“Lodging Fee Goes a Long Way Toward Promoting Tourism”

Lodging Fee Goes a Long Way Toward Promoting Tourism

Posted: 13 Sep 2010 12:09 AM PDT

Lorin Stewart, executive director of the San Diego Tourism Marketing District, is hopeful that a five-year plan he oversees to fund marketing campaigns and events that draw tourists to local hotels will go well beyond 2012.

Since the creation of the San Diego Tourism Marketing District on Jan. 1, 2008, which went hand-in-hand with the city of San Diego levying a new 2 percent assessment fee on guests staying at one of the area's 183 hotels with 70 or more rooms, annual funds to promote local tourism have more than doubled.

For the fiscal year ended June 30, 2009, the marketing district distributed $27 million for marketing efforts credited with attracting $365.5 million in room night revenue. Stewart noted that last year's distribution includes a six-month carry-over of funds collected from the previous fiscal year.

For the fiscal year that ended June 30, 2010, the marketing district distributed $23 million, which Stewart expects to grow to $23.7 million by the end of June 30, 2011, amid higher hotel room occupancy rates.

He believes the creation of the district, one of 44 such marketing districts in California, has benefited local hoteliers and helped San Diego compete against other major tourist destinations. According to a recent article in the Los Angeles Times, the city of Orlando, Fla., annually spends about $31 million and Las Vegas $71 million on promotions to draw tourists.

"Before the creation of the district (and the extra assessment), specific marketing programs had never been deployed before," Stewart said.

He pointed in particular to the success of a first nationwide TV advertising campaign by the San Diego Convention & Visitors Bureau, or ConVis, the nonprofit organization that markets San Diego as a vacation destination and convention site.

Campaigns Lure Travelers

Joseph Terzi, president and chief executive officer of ConVis, said of the $23.7 million ConVis received from the district in the fiscal year that ended June 30, 2009, $1.5 million was spent to promote San Diego via three major online travel agencies, Travelocity.com LP, Expedia Inc. and Orbitz LLC, and another $6 million was spent to fund a national campaign with the slogan "Happy Happens."

"These types of campaigns have helped bring more leisure travelers to San Diego, which has translated into a 9.7 percent increase year-to-date in transient occupancy rates," Terzi said.

He added that hotel occupancy related to leisure travel is up 5.8 percent this July compared to last July and the figures for this August also signify an upward trend.

At the same time, hotel room occupancy rates for groups and business travelers has dropped significantly in the last few years, down 20 percent in 2009 and 2.1 percent year-to-date. With the economy still struggling, it will be difficult to draw business travelers even this fall season, when business travel typically picks up, he said. However, Terzi expects this year's business occupancy rates to be higher than in 2009.

Terzi, who is also a founding board member of the San Diego Tourism Marketing District, said the new assessment has more than doubled ConVis' spending power: The $23.7 million ConVis received in the first year the district disbursed funding compares to $8.8 million in fiscal year 2008, the last year the city fully funded tourism promotion.

"Funding for tourism promotion continued to be reduced," Terzi said, commenting on the need to create a new funding engine.

Supplementing City's Tax

Although the city of San Diego already levies a 10.5 percent transient occupancy tax, or bed tax, on hotel guests, much of that funding went into the city's General Fund. As funds for tourism promotion continued to dwindle, representatives of the city's lodging industry started pushing a plan to add a new fee on hotel room bills.

It took years to develop a plan that marked the beginning of the San Diego Tourism Marketing District on Jan. 1, 2008, and until April of 2008 before the San Diego City Council approved the final terms of the contract between the city of San Diego and the district to manage the assessments, contracts and outline services.

Stewart explains the process: Under the terms of the contract, the city collects the assessment from the hoteliers. The district pays the city a set annual fee to oversee the collection of the assessment. The city reimburses the district the funds it distributes to eligible contractors whose marketing programs have been approved via an application process. This year, the district will accept new applications for funding until Oct. 22. Criteria for eligibility include an organization's ability to show a return on investment on hotel room nights, how their program would benefit the entire district, what the program is about and how much funding is needed.

A nine-member board ultimately decides which recipients will receive funding and how much. The entire process needs to be approved by the city's Budget Finance Committee and the San Diego City Council. In the fiscal year of 2009, funding was approved for 22 of the 30 applicants; in fiscal year 2010, funds were approved for 21 programs.

"In February, we have a funding session that reviews all the programs and contracts," Stewart said. "We establish priorities for the highest return on investment and pick how much funding will go to which programs."

Events Benefit Hospitality Industry

Chris Cramer, CEO and co-founder of Karl Strauss Brewing Co. and a member of the San Diego Brewers Guild, said he was the interface person to work with Stewart on securing funding and creating last year's inaugural San Diego Beer Week, a 10-day event that starts the first Friday of November.

"They were extraordinarily helpful and encouraged us to hold Beer Week in a way that would not only benefit our San Diego breweries, but the entire San Diego hospitality industry," Cramer said.

Cramer praised Stewart for his efforts in bringing together leaders of the entire San Diego hospitality industry, including ConVis' Terzi, and the San Diego County chapter of the California Restaurant Association, to help identify a soft week for tourism locally.

The district's approved funding of $22,320 paid for advertising in beer publications and other campaigns targeting beer lovers within driving distance to San Diego. The goal of the event was to generate income via hotel stays and to draw visitors to tasting events held in local restaurants, breweries and bars.

"For a first-year event it was absolutely over-the-top with more than 300 events in one week across San Diego," Cramer said.

This November, the district funded $50,000 to promote an even bigger beer week.

Stewart said hotel owners in other cities are now also pushing for extra assessments to raise money for marketing campaigns and gain a competitive edge on other tourist destinations.

"Creating tourism marketing districts to raise funds to create marketing programs is now becoming more and more the norm," Stewart noted. "I am hopeful that our program will be extended. We have within the district plan a clause that allows us to renew for 10 years after the initial five years based on performance."

Marion Webb is a freelance writer for the San Diego Business Journal.

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