Abstract
The question addressed in this paper is whether there is an annual net gain to the state economy on a per student basis as a result of state subsidies to private institutions of higher education. In addition, the annual economic impact of adding a student at a private institution is compared to the impact of an additional student at a public institution. Because of Maryland’s 40-year history of direct appropriations to private non-profit institutions, the analysis focuses on the state of Maryland and employs input–output methodology. Due to the high percentage of out-of-state students and high tuition, the typical new student in a private higher education institution adds significant new spending to the state leading to a net positive tax payback on the subsidy.
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Notes
“Based on 2005 OECD data; Courant et al. (2006) suggest that over 90 % of students in Western Europe receive substantial public support.
For-profit-private institutions are not discussed because they are not eligible for the program funding evaluated in this paper. These institutions provide approximately 5 % of the degrees in higher education in the U.S.
Although state funding in Maryland includes graduate and undergraduate students, the focus of this paper is the undergraduate population.
IMPLAN, IMpacts for PLANing, a product of IMPLAN Group, LLC, generates regional input–output models by converting the United States Benchmark Study of input–output accounts to a regional or local model and closely follows the accounting conventions used by the Bureau of Economic Analysis. IMPLAN is a menu-driven computerized input-output model that was originally developed in 1979 by the USDA Forest Service in cooperation with the Federal Emergency Management Agency and the USDA Bureau of Land Management. In 1993, IMPLAN was privatized (IMPLAN Group, LLC 2014). IMPLAN is one of three commonly used economic impact models.
See Table 1 for a list of the 14 primary member institutions. The U.S. Naval Academy is not included because it receives no funding from the State of Maryland. Two additional affiliated institutions are Ner Israel Rabbinical College and St. Mary’s Seminary and University. This analysis uses data from the 14 primary member institutions. Another program, the John A. Cade Program, provides funds for private community colleges in the state and is not included in this analysis.
The number and types of capital projects are limited and state funds must be 1:1 matched with private funds. MICUA coordinates the capital funds requests. The capital grants now account for 3 % of total higher education capital grants (MICUA 2010). In some years, private institutions received more public assistance than public institutions.
Data are from MICUA (2013). The institutions are diverse and include an internationally recognized research university, a nationally acclaimed visual arts institute, regional liberal arts institutions, a globally recognized music school, etc. The students are racially, culturally, and economically diverse. There is similar diversity found in the public institutions in terms of student body and institutional type.
Siegfried et al. (2007) notes that the establishment of an appropriate counterfactual is challenging for an institution since they have often been in existence for an extended period of time. For further discussion of this issue and additional issues associated with higher education impact studies see Siegfried et al. 2007.
This assumption is consistent with the Siegfried et al. (2007) methodological conclusion that new first round activity for student expenditures on room and board should be included for out-of-state students and only from in-state students who would have attended a college in another state.
Our analysis adjusts for institutional discounting. The published tuition and fees are reduced by the amount of institutional aid.
The parents of the out-of-state student do not pay and have not paid taxes to help fund either higher education or K-12 in Maryland. This is one of the justifications for the tuition differential between in-state and out-of-state tuition.
One exception to this expectation is that the percentage of foreign students might be more strongly related to the size, and hence the reputation, of the school than the cost ratios mentioned above.
http://www.mhec.maryland.gov/higherEd/about/Meetings/CommissionMeetings/11-24-14/CBookCorrected11-24-14.pdf, Table 3, page 53. See also, http://mgaleg.maryland.gov/pubs/budgetfiscal/2014fy-budget-docs-operating-r62i0001-maryland-higher-education-commission.pdf, Exhibit 6, page 14 for FY 2014.
The funding percentage of private colleges is projected to decrease to 8.5 % in 2017 and then rise annually to 15.5 % in FY 2021. http://mgaleg.maryland.gov/pubs/budgetfiscal/2013fy-budget-docs-operating-r62i0001-maryland-higher-education-commission.pdf, Exhibit 6, page 14.
Maryland citizens’ support for private, non-profit institutions remains, even under the recent recessionary economic conditions with 69 % of eligible voters favoring continuation of the program with comparable levels of support across Republicans, Democrats, and Independents across the state (MICUA 2009).
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Scott, C.E., Williams, N.A. & Derrick, F.W. Public State Subsidy of Private Higher Ed Institutions: Does It Pay for Itself in Maryland?. Atl Econ J 43, 337–348 (2015). https://doi.org/10.1007/s11293-015-9468-0
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DOI: https://doi.org/10.1007/s11293-015-9468-0