May 2006

This report has been prepared and endorsed by the Municipal Chief Administrative Officers in Waterloo Region.

Delivery of Tourism Services In Waterloo Region:
A Discussion Paper Background

According to Statistics Canada Tourism Profiles for the Kitchener, Hamilton and London CMAs, this Region attracted 2,337,000 person trips which generated $389 million in revenues, supported 3,197 jobs, and contributed $5 million total municipal taxes in 2004. Hamilton generated 25% more taxes (on 25% fewer person-trips), while London generated 50% more taxes. Both Hamilton and London have municipally-supported Destination Marketing Organizations (DMO) which were established in 2001. In both municipalities, the additional municipal taxes due to tourism significantly exceed the municipal contribution to the DMO.

There is consensus within the tourism industry and municipal administration in Waterloo Region, that there is a need and opportunity to improve the delivery of tourism services in Waterloo Region. Although some of the Cities and Townships do currently provide Tourism Services, the approach is fragmented, there is no overall marketing strategy, and the result is a low external profile, and lower tourism revenue than comparable municipalities. Improving this situation will almost certainly require the creation of a new organization to focus on providing tourism-related services for this community.

A number of issues and options will need to be considered and resolved in order to develop this new organization, and a new approach to tourism locally. These issues include:

• Functions to be provided by a new Tourism Organization

• Geographic scope of the organization

• Governance of the organization

• Funding sources/funding levels

• Process to establish a new organization

Each of these issues is discussed briefly below. For each issue a number of options are identified and described. Based on previous studies and recent discussions, an approach to each issue has been proposed for further discussion.

1. Functions to be provided by a new Tourism Organization

The functions to be provided by a new Tourism Organization could include:

a) Destination Marketing only; or

b) Destination Marketing and Visitor Services.

Visitor Services, which provide information to the traveling public and local residents, are currently offered with great pride by Cambridge Tourism, K-W Tourism, the Township of Wilmot/New Hamburg Board of Trade, and the Township of Woolwich (Elmira and St. Jacobs locations). Destination Marketing, which can include overall promotion and marketing of an area, representation at trade shows, professional development and training courses, and development of tourism ‘products’ (such as large sports or awards events) is currently only being done to a limited extent in the Region. There is a general consensus that effective Destination Marketing requires a larger, coordinated, cooperative approach that takes advantage of economies of scale in advertising and outreach. In municipalities with a Destination Marketing Organization (DMO), the tourism industry participates financially, and it enables the municipality to participate in large scale provincial advertising through the Ontario Tourism Marketing Partnership.

Ideally one organization would have responsibility for both Destination Marketing and Visitor Services, to avoid any overlaps or gaps in service delivery. Visitor Services could be delivered directly by the DMO, or by different organizations in different parts of the Region under contract to the Tourism Organization.

However, given that the existing municipal tourism efforts are primarily focused on delivering visitor services, a practical approach may be for a new Tourism Organization to initially focus on Destination Marketing. This would address the largest gap. Local Municipalities would continue to provide Visitor Services, which would allow them to select a level of service specific to the municipality. It is also important to note that the tourism industry itself provides visitor services when providing information about other activities in the area.

Using a distributed approach to Visitor Services, there would still need to be some degree of coordination (related to the message, the materials, and the knowledge about other tourism opportunities), and possibly some agreement on the minimum level of service (such as staffing, hours/seasons of operation, etc.) to be provided at each location. Under this approach, the financial contribution of each municipality would include a portion for Destination Marketing and Visitor Services coordination. In addition, each municipality could choose to contract with the DMO for delivery of Visitor Services, or to provide Visitor Services directly.

2. Geographic Scope of a new Tourism Organization

The geographic scope of a new Tourism Organization could include:

a) The geographic boundaries of Waterloo Region; or

b) A broader geographic area defined by natural or customer-defined boundaries (e.g. Grand River watershed. Waterloo Region plus Stratford, Guelph, Fergus, Elora, Drayton).

Although a broader geographic area (option b) has considerable appeal from a visitor attraction perspective, it would be much more complex to develop initially. From a practical administrative perspective, it is proposed to start with an organization focused on tourism services within Waterloo Region (option a). It could, however, have options for external tourism operators to join on a differentiated basis. Once such an organization was developed and operational, it could also explore joint Destination Marketing opportunities with nearby communities.

3. Organizational Governance

A new Tourism organization could be set-up and governed in a variety of ways including the following:

a) Municipal – part of a municipal government department. This could either be part of a Regional government department or part of one Local Municipal department – serving the entire Region.

b) New Incorporated, Arms-length, Partner Focused, Not-for-Profit Corporation. This would be an incorporated body (without share capital) that would be at arms-length from the municipal and industry partners. The incorporated entity would have members who would periodically elect a Board of Directors. The members could be divided into distinct classes such as municipal and private sector, voting and non-voting. The organization could decide whether or not to charge membership fees, and/or to charge user fees for specific programs.

This reflects the governance model for CTT.

c) New Incorporated, Arms-length, member-based Organization. In this model, the Tourism Organization would be a member-based incorporated legal entity, similar to a Chamber of Commerce or an industry association. The organization would be governed by a Board of Directors, elected by the Members. Members would typically pay an annual fee and participate in individually-selected programs at a pre-determined cost.

d) Operating Unit within an existing arms-length organization. Rather than establishing a new arms-length organization, the new Tourism organization could be established as a new operating unit within an existing arms-length organization. One option would be to establish a new operating unit within CTT, or within the K-W or Cambridge Chambers of Commerce.

The City of Burlington recently reviewed options such as these, as part of a comprehensive review of tourism service delivery. Their review concluded that it was important for a Tourism organization to be at arms-length from municipal government based on the desire to have the tourism industry assume some accountability, and opportunities to leverage support from the private sector. They recommended a new, incorporated, arms-length, not-for-profit Corporation (option b). Their recent experience has been that a member-based organization (option c) is not particularly effective – considerable effort was spent collecting the membership fees, which diverted effort from more productive functions.

Creating a new operating unit within an existing not-for-profit corporation such as CTT could offer the advantage of starting with existing infrastructure. The disadvantages, however, include: the need to revise the CTT mandate; the inclusion of new, quite different functions; the need to add tourism industry representative to the Board, or create a separate Board; and the experience in other jurisdictions that economic development activities may take precedence over tourism activities when the two are combined.

The proposed option is that the Tourism organization should be a separate organization (option b). An existing organization (municipal not-for profit, or private sector) could be approached to provide start-up space and in-kind services, and linkages with CTT could be created through Board membership.

For the proposed Tourism organization, all aspects of Board structure would need to be assessed. These include: overall size, representation relative to funding contribution, representation of specific industry sectors, inclusion of staff from related organizations, length of term, and appointment mechanisms. Lessons learned from the creation and evolution of CTT, and from the creation of similar organizations in other communities, would be used to inform this review.

4. Funding Sources/Funding Levels

There are several possible funding models, including:

a) Municipal funding;

b) Joint Municipal/private-sector funding; or

c) Private-sector funding.

Option (b) is the most reasonable and practical option. It reflects the model that some local municipalities are currently using to fund tourism services, as well as the CTT model. Joint public and private sector funding recognizes there are both direct benefits to this industry from an enhanced tourism program, and broader public benefits related to enhanced community profile and economic activity.

The level of funding required for a Tourism organization would depend on the range of services it provides and the anticipated contribution toward shared marketing campaigns. Currently it is estimated that municipalities in the Region budget a total of approximately $1.1 million per year for tourism services. Most of this is this spent on Visitor Services, and about one-third is raised from industry memberships and other forms of revenue generation. Not all municipalities currently fund tourism services, and the tourism budgets vary between municipalities.

A review of several other cities which provide both Destination Marketing and Visitor Services indicated funding levels of $2.50 to $4.00 per capita (equivalent to $1.25 million to $2.0 million for Waterloo Region). Up to 25% of their budgets come from grants, memberships, and/or promotional campaign sponsorship.

A proposal prepared by the Tourism industry in 2002 for a new Tourism organization proposed an annual budget for Destination Marketing plus Visitor Services of $1.4 million per year increasing to $1.8 million to reflect longer term marketing needs ($550,000 of this total was earmarked for Visitor Services). This proposal anticipated initial municipal funding of $800,000 per year plus direct industry support of $600,000 per year.

Based on these comparators, it appears that a reasonable budget estimate for a Tourism organization responsible primarily for Destination Marketing would be in the order of $750,000 to $1.0 million per year (with separate funding by Local Municipalities for Visitor Services). By way of comparison, CTT’s annual budget is approximately $1.1 million per year (not including Local Municipal direct expenditures on economic development). Tourism Hamilton and Tourism London have larger budgets, at $1.4 M and $1.7M respectively, but these organizations provide both Destination Marketing and Visitor Services. More work is necessary to analyze the budget needs of the proposed Tourism Organization, in terms of staffing, promotion and other costs. There is a strong desire to ensure that the initial budget is sufficient to enable the organization to operate effectively.

In broad terms, the funding sources for an initial budget of $750,000 for Destination Marketing could be:

Local Municipalities: $250,000

Region: $250,000

Industry: $250,000

This proposed funding model reflects the objective of having the Region, the Local Municipalities, and the Tourism Industry participate in funding the new organization.

As the Region does not currently fund tourism services, the Region’s share would be a new source of funding. The details regarding the Local Municipal cost-sharing arrangement will need to be resolved. An initial proposal involving sharing the $250,000 annual contribution would be: Cambridge, Kitchener and Waterloo contributing $75,000 each; and the four Townships contributing a total of $25,000.

There are a variety of possible ways to structure the Tourism Industry share of funding for the new Tourism Organization. One proposed industry funding component would be through direct contribution and/or membership sales. It may be possible to structure membership levels so that larger operators contribute most of this component – essentially redirecting some funds they currently spend on marketing – and gaining corresponding benefits. A DMO that can access provincial tourism grants, with a strong leader who knows the tourism industry, an aggressive business plan with some key projects, and new municipal money for base funding, should provide a strong attraction to the industry. The second industry funding component could involve partnerships or fees for certain services – such as advertising in joint publications, web-site links etc. This would be attractive due to the opportunities for larger media buys with associated economies of scale and broader market access.

Several Canadian cities are funding their tourism-related activities through mandatory, (in other provinces) or voluntary (in Ontario) taxes or charges on hotel room occupancy. This would be an option worth pursuing once a Tourism organization was established – to help it move toward financial self-sufficiency. However, experience in other municipalities shows that it would be impractical to try to use this as part of the funding model, until a viable tourism organization with a solid track record has been established.

5. Summary of Proposed Organization

In summary, it is proposed that a new Tourism Organization be established, with the following characteristics:

-Primary functions: Destination Marketing and Strategic Coordination of Visitor Services

-Area served: Waterloo Region, with consideration for an external member category

-Governance: Incorporated body (without share capital) at arms-length from municipal and industry partners, governed by a Board of Directors; the Board could include Municipal, CTT, Chamber of Commerce and Industry Sector representatives

-Funding: Jointly funded by Local Municipalities, the Region, and the Tourism Industry

6. Process to Establish Tourism Organization

It will be important to effectively involve Municipal Councils and the Tourism industry in resolving the issues identified above and in developing a new Tourism Organization. There is a strong feeling in the industry that action is needed, in that this community is falling behind others in terms of attracting tourism-related revenue. Also, a fairly long lead time is needed for initiating a marketing campaign and developing promotional material.

Following this Information Report to the Municipal Councils, it is proposed that a consultation session with the Tourism Industry would be held in early June to discuss this proposal and to seek input and feedback from the industry. Based on that input, a report would be brought back to the Municipal Councils in late June, potentially including recommendations regarding establishing a new Tourism Organization.

The process of establishing the new organization could involve first establishing a Steering Committee of municipal and industry representatives to develop the details of: the organization structure, board composition, initial budget, and funding mechanisms. The Steering Committee would require some funding in 2006 to complete this work, and might also request one-time funding to initiate a joint marketing campaign for 2007. However, final approval of funding for the Tourism Organization would be considered through the 2007 municipal budget cycles.