With new challenges, reliance on hospitals and universities will be important
Originally written for Columbia Missourian's "Boomtown" Special Section
By Cole Schnell and Lucas Owens
College towns will face economic challenges in the coming years, testing the resilience of their anchor institutions — hospitals and universities.
Over the past decade, universities and hospitals have been closing at record rates due to financial stress. In the same time period, the birth rate dropped.
When this new generation becomes ready to go to college, there will be fewer prospective students, further increasing the financial stress of higher education institutions.
Many college-town economies are heavily reliant on these central institutions. The Philadelphia Federal Bank conducted a study of towns’ reliance on what it calls anchor institutions, which includes all hospitals and higher education institutions.
“They are called anchors because they are anchors to place,” said Deborah Diamond, director of Philadelphia Fed’s Anchor Economy Initiative. “They do not pick up and move.”
In the study of anchor economies, the Philadelphia Fed developed an index to measure the reliance of towns on anchor institutions. Using labor statistics, it estimated how much an economic region relies on its colleges and hospitals.
Heavily reliant towns like Columbia, which is more than twice as reliant on anchor institutions than the U.S. as a whole, are more likely to feel the effects of these upcoming challenges.
However, MU has shown a significant amount of resilience coming out of the pandemic, according to a recent economic impact report by Tripp Umbach on behalf of the university.
This resilience may indicate the ability of Columbia to endure these challenges. However, due to the city’s high reliance, it is more vital that it can do so.
High reliance on anchor institutions is not necessarily bad or good for the economic region, according to Diamond. There are two things that make anchor institutions particularly interesting: they don’t move and they require a lot of employees relative to their output.
Universities and hospitals are tied to places due to the nature of their work. This means that economic agents, like economic planners, city officials and business owners, expect them to continue to remain in the future. They have also been in place long enough to have the economy grow around and with them, creating a unique integration with its region.
For example, consider the number of shops and restaurants that depend upon MU visitors during game days.
Education and health care are particularly labor-intensive industries. That means they pay a large amount in salaries relative to the size of the institutions.
These salaries become the income of the locals who spend money around town. Additionally, universities bring students who spend money locally, creating even more economic activity.
These industries are relatively stable because people will always need health care and education. Hence, their stability extends to the incomes of their employees.
When the university is the region’s largest employer, it brings stability to the economic region as well.
While economic stability and activity are valuable, high reliance does indicate a lack of diversity in the economy. So, if something were to happen to these highly reliant industries, it would have a greater impact on the regional economy.
“There are some cases where regions might look at a high reliance index and think, ‘Do we need to diversify our economy a little bit more?’” Diamond said.
For example, if a recession decreases the willingness of consumers to take on health care costs, or lower birth rates decrease the number of college students, a larger portion of the income will be lost, creating ripples across the economy.
The economies of similar-sized college towns are on par with Columbia when it comes to reliance. Urbana-Champaign and Iowa City both outpace Columbia. The home of the University of Illinois at Urbana-Champaign is 6.8% more reliant on its six hospitals and five universities and Iowa City is a little over one-third more reliant than Columbia.
While Columbia is less reliant than those cities, it is more reliant than other Midwest college towns, including Lawrence, Kansas, and Lincoln, Nebraska, where reliance indexes are 2.22 and 1.42, respectively.
There are many factors that could influence these slight differences, such as the location of the institutions. For example, the University of Nebraska’s hospital system is based in Omaha, and thus is not included in the reliance index for Lincoln.
Diamond hopes economic agents can use her research to make informed decisions about regional economies, helping college towns mitigate any future economic shocks.