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Ocean City

City seeks MML assistance with ongoing county tax battle

(July 5, 2013) The Town of Ocean City will be throwing its weight behind the Maryland Municipal League – and vice-versa – in a bid to bring the long-standing issue of tax differentials before the state legislature in the near future.

City Council approved a request this week for legislative action with the MML, putting another one of the state’s key cities behind the push to establish a formal means of tax offset for municipalities.

“Last year, in 2012, the City of Frederick put in a request asking the MML to put together a group to study what we refer to as ‘tax equity,’” said Frederick Alderwoman Carol Krimm, who was on the subsequent MML committee for the issue.

With fiscal times growing ever tighter, the demand of some state municipalities for tax freedom from their surrounding counties seems to be growing.

“It came in number two in importance only behind highway user revenue, which has been our priority in the MML for the past several years,” Krimm said.

Ocean City in particular has lobbied for such a policy for many years given the resort’s extreme example of wealth and service disparity. But by its own admission, the city does not have the political power in and of itself to cause the Maryland General Assembly to make the necessary changes to state code.

“It’s important that we get our non-residential property owners involved in this, to get their elected officials involved,” Mayor Rick Meehan said this week. “We don’t have the guns down here to simply do it ourselves.”

A tax differential is a system whereby some sub-jurisdictions of a county – such as cities and municipalities – pay a lower tax rate than the rest of the county, in order to compensate the smaller jurisdictions for services they provide in lieu of similar county services.

Property owners in the town of Ocean City pay the same rate in county taxes as other Worcester County property owners, but as many city officials have bemoaned, resort residents receive relatively little benefit from some the county’s more costly public ventures.

Commonly cited that Ocean City provides its own police, fire, and EMS, and thus requires little to no coverage for those services from its county counterparts. Thus, officials argue, the town should not be paying for emergency services that it does not use.

Worcester is one of only three counties in the state – the other two being Wicomico and Queen Anne’s – that does not have a formally-recognized system of tax compensation. That’s because part of the state’s code that specifies a county’s ability to tax states those three counties “may” establish a tax set-off. For the rest of the state’s counties, this language says that they “shall” establish such a system.

Having this language changed would require an act of the state legislature and considerable political support. This is likely the core reason that Worcester has never developed a tax differential without state intervention – its uniquely lopsided distribution of wealth makes the idea politically untenable for the rest of the county.

As of the 2007 study done for the city’s fiscal year 2008 differential bid, Ocean City comprised 62 percent of Worcester’s tax base, a far higher proportion than any other municipality in the state. But according to a study done by the Municipal and Financial Services Group, updated earlier this year, city taxes pay for $17,146,341 in services the city does not use.

In order to compensate for this, the 2012-2013 fiscal year property tax rate, levied by the county in Ocean City, should be reduced from 77 cents per hundred dollars of assessed value to 68.7 cents. To make up the gap, the rate for the rest of the county would have to be hiked to 95.6 cents.

Such an offset would be a huge fiscal boon to the city, and a huge blow to Worcester County’s government. The county already gives the town roughly $4 million back each year in grants, but full parity would mean essentially quadrupling the county’s obligation.

“We know the county doesn’t want to get involved in tax differentials because they’ve seen the study,” Meehan said this week. “The updated study now shows $17 million that the county commissioners don’t want to rec. ognize.”

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