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.”      

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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    

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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.  

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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  

University Spending  

University Spending  

Libraries

Libraries

Libraries

Building Maintenance  and  Repair  

Building Maintenance  and  Repair  

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.  

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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.    

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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

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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  

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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.    

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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    

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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    

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