What to Look for in a University Economic Impact Study for Liberal Arts Colleges

Every year, hundreds of American colleges and universities commission economic impact studies. The reports land on the desks of state legislators, county commissioners, foundation program officers, and local newspaper editors. The headline numbers — thousands of jobs, hundreds of millions in regional output — are designed to impress, and they usually do.

But the studies behind those numbers are not all built the same way. Some are methodologically rigorous, conservative in their assumptions, and able to survive scrutiny from an independent economist. Others are advocacy documents in the costume of analysis — engineered to produce a large number rather than to answer a defensible question. For liberal arts colleges the stakes are unusually high, because the institution is often the dominant employer in a small town or rural county. The temptation to inflate is correspondingly large, and so is the damage when an inflated study is eventually challenged. A number that cannot be defended is not an asset; it is a liability with a long fuse.

This article explains what a rigorous economic impact study for a liberal arts college looks like, where the common inflation points are, and what questions a president, board member, or community stakeholder should ask before accepting a study's conclusions.

Why Liberal Arts Colleges Are a Distinct Case

Liberal arts colleges differ from large research universities in ways that matter for the analysis. They are smaller, with operating budgets ranging from $30 million to $300 million rather than the billions of a flagship state system. They typically carry little or no research expenditure, which removes one of the major spending channels that drives impact at R1 institutions. And they are frequently located in small cities or rural counties where the college may account for 20 to 40 percent of total local employment — a concentration that creates both analytical opportunities and serious methodological hazards.

That concentration is the central challenge. When a college is the dominant institution in its region, the gap between what it contributes to the local economy — the total activity it anchors, including spending by local residents who happen to work there — and what it genuinely impacts — the new money it draws into the region that would not otherwise be present — becomes decisive. Conflating the two is the single most common source of overstatement in college impact studies, and the easiest to commit without anyone noticing.

The First Question: Impact or Contribution?

Before evaluating any numbers, ask the analyst what they are measuring. Economic contribution analysis asks: what total economic activity does this institution currently support, including spending by local households who work there? Economic impact analysis asks: what economic activity exists in this region because of the institution that would vanish if the institution did?

These are different questions, and they produce different answers — the first reliably larger than the second. Contribution analysis is appropriate when the institution is the only provider of its kind in the region and the goal is to describe the full scope of activity it anchors. Impact analysis is the right tool when the institution brings in external revenue — nonlocal tuition, federal grants, out-of-state student spending — and the goal is to measure the net injection of new money.

For most liberal arts colleges, a rigorous impact study focuses on the latter: the spending that enters the regional economy from outside and would not be there if the college closed its doors. That discipline produces smaller numbers than contribution analysis. It also produces numbers that survive contact with a skeptic, which is the only kind worth publishing.

The Four Channels of Impact — and How Each Can Go Wrong

A well-structured college impact study models four distinct channels of spending. Each has a correct treatment and a characteristic way of going wrong.

1. Institutional Operating Expenditures

The annual operating budget is the largest and most stable channel. Payroll, vendor contracts, utilities, and purchased services all flow into the regional economy. The correct approach uses audited financial data — typically available through IPEDS, the Integrated Postsecondary Education Data System maintained by the National Center for Education Statistics — and models only the portion that represents a net injection into the region.

Where inflation hides: Many studies run the full operating budget through the model without adjusting for the share of spending that merely recirculates local household income. If 60 percent of the college's employees already live in the county, much of payroll is part of the local economy whether or not the college exists. Khalaf et al. recommend prorating operating expenditures by the share of students from outside the region, as a conservative proxy for the externally funded portion of operations. Studies that skip this step are not measuring impact; they are measuring the budget.

What to exclude: Depreciation, interest payments, and capital purchases do not belong in the operating channel. They are either non-cash charges or one-time outlays that belong in a separate construction channel. Folding them into annual operations inflates the recurring figure — the figure institutions are most tempted to quote.

2. Student Spending

Students spend locally — on housing, food, transportation, and retail. For a college that draws students from across the country, this is a genuine injection of external income. It is also the most frequently abused channel in the genre.

The local student problem: Students who are from the region, and who would have remained there with or without the college, generate no new activity — they spend money locally that would have been spent locally regardless. Counting their spending as an "impact" of the college is double counting in plain sight. Khalaf et al. are explicit: the conservative and defensible approach counts only the spending of nonlocal students — those who came to the region precisely because the college is there.

What to exclude from student spending: Tuition and fees are already captured in institutional operations. Bookstore purchases are already in institutional revenues. On-campus housing and dining are embedded in residential-life budgets. Including any of these as separate "student spending" double counts — and because the channel feels intuitively legitimate, the error is rarely caught by a lay reader.

Using attainable data: Primary survey data on student spending is expensive and rarely available for smaller institutions. Khalaf et al. show that the Bureau of Labor Statistics Consumer Expenditure Survey is a reasonable proxy, provided the study is presented as conservative and the modeled categories do not overlap with institutional operations. This is both methodologically sound and more transparent than a bespoke survey with an undisclosed response rate.

3. Visitor Spending

Parents, prospective students, alumni, athletics spectators, and arts patrons visit campus and spend money locally. For a college in a small town, that traffic can be a meaningful channel — particularly where the college hosts regional events that draw visitors who would not otherwise come.

The attribution problem: Visitor spending counts only when it is clearly attributable to the institution and the visitors are nonlocal. A parent driving from Columbus to a rural Ohio campus is new spending in that county. A local resident attending a free lecture is not. Studies that count every campus visitor without filtering for origin and attribution are inflating this channel by counting the neighbors.

Using attainable proxies: Where visitor-origin data is unavailable, Khalaf et al. suggest the share of nonlocal students as a conservative discount factor. For per-visitor spending, U.S. General Services Administration meal and lodging rates offer a publicly available benchmark that requires no primary data collection.

4. Construction and Capital Expenditures

Construction — new buildings, major renovations, infrastructure — is a distinct channel and should be modeled separately from annual operations, for two reasons. First, construction is episodic, not recurring; blending it into operations paints a misleading picture of steady-state impact. Second, construction carries different multipliers than educational services, and routing it through the correct construction sector in IMPLAN or RIMS II yields more accurate results.

What to watch for: Studies that fold construction into operating expenditures, or model construction at full purchaser price without adjusting for materials sourced outside the region, will overstate the local construction impact. A college that builds with regional materials and local contractors generates a real local multiplier; one that imports specialized materials and out-of-region crews generates a good deal less. The model cannot tell the difference unless the analyst makes it.

Model Selection: IMPLAN, RIMS II, and the Multiplier Question

SRC EvalMetrics uses IMPLAN (Impact Analysis for Planning) and RIMS II (Regional Input-Output Modeling System, produced by the U.S. Bureau of Economic Analysis) for regional impact analysis. Both are established input-output frameworks that are widely used by academic economists, public agencies, and practitioners. Studies that rely on undisclosed methodologies or bare employment multipliers without a documented regional framework are not making an estimate — they are making an assertion and hoping no one asks.

The choice of model should be explained in the methodology section. IMPLAN typically yields higher multipliers than RIMS II for the same region and industry, so a study that uses IMPLAN without saying why will report larger numbers than an equivalent RIMS II study. Neither is wrong; both are legitimate. But the choice should be transparent, and the analyst should be able to explain how it moves the results. "We used IMPLAN" is an answer. "We used IMPLAN because—" is a methodology.

A useful credibility check: ask the analyst to report output, employment, labor income, and value added separately, and to show both direct and total effects. A study that reports only total output — the largest and most marketable figure — while withholding the components is hiding precisely the information a reader needs to interpret it.

The Reporting Discipline Question

How a study presents its results is itself a signal of rigor. Khalaf et al. note that output is typically the largest dollar figure and the easiest to market, but that employment and value added are the more meaningful indicators for serious analysis. Value added is conceptually closest to regional GDP — the net contribution after intermediate inputs are netted out. Employment captures the institution's role as an anchor employer. Output, large as it is, embeds the double counting of intermediate transactions and should never stand alone as a measure of economic significance. It is the number most quoted and the number least informative — a combination that ought to invite suspicion rather than applause.

A rigorous study also reports results by channel — operations, student spending, visitor spending, construction — rather than as a single aggregate, so that readers can weigh each component and see which assumptions are carrying the headline.

The Broader Value That Impact Models Cannot Capture

A rigorous study also says what it does not measure. The most important omitted effects for liberal arts colleges include:

Human capital development. The long-run earnings premium for graduates who stay in the region is a real benefit that input-output models are not built to capture. Some studies estimate it from lifetime earnings differentials, but the estimates are acutely sensitive to assumptions about retention and discount rates and belong well away from the input-output results, not added to them.

Entrepreneurship and innovation spillovers. Colleges feed regional entrepreneurial ecosystems through alumni networks, faculty consulting, and the amenity value of an educated workforce. These effects are real, hard to quantify, and have no business in an input-output total.

Anchor institution effects. In small towns and rural counties, a college shapes firms' location decisions, the quality of local services, and the cultural life of the community in ways that reach far beyond annual spending flows. Describe them qualitatively; keep them out of the quantitative tables.

The discipline of keeping these effects separate from the core input-output analysis is a mark of methodological integrity. Studies that blend qualitative claims about long-run human capital into quantitative impact totals are inflating their numbers in a way that is difficult to detect and impossible to verify.

Questions to Ask Before Accepting a Study's Conclusions

Whether you are a college president reviewing a draft, a board member weighing a proposal, or a community stakeholder reading a press release, these questions separate the rigorous from the merely impressive:

1. Does the study distinguish between impact and contribution? If the answer is unclear, the study may be measuring the wrong thing.

2. Are local students excluded from the student spending channel? If not, the study is double counting.

3. Are depreciation and interest excluded from operating expenditures? If not, the operating impact is overstated.

4. Is construction modeled separately from annual operations? If not, the recurring figure is inflated.

5. Which model was used — IMPLAN, RIMS II, or something else — and why? If the answer is vague, ask again.

6. Are results presented by channel and by indicator (output, value added, employment, labor income)? If only total output appears, ask for the full table.

7. Are the study's limitations and excluded effects clearly stated? A study that claims to capture everything has captured your credulity, not the economy.

The Bottom Line

A well-executed economic impact study for a liberal arts college is not a marketing document. It is an analytical product that answers a specific question, documents its assumptions, and presents its results in a form that can be evaluated, challenged, and defended. Institutions that commission rigorous studies — and present the results with appropriate caveats — build durable credibility with the policymakers and funders they depend on. Institutions that commission inflated ones may win a news cycle, and lose something far more valuable the day the methodology is finally read.

If your institution is considering an economic impact study and you want to understand what a rigorous, defensible analysis looks like for a college of your size and type, we are glad to discuss the right approach before any engagement begins.

References

Khalaf, C., Jolley, G. J., & Clouse, C. (2021). The economic impact of small colleges on local economies: A guide to attainable data and best practices. Economic Development Quarterly, 36(1), 17–32.

McHenry, P., Sanderson, A., & Siegfried, J. (2011). The local economic impact of colleges and universities. Presentation, SUNY Conference.

Ambargis, Z. O., Mead, C. I., & Rzeznik, S. J. (2014). University contribution studies using input-output analysis (BEA Working Paper No. 0105). Bureau of Economic Analysis.

National Center for Education Statistics. (2023). Integrated Postsecondary Education Data System (IPEDS). U.S. Department of Education.

Bureau of Labor Statistics. (2023). Consumer Expenditure Survey. U.S. Department of Labor.

U.S. General Services Administration. Per diem rates. GSA.gov.