Sluggish Chinese Economy, Brexit Bite Tourism States

This article was originally published at Stateline, an initiative of The Pew Charitable Trusts, and was written by Elaine S. Povich.

The British decision to leave the European Union, China’s economic slowdown, a strong dollar and other global factors spell trouble for states that depend on international tourists for tax revenue. 

In Florida, where 23 percent of sales tax revenue comes from tourism, officials are worried that the weakness of the British pound, one effect of the “Brexit” vote, will keep British tourists away and hurt local businesses and tax receipts. Because international travelers typically book their trips 4-6 months in advance, Florida might not feel the effects of the Brexit vote for several more months.

Las Vegas has long depended on international visitors, who stay longer and spend more than U.S. tourists. Analysts say slower growth in the number of Chinese visitors, which started two years ago, is showing up in less wagering at high-stakes baccarat tables, a favorite game of Asian tourists.

Taxing tourists is a time-honored revenue-raiser for states because visitors don’t vote and generally don’t balk at levies on hotels rooms, car rentals and restaurant meals. States also benefit from income taxes paid by hospitality industry workers like restaurant servers and hotel staff, and where gambling is legal, from taxes on casino revenue. The Nevada gaming tax is 6.75 percent of gross gaming revenue.

International visits to the U.S. declined 6.3 percent from 2008 to 2009, during the recession. The number of visits began climbing after that, but the growth was essentially flat from 2013 to 2014, according to the U.S. Department of Commerce. The department predicts weak 2 percent growth for the next year or two.

International travel to the U.S. slowed in July, according to the U.S. Travel Association, a tourism industry group. The group attributed the slowdown to “continued effects of Britain’s decision to leave the European Union and continued strength of the dollar.”

“In the first part of the economic expansion, international travel was growing faster than domestic,” said Dave Huether, senior vice president for research for the group. “What we’ve seen is that trend has reversed.”

Brexit will have “a mild impact on visitation from the U.K. this year but a stronger impact next year,” Huether said. He predicted visits from the United Kingdom would fall by 5 percent next year.

About 1.2 million tourists from the U.K visited New York City in 2014, more than from any other country, so the city is especially susceptible to the effects of Brexit.

The number of Chinese visitors to the U.S. is still growing, Huether said, but it has slowed. His group projects the number of visits from China will grow 12 to 13 percent this year and next. While that may sound healthy, the growth rate is much less than it was in 2011, when it grew 26 percent, and in 2014, when it grew 18 percent.

In Hawaii, which draws more international visitors from Japan than from any other country, a dip in the Japanese economy in 2014 had visible repercussions. While the number of visitors dropped only slightly, their stays were shorter and they spent less. That year, Japanese visitors accounted for 16 percent of the total spent by tourists, their lowest share since 2007 when it was 15.5 percent, according to the Hawaii Tourism Authority.

States are trying their best to attract international tourists despite the strong dollar. Las Vegas, for example, is going after international travelers who want more than gambling by playing up its family-friendly activities such as shows and water parks, according to David Schwartz, who heads the Center for Gaming Research at the University of Nevada, Las Vegas (UNLV).

Las Vegas Vacationers

Las Vegas and the surrounding region get 16 percent of their visitors from abroad, according to the Las Vegas Convention and Visitors Authority.

“International visitors spend a little more time and a little more money” on gaming, entertainment and shopping, said Scott Russell, director of the authority’s research center.

Visitors from locations in the U.S. may stay for only a weekend, while British visitors are more likely to stay longer, Russell said.

There were 6.8 million international visits to southern Nevada (near Las Vegas) in 2015, a decline of 13.4 percent from the 7.8 million in 2014, according to the agency’s most recent report.

The report attributed the decline to the relative strength of the U.S. dollar against foreign currencies, which makes hotel stays, casino shows and wagers at the blackjack table more expensive for foreign visitors.

In addition to its economic slowdown, China imposed restrictions on travel as part of a crackdown on terrorism in 2014. Schwartz of UNLV said the restrictions had an impact on casino revenue from baccarat, a particularly profitable game for Nevada casinos.

Baccarat revenue hit a high of about $190 million for the month of July in 2012. By July 2015 it was down to $104 million, though it bounced back to $150.3 million this July as has all gambling revenue in the state, according to the most recent monthly numbers available. Total gambling revenue this July totaled just more than $1 billion, the highest total for that month since 2007.

The strong dollar can also make international travel more attractive to Americans. If foreign tourism falls, and American tourists go abroad rather than traveling to U.S. destinations, that’s a double whammy for the U.S. economy, said Aaron Klein, a fellow at the Brookings Institution think tank who studies international economics.

Brexit Blues

The British vote to leave the European Union is causing particular concern in Florida, which had 1.7 million visitors from the U.K. in 2015, more than from any other country besides Canada, which sent 3.8 million.

Jerry Parrish, chief economist for the Florida Chamber Foundation, predicted the decline in the British pound would hurt Florida’s economy because it likely would lead to fewer British visitors and less spending by those who come.

Parrish noted that when the Canadian currency weakened a few years ago, Canadians tourists bought more food at grocery stores and ate out less often. The shift took a bite out of Florida’s revenue, because uncooked food is not taxed in the state, while restaurant meals are. Seventy-seven percent of Florida’s general revenue comes from sales and use taxes.

“Florida runs on sales tax. That’s not a bad thing, but when people come here and spend less money they leave less tax for Floridians to pay for government services,” Parrish said.

In addition to the slowdown in tourism from the U.K, Parrish said the strong U.S. dollar makes it more likely that wealthier Americans will vacation abroad rather than in Florida, which also will cut into the state’s revenue.

“High-spending people from New York and Pennsylvania and places like that will say, ‘Why don’t I go to the U.K.?”’ Parrish said. He spoke by phone from the Atlanta airport, where he was boarding a plan for Scotland for a fishing vacation. “We get more than 90 million domestic visitors. If a high percentage of them decide to go to the U.K., that’s most likely the biggest effect.”