OCEAN CITY — The City Council approved on first reading a budget amendment that would redirect around $750,000 in funds in the fiscal year 2017 budget, but not before a debate about the associated increase in advertising spending and a burgeoning fund balance.
The amendment recognizes an additional $754,693 in appropriations from the fund balance and redistributes a significant portion to the town’s tourism advertising budget along with unfulfilled prior year purchase orders. In layman’s terms, because the room tax collected during the early part of the last summer season came in higher than anticipated, it created a windfall of sorts that must be rededicated to tourism advertising.
That includes nearly $427,000 in additional funding for advertising due to the room tax coming in over the budget estimate for April through June in fiscal year 2016.
Former councilman and long-time Ocean City resident Vince Gisriel pointed out on Tuesday the roughly $427,000 in additional advertising spending could, and maybe should, be redirected toward other purposes, including a potential reduction in the property tax rate.
“Just a decade ago, the town’s advertising budget was $2.1 million,” he said. “With this budget amendment, the advertising budget grows to $6.7 million. I know you have a formula and it is related to room tax, but I think it’s time to take a look at curbing that formula.”
Gisriel said the roughly $6 million advertising budget equates to 7.8 cents on the property tax rate, which could be reduced significantly or eliminated altogether.
“You could lower the tax rate 7.8 cents practically overnight if you didn’t redirect these funds to advertising,” he said.
Budget Manager Jennie Knapp explained the formula that requires dedicating a portion of the room tax collected in the resort back into the advertising budget. Knapp said when the room tax comes in over estimate, the advertising budget is increased per the formula, but the reverse could happen if the room tax came in lower than what was expected.
“The only new money going into advertising is the $124,000 in room tax that came in above the estimate,” she said. “A percentage of the gross room tax revenue must be dedicated to advertising and that has to be adjusted when it comes in above what was estimated. The same thing would happen in reverse. If the room tax came in less than projected by three rainy weekends or whatever, the advertising budget would be reduced.”
Gisriel then pointed out the proposed budget amendment before the Mayor and Council also expanded the town’s fund balance, a rainy day fund of sorts for unexpected expenses. It has been the town’s policy to maintain a reserve fund balance roughly equal to 15 percent of the entire budget for emergencies and unforeseen expenditures. It’s a common practice in municipal government and most towns and counties attempt to maintain a reserve fund balance of at least 12 percent.
However, Gisriel pointed out on Tuesday with adjustments prescribed by the proposed budget amendment, Ocean City’s reserve fund balance has been consistently higher than the stated policy of 15 percent.
“Last May when you adopted the budget, you illustrated at the time over the last five years, the fund balance came in at an average of 19 percent, or well over your stated policy of 15 percent,” he said. “As of June 2016, the fund balance had grown to over 23 percent. That’s the highest on record. That equates to seven cents on the tax rate above the 15 percent.”
With the reserve fund balance now estimated at eight percent above the stated policy, Gisriel pointed out it could be time to rein that in and consider throwing the property owners a bone in the form of a tax rate reduction. He said the growing tourism advertising budget combined with the burgeoning reserve fund balance could be used to send a substantial tax rate reduction to property owners.
“Every year you expand the fund balance above your stated policy of 15 percent,” he said. “It’s time to review that. When you combine those two figures, it is nearly 15 cents on the tax rate. It’s time to give that back to the people.”
Councilman John Gehrig pointed out the room tax formula mandates a certain percentage be rededicated to tourism advertising. Gehrig said the room tax coming in over what was estimated should be a sign the resort’s marketing is working and having more room tax revenue to reinvest in advertising should be considered a bonus.
“We all live here and we’re all partners in the success of the tourism industry,” he said. “The more people that stay in our hotels, eat at our restaurants and play our golf courses, the better off we’ll all be. It’s true the tourism advertising budget is increased every year, but we are all stakeholders in our tourism industry.”
The council voted unanimously to approve the proposed budget amendment.
