Government Affairs DMOs under assault By Johanna Jainchill / July 12, 2017 Share 1 -- WASHINGTON -- The dominant theme of the U.S. Travel Association's annual IPW conference last month was the potential damage that Trump administration policies, from the travel ban to laptop carry-on restrictions, could inflict on inbound U.S. tourism.But on the trade floor, at a small desk with a small Alaska Travel Industry Association (ATIA) sign hanging over it and on the four tables under a single Visit Florida banner, concerns about Trump's policies paled in comparison to anxiety about marketing budgets. This year, the ATIA was allotted $1.5 million to market the state, a 90% reduction from two years ago when Alaska allocated $18 million for tourism marketing. Visit Florida's very public budget battle ended with a full restoration of its 2016 $76 million budget after state lawmakers had voted in May to cut it by 67%, to $25 million. But the money didn't come in time to enable Visit Florida to spend what it normally would have to put the Sunshine State in front of IPW's more than 6,400 attendees from 70 countries, including over 1,300 international and domestic travel buyers and a record 530 journalists from the U.S. and abroad. Operating under the assumption that it had only $25 million from the state, Visit Florida brought a fragment of its normal delegation to hold meetings at the show. Its presence was dwarfed by nearby Orlando's entire corridor, almost every other state and even cites such as Portland, Ore., all of which was ironic, considering Florida welcomed a record 112 million out-of-state visitors in 2016. And at the same IPW conference, U.S. Travel CEO Roger Dow found himself defending Brand USA, the public-private partnership created by Congress in 2010 to promote the U.S. as a tourist destination. Today, it is in danger of being eliminated under the Trump administration's proposed budget. Calling Brand USA's mission more important than ever, Dow said that "unilaterally disarming the marketing of the U.S. as a travel destination would be to surrender market share at the worst possible time."While these high-profile cases of potential eliminations of destination marketing organizations (DMOs) might seem to indicate that destination marketing is under an unusual attack this year, the threats actually occur with some regularity. Colorado, Washington state, Pennsylvania and Chicago are all places that have faced severe marketing cuts, and in some cases the repercussions lasted years or even decades. A huge part of a destination marketer's job is convincing local and state governments of tourism's value and that travel is not just a frivolous industry but one that creates jobs, tax revenue and in some cases sustains entire economies. A view of Mount St. Helena from the Cardinale Winery in California’s Napa Valley. Visit California relies on money from private businesses rather than the state government for its funding. Photo Credit: Courtesy of Visit California Destination marketers are growing tired of this. And increasingly, they are looking at the Golden State's model. California's DMO, Visit California, decided in the late 1990s that it didn't want its budget to be vulnerable to the whims of politicians every year. It wanted its executives devoting most of their time to persuading people to visit the state, not persuading the state to fund its programs. In order to be successful, Visit California had to be able to execute long-term strategies, a difficult task when an organization's budget is uncertain every year. California's funding model, a pioneer in the '90s, is still nationally unique: California businesses within the travel and tourism industry -- accommodations, restaurants and retail, attractions and recreation, travel and transportation services and passenger rental cars that derive revenue from travelers or tourists -- pay into a fund to market California as a tourist destination. It is the only state DMO that does not rely on the state's general fund. Caroline Beteta "It allowed California to look long term and have a strategic vision," said the group's CEO, Caroline Beteta. "If you're depending on an unpredictable taxpayer to do that, it can be challenging."Beteta, who was part of the team that implemented the system, said recent examples of DMO funding on the ropes were further validation of its model."The [Visit California] executives at the time actually had felt the sting of [funds] developed for the purpose of destination marketing at the local level being swiped away for funding other government services, and it was for that reason alone that they said it must never touch the appropriations process," Beteta said. "And they have been validated time and time again." Every six years Visit California members vote on whether to continue, and they overwhelmingly vote to do so. In 2014, they voted to double their marketing budget to $100 million and have seen visitation increase by more than 20 million trips since then.California was also the birthplace of the TBID, or Tourism Business Improvement District, which also started in the '90s. It has become increasingly popular nationwide as destinations seek to finance their marketing with funds that lawmakers cannot reallocate to anything else. According to Civitas, a Sacramento, Calif.-based firm that has been helping establish TBIDs since their early days, the districts generally work by charging tourism establishments, usually hotels, a percentage of their sales, which the establishment generally passes on to its customers. Those funds are typically collected by local governments in the same way bed taxes are, but unlike bed taxes, they are given to the local DMO and can never be redirected to general program spending by the local government. In 2015, 150 TBIDs around the U.S. generated nearly $300 million in marketing revenue, Civitas reported, mostly in California.While still primarily a West Coast phenomenon, they are spreading as DMOs look for more solid funding sources.Alaska Travel Industry Association CEO Sarah Leonard argued that investing in tourism is a good way to diversify Alaska’s oil-dependent economy. Above, Denali National Park. Photo Credit: Courtesy of State of Alaska-Jocelyn Pride Investing in Alaska tourismOne of those places is Alaska, where tourism is reaching record levels at a time when the state coffers are historically low. More than 2 million visitors went to Alaska in summer 2016, a 4% increase over 2015 and 21% higher than the 2010 low point. Tourists contributed $83 million to city and borough budgets and $100 million to the state's general fund, the ATIA said, generating a statewide economic impact of more than $4 billion. Alaska as a state has suffered immensely from record-low oil prices, and thus low taxes that support 90% of its budget. The state has no income tax or state sales tax, and with its revenue running dry, lawmakers looked to the ATIA's $18 million in government funding, swiping 90% of it. But according to the ATIA, they are taking money that gets paid back manifold. Sarah Leonard "Alaska communities and the state are seeing strong returns from past tourism marketing dollar investments," ATIA president and CEO Sarah Leonard said. Leonard also argued that investing in tourism is a good way to diversify the state's oil-dependent economy. Despite the numbers, Leonard said, it takes "constant education" of elected officials to explain that the industry generates 47,000 jobs. She called it a "disturbing trend ... that states are looking at tourism marketing as a way to cut vs. an important investment in their economy."This past April, with the tourism industry's prodding and collaboration, an Alaska Senate bill was submitted to establish a tourism marketing assessment and tourism marketing fund, a state TBID. At Visit Florida, CEO Ken Lawson did not say he was inclined to look for alternate funding sources, but the embattled organization has to wonder why despite five years of record-setting visitation it now finds itself on the defensive, especially given that when the state gave Visit Florida $25 million a year, Florida welcomed 80 million tourists. Last year, with $76 million, more than 112 million people visited. Florida's Republican governor, Rick Scott, went to the mat for tourism, literally crisscrossing his state for several months to campaign for Visit Florida and educate residents about the organization's value and how much tourism contributes to Florida's coffers. Florida's Republican-led house, however, had voted to eliminate the organization altogether before slashing its budget instead. "Florida is not a secret," one of those GOP legislators, Palm Coast Rep. Paul Renner, said in February. "It's not like we're convincing people to come to some remote corner where nobody goes."According to Scott, the disconnect is just "politicians being politicians." "We know the return is staggering," Scott told Travel Weekly. "It's one in six jobs in Florida. We know it pays a lot of taxes. ... For every $1 we spend, we get $3 back in tax revenues. We know the lessons. We know that when Colorado cut its marketing budget out 20 years ago, they saw their market share for tourism go down. ... We saw what happened in Pennsylvania in 2009 when they cut their marketing budget from $30 million to $7 million. The next year they lost $600 million just in revenues. ... We know what happens." Visit Florida avoided having its budget slashed by the state legislature after a record 112 million travelers came to the Sunshine State in 2016, visiting sites such as Miami and taking part in activities like kayaking on Lake Norris (pictured). Photo Credit: Courtesy of Visit Florida Constant budget battlesSo why do states and communities continue to cut DMO budgets? Chris Thompson, Brand USA's CEO, said the Trump administration's proposal to cut his organization's funding makes total sense given the lack of resources at every level of government. "A president's budget, a governor's and mayor's budget is as much about a political statement of priorities as it is an actual budget," Thompson said. "Because rarely do the appropriators, Congress, actually follow that blueprint."Acknowledging that the Trump administration's No. 1 priority is securing the borders, Thompson said it makes sense that the budget would call for sweeping Brand USA's funds into Customs and Border Protection. Brand USA, which was created under the Obama administration, is funded with resources that didn't exist prior to its formation. Visa applicants applying from Visa Waiver Program countries, like most of Europe, pay a $14 processing fee, $4 of which goes to Customs and Border Protection and the rest to Brand USA. That funding is then matched entirely by Brand USA's private partners. Thompson said he does not consider the proposal to zero out Brand USA as an indication that the president does not value travel and tourism. "When you have limited funds and you have your priorities, you can only spread them so many ways," he said. Thompson likes Brand USA's chances of winning its funding in Congress, which in December 2014 voted overwhelmingly to reauthorize the group, one year ahead of schedule. "I feel good about our track record with Congress," Thompson said. "I don't take that for granted. Every day we have to prove our value proposition." But that is exactly what many DMOs are tired of doing, even though being able to sustain a model such as California's might not work in every state. In fact, one of the criticisms on the part of those who don't buy into the value of publicly funded destination marketing is that not enough private travel companies are willing to spend their own money to market themselves. Michael LaFaive, director of the Morey Fiscal Policy Initiative with the Michigan-based Mackinac Center for Public Policy, a conservative think tank, is the author of a 2016 study on state tourism-promotion funding that found state tourism marketing produces negative returns. "The litmus test for the industry's actual belief in whether or not these programs work: Have they attempted to self-assess?" LeFaive said. "They can tax themselves, pool their money and buy these general state advertisements. The fact that they do not do so suggests they know they're not effective." However, many states match or even exceed public funding with private contributions already. The travel industry in Alaska provided almost 15% of the ATIA's budget last year, and in Florida, state tourism businesses give more to the organization than the state: in 2015-16, they contributed $142.8 million. "We think the state should have some skin in the game because we are returning benefits back to the state," said the ATIA's Leonard. "We want it to be a partnership."Most states and Brand USA solicit data to measure the return on their marketing investments. According to a study Brand USA commissioned last year from Oxford Economics, each dollar of Brand USA's marketing generated $21.20 in visitor spending, meaning the $160.7 million it spent on marketing in 2015 generated $3 billion in incremental visitor spending for the U.S., sustaining 44,533 jobs, $457 million in incremental federal taxes and an additional $410 million in state and local taxes.But it's difficult to really measure how much marketing itself impacts tourism, especially when there are so many outside factors that influence visitation: Florida's visitor numbers will undoubtedly be impacted by Zika fears last year; Alaska cruise numbers are expected to be historically high this summer, in part because of terror concerns in Europe; and the U.S. as a whole is having to combat the strength of the dollar, which challenges the strength of its three largest inbound markets: Mexico, Canada and the U.K. But that's true of any marketing: It's generally difficult to know if it works. Of course, that doesn't stop most companies from investing in advertising and marketing, a fact the travel industry thinks all too often gets lost. A recent U.S. Travel report found that in 2014, the top 50 corporate advertisers spent $80.6 billion marketing and promoting their brands, while in 2013-14, state tourism offices spent about 0.5% as much -- $437 million, with a median budget of $7 million -- to market their destinations. "What is true for consumer products is equally true for travel destinations," U.S. Travel said in the report. "In today's highly competitive global marketplace, consumers have more choices than ever when it comes to mobile phones, cars, shampoo, soda -- and travel options."