Ocean City Moving Ahead With Room Tax Revenue Policy

OCEAN CITY – The introduction of a room tax policy highlighted discussions at a resort work session this week.

On Tuesday, the Mayor and Council were presented with a draft policy that clarifies for what purposes room tax revenues can be used. City Manager Terry McGean said the proposed document resulted from recent budget discussions, during which officials questioned the intent of the town’s room tax ordinance.

“We tried to reflect the spirit and intent of the ordinance that was passed …,” he said. “Again, this is our draft, and we welcome any comments or concerns as to how we interpreted what we believe the ordinance reflected.”

Currently, 42% of room tax revenues are dedicated to promoting the town, while the remainder is used to cover general fund expenses. The formula, approved by the council through an ordinance, also outlines approved expenditures, such as advertising, sponsorships, promotion of special events and more.

In recent years, however, the use of room tax dollars to pay general fund expenses has been a source of contention among council members and staff. And when staff last month presented the council with a list of general fund expenses covered by tourism dollars, officials agreed a policy was needed to outline the appropriate use of advertising funds for destination marketing.

“Basically, we tried to mirror what we’ve been doing with Ordinance 2021-24 and try to expand each of the elements as best as we could to give you a complete idea as to what we are using advertising funds for,” said Tourism and Business Development Director Tom Perlozzo. “Again, the ultimate goal was to increase the effectiveness and impact to the destination as it relates to marketing and advertising.”

Perlozzo said the policy presented to the council this week included acceptable uses of advertising funds, such as the purchase of advertising space, the payment of advertising agency fees, and the funding of destination research.

“Another item in the ordinance we’ve been adhering to that’s allowed us to really dig deeper is destination research …,” he said. “We’ve been able to capture it using advertising dollars, and it has allowed us to look at our market and identify who they are, where they are coming from, how much they are spending.”

Perlozzo said it also allows funding for brand development, public relations, social media marketing, and entertainment costs and performances, among other things. He added there were also unacceptable uses, such as staff salaries, office supplies, intergovernmental transfers and other special event costs not related to advertising.

“That’s the nuts and bolts of what we were using things for …,” he said. “There are some unacceptable uses of funds that have been outlined here.”

Councilman John Gehrig pointed out the policy allowed advertising funds to be used for hiring consultants to provide expert advice.

“Is this a fancy or long-winded way of saying legal?” he asked.

McGean said it was. He said if City Solicitor Heather Stansbury spent time reviewing a contract between the town and BVK, the town’s advertising firm, legal fees would come out of advertising funds.

“If that’s not the council’s intent, we need to know,” he said. “Right now, we’re interpreting it that way.”

When asked if legal fees for reviewing a contract between the town and C3 Presents – the promoter for the Oceans Calling Festival – came from advertising, Budget Manager Jennie Knapp said it did.

“This is where I get a little heartburn.” Gehrig said. “I don’t think it’s purposeful. But we charge special events fees that should cover the labor, the time and effort it takes our team to review the event … I certainly don’t want to charge promoters and then charge tourism at the same time.”

McGean noted that entertainment contracts for events such as Sunfest and Springfest, for example, were also reviewed by the city solicitor, with funds coming from advertising. He questioned how the council would want to address it.

“It’s not a lot of our time,” he said. “But that would be another question for the council.”

Gehrig said he took issue with spending advertising dollars on legal fees.

“It is more personnel than it is advertising …,” he said. “Legal is not advertising, marketing and PR for direct tourism benefits. It’s like charging for public works. It’s in support of tourism. In my view, it’s a violation of the terms of the ordinance.”

Gehrig said he also took issue with having advertising funds pay for entertainment costs.

“I think that’s too wide open,” he said. “I think we need to tighten up entertainment costs to be more specific.”

Gehrig also made recommendations regarding unacceptable uses of advertising funds.

“Our ad dollars are not for advertising, marketing any other city initiatives like employment or recruiting, WalkSmart, bicycle safety, Litter Free (campaign), wind turbines, any city PR …,” he said. “Those are general city functions that would also include the Town of Ocean City website and anything along those lines.”

He also said funds should not be used for capital projects, facility repairs or convention center costs not related to advertising the facility.

After further discussion, the council directed McGean, Stansbury and Perlozzo to review Gehrig’s suggestions, make the necessary changes and come back with a modified policy.

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.