LATE
DISTRIBUTION
FOR COUNCIL DECEMBER 10, 1996
RR1(iv)
ADMINISTRATIVE REPORT
December 5, 1996
TO: Vancouver City Council
FROM: Director of Finance
SUBJECT: Tourism Vancouver
INFORMATION
The Director of Finance submits this report for INFORMATION.
COUNCIL POLICY
City Council has supported visitor information services by way of grants
to Tourism Vancouver up to 1990 and, thereafter, by way of a contract
for the publication and distribution of promotional material.
PURPOSE
The purpose of this report is to provide background and information on
Tourism Vancouver's relationship with the City, and the issues that are
impacting this relationship. Given the challenges which the City will be
experiencing with the Operating Budget, as a consequence of the
Provincial cuts to the City, and given the growth of alternative
revenues available to Tourism Vancouver, Council may consider that the
City's support via the contract for services should be changed.
DISCUSSION
History of City Involvement
The City has a long history of supporting tourism services in Vancouver.
Going back to 1964, the City has continuously supported the Greater
Vancouver Convention and Visitors Bureau (Tourism Vancouver) with direct
grants or publication contracts to operate the Infocentres. In the
late 1980s, the Province began a process that significantly reduced
their funding and support for tourism promotion in general, and for
infocentres in particular. At the same time, structural changes and a
general lack of voluntary support led to a funding crisis for the
Bureau. The City responded by supporting the Bureau with additional
funding while the organization was struggling to find a consistent
source of funds.
To help in this regard, the City funded a consultant study aimed at
developing a tourism industry consensus for a new tourism marketing
structure, out of which Tourism Vancouver emerged. Not all parties in
the industry were enthusiastic about the new structure, but with the
City providing leadership and a significantly higher level of funding,
the new organization was established and running for 1987. It was clear
that the industry would not have come to the table without the City
putting up significant funding. However, the newly reorganized
operation had cash flow problems and ran a deficit despite its apparent
operational success, and despite the significantly higher level of City
funding. The organization could not secure a line of credit, was
experiencing difficulties because of ongoing reductions in support from
senior governments, and was not reaching membership revenue targets.
This funding crisis led to the industry proposal in 1988 to introduce
the 2% Hotel Tax to help fund Tourism Vancouver's operations. This
source of revenue gave Tourism Vancouver a secure and growing source of
funds. In addition, the City continued to support the Infocentres
through grants until 1989, and thereafter through a contract for
services. The attached table shows the history of City involvement in
funding Tourism Vancouver's operations.
City Objectives
The City has two primary objectives in supporting Tourism Vancouver:
The first is to ensure that the organization is viable, stable and
able to promote tourism.
The second is to ensure that Infocentres are maintained as a
service for visitors.
On the first objective, it is clear that Tourism Vancouver has reached
stability and is well able to undertake promotion activities. While it
could be argued that there is never enough funding, it is reasonable to
conclude that the City's first objective has been achieved, as over the
past eight years Tourism Vancouver has been financially stable, has had
a secure, growing source of revenue, and has successfully promoted the
business.
The second objective of the City is to maintain Infocentres. This is
the primary purpose of the publication contract. The City's current
level of expenditure in this regard increased dramatically in 1987, as
the Tourism organization at that time was in crisis, and shutdown of the
infocentres was a real possibility. The City
has maintained this funding level with a minor reduction in 1993 (from a
level of about $650,000 down to $618,000 due to the Budget Management
Program). At the present time, Tourism Vancouver is considering new
approaches to Infocentres, as Tourism Vancouver's analysis indicates
that the level of funding provided by the City does not adequately cover
all Infocentre expenses.
Funding
The table attached as Appendix I shows that Tourism Vancouver's revenues
and budget have grown by about 59.4% ($3.4 million) since 1989, the
first full year of Hotel Tax. This rate of growth is far in excess of
the growth of revenues in the City. Total revenues have increased from
about $2.1 million in 1987 (prior to Hotel Tax) to about $9.4 million in
1996, an increase of 347.6%. Also, given the growth rate in hotel rooms
and a growing number of visitors, revenues are likely to continue
growing. In contrast, the City's non-utility revenues have grown by
about 39% since 1989. At the same time, the City's proportion of
Tourism Vancouver's funding has dropped from about 25.7% of their total
revenues to 6.6% of total funding, indicating that Tourism Vancouver is
less reliant on City funding now, and that while this funding may be
important, it is not as crucial as it once was.
It is also interesting to note that Tourism Vancouver's private sector
revenues have actually declined over the same period. In 1990, Private
Sector Revenues from memberships and programs was $1,228,000 whereas in
1996 it is about $986,550 - a decline of about 20%.
The City does not normally engage in subsidizing or funding the
promotion of industry sectors. In fact, the City has made a deliberate
policy decision to no longer provide direct promotion of business
development in the City by closing the Economic Development Office.
Also, the City does not view the contract with Tourism Vancouver as
directly promoting the industry. Rather, the contract is intended to
provide an information service for visitors to the City.
Issues
The primary issues in the City and Tourism Vancouver relationship are
funding constraints, Infocentre service levels, special events, and use
of hotel tax proceeds.
On the first point, the City has been facing increasing costs on a
variety of fronts, but has not always been able to cover these costs by
revenue increases. Over the past few years, the City has undertaken two
budget management programs in order to contain these rising costs.
However, there is a limit to cost reductions without service reductions.
Moreover, this year the City is facing major budget problems due to
Provincial funding cuts. These drivers must consequently influence the
remaining issues as outlined above.
In the face of funding cuts, increased costs, and limited options for
increasing revenue, the City must examine all areas of expenditure and
make hard decisions. In each case, the City must determine what level
of service is required (if any), and how to fund the service. In the
case of Infocentres, the level of service is a policy decision for
Council. In the case of special events such as APEC, the City is not
given a choice but to provide the required services.
Along with setting desired service levels, funding sources for these
services must be identified, along with trade-offs with other
priorities. For example, does the City better serve tourism activity by
concentrating on keeping the streets and public places clean, safe and
well maintained? Or, is promotion the better investment? And which
approach best benefits the taxpayers of Vancouver?
APEC
APEC represents a problem with certain kinds of high level conferences
or events held in the City. These events are usually planned by senior
levels of government, and primarily because of security issues, leads to
increased Police and Engineering costs for the City. The City is
required to provide the services, but receives no compensation. In the
case of APEC, these costs are substantial.
The City believes that there is an obligation on the part of Tourism
Vancouver to help defray these costs as Council believes that the
primary beneficiaries of these events are the Hotel and Hospitality
industries. This issue was on the table when the 1996 business plan was
considered by Council, and Tourism Vancouver agreed to fund 50% of the
costs to a limit of $350,000 payable over 2 years.
However, subsequent events are escalating these costs, and the City is
facing an additional $700,000 to $800,000 or more of expenses related to
this event, with no sources of revenue to compensate. Tourism Vancouver
is now considering a request from the City to help cover these
additional costs.
Hotel Tax
The 2% additional Hotel Room Tax was put in place during 1988 to provide
a stable level of funding for tourism promotion in Vancouver. The Hotel
Tax Amendment Act, 1987 is the governing legislation. Essentially, the
Province will levy an additional amount of Hotel Tax over and above the
Provincial rate upon the request of a municipality or regional district.
The municipality must enact a by-law requesting the tax to be imposed
and specifying the intended uses of the proceeds. The tax is collected
under the Provincial authority, but the legislation gives the
municipality full authority over the use and disposition of these funds
within the permitted uses as specified by municipal by-law.
In the City's case, an additional 2% of Hotel Room Tax was requested and
approved. The City has full authority and control over the use and
disposition of these funds, provided that the use complies with the
Hotel Room Tax Levy By-Law which states that the funds "... shall be
applied to tourism promotion, programmes and projects." At present, all
funds are forwarded to Tourism Vancouver to carry out promotions and
projects. However, the City is within its authority to direct these
funds to whatever it wishes, so long as the uses comply with the By-Law.
The City could use these funds to maintain Infocentres and also to fund
additional APEC costs, as these would fit the permitted uses of the
funds. The hotel industry may argue that the 2% Hotel Tax is paid by
the industry, and therefore should not be considered for such purposes.
However, it can also be argued that the visitors pay the tax, and
therefore should get some services for the tax.
CONCLUSION
Tourism Vancouver now has a significant, secure and growing revenue
source that provides sufficient funding to carry on promotion
activities. The need for the City to support this organization has
faded, and there is sufficient funds within the Hotel Tax proceeds to
fund some level of Infocentre services. Further, Council has already
determined that Tourism Vancouver bears some responsibility in sharing
costs of events that benefit the hotel and hospitality industry
evidenced by the cost sharing arrangement for the original APEC City
costs. Therefore it is not unreasonable to extend this sharing to the
increased costs of APEC. The Hotel Tax revenue stream has grown rapidly
and continues to grow.
If Council were to consider eliminating the contract for services,
recommendations along the following lines would be appropriate:
A. That the contract for publication services with Tourism Vancouver
not be renewed for 1997. and,
B. That Council direct Tourism Vancouver to allocate within their
annual business plan and budget for 1997, a minimum $600,000 to
keep at least one Infocentre in operation at current service
levels.
Further, if Council wishes to extend the cost sharing policy for City
APEC costs to the unexpected increases, the following recommendation
would be appropriate.
C. THAT Council direct Tourism Vancouver to fund at least 50% of the
additional City costs associated with APEC, taken from the Hotel
Tax portion of Tourism Vancouver's 1997 business plan.
Any actions taken by the City to use these funds would not seriously
hamper Tourism Vancouver's promotions in the long run, as Hotel Tax
revenue growth will compensate, and they have the option of raising
additional private sector funding.
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