OCEAN CITY- Ocean City tourism officials this week began a preliminary debate about hiking the room tax rate to increase revenue and offset the city’s costs, which spurred a larger debate about the potential for pricing the resort out of the market.
During Monday’s Tourism Committee meeting, Council Secretary and committee chair Mary Knight broached the subject of possible raising the room tax in Ocean City by a half a percent from the current 4.5 percent to 5 percent for the summer of 2018. It’s a concept that has surfaced a few times off and on at the Mayor and Council level and Knight was presenting the idea to committee members to begin garnering opinions from the stakeholders in the resort’s tourism industry.
“I think we’re going to be looking at this for next season, not this season,” she said. “This would be considered for the summer of 2018. When you look at the numbers, you can see the issue.”
Knight said some on the council had broached the idea of hiking the room tax rate a half a percentage point in order to offset the increased costs of the countless special events and other free amenities enjoyed by visitors.
“I don’t think a lot of people realize what it costs the city from the special events to the day-to-day activities,” she said. “Last year, we had 102 special events. Just last weekend, we had the parade and there were 41 additional police officers on. There are costs associated with doing all of these things.”
Knight said increasing the room tax could generate revenue needed to pay for special events, and to keep the beach and Boardwalk clean, for example. She said some of those costs should be borne by the visitors and not necessarily on the backs of the taxpayers.
“There are a lot of things going on that people don’t always see,” she said. “The council’s idea is not for the residents and business owners to pay for all of that, but have the tourists pay with that half a percent on the room tax. It would add up to about $5 per night.”
Knight pointed out the sales tax in Ocean City is currently 6 percent, while the room tax is 4..5 percent, bringing the total to about 10.5 percent. By comparison, the combined tax in Rehoboth and Fenwick is around 8 percent, Ocean City, New Jersey is 15 percent, Wildwood, New Jersey of 13 percent, Virginia Beach is 14 percent and Myrtle Beach is 13 percent.
“Looking at those numbers, that half a percent wouldn’t hurt us competitively,” she said. “I don’t think we would hurt ourselves competitively because it looks like we have room to grow. We would get another $1.4 million in the first year alone.”
Budget Manager Jenny Knapp pointed out the cost of maintaining the resort to the visitors’ expectations continued to rise, as did the cost of producing the free, special events.
“The cost of cleaning the beach went up and the cost of cleaning the Boardwalk went up,” she said. “We have to consider a way to recoup some of that.”
Knight said the potential room tax hike could increase revenue for marketing and advertising and lead to more special events and amenities to attract visitors.
“It would go toward covering the cost of special events and it could go to developing new events and amenities,” she said. “It could also offset some of our increasing costs.”
Not all on the committee were particularly keen on the idea of raising the room tax considering the bottom line for summer visitors is already closely scrutinized. Ocean City Hotel-Motel-Restaurant Association Executive Director Susan Jones said the comparatively low room tax percentage is somewhat deceiving because the average daily rate for a hotel room in the resort is higher. Jones said finding a way to increase demand, especially during the middle of the week, could make up any revenue derived from increasing the room tax rate.
“I think from our perspective, yes, we do have one of the lower percentages on room tax, but we also have the highest daily rate among our competitors,” she said. “The room tax will increase and the business increases. Let’s do something to really sell mid-week. I’m not opposed necessarily, but let’s look at this from the other side.”
Jones pointed to a growth spurt in new hotels in Ocean City as a means to increase the bottom line on room tax without raising the percentage rate.
“There are 700 rooms coming on line in the next two years,” she said. “They are on the high end, and they would be open year-round because they are franchises. Those 700 room-nights could make up the difference.”
Knight said those types of opinions are why she brought the room tax increase concept to the committee before presenting it to the full Mayor and Council.
“That’s why I wanted to bring it here first,” she said. “I would hope the Council President wouldn’t arbitrarily put this on the council agenda if we hadn’t hashed this out at the committee level.”
Councilman and committee member John Gehrig said increasing the demand and filling hotels on those mid-week dates should be explored before any increase in the room tax rate is explored.
“We have a demand problem on weekdays,” he said. “That’s why our average daily rate is high. There are rooms available during summer weekdays under $100. We have to create demand during the week. I think there’s a lot of work to do before we consider that.”
Jones agreed the room tax revenue could be increased by simply finding a way to increase mid-week demand and not necessarily by raising the rates.
“We just don’t see the no vacancies we used to during the week,” she said “We used to have lines at the Convention Center to get the last available rooms.”
Greater Ocean City Chamber of Commerce Executive Director Melanie Pursel said the issue cuts both ways. On the one hand, the added special events are attracting more visitors, but the increased cost of maintaining the resort and keeping the beach and Boardwalk clean and safe had to be considered. Increasing the room tax rate could be one way to offset those costs.
“We’re adding events and adding events and that’s great,” she said. “If it is not safe and it is not clean, they might not come back. That has to be considered.”
Knapp said she didn’t feel strongly one way or the other about increasing the room tax rate, but did point out its importance to the overall revenue stream for Ocean City.
“The second biggest revenue source is room tax,” she said. “That helps cover the cost of police and public works and special events. Not that I’m for or against it, but it is a very important revenue source.”
Convention Center Director Larry Niccolino used an example of attempting to book a postmaster’s convention and putting out a request for proposal (RFP) to hotels in the resort to provide accommodations at reasonable rates. He said only one hotel responded to the RFP and offered $168 per night for the mid-week dates from Sunday to Thursday, but the rates went up to $238 if the attendees came a day before or stayed a day after.
“Only one hotel responded and they said they just weren’t that interested,” he said. “We’re not going to get people to come mid-week at those rates.”
Niccolino said many convention attendees are now looking at alternatives to hotel rooms because of the pricing.
“They are now looking at condos because the hotel rooms are more expensive, especially on the shoulder days,” he said. “My biggest fear is we’re going to price ourselves out of the market. Some of these conventions and events are going to start looking at Virginia Beach, Myrtle Beach and even Orlando.”
Tourism Director Donna Abbott said a half a percent of the room tax collected in Ocean City is dedicated to marketing and advertising.
“Before we had that half percent, we had a very small marketing budget and we were getting outspent by our competition,” she said. “That half percent has really made a difference.”
Gehrig said the combined sales and room tax rates in Ocean City were lower than some of the resort’s competitors, but didn’t necessarily agree more money should be dedicated to marketing and advertising. Gehrig said there had to be a balance between keeping the property tax rates low for residents while not scaring away visitor with higher room rates.
“We are comparatively low,” he said. “I’m inclined to agree we don’t need to keep contributing to the advertising budget. At the same time, we need to keep property taxes low and we need to clean the beach and keep the Boardwalk clean. You won’t find a cleaner beach.”
