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Tourism Improvement Districts a Growing DMO Funding Trend

Assessments yield dollars to fund destination marketing

By Kathy Gibbons

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How to fund destination marketing can be a mixed bag, varying from community to community and state to state. Some have opted to create Tourism Improvement Districts, which assess a levy on certain business sectors to generate income, while others are in varying stages of considering it, says Roxanne Steinhoff, legal analyst & sports consultant for Civitas.

“Our bread and butter is really this Tourism Improvement District model, which at its core is based off the business improvement district mechanism,” she explains. “Businesses agree to have assessments levied against them—this is usually tourism businesses, hotels, restaurants, that kind of thing. The assessment money goes toward funding a DMO. The model is to institute a sustainable funding mechanism that doesn’t rely on appropriations from the state legislature and also has some accountability to the businesses paying the assessment.”

Before a Tourism Improvement District can be established, a majority of the entities being assessed would have to approve it. Typically it would be a percent of sales, though in some cases it might be a flat dollar amount for, say, in the case of hotels, each room night sold.

Steinhoff says the first Tourism Improvement District was created in 1989 in West Hollywood, California. Now there are more than 200 in 20 states.

California’s state travel office instituted a statewide assessment in the early 1990s and Steinhoff says it continues to get reapproved. “Visit California is one of the, if not the most, reliably … funded state DMO travel offices in the country,” she says. “This program has been renewed I think four times—and each time the approval rating has gone up. Now California is not dependent on appropriations by the legislature.”

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In Memphis, the Convention and Visitors Bureau, hoteliers, and the city worked together to form the first Tourism Improvement District in Tennessee. Starting Jan. 1, 2016, assessments of $2 per occupied room per night were levied to fund destination marketing programs. While revenue was anticipated to come in at around $3.8 million in the beginning, it was closer to $5.3 million and ended up accounting for 40% of the bureau’s budget.

Steinhoff estimates the highest-earning Tourism Improvement District is San Diego’s. There, lodging businesses within the city with 70 rooms or more are assessed a 2% fee on each room night. The San Diego Tourism Marketing District uses the money to support marketing and promotional efforts that lead to increased room night sales, according to its website.

“They get close to $40 million (a year),” Steinhoff says. “That’s a lot of money, but again, that’s a huge city and their assessment rate is on the higher end.”

Along with several other states, Michigan is in early stages of exploring the concept. “What’s being talked about in Michigan is enabling legislation,” says Steinhoff, who recently spoke at a Michigan Travel Commission board meeting held during the Pure Michigan Governor’s Conference on Tourism about the concept.

“It wouldn’t mandate an assessment or anything like that. It would just put in a legal road map for local destinations to institute this kind of mechanism and have this kind of structure. How it would work on a practical level is legislation is passed by the legislature, then for local (DMOs), it’s up to them to decide whether or not they want to adopt this mechanism.”