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Tourism Budget Cuts Will Increase Deficit

Author: John W. Koebrer
July, 2003 Issue

On paper, the Governor's budget proposal to eliminate the entire state Division of Tourism appears to save $7.5 million. In reality, however, this cut will result in an even larger deficit in the state treasury.
Each dollar spent on tourism advertising brings more dollars directly into the state treasury according to a study conducted for the joint venture. A study of the 2001 advertising campaign, as reported on the division's website, showed the investment in tourism advertising "generated an estimated $6.88 in taxes for each $1 spent, or a total of $91 million in state taxes."

Through the new joint venture, California reversed a decade-long decline in domestic market share and billions of dollars in lost travel-related revenue and jobs for California. California's market share increased from 9.7% to 11.6%, competing against other states that have been marketing aggressively with significantly larger budgets.

The increased market share has infused an additional $8.7 billion in visitor spending into the California economy, creating 120,833 jobs and approximately $539 million in direct tax revenueÑall figures compiled by the state. The California tourism program has been so successful in creating economic growth that it has become a model for the nation.

As the number one travel destination in the United States, California annually generates more than $75 billion in direct travel spending. Tourism directly supports jobs for more than 1 million Californians and generates $5 billion in direct state and local tax revenue. Tourism is California's third largest employer. Tourism and the travel industry provide hundreds and thousands of badly needed entry-level jobs and an equal number of more managerial, financial, marketing and professional higher-paying jobs.

Unlike manufacturing and many other industries, the tourism industry cannot pick up its blocks and go play in another state. The industry, by its nature, must stick with California in bad times and in good. So when costs go upÑsuch as recent skyrocketing prices for workers' compensation and health care, as well as unemployment insurance tax hikesÑthe tourism industry must absorb the higher expenses.

All these layered costs are taking their toll and causing employers to begin to cut into muscle to make ends meet. Often, the result is decreased services, reduced overall quality, less maintenance and less competitive products and services. Many employers must resort to personnel layoffs to cut costs, thereby adding to the unemployment rolls.

In the late 1980s and early 1990s, it became painfully evident for both California and other states that had eliminated a well-funded, comprehensive approach to marketing and fulfillment, that market share evaporates quickly and dramatically.

If California eliminates its marketing program and the division that directs that program, its market share would be likely to shrink again. Such a decline would be especially hard on the rural economies left without any marketing program. These areas in our state already are severely depressed.
Considering the economic stress tourism is already undergoing, the argument that the industry could take up the budget slack is unrealistic in the post-Sept. 11 era.

California has quickly, in the last four years, garnered the dubious reputation of being one of the least friendly business states. The result is that businesses are not moving to California and are choosing not to expand in California.

This loss of jobs provides all the more reason to invest in an industry that still gives people a reason to be in California and that will be here tomorrow and for years to come.
Then there's that simple math again: for every $1 invested in promoting tourism in California, nearly $7 returns to the state treasury. Seems like a no-brainer to me.

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