During a fiscal review this week at City Hall, the Ocean City Mayor and Council had cursory talks about increasing the city’s room tax rate.
It’s been nine years since the room tax rate was raised to 4.5 percent. That increase came with the understanding 2 percent of the gross revenue would be earmarked for advertising and marketing. That hike led to room tax collections increasing 41 percent with the fiscal year 2018 amount topping $15.5 million (compared to $11 million the first year after the increase). During this time period, marketing dollars have increased from $3 million, or 28 percent of room tax collections, to $6.8 million, representing 44 percent of tax collections. Therefore, the percentage of distributions of the room tax receipts to the general fund, where it pays for core services such as public works and public safety, has declined from 72 percent to 56 percent.
The proposal reviewed this week would increase the room tax from 4.5 percent to 5 percent, or the maximum allowed by state law. This is a significant move that requires extensive review by tourism industry representatives and elected officials. As of this week, the plan is for the proposal to be vetted initially by the town’s tourism committee, a hybrid group of elected officials, appointed tourism officials and business owners.
During this review, it’s imperative the full Mayor and Council be involved in this discussion. In the past with these sorts of talks, the weighty issues are reviewed at the committee level and then brought before the Mayor and Council with the expected stamp of approval after much dialogue beforehand.
In a few high-profile instances, the remaining council members not privy to talks at the committee level have balked at the recommendation, resulting in ill feelings among those who fully reviewed the concept and gave their stamp of approval. Therefore, the full council needs to be involved in this conversation from the beginning. It can still be reviewed at the committee level where informal brainstorming can take place, but we believe this is one matter where all the council must be present at the subcommittee level.
The are many questions that be considered with a room tax increase. What will a half of a percent increase in the room tax be expected to bring the city in dollars? Where should this “new” revenue go – marketing or to the general fund? Will increasing the room tax lead to higher annual room rate increases than usual at a time when many visitors think it’s too expensive to vacation here already? If the new dollars are to go to cold weather marketing, as was discussed this week, how will the city do it?
Back when the room tax was increased to 4.5%, it was approved so advertising and marketing could be boosted. Studies showed Ocean City was being over spent on marketing when compared to other like-minded tourist destinations and competitors. The case was made more marketing dollars was needed. We are not sold that’s the case now.
We think the time has come for more to go to the cost of being a tourism destination. If more is put on marketing in the off-season months and more people end up coming here, which will require some innovative approaches and new events, it will cost the town more to fund services. The worst-case scenario would be distributing these new dollars to marketing the off-season, resulting in the town needing more money to fund services and a property tax hike being the inevitable recourse. That would be unacceptable.
This is a discussion with many layers. We think the entire council needs to be involved from the beginning.