BERLIN – Town leaders are exploring tax increases as well as sewer and stormwater rate increases to address rising costs and utility losses.
In a work session Thursday, the Berlin Town Council kicked off budget discussions by instructing staff to review the potential impact of a .91 cent tax rate. Currently, the tax rate is .68 cents.
Councilmembers are hopeful that a property tax increase will bolster the dwindling general fund while increases in water, sewer and stormwater fees will make the utility funds self-sufficient.
“We waited too long to do this,” Councilman Troy Purnell said. “That’s the bottom line… There’s a business we’re running here we and we’ve got to make sure it don’t go under. Right now it’s losing a bunch of money every year.”
At the start of Thursday’s work session, Mayor Gee Williams said that the town had a general fund balance of about $3.7 million, or roughly five months worth of operating expenses. He said officials would have to determine what level of funding they wanted to keep in reserves as the budget process moved forward this spring.
“There is no one percentage or amount that applies to all towns large or small,” he said. “That depends on the vulnerabilities, risk and expectation of each community but we will figure it out.”
He said one of the big issues the council needed to address was how to end the utility funds’ practice of borrowing from the general fund. He said during the past eight years the sewer fund had borrowed $3 million from the general fund. During the past four years the stormwater fund had to borrow $250,000 from the general fund.
“The utility fees charged from these funds must be increased to generate enough cash flow to stop the borrowing and, over time, pay back the loans from the general fund,” Williams said.
He also talked about the need for considering the cost of capital expenditures and the level of services provided by the town. Roughly 52 percent of the town’s general fund revenues come from property taxes.
“We must strike a balance between keeping taxes low while also meeting our financial responsibilities,” he said.
One cost Williams suggested officials plan for was implementation of whatever parking recommendations come from the parking and mobility study underway.
“The town share would be based on partnering with the business community to successfully implement the findings for improved parking and mobility in Berlin,” he said. “It is reasonable to anticipate that there will be some options that we will need to consider and fund for additional public parking.”
Town Administrator Laura Allen said the town was facing increasing pressure for more services from residents and would also need to deal with street repairs and fire and EMS expenses, as well as additional stormwater infrastructure. She pointed out that inflation had also increased.
Currently, at .68, Berlin’s tax rate is among the lowest in the area. In Snow Hill, Pocomoke and Wicomico County, the rate is .94. In Worcester County, the rate is .84 while in Ocean City the rate is .47.
Staff presented the council with a variety of property tax scenarios. A rate of .73, a .05 cent increase, would generate an additional $205,158 for the general fund. An increase of .25 would raise an additional $1,025,791 for the town.
Staff also presented the possibility of a two-tier property tax system, which would include a residential rate and a slightly higher commercial rate.
When asked what would happen if no increases were made, Allen said there would be a shortfall of about $1.8 million that would have to be addressed by budget cuts. She said she’d already instructed department heads to reduce their spending by 10 percent in the coming year.
As far as utility rates, Allen said staff recommended a 5 percent increase in water rates and a schedule of sewer increases—10 percent in the first year, 7 percent in the third year and up to 5 percent in the fifth year.
To address stormwater costs, staff suggested doubling the residential stormwater fee from $50 to $100 and increasing the commercial rate by 30 percent.
Councilman Dean Burrell pointed out that the town’s recent audit had highlighted the impact of the utility funds borrowing from the general fund.
“If we have departments operating at a deficit it would be negligent of us not to correct that,” he said, suggesting that the town consider speeding up the schedule of sewer increases.
Purnell asked why the sewer fund in particular operated at such a deficit.
Jane Kreiter, the town’s water resources and public works director, said that when the last rate study was done the town’s newest spray site had just been built. She believes those who calculated the recommended rates then didn’t realize what an expense the new spray site would be, with the necessary increase in maintenance and electric costs.
“I think it was underestimated at the time,” she said.
Williams said that with the financial concerns this year, he didn’t believe employee raises were necessary, particularly since the town gave raises most years.
“This year when we’re in this kind of crunch I think we need to take a breather,” he said. “It’s not aimed at, it’s not about lack of a performance or anything. If we’re going to spread it around among all the taxpayers and all the feepayers we also need to spread it around among everybody, including our employees without anybody being in economic distress.”
Allen added that she’d instructed department heads not to request any additional staff this year.
“We want to try to get the boat righted and then take a look and see where we are,” Williams said, adding that the town hadn’t raised taxes in 15 years.
Burrell said he supported the concept of a two-tier system and believed commercial entities should pay more than residents.
“There is a value associated with doing business in the town,” he said. That has become over the years a very positive thing.”
Councilman Zack Tyndall said he was worried a higher commercial rate could have a negative impact on small businesses.
“My one fear is, we’re trying to get the people that own the building to have a little bit more of an equity stake in the success of the town,” he said. “I think that’s the intent of this. I think what’s going to happen is it’s going to be a direct pass-through to our local businesses.”
When staff asked for guidance regarding tax rates the council wanted to pursue, councilmembers said they wanted to see a breakdown of numbers associated with a flat .91 rate as well as a breakdown a .88 residential rate paired with a .98 commercial rate.
“We’ll see what it generates,” Williams said. “It may be that some sort of compromise is possible as long as we come up with the money we need.”
