INTRODUCTION

If the hospital you are modeling is private, you can simply model spending through Industry 490 – Hospitals.  As always, enter as much data for the Industry Event as you have (Output, Employee Compensation, Proprietor Income, and/or Employment).  If you have data for more than one of these elements, you can (and should) override IMPLAN’s estimates with your known values.   

You can also modify the Industry Spending Pattern and couple that with a Labor Income change to account for any known spending differences in the hospital you are modeling.  This technique is known as Analysis-by-Parts (ABP).

EXAMPLE

Let’s say a new private hospital is going to open in Mecklenburg County.  We are told they will spend $5M in operations and $1.5M in Employee Compensation (EC) in their first year.  We have no information about Proprietor Income (PI), so we will only enter EC.  Remember, Labor Income = EC + PI.

If we are given any further information on the proposed spending by Commodity, we can click the Advanced button and edit the percentages of the Industry Spending Pattern.  We may know, for example, that they will not be purchasing anything from a retail store; instead using only wholesalers. We can zero out all Retail Services entering zero in the place of the current percentages.  Then, choose Normalize in the Advanced Menu so that the Sum of Percentages is again 100.0%.

Now drag the two Events into the Mecklenburg County Group and hit Run.

Our Results give us Indirect and Induced effects, so we will need to add back in the Direct effect from the information we were given by the hospital.

To calculate our Direct effect for our example, we will examine the Output equation in the model by navigating to the Regions screen, choosing Customize, then selecting Industry 490 – Hospitals.

You can use the template ABP – Recalculating Directs with TOPI and OPI to fill in your data. 

Direct Employment = known Direct Employment. If Employment is unknown, you can calculate it on your own by dividing Direct Output by Output-per-worker.  For this clinic, we know that Output is $5M and Output/Worker is $178,061, so we can divide them and find 28.08 Direct employees.

Direct Output = Intermediate Inputs + Value Added.  In this example, we know the total Output was $5M.

Direct Value Added = Direct Labor Income + Tax on Production and Imports + Other Property Income

• • From the Output equation, we know the average TOPI and OPI per worker
  • Multiply these figures by the total employment
  • Add Labor Income + TOPI + OPI 

Direct Labor Income = EC + PI.

Now we have our final results table below showing our calculated Direct effect and the modeled Indirect and Induced effects.  

TEMPLATE

ABP – Recalculating Directs with TOPI and OPI

RELATED TOPICS

Hospitals: Considerations when Conducting Hospital Economic Impacts

Hospitals: Modeling Public & NonProfit Hospital Impacts with Analysis-by-Parts

ABP: Introduction to Analysis-By-Parts

CASE STUDY

The Economic Impact of Mayo Clinic: Now, Then & All Points in Between

INTRODUCTION:

After reviewing Considerations when Conducting College & University Economic Impacts, you are ready to examine the economic impact of your public college or university. Public colleges and universities are vital to not only the education system, but also to our regional and state economies and this article outlines how to model their expenditures.  

Public colleges and universities contribute to local economic activity via different pathways, each of which ought to be evaluated separately for a robust economic impact study that best captures all the effects. The best way to model these impacts is through Analysis-by-Parts (ABP). In this example, we will use the Bill of Goods (BoG) approach and show spending across five categories: university operations, university labor, student spending, visitor spending, and capital expenditures.  Each school is unique, so each university impact can include any or all of these parts.  

THE PROCESS:

In this example, we will be studying our fictitious school,  Leontief State University.  It was named in honor of the father of Input-Output analysis, nobel prize winning economist Wassily Leontief.  LSU is located in Amherst, Massachusetts and we want to examine its impact on Hampshire County. 

STEP 1 – OPERATIONS EXPENDITURES

To begin modeling the impacts of operations expenditures, we will first examine the non-labor budget. In this example we will look at three example industries.  When modeling an actual university, there will likely be many more affected Industries. The budget information we know for Leontief State University is: 

For each of the expenditure categories, create a new Event. For each Event, choose Industry Output, then select the appropriate sector as the specification. Finally, enter the value of expenditures in that category. 

We recommend that you save your work after each new section of data is entered.

SECTOR 473 TRAP:

Unfortunately, there is no IMPLAN sector for public colleges and universities. The sectors in the IMPLAN sectoring scheme are limited to Private Sectors, Government Enterprises, or unique Government Institution “Sectors” that do not include spending patterns. Don’t fall into the trap of Sector 473 – Junior colleges, colleges, universities, and professional schools.

All public education, including K-12 schools through college, are captured in the Institution for State/Local Government Education. Standard Government Institutional activities are not part of the sectoring scheme and thus public colleges and universities are not represented in the Sector listing. This is because Government Institutions don’t have production functions or Multipliers.  Specifically, there is no direct relationship between sales and production for Government Institutions since they derive revenue from collected tax dollars and not sales. Public entities, including colleges and universities, require a different approach to measure impacts.

CONSIDERATIONS:

• You can choose to model the effect of Commodity purchases rather than Industry purchases
• You can enter as many events as you have line items in the budget you are modeling
• Remember to apply margins as necessary
• Also, remember to adjust the Local Purchase Percentage (LPP) as necessary; only local purchases should be included

ALTERNATE APPROACH:

An alternative approach, as opposed to modeling each Intermediate Expenditure through a Bill of Goods approach is to run the total Intermediate Expenditures value through the Institutional Spending Pattern that best reflects the industry you are modeling; in this case, State/Local Govt Education.  

However, the Institutional Spending Pattern for State/Local Govt Education also encompasses primary and secondary schools in addition to colleges.  Because of this, you may want to consider using the private sector as a proxy. In this case, choose Sector 473 – Junior colleges, colleges, universities, and professional schools. For more information on this approach, follow the instructions for Analysis-by-Parts: Using an Industry Spending Pattern Event with Labor Income Event(s).

STEP 2 – LABOR EXPENDITURES

Since labor costs were not modeled as a part of the school’s operations expenditures in Step 1, we will have to model them independently. Let’s say that Leontief State University tells us that Labor expenditures sum to $50 Million. To analyze this impact, we create a new Labor Income Type Event, with a specification of Employee Compensation, and a Value of $50 Million. This is entered on the same Events screen as the three Industry Output Events.

CONSIDERATIONS:

• These should be fully loaded payroll values which include wage and salary, all benefits (e.g., health, retirement) and payroll taxes (both sides of social security, unemployment taxes, etc.)
• If the University’s employees commute into the study area for work, then they should not be included in the Labor Income Event

STEP 3 – STUDENT SPENDING

Personal spending by students on non-college goods and services (like the classic textbook Input-Output Economics (Leontief, 1966) and Moscow Mules) will also have an impact on the local economy. To estimate these impacts, we will need to know how much they spend on personal items and which items they purchase. These can then be modeled by adding expenditures to an additional Industry Output Event, with the appropriate Specification.  Some considerations on what to include in student spending are outlined below. Additional details on outlining student spending can be found in Surveying for Input-Output.  Some items to consider including are:

• Books
• Transportation
• Food & beverages
• Alcohol
• Recreation & amusement
• Retail

At Leontief State, we know the average student spends according to the following table. With actual survey data, you will likely have more spending categories.  

We also know that LSU has 12,000 total students.

STEP 4 – VISITOR SPENDING

Personal spending by visitors on non-college goods and services (like hotels, transportation, and restaurants) will also have an impact on the local economy. To estimate these impacts, we will need to know how much they spend on personal items and what they purchase. These can then be modeled by adding expenditures to an additional Industry Output Event, again with the appropriate Specification.  Remember, visitors will not spend their money in the same was as a college student. Consider spending categories such as:

• Lodging 
• Transportation to the city
• Transportation within the city
• Gasoline
• Food & beverages
• Retail
• Recreation & amusement

From a visitor survey, we are given the following information from Leontief State for their estimated 25,000 annual visitors.

STEP 5 – CAPITAL EXPENDITURES

If in addition to its operations, the college or university supported other economic activity in the region because of new campus construction projects (note that general maintenance and repair are part of the operational spending pattern), you can model the effects of these activities as well. This analysis can be done by adding expenditures to an additional Industry Output Event, with the appropriate Specification.

College impacts often have associated capital expenditure layouts that it may be desirable to consider within the analysis. When looking at these expenditures there are some important things to keep in mind.

1. Typically investments in buildings and equipment are temporary in nature. While the building and equipment will continue, the actual expenditures on these items tend to be one time or of a short-term, non-recurring nature, as opposed to be year-over-year expenditures. Thus it is important that we distinguish these impacts from those that are recurring.
2. For Furniture, Fixtures, and Equipment (FFE) or other major equipment purchases, it is important to consider if the purchase is from a manufacturing sector or if the purchase is actually through a wholesaler or retailer, as these will affect how FFE is modeled. In addition to this, if the equipment is not produced in the region of the model, it may be good to report on that expenditure, but not include it’s value in the modeling process.

For example, LSU just opened up a state-of-the-art new College of Statistics at a cost of $50M.  We can run this through an Industry Output Event in Sector 55 – Construction of new educational and vocational structures.  

Our Event screen now is fully populated with all of the information we have from LSU. When creating a long list of Events as in this example, give each a name that is easy to remember so that using the FILTERS button on the Results screens is straightforward.

STEP 6 – RUN THE IMPACT

Now either use the button at the top to select all or highlight each Event and drag them into your Group.  Next, hit run.

STEP 7 – ANALYZE THE RESULTS

The results will show you the economic impact of all of the Events you entered which will include the Industry Events and the Labor Income Event. To look at the results by Event, use the FILTERS button and select which of the Events you would like displayed.  For example, choosing all three Operations Events and the Labor Event will filter the results to only include the economic impact of the university operations.  

University operations are yearly impacts.  Construction impacts occur only once. Therefore, we recommend that these are not reported together.  Remember to clearly label your tables and figures so readers have a clear understanding of your results.  

Total 2019 Operations Impact of Leontief State University on Hampshire County, Massachusetts

Total 2019 Capital Impact of Leontief State University on Hampshire County, Massachusetts

RELATED TOPICS:

Considerations when Conducting College & University Economic Impacts

Modeling Private College & University Impacts

Surveying for Input-Output

Tourism Spending

CASE STUDY:

Economic Impacts of California State University Northridge: How One University Campus Discovered Its Economic Significance

INTRODUCTION:

Examining the impact that a college or university has on a region is a common use case in IMPLAN, but the potential complexities warrant careful consideration when setting up and framing the study. The goal of this article is to help guide you in correctly framing your analysis and to increase awareness of some of the special considerations of college and university analyses.

CAPTURING NET NEW EFFECTS:

When considering our Study Area geography, a question can arise about the importance of where the funding originates when it differs from the location where the funds are spent.  

In IMPLAN, we are interested primarily in how and where money is spent, not its source. As long as we know that the money is new to the Study Area, we can consider these funds to create a measurable impact.

The idea of what new money is, however, can become more challenging when residents spend money on sporting events, conventions, fairs and other transient events, this spending is considered substitutive rather than new money to the region. This is an important designation because it means that rather than truly supporting economic change and growth in a region, resident money is simply shifting from one local venue to another. Resident spending only has a true ‘new’ impact in cases where the event draws out spending that would normally be saved.

In the context of college student spending, generally resident students aren’t counted. While they may have some short term impacts while setting up new households, the general spending they represent in the economy is not likely to significantly change beyond those one-time purchases. Why? The increase in their daily spending is offset by a decrease in their parents local spending.

When would this rule not apply? If you can make the argument that your university, college, or program is unique and thus kept the students from leaving the region. This creates a theoretical ‘new’ spending circumstance. Examples of this might be having a medical degree program or being a religious college. With these sorts of specializations an argument can be made that the students would have left the region but for these local programs.

If the goal is to see how a college or university fits within the regional economic ecosystem or no information on net new money is available, consider performing an Industry Contribution Analysis (ICA).  ICA can be used to estimate the relative extent and magnitude of an existing institution in the study area.

LIFETIME EARNINGS & LOANS

While we do not recommend looking at forecasting the prospective value of college student’s education on their economic potential, IMPLAN has been used as a factor in some of these scenarios. If you are looking at projecting earning potentials of students, please keep in mind the effects of loans. These loans must be paid back and thus reduce the earning potential of students and their ability to create effects on the local economies where they live. Some other caveats to consider if you are looking at these types of impacts are:

1. Will students actually receive job placements in their target degree area, and how long will it take them to get the experience needed to get these jobs?
2. How much of their increased earning is attributable to this degree, especially if their job is outside of their field or they go on to graduate school?
3. Will the student remain in the region after receiving training?
4. What percentage of students remain long-term in their degree field?
5. How many open positions or places for advancement are available and are these accounted for within the calculation for potential future income generation?

DOUBLE COUNTING:

Impacts that involve multiple stages, like many college impacts, can easily incur scenarios for double counting. For instance, spending on tickets for sporting games may be a separate impact, but those ticket funds may also be accounted for as part of the college’s operations budget. Likewise, tuition covered by scholarships that are provided by the school creates no additional impacts because these are already accounted for in the college’s budget.  

It is important then, when framing the impact to consider where funds are captured. The total college operations budget should include all sources of revenue. Tuition is obviously captured here, but, depending on the school and the services or programs it offers, funds coming in from on-campus sporting events (such as ticket and drinks sales), campus owned bookstores, college owned dormitories, and college meal plans could also be sources of double-counting if they are also captured as part of student spending.

OPERATIONS AND CAPITAL IMPACTS

University operations are yearly impacts.  Construction impacts occur only once. Therefore, we recommend that these are not reported together.  There are two main reasons that we recommend that you do not report operations impact and capital impact together.  

1. People love job numbers. It is not uncommon for studies that report rolled up construction and operational impacts to have job numbers that mix both temporary and ongoing Employment picked up and reported by others as the recurring Employment impact. This is one source of the idea that Input-Output Analysis studies overestimate impacts.
2. The same principles apply to other economic factors as well. The Labor Income, Value Added and Output of the construction are occurring only over a short period of time and thus have a more limited impact than operational changes. This is best reflected when the two types of impacts are handled separately.

PUBLIC VERSUS PRIVATE SCHOOLS: 

There are many factors for the analyst to consider when modeling any institution of higher learning. Most importantly, public and private colleges and universities will follow very different spending and additionally will attract different students and visitors. The sheer size of some large public universities will lend them to have immense overall budgets. They also might see large influxes of visitors in town for a playoff game. Alternatively, universities that focus heavily on research tend to invest in the sciences as well as research and development activities and may not offer any sports programs.  Small fine arts schools might be more selective but have talented and famous alumni network that generously subsidizes their capital budget. Knowing the details of each school will ensure that the analysis is accurate and defendable. For details on the specifics on public and private college and university impacts, visit the pages below.

RELATED TOPICS:

Modeling Public College & University Impacts

Modeling Private College & University Impacts

Surveying for Input-Output

Tourism Spending

CASE STUDY:

Economic Impacts of California State University Northridge: How One University Campus Discovered Its Economic Significance