OCEAN CITY — Ocean City’s $127 million fiscal year 2019 budget was approved on first reading this week, but not before a spirited debate about the perceived appropriate level of reserve fund balance to maintain.
With a slight decline in property value reassessments last year, the proposed spending plan could have resulted in a modest tax hike in order to maintain the constant yield.
The constant yield is the same level of property tax revenue needed to maintain the same level of services and programs as the previous year. With a minor dip in property assessments, the constant yield tax rate for the fiscal year 2019 budget could have been nudged slightly upward to .4667 per $100 of assessed value. However, the property tax rate for the fiscal year 2019 budget comes in at .4656, or the same exact rate as in fiscal year 2018.
In simpler terms, a modest property tax hike could have been justified this year, given the town’s recent commitment to maintaining the constant yield rate. However, the fiscal year 2019 budget approved on first reading on Monday sets the property tax rate the same as last year.
In a broader sense, it has been the town’s policy in recent years to maintain a fund balance, or rainy day fund of sorts, at 15 percent of the general fund budget. However, the budget approved on Monday increases the fund balance to 22 percent, or roughly $6 million over the stated 15 percent policy.
Roughly $1.6 million of the reserve fund will be appropriated to ongoing projects such as street paving and canal dredging, leaving the fund balance at around 20 percent. During Monday’s public comment period, former Councilman Vince Gisriel asked the council to consider lowering the reserve fund balance and adjusting the property tax rate accordingly.
“That’s 4.89 cents on the tax rate,” he said. “I’m asking you to tweak this budget sometime before second reading and make some adjustments. You can lower the tax rate and still come in with a balanced budget.”
Gisriel said it was a little disingenuous to couch the property tax rate in terms of constant yield when the reserve fund was steadily increasing.
“You have not really been holding the line on this,” he said. “The people hit hardest by this are the thousands of absentee owners because they are not protected by the Homestead Cap. Maybe meet us half-way and give us two cents back.”
Councilman Dennis Dare said the reserve fund was in place in case of emergencies, such as storms and other unexpected expenditures.
“We’re looking at increasing the fund balance over a period of time,” he said. “It is there for unexpected emergencies and while we keep our expenditures pretty consistent, inflation and some of the solutions to our emergencies continue to rise.”
Dare said the 15 percent goal was somewhat obsolete and growing the reserve fund is a stated goal of the recent strategic planning sessions.
“We need to be able to address issues when they come up, especially when we’re a resort destination with 100 days that are vital,” he said. “It would be irresponsible to cut the fund balance. Back during strategic planning, we discussed increasing the goal to 20 percent, so we’re very aware of that.”
Councilman Wayne Hartman said maintaining a healthy reserve fund was instrumental in the town’s continually strong bond ratings.
“As far as fund balance, I think it actually saves us money because our bond rating is certainly favorable when we have that higher fund balance,” he said. “That actually saves us money in the long run especially with the amount of projects and so forth that we do.”
