OCEAN CITY — A proposal to immediately raise the town’s room tax by a half-a-percentage point got little traction on Tuesday, although resort officials did agree to make a plan and begin the process for the future.
On Tuesday, the Mayor and Council discussed a potential room tax hike. After an often-fierce debate, the council in 2019 agreed to raise the room tax from 4.5% to 5%. The increase took affect on Jan. 1, 2020. Then, the COVID-19 pandemic hit and the fruits of the room tax increase have not yet been realized during a summer season curtailed by the pandemic.
However, the Mayor and Council on Tuesday had before them a proposal to hike the room tax rate again in the interest of offsetting revenue losses caused by the pandemic. Each half-percentage point would increase room tax revenue by an estimated $1.7 million, in a typical year, although 2020 was far from typical. There was some sense of urgency because the increase would first require the approval of the Worcester County Commissioners and, ultimately, the state legislature, which reconvened on Wednesday.
However, while the idea was not dismissed entirely, the council on Tuesday ultimately voted to review budget and revenue projections, formulate a detailed plan on how to spend the projected revenue increase and potentially make a push for the rate increase around this time next year in advance of fiscal year 2022.
From the outset on Tuesday, there appeared to be little traction for an immediate attempt to raise the room tax rate. Mayor Rick Meehan pointed out the impact of the last room tax hike just two years ago had not yet been realized.
“At this point, I’m not in favor of moving in this direction,” he said. “We need to look at the budget amendment, what revenue was last year and what is expected. This isn’t the time to raise the room tax and it shouldn’t be a go-to every time we need a little money. We haven’t yet seen the benefit of the last time.”
Council President Matt James agreed.
“That’s spot-on,” he said. “I agree with that. The last time we had this discussion, I asked for how it was going to be spent. Now is not the time to raise it.”
Councilman Tony DeLuca, who raised the issue of examining a potential room tax hike last week, continued to point out Ocean City’s room tax was lower than most of the other vacation destinations in the region.
“We can be proactive or we can be reactive,” he said. “We can make things happen, or we can let things happen to us.”
DeLuca said he had conversations with reputable hoteliers who told him the average cost of a room in Ocean City from May to September was $200. He said the proposed room tax hike at that rate would result in an additional $1 per night.
“It’s hard to imagine a visitor making a decision to come to Ocean City or not on one more dollar per night,” he said. “We would still have one of the lowest room tax rates of most of the vacation destinations. If we don’t do this, we need to look at selling surplus property or we have to look at expanding paid parking. That’s where we are right now.”
Councilman John Gehrig pointed out his colleagues had ignored a plan on how best to spend the revenue from the last room tax hike just two years ago. At the outset of Tuesday’s meeting, the Ocean City Hotel-Motel-Restaurant Association (HMRA) submitted a letter in opposition of a proposed room tax hike, a letter Gehrig referenced.
“Instead of reinvesting in our product into tourism and economic development, we spent the money,” he said. “The fact that we didn’t do that, I don’t blame the hospitality industry for writing the letter, we haven’t instilled the confidence to use the money to invest in our product.”
Councilman Frank Knight said if there was a will among his colleagues to increase the room tax, time was of the essence.
“I think if we’re trying to do this in this fiscal year, I’d like to get this moving,” he said. “Let’s get this tool in the tool box. I don’t see us ever considering paid parking and I don’t ever see us raising property taxes. We are going to need this sooner rather than later.”
Councilman Mark Paddack said there was a plan in place to spend the additional room tax revenue. He pointed out some of the heat the Mayor and Council took for having a reserve fund exceeding the town’s stated policy and how some of those funds were going to be used to offset some of the losses from the pandemic.
“I thought there was a plan,” he said. “The plan was to split the increase among marketing and economic development. The council has been attacked for having a robust reserve fund and then a little virus called COVID crashed into our economy. We’ve been able to draw from those funds so we wouldn’t have to raise taxes. Our resources in the public safety realm are very thin. There’s a lot more going on here than the public knows.”
Councilman Peter Buas, however, said an immediate push for a room tax hike was unfounded until the 2020 figures were analyzed and future budget needs were projected.
“I think it’s premature,” he said. “In the current climate, for us to raise room tax right now would be premature. There might be a time and place for it later.”
DeLuca said even if it was not the will of the council to raise the room tax now, the town should begin the process of gaining support of the county commissioners to have in place for an eventual effort. He suggested asking for a room tax cap at 6%, even if the eventual plan was not to go that high.
“We should ask Worcester County to raise our cap so we can control our own fate,” he said. “We can decide later to do it if the time is right.”
Meehan said there was another budget amendment to get through for this fiscal year and the budget cycle for fiscal year 2022 was coming up. He suggested waiting to see how all those numbers shook out before pushing for another room tax hike.
“We haven’t seen the numbers for 2020,” he said. “We need to go through that cycle. We haven’t seen that anticipated $1.7 million. We need to see where we stand before we consider this.”
Councilman Lloyd Martin agreed.
“I’m not sure there is a will among the county commissioners to raise things right now,” he said. “We need to get through this period and see where we are. This is just a little premature right now.”
Gehrig said asking the county commissioners, and ultimately the state legislature, to approve a room tax hike without a detailed plan on how to spend the revenue was akin to putting the cart before the horse.
“I think we need to plan first and get on board with the ask,” he said. “I think we might have this backward. We need to take our time and everybody will get behind this.”
Ultimately, the council voted to formulate a plan on how best to spend the anticipated revenue, work out the timeline for approval from Worcester County and the General Assembly and decide to move forward with it later this year if that was the will of the majority of the council.
Even before the room tax debate began on Tuesday, the Mayor and Council heard from two significant camps on the issue. The HMRA submitted a letter during the public comment period in strong opposition to any room tax hike at this time.
“While we understand the city is experiencing a reduction in revenues due to the pandemic, we are completely against any increase in room tax,” the letter reads. “The hospitality industry is notably the hardest hit segment and we continue to face operational restrictions limiting revenue opportunities. Some may believe a small percentage increase on room rates will not affect a visitor’s choice of destination. However, we believe otherwise. In our opinion, any perception of an increase will change choices given this environment. To raise room tax because we are lower than other destinations is not logical. We continue to lose ground to the Delaware, North Carolina and Virginia beaches. Why not market that we are the lowest?”
The HMRA letter pointed out the resort’s hospitality industry is already under duress because of the pandemic and increasing the room tax rate could only contribute to that.
“Now is not the time to push an increase as this would crush our hopes for a recovery,” she said. “We have no idea what increases the 2021 legislative session will deliver. It would be short-sighted and financially devastating to our members who have been mandated to spend significant funds to be able to operate under government-mandated restrictions.”
However, Career Firefighter Paramedics Union of Ocean City, or IAFF 4269, President Ryan Whittington said at the outset of Tuesday’s meeting revenue generated by a proposed room tax increase could be utilized to bolster the town’s emergency services.
“Any increase to our residents and visitors is not anything that a councilperson wants to do and it is never and easy decision, especially amongst a pandemic,” he said. “However, it is essential to note the changes the pandemic has created for us as a town. I believe a small room tax increase could be used to fund additional firefighters and EMS providers. The fire department needs at least 12 full-time fire and EMS providers and that’s only three people per shift to add an additional unit. Adding these personnel is extremely important, especially amid the pandemic. The pandemic has highlighted just how fragile our staffing is.”
Whittington made an impassioned plea to nudge the room tax higher and utilize some of the revenue to add more personnel.
“COVID will never go away, even with vaccines,” he said. “Your firefighters and paramedics have been on the front lines of this pandemic and have not wavered once. We need more help. We need more firefighters and EMS providers.”
