The Economic Impact of Piedmont Virginia Community College Upon Its Service Region ( )

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1 The Economic Impact of Piedmont Virginia Community College Upon Its Service Region ( ) By Ronald B. Head, Executive Director Planning and Information Technology Office of Institutional Research Piedmont Virginia Community College Charlottesville, Virginia Research Report No November 1997

2 The Economic Impact of Piedmont Virginia Community College Upon Its Service Region ( ) Table of Contents Introduction...1 Methodology...2 Results...4 Conclusions...7 Selected Bibliography...8 i

3 The Economic Impact of Piedmont Virginia Community College Upon Its Service Region ( ) List of Tables Table 1: Economic Impact of PVCC Upon Its Service Region...4 Table 2: Economic Impact of PVCC Upon the State...6 Table 3: Comparison of PVCC Economic Impact Figures Between and ii

4 The Economic Impact of Piedmont Virginia Community College Upon Its Service Region ( ) Introduction Piedmont Virginia Community College (PVCC) plays a major role in the geographical region it serves, providing citizens from the counties of Albemarle, Buckingham, Fluvanna, Greene, Louisa, and Nelson, as well as from the City of Charlottesville, with the education and skills they need to lead more rewarding personal and professional lives. Study at PVCC leads to two-year degrees and certificates and allows students to transfer to four-year colleges and universities, obtain jobs, develop professional skills, and acquire knowledge to enrich their personal lives. In addition to serving individual students, the college provides workforce training to regional businesses and industries, economic development services to both businesses and government, and cultural events such as plays, art exhibitions, and lectures. One role often overlooked is economic. PVCC produces jobs, and its employees and students consume goods, utilize services, own or rent property, and invest financially in the community. Funds are circulated throughout the local economy through college expenditures, purchases of goods and services, salary payments, and capital construction. These funds, in turn, stimulate the local economy, leading to new jobs and additional spending. In short, the college has a significant economic impact upon the region it services. The economic impact of the college was measured four years ago, and the results were published in The Economic Impact of Piedmont Virginia Community College Upon Its Service Region (PVCC Institutional Research Report No. 2-94, March 1994). At that time, the college had a direct economic impact of 12.6 million dollars and a total estimated economic impact of 24.8 million dollars. Two-hundred twenty-six additional jobs were generated within the service region as a result of the college's presence, and for every dollar paid by service region localities, the college generated $1,629. Both the college and the economy have changed considerably in four years. These changes undoubtedly have affected the figures reported in the 1994 economic impact study. To determine whether in fact the economic impact of the college upon the service region has changed during this time prompted this present study. Its purpose was to replicate the findings of the earlier study. 1

5 Methodology In the March 1994 study, three different models were used to calculate the economic impact of PVCC upon its service region. The first was a model specifically designed by Dr. G. Jeremiah Ryan for community colleges, termed the "short cut" method; the second was a refined and improved version of the "short cut" method, developed by the Two-Year College Committee of the Eastern Association of College and University Business Officers (EACUBO);. The third was a model called IMPAC (IMPact Analysis for the Commonwealth), designed by the Virginia Employment Commission (VEC). To understand why these three different models were employed requires some background information. The model used most commonly to measure a college's economic impact was developed in 1971 by John Caffrey and Herbert Isaacs. This model depends upon numerous surveys to faculty, staff, students, local businesses, and community residents and relies heavily upon multiplier analysis to estimate indirect economic impact. It is a difficult model to implement and is less applicable to community colleges than to fouryear colleges or universities. As Ryan and Malgieri have noted, three objections to the Caffrey and Isaacs model exist when it is applied to community colleges: First, several of the economic estimates presented by Caffrey and Isaacs are either inappropriate or less appropriate for use by community college personnel.... Second, the survey of faculty and staff designed to produce estimates of their local spending presents a problem. This survey, which may be adapted for local purposes, presents several problems to the community college administrator who wishes to estimate the economic impact of his community college: the survey is difficult to adapt for a community college; the response rate among students is often too low to yield reliable information; and, most importantly, the development and implementation of the survey is a time-consuming task.... Third, a problem exists with the retail gravity model that was designed to enable researchers to determine the percentage of non-housing expenditures that an individual is likely to make in his local environment. The model is based on the gravity theory which states that the amount of money spent for non-housing expenditures is inversely proportional to the square of the distance to the point of purchase. This model presents certain problems to the community college economic impact estimator: The inherent mathematical complexity of the concept; the difficulty in obtaining appropriate retail sales data; and the difficulty in operationalizing a "sales area." [Ryan and Malgieri, 1992, pp. 4-5] Because of these objections, the "short cut" method was developed, and because both an improved version of the "short cut" method (the EACUBO model) and a statewide model (IMPAC) were available, the 1994 study presented results based upon three different economic impact models. This present study relies solely upon the EACUBO model and uses data. It is figures derived from the EACUBO model which have proved most useful to college officials when discussing the economic impact of PVCC upon its service region. The reason for this is that the EACUBO model is more accurate and sophisticated than the "short cut" model and is more applicable to community 2

6 colleges than the IMPAC model. There are limitations to the EACUBO model, however. As noted by its developers, Any study of this type only provides estimates of the real economic impact that colleges have on an area. Not included in this model are the following: expansion of the credit base of local banks due to college-related deposits expenditures by visitors to college-related events state and local taxes paid by employees increases in sales tax revenue due to college-related expenditures estimates of tax revenues foregone because of college property being tax-exempt These exclusions insure underestimation of the actual economic impact while simplifying data collection. [EACUBO, 1989, p. A9] One further limitation specific to PVCC which should be mentioned is that the capital construction costs of the new humanities and social sciences building, which began construction in , are not included. Before presenting results of the EACUBO model, it is worth discussing briefly the multiplier effect in economic impact analysis, because this is what drives the total estimated economic impact of an institution upon its community. The multiplier effect is based upon the notion that a portion of the money spent locally by residents results in additional jobs and services. As Caffrey and Isaacs note, approximately 35 cents of every dollar spent by community residents in local businesses is returned to the spenders as income. The remaining 65 cents is spent by the businesses for supplies and services from other businesses-- locally, statewide, and nationally. A portion of this, again, is spent on additional supplies and services, and this cycle continues, with diminishing returns each time, until eventually the income received by local residents from the initial dollar spent totals approximately 66 cents. The ratio of the total income, 66 cents, to the initial income received, 35 cents, is typically almost two to one, so that if a college has a direct economic impact of, say, $1,500,000, the indirect economic impact, using the multiplier of two, would be $3,000,000. Two multipliers are required by the EACUBO model, one for the local region and one for the state. Depending upon the geographical region of the country in which a community college is located, local multipliers range from 1.2 to 3.0, with 1.9 being an average. State multipliers are slightly higher, because states have such varied economic bases that fewer dollars are spent in neighboring states. The multiplier figures themselves are obtained from RIMS II (Regional Input-Output Modeling System), published by the U.S. Bureau of Economic Analysis. RIMS II consists of voluminous tables of input-output coefficients. 3

7 The multiplier selected from RIMS II for the local economy, 1.956, is the household sector multiplier for the Charlottesville MSA (Metropolitan Statistical Area). For the state as a whole, a multiplier of 2.10 was selected. Results Table 1 presents the economic impact of PVCC upon the service region. As can be seen, college expenditures within the service region included expenditures in the region by PVCC ($757,183), as well as student activity expenditures ($15,381), for a total of $772,564. Full-time students spent $5,172,930 within the service region, and part-time students spent $7,804,980, for a total of $12,977,910. Table 1: Economic Impact of PVCC Upon Its Service Region Item Amount College expenditures in service region $757,183 Student activity expenditures in service region $15,381 Total college expenditures in service region $772,564 Disposable income of service region employees spent in region on non-housing items $1,873,955 Expenditures of non-service region employees in-region on non-housing items (full-time) $11,000 Expenditures of non-service region employees in-region on non-housing items (part-time) $18,500 Rental expenditures by full-time college staff living in service region $269,422 Total employee expenditures $2,172,877 Expenditures by full-time students $5,172,930 Expenditures by part-time students $7,804,980 Total student expenditures $12,977,910 Total direct economic impact of PVCC on the service region $15,923,351 Mulitiplier effect Total estimated economic impact of PCC on the service region $31,146,075 Full-time employees living in the service region 213 Jobs related to PVCC 639 Full-time employment related to PVCC 852 Ratio of local government contribution to total economic impact $1.00 to $1,

8 Employee expenditures included $1,873,955 spent on non-housing items within the service region by employees living within the service region; $29,500 spent on non-housing items within the service region by employees living outside the service region; and $269,422 in rental expenditures by full-time college staff living within the service region. Rental expenditures were based upon 1990 census data. The total for employee expenditures was $2,172,877.. Combining college, employee, and student expenditures, the direct economic impact of PVCC upon its service region in was $15,923,351. Using multiplier analysis, the total estimated economic impact was $31,146,075. A total of 639 full-time jobs were directly related to the college. This figure is based upon FTE (full-time equivalent) figures derived from the model. A total of 852 full-time jobs were either directly or indirectly related to PVCC. What this means is that 213 additional jobs exist within the service region because of opportunities provided by the college. As far as the college's impact upon the State of Virginia as a whole, the direct economic impact was $16,224,436, and the total estimated impact was $34,071,316 (see Table 2). Six-hundred fifty-one full-time jobs were directly related to PVCC, and 885 were directly or indirectly related to the college throughout the Commonwealth. 5

9 Table 2: Economic Impact of PVCC Upon the State Item Amount College expenditures in State $875,493 Student activity expenditures in State $17,784 Total college expenditures in State $893,277 Employee non-housing expenditures $2,058,711 Expenditures of out-of-state employees in-state on nonhousing items (full-time) $0 Expenditures of out-of-state employees in-state on nonhousing items (part-time) $0 Rental expenditures by full-time college staff living in service region $294,538 Total employee expenditures $2,353,249 Expenditures by full-time students $5,172,930 Expenditures by part-time students $7,804,980 Total student expenditures $12,977,910 Total direct economic impact of PVCC on the service region $16,224,436 Mulitiplier effect 2.1 Total estimated economic impact of PCC on the service region $34,071,316 Full-time employees living in the service region 234 Jobs related to PVCC 651 Full-time employment related to PVCC 885 Ratio of local government contribution to total economic impact $1.00 to $6.20 As should be evident from these figures, in terms of economic investment, PVCC is a bargain. For every dollar of state funds invested in the college, $6.20 is returned, and for every dollar of local funds invested, $1, is returned. A comparison of these figures with figures used in the 1994 economic impact study is presented in Table 3. As can be seen, both the direct economic impact upon the service region and the total estimated impact have increased by 26% in four years. One-hundred thirty-two more full-time jobs within the service region are directly attributable to PVCC, and 125 more full-time job opportunities are provided by the college. The sponsor ratio for the service region has declined slightly, but for the state, it has risen. These changes in sponsor ratio are the result of declining state support and increasing local government support of community colleges within the last four years. 6

10 Table 3: Comparison of PVCC Economic Impact Figures Between and Item Figures Figures Difference Service Region College expenditures $772,564 $240,647 $531,917 Employee expenditures $2,172,877 $1,660,437 $512,440 Student expenditures $12,977,910 $10,741,680 $2,236,230 Direct economic impact $15,923,351 $12,642,764 $3,280,587 Total estimated economic Impact $31,146,075 $24,729,299 $6,416,776 Jobs related to PVCC Total full-time employment related to PVCC Ratio of local government contribution to total economic impact $1.00 to $1.00 to $1, $1, $26.52 State College expenditures $893,277 $1,203,368 -$310,091 Employee expenditures $2,353,249 $1,782,294 $570,955 Student expenditures $12,977,910 $10,741,680 $2,236,230 Direct economic impact $16,224,436 $13,727,342 $2,497,094 Total estimated economic Impact $34,071,316 $26,850,681 $7,220,635 Jobs related to PVCC Total full-time employment related to PVCC Ratio of State contribution to total economic impact $1.00 to $6.20 $1.00 to $6.13 $0.07 Conclusions In summary, PVCC has a direct economic impact upon the service region of nearly 16 million dollars and a total estimated impact of 31 million dollars. Two-hundred thirteen additional jobs exist within the service region because the college is located there. For every local dollar spent in support of PVCC, $1, is generated. The college's impact upon the state is even greater. The direct economic impact is over 16 million dollars and the total estimated impact is 34 million dollars. Two-hundred twenty-four additional jobs exist within the state because of PVCC's presence. Even though the college is heavily subsidized by the state, for every state dollar spent, the college returns $6.20. Clearly, PVCC has a considerable economic impact upon the region it serves. Economically, as well as educationally, the college is certainly one of the best bargains around. For every dollar spent by localities in support of the college, nearly $1,600 is returned. Few investments yield this rate of return, and viewed from this perspective, PVCC is an investor's dream. 7

11 Selected Bibliography Caffrey, John, and Isaacs, Herbert H., Estimating the Impact of a College or University on the Local Economy (Washington, D.C.: American Council of Education, 1971). Eastern Association of College and University Business Officers, Two-Year College Committee, The Economic Impact of Colleges on Their Communities and States (Jamestown, NY: Jamestown Community College, 1989). Head, Ronald B., The Economic Impact of Piedmont Virginia Community College Upon Its Service Region, PVCC Institutional Research Report No (Charlottesville, VA: Piedmont Virginia Community College, March 1994). Knapp, John L., Fox, Tyler J., McGrath, Richard D., and Cox, Robert W., The University of Virginia's Impact on the Charlottesville Metropolitan Area (Charlottesville, VA: University of Virginia, Center for Public Service, October 1990). Lang, Ann D., An Economic Impact Analysis of the Piedmont Virginia Community College (Richmond, VA: Virginia Employment Commission, Economic Information Services, March 1994). Ryan, G. Jeremiah, and Malgieri, Patricia, Economic Impact Studies in Community Colleges: The Short Cut Method, Paper No. 48 (National Council for Resource Development Resource, February 1992). U.S. Department of Commerce, Regional Multipliers: A User Handbook for the Regional Input-Output Modeling System (RIMS II) (Washington, D.C.: Bureau of Economic Analysis, May 1986). 8