Planning Decisions, Inc.

THE BOTTOM LINE FROM CHUCK LAWTON

Definitions of Tourism and Tourism Impact

Published Sunday February 10, 2008

Hang me just as high as you please, Brer Fox,
but for the Lord’s sake,
don’t fling me in that briar patch.
~ Joel Chandler Harris

It isn’t often that arcane disputes about the nature of economic measurement and the dangers of double counting make their way from the ivory towers of academe to page one headlines and lead editorials in the daily press. But the recent brouhaha over the methods used by the state to calculate the impact of tourism has turned out to be the exception that proves the rule.

The problem results from confusion of two measures—the size of an industry and its impact on the state. Taxable lodging sales in Maine in July 2007 were approximately $125 million. For that time period, for all the hotels, motels, B&B’s and other lodging establishments reporting, collective sales was the simplest measure of the magnitude of their industry. This total included approximately $16 million reported by establishments in the Bar Harbor area and approximately $26 million reported by establishments in the Kittery area. The fact that some of the $16 million paid to the innkeepers in Bar Harbor may have come from residents of Kittery and that some of the $26 million taken in by motels in Kittery may have come from residents of Bar Harbor means not a whit to either of the motel owners nor to the tax collectors at Maine Revenue Service. A dollar is a dollar. It keeps the hotels operating and helps balance the state budget no matter where it comes from.

If an industry wants to know its magnitude, total sales is the simplest metric. It could just as readily use total employment, total assessed value of property, total wages paid or any number of other measures, but sales is the easiest and most common. Where those sales come from is important for customer relations and therefore for developing growth and marketing strategies, but not for measuring size. So for those wanting to answer the question, “How big is the lodging industry in Maine?”, an easy and perfectly acceptable method is to add up all the sales of all the lodging businesses in Maine.

So far, so good. But knowing how big an industry is rarely satisfies its members. They want to know how important it is, what its impact is. After all, sales taken in become salaries and vendor payments going out. And these, in turn, become rent paid, and groceries bought and other suppliers paid and on and on into the economy in ever widening ripples of impact. Through the poorly understood but widely practiced prestidigitation known as “The Multiplier,” these ripples are added up and the total sales number is expanded into a much larger number called, not the industry’s size, but its total impact. Whatever an industry’s size may be, its total impact is bound to be bigger.

So get me the impact number!

This is where the thicket gets really dense. Unlike size which stands by itself, impact involves a relationship. Impact of what? Impact on what?

In standard economic analysis, the “of what?” question is usually answered, “of one more (or less) dollar of spending.” What will be the impact of the new R&D bond, of the proposed Plum Creek project, of the closure of the Brunswick Naval Air Station? All of these questions imply having measures of the state of affairs before the “of what?” occurs and a new state of affairs after it occurs. The impact is the difference between the two states of affairs.

The “on what?” question, in turn, requires reference to a topic and a geographic area. Impact on employment, or on taxes, or on air quality. Impact on Maine, or on Washington County, or on the Town of Calais.

Unlike simple measures of size, therefore, measures of impact require a clear definition of three things—what is causing the impact, what effects of this causal event are we concerned with and over what geographic area are we measuring these effects.

Following this line of reasoning, our original question, “What is the impact of the lodging industry on the State of Maine?” becomes, “What is the impact on the sales of other businesses in Maine of one more dollar of sales coming to the state’s lodging industry?” The answer to that question depends on another—“Where does that additional dollar come from?” If it comes from outside of Maine—a new visitor from New Jersey for instance—then the full lodging multiplier applies. The full impact of that additional $1.00 flowing into the Maine economy through the myriad relationships of hotels to their employees and suppliers will probably amount to $1.75 or even $2.00.

If, on the other hand, that additional dollar comes from a Maine resident—the Kittery visitor to Bar Harbor for instance—then the full impact of the multiplier may or may not apply. A Kittery resident spending some of her food and gas money in Bar Harbor certainly has an impact on the economies of York and Hancock counties. But for the State of Maine as a whole, the trip is a wash. Maine can claim the full impact of the Kittery resident’s trip to Bar Harbor only if it is a substitute for a trip to Florida.

So who is “right?” Everyone and no one. The tourism industry is critical to the state’s economy. Like every industry, it needs to be better understood, creatively expanded and better marketed. And squabbling over how to define its impact doesn’t serve any of those goals.

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