(Dec. 14,2012) City officials say they are in the legal clear after last week’s auction of beach equipment concessions saw a local businessman pick up four additional franchise parcels, despite being engaged in a battle with the IRS.
The Dec. 5 auction saw franchisee Patrick McLaughlin winning four of the 14 north end parcels on the block. McLaughlin has also optioned another, which he already holds, for a second three-year term.
In October of this year, however, McLaughlin was sentenced to 10 months in prison for failing to file tax returns and employment tax withholdings. McLaughlin operates 85 N Sunny, the resort’s largest beach equipment rental, which had won rights to nearly 50 percent of the beach. He also owns two beach photo companies and an ice cream truck fleet.
McLaughlin apparently dodged $20,000 in Social Security and Medicare withholdings for 85 N Sunny. His total IRS tab for all four businesses, though, was $296,701.46.
But the city has determined that it will suffer no liabilities from its continued relationship with McLaughlin. City Clerk Kelly Allmond also said the City Council’s previous members were made fully aware McLaughlin’s difficulties when the charges against him were disclosed
“The previous council was fully informed, fully briefed on the situation and chose not to take any action,” said Allmond, who is responsible for the administration of the beach franchise system.
However, she noted, “the situation did require City Solicitor Ayres to issue a letter to the effect that there is no legal issue [with McLaughlin holding the franchise rights].”
Ocean City has a revolving system for taking bids from private operators for the right to rent umbrellas, chairs and other equipment on public beaches. The city’s coastline is divided into three zones – south end, north end and mid-beach. Each zone is further divided into parcels, consisting of one block’s worth of beach in the mid and south areas and several blocks on the less busy north end.
Each zone is auctioned every third year, with contracts lasting for three years with the option to renew for another three years at a 10 percent increase over the first term’s price.
The concession system has been highly rewarding for the city’s coffers over past decades, but bids for any given stretch of beach have declined since 2008, as the slow economy has reduced concessionaires’ profit margins. Subsequently, the city increased the maximum number of parcels one franchisee could hold at a given time.
The previous cap had been 33 percent, to prevent monopolization by one vendor. But that share was upped to 50 percent in order to encourage an economy of scale and keep the franchises attractive to larger investors.
However, several concessionaires have come before the City Council in recent weeks to complain that the person who has taken advantage of the cap increase – McLaughlin – was only able to do so through fraud.
Allmond said that all winning bidders are required to pass a credit check, but that McLaughlin’s tax troubles have not affected this.
The council could, however, still choose to reject McLaughlin’s bids when the auction results are approved, as there are no bid qualifications that are binding on the city. The city code gives the mayor and council the leeway to “reject any and all bids for any reason it deems appropriate, and may rebid upon such terms, conditions and manner it deems appropriate.”