Appendix 9: Shutdown Point
The investment analysis in Chapter 3 weighs the benefits generated by the college against the state and local taxpayer funding that the college receives to support its operations. An important part of this analysis is factoring out the benefits that the college would have been able to generate anyway, even without state and local taxpayer support. This adjustment is used to establish a direct link between what taxpayers pay and what they receive in return. If the college is able to generate benefits without taxpayer support, then it would not be a true investment.47 The overall approach includes a sub-model that simulates the effect on student enrollment if the college loses its state and local funding and has to raise student tuition and fees in order to stay open. If the college can still operate without state and local support, then any benefits it generates at that level are discounted from total benefit estimates. If the simulation indicates that the college cannot stay open, however, then benefits are directly linked to costs, and no discounting applies. This appendix documents the underlying theory behind these adjustments.
State and local government support versus student demand for education Figure A9.1 presents a simple model of student demand and state and local government support. The right side of the graph is a standard demand curve (D) showing student enrollment as a function of student tuition and fees. Enrollment F I G U R E A9 . 1 : S T U D E N T D E M A N D A N D G OV E R N M E N T F U N D I N G B Y T U I T I O N AND FEES Tuition and fees
p' D Govt. funding (% of total) 100%
C%
0%
100%
CHE production (% of total)
47 Of course, as a public training provider, the college would not be permitted to continue without public funding, so the situation in which it would lose all state support is entirely hypothetical. The purpose of the adjustment factor is to examine the college in standard investment analysis terms by netting out any benefits it may be able to generate that are not directly linked to the costs of supporting it.
Appendix 9: Shutdown Point
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