Tourism districts help cities find their happy place.
By happy place, the sun-drenched ad for San Diego refers to the almost $30 million annually collected by the city as dedicated promotional revenues.
The new wave of funding destination marketing known as Tourism Business Improvement Districts (TBID) started in West Hollywood in 1992, when hotels there collected 1.5 percent of gross room rental revenue to raise an annual $1.1 million for tourism promotion.
In 2000, the hospitality industry in the city and county of Sacramento signed up for a public-private partnership to tax themselves up to $1.50 per occupied room per day for convention and trade show recruitment, tourism marketing and destination development. Last year that total was $3.2 million, half of the Sacramento Convention and Visitors Bureau budget.
“It leveled the playing field with the competition – Reno, Long Beach, San Jose – and allowed us to hire more marketing and sales people,” says CVB Vice President Mike Testa.
Now the state has 35 of the money-making entities ranging from Redding, where 1.5 percent of gross room rental revenue provides $295,000 annually for streetscape improvement matching dollars, to the newly-minted San Francisco TBID, where 1.5 percent of gross room revenue collected $27 million in the first year for marketing and improvements to Moscone Center.
Another 17, including Manteca and Anaheim, are now in the process of formation.
“It’s a win-win,” says John Lambeth, president of Civitas Advisors, which helps set up the legal framework for cities. “Business owners get local control of the funds rather than wondering if a Transit Occupancy Tax will become part of the general budget and the city gets a new stable revenue stream.” 1. Free the TOT
San Diego Tourism Promotion Corp. Executive Director Lorin Stewart’s Five Favorite Things about TBIDs:
1. Free the TOT
Tourism districts are often a bright spot in local funding streams because they allow cities with Transient Occupancy Taxes (TOT) in place to pull even more of that revenue into the general fund.
In San Diego, where $10.5 million of the $161 million in TOTs was going to destination marketing previous to the enactment of the district, even that amount was funneled to the general fund to preserve essential services.
Of the anticipated $29.2 million the fee will generate this year, the Convention and Visitor’s Bureau known as ConVis is receiving $12 million, San Diego North ConVis is receiving $2.4 million and the balance goes to special projects as determined by a new San Diego Tourism Promotion Corp. That is more funding than any of the organizations had under TOT revenue budgeting.
2. Local Control
TBIDs don’t have to go to a general vote. Often they start as a grass roots effort with a petition signed by the majority of hotel properties in the area brought to the city council. The measure goes to a ballot of affected properties and passes if fewer than half oppose.
The Board of Advisors is made up of a cross section of hotel owners, people who pay the fee. The bylaws of the BID require that the assessment be directly proportional to the benefits to the fee-paying property so the money can’t be sidetracked to pay for other city expenses. It also can’t help one part of the district or type of property more than its proportional share of the fee.
All dollars spent must show their return on investment in terms of heads in beds as analyzed by a third party auditor. The project bidding process, which is also open to the ConVises, is transparent. It emphasizes consistent branding with an emphasis on year-round promotion and coordinated efforts.
“The result is that groups see what types of projects get funded and they come back with events and ideas that work with our ongoing branding effort,” Stewart says. “There is no infighting.”
The money is collected by the city, but administered through a non-profit, usually a convention and visitors bureau, which is reimbursed for expenses once the approval process has been confirmed by the city. The city is also reimbursed for its time administering the program.
Because special projects are approved throughout the year, rather than in one budgeting process, TBIDs can respond to events quickly.
One such emergency thwarted in San Diego was when the Fourth of July holiday rolled around last year and rooms were still available. San Diego is usually sold out July through August. ConVis quickly put together a $1.7 million late summer advertising campaign. It was approved in a month and a spike in business followed.
5. Compounding Interest
Tourism BIDs are grounded in the idea of a rising tide raising all boats in the harbor. A successful TBID results in more money for the hotels and the TBID as it brings more tourists, who generate more TBID fees, which brings more tourists in a crescendo of happy faces. It also increases the TOT tax going to the city and sales tax generated at restaurants and shops.
Stewart’s goal is to increase the number of room nights per year by a million by 2012 to get the city’s occupancy rate back up to 73 percent after an increase in capacity, decrease in marketing and plummeting economy resulted in noticeably diminished occupancy rates.
Can a coordinated, consistent promotional campaign succeed?
As the San Diego ads say, Happy Happens.