This study suggests that state tourism promotion efforts come up short as a development tool, at least as measured by their impact on the hotel and accommodations, amusement and recreation and arts and entertainment industries. While government tourism promotion does show some positive impacts, it appears, on average, to be a net negative for taxpayers in Michigan and elsewhere.
Based on these findings, Michigan policymakers should conduct a meaningful performance and impact study of the current Pure Michigan campaign. The results from the statistical analysis presented in this report casts significant doubts on whether spending on Pure Michigan is economically beneficial for the state. In addition, the MEDC has too much incentive to game the results of the studies it currently purchases to justify this spending.[*] In other words, taxpayers shouldn’t have to spend another dime promoting the tourism industry until the state can prove through a neutral, robust and independent analysis that these investments are justified.
In order to produce such an impact study, policymakers must use a competitive bidding process for the project. No-bid contracts to consultants whose study methodology is secret and who always produced positive results that benefit the agency paying for it should raise red flags. This means that the MEDC should not be in charge of funding or producing a study on the economic effectiveness of the Pure Michigan program. Another department, such as the Office of the Auditor General, should be tasked for this purpose.
Policymakers should also mandate that any economic impact or return on investment study of spending on tourism promotion contain an “opportunity cost” component. There are direct tradeoffs associated with spending taxpayer money on tourism promotion. In order for this spending to be effective, it must return more money to state and local treasuries or more benefits to taxpayers than spending that same amount of money on other programs would.
On this subject, John L. Crompton writes:
Opportunity costs are the benefits that would be forthcoming if the public resources committed to a tourism project were (1) redirected to other public services or (2) retained by the taxpayer. Government investment in tourism projects and programs will have an economic impact, but the key question is, compared to what? Does government spending on tourism stimulate the economy more than other kinds of investment? “In other words, is it better than paying a crew to dig a hole and fill it back up again (which might have fewer negative social and environmental impacts than the new [tourism project]?” (quoting Dittmar, 1999)
Conceptually, for an investment of public money to be justified, it must meet the criterion of highest and best use. That is, it should yield a return to residents that is at least equal to that which could be obtained from other ventures in which the government entity could invest. The issue of opportunity costs is the fundamental social issue associated with government investment in tourism. The key question is not whether an investment in tourism is likely to have a positive economic impact. Rather, it is whether more benefits would be generated from any number of alternative government expenditures, such as investment in a local college, public schools, transportation infrastructure, health programs or incentives to attract other kinds of businesses to locate in the community.
Thus, a positive economic impact does not mean that a tourism project or program should be supported, because the opportunity cost associated with this investment may be unacceptably high.
[*]Other state-funded studies of state-funded economic development efforts done by consultants have fallen apart upon close examination, suggesting skepticism of the studies the MEDC pays for to justify the Pure Michigan spending program is warranted. For examples, see: Diane Katz, “Should the State Boost Broadband?” (Mackinac Center for Public Policy, Jan. 29, 2002), https://perma.cc/MP45-SFWH; Michael LaFaive, “Special Effects: Flawed Report on Film Inventive Provides Distored Lens” (Mackinac Center for Public Policy, June 12, 2009), https://perma.cc/5FLX-8DYF.