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Rochester Higher Education Development Committee Projections of Economic Impact The Role and Impacts of a Signature Research University in Southeast Minnesota The Assignment The Rochester Higher Education Development Committee recommends that the State of Minnesota: Establish a world-class signature research and higher education institution focused on programs that complement and capitalize on southeast Minnesota’s existing leadership roles in health sciences, bio-sciences, engineering and technology. • Impact Economics, LP retained to calculate the projected economic impact and potential return on investment to the State of following this recommendation. The Basic Structure of University Impacts Multiplier Effect (Local Re-spending) Business Formation Business Growth/Retention Labor R&D Supplies Local Spending Utilities Backward Effects Business Attraction Forward Effects Education Private returns Social returns Building Extension Outreach & Service Volunteerism Consulting Total Impact (Backward Linkage) Q of L Events Image Impact Classifications • Backward Linkage (Spending) Impacts – Input/output analysis based – Impact on output (business volume) and employment • Forward Linkage (Functional) Impacts – Research & Development – Higher Education – Outreach and Service Research Assumptions • • • • The basic parameters used are those specified in the RHEDC report delivered to Governor Pawlenty and the State Legislature on January 25th, 2006. The RHEDC report details the size, scope and mission of the expanded university and serves as the foundation for developing impact estimates. The specific characteristics of national universities known to be productive in stimulating regional technology-based economic development have been evaluated, and the impact projections assume the expanded university will be developed similarly. The university should be state-of-the-art in terms of incentives and support for entrepreneurial and economic development activity. It is assumed that education gained at the University of Minnesota Rochester will not simply be a substitute for education available elsewhere within Minnesota. It is expected that the majority of students will be achieving specialized degrees specific to the health science, biomedical, bioscience, computer science and technological focus contained in partnering institutions such as the Mayo Clinic, IBM and other public/private sector partners. The rate of retention in the State of Minnesota of students graduating from the University of Minnesota Rochester is projected to be similar to the national average for land grant colleges and universities. Various forces impacting the university and its operating environment will serve to affect (upwards or downwards) the impacts that are ultimately achieved. Market forces, capital availability, actions by competing universities, state revenue and its impact on state spending, and the unpredictable nature of innovation and scientific discovery are variables that are subject to change and thus will affect the ultimate impacts achieved. Economic Assumption • Impact Economics understands that the intension is to create a signature research university with specialized programs designed to link the university to the research and skilled human capital needs of key economic entities in the state within target industry sectors. • Because of its highly specialized focus, the university will not be in direct competition with other state higher education institutions. • Technology-based economic development will expand the economy of the State and SE Minnesota region, thereby increasing demand for the more broad-based educational services of other regional and state higher education institutions. University Parameters • Will be an expansion of the University of Minnesota Rochester • Will be a highly focused signature research institution with programs focused in: – Biosciences and Health Sciences – Engineering, Computer Sciences and Informatics – Business Studies and Entrepreneurship University Development • The RHEDC report envisions expansion of the University of Minnesota Rochester in two primary phases. • The first phase covers years one through five of university operations and assumes that the university will be initially accommodated in 30,000 sq. ft. of leased space in Downtown Rochester. • Once established at this leased location, planning would begin for development of a purpose-built campus in close proximity to the Mayo Clinic (again in Downtown Rochester). • Construction of the first phase of the permanent new campus is anticipated to begin in Year 4 with development on a two city-block site with a newly constructed 60,000 sq. ft. facility (with occupancy anticipated in Year 6). Size Parameters (at new campus) Sq. Ft. Students Faculty Staff 2011 60,000 2012 60,000 2013 60,000 2014 60,000 2015 60,000 842 21.1 63.3 968 28.4 85.2 1,162 36.8 110.5 1,395 49.7 149.2 1,673 65.2 195.7 RHEDC financial projections for the University expansion show a state investment of $45.4 million for developing new facilities (including debt service). Annual operating costs, by the year 2015, are projected to be $61.5 million. Structuring for Technology Based Economic Development • Economic impact projections assume that the University of Minnesota Rochester will be structured to be state-ofthe-art in terms of industry-partnering, faculty entrepreneurship, technology transfer and new business formation. • The state has the opportunity to be innovative, creating a research university focused on biosciences, information technology and other advanced technological disciplines that is structured to facilitate the local commercialization of research discoveries and innovation. • This opportunity should not be missed, and it is imperative that the state does not allow just another traditional academic community to develop, devoid of a formal commercialization imperative and mission. Structuring for Technology Based Economic Development • • • • • • • • • • • • Entrepreneurial institutional culture and rewards system Hiring entrepreneurial faculty Institutional financial structures that favor industry research IP protection fund Liberal IP licensing and royalty policies Industry research partnerships and industry-university advisory boards and councils Pre-seed and seed capital fund Entrepreneurial development courses, assistance and mentoring programs Business incubator program Industry education and training programs Industrial extension and technical assistance Career and Internship Services and Placement University Research, Development and Education Structuring for Technology-Based Economic Development Private Sector Industry-University Advisory Boards Partnering & Business Development Industry Research Partnerships Institutional Focus Industry Education & Training Programs Research Niches and Core Competencies Industry Extension & Technical Assistance IP Protection and Technology Transfer Applied and Translational Research Imperative Impact Outcomes for Minnesota New Technology and Products for Existing MN Business Technology & Process Improvement for Existing MN Business Creation of New MN Technology Businesses Entrepreneurial Training & Development Pre-Seed/Seed Capital Fund University Entrepreneurial Culture (Incentives and Awards) Business Incubator and Services Career and Internship Services/Placement Partnerships with Economic Development Organizations State & Local Government Attraction of Businesses to MN Licensing and Royalty Revenues from Out-of-State Projects Trained Personnel for MN Businesses and Increased Personal Incomes Economic Impacts Impact Highlights • Backward Linkage Impacts – Construction of expanded facilities: 121 jobs and $98.3 million in total economic impact (2.2 ROI) – Operations: 2015 (full size) 261 direct jobs and 375 indirect jobs via institutional spending. $90.4 million in annual spending impacts. (1.5 times ROI on operating expenditures). • Forward Linkage Impacts – Between $30 and $60 million (per year of higher education) for the Minnesota Economy through net present value of productivity increases realized through higher education gained at the university. (Added to spending impacts this increases operational ROI to between 2.0 and 2.5) – The University is estimated to attract between $18 million and $22 million in external funds to support advanced research programs on campus. ($276,000 to $337,400 per faculty member). – Research to produce innovations expected to generate between 8 and 13 startup enterprises in 2015, with direct employment ranging from 240 to 380 jobs. Employment and output multiplier effects will be significant. At the 240 direct jobs level between 642 and 1,331 total jobs would be generated in Minnesota and between $105.7 and $345.3 million in total economic output. This increases the operational ROI to between 3.7 and 8.1. – Advanced education will provide graduates with a two-times increase in their average annual lifetime earnings, equating to an increase of between $0.66 billion and $1.32 billion in personal lifetime earnings capture for Minnesotans occurring on an annual graduating class basis. Backward Linkage Impacts Impact of the University on the Minnesota Economy (all data in $ millions, except employment) Output Income Employment (fte’s) State Personal Income Taxes Direct 39.5 -- -- -- Indirect 58.8 25.2 121 0.8 Total 98.3 25.2 121 0.8 Direct 44.6 9.9 261 0.7 Indirect 45.8 13.0 375 0.5 Total 90.4 22.9 636 1.2 Construction Operations (2015) Forward Linkage Impacts • Research • Higher Education • Outreach & Service • Other Impacts Function University R&D: Functional Economic Impacts External research funds attracted to Minnesota Commercial research funding from external industry University Research and Development Commercial research funding from Minnesota industry State of Minnesota research funds New products, discoveries and solutions to problems Benefits Impacts Licensing of intellectual property Minnesota-based licensees. Open new markets, generate new revenue streams, enhance competitiveness. Jobs, output, income and gov’t revenue Incubation and generation of new Minnesota businesses New Minnesota business enterprises. Open new markets, generate new revenue streams, enhance competitiveness. Jobs, output, income and gov’t revenue New products for Minnesota industry Enhanced income streams, product lines, productivity and income for Minnesota businesses Jobs, output, income and gov’t revenue Improved products for Minnesota industry Enhanced income streams, product lines, productivity and income for Minnesota businesses Jobs, output, income and gov’t revenue Improved production technologies Enhanced income streams, product lines, productivity and income for Minnesota businesses Jobs, output, income and gov’t revenue New bio-based products/ biotechnology Enhanced position of Minnesota in rapidly emerging biotechnology sector. New products, companies and associated potential. Jobs, output, income and gov’t revenue Improved & more cost effective healthcare Enhanced public health, social welfare and reduced healthcare/medical costs for business and society Environmental protection and remediation Enhanced environment, reduced remediation costs, marketable technologies and processes Jobs, output, income, gov’t revenue, reduced costs Enhanced rural and urban quality of life Maintain social fabric, reduce poverty, sustain quality of life and traditions Reduced negative costs Productivity and reduced negative costs Research Funds • University of Minnesota Twin Cities generates $211,546 in external research per faculty member. • 65.2 new faculty projected to be required when University of Minnesota Rochester at full operational level (2015) • At $211,546 in research per faculty this equals $13,792,799 in total projected research funds. Using 3% inflation, by 2015 research funding would be $276,020 per faculty member ($17,996,504.) • Expect the majority of research funding will come from federal and other major sources external to the State of Minnesota, thereby providing a proportionate expansion in the state’s economic base. • The advanced bioscience and technology focus is likely to result in higher volumes of research funding per faculty member than experienced for the whole of the University of Minnesota Twin Cities. Thus Impact Economics projects the 65.2 faculty will generate between $18 to $22 million in research ($276,000 to $337,400 per faculty member) annually by 2015. Licensing & Tech Transfer • By 2015 the University of Minnesota Rochester would be expected to generate between 8 and 10 invention disclosures per year, resulting in between 1.5 and 2 issued patents. • University expected to be managing a total of 21 to 26 accumulated license agreements by 2015 with gross revenues to the University of between $1.2 and $1.5 million. • The disclosure and patents data represent just a single year (2015) and there would have been further activity accumulating prior to this (as the university begins its projected development in 2006). • National data show that biomedical research lends itself to the highest volume of IP generation, together with research in computer science and associated data and communications equipment, These strong areas of IP generation are a direct match for the intended areas of University focus. Impact Economics thus believes that the IP generation potential of the university will likely be higher than the numbers quantified above. Business Formation (Start-Ups) • • • Impact Economics projects that by 2015 the University may generate between 8 and 13 start-up enterprises (that year) with direct employment ranging from 240 to 380 jobs. This depends, however, on the university being structured in a manner conducive to innovation and entrepreneurship. The upside potential for job creation will be higher for several reasons: – The university will be an ongoing operation so the above figures represent only an annual snapshot. – The above figures are for direct employment and the university, its research and spin-off companies will also generate substantial indirect employment in the economy via the multiplier effect. – If one or two of the university-related startups achieves a high level of success (as has occurred with some previous University of Minnesota start-ups), then impacts will likely be many orders of magnitude higher. The Star Tribune newspaper publishes a list of the 100 largest public companies in Minnesota. Nineteen of these 100 companies were founded by U of M IT alumni, including: •ADC Telecommunications ASV Inc. August Technology CNS Inc. Ceridian Compex Technologies CyberOptics Corp. Datalink Corp. Digital River Donaldson Company Fastenal Hawkins Inc. MGI Pharma MTS Systems Medtronic Pemstar Pentair Passis Medical RTW Inc Business Formation (Start-Ups) • Start-up Employment, Output and Indirect Impacts – IMPLAN input/output multipliers used for projections – Two sectors modeled relevant to the Minnesota and Rochester-area economies that are likely to see spin-off activity– Sector 302 “Electronic Computer Manufacturing” and Sector 375 “Surgical and Medical Instrument Manufacturing” – For computer manufacturing the employment multiplier is 5.5 and the output multiplier is 2.0. For medical devices the employment multiplier is 2.7, and the output multiplier is 1.8 Top US Corporate Patent Classes are Well Matched to the Planned Focus of the University in Rochester 1 Surgical instruments 2 Biology of multi-cellular organisms 3 Surgery: light, thermal and electronic applications 4 Surgery: application, storage and collection 5 Prostheses 6 Computer and digital processing 7 Data processing 8 Special receptacle or package 9 Telephone communications 10 Communications: directive radio wave 11 Chemistry: molecular biology and microbiology Leading Patent Generating Entities in Minnesota Entity Primary Industry 2000 2001 2002 2003 2004 Total 3M Innovative Products Company Multiple (diversified), including health and biomedical 308 313 377 410 371 1779 Individually Owned Patents Multiple 335 295 293 322 254 1499 IBM Computing and related equipment 206 219 209 204 214 1052 Medtronic Biomedical devices and equipment 131 101 103 109 105 549 Seagate Technology LLC Computing and related equipment 18 89 121 122 129 479 Sci-Med Life Systems Biomedical devices and equipment 80 71 75 85 68 379 Cardiac Pacemakers Biomedical devices and equipment 41 65 86 93 74 359 Honeywell International Automation and control equipment 11 69 74 81 124 359 ADC Telecommunications Telecommunications infrastructure equipment 15 23 46 74 75 233 Micron Technology Computing and related equipment 19 46 56 39 34 194 Ecolab Commercial cleaning services 27 36 42 45 41 191 University of Minnesota Multiple 43 36 37 36 38 190 Unisys Computing and related equipment 20 23 26 28 53 150 Imation Removable data storage products 27 32 26 30 32 147 General Mills Food processing 25 32 29 15 20 121 Rosemount Measurement instrumentation 17 13 22 43 21 116 Donaldson Company Filtration and exhaust systems 23 25 21 21 15 105 Mayo Foundation Biomedical research, products and devices 17 20 21 26 20 104 Augustine Medical Biomedical devices and equipment 22 27 20 16 1 86 Honeywell Inc. Multiple, electronics and controls 38 24 11 8 5 86 Eastman Kodak Company Biomedical imaging equipment 13 8 27 12 22 82 Parker Hughes Institute Biomedical, cancer drug development 3 18 27 16 12 76 Seagate Technology Inc. Computing and related equipment 57 10 4 4 1 76 Cargill Inc. Agricultural and food processing 18 14 15 10 9 66 LSI Logic Corporation Computing and related equipment 13 6 10 11 17 57 Business Formation (Start-Ups) Impact of Business Start-Ups Based on Employment Projections Sectors = Computer Manufacturing and Medical Device Manufacturing Direct Employment Projected at the 240 and 380 Job Levels Employment (Jobs) Impact Direct Employment Generated Employment Multiplier Computer Mfg. 240 5.547461 1331.4 Medical Device Mfg. 240 2.673865 641.7 Computer Mfg. 380 5.547461 2108.0 Medical Device Mfg. 380 2.673865 1016.1 Sector Total Employment (Direct + Indirect + Induced) Output (Economic) Impact Sector MN Output (millions) MN Employment Output Per Job New Jobs in Sector New Output in Sector (millions) Output Multiplier Total Additional Output Computer Mfg. $5,735.509 8,136 $704,964 240 $169.189 2.040719 $345,267,321 Medical Device Mfg. $1,655.351 6,862 $241,234 240 $57.896 1.826062 $105,722,188 Computer Mfg. $5,735.509 8,136 $704,964 380 $267.883 2.040719 $546,673,259 Medical Device Mfg. $1,655.351 6,862 $241,234 380 $91.669 1.826062 $167,393,464 Research impacts have the potential to vary from those estimated. Impact Economics estimates that the following impacts of the expanded University of Minnesota Rochester are reasonable for 2015: University research volume (annual) Faculty conducting research Support staff $20 million 65 196 Invention disclosures (annual) 9+ Patents issued (annual) 4+ Start-up enterprises (annual) 6-8 Direct jobs in start-up enterprises (annual) 180+ Total jobs related to start-ups (including indirect) 600+ Total output related to start-ups (direct and indirect) > $100 million These are point in time impacts for a single year (2015). Economic impacts would be cumulative, accruing year after year as additional research funds are brought in, innovations made, and businesses started. Impact of Higher Education • Skilled human capital has been identified by economists as the most important determinant of economic growth in the 21st century economy. • The key economic impact of higher education comes via “productivity increases”. • By gaining advanced education (especially in technical and scientific disciplines) an individual’s knowledge and skills are enhanced. • When applied in the workplace this enables higher levels of productivity to be achieved (in addition to other key benefits such as higher levels of creativity and innovation). Impact of Higher Education on Productivity • Impact Economics used net present value analysis to project the potential impact of productivity increases in the Minnesota economy likely to be driven by the University’s programs. Based on the projected size of the University of Minnesota Rochester, it is reasonable to expect that the net present value of productivity gains to the Minnesota economy generated by graduates of the institution will likely be in the range of $3060 million per year of higher education gained (for the total enrollment). Private Returns to Education • In addition to generating societal economic returns, higher education also provides economic benefits for individual Minnesotans. These personal economic benefits can be clearly seen through the earnings differentials that increase as higher education level increases, and in the internal rate of return (IRR) on a university education. Median Earnings and Tax Payments by Level of Education, 2003. $95,700 Professional Degree $79,400 Doctorate Degree $59,500 Master's Degree $49,900 Bachelor's Degree $37,600 Associate Degree $35,700 Some College, No Degree $30,800 High School Diploma $21,600 Less Than HS Diploma $0 Source: US Census Bureau, 2004 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 After-Tax Income Taxes Expected Lifetime Earnings Relative to High School Graduates, by Education Level 4 3.36 3.5 Earnings Ratio 3 2.65 2.5 1.98 2 1.73 1.5 1 1 1.17 1.23 0.74 0.5 0 Less Than High School Some HS Diploma Diploma College, No Degree Associate Degree Bachelor's Degree Master's Degree Doctorate Professional Degree Degree Private Returns to Minnesotans of Higher Education Gained • Impact Economics used US Census Bureau figures for average lifetime earnings to estimate increased personal income potentials for Minnesotans enrolling in University of Minnesota Rochester programs. • On a rolling year-to-year basis, it is found that those graduating from the Rochester university programs would likely increase their collective combined lifetime earnings by between $1 billion and $2 billion. • National data for land grant universities indicate that 66% of students from state universities will stay and work in the university’s home state for a significant period of time – based on this it may be assumed that the potential is there for between $0.66 billion and $1.32 billion in personal lifetime earnings capture for Minnesotans on an annual graduating class basis. • Overall these data show that by enrolling in the new university students will gain a two-times increase in their annual lifetime earnings on average. Outreach and Public Service • Research shows education level to be highly correlated with volunteerism and public service. • Land grant university extension operations found to be especially relevant in 21st century innovation driven economy. Additional Impacts • Increased retention of skilled high-school graduates • Attraction of increased volumes of visitors to the community, coming to attend special events, seminars and educational programs at the university in its specialized subject areas • Increasing the reputation and recognition of Rochester as a hotbed of not only technology development and application, but also advanced education in bioscience and technology. • Recruitment of personnel to technology-based companies and institutions in Minnesota helped by having a high quality advanced and continuing education institution available. Additional Impacts • With a strong focus on biosciences and biomedical research, combined with the local presence and collaboration of the Mayo Clinic, it is likely that the university will be at the forefront of advanced biomedical discoveries. Biomedical products have the potential to prevent or cure diseases and sustain human health, quality of life and worker productivity. Economic benefits result from this in terms of healthcare costs prevented and prevention of lost workforce productivity due to illness or injury. • The university may also serve to help increase clinical care volumes at Mayo. A significant portion of Mayo’s patient population is attracted to the Clinic because of its research leadership and to access experimental clinical protocols. The university’s biosciences research, particularly in translational and clinical research, may add to Rochester’s attractiveness for patients especially since it is expected that Mayo, the U of M Medical School and the Minnesota Partnership for Medical Genomics will be active partners in the university’s research programs. Conclusions • The expanded University of Minnesota Rochester will be a positive investment for the state – providing between a three and eight fold return on the states investment. • The University will significantly strengthen and build Minnesota’s position in the modern technology-driven 21st Century economy. • The University effectively leverages, and builds upon, the existing strengths of the Minnesota and SE Minnesota economies. It emphasizes pragmatic R&D aimed at generating innovation-based economic development, and will help to meet demand for skilled human capital in key technology growth fields and strategic employment sectors. • By focusing on advanced R&D and associated technological and bioscience education the University will fill a unique opportunity – working to complement other higher education institutions in the state, rather than directly competing with them. Conclusions • Backward Linkage Impacts – Construction of expanded facilities: 121 jobs and $98.3 million in total economic impact (2.2 ROI) – Operations: 2015 (full size) 261 direct jobs and 375 indirect jobs via institutional spending. $90.4 million in annual spending impacts. (1.5 times ROI on operating expenditures). • Forward Linkage Impacts – Between $30 and $60 million (per year of higher education gained) for the Minnesota Economy through net present value of productivity increases realized through higher education gained at the university. (Added to spending impacts this increases operational ROI to between 2.0 and 2.5) – The University is estimated to attract between $18 million and $22 million in external funds to support advanced research programs on campus. ($276,000 to $337,400 per faculty member). – Research to produce innovations expected to generate between 8 and 13 start-up enterprises in 2015, with direct employment ranging from 240 to 380 jobs. Employment and output multiplier effects will be significant. At the 240 direct jobs level between 642 and 1,331 total jobs would be generated in Minnesota and between $105.7 and $345.3 million in total economic output. This increases the operational ROI to between 3.7 and 8.1. – Advanced education will provide graduates with a two-times increase in their average annual lifetime earnings, equating to an increase of between $0.66 billion and $1.32 billion in personal lifetime earnings capture for Minnesotans occurring on an annual graduating class basis. Conclusions • It is the opinion of Impact Economics LP that the University represents an eminently logical strategic move for Minnesota. • The state is in competition with other technology-based economies in the US and overseas and it is critically important that Minnesota invest wisely to secure maximum returns from its current and developing assets. • Organizations such as the Mayo Clinic and IBM have major operations in multiple states and they can choose to direct their R&D and investment resources to where the best opportunities present themselves. A substantial volume of data support the fact that a research university is a critically important catalyst for building sustainable R&D and innovationbased economies, and without the expansion of the University of Minnesota Rochester it is likely that existing assets in Rochester may be slowly lost to competing states and the substantial potential for technology-based economic development in SE Minnesota left unrealized. What others say… Research centers and institutions are indisputably the most important factor in incubating high-tech industries. A side effect of the technical capability and scientific research activities is the training and education of the skilled labor that will be critical to the expansion and reinforcement of regional high-tech industries. R. DeVol (1999) “Americas High Tech Economy”. The Milken Institute Few institutions have more to offer in propelling economic development on both a national and local basis that our nation’s colleges and universities. They are the creators and disseminators of knowledge and understanding that can help address urban challenges. As leading institutions in their communities, they are powerful economic drivers, technology centers, employers, developers and investors. R. Rosan, 2002. “The Key Role of Universities in Our Nation’s Economic Growth and Urban Revitalization”. University research is a powerful stimulus for economic development producing measurable increases in GDP and employment. More importantly, university research is shown to exert a dynamic and continuing impact on underlying productivity of the economy, which carries forward into the future. F. Martin and M. Trudeau. “The Economic Impact of University Research”. What Others Say… Premier universities are at the heart of just about every high-tech success story… •Silicon Valley in California developed around the universities of Stanford and Berkeley. In 1996, more than half of the $100 billion income from the economy of Silicon Valley came from companies started by Stanford graduates and faculty. In 1997 the Bank of Boston Economics Department issued a report “MIT: The Impact of Innovation” that described the economic benefits flowing from the university. The report emphasized the creation of 14,000 jobs in Cambridge alone at companies founded by MIT faculty and graduates. Throughout Massachusetts it was found that over 1,000 businesses were started by MIT graduates employing more than 125,000. Research Triangle Park (supported by Duke University, University of North Carolina, and North Carolina State University is another success story. Today the park contains more than 100 companies employing more than 36,000. Major companies located in the park now include Motorola, Nortel, DuPont, IBM, Harris Microelectronics and SAS. The University of Texas is credited with contributing to the development of more then 600 high technology companies in the Austin area and the business corridor into Dallas. Statewide Office of Budget and Institutional Research, Alaska. July 2002. 6 Jaycee Drive Pittsburgh, Pennsylvania 15243 Telephone: 412-276-1986 Fax: 412-276-1934 www.impacteconomics.com E-mail: [email protected]