UC Berkeley News


Reversing California's slide from 'great' to just 'good enough'
Additional state investment in higher education will boost tax rolls, study shows

| 08 December 2005

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 by Berkeley researchers documents how increased educational investments would provide the state with billions of dollars in tax receipts, helping to 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 professors Henry Brady and Michael Hout and researcher Jon Stiles, with assistance from graduate-student researchers at the campus Survey Research Center (SRC). The independent assessment of the costs and benefits of investing in education was reviewed by more than a dozen academics and policy analysts under the direction of Brady and Hout.

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 that cohort, will translate to a $3-billion windfall 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, the researchers say. Their report points out that in 1960 California was a national leader 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,'" says Brady, a professor of political science and public policy who directs the SRC. "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 into 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 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 with 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 one with a college degree.

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

"Right now, and for the next decade, California has an age distribution that favors educational investment," says Hout, a former SRC director who uses innovative quantitative methods to study sociological and demographic changes in the United States. "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 representing California's largest and fastest-growing demographic, particularly in the 18 to 24 age group. However, historical data show that Latino 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 under-represented students.

Though much of the researchers' report documents the financial gains that a college-educated population can provide to the state of California, it also explores the gains for the individual. These include 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 living conditions.

The study does not make policy recommendations for how California can increase the number of students going to 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 as well as 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 UC Office of the President. The Campaign for College Opportunity is a California-based nonprofit organization of business, community, labor, and education leaders. The College Board is the nonprofit organization best-known for producing the Scholastic Aptitude Test and the Advanced Placement program.

The full report is available online at srcweb.berkeley.edu.