Closing the Gaps Preliminary Cost/Benefit Analysis Finance, Campus Planning, and Research Division Texas Higher Education Coordinating Board October 2002
Texas Higher Education Coordinating Board Pamela P. Willeford (Chair) Martin Basaldua, M.D. (Vice Chair) Raul B. Fernandez (Secretary of the Board) Neal W. Adams Ricardo G. Cigarroa, M.D. Gen. Marc Cisneros (ret.) Kevin Eltife Jerry Farrington Cathy Obriotti Green Gerry Griffin Carey Hobbs Adair Margo Lorraine Perryman Curtis E. Ransom Hector de Jesus Ruiz, Ph.D. Robert W. Shepard Windy Sitton Terdema L. Ussery II Austin Houston San Antonio Bedford Laredo Corpus Christi Tyler Dallas San Antonio Hunt Waco El Paso Odessa Dallas Austin Harlingen Lubbock Dallas Coordinating Board Mission The mission of the Texas Higher Education Coordinating Board is to provide the Legislature advice and comprehensive planning capability for higher education, to coordinate the effective delivery of higher education, to administer efficiently assigned statewide programs, and to advance higher education for the people of Texas. THECB Strategic Plan Coordinating Board Philosophy The Texas Higher Education Coordinating Board will promote access to quality higher education across the state with the conviction that access without quality is mediocrity and that quality without access is unacceptable. The Board will be open, ethical, responsive, and committed to public service. The Board will approach its work with a sense of purpose and responsibility to the people of Texas and is committed to the best use of public monies. THECB Strategic Plan
Background Coordinating Board staff has developed a preliminary analysis to determine the costs and benefits associated with meeting the Participation and Success goals of the state s Closing the Gaps plan. This analysis has been presented to a Coordinating Board internal research group as well as to a focus group from representatives outside the agency. The first meeting of the focus group included: Steve Murdock (Texas A&M) Tom Taylor (Texas A&M) Jeff Cole (Comptroller s Office) Evelyn Hiatt (Texas Education Agency) John Stevens (Texas Business & Education Coalition) Also included in the focus group, but not attending the first meeting, are: Marsha Moss (UT-Austin) Ray Perryman (The Perryman Group) Tamara Plaut (Comptroller s Office) Ann Smisko (Texas Education Agency) The purpose was twofold: to obtain concurrence that the methodology represented an appropriate starting point and to solicit suggestions as to the best approach to expand the analysis. Below is a description of the preliminary analysis, the underlying assumptions, and a brief discussion of the proposals for expanding the analysis. Costs The Closing the Gaps participation goal is to increase Texas higher education enrollment by 500,000 students between 1999 and 2015. Normal growth is projected to provide 200,000 of the 500,000 students over this period, while the additional 300,000 students must be enrolled through Closing the Gaps strategies. Each of the five higher education sectors will contribute to the Closing the Gaps participation goal: Public universities will be responsible for 16.4 percent of the increases; Community colleges will be responsible for 69.3 percent; Technical colleges will be responsible for less than 1 percent; Independent (non-public) colleges will be responsible for 13.3 percent; and Health-related institutions will be responsible for 25 percent of the additional nursing enrollment. This preliminary analysis of the incremental variable cost associated with satisfying the Participation goal represents only the General Revenue contribution from the state plus an average calculation for financial aid. Student tuition and fees have not been included. Based on the assumption in the preliminary model that current capacity is sufficient to satisfy the increase in student population, this analysis does not consider new construction; future analyses will include a calculation for capital costs (see page 4). 1
According to the model s assumptions, most students are new, first-time students: 97 percent at public universities 97 percent at community colleges 100 percent at technical colleges Also, the remaining 3 percent of students at both public universities and community colleges will result from increased retention. Finally, average annual cost per student 1, which reflects formula funding and varies by type of institution, level, and discipline, is included: Public Universities: Undergraduate - $4,290 Graduate - $8,115 Increased Retention, representing Undergraduate and Graduate retention - $5,246 Teaching - $4,290 Nursing, which includes General Academic and Health-Related Institutions - $5,099 Engineering and Computer Science - $5,000 Community Colleges: Academic Transfers from high school - $2,627 Increased Retention - $2,394 Nursing - $2,627 Technical - $2,942 Engineering and Computer Science - $2,942 Technical Colleges: Technical - $4,723 Engineering and Computer Science - $4,723 Based on the figures above, the overall increase in additional state general revenue needed (excluding new construction costs) to satisfy the Participation goal is calculated to be $6.3 billion. Benefits The Success goal in this preliminary analysis only considers additional Incremental Annual and Lifetime Earnings associated with obtaining education beyond the high school level. For the initial analysis, national data from a recently published study by the U.S. Census Bureau was used. The national data were then discounted 2 to account for the difference with Texas Median Household Income. 1 Average dollars are from Fiscal Year 2000 and do not include any adjustments for inflation. 2 In Federal Fiscal Year 2000, U.S. median income was $42,151 and Texas median household income was $39,837, or 94.5% of the national level.
Incremental Annual Earnings associated with various levels of education is calculated using the following: Some college - $6,049 Associate degree - $7,372 Bachelor s degree - $20,603 Master s degree - $30,149 Doctoral degree - $55,761 Professional degree - $74,852 To calculate the effect of different levels of higher education on the lifetime earnings 3, the discounted national data from the Census Bureau estimates the following: Some college - $280,000 Associate s degree - $380,000 Bachelor s degree - $850,000 Master s degree - $1.23 million Doctoral degree - $2.08 million Professional degree - $2.65 million Anticipated outcomes for the 300,000 additional students to be enrolled through Closing the Gaps strategies are projected at these levels: Leave college - 30,000 students Some college - 75,000 students Associate s degree - 45,000 students Bachelor s degree - 105,000 students Master s degree - 45,000 students Doctoral degree - 9,000 students Professional degree - 6,000 students Given the above assumptions, the overall increase in lifetime earnings is calculated to be $217 billion 4, more than 34 times the $6.3 billion projected costs in state General Revenue investment. This calculation overstates in some ways and understates in other ways the impact of higher education. The estimate is overstated for the following reasons: The projected increase in income has not been discounted Population morbidity rates are not included The estimate is understated for the following reasons: No societal benefits are included (i.e., reduced welfare expenditures, lower crime rates, and related results) Income multiplier effects are not included 3 4 Assumes a 40-year work span at the higher levels of earnings. Fiscal Year 2000 dollars
Summary This initial analysis assumes a business as usual environment, which likely will not be the case. For example, distance learning opportunities are expanding and should play an increasing role in the delivery of higher education. Enhanced classroom utilization could address expanded course offerings at non-traditional times. Saturday, weekday evening, and late afternoon classes, for example, should also be considered, especially as older and other non-traditional students enroll in higher education programs. This analysis shows that there is a net positive return associated with obtaining education beyond high school. This investment in human capital will cost the state an estimated $6.3 billion over the next 13 years. However, return on the investment is calculated at $217 billion, more than 34 times that expenditure, over a 50-year period. Future Analysis The Coordinating Board staff and focus group members agreed on a number of modifications that should be considered to refine the calculation. Subsequent analysis may explore: An all funds approach for costs, which would include tuition and certain fees as well as general revenue; Separation of financial aid costs for students from formula funding costs for institutions of higher education; Identification of projected capital costs for public two- and four-year institutions (possibly including projected capital costs for private institutions as well as public. Population morbidity rates; Tax implications for the state; and Income multiplier effects (i.e., increase in consumer purchasing power) for the state. Costs and benefits of reaching excellence and research goals.
This document is available on the Texas Higher Education Coordinating Board World Wide Web site http://www.thecb.state.tx.us For further information contact: Jeffrey Phelps Division of Finance, Campus Planning, and Research Texas Higher Education Coordinating Board P. O. Box 12788 Austin, Texas 78711 (512) 427-6130 FAX: (512) 427-6147 jeffrey.phelps@thecb.state.tx.us
Printed on Recycled Paper The Texas Higher Education Coordinating Board does not discriminate on the basis of race, color, national origin, gender, religion, age or disability in employment or the provision of services.