AMES, Iowa -- While the "first in the nation" Iowa Caucuses generate priceless national exposure for the state, a new Iowa State University report found that the major presidential candidates' economic impact to the state was $15.5 million in total sales in the six months preceding the caucuses. That's about one-hundredth of 1 percent of the state's $130 billion gross domestic product value in 2007.
That's considerably less than the $50 million to $100 million others have estimated in terms of economic impact to Iowa. But ISU economist Dave Swenson -- author of "The Economic Impact of the Iowa Caucus: Gauging the Worth of its First-in-the-Nation Position?" (see paper) -- says Iowans can't confuse the appearance of economic activity with the actual substance of economic activity.
"Iowa may think economic returns are an important reason to defend their first-in-the-nation position, but the evidence doesn't suggest that we're really making as much money as people think we are," said Swenson, who is on the staff of ISU's Regional Capacity Analysis Program. "This research indicates that it's unreasonable to conclude that hundreds of millions of dollars get spent in Iowa. It's more correct to say hundreds of millions of dollars get spent on behalf of the candidates' efforts, which start in Iowa."
Swenson's report looks at 2007 third- and fourth-quarter financial transactions by all the major candidates who campaigned in Iowa prior to the Jan. 3 caucuses, as filed with the Federal Election Commission (FEC) reports (www.fec.gov). He acknowledges that this does not represent all campaign spending through the end of the year, but his analysis of the spending prior to those periods in 2007 did not indicate any overwhelming amount in Iowa.
Lots of spending, just not in Iowa
Swenson found that major candidates spent $352.5 million across the country in the third and fourth quarters of 2007, but just $15.5 million (4.4 percent) in Iowa. By comparison, $11.7 million (3.3 percent) was spent in New Hampshire -- the next battleground state in the presidential race less than a week after Iowa. That ranked Iowa seventh and New Hampshire 15th among all states where candidates' money was spent during that time, with Virginia being first at $46.6 million.
That may seem surprisingly low, particularly since it appeared as though candidates were literally living in Iowa prior to the caucuses. Swenson says that's because most of the candidate spending occurred outside the state.
For instance, Swenson found that the campaigns' election specialists are typically hired from Washington and other major cities, so organizational spending occurred in those states. The candidates' travel is also coordinated centrally through travel specialists, so much of it did not take place within the state.
And perhaps most unbelievable, the litany of candidate commercials didn't yield a "windfall" for Iowa broadcasters -- at least based on Swenson's analysis of the money trail. While there was plenty of media spending by candidates during those months -- $63.2 million to be exact -- only $619,000 (one percent) was paid directly to a firm in Iowa.
"Hardly any radio or TV station is locally owned," said Swenson. "So the payment for those services (commercials), they're being made with big consultants who buy big blocks of advertising strategically -- largely through the Iowa stations' national parent companies. There's a brokering service that's handling this. And sure, ultimately some of that money gets to Iowa, but we can't measure it. We can only count where the dollars were initially spent."
Swenson also contends that Iowa broadcasters were not going to see a huge bump in new ad revenue anyway, since the political advertising occurred in the fourth quarter when a large portion of advertising time would have been purchased by holiday retailers. He also points out that advertising charges to candidates have to reflect the prevailing lowest unit rate.
Candidates spent more than $1 million in four areas
As for what the candidates did spend money on in Iowa, most was for staff payroll ($5,485,080), travel ($2,229,973), printing ($1,993,712) and event fees ($1,123,309). Those were the four categories showing transactions of more than $1 million.
Swenson's economic impact estimate does not include spending by the large volume of national media who come to Iowa to cover the caucuses. He wrote in his report that there is no precise way to calculate this amount, particularly since Swenson had no reliable estimate of the scope, frequency and duration of media visits.
But even with the added impact of national media visits, Swenson doubts that the economic benefits of the caucuses would rival that of the Iowa State Fair -- particularly since the caucuses occur just once every four years.
"To be fair, if you want to compare it with years over time, you have to divide everything by four, because this happens quadrennially," Swenson said.
"The other important thing that I don't note in the paper is that this was an exceptional (presidential election) year," he said. "We didn't have the incumbent running. We didn't have the heir apparent running. And by the time (former Governor Tom) Vilsack got out, we didn't have an Iowa spoiler running. Everything was wide open, and so you were going to see more activity in this campaign than you are in the next four or five campaigns. So this $15.5 million estimate is as good as it gets."