Mobile Job Centers NPV Analysis: Assumptions & Projections

Overview of the Mobile Job Center Proposal

The mobile job centers will provide a positive net present value (NPV) by Year 6 and will add value from that point onward. However, the project will be deeply in the red for most of the early years due to high upfront costs relating to the acquisition and outfitting of the buses. Furthermore, the ongoing cost structure is very high — costs like a Director's Assistant are unnecessary, and the driver salary is high for that type of position. There are, therefore, significant issues with the cost structure as presently proposed.

On one hand, the project will achieve a positive NPV if left to run long enough, but those results are based on assumptions that may not hold up into Year 6. Essentially, the project's positive NPV rests on long-run cumulative effects, so in order to trust these projections, there would need to be some evidence that this type of effort has succeeded in the past. The project's profitability is rooted in multiplier effects compounded over a number of years — each year's figure multiplied from the prior year's multiplier. This escalation of value is ultimately the crutch holding up these numbers, rather than actual positive cash flow. In essence, the benefit figures appear spurious. Additionally, the inclusion of a seed grant is unclear — an operating grant is reasonable, but a seed grant would not be an ongoing benefit by definition.

The project proposes that mobile job centers be built into buses, which will help residents find employment. One of the key assumptions is that these job placements will be incremental — that the buses will help better align people with jobs that they would not otherwise have secured.

Problems with Incremental Cash Flow Assumptions

The job placement figures presented in the proposal do not adequately explain how incremental placement will occur. The model assumes a certain number of placements and treats all of them as incremental in nature — an assumption that is highly questionable. There are many ways for people to find work, and some jobs placed through the buses would have been found through other means. Some individuals would have found other positions — perhaps not as good, but that still reduces the incremental benefit. By failing to account for only truly incremental cash flows, this is a clear example of misusing a net present value calculation.

It is less than convincing that, without actually adding transferable value to workers — skills they would not otherwise have acquired — the benefits attributed to the bus program are genuinely incremental. Placing people in jobs might benefit those individuals, but potentially at the expense of someone else who would have received that same job. Those displacement effects are not taken into account, which represents an assumption of convenience that inflates the project's apparent net present value.