FINANCIAL MANAGEMENT/Taking a refreshing look at funding
Like all U.S. cities, Long Beach, Calif., is facing a tight economy that forces the city to stretch available funds. While traditional revenue sources still provide for the city’s basic services, they do not generate enough cash for supplemental programs. As a result, Long Beach is embracing non-traditional revenue sources to help it provide services beyond the basics.
That strategy came into play last year, when Long Beach sought funds to expand its environmental programs. Historically, the programs had been accessible mainly to residents living near the city’s nature center (the hub of Long Beach’s environmental education), and the city wanted to change that. For example, it wanted to develop a Nature Mobile program to deliver environmental programs to children whose schools are not near parks.
The city’s general fund would not cover such an expansion. (Revenue was down sharply, in part because of a utility tax reduction implemented during recent energy shortages.) City leaders explored funding alternatives, settling on a marketing partnership with a soft drink company.
The city was aware of similar marketing partnerships in other California cities — such as Huntington Beach, San Diego and Sacramento — that were successful in producing significant revenue. Local officials contracted with Huntington Beach, Calif.-based Public Enterprise Group to draft a request for proposals (RFP), and, ultimately, to negotiate the marketing partnership.
In the RFP, the city specified that it wanted a comprehensive partnership rather than a vending deal. In a vending deal, a company typically pays the city a percentage of gross sales that result from the partnership, whereas a comprehensive partnership includes commitments from both parties to engage in joint marketing efforts.
In response to the RFP, Atlanta-based Coca-Cola proposed a $3 million minimum cash guarantee in exchange for a 10-year exclusive agreement to install 226 vending machines on city property. The company would pay the city $300,000 per year for 10 years, and, if it installed more than 226 machines, it would pay $1,000 per year for each additional machine.
The beverage company would hire an illustrator to design two custom-front graphics for the vending machines highlighting Long Beach’s attractions. One design would appear on machines at inland locations, and another design would appear on machines at beaches, with fresh graphics to be installed every five years.
In September 2001, the city council approved the proposed partnership, with the following terms and conditions:
Revenue from the agreement would fund the addition of an environmental affairs officer to city staff.
No signage would be permitted.
A mix of beverages would be sold at competitive prices.
The soft drink company would participate in city events providing beverage sales and event marketing.
The company would commit to a minimum of three major marketing programs annually.
The company would provide free soft drinks, tickets to major league sporting events and free sports gear to support city marketing events.
The soft drink company currently is installing the vending machines, and it made its first payment to the city in February upon execution of the contract. The city plans to use the money for environmental education and outreach efforts, environmental volunteer programs, and hiring a staff person to coordinate those efforts.
If local officials can avoid over-commercialization, city assets can provide attractive opportunities for marketers to access the public in a mutually beneficial manner.
The author is the city manager for Long Beach, Calif.