Pure Michigan’s ‘Budget Justification’

Why an independent review is necessary

A new study examines the economic impact of government tourism advertising programs. We are the authors of that work, called “An Analysis of State-Funded Tourism Promotion,” which offers empirical support for the hypothesis that these programs are ineffective.

Our conclusion is based on examining 39 years of state tourism promotion data with a statistical model that incorporates lessons learned by previous scholars, obtained through a thorough academic literature review. The statistical model we built, its rationale and output are completely transparent, and have been peer reviewed by economists not known to us. Replicating its results will be simple for a genuine scholar — a key test of any investigation’s integrity.

We describe the details of our study at great length in its text and elsewhere. The purpose of this piece is to describe why a study like this is needed.

One might think an outside investigation of this program would be redundant, given the extensive analytical resources available to the state of Michigan: House and Senate fiscal agencies, a Legislative Auditor General, a Department of Treasury with vast computational resources and more.

Surely one of these organizations has produced an objective, arms-length, methodologically defensible answer to a simple question: Is Pure Michigan worth the taxpayer dollars spent on it?

But they have not. What has been produced on the question issues from the same agency that annually receives tens of millions of dollars to run this program. This agency has strong incentives to protect this funding, and has a long record of using manipulation and spin to keep the money flowing.

That agency is the Michigan Economic Development Corporation, and the contrast between the scholarly rigor of the Mackinac Center’s study and the MEDC’s dissembling spin is a case study in truth-seeking economic research versus no-bid contractors selected to justify government budgets.

The MEDC claims the Pure Michigan program generated $7.67 in state tax dollars for every $1.00 spent in 2015. This is an extraordinary claim, which, to be credible, would require high-quality evidence and independent analysis.

What the agency offers instead is the very opposite. The MEDC’s claim is based on a study the agency paid a consulting firm to produce. Internal documents reveal the real purpose of this product:

“The objective of this contract is to prove that the benefits for conducting a paid advertising program for tourism out weight [sic] the costs;” so that “the effectiveness of the program can be demonstrated and the continued funding of the program can be justified.”

The consultant is a firm called Longwoods International. As in the firm’s other no-bid contracts with the MEDC, both the company and its government customer refuse to disclose the method used to produce these claims with sufficient specificity that it can be replicated and its findings confirmed. Such transparency and openness are the core prerequisites of all valid scholarly inquiry. Their absence is a huge red flag.

No academic journal would take such secretiveness seriously. The inherent conflict of interest — an agency that receives tens of millions of dollars to run a program pays a contractor hundreds of thousands to quantify success that is presumed — means that no such product would likely ever be submitted to a scholarly journal (as opposed to an industry trade publication).

These activities are not unique. The MEDC’s consultant is one of several firms in the business of producing products for government tourism agencies that give the appearance of independent scholarly research (a partial list is here). What they actually produce has been described on one these firms’ website as “budget justification.”

The players seem oblivious to how unseemly this is. The head of another company that received no-bid contracts from the MEDC has bragged publicly about their prowess at budget justification. The company is called Tourism Economics, and in the nearby video you can see its president Adam Sacks tell his audience of potential customer “Destination Marketing Organizations” (DMOs) that:

… We’ve worked with numerous DMOs to help with the renewal and increase of your funding, not the least of whom is Brand USA who have reauthorized not long ago. We’ve supported DMO budgeting, and planning with market forecasts … we’ve conducted dozens of visitor economic impact studies to establish the importance of travel and tourism and we released late last year …

The potential customers in that audience — many government-funded agencies spending taxpayer dollars on tourism promotion — aren’t interested in purchasing studies that call their existence into question. This is probably why Sacks let them know up front that his firm will “establish the importance of travel and tourism with our studies.”

Elsewhere, emails obtained by the Mackinac Center show Sacks participating in a discussion of how to rebut the Mackinac Center’s findings about the Pure Michigan program. The email thread also includes suggestions from a PR firm under contract with the agency suggesting that officials work to “discredit” the Center’s findings.

Apparently, the MEDC realizes its tactics and claims stretch credulity, because in the past it has hired another consultant to reinforce the Longwoods International claims. Once again, the outfit was selected on a no-bid basis, and completing the circle, its product was co-authored by a former Longwoods vice-president.

This so-called validation study was later cited by George Zimmerman, then-head of the MEDC’s tourism marketing arm, to defend Pure Michigan. Speaking of circles, Zimmerman has since been hired as chairman of Longwoods International, USA. (Check out this link for a closer look at the MEDC's relationships with its no-bid contractors.)

It is hard not to regard all this activity as anything other than self-serving manipulation and spin by the MEDC. Representing these public relations products and claims as independent and valid investigations is patronizing to scholars who transact in transparency, citizens, and policymakers, including state legislators.

When independent researchers like us address the effectiveness of state tourism promotion using valid, transparent and easily replicable methods to assess the most relevant data available, the answer is clear: The budgets of these programs are not justified. They waste taxpayer dollars and should be halted.

We have posted on the internet the transparent methods, assumptions and model that led us to this conclusion. The data is publicly available. In addition, we are available to explain and answer questions for any interested party. We invite the managers of the Pure Michigan program and their vendors to do the same.