Early Revenue Projections Could Mean Modest OC Tax Hike

OCEAN CITY — While fiscal year 2019 budget deliberations are still months away, Ocean City officials last week got a look at some early revenue projections that could result in a modest tax hike for property owners.

Budget Manager Jenny Knapp last Tuesday presented a fiscal year 2019 revenue projection overview for the Mayor and Council in advance of the budget process later this spring. Knapp pointed out the revenue projections were still a bit of a moving target, early numbers suggest a modest property tax hike might be needed to balance the budget this year.

Knapp presented a variety of slides during a power point presentation that identified the different sources of revenue for the town, some of which improved, some of which show slight declines and others that appear to be coming in flat compared to the prior year numbers. Perhaps the most telling figure was the tri-annual property tax assessments for a large portion of the downtown area.

Each year, the state assesses residential and commercial property in each jurisdiction on a rotating three-year cycle and this year, the area of Ocean City south of 25th Street was reassessed. Knapp said assessments in the target area in Ocean City in this cycle came in showing a decrease of .24 percent, which is essentially flat over the last assessment cycle.

However, even a flat or slightly lower property tax assessment for the town could result in an in-kind increase in the property tax rate. For years, the town’s policy has been to set the property tax rate at the constant yield, or that rate needed to produce the same amount of property tax revenue as in the prior year.

Knapp pointed out the real property tax collected in the resort accounted for 48 percent of the general fund contribution. As a result, adjusting the property tax rate even modestly to account for declines in property assessments can have a major impact on the budget. For example, one cent on the tax rate would mean contribute over $877,000 to the general fund.

Again, while the early revenue projections for fiscal year 2019 are a bit of a moving target and there are still other factors to consider before any final decisions are made on the tax rate in the coming year, Knapp said sticking with the tried and true formula of constant yield could result in a modest tax rate increase of .0011 percent. In layman’s terms, she said following the constant yield formula would change the annual property tax on a typical $300,000 property from $1,397 to $1,400, or about three dollars.

Knapp said some revenue projections were still to be determined, but told the Mayor and Council she and City Manager Doug Miller would likely base the projected fiscal year 2019 budget on the constant yield rate reflecting the modest increase.

“I’m suggesting going with the constant yield tax rate,” she said. “That’s what you have done for the last eight to 10 years. We have a history of trying to stay at the constant yield and we are going to come in with a budget based on the constant yield rate.”

One area of projected revenue increase comes from new construction, which Knapp estimated would come in at around $200,000 over the prior year. Councilman Wayne Hartman suggested the estimated increase in new construction revenue could offset the decline in property reassessments.

“With the amount of new construction going on, we could essentially leave the rate the same as last year’s tax rate and sill have more money in the budget,” he said. “That way, people can really see the benefit of all of the new development in town.”

However, Knapp said swaying from the stated policy on constant yield could result in a deficit.

“Constant yield is the rate at which the same revenue will be brought in as the prior year,” she said. “If you reduce that number, you will bring in less revenue. You’d really be backing yourselves further and further into a corner by reducing it.”

About The Author: Shawn Soper

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Shawn Soper has been with The Dispatch since 2000. He began as a staff writer covering various local government beats and general stories. His current positions include managing editor and sports editor. Growing up in Baltimore before moving to Ocean City full time three decades ago, Soper graduated from Loch Raven High School in 1981 and from Towson University in 1985 with degrees in mass communications with a journalism concentration and history.