Proposed Ocean City Budget Sticks To Constant Yield Tax Rate

Proposed Ocean City Budget Sticks To Constant Yield Tax Rate
Photo by Chris Parypa

OCEAN CITY – Members of the Ocean City Mayor and Council got their first look at a balanced fiscal year 2022 budget of around $158 million that reflects the constant yield tax rate.

City Manager Doug Miller and Budget Manager Jennie Knapp on Tuesday outlined the fiscal year 2022 budget, launching a two-week process that will ultimately end with an adopted spending plan for the city. The total budget for all funds is around $158 million with the general fund making up around $91 million.

“This is the kickoff to the fiscal year 2022 budget,” he said. “The staff worked with the budget manager to get us to this point. The departments brought us very thoughtful presentations.”

The proposed fiscal year 2022 budget presented on Tuesday sets the property tax rate at the constant yield rate of .4561, which is slightly higher than the current rate of .4559. For the record, the constant yield is the property tax rate needed to provide the same level of revenue for municipal services and programs as the prior year.

Revenue from real property taxes in fiscal year was $42,033,993 based on the .4559 tax rate. At the constant yield tax rate of .4561 in the proposed fiscal year 2022 budget, the anticipated revenue from property taxes is $42,252,082. For years, it has been the town’s stated policy to set the real property tax rate at the constant yield. Last year, the Mayor and Council set the property tax rate at the constant rate, meaning it remained at the same level as the prior year.

However, 2021 brought a lot of challenges with COVID restrictions hampering many revenue sources. Miller said despite the challenges, the budget presented on Tuesday achieves all the town’s desired goals and financial responsibilities while maintaining a steady property tax rate.

“We’re bringing a balanced budget with a constant yield tax rate,” he said. “This was a difficult year. This budget satisfies the needs of the departments and the desires of the council.”

Councilman Tony DeLuca asked what the budget would look like if the last year’s property tax rate was used instead of the constant yield rate.

“What would this look like at .4559?” he said. “It’s a slight, slight dollar increase. I’m a big supporter of constant yield, but I’m a really big supporter of constant rate.”

Knapp said that was considered, but the challenges of the prior year led to the decision to set the tax rate at the constant yield.

“We had some revenue challenges,” she said. “The property assessments were static and COVID had a big impact on room tax and parking revenue.”

Councilman John Gehrig pointed out the ever-so-slight increase in the property tax rate would not impact most property owners. Resident property owners are insulated from any increase in their property taxes by the Homestead Tax Credit, which is set at 0% in Ocean City. Non-resident property owners and commercial property owners are not protected by the Homestead cap, but Gehrig pointed out even with the modest increase, the impact will be minimal for most.

“With a $300,000 assessed value, the constant yield tax rate will amount to an additional $6 per year in property tax,” he said. “That’s 50 cents a day.”

It has long been the town’s stated policy to maintain a general fund balance at 15% of the entire operating budget, a rainy-day fund of sorts for emergencies, and the budget presented on Tuesday accomplishes that despite some needed transfers. Based on fiscal year 2021 general fund expenses, the unassigned fund balance is over 26%, with roughly $10 million available above the stated goal of 15%.

However, roughly $2.4 million of that $10 million has been appropriated to offset fiscal year 2021 losses, reducing the unassigned fund balance to 24%. The budget presented on Tuesday includes an appropriation of a little more than $2 million for various pay-as-you-go projects such as street paving and storm drain cleaning, for example.

There was plenty of good news in the proposed fiscal year 2022 budget presented on Tuesday. Last year, the town lost millions when the municipal bus service was significantly diminished, and the Boardwalk trams did not run at all because of the pandemic.

Normally, the transportation department is funded through service charges, operating grants and a contribution from the general fund. This year, however, the town got a federal Coronavirus Response and Relief grant that should cover 100% of the operating losses of the bus operation. Knapp said that federal grant award of over $3 million will cover the losses in the transportation department and then some.

“No general funds will be used for transportation in fiscal year 2022,” she said. “The federal COVID grant covers all of the losses in transportation. This is the year we all need to thank transportation. The grants will offset all of the losses.”

Knapp later said the federal COVID grant allowed for funds that would have been allocated to transportation to be directed to other areas of need.

“The biggest thing in this budget is the grant money for transportation,” she said. “That prevented us from transferring $1.4 million. That pushed us over the line.”

Another area of good news in the fiscal year 2022 budget is the estimated savings in the town’s Other Post-Employment Benefits, or OPEBs. Every two years, an actuary conducts a study to estimate what the town will likely have to pay in OPEB above and beyond the normal pension plan contributions.

As a result of the last study conducted two years ago, the town’s OBEB contribution in fiscal year 2022 will decrease by a little over $1 million. Knapp explained the reduction was the result of favorable medical experiences for retirees over 65 and an updated mortality assumption.

When asked if that trend would likely continue, Knapp explained a new two-year study is in the works and the assumptions will be reset, but the hopes are that will hold steady and not increase.

“This is the first time it has happened since we set it up,” she said. “…I wouldn’t say it was an anomaly. … We don’t know what will happen with the next study.”

Because of the changing dynamics in the resort, Miller explained the fiscal year 2022 budget includes several new full-time positions in various departments, including funding for nine new police officers, six EMTs, six public works positions and the communications operator.

“We need more full-time personnel,” he said. “We’ve expanded the season and there is a tipping point in some of these areas.”

Gehrig said despite all the challenges, the proposed budget accomplishes most of the goals while maintaining the constant yield tax rate and maintaining a healthy fund balance.

“We’re adding nine police officers, six EMTs, six public works maintenance workers and a communications operator,” he said. “We’re adding all of these things, we’re coming out of COVID and we’re still at the constant yield. That’s pretty good stuff.”

Miller explained the proposed budget strikes a balance between anticipated expenditures and revenues, but more importantly, it allows the town to maintain a high level of services and programs for its residents and visitors.

“We do invest aggressively and wisely in our core services,” he said. “We also have been very good about staying ahead of our infrastructure.”

For example, Miller said the fiscal year 2022 includes a $40 million investment in public safety, a $2.6 million investment in protecting the beach with the beach patrol, a $6.2 million investment in trash removal, a $2.3 million investment in the beach and Boardwalk, and millions of dollars for infrastructure, including street paving, canal dredging and storm drain cleaning.

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.