I think the key is to hold tournaments with low costs and no memberships required. I'm looking to hold my second tournament this spring. It will have rated and unrated play, for kids and adults, and a fee of 10 dollars. (I would rather do 5 dollars, but I can't find a free site, and I can't attract enough people to pay for the bigger sites that would have a lower per-person break even point. If anyone knows a good site in the Detroit area, drop me a line.)
Again, I can only say what we do in South Africa.
Shopping Malls here are quite willing to provide you with free space in the public areas of the malls, foyers, etc. They would also often provide tables and chairs, you just need to supply equipment. (Remember, if you are trying to attract new players they probably don't own clocks). Frequently they will also sponsor prize money.
It's quite an experience to play a tournament in a noisy mall, but it somehow "demystifies" the game for casual players. If you make this a regular thing, you can often get casual players to sign up for the next tournament, there is normally a fair bit of interest.
And you're right too, about holding tournaments. Formal bodies are never going to popularize the game. It's up to local clubs.
About the prize money, you do need that to attract some good players. Casual players and the public at large find it fascinating to watch the good(?) guys blitzing or post morteming between rounds.
$25 for an entry fee? On what planet did you find that bargain?
Certainly not in California.
The USCF clearly needs an overhaul.
I won't dispute that the USCF needs an overhaul, but I am saying that even with the USCF the way it is, it's possible to hold a ten dollar tournament. The first step is to get rid of the cash prize.
I've already done it in Detroit, and I'm doing it again this spring.
In nearby Ann Arbor, there are montly three round, "quad" style, rated tournaments for a $5.00 entry fee... and a $15.00 prize for each quad.
Obviously, they have a sweetheart deal. Their site is free. That can't easily be arranged, but there are churches, libraries, and community centers that can easily be had for ten bucks per person.