Budget ax threatens tourism's comeback

Orange County's beleaguered tourism industry - still struggling to return to pre-terrorist attack prosperity

The budget crisis comes as state, county and city governments struggle to ,find ways to make up for reduced tax revenue resulting from many factors including a possible war with Iraq and a jittery economy.

"A lack of funding at the state and county level would be detrimental to Orange County," said Charles Ahlers, President of the Anaheim/Orange County Visitor & Convention Bureau.

Gov. Gray Davis, facing a budget shortfall he pegs at more than $30 billion, has called for elimination of the State Division of Tourism as part of his proposed cuts.

The state contributes $7.2 million to the California Travel & Tourism Commission's $14 million budget. The remaining $6.8 million comes from self-assessment funds generated by the industry under the California Tourism Marketing Act, passed in 1998.

Meanwhile, an OC task force has recommended that the Orange County Board of Supervisors eliminate funding for Orange County's Tourism Council, Film Commission, Arts Commission and Business Council.

Mark Feary, executive director of the Orange County Tourism Council, said the $750,000 of public funds received by the council last year was leveraged into $2.4 million in marketing exposure generated through print, radio, Web site and television promotions.

Some were part of a cooperative marketing effort spearheaded by the California Travel and Tourism Commission and targeted to the now-coveted regional "drive market" of potential visitors that includes Northern California and Arizona.

"It would be dangerous to lose the brand equity we've built," Feary warned.

The Los Angeles Economic Development Corp. recently projected that statewide competition for the drive market will be "fierce" in 2003 as the hassles of air travel result in more travelers taking to the road.

The visitor bureau's Ahlers said the county's chances of improving its visitor numbers would be "less likely" without the funds.

About 42 million people visited Orange County in 2002 - up 2% from 2001. Those visitors spent in excess of $6.5 billion.

Cuts to ad and promotion budgets will likely have a rippling effect through an already challenged tourism industry.

At the state level, the California Hotel & Lodging Association earlier this month estimated that a loss of state money could contribute to an 8.4% drop in California's share of the U.S. travel market - the same loss suffered by California between 1989 and 1994, the last time the state eliminated tourism promotion from its budget.

Using the hotel association's figures, that loss would translate to a drop in revenue for OC hoteliers of about $44 million and $4.3 million less in room tax revenue countywide.

Jobs could be affected, too.

Industry watchers say that each 1% increase in visitor spending results in about 1,500 additional jobs that could be lost with a corresponding cutback. OC has about 160,000 tourist-- related jobs.

For hoteliers, a drop in revenue could mean a thinning of the ranks.

Overall occupancy at OC's hotels in 2002 fell to 66.1% from 69% in 2001.

And average daily rate dropped to $109.29 from $114.73.

Those familiar with hospitality financing warn that any further erosion could result in bankruptcies or loan restructuring for some area hotels.

Jim Butler, who leads the Global Hospitality Group of Los Angeles law firm Jeffer Mangels Butler & Marmaro LLP, said the failure of the tourism industry to turn around in 2003 could be the last straw for some hotel owners.

"I have a feeling that some owners were hanging on by their fingernails, hoping things would pick up this year," he said.

Forecasters are now projecting that it will be mid-2004 before any significant increase in hotel occupancy can be expected.

If approved, the state and county cuts would take effect July 1 when the 2003-2004 budget year begins.

Ahlers said even more cuts could come this summer as cities such as Anaheim develop their own budgets for the next fiscal year.

"With declining transient occupancy tax, Anaheim is likely to have less to spend in the next budget," he said.

As of December, Anaheim's transient occupancy tax was about 10% below projections, according to city spokesman John Nicoletti.

Nicoletti said the city asked all departments to reduce spending by about 3% for the remainder of the fiscal year.

The Anaheim/Orange County Visitor & Convention Bureau accounts for about $4.5 million in city funds in the current budget.

"The future is not real rosy today ... at least for the short-term," Ahlers said.