f the recent move by Sonoma County Board of Supervisors is any indication, some DMO’s may be subject to funding cuts.
How times have changed.
Many destinations in California have been funded either by local county or city government or by Tourism Improvement Districts or some combination of both.
These funds have increased tourism promotional budgets by hundreds of millions of dollars in California. At the same time, tourism in California has grown significantly. Since the year 2000 travel spending has grown from $81B to $126B, an increase of 55%. You would think local governments would be thrilled with the taxes generated and be even more supportive.
Yes, one would think that to be the case, but there are changes occurring that are raising red flags.
First, the city of Ojai failed to renew their Tourism Business Improvement assessment, essentially ending their tourism promotion efforts. Those in favor of ending the District cite the level of tourist that are overrunning their small city and that “advertising could be counterproductive, harming the town’s attributes that now attract visitors.”
More recently, Calaveras County reduced not only their funding to the Calaveras Visitors Bureau but also the percentage of Transient Occupancy Tax collections going to tourism promotions from 33% of collected funds to 28%. The funding was moved to increase support for fire protection. Just last week Sonoma County Supervisors reduced their funding contribution to Sonoma County Tourism by $1million. Supervisor Shirlee Zane, the board chairwoman, said the organization could easily afford a reduction in bed tax revenue, and the funding needs would be spent to increase emergency services.
Each of these cuts is reflective of different DMO funding scenarios. In the case of Ojai, funding was provided by the lodging industry via a Tourism Business Improvement District. With Calaveras County, their funding was provided by the county, and in Sonoma County, funding is a public-private partnership with fund being supplied by both the county and a Tourism Business Improvement District.
What has changed? Several things.
First, tourism has been robust generating significant levels of tax dollars. Some local government may feel that there is no longer a need to promote their destination. Also, as was mentioned in the case of Ojai, too much tourism was causing significant crowding and angering residents.The crowding issue in some destinations is becoming a concern for residents, especially on weekends when local resources are being crowded out by visitors.
Secondly, destinations are feeling a budget pinch caused by the demands of the California retirements system (CalPERS). One of the significant challenges facing the Retirement System, which handles retirement benefits for the state and more than 3,000 local agencies, is that its $324-billion pension fund is about 35% short of the amount needed to cover current and future pension obligations. This, in turn, is putting incredible stress on local government to increase their contributions which are forcing them to cut their budgets in other places.
This trend, which is anticipated for the foreseeable future, is becoming more acute and forcing local government to act.
We see municipalities using different scenarios including the success of tourism, budget shortages, and the need for increased funding for emergency services to reduce–and in some cases-eliminate tourism funding moving forward.
The reduction and eventual elimination of local government funding is the culmination of a long twenty-year trend that saw tourism funding shift slowly from Transient Occupancy Tax to more and more private sector funding using Tourism Business Improvement District funding. We anticipate municipalities who are funding tourism at some level to look for ways to reduce or eliminate that commitment.
What should a DMO do?
1. If you are a DMO that is getting some or all your funding from local government it is critical to be able to show the specific return on investment the funds make.
2. If all your funding is coming from local government, you need to look at implementing a Tourism Business Improvement District to protect tourism promotion funding.
3. If your funding does come from a Tourism Business Improvement District, you may want to consider how you are spending those funds and be sure those funds are not being used to drive weekend business that contributes to overcrowding and resident anger
For years tourism in Californa has been slow and steady, but the industry has grown significantly generating employment and tax revenue. Along the way, there have been lots of changes including funding mechanisms, marketing tactics, and marketing methods. Also during this time, there have been changes in population growth and local government funding challenges.
It’s becoming a new operating environment and one that DMO’s will have to respond to be effective.
Not recognizing the threats these changes pose to your local tourism industry is a considerable risk.
By Carl Ribaudo