M M UNICIPAL ARKETING IN L A OS NGELES PREPARED FOR COUNCILMEMBER ERIC GARCETTI AND THE OFFICE OF MAYOR JAMES HAHN CITY OF LOS ANGELES BY: TRACEY CROSS EMILY GUTHMAN ARIELLA LOEWENSTEIN AMY SHELLER UNIVERSITY OF SOUTHERN CALIFORNIA MAY 7, 2004 This report was submitted to meet the requirements for a Master of Public Policy degree at the University of Southern California School of Policy, Planning, and Development May 7, 2004 by the following candidates: Tracey Cross [email protected], (310)428-7639 Emily Guthman [email protected], (323)852-1982 Ariella Loewenstein [email protected], (310)266-3176 Amy Sheller [email protected], (818)625-5822 Under the guidance of Professor Harry Pachon School of Policy, Planning, and Development University of Southern California Lewis Hall 312 Los Angeles, California 90089-0626 (213) 740-6842 TABLE OF CONTENTS EXECUTIVE SUMMARY...................................................................................................................1 INTRODUCTION...............................................................................................................................2 CALIFORNIA STATE BUDGET.............................................................................................2 THE CITY OF LOS ANGELES...............................................................................................2 MUNICIPAL MARKETING...............................................................................................................3 CORPORATE SPONSORSHIPS..............................................................................................3 EXCLUSIVITY RIGHTS........................................................................................................4 NAMING RIGHTS.................................................................................................................5 BRANDING...........................................................................................................................6 ADVERTISING......................................................................................................................7 MULTI-DIMENSIONAL PARTNERSHIPS...............................................................................7 EXISTING ENDEAVORS IN LOS ANGELES...........................................................................8 METHODOLOGY..............................................................................................................................9 LITERATURE REVIEW.........................................................................................................9 SEMI-STRUCTURED INTERVIEWS.....................................................................................10 INFORMAL RELATIONSHIPS.............................................................................................11 LIMITATIONS....................................................................................................................12 ANALYSIS OF FINDINGS....................................................................................................12 FINDINGS.......................................................................................................................................13 STRUCTURE.......................................................................................................................13 PROCESS...........................................................................................................................16 EVALUATION.....................................................................................................................18 NEXT STEPS..................................................................................................................................20 CONVENE ALL DEPARTMENTS.........................................................................................20 GATHER PUBLIC OPINION................................................................................................21 RETAIN A MARKETING PROFESSIONAL...........................................................................21 APPENDIX 1: SAMPLE INTERVIEW QUESTIONS..........................................................................23 APPENDIX 2A: PUBLIC ENTERPRISE GROUP TRANSCRIPT........................................................25 APPENDIX 2B: OFFICE OF COUNCILMEMBER GARCETTI TRANSCRIPT....................................31 APPENDIX 2C: CITY OF SAN DIEGO TRANSCRIPT.....................................................................32 APPENDIX 2D: IEG TRANSCRIPT...............................................................................................38 APPENDIX 2E: L.A. COUNTY BEACHES & HARBORS TRANSCRIPT..........................................41 APPENDIX 2F: ENVISION TRANSCRIPT.......................................................................................47 APPENDIX 2G: CITY OF L.A., DEPARTMENT OF RECREATION AND PARKS TRANSCRIPT........52 APPENDIX 2H: ENTERTAINMENT INDUSTRY DEVELOPMENT CORPORATION TRANSCRIPT....54 APPENDIX 2I: CITY OF NEW YORK TRANSCRIPT......................................................................55 APPENDIX 2J: CITY AND PORT OF LONG BEACH TRANSCRIPT.................................................59 APPENDIX 3: ADDITIONAL RELEVANT CONTACTS....................................................................63 APPENDIX 4: L.A. COUNTY BEACHES & HARBORS: MARKETING SECTION REVENUE PROJECTION.................................................................................................................................65 BIBLIOGRAPHY.............................................................................................................................67 Municipal Marketing in Los Angeles EXECUTIVE SUMMARY At the request of Los Angeles City Councilmember Eric Garcetti and the Office of Mayor James Hahn, research was conducted on the feasibility and opportunity of municipal marketing in the City of Los Angeles. The following report offers an explanation of the fiscal problems facing municipalities nationwide, a contextual analysis of all aspects of municipal marketing, a report of research findings, as well as suggestions for entering into complex public-private partnerships. Included with this report are transcripts of all stakeholder interviews conducted, a list of relevant professionals in the field of municipal marketing, a comprehensive resource guide compiling all relevant source material and sample municipal policies, and a policy brief for distribution to interested parties. Fiscal crises are forcing all levels of government—federal, state, and local—to seek out alternative sources of revenue to sustain much-needed public projects and services. Without increasing taxes, reducing services, or borrowing to eliminate deficits, municipalities are tackling fiscal hardship through the introduction of innovative public-private municipal marketing partnerships. Municipal marketing is not a new phenomenon. It has previously been used in cities and counties nationwide, especially during difficult financial periods, as a means of raising additional revenue or providing essential services that would otherwise be eliminated. Municipal marketing falls into four individual categories of corporate sponsorships, exclusivity rights, naming rights, and branding. Advertising and signage are often implicit, if not explicitly stated within such contracts. While the idea of municipal marketing may not be new, the concept of aggregating the categories into comprehensive, multi-dimensional partnerships is an emerging trend that allows municipalities to seek out more financially beneficial projects. This report examines the role of comprehensive, multi-dimensional marketing partnerships as it applies to the City of Los Angeles. A partnership, more than a sponsorship, expresses the idea that both sides have to provide benefits and sustain costs in order to produce a worthwhile agreement and maintain a strong relationship. Multi-dimensional partnerships often include more than one type of municipal marketing, but most importantly, they serve more than one function or service within the city. In order to determine how these partnerships best fit Los Angeles, this report answers the question, “What is the feasibility and opportunity for marketing the City of Los Angeles?” Key findings in three areas—Structure, Process, and Evaluation and eight sub-sections (Asset Valuation, Internal Structure, Expert Involvement, Competitive Bidding, Public-Private Partnerships, Contract Essentials, Revenue and Costs, and Public Opinion)—were assessed, resulting in a three-tiered suggestion for next steps. Page 1 Municipal Marketing in Los Angeles INTRODUCTION From Albany to Sacramento, Atlanta to Los Angeles, and the White House to the local firehouse, fiscal crises are forcing all levels of government—federal, state, and local—to seek out alternative sources of revenue to sustain much-needed public projects and services. Without increasing taxes, reducing services, or borrowing to eliminate deficits, municipalities are tackling their fiscal hardships through the introduction of innovative public-private municipal marketing partnerships. California State Budget The State of California is facing a budget shortfall of $17 billion in 2004-2005. While the Governor’s proposed budget would leave the state with a $7 billion deficit, it is entirely reliant on the borrowed funds from Proposition 57 and the budgetary amendments of Proposition 58. Even with the Economic Recovery bonds, the budget proposals include $1.8 billion in cost shifts to local governments (11.1 percent of the balanced budget)—a devastating blow to municipalities statewide (California Budget Project). Despite the state budget crisis and the rapid change from such a large surplus to a massive deficit, there was the premature expectation that legislation passed by former Governor Davis returning the Vehicle Licensing Fee (VLF) to the 2 percent level would create an additional $4 billion in revenue that would directly benefit local governments. However, public discontent, coupled with Governor Schwarzenegger’s campaign promise to rescind the increase, has left the City of Los Angeles and municipalities statewide, facing a devastating and irreparable fiscal gap. Mayor James Hahn stated that “the loss of $19 million in revenue each month will be devastating for the City of Los Angeles...[necessitating] immediate cuts” in vital social and public safety services (Hahn 2003). The City of Los Angeles The City of Los Angeles is not immune to the budget hardships of state and federal deficits and is currently impacted by decreased federal and state monies for programs ranging from public safety to public works. Hiring freezes in the public sector have been particularly pronounced, with funding decreases to the public safety sector (police and fire departments), among others. Fiscal Woes. City officials are desperate to find alternative revenue sources that can maintain the current provision of services and replenish the depleted General Fund. One current method being explored includes establishing marketing partnerships in the City of Los Angeles.1 Marketing will take the City into new territory once thought to be the sole domain of the private sector. However, in this critical fiscal circumstance, Los Angeles is in need of an innovative, revenue generating solution. 1 Following this portion of the report, mention of either the phrase Los Angeles or the City refers exclusively to the City of Los Angeles. Page 2 Municipal Marketing in Los Angeles Long-term Goals. While the budget deficit has grown too large to be fixed overnight, Los Angeles’ foray into municipal marketing offers a long-term solution that will likely produce a steady flow of revenue for a lengthy period of time. Other municipalities involved in similar marketing partnerships have secured multi-million dollar annual contracts. For example, the City of San Diego secured $7.8 million from corporate sponsorships since 1999 (San Diego Corporate Partnership Program website). If done in a thoughtful and tasteful manner, Los Angeles should expect similar results, and possibly more considering its size. Political Feasibility. In recent months, the Los Angeles City Council expressed its interest in pursuing a municipal marketing campaign as a means to combat some of the budget deficit. With the policy window now open, the City of Los Angeles should immediately begin to act on its municipal marketing interests. Support has already been elicited from elected officials and other City departments, and since such a program may restore public programs and replenish the General Fund, there is no better time to act. Furthermore, the range of municipal marketing partnerships allows the City of Los Angeles to enter into agreements that will garner public support and restore City services, both in the short and long terms. MUNICIPAL MARKETING Municipal marketing is not a new phenomenon. It is an avenue previously visited by other cities and counties, especially during difficult financial periods, as a method of raising additional revenue or providing essential services that would otherwise be eliminated. In order to better comprehend this complex subject, the multiple dimensions of municipal marketing are analyzed and explained in four individual categories: Corporate Sponsorships, Exclusivity Rights, Naming Rights, and City Branding. While there are examples within each category that solely define that specific grouping, numerous other examples overlap. For purposes of this section, examples and definitions are placed into these broader classifications as a more fundamental way of defining them. These four categories of municipal marketing are important to understand, as some are more appropriately utilized with different city assets and the partnerships that are created. No one category is more profitable or easily implemented than the next, if the marketing partnerships are appropriately matched with the city and company’s objectives, as well as the asset being marketed. Often, to make an appropriate partnership match, more than one type of marketing is utilized. Corporate Sponsorships Corporate sponsorships in the public sphere take on many forms, both through financial and in-kind support. Corporate sponsorship entail all agreements in which a company provides means for a city to conduct events and programs, and to maintain and use needed assets. Variations of corporate sponsorships are shown in Table 1. Page 3 Municipal Marketing in Los Angeles Event sponsorships are the opportunity TABLE 1: Corporate Sponsorships for a company to subsidize an event, such as a concert, beach clean-up day, or fundraising event, and place themselves within reach of the • Event sponsorship targeted population. Within the City of Long Beach’s exclusive vending rights partnership, • Program sponsorship Coca-Cola also agrees to sponsor a beach clean- - Youth sporting leagues up once a year for the life of the contract. The - Educational programs County of Los Angeles, Department of Beaches - Social marketing campaigns and Harbors has also made event sponsorship a • Asset maintenance priority in their search for prospective partners (Appendix 4). • Sponsorship of material assets - Vehicles Another form of corporate sponsorships - Equipment includes community and educational programs - Uniforms subsidized by companies to demonstrate their • Promotional items support and involvement in their surrounding locality. The City of Los Angeles, Department of • In-kind donations Recreation and Parks maintains contracts with companies that sponsor public service and educational programs. Many of the Department’s youth sports programs are sponsored by local, professional sports teams (Appendix 2G). For the company, supporting these events creates a positive public image and a philanthropic outlet. A third type of corporate sponsorship involves the sponsorship of assets or in-kind and promotional donations. These sponsorships benefit the municipality by reducing purchases of vehicles and other physical capital that help to sustain programs. At one point, General Motors provided the City of San Diego with 34 various Chevrolet vehicles for safety personnel, including lifeguards (Appendix 2C). Additionally, within the County of Los Angeles, lifeguard uniforms are provided annually by IZOD clothing company (Appendix 4). Finally, companies may also sponsor certain city assets, and as part of their agreement with the municipality, the company is required to maintain the asset. For example, a company may be able to advertise on a bus bench or highway, but is also responsible for the maintenance of that asset. In return the municipality is able to receive a cost savings on maintenance crews. Exclusivity Rights The idea of exclusivity rights is an extension of a contractual agreement, providing municipalities the option to exclusively sell and use the products of a company. Included in this category are exclusivity rights in items such as vending, both beverages and concessions, and official city products, as shown in Table 2. Page 4 Municipal Marketing in Los Angeles The City of Long Beach’s exclusive vending contract with Coca-Cola allows for the placement of 226 vending machines citywide TABLE 2: Exclusivity Rights over the next ten years. Vending machines located on city property will exclusively sell Coca-Cola products. In return, Long Beach will • Exclusive concession receive a minimum of $300,000 annually plus an • Exclusive vending additional $1,000 per year for any additional machines placed in other parts of the city. • Official city product/service (use) (Taboada 2002 and Appendix 2A). Among • Official city choice (endorsement) others, the City of Huntington Beach has entered into exclusive vending contracts with various beverage companies (Appendix 2A). Most familiar, however, are the efforts of The City of New York to enter into an exclusive vending contract with Snapple, which is currently being contested (Garcia 2003). Often part of exclusivity rights is the opportunity for a company to provide the official city product or service for the municipality. These agreements allow a private company to be the sole provider of a specific product or service within a municipality or to receive the municipality’s endorsement and be known as the city’s official choice. San Diego has experimented with these types of partnerships with companies such as Verizon and Cardiac Science. Verizon is the sole company to provide the San Diego’s city departments and their employees with their telephone service, however the city will utilize other companies if Verizon does not offer specific services needed. San Diego’s relationship with Cardiac Science involves an official product endorsement with no competition, as it provides the only automated electronic defibrillator citywide (Appendix 2C). Naming Rights Naming rights are contractual agreements in which private companies are willing to provide financial benefits in exchange for their name placed on a buildings or infrastructure of a venue, as well as on tickets, programs and other items that will provide name recognition and increased sales. Examples in Los Angeles include the naming of the Staples Center (1997), the Kodak Theatre (1999), and most recently the Home Depot Center in Carson. Page 5 Municipal Marketing in Los Angeles While the most notable of these agreements TABLE 3: Naming Rights have been made with sporting and entertainment venues, municipalities have also been able to enter into naming rights agreements with private corporations in order to receive revenue and other • Buildings and infrastructure benefits, such as infrastructure maintenance. - Sports arenas Variations of naming rights contracts are shown in - Entertainment venues Table 3. - Libraries • Roads, highways, and bridges Sporting contracts usually involve the most - Adopt a highway lucrative contracts because of the allotment of - Street names television advertising time (Appendix 2F). The State of South Carolina found that by selling • Parks naming rights to their public buildings, roads, and bridges, revenue could be earned to assist with maintenance and repay debts incurred by the state. In San Diego, the city is considering selling a 26-block downtown neighborhood surrounding the baseball stadium to various corporations in exchange for naming rights and economic revitalization of the community (Ruskin 2001). Branding Branding allows a municipality to create and improve its own image to help in its promotion as a place to live and work and to enhance tourism. Various types of branding efforts are shown in Table 4. Unlike the previously discussed categories, branding does not generally involve corporate partnerships. Instead, the municipality takes the initiative itself or hires an outside consultant to create an image that they want to portray. The City of New York has attempted to incorporate branding through a corporate partnership with Snapple. As part of their initial agreement, Snapple is required to spend $40 million in branding efforts for the City of New York (Appendix 2I). Many municipalities have already started taking measures to create a city brand that TABLE 4: Branding attempts to cast positive perception on each of their different assets. Hamilton, Ontario, Canada has designed a city logo and created outdoor • City image posters to reflect the pride of the city, in order to - Promotion of tourism increase their economic development (Poldre - Business incentives 2002). In Philadelphia, Pennsylvania, the - City pride Greater Philadelphia Tourism and Marketing Company (GPTMC) helped to create a marketing • License - Copyright - Trademark campaign that perpetuates the brand image of the - Logo city and its surrounding areas to help increase - Name tourism (Schneider 2003). One of the most well- - Brand known branding campaigns took place in New York following September 11th, with a television advertising campaign created to entice tourists to return to the city. Page 6