Obtaining stable & sustainable funding: the ins and outs of Tourism Improvement Districts

Consistent funding is essential to fueling tourism initiatives that drive economic growth, job creation, and destination development. But what happens when an unforeseen outside force strikes?

A 2022 study by Destinations International showed that public funding accounts for 92% of destination marketing organization (DMO) funding.

If you have a single funding stream, you likely saw the destabilizing impact and uncertainty it creates — which is why it’s more important than ever to diversify funding streams to build security and stay competitive in an evolving marketplace.

In response, many destinations are exploring Tourism Improvement Districts (TIDs).

What are Tourism Improvement Districts?

TIDs are a solution to create sustainable, diversified funding for tourism initiatives. Originating in California in the 1980s, nearly 200 TIDs have been formed in 19 states.

Similar to Business Improvement Districts, TIDs levy a special benefit assessment on participating local businesses — usually hotels, but often including other sectors — over a predetermined term. 

These funds are not a tax and aren’t controlled by the local government. Instead, they are managed by a dedicated nonprofit — often a DMO and advisory board — used exclusively for tourism marketing, destination development, and even capital improvements to attract new visitors.

TID funds are meant to augment public funds, not replace them, to give destinations a predictable flow so they can plan over a longer term.

What Impact Do Tourism Improvement Districts Have?

One of the key benefits of a TID is the voice it gives participants. The assessment is approved and renewed by the payers themselves, giving them more control over initiatives — and assurances that they see economic benefit.

While each destination and TID is different, their impact on key metrics can have a massive influence.

In 2021, Tourism Economics released a study of 30 years of data that compared 29 cities with established TIDs to 71 cities without them. The study found that destinations with a TID had a 2.1% increase in hotel room demand and a 4.5% in hotel room revenue compared to destinations without — a total difference of 150,000 in room demand and $51 million in revenue. 

How to Set Up a TID

Establishing a TID can be a complex process filled with collaboration, advocacy, and strategic planning that can take between 12 and 24 months.

While each destination is different in its stakeholders and intricacies, there are a few key steps to creating a TID.

You first must align stakeholders with a plan that outlines the essentials: 

• Term

• Assessment rate

• Budget

• Supported initiatives

• Structure

This means aligning your district with a unified vision before launching your advocacy. Whether you want to sign a petition or gather speakers for a hearing with the city, do so in advance so you have proper support ready when the time comes.

TIDs function as private/public partnerships, so you’ll work alongside your city government to create one. This is where you’ll present your plan, display your support, and confirm who will manage the funds.

Challenges Facing TIDs

Of course, there are challenges to be aware of if you’re considering forming a TID. Some of these challenges include: 

• Maintenance of government funding: during budgeting, governments may see the reception of private funds as a way to reduce public financial support

• Proper allocation: you must ensure all funds collected by district businesses go into a communal pool to be used for their true purpose and not on an individual basis

• Clarity with consumers: businesses within a district typically pass the fees along to their customers. Make sure they’re aware of the fee and its purpose

TIDs are an increasingly popular and powerful tool that can generate predictable funding for tourism marketing. The number of TIDs nationwide has grown 47% over the past eight years alone. They require intense collaboration and deep planning, but may provide you with new funding streams to drive future initiatives.