Center for Business and Economic Research
August 2014
Samuel Addy and Ahmad Ijaz
[email protected] [email protected]
Center for Business and Economic Research
UA 2012-2013 Economic Impacts on Alabama and Tuscaloosa MSA
CBER, UA
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2012-2013 Economic Impacts of The University of Alabama
Samuel Addy and Ahmad Ijaz
August 2014
Highlights
Economic and fiscal impacts of The University of Alabama (UA) on the State of Alabama
for the 2012-2013 academic year, were $2.344 billion, 11,900 jobs, and $106.6 million in
income and sales taxes ($32.7 million state sales tax, $33.1 million state income tax, and
$40.8 million local sales tax). The $2.3 billion impact means that UA created a $16.66
impact for every $1 of state appropriation. Home football games had a statewide impact of
$177.9 million, an average of $25.4 million per game.
Alabama will realize a 16.7 percent annual rate of return on the $140.7 million state
appropriation because over their careers UA’s 2012-2013 graduating class will pay $1.2
billion more income and sales taxes ($849.2 million state and $361.2 million local) than
they would have without their UA degrees.
UA is a very attractive investment for Alabama and also for its graduates. The real annual
return on investment (ROI) for the UA 2012-2013 graduating class ranges from 6.5
percent to 10.5 percent depending on the degree attained compared to a high school
graduate; marginal real annual ROIs ranges from 6.5 percent to 19.3 percent.
The UA economic impacts on the three-county Tuscaloosa metro area were $1.651 billion,
11,115 jobs, and $32.0 million in local sales tax; the average impact per home football
game was about $18.2 million for a total of $127.7 million.
UA also provides many other public and private benefits through wide-ranging service and
outreach programs that contribute significantly to economic development of Alabama and
the Tuscaloosa metro area.
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Introduction
This report presents economic and
fiscal impacts of The University of
Alabama (UA) on the State of
Alabama and the three-county
Tuscaloosa metro area for the 20122013 academic year. Expenditure and
employment impacts are presented as
well as return on investment analyses
of a UA education from public and
private perspectives because state
appropriations and tuition and other
attendance costs can be considered as
investments by the state and students,
respectively. Results show that these
are worthwhile investments and that
UA had significant impacts on the
state and metro area economies.
With increasing enrollment and
employment of faculty and staff, the
University’s impacts continue to hit
record highs each year.
UA focuses on being a student-centered research university and an academic community that is
united in its commitment to enhancing the quality of life for all Alabamians. The University’s
mission is to advance the intellectual and social condition of the people of Alabama through
quality programs of teaching, research, and service. The vision is to be the university of choice
for the best and brightest state students and other students seeking exceptional educational
opportunities.
UA provides numerous benefits that have lasting impacts on the general public and its graduates
through its teaching, research, and service activities. The University provides jobs, generates
large tax revenues, promotes innovation, assists in business creation and growth, and facilitates
economic development by making the region and state attractive for business and industry location
and expansion. UA also improves workforce skills and the general quality of life in the Tuscaloosa
metro area, the state, and the nation. Graduates’ learning abilities and intellectual growth are
enhanced, enabling them to earn higher incomes, and contribute significantly in various ways to
society. Higher incomes generate more tax revenues for the state and local (county and city) tax
jurisdictions. UA contributes immensely to economic development statewide through wideranging service and outreach programs with links to communities, business, industry, government,
and individuals.
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The University employed 6,034 faculty and staff in the 2012-2013 academic year and had
additional student employment that we estimate to be an extra 1,849 UA faculty/staff equivalent.
UA expenditures for the year totaled nearly $1.2 billion and comprised University spending of
$381.1 million on payroll and $419.6 million on purchases; students spent $398.2 million on offcampus housing, food, books, clothing, etc.
UA Direct 2012-2013 Expenditures
Total: $1,198,852,020
Students
$398,183,700
33%
Payroll
$381,053,756
32%
Other expenses
$419,614,564
35%
Visitors to the University also make additional expenditures that increase the UA spending
impact. Football alone had a per home game visitor expenditure impact of about $18.2 million in
the Tuscaloosa metro area and $25.4 million statewide. UA visitors include athletic event
spectators, parents and relatives, other institutions’ academic personnel, business representatives,
and others. Visitors are drawn to activities such as honors day, commencement ceremonies,
homecoming, band competitions, and alumni weekends and reunions. Academic and business
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visitors attend conferences, seminars, lectures, and other educational programs. Other visitors
include media representatives, education officials, vendors, research sponsors, and candidates for
faculty and staff positions.
Direct UA spending generates rounds of spending in the metro area and the state that are
captured by multipliers from the Regional Input-Output Modeling System (RIMS II). RIMS II is
an input-output model developed and maintained by the U.S. Department of Commerce’s Bureau
of Economic Analysis; the model is available for states, metro areas and county groupings, and
counties in the nation. An economic and fiscal impacts model that uses RIMS II multipliers for
Alabama and the Tuscaloosa metro area was developed and used in this study.
Fiscal impacts focus on income and sales taxes only; examples of other fiscal impacts not reported
here include property, lodgings, and utility taxes and car tags and fees. Fiscal impacts are derived
from earnings impacts, recognizing that not all of the earnings impact is taxable. Expenditures on
sales taxable items constitute 42.4 percent of earnings and state taxable income is about 66 percent
of earnings. The state income tax rate is 5.0 percent on net income; actually the first $500 and the
next $2,500 are taxed at 2.0 percent and 4.0 percent, respectively, for filers who are single, heads
of family, and married but filing separately. For married joint filers the first $1,000 and the next
$5,000 are taxed at 2.0 percent and 4.0 percent, respectively. Excess net income is taxed at the
5.0 percent rate. Sales tax rates of 4.0 percent for state and 5.0 percent for local (combined county
and city) jurisdictions are used. Combined county and city sales tax rates vary between 3.0 to 7.0
percent among the 67 Alabama counties, but are most frequently at 5.0 percent.
UA Economic Impacts on Alabama
Of the nearly $1.2 billion total 2012-2013 UA spending, it
is estimated that $1.0 billion was made in Alabama from
95 percent of payroll, 63 percent of purchases, and all
student expenses (Table 1). In addition, there is a visitor
impact of $249.2 million that comprises $186.0 million
from athletics and $63.2 million from other visitor
spending—$177.9 million is from the seven home football
games at about $25.4 million each. The economic impacts
of UA on the state for the academic year rose by roughly
$85.2 million and 344 jobs from the previous year to
record levels of $2.344 billion (with a contribution to
gross domestic product or GDP of $1.337 billion) and
11,899 jobs. Fiscal impacts of $106.6 million comprised
$65.7 million in state tax revenues ($32.7 million sales
and $33.1 million income) and $40.8 million in local
sales taxes.
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UA 2012-2013 Economic Impact on Alabama
Employment Impact: 11,899 Jobs
Expenditure Impact: $2.344 billion
Visitors
$249,170,717
11%
Payroll
$739,676,783
31%
Students
$813,608,754
35%
Other expenses
$541,310,624
23%
Table 1. The University of Alabama 2012-2013 Expenditure Impacts on Alabama
(Millions of dollars)
Direct
Spent in
Indirect
Total
Source
Spending
Alabama
Impact
Impact
The University of Alabama
Payroll
$381.1
$362.0
$377.7
$739.7
Purchases
$419.6
$264.9
$276.4
$541.3
Subtotal
$800.7
$626.9
$654.1
$1,281.0
Student Spending
$398.2
$398.2
$415.4
$813.6
Visitor Spending
$249.2
Total
$1,198.9
$1,025.1
$1,069.5
$2,343.8
Contribution to GDP
$1,366.8
Employment Impact (Jobs)
11,899
Statewide Fiscal Impact
State Sales Tax
State Income Tax
Local (City and County) Sales Tax
$106.6
$32.7
$33.1
$40.8
Note: Rounding effects may be present.
Source: Center for Business and Economic Research, The University of Alabama.
UA Education as Public Investment
The 2012-2013 economic and fiscal impacts on the state are only part of what Alabama gets in
return for the state appropriation to UA. Many public benefits of education are hard to measure—
innovation promotion, direct and indirect new business development and job creation, general
improvements in quality of life, public service, etc.—but others such as additional tax receipts can
be determined. From a public investment perspective, additional tax revenues can be considered
as returns to state appropriation. To determine the return on this investment, we assume that 30
percent of the graduating class will reside permanently out of state and also that sales and income
taxes stay at current rates.
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Over the working life of the 2012-2013 graduating class, a UA
education will enable generation of $1.210 billion additional
income and sales taxes; $849.1 million in state only sales and
income tax collections and $361.2 million local sales taxes.
These additional tax collections yield annual rates of return
on the state’s investment that are better than stock market
performance. The $140.7 million state appropriation for 20122013 is offset in the same year by the statewide sales and income tax receipts noted previously.
Thus, the state’s net investment is $75.0 million if just state tax receipts are considered or $34.1
million if both state and local tax receipts are considered. The $849.1 million of state tax receipts
yields a 12.9 percent annual rate of return if the focus is only on state tax receipts. Alternatively,
the total $1.2 billion additional taxes gets annual rates of return of 31.2 percent on a $34.1 million
net investment and 16.7 percent on a net investment of $75.0 million. These rates of return are
conservative as there are additional tax and other government revenues that are not considered
here (e.g., property taxes and vehicle registration and tag fees).
UA Economic Impacts on Tuscaloosa Metro Area
Of the total UA expenditure, we estimate that 75 percent of payroll, 44 percent of purchases, and
all student expenditures were made in the metro area for a total of $869.4 million (Table 2). This
resulted in an impact of $1.651 billion, including a visitor expenditure impact of $178.9 million
that consists of about $133.5 million from athletics and $45.4 million from other visitor
expenditures. The University also had an employment impact of 11,115 jobs for the metro area.
Football provided a visitor expenditure impact of $127.7 million from the home games played in
Tuscaloosa, with an average impact per game of about $18.2 million. Other athletics—baseball,
basketball, gymnastics, softball, swimming, etc.—are conservatively estimated to have had a $5.8
million impact. About $32.0 million in local sales tax revenues for the metro area’s counties and
cities are generated.
Table 2. The University of Alabama 2012-2013 Expenditure Impacts on Tuscaloosa Metro Area
(Millions of dollars)
Direct
Spent in
Indirect
Source
Spending
Metro Area
Impact
Total Impact
The University of Alabama
Payroll
Purchases
Subtotal
Student Expenditures
Visitor Expenditures
Total
Employment Impact (Jobs)
$381.1
$419.6
$800.7
$398.2
$285.8
$185.4
$471.2
$398.2
$198.2
$128.6
$326.8
$276.1
$1,198.9
$869.4
$602.9
Local (City and County) Sales Tax
$484.0
$314.0
$798.0
$674.3
$178.9
$1,651.2
11,115
$32.0
Note: Rounding effects may be present.
Source: Center for Business and Economic Research, The University of Alabama.
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UA 2012-2013 Economic Impact on Tuscaloosa Metro Area
Employment Impact: 11,115 Jobs
Visitors
$178,924,319
11%
Students
$674,284,278
41%
Expenditure Impact: $1.651 billion
Payroll
$483,957,323
29%
Other expenses
$314,030,630
19%
UA Education as Private Investment
The University of Alabama education is also an investment by the students who enroll in UA
degree programs. There are many benefits for these students from getting a UA education
including the fact that education is its own reward. The ability to learn and grow intellectually
greatly increases graduates’ earning potential. However, a college degree comes at a cost that
includes the obvious cost of the education (tuition, room and board, books, etc.), as well as
forgone earnings while in school.
The forgone earnings, often called the opportunity cost, is taken to be the earnings potential of the
educational level immediately below the graduate’s highest degree. For example, the opportunity
cost of getting a master’s degree is the earnings potential of a bachelor’s degree holder. The cost of
study is therefore the opportunity cost plus the direct expenditure to obtain the degree. This cost
is the actual marginal cost of pursuing the degree, which can be compared to the marginal benefit
or addition to value (called value added) for the graduate, to determine whether the decision to
obtain a UA degree is prudent. Value added is the difference in salaries of a particular degree
graduate with that of a specified reference. High school graduation is used as general reference,
but for marginal value added the reference is the prior degree level.
Half the opportunity cost is included in the marginal cost of the UA degree since many students
work while pursuing their education. A category of people with “some college” is included in the
study to capture individuals who began college but did not complete the bachelor’s degree
requirements. These individuals will earn more income in their working lives than high school
graduates will without college experience.
In the marginal analysis, the average doctoral degree salary is compared to that of the master’s
degree, a master’s is compared to a bachelor’s, and a bachelor’s to a high school graduate with
some college experience. The value added of people with some college is obtained by comparing
their income to that of high school graduates. Table 3 shows the results of the investment analysis
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with the assumption that graduates will retire at 67 years of
age. The table also shows lifetime earnings in both current
and real (year 2013) dollars. Expected lifetime earnings
increase from about $2.7 million for a high school graduate
to $8.4 million for the doctoral degree; the corresponding
real lifetime earnings range is $1.2 million to $4.4 million.
The investment analysis was performed using real or
constant year 2013 dollars. The real annual return on
investment (ROI) for students with a UA education was
determined by generating annual cost and income streams
over the different working lifetimes of the categories being
considered. People with some college will have real
lifetime earnings of about $1.5 million, nearly $263,000
more than a high school graduate, which yields an 6.5
percent real annual ROI on their UA investment.
Bachelor’s and master’s degree holders will earn marginal value added of roughly $717,000 (an
11.4 percent ROI) and $871,000 (a 19.3 percent ROI), respectively. A doctorate will earn $1.3
million more than a master’s, yielding a 17.2 percent real annual ROI. Using high school
graduation as a reference (i.e., attending UA instead of ending schooling at high school
graduation), the doctorate yields the greatest real annual ROI with 10.5 percent, followed by 10.3
percent for the master’, 8.7 percent for the bachelor’s, and 6.5 for some college.
The positive real rates of return and their magnitude indicate that the decision to pursue a UA
degree is very sensible. The doctoral degree has the highest marginal return on investment and
earns the most, even over the shorter working life. These real investment returns are better than
the long term real returns on investment in U.S. equity markets.
Table 3. UA Education as Private Investment (Class of 2013)
Average Starting Salary ($)
High
School
22,312
Total Cost of Degree (2013 $)
Degree/Diploma
Some
College Bachelor’s
Master’s
25,708
38,358
56,900
Doctorate
89,097
73,273
191,673
285,409
453,959
1,474,058
2,191,042
3,061,686
4,362,609
Incremental Income (2013 $)
262,947
716,984
870,644
1,300,923
Real Annual Return on Investment
6.5%
11.4%
19.3%
17.2%
Real Return Relative to High School
6.5%
8.7%
10.3%
10.5%
3,264,915
4,631,497
6,218,327
8,356,243
527,811
1,366,582
1,586,831
2,137,915
Lifetime Earnings (2013 $)
Lifetime Earnings (Current $)
Incremental Income (Current $)
1,211,111
2,737,104
Note: Rounding effects may be present. Total cost of degree is the direct cost of the education (tuition, room and
board, books, etc.), as well as forgone earnings while in school.
Source: Center for Business and Economic Research, The University of Alabama.
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Real Annual Rates of Return of a UA Education by Degree
(Class of 2012-2013)
25%
Marginal Return
20%
19.3%
Relative to High School
17.2%
15%
11.4%
8.7%
10%
10.5%
10.3%
6.5% 6.5%
5%
0%
Some College
Bachelor's
Master's
Doctorate
Conclusions and Discussions
The 2012-2013 University of Alabama
economic impacts on the State of Alabama
were $2.344 billion expenditure impact and
11,899 jobs. The University is also an excellent
investment opportunity for the state, yielding a
16.7 percent annual rate of return on its state
appropriations. The economic impacts on the
Tuscaloosa metro area are $1.651 billion and
11,115 jobs.
A UA education is a very high-yielding investment for students. The real annual rate of return on
some college attendance is 6.5 percent over a high school graduate. The bachelor’s degree has an
11.4 percent real annual rate of return over some college attendance, and the master’s degree
yields a 19.3 percent return over a bachelor’s degree. The doctorate provides a 17.2 percent
marginal return over the master’s and has the highest lifetime earnings.
Any study of this kind has some uncertainties. The real rates of earnings growth may change. So
can income and sales tax rates, rate of alumni residence in the state, etc. However, under the
assumptions of this report, a UA education is a very sound investment for students (better than
most stocks and stock indexes) and a better investment for the state than most stocks and bonds.
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In addition, there are several intangible benefits of a
UA education that cannot be measured. The
University produces skilled and knowledgeable
people; provides valuable research, adding to the
stock of knowledge; enhances graduates’ ability to
learn and grow intellectually and to contribute in
various ways to society; facilitates economic
development; and provides valuable service to
Alabama and its counties and communities. Thus
UA delivers tangible and intangible benefits to its
graduates and the state economy; there are also
benefits to the national economy that are not
highlighted here.
It is important to note that there is no economic
development without education. Higher education,
in particular, plays a real and critical role in the
modern high-tech economy. This is because
economic growth is attributable mostly to the
knowledge economy which is characterized by
increasing returns, rather than the physical economy
with its diminishing returns. Physical products
depreciate and become obsolete. Knowledge builds
on prior knowledge and does not depreciate or
become obsolete. The physical products and services
consumed in society are made better mainly with the gains in knowledge provided by higher
education. This makes UA essential to the economic development of the metro area, the state,
and the nation. The 2012-2013 economic impacts of The University of Alabama on Alabama and
the Tuscaloosa metro area certainly exceed by far those we have presented in this report.
Acknowledgments
The staff of the Center for Business and Economic Research (CBER), Financial Affairs (FA), and
the Office of Institutional Research and Assessment (OIRA) provided valuable assistance to the
completion of this report. Ms. Melissa Barnett, Ms. Tina Dorroh, and Ms. April Nelson all of FA,
Dr. Michael O’Rear of OIRA, and Ms. Sherry Lang of CBER were especially helpful.
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