Impact of University Budget Cuts on the Local Economy: Case for a Regional University

Abstract

Problem statement: Considering the economic downturn and state-wide revenue shortfall almost all of the states have reduced their spending on higher education. The problem addressed in this study was to assess the economic impact of university budget reductions on the local and state economy of Kansas. Approach: The study used regional multipliers from an input-output model developed by Bureau of Economic Analysis, RIMS-II and applied to the budget reduction dataset supplied by the Office of Budget, Emporia State University, Kansas. Due to a statewide revenue shortfall of $200 million for the fiscal year 2009-10, Kansas state legislators have drastically cut back their support for higher education. Emporia State University reduced its spending by $4.203 million which includes elimination of 79 full and part-time employees. Results: Using economic impact multipliers this study found that for every dollar decrease in spending by ESU, output and income will be reduced by $1.04 and $0.65, respectively in the Emporia Area and by $1.56 and $0.85, respectively for Kansas. The study also found that for every job loss at ESU an additional 0.61 jobs are lost in the Emporia Area and 0.89 jobs in Kansas economy. Conclusion: The implications of this study found that cutting funding for Emporia State University will eventually diminish its positive regional effect in terms of output, earnings and employment potential both in the short-run and in the long-run.