Methodology employed in the Penn State Economic Impact Study

This economic impact analysis, completed by Tripp Umbach & Associates Inc., measures the effect of both direct and indirect business volume and government revenue impacts for the 24 Penn State campuses. The methodology employed in the calculation of these impacts is derived from the standard set of impact research tools developed by the American Council on Education (ACE) for the measurement of college and university economic impact.

The ACE-based methodology is well-established, having been used in hundreds of impact studies throughout the United States. The ACE methodology employs linear cash-flow modeling to track the flow of institution-originated funds through a delineated spatial area.

For Pennsylvania State University impact analysis, computerized spreadsheet models were developed for the University as a whole and for each of the 24 locations of the University, with the models measuring impact on the state economy and government revenues. By using this economic impact model, the Tripp Umbach research team has been able to provide Pennsylvania State University with a detailed quantification of the total direct and indirect impact of the University on the economy of Pennsylvania and on each of the state’s 67 counties.

The impact models provide measures of business volume and state government revenues allocable to the University, together with breakouts of the individual categories of spending that comprise the total impact (e.g. institutional capital spending, student spending, faculty spending, etc.).

The ACE methodology is highly adaptable to different geographic scales. It is suitable for measuring impact on neighborhoods, municipalities, counties, states, regions or nations.

A. Impact on State Business Volume and Government Revenue

Penn State expends more than $2 billion annually. The University is a major employer in the commonwealth and, as such, a major generator of personal income for state residents.

Businesses operating within Pennsylvania in the wholesale, retail, service and manufacturing sectors benefit from the direct expenditures of the institutions and their faculty, staff, students and visitors on goods and services. In addition, many of these "direct" expenditures are recirculated in the economy as recipients of the first-round of income re-spend a portion of this income with other businesses and individuals within the state. This re-spending is termed the "multiplier" or "indirect" effect.

This economic impact analysis measures the effect of both direct and indirect business volume and government revenue impacts for the 24 campuses. The methodology employed in the calculation of these impacts is derived from the standard set of impact research tools developed by the American Council on Education (ACE) for the measurement of college and university economic impact. The ACE-based methodology is well established, having been used in hundreds of impact studies throughout the United States. Tripp Umbach has previously used the same methodology in Pennsylvania in a multi-university study of the impacts of medical schools.

The ACE methodology employs linear cash-flow modeling to track the flow of institution-originated funds through a delineated spatial area. For Penn State impact analysis, computerized spreadsheet models were developed for the University as a whole and for each of the 24 locations of the University, with the models measuring impact on the state economy and government revenues. Figure 1 (at right) shows the general structure of the impact models used, which Tripp Umbach developed initially for the Pennsylvania State System for Higher Education in 1998.

By using this economic-impact model, the Tripp Umbach research team has been able to provide Penn State with a detailed quantification of the total direct and indirect impact of the University on the economy of Pennsylvania and on each of the state's 67 counties. The impact models provide measures of business volume and state government revenues allocable to the university, together with breakouts of the individual categories of spending that comprise the total impact (e.g. institutional capital spending, student spending, faculty spending, etc.).

B. Employment impact

The research reported here measures the direct employment impact of the University. In addition, the research quantifies the indirect employment generated at in-state businesses by expenditures emanating from the University. An employment multiplier of 2.20 was generated by Tripp Umbach for the Penn State project. While employment multipliers at the state level range from as low as 1.4, the multiplier for Penn State is comparatively higher due to the large amount of out-of state visitors and research grants and the impact of out- of-state students and their visitors.

C. Data sources

As noted above, this research project closely follows the ACE methodology for the performance of impact analysis for a higher-education institution. The methodology requires that a university supply detailed information related to expenditure levels and geographic location of expenditures, together with staffing and other related economic information. The main sources of data used in the Penn State economic impact study are as follows:

1. Penn State supplied data
The University's finance office maintains a broad range of operational and financial data for Penn State. During initial consultations between Tripp Umbach and the university it was determined that, where possible, these central databases should be used to avoid overburdening the individual campuses with data collection requirements.

2. Data supplied by individual campuses
The majority of information required for the individual campus visitors section of the models was provided by each University campus directly. Tripp Umbach developed a data-collection form which was distributed to each of the campuses for completion – all 24 campuses completed the form in time for inclusion in the study.

3. Data collected by surveys administered to alumni and business owners
Data on alumni and business owners in the commonwealth of Pennsylvania was collected via quantitative surveys administered via mail. These surveys gathered information on campus visits, volunteer activities, charitable contributions and other key data required for the impact modeling.

4. Secondary-sourced data
Census data from the economic census, together with Bureau of Labor Statistics information were required for completion of the models. Tripp Umbach gathered budgetary information from each of the counties containing a Penn State campus to facilitate the modeling of government revenue impacts allocable to the University. To complete the economic impact models, Tripp Umbach used student, faculty and staff spending data from other studies completed for the State System of Higher Education and other recent projects throughout the commonwealth.
 


Appendix: Glossary of Terms

Business Volume Model: Calculates capital account, goods and service, staff, student and visitor spending, as well as the value of business property.

Government Revenue Model: Calculates the amount of tax (e.g., income, sales) received by the commonwealth of Pennsylvania from The Pennsylvania State University-related businesses and populations.

Total Business Volume Impact: Direct impact multiplied by indirect impact multiplier.

Direct Impact: Sum of total expenditures for capital, and goods and services, and staff, patients and visitors spending.

Indirect Impact: Standard multiplier as recommended by American Council on Education representing the re-spending taking place in the study area (2.3 times direct impact).

Capital Account Expenditures: A five-year average of spending on equipment, buildings and land.

Goods, Services and Supplies Expenditures: Total non-capital and non-payroll spending for the 12-month period of the study (2003).

Total Expenditures by Staff: Sum of spending for rental housing and non-housing items by those residing in the area and general spending in-area by those not residing in the area.

Value of Business Property: Calculates the value of business real property and business inventory committed to The Pennsylvania State University's business volume.

Pennsylvania State Model: Calculates the impact on the entire state of Pennsylvania.

Study Period: 2003 - 2004

Last Updated March 19, 2009

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