The Day They Sold the 'U'
A Fable

Lawmakers Thought They Could Avoid Bankruptcy by Selling the UW. What They Forgot Was the UW's Crucial Impact on Our Economy.

By Tom Griffin

It was hard on Seattle when the Frederick and Nelson flagship store closed in 1992. It was worse in 1996, when the Mariners baseball team made good its threats and became the Tampa Bay Typhoons.

But the worst blow was in 1999, when the province of British Columbia stunned the region by announcing that it had purchased the University of Washington and was moving its faculty to Vancouver, B.C.

It was an offer state lawmakers couldn't refuse. Flush with royalties from the legendary B.C. oil strike of 1997, the province had $1 billion to spend. South of the border, the state of Washington was close to bankruptcy. With the sale completed, the st te wouldn't have to spend $371 million in taxpayer dollars every year on UW operations and capital expenses. Legislators put the purchase price in state reserves and planned on selling the UW's $3 billion dollar physical plant to real estate developers.

"The students will be taken care of at other state schools," explained Sen. Jane Doe. "With the purchase price and the $3 billion from selling the buildings, we'll have plenty of money to cover their costs at colleges that have not met enrollment target and have room to grow."

But the effects of the closure were astronomical. Legislators focused on the $371 million the UW got from state coffers, but ignored the one-and-a-quarter billion dollars the University received from other sources every year.

The University of Washington was a $1.6 billion enterprise before it was sold (see chart). Income from the UW's two teaching hospitals -- UW Medical Center and Harborview -- totaled $475 million. About $100 million came from yearly gifts, grants and end wment funds. Students paid nearly $145 million in annual tuition. After the sale, while some of this money stayed in the region, much of it went elsewhere.

"Even more crippling was the loss of out-of-state revenue that the old UW used to attract," says University of Vancouver Geography Professor Bill Beyers. Mostly federal research dollars, the amount came to $431 million annually. "It's money that would n t have otherwise come to the state. That fact was not well appreciated."

Sipping sherry in his wood-paneled office on the UV campus, Beyers decries the scattering of faculty and alumni that once concentrated in Seattle and near the UW campuses in Tacoma and Bothell. "They lost a major engine of development in their economy," he notes.

"The lawmakers saw the UW as a drain on state finances. They didn't see that the University's number one product was a trained work force and educated public," Beyers says. "The founders of the U.S. understood that education was vital to a democracy. So ewhere down the line that was lost.

"Then there were the cultural factors: the sports, the arts, the lectures. The public service efforts of so many UW faculty just vanished and the quality of life degraded. It just wasn't the same city anymore. It was just not the same region."

Biotech firms and computer companies that had been drawn to the region quickly relocated to the north. Bookstores closed as per capita readership dropped. On Saturday afternoons, instead of football games, the former Husky Stadium hosted tractor pulls a > heavy metal rock concerts.

The effect on the real estate market was devastating. Not only did housing prices plummet to levels not seen since the "Boeing Bust" of the late 60s, but the state was never able to sell campus buildings for their asking price.

Soon Ackerley Communications pulled a famous billboard sign out of storage and put it up on I-5: "Will the last person leaving Seattle please turn out the lights?"

It is a nightmare that could never happen. But like a bad dream, this scenario has symbolic value -- the state depends on the University of Washington for an astonishing amount of economic activity and an educated, entrepreneurial work force.

Most alumni already knew that in the abstract. This summer the UW commissioned a study to quantify the UW's economic impact in hard numbers. "We needed something to show the legislature before it made its decisions in the spring," explains Government Re ations Director Bob Edie.

Lawmakers will meet next month to write the state's budget for 1995-97. With the passage of spending-limit Initiative 601, Olympia faces a $575 million gap if it wants to continue current services and grant a cost-of-living salary increase to state emp oyees.

At a Sept. 22 higher education hearing, state legislators heard the same numbers cited in our nightmare scenario. They are real figures from the impact study by K. Scott Hughes and Associates, and KPMG Peat Marwick.

"The numbers themselves are impressively large," says Associate Vice President for University Relations Norm Arkans. "And they come from 1992-93, so they have grown even higher over the last two years."

The impact study doesn't just cite dollars spent. Using multipliers from the U.S. Bureau of Economic Analysis, the report estimates that the UW's $1.6 billion in direct expenditures spawned an additional $1.8 billion in economic activity. That rounds up to a $3.4 billion impact in expenditures.

Adding together faculty, staff and student employees, the UW employs the equivalent of 20,663 full-time workers (only about 4,000 are paid with state tax dollars). Again using federal multipliers, the report found that those positions create an addition l 47,853 jobs outside the University.

Edie is particularly impressed with the amount of money the UW attracts from out-of-state sources. "That $431 million is net new money and means net new jobs," he says.

Beyers, who is really the chair of the UW geography department, has done similar economic impact studies for the Fred Hutchinson Cancer Research Center, the Corporate Council for the Arts and the Seattle Mariners. He notes that the economic impact of a ariners move always makes headlines, yet the baseball team generates less than $50 million in out-of-state revenue each year.

"Every economic activity is, to a greater or lesser extent, an engine for the economy," Beyers explains. But drawing income from out-of-state sources gets the local economy's engine moving at a much higher speed. "In that regard, Boeing is an extreme, b cause almost 100 percent of its market is out-of-state. While not in that league, the UW's numbers are impressive," he says.

"But the numbers are only half the story," adds Arkans, and the other half is much harder to quantify. "Business and industry look to the UW for collaboration, problem solving and cutting-edge research, and in some cases for commercially viable new tech ologies, particularly in biotechnology." (See "Start-Ups" chart following article.)

"We are a laboratory for new and emerging industries -- and existing ones -- to be continually updating themselves," Edie says. Studies of high-technology centers such as Silicon Valley in California, Route 128 in Massachusetts and the Research Triangle in North Carolina have found five common ingredients for economic success:

* Good quality of life;
* The presence of one or more large, technology-based corporations;
* A pool of skilled managers and entrepreneurs;
* A pool of risk-capital;
* The presence of a great university engaged in cutting-edge research.

"According to the experts, the absolutely essential ingredient is the presence of a great university," Edie says. While cutting-edge research is important, it isn't enough. There has to be a healthy core of the liberal arts. "Many of the top entreprene rs in the region didn't come from engineering or the health sciences," Edie notes. "They studied history or economics or political science or business."

The University's most important "product" is its students. "You can never forget we are in the education business. Knowledge has value for its own sake in a democratic society," says University Relations Associate VP Arkans.

"People who get their degrees here, stay here," adds Edie. In fact, about 70 percent of all living UW alumni are in the state of Washington, with more than 65 percent in the Puget Sound area. According to UW records, 33 of the top-100 privately held co panies in the state are headed by UW alumni.

The U.S. Census Bureau says that a 1993 high school graduate will earn $821,000 over his or her lifetime, a college graduate with a B.A. $1.4 million, and a graduate with a professional degree more than $3 million.

"It is a work force that is a critical component of a modern economy, especially in this Information Age dependent on international trade," adds Edie.

But there are those, like our fictional Sen. Jane Doe, who would say, "So what? The UW is a big institution. You'd expect it to generate a lot of dollars."

To her, Edie replies, "Higher education is a good investment. It does not use up state resources. It takes revenues and leverages them. It is not a luxury. It is a necessity for the state. If we do not make that investment, we're going to do irreparable damage to the economy of the state."

"The $371 million state investment results in $2.9 billion in economic activity in Washington state alone," Arkans adds.

Or, as Gerald Grinstein, chairman and CEO of Burlington Northern, puts it, "Just eliminate the University from your mind's eye of Seattle. No trained graduates, no music, no theater, no fisheries, no Huskies, no visiting speakers, no regents, no goal of excellence, no architects, lawyers, philosophers, librarians, historians. Think of a city without all those things. It wouldn't be Seattle." END

Tom Griffin is managing editor of Columns.

Source of UW Operating & Capital Funds, 1992-93 (in millions)

State Support $371.1 Federal Government $305.6 Medical Centers' Revenues $475.2 Student Tuition & Fees $144.9 Gifts, Grants & Endowment Income $97.4 Auxiliary Enterprises $69.4 Education Activities Sales & Services $63.7 Investment Income $63.6 Other $25.5

Total $1,616.4


Company---Product---UW Links

Advanced Renal Technology---Home dialysis machine---Holds license to UW technology

Advanced Technology Laboratories---Ultrasound systems---Substantially based on UW technology

Anagram---Software engineering---Founded by UW professor, holds license to UW technology

Anesoft---Medical training software---Founded by UW professor, holds license to UW technology

Applied Recognition Technology---MRI software---Holds license to UW technology

The Biomembrane Institute---Non-profit research institute---Affiliated with UW, founded by Otsuka Pharmaceutical of Japan

Biosonics---Digital echo sounder that counts fish---Founded by former UW professor

Darwin Molecular---Biotechnology and genetics---UW professors are co-founders

EBI Sensors---Industrial & chemical sensors---Founded by UW grad student, company holds option to UW technology

Elanex Pharmaceuticals---Biotechnology for dialysis---Holds license to UW technology

ElectroImpact---Electromagnetic riveting machines---Founded by UW grad student, research; was supported by Wash. Technology Ctr.

Glycomed---Pharmaceuticals---Holds license to UW technology

I C Designs---Integrated circuits for computers---Substantially based on UW technology

ICOS ---Biotechnology---Holds license to UW technology

Innovative Surgical Devices---Surgical carbo-jet instruments---Substantially based on licensed UW technology

Measurement Technology NW---Process controls, lab instrumentation---Founded by UW grad student, research; was supported by Wash. Technology Ctr.

Micro Vision---Virtual retinal display technology---Holds license to UW technology

Molecumetics---Pharmaceutical research---Uses research by UW professor

Neopath---Medical diagnosis equipment---Substantially based on UW technology, UW professor spearheaded development

Oculon---Cataract treatment---Co-founded by UW professor, partially based on UW research and technology

OptimedX---Medical imaging ---Substantially based on UW technology

Optiva---SonicareŠ electronic toothbrush---Outgrowth of UW technology

Ostex International---Bone disease measurement equipment---Co-founded by UW professor, substantially based on UW technology

PathoGenesis---Biomedical research---Co-founded by UW professor

Precision Digital Images---Video image processing---Holds license to UW technology

Sea-Bird Electronics---Oceanographic instruments---Founded by UW staff engineer

Seattle Biomedical Research Inst.---Non-profit medical research inst.---Affiliated with UW Dept. of Pathology

Seattle Specialty Ceramics---Superconducting ceramic powders---Holds license to UW technology

SiMed ---Silicon sensor technology---Substantially based on UW research

Statistical Sciences---Statistical software---Substantially based on UW research

Tacora---Drug delivery systems---Sponsors UW research on its product

TERA Computer---Supercomputers---Affiliated with UW computer science/engr. department

Tiger Electronics---Medical software---Founded by UW alumnus

Videodiscovery---Human anatomy imaging---Founded by UW professor

ZymoGenetics---Biotechnology---Co-founded by UW professors

Source: UW Office of Research

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