Long-term Growth vs. Short-term Gimmicks: Maine’s Economy and Gov. Mills’ Second Biennial Budget

HOSPITALITY & TOURISM

What’s unfortunate for Maine is how much the state depends on leisure and hospitality to drive the economy during the summer tourist season. Accounting for 9.4% of total employment, Maine is more dependent on this industry than many of its regional neighbors: New York, New Jersey, Massachusetts, and New Hampshire. It is possible that this dependence could lead to a greater loss of businesses than estimated.

In 2016, the US Census Bureau reported that 78.7% of workers in Maine’s “accomodation and food service” industry were employed by small businesses, meaning those with 500 or fewer employees. The dominance of small businesses in the scope of the Maine economy could also contribute to later-than-expected losses, as small businesses incur larger start-up costs that can take much longer to recoup than franchisees. This means that it will be difficult for many of the small, tourism-related businesses Maine lost in 2020 to bounce back.

Maine’s tourism, hospitality, retail, and entertainment sectors have been hit the hardest in 2020. Over 60,000 Mainers were employed in hospitality and tourism in the second quarter of 2019, the beginning of the summer season. Measuring the effects of the pandemic-related shutdowns, the industry lost nearly 20,000 jobs from February to November 2020. This is a rosier picture than June, when more than 35,000 tourism jobs had been lost since February, but still accounts for 40% of Maine’s total job losses in 2020. 

The Maine Office of Tourism (MOT) estimates that 1 in every 6 jobs is linked to tourism. In 2019, the industry contributed over $2.8 billion in income to Maine households and nearly $650 million in tax revenue for state and local governments. At $6.5 billion per year, tourism makes up more than 10% of the state’s total economic output. 

Visitors from Canada alone spent almost $1.2 billion in Maine, making up more than 14% of all overnight stays in 2019, but since March 18, 2020, the international border with Canada has been closed to nonessential travel, including tourism and recreation. In May, year-over-year border crossings were down 88%. The Maine economy receives an outsized economic impact from Canadian tourism; in 2014, Maine attracted the 7th-most Canadian visitors of any state.

Bureau of Economic Analysis data show that businesses classified either as “arts, entertainment, and recreation,” or “accomodation and food services” lost 17.5% of their personal income from Q1 to Q3 2020. In the same period in 2019, these sectors grew just over 1%. Fortunately, the retail sector rebounded from its bottom in Q2 2020, growing personal income by 8% over Q1-Q3 2020. Retail earns more income than the arts and accommodations sectors combined. If retail is included in what is considered tourism, it helped the overall drop in personal income by only 2.9% over Q1-Q3 2020, contrasted with a gain of 1.78% over the same period in 2019. But, retail is also difficult to tie directly to tourism, especially in 2021, since so many new retail businesses applications are for “non store” or online retailers, and thus not linked as closely to “Vacationland” visitors.

A reason that a retail rebound might be more robust versus that of arts and food services is that, once the lucrative summer season passes, hotels cannot backfill their rooms. Restaurants cannot make up for lost patrons, either due to depressed demand or government restrictions that prevent them from filling their establishments. Those businesses that rely on out-of-state visitors missed untold income from the multitude of cancelled vacations to Maine over 2020. Some businesses, like those in manufacturing or retail, have the potential to make up for past losses with higher productivity or more working hours in the future. Others, like restaurants and recreational tours, cannot recoup these losses once their season is over.

Maine’s tourism workers, especially in arts, entertainment, hospitality, and food service, continue to struggle to recover their lost income from the 2020 spring and summer shutdowns. Sadly, in yet another misguided and heavy-handed approach to COVID-19, Governor Janet Mills ordered a statewide curfew of 9:00 p.m. for public-facing food and drink service, which began on November 20 and continued until February 1. While providing no metrics to determine the success or failure of this policy, this move likely led to significant reduction in earnings for service businesses and their employees over the winter holiday season.

Research linking viral transmission to restaurants is inconclusive, but that didn’t stop the Mills administration from forcing these rules on already-struggling Maine workers.

As seen in the Yelp data, business closures slowed significantly in the early summer, but began to climb again in July, with more permanent closures among them. Could this show that the continuation of pandemic-related restrictions on businesses throughout the summer meant that fewer and fewer businesses could hang on into the fall? The Bangor Daily News recently reported on the growing open restaurant spaces in Portland, denoting a 26% increase in restaurant closures across the state’s largest city since October 2020.

Effects of “nonessential” business shutdowns will be with us for many years. Governor Mills’ executive orders that forced Mainers to stay at home unless their employment was deemed essential created a stark divide between those who could afford to stay home to help “flatten the curve” and those who could not. “Pressing pause” on the economy knocked traditionally-stable supply chains completely off-kilter. Due to shortages of household staples like meat, flour, and toilet paper, combined with Maine’s anti-price gouging law, grocery stores were forced to limit purchases to prevent hoarding.

Continued and sustained mandates on businesses throughout the summer and fall also contributed to depressed economic confidence. Requiring public-facing businesses to limit capacity, install barriers, and police the governor’s universal face covering mandate meant that many had to reallocate labor to managing compliance, while trying to appeal to a pandemic-weary customer base. Even though the Maine economy has recovered about half of the jobs lost since the economy bottomed out in April, a June study suggested that 60% of those losses were the result of heavy-handed state action, not the virus itself.

The decimation of Maine small businesses this year—especially within the tourism and hospitality sector—will affect the lives of many thousands of workers. State budgets must reflect this fact and move to encourage more private-sector job creation. Government may only spend that which it has taxed from the people who have created value for others. In order to move the state on a path of opportunity, economic growth must be driven by industry, not government. 

Restrictions on events and gatherings and their concomitant enforcement persist despite adequate empirical evidence to suggest that they have worked to suppress or eliminate viral spread. Unfortunately, because of this, Maine is likely to see a long, slow recovery, especially among tourism-related industries.