Newport Beach City Council members are asking tough questions on how exactly the city’s local tourism bureau works after Anaheim’s tourism agency came under the critical microscope of the state auditor.
Newport Beach and Company, which oversees Visit Newport Beach and serves as the city’s tourism bureau, has received extra tax dollars from the city since 2009 to finance advertising aimed at increasing tourism.
Those funds come from two places, a special tax on hotel rooms anyone who spends the night in the city is charged, and an additional room tax on top of those, called the tourism business improvement district fee.
While the transient occupancy taxes can be spent on advertising the whole city, the extra funds are exclusively intended to lure conferences and meetings to the city to book hotel rooms.
A State Audit in Anaheim Raises Questions
It comes as serious transparency questions are surfacing in Anaheim, where state auditors allege some of the tourism dollars were misused to lobby elected officials due to a lack of oversight there.
[Read: OC Struggles To Track Taxpayer Dollars For Tourist Advertising]
“There’s been a lot of discussion in the news about tourism spending and oversight, and part of the reason for a lot of the discussion was really bad actions taken over in the City of Anaheim,” said Newport Beach Mayor Will O’Neill during Tuesday’s council meeting.
[Read: CA Auditors Lambast Anaheim’s Tourism Bureau, Find Improper Tax Dollar Spending]
“It’s worth just taking a quick understanding of what this is given the amount of scrutiny going on right now,” O’Neill continued. “I’m not sure we’ve actually complied with a lot of the things the state would be looking for if they came in and looked at Newport.”
Anaheim and Newport Beach aren’t the only ones grappling with questions on tourism bureaus.
Orange County District Attorney Todd Spitzer is also asking questions about Irvine’s tourism bureau under the area’s chamber of commerce. After city officials took over the tourism program, the advertising spending dramatically increased.
The program that funded the improvement district fee – the additional room tax – in Newport Beach expired at the end of last month.
Now, hoteliers in Newport Beach are saying they don’t want to have tax dollars or the city involved at all, choosing to stop collecting the tax on rooms and instead collect the money as a fee the hoteliers put on the rooms themselves.
From there, they plan to contract with Newport Beach & Co to manage the funds – the same company that’s currently almost entirely funded by the city to manage the city’s tourism program.
“We chose to privatize this effort to give us more flexibility and to permit our sales leadership to focus on bringing business to the city instead of (complying) with governmental requirements,” wrote Lily Pearson, the vice president of finance for Newport Beach & Co, in a letter posted on the city website.
Who’s Overseeing Tourism Spending in Newport Beach?
Documents obtained by Voice of OC through a public records act request shows tourism bureau management refused to answer questions from city officials on how they were spending the money while it was passing through the city.
Gary Sherwin, president and CEO of Newport Beach and Company, told city council members in August he wouldn’t answer questions about executive compensation at the company.
“Visit Newport Beach and Newport Beach and Company is a private, nonprofit organization with a board of directors and an Executive Committee with fiduciary responsibilities,” Sherwin said. “We are happy to comply with the same compensation disclosure policies that would apply to any other private contractor to the City of Newport Beach.”
In a response letter a couple weeks later, then-Mayor Noah Blom pointed out the company was exclusively funded by taxpayer funds, and as such needed to be operated transparently.
“Newport Beach and Company/Visit Newport Beach are fully funded through a combination of public transient occupancy tax dollars and an assessment approved by the City Council,” Blom wrote. “No other contractor or consultant to the City is fully funded by or through the City of Newport Beach.”
Newport Beach Mayor Will O’Neill also had some questions on how those tourism dollars were being spent at the city council’s meeting on Tuesday night, when city leaders unanimously voted to delay a final decision on the issue because there were too many outstanding questions.
“I don’t fully understand it,” O’Neill said, referring to the new changes. “I do worry a little about (Newport Beach & Co.) having two masters like that.”
O’Neill repeatedly asked Sherwin to answer from the dais how much the hoteliers would be paying Newport Beach & Co. to manage their money, a question Sherwin never answered.
“It’ll be the same as it’s always been,” Sherwin said when asked how the funding would be handled.
“Except it’s not,” O’Neill replied. “It doesn’t seem like it’s the same.”
Other council members also said they didn’t understand the proposal enough to vote on it, while City Attorney Aaron Harp also said there would be less oversight without a government agency involved.
“This is going to be a completely private organization,” Harp said. “We’re not going to have any oversight of it.”
In a January opinion piece published by StuNews Newport, Sherwin stated Anaheim and Irvine were lessons on why business leaders should be left alone to manage advertising dollars themselves after state auditors released their report on Anaheim.
“The biggest lesson of all is that hospitality leaders from the hotel community should be the ones in charge of how tourism dollars are spent and allocated,” Sherwin wrote. “Transient Occupancy Tax dollars are generated by the hotels. Those hoteliers who live and breathe this everyday know how to best spend those dollars.”
Hoteliers also want to increase the fee, from 3% to 5% on each room, a rate they say will still keep the combined taxes and fees lower than the surrounding cities.
It’s unclear when the issue will come back for public discussion, with city council members directing staff to speak with Sherwin and find out more about the proposed plan.
Noah Biesiada is a Voice of OC reporter and corps member with Report for America, a GroundTruth initiative. Contact him at nbiesiada@voiceofoc.org or on Twitter @NBiesiada.