Methodology

Methodology
Details behind UC Santa Cruz’s update of its economic contributions report methodology…

Economic impact studies at UC Santa Cruz

On a periodic basis (since 1979), UC Santa Cruz has analyzed its economic impact on the local economy.  In earlier years, the campus created models to analyze the flow of monies through the University into the community.  However, with the introduction of regular government surveys of economic activity and sophisticated commercial economic impact modeling systems, it is no longer necessary for the campus to create its own models.

In 2005, the campus commissioned Bay Area Economics (BAE) of Emeryville, California, to review campus methodologies and to create a new economic impact analytic framework for future studies.  At the request of the campus, the firm considered two models:

• IMPLAN (IMpact Analysis for PLANning) initially developed by the U.S. Department of Agriculture; and
• RIMS II (Regional Input-Output Modeling System) developed by the U.S. Bureau of Economic Analysis.

The 2009-10 analysis (on which this report is based) was prepared by Economic & Planning Systems, Inc. (EPS) of Berkeley, California.  EPS was hired by the UC Office of the President to look at the University’s economic contribution to the state.  The data used in this report is based on their analysis using the IMPLAN model.

Both models examine inter-industry relationships but are distinguished by how they estimate these relationships as well as their data sources.  Both IMPLAN and RIMS II use region-level data and relationships and the underlying data tables for both models are available for the Santa Cruz region.  While RIMS II multipliers tend to be higher than those of IMPLAN, both are lower than the campus’s previous methodology which was based upon a governmental sector model developed specifically for Santa Cruz County.

How economic multipliers work

When the University and its students and employees spend dollars in the community, local businesses and individuals receiving these dollars in turn spend a portion of them in the local area.  The recipients of that second round of spending also expend a certain amount locally, and the process continues through successive cycles.  Because this spending and re-spending are induced by, and would not occur without, initial expenditures, it is reasonable to attribute the total monetary flow of all such spending cycles to the University.

It is impossible to trace each University-related dollar through the re-spending process in order to determine the exact total of local business volume attributable to the University.  However, a standard assumption of economic theory is that those receiving University-related dollars will probably use them as they would money from other sources.

Economists have developed the concept of the "economic multiplier" to help calculate the total economic activity (often characterized as “direct,” “indirect,” and “induced” spending) which results from these successive rounds of re-spending.  Using its accounting records, as well as surveys of students and employees, the University calculates the direct expenditures due to its presence in Santa Cruz.  Indirect effects are the economic effects on the industries that supply UC with goods and services; the induced effects represent additional spending due to the household spending patterns of UC students and employees.  For simplicity, this report refers to the combination of direct, indirect, and induced effects as simply “total economic activity.”

Economic impact modeling systems, such as IMPLAN and RIMS II described above, are used to approximate the total economic activity in a particular geographic area (in this case, Santa Cruz County) based upon the direct spending inputs.  These systems draw on several Federal government data sources to describe inter-industry trade flows and regional purchase coefficients.  These include:

• US Bureau of Economic Analysis Benchmark I/O Accounts of the US
• US Bureau of Economic Analysis Output Estimates
• US Bureau of Economic Analysis REIS Program
• US Bureau of Labor Statistics Covered Employment and Wages (ES202) Program
• US Bureau of Labor Statistics Consumer Expenditure Survey
• US Census Bureau County Business Patterns
• US Census Bureau Decennial Census and Population Surveys
• US Census Bureau Economic Censuses and Surveys
• US Department of Agriculture Crop and Livestock Statistics
• US Geological Survey

Both the IMPLAN and RIMS II models are well respected as industry standards for projecting economic impacts.

Basis for University expenditures

Direct expenditures by the University for both operating and capital expenditures were provided by the UC Office of the President based upon information recorded in the campus accounting systems.

UC Santa Cruz spending

By far the largest University local expenditure is its investment in employee salaries (who, in turn, spend over three-quarters of their earnings in the local economy).  These purchases by University employees play a major role in the economic vitality of the community.

UCSC also spends a large portion of its operating budget in the local economy through purchases of supplies, equipment, and services (including on-campus student housing and food services) and awards construction contracts to local firms.

Student spending also accounts for substantial impact to area retailers and restaurants.

In the economic analysis model, this initial spending by the campus is called the "direct effect."  The model provides an estimate of the campus's direct effect for each region within California, as well as out-of-State spending.

Economic and employment benefits

The full impact of UCSC spending on the Monterey Bay regional economy is greater than the total of the University's direct spending on salaries and wages, goods and services, and construction.  This is because money spent by the University and its students and employees in the local community is spent again by the local businesses and individuals receiving these dollars.  In effect, the original dollars are spent and re-spent, creating a “multiplier” effect in the local and State economy.

In the economic analysis model, the total economic activity (often characterized as “direct,” “indirect,” and “induced” spending) which results from these successive rounds of re-spending is called the "total impact."  The model provides an estimate of the campus's total impact for each region within California, as well as out-of-State spending.