Investment analysis is the process of evaluating total costs and measuring these against total benefits to determine whether or not a proposed venture will be profitable. If benefits outweigh costs, then the investment is worthwhile. If costs outweigh benefits, then the investment will lose money and is considered unprofitable. This study considers Southwest as an investment from the perspectives of students, taxpayers, and society. The backdrop for the analysis is the entire Tennessee economy.
A Southwest education is a great investment. For every dollar students invest, they receive $8.70 in higher future earnings, an average rate of return on investment of 21.2%.
- In 2016-2017, Southwest students spent $8 million on their Southwest education --$4.5 million in out-of-pocket expenses (less residual aid) plus $3.5 million in forgone time and money.
- Average associate degree completer from Southwest will see an increase in earnings of $11,600 each year or approximately $487,200 over a lifetime in earnings compared to someone with a high school diploma or equivalent working in Tennessee.
- Southwest served 12,454 credit students and 900 non-credit students
- The present value of the cumulative higher future earnings that Southwest's FY 2016-17 students will receive over their working careers is $69.8 million.
Southwest generates more in tax revenue than it takes. These benefits to taxpayers consist primarily of taxes that the state and local government will collect from the added revenue created in the state. As Southwest students earn more, they will make higher tax payments. Employers will also make higher tax payments as they increase their output and purchase more supplies and services. By the end of the FY 2016-17 students’ working careers, the state and local government will have collected a present value of $46.5 million in added taxes.
Benefits to taxpayers also consist of the savings generated by the improved lifestyles of students and the proportionally reduced government expenditures. Education is statistically correlated with a variety of lifestyle changes that generate taxpayer savings across three main categories: 1) health, 2) crime, and 3) unemployment. Improved health habits lower the students’ demand for national health care services. Students are also less likely to commit crimes, so the demand for law enforcement and criminal justice services is reduced (study references are available in the main report). Students are also more employable, so the demand for welfare and unemployment benefits, such as earnings assistance and welfare benefits, is reduced. For a list of study references to these statistical benefits, please contact the college for a copy of the main report. All of these benefits will generate a present value of $1 million in savings to state and local taxpayers.
Total benefits to taxpayers equal $47.5 million, equal to the sum of the added taxes and public sector savings. Comparing this to the taxpayer costs of $33.5 million—equal to the funding that Southwest received from the state and local government during the analysis year—yields a benefit-cost ratio of 1. 4. This means that for every dollar of public money invested in southwest, taxpayers receive a cumulative value of $1.40 over the course of the students’ working lives. The average annual rate of return is 3.2%.
- Society as a whole within Tennessee benefits from the presence of Southwest in two major ways: 1) Increased state economic base, and 2) Improved lifestyles of students.
- Society’s benefit from Southwest is $486.1 million versus a $70.9 million investment. In other words, for every dollar of this investment, society as a whole in Tennessee will receive a cumulative value of $6.90 in benefits. These benefits will occur for as long as Southwest’s students remain employed in the state workforce.