OCEAN CITY — After hours of debate, the Ocean City Council voted to set in motion a room tax increase to offset expected budget shortfalls and potentially fund increased economic development.
During Tuesday’s work session, the debate over potentially increasing the room tax in Ocean City from the current 4.5 percent to an even 5 percent was renewed. Hours after often intense deliberation, the Mayor and Council voted to approve the increase although it certainly wasn’t easy.
While all agreed with increasing the room tax conceptually, much of the debate focused on how best to spend the revenue increase. 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 the marketing the resort. While it appears the council majority agrees it is time to revisit the room tax rate after the last increase 12 years ago, there was no clear consensus on how best to spend the additional revenue.
Boiled down to its simplest terms, raising the room tax now from 4.5 percent to 5 percent would allow the town to continue to dedicate a portion to advertising and marketing while providing revenue to fund the services to the growing number of visitors those efforts generate. Added to the mix is a desire to rebrand the town somewhat with an increased effort to tap into the rapidly growing youth sports market.
Increasing the room tax by half a percentage point would result in an anticipated increase in the town’s advertising budget by about $5.8 million along with another $1.2 million in the marketing budget. Complicating the issue even further is an expected fiscal year 2020 budget revenue shortfall of around $500,000, which could be offset by funds generated by the increased room tax.
Councilman John Gehrig has been a strong advocate for rebranding the resort’s image by tapping into the growing youth sports market. On Tuesday, Gehrig pushed for dedicating a portion of the room tax increase to that purpose. However, Budget Manager Jennie Knapp pointed out first and foremost was getting through what appears to be a challenging budget cycle while maintaining the formula for advertising and marketing. Knapp said any funding left after those primary needs are met could be dedicated to exploring sports marketing and economic development.
“If we don’t spend all of the marketing money, it could be set aside for future principal and interest on a sports complex, for example,” she said.
However, Gehrig was adamant that some of the proposed revenue increase be dedicated to sports marketing through changed language in the proposed ordinance. The challenge is the increased special events and expanded shoulder seasons have taxed town resources to the point there are apparent budget shortfall, according to town officials. Gehrig said the town needed to go wholeheartedly into expanding economic development including sports marketing, or simply accept being a seasonal resort town.
“If we’re going to be in it, we have to be in it to make money,” he said. “We can’t just dabble in it. We need to get to an economy of scale or we need to get out of the events business and go back to being a 100-day town. I’d rather not go that way, but if we’re not going to adjust to changes in travel habits then shame on us.”
Gehrig suggested simply raising the room tax to offset budget shortfalls only perpetuated itself without an increase in economic development including sports marketing.
“If we don’t use this opportunity to invest in economic development, it will be a lost opportunity,” he said. “We have an opportunity to dominate this market. Otherwise, we’re just chasing money to pay bills.”
Knapp reiterated those concerns could be addressed after the immediate needs were met.
“What’s the primary goal with this?” she said. “The primary goal is to keep the formula relatively the same, balance the fiscal year 2020 budget and continue the formula for marketing. Down the road, when we figure out what we want to do with sports marketing, we can change the formula.”
Knapp was not shy about expressing the potential budget shortfall even in its earliest form. She said the number could increase depending on what happens with the ongoing firefighter-paramedic contract negotiations and other factors including a pending minimum wage increase.
“In the rough draft of the general fund budget, we’re starting at $525,000 in the hole,” she said. “I am going to have to come to you and ask you what we’re going to cut.”
Councilman Tony DeLuca suggested it was short-sighted to derail the approval of the needed room tax increase because of the rather nebulous, at this point, sports complex. DeLuca also pointed out the proposal on the table included an implementation date for the room tax increase of next Jan. 1 and that significantly more revenue could have been derived from the increase if the council had acted on it earlier and started it on July 1 of this year in the midst of the summer.
“The thing we can’t do is let an unknown sports complex, which we all support, hijack the room tax increase,” he said. “We talked about this plan back in 2017 and here we are today talking about implementing it next Jan. 1. We potentially lost $750,000. That’s what could have happened if we had acted on this then.”
Council President Lloyd Martin then attempted to bring the conversation back to the primary issue at hand.
“I think our direction is pretty clear,” he said. “We need to take it one step at a time. The next step is figuring out where we want to be with a plan for a sports complex. We’ll be in a good position to do that if we approve this now.”
Council Secretary Mary Knight was confident there would be funding available from the room tax increase to begin exploring an expansion of economic development including a sports complex.
“With this $1.2 million, a lot of this probably won’t be spent on marketing and there will be room to explore our sports marketing goals,” she said. “Our advertising consultant has told us we can accomplish most of our goals with the $7 million. I think a good first step is to approve this.”
Knight made a motion to approve the room tax increase while leaving the formula as it is with funds dedicated to advertising and marketing. If all the $1.2 million is not utilized for marketing, the balance could be directed at exploring the town’s sports marketing goals. DeLuca seconded the motion.
However, Gehrig could not be dissuaded from his notion, saying, “I believe we’re going to fall into the trap of raising taxes to pay bills. If we just take the money and pay bills, we’ll be back here next year and the year after that.”
The challenge is the increased advertising and marketing efforts from the last room tax hike in 2007, and the resulting increase in special events and expanded shoulder seasons has resulted in an increased demand for the town’s services over the years, which has stressed most of the town’s departments. However, City Manager Doug Miller has said that bill is now coming due and there is no turning back.
“Some of what we’re asking for is paying for things we’ve added incrementally over the years,” he said. “We asked for more public safety aides to keep the town safe and we added more public works to keep the town, the beach and the Boardwalk clean. We can’t go back now.”
Nonetheless, Gehrig was not convinced the sports marketing issue would be revisited after other primary needs were taken care of with the room tax increase.
“There is a motion on the floor to increase the room tax without a commitment to economic development,” he said. “This is our focus today, but we’ll lose sight of that and we won’t follow through on that if we don’t put it in there today. It will become a New Year’s resolution that we never followed through on.”
Councilman Dennis Dare said there was a consensus to explore the growing youth sports market, but approving the room tax increase was just a necessary first step in that larger process.
“I love the idea of getting going on sports marketing,” he said. “I think we know where we want to be and it will be good for the business community and good for the taxpayers. This is just a necessary first step that gets us going in that direction.”
For his part, Councilman Matt James said he couldn’t support approving the room tax without a stated goal on how to spend the money.
“I think we’re all on the same page,” he said. “I think we should figure out what we’re going to do before we raise the room tax. I’d like to see that done before we simply raise the room tax.”
Mayor Rick Meehan brought the conversation back around to the needs in the general fund budget to continue to provide essential services.
“We’re victims of our own success,” he said. “Economic development has been successful in bringing in special events and expanding the season, but that has come with a cost. Maintaining a clean, safe environment is the most important thing we do. We need funds to continue to do that and increasing the room tax shares that burden with the tourists who use the beach and the Boardwalk and everything we provide.”
Gehrig said he believed his colleagues were talking as if simply raising the room tax was some magic bullet that was going to balance the next budget.
“We’re getting ready to come up on budget time,” he said. “Are all budget work sessions cancelled, because what I’m hearing is if we pass this, it looks like we’ve already balanced the budget. The danger here is passing an increase because of a perceived crisis that isn’t there. We can say we’re going to revisit this for economic development, but I don’t think that’s going to happen.”
As the hours dragged on, DeLuca provided a moment of levity by essentially calling out Gehrig for his perceived filibuster on the proposed room tax hike.
“Can we please call for a vote on this?” he said. “What I’m hearing up here is classic stall tactics with some sprinkles of pious piffle.”
For his part, Councilman Mark Paddack agreed how best to spend the room tax increased revenue was challenging, but opined raising the tax was a necessary first step.
“We’re hearing we’re $500,000 under in the budget,” he said. “That number is going to go up. We need the money now. We’re talking about a Jan. 1 effective date, but I’d like to see that moved up. We’re either going to have to make serious cuts or we’re going to raise this room tax.”
The council voted 5-2, with Gehrig and James opposed, to increase the room tax from the current 4.5 percent to an even 5 percent with a Jan. 1 effective date to allow the hospitality industry to affect the needed changes. The successful motion also included keeping the current advertising and marketing formula the same with the caveat the sports marketing idea and increased economic development could be explored with any surplus funding after essential budgetary needs were met. It’s important to note the room tax is technically a Worcester County tax and a change would need to be approved by the county.