EconomicImpactFebruary 2012

CENTER FOR BUSINESS RESEARCH AND ECONOMIC DEVELOPMENT

VisionThe University of Arkansas - Fort Smith will be a premier regional university, connecting education with careers.

MissionThe University of Arkansas - Fort Smith prepares students to succeed in an ever-changing global world while while advancing economic development and quality of place.

Table of Contents

This report is the result of an analysis completed by the Center for Business Research and Economic Development within the College of Business at the University of Arkansas – Fort Smith. Primary researcher and author is Dr. Latisha Settlage, associate professor of economics. The author wishes to thank the following individuals for their assistance in providing data used to estimate the visitor spending section of this report: Coletta Furner, Stacey Jones, John Martini, Dustin Smith, Elizabeth Underwood, and Mohammed Zainuba.

Introduction ........................................................................................................................................ 2

Highlights of the 2011 Economic Impact Study ........................................................................ 4

Economic Impact Analysis......................................................................................................... 5-13

Total Economic Impact .............................................................................................................. 7

Individual Spending Impacts ..................................................................................................... 9

Campus Operations ..................................................................................................................10

Campus Construction ..............................................................................................................10

Faculty/Staff Spending .............................................................................................................11

Student Spending ......................................................................................................................11

Visitor Spending ........................................................................................................................12

Tax Impacts .................................................................................................................................13

Summary and Conclusions ............................................................................................................14

Appendix: Student Survey ............................................................................................................15

The University of Arkansas – Fort Smith is located in the Arkansas River Valley of west central Arkansas. It is one of eleven campuses that constitute the University of Arkansas system and educates over 7,500 students annually.

UAFS was established in 1928 as Fort Smith Junior College, an extension of the Fort Smith public school system. In 1950, the school was incorporated as a private, non-profit institution, and in September 1952, the College moved from borrowed facilities in the high school to its current site. During this time, enrollment, course offerings, faculty numbers, and facilities increased. A vocational-technical division was added in 1960.

In 1966, the institution’s name was changed from Fort Smith Junior College to Westark Junior College, then in 1972, to Westark Community College, indicating the larger area to be served and reflecting a more comprehensive mission. In 1997, the Arkansas Legislature passed an act granting Westark the authority to offer up to nine applied bachelor’s degrees, developed in response to identified needs of the industries in the area served. The name of the college was changed yet again in February 1998 to Westark College, more accurately portraying the role and scope of the institution.

On December 15, 2000, the Board of Trustees of Westark College entered into an agreement with the Board of Trustees of the University of Arkansas to merge with the UA System as a four-year institution. The merger, which became official on January 1, 2002, endorsed the concept of UAFS as a unique university, one that offers applied and traditional baccalaureate degree programs, one- and two-year associate and technical programs, and non-credit business and industry training programs.

Two core missions mark the institution today — a commitment to serving the greater Fort Smith region’s business and industry with quality training and education and a commitment to becoming a full-service regional university that is a destination of choice for students.

Introduction

2

As the history of the University has evolved, so has its role in the economy. In 2009, an economic study of UAFS was undertaken in an attempt to measure the impact of the institution on the surrounding community in fiscal year 2008. This study found that the University generated a $169 million total impact on the Fort Smith MSA (Metropolitan Statistical Area). The magnitude of this impact was based on operation and payroll budgets as well as student spending. Visitor spending was not considered.

Since the completion of that initial study, the University has experienced growth in its student body and faculty. In addition, the University’s athletic teams have made the transition from Junior College level to NCAA Division II. On-campus housing and parking have been expanded significantly. All of these changes are taken into consideration in this update, resulting in a total estimate of the institution’s economic impact on the Greater Fort Smith region of $222 million. In this study, a multiplier model is used to estimate the economic contribution of the University of Arkansas – Fort Smith in fiscal year 2011. The University’s operational expenditures and a capital project to expand campus parking are considered as well as expenditures conducted by its faculty, staff, students, and visitors. The total impact of the University upon the local economy is determined by combining a direct impact with an indirect impact and an induced impact.

This primary study area for this report is the greater Fort Smith region including Crawford, Franklin, Logan, and Sebastian Counties in Arkansas as well as Le Flore and Sequoyah Counties in Oklahoma. The estimated models are constructed using the IMPLAN Professional 3.0 economic impact modeling software.

3

In a study conducted by the Center for Business Research and Economic Development examining the economic impact of the University of Arkansas – Fort Smith, it was found that:

The University of Arkansas – Fort Smith contributed (via direct expenditures and related

ripple effects) more than $220 million in economic activity, over 1,400 jobs, and $88 million in labor income to the Greater Fort Smith region in

fiscal year 2011.

Operations spending by the University contributed a total of $63 million in

output to the regional economy and supported 500 jobs in service and other

related sectors.

A $2 million parking construction project undertaken by the University resulted

in a total economic impact of $4 million in output.

Annual spending by faculty and staff employed by the University generated almost

$77 million in total economic output to the greater Fort Smith region and

300 additional jobs in supporting sectors.

Similar to faculty/staff contributions, annual spending by the 7,716 students

enrolled at UAFS in fiscal year 2011 contributed $78 million in output and just

over 300 jobs in supporting sectors.

Visitors attending University events held throughout the year (from outside Greater Fort

Smith region) added a total of $0.5 million in output to the regional economy.

Highlights of the 2011Economic Impact Study

4

As the state’s fifth largest institution of higher education, the University of Arkansas – Fort Smith contributes significantly to the Greater Fort Smith regional economy. More than 20,000 people benefit annually from UAFS credit, utilizing continuing education as well as business and industry programs. The following section details the total economic impact of the institution and the economic impact of the five components that comprise the institution’s total economic impact. Those components include: University operations, parking expansion, faculty and staff spending, student spending, and spending by campus visitors residing outside the primary study area.

Economic Impact Analysis

FY 2008 FY 2011

Tax Impact (federal and state)

Total Student Enrollment

Total Indirect and Induced effect

Total Economic Impact

6,611

7,716

$222,000,000

$169,000,000

$107,200,000

$48,600,000

$14,039,000

$9,513,000

14.3%Growth

32.2%Growth

54.7%Growth

23.9%Growth

2008/2011 Comparison

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The models estimated are multiplier models that trace expenditures by households and firms throughout the economy. Multipliers are estimated in the IMPLAN models following a social accounting matrix. The social accounting matrix accounts for the sources and uses of income at the household level and the purchase of inputs and production of commodities by industries. Government is also accounted for as both a recipient of tax revenue and purchaser of final goods and services. In addition, the model tracks spending leakages due to the purchase of imported goods (either goods produced outside the study area or those produced by foreign institutions).

In general, there are three types of economic impacts the University has on the Greater Fort Smith region: direct, indirect, and induced. Direct economic impact is attributed to dollars injected into the economy by the University, its faculty, or students. This is the primary economic impact of the University, and it is this initial spending that stimulates additional spending throughout the economy.

In a circular economy, one person’s spending becomes another’s income. Firms use the revenue they receive from expenditures on goods and services produced to pay the wages and salary component of their cost of production. Those employees then receiving wages and salaries in turn use that income to purchase goods and services in the economy. This translates into multiple rounds of spending in the economy referred to as the “induced economic impact.”

Indirect economic impact is associated with firm-to-firm transactions in the economy. For example, part of the University’s spending is used to purchase supplies and other inputs. The revenue received by the firms with which the University has vending relationships is then used by those companies to purchase additional inputs from their suppliers and so on. Thus, the University’s spending helps to support the economic activity of the companies with which it does business. Without the University’s presence, some of the demand for the inputs created by those firms would go away.

It is important to note that for purposes of estimating the indirect and induced effects, only those expenditures that support firms within the study area are relevant for purposes of stimulating economic impact. If inputs are sourced from outside the study area, this is treated as a leakage in spending, and those dollars become unavailable to generate additional dollars of economic impact in the model.

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In fiscal year 2011, the University of Arkansas – Fort Smith reported a total budget of $68.2 million (figure 1). Of this, $26.5 million (39 percent) was spent on operations, while $41.8 million (61 percent) was used to pay faculty and staff. The University also completed a $2 million capital project to expand parking. Total spending by the University’s 7,716 students was estimated at $43.8 million, and visitors from outside the region attending University events were estimated to spend an additional $0.3 million on meals and hotels during their stay in the Greater Fort Smith region. In sum, total direct spending related to the University totaled approximately $115 million in fiscal year 2011 (table 1).

Total Economic Impact

Payroll

$41.8*

Operations

$26.5*

Direct

Indirect

Induced

Total

Labor Income*

Jobs

Output*

859 123 465

69.3 4.3 15.0

114.7 36.6 70.7

88.7

1,448

222.0

UAFS Budget

$68,200,000

Figure 1 - UAFS Budget, FY 2011

Table 1 - Total Economic Impact of UAFS, FY 2011

*All dollar figures in millions.

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After computing the ripple effects of the University’s spending and that of the faculty, students, and visitors using an economic impact model, it is estimated that the $115 million in direct spending generated a total of $222 million in economic output for the Greater Fort Smith region in fiscal year 2011. This represents an additional $107 million in indirect and induced output. The total economic impact of the University (both direct spending and additional ripple effects generated in the economy) supported over 1,400 jobs and $88 million of labor income in the Greater Fort Smith region during fiscal year 2011.

Figure 2 depicts the industry sectors most affected by the University’s presence in the Greater Fort Smith Region (as measured by the dollar value of output created through indirect and induced effects). Not surprisingly, the service sector is most impacted. Within this sector lie the sub-sectors of housing, residential maintenance and repair, hospitals, physicians and dentists, food and beverage, real estate, and banks. These sectors are highly impacted by the large proportions of faculty, staff, student and visitor spending. The service sector enjoyed 58 percent of the additional output (indirect and induced economic impacts) created by the $115 million in direct expenditures of the University and its faculty, staff, students, and visitors in FY 2011. Government, trade, manufacturing, and transportation/information/utilities also received significant benefits.

Service

58% Government

22%

Trade

11%

Transportation, Information, and Utilities

4%Manufacturing

4%

Construction

1%

Figure 2 - Indirect and Induced Impacts by Sector

Total Indirect and Induced Effects

by Industry

$107,200,000

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This economic impact analysis study followed an analysis-by-parts approach whereby each type of spending associated with the University was considered as a piece of the larger University’s overall impact. The next section considers the economic impacts of each of the five categories of spending associated with the University individually. Discussion of any assumptions made concerning the estimation of the data used is also provided.

Figure 3 demonstrates that student spending comprises the largest portion of University’s total direct impact followed closely by faculty/staff spending, then expenditures on operations, capital projects and finally visitor spending.

Operations

$63

Visitor

$0.5

Student

$77.8

Faculty/Sta�

$76.8

Capital Project

$3.9

Figure 3 - Direct Economic Impact of UAFS, FY 2011

Individual Spending Impacts

Total Economic Impact

$222,000,000

9

Campus OperationsThe University’s total operational expenditure is listed in figure 3 as $26.5 million. As indicated, faculty and staff compensation is considered separately. Operational spending stems from purchases of supplies and equipment by the University’s various colleges, programs, and other non-academic units such as the physical plant. This spending is used to support instruction, student services, public services, as well as maintenance and repair of facilities. Direct expenditures on campus operations generate both indirect and induced effects that are listed below in table 2. Indirect economic impact results whenever the University pays vendors and other service providers within the Greater Fort Smith region to facilitate day-to-day operations. Induced economic impact results from the regional spending of those employees on the payroll of the University’s vendors.

Direct

Indirect

Induced

Total

University Operational Expenditures

Capital Project Expenditures

Faculty/Staff Expenditures

Student Expenditures

Visitor Expenditures

2.40.90.6

41.8 5.6 29.4

26.5 24.4 12.1

43.8 5.5 28.4

0.30.10.1

63.0

76.8

77.8

3.9

0.5

Table 2 - 2011 Economic Impact of UAFS: Analysis by Parts

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Campus ConstructionA capital project to expand parking on campus for fiscal year 2011 contributed $2.4 million in direct economic impact as well as $1.5 in additional indirect and induced impacts. The parking expansion supported an estimated 38 full-time equivalent jobs in industries ranging from construction to service.

Faculty/Staff SpendingThe University employed about 229 full-time faculty members when fiscal year 2011 began. The payroll of the full-time faculty as well as the additional supporting faculty and staff of the University was reported as $41.8 million. These direct expenditures in the Greater Fort Smith region were estimated to generate an additional $5.6 million in indirect impact (as retailers, restaurants, and other service providers) purchased supplies necessary to provide their services to the employees of UAFS. The induced spending impact is estimated as $29.4 million in fiscal year 2011. The induced economic impact associated with faculty/staff spending results when employees at businesses patronized by UAFS employees and the employees of the suppliers of these businesses spend additional money in the Greater Fort Smith regional economy. These ripple effects support an additional 300 full-time equivalent jobs in the regional economy.

Student SpendingStudent expenditures are estimated as $43.8 million in FY 2011. This amount was found by first calculating per-student income available to spend in the local economy (median student income multiplied by fall 2010 enrollment). Then, tuition, fees, and book expenditures as well as on-campus housing expenditures were subtracted as their impact on the economy was already included in the University’s operational expenditures. The remaining amount is multiplied by the proportion of the year that fall and spring classes are in session (240/365). This is done because it would be incorrect to include student spending during the portion of the year students are not on campus.1 As mentioned previously, 7,716 students were enrolled at UAFS as of fall 2010. In order to calculate both student disposable income as well as the approximate percentage spent on tuition, fees, and books, a survey was administered to students enrolled in business classes in the College of Business (see appendix A). Students reported a median disposable income of $12,500, with 27% of this income spent on tuition, fees, and books.

1This is a conservative approach to incorporating student spending, as many students live in the Fort Smith MSA and take summer classes. In addition, since student spending was estimated via the survey, there is no need to multiply student income by a disposable income factor as was done to faculty income.

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Student spending is estimated to generate an additional $5.5 million indirect economic impact and $28.4 million induced economic impact. Similar to faculty/staff spending, when students spend money in the Greater Fort Smith region, this creates ripple effects as the retailers and service providers patronized source inputs and pay their employees. It is estimated that just over 300 full-time equivalent jobs are supported on an annual basis in the regional economy as a result of this student spending effect.

Visitor SpendingWhen measuring the effect of visitor spending, only those occurrences that would generate a change in spending already occurring in the regional economy (marginal spending) were considered. This includes visits from those individuals residing outside the six-county region. The following seven events/programs were identified as major opportunities to measure visitor spending: the inaugural Advances in Business Research Symposium hosted in fall 2010 by the College of Business, the inaugural Alumni Weekend hosted in spring 2011 by the UAFS Alumni Office, UAFS Lion Athletics (women’s basketball, golf, tennis, volleyball; men’s baseball, basketball, golf, tennis), the Frontier Trails BEST Competition, District I FBLA Fall Leadership Conference, Fort Smith Rose Show, and UAFS Season of Entertainment.

For each event, the number of attendees from outside the region was calculated, and the number of attendees enjoying meals and hotel rooms while visiting was estimated.2 There were approximately 4,800 visitors from outside the Greater Fort Smith region during fiscal year 2011. These visitors consumed an estimated 1,500 hotel rooms and 11,500 meals. This resulted in total visitor spending of $0.3 million.3 The direct spending by visitors generated $0.2 million in additional ripple spending.

2Visitor spending for the Frontier Trail BEST Competition was collected via a survey administered and tabulated by John Martini.3Average cost of a hotel room was found to be $90. This was estimated based on the rates published by 21 area hotels on TripAdvisor.com. Average cost per meal is estimated as $9.20 according to the rates published by 187 area restaurants on UrbanSpoon.com.

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One final impact created by the University and its associated spending is that of tax receipts to local, state, and federal governments. Figure 4 summarizes the major classes of taxes as well as the tax revenue flowing into each category. A total of $9.0 million in additional federal tax revenues and $5.0 million in additional state and local tax revenues were created as a result of the University’s direct, indirect and induced spending in fiscal year 2011.

Tax Impact

Figure 4 - 2011 Economic Impact of UAFS: Analysis by Parts

Sales Tax$2,358

Motor Vehicle$99

Property Tax$823

Personal Income Tax$883

Corporate Pro�t$188

Personal Income Tax$2,153

Indirect Business Tax$542

Corporate Pro�t$1,253

Soc Sec - Employer$2,511

Soc Sec - Employee$2,547

Total State and Local Taxes

$5,033,000

Total Federal Taxes

$9,006,000

*Amounts shown in thousands.

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The economic impact of the University of Arkansas – Fort Smith on the six-county Greater Fort Smith region is estimated using institutional, faculty, and student expenditure data for fiscal year 2011. The multiplier models in the study trace household, business, and government spending. They also allow for leakages in spending due to purchase of inputs and/or final goods outside the study area. A total University multiplier of 1.93 was found which means that for every $1 of spending conducted by the institution, its faculty, students, and visitors, an additional $0.93 of economic output (wages, proprietor/business profits, interest, etc.) was created in the region. The total of the University’s operational and capital expenditures, its faculty and staff expenditures, and those of its students and visitors were calculated to be $115 million in fiscal year 2011. The total economic impact of the University was estimated at $222 million. This includes the direct impact of the University as measured by its operational and capital expenditures as well as its faculty, staff, student, and visitor expenditures. It also includes the indirect (business-to-business transaction) impact and induced (subsequent spending created as a result of additional wages paid) impact. The model also indicated that the spending resulting from the University’s presence in the Greater Fort Smith region created $14 million in additional tax revenue to local, state, and federal government.

While the economic impact of the University is substantial, it should be noted that the figures reported are very conservative. The models used did not attempt to explain many qualitative aspects the University provides. It is unknown how many individuals and businesses receive significant positive benefits from their affiliation in the University’s many service and outreach programs as well as its sponsored cultural events. The benefits obtained from these activities are undoubtedly much greater than the expenditures required for implementation and thus the amount of economic activity measured by the models. In addition, the value of an educated citizen is not included in the above analysis.

The primary ‘product’ of a university is an educated, productive citizen who not only increases their lifetime earning potential significantly, but contributes to the economy, tax base, and vibrancy of life in their communities. These ‘products’ do not flow through traditional markets like most goods and services, thus they are not incorporated into this economic analysis. The true impact of the University on the economy and surrounding community extends far beyond the sizeable impact outlined in this report.

Summary and Conclusions

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1. What is your major?

Accounting, Business Administration, or Marketing Non-business

2. How many credit hours are you presently enrolled in?___________

3. Which of the following statements best describes your residential situation this semester?

I live on campus. I live off campus with my parents or other individual(s). Those that I live with are either partially

or fully responsible for the cost of housing. I live off campus, maintaining my own familial household.

4. If you live off campus, do you reside in any of the following counties: Crawford, Franklin, Logan, Sebastian in Arkansas; LeFlore, Sequoyah in Oklahoma?

Yes No I live on campus.

5. What is your monthly disposable income range (this is your after-tax income including all excess scholarship, grant, and loan money given to you)?

Appendix A. Survery of Student Spending

0-$833 $834-$1,250 $1,251-$2,083

$2,084-$2,916 $2,917-$4,166 $4,167-$6,250

$6,251-$8,333 $8,334-$12,500 $12,501 and over

6. Regardless of where you live, approximately what percentage of your monthly disposable income is spent within the counties of Crawford, Franklin, Logan, Sebastian in Arkansas; LeFlore, Sequoyah in Oklahoma?

0-10% 11-20%

21-30% 31-40%

41-50% 51-60%

61-70% 71-80%

81-90% 91-100%

7. Regardless of where you live, approximately what percentage of your monthly disposable income do you spend on tuition and book expenses paid to the University of Arkansas – Fort Smith (this does not count tuition and book expenses directly paid out of a scholarship account for which you receive no money)?

0-10% 11-20%

21-30% 31-40%

41-50% 51-60%

61-70% 71-80%

81-90% 91-100%

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“UAFS prepares students to succeed in an ever-changing global world while advancing economic development and quality of place.”

5210 Grand Ave.Fort Smith, AR, 72913

888.512.5466uafs.edu