After reviewing Considerations when Conducting College & University Economic Impacts, you are ready to examine the economic impact of your public college or university. Public colleges and universities are vital to not only the education system, but also to our regional and state economies and this article outlines how to model their expenditures.
Public colleges and universities contribute to local economic activity via different pathways, each of which ought to be evaluated separately for a robust economic impact study that best captures all the effects. The best way to model these impacts is through Analysis-by-Parts (ABP). In this example, we will use the Bill of Goods (BoG) approach and show spending across five categories: university operations, university labor, student spending, visitor spending, and capital expenditures. Each school is unique, so each university impact can include any or all of these parts.
In this example, we will be studying our fictitious school, Leontief State University. It was named in honor of the father of Input-Output analysis, nobel prize winning economist Wassily Leontief. LSU is located in Amherst, Massachusetts and we want to examine its impact on Hampshire County.
STEP 1 – OPERATIONS EXPENDITURES
To begin modeling the impacts of operations expenditures, we will first examine the non-labor budget. In this example we will look at three example industries. When modeling an actual university, there will likely be many more affected Industries. The budget information we know for Leontief State University is:
For each of the expenditure categories, create a new Event. For each Event, choose Industry Output, then select the appropriate sector as the specification. Finally, enter the value of expenditures in that category.
We recommend that you save your work after each new section of data is entered.
SECTOR 473 TRAP:
Unfortunately, there is no IMPLAN sector for public colleges and universities. The sectors in the IMPLAN sectoring scheme are limited to Private Sectors, Government Enterprises, or unique Government Institution “Sectors” that do not include spending patterns. Don’t fall into the trap of Sector 473 - Junior colleges, colleges, universities, and professional schools.
All public education, including K-12 schools through college, are captured in the Institution for State/Local Government Education. Standard Government Institutional activities are not part of the sectoring scheme and thus public colleges and universities are not represented in the Sector listing. This is because Government Institutions don’t have production functions or Multipliers. Specifically, there is no direct relationship between sales and production for Government Institutions since they derive revenue from collected tax dollars and not sales. Public entities, including colleges and universities, require a different approach to measure impacts.
- You can choose to model the effect of Commodity purchases rather than Industry purchases
- You can enter as many events as you have line items in the budget you are modeling
- Remember to apply margins as necessary
- Also, remember to adjust the Local Purchase Percentage (LPP) as necessary; only local purchases should be included
An alternative approach, as opposed to modeling each Intermediate Expenditure through a Bill of Goods approach is to run the total Intermediate Expenditures value through the Institutional Spending Pattern that best reflects the industry you are modeling; in this case, State/Local Govt Education.
However, the Institutional Spending Pattern for State/Local Govt Education also encompasses primary and secondary schools in addition to colleges. Because of this, you may want to consider using the private sector as a proxy. In this case, choose Sector 473 - Junior colleges, colleges, universities, and professional schools. For more information on this approach, follow the instructions for Analysis-by-Parts: Using an Industry Spending Pattern Event with Labor Income Event(s).
STEP 2 – LABOR EXPENDITURES
Since labor costs were not modeled as a part of the school’s operations expenditures in Step 1, we will have to model them independently. Let’s say that Leontief State University tells us that Labor expenditures sum to $50 Million. To analyze this impact, we create a new Labor Income Type Event, with a specification of Employee Compensation, and a Value of $50 Million. This is entered on the same Events screen as the three Industry Output Events.
- These should be fully loaded payroll values which include wage and salary, all benefits (e.g., health, retirement) and payroll taxes (both sides of social security, unemployment taxes, etc.)
- If the University’s employees commute into the study area for work, then they should not be included in the Labor Income Event
STEP 3 – STUDENT SPENDING
Personal spending by students on non-college goods and services (like the classic textbook Input-Output Economics (Leontief, 1966) and Moscow Mules) will also have an impact on the local economy. To estimate these impacts, we will need to know how much they spend on personal items and which items they purchase. These can then be modeled by adding expenditures to an additional Industry Output Event, with the appropriate Specification. Some considerations on what to include in student spending are outlined below. Additional details on outlining student spending can be found in Surveying for Input-Output. Some items to consider including are:
- Food & beverages
- Recreation & amusement
At Leontief State, we know the average student spends according to the following table. With actual survey data, you will likely have more spending categories.
We also know that LSU has 12,000 total students.
STEP 4 - VISITOR SPENDING
Personal spending by visitors on non-college goods and services (like hotels, transportation, and restaurants) will also have an impact on the local economy. To estimate these impacts, we will need to know how much they spend on personal items and what they purchase. These can then be modeled by adding expenditures to an additional Industry Output Event, again with the appropriate Specification. Remember, visitors will not spend their money in the same was as a college student. Consider spending categories such as:
- Transportation to the city
- Transportation within the city
- Food & beverages
- Recreation & amusement
From a visitor survey, we are given the following information from Leontief State for their estimated 25,000 annual visitors.
STEP 5 - CAPITAL EXPENDITURES
If in addition to its operations, the college or university 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), you can model the effects of these activities as well. This analysis can be done by adding expenditures to an additional Industry Output Event, with the appropriate Specification.
College impacts often have associated capital expenditure layouts that it may be desirable to consider within 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 Furniture, Fixtures, and Equipment (FFE) 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 wholesaler or retailer, as these will affect how FFE is 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.
For example, LSU just opened up a state-of-the-art new College of Statistics at a cost of $50M. We can run this through an Industry Output Event in Sector 55 - Construction of new educational and vocational structures.
Our Event screen now is fully populated with all of the information we have from LSU. When creating a long list of Events as in this example, give each a name that is easy to remember so that using the FILTERS button on the Results screens is straightforward.
STEP 6 – RUN THE IMPACT
Now either use the button at the top to select all or highlight each Event and drag them into your Group. Next, hit run.
STEP 7 – ANALYZE THE RESULTS
The results will show you the economic impact of all of the Events you entered which will include the Industry Events and the Labor Income Event. To look at the results by Event, use the FILTERS button and select which of the Events you would like displayed. For example, choosing all three Operations Events and the Labor Event will filter the results to only include the economic impact of the university operations.
University operations are yearly impacts. Construction impacts occur only once. Therefore, we recommend that these are not reported together. Remember to clearly label your tables and figures so readers have a clear understanding of your results.
Total 2019 Operations Impact of Leontief State University on Hampshire County, Massachusetts
Total 2019 Capital Impact of Leontief State University on Hampshire County, Massachusetts
Written July 23, 2019