The Economic Impact of Higher Education

November 13, 2017

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The Economic Impact of Higher Education

By Katlin Swisher

West Virginia’s colleges and universities are not only critical for improving the state’s educational attainment and training the state’s workforce, but they are also economic drivers in their communities and the state as a whole.

Just 11 percent of the state’s base budget, or about $497 million, is appropriated for higher education, according to a study by the West Virginia Center on Budget & Policy. The West Virginia Legislature cut higher education appropriations in Fiscal Year 2015 more than any other state except Wyoming, and it has decreased the per-student funding by more than 20 percent since the 2008 recession.

As West Virginia’s population continues to decline and higher education appropriations face additional cuts, there is a growing need to assess the value of public higher education and its contribution in both the state and local economies. Despite these ongoing cuts to higher education appropriations, the state’s public higher education institutions continue to generate revenue that contributes one of the largest economic impacts of any agency or organization.

Measuring the Impact

In a summer 2016 study for the West Virginia Higher Education Policy Commission, the Bureau of Business and Economic Research (BBER), part of West Virginia University’s (WVU) College of Business and Economics, examined the economic impact of the state’s public two-year and four-year higher education institutions.

In 2014, the state’s 21 institutions spent approximately $1.5 billion, which generated another $1.2 billion in additional revenue, making public higher education’s overall economic return to the state $2.7 billion. Of this total, $401 million were appropriated by the state government while $1.1 billion came from institutional sources. This effort also supported approximately 24,000 in-state jobs.

“I was amazed at the size of the impact of all of the institutions collectively,” says Eric Bowen, a research assistant professor for the BBER and the study’s primary investigator. “Higher education has a massive presence in this state.”

Using budget and expenditure data from the Integrated Postsecondary Education Data System, the core postsecondary education data collection entity for the National Center for Education Statistics, the study estimated each institution’s total spending in its local economy. The model used considered both primary and secondary impacts from institutional spending.

The primary impact from this spending originates from direct university expenditures, such as supplies, services and utilities, as well as their payrolls, including wages and benefits to their employees. For the four-year institutions, the primary impact also included out-of-state student expenditures because the addition of revenue from sources outside the state has the potential to increase the profits of local businesses.

The study also considered the secondary impact of these expenditures, known as the multiplier effect. This phenomenon explains how the original stimulus to the economy from institutional expenditures is re-spent multiple times in the economy by the institutions’ constituents, such as their faculty, staff and students.

“Every school is going to have operational expenditures to teach students and manage the operations of the university,” says Bowen. “That was the primary impact of the schools. Then, the incomes of the people who work for the university are going to be spent in the local economy. So you have this multiplier effect of all those dollars that get spent in the local economy—the businesses, restaurants, landlords, banks and everything that’s used by the university or by the people who work for the university. Their dollars get spent again in the local economy, so you get this spillover effect from the impact on the local economy from the university’s spending.”

Recognizing Value

As the largest university in the state in terms of its enrollment and employment, WVU’s Morgantown campus made the greatest economic impact. WVU spent approximately $815 million in direct expenditures, of which $186 million came from state appropriations. Combined with student expenditures, WVU’s operating budget generated an additional $578 million in secondary impact, totaling nearly $1.3 billion.

Pierpont Community & Technical College had the largest economic impact of the two-year institutions at nearly $34 million. Direct expenditures totaled about $21 million, while $8 million came from state appropriations.

“The smaller schools, particularly two-year schools, are more heavily reliant on state funding than a large university like WVU,” says Bowen. “The most recent audited financials put the state’s share of WVU’s budget at about 15 percent. Most of the other schools are much higher—between 25 and 50 percent in some cases. Reducing state support at these schools is likely to have a bigger impact on their bottom lines.”

Concord University, a four-year institution located in Athens, WV, is one such smaller school that has been directly impacted by the budget cuts. The impact of a decrease in funding can be felt all across the campus, from administrators looking at new hires and new programs to the students who see changes in their tuition rates.

“It is difficult to offer new things or update curriculum or hire new people who are super qualified when the budget keeps getting cut,” says Kendra Boggess, president of Concord University. “Our biggest challenge is finding ways to cut things. You cannot cut your way to success. It’s never been done. It’s never going to be done in any industry. You have to invest to grow to be able to build more of whatever the enterprise is you are doing.”

Creating Opportunity

Despite these cuts, another lasting impact from higher education’s presence in West Virginia is job creation. At 2.86 percent, higher education is one of the only industries in the state that has had growing employment opportunities since 2012, behind federal health care and social assistance at 11 percent, transportation and warehousing at 5.17 percent, private educational services at 5.05 percent and administrative, support, waste management and remediation services at 3 percent. In contrast, industries like mining, quarrying and oil and gas extraction; arts, entertainment and recreation; and construction have decreased anywhere from 14.33 percent to 39.89 percent during the same timeframe.

Another recent BBER study has also illuminated the value of an educated workforce. Analyzing West Virginia college graduates’ contributions to the state’s economy, the study found that the 6,300 graduates from the class of 2010 employed in-state at the time of the study will generate nearly $6 billion in revenue over 20 years. However, it cost just $1.4 billion to educate them.

Education is the foundation for the state’s economy because it not only builds a strong workforce but also creates opportunity in which that workforce can succeed. Despite the far-reaching impact of West Virginia’s higher education institutions, the financial significance is overlooked as state leadership focuses on an urgent budget shortfall that can’t easily be fixed. As West Virginia tries to diversify its industry portfolio in order to jumpstart the economy, it’s important that acts to balance the budget, such as making cuts to education, do not hinder the areas seeing success in the state. At the end of the day, West Virginia’s success comes down to the education of its people.

“We have to have an educated population,” says Boggess. “We need educated people in this state to lift the state and be able to draw more businesses here. No business or industry wants to come to a place where there is not an educated population. Education is the key to getting rid of the despair we see. To bring industry here, you have to be able to show them there is an educated workforce that can learn.”

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