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Colorado’s experience with defunding tourism

“Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”

Gov. Jim Justice can commiserate with the turn-of-the-18th-century sentiment of John Wanamaker, a Philadelphia retailer, who introduced fixed prices and merchandise returns to the industry. He also purchased the first half-page (1874) and full-page (1879) newspaper advertisements in history.

Management often faces the dilemma of promoting a product or improving it. Not that both can’t be done simultaneously, especially if you listen to the quality-management folks. But sometimes it is a competition between product and promotion.

Well, let’s look at our product: West Virginia.

We are the only state in 2016 whose deaths exceeded births, while also suffering from out migration. Some 2,700 more West Virginians died than were born, accounting for more than one-fourth of our total population loss of 10,000. That decrease was the most of any state relative to population size.

We’ve made progress, as the unemployment rate dropped from 6.8 percent in 2015 to 6 percent in 2016, but not enough. We still have one of the highest unemployment rates of any state, while out migration continues.

Some 17.9 percent of us live in poverty, fifth-highest in the country, and we have one of the oldest populations of any state.

On the other side, we have some of the greatest natural beauty in the country. Check out the pictures on the West Virginia tourism website at gotowv.com if you don’t believe me.

Justice proposed to spend $20 million this year to promote tourism. That’s almost triple the current $7.42 million marketing budget.

Some say we shouldn’t spend money on promoting the state until we have raised salaries and/or other things. Justice’s position, I presume, is that promoting the state increases cash spent here, which increases taxes raised here, which gives us the cash to improve salaries and/or pay for other things.

What should we do?

Well, if states are each a living laboratory in our federal system, then we ought to pay attention to what happened to Colorado when it eliminated its tourism marketing promotional budget in 1993 — $12 million to zero overnight. Now that’s serious downsizing.

Bill Siegel, founder and CEO of Longwoods International, a market research firm with expertise in tourism, prepared a report on Colorado’s experience.

Colorado’s winter tourist season was well-entrenched by the early 1990s, but the summer season wasn’t. That was the focus of the Colorado Tourism Board’s promotional budget, paid for by a tax of 20 cents on every $100 of tourism expenditures.

Coincidentally, in 1992, Colorado amended its constitution, requiring new taxes to be approved by state voters. In 1993, the short-term Colorado tourism tax ended, and it came before voters to extend. It didn’t pass. So, Colorado’s tourism budget went from $12 million to zero dollars, just like that.

What happened?

Within two years, Colorado lost 30 percent of its U.S. tourism business, resulting in $1.4 billion in lost revenue. That increased, Longwoods estimated, to $2.4 billion by the late 1990s. Another independent economic impact study confirmed the results.

Colorado’s attempt to market the state with private funds during this time was of little impact, as industry contributions were not mandatory or focused.

In 2000, a new Colorado Tourism Office was formed and received $5 million of funding. By 2004, the new promotion had generated $1.4 billion of additional tourist spending and $89.5 million in state and local taxes, which increased over the years.

The Longwoods report concluded that more than $190 in overall tourist sales were created for every state dollar spent, yielding a 12-to-1 bottom-line return on Colorado’s investment in taxes raised.

Will this work for West Virginia? Nothing is guaranteed, but it is a good indicator of the range of return we can expect.

One thing we can guarantee, however: No investment will result in no return.

Full story here.