OCEAN CITY – A discussion on the use of advertising funds dominated a resort commission meeting this week.
On Monday, City Manager Terry McGean presented members of the Ocean City Tourism Commission with a proposed advertising fund use policy. He said the document would provide a guideline on how advertising dollars should be used to promote destination marketing for the resort.
“Typically what happens when you pass a law is you iron out the technical details and create a policy,” he said. “What I suggested was we do that with the advertising fund.”
Currently, just over 40% of room tax revenues are dedicated to an advertising fund, while the remainder is placed in the town’s general fund. The formula, approved by the Mayor and Council through an ordinance, also outlines approved expenditures within the advertising fund, such as advertising, sponsorships, promotion of special events and more.
In recent years, however, the use of advertising dollars to pay general fund expenses has been the source of contention among council members and staff. And during budget discussions earlier this year, McGean pitched the idea of creating an advertising fund policy that would clarify the intent of the ordinance and how funds should and shouldn’t be used.
“We drafted the policy and presented it to the council,” McGean said Monday. “There was some comments from Councilman [John] Gehrig … some of them we agreed with, some of them we did not.”
One of the practices Gehrig said he took issue with was the use of advertising funds to pay legal expenses. He said the ordinance prohibited the use of advertising dollars to pay salaries.
“In the grand scheme of things, it’s a minor expense. The problem is when you let the camel’s nose under the tent, it comes in,” he said. “The intent of that ordinance clearly states no salaries, no expenses related to any labor, go in there.”
While the ordinance defines research as an acceptable use of advertising funds, Gehrig said it was never the intent to fund legal expenses.
“It’s the abuse of a loophole that’s the bigger issue,” he said. “I think clearly the intent was market research, not legal research, or maintenance research or police research or fire marshal research or any other research.”
McGean told commission members this week that since the ordinance was passed, 80% of legal fees had been charged to the advertising fund while the remaining 20% had been charged to the general fund. While he said he believed that was excessive, he argued it was reasonable for the city attorney to charge the advertising fund for reviewing contracts related to advertising.
“In my mind it’s reasonable if the city attorney is reviewing BVK’s [advertising] contract, that those fees come from advertising,” he said. “That is the staff’s feeling on that.”
McGean also argued the city solicitor, Heather Stansbury, was not a town employee, but a consultant, like the town’s advertising agency.
“I look at Heather the same way we look at BVK,” he said.
Gehrig reiterated that legal expenses should not be paid for through the advertising fund, but through the general fund.
“We never paid for legal expenses through the advertising budget, it was covered from the tourism budget …,” he said. “The general fund includes tourism. That’s the government’s desire. The tourism industry has been willing to carve this whole thing out separately for a long time.”
The policy presented to commission members this week also delved into the allocation of profits from events that used advertising funds.
“When we use advertising dollars for special events – things like C3, PBR, the MLK concerts we put on – if that event makes a profit, A, how is that profit determined, and, B, what happens to that profit?” McGean said.
Officials noted the policy provided two options – one in which profits are split in the same manner as room tax revenues but the event would not be charged for the use of city labor and equipment, and one in which 100% of profits would go to the advertising fund but the event would be charged for the use of city labor and equipment.
“There gets to be a lot of contention on how profit is determined, specifically when we talk about the cost of city labor and city equipment,” McGean told the commission.
Gehrig said he preferred the second option, in which 100% of profits went to the advertising fund.
“I actually think option two is better,” he said. “We should think as a business.”
Gehrig noted, however, that town-promoted events should receive the best rate on services.
“We should get the low-rate guarantee,” he said. “Meaning if we self-promote an event, the fees we charge, no one else should get it cheaper than we’re willing to do for ourselves.”
Gehrig pointed to a new special event fee structure being proposed by the town. He said self-promoted events should receive the same discount as nonprofits that hold events in town.
“You are willing to discount the event because of all the economic benefits that come with it …,” he said. “All I’m saying is have the same consideration for ourselves.”
McGean, however, said the town had to account for its costs.
“You still have to cover the cost from an accounting standpoint,” he replied.
Commission members this week also took time to review the proposed special event fees for nonprofit events in town. McGean said there were concerns a promoter could partner with a nonprofit to receive a discount on event fees.
“Your concern was a phony nonprofit would come in, and they would get a better deal,” he said. “What we’re proposing … is if a new nonprofit comes in and is going to charge for their event, we are going to treat them as a for-profit … We’ve taken that loophole out.”
Special Events Director Frank Miller said the new rate structure for nonprofit events would be presented to the full Mayor and Council.
“This is the bottom line of how we want to do nonprofits, and this is what we want to put in front of the council as part of our new fee structure,” he said.