Economic Impact Analysis: Prince George’s Community College

December 2018

www.hanoverresearch.com

In the following report, Hanover Research (Hanover) analyzes the economic

contribution of Prince George’s Community College (PGCC) to Prince George’s

County in Maryland. The analysis employs a regional input-output model to

estimate the direct, indirect, and induced impacts of PGCC’s operations on the

area and evaluates the benefit-cost consideration of its students.

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Table of Contents[Institution] Economic Impact Analysis

Executive Summary Page 3

Economic Impact Analysis Page 4

Investment Analysis Page 12

Appendix Page 15

Executive Summary

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Hanover Research’s analysis is organized into two main components:

- The economic impact of spending by PGCC and its students during fiscal year 2017and of higher alumni whose earnings as a reflection of education through PGCC(Economic Impact Analysis), and

- The long-run benefit-cost comparison of students’ educational investment byattending PGCC (Investment Analysis).

Economic Impact Analysis – The analysis estimates the effect of spending by PGCC and itsstudents on Prince George’s County, as well as the additional earnings its alumni receivedue to education attainment through PGCC. The effect represents both the initialspending by PGCC and its students and alumni (typically referred to as the direct effect)and the additional economic activity in other areas of the economy triggered by this initialspending (indirect and induced effects).

As shown here, the overall estimated annual economic impact of PGCC is about $686Mand supports about 8,186 jobs. This includes $199M in economic contributions that stemfrom spending by PGCC and its students and an estimated $487M that arise from in-county earnings by its alumni. The $199M comes from a direct effect of $124M in initialspending by PGCC and its students, which reflects a multiplier of 1.6. That is, for every $1that PGCC attracts from outside the county, the county receives an additional benefit of60 cents.

Investment Analysis – The investment analysis focuses on the comparison of students’expected higher earnings over the next 35 years that are attributable to attending PGCC.Hanover finds that PGCC students will earn about $454M ($252MM in current dollars)more over the long-run while paying $188M to attend PGCC now, which reflects a benefit-cost ratio of 2.4 and an internal rate of return of about 12 percent.

Economic Impact: $198,574,937

Alumni Impact:$487,441,913

Jobs Supported:8,186

Student Education Investment

Current Students’ Internal Rate of Return from Attending PGCC:

12%Total Lifetime Earnings:

$454,467,468Current Total Cost of Enrollment:

$187,983,350

Total Estimated Economic Impact:

$686,016,850

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Economic Impact Analysis

Economic Impact Analysis Overview

As part of an economic impact analysis,Hanover Research analyzes thecontributions of Prince George’sCommunity College (PGCC) to the economyof Prince George’s County using an Input-Output Model to estimate the direct,indirect, and induced effects on thecounty’s economy including:

▪ The impact of PGCC’s operations andcapital spending;

▪ Funding/spending generated from out-of-area sources; and

▪ Earnings by PGCC alumni who work inthe county.

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Area of Analysis: Prince George’s County

Year of Analysis: Fiscal Year 2017

Types of Economic Impact

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Direct Effect

PGCC’s initial spending on employee payroll, operations, and capital purchases.

The spending of out-of-area students.

Indirect Effect

Local spending from one business to another until those dollars are spent outside the area.

Induced Effect

The effects of direct and indirect spending on local, individual household purchases.

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Gross OutputPrince George’s County – FY 2017

▪ In fiscal year 2017, PGCC activities yielded an estimatedgross output impact of $686.0M on Prince George’sCounty. Based exclusively on spending funded by out-of-area dollars, these economic activities wouldotherwise be unlikely to occur in the county in theabsence of PGCC.

o The direct effect of PGCC’s operation that wasfunded by external dollars was $528.6M, whichincludes operating expenditures and capitalexpenses of $66.5M and $40.2M, respectively, aswell as out-of-area student off-campus spendingof $17.7M. Additionally, the direct impact ofhigher earnings for PGCC alumni totals $404.2M.

o Taken together, this externally funded operating,capital, and student spending triggeredadditional indirect business-to-business spendingof $63.4M and induced household spending of$94.0M in the county. Therefore, the directoutput effect of PGCC’s operating, capital, andstudent spending generated an estimated$157.4M in additional economic activity amongbusinesses and households in the county.

Gross Output$686,016,850

Breakdown of $528,568,330 Million Direct Effect:

▪ $66,545,843 Operating Expenditure

▪ $40,159,125 Capital Expenditure

▪ $17,660,605 Student Spending

▪ $404,202,758 Alumni Impact

$528,568,330

$63,412,715

$94,035,805

$0 $200,000,000 $400,000,000 $600,000,000 $800,000,000

Direct Effect Indirect Effect Induced Effect

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▪ Representing a key subset of gross output,[institution]’s externally funded operating, capital, andstudent spending generated an estimated $450.3M inlabor income. This includes salaries, wages, andbenefits earned by employees and business ownersthroughout Prince George’s County.

o This labor income value includes a direct effectof $365.2M, coupled with $32.2M in indirecteffects, and $52.9M in induced effects.Therefore, PGCC generated an estimated$85.1M in additional economic activity amongbusinesses and households in the county.

▪ In terms of employment impacts, PGCC’s externallyfunded operating, capital, and student spendingsupported a total of 8,186 jobs throughout the stateduring the 2017 fiscal year. This figure comprises 6,559jobs supported by direct spending from the PGCC, itsout-of-area students, and current and past in theworkforce during 2017. The employment impact alsoconsiders the 632 jobs supported by business-to-business (indirect) and 995 jobs supported byhousehold (induced) spending.

Labor Income$450,340,742

Employment Impact8,186

Labor Income and Employment ImpactPrince George’s County – FY 2017

$365,249,126

$32,166,544

$52,925,072

$0 $100,000,000 $200,000,000 $300,000,000 $400,000,000 $500,000,000

Direct Effect Indirect Effect Induced Effect

6,558.6 632.4 995.4

0 2,000 4,000 6,000 8,000

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▪ Analysis of the impact of an education at PGCC on itsalumni describe more than just current year students.Alumni who completed credits from years past but areworking in the county command higher earnings giventheir education. This analysis estimates the number ofalumni in the Prince George’s County workforce andcredit hours completed at PGCC, and then their netlabor income in FY 2017. The Appendix providesdetails on this process.

▪ Over the last 30 years (1987-88 to 2016-17), 608,086students have enrolled at PGCC. The 30-year horizonreflects the approximate number of student cohortsthat are employed. Hanover estimates that about 5.4Mcredit hour equivalent units (CHEs) contribute to thethese alumni’s earnings.

▪ Hanover assumes that each CHE contributes about$134 to earnings, a 15 percent reduction to laborincome to reflect the proportion that the studentswould have generated in the county even withoutPGCC, and a subsequent 50 percent reduction toreflect labor that could have been hired from out-of-area in the absence of PGCC. As a result, the CHEs forPGCC alumni in the county workforce contribute about$310.1M in net direct labor income.

Alumni ImpactPrince George’s County – FY 2017

Variable Estimated Value

Number of CHEs in Workforce 5,445,004

Average Value per CHE $134*

Direct Labor Income, Gross $729,630,470

Percent Reduction for Alternative Education Opportunities

15%*

Percent Reduction for Adjustment for Labor Import Effects

50%*

Direct Labor Income, Net $310,092,950

*Value is assumed to be the same as estimated for FY 2016.

The $310.1M in net direct labor income that are attributable to CHEs that alumni attained through PGCCis part of an estimated $404.2M in direct effect on gross output and about 4,904 jobs in the county.

Through linkages to other in-area businesses (indirect effect) and flows through alumni spending(induced effect), the direct impact of $404.2M leads to a $83.2M multiplier effect, which supports anadditional 1,107 jobs.

In total, the impact of PGCC on Prince George’s County through higher earnings of its alumni is about$487.4M and supports 6,047 jobs in the area.

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Alumni Impact (2)Prince George’s County – FY 2017

Effect Labor Income Gross Output Jobs

Direct Effect $310,092,950 $404,202,758 4,940.4

Indirect Effect $21,359,601 $27,193,936 390.6

Induced Effect $42,167,412 $56,045,219 715.9

Total Multiplier Effect $63,527,013 $83,239,156 1,106.5

Total Impact $373,619,963 $487,441,913 6,046.9

Detailed ResultsPrince George’s County – FY 2017

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The table below summarizes the impact of PGCC’s externally funded operating and capital spending,spending by out-of-area students, and alumni in the workforce segmented by type of effect.

IMPACT TYPE DIRECT EFFECT INDIRECT EFFECT INDUCED EFFECT TOTAL EFFECT

Output $528,568,330 $63,412,715 $94,035,805 $686,016,850

Operations Spending $66,545,843 $25,164,362 $27,077,843 $118,788,048

Capital Spending $40,159,125 $7,167,851 $9,000,992 $56,327,968

Student Spending $17,660,605 $3,886,565 $1,911,751 $23,458,922

Alumni $404,202,758 $27,193,936 $56,045,219 $487,441,913

Labor Income $365,249,126 $32,166,544 $52,925,072 $450,340,742

Operating Spending $40,032,020 $7,014,302 $7,667,753 $54,714,075

Capital Spending $13,097,043 $2,501,279 $2,548,569 $18,146,891

Student Spending $2,027,114 $1,291,362 $541,338 $3,859,814

Alumni $310,092,950 $21,359,601 $42,167,412 $373,619,963

Employment 6,558.6 632.4 995.4 8,186.4

Operating Spending 1,306.0 164.6 199.1 1,669.7

Capital Spending 205.9 45.5 66.3 317.7

Student Spending 106.3 31.7 14.1 152.1

Alumni 4,940.4 390.6 715.9 6,046.9

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Investment Analysis

Investment Analysis – Additional EarningsPrince George’s County – FY 2017

In the investment analysis, Hanover Research estimates the additional lifetime earnings that currentPGCC students can expect to receive given their studies over the past year. We compare these gainsagainst the estimated cost of enrollment that students have incurred in the year, including theopportunity cost of foregone earnings and leisure due to the time commitment of attending PGCC.

Based on student enrollment information, 2016-17 non-personal enrichment students completed about254,937 credit-hour equivalent (CHE) units. Hanover estimates that currents students will receiveadditional earnings over a 35-year period that total $454.5M, or $252.1M in present discounted value. TheAppendix provides further details on this estimation process.

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$0

$10,000,000

$20,000,000

$30,000,000

$40,000,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

Net Higher Earnings to Students (Years after 2017)

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Investment Analysis – Benefit-Cost ComparisonPrince George’s County – FY 2017

▪ PGCC students face explicit or direct costs of attendingthe college, such as tuitions and fees, and books andsupplies. However, they also face implicit oropportunity costs in the form of foregone earningsfrom employment (or potential employment) andforegone value of leisure.

▪ As reported by PGCC, 2016-17 students paid a total of$27.3M in tuition and fees and another $12.7M forbooks and supplies ($1,500 per student for the 8,498FTE enrolled students). After deducting costs topersonal enrichment students, these direct costs total$29.0M.

▪ The earnings that non-working students forgo totalabout $46.6M, while the earnings that workingstudents forgo are higher, at $83.1M. The value ofleisure time that students forgo add another $33.7M.Finally, there is an adjustment of about $4.4M inresidual financial aid, which is provided to studentsafter the college applies tuition and fees. Theopportunity costs of attending PGCC totals $159M.

▪ Therefore, the benefit-cost ratio of attending PGCC forcurrent students is 2.42, and their internal rate ofreturn is 11.75%.

Benefit-Cost Ratio of Attending PGCC:

2.42

Direct and Opportunity Costs of Attending PGCC:

$187,983,350

Additional Earnings Over 35-Year Period:

$454,467,468

Internal Rate of Return:

11.75%

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Appendix

Methodology Details

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IMPLAN AnalysisHanover Research utilized IMPLAN software and supporting data to estimate the economic contributions of PGCC to Prince George’s County. IMPLAN isan economic input-output (I-O) modeling software program offered commercially through IMPLAN Group LLC. The IMPLAN software allows Hanover toapply the appropriate “multipliers” to all dollars originally spent in an area by an institution (e.g., a university, its employees, and students). Multipliersaccount for the fact that a certain percentage of every dollar spent within a local economy remains in the economy and is, in turn, re-spent, generatingadditional income and expenditures in the process. Hanover also analyzes direct, indirect, and induced effects of spending in terms of employment,offering another means of visualizing the institution’s contribution to its surrounding economy.

The three types of impact that Hanover reports from IMPLAN results are as follows:▪ Gross Output (Output) – Total gross value of the institution’s economic activities that are funded by external revenues and of out-of-area

students’ spending.▪ Labor Income – All forms of employment income, including employee salary/wages and benefits, that are supported by externally funded

institutional expenditures and out-of-area students’ spending.▪ Employment – Number of jobs (full-time or part-time, not full-time equivalent) created by the institution’s expenditures that are supported by

external dollars and by out-of-area students’ spending.

This analysis yields three distinct types of impacts associated with an institution’s expenditures:Direct Effect: This refers to an institution’s initial spending on employee payroll, operations, and capital investments.Indirect Effect: These estimates track each dollar of local spending from one business to another until those dollars are spent outside the localeconomy. For example, Business A purchases a product from Business B, which uses that money to purchase products from Businesses C and D.Induced Effect: These estimates track the effects of direct and indirect spending on local, individual household purchases.

Methodology Details – PGCC and Student Spending

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Types of Institutional SpendingThe economic impact analysis measures the effects of an institution’s spending through operating and capital expenditures.

Operating Expenditures – Includes payroll and non-payroll operating expenditures.▪ Payroll – Salaries/wages and benefits paid to non-student employees of the institution. Payments to student employees are excluded from the

analysis to avoid double-counting, as student employees also make payments to the college or university for tuition and other expenses▪ Non-Payroll – Expenditures by the institution to support its delivery of education, provision of student services (e.g., “student health clinics and

recreational facilities, and auxiliary operations, such as university-operated book stores, residence halls, and cafeterias…”), and conduct ofresearch and development.

Capital Expenditures – Expenditures for “new construction and purchases of equipment and software that are used for more than a year.”

For the purposes of an economic impact analysis, the above expenditures are typically measured by an institution’s expenses in a given year, such asthose that would be reported as part of a college or university budget.

Estimation of external revenuesHanover excludes [institution] spending that is funded by purchases from area businesses and households. This step is taken to avoid “double-counting”or overestimation of economic impact.

▪ Student payroll and scholarship/aid are excluded from reported tuition and fees revenue. These revenues are prorated by the percentage ofout-of-area students, 7.1%.

▪ Federal appropriations are entirely included as out-of-area revenue, while local appropriations are entirely excluded.▪ State appropriations is prorated by the proportion of Maryland population that reside outside of Prince George’s County, about 83.2%.▪ Investment income is entirely included in the analysis.▪ At the time of analysis, it is unclear what proportion of gift revenue is funded by out-of-area sources. Therefore, Hanover excludes all gift

revenue from the analysis.▪ All other revenue sources cannot be fully determined to be separate from students and are prorated by 7.1% as well.

The economic impact guidelines suggest that regional I-O models further include spending by students “who have temporarily moved into the region toattend university.” To estimate these expenditures, we multiply average off-campus spending per student by the number of off-campus out-of-statestudents.

▪ The room and board is the sum of housing and boarding for students who do not live with parents.▪ The other expenses include transportation and personal expenses for out-of-area students.

Methodology Details – Alumni Impact Analysis

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Historic Enrollment and CHEs in WorkforceHanover used data directly supplied by PGCC and though IPEDS to identify and/or estimate the total enrollment over a 30-year period. We examine along-run profile of students as a first step to estimating the number of credit hour equivalent units that current and past students completed and thatcontribute to higher earnings in the county. These higher earnings generate output and employment impacts that would not exist had these individualsnot studied at PGCC. The reference years for this FY 2017 study spans the 1987-88 to 2016-17 academic years (608,086 students), while the previous FY2016 study considered enrollment from 1986-87 to 2015-16 (613,923 students).

Ideally, we would then use death, retirement, unemployment, and migration data to estimate the proportion of PGCC students who remain in theworkforce in the county. However, in light of the lack of sufficient publicly available data, Hanover approximated the number of CHEs in the workforce inFY 2017 by applying the ratio of 30-year student headcounts of the FY 2017 and FY 2016 studies to the FY 2016 estimate of CHEs in the workforce.

Direct Labor Income, Jobs, and Multiplier EffectsNotable swings in the supply of labor and the input-output linkages across industries in Prince George’s County and surrounding regions are unlikely tohave occurred between FY 2017 and FY 2016. Therefore, Hanover makes further assumptions on the average monetary value of one CHE unit and onthe ratios of labor income to gross output and jobs. While the IMPLAN data that Hanover used does include input-output linkages, it was not feasible toidentify student workforce participation by industry at the time of analysis. We do not believe that these assumptions greatly affect the validity of theestimate of alumni impact.

Category Headcount Total CHEs Average CHEs

Associate Degree Students 889 11,560 13.00

Certificate Graduates 142 2,238 15.76

Continuing Students 15,182 139,327 9.18

Dual-Credit Students 1,308 9,835 7.52

Basic Education Students 6,895 56,909 8.25

Workforce/Professional Development Students 9,852 35,068 3.56

Personal Enrichment Students 5,059 59,111 11.68

Total, All Students 39,327 314,048 7.99

Total, Less Personal Enrichment Students 34,268 254,937 7.44

Methodology Details – Investment Analysis

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Higher Earnings from Attending PGCCHanover finds that 2016-17 PGCC students completed 314,048 CHEs, with 254,937 CHEs among non-personal enrichment students. Weassume that personal enrichment students do not study at PGCC for the purpose of improved credentials and higher earnings. Therefore,their CHEs are excluded from the consideration of attending PGCC as an investment. The estimated annual increase in income per CHEfrom the FY 2016 analysis was $146, and Hanover assumes the same value for the FY 2017 analysis. Therefore, the total annual increasein income is about $37.2M, the product of the number of CHEs among non-personal enrichment students and average value per CHE. Thisis a slight simplification since students who are closer to the middle of their career are likely to receive a higher boost to earnings fromeach additional CHE than students who are just entering the workforce or who are closer to retirement. However, this approximationshould not greatly affect the analysis.

The $37.2M in higher earnings is applied to the Mincer function that was estimated for the FY 2016 study. Again, Hanover does notbelieve that the labor market has changed sufficiently in one year to diminish the applicability of the previously estimated income streamover time. Further, the 35-year profile of the percentage of students who will be active in the workforce is also assumed to be the sameas estimate in the FY 2016 study.

Cost of Attending PGCCThe cost of attendance includes the direct costs of tuition, fees, books, and supplies, but also the opportunity costs of foregoneemployment and leisure. Tuition and fees are reported directly by PGCC. The college also estimates the cost of books and supplies to be$1,500 per student. In 2016-17, Hanover estimates that non-personal enrichment students enrolled in a total of 254,937 CHEs, whichtranslates to about 8,498 FTE students. Hanover applied the per student cost to this FTE headcount to reach the estimate of $12,747,000for the total cost of books and supplies. The opportunity costs are estimate to be proportional to the FY 2016 estimate – that is, theopportunity cost per student has not changed since FY 2016.