Drop in ratable base means 2.96-cent tax increase for Ocean City

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OCEAN CITY — For the second year in a row, the city’s ratable base has decreased, causing an increase to the city’s tax rate.

“That’s because of the reassessment projects we’ve done in the last couple years,” said Frank Donato, city director of finance.

The overall amount of taxes to be collected for the local budget is up 1 percent, but the tax rate in the proposed budget is up eight times that because of the drop in ratables.

The ratable base has shrunk from $12.1 billion to $11.3 billion after completing two years of compliance plans, according to the 2013 budget presented by Donato at the first of two Ocean City Council budget workshops, Feb. 20.

Wednesday’s workshop focused on revenues.

In 2011 and 2012, Ocean City completed compliance plans, which are extensive reassessments of certain areas of the island that are the most out of sync with current market values. The 2011 plan focused on the beachfront and bay, while the 2012 plan focused on the interior of the island and commercial properties in the downtown.

In addition to the compliance plan, the ratable base was also decreased due to the more than 800 tax appeals in 2012, resulting in a loss of more than $108.1 million in assessed value. Hurricane Sandy resulted in a $15 million loss. There was, however, $65.69 million in added assessments in 2012.

The proposed 2013 budget includes a local tax levy of $43.6 million, up $440,000, or 1 percent from 2012. This means a local tax rate of 38.56 cents per $100 of assessed value, up 2.96 cents or 8.3 percent from 35.6 cents in 2012.

Donato explained that, in terms of the city’s budget, a penny on the municipal tax rate is equal to a fraction of the ratable base. In 2013, a 1-cent increase to the Ocean City tax rate is equal $1,132,000 in revenue for the city. A tenth of a cent increase to the tax rate is equal to $132,000 in revenue.

For a homeowner, a 1-cent increase to the tax rate is equal to $10 for every $100,000 of assessed value of a property. For a $500,000 property, this year’s 2.96-cent tax increase is an increase of $148 to their annual tax bill, assuming that the value of the property stayed the same from last year.

Donato said that if the ratable base did not change from 2012, there would have only been a .27-cent tax increase in 2013.

In Ocean City, there are several other taxes that a homeowner pays in addition to the municipal tax. In 2012, the total tax rate for an Ocean City property owner was 78.3 cents per $100 of assessed value, or $3,915 in taxes for a $500,000 home. This was made up of a 33.8-cent municipal tax rate, a 3.4-cent library tax rate, an 18.9-cent school tax rate, a 1-cent county open space tax rate and an 18.1-cent county tax rate.

Ocean City’s total municipal budget for 2013 is $70.9 million, up 3.2 percent over the 2012 budget of $68.7 million.

Local revenues are up just over $2.2 million.

“That has somewhat to do with why the bottom line of the budget is up,” Donato said of the local revenues.

As was the case in 2012, Donato said the administration is recommending funding a portion of the budget using $2.5 million of surplus from prior years. The fund balance or surplus is the “taxpayers’ savings account,” Donato said. It is replenished through excess and unanticipated revenues and expired and canceled appropriations.

State aid, which in Ocean City comes in the form of energy tax receipts, is budgeted the same as 2012.

“That number will come more into focus when the governor does his State of the State address,” Donato said.

Grants are also budgeted to be the same as 2012. That number will be updated when the budget comes up for a vote, he said.

“Grants can vary. They can vary in the amount of grants you get from one year to the next; and they can obviously vary in dollars,” he said, adding that grants usually show up equal on both sides of the budget, revenue and expenditures. “For the most part, they really don’t have an effect on taxation.”

In terms of appropriations, salaries and wages are up 2.31 percent or $634,000 to $28 million; other personnel expenses are down 2.63 percent to $21.2 million. Statutory and deferred charges like pension payments and payment toward the Sandy emergency bond are up 16.17 percent, from $5,646,150 to $6,559,322. The capital improvement fund is down $300,000 from last year to $700,000.

Debt service payments are up to $11 million from $9.7 million.

“We knew that debt service was going to have a little bit of a spike going into this year,” Donato said. “There’s a revenue offset to that. That’s going to water that number down.”

Revenue increases in 2013 include: $440,390 in taxation, $600,000 in capital funds, $543,750 in estimated Federal Emergency Management Agency reimbursements from Hurricane Sandy, $465,963 from all other miscellaneous revenue accounts and $400,000 from parking. There is a $200,299 loss of revenue from library taxes.

Several city services generate user fees, adding to what is known as “local revenues.”

“It really helps to keep our reliance on taxation as low as possible,” Donato said.

As a budgeting rule, Donato said, a municipality should not budget more revenue for any line item than it collected in the previous year. In terms of parking revenue, Donato said he is breaking the rule.

“I am recommending a $400,000 increase,” he said. “This year’s budget is built upon this year’s recommendation.”

Donato said that due to the city’s success with its electronic parking meter pilot program in the summer of 2012, he is looking to expand the program to the entire boardwalk and beach zone, adding about 800 electronic meters.

“We got a lot of positive feedback from that program last year,” he said, adding that there is relatively no maintenance concern, and the meters are user friendly.

In an effort to pay for the extra fee for the meters, Donato recommended increasing the parking fee in the beach and boardwalk zone to $1.50 an hour. Currently in that zone, it is $1 an hour to park at a meter.

“We feel it’s still a good deal relative to parking in a lot,” he said.

Donato said it costs $150,000 to lease the 800 meters for an entire season. He said that with the average car parking for eight hours a day, the parking fee increase could produce about $400,000 to $500,000 in additional revenue. He said that the fee increase ordinance would have to be passed before the budget adoption, or at the same time. The fee ordinance, he said, would need to be sent to the state to back up the proposed revenue increase to the parking line item.

Another large increase to city revenue is $100,000 from the Ocean City Aquatic and Fitness Center.

The revenue from the contract with the Ocean City Free Public Library is down $75,981, as the city renegotiated the terms of the agreement. However, a surplus in the library budget will bring in an extra $400,375. Mayor Jay Gillian said that surplus from the library’s budget gets funneled back to the city for tax relief. He praised the library for spending conservatively.

“I love that philosophy, because it’s all taxpayer’s money,” Gillian said. “Nothing better than getting money back.”

Hurricane Sandy cost the city millions of dollars, with the hope of reimbursements in the future. An emergency appropriation at the end of last year at about $3.6 million, which paid for operating expenses associated with Sandy clean up, has to be paid back over the next five years at $725,000 a year.

“We have reason to believe, very much so, that we’re going to get reimbursed 75 percent for those expenses by FEMA,” Donato said.

He said he wants council to have that money come out of fund balance in 2013, and then have the reimbursement money go back into fund balance.

“That’s one of the reason you have fund balance, for emergencies like this,” he said.

“We don’t know how that money is going to flow timing-wise from Washington to Trenton to us,” city business administrator Mike Dattilo said.

Donato said that the bond can be paid back faster, which would be beneficial as the less the city has to borrow, the less interest the city has to pay.

Dattilo said that more help is needed in the finance department to keep up with paperwork associated with Sandy.

“We’re going to have to get some additional resources devoted to that,” he said.

“We’re going to do it responsibly,” Gillian added.

“This is not the first time we’ve been through the FEMA process. We’ve never been through one on this scale,” Donato said.

A $9.9 million bond sale by the city in early December also created a spike in debt service, Donato said. He said it resulted in $780,000 in excess debt service, however, the low interest rate from the bond sale represents savings to the taxpayers in the long term.

Donato said that $600,000 from a $1 million premium on the bond sale will be used to offset the debt payments.

“It will still give us some more premium to use in the 2014 budget because that budget didn’t anticipate those extra bonds either,” he said.

Donato said the 2013 budget falls under the state-mandated caps, which limit how much towns can increase spending each year.

“We know that we have to live by two caps,” he said, a 2-percent tax levy cap and a 2-percent spending cap.

“We are comfortably underneath both of them,” he said.

“You hear a lot of people saying, ‘Go to the cap, go to the cap,’ but we haven’t done that,” Gillian said. “Even with the extra with his hurricane and you know we had Irene last year, too … but I’m proud that working together, that we’re not going to the cap.

“We’re on the right track of being fiscally responsible,” he said.

RELATED STORY: Mayor talks taxes, challenges from Hurricane Sandy in budget address

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