Resort Council Approves Advertising Fund Use Policy

Resort Council Approves Advertising Fund Use Policy
Photo by Bethany Hooper

OCEAN CITY – Officials in Ocean City this week agreed to implement a new advertising fund use policy with some resolution as to how legal fees should be funded and event profits should be calculated.

In Monday’s meeting of the Mayor and Council, officials voted 6-0, with Councilman Will Savage absent, to approve a revised policy on the use of advertising funds. Following a review with the Ocean City Tourism Commission and Councilman John Gehrig, City Manager Terry McGean said he was presenting the council with a document that incorporated all but two issues – legal fees and profit calculations.

“Previously we had presented the policy to better define and implement the use of the advertising fund,” he said. “There were a number of comments from Councilman Gehrig. We met and reviewed them all. Most of them we have implemented. There are two that remain outstanding.”

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.

Back on the agenda for discussion this week, McGean noted that two significant issues remained – the use of advertising funds to pay legal expenses and the calculation of profits from special events subsidized by the advertising fund.

“We continue to struggle, as we have on some of the other events, with what the city charges,” he said.

For his part, Gehrig said he took issue with using advertising funds to pay for legal expenses. While the ordinance defines research as an acceptable use of advertising funds, Gehrig argued it was never the intent to fund legal expenses.

“In no way was legal research meant to be part of research and consultant fees,” he said.

McGean disagreed, noting the ordinance defined consultant fees as an acceptable use of advertising funds.

“I consider the city attorney a consultant,” he said.

Gehrig also pointed out that roughly 80% of the tourism department’s legal bills have been charged to the town’s advertising fund.

“The tourism budget and the advertising budget are separate pockets, and you’re taking an expense that used to be in this pocket and shifting it to the other pocket …,” he said. “This is a loophole. I see money, I take money. That’s all this is.”

Gehrig said he also took issue with a section of the policy stating that revenues derived from advertising budget expenses would be directed to the tourism budget.

“The resulting revenue needs to go to the place where the expense came from,” he said.

During Monday’s discussion, McGean also pointed out there were still questions regarding how profits from special events subsidized by the advertising fund should be calculated. “The question is, A, where does that profit go if it does make a profit, and, B, how does that profit get calculated,” he said.

To answer those questions, McGean said staff had presented 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.

“We’re talking about actual city expenses …,” he explained. “If the Town of Ocean City, the council says we think it’s worth it to not only subsidize the event but place it in the Inlet parking lot at a time where the Inlet lot might be making significant revenue, we would not have the lost revenue from the Inlet lot be charged as an expense to that event. It’s purely what we are spending on the event.”

Officials said they preferred the second option.

“I wanted the low-rate guarantee,” Gehrig said. “That sounds like a low-rate guarantee.”

Gehrig added that he wanted profitable events that would not place a strain on city resources.

“I want to be profitable and make more money because it comes in and 60% of it goes to the general fund to pay for police, fire, public works, lifeguards and all the other great personnel we have that never get talked about …,” he said. “We haven’t raised property tax in I don’t know how long. Maybe over time if we keep doing this and have a system that works, maybe we can actually then cut taxes when everyone around us is raising them. That’s the goal.”

After a lengthy discussion, the council voted to approve the advertising fund use policy with the staff’s recommendation to proceed with the second option when calculating special event profits. The council also agreed to amend the policy so that revenues derived from advertising budget expenses would be directed back to the advertising budget, and to add a sentence limiting research and analysis to destination marketing unless otherwise approved by the tourism department.

About The Author: Bethany Hooper

Alternative Text

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.