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The Socioeconomic Benefits
Generated by Eastern Iowa Community College District

State of Iowa Executive Summary

March 3, 2003

M. Henry Robison & Kjell A. Christophersen

INTRODUCTION

How do the EICCD Service Area economy and the State of Iowa benefit from the presence of Eastern Iowa Community College District (EICCD)?

An obvious question often asked, but rarely answered with more than anecdotes. In this study, CCbenefits, Inc. applied a comprehensive economic model they developed with funding from the Association for Community College Trustees (ACCT). The model, which took over a year to develop, was designed to capture and quantify the economic and social benefits of community colleges (CCs). It relies on data collected from individual CCs, and translates these into common sense benefit-cost and investment terms. The model has been subjected to peer review and field-tested on over 220 different CCs throughout the nation. Model results are based on solid economic theory, carefully drawn functional relationships, and a wealth of national and local education-related data. The model provides relief from the all-too-common "advocacy analyses" that inflate benefits, understate costs, and thus discredit the process of higher education impact assessment.

Four types of benefits are tracked: (1) contributions to local job and income formation (regional economic benefits); (2) higher earnings captured by exiting students; (3) a broad collection of social benefits (improved health, reduced crime, lower welfare, and unemployment); and (4) the return to taxpayers for their CC support.

Regional Perspective
Eastern Iowa Community College District Economy

EICCD accounts for $220.7 million of all annual earnings in the EICCD Service Area economy (see map). The earnings explained by EICCD are equal to that of roughly 7,047 jobs. The earnings and job effects break down as follows:

EICCD Operations and Capital Spending

EICCD pays wages and salaries, which generate additional incomes as they are spent. Likewise, EICCD operating and capital expenditures generate still further earnings. Altogether, these earnings account for $42.1 million annually in the EICCD Service Area economy (equal to that of 1,355 jobs).

Higher Earnings Due to Past Instruction

Each year students leave EICCD and join or rejoin the local workforce. Their added skills translate to higher earnings and a more robust EICCD Service Area economy. Based on current enrollment, turnover, and the growth of instruction over time, the local region workforce embodies an estimated 3.4 million credits of past and present instruction (credit and non-credit hours). The accumulated contribution of past and present EICCD instruction adds some $178.6 million in annual earnings to the EICCD Service Area economy (equal to that of 5,691 jobs).

Student Perspective

The student's perspective on the benefits of higher education is the most obvious: he or she sacrifices tuition and current earnings for a lifetime of higher earnings. For every credit completed EICCD students will, on average, earn $84 more per year each year they are in the workforce. Alternatively, for every full-time year they attend they will earn an additional $2,372 per year. In the aggregate (all exiting students), the higher earnings amount to some $15.6 million per year for each year they remain in the workforce.

From an investment standpoint, EICCD students will enjoy a 21% rate of return on their investments of time and money, which compares favorably with the returns on other investments, e.g., the long-term return on US stocks and bonds. The corresponding B/C ratio (the sum of the discounted future benefits divided by the sum of the discounted costs) is 6.7, i.e., for every $1 the student invests in EICCD education, he or she will receive a cumulative of $6.69 in higher future earnings over the next 30 years or so. The payback period (the time needed to recover all costs) is 7.2 years.

Taxpayer Perspective

State and local government spent $19,137,321 in support of EICCD during the analysis year. Is this a good use of taxpayer money? Our analysis indicates that the answer is a resounding yes: returns far outweigh the costs, particularly when a collection of social savings is included in the assessment. For example, persons with higher education are 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 $37 per credit per year, counted as an indirect benefit of EICCD education. When aggregated across all exiting students, the State of Iowa will benefit from $3.8 million worth of avoided costs per year, broken down as follows:

Improved Health

EICCD Service Area employers will see health-related absenteeism decline by 8,244 days per year, with a corresponding annual dollar savings of $0.9 million. The state will benefit from the health-related savings of 216 fewer smokers and 44 fewer alcohol abusers. The corresponding dollar savings are $640,952 and $353,212 per year, now and into the future (these savings include insurance premiums, co-payments and deductibles, and withholding for Medicare and Medicaid).

Reduced Crime

Studies show that incarceration drops with each year of higher education. In the EICCD Service Area, 30 fewer individuals will be incarcerated per year, resulting in annual savings of $350,695 (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 $386,238 per year. Finally, that people are employed rather than incarcerated adds $167,524 of earnings per year to the economy.

Reduced Welfare/Unemployment

There will be 175 fewer people on welfare, and 43 fewer drawing unemployment benefits per year, respectively, saving some $657,931 and $338,105 per year.

Taxpayer Return on Investment

The return on a year's worth of state and local government investment in EICCD is obtained by projecting the associated educational benefits into the future, discounting them back to the present, and weighing these against the $19,137,321 state and local taxpayers spent during the analysis year to support the college. The analysis is based on the portion of EICCD operations that is wholly dependent on state and local government support. Two investment perspectives are possible, one broad and one narrow.

Broad Perspective

Taxpayers expect their annual investment in EICCD to result in higher lifetime earnings for students and social savings from lifestyle changes (reduced crime, welfare and unemployment, and improvements in health). From a broad investment perspective, the value of all future earnings and associated social savings is compared to the year's worth of state and local taxpayer support that made the benefits possible. Following this procedure, it is estimated that EICCD provides a B/C ratio of 10.2, i.e., every dollar of state or local tax money invested in EICCD today returns a cumulative of $10 over the next 30 years.

Narrow Perspective

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 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, 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 B/C ratio equal to just greater than 1, and/or a rate of return equal to or just greater than the 4.0% discount rate used in this analysis) would be a most favorable outcome, certainly one that justifies continued taxpayer support of the college. For EICCD, the narrow perspective results greatly exceed the minimum expectations. The results indicate strong and positive returns: a RR of 8.4%, a B/C ratio of 1.7 (every dollar of state or local tax money invested in EICCD today returns $1.67), and a short payback period of only 12.5 years.

CONCLUSION

The results of this study demonstrate that EICCD is a sound investment from multiple perspectives. The college enriches the lives of students and reduces the demand for taxpayer-supported social services. Finally, it contributes to the vitality of both the local and state economies.

In sum, the graph below shows that the college explains a total of 3.7% of all earnings ($5.93 billion) generated from all sources in the economic region.

EICCD image

Socioeconomic Benefits

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