ADMINISTRATIVE REPORT

Date: June 12, 2001
Author/Local: Brent MacGregor/7627
RTS No. 2070
CC File No. 6008
CS&B: June 28, 2001

TO: Standing Committee on City Services and Budgets

FROM: City Manager, in consultation with the General Manager, Corporate Services

SUBJECT: Tourism Vancouver 2001 Business Plan/2% Hotel Tax Revenues

RECOMMENDATION

A. THAT Council approve the portion of the Greater Vancouver Convention and Visitors Bureau (Tourism Vancouver's) 2001 Business Plan funded by the 2% Hotel Tax, and that the 2% Hotel Tax payments received by the City for the 2001 fiscal year be forwarded to Tourism Vancouver as and when they are received by the City.

B. THAT Council support the allocation of $1 million from the 2% Hotel Tax revenues for the period 2001-2003 by Tourism Vancouver for contributions to the 2010 Olympic Bid, recognizing this participation is shown in Olympic Bid Corporation documentation as a joint contribution from Tourism Vancouver and the City of Vancouver.

C. THAT Council request Tourism Vancouver to outline a plan of tourism marketing activities undertaken by Tourism Vancouver on behalf of the entire Greater Vancouver region, to be presented to Council as part of the 2002 Business Plan process. The plan is to clarify any specific involvement and identify opportunities for participation by other Greater Vancouver municipalities, and to identify potential funding options.

D. THAT Council direct the City Manager to develop a Memorandum of Understanding with Tourism Vancouver to clarify the relationship, responsibilities and accountability, incorporating the issues identified in this report, for a report back to Council for approval by January 2002.

E. THAT Council request Tourism Vancouver and City Management to identify tourism projects and budgets for each coming year based on mutually accepted criteria as outlined in the Memorandum of Understanding. These projects would require approval by Tourism Vancouver's Board as part of their annual business plan, and by Council when it considers this annual business plan.

CITY MANAGER'S COMMENTS
The City Manager supports the vital role the tourism industry plays in Vancouver's economy. In order to support the industry, the 2% Hotel Tax should be utilized in a manner which supports tourism related promotions, programs, and projects.

The City Manager RECOMMENDS approval of A, B, C, D, and E.

COUNCIL POLICY
On an annual basis, Council must approve the business plan of Tourism Vancouver, which details the allocation of the 2% Hotel Tax revenues.

PURPOSE
The purpose of this report is to focus discussion on Tourism Vancouver's operations and their 2001 Business Plan, and to discuss the creation of a Memorandum of Understanding which will clarify roles and responsibilities in regard to the 2% Hotel Tax revenues.

SUMMARY
Since 1988, Vancouver City Council has allocated 2% Hotel Tax revenues to Tourism Vancouver for the purposes of tourism promotions. In 2001, it is recommended that Council allocate the revenues to Tourism Vancouver for the purposes detailed in their 2001 Business Plan.

At this time, a review of issues which relate to the 2% Hotel Tax revenue is appropriate, such as the use of the Hotel Tax revenues to market the Greater Vancouver region, the history of the 2% Hotel Tax, Tourism Vancouver's place in relation to its competition, and emerging tourism projects which require financial support. A Memorandum of

Understanding would allow Tourism Vancouver and the City of Vancouver to clarify the roles and responsibilities regarding the 2% Hotel Tax revenues, and would identify ways to support emerging tourism projects.

BACKGROUND

History of Vancouver's 2% Hotel Tax
In 1987, the Hotel Room Tax Act, legislation of the Province of British Columbia, enabled the collection of a tax of up to two percent on sales of accommodation in designated areas within the Province. This gave municipalities and regional districts the ability to arrange for this tax on accommodation sold within their jurisdiction, with the funds collected being committed to a specific purpose. The Hotel Tax is intended to assist municipalities and regional districts in financing and operating new tourist facilities and with tourism promotion. The tax is not intended to fund existing facilities unless significant upgrading takes place. Convention Centres or other facilities encouraging tourism development are examples of projects to which this provision would apply.

In 1988, the hotel and tourism industry in Vancouver approached the City to indicate a willingness to establish the 2% tax on hotel rooms for the promotion and market development of tourism in Vancouver. The City and the industry approached the Province for the necessary legislation to establish the tax1. The resulting legislation has set the tax rate at 2%, changeable only by the Province: "The funds paid to the City of Vancouver under the provisions of the regulation shall be applied to tourism promotion, programmes, and projects."( Additional Hotel Room Tax Levy Bylaw, City of Vancouver Bylaw 6378, section 4). The Provincial Hotel Tax rate is 8%; the establishment of the 2% Hotel Tax raised the total Hotel Tax rate in Vancouver to 10%.

Council is responsible for the revenues collected, and must account to the Provincial Government for expenditures: Sec 3(3) of the Hotel Room Tax Act states that municipalities "must account to the Minister for its [Hotel Tax revenues] expenditure." Provincial guidelines define this reporting requirement as an annual audited statement of disposition of the funds and a "statement that the funds were used for the purposes originally proposed."

To date, the City of Vancouver has chosen to flow all of the proceeds of the 2% Hotel tax to Tourism Vancouver for tourism promotion.

Between 1988 and 1993, only a small number of municipalities elected to establish this tax within their jurisdiction. These include Vancouver, Saanich, Oak Bay, Smithers, Victoria and Whistler. From 1993 until the fall of 1999, as part of an overall hold on Provincial tax rates, the Ministry of Finance withheld approval of all applications by municipalities for the hotel tax. Since that time, municipalities and regional districts have once again been able to approach the Province for the enabling legislation. To date, Chilliwack, Richmond, and the City of North Vancouver are the only other Lower Mainland municipalities to institute the tax. The usage of these revenues differs from municipality to municipality. Appendix 1 illustrates how other BC municipalities allocate their revenues.

Prior to the enactment of the legislation and until 1997, the City provided funds to Tourism Vancouver (approximately $600,000 per year) for the operation of a tourist InfoCentre and the development and printing of tourism related materials. These funds were provided to Tourism Vancouver through Tourism Services Agreements. Between 1988 and 2000, the City of Vancouver also flowed all of the 2% Hotel Tax revenues to Tourism Vancouver. Any additional revenues realized above budgeted revenues were allocated by Tourism Vancouver to programs consistent with their business priorities.

In 1996, Tourism Vancouver and the City of Vancouver entered into a special funding arrangement for the 1997 APEC Summit. As Tourism Vancouver was among the agencies urging the City to host the event, it was agreed that they would fund 50% of the estimated City costs (total estimated cost - $700,000, Tourism Vancouver portion - $350,000). In 1997, the initial estimated cost of $700,000 rose to $1.5 million due to the expanded nature of the APEC Summit. These costs were due to the Police security and traffic management measures necessary to ensure the security of the APEC delegates and to minimize the impact on business and residents.

Due to the significant increase in the costs associated with APEC, and due to budgetary pressures within the City itself, the City elected to reduce the contract with Tourism Vancouver for the operation of the InfoCentre and the development of printing and materials ($600,000 in 1996, $400,000 in 1997).

Tourism Vancouver and the hotel industry were firmly opposed to the use of the 2% Hotel Tax revenues for funding the additional APEC costs. Discussions between the City and Tourism Vancouver resulted in a Statement of Intent, attached as Appendix 2. The Statement of Intent confirmed the Council of the day's interest to flow the 2% Hotel Tax revenues to Tourism Vancouver on a continuing basis, and required no further contribution towards APEC costs from Tourism Vancouver. It was noted at that time that City Council could not enter into a binding long-term agreement with Tourism Vancouver with respect to the allocation of the Hotel Tax revenues. In a companion legal agreement, Tourism Vancouver agreed to continue the production of tourism material and the operation of the InfoCentrewithout further contributions from the City to 2008. The future of this agreement will be a subject of discussion in the creation of a Memorandum of Understanding.

The Statement of Intent signed in 1997 confirmed the Council of the day's interest to flow the 2% Hotel Tax revenues to Tourism Vancouver on a continuing basis. This established policy for the previous Council, but as stated in the agreement, it is not a legal contract: "City staff noted that the Director of Legal Services has advised that the current City Council cannot commit subsequent Councils in this regard and that therefore the City could not enter into a binding long term agreement even if it wished to do so." (Tourism Vancouver Agreement: APEC Funding, Report to Council dated November 17, 1997).

This Council has not delegated the authority to allocate the Hotel Tax revenues to Tourism Vancouver, nor is this Council committed to the previous Council's Statement of Intent with Tourism Vancouver. Ultimately, it is this Council's responsibility to use the Hotel Tax revenues for items covered in the City's bylaw as they see fit. Tourism Vancouver, however, believe strongly that the 2% Hotel Tax is a voluntary tax, and all revenues are to flow directly to Tourism Vancouver.

Vancouver City Council holds the responsibility over the revenues received through the 2% Hotel Tax in Vancouver. Council is to ensure that all revenues are utilized for tourism promotions, projects and programs as set out in Provincial legislation and the City's by-law. It is recommended that a Memorandum of Understanding be created in which Council's responsibilities regarding the Hotel Tax revenues are re-affirmed. This would include the responsibility to annually review of that portion of Tourism Vancouver's budget and Business Plan funded through 2% Hotel Tax revenues.

DISCUSSION
2000 Financial Performance
In 2000, 2% Hotel tax revenues realized were 1.7 % higher than in 1999; overall, Tourism Vancouver realized revenues 3 % higher than the previous year ($308,243). This was due to increased 2% Hotel Tax revenues, an increase in the Visitor Servicing Network Contract, and increases in revenues from programs. Expenditures were 4% higher than in 1999 ($448,938), primarily caused by increases in the Visitor Servicing and Finance and Administration areas.

Tourism Vancouver expended $131,148 more than received in 2000. This was due to spending on programs committed to in previous years, and the source of revenue for these expenses was Tourism Vancouver's Net Assets. Net Assets are held to cover programs and commitments made in previous years.

Industry Performance
Tourism Vancouver reports to Council annually on highlights of the tourism industry in the Greater Vancouver region; a summary of key performance indicators is contained within the 2000 Annual report from Tourism Vancouver.
Appendix 3: 2000 Annual Report, Tourism Vancouver package.

In brief, the number of overnight visitors grew 1.6% in 2000 to 8,448,542, Visitor spending increased 4.1% to $3.5 billion, and hotel room revenue grew 1.7% to $421,892,182. The Vancouver cruise industry experienced a growth rate of 11.2% over 1999, with the number of cruise passengers totalling 1,053,989 in 2000.

Tourism Vancouver 2001 Business Plan and Budget

On an annual basis, City Council approves the business plan of Tourism Vancouver which details the allocation of the 2% Hotel Tax revenues. In brief, Tourism Vancouver proposes a budget of $11,520,000, which includes $785,000 of funds carried forward as a result of deferred marketing programs and commitments made from the prior year which will be expended in 2001; 2000 Actual revenues were $10,485,489.
Appendix 3: 2001 Business Plan, Tourism Vancouver package
Appendix 4: 2001 Budgeted Statement of Operations
.
Tourism Vancouver's 2001 Business Plan focuses on three strategic priorities:
1. Meetings and Events: $3,633,318
This priority emphasizes generating long term, city-wide impact and short-term (2001-2003) smaller meetings. Primary targets are international congresses, associations, corporations, and incentive meetings, sports and recreation, and trade shows ranging in size from 10 to 10,000 delegates.
Strategies:
· Focus on business that has city-wide impact;
· Secure smaller meeting and events based on business value;
· Enhance Tourism Vancouver's value to the meeting planner;
· Enhance Tourism Vancouver's value to the convention delegate;
· Enhance strategic marketing alliance between Tourism Vancouver and the Convention Centre;
· Incorporate technology for efficient, innovation marketing programs.
Performance Measures/Targets
· To secure 18 city-wide conventions annually;
· To increase overall meeting and events leads by 5%;
· To maintain a 40% conversion ratio from leads to definite;
· To increase the number of non city-wide group bookings less than three years out by 10%;
· To generate an industry total of 5 million room nights (2001-2003).

2. Leisure Travel: $2,857,320
This priority emphasizes generating incremental best customer and "direct to consumer" room nights. Target sectors include Asian Pacific, Europe and the Americas.
Strategies:
· Build long-term relationships with tour operator customers;
· Enhance Tourism Vancouver's members value to key customers and their consumers;
· Focus resources for a strong return on investment on Best Customers in key markets;
· Provide compelling easy to buy getaway consumer offers.
Performance Measures/Targets:
· 10% increase in Best Customers room nights;
· Increase direct to consumer business by 10%;
· Link return on investment directly from marketing to members;
· Generate and industry total of 4.5 million room nights (2001-2003) from travel and package/promotions.

3. Visitor Servicing: $1,394,769
This strategic priority focuses on generating greater visitor spending and extending lengths of stay. Visitor Servicing addresses a number of sectors: convention delegates, cruise ship passengers, and independent travellers, through technological innovations and personal one to one assistance at the Vancouver TouristInfo Centre.
Strategies:
· Provide superior customer service to develop a loyal customer base;
· Provide industry leading information and reservation services to maximize benefits;
· Generate incremental spending by up-selling members' products and services;
· Develop additional business partnerships;
· Grow a successful volunteer visitor information counsellor program.
Performance Measures/Targets:
· To increase InfoCentre visitor inquiries by 5%;
· To generate 5% increase in unique visits to Tourism Vancouver's website;
· To increase volunteer hours by 10% to provide even better service;
· To generate $18 million in incremental visitor spending.
The 2001 Business Plan and Budget includes allocations to other tourism activities and initiatives, such as the 2010 Olympic Bid ($333,333), the Convention Centre Expansion Task Force ($100,000) and a Stability Reserve appropriation ($50,000). Future commitments to other tourism projects by Tourism Vancouver include a further $666,667 to the 2010 Olympic Bid in 2002-2003.

Tourism Vancouver is anticipating funding through a number of sources:
· continuation of the flow-through of 2% Hotel Tax revenues;
· membership fees/partnership opportunities (Vancouver Signature Program - corporate partners, each of whom contributes a combination of cash, services and materials in return for having their logo promoted on TV's publications and involvement in marketing strategies);
· continuation of Provincial government funding (from BC Tourism).

Actual 2% Hotel Tax revenues collected and forwarded may exceed or fall short of the projected revenues. Tourism Vancouver will monitor Hotel Tax revenues and will adjust their business plan to reflect actual receipts, as has been the practice in recent years.
It is recommended that in 2001, Hotel Tax revenues continue to flow through the City to Tourism Vancouver; payments to be forwarded to Tourism Vancouver as and when received from the Province over the period covered by the Council approved Business Plan. In orderto recognize the delay between the actual collection of the 2% Hotel Tax by the Province and its receipt by the City and Tourism Vancouver, Tourism Vancouver has based its business plan on the 2% tax revenues to be collected during the 12 month period of October 1, 2000 to September 30, 2001. These funds are received by the City and Tourism Vancouver over the January to December period. Council has previously granted authority to remit the November to May receipts to Tourism Vancouver. This collection/remittance treatment is consistent with business plans approved in previous years.

The context of Tourism in Vancouver, the Region and the Competition
The Hotel Tax revenues are collected from rooms within the City of Vancouver only (14,734 rooms in 2000), however, Tourism Vancouver marketing efforts promote the entire Greater Vancouver region (24,160 rooms in 2000). Tourism Vancouver's mission is "to lead the cooperative effort of positioning of Greater Vancouver as a preferred travel destination in all targeted markets world wide, thereby creating opportunities for member and community sharing of the resulting economic, environmental, social, and cultural benefits." The regional nature of Tourism Vancouver is also reflected in the membership on their Board of Directors. The Board consists of members from throughout the entire region, including accommodate and facilities in the downtown core, within Vancouver limits, North Shore, Surrey and beyond (See appendix 5). There are over 1150 member businesses in tourism and related businesses throughout the region and the 31 member Tourism Vancouver Board represents the members.
It is apparent, therefore that all other Greater Vancouver Municipalities benefit from the revenues forwarded from the City of Vancouver to Tourism Vancouver. Richmond is the only other municipality to have instituted the Hotel Tax prior to this year; revenues from the Richmond hotel tax (estimated at $1 million in 2000) will be used for tourism promotion (50%) and a new convention centre (50%). According to Tourism Richmond and Tourism Vancouver, marketing and promotions are coordinated so as not to overlap.
In order to support their region-wide activities, it is recommended that Tourism Vancouver pursue financial support from the other municipalities within the Greater Vancouver region who benefit from these marketing and promotional activities. Regional tourism promotions benefit the entire Greater Vancouver area, and it is appropriate that contributions be sought from other municipalities to support these efforts.
It is recommended that Council request Tourism Vancouver to develop a plan of tourism marketing activities undertaken by Tourism Vancouver on behalf of the entire Greater Vancouver region, to be presented to Council as part of the 2002 Business Plan process. The plan is to clarify any specific involvement and identify opportunities for participation by other Greater Vancouver municipalities, and to identify potential funding options.

Funding sources for Tourism Vancouver operations have evolved over the past decade. Contributions from Federal, Provincial and Municipal governments have declined or have been discontinued altogether (Federal contributions ended in 1991, Municipal grants for specific services in 1999), but revenues from private sources and the 2% Hotel Tax have increased steadily. In 1989, revenues from the Hotel Tax were just under $4 million; in 2000 revenues were $8.4 million.

Tourism Vancouver carries out numerous activities, and has in place a number of performance measurement tools which they use to ensure this funding is being spent appropriately. An examination of the impact of Tourism Vancouver's activities on the industry can be made by looking at the relationship between Tourism Vancouver expenditures and visitor volume. Visitor volume, as it is one of Tourism Vancouver's key performance measures, can be used as one proxy measure for their impact on the industry. The relationship of these two variables indicates that the spending per visitor is has remained stable; as the number of visitors has increased, so too has Tourism Vancouver's expenditures. Figure 1 demonstrates that Tourism Vancouver spends an average of $1.25 for each visitor to Vancouver. Figure 2 represents Tourism Vancouver's total annual expenditures, 2% Hotel Tax revenues and the annual number of visitors.

Figure 1

Figure 2

Tourism Vancouver states that increased revenues are required to carry out their promotional activities. They identify the need for increased funding as the increased expectations generated by the demanding competitive marketplace and the expanding supply in infrastructure. Room supply in Vancouver has increased from 10,094 in 1998 to 14,734 in 2000. Due to this increase in infrastructure, it is estimated that hotel occupancy rates will decrease. It should be noted, however, that the overall number of visitors to Vancouver continues to increase each year.

In addition to Tourism Vancouver, Tourism BC is responsible for tourism promotion throughout the Province. This is funded from 20.625% of the 8% Hotel Tax collected on all hotel rooms in the Province. (Or 1.65 points of the 8% tax). In 2000 in Vancouver alone, the Hotel Tax collected for Tourism BC was $6.9 million. The total Hotel Tax collected in Vancouver (the 2% Hotel Tax + 1.65% for Tourism BC) was $15.3 million in 2000.

It is also important to identify Vancouver's position in the tourism industry relative to their competition. Tourism Vancouver and City of Vancouver staff jointly identified a number of competitor cities, and below is a summary of findings of a brief survey of those competitors. Competitor cities are: Calgary, Montreal, Ottawa, Quebec City, Toronto, Boston, Portland, Salt Lake City, Seattle, San Antonio, San Francisco and San Diego.
Compared to US and Canadian competitors, Vancouver is:
· 1^st of 12 cities in highest checkout tax rate
· 8^th of 13 cities in total budget
· 9^th of 13 cities in expenditures per visitor
· 6^th of 13 cities in budget per room in the region
· 4^th of 12 cities in proportion of budget publicly funded
Compared to its Canadian competitors, Vancouver is:
· 1^st of 5 cities in highest checkout tax rate
· 2^nd highest of 6 cities in total budget
· 3^rd highest of 6 cities in expenditures per visitor
· 4^th highest of 6 cities in budget per room in the region
· 2^nd highest of 6 cities in proportion of budget publicly funded

The proposed Memorandum of Understanding between Tourism Vancouver and the City of Vancouver should include provisions for annual reports on the state of the tourism industry, details of Tourism Vancouver's marketing expenditures, Tourism Vancouver's competitive market, and information on other organizations carrying out tourism promotion activities which affect the Vancouver market.
Emerging Tourism Initiatives
Since 1997, there has emerged, with the support of Tourism Vancouver, a number of special tourism projects. For example, in 1996 the first Keep Vancouver Spectacular program was launched as a joint venture between Tourism Vancouver and the City. Most recently, the fireworks event, the "Celebration of Light" is the result of cooperation between a number of partners.
Currently, projects such as the 2010 Olympic Bid and the new Vancouver Trade and Convention Centre have arisen, both of which require financial support. Tourism Vancouver has undertaken to support these, but the funding commitments have not been approved by the City with the exception of the May 2000 report which approved :

A. THAT Council approve the portion of the Greater Vancouver Convention and Visitors Bureau (Tourism Vancouver's) 2000 Business Plan funded by the 2% Hotel Tax; and that the 2% Hotel Tax payments received by the City for the 2000 fiscal year be forwarded to Tourism Vancouver as and when they are received by the City, on the condition that their budget provides up to $400,000 for the Trade & Convention Centre project definition report and $100,000 for the 2010 Olympic Bid Corporation.

A report to Council regarding the Vancouver Trade and Convention Centre expansion and the funding options for the project will be forthcoming from city staff.
With a number of tourism projects emerging, it is appropriate for a formal process to be put in place to identify funding sources for these future projects. It is recommended that Council request Tourism Vancouver and City Management to identify tourism projects and budgets for each coming year based on mutually accepted criteria as outlined in a Memorandum of Understanding. These projects would require approval by Tourism Vancouver's Board as part of their annual business plan, and by Council when it considers this annual business plan.
Conclusion
This report recommends approval of the Tourism Vancouver 2001 Business Plan. The report also discusses a number of policy issues regarding the usage of the 2% Hotel Tax revenues, and proposes the creation of a Memorandum of Understanding to address these issues. A Memorandum of Understanding will clarify the roles and responsibilities regarding the 2% Hotel Tax, and will enable Tourism Vancouver and City Council to address emerging tourism projects on a cooperative basis.

* * * * *

Appendices on file in the City Clerk's Office

PDF file of Tourism Vancouver’s Annual Report:

http://www.tourism-vancouver.org/docs/pdf/2000_Annual_Report.pdf

(c) 1998 City of Vancouver

1 Assent of 51% of establishments that would collect the Hotel Tax and representation from at least 51% of the total number of rooms is required by the accommodation sector for their approval of the tax.