Opinion: Selling Sedona, Part 2

By [Concerned Sedona Resident]
(April 6, 2015)

This is the second in a series of articles examining the use of city tax money to fund tourism promotion in Sedona.   Last week’s focus covered the history and growth of this funding over the past 20 years.  This week will look at measuring outcomes and what “investment” returns Sedona residents are getting for their money.

Part 1 • Part 2 • Part 3 • Part 4 • Part 5 • Epilogue

Part 2
An investment.  That’s what the Chamber of Commerce continues to tell the City Council they are making with each year’s allocation of public tax money.  But investments come in many forms including good, bad, wise and foolish.  Determining which description applies to city funding of the Chamber requires measuring what is achieved, not what is spent or where it is spent.

If you put your money in a bank savings account, you are primarily interested in how much return you will get ON your original investment since you automatically expect to get that principle investment back.  If you put your money into advertising however, measuring your “return” is different.  You first have to get a return OF your original investment through increased profits since the principle investment is gone – spent to produce the advertising materials.  A 10 percent return ON your bank investment is a really good one.  A 10 percent return OF your advertising investment is a really bad one because you have lost 90% of your original capital.

So what return OF investment do Sedona residents get for their tax money?  The Chamber has brought in a Phoenix consultant, the Nichols Tourism Group, Inc. three times in the past six years to help them sway the City Council to budget more money.  The consultant has consistently told the Council that for every dollar spent on tourism promotion, the city can expect visitors to come to Sedona and spend between $4 and $7.  But that doesn’t mean a 4 to 7 times return of the city’s money.  Far from it!

The tax money tourists generate is derived primarily from a 3% sales tax and a 3.5% bed tax.  That means tourists have to pay out over $30 to provide just one dollar of tax revenue.  Spending that one dollar of tax revenue on tourism promotion results in tourists spending only $4 to $7 according to the Chamber’s consultant.  That generates only 12 to 21 cents of return.  The city loses $.80 or more of every dollar handed over to the Chamber for tourism promotion.  Private business owners likely gain additional income and profit from the free advertising, but in terms of Sedona residents there is no return OF their investment, only a large financial loss.

Arizona state law requires cities of over 100,000 residents to dedicate all bed tax revenue to tourism promotion.  The Legislature recognizes, however, that smaller cities like Sedona do not benefit from economies of scale and so allows them to use all bed tax for any city need.  Thus, for every dollar allocated to tourism promotion, one less dollar is available to provide programs and services for Sedona residents.  The Chamber continues to claim, without verification, that Arizona cities use an average of 60% of bed tax funds for tourism promotion.  The fallacy of this number comes from the fact that cities tend to have an all-or-nothing approach in using bed tax for tourism promotion since most are not required to do so.  Using this “average” is a misleading figure and the Chamber’s claim of entitlement to Sedona’s bed tax revenue is a misuse of the data.

Sedona currently has a unique opportunity to evaluate return of investment on tax money used for tourism advertising.  In the first 6 months of this fiscal year, $194,463 in additional bed tax was collected as a result of the city increasing the bed tax rate by .5%.  State law requires that all of this increase be devoted to tourism promotion.  Only $96,788 in additional bed tax revenue was collected above the same July to December period last year if the tax rate increase is deducted.  Of that increase, 31percent came from lodging facilities increasing room costs.  Another 43% came from a conservative 5% estimate of increased travel activity triggered by an improving economy, declining unemployment rate, near record level stock market level and low gas prices.  Ultimately, just over $25,000 in bed tax increase can be attributed to the nearly $280,000 of increased spending of tax money for tourism promotion.  This financial loss is over 90 percent, an even higher level than the amount projected by the Chamber’s tourism marketing consultant.

The Chamber’s city funding comes from the General Fund, not from bed tax as the lodging industry and the Chamber continue to misrepresent.  The lodging industry does not “pay” the bed tax nor are they entitled to it as some members of the industry demand.  Tourists pay the bed tax and lodging institutions simply collect it and pass it on through to the city.  There is no such thing as a separate “Bed Tax Fund.”  Bed tax is often chosen as an index measurement of tourism activity because it is paid almost entirely by tourists.

The city’s General Fund is a pool of money made up of numerous sources like sales tax, utility franchise fees, state shared revenues, bed tax, court fines, interest earnings, license and permit fees and charges for service.  Once deposited, the various sources of money are co-mingled and their separate identity is lost.  As the name implies, the General Fund can be used to pay for any city purpose such as sewer maintenance, police, roads, drainage improvement or parks.  The amount taken for Chamber marketing is now established as 55% of the funds collected for bed tax in the city.  That figure is locked in by city ordinance, a move engineered by the Chamber last year.  The amount of bed tax deposited in the city’s General Fund is the basis for determining how much General Fund money will be allocated to destination marketing.  There is no indexing of the amount for rising room rates or general improvement in economic conditions, both of which lead to an increase in money provided to the Chamber but which is not the result of Chamber marketing efforts.

The new city ordinance allocating an amount equal to 55% of annual bed tax collections for tourism promotion also includes a much more comprehensive contract than was previously the case.  It now spells out how the money will be spent, calls for an annual audit of such expenditures and sets some performance standards. 

These “performance standards” were created by the Chamber, not by the city.  Performance will be monitored, tabulated and evaluated by the Chamber as well.  The standards primarily include output items like “Produce and distribute 2,500 Sedona Event Planner Guides” and, “Produce and distribute 225,000 Sedona Destination Guides.”  This evaluation approach is a lot like a bank asking its customers to judge results based on the amount of advertising it does rather than on the interest return to deposit accounts.  The Chamber failed to meet most of their self-selected and self-reported performance measures in the first half of this fiscal year even under these optimal conditions.   

No one on the City Council has questioned whether these performance standards are valid measures.  They are simply the ones the Chamber set for itself.  No one addressed the real issue of how much return of their money Sedona’s taxpayers are getting.  Auditing where the money was spent after the fact provides no information on return of the city’s “investment.”  It may insure that tax money is not misspent but ignores the fundamental question of how much tax revenue being generated as a result of the spending.

Sedona’s residents ARE getting another kind of return for their money, however.  Some large traffic volumes are primarily the result of misdirected Chamber advertising using public tax money.  Substantial amounts are being spent on things like billboards on Phoenix freeways, ads at Phoenix airport baggage carousels, Phoenix hotel concierges, and pursuing people headed to the Grand Canyon or attending Phoenix events.  These efforts target people who have already planned their trip, made hotel and car reservations, bought tickets and otherwise committed themselves to a schedule.  Courting pass-through visitors is an intentional Chamber strategy to boost numbers.  The claim is that once the visitor has seen Sedona for only a couple of hours, they will be motivated to come back and stay longer. 

What Sedona mostly gets from this approach is a tourist who drives up for the day or passes through enroute to a previously-chosen destination.  They clog local roads, congest trailheads and generally overload local infrastructure.  They spend little, use a restroom, empty their trash and leave.  And, given their experience of a crowded and congested Sedona, they will not come back.  The results of two recent Chamber surveys show that the length of stay for tourists in Sedona has declined 20 percent in less than a year.

Recent surveys at the Chamber’s Uptown Visitor’s Center and the Forest Service visitor center in the Village documented that nearly two thirds of all visitors to Sedona are just passing through.  The infamous uptown traffic back-ups result primarily from traffic volume coming down the canyon and passing through Sedona for a short look before heading on to another destination.  No kind of shuttle service will change this problem since most of these visitors already have their travel route set and a limited time schedule.  It’s ironic that Sedona residents are paying for tourism advertising that leads directly to traffic congestion and then will be asked to pay again for ineffective efforts to address those back-ups.  Saving the advertising money would help both problems and leave valuable tax revenues for local resident’s needs. 

The City contract requires the Chamber to pursue attracting tourists “… during the off-season and mid-week…” and to recognize “… existing limitations on City infrastructure during peak seasons, in an effort to mitigate the impacts of traffic congestion and crowds on the visitor experience and the quality of life for our residents.”  Chamber tourist promotion activities cover a wide range of print and electronic media, social media and internet options.  Examination of actual Chamber marketing programs listed in a report to the City Council on February 24, 2015, shows mostly efforts to attract as many people as possible.  In actuality, Chamber advertising is primarily a shotgun approach aimed at generating big numbers despite statements that it targets specific groups and periods of the year.  There is little indication of any targeting, accuracy, focus on off-season times or concerns for a tourism carrying capacity for Sedona as the city contract requires.

On June 10 of last year, while the Sedona City Council was deliberating approval of the major funding increase to the Chamber, Councilor Dan McIlroy asked Jennifer Wesselhoff , Chamber CEO, how the Chamber planned to evaluate the results of the major funding increase.  Wesselhoff’s responded that when local residents could not get into their favorite restaurants or hiking areas, (due to being filled up by tourists ) then they would know that the program was working.  In other words, when a flood of tourists has so reduced the quality of life for local residents that they can no longer enjoy important local amenities, the Chamber would be achieving its goal.

The Chamber conducted another “visitor survey” via the web between January and June of 2014 to measure tourist activities and try to justify the city’s promotional spending.  The survey was offered only to those who requested the Chamber’s E Newsletter or an “Experience Sedona” guide during that period AND who also indicted they had visited Sedona or would do so within the next 12 months.  The survey was sent via email three months after the requested information.  There was no control of who or how many responded. 

Tourists in this distorted sample represent only a very high end visitor and the lack of randomization of respondents further taints the results.  This “survey” claims to document spending and activities of the “typical tourist.”  It and earlier versions have been provided to City Council members with each Chamber request for more money and when reporting current activities to the Council.  

The survey methodology is much like an airline sampling behaviors of only its first class passengers and then claiming that their responses are typical of all airline travellers.  Many of the survey “findings” defy common sense and some are well beyond believability.  For example, one finding was that 11 percent of Sedona visitors arrive by airplane.  If such were true, it would mean between 250,000 and 450,000 tourists fly into Sedona each year.  These numbers are not only impossible for Sedona but they exceed air passenger traffic totals combined for rural Arizona cities, including those with commercial air service.  In addition, despite recent findings from two independent sources that two thirds of Sedona visitors are day-trippers, the Chamber survey claims that only 20 percent of “typical” visitors are here for just part of the day.  Never mind that Sedona does not have the hotel capacity for 80 percent of tourists who come here to stay an average of 2.8 days each.

To date, no City Council member has challenged the Chamber’s survey data.

Government often cannot be run like a business, but it can be run in a business-like way.  Funding Chamber of Commerce tourism promotion should be largely a business decision and lends itself well to being done in a business-like manner.   It can and should be based on a return both OF and ON the investment of Sedona’s public tax money and if that return is not met, that business should be closed down. If businesses were spending their own money on advertising and getting no return of that expense, they would make a business decision to stop.   Since it is public tax money being spent that is not the case.  The decision to hand over $1.3 million in public funds annually is at best a political decision based on Council member’s lack of analysis of what is actually being achieved and a fear of Chamber reprisals both now and at the next city election.  It is clear from every measurement of outcome and return performed that Sedona’s residents are in the business of losing money when it comes to funding Chamber of Commerce tourism promotion.

Next week:  Part 3,   Issues at the Chamber’s Uptown visitor center  

(Over) Selling Sedona: Decision Points
How Do They Measure Up? Part 1 • Part 2
The Fallacy of Transit
Simple Solutions

Selling Sedona – One Year Later: Part 1 • Part 2 • Part 3

Selling Sedona, 2015: Part 1 • Part 2 • Part 3 • Part 4 • Part 5 • Epilogue