Government tourism promotion is not really ‘economic development’

Summer is here and with it comes the usual urge for adventure, which often means travel. It probably doesn’t surprise you that some state and local governments spend millions of taxpayer dollars to try to lure you and your money.

They justify this by calling it “economic development” work, hoping that taxpayers will benefit. That seldom happens, however, even though consultants — who are often paid to help justify government efforts to promote tourism — say otherwise.

The latest issue of Midwest Living, a regional magazine, is full of many taxpayer-subsidized advertisements from various states and localities that want to attract visitors. The magazine has over 100 pages, and more than 23 of them sport at least one advertisement that is partly or completely paid for by taxpayer funds. Then there’s the 12-page insert about Ohio. The ads beckon readers to visit French Lick, Ind., Lansing, Mich., Missouri, Arkansas, Kansas and more.

How long would it take for you to find Hamilton County, Ind., on a map? Its tax-funded tourism agency placed a full-page advertisement in the magazine to lure concert-goers. A second ad from there tells readers to escape to the county for live music and to “savor local flavors in a culinary destination.” So, Hamilton County has live music and food. Well, take that Memphis and Nashville! Even a suburb of Chicago (Oak Park) gets in on the act with its own ad.

None of this would be worth mentioning if the locality or county were better off for having spent the money. A few independent studies suggest this doesn’t happen. One of those, published in the Journal of Travel Research in 2011, concluded that state government spending to promote tourism created some jobs, but it became less effective as spending went up. Moreover, the new jobs were probably low-paying and were, then, unlikely to increase gross state product, which is a measure of a state’s economy.

A 2016 Mackinac Center for Public Policy study examined tourism promotion spending in 48 states over 39 years. When it came to Michigan, we found that for every $1 million in government spending to promote tourism, the Michigan accommodations industry enjoyed another $20,000 in economic activity. In other words, it was a large net negative return. There was no impact on income or GSP for the amusement and recreation sector, and a tiny (and net negative) one for income in the arts and entertainment.

Only five states in the study — Mississippi, Idaho, Washington, Maryland and Nevada — distinguished themselves from the national average. A $1 million increase in tourism promotion spending in these states increased hotel and accommodations activity by as much as $300,000. That’s not $300,000 in tax revenue, but $300,000 in extra business for one sector of the industry, and coming after a $1 million expense.

States that run tourism promotion programs don’t typically tout academic-style studies to prove their success, probably because they seldom find them. Instead, they turn to travel and tourism consultants. These consultants appear to run a cottage industry of telling tourism officials what they want to hear: Your advertisements are bringing in new tax revenue that justifies the cost of your program.

Documents obtained through freedom of information requests indicate state officials in Michigan wanted to pay a consultant to help them justify their spending. The contractor did, but refused our requests to explain precisely how the return-on-investment claims were calculated.

The 2016 “Pure Michigan” advertising campaign claims to have generated $8.33 in new state tax dollars for every $1 spent on advertising. That figure, according to a review by the state’s auditor general, excluded about half the cost of the program, including the expenses involved in creating the advertisements. Perhaps only in government can you ignore the cost of doing business and then declare your business to be a big success.

In his 2006 paper from the Journal of Travel Research, titled “Economic Impact Studies: Instruments for Political Shenanigans?” John Crompton writes, “Most economic impact studies are commissioned to legitimize a political position rather than to search for economic truth. Often the result is mischievous procedures that produce large numbers that study sponsors seek to support a predetermined position.” One of those mischievous procedures is doing what Michigan’s consultants have done: leave some costs out of the equation.

Bottom line: Government tourism promotion efforts are unlikely to be cost-effective when an accurate accounting is made — despite what consultants, slick magazines and other advertisements may suggest.

Michael LaFaive is senior director of fiscal policy at the Mackinac Center for Public Policy, a research and education institute in Midland, Mich. Follow him on Twitter @lafaive.