The lessons learned by co-mingling tourism designated funds elsewhere…and the pain it causes

By GARY SHERWIN

The last few months have been tough times for our tourism friends in Anaheim and Irvine. In fact, it’s probably been more than tough. It’s been downright ugly.

Unless you’ve been living under a rock, you’ve probably heard of the sad situation in Anaheim. Mayor Harry Sidhu resigned in disgrace from office in 2022 and subsequently pleaded guilty to obstruction of justice and wire fraud charges involving a sweetheart deal to sell Anaheim Stadium to the Angels. The whole thing has been hugely embarrassing for the city.

This week, state auditors slammed both the City of Anaheim and Visit Anaheim in a report they issued on spending and oversight, which, if you know the backstory, seems a bit overwrought.

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Courtesy of Visit Newport Beach

Gary Sherwin

What exactly were Visit Anaheim’s sins? They were drawn into this when, during the depth of the pandemic, Sidhu reached out to the organization and offered a $6.5 million lifeline grant to help offset the decline of revenues, given that more than 50 hotels and Disneyland had shut down for months. Sounds like a generous gesture, right?

As part of the deal, Sidhu asked the CEO of Visit Anaheim to take $1.5 million of the grant and give it to the city’s Chamber of Commerce since he claimed they needed financial assistance, too, given the shutdown.

The problem, of course, is that the Chamber is actively involved in legislative affairs with the city and Disneyland, which could be considered a huge conflict of interest.

But here is where it gets very interesting. Normally, an organization like Visit Anaheim giving long-standing, life-sustaining financial support to a Chamber would be unusual, perhaps improper.

However, Visit Anaheim has been financially supporting the Chamber for over a decade to the tune of hundreds of thousands a year. Why is that?

The City Council mandated that they do it.

When Visit Anaheim formed its Tourism Business Improvement District (TBID) in 2010, the City Council forced the organization into granting a concession by making them financially support the Chamber for the next 30 years (yes, you heard that number correctly) if they wanted the TBID to pass.

Visit Anaheim and their hotels didn’t want this provision, and they pushed back. However, the council made its views clear. Support the Chamber or no TBID. The Visit Anaheim board was forced, against their better judgment, to take the deal.

So, since then, Visit Anaheim has been receiving TBID revenues of more than $20 million a year, which is an assessment paid exclusively by the hotels for the purpose of tourism promotion. The Chamber, which had been in financial straits, gladly took the cash and even leased office space at the Visit Anaheim offices.

And so it went for more than a decade. When Mayor Sidhu called and offered the pandemic bailout, Visit Anaheim incorrectly assumed that this was a continuation of existing policy and gave the $1.5 million to the Chamber because that’s what they have always been doing.

To be fair, the recent Anaheim council wasn’t completely onboard with the $6.5 million grant, but the mayoral arm twisted his colleagues, and it got passed. Many of them were unaware of the earlier deal to make the TBID happen until the scandal involving Sidhu came to light.

The Anaheim Chamber also had its own share of problems during this time beyond finding revenue, including with their CEO, who misstated income so he could qualify for a home loan as well as a host of other crimes and later pleaded guilty to four federal charges and now faces 20 years in prison. He was also implicated in the alleged bribery scheme which some pundits called the “Anaheim Cabal.”

The whole mess has caused disgrace for a whole slew of people as well as cost many of them their jobs.

But ultimately, here’s what it boiled down to. The former Anaheim City Council in 2010 meddled with tourism funding and politicized it. Instead of permitting the Anaheim hotel community to assess themselves so they could generate more business for the city, they pushed the hotel community to use the funding mechanism to prop up an organization that served them politically. That is not how TBID funds – or, frankly, any tourism funding – should ever be used by elected leaders.

The scandal involving Visit Anaheim didn’t have as much to do with them as much as a longstanding backroom deal that the tourism industry was forced into by an overbearing council at the time.

And what’s with Irvine? There’s a similar thread here too. Irvine also has a Tourism Business Improvement District but, in this case, the funding mechanism was managed by their Chamber of Commerce. Destination Irvine, as it is called, was a department of the chamber, and it received all the funds generated by the TBID.

The problem here is that instead of taking all those funds generated by the hotels that were to be used for marketing, the Chamber took a disproportionate amount of the money to fund themselves and their overhead. In other words, they basically misused TBID funds for non-tourism-related expenses like chamber salaries.

The good news here is that the Irvine hotels woke up early last year and saw what was happening. They witnessed their TBID money being looted and complained to the city and then asked the council to remove the chamber from managing the program. The city happily complied.

For now, Destination Irvine is housed at Irvine City Hall until it can reorganize as an independent organization in the future. The Irvine hotels are currently hands-on involved, and their $2.5 million in TBID money is being spent the way it was intended…to promote tourism and generate business for the city. The latest development is that the county District Attorney is investigating the whole affair.

How does this compare with what is happening in Newport Beach? For starters, neither the City of Newport Beach nor Visit Newport Beach is propping up our chamber, which is already the most financially successful chamber in the county based on their own good business efforts.

Secondly, Newport Beach’s hospitality community oversees the tourism marketing in the city, and we avoid the corrosive hand of political influence like Anaheim has been dealing with. There just aren’t any parallels between the Anaheim situation and Newport Beach.

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. TBID, and even Transient Occupancy Tax (TOT) dollars, are generated by the hotels. Those hoteliers who live and breathe this business every day know how to best spend those dollars, including the 18% allotment of the 10% TOT that the city provides Visit Newport Beach.

No one wants tax or marketing resources wasted, but local hotel and hospitality leaders have the best idea of what appropriate spending looks like, certainly not some non-tourism Irvine Chamber executive or an Anaheim city councilmember.

Politics are a destructive force in tourism marketing, and letting non-tourism-related officials dip their hands into these funds usually turns out very badly for everyone involved, including elected or self-serving leaders who choose to go where they shouldn’t.

Gary Sherwin is President & CEO of Visit Newport Beach and Newport Beach & Company.