Economic Outlook - May 2005

State gets good return on community colleges

The community-college system paid CCbenefits Inc. $264,750 to study the economic impact community colleges have on their students and the state. The Moscow, Idaho-based consultant has done similar work for 17 other states and a national study for the Washington, D.C.-based Association of Community College Trustees. CCbenefits President Kjell Christophersen discusses the findings.

BNC: What does this study examine?

Christophersen: We’re basically measuring two things: the economic impact of the colleges — or their contributions to local jobs and income — and an investment analysis from the student and taxpayer perspectives.

What's different about your economic-impact analysis?

First, we calculate the ripple effect associated with the college operations such as wages, salaries, operating and capital expenditures. In North Carolina, these earnings account for $1.4 billion in the economy. We’ve also added the impact associated with the past students. The community colleges have thousands of past students whose skills are still adding value every year in the work force. We’ve computed that for all the community colleges in North Carolina. We have about 120 million credit hours from those colleges still active in the local work force — and that’s going back 30 years and taking into account attrition factors such as outmigration, retirement, death. The accumulated contribution of those credit hours adds $13.3 billion in annual earnings to the state’s economy.

What did your investment analysis find?

We’re looking at three basic measures. First, does it make economic sense for the students to attend the college? A student invests money today against which he or she will receive higher earnings in the future. The answer to that question is a resounding yes — it makes eminent economic sense. They’re making an 18.6% annual rate of return on their investment of time and money for as long as they’re in the work force. The second measure is whether the community colleges are a good investment for the taxpayers. The year we studied, 2003, North Carolina taxpayers put up $807.4 million to fund the 58 community colleges. Taxpayers make a strong rate of return on that investment. We came up with a narrow rate of return of 16.8% on the taxpayer investment, a benefit-cost ratio of 2.74 and a payback period of only 7.7 years.

What is a narrow rate of return?

We measure only the extent to which tax collection increased as a result of the higher income. Whereas the difference in income might be $5,000, the difference in tax collection might be only $200. So if you can show for a public investment that the narrow taxpayer perspective is a positive one, it’s huge.

How do we compare with other states?

North Carolina schools have tended to be a little bit higher than the national average. The average student tends to be older than in other states. If you’re older and you have more experience under your belt, your rate of return for that incremental step in education is going to be higher.

What is the third measure?

Social factors such as smoking, alcohol abuse, health-related absenteeism, incarceration, welfare and unemployment. There’s a statistical correlation between folks who move from a lower level of education to a higher level of education and the lowering of the incidence of these behaviors. When aggregated across all exiting students, North Carolina will benefit from $184.1 million worth of avoided costs per year in improved health, reduced crime and reduced welfare and unemployment.

How does that translate as a return on investment?

We call this the broad perspective: the value of all future earnings and associated social savings compared with the year’s worth of tax support. Using our model, the benefit/cost ratio generated for the North Carolina system is 17.03 — every tax dollar invested returns a cumulative of $17.03 over the next 32 years.

How have community-college systems used your studies?

Wisconsin’s system used our numbers — after the legislative session had ended — to have $55 million reinstated into the budget. In Texas, the cuts that they got eventually for the year when we did the study were a lot shallower than they otherwise would have been.

So our legislators will see this study?

A study like this is not done just for the purpose of having it look nice and sit on somebody’s shelf.

It’s surprising that they’d take it seriously, since the community colleges paid for it.

ACCT, who paid us to develop the model, is an advocacy organization. We’ve severed our relationship with ACCT. We do the numbers, and wherever the numbers fall, that’s what we report. We’re not advocating for the colleges.

The model is applied to states uniformly?

Yes.

Have you studied CCbenefits’ economic impact on community-college budgets?

We’ve called around to a number of our clients to ask them, ‘What have you experienced since the numbers came out, and what have you done with the study results?’