Double counting



To the Editor:

The proponents of constructing a berthing pier at the ferry terminal mistakenly draw support from a study prepared by economists at the University of Maine. That study is based on a survey of less than 2 percent of cruise ship passengers visiting Bar Harbor in 2016. Because those respondents may not reflect the views of other passengers, conclusions based upon the survey must be regarded, at best, as problematic.

The study has other serious problems. For example, it sheds no real light on the number of cruise ship tourists who actually disembark. Its methodology on this point is amateurish: the study notes the number of passengers on 41 ships who disembarked within the first hour their ship was in port; it reasons that this figure represents only 28 percent of those who actually disembarked; and it extrapolates to conclude that over the course of the season roughly 85 percent of all passengers, i.e., a total of 138,285 passengers, actually disembarked. This is pure guesswork; the actual figure could be much smaller. This uncertainty undermines the study’s economic projections about local monetary impact, because those projections crucially rest on the assumption that 138,000 passengers disembarked and spent money in Bar Harbor.

The survey respondents indicated that, on average, they spent $108 while on Mount Desert Island, including $34 on cruise-line sponsored tours. The study, using “an economic impact model,” asserts that approximately 25 percent of the amount spent can be attributed to “labor income.” The study’s “economic impact model” is not otherwise explained and may or may not be analytically valid. But taking that model at face value, and assuming a total of 138,000 visitors, it indicates a net benefit to the community, in the form of payments for employee or other personal services, of about $3.8 million per year.

The study then inflates this figure in two highly questionable ways, estimating a total annual community benefit of more than $20 million.

First, the study assumes that the remaining 75 percent of passenger expenditures constituted an additional benefit of $11.2 million to the community. This is quite wrong. Apart from employee costs, which the study already includes as “labor income,” the sale of food items and other retail goods benefits the local economy only to the extent of the sellers’ net profits. Cruise-line sponsored tours may confer an even smaller marginal local benefit, if indeed any at all. It seems unrealistic to assume that net profit margins much exceed 10 percent, i.e., $1.1 million of the $11.2 million expenditure that the study extrapolates from the survey data.

Second, the study adds “multiplier effects” of $5.3 million. Such “multiplier effects” represent the secondary consequences of tourist spending, as when a waitress uses tip money to pay her babysitter. This is double-counting. For purposes of analysis, the Bar Harbor community should be envisioned as a big family into which a large sum of money, like $5 million, has been injected; if the members of the family then move the money around among themselves, the total amount of the family’s benefit remains $5 million; the monetary benefit is not multiplied, it is just redistributed. The real benefit of injecting $5 million into the local economy is precisely $5 million, no more and no less.

For these various reasons, it is apparent that the study has major flaws and grossly overstates the economic impact of cruise ship tourism on Bar Harbor. Based on the survey results themselves, the real economic benefit to Bar Harbor from cruise ship passenger spending appears to be no more than $5 million per year and thus substantially less than the $20 million plus figure that the study purports to derive.

This has obvious implications for the economic sustainability of the proposed berthing pier. Even if such a pier could enlarge cruise ship tourism into Bar Harbor by as much as 20 percent, which seems unlikely, the net financial benefit to the community would be no more than $1 million per year. That benefit would be vastly outweighed by the carrying costs and operational expenses of a $40 million project. The town cannot afford and should not undertake the risk and expense of a massive project of this kind.

Keith A. Jones

Bar Harbor

 

 

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