OCEAN CITY – Finding a balance between encouraging more people to make the resort their year-round home and having them help pay for the infrastructure improvements and services provided was the subject of a debate during a Mayor and Council work session on Tuesday.
During the work session, Planning and Community Development Director Bill Neville provided an overview of the town’s 14-year-old ordinance requiring impact fees for new construction. Impact fees are applied to new construction projects to help offset the cost of capital projects such as water and sewer improvements, for example.
While the town’s current impact fee structure applies to new construction all over Ocean City, the discussion on Tuesday largely focused on new home construction in the R-1, or single-family home, residential zoning districts. It has been pointed out in the past by builders and property owners hoping to build homes on their vacant lots that the town’s impact fees often make it cost-prohibitive.
It is a stated goal in the town’s comprehensive plan to make Ocean City more livable and affordable and, on the surface, impact fees appear to run counter to that. Neville said he and his staff had been reviewing the existing impact fee structure at the direction of the Mayor and Council.
“The Mayor and Council have considered whether affordability of building single-family homes is a constraint that could be addressed by selected fee waiver incentives,” he said. “We have to consider the livability factor for the town. We should be looking at strategies to improve residential neighborhoods and property values. That’s already part of our adopted comprehensive plan.”
Neville’s prepared presentation included a statement that essentially illustrates the challenges with the impact fees, pointing out the fees are needed to offset the cost of infrastructure improvements and services associated with increased development.
“Impact fees inhibit people from building in town,” it reads. “The fees may not be a significant amount for the town, but they are significant to a builder.”
Indeed, the amount of revenue generated by the town through impact fees on single-family homes in the residential neighborhoods does not appear to be significant, largely because much of the town is already built-out and there are few vacant lots in residential neighborhoods. For example, in fiscal year 2019, just 19 permits for single-family homes were issued with impact fee revenue generated at roughly $99,000. Mayor Rick Meehan said easing the impact fees for primary residents could encourage more single-family home development.
“Whatever we can do to encourage people to make Ocean City their year-round home benefits everybody,” he said. “It benefits the town, it benefits businesses. Everybody benefits from a vibrant year-round population.”
The town’s impact fee structure includes a base amount of $827 for infrastructure along with a per fixture fee of $126 for water and a per fixture fee of $220 for sewer. For the sake of easier math, a modest single-family home with say 10 water and sewer fixtures would require impact fees of around $4,300. Naturally, that figure would go up if a home was larger and had even more water and sewer fixtures. Meehan suggested perhaps a rebate could be given to new homeowners if they were truly moving to Ocean City year-round.
“Is there a way to provide a rebate if it is proven to be a primary residence?” he said. “If it is built with the intention of being a primary residence, I think there might be some incentive to do that. It makes a stronger, better community, not that we don’t already have strong community, but we can and do always look at ways to make it stronger.”
Councilman Dennis Dare agreed a possible rebate program could be an incentive for new homeowners in Ocean City.
“We’ve been thinking of ways to bring more year-round residents into town,” he said. “We need people living in Ocean City to keep our year-round businesses viable.”
Dare also pointed out year-round residents who make Ocean City their primary home are already given an incentive of sorts with the town’s Homestead tax cap set at zero percent. The Homestead tax credit sets limits on tax increases for primary homeowners on the assessed value of their property. Years ago, Ocean City set its Homestead tax cap at zero percent.
“We already give a rebate of sorts to the people who live in town,” he said. “It’s called the Homestead tax cap.”
Councilman Mark Paddack said the timing could be right to consider easing the impact fees in order to encourage new residential development.
“Looking at today’s real estate market, it’s the perfect time to consider doing something like this,” he said. “Interest rates are low and if we can provide a rebate on the impact fees of some sort, it might encourage people who want to build here and live here. We should also look at grandfathering some of the projects that are already in the permitting pipeline.”
Council President Lloyd Martin pointed out the sample size is relatively low with the number of vacant lots available in the R-1 zoning districts. He also pointed out there are likely opportunities for property owners with older homes to tear down and replace with newer residences.
“How many single-family vacant lots do we have?” he said. “Not many. There could be situations where an old home is torn down and replaced with a new one of equal size and an equal number of fixtures. I like the rebate idea. We all want the town to thrive year-round.”
Again, just 19 new single-family home permits were issued in the last fiscal year. Paddack pointed out in his Caine Woods II neighborhood of over 300 residences, there were only seven vacant lots available and two of them were in the permitting process for new home construction, leaving just five available for future home construction.
Paddack also pointed out relaxed impact fees or some rebate program for proven year-round residences could encourage the town’s employees to build and live in the resort.
“I think we should look at ways to encourage city employees to live in town,” he said. “Especially our fire, police and emergency services providers so they live in or close to the areas they serve.”