Puffery or Proof? The Business of Tourism Subsidy 'Budget Justification'
State agency pays for self-serving spin
For a number of years, the Michigan Economic Development Corporation has purchased reports from a Canadian company called Longwoods International that purport to show very high returns from state spending on tourism ads. But these reports have a stunning lack of transparency that makes the uses to which they are put inappropriate and even patronizing to legislators and the people they represent.
The MEDC is the agency in charge of this state’s business subsidy programs, including tourism promotion. Its most recent contract with Longwoods generated a report that claimed the “Pure Michigan” advertising campaign has increased state tax collections by $6.87 for every $1 spent, for a 587 percent return on investment. The Legislature agreed to spend $33 million on the ads this year.
Such claims should come with a high burden of proof, yet the company refuses to disclose the calculations behind this extraordinary claim, and the agency that purchased the report appears unconcerned. Longwoods asserts that its methods are proprietary, or secret. But Michigan taxpayers, who paid almost $150,000 for this report, should not have to take the government’s word that such a claim is valid, much less the word of the private company that made it.
That’s especially true given the apparently cozy relationship between the company and the agency: Longwoods’ current chairman is the former MEDC official in charge of the state’s tourism promotion programs. Moreover, Longwoods’ MEDC business is the result of no-bid contracts.
Michigan is not Longwoods’ only state customer. In state after state, the company uses its secret methodology to produce similar reports, nearly all showing positive impacts from similar programs. Longwoods’ business model appears to be one of helping state economic development bureaucrats persuade lawmakers to keep their budgets well filled. It’s not so surprising, then, that these same officials are not very curious about whether the company’s reports are valid.
Michigan law generally requires contracts be open to competitive bidding, but it does allow for some exceptions. Since the MEDC did not seek multiple bids, it had to produce a “Sole Source Justification” document, which happens to lay bare the agency’s real goal: “The objective of this contract is to prove that the benefits for conducting a paid advertising program for tourism out weight [sic] the costs.”
Note that the MEDC did not ask a vendor to investigate whether the benefits exceed the program’s cost — that was assumed. The document continues, “As such, the effectiveness of the program can be demonstrated and the continued funding of the program can be justified.” (Emphasis added.)
In other words, the real goal of the contract was to help the agency get more money from legislators for its budget. The company itself apparently endorses this characterization of its work.
For example, in a report involving Connecticut in 2012, the company wrote, “Unlike virtually all other government programs, tourism is a revenue generator, not a cost to taxpayers. Our findings demonstrate clearly that continued support of tourism marketing is a wise course from a public policy perspective.”
A page that used to be on the Longwoods website was called “Budget Justification,” and it bragged about how the company's product helped Colorado officials boost their budget:
"In 1997, the CTB was reconstituted and given a one-time, $2.1 million appropriation. Longwoods was commissioned to carry out visitor and economic impact research to demonstrate the importance of tourism and provide ammunition in the industry’s efforts to convince the State Legislature of the need for permanent funding for tourism marketing."
The company also touts a 2012 headline from the Albuquerque Business News article out of New Mexico: “Tourism Department Cites Success as Reason to Double Budget.” One of Longwoods’ reports, the article says, claims that a $1.2 million campaign called “New Mexico True” generated $3 for every $1 spent.
Across the country, there appears to be plenty of demand for such budget-building services. The Mackinac Center has identified 12 states or local agencies that have purchased Longwoods International reports that give return-on-investment figures for money spent on promoting tourism."
A number of agencies are repeat customers. For example, the MEDC has apparently bought seven Longwoods reports, six of which have been published. All but one of the reports we located nationwide showed positive returns on investment from taxpayer-funded tourism ads.
- New Mexico 2015 - Longwoods reported on the “New Mexico True” campaign’s performance from September 2013 through April 2015. The company claimed that the $2.5 million ad campaign generated $7 for every $1 spent. (The 2015 report was a follow-on to the 2012 report mentioned above.)
- North Carolina 2015 - Longwoods claimed that a $1.16 million state advertising campaign generated $15 in state and local taxes for every dollar spent. (Minutes from 2011 meetings of the North Carolina Travel and Tourism Board show that Longwoods estimated a 17-to-1 return.)
- West Virginia 2014 - Longwoods reported that the state’s travel advertising campaign generated $13 million in additional state and local taxes, a 7-to-1 return.
- Ohio 2013 - Longwoods claimed that a $15 return came from every $1 spent on the Buckeye State’s 2012 “Too Much Fun for Just One Day” advertising campaign.
- Colorado 2009 – Longwoods claimed that the state agency’s 2008 and 2009 advertising campaigns called “Let’s Talk Colorado” generated $12.96 for every $1 spent.
- Finger Lakes Wine Country 2011 - Longwoods claimed the 2010 marketing campaign run by the publicly and privately funded agency generated $3.52 for every $1 spent.
- Philadelphia 2012 – A “Greater Philadelphia Tourism Marketing Corporation” was told by Longwoods that its “With Love, Philadelphia XOXO” advertising campaign returned $6 in taxes for the state and another $5 municipal taxes for every $1 it spent.
- Hawaii - Longwoods examined several advertising campaigns for the Hawaii Visitors and Convention Bureau. Documents provided by the bureau indicate that returns per dollar on three advertising campaigns in 1994, 1997 and 1998 were $9.59, $6.00 (Japan campaign) and $14.75 (United States campaign) and $38.54 respectively.
- Connecticut 2012 - Longwoods gave the state a range of possible returns on tourism promotion based on different spending levels, ranging from $2.30 to $3.12 per dollar spent.
- Minnesota 2014 - The return from Minnesota’s spring and summer 2013 advertising campaign was $8 in taxes for every $1 spent, according to Longwoods.
- Wisconsin 2014 - Longwoods claimed that for every $1 the state spent on its 2014 summer and fall marketing efforts, it got back $6 in state and local tax revenue.
- Vail, Colorado 2012 - In a report for the resort town, Longwoods found a $0 rate of return for an ad campaign the town ran in 2002.
The Mackinac Center first contacted Longwoods International in 2010, intrigued by the government vendor’s consistently positive findings on taxpayer-funded tourism spending. Bill Siegel, the company founder, explained in 2010 that on one occasion he did find a negative return from an agency’s tourism subsidies.
That outlier is a reminder that the government agencies that contract with Longwoods aren’t interested in purchasing reports that don’t justify their own budgets. The company has found some campaigns with low returns, and their customers are obviously reticent about publicizing those.
The incentives faced by Longwoods as well as the agencies that hire the company have been noticed by others. In an article called “Economic Impact Studies: Instruments for Political Shenanigans?,” tourism scholar John L. Crompton writes:
Ostensibly, the people hired to conduct economic impact studies appear to be both expert and neutral. However, “they are in truth the exact equivalent of an expert witness in a lawsuit who comes to testify in support of the side that is paying the expert’s bill. An expert whose testimony harms his employer’s case doesn’t get much repeat business” (Curtis 1993, p. 7).
The same commentator suggests, “The fees for the study are like a religious tithe paid to a priest to come bless some endeavor” (p. 7). This type of comment about the integrity of economic studies is becoming increasingly pervasive in economic literature. Scholarly researchers appear bothered by extravagant claims for the impact of visitor spending that many of these studies have made based on dubious or non-transparent methods.
Longwoods is not the only consultant hired by the Michigan Economic Development Corporation to produce economic impact or return-on-investment reports. Some of these vendors may actually select the most valid methodologies and calculate the most careful estimations. But without full disclosure and transparency, we can’t know for sure when that happens.
Given the MEDC’s incentive to justify its budget with unsupported and seemingly wild claims about the success of one its largest programs, lawmakers should place an embargo on any further contracts evaluating Pure Michigan or other economic development programs. The embargo should remain in place until all such contracts require transparent and demonstrably valid methodologies and evidence that are open to independent examination and review.
Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.