Author: Tim Young
Cost-Benefit Analysis
Goals of Policy
The policy goal for this
cost-benefit analysis is to increase the number of Oregon high school graduates
attending college in Oregon by lowering the out-of-pocket expenses for a
targeted group of students in the form of need-based financial aid grants
available through an already existing grant program, the Oregon Opportunity
Grant. The objective is to double
the number of Oregon Opportunity Grant recipients and double the award amount of
each grant for each Oregon student eligible for the program.
Further, to compensate for
anticipated increases in enrollment and the negative impact on such educational
quality indicators as class size and faculty salaries, and additional policy
goal of increasing state government support for the Oregon University System by
$300,000,000 per legislative biennium, a doubling of current support levels.
Policy Implementation Alternatives
Do Nothing:
In this policy analysis, a
binary decision type will be used.
The alternatives will be to pursue the policy or not. If the polices are not implemented the
following can be surmised. Oregon
is not an affordable state for receiving a post-secondary education and
per-student funding has seen tuition dollars outpace state support while the
system has taken on additional students.
Oregon families with financial need are not receiving comparable
financial assistance from the state of Oregon that poor families are receiving
from their states around the country.
Oregon students on average borrow more money in to go to school and
since the close of the 2001-03 Oregon Legislative session, state per student
funding has dropped from $5,312 to $4,319 per full time student. During this same period, student
tuition on average has climbed from $5,312 to $5,654. If state support for the Oregon University does not increase
but is not cut, projected increases in enrollment will lower per student state
contributions to the system and it is foreseeable that time to graduate rates
will increase do to lack of class offerings, increased class size and professor
workloads will dilute the classroom experience and the practice of doing more
with less eventually will lead to more dissatisfied educational customers.
[1] See Below.
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D- |
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STRATEGIES
FOR AFFORDABILITY (40%) |
Oregon |
Top States |
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Share of income that
poorest families |
16% |
9% |
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RELIANCE
ON LOANS (10%) |
Oregon |
Top States |
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Note: In the Affordability category, the lower the figures, the better the performance for all indicators except for "State grant aid targeted to low-income families as a percent of federal Pell Grant aid." |
http://www.ous.edu/irs/factbook02/WEBbudget/studrev.pdf
http://www.ous.edu/enroll_watch/ew_projections.htm
Do something:
If the policies of doubling
the number of Oregon Opportunity Grant recipients and doubling the award amount
of each grant for each Oregon student eligible for the program and increasing
state government support for the Oregon University System by $300,000,000 per
legislative biennium were to be implemented, the Oregon State Legislature and
Governor could, acting on behalf of the citizens of Oregon, increase state
support for the Oregon University System by 300 million more dollars per
biennium, or 150 million per year. Oregon would have to authorize the Oregon
State Student Scholarship Commission to raise their financial support from
$9,044,198 for 8,334 students, to $36,176,792 per year for 16,688 students[2]
to double the number of Oregon Opportunity Grant recipients and double the
award amounts. Overall, these two
polices would require an additional $186,176,792 per year from the State of
Oregon.
Scope of Decision Makers
The decision-makers for this
policy would be the people of Oregon, or the Governor and Legislature acting
on behalf of the people, with the
whole state of Oregon as their focus.
The policy would impact all students enrolled in the OUS and future
Oregon high school graduates.
Decision Type
This is a binary decision.
Consequences of Decision
Costs-
Resources Committed
Implementing these two
polices would require an additional $186,176,792 per year from the State of
Oregon.
Negative Outcomes
Increased taxes or a shift of financial support from other areas of government.
Benefits-
Increased Utility
These policies when full implemented will enable 16,688 more economically disadvantaged students to attend at least some college whom otherwise couldn’t afford to go or whom would have to take on high levels of debt to finance their education. Increased quality of educational offerings because of the infusion of $150,000,000 per year into the OUS could increase OUS faculty recruitment through higher salary offerings, smaller classes and more one-on-one time with professors and students and expanded high demand class offerings.
Pricing of Consequences
Costs
If $186,176,792 million wasn’t committed to our policy, the state and/or the taxpayer could use that money for other purposes. Assuming a 6% interest rate return on $186,176,792 annually over 30 years, the following section, present value of costs and benefits, will show what the present value of the financial costs of the educational policies under consideration are.
Benefits
Additional Students
For those students receiving the Oregon Opportunity Grant the median annual income of year-round, full-time workers 25 years old and over (average of men & women) with at least some college as a group and the group who have achieved a professional degree could be compared. Divided by the numbers of people with at least some college and those with a professional degree in the sample between men and women, we can get an average yearly income spanning the low end and high end of economic benefit of varying degrees of participation in higher education. The difference in lifetime income estimates will measure the financial benefits of a policy of enabling more Oregon students to receive an Oregon Opportunity Grant with larger award sizes.
Increased state support of OUS budget
For the quality measure there needs to be further analysis but in the summer 2003 issue of Oregon Quarterly, in an article entitled Follow the Dollar, University of Oregon economic professors that were interviewed agreed that for every one dollar spent on the UO, that dollar creates at least two dollars in the economy, conservatively. Applying this standard to all OUS schools and using this doubling standard of measurement for $150,000,000 every year for 30 years could be hazardous because of the phenomena diminishing marginal utility. Also, the UO crates two dollars for every one dollar spent on it in Oregon because of federal dollars that the UO receives and out-of-state tuition dollars. For these reasons, at 2 to 1 economic return on state investments in the OUS could be somewhat misleading. However, the 2-1 ratio could be higher than 2-1 for university economic benefit from state investment; the economic “reality” of investments into public higher education is still uncertain but society can certainly appreciate the deep and wide benefits of a highly educated citizenry. Absent a more accurate and thorough standard of measurement of the economic impact of state financing of state universities, this figure will have to do.
Present Value of Costs and Benefits
Costs:
$186,176,792*30=$5,585,303,760 or Future Value of costs
$5,585,303,760/(1+.06)^30 = $972,457,968.8 (Present Value of Costs of
Policies)
Benefits:
Oregon Opportunity Grant
(access)
In 2000 constant dollars,
according to the National Center for Education Statistics and their survey of
the “Median annual income of year-round, full-time workers 25 years old
and over, by level of education completed and sex: 1990 to 2000,” 9,792
men with at least some college made $40,377 annually and 7,391 women made
$28,697.[3] There are 7 categories for higher
education levels of achievement and income in this study. For the purposes of this study, we will
take the professional degree recipient numbers and recipient income levels into
account additionally but not the other categories. In 2000, 1,274 men made $99,411 annually with professional
degrees and 509 women made $58,957.
Men
(40,377*9,792)+(99,411*1,274)/(9,792+1,274)
= Average male median yearly income for attending university, some college
through a professional degree in 2000 in the USA or, $47,173.43 in yearly
average median income.
Women
(28,697*7,391)+(58,957*509)/(7,391+509)
= Average female median yearly income for attending university, some college
through a professional degree in 2000 in the USA, or $30,646.66 in yearly
average median income.
To get the male and female
average, we will take our median averages and multiply them by sample sizes for
male and female and those figures together and divide by the total number of
men and women in the sample.
(47,173.43195*(9,792+1,274))+(30,646.66329*(7,391+509))/ (9,792+1,274+7,391+509) = Male and female average median yearly income for some college through a professional degree in 2000 in the USA, or $40,289.45 in yearly average median income.
For every student served by the Oregon Opportunity Grant, 16,688 students under our policy will realistically make $40,289.45682 a year, more or less.
Over thirty years of employment the individual economic benefit of a college degree is:
40,289.45682* 30 years = $1,208,683.705 in future individual value of college.
Present Value = 1,208,683.705/(1+.06)^30 = 210,444
PV* 16,688 (number of Oregon Opportunity Grant recipients) =
$3,511,890,774 in present value of benefit or utility for citizens for a $36,176,792 per year investment in the Oregon Opportunity Grant over 30 year with a discount rate of 6%.
$150,000,000 increase in
the OUS Budget Annually:
$150,000,000*30 years =
$4,500,000,000
4,500,000,000/(1.06)^30=
$783,495,589.1 in PV of investment
If we somewhat haphazardly assume that for every one dollar spent on the OUS by the state that dollar will create two, then by investing $783,495,589.1 in present value dollars over 30 years the state universities will return $1,566,991,178 in economic activity.
Overall, these two policies
are worth $5,078,881,952 in present value benefit for a $972,457,968.8 present
value of investment by the State of Oregon into the Oregon University System.
Cost and Benefit Distribution by Population
A general fund obligation of
$186,176,792 annually will have to be funded from state tax revenue and the
burden of such revenue generation will be distributed, depending on the tax
structure chosen, to every or some citizens of Oregon. A sales tax is regressive and would
result in more low income Oregonians paying a higher proportion of their income
than more well off Oregonians for this policy. From my perspective this is unacceptable. A combination of corporate, income and
property tax that would distribute the burden to Oregon companies and
high-income citizens would be most equitable to fund this policy although
politically, difficult. After some
years the income tax collected in Oregon will capture some of theses increased
income benefits for citizens by adopting this policy and will recycle some of
the benifits back into the state coffers.
Uncertainty of Cost and Benefit Estimates
A study should be done for
each identifiable level of education and not averaged but studied in relation
to one another. Where I only took
the low end and the high end of a college education, some college w/out a
degree and having a professional degree categories, and used that to come up
with a number of what you can expect to earn from “college” it
could be more accurate. The totals
of high school diploma earners, for men and women, divided by their median
income, should be subtracted from the total that I came up with to find the
income that you can expect to gain on average from having a high school diploma
moving to attending college. Using
a 2 to 1 return for state investments for higher education could be inaccurate
and the discount rate used could be inaccurate.