Corporate welfare

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Corporate welfare

by Ari Armstrong

The following article originally appeared at Boulder Weekly on June 22, 2006.

Funny -- I don't find a word about corporate welfare in the language of Referendum C, the massive net tax hike approved last November. Instead, voters were told that the money would be used for health care, education, transportation and retirement plans.

I do find that the state's constitution, Article XI, Section 2, prohibits the state from making "any donation or grant to, or in aid of... any corporation or company."

I warned in my Sept. 8, 2005, column that the state was spending millions of dollars on corporate welfare. And I warned on Sept. 22 that "the legislature could merely shuffle other money away from those programs [named by Referendum C] and replace it with the new money from Referendum C."

Joanne Kelley reports for the Rocky Mountain News (June 6) that the state passed a "sweeping $26.5 million economic development package that includes $19 million for tourism." The report continues: "Tourism proponents linked this year's breakthrough to the passage of Referendum C... 'It's because of Referendum C' that the bill passed this time around," said Sen. Jim Isgar, D-Hesperus, who serves on board of the Colorado Tourism Office."

And a June 11 editorial by The Denver Post assures us, "The $26.5 million economic development package signed by Gov. Bill Owens last week is a wise investment in Colorado's future prosperity. It's also a clear fruit of last year's successful bipartisan effort to pass Referendum C."

But why does the Post believe that forcibly redistributing wealth for such purposes is wise? "A study by Longwoods International concluded that for every $1 the state spent promoting tourism in 2003, state and local governments received $15.58 in taxes."

Yet Longwoods is hardly an impartial research outfit. On its web page, Longwoods publishes three "Client Case Studies." The one about Colorado is called "Budget Justification." The web page states that, in 1986, "The Colorado Tourism Board (CTB) hired Longwoods to conduct an image study as input into a new advertising campaign."

The web page continues, "In 1997, the CTB was reconstituted and given a one-time, $2.1 million appropriation. Longwoods was commissioned to carry out visitor and economic impact research to demonstrate the importance of tourism and provide ammunition in the industry's efforts to convince the State Legislature of the need for permanent funding for tourism marketing."

In 2002-2003, the state hired Longwoods to conduct a study "used to help secure future funding" for tourism.

Of course, just because Longwoods has a financial interest in declaring the benefits of corporate welfare doesn't mean its studies are wrong. The state's web page, Colorado.com, lists under "Industry Partners" the "Longwoods Colorado Visitors Study" from 1999 to 2004. I'll refer to the latest one.

First, a couple of broader points. Philosophically, the proper purpose of government is to protect individual rights, not forcibly transfer wealth. Ayn Rand argues that people produce wealth and achieve values by use of reason, which thrives in economic liberty and suffers by the initiation of force.

Economically, in a market people have the knowledge and incentives to voluntarily interact with others to produce and trade to greatest benefit. But what about the free-rider problem, which may reduce the incentive of individual businesses of tourism to contribute to advertising that benefits the industry? Private parties regularly solve such problems on the free market. Yet government spending, notoriously inefficient, is regularly captured by special interests to benefit the few at the expense of the many. Those who don't benefit from tourism are also taxed.

The Longwoods study ignores alternate uses of the money. Yet every dollar collected in taxes is a dollar less in the pockets of those who earned it, who would otherwise spend the money with other businesses.

The study also assumes the tourism industry would be otherwise unable to fund its own marketing. But businesses of tourism are perfectly free to fund their own advertising, either individually or in combination.

The Longwoods study also seems to suffer from a serious methodological problem. (My additional questions on the matter were not answered as of my deadline). The study claims that millions of people visited "due to advertising" by the state. But how does Longwoods know this? It sent out surveys that "included black & white copies of print ads and the web banners, and storyboards of television ads that had been run in prior months."

Then people self-reported whether they remembered these ads. Then Longwoods "related data from this survey to visitor expenditure data gathered in Longwoods' 2003 Colorado Visitor Survey and tax impact data from Dean Runyan Associates' report 'The Economic Impact of Travel on Colorado, 1996-2003'" (also available through the state's web page).

Michael Erdman of Longwoods said the survey asks people whether they recognize advertising and whether they came to Colorado, but not "the intermediate question of whether this advertising persuaded them to come."

Obviously people who are already more inclined to visit the state are more likely pay attention to and "remember" (accurately or inaccurately) advertising about the state. Thus, the Longwoods study reverses cause and effect. The claim is that people came to Colorado because they saw the advertising. The reality is that people predisposed to visit Colorado are more likely to claim that they've seen the advertising.

The study's fantastical claims are clearly unwarranted. To the extent that advertising does help the tourism industry, though, that proves only that the tourism industry should fund its own advertising.

The Colorado Freedom Report--www.FreeColorado.com