Study: Pure Michigan a Poor Investment

New study raises questions about Pure Michigan’s effectiveness

Monday, Nov. 1, 2016

Contact:
Chantal Lovell
Media Relations Manager
989-698-1914
lovell@mackinac.org

MIDLAND — Pure Michigan’s commercials and billboards highlighting the Mitten State’s most attractive destinations have proved to be a hit with residents, but proof that they’re a good use of taxpayers’ money has yet to be seen.

A new study released today by the Mackinac Center for Public Policy attempts to independently verify the state’s unsubstantiated claims that the more than $261 million spent on tourism promotion over the past decade has been worth the cost to taxpayers. Using data from 48 states over a 39-year period, researchers Michael J. Hicks and Michael D. LaFaive find that, for every dollar taxpayers spend on tourism promotion, they lose 98 cents and create only 2 cents of value for their state’s hotel industry.

“Michigan taxpayers may love seeing their town or favorite destination highlighted but they deserve to know they’re paying a hefty price tag for those ads with very little to show for it,” said LaFaive, director of the Morey Fiscal Policy Initiative at the Center. “It’s incumbent on lawmakers to examine the costs and benefits of the Pure Michigan ad campaign so they can determine if the tens of millions of dollars they earmark for it each year would be better spent elsewhere, such as on repairing roads or cutting taxes.”

The study calls into question the Michigan Economic Development Corporation’s claim that the ads generate an unbelievable $7.67 for every dollar spent. That number comes from Canada-based Longwoods International, a private firm the MEDC has hired to help justify Pure Michigan’s budget appropriations.

“Such a high return on investment should raise eyebrows, and it is especially concerning that the MEDC is charged with assessing the effectiveness of its own program, incentivizing it to find a way to justify expenditures to keep itself afloat,” Hicks, director of the Center for Business and Economic Research and professor of economics at Ball State University, said. “Despite the study being funded by Michigan taxpayers, Longwoods refuses to make public its precise methodology. If Longwoods and the MEDC are confident that Pure Michigan is a good investment, they should be transparent with the numbers.”

Because Longwoods — which works for a number of other states and almost always seems to conclude government-funded tourism promotion has a positive economic impact — does not say how it reaches its findings, researchers of this study relied upon publicly available data from the U.S. Census Bureau, U.S. Department of Labor and the U.S. Travel Association. Their statistical model is detailed in the study and reveals that for every $1 million increase in state tourism promotion spending, only $20,000 is generated for hotels, resorts and other lodging businesses. That industry’s employees saw no increase in pay, and no other travel-related sector saw a meaningful benefit from the spending.

“Billboards of the UP’s fall colors or Lake Michigan beaches may seem like a good way to get tourists to spend more in Michigan, but the data just don’t support it,” LaFaive said. “Pure Michigan has failed to stimulate economic development, aside from creating an almost negligible handout for the state’s tourism industry. It’s time for lawmakers to hold the MEDC accountable and reconsider if a $34 million appropriation in 2017 is the best way to spend taxpayer’s hard-earned dollars.”

Hicks and LaFaive suggest suspending the Pure Michigan advertising program until the state can demonstrate, in an open and transparent manner, that taxpayers really do benefit from this spending. Short of that, lawmakers should commission a new review of the state’s tourism promotion program through a competitive bidding process. They must ensure that the analysis is overseen by a department other than the MEDC, such as the Office of the Auditor General, to remove the incentive for the MEDC to seek out a predetermined conclusion on Pure Michigan’s effectiveness.

The full study is available here:An Analysis of State-Funded Tourism Promotion

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About the Mackinac Center for Public Policy
The Mackinac Center for Public Policy is a nonpartisan research and educational institute dedicated to improving the quality of life for all Michigan residents by promoting sound solutions to state and local economic policy questions. As a free-market think tank, the Mackinac Center is guided by its belief in free markets, individual liberty, limited government and the rule of law. Founded in 1988, it is headquartered in Midland, Mich. For more information, visitwww.mackinac.org.