It's not selling out! Why and how cities should pursue corporate sponsorships.

• Author: Tasca, Coryne

The 2001 recession and resulting fiscal crisis among state and local governments underscored the need for revenue diversification. In this era of ever-increasing citizen demand for more and better services, rising costs of providing services, and legal and political restrictions on tax revenues, state and local governments are forever looking for alternative sources of revenue to complement broad-based tax revenues such as the property tax, sales tax, and income tax. One alternative source of revenue that has received a fair amount of attention in recent years is sponsorships.

Although sponsorship agreements between municipalities and corporations are on the rise, only a small number of cities have developed programs aimed at producing long-term fiscal benefits. Most programs are still in the fledgling stages, and few are backed by the internal controls necessary to ensure their viability. This article explores the City of Scottsdale's quest for alternative revenue sources, why this search eventually led to sponsorship agreements, and the actions the city took to maximize the yield from this new revenue source without undermining the community's image.

LOOKING FOR ALTERNATIVE REVENUES

The local convention and visitor's bureau hails Scottsdale as the "Southwest's premier vacation destination." While this claim is obviously biased, most outside observers would have trouble arguing with it. Visitors to Scottsdale can test their mettle on an award-winning golf course, shop to their heart's content at any number of retail destinations, experience a fusion of architecture and environment at Frank Lloyd Wright's Taliesin West, pamper themselves at one of the city's many spas and resorts, or soak up the sun next to turquoise pools. And for those who want to experience all of Arizona but only want to unpack once, Scottsdale is the perfect hub from which to explore the rest of the Grand Canyon state.

Why would an affluent, image-conscious city like Scottsdale pursue sponsorship and naming rights agreements with big business at the risk of being accused of selling itself out? Like many other state and local governments, the 2001 recession hit Scottsdale hard. After nine years of economic growth, the city experienced three years of declining revenue, beginning in 2001. The city was beginning to see the early stages of a recovery in 2003, but the magnitude and longevity of the upturn was still uncertain. As a result, the city began looking for non-traditional sources of revenue to help lessen the blow of future economic downturns. Scottsdale was particularly interested in non-growth related revenues, as it reached the end of a two-decade expansion era.

At the same time the city was struggling to find additional revenues, it was faced with a new challenge: Finding ways to continue to enhance quality of life for constituents. Scottsdale had always lived up to its reputation as Arizona's "Most Livable City," but surrounding communities were beginning to compete aggressively. It became critical for Scottsdale to address this trend, since it had the potential to threaten both residency and tourism.

As the city struggled to balance the budget in the face of declining revenue, it considered all the standard cutback management strategies, including efficiency gains, program cuts, increased fees, and staffing changes. Ongoing discussions among city staff, however, raised an important issue: Few of these measures were permanent, and most of them would result in diminishing returns at the expense of the city's constituents. This eventually led the city to consider a more permanent solution--municipal marketing agreements based upon corporate sponsorships. Such agreements were not meant to replace traditional budget-balancing techniques, but rather complement existing revenues and balance long-term goals.

As staff began identifying and researching potential municipal marketing and naming rights agreements (collectively called "sponsorship agreements") with private entities, management began discussing the need for internal control policies and guidelines relating to any such agreements. Staff also collected information on the use of sponsorship agreements in other communities.

UNDERSTANDING MUNICIPAL SPONSORSHIPS

The City of Scottsdale defines corporate sponsorship as "a mutually beneficial business arrangement or association between the City of Scottsdale and an external party (individual, company, organization, or enterprise), wherein the external party contributes funds, goods or services to a City of Scottsdale...