Overview of the Economic Impact Study
A Century of Service to the Region
What is a fitting way to celebrate one hundred years of service? Kent State University, Northeast Ohio’s number one producer of college graduates and Ohio’s third largest research university, decided to take a new look at itself.
The university commissioned a comprehensive study to assess its impact on the economy and quality of life in Northeast Ohio. The study, Prosperity by Degrees: The Economic Impact of Kent State University on Northeast Ohio, was conducted by the national research firm, Economic Modeling Specialists Inc. (EMSI). It examines Kent State’s eight-campus system, which spans 12 counties in Northeast Ohio. The results of this study demonstrate that Kent State is a sound investment from multiple perspectives:
- The university 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 taxpayer-supported social services; and
- It contributes to the vitality of both the local and state economies.
Kent State University is the third largest university system in Ohio, comprising a central residential campus in Kent and seven smaller, demographically diverse Regional Campuses spread across the northeast portion of the state.In 2010, Kent State will celebrate its centennial anniversary, having been a vital resource to Ohio throughout its 100-year history. Today the university continues to serve students and area residents by creating an intellectual and cultural atmosphere and making the region a more interesting and attractive place to live.
In this study, EMSI applies a comprehensive impact model designed to quantify the economic benefits of education and translate these into common sense benefit/cost and investment terms. The study includes two major analyses:
- 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.
- Economic growth analysis: Measures the added income created in the Northeast Ohio economy due to Kent State payroll and purchases, the spending of students and visitors from outside the region, and the productivity effects of Kent State alumni in the Northeast Ohio workforce.
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 income. Associate degree graduates earn $11,080 more each year, on average, than the typical high school graduate. The difference between the average earnings of a high school graduate and that of someone with a bachelor's degree is even greater, equal to $30,240 in higher income.
From an investment standpoint, Kent State students enjoy a 14.4 percent 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 4.8, i.e., for every $1 students invest in Kent State education, they receive a cumulative amount of $4.80 in higher future income over their working careers. This is a real return that accounts for any discounting that occurs during the entire time horizon. The payback period is 10.4 years.
Social Perspective: From the perspective of society as a whole, the benefits of education accrue to different publics, whether students, businesses or taxpayers. For example, students benefit from higher earnings, while the public at large enjoys benefits associated with an expanded economic base. In addition, the public benefits from a variety of external social benefits such as reduced tobacco and alcohol abuse, lower welfare and unemployment, and reduced crime.
Kent State alumni expand the state's economic base through their higher incomes, while the businesses that employ them also become more productive through the added skills of the alumni. All together it is estimated that the activities of Kent State’s 2007–08 alumni population will contribute a total of $268.3 million in taxable income to the Ohio economy by the midpoint of the alumni careers.
Persons with higher education are also less likely to smoke or abuse alcohol, receive welfare or unemployment benefits, or commit crimes. This translates into associated dollar savings (avoided costs) to the public, counted as an indirect benefit of Kent State education. When aggregated across Kent State's 2007–08 alumni population, avoided social costs to the public will amount to $34.7 million by the midpoint of the working careers of the alumni. These benefits accrue for years into the future, for as long as alumni remain active in the workforce.
To compare benefits to costs, we project the benefits into the future, discount them back to the present, and weigh them against the $141.3 million that state and local taxpayers spent in FY 2007–08 to support Kent State. Following this procedure, it is estimated that Kent State provides a benefit/cost ratio of 19.1, i.e., every dollar of state and local tax money invested in Kent State today returns to the public a cumulative amount of $19.10 over the course of the students’ working careers, in terms of added income and avoided social costs.
Note here that government often undertakes activities needed by the public, but which may be 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 greater than 1, or a rate of return equal to or greater than the 4 percent discount rate used in this analysis) would be a favorable outcome. For Kent State, the narrow perspective results greatly exceed the minimum expectations.
Economic Growth Analysis
Kent State promotes economic growth in Northeast Ohio in a variety of ways. The university is a major employer and a buyer of goods and services. Many of Kent State’s students and visitors also bring new monies that would not otherwise enter the economy. In addition, Kent State is the largest producer of post-secondary degrees in the region, making it a primary source of education to area residents and a supplier of trained workers to local industry.
Kent State affects the local economy in four ways:
- Through a human capital effect stemming from an increase in the skill base of the local workforce;
- Through the spending of visitors from outside the region;
- Through the off-campus spending of nonlocal students; and
- Through its payroll and purchases for supplies and services.
These effects break down as follows:
Alumni Productivity Effect: Each year students leave Kent State and join or rejoin the local workforce. Their added skills translate to higher income and a more robust Northeast Ohio economy. Based on Kent State's historical enrollment and credit production, it is estimated the accumulated contribution of Kent State instruction added some $1.6 billion in income to the regional economy in FY 2007-08.
Student Spending Effect: An estimated 16.3 percent of Kent State students came from outside Northeast Ohio in FY 2007–08. Out-of-region students spend money for room and board, transportation, entertainment and other miscellaneous personal expenses. These expenditures create jobs and incomes for local businesses. The off-campus spending of Kent State's out-of-region students generated approximately $45.3 million in added income in the Northeast Ohio economy.
Operations Effect: Kent State 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 Kent State, it is estimated that the Northeast Ohio economy receives approximately $292.4 million in added income due to Kent State operations spending.
About the Full Study: This report summarizes the results from “Prosperity by Degrees: A Centennial Analysis of the Economic Impact of Kent State University,” detailing the role that the university plays in promoting economic development, enhancing students’ careers, and improving quality of life. Data sources include, but are not limited to, 2007–08 academic and financial reports from Kent State, EMSI's labor market and industry data, and a variety of studies and surveys linking education to social behavior.