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II. Economic Impact of Out-of-State Expenditures

Regional economists have long used input-output analysis in order to estimate the impact of expenditures from outside the area on the regional economy.[13] Here, we use Type II final demand multipliers from the Comptroller’s 1986 input-output study in order to determine the additional business and household spending generated by out-of-state higher educational student and federal expenditures in the Texas economy.[14]

Our analysis indicates that in 1998, an estimated $773 million in expenditures by out-of-state and international students at community and technical colleges, public universities, and health-related institutions supports a total of $2.3 billion in economic activity across the state. During the same year, approximately $1.2 billion in federal and privately supported research added another $3.9 billion annually to the state economy. Finally, $172 million in out-of-state and international expenditures at the University of Texas’ MD Anderson Cancer Center contributed another $605 million to the Texas economy in 1998. Altogether, the $2.1 billion in out-of-state/international student education, research, higher education-related health care expenditures produce a total of $6.8 billion in economic activity in Texas each year.

Out-Of-State Student Expenditures

In this analysis, direct out-of-state student expenditures were estimated first by calculating per-capita expenditures by institution and program on five higher education-related purposes: 1) tuition and fees, 2) books and supplies, 3) room and board, 4) transportation, and 5) personal expenses. These per-capita expenditures were then multiplied by the number of full-time equivalent students at each institution in order to determine average per-capita expenses, by category, for associate’s, bachelor’s, master’s, doctoral, and professional (primarily law and medicine) programs. The resulting estimated average per-capita expenditure, in each category, was then multiplied by the number of out-of-state and international students in the program in 1998 in order to determine total out-of-state expenditures (see Table 2.1).[15]

Table 2.1
Economic Multiplier Impacts
of Out-of-State Higher Education Student Expenditures,
Fiscal 1998
Number of StudentsAverage Expenses per Student
TotalInt'l & Out-of-StateTuition &Books &Room &Trans-PersonalTotal
Community & Technical Colleges246,7435.3%13,077$2,070$703$4,198$1,214$1,332$9,517
Public Universities
Bachelor's Programs283,19610.4%29,452$8,539$684$5,460$1,348$1,637$17,668
Master's Programs41,34510.4%4,300$8,322$717$5,460$1,348$1,637$17,484
Doctoral Programs12,65110.4%1,316$7,945$739$5,460$1,348$1,637$17,129
Professional Programs4,35910.4%453$12,631$687$5,460$1,348$1,637$21,763
Total University Programs341,55110.4%35,521$8,543$690$5,460$1,348$1,637$17,678
Health-Related Institutions
Bachelor's Programs5,2469.5%498$9,070$701$5,226$1,304$1,568$17,869
Master's Programs2,0209.5%192$6,652$1,181$5,226$1,304$1,568$15,931
Doctoral Programs1,6419.5%156$4,882$1,080$5,226$1,304$1,568$14,060
Professional Programs5,9199.5%562$19,971$1,403$5,226$1,304$1,568$29,472
Total Health-Related Programs14,8269.5%1,408$12,629$1,089$5,226$1,304$1,568$21,816

InstitutionTotal Student Expenditures (Millions of $)
Community & Technical Colleges$27$9$55$16$17$124
Public Universities$293$25$194$48$58$618
Health-Related Institutions$18$2$7$2$2$31
Total Higher Education$338$35$256$66$78$773
Economic Multipliers2.933.003.172.633.002.99

InstitutionTotal Economic Impact (Millions of $)
Community & Technical Colleges$79$28$174$42$52$375
Public Universities$860$74$615$126$174$1,849
Health-Related Institutions$52$5$23$5$7$92
Total Higher Education$991$106$812$173$233$2,315
Note: Public university tuition and fee total adjusted to allow for statutory waiver of out-of-state in lieu of in-state tuition (a two-thirds reduction) for up to 5% of students.
Sources: Carole Keeton Rylander, Texas Comptroller of Public Accounts and Texas Higher Education Coordinating Board.

Probably the most difficult data to obtain for this portion of the study was out-of-state tuition and fees by institution and program. Unfortunately, there is no centralized data source for this information. Since the Texas Higher Education Coordinating Board gathers only information on in-state, undergraduate tuition and fees, information on out-of-state costs was collected from wide range of disparate sources, including US News‘ America’s Best Colleges and America’s Best Graduate Schools and Peterson’s Colleges in the South, Graduate Studies in Education, Graduate Studies in Biology, Health, and Agricultural Sciences, and MBA Programs. In other cases, tuition and fee information was gathered from other published sources and directly from the individual institutions.

Almost half, or $338 million, of the estimated $773 million in out-of-state and international student higher education-related expenditures are for tuition and fees. The bulk of the remaining expenses are for room and board. Multiplying these out-of-state/international tuition and fees, room and board and other expenditures by the appropriate multiplier—which all average around three—yields a total economic impact on the state of approximately $2.3 billion.

Research and Related Expenditures

The Texas Higher Education Coordinating Board reports that Texas higher education institutions spent $1.6 billion on research and related expenditures in fiscal 1998. Well over half the total or $881 million in funding, was supported by the federal government. Other major sources of research-related funding in fiscal 1998 included state government ($326 million), private corporations ($295 million), and locally generated institutional funding ($124 million). See Table 2.2.

Table 2.2
Economic Impact of Texas Higher Education
Research & Related Expenditures, FY95-98
Fiscal 1998

(Amounts in Millions $)
FiscalTotalSource of FundingFederalEconomicEconomic
YearExpendituresFederalStatePrivateInstitution& PrivateMultiplierImpact

Sources: Carole Keeton Rylander, Texas Comptroller of Public Accounts and Texas Higher Education Coordinating Board, Expenditures for Research and Other Sponsored Projects, Annual Updates.

By far, the greatest beneficiary of higher education research-related expenditures is medical sciences. In fiscal 1998, higher education spent a total of $506 million on researching the cause, prevention and treatment of a wide range of diseases including cancer, heart and vascular diseases, diabetes and other major diseases (see Table 2.3). Other major expenditures during the year included engineering ($238 million), biological and other life sciences ($201 million), and physical sciences ($115 million).

Table 2.3
Sources and Expenditures of Higher Education
Research-Related Funding, Fiscal 1998
(Amounts in Millions $)
Source of FundingPercent ofFederal/Percent of
Research FieldFederalStateInstitutionPrivateTotalExpendituresPrivateExpenditures
Medical Sciences$312$56$18$120$50631.1%$43236.7%
Biological & Life Sciences$93$63$21$24$20112.4%$1179.9%
Physical Sciences$71$21$6$17$1157.1%$887.5%
Environmental Sciences$68$11$4$7$905.5%$756.4%
Agricultural Sciences$22$27$12$12$734.5%$342.9%
Computer & Math Sciences$26$10$5$10$513.1%$363.1%
Business & Social Sciences$16$15$7$9$472.9%$252.1%
Other Research & Development$26$14$10$10$603.7%$363.1%
Other Sponsored Programs$129$58$3$54$24415.0%$18315.6%
Total Research-Related$881$325$124$295$1,625100.0%$1,176100.0%

Sources: Carole Keeton Rylander, Texas Comptroller of Public Accounts and Texas Higher Education Coordinating Board, Expenditures for Research and Other Sponsored Projects, April 1999.

However, since state and most institutional research-related funding is obtained from in-state sources,[16] only the remaining $1.2 billion in federal and mainly out-of-state privately funded research-related expenditures can have multiplier impacts on the state economy. Multiplying these direct out-of-state expenditures by the state research and development multiplier of 3.32 generates an estimated $3.9 billion annual economic impact in the state.[17]

Health Care

In addition to educating the bulk of the state’s doctors, dentists, nurses, and other health-related professionals, the state’s nine public health-related institutions provide valuable health care services to their communities, the state and the rest of the world. In fiscal 1998, state teaching hospitals and related physician practice plans provided a total of $2.2 billion in health care services to its patients. Almost three-quarters of these services were provided at the University of Texas’ two largest medical centers. During the year, the hospital and physician practice plans at the University of Texas’ Medical Branch in Galveston provided $873 million in health care services, while UT’s MD Anderson Cancer Center provided $785 million in medical care (see Table 2.4).

Table 2.4
Gross Patient Revenues
of Texas Public Health-Related Institutions
and Physician Practice Plans, FY98
(Amounts in Millions $)
Health-Related InstitutionTeaching Hospital Revenues(1)Physician Practice Plan RevenuesTotal Gross Patient Revenues
UT Medical Branch-Galveston$749$124$873
UT MD Anderson Cancer Center$666$119$785
UT Southwestern Medical Center-Dallas$186$186
UT Health Science Center-Houston(2)$28$111$138
Texas Tech Health Science Center$87$87
UT Health Science Center-Tyler$64$10$74
UT Health Science Center-San Antonio$50$50
University of North Texas HSC-Fort Worth$21$21
Texas A&M Health Science Center(3)$11$11
Total Patient Revenues$1,507$718$2,225

Note: Gross patient revenues include private and public insurance collections, self-payments, charity care, bad debt, and other deductions and allowances for unpaid care.

(1) Includes both in-patient and out-patient services.
(2) Harris County Psychiatric Center.
(3) Includes Baylor College of Dentistry.

Sources: Carole Keeton Rylander, Texas Comptroller of Public Accounts, University of Texas System, and State Health-Related Institutions.

Although all of these public health-related institutions provide a vital service to Texans, MD Anderson Cancer Center in Houston is the only one that provides a significant amount of care to patients from other states and nations.[18] According to a 1994 University of Houston study, approximately 34 percent of MD Anderson’s new patients come from outside Texas.[19] Applying this percentage to the $666 million in gross patient revenues during fiscal 1998 and subtracting the $54 million in nonreimbursed charity care, bad debt, and other deductions and allowances indicates that approximately $172 million in the net cash revenues received by the hospital during the year was from out-of-state/international patients.[20] Multiplying these direct expenditures by the Texas health care multiplier of 3.51 indicates that MD Anderson has a total direct, indirect, and induced economic impact of approximately $604 million on the Texas economy.

Federal Indirect Cost Recovery

As part of administering federally supported programs, higher education institutions and other state agencies are reimbursed by the federal government for overhead and other indirect program-related expenses. The appropriations bill currently allows health-related institutions to retain all of their $80 million per year in these total “indirect cost recoveries.”[21] Public universities, on the other hand, net only half of their $66 million in annual indirect recovery proceeds in their method of financing.[22] The remaining $33 million per year in revenues is offset by a general revenue appropriation reduction.[23]

Although the current appropriation of these funds may help finance the general operations of state government, Texas may be bypassing a potentially greater economic return to the state. According to the Comptroller’s input-output model, through the multiplier effect, research and development expenditures produce $3.32 in economic output for every dollar invested in the original research. Thus, if the currently unallocated $33 million in federal cost recoveries were re-directed to the public universities for research purposes, the overall state economy would gain almost $110 million per year.

A recent report by the Rand Corporation further buttressed the case for the state redirecting all federal indirect cost recovery dollars to the higher education institution originally performing the research. Although they recover almost all the direct costs, the study found US universities only recover about 70 to 90 percent of the facility and administrative expenses of performing federal projects. Nationally, universities are shortchanged between $700 million to $1.5 billion annually in overhead costs associated with federal research.[24] Even though specific figures are not published by state, Texas’ $814 million of the report’s $15.1 billion total in federally sponsored university research in 1997,[25] would indicate that the facility and administrative cost loss here is approximately $40 million to $80 million per year.