Examining the contribution a college has on a region is a common and interesting use case in IMPLAN, but the potential complexities warrant careful consideration when setting up and framing an impact study. The goal of this article is to help guide you in correctly framing your analysis and to increase awareness of some of the special considerations of college and university analyses.
Private community colleges can contribute to local economic activity via different pathways, each of which can, and typically should, be evaluated separately for a robust economic impact study that best captures all the effects.
Choosing a Sector
The first challenge for every analysis is determining which sector to use. However, the case of colleges and universities add a new dimension to this decision. It is important to remember that the Sectors seen in the IMPLAN sectoring scheme are private Sectors, Government Enterprises or unique Government Institution “Sectors” that do not include spending patterns. This means that public education (K-12 and colleges) are not captured in the sectoring scheme available to us using and Industry Change Activity Type.
Standard Government Institutional activities are not part of the Sectoring scheme and thus public education is not represented in our Sector search. This is because Government Institutions do not have Multipliers and do not behave in the standard way that industries behave…primarily that there is no direct relationship between sales and production for Government Institutions since they derive revenue from collected tax dollars and not sales. This does not mean however that we cannot impact State & Local Government Education, it just means that we will need to use an additional modeling technique to do so.
Alternatively, you may have spending data for your university. In this case you may want to create your own spending pattern rather than using one from IMPLAN, which can be done using a technique called Analysis-by-Parts.
Distinguishing Temporary and Long Term Activities on Campus
College impacts often have associated capital expenditure layouts that it may be desirable to consider within the the analysis. When looking at these expenditures there are some important things to keep in mind.
- Typically investments in buildings and equipment are temporary in nature. While the building and equipment will continue, the actual expenditures on these items tend to be one time or of a short-term, non-recurring nature, as opposed to be year-over-year expenditures. Thus it is important that we distinguish these impacts from those that are recurring.
- For FFE's or other major equipment purchases, it is important to consider if the purchase is from a manufacturing sector or if the purchase is actually through a wholesale or retailer, as these will effect how FFE's are modeled. In addition to this, if the equipment is not produced in the region of the model, it may be good to report on that expenditure, but not include it's value in the modeling process.
While you certainly can run the construction and operational components in a single Scenario and analyze it, there are several reason that we do not recommend this.
- People love job numbers. It is not uncommon for studies that report rolled up construction and operational impacts to have job numbers that mix both temporary and ongoing Employment picked up and reported by others as the recurring Employment impact. This is one source of the idea that Input-Output Analysis studies overestimate impacts.
- The same principles apply to other economic factors as well. The Labor Income, Value Added and Output of the construction are occurring only over a short period of time and thus have a more limited impact than operational changes. This is best reflected when the two types of impacts are handled separately.
Double counting occurs when the impact of a certain spending is captured more than once in a single analysis.
Impacts that involve multiple stages, like many college impacts, can easily incur scenarios for double counting. For instance, spending on tickets for sporting games may be a separate impact, but those ticket funds may also be accounted for as part of the college’s operations budget. Likewise, tuition covered by scholarships that are provided by the school creates no additional impacts because these are already accounted for in the college’s budget.
It is important then, when framing the impact problem to consider where funds are captured. The total college operations budget should include all sources of revenue. Tuition is obviously captured here, but, depending on your university and the services or programs it offers, funds coming in from on-campus sporting events (such as ticket and drinks sales), campus owned book stores, college owned dormitories, and college meal plans could also be sources of double-counting if they are also captured as part of student spending.
Capturing Net New Effects
When considering our Study Area geography, a question can arise about the importance of where the funding originates when it differs from the location where the funds are spent.
In IMPLAN, we are interested primarily in how and where money is spent, not its source. As long as we know that the money is new to the Study Area, we can consider these funds to create a measurable impact.
The idea of what new money is, however, can become more challenging when residents spend money on sporting events, conventions, fairs and other transient events, this spending is considered substitutive rather than new money to the region. This is an important designation because it means that rather than truly supporting economic change and growth in a region, resident money is simply shifting from one local venue to another.
Resident spending only has a true ‘new’ impact in cases where the event draws out spending that would normally be saved.
In the context of college student spending, generally resident students aren’t counted. While they may have some short term impacts while setting up new households, the general spending they represent in the economy is not likely to significantly change beyond those one-time purchases. Why? The increase in their daily spending is offset by a decrease in their parents local spending.
When would this rule not apply? If you can make the argument that your university, college or program is unique and thus kept the students from leaving the region, this creates a theoretical ‘new’ spending circumstance. Examples of this might be having a medical degree program or being a religious college. With these sorts of specializations and argument can be made that the students would have left the region for these programs in other areas were the college not offering them.
Impacts of Loans
While we do not recommend looking at forecasting the prospective value of college student's education on their economic potential, IMPLAN has been used as a factor in some of these scenarios. If you are looking at projecting earning potentials of students, please keep in mind the effects of loans. These loans must be paid back and thus reduce the earning potential of students and their ability to create effects on the local economies where they live. Some other caveats to consider if you are looking at these types of impacts are:
- Will students actually receive job placements in their target degree area, and how long will it take them to get the experience needed to get these jobs?
- Will the student remain in the region after receiving training?
- What percentage of students remain long-term in their degree field?
- How many open positions or places for advancement are available and are these accounted for within the calculation for potential future income generation?
To begin modeling college operations we will create a new Industry Change Activity and select Sector 473, which represents all private colleges, community colleges, and universities. Please note that if this is a trade college the correct Sector is actually 474.
At Leontief College, our 2017 our total operational value was $384.7M, so we will:
- Verify that the Event Year is set to 2017. If it is not, this can be adjusted in the Event Options> Edit Event Properties>Event Year.
- Set the Industry Sales value to $384.7M.
If we have specific labor costs associated to different types of employees, we can also modify the Event to reflect this. Lets say that Leontief University tells us that:
- 1500 employee's annual compensation* is $55,500
- 800 employee's annual compensation is $62,250
- 600 employee's annual compensation is $39,000
- 250 employee's annual compensation is $ 92,000
- 100 employee's annual compensation is $127,500
- 33 employee's annual compensation is $155,000
- 17 employee's annual compensation is $250,000
Other techniques would allows us to individually assess the effects of each of these income groups individually or address other more specialized aspects of these labor groupings, but for this example we just want to be specific for our college's compensation. We can calculate Leontief's compensation value by and Employment by summing the total number of jobs in each income category and determining the total payments to Employee Compensation.
So now we can overwrite the IMPLAN estimation values with our known Labor Income payments for Leontief College.
The Event is now ready to be analyzed. Clicking Next or Analyze Scenarios takes us to the Analyze Scenarios screen:
Where we select our Event for Leontief College.
And then select Analyze Single Region. The results help to describe how the operations of Leontief College affect our local economy.
From this we can see that Leontief College supports ~149 local jobs as a result of its business to business purchases and that the employees of Leontief College and the businesses supported by the colleges operations support an additional ~766 jobs.
But there is more to Leontief's story for 2017.
In addition to it's operations, Leontief College supported other economic activity in the region because of new campus construction projects (note that general maintenance and repair are part of the operational spending pattern).
In 2017, Leontief college built 2 parking garages and a learning center, so we'll need to examine the effects of these activities as well.
10B Framing the Problem
We will look at the differential impacts of the operating and construction budgets of a privately-funded college. Unlike the previous CS-10A where all we knew was the total annual budget of $100,000,000, we will presume that $75,000,000 of the budget is for operations while $25,000,000 is for construction. The distinction between operations and construction is important because operations spending is recurring annually while construction spending continues only for the duration of the project (assumed in this case to be one year). This means that we will use two sectors, Industry 392, Private junior colleges, colleges, universities, and professional schools and Industry 34, Construction of new nonresidential commercial and health care structures.