Tax Formula Approach Is Right Direction

Tax Formula Approach Is Right Direction

There was a lot of predictable ingratiating in Snow Hill this week, but privately a battle will unquestionably ensue over Ocean City’s proposed agreement that calls for large increases in funding from the county.

The six-page Memorandum of Understanding created by the Town of Ocean City seeks to do away with the entire discussion of tax differential, which refers to services Ocean City taxpayers fund for the county but do not utilize because the town provides its own. Instead of seeking an unrealistic large amount of money to account for the tax differential — equated to about $17 million by a recent study — the town is proposing a funding formula that over time brings equity to the town’s tax contributions when compared to the percentage of grants the town receives on an annual basis from the county.

Equity is sorely needed for Ocean City property owners. The numbers do not lie. For the current fiscal year, Ocean City submitted about $67 million in total property and income taxes to the county and received 4.56 percent of it back in a grant, totaling $3 million. Compared to other municipalities, it’s clear there is a problem. Berlin received $702,000, which represented 22 percent of its total taxes provided to the county, while Pocomoke received 24 percent and Snow Hill about 71 percent.

What these numbers confirm is what has always been known. Tax dollars from Ocean City sustain the rest of the county and in particular help fund public education. Some may not have an issue with that, but there is no question Ocean City property owners have an unfair burden because they are facing double taxation by paying the county for a multitude of services they do not receive from the county.

The problem is going to be achieving this fairness without causing much harm to other municipalities’ residents as well as those who live in the county at-large. Ocean City’s attempt at phasing the increased grant requests seems to target evenhandedness, but nonetheless the formula still will increase the county’s grant to the city from the current $3 million to about $5 million next year and up to about $13 million five years from now, based on current tax computations. A more palatable formula may phase-in the increases outlined in the city’s proposed MOU over 10 years as a starting point or even more to reduce the increased allocations. This has been a major issue for a long time and there is no easy fix when the entire county is considered.

While the commissioners seemed to at least publicly take the formula approach in stride this week, recent history shows Ocean City is going to swing and miss here. The county will never be able to afford what was proposed this week, particularly in light of the gloomy revenue projections released last month and the Worcester County Board of Education’s great dependency on the county for funding. Public education will also take priority and a majority of the county’s residents want it that way.

That’s where House Bill 650 in the Maryland General Assembly enters the picture. Salisbury and Ocean City have expressed support for the bill, which mandates “a county to grant a property tax setoff to a municipal corporation in accordance with a formula agreed to by the county and the municipal corporation if the municipal corporation performs services or programs instead of similar county services or programs…”

Therein is the rub. The county does not feel Ocean City property owners are being double taxed. In fact, the county believes there are only two services — the Fire Marshal and Department of Development Review and Permitting — that the county does not provide to Ocean City. Chief Administrative Officer Harold Higgins seemed to outline the county’s long-term position in a memo to the commissioners, saying, “Should the Town of Ocean City opt to provide an enhanced level of service above and beyond that which is provided by the county, that is certainly their prerogative, but such enhanced services are not considered double taxation.”

The MOU presented this week will most likely never get signed as is by the county and city. A formula approach will most likely require an act of the legislature. That’s a bill that will carry a lot of weight for towns and counties throughout Maryland. There is a lot of money riding on the bill — known as the Property Tax Fairness Act of 2015 — and it merits following.