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Migrant Assistance Program (MAP) October 1, 2002 – October 1, 2007
The Purpose: To help expand support services throughout the state of New Mexico for migrant, seasonal, and agricultural workers with disabilities and their family members. MAP provides extensive outreach and support services to increase support for migrant, seasonal, and agricultural workers to benefit from vocational rehabilitation services and achieve employment. An advisory council has been formed to assist in networking of the various national and state programs that benefit migrant and seasonal farm workers. Eligibility:
Persons with disability Migrant, seasonal farm workers, agricultural workers and their families who have worked in this area in the last two years. Examples follow of what agricultural work might include: Food processing Ranches Dairies Pruning Nurseries Vineyards Drivers for produce trucks Field work

Possible services offered:
Community outreach Programs for education and promotion Support network services throughout the state Translation/Interpretations Job readiness/Job search Peer support Agency presentations Client follow up Client advocacy

Access: More can be found out about this program on www.dvrgetsjobs.com website.

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Medicaid Adjudication Program
The Purpose:
The Medicaid Adjudication Program provides a determination related to the extent of disability of an individual pursuant to the Social Security guidelines for purposes of providing medical assistance to individuals, including those who are employed. In partnership with the Human Services Department- Medical Assistance Division, adjudication services assist a person to obtain Medicaid, including Medicaid Buy-In or Medicaid for Working Disabled Persons, which will broaden clients' perspectives on obtaining competitive employment without loss of medical benefits.

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New Mexico Medicaid Infrastructure Comprehensive Initiative for Employment (NMICIE) (Working Disabled Individual, Category 043) October 2000 – December 2009 (Grant to 2009 annual contract with HSD) The Purpose: To remove one of the major disincentives to employment for persons with disabilities by providing access to heath coverage through Medicaid. This is an infrastructure grant funded through the Center for Medicaid and Medicare Services. It was designed to implement the Working Disabled Individuals Medicaid Program. It is administered through the Human Services Dept. Medical Assistance Division. The goal is to increase awareness about WDI program statewide. It also partners with the Benefit Information Centers to do outreach and provide information to potential WDI participants. Eligibility for Medicaid category 043:
Meet the SSA criteria for disability – a severe impairment that has lasted, or is expected to last, for at least 12 months. Have a recent attachment to the work force. You are considered to have a recent attachment to the work force if: You meet the SSA definition of earned income qualifying quarters or You have enough qualifying quarters to receive SSDI, and as a result of qualifying for SSDI, you loose both SSI and Medicaid coverage. You must be 18 years of age or older. Have countable resources of less than $10,000 individual or $15,000 for a couple. Have earned income that is less than 250% of the poverty level. Have unearned income of less than $1,148 in 2004.

Possible services offered:
Coordination with WIN programs statewide Benefit Information Centers to provide information, training and assistance to consumers and employers regarding the WDI program.

Marketing of WDI to consumers and employers, including conducting surveys and focus groups to monitor customer satisfaction.

How to Access: Persons must apply at their local Income Support.
phone 1-800-318-1469 or (505) 954 - 8523

Information can be accessed via

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The Navigators July 2004 – June 2007
The Purpose of the Program: To provide Disability Program Navigators statewide, in cooperation
with the Office of Workforce Training and Development and the four Workforce Development Boards. Navigators provide support for persons with disabilities assisting them through the maze of services located within the Workforce Connection Centers of New Mexico and in the community. This includes benefits education, resource development, information and referral and career planning. Navigators work with New Mexico Workforce Connection Center staff, partner agencies and staff, community agencies, state agencies and others to provide information, referral, training, education and services necessary for the individual to obtain employment. Navigators assist people with disabilities to access and understand the complex provisions of the various programs that impact the individual’s ability to gain or retain employment with the development of linkages and collaborations with employers and community partners.

Funding Source: MOU and Cooperative Agreement with the Office of Workforce Training and Development. The Disability Program Navigator (Navigator) is a demonstration project jointly sponsored by the Department of Labor’s (DOL) Employment and Training Administration and the Social Security Administration’s (SSA) Office of Program Development and Research. Duties: The Navigator will serve as an expert on workforce development issues and policies impacting
persons with disabilities who are seeking employment, skill development, job retention assistance, or career advancement through the New Mexico Workforce Connection Center system (including Individual Training Accounts). The Navigator will as a resource to the workforce investment community within their service area to ensure the availability of comprehensive knowledge on federal, State, local, and private programs that impact the ability of persons with disabilities to enter and remain in the workforce. The Navigator will facilitate universal access to the New Mexico Workforce Connection Centers.

Eligibility:
Consumers with disabilities as defined by ADA. Consumers with disabilities who have questions and may want to utilize the Social Security work incentives, resources in community or other questions. Consumers with disabilities who are seeking employment to return to work, to obtain new employment, to maintain employment or retain employment. Must register in VOSS or local data collection system.

Services:
The Navigator will address the needs of people with disabilities seeking training and employment opportunities through the New Mexico Workforce Connection Center system established under the Workforce Investment Act (WIA) of 1998. The Navigator will provide expertise and serve as a resource person to the workforce investment system and persons with disabilities, including Social Security Disability Insurance (DI) and Supplemental Security Income (SSI) disability and blindness beneficiaries. Navigators will have expertise regarding the New Mexico Workforce Connection partner programs, services, information, SSA work incentives, and other employment support programs, including the Ticket to Work programs and SSA demonstration projects focused on improving employment opportunities for persons with disabilities. The Navigator will expand consumer choice in addressing the needs of people with disabilities seeking training and employment opportunities through the New Mexico Workforce Connection Center system established under WIA. The Navigator position is intended to increase employment and self-sufficiency for persons with disabilities by linking them to employers and by facilitating access to supports and services that will enable the transition to employment.

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Services offered:
Assist persons with disabilities to access the wide variety of programs available to support successful entry into workforce. Connect individuals to the programs, benefits, services and/or supports necessary for employment. Provide training to Workforce Connection Staff, partner agencies, consumers, community providers and others on the resources available, AT and other services as necessary. Provide information and education on Social Security, the Social Security Work Incentives, the Ticket-to-Work program, and other benefit programs including HUD and ISD. Provide linkages and collaborations on an ongoing basis with employers to promote the hiring of people with disabilities. Facilitate the transition of in or out of school youth with disabilities to secure employment and economic self –sufficiency. Provide information on assistive technologies and or referral to organizations that serve as resources. Resource for the workforce investment community to ensure the availability of comprehensive knowledge of Federal, State, local and community programs that impact persons with disabilities to enter the workforce. Provide information and access to the services and trainings available in the Local Workforce Connection Center.

How to Access: Toll Free 1-866-524-6598
TTY phone number is 505-841-6450

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Social Security Reimbursement The Purpose: The Social Security Reimbursement program is designed to support NMDVR’s mission of assisting
persons with disabilities. Social Security Payment Activities support NMDVR by providing a systematic review of NMDVR closed Social Security Recipient client cases resulting in the recovery of a portion of the rehabilitation costs. The Ticket to Work Program is incorporated into the reimbursement program and encourages beneficiaries to seek services that will allow them to work given their disabilities and abilities.

22

Project WIN September 2000 – April 2006 The Purpose: WIN provides assistance for individual with disabilities who are interested in work
and wanting support in utilizing Social Security work incentives as well as information about the affect work will have on their food stamps, HUD housing, TANF, Medicaid, and other benefits. In addition, WIN provides training and outreach services to consumers, service providers, NMDVR counselors, schools, transitional personnel, and families. Services are provided through “Benefits Information Centers” located in five key location in the state and in two 121 programs. Each Center has a Benefits Advisor who has completed training required and sanctioned by the Social Security Administration to assure quality of information provided. Quarterly training is required to maintain level of competence for all BA staff.

Eligibility:
Consumers already receiving SSI/SSDI. Individuals with disabilities who want to utilize the Social Security work incentives including work incentives for food stamps, HUD housing, TANF and other benefits that are available.

Services:
Benefits advisement Written report or summary outlining benefits planning Benefits management Training and outreach services to consumers, service providers, NMDVR counselors, schools, and families. Referral to Employment Networks for employment services. Collection of data for Social Security to determine the value of providing benefits management services and its impact on getting people into employment

How to Access: WIN can be reached via phone 1-800-318-1469 or email kwiley@state.nm.us.
out more about Social Security benefits at www.ssa.gov

Find

23

APPENDIX B: DEFINITIONS OF WORK STATUS

24

Work Status Definitions as of 2002 Employment without Supports in Integrated Setting -- full-time or part-time employment in an integrated setting without ongoing support services. For purposes of this report, this is work performed for wages, salary, commissions, tips, or piece-rates, below, at, or above the minimum wage. This category does not include self-employed individuals. Extended Employment -- refers to work for wages or salary in a non-integrated setting for a public or nonprofit organization. Such settings are variously referred to as community rehabilitation programs, or sheltered, industrial, or occupational workshops. Individuals are compensated according to the Fair Labor Standards Act and the organization provides any needed support services that enable the individual to train or prepare for competitive employment. Beginning in FY02, this code applies only to an individual who received services and was placed in extended employment, which is no longer an employment outcome. Self-employment (except BEP) is work for profit or fees including operating one's own business, farm, shop or office. "Self-employment" includes sharecroppers, but not wage earners on farms. State Agency-managed Business Enterprise Program (BEP) refers to Randolph-Sheppard vending facilities and other small businesses operated by individuals with significant disabilities under the management and supervision of a State VR agency. Include home industry where the work is done under the management and supervision of a State VR agency in the individual's own home or residence for wages, salary, or a piece-rate. Individuals capable of activity outside the home, as well as by homebound individuals, may engage in such employment. Homemaker refers to men and women whose activity is keeping house for persons in their households or for themselves if they live alone. Unpaid Family Worker refers to persons who work without pay on a family farm or in a family business. Employment with Supports in Integrated Setting -- full-time or part-time employment in an integrated setting with ongoing support services for individuals with significant disabilities. For purposes of this report, compensation for such employment may be below, at, or above the minimum wage.

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Work Status Definitions Prior to 2002 Competitive Labor Market. This category refers to work for wages, salary, commission, etc., but does not include work in sheltered workshops. This category includes wage earners on farms, but not share croppers or self-employed farmers. Sheltered Workshops. This category refers to all persons who work for wage or salary in a workshop conducted by a nonprofit organization which provides work under special conditions for physically or mentally handicapped individuals unable to enter into or not ready for competitive employment. Workshops, in which such activities are conducted, are variously referred to as rehabilitation community, curative, sheltered, industrial, or occupational workshops. Self-Employed. This category refers to work for profit or fees in one’s own business, farm, shop, or office. Superintendents, foremen, managers, and other executives hired to manage a business or farm, officers of corporations, and salesmen working for a commission should not be classified under this code, but under code 1. “Self-employed” includes sharecroppers, but not wage earners on farms. Homemaker. This category refers to persons (male or female) whose principal activity is keeping house for their families. Unpaid Family Worker. This category refers to persons who work without pay on a family farm or family business operated by one or more members of their own family. Student. This category refers to persons who are attending school in the “week” and cannot be classified in one of the working categories. Not Working. This category refers to persons not in the categories above. Examples include persons: unemployed: unable to retain or obtain work; not able to perform their homemaking duties, confined in institutions, including places providing specialized medical care, homes for the aged, prisons, and jails; and receiving only pay “in-kind” (meals, lodging, etc.) Trainee or Worker (non-competitive Labor Market). This category refers to persons who, although they may have received stipends during the “week” for work or services performed, were functioning essentially in a non-competitive environment. This code should be used mainly for persons participating in work experience, work training or work adjustment program such as those sponsored by the Department of Labor and the Department of Health, Education and Welfare.

26

APPENDIX C: I-O ANALYSIS AND IMPLAN

27

Input-Output Analysis and IMPLAN
Any direct local expenditure associated with a project will have “ripple” effects throughout the economy. In other words, each dollar of direct expenditure generates more than one dollar in the economy. Expenditures could be the hiring of employees or the purchases of goods and services. Employees and vendors then spend their money in the community generating additional economic impact in the community. Each industry in an economy makes a certain amount of goods or services that are either used by other industries, purchased by institutions (households, government, etc), or exported outside of the region of analysis. Additionally, each industry uses as inputs goods and services from other industries as purchases inputs from households (labor) and imports from outside the region. These transfers within the region and without are assembled mathematically to determine the multiplier effect, or the number of times a dollar is spent in an economy. The transfers from an industry to other industries create indirect effects as those transfers get transferred again. The transfers to institutions create induced effects as those institutions spend those transfers in the region. Direct: These are the direct expenditures on equipment, overhead and labor. Some of the direct expenditures “leak” out of the economy when they are used to import goods and services. Indirect: The indirect impact is the additional economic activity generated by the local vendors. The impact is created when the local vendors receive payment for goods and services and then spend that money. Some of this second round of spending in turn will leak out of the economy. Induced: The induced impact is the increase household expenditures that arise from the wages and salaries paid directly and indirectly. Portions of the increased spending are leaked outside the area through imports, taxes and savings. Using an input-output (I-O) model, appropriate multipliers for the indirect and induced effects can be developed that will show how the production of a particular industry affects the rest of the regional economy. An I-O model measures the interactions among hundreds of industries using the BEA “Make” and “Use” tables. 31 For this study, the classification of expenditures by detailed industry, the in-state share of expenditures and the estimation of economic impacts on output, labor income and employment were determined using IMPLAN. 32 IMPLAN is a regional economic modeling and impact analysis application that works with proprietary input-output databases that capture the multipliers for the state and for the counties. IMPLAN calculates how much of any given expenditure stays in the state and traces the economic impact on New Mexico industries. IMPLAN is widely used in performing economic impact analyses.
The Bureau of Economic Analysis produces these tables as part of their Regional Economic Information Service (REIS) and updates them every five years. 32 Minnesota IMPLAN Group, Inc., IMPLAN System (data and software), 1725 Tower Drive West, Suite 140, Stillwater, MN 55082 www.IMPLAN.com
31

28

APPENDIX D: COMPARRISON OF PREVIOUS ANALYSES

29 30

Comparison of Impacts Appendix Table 2 provides a comparison of the results from the FY06 analysis and past analyses of the economic impact of the NMDVR. As can be seen, the number of clients assisted in finding work has risen over time. Also showing an upward trend is the change in the average weekly wages of the status 26 client cohort. Additionally, there is a trend of increasing efficiency – in FY91 there was roughly one NMDVR employee for every five closed case clients. In FY06, this ratio was one to eight, that is, more service is delivered by less NMDVR employees. Across time, the NMDVR has continued to show exceptional leverage of federal funding to create substantive value for the state of New Mexico. There is also a general upward trend in the Benefit-Cost (B-C) ratio shown in Appendix Table 2. Appendix Table 2. Comparison of NMDVR Impacts (Previous Study Years & FY06) Appendix Table 2. Comparison of NMDVR Impacts (Previous Study Years & FY06)
Item Number of Cases Average Weekly Wage At referral At closure Net Change Wage Increase in Percent NMDVR Employee Net Benefit to State per NMDVR Employee FY91 890 FY93 970 FY99 1,447 FY03 1,539 FY06 1,872

26 179 153 588% 176 64,077

31 204 173 558% 198 73,342

44 243 199 452% 206 98,093

83 290 207 251% 210 92,000

127 344 218 172% 235 94,043

Benefits NM Tax Revenues 11,559,977 14,220,601 18,761,622 Reduced PA Spending 1,330,000 1,933,047 2,664,004 State & Local Taxes on NMDVR Expenditures 1,400,000 1,941,676 3,307,391 Total Benefits Costs State of NM Spending B-C Ratio 14,289,977 18,095,324 24,733,017

18,715,916 19,150,355 2,893,058 5,359,385 2,171,302 2,365,544 23,780,276 26,875,284

3,012,355 4.74

3,573,700 4,525,920 5.06 5.46

4,460,264 4,775,200 5.33 5.63

Over the past years, many of the variables used in this report have been retained without change in order to assure comparability across the multiple years of analysis. As might be expected given a course of 15 years, some of these data have become dated, and with the changes in the economy it was necessary to update these data. While the integrity of the original methodology has been retained, new policy, new economic circumstances, and access to new sources of data have influenced the estimation of the benefits derived by NMDVR. The cost side to the state has also been fluctuant – the FMAP has risen consistently over time as has the state match for TANF and the state’s portion of funding for Rehabilitation Services. Accordingly, the resulting B-C ratios have been influenced.

30 31

In the FY06 analysis the following data were updated or modified: State and local tax rates Gross receipts tax assumed on NMDVR purchases Discount rates used in determining the present value of revenues and savings The real rates of annual earnings growth for closed case clients The determination of the worklife of the closed case clients Federal matching rates for Medicaid and TANF State policy changes in services such as the Medicaid Buy-In program State and local tax rates have been modified throughout the course of these studies. But, with the exception of the FY99 study, there has been limited data supporting the estimates of the various taxes encountered by those at different levels of income. The FY06 study utilizes data collected by the Institute for Taxation and Economic Policy. This organization collects and publishes tax data for all 50 states. While the data used here were collected in 2002 they are comprehensive in their inclusion of the components impacting wage and salary workers – i.e., sales tax, property tax, and income tax. The use of the Institute tax data provides a dependable source for future analyses as the data will be periodically updated by the organization using a method consistent with the collection of the data in previous years. Gross receipts taxes are paid on the purchases made in the state. A review of the CRS-1 filer’s kit used by businesses for filing gross receipts taxes shows that these rates have been generally climbing across the state. While this is largely due to local communities adding to the base to support new infrastructure, it is evident that these taxes have risen. An average rate of 7 percent was used in this report under the assumption that much of the NMDVR local spending occurs in metropolitan areas with higher GRT rates. This analysis is heavily reliant on the assumption that closed case clients return to work, decrease their dependence on public assistance (at least that paid for by the state of New Mexico), and generate sufficient income to provide the state with a tax stream over the remainder of their productive worklife. Important to this assessment are several factors including the number of years the cohort will continue to work, how much their income will grow over time, and the discount rates used to bring the revenue (and tax) stream to present value. Perhaps the most tenuous of the variables used in past analyses was an assumption that the incomes of the disabled who return to work grew at an average real rate of 3.05 percent. A real rate is the rate once inflation has been removed. While this rate was specific to the disabled, its derivation was from one study for one cohort at one point in time – i.e., the data were cross sectional. Further, the rate was determined in the mid80’s, under different economic conditions. While efforts were made over the years to find an alternative and updated source, none was found. In lieu of this, we have reverted to an estimation of the average real wage growth of all persons in the workforce. At 0.44 percent, the use of this rate substantially curtails the growth of the future revenue stream as clients advance in their careers.

31 32

It should be noted however that several alternative sources may prove fruitful for future efforts. First, as implemented by the AEAB, an analysis has been agreed to by the New Mexico Department of Labor to track the wage growth of past NMDVR case closed clients. The NMDOL data will provide aggregate rates of wage growth for several years of status 26 clients over multiple years. The analysis awaits completion of an agreement between NMDVR and NMDOL. There are also several national efforts under way that should provide insight. While these efforts will not be specific to New Mexico, the larger pools of data and greater access to microdata should be of value to this assessment in the future. Also forthcoming from the NMDOL assessment is an estimate of how many of the case closed cohort had income in the quarter before referral and how much that income was. One of the well known facts in analysis of rehabilitation earning outcomes is that a precipitous drop in income is often a key motivator in seeking VR services. At referral, clients then report that they have no or little income when this may not have been the case several weeks prior. Thus, the change in income from referral to closure tends to be overstated. In a 1989 study done in Oregon it was found that income at referral was underestimated by 39 percent. All of the analyses of the economic impact of NMDVR in this series have made an adjustment for under reported income – all have used the 39 percent from the Oregon report. The NMDOL analysis should either confirm this rate or offer new rates specific to New Mexico. Income and tax streams have been discounted using a real rate of 1.72 percent in all previous reports. This real rate was derived from 30 years of historical data and therefore, was fairly stable. However, in this report the rate was updated. Again, economic circumstances have dictated the changed rate – an estimate of 2.39 percent was derived. This rate was determined by using a risk-free rate (Treasury Bills) less the average rate of inflation (CPI-U) over a 22 year horizon. The increased discount rate influences the present value of the income streams, the tax streams to the state, and the savings stream of reduced public assistance. An increased rate results in a decrease in the overall estimated benefit and reduces the numerator of the B-C equation. Finally, past analyses have used a survivorship rate to determine how many of the case closed clients were still in the workforce and hence, generating income and tax revenues. A base assumption was that clients would work until retirement at age 65. As a result, a ladder was created with a declining number of persons continuing in the workforce until after age 65, none any longer participated. These data, while specific to the disabled, were derived from a study of longitudinal data from the mid-70’s. Under the assumption that improved health care, new technologies, and new jobs opportunities may have altered this survivorship rate, we sought an alternative measure. Used here instead are worklife tables developed in 2002. Worklife tables take into consideration the same variables used in developing the survivorships rates – they consider the number of people

33 32

who will die in a year, the number who will not return to the workforce because of disability or retirement, and those who decide to no longer participate. Worklife tables provide an estimate of the number of years a person will continue in the workforce based on age and other demographic characteristics. Interestingly, the use of the worklife tables, although not specific to the disabled, resulted in insignificant differences in the estimates of income or tax generated in total. An alternative set of worklife tables is available that considers the disabled. 33 However, these tables require detailed knowledge of the level of disability of the client. While these tables were considered for use in the current study, a review of the forensic economics literature (where these tables have been more heavily used) found considerable and vehement disagreement about their validity.

33

“The New Worklife Expectancy Tables,” http://www.vocecon.com/metrics/Worklife/worklife.htm

33 34

34