THE ECONOMIC IMPACT OF

          CENTURY CENTER TOURISM:

          UPDATE AND 2003 PROJECTIONS

 

 

 

 

 

 

 

 

 

 

Jerome L. McElroy

Professor of Economics

Saint Mary’s College

Notre Dame, IN 46556

jmcelroy@saintmarys.edu

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 15, 2003

 

Scope

 

            The purpose of this update of an earlier report (McElroy and Vihtelic, 1990) is to provide an overall estimate of the economic impact of Century Center (CC) in the local economy.  Specifically it updates, in so far as the data allow, the parameters for the methodology Century Center staff employ to estimate annual impacts, and it provides estimates of the 2003 impacts.  Because background data and documentation are fragmentary and the projection methodology eclectic, the results are considered provisional until better data become available.  Most extensive attention is given to projecting visitor numbers and expenditures for 2003 with secondary emphasis accorded the employment and tax impacts.

 

Spending Impact

            To estimate total visitor spending exclusively attributable to CC for 2003, it was first necessary to determine:  (1) the number of total convention delegates from outside St. Joseph County (i.e. tourists) expected to be attracted to CC in 2003, (2) their average length of hotel stay, and (3) their per capita local spending.

            To project the number of incoming delegates, several tourism trends were considered.  For example, since 1980 international tourist arrivals across the globe have increased above five percent per year (WTO, 2002).  Since 1990 tourist arrivals and expenditures in the U.S. have risen four percent annually (TIAA, 2003).  Since 1997 visitor arrivals to Indiana have increased 4.7 percent (ITC, 2003) per year.  In 2002, the CC delegate count was 3.2 percent above 2001 levels (Century Center News, 2003).  Based on this history, a four percent projection was chosen as reasonable.  Despite the uncertainty of terrorist attacks, the weak economy, limited airline access and rising gas prices, Indiana is geographically well-positioned to capitalize on the trend toward shorter, driving trips and ranks above its Midwest competitor states in accessibility and repeat visitation (ITD, 2003).

            Based on this four-percent projection, the number of CC delegates or tourists to St. Joseph County in 2003 is projected to be 28,330 (27,240 x 1.04).  This seems justified according to the following analysis.  To date the CC delegate count is 12,420 for the first two quarters of 2003.  Historically the proportion of delegates visiting CC in the first half of the year has averaged between 44-46 percent of the year-end total because of heavier activity in summer-fall over winter-spring seasons.  Assuming continuation of this past experience, the estimated delegate count for all of 2003 would be 28,227 (12,420/0.44), a figure that approximates the four-percent projection of 28,330.

            To determine the average length of delegate stay (ALOS) in St. Joseph County, a survey was mounted by Century Center staff in Fall, 2003 (Holtz, 2003) because of the widespread casual observation that the previous estimate of 1.65 days, established in the 1990 study (McElroy and Vihtelic, 1990), was too low.  During the four months of July through November, five delegate groups were surveyed concerning their length of hotel stay.  A total of 158 or six percent were sampled out of a total population of 2,630 delegates.  Table 1 records the unweighted  ALOS estimates for each group.  Then weights were assigned to each ALOS estimate based on each group’s percentage of the total sample.  Finally, the contribution of each group to the weighted ALOS was calculated by multiplying the sample weight against each group’s unweighted ALOS.  The sum of these weighted contributions represents the weighted ALOS of the survey:  2.57 days.  Because of the small number of groups sampled as well as the small size of the total sample (6%), a more conservative figure of 2.4 days was used in the analysis pending further survey research.

This figure is in line with U.S. estimates by TIAA (2002) that convention delegates to state and local events spend over two nights in the host city.  It also seems reasonable given that in 2000 all visitors (including sightseers, those visiting family/friends and conventioneers) to South Bend/Mishawaka spent an average of 3.6 days (Certec, 2001).  Employing this average stay yielded a total number of delegate days attributed to CC events of 67,992 (28,330 x 2.4). 

To estimate average spending per delegate per day, the average value of $125 established in 1990 was also adjusted—in the absence of more recent survey data—to reflect cost of living increments over the past decade.  This updating was based on changes in the U.S. Consumer Price Index (CPI) because recent TIAA research indicates the so-called “Travel Price Index” closely parallels the overall CPI.  Accordingly, between 1990 and 2002, the CPI rose from 130.7 to 179.9 for an increase of 37.6 percent (BLS, 2003).  Likewise, over the same years the CPI for the Midwest region rose from 127.1 to 174.9 for an increase of the same 37.6 percent.  Assuming that inflation in 2003 will run between 2-3 percent, an adjustment of 40 percent was used.  This raises per delegate spending to $175 ($125 x 1.40) per day in 2003.

             To project total delegate spending for 2003, the number of delegate days of 67,992 was multiplied by the updated average daily delegate expenditure of $175 to obtain $11,898,600.  To this sum was added an additional twenty percent ($2,379,720)—an industry rule of thumb ratio—to account for event promotion, specifically local spending for meal/cocktail functions, entertainment, equipment rentals, staff living expenses and so on.  This yielded total local direct spending of $14,278,320.

            As these primary direct delegate or export dollars filter in the area economy, they stimulate secondary rounds of spending across St. Joseph County.  This induced or indirect spending is measured by the multiplier or so-called “rollover” which combines both direct and indirect (primary and secondary) effects.  A multiplier of 2.0, commonly employed in local impact studies, was used to project the total local economic impact attributed to CC delegate spending:  $28,556,640 ($14,278,320 x 2.0).

Related Spending Impacts

            In conjunction with the economic impact produced by CC delegate dollars, this major convention facility also generates three additional local spending streams associated with its overall operation.  These are primarily supported by the visitation and use CC receives from local businesses and patrons and thus can be treated as separate and distinct from out-of-county (export) impacts.  The three include staff salaries, local purchases, and the so-called “import substitution impact.”

            To project these values for 2003, in the first case staff salaries were simply adjusted with the four-percent factor to the 2003 estimate of $2,322,855 ($2,233,514 x 1.04).  In the second case, local CC purchases, at 50 percent of gross spending to account for in-county activity only, were similarly adjusted upwards by four percent to $1,022,800 ($983,462 x 1.04).  In the third case, the import substitution impact was justified on the following grounds.  The presence of CC in St. Joseph County in general and its sponsorship of a number of consumer shows annually in particular allow a certain number of county residents to participate in local events instead of attending similar conventions away from home.  As such, CC retains a certain portion of local convention spending that otherwise would be exported to other destinations and not circulate in the local economy.  Instead of importing the convention experiences by traveling elsewhere, these residents are able to spend their dollars locally, hence replacing imports.  For purposes of this analysis, these residents are called Import Substitution (IS) delegates.

            To calculate the impact of this replacement spending, it was necessary to estimate:  (1) the number of IS delegates, (2) their average stay or participation in CC events, and (3) their average daily spending.  In the first case, according to local economic expert John Peck of IUSB, twenty percent of CC consumer show visitors represent IS delegates.  In 2002 CC hosted 55,500 consumer show visitors.  With the use of the four-percent factor, 57,720 were projected for 2003.  As a result, 11,544 IS delegates (57,720 x 0.20) were estimated for 2003.  Since consumer shows are normally relatively short weekend events, in the absence of survey data, an estimate of 1.7 days was used for the average length of stay or participation in CC events for these IS delegates.  This yields a total of 19, 625 (11,544 x 1.7) IS delegate days.

            To determine average IS delegate spending per day, it was assumed that IS delegate spending paralleled the daily out-of-county CC delegate pattern, i.e. $175 per day.  The result yielded total IS delegate expenditures of $3,434,375 (19,625 x $175) projected for 2003.  To this total must be added the twenty percent promotional expenses required to put on these consumer shows of $686,875 ($3,434,375 x 0.20).  As a result, total direct spending from these resident delegates is projected to be $4,121,250, and total economic impact (direct and indirect:  x 2.0) to be $8,242,500.

            In summary, the economic impact of Century Center activity is projected to approach $30 million in 2003.  Specifically, this includes the following four separate spending impacts:

                        Delegate Spending…………..$28,556,640

                        Staff Salaries………………...$2,322,855

                        Local Purchases……………..$1,022,800

                        Import Substitution………….$8,242,500

                                    Total………………....$40,144,795

In 2000 Certec (2001) estimated the total visitor spending impact in St. Joseph County to be $454.8 million.  If this visitor spending impact increased from 2000 through 2003 at the same rate as overall inflation, i.e. at 6.5 percent (172.2 to 183.3; BLS, 2003), this would yield a total county tourist spending impact of $484.4 million ($454.8 x 1.065).  In this scenario, projected CC tourist expenditures of $40 million would represent over eight percent of that county total.

Employment and Tax Impacts

            There are additional local employment and tax impacts associated with CC activity.  Measuring these effects, however, is highly speculative because they are based on very aggregative and somewhat dated data.  Nevertheless, if the relationships that obtained in 2000 basically hold for 2003, the following guesstimates can be made.  According to the Certec (2001) study of tourism in St. Joseph County, roughly $455 million in visitor-related spending supported 7,450 full-time jobs, primarily in the retail, food service, transport and lodging sectors.  This means it took $61, 073 in spending impact to support one tourist job.  This is similar to estimates in the TIAA (2000) study, 2000 Economic Impact of Travel on Indiana, in which $59, 252 supported one job ($6.7 billion in spending/113, 000 jobs).  If the same Certec relation holds for CC spending in 2003, this yields a total of 657 ($40.1 million/$61,073) tourist-related jobs.  This total represents over eight percent of the total 7934 tourist jobs estimated by Certec for 2000 and updated for 2003 (7450 x 1.065).

            In a similar way, the 2000 Certec study suggested that the $454.8 million in visitor spending impact generated roughly $120 million in total federal, state and local taxes.  State and local taxes amounted to $64 million.  This means that, on average, every tourism impact dollar generates 14 cents in state and local taxes ($64 / $454.8).  If the impact is similar today and applies equally to convention spending, one can speculate that CC will be responsible for $5.6 million ($40.1 x 0.14) in state and local taxes in 2003.  In brief, the overall impact projected for Century Center in 2003 is to create over $40 million in local economic activity, generate nearly $5.6 million in Indiana and St. Joseph County tax revenues, and support 650 tourist-related local jobs.

References

 

Century Center Productions.  2003.  “Annual Report 2002:  A Year to Remember.”  Century Center News (Summer):  1.

 

Certec, Inc.  2001.  Economic Impact of the South Bend/Mishawaka Area Tourism and Travel Industry-2000.  Lexington, KY:  SB/M Convention and Visitor Bureau.

 

Holtz, Sandy Lee.  2003.  Century Center Economic Impact Study:  ALOS Survey.  South Bend, IN:  Century Center, Fall.

 

Indiana Tourism Council.  2003.  2003 Annual Report on Tourism to Governor O’Bannon.  Indianapolis, IN:  ITC.

 

Indiana Tourism Division.  2003.  2003 Hoosier Hospitality Conference Tourism Report.  Indianapolis, IN.  http://www.IN.gov./tourism/professionals/tsearch.html.

 

McElroy, J.L. and J. Vihtelic.  1990.  The Economic Impact of Century Center Tourism in St. Joseph County.  Notre Dame, IN:  Saint Mary's College, Department of Business Administration and Economics.

 

Tourism Industry Association of America.  2003.  Travel Statistics and Trends.  Washington, DC:  U.S. Department of Commerce, Bureau of Economic Analysis.  http://www.tia.org.

 

Tourism Industy Association of America.  2002.  Tourism Works for America, 11th Annual Edition 2002.  Washington, D.C.:  U.S. Department of Commerce, Bureau of Economic Analysis.

 

Tourism Industry Association of America.  2000.  2000 Economic Impact of Travel on Indiana.  Washington, DC:  US Department of Commerce, Bureau of Economic Analysis, Table 2000 Indiana, p. 44.

 

U.S. Department of Labor.  2003.  Consumer Price Index.  Washington DC:  Bureau of Labor Statistics.  http://data.bls.gov/cgi-bin/surveymost.

 

World Tourism Organization.  2002.  Compendium of Tourism Statistics.  Madrid, SP:  WTO.

Table 1

Estimated Average Length of Stay (ALOS), 2003

 

Group

 

Delegates

 

Sample

Unweighted

ALOS

 

Weight2

Weighted

ALOS3

 

I

 

400

 

17

 

2.18

 

.11

 

0.24

 

II

 

400

 

23

 

2.39

 

.15

 

0.36

 

III

 

900

 

11

 

2.72

 

.07

 

0.19

 

IV

 

650

 

74

 

2.17

 

.47

 

1.02

 

V

 

280

 

 

33

 

3.80

 

.20

 

0.76

 

Total

 

2,630

 

158

 

2.65

 

1.00

 

2.57

 

1Source for delegate count, sample size, and unweighted ALOS:  Sandy Lee Holtz, Century Center Economic Impact Study:  ALOS Survey (Fall, 2003).

 

2Percentage of total sample population.

 

3Unweighted ALOS X sample weight.