Like most states, Missouri’s constitution requires balanced budgets–on an annual basis–forcing the governor to make cuts when revenues fall below budget projections. As reported in the Springfield News-Leader and elsewhere, the Missouri Department of Economic Development has announced that the budget for its Division of Tourism must be sliced by 35%, or $7 million, which will result in a loss of 2,500 private sector jobs in the hospitality industry.
For discussion, here are a couple of my reactions to the cuts in spending for tourism.
Why do the taxpayers subsidize Missouri’s tourism industry?
The tourism industry has convinced Missouri’s legislators that spending taxpayer money on tourism advertising will result in more tax revenue than the amount spent on advertising. The tourism industry spends lots of its own money on advertising and other forms of marketing, but has the lobbying ability to sell the legislature on putting some taxpayer dollars into the effort.
Other industries get government subsidies also in many forms, such as licensing requirements (doctors, lawyers, CPAs, insurance agents, real estate brokers and appraisers, beauticians, barbers, etc.), finance programs (TIFs, property tax abatements, linked-deposit program, allocation of tax credits for housing, etc.), sales tax exemptions, and on and on. Agriculture has a vast web of federal and state infrastructure of support systems. The subsidies written into Missouri law each have constituents from the business world, but also from consumer groups and other kinds of advocacy groups.
If tourism advertising brings in lots of tax revenue, why are we cutting now?
The problem is that the business cycle and the government budget cycle are not the same length. While the federal government, which is not required to balance, is borrowing and spending huge amounts to stimulate the economy, state governments do not have this ability, because they must balance every year. The balanced-budget mandates on states can actually make a recession worse.
If state budgets were required to balance on a five-year budget cycle, then we might be able to do some borrowing to keep up revenue-producing expenditures when we need them most, cutting back in the flush times. But you know what would happen: the industries with the most power would never allow the legislators to cut back in the flush times, but would say that we could get even more tax revenues when people are spending, and if we don’t, the tourists will go to other states. In other words, our government, like ourselves, probably lacks the discipline to be wise in the long run. As individuals, we mature and become more responsible; government remains ever immature and opportunistic.
If we have a legislature full of conservative, small-government, free-enterprise advocates, why do they subsidize industry with taxpayer dollars?
The reality is that the legislative process is a redistribution game, in which legislators are in the middle of a frenzied circle in which they are pushed and shoved and threatened and encouraged by representatives of business interests and special interest groups and by their own party leaders. Most of the lobbyists are not asking that spending be cut, but that it be provided to their respective groups. A legislator who is against all spending doesn’t receive campaign contributions, unless the spending cuts are for programs whose constituents (Medicaid recipients, for example) are not well-organized, and even those cuts can backfire. A legislator has to back some spending programs to get reelected.
Through this process, the legislators hammer out a budget based on estimates provided to them by consultants. They do what they can in the time allotted for the legislative session and then they go home. If the revenue is short, the governor has to make cuts.
If we lose tourism jobs, are we worse off?
The individuals who lose their jobs are worse off, at least temporarily. Job losses are sometimes devastating. Sometimes loss of a job leads to a better job. In this depressed economic climate, replacement jobs may be difficult to find.
For the employer, reduction in labor costs resulting from layoffs make may an enterprise more efficient and more profitable.
Tourism is a big part of the Ozarks economy. Maybe it’s too big, if it requires large subsidies. Or maybe the subsidies make it bigger than it ought to be and more vulnerable to changes in demand for its services.
Ozarks Law & Economy 