Weather Matters to Tourism Industry Profitability & Policy Formulation: The Case for Changing Michigan’s K-12 School Calendar
By Donald F. Holecek, Editor-in-Chief of Michigan Tourism Business
On a bright sunny day in mid-May, I walked over to the Michigan 4-H Children’s Garden to join several dozen Michigan tourism industry leaders to attend Governor Granholm’s kick-off event for her second annual tour to promote Michigan as a tourism destination. She, and all present, projected enthusiasm about the prospects for the industry in the coming peak summer season. In mid-August, we are over half way through our peak tourism season, so it is timely to consider how the season has unfolded so far and what might happen over the next few weeks.
The day after the Governor spoke about Michigan’s undiscovered treasures it rained. It seemed as though it rained the rest of May and into June with the heaviest rains coming on the weekends. Gasoline prices crept upward, also with the biggest increases coming before the weekends. But, there was growing evidence that the national economy and consumers’ confidence in it continued their recent healthy growth. Economic growth finally began to translate into robust employment growth, at least until the most recent reports, which haven’t been as upbeat. The Michigan economy has lagged the national economy’s recovery but finally appears to have gained forward momentum.
Looking ahead, gasoline prices have slipped somewhat recently, but the “experts” do not expect them to decline further. Global economic growth is driving demand for gasoline upward further stressing supply channels, which are operating at near capacity. Disruptions due to terrorism activity or “natural” events would lead to significant upward spikes in gasoline prices. On the economic front, rising interest rates are capturing the headlines. The good news in rising rates is that they confirm that the U.S. economy is growing; the bad news is that rapidly rising interest rates can dampen economic growth. The challenge the Federal Reserve Bank faces is to target rate increases to a level that promotes growth without harmful inflation. Among the best forward indicators of where the economy may be headed can be found in trends in U.S. stock indices. They reveal no trend, up or down. Generally solid profit growth by U.S. corporations, which would boost stock prices, is being offset by a host of uncertainties being factored into stock prices. These include uncertainties about oil prices, terrorism possibilities, who will win in the November elections, and how quickly the Fed will increase interest rates.
The U.S. tourism industry is generally experiencing healthy growth. The Travel Industry of America recently raised its already solid growth projection for 2004. Growth in demand for lodging is allowing properties to boost prices and reduce incentives. Airlines are filling more seats, with Northwest Airlines leading the sector with a 4.6% increase in seats filled this June compared to June 2003. Leisure travel continues to grow as it did even during the past several years of economic weakness. The good news, especially for the business travel dependent sector of the travel industry, is that the business traveler is back, but he/she is spending conservatively, especially when it comes to purchasing airline tickets, first class lodging accommodations, and expensive meals.
Evidence of how Michigan’s tourism industry is faring is not readily available. After sliding for about three years, room tax collections turned around with positive year-to-year growth beginning in June of last year. This trend continued through March 2004, the latest month for which data are currently available. Anecdotal evidence suggests that bookings are up strongly for the summer season but that unfavorable weather conditions early in the season kept demand below its potential. With weather conditions returning to “normal,” demand conditions are such that, in the late summer and early fall, Michigan’s tourism industry should experience robust year-to-year growth in earnings.
The weather pattern we experienced this year confirms what most in the industry believe significantly limits the profitability of the industry and its contribution to the Michigan economy and government’s tax revenue collections. They argue that changes in K-12 school calendars so that school would not begin until after Labor Day would have a substantial positive impact on the Michigan tourism industry. As an economist, I found this to be an interesting suggestion when it was first advanced some 20 years ago. Is this an example of an exception to the conventional economic wisdom, which holds that “There is no such thing as a free lunch?” Surely, I thought, the cost associated with changing school calendars would be minimal, so if the change would substantially boost industry sales the benefit-to-cost ratio would be so high as to approximate a free lunch for the industry and government’s tax revenue collections.
But, wouldn’t changing the school calendar simply shift tourism business from one part of the year to another resulting in no net gain across the year? When one factors in weather conditions, the answer to this otherwise logical question is definitely “no.” Tourism peaks in July and early August largely because conditions are ideal for a host of very popular outdoor activities. As was the case this year, late spring and early summer can challenge even the most avid outdoors enthusiast. Yet, changing the school calendar to, in effect, add two weeks to what is a six-week peak season for young families, teachers and others employed in Michigan’s K-12 public schools would have a minimal effect if they saved their travel budgets for Michigan trips when weather conditions were most suitable. However, this isn’t how modern families schedule their pleasure trips and spend their travel dollars. Most base their trip planning around when family members have overlapping leisure time. In K-12 families, prime travel time is whenever school isn’t in session. Only then do they select a destination that suits the recreational interests of family members. During the current major school holiday periods, this is unfortunately not often a Michigan destination. In effect, the existing school calendars in most public schools in Michigan promote out-of-state travel by residents, thereby contributing to Michigan’s $3 billion deficit in travel trade.
A couple of months ago, I was asked to develop an estimate of how much additional state tax revenue would be generated by legislation that requires K-12 public schools to open after Labor Day. With little time and no research budget, this appeared to be an impossible task. But, to my surprise, I was able to draw information from our past research and various secondary sources to arrive at a plausible estimate. My analyses indicate that the tax revenue increase would be conservatively in the range of $4 million. This $4 million in increased state tax revenue would be derived from about $70 million in additional direct travel spending. These direct expenditures would have over a $100 million total impact on the state’s economy due to multiplier impacts.
These projections indicate that post-Labor Day schools legislation would generate a significant “free lunch” for Michigan’s tourism industry, state government and the Michigan economy. Yet, there is an additional long-term benefit from this legislation which shouldn’t be overlooked. Businesses’ profits will rise faster than sales because their fixed costs will remain constant. Increased profits will encourage them to invest in business enhancements and expansions. In turn, these improvements in quantity and quality of Michigan’s tourism product offering will attract more tourists on a year-round basis, leading to yet more profits and state tax revenue collections. In effect, passage of this legislation can be expected to serve as a catalyst for sustainable long-term new investment in Michigan’s tourism industry.
Feel free to forward your comments to the editor-in-chief at dholecek@msu.edu.
