Somers Point must repay $700,000 in tax appeals

Nov, 23-2009 12:31 pm

By SHAUN SMITH
Staff Writer

SOMERS POINT – City Council unanimously approved the first reading of an ordinance Thursday, Nov. 12 authorizing the issuance of a bond anticipatory note for up to $725,000 to refund tax appeals.

“Most is made up by a few large properties,” city administrator Wes Swain said Tuesday, Nov. 17.

According to Swain, the city lost nearly $700,000 in tax appeals, mostly on high-value properties such as Acme and the former Shore Point Nursing Home.

In the case of the nursing home, the city tax assessor had claimed that Shore Point no longer held tax-exempt status, since it was demolished.

However, a judge overruled the assessment, saying the property would remain in tax-exempt status until something is built.

Swain said some of that amount is for county taxes that will be refunded to the city by the county, but not soon enough.

“We need to have the money available for next year. Even though I know I’m going to get it, I just can’t wait for it,” Swain said. “The loss of the tax revenue is a direct loss of surplus.”

City Auditor Mike Garcia said at Thursday’s meeting that the city can issue the bond while keeping its debt service relatively flat.

“It would be $700,000 – or more than 10 cents (on the tax rate) – all at one time.

“It would be a budget disaster for the city if it was forced to pay for these appeals all at once,” he said.

The other option would be to spread the cost out over up to five years, if approved by the Local Finance Board.

“The most important thing about this to realize is, tax appeals in this amount are significant and difficult to deal with. Fortunately, the city is in a position to be able to handle this bond ordinance and repayment of debt,” Garcia said.

He said the city had scheduled its debt service flat in order to fund capital projects.

Garcia said that when city bonds were sold in June, the interest rate was 3.6 percent – lower than the forecasted rate of 5.5 percent – largely due to an A-plus bond rating from Standard & Poor’s.

“When we built the schedule in June, we hoped those would be physical brick-and-motor projects and not tax appeals, but that’s what we’re faced with now,” Garcia said.

He said the debt repayment schedule left approximately $253,000 that could be added to the budget without increasing the tax rate.

Garcia said that with $725,000 spread out over five years, the annual repayment would be $145,000 plus interest. The 2010 payment would be approximately $166,000, leaving approximately $86,000 left for additional capital, he said.

“I’m sure no one is happy about having to refund tax appeals in such a large amount,” said Garcia. “Because you set your financial picture up in such a way, you have the ability to absorb it without an increase.”

He said the city’s bond attorney, Phillip Norcross, will represent the city before the Local Finance Board Tuesday, Dec. 8.

The second reading of the ordinance is scheduled for Thursday, Dec. 10.

Garcia said he expected the finance board to approve the bond repayment schedule for five years.

“Many of these types of financing are being approved every day because many municipalities in the state are being hit with these same types of appeals because of a decrease property values, the economy in general, and all the things that go along with that,” he said.

“We are anticipating the Local Finance Board to give us five years, because a lot of municipalities are in the same situation. A lot of these tax appeals go back to 2007, and the courts got jammed with tax appeals when the economy got bad,” Swain said.

“The local finance boards are hearing a lot of these tales of woe and are typically granting five years, but we can go as long as seven years,” he continued.

“Our intention is paying it off sooner; that gives us breathing room. But if they force us to do it in three years, we can do it in three.”

To comment on this story email Shaun.Smith@shorenewstoday.com