Economic Impact Studies: Instruments for Political Shenanigans?

attributed to tourists. It is the return that residents receive that is important, rather than only that proportion of the total return that filters back to the council. Economic impact analyses have an obvious political mission. They invariably are commissioned by tourism entities and usually are driven by a desire to demonstrate their sponsors' positive contribution to the economic pros- perity of the jurisdiction that subsidizes their programs or projects. The intent of a study is to position tourism in the minds of elected officials and taxpayers as being a key ele- ment in the community's economy. The effectiveness of this strategy is illustrated in the case study reported in Appendix A. Another approach that used economic impact data to reposition a tourism investment is shown in Table 1. The city was considering termination of one of its festivals because its net cost to the city was $230,000. However, when this investment is reconceptualized as residents' money rather than the city's money, the key measure is revenue accruing to residents, not the city. This embraces expenditures by vis- itors both inside the festival gates and elsewhere in the com- Most economic impact studies are commissioned to legitimize a political position rather than to search for economic truth. Often, this results in the use of mischievous procedures that produce large numbers that study sponsors seek to sup- port a predetermined position. Examples are selected pri- marily from the reports of ostensibly expert consultants that illustrate 10 of these mischievous procedures: including local residents; inappropriate aggregation; inclusion of time-switchers and casuals; abuse of multipliers; ignoring costs borne by the local community; ignoring opportunity costs; ignoring displacement costs; expanding the project scope; exaggerating visitation numbers; and inclusion of consumer surplus. The political payoff of these shenanigans is discussed. The conceptual reasoning for commissioning economic- impact studies is illustrated in Figure 1. It shows that resi- dents and visitors in a community give funds to the city council in the form of taxes. The city council uses a propor- tion of these funds to subsidize tourism events, promotions, activities, or facilities that attract out-of-town visitors who spend money in the local community. This new money from outside the community creates income and jobs for resi- dents. This completes the virtuous cycle of economic devel- opment (Crompton 1995). Community residents, aided by visitors' bed and sales taxes, are responsible for providing the initial funds, and residents receive a return on their investment in the form of new jobs and more household income. It is the income that accrues to residents that pro- vides the justification for a community's bearing the costs that are associated with tourism. The purpose of economic impact analysis is to measure the broader economic benefits that accrue to a community. Sometimes, the cycle shown in Figure 1 is perceived to start and end with the city council. This leads to a narrow defini- tion of economic impact that includes only the taxes and rev- enues collected by local government from the tourism event or facility. Such a narrow definition suggests the council should receive a satisfactory return on its investment from lease fees, rentals, admission revenues, increased sales-tax revenues, or whatever. However, this approach is flawed conceptually because the money invested does not belong to the council; rather, it belongs to the city's residents. Economic impact is defined as the net economic change in the incomes of host residents that results from spending