OCEAN CITY — Resort officials this week approved the fiscal year 2020 budget after rationalizing the constant property tax rate, which for some will represent a modest increase.
When the fiscal year 2020 budget was presented in April, the property tax rate was set at the constant yield rate of .4585, which was actually lower than the fiscal year 2019 constant yield rate of .4656 because property assessments were flat or even declined slightly in some cases. The constant yield represents the rate that will bring in the same revenue as the previous year.
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. 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. Resident property owners are protected from tax increases by the Homestead cap, which is set at zero percent in Ocean City.
When the budget came up for a second and final reading on Monday, the council voted 5-2 to approve the fiscal year 2020 spending plan with Councilmen Matt James and Tony DeLuca opposed.
Councilman Dennis Dare, who did not attend the meeting two weeks ago when the budget was approved on first reading, this week went into a lengthy dissertation on why he supported the 2020 budget as proposed.
“I was absent for first reading and would like to take this opportunity to explain why I support the proposed constant rate budget for fiscal year 2020,” he said. “I watched the video and read the news reports of the first reading and there seems to be a bit of contention over the constant yield versus the constant tax rate. I’ve been through 37 Town of Ocean City budgets, so I have a pretty good idea of the give and take involved in setting a spending plan for the next year. Arriving at a budget isn’t easy, but is the most important function the city council performs, one could certainly argue.”
Dare said when the budget process began last fall and continued through the winter and finally budget deliberations in the spring, there was no directive to staff to present a budget at the constant yield rate, which has been the norm for roughly the last decade. Instead, everything was on the table with rising costs, the pending minimum wage changes and the growing need for more revenue.
“That’s not to say some elected officials may have voiced their desire for a constant yield budget,” he said. “That is certainly a commendable goal and one we have been able to accomplish some years, but when you cap the income, you also can stymie the services.”
Dare cited the example of the massive storm drain cleaning initiative, which had not been done in over three decades and will now likely be a yearly expense. He also pointed to the state-mandated minimum wage increases spread out over the next five years, ultimately reaching $15 per hour. He said setting the fiscal year 2020 budget at the constant rate helps cover the increase in the coming year, but the graduated wage hikes will strain the budget in future years.
“Keep in mind when the minimum salary increases, there is a domino effect up the pay scale,” he said. “Next year, we could be looking at $1 million more. We have directed the staff to study and report on the overall effect to our salaries. One penny on the tax rate raises $899,063, so it is safe to assume if we hold the constant yield tax rate this year, we would need to raise the tax rate next year by a penny. The proposed budget with a constant tax rate in part plans for this increased expense that has been dictated by the General Assembly.”
Dare said while the constant tax rate could mean a modest property tax for some property owners, the town was exploring other potential revenue generators including a half-a-percent increase in the room tax rate. In addition, a task force has been exploring potential changes to the paid parking structure in the resort. Dare also pointed out some have called for funding projects such as storm drain cleaning out of fund balance, but urged his colleagues to continue to grow fund balance for inevitable emergencies.
“Some may say take money out of fund balance and give it back,” he said. “I say the responsible thing to do is grow our fund balance from 15% to 20%. Given our vulnerability to severe weather and reliance on 100 days to make a living, even 20% is probably low. … I’m result-oriented and not fixated on an arbitrary number. If we are successful with revenue builders in the coming year, perhaps we can reduce our dependence even more on property tax revenue and reduce the property tax rate. One of the key goals has been to enhance the livability of Ocean City.”
Councilman Mark Paddack said he agreed with Dare’s assessment of the budget situation. He said despite potential revenue generators, such as the room tax increase and possibly an expanded paid parking system, maintaining the constant tax rate achieves the town’s balanced budget goals for this year.
“I’ve tried my entire life to be a learner,” he said. “During the budget process, this was one of the big eye-openers in my 30-plus years of service to this town. Not everything is going to be exactly how we want it. I don’t want to balance the budget on speculation of what we might have. I want to balance the budget on what we know we have.”
Mayor Rick Meehan came around from behind the dais to present some charts depicting what continuing to set the property tax rate at the constant yield would do to the fund balance over time.
“Once you cut the tax rate, that becomes the expectation,” he said. “What’s being proposed here is setting the constant tax rate this year. If we had a hurricane and lost a week in August, that would be a $1.5 million loss. If we lost two weeks in September, we’re talking about millions and millions of dollars. It’s extremely important to maintain the fund balance, but it’s also extremely important to maintain our infrastructure.”
Meehan said maintaining the constant tax rate was only one part of a much larger equation.
“I think the council looked at this budget and looked at the realities they were going to be faced with,” he said. “The constant tax rate is a modest increase that will generate $680,000 in revenue. The modest increase in the room tax rate will generate another $700,000. Everything wasn’t put on one part of the budget. All of these things are spread out evenly. This allows us to pay for our infrastructure and maintain the fund balance. It’s a budget that accomplishes these things while maintaining the status quo with a moderate increase.”
Councilman John Gehrig said those opposed to the budget have consistently called constant tax rate a tax increase, but, again largely due to semantics, said it represents a lower rate for many.
“Let’s be real about what this is,” he said. “It’s actually a decrease for many taxpayers. It’s still a reduction in terms of real dollars.”
Gehrig, a strong advocate for marketing the resort as a sports and recreation destination, said an increase in the number of visitors would relieve the pressure on property tax to fund the majority of the town’s budget.
“The big thing here is to peel away the need to rely so heavily on property tax,” he said. “Let’s invest in our product to get more people here. We have to have world class services to support what we want to do.”