Economic Impacts Of Tourism On Michigan Economy

Economic Impacts of Michigan Commercial Recreation Industries Presenter: Daniel J. Stynes For Commercial Recreation Legislative Forum East Lansing, MI. May 21, 1997

Outline of Presentation

1. Economic Growth – Theory 2. Economic impacts - Concepts 3. Statewide Importance 4. Regional impacts 5. Segments of Tourism/Commercial Recreation Industry

1. Economic Development and Growth – The Theory

Economic Base model: Economy grows by exporting goods (or services) outside the region. Exports bring income & wealth into the region, in exchange for our labor & raw materials. Exports may include natural resource products and goods at various stages of processing, generally seek high “value added” industries.

Old View: Manufacturing has traditionally been viewed as key export industry driving the local economy Service industries were thought of as “housekeeping chores” of the economy, of little importance.

Today: Services can be as important as manufacturing to the economy. Tourism is an export industry – brings in income to MI or a local region in exchange for tourism services. High percentage of tourism sales goes directly to income. Commercial recreation businesses add value to our natural resource endowment – are naturally high in value added as most of the inputs are labor. Retirement, seasonal homes, and other services are also export industries that are very important to many regions of the state. Leaders have slowly recognized that services can also be an important economic base for the state and sub-regions. Economic stability comes from a diversified economy that can adapt to changes in the market.

Major differences between manufacturing & tourism are well known Manufacturing - year-round, high paying jobs, full time, large firms, product delivered to consumer. Tourism – seasonal jobs, many low pay, part time, small businesses, consumer comes to “plant” and consumes the product/service on site.

Commercial Recreation Businesses are a mix of

Local Services - RV & boat dealers Tourism services - B&B, campgrounds, charterboats Both - Marinas, canoe liveries

Small & very small businesses Labor intensive, many “non-employers” Each business plays small role in much larger industry 2. What do we mean by economic impact of tourism? - Concepts

Economic Impacts of Tourism on the Michigan (or Local Region) Economy a. Economic Impacts -- changes in sales, income, jobs, tax revenues, value added resulting from the activity or action of interest, in this case tourism or commercial recreation businesses. I’ll use tourism throughout the presentation as in most cases, one cannot separate the commercial recreation businesses from the broader tourism industry and markets. b. Activity = Tourism or Commercial Recreation Business --- Varying definitions of what these include.

Types of spending: Visitor Spending – most common economic indicator of tourism activity - translates to business receipts in many businesses Construction and Investment Government spending on tourism – both capital investments & operations Business Spending -operations captured in visitor spending/receipts, capital investment captured in construction & investment Which visitors? Out-of-state visitors - impact of new dollars to the state Non-local visitors - impacts of new dollars to the local region All visitors - size/importance of the activity to the area

Commercial recreation businesses Some sell equipment and services to tourists in their home communities Some sell products out-of-state (various recreation equipment manufacturers) Some serve visitors passing through or en route to a destination Some attract tourists who spend money at their business and elsewhere in region Most serve tourists attracted by a package of goods and services at the destination. c. Regions of interest : Statewide impacts Regional impacts Local impacts d. Direct, Indirect and Induced effects – Multiplier Effects

Visitor spending and capital investments capture only the direct effects of tourism Direct effects are the impacts in the sectors directly receiving tourist dollars, e.g. receipts by commercial recreation businesses. Multiplier effects – secondary effects of tourist spending Indirect- impacts in backward linked industries that sell goods and services to tourism businesses (e.g. linen supply firm serving hotels). Induced – impacts of household spending of income earned from tourism

Multiplier effects have been generally exaggerated and abused. One should first get good estimates of direct effects and keep multiplier effects separate so they may be included or not, as desired. I will stick largely to direct effects in this presentation. Most of the multiplier effects of tourism are from induced, not indirect effects. Generally at the statewide level, tourism spending multipliers range from 1.5 to 2.0. For most local regions a tourist spending multiplier of 1.0 is recommended. 3. Michigan Tourism & Commercial Recreation - Statewide Importance

Michigan Jobs Commission estimates that tourists to Michigan spent about $8 billion in 1994. That’s out of roughly $450 billion in total sales for Michigan – about 2% of all sales. These figures cover all spending by travelers in Michigan on trips away from home of 50 miles or more and/or overnight. Source is The Michigan Travel and Tourism Statistical Handbook (1997). Travel Michigan.

Table 1. 1994 Michigan Tourism Spending $million Jobs Public Transportation 1,936 20,400 Auto 1,921 6,300 Lodging 1,088 25,500 Food 1,873 45,300 Entertainment/Recreation 529 13,100 Retail 595 5,800 Travel Planning 6,300 Total 7,942 122,700

Table 2 compares tourism with a more familiar industry- auto manufacturing. Notice the dramatic changes in ratios of the two industries for the different measures of economic activity in each column. There are 300 tourism firms for every auto firm, roughly comparable numbers of jobs, although auto sales exceeds tourism by a factor of 20.

Table 2. Autos and Tourism- A Comparison. Sector Sales ($millions) Income Jobs Firms ($millions) Motor Vehicle Manf. 78,742 16,148 147,249 47 Tourism Direct Sales 4,000 2,000 123,000 15,000 Ratio: Auto manf/Tourism 20:1 8:1 1.2:1 1:300 Source 1992 Economic Censuses, Manufacturing and Services.

Table 3 is my quick and dirty estimate of spending associated with the commercial recreation businesses represented here as a proportion of the state’s tourism spending estimates. Note that only a third of the commercial recreation business-related spending falls under tourism, while two thirds is either durable goods purchases or local spending.

Table 3. Commercial Recreation Businesses & Tourism Segment Spending Tourism Local ($MM) ($MM) ($MM) Camping 500 220 280 Boating 1,300 300 1,000 Canoe 10 8 2 B&B 37 37 0 Festivals & Events 500 200 300 Total 2,347 765 1,582

$765 million = 10% of the $8 billion in tourism spending About twice this amount is not included in tourism estimates About 2/3 of commercial recreation business serves locals 4. Regional Impacts of Tourism

Commercial recreation businesses and tourism more generally are distributed unevenly throughout the state. In many rural areas and throughout most of northern Michigan, tourism exceeds manufacturing and most other industries in economic activity. While tourism activity is larger in absolute terms in metropolitan areas, here tourism constitutes a small portion of overall economic activity. A few years ago, I estimated the proportion of total industrial output (TIO) in each Michigan County attributable to direct tourism spending. These estimates DO NOT include multiplier effects, construction, or durable goods purchases. The table below gives the top twenty-five counties.

Table 4 . Tourism Spending and Relative Economic Importance by County, circa 1990 Tourism Spending by Lodging Segments ($000’s) As Pct of COUNTY MOTEL CAMP SEASHOME VISITF&R DAYTRIPS TOTAL TIO

Mackinac 47,241 1,684 14,137 976 10,960 74,998 34.5% Keweenaw 2,118 612 4,494 156 510 7,889 31.1% Lake 1,067 1,946 26,114 785 371 30,283 31.0% Alcona 1,173 2,098 23,541 928 418 28,158 22.3% Roscommon 9,399 2,433 44,436 1,808 2,442 60,518 18.9% Schoolcraft 21,005 1,000 6,237 5,387 3,606 37,235 18.2% Crawford 15,705 2,932 16,430 1,121 3,773 39,962 17.9% Oscoda 955 1,049 18,984 717 334 22,039 17.7% Leelanau 18,703 2,126 20,443 1,511 4,521 47,305 16.4% Montmorency 2,622 981 20,467 817 732 25,618 16.3% Antrim 31,639 1,241 23,006 1,663 7,504 65,052 15.3% Emmet 54,259 2,047 21,472 2,290 12,778 92,846 10.8% Clare 1,420 3,437 40,597 2,282 694 48,429 10.8% Cheboygan 13,029 4,551 20,290 1,957 3,296 43,123 10.2% Alger 12,814 918 6,503 820 3,063 24,118 9.5% Benzie 4,820 1,505 15,411 1,116 1,283 24,133 9.5% Ogemaw 1,594 1,863 23,848 1,708 641 29,654 8.2% Gladwin 892 812 23,066 2,002 528 27,300 7.9% Chippewa 15,891 2,381 16,755 3,164 4,146 42,336 7.7% Gogebic 9,751 995 8,855 1,651 2,497 23,749 7.6% Charlevoix 25,251 1,118 18,978 1,963 6,092 53,402 7.1% Grand Traverse 118,042 2,706 16,150 5,877 30,474 173,250 7.1% Otsego 22,933 1,247 15,586 1,642 5,510 46,918 6.9% Missaukee 993 1,147 11,824 1,111 407 15,481 6.5% Presque Isle 1,786 858 12,785 1,257 612 17,297 6.4% MICHIGAN 1,696,196 220,536 917,160 850,000 550,000 4,233,893 1.5%

TIO= total industrial output = total production/sales in each county

Spending for each lodging segment is the total spent in the destination county by tourists in the given lodging segment. The spending figures include purchaser prices of all retail purchases, which will somewhat inflate the percentages of TIO in each county.

SOURCE: Stynes, D.J. 1996. Recreation activity and tourism spending in the Lakes States. 5. Segments of Tourism & Commercial Recreation Industries

Table 5. Segments of the Recreation/Tourism Industry All Tourism Receipts Sector Firms Firms $MM Lodging Hotel/Motel 2,642 2,642 1,213 *Campground (Pvt) 533 533 48

Transport ation Air 271 271 809 Auto (Gas service) 4,334 1,084 5,462 Boat-marinas 167 167 82 Travel arrangements 911 911 255

Food Restaurants 18,412 3,682 7,062 Groceries 5,251 525 10,433 U-pick operations 1,123 1,123

Recreatio n/entertai *Amusements/rec 3,791 948 2,201 nment services Canoe liveries Ride operators

Durable goods – Boat dealers 234 234 389 RV’s dealers 134 134 281 Hunting & fishing Sportingequipment goods & bike 951 238 634 shops

Total 12,492 Source: Compiled from 1992 Economic Censuses

Not covered above

Government operations and activity Retail sales other than gas service stations Associations festivals & events Seasonal Homes Table 6. Recreation Activity Market Segments Person Spending Trip Durable Days ($millions) Spending Goods (millions) ($millions) ($millions) Boating 14 1,400 656 726 Fishing 25 1,300 500 785 Hunting 15 873 205 668 Camping 10 500 220 281 Seasonal 26 1,800 900 900 DownhillHome 2 450 150 75 GolfSki (guesstimated) 23 700 500 200 Tourism 142 8,000 3,435 all trips SOURCE: Compiled from various sources.

Table 7. Summary of Commercial Recreation Association Members and Economic Activity

Association Members Total Businesses Sales Volume Payrolla

Lake to Lake 252 400 B&B’s $37 million guest $11 million income B&B’s 1,260 rooms spending MAPCO 230 530 pvt. +575 public $220 million camper trip $17 million payroll Campgrounds 1300 licensed cgs spending; in camps & RV parks MARVAC 96 RV dealers 131 RV dealers 13K new units sold $23 million RV (RV dealers) 104 16K used units sold dealer payroll campgrounds $281 million RV sales MBIA 415 651 Boat Dealers $389 million dealer sales $35 million Boat Boating 689 Marinas $1 billion boater dealer payroll 1,500 Associate spending $15 million Marina payroll MCBA 543 $13 million spending Charterboats RCA 67 162 500K trips 400 employees Canoe Liveries $800K payroll MFEA 375 FE assoc. 1,500-2,000 festivals 25 million guests Mostly volunteers Festivals & Events 220 Vendors in MI $500 million spending 60 others

a. Payroll data from 1992 Economic Census or industry estimates. Figures generally do not reflect complete coverage of the industry or its economic effects. Conclusions

Mostly small businesses some 15,000 firms in tourism and commercial recreation statewide probably about a third are “ Commercial Recreation” businesses.

Individual businesses Each business is relatively unimportant economically Most of these firms employ less than 10 people, many are “non-employers” Receipts less than $100,000 in many

Associations Associations play larger role, but firms are dispersed around the state. Boating, camping and festivals/events each account for over $500 million in spending/sales. Associations play major role in improving the quality and political clout of their member businesses.

Whole Industry The commercial recreation industry represented at this meeting generates roughly $2.5 billion in sales a year. These businesses probably represent at most half of the total for a larger industry that would include golf, fitness, downhill ski areas, snowmobile, off-road vehicle, bicycling, other hunting and fishing-related businesses and others.

Taxes $millions Federal 781 State 323 Local 117 1,221 Estimating the Economic Significance of Commercial Recreation Businesses in Michigan

1. What is a Commercial Recreation Business?

2. Measure(s) of Economic Significance or Impact

3. Sources for Reliable Estimates 1. What is a Commercial Recreation Business?

Represented here Others Bed & Breakfast Resorts Commercial Campgrounds Golf Boating Industries Snowmobile RV and Boat dealers DH/XC Ski Canoe Liveries Fishing Festivals & Events Hunting Bike/ORV In-Line Skate Exercise/Fitness Bowling Many Others Private Clubs

More Generally – A business that: Manufactures recreation equipment Sells recreation equipment and/or services it Provides recreation & related facilities & services For Local Residents For Tourists Measure(s) of Economic Significance or Impact

Number of Firms Sales by Industry (SIC code) Spending by Customers Income : Wage & salary, Proprietor’s Employment Tax Collections Capital and Investment

Number of participants/customers Days of participation Registered Vehicles/License sales Sources for Reliable Estimates

1. Industry reports – Table 7

2. Government economic statistics – Table 5

1992 Economic Censuses – retail, services, transportation, manufacturing

County Business Patterns – annual

3. Consumer/recreation spending studies – Table 6

4. Tourism Economic Impact Studies – Table 1 Stick My Neck Out Estimates

Tourist Spending

150 Million Person Days $8 billion spending $53 per/day $6 billion captured 75% captured 120,000 jobs 20 jobs/$MM sales $2 billion in income .33 income/sales 15,000 firms $16,667 income per job

Commercial Recreation – Camp, Boat, & Festivals

$800 Million of Tourist Spending (10%) $1.6 Billion Local Spending $2.4 Billion Total Spending

These businesses represent less than half of activity associated with commercial recreation businesses