Low-flow Time for Bureaus

It doesn't take an advanced degree in mathematics to calculate that, with the downturn in the economy, there's been a decline in heads on beds. That, in turn, has translated to less bed taxes collected by most convention and visitors bureaus.

With corporate meeting cancellations and fewer attendees on showfloors, bureaus all over the United States suddenly have had to cope with a reduction in money flowing into their coffers and adjust their budgets accordingly.

One of the harder hit cities, so far, has been Atlanta.

Gregory Pierce, chief administrative officer and COO of the Atlanta Convention & Visitors Bureau, said, “Twenty-two percent of every dime collected (through bed taxes) goes to the bureau – so goes the industry, so go we.”

Unfortunately, things haven't gone all that well in Atlanta recently. According to Pierce, the total bed taxes collected in 2008 amounted to $43.5 million, $9.8 million of which was earmarked for Atlanta's bureau. That accounted for about half the CVB's budget, which was down 5.6 percent, compared with 2007.

“It's not pretty,” Pierce said. “When you're getting about 10 percent of bed taxes taken off the table, it can affect operations. We've had to focus on payroll and other expenses associated with payroll.”

To make up for the budget shortfall, he added, the bureau took half the money that needed to be cut from its operating budget and the other half from staff expenses.

As a result, Pierce said, the bureau staff not only has taken six days of furloughs, but also salaries have been frozen and matching 401(k) and pension plan contributions have been put on hold.

“There was a sense of relief in the room,” he added. “The staff were expecting something more severe.”

Some employees had felt that layoffs were inevitable, but Pierce said the bureau's new head, William Pate, has indicated that would be a last resort.

Another city keeping a close eye on its budget is Indianapolis. Don Welsh, president and CEO of the Indianapolis Convention & Visitors Assn., said of the 9-percent bed tax collected by the city's Capital Improvement Board, 2 percent, worth about $11 million, goes to the bureau.

The bed tax is collected in one year and distributed in the next, Welsh said, so, even if the CVB's budget has not been impacted yet, “in 2009-2010, our tax collections will be the lowest we've seen in two decades.”

The stakes are high in Indianapolis, with a new airport, new stadium, an expansion underway at the Indiana Convention Center & Lucas Oil Stadium and a new anchor hotel opening up. To keep all the balls in the air, Welsh said, the bureau is lobbying the Indianapolis CIB for extra payments of $3 million to $5 million a year for the next three years to make up for the declines.

“We're also lobbying (for) a 2-percent increase in the bed tax,” he added.

The extra money, Welsh said, would be used to hire five new salespeople, increase the promotion and travel budget for direct sales and fund a new brand rollout.

Even with the struggle, he added, the only cutback at the bureau itself so far has been a salary freeze.

Another city ramping up what it has to offer the tradeshow and meeting community with an expanded convention center, Philadelphia, also is taking a good look at its expenses to counter the impact of any major bed-tax reductions.

Of the 15.2-percent bed tax collected by the city, Jack Ferguson, executive vice president of the convention division at the Philadelphia Convention & Visitors Bureau, said, 6 percent, or $12 million, goes to the bureau.

The good news for Philadelphia, according to Ferguson, is that the first three months of the year traditionally are the slowest, so it's hard to tell what impact the economy will have until the season kicks in later this year.

The bad news, he added, is that the bureau has been tracking a downward trend in the last month or so.

“There is a major concern all over the country, not only in meetings and groups, but leisure travel as well,” Ferguson said.

With the Pennsylvania Convention Center on tap for a 62-percent expansion of its existing 440,000 net square feet, he added, the bureau can't afford to be too conservative with its marketing right now.

In fact, instead of cutting back, Ferguson said, the bureau plans to hire an additional salesperson in the New York area to start snagging business there and a national salesperson who will focus solely on tradeshows.

Dallas is another city that's holding its breath, hoping the other shoe doesn't drop when it comes to its bed-tax funds.

Philip Jones, president and CEO of the Dallas Convention & Visitors Bureau, said up to 90 percent of the bureau's $15 million budget comes from the city's bed tax.

Last year was not much of a problem, Jones said, and he hopes January, which saw a steep 20-percent drop in bed-tax revenue, isn't an indication of tougher times to come.

“We recovered the first couple of weeks of February,” he added. “Clearly, we can't sustain a 10- to 20-percent dip for the rest of the year.”

For now, Jones said, the bureau is holding off on filling a few open positions, and, though salaries haven't been frozen, “it's something to consider should revenues continue to decline.”

Even with the scare in January, he added that he's “cautiously optimistic” about the rest of this year, as well as next year. Jones said convention bookings were up 32 percent last year, and the bureau has several citywides on the books in the next few years, not to mention a few thousand convention planners coming to the Professional Convention Management Assn.'s annual meeting next January.

Denver is another city that has cause to be optimistic in the current economic environment. Richard Scharf, Visit Denver's president and CEO, said Colorado has one of the lowest unemployment rates in the United States.

“The good news is we had such a strong year last year, and we spent money on campaigns that we won't have to spend this year,” Scharf said.

He added bed-tax proceeds in 2008 ended up 2.5 percent ahead of 2007, giving it an extra cushion going into this year. The bureau typically has a $16.5 million budget, $14 million of which comes from its share of the city's 7.4-percent bed tax.

And, even though things look good for now, Scharf said, the CVB isn't resting on its laurels, especially after seeing slight dips at the end of last year and in January.

“We've looked at some basic savings on operations and moved back some capital projects,” he added. “We've also frozen salaries and bonuses for management.”

One thing that won't be cut, though, is the sales and marketing budget. “If you are a sales and marketing organization, the last thing you want to cut is sales and marketing,” Scharf said. “We don't want to overreact and trim (this area) right now, because five years from today is our tomorrow.”