Travel Promotion Act: Who's paying?

By Bill Poling

If the Travel Promotion Act works as planned, the federal government will put up $100 million per year, the travel industry will kick in $100 million per year, and a new nonprofit corporation will spend it on the world’s biggest international tourism marketing and information campaign.

The objective is to vastly improve the image of the U.S. abroad and inject new life into all segments of the U.S. economy that derive benefits from international travel, whether for leisure, business or educational purposes.

That’s the theory, anyway.

The legislation, which has been approved by substantial majorities in both the House and Senate, needs to be approved one more time in the Senate before it can go to the White House for President Obama’s signature. The bill’s backers are confident that this will happen soon.

Which means it’s not too early to start asking technical questions, such as: "How is this going to work?" and "Where is the industry’s $100 million going to come from?"

Nobody knows the answers to these questions better than Geoff Freeman, senior vice president for public affairs at the U.S. Travel Association. Freeman has been everywhere, building the consensus that has brought the legislation to its current state — on Capitol Hill, in the trenches of K Street, in innumerable meetings, briefings and media appearances.

When asked how the proposed Corporation for Travel Promotion is going to work, he has a one-word answer: "Effectively."

But then he adds the Big If.

It will work effectively "if the industry maintains its commitment" to making it work. It is modeled on similar cooperative state-level partnerships in California and Florida that Freeman called "proven programs" for tourism promotion.

To a casual observer, however, it would seem that today’s travel industry is hardly fertile ground for finding $100 million in loose change, even if there’s the prospect of a federal match.

Here’s where it helps to read between the lines of the legislation. Up to 80% of the industry’s share can be in "goods and services (including advertising) contributed to the corporation."

That means travel industry companies or associations could donate office space, employee time, marketing or IT expertise, even reduced-rate accommodations for business travel. This would include cooperative advertising and the fair-market value of Internet links to the corporation’s website.

Freeman expects goods and services aplenty.

Because of the 80-20 rule, however, the key question is where the cash will come from and how much will be coming. If the industry can raise only $1 million in cash, then it can count only $4 million in goods and services toward the federal match, which would be limited to $5 million — far short of the $100 million annual maximum.

So it comes down to this: The more cash the industry can raise, the more goods and services it can count, and the more Uncle Sam will contribute.

Freeman has a list of money-making ideas, and high on the list is Internet advertising. It is expected, for example, that the corporation would very quickly establish itself in overseas markets as the authoritative source for information about traveling to the U.S., making its websites ideal advertising venues.

Any money that the corporation raises by selling ads on its websites could be counted toward the "nonfederal contribution," Freeman said.

Because it’s a voluntary program (no industry parties are required to contribute), Freeman said a key to raising cash would be providing value and producing benefits so that industry parties will feel that it’s in their best interests to participate.

If all else fails, the corporation will be empowered to issue assessments and collect funds from the industry, but Freeman regards that scenario as "unlikely in the near term." Part of the reason, he said, is that the process is expensive and complicated.

To begin with, the law requires the corporation to first organize an industry referendum. That in itself is a complex task and would require the corporation, under the law, to calculate a weighting system for the votes of different entities, "according to each business entity’s relative share of the aggregate annual U.S. international travel and tourism revenue for the industry per business entity."

A referendum would probably involve one or more public relations campaigns to get out the vote or to persuade industry parties to vote for or against the assessment.

The corporation would also have to establish a collection and enforcement procedure. Freeman said the time and resources required for this process would be better spent on the corporation’s primary goal: marketing the U.S. The assessment process is so cumbersome, he said, that it serves as its own disincentive.

And if an assessment ever did come about, it could easily lead to industry discord and distracting controversies.

As written, the legislation authorizes the corporation to issue assessments only on certain segments of the industry that are represented on its board. That would include hotels, restaurants, travel distribution and passenger rail. However, car rental, motorcoach and tour suppliers are not specifically represented on the board, and thus they would seem to be beyond the reach of an assessment.

What is most surprising, however, is that airlines, although represented on the board, are specifically exempted from any assessments by virtue of a clause that was inserted into the Senate version of the bill last year.

Freeman said the airlines lobbied for that language "on their own" and not in consultation with U.S. Travel. He said the airlines went to Capitol Hill and "made the case as to why they should not be included. It was done with their lobbying might."

The move reflects the continued ambivalence about the legislation at the Air Transport Association, the airline’s principal trade group.

Several years ago, during hearings on an early version of the bill, the ATA testified against the legislation because it would have raised funds by adding a new fee to airline tickets. Later versions, including the latest version, impose no new taxes on any segment of the travel industry, but the airlines have not actively lobbied for the bill. As an ATA spokesman put it, "We are not opposing it."

And regarding the funding mechanism, he said, "We’re not paying."

Even without the airlines’ active support, Freeman expects the corporation to develop into a self-sustaining organization with the resources to manage a budget of up to $200 million. He is convinced that "it’s going to be an excellent thing for the industry," but its biggest challenge might be surviving its first few years.

The legislation authorizes the program only through 2014. During that time, the corporation must submit annual reports to Congress on its successes and failures, submit to Commerce Department reviews of its budget and undergo an investigation by the Government Accountability Office, all while fending off political assaults from conservatives, some of whom firmly believe that the government shouldn’t be promoting travel and tourism.

The Travel Promotion Act is on the verge of being passed exactly 14 years after then-President Bill Clinton hosted the first White House Conference on Travel and Tourism.

That event, on Oct. 30 and 31, 1995, is well remembered by tourism officials in Washington because it embodied a commitment by the government to develop a public-private partnership to promote the U.S. as a travel destination.

But that commitment was short-lived. Under pressure from the new conservative majority in Congress, the administration shut down its tourism promotion office shortly after the conference ended.

Key provisions of the Travel Promotion Act

• Establishes a Corporation for Travel Promotion, with a mandate to "maximize the economic and diplomatic benefits of travel to the U.S. by promoting the U.S. to world travelers through the use of, but not limited to, all forms of advertising, outreach to trade shows and other appropriate promotional activities."

In addition, the corporation will be charged with providing “useful information to foreign tourists, businesspeople, students, scholars, scientists and others interested in traveling to the U.S.,” including the distribution of U.S. government information to "prospective travelers, travel agents, tour operators, meeting planners, foreign governments, travel media and other international stakeholders."

• The corporation will be chartered in the District of Columbia as a nonprofit corporation governed by a 11-member board, appointed by the secretary of commerce (in consultation with the secretary of state and secretary of homeland security). The corporation will have an executive director and other officers and employees as determined by the board.

• Two members of the board must have experience as officials of a state tourism office. The remaining nine members must have experience in the following areas: hotels; restaurants; small business/retail; travel distribution; attractions and recreation; city convention and visitors bureau; passenger air; immigration law and visa/entry policy; passenger railroad.

• Start-up expenses for 2010 of up to $10 million will be made available beginning Jan. 1, 2010, derived from Electronic System for Travel Authorization fees paid by foreign visitors.

Under the Electronic System for Travel Authorization, visitors from countries participating in the Visa Waiver Program are required to obtain a travel authorization online before travel. The authorization is free and is valid for two years. The Travel Promotion Act directs the Department of Homeland Security to assess a cost recovery fee for each authorization, plus $10 for the Travel Promotion Fund.

• For fiscal years 2011 through 2014, funds of up to $100 million annually will be made available on a matching basis, also derived from ESTA fees paid by foreign visitors. In 2011, the private sector will be required to match 50% of the amount contributed by the government. In subsequent years the match will be 100%. Private-sector contributions in excess of the matching requirement can be carried forward.

• Up to 80% of the corporation’s private-sector contribution can be in the form of goods and services.

• If necessary, the corporation can issue assessments on private-sector travel companies to generate the private-sector contribution, but only after submitting an assessment proposal to the industry in a referendum.

• If such a referendum passes, the corporation could issue assessments on the travel industry sectors represented on its board, with the exception of the small business/retail and airline sectors.

• Annually, the corporation will submit a report to Congress and submit its budget and objectives to the secretary of commerce. Within two years, the Government Accountability Office will conduct a review of the corporation’s activities.

• The legislation also creates an Office of Travel Promotion in the Commerce Department to serve as a liaison to the corporation and to support other initiatives to increase travel to the U.S.

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