UC Berkeley News
Press Release

UC Berkeley Press Release

Additional state investment in higher ed will boost tax rolls, study shows

– The state of California has much more at stake than the personal gains of individual students when it considers how much money to spend on getting more students in and through college.

A new study released today (Wednesday, Nov. 30) by University of California, Berkeley, researchers carefully documents how increased educational investments would provide the state of California with billions of dollars in tax receipts and help restore its position as one of the wealthiest states in the nation.

The study, "Return on Investment: Educational Choices and Demographic Change in California's Future," was conducted by UC Berkeley professors Henry Brady and Michael Hout and by researcher Jon Stiles, with assistance from graduate student researchers at the campus's Survey Research Center.

The researchers found that for every additional dollar that the state invests in getting a cohort of 18-year-olds in and through college, it will gain an additional net return on that investment of $3 - an amount that, over the lifetime of a cohort of 18-year-olds, will translate to a windfall of $3 billion to the state in additional net tax revenue.

Cumulated year after year for each cohort of high school seniors, these gains are large enough to substantially improve the economic viability of the state, according to the researchers. Their report points out that, in 1960, California was among the nation's leaders in economic performance and wealth - but that it now ranks just slightly above average.

"California is sliding from exceptional to ordinary, from 'great' to 'good enough,'" said Brady. "Our study shows that educational investments can help restore California's greatness and preserve its high quality of life while returning more benefits to the state than they will cost the taxpayers."

While return on the investment would not be immediate, the study found, it would be surprisingly quick: a mere 10 years, as the cohort of college-educated young adults increases its earning power and further contributes to the state's tax rolls.

Conversely, the report found, if state officials decline to increase their investment in getting more students in and through college, and enrollment in higher education remains the same, the short-term savings will soon turn into long-term costs.

According to the researchers, the state can expect to lose $1.5 billion in lost tax receipts and in the cost of providing services to the poor and paying for incarceration. One in 10 adults with a high school diploma lives in poverty compared to one in 20 with a bachelor's degree. A Californian whose education stops at a high school diploma is nearly nine times more likely to spend time in jail than a Californian with a college degree.

According to the researchers, conditions are ripe right now for investing in higher education. The population of college-aged students in California is predicted to increase 27 percent between 2000 and 2015.

"Right now, and for the next decade, California has an age distribution that favors educational investment," said Hout. "This cohort of young people presents a precious opportunity. By acting now to help this new generation attain more education, we will help them and the state of California to succeed and prosper."

Among this growing population will be a significant number of Latino students who are California's largest and fastest growing demographic, particularly in the 18-24 age group. However, historical data show that Latino students and African American students have a relatively low rate of admission and/or college completion. The researchers note that it is in the state's best financial interest to increase college-going rates among underrepresented students.

Though much of the researchers' report is focused on documenting the financial gains that a college-educated population can provide to the state of California, it also explores the gains for the individual. This includes not only greater earnings on average over an individual Californian's lifetime - $1.9 million for a student with a bachelor's degree, the study says, versus $934,000 for a student with only a high school diploma - but also gains in years of employment, the kind of work one does, home ownership, savings for retirement, and better living conditions.

The study does not make policy recommendations for how the state can increase the number of students going to college and completing college, but it points out that the state should explore ways to increase the number of community college transfers to four-year universities and increase the number of California students who stay in college and complete their degrees.

The level of investment needed to educate more students would be repaid many times over, the report concludes, while "the burdens imposed by a failure to invest are large, not only to the residents of the state, but also in terms of balances in the state coffers."

The study was funded by the Campaign for College Opportunity, the College Board, and the University of California Office of the President. The Campaign for College Opportunity is a California-based non-profit organization of business, community, labor and education leaders. The College Board is the nonprofit organization best known for producing the SAT and the Advanced Placement program.

The report is an independent assessment of the costs and benefits of investing in education reviewed by more than a dozen academics and policy analysts. Brady and Hout directed the study.

Hout is a world leader in the use of innovative quantitative methods to study the sociological and demographic changes in the United States. Brady directs the campus's Survey Research Center and has served as president of the Political Methodology Group of the American Political Science Association and as director of the University of California Data Archive and Technical Assistance Program, which provides academic researchers, state agencies, and others with technical assistance on computerized data including the census and sample surveys.

Hout is a member of the National Academy of Sciences, and Brady is a member of the American Academy of Arts and Sciences.

The full report is available online at the Survey Research Center's Web site, http://srcweb.berkeley.edu, or click here to download a PDF directly.