The Economic Impact of the University System of Georgia on the State Economy, Fiscal Year 1989 Board of Regents of the University System of Georgia January, 1990 TABLE OF CONTENTS ACKNOWLEDGEMENTS Executive Summary 2 Introduction 3 Estimating Economic Impact 4 Table 1 - University System Non-Payroll Expenditures 6 Table 2 - University System Payroll Expenditures/Employee Spending 6 Table 3 - Out-of-State Student and Financial Aid Expenditures 7 Table 4- Out-of-State Visitors' Expenditures 7-8 Table 5 - Derivation of the Expenditure Multiplier 8 Table 6 - Calculation of the Total Economic Impact of the University System 9 Summary and Conclusions 10 Appendix A 11 We wish to thank Dr. Keith Langford, Macon College; Dr. Phil Smith, Gainesville College; Mr. Ernest Murphrey, Board ofRegents' central office; and Mr. Michael Baxter, Board ofRegents' central office, for their invaluable assistance. The Economic Impact of the University System of Georgia on the State Economy, Fiscal Year 1989 Joseph J. Szutz Assistant Vice Chancellorfor Research Haskin R. Pounds Vice Chancellor, Research and Planning Office ofResearch and Planning University System ofGeorgia EXECUTIVE SUMMARY The University System of Georgia produces numerous benefits for the state and its citizens. It is, of course, a vital intellectual, cultural and educational resource. What may be less commonly recognized, however, is that the University System also is a powerful economic resource for Georgia. From 1979 through 1988, the University System conferred over 235,000 total degrees, thus enhancing the employability, earning power and quality of life of those graduates and their families. The thirtyfour colleges and universities and various specialized facilities in the System directly employ over 43,000 Georgians. Countless other jobs are provided to Georgia residents by businesses and corporate operations attracted to the state largely by the presence - and the quality - of the University System, an increasingly critical variable in today's highly technical and competitive global economy. Although such University System contributions as these are difficult to measure, there are quantitative methods for estimating the economic impact of the University System on the Georgia economy. This report analyzes the impact of four types of System expenditures: Non-payroll, Payroll, Out-of-State Student and Financial Aid, and Out-of-State Visitor. In addition to the direct impact of those expenditures, their residual impact is estimated through the calculation of an expenditure multiplier. The methodology employed in this analysis, including the value of the expenditure multiplier, is conservative. According to that impact analysis, the University System produces a statewide economic impact of $3.25 billion, only 25 percent of which comes from state appropriations. The following graph summarizes the results of the impact analysis: TOTAL ECONOMIC IMPACT $3.25 Billion Other Expenditures_ 36% ~ Stele Approprletlon 25% The University System of Georgia is a publicly assisted system of thirty-four colleges and universities and numerous specialized facilities throughout Georgia. Public tax dollars are appropriated annually to subsidize a portion of the operating costs of those institutions in performing their three-part mission of instruction, research and public service. However, it is inaccurate to regard the University System as an economic burden to the state. In fact, the existence and operation of the University System has an extremely positive economic impact on Georgia, which is generated primarily in two ways: First, the institutions in the System attract nonstate funding which would not otherwise impact the state. Such sources as federal grants and contracts, contracts with the private sector, out-of-state tuition, fees and student living expenses, and revenues from out-of-state visitors to various System-sponsored events and activities create a flow of revenue that directly benefits the Georgia economy. This generation of "new", non-appropriated money is only partially reflected in total System expenditures of which less than half are the state dollars appropriated to the University System. Second, all System expenditures have a measurable secondary impact on the Georgia economy through the well-known "multiplier effect." The multiplier concept is based on the principle that a portion of each dollar spent in an area is returned to residents of that area as income which is subsequently re-spent, initiating a spending cycle. The measurable impact of that phenomenon, which will vary over time, can be estimated through the calculation of a numerical multiplier. Thus, by appropriating public funds to assist the operation of the University System, the state of Georgia is in fact supporting a potent cash flow generator that creates an additional $3. 00 of impact for every dollar appropriated and a total impact on the state economy of $4. 00 per appropriated dollar. Those figures have been calculated from actual and estimated FY 1989 System expenditures by methods described further in this report. The state of Georgia derives many other benefits from its University System which are not included in this analysis. Although it is difficult to estimate its precise value, the presence of a quality higher edu- INTRODUCTION ESTIMATING ECONOMIC IMPACT [!] cation System in the state is an increasingly critical factor in the establishment of businesses and the location of corporate enterprises in Georgia. While salaries and benefits paid to System employees are factored into the calculation of the System's economic impact, the personal and social value of the more than 43,000 System jobs cannot be quantified. Neither can the impact of higher education on the quality of life of the System's hundreds of thousands of present and former students and their families nor the cultural impact of University System units on their respective communities be measured. However, the collective impact, both tangible and intangible, of the University System of Georgia on the overall quality of life in the state is enormous. The previous University System economic impact study (W. Curtis Spikes, January 1985) was developed by the Office of Research and Planning staff of the Board of Regents' Office working with a six person committee. That group developed the parameters, assumptions and calculations according to which the System's FY 1984 economic impact was estimated. In designing its approach, the committee considered the literature on institutional economic impact. However, that literature focuses on the micro-economics of the impact of individual institutions on local economies. Estimating the collective impact of multiple institutions on the state economy falls more in the realm of macro-economics, dealing with much broader categories of expenditure and making much broader assumptions about spending patterns and their impact. Because of overlap between institutional impact areas and statewide "leakages" where System units are located near state borders, the 1985 study employed a differential value-added model (Salley, 1976) which accounts for statewide leakage and produces a conservative estimate of the impact of total expenditures. The present study employs the same model, both to maintain a degree of continuity between this study and the earlier one and because the previous study committee developed workable solutions to many of the methodological problems inherent in statewide impact analysis. Some changes in data sources have necessitated minor revisions, but the basic model and its und~rlying assumptions have not changed. Just as the value of the multiplier used in both studies is derived by a conservative methodology, definitions and other decisions made throughout the present study tend to be conservative. All numbers used in the study are labelled or footnoted, and the calculations are explained. University System Expenditures The expenditure multiplier calculated in this study is based on the expenditure patterns of the University System. The calculation of the multiplier incorporates a value-added approach which accounts for large variations in initial spending patterns among categories and object classes. The study addresses four basic categories of expenditure: I. Non-Payroll Expenditures 2. Payroll Expenditures 3. Out-of-State Student and Financial Aid Expenditures 4. Out-of-State Visitor Expenditures The first category, Non-Payroll Expenditures, consists of the following nine "expenditure object classes:" a. Travel and Benefits b. Utilities c. Trade Purchases d. Insurance e. Rentals f. Repairs g. Business Services h. Vehicle Repair i. Others The source of System Non-Payroll Expenditure data for the current study is a summary produced by the Accounting Systems and Procedures Officetitled, Expenditures by Object at 6/30/89 -All Operating Fund Groups. It contains 36 "Non-Personal Services" expenditure classifications and subtotals. With appropriate consultation, those subtotals were matched with the nine object classes shown above, as indicated in Appendix A. The Non-Payroll Expenditures data are presented in Table I. - TA- BL- E - 1 University System Non-Payroll Expenditures by Object Class with Value-Added Ratios and Value-Added Income - FY1989 Expenditure Object Class Value-Added Ratio* Expenditure By Object Value-Added (Spendable) Income (Col. 1x Col. 2) a. Travel and Benefits=!= b. Utilities=!= c. Trade Purchases** d. lnsurance:j: e. Rentals=!= f. Repairst g. Business Servicest h. Vehicle Repairt i. Others** 0.323 0.397 0.115 0.410 0.219 0.339 0.378 0.266 0.115 $44, 747,239 43,536,688 220,427,078 3,127,263 22,021,766 35,715,962 103, 725,452 2,220,777 38,503,495 $14,453,358 17,284,065 25,349,114 1,282,178 4,822,767 12,107,711 39,208,221 590,727 4,427,902 TOTALS $514,025,720 $119,526,043 * Represents the proportion of expenditures which flows to Georgians as spendable income. **U.S. Department of Commerce, Census of Retail Trade, Geographic Series for Georgia, 1982. t U. S. Department of Commerce, Census of Service Industries, Geographic Series for Georgia, 1982. t J. Wilson, "Economic Impact of a University on the Local Economy," unpublished dissertation, Kent State University, 1973. The Payroll Expenditures category consists of total System salaries plus benefits (see Appendix A, "Personal Services" portion of table) and total System headcount employees. The "Estimated Total Employee Spending" in Table 2 is based on the same rate, .718, as was used in the 1985 study. TABLE 2 University System Payroll Expenditures and Estimated Employee Spending - FY 1989 TOTAL EMPLOYEES* 43,439 TOTAL PAYROLL* $1,112,367,152 FSTIMATED TOTAL EMPLOYEE SPENDING (COL. 2 X .718) $798,679,615** * University System Office of Accounting Systems and Procedures; includes total salaries plus benefits **Estimated at rate used in 1985 study ~ Out-of-state student expenditures are based on the total number of outof-state and non-resident alien students enrolled in Fall 1988. Total financial aid expenditures are treated as a direct pass-through in the study. Out-ofState Student and Financial Aid Expenditures are shown in Table 3. Impact of Cost-of-Living Expenditures by Out-of-State Students and Direct Spending of Financial Aid - FY 1989 TABLE 3 NUMBER OF STUDENTS TOTAL EXPENDITURES Out-of-State Students Unduplicated Financial Aid*** 17,693* 73,976 $129,512,760** $182,441,4 78 TOTAL $311,954,238 *Fall 1988 Quarterly Enrollment Report **Calculated by applying a five-year inflation factor, which is midway between the GNP Price Deflater 04%) and the approximate rate of increase in University System tuition and fees (30%), to the corresponding figure ($6,000 per student) used in the FY 1984 impact study to produce an estimated expenditure per student of $7,320. ***University System Annual Student Aid Report Table 4 contains estimates of annual expenditures by out-of-state visitors to activities conducted by the System's four universities. The categories of activities are: Athletic, Continuing Education, Consulting and Other. Although many of the other 30 units in the System also generate some outof-state expenditures by these means, the study assumes that 100 percent of the System total is produced by the universities. Out-of-State Visitors' Expenditures Estimated for Four Activity Categories - System Universities, FY 1989 Georgia Tech EVENT NO. OF VISITORS COST PER DAY NO. OF DAYS TOTAL EXPENDITURES Athletic Continuing Ed. Consulting Other 75,000 6,500 500 N/A $135 1.5 135 2.5 135 2.5 $15,187,500 2,193,750 168,750 TOTAL $17,550,000 TABLE 4 Georgia State University EVENT NO. OF VISITORS COST PER DAY NO. OF DAYS TOTAL EXPENDITURES Athletic Continuing Ed. Consulting Other 6,000 6,778 4,343 614 $135 1.0 135 2.0 135 1.5 135 1.0 $810,000 1,830,060 879,458 82,890 TOTAL $3,602,408 liJ TABLE 4 (continued) Out-of-State Visitors' Expenditures Estimated for Four Activity Categories- System Universities, FY 1989 Medical College of Georgia EVENT NO. OF VISITORS COST PER DAY NO. OF DAYS TOTAL EXPENDITURES Athletic Continuing Ed. Consulting Other N/A 6,778 N/A 89,000 $100 2.0 46 1.0 TOTAL $296,200 4,094,000 $4,390,200 University ofGeorgia EVENT NO. OF VISITORS Athletic Continuing Ed. Consulting Other 82,500 9,517 10,500 N/A COST PER DAY $100 60 60 NO. OF DAYS 1.5 2.5 2.5 TOTAL EXPENDITURES $12,375,000 1,427,550 1,575,000 TOTAL $15,377,550 UNIVERSITY SYSTEM GRAND TOTAL $40,920,158 Note: All expenditure estimates were made by personnel at the respective institutions. The Expenditure Multiplier Some institutional economic impact studies have reported multipliers as high as 4.04. Table 5 illustrates the calculation of the comparatively conservative multiplier, 1.642, which is used in this impact analysis. TABLE 5 Derivation of the Expenditure Multiplier DATA ELEMENTS (A) System Non-Payroll Expenditures (Table 1) (B) System Payroll Expenditures (Table 2) (C) Total System Expenditures (A+ B) (D) Spendable Income Generated by Payroll Expenditures (Table 2) (E) Spendable Income Generated by Non-Payroll Expenditures (Table 1) (F) Total Spendable Income (D + E) (G) Propensity of State Spenders to Spend Income (D +B) (H) Value-Added Ratio for Trade Purchases (Table 1) $514,025,720 $1,112,367,152 $1,626,392,872 $798,679,615 $119,526,043 $918,205,658 0.718 0.115 CALCULATIONS Multiplier Formula: M = (1 + R) + (1 - S) R =Total Spendable Income+ Total System Expenditures R = F + C = 918,205,658 + 1,626,392,872 = 0.565 S = [(Propensity to Spend Income) X (Value-Added Ratio) X (Total Income)]+ (Total System Expenditures) S = (G X H X F)+ C = (.718 X .115 X $918,205,658) + $1,626,392,872 = 0.047 THEN: M = (1 + .565) + (1- .047) = (1.565 + .953) = 1.642 ; Table 6 illustrates the calculation of the total economic impact of the !University System of Georgia. Calculation of the Total Economic Impact of University System Expenditures on the Georgia Economy - FY 1989 TABLE 6 A. System Payroll Expenditures (Table 2) $ 1,112,367,152 B. System Non-Payroll Expenditures (Table 1) 514,025,720 c. System Student Expenditures (Table 3) 311,954,238 D. System Visitor Expenditures (Table 4) 40,920,158 E. Total System Expenditures $ 1,979,267,268 F. Multiplier (Table 5) 1.642 G. Total Economic Impact (F x E) $ 3,249,956,854 SUMMARY AND CONCLUSIONS The foregoing report has presented an analysis of the measurable impact of the University System of Georgia on the state economy. As estimated in this study, that impact derives from System expenditures combined with the multiplier effect produced by the re-spending of those dollars in the Georgia economy. The economic impact thus calculated may be regarded as a return on the investment of state dollars which are appropriated annually to help support System operations. In FY 1989, the state higher education appropriation of just over $813 million produced a total impact on the Georgia economy of $3.25 billion. That is a total economic impact ratio of 4 to I. By comparison, the FY 1984 System appropriation of $577.6 million produced a total economic impact on the state of just over $1.9 billion for a total impact ratio of 3.3 to I. University System of Georgia Expenditures by Object at 6/30/89 All Operating Fund Groups APPENDIX A OBJECT OF EXPENDITURE PERSONAL SERVICES Salaries Regular Student Assistants Labor F I C A- Employer Retirement - Employer Group Insurance - Employer Personal Liability Ins -Employer Unemployment Insurance Workers Compensation Subsistence Salaries - Joint Staffed OBJECT CODE 511 512 513 514 515 516 517 518 519 530 599 TOTAL ALL FUNDS $872, 768,341 17,133,362 1,716,622 54,309,299 106,020,363 52,064,229 2,939,028 1,004,974 4,002,170 294,513 114,251 MATCHING IMPACT STUDY OBJECT CLASS Total Penonal Services $1,112,367,152 NON-PERSONAL SERVICES Travel of Employees 640 $19,477,353 Travel & Benefits Travel of Non-Employees 650 1,064,362 Travel & Benefits Travel - Joint Staffed 699 14,343 Travel & Benefits Purchase for Resale 702 1,312,211 Others Cost of Goods Sold 703 43,396,361 Trade Purchases Cash Over or Short 704 5,824 N/A Motor Vehicle Expense 712 2,220,777 Vehicle Repair Supplies and Materials 714 91,531,668 Trade Purchases Repairs and Maintenance 715 35,715,962 Repairs Utilities 717 43,536,688 Utilities Rents Other Than Real Estate 719 4,918,162 Rentals Insurance and Bonding 720 3,127,263 Insurance Claims and Indemnities 721 9,503 Others Direct Benefits - Med Care & P.A. 722 0 N/A College Work Study Program 723 4,668,502 Fin. Aid, Tab. 3 Grants to Counties & Cities 724 198,281 Others Other Operating Expense 727 35,410,969 Others Software 733 5,079,108 Trade Purchases Debt Retirement 741 41,125 Others Publications and Printing 742 13,389,012 Business Services Equipment Purchases - Non-Inventory 743 7,376,225 Trade Purchases Real Estate Rentals 748 9,073,607 Rentals Per Diem and Fees 751 24,191,181 Travel & Benefits Contracts 753 70,751,731 Business Services Computer Charges 760 1,291,746 Business Services Telecommunications - Data 771 566,457 Business Services Telecommunications - Other 773 17,726,506 Business Services Scholarships 781 46,503,873 Fin. Aid, Tab. 3 Fellowships 782 1,549,679 Fin. Aid, Tab. 3 Stipends 783 1,914,083 Fin. Aid, Tab. 3 Tuition 784 1,049,433 Fin. Aid, Tab. 3 Non-expense Disb/Agency Funds 791 929,739 Others Lease Purchases of Equipment 818 8,029,997 Rentals Motor Vehicle Purchases 841 2,117,242 Trade Purchases Other Equipment Purchases 843 70,926,474 Trade Purchases Land 961 601,667 Others Total Non-Penonal Services Total Expenditures - All Objects $569,717,114 $1,682,084,266 [!] NOTES