The news media have recently been reporting about the economic engine that is tourism, spotlighting a report by a national tourism organization that it produces $3.2 billion in direct visitor spending.
It is good news for the Memphis Convention & Visitors Bureau which has weathered some difficult years following the Great Recession, and while the agency has its cheerleaders and its critics, it’s inarguable that it has gotten more economic return from its budget than peer cities.
In fact, despite Shelby County Government failing for several years to live up to the requirements of state law to increase the hotel-motel tax funding to the CVB by five per cent yearly, tourism is a major employer in Memphis and Shelby County – about 35,000 people.
To make sure the CVB had additional money each year to keep up with inflation and mount new programs, when city and county governments successfully lobbied the Tennessee Legislature to add the CVB has a recipient of hotel-motel revenues, they also added a provision that the CVB would receive a 5% increase every year.
Afterthought to Economic Engine
Memphis and Shelby County have unquestionably come a long way since tourism was set as a priority in the Memphis Jobs Conference in 1980. Then it was an afterthought in economic planning. It was only a $750 million industry.
What changed things was when the leading four leading CEOs in Memphis recommended to city and county governments that Memphis Convention & Visitors Bureau should have a dedicated funding source. While the hotel-motel tax was amended to funnel money to the CVB, and in the interim, the companies and local government provided more funding.
It paid off.
As a result of the change in the law, the CVB added staff, stepped up its national funding, and launched international marketing. In the 10 years between 1985 and 1996, the tourism economy grew to $2 billion, but it has grown more slowly since then, taking about twice as long to add another billion dollars. That slower growth corresponds directly to Shelby County Government withholding the statutorily required 5% increases in the early 2000s.
If county government had paid the yearly increase, the CVB’s budget today would be $2 million more than it is (when you compound the lost revenue over the intervening years, it amounts to almost $12 million in less money). While even with the increases, the CVB would still be about one-third less than its peer city agencies, it would have made progress in closing the gap.
Take of the Tape
Despite our individual opinions, it is inarguable that the CVB budget is much less than peer cities and it makes the most of what it gets. Compared to its peer cities, the CVB has a higher ROI. If the CVB had received its yearly increases and maintained the same ROI as it has today, direct visitor spending would be $3.852 billion rather than $3.2 billion.
Here’s the tale of the tape: the Memphis CVB has a budget of about $10 million a year and according to the U.S. Travel Association study, Memphis attracts 11 million visitors. Meanwhile, Nashville has a budget of about $28 million a year and that city attracts 13 million visitors.
Memphis and Shelby County direct visitor spending amounts to $3.2 billion, and in Nashville, it is $5 billion. (Together, they represent just under half of Tennessee’s total tourism economic impact.) In other words, Memphis gets almost twice as much bang for the buck as Nashville.
According to the report, Memphis attraction attendance is five million and Beale Street attracts four million visitors. The main feeder markets for Memphis tourism are Nashville, Dallas/Ft. Worth, Chicago, Atlanta, St. Louis, Mississippi, and Arkansas. Internationally, 68% of foreign visitors are from Canada (24% of total international visitors), United Kingdom (18%), Australia (11%) , Germany (9%), France (6%), and Benelux countries (4%).
Spending breaks down this way: $397 for convention delegate and $340 for both corporate and leisure traveler. The primary reason for trips to Memphis are visits to friends and relatives (42%), general vacation (19%), general business (9%), conventions/conferences/seminars (3%), and other (10%).
Lack of more competitive budgets makes it difficult for the CVB to respond to unexpected challenges and opportunities. In the former category are dealing with the impact of the recession and the abandonment of Memphis as a Delta Air Lines hub, and while the CVB mounted campaigns to celebrate 50 years of rock and roll and a similar milestone for Stax Records, there’s no doubt it could have used more money to propel the message even more.
Thinking ahead to next year’s 50th anniversary of Dr. King’s murder and to the 200th anniversary of the founding of Memphis in two years, the CVB could benefit from special funding to make the most of these benchmarks in our history when the world’s attention will turn to the city.
Meanwhile, the CVB is also feeling pressure from the Memphis hotel-motel tax. Faced with the loss of those taxes when they were shifted from the CVB to pay off the bond debt on the FedExForum, Memphis City Council – at the request of the CVB and supported by local hoteliers – passed a $2 per room per night fee on hotel stays up to 30 days.
But the CVB essentially is treading water, and this was not the way it was supposed to be.
It has been said for many years that Memphis is a tourism, not a convention, city, and the numbers prove it out. Yet to be determined is precisely what kind of convention city Memphis can be, what is its niche, and how to exploit it. Notions that we need a convention center that can compete with Nashville’s Music City Center are opinions unproven at this point.
As officials in City Hall have pointed out, an equal problem is adding more hotels with large blocks of full-service rooms. Memphis has about 4,000 rooms in downtown Memphis and about 1,700 are committable for a convention. That compares to about 8,500 rooms in downtown Nashville with 5,100 of them committable.
It creates a serious disadvantage when Memphis is competing with other cities for larger conventions, not mentioning the fact that some cities “give away” their convention centers in exchange for the sales taxes generated by conventioneers.
All in all, Memphis has been in a vicious circle for decades. We were told we could not compete because the convention center is too outdated, so $100 million was spent to improve the convention center, but then, it was said the improvements were not enough and we need more hotel rooms, so we plan for another round of convention center improvements- this time, $60 million worth – while trying to attract a large hotel without the city incentives that are given in most places.
A Good Soldier
In other words, while there has been strong lip service given to the tourism industry over the years, the hotel-motel tax fund has been used for other purposes, notably $200,000 to pay for the acoustic shell in the old music hall in the convention center; $500,000 for an acoustic shell for Memphis Symphony; $11.5 million in improvements to The Pyramid, and $685,000 for a new scoreboard in The Pyramid.
In an effort to be a good partner, the CVB agreed to these uses of the hotel-motel revenues although they contributed to strains on the fund that resulted in county finance officials freezing the yearly funding to the agency. Some years ago, there were also questions in City Hall about whether the spending of hotel-motel taxes was outside state law, but city officials decided not to pursue an audit.
The proverbial bottom line: the CVB’s budget has always been smaller than its peer cities, but as a result of these events in its past, it is even more underfunded today. It seems like an appropriate time for Memphis and Shelby County, as part of its economic development agenda, to decide what it takes to adequately fund the tourism and convention business and to compare more favorably with other cities and counties of our size.
Adding Worker Value
Finally, we know that every time we mention the CVB, we get email complaints, saying the 11 million visitors is fiction (the U.S. Travel Association uses the same methodology for all cities), saying the CVB has been doing the same thing for 20 years and shows too little innovation (maybe more money would help), and that other cities are able to succeed with less money.
That said, this post is about funding levels and the history of how we got to this point. If there is a caveat, it is that there is good news and bad news in tourism being the fifth largest employer. The good news is that thousands are employed in that sector but the bad news is that it’s generally lower-wage jobs. In that way, tourism is often called jobs of last resort but they are the source of jobs for many first-time workers and also for workers with few marketable skills.
The Tourism Foundation years ago proposed some ways to award tourism certificates for workers who receive additional training, but the incentive for this was to award these workers with something like a dime more an hour. There were no takers.
It often feels like we take these workers for granted, but hotels have a revolving door of employees, so perhaps, while considering how to adequately fund the CVB, we can also consider ways to increase skills in the industry that would in turn lead to higher wages.
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