Ocean City Council Approves First Reading of FY23 Budget

Ocean City Council Approves First Reading of FY23 Budget
File Photo by Chris Parypa

OCEAN CITY – After a brief public hearing on the proposed constant yield property tax rate, resort officials on Monday approved on first reading the fiscal year 2023 operating budget.

Early during Monday’s regular meeting, the Mayor and Council held a public hearing on the proposed constant yield tax rate. Later during the session, the council approved on first reading the proposed fiscal year 2023 operating budget. The first order of business, however, was the hearing on the constant yield tax rate.

The proposed budget sets the property tax rate at the constant yield of .4526 per $100 of assessed value. The constant yield is the tax rate needed to produce the same revenue as the prior year in order to maintain the same level of services and programs as the prior year.

Last year’s budget was set at the constant yield rate of .4561, meaning the fiscal year 2023 rate would represent a modest property tax decrease for many. Residential property taxes were reassessed in the last cycle and property values went up modestly in general.

Those whose Ocean City properties are their primary residences are insulated from rising property taxes due to increased assessments by the Homestead Tax Cap, which is set at 0% in Ocean City. However, non-resident property owners are not protected by the cap. Nonetheless, setting the property tax rate at the constant yield represents a modest tax decrease for many. City Manager Terry McGean explained the difference at the outset of the public hearing on the constant yield tax rate.

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“The purpose of this is to consider the adoption of the fiscal year 2023 budget,” he said. “It maintains a constant yield tax rate at .4526 per $100 of assessed value. The constant yield actually ends up with a reduced tax rate.”

Former councilman and fiscal watchdog Vince Gisriel spoke during the public hearing on the constant yield rate, but first referenced his pet project- the town’s unreserved fund balance. Heretofore, the town’s stated policy was to maintain fund balance at 15% of the total operating budget, but that figure has grown in recent years.

Last week, the council voted to increase that minimum fund balance threshold to 17% after moving some of the undesignated funds around to certain capital projects and to increase the separate capital reserve fund dedicated to ongoing maintenance projects such as street paving and canal dredging, for example. On Monday, Gisriel said, for a change, he was not coming up to rail about the burgeoning fund budget.

“Typically, when I come up here it is to address the fund balance,” he said. “I understand there has been a lot of movement with those funds. I saw last week you raised it to 17% and that is probably wise.”

However, Gisriel said despite the proposed constant yield tax rate in the fiscal year 2023 budget, there was still room for a modest decrease for property owners.

“Every year you underestimate revenues and overestimate the expenditures,” he said. “Every year I ask you to lower the tax rate by a couple of cents. I’m not going to apologize one iota when you don’t give back to the taxpayers.”

Council Secretary Tony DeLuca pointed out the proposed constant yield rate did represent a decrease for property owners.

“Last year, it was .4561 and this year it is .4526,” he said. “That’s a property tax deduction for homeowners.”

Councilman John Gehrig said with certain other economic factors involved, the proposed constant yield rate in the fiscal year 2023 budget represents even more in savings for property owners.

“On paper, it’s a 1% decrease,” he said. “With inflation, we’re talking about a property tax cut in real dollars of about 11%. That’s the reality. Other jurisdictions are hoping to come in with a constant rate with their property tax rate and we’re coming in with a tax cut.”

With the constant yield public hearing concluded, the council later during Monday’s meeting approved on first reading the proposed fiscal year 2023 budget as a matter of course.

The total fiscal year 2023 budget comes in at over $156 million for all funds, with a general fund budget of a little over $101 million. The tax rate for personal property and corporation tax is reduced by $1.13 per $100 of assessed value in the fiscal year 2023 spending plan.

Anticipated revenue from real property taxes is $42.5 million, which represents 42% of the general fund budget. The majority of the general fund budget is derived from room tax revenue and other revenue sources, including parking. During budget deliberations, City Manager Terry McGean said the projected room tax revenue were somewhat aggressive based on estimations of a strong summer season.

The unreserved fund balance, now set at 17%, is a rainy-day fund of sorts if revenue projections do not meet expectations, or there is a hurricane or other unforeseen impacts on revenue projections. McGean said during budget deliberations if revenue projections exceeded expectations, some funding could be diverted to certain capital projects that would otherwise have to be bonded.

In the proposed fiscal year 2023 budget, capital projects are funded at $3.6 million, which includes $2 million for street paving, $1.5 million for the capital maintenance fund, and another $100,000 for the Boardwalk re-decking project. Projects approved in the capital improvement plan (CIP) will be funded through the capital maintenance fund. They include street paving at $500,000, canal dredging at $400,000, a City Hall roof replacement project at $375,000, another $80,000 for the City Watch video surveillance system, a Northside Park roof replacement project at $149,000 and storm drain cleaning at $50,000.

The ability for the town to fund pay-as-you-go projects from fund balance and the capital maintenance fund is being made possible largely because of one-time federal grants related to the COVID pandemic in the last budget cycle. For example, federal American Rescue Plan Act, or ARPA, funds in the amount of $3.4 million have been applied to the fiscal year 2023 budget to ensure the continuity of government.

In addition, an estimated $1.9 million in federal Coronavirus Response and Relief Supplemental Appropriations Act funds and grants specifically dedicated to transportation projects are being used to offset the town’s general fund contribution to transportation at over $725,000 for fiscal year 2023. Of course, those federal grants are one-time funding sources related to COVID, necessitating the importance of maintaining a healthy fund balance in future fiscal years.

Another consideration is concerns about the return on investment in the pension funds. In terms of the return on investment in the pension fund, the town, through its financial advisors, make investments using pension funds based on an average return of 7%. In some years, the investment return exceeds the 7%, while in other years it falls short of the expectation. If the investment return falls short, the town must make an investment in the pension fund to make up the difference.

During last week’s discussion about increasing the minimum threshold for fund balance to 17%, McGean explained there were three major threats to fund balance. One was the return on investment in the pension fund, the other was the roughly $3 million in one-time federal COVID-related grants and finally, and perhaps most importantly, the threat of a hurricane or other unforeseen disaster that could put a major dent in revenue projections.

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.