Perspectives

New Jersey’s Travel and Tourism Industry White Paper

By Noreen Bodman

"If the tourism industry did not exist, each NJ household would pay $1,330 more in taxes to maintain current tax receipts".
--NJ Secretary of State, Nina Wells

For many years, the travel and tourism industry in New Jersey has been taken for granted and not recognized as a source of great economic strength with a tremendous opportunity for job growth, and tax revenue from new money sources. In these challenging economic times, government leaders should work diligently with the state’s Destination Marketing Organizations (DMO’s) to implement an investment strategy in promoting New Jersey that will benefit all of its citizenry.

Throughout the country, and especially in the regions surrounding New Jersey, many states not only recognize the benefits of the tourism industry, both economically and in building communities and downtown districts that play an integral and transformational role in their state’s urban and rural development strategies; but as essential to the quality of life for both the public and private sectors.

Tourism promotion also plays a pivotal role in creating a positive image for the State of NJ in attracting and retaining business for our state. This should be of the highest priority to all of us.

According to The U.S. Travel Industry Association, travel and tourism is one of the world’s largest service exports and largest employers. In the United States, for example, travel and tourism is the third biggest retail sales sector. The industry contributes more than $599.2 billion annually to the nation’s economy and generates $99.4 billion in tax revenues. Indeed, travel and tourism is an economic engine and DMOs are the key drivers.

And according to Global Insights, the NJOTT’s data research firm, the travel and tourism industry is the third largest business sector in the state of New Jersey accounting for $38 billion in revenues. One (1) out of every Nine (9) New Jersey workers has a job in tourism with a total of 470,000 direct and indirect jobs, accounting for 11.4% of total employment and approximately $16 billion in wages and salaries. The tourism industry impacts many diverse industry segments including but not limited to accommodations, transportation, entertainment, dining, retail shopping, the arts and heritage, the film industry and downtown development.

The Current Situation

To consolidate government offices, Governor Corzine has, by executive order, moved the NJ Office of Travel & Tourism to the Department of State where the Arts, History and Culture already resided. Secretary of State, Nina Mitchell Wells, should be commended for her immediate attention to the role that DMO’s play in tourism development and promotion. The NJOTT has begun a process to direct needed funding to DMO’s through an initial DMO Pilot Grant program that is currently in process.

With the recent downturn of the national economy, the State of New Jersey needs to take greater advantage of the vast opportunity for economic growth and downtown revitalization and preservation, which can be realized by expanding travel and tourism as an important and integral business for the state. A business in an industry that has a well documented return on investment.

• Each visitor to the state creates $505 in expenditures, $96 of which goes to businesses not directly related to tourism.
• Each visitor creates $97 in tax receipts, $56 of which goes to local and state authorities.
• Every 229 visitors pay for 1 New Jersey public school student for the year
• Every 161 visitors creates one new NJ Job.
• $2.2 billion in state tax revenues was generated by the travel & tourism industry in 2007.

In 1997, Prosperity New Jersey, the Tourism Industry Advisory Committee and the New Jersey Commerce and Economic Growth Commission produced A Tourism Master Plan: A Blueprint for the Next Decade. Five categories of strategic issues were identified as crucial to the vitality of the tourism industry and the state’s economy. They are Markets, Products, Services, Organization and Financing Mechanisms.

These strategic issues continue to be of major importance in increasing visitation, visitor expenditures and in generating employment opportunities and revenues for New Jersey. The recommendations included a stable source of funding through the imposition of an industry fee.

Since the creation of the Master Plan, New Jersey has imposed a hotel tax on the industry. In 2008, the hotel tax contributed $81 million to the state’s general operating fund with approximately $35 million being budgeted for arts, history, tourism and the cultural trust. However, the portion that had been dedicated to growing the industry and supporting our communities has been inconsistent over the years. This inconsistent funding hinders the financial growth of tourism development, contributes to the instability of the industry and most importantly prolongs negative perceptions about our state.

We need an aggressive, sustainable and coordinated marketing approach so tourism can be a true economic development tool.

Recently, New Jersey through the Office of Travel & Tourism has adopted the national and international industry best practice established by DMAI (Destination Marketing Association International ) for professional Destination Marketing Organizations whose role can be described through five primary functions:

• Be an "economic driver" generating new income, employment, and taxes contributing to a more diversified local economy;
• Be a "community marketer" communicating the most appropriate destination image, attractions, and facilities to selected visitor markets;
• Be an "industry coordinator" providing a clear focus and encouraging less industry fragmentation so as to share in the growing benefits of tourism;
• Be a "quasi-public representative" adding legitimacy for the industry and protection to individual and group visitors; and
• Be a "builder of community pride" by enhancing quality of life and acting as the chief 'flag carrier" for residents and visitors alike.
• These DMOs also support the development of additional tourism product; the revitalization of our downtowns; and increase the business volume of marketing partners.

Competitive Analysis:

New Jersey’s location in the heart of “America’s Northeast Business Corridor” and its accessibility to the metropolitan New York and Philadelphia contributes to the state’s ranking as one of the top travel destinations in the United States. More people live within 100 miles of New York City than any other US city and New Jersey is less than a day’s drive from 1/3 of the U.S. population. Yet, by continuing to invest less to attract visitors than our neighbors in every direction, we are loosing market share and will continue to do so unless a sustainable investment strategy is established and executed through DMO’s.

While the state’s rank for visitation is high because of our proximity to NYC and Philadelphia, the state budget allocation of $9 million in FY08 is in fact substantially lower than all of our neighboring and competitive states as indicated in the chart below:

State or Regional Tourism Budgets surrounding NJ

Our major competitors all have dedicated funding to DMOs from within the overall tourism budget which adds to the DMO’s ability to attend trade shows; host familiarization tours; advertise more consistently; build public awareness; promote nationally and internationally; and upgrade their visitor services. The average DMO around the country has a staff of 13 professionals; generates revenues of $4.8 million; operates two year-round visitor centers and manages membership organizations that partner in their efforts. New Jersey DMO’s are operating on limited budgets with nominal staffing. Despite this dramatic shortfall, New Jersey’s DMO’s are performing with great efficiency and very high standards and are deserving of the state’s attention. Expansion of DMO funding would energize promotional initiatives by adding the expertise of a great many destination related assets.

Challenges/Opportunities:

During the past two decades, the State Office of Travel and Tourism has been given insufficient resources that have diminished, and legislators have suffered from a lack of understanding and appreciation for the economic benefits that the industry provides to the State of New Jersey. In addition, the industry has been overlooked when the state has extended outreach and business support programs which can be executed through the New Jersey Economic Development Authority or the Office of Economic Growth.

Job creation, new businesses established and increased tax revenues would be the result of an expanded, long term, business approach to the travel and tourism industry. Equally as important is that by increasing the numbers of both leisure and business visitors to the state, the image of New Jersey’s quality of life, diverse geography, people and history will be enhanced resulting in increased business ventures, new residents and visitors.

The New Jersey travel and tourism industry would like to partner with our government to find solutions, create economic prosperity and map out a long-term future for our state’s most visible industry. Our competition recognizes that their tourism industry is the manifestation of how they are perceived as individuals, as public servants and as a community. It is time that New Jersey partner with the state’s tourism industry to insure our economic vitality, to rebuild our downtowns and to instill a sense of state pride in our constituents.

Investment Strategy/Action Items:

The state has an immediate and long term need to grow its revenue, and beyond any other industry tourism has the capacity to deliver economic development by driving new customers to existing businesses and facilities.

Neighboring states are investing in tourism to a far greater degree than New Jersey is for a simple reason: they get results. By not making similar investments, we are depriving our state of desperately needed revenues and economic development. And with $38 billion in existing activity and $4 billion collected in industry-related taxes, tourism is a proven investment – and an industry whose ability to quantify results is unsurpassed.

In order to commence a program of maximizing the state’s benefits from travel and tourism, the state must make a sustainable commitment to funding tourism development in two distinct programs:

1- Invest 10% of the first $100 million in revenue generated by the Hotel Tax in local destination marketing organizations as an economic development initiative. This will generate approximately $8 million for DMOs (currently numbering 12 but expected to expand), to be distributed under a program similar to the pilot DMO Grant initiative directed by NJOTT that is in its second and final year. The DMO grant program contains a private investment matching requirement and metrics to monitor ROI, both of which should continue in a form that is responsive to the new financial investment requested of the State. This investment strategy is expected to deliver an economic impact of $100 million in new tourism activity across the state, with more than $20 million in taxes (income, sales, hotel and other) collected directly by the State Treasury.

2- 1.To compliment the DMO marketing strategy above, the Office of Travel & Tourism should be provided with a budget of $12 million as was originally envisioned when the hotel tax was implemented. This will fund an umbrella state-driven tourism campaign and the promotion of specific events and destination related assets. When combined with the DMO funding, New Jersey will now be in a position to compete with neighboring states and regions more effectively.

New Jersey’s tourism development efforts should be targeted to providing communities and entrepreneurs with broad, technical assistance and planning to support the growth of the state’s tourism product base. This requires an integral inter-departmental partnership to access capital; team with special improvement districts and downtown development agencies; market cooperatively to provide clear concise messages to clients and consumers; and to access federal and state programs to insure the economic vitality of the industry.
These action items represents a reinvestment strategy that allows New Jersey to compete with neighboring states and regions as we promote our wealth of destination assets and it plants the seeds for revenue growth and greater income from “new money” sources. While some budget expenditures directly satisfy the needs of New Jerseyans, the State’s support of travel and tourism is truly an investment in economic growth that delivers real, quantifiable returns.