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Power struggle puts tourism funds in jeopardy

April 04, 2014 - 12:03 PM

'IMMEASURABLE AND IRREPARABLE HARM'

PENTICTON — An estimated $350,000 to $700,000 is sitting in bank accounts doing nothing for tourism while the City of Penticton and Penticton Hospitality Association continue a power struggle that began before they even signed an agreement on tourism tax funds in 2012.

And it appears from documents filed in Kelowna Supreme Court, the roughly $400,000 per year in Hotel Room Taxes could be in jeopardy if that cash isn’t spent soon and spent properly.

“The City's ability to participate in the (Hotel Room Tax program) with the Province has been jeopardized. (Program) marketing for 2012 and 2013 has been compromised and hundreds of thousands of dollars in public funds remain unaccounted for,” the City says in its filings.

In May, 2012, the City and the association entered an agreement authorizing the association to spend the money on tourism promotion with conditions including keeping accounting records, budgets, and a five-year promotion plan for Penticton as a wine destination. But it appears little of that was done and both sides are pointing fingers. Both sides declined an opportunity to comment or clarify.

“The (association's) breaches of its legal obligations have caused immeasurable and irreparable harm to the City's tourism marketing strategy and the confidence of its citizens, particularly tourism stakeholders,” the City alleges in its filings.

The City accuses the association of not filing paperwork it needs to keep the fund alive under provincial government regulations. It also accuses the association of threatening legal action on other community tourism groups the city considered to take over administration of the fund, generated by a two per cent tax on hotel rooms rented in the city.

The association, meanwhile, accuses the city of withholding vital information of its own, preventing them from filing the required paperwork and undermining its authority by allowing another entity to spend the money. It says the city breached the agreement by not getting authority from the provincial government before it stopped sending monthly transfers.

Professional mediation failed to resolve the disputes, so the City took the association to court in March.

The association claims the City has an estimated $350,000 in unused tax money owed to the association. The city claims another $350,000 is sitting in association accounts from 2012. (Dollar figures are estimates by the parties and Infotel News and described below.)

But it appears from the filings that neither side entered the agreement in good faith.

The relationship began in 2011 when the association became “increasingly dissatisfied” with how the Penticton Chamber of Commerce handled the funds since 2007.

“It was felt that the City was not paying attention to the needs of the members of the (association),” the association said in a filing. “The (association) expressed dissatisfaction to the City and complained to the Ministry of Finance regarding the situation."

The 'acrimony' continued through the start of the agreement. Before the association took control of the funding in July 2012, the City had already committed six months' worth of marketing initiatives and appeared to be spear-heading a movement to create yet another tourism organization led by current Tourism Penticton CEO Jessie Campbell, the association says.

"Since the (agreement) came into force in May of 2012, the relationship between the parties has been strained," the association said.

It’s unclear from the legislation if the tax scheme can survive without the approval of the association, formed by many area hoteliers. The city claims it is ultimately responsible for administration of the fund.

While a judge's decision on the hearing is expected in the next two or three weeks, it's unclear if or how the judge can resolve the dispute. It's possible the matter won't be resolved and the two sides could battle in court for a lot longer, yet. If, that is, the hotel room tax even survives that long.

Calculations

Dollar figures are conservatively rounded estimates. In many cases, the city and the association don't use dollar figures for how much remains unspent. For every month spending was stalled, we used a simple formula of roughly $400,000/12 or $33,333 per month. 

For example, the City stopped sending money in August, 2013, though the association gave specific amounts it believes it's owed for August ($119,000) and September ($50,208). We calculated the remaining six months to today at $199,998. Total unspent: $369,206.

The City claims another $340,357 remains unspent and unaccounted for from 2012. $369,206 + $340,357 = $709,563 unspent.

Timeline

2007 — Hotel Room Tax scheme begins. Chamber of Commerce administers fund

2011 — Penticton Hospitality Association expresses dissatisfaction with chamber and city priorities for fund

May 2012 — Association signs agreement with City to administer fund

July 2012 — Agreement is in force. City transfers first amount of tourism marketing funds to association

January 2013 — Association claims most funds before this time were pre-committed by City. Says this is first time it's in control

August 2013 — City stops transferring funds to association

September 10, 2013 — Mediation between City and association begins

October 2013 — City lawyer notifies association it’s in breach of contract

January 2014 — City submits petition to B.C. court

March 2014 — Case heard before Supreme Court

To contact the reporter for this story, email Meaghan Archer at marcher@infotelnews.ca or call 250-488-3065. To contact the editor, email mjones@infotelnews.ca or call 250-718-2724.

News from © InfoTel News Ltd, 2014
InfoTel News Ltd

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