OCEAN CITY – Resort officials this week passed the roughly $120 million fiscal year 2008 budget on first reading with, depending on how one looks at it, a modest reduction or a significant increase in the property tax rate, but not before being taken to task by several local residents on the spending plan and the constant yield tax rate.
The Mayor and Council on Monday unanimously passed the fiscal year 2008 budget on first reading with formal adoption scheduled for the first week of June. The elected officials passed the budget on first reading after unanimously agreeing to set the property tax rate in Ocean City for fiscal year 2008 at 41 cents per $100 of assessed value, which represents a two-cent reduction over the current property tax rate, but a five-cent increase over the constant yield rate.
The constant yield is a complicated formula that determines what the property tax rate should be in order to generate the same amount of revenue as the prior year. In essence, the formula takes into account the increase in the real property assessable base and adjusts the property tax rate to a level needed to maintain the prior year’s property tax revenue.
In Ocean City’s example, if the current real property tax level of 43 cents per $100 of assessed value was maintained this year, the amount of revenue collected by the resort in property taxes would increase 19.3 percent, resulting in $6.9 million in new revenue. Conversely, in order to fully offset the effect of increasing assessments, the real property tax rate would have to be reduced to 36 cents per $100 of assessed value.
However, the council on Monday voted not to reduce the tax rate to the constant yield of 36 cents, instead opting to set the rate at 41 cents, which is two cents lower the current rate, but still higher than what the constant yield rate called for at 36 cents. Instead of the 43-cent tax rate resulting in a 19.3-percent increase in the amount of property tax collected by the town, the approved rate of 41 cents will result in around $4.9 million in new revenue, which rankled many in attendance at the required public hearing on the constant yield.
“All I hear around the city is that things are getting too expensive,” said Jim McGinnis. “The property tax increase is passed along to the business owners and the cost of doing business keeps going up. That’s passed along to the visitors to this town. You have to be aware of that.”
For those reasons, McGinnis urged the council to set the tax rate at the constant yield.
“If 36 cents will do to keep things the way they were, we should do that,” he said.
Resident Ellie Diegelman agreed the increases in property taxes are ultimately passed along to the consumers, particularly in the cost of condo rentals and hotel/motel rooms. She also urged the council to observe the constant yield rate and reduce the property tax level to 36 cents per $100 of assessed value.
“This is two-fold,” she said. “If property taxes go up for the owners, it hurts the amount of disposable dollars they can spend in restaurants and other attractions. If they pass that along to the renters, the renters will be faced with the same thing.”
Resident and business owner Al Wendling said the property tax increase is having an adverse effect on small businesses faced with increased rents while trying to maintain the costs for their customers.
“Business owners in this town are taxed to the point they can’t take it anymore,” he said. “The landlords pass it along to the renters and the renters have to pass it along to the customers.”
The trickle-down impact of the rising property taxes is having a profound effect on the visitors to Ocean City, many of whom are already looking for vacation alternatives, according to resident Ray Sawyer.
“You’re on a course where you’re going to knock off everybody that used to come here for cheap lodging and cheap meals,” he said. “Ocean City is taking itself away from the average citizen.”
Yet another resort property owner said his rental income has remained stagnant while the property tax he pays continues to increase.
“My rental income has been flat for about eight years,” said Kurt Swerko. “The golden goose is dead. At some point, you have to have a shred of fiscal responsibility.”
Later, during a discussion about the first reading on the town’s proposed $120 million budget for fiscal year 2008, many of the same cast of characters voiced similar concerns. Some questioned how the budget was initially prepared, while others called into questioned the randomness of the decision-making process, which rankles some on the council.
For example, Council President Joe Mitrecic said the decision on the property tax rate and the larger decisions on the budget are made only after careful deliberation by the council.
“We sat up here for many meetings, and for you to characterize these decisions as arbitrary is unfair and just not nice,” he said. “To say we don’t have a business plan is simply unfair. It’s looked at extremely closely. We have a very deliberate process for determining how we spend the money.”