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TBIDs: Stable Funding For Destination Marketing

John Lambeth, Esq. and
Melanee Cardoza, R.P.
Civitas Advisors Inc.

Originally published by the Destination Marketing Association International, reprinted with permission.

November 15, 2010

It's a troublingly familiar story; faced with funding tourism marketing or cutting services, local governments reduce or eliminate tourism funding – leaving DMOs scrambling to fill the funding gap.   In the wake of funding cuts, many DMOs are looking inward, towards industry-driven marketing funds that won't be subjected to governmental budget reductions.   In many destinations a new kind of funding mechanism, the tourism improvement district, is being used to fill the gap.

What is a Tourism Improvement District?

Tourism Improvement Districts, or TIDs, are a stable funding source for destination marketing efforts.   TIDs are typically funded by an assessment on hotel room sales, tying marketing funds directly to tourism.   Funds are managed by a nonprofit corporation, oftentimes an existing DMO, with representatives of assessed businesses sitting on the board.

Last year, the United States government made headlines by creating a nationwide TID, estimated to raise $320 million a year through a $10 fee on foreign visitors.   The federal government wasn't the first authority to create a large-scale TID.   In 1995, California enacted a statewide large-scale TID, raising $50 million a year for destination marketing efforts.  

In enacting its statewide tourism district, California followed a much smaller example - the City of West Hollywood.   In 1992, West Hollywood pioneered the TID concept, igniting a revolution that sparked formation of over fifty additional TIDs throughout California.   Ranging from small districts of five hotels to supersized districts with 350 hotels, with budgets from $100,000 to $30 million, in coastal havens and urban enclaves, California's TIDs represent every type and size of destination.    

Throughout California, local TIDs raise in excess of $100 million for destination marketing programs.   DMOs all over the state have made up for lost funds with TIDs, often raising funds above-and-beyond those cut from local government marketing budgets.

How is a Tourism Improvement District Formed?

In addition to California, two other states have enacted legislation allowing TID formation -Washington and Montana.   A few more states are exploring potential TID legislation; yet others need a gentle push in that direction.   Enacting legislation, or identifying existing legislation, is the initial step towards forming a TID.   TID legislation typically delineates a formation process with business owner and government approval mechanisms, describes procedures for assessment collection and budgeting, and sets requirements for district activities and management.

Once legislation is in place, the TID formation process follows a typical pattern.   The five-step formation process begins with forming a project steering committee, undertakes outreach and approval processes, and ends with forming the district.

Step One: Steering Committee Formation

Like any project, the TID formation process needs a steady hand to guide it to success.   A project steering committee should be assembled at the outset of the formation process, including DMO staff, business owners, local government representatives, and other supportive parties.   This steering committee will work with consultants, other business owners, and government staff to make the district reality.   Throughout the formation process, the steering committee will develop communications materials to reach out to business owners, such as the FAQ sheet developed for the Napa Valley Tourism Improvement District.

Step Two: Create a Database

The steering committee's first task will be to assemble a database of businesses that will be in the district.   Database information includes business owner name, business address, gross revenue (where available), and other characteristics of the business.   The database is the foundation of the TID formation process, and is often updated and modified throughout the project.  

Step Three: Develop a Business Plan

Through outreach to business owners, the steering committee can identify district needs and priorities.   TIDs can fund many types of destination marketing programs, including advertising campaigns, sales lead generation, website development and marketing, social-media marketing, and special event sponsorship.   The business plan will identify the services to be provided, and include a proposed assessment rate and budget to implement those services.   The business plan should also include a description of the district area and a list of businesses in the district.

Step Four: Owner Approval Process

Many business owners are attracted to the TID concept because they have a measure of control over the district – especially in district formation.   The owner approval process varies by jurisdiction, but often includes either a petition or ballot process.   In whatever manner local legislation calls for, business owners will have an opportunity to approve the proposed district and associated business plan.  

Step Five: Local Government Approval Process

The final step in TID formation is local government approval.   Typically, the local government entity will examine and approve the district plan, certify that enough business owners support the district, and officially order formation of the district.  

Case Study: San Diego Tourism Marketing District

Sunny San Diego, California may not seem like a destination in need of a TID – in fact, you had probably visited San Diego long before it created a TID in 2007.   But, what you may not know is that the San Diego tourism industry began suffering from a diminishing availability of public funds for destination marketing in the early 2000's.   By 2003, San Diego's lodging industry was actively investigating alternative methods of funding marketing programs.   After dozens of meetings to consider their options, lodging businesses decided to create a TID.   In 2005, a consultant was hired and TID formation began.  

Following the typical TID formation pattern, a steering committee was designated to guide the project.   Over two years, the steering committee and consultant worked with the City of San Diego to secure adoption of an ordinance allowing TID formation (a method of enacting enabling legislation available in some jurisdictions), reached out to lodging business owners, and successfully navigated the City approval process.     In 2007, the committee's efforts resulted in formation of the San Diego Tourism Marketing District.

Since 2007, the San Diego Tourism Marketing District has provided more than $25 million a year in marketing funds to the San Diego Convention and Visitors Bureau, the San Diego Film Commission, the San Diego Sports Commission, and numerous other tourism-related organizations.   With the TID as a stable funding force for destination marketing, the San Diego CVB successfully launched the hugely popular "Happy Happens" advertising campaign.  

Will Your Destination Create the Next TID?

The TID concept has proven its effectiveness in creating a stable source of funding for tourism promotion.   Recognizing the funding advantage a TID can provide, industry experts all over the world have taken the future into their own hands by creating TIDs.   Industry experts have come to realize forming a district may be the single-most significant tool available to create a long-term impact on tourism promotion financing.