Measuring Success and Appropriations slides

February 20, 2009



The slides presented by Milton Glick at the February Faculty Senate Meeting can be accessed via the link above.

Economic Impact of the Proposed $73 million cut in UNR’s budget (a study by E. Fadali & M. Kilkenny, UCED)

February 17, 2009

By far the biggest reason citizens of all 50 states support their public universities is because university educated young people become inventors, skilled professionals, artists, social scientists, ethical businesspeople, and so on, making our society great.

But when budgets are tight, it’s reasonable to ask how taxpayer support for a university compares on a purely economic basis with tax relief, for example. Nevada taxpayers spent approximately $209 million dollars on the University of Nevada, Reno last year. That state allocation, plus student tuition, fees, and payments for research conducted by the faculty made up a budget of $511 million. Two‐thirds of that budget was spent on wages and salaries, and UNR employed about 4,600 people in Washoe County. UNR is the second largest employer in the county after the Washoe County School District.

Economists at the Center for Economic Development (UCED) calculated the effect on the economy of Nevada if the budget of the University of Nevada, Reno were to be cut by the proposed $73 million in state support. As we know, one person’s spending is another person’s income. The person who earned that income spends some, too, supporting the income of yet another person, and so on. The ‘circular flow’ of spending, income, spending, income, and so on is formalized mathematically by what is called an “input‐output” model. Here is what the mathematical model shows:

A cut of $73 million in state funding for the University of Nevada Reno, coupled with a proportional reduction in the faculty’s ability to bring in externally funded research contracts, amounts to a $99 million reduction in state value added (or state “GDP”) and 1,288 fewer jobs.

Alternatively, if Nevada taxpayers were to raise the $73 million, and we all have less to spend on goods and services, this would also lead to lower economic activity. $73 million in taxes paid (ultimately) by households amounts to $39 million less value added (state GDP) and 534 fewer jobs.

The net effect of putting the $73 million into UNR rather than spending it as usual on goods and services is $60 million more state GDP and 574 more jobs.

Why does the state get more jobs and income when it finances its universities than it does the other way? One, because university faculty bring even more money into the state by doing research and other projects. Without state support, however, faculty cannot accept ‘matching grant’ contracts, for example. Two, a much larger proportion of UNR’s revenues goes directly to Nevada employees. Nothing goes to dividends, profits, royalties or rents to out‐of‐state stockholders, CEOs, or proprietors.

In contrast, a big part of what is spent on a new car or new flat‐screen TV goes out‐of‐state to the factory and company that made it. Some of the retail dollar also goes to pay rents, profits, anddividends, also sometimes out‐of‐state. A much smaller portion of a retail dollar goes to salaries for local employees. A much larger portion of a dollar spent on UNR goes directly into Nevada household income. Spending on UNR keeps much more money ‘coming around and going around’ in our local economy.

My reply to the Governor’s podcast

February 12, 2009

At President Glick’s town hall meeting today, somebody asked him for a comment on the Governor’s podcast defending his higher education budget. As it so happens, last night I e-mailed a reply, and it came back with an error message. This morning I sent the reply to Josh Hicks, his chief of staff. Here it is:

Dear Mr. Hicks,

I just read the text of the Governor’s podcast, and tried to reply to the address in his message, YOUR-OPINION-COUNTS@GOV.NV.GOV. It came back with a “No such user” message, so I hope my opinion can still count.

I am afraid that I must say the podcast was misleading. The Governor said that “Nevada spends more general fund tax dollars on higher education than most other states,” but this is not actually true.

A poor man spends a bigger portion of his income on food, but that does not mean that he eats more than others. Nevada’s higher education system gets a larger portion of its budget from the state, but that does not mean it spends more to educate its students. As a share of state GDP, Nevada has the smallest general fund in the country. Nevada is also 50th in the country in higher education spending as a share of state income, 50th in the country in the number of higher education employees as a share of population, at the bottom in the number of students who attend college, and below the national average in higher education spending per student, even though our cost of living is relatively high and smaller states typically spend more per student than big states.

In addition, most states also have some local government support of higher education, for community colleges. Nevada does not.

The Governor said that higher education has the ability to raise its own revenue, but this is misleading as well. It is true that our tuition is relatively low, and this has been a long-standing policy of the state as it tries to move up from the bottom in the number of students who attend college. The Regents can raise tuition, but if we tripled it next year we would not come close to filling the gap, as we would push out many of our students. Other revenues – like dormitory fees, tickets to sporting events, et cetera – go to pay expenses associated with those revenues, and do not generate substantial residuals. Research grants go to fund research expenses, and if we tried to spend those funds on instructional costs somebody would have to go to jail. Your administration’s budget would not increase those other revenues, but instead would decrease them. It will cost us our most productive researchers who bring in the most outside funding, it would scare away potential donors, and it will encourage our best students to go elsewhere.

It is a bit like trying to get in shape and lose weight by having your legs amputated.

The Governor said that he is proposing only a 36% cut, not a 50% cut, but this is also somewhat misleading. Yes, there is a 36% cut in the total NSHE general fund budget, but some programs within NSHE are left relatively untouched. Athletics, for example, did not have its budget changed much at all. But the cuts your administration proposed for the main campuses of UNR and UNLV are much, much larger than the average for the system as a whole. Relative to our total state GDP, the cuts are tiny – roughly a quarter of one percent – but relative to the total amount the university has to spend on instruction, the cuts are simply devastating.

To survive and prosper in a knowledge economy, Nevada must better educate its citizens. Regardless of his political disagreements with our Chancellor, the Governor must see that a good university system is crucial for our future.


Elliott Parker
Professor of Economics
University of Nevada, Reno