The Socioeconomic Benefits
Generated by Southwest Texas
Junior College
State of Texas
Volume 1: Main Report
29-May-2002
Kjell A. Christophersen & M. Henry Robison
Table of Contents
Table of Contents
ACKNOWLEDGMENTS......................................................................................................... iii
ACRONYMS ............................................................................................................................... iv
Preface............................................................................................................................................ v
Chapter 1 INTRODUCTION ................................................................................................... 1
Overview................................................................................................................................. 1
Annual Private and Public Benefits..................................................................................... 1
Present Values of Future Benefits........................................................................................ 2
Regional Economic Benefits ................................................................................................. 3
Chapter 2 DATA SOURCES AND ASSUMPTIONS ........................................................... 4
Introduction ............................................................................................................................ 4
College Profile ........................................................................................................................ 4
Faculty, Staff, and Operating Budget ................................................................................ 4
The Students ...................................................................................................................... 5
Entry-Level Education, Gender, and Ethnicity ................................................................. 7
The Achievements .............................................................................................................. 8
Annual Private Benefits ...................................................................................................... 10
Annual Public Benefits ........................................................................................................ 12
Higher Earnings............................................................................................................... 13
Health Savings ................................................................................................................. 13
Crime Reduction Benefits................................................................................................. 16
Welfare and Unemployment Reduction Benefits ............................................................. 17
Costs....................................................................................................................................... 19
Opportunity Cost of Time ................................................................................................ 19
The Budget ....................................................................................................................... 20
Other Assumptions.............................................................................................................. 20
Regional Economic Benefits ............................................................................................... 21
The Impact of SWTJC Operations.................................................................................... 22
The Direct Economic Development Effects of Students................................................... 23
From Embodied CHEs to Direct Income Effects .............................................................. 25
The Indirect Economic Development Effects of Students ................................................ 27
Chapter 3 PRIVATE, PUBLIC AND REGIONAL ECONOMIC BENEFITS................. 29
The Socioeconomic Benefits of Southwest Texas Junior College
i
Table of Contents
Introduction .......................................................................................................................... 29
Annual Benefits .................................................................................................................... 29
Higher Student Earnings................................................................................................. 29
Social Savings .................................................................................................................. 29
Health-Related Savings .......................................................................................... 29
Crime-Related Savings ........................................................................................... 30
Welfare and Unemployment Savings .................................................................. 30
Total Public Benefits ............................................................................................... 30
Annual Benefits Per CHE and Per Student ...................................................................... 31
The Investment Analysis: Incorporating Future Benefits .............................................. 33
The Student Perspective................................................................................................... 35
The Broad Taxpayer Perspective ...................................................................................... 37
The Narrow Taxpayer Perspective ................................................................................... 38
With and Without Social Benefits.................................................................................... 40
Summary .......................................................................................................................... 42
Regional Economic Benefits ............................................................................................... 43
SWTJC Operations........................................................................................................... 44
Past Student Economic Development Effects .................................................................. 44
Total Regional Economic Benefits.................................................................................... 45
Chapter 4 SENSITIVITY ANALYSIS OF KEY VARIABLES............................................ 46
Introduction .......................................................................................................................... 46
Investment Analysis: The Student Perspective................................................................ 46
Percent of Students Employed ......................................................................................... 46
Percent of Earnings Relative to Full Earnings ................................................................ 47
Results.................................................................................................................................... 47
Regional Economic Development...................................................................................... 48
The Economic Impact of Student Spending ..................................................................... 49
Economic Impacts Reported as Gross Sales ..................................................................... 50
REFERENCES............................................................................................................................. 53
Appendix 1: Explaining the Results—a Primer ................................................................... 57
The Net Present Value (NPV)............................................................................................. 58
The Internal Rate of Return (IRR) ...................................................................................... 59
The Benefit/Cost Ratio (B/C) ............................................................................................ 61
The Payback Period ............................................................................................................. 61
Appendix 2: Methodology for Creating Income Gains by Levels of Education ........... 62
The Socioeconomic Benefits of Southwest Texas Junior College
ii
Acknowledgments
ACKNOWLEDGMENTS
T
he successful completion of this case study is largely due to excellent support
from the institutional research staff of the Southwest Texas Junior College
(SWTJC). We would like to express our appreciation to Dr. Isamel Sosa,
President, who approved the study, and to Dr. Blaine Bennett, Dean of
Institutional Advancement & Technology, who collected and organized
much of the data we requested. In addition, our own staff, Lucy Schneider
and Steve Peterson, respectively, contributed invaluable modeling and data
collection expertise throughout the study period. Any errors committed in
the report belong to the authors and not to any of the above-mentioned
institutions or individuals.
CCbenefits Inc. is a company created in collaboration with the Association of Community College
Trustees (ACCT) to provide economic analysis services to community and 2-year community colleges.
Questions of a technical nature concerning the approach, assumptions, and/or results should be directed
to CCbenefits, Inc., c/o Drs Kjell Christophersen and Hank Robison, 121 Sweet Ave., Moscow ID 83843,
phone: 208-883-3500, fax: 208-885-3803, e-mail: ccb@turbonet.com.
The Socioeconomic Benefits of Southwest Texas Junior College
iii
Acronyms
ACRONYMS
SWTJC
Southwest Texas Junior College
AD
Associate Degree
ABE
Adult basic education
ACCT
Association of Community College Trustees
B/C
Benefit–cost ratio
CC
Community College
CHE
Credit hour equivalent
ESL
English as a second language
GED
General Equivalency Diploma (also Education
Development Certificate)
HS
High school
IO
Input–output analysis
NCF
Net cash flow
NPV
Net present value
REIS
Regional Economic Information System
RR
Rate of return
TC
Technical College
TD
Technical Diploma
The Socioeconomic Benefits of Southwest Texas Junior College
iv
Preface
Preface
The Association of Community College Trustees (ACCT) contracted with the
authors in 1999 to create the model used in this study. The original vision
was simple—to make available to colleges a generic and low cost yet
comprehensive tool that would allow them to estimate the economic benefits
accrued by students and taxpayers as a result of the higher education
achieved. In short: it only makes economic sense for the students to attend
college if their future earnings increase beyond their present investments of
time and money; likewise, taxpayers will only agree to fund colleges at the
current levels or increase funding if the economic benefits exceed the costs.
An important requirement of the ACCT vision was that the model reach
beyond the “standard” study—the computation of the simple multiplier
effects stemming from the annual operations of the colleges. Although the
standard study was part and parcel of the model ultimately developed, it was
only a relatively small part. The current model also accounts for the economic
impacts generated by past students who are still applying their skills in the
local workforce; and it accounts for a number of external social benefits such
as reduced crime, improved health, and reduced welfare and unemployment,
which translate into avoided costs to the taxpayers. All of these benefits are
computed for each college and analyzed. To the extent possible, the analysis
is based on regional data adjusted to local situations.
Although the written reports generated for each college are similar in text,
the results differ widely. This, however, should not be taken as an
indication that some colleges are doing a better job than others in
educating the students. Differences among colleges are a reflection of the
student profiles, particularly whether or not the students are able to maintain
their jobs while attending, and the extent to which state and local taxpayers
fund the colleges. Some students give up substantial earnings while
attending college because employment opportunities are few and far
between. In other cases they are able to work while attending because the
area has an abundance of opportunities. That the average student rate of
return of 15% for college A is different from the rate of return of 20% for
college B, therefore, does not mean that B is doing a better job than A. Rather,
The Socioeconomic Benefits of Southwest Texas Junior College
v
Preface
it is attributable to the employment opportunities in the region, and to the
fact that one college may cater more to women than to men, or to minorities,
and/or to different kinds of students such as transfer, workforce or retired,
etc. In turn, the student body profiles are associated with their own distinct
earnings functions reflecting these employment, gender and ethnicity
differences. The location of the college, therefore, dictates the profile of the
student body, which, to a large extent, translates into the magnitudes of the
results. In this sense, it could well be that College A with a 15% student rate
of return is actually a better or more efficiently managed school than College
B with a 20% student rate of return. The qualitative difference in
management efficiency is not equal to the difference between the two returns.
The Socioeconomic Benefits of Southwest Texas Junior College
vi
Chapter 1: Introduction
Chapter 1
INTRODUCTION
OVERVIEW
C
ommunity colleges (CCs) generate a wide array of benefits. Students benefit
directly from higher personal earnings and society at large benefits indirectly
from cost savings (avoided costs) associated with reduced welfare and
unemployment, improved health, and reduced crime. Higher education,
however, requires a substantial investment on the part of the students and
society as a whole. Therefore, all education stakeholders—taxpayers,
legislators, employers, and students—want to know if they are getting their
money’s worth. In this study, Southwest Texas Junior College (SWTJC)
investigates the attractiveness of its returns relative to alternative public
investments. The benefits are presented in three ways: 1) annual benefits, 2)
present values of future annual benefits (rates of return and benefit-cost
ratios, etc.), and 3) regional economic benefits.
The study has four chapters and two appendices. Chapter 1 is an overview of
the benefits measured. Chapter 2 details the major assumptions underlying
the analysis. Chapter 3 presents the main socioeconomic and regional
economic results. Finally, Chapter 4 presents a sensitivity analysis of some
key assumptions—tracking the changes in the results as assumptions are
changed. Appendix 1 is a short primer on the context and meaning of the
investment analysis results—the net present values (NPV), rates of return
(RR), benefit/cost ratios (B/C), and the payback period. Appendix 2 explains
how the earnings related to higher education data were derived.
ANNUAL PRIVATE AND PUBLIC BENEFITS
Private benefits are the higher earnings captured by the students; these are
well known and well documented in the economics literature. Less wellknown and documented is a collection of public benefits captured by society
at large, the indirect benefits, or what economists call positive externalities,
such as improved health and lifestyle habits, lower crime, and lower
The Socioeconomic Benefits of Southwest Texas Junior College
1
Chapter 1: Introduction
incidences of welfare and unemployment. These stem from savings to
society from reduced burdens on taxpayer-provided services. The dollar
savings (or avoided costs) associated with reduced arrest, prosecution, jail,
and reform expenditures are estimated based on published crime statistics
arranged by education levels. Likewise, statistics that relate unemployment,
welfare, and health habits to education levels are used to measure other
savings. The annual economic impacts are presented in three ways: 1) per
credit-hour equivalent (CHE), defined as a combination of credit and noncredit attendance 1, 2) per student, and 3) in the aggregate (statewide).
PRESENT VALUES OF FUTURE BENEFITS
The annual impacts continue and accrue into the future and are quantified
and counted as part of the economic return of investing in education. This
lifetime perspective is summarized as present values–a standard approach of
projecting benefits into the future and discounting them back to the present.
The present value analysis determines the economic feasibility of investing in
CC education—i.e., whether the benefits outweigh the costs. The time
horizon over which future benefits are measured is the retirement age (65)
less the average age of the students.
The values of future benefits are also expressed in four ways: 1) net present
value (NPV) total, per CHE, and per student, 2) rate of return (RR) where the
results are expressed as a percent return on investment, 3) benefit/cost (B/C)
ratio—the returns per dollar expended, and 4) the payback period—the
number of years needed to fully recover the investments made (see
Appendix 1 for a more detailed explanation of the meaning of these terms).
1
Instruction hours are not the same as credit hours. CCs prepare people for jobs and are less concerned
with (ceremonial) degrees. Many attend for short periods and then leave to accept jobs without
graduating. Others simply enroll in non-academic programs. Nonetheless, the CHEs earned will
positively impact the students’ lifetime earnings and social behavior.
The Socioeconomic Benefits of Southwest Texas Junior College
2
Chapter 1: Introduction
REGIONAL ECONOMIC BENEFITS
The benefits of a robust local economy are many: jobs for the young,
increased business revenues, greater availability of public investment funds,
and eased tax burdens. In this study we estimate the role of SWTJC in the
local community economy in terms of its share of total community earnings,
defined as indicated in Figure 1.1. In general, these CC-linked regional
earnings fall under two categories: 1) earnings generated by the annual
operating expenditures of the college, and 2) earnings attributable to the CC
skills embodied in the local workforce.
Figure 1.1: The Economic Region
Southwest Texas Junior College Area
Texas
Val Verde Edwards
Real
MEXICO
Kinney Uvalde Medina
Maverick
Zavala
Dimmit
Frio
La Salle
The Socioeconomic Benefits of Southwest Texas Junior College
3
Note: the map shows
both the district
boundary and the
whole counties
included as a backdrop
for the calculation of
the economic impacts.
The calculated impacts
are adjusted to the
actual college district.
Chapter 2: Data Sources and Assumptions
Chapter 2
DATA SOURCES AND ASSUMPTIONS
INTRODUCTION
T
o the extent possible, documented statistics obtained from several databases
and from the colleges themselves are used to craft the assumptions on which
the results are based. In the few cases where hard data are scarce, however,
institutional researchers on the scene apply best judgments and estimations
on the basis of their intimate knowledge of the college and the student body.
This chapter contains six assumption sections, all based on various data
imbedded in the analytic model: 1) the SWTJC profile; 2) annual earnings by
education levels; 3) the social benefit assumptions (health, crime and
welfare/unemployment); 4) education costs; 5) other assumptions (the
discount rate used, health, crime, and welfare cost statistics, etc.); and 6)
assumptions pertaining to regional economic effects.
COLLEGE PROFILE
Faculty, Staff, and Operating Budget
SWTJC employed 230 full- and 103 part-time faculty and staff in year 2000
amounting to a total annual payroll of some $9.3 million. Table 2.1 shows
SWTJC‘s annual revenues by funding source: a total of $14 million. Two
main revenue sources—private and public—are indicated. Private sources
include tuition and fees (25.4%) plus 6.9% from other private sources (such as
contract revenues, interest payments and the like). Public funding is
comprised of local taxes (3.6%), state aid (43.3%), and federal grants (20.9%).
These budget data are critical in identifying the annual costs of educating the
CC student body from the perspectives of the students and the taxpayers
alike.
The Socioeconomic Benefits of Southwest Texas Junior College
4
Chapter 2: Data Sources and Assumptions
Table 2.1. Aggregate Revenues, the Budget
Sources
Private Funding
Tuition paym ents
Ins titut. & other s ources of revenues
Public Funding
Local taxes
State aid
Federal grants
Total
Revenues
Total
% of Total
$3,598,660
$975,021
$4,573,681
25.4%
6.9%
$9,585,195
$14,158,876
3.6%
43.3%
20.9%
100%
$508,088
$6,124,968
$2,952,139
Figure 2.1. Revenues: The Budget
Tuition payments
21%
25%
Institut. & other sources of
revenues
7%
4%
43%
Local taxes
State aid
Federal grants
The Students
Students attend community colleges for different reasons: to prepare for
transfer to four-year institutions, to obtain Associate Degrees or Certificates,
obtain basic skills, or perhaps most importantly, to take refresher courses or
participate in non-credit programs. Students also leave for various reasons;
they may have achieved their educational goals or decided to interrupt their
college career to work full-time. Tables 2.2 – 2.4 summarize the student body
profile. The SWTJC unduplicated student body (headcount) is 3,668 (FY00-01
enrollment). This total consists of both credit and non-credit students.
The Socioeconomic Benefits of Southwest Texas Junior College
5
Chapter 2: Data Sources and Assumptions
Some students forego earnings entirely while attending college while others
may hold part- or full-time jobs. Information about student employment
plays a role in determining the opportunity cost of education incurred by the
students while attending SWTJC2. Table 2.2 rows labeled: “% Employed
While Attending” and “% of Full-Time Earning Potential” provide the
percentage estimates of the students who held jobs (75%) while attending
SWTJC, and how much they earned (35%) relative to full-time employment
(or what they would statistically be earning if they did not attend SWTJC).
The former is a simple percent estimate of the portion of the student body
working full or part time. The latter is a more complex estimate of their
earnings relative to their earning power if they did not attend college (i.e.,
recognizing that several students may hold part time jobs working for
minimum wage while attending college).
Table 2.2. Student Body Profile
Total unduplicated enrollm ent, all cam pus es
Enrollm ent on cam pus for which analys is is carried out
% of s tudents em ployed while attending college
% of full-tim e earning potential
Students rem aining in the local com m unity after leaving
100%
Attrition rate over tim e (leaving local com m unity)
"Settling In" factors (years ):
Com pleting As s ociate Degree
Com pleting Certificate
Non-com pleting trans fer track
Non-com pleting workforce
ABE/ESL/GED
Values
3,668
3,668
75%
35%
50%
65%
2.0
0.5
2.5
0.0
0.5
As indicated in the table, it is estimated that 50% of the students remain in
the local community (as defined in Figure 1.1) and thereby generate local
community benefits. The remaining 50% leave the community and are not
counted as contributing to regional economic development. The 50% local
retention rate applies only to the first year, however. We assume that 65% of
the students, and associated benefits, will leave the area over the next 30
years due to attrition (e.g., retirement, out-migration, or death).
The opportunity cost is the measure of the earnings foregone; the earnings the individual would have
collected had he or she not attended SWTJC.
2
The Socioeconomic Benefits of Southwest Texas Junior College
6
Chapter 2: Data Sources and Assumptions
The last five items in Table 2.2 are settling-in factors—the time needed by
students to settle into the careers that will characterize their working lives.
These factors are adapted from Norton Grubb (June 1999). Settling-in factors
have the effect of delaying the onset of the benefits to the students and to
society at large. Thus, we assume that for transfer track students, the earnings
benefits will be delayed for at least 2.5 years to account for the time spent
subsequently at 4-year colleges.
Entry-Level Education, Gender, and Ethnicity
Table 2.3 shows the education level, gender, and ethnicity of the SWTJC
student body. This breakdown is used only to add precision to the analysis,
not for purposes of comparing between different groups. Five education
entry levels are indicated in approximate one-year increments, ranging from
less than HS to post AD. These provide the platform upon which the
economic benefits are computed.
The entry level characterizes the education level of the students when they
first enter the college; this is consistent with the way most colleges keep their
records. The analysis in this report, however, is based on the educational
achievements of the students during the current year. As not all students
reported in the enrollment figures for the fiscal year are in their first year of
college, an adjustment was made to account for upper class students who
had accumulated credits during their community college experience and
moved up from the AD
Total
W hite Male
Entry
Begin
Level
Year
37
21
257
66
21
151
16
80
0
12
330
330
Minority Male
Entry
Begin
Level
Year
73
43
954
230
42
535
31
255
0
38
1,100
1,100
W hite Fem ale
Entry
Begin
Level
Year
73
43
330
90
42
205
31
120
0
19
477
477
Minority Fem ale
Entry
Begin
Level
Year
73
43
1,577
370
63
876
47
412
0
61
1,761
1,761
Total
Entry
Level
257
3,118
168
126
0
3,668
Begin
Year
150
756
1,767
866
129
3,668
1,000
> AD
HS+2
HS+1
0
HS/GED
500
> AD
1,500
HS+2
2,000
HS+1
2,500
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
HS/GED
No. of Students
3,000
