OCEAN CITY — Resort officials this week approved the fiscal year 2020 budget on first reading, but not before a somewhat heated and philosophical debate about the property tax rate, which, depending on sematics, will go up for some this year.
At the conclusion of a marathon budget wrap-up session last month, the Mayor and Council had a decision to make on the tax rate for fiscal year 2020. For years, it has been the council’s policy to set the property tax rate at the constant yield, or a rate which generates the same amount of municipal funding needed to maintain the same level of services and programs as the prior year.
When the fiscal year 2020 budget was first presented back on April 2, the property tax rate was set 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 even declines slightly in some cases during the latest assessment cycle.
However, because of rising expenses, especially the state-mandated minimum wage increase, for example, the council was faced with the decision to set the property tax rate at the same rate as last year, or .4656. Depending on semantics, setting the property tax rate at the same rate as last year represents a slight tax increase for non-resident property owners and commercial property owners. By way of background, resident property owners are protected from tax increases by the Homestead cap, which is set at zero percent in Ocean City.
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, the majority of the town’s elected officials at the close of budget deliberations last month broke from that tradition and voted to set the property tax rate for fiscal year 2020 at the constant rate of .4656, or the same rate as last year.
When the proposed fiscal year 2020 budget came up for first reading on Monday, the same philosophical divide on the apparent tax increase arose again. Councilman Matt James, who voted against setting the tax rate at last year’s constant rate at the close of budget work sessions last month, continued his opposition to the proposal. James thanked Budget Manager Jennie Knapp for her diligence in preparing the balanced budget, but said he could not support the finished product.
“I’m not going to vote for this budget because I don’t agree with the route we took at the end of the budget sessions with the constant yield rate,” he said. “I think we were just looking for some extra money, and I think the whole process could have been better if the staff knew if the intent of the majority of the council was to raise taxes.”
Councilman Tony DeLuca also said he couldn’t support the budget as presented with the modest property tax hike included.
“I also must vote no on this budget,” he said. “Call it philosophical differences. I don’t support the tax increase for non-resident property owners and commercial property owners. I support any and all revenue increases not including property tax increases such was room tax, parking or franchise fees and the like.”
Councilman John Gehrig said raising those other revenue generators were essentially just tax increases in disguise. He said setting the fiscal year 2020 with the constant yield rate actually represented a tax cut.
“No matter what you call them, other fees are taxes,” he said. “Everything went up and we got kicked in the gut with the minimum wage increase. Costs rise, benefits rise and in an environment of rising everything, I don’t think it’s wise to have a real dollar tax cut when we have real dollar increases in expenses. I don’t need to rationalize my vote, but I just think this is prudent and wise.”
Gehrig said the slight increase some property owners would see with the same constant rate as last year would go largely unnoticed. To put the approved tax rate in context, it would add about $1.78 a month to the tax bill on a $300,000 home, or a little over $21 per year. Gehrig said everything goes up modestly all the time because of rising costs and the tax rate should be no different. He used a grocery store example to illustrate his point.
“It’s better to have a three-cent increase in the cost of a gallon of milk now than a $3 increase in a couple of years,” he said. “It’s somehow miraculous that we’re expected to increase the fund balance and pay for all of these additional costs. This is still a tax cut in real dollars.”
Councilman Mark Paddack somewhat challenged James and DeLuca for their opposition to the proposed tax rate, essentially calling them out for allegedly posturing politically.
“It’s such a small amount that I think the public wouldn’t even notice it,” he said. “It’s $638,000 in an $86 million budget. I think, respectfully, you gentlemen are politically pandering to the public. You gentlemen sat in the same room I sat in for four or five days and heard the department heads being told the hold the line and hold the line and we did it.”
Paddack said he ran for council last year on a promise to hold the line on the property tax rate, but things had changed between the election last November and the budget work sessions last month. He also alluded to the budget challenges faced in other jurisdictions including the town of Berlin.
“Look, I ran on a platform that I was not going to raise taxes, but I got educated,” he said. “We saw the state of Maryland ram that minimum wage increase down our throats. I don’t want to be like the county or the community to the west of us where we have to talk about an 18% tax increase.”
Paddack said he supported the budget as presented with the modest tax increase and took a few more veiled jabs at those who opposed it.
“I’m going to vote for this because it’s the right thing to do and the prudent thing to do,” he said. “We have some differences, but I’m not going to sit up here and grandstand. I can’t wait until we see those recommendations about parking in the fall and see where you gentlemen stand on that.”
However, James was not giving Paddack a free pass on his perceived slights against his colleagues.
“I’m not sure what your problem is, or if you understood what I said,” he said. “I was pretty clear that I support taking care of our town, the issues that may come up and being prepared. I just don’t like the process in which this happened. On the last day of the budget sessions, we went away from the constant yield rate to the constant rate. Who’s to say last year’s number is the right number?”
James continued to assert it was not the property tax rate itself he had an issue with, but rather the process.
“I don’t know what your issue is, but this is not political pandering,” he said. “I just don’t like the process. If we need to raise taxes, then we need to raise taxes, but I think we should talk about it. Again, I don’t know what your issue is, but get over it.”
For his part, DeLuca also took exception to some of Paddack’s comments.
“I don’t care what you call this, but it’s a slight tax increase,” he said. “It’s a $638,000 tax increase. Back on April 2 when we introduced the budget with the constant yield rate, what that did was give a slight decrease to the resident property owners. I think it’s interesting Councilman Paddack that you said you ran on not raising taxes, but that’s exactly what you did with this.”
Gehrig did his best to diffuse the debate somewhat by bringing the discussion back to the reasoning for setting the property tax rate with the modest increase for some property owners.
“I don’t know if there is a right or wrong answer,” he said. “There are two sides to everything. To prevent property tax increases in the future, the best way to prevent that is to have a vibrant economy. We need to continue to invest in our product and invest in economic development.”
Council President Lloyd Martin said approving the budget with the property tax rate set at the same rate as last year represented proper planning and could avoid a rather onerous increase in the future.
“As we move forward, we need to look at not giving back six cents one year and adding two cents the following year,” he said. “We need to be planning for the future. We want to find a way to make this town better for tomorrow. I think this is proper planning. It’s not a big increase to any one person, it’s a solid plan as we move into the future.”
With that said, the council voted 4-2 with James and DeLuca opposed and Councilman Dennis Dare absent to approve the fiscal year 2020 budget on first reading.