BILL ANALYSIS Ó ----------------------------------------------------------------------- |Hearing Date:April 28, 2014 |Bill No:SB | | |1119 | ----------------------------------------------------------------------- SENATE COMMITTEE ON BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT Senator Ted W. Lieu, Chair Bill No: SB 1119Author:Leno As Amended:April 2, 2014 Fiscal: Yes SUBJECT: California Travel and Tourism Commission. SUMMARY: Establishes a limit on the assessment of the passenger car rental industry to fund the California Travel and Tourism Commission (Commission) of no more than 70 percent of the funding necessary to fund the Commission's approved marketing plan and all administrative costs. Limits the marketing plan and administrative costs to $70 million per fiscal year. Existing law: 1) Establishes the Governor's Office of Business and Economic Development (GO-Biz) within the Governor's Office for the purpose of serving as the lead state entity for economic strategy and marketing of California on issues relating to business development, private sector investment and economic growth. (Government Code § 12096 et. seq) 2) Establishes the California Tourism Marketing Act (Act). (GC § 13995 et seq.) 3) Makes various findings and declarations regarding the importance of California's tourism industry, need for marketing of the industry and importance in funding the marketing of the industry, including: (GC § 13995.1) a) An industry-approved assessment provides a private-sector financing mechanism that, in partnership with state funding, will provide the amount of marketing necessary to increase tourism marketing expenditures by California. SB 1119 Page 2 b) The goal of the assessments is to assess the least amount per business, in the least intrusive manner, spread across the greatest practical number of tourism industry segments. 1) Defines the following: (GC § 13995.20) a) "Assessed business" is a person required to pay an assessment pursuant to the Act other than a public entity or a corporation when a majority of the corporation's board of directors is appointed by a public official or public entity, or serves on the corporation's board of directors by virtue of being elected to public office, or both. b) "Industry category" means the following classifications within the tourism industry: accommodations, restaurants and retail, attractions and recreation, transportation and travel services, other than passenger car rental and passenger car rental. c) "Maximum assessment" is a dollar amount, adopted by the California Travel and Tourism Commission (Commission), over which an assessed business shall not be required to pay. The Commission may adopt differing amounts of maximum assessment for each industry category or industry segment. 1) Requires the Governor to appoint a Tourism Selection Committee (Committee) based upon recommendations from established industry association comprised of 25 representatives, with no fewer than six from each industry category. Requires the Committee to issue a report listing industry segments that will be included in the initial referendum, the target assessment level for the initial referendum, the percentage of funds to be levied against each industry category and segment based upon, to the extent possible, quantifiable industry data, assessment methodology and rate of assessment within each industry segment, that may include a percentage of gross revenue or a per transaction charge. (GC § 13995.30) 2) Requires the Office of Tourism within GO-Biz to establish a non-profit Commission consisting of 37 members, including representatives of the tourism industry and travel agencies or tour operators, whose mission is to increase the number of persons traveling to and within California. Provides that the Commission be administered by an executive director who shall be a tourism industry marketing professional, recommended by a vote of the commissioners and approved by the Governor. (GC §§ 13995.40, SB 1119 Page 3 13995.41 and 13995.43) 3) Requires the Commission to annually provide to all assessed businesses a report on the activities and budget of the Commission. Provides that the Commission's annual budget is subject to the review and approval of the Director of GO-Biz, but specifies that any decision of the Director related to the budget may be overridden by a vote of three-fifths or more of the commissioners then in office. Requires the Commission to maintain a report, updated when assessments are amended and to be made available to any assessed business, on the percentage assessment allocation between industry categories and industry segments including the reasons and methodology used for the allocations. (GC § 13995.44) 4) Requires the Commission to annually prepare a written marketing plan and specifies that any expenditures by the commission shall be consistent with the marketing plan. Requires the marketing plan to promote travel to and within California and to include, but not be limited to, an evaluation of the previous year's budget and activities; a review of California tourism trends, conditions, and opportunities; target audiences for tourism marketing expenditures; marketing strategies, objectives, and targets; and a budget for the current year. (GC § 13995.45) 5) Provides that if an assessed business within the passenger car rental category pays an assessment greater than the maximum assessment, as determined by the Commission for other industry categories, the weighted percentage assigned to that assessed business shall be the same as though its assessment were equal to the highest maximum assessment. (GC § 13995.64.5) 6) Provides that an assessed business may pass on some or all of its assessment to customers and may identify or itemize the assessment on any document provided to a customer. (GC § 13995.65 (f)) 7) Specifies that funding for the Commission is a cooperative venture and establishes Legislative intent that the state shall be responsible for appropriating a minimum of $7.3 million each fiscal year for travel and tourism. Requires the assessment level to ultimately reach at least $25 million and authorizes the industry to terminate the Commission by referendum at any time if the state fails to appropriate $7.3 million in any fiscal year and provides that the state may decide not to appropriate funding in the event that the Commission fails in any fiscal year to target its annual SB 1119 Page 4 assessment level at or above the level set for the initial referendum. (GC § 13995.70) 8) Provides that the proposed assessment for the passenger rental car industry shall be set at a level determined by the Commission that will generate funding that will be sufficient, when aggregated together with other funding for the Commission for an amount sufficient to fund the approved marketing plan of no less than $50 million per fiscal year. This bill: Provides that the proposed assessment for the passenger rental car industry rate shall be set at a level determined by the Commission that will generate no more than 70 percent of the total funding that will be sufficient, when aggregated together with other funding for the Commission, to fund the approved marketing plan and all administrative costs of no more than $70 million per fiscal year. FISCAL EFFECT: Unknown. This bill is keyed "fiscal" by Legislative Counsel. COMMENTS: 1. Purpose. This bill is sponsored by Enterprise Rent-A-Car . According to the Author, the bill is "an effort to create measured growth in the demonstrably successful Visit California program in a manner that does not disproportionately place the burden on the rental car industry." The Author contends that under current budgeting practice by the Visit California program, once an annual budget amount is established, estimates are made as to the amount anticipated to be collected from all industries except for the rental car industry. According to the Author, "once that amount is set, the assessment percentage on rental cars is set to then fill the gap in the budget." The Author notes that while the current budgeting approach has been widely accepted by the participants of this successful program, Visit California and the Visit California Board are currently undertaking an effort to increase the Visit California marketing budget on an ongoing basis, including a proposal to increase the program to $105 million annually. The Author intends for this bill to "facilitate opportunities for the tourism industry to enhance its support of Visit California and ensure that assessments are shared by all segments of the industry." 2. Visit California. The California Tourism Marketing Act (Act) grew out of efforts to reverse a multi-year decline in California's tourism industry. During the 1970s, Governor Brown closed the SB 1119 Page 5 Office of Tourism and withdrew funding from many tourism promotion efforts. During Governor Deukmejian's tenure, the Office of Tourism was reactivated. In February, 1993, Governor Wilson created the Governor's Task Force on Tourism Funding (Executive Order W-41-93) for the purpose of "investigating various tourism funding methods and making policy recommendations regarding a new, "non-tax" method of providing stable financing for statewide tourism promotion." The Task Force, which was composed of representatives from various California businesses, developed the concept that was ultimately enacted by SB 256 (Johnston, Chapter 871, Statutes of 1995) as the California Tourism and Marketing Act. The Act authorized the establishment of a non-profit, public benefit corporation, Visit California, to oversee the promotion of California as a premier travel destination. The statute became operative upon industry wide approval in 1997 and the assessment program was initiated in 1998. In 2001, the program was renewed by industry referendum with an 84 percent margin, while in 2007 it was renewed by a 91 percent margin. The first full year of assessment funding occurred during Fiscal Year 1998-1999 and between 1998 to 2002, the marketing budget was fully funded by the Commission and the state at approximately $14 million annually. Visit California is comprised of 37 Commission members, representing each industry segment (Accommodations, Restaurants and Retail, Attractions and Recreation, Transportation and Travel Services, and Passenger Car Rental). The Commission meets three times a year and directs and approves the marketing plan, expenditures and the overall strategic course for California tourism. The assessment program is administered by the Office of Tourism, Tourism Assessment Program which is housed in GO-Biz. According to Visit California, since its inception more than a decade ago, it has become one of the nation's premier state marketing agencies - promoting the California brand and helping to increase tourism and travel-related spending. Visit California states that as an industry-led public-private partnership, it is leading successful marketing campaigns that are having a profound effect, citing that over the last three years, California has moved from 28th to 2nd among state tourism marketing budgets. A 2011 White Paper on California Tourism stated that visitor spending directly supported jobs for 873,000 Californians and resulted in $6.1 billion in direct state and tax revues. The paper also SB 1119 Page 6 highlighted the role of a statewide tourism program, noting a number of other states with substantial budgets to market themselves to potential travelers and that without the coordinating efforts of a California tourism program, California's travel destinations and tourism industry would be at a competitive disadvantage. In 2006, AB 2592 (Leno, Chapter 790, Statutes of 2006) established a new tourism assessment program for the passenger car rental industry. This passenger car rental industry assessment program is limited to companies that have business locations renting passenger vehicles at either airports or accommodation locations, such as hotels and requires an industry-specific assessment rate, adjusted annually. Numbers provided at a recent Visit California meeting show that for FY 2012-13, the passenger rental car industry accounted for about seven percent (about $1.5 million) of the tourism revenue generated in the state and contributed 76 percent (over $43 million) of the assessments to fund the program. In March 2013, assessed businesses voted to approve the California Tourism Assessment Program and as a result, the program and Visit California efforts will continue to operate for an additional six years, pursuant to referendum results, with $300 million intended for marketing and as a means of allowing Visit California to greatly expand the depth and scope of its marketing programs during that time. At a recent Visit California meeting, materials were presented outlining some of the upcoming efforts related to the new "Dream Big" slogan and brand, including a chart outlining what increased budgets could mean for program. Specifically, projections show that the current $50 million budget would have no additional impact, a $150 million budget could result in an additional $6.8 billion impact and a $147 million budget could result in an additional $7.7 billion impact to tourism in the state. While no budget above $50 million has been approved thus far, it is entirely possible that the program's budget numbers double in the near future, as stakeholder outreach results indicate that this is the right time to be considering an increased budget, which would then result in a need for Visit California to secure funding. Conversations are still ongoing as to where money beyond the current $50 million would come from, with a particular focus on the need for parity in assessments across the industry. Given the ability under current law for assessments to be passed onto consumers, it is likely that any increased budget for Visit California will result in increased fees consumers see when renting a car or staying at a hotel in order to fund the industry's assessments. SB 1119 Page 7 3. Governor's Office of Business and Economic Development (GO-Biz). In February 2010, the Little Hoover Commission undertook a review of the state's economic and workforce development programs. In its final report, Making up for Lost Ground: Creating a Governor's Office of Economic Development, it analyzed the status and effectiveness of current programs since the 2003 demise of the Technology, Trade and Commerce Agency (TTCA) and recommended the creation of a new governmental entity to fill the void left by the dismantled agency. The report called for a single entity that would promote greater economic development, foster job creation, serve as a policy advisor and deliver specific services (i.e., permitting, tax, regulatory, and other information) directly to the California business community. In April 2010, Governor Schwarzenegger issued Executive Order S-05-10 as a means to operationalize the report recommendations including the creation of the Governor's Office of Economic Development (GOED). In October 2011, the Governor signed AB 29 (cited and described below), which effectively codified GOED and changed its name to GO-Biz, effective January 1, 2012. Since its inception, the office has served over 3,000 businesses, 95% of which are small. The most frequent types of assistance include help with permit streamlining, starting a businesses, relocation and expansion of businesses, and regulatory challenges. In March 2012, the Governor initiated a reorganization process to realign the state's administrative structure. Key changes include dismantling of the Business, Transportation and Housing Agency (BTH) and the shifting of a number of key programs and services to GO-Biz including the California Travel and Tourism Commission, Small Business Loan Guarantee Program, the California Film Commission, the Film California First Program and the Infrastructure and Economic Development Bank (I-Bank). 4. Prior Related Legislation. SB 820 (Committee on Governmental Organization, Chapter 353, Statutes of 2013) enacted the statutory changes to reflect the assignment and reorganization of the functions of state government as outlined in the Governor's Reorganization Plan No. 2 of 2012 (GRP 2), effective on July 3, 2012, and operative on July 1, 2013, which included transferring responsibilities for the Commission to GO-Biz and set the current proposed assessment for the passenger rental car industry to fund an approved marketing plan of no less than $50 million. SB 1119 Page 8 AB 29 (John A. Pérez, Chapter 475, Statutes of 2011) established GO-Biz within the Governor's Office for the purpose of serving as the lead entity for economic strategy and marketing of California on issues relating to business development, private sector investment and economic growth. SB 1175 (Price) of 2010 would have required the Secretary of BT&H to direct the California Travel and Tourism Commission to conduct a review of its principal mission and core competencies in order to determine if the commission should include trade promotion in its strategic marketing plan or other future plans of the commission and provide a report to the Legislature. ( Status: This measure was held in the Senate Committee on Rules.) AB 2592 (Leno, Chapter 790, Statutes of 2006) modified the conditions and terms of appointees and elected members of the Commission, broadened industry segments which may voluntary participate in Commission programs, and clarified certain assessment and referendum procedures. The bill also made changes to the way the passenger car rental industry is assessed by the Commission to permit rental car companies to separately state specified fees in advertising, quotes and charges for rental cars which become operational only if the rental car industry agrees to increase its assessment to specified levels. SB 1390 (Speier) of 2004 would have appropriated $1 million from the General Fund to the Commission. ( Status: This bill was held under submission in the Assembly Committee on Appropriations.) AB 487 (Firebaugh, Chapter 204, Statutes of 2003) required the Commission to consult with certain entities and recommend strategies and a timeline for revising the annual tourism marketing plan to income promoting the state's artistic, cultural, historical and ethnic resources. AB 1757 (Committee on Budget, Chapter 229, Statutes of 2003) eliminated TTCA and transferred responsibilities of certain programs to BTH, including the Commission. SB 1900 (McPherson, Chapter 474, Statutes of 2002) extended the term between referendums to every six years, provided that only 10 percent of assessed businesses are required to call for a referendum to terminate the Commission and allowed the Commission to be terminated at any time by a referendum called by a weighted 10 percent of the assessed businesses. SB 1119 Page 9 SB 1398 (Johnston, Chapter 795, Statutes of 1996) made technical and substantive changes in the Act and made the Deputy Secretary of the then TTCA Office of Tourism the executive director and secretary of the Commission. SB 256 (Johnston, Chapter 871, Statutes of 1995) enacted the California Tourism Marketing Act of 1995 to establish the framework for an industry-wide referendum on self-assessment of the tourism industry to competitively promote travel to and within California. SB 1983 (Rosenthal, Chapter 830, Statutes of 1994) required the Office of Tourism to perform various functions and activities for the purpose of establishing and enhancing a statewide network of visitor information centers. SUPPORT AND OPPOSITION: Support: Enterprise Holdings, Inc (Enterprise Rent-A-Car) (Sponsor) Avis Budget Group Hertz Opposition: None on file as of April 23, 2014. Consultant:Sarah Mason