Morehead State University Impact Analysis by Morehead State University

Morehead State University Impact Analysis Prepared by the Center for Business and Economic Research Gatton College of Business and Economics University of Kentucky

15 February 2016 Center for Business and Economic Research Gatton College of Business and Economics University of Kentucky

Dr. Christopher R. Bollinger, Director Dr. Bethany L. Paris, Economic Analyst

Morehead State University Impact Analysis Introduction Universities are a vital part of the economy, making an impact in both the local and state levels. The Center for Business and Economic Research (CBER) set out to analyze the monetary impact of Morehead State University in both of these areas. Measuring the production values of the dollars spent by the university on operations is one way to assess the effect of the institution in surrounding locales. The following pages outline the tools used for analysis and highlight the broader impacts of Morehead State in the Commonwealth of Kentucky and the region it serves.

Analysis For these estimations, CBER utilized the IMPLAN1 modeling system to assess the impacts of Education and General (E&G) Expenses and Transfers from Morehead State University (MSU) in the state and region. E&G Expenses and Transfers represent approximately 85% of the total unrestricted Operating Budget for MSU and are used to fund instruction, public service, administrative support, instructional support, student services, operations and maintenance of E&G facilities, and research. Based on information provided by the Morehead State University Office of Budgets and Financial Planning, CBER assessed the impact of these funds for three fiscal years (2013, 2014, and 2015) across the state of Kentucky and for MSU’s Service Region (22 counties).

Table One: Total Spending by MSU on E&G by Fiscal Year Years 2012-‐2013 2013-‐2014 2014-‐2015

Total E&G Spending $105,764,300 $111,998,900 $114,794,000

Each line item of E&G Expenses was classified into one of three sectors2 in IMPLAN. These sectors correlate with the North American Industry Classification System (NAICS)3, which “[classifies] business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. business economy.”

IMPLAN Group LLC, IMPLAN System (data and software), 16905 Northcross Dr., Suite 120, Huntersville, NC 28078 www.IMPLAN.com. 2 Sector 3473: Junior colleges, colleges, universities, and professional schools Sector 3062: Education buildings, museums, libraries, and dormitories; Maintenance and repair of educational buildings, museums, libraries, etc. Sector 3431: Reference Libraries 3 North American Industry Classification System. 2012. http://www.census.gov/eos/www/naics/index.html

Table Two: List of MSU E&G Budget Items by IMPLAN Sector MSU E&G Budget Item Academic Support Depreciation Institutional Support Instruction Libraries Operation and Maintenance of Plant Other Educational and General Expenses Public Service Research Student Financial Aid Student Services

IMPLAN Sector 3473 -‐ 3062 3473 3431 3062

Sector Description

Colleges, universities, and professional schools -‐ Educational buildings, museums, libraries, and dormitories Colleges, universities, and professional schools Reference Libraries Maintenance and repair of educational buildings, museums, libraries, etc. 473 Colleges, universities, and professional schools

-‐

473 Colleges, universities, and professional schools 473 Colleges, universities, and professional schools -‐ 473 Colleges, universities, and professional schools

Utilizing this sector breakdown, we were able to partition the impact of the dollars spent in these sectors to provide a more rigorous analysis of the direct, indirect, and induced effect of this spending in the local and state economies. Transfers and debt payments (including student financial aid) were not incorporated in the analysis. Across three fiscal years, the majority of E&G spending was on “University Spending,” which includes instruction, research, public service, academic support, student services, and institutional support. Figure One outlines Morehead State’s spending by sector, as it was entered into IMPLAN by sector, for three fiscal years. 2015 saw an increase in building repair and maintenance compared to the two previous fiscal years. This led to a decrease in spending on university operations and libraries. Overall, approximately 72-‐75% of MSU E&G spending was on university operations, 21-‐ 28% was on building maintenance and repair, and 3% on libraries during the 2013-‐2015 fiscal years.

Figure One: MSU Spending by IMPLAN Sectors for FY2013-‐2015

2014

2013 21.19 % 3.13%

23.00 % 2.95%

75.68 %

2015

24.82 % 74.04 %

3.03%

72.16 %

University Spending

Libraries

Building Maintenance and Repair

For each fiscal year, these aggregates were analyzed in order to determine the direct, indirect, and induced effects of “output” or the value added to the specified economy by a specific industry or organization (map of analysis seen in Figure Two). This output can be seen as the value of production or value added by investment that generates a final product or commodity. The direct effect is the shift in production, expenditures, employment, or labor income dollars directly associated with the industry; in other words, for every dollar spent in a specific industry, the direct effect is the output created within that industry, such as a good produced or people employed by a company. The indirect effect is related to the purchase of goods to create a final product. For example, to make meals for students and faculty, MSU needs food stuffs, appliances, and electricity. The direct effect of analyzing this service would be the sale of the primary output, meals. The indirect effect would be employment and expenditures associated with growing the food to be prepared and also generating electricity to run the processing equipment. Finally, induced effects show the impact of employed citizens spending within a specific region; this is linked to employees spending their wages on goods and services. The budget items or inputs were analyzed at the state level and the MSU service region.

Figure Two: Analysis in IMPLAN – Direct, Indirect, and Induced Effects4

Leakages in this scenario are related to monies that cannot be recaptured in the impact model, as the IMPLAN model only utilizes industries within the specified region or state (e.g. only Rowan county). Leakages related to indirect effects, such as imports and taxes, are a “loss” to the model because the related products are not contained to the model. For example (continuing with the food services example), if MSU were to utilized canned tomato products imported from California, these products would be considered a leakage in the model.

Statewide Analysis The primary analysis utilized the numbers for the fiscal years across all counties in Kentucky. This allows us to generalize the effect of the monies spent across all 120 counties. Total population for the state of Kentucky in 2014 was 4,413,457 and GDP was $188 billion (current dollars)5. IMPLAN produces output that aggregates the direct, indirect, and induced effects of dollars spent in an economy, as explained above. Figure three shows the impact of the E&G expenditures across the state of Kentucky across FY2013-‐20156. The total effect of E&G expenditures by MSU increases over time, ranging between $192 million and $210 million in FY2013 to FY2015.

2012 Implan Group LLC, IMPLAN® “BEARFACTS.” Bureau of Economic Analysis. U.S. Department of Commerce. 30 September 2015. 6 All numbers adjusted to 2015 US$ for this analysis. 5

Figure Three: Impact of E&G Expenditures in Kentucky

$250,000,000.00 $200,000,000.00 $150,000,000.00 $100,000,000.00 $50,000,000.00 $-‐

Direct Eﬀect Indirect Eﬀect 2013 $109,932,112.17 $43,975,204.32

Induced Eﬀect $38,923,172.17

Total Eﬀect $192,530,449.00

2014 $111,998,900.00

$44,495,591.28

$40,011,679.00

$196,506,170.00

2015 $120,771,100.00

$47,976,462.39

$41,887,466.98

$210,635,029.00

In all three years, the direct effect makes up approximately 57% of the total effect across the Commonwealth, while the indirect and induced effects are approximately 23% and 20%, respectively.

Figure Four: Percentages of the Total Effect of E&G Expenditures in Kentucky

20%

57%

23%

Direct Eﬀect

Indirect Eﬀect

Induced Eﬀect

Regional Analysis The E&G expenditures were run through IMPLAN a second time in order to assess the impact of this spending on the MSU Service Region, which was limited to: Bath, Boyd, Breathitt, Carter, Elliot, Fleming, Floyd, Greenup, Johnson, Knott, Lawrence, Letcher, Lewis, Magoffin, Martin, Mason, Menifee, Montgomery, Morgan, Pike, Rowan, and Wolfe counties (22 total). For this region, the total effect of E&G expenditures ranges between $168 million and $173 million across the three fiscal years within the analysis. In the regional analysis, the direct effect was a larger component of the total effect. Across the three years in the analysis, the direct effect comprised approximately 66% of the total effect. Indirect and induced effects both dropped to approximately 17% of the total effect.

Figure Five: Impact of E&G Expenditures in MSU Service Region $180,000,000.00 $160,000,000.00 $140,000,000.00 $120,000,000.00 $100,000,000.00 $80,000,000.00 $60,000,000.00 $40,000,000.00 $20,000,000.00 $-‐ 2013

Direct Eﬀect $111,298,607.55

Indirect Eﬀect $29,458,137.28

Induced Eﬀect $27,649,382.49

Total Eﬀect $168,406,127.00

2014

$114,736,658.40

$30,468,879.58

$28,458,320.28

$173,663,858.00

2015

$114,794,000.00

$30,586,306.38

$28,308,082.32

$173,688,389.00

One interesting outcome of this analysis was the impact on the total effect between fiscal years 2014 and 2015. This “similarity” can be accounted for by the shift in spending across these two years compared to FY13. Five percent of E&G spending shifted to “Building Maintenance and Repairs” from “University Spending” in FY15. This, in turn, shifted funding from Sector 3473 (Junior colleges, colleges, universities, and professional schools) into Sector 3062 (Education buildings, museums, libraries, and dormitories; Maintenance and repair of educational buildings, museums, libraries, etc.) when the funds were entered into IMPLAN for analysis. In addition, E&G spending in FY15 only increased by $2.7 million compared to a $6.2 million increase in FY14. In these type of models, the induced and indirect effects depend upon the type of intermediate inputs. Different intermediate inputs result in different allocation to indirect as opposed to induced. For example, labor intensive types of inputs have a higher induced, while capital or material intensive inputs have a higher indirect effect. Further, indirect effects in particular depend upon the materials purchased. Figure Six (next page) compares the three parts of the total effect for the entire state and the MSU service region in 2015. The direct effect is approximately 66%, which is higher than the same percentages seen at the state level. This shows us that there is a greater direct effect linked to MSU spending within the region than there is across the state, taken as a whole.

Figure Six: Comparison of the Direct Effect of MSU E&G spending between the State and Service Region

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

19.89% 23%

16.30% 17.61% Induced Eﬀect Indirect Eﬀect

57%

State

Direct Eﬀect

66.09%

Region

Conclusions Morehead State University positively impacts the Commonwealth of Kentucky in a variety of ways. As seen in the analysis above, it has a positive total effect on the state and regional economies. In 2015, MSU E&G spending produced a total effect of $210 million, which is comprised of $120 million in direct effect, approximately $50 million impacts local markets from indirect effects, and an additional $41 million in induced effects. Looking at the 22 counties comprising the Service Region, the total effect of MSU spending has a greater direct effect, when compared to the same analysis across the Commonwealth. A number of differences between our approach and those taken in other impact analyses should be noted. First, the present analysis focuses on the direct expenditures of the University. It does not include Student Financial Aid or Depreciation in the calculations because these dollars are not directly tied to the operations and maintenance of MSU. Secondly, like any impact analysis model, the IMPLAN model makes assumptions about the manner in which industries are interconnected. In our experience, the IMPLAN model provides a sharper estimate of what is happening at a local level in Kentucky than other models, which tend to have higher local multipliers. While these may apply in some dense markets (e.g. New York, Los Angeles), they are poor models for local impacts in Kentucky. The present analysis focuses on the monetary impacts of the dollars spent by the University on operations. The greater economic value of universities such as MSU is linked to the educated workforce produced by the university and the impacts of this cohort of citizens on the overall economy. A more educated workforce equals lower unemployment, higher wages, and better overall health.7

More information regarding the impact of education on the Kentucky economy can be found on the CBER website in the Council on Post-‐Secondary Education Policy Brief Series: http://cber.uky.edu/issuebriefs.asp