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Restructuring Higher Education to Help Create the Next Great American State for Economic Opportunity and Business Invest

Restructuring Higher Education to Help Create the Next Great American State for Economic Opportunity and Business Investment. Discussion document for Postsecondary Education Review Commission. August 10, 2009. EXECUTIVE SUMMARY.

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Restructuring Higher Education to Help Create the Next Great American State for Economic Opportunity and Business Invest

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  1. Restructuring Higher Education to Help Create the Next Great American State for Economic Opportunity and Business Investment Discussion document for Postsecondary Education Review Commission August 10, 2009

  2. EXECUTIVE SUMMARY • Higher education plays a central role in Louisiana’s economic development efforts • However, our state’s higher education system is not structured to meet the current or future workforce and economic needs of our state • Compared to higher education systems in leading states like Georgia, North Carolina, and Texas, Louisiana’s higher education system currently is heavily skewed toward 4-year degree programs, yet most current and future job opportunities here and elsewhere require more education / training than high school and less than a traditional 4-year degree • The result: poor fit between higher education programs and workforce needs; hampered business development efforts; lowest graduation rates in the South; and a suboptimal return on investment of taxpayer dollars • A restructured system would be more affordable while ensuring a better alignment of enrollments and programs with the state’s regional workforce needs, and it would provide many benefits, including: reduced skilled labor gaps, increased graduation and completion rates, enhanced ROI for state taxpayer dollars, strengthened state business climate, and significantly increased job creation

  3. HIGHER EDUCATION PLAYS A CENTRAL ROLE IN STATE ECONOMIC DEVELOPMENT EFFORTS . . . NOT COMPREHENSIVE • Providing skilled workers at all levels to meet current and future workforce demands in the private and public sectors • Providing training, general education, and upward mobility opportunities for our citizens • Attracting federal and corporate research grants • Conducting research and catalyzing innovation of importance to the state, its people, and its industries • Improving our state’s image as an attractive location for business investment and highly mobile professionals • Enhancing quality of life 2

  4. . . . AND IT DIRECTLY IMPACTS THE MOST IMPORTANT SITE-SELECTION FACTOR FOR BUSINESS DEVELOPMENT PROSPECTS: WORKFORCE NOT COMPREHENSIVE • Primary selection factors* • Quality, availability, and cost of target workforce • Tax and regulatory climate • Proximity to key customers and suppliers • Transportation infrastructure and logistics • Operating costs (electricity, insurance, workers comp, etc.) • Quality-of-life factors (public education options, crime, etc.) • Availability of target real-estate solution (size, cost, control, water/sewer/rail connectivity, etc.) • Secondary selection factors** • Level of state-and-community support (fast-track permitting, etc.) • Availability and quality of customized training • Statutory financial incentives • Customized incentives * Priority of selection factors varies from project to project; however, quality and availability of workforce almost always is one of the top three considerations ** Typically these factors come into play when multiple locations offer relatively comparable characteristics relative to primary site-selection criteria Source: LED analysis 3

  5. LOUISIANA’S EMPLOYMENT LEVELS HAVE OUTPACED THE SOUTH SINCE THE BEGINNING OF THE NATIONAL RECESSION . . . Total nonfarm, seasonally-adjusted employment* (100=January 2008) Louisiana South* 2008 2009 * Based on aggregate of SREB states (Alabama, Arkansas, Delaware, Florida, Georgia, Kentucky, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, West Virginia) Source: BLS; LED analysis

  6. . . . HOWEVER, EMPLOYMENT GROWTH IN LOUISIANA LAGGED THAT OF THE SOUTH IN MOST OF THE LAST DECADE Total nonfarm employment (100=1990) South* Louisiana * Based on aggregate of SREB states (Alabama, Arkansas, Delaware, Florida, Georgia, Kentucky, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, West Virginia) Source: BLS; LED analysis

  7. UNTIL VERY RECENTLY, LOUISIANA EXPERIENCED CONSISTENT NET OUTMIGRATION IN CONTRAST TO THE REST OF THE SOUTH Annual net migration as percentage of base population (%) South* Louisiana Katrina effect (-6.31) * Based on total population of SREB states (Alabama, Arkansas, Delaware, Florida, Georgia, Kentucky, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, West Virginia) Source: U.S. Census; LED analysis

  8. MANY OF LOUISIANA’S KEY INDUSTRY SECTORS HAVE BEEN LOSING JOBS FOR MANY YEARS . . . Thousands of jobs U.S. employment Louisiana employment Chemical Manufacturing Paper Manufacturing Farming Oil & Gas Source: BEA; LED analysis

  9. . . . IN CONTRAST TO GROWING INDUSTRY SECTORS THAT HAVE BEEN CULTIVATED BY OTHER STATES EXAMPLES Thousands of jobs U.S. employment (historical) U.S. employment (forecast) Computer Systems Design and Services Scientific Research & Design Services 2007-16 growth forecast: 30% 2007-16 growth forecast: 8% Pharmaceuticals and Medicine Manufacturing Software Publishers 2007-16 growth forecast: 22% 2007-16 growth forecast: 27% Source: BLS; LED analysis

  10. LOUISIANA HAS BEGUN AN AGGRESSIVE EFFORT TO CULTIVATE NEW GROWTH INDUSTRIES EXAMPLES – NOT COMPREHENSIVE Example project win Significance • Shaw Modular Solutions will manufacture modules for nuclear power plants in L.C. • After manufacturing and assembly, modules will be shipped globally • Electronic Arts (EA) has launched global quality assurance center in Baton Rouge • Partnership between EA, Louisiana Economic Development, and LSU • V-Vehicle announced plans to build a high-quality, fuel-efficient car in Monroe • Plans to expand existing facility formerly owned by Guide Corp. • ConAgra Foods will construct world’s first large-scale, LEED-certified sweet-potato processing facility near Delhi • Opportunity for Louisiana to participate in global nuclear power renaissance with exponential growth potential • Industry manufacturing jobs average $50-90k; design jobs average ~$200k • Opportunity to establish competitive advantage in rapidly growing market • Industry jobs average $60-80k • Opportunity to participate in next generation of the U.S. auto industry • Opportunity to build relationships with top-tier venture capital firms, including Kleiner Perkins and Google Ventures • Opportunity to add value to Louisiana-grown crops right here at home • Opportunity to establish credibility with other Fortune 500 agribusiness firms • Average wage is 44 percent higher than per-capita average in Richland Parish Nuclear energy manufacturing Digital interactive media Advanced manufacturing Value-added agribusiness Source: LED analysis

  11. LOUISIANA’S WORKFORCE PIPELINE IS DRAMATICALLY OUT OF LINE WITH MARKET DEMANDS Supply trend Demand trend 100% 100% 100% Require 4-yr college degree or higher 16 21 Enter 4-yr public or private universities 35 Enter 2-yr colleges, etc. 8 Require 2-yr degree, certificate, or adv. training 58 55 Directly enter job market after graduation 20 Drop out or leave the state before graduation Require high school diploma or less w/ no specific training 37 26 24 High school matriculation * Profile of jobs in LA (2004) Profile of jobs in LA (2014) ** * Based on Louisiana high school class of 2004 ** Based on 2014 projections from Bureau of Labor Statistics Source: Louisiana Workforce Commission; LED analysis 10

  12. LOUISIANA’S FTE ENROLLMENT MIX IS HEAVILY SKEWED TOWARD 4-YEAR INSTITUTIONS COMPARED TO THE REST OF THE SOUTH FTE enrollments (%)* 2-year institutions** 4-year institutions North Carolina Florida Texas Mississippi Maryland South Carolina Oklahoma Southern average Georgia Arkansas Virginia Tennessee Alabama Kentucky Delaware Louisiana West Virginia * 2007-2008 FTE enrollments are calculated by taking total credit-hours and dividing them by the corresponding number of hours for full-time students ** 2-year institutions include both community and technical colleges Source: SREB; LED analysis

  13. UNLIKE LOUISIANA, TOP PERFORMING STATES MAINTAIN AN ENROLLMENT MIX THAT IS BALANCED WITH WORKFORCE NEEDS 2-year institutions 4-year+ institutions Workforce needs by required education* (%) FTE enrollments by type of institution (%) Louisiana Top-performing states** * PRELIMINARY ROUGH ESTIMATES based on 2006-2016 projections; total workforce needs include only jobs that require at least some postsecondary vocational training/education ** Top-performing states include Georgia, North Carolina, and Texas Source: Louisiana Occupational Outlook; BLS; SREB; LED analysis

  14. CURRENTLY, LOUISIANA GENERATES A SURPLUS OF 4-YEAR (OR HIGHER) DEGREES COMPARED TO RELATED JOB OPENINGS Workforce supply measure Workforce demand measure Gap of ~17,000 per year = out-migration pipeline • 4-year+ degrees granted (2006-07)* • Annual job openings requiring 4-year+ degree** * Includes both public and private institutions; public institutions alone grant ~23K degrees per year ** Includes net growth and replacements from job attrition based on 2006 to 2016 Louisiana occupational projections Source: Louisiana Occupational Outlook; SREB; LED analysis

  15. MANY OF LOUISIANA’S TOP GROWTH OCCUPATIONS REQUIRE EDUCATION BEYOND HIGH SCHOOL BUT LESS THAN A 4-YEAR DEGREE TOP 15 GROWTH OCCUPATIONS* Due to net growth Education / training required Annual openings projected by occupation* Due to attrition loss Vocational / 2-year 4-year ü Registered nurses 1,990 ü Customer service representatives 1,530 ü General and operations managers 1,250 ü Elementary school teachers 1,060 ü Bookkeeping / accounting clerks 1,010 ü Licensed practical / vocational nurses 900 ü Mfg. and wholesale sales representatives 840 ü Truck drivers 830 ü Secretaries (excl. legal, medical and exec.) 830 ü Welders, cutters, solderers, and brazers 740 ü Executive secretaries 570 ü Accountants and auditors 540 ü Restaurant cooks 520 ü Institution and cafeteria cooks 500 ü Correctional officers and jailers 500 * Number of job openings based on employment projections for 2006-2016; analysis limited to occupations that require some postsecondary education Source: Louisiana Occupational Outlook; LED analysis

  16. ALIGNING LOUISIANA’S HIGHER EDUCATION SYSTEM WITH WORKFORCE NEEDS WOULD GENERATE SIGNIFICANT SAVINGS ROUGH ESTIMATES FOR ILLUSTRATIVE PURPOSES 2-yr FTEs (%) 4-yr FTEs (%) Est. savings* ($MM/year) Scenario 2007-08 (recent baseline) 50% towards SREB average SREB average Top-performing states’ avg.** Aligned w/ workforce needs*** 26 33 40 48 53 74 67 60 52 47 -- 20-40 50-75 80-110 100-130 Additional savings can be generated via other system-wide efficiency mechanisms (e.g., reduced duplication of programs and facilities, classification shifts, and performance-based funding) * Equals the difference between FY08 funding scenario and the required state funding calculated for each scenario ** Assumes that Louisiana meets 2-year / 4-year FTE enrollment mix of GA, NC, and TX *** Louisiana achieves a 2-year / 4-year FTE enrollment mix that is equal to estimated workforce needs Source: SREB; LED analysis

  17. LOUISIANA STEADILY INCREASED TOTAL STATE FUNDING EFFORTS FOR HIGHER EDUCATION AND SURPASSED THE SOUTHERN AVERAGE . . . • Total state funding per capita ($ per resident) • Louisiana* • Southern average** • Percent of southern average (%) • 89 • 88 • 96 • 105 • 108 • 109 • 107 • 110 • 120 Total state funding as a percentage of personal income (%) • Louisiana* • Southern average** • Percent of southern average (%) • 99 • 96 • 103 • 112 • 116 • 134 • 107 • 108 • 116 * Louisiana funding levels do not include TOPS funding ** Average is not weighted based on state population Source: SREB; U.S. Census; LED analysis 16

  18. . . . AND TOTAL STATE HIGHER EDUCATION FUNDING LEVELS HERE RECENTLY WERE ABOVE THOSE IN MANY LEADING STATES (FY08) Total state funding per capita* ($ per resident) Total state funding as a percentage of personal income* (%) North Carolina North Carolina Alabama Alabama Mississippi Louisiana** Arkansas Delaware Louisiana** Mississippi Kentucky Arkansas Delaware Oklahoma Georgia Southern average Southern average Georgia Oklahoma Kentucky West Virginia Maryland Tennessee Virginia Florida Florida South Carolina Texas Texas Tennessee Virginia West Virginia Maryland South Carolina * Funding levels based on 2007-08 state appropriations and 2008 personal income ** For comparison purposes, Louisiana funding levels do not include TOPS funding; TOPS funding for 2007-2008 adds $26 on a per capita basis and 0.07% on a percentage of personal income basis Source: SREB; U.S. Census; Bureau of Economic Analysis; LED analysis

  19. LA’S HIGHER EDUCATION FUNDING FROM STATE SOURCES RECENTLY WAS FOURTH-HIGHEST IN THE SOUTH ON A PER-FTE BASIS (FY08) . . . Total state-provided higher education funding per FTE* ($000s) Alabama Delaware North Carolina Louisiana** Georgia Maryland Arkansas Florida Kentucky Southern average Mississippi Oklahoma Tennessee Virginia Texas South Carolina West Virginia * Funding level based on 2007-08 state appropriations; FTE enrollments are calculated by taking total credit-hours and dividing them by the corresponding number of hours for full-time students ** Louisiana funding levels do not include TOPS funding Source: SREB; LED analysis 18

  20. . . . HOWEVER, LA’S TOTAL PER-FTE HIGHER ED FUNDING FROM ALL SOURCES RECENTLY WAS BELOW THE SOUTHERN AVERAGE (FY08) . . . Total higher education funding per FTE* ($000s) Delaware Maryland Kentucky Alabama South Carolina Southern average Virginia Arkansas Oklahoma Tennessee Mississippi Georgia Louisiana** West Virginia Texas North Carolina Florida * Funding level based on 2007-08 state appropriations and tuition and fees; FTE enrollments are calculated by taking total credit-hours and dividing them by the corresponding number of hours for full-time students ** Louisiana funding levels do not include TOPS funding Source: SREB; LED analysis

  21. . . . BECAUSE LA’S HIGHER EDUCATION SYSTEM GENERATES LESS FUNDING FROM TUITION AND FEES THAN THE REST OF THE SOUTH Total self-generated higher education funding per FTE* ($000s) Delaware South Carolina Maryland Kentucky Virginia West Virginia Southern average Alabama Tennessee Oklahoma Texas Mississippi Arkansas Georgia Louisiana Florida North Carolina * Funding level based on 2007-08 tuition and fee revenue; FTE enrollments are calculated by taking total credit-hours and dividing them by the corresponding number of hours for full-time students Source: SREB; LED analysis 20

  22. LOUISIANA’S HIGHER EDUCATION GRADUATION RATE IS LAST AMONG THE SOUTHERN STATES FOR FOUR-YEAR INSTITUTIONS Six-year graduation rates* at four-year institutions (%) Delaware Virginia Maryland South Carolina North Carolina Florida Southern average Georgia Texas Mississippi Kentucky Oklahoma Alabama West Virginia Tennessee Arkansas Louisiana * Six-year graduation rate based on first-time, full-time students seeking bachelor’s degrees that enrolled in public four-year institutions in 2001 Source: SREB; U.S. Census; LED analysis

  23. LSU’S OPERATIONAL FUNDING LAGS TOP PUBLIC RESEARCH UNIVERSITIES State appropriations Tuition and fees Endowment income 2 COST NUMBERS BASED ON 2005/2006 DATA U.S. News “Best Colleges” ranking (out of 130) Operational funding per FTE student 1 ($ thousands) 26 U. of Michigan 15.3 5.8 64 Texas A&M 7.1 4.7 21 U. of Cal. - Berkeley 8.5 2.2 53 U. of Maryland 10.8 N/A Top peer avg. 8.3 2.5 23 U. of Virginia 6.1 10.5 30 UNC - Chapel Hill 7.1 2.6 58 U. of Georgia 4.9 47 U. of Texas at Austin 8.4 35 Georgia Tech 6.3 130 LSU (2007) 3 5.7 49 U. of Florida 3.7 1 Operational funding estimates for universities in SREB states are calculated from 2005-06 SREB state general purpose, state educational purpose, and operating tuition & fees excluding university medical schools; U. of Michigan tuition & fee estimates derived from IPEDS estimates minus UM-reported medical school-related tuition & fees, UM state appropriations derived from IPEDS assuming 40 percent of total campus appropriations dedicated to medical school; University of California – Berkeley data extracted from IPEDS data system; figures may not sum exactly due to rounding 2 Endowment income estimates based on The Center for Measuring University Performance’s 2005 estimates in all cases except LSU, which was reported by the LSU Foundation; all income estimates assume that four percent of endowment asset market value is applied to operations each year 3 LSU A&M, LSU AgCenter, and LSU Law Center Source: SREB; IPEDS; University of Michigan; The Center for Measuring University Performance; BRAC analysis 22

  24. LSU with national-caliber operations and facilities • Attraction, cultivation, and retention of world-class talent • Nationally-competitive R&D (e.g., federal/corporate research grants) • Improved state image and PR • Need for a credible 10-15 year strategy to achieve national prominence • Funding and enrollment model to achieve strategic plan Regional universities with focus on student success and regional workforce needs Strong system-wide efficiency and accountability mechanisms • Increased responsiveness to market needs • Improved collaboration/articulation between 2-yr and 4-yr institutions • Dramatically increased completion rates and student success • Greater alignment with current and future regional workforce needs • Increased admissions standards • Optimized enrollments and programs, incl. graduate level • Reduced duplication of programs and institutions • Increased emphasis on performance-based funding • Funding follows the student (i.e., less emphasis on “base” funding) • Potential facility sharing among 2-yr and 4-yr regional institutions LCTCS with appropriate enrollments, adequate facilities, and regional integration • Strong alignment with current and future workforce needs • Clear career pathways with high completion and placement rates • Economies of scale at the regional level (e.g., class size) • Improved business climate for many industry sectors • Funding increases for rapid LCTCS enrollment growth • Targeted investments in facilities, especially technical colleges • Mechanisms to add/delete programs based on regional workforce needs • Marketing / guidance counseling KEY ELEMENTS FOR ALIGNING LOUISIANA’S HIGHER EDUCATION SYSTEM WITH ITS WORKFORCE NEEDS NOT COMPREHENSIVE Key elements Benefits Implications Source: LED analysis

  25. THERE ARE MANY BENEFITS OF IMPLEMENTING A BETTER ALIGNED HIGHER EDUCATION SYSTEM NOT COMPREHENSIVE • Reduced skilled labor gaps (top business concern) • Increased graduation and completion rates • Improved in-state job placement rates • Enhanced ROI for taxpayer dollars • Strengthened state business climate • Improved industry/university innovation and collaboration • Enhanced state image • Reduced brain drain • Significantly increased job-creation success • Stable or improved funding per FTE at most institutions Source: LED analysis 24

  26. SELECTED QUESTIONS PERC MAY WANT TO CONSIDER EXAMPLES – NOT COMPREHENSIVE • Given current/future workforce needs and the State’s fiscal situation, what is the appropriate enrollment mix between two-year and four-year institutions? • Are undergraduate program enrollments at two-year and four-year institutions in each region well aligned with current and future workforce needs in the region? Do programs overlap? • Would the current funding formula enable a rapid shift to an alternative enrollment mix if necessary? If not, which mechanisms should be implemented to optimize enrollment mix? • Are admissions standards at four-year universities comparable with their SREB peers? If not, which mechanisms should be used to set appropriate admissions standards? • Are current facilities adequate to support high quality services, optimal enrollment mix, and necessary growth? If not, how should we modify use of existing facilities and/or fund new ones? • Does the current funding formula sufficiently emphasize key performance metrics (e.g., completion rates, workforce placement, sponsored research)? • What are the plausible state budget scenarios for the next 2-5 years and how should our higher education system be structured to respond to each of them? Source: LED analysis

  27. ADDITIONAL CHARTS

  28. LOUISIANA’S HIGHER EDUCATION SYSTEM SHOULD PROMOTE: KEY OBJECTIVES - NOT COMPREHENSIVE • Student success in school (e.g., completion) and life (e.g., employment) • Quality programs and facilities at all levels • Alignment with current and future workforce needs • Attraction, retention, and cultivation of world-class talent & R&D capacity • Access for economically-disadvantaged students • Efficient use of financial resources within State fiscal means Source: LED analysis 27

  29. CURRENTLY, LOUISIANA’S HIGHER EDUCATION SYSTEM FALLS SHORT ON SEVERAL KEY OBJECTIVES INCOMPLETE DRAFT • Objective • Preliminary evaluation • Student success in school (e.g., completion) and life (e.g., employment) • Quality programs and facilities at all levels • Alignment with current and future workforce needs • Attraction, retention, and cultivation of world-class talent & R&D capacity • Access for economically-disadvantaged students • Efficient use of financial resources within State fiscal means • College/university graduation rates are last in South • Many graduates finish in programs that are not well aligned with current or future workforce needs • General improvement opportunities exist in most areas • Some technical college programs, equipment, and facilities lag significantly • Enrollments are significantly out of line with current and future workforce needs in Louisiana and rest of South • LSU has momentum but significantly lags top public research universities • Other campuses (e.g., La Tech) have niche strengths • TOPS and overall enrollments suggest Louisiana performs relatively well • Funding mechanisms provide insufficient incentives and accountability • Institutions are not well integrated at regional level Source: LED analysis 28

  30. ADJUSTING FOR OLDER STATE RESIDENTS, LOUISIANA’S PER-CAPITA FUNDING LEVEL RANKING IS RELATIVELY STABLE Total state funding per capita* ($ per resident) Total state funding per resident under age 65* ($ per resident) North Carolina North Carolina Alabama Alabama Delaware Louisiana** Louisiana** Delaware Arkansas Mississippi Mississippi Arkansas Oklahoma Oklahoma Southern average Southern average Georgia Georgia Kentucky Kentucky Florida Maryland Maryland Virginia Virginia Florida Tennessee Texas Texas Tennessee West Virginia West Virginia South Carolina South Carolina * Funding level based on 2007-08 state appropriations ** Louisiana funding levels do not include TOPS funding Source: SREB; U.S. Census; LED analysis 29

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