Investing in Higher Ed Produces Best ROI for Massachusetts

Pumping money into colleges and universities will expand the tax base, create jobs and produce graduates that will cost the state less in the long run.

States finding themselves in financial straits are trying out a number of different schemes to raise revenues. From licensing casinos to raising so-called “sin” taxes, local governments are looking at previously untried paths to cut the budget and broaden the tax base. But for Massachusetts, one of the states that has recently loosened its laws to allow new casinos to operate within its borders, a new study suggest that the best investment they can make is in higher education.

A 40-page paper, Economic Impact of Investment in Public Higher Education in Massachusetts: Short-Run Employment Stimulus, Long-Run Public Returns, published earlier this month argues that a $700 million investment in the state’s public colleges and universities will produce better long-term returns than any other project under consideration in the state legislature, including health care and changes in the tax code. Shortly after the paper was released, its author, Michael Ash, defended his findings in front of the state lawmakers, trying to make his case why the cash-strapped state should, counter-intuitively, open its wallet for Massachusetts colleges and universities.

Speaking before lawmakers on Thursday morning, the paper’s authors Michael Ash, an economics and public policy professor, and Shantel Palacio, a public policy and administration graduate student, said public higher education is underfunded by $800 million. Their paper assumes an increase in higher education spending of that amount could be funded by a tax increase, an idea not currently on the table among Beacon Hill leaders, with resulting job increases outpacing those lost due to the tax hike.

The authors found that the $800 million investment will produce more than 11,000 additional college graduates per year. This will also lead to the creation of up to 13,500 jobs, as the schools invest the funding to expand their facilities to attract more students, and as vendors that typically service higher education institutions get access to a bigger client base. Although there might be some losses of jobs due to the tax hike that will be needed to fund the budget increase, they will be more than offset by the number of positions created as a result.

Casinos would produce about 1,200 or 1,300 fewer jobs, even accounting for the vendors and others who would benefit from the investment, the paper states. Another $800 million spent on health care would only do slightly better than casinos, and tax cuts – which would not create any jobs directly – wouldn’t even do half as well at job creation as the higher education spending, according to Ash and Palacio.

These estimates don’t include the benefit the state will derive from having more local college graduates available to employers and the fact that those with a college degree typically cost the government less than those without. Massachusetts spends about two thirds less in lifetime welfare, unemployment and jail time for a college graduates than it does on someone without a college degree. While someone with only a high school education might cost the state nearly $100,000 over their lifetime, someone with a college degree typically only consumes $34,000 in state services over the same period of time.

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