OCEAN CITY – The Ocean City mayor and Council agreed to maintain the property tax rate for the fiscal year 2020 budget at the same rate as last year, which, depending on semantics, represents a modest increase for the first time in several years.
At the conclusion of a marathon budget wrap-up session this week, after final cuts had been made and a few late additions were put back in, the Mayor and Council had before them a decision on the tax rate for fiscal year 2020. The budget was introduced two weeks ago at the constant yield tax rate of .4585 per $100 of assessed value, which is lower than the fiscal year 2019 constant yield rate of .4656 largely because property assessments were flat or increased slightly in some cases.
For the record, the constant yield rate generates the same amount of municipal funding needed to maintain the same level of services and programs as the prior year. For at least a decade, it has been the council’s policy to set the property tax rate at the current yield.
Politically, it has been anathema for the current council and those that preceded it to consider touching the sacred cow that property tax has become. However, with unexpected deficits and unforeseen costs in some areas, along with the mandated minimum wage increase handed down by state legislators, the town’s elected officials this week discussed breaking from tradition.
After considerable debate, the council voted 5-2, with Councilmen Tony DeLuca and Matt James opposed, to set the property tax rate for fiscal year 2020 at .4656, the same rate as the current fiscal year. Lowering it to the constant yield would have set the rate at .4585, which would represent a tax decrease for most property owners.
To put the approved tax rate in context, it would add about $1.78 a month to the tax bill on a $300,000 property, or a little over $21 per year. Maintaining the current tax rate would generate about $600,000 more per year than if the property tax rate was lowered to the constant yield. While the impact on property taxpayers and the expected $600,000 gain appears modest, particularly in the context of an $85 million budget, the councilmembers were clearly passionate about the change.
Councilman Dennis Dare said because of the importance of maintaining a healthy fund balance, a safety net of sorts in place for storms and maintaining the town’s strong bond rating, setting the fiscal year 2020 tax rate at the same level as last year was likely prudent. He also pointed out the uncertainties surrounding the minimum wage hike, which could cost the town $1 million per year before it caps out at $15 an hour.
“I think we need to grasp the opportunity for a constant tax rate this year,” he said. “We’re assured of a financial impact with the minimum wage increase. I just think we need to hold the tax rate constant.”
Dare made a motion to set the property tax rate at the current .4656 level, a motion seconded by Councilman Mark Paddack.
DeLuca opined maintaining the current tax rate and not setting it at the constant yield was a tax increase in disguise.
“With that motion comes a $600,000 tax increase,” he said. “There is an easy way and a hard way. The easy way is raising taxes. The hard way is carefully planning year after year. … A property tax increase is for the non-residents, but I’d like to see them move here. The property tax increase is for commercial, but I’d like to see them stay here and grow business here. We have huge revenue possibilities. We’ve approved a room tax increase, but we dropped the ball on the start date.”
DeLuca was referring to a recently approved half-percent increase in the room tax rate, which will go into effect on Jan. 1 for the latter half of fiscal year 2020. Meanwhile, a parking task force is exploring ways to generate more revenue from the town’s municipal lots and paid street-parking areas. Also on Tuesday, a modest increase in the Boardwalk tram fare was approved.
DeLuca said all alternatives should be fully vetted before resorting to a property tax increase.
“We have opportunities for our visitors to help pay for one of the best beaches in America,” he said. “I think we continue to look at ways to grow revenue. If we can’t, then we take the ugly way and cut programs.”
However, Paddack said the current method of making cuts to the budget still left the town with a shortfall, particularly with the pending minimum wage hike.
“The ugly way is the way the council has been doing this the last four years,” he said. “You’ve cut and cut and cut some more. I was in your boat a week ago until state legislators rammed the minimum wage increase down our throats.”
Councilman John Gehrig pointed out nearly every facet of running the municipal government was increasing, which was reason for supporting the current tax rate.
“The fire union just got an increase in pay, the trash collection contract went up, we’re paying step increases and benefits to employees, and all of this is happening in a positive market,” he said. “What happens when the market cycles down again? We talk about passing the cost on to the consumer, but we just raised tram fees and we’re talking about increasing parking. Let’s face what we are. We’re facing $1 million a year keeping the same employees.”
Gehrig said the budget on the table left little room for more cuts and philosophically questioned how the town would continue to provide services residents and visitors expect.
“What do we sell?” he said. “Why do people want to come here? Our business is to provide a world class destination. Going through this process, did anybody up here see big pieces of fat to cut out? I don’t think so. If we’re going to continue to provide a world class product, let’s manage our expenses and not play politics. We’re talking about $1.78 a month for a $300,000 home. That just pays the increased cost of doing business. Things are not getting cheaper, so if we’re not responsible today, we’re going to have to come back with drastic moves that hurt everybody.”
Council Secretary Mary Knight said setting the tax rate at the current level will likely be viewed as an increase by some, but pointed out there was a cost associated with just maintaining the status quo.
“You are going to get some people that see it as an increase,” she said. “We are going to continue to have pristine beaches and we’re going to have a Boardwalk without trash overflowing. It will allow us to continue to respond to emergencies in three minutes. There are so many things we’d like to do, but we can’t without this. I can support this.”
However, DeLuca said it could not be viewed in any way other than a tax increase.
“Saying this is not a tax increase is kind of ridiculous,” he said. “That $600,000 is going to come from taxpayers. When you say it is just $1.78 a month, that sounds like a sales pitch. That sounds like the old Hoover vacuum cleaner guy making his pitch.”
For his part, Paddack said that was merely a perception in the big scheme of things.
“For $600,000 out of an $85 million budget, I don’t look at this as a tax increase,” he said. “I’m astonished, respectfully, at your opinion on that. We have an opportunity with this.”
Council President Lloyd Martin said he understood the ramifications, but said he could support maintaining the current tax rate.
“It is tough,” he said. “This can be the start of a five-year plan. As the minimum wage goes up, the cost of everything is going to go up.”
Gehrig drew from a rather unusual analogy to illustrate his reasoning behind supporting the perceived tax hike.
“We want to increase the fund balance and we want to provide world class services,” he said. “We can’t do that with where we are now. We have to determine what kind of cheeseburger we want to be. Do we want to be the 99-cent cheeseburger off the dollar menu, or do we want to be the best cheeseburger you’ve ever had at $12? I don’t want to be the 99-cent cheeseburger.”
Gehrig said without changes, Ocean City would need to decide whether to go back to a Memorial Day to Labor Day resort town or keep growing as a year-round resort.
“We’re in a tweener stage,” he said. “We have to decide whether to pull back and just be a summer town or continue to push forward. That’s where we are. I’m for pushing forward. We’re going to take a little heat, but it’s responsible. We need to invest in ourselves.”
DeLuca pointed out maintaining the current tax rate represented the easy way out.
“You can always justify raising taxes,” he said. “It’s much tougher to plan carefully.”
Mayor Rick Meehan listened carefully throughout the discussion before weighing in.
“This is one of the best conversations the council has had in a long time,” he said. “Councilman Paddack is right, we have done some ugly cutting. I can’t think of anything more to cut. What we have done is maintain the status quo.”
Meehan said he could support setting the tax rate for fiscal year at the current rate in order to spread the increased cost of doing business fairly.
“The discussion of $1.78 a month on a $300,000 home is true,” he said. “With the room tax, the cost is about a $1.50 a night on a $300 room, or $12 for a whole week. It’s very minimal and very moderate. It spreads our ability to grow on our residents and our visitors. We need to continue to move forward. I think what you’ve put together and how you have done this is responsible.”
In the end, the council voted 5-2 to set the tax rate at the current level with DeLuca and James opposed