Executive Summary by 4hRKVe0C


									The Socioeconomic Benefits
 Generated by Isothermal
   Community College

           State of North Carolina

        Executive Summary

                December 8, 2004

  M. Henry Robison and Kjell A. Christophersen
                                    Executive Summary

                                                          into common sense benefit/cost and
                HIGHLIGHTS                                investment terms. The model has been
                                                          subjected to peer review and field-tested
      Isothermal Community College pays $9.6
       million annually in direct faculty and staff       on over 400 different community and
       wages, salaries, and benefits in the local         technical colleges throughout the United
       region, and accounts for an additional             States and Canada. Model results are
       $63.9 million in earnings off campus.
                                                          based on solid economic theory, carefully
      Taxpayers see a real money “book” return           drawn functional relationships, and a
       of 21.0% on their annual investments in            wealth of national and local education-
       Isothermal Community College and                   related data. The model provides an
       recover all investments in 6.3 years.
                                                          analytical alternative from the all-too-
      Students enjoy an attractive 16.9% annual          common “advocacy analyses” that inflate
       return on their investment of time and             benefits, understate costs, and thus
       money—for every $1 the student invests             discredit the process of higher education
       in ICC, he or she will receive a cumulative
       $3.46 in higher future earnings over the
                                                          impact assessment.
       next 30 years or so.

      The State of North Carolina benefits from
       improved health and reduced welfare,
       unemployment, and crime, saving the
       public some $1.9 million per year.


How do the Rutherford and Polk                            Four types of benefits are tracked: (1)
Counties Service Area economy and the                     regional economic benefits (contributions
State of North Carolina benefit from the                  to local job and income formation); (2)
presence of Isothermal Community                          higher earnings captured by exiting
College (ICC)? An obvious question                        students; (3) a broad collection of social
often asked, but rarely answered with                     benefits (improved health, reduced crime,
more than anecdotes. In this study,                       lower welfare, and unemployment); and
CCbenefits, Inc. applied a comprehensive                  (4) the return to taxpayers for their
economic model they developed with                        college support.
funding from the Association for
Community College Trustees (ACCT).
                                                          THE RESULTS
The model, which took over a year to
develop, was designed to capture and
                                                          For a more in-depth exploration of this
quantify the economic and social benefits
                                                          topic, the reader is encouraged to consult
of community and technical colleges. It
                                                          the Main Report, “The Socioeconomic
relies on data collected from individual
                                                          Benefits Generated by Isothermal
two-year colleges, and translates these
                                                          Community College,” containing the

                                                                        Executive Summary

detailed assumptions, their context, and        more robust Rutherford and Polk
the computation procedures.                     Counties Service Area economy. Based
                                                           on current enrollment,
                                                           turnover, and the growth of
                                                           instruction over time, the
                                                           local region workforce
                                                           embodies an estimated
                                                           853,100 credits of past and
                                                           present instruction (credit
                                                           and non-credit hours). The
                                                           accumulated contribution of
                                                           past and present ICC
                                                           instruction adds some $60.7
                                                           million in annual earnings to
                                                           the Rutherford and Polk
                                                           Counties Service Area
                                                           economy (equal to that of
 Regional Perspective—the                                 around 2,400 jobs).
    Isothermal Community College
    Economy                                      Student Perspective
ICC accounts for $73.6 million of all           The student’s perspective on the benefits
annual earnings in the Rutherford and           of higher education is the most obvious:
Polk Counties Service Area economy (see         he or she sacrifices tuition and current
map). The earnings explained by ICC are         earnings for a lifetime of higher earnings.
equal to that of roughly 2,900 jobs. The        For every credit completed, ICC students
earnings and job effects break down as          will, on average, earn $99 more per year
follows:                                        each year they are in the workforce.
                                                Alternatively, for every full-time year
    ICC Operations and Capital Spending        they attend they will earn an additional
ICC faculty and staff earnings generate         $2,970 per year. In the aggregate (all
additional incomes as they are spent.           exiting students), the higher earnings
Likewise, ICC operating and capital             amount to some $7.8 million per year for
expenditures generate still further             each year they remain in the workforce.
earnings. Altogether, these earnings
account for $12.9 million annually in the       From an investment standpoint, ICC
Rutherford and Polk Counties Service            students will enjoy a 16.9% rate of return
Area economy (equal to that of around           on their investments of time and money,
580 jobs).                                      which compares favorably with the
                                                returns on other investments, e.g., the
       Higher Earnings due to Past             long-term return on U.S. stocks and
        Instruction                             bonds. The corresponding benefit/cost
Each year students leave ICC and join or        ratio (the sum of the discounted future
rejoin the local workforce. Their added         benefits divided by the sum of the
skills translate to higher earnings and a       discounted costs) is 3.5, i.e., for every $1

                                                                        Executive Summary

the student invests in ICC education, he              Reduced Crime
or she will receive a cumulative of $3.46        Studies show that incarceration drops
in higher future earnings over the next 30       with each year of higher education. In the
years or so. The payback period (the time        Rutherford and Polk Counties Service
needed to recover all costs) is 7.8 years.       Area, about 27 fewer individuals will be
                                                 incarcerated per year, resulting in annual
      Taxpayer Perspectives                     savings of $240,400 (combined savings
State and local government spent $8.4            from reduced arrest, prosecution, jail, and
million in support of ICC during the             reform costs). Reductions in victim costs
analysis year. Is this a good use of             (e.g., property damage, legal expenses,
taxpayer money? Our analysis indicates           lost workdays, etc.) result in savings of
that the answer is a resounding yes:             $264,800 per year. Finally, that people are
returns far outweigh the costs,                  employed rather than incarcerated adds
particularly when a collection of social         $79,000 of earnings per year to the
savings is included in the assessment.           economy.
For example, persons with higher
education are less likely to smoke or                Reduced Welfare/Unemployment
abuse alcohol, draw welfare or                   There will be around 104 fewer people on
unemployment benefits, or commit                 welfare, and 30 fewer drawing
crimes. This translates into associated          unemployment benefits per year, saving
dollar savings (avoided costs) amounting         some $490,200 and $298,400 per year,
to some $24 per credit per year, counted         respectively.
as an indirect benefit of ICC education.
When aggregated across all exiting                     Taxpayer Return on Investment
students, the State of North Carolina will       The return on a year’s worth of state and
benefit from $1.9 million worth of               local government investment in ICC is
avoided costs per year, broken down as           obtained by projecting the associated
follows:                                         educational benefits into the future,
                                                 discounting them back to the present,
     Improved Health                            and weighing these against the $8.4
Employers in the Rutherford and Polk             million state and local taxpayers spent
Counties Service Area will see health-           during the analysis year to support the
related absenteeism decline by                   college. The analysis is based on the
approximately 3,446 days per year, with a        portion of ICC operations that is wholly
corresponding annual dollar savings of           dependent on state and local government
$266,000. The state will benefit from the        support. Two investment perspectives
health-related savings of roughly 17             are possible, one broad and one narrow.
fewer smokers and 23 fewer alcohol
abusers. The corresponding dollar                     Broad Perspective
savings are $49,200 and $182,900 per             Taxpayers expect their annual investment
year, now and into the future (these             in ICC to result in higher lifetime
savings include insurance premiums, co-          earnings for students and social savings
payments and deductibles, and                    from lifestyle changes (reduced crime,
withholding for Medicare and Medicaid).          welfare and unemployment, and

                                                                         Executive Summary

improvements in health). From a broad              to or just greater than 1, or a rate of
investment perspective, the value of all           return equal to or just greater than the
future earnings and associated social              4.0% discount rate used in this analysis)
savings is compared to the year’s worth            would be a most favorable outcome,
of state and local taxpayer support that           certainly one that justifies continued
made the benefits possible. Following              taxpayer support of the college. For ICC,
this procedure, it is estimated that ICC           the narrow perspective results greatly
provides a benefit/cost ratio of 18.8, i.e.,       exceed the minimum expectations. The
every dollar of state or local tax money           results indicate strong and positive
invested in ICC today returns a                    returns: a rate of return of 21.0%, a
cumulative of $18.82 over the next 30              benefit/cost ratio of 3.0 (every dollar of
years.                                             state or local tax money invested in ICC
                                                   today returns $2.99), and a short payback
     Narrow Perspective                           period of only 6.3 years.
The narrow perspective limits the benefit
stream to state and local government
budgets, namely increased tax collections
and expenditure savings. For example, in
place of total increased student earnings,
the narrow perspective includes only the
increased state and local tax receipts from
those higher earnings. Similarly, in place
of overall crime, welfare, unemployment
and health savings, the narrow
perspective includes only those portions           CONCLUSION
that translate to actual reductions in state
and local government expenditures.                 The results of this study demonstrate that
                                                   ICC is a sound investment from multiple
Note here that it is normal for the state          perspectives. The college enriches the
government to undertake activities                 lives of students and increases their
wanted by the public, which are                    lifetime incomes. It benefits taxpayers by
unprofitable in the marketplace. This              generating increased tax revenues from
means that positive economic returns are           an enlarged economy and reducing the
generally not expected from government             demand for taxpayer-supported social
investments. From the narrow taxpayer              services. Finally, it contributes to the
perspective, therefore, even a small               vitality of both the local and state
positive return (a benefit/cost ratio equal        economies.

                                                                                               Executive Summary
                                              Benefits at a Glance
         Regional Analysis                                                                  Regional Impact
         Regional Economic Development
           Increment from ICC operations                                                       $12,905,000
           Increment from past student productivity                                            $60,663,000
           Total                                                                               $73,568,000
           Job equivalent                                                                             2,932
         Annual Benefits
           Higher earnings
             Aggregate (all students)                                                            $7,771,688
             Per Credit                                                                                 $99
             Per full-year equivalent student                                                        $2,970
           Social savings
             Aggregate (all students)                                                           $1,870,914
             Per Credit                                                                                $24
             Per full-year equivalent student                                                         $715
         Investment Analysis                                   RR            B/C Ratio      Payback (Years)
           Students                                           16.9%             3.5              7.8
           Taxpayers: Broad Perspective                        NA              18.8               NA
           Taxpayers: Narrow Perspective                      21.0%             3.0              6.3

      College Role in Regional Economy, % of All Earnings                                        In sum, the
              Accounted for by College Operations                                                college accounts
                                                                                                 for $73.6 million
                                   13.1%                                                         of all regional
                                                                                                 earnings. The
       27.6%                               4.4%                                                  graph on the left
                                                                                                 shows the
                                                                                                 breakdown of
                                                                                                 these earnings in
                                                              College Operations Direct
                                                                                                 terms of college
                                                              College Operations Indirect
                                                                                                 operations and
                                                              Past Student Direct
                                                                                                 past student
                                                              Past Student Indirect

This short summary report is one of six products generated for this impact study. In addition, one long report
intended for economists and college institutional researchers (98 pp) lays out the detailed assumptions and analysis.
Another report (10 pp) provides detailed tabular results by gender, ethnicity, and entry levels of education, and a
one-page fact sheet contains highlights of the study results at a glance. The study also includes a one-page write-up
in layman’s terms about the differences between the broad and narrow taxpayer perspectives. Lastly, a PowerPoint
presentation is developed showing the main results for college presidents to adapt and use in speeches before state
legislators and other education stakeholders.


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