Proposed OC Budget Introduced At Constant Yield Rate; Council Open To Slightly Above Yield

Proposed OC Budget Introduced At Constant Yield Rate; Council Open To Slightly Above Yield
File photo by Chris Parypa

OCEAN CITY — Ocean City officials this week introduced a proposed fiscal year 2020 budget at around $138 million with the property tax rate held at the constant yield, but for the first time in several years, there appears to be at least a will to break from that tradition.

City Manager Doug Miller and Budget Manager Jennie Knapp on Tuesday outlined the fiscal year 2020 budget, launching a two-week process that will ultimately end with an adopted spending plan. The total budget for all funds is just over $138 million with the general fund making up around $86 million, representing an increase of $1.2 million over the fiscal year 2019 budget.

“This is the most important thing we do all year long,” said Miller. “It’s not only a fiscal document, it’s a priority-setting document for the next 12 to 18 months.”

Miller explained the resort nature of Ocean City has the town charged with meeting the needs of resident property owners, non-resident property owners, the millions of visitors each year and the commercial entities that serve them.

“Ocean City is very different and unique,” he said. “Most municipalities have two constituencies, but we have four. Our list of priorities expands and the pressure is greater. We have to sparkle every day, we have to be safe every day and we have to be clean every day.”

Miller explained the proposed budget was prepared with the latest and greatest information available, but there were outside forces at work that could impact the town’s final spending plan. For example, just last week, state lawmakers overrode Governor Larry Hogan’s veto of the minimum wage increase legislation.

“One of those changes relates to the override of Governor Hogan’s veto of the minimum wage bill,” he said. “That will cost us an anticipated $125,000 to $150,000. Needless to say, we have some fixing to do.”

Miller praised Knapp for her diligence in preparing and presenting a balanced budget. He also praised the budget manager for almost always being creative in meeting unexpected budget challenges, such as the pending minimum wage hike.

“When Jan. 2 hits, she lives and breathes this budget,” he said. “We have made some unpopular and painful decisions, but sometimes we have to say no. We ask Jenny to pull rabbits out of hats and she usually does. However, those rabbits are harder and harder to come by.”

The proposed fiscal year 2020 budget presented on Tuesday sets the property tax at the constant yield rate of .4585, which is actually lower than the fiscal year 2019 constant yield rate of .4656 because property assessments were flat or increased slightly. For the record, the constant yield is the amount of municipal funding needed to maintain the same level of services and programs as the prior year.

Because resident property owners are protected by the town’s zero percent Homestead cap, local residents should see the amount of property tax they pay decline. Non-resident property owners could see their taxes decline, stay the same or even increase slightly based on their assessments because they are not covered by the Homestead cap. The same is true for commercial properties.

Miller explained the proposed fiscal year 2020 budget reflects a status quo in terms of individual department requests.

“Every dollar has been stretched,” he said. “The department heads and managers came in with their requests and we have made some very hard decisions. We believe this budget reflects your priorities.”

It has long been the Mayor and Council’s policy to set the property tax rate at the constant yield and that is true of the proposed spending plan presented on Tuesday. However, with unexpected expenses and expected deficits in some areas, Councilman John Gehrig questioned if it was time to at least revisit the constant yield policy.

“By doing that, we’re lowering the tax rate,” he said. “It’s actually a tax cut. I think it’s the will of this council for taxes not to go up, but residents have expectations of fire and ambulances showing up, they expect the trash to be picked up and the streets to be paved.”

Gehrig explained just as in private business, the costs of goods and services can’t always remain constant because the cost of doing business is constantly going up.

“Normal business can’t survive by charging less for goods and services,” he said. “The reality is, we’re basically asking people to pay less and get more, and whatever you do, don’t touch my services. Everything has gone up.”

Politically, it has been anathema for the current council and those that preceded to consider touching the sacred cow that property tax has become, but Gehrig said it could be time to at least discuss it.

“At some point, we need to talk about dollars and cents and not be wrapped up in the politics of the tax rate,” he said. “We have a city to run and it has to be run like a business.”

It appeared at least some on the council were open to considering breaking from the long-time constant yield policy, but Councilman Tony DeLuca said those decisions could be made over the next few weeks during budget deliberations.

“Today, we’re flying at 35,000 feet and we’re not looking at the details,” he said. “My goal is always to increase revenue and reduce costs. Running a government is like running a business.”

Last month, the council voted to increase the room tax rate a half a percent to help ensure the visitors continue to contribute their share of the budget burden. Gehrig said the dedication of a percentage of the room tax needed to be maintained in order to keep the visitors coming.

“Room tax is covered by the guests who stay in our hotels,” he said. “If we reduce the amount we spend on advertising, we likely reduce the number of visitors. When you look at this, room tax is carrying us.”

It is also a stated policy to maintain a fund balance at 15 percent of the entire operating budget, a rainy-day fund of sorts. The budget presented on Tuesday would come in with a fund balance of around 20 percent. Some have questioned if the excess fund balance should be returned to the property taxpayers, but Knapp said that would likely defeat the purpose.

“You can make the same argument for those we say we should return fund balance to the taxpayers,” she said. “Yes, we could return six cents on the tax rate to the taxpayers, but we’d have to increase them two cents every year to pay for the things we provide.”

Council President Lloyd Martin agreed there could be reason to even increase the fund balance percentage.

“I think there is room to increase the fund balance,” he said. “It was eight percent when I got elected and it has been at 15 percent for a long time, although we’ve been over that number in recent years.”

Councilman Dennis Dare asserted maintaining a healthy fund balance was paramount to the budget process.

“That’s one of the keys to this,” he said. “What should that number be? There was a time when the city couldn’t pay the lifeguards in June or put toilet paper in the Boardwalk restrooms. Fund balance is there for emergencies, and where we’re situated at the edge of the sea, we’re prone to emergencies.”

Miller said the individual department have been successful in improving the services they provide despite the directive to come in with the same request as the prior year.

“The departments were directed to come in at status quo and we’ve done that for the last six years,” he said. We’ve only increased operating costs by $6 million over the last 10 years. That has not squelched them from being innovative with their budgets. The continue to be innovative with improving efficiency and holding the line on their budgets.”

Back to the property tax issue, Gehrig said the constant yield rate of .4585 could be adhered to, which is essentially a tax cut, or the council could opt for a “constant” tax rate, which would set the rate at the same .4656 it was last year.

“I think I have a solution,” he said. “We can keep a constant tax rate and come up with $630,000 at a cost of less than $2 a month on a $300,000 house. I think that’s something we can talk about over the next two weeks.”

Gehrig said that would require selling the proposed change to taxpayers, but offered a solution for that as well.

“What may be an option is to assign a project to it, something that makes our community better, safer and cleaner,” he said. “We can talk about it as a tax increase, which it’s not, or we can talk about it as an investment in our town. Look at the capital improvement plan, pick a project and say this is what we’re going to do with this.”

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.