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Cost-benefit Analysis: Return to Taxpayer Investment in Public Libraries. Sponsored by Institute of Museum and Library Services Donald Elliott, Ph.D. Professor of Economics and Finance Southern Illinois University Edwardsville October 16, 2003. Public Crises in America.
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Cost-benefit Analysis:Return to Taxpayer Investment in Public Libraries Sponsored by Institute of Museum and Library Services Donald Elliott, Ph.D. Professor of Economics and Finance Southern Illinois University Edwardsville October 16, 2003
Public Crises in America • Public-sector budgetary crisis • Declining state and local government revenues • Resistance to raising tax rates • Cuts in budgets for libraries, as well K-12 and higher education, and even fire and police
Public Crises in America • Crisis of trust • In government • In business • Call for accountability • Recall of governor in California • Accounting oversight
Public Crises in America • If an objective, external agency were to ask your cardholders about the library services they receive, the value they get, and their willingness to support taxes for services, what would your cardholders say? • Could you use the results… • to improve the management of your library? • bolster budgetary support for your library? • How?
Study • Federally funded by a grant to St. Louis Public Library from the Institute of Museum and Library Services (IMLS) • Demonstrated previously… • at 5 major urban libraries • now 9 additional libraries in Texas, Washington state, and Illinois, including 3 libraries in the Chicago area • Successfully replicated at St. Louis Public Library—recipient of the IMLS grant • Invitation from American Library Association to publish study
Purpose • Develop a practical, conservative, transportable methodology to estimate a lower bound for libraries’ direct return on taxpayer investment. • How much benefit do public library patrons receive for each dollar of annual tax support? • What return do citizens get for the capital invested in their public library?
Methodology • Cost-benefit analysis • Measure dollar value of direct benefits to library patrons • Measure library costs • Measure return to taxpayer investment • Benefits measured conservatively based on scientific surveys of local library users
METHODOLOGY • Research question: How valuable is your public library to the community it serves? • Strategy: estimate defensible lower bound • Analytical tools: • Cost-benefit analysis (CBA) • NOT economic impact analysis • Valuable to whom? • Why? How much?
FRAMEWORK • Role of mission statement • Customer-focused • WHOM do you serve? • Service focus • HOW do you serve them? • Framework for benefits: service-user matrix
MEASURING BENEFITS • Which benefits? • Direct • E.g., reading a book for pleasure • Indirect benefits • E.g., impact on intergenerational literacy • How? • Units: dollars
MEASUREMENT TECHNIQUES: CONTINGENT VALUATION • Willingness to pay (WTP) • How much would a household pay to retain access to the library? • Example: Suppose that public libraries did not exist. How much would your household be willing to pay per year to establish your public library as it exists today? • Willingness to accept (WTA)
MEASUREMENT TECHNIQUES: CONSUMER SURPLUS • Defining the market substitutes • Customer perspective, not librarian perspective • Example: dictionary • Pricing the market substitutes • Customer perspective, not librarian perspective • Example: encyclopedia or videotape
COMPARISON OF WTP AND CS • Willingness to pay (WTP) • Based on willingness to pay taxes and fees • Negatively influenced by • Free rider problems • Perceptions of tax equity • Lack of control over mix of services produced • Consumer surplus (CS) • Item by item comparison in familiar shopping format • Total spending confirmed by follow-up question
INTERNET AND TELEPHONE SURVEYS • All measures require information available ONLY from library customers directly => surveys • Random sampling • Conducted by university survey center • Pre-announcement letter (Schaumburg) • Respondents were invited to respond by Internet. • Anyone who had responded by Internet and had NOT notified the library to decline was called. • Post-incentives • Household survey responses weighted to ensure against response bias • Average telephone interview time: 15 minutes
SURVEY INSTRUMENT • Framework designed by team of market researchers and economists • Branched and tailored by self-selected customer class: household and teacher Includes both categorical and open-ended questions
Greeting Verification of user categories General user questions Market substitutes CVA Demographic questions Teacher Anything else to say to library director? Thank you SURVEY INSTRUMENT:Overview
SURVEY CONTEXT • Only a year since 9/11. • Worst national economic performance in a decade. • Rising concerns over war with Iraq. • Enron and other corporate scandals had shaken the nation’s confidence. • Even more conservative responses to questions regarding library benefits and support for library taxes than would typically prevail.
MEASURING COSTS • Benefits arise from services produced by • Current operating staff and outlays • Capital assets such as land, buildings, furnishings, collections, computers, vehicles • Annual operating costs: annual revenues less capital outlays less end-of-year surplus • Capital assets: valued at replacement cost new • No consideration of depreciation
RESULTS Illinois Participating Libraries: Joliet, Schaumburg Township, and Skokie
Cardholder Demographics Available from Survey • Education level of head of household • Age composition and size of household • Computer ownership and connectivity • Home ownership • Ethnicity • Household income • Distance to library
COMPARE CENSUS AND CARDHOLDER DEMOGRAPHICS • Even though there are striking differences in the census demographics of the general populations, the differences among cardholder demographics are less distinct: • Income • Poverty rates • Education and occupation
But there are substantial differences among the three libraries in funding, capital assets, and benefit levels…
Yet, all three libraries provide a positive net return to local operating funds and to community capital investment.
Range of Returns to Taxpayer Investment for 3 Libraries • Returns to local operating revenues • Based on WTP, $1.04 to $1.24. • Based on consumer surplus, $1.22-$1.87. • Returns to community investment in library assets • Based on WTP, 1% to 3%. • Based on consumer surplus, 6% to 10%.
Conservative Because: • Study captures benefits to cardholders only: • No walk-ins • No third party beneficiaries • Consumer surplus estimates: • Use conservative pricing • Count benefits only if would substitute • Capital valuations exclude depreciation
Results by Type of Patron and by Type of Service Measurement of Benefits: Households Educators
Services Staff help Magazines and newspapers (domestic and foreign) Books for adult readers Computer services and classes Electronic information services Reference materials Audio and visual media Programs for adult patrons Children’s books Programs for children Analysis of Services Used by Households
Analysis of Services Used by Households • Analyses • Breadth of use • What percentage of households use the service? • Depth of use • What percentage of households would pay to replace the service? • Contribution to value • What percentage of household benefits is contributed by the service?
Library Service Percentage of teachers using service Staff help 22% Magazines and newspapers 13% Children’s books and programs 53% Books and programs for adults 31% CDs, DVDs, and tapes 38% Library computers or computer classes 12% Electronic information sources 17% Encyclopedias 19% Schaumburg: Benefits to Teachers
Results—An Example • Active users of Joliet Public Library include: • Over 9500 households • Over 900 teachers • At least 78% of all benefits to the community accrue to households, while as much as 22% of benefits arise from library services used by teachers to supplement educational resources in the community.
Results--households • Households report, on average, that the services they use are worth • more than $235-$389 per year per household. • more than $2.25-$4.35 million per year. • Households place the greatest value on adult and children’s books and audio and visual media. • 32 cents of each dollar attributable to books for adults • 27 cents to children’s books • 21 cents to audio and visual media.
Results--teachers • Over 9% of cardholding households include a teacher who uses Joliet Public Library • Library services save schools and teachers, on average, more than $700 each per year. • Supporting services to teachers and schools are worth almost $640,000 per year.
Results--teachers • Educators use and value children’s books, audio and visual media, and electronic information services much more than general households. • Educators are less likely to use staff help.
Results • For each dollar of taxes contributed annually to the Joliet Public Library, its patrons receive benefits of more than one dollar. • If outlays used to build library collections, new furniture, equipment, buildings, and other capital assets are excluded, patrons receive benefits of more than $1.24 for each dollar of operating outlays. • An alternative method of measuring benefits suggests benefits of at least $1.87 for each dollar of operating outlays.
Each dollar of local operating outlays produces $1.24-$1.87 of benefits to library patrons. $1 in taxes $1.24-$1.87 in benefits
Results • Generations of Joliet citizens have sacrificed to build Joliet Public Library. • Today the Library’s capital assets would cost over $22.5 million to replace. • Each dollar invested in library capital yields an annual rate of return of more than 3% in benefits to the patrons that it serves. • An alternative method of measuring benefits suggests an annual rate of return of at least 9%.
Joliet, Schaumburg, and Skokie cardholders view their libraries asessential community assets and productive investments of their tax dollars.
Joliet, Schaumburg and Skokie Libraries Sound Investments in People!
For additional information: • See St. Louis Public Library website http://www.slpl.lib.mo.us/using/research.htm • Dr. Glen Holt • Dr. Leslie Holt • E-mail • Professor Donald Elliott, Southern Illinois University Edwardsville • email@example.com