News Story

Pure Michigan Spent $295 Million and Even Hotels Only Got Scraps Back

Researchers find taxpayers pay big to ring resort cash registers just a little

Since 2006 this state has spent $295 million on an advertising campaign called Pure Michigan that is intended to draw tourism dollars here from other states. But a new study shows that state-funded efforts to promote tourism are mostly a blunder.

The marketing scheme is widely recognized thanks to its homey TV commercials showing picturesque Michigan locations and narrated by film and television star Tim Allen.

Michigan’s Legislature appropriated $34 million to the program for the current year, $1 million more than last year. Pure Michigan is managed by the Michigan Economic Development Corporation, which is the state’s economic development agency.

The study’s authors, Mike LaFaive, director of fiscal policy at the Mackinac Center for Public Policy, and Dr. Michael Hicks, a Ball State University professor and Mackinac Center board of scholars member, analyzed decades of tourism promotion data from almost every state to determine whether such programs have had an economic payoff.

“After analyzing 39 years’ worth of tourism promotion data from 48 states, we believe the answer is a resounding no,” the authors said.

LaFaive and Hicks conclusion is that no more taxpayer dollars should be spent on Pure Michigan.

The authors created a national statistical model to determine whether and how much effect tourism promotion spending had on the industries that typically benefit from more visitors — lodging, arts, amusements and recreation.

LaFaive and Hicks wrote that, “…for every $1 million in additional spending by a state on tourism promotion, there was an associated increase of $20,000 in additional economic activity shared by the entire accommodations industry in that state.” That’s a negative 98 percent return on investment.

Although their statistical model was built with data from around the nation, when it came to spending on these ads, “Michigan did not differentiate itself from the average,” according to the study.

The Michigan Legislature authorized spending an additional $1 million on the program this fiscal year, up from $33 million last year. “Our study suggests that will only result in an increase in economic activity of $20k shared by all hotels and motels in Michigan,” LaFaive said in an email.

For arts and crafts industries, the study’s model projects that in an average state, “for every $1 million increase in state tourism promotion, artists shared less than an additional $35,000.”

Despite these miniscule returns even to the industries most directly benefitted by the spending, MEDC has claimed that Pure Michigan is successful, recently boasting that in 2015 every dollar spent on it yielded a jump of $7.67 in state tax revenue.

But LaFaive and Hicks dispute the MEDC’s methods for determining whether the spending is cost-effective, saying they’re “steeped in secrecy.” The estimates were created by a consulting firm that has been the beneficiary of successive no-bid contracts from the MEDC. Yet the firm refuses to meet basic transparency requirements that would allow independent investigators to check its work.

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.

Editorial

Pension Debt ‘Like a Mortgage?’ Yeah – On a Home You Sold Years Ago

Shakiest cover story yet from defenders of unsustainable government pensions

The upcoming lame-duck legislative session may see a push to reform the state’s notoriously underfunded school and municipal pension systems. As usual, some beneficiaries of the current system are circling the wagons to preserve the unsustainable status quo.

Which beneficiaries? Not current or future retirees — their benefits are guaranteed by the state constitution. No, it’s the bureaucrats who manage these systems. Their jobs become less important if the systems get smaller as new employees are no longer enrolled in them — exactly the reform under consideration.

Pension officials may want to reexamine one new line of defense, though, which compares massive and growing government pension liabilities to a homeowner’s mortgage. That’s the pitch sent by Chris DeRose, CEO of the Municipal Employees' Retirement System of Michigan, in a letter to the editor of Crain’s Detroit Business:

“Yes, pension unfunded liabilities exist; however, having unfunded liability is like having a mortgage. In our 70-year history, our municipalities have made their ‘mortgage’ payments every month while prefunding a portion of their entire mortgage. While paying off the entire mortgage might be desired, having a mortgage is not a crisis.”

ForTheRecord Says: Unfunded pension liabilities are indeed similar to having mortgage debt — on a home you sold and haven’t lived in for 25 years.

Every year, hundreds of millions of Michigan taxpayer dollars go to cover unfunded pension liabilities accrued on behalf of employees who in many cases stopped working decades ago. This happens despite a state constitutional provision that explicitly requires governments to fully fund employees’ future pension benefits in the year they are earned. The rationale, based in prudence and sound moral judgment, is that the benefits should not become a burden on future taxpayers.

These officials have failed in their responsibilities. For example, in 33 of the past 34 years, the people who manage this state’s largest government pension system — the one for school employees — have failed to maintain a pension plan that saved enough to pay the benefits earned by workers. The inevitable consequence is the system’s current $26.7 billion unfunded taxpayer liability.

Yet government pension managers here and elsewhere have sandbagged reform efforts by spreading tales of mythical “transition costs” and other objections.

Apparently, that cover story has worn thin with lawmakers, which may explain the new story, the mortgage analogy. The officials would do better to accept their share of the blame for saddling taxpayers with billions of unfunded pension debt. Their next step would be to get on board the one reform that’s guaranteed to eventually cure the problem: Stop enrolling new employees in these legacy systems.

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.