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Tuesday, Mar 19, 2024
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Group Readies to Build Up Region’s Tourism Reputation, Revenue

A year after political turmoil disrupted its funding, handicapping its ability to compete for visitors, the San Diego Tourism Marketing District is pushing forward with efforts to boost local hotel revenue.

At a recent gathering presented by the agency, Executive Director Lorin Stewart said the marketing district is in talks with the consulting firm McKinsey & Co. to formulate a plan aimed at doubling current hotel room revenue over the next 20 years, though costs and other details have not been finalized.

Stewart said San Diego competes with 85 other cities around the state that have their own tourism marketing districts, and the local region needs to move beyond recovery mode to grab the attention of meeting planners and overnight vacationers.

The Tourism Marketing District was formed in 2008 by the city of San Diego as a nonprofit, mutual-benefit corporation, and it functions in ways similar to a business improvement district. San Diego hotels that are part of the district collect a 2 percent assessment on room bills, which the marketing district later distributes to tourism promotion agencies, including the San Diego Tourism Authority.

The marketing district fee is in addition to the 10.5 percent transient occupancy tax (TOT) applied to room bills in the city. While the TOT was established in 1964 to fund tourism efforts, the bulk of collections today go toward more general city services.

Political Problems

The Tourism Marketing District, approved in 2008 and renewed by the City Council in 2013, was designed to raise about $30 million annually to go specifically toward tourism promotion. However, the district saw more than half of its planned distributions held up for much of 2013 after then-mayor Bob Filner refused to sign off on the district’s renewal until certain conditions were met.

Among those conditions were provisions to indemnify the city, in the form of a legal reserve, in the event the marketing district was invalidated by three pending civil lawsuits over its formation. Two of the lawsuits have since been dismissed, and TMD officials said they are confident the district will prevail in the third case.

Tourism officials said that last year’s funding logjam caused the San Diego market to lose ground to competing destinations for much of 2013, as local destination promotions were diminished. They cite San Diego’s 3 percent growth in revenue per available hotel room during the first eight months of 2013, compared with 10 percent or more for competing destinations like Los Angeles, Orange County and Northern California.

The local region finished fiscal year 2013 with total TOT collections of $157 million, just below the $160 million peak seen in fiscal 2008. Collections generally have been increasing since fiscal 2010 with the improving economy, and Tourism Marketing District officials are aiming to bring those annual tallies to $3.2 billion by 2035.

Adam Sacks, founder and CEO of the consulting firm Tourism Economics, said regional destination promotion efforts are needed in industries like hospitality, where no local hotel player has more than a 4 percent share of the visitor market.

Boost Air Services

Efforts going forward will need to address boosting local air services, including getting more direct international flights at San Diego International Airport, officials said.

Chris Cramer, co-founder and CEO of San Diego-based beer maker Karl Strauss Brewing Co., said more can be done to promote large regional events, like the recently completed San Diego Beer Week, geared to bringing in visitors during off-peak seasons outside of summer.

Challenges for tourism marketing districts that will need to be navigated come from legal issues raised by California’s Proposition 26, said John Lambeth, president and CEO of the consulting firm Civitas Advisors.

Passed in 2010, Prop. 26 placed limits on taxes that can be imposed by cities. A state law passed in late 2013, Assembly Bill 483, declared that assessments imposed in tourism marketing districts are not taxes merely because they might generate benefits for those who don’t pay the assessments.

However, Lambeth noted, the burden is still on local governments to make the case that assessments meet criteria for not being considered a tax.

Tourism is the third-largest economic generator in San Diego County, employing more than 160,000 people and creating a regional economic impact of $18.7 billion in 2013, according to the Tourism Authority and CIC Research. That included $8.4 billion in direct visitor spending.

“Our tourism economy is incredibly important,” said San Diego Mayor Kevin Faulconer, addressing the audience at downtown’s San Diego Marriott Marquis & Marina.

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