January 24, 2000

To: Budget Advisory Committee

From: City Clerk

Subject: Tourism Toronto Budget for Year 2000 (All Wards)

Recommendation:

The Economic Development and Parks Committee recommended the adoption of the report (November 24, 1999) from the Commissioner of Economic Development, Culture and Tourism; and forwarded same to the Budget Advisory Committee for consideration during the 2000 Operating Budget deliberations, subject to the following:

(a) the completion of the Purchase of Service Agreement prior to the Budget Advisory Committee's consideration of Tourism Toronto's 2000 budget;

(b) amending Recommendation No. (1) to provide that the Tourism Toronto Budget be increased by approximately 5 percent for a total budget of $4.5 million;

(c) amending Recommendation No. (2) to provide that the business plan include:

(i) the correlation between funding from all sources and incremental revenues from visitors;

(ii) a review of major initiatives undertaken by competitive destinations;

(iii) other factors within the tourism industry and government jurisdiction which directly impact incremental revenues and visitors; and

(iv) comparisons with other successful cities and other information with regard to visitors tax proposals; and

(d) the Provincial Government be requested to consider a Visitor's Tax so that the marketing of Toronto will keep pace with other jurisdictions.

The Economic Development and Parks Committee reports, for the information of the Budget Advisory Committee, having:

(1) referred the following motion by Councillor Joan King, Seneca Heights, to the Commissioner of Economic Development, Culture and Tourism for consideration and report thereon to the Economic Development and Parks Committee:

"That the Provincial Government be requested to match the City's grant to Tourism Toronto."; and

(2) received the report (January 11, 2000) from the Commissioner of Economic, Development, Culture and Tourism; and having forwarded same to the Budget Advisory Committee for information.

Background:

The Economic Development and Parks Committee at its meeting held on January 17, 2000, had before it the following reports:

(i) (November 24, 1999) from the Commissioner of Economic Development, Culture and Tourism, in response to a request from the Strategic Policies and Priorities Committee that staff report to the Economic Development and Parks Committee regarding the Tourism Toronto budget prior to the year 2000 budget process; and recommending that:

(1) City of Toronto funding for Tourism Toronto for the year 2000 be approved at the same budget level as 1999, subject to a more detailed review of Tourism Toronto's budget submission;

(2) the Economic Development and Parks Committee request Tourism Toronto to present its year 2000 business plan and budget as soon as possible; such business plan to clearly address the means by which Tourism Toronto intends to improve its longer-term competitive position;

(3) the appropriate City officials be authorized and directed to take the necessary action to give effect thereto; and

(ii) (January 11, 2000) from the Commissioner of Economic Development, Culture and Tourism, presenting the draft terms and conditions of a Purchase of Service Agreement under which the City will provide funding to Tourism Toronto that is currently being negotiated with Tourism Toronto.

The following persons appeared before the Economic Development and Parks Committee in connection with the foregoing matter:

- Ms. Linda Friendly, Chair, Tourism Toronto;

- Mr. Lyle Hall, KPMG;

- Mr. Ron Taylor, Tourism Toronto Board Member;

- Mr. Paul Clifford, Tourism Toronto Board Member; and

- Mr. Cal White, Tourism Toronto Board Member.

for City Clerk

B. Henderson/mh

C:\in\it002b

c. Commissioner of Economic Development, Culture and Tourism

Ms. Linda Friendly, Chair, Tourism Toronto

(Report dated January 4, 2000 addressed to the

Economic Development and Parks Committee

from the Commissioner of Economic Development, Culture and Tourism)

Purpose:

The purpose of this report is to respond to a request from the Strategic Policies and Priorities Committee that staff report to the Economic Development and Parks Committee regarding the Tourism Toronto budget prior to the year 2000 budget process.

Financial Implications and Impact Statement:

The department's submission to the Consolidated Grants Budget Review team contains a recommendation to maintain Tourism Toronto's 2000 grant at the 1999 level of $4.230 million, subject to the Economic Development and Parks Committee's consideration of this report.

The Chief Financial Officer and Treasurer has reviewed this report.

Recommendations:

It is recommended that:

(1) City of Toronto funding for Tourism Toronto for the year 2000 be approved at the same budget level as 1999, subject to a more detailed review of Tourism Toronto's budget submission;

(2) the Economic Development and Parks Committee request Tourism Toronto to present its year 2000 business plan and budget as soon as possible; this business plan should clearly address the means by which Tourism Toronto intends to improve its longer-term competitive position; and

(3) the appropriate City officials be authorized and directed to take the necessary action to give effect thereto.

Council Reference/Background/History:

On April 28, 1999, City Council had before it a recommendation from the Strategic Policies and Priorities Committee calling for a 10 percent reduction to the Tourism Toronto grant of $4.317 million. Council amended that recommendation by approving a 2 percent reduction to the 1999 grant and an additional 8 percent in 2000 for a total 10 percent reduction over two years. Furthermore, Council requested that the Commissioner of Economic Development, Culture and Tourism report to the Economic Development and Parks Committee regarding Tourism Toronto's budget allocation prior to the year 2000 budget process.

In 1993, Metropolitan Council and Tourism Toronto adopted a tourism strategy, Vision 2000. Many of the recommendations of this strategy have been successfully implemented, but the establishment of a visitor tax as a stable base for external marketing has not been achieved. At the time of the report, the tourism industry representatives indicated that they would consider supporting a visitor tax subject to the removal of the Commercial Concentration Tax (CCT) on hotels. Prior to the onset of negotiations with the Province, the government eliminated the CCT on commercial enterprises including hotels.

Subsequent to the removal of the CCT, it was Metropolitan Council's assumption and expectation that Tourism Toronto would continue to pursue discussions with the Province concerning measures to create additional sources of tourism marketing funds. These measures included, but were not limited to, a new tax on visitor's staying in paid accommodations, or alternatively, increasing the provincial sales tax payable by hotel guests from 5 percent to 8 percent, which is the amount applied to most other goods and services in the Province. It was anticipated that this new source of revenue would supplement Tourism Toronto's marketing budget and bring it in line with other competitive destinations.

It is useful to note that in the budget process of 1994, Metropolitan Council indicated its intent to reduce future municipal contributions to Tourism Toronto by 50 percent over three years. This was clearly predicated on the assumption that some form of visitor tax was forthcoming. The Province has not approved enabling legislation that would allow the City of Toronto to establish a visitor tax. From 1994 to 1999, Tourism Toronto's municipal contribution has been reduced by $2.3 million dollars - a 32.5 percent decrease.

City Council also expressed a wish to see the private sector contributions to Tourism Toronto's budget increase. For 1999, the private sector contribution to Tourism Toronto has exceeded 50 percent.

Comments:

(1) Tourism represents an important part of our regional, provincial and Canadian economies. It creates wealth in a community in a manner similar to an export sector - it brings outside dollars into the economy. According to the Ministry of Tourism, tourism is a major economic force in the Province of Ontario:

(a) Ontario has Canada's largest tourism industry accounting for 37 percent of national tourism revenues and 44 percent of its visitors; Ontario is the predominant gateway into Canada;

(b) the tourism industry in Ontario comprises 8 percent of all employment in the Province in direct and induced jobs - approximately 412,000 positions; of these jobs, 128,000 are in the Toronto area;

(c) tourism expenditures in Ontario reached $14.1 billion in 1997, resulting from 101.2 million visitors; tourism expenditures in Toronto reached $4.96 billion in 1997, resulting from 20.2 million visitors in the area;

(d) tourism accounted for $6.1 billion in foreign exchange, making tourism the sixth largest export industry in the Province; and

(e) Toronto hotel occupancy, according to the Conference Board of Canada, has increased from 71 percent in 1996, to 75.4 percent in 1998.

(2) While tourism is a growing industry, the competition for visitors is strong. The City cannot afford to be complacent:

(a) business travel to Toronto in 1999 is proving to be strong because the economy is buoyant; the Conference Board of Canada projects business travel in Ontario to improve by 4 percent; this strength in the economy is expected to continue throughout the year 2000, and the business occupancy of hotels in Toronto should, therefore, continue to be strong next year;

(b) Tourism Toronto has won its share of city-to-city competitions for trade shows and conventions; Tourism Toronto's new facilities, the National Trade Centre, and the expanded Convention Centre, are attractive to convention and meeting planners, and the lower value of the Canadian dollar frequently counterbalances the incentives offered by American cities; for the year 2000, bookings for meetings and conventions appear favourable for Toronto; and

(c) for the third year in a row, the leisure market is under performing; according to Statistics Canada, visitation to the City from domestic, U.S., and overseas markets have collectively decreased by 12.9 percent since 1996; leisure markets from the U.S. are down 29.1 percent since 1996; visitations to our major attractions are likely down 5 to 10 percent for 1999, and one of the key reasons is our lack of advertising in the United States market; the withdrawal of Livent advertising compounds this problem; the projected lower attendance for 1999 at the Toronto Zoo is, for example, the type of difficulty key attractions are experiencing in attempting to maintain attendance and a ticket revenue base.

The Conference Board of Canada is forecasting some upward pressure on the Canadian dollar for the next year, possibly reaching 70 cents to the United States. This will have some negative impact on Toronto attractions - both in terms of reduced value for United States tourists and increased value for Canadian tourists looking south for a vacation.

(3) Over the past ten years, the municipal contribution to Tourism Toronto has been decreased, while the private sector contribution has been increasing to just over the 50 percent level; Attachment No. 1 illustrates the split between public and private funding contributions over the past ten years, as the chart shows, private sector contributions have increased most significantly in 1999, representing a percent change over the 1998 contribution of 23.6 percent.

Attachment No. 2 further illustrates the percentage contribution of public and private funding of Tourism Toronto. In 1997, private funding of the organization exceeded public funding levels by 4.7 percent. While in 1999, private funding is expected to exceed public funding by 1.2 percent creating a near 50 to 50 split.

(4) In comparison with major Canadian cities (see Attachment No. 3), the per capita level of government funding for Tourism Toronto is the lowest at $0.97 per capita (based on 1996 Census CMA population data and 1997 budget levels). Similarly, the comparable proportion of funds provided by the private sector ranked sixth highest at $1.06, while Victoria ranked first at $9.59 and Calgary second at $3.53. Based on the comparison of per capita funding, Tourism Toronto receives the lowest total funding per capita at $2.03. This clearly reflects the fact that British Columbia and Quebec allow a room tax.

(5) When comparing per capita funding of selected major U.S. Cities CVB's, it is also found that Tourism Toronto is at much lower level than its major competitors south of the border. Attachment No. 4 outlines the number of hotel rooms, per capita funding, and breakdown of public and private funding contributions at selected U.S. CVB's. Public funding includes revenues collected from hotel room taxes and/or other visitor levies. Apart from Toronto and Washington, each of the cities has some form of visitor levy.

(6) Tourism Toronto primarily competes for both leisure and convention business in a very competitive North American marketplace. While Toronto is a major City in terms of the number of hotel rooms and the meeting facilities it has to offer, the comparative budget levels for a visitor and convention bureau is very low.

In a survey of 170 CVB's conducted by the International Association of Convention and Visitor Bureaus in 1998, Toronto ranked 33 in terms of budget, with Vancouver and Montreal ranking 28 and 14 respectively. Attachment No. 5 provides a sampling of the budgets of some major North American competitors.

(7) Tourism Toronto cannot sustain its competitive position if its funding level continues to be diminished while the competition's funding levels increase. A new business plan is required from Tourism Toronto indicating how it intends to go forward and compete in the marketplace. Staff understands that the industry is currently reviewing funding alternatives to be considered in the preparation of Tourism Toronto's year 2000 budget. The onus is upon the tourism industry to:

(a) present a case for increasing the competitive position of Tourism Toronto; and

(b) develop new ways to improve funding for destination marketing.

(8) Recent efforts by Tourism Toronto to raise funds through private sector partnership programs have achieved only limited success. While more dollars are being raised, they are "dedicated" to specific campaigns, require high levels of staff support to develop and execute, and do not result in financial support for the infrastructure of Tourism Toronto.

The partnership programs of the Ontario Tourism Partnership and the Canadian Tourism Commission have had little impact upon the 1999 budget of Tourism Toronto. Participation in these new programs does not yet represent a good business decision for Tourism Toronto. These "pay-for-play" funding programs require local advertising money to be diverted into markets that are either provincial or national priority targets. Tourism Toronto would, therefore, have to move its limited marketing dollars away from their primary or higher yield programs into less cost-effective provincial or national programs.

One of the resolutions before City Council during the 1999 budget review was a directive to further reduce Tourism Toronto's budget by an additional 8 percent, representing a reduction of $345,360.00. This scale of budget reduction would, in all likelihood, result in the elimination of one of the core business areas of the organization.

While staff does not recommend a budget reduction for the year 2000, we believe there may be merit in having industry complete an internal review to determine how to best organize itself for the future delivery of marketing services. With a new President coming to the Corporation by the end of the year, and in view of the fact that a visitor tax has not materialized, it would be appropriate for the industry to reflect on whether the current structure is the best organization for marketing the community. The new President of the Tourism Toronto should consider this a year 2000 priority.

(9) The Board of Directors of Tourism Toronto has clearly recognized the serious decline in its competitive position and is in the process of finding new ways to finance tourism marketing. In the summer of 1999, a special committee of the Board of Directors was established - the Strategic Planning Committee. This Committee has the following terms of reference:

(a) to assess industry performance (e.g., visitations, visitor performance) in Toronto vis-a-vis other Canadian and American city destinations;

(b) to quantify visitor spending in Toronto and identify the beneficiaries of this spending;

(c) to investigate methods used elsewhere to fund destination marketing organizations and support tourism infrastructure, and draw parallels to Toronto; and

(d) to identify revenue options for Tourism Toronto and Toronto's tourism infrastructure.

It would be appropriate for the Economic Development and Parks Committee to have an opportunity to hear from and review the results of the Tourism Toronto Strategic Planning Committee. In the event that no viable alternative form of funding has been found for the destination marketing responsibilities of Tourism Toronto, then Toronto Council should consider initiating discussions with the Province to introduce legislation to implement a visitor tax. This action, if required, will likely be vigorously opposed by the hotel sector.

Conclusions:

Tourism Toronto has made solid progress in increasing the level of private sector contributions to the 1999 budget, achieving approximately 50 percent private sector funding. This exceeds the private sector contribution levels achieved in most major North American jurisdictions.

Tourism Toronto's budget ranks below most of its major competitors. This clearly reflects the wide-spread use of visitor levies to fund tourism marketing.

In Ontario, no municipality has authority to establish a room or visitor tax. The municipalities, therefore, contribute directly from the property tax base for the operation of convention and visitor bureaus.

Tourism Toronto is falling behind in terms of competitively positioning Toronto for the visitor and convention business. The City of Toronto is a major stakeholder in the tourism and culture industries and has a vested interest in seeing this sector continue to grow. A hotel or visitor tax has not yet been achieved. The onus is now upon the industry to come forward with a new business plan to competitively position Toronto for future growth, investment and employment.

Contact:

Ms. Brenda Librecz, Managing Director, Economic Development, Tel: (416) 397-4700,

Fax: (416) 395-0388m Email: blibrecz@toronto.ca.

Attachment No. 1

Attachment No. 3