Net Fiscal Impact of Michigan State University on the City of East Lansing

June 23, 2006

Commissioned by: Michigan State University

Prepared by: Patrick L. Anderson, Principal Ilhan K. Geckil, Economist Caroline M. Sallee, Senior Analyst

Anderson Economic Group, LLC 1555 Watertower Place, Suite 100 East Lansing, Michigan 48823 Tel: (517) 333-6984 Fax: (517) 333-7058

http://www.AndersonEconomicGroup.com

Table of Contents

I. Executive Summary...... 1 Purpose of Report ...... 1 Overview of Michigan State University ...... 1 Overview of East Lansing Economy & City Budget ...... 2 Overview of Methodology ...... 2 Summary of Findings ...... 3 Table: Net Fiscal Impacts of MSU on City of East Lansing ...... 3 Limitations of Analysis ...... 4 II. Overview of Michigan State University and Its Impact on Local Economies and the Region.....5 Brief History ...... 5 Figure: MSU Enrollment, 1950-2005 ...... 6 MSU Today ...... 6 MSU as an Enterprise: Revenue & Expenditures ...... 6 Table: MSU Revenue Summary, 2005 ...... 7 Figure: Revenue Sources of MSU (%), 2005 ...... 8 Table: Operational Expenditures, 2005 ...... 9 Figure: Operational Expenditures of MSU (%), 2005 ...... 9 MSU Community ...... 10 Students ...... 10 Enrollment...... 10 Table: Fall Semester FTE Enrollment by Student Level, 1996-2005 ...... 11 Tuition, Fees and Student Expenditures...... 11 Table: Undergraduate Cost of Attendance per Academic Year, 1996/97 - 2005/06 ...... 11 Faculty, Academic Staff and Non-Academic Staff ...... 12 Table: Number of MSU Fall Semester Faculty and Staff, 1996-2005 ...... 12 Faculty and Non-Faculty Earnings...... 13 Expenditures...... 13 III. Overview of East Lansing ...... 14 Brief History ...... 14 Current State of East Lansing Economy ...... 14 Table: Largest Employers in East Lansing, 2004 ...... 14 Table: Ten Largest Taxpayers in East Lansing, 2004 ...... 15 Employment ...... 15 Table: Employment by Industry in East Lansing, 2000 ...... 16

Anderson Economic Group, LLC TOC - 1 Table of Contents

City Finances ...... 16 City Revenue ...... 17 Table: City of East Lansing’s Revenue Sources, Fiscal Year 2004 ...... 17 City Expenditures...... 18 Table: City of East Lansing’s Program Expenses, Fiscal Year 2004 ...... 18 IV. Fiscal Impact: Methodology and Findings...... 19 Our Methodology ...... 20 Direct and Indirect Impact of MSU on City Services ...... 20 Direct and Indirect Impact of MSU on Property Tax Revenue...... 21 Direct Impact of MSU Community in East Lansing on State-Shared Revenue...... 22 Findings ...... 22 Table: Net Fiscal Impacts of MSU on City of East Lansing ...... 23 Direct and Indirect Impact on Business-Type Activities ...... 23 Direct and Indirect Impact on Property Tax Revenue...... 24 Direct and Indirect Impact on State-Shared Revenue ...... 24 Limitations of Analysis ...... 25 Conclusion ...... 25 V. Appendix A: MSU Fiscal Impact Model: Input Database ...... A-1

VI. Appendix B: MSU Fiscal Impact Model: Cost, Benefits, and Net Impact...... B-1

VII. Appendix C: About AEG ...... C-1 Patrick L. Anderson ...... C-1 Ilhan K. Geckil ...... C-1 Caroline M. Sallee ...... C-2

Anderson Economic Group, LLC TOC - 2 Executive Summary

I.Executive Summary

PURPOSE OF REPORT This report provides a comprehensive analysis of the net fiscal impact of Michi- gan State University (“MSU” or “University”) on the City of East Lansing (“City”). The “net fiscal impact” is the difference between the fiscal benefits that MSU provides the City and the additional cost to the City of having the University in East Lansing. These benefits include direct payments for services and additional tax revenue from MSU operations while the costs include forgone tax revenue and the additional cost of providing services to the MSU campus and community.

Obviously, merely adding up the benefits and the expenditures of the University would exaggerate its contributions to the local economy; similarly, counting only the costs of services to the campus would ignore the many benefits the University provides. The net fiscal impact is a fair indicator of the relationship, in dollar terms, between the City and the University.

This report does not attempt to measure the economic impact of MSU. An economic impact study would take into account all economic activity, such as expenditures, wages, and employment. In this study, we estimate the fiscal impact of MSU by calculating the additional revenue to and expenditures by the City of East Lansing due to the University’s presence.

OVERVIEW OF Since its founding in 1857, Michigan State University has grown to become the MICHIGAN STATE sixth largest university in the United States and the largest university in Michi- UNIVERSITY gan based on student enrollment. No longer a small agricultural college, MSU offers 200 programs of study by 14 degree-granting colleges. In the fall of 2005, 45,166 students (35,678 undergraduate and 9,488 graduate and professional) enrolled at MSU. Michigan State University employs approximately 4,500 faculty and academic staff and another 5,750 support staff. Currently, Michigan State’s campus includes 5,200 acres with 2,000 acres in existing or planned development.

Michigan State University is a significant part of the local and state economy. The University spends approximately $1.4 billion annually, with most of this money remaining in the region. Its students, faculty, and non-academic staff live in East Lansing and the surrounding area. The University also attracts visitors to the region, who spend money at the city’s restaurants and businesses.

Besides its effect on the local economy, MSU affects the City of East Lansing in other important ways. The University adds to the region’s cultural richness, intellectual depth, and ethnic diversity. The quality of life in East Lansing is very high, thanks in part to the presence of Michigan State University.

Anderson Economic Group, LLC 1 Executive Summary

OVERVIEW OF EAST The City of East Lansing is home to a thriving community. With a population LANSING ECONOMY & over 46,000, East Lansing is one of Michigan’s largest cities outside the Detroit CITY BUDGET metropolitan area. The city’s proximity to the state’s capital has made East Lan- sing an attractive location for public and private sector firms. While much of the city’s economy revolves around education—Michigan State University is the largest employer—the success of many smaller businesses has created a strong economic foundation for the city.

The City of East Lansing receives funding for its activities from four main sources: service fees, operating grants and contributions, property taxes, and state-shared revenue. The City charges a fee to customers to help cover the costs of water, sewer, and parking services it provides. In fiscal year 2004, the City received over $51 million in revenue and spent over $52 million on its operations. The City spent most of its budget on public safety (fire and police), public works, general government, and recreation and culture.

OVERVIEW OF Our firm has rigorously completed, or critiqued, numerous economic and fiscal METHODOLOGY impact analyses. We depart from many other practitioners by insisting on a specific, conservative, and realistic definition of “fiscal impact.” We define fiscal impact as only bona fide, net new tax revenue or reduced government expenditures directly or indirectly caused by the subject entity. In calculating the fiscal impact, we take into account both costs and benefits. For example, we subtract out any lost tax revenue or increased expenditures. In addition, we subtract from the benefit figure any reductions in economic activity due to displacement or substitution effects. This approach has been documented in published works authored by one or more members of our project team, including the book Busi- ness Economics and Finance written by Patrick L. Anderson, which devotes two chapters to the proper method of estimating net economic and fiscal impact.

In order to estimate the net fiscal impact of MSU, we looked at three ways the University affects the City of East Lansing’s budget and operations. We calculated the direct and indirect impact of MSU in each of the following categories:

1. City of East Lansing Services 2. Property Tax Revenue 3. State-Shared Revenue

For each category, we estimated the additional costs and benefits of hosting MSU. This involved both identifying current expenditures and payments, and estimating, for comparison purposes, what the tax revenue and business-type activities revenue would be to the City if it did not host MSU. In particular, we estimated the property tax revenue the City would gain if it placed on the tax rolls a large portion of the currently tax-exempt land occupied by the MSU campus, and at the same time lost the significant additional economic activity that MSU brings to the area.

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SUMMARY OF We estimate that the total net fiscal impact of MSU on the City of East Lansing FINDINGS is a positive $8.63 million. Given the three separate impacts mentioned previ- ously, we estimated the benefits and costs as follows: • A net fiscal loss of $429,924 for services to the MSU community; This is the difference between $8.0 million in additional benefits (which includes direct operating revenue from MSU, operating grants and contributions from the state government to the City for MSU, the City’s revenue from the MSU community for business-type activities, and MSU’s indirect contributions to the city services) and the $8.4 million cost of providing services. • A net fiscal gain of $7.88 million in property tax revenue. This is the difference between the current property tax revenue to the City, given the benefits of MSU’s operations, and the likely property tax revenue assuming that MSU was not located in the City. • A net fiscal gain of $1.19 million in state-shared revenue. This is the net amount of additional revenue to the City from the State, given the higher population and property values that the University brings to the City.

The table below summarizes the fiscal impact by category.

TABLE 1. Net Fiscal Impacts of MSU on City of East Lansing

Component Costs and Category Benefits (millions) City Services Benefits $8.0 Costs ($8.43) Net Benefits from City Services ($0.43)

Property Tax Revenue with MSU $15.12 Property Tax Revenue without MSU ($7.2) Net Property Tax Revenue Benefita $7.88

Net State Shared Revenue Benefit Due to $1.67 Higher Population with MSU Net State Shared Revenue Loss Due to ($0.48) Higher Property Value per Capita with MSU Net State-Shared Revenue Benefit $1.19 Total Net Fiscal Impact $8.63 Source: Anderson Economic Group a. This is our best estimate, which incorporates the assumption that without MSU, East Lansing would have land use patterns similar to Delta, Delhi, and Meridian Townships. An alternative estimate, which also includes Lan- sing Township, produces a net fiscal impact of $7.6 million. See “Direct and Indirect Impact on Property Tax Revenue” on page 24.

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For further details, see “Appendix B: MSU Fiscal Impact Model: Cost, Benefits, and Net Impact” on page 1 at the end of our report.

LIMITATIONS OF There are limitations in this fiscal impact analysis, including the following: ANALYSIS • We estimated the magnitude of MSU’s fiscal impact on the City of East Lan- sing, which required assumptions about the way East Lansing would have developed without MSU. Even a carefully-prepared analysis of this type will not include all the factors that would change if MSU was not located in the City. • We did not evaluate the structure or governance model of either the City or MSU, nor the efficiency or efficacy of any individual program. • We used a level-of-materiality threshold of $50,000, and did not apportion benefits or costs for any individual budget item below this threshold. • We used a composite of the land use and property tax values of cities and townships close to East Lansing to estimate the net effect on property taxes due to MSU. In addition, we used an alternative scenario suggested by the City that provides a slightly different result. However, the actual property use is impossi- ble to know for certain.

Anderson Economic Group, LLC 4 Overview of Michigan State University and Its Impact on Local Economies and the Region

II.Overview of Michigan State University and Its Impact on Local Economies and the Region

Michigan State University is an important part of the local economy in East Lansing. MSU’s revenue from tuition, state and federal government, and private contributions is spent in the City of East Lansing and surrounding regions. These funds allow MSU to pay for services from the City, pay their employees, and make capital investments and improvements on campus. In this section we review MSU’s impact on local economies and its relevance for estimating the fiscal impact of MSU on the City of East Lansing.

BRIEF HISTORY In 1855, the Michigan State Legislature appropriated funds and 677 acres for the creation of the Agricultural College of the State of Michigan. This college, which was renamed Michigan State University (“MSU”) in 1963, was formally opened and dedicated on May 13, 1857. The precursor to other land-grant universities, MSU was the first college to teach scientific agriculture.

Michigan State University remained a small agricultural college until after World War II. During the first 50 years of its existence, Michigan State’s enrollment grew steadily from a hundred students to 1,000 students. After World War II, the University’s enrollment jumped from its pre-war number of 8,500 to almost 15,000 students by 1950. The university’s enrollment continued to rise rapidly during the 1960s. Since 1970, the University’s enrollment has remained around 40,000 students.

Anderson Economic Group, LLC 5 Overview of Michigan State University and Its Impact on Local Economies and the Region

FIGURE 1. MSU Enrollment, 1950-2005

Total Fall Semester Enrollment Trend, MSU (1950−2005) 55

25 Enrollment (000)

0 1950 1960 1970 1980 1990 2000 2005 Months

Analysis: Anderson Economic Group, www.AEG1.com Generated Date: 22 Nov 2005 Base Data: Michigan State University

MSU TODAY Located in East Lansing, Michigan State University has grown to become the sixth largest university in the United States and the largest university in Michi- gan based on student enrollment. In the fall of 2005, 45,166 students (35,678 undergraduate and 9,488 graduate and professional) enrolled at MSU. Michigan State University employs approximately 4,500 faculty and academic staff and another 6,000 support staff. Currently, Michigan State’s campus includes 5,200 acres with 2,000 acres in existing or planned development.

Michigan State University has grown from an agricultural college to a university that offers 200 programs of study by 14 degree-granting colleges. In its America’s Best Colleges 2006 guide, U.S. News and World Report ranks Michi- gan State 30th best in its rankings of public universities in the U.S. The Institute of Higher Education, which ranks universities according to their academic and research performance, ranks Michigan State 49th best among North and Latin American Universities in their Academic Ranking of World Universities: 2005.

MSU AS AN As an enterprise, MSU creates jobs, services, and value for the City of East Lan- ENTERPRISE: sing, surrounding localities, and the State of Michigan. With MSU spending REVENUE & almost $1.4 billion annually, the University plays a vital role in local and state EXPENDITURES economies. The value of MSU goes beyond its economic contributions, however. MSU enhances human capital in the Lansing region, adds cultural and

Anderson Economic Group, LLC 6 Overview of Michigan State University and Its Impact on Local Economies and the Region

intellectual depth, and contributes ethnic diversity to region. For these reasons, MSU has increased the quality of life in the region since its founding.

Michigan State University receives approximately $1.6 billion in revenue each year. Major sources of MSU’s revenue include student tuition and fees, state appropriations, federal and state grants and sponsored programs, private gifts and grants, and investment income. See Table 2 and Figure 2 below.

TABLE 2. MSU Revenue Summary, 2005

$ (in millions) % Operating Revenues: Student Tuition and Fees 329 21.0 Grants and Contracts 320 20.4 Auxiliary Activities 235 15.0 Other Operating Revenue 129 8.2 Sub-total 1,013 64.7

Net Non-operating and Other Revenues: State Appropriations 356 22.7 Investment and Other Revenue 134 8.6 Gifts, Capital Grants, and Additions to Endowment 62 4.0 Sub-total 552 35.3

Total Revenue 1,565

Data Source: Michigan State University

Anderson Economic Group, LLC 7 Overview of Michigan State University and Its Impact on Local Economies and the Region

FIGURE 2. Revenue Sources of MSU (%), 2005

8.6% Student Tuition & Fees Grants & Contracts Auxiliary Activities Other Operating Revenue 4.0% State Appropriations Gifts, Capital Grants & Endowment Additions Investment & Other Revenue

21.0%

22.7%

20.4%

8.2%

15.0%

Analysis: Anderson Economic Group Generated Date: 22−Nov−2005 Data: Michigan State University

Table 2, “MSU Revenue Summary, 2005,” on page 7, shows that most of MSU’s revenue comes from Michigan state taxpayers and residents. This is largely because most MSU students are Michigan residents.

MSU’s operational expenditures are a major contributor to economic activity in the City of East Lansing. Michigan State University, General Motors, other automotive manufacturers, and state government are the major industries in the Lansing Metropolitan Statistical Area (MSA). Even though MSU does not spend its entire budget in the Lansing MSA, most of MSU’s annual expenditures enter the local economy. These expenditures include salary payments to faculty and other academic employees (including graduate students), non-academic employees, and student employees, and direct payments for the services provided by local government and business contractors. For a summary of operational expenditures, see Table 3 and Figure 3 below.

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TABLE 3. Operational Expenditures, 2005

$ (in millions) % Instruction and Departmental Research 420 30.3 Research 236 17.0 Public Services 172 12.4 Academic Support 66 4.8 Student Services and Scholarships and Fellowships 54 3.9 Institutional Support 61 4.4 Operation and Maintenance of Plants 102 7.3 Auxiliary Enterprises 208 15.0 Depreciation and Other Expenses 69 5.0 Total 1,388

Data Source: Michigan State University

FIGURE 3. Operational Expenditures of MSU (%), 2005

5.0% Instruction & Departmental Research Research Public Services Academic Support Student Services & Scholarships/Fellowhips Institutional Support 15.0% Operation & Maintenance of Plants Auxiliary Enterprises Depreciation & Other Expenses

7.3%

30.3%

4.4%

3.9%

4.8% 17.0%

12.4%

Analysis: Anderson Economic Group Generated Date: 22−Nov−2005 Data: Michigan State University

Anderson Economic Group, LLC 9 Overview of Michigan State University and Its Impact on Local Economies and the Region

Expenditures by the MSU community, which includes faculty, students, and administrative, non-academic and student employees, have a positive effect on local businesses and property values. We review the MSU community begin- ning with the section “MSU Community” on page 10. In “Fiscal Impact: Meth- odology and Findings” on page 19 we review the impact of the MSU community’s expenditures on the local economy and on residential and commercial property values.

In addition to direct expenditures, MSU impacts the local economy in other ways. For example, visitors often come to East Lansing because of the Univer- sity. These visitors come for sporting and cultural events, graduation ceremo- nies, and leisure or business trips. While in East Lansing, these visitors spend money, which benefits local businesses and the economy.

MSU COMMUNITY The MSU community includes faculty, academic support staff, non-academic employees, and undergraduate and graduate students. Since MSU has a compact campus, most members of this community live off-campus in East Lansing or in surrounding localities (e.g., City of Lansing, and Meridian, Delhi and Delta Townships). Many students, faculty, and non-academic employees live in the City of East Lansing. Compared to the city’s population of 46,525, MSU is a significant part of East Lansing with its 45,166 undergraduate and graduate students, and 11,244 full-time employees. We estimate that 21,060 of East Lansing population is MSU faculty, staff and students. We review the MSU community under three separate sections below: Students, Faculty, and Non-Faculty Employees.

STUDENTS Enrollment

A quick way to gauge MSU’s impact on the surrounding area is to look at its student enrollment. Since its founding, MSU has experienced consistent growth in enrollment. Since 1970, MSU’s enrollment has remained around 40,000 students. During the last ten years, MSU’s fall enrollment has steadily grown. Between 1996 and 2004, enrollment grew at an annual rate of 1.5%, or by more than 4,500 students. See Table 4, “Fall Semester FTE Enrollment by Student Level, 1996-2005,” on page 11.

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TABLE 4. Fall Semester FTE Enrollment by Student Level, 1996-2005

Undergraduate Graduate Professional Years Students Students Students Total Students 1996 29,281 5,371 1,378 36,029 1997 30,391 5,509 1,347 37,248 1998 31,173 5,393 1,351 37,918 1999 30,955 5,449 1,325 37,729 2000 31,407 5,476 1,346 38,229 2001 32,013 5,640 1,363 39,016 2002 32,397 5,903 1,378 39,678 2003 32,361 6,424 1,370 40,155 2004 32,935 6,345 1,370 40,650 2005 33,359 6,310 1,479 41,148 Annualized 1.5% 1.8% 0.8% 1.5% Growth (1996-2004)

* Note: Data from 1996 to 2004 are from “Statements, MSU Data Digest, 2005” report. 2005 data is from the Office of Planning and Budgets.

Data Source: Michigan State University

Tuition, Fees and Student Expenditures For the school year 2004-2005, an average resident undergraduate student paid $6,540 for tuition, $5,502 for room and board, $826 for books, and $1,420 for food and entertainment. The only difference between resident and non-resident expenditures for students is tuition. On average, non-resident students paid $17,336 annually for tuition in 2005.

TABLE 5. Undergraduate Cost of Attendance per Academic Year, 1996/97 - 2005/06

Non- Room & Personal Resident Non-Resident Resident Resident School Years Fees Books Board & Misc. Tuition Tuition Total Total 1996-97 $ 586 $ 638 $ 3,972 $ 1,124 $ 4,336 $ 11,366 $ 10,656 $ 17,686 1997-98 $ 604 $ 670 $ 4,090 $ 1,194 $ 4,466 $ 11,706 $ 11,024 $ 18,264 1998-99 $ 610 $ 716 $ 4,208 $ 1,178 $ 4,564 $ 11,760 $ 11,276 $ 18,472 1999-00 $ 626 $ 716 $ 4,334 $ 1,184 $ 4,670 $ 12,034 $ 11,530 $ 18,894 2000-01 $ 642 $ 752 $ 4,508 $ 1,186 $ 4,830 $ 12,454 $ 11,918 $ 19,542 2001-02 $ 694 $ 778 $ 4,720 $ 1,308 $ 5,258 $ 13,560 $ 12,758 $ 21,060 2002-03 $ 750 $ 790 $ 4,974 $ 1,354 $ 5,704 $ 14,716 $ 13,572 $ 22,584

Data Source: Michigan State University

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TABLE 5. Undergraduate Cost of Attendance per Academic Year, 1996/97 - 2005/06

Non- Room & Personal Resident Non-Resident Resident Resident School Years Fees Books Board & Misc. Tuition Tuition Total Total 2003-04 $ 822 $ 810 $ 5,272 $ 1,382 $ 6,266 $ 16,170 $ 14,552 $ 24,456 2004-05 $ 856 $ 826 $ 5,502 $ 1,420 $ 6,540 $ 17,336 $ 15,144 $ 25,940 Annualized Growth 4.9% 3.3% 4.2% 3.0% 5.3% 5.4% 4.5% 4.9% (1996-2004)

Data Source: Michigan State University

Along with state appropriations, student tuition and fees are a major source of revenue for Michigan State. Revenue from tuition and fees allows the Univer- sity to pay salaries and its other expenses. High tuition rates for non-resident (out of state) students also contributes to the local and state economy by bring- ing outside money into the region.

Student expenditures on books, food and grocery, entertainment, and other personal items have a direct economic impact on local businesses. In addition to these items, most students also purchase housing off-campus. Michigan State University provides housing for approximately 15,000 students, while some 20,000 undergraduates live off-campus. Those students probably pay similar amounts for room and board as students who live on-campus. See Table 5, “Undergraduate Cost of Attendance per Academic Year, 1996/97 - 2005/06,” on page 11. The impact of students’ expenditures on the City of East Lansing is analyzed under the section “Fiscal Impact: Methodology and Findings” on page 19. Student expenditures in East Lansing affect property tax values and are one of the factors in our fiscal impact model.

FACULTY, ACADEMIC Michigan State University employs 4,599 faculty and other academic staff, STAFF AND NON- 5,750 non-academic employees and 1,400 student employees (graduate assis- ACADEMIC STAFF tants) in 2005. See Table 6, “Number of MSU Fall Semester Faculty and Staff, 1996-2005,” on page 12, for historical figures.

TABLE 6. Number of MSU Fall Semester Faculty and Staff, 1996-2005

Other Graduate Non-Academic Total Years Faculty Academic Staff Assistants Staff Employment 1996 2,461 1,333 1,335 5,195 10,324 1997 2,446 1,415 1,362 5,255 10,478 1998 2,452 1,464 1,391 5,353 10,660 1999 2,485 1,549 1,438 5,488 10,960 2000 2,518 1,633 1,447 5,697 11,295

Data Source: Michigan State University

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TABLE 6. Number of MSU Fall Semester Faculty and Staff, 1996-2005

Other Graduate Non-Academic Total Years Faculty Academic Staff Assistants Staff Employment 2001 2,560 1,711 1,490 5,832 11,593 2002 2,542 1,680 1,517 5,889 11,628 2003 2,519 1,669 1,418 5,761 11,367 2004 2,505 1,665 1,366 5,707 11,243 2005 2,841 1,758 1,400 5,750 11,749 Annualized Growth 1.6% 3.1% 0.5% 1.1% 1.4% (1996-2005)

Data Source: Michigan State University

Faculty and Non-Faculty Earnings

In 2005, the average MSU salary for an academic faculty member was $83,424. MSU pays competitive compensation/salaries to its faculty compared to other Big Ten universities.The average earnings for teaching assistants was $13,004 and $13,467 for research assistants.

These high earnings vitalize the local economy, help local businesses to be prof- itable and raise the value of both commercial and residential properties in the local market. Higher property values ultimately affect the City, which receives more revenue from property taxes.

Expenditures

Expenditures of faculty, graduate assistants, and non-academic employees are essential for any university town. The City of East Lansing and surrounding localities benefit from the expenditures of MSU’s employees. We estimate that the average MSU faculty member spends $13,701 for housing, $13,153 for apparel, food, and transportation, and $4,932 for meals and entertainment away from home.

While the economic impact of the MSU community’s expenditures on the City of East Lansing is outside the scope of this project, we carefully considered these expenditures in order to estimate the fiscal impact of MSU on the city’s property tax revenue and business-type activities. See “Appendix A: MSU Fis- cal Impact Model: Input Database” on page 1 for the detailed expenditures data.

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III.Overview of East Lansing

BRIEF HISTORY Almost thirty years after the founding of Michigan State University, students and faculty began to develop off-campus housing near the college. In 1887, the first housing development appeared in the area and by 1901 the college community had formed its own school district. In 1907, the state granted the community’s request to be incorporated as a city. Located three miles from the state’s capitol, the legislature gave the town the name of East Lansing.

In the following decades after the city’s incorporation, East Lansing rapidly grew. Stores began to move into the area close to campus, and by World War I a small downtown had formed near the corner of Grand River and Abbott. As the University’s enrollment grew, so did its need for housing. Developers built new homes and schools to accommodate the growing student and faculty population. Restaurants, stores, and other businesses quickly moved into the area as well.

Today, East Lansing is a thriving community. With a population over 46,000, East Lansing is one of Michigan’s largest cities outside the Detroit metropolitan area. The city’s proximity to the state’s capitol has made East Lansing an attractive location for public and private sector firms.

CURRENT STATE OF Much of East Lansing’s economy revolves around education. The largest EAST LANSING employer in the City of East Lansing is Michigan State University, which ECONOMY employs almost 12,000 faculty and support staff employees. Other large employers include the East Lansing School District and the Michigan Education Association.

While the University provides jobs directly, it also indirectly creates many more jobs in the entertainment, accommodation, retail, and food service industries by providing a clientele for those businesses. East Lansing’s second largest employer is Meijer, a discount department/grocery store. The City of East Lan- sing has benefited from the presence of these businesses. As Table 8 on page 15 shows, several of East Lansing’s largest single taxpayers are rental properties that provide housing for students.

TABLE 7. Largest Employers in East Lansing, 2004

Approximate Number Employer of Employees Michigan State University 11,243* Meijer, Inc. 650 East Lansing School District 600 Michigan Education Association 526 Michigan State Police 500

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TABLE 7. Largest Employers in East Lansing, 2004

Approximate Number Employer of Employees City of East Lansing 359 U.S. Postal Service 300 Burcham Hills (Retirement Community) 300 * The employment number according to MSU. Data Source: City of East Lansing

While Michigan State University is the largest single employer in East Lansing, it is not the largest taxpayer. Under Michigan’s Constitution, governments and education institutions do not pay property taxes. MSU, the City of East Lansing, East Lansing Schools, and Michigan State Police do not pay property taxes. The University does pay for the business services it receives from the city. Two of the largest taxpayers are rental property companies. Meijer, which is the second largest employer in the city, is the ninth largest taxpayer. Please see Table 8 below for the top ten largest taxpayers in the City of East Lansing.

TABLE 8. Ten Largest Taxpayers in East Lansing, 2004

Taxpayer Product or Service Taxable Value Percentage of Total DTN Management Apartments $31,143,510 3.94 MEA Special Services Teacher Association/Insurer $15,915,810 2.01 Sam Eyde Development Co. Developer $11,542,870 1.46 Wells Goodsir Rental Properties $11,428,190 1.45 Dunn Development Group Apartments $7,102,360 0.90 Mutual Insurance Company of AmericaPhysicians Assurance $6,885,470 0.87 Capstone University Commons Apartments $6,743,370 0.85 D.L. Kesler & Associated PropertiesGolf Course/Developer$6,551,0000.83 Meijer Inc. Department /Grocery Store $6,538,830 0.83 South Bend Nursing Home AssociationCommercial Properties$5,318,580 0.67 Data Source: City of East Lansing, 2004 Annual Financial Report

EMPLOYMENT According to the U.S. Census, the City of East Lansing’s population was 46,525 in 2000. Most of the city’s population (43,032) was at least 16 years old. In 2000, 63.6% were in the labor force. The employed civilian population for this population group was 24,520, or 90%. The unemployment rate for the city was 6.6%, while 15,659 persons over the age of 16 were not in the labor force. Included in this group are the city’s many high-school and college students.

When East Lansing is compared with the State of Michigan, a lower percentage of persons 16 years and older were in the labor force and employed in East Lan- sing than in the state as a whole.

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East Lansing residents primarily work in education or leisure related industries. In 2000, more than 40% of employed residents worked in the educational, health, and social services fields. A sixth of employed residents (16.9%) worked for firms in the arts, entertainment, food services, and accommodation industries. Table 9 on page 16 presents detailed information on employment by industry for East Lansing’s residents.

TABLE 9. Employment by Industry in East Lansing, 2000

Industry Number Percent Agriculture, forestry, fishing and hunting, mining 250 1.0 Construction 349 1.4 Manufacturing 718 2.9 Wholesale Trade 313 1.3 Retail Trade 2,327 9.5 Transportation and Warehousing, and Utilities 280 1.1 Information 1,064 4.3 Finance, insurance, real estate, and rental and leasing 1,237 5.0 Professional, scientific, management, administrative, 1,863 7.6 and waste management services Educational, health, and social services 9,973 40.7 Arts, entertainment, recreation, accommodation and 4,139 16.9 food services Other services (except public administration) 824 3.4 Public administration 1,183 4.8 Data Source: U.S. Census

We estimate that 11.9% of East Lansing’s working residents (2,941 residents) worked at MSU in 2000.

CITY FINANCES In its Annual Comprehensive Financial Report for the Fiscal Year 2004, the City of East Lansing presents information on its revenue sources and expenditures for three types of activities: • Governmental activities - basic services such as police, fire, public works, courts, streets, recreation, library, solid waste disposal, parks, and general administration; • Business activities - water, sewer, and parking; and • Component units - activities conducted by the Downtown Development Author- ity and the Downtown Management Board.

Between July 1, 2003 and June 30, 2004 the city received $51,864,763 from various revenue sources and paid out $52,019,312 in program expenses. The city’s net assets fell $154,549 during the course of the year.

Anderson Economic Group, LLC 16 Overview of East Lansing

City Revenue

East Lansing receives funding for its activities from four main sources: service fees, operating grants and contributions, property taxes, and state-shared revenue. Property tax revenue, state-shared revenue from sales taxes, court revenues, and fees for services fund most of the city’s governmental activities. The City charges a fee to customers to help cover the costs of the water, sewer, and parking services it provides.

TABLE 10. City of East Lansing’s Revenue Sources, Fiscal Year 2004

Revenue $ Program Revenue Charges for services 25,408,517 Operating grants and contributions 4,027,903 Capital grants and contributions 486,286 General Revenue Property taxes 14,856,993 State-shared revenue 6,134,877 Unrestricted investment earnings 146,051 Unrestricted franchise fees 318,825 Miscellaneous 485,311 Total Revenue 51,864,763 Source: City of East Lansing, Annual Financial Report, 2004

The City received $29.9 million in program revenue in FY 2004. Most of this revenue ($25.4 million) came from charges for services. Half of this revenue came from fees for governmental activities (police, fire, recreation, and parks) and half came from charges for business services (water, sewer, and parking). The City also received over $4 million in grants and contributions. See Table 10 above.

MSU contributed directly to City revenue by paying $1.3 million for sewer and parking services from the City. MSU also contributed indirectly to City revenue. The City received $394,995 from the State for providing fire and police expenditures for MSU.

In FY 2004, the City received $14.8 million in property tax revenue. None of this revenue came from Michigan State University due to its tax exempt status. The City also received $6.1 million in state-shared revenue. See “Direct Impact of MSU Community in East Lansing on State-Shared Revenue” on page 22.

Anderson Economic Group, LLC 17 Overview of East Lansing

City Expenditures A majority of the City of East Lansing’s revenue supports its governmental activities. In 2004, the City’s largest expenditure was for public safety. The City spent over $15 million on fire and police services. The City also spent between $6 million and $7 million each on public works, general government, and recreation and culture. See “City of East Lansing’s Program Expenses, Fiscal Year 2004” on page 18.

TABLE 11. City of East Lansing’s Program Expenses, Fiscal Year 2004

Expenses $ Governmental Activities General government 7,537,175 Public safety 15,222,360 Public works 6,848,258 Health and welfare 164,365 Community and economic development 963,337 Recreation and culture 7,104,655 Interest on long-term debt 1,128,930 Business-Type Activities Water 3,089,991 Sewer 6,432,431 Parking 3,527,810 Total Program Expenses 52,019,312 Source: City of East Lansing Annual Financial Report, 2004

The City of East Lansing spent over $13 million on business-type activities. Almost half of this amount was spent on sewer services. The City spent another $3 million providing water to residents and $3.5 million providing parking services.

Anderson Economic Group, LLC 18 Fiscal Impact: Methodology and Findings

IV.Fiscal Impact: Methodology and Findings

The purpose of this report is to estimate the net fiscal impact of Michigan State University on the City of East Lansing. Net fiscal impact is the difference between the benefits that MSU provides the city minus the additional costs of having the University in the city.

Our firm has rigorously completed, or critiqued, numerous fiscal impact analyses. These studies are often recognized as the most reliable and timely available.1 The basis for this methodology is stated in Patrick Anderson’s book Business Economics and Finance.2

We depart from many other practitioners by insisting on a specific, conservative, and realistic definition of “fiscal impact.” We define fiscal impact as only bona fide, new tax revenue or reduced government expenditures directly or indirectly caused by the subject entity. In calculating the effects, we take into account both costs and benefits. To arrive at our total net fiscal impact figure, we subtract out any lost tax revenue or increased expenditures. In particular, we subtract from the total net benefit figure any reductions in economic activity due to displacement or substitution effects.

The resulting findings are much more conservative, and realistic, than many reported analyses that fail to subtract costs, ignore substitution effects, or exaggerate benefits. In reporting our analysis, we also identify key assumptions,

1. Previous AEG reports on similar topics available at our website (http://www.andersoneconomicgroup.com) include: Critical Review: Northeast Blackout Likely to Reduce US Earnings by $6.4 Billion, East Lan- sing, MI: Anderson Economic Group, August 19, 2003; the estimated impact included in this report was later corroborated by a completely independent analysis produced several months later, and the estimate has been included in numerous DoE and US Government publications. Lost Earnings Due to the West Coast Port Shutdown - Preliminary Estimate, Lansing, MI: Anderson Economic Working Paper, October 7, 2002; this analysis, which produced an estimate of economic impact many times smaller than that commonly cited in news media reports at the time, was later corroborated by academic research in the US, and was also used by the Australian government in assessing risks of disruptions of maritime ports. Economic Benefits of Wayne State University, Wayne State University, October 2004. This report uses a much more conservative method for calculating economic impact than that commonly used for colleges, and directly considers the likely substitution effects should university-owned property be converted to private sector use. Economic and Fiscal Impact of a Casino in Wayland Township (2003); Fiscal Analysis of the “Link Michigan” Proposal (2002); and Economic and Fiscal Impact of Expansion of the Detroit-Wayne County Port (2001) are some other studies AEG completed during the past years. 2. Patrick L. Anderson, Business Economics and Finance, CRC Press, 2004.

Anderson Economic Group, LLC 19 Fiscal Impact: Methodology and Findings

describe our methodology, and identify in the text any important factors that cannot or were not quantified in our analysis.

OUR METHODOLOGY In this report we looked at the fiscal impact MSU has on the city’s operations and budget. In order to estimate the fiscal impact, we looked at three ways the University has a fiscal affect the city. These include the direct and indirect impact of MSU on:

1. City of East Lansing Services 2. Property Tax Revenue 3. State-Shared Revenue

MSU provides benefits to the city directly and indirectly through the payment for services, and indirectly through property taxes and state-shared revenue. The City also has certain expenditures because of the presence of the University. This includes lost property tax revenue and public safety expenditures. Below we describe our methodology for estimating the direct and indirect impact of MSU’s presence in East Lansing on the City.

Direct and Indirect Impact of MSU on City Services In order to estimate the direct impact of services provided by the City of East Lansing for MSU, we obtained data from the City and the University on the amount MSU pays the city for sewer and public safety services, and the amount the City spends providing these services.The net fiscal direct impact of MSU on the City of East Lansing is the sum of payments from MSU for these services, and any operating grants and contributions from federal and state governments to East Lansing for MSU, less the cost of these services provided to the MSU community.

In calculating the direct benefit the City receives through payment for water, sewer, and parking from the MSU community, we were careful to recognize that not all the population associated with the University would leave if MSU were no longer in East Lansing. Our model accounts for the fact that some percentage would remain in East Lansing even if the University were not there. Thus, we did not attribute all payments the City receives for business-type activities from MSU faculty, staff, and students to MSU’s presence in the City. Our model includes a 40% substitution effect, meaning that 40% of the current MSU community would remain in East Lansing even if the University were no longer there. This substitution effect parameter was used for both benefits to the city (e.g., state-shared revenue) and costs (e.g., forgone tax revenue).

MSU also provides indirect benefits and costs to the City of East Lansing. MSU maintains roads and provides public safety services for MSU’s campus. If MSU did not do this, the City would have to spend additional money providing these services. The net fiscal impact of these indirect benefits is the money the City

Anderson Economic Group, LLC 20 Fiscal Impact: Methodology and Findings

receives or saves because of the University minus the costs of providing services to the MSU community.

Direct and Indirect Impact of MSU on Property Tax Revenue

Michigan State University’s campus includes 5,200 contiguous acres in the City of East Lansing.This is property that, due to its tax exempt status, the City of East Lansing does not receive property tax revenue from. MSU has two different types of impact on property tax revenue:

1. MSU’s presence increases the value of residential and commercial property. 2. MSU does not pay property tax to the City because of its land-grant status.

In order to estimate MSU’s impact on the City’s revenue we had to consider MSU’s impact on property values and what property tax revenue the City would receive if MSU were not located in East Lansing. We concluded that if MSU were not in the region, the area that today is East Lansing would look similar to the other townships surrounding Lansing.

Best Estimate. In our best estimate of MSU’s impact on property tax revenue, we had to consider the property mix of the land within the city’s limits and the taxable value of that land without MSU. To do this, we obtained the taxable value of land by type for Delhi, Delta, and Meridian Townships. We believe that if MSU had not been founded in the area that is now the City of East Lansing, the area would be similar to these nearby townships. Using this assumption, we then looked at the taxable value of land by type of land (e.g. residential, commercial) for each township and adjusted the taxable value to reflect the size (in square miles) of East Lansing. We then averaged the taxable values of land for the townships in order to arrive at our estimate for the total taxable value of land in East Lansing without MSU. We then applied the same tax rate in order to reach our property tax revenue figure.

We also looked at each township’s housing and expenditure data when develop- ing our property tax model. We used this information to determine the appropri- ate counterfactual to MSU’s presence in East Lansing. While the townships are very similar, they do have subtle differences. For these reasons, we use a composite of these townships’ taxable values in our model.

Alternative Estimate. We also provide an alternative estimate of MSU’s impact on property tax revenue, in which we include Lansing Township in our composite of comparison communities. We feel that Lansing Township is not a perfect comparison community, as it does not have the residential and commercial mix that we think East Lansing would have if MSU were not in the area. It is a much smaller township that is made up of non-contiguous tracts of land. We include it in an alternative estimate because of its proximity to the cities of East Lansing and Lansing, and because it was the opinion of some East Lansing offi-

Anderson Economic Group, LLC 21 Fiscal Impact: Methodology and Findings

cials that the city today would be more like Lansing Township if MSU had not been established in the area that came to be East Lansing.

Direct Impact of MSU Community in East Lansing on State-Shared Revenue

The MSU community affects the amount of state-shared revenue the City of East Lansing receives. Michigan State’s presence affects the population size, taxable value of property, and property tax rates in the City of East Lansing, which are some of the factors that determine the amount of sales tax revenue each local government receives from the State of Michigan.

Sales tax revenue is collected by the State of Michigan and distributed to local governments six times each year. The Michigan Constitution dedicates 15% of 4% gross collections of the state sales tax. Another 21.3% of 4% gross collections of the state sales tax is earmarked for local governments based on statute. Constitutional revenue is distributed on a per capita basis. The statutory payments are determined based on a complex formula that involves three separate calculations using the type of government, population size, taxable value of property per capita, and local tax rates in each local government unit.

If MSU were not located in East Lansing, the area’s population would be smaller and the land would most likely have a lower taxable value. These two factors affect state-shared revenue. Payments increase with population size, and units with a smaller per capita tax base receive larger payments.

These various factors were used to calculate payments until 2004. In FY 2004, local governments received 90% of the revenue they received in FY 2003. In FY 2005, a local unit received 98.9% of the FY 2004 amount.

FINDINGS Taking into consideration both the fiscal benefits and costs of Michigan State to the City of East Lansing, we estimate that the net fiscal impact of MSU is between $7.6 million and $8.6 million. See the summary table below. For details, see “Appendix B: MSU Fiscal Impact Model: Cost, Benefits, and Net Impact” on page 1 at the end of our report.

Anderson Economic Group, LLC 22 Fiscal Impact: Methodology and Findings

TABLE 12. Net Fiscal Impacts of MSU on City of East Lansing

Component Costs and Benefits (millions)

Category Best Estimate Alternative Estimatea City Services Benefits $8.00 $8.00 Costs ($8.43) ($8.43) Net Benefits from City Services ($0.43) ($0.43)

Property Tax Revenue with MSU $15.12 $15.12 Property Tax Revenue without MSU ($7.2) ($8.37) Net Property Tax Revenue Benefit $7.88 $6.75

Net State Shared Revenue Benefit Due to Higher $1.67 $1.67 Population with MSU Net State Shared Revenue Loss Due to Higher ($0.48) ($0.41) Property Value per Capita with MSU Net State-Shared Revenue Benefit $1.19 $1.26 Total Net Fiscal Impact $8.63 $7.58 Source: Anderson Economic Group a. Our Alternative Estimate includes Lansing Township as a comparison community when calculating property tax revenue in addition to the three other townships—Delhi, Delta, and Meridian—used in both estimates.

Direct and Indirect Impact on Business-Type Activities The fiscal impact of MSU on the City of East Lansing’s services is negative $429,924. This figure takes into account the direct and indirect benefits the City receives from MSU, as well as the cost of providing certain services for the MSU community.

The City of East Lansing receives over $5.0 million in direct benefits from MSU. This figure includes money the City receives directly from the University for services, grants given to the City because of MSU, and revenue from business-type activities provided to the MSU community. In 2004, Michigan State paid over $1.4 million for sewer and parking services to the City. According to the City’s financial report, East Lansing received $385,915 in operating grants and contributions from the State for public safety expenditures related to the University. We estimate that the City received $3.3 million for business-type activities provided to the MSU community.

Anderson Economic Group, LLC 23 Fiscal Impact: Methodology and Findings

MSU also provides indirect fiscal benefits to the City. If MSU were not present in East Lansing, the City would need to provide certain services that MSU provides, such as on-campus road maintenance and public safety. MSU also provides rent-free land for a sewage facility the city operates. We estimate these indirect benefits of MSU to the City to be $3.0 million. See “Appendix B: MSU Fiscal Impact Model: Cost, Benefits, and Net Impact.”

Another important indirect benefit is additional revenue the City receives by being able to charge a higher price for the services its provides. When compared to the average Michigan city, East Lansing receives almost six additional dollars per person in revenue. We have assumed that some of this is due to MSU’s presence in the community. We estimate this additional revenue to be $136,386.

In 2004, the cost of providing services to the MSU community was over $8.4 million. We estimate that the City spent $3.5 million on providing water, sewer, and parking services for the MSU community, and another $6.0 million providing public safety and public works services directly. The City has lower costs per capita than the average Michigan city for public safety and public works. Part of this can be explained by MSU’s provision of some of these services. See “Appendix B: MSU Fiscal Impact Model: Cost, Benefits, and Net Impact.”

Direct and Indirect Impact on Property Tax Revenue

Due to the presence of MSU in East Lansing, the City collects more property tax revenue than it would if the University were not located in East Lansing. In 2004, the City collected $15.1 million in property tax revenue. Without MSU, we estimate that the taxable value of the City’s land would be much lower.

Property Tax Revenue, Best Estimate. When including Delhi, Delta, and Meridian Townships as comparison communities, we estimate that the area that is East Lansing would generate $7.2 million in property tax revenue for the City. This results in a net fiscal benefit of $7.9 million to the City that can be attributed to MSU.

Property Tax Revenue, Alternative Estimate. At the current millage rate of 19, we estimate that the area that is East Lansing would generate $8.4 million in property tax revenue for the City, assuming a property mix and taxable value that is an average of four comparison townships: Delhi, Delta, Meridian, and Lansing Township. This results in a net fiscal benefit of $6.75 million to the City that can be attributed to MSU.

Direct and Indirect Impact on State-Shared Revenue In 2004, the City of East Lansing received $6.1 million in state-shared revenue from constitutional and statutory sources. The constitutional amount was given on a per capita basis, and the statutory amount was based on four factors: popu-

Anderson Economic Group, LLC 24 Fiscal Impact: Methodology and Findings

lation, type of government, taxable value of land, and local property tax rates. We estimate that the total net fiscal impact attributed to MSU is between $1.2 million and $1.3 million.

We estimate that $1.7 million of East Lansing’s state-shared revenue is due to MSU’s population. After reviewing population data for the City of East Lan- sing, we concluded that almost half of East Lansing’s population is due to the University. We therefore calculated the direct impact of MSU on state-shared revenue based on the City’s population that can be attributed to Michigan State, taking into account a substitution effect of 40%.

We also estimated the indirect impact of MSU on state-shared revenue. As mentioned above, other factors, namely the taxable value of land and property tax rates, result in the City of East Lansing receiving a smaller state-shared revenue payment than they would without MSU. We took this into account and estimate that MSU costs the city between $410,915 and $479,466 depending on the taxable value comparison we use. When we include Lansing Township in our comparison communities, the city receives $410,915 less in state-shared revenue due to MSU. In our best estimate (when we use Delhi, Delta, and Meridian Townships) the taxable value of land in East Lansing without MSU is lower, resulting in a greater loss ($479,466) in state-shared revenue.

CONCLUSION Michigan State University has a positive net fiscal impact on the City of East Lansing’s budget. Our analysis suggests that it is costly for the City to provide public services for the MSU community, and that payments from the University cover most, but not all, of these costs. It also suggests that the City greatly benefits from the University’s presence, in the form of increased property tax reve-

Anderson Economic Group, LLC 25 Fiscal Impact: Methodology and Findings

nue and state-shared revenue due to the added population and economic activity generated by the University. These benefits exist even when the use of tax- exempt property by the University is taken into account.

When all three categories of costs and benefits are taken into account, it is clear that the net fiscal impact on the City is quite positive.

Anderson Economic Group, LLC 26 Appendix A: MSU Fiscal Impact Model: Input Database

Input Value Notes

A. MSU Revenue & Expenditures 2004-2005

Total Revenue: Teaching, Research and Operations $ 1,565,000,000 100.0%

Operating Revenues $ 1,013,000,000 64.7% Student Tuition and Fees$ 329,000,000 21.0% Grants and Contracts $ 320,000,000 20.4% Auxiliary Activities $ 235,000,000 15.0% Other Operating Revenue$ 129,000,000 8.2%

Net Nonoperating and Other Revenues $ 552,000,000 35.3% State Appropriations $ 356,000,000 22.7% Investment and Other Revenue$ 134,000,000 8.6% Gifts, Capital Grants, and Additions to Permanent Endowments$ 62,000,000 4.0%

Total Operational Expenditures: Teaching, Research and Operations $ 1,388,000,000 100.0% Memo: Operational expenditures do not reflect funds necessary for plant replacement, major projects, and post-retirement health benefits for employees. Instruction and Departmental Research$ 420,000,000 30.3% Research $ 236,000,000 17.0% Public Services (includes public safety expenditures) $ 172,000,000 12.4% Academic Support $ 66,000,000 4.8% Student Services $ 25,000,000 1.8% Scholarships and Fellowships$ 29,000,000 2.1% Institutional Support $ 61,000,000 4.4% Operation and Maintenance of Plants$ 102,000,000 7.3% Auxiliary Enterprises $ 208,000,000 15.0% Depreciation $ 65,000,000 4.7% Other Expenses $ 4,000,000 0.3%

East Lansing Direct Revenue from MSU

Direct Payment for Services provided by East Lansing $ 1,331,124 State Grants City of East Lansing Received for MSU $ 385,915

Charges for Services / MSU Fire$ 326,000 Charges for Services / "MSU Special"$ 59,915 MSU's Indirect Contributions to City Services $ 3,313,000

Roads and Parking Area Annual Maintenance and Snow Removal by MSU on Campus$ 650,000 Major Road Repair Projects by MSU on Campus$ 2,663,000 B. Students 2005

Total Number of Students 45,166 (includes "Non-Degree" enrollments)

Number of Undergraduate Students 35,678 Living on Campus 14,985 Living off Campus and in East Lansing 13,795 AEG est. Living out of East Lansing 6,898 AEG est.

Number of Graduate Students (includes graduate professionals) 9,488 Living on Campus 2,372 MSU est.

Data Sources: City of East Lansing; Michigan State University; Anderson Economic Group; U.S. Census Analysis: Anderson Economic Group page 1 of 5 Appendix A: MSU Fiscal Impact Model: Input Database (cont'd)

Input Value Notes

Living off Campus and in East Lansing 4,744 AEG est. Living out of East Lansing 2,372 AEG est.

Average Annual Expenditures of Undergraduate Students (excluding tuition and fees) (per year)

Undergraduate Student Living on Campus$ 11,576 AEG est. Room and Board 50% $ 5,788 Books 7% $ 854 Apparel, Food & Grocery, and other basic needs 13% $ 1,526 Meal & Entertainment - away from campus 29% $ 3,408 AEG est.

Undergraduate Student Living off Campus$ 14,077 AEG est. Rent 43% $ 6,000 AEG est. Books 6% $ 854 Apparel, Food & Grocery, and other basic needs 27% $ 3,815 AEG/MSU est. Meal & Entertainment - away from home 24% $ 3,408 AEG est.

Average Annual Expenditures of Graduate Students (excluding tuition and fees)

Graduate Student Living on Campus$ 15,416 AEG est. Room and Board 50% $ 7,708 Books 8% $ 1,206 Apparel, Food & Grocery, and other basic needs 15% $ 2,289 AEG est. Meal & Entertainment - away from campus 27% $ 4,213 AEG est.

Graduate Student Living off Campus$ 15,416 AEG est. Rent 39% $ 6,000 AEG est. Books 8% $ 1,206 Apparel, Food & Grocery, and other basic needs 26% $ 3,997 AEG/MSU est. Meal & Entertainment - away from home 27% $ 4,213 AEG est.

C. Faculty, Student and Non-Academic Employees 2005

Total Number of Faculty & Academic Staff (FTE) 4,500

Living in East Lansing 1,753 Living out of East Lansing 2,747

Total Number of Non-Academic Employees (FTE) 5,750

Living in East Lansing 767 Living out of East Lansing 4,983

Total Number of Student Employees (includes teaching and research assistants) (FTE) 1,400

Living off Campus and in East Lansing 350 Living out of East Lansing 1,050

Average Annual Earnings and Expenditures of Faculty

Average Salary $ 73,400 Average Income Tax Rate 30% Average Earning After Tax (Disposable Income)$ 51,380

Average Annual Expenditures $ 41,104 AEG est. (Census) Housing (Rent & Mortgage)$ 13,701 AEG est. (Census) Apparel, Food & Grocery, Transportation, and other basic needs$ 13,153 AEG est. (Census) Meal & Entertainment - away from home$ 4,932 AEG est. (Census) Other Expenses $ 9,317 AEG est. (Census)

Data Sources: City of East Lansing; Michigan State University; Anderson Economic Group; U.S. Census Analysis: Anderson Economic Group page 2 of 5 Appendix A: MSU Fiscal Impact Model: Input Database (cont'd)

Input Value Notes Average Annual Earnings and Expenditures of Non-Academic Employees

Average Earning $ 40,800 Average Income Tax Rate 25% Average Earning After Tax (Disposal Income)$ 30,600

Average Expenditures $ 24,480 AEG est. (Census) Housing (Rent & Mortgage) $ 8,160 AEG est. (Census) Apparel, Food & Grocery, Transportation, and other basic needs$ 7,834 AEG est. (Census) Meal & Entertainment - away home$ 2,938 AEG est. (Census) Other Expenses $ 5,549 AEG est. (Census)

Average Annual Earnings and Expenditures of Student Employees (includes teaching and research assistants

Average Earning (Teaching Assistantship)$ 13,004 Average Earning (Research Assistantship)$ 13,467 Average Earning (TA & RA) $ 13,236 Average Income Tax Rate 20% Average Earning After Tax (Disposal Income)$ 10,588 Memo: Expenditures for student employees are already taken into account under "Students" sub-section D. Other MSU Data for the Model 2005 acres sq. miles Inventory of Land Acres 23,667 37 Developed Campus 2,000 3.1 Protected Natural Area 700 1.1 Experimental Research Farm 2,500 3.9 Off-Campus Properties 18,467 28.9 Note: 1 Mile Square = 640 Acres

E. City of East Lansing Related Data 2004 per capita $

Total Revenue $ 51,864,763 1,114.8

Program Revenue: $ 29,922,706 643.2 Charges for Services - Governmental Activities$ 12,569,087 270.2 Charges for Services - Business-Type Activities$ 13,325,716 286.4 Operating Grants and Contributiuons$ 4,027,903 86.6 General Revenue: $ 21,942,057 471.6 Property Taxes $ 14,856,993 319.3 State-shared Revenue $ 6,134,877 131.9 Other $ 950,187 20.4 Total Expenses $ 52,019,312 1,118.1

Governmental Activities $ 38,969,080 837.6 General Government $ 7,537,175 162.0 Public Safety $ 15,222,360 327.2 Public Works $ 6,848,258 147.2 Health and Welfare $ 164,365 3.5 Community and Economic Development$ 963,337 20.7 Recreation and Culture $ 7,104,655 152.7 Interest on Long Term Debt $ 1,128,930 24.3 Business-Type Activities $ 13,050,232 280.5 Water $ 3,089,991 66.4 Sewer $ 6,432,431 138.3 Parking $ 3,527,810 75.8

Data Sources: City of East Lansing; Michigan State University; Anderson Economic Group; U.S. Census Analysis: Anderson Economic Group page 3 of 5 Appendix A: MSU Fiscal Impact Model: Input Database (cont'd)

Input Value Notes

F. Property Data, City of East Lansing and Other Lansing Area Cities 2004 & Townships

City of East Lansing Total Area (sq. miles) 11.3 Total Population 46,525 Total Housing Units 15,318 Housing Density (units per sq. mile) 1,356 Owner-occupied Units 4,178 Total Taxable Value (TV) (Real Property)$ 795,675,370 Residential TV $ 509,294,350 Commercial TV $ 280,312,330 Industrial TV $ 827,850 Agricultural TV $ 524,010 Developmental TV $ 4,716,830

Delhi Township Total Area (sq. miles) 29.0 Total Population 22,569 Total Housing Units 9,012 Housing Density (units per sq. mile) 311 Owner-occupied Units 5,280 Total Taxable Value (TV) (Real Property)$ 655,310,829 Residential TV $ 525,702,625 Commercial TV $ 111,556,779 Industrial TV $ 15,460,638 Agricultural TV $ 2,590,787 Developmental TV $ -

Delta Township Total Area (sq. miles) 35.0 Total Population 29,682 Total Housing Units 13,107 Housing Density (units per sq. mile) 374 Owner-occupied Units 7,139 Total Taxable Value (TV) (Real Property)$ 1,154,773,902 Residential TV $ 692,622,604 Commercial TV $ 355,587,968 Industrial TV $ 100,580,733 Agricultural TV $ 2,303,501 Developmental TV $ 3,679,096

Meridian Township Total Area (sq. miles) 31.8 Total Population 39,116 Total Housing Units 17,101 Housing Density (units per sq. mile) 538 Owner-occupied Units 9,116 Total Taxable Value (TV) (Real Property)$ 1,449,704,850 Residential TV $ 1,117,485,076 Commercial TV $ 328,041,238 Industrial TV $ 3,662,240 Agricultural TV $ 516,296 Developmental TV $ -

Data Sources: City of East Lansing; Michigan State University; Anderson Economic Group; U.S. Census Analysis: Anderson Economic Group page 4 of 5 Appendix A: MSU Fiscal Impact Model: Input Database (cont'd)

Input Value Notes

Lansing Township Total Area (sq. miles) 5.1 Total Population 8,458 Total Housing Units 4,325 Housing Density (units per sq. mile) 848 Owner-occupied Units 1,953 Total Taxable Value (TV) (Real Property)$ 278,538,700 Residential TV $ 111,441,500 Commercial TV $ 146,520,000 Industrial TV $ 20,577,200 Agricultural TV $ - Developmental TV $ -

G. Other Data 2002

Average Michigan City Expenditure Data

Fire Cost Per Capita $ 68 Police Cost Per Capita $ 166 Public Works Per Capita $ 305 Water Per Capita $ 111 Sewerage Per Capita $ 142 Total Expenditure Per Capita $ 3,929

Average Michigan City Revenue Data

Average Intergovernmental Revenue Revenue From Federal Government Per Capita$ 130 Revenue From State Government Per Capita$ 1,673 Total Intergovernmental Revenue Per Capita $ 1,802

Average City Revenue From Services Water Revenue Per Capita $ 163 Sewer Revenue Per Capita $ 111 Parking Revenue Per Capita $ 7 Water, Sewer and Parking Total Revenue per Capita $ 281

Total Services Revenue Per Capita $ 720

Average City Revenue From Taxes

Property Tax Revenue Per Capita $ 786 Sales and Gross Receipts Taxes Per Capita$ 17 Total Taxes Per Capita $ 874

Total Revenue Per Capita $ 3,605

Data Sources: City of East Lansing; Michigan State University; Anderson Economic Group; U.S. Census Analysis: Anderson Economic Group page 5 of 5 Appendix B: MSU Fiscal Impact Model: Cost, Benefits, and Net Impact

A. Direct and Indirect Impact of MSU on Services of East Lansing

Direct Benefit: East Lansing's Total Direct Operating Revenue from MSU$ 1,382,590

Operating Grants and Contributions from State Government to East Lansing for MSU$ 385,915 (mainly for fire and police expenditures)

City Revenue for Business Type Acitivities (BTA)$ 11,943,126 e.g. water, sewer and parking services Memo: MSU Population assuming 40% substitution Total East Lansing Population 46,525 MSU Population in East Lansing 21,060 Memo: Does not include Operating Revenue from MSU 12,636 MSU Share in Population 45.3% City Revenue from MSU Community for Business Type Activities $ 5,406,176 MSU community includes faculty, non-academic employees, and students residing in East Lansing Less: Substitution Impact Multiplier 0.40 Substituted MSU population 8,424 City Revenue for Substituted MSU Community for BTA$ 2,162,470

City Revenue from MSU Community for Business Type Activities After Substitution$ 3,243,706

Direct Benefit - Services $ 5,012,211

Indirect Benefit:

MSU's Indirect Contributions to City Services for Roads and Parking$ 1,325,200 Assuming that the City of East Lansing would need to spend 40% of what MSU spends for these services to provide the same services to the MSU Campus.

MSU's Indirect Contributions to City Services for Public Safety$ 1,522,236 Assuming that the City of East Lansing would need to spend another 10% of its current public safety expenditures to provide police services on MSU Campus

East Lansing Population (non-MSU) 25,465 Additional Revenue per Capita of Providing BTA$ 5.4 The difference between per capita BTA revenue of East Lansing and per capita BTA revenue of the average Michigan city Incremental City Revenue from BTA Due to MSU $ 136,386

Indirect Benefit - Services $ 2,983,822

Total Direct and Indirect Benefit $ 7,996,032

ANDERSON ECONOMIC GROUP 1 of 4 Appendix B: MSU Fiscal Impact Model: Cost, Benefits, and Net Impact (cont'd)

Direct Cost: City Expenditures for Business Type Acitivities (BTA)$ 13,050,232 e.g. water, sewer and parking Total East Lansing Population 46,525 MSU Population in East Lansing 21,060 MSU Share in Population 45.3% City Expenditures for MSU Community for Business Type Activities $ 5,907,319 MSU community includes faculty, non-academic employees, and students residing in East Lansing Less: Substitution Impact Multiplier 0.40 Substituted MSU population 8,424 City Expenditures for Substituted MSU Community for BTA$ 2,362,927

City Expenditures for MSU Community for Business Type Activities After Substitution $ 3,544,391

City Expenditures for Public Safety and Public Works$ 22,070,618 e.g. police and fire Total East Lansing Population 46,525 MSU Population in East Lansing 21,060 MSU Share in Population 45.3% City Expenditures for MSU Community for Public Safety Services $ 9,990,487 Less: Substitution Impact Multiplier 0.40 Substituted MSU population 8,424 City Expenditures for Substituted MSU Community for Public Safety and Public Works$ 3,996,195 City Expenditures from MSU Community for Public Safety and Public Works After Substitution$ 5,994,292

Direct Cost - Services $ 9,538,683

Indirect Cost: East Lansing Population (non-MSU) 25,465 Additional Cost per Capita for BTA$ 20.7 The difference between per capita BTA expenditures of East Lansing and per capita BTA expenditures of the average Michigan city Incremental City Expenditure for BTA Due to MSU $ 526,741

East Lansing Population (non-MSU) 25,465 Additional Cost per Capita of Providing Public Safety and Public Work$ (64.4) The difference between per capita public safety & works expenditures of East Lansing and per capita public safety & works expenditures of the average Michigan city Incremental City Expenditures for Public Services and Public Work Due to MSU$ (1,639,468)

Indirect Cost - Services $ (1,112,727)

Total Direct and Indirect Cost $ 8,425,956

Net Impact - Services $ (429,924)

ANDERSON ECONOMIC GROUP 2 of 4 Appendix B: MSU Fiscal Impact Model: Cost, Benefits, and Net Impact (cont'd)

B. Direct and Indirect Impact of MSU on Property Tax Revenue

East Lansing Property Data (with MSU's Operations and Tax-Exempt Property): Taxable Value (TV) Residential TV $ 509,294,350 Commercial TV $ 280,312,330 Industrial TV $ 827,850 Agricultural TV $ 524,010 Developmental TV $ 4,716,830 Total Taxable Value $ 795,675,370

Effective Millage Rate on TV 0.019 Total Property Tax Revenue (with MSU) $ 15,117,832

East Lansing Property Data (without MSU's Operations and with Redeveloped Property): (based upon Delhi, Delta, and Meridian Townships) Alternative Best Estimate Estimate

Taxable Value (TV) Residential TV$ 275,184,885 $ 268,118,514 Memo: Share of MSU Campus$ 192,784,330 $ 192,784,330

Commercial TV$ 91,613,635 $ 149,870,814 Memo: Share of MSU Campus$ 107,761,094 $ 107,761,094

Industrial TV$ 13,266,296 $ 21,347,877 Agricultural TV$ 645,560 $ 645,560 Developmental TV $ 395,941 $ 395,941 Total Taxable Value (including MSU campus)$ 381,106,316 $ 440,378,706

Effective Millage Rate on TV 0.019 0.019

Total Property Tax Revenue (without MSU)$ 7,241,020 $ 8,367,195

Alternative Best Estimate Estimate Net Impact - Property Tax $ 7,876,812 $ 6,750,637

ANDERSON ECONOMIC GROUP 3 of 4 Appendix B: MSU Fiscal Impact Model: Cost, Benefits, and Net Impact (cont'd)

C. Direct and Indirect Impact of MSU on State-Shared Revenue

State-Shared Revenue Constitutional Portion $ 3,251,485 Statutory Portion $ 2,883,392 East Lansing's Total State-Shared Revenue $ 6,134,877

Total East Lansing Population 46,525 MSU Population in East Lansing 21,060 MSU Share in Population 45.3% Substitution Effect 0.40 Total Share After Substitution Effect 27.2%

Additional Constitutional State-Shared Revenue due to Larger Population Size with MSU$ 883,090 Additional Statutory State-Shared Revenue due to Larger Population Size with MSU $ 783,118

Net Impact Due to Larger Population Size with MSU $ 1,666,208

Including Lansing Township Total Taxable Value with MSU$ 795,675,370 Total Taxable Value without MSU$ 440,378,706 MSU Share in Total Taxable Value 44.7% Change in Constitutional State-Shared Revenue Due to Higher Taxable Value with MSU$ - Loss of Statutory State-Shared Revenue Due to Higher Taxable Value with MSU $ (410,915) Net Impact Due to Higher Taxable Property Value per Capita with MSU $ (410,915)

Not Including Lansing Township Total Taxable Value with MSU$ 795,675,370 Total Taxable Value without MSU$ 381,106,316 MSU Share in Total Taxable Value 52.1% Change in Constitutional State-Shared Revenue Due to Higher Taxable Value with MSU$ - Loss of Statutory State-Shared Revenue Due to Higher Taxable Value with MSU $ (479,466) Net Impact Due to Higher Taxable Property Value per Capita with MSU $ (479,466)

Alternative Best Estimate Estimate Total Net Direct and Indirect Impact of MSU on State Shared Revenue$ 1,186,742 $ 1,255,293 Note: City of East Lansing's state shared revenue would be 3.8 million, if MSU were not in East Lansing. (This is higher than state shared revenue received by Delhi, Delta and Meridian Townships)

Alternative Best Estimate Estimate TOTAL NET FISCAL IMPACT$ 8,633,630 $ 7,576,005

ANDERSON ECONOMIC GROUP 4 of 4 VII.Appendix C: About AEG

This project was conducted under the direction of Patrick L. Anderson, Princi- pal with Anderson Economic Group. The project team included Ilhan K. Geckil and Caroline M. Sallee.

PATRICK L. Mr. Anderson founded the consulting firm of Anderson Economic Group in ANDERSON 1996 and serves as a principal in the company. In this role he has successfully directed projects for state governments, cities, counties, nonprofit organizations, and corporations in over half of the United States.

Prior to founding Anderson Economic Group, Mr. Anderson served as the chief of staff of the Michigan Department of State, where he supervised more than 182 offices, 2,100 employees and annual tax collections in excess of $1.4 billion. He also served as a deputy director of the Michigan Department of Man- agement and Budget, where he was involved in the largest state privatization project in U.S. history and the landmark 1994 school finance reform constitutional amendment.

Prior to his involvement in state government, Mr. Anderson was an assistant vice president of Alexander Hamilton Life Insurance—where he shared respon- sibility for $5 billion in invested assets—an economist for Manufacturers National Bank of Detroit, and a graduate fellow with the Central Intelligence Agency in Washington, D.C.

Mr. Anderson has written over 95 articles published in periodicals such as The Wall Street Journal, The Detroit News, The Detroit Free Press, American Out- look, Crain’s Detroit Business; and monographs published by the Mackinac Center for Public Policy, The Economic Enterprise Foundation of Detroit, the Ethan Allen Institute in Vermont, and the Heartland Institute of Chicago. His book Business Economics and Finance was published by CRC Press in August 2004, and his paper on “Pocketbook Issues and the Presidency” was awarded the Edmund Mennis Award for best contributed paper in 2004 by the National Association for Business Economics.

He is a graduate of the University of Michigan, where he earned a masters degree in public policy and a bachelors degree in political science. He has been a member of the National Association for Business Economics since 1983.

ILHAN K. GECKIL Mr. Geckil is an economist with Anderson Economic Group with a background in applied economics, industrial organization, statistics, and public finance. Mr. Geckil's work includes economic and financial analysis, business valuation and damage analyses, strategy development, advanced statistical and econometric analysis, and forecasting.

Anderson Economic Group, LLC C-1 He has contributed to projects for clients in automotive and alcoholic beverage industries, retailers, and local and state governments. Additionally, he provides economic forecasts for Bloomberg’s monthly economic survey. Recent papers by Mr. Geckil include “A Game Theoretical Model of Corporate Average Fuel Economy,” on regulation in the automobile industry and “Pocketbook Predic- tions of Presidential Elections,” both published in Business Economics. The lat- ter was awarded the Edmund A. Mennis Contributed Paper Award of the National Association for Business Economics in 2004.

Prior to joining Anderson Economic Group, Mr. Geckil worked as an assistant consultant for PDF Corporation in Istanbul, Turkey, and as a research assistant at Michigan State University.

Mr. Geckil holds a Masters degree in Economics from the Eli Broad Graduate School of Management at Michigan State University, and a Bachelors degree in Economics from KOC University in Istanbul, Turkey. He is a member of the National Association for Business Economics (NABE), and the Institute of Business Appraisers (IBA).

CAROLINE M. SALLEE Ms. Sallee is a senior analyst at Anderson Economic Group, working in the finance and business valuation and economic and fiscal impact practice areas. Ms. Sallee’s background is in applied economics and public finance.

Prior to joining Anderson Economic Group, Ms. Sallee worked for the U.S. General Accounting Office as a member of the Education, Workforce and Income Security team. She has also worked as an analyst for Hábitus, a market research firm in Quito, Ecuador and as a legislative assistant for two U.S. Rep- resentatives.

Ms. Sallee holds a Master’s degree in Public Policy from the University of Michigan and a Bachelor’s degree in Economics and History from Augustana College.

Anderson Economic Group, LLC C-2