Tourism States Brace for Potential Gulf War
By Kavan Peterson, Staff Writer
The nation's most tourism-dependent states could suffer a crippling decline in revenue if a U.S.-led invasion of Iraq scares would-be travelers away from the country's most popular vacation and business destinations.
The governors of Florida, Hawaii and Nevada the three states most dependent on tourism-revenue - have been warning state lawmakers in recent weeks that a seemingly inevitable Gulf war could create serious problems for their already fragile economies.
Should war break out, these states expect their tourism markets, which drive their economies and generate the majority of their revenue, will take financial hits similar to those experienced during the first Gulf War and the 9/11 terrorist attacks.
Coupled with the effects of a recession and the worse budget crisis in the past 50 years, Govs Jeb Bush, Linda Lingle and Kenny Guinn all Republicans have called for deeper budget cuts and steeper tax increases to prepare for the potential damage.
Guinn last week proposed a series of short-term tax increases , including tripling the cigarette tax from 35 cents to $1.05 per pack, increasing the liquor tax by 90 percent, and tripling the business license tax from $100 per employee to $300. The extra revenue would be used to create a "Stabilization Fund" that could offset potential revenue losses caused by a decline in tourism.
Guinn said he expected many tourists to stay home during a war, and that would mean less tax revenue for his state. The temporary tax hikes would be in effect from April 1st to June 30th and generate about $75 million.
Nevada, the country's most tourism-dependent state, lost more than $100 million in projected tax revenue in the 10 months after the 9/11 attacks. The state budget director, Perry Comeaux, fears a similar scenario if the United States goes to war with Iraq.
"There is nothing we can do to prevent our economy really getting smacked if something happens to make people reluctant to travel or spend money," Comeaux said,
He said the temporary tax increases, which have not yet been approved by the Nevada legislature, would act as a kind of "insurance policy."
"In recognition of the fact that we might go to war with Iraq or have another terrorist attack, we've asked our legislature to enact a number of tax increases right now, so we can start collecting money right now and put some of it back into our rainy day fund so we are not sitting here being completely vulnerable," Comeaux said.
The short-term tax hikes are separate from a $1.1 billion tax increase proposed by Guinn in January that has received little support in the state legislature. They have also received a less than enthusiastic reception from state lawmakers.
Florida's budget is also vulnerable to a decline in tourism because the state depends on sales taxes for three-quarters of its general fund revenue. With no statewide income tax, the Sunshine State depends greatly on how much money visitors spend.
"The governor understands that a war in Iraq could have a negative impact on the state economy and the safety of its people," Gov. Bush's press secretary Jill Bratina told Stateline.org.
In his March 4 State of the State address , Bush asked the legislature to create a $40 million contingency fund that could be used for emergency security measures and economic development plans.
"I hope we will not have to use (contingency funds) at all, but creating this fund will help our state respond quickly," he said.
Bush has invoked the war on Iraq several times in the past month to justify his proposals for deep budget cuts in state programs, bringing criticism from his opponents in the statehouse.
To pay for a contingency fund and offset war-related reductions in state revenue, Bush asked the legislature to help nullify two costly constitutional amendments recently passed by Florida voters; one would impose a class-size cap on Florida public schools that could cost $27 billion to implement; the other calls for construction of a high-speed commuter train, estimated to cost $12 billion.
Bush said the two admendments threatened the state's ability to bolster its economy and "protect our people," and proposed that they be sent back to the voters to be reconsidered.
Florida suffered a 20 percent decline in visitors in the last quarter of 2001, resulting in an estimated loss of $2.5 billion. But thanks to a successfull campaign to market the state as a vacation destination, the tourism industry rebounded in 2002 with an 8 percent increase in the number of visitors.
But over half of the 75 million people that visited Florida last year traveled to the state by car -the highest percentage in over a generation - highlighting the lingering fear of air-travel caused by the 9/11 hijackers.
Fear of flying has had the greatest impact on Hawaii, the one state almost completely dependent on air-travel to support tourism.
Tourist spending in Hawaii fell by an estimated $1 billion in 2001, a 9 percent drop from $11 billion the previous year. Tourism accounts for roughly a quarter of all economic activity in Hawaii and the industry has yet to rebound to pre-9/11 levels.
The decline has contributed to a $175 million budget gap the state has only recently closed. The state budget office is expected to announce this week that the state could experience an additional $60 million shortfall, unrelated to military intervention in Iraq, sources said.
Gov. Lingle said last week that the impact of a war with Iraq would be substantial, and that further budget cuts would be necessary. To prepare for such an eventuality, she recently created the Economic Preparedness Task Force.
The state budget director, Georgina Kawamura, has been heading budget talks for the task force. Kawamura would not comment on the governor's over-all plan to handle additional revenue shortfalls caused by a war in Iraq, but said that each agency in the state has recently submitted contingency plans that are being reviewed by the administration.
"It's hard to put a number on the damage (from a war)... but it looms on our mind every day," Kawamura said.