OCEAN CITY – After the required public hearing on the proposed tax rate for fiscal year 2015 budget, which is set at the constant yield level, the City Council voted 5-2 on Monday to pass the spending plan on first reading.
The constant yield tax rate is .4704 per $100 of assessed valuation and represents the real property tax rate for FY15 that will generate the same amount of revenue that was generated during FY14 at a rate of .4720 due to an increase of assessments of .33 percent.
City Manager David Recor’s initial budget proposed a rate of .4804, which is a penny higher than the constant yield rate. However, last week the council approved a list of reductions that generally postponed union and general employee pay raises from July 1, 2014 to Jan. 1, 2015 as well as revenue estimate increases and an additional use from fund balance all to decrease the proposed tax rate by a penny to reach constant yield.
“As attractive as this tax rate reduction sounds, I have to disagree and oppose it because I feel strongly this is actually worse than if you had increased it, due to its lack of transparency and accuracy. What it really amounts to basically is the numbers were manipulated in order to bring it to constant yield by delaying salary increases and playing with revenue estimates,” citizen Ellie Diegelmann said during the hearing.
During first reading of the budget, Recor explained the FY15 operating budget requires the constant yield tax rate while prior year reserves will be used to fund canal dredging, street paving, a bulkhead replacement and health insurance increases.
Approval of the budget ordinance would set the tax rate at the constant yield rate of .4704, and prior year reserves in the amount of $931,828 will be required to fund the budget leaving fund balance maintained above the 15 percent level set by the council.
“Although I normally wouldn’t advocate an increase in the tax rate by a penny but with this budget I would. The council is committed, because of the union contracts, to employee salary and pension fund expense increases. Combined, these expenses add over $1 million to the FY15 budget,” Councilman Brent Ashley said. “Rather than delaying the promised salary increases, vehicle purchases, funding new positions for only six months, increasing revenue projections, and taking more money out of fund balance to balance the budget, as a taxpayer, I would prefer that you just raise the tax rate by a penny for the needed revenue. One way or the other, sooner or later, you will have to pay the piper.”
Ocean City resident Ann McDermott asked for the municipality to search for other avenues of income or consider establishing enterprise funds for street paving and canal dredging.
“Perhaps what we need is a committee formed to try to find other revenue for us because we have got to come up with something,” she said. “We have to get back on track and start taking care of the essential everyday things in our community.”
Mayor Rick Meehan explained an enterprise fund is meant to be self-sustaining where revenue from set fees offsets expenses.
“Do you want a street tax? I don’t think so. Do you want a dredging tax? I don’t think so,” the mayor said.
Unlike other communities, Ocean City includes service expenses, such as trash pickup, in the tax rate instead of an enterprise fund.
“Currently this year we have about $1.3 million set aside for street paving. That is a significant amount of money,” the mayor said. “We also have a policy as the season goes on any revenue that comes in over the 15 percent policy held in our fund balance it is applied to street paving. Following that policy last year, we were able to spend approximately $2 million on street paving.”
Meehan furthered a $500,000 fund was established last year for canal dredging once all the permits were put in place. The FY15 Budget includes $250,000 for canal dredging as well.
“We are addressing those by policy in the budget. We are addressing those in the tax rate. They are not additional taxes for those capital improvements, and one thing that our finance administrator has always reminded me is if it is included in the property tax it is tax deductible. If you have trash fees, or street fees, they are not tax deductible, so we’re by policy working to do that by one tax, and through one fee of the tax rate,” he said.
Prior to the vote, Recor announced Ocean City received its biannual OPEB, or post-employment medical benefit actuarial analysis, that is consistent with the town’s conservative projection on both revenue and expense side.
“The proposed expenditure as recommended by the actuarial study was about half than what we had projected resulting in a decrease in expenditure of over $600,000,” he said, as he asked the council how they would want to allocate those additional funds. “The point is due to our … experience, and the change in the actuarial cost methodology it has resulted in a reduction in the premium of all funds of almost $750,000, so that is great news.”
The council was in consensus to keep those excess funds in fund balance moving forward and readdress the matter during the first amendment of the budget around October.
The council voted 5-2, with council members Ashley and Margaret Pillas opposed, to approve the FY15 Budget as proposed on first reading.