Ocean City Room Tax Hike Proposal Clears First Hurdle

OCEAN CITY – Just one week after the Ocean City Hotel-Motel-Restaurant Association (OCHMRA) appeared before the Mayor and Council to present its plan to increase advertising funds, the City Council has approved the first reading of the ordinance outlining the plan.

The ordinance, which details the plan for directing the expenditure of certain monies from the hotel rental tax, was approved unanimously on first reading Monday night. The ordinance aims to increase the room rental tax from the current 4 percent to 4.5 percent. The ordinance states that the Mayor and Council will be asking the county to make the .5 percent increases with the plan becoming effective Jan. 1, 2008.

The OCHMRA came before the Mayor and Council last week with several representatives as well as a five-year growth plan proposing a restructuring of the room tax. The OCHMRA presented a plan it hopes will fuel the advertising fund that has remained stagnant over the past few years and revive tourism during the summer months. The goal is to create a sustainable funding source for destination marketing.

Their proposal calls for a .5-percent increase from 4 percent to 4.5 percent of gross room revenues, with 2 percent to be dedicated to the advertising budget.

The 2 percent dedicated to the advertising budget will be used specifically for destination marketing, not for other tourism related expenses such as salaries of tourism related employees. The remaining 2.5 percent will be dedicated to the general fund.

To create a gradual increase of gross room revenues, the OCHMRA proposed a five-year growth plan, increasing from 1.4 percent the first year to 2 percent the fifth year. The percent of revenues dedicated will increase by about .2 percent each year until it reaches the total 2 percent revenue.

Upon gaining approval from the council to move the proposal to ordinance form, the OCHMRA requested that the measures be handled quickly due to the room tax cards that will be going into production in September.  One week later the proposal came before the Mayor and Council in ordinance form. The ordinance was met with discussion with both council members and residents weighing in.

Ocean City resident John Medlin questioned the term “hotel” as well as the reason for the slated Jan. 1 starting point instead of beginning with the start of the fiscal year.

City Solicitor Guy Ayres explained that the term “hotel” would include basically any place for transient accommodation, answering Medlin’s question of whether condos would be included in the tax increase.

Ayres also explained that the Jan. 1 date was selected as the most logical date as far as time is concerned and would allow for revenue to begin well before the beginning of the next fiscal year on July 1, 2008. He assured Medlin that beginning in the middle of the fiscal year would not pose a problem.

Ray Sawyer, another Ocean City resident, also weighed in on the issue.

“I think it’s important for the public to realize some of the numbers at play here,” he said, referring to the increase from $1.5 million for advertising to $3.5 million. “Now we’re dedicating set numbers to be spent in the future as well as raising the room tax.”

Sawyer questioned whether it was legal for the current council to mandate future council’s budgets and decisions.

Ayres explained that future councils could change the ordinance, adding that no council would be required to abide by it.

Councilman Jay Hancock, who showed lukewarm support for the proposed plan last week, questioned the impact on the general fund as well as those backing the ordinance.

Hancock questioned how the general fund would be affected by the increase in monies to be dedicated to the advertising fund. He also questioned whether special interests groups pushing for the increase would be seeing an increase in advertising for their own properties.

“Are they going to be increasing advertising for the destination as well as for their own properties,” he asked.

Councilwoman Nancy Howard showed full support for the ordinance. She pointed out that the general fund would not be adversely affected, adding that the increase in the room tax would bring more money into the town and therefore the budget as well in the long run.

“I do believe the tourism industry has spoken, I believe their word is good, and that they will work with us and we will work with them,” she said of concerns for how advertising funds will be spent.

Mayor Rick Meehan contributed to the discussion as well, also showing support.

“I hate to put it this way but you have to spend more money to make more money,” he said.

Meehan added that the advertising budget has remained at $1.5 million for too long and was in need of a boost.

“This will catch us up and then allow us to move forward,” Meehan said of the increase.

The council voted unanimously to approve the ordinance on first reading. The ordinance will require a second reading by the council before being passed.