Concluding a six-part series
If the premise stated in the first sentence of Part 1 of this series is correct – that "The grease that makes the wheels of the Virgin Islands economy run is the V.I. Tourism Department" – it may seem curious that the department is one of the smallest within the territory's administrative branch of government, with one of the smallest budgets to go with it. And, according to intimations of earlier this year, shrinking.
And yet, Tourism is the one department that exists primarily to stimulate the private sector of the Virgin Islands economy – the keystone of virtually all philosophies, plans and programs being advanced as possible ways out of the territory's economic abyss. All other government agencies exist mainly to provide public services (as in the case of Agriculture, Education, Fire Services, Health and Hospitals, Housing Parks and Recreation, Human Resources, Justice, Labor, Planning and Natural Resources, Police, Public Works) or to provide internal fiscal services to government itself (as with Finance, Housing Authority, Internal Revenue, Licensing and Consumer Affairs, Lieutenant Governor's Office, Management and Budget, Personnel, Port Authority and Property and Procurement).
Along with Tourism, the only other government entities with such prime-the-pump mandates are the Office of Film Promotion, which actually falls within Tourism by default as a carry-over from the days when Tourism, itself, fell within the Commerce Department and its successor, Agriculture and Economic Development; and the Industrial Development Commission, which has been spun off from that sector. Tourism became a department in May of 1995.
Yet, in a government with a fiscal year budget of more than $400 million, Tourism this year was allocated $3.5 million from the General Fund. Of this, $1.7 million was for personnel and $1.8 million was for "other services," including $273,958 for renting six mainland offices which employ approximately 15 persons, or about one-third of the entire Tourism staff. And, according to comments made by newly confirmed Tourism Commissioner Rafael Jackson at a Senate committee hearing on May 22, his department, like all others, was under a directive from Government House to cut back its request by 10 percent for fiscal year 2001.
What goes 'round comes 'round
Most of Tourism's spending, however, is for advertising and promotion, using money that comes not from the General Fund but from the Tourism Advertising Revolving Fund, which this fiscal year was budgeted at $11.7 million. The fund derives its revenues from the 8 percent "bed tax" assessed guests at hotels and other visitor accommodations (with the exception of time-share units, but that is about to change under proposed legislation recently endorsed by the St. Thomas-St. John Hotel and Tourism Association). The hotel room tax was established in 1978, initially at 5 percent. It was increased to 6 percent in 1983, 7.5 percent in 1986 and the current 8 percent in 1994.
In April of this year, Gov. Charles W. Turnbull "found" another $1.5 million in unidentified "dormant" government accounts that he turned over to Tourism for advertising.
The 10 percent across-the-board reductions presumably would not apply to the advertising budget, as the Tourism Advertising Revolving Fund comes directly from hotel room tax revenues. The fund, of course, is continually in flux, as occupancy figures rise and fall with the seasons and other influencing factors. For fiscal year 2000, monthly revenues started out at an end-of-summer low of $243,217 in October then climbed month by month to $1.6 million in April, the most recent month for which figures were available. While January and February are typically the strongest months of the year, figures were flat this year in part because Tourism had no fall-winter advertising. A low-budget but effective spring-into-summer campaign launched in February has paid off with a stronger than usual summer, hoteliers say.
By law, the Revolving Fund is to be used "exclusively for utilization of the [Tourism Department] for advertising of the territory as a tourist destination and for industrial promotion." The latter reference may come as a surprise to many, as bed tax revenues have not in recent times, if ever, been expended to attract industrial investment. With the money available for advertising and public relations already deemed far from adequate these days, any move on the part of government officials to channel funds into "industrial promotion" would be met by cries of outrage from the hospitality sector and, doubtless, Tourism itself.
Already a long-standing issue of contention is the fact that the government annually allocates sizable chunks of the Revolving Fund to specific events or undertakings in the name of "promotion" that do not fall under most private sector perceptions of advertising the territory as a visitor destination. Among these are funding for V.I. Carnival on St. Thomas (budgeted at $300,000 but then cut back to $250,000 this year), the Crucian Christmas Festival ($150,000 down from $200,000) and the St. John Festival ($50,000 down from $75,000).
In recent years, there have been allocations for the St. Croix Music and Heritage Festival, the St. Croix Triathlon, the LPGA Tournament on St. Croix, Sinbad's Soul Music Festival and the 150th Emancipation Commemoration. All appropriations for purposes other than advertising and promotion must be approved separately by the Legislature – including the annual set-asides for the carnival events.
Cost effectiveness is questionable
According to several different sets of fiscal year 2000 figures provided by the office of Sen. Lorraine Berry, chair of the Senate Finance Committee, and data in the administration's Five-Year Operating and Strategic Financial Plan, this year's budget includes more than $300,000 for "destination marketing" in London, Italy, Denmark, Canada and Puerto Rico. The money is for individuals or offices contracted in those locations to represent the territory at trade shows and otherwise promote travel to the Virgin Islands from their respective regions.
"Given that less than 4 percent of the tourists arriving in the U.S. Virgin Islands are from European origins, it may be necessary for the department to reassess its strategy on the utilization of international representatives," the five-year plan states. On the other hand, Jackson and others in government and the hospitality industry favor a stronger push to attract visitors from Puerto Rico, the territory's nearest neighbor under the U.S. flag.
Another area of expenditure is for cooperative marketing with airlines "in order to ensure the continuity of service and to serve as an inducement to enter the market," according to the five-year plan. A total of $1 million was allocated this fiscal year – $700,000 to Continental Airlines; $250,000 to Sunsail International and $50,000 to United Airlines.
The largest airlift into the territory for the last decade has been via American Airlines and Delta Air Lines. Anyone who has looked into travel this summer knows that prices have never been higher – and that the heights cannot be attributed to increased fuel costs alone. The fact is, it's costing four figures to travel to the U.S. Virgin Islands from many mainland destinations these days, and considerably less to Europe, Hawaii or a lot of other vacation meccas. No amount of advertising can compensate for this competitive disadvantage.
Most overnight visitors to the territory come on package plans, and it's the deep discounting of hotel rates that is making the packages affordable, according to leaders in the local hospitality industry. However, they add, this cannot be seen as an economically viable "solution" to the problem. Derryle Berger, who works out of Florida for her family's Caribbean
Travel agency on St. Thomas, said other Caribbean destinations are taking away business from the territory because "their prices are a lot more competitive." She added, "One reason we have high air fares is that we have some of the highest landing fees in the world. Who are we kidding? There's no symbiotic relationship with the carriers, and that's mandatory."
Big bite out of advertising was for nothing new
By far the biggest bites of the Revolving Fund annually go to the government's mainland advertising and public relations agencies. The figures cited on the available fiscal year 2000 budget sheets cite $6.1 million for advertising and $1.89 million for public relations. However, the advertising money is designated for Lowe & Partners/SMS, the government's previous ad agency that was terminated last year and was replaced this spring with Ogilvy & Mather/Atlanta. Efforts to learn how the change of agencies has impacted the expenditure of funds in this fiscal year were unsuccessful.
According to the five-year plan, while Tourism's Revolving Fund budget was $11.8 million, the territory in fact had only half a million dollars to spend on advertising "in fiscal year 1999" because the rest of the money went to Lowe & Partners/SMS in New York for purposes other than the creation and placement of advertising. The plan states that "most of the department's budget was allocated to the settlement of a contractual dispute between the department and a contracted advertising agency. Because of a contractual clause, the Tourism Department was unable to have access and rights to the promotional materials for proper placement."
There was conflicting information as to whether this actually occurred in fiscal year 1999 or 2000, and clarification could not be obtained. However, the salient fact is that the situation did occur. It is common knowledge that the government is routinely in arrears in meeting its obligations to both its advertising and public relations agencies, as with many other vendors. Michael Draznin, executive vice president and director of corporate communications for Lowe & Partners/SMS, would say only that "This is the kind of thing that we never talk about to the outside world. It is not information that I would, or anybody at the agency would, be able to give out." According to a local hotelier, "The money was owed to Lowe & Partners. In order to have access to our photography and our ads, we had to pay them."
The upshot was that Tourism had next to nothing at a critical time of declining overnight visitors to spend on advertising the territory as a destination. According to 1999 figures from the government's Bureau of Economic Research cited in the five-year plan, out of 14 Caribbean tourism destinations, the U.S. Virgin Islands ranked 12th in marketing spending on a per-visitor basis. St. Vincent and Grenadines, which showed just 97,000 visitors, topped the list at $36.25 per person. Aruba, with nearly a million arrivals, was second at $22.47. The U.S.V.I. with 2.1 million (the majority being cruise ship visitors) arrivals spent $5.47. Only St. Martin (another cruise ship capital) and St. Kitts spent less per capita.
Elizabeth Armstrong, general manager of The Buccaneer Hotel on St. Croix, said, "It's hard to have much impact when we spend just a few million dollars; we should be spending 30 to 40 million. We spend far less on advertising than we collect in room taxes." Further, she said, the government should be working with the hotel associations and individual properties in scheduling advertising to mutual benefit, but she doesn't see that happening.
Suggestions for making marketing work
"You ask for the media plan from somebody in Tourism," Armstrong said, but "they've never been willing to share that information – or maybe they don't have it in a timely fashion." The plan would specify what government advertising is scheduled to appear in what print mediums or broadcast markets and when. "You want the media plan so you can maximize all dollars spent," Armstrong explained. "If they are going to advertise in Caribbean Travel and Life in June, July and August, then I would do the same." Such advertising must be booked months in advance.
Armstrong also expressed concern with the continual change-overs in advertising production. "We had the old man with the goat, then the three cute children, and now the moving postcards," she said. "We're spending money for producing television commercials and don't have much left to buy time to air them. It takes millions of dollars to air television spots. I would like to add up how much we've spent on the creation of television material."
Among the "initiatives" that the five-year economic recovery plan recommends for the Tourism Department are these:
– Impose a fee on timeshare units. (Legislation is being drafted and has the support of the hotel industry.)
– Develop a Tourism web site. (The five-year plan cited that the department "has estimated that the development of the web site will cost approximately $1.5 million." However, Tourism Commissioner Jackson has placed the figure at about $350,000.
(The department was sent a proposal several months ago by the commercial VisitStCroix.com owners to develop a web site for Tourism which envisions a budget allocation of less than $100,000 a year, with initial strategic design and site architecture, visitor navigation planning, and conversion of text and images estimated at $25,000; and annual hosting and maintenance costs with monthly updating and unlimited e-mail at around $4,000.
(The proposal recommends that Tourism allocate "a small portion" of its promotional budget to paying for search engine submissions, e-mail marketing to targeted opt-in e-mail lists, targeted banner on-line advertising and an extended link program with other sites.)
– Evaluate the performance of the international representatives.
– Evaluate the performance of the mainland offices.
– Contract a professional convention planner "to assist the department in determining the market potential for the U.S. Virgin Islands to tap into a niche segment of the tourism and convention trade market."
– Establish a Tourism Authority "to develop and execute the marketing and promotion initiatives funded by the Tourism Revolving Fund resources." The plan envisions a public/private board of directors and states that "Given the potential benefits to the private industry, particularly the hotel and timesharing units, some form of cost sharing with the private sector would appear to be desirable to boost the overall funding for tourism marketing and promotion."
The private sector outspends Tourism by multi-millions of dollars already – through chain marketing of local hotels, locally placed advertising for specific properties, and cooperative advertising through the hotel associations with airlines, tour operators and the Tourism Department. What Tourism spends – and can realistically expect to spend in the foreseeable future – is drops in the bucket. And yet, these are the drops that can keep the industry alive, hoteliers and others in the hospitality industry say, because what Tourism does is "destination advertising" – planting in the minds of readers, viewers and listeners the idea that vacationing in the Virgin Islands is what they want to do.
Where do we go from here?
The law requires Government House to submit its budget for the ensuing fiscal year to the Legislature by May 31 of each year. This year, Gov. Charles W. Turnbull, pleading poverty and the attendant complications in balancing a budget, asked for a month's extension to get it together. The month is up Friday. If the administration's proposal isn't ready, maybe it will be on July 5, the next working day. If not, then sooner or
later it will emerge into the light of public scrutiny as Senate hearings dissect each dollar request.
Sens. Violet Anne Golden and Lorraine Berry told Rafael Jackson at a May 22 meeting of the Senate Agriculture, Economic Development and Consumer Protection Committee that if he wanted a bigger Tourism budget for 2001 than he inherited for 2000, he would have to cut his deal on the hill at Government House, because the Senate wasn't going to have anything extra to hand out to anybody once the budget arrived. "Tell those people at Government House that they have to let you do your job," Golden counseled. "Your request has to be made before you get here," Berry said, "because when you get here, you aren't going to get it. No money."
