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Economic Contribution

Executive Summary    The Economic Contribution of Lone Star College System

Socioeconomic Impact (SEIM) Study
Study Highlights

•Students enjoy an attractive 18% annual return on their investment of time and money.
• For every $1 students invest in LSCS, they receive a cumulative $6.60 in higher future
earnings over the course of their working careers (after discounting).
• Taxpayers see a real money return of 11% on their annual investments in LSCS.
• The State of Texas benefits from improved health and reduced welfare, unemployment,
and crime, saving the public some $18.4 million per year each year that students are in
the workforce.
• The LSCS Service Area economy receives roughly $2.2 billion in regional income each
year due to LSCS and its students. This figure amounts to roughly 0.8% of the area's
total annual income.

Executive Summary brochure (.pdf)
 

 

Introduction
How do the LSCS Service Area economy and the State of Texas benefit from the presence of Lone Star College System (LSCS)?

This question, though obvious and often asked, is rarely answered with more than anecdotes. In this
study, CCbenefits applies a comprehensive economic model designed to quantify the economic
benefits of community and technical colleges and translate these into common sense benefit/cost
and investment terms. The study includes two major analyses:

1. Regional Economic Growth Analysis: Measures added regional income due to the daily activities of the System, student spending,and the cumulative effects of the System's past students in the workforce.

2. Investment Analysis: Treats education funding as an investment, calculating all measurable returns and comparing them to costs, from the perspectives of students, taxpayers, and society as a whole.
The economic impact model has been subjected to peer review and field-tested to generate more than 700 studies for community and technical colleges throughout the U.S. and Canada. Model results are based on solid economic theory, carefully drawn functional relationships, and a wealth of national and local education-related data.

The Results
For an in-depth discussion of the results, the reader is encouraged to consult the main report, "The Economic Contribution of Lone Star College System," containing detailed assumptions, context, and calculations.

Economic Growth Analysis
LSCS affects the local economy in three ways: 1) through its local purchases, including wages paid to faculty and staff, 2) through the spending of students who come from outside the region, and 3) through a human capital effect stemming from an increase in the skill base of the local workforce.

These effects break down as follows:
LSCS Operations Spending
LSCS creates regional income through the earnings of its faculty and staff, as well as through its
own operating and capital expenditures. Adjusting for taxes and other monies withdrawn from the local economy in support of LSCS, it is estimated that the present-day LSCS Service Area economy receives roughly $110.3 million in labor and non-labor income each year due to LSCS operations and capital spending.

Student Spending
About 7% of LSCS's students come from outside the LSCS Service Area (net of long distance students who are not physically present in the region while attending). Out-of-region students spend money to buy books and supplies, while those who move to the area rent apartments, purchase food, pay for transportation, attend sports events, and so on. These expenditures create jobs and incomes for local businesses. It is estimated that the spending of LSCS's out-of-region students generates around $459,900 each year in regional income
in the LSCS Service Area.

Past Student Productivity
Each year students leave LSCS and join or rejoin the local workforce. Their added skills translate to higher income and a more robust LSCS Service Area economy. Based on current enrollment,turnover, and the growth of instruction over time, the regional workforce embodies an estimated 5.3 million credits of past and present instruction. The accumulated contribution of LSCS instruction adds some $2.1 billion in regional income to
the current economy of the LSCS Service Area. In sum, LSCS contributes a total of $2.2 billion in
regional labor and non-labor income to the LSCS Service Area economy each year.

Investment Analysis
Student Perspective
Benefits of higher education are most obvious from the student perspective: students sacrifice current earnings (as well as money to pay for tuition) in return for a lifetime of higher earnings. For every credit completed, LSCS students earn, on average, $189 more per year each year they are in the workforce. Compared to someone with
a high school diploma, Associate Degree graduates will see an increase in earnings of around $627,800 over the course of a working lifetime. Aggregate higher earnings for all exiting students amount to some $185.3 million per year for each year they remain in the workforce. From an investment standpoint, LSCS students enjoy a 18% rate of return on their investments of time and money. This compares favorably with returns on other investments, e.g., long-term return on U.S. stocks and bonds. The corresponding benefit/cost ratio is 6.6, i.e., for every $1 students invest in LSCS education, they receive a cumulative of $6.60 in higher future earnings over their working careers. This is a real return that accounts for any discounting that occurs during the entire
period. The payback period is 8 years.

Social Perspective
From the perspective of society as a whole, the benefits of education accrue to different publics, whether students, homeowners, businesses, or taxpayers. For example, students benefit from higher earnings, while the public at large enjoys benefits associated with an expanded economic base plus a variety of external social benefits such as reduced substance abuse, lower welfare and unemployment, and reduced crime.

In terms of added income, students expand the economic base of the state economy through their added skills, which serve to make them and the businesses that employ them more productive. All  in all, it is estimated that the activities of LSCS's current students contribute a sum total of $222.9 million in taxable income to the Texas economy each year (in the aggregate).

Persons with higher education are also less likely to smoke or abuse alcohol, draw welfare or unemployment
benefits, or commit crimes. This translates into associated dollar savings (avoided costs) amounting to some $19 per credit per year, counted as an indirect benefit of LSCS education. When aggregated across all exiting students, the State of Texas benefits from $18.4 million worth of avoided costs per year, each year that students are in the workforce. Social savings, also called "externalities," break down as follows.

Improved Health: Employers in the State of Texas see health-related absenteeism decline by 20,000 days per year, with a corresponding annual dollar savings of approximately $3.0 million. The state benefits from health-related savings of roughly 970 fewer smokers and 240 fewer alcohol abusers. Corresponding dollar savings are $2.9 million and $1.7 million per year, now and into the future future (these savings include insurance premiums, co-payments and deductibles, and withholding for Medicare and Medicaid).

Reduced Crime: Incarceration drops with each year of higher education. In the State of Texas, about 660 fewer individuals will be incarcerated, resulting in annual savings of $4.3 million (combined savings from reduced arrest, prosecution, jail, and reform costs). Reductions in victim costs (e.g., property damage, legal expenses, lost workdays, etc.) result in savings of $1.4 million per year. Finally, that people are employed rather
than incarcerated adds $3.3 million of earnings per year to the economy.

Reduced Welfare/Unemployment: There will be about 1,140 fewer people on welfare and 350 fewer drawing unemployment benefits per year, saving some $1.4 million and $360,000 per year, respectively.  All of these benefits accrue for years out into the future, as long as students remain in the workforce and contribute to the growth and development of the state economy. The return on a year's worth of government funding in LSCS is obtained by projecting the associated educational benefits into the future, discounting them back to the present,
and weighing these against the $160.3 million state and local taxpayers spent during the analysis year to support the System.

Following this procedure, it is estimated that LSCS provides a benefit/cost ratio of 26.7, i.e., every dollar of state and local tax money invested in LSCS today returns a cumulative of $26.70 over the course of the students'  orking careers, in terms of added income and avoided social costs. This is a real return, accounting for any discounting that may occur during the time horizon. The nominal return would be significantly higher.

Taxpayer Perspective
The taxpayer perspective limits the benefit stream to state and local government budgets, namely, increased tax collections and reduced government expenditures. For example, in place of total increased income, the narrow perspective includes only the increased state and local tax receipts from those higher incomes. Similarly, in place of overall crime, welfare, unemployment and health savings, the narrow perspective includes only those
portions that translate to actual reductions in state and local government expenditures. Note here that it is normal for the state government to undertake activities wanted by the public, but which are unprofitable in the marketplace.  This means that positive economic returns are generally not expected from government investments.

From the narrow taxpayer perspective, therefore, even a small positive return (a benefit/cost ratio equal to or just greater than 1, or a rate of return equal to or just greater than the 4% discount rate used in this analysis) would be a favorable outcome, certainly one that justifies continued taxpayer support of the System. For
LSCS, the narrow perspective results greatly exceed the minimum expectations. The results indicate strong and positive returns: a rate of return of 11% and a benefit/cost ratio of 2.9 (every dollar of state or local tax money invested in LSCS today returns $2.90).

Conclusion
The results of this study demonstrate that LSCS is a sound investment from multiple perspectives.
The System enriches the lives of students and increases their lifetime incomes. It benefits taxpayers by
generating increased tax revenues from an enlarged economy and reducing the demand for taxpayersupported
social services. Finally, it contributes to the vitality of both the local and state economies.

About the Full Study
This short summary is one of ten documents that comprise the full impact study. The long report
("Volume 1: Main Report"), intended for economists and college institutional researchers, lays out
the detailed assumptions and analysis. Another report ("Volume 2: Detailed Results") provides detailed
tabular results by gender, ethnicity, and entry levels of education. Several fact sheets highlight
the results from key perspectives: General Overview, Business Perspective, Social Perspective, Taxpayer
Perspective, Broad vs. Narrow Taxpayer Perspective, and Student Perspective. Lastly, a PowerPoint presentation
shows the main results in a brief, conference-friendly format.

About EMSI/CCbenefits Inc.
EMSI/CCbenefits Inc. is a leading provider of socioeconomic impact and strategic planning tools to
community and technical colleges in the United States and Canada. Visit us at http://www.economicmodeling.com for more information. To see full documentation of the study, please contact the System.