Tourism: San Diego s 2 nd Largest Traded Economy A White Paper Discussion

Tourism: San Diego s 2 nd Largest Traded Economy A White Paper Discussion April 2, 2013 Submitted by: San Diego Tourism Authority California Association of Zoos and Aquariums California Attractions and Parks Association California Restaurant Association, San Diego Chapter California Travel Association CONNECT Downtown San Diego Partnership San Diego Hotel Motel Association San Diego Lodging Industry Association San Diego Regional Chamber of Commerce San Diego Regional Economic Development Corporation San Diego State University School of Hospitality

Executive Summary Tourism is San Diego s second largest traded economy. 1 In 2012, over 32 million visitors generated $8 billion in direct spending on goods and services, thus creating a total economic impact of $18.3 billion for the San Diego region. Visitor spending directly supported jobs for 160,000 2 San Diegans and produced over $406 million in local tax revenues. The travel industry plays a vital and critical role in maintaining San Diego s economic health, both for generating revenue and creating jobs. Tourism is largely a service industry, which has employment at its base and provides jobs that can t be outsourced. One in every eight jobs in the U.S. is affected either directly or indirectly by tourism, and 13 percent of all employment in San Diego is directly supported by traveler spending. The travel industry is an export industry. Visitor spending is derived from sources outside of the local economy and represents a net increase to the local economic base. For every $1.00 spent by a visitor to San Diego, a total of $2.23 of economic activity is generated in the county. 3 In addition to creating jobs and economic impact, the travel industry generates much needed revenue for local governments and agencies. The major sources of these revenues are derived from lodging taxes, sales taxes, and indirectly from property taxes. Fiscal revenues accruing to local governments from San Diego visitor generated economic activity totaled almost $406 million in 2011. In addition, approximately $289 million of fiscal revenue from San Diego visitor activity was distributed to other taxing authorities, i.e., state and federal. 4 Travel is the largest industry in the world and, as such, is the most competitive. With travel, destinations are the product and tourism is a commodity of a region. Destination marketing is essential to attracting visitors and protecting a tourism economy. Destination marketing is the province of visitor bureaus in the case of cities, and tourism offices in the case of states. For San Diego, it is the San Diego Tourism Authority (SDTA) a private, non-profit 501(C)6 corporation that is charged with driving visitor demand to economically benefit the San Diego region. 1 CIC Research, 2012 San Diego County Visitor Industry Model 2 State of California Employment Development Department, December 2012 Report 3 CIC Research, An Economic Impact and Fiscal Revenue Analysis of San Diego Visitors 2011 4 CIC Research, An Economic Impact and Fiscal Revenue Analysis of San Diego Visitors, 2011 1

The SDTA was initially funded by the City of San Diego Transient Occupancy Tax (TOT), a tax established specifically to fund tourism promotion and development. Over the years, the TOT rate grew from 4 percent to 10.5 percent, and collections grew from $716,139 in FY1966 to $150 million in FY2012. Initially, the SDTA received 59 percent of the TOT collected. Over time as the City s financial obligations grew, the percent allocated to the SDTA declined to only 6 percent of TOT collections. In 2007, City leaders warned that due to the City s dire financial crisis, there would be no future funding of tourism promotion unless the industry found a way to privately fund sales and marketing of San Diego. In response to the City s financial situation, the lodging industry established the San Diego Tourism Marketing District (TMD), one of the first of its kind in the nation. The TMD united the lodging industry, which voted to self-assess in order to raise funds to support the SDTA and promote San Diego. A 2 percent assessment fee was levied on lodging establishments with 70 rooms or more. The TMD relieved the City of San Diego from funding tourism promotion and the SDTA, thus saving the City $10.4 million per year in obligations - $52 million total over the lifespan of the first district. Within the State of California, there are now 74 tourism marketing districts. Last year, California TMDs spent a combined $140 million in non-tax funds for tourism promotion. For each $1 invested in tourism promotion, $70 was returned to the state economy. 5 TMDs provide muchneeded budget relief for local governments and create a virtuous cycle of investment that benefits the entire economy. The formation of the San Diego TMD created a new public-private partnership that relieved local government from funding tourism promotion while protecting the vitality of the tourism economy. Since 2008, the SDTA has received its funding from the TMD versus City TOT. The SDTA program does what individual businesses can t do for themselves provide an overarching platform to promote the San Diego Brand, nationally and internationally, to protect and grow destination demand to benefit the San Diego community. In FY 2012, the SDTA sales and marketing programs influenced the sale of 3.8 million hotel room nights for the region 25 percent of all hotel room nights sold. These visitors in turn generated $3 billion in total economic impact and $52 million in TOT collections for the San Diego community. 5 California Travel Association, Tourism Marketing Districts: Creating Jobs. Growing Our Economy., 2012 2

Table of Contents The Economic Impact of San Diego Tourism Page 4 Tourism: San Diego s 2 nd Largest Traded Economy Page 5 Tourism Means Jobs Page 6 San Diegans Benefit from Tourism Page 10 The History of Transient Occupancy Taxes Page 12 The Creation of the San Diego Tourism Marketing District Page 14 The Case for San Diego Tourism Marketing Page 14 San Diego Tourism Authority Page 19 Conclusion Page 20 Appendix Page 21 3

The Economic Impact of San Diego Tourism Travel is the largest industry in the world. In the United States, travel and tourism generates $1.9 trillion for the U.S. economy and supports 14.4 million American jobs one in every eight. 6 Travel accounts for 2.7 percent of the nation s gross domestic product and is touted as the number one service that we export. Across the globe, the tourism industry is highly valued by communities due to four key benefits: 1) The tourism industry is an export industry. Visitor spending is derived from sources outside of the local economy and represents a net increase to the local economic base. 2) The tourism industry has a large economic footprint. More than transportation and lodging, travelers generate spending at restaurants, museums, parks and retailers. Traveler s spending is amplified through a ripple effect: as travel workers spend their paychecks in other sectors of the economy, and as vendors and suppliers receive contracts from travel businesses. For every $1.00 spent by a visitor to San Diego, a total of $2.23 of economic activity is generated in the county. 7 3) Tourism is largely a service industry, which has employment at its base and provides jobs that can t be outsourced. One in every eight jobs in the U.S. is affected either directly or indirectly by tourism, and 13 percent of all employment in San Diego is directly supported by traveler spending. 4) The tourism industry generates much needed revenue for local governments and agencies. The major sources of these revenues are derived from lodging taxes, sales taxes, and indirectly from property taxes. Travelers in the U.S. generate over $124 billion in tax revenue to local, state and federal governments annually. Fiscal revenues accruing to local governments from San Diego visitor generated economic activity totaled $406 million in 2011. In addition, approximately $197 million of fiscal revenue from San Diego visitor activity was distributed to the State of California. 8 Without the tax 6 U.S. Travel Association, 2013 U.S. Travel Answer Sheet 7 CIC Research, An Economic Impact and Fiscal Revenue Analysis of San Diego Visitors 2011 8 CIC Research, An Economic Impact and Fiscal Revenue Analysis of San Diego Visitors, 2011 4

revenues generated by travel and tourism, each U.S. household would pay another $1,000 in taxes per year. 9 Tourism: San Diego s 2 nd Largest Traded Economy The travel and tourism industry plays a vital and critical role in maintaining San Diego s economic health. Tourism is San Diego s 2 nd largest traded economy. As described by SANDAG, traded industry clusters are groups of interrelated, export-oriented industries that bring new money into a region. Industry clusters are different from traditional sector employment because the clusters focus on specialized industries as well as buyer and supplier linkages that are unique to a region s economy. In collaboration with CONNECT, San Diego Economic Development Corporation, and the San Diego Regional Chamber of Commerce, the region s three largest traded economies are grouped as Research / Innovation/ Technology, Tourism, and Uniformed Military. These industries bring the most new dollars into the region, and have the greatest buyer and supplier linkages in the local economy, representing a net increase to the local economic base. The economic impact and importance of the tourism industry is clear. In 2012, the tourism industry contributed $8 billion in direct visitor spending and $18.3 billion in total economic impact for the region. 10 This represents new money that San Diegans alone could not generate. 9 U.S. Travel Association, 2013 Travel Answer Sheet 10 CIC Research, 2012 San Diego County Visitor Industry Performance Report 5

Tourism Means Jobs The tourism industry directly employs 160,000 people in the San Diego region, one in every eight jobs or 13 percent of the San Diego workforce. 11 As of 2007, tourism was California s fifth largest export industry employer following business, health services, manufacturing and finance and employed more persons than agriculture, transportation, information or educational services. 12 Notably, tourism was one of only four state industries to show positive growth in employment between September 2009 and September 2010, with the leisure and hospitality sector growing by 4,800 jobs statewide during the recession. 11 EED December 2012 Report 12 California Travel & Tourism Commission, White Paper on California Tourism, June 2011 6

Source: Dean Runyan Associates, California Travel Impacts by County, 1992 2010, April 2012 7

According to the California Chamber 13, California s employment in the leisure and hospitality sector rose solidly in 2012, adding another 36,625 jobs. While the bulk of that increase was at restaurants, other sectors saw solid growth as well. Hotels added to payrolls, with employment rising 5 percent, producing a net gain of 10,000 jobs. Amusement attractions also boosted hiring in 2012, adding close to 4,700 new jobs marking a 12.9 percent increase. CalChamber reports that the rebound in travel and leisure has been even more important to San Diego, where overall employment has risen 1.6 percent over the past year and private-sector payrolls are up 1.9 percent. The leisure and hospitality sector has added 2,800 jobs over the past year, accounting for 14 percent of the increase. 13 CalChamber, Special Report: Economic Advisory Council, March 15, 2013 8

In addition to providing a large number of jobs that supports San Diego s economy, tourism creates jobs across a broad spectrum of skill sets and educational levels. In San Diego, 66 percent of adults do not have a college degree. For many San Diegans with a high school degree or less, the tourism industry provides a career path to the middle class. Tourism jobs offer a career ladder from entry level to senior level, and broad opportunity for many. Tourism also provides opportunity for students working toward higher degrees. Here in San Diego, there are 80,000 students attending four-year colleges or graduate degree programs, and more than 100,000 students at community colleges. Tourism provides part-time jobs that support the academic goals of thousands of San Diegans. According to the U.S. Travel Association 14, an analysis of BLS data showed four key findings on the impact of the travel industry on American s prosperity: 1. Building the Middle Class more than half of travel industry employees (53%) earn a middle-class salary or higher, and travel is one of the top 10 largest employers of middle-class wage earners. 2. Earning Higher Wages the average maximum salary for employees who start their career in travel earn significantly more than other industries ($81,900 versus $78,800). 3. Leading to Rewarding Careers employees who work in travel jobs build valuable skills that can translate into rewarding careers, both in travel and in other industries. Two in five who start their career in the travel industry go on to earn more than $100,000 per year. 4. Promoting Educational Opportunities one-third of those who work part-time while going to school work in travel industry jobs. The diversity and value of tourism industry jobs is clear. From lodging to attractions to transportation to restaurants, there is opportunity at every level and skill set. An analysis of one industry sector, the restaurant economy, shows that 1 out of every 12 workers in San Diego County work in the restaurant industry. A study conducted by the National University System Institute for Policy Research found that industry occupational wages are higher than officially reported. The analysis from 2012 reveals that directly tipped employees at San Diego 14 U.S. Travel Association, Travel Means Jobs, 2012 9

restaurants earn triple ($28.75) the state minimum wage, while indirectly tipped employees earn double ($16.66) the minimum wage. 15 Not only does travel provide good jobs, it provides jobs that can t be outsourced. Unlike other industries, tourism is a service industry with employment at its base. Tourism is not about building widgets, it is about people. Tourism is a shovel ready job creation machine. More travel means more jobs. The importance and value of the industry was underscored by President Barack Obama who in 2012 issued an executive order to boost America s tourism industry so that we can keep growing our economy and creating new jobs. The White House now has a National Travel & Tourism Strategy and is dedicated to growing this sector of our economy. The industry s impact is felt beyond direct-facing tourism businesses. Tourism jobs have a multiplier effect. For every 1 job created in tourism, 1.5 jobs are created in other industries such as healthcare, farming and trades within the San Diego community. 16 San Diegans Benefit from Tourism The people of San Diego understand the benefits of tourism on the San Diego economy and their quality of life. A survey of adult San Diegans conducted by Competitive Edge Research in March 2012 demonstrated the beliefs of San Diegans about the tourism industry. Nine in ten San Diegans somewhat or strongly agree that tourism creates jobs; provides local governments with essential tax revenue; is a source of civic pride; and provides amenities that benefit San Diegans. 15 National University System Institute for Policy Research, The Restaurant Economy: Measuring the Impact of the Food Service Industry in San Diego, 2013 16 CIC Research, San Diego Visitor Economic and Fiscal Revenue Analysis, July 2012 10

March 2012 Community Relations Survey, Competitive Edge Research All San Diegans benefit from tourism tax revenues. According to the U.S. Travel Association, tourism taxes save every American household $1,000 per year. If these taxes are not generated, local governments would need to raise other taxes (i.e., sales, property) or cut services. In Fiscal Year 2012 (July 1, 2011 June 30, 2012), there was $192 million in Transient Occupancy Taxes (TOT) generated throughout the County of San Diego. For the City of San Diego, $150 million was collected in TOT (an increase of 8.3 percent over FY2011), and 100 percent went to the City s General Fund. These funds were then used by the City to pay for services including police, fire, libraries, parks and recreation. 11

The History of Transient Occupancy Taxes In 1964, the lodging industry partnered with the City of San Diego to establish a Transient Occupancy Tax (TOT). The TOT was initially established as a tax of 4 percent and enacted for the sole purpose of marketing San Diego as an investment in economic development. Below is the original City of San Diego ordinance document from 1964: In the first year of collections, $716,139 was collected and 59 percent went to the San Diego Tourism Authority (SDTA). Over the years, the TOT was increased, rising from 4 percent to the current 10.5 percent. As the City s financial obligations grew, politicians amended the ordinance to allow for use of the TOT funds for other City budgetary needs. The number of 12

organizations requesting City funds from the TOT pot also grew, from the initial 1 recipient to nearly 200 organizations including the San Diego Film Commission, San Diego Sports Commission, sporting events, street festivals, arts organizers, and others. While the San Diego Tourism Authority was the only organization to receive TOT in FY1965, by 2007 it became 1 of 186 TOT recipients. In fact, in 2007 only 6% ($8.8 million) of the TOT funds ($160 million) were allocated to the SDTA to market the destination, attract travelers and protect the tourism economy. In 2007, City leaders warned that due to the City s dire financial crisis, there would be no future funding of tourism promotion unless the industry found a way to privately fund sales and marketing of San Diego. Starting in FY 2008, the City stopped funding the SDTA. $2.5 Billion in City of San Diego Transient Occupancy Taxes Since 1964 13

The Creation of the San Diego Tourism Marketing District In 2007, City leaders asked the tourism industry to develop a public-private partnership to market San Diego. In response, the lodging industry looked at the Business Improvement District model and developed an assessment district for tourism. The San Diego Tourism Marketing District (TMD) was one of the first of its kind in the nation. The TMD united the lodging industry, which voted to self-assess in order to raise funds to support the San Diego Tourism Authority and promotion of San Diego. A 2 percent assessment fee was levied on lodging establishments with 70 rooms or more. The TMD relieved the City of San Diego from funding tourism promotion and the SDTA, thus saving the City $10.4 million per year in obligations - $52 million total over the lifespan of the first district. Within the State of California, there are now 74 tourism marketing districts. Last year, California TMDs spent a combined $140 million in non-tax funds for tourism promotion. For each $1 invested in tourism promotion, $70 was returned to the state economy. 17 TMDs provide muchneeded budget relief for local governments and create a virtuous cycle of investment that benefits the entire economy. Based on the success of the first TMD (2008-2012), San Diego city leaders and the lodging industry collaborated to create a new district under the guidelines of 2010 s Proposition 26. City and industry approval of the new district was overwhelming due to the previous TMD s proven track record of accountability, standards, measurements, third party audits and transparency. The new district was approved by 90 percent of the lodging industry, a majority of City Council and the Mayor of San Diego. The new district began on January 1, 2013 and runs until 2053. The Case for San Diego Tourism Marketing Travel is the largest industry in the world and, as such, is the most competitive. With travel, destinations are the product and tourism is a commodity of a region. San Diego s scenery, climate, people, cultural diversity, history, landscape, parks, neighborhoods and attractions are key features that provide potential buyers unmatched benefits. In a global marketplace, destination marketing is essential to attracting visitors and protecting a tourism economy. Other countries, states and cities actively market themselves, and new destinations are aggressively competing for market share. According to the Destination 17 California Travel Association, Tourism Marketing Districts: Creating Jobs. Growing Our Economy., 2012 14

Marketing Association International, there are over 600 destination marketing organizations from 20 different countries vying for travelers. From running advertising promoting the brand and maintaining visitor information web sites, to working with tour operators to open international markets and selling conventions to meeting planners, destination marketing is essential to protecting and growing tourism. These destination marketing organizations exist because travelers choose a place first, and then their hotel and activities. 18 While individual businesses focus their marketing efforts on communicating the advantages of their specific products or services, there is no overarching destination brand or tourism development strategy without a tourism marketing board. Individual corporations market their own brands and seek to have travelers choose their hotel, attraction or restaurant versus their 18 California Travel & Tourism Commission, White Paper on California Tourism, June 2011 15

competitor s brand. The brand of a destination however is represented by the tourism promotion agency and is essential to stimulating traveler choice. A destination-managed tourism marketing program is absolutely essential to driving economic benefit for cities and states. Without the branding and coordinating efforts of the San Diego Tourism Authority, San Diego s travel industry would be at a competitive disadvantage to other cities and states. Case in point is the story of Colorado State Tourism 19. In 1993, Colorado s $12 million tourism budget and office was eliminated, leaving it as the only state in the U.S. without tourism funding. A 1999 case study conducted by Longwoods International followed Colorado s market share of travelers, travel spending and tax revenues with and without tourism funding and marketing. After Colorado eliminated its tourism office, the State s domestic travel market share fell 30 percent within 2 years at an annual loss of $1.4 billion to $2 billion in visitor spending per year. In 2000, 7 years later, the legislature was convinced to reinstate a marketing budget of $5 million, and research was put in place to track the effectiveness of that spending. The result was a return on investment of $12 in tax revenues for every $1 invested by the State. This began the reversal of the declines in economic activity and tax revenues from tourism in Colorado, which continues to be supported today. 19 Longwoods International, What Happens if You Stop Marketing? The Rise and Fall of Colorado Tourism 16

Longwoods International What Happens if You Stop Marketing? The Rise and Fall of Colorado Tourism. Critics have argued that San Diego can sell itself. In today s world, no product sells itself. Take for example the 2012 presidential campaign. The Washington Post estimated that the final two presidential candidates spent in excess of $1 billion each to sell and market themselves to the American people. These were two candidates (President Barak Obama and Mitt Romney) who were already very well known. The State of California, an international icon, spends $50 million annually to remind potential travelers about California and encourage travelers to choose California versus Hawaii, Florida, Mexico or Las Vegas. And Las Vegas, one of the best known and most popular travel destinations in the world, spends $90 million in media advertising alone to promote What happens in Vegas stays in Vegas. With the start of the San Diego Tourism Marketing District in 2008, the San Diego Tourism Authority (SDTA) budget went from $14.7 million to $29.3 million in FY 2009. The timing couldn t have been better as the nation was entering the Great Recession. With the infusion of marketing dollars, the SDTA was able to grow its sales and marketing programs, reaching more 17

travelers and developing new markets. With the infusion of dollars over a four-year period of time, San Diego was able to grow its market share of hotel room nights sold especially in the highly competitive transient market segment which requires consumer direct marketing. As other cities cut their advertising budgets, San Diego was able to invest during the height of the Great Recession, stemming loses in visitor volume and spending. Today, San Diego has seen 37-months of growth in hotel visitor volume and spending. San Diego is in the top five domestic travel destinations for person-days and San Diego lodging is in the top 10 hotel markets in the country. The investment in tourism marketing when the recession hit kept San Diego from a deeper decline. In fact, Smith Travel Research showed that San Diego outperformed the U.S. in room nights sold though the recession and into recovery. Smith Travel Research Shows San Diego Hotels Outperform US During The Great Recession 18

In 2012, San Diego hosted 32.3 million visitors. Eighty-nine percent of the travelers to San Diego were leisure visitors, 11 percent were business (commercial and meeting/convention). 20 All these visitors and meeting planners had a choice of where to take their business. San Diego Tourism Authority Destination marketing is the province of visitor bureaus in the case of cities, and tourism offices in the case of states. For San Diego, it is the San Diego Tourism Authority (SDTA) a private, non-profit 501(C)6 corporation that is charged with driving visitor demand to economically benefit the San Diego Region. The SDTA (previously known as the San Diego Convention & Visitors Bureau or ConVis) was incorporated in 1954 as a private, non-profit 501(c)6 corporation with a mission to drive visitor demand to economically benefit the San Diego region. As the region s Destination Marketing Organization (DMO), the SDTA is charged with monitoring the health of the tourism industry and promoting all areas of the region. Investment in sales and marketing of the San Diego Brand has resulted in San Diego becoming one of the nation s top travel destinations. The SDTA provides the leadership, expertise and resources to generate demand for the tourism industry. Program of work includes research monitoring the health of the industry, visitor services, direct sales, advertising and new market development. Each year, the SDTA generates over 2 billion in gross media impressions, services over 6 million visitor inquiries and engages with 12,000 meeting planners on behalf of San Diego. In addition, the SDTA engages in numerous community projects including Wildfire Crisis Communications, Balboa Park 2015 Centennial Planning, New Air Route Development with the San Diego International Airport Authority, Cruise Ship Industry Development with the Unified Port of San Diego, Save Our Fire Pits in partnership with the San Diego Foundation, and support for the homeless community to name a few. In FY 2012, SDTA sales and marketing programs influenced the sale of 3.8 million hotel room nights for the region 25 percent of all hotel room nights sold. These visitors in turn generated $3 billion in total economic impact and $52 million in TOT collections for the San Diego community. 20 San Diego Tourism Fast Facts 2013, San Diego Tourism Authority 19

For more information on San Diego Tourism Authority programs and results, please read the 2012 Annual Report and Highlights at http://sandiego.org/annualreport. Conclusion Travel is a global growth industry and a catalyst for jobs and future economic opportunities. Tourism is San Diego s 2 nd largest traded economy providing $18.3 billion in economic benefit and much needed tax revenues for local government. Taxes from travel and tourism support critical city services such as police, fire, parks as well as destination amenities that enhance our quality of life. Tourism provides jobs that can t be outsourced, enabling 160,000 San Diegans the opportunity to pursue the American Dream. The San Diego Tourism Marketing District created a new public-private partnership that relieved local government from funding tourism promotion while protecting the vitality of the tourism economy. The San Diego Tourism Authority program continues to do what individual businesses can t do for themselves provide an overarching platform to promote the San Diego Brand, nationally and internationally, to protect and grow destination demand to benefit the entire San Diego community. 20

Appendix 1.Destination Marketing Organization Spending 21

2. San Diego Depends Upon Transient Travelers to Support its Tourism Economy Smith Travel Research, Market Mix of Room Nights Sold, January 2013 22

23 White Paper on San Diego Tourism

3. Travel is the #1 Generator of Tax Revenues In addition to the $182 million in transient occupancy taxes generated in the County in 2011 ($192 in FY12), visitors into the County spent money at restaurants, attractions, museums, retailers and other businesses pouring another $196 million in sales taxes into government coffers. One cent, or about $25 million, of the sales tax stays in San Diego. Of the sales tax that goes to the State, a portion returns to San Diego as well through Caltrans highway and other infrastructure projects. Indirectly, the tourism economy supports an estimated $160 million in property taxes for local governments. All totaled, visitors to San Diego in 2011 left behind $603 million in tax revenues. At the State level, Dean Runyan and Associates conducted a fiscal revenue analysis of top industries in California in the report California Travel Impacts by County, 1992-2010. An excerpt from that report demonstrates the value of the industry to state and local government. Travelers in the State of California annually generate $6.1 billion in direct state and local taxes. Travel is 24