July | August 2017


 

 

 

 

 

 

New Research Questions Tourism Promotion Programs’ Return on Investment

By Jennifer Burnett, CSG director of fiscal and economic development policy
As adventure seekers pack up and head out on summer vacations this year, policymakers and economic development officials from across the country are banking on tourism dollars to boost their bottom lines.
“There’s no question that many of these states have economies that benefit greatly from people visiting to spend their entertainment and recreation dollars. There’s also people engaging in staycations because their own state is where everybody else wants to come visit,” said Michael LaFaive, director of the Morey Fiscal Policy Initiative for the Mackinac Center for Public Policy.
While tourism is clearly beneficial to state and local economies, it is less clear whether public tourism promotional programs are meeting their goal of increasing tourism—or if the dollars spent on promotion are worth it.
“Consultants were saying these programs have huge returns on investment but their methodology was either suspect or secretive,” LaFaive said. “We found that problematic.”
To investigate whether public tourism promotion programs get a reasonable return on investment, LaFaive collected 39 years’ worth of data from 48 contiguous states. “We were curious as to the impact of these tourism promotion programs,” LaFaive said.
“We performed this nationwide analysis where we tried to isolate the impact of tourism promotion on the tourism industry and the state economy as a whole using the tools of an economist, ” he said.  
LaFaive found that, although tourism promotion dollars did have an impact, it was small and negative on net balance.
“We found that for every $1 million increase in tourism promotion in your average state, there is a corresponding increase of $20,000 in extra economic activity shared by all the state’s hotel and motel industry, basically the accommodations industry,” LaFaive said.
“That’s not $20,000 in new tax revenue to the state treasury—that’s $20,000 in extra economic activity.”
According to LaFaive, his organization did not conduct the first academic study to raise this issue. The U.S. Travel Association reports that the median state marketing budget for travel and tourism in fiscal year 2015 was $7 million.
One of the most popular destinations for tourists is Florida. In turn, the state relies heavily on tourism for economic stability, with 1-in-6 non-farm jobs supported by out-of-state visitor spending. Whether tourism promotion pays was at the heart of a debate earlier this year over funding for Florida’s tourism promotion agency—Visit Florida—which came under scrutiny after questions were raised about transparency and effectiveness.  
House Speaker Richard Corcoran was particularly critical of the organization, arguing that government-funded programs like Visit Florida didn’t follow free market principles.
“They’re not consistent with our principles, and that’s what we’ve talked about, that principles matter. And the facts bear out that they really don’t succeed,” Corcoran told WGCU, a Florida radio station.
Visit Florida’s $76 million budget was initially cut to $25 million by the legislature, but after Gov. Rick Scott vetoed the cut, funding was fully restored during a special session. 
That funding, however, came with some caveats, designed to improve accountability and transparency for the agency. Specifically, the agency’s funding is now tied to a one-to-one match of all public and private contributions and any contract worth more than $750,000 is subject to approval by the Florida Legislature.
“Over the past few months, the governor has traveled the state discussing the importance of tourism, and because of his efforts and those of our entire industry, we will be able to continue to attract record numbers of visitors to our state,” Visit Florida CEO Ken Lawson said in a statement after funding was restored.
“Today’s victory will allow us to continue working with our industry partners to market Florida as a global destination and help us reach our goal of 120 million visitors,” Lawson said.
LaFaive believes that most tourism promotion strategies don’t necessarily benefit the industries policymakers are targeting or taxpayers at large.
“It would be easier to justify these programs if they were trying to protect an industry and having a net positive impact while doing so. But as it stands right now, they are only accommodating the corporate welfare demands of one industry at the expense of others and producing a huge net negative return,” LaFaive said.“For me, I would look at states like Florida and California and say yeah, obviously, they do have a very important tourism component, however, it still does not justify a subsidy.”
So, how can state policymakers help support tourism in their state?
“They would be much better off investing the money in better infrastructure or across-the-board tax cuts,” LaFaive said. “Those seem to have a much better positive response than these tourism promotion programs do.”