By Donald Wittkowski
Ocean City’s proposed $79.7 million operating budget reflects a healthy real estate market and should satisfy Wall Street credit-rating agencies, but will require local property owners to pay more in taxes this year, according to the city’s chief financial officer.
Overall, the 2017 budget is up about 5 percent compared to last year, largely due to an increase in debt payments for new construction projects and higher health insurance costs.
Barring major changes in the budget by City Council, the local tax rate will increase by nearly 3 cents, adding an extra $143 in local taxes per year to a home assessed at $500,000. The figure does not include county and school taxes, which are assessed separately.
Frank Donato, the city’s finance director, said higher taxes will help pay for $33 million worth of new construction projects this year in Mayor Jay Gillian’s proposed capital plan.
Donato noted that debt service and down payments on new projects will account for about half of the operating budget’s $4 million increase in spending over 2016. Another big increase is a $1.1 million jump in the city’s health insurance costs.
The mayor has placed a heavy emphasis on road construction, drainage upgrades, dredging projects and the Boardwalk’s ongoing rehabilitation among an array of capital improvements to help overhaul the city’s aging infrastructure.
Gillian, in his State of the City address on Feb. 23, stressed that “none of the work is free” while alluding to the proposed tax increase for local property owners.
“I never like to see taxes go up by even a cent. But this is work that has to be done,” Gillian said in his address.
Donato echoed the mayor’s remarks during a budget presentation to City Council on Thursday. He said both the city’s year-round residents and the tourists “want” capital improvements.
The city’s growing tax base will help underwrite the capital costs. In a key metric of Ocean City’s economic strength, the ratable base has increased by about $120 million compared to 2016 and now totals nearly $11.6 billion, Donato said. The ratable base is the combined value of all taxable real estate.
Donato told Council that the expanding tax base is a good sign of growth in the local real estate market, including new housing construction and renovations to existing homes.
Another budget highlight is the city’s fund balance, which Donato described as “basically our savings account.” The fund balance provides a nest egg to insulate the city from emergencies. For instance, Ocean City heavily relied on its fund balance in 2013 to help pay for emergency expenses in the aftermath of Hurricane Sandy in 2012.
For 2017, the fund balance will be nearly $6.4 million, down from $6.9 million in 2016, but still strong enough to protect the city’s stellar AA bond rating, Donato said.
Wall Street credit-rating agencies primarily look at the fund balance when analyzing a municipality’s financial health. They consider it to be the “No. 1 indicator of financial stability,” according to Donato.
Ocean City has the ability to tap different sources of revenue – in addition to local property taxes – to finance the operating budget. Beach tag sales and parking operations are two of the biggest revenue generators. The budget forecasts $4.1 million in beach tag sales and $3 million in parking revenue for 2017.
“We’re fortunate in Ocean City to have a lot of sources of local revenue,” Donato said during his budget presentation to Council.
Now that the mayor has proposed the budget, the spending plan next goes to the seven-member Council for scrutiny and possible changes.
Council is expected to introduce the budget on March 23. The governing body will review the plan in March and April. A public hearing and final vote are tentatively scheduled for the April 27 Council meeting.
