Engines of Opportunity: How eds and meds institutions can become more powerful drivers of prosperity in America's cities

Colleges, universities, and academic medical centers are among the preeminent anchor institutions in many cities – that is, large public or nonprofit institutions that provide significant local employment, have a substantial stake in their city’s vitality, and are unlikely to move away.i Many eds and meds institutions have built increasingly large economic and physical footprints in their cities as demand for their services and the scale of their operations have grown.

Cities with strong portfolios of knowledge-generating institutions tend to have higher income levels, lower poverty rates, and better upward mobility than other cities, we show in Section II, with new Bush Institute-SMU data on how eds and meds help create prosperity in America’s cities. Eds and meds promote local prosperity and opportunity through three main channels:

• Innovation: Cities with robust eds and meds rank ahead of other cities for innovation, our data show. Knowledge-generating anchor institutions play leading roles in basic science, which fuels applied R&D activities. Successful local innovation ecosystems enhance opportunity for residents of all educational attainment levels.

• Place: Eds and meds institutions help shape their surrounding cities through real estate and community engagement activities. Effective placemaking attracts people and businesses and augments their productivity, advancing prosperity and opportunity for all residents.

• Talent: Eds and meds institutions help develop people’s skills and cognitive abilities, preparing them to flourish in 21st century workplaces. Cities with strong eds and meds portfolios outperform other cities for associate and bachelor’s degree attainment levels, leading to higher incomes and upward mobility. They also perform better than other cities in training people for in-demand occupations like nursing, information technology, and building trades.

Eds and meds are more vital to America’s cities than they’ve ever been, but they also face unprecedented challenges that threaten their role as local economic anchors, as Section II explores. Tectonic stresses confronting the higher education sector include the following:

• Overly narrow and incremental research activities.

• Escalating threats to freedom of inquiry and objective research.

• Physical, intellectual, and cultural separation from the surrounding society.

• Growing questions about the economic relevance and rigor of their academic programs.

• Persistently low completion rates for some groups of students at most institutions.

• Outdated accreditation systems that limit innovation and competition.

• Unsustainable financial models.

These challenges have sparked rising doubts about the value proposition of higher education, declining public confidence in the sector, and falling enrollment. More and more institutions face financial distress. Experts within and outside the higher education community are increasingly calling for deep reforms.

Academic medical centers, meanwhile, face their own challenges, also involving separation from the wider communities in which they operate and financial sustainability.

Today’s eds and meds institutions are products of 150 years of evolution in the higher education and health care sectors. The operating models that developed over this era helped make America’s leading colleges, universities, and medical centers into towering success stories, but they face growing obsolescence in the changing 21st century environment. The good news: U.S. eds and meds institutions have a rich history of successful adaptation and reform, and they’re continuing to evolve today.

Innovation: We’ve ranked 177 eds and meds institutions for innovation impact, updating rankings we published in a 2020 report. We’ve also ranked America’s 100 largest metros as a whole for the innovation impact of their knowledge-generating institutions. Here’s what our rankings show:

• The top-ranking institutions for overall innovation impact are the University of California system, the University of Texas System, the Massachusetts Institute of Technology, the University of Michigan, and the University of Washington, reflecting top-tier research and large research spending.

• Leading institutions for innovation impact productivity – those that turn research dollars into large innovation impact – include the California Institute of Technology, the University of Florida, Arizona State University, Carnegie Mellon University, Brigham Young University, the University of Arkansas for Medical Sciences, and the Whitehead Institute.

• The best-performing large metros for university innovation impact per capita are Durham-Chapel Hill, North Carolina; Madison, Wisconsin; Boston; Provo, Utah; and New Haven, Connecticut. The leading metros for overall innovation impact are Boston, New York, Los Angeles, Philadelphia, and San Francisco.

Faculty quality and top-notch technology commercialization efforts increase productivity, while large dependence on industry research funding reduces it, we show in Section IV. Many institutions are evolving to maximize the real-world innovation impact of their work:

• Promoting blue-sky, socially transformational research.

• Instilling institution-wide cultures of innovation and entrepreneurship.

• Optimizing technology commercialization operations.

• Supporting local innovation and entrepreneurship ecosystems.

• Partnering with local nonacademic organizations on research for social good.

• Ensuring freedom of inquiry.

Place: Eds and meds institutions are working with local partners on placemaking initiatives in their surrounding cities. These initiatives include:

• Building urban innovation districts.

• Revitalizing downtowns.

• Engaging in underinvested neighborhoods.

• Promoting new and renovated housing for residents, including employees.

• Strengthening physical connections between campuses and surrounding cities.

America’s innovation districts – some of which are less than 10 years old – have been extremely successful in attracting high-skilled people, raising income levels, and creating jobs, we show with first-of-its-kind data in Section V. Among large, well-established districts, the most successful on these metrics are Atlanta’s Tech Square, Philadelphia’s University City, St. Louis’s Cortex Innovation Community, Kendall Square in Cambridge, Massachusetts, and the University of Utah Research Park in Salt Lake City.

The districts in our dataset have also been relatively successful in stimulating housing development and avoiding displacement of nearby residents. Atlanta’s Tech Square, Madison’s University Research Park, and Raleigh’s North Carolina State Centennial Campus are outperformers in these respects.

Talent: Section VI presents new rankings of America’s 100 largest metropolitan areas for community and technical college outcomes, as well as rankings for overall educational attainment levels and for filling workplace needs in seven in-demand occupations. Highlights from the rankings:

• The Provo metro ranks first for community college outcomes. The top 15 performers include seven California metros plus Phoenix; Salt Lake City; Des Moines, Iowa; Greensboro, North Carolina; Madison; and San Antonio and El Paso, Texas.
• The top performing metros for filling in-demand workplace needs are first-ranked Little Rock, Arkansas; Madison; Salt Lake City; Des Moines; Washington; Baltimore; Oklahoma City and Tulsa, Oklahoma; Baton Rouge, Louisiana; and Durham-Chapel Hill, North Carolina.

Colleges and universities are pursuing a wide range of measures to engage more closely with other parts of the talent development ecosystem, improve outcomes, and become more effective engines of upward mobility, we show in Section VI. These include:

• Improving pathways from high school through college to living-wage careers.

• More technical programs leading to specific occupations which also address employer needs.

• More employer-recognized certifications and other credentials embedded in programs.

• Increasing capacity, especially in high-demand fields.

• Restructuring programs and processes for student success.

• More flexible formats: Online programs, shorter degree programs, and apprenticeships.

• Better advising and holistic support for prospective and current students.

• Better physical spaces.

• Reducing operating costs and prices.

Federal policy: Congress should reestablish its longstanding commitment to American preeminence in science, innovation, and higher education, we argue in Section VII. This means strengthening America’s eds and meds institutions and helping them become more powerful engines of local and regional prosperity. Congress should:

• Increase basic research funding significantly and promote blue-sky, transformational science.

• Step up investment in regional innovation ecosystems.

• Require more outcomes data from colleges and universities, including for noncredit programs.

• Reform immigration law: Provide more visas and reform work rules for foreign STEM students.

State policy: States can best amplify the impact of strong eds and meds institutions by modernizing higher education funding and regulatory policies to promote innovation, healthy competition, and greater focus on student outcomes. State legislatures and governors should:

• Increase funding emphasis on research excellence, technology commercialization, innovative education-to-career pathways, and student outcomes.

• Strengthen state data systems to document program outcomes and support better advisement.

• Require eds and meds institutions to uphold free inquiry and speech for faculty and students.

Local policy: Localities have deeper place-based knowledge and relationships than higher levels of government. Localities should:

• Use land-use authority to help local eds and meds repurpose real estate and develop new activities like innovation districts.

• Invest in quality-of-life amenities to support innovative placemaking initiatives.

• Act as a convener for local initiatives involving eds and meds institutions and other stakeholders.

Philanthropy: Funders should aim to strengthen local eds and meds institutions, education-to-career pathways, holistic student support programs, technology commercialization efforts, new data tools, and placemaking initiatives like inclusive innovation districts and downtown revitalizations.

Metro areas with high university innovation impact outperform other metros on multiple measures associated with innovation: business sector research and development (R&D) spending, venture capital investment, life science jobs, and a composite index of metro-area innovation we’ve created.

Technology spillovers from university research to the private sector disproportionately occur locally, which helps explain the strong links between university research and local innovation. Citations of a university’s work in patents and other academic papers are more likely to come from other researchers or companies located relatively close to the university. One reason for this is that face-to-face interactions lead to some of the best exchanges of knowledge and ideas among researchers.

In addition, high-skill jobs resulting from new ideas tend to be concentrated in the locality where the innovation originates, while associated lower-skilled jobs spread more widely, according to recent research by Stanford University economist Nicholas Bloom and colleagues.

Private-sector innovation is becoming more dependent on eds and meds research, as universities and academic medical centers conduct more and more of the nation’s basic research.

• Private industry conducts 15% of basic science research today, down from 30% in the 1950s, based on National Center for Science and Engineering Statistics data.

• The private sector’s falling role in science reflects the decline or closure of once-great industry research centers like Bell Labs and Xerox Park.

• Nonfederal eds and meds institutions, meanwhile, now do about half of U.S. basic research, up from 35% in the 1950s.

Median incomes tend to be higher and upward mobility better in metros with stronger than average eds and meds institutions, the report shows. Metros with universities that have outsized innovation impact also excel in building social capital – the trust, social connectedness, and civic engagement that make communities tick.

Eds and meds institutions have played a pivotal role in emerging urban turnaround stories like Pittsburgh; in the growth of Sun Belt boomtowns like Austin, Texas; Nashville, Tennessee; and Raleigh; North Carolina and in the relatively strong economic performance over the last decade of college towns like Durham, North Carolina; Madison, Wisconsin; and College Station, Texas.

• Cities in which local eds and meds institutions have relatively large research budgets predictably experience better-than-average innovation impact. Endowment size and other measures of university scale, on the other hand, aren’t predictive of how a metro’s institutions perform for innovation impact, once one controls for research spending.

• Cities in which immigrants constitute a relatively large share of the local population also tend to rank above average for university innovation impact. This reflects the crucial contribution of foreign-born people to research, innovation, and entrepreneurship in U.S. cities.

• Finally, cities that outperform for university innovation impact tend to be ones in which leading eds and meds institutions have developed over many decades with substantial support from local philanthropists and, in most cases, state and local governments. The takeaway: It takes a long time to build great universities and academic medical centers.

Boston: The Boston metropolitan area performs ahead of all other U.S. metros for the innovation impact of its universities and academic medical centers, the report shows.

Durham-Chapel Hill, North Carolina: The Durham-Chapel Hill metro area, meanwhile, ranks first among the nation’s 100 largest metros for university innovation impact per resident. The North Carolina Research Triangle’s eds and meds institutions have outsized economic impact despite the region’s relatively small size.

Cities with strong, innovative eds and meds institutions see greater prosperity and opportunity than other cities, the report shows. That’s because the economic spillovers of a university’s research disproportionately benefit its local economy.

• The report bases its metro-area rankings on composite innovation impact scores for 177 individual universities and academic medical centers. Our innovation impact scores quantify the impact of each university’s research and innovation beyond its walls.

• The report measures impact based on innovation outputs like patents, technology licenses, licensing income, startup companies, STEM graduates, and citations in other researchers’ academic papers and patents.

• Scores for metro areas represent add-ups of the innovation impact scores for all the eds and meds institutions in each metro.

At a time when public trust in higher education institutions has experienced significant declines, it is vital to cities and regions throughout the United States that the nation’s research institutions sustain and even strengthen their world-leading role in basic science and technological innovation.

While very large metros tend to lead the rankings for total university innovation impact in view of their many eds and meds institutions, a handful of metros – Boston, San Francisco, Pittsburgh, and Baltimore – perform far better for their “BushEds” composite scores than their size would predict, as Table 1 shows. Innovation output scores per resident in the right-hand column in Table 1 – BushEds per capita – illustrate how these metros punch above their weight.

Table 1

Top Metro Areas for University Innovation Impact
(of America’s 385 metros)

City size doesn’t predict performance on innovation impact per capita, as Table 2 shows. Six of the 10 best-performing metros on this metric rank in the bottom half of the nation’s 100 largest metros for population, while none of America’s 10 largest metros makes this list.

Table 2

Top Metro Areas for University Innovation Impact per Capita
(100 largest metros)

Scores for U.S. metropolitan areas represent the sum of our composite innovation impact scores for all the universities and academic medical centers based in each metro. Our composite innovation impact scores for individual universities are based on institutions’ performance on nine “output” metrics from 2016 to 2020:

• Patents issued per year.
• Intellectual property (IP) licenses signed per year.
• IP license income earned per year.
• Spinout companies formed around university IP per year.
• IP licenses signed with spinout companies per year.
• Citations of papers by university researchers in other academic papers over the period.
• Citations of papers by university researchers in issued patents over the period.
• Number of bachelor’s and master’s degree graduates in STEM fields over the period.
• Number of Ph.D. graduates in STEM fields over the period.

Data for the first five metrics, plus total research spending for each institution, come from the Association of University Technology Managers dataset. Paper and patent citations come from Google Scholar and Google Patent searches, respectively. STEM graduate numbers come from U.S. Department of Education data on postsecondary institutions.

We standardize scores on each metric by dividing by the standard deviation of the distribution of scores across universities, use weightings from principal component analysis to combine each institution’s nine scores into a raw composite score, then recalibrate so that the top-ranking institution (the University of California System) has a score of 100. Our analysis replicates the method we and partners from Opus Faveo Innovation Development employed in a 2020 report with data from 2013 to 2017.

We calculate total innovation impact scores for whole metropolitan areas – our “BushEds” scores – by summing the output scores for all institutions in a metro area. We calculate BushEds per Capita scores by dividing each metro’s aggregate BushEds score by total 2020 population.

See our full report, Appendix 1, for a full explanation of sources and methods used in these rankings.

State and local governments can promote the innovation impact of eds and meds institutions in several ways:

• Redirect state funding streams to promote innovative eds and meds research, support technology commercialization initiatives, and foster the growth of innovation districts and other innovation ecosystems.

• Require consistent reporting of innovation impact outcomes by public universities and academic medical centers.

• Mandate commitment to free inquiry and objective research as condition for funding.

• Work with eds and meds institutions on research for social good.

• Convene on local or statewide innovation initiatives.

The federal government also has a vital role to play, primarily as a funder, in supporting transformational research by eds and meds institutions and fostering local innovation ecosystems.

• Congress should raise federal investment in R&D by at least 50% to 1% of U.S. GDP, the report argues.

• Congress should also shift funding streams to incentivize more blue-sky, transformational research; fund the true cost of medical research and reduce cross-subsidization by patient care revenues at academic medical centers; and support local innovation ecosystems with evergreen, peer-reviewed funding programs.

Innovative research conducted at America’s eds and meds institutions is more important than it’s ever been to state and local economies, as well as to the nation’s future. But university and academic medical centers need to pursue significant reforms, engage more effectively in surrounding communities, and rebuild public trust. States and localities have a vital interest in ensuring they succeed.

At a time when public trust in higher education institutions has experienced significant declines, it is vital to American prosperity that the nation’s research institutions sustain and even strengthen their world-leading role in basic science and technological innovation.

Three institution-specific factors help predict how universities score for innovation impact productivity, based on the report’s quantitative analysis:

• Technology commercialization policies: The size of an institution’s technology transfer office (TTO) and patenting budget relative to total research spending are predictive of innovation impact productivity. So is the professional background of the TTO head: Institutions with engineers as the TTO head outperform other institutions, all else equal.

• Entrepreneurship programs: Having a teaching entrepreneurship program predicts higher innovation impact productivity.

• Industry funding as share of research budget: Institutions that receive above-average industry funding as a share of research spending tend to realize lower innovation impact productivity, all else equal. Industry funding may push researchers toward firm-specific projects that lead to fewer papers, patents, licenses, and spinout companies than projects focused on transformational basic research. Also, industry funding ratios are uncorrelated with research spending, so institutions that receive large industry funding don’t seem to have more resources as a result.

Eds and meds institutions that outperform for innovation impact are generally ones that choose to do so. Here are some of the strategies that are helping today’s high-performing institutions maximize their innovation impact productivity:

• Incentivizing blue-sky research on society’s largest challenges.

• Instilling institution-wide cultures of innovation and entrepreneurship.

• Optimizing technology commercialization operations.

• Supporting local innovation and entrepreneurship ecosystems.

• Partnering with local organizations on research for social good.

• Ensuring freedom of inquiry and expression.

The report divides institutions into five groups to compare peers of similar scale and mission according to their productivity in turning research spending dollars into innovation impact.

• Large research universities: Institutions that operate undergraduate and graduate degree programs and spent more than $515 million on research on average between 2016 and 2020.

• Midsized research universities: Operate undergraduate and graduate degree programs and spent between $205 million and $515 million on research on average between 2016 and 2020.

• Smaller universities: Operate undergraduate and graduate degree programs and spent less than $205 million on research on average between 2016 and 2020.

• Medical centers: Operate patient care as well as research facilities; no undergraduate degree programs.

• Pure research institutions: No degree programs or patient care facilities.

America’s top-performing universities for innovation impact comprise a mix of public and private institutions, as the following table shows. The highest-impact institutions are a relatively concentrated group: Just 30 eds and meds institutions account for 46% of all university research spending in the United States and 44% of the sector’s total innovation impact as we measure it.

Best Performing Eds and Meds Institutions for Overall Innovation Impact
(Top 15 of 177 ranked institutions)

The best-performing institutions dramatically outperform peer institutions for innovation impact productivity, as the next table shows. Caltech, for instance, generates more than 2.5 times as much innovation output from each research dollar than the average large university. Also, university size doesn’t predict productivity: High-performing smaller institutions like Brigham Young, the University of Arkansas for Medical Sciences, the Whitehead Institute, and the Cold Spring Harbor Laboratory achieve far greater innovation impact productivity than most large universities.

Best Performing Eds and Meds Institutions for Innovation Impact Productivity
(Top 5 in each of five groups)

State and local policymakers should do the following to amplify the innovation impact of eds and meds institutions:

• Redirect state funding streams to promote innovative eds and meds research, support technology commercialization initiatives, and foster the growth of innovation districts and other innovation ecosystems.

• Require consistent reporting of innovation impact outcomes by public universities and academic medical centers.

• Mandate commitment to free inquiry and objective research as condition for funding.

• Work with eds and meds institutions on research for social good.

• Act as a convener on local or statewide innovation initiatives.

The federal government also has a vital role to play, primarily as a funder, in supporting transformational research by eds and meds institutions and fostering local innovation ecosystems.

• Congress should raise federal investment in R&D by at least 50% to 1% of U.S. GDP, the report argues.

• Congress should also shift funding streams to incentivize more blue-sky, transformational research; fund the true cost of medical research and reduce cross-subsidization by patient care revenues at academic medical centers; and support local innovation ecosystems with evergreen, peer-reviewed funding programs.

Innovative research conducted at America’s eds and meds institutions is more important than it’s ever been to state and local economies, as well as to the nation’s future. But university and academic medical centers need to pursue significant reforms, engage more effectively in surrounding communities, and rebuild public trust. States and localities have a vital interest in ensuring they succeed.

Our composite innovation impact scores are based on institutions’ performance on nine “output” metrics from 2016 to 2020:

• Patents issued per year.
• Intellectual property (IP) licenses signed per year.
• IP license income earned per year.
• Spinout companies formed around university IP per year.
• IP licenses signed with spinout companies per year.
• Citations of papers by university researchers in other academic papers over the period.
• Citations of papers by university researchers in issued patents over the period.
• Number of bachelor’s and master’s degree graduates in STEM fields over the period.
• Number of Ph.D. graduates in STEM fields over the period.

Data for the first five metrics, plus total research spending for each institution, come from the Association of University Technology Managers dataset. Paper and patent citations come from Google Scholar and Google Patent searches, respectively. STEM graduate numbers come from U.S. Department of Education data on postsecondary institutions.

We standardize scores on each metric by dividing by the standard deviation of the distribution of scores across universities, use weightings from principal component analysis to combine each institution’s nine scores into a raw composite score, then recalibrate so that the top-ranking institution (the University of California System) has a score of 100. Our analysis replicates the method we and partners from Opus Faveo Innovation Development employed in a 2020 report with data from 2013 to 2017.

We calculate total innovation impact scores for whole metropolitan areas – our “BushEds” scores – by summing the output scores for all institutions in a metro area. We calculate BushEds per Capita scores by dividing each metro’s aggregate BushEds score by total 2020 population. We calculate innovation impact productivity scores for individual institutions by dividing each institution’s innovation impact score by its average annual research spending between 2016 and 2020.

See our full report Appendix 1, for a full explanation of sources and methods used in these rankings.

Our main report offers extensive examples of how individual institutions are pursuing each of these strategies.

First, policymakers and philanthropic funders should adequately fund proven talent, innovation, and place initiatives. This report highlights many areas in which funding significantly constrains promising avenues for progress:

• Degree pathways: Funding constraints limit dual-enrollment programs since community colleges offering them typically don’t have incremental revenue sources to cover program costs.

• Advising and student support: Holistic student support and good advising for college and high school students work, but they’re labor intensive and generally underfunded.

• Cost to students: Cost is a significant obstacle to enrollment and completion. Initiatives to reduce or contain prices clearly increase enrollment rates. Colleges have many ways to reduce costs—and they should do so.

• Research spending: The very strong relationship between research spending and measurable innovation impact at the level of individual eds and meds institutions suggests many could increase innovation outputs considerably if they had more research funding.

• Innovation districts: Building innovation districts with space for startups and other entities with thin resources requires subsidies, since innovation district real estate is inherently expensive.

• Underinvested neighborhoods: Investing in clinics, teaching facilities, job centers, and affordable housing in underinvested neighborhoods is costly for eds and meds institutions. It would be good news if more could afford to do it at scale.

Second, decision-makers should focus on how existing funding streams and regulations influence incentives for eds and meds institutions—and reform them to incentivize better outcomes.

• Insufficient incentives to improve student outcomes: Federal loan programs that impose no constraints on college cost inflation or administrative bloat and leave colleges off the hook for poor student outcomes create strong incentives for institutions to make choices that aren’t in the public interest. Likewise, state funding streams that reimburse colleges for credit-hours rather than outcomes incentivize institutions to grow “inputs” rather than focus on student success.

• Narrow, incremental research: Federal R&D grantmaking agencies structure most grant programs in ways that incentivize researchers to choose narrow, low-risk projects.

• Cross-subsidizing other operations with patient services: Long-term declines in federal funding as a share of medical research budgets have drastically increased pressure on academic medical centers to cross-subsidize research from patient care revenues, arguably transforming institutional cultures and priorities in unproductive ways. Federal and state regulators have reinforced these tendencies by setting reimbursement rates for Medicare and Medicaid patients at levels that require massive cross-subsidy from private-payer care.

Third, increased funding should go hand in hand with much greater accountability and competition for colleges, universities, and medical centers.

• Public outcomes data: Accountability starts with far better publicly available data on how eds and meds institutions are performing on metrics that matter most to the public – student outcomes, innovation, and quality patient care.

• Consequences for failure: Accountability demands consequences for failure. Policymakers should put less emphasis on keeping individual institutions in business and more on the results generated by the eds and meds sector as a whole.

• Competition: The ultimate guarantor of accountability is robust competition. In general, there is too little competition in the eds and meds sector. In higher education, lack of competition stems primarily from America’s inputs-oriented accreditation system and its link to federal student finance programs. In health care, it stems partly from lax antitrust enforcement.

Consider some key facts on federal funding for research at eds and meds institutions:

• Total spending: Federal agencies spent $43.5 billion in 2021 on research conducted by eds and meds institutions. Federal funds cover about 49% of eds and meds research and constitute 28% of total federal R&D spending.98 Sixty-four percent of federal research grants to eds and meds institutions go to what the federal government defines as basic (as opposed to applied) research.

• Medical centers: $24 billion of the total $43.5 billion in eds and meds spending funds research at accredited medical schools and associated academic medical centers. Federal grants cover 14% of total expenses for these institutions, down from 22% in 2004 and 24% in 1977. Patient care revenues cover 63% of expenses, up from 21% in 1977.

• Success: America’s system of funding scientific research – federal funding allocated by a competitive process adjudicated by peer review panels and going to decentralized, autonomous institutions that do most of the actual work – has been a resounding success. This strategy, together with federal support for technology commercialization under the Bayh-Dole Act of 1980, cemented U.S. preeminence in science and technology during the first four decades after World War II. U.S. universities came to constitute 46 of the top 100 universities in the world and eight of the top 10 for the quality and quantity of patenting activity, according to an international ranking published by Thomson Reuters. America continues to lead the world in science by virtually any metric. U.S.-based researchers, for instance, account for 30% of citations in the most cited top 1% of scientific journals, according to National Science (NSF) data. European researchers have a 21% share on this metric, Chinese researchers have 20%, and Japanese researchers have 15%.

• Declining federal commitment: Federal R&D funding, however, has steadily fallen to 0.66% of GDP in 2021, from a high of 1.86% in 1964. R&D investment by private firms has increased sufficiently to keep total R&D spending about constant as a share of GDP over the last two decades, but basic research investment has receded since eds and meds institutions funded by federal grants account for a majority of basic research. One culprit: Fast-growing federal spending on Social Security, Medicare, and other entitlement programs has increasingly “crowded out” vital investments in research and education.

• Changing incentives: The federal peer review process has evolved to become less supportive of bold, high-risk, interdisciplinary proposals and more focused on narrow, incremental research aimed at confirming reigning theories – or worse, validating “politically correct” views – many scientists believe. University of California at Santa Barbara physicist James Langer wrote in a widely cited article in Science that “one less-than-‘excellent’ review, no matter how misguided, is usually enough to doom a proposal. Any proposal that is truly innovative, interdisciplinary or otherwise unusual is almost certain to be sent to at least one reviewer who will be less than enthusiastic about it.” University of Pennsylvania physician Ezekiel Emmanuel argues that the National Institute of Health (NIH) process has become “sclerotic, cautious, [and] focused on doing what it has always done.” Harvard Medical School researcher Charlotte Blease writes that federal grant systems today reward preordained “correct” findings and discourage pursuing contrarian approaches.

• Losing ground to other countries: The United States devotes 2.7% of GDP to R&D today (economywide, not just public sector spending), compared to 4.3% in South Korea, 4.1% in Israel, 3.6% in Japan, 3.2% in Finland and Sweden, 2.9% in Germany, and 2.1% in China.  America’s share of citations in Top 1% journals, while still the world’s largest, has declined to 30% from 39% in 2010, while China’s has risen to 20% from 12% and India’s to 14% from 12% over the same period.

Congress should:

• Increase federal R&D funding by at least 50% as a share of GDP: A blue-ribbon panel of top technology executives, retired military leaders, and other experts recommended in a landmark 2005 report, “Rising Above the Gathering Storm,” that the U.S. government double its R&D budget as a share of GDP, to about 1.4%. A 2018 task force convened by the Council on Foreign Relations proposed 1.0% of GDP, or 50% larger than at present.Skeptics might contend that the low-hanging scientific “fruit” has been picked and that a larger research budget wouldn’t produce a significant reacceleration in innovation and economic growth. Data we present in this report points to a more optimistic view. First, very strong relationships between research spending and innovation outputs at the level of individual institutions suggest that more spending would generate more or less commensurate increases in output. Second, there’s no evidence of poor marginal returns on research investment in South Korea, Israel, and other innovation-minded countries. Third, classic work by the economist Edwin Mansfield found that U.S. academic R&D investment has generated a long-term return of more than 20% to society. And fourth, simple arithmetic based on the more recent data we present in this report points to a marginal return of at least 8% to 16%.101

• Redesign federal research spending to promote blue-sky research addressing society’s biggest challenges: Congress should mandate that grantmaking agencies increase their funding of high-risk, potentially high-return science and report regularly on progress. Agencies should set aside a substantial share of funds for grants that one or two members of a peer review panel can approve to reduce the negative effects of groupthink. Grant terms should allow greater flexibility for researchers to adapt to new data and should give more weight to plans for disseminating or commercializing findings.Grantmaking agencies have pursued strategies like these before. The NSF’s “Engineering Research Centers” program, which funded $1 billion in grants to roughly 50 institutions between 1985 and 2009, required interdisciplinary collaboration, industry advisors, and student engagement and allowed a longer-than-typical timeline for projects. The program led to 142 spinout companies, better collaboration across universities, and more emphasis on cutting-edge science, surveys showed. The NSF also experimented with fast grants that a single program officer could approve in a 2009 program, with good results.New legislation creating the Advanced Research Projects Agency for Health within the NIH in 2022 is a step toward more federal funding for blue-sky science. Congress should seek changes in the rest of NIH and in non-health care funding programs as well.

• Fund the true cost of medical research directly and eliminate distortions arising from cross-subsidization by patient care: Congress should fund the vast majority of health care research at academic medical centers, up from 50% to 75% today, reducing pressure on medical centers to make large profits on patient care. Today’s system creates an undesirable tradeoff between funding medical research on the one hand and injecting more competition into hospital markets on the other. It also loads excessive medical costs on private-sector employers and their employees – who pay up to cross-subsidize both Medicare/Medicaid-insured patients and America’s health care research establishment – and adds significant costs to the health care system.

• Mandate commitment to free inquiry and objective research as a condition for federal research grants: The growing shift on campuses away from free inquiry and objective research strikes at the heart of the research and teaching missions for which taxpayers support eds and meds institutions. Congress should not subsidize it.

Helping students make better decisions and holding colleges accountable for outcomes demand better data than is typically available today. The federal government imposes limited reporting requirements on colleges for degree programs and virtually no requirements for nondegree credential programs.

Congress should:

• Broaden required data reporting: Require all colleges, universities, and other institutions that benefit from federal financial aid or research funding to collect and report nationally consistent outcomes data on all degree and nondegree credential programs. Require disaggregation by predictive student attributes like race, gender, age, part-time vs. full-time status, parents’ income, and occupation after graduation plus all-in costs and completion rates for all programs.

• Improve data tools: Direct the Department of Education to improve tools for students and counselors like the College Scorecard and College Navigator, which provide some degree of outcomes data on specific institutions and programs, to make all data available in easily searchable form.

• Create consequences for sustained failure: Declare institutions or specific programs ineligible for federal financial aid if they repeatedly fail to meet defined minimum outcome thresholds.

• Require consistent innovation impact reporting: One possibility: Require institutions receiving federal research funding to report standard annual data to a third-party data aggregator like the Association of University Technology Managers, provided the aggregator makes the data publicly available and easily searchable.

A bipartisan group of members of Congress introduced a bill in 2023 that aimed to modernize outcome and cost reporting. Despite wide support from higher education leaders, the bill didn’t advance

America should aim to build strong talent and innovation ecosystems in cities and regions across the country.

The federal government is currently conducting several experiments with competitive programs promising large grants to a handful of multistakeholder consortia to support local innovation ecosystems, including the Economic Development Administration’s $1 billion Build Back Better Regional Challenge and $500 million Tech Hubs initiatives as well as the NSF’s $800 million Engines program. These novel initiatives appropriately recognize the central role of eds and meds institutions, the opportunity to promote innovation ecosystems beyond traditional Northeastern and West Coast technology centers, and the interconnected, multistakeholder realities of successful local economies.

Congress should launch programs making these kinds of approaches evergreen rather than one-off. Future programs should incorporate lessons from current experiments but should consider adjustments:

• Shift to a model emphasizing many small grants backing proven strategies rather than a handful attempting grand transformations of local economies: Small grants to support strategies like dual enrollment CTE programs or startup space in innovation districts can make a big difference.

• Emphasize grants that are flexible with respect to which industries will succeed in particular locations rather than backing top-down efforts to build a single pre-selected industry: Federal and local planners just don’t know what will happen.

• Delegate grant selection to peer review evaluation committees with academic leaders, business executives, investors, and state and local officials rather than agency civil servants: Bring more real-world knowledge to the table, as federal agencies do to award research grants.

This report points to several strategies for building talent and innovation ecosystems that have proven track records but would benefit from public-sector funding:

• Create more training slots for occupations essential to eds and meds-centered innovation ecosystems: Academic medical centers, for instance, need physicians and nurses, but many localities face growing shortages in both occupations. The federal government funds graduate medical education for specified numbers of students at each accredited medical school. But 70% of schools, trying to keep up with demand, enroll more students than the federal program pays for under its antiquated caps. Likewise, Congress currently subsidizes nursing education at levels amounting to just under $2,000 per nurse, or about 3% to 4% of the all-in cost of training RNs, but U.S. nursing schools turn away more than 80,000 qualified applicants each year due to shortages of instructors, facilities, and clinical rotation opportunities. Congress should fund significant capacity expansion at schools of medicine, nursing, and other health care occupations.

• Support technology transfer operations and other enablers of innovation impact: Congress should consider supporting expansion of TTOs and other innovation-promoting activities. Successful programs include the NSF Innovation Corps (I-CorpsTM) and NIH’s Research Evaluation and Commercialization Hubs (REACH) program.

• Subsidize innovation district elements that are essential but hard to fund without subsidy: These include dedicated startup space, programming for district researchers and entrepreneurs, and inclusion initiatives for surrounding neighborhoods. One possibility: Experts from the Global Institute on Innovation Districts, HR&A Advisors, and New Localism Advisors have proposed a federal “Innovation Zone” program to support physical construction, talent development for residents, seed funds, TTOs, and other innovation district elements.

• Locate federal research facilities near eds and meds institutions with vibrant innovation ecosystems around the country: The Department of Agriculture’s National Bio and Agro-Defense Facility is likely to transform the innovation ecosystem surrounding Kansas State University in Manhattan, Kansas. The new ARPA-H facility in Dallas will likewise have transformative impact on Pegasus Park and the wider region’s innovation ecosystem.

• Promote mixed-income housing near eds and meds institutions and innovation districts: Housing development might target institution employees as well as low- to moderate-income residents. One possibility: a federal tax-credit or matching program to support development or renovation of well-located mixed-income housing.

• Support education-to-career pathways: Dual enrollment programs, intensive advisement, holistic student support, and paid internships and apprenticeships linked to a degree or IRC program all improve student outcomes, but they are resource intensive with no accompanying revenue streams.

Highly skilled immigrants have long played a supersized role in the success of America’s eds and meds institutions as students, postdocs, faculty, and in other roles. Many foreign-born graduate students remain in U.S. cities for good after graduation, enriching their communities. Immigrants disproportionately earn patents, launch companies, and build R&D-intensive firms.

Immigrants also disproportionately become scientists and academics, strengthening eds and meds institutions to the benefit of surrounding communities. Metros with high immigrant population shares tend to host universities with larger than average innovation impact, our analysis shows.

America is engaged in a ferocious competition for talent against other countries. Congress should enact common-sense immigration reforms to strengthen the nation’s position in this competition.

Specifically, Congress should:

• Ease the path for student visas to help U.S. eds and meds institutions regain their edge in attracting students from outside the United States: America’s share of all college and graduate students studying abroad declined to 21% in 2019 from 28% in 2001, while Canada, Australia, and northern European countries enjoyed large market share gains, according to a report by the organization NAFSA: Association of International Educators. The main reasons for America’s declining share in this critically important industry are visa problems, obstacles to working after graduation, physical safety worries, and growing fears of not feeling welcome, university administrators indicate.Sustaining America’s premier position as a magnet for student talent is vital for ensuring the nation’s leadership in science and technology. Also, universities that succeed in boosting enrollment by foreign-born students should increase total enrollment rather than shrink capacity for native-born applicants.

• Create better paths for immigrant STEM workers to put their skills to use in America: Congress should allow more foreign-born STEM graduates to work in America’s cities by making it easier for foreign-national STEM students studying at U.S. universities to stay in the United States after graduation and expanding the number of H-1B temporary work visas for skilled people to meet demand. A bipartisan group of 49 former high-ranking federal officials wrote a public letter in May 2022 urging Congress to exempt foreign-born holders of U.S. graduate and professional STEM degrees from current green card caps. “Stapling a green card” to advanced degrees earned at U.S. universities is an obvious way for America to strengthen its position in the worldwide competition for STEM talent. Canada offers an equivalent pathway to working after graduation. Almost half of foreign-national STEM graduate and professional degree-holders who graduated before 2004 had become U.S. citizens by 2017, the Center for Security and Emerging Technology found.

• Expand the Conrad-30 program, which incentivizes qualified foreign doctors to practice in underserved communities: Each year, each state may obtain up to 30 waivers to recruit foreign medical graduates who were trained in the United States under a visa program to work in medically underserved, often rural, areas. Without the waiver, these doctors would be forced to leave the United States. In 2021, a bill was introduced in Congress to expand the program to 35 waivers per year. Congress should expand the program further to encompass more medical graduates and cover other underserved health care professions including nursing, as well as teachers and engineers.

Consider these key facts on state funding for eds and meds institutions:

• Share of expenses: State governments cover 39% of expenses at community colleges, 17% at public research universities, and 5% at medical schools on average. Approximately 76% of state appropriations to eds and meds institutions consist of unrestricted budget support, unlike federal support which primarily funds student financial aid and specific research projects.

• Declining share: State appropriations to the higher education sector per resident declined 35% on average from 1990 to 2019, adjusted for inflation, with much of the drop occurring after the global financial crisis of 2007-2009. State funding of community colleges has held up better than other higher education spending, falling slightly on a per-student basis since 2000 in the average state. As a share of expenses, today’s 17% state share of expenses at research universities compares with 31% at the start of the century. At medical schools, state shares have fallen to 5% today from 30% in 1977.

• Hospitals: State appropriations to hospitals have increased 59% on a per capita basis on average since 2000, primarily reflecting tremendous growth in Medicaid spending. Medical centers generally lose money on Medicaid patients, so these appropriations do little to help support medical research budgets.

• Variation across states: Some states invest far more in their eds and meds institutions than other states do. Utah spends 83% more per capita than the average state on higher education. North Dakota spends 81% more than average, Virginia spends 28% more, Colorado spends 25% more, and California spends 17% more. Illinois, Missouri, and New York each spend at least 30% less than the average state on a per capita basis. Texas invests fully nine times more per capita than Illinois in research at eds and meds institutions.As for medical centers, Iowa, Kansas, Utah, and Virginia appropriate more than twice as much per resident as the average state, while Florida, Illinois, Louisiana, and West Virginia appropriate less than half as much as average.And as for rates of change over time, Connecticut, Montana, and Pennsylvania have held higher education spending per resident roughly steady since 1990, while Arizona, California, and Maine have reduced investment per capita by more than 50%.

State legislatures should:

• Support innovative research: Texas has long been a leader in supporting innovative research and medical science at its public eds and meds institutions. The Texas Legislature helped build MD Anderson Cancer Center into one of the world’s leading medical institutions through consistent support starting during World War II. In 2009, the legislature passed a bill allocating up to $500 million to public universities meeting specified research criteria to make more of its institutions into Carnegie “Tier One” national research universities. The number of Tier One institutions has since risen to 10 from three. In 2010, the state launched the Cancer Prevention and Research Institute of Texas (CPRIT), which has since made almost 1,900 grants to medical researchers amounting to $3.3 billion. Texas voters approved renewing CPRIT with an additional $3 billion in 2019.North Carolina also supports life science innovation and entrepreneurship. The North Carolina Biotechnology Center, which receives 80% of its funding from the state and 20% from private sources, makes grants to academic researchers to help them reach “proof-of-concept” for new drugs and technologies. The North Carolina legislature is considering an appropriation of more than $1 billion to NCInnovation, a new nonprofit with numerous business and academic leaders on its board that aims to make research and commercialization grants.

• Support technology dissemination and commercialization: The Colorado Legislature passed legislation in 2005 creating a funding stream to support university tech transfer programs and accelerate commercialization of new technologies. The program has made $46 million in grants and helped launch 56 startups.

• Support the development of eds and meds-linked innovation districts: The governments of North Carolina, Michigan, and Georgia made investments pivotal to the subsequent success of innovation districts in Winston-Salem, Ann Arbor, and Atlanta, as we discuss in Section V. The North Carolina legislature helped finance the renovation of former RJ Reynolds tobacco facilities to create the Innovation Quarter, while a Michigan state venture fund helped fund Ann Arbor’s Life Science Corridor. Georgia’s Department of Transportation built a key bridge across Interstate 75/85, making Tech Square possible.

• Support innovative education-to-career pathways: Legislatures are pursuing numerous avenues to promote innovative pathways. Some – like Utah, Texas, and California – are stepping up funding for initiatives like dual enrollment programs, intensive advisement models, and new career-connected leaning programs. Texas and California have passed bills to create consistent, streamlined statewide processes for dual enrollment and transfer credits, while Florida has created a statewide system for articulation agreements governing credit for industry-recognized credentials (IRCs). Tennessee, Washington, and other states have helped fund implementations of Guided Pathways and other intensive advising models. Georgia and Indiana have passed legislation extending existing scholarship programs to adult learners.

• Shift toward outcomes-based funding models: Approximately 30 states have adopted community college funding systems that base funding amounts for specific colleges on student degree and credential completion rates, transfer rates, and labor market outcomes rather than “input” measures like credit-hours, at least to some degree. These states vary significantly, however, in the share of total funding that depends on outcomes, from 100% in Ohio to 3% in Arkansas. Texas passed a new outcomes-based funding formula in 2023 that links 90% of state community college appropriations to outcome measures. All states should link most community college funding to student outcomes. They should also consider incorporating student outcomes more fully into state funding of four-year institutions.

• Support expansion of college capacity for in-demand occupations: Kansas passed the “Kansas Promise Scholarship Act” in 2021 to create new funding streams to increase capacity in associate degree and technical certification programs for in-demand fields like cybersecurity, advanced manufacturing, early childhood education, and building trades. Arizona and Florida appropriated funds to increase nursing school capacity in their states in 2022.

States have a vital role to play in creating outcomes-focused data systems and putting them to use through better student advising, in concert with more detailed, nationally consistent data collection and reporting by the federal government.

State legislatures should:

• Prioritize building and maintaining state longitudinal data systems (SLDS) that capture student outcomes from pre-K-12 through postsecondary programs to careers to deepen policymakers’ and leaders’ understanding of who is accessing opportunity, what programs and initiatives are most successful, and what credentials provide the best value to students over time. The George W. Bush Institute ranks each SLDS across four metrics: governance for system vision, governance for capacity and resources, accessibility and data driven policy, and transparency and reporting.

• Build credential libraries to help students and families understand the options and likely value of credentials and degrees.

States should promote more competition in their postsecondary education markets. This includes liberalizing restrictions that prevent existing institutions as well as disruptive entrants from offering innovative programs.

State legislatures should:

• Liberalize restrictions on new programs: Most states maintain restrictions preventing even established public colleges and universities from offering in-demand academic programs. These restrictions typically serve only to protect the interests of incumbent institutions. In Texas, for instance, rules block community colleges from offering bachelor of science in nursing (BSN) programs if a college’s total property value is below a specified level, excluding 20 of the state’s 50 community college systems. Another rule prohibits new BSN programs within a 50-mile radius of an existing program, regardless of local supply and demand for slots. The state, meanwhile, prohibits four-year institutions from participating in the Texas Workforce Commission’s community college-focused Skills Development Fund – which has prevented Texas A&M from launching a program it’s well positioned to run in biomanufacturing. The legislature actually tightened restrictions on new professional degree programs still further in 2021.cdxiv States should loosen or eliminate such rules.

• Create streamlined paths to market entry and exit for nontraditional program operators: States should have clear outcomes-based rules eliminating eligibility for state funding for chronically failing programs, whether offered by traditional or nontraditional operators.

States should require colleges, universities, and academic medical centers receiving state funding to uphold free inquiry and expression as a condition for state funding: States should establish clear rules defining terms and impose accountability through regular reporting and third-party audits. The Florida, Ohio, and Tennessee legislatures have each established protections for free inquiry and speech over the last six years

The physical footprint of eds and meds institutions should evolve dynamically as a function of their teaching, research, and placemaking activities rather than remaining static based on historical land purchases. Some institutions need to grow traditional campuses to make room for initiatives like expanded patient care. Others aim to transform university-owned land into innovation districts and other multitenant mixed uses. Many institutions would benefit from shrinking their footprints to reduce expenses and opening up space for alternative uses like housing. Local governments influence the options available to eds and meds institutions through their land-use policies.

Local governments should:

• Enable the physical expansion of growing institutions: This generally means rezoning adjacent real estate and overcoming resistance from “not-in-my-back-yard” (NIMBY) forces that fear neighborhood change, including gentrification. Work with eds and meds institutions to develop community benefit packages that will make campus expansion a win-win for neighbors as well as growing institutions.

• Support development of innovation districts with land-use and property tax measures: Tax and zoning measures by local governments played vital roles in the emergence of successful innovation districts in Cambridge, Boston, Philadelphia, Raleigh-Durham, Winston-Salem, Atlanta, St. Louis, and Houston. This has typically taken the form of Tax Increment Financing and related structures. Several of these cities have granted special authorities to innovation district management entities that have been instrumental to their districts’ growth. Cities can also enact land-use rules conducive to innovation district success like requiring district developers to include outward-facing activities like restaurants, coffee shops, and job centers on ground floors of multistory buildings, building wide sidewalks and green spaces, and keeping cars away from building entrances.

• Support development of housing – including employee, student, and mixed-income housing – on or near eds and meds campuses: Most U.S. cities need more housing supply. Developing housing near university or medical center campuses is especially helpful because it increases education and job opportunities for residents who have the opportunity to live there and because it helps institutions attract talent. Innovation districts that have seen better-than-average housing development in surrounding neighborhoods have also experienced greater success on other placemaking measures, as we show in Section V. Also, large-scale mixed-use development near institutions in underinvested neighborhoods – as the University of North Texas at Dallas is currently planning – is one of the most promising paths for creating nodes of prosperity in struggling places.

• Enable shrinkage of campuses, more intensive land use, and adaptive reuse of underutilized academic properties where it makes sense to do so: Many colleges will likely go out of business in coming years, and many more will see declining enrollment. Sprawling, underused campuses are a poor use of increasingly scarce land in metropolitan areas. Cities should aim to convert underused academic real estate to residential and mixed-use development and encourage institutions to use land more intensively.

Cities can also support eds and meds-sponsored placemaking initiatives by investing in quality-of-life amenities. Building trails, pocket parks, arts facilities, and public gathering spaces helps make innovation districts and other physical places near campuses more appealing. They also make a large difference in eds and meds-led initiatives to revitalize underinvested neighborhoods. Local governments play a particularly vital role in ensuring public safety in innovation districts, recovering downtowns, and areas adjacent to eds and meds campuses.

Initiatives to revive traditional downtowns as safe, interesting, walkable, mixed-use places also support the success of local eds and meds institutions by helping attract talented faculty and students.

Mayors and other local leaders are often well positioned to act as conveners. In many cities mayors have brought together eds and meds officials and other local players, who don’t always have a record of working closely with one another, to develop shared visions and strategies for strengthening local talent pipelines and innovation ecosystems. Fort Worth Mayor Mattie Parker recently launched a citywide effort to improve education-to-career pathways with heavy engagement from private-sector employers. Former Boston Mayor Thomas Menino was the chief convener of a public-private group that came together to build Boston’s Seaport innovation district.

Mayors can also become their city’s leading champion for talent, innovation, and place initiatives. Mayors, for instance, should help articulate the idea that career and technical education can be a good choice for many young people and dispel the narrative that it’s a path to second-class citizenship. They should additionally help persuade residents that the success of their local eds and meds institutions advances the interests of all residents.