College: Considerations when Conducting College & University Economic Impacts

INTRODUCTION

Examining the impact that a college or university has on a region is a common use case in IMPLAN, but the potential complexities warrant careful consideration when setting up and framing the 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.

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 an argument can be made that the students would have left the region but for these local programs.

If the goal is to see how a college or university fits within the regional economic ecosystem or no information on net new money is available, consider performing an Industry Contribution Analysis (ICA).  ICA can be used to estimate the relative extent and magnitude of an existing institution in the study area.

LIFETIME EARNINGS & 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:

1. 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?
2. How much of their increased earning is attributable to this degree, especially if their job is outside of their field or they go on to graduate school?
3. Will the student remain in the region after receiving training?
4. What percentage of students remain long-term in their degree field?
5. How many open positions or places for advancement are available and are these accounted for within the calculation for potential future income generation?

DOUBLE COUNTING

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 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 the school and the services or programs it offers, funds coming in from on-campus sporting events (such as ticket and drinks sales), campus owned bookstores, college owned dormitories, and college meal plans could also be sources of double-counting if they are also captured as part of student spending.

OPERATIONS AND CAPITAL IMPACTS

University operations are yearly impacts.  Construction impacts occur only once. Therefore, we recommend that these are not reported together.  There are two main reasons that we recommend that you do not report operations impact and capital impact together.  

1. 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.
2. 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.

PUBLIC VERSUS PRIVATE SCHOOLS

There are many factors for the analyst to consider when modeling any institution of higher learning. Most importantly, public and private colleges and universities will follow very different spending and additionally will attract different students and visitors. The sheer size of some large public universities will lend them to have immense overall budgets. They also might see large influxes of visitors in town for a playoff game. Alternatively, universities that focus heavily on research tend to invest in the sciences as well as research and development activities and may not offer any sports programs.  Small fine arts schools might be more selective but have talented and famous alumni network that generously subsidizes their capital budget. Knowing the details of each school will ensure that the analysis is accurate and defendable. For details on the specifics on public and private college and university impacts, visit the pages below.

RELATED TOPICS

Modeling Public College & University Impacts

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

JOURNAL ARTICLE

Khalaf, C., Jolley, G.J., & Clouse, C. (2022). The Economic Impact of Small Colleges on Local Economies: A Guide to Attainable Data and Best Practices. Economic Development Quarterly, 36, (1), 1-16.

Written July 24, 2019 

Updated October 27, 2021