OC Council Debates Advertising Budget Increases

OCEAN CITY – Resort officials this week approved a budget amendment for fiscal year 2023, but not before a spirited discussion on the town’s advertising allocation.

On Monday, the council voted 6-1, with Councilwoman Carol Proctor opposed, to approve the second reading of several budget amendments for fiscal year 2023.

The change, which reflects an increase in room, income and admissions tax revenues, also proposes an increase in grant, salary and advertising expenditures. Proctor said she opposed the transfer of additional funds to the town’s advertising budget.

“I just noticed we’re moving $4.7 million over to our advertising budget,” she said. “Then I reviewed the advertising budget over four years, and we’ve spent an average of $6.7 million in advertising. Then in fiscal year 2023, we spent $11.6 million in advertising. That’s a 74% increase in our advertising budget.”

Proctor told officials this week she was concerned about diminishing returns. She said the town last year spend $6.1 million on advertising, with a 9% return in room tax revenue. Since the fiscal year 2023 budget was approved last July, she said the town has spent $11.6 million, with a 12% return in room tax revenue.

“We’ve increased our advertising budget by 74%, we’ve spent 74% more, and the return on our room tax that we’ve received was only 12%,” she said. “When I look at it, I have to question that and say does that make financial sense to do so.”

Proctor said a portion of the $4.7 million being proposed for the advertising budget could be used to fund salaries for additional firefighters.

“I’m not saying we shouldn’t invest in our people, I’m not saying we shouldn’t invest in tourism, but we’re carrying $4.7 million over and the only thing we have in our budget is eight (firefighters),” she said. “We need an additional four. It’s $350,000. We could easily move $350,000 over to get them hired and up to speed and ready for the summer. Yet we keep moving it over and increasing that (advertising budget) budget.”

Among the budget changes approved on second reading this week was an amendment to the budgeted room tax, which exceeded revenue projections by $2 million.

Councilman John Gehrig said that overage was a direct result of the town’s advertising efforts. That additional money, he noted, will be used to pay for public safety, public works, roads and debt service, among other things.

“One year we had to pay for 10 new police officers that we didn’t know how we were going to fund,” he explained. “It turns out we funded it through an increase in the general fund contribution from room tax. And we are poised to do the same thing with 12 new firefighters, if we so choose that. At $80,000 apiece, that’s roughly a million dollars. Thankfully we have an overage of $1.2 million contributed to the general fund from tourism.”

Gehrig argued the town was receiving a return on its investment in advertising.

“What we have now is clearly working …,” he said. “If we didn’t have room tax, we would most certainly be raising property tax, without question. So we should be celebrating advertising.”

Councilman Will Savage questioned if the tourism department needed an additional $4.7 million. He also questioned the town’s ordinance, which sets a formula for the percentage of room tax revenue dedicated to advertising, marketing an special events.

“I believe the ordinance does leave some leeway for council’s discretion,” he said. “So does tourism need that?”

City Solicitor Heather Stansbury said the council had the ability to reappropriate those funds.

“The ordinance does say, as it has said since 2007, that it’s subject to annual appropriation because it can’t pledge the full faith and credit of the Mayor and City Council …,” she said. “It can be done.”

Mayor Rick Meehan noted staff was seeking a budget amendment to balance the current year’s budget. He said the town had to recognize unused funds, including the $1.3 million state tourism grant the town received.

City Manager Terry McGean added that the $11.6 million in advertising for the current year included $3.6 million in encumbrances.

“Some of that is encumbered but have not been spent,” he explained. “So in other words, the ads have not run yet.”

However, Budget Manager Jennie Knapp those encumbered funds would still be spent.

“Unless we liquidate some of these encumbrances, and don’t spend them, we’re going to be spending that $11 million this year,” she said. “Encumbrance is a legal obligation to spend. So we have already contracted with companies to spend that and place those ads.”

Gehrig noted that those ads would ultimately generate additional room tax revenues in the coming months.

“We haven’t seen the return yet because the ads haven’t been placed yet …,” he said. “We have 12% realized return and the season hasn’t even started yet.”

After further discussion, the council voted 6-1 to approve the proposed budget amendments. Officials also agreed to review advertising revenues and expenditures at its upcoming budget work sessions.

“I would like to hear from tourism what that money went towards and going forward what the additional revenues would be spent on,” Savage said.

About The Author: Bethany Hooper

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Bethany Hooper has been with The Dispatch since 2016. She currently covers various general stories. Hooper graduated from Stephen Decatur High School in 2012 and the University of Maryland in 2016, where she completed double majors in journalism and economics.