Here's What You Should Do:
Use the downtown area as the venue for The Annual Hot Springs Peanut Butter & Jelly Festival. Booths are set up on the sidewalk, throughout the downtown area, where people are serving their own style of PB&J. Spread them out, so people are also enjoying the area by walking all through the main streets, sampling PB&J as they go. Some of the restaurants downtown could even enter the competition, and serve their samples inside. The whole idea would draw more attention to the area, get people into the various stores and restaurants for some good marketing.
Again, everything, down to the bread, has to be home-made.
Give out maps that lead to every spot downtown where participants are located, with a scorecard beside each. People rate every stand's sandwich.
You get a panel of judges who will sample each one, with various awards given. Somebody call Mike Rowe. He came for the parade one year. Surely he would come to this. Somebody help me brainstorm the perfect panel of judges below in the comments.
You set up the music, judging panel, and other vendors in the tourist center parking lot and that is the center of the event.
Seriously, somebody do this. It will be huge.
Again, many thanks to Jeremy for brainstorming with me on this.