OCEAN CITY — A seemingly innocuous proposed room tax ordinance change led to a much larger debate at City Hall this week about how much should be reinvested in tourism marketing and special events.
During Tuesday’s work session, a proposed ordinance amendment updating some the language in the town’s existing room tax ordinance was introduced and seemed to be on its way to first reading on Monday before a larger and lengthy debate about how the room tax should expended unfolded. In 2019, the room tax rate was increased from 4.5% to 5%.
Under the town’s existing ordinance adopted in 2007, 2% of the entire gross room tax revenue is dedicated to destination marketing. The ordinance amendment presented on Tuesday would not change that 2% dedication. Rather, it would alter the language in the existing ordinance to expand on the permitted expenditures. For example, while the current ordinance lists a permitted expenditure for the 2% of the gross room tax as “destination marketing,” the proposed amendment would expand that to “marketing, promotions and special events.”
The idea is to give Business and Tourism Development Director Tom Perlozzo and his staff more leeway in how the room tax revenue can be expended. Traditionally, the percentage of the room tax has been dedicated to advertising and other promotions, but Perlozzo’s position was created with the goal of having a city leader charged with thinking outside the box, bringing in more family-friendly special events and essentially rebrand the resort’s image.
Changing the language in the ordinance would give him more flexibility in how to spend the dedicated room tax revenue. Of course, with expanded tourism and longer shoulder seasons comes the need for more services, including extra police, more public works and strains on other departments.
The existing room tax ordinance sets aside some revenue to offset the cost of increasing tourism. With 2% already dedicated directly to marketing Ocean City as a destination, Councilman John Gehrig suggested that number could be increased to 2.2% or even something higher. He pointed out just how much of the gross room tax revenue ends up on the marketing side of the ledger.
“The advertising budget is paid by the guests,” he said. “It is funded 100% through the room tax. About 44% of it is dedicated to tourism, and 56% is dedicated to the cost of tourism, such as police, public safety and public works.”
Budget Manager Jennie Knapp said a percentage of the room tax revenue needed to be dedicated to the cost of doing business in the form of more police and other services.
“The room tax is our second largest revenue source,” she said. “General fund expenditures will continue to grow as room tax grows. It goes to public safety, police, public works, the Beach Patrol. It has to come from somewhere if you don’t want to raise the property tax.”
For his part, Perlozzo said the existing 2% would work for he and his staff without a significant increase immediately.
“Obviously, I’m coming in on the tail end of this,” he said. “I believe room tax should be invested in marketing and advertising, but also in special events or a specific tool we need for marketing.”
Gehrig said the intent of the proposed ordinance amendment stopped a little short of achieving the ultimate goal.
“We just need to tighten up some of the language,” he said. “I think we have a good formula. It works. We just need to be sure we don’t keep chipping away at the base to the point the top line will stop growing.”
Knapp reiterated the investment in police, fire, EMS, public works and emergency services, for example, had to increase to keep up with the growth in tourism.
“We’re losing money on the cost of the growth of tourism,” she said. “We need to pay police overtime and an extra ambulance crew. That has to come from somewhere. A portion of this goes to marketing the product and portion goes to the cost of the product.”
Councilman Mark Paddack said investing in the product could change the visitor dynamics in the resort.
“I agree we’re investing in the destination,” he said. “The common theme I hear out there is about the quality of the tourism and the people that are coming here. We’re in a position to facilitate improving on the complaints I hear from our residents and my neighbors.”
Paddack said if the need for more police and more public works, for example, is driven by growth in tourism, then that cost should be borne by the visitors and not the resident taxpayers.
“At 2%, the revenue is going to go up, but along with that the expenditures for our public works department, our maintenance department, our police department and fire and EMS are going up as well,” he said. “The property owners shouldn’t pay for those increases if it is driven by tourism.”
Councilman Lloyd Martin said he was on the council when a portion of the room tax was first dedicated to advertising and marketing, and the measure has helped Ocean City withstand a few economic downturns since.
“The advertising budget has grown since then,” he said. “We were one of the few towns that actually increased its advertising budget during the downturn. We didn’t fail because we increased our advertising budget. We haven’t had a lull in our room tax since then.”
Martin said keeping the 2% of gross room tax dedicated to its permitted uses continues to make sense and said that percentage could be raised in the future.
“This 2% is working,” he said. “We’ve raised it incrementally and as we did that, our services didn’t suffer. We’re getting to a breaking point now with things costing more. It’s not just about more radio or TV ads, it’s about getting events to come here. That 2% is something that works for him right now. We can decide to raise it later if need be.”
Knapp pointed out the percentage of room tax revenue that is dedicated to providing services such as police and public works is a very small percentage of the overall costs of those services. Gehrig, however, asserted those services should be paid for through the town’s robust general fund and more room tax revenue should be dedicated to marketing the product.
“We don’t have a budget issue in the general fund,” he said. “We’re paying our bills. We have money in the bank. There are so many more people that want to come to Ocean City and so many more ways to bring them here.”
Perlozzo attempted to boil down the proposed ordinance change to its simplest terms.
“The intent of this is destination tourism,” he said. “The intent is to bring people to town. If we do better in marketing the destination, that number will go up, not the percentage but the bottom line.”
Gehrig said more room tax revenue should be dedicated to expanding tourism and rebranding the resort.
“We’re talking about investing in big ideas,” he said. “The advertising budget is going to grow, but we’re talking about special events and a sports complex and who knows what big idea is going to come.”
Gehrig said locking in the dedicated room tax at 2% was short-sighted and continued to push for something higher.
“We can say we need more police and more public works, and all of that is true,” he said. “Rebranding Ocean City to solve our problems, which are major and can cripple us, requires investment too. As we increase tax rates, to say that none of that should go to our product, is short-sighted. It’s anti-business. We need to be all in on business. That’s how we succeed.”
Mayor Rick Meehan said the town is achieving its desired goals with the room tax dedication set at 2%.
“Our product is Ocean City,” he said. “We understand how all of this works together. When people think of Ocean City, they think of clean and safe. We’ve done that.”
Meehan suggested moving forward with the proposed ordinance amendment expeditiously and revisiting the dedicated percentage down the road.
“It took a year-and-a-half to hire a business and tourism director. Conversations like this are important, but need to move forward,” the mayor said. “If we’re successful, it going to continue to grow. Let’s get it right, but let’s move forward.”
The council voted 6-1, with Gehrig opposed, to move the proposed ordinance ame