On: Carnegie Mellon University'S Role As A Local And Global Economic Engine

Impact from Innovation: Carnegie Mellon University’s Role as a Local and Global Economic Engine Final Report71.0 INTRODUCTION1.1PURPOSE OF REPORTThe purpose of this report is to articulate the economic impact of Carnegie Mellon University(CMU) at the local, regional, and state level. World-class institutions of higher education such asCarnegie Mellon are widely known for their academic and research contributions. However, theyare also major contributors to their local economies and are major regional employers. Thereforeit is important to understand the positive economic ramifications of those contributions. Thisreport quantifies the magnitude of impact stemming from CMU’s annual operations, its capitalinvestments, the student and visitor spending it attracts, and the additional earnings potential itconfers on its graduates.But how CMU produces these impacts matters even more than how much impact it produces.Drawing human and financial capital from all over the world, CMU serves as one of the world’sgreat innovation hubs, producing research discoveries and supporting entrepreneurial activitieswhose influence on the world is as profound as it is far-reaching. This work has been fundamentalto the decades-long evolution of the Pittsburgh regional economy and now yields a city andregion that is synonymous with transformative technologies. Hence, in addition to calculatingCMU’s aggregate economic impact across multiple standard university impact study categories,this report speaks directly to CMU’s influence at a global, regional, and local level.1.2ABOUT CARNEGIE MELLON UNIVERSITY (CMU)Carnegie Mellon is a private research university that has served as a birthplace of innovationsince its founding by Andrew Carnegie in 1900. Originally Carnegie Technical Schools (19001912), the university became Carnegie Technical Institute in 1912 and began granting four-yeardegrees. In 1967, it merged with the Mellon Institute of Industrial Research to form CarnegieMellon University (CMU). Today, Carnegie Mellon educates more than 13,000 studentsrepresenting more than 100 countries, and boasts top rated programs in diverse areas andcutting edge disciplines like computer science, information technology management, new media,drama, and engineering. Its main campus and the vast majority of its activities are located inPittsburgh, Pennsylvania.Carnegie Mellon is a global leader in research and innovation and in bringing groundbreakingideas to commercial market. The university culture that promotes problem solving across andamong different disciplines, dating back to the creation of artificial intelligence half a century ago,and seen today in fields such as smart cities, where machine learning, big data analytics, humanmachine interaction, and policy innovations come together to create a connected web of newpossibilities. CMU’s award-winning faculty emphasizes not only the transfer of knowledge, but thetackling of scientific, technological, and societal challenges in new ways. This has yielded aproliferation of research and entrepreneurship activity at the intersection of deep scientificEconsult Solutions 1435 Walnut Street, 4th Floor Philadelphia, PA 19102 215.717.2777 econsultsolutions.com

Impact from Innovation: Carnegie Mellon University’s Role as a Local and Global Economic Engine Final Report8understanding and market realities. In sum, CMU is committed to utilizing its intellectual capital toimpact society in a transformative way – regionally, nationally, and globally – by engaging withpartners outside the traditional borders of the university campus.1.3HOW CARNEGIE MELLON SERVES AS AN ECONOMIC ENGINE FOR THE CITY,REGION, AND STATECarnegie Mellon’s size and scope alone make it a significant economic engine for the local,regional, and state economy. CMU is a major employer, purchaser of goods and services, andinitiator of capital investment projects, all of which generate local economic activity. CMU alsobrings new spending into the region by attracting students and visitors, most of whom are fromout of town and many of whom come from outside the United States. It also attracts and retainstalented young graduates to the city, region, and state, thereby increasing both the intellectualcapital and the local household income (and spending) that is located in the city, region, andstate.However, while all economic activity enriches a local economy in various ways, not all activity iscreated equal. Economic development experts worldwide are increasingly more cognizant of whatPittsburgh and Carnegie Mellon have long understood – that large-scale research universities arecentral components to a vibrant regional economy. The education and research activitiesundertaken by CMU are key export items in the modern knowledge economy, with tuition checksand research grants that could go anywhere in the country flowing into Pittsburgh. The innovationactivity associated with and inspired by CMU also has significant spillover effects throughout theregion, spawning new commercial activities and strengthening the region’s competitiveness andattractiveness to outside firms. Indeed, over the past several decades, CMU’s intellectual capitalhas been a foundational element of the Pittsburgh region’s difficult but largely successfultransition to a modern knowledge-based economy, and CMU (the institution and its leaders)continues to serve as a key participant in contemporary regional economic growth initiatives.Looking ahead, Carnegie Mellon is well-positioned to continue to serve as an innovation enginewith meaningful benefits at a global, state, regional, local, and neighborhood level. As thegeography of innovation shifts from set-apart corporate locations in suburban settings to urbandistricts anchored by elite research universities, more and more future innovation work will takeplace in and around places like CMU. 1 Recent expansions by such companies as Google,General Electric and Uber in Pittsburgh are direct results of CMU’s engagement with cutting-edgeprivate research, and portend an additional clustering of high-end entrepreneurship andtechnology activity around campus, with significant local, regional, and statewide gains to follow.Katz, B. & Wagner, J. “The Rise of Innovation Districts: A New Geography of Innovation in America”. Metropolitan Policy Program. BrookingsInstitution. 2014.1Econsult Solutions 1435 Walnut Street, 4th Floor Philadelphia, PA 19102 215.717.2777 econsultsolutions.com

Impact from Innovation: Carnegie Mellon University’s Role as a Local and Global Economic Engine Final Report9KALPANA INTERACTIVE VIRTUAL REALITY EXPERIENCESource: Carnegie Mellon1.4ORGANIZATION OF REPORTThe section that follows explains the methodological approach employed throughout this report toarticulate and calculate economic impacts from Carnegie Mellon’s various activities. Thoseimpacts are covered in the following sections: Section 3: Impact from Operations reviews and quantifies the impact from CMU’s ongoingoperations, including employment, procurement, research, and administration of programsand initiatives. Section 4: Impact from Capital Investments reviews and quantifies impact from CMU’ssignificant physical investments in construction, renovation, and maintenance. Section 5: Impact from Ancillary Student and Visitor Spending estimates impact fromancillary spending (i.e. spending that does not accrue to CMU) by both students andvisitors to CMU’s campus. Section 6: Impact from Wage Premium and Talent Attraction describes and estimates theeconomic benefits associated with CMU’s education and credentialing function byquantifying the additional wages earned, retained, and ultimately spent within the local,regional, and statewide economy by CMU graduates.Econsult Solutions 1435 Walnut Street, 4th Floor Philadelphia, PA 19102 215.717.2777 econsultsolutions.com

Impact from Innovation: Carnegie Mellon University’s Role as a Local and Global Economic Engine Final Report10 Section 7: The Reach and Impact of CMU’s Innovation Diaspora describes the characterand scale of CMU’s contribution to scientific and technical innovation, with a particularfocus on the role of CMU and its alumni in translating intellectual capital into commerciallyand societally beneficial uses. Section 8: CMU’s Essential Contribution to Regional Economic Transformation describesCMU’s historic and current role in Pittsburgh’s transition to a modern knowledge economythrough its civic leadership and intellectual capital. Section 9: Impact from Local Engagement describes CMU’s commitment to its hostcommunity, underscoring the fact that strong town-gown relations represent a win-winsituation for CMU and for the City of Pittsburgh. Section 10: Conclusion reviews and summarizes impacts, economic and qualitative,described within this report.Econsult Solutions 1435 Walnut Street, 4th Floor Philadelphia, PA 19102 215.717.2777 econsultsolutions.com

Impact from Innovation: Carnegie Mellon University’s Role as a Local and Global Economic Engine Final Report112.0 IMPACT METHODOLOGY2.1SECTION OVERVIEWThis section describes the methodology utilized to estimate the full range of economic activity andtax generation impact associated with Carnegie Mellon’s direct economic activity. Economicimpact estimates are generated by utilizing standard input-output models to translate an initialamount of direct economic activity into the total amount of economic activity that it supports. Thisincludes multiple waves of spillover impacts generated by spending on goods and services andby spending of labor income by employees. The description that follows reviews the basicmethodologies and tools used to construct and interpret economic and tax generation impacts ofCarnegie Mellon University within the City of Pittsburgh, Pittsburgh region, and Commonwealth ofPennsylvania. Appendix A provides more complete detail on the economic and tax revenueimpact methodology utilized in this analysis.2.2ECONOMIC AND TAX REVENUE IMPACT METHODOLOGYCarnegie Mellon’s scale and scope of activities make it an economic powerhouse within the Cityof Pittsburgh, the Pittsburgh region, and the Commonwealth of Pennsylvania. This reportarticulates and quantifies the direct spending impacts at different geographical levels associatedwith CMU’s activity across a number of categories. Standard input-output modeling techniquesare then used to estimate the spillover economic impacts of the direct spending within the City ofPittsburgh, Pittsburgh region, and Commonwealth of Pennsylvania, and to translate those effectsinto attendant employment, earnings and tax revenue impacts.Input-Output TheoryIn an inter-connected economy, every dollar spent generates two spillover impacts: First, some amount of the proportion of that expenditure that goes to the purchase ofgoods and services gets circulated back into an economy when those goods and servicesare purchased from local vendors. This represents what is called the “indirect effect,” andreflects the fact that local purchases of goods and services support local vendors, who inturn require additional purchasing with their own set of vendors. Second, some amount of the proportion of that expenditure that goes to labor income getscirculated back into an economy when those employees spend some of their earnings onvarious goods and services. This represents what is called the “induced effect,” andreflects the fact that some of those goods and services will be purchased from localvendors, further stimulating a local economy.Econsult Solutions 1435 Walnut Street, 4th Floor Philadelphia, PA 19102 215.717.2777 econsultsolutions.com

Impact from Innovation: Carnegie Mellon University’s Role as a Local and Global Economic Engine Final Report12The role of input-output models is to determine the linkages across industries in order to modelout the magnitude and composition of the spillover impacts to all industries of a dollar spent inany single industry. Thus, the total economic impact of CMU is the sum of its own directeconomic footprint plus the indirect and induced effects generated by that direct footprint.Input-Output Model MechanicsTo model the impacts resulting from the direct expenditures generated by Carnegie Mellon,Econsult Solutions, Inc. (ESI) developed a customized economic impact model using the IMPLANinput/output modeling system. IMPLAN represents an industry standard approach to assess theeconomic and job creation impacts of economic development projects, the creation of newbusinesses, and public policy changes.2These economic impacts in turn produce one-time or ongoing increases in various tax bases,which yield temporary or permanent increases in various tax revenues. Thus, even thoughuniversities are non-profit institutions and are thus generally exempt from some local tax types,the economic activity and employment generated by them produces increases across a numberof tax bases and therefore generates tax revenues for the jurisdictions within which they arelocated.To estimate these increases, ESI has created a custom fiscal impact model to translate totaleconomic impacts into their commensurate tax revenue gains for the City and Commonwealth.Output from the IMPLAN model determines its impact on the relevant tax types and tax basesassociated with the jurisdictions in which revenue impacts reside. These include income, sales,and business taxes at both the City and Commonwealth level.Gross and Net Impact AnalysisBroadly, economic impact reports can estimate the magnitude of either the total gross impact ofan institution (or project, policy, etc.) or its net impact. In a gross impact analysis, overall impactamounts are determined for an institution’s activities with no regard to what impacts might haveoccurred in a geography absent that institution. A net impact analysis, which sometimes takes theform of a cost-benefit analysis, develops a “counterfac

Impact from Innovation: Carnegie Mellon University's Role as a Local and Global Economic Engine Final Report iv EXECUTIVE SUMMARY World-class institutions of higher education such as Carnegie Mellon University (CMU) are widely known for their academic and research contributions. They are also major contributors to their local economies.