(14) Economic Impact of FSU

2014

The Economic Impact of

Newly Remodeled Rudolph Jones Student Center

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Fayetteville State University Economic Impact Study

CONTENTS Introduction.........................................................................................................................4 Scope of Study...................................................................................................................4 FSU’s Total Economic Impact on Cumberland County 2012 - 2013..................................5 Taxpayers............................................................................................................5 FSU Economic Impact by Components.............................................................................6 University Expenditures 2012 - 2013..................................................................6 Operational Expenditures.......................................................................6 FSU Payroll Economic Impact............................................................................................7 FSU Non-Payroll Expenditures Economic Impact..............................................................9 Construction Expenditures Economic Impact.....................................................................11 Non-University Expenditures 2012--2013..........................................................................12 Total Economic Impact of Student Non-Educational Spending 2012 – 2013.....12 Alumni.................................................................................................................13 Human Capital Impacts......................................................................................................13 Earnings of FSU Graduates................................................................................11 Cost of FSU Education........................................................................................16 Return on Investment..........................................................................................17 Cumberland County...............................................................................18 State of North Carolina...........................................................................18 Tax payers..............................................................................................18 Methodology and Assumptions..........................................................................................20 References.........................................................................................................................22 About the School of Business and Economics...................................................................23 About the Researchers.......................................................................................23

Fayetteville State University Economic Impact Study

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Introduction

Fayetteville State University, the state’s second oldest institution, is a constituent institution of the 17 member University of North Carolina System. With a total Fall 2013 enrollment of 6,179 students, including 5,287 undergraduates, the University is comprised of four schools and colleges serving undergraduate and graduate students in more than 40 majors. FSU is one of the most diverse institutions in the UNC System. The University promotes educational, social, cultural, and economic transformation throughout southeastern North Carolina and beyond. It focuses particularly on providing opportunities for historically underserved communities, opportunities for veterans, and opportunities for active duty military personnel and their dependents associated with nearby Fort Bragg. As one of the top 10 employers in Cumberland County, the economic impact and contributions of the University are significant in both the Cumberland County region and state of North Carolina. In 2012-2013, FSU managed an operating budget of $108.2 million, employed 899 full-time and part-time faculty and staff, and graduated 1,185 students.

The economic impact of Fayetteville State University on the Cumberland County region is quantified through an objective analysis performed by faculty members in the FSU School of Business and Economics. The analysis identifies direct, indirect, and induced economic contributions that the University makes to the local, regional, and state economy. The reported contributions are based on a sound and well-documented economic impact model (2014 Minnesota IMPLAN), which produces economic impact multipliers that reflect the University’s geographical location. The outcomes reflected in this report clearly demonstrate that Fayetteville State University and its 2012-2013 graduates greatly enhance the economy of Cumberland County and the State of North Carolina.

Scope of Study

James A. Anderson, Chancellor

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This study begins by measuring the economic impact of the total FSU operational budget and then adds the effect of those components not included in the operational budget such as student non-educational expenditures and the enhanced earnings of alumni. This analysis also summarizes the impact by major budget components to provide insight into how each component has a far reaching effect on the local economy. The breakdown of economic impact by components allows us to distill from the overall economic impact the temporary, short term, long term and permanent effects. Economic impact is also analyzed from the perspectives of the major stakeholders: taxpayers, students, the local community, and the State of North Carolina.

Fayetteville State University Economic Impact Study

FSU’s Total Economic Impact on Cumberland County 2012 - 2013 • • • • • • • •

$153.8 million in total output 2,210 jobs created $104.4 million in labor income $134.4 million in Gross Regional Product (GRP) $154.6 million in incremental salary value of alumni $490.9 million in value added human capital $5.5 million in taxes1 $658,000 in faculty/student volunteer hours

For every $1 in state appropriations, FSU: • Generated $1.80 in additional dollars • Returned $2.27 in enhanced GRP For 2012-13 FSU graduates residing in Cumberland County, the estimated present value of incremental lifetime earnings is $490,944,606 or a return of $5.64 for each dollar invested in their education. The incremental lifetime earnings of these graduates also represent a return of: • $16.22 for each dollar of state funds appropriations • $54.30 for each dollar of federal funds appropriations.

Taxpayers The $15.8 million federal appropriation will generate an estimated $862,465,405 million in incremental life time earnings for all 2012-13 graduates. This translates into: • An annual rate of return of 15.1% to taxpayers • $54.88 for every dollar of federal funds expended North Carolina taxpayers expended $49,599,966 during 2012-13 to educate state residents at FSU. The estimated present value of the incremental lifetime earnings of the 2012-13 FSU graduates who were residents of the State of North Carolina is estimated at $800,924,713 million. This equates to: • An annual rate of return of 11.5% to taxpayers • $16.15 for each dollar of state funds expended

Table 1: Summary of Economic Impact Employment

Labor Income

GRP

Operational Expenditures

2,081

$100,345,043

$128,655,681

$144,638,685

Student Expenditures

129

$3,843,941

$5,760,334

$ 9,154,929

2,210

$104,197,984

$134,416,015

Total Economic Impact

Alumni Salary Value

$154,633,984

Total Output

$153,793,614

Copyright IMPLAN Group, Inc.

1. Includes federal, state, and local taxes, but excludes property taxes

Fayetteville State University Economic Impact Study

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Lyons Science Building

FSU Economic Impact by Components University Expenditures 2012 - 2013 Operational Expenditures The University’s operational budget during the 2012-2013 academic year was $120,981,7432 (including construction expenditures). The economic impact of Fayetteville State University (FSU) is measured by the direct, indirect and induced effects of its operational budget on the Cumberland County community. The direct impact occurs when FSU spends money on construction and purchases of goods and services. The indirect impact occurs because of the backward supply chain; when the companies from which the University buys goods and services use the payments from the university to buy equipment, supplies, pay utility bills, telephone services and pay their employees. Further ripple or induced impacts are created when the income received

by the employees of supplying companies and university employees is spent on purchasing goods and services.

Summing up the direct, indirect and induced effects provides an estimate of the economic impact of the university on the Cumberland County economy and beyond. Gross Regional Product (GRP) represents the market value of all final goods and services produced by all firms and provide one measure of the impact of the university’s economic activities. The output impact includes values of sales (+ or - inventories), total value of purchases by consumers and intermediate users, intermediate outlays, and value added. Since the output impact includes the intermediate outlays, it is always more than the value added.

Lyon Science Annex 2. The $3,369,532 in depreciation was deducted because this money was not spent during the academic year.

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Fayetteville State University Economic Impact Study

Total Impact of Operational Budget Spending 2012-2013 • • • • •

$144.6 million in total output 2,082 full-time job equivalents $100.4 million in labor income $128.7 million in Gross Regional Product $1.9 million in state and local taxes (excludes property taxes)

Table 2 details the direct, indirect, and induced economic effects of the operational budget spending.

Table 2: Direct, Indirect, and Induced Effects of Operational Expenditures Impact Type

Employment

Labor Income

Total Value Added

Output

Direct Effect

1,770

$89,936,201

$112,128,004

$112,128,004

Indirect Effect

11

$392,693

$740,188

$1,168,439

Induced Effect

301

$10,025,149

$20,579,115

$31,342,243

2,082

$100,354,043

$128,655,681

$144,638,686

Total Effect IMPLAN Group, Inc.

In 2012-2013, FSU contributed $128,655,680 to the Gross Regional Product of Cumberland County, supported 2,082 FTE jobs, and increased labor income by slightly over $100 million. For every dollar the state of North Carolina contributed to the University’s budget, FSU created an additional $2.27 in increased GRP. FSU contributed $1,894,129 in taxes on production and imports, $2,818,576 on household income taxes, and $159,506 in corporate taxes. Beyond the impact on taxes, industries/sectors that were major beneficiaries of additional employment generated by the FSU operational budget were retail stores and restaurants, real estate establishments, and health care practitioners.

FSU Payroll Economic Impact As the 9th largest employer in Cumberland County, Fayetteville State employs 899 faculty and staff members.

In addition, it provides part-time employment to 497 students. Employee compensation (including benefits and excluding student wages) averages $79,450. FSU’s location in Cumberland County raises both the average and median wage of the county as a whole.

Fayetteville State University Economic Impact Study

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Total Economic Impact of 2012 -2013 Payroll Expenditures for Cumberland and Wake Counties • • • •

$88.4 million in economic activity 1,299 jobs $63.0 million in labor income $80.3 million in Gross Regional Product

Although 75 percent of FSU employees live in Cumberland County, the remaining 25 percent are dispersed throughout many surrounding counties. Accordingly, the economic impact of FSU’s $66,870,614 payroll is spread far beyond where the University is located. For example, FSU pays approximately $2,000,000 to employees who live and spend their income in Wake County. Also, the effects of income earned and spent in Cumberland County accrue not only to vendors in Cumberland County, but through backward supply chain linkages, to vendors in other parts of North Carolina. Considering the size of the FSU employees’ income spent in Wake County, we report its economic impact separately.

Tables 3 and 4 show that FSU’s 899 employees support 1,258 jobs in Cumberland County and approximately 41 jobs in Wake County. They add $61 million in additional labor income in Cumberland County and $2.6 million in Wake County. In addition, employees contribute $77.6 million and $2.6 million to the GRP of Cumberland and Wake counties respectively.

The tables below detail the impact of FSU’s payroll on Cumberland and Wake County.

Table 3: FSU Payroll Economic Impact (including student wages) on Cumberland County Impact Type

Employment

Labor Income

Total Value Added

Output

Direct Effect

1,775

$54,938,295

$65,110,945

$112,128,004

0

0

0

0

183

$6,095,738

$12,512,964

$19,057,382

1,258

$61,034,033

$77,623,909

$85,351,278

Indirect Effect Induced Effect Total Effect Copyright IMPLAN Group, Inc.

Table 4: FSU Payroll Economic Impact on Wake County Impact Type

Employment

Labor Income

Total Value Added

Output

Direct Effect

33

$1,644,604

$1,964,312

$2,000,000

Indirect Effect

0

0

0

0

Induced Effect

8

$369,303

$676,502

$1,014,715

Total Effect

41

$2,013,907

$2,640,814

$3,014,715

Copyright IMPLAN Group, Inc.

Southeastern North Carolina Nursing Education and Research Center

8

Equally impressive was FSU contributions to state and local taxes. Even though as a state entity, FSU pays no taxes, it nonetheless contributes indirectly to the local, state and corporate taxes when its suppliers, employees, and students purchase goods and services.

Through its employees, FSU contributed: • • •

$1,059, 102 in state and local sales taxes $1,772,277 in personal income taxes $97,627 in corporate income taxes

FSU Non-Payroll Expenditures Economic Impact FSU spent $29,117,113 on purchasing goods and services from businesses; many, if not all, of these businesses are located in Cumberland County3. The expenditures included office furniture, service contracts, equipment, computer hardware and software, and library books and periodicals.

Total Economic Impact of Non-Payroll Expenditures 2012 – 2013 • • • • •

37.0 million in economic activity 325 full-time job equivalents $12.5 million in labor income 22.1 million in Gross Regional Product 1.9 million in local and state taxes

Table 5 shows that FSU non-payroll expenditures have a significant economic impact on the Cumberland County economy.

It added 325 jobs, contributed $12.5 million to the labor income, and $22.1 million to the GRP of Cumberland County. The local and states taxes also increased by $1,867,000, household income taxes by $359,438, and $45,960 in corporate taxes.

In a similar fashion, the non-payroll expenditures accrue not only to local vendors, but also to all vendors who supply goods and services to FSU regardless of their location.

Table 5: Non-Payroll Spending Impact Impact Type

Employment

Labor Income

Total Value Added

Output

Direct Effect

233

$9,333,450

$16,061,322

$27,450,454

Indirect Effect

54

$1,922,220

$3,445,878

$5,640,225

Induced Effect

37

1,260,964

$2,588,874

$3,942,990

Total Effect

325

$12,516,634

$22,096,074

$37,033,669

Copyright IMPLAN Group, Inc.

Construction Expenditures Economic Impact During the academic year 2012-2013, FSU spent $12,803,743 on construction.

3. The depreciation amount was set aside because this amount was not spent during the academic year 2012-2013.

Also, student expenses and transfers were excluded to avoid double counting.

Fayetteville State University Economic Impact Study

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10

Science and Technology Building

Renaissance Hall

Total Economic Impact of Construction Activity 2012 – 2013 • • • • •

$16.4 million in total economic output 117.9 full-time job equivalents $5.3 million in labor income $7.2 million in Gross Regional Product $155,076 in state and local taxes

The output of goods and services related to construction increased by $16.4 million and the value added related to these expenditures amounted to $7.2 million. The construction activity created 118 full-time equivalent jobs, generated $255,327 in taxes on production and household income, and $155,076 in state and local taxes4. Five major industries impacted are food services, professional organizations, employment services, medical services, and wholesale and retail stores. Table 6 summarizes the construction expenditures impact on value added, employment, income and output.

Table 6: Construction Expenditure Impact Impact Type

Employment

Labor Income

Total Value Added

Output

Direct Effect

87.8

$4,222,672

$4,870,858

$12,803,742

Indirect Effect

13.8

$579,291

$1,200,602

$1,942,590

Induced Effect

67.2

$540,146

$1,109,073

$1,689,203

Total Effect

117.8

$5,342,109

$7,180,533

$16,435,535

Coypright IMPLAN Group, Inc.

4. The construction impact is temporary and will only last during the period of construction. However, once the buildings are completed, the operational expenses such as maintenance and utilities will continue to impact the economy of Cumberland County over the life of the buildings.

Fayetteville State University Economic Impact Study

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Non-University Expenditures 2012--2013 Collectively, the 6,060 students enrolled in the 2012-2013 academic year spent $15,686,400 on non-educational items.

These items include snacks, restaurants, transportation, parking fees, dry-cleaning, clothing, and other personal services5.

Total Economic Impact of Student Non-Educational Spending 2012 – 2013 • • • • •

$9.2 million in economic output 129 jobs created $3.8 million in labor income $5.8 million in Gross Regional Product $630,838 in state and local taxes

Table 7 shows that the impact of student spending increased the total value of goods and services produced in Cumberland County by $5,760,334, generated $3,843,941 in labor income, and created 129 full-time equivalent jobs.

Table 7: Student Non-Educational Spending Impact Impact Type

Employment

Labor Income

Total Value Added

Output

Direct Effect

104

$2,953,009

$4,051,207

$6,560,473

Indirect Effect

14

$498,843

$903,905

$1,368,004

Induced Effect

11

$392,089

$805,222

$1,226,453

Total Effect

129

$3,843,941

$5,760,334

$9,154,930

Copyright IMPLAN Group, Inc.

Major industries impacted by student spending include clothing and clothing accessories, personal services, gasoline stations, food services and drinking places, and general merchandise stores. The tax impact of student spending is also significant. The total state and local taxes paid on production and imports, to corporations, and household taxes (personal income, motor vehicle, and property taxes) were $508,063, $114,465 and $8,310 respectively.

Beyond the value of their earnings and spending, FSU faculty and staff contributed 1,936 volunteer hours to community organizations, with students adding another 1,901 hours in 2012. Students and teachers from the FSU School of Education contributed 26,000 hours to local public schools.

The total value of this volunteer time has been conservatively estimated at $658,000 based on the value of volunteer hours published by the organization Independent Sector.

Willis B. McLeod Hall

5. Per student expenses are obtained from the 2011-2012 survey of undergraduate, graduate, resident and non-resident (commuting) students. Per student average expenses are multiplied by the number of students to obtain an estimate of total student spending.

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Fayetteville State University Economic Impact Study

Alumni We also looked at the economic impact specifically in the 2012-13 fiscal year of all FSU graduates currently living in North Carolina. There are approximately 16,600 working age FSU graduates living in the state that FSU has helped launch onto productive career paths, with approximately 8,300 living in Cumberland County. Based on salary data provided by the US Department of Labor, it is estimated that the FSU education received by graduates living and working in North Carolina enabled them to increase their 2013 salaries by a total of $312.4 million over what they would have earned without their college education. The estimated 2013 incremental salary value added from FSU graduates was $154.6 million in Cumberland County alone.

Human Capital Impacts Earnings of FSU Graduates FSU contributes to the development of the human capital in NC through the training it provides to graduates who earn bachelor’s, master’s, and professional degrees. To assess the value of this contribution, we focus on the incremental value of a FSU education. We compute the life time income beyond what they would have earned without a FSU degree for the students that graduated during 2012-13 academic year.

extent that 84 percent of the cohort being examined earned undergraduate degrees, it lessens the effect of potential overstatement of incremental income. The earnings used in all computations are the median earnings (in constant 2012 dollars) for North Carolina population 25 years and over reported by U.S. Census Bureau. This population includes individuals with high school diplomas, bachelor’s degrees and graduate or professional degrees.

For the graduates with a bachelor’s degree, we compute the incremental income as the difference between the earnings of a graduate with a bachelor’s degree and the earning of an individual with high school completion. For those graduates with graduate or professional degrees we subtract the earnings for individuals with undergraduate degrees from the earnings for individuals with graduate or professional degrees. FSU does not graduate students in the highest professional degree income categories. However, to the

The composition of FSU graduates are predominantly women and the incremental wages vary by gender; therefore, we compute the dollar value of college education separately for females and males. The census data allowed us to distinguish between male and female in making our computations. We recognize that there are also differences in the level of earnings based on ethnicity, however, the census data we used did not make those distinction and not all of the FSU graduates are classified in one of the five

Fayetteville State University Economic Impact Study

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categories: White, Black, Hispanic, Asian, and Other6 used by the Census Bureau. Therefore, our computation did not account for any potential income differential related to ethnicity7.

The median age of FSU graduates with a bachelor’s degree is 28 years and for those with graduate or professional degrees is 34 years. Therefore to compute the number of years income is earned after graduation we use 67 minus the median age of graduates in each sub-group. We use 67 because according to the Social Security Administration for individuals born after 1960, the retirement age to receive full benefits is 67 years. Our computation presumes the graduates remain employed during the period up to their full social security retirement age. Next, the number of years income is earned is multiplied by the income differentials for each of the two degree groups. The final income figures are in fact present values since we assume that the wage inflation rate is equal to the discount rate. The applicable 30-year wage inflation rate is 3.79 percent8.

Table 8: Incremental Life Time Earnings of FSU 2012-13 Graduates in 2012 Dollars Number

Incremental Income

995

$770,012,440

FSU Undergraduate Master’s and Higher

190

$92,452,965

1,185

$862,465,405

Undergraduate

569

$440,338,772

Master’s and Higher

104

$50,605,833

Total

673

$490,944,606

946

$732,092,229

Total Cumberland County

North Carolina Undergraduate Master’s and Higher Total

146

$71,042,805

1,092

$803,135,034

Copyright IMPLAN Group, Inc.

6. Other is used to represent Native Hawaiians/Pacific Islanders, American Indians/Alaska Natives and persons of two or more races for which income and educational data did not meet the reporting standards of the U.S. Census Bureau.

Charles W. Chesnutt Library 7. The net effect should be minimal since we are working with differences instead of absolute earnings and we have differentiated between the earnings of males and females.

8. A number of recent impact studies have used 5 percent as the discount rate for future earnings; however, the 3.79 percent is more in line with the prevailing rates of return and more accurately reflects the risk to the expected future earnings stream. The annual yield on the 30-Year US Treasury is 3.45 percent and with the unemployment rate among those with bachelor’s or professional degrees at around 4 percent, the appropriate unemployment-risk-adjusted discount rate would be 3.59 percent. The resulting present value figures, therefore, account for possible unemployment among FSU graduates and are realistic with the caveat that future wage inflation mirrors that of the past 30 years.

Fayetteville State University Economic Impact Study

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Cumberland County FSU graduates will generate incremental income of $491 million while FSU graduates from all other North Carolina counties are expected to generate an additional $312 million.

Therefore, the anticipated total incremental value added to the state of North Carolina by 2012-13 graduates of FSU is $803 million.

Cost of FSU Education To determine the total cost of FSU education we assume five years for an undergraduate degree and 2 years for degrees at the level of graduate or professional. The total dollar cost of education gained by students at FSU consist of four components: out-of-pocket student expenditures (including loans), the opportunity cost in the form of lost income while a student is in school, state appropriations, and grants.

The direct costs include tuition, books, fees, housing, and meals.

These direct student costs are covered by of out-of-pocket student expenditures plus grant funds, which the students receive.

The direct student cost for a FSU education differs for in-state and out-of-state students; therefore, we factor that distinction into our computations. We also differentiate between undergraduate and graduate students since the fees also differ. Direct costs refer to expenditures for tuition, books, fees, room and board, and the oncampus meal plan for undergraduates and tuition, books, and fees for those enrolled in FSU’s part-time graduate or professional degree programs. The cost of housing and meals for on-campus expenses are used for all students, including those who do not live in university housing. All costs are adjusted by the average annual inflation rate over the period the students were enrolled at FSU, five year for undergraduates and two years for those with graduate or professional degrees. Direct costs for in-state and out-of-state students are computed separately because of the differential in the fees charged to these groups. The total direct costs are obtained by summing the inflation adjusted figures over five and two years for undergraduates, and those with master’s and professional degrees respectively. Student directs costs are subsidized by grants provided by the State of North Carolina, the Federal Government, and other non-government sources. Therefore, to arrive at the out-of-pocket direct costs to students we subtract the grant funds from the direct costs.

State appropriations are allocated to all students, state grants are allocated to in-state students, and federal grants to undergraduate students. For each year, the state appropriations are divided by the number of students enrolled for the fall semester of the academic year to arrive at the annual appropriation per student. For example, during the 2012-2013 fiscal year state appropriations totaled $49,782,641 and enrollment was 6,060. With a total of 1,185 graduates for the year, a total of $9,734,728 is attributable to these graduates. Similar allocations are made for each year those graduates were a student at FSU. Analogous computations were made for grants extended to the students while they pursued their degrees at FSU. 16

Fayetteville State University Economic Impact Study

Table 9: Cost of Degrees Earned by Graduates of FSU 2012-13 Academic Year Number

Incremental Income

Undergraduate

995

$144,047,875

Master’s and Higher

190

$12,258,375

1,185

$156,306,250

Undergraduate

569

$80,848,123

Master’s and Higher

104

$6,199,859

Total

673

$87,047,982

Undergraduate

946

$134,415,331

Master’s and Higher

146

$8,703,649

1,092

$143,118,980

FSU

Total Cumberland County

North Carolina

Total 2014 Minnesota IMPLAN Group, Inc.

Opportunity costs are the lost wages that students would have earned if they were not attending college. For undergraduate students we assume they would be earning North Carolina minimum wage, and for those in a graduate program we assume they would be earning the North Carolina median wage for individuals with a bachelor’s degree during the time they were enrolled at FSU. Fifty six percent of undergraduates at FSU worked either part-time or full-time and 85 percent of students enrolled in the graduate programs worked either part-time or full-time. To arrive at the opportunity cost we subtract their earnings while attending FSU from what they would have earned if they all remained full-time employees. Since all the U.S. Census Bureau reported earnings are in current dollars they are all adjusted by an appropriate inflation rate to get 2012 dollars for the total opportunity cost. The sum of out-of-pocket direct costs, opportunity costs, state appropriations, and grants yield the total cost for education at FSU for both undergraduate and graduate degrees9.

Return on Investment To provide further insight into the value of the education provided by FSU, the returns to various stakeholders are computed by dividing the present value of the incremental earnings of FSU 2012-13 graduates by the respective costs associated with earning those degrees. The per-dollar returns are supplemented with returns to each stakeholder group expressed in terms of an annual percentage.

9. The net annual out-of-pocket cost to in-state students who graduated with a bachelor’s degree from FSU is $6,207 and $18,396 for out-of-state students. The comparable figures for those students who graduated with a master’s or professional degree are $4,760 and $16,722 respectively. The net annual costs for master’s or professional degrees are lower because the cost represents only tuition, books, and fees while the costs for undergraduate degrees include housing and meals.

Fayetteville State University Economic Impact Study

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To interpret what the percentage rates of return purport for taxpayers, the incremental income earned by graduates must be construed as the incremental value of their contribution to the gross output of the state or national economy.

Cumberland County The incremental value in earning accruing to the 673 Cumberland County residents who graduated from FSU is $490,944,606 at a total cost of $87,047,982, which translates into a return of $5.64 for each dollar invested in their education. The return to students per dollar inclusive of the opportunity cost is $10.39. The return per dollar of state expenditures on FSU graduates from Cumberland County is $16.22, and the return per dollar of federal appropriations is $54.30.

State of North Carolina For the entire state of North Carolina the present value of incremental income attributed to FSU graduates total $803,135,034 on a total investment in state appropriations and grants of $49,799,461, resulting in a return to the state of $16.13 for every dollar of the state funds expended on NC residents who graduated from FSU. The return to NC residents who graduated from FSU during the 2012-13 academic year is $10.36 per dollar, inclusive of the opportunity cost.

Table 10: Return on Investment - Lifetime Incremental Earnings of 2012-13 Graduates Stakeholders

Per $ Invested

Annual rate of Return

Cumberland County Graduates

$10.39

10.2%

North Carolina Graduates

$10.36

10.2%

NC Taxpayers

$16.13

11.5%

Federal Taxpayers

$54.55

15.1%

Copyright IMPLAN Group, Inc.

Taxpayers The benefits that accrue to taxpayers may be assessed in two distinct ways. First, as the added economic output generated by the graduates, as measured by the present value of the incremental income; and secondly, as the additional taxes generated by these earnings. Matching these benefits against the respective costs provides a means for assessing the returns on tax payer investment.

The total federal appropriations of $15.8 million is associated with $862.5 million in the incremental life time earnings of FSU graduates, a return of $54.55 for every dollar of federal grant dollars, which translate to a 15.1% annual rate of return to the taxpayers. North Carolina taxpayers expended $49.8 million to educate residents at FSU. The incremental life-time earnings of these residents is expected to be $803.1 million; equivalent to 11.5% annual rate of return10.

10. The present value of incremental income is compounded over the average number of years-to-retire for graduates using the wage inflation rate to determine future values.

The annual rate that equates this future value to the total costs to each stakeholder group yields the return on investment for that stakeholder group.

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Return to taxpayers for funds invested in educating FSU graduates may also be assessed from the perspective of taxes paid by graduates on their incremental life time incomes. The taxes paid by graduates consist primarily of property, sales, and income taxes. Here we focus only on the income tax portion, which we were able to estimate based on the life-time incremental income. For state taxes we use 6 percent as the average North Carolina income tax rate and 12 percent for federal income taxes11. North Carolina taxpayers are expected to receive $0.97 in income taxes for every dollar appropriated; presuming these graduates remain in North Carolina during their working years. In addition, FSU 2012-13 graduates are expected to pay $6.55 in federal income tax for every dollar of federal grant funds that was expended on their education.

Table 11: Income Taxes Expected on Life-time Earnings of Graduates of FSU Stakeholders

Income Tax per $ Invested

North Carolina Taxpayers

$0.97

Federal Taxpayers

$6.55

Copyright IMPLAN Group, Inc.

The human capital benefit to the county and state of an FSU education extends in many ways beyond the dollar figures reported. Empirical evidence suggests an array of benefits to a community that is derived from higher education. The benefits are reflected in the form of higher incomes and taxes collected, and lower social costs (i.e. reduced crime and welfare payments), which have been widely reported in the literature. We only explicitly account for the income tax portion of the taxes these graduates are expected to generate for state and local government coffers. Therefore, the tax benefits we report significantly understate the expected future taxes these FSU graduates are expected to pay to state and local governments.

Researchers that have examined the spillover effect of higher educated workers in the workforce on the community report heterogeneity of findings. Rauch (1993) finds a spillover effect in the form of higher home prices directly related to higher education. Acemoglu and Angrist (2000) report little evidence of local productivity increase associated with higher education.

However, Moretti (2004) reports an increase in the wages of local workers with only high school or lower level of education that is associated with the presence of college graduates in the local workforce. This positive effect also extends to other college graduates but to a lesser extent than for workers with lower education.

Examining the effect of education from other angles, researchers such as Jayakody et al. (2000) and Grogger (2004) have reported that individuals with a college education pay higher taxes, require less assistance, and raise children who are less dependent on public assistance.

11. North Carolina income tax rate ranges from 6 percent to 7.75 percent, but is based on taxable income. The lowest rate applies to only the first $12,750; therefore, using 6 percent is reasonable for a 30 year period even though the state is moving toward a slightly lower flat rate. The average federal income tax rate reported by the IRS between 2001 and 2011 range from 11.4 percent to 14.5 percent; we use 12 percent since the IRS percentages are based on adjusted gross income.

Fayetteville State University Economic Impact Study

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Methodology and Assumptions IMPLAN is professional software that is widely used for economic impact studies. The software uses input-output tables to track and account for the flow of money among different sectors of a specified region. It uses the national, state, and local data to track how dollars injected into one sector is spent and re-spent in other sectors of the economy, creating ripple effects in the entire region. In this study, the IMPLAN data are used first to construct a model for Cumberland County. The model is then used to estimate the direct, indirect and induced impacts during the 2012-2013 fiscal year. The total economic impact is expressed in 2014 dollars.

The economic impact of Fayetteville State University (FSU) is measured by the direct, indirect and induced effects of its operational budget expenditures. The direct impact occurs when FSU spends money on construction and purchases goods and services. The indirect impact occurs because of backward supply chain: when the companies from which the University buys goods and services use the payments from

the university to buy equipment, supplies, pay utility bills, telephone services and pay their employees. Further ripple or induced impacts are created when the income received by the employees of supplying companies and University employees is spent on purchasing goods and services.

Summing up the direct, indirect and induced effects provides an estimate of the economic impact of the University on the Cumberland County economy and beyond.

The FSU economic impact is reported in terms of output, value added, labor income and employment. Normally the Output and Value added columns would be the same since both represent the value of goods and services produced in the economy/region over a period of time. However, in the IMPLAN model, the output impact includes values of sales (plus or minus inventories), total value of purchases by consumers and intermediate users, intermediate outlays, and value added. Since the output impact includes the intermediate outlays, it is always more than the value added.

Gross Regional Product (GRP) represents the market value of all final goods and services produced by all firms in an economy. Thus, value added is equivalent to GRP and is comprised of four components: (1) Employee compensation (total payroll costs including benefits) (2) Proprietary income (payments received by self-employed individuals) (3) Other property type income (rents, royalties and dividends) and (4) Indirect business taxes (excise taxes, property taxes, fees, licenses, and sales taxes paid by businesses).

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The value-added component captures the increased output associated with converting materials and supplies into final products. Labor income represents all forms of employment income. In an input-output model, it is the sum of employee compensation and proprietor income. The labor income impacts are of particular interest since they provide a basis for estimating the effects of the economic activity on additional income (purchasing power) and additional tax revenues. The employment impact captures the change in wage and salary employment and self-employment. The employment in IMPLAN, however, includes full-time and part-time jobs. To compute the full-time equivalents (FTE’s), we divide the sector employment by the IMPLAN relevant sector employment ratio.

We use a conservative approach. Many university economic benefit studies use the well-established multiplier of 2 (i.e. the economic impact is twice the amount a University expenditures). In contrast, we meticulously examined the University operational budget to ensure there is no double counting and when in doubt, we simply eliminated the item from the budget.

Notwithstanding our cautious approach, it is important to note some errors of omission and commission are imbedded in the very nature of the University budget and economic impact estimates.

Some Caveats Some caution is needed in interpreting the results detailed below. The IMPLAN model was the result of a joint effort by the University of Minnesota and the United States Department of Agriculture’s Forest Service. While the model is extensively used in economic impact analysis by governmental agencies, Chambers of Commerce, academic institutions, and economic development agencies, it is based on some key assumptions which are as follows:

1.

Fixed technology. It is assumed that the technology used by the industry whose impact is being analyzed remains unchanged and will not be affected by the impact. In other words, resource mix is unaffected.

Every firm within the industry uses the same resource mix or technology.

2.

3.

The industry is subject to constant returns to scale. There are no economies or diseconomies associated with the scale of production.

4.

There are no supply constraints. The impact of an industry or an activity will not affect the resource price.

Even if prices are affected, the industry resource buying decision is unaffected.

5.

The product-mix in an industry remains constant.

6.

The regional purchase coefficient (the amounts of inputs purchased from local vendors) does not change.

These assumptions may seem inordinately restrictive, but they are common to all input-output models. Most researchers conclude that the IMPLAN impact estimates are reasonably accurate as long as: (1) the scale of activity is not too large to significantly change the total demand for and supply of resources; (2) there is no radical change in technology; and (3) regional purchase coefficients remain the same. A serious error can occur if the regional purchase coefficient has changed and a researcher fails to make an adjustment for it in the model. There is no evidence that the nature and scale of FSU economic activities are so large to seriously violate the assumptions mentioned above. The regional purchase coefficients were, however, adjusted wherever appropriate.

Apart from the assumptions inherent in the IMPLAN model, like any other economic impact study, we were compelled to make some arbitrary decisions. In some cases, we were able to fit a FSU activity exactly into an IMPLAN pre-assigned sector. In these cases, we attributed the activity to sector(s) closest to the nature of the activity. Also, while we tried to avoid double counting, there is no guarantee that we succeeded completely. The university is a complex entity and is involved in an intricate web of transactions. For example, student loan money is transferred from the Federal and State agencies through the University to the students. While most of this money is spent on educational expenses, some money may be used for non-educational purposes also. Accordingly, we want to caution the reader of this report to accept the results of this study with caveats.

Fayetteville State University Economic Impact Study

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References Acemoglu, D., & Angrist, J. 2000. How large are the social returns to education? Evidence from compulsory schooling laws. In: B.S. Bernanke, & K. Rogoff, (Eds.), NBER macroeconomics annual. 9-59.

Board of Governors of the Federal Reserve System, Economic Research& Data, Statistical Releases and Historical Data, [http://www.federalreserve.gov/releases/H15/data.htm], accessed August 4, 2014.

Grogger, Jeffrey. 2004. Welfare transitions in the 1990s: the economy, welfare policy, and the EITC. Journal of Policy Analysis and Management 23(4), 671-695.

Jayakody, Rukmalie, Sheldon Danziger, and Harold Pollack. 2000. Welfare reform, substance use, and mental health.

Journal of Health Politics, Policy, and Law 25(4), 623-651.

Internal Revenue Service, Statistics of Income Division, Individual Income Tax Rates and Shares, [http://www.irs.gov/ uac/SOI-Tax-Stats-Individual-Income-Tax-Rates-and-Tax-Shares], accessed August 4, 2014 Moretti, Enrico. 2004. Estimating the social return to higher education: evidence from longitudinal and repeated crosssectional data. Journal of Econometrics 121(1-2) 175-212.

North Carolina Department of Labor, [http://www.nclabor.com/wh/fact%20sheets/minimum_wage_in_NC.htm], accessed March 28, 2014.

North Carolina Department of Revenue, Individual Income Tax, [http://www.dor.state.nc.us/taxes/individual/taxrates. html], accessed on August 4, 2014].

Rauch, J. 1993. Productivity gains from geographic concentration in cities. Journal of Urban Economics, 34, 380-400.

Social Security Administration, National Average Wage Index, [http://www.socialsecurity.gov/oact/COLA/AWI.html], accessed, March, 28, 2014 U.S. Department of Commerce, Census Bureau, American Community Survey, [http://factfinder2.census.gov/faces/ tableservices/jsf/pages/productview.xhtml?pid=ACS_12_5YR_B20004&prodType=table] accessed August 7, 2014.

U.S. Department of Labor, Bureau of Labor Statistics, Current Population Survey, [http://www.bls.gov/cps/tables. htm#charunem], accessed August 4, 2014 U.S. Department of Labor, Bureau of Labor Statistics, Consumer Price Index, [http://www.bls.gov/cpi/cpirsai1978-2013. pdf], accessed August 8, 2014

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Fayetteville State University Economic Impact Study

About the School of Business and Economics The School of Business and Economics, established in 1985, is accredited by AACSB Inc., the most prestigious accrediting bodies for business schools. The School has been featured in Princeton Review’s Best Business Schools editions since 2009; is currently identified as a Best Online MBA Program by the US News and World Report; and is ranked 63rd in the country by the Social Sciences Research Network.

About the FSU Researchers Dr. Thomas G.E. Williams earned a Ph.D. in Finance from Texas A&M University and MBA from Rutgers University. Dr. Williams is currently an Associate Professor of Finance in the School of Business and Economics and has over 30 years of experience in business and academia. Prior to academia, Dr. Williams worked in commercial banking, management consulting, and economic development; providing services to small and minority-owned businesses.

Dr. Inder P Nijhawan, Professor of Economics at Fayetteville State University, received his PhD from the University of North Carolina at Chapel Hill with a concentration in planning and economic development. Dr. Nijhawan has worked extensively with the IMPLAN software including using the software to evaluate the economic

School of Business and Economics

impact of BRAC on disadvantaged populations in the 11 county BRAC region in 2010 (www.bracrtf.com) and the economic impact of the five year, $20 million HUD funded HOPE VI Program on Cumberland County (2008 – 2012). He is actively involved in the outreach activities within the community and currently serves as a member of the FSU Board of Trustees and Professor Emeritus in the School of Business and Economics.

Mr. Gregory McElveen serves as Assistant to the Dean for Strategic Initiatives in the School of Business and Economics. Mr. McElveen earned an AB with Distinction in Economics and an MBA at Stanford University.

At FSU, his focus is on evaluating and implementing new programmatic initiatives. Prior to joining the FSU faculty, Mr. McElveen managed

strategic planning, market research, and logistics strategy at IBM, and led an international logistics operation and directed strategic planning at Con-Way Inc. Dr. Pamela Jackson is the Associate Dean of School of Business and Economics and an Associate Professor of Management Information Systems.

She received her Ph.D. in Information Technology from The University of North Carolina at Charlotte and the MBA from Fayetteville State University.

She currently serves as Principal Investigator on several federally funded grants, including the US Department of Agriculture, the Department of Commerce’s Economic Development Administration, and the U.S. Small Business Administration.

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Fayetteville State University Office of the Chancellor 1200 Murchison Road Fayetteville, North Carolina 28301

www.uncfsu.edu

Fayetteville State University is a constituent institution of The University of North Carolina and is committed to equality of educational opportunity and does not discriminate against students or employees based on race, color, national origin, religion, sex, age or disability.