What You Need to Know About TMDs
September 2008 | By Wayne Dernetz

If you’re like me, the term “TMD” may be new to you. Here’s a quick explanation of what a TMD is and why business owners are so keen on it. 

A TMD is a Tourism Marketing District – a modern, specialized form of a traditional assessment district. An assessment district is a defined geographic area in which monetary assessments are imposed on owners of property to pay for improvements that benefit the property. Assessment districts have long been used in California to pay for constructing improvements such as streets, sidewalks, parks, landscaping, and other improvements that benefit property owners.   

In recent years, a new form of assessment district has come along – the Business Improvement District, or BID. California’s first BID law was enacted in 1989. It allowed assessments on business owners within a defined area not just for improvements but also for programs benefitting businesses. In 1994, a second BID law was adopted allowing assessments on owners of both businesses and property. A TMD is a variation of one or the other of these BIDs. 

Last year, San Diego was the first city in our county to authorize formation of a TMD. San Diego’s TMD covers the entire City and allows assessments on every hotel or motel having 70 or more rooms. The first assessments will be levied in 2009. Under San Diego’s TMD ordinance, the hotel owners may pass their assessments along to visitors as a charge on room rates similar to the City’s transient occupancy tax.

An October 8, 2007 report from San Diego’s Independent Budget Analyst stated the TMD is “to benefit the lodging industry by providing a secure revenue source for marketing and promotion.” The report added, the TMD “may also provide benefits for the City of San Diego.”  But these benefits would come from future reductions in City allocations of TOT revenues to various convention and tourism groups only if San Diego’s current TOT revenue-sharing formulae were changed restoring those revenues to the City’s general fund. 

As in every assessment district, forming a TMD requires prior approval from the city council or governing body of the jurisdiction in which it is located. The city council must give public notice of the proposed district and hold a public hearing. The notice must describe, among other things, the defined area of assessment; the properties to be assessed; the plan of improvements and programs to be developed; and the proposed method and form of assessment. Following the public hearing, if a majority of assessed owners consent, the city council may then approve the assessment district. 

Unlike traditional assessment districts, the BID law under which a TMD is created allows the assessed owners to form an association or entity. The city may contract with this owners’ entity to carry out the approved plan of improvements and services and it may assign the assessments to the owners’ entity. In so doing, the owners’ entity becomes the agent of the city for undertaking the improvements and programs. 

This unique feature of BID law is what makes the BID so popular among business property owners. Once the assessment district has been formed, by agreement with the city, owners can directly control the use of the assessment proceeds and implement the plan of improvements and programs for their own benefit. In the case of a TMD, that means developing a marketing program to promote tourism.