OCEAN CITY — Tourism officials last week renewed the debate over increasing the room tax in Ocean City by a half a percentage point, leading to a larger discussion about the future branding of the resort.
During last week’s Tourism Committee meeting, the debate over potentially increasing the room tax in Ocean City from the current 4.5 percent to an even 5 percent began anew. The room tax was last raised from 4 percent to 4.5 percent in 2007 and 2 percent of the overall increase was dedicated by ordinance to advertising and marketing the resort.
The discussion began late last year at the Mayor and Council level and was forwarded to the tourism committee for further review. While most on the committee agree it could be time to nudge the room tax rate again after the last increase 12 years ago, the discussion quickly turned to a larger debate about how and where the potential revenue increase should be dedicated.
For example, Councilman and committee member John Gehrig suggested, and many agreed, a portion of the potential increase could be dedicated to an aggressive campaign to tap into the growing youth sports market. Ocean City’s target market has always been families and no one is suggesting that should change, but the billion dollar youth sports market could provide an opportunity for growth in the resort.
“We can still fish in the same core fishing holes,” he said. “They aren’t dried up. We just have to find new fishing holes.”
Budget Director Jennie Knapp provided the background on the last room tax increase and how the discussion had reached the point where it is now. She explained how room tax was one of the three basic pillars of revenue in Ocean City and how the half percent increase could impact the budget and the increased cost of providing services to residents and guests.
“We would gain $1.7 million in additional revenue by raising the room tax from 4.5 percent to 5 percent,” she said. “That would cost an additional two cents on the property tax rate.”
Mayor Rick Meehan said the town faced a similar issue in 2007 when the room tax was last increased. The increase that year from 4 percent to 4.5 percent increased the town’s advertising and marketing budget and, in turn, improved the shoulder seasons. However, with the expanded shoulder seasons came an increased demand on services provided by the town, services that have come with a cost.
“I think the room tax increase has done everything we thought it would do,” he said. “The result has been more people in the offseason, but that has also resulted in an increased cost to provide services.”
Some on the committee pointed to the current growth in hotel inventory in the resort. With several new hotels expected to be available next spring, the number of available rooms will increase by around 10 percent. However, Meehan pointed out it was not a safe assumption that simply filling those new hotel rooms will have an in-kind impact on the town’s bottom line.
“We’d be very optimistic to believe we’ll have 10 percent more revenue because we have 10 percent more hotel rooms,” he said. “There will be some cannibalization.”
Meehan also pointed to the rapid development of new hotel rooms in West Ocean City. By extension, those new hotels share the same benefits from the town’s advertising and marketing campaign has the hotels on the island, but currently no portion of the room tax collected in West Ocean City comes back to the town.
“The elephant in the room are the 600-plus new hotel rooms in West Ocean City,” he said. “Who is going to have to do the heavy lifting to fill those? We are. We need a percentage of the room tax collected in West Ocean City to come back to Ocean City to help offset the advertising costs.”
Ocean City Hotel-Motel-Restaurant Association Executive Director Susan Jones said the focus should remain on finding ways to attract visitors to fill all hotel rooms in and around the resort.
“What are we going to do as a city and as a community to increase the demand?” she said. “The challenge is going to be filling those rooms.”
Gehrig pointed out there certainly appears to be room for growth in the town’s room tax rate.
“Our room tax is 22nd out of 23 counties in Maryland,” he said. “Only Talbot County has a lower room tax. The state’s top tourism destination has the 22nd lowest room tax rate.”
Gehrig also pointed out it could be time to revisit the town’s marketing strategy.
“Let’s face what we’re in,” he said. “We’re in a peaking market. We’re seeing a season within a season. We have rooms at $99 on a Wednesday and $399 two days later.”
Gehrig said increasing the room tax puts the increased cost of providing services such as public safety and public works, for example, on the visitors who use them and not on the residents.
“There is zero political will to raise property taxes,” he said. “That’s not going to happen.”
Gehrig said a younger generation of vacationers are not choosing the typical domestic beach vacation. He said Ocean City should continue to target families as it has done for generations, but with an increased focus on the growing youth sports market.
“When you look at the millennials, the oldest are now in their 30s and the youngest are in their 20s,” he said. “They’re not going to the Outer Banks or Deep Creek Lake. They’re going to Copenhagen and Iceland because it’s cheaper. What is our core market? Families with kids under 14 who are playing sports.”
It’s no secret youth sports is a burgeoning industry in the U.S. with families with young kids traveling all over for tournaments, travel leagues and camps. Heretofore, Ocean City has done a good job of tapping that growing market with basketball, softball, volleyball, soccer and lacrosse tournaments almost all year long inside at Northside Park and outside on the beach throughout the summer, but Gehrig believes there is certainly room for growth and pointed to some of the statistics related to the youth sports movement.
“They spend $15,000 per child per year on sports, travel teams and tournaments,” he said. “That’s how they’re using their travel and vacation days. We’re fighting that trend, but we need to get out in front of it. We’re built to dominate the youth sports market.”
Ocean City has reportedly begun exploring a possible youth sports complex off the island, but it would likely take a partnership with Worcester County. The county, meanwhile, has also explored the possibility of a youth sports complex, likely somewhere in the north end, but the concept has hit some political snags among the commissioners with the majority as of November voting against a proposed property acquisition near Berlin.
“We need the county to be more of a partner,” said Meehan. “Maybe a way to do that is partnering on sports marketing. This is an opportunity for us to work together.”
A start would certainly be getting the county to dedicate a portion of the room tax collected in West Ocean City to the overall marketing campaign for the resort area in general. West Ocean City hotelier Annemarie Dickerson pointed out the recent property value assessment increases in the county’s north end along with the commercial growth along the Route 50 corridor as a means by which the county could contribute to the town’s marketing.
“Worcester County should be able to do everything you want and need in terms of support for advertising,” she said. “You saw the recent report on assessments.”
For Gehrig, the answer was simple. He suggested moving forward with the proposed half-percent increase in the room tax and dedicating a portion of the increase to expanding further into the youth sports movement.
“Raise the room tax because it worked last time and dedicate some of the funds to sports marketing,” he said. “It’s our natural target market. It’s bigger than the NFL and maybe all pro sports combined.”
Again, it would likely take a partnership with the county, a point not lost on Gehrig.
“We need to play nice with the county because we’re in the county,” he said. “The state would be on board. They would love to fill all of the hotel rooms in their number one destination.”
Gehrig also cautioned about dedicating the entire proposed room tax increase back into the same advertising and marketing strategy.
“It just can’t all go into tourism,” he said. “We don’t need more radio ads and banner ads. We need to invest in this youth sports market because we’re made for it.”
Knapp said if there is a will to increase the room tax as proposed, simply changing some of the language in the ordinance could divert some of the increase to sports marketing.
“One suggestion is changing some of the verbiage in the ordinance from just advertising to economic development,” she said. “I caution you to continue to dedicate a portion to advertising because a future council might not dedicate the room tax to advertising and marketing.”
Not all on the committee were enamored with raising the room tax. Although the increase would likely barely be felt on the bottom line for a hotel stay in Ocean City for most visitors, even a modest increase could be troublesome in a resort often dealing with a value perception. Ocean City hotelier Michael James suggested the proposed room tax should be put on the back burner.
“I think this should be tabled,” he said. “We need to bring this back to a work session. I’m not sure this is the right time to make Ocean City more expensive.”
Gehrig pointed out raising the room tax by a half a percentage point on a typical $200 room night would equal one dollar. For a multi-night stay totaling $1,000, a half a percentage point would equal just $5.
A motion was made to begin the process of raising the room tax a half a percentage point to 5 percent, while having the Mayor and Council explore dedicating a portion of the increase to sports marketing and economic development. That motion passed with a 7-1 vote with Michael James opposed.