Economic Impact

Introduction

How do the Blackhawk Technical College District economy and the State of Wisconsin benefit from the presence of Blackhawk Technical College (BTC)?

An obvious question often asked, but rarely answered with more than anecdotes. The Association for Community College Trustees (ACCT) has teamed with CC Benefits, Inc. to develop a model to capture the economic and social benefits of technical colleges (TCs). The model took over a year to develop, relies on data collected from individual TCs, and translates these into common sense benefit-cost and investment terms. It has been subjected to peer review, field tested on over 40 different TCs throughout the nation, and now applied to BTC. 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, and lower welfare and unemployment); and (4) the return to state and local government taxpayers for their TC support.

The Results

This executive summary does not include explanations of how the results were derived. The reader is encouraged to consult the main report “The Socioeconomic Benefits Generated by Blackhawk Technical College” containing the detailed assumptions, their context, and the computation procedures.

Regional Perspective—the Blackhawk Technical College District Economy

The existence of BTC explains $76 million of all annual earnings in the Blackhawk Technical College District economy (see map). The earnings explained by BTC are equal to that of roughly 2,810 jobs. The earnings and job effects break down as follows:

BTC Operations and Capital Spending

BTC pays wages and salaries, which generate additional incomes as they are spent. Likewise, BTC operating and capital expenditures generate still further earnings. Altogether, these earnings account for $17.3 million annually in the Blackhawk Technical College District economy (equal to that of 640 jobs).

Higher Earnings due to Past Instruction

Each year students leave BTC and join or rejoin the local workforce. Their added skills translate to higher earnings and a more competitive Blackhawk Technical College District regional economy. Given past enrollments and credit hours, the present day Blackhawk Technical College District workforce embodies an estimated 1.0 million credits of past instruction (credit and non-credit hours). The accumulated contribution of past BTC instruction adds some $58.8 million in annual earnings to the Blackhawk Technical College District regional economy (equal to that of 2,170 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 BTC students will, on average, earn $130 more per year, every year they are in the workforce. Alternatively, for every full-time year they attend they will earn an additional $3,906 per year. In the aggregate (all exiting students), the higher earnings amount to some $7.0 million per year, every year they remain in the workforce.

From an investment standpoint, BTC students will enjoy a 23% return, 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 3.5, i.e., for every $1 the student invests in BTC education, he or she will receive $3.54 in higher future earnings. The payback period (the time needed to recover all of the investments in the education obtained) is 5.6 years.

Taxpayer Perspectives

State and local government spent $15,554,070 in support of BTC 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 $40 per credit per year that can be counted as an indirect benefit of BTC education. When aggregated across all exiting students, the State of Wisconsin will benefit from $1.5 million worth of avoided costs per year, broken down as follows:

Improved Health

Blackhawk Technical College District area employers will see health-related absenteeism decline by 4,096 days per year, with a corresponding annual dollar savings of $0.4 million. The state will benefit from the health-related savings of 188 fewer smokers and 48 fewer alcohol abusers. The corresponding dollar savings are $275,600 and $169,200 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 Blackhawk Technical College District, 31 fewer individuals will be incarcerated per year, resulting in annual savings of $200,000 (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 $65,000 per year. Finally, people employed rather than incarcerated add $105,000 of earnings per year to the economy.

Reduced Welfare/Unemployment

There will be 47 fewer people on welfare, and 23 fewer drawing unemployment benefits per year, respectively saving some $141,000 and $95,000 per year in the state.

Taxpayer Return on Investment

Absent state and local government support, BTC would have to shut its doors and none of the benefits described above would occur. For this reason, it is legitimate to count total benefits against state and local government support. The return on state and local government investments in BTC is obtained by projecting educational benefits into the future, discounting them back to present, and weighing these against the $15,554,070 state and local taxpayers annually spend in support of the college. Two perspectives are possible, one broad and one narrow.

Broad Perspective

The public can expect their investment in BTC to result in higher lifetime earnings for students, and social savings from lifestyle changes (including reduced crime, welfare and unemployment, and improvements in health). From a broad investment perspective, the value of all future earnings and associated social savings are compared against one year of state and local taxpayer support. Following this procedure, BTC provides a state and local taxpayer return on investment in excess of 100% per year. The B/C ratio is 10.8—every dollar of state or local tax money invested in BTC today returns $10.84. Finally, the payback period is 2.2 years – the one-year of state and local government support is recovered in increased earnings and social savings within 2.2 years.

Narrow Perspective

The narrow perspective limits the benefit stream to actual state and local government 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 savings of state and local government expenditures. Note here that governments typically undertake tasks that the public wants yet private industry finds unprofitable—government rarely “makes money” on its endeavors. 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 typically assumed in public project analysis) would be a most favorable result, certainly one that justifies continued taxpayer support of BTC. The results indicate just that—a state and local taxpayer return on investment of 14.6% per year. The B/C ratio is 2.11—every dollar of state or local tax money invested in BTC today returns $2.11. Finally, the payback period is 7.7 years – the one-year of state and local government support is returned to state and local coffers within 7.7 years.

Conclusion

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