Arguably the most visibly impactful industry in the City of Long Beach is logistics and goods movement – home to the country’s second largest port, the goods passing through the maritime gateway into the interior of the country move by rail and freight, and are supported by a network of ancillary industries and service providers that call the area home. But as it turns out, this is not the most impactful industry in Long Beach when it comes to employment – a recent report by Los Angeles-based Beacon Economics reveals that the hospitality and tourism industry is actually the second largest job sector in the city, after health care.
The hospitality and tourism industry supports 18,652 jobs, 15,000 of which are supported by direct visitor spending, 1,599 supported by indirect spending (supply chain-related spending by businesses due to the direct visitor spending) and 2,053 supported by induced spending, which is spending by individuals or households caused by increased earnings linked to the direct and indirect spending. Total labor income generated by the industry was $687 million in 2018, according to the report.
Furthermore, Beacon’s analysis found that the industry generated an estimated $1.8 billion in total economic impact in the city last year.
The report’s principal author, economist Robert Kleinhenz (who has since left Beacon to strike out on his own), asserted that trade and transportation would actually make up the third largest category of employment, coming in behind hospitality and tourism.
How did Kleinhenz come up with such an impressive figure? The report, which was commissioned by the Long Beach Area Convention & Visitors Bureau (CVB) to assess the economic impact of the hospitality and tourism industry, analyzed data provided by the City of Long Beach and Visit California, a nonprofit organization that is dedicated to promoting California as a tourism destination.
First, Kleinhenz assessed data regarding the city’s transient occupancy tax (TOT) revenues, which are generated by a tax paid by overnight visitors at local hotels. TOT in 2018 totaled $30.6 million. Given the city’s 12% TOT rate, the report determined that roughly $255 million was spent at local hotels that year.
To account for short-term rental spending via accommodation services like Airbnb, which do not yet pay TOT, Kleinhenz referred to Long Beach’s proposed fiscal year 2020 budget. The document estimated a potential of $900,000 in lost tax revenue from the 1,300-plus short-term rental units if the city does not implement an ordinance making them subject to TOT. This estimate suggests that about $7.5 million was spent at such rentals in fiscal year 2018, per the report.
In addition to TOT revenues, the hospitality and tourism industry generated $37.7 million in property taxes and taxable sales in 2018, according to Beacon Economics.
Playing into the massive $1.8 billion estimated economic impact is an analysis of visitor spending based on data patterns from Visit California. Using the organization’s analysis of visitor spending patterns in Los Angeles County, Kleinhenz told the Business Journal that he was able to come up with a reasonably accurate depiction of such spending within the city. About one-quarter of total visitor spending is spent on food services. Accommodation spending accounts for the second largest percentage of total visitor spending at 22.4%, followed by entertainment at 14.2%, transportation at 14% and retail at 12.7%.
In other words, visitor spending isn’t just restricted to hotels; it is also dispersed among local eateries, attractions and venues, transportation services and shops. Visitor spending on food services alone totaled $297 million in 2018, based on Kleinhenz’s estimates.
“These are some really impressive numbers, in my observation, about the contribution that this industry makes to the local economy,” Kleinhenz said.
The economist said he hopes the report opens people’s eyes to the importance the hospitality and tourism industry plays in Long Beach’s economy. “Clearly, the goods movement and logistics industry is a local pillar of the economy. Arguably, education is another one, because of the presence of Cal State Long Beach and so on,” he noted. “But the visitor industry has become another significant industry that has grown over these last dozen-and-a-half years or so.”
Kleinhenz noted that in the past Long Beach was known as a Navy town, and one with an economy centered on the aerospace industry. That all changed after the Navy left and Boeing wound down its operations over the past few decades.
“The state of the industry I think is good, and that’s reflected in the continued increase in the transient occupancy tax revenues that the city has seen grow up over the last several years,” Kleinhenz said of the hospitality and tourism sector.
Steve Goodling, president and CEO of the CVB, presented these findings to the Long Beach City Council in October. Asked why the organization commissioned the report, he told the Business Journal, “It was time to share a broader, updated scale of what overnight visitors bring to the City of Long Beach.”
While TOT is often a topic of discussion – particularly when the CVB gives its annual presentation to the city council upon renewal of the city’s contract with the organization to market Long Beach as a destination – Goodling felt it was important to assess the economic impact of the industry beyond the hotel bed tax. TOT is the fourth largest tax revenue generator for the city, he noted.
“We wanted to capture that new data,” Goodling said. “I don’t think it’s something that you need to do every year, because unless there are wild swings in the economy, it’s going to be fairly consistent. But it’s been enough time and the economy has been so robust that it was time to capture updated information.”
The analysis of visitor spending and associated tax revenues for the city illustrates how well Long Beach is doing when it comes to growing tourism and attracting visitors for conventions – a task that largely falls on the CVB. “The CVB shares in part of that revenue, but there are many other city departments that also use that revenue in their efforts in promoting the city,” Goodling said. “It provides us the opportunity to continue to do things like we just did this past weekend with the California Democratic Convention, and to showcase the city.”
Goodling was referring to one of the biggest gets for the city’s convention center in years – the California Democratic Party’s annual convention, which, being held just before a presidential election year, put the city on a national stage as major candidates and legislators flooded the city.
With an annual contract to market Long Beach, the CVB is paid more than $5 million each year by the city government. Goodling believes the report illustrates a sizable return on investment. “The economic impact as set forth by Beacon Economics shows that the financial returns greatly outweigh the money that we’re given,” he said.