College: Modeling Public College & University Impacts with Bill of Goods using ABP

INTRODUCTION

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.  

Analysis-by-Parts is a technique by which you can analyze the impact of an Industry's production/spending in separate components using multiple Events instead of using a single Industry Event. The purpose of this article is to provide an example of analyzing a Public College impact using Analysis-by-Parts with the Bill of Goods approach to capture the university's Intermediate Inputs.

 

THERE IS AN EASIER WAY!

There is a new Event Type in IMPLAN called Industry Impact Analysis (detailed) released on October 6, 2021. In this Event Type, you can enter values you may have for Wage & Salary Employment, Employee Compensation, and spending on Intermediate Inputs (and also edit the Spending Pattern) or Output. Then, you can enter a zero for Proprietor Employment, Proprietor Income, Taxes on Production & Imports, and Other Property Income to reflect that public and nonprofit organizations are not paying these. And that's it. IMPLAN will calculate the Direct Effect for you! Check out the article Analyzing a Public College using Industry Impact Analysis (Detailed) to learn the easy way.

 

THE PROCESS

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. If you do not have detailed budget spending (Bill of Goods), consider using an Industry Spending Pattern Event as outlined in the article ABP: Analysis-by-Parts Using an Industry Spending Pattern Event with Labor Income Event(s)

The budget information we know for Leontief State University is: 

Budget Category Industry Description Spending
Physical Plant Maintenance 60 Maintenance and repair construction of nonresidential structures $30M
Electricity 47 Electric power transmission and distribution $2M
Water 49 Water, sewage and other systems $3M

For each of the expenditure categories, create a new Event. For each Event, choose Industry Output, then select the appropriate Industry 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.

Public_College_-_Events_Screen_1.jpg 

INDUSTRY 481 TRAP

Unfortunately, there is no IMPLAN Industry for public colleges and universities. IMPLAN Industries are limited to Private Industries, Government Enterprises, or unique Government Institution “Industries” that do not include spending patterns. Don’t fall into the trap of Industry 481 - 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 Industry scheme and thus public colleges and universities are not represented in the Industry 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.

CONSIDERATIONS

  • 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

ALTERNATE APPROACH

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 Industry as a proxy. In this case, choose Industry 481 - 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.

CONSIDERATIONS

  • 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

Public_College_-_Events_Screen_2.jpg 

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:

  • Books
  • Transportation
  • Food & beverages
  • Alcohol
  • Recreation & amusement
  • Retail

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.

Industry Description Per Student Spend Total Spend
410 Retail - Sporting goods, hobby, musical instrument and book stores $250 $3M
108 Distilleries $750 $9M

 

Public_College_-_Events_Screen_3.jpg

 

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 ways as a college student. Consider spending categories such as:

  • Lodging 
  • Transportation to the city
  • Transportation within the city
  • Gasoline
  • Food & beverages
  • Retail
  • Recreation & amusement

From a visitor survey, we are given the following information from Leontief State for their estimated 25,000 annual visitors.

Industry Description Per Visitor Spend Total Spend
507 Hotels and motels, including casino hotels $1,000 $25M
509 Full-service restaurants $400 $10M
408 Retail - Gasoline stores $200 $5M

 

Public_College_-_Events_Screen_4.jpg

 

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.

  1. 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.
  2. For Furniture, Fixtures, and Equipment (FFE) or other major equipment purchases, it is important to consider if the purchase is from a manufacturing Industry 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 Industry 53 - 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.

 

Public_College_-_Events_Screen_5.jpg

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.

Public_College_-_Groups.jpg

 

STEP 7 – MODIFY 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.  

Because your Direct Effects from Operations are from the Commodity/Industry Events, which only reflect the purchases made by the true Direct business, the Results should be modified. Your Direct Effects are actually Indirect Effects. 

  • Subtract out your Direct Effect so the Direct Effects become all zeros. 
  • Add these Direct Effects to the existing Indirect Effects to generate a new Indirect Effect.
  • Define your Direct Effect

The template specific to this example will guide you through the process using Excel. 

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.  

Economic Impact of Leontief State University Operations on Hampshire County, Massachusetts, 2020

mceclip0.png

Economic Impact of Leontief State University Construction on Hampshire County, Massachusetts, 2020

Public_College_-_Results_Construction.jpg

Generally to estimate the Direct Effects, take what information you already know for Employment, Labor Income, and Output and enter that directly. This template on Recalculating Direct Effects can also help you estimate the remaining pieces based on per worker data in your Study Region, which can be found in:

> Region Details
     > Study Area Data
          > Industry Averages

TEMPLATES

ABP - Recalculating Direct Public College

Recalculating Direct Effects

 

RELATED TOPICS

ABP: Analysis-by-Parts Using an Industry Spending Pattern Event with Labor Income Event(s)

Considerations when Conducting College & University Economic Impacts

Construction: Building the Analysis

Modeling Private College & University Impacts

Surveying for Input-Output

Tourism Spending

CASE STUDY

Economic Impacts of California State University Northridge: How One University Campus Discovered Its Economic Significance

 

Written July 23, 2019

Updated October 12, 2023