Keeping San Diego Tourism Competitive SD Commission on Revenue & Economic Competitiveness May 13, 2010
Keeping San Diego Tourism Competitive Historical Perspective & Context The Business of Tourism Responding to the IBA Current Business Environment Recommendations
Great Moments in San Diego Tourism First Tourists Juan Cabrillo & Crew, 1542 First Lodging Establishment Mission San Diego Alcala, 1769 First Presidential Visit Benjamin Harrison, 1891 First Hollywood Movie Location Hotel Del Coronado, 1901 First Military/Tourism Event Great White Fleet Arrives, 1908 First Mega-event Panama-Calif. Exhibition, 1915 First Year of TOT Collection 1965, $48,976 Total Collections First Comic-Con Convention U.S. Grant Hotel, 1970 First Super Bowl Washington vs Denver, 1988 First Phase Convention Ctr. Opens November, 1989 First National Political Convention Republican Party, 1996 First Tourism Marketing District Collections Begin Jan. 1, 2008
Tourism In Context Travel & Tourism is Third Largest Regional Economic Sector 1. Manufacturing = $25 Billion 2. Military/Defense = $10 Billion 3. Tourism/Hospitality = $7.9 Billion 4. High Tech = $7.1 Billion
Tourism In Context Travel & Tourism is World s Largest Industry & Largest Job Generator Annual Tourist Spending In USA $1.4 Billion Every Day $60 Million Every Hour $1 Million Every Minute $17,000 Every Second Avg. 85,000+ Visitors to San Diego Daily Spending $20 Million Locally Every Day
Tourism In Context City of San Diego 2007 2009 Total Annual Visitors = 31.5M 29.6M Overnight Visitors = 15.3M 14.4M Hotel Overnight Visitors = 7.8M 7.3M Hotel Occupancy = 75.2% 65.4% Hotel Room Nights Sold = 10.2M 8.9M Transient Occupancy Tax =$160M $141M Other Tourists Paid Taxes=$14.7M $12.9M
The Business of Tourism A Natural Fit for San Diego A Major Economic Engine A Diverse & Significant Economic Impact It s A Commodity Public/Private Partnership Fiscal Impact
The Business of Tourism A Natural Fit for San Diego Major Drivers for Success Location, Location, Location ++++ Distance vs Motivation, drive/fly market Pent-up Demand @ LA, Las Vegas, Arizona Drive Markets Environment/Weather ++++ Moderate Climate Year-round Attractions: Natural and/or Manmade ++++ Sandy Beaches, Theme Parks, Bays, Harbors & Marinas Marketing & Communications +++ (before TMD +) Visitor Infrastructure ++ Value ++ Access/Transportation -
The Business of Tourism A Major Economic Engine $7.9 Billion Direct Visitor Spending 70% Generated by Hotel Guests Local Economy Expands with NEW Dollars Creates or Supports 164,000 Local Jobs (1 out of every 9) in Virtually All Business Sectors Generates Over $2.9 Billion in Household Income Represents Over 11% of the Regional Economy, 7% of the City s Economy & 11% of Total Civilian Jobs
The Business of Tourism Major Economic Engine That Creates Jobs Variety of Work, Pay & Time Commitments Entry Level & Part Time Supports Other Goals Many Jobs Add Gratuity Income Robust Career Ladder Unique Benefits: Tips, Free/Reduced Price Meals, Free/Reduced Price Hotel Stays Educational Support High Schools, Community Colleges, SDSU
The Business of Tourism Diverse & Significant Economic Impact Direct Visitor Spending = $7.9 Billion Lodging Restaurant/Dining Shopping Entertainment Incidentals/Other $2.5 Billion $1.6 Billion $1.1 Billion $775 Million $747 Million Indirect = The purchase of goods and services, from non-tourism industries, that support visitor purchases (agriculture, insurance, fuel, repairs & construction, etc.) Multiplier @ 2.18 = $17.2 Billion total economic impact
The Business of Tourism It s A Commodity Finite Inventory that Spoils & Replenishes Every 24 Hours Dynamics of Supply & Demand Determines Rate As Supply Decreases Rate Increases = Yield Last Room/Car/Ticket Rented/Sold Should be at the Highest Rate Yield Delivers Maximum Hotel Revenues, and also Delivers Maximum Tax Revenues
The Business of Tourism: Fiscal Impact Public/Private Partnership Public Infrastructure + Private Investment Leverage Location & Amenities Drive Demand w/ Marketing Investment including $100M Private Create/Support Positive Hotel Development Environment Capture Revenue at Expanding Hotel Sector Reinvesting Tax Revenue in Infrastructure: Convention Center, Public Safety, Transportation & Community Amenities City of San Diego TOT Historical Collections Over $2 Billion Collected 1965 2009 Plus Tourism Sales Taxes add 10% of TOT Annually Only 11% Allocated to Convention & Visitors Bureau
The Business of Tourism: Fiscal Impact TOT 1965-2009
The Business of Tourism: Fiscal Impact Tax Revenue Grow Tax Revenue, Not Tax Rate TOT is a Percentage of Hotel Room Revenue Yield (rate) Management Delivers Greater (tax) Revenue Scenario A Room Rate @ $100 X 10.5% Tax Rate = Scenario B $10.50 Tax Revenue Room Rate @ $200 X 10.5% Tax Rate = $21.00 Tax Revenue
The Business of Tourism: Fiscal Impact Tax Revenue Grow Tax Revenue, Not Tax Rate Increased Occupancy (demand) Escalates Rate Growing Occupancy & Rate Compounds Tax Revenue Scenario A 1000 Available Rooms X 60% Occupancy = 600 Rooms Sold X $100 Avg. Rate = $60,000 Room Revenue $60,000 Room Revenue X 10.5% Tax Rate = $6,300 Tax Revenue Scenario B 1000 Available Rooms X 80% Occupancy = 800 Rooms Sold X $200 Avg. Rate = $160,000 Room Revenue $160,000 Room Revenue X 10.5% Tax Rate = $16,800 Tax Revenue
The Business of Tourism: Fiscal Impact Tax Revenue Grow Tax Revenue, Not Tax Rate TMD To The Rescue Self Assessment of 183 City of SD Hotels Assessment of 2% = $22 - $28 Million/Yr. Dedicated to Increasing Hotel Demand Delivers Measurable & Audited ROI 2009 Consolidated ROI = $17 to $1 (Audited) Grew SD Market Share During Recession 5 Year Initial Charter Expires 12/31/2012
Responding To the Independent Budget Analyst TOT Comparison w/ 15 Major Cities Average TOT Rate of Competitors @ 13.5% San Diego Effective Rate @ 12.5% TOT @ 10.5% TMD @ 2.0% (Reinvested to drive demand) This Keeps San Diego Competitive!! TMD Relieved City of SD Budget of $10.5 Million Annually in Special Promotional Program Obligations TMD Fully Reimburses City Administrative Costs at $300,000+ Annually
Responding To the Independent Budget Analyst IBA TOT Revenue Increase Scenario Increase TOT Rate to 11.5% = $13.4 Million Does NOT Add a Single Visitor Does NOT Add a Single Room Night Does NOT Grow Tourism Revenue Does NOT Create a Single Tourism Job Does REQUIRE a Vote of the People Does REQUIRE a Funded Political Campaign Grow Tax Revenue, Not Tax Rate
Responding To the Independent Budget Analyst Competitive TOT Revenue Scenario 2009 TOT Collections = $141 Million 2010 TOT Projection = $127 Million Baseline 2011 TOT Projection = $132 Million + $5M 2012 TOT Projection = $141 Million + $14M 2013 TOT Projection = $150 Million + $23M Grow Tax Revenue, Not Tax Rate Add Visitors, Add Revenues, Add Private Sector Jobs
Current Business Environment From Very Good 2007 Hotel Occupancy = 75.2% Avg. Daily Rate =$149.21 Hotel RevPar =$115.91 Attraction Attendance = 16.0M To Very Bad 2009 Hotel Occupancy = 65.4% Avg. Daily Rate =$126.18 Hotel RevPar =$ 82.47 Attraction Attendance = 15.3M..In 24 Months
Current Business Environment 30 20 U.S. Open 10 16 months of declines 0-10 -20-30 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Occupancy ADR RevPAR Worse month was June 09 RevPAR down 31.1%
Current Business Environment Market Conditions & Industry Challenges World/National Employment Trends Unemployment Remains High Very Slow Recovery/Job Growth Occupancy Tracks Employment Consumers Repair Personal Balance Sheet Consumer Access/Rate Transparency National Security Issues Medical/Natural/Terrorist Events Competitive Marketplace Debt/Default Management 300+ CA Hotels In Default or Foreclosure, 30 in SD County
Recommendations to Keep San Diego Competitive No Change to TOT Rate Support Extension of TMD Support A Convention Center Expansion Reduce Regulatory Hurdles & Support New Tourism Business Development Support Reduction in Local Capital Infrastructure Backlog Support Expansion of Regional Transportation Infrastructure Pray For Sunshine
Resources San Diego Convention & Visitors Bureau, www.sandiego.org/research San Diego Tourism Marketing District, 2009 Annual Report National University System Institute for Policy Research, Value & Contribution of San Diego s Visitor Industry, 2007 San Diego Workforce Partnership, Careers in San Diego s Hospitality Industry: Opportunities Abound San Diego County Taxpayers Association, The Economic & Fiscal Impacts of Tourism on the City of San Diego and the Regional San Diego Economy American Hotel & Lodging Educational Foundation, Room Taxes & Economic IMPACT of the Lodging Industry Los Angeles Times, October 7, 2009