OCEAN CITY – Property owners may receive a little relief this year as a last-minute amendment was made this week to the proposed fiscal year 2013 budget to decrease property tax by a penny.
The proposed budget reached the Mayor and City Council on Monday night on first reading, setting the tax rate in Ocean City at the constant yield, which is $0.4685 per $100 of assessed valuation of real property.
Before the council could reach a vote to approve the budget as is, Councilman Joe Hall proposed an amendment to reduce the tax rate by one cent.
“Our property values have decreased, we are still being challenged, the economy has not bounced back as robustly as it is, and what can we do,” Joe Hall said. “I think it would be a good move, and a good message to the property owners of Ocean City that we come in one penny less than the constant yield rate.”
The reduction in the tax rate will require about $863,000 to be taken from the fund balance to fund the budget rather than with tax revenue.
Joe Hall pointed out that the decrease in fund balance will keep the account within the city’s policy of 12 percent of the operating budget.
According to Budget Manager Jennie Knapp, at the end of last fiscal year, June 30, 2011, the fund balance was about $15 million. In the current fiscal year, $2.2 million in anticipated costs were reduced from the fund balance, such as an increase in the advertising budget and legal fees, funding for the new Art League of Ocean City building, 4th Street parking lot construction, and street paving, which leaves the fund balance at $12.8 million.
The original proposal for 2013 was to take an additional $1,885,799 out of the fund balance, which would bring it to $11 million. The amendment would reduce the fund balance to $10.1 million and will leave the account within the 12 percent policy, which is $9.2 million.
“That leaves us within a million dollars of that policy,” Knapp said on Tuesday. “There may be things that come up in the next year that we may need to tap into that million dollars.”
For example, Hurricane Irene has caused Ocean City to pull money from the fund balance to cover costs that are not covered by FEMA (Federal Emergency Management Agency), staff overtime costs that were endured during the hurricane, as well as pension costs that came in more than estimated.
The $863,000 reduction in the fund balance places the town’s annual street paving in question as well. The program is funded through the Ocean City’s share of the Casino at Ocean Down’s revenue, additional parking revenue and $1 million from fund balance a year.
“I don’t know if we will be able to fund street paving after fiscal year 2013 because I don’t know if I will have that amount left in fund balance,” Knapp said. “We are fine for next year, we have $2 million in the budget for street paving, we also did the bond issue where we are going to be paving St. Louis Avenue, and so that gets us another year.”
Another problem is usually the town prepares for a budget amendment by the end of the year to add extra savings and additional revenue to the fund balance but this time around it may not happen.
“We keep cutting everyone’s budgets and it gets harder and harder to be able to do that,” Knapp said. “It gets harder for the departments to manage their budgets and give money back at the end of the year because they are to the point of having to use what they had budgeted for.”
The median assessment for owner-occupied properties in Ocean City after the Homestead Tax Credit is $199,828. Using that figure, the average taxpayers tax bill would be $936 set at the constant yield tax rate of $0.4685. If the tax rate is set at one cent less, or $0.4585, the average taxpayer’s bill will be $916, which is a total savings of $20 per year.
Councilwoman Mary Knight felt the proposal could have been brought up in the 45 days the council discussed the budget instead of in one of its final stages. She also felt more comfortable with having an $863,000 cushion in the fund balance rather than saving the taxpayer an average of $20 a year.
“Our goal always is to strike the lowest tax rate we can to supply the services our citizens expect and deserve at the best possible price, and that has become more and more difficult … it is certainly the prerogative of the council to make a reduction like that to the budget,” Mayor Rick Meehan started off.
Meehan pointed out that it wasn’t that long ago that the key word in council discussions was “infrastructure”, including the Street Improvement Program, and that is why the formula was developed to fund the program.
“At some point in time, you have to address your infrastructure issues or you are going to fall farther behind and I thought that was the goal of the council, and I think it is,” he said. “We can change directions, and may get lucky in some other ways, but if you take $863,000 out now it is going to make it a lot more difficult moving forward to be able to do that.”
Meehan added that if the town does not meet constant yield this year it is going to make it more difficult in the future to do so as well as continue infrastructure projects.
“If we hit constant yield this year, we should be able to do that for a while, and make the tax rate level for a period of time,” he said.
One other factor to take into consideration is the actions the State of Maryland and Worcester County are going to be making with their own budgets in the near future and how it is going to affect Ocean City.
This year the town has asked the county for a grant at the same level as last year, but there’s no guarantee that request will be granted.
“In fact, if they [county] lose money from the state level they may come back and take some of that money from the grants that we received last year from the county,” Meehan said. “We do not know at what level we will be funded by the county yet, so that could still affect this budget.”
The council voted 4-3 to approve the one-cent decrease to the proposed tax rate. Council members Doug Cymek, Knight and Lloyd Martin were opposed, while Brent Ashley, Jim Hall, Joe Hall and Margaret Pillas were in support.