RCVB

In this environment where all city employees are sacrificing for the good of the community, I am disappointed that certain organizations are above sharing in that sacrifice or even above oversight for that matter. I won’t temper my words when I say the City Council and City Administration have failed miserably in its oversight of the Rochester Convention and Visitors Bureau (RCVB). The purpose of this note is to specifically point out where we have failed and problems that have arisen, and what we should do to address these issues. I believe the RCVB has done many good things for the community however, I don’t believe this makes them immune to oversight or fiscal responsibility. If we are to go forward with an expanded Mayo Civic Center (MCC), I need to be able, in good faith, to tell our citizens that we have a well run organization. To achieve this, the issues below must be addressed.

Issue 1: City Administration has failed to enforce the City-RCVB contract

In the 11 months that I have been on the City Council, the RCVB has failed to honor the contract with the City dated 12/11/2007. As highlighted in the following points, clearly we need to enforce the contract and provide some taxpayer oversight.

Section 2A: The current financial arrangement does not incent the RCVB to prioritize booking the MCC over some other site.

Section 3: The contract specifies that a member of the city council should be on the board, however Brad Jones indicated that this is the City Council President, which runs contrary to the guidance set forth in the City Charter for council appointments. Further, we have not been offered the ability to review the make-up of that group. Because this is a self-appointing group, our ability to ensure the board has the interest of the whole community in mind, and not a few special interests is key.

Section 4: We should have received the 2010 RCVB  budget by August 1, 2009.  We did not. We also must approve this budget. We have not. The RCVB does not have the authority under this contract to spend City money in 2010 until we approve their budget. That said, I seriously doubt the City Council approved their budget in 2009 either. Note this power was denied when Brad Jones came before us. At the end of the day, the City Council is in complete control of the RCVB according to this contract.

Section 5E: I do not believe the RCVB is sufficiently inegrating their mission with that of the MCC.

Section 6-A, B, E1-E8, F: I suspect many, if not all of these, are not being done, but this would be for the City Administrator to determine.

Issue 2: The City of Rochester is not providing sufficient oversight of the RCVB.

At this point we are in the situation where the fox is guarding the hen house. Essentially, we have abdicated our budget and board of directors oversight. Even City Council representation is not being done in compliance with the City Charter. We have created a dynamic where there is a self appointing board with no real oversight. This may or may not have an interest in using some of their funding to provide subsidy in the operations of MCC where as that may be the appropriate decision for the city. Any board member with a self interest in the hospitality industry would have no incentive other than to spend the full sum of the allocated monies regardless of the return on that investment. As such, there needs to be some oversight and attention to the appointees on the board however, we have failed to do both.

Issue 3: The current funding structure does not align RCVB interests with the interests of the City.

We as a city should not operate under the assumption that the way we have always funded things is good enough for the future. There was a belief when LGA was cut, some groups would be immune to the pain. I don’t believe that should be true however, our proposed budget does just that. We as a city fund both the MCC and the RCVB however, we expect the MCC to comply with City funding constraints while the RCVB has no such expectation.

Currently and RCVB board member that owns or manages a hotel would have an incentive to have a small convention hosted at their hotel. This decision may hurt our citizens if that event could have been held at the MCC. The net result would be that the MCC would see a decrease in revenue that directly translates to an increase in taxpayer assistance to the MCC. This is a fundamental issue because we artificially take money from different pots for these different organizations. We have made a conscious decision to not reward or punish the RCVB budget based on the success of the MCC. Financial incentives are the strongest form of incentives and I don’t think we can continue with the current disconnect between these to entities. The budget of the RCVB needs to be tied to the budget of the MCC.

Issue 4: Without oversight, the RCVB has operated as a rogue element. The director of the RCVB knowingly provided false information to the City of Rochester during budget reviews.

I will be clear that as I have investigated this matter, I find the information below to be particularily infuriating. I had been provided some information as to what might be going on from a source that I will continue to keep anonymous. Based on what I heard, I made a request to local legislators for information exchanges between themselves and the RCVB. The note below was a response to my inquiry to one of the legislators. I am including the entire note below and will identify four issues I have with this note.

1) False Statement: The City of Rochester took no position on this bill. Further, if we had, I suspect we would not have made a decision that, in theory, would not be in our best interest. I did confirm with the City Administrator that no such policy exists.

2) Contradiction: I had a number of questions for Mr. Jones at the COW meeting, but essentially stopped my questioning when it became clear we were not going to receive truthful answers. If you recall, I specifically asked if he had indicated the City opposed HR 2077. He lied and stated he had not. The note below offers the needed evidence that Mr. Jones knowingly lied to us. When I stated, “I stand corrected”, I knew I was being lied to, but decided not to proceed. I had a number of additional questions, but decided it would not be fruitful to proceed.

3) Thinly veiled threat: When we pay 100% of a salary, I don’t think it is appropriate to make political threats and, at the same time, misrepresenting the position of the City. I think everyone with a pulse understands the meaning of the following: “ I don’t think that you (or any of us) want to wage this battle in your own district if it becomes more public.” Completely unacceptable.

4) Policy Recommendation: I also take exception to the notion that Mr. Jones is in a place to be offering policy recomendations behind the back of the City. In this note, Mr. Jones suggests we raise local sales taxes if we have funding concerns. Regardless of how I feel about this, he is completely out of line in having this discussion. If Mr. Jones is interested in setting public policy, I suggest he should run for office, or at least discuss his ideas with those of us that do set policy.

*********************************************BEGIN NOTE*****************************************************

From: “Jones, Brad” <bjones@rochestercvb.org>
To: “Tina Liebling” <
rep.tina.liebling@house.mn>
Date: Wed, 8 Apr 2009 15:35:39 -0500
Subject: HF 2077 Lodging Tax

Good Afternoon Rep Leibling,

To say the least, your comments yesterday regarding HF 2077 section #4 were extremely disheartening when you said that you “do not like the idea of dedicated lodging taxes that must be spent in one certain way (tourism) whether it is spent well or poorly. We cannot afford to have dollars spent without knowing the outcome. And that you applaud Chair Lenczewski!” In other words you do not support dedicated funding to the CVB but rather would like to see the funds go directly to the Cities to use as they see fit.

At Monday’s Government affairs committee the City of Rochester and Mayo Clinic both made it known that they oppose section #4 of HF 2077, not to mention the many business owners and workers in Rochester’s Hospitality Industry.

I thank you for your continued hard work but I would encourage you to take a second look at this issue and how it would affect your district and the State of Minnesota, I don’t think that you (or any of us) want to wage this battle in your own district if it becomes more public.

Most everyone who attended was extremely frustrated at Chair Lenczewski and the committee. The hearing began at 10:30AM, our bill was number 8 on the list, however the Chair did not take them in order. The committee broke at 12 to go to the floor for a session. They reconvened at 2PM in another room, Representative Lenczewski introduced her bill around 4PM then took another break to move to another room. Public testimony for HF2077 started around 4:45PM and by that time as you know half of the tax committee members were already gone.  The impression that everyone walked away with after public testimony was that the most of the committee members there simply did not care about what was said.

Comments from Chair Lenczewski were also very disheartening: Although I agree that these are difficult times and the committee is attempting to give cities some flexibility to help them fill their budget deficits. She does not understand how our industry works and simply is wrong when she states that The dedicated hotel lodging tax money (which is paid by visitors) should be used for services for local individuals over visitors. She acknowledged that she had received a lot of emails on this issue as she was sure other committee members had but stated that cities COULD use the money. If they are happy with the services their CVB’s provide then they also can choose NOT to use that money.

A major question that Chair Lenczewski seems to elude very well is: Why should hotels have to pay more than other businesses in a community to fund local services? This is an unfair tax on the service sector and in her own words a blatant money grab for local governments. Let’s just allow them to raise the local option sales tax if they so choose – which the chair is opposed to. Interesting train of thought.

Brad M. Jones, Executive Director, Rochester Convention and Visitors Bureau

****************************************END NOTE*********************************************

Issue 5: The RCVB spending is out of control.

As I pointed out in the budget hearing, the growth at the RCVB far exceeds that of the City. While we have struggled with our own funding, we have ignored this organization that drinks from the same well. I have any number of facts that I am willing and able to share. If you remember only one thing, it  is if the City was to have grown at the same rate as the RCVB (since 2001) we would have to increase property taxes by 67%.

At the same time, about a half million has been paid out in employee  bonuses since 2001. I question the structure of these bonuses (based on projections vs. actual) as well as the notion that one City organization would be paying out bonuses while we issue furlough days and pay freezes to other organizations.

I have heard some wild claims of economic impact, but wanted to share with you a reality. By Brad Jones’ own numbers, we have moved from 50,000 room night stays to 100,000. Let’s just assume that each stay translates to $100 for hotel and $100 in other spending per day. In this case our $735,000 direct investment in 2001 yielded about $225,000 in direct local tax revenue. In 2009, our $1,750,000 yielded $450,000 based on 100,000 nights. All of this while the MCC still requires a huge subsity. To be clear, this is good for our lodging industry however, the fact we have prioritized these funds over everything else is unwise. I also wonder how many of those 100,000 nights would we have regardless.

One thing I understand about the nature of groups is any group will spend all of the funds at their disposal. Thus, in order to prevent waste, we need strong oversight. We have an epic failure in that regard.

Proposed Solutions

Take corrective budgetary action: The RCVB budget requires council approval, we should only approve it if it has been reviewed and is in line with the sacrifices of other groups. I would suggest we add the MCC operating subsidy as a line item in the RCVB budget. This amount would bring their budget growth approximately in line with the growth of the city.  I think this would also set a precedent of limiting our spending on convention/event related activities to 2% of Hotel/Motel revenues. Remember that 2/3 of this revenue is Mayo related.

Board of Oversight: We need real oversight, not pretend oversight. I propose we create an Events Board to oversee the MCC, RCVB, and other related civic groups like Rochesterfest. Right now the RCVB is run by a self appointing board that no elected official has control over. We would create a board of 5 similar to the RPU board, consisting of 1 council member, 4 at large members appointed like our other boards, and staff serving as ex-officio members. Unlike the current situation, we now can oversee and control the taxpayer funds.

This group would over see the integration of the MCC and the RCVB, and provide budgetary oversight of their 2% Hotel/Motel Funds. They would also be tasked in ensuring the conduct described above is addressed and never repeated.

The MCC would no longer be under the auspices of Parks and Recreation Department, which was never a good fit. This will allow them to focus more directly on their mission and leave the MCC to a group that is more specialized for that institution.

Unified MCC – RCVB funding and budget: As explained above, the current fund mechanism has a disconnect between the performance of the MCC and the group that is charged with filling it (RCVB). This will eliminate that disconnect. Currently, there is no concern for the RCVB if the MCC requires a large operating subsidy, with the funding coming from the same 2% the RCVB’s funding will be related to their effectiveness. Both of these groups would also be under the umbrella of the newly created board.

Independent Operating Audit: I think we need a new audit, not necessarily of financial statements, but rather of the conduct and performance of the RCVB. There has been behavior that should be viewed by this council as not in the interests of the city.  I want to understand that if an event is being held in a private venue instead of the MCC, that every effort was made to ensure the event was held in the MCC. I also want to see increases in staffing where appropriate and providing benefit.  I am also interested in ensuring the compensation for officials in this non-profit is in line with that of other Rochester non-profits, including those funded by the city, such as RNeighbors. I specified I want an independent audit because, based on the issues detailed above, I don’t trust the Council, City Administration, or the RCVB Board will show the independence or diligence to get a true feel for the status of the RCVB. I would request an audit be performed by a group not affiliated with Rochester or the RCVB.

Michael Wojcik
Rochester City Council – Ward 2

email:              votewojcik@gmail.com
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