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SR-106-011 ,SA ~fl& Council Meeting: October 11, 2005 Santa Monica, CA NOV 2 2 2005 TO: Mayor and City Council FROM: City Staff SUBJECT: Composition of the Convention and Visitor's Bureau Board of Directors Introduction This report conveys the response of the Board of Directors of the Santa Monica Convention and Visitors Bureau (Bureau) to a City Council request that they consider alternatives to the method of appointment of Board members specified in the Bureau's bylaws. BackQround Last spring, in response to an inquiry by Council, staff prepared the Information Item attached as Exhibit A detailing the history of the Bureau and providing information about the Bureau's bylaws and the contract between the City and the Bureau. The matter was agendized for Council discussion on June 28,2005. The staff report from that agenda is attached as Exhibit B. Councilmembers expressed concern that under the Bureau's bylaws, the Chamber of Commerce, an organization active in local electoral politics, appoints five of the eleven Board members. Discussion centered on the potential that the Board would be politically active, the appearance given that a politically active entity makes some of the appointments and the possibility that City funds to the Bureau might suppcM1pe_ - M8'~' fi tBli 1 SA NOV 2 2 l005 iii politically active entity. While acknowledging the good work of the Bureau and confidence in the current Board members, Council voted to request that the Board consider amending the bylaws to include a method of selection that does not involve Chamber of Commerce participation. The Board has provided the attached response (Exhibit C). Because the Board's preference is to continue the current method of selection, in place with only minor changes since the Bureau's inception, they provide information on how Council's expressed concerns regarding political activity and/or the potential of city funds supporting an organization engaged in political activity, might otherwise be addressed. Only if the City Council finds those measures unacceptable would the Board suggest an alternative, that they become self-perpetuating, as are the Boards of many city grantees. Discussion In support of their preference not to change the method of selection, the Board calls attention to protections they have voluntarily had in place for many years and expresses a willingness to include additional protections in their bylaws and procedures. They provide copies of the pledge to eschew political activity that all Board members have signed when they are installed (Exhibit D). The alternative, a bylaws change to effect a self-perpetuating Board, would be unremarkable, given that it is commonplace in non-profit organizations, including most 2 of those funded by the City of Santa Monica. Coupled with retention of the pledge and other protections contemplated in the Board's preferred status quo scenario, the Council's concerns about political activity would be met by this model. While the status quo scenario may signal more clearly that the Bureau's work is accomplished with a combination of public funds as well as fair share fees and in-kind support from tourism business partners, a change to a self-perpetuating Board should have no impact on the Bureau's work. Budget/Financial Impact There is no likely budget/financial impact to the City of either course of action by the Bureau. Recommendation Staff recommends that the City Council consider whether the safeguards the Bureau proposes allay the concerns that gave rise to the Council's request to the Board of Directors or whether a self-perpetuating Board similar to those of many other city grantees is preferable. Prepared by: Susan E. McCarthy, City Manager Attachment: A) May 17, 2005 Information Item B) June 28, 2005 Staff Report C) Response letter from CVB D) CVB No Political Activity Pledge 3 ATTACHMENT A May 17. 2005 Santa Monica, CA INFORMATION ITEM To: From: Subject: Mayor and City Council City Staff Convention and Visitors Bureau Board of Directors Introduction At the April 12, 2005 City Council meeting, staff was directed to provide Council with information on the method by which the Board of Directors of the Convention and Visitors Bureau (Bureau) has been appointed and how that method could be changed. Background The Santa Monica Convention and Visitors Bureau was created in the early 1980's as a 501@(4) nonprofit public benefit corporation. The City of Santa Monica and the Santa Monica Area Chamber of Commerce both participated in conceptualizing the Bureau, which is an independent corporate entity. The Bureau is neither an arm of the Chamber of Commerce nor of the municipal government. Articles of Incorporation for the Convention and Visitors Bureau were endorsed and filed by California's Secretary of State in 1982. The articles require that the corporation do only such things that are necessary, expedient or appropriate to the accomplishment of the purposes for which it was formed. The purpose, expressed in Article II, "is promotion of the common good and social welfare of the people of Santa Monica 1 through improvement of tourism and trade in the City of Santa Monica and the preservation and improvement of economic conditions for all people in Santa Monica, thereby lessening the burdens on City government." Bylaws for the corporation provide that it has no members and that rights that would otherwise vest in members vest instead to a Board of Directors. An eleven (11) member Board was provided for. The City Council selects five (5) directors, the Board of Directors of the Santa Monica Area Chamber of Commerce selects five (5) members, and the City Manager (or designee) serves as the 11th member of the Board. The Bylaws also provide that, while a quorum is defined as a majority of the authorized number of directors, a quorum does not exist unless at least two directors appointed by the City and two appointed by the Chamber are present. The Bylaws have been amended on several occasions over the years. The City funds the Bureau and the relationship is consequently further governed by a contract. The original agreement, entered into in November, 1982, has been amended over the years primarily to reflect changes in funding. The term of the agreement per the most recent amendment ends in 2009. Under the agreement, the activities of the Bureau are restricted to those specified in the original agreement, Section B. 1., which include promoting and inviting trade and business meetings, celebrations and conventions, encouraging City-wide celebrations of promotional benefit, operating a visitors center to invite, attract and welcome tourists through cooperative efforts of the Bureau and the private and public sectors, cooperating with the City to use City facilities 2 to the fullest extent possible, promptly answering all correspondence relative to convention and visitor facilities and disseminating information, preparing articles and news stories, compiling data and assembling materials descriptive of the City, reviewing public and private facilities necessary to support convention and visitor activities and advising the City of problems and needed improvements and generally promoting convention and visitor activities that will bring additional revenue to the City and to businesses within the City. Section 13 of the agreement requires City Council approval of any change in the Articles of Incorporation or Bylaws of the Bureau. The agreement was amended in 1995 to provide for termination with or without cause. In the event of cause, the City must issue a notice of default and give the Bureau at least 30 days and as much as 90 days to cure the default depending on its nature. The agreement can be terminated 6 months from the notice of default if the default is not cured. To terminate the agreement without cause, a twelve month notice is required. Discussion Council discussion on April 12 indicated concern that the Chamber of Commerce has formed a PAC and become active in electoral politics in recent years. Although five members of the Convention and Visitors Bureau Board are appointed by the Chamber, and the members of that Board have, at any point in time, spanned the political spectrum of the City, the conduct of the Bureau itself has apparently remained scrupulously non-political over the term of its existence. 3 Bureau History Persons involved in the formation of the Bureau recall an intention to create a responsive organization, non-political, non-bureaucratic, structured to stay ahead of trends and to act quickly. While this suggested a private sector organizational model and participation by the private sector, the City's interests were thought to be protected by specifying a seat on the Board for the City Manager or designee in addition to the five Council appointed seats. It appears that both the Chamber and the City have endeavored over the years to make appointments to the Board of the Bureau that encourage an integration of interests and common purpose and that discourage partisan positions. Because Santa Monica does not have and has not aspired to develop convention facilities, the Bureau's work over the years has been primarily in promotion of the city as a destination to meeting planners for modestly sized organizations, tour groups and individual travelers in strategically selected markets in the United States and abroad. The Bureau seeks to attract domestic and international visitors who stay longer, see more of the city, and consequently patronize local restaurants and shops. Bureau promotional messages stress not only the city's coastal location, climate and access to LAX and regional attractions, but also the "walkable" nature of the city, its public art and environmental sensibility. The Bureau's work has been assisted over the years by in-kind and direct financial support from hotels, restaurants, shops and other businesses that benefit from the 4 Bureau's destination promoting activities. In general, the Bureau is regarded by the business community as a well-managed, high performing asset. Method By Which Board Appointment Process Could Be Changed The method of appointment to the Board of Directors of the Bureau is established in the Bylaws of the corporation. Section 4 of the Bylaws provides that the Bylaws may be amended or repealed by a two-thirds approval of the Board. For an 11 member Board, at least seven affirmative votes would be required to effect a change. Apparently, on several occasions over the years, the City has suggested that the Bureau change its Bylaws and upon consideration the Board has voted to do so. In 1984, the bylaws were changed at the request of the City to require that one of the Council appointed seats be designated for the Mayor. In 1985, the Bylaws were again changed at the request of the City to remove that requirement. More recently, in 2000, the Board accepted the City's request that terms of office for Board Members be changed to conform to those observed by City Boards and Commissions. Those changes, while initiated at the City's request, have not yet been formally approved by the City Council. The City Clerk and City Manager have reviewed their office files in regard to the Bureau and are in contact with the Bureau to compare and augment documentation from the Bureau's files. Copies of relevant documents are attached to this Information Item. 5 Summary Composition of the Board of Directors of the Convention and Visitors Bureau is governed by the Bylaws and cannot be unilaterally changed by the City Council. The Bylaws specify that an affirmative vote of two-thirds of the Board is required to change the Bylaws. The City's contract with the Bureau can be terminated upon appropriate notice. The 2000 revision of the Bylaws will be conveyed to Council for approval on an upcoming agenda. Prepared by: Susan E. McCarthy, City Manager Attachments: A. 1982 Report Recommending Formation of the Bureau (with attachments) B. 1982 Articles of Incorporation C. 2000 Bylaws (pending Council approval) D. 1985 City/Bureau Agreement E. 1995 City/Bureau Agreement Amendment F. Current Board List (Ch = Chamber Appointee, Co = Council Appointee) 6 ATTACHMENT B June 28, 2005 Santa Monica, CA To: Mayor and City Council From: City Staff Subject: Ratification of Current Bylaws of the Santa Monica Convention and Visitors Bureau and Discussion of Change to the Bylaws as They Pertain to Appointment of the Board of Directors Introduction This report responds to Council's direction to agendize discussion of changing the Bylaws of the Santa Monica Convention and Visitors Bureau (Bureau) as they pertain to appointment of the Board of Directors. It also requests ratification of the most recent changes to the Bureau's Bylaws. BackQround At the Apri/12, 2005 City Council meeting reference was made to the decision of the Santa Monica Chamber of Commerce (Chamber) to engage in electoral politics. Staff was asked to agendize a discussion of whether it remained appropriate for appointments to the Board of Directors of the Bureau to be a shared responsibility of the City Council and the Chamber and how that arrangement might be changed. An Information Item issued on May 17, 2005 (http://santa- monica .orQ/citvclerk/cou ncil/information items/2005/CVB Board. pdf) provided information on the history of the Bureau, its Bylaws and the contract between the City and the Bureau. 1 Briefly, the Bylaws provide for an eleven member Board of Directors, five appointed by the City Council and five by the Chamber, with the City Manager seated as the eleventh member. A quorum of the Board does not exist unless at least two of each organization's appointees are present. A two-thirds vote of the Board is required to change the Bylaws. The City's contract with the Bureau requires City Council approval of any change to the Bylaws. The Bylaws were changed in 1985 and again in 2000, both times to make changes requested by the City Council. The City does not have a fully executed copy of the 1985 Bylaws on file. The most recent change conformed the terms of office of Board Members to those customary for most City Board and Commission Members. That 2000 Bylaws change was not presented to the City Council for approval after the fact. Discussion The Bureau operates as an independent 501@ (4) organization, and is not an arm of the City or of the Chamber. Over the years, the Board and staff of the Bureau have focused on accomplishing its work and have avoided taking political positions. That work has provided considerable value to the City and the local business community. If Council determines that the current method of Board appointment is inappropriate a request could be conveyed to the Board to change the Bylaws. If two-thirds approval for the requested change were not achieved, among the Council's options for recourse would be to: 1. Request the resignation of its appointees to the Board or terminate their appointments and appoint no replacements, rendering the Board incapable of achieving a quorum and hence unable to act; and/or 2 2. Provide notice of termination of the Bureau's contract with the City (requires 6 months from notice of default if terminated for cause and 12 months notice if terminated without cause), withdrawing the Bureau's operating funds. These options would significantly disrupt the Bureau's work and would likely lead to demise of the current operation. While the Board has not been active politically to date, an alternative course would be to amend the contract with the Bureau (which terminates in 2009) to more specifically address and/or restrict political activity. BudQet/Financiallmpact Upon termination of the Bureau's contract the Council could de-obligate then remaining funds from the $2,087,900 allocated to the Bureau for 2005/06. Elimination of the Bureau or disruption of its work for any extended period would not likely affect City revenue in the short term as there is some lag between marketing efforts and resulting visits. Longer term affects cannot be estimated. Recommendation Staff recommends that the City Council ratify for the record the 2000 Bylaws change and discuss whether a further change regarding the method of appointment of the Board of the Bureau should be requested. Staff does not recommend a course of action that would disrupt the work of the Bureau. Prepared by: Susan E. McCarthy, City Manager Attachment: 2000 Bylaws 3 ATTACHMENT C '05 SEP :-", <' 1. September 28,2005 Ms. Susan McCarthy City Manager 1685 Main Street Room 209 Santa Monica, California 90401 Dear Ms. McCarthy, Civic leaders, representatives of local businesses and the Santa Monica Convention and Visitors Bureau Board of Directors and staff have worked closely together for the past 23 years to increase visitor expenditures, tourism revenues and local employment by successfully promoting Santa Monica as a desirable travel destination. Year after year these goals have been achieved with a combination of City funding as well as with support of the public and private sectors via partnerships and in-kind services. On June 28, 2005 the City Council extended an invitation to the Board to "find an alternative method of making appointments that represent the business community with the hope that a plan can be achieved within 120 days". In response, we have respectfully and seriously addressed this request. After thoughtful consideration and consultation, the Board unanimously voted at its September 14 meeting to affirm that the current system of making Board appointments has been successful in maintaining a consistent and balanced governing body representing diversity and expertise in support of the Bureau's mission. At this meeting the Board also proposed amending its bylaws to formally include a policy that has been in place since the Bureau's inception requiring each board member to sign a pledge not to engage in any political activity in the name of the SMCVB. (The pledge document is attached.) The Board proposed an additional bylaw and agreement amendment stating that the Bureau does not commingle funds with other political organizations or use Bureau's funds to support local political organizations. In summary, our response to the City Council's invitation is to propose amending the Bureau's bylaws and the current agreement with the two items noted above, recommending that the Board's nominating procedure and composition remain in its present form. In addition, we would amend both documents to reflect the Bureau's new location at 1920 Main St. B, Santa Monica, CA 90405. It is the Board's sincere wish that the City Council find this an acceptable response to their invitation. ATTACHMENT D SANTA MONICA CONVENTION & VISITRORS BUREAU BOARD OF DIRECTORS PLEDGE WHEREAS, the Santa Monica Convention & Visitors Bureau, Inc. considers itself to be an apolitical entity; and WHEREAS, the effectiveness of this organization is dependent upon non political approaches to tourism issues; and WHEREAS, it is the inherent responsibility of each member of the board of directors and staff to preserve the independence and integrity of the organization, IT IS HEREBY RESOLVED that individual members of the Board of Directors shall not use the name of the Santa Monica Convention & Visitors Bureau in any way in connection with endorsement of a political candidate, represent a point of view on an issue or to further a ballot issue unless authorized by the Board of Directors. To be signed by all members of the Board. SIGNED, THIS DAY OF IN SANTA MONICA, CALIFORNIA. Signed Name (Printed)