June 2015
Samuel Addy
[email protected]
and
Ahmad Ijaz
[email protected]
UA 2013-2014 ECONOMIC IMPACT
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ii
2013-2014
ECONOMIC IMPACTS OF THE
UNIVERSITY OF ALABAMA
June 2015
Samuel Addy and
[email protected]
Ahmad Ijaz
[email protected]
HIGHLIGHTS
For the 2013-2014 academic year, economic and fiscal impacts of The University of
Alabama (UA) on the State of Alabama were $2.5 billion, 12,132 jobs, and $111.5 million in
income and sales taxes ($34.1 million state sales tax, $34.7 million state income tax, and $42.7
million local sales tax). Compared to $144.2 million state appropriation for the year, the $2.5
billion impact translates into a $17.06 impact for every $1 of state appropriation. The seven home
football games had a total statewide impact of $180.7 million, an average of $25.8 million per game.
The State of Alabama will realize a 17.0 percent annual rate of return on its $144.2 million
fiscal year 2014 appropriation to the university because over their careers the UA 2013-2014
graduating class will pay additional taxes of $885.3 million in state income and sales taxes and
$376.6 million in local sales taxes than they would have without their UA degrees.
Attending UA is also a very attractive investment for its graduates. The real annual return
on investment (ROI) for the UA 2013-2014 graduating class ranges from 8.6 percent to 10.3
percent depending on the degree attained compared to a high school graduate; marginal real
annual ROIs ranges from 8.6 percent to 21.3 percent.
The UA economic impacts on the three-county Tuscaloosa metro area were $1.7 billion,
11,333 jobs, and $33.5 million in local sales tax; the average impact per home football game
was $18.5 million for a total of $129.8 million.
In addition to its main high-skill high-earning workforce development focus, UA also
provides many other public and private benefits through wide-ranging research, service,
and outreach programs that contribute significantly to economic development of Alabama and the
Tuscaloosa metro area.
UA 2013-2014 ECONOMIC IMPACT
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INTRODUCTION
T
his 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
2013-2014 academic year. Both expenditure
and employment impacts are presented as well
as return on investment (ROI) 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. The results show that these are
worthwhile investments and that UA had
significant impacts on the state and metro area
economies.
and contribute significantly in various ways
to society. Higher incomes generate more tax
revenues for the state and local (county and city)
tax jurisdictions.
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. These programs
are wide-ranging and enable the university to
make significant contributions to economic
development statewide that benefit communities,
business, industry, government, and individuals.
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 vision
is to be the university of choice for the best
and brightest state students and other students
seeking exceptional educational opportunities.
UA Direct 2013-2014
Expenditures
UA delivers numerous benefits that have
long-lasting impacts on the general public
and its graduates. 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
The University employed 6,230 faculty and
staff in the 2013-2014 academic year and had
additional student employment that we estimate
to be an extra 1,807 UA faculty/staff equivalent.
Total UA expenditures for the year was $1.251
billion and comprised University spending of
$400.2 million on payroll and $434.6 million
on purchases together with student spending
of $416.8 million on off-campus housing, food,
clothing, etc.
Students
$416,760,216
33%
Other
$434,626,610
35%
Payroll
$400,168,780
32%
TOTAL
$1,251,555,606
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 $18.5
million in the Tuscaloosa metro area and $25.8
million statewide. UA visitors include athletic
event spectators, parents and relatives, other
UA 2013-2014 ECONOMIC IMPACT
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INTRODUCTION
institutions’ academic personnel, business
representatives, media representatives,
education officials, vendors, research sponsors,
and candidates for faculty and staff positions.
Visitors are drawn to activities such as
conferences, seminars, lectures, sports events,
honors day, commencement ceremonies,
homecoming, band competitions, alumni
weekends and reunions, and other educational
programs.
value-added, which is the contribution to
gross domestic product (GDP) or the value of
goods and services produced on a value-added
basis. Earnings impacts are part of value-added
and are the wages and salaries of the workers
recognized by the employment impact.
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),
which is an input-output model developed
and maintained by the Bureau of Economic
Analysis of the U.S. Department of Commerce.
Multipliers are available for states, metro areas,
counties, and county groupings. A model that
uses RIMS II multipliers for Alabama and the
Tuscaloosa metro area combined with state and
region specific tax information was developed
and used in this study. The economic impacts
focus on output, value-added, earnings (wages
and salaries), and employment. Output refers
to total or gross business sales and contains
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. State law in 2006 increased the
individual income tax threshold by increasing
the standard deduction for taxpayers with
adjusted gross income of $30,000 or less
and by increasing the dependent exemption
for taxpayers with adjusted gross income of
$100,000 or less.
The fiscal impacts are conservative because they
are derived from earnings impacts and focus
only on income and sales taxes; examples of
other fiscal impacts not reported here include
property, corporate income,
lodgings, utility, and car
tags and fees. Not all of the
earnings impact is taxable.
Spending on sales taxable
items constitute 42.4 percent
of earnings and state taxable
income is about 66 percent
of earnings. 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.
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UA ECONOMIC IMPACTS ON ALABAMA AND RETURN ON PUBLIC INVESTMENT
W
ith increasing enrollment and
employment of faculty and staff,
the university’s impacts continue
to rise to record
levels. Of the total
2013-2014 direct UA
spending, about $1.1
billion is estimated
to have been made
in Alabama from 95
percent of payroll, 65
percent of purchases,
and all student
expenses (Table 1).
In addition, there is
a visitor impact of
$257.3 million that
comprises $188.9
million from athletics
and $68.4 million
from other visitor
spending—$180.7 million is from the seven
home football games at about $25.8 million
each. The economic and fiscal impacts of UA
on the state for the academic year were $2.461
billion in output (including a $1.403 billion
contribution to GDP), 12,132 jobs, and $111.5
million in income and
sales taxes ($34.1 million
state sales tax, $34.7
million state income tax,
and $42.7 million local
sales tax).
The 2013-2014 statewide
economic and fiscal
impacts are only part
of what the State of
Alabama gets in return
for its 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
UA 2013-2014 Economic Impact on Alabama
SOURCE
The University of Alabama
Payroll
Purchases
Subtotal
Student Spending
Visitor Spending
Total
Contribution to GDP
DIRECT
SPENDING
(Millions of dollars)
SPENT IN
ALABAMA
INDIRECT
IMPACT
$400.2
$434.6
$834.8
$416.8
$380.2
$281.4
$661.5
$416.8
$396.6
$293.5
$690.2
$434.8
$1,251.6
$1,078.3
$1,125.0
TOTAL
IMPACT
$776.8
$574.9
$1,351.7
$851
$257.3
$2,460.6
$1,403.4
Employment Impact
12,132
Statewide Fiscal Impact
State Sales Tax
State Income Tax
Local (City and County) Sales Tax
$111.5
$34.1
$34.7
$42.7
* Rounding effects may be present
Source: Center for Business and Economic Research, The University of Alabama
UA 2013-2014 ECONOMIC IMPACT
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UA ECONOMIC IMPACTS ON ALABAMA AND RETURN ON PUBLIC INVESTMENT
tax receipts noted previously. Thus, the state’s
net investment is $75.4 million if just state
tax receipts are considered or $32.8 million if
both state and local tax receipts are considered.
The $1.262 billion additional taxes provide
annual rates of return of 17.0 percent on a net
investment of $75.4 million or 33.1 percent on a
$32.8 million net investment. Focusing only on
state tax receipts, the $885.3 million of receipts
on a net investment of $75.4 million yield a 13.1
percent annual rate of return. 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 2013-2014 Economic
Impact on Alabama
Visitors
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.
Over the working life of the 2013-2014
graduating class, the UA education will enable
them to pay $1.262 billion additional Alabama
income and sales taxes than they would
have otherwise; $885.3 million in state only
sales and income tax collections and $376.6
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 $144.2 million state
appropriation for 2013-2014 is offset in the
same year by the statewide sales and income
$257,308,083
10%
Students
Payroll
$776,781,624
32%
Other
$416,760,216
$574,907,727
EMPLOYMNENT
IMPACT
EXPENDITURE
IMPACT
33%
12,132
23%
$2.461 billion
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UA ECONOMIC IMPACTS ON TUSCALOOSA METRO AREA
UA 2013-2014 Economic
Impact on Tuscaloosa
Visitors
Payroll
$184,767,593
$508,234,359
29%
11%
Students
Other
$333,521,324
$705,741,750
EMPLOYMNENT
IMPACT
EXPENDITURE
IMPACT
41%
19%
11,333
$1.732 billion
O
f the total UA expenditure,
we estimate that 75 percent
of payroll, 45 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 $1.732 billion,
including a visitor expenditure impact
of $184.8 million that consists of
about $135.7 million from athletics
and $49.1 million from other visitor
expenditures. The University also had
an employment impact of 11,333 jobs
for the metro area. Football provided
a visitor expenditure impact of $129.8
million from the home games played
in Tuscaloosa, with an average impact
per game of about $18.5 million.
Other athletics—baseball, basketball,
gymnastics, softball, swimming, etc.—
are conservatively estimated to have
had a $5.9 million impact. About $33.5
million in local sales tax revenues for
the metro area’s counties and cities are
generated.
UA 2013-2014 Economic Impact on Tuscaloosa
SOURCE
The University of Alabama
Payroll
Purchases
Subtotal
Student Expenditures
Visitor Expenditures
Total
Employment Impact
DIRECT
SPENDING
SPENT IN
METRO AREA
(Millions of dollars)
INDIRECT
IMPACT
$400.2
$434.6
$834.8
$416.8
$300.1
$197.0
$497.1
$416.8
$208.1
$136.6
$344.7
$289.0
$1,251.6
$913.8
$633.7
TOTAL
IMPACT
$508.2
$333.5
$841.8
$705.7
$184.8
$1,732.3
11,333
Local (city and County) Sales Tax
* Rounding effects may be present
$33.5
Source: Center for Business and Economic Research, The University of Alabama
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EDUCATION AS PRIVATE INVESTMENT
T
he University of Alabama education
is also an investment by the students
who enroll in UA degree programs.
There are many benefits 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.
high school graduation as one reference and the
prior degree level as a second reference.
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
UA Education as Private Investment (Class of 2014)
HIGH
SCHOOL
SOME
COLLEGE
Average Starting Salary
$22,864
$28,076
Total Cost of Degree (2014)*
$74,622
Lifetime Earnings (2014)
$1,241,067 $1,609,827
Incremental Income (2014)
$368,760
Real Annual Return on Invest.
8.6%
8.6%
Real Return Relative to High School
$2,804,805 $3,565,632
Lifetime Earnings (Current)
$760,828
Incremental Income (Current)
BACHELOR’S
$37,608
$199,585
$2,148,219
$538,392
8.9%
7.9%
$4,540,975
$975,343
MASTER’S
$58,493
$293,367
$3,142,478
$994,259
21.3%
10.3%
$6,382,418
$1,841,442
DOCTORATE
$85,084
$465,368
$4,166,123
$1,023,645
14.5%
9.8%
$7,979,888
$1,597,471
* Total cost of degree is the direct cost of the education (tuition, room and board, books, ect.), as well as forgone earnings while in school.
Source: Center for Business and Economic Research, The University of Alabama
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.
Return on investment (ROI) is reported with
working lives than high school graduates will
without college experience; there are also
students who enroll in, but do not complete,
advanced degree programs.
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, a
bachelor’s to a high school graduate with some
college experience, and some college to a high
school graduate. Table 3 shows the results of
the investment analysis with the assumption
that graduates will retire at 67 years of age.
The table also shows lifetime earnings in both
current and real (year 2014) dollars. Expected
UA 2013-2014 ECONOMIC IMPACT
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EDUCATION AS PRIVATE INVESTMENT
Real Annual Rates of Return
of UA Education by Degree
CLASS OF 2013-2014
Marginal
Return
25%
21.3%
Relative to
High School
20
14.5%
15
9.8%
7.9%
8.9%
8.6%
8.6%
5
10.3%
10
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E
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DO
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EG
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lifetime earnings increase from $2.8 million for
a high school graduate to about $8.0 million
for the doctoral degree; the corresponding real
lifetime earnings range is $1.2 million to $4.2
million.
The investment analysis was performed using
real or constant year 2014 dollars. The real
annual 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 $1.6 million, nearly $368,760
more than a high school graduate, which yields
an 8.6 percent real annual ROI on their UA
investment. Bachelor’s and master’s degree
holders will earn marginal value added of
$538,392 (an 8.9 percent ROI) and $994,259 (a
21.3 percent ROI), respectively. A doctorate
will earn a little over $1.0 million more than
a master’s, yielding a 14.5 percent real annual
ROI. Using high school graduation as a
reference (i.e., attending UA instead of ending
schooling at high school graduation), the
master’s yields the greatest real annual ROI with
10.3 percent, followed by 9.8 percent for the
doctorate, 8.6 percent for some college, and 7.9
percent for the bachelor’s.
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 second highest marginal return
on investment, but 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.
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CONCLUSIONS AND DISCUSSIONS
T
he 2013-2014 University of Alabama
economic impacts on the State of
Alabama were $2.461 billion, 12,132
jobs, and $111.5 million in tax receipts ($34.1
million state sales tax, $34.7 million state
income tax, and $42.7 million local sales tax).
The University is also an excellent investment
opportunity for the state, yielding a 17.0 percent
annual rate of return on
its state appropriations.
The economic impacts
on the Tuscaloosa
metro area are $1.732
billion and 11,333 jobs.
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.
The UA education is
a very high-yielding
investment for
students. The real
annual ROI for some
college attendance is
8.6 percent over a high
school graduate. The
bachelor’s degree has a
7.9 percent real annual
ROI over some college
attendance, and the
master’s degree yields a
21.3 percent real annual
ROI over a bachelor’s
degree. The doctorate provides a 14.5 percent
real annual ROI 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.
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 hightech 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 20132014 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.
There are several intangible benefits of a UA
education that cannot be measured. The
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ACKNOWLEDGEMENTS
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. Especially helpful were Melissa
Barnett, Milo Crabtree, Candace Holliday,
April Nelson, Julie Shelton, and Kevin
Stevens all of FA; Michael O’Rear and
Julianna Proctor of OIRA; and Anthony
Bratina and Morgan Tatum of CBER.
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