In fall 2014, a colleague found “The Economic Impact of Firefighting: A New Way to View Firefighter Service” (Fire Engineering, August 2013). The article was based on research that compared the overall economic impact of the property saved by the Phoenix (AZ) Fire Department (PFD) with the cost to the taxpayers to provide that service.
I called Tim Kreis and Jeff Case of the PFD, who explained how they conducted their extraordinary study; I remember thinking that this was the way to change the paradigms by which elected officials tend to view fire departments. This could convince them to consider the fire service as a stakeholder in the city’s economy, not just an unavoidable expense. This strategy could change perceptions at a high level.
To have a better understanding of the methodology used, I contacted Professor François Delorme, a highly respected economist, and told him about the Phoenix project. We explored the possibility of conducting a similar study in Montreal. He agreed to look into it and contacted Professor Anthony Evans of Arizona State University, a participant in the Phoenix study.
Delorme and I found that we could adapt the methodology that Phoenix had used, based on our local fiscal realities. We would start following the Phoenix team’s approach to estimate the economic impact of an effective fire department. An input-output model in Quebec, called the intersectorial model, used by the province’s statistics institute would be the one used to gather data and calculate the economic impact of fire department operations at fire scenes that met specific parameters.
We suspected that the biggest measurable economic impact would be found in fires that occurred in commercial properties where jobs were at stake. To focus on the ones that had the greatest potential for a documentable positive impact, we eliminated certain incidents, such as those that required no fire department intervention on arrival or minor intervention without significant damage; total losses in which the business permanently closed after the fire; responses to a building that was vacant or under renovation; those for which we were unable to contact the business owner for information; those for which the owner refused to provide the required information; and those with missing, erroneous, or inconsistent intervention data.
Enhanced Methodology for the Montreal Study
We made our first study in 2016 for the Service de Sécurité Incendie de Montréal (Montreal Fire Department, or SIM), “Analysis of the economic impact of the Service de Sécurité Incendie de Montréal’s interventions for year 2015.” We added the following two innovations compared to the Phoenix study:
• An emergency medical service (EMS) call economic impact analysis section that identified incidents in which SIM’s first responder firefighters successfully resuscitated patients in cardiopulmonary arrest (CPA). This considered all aetiologies in which the patient was resuscitated before arrival at a hospital and survived beyond his hospitalization without disabling neurological sequelae.
We reviewed studies and meta-analysis that attempted to assign an economic value to a human life to determine the estimated economic impact of saving a patient. We found that estimates of the value of a statistical life (VSL) ranged from $6.6 million to $12.1 million in 2015 Canadian dollars. The most robust conclusions estimated the value of a human life at between $6.2 million and $10 million; We used $8.1 million as the VSL for the EMS part of the study.
• We determined that it is unrealistic to assume that every fire in a commercial building would result in a 100-percent loss if the fire department did not take the appropriate action to control it. We examined the data and modeled the shock wave, or the economic effect of a momentary halt in the economic activity of each business that was involved in a fire during 2015. For example, if a fire in a commercial building amounted to a declared five-percent loss according to the fire officer’s incident report, in relation to the added value of the building and its content, this amounts to an effective loss in business of about 25 percent (Table 1).
City of Lévis and Sherbrooke Fire Department Studies
The Quebec Association of Fire Chiefs asked us to conduct two studies for the cities of Lévis and Sherbrooke.
Lévis, a suburb of Quebec City, has a population of 145,000; the fire department operates six fire stations with a budget of approximately $20.6 million. In 2017, it responded to 5,848 calls, including 3,434 EMS first responder calls.
Within that year, the Lévis Fire Department responded to 11 working fires in commercial buildings and successfully resuscitated four patients in cardiac arrest. These results were calculated as a total positive economic impact of $63.3 million for fires in commercial buildings and $32.4 million for EMS responses. The 2017 combined estimated economic impact of the Lévis Fire Department operations totaled $95.7 million and 727 jobs saved.
We applied the same methodology to Sherbrooke, about 70 miles east of Montreal, near the United States border. The city of 166,000 has six fire stations and a fire department budget of about $20 million. In 2017, the fire department responded to 5,577 calls, including 2,534 EMS incidents.
Sherbrooke firefighters in 2017 battled 10 fires in commercial buildings and resuscitated eight cardiac arrest victims, based on the same criteria as the other studies. The bottom-line impact of the Sherbrooke Fire Department was calculated to be $368.8 million for fires in commercial buildings and $64.8 million for EMS. The 2017 total economic impact was $433.6 million and 1,917 jobs saved.
According to Economics 101, there are four economic sectors of activity within the economy of any given country, state, or city as follows:
1. The primary sector focuses on exploiting raw materials—e.g., mining, fishing, and agriculture.
2. The secondary sector, manufacturing, involves transforming raw materials into finished goods—e.g., building homes and producing everything from cars to clothes and food.
3. The tertiary sector, the service sector, offers retail goods and services to consumers—e.g., restaurants, retail stores, financial services, and telecommunications.
4. The quaternary sector, the knowledge sector, includes intellectual activities that lead to technological innovation. It also includes governmental services such as schools, hospitals, and libraries.
Within all four components of this economic model, the goods and services are taxed, and each sector employs workers who pay taxes on their wages. The closer a business is to the primary sector, the greater its overall impact on the economy.
The economic impact of a fire department’s operational activity increases or decreases depending on which sector is involved in each incident and which is most representative of the local economy.
With the Sherbrooke study, we added two new innovative sections to consider the concepts described above. The first consideration was the strategic importance of protecting highly sensitive economic sectors. We analyzed and narrowed down which economic sector is most representative of Sherbrooke in relation to the rest of Quebec. We took the 2017 data and determined the economic sector that each fire most affected. We found that the secondary sector (manufacturing and transformation of goods) was most significant to businesses compared to the other sectors, at least for that year.
Another way to look at this analysis is as follows: In 2017, Lévis had a 464.6% return on investment (ROI), whereas Sherbrooke had a 2,168% ROI. We noted these large differences in the calculated impact with a similar number of events in each city. Why were the economic impact and jobs-saved numbers so different for Lévis and Sherbrooke, similar-sized cities with similar-sized fire departments? This led us to a comparative analysis between the cities.
When we compared all the studies we’ve made and analyzed, we determined that the outcome has a lot to do with which economic sector the fires affect the most. Sherbrooke’s business activity is more oriented toward the secondary sector, where, economically speaking, jobs saved have a bigger payoff. The comparative analysis between Lévis and Sherbrooke is shedding light on the importance of protecting businesses that tend toward the primary sector where they have more impact on the local and state economy, supporting both direct and indirect jobs (Table 2).
In all the studies, as impressive as the figures may be, they will change from year to year, depending on which business types the fires affect and which economy sectors they impact.
Consequently, the smallest fire departments, particularly rural and volunteer-staffed, could have a very large economic impact in their respective communities, because businesses in rural communities tend to operate mostly in the primary sector, such as agriculture and forestry. A successful intervention by local firefighters may be very significant if the business is operating in the primary sector.
Other Calls Types
Up to this point, we have examined fires in commercial buildings and EMS calls that involve CPR patients. We recognize that this does not address residential building fires, which tend to result in a greater social economic impact, natural gas leaks, and all aspects of special operations.
For EMS calls, first responders’ interventions reduce the morbidity rate of patients. The economic impact of this could be greater than all other activities, as some studies have shown. The activities not considered in the studies make their numbers all the more conservative.
Case Study: Montreal’s Highway 40 Fire
To see how other intervention types can enhance the economic value of a fire department’s activities, consider this Montreal case study.
A collision involving five vehicles occurred on Highway 40 in Montreal. A truck driver was killed in the accident when his tanker truck burst into flames. He died before firefighters arrived at the crash site.
SIM responded to this incident and encountered a raging flammable liquids fire on an elevated expressway that directly exposed two high-rise office buildings. The operation involved removing people who were near the burning truck and evacuating and protecting the exposed buildings as well as controlling and ultimately extinguishing the inferno. The liquid fuel fire flowed for a considerable distance on the elevated expressway, involving several vehicles. It took a number of hours to bring the fire under control.
Highway 40 is a major component of the city’s transportation infrastructure with a recognized and well-documented impact on the province’s economy. What was the economic value of the fire department’s operation that saved this sensitive infrastructure? Note that this was a successful operation in that SIM protected the highway structure and the exposed buildings and prevented any additional injuries or loss of life.
To measure the economic impact of this specific event, the approach was based on the one in Phoenix, Arizona, which, in collaboration with the University of Virginia in Phoenix, estimated the economic value, instead of the cost, of firefighters’ actions carried out on Interstate 10 at an incident on February 20, 2014. We referred to their methodology in attempting to answer this question.
Assuming that each driver is employed and likely driving to their place of work, a traffic delay represents an economic cost. A traffic delay slows down or prevents drivers from proceeding to their jobs for which they receive compensation. This situation also represents a loss of revenue and productivity for the employer. All these costs have an economic value.
The operation on Highway 40 had an immediate estimated economic value, whereas the operation’s total cost was estimated by adding the per-hour cost of all resources on scene. This works out to a ROI of about five times that of the Lévis and two times that of the Sherbrooke studies. Another conclusion is that operations on highways can result in significantly greater added economic impacts than those of operations conducted in commercial buildings where jobs are at stake, because of the economic losses resulting from people spending time waiting in their vehicles.
By intervening quickly and efficiently on Highway 40 and saving the structure, SIM reduced the monetary losses that might have resulted from a long-term closure of an essential transportation corridor. It avoided the direct cost of rebuilding the infrastructure, which would be significantly more than $10 million, and the much greater long-term losses resulting from detour delays and waiting in traffic during the reconstruction.
We must explore much more to identify trends and influence elected officials to provide the needed resources for fire departments and to orient fire prevention programs where the job loss could be more critical for a given region.
So far, we convincingly demonstrated the importance of arriving on an emergency call within a reasonable time and with sufficient staffing well-trained to address the risks covered. This allows a fire department to successfully fulfill its role in the economy of a city or a region.
Next, we are studying the economic and socio-economic impact of fire prevention, which precedes the fire department’s emergency intervention. Is there a direct correlation between fire prevention investment and the decrease in the number of fires, while the number of buildings and population is increasing? Also, is there a link between the investments made in fire prevention and the drop in the number of residential fires, deaths, and firefighter injuries, for example? Our first conclusions look pretty convincing so far.
Complementary to this research, and to go deeper into what produces an economic impact for a fire department, we are exploring a cost-benefit analysis to determine how the change of service level of a fire department affects the insurance rates of buildings. For now, we assume there is certainly an economic benefit in the aggregate to upgrading the service level for a certain jurisdiction in relation to the costs needed to achieve the upgrade.
We think that we have just scratched the surface of what could become a game changer in the perception of fire departments. Considering the economic impact relative to the different business sectors could be incorporated into artificial intelligence coding for predictive data of fires and risk management. This could be used to increase the efficiency of fire prevention programs. I think we are only at the starting point on that topic. The innovative Phoenix and SIM studies have empowered other initiatives that provide another perspective on a fire department’s role in its community. We hope to share all this experience with someone who will push even further for the benefit of all, as Phoenix did for us.
Dave Waterhouse is a 21-year veteran of the Service de Sécurité Incendie de Montréal (SIM) and acting division chief for the planning and informational resources division. He is involved in research in Canada and the United States on the economic impact of fire departments in their communities. He is a teacher at Montmorency College, has a bachelor’s degree in management from HEC Montréal Business School, and has an MBA from Sherbrooke University Business School.