Small colleges, big impact: AIKCU members add $618 million to Kentucky economy

Graph - Economic Benefits of AIKCU

Kentucky’s nonprofit private colleges add nearly $618 million to Kentucky’s economy each year, creating more than 10,400 jobs, according to a new study commissioned by the Association of Independent Kentucky Colleges and Universities (AIKCU).

“Most people understand how important the private nonprofit colleges and universities are in Kentucky’s overall system of postsecondary education,” said Gary S. Cox, president of AIKCU. “After all, taken together our members educate more students than the state’s flagship university and produce a little more than 1 in 5 bachelor’s degrees awarded in Kentucky, with even larger percentages of bachelor’s degrees in fields like nursing and education. But sometimes the economic value these colleges and universities bring to the Commonwealth is less obvious. We hope this study helps folks see how important these small colleges are to Kentucky’s overall economy.”

The $618 million that Kentucky’s nonprofit, private colleges and universities add to Kentucky’s state gross domestic product (GDP) annually breaks down as follows:

Direct benefits: $354 million

  • $344 million in direct wages and benefits
  • 7,037 total employees (4,898 FT); average annual wage + benefits = $48,920

Indirect benefits (dollars spent with Kentucky businesses that continue to recirculate in Kentucky): $102 million

  • 1,166 Kentucky jobs exist because of AIKCU members’ operations.
  • Wages + benefits of these indirect jobs = $47+ million; average $40,600 annually

Induced benefits (response by Kentucky’s economy to direct and indirect): $162 million

  • 2,231 induced Kentucky jobs
  • Induced wages + benefits = $89 million; average annual wage + benefits = $39,370

In addition, Kentucky’s private colleges and universities generate another $108.5 million in tax revenues.

  • $27.5 million in estimated Kentucky state and local tax revenue (annual)
  • $81 million estimated federal tax revenue (annual). Approximately $51 million of the federal taxes are social insurance tax (primarily Social Security)

The study emphasizes the outsized return on investment Kentucky captures on its relatively small investment in student financial aid to private college students. Kentucky resident students attending Kentucky’s private nonprofit colleges are eligible for state financial aid and receive about $57 million in financial aid each year through programs administered by the Kentucky Higher Education Assistance Authority (KHEAA). That is less than 5% of Kentucky’s overall spending in support of postsecondary education.

In terms of the state’s return on that investment in students, the report notes:

“AIKCU’s member institutions provide both economic benefits and social benefits to Kentucky without direct state appropriations for the operation of these institutions. This may make the AIKCU’s member institutions one of the greatest economic and social bargains to the residents and taxpayers of Kentucky.”

The narrow methodology used by the objective outside consultant for this study is exactly the same methodology used by the Kentucky Cabinet for Economic Development to evaluate companies seeking economic incentives from the Commonwealth of Kentucky. This is a much more conservative approach than the methods used by some other higher education economic impact studies.

While the numbers in the report are impressive, they are by no means a comprehensive evaluation of the broad array of economic, cultural and social impacts that AIKCU members provide. The conservative approach of this study excludes capital projects and focuses only on the economic benefits derived from the institutions’ annual operations, using 2011-12 employment and wage data reported to the National Center for Education Statistics Integrated Postsecondary Education Data System (IPEDS).

This study excludes many factors that are often included in more robust economic impact studies: the numerous benefits of increased human capital (increased wages, tax revenue, employment, etc.); student, alumni, and visitor spending; the economic impacts of auxiliary or cultural venues; research, grants, and the value of community service; direct and indirect economic benefits from capital construction projects; or the many social and cultural benefits that colleges provide to their communities. [A much more comprehensive AIKCU economic impact study published in 2006 estimated that AIKCU members had a $1.49 billion annual economic impact and that AIKCU alumni spending generated another $5.9 billion in economic activity.]

Download the complete AIKCU 2014 Economic Impact Statement

Note: The study includes data for Mid-Continent University, a former AIKCU member that ceased operations on June 30, 2014. Further analysis concluded that MCU was responsible for about $24.2 million of the overall economic impact attributed to the nonprofit private college and university sector.