County, Ocean City Spat On Tax Differential Continues Letter Called “Slap In The Face”

OCEAN CITY- Before granting the town of Ocean City the opportunity to sit down with the Worcester County Commission to discuss the city’s request of a tax set-off a letter of denial was drafted and viewed as a “slap in the face.”

During the Mayor and City Council meeting on Monday evening, Worcester County Commissioner Joe Mitrecic presented the council with a quarterly report.

Mitrecic outlined recent activity on the county level, such as moving forward with filming county commission meetings for the public to view from home, an upcoming approval of a Memorandum of Understanding (MOU) of Mid-Atlantic Amateur Sport Alliance with Ocean City and Wicomico County, the execution of the Liquor Control Department but most importantly a discussion scheduled for the next day’s commission meeting regarding Ocean City’s request of a property tax set-off in the form of a property tax differential.

On March 3, Ocean City officials came before the commission requesting consideration of a formula that would increase the amount of county funding Ocean City receives during the next five years. Under the proposal, Ocean City’s grant from the county, which was $3 million this year, would jump to approximately $5 million in the coming fiscal year.

At that time, Ocean City Mayor Rick Meehan said 60 percent of the property tax revenue the county received came from Ocean City’s 28,000 taxpayers. Because of that, a study performed in 2013 by the Municipal and Financial Services Group identified and supported a $17 million tax differential — $14 million more than provided by the county’s annual grant to Ocean City.

Ocean City officials have pushed the idea of a tax differential for years with the argument that certain county services are not provided to resort residents because Ocean City already provides them.

Meehan said that because Worcester County historically did not support the tax differential, resort officials had come up with the funding formula proposed Tuesday instead. Currently, he explained, Ocean City received from the county roughly 4.5 percent of the taxes it paid, or $3 million. In comparison, the town of Berlin received 22 percent of the taxes it paid, or approximately $702,000 in grants; while Snow Hill received 71 percent of its taxes back, or $629,000, and Pocomoke 24 percent, or $493,000.

City Manager David Recor presented the new formula for Ocean City would increase the amount it received from 4.5 percent to 7.5 percent in the coming budget year with phased-in increases over the next several years, ending with 19.56 percent.

Under the formula, Ocean City would receive a little more than $5 million in unrestricted grant funds in FY 2016, based on the city paying $67.37 million in total property and income taxes to the county. In FY 2017, the grant would increase to more than $7 million, based on current tax allocations from the city to the county. By 2020, Worcester County’s grant to Ocean City would be more than $13 million, again using current tax figures.

Ocean City officials came prepared with a proposed MOU that states, “The Town’s requests for Tax Differential consideration have been supported by several comprehensive financial studies and detailed analysis prepared by The Municipal & Financial Services Group (MFSG), based in Annapolis, Maryland, which identified and confirmed a number of county services or programs that are not offered to, provided to and/or utilized by the town of Ocean City and its residents including but not limited to the Worcester County Tourism Department, Department of Public Works, Department of Recreation, Department of Parks, Department of Emergency Services, Fire Marshal’s Office, Department of Development Review and Permitting, the Sheriff’s Office and the Department of Environmental Programs,” the memo read. Worcester County has been resistant to engage in discussion and/or grant the Town’s requested Tax Differential and has instead responded by providing the town with a variety of  annual Restricted and Unrestricted Grants including Economic Development (Tourism), the Ocean City Development Corporation (OCDC), Recreation, Visitor’s Bureau and Undesignated Funding …these Restricted and Unrestricted Grants, while very much appreciated by the Town of Ocean City, equate to only a small fraction of the amount an actual Tax Differential should equate to because the Town of Ocean City constitutes nearly 60% of the Assessable Real Property Tax Base for all of Worcester County yet the Town of Ocean City receives a disproportionately small share of County services and programs.”

Before the council on Monday, Mitrecic acknowledged Ocean City’s request.

“Although I thought the funding formula was very fair, a letter has already been drafted to deny Ocean City’s request, so I am not real sure why we are bothering to discuss it,” Mitrecic said. “The county feels the only duplication of services falls on the Fire Marshal’s Office and Department of Development Review and Permitting, which totals about $1.3 million.”

On March 11, Higgins submitted to the commission there are only two services the county does not provide in Ocean City since Ocean City provides the service itself, and those are the County Fire Marshal in the amount of $324,897 and Development Review and Permitting (DRP) in the amount of $2,019,328, totaling $1,344,225 of proposed tax setoff for these services to the Town of Ocean City in Fiscal Year 2015 (FY15).

“However, we find that the issuance of grants to the town of Ocean City in the amount of $2,961,956 in FY15 in lieu of a tax differential is a better solution in the interests of all citizens of Worcester County, including those who reside in Ocean City,” the letter states.

The letter furthered, in lieu of a tax set-off, Higgins proposes county grants be issued to the town of Ocean City in the amount of at least $1,344,225. Specifically, the requested county budget includes grants to Ocean City in the amount of $2,961,956 matching the level approved in the current FY15 budget, and that Ocean City will have the opportunity to testify before the commission at the May 5 budget hearing.

“County staff has also reviewed the town of Ocean City’s subsequent request for a MOU providing for an escalation of the unrestricted grant funds historically provided to the town of Ocean City tied to the percentage of county tax revenues collected in Ocean City. Staff strongly opposes such a MOU, which would limit the county’s abilities to address countywide needs and the delivery of services that benefit all citizens and visitors of Worcester County,” Higgins submitted. “However, please be advised that we have requested funding in FY16 to perform a County Tax Differential Study to confirm the minimum fair level of grants in lieu of a tax setoff in future years.”

Mayor Rick Meehan was also aware of the letter during Monday’s meeting.

“After our presentation, Commission President Jim Bunting stated the county and city would meet to discuss this prior to the budget process for 2016,” he said. “Now, I see a letter that was proposed by the County Administrator that suggests that meeting will not take place at all but suggests the county send a letter signed by the Commission President denying our request. It goes on to dispute our claims for a tax differential without ever sitting down with us to have the conversation. It goes as far to say, our formula would be asking for less money than we received last year. It is certainly ludicrous and pompous for the County Administrator to put in writing that it would be the goal of the Mayor and City Council to seek less money in return for the Ocean City taxpayers then we have in the past, as well as to assume that we would get the same amount as last year because it would be better for the citizens of Worcester County. I take great exception to the letter and the way it was written, and even the tone of the letter.”

Mayor Meehan also recognized the letter indicated the county will have a tax differential study of its own, similar to that which Ocean City had done, performed in the coming fiscal year.

“This is kicking the can down the road because we have been asking for that [study] for at least the last eight to 10 years,” Meehan said. “I have complete confidence that the President of the Worcester County Commission will not sign that letter. He did say to us that we would meet and I believe that he will hold true to that. We are ready to meet at any time and you can take that message back to the county commissioners.”

Mitrecic responded to the mayor that he was just as confused when he read the letter.

“Considering the commissioners have not even discussed this as a group, it seems that Mr. Higgins is trying to make up our mind for us,” Mitrecic said.

Following the County Commission’s discussion on Tuesday, the commissioners agreed to send Ocean City officials correspondence acknowledging the tax differential request.

At the urging of Mitrecic, however, a paragraph stating that the commissioners declined Ocean City’s request was removed.

“I don’t remember this body talking about that,” he said. “It was left at ‘we’ll discuss it.’ I was a little confused. To include this section about the MOU is a little farther than this letter should go.”

Commissioner Jim Bunting agreed.

“I don’t think we officially declined the request,” he said, adding that he would set up a meeting with representatives from the municipality to discuss the proposal.

Mitrecic was also critical of the letter’s invitation to Ocean City officials to attend the public budget hearing set for May 5.

“For us to suggest they show up at a public hearing is a little bit of a slap in the face,” he said.

County Attorney Sonny Bloxom explained that the opportunity to speak at a public hearing was something the county legally had to offer.

“The law provides that municipal bodies get a chance to speak at your budget hearing,” he said.