Ocean City Councilman John Gehrig and Jennie Knapp

Councilman John Gehrig attacked Ocean City Budget Manager Jennie Knapp’s tactics of managing the finances of the town, particularly the room tax of 5 percent that is charged on every hotel room in the resort, and how the money is divvied out for advertising and the general fund.

Knapp says council gets line-by-line breakdown every year

What started as a presentation of historical data regarding  the Ocean City room tax turned into a verbal assault on the city’s budget manager from one city councilman who, despite data and figures that were shown during a work session on Tuesday, accused her of fear mongering and violating the city’s ordinance governing room tax distributions.

Budget Manager Jennie Knapp was invited to the City Council work session on Tuesday to provide historical and budgetary information on the room tax, the advertising budget, and the general fund.

During her presentation, Knapp showed charts and gave explanations of why the room tax was established and how it grew from 4 percent to 5 percent.

The resort began collecting room taxes in 1998 and last increased rates from 4 to 4.5 percent in 2008 as part of an agreement with the lodging industry to spend a portion of that on resort marketing. Although the Worcester County Commissioners needed to approve the change, the city had the ability to raise room tax rates to 5 percent without state authorization.

When room tax rates were last raised, Knapp said in July, although the half-cent increase was earmarked for advertising, that percentage, which started at 1.4 percent in 2009, was raised to 2 percent in 2012.

The room tax and property tax are the two largest revenue sources for Ocean City, and the former was last increased from 4.5 percent to 5 percent in 2020.

Knapp told the council that the city ordinance dictates that the mayor and council dedicate an equivalent amount of the tax revenues to destination advertising based on a percentage of the room tax collected.

Between 2008 and 2021, the advertising budget increased from $3.3 million to $7.4 million. In 2008, the percentage of the room tax proceeds that went towards the advertising budget was 31.1 percent, and in 2012, the city allocated 44.4 percent of the room tax to advertising, totaling $5.6 million. This year, though, the percentage of room tax dedicated to advertising was 40 percent, though that still meant an increase to $7.5 million.

“The advertising budget grew at a faster pace than the total general fund budget,” Knapp said during her presentation. The amount of room tax revenue that went toward the general fund dipped from $8.5 million to $6.9 million between 2008 and 2011 and did not return to $8.5 million until 2017.

Councilman John Gehrig disputed the numbers.

“In March, we talked about the dilemma of how we spend money,” he told Knapp. “We spend dollars, not percentages.”

Gehrig said the room tax numbers the city has been telling the public it spends on advertising since the rate increase are erroneous.

Knapp, however, replied that for the last 10 years, the increase in room tax revenue has gone toward advertising.

Gehrig began to berate Knapp, asking why general fund numbers dropped in 2007 and more.

“This is not about me, and it’s not about you,” Knapp said. “It’s about an issue I’ve been asked to explain. I do not feel this is my problem. This is not me cherry picking numbers. This is me telling you what happened.”

Gehrig said if the room tax is the one of the city’s largest revenue sources, the city should try to grow it. And Knapp said that’s what the city has done – as shown in her figures.

Gehrig on the other hand, said the source of income was grown through advertising instead.

“Tourism grows because of our advertising,” he said.

City Manager Doug Miller interjected and tried to stop the conversation by addressing Council President Matt James directly. Miller said this discussion was to be for the historical data and not debate. The next meeting scheduled on the topic was for debate, Miller told James, but James said if the discussion did not happen now, things would be left unsaid. Instead, this conversation can segue into the next meeting.

“This is an inquisition ... I’d like it to stop,” Miller demanded.

But the assault continued.

Gehrig told Knapp the city is in violation of its own ordinance, claiming it does not dedicate an equivalent amount of the tax revenue to destination advertising.

“We didn’t know that this was happening,” Gehrig told Knapp. “You’re completely out of control with it. You’re making decisions we don’t even know about.”

Knapp said she took offense to that statement and told Gehrig that a line-by-line budget breakdown is given to all council members during the budget season on a thumb drive.

“I think you need to get your facts straight,” she said.

Gehrig then accused Knapp of presenting numbers and worst-case scenarios to scare the council, but Councilman Lloyd Martin interjected that he had never been scared by the information Knapp provided. Knapp even told him that is not what she tries to do.

Knapp has said her job is to present options for fiscal responsibility.

The city is in the process of looking for an internal auditor to go through the financial books.

Gehrig, on Tuesday, demanded that the new auditor report directly to the City Council and not Doug Miller.

Councilman Tony DeLuca said he did not want to debate the past and that he supported a 60/40 split of the room tax revenue that go toward the general fund and advertising, respectively.

DeLuca also said he would like to see the room tax increased another half a percent.

Gehrig moved to pause the process of hiring the internal auditor until the council can determine who that person will report to.

When it came to a vote, council voted 5-1 to put that business on hold, with Councilman Peter Buas opposed and Martin not in attendance.

This story appears in the print version of Ocean City Today on Oct. 15, 2021.

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