Tax Differential Remains Active Talking Point Between OC, County

Tax Differential Remains Active Talking Point Between OC, County

OCEAN CITY — Pending litigation, possible legislation and a potential olive branch of sorts were topics of discussion this week as Ocean City and Worcester County continued their long-standing battle over the tax differential issue.

Worcester County Commissioner Joe Mitrecic, who represents Ocean City, on Monday presented his quarterly report to the Mayor and Council on issues germane to the resort. It didn’t take long for the discussion to revert back to the ongoing feud between Ocean City and Worcester County over tax differential, an issue that is now plodding its way through the court system with a lawsuit.

Much of Mitrecic’s presentation focused on the county’s recently-passed fiscal year 2019 budget and naturally the discussion came around to what Ocean City received from the county. One of the key takeaways from the discussion was despite the continual attempts to gain tax differential from the county, or tax setoffs for the municipality for services and programs duplicated by the two jurisdictions and essentially paid for twice by resort taxpayers, the town actually got less from Worcester County in the recently-passed budget than in the prior year.

Each year, Ocean City asserts the town is owed a tax setoff from the county because of the services and programs the municipality provides for its residents and visitors, services and programs that would otherwise have to be provided and paid for by the county. However, Worcester County for years has contended the unrestricted grants it provides to the town each year satisfies the cost of the duplicated services.

The two sides are far apart on the actual number and a pair of independent studies conducted in recent years appears to illustrate that. Nonetheless, Worcester County continued its long-standing practice of providing grants to the town in lieu of tax differential again this year, but the level of funding actually declined this year.

“Ocean City received a 2.5-percent increase in the unrestricted grant, or about $58,000,” Mitrecic said. “But due to a variety of reasons, the town is actually getting about $98,000 less this year than it did last year.”

Mayor Rick Meehan said the decline in the amount of the unrestricted grants this year was symbolic of the broad rift between the town and the county.

“I watched the budget hearing and I know you voted against it because you support Ocean City,” Meehan told Mitrecic on Monday. “The fact they’re giving us $98,000 less really shows it’s going in the wrong direction.”

It’s a complicated issue to be sure and the ramifications extend to the county’s overall budget. Mitrecic explained because of the high value of real estate in and around Ocean City, Worcester is considered one of the wealthiest counties in Maryland despite the rural nature of the rest of the county. As a result, Worcester get less state funding per student than any other county in the state.

“We spend $19,000 per student of which the state gives us $2,950,” he said. “That is the lowest amount in the state. The county is seeking some other formula other than wealth-based to take the burden off the taxpayers of Worcester County.”

Resort officials often point out how much Ocean City contributes to the county’s budget, estimated at around 60 percent, while sending a relatively low number of students to the county’s public schools. Basically, the town contends it sends nearly 60 percent of the county’s $190 million budget to Snow Hill through property taxes, real estate taxes, room tax and amusement tax, for example, but send only 300 students to county schools out of the entire 6,700 enrollment figure.

“Basically, the $8.5 billion assessable base of Ocean City elevates Worcester County’s wealth astronomically and you send less than 300 students to Worcester County schools,” he said.

Mitrecic said the state’s wealth-based formula for determining school funding for counties penalized Worcester to a large degree. He also said the state’s maintenance of effort policy, which requires counties to maintain at least the same level of funding for public schools from year to year made it challenging for the county to keep up.

“With Ocean City, we’re one of the richest counties in the state,” he said. “Without Ocean City, we’re one of the poorest counties in the state.”

However, Meehan essentially said the county should be careful what it wished for because the money Ocean City contributes to the county’s overall budget far exceeds any shortcomings in the state school funding formula for Worcester.

“The reality is, the bottom line is the money the county would receive from the state without Ocean City would be less than it is with Ocean City,” he said. “They’re complaining about maintenance of effort, but that money is actually much less that what they would receive because of the assessable base in Ocean City.”

Whether it’s the school funding formula or the other issues, Mitrecic said Worcester and Ocean City should continue to find a way to come to an amicable resolution on the tax differential issue. He said the relatively low number of students Ocean City send to the county’s public school is an example of that.

“We only send 300 students to Worcester County schools,” he said. “We enjoy many things in Worcester County funded by the non-resident taxpayers because they don’t impact the schools and other things. It’s really a Catch-22. There is a new study coming out to explore not basing school funding on wealth but some other criteria.”

During a budget session in May, the resort made a few requests to the county, including a request for the county to share in the expense of the new Boardwalk access security plan. However, Worcester County balked on the cost-sharing proposal when it came time to pass the budget.

“Ocean City’s request for funding for the Boardwalk security project was turned down,” said Mitrecic. “I personally thought it was an easy home run for the county to jump on and participate in a worthwhile capital project.”

Mitrecic said County Administrator Harold Higgins and staff supported Ocean City’s request for funding for the Boardwalk access control project, but the commissioners ultimately went the other way.

“To their credit, Mr. Higgins and the budget team also saw it that way and they tried to keep it in,” he said. “However, my colleagues saw it differently and it was voted out, so it’s not there.”

Another way Ocean City sought to get relief from Worcester County during the recent budget session was a request for funding for tourism marketing. Ocean City spends large amounts on tourism marketing and that broad brush takes in many of the new hotels and other attractions in unincorporated West Ocean City. As a result, the town was seeking a contribution from the county this year to offset the cost of marketing and advertising West Ocean City, but again, it was denied.

“The $100,000 in marketing money to offset the overlap in the tourism marketing for the new hotels in West Ocean City was also voted out,” said Mitrecic.

In January, after years of veiled threats, Ocean City filed a civil suit against Worcester seeking a declaratory judgment against the county on the long-standing tax differential issue, a suit that is slogging its way through the court system. In the meantime, resort officials this week extended an olive branch of sorts to the county including an open invitation to get back to the table to find an amicable resolution once and for all.

Meehan said the town was basically attempting to take the high road on the issue.

“Not that I want to become them, because that’s something I never want to do,” he said. “I would like to see if they would again consider meeting with us and opening up the dialogue. I think it’s good to continue the conversation and I don’t want us to be the body that stops that.”

However, the mayor acknowledged the county would have to meet Ocean City half way and used the Boardwalk access control funding request as an example of how that might be challenging.

“We’re trying to move forward,” he said. “You mentioned the Boardwalk security funding and I described it as lobbing that up there because it was a just a way for them to continue the conversation.”

Meehan said any future discussions would need to be more than just lip service.

“We’re open to continue these discussions as long as they are substantive in nature and done with the intent we need to try to work this out. We live in an amazing area and Worcester County and Ocean City need to have a better working relationship. At least on our end, I’d like to strive to do that.”

Mitrecic has been a fierce advocate for Ocean City while serving in Snow Hill, but said it hasn’t always been easy.

“I’ve made very small inroads down there,” he said. “I fight every day for Ocean City and it’s tough. I’m hoping that Mr. Hartman, if he is elected, is going to put a bill in for us to make us a ‘shall’ county instead of a ‘may’ county. If Ocean City is not successful in this lawsuit, my feeling is it’s just not going to go anywhere.”

Mitrecic was referring to Councilman Wayne Hartman, who is running for state delegate in District 38-C. The Municipal Home Rule Amendment of the Maryland Constitution that designates some counties in Maryland as “shall” counties, which require those counties to provide tax set-offs for services provided or duplicated by its municipalities. Other counties are declared “may” counties, in which tax set-offs to the municipalities are optional. Mitrecic urged Hartman, if successful in his election bid, to push legislation to have Worcester changed from a “may” county to a “shall” county.

Mitrecic said his goals going forward included the tax differential issue, of course, along with getting the county to explore increased rental licenses for the hundreds of not thousands of homes being rented and a more equitable emergency services formula for Ocean City.

Meehan essentially said the county has been on the Ocean City gravy train for so long it has lost a desire to explore different revenue streams.

“I think you’re doing the right thing in trying to get the county to look at other ways to garner revenue that is right there in front of them,” he said. “I think it’s because of the free money from Ocean City that they haven’t taken the incentive to try to catch the other revenue sources that are really required by the county code.”

Later during the public comment period of Monday’s Mayor and Council meeting, Mitrecic returned to the podium seeking Hartman’s answer to the “shall” county legislation if elected.

“Something has been eating at me for a while,” he said. “I mentioned a bill if Mr. Hartman is victorious and he didn’t answer one way or the other on how he stands on this.”

Hartman quickly responded that he believed continued dialogue toward an amicable resolution should precede any legislation, which he believes would get little traction in the General Assembly.

“In response to Commissioner Mitrecic’s question, certainly right now it is Ocean City’s preference to work with Worcester County without legislation,” he said. “Right now, 15 percent of the state’s population lives in areas represented by municipalities, so I don’t think that would be successful in the General Assembly.”

Hartman said proposed legislation could have a reverse effect in the ongoing tax differential debate.

“It would give the county a different angle and I don’t think that’s the answer,” he said. “I’d rather see the county commissioners and the city council continue to work together to resolve this.”

Meehan was quick to point out his offer of continued dialogue with the county over the tax differential issue should not be perceived as an indication resort officials do not believe the ongoing lawsuit will not go their way.

“Don’t take my agreeing to meet with the county commissioners as us believing we aren’t going to win this litigation because I think we will,” he said. “I agree that it is good to have the continued dialogue to try to resolve this without litigation or legislation, but I didn’t suggest it because I don’t think we’ll be successful.”

On Tuesday, Mitrecic took the town’s offer to renew discussions over the tax differential issue back to his colleagues in Snow Hill with apparently mixed results.

“They would like to try to continue to be amicable about this and move forward in an amicable way instead of through the court system,” Mitrecic told his fellow county commissioners on Tuesday. “If necessary, they will continue with the court system, but they’d like to try to work it out with the county.”

When asked if Ocean City would consider dropping the lawsuit, Mitrecic said that was a question for the Mayor and Council. However, Commissioner Bud Church said he had candid conversations with some councilmembers possibly indicating an inclination to go that route.

“I was approached by two of the city councilmen at a function I was attending,” he said. “They indicated to me that they would prefer that we settle this outside of the court system and that they would be interested in negotiating with us rather than go to court. They indicated they felt we could solve this without going to court.”

On the advice of the county attorney, the commissioners did not discuss new meetings with resort officials in open session given the ongoing lawsuit between the jurisdictions.

About The Author: Shawn Soper

Alternative Text

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.