OCEAN CITY — Resort officials this week approved on second reading an ordinance gradually altering room tax funding distribution, but not before a larger debate on what specifically the revenue can be spent.
Ocean City’s room tax in 2019 was raised from 4.5% to 5% with about 44% dedicated to marketing and advertising and 56% dedicated to the town’s general fund to help offset the cost of increased tourism, such as increased fire and police services, public works, salaries and overtime.
There have been discussions about raising the room tax to 5.5%, but that is a complicated process and a separate issue from what the Mayor and Council had before them on Monday. At issue on Monday on second reading was altering the formula to scale up the percentage of the overall room tax revenue dedicated to advertising.
The preferred option, spelled out in the ordinance presented on Monday, is to continue to direct 2% of the room tax revenue to destination marketing, advertising, promotions, sponsorships and special events and the like for the next two fiscal years, while scaling up the percentage for that purpose to 2.1% in fiscal year 2024 and 2.2% in fiscal year 2025. The council ultimately approved the ordinance on second reading, but not before a philosophical debate.
Council Secretary Tony DeLuca supported the ordinance because it set in place percentages for how the room tax revenue is spent.
“I’m seconding this because I support the scaling up and the sprinkling,” he said. “If the room tax imposed by the county increases above the current 5%, then 40% will be the number. When we go to 5.5%, and we will, it will be 60-40. That’s why I’m supporting this.”
Councilman Lloyd Martin questioned if the room tax percentage dedicated to advertising could be used to fund the requested five new positions for the Business and Tourism Development Department.
“I was wondering, I know that we’re hiring five new positions for the department,” he said. “Is that considered direct spending on marketing? Those salaries are directly related to that part of tourism.”
Local resident and former councilman Vince Gisriel said the language in the ordinance was not specific about what the room tax revenue can be used for, and questioned if the intent in the future was to use some of the funds to offset the cost of a future sports complex. The city and Worcester County are on parallel tracks exploring a future sports complex to increase the area’s profile as a regional youth sports destination.
“In the language in the ordinance where it specifies the items that this room tax can pay for under the umbrella of advertising, do you interpret the purchase of land for, say, a sports complex? Or the debt service on a bond issuance? Would that apply under this?,” Gisriel asked.
Gisriel sought clarification on how a potential future sports complex would be paid for. He raised concern it could be ultimately paid for from property tax revenue and not on the backs of tourists and users of the facility.
“I keep hearing this sports complex is not going to be paid for out of property tax, that the tourists are going to pay for it,” he said. “With all of these other expenses and the uncertainty of these times, I don’t know how you are going to pay for a sports complex. That needs to be clarified. You have a very specific list of what the room tax can be used to pay for, but there is more pressure on the general fund. If it’s not going to be paid for with tourist dollars, I think you need to level with the public on how it will be paid for.”
Councilman John Gehrig attempted to allay some of the concerns about paying for a sports complex out of property tax revenue on the backs of local residents.
“As far as the sports complex goes, this is why we’re talking about another room tax increase,” he said. We’re still far from that and there are partners, so there might not be a need for land acquisition. As long as I’m up here, the property tax will not be used for the sports complex.”
Gehrig said it was a little premature to discuss how to pay for a future sports complex at this point, but pointed out there were several options.
“Are there other avenues for that?” he said. “Room tax is one, and the food tax could be another. Private partnerships, sponsorships and those types of things are all possibilities. There are a lot of unknows right now. That’s part of the reason we’re talking about another room tax increase.”
Gehrig said there should be robust private-sector interest in partnering on a future sports complex when the picture became clearer.
“We can work with our partners, which include the county and the state,” he said. “If all of the governments find their common ground, private entities will be calling us up because they want to participate in this. We’ve seen that already. We will not be using property tax for the sports complex.”
The council ultimately voted 7-0 to approve the ordinance altering the formula for how room tax is distributed in future years.
