WTA Report to the Legislature – December 2014

Dear Members of the Legislature:
The Washington Tourism Alliance (WTA) is pleased to submit the attached report pursuant to SHB 2229 (C 69 L 14).
As required, our report proposes a long-term, significant source of funding, raised solely from the private businesses benefiting from tourism. The funds will be used to implement a self-sustaining statewide tourism marketing program. We propose a mechanism for the collection of these funds and a governing authority to oversee the use and effectiveness of these funds.
The WTA’s Long-Term Funding Committee has worked for several years examining funding models in other states, methods of assessment and governance. In addition, the WTA Board and staff have engaged tourism stakeholders across the state and sought expert advice from a wide variety of groups and individuals, including legislative staff and representatives from the Departments of Licensing, Revenue, and Commerce and the Office of the State Treasurer and the Office of the Secretary of State. We wish to thank these individuals for the generous donation of their time and expertise.
As detailed in the report, we ask the Legislature to act in 2015 to create a new entity, The Washington Tourism Marketing Authority, to oversee the collection, distribution and enforcement of assessments on the major sectors of the tourism industry. These funds generated from the industry would be used solely for a statewide tourism marketing program.
Since the Legislature discontinued funding for statewide tourism marketing in 2011, there is evidence that Washington is losing market share. This means that Washington is losing jobs, payroll and significant contributions to state and local tax revenues.
P. O. Box 953, Seattle WA 98111

www.watourismalliance.com  and  www.experiencewa.com

We ask for your support of our proposal and look forward to working with you toward the development of this innovative new approach to statewide tourism marketing.
For questions concerning this report, please contact either Louise Stanton-Masten, WTA executive director (louise@watourismalliance.com) or Becky Bogard, WTA’s government relations consultant (becky@bogardjohnson.com). Thank you for your consideration.

Sincerely,

Cheryl Kilday
Chair, Washington Tourism Alliance
Cc: Barbara Baker, Chief clerk of the House
Hunter G. Goodman, Secretary of the Senate
Creating Stable Long-Term Funding for a Statewide Tourism Marketing Program A Report to the Legislature Pursuant to SHB 2229 (C 69 L 14)

I. Executive Summary
Tourism is the fourth largest industry in Washington, supporting more than
155,000 jobs in 2013 and contributing more than $1.1 billion in state and local tax
revenue, equivalent to nearly $400 for every household in the state.
Yet the state’s competitive edge is being eroded. While other western states
provide generous and growing support for their respective state tourism marketing
programs, the Legislature eliminated Washington’s program in 2011. There is
evidence that Washington is losing its market share, which means lost jobs and
lower tax revenues for state and local governments.
In the three years since the state eliminated funding and closed the state
tourism office, the industry has stepped up to provide a limited statewide marketing
and tourism promotion program through the Washington Tourism Alliance (WTA),
a nonprofit trade association. The state provided bridge funding in the current
biennium, which will expire on June 30, 2015.
We recognize the state’s obligations to fund education and a social safety net
and the increasing competition from these priorities for limited state funds.
Therefore, we have developed the outline for a new program funded entirely by the
tourism industry through assessments. The Washington Tourism Alliance seeks the
Legislature’s support to create the framework for an industry-led and industry funded
statewide tourism marketing program.
In order to facilitate funding a statewide tourism marketing program, we
propose the creation of a new entity, the Washington Tourism Marketing Authority
(WTMA or the Authority). The Authority would be composed of proportional
representation of the assessed tourism industry sectors plus the Secretary of State
and the Director of the Department of Revenue.
The WTMA would have two purposes: to contract with a non-profit
statewide tourism marketing entity and to contract for research to determine the
impact of marketing on the growth of tourism in the state. The non-profit marketing
entity would be responsible for formulating and executing a statewide tourism
marketing program.
Funding for the marketing program would come from assessments on
tourism businesses, identified by North American Industry Classification System
(NAICS) codes, collected by the Secretary of State and the Department of Revenue.
Funds would be deposited in a non-appropriated account in the state treasury.
Assessments will be determined by an industry-generated calculation based on
adjusted gross income and relative benefit from tourism.
II. Background

In 2007 the State Tourism Commission was created within the Department of
Commerce to direct the state tourism program. However, all state funding for
tourism marketing was eliminated by the Legislature effective June 30, 2011. In
2014, the Legislature repealed the statute authorizing the Commission.
In anticipation of the elimination of funding, the Washington Tourism
Alliance (WTA) was formed, and by a 2011 statutory directive assumed the assets of
the State Tourism Commission. WTA became the official state tourism marketing
and promotion entity.

The WTA is a statewide, private, nonprofit organization composed of
representatives from the major tourism sectors in the state. Currently, WTA
receives funding from its members to conduct a minimal marketing program which
includes operating a state tourism website (www.experiencewa.com), distributing
the Official State Tourism Guide, operating a call center and holding an annual
tourism summit. The state provided funding in the amount of $500,000 per year for
the 2013-15 biennium. This bridge funding enabled the WTA time to continue with
its marketing effort and at the same time develop a more robust tourism marketing
funding proposal to send to the Legislature.

The WTA was formed in response to the state’s disinvestment in tourism
promotion. Its by-laws require that its board be composed of representatives from
different sectors of the tourism industry as well as diverse regional representation.
Its initial goal was to continue a statewide marketing program, recognizing it would
be a spartan program until a permanent funding source was found.
The WTA’s second goal was to develop and implement a sustainable
industry-led and funded statewide tourism marketing program. In the 2014 session
at the request of the WTA, the Legislature enacted SHB 2229 (C 69 L 14). This
legislation established the parameters for the development of a long-term funding
mechanism and governance structure for a statewide tourism marketing program
funded solely through assessments paid by the several sectors of the tourism
industry in the state.

SHB 2229 specifies that the WTA submit this report by December 1, 2014, to
include a proposal to raise an investment of $7.5 million in funding for a long-term
statewide tourism marketing program, a mechanism for raising, collecting and
administering the funds from the separate sectors of the tourism industry, and a
proposed governance structure. The law specifies that the annual investment of
$7.5 million be apportioned among five industry sectors as follows:
 Lodging: $2.4 million
 Food service: $2.1 million
 Attractions and entertainment: $975,000
 Retail: $1.425 million, and
 Transportation: $600,000

In preparation for the recommendations of this report, the WTA Board and
staff have engaged stakeholders and sought expert advice from a wide variety of
groups and individuals. Representatives from the legislative staff, the Departments
of Revenue, Licensing and Commerce, the Office of the State Treasurer and the Office
of the Secretary of State have generously provided time and expert counsel to assist
the WTA in the development of the proposal. In addition, the WTA’s long-term
funding committee and Board have engaged in lengthy discussions about funding
models, assessments and governance.

III. Historical and Comparative Context
Tourism is a major economic engine in every state. In Washington, tourism
is the fourth largest industry, generating jobs, earnings and state and local tax
revenues. As a result most states, including Washington, have historically justified
the expenditure of state revenues for tourism promotion.

Compared to other western states, Washington has always ranked low on
state expenditures for tourism marketing. In the 2009-11 biennium, the state’s
tourism promotion budget was $3 million for the biennium. State funding was
eliminated entirely in June 2011. Washington now stands alone as the only state
with no state tourism office. Consequently, Washington ranks 50th among the states,
dropping from 48th in 2010.

In contrast, other western states — Washington’s “competition” — invest
significantly greater amounts of public funds to promote tourism, ranging from $7
million to $50 million annually. Montana spent $12 million while Idaho invested $7
million and Alaska spent $17 million.

In the two years since the state closed the tourism office, the travel and
tourism industry has managed to maintain a small marketing and promotion effort
with funding from industry partners that provided an annual budget of $481,000 in
2013. Funding from the state for the 2013-15 biennium has allowed the WTA to
continue to promote tourism while it works to develop a long-term industry-led
funding proposal that can sustain tourism marketing into the future.
Each year data is published that documents travel and industry trends.
While the state previously funded reports of this data, the WTA with its regional

marketing partners has continued to document state travel trends. In the most
recent report,1 the data show that tourism activity in Washington improved slightly
in 2013 but that the rate of growth has slowed. The rate of tourism growth in
Washington has continued to slow since the legislature closed the state tourism
office in 2011.

Nationally, the rate of growth in the U.S. travel industry has accelerated as
the recession has ended. Spending by domestic and international visitors in the
United States was $900 billion in 2013, an increase of four percent over 2012. What
this means is that even though there is some growth in Washington, the state is not
keeping up with the national average increase.

IV. The Washington Tourism Industry

Travel and tourism in Washington supported more than 155,000 jobs in
2013. The industry generated earnings (payroll) of $5 billion and contributed more
than $1.1 billion in state and local tax revenues, equivalent to nearly $400 for every
household in the state. For many communities and regions of the state, tourism
constitutes a major share of the local economy.

Nationwide, the U.S. travel industry directly employs 7.4 million people,
generates payroll of $188 billion, travel expenditures of $758 billion and tax
revenues of approximately $118 billion. The U.S. Travel Association ranks travel
fifth among 20 major private industry sectors. Visitors to the United States spend
more here than U.S. residents traveling abroad, creating a $32 billion trade surplus
for the national economy.

The industry is composed of major sectors with differing proportions of
economic activity resulting from visitor expenditures. Based on the data from
Washington Travel Impacts and Visitor Spending, there are five major sectors of
visitor expenditures.

The major sectors are (1) Accommodations, (2) Food Service, (3) Attractions,
(4) Retail, and (5) Transportation. The chart below lists the five major sectors and
illustrates the total funds each sector would be responsible for to achieve the annual
funding goal of $7.5 million.

1 Washington State Travel Impacts and Visitor Volume 1991-2013, prepared by Dean
Runyan Associates.
These amounts were calculated by determining what each sector contributes
to tourism revenues. The sum of those revenues was then used to determine the
percentage each sector contributed and what that sector’s share of a $7.5 million
investment would be.

There are other parts of the industry in addition to those listed above that
play a significant role in statewide tourism. These entities include port districts,
Tribes, airlines, cruise lines, chambers of commerce, economic development
organizations, and destination marketing organizations.

For reasons unique to each industry, the ability to assess these entities is
different than the ability to assess the five sectors noted above.
For instance, the Tribes are sovereign nations, not subject to mandatory
assessments. Others are units of local governments or federally regulated
businesses that make the model discussed below difficult to assess. Finally, some
are non-profit member associations with an interest in tourism. To include these in
an assessment model could result in a double assessment of their members.
The WTA has representatives from several non-assessed sectors on its board
of directors. They have been included in discussions leading to the development of
this funding proposal.

V. The Proposed Washington Tourism Marketing Authority:
purpose, role, and governance structure
Over the past two years, the WTA’s Long-Term Funding Committee has
engaged stakeholders in an extensive effort to develop a new statewide tourism
marketing program within the overall principles established. The result of this

effort is a proposed structure for an industry-led funding plan that will provide
sustainable funding raised through industry assessments for a statewide tourism
marketing and promotion program. The key principles driving this plan are:

 Be industry funded
 Be industry governed
 Have broad-based responsibility and collaboration across the major
travel and tourism industry sectors
 Have dedicated and protected funds (for the sole purpose of tourism
marketing)
 Be accountable and demonstrate Return on Investment

In the process of discussing these principles, the WTA has developed an
assessment matrix designed to spread the cost of a statewide tourism marketing
program across businesses in the major sectors. It was also designed to raise $7.5
million annually for the program.

To do this, the WTA examined the range of businesses in the various sectors.
This was based on adjusted gross revenue data from the Department of Revenue. In
obtaining this data, NAICS codes as detailed in the Washington State Travel Impacts
and Visitor Spending were the basis for the data requests. Consideration was given
to the cost of collection from very small businesses and a decision was made to
establish a threshold for some of the sectors. Any business with revenues above the
threshold would be assessed in an amount (varying with the revenue level) so that
the sector would generate its “share” of the marketing fund as noted above. These
assessments are reflected in the following matrix:
Draft Assessments Proposed For Industry Discussion

SECTOR ANNUAL ASSESSMENT

Retail (adjusted gross receipts)
 $200,000 – $599,999 $100
 $600,000 – $999,999 $200
 $1 million – $4,999,999 $600
 Greater than $5 million $1,200

Attractions (adjusted gross receipts)
 $200,000 – $399,999 $125
 $400,000 – $599,999 $275
 $600,000 – $799,999 $425
 $800,000 – $999,999 $575
 Greater than $1 million $725

Transportation (adjusted gross receipts)
 Less than $500,000 $125
 $500,000 – $999,999 $250
 $1 million – $4,999,999 $1,000
 Greater than $5 million $2,500

Food Service (adjusted gross receipts)
 $500,000 – $999,999 $150
 $1 million – $1,499,999 $400
 $1.5 million – $2,999,999 $650
 $3 million – $3,999,999 $1000
 $4 million – $4,999,999 $1,500
 $5 million – $9,999,999 $2,500
 Greater than $10 million $3,500

Accommodations

 Lodging establishments with 20 rooms and over – $.15 per occupied room
As this report is being developed, discussions continue with the sectors about
the exact configuration of these assessments. WTA anticipates concluding those
discussions by the time legislation is introduced. Additionally, the list of NAICS
codes covered by the assessments will be provided.

As discussions have taken place over the past two years, the WTA Long-Term
Funding Committee has examined these principles and has put together a plan
based on assessments that comes as close to the principles as possible within the
constraints of the Washington State Constitution. The following is a discussion of
parts of the plan and how they relate to the WTA principles.

Collection of funds. The mechanism for collection of the funds for the program
is a pivotal issue. After considerable discussion and review of several options, the
WTA recommends that state government assist with the collection of assessments
from the major tourism industry sectors. The model for this proposal is the existing
electronics recycling program (see RCW 70.95N) where the program is funded
entirely by the industry but the state collects the fees.
After some exploration about what is possible in a timely and cost-effective
manner, it appears that the Secretary of State’s office and the Department of
Revenue have existing systems that could be utilized to collect industry funds for a
statewide tourism marketing program. The Secretary of State requires an annual
report of all corporations, both profit and non-profit. The Department of Revenue
already has a mechanism in place to collect occupancy taxes and fees from lodging
entities and could add the proposed room-night assessments to its current system.

Any ongoing administrative costs to the state involved in the collection of industry
assessments would be paid from the fund, and would be capped in the statute up to
a certain percentage of the total fund.

Funds received through the assessments by the Secretary of State and the
Department of Revenue would be deposited in a non-appropriated account in the
state treasury. Statutory language would strictly limit the use of the collected funds
for the sole purpose of a statewide tourism marketing program.
Governance. A new state entity, the Washington Tourism Marketing
Authority (WTMA) would be created. The WTMA would be governed by a board of
directors composed of representatives of the major tourism sectors, the Secretary of
State and the Director of the Department of Revenue. The industry representatives
would include a proportional number of representatives from each assessed sector
and would be appointed jointly by the Secretary of State and the Director of the
Department of Revenue from nominations made by the industry sectors.
For reasons of expertise, it would be appropriate to also include some
representatives of the regional tourism marketing organizations. The proposed
statute will specify the number of representatives of the assessed businesses who
serve on the WTMA, but it is intended that the number of representatives from
assessed businesses would always be more than the number of representatives
from regional tourism marketing organizations and the two government officials
combined.
The WTMA will have two purposes. First, it would be responsible for
entering into a long term contract with a statewide non-profit entity whose sole
purpose is marketing the state of Washington to domestic and international
travelers. The contract could be awarded through a Request for Proposals process
or through a process similar to the one used by the state to fund TVW. It is not the
job of the WTMA to devise and implement the marketing program. Second, the
WTMA would be responsible for developing and tracking performance measures of
the contractor, i.e., the growth of tourism in the state.
Participation by non-assessed sectors and businesses. Given federal and
state laws that prohibit assessing many tourism-related sectors (Tribes, airlines,
ports, etc.) but recognizing the desire of those sectors to contribute to the non-profit
marketing entity, this model will provide the opportunity for such non-assessed
sectors to contribute directly to the non-profit marketing entity. Working with the
contributing sectors, the non-profit marketing entity would determine how such
contributions are spent and what sort of representation such entities are given.
By establishing a threshold for each of the assessed sectors, and relying on
the existing collection method within the Secretary of State’s office and the
Department of Revenue, a number of small businesses, sole proprietorships and
other tourism-related businesses would not be reached. It is proposed that these
non-assessed entities would have the option of partnering with the contractor, i.e.,
the statewide non-profit marketing organization.
Establishment of assessments. In order to meet the financial objectives of
the proposal, the affected NAICS codes will be specified in the proposed legislation.
Additionally, the initial assessments, generated by an industry calculation that
considers adjusted gross income and relative benefit from tourism, would be
specified in the statute.
Protection of funds. It is clear that the tourism industry does not want to
create a fund derived by special assessments that could be swept by the legislature
for general government purposes. The proposed legislation will contain a number
of protections to assure that the funds collected by the state for this program will be
for the sole purpose of a state tourism marketing program.
First, the fund will be created as a non-appropriated fund in the custody of
the state treasurer. The authority to expend funds will rest with the WTMA.
Statutory language will be included similar to that which protects the electronic
recycling program (see RCW 70.95N.310). That section reads as follows:
“All funds collected by the authority, including interest, dividends,
and other profits are and must remain under the complete control
of the authority and its board of directors, be fully available to
achieve the intent of this chapter, and be used for the sole
purpose of achieving the intent of this chapter.”
Second, this will be an operating fund, with monies going out to the
contractor on a frequent basis for the ongoing operation of a statewide tourism
marketing program. It is unlikely that the non-appropriated fund would build up
fund balances of any significance.
To provide additional protection, language should be included in the
legislation that would immediately eliminate the WTMA, its assessments and find all
use of the existing funds ‘null and void’ if legislation is enacted to change the use of
the WTMA fund.
Penalties for failure to pay assessments. The proposed statute will spell
out financial penalties to be imposed on assessed businesses that fail to pay the
assessment within a prescribed timeframe. These penalties will be deposited into
the fund.
Accountability: There will be an annual audit of the WTMA fund and a
separate audit of the non-profit marketing entity awarded the contract. The RFP
would specify that the contractor provide annual (or biennial) reports on specific
metrics relating to tourism spending. The WTMA would be responsible for
evaluating the reports and measuring the results against the research contracted for
by WTMA and established performance measures.
VI. Conclusion: Action is needed in 2015!
The Washington Tourism Alliance is committed to the development and
implementation of a statewide tourism marketing program, funded entirely by
assessments from businesses in the travel and tourism industry. The proposal
requires legislative action in 2015 to create and define the duties and
responsibilities of the Washington Tourism Marketing Authority and the methods
for the assessment, collection, enforcement and protection of the program funding.
The key provisions of the new Authority, its powers, duties and governance, are
outlined in this report.
Tourism is an economic engine that can enhance community prosperity,
contribute to state and local revenues, and create jobs and earnings. Tourism
promotion and marketing is a critical driver for this economic engine. Since the
state disinvested in tourism promotion, tourism growth rates in Washington have
slowed when compared to the growth of the travel and tourism industry nationally.
This proposal would enable a modest statewide tourism marketing program funded
entirely by the tourism industry.
This proposal, if enacted, will be the first of its kind in the country. The
Washington State Legislature has the opportunity to innovate with the leaders of
one of the top industries in this state. The Washington Tourism Alliance asks for
your vote to approve this industry led and industry funded initiative.