HomeMy WebLinkAbout12 - TBID Annual Report and Fiscal Year 2020-21 BudgetQ �EwPpRT
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z NEWPORT BEACH
<,FORN'P City Council Staff Report
July 14, 2020
Agenda Item No.12
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Grace K. Leung, City Manager - 949-644-3001,
gleung@newportbeachca.gov
PREPARED BY: Tara Finnigan, Deputy City Manager
tfinnigan@newportbeachca.gov
Melanie Franceschini, Administrative Analyst
mfranceschini@newportbeachca.gov
PHONE: 949-644-3035 1949-644-3028
TITLE: Tourism Business Improvement District (TBID) Annual Report and
Fiscal Year 2020-21 Budget
ABSTRACT:
Visit Newport Beach, Inc. (VNB), a business unit of Newport Beach & Company, serves
as the administrator for the Newport Beach Tourism Business Improvement District
(NB TBID). VNB has submitted the NB TBID's FY 2020-21 Annual Report and Budget for
the City Council's review and approval.
RECOMMENDATION:
a) Determine this action is exempt from the California Environmental Quality Act (CEQA)
pursuant to Sections 15060(c)(2) and 15060(c)(3) of the CEQA Guidelines because
this action will not result in a physical change to the environment, directly or indirectly;
b) Authorize a waiver of the timeline provided in Section 3.5 of the Tourism Business
Improvement District Management Agreement;
b) Review and approve the NB TBID'S FY 2020-21 Annual Report; and
c) Review and approve the NB TBID's FY 2020-21 Budget.
FUNDING REQUIREMENTS:
Under the terms of the City -NB TBID agreement, the NB TBID assesses its member
hotels 3% of gross short-term (less than 30 -day stays) room rental revenue. The FY 2020-
21 assessment revenue is projected to be approximately $1,254,488. The assessments
levied for the NB TBID are applied toward the activities described in the NB TBID'S
Management District Plan (approved by the City Council on January 28, 2014) and
summarized in its annual report. The City collects the member assessments on behalf of
the NB TBID and retains 0.25% of the total assessments collected in order to reimburse
the City for collection and administrative costs associated with the NB TBID.
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Tourism Business Improvement District Fiscal Year 2020-21 Annual Report and Fiscal
Year 2020-21 Budget
July 14, 2020
Page 2
DISCUSSION:
Newport Beach Tourism Business Improvement District (NB TBID)
The NB TBID is a business improvement district formed pursuant to the Property and
Business Improvement District Law of 1994, codified in Streets and Highway Code
Section 36600 et seq., which helps fund marketing and sales promotion efforts for
Newport Beach Tourism businesses. It was established by Council Resolution 2009-21
on April 28, 2009 and is administered by VNB. The Management District Plan for the
renewed NB TBID (the document that details the district's boundaries, funding and
programs) was approved by the City Council on January 28, 2014 and amended by the
City Council on July 10, 2018. The NB TBID's current, 10 -year term will expire on
January 31, 2024.
The NB TBID includes nine hotels/resorts, each consisting of 100 hotel rooms or more,
located within Newport Beach:
Balboa Bay Resort
Fashion Island Hotel
Hyatt Regency John Wayne Airport Newport Beach
Hyatt Regency Newport Beach
Lido House Hotel
Newport Beach Marriott Bayview
Newport Beach Marriott Hotel & Spa
Newport Dunes Waterfront Resort & Marina
Renaissance Newport Beach Hotel
VNB, on behalf of the NB TBID association, has prepared the NB TBID'S FY 2020-21
Annual Report and Budget for the City Council's review and approval (Attachment A &
B). The annual report includes a summary of the NB TBID's proposed activities for the
year. The report does not contain recommendations to alter the BID boundaries or the
method and basis for levying assessments for the following fiscal year. The NB TBID
Board of Directors met on June 24, 2020 to review and approve the TBID's FY 2020-21
Annual Report and Budget.
This year's report includes a brief discussion about the profound impact the COVID-19
pandemic, including the related stay-at-home orders and restrictions on group sizes, has
had on the meeting and conventions industry nationwide and consequently, on group
sales for hotels. The subsequent and severe reductions in hotel demand led to record -
low occupancy rates and even the temporary closure of hotel properties, including several
NB TBID member hotels. With the easing of a number of the COVID-19 related
restrictions, occupancy rates are slowly increasing and most of the local hotels that had
temporarily closed, are reopening. However, as explained in the NB TBID annual report,
the meetings and conventions industry may remain depressed until a coronavirus vaccine
is available to the public.
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Tourism Business Improvement District Fiscal Year 2020-21 Annual Report and Fiscal
Year 2020-21 Budget
July 14, 2020
Page 3
Year over year changes to the NB TBID's budget illustrate the scope of the impact the
pandemic has had on Newport Beach hotels. The NB TBID's FY 2019-20 revenue was
$4.244 million. The NB TBID's revenue estimate for FY 2020-21 is $1.245 million. The
proposed FY 2020-21 expenditure budget, $1.935 million, reflects reductions in
programming, travel, advertising and personnel. The VNB sales team has been reduced
by three full-time employees and another three full-time employees have been
furloughed. It should be noted that the approximately $680,000 difference between the
projected revenue and the proposed expenditures will be made up in carry over and
reserve funds.
The report also explains how the TBID's FY 2020-21 marketing plan will concentrate on
the recovery of group meetings and VNB will employ strategies such as direct sales,
virtual tours, collaboration with hotels and engagement in industry meetings. Despite the
current challenges and continued uncertainties regarding market recovery, VNB has
made prudent adjustments to the workplan and budget, and has the sales team in place,
to continue to support the NB TBID's member hotels as the industry moves through the
recovery process.
Waiver Request
Staff is recommending a waiver of the timeline specified in Section 3.5 of the 2009
Tourism Business Improvement District Management Agreement between the City and
Visit Newport Beach. The agreement set a May 31 due date for the NB TBID annual
report; however, the NBTBID Board of Directors was not able to meet until June 24 to
review and approve the annual report and budget.
ENVIRONMENTAL REVIEW -
Staff recommends the City Council find this action is not subject to the California
Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not
result in a direct or reasonably foreseeable indirect physical change in the environment)
and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA
Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no
potential for resulting in physical change to the environment, directly or indirectly.
NOTICING:
The agenda item has been noticed according to the Brown Act (72 hours in advance of
the meeting at which the City Council considers the item).
ATTACHMENTS:
Attachment A — NB TBID FY 2020-21 Annual Report
Attachment B — NB TBID FY 2020-21 Budget
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ATTACHMENT A
NEWPORT BEACH TOURISM BUSINESS IMPROVEMENT DISTRICT
ANNUAL REPORT FOR FISCAL YEAR 2020-2021
JULY 1`2020 THROUGH JUNE 30" 2021
ORIGINATION:
Implemented beginning May Pt, 2009 through an ordinance approved by the City Council, the Newport
Beach Tourism Business Improvement District (TBID) was amended effective January 29th, 2014. The
amendment included a revised assessment from 2% to 3% and a renewal period of ten (10) years. The
TBID is a benefit assessment district proposed to help fund marketing and sales promotion efforts for
Newport Beach lodging businesses.
Under an agreement with the City of Newport Beach, Visit Newport Beach, Inc. serves as the TBID's
Owner's Association and oversees its administration and coordinates its sales and marketing activities.
This is the annual report of the Newport Beach TBID for the FY 2020-2021 fiscal year and is filed with the
City Clerk, according to the California Streets and Highways Code Sections 36650.
PURPOSE:
The Newport Beach TBID is responsible for representing and managing conference, meeting, and group
sales efforts in partnership with the nine TBID lodging businesses. These services are designed to benefit
the nine properties that will be assessed within the City of Newport Beach as well as generating
additional revenue to grow the Newport Beach hotel and tourism industry. The current participating
lodging businesses are as follows:
• Newport Beach Marriott Resort and Spa
• Renaissance Newport Beach Hotel
• Hyatt Regency John Wayne Airport Newport Beach
• Newport Beach Marriott Bayview
• Hyatt Regency Newport Beach
• The Balboa Bay Club and Resort
• Newport Beach Dunes Waterfront Resort and Marina
• Fashion Island Hotel
• Lido House Hotel
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FY20/21 SITUATIONAL ANALYSIS:
The call to limit gatherings larger than family units in order to "flatten the curve" of COVID-19 infection
hit the U.S. meeting industry hard in mid-March as stay-at-home orders spread across the United States.
On March 1, Natural Products, Anaheim's second largest convention that utilizes all of Orange County,
cancelled just two days before the start of the March 3-7 dates, halting 85,000 attendees from coming
into Orange County. This was the beginning of a string of cancellations in quick succession as many
other organizations, corporate and nonprofit, felt they had no choice but to put the brakes on meetings
and events until a clearer picture of the health and safety landscape was available. These cancellations
left meeting professionals with three choices:
• Postpone: Reschedule to a date when it was hoped it would be allowed, safe and acceptable to
gather.
• Pivot: Flip the meeting to a virtual format.
• Cancel: Wait until there is more certainty; or, at best, a vaccine.
A survey by Smart Meetings of 1,685 meeting planners with booked programs in the 2nd half of 2020
found that many are doing all three: moving some meetings to late 2020 or 2021, cancelling them
altogether or converting them to virtual.
Just over half of planners are converting their programming to a virtual conference during the COVID-19
pandemic to accommodate the vast numbers of people not willing to travel in the short run and, in
some cases, before a vaccine. As planners have been forced to master virtual -meeting technology and
strategies, many have stated that streaming and charging for content is here to stay, disrupting in-
person meetings in the long haul.
To return to face-to-face meetings, planners said they are looking for official standards to benchmark
safety best practices in room design, elevator operation, food and beverage, additional restroom
facilities and operational guidelines for things such as staggered registration and breaks. They need a
clearer picture of what it means to get back to business.
The abundance of caution and go-slow approach will be the modus operandi and size of groups will
decrease. In addition, the economic crisis has impacted meeting budgets by eliminating conferences
that would have previously happened. With these changes in the meetings ecosystem, Visit Newport
Beach will need to adjust group room nights and revenue expectations knowing that recovery will
extend well into 2021.
COST BASIS:
Annual assessment rates are 3% of gross short term (less than 30 days) room rental revenue on the
participating lodging businesses within the city limits of Newport Beach. Lodging business stays of longer
than 30 consecutive days will not be assessed. Based on the benefit received, stays by airline personnel
and government employees on government business will not be assessed. Stays at time shares will not
be assessed. The renewal year for the current TBID agreement is 2024.
12-5
BUDGETED REVENUE FOR FY 20 AND FY 21:
After 10 years of consistent growth in TBID revenue, the COVID-19 pandemic has created a serious
economic crisis in the hotel industry. The Newport Beach TBID's revenue budgeted for FY 2019-20 was
4.244M. In stark contrast, its revenue for FY 2020-21 is budgeted at $1.254M. This is a conservative
budget that assumes zero revenue for July, August, September and October (revenue in those months
tie to occupancy in May, June, July and August). We took into consideration that four member hotels
will not likely reopen until July and Fashion Island Hotel is closed until January. Additionally, meetings
and conferences were hit hardest in the hospitality sector and may remain depressed until there is a
vaccine to prevent COVID-19 available. Budgets are always reviewed in January of each fiscal year by the
TBID Board of Directors to determine if adjustments need to be made. There are four waves of desired
spend to put in place if revenue comes in higher than expected.
FY 21 ROLL UP BUDGET:
The TBID's FY 21 budget reflects the essentials for its mission; and will rely on the use of reserves for any
short -falls in revenue, particularly in July -September.
Roll Up Budget:
Total Operating Revenue $1,245,488
Total Operating Expenses $1,272,441
Total Advertising Expenses
$49,750
Total Community Relations
$10,000
Total Digital Marketing
$42,044
Total Trade Show Expense
$131,926
Total Sponsorship
$307,075
Total Sales Initiatives
$45,000
Total Customized Destination Support
$77,000
Non -Cash Items:
Depreciation $ 5,189
Amortization $ 26,544
FY2020 Prepaids $ 105,722
(These items are included in the budget above as required by law but will not use any cash resources.)
12-6
TBID SALES PROGRAM IN FY 21:
The COVID-19 pandemic has affected the TBID very directly. The TBID budget has decreased by almost
80% and, as a result, the Visit Newport Beach sales team has been reduced by three full time employees
and 3 full time furloughs with indeterminant end dates. Additionally, the budget reduction will impact
programming, travel and advertising for FY 21.
It's encouraging to say however, that even with these staff and program cuts, we have proven to have
one of the stronger destination marketing organization's in Orange County sustaining the least amount
of negative COVID impact to our DMO in the region. The Visit Newport Beach recovery team will
consist of four experienced market sellers with the most critical aspects of our budget and initiatives
intact.
The hope for the meetings industry is that ultimately, the very absence of face-to-face gatherings may
serve to underscore and reinforce their value going forward. The entire world is now missing what they
may have taken for granted in the past. Meetings will come back, though it hinges on consumer
confidence to travel and meet once again.
Group meetings have always been a robust part of the hotel industry and Visit Newport Beach is
committed to the process of recovery in the TBID community.
FY 21 DIRECT SALES INITIATIVES/GOALS:
COVID-19 resulted in a major hospitality and travel shutdown. The potential mid-range and long-range
consequences on meetings make traditional room night goal setting impractical.
While the pandemic has certainly disrupted the forward momentum of definite room nights, Visit
Newport Beach (VNB) is committed to delivering the very best support possible to the TBID member
hotels. The VNB sales team has historically thrived with definitive goals and a cadence of accountability.
Individuals have been tasked with obtaining accelerated room nights in years past and have been
motivated to exceed them.
Recovery of group meetings is VNB's mission for FY 21 and its new goals will support the critical "leading
activities" to get the best results possible.
Direct Sales. Dedicate prime selling time to the top accounts in the local/regional markets that
are presenting themselves in credible research as the quickest to come back. True to the 80/20 rule,
80% of VNB's selling time will focus in tightly on the 20% most valuable accounts/opportunities.
2. Virtual tours. Bring the destination to the planner by using brand tools and technology to give
clients the best sensory virtual experience of the destination. Use video conferencing calls with partners
to have clients feel they have met the sales team in the next best way possible. Resume site tours as
soon as possible.
3. Engage in industry meetings (virtual or in person). Bring VNB's best to these opportunities,
representing our hotels and sponsoring where feasible.
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4. Collaboration with hotels. This has always been the secret sauce of the Newport Beach TBID
true partnership that brings combined talent, attention and resources to each opportunity. This
coalition is a powerful mechanism to compete in a crowded landscape.
5. Ongoing training/Education. The VNB team is committed to learning new skills and enabling
effective adaptations and innovations to stay on the cutting edge of this evolving environment.
FY 20 GOALS/PRODUCTION:
VNB typically shares the room night performance for the fiscal year ending in this report. The VNB sales
team was well within reach of exceeding the FY 20 annual goal (and an internal stretch goal of 120K
room nights!) prior to the COVID-19 pandemic. At the time of writing this report (May 26,2020), 43K
group rooms have canceled predominantly for meetings actualizing in Q2 and Q3 of 2020. Groups are
now cancelling for Q4. At this point, there will not be a final reporting of group rooms results for FY20
as it is changing daily for the negative and no longer a relevant reflection of our efforts.
o FY 20 Group Room Night Goal: 100,000
o Actual Room Night Production as of March 10, 2020: 83,000
o Cancelled Group Room Nights since March 10, 2020: 43,000
ASSESSMENT AND BOUNDARIES:
The TBID Agreement was renewed in January 2014 extending the renewal period for ten (10) years.
ESTIMATE OF NON -ALLOCATED FUNDS CARRIED OVER FROM FY 2019-2020:
A FY 20 planned revenue surplus of $71,150 plus an additional estimate of approximately $828,850,
created from cutting spending due to the pandemic, will be carried over to the TBID's FY 21 budget and
placed in the reserve account. The new reserve balance will be approximately $1,893,104.
AMOUNT OF ANY CONTRIBUTIONS OTHER THAN ASSESSMENTS LEVIED IN FY 2020-21:
There are no other contributions other than assessments levied.
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ATTACHMENT B
i'ISI'1' e 'ort
CH
Visit Newport Beach, Inc. Group Sales (TBID)
FY 2020-21 Proposed Budget
Operating Revenue
Revenue
41000 - TOT/TBID Income
Total Revenue
46001 - Other Income - Interest Income
Total Operating Revenue
Expenses
Salary and Wages
61010 - Salaries and Wages
61015 - Bonuses and Commissions
61020 - Auto Allowance
61030 - Payroll Tax Expenses
Total Salary and Wages
Benefits
61110 - Medical Insurance
61115 - Benefit Administrative Fees
61120 - Dental Insurance
61125 - Vision Insurance
61130 - Life and Disability
61140 - Retirement Plan (401k)
61150 - Flexible Spending Plan
61160 - Employee Engagement Benefit
Total Benefits
General and Administrative Expenses
Operating Expenses
64100 - Office Supplies
64101 - Kitchen Supplies
64110 - Office Equipment Leases
64115 - Office Equipment (non-deprec)
64120 - Equipment Repairs & Maintenance
64125 - Computer Software (non-deprec)
64130 - Voice and Data - Office
64135 - Telephone - Mobile
64136 - Cable - Office
64140 - Postage
64145 - Shipping Charges
64150 - Bank Fees
64160 - Membership Dues
64165 - Subscriptions
64170 - Team Meetings
64175 - Governance Meeting Expenses
64180 - Education
64190 - Business Licensing Fees
64300 - Depreciation Expense
64600 - Business Meals/Entertainment
Total Operating Expenses
Office Lease and Expenses
62100 - Office Lease
62110 - Office Repairs and Maintenance
Total Office Lease and Expenses
Insurance
1,254,488
1,254,488
1,254,488
720,630
15,840
56,767
793,237
82,034
500
5,393
987
15,110
960
660
105,644
2,400
2,400
2,610
23,340
10,200
4,800
7,200
1,080
1,200
1,761
16,928
1,080
1,500
2,500
550
5,189
900
85,637
137,253
420
137,673
63100 - General Liability Insurance
1,440
63200 - Workers Compensation Insurance
3,600
63300 - Board of Directors Insurance
3,650
Total Insurance
8,690
Professional Fees
Recruiting Fees
-
64205 - Payroll Processing Service
4,160
64206 - Independent Contractors
5,000
12-9
i'ISI'1' e 'ort
CH
Visit Newport Beach, Inc. Group Sales (TBID)
FY 2020-21 Proposed Budget
67004 - Marketing NBCo Fees
64201 - Audit Fees
64202 - Tax Preparation Fees
Legal Fees
Total Professional Fees
Travel Expenses
65100 - Airfare
65200 - Accommodations
65300 - Meals
65400 - Transportation Costs
65405 - Mileage
65500 - Other Travel Costs
Total Travel Expenses
Total General and Administrative
Advertising Expenses
66101 - Advertising - Purchased
66121 - Promotional Gift Cards
66123 - Promotional Client Gifts
Ad Production
66203 - Creative Design/Development
66212 - Community Sponsorships
Total Advertising Expenses
Marketing Expenses
Community Relations
67104 - Annual Marketing Outlook Event
67101 - Research
67103 - Community Partner Events
Company -Sponsored Events
Total Community Relations
Digital Marketing
67508 - Website Redesign Expenses
66211 - CRM Maintenance
Total Digital Marketing
Communications/Public Relations
67605 - Media Special Programs
Total Communications/Public Relations
Total Marketing Expenses
International Marketing Initiatives
67413 - International Sales Missions
Total International Marketing Initiatives
Direct Sales Initiatives
Trade Show Expense
66221 - Trade Show Travel Expenses
66222 - Trade Show Registration
66223 - Trade Show Booth Expenses
Total Trade Show Expense
Sponsorships
66231 - Sales Group Enhancement Credit
66232 - Hosted Industry Events
66233 - Industry Partnerships
66234 - Industry Sponsorships
Total Sponsorships
Sales Initiatives
66207 - Site Inspections
66208 - Client Events
66210 - Conference Services
66209 - Database/Prospecting
Total Sales Initiatives
Total Direct Sales Initiatives
108,000
16,000
1,600
134,760
3,000
2,500
300
800
200
6,800
373,560
43,000
4,000
2,750
49,750
10,000
10,000
26,544
15,500
42,044
52,044
14,000
57,190
60,736
131,926
220,000
5,000
82,075
307,075
15,000
10,000
20,000
45,000
484,001
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v1siIfwport
oma. EACH
Visit Newport Beach, Inc. Group Sales (TBID)
FY 2020-21 Proposed Budget
Customized Destination Support
66243 - Hotel Partner Booking Incentives
66247 - Partner Engagement Expenses
66248 - Group Marketing Initiatives
Total Customized Destination Support
Total Expenses
Net Income
Non -Cash Items:
Depreciation
Amortization
FY2020 Prepaids where budget for FY21 was cut
75,000
2,000
77,000
1,935,237
(680,749)
5,189
26,544
105,722
137,455
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