DA questions Irvine chamber’s use of special tax revenues for hotel promotions

Orange County prosecutors are looking into how the Greater Irvine Chamber of Commerce spent millions of dollars in tax money earmarked for promoting hotels and tourism.

Local hoteliers, suspecting that too much of the money went to chamber overhead, persuaded the city early last year to create a special board to take over management of the taxes.

Documents obtained by Southern California News Group show that Deputy District Attorney Avery T. Harrison in November asked the city for about 20 years worth of records regarding the Hotel Improvement District, established in 2002 to generate taxes for a tourism bureau. The chamber was brought in to administer the bureau, called Destination Irvine, which promoted hotels and tourism in Orange County’s third most populous city.

The district attorney’s office also is seeking, among other things, reports generated by the chamber on how it specifically proposed to use the funds, generated by the 2% tax on hotel stays..

Hotel groups had alleged that the chamber wouldn’t share with them how it was administering the money. The chamber responded that it released audited financial statements every year, showing that the overhead was “appropriate.”

News of the apparent probe, first reported by the Voice of OC, came on the heels of the chamber’s announcement Jan. 9 that Chief Executive Officer Bryan Starr left this month after seven years to “pursue a new opportunity.”

“Bryan’s service has had an undeniable impact on Irvine’s economy,” said the announcement on the chamber’s website. “His work helped bring global companies — and their jobs and investment — to Irvine. … We look forward to seeing the impact Bryan will have in his future role and wish him well.”

Starr, who could not be reached for comment, earned $238,923 in total compensation in 2021, according to the chamber’s tax filing with the Internal Revenue Service.

The district attorney’s office would not confirm or deny that it was investigating the chamber’s management of the hotel improvement taxes, which in 2021 generated $2.5 million.

The money is now administered by a seven-member board consisting of city and hotel officials, which found that the chamber was charging 60% to 70% in overhead, said City Manager Oliver Chi.

“When it came to a head, (the hoteliers) decided it was just too much money that was getting deferred away from the marketing and advancement of hotel interests. Too much of that money was going to fund chamber expenditures,” Chi said.

The chamber would consistently charge a bulk of staff salaries to the Hotel Improvement District, he said. For example, at one point, only three Hotel Improvement District staffers were funded by the district, while the entire chamber operation of 15 to 20 employees also was funded, Chi said.

Additionally, 60% of the chamber’s rent costs for its entire building were charged to the Hotel Improvement District, among other things, he said.

“For comparison purposes, the city is charging the (the district) 4% of their overall budget for overhead,” Chi said.

Tony Zand, a member of the board and general counsel for hotel developer Pacific Hospitality Group, said by taking over and cutting costs, the board has found about $1 million more in available funds.

“We had someone who isn’t in our industry acting as the middleman and not really acting on our behalf,” Zand said, adding that local hoteliers never could get any details from the chamber on where the money was going.

“The catalyst is we didn’t have a good grasp on how the administrative side was being handled,” he said. “The lack of clarity was the problem … we didn’t know what was going on.”

Documents provided by the chamber to Southern California News Group show the hotel improvement tax pays for nearly all of the chamber’s Business and Economic Division.

Laura Perdew, vice president of marketing and communications for the chamber, noted that the chamber provided the city each year with audited financial statements on the division. She said the chamber also provided to the city and hoteliers a yearly proposal on how the hotel money would be spent.

Perdew said the audited statements show that “the percentages regarding overhead were appropriate.”

The financial statements indicate that in 2022, total personnel costs for the chamber’s Business and Economic Division were $706,345. Management and general costs amounted to $240,133. Total expenses added up to $1.9 million for that division, with the Hotel Improvement District that year generating $2.5 million.