(May 24, 2019) The Ocean City Council on Monday finalized the $130 million fiscal 2020 budget, but not before elected officials had one more chance to comment on the tax rate included in the package.
Earlier this month, city officials voted 4-2 to move off the constant yield, instead opting to maintain a constant property tax rate of $0.4656 per $100 of valuation. Councilman Dennis Dare was not present during the meeting.
While the Maryland Homestead Tax Credit protects resident homeowners, some argued moving off the constant yield, a lower rate of $0.4585, was effectively a tax increase for nonresidents and business owners.
The difference will generate $638,464 in additional property tax revenue for the city. According to budget worksheets, revenue from real property taxes is $41,860,371, which funds 48.5 percent of the general fund budget.
The budget also includes a proposal to increase the room tax from 4.5 percent to 5 percent, beginning Jan. 1, 2020. That would generate an additional $604,450 in revenue.
Capital projects total $2,741,806, including $2.5 million for street paving and $100,000 for storm drain cleaning.
Councilman Mark Paddack said some comments in local newspapers “may not have reflected exactly what had taken place in here,” regarding the budget. Paddack previously voted for the constant tax rate, while some others on the council noted he recently ran a campaign promising not to increase taxes.
“I’ve strived and spent most of my adult life to be a learner. I think learning is a lifetime adventure that we all should participate in,” he said. “When I came into this council, I came in here with a full, open heart of selflessness, that I’m going to do the best that I possibly can for the town and all the taxpayers.”
Paddack said of the budget process, “This was one of the biggest eye openers I’ve ever had in my 30 years that I’ve been here, in the Town of Ocean City.”
“We cannot become what we need to be by remaining what we are,” he said, adding the city stuck with the constant yield for nine years. “My vision was to try to keep that, however … not everything is going to be exactly how we want it, and the speculation that we may have more money in the future is not how I run by budget at home and I’m sure not going to do that for the Town of Ocean City.”
Mayor Rick Meehan also addressed the City Council at length.
“There’s been a lot of discussion about the budget, and I think good discussion. I think the council has done a good job with handling that, and certainly [Budget Manager] Jennie Knapp and the city manager have presented a good budget,” he said.
“Whether it was asked specifically or not, we do … expect them to bring us a status quo budget and we work from there. That doesn’t mean we end up with a status quo budget,” Meehan added.
He said for many years one citizen complained the general fund balance was over 15 percent of the operating budget – the city’s self-mandated target for reserves – and any excess should be given back to the public.
Meehan said the city instead has built up its reserves and used the general fund to pay for crucial infrastructure projects.
He presented a series of slides to show what would have happened to reserves had the City Council dropped the tax rate by two cents in 2013 – as had been suggested.
If that had been done, according to Meehan, the reserve fund balance would have slipped $2.8 million below the 15 percent mark by 2016, and by last year would have been just $6.3 million, or $5.9 million below 15 percent of the operating budget.
Meehan said if a hurricane came through Ocean City, of similar strength to Hurricane Irene in 2011, and wiped out a single week in August, the city would lose $1.5 million.
“That’s the lost revenue – that doesn’t have anything to do or doesn’t address the overtime or the expense to recover from a storm,” he said, adding losing several weeks because of a storm would cost the town “millions of dollars.”
“That fund balance is there to carry us through those times. It doesn’t have to be the total wipeout – all it has to be is something significant enough that we lose revenue,” Meehan added. “Once you have a week where you close or you lose revenue, it is very difficult to rebound the rest of that year.”
Meehan said the general fund balance was also important for infrastructure projects, from canal dredging to the recent storm drain cleaning.
He said budget discussions this year led to an exploration “of future funding and future expenses,” including increased demands for services, and state mandates regarding minimum wage increases and a new paid sick leave policy.
“There are all realities,” Meehan said. “These are things we’re going to be faced with.”
Meehan said all of those issues factored into the City Council moving off the constant yield, which he supported. He called the new rate “a moderate increase.”
“[The budget] also includes a moderate increase in [the] room tax at one-half percent – it hasn’t been raised in 10 years,” he said. “When you look at the cost that we face and the expenses of expanding the season and what tourism is costing just in manpower and city expenses, it’s about $670,000 a year. This will help offset that.”
Additional money would help further fund investments in tourism, including in the area of sports marketing, Meehan added.
“Everything wasn’t all put on one particular part of this budget. It was spread out in moderate increases,” he said. “Everything that’s being proposed, in my opinion … is for a budget that allows us to use our general fund to pay for infrastructure [and] to build our fund balance, and the proposal will secure our future and maintain a budget very close to status quo. But the increase will help sustain us in the future.”
Councilman Matt James had just one question.
“The rate you used, was that if we had stuck with a constant rate?” James asked.
“That is if we had reduced the tax rate two cents in FY 2013,” Meehan said.
“If we had gone with a constant rate?” James asked.
“Yes, we would have stuck with that rate,” Meehan said.
“So, if we had gone to a constant rate, it would have been bad, is basically what you just said,” James said.
Councilman John Gehrig said for many, the budget amounted to a “forfeiture of a tax decrease” of $1.78 a month on a $300,000 home, if the constant yield had been maintained.
“You’re paying the same as you paid last year which, to me, is not an increase,” he said.
James worried the town would quickly find a way to spend the extra revenue, but Knapp said the money would reduce the burden of several projects from the general fund balance, allowing that to grow.
“What we did, is I funded street paving from tax dollars, so we only had to take $800,000 out of [the general] fund balance to pay for the debt service on the airport, the storm drain cleaning, the AGH year-three investment” and one other project, she said. “We reduced the amount that we’re taking from fund balance, so that we can allow fund balance to grow a little bit again.”
The vote to approve the budget was 5-2 with only James and Councilman Tony DeLuca opposed.
City Manager Doug Miller called the budget process one of the best he’s ever been a part of.
“The debate over the tax rate and the budget was one of the most sincere and best articulated debates I’ve heard in my career,” Miller said. “I know you differed in opinion, but you expressed your opposing opinions in a very dignified and informed manner, so I congratulate you on that.”
For additional information about the fiscal 2020 budget, visit the town’s webpage at www.oceancitymd.gov and click on the tab labeled “FY 20 PROPOSED BUDGET.”