the economic impact of mardi gras season on the new orleans

THE ECONOMIC IMPACT OF MARDI GRAS SEASON ON THE NEW
ORLEANS ECONOMY AND THE NET FISCAL BENEFIT OF STAGING
MARDI GRAS FOR THE CITY OF NEW ORLEANS
2009
Prepared for the
Carnival Krewe Civic Fund
Paul Spindt
Keehn Berry Chair of Banking and Finance
A.B. Freeman School of Business
Tulane University
Toni Weiss
Professor of Practice
Department of Economics
Tulane University
1
We would like to thank the following individuals for their help and insight, without which this research
and writing of this report would not have been possible. We alone, of course, are responsible for any
errors.
•
Arthur Hardy of the Mardi Gras Guide
•
John Williams, Janet Speyrer and Marianne Marcell of the Hospitality Research Center at the
University of New Orleans
•
Jerome Lomba, Chief Economist, City of New Orleans
•
•
•
•
Romy Schofield-Samuel, Department of Finance, City of New Orleans
Ralph Brennan, The Ralph Brennan Restaurant Group
Wendy Waren, Vice President of Communications, Louisiana Restaurant Association
The numerous retailers who graciously provided us with their confidential revenue figures
2
EXECUTIVE
SUMMARY
Total direct economic impact of Mardi Gras on the New Orleans
economy
$145,723,918
Total direct and indirect impact of Mardi Gras on the New
Orleans economy
$322,209,017
Percentage of New Orleans GDP
1.61%
Net fiscal benefit accrued to the City of New Orleans as a result
of staging Mardi Gras including franchise value
$11,593,535
Return on City’s investment in Mardi Gras
$4.48 for every public
dollar invested
3
Table
of
Contents
I.
INTRODUCTION ....................................................................................................................................5
II.
AGGREGATE
EXPENDITURES ................................................................................................................8
A.
Spending
During
Mardi
Gras ............................................................................................................8
1.
Visitors..........................................................................................................................................8
2.
Locals ..........................................................................................................................................11
3.
Mardi
Gras
Krewes .....................................................................................................................14
4.
Krewe
Members .........................................................................................................................15
5.
Government ...............................................................................................................................16
6.
Loss
of
Revenues ........................................................................................................................17
7.
Summary ....................................................................................................................................18
B.
Spending
outside
the
Mardi
Gras
season .......................................................................................18
1.
Merchandise
and
Services ..........................................................................................................18
2.
Business
Fixed
Investment .........................................................................................................20
3.
Incremental
Tourism
and
Brand
Value .......................................................................................20
4.
Summary ....................................................................................................................................21
III.
NET
FISCAL
BENEFIT ...........................................................................................................................22
IV.
CONCLUSION ......................................................................................................................................24
APPENDIX
A
–
KREWE
CAPTAINS’
SURVEY ................................................................................................. 24
APPENDIX
B
–
SUGGESTIONS
FOR
FUTURE
REPORTS.................................................................................26
4
I.
INTRODUCTION
The Carnival Krewe Civic Fund has commissioned this report in order to evaluate the economic
effects of the2009 Mardi Gras season on New Orleans. While the official season runs from the
second Friday before Fat Tuesday through the end of Fat Tuesday, (which in 2009 fell on
February 24th), Mardi Gras is actually a year-round event in New Orleans. As soon as one year’s
season is over, Krewe Captains begin planning their themes for the following year, float
designers begin working on those themes, and jewelers begin designing the gifts that have been
commissioned. Additionally, Krewes have parties, lunches and other get-togethers throughout
the year. But most importantly, Mardi Gras -- the culture it represents and its deep connection to
New Orleans -- creates a year-round economic impact.
This report answers two questions. First, what is the net fiscal benefit to the City of staging
Mardi Gras? And second, what is the contribution of Mardi Gras —the event and the
“franchise” -- to the aggregate economic activity of New Orleans. The first question is the
narrower, and slightly easier to answer of the two. Net fiscal benefit is the difference between
the increase in City revenues induced by the happening of some event and the increase in City
expenditures associated with the same event. In this case specifically, the City of New Orleans
incurs substantial costs, but also collects additional taxes, due to the staging of Mardi Gras. The
largest and most visible expenditure is the overtime payment to the Police Department for traffic
control and public safety during parades. But there are also substantial expenses involving, for
example, the Fire Department, Department of Public Works, the Sanitation Department and the
Judicial System. This report will show that increases in tax revenues generated by Mardi Gras
and its associated industry more than offsets these costs, resulting in a net fiscal benefit for the
City. The increases in tax revenues are generated by tourist dollars that flow in as people visit
during Mardi Gras as well as those that are attracted to New Orleans year-round by the appeal of
the City that Mardi Gras helps to create and by large amounts of local dollars that are spent on
Mardi Gras related items during the season as well as throughout the year.
5
The question regarding economic activity is broader and tougher to answer precisely. The
annual Gross Domestic Product (GDP) of New Orleans is approximately $20 billion.1 This
report will quantify what percentage of this figure can be attributed to Mardi Gras. There are
two ways to measure GDP. In the expenditure approach, GDP is the sum of final spending by
consumers, businesses, government, and net exports.2 In the income approach, GDP is measured
as the sum of the incomes of all the economy’s participants. We use the expenditure approach to
both calculate the net fiscal benefit to the City and the economic impact on the City.
We encountered tremendous difficulty collecting the necessary data. Most of it was not readily
available and had to be generated through surveys and questionnaires. Some information, such
as the number of out-of-towners that came for Mardi Gras but did not stay in a hotel, could only
be estimated through proxies. Additionally, we encountered reluctance by many business
owners to share their revenue figures. But the greatest obstacle we encountered in attempting to
measure the economic impact stemmed from the difficulty of adequately measuring the brandvalue of Mardi Gras.
Mardi Gras is unique compared with other festivals in New Orleans, and others around the world,
in the way that the event and the city are so closely linked in people’s perception. This linkage is
particularly pronounced among people outside of New Orleans. If a restaurant in, say, Colorado,
is going to have a New Orleans theme it likely will be decorated in purple, green and gold – the
colors of Mardi Gras. If a tourist is thinking of some place fun to travel, he or she will be
reminded of Mardi Gras even if it is June as can be evidenced by the sight of tourists wearing
Mardi Gras beads in the French Quarter during even the summer months. When conventions
come to town they often participate in “mini Mardi Gras” celebrations regardless of the time of
year. Mardi Gras World stages Mardi Gras parades all over the country and people tour their
facility here in New Orleans year-round. All of these activities are linked to Mardi Gras in New
Orleans and are part of the economic activity that it generates.
1
In 2006, the GDP for the greater New Orleans metropolitan area was estimated by the US department of Commerce to be 49.3
billion. We estimate that about 40% of this is generated in the City of New Orleans.
2
Net exports will not be included in this study
6
In assessing the economic impact of an event, the issue of displacement must be addressed.
Displacement occurs when expenditures associated with an event displace, or substitute for,
expenditures that would otherwise have occurred. For instance, if a man buys a piece of jewelry
to be given to his wife at a Mardi Gras Ball, those dollars would be included in the overall
economic activity attributable to Mardi Gras and the sales taxes paid on the purchase would be
included in the calculation of the net fiscal benefit. However, the man’s Mardi Gras purchase
may displace a purchase that he would otherwise have made for Valentine’s Day. If so, then
including his jewelry purchase in assessing the economic impact of Mardi Gras would overstate
the impact of Mardi Gras because that expenditure would have been made anyway.
Unfortunately, it is impossible to adequately measure displaced expenditure because it involves
assessing what would have happened if Mardi Gras had not been held. But just as we said earlier
that New Orleans and Mardi Gras are so intertwined within the minds of those outside of New
Orleans, Mardi Gras is so deeply embedded in the fabric of people’s lives within New Orleans
culture that imagining what a New Orleanian would do if there were no Mardi Gras is impossible.
We could not think of any other single event that is so closely tied to the location of that event as
to define its “personality” and in which the lives of the community’s citizens are so connected to
it.3
Throughout this study, we have taken the conservative approach to estimating economic effects.
We have used data when we have it from reliable sources or when we have generated it
ourselves through surveys. But where we have no reliable data on component of spending that
should be included in the analysis, such as business fixed investment related to Mardi Gras, we
have not included any figure. Consistent with this conservative approach, we have not applied a
“multiplier” greater than one to our estimated expenditure figures. Multipliers are controversial
in economic impact studies, and we have elected to estimate simply what we can do reliably.
Thus, our figures should be regarded as a lower-bound estimate of the full impact of Mardi Gras
on the New Orleans economy.
3
We are not implying that New Orleans is ONLY Mardi Gras, but that the line where Mardi Gras ends and the rest of what New
Orleans has to offer, wonderful food, great music, unique culture is impossible to draw. The existence of Mardi Gras helped to
create those other assets and those other assets helped to shape Mardi Gras.
7
The body of this report is organized as follows. In the first section, we describe the aggregate
expenditures associated with Mardi Gras and discuss how we estimate them empirically. In the
next section, we describe how we estimate the net fiscal benefit of Mardi Gras to the City of
New Orleans.
In the third section, we present and discuss our conclusions. Finally, as part of
the Appendix, we make several suggestions for improving the precision of estimates of the
economic effect of Mardi Gras.
II.
AGGREGATE
EXPENDITURES
The impact of Mardi Gras on the City’s Gross Domestic Product (GDP) can be measured as the
increment to aggregate consumption spending plus business fixed investment plus government
expenditure plus net exports associated with Mardi Gras.4 As a practical matter, measuring this
impact involves enumerating and summing up expenditure data from a variety of sources. A
natural division is to sort expenditures into those occurring during the Mardi Gras season and
those occurring outside the Mardi Gras season.
A.
Spending
During
Mardi
Gras
We first estimate expenditures associated with Mardi Gras during the Mardi Gras season (i.e.,
the 12-day period beginning with the second Friday before Mardi Gras and ending with Fat
Tuesday.) We consider expenditures by five categories: Visitors, Locals, Krewes, Krewe
Members, and City Government.
1.
Visitors
Visitors come from out of town and spend money on lodging, food, transportation within the city,
merchandise purchases, and miscellaneous services. From Smith Travel Services (STR) of
4
Again, we have not included net exports
8
Henderson, Tennessee we obtained New Orleans hotel occupancy data for the 2009 Mardi Gras
season.5 STR collects daily data on occupancy, room rate, and lodging revenue per room from a
large sample of Orleans Parish hotels. The hotels in the STR sample accounted for 21,640 rooms
(approximately 64% of the total of hotel rooms in Orleans Parish) during the 2009 Mardi Gras
season and were located primarily in the French Quarter, downtown and the warehouse district,
and uptown.6 No bed-and-breakfast or rooming house enterprises are included in the STR
sample. The information is presented in the table below.
Assuming that the STR sample is unbiased, grossing the figure up to account for the unreported
data implies the total lodging revenue for New Orleans hotels during the 2009 Mardi Gras season
was $56,065,885, or an average lodging revenue per room-day of $173.30 times 323,522 roomdays.
5
6
The data provided by STR is raw data, not inflated to account for holes in their collection
The hotel census was 33,394 rooms at the time of the STR survey. This figure was provided by John Williams at the
Hospitality Research Center of the University of New Orleans
9
The STR data does not indicate number of visitors per room or expenditures other than on
lodging. To estimate visitor spending on non-lodging items such as food, drink, transportation
within the city and other services, we combine the STR data with information culled from other
less specific surveys. We estimate the number of visitors per occupied room to be 2.7 and
spending per person on non-lodging expenses at $59.15 per day.7 Together with the STR data,
these figures imply total non-lodging expenditures by visitors staying in hotels of $51,668,114.
Thus, lodging and non-lodging expenditures by visitors staying in hotels totaled approximately
$107,733,999 during the 2009 Mardi Gras season.
We make two observations about this figure. On the one hand, the estimate of total lodging and
non-lodging expense by visitors who stayed in hotels during the 2009 Mardi Gras season is a
maximum estimate of the contribution of these visitors to the city’s GDP since it is not reduced
by what visitor spending would have been without Mardi Gras. But estimating what spending by
visitors during this period would have been without Mardi Gras is an impossible task. Not only
is there no useful data available – the STR data is insufficient for estimating the daily seasonal
factors and trend movements that would be needed to infer some “normal” occupancy – the very
idea of what the city’s tourism would be without Mardi Gras is conceptually problematic. For
example, there is substantial doubt that the city’s tourism infrastructure, including the number of
hotel rooms, would be what it is absent Mardi Gras.
On the other hand, this estimate is likely to understate visitor expenditure during the Mardi Gras
season as it vastly underestimates the number of out-of-town visitors that come to New Orleans
during the 12-day season. While a significant number of tourists stay in hotels and thus are
accounted for in the figures above, anecdotal evidence suggests that many out-of-town visitors
stay with friends in New Orleans or rent houses or other non-hotel accommodations during the
Mardi Gras season. Additionally, many people attending Mardi Gras celebrations throughout the
city come from surrounding parishes and thus don’t stay the night in New Orleans. They do
however spend dollars in Orleans Parish that they would likely have not spent if it weren’t for
Mardi Gras.
7
From the Mardi Gras Jefferson Parish 2008 study conducted Hospitality Research Center at the University of New Orleans
10
Thus, both the expenditures on accommodations and non-accommodations by visitors are greater
than stated in this report. The best way to census those tourists who do not stay in hotels and to
estimate such spending would be to conduct street surveys during the parades. In addition to
determining how many people attending Mardi Gras in New Orleans are from out of town such a
survey could ascertain approximately how much each tourist spends each day while in town.8,9
2.
Locals
Out-of-town visitors are not the only group that spends dollars during Mardi Gras. Locals spend
money on entertaining out of town guests, incremental food and beverage consumption,
incremental transportation within the city, and merchandise purchases including Mardi Gras
themed jewelry, clothing, and household decorations. A survey such as the one briefly described
above would not only more accurately aggregate the dollars flowing into the City from the
outside, but would also provide a better idea of local spending patterns. In the absence of survey
data, we used a proxy variable approach to estimate spending by locals and their guests and day
visitors.
We hypothesized that if a household has guests staying with them during Mardi Gras then that
household’s grocery bill would increase. Additionally, many people host parties and open
houses on parade days – events that all require some food and beverage being served.
While
some people might have those functions catered by an area restaurant, we hypothesized that
much of the additional spending would be done at area grocery stores. Thus, it is believed that a
portion of grocery stores’ revenues during the Mardi Gras season can be directly attributed to
Mardi Gras and therefore can be included in the economic impact that Mardi Gras has on the
New Orleans economy. Additionally the sales taxes collected on those sales would work to
offset the costs to the City of New Orleans of staging Mardi Gras.
8
A study much like the one described here was conducted in Jefferson Parish by researchers at the Hospitality Research Center
of the University of Louisiana at New Orleans during the 2009 Mardi Gras season.
9
See Appendix B for additionally information regarding this survey as well as other suggestions to improve the accuracy of
future reports
11
Only those stores located in Orleans Parish were considered. A few stores graciously provided
revenue figures for the relevant time frame and organized it by department so that sales of
alcoholic beverages could be aggregated separately. From these figures, we computed revenues
per square foot and, using the square footage of other stores, computed total grocery revenue for
the Mardi Gras period. Some adjustments were required. Not all sales during the 12-day season
can be contributed directly to Mardi Gras. Yet, strictly looking at the increase in sales from one
week to another would underestimate the dollars as many households put off doing their
“normal” grocery shopping during the week and most particularly during the weekends of Mardi
Gras. Additionally, we were not able to gather revenue figures on all grocery sales within
Orleans Parish. It is believed that the overestimation on one hand will cancel out the under
estimation on the other. We estimate that $2,226,534 in grocery store sales excluding alcoholic
beverages can be directly associated with Mardi Gras.
To obtain information on incremental sales of alcoholic beverages, we contacted a number of
beer, wine and liquor distributors who serve New Orleans. The data they provided indicate that
there is a considerable increase in sales of alcoholic beverages during the Mardi Gras season.
Sales of beer increase the most (more than 20%) with a smaller increase in sales of hard liquor.
Most indicators, however, do not show a significant increase in wine sales during Mardi Gras.
Based on the information provided by distributors, we estimate incremental sales of alcoholic
beverages during the Mardi Gras season at $2,578,600.
We also attempted to gather direct information on the amount of increased expenditures at
restaurants during the 12-day Mardi Gras season. Working with the Louisiana Restaurant
Association, a very brief survey was emailed to 150 New Orleans’ restaurants having significant
daily food sales, and located in the French Quarter, downtown, or uptown. The restaurants
surveyed ranged from fine dining establishments to fast food franchises. Even after follow-up
reminders, the response rate was so low – only 4 out of 150 – that the survey could not be used.
However, anecdotal information suggests that many restaurants, particularly in the higher price
ranges either see no change in their business during Mardi Gras or a decrease. Clearly, there are
some restaurants such as fast food establishments that likely would see a sharp increase in
12
business. In view of these data problems, we were unable to estimate incremental restaurant
expenditures.
In addition to the incremental spending on food, alcohol and restaurant meals, many local
residents spend dollars on transportation in a manner that they don’t at other times of the year
and on Mardi Gras themed merchandise. If these dollars would have been spent on different
items regardless of Mardi Gras then their value cannot be included in this survey. Anecdotal
evidence suggests that there is a slight increase above normal during the Mardi Gras season but
most attempts to gather data on these figures were unsuccessful. Again, a street survey would
help to illuminate this area.
We were, however, able to obtain data on jewelry sales. Area jewelers do a substantial Mardi
Gras business.
Krewe organizations commission works based upon their theme and are
presented as party favors at the balls. Further, Krewe royalty also spend money on jewelry to be
presented to their court. Both of these expenditures are included in the figures to follow. But,
there are additional expenses on jewelry and jewelry related items, that are not be included as
part of the Krewe Captain survey.10 These expenditures would consist of gifts bought by
individuals both by locals as well as tourists who are in town during the season. Additionally,
Mardi Gras themed items are purchased throughout the year from area jewelers either in person
by tourists in town at times other than Mardi Gras or through jewelers’ internet sites and/or mail
order business. Based on discussions with area jewelers, we estimate that $1,071,429 was spent
on Mardi Gras related items not already be included in the Krewe Captains survey.
The increase to GDP from contributed by local dollars during the 12-day Mardi Gras season are
outlined in the table below.
10
This expenditure figure could have been included in many places throughout this report as these revenue numbers are
generated by local as well as tourist dollars both during the 12-day season and throughout the year.
13
3.
Mardi
Gras
Krewes
Mardi Gras Krewes, the individual organizations, spend money on floats, throws, costumes,
licenses, party venues, decorations, food and a host of other things related to parades and balls.
We include these expenditures here even though much of the spending is done outside the 12day Mardi Gras season – float design and storage costs are incurred year round, for example, and
many balls are held outside the strict time window of Mardi Gras -- because they are so closely
related to events that occur during the season.
To estimate expenditures by Krewes, we designed and distributed a questionnaire to all of the
Captains of all of the Krewes that parade in Orleans Parish.11 Of the twenty-five Krewes that
parade on the east bank of New Orleans, twenty questionnaires were returned. The table that
follows outlines the general information gathered from the survey.
11
See Appendix A
14
The survey included detailed questions regarding all aspects of staging parades to staging balls to
year-round activities. The aggregate of all expenses are outlined in the table below.
The data in this table is a simple tally of the questionnaire responses we received. Using
information on the number of riders and the number of members in each Krewe, we grossed up
the survey figures to estimate total spending by all Krewes. Specifically, we estimate total
Krewe spending in Orleans Parish relating to the 2009 Mardi Gras season to have been
$11,420,243.
4.
Krewe
Members
In addition to spending by Krewes, Krewe members separately spend money on balls, throws,
costumes, jewelry, and miscellaneous services such as transportation within the city. In our
survey of the Krewes, we asked the Krewe captains to quantify estimated amounts of spending
15
by Krewe members on parades, balls, and Krewe social events. An aggregate of the responses
are presented in the table below.
Again, the data in this table is a simple tally of the questionnaire responses we received. Using
information on the number of riders and the number of members in each Krewe, we grossed up
the survey figures to estimate total spending by all Krewe members on parades and balls. Thus,
we estimate total Krewe member expenditures on parades and balls in Orleans Parish relating to
the 2009 Mardi Gras season to have been $12,054,701.12
5.
Government
City government spends money during Mardi Gras to maintain public safety and provide public
services. Key expenditures include police and fire department overtime and incremental
property management, parks and recreation, and sanitation expenses. The City of New Orleans
keeps records of the expenditures it makes relating to major events including Mardi Gras as part
of its budget planning and control processes. The table below presents information we obtained
from the city budget office on expenditures associated with public services provided during the
2009 Mardi Gras season. The largest city expense, by far, is overtime payments to police,
primarily for maintaining the public safety and traffic control at parades and on Mardi Gras day.
Clean up expenses funded by the sanitation department represent another large outlay. Also note
that some city departments actually make money from Mardi Gras activities through fees and
rental of city-owned resources.
12
These figures came from estimates provided by Krewe Captains. Future reports would be enhanced by surveying Krewe
members directly.
16
6.
Loss
of
Revenues
At this point it is necessary to acknowledge that not all of the change in GDP as a direct result of
Mardi Gras is positive. Many businesses, particularly those along parade routes, cannot maintain
their normal business levels during the carnival season. The exception to this, of course, is food
and beverage establishments. But many retail-centered businesses either not open on parade
days or close early or suffer from very slow foot traffic.
Further, there is a loss of productivity
during the season as workers leave their jobs early to prepare to parade, or to gather their
families for parades or because staying at work longer would mean a great deal of difficulty
getting through traffic and home. While some of this loss will be made up in the week or two
following Mardi Gras, not all of it will be. We were unable to measure this decrease in revenues
but suggest that it be an area of interest in future reports. We believe that our expenditure figures
are conservative enough to absorb this loss without change, but again, future reports should
address this issue more closely.
17
7.
Summary
The following table outlines the direct expenditures associated with Mardi Gras.
B.
Spending
outside
the
Mardi
Gras
season
Mardi Gras in New Orleans is an industry as well as an event and spending associated with
Mardi Gras continues year-round. We identify three types of Mardi Gras related spending
outside of the traditional Mardi Gras season: Mardi Gras merchandise and services sales, Mardi
Gras business investment, and incremental tourism.
1.
Merchandise
and
Services
Merchandise related to Mardi Gras – beads, masks, hats, T-shirts, post cards, and so forth – are
sold throughout the year in many retail establishments throughout the city. A number of shops
along Decatur Street are devoted almost entirely to the sale of Mardi Gras related, or inspired,
merchandise. We were unable to obtain data on revenues from the sale of such merchandise.
We faced two difficulties: First, Mardi Gras themed merchandise is sold in a wide variety of
retail outlets sometimes on a seasonal basis only and sometimes year round. Collecting
information on the sales of such merchandise would require an extensive survey of retail
establishments. Second, owners of those stores devoted almost entirely to Mardi Gras themed
merchandise were reluctant to participate with us in collecting revenue information.
18
We were able to obtain useful sales data on one type of Mardi Gras themed merchandise, namely,
Mardi Gras publications. We estimate annual total sales in New Orleans of publications relating
to Mardi Gras to be about $555,556.
In addition to merchandise related to Mardi Gras, some New Orleans businesses sell Mardi Gras
themed “services.” Blaine Kern’s Mardi Gras World is the most famous of these businesses.
Kern Studios is the preeminent Mardi Gras float builder in the world and own huge warehouses
where the floats, and the tractors needed to pull them during parades, are housed and displayed.
Mardi Gras World is a museum/attraction in which visitors can tour some of the warehouses, see
many of the floats up close and learn about both the history of Mardi Gras and the art of float
building. Additionally, Blaine Kern Studios and Mardi Gras World stage Mardi Gras parade
events all over the United States outside of Mardi Gras season. They also have party spaces
available that can be rented out year-round for Mardi Gras themed parties.
While Blaine Kern’s many businesses are the largest and most well known in this business
segment, other tour operators in town also profit from Mardi Gras related business. We estimate
aggregate expenditures in this industry as a direct result of Mardi Gras at $4,082,857.
Our total estimate of aggregate spending on Mardi Gras related merchandise and services, apart
from what has already been included in expenditures during the Mardi Gras season, is presented
below.
This figure clearly understates the actual amount of such expenditure because it completely
ignores expenditures on retail Mardi Gras themed merchandise outside the Mardi Gras season.
The actual figure is likely to be much higher.
19
2.
Business
Fixed
Investment
Economists call capital spending by businesses – on premises, property improvement, machinery
and equipment, computers, and so forth – “business fixed investment spending” and add it
together with consumption spending by consumers and spending by governments to get GDP.13
In calculating the local GDP associated with Mardi Gras, we need to estimate investment
spending by businesses engaged in the “business” of Mardi Gras. In a few cases, identifying
such expenditures is relatively straightforward. For example, in a business devoted to building
and selling Mardi Gras floats, purchases of new facilities or fabricating tools would count as
business fixed investment. But in most cases, identifying the business fixed investment
associated with Mardi Gras is much more difficult. Consider, for example, a hotel that
undertakes to renovate its guest rooms and common areas. The renovation expense is clearly
investment, but how much of it should be associated with Mardi Gras? One possibility is to
allocate the expenditure based on the ratio of the hotel’s income during the Mardi Gras season to
its income for the whole year. But this is ad hoc and assumes that the hotel would have
proceeded with a partial renovation absent its Mardi Gras business.
In view of these conceptual measurement problems and the difficulty of obtaining sufficiently
detailed data, we do not include any estimate of business fixed investment in our estimate of
aggregate spending associated with Mardi Gras. This clearly results in an estimate that
understates the actual contribution of Mardi Gras to local GDP.
3.
Incremental
Tourism
and
Brand
Value
Mardi Gras has a “franchise” value that extends well beyond the direct incremental spending
associated with the occurrence of Mardi Gras. Mardi Gras has been celebrated in New Orleans
since the early 1700’s and has become nearly synonymous with the city. Throughout its history,
Mardi Gras in New Orleans, like Carnival in Rio de Janeiro, has been an attraction to tourists.
To support such tourism, the city developed an extensive infrastructure of lodging, food and
13
Again, we are ignoring net exports.
20
drinking establishments, retail shops selling themed merchandise, and so forth, from which other
events and businesses, such as conventions, unrelated to Mardi Gras per se, could benefit.
Even outside of the Mardi Gras season, tourists are attracted to New Orleans by the Mardi Gras
brand.
The economic “knock-on,” or spillover, effects of Mardi Gras are difficult to quantify, but likely
to be very large. In this report, we offer a range of possible values, expressed as a multiple of
measured expenditures, from an incremental multiplier of 0.5x to 2.0x.
4.
Summary
Our median estimate of the aggregate economic activity in New Orleans associated with Mardi
Gras is $221,726,761 as shown below.
Using the New Orleans GDP figure of $20 billion stated earlier, this figure represents an
estimated 1.16% of the GDP of New Orleans. As perpetuity, its present value is about $6.4
billion at today’s interest rates.
21
III. NET
FISCAL
BENEFIT
The net fiscal benefit of Mardi Gras equals the total increment in City revenues (taxes and fees)
related to Mardi Gras minus the total increment in City expenses associated with Mardi Gras. To
measure net fiscal benefit requires enumerating the incremental City revenue and expense flows
associated with Mardi Gras. As we have stated above, City expenses can be measured from
budget data and amounted to $3,330,202 for the 2009 Mardi Gras season. Incremental revenues,
especially taxes, on the other hand, cannot be measured directly from City budget data, and so
must be computed indirectly. We use two approaches: In the first approach, we apply statutory
tax rates to direct expenditures associated with Mardi Gras, adjusting, where relevant, for nontaxable expenditures. We call this the direct expenditure method. A disadvantage of this method
by itself is that it ignores the leverage (economic spillover) effects of Mardi Gras. We correct
this oversight by applying a hypothesized aggregate tax rate to our median estimate of
incremental private spending associated with the franchise value of Mardi Gras and adding the
result to the first figure. We call this second approach the aggregate expenditure method.
As shown in the table below, the direct expenditure method produces an estimated net fiscal
benefit to the City of $6,278,888. In this table, the expenditure figures have been adjusted to
eliminate non-taxable spending. The estimated benefit represents about 1.3% of the City’s 2009
operating budget. Regarded as a return on investment, the City’s support for Mardi Gras is
clearly a positive project for the City; it returned $2.89 for every dollar spent.
22
When we augment the direct approach using the aggregate expenditure approach, applying a 3%
average tax rate to our median estimate of the incremental spending associated with the franchise
value of Mardi Gras, we obtain an estimated net fiscal benefit of $11,593,535 or a return of
$4.48 for every City dollar spent.
23
IV.
CONCLUSION
Our main conclusions along with additional relevant information are outlined in the table below.
Using the figures above we can see that the direct expenditures associated with Mardi Gras
account for 0.73% of the New Orleans GDP but when we include the brand value that most
certainly exists, that percentage increases to 1.16%. This may, at first glance, appear to be a
small number, when put it into context it is quite extraordinary. A 12-day festival comprising
such a significant component of a major metropolitan city’s GDP is quite remarkable particularly
in light of some of the other major industries within the City such as the Port of New Orleans,
Tulane University (our major employer) and the health care industry.
Even more impressive is the return on investment that the City enjoys each year. If we compare
the expenditure of the City to its net fiscal benefit without grossing it up to account for the brand
value, every dollar that the City spends to stage Mardi Gras results in a $2.89 return. Doing the
same calculation but comparing City expenditures to the net fiscal benefit grossed up to include
brand value results in a $4.48 gain for every dollar spent.
24
It is important to remember that the figures reported here to measure the economic impact of
Mardi Gras on the New Orleans economy are likely understated because it does not include
incremental restaurant business, airport usage or any business fixed investment, and probably
underestimates Mardi Gras related spending by locals.
We have noted throughout this report that while our estimates make best use of the data we have
accumulated, they could be improved and sharpened by cleaner, better, and more comprehensive
data. Our survey of carnival Krewes shows that valuable data can be collected directly from
sources. Other surveys are necessary to gather information on spending by locals and visitors
and sales of Mardi Gras related merchandise, for example. Obtaining high quality information
will be expensive, but valuable.
25
 APPENDIX
A
–
KREWE
CAPTAINS
SURVEY
Below is the complete questionnaire that was sent to all Krewe Captains.
26
27
 APPENDIX
B
–
SUGGESTIONS
FOR
FUTURE
REPORTS
During the process of preparing this report, we were often frustrated with the lack of available data.
Should this report be commissioned again, either by the Carnival Krewes’ Civic Fund or by a government
agency, we suggest that the accuracy of the figures could be improved by expanding the data collection in
the following ways. Such additions would be expensive, but would greatly enhance the efficacy of the
analysis.
•
Conduct on-street interviews at multiple points along the parade routes over multiple
days of the Mardi Gras season
♦ such interviews would be used to
 estimate the number of out-of-town visitors to New Orleans
 estimate the amount of money each visitor is likely to spend while in town
 estimate the amount of incremental dollars local residents are likely to spend
during the Mardi Gras season
•
Develop a survey that restaurant proprietors will be more likely to respond to and do
follow up visits and/or phone calls when necessary
•
Conduct periodic surveys at the Airport and/or enlist the support of a few major Airline
Carriers flying into New Orleans to survey their customers
♦ such a survey would be used to
 determine the percentage of those flying to New Orleans that are coming to
participate in Mardi Gras festivities
 provide additional data to estimate the amount of money each visitor is likely to
spend while in town
•
Reach out to additional retail establishments providing Mardi Gras related merchandise
in order to gather more expenditure information
•
Survey Krewe members in order to more accurately estimate total additional spending for
parading and balls
•
Survey businesses along the parade routes to determine the degree in which GDP is
negatively impacted by the Mardi Gras festivities
28