Pure Michigan Campaign’s no-bid study ‘difficult to believe’

For a number of years, the Michigan Economic Development Corporation (MEDC) has purchased reports from a Canadian company called Long-woods International that purport to show very high returns from state spending on tourism ads. But these reports have a stunning lack of transparency that makes the uses to which they are put inappropriate and even patronizing to legislators and the people they represent.

The MEDC is the agency in charge of this state’s business subsidy programs, including tourism promotion. Its most recent contract with Long-woods generated a report that claimed the “Pure Michigan” advertising campaign has in-creased state tax collections by $6.87 for every $1 spent, for a 587 percent return on investment. The Legislature agreed to spend $33 million on the ads this year.

Such claims should come with a high burden of proof, yet the company refuses to disclose the calculations behind this extraordinary claim, and the agency that purchased the report appears unconcerned. Longwoods asserts that its methods are proprietary, or secret. But Michigan taxpayers, who paid almost $150,000 for this report, should not have to take the government’s word that such a claim is valid, much less the word of the private company that made it.

That’s especially true given the apparently cozy relationship between the company and the agency: Longwoods’ current chairman is the former MEDC official in charge of the state’s tourism promotion programs. Moreover, Longwoods’ MEDC business is the result of no-bid contracts.

Michigan is not Longwoods’ only state customer. In state after state, the company uses its secret methodology to produce similar reports, nearly all showing positive impacts from similar programs.

Michigan law generally re-quires contracts be open to competitive bidding, but it does allow for some exceptions. Since the MEDC did not seek multiple bids, it had to produce a “Sole Source Justification” document, which happens to lay bare the agency’s real goal: “The objective of this contract is to prove that the benefits for conducting a paid advertising program for tourism out weight [sic] the costs.”

The document continues, “As such, the effectiveness of the program can be demonstrated and the continued funding of the program can be justified.”

In other words, the real goal of the contract was to help the agency get more money from legislators for its budget.

Across the country, there appears to be plenty of demand for such budget-building services. The Mackinac Center has identified 12 states or local agencies that have purchased Longwoods International re-ports that give return-on-investment figures for money spent on promoting tourism.

A number of agencies are repeat customers. For example, the MEDC has apparently bought seven Longwoods reports, six of which have been published. All but one of the reports we located nationwide showed positive returns on investment from taxpayer-funded tourism ads.

The Mackinac Center first contacted Longwoods Inter-national in 2010, intrigued by the government vendor’s consistently positive findings on taxpayer-funded tourism spending. Bill Siegel, the company founder, explained in 2010 that on one occasion he did find a negative return from an agency’s tourism subsidies.

That outlier is a reminder that the government agencies that contract with Longwoods aren’t interested in purchasing reports that don’t justify their own budgets. The company has found some campaigns with low returns, and their customers are obviously reticent about publicizing those.

Longwoods is not the only consultant hired by the MEDC to produce economic impact or return-on-investment reports. Some of these vendors may actually select the most valid methodologies and calculate the most careful estimations. But without full disclosure and transparency, we can’t know for sure when that happens.

Given the MEDC’s incentive to justify its budget with unsupported claims, lawmakers should place an embargo on any further contracts evaluating Pure Michigan or other economic development programs. The embargo should remain in place until all such contracts are open to independent examination and review.

Michael LaFaive is director of the Morey Fiscal Policy Initiative for the Mackinac Center for Public Policy.