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M d. ~~ i m r ~ i C4 <t i ~ ~ i i O ti r o uS r I ~ ~ ~ !b r O r ~ ~ )~ ~ M N~ ~ o r r N M `~ ~ ~ O ~ N N M M , <Y V iC1 M N ~ O _ ti ~ I~- h M ON O ~ d' ~ O 1~ W V ~ co of ~ ~ V V ~ O ~_ ~ m CO N 41 M M N to <r O r t(7 CA N N ~ CO M O CO t~ M O O M ~cpp ti W ~~OOM ~ Oc4 c0 CO (O CO (L>cO CO O O O Cn O ~ d) CA Q7 O O) CA 41 O Cn d) O W CA (A O) CA (n O O) O CA O rA W O~ r~ i 0 i i h ~ ~ N ~ ~ O O f6 !6 t6 O O O ~ ~ r a a ~ ~ ~ ~ m C ~N m co `ro o ° ~- ~ c m 0 o a m ~ m `~ p~ ~ ~ m c y_ ro o (J~Sin YYZOi(nF~ Five sustainable revenue scenarios for destination marketing on the Kenai Peninsula Summer 2003 Brief: Tourism is a major component of economic development on the Kenai Peninsula for the borough and its municipalities. The tourism industry attracts first-time visitors to the region, many of whom become repeat customers, and some who then eventually become permanent residents through relocation. Traditionally, an important component of the tourism industry is the work of destination marketing organizations (DMO), which assist the industry by marketing the destination and travel businesses to potential visitors. The worldwide standard for sustainable revenues for destination marketing organizations is the bed tax, which accounts for the majority of money spent by travelers in a destination. With bed tax revenues, DMOs traditionally marketing the region through print, TV, radio and Internet media, visitor guides, direct mail, operate visitor centers and provide visitor services, and assist membership businesses. The Kenai Peninsula does not have aborough-wide bed tax currently in place to assist destination marketing organizations in their effort to promote the travel industry on the peninsula. There are 13 DMOs on the peninsula, each with a mission to promote the peninsulaand/or its region of the peninsula. The result is an uncoordinated, under funded effort in attracting visitors to the peninsula. The following pages examine five scenarios: the current scenario without a bed tax in place (and the current situation of many DMOs with duplicate services); and four alternatives, each with a bed. tax in place for sustainable funding and four different methods for revenue distribution. The goal is to come to a consensus as destination marketing organizations and bring forth a proposal to the Kenai Peninsula Borough assembly for discussion and possible placement for vote on the fall ballot in 2003 or 2004. Each scenario has a general statement and results, with a list of pro and con's, and space for participants to add their own pro and con viewpoints. The comments will be collated and presented to assembly member Betty Glick, who is spearheading the investigation for the borough. Scenario One Status Quo - No Bed Tax There are 13 non-profit Destination Marketing Organizations on the Kenai Peninsula. Current Kenai Peninsula DMOs include the following 13 organizations: Kenai Peninsula Tourism Marketing Council; Anchor Point Chamber of Commerce; Cooper Landing Chamber of Commerce; Homer Chamber of Commerce; Hope Chamber of Commerce; Kenai Chamber of Commerce; Kenai Convention and Visitors Bureau (CVB); Ninilchik Chamber of Commerce; North Peninsula Chamber of Commerce; Seldovia Chamber of Commerce; Seward Chamber of Commerce / CVB; and Soldotna Chamber of Commerce. The bed tax is the worldwide standard for generating the bulk of funding ffor DMOs. The bed tax is the accepted industry standard across the state, nation and world to generate sustainable revenues for destination marketing organizations. Between 60 - 80% of visitor expenses in Alaska are for accommodations according to the latest economic visitor surveys, and this corresponds to figures elsewhere. Bed tax rates in the western U.S. range anywhere from 3% in Ogden, Utah to 24% in Reno, Nevada. In Alaska, Anchorage has a rate of 8% and it generates $11,000,000 in revenue; Fairbanks 16% / $2,050,000; Juneau 7% / $975,000; Ketchikan 10% / $325,000; Mat-Su 5% / $550,000; Sitka 6% / $250,000; and Valdez 6% / $275,000. Currently, outside of the city of Seward, the Kenai Peninsula Borough does not have a bed tax. The city of Kenai bed tax is currently sunsetted. The Kenai Peninsula Borough does not have a borough wide bed tax. By not having aborough-wide bed tax, the Kenai Peninsula Borough is at a competitive disadvantage to other areas of the state -and nation - in promoting the region as a visitor destination. As the worldwide standard mechanism for collecting revenues from travelers for visitor services they use, travelers expect to pay a bed tax everywhere else they visit. Without a borough-wide bed tax, the Kenai Peninsula Borough leaves behind literally millions of dollars each year that could be used in its destination marketing efforts. Instead, The cost of destination marketing is placed on local businesses and residents. Local businesses on the peninsula pay the cost through membership fees, advertising costs and charitable giving requests from a multitude of destination mazketing organizations across the peninsula, and residents pay in terms of underwriting generic destination marketing and operation of visitor centers through property and sales taxes and through charitable gaming, raffles and donations. Matrix of where revenues come from for destination marketing: LOCATION: VISITORS BUSINESSES RESIDENTS Elsewhere HIGH% LOW% LOW% Here LOW% HIGH% HIGH% Result: High number of DMOs with restricted monetary resources to do effective job; high cost to businesses; high cost to residents; little cost to visitors. Pro: 1. No added tax burden on visitors, which may free up more money to be spent otherwise. 2. No additional governmental administration costs for borough or businesses. Con: 1. Money for marketing the Kenai Peninsula will continue to be severely limited, as will the current downward trend in visitation. 2. DMOs will have no sustainable funding mechanism for which to promote the peninsula. 3. Local residents and businesses will continue to have to pay for visitor facilities and promotion of the Kenai Peninsula via taxes, charitable giving and higher membership fees. 4. Several million dollars of revenue will remain untapped. (Lodging accounts for 60-80 percenT of annual travel-related expenditure on peninsula.) PRO: CON: Scenario Two 1) Implement a Bed Tax, and 2) Form Three Regional DMOs for the Kenai Peninsula. Establish aborough-wide bed tax on a per room, per night basis for all accommodations on the Kenai Peninsula. The bed tax will be calculated from the standard, non-packaged, non- discounted room rate, and will be charged on a per room, per night basis. To be fair and equitable, all accommodations are taxed at the rate, including hotels, motels, bed and breakfasts, cabins, lodges, RV parks and campgrounds. Set the bed tax rate so that visitors pay the majority of destination marketing costs. The bed tax rate in the western US ranges from 3% to 24%, and in Alaska it ranges from 5% to 16%. The bed tax rate will be set cover the majority of costs for destination marketing on the Kenai Peninsula, and includes generic destination marketing through print, radio, TV and Internet media, and operation /administrative costs for operation of visitor facilities: Consolidate the current thirteen DMOs into three new regional DMOs. To consolidate the overlapping efforts and reduce the administrative costs of the current 13 DMOs, establish three new regional DMOs that collectively market their local regions and cooperatively market the Kenai Peninsula. The three new regions would be: Kaehemak Bay DMO: serving the Kachemak Bay, Caribou Hi11s and Lower Cook Inlet region, including the communities o£ Anchor Point, Clam Gulch, Diamond Ridge, Halibut Cove, Happy Valley, Homer, Kachemak Selo, Nanwalek, Ninilchik, Port Graham, Seldovia and Voznisenka. Kenai Fjords DMO: serving the Kenai Fjords and Kenai Mountains region, including the communities of: Cooper Landing, Hope, Moose Pass and Seward. Kenai Rivers DMO: serving the Kenai Rivers and Lakes region and Upper Cook Inlet, including the communities of: Kasilof, Kenai, Nikiski, Soldotna, Sterling and Tyonek. Devise a revenue distribution system that: a) 50 - 70% revenue collected stays in region to pay for administrative cost of organization and visitor services, such as operating visitor centers, and; b) 30 - 50% revenue collected goes to collective destination marketing costs, such as print, radio, TV, Internet media. Consolidated areas provide local control; cooperative marketing provides cost savings. The three regions can utilize economies of scale in promotion of each region both jointly and individually. Businesses in small and unincorporated areas of the borough would have a greater say in how bed tax funds are spent to promote them, maximizing local control. Both the Kenai Peninsula Borough and its incorporated municipalities would realize significant savings in their budgets by allowing the majority of destination marketing efforts to be paid for by the visitors to the peninsula and lessen the burden on both businesses and taxpayers. Pro: 1. Local control over spending of all bed tax revenue. 2. Streamlined administrative costs. Group expenses could be minimized through economy of scale. 3. No duplication of efforts. 4. Three sister organizations work together and share expenses of borough wide destination marketing. 5. Each region could better cross promote other two regions in borough. 6. Common visitor guide, web site and advertising templates would reduce production costs and send cohesive message. 7. A cohesive marketing plan can be developed and implemented promoting entire Kenai Peninsula. 8. Increased visitation to Kenai Peninsula. 9. 100% of bed tax would go regionalized DMOs. 10. Cities in the borough would save money by not having to subsidize DMOs or services received by visitors 11. Borough residents would no longer have to fund borough wide destination marketing. 12. No new borough government infrastructure would be required. Con: 1. Reorganization and consolidation of existing DMO structure. 2. Requires on-going cooperation between three separate DMOs over time. PRO: CON: Scenario Three: a) Implement a Bed Tax, and b) Form One Borough-wide DMO and Three District DMOs This option would see a DMO structure much like the one in place for scenario two, with three district level DMOs and one borough-wide DMO. In this scenario, there would be four DMOs on the peninsula: Kenai Peninsula DMO: responsible for all destination marketing on a borough-wide basis. The organization serves as the contract firm responsible for print, TV, radio, Internet media. Not membership based; works with the three DMO districts to create and distribute all peninsula destination marketing materials. Kachemak Bay DMO: responsible for membership and visitor centers in district. Kenai Fjords DMO: responsible for membership and visitor centers in district. Kenai Rivers DMO: responsible for membership and visitor centers in district. While this option would allow for local control of bed taxes raised in specific regions, it may represent redundant duplication of services that absorb additional bed tax revenue raised in order to have aborough-wide organization. The Kenai Peninsula DMO board of directors would be comprised of board members from the three district boards and their directors. RESULT: Kenai Peninsula DMO Kachemak Bay DMO Kenai River DMO Kenai Fjords DMO Funding and Distribution: 100% of bed tax, minus administrative expenses Kachemak Bay DMO: 50 - 70% of revenue from district, responsible for visitor centers Kenai River DMO: 50 - 70% of revenue from district, responsible for visitor centers Kenai Fjords DMO: 50 - 70% of revenue from district, responsible for visitor centers Kenai Peninsula DMO: 35 - 50% of borough wide revenues, responsible for destination marketing. One to four travel planning guide book(s) for independent travelers, in-state /out-of--state One to four meeting guide(s) for conventions One to four group travel guide book(s) for group travelers Five municipal visitor centers: Homer, Kenai, Seldovia, Seward, Soldotna Five borough visitor centers: Anchor Point, Ninilehik, Cooper Landing, Hope, Moose Pass Pro: L Local control of how portions of local bed tax revenues are spent. 2. Borough-wide DMO could manage cooperative marketing for peninsula as a whole. 3. Very little reorganization has to take place and established promotion programs can continue unchanged. Con: 1. Higher administration costs, reducing the funds for regionalized DMOs. 2. Duplication of efforts between areas and borough wide DMO. 3. Lack of local control will remain in unincorporated areas of the borough and spur the continued creation of more DMOs, further duplicating efforts. PRO: CON: Scenario Four• a) Implement a Bed Tax, and b) Form One Borough-wide DMO This option would see the consolidation of all 13 DMO organizations into one new Kenai Peninsula DMO, which would be responsible for all destination marketing efforts on the Kenai Peninsula and for operations of all visitor centers and services on the peninsula. The Kenai Peninsula has tried this approach in the past with the initial creation of the Kenai Peninsula Tourism Marketing Council, but with the mission to help build up local control of marketing efforts of the local chambers. In many respects, the initial mission of the KPTMC has succeeded in that 12 other DMOs have flourished and developed on the Kenai Peninsula. In a variety of levels, be it government, business ornon-profit, borough-wide organizations have met with mixed success. Some of the drawbacks have been the feeling of lack of local control and high transportation costs. Kenai Peninsula DMO: responsible for all destination marketing and operation of visitor centers /services on a borough-wide basis. The organization serves as the contract firm responsible for print, TV, radio, Internet media. Membership based, it also services all visitor centers /services on a borough-wide basis. All bed tax revenues would move through this one organization. This model would not allow local control of how bed tax funds collected in a specific area are spent in that area. This could lead to animosity in areas that felt they were being underserved. RESULT: Kenai Peninsula DMO Funding and Distribution: 100% of bed tax goes to Kenai Peninsula DMO. Responsible for all destination marketing, operation of visitor centers One board ofdirectors /executive director /staff. One travel planning guide book for independent travelers, in-state /out-of--state One meeting guide for conventions One group travel guide book for group travelers Five municipal visitor centers: Homer, Kenai, Seldovia, Seward, Soldotna Five borough visitor centers: Anchor Point, Ninilchik, Cooper Landing, Hope, Moose Pass PTO: 1. Simplified administrative structure. Con: 1. Lack of local control. Local DMOs were, and continue to be, developed even after a centralized DMO was created 10 years ago. 2. Difficult for one organization to promote and serve the travel industry and the three major areas on the peninsula. 3. Difficult for one organization to manage local visitor facilities across peninsula. 4. Historicallg it's been difficult to maintain board of director and general membership on a borough wide basis. PRO: CON: Scenario Five: a) Implement a Bed Tax, and b) Distribute money in same manner as sales tax. In this option, all money collected would go to the municipality in which it was collected. All monies collected in cities would go to cities, and all monies collected outside of cities would go to the borough. Each municipality would then channel that money onto its representative DMO, with the result being that there would be six DMOs on the peninsula: Kenai Peninsula Tourism Marketing Council, Homer Chamber of Commerce, Kenai Convention and Visitors Bureau, Seldovia Chamber of Commerce, Seward Chamber ofCommerce / CVB and Soldotna Chamber of Commerce. Non-incorporated areas, such as Anchor Point, Cooper Landing, Hope, Moose Pass, Nikiski, Ninilchik and Tyonek, would either have to form special areas for service of visitor centers through KPTMC or lobby to have a portion of revenues generated in their area funneled to them. This is basically the current situation, and the bed tax revenues would be replacing tax money spent by government on contracts with each DMO. By collecting a bed tax and not having a dedicated pipeline for the funds to go to destination marketing organizations, funds could be appropriated by government and spent on non-visitor related services, defeating the purpose of a bed tax altogether, which is to promote the Kenai Peninsula as a visitor destination. Even if the funds were not re-tasked, there would be continued duplication of administration and other services, creating more work for less value. DMOs would still be competing against each other for memberships and through earned income streams such as visitor guides. RESULT: One to 13 travel planning guide book(s) for independent in-state /out-of--state travelers One to 13 meeting guide(s) for conventions One to 13 group travel guide book(s) for group travelers Five municipal visitor centers: Homer, Kenai, Seldovia, Seward, Soldotna Five borough visitor centers: Anchor Point, Ninilchik, Cooper Landing, Hope, Moose Pass One to 13 memberships in DMO are required by local businesses Pro: 1. Follows an established method of distribution. Con: 1. Municipalities will receive funds directly and then will decide whether and at what level funds will be distributed to DMOs. Z. No certainty that bed tax funds would be passed through to DMOs for promotion and visitor facilities. 3. Businesses will have to lobby borough and cities on a yearly basis for bed tax money distribution for promotion of their area. 4. Continued duplication of the six destination marketing efforts, including memberships, visitor guides, web sites and services. 5. Higher administrative costs for each government entity due to duplication. 6. Uncertain representation in outlying borough areas currently being served by KPTMC. PRO: CON: