Friday, February 17, 2012

Indiana University Caught Lying About Economic Impact of Taxpayer Support of University

Indiana University President
Michael McRobbie
Reporters too often simply repeat economic impact information offered by various groups for public spending - you know those stories that say for every $1 of taxpayer money invested in their cause, you'll get X dollars back in return.  The numbers are always ridiculous.  If the return were so great, why would taxpayer money be spent anywhere else?  Well, Indiana University tried this stunt on Thursday and Indianapolis Star reporter Alex Campbell didn't take the bait.  Instead he started questioning the data and ended up with a terrific story.  The way IU attempts to justify the phony numbers is downright hilarious:
At first glance, the numbers look impressive.
Indiana University's yearly economic impact on the state: $4.9 billion. The impact of its health programs: $6.6 billion.
And, perhaps most jaw-dropping of all: For each dollar that state taxpayers invest in IU, they receive a return of $24.91.
As IU of presented these numbers at a news conference Thursday -- alongside the president of ficialsthe consulting firm that produced them -- they pointed to them as proof positive of the university's importance to the state.
"When you add it all up," said IU President Michael McRobbie, "the total economic impact of these two institutions really is nothing short of staggering."
Just one problem. Independent experts told The Indianapolis Star on Thursday that the numbers don't add up.
They're inflated, the experts say, and in the case of the $25 return-on-investment, they're misleading. 
John Siegfried, an economist at Vanderbilt University who has written several academic papers on the subject, called the number "ridiculous to the extent of being really embarrassing for an institution supposedly dedicated to seeking truth and knowledge."
"In fact it is so high," Siegfried said in an email to The Star, "that if it is true, Indiana should be investing in nothing except colleges and universities."
Siegfried is not alone in that assessment of the return-on-investment. "That's incredible," said Peter McHenry, an assistant professor of economics at the College of William and Mary. "In a literal sense."
The statistics come from a 59-page report titled "Economic Engine for Indiana: An Economic Impact Analysis." IU paid the economics consulting firm Tripp Umbach $75,000 for the report. 
Ultimately, the report is for public relations, McHenry said, "pitched at Indiana legislators and voters."
On that point, Paul Umbach, the co-founder and CEO of the firm, agrees. He said Tripp Umbach reports are not peer-reviewed and not meant to be published in academic journals. 
"They are public-relations documents," Umbach told The Star on Thursday evening, "and they're designed to be that way."
The IU report "exists as a communications tool" to relay the school's importance to the state, Umbach said. "It's not going to win a Nobel Prize." 
...
Umbach told reporters Thursday that return-on-investment was far from the only impressive measure in his report. 
Total impact, in particular, stood out for praise. Combined, IU's schools and health facilities account for $31.5 million in economic activity per day. "It's sort of like having the Super Bowl every day," Umbach said.   
...
At the news conference, Umbach told reporters that IU's economic impact was one of the most impressive he's seen. The only university he had seen with a higher return-on-investment number was Penn State.
McHenry does not dispute the fact that IU and its hospitals are important. But the return-on-investment number, in particular, doesn't pass the "sniff test."
"If we're making decisions based on that kind of number," McHenry said, "then we've misled the public and misused public funds."
It's interesting that IU officials thought it was alright to use a study with phony numbers because the misinformation was only being presented to public and decision-makers who decide how taxpayer dollars are to be spent. 

The entire lengthy article is worth a read.  In particular, the part of the article I left out explores why the IU methodology is flawed.

2 comments:

patriot paul said...

Similar examples are cited all the time when listening to various advocates wanting a slice of the pie before the City County Council. One would think the end of the world would beset us if they didn't elaborate just how great their organization contributes to the community and therefore deserving of public money. I have yet to hear the Council challenge the validity of any of these lobbyists' findings.

duke said...

When I worked for the Feds and went to my Boss with a proposal that would benefit both of us, he would always say "give me something to hang my hat on" as he needed a scrap of paper to sell it to his boss. Everyone knows the game, no one wants to be "nakid".