NEW FOR TUESDAY: OC Property Value Decline’s Impact On Tax Rate Explained
OCEAN CITY – Alarm over the proposed increase in Ocean City’s tax rate has led to city finance experts to provide a breakdown of the town’s assessments and tax rate in an attempt to relieve some confusion.
During last week’s budget wrap-up, Finance Administrator Martha Bennett began by reviewing the actual value of Ocean City properties as far back as 1978, concluding that 2013’s property values have returned to the same level as in 2007.
“A lot of things have happened to real estate values and property values in the last decade,” Bennett said. “We have seen them rise particularly from 2000-2009 … this year our property values have dropped back down. I am very pleased that we are at the same level we were in 2007 … it identifies the strength of the community and the investment in Ocean City.”
Bennett presented the make-up of properties in Ocean City. Non-resident property owners make up 78 percent of the properties, 6 percent is resident property owners and 16 percent is commercial. Five years ago, 24 percent of properties were commercial, 5 percent were residential and 71 percent were non-resident.
“Please understand what this means … because 78 percent of the taxes come from non-resident property owners, what has happened in the last decade has been a two-way course,” Bennett explained. “Because they did not have a protection of the Homestead Credit, when their assessments went up, their tax bills rose.”
According to the Maryland Department of Assessments and Taxation, the Homestead Property Tax Credit was formed to help homeowners deal with large assessment increases on their principal residence. The Homestead Credit limits the increase in taxable assessments each year to a fixed percentage. Every county and municipality in Maryland is required to limit taxable assessment increases to 10 percent or less each year.
Bennett explained that Ocean City’s Homestead Credit started off at 10 percent a year, was lowered to 5 percent and is currently set at 3 percent.
“But since we have such a huge percentage of non-residents anything you do in the tax rate, in order to generate enough revenue to manage the city, the rate has to be based on what the non-resident rate is,” she said.
Bennett pointed out that there are approximately 2,500 residences in town that are owner occupied and after the Homestead Credit the median assessment was just under $200,000 in 2012. It is also important to note that more than 25,000 properties in Ocean City are condos. The category’s median assessment comes to about $250,000 in 2012.
“Those values have come down for the condominiums,” she said. “When you set a tax rate, you have got to look at that value there because that is where $6 billion of property values are.”
Bennett then explained that the tax bill is the assessment, divided by 100, multiplied by the rate. She used the median assessment of condominiums, since they make up most of Ocean City’s bills, as an example of how tax bills will be affected in this upcoming year.
Bennett used a fictional example of a condominium being assessed at $250,000 last year. That value is then divided by 100 and multiplied by last year’s tax rate of .395 equals a tax bill of $985.
This year, due to the average 15 percent decrease in assessment, that condo’s assessment is about $212,000, which divided by 100, multiplied by the new tax rate, or constant yield, of .4685, the tax bill will still equal $985.
“That is what constant yield means … the bill will be the same,” Bennett said. “The taxes that you generate will be the same because the assessments went down, the rate goes up, and it equals the same tax bill.”
Bennett furthered that in 2004, Ocean City’s median residential taxable assessment reduced by Homestead Credit was practically set at the same value as non-residents, about $150,000, because at that time the Homestead credit was set at 10 percent.
In the following years, 2005-2006, the height of a tremendous property value boom, the maximum assessment was set at 5 percent and non-resident assessments increased to almost $200,000 by the end of 2006 while residents increased to a lower value.
In 2007, another large increase occurred in property values and the Homestead Credit was capped at 3 percent for residents.
“That is why owner-occupied assessments have stayed steady,” Bennett said. “For non-residents … their appraisals went up dramatically, by 2009 it was double the owner occupied.”
Bennett added that during that time, 2006-2011, residential tax bills decreased because their tax rate had decreased. The rate has been dropped in the last decade from .515 cents per $100 in assessments down to .385, unlike the non-residents who have paid a much higher amount.
“So now as we venture into 2013, because the assessments have dropped, this budget as proposed is raising the same amount of taxes and we have lowered the budget dramatically,” Bennett said.
In 2009, tax revenue was around $48 million and in the last two years Ocean City has seen that fall to $43 million.
“To maintain the level of services we provide now, this 2013 budget is proposed at $43 million,” Bennett said. “It is the same amount of taxes as in 2012 but because assessments have changed, this requires a rate increase to .4685 cents, per $100 of an assessment.”
Bennett’s 2013 Ocean City Assessment and Tax Rate report is scheduled to be presented in upcoming Mayor and City Council meetings and is currently posted on the town’s website at oceancitymd.gov.