Michigan’s most recent state-funded tourism promotion effort, known as “Pure Michigan,” has been running commercials in an attempt to attract visitors for more than 10 years. These advertisements have won numerous awards and are popular with much of the public. But their popularity does not make them automatically successful from an economic perspective.
The rationale for spending taxpayer dollars on promoting tourism in Michigan is for economic development. The idea is that if the state spends money to advertise itself, more tourists will come to Michigan and the state economy will grow. The government will also benefit from capturing more tax revenues from an increase in business activity and jobs.
This study attempts to analyze whether or not this spending actually does boost economic activity in the hotel and accommodation, amusement and recreation, and arts and entertainment industries. It uses a large, national statistical model with more than three decades of data from 48 states in an attempt to measure the effectiveness of state-funded tourism promotion campaigns, such as Pure Michigan. The statistical model attempts to measure the impact of tourism promotion spending over time on gross state product and income for these three industries, all while controlling for many factors that might impact these sectors of the economy.
The results in arguably the most sensitive area of tourism-related businesses is the impact on the accommodations industry, such as hotels and motels. The model found a statistically significant, gross positive impact, but it was very small on average. For every additional $1 million spent on tourism promotion about $20,000 in extra income was generated for the hotel and motel industry. While this was a national model, Michigan was not any different from the average. Maryland, Mississippi and Nevada had large and statistically meaningful returns — one as large as $300,000 for every additional $1,000,000 spent. Even with this large return, however, it — like the national average — represents a large net negative return.
The Michigan Economic Development Corporation believes that Pure Michigan has been a raging success. The MEDC has claimed in 2016 that Pure Michigan’s out-of-state advertising campaign in 2015 generated a 667 percent return on investment. That is, for every $1 spent on the advertising campaign, $7.67 was returned in the form of additional tax income for the state.
But its evidence comes from a report produced by a consultant, Longwoods International, whom they selected on a no-bid basis to provide analysis for their program’s success. Internal documents from the MEDC make it clear that it expected to get positive results from this report. Longwoods International refuses to provide a transparent explanation for how it derives these return on investment calculations. The method, they report, is proprietary.
This is disturbing for a number of reasons. What the MEDC and their consultant are effectively saying is, “trust us, we know we’re right and we know what is good for Michigan.” Given the incentives that the MEDC faces to present itself as a public success and for consultants to retain generous clients, it is not unfair to question these claims and be highly skeptical of them.
State lawmakers should put the Pure Michigan spending program on pause until validated evidence is secured demonstrating that spending taxpayer money on promoting the tourism industry yields positive economic returns for the public. That means a new study and perhaps a new methodology from a consultant chosen from several who openly compete for the work. The bidding process should be managed by a more independent organization, such as the Auditor General of Michigan. The study in question may wish to also discuss the opportunity cost of running the program. Might Pure Michigan dollars be better spent elsewhere?