Economic Impact Study
- Serving Montana Academically and Economically
- Where Does the Money Come From?
- Where Does the Money Go?
- The University's Impact on the Montana Economy
- Producer of Jobs
- Research Magnet
- An MSU-Bozeman Profile
- The Research and Development Connection
- The University's Economic Impact on the Gallatin Valley
- A Word About Methods
A Message from President Malone
In 1893, there were many reasons that the people of Bozeman wanted the state's first public institution of higher education located in the Gallatin Valley. Our forbearers talked about the intrinsic value of education, about the opportunities for their sons and daughters, and about the need for Montanans to grow and progress. They certainly talked also about the jobs a university would bring, but most did not foresee the pivotal role Montana State University-Bozeman would play in the economy of the state.
Today people would acknowledge that the state's major research university does have a significant economic impact. The problem comes in translating "impact" to a specific number. There have been anecdotal reports and even a few isolated efforts to quantify the economic effects of student purchases or faculty salaries, but this is the first time we have been specific about MSU's place in the economy of Montana and of the Gallatin Valley.
Perhaps our reluctance to do this is borne of concern that the real reason for a university, which is education and hard to quantify, would be lost in the numeric economic graphs and charts. Yet we also believe that it is important to be more definitive about the role of MSU-Bozeman as an economic engine for Montana.
The numbers, as you shall see, are impressive, but they are also conservative. In fact, our economic impact statement is notable for what we do not quantify. We have not, for example, put a number to the value of 25,000 educated alumni living and working in Montana, yet these citizens are our most valuable asset. In 1994, 60 percent of our graduates found work in Montana, where they earned an average starting salary of $24,146.
We cannot put a firm value on many of the new products and processes that have come from university research, but we are confident that these also play an important role in the economy. Finally, we have not tried to quantify the immense economic value of university service, which includes everything from consulting with local governments to technical assistance for Montana manufacturers. These, too, are a significant part of our land-grant responsibility and perhaps at some time we will be able to quantify this work as well.
In preparing this document, we have focused on those things which we can count and verify. The methods we used to derive these numbers are not very complex, but they are well grounded and available to anyone who needs more information.
We also wish to be clear that our underlying and enduring interest is to make sure that Montana State University-Bozeman meets the needs of the people of this state, academically as well as economically. We welcome comments and suggestions.
Montana State University-Bozeman is a public institution operated by the state of Montana, primarily for the benefit of Montanans. Its annual operating revenues for fiscal year 1994 (July 1, 1993 - June 30, 1994) totaled $137.5 million.1 Of this figure $50 million, or approximately 36 percent, came from Montana's taxpayers.
The University generated the remaining two-thirds of its budget from student tuition and fees, grants and contracts awarded to faculty members, private funds donated by alumni and friends, and income from residence halls and dining facilities. Put another way, for every $1 of state money appropriated to MSU-Bozeman, the campus generates an additional $1.74 from other sources.
The University's most important assets are its faculty, staff and students. For that reason over half of its $137.5 million expenditure in FY94 went to salaries or payroll, as shown in Figure A.
An additional $39 million, or just over one-quarter, was paid to businesses where the University buys everything from paper, chalk, books, and food to highly sophisticated computer systems, laboratory instruments, and construction materials.
The remaining $24 million dollars, or nearly one-fifth of its annual budget, was used to finance scholarships, student loans and fee waivers, as well as to pay off bonded indebtedness and the overhead costs associated with sponsored research.
Montana State University-Bozeman spent $137.5 million in FY94 (Figure A). This is an impressive statistic, but it doesn't measure the full economic impact of the University on the state, which is summarized in the pie chart below. A more detailed breakdown by expenditure category is available in Figure B.
Expenditures in Montana by Category
First, the expenditures in Figure B include only those dollars spent in Montana, since money spent outside the state has no direct economic benefit to Montana. Second, MSU-Bozeman makes an economic impact through the expenditures of the nonresident students and visitors it attracts as well as through its own expenditures. These calculations are also reflected in Figure B.
Third, $50 million in state tax appropriations is excluded from the analysis because these dollars would also benefit the Montana economy if they went to another state institution or, if they stayed in the taxpayers' pockets. The real question is to ask what economic impact the University generates for Montana beyond its state tax subsidy.
The answer is startling. In FY94 the state economy gained $75.5 million in direct expenditures related to MSU-Bozeman. That number is more than the total annual payroll for all coal mining in Montana. It also exceeds the payroll for all the oil and gas extractive industry in Montana.2
But the full economic impact is greater than $75.5 million because the money does not stop in the businesses where it is spent. Those businesses spend the money again in many ways, such as hiring employees, purchasing supplies and insurance. The $75.5 million recirculating through the state generates another $65.9 million in economic activity for Montana, making the University's total economic impact $141.4 million in FY94.3
These expenditures not only make a big difference to Montana businesses, but they also create jobs.
Every $1 million the University spends in the Montana economy supports almost 60 non-University jobs.4 In total, University purchases support over 1600 Montana jobs each year, 420 of them in Gallatin County. These jobs span the employment sector and could include anything from a computer salesperson or a construction worker to a corporate manager or a health care worker. All 1600 jobs are in addition to the 2100 people employed by MSU-Bozeman.
As noted in Figure B, the University's biggest contribution to Montana's economy comes from the $40 million spent by its growing non-resident student population and from resident students in academic programs unique to MSU-Bozeman among Montana institutions.
The $40 million includes that portion of tuition which is spent again by the University for goods and services. It also includes the books, supplies, rent, food, entertainment and personal items students purchase outside the University.
Expenditures by Montana students enrolled in engineering, architecture and other degree programs unique to MSU-Bozeman are included in the $40 million total because these students have no other in-state options. Without the Bozeman campus, about 2,000 students would likely leave Montana, taking with them the money they spend for tuition and living expenses.5
The next largest contribution to the Montana economy comes from the $31 million spent by University research operations, the Agricultural Experiment Station and the Montana Extension Service. These dollars support the work that results in increased yields and best practices for farmers and ranchers, new products for industry and the information available through county Extension offices. The figure also includes private donations raised by the MSU Foundation on behalf of the University.
Surprisingly, out-of-state visitors attracted to Montana by University employees and students added an estimated $5 million to Montana's economy in FY94.6 A survey of faculty and staff revealed an average of eight visitors per respondent during the year, each staying an average of five days and adding $2 million to the economy. Out-of-state visitors to the Museum of the Rockies injected $900,000 into the economy and visitors attending conferences held at the University spent another $700,000. Other out-of-state visitors included families and friends of non-resident students as well as athletic teams and alumni.
According to information taken from a campus-wide survey last fall, about half of the current University employees moved to Montana specifically to take a job at MSU-Bozeman. Eighty-one percent of the respondents own their own homes.7
University respondents estimated that they provided 148,132 hours of volunteer time last year to churches; schools; various community support groups such as service clubs, the library or food bank; cultural organizations such as the symphony or opera; and a host of state, regional and national boards. That works out to an average of 83 hours, or more than two working weeks, of volunteer time per person, per year.
Faculty and staff also estimated that last year they gave $946,000 to charities in Gallatin County and an additional $242,000 to other Montana charities, an average of $565 per employee, per year.
There are no statistics on student contributions to charity, but MSU-Bozeman students did volunteer 29,150 hours last year, about 80 percent of it in Gallatin County. This figure excludes internships and other academically-related activities in the community.
To determine how much economic activity MSU-Bozeman generates beyond its annual tax-based appropriation, research funds were adjusted elsewhere in this report to show only the portion that came from outside Montana and then only the part spent in Montana. It's important to note that University research expenditures on grants and contracts from all sources in FY94 totaled $31 million.
This money resulted from more than 900 carefully thought-out ideas that faculty submitted to a host of private and public grant competitions. Not only do the grants enrich the undergraduate program by attracting good faculty and bringing discovery closer to students, but they also have an important impact on a growing segment of Montana's economy--technology-based businesses.
Research funding has fostered many partnerships between faculty, students and Montana businesses. In addition, faculty research has resulted in new products and processes which yield returns on the research investment. MSU-Bozeman is also providing excellent graduate and undergraduate students who are working throughout Montana. Last year over 50 percent of the engineering graduates reported finding Montana jobs in their field.
University alumni have also started some of the new technology-based businesses which have grown up in the last decade. Thirty-five high-tech firms in the Gallatin Valley and several in Butte and Missoula--all with ties to University research--signal new directions in the Montana economy.
Research benefits to the private sector just in the last year include a new hard white winter wheat, a new laser optics measuring device and two new pharmaceuticals, all in the hands of companies which expect to develop these products for the market. MSU-Bozeman currently holds 17 patents on products and processes with economic promise. It also has 40 research agreements with Montana companies, working on the new ideas that will ensure future competitive success.
Although Montana State University-Bozeman serves the entire state through its land-grant mission, it is located in the Gallatin Valley where it is the largest employer. The University accounts for more than a quarter of the county's total economic base. That percentage is larger than the county's total trade center activity and also larger than tourism.8
All expenditures made in Gallatin County during FY94 by the University, its employees, its students and the visitors they attracted sum to a direct economic impact of $101 million. As local businesses spent this money again within the county, it generated an additional $65 million in economic activity, raising the University's total economic impact on the county to $166 million.9
The University's economic impact on the county differs from its impact on the state. The two calculations are entirely separate and one cannot be derived from the other. For example, total University purchases are lower in Gallatin County than for the state as a whole so the economic impact from direct purchasing is smaller.
On the other hand, MSU-Bozeman's state tax subsidy, which is not included in the state economic impact, does have a major effect on the county. Tax dollars are included in the county impact figures because most of the tax is paid by people living outside the Gallatin Valley. As such, the tax subsidy represents money brought into the county by the University.
Different residency patterns also affect state and county economic impacts. Most of the students who are residents of the state come to MSU-Bozeman from outside Gallatin County and their presence has a major economic impact. However, 300 of the University's full-time employees live outside the county so they are excluded from the county impact calculations.
Expenditures by full-time students had the greatest economic impact on the county in FY94. Students spent $61 million for books and supplies, rental housing, food, entertainment, personal items and transportation, as shown in the pie chart below. A more detailed breakdown by expenditure category is available in Figure C.
Expenditures in Gallatin County by Category
Faculty and staff spent another $23 million on goods and services in the county 10 and they also paid over $1 million in property taxes. These figures do not include expenditures for real estate and housing construction. Since more than 80 percent of University faculty and staff own their own homes, this number is likely substantial, but not presently available.
The University spent $8 million with businesses in Gallatin County, purchasing the whole range of goods and services required to run the campus. The same amount, $8 million, was spent by visitors coming from outside Gallatin County whose trips were directly attributable to the Bozeman campus. A large part of that $8 million was generated by visitors that faculty, students and staff attracted to the greater Bozeman area.11
1. The source of revenue and expenditure data is the MSU-Bozeman financial statement, less internal transfers. Figures include the Bozeman campus and its extended nursing programs in Billings, Great Falls and Missoula; the Montana Extension Service; and eight Montana Agricultural Research Centers. These figures do not include the affiliated Montana State University campuses in Billings, Havre and Great Falls. That is planned for a future study.
3. The spending multiplier of 1.8725 used to calculate MSU-Bozeman's total economic impact on Montana was provided by the Bureau of Economic Analysis of the US Department of Commerce. It recognizes that the money spent by the University, its students and visitors not only creates jobs and income directly, but the money also results in additional indirect expenditures before leaving the state.
4. The employment multiplier of 58.9 jobs supported by each $1 million spent was provided by the Bureau of Economic Analysis of the US Department of Commerce. It assumes that businesses must hire employees to support the trade created by the University.
6. A survey was conducted by the Institute for Tourism and Recreation Research to determine spending patterns of out-of-state visitors to Montana in 1993. The survey found that the average tourist group was comprised of 2.34 persons who spent $87 per day and typically stayed four days and three nights.
7. Some of the data in this report came from a September 1994 survey sent to faculty and staff working on the MSU-Bozeman campus. Forty-one percent of the faculty and staff returned survey forms. The employees who responded were representative of the employee profile in FY94, giving the University confidence in generalizing the survey results to the overall employee population.
8. The figures for Gallatin County can be found in the Montana Business Quarterly, Winter 1995 edition, page 6, Figure 9, 'Non-Farm Labor Income for Gallatin County.' The figures for the University's economic impact on the county differ from those calculated for the state because the expenditures in Figure C reflect funds attracted from outside the county. Student expenditures illustrate purchases made by all full-time students who came from outside the county borders.
9. The Bureau of Economic Analysis had not calculated an expenditure multiplier for Gallatin County, so the state multiplier was reduced using survey data. Respondents reported that 88 percent of the money they spent in Montana was spent in Gallatin County, so the county multiplier was calculated as 1.6505, or 88 percent of 1.8725.
10. Disposable income for University employees excludes state and federal income taxes, social security, Medicare and state retirement. The percentage of disposable income spent in Montana is based on figures published in the October 26, 1992, issue of Sales and Marketing Management. The ratio of projected retail sales per household to the projected average household effective buying income is 0.551 for Montana. Because these data were not available for Gallatin County, 88 percent of that ratio was used, based on the faculty and staff survey.
11. These visits are distinct from those calculated for the state impact because they are adjusted to account for all visitors living outside Gallatin County. The state impact figures in Figure B were calculated on those visitors living outside Montana.
To make this study as accurate as possible, we relied heavily on University financial, student and personnel records to establish baseline data for FY94. We surveyed faculty and staff to obtain information unavailable from University records and also consulted various University offices for information about visitors to campus. We used government multipliers and published estimates where possible rather than making our own assumptions.
MSU-Bozeman's impact on the state was based on funds brought in from out of state or funds that would have left the state were it not for the University. The impact on the Gallatin Valley was calculated from funds originating outside the county.
We were deliberately conservative in our calculations. For example, we restricted our visitor expenditures to visitors of full-time employees. We excluded part-time students from all expenditure calculations except those for books and supplies. We based student expenditures on figures used by the financial aid office in awarding aid; many students spend more than these amounts while attending college.
This study was prepared by Dr. Cel Johnson, Director of the University Office of Institutional Research. Dr. Doug Young, Professor of Economics at the University, served as a consultant. For additional information, please contact the Office of Institutional Research at MSUinfo@msu.oscs.montana.edu or 406-994-4390.