Shut Down Corporate Welfare for Tourism

The following article originally appeared in the January 5, 2009, edition of Grand Junction’s Free Press. Additional links and notes are provided here.

Shut down corporate welfare for tourism

by Linn and Ari Armstrong

Does Colorado need corporate welfare to promote tourism? The Denver Post argues in a December 28 editorial that, in this time of economic trouble, state legislators should continue to forcibly transfer your money to bureaucrats to spend on tourism advertising.

However, such corporate welfare is inherently unjust and economically wasteful, and now is the perfect time for the legislature to eliminate it.

The proper purpose of government is to protect people’s rights of property and voluntary association. Corporate welfare violates rights by forcing some to subsidize the business of others.

Colorado’s constitution rightly bans corporate welfare. Article XI, Section 2, states, “Neither the state, nor any county [etc.] shall make any donation or grant to, or in aid of… any corporation or company…”

Article V, Section 25, prevents the state legislature from “granting to any corporation… any special or exclusive privilege.” And Article V, Section 34, states, “No appropriation shall be made for charitable, industrial, educational or benevolent purposes to any person, corporation or community not under the absolute control of the state…”*

Not only does corporate welfare for tourism violate the state’s constitution, it defies economic sense. Bureaucrats who spend tax dollars have poor incentives to spend the money wisely. Businesses that fund their own advertising, on the other hand, tend to look harder at results.

If the Denver Post were correct about the benefits of tourism advertising, that would prove only that businesses that benefit should fund the advertising on their own. Most other businesses advertise without drawing on tax dollars.

Why should politicians advertise for only certain businesses and not others? If putting politicians and bureaucrats in charge of advertising is such a great idea, why don’t we let bureaucrats handle everybody’s advertising? Central planning by bureaucrats is the best way to run the economy, right?

The Denver Post ignores the general problems of corporate welfare, and the paper makes ludicrous claims about the benefits of the tourism subsidies.

The Post argues that, because tourism spending dipped during a recession, that somehow proves that corporate welfare was responsible for the subsequent rise of tourism. But might we surmise that more prosperous times were the cause?

The Post reports, “State tourism director Kim McNulty tells us studies show that, for every dollar the state spends to promote itself to tourists, it makes back more than $13.”

And what are these “studies?” The Post declines to name them. McNulty told us in an e-mail that “the study that was quoted in the Denver Post article… is a study that Longwoods International did for the Colorado Tourism Office.”

The web page of Longwoods International shows that this Canadian company conducts “Budget Justification” for a variety of government agencies. Back in 1986, “The Colorado Tourism Board (CTB) hired Longwoods to conduct an image study as input into a new advertising campaign.” In 2002-03, “Longwoods was hired to measure the Return on Investment of the campaign [at that time], which information would be used to help secure future funding.”

So do you get the idea of how this works? Colorado bureaucrats spend tax dollars to hire a Canadian company to provide “justification” of the bureaucrats’ budget and to “help secure future funding” for those bureaucrats. Surprise, surprise, those are the results that Longwoods delivers.

We asked McNulty via e-mail and phone message how much the state spent on the latest study. Unfortunately, we did not hear back from McNulty by deadline.** So another thing we have not been able to ask her is how many tax dollars her office spends on salaries, supplies, and facilities.

Anyone with a rudimentary understanding of statistics can tell that Longwoods’ claims about the returns on tax dollars are bogus. You can find the study at http://tinyurl.com/9975uk. Longwoods works from survey data that simply cannot demonstrate what Longwoods claims they can.

Longwoods asked people whether they were “aware” of the tourism ads and whether they traveled to Colorado. But this confuses cause and effect. It is not the case that, in a random sample of the population, some people become aware of the ads and because of that decide to travel to Colorado. Instead, people already keen on traveling to Colorado are more likely to become aware of Colorado-specific advertising. Similarly, if you’re planning to buy a new Volkswagen, you start seeing Volkswagens everywhere.***

Based on this flawed methodology, Longwoods makes the wildly implausible claim that each advertising dollar generates $193 of “visitor spending” and $13 of “total taxes returned.” What would you think if somebody offered to take your money, promising to return nearly 200 times the revenues? We’d expect such an offer to arrive in an e-mail from the widow of Prince Sajutamiwa from the Federal Republic of Nigeria.

Sadly, the Denver Post cited the same sort of bogus claims back in 2006.**** Hopefully our legislators will display a bit less credulity than these editorial writers and take the tourism industry off the dole.

* Dave Kopel listed these three sections in a 1996 article.
** McNulty replied regarding the cost of the study on January 5 at around 3:30. She writes via e-mail, “I was out of the office and was not able to respond until today. The contract amount for the Advertising Effectiveness, Image Benchmarking and Return on Investment survey was $122,000. This is not a study we do every year.”
*** Paul Hsieh provided the Volkswagen example.
**** The Denver Post’s editorial was dated June 11, 2006. For additional background on Colorado’s corporate welfare for tourism, see “Wasteful Spending by Colorado Government,” page 12; “Corporate Welfare”; “Taxes for Tourism: Further Reflections”; and “Intel Inside.”