by By Tom Isler, Hunter R. Slaton and Kaylee Hutlgren | February 01, 2009

stretch2Tight state and municipal budgets and dwindling revenue from food and lodging taxes are putting a strain on convention and visitor bureaus' budgets. With hotel occupancy and revenue expected to drop by several percentage points nationwide this year, many bureaus will see their major source of funding -- hotel tax receipts -- shrink, forcing CVBs to cut costs or find revenue streams elsewhere.

While some bureaus report no expected change in budget this year, many others predict their funding will decrease by anywhere from 3 percent to 7 percent this year compared with last. In Orlando, to name one example, hotel tax revenue is expected to be down by more than $8 million this year vs. fiscal 2008.

In the extreme case of cash-strapped Oakland, Calif., the city decided to suspend all funding of its CVB as of Dec. 31, 2008. This forced the bureau to dip into its reserves and hope that, come June, proceeds from a "tourism business improvement district" --  in the guise of a $1 or $2 surcharge per hotel room -- will begin to provide revenue.

If the business improvement district isn't established (a vote was scheduled for Jan. 20), "we have enough money to operate for the next 12 months," says Manette Belliveau, executive director of the Oakland Convention & Visitors Bureau. "I'm hopeful."

A number of other cities in California -- including Los Angeles, Sacramento, San Diego and San Francisco -- either have established tourism improvement districts or are exploring the possibility, in order to become less dependent on unpredictable municipal money.

What does all of this mean for meeting planners who are accustomed to financial support from CVBs? Most bureau executives say planners won't notice many changes. "To customers, it's transparent," says Dennis Roche, president of Positively Cleveland. "It's important to us for that to be true."

Cuts are coming
Bureau chiefs plan to save money in subtle ways: by implementing hiring freezes, cutting back on research projects, limiting support of local events that don't attract out-of-town visitors, sending fewer employees to trade shows, pulling back on advertising, and sharing marketing expenses with hotel partners, other bureaus or state agencies. Projects like office renovations and technology-infrastructure upgrades will be put on hold.

The last thing CVB heads say they will cut is funding for their sales departments.

"It's times like these where you need to push even more," says Jeffrey Vasser, president of the Atlantic City Convention & Visitors Authority, which is funded by a flat surcharge of $1 to $2 on hotel rooms and thus is less affected by deflated average daily rates. "We're putting more into our convention development effort. I hate the expression ‘doing more with less,' but that's what we have to do."

"We're just tightening up on anything that is nonessential to putting future business on the books for the city," says Tom Norwalk, president and CEO of Seattle's Convention & Visitors Bureau. "Anything that's really not critical to the mission is kind of on the table for cutting. We're going to sit back and be ultraconservative for '09."

Some bureau representatives admit that a degree of frugality will affect deals extended to planners.

"If a meeting planner is bringing a convention to Kansas City in 2009 or 2010, we might not be as financially supportive as we are when times are better," says Bill Bohde, vice president of convention sales for the Kansas City (Mo.) Convention & Visitors Association. He's quick to add that the bureau can make up for a lack of "pure dollar" incentives with added services or amenities. (Meanwhile, other bureaus are more actively courting planners; see "Price is Right: Best Bureau Deals and Discounts.")

Another change planners might notice is the tenacity with which bureaus pursue short-term association business, which generally is regarded as more reliable during a recession than corporate meetings.

"We know that the corporate market is going to be softer," says Stephen Perry, president and CEO of the New Orleans Metropolitan Convention & Visitors Bureau. "With that, we have shifted some of our focus to a lot of small and midsize association meetings."

Tapping savings
Not all CVBs are facing net declines. The New Orleans CVB plans to tap its reserve fund to avoid budget deficits. "There'll be no change in how we do business next year," Perry asserts.

The Greater Boston Convention & Visitors Bureau similarly has been seeding a "rainy day fund" ever since president and CEO Pat Moscaritolo joined the bureau in 1992. Moscaritolo never has drawn from the reserve fund before, but he will this year to make up for an expected $500,000 shortfall in budgeted hotel tax revenue.

In New York City, the funding structure for NYC & Company is such that the organization is largely impervious to fluctuations in hotel occupancy, as it is not funded with hotel tax money, and only a small portion of its budget comes from member dues. Instead, the bureau generates the greater part of its own income through programs such as Restaurant Week, and it receives support from the city and corporate underwriters -- but even those sources of revenue could dry up during a recession. Still, George Fertitta, bureau CEO, is confident he will be able to spend aggressively this year.

"These are difficult economic times, but we have no intentions of changing expenditures with the [meetings and conventions] market," Fertitta says. "For example, we have representatives now in California and Chicago, and we are hiring more people everywhere. We're spending more money in the group market, on personnel more than anything. We're spending more on research and on our convention services side. We think this a good time to gain a greater share."

Bracing for the brink
Boston's Moscaritolo says the biggest change in the industry over the past several months has been a newfound collaborative spirit among potential competitors to offer a range of special discounts or incentives to planners. "The economy is making everyone much more creative and much more willing to create partnerships as a way to get through this," he says.

That era of good feelings might need to last a long time. Some CVB executives, such as Brent Foerster, vice president of sales and marketing for Visit Milwaukee, are more concerned about 2010 than this year, due to the fact that much of the tax revenue for 2009 budgets was collected before the economy tanked. CVBs won't really feel a financial crunch until next year, Foerster predicts, when they start to rely on money collected this year. "It'll be an uphill battle," he says.

In San Antonio, where the CVB is funded entirely by occupancy tax, Steve Clanton, vice president of sales and services, says the bureau is not doing a lot of cutting -- yet.

"We may be asked to cut back in the future," Clanton says. "We're hoping to ride out the first part of the storm. We've had three very good years back-to-back. There has been some slippage on groups, but we're more concerned about short-term booking."

Michael Gehrisch, president and CEO of Destination Marketing Association International, says that's the message he hears from his members. "We're not in a crisis period at this point," he says. "But people are careful about how they're spending money. They're spending money where there's value to the destination."

Lean years are when CVBs really prove their worth, argues Kristen Adamo, vice president of marketing for the Providence/Warwick (R.I.) Convention & Visitors Bureau.

"We believe bureaus are even more important in tough economic times," Adamo maintains. "As budgets tighten, planners will be asked to do more with less, and that is where CVBs become invaluable."