(Jan. 16, 2015) The Ocean City Council cast a close vote this week to reject a proposed increase in permit and license fees, after a council majority concluded there was no justification for it.
Instead, the council decided to leave the cost of business and rental registrations at 2009 levels.
The denial of the recommended increase alluded to the oft-recurring question of exactly how the city accounts for profits generated by regulatory systems.
The proposed rate hike of two percent would have netted an additional $36,600 in annual licensing income, city Finance Administrator Martha Bennett told the council on Tuesday.
The hike would affect business licenses, whose costs vary depending on the size and type of establishment, as well as the noise permit fees and room licenses used to track residential rentals.
A two percent raise of these costs every two years was the city’s standard, with increases having been effected in the 2005, 2007, and 2009 fiscal years. The economic downturn during FY09 caused the city to hold off on hikes since.
“Generally, [the fees] handle the cost of issuing licenses and administration,” Bennett said. “That cost pays for itself and is not a burden on the tax rate. Over time, when there are incremental changes in cost … we raise service fees so those fees pay for the service on their own.”
Although two percent – roughly the rate of inflation – is usually taken as an acceptable increment, governments are prohibited from making any profit off regulatory services.
In fact, the precedent for this in Maryland was set in a 1991 court case by construction firm Purnell-Jarvis, Ltd., against the Town of Ocean City, in which the firm successfully sued to be reimbursed for zoning and building fees which exceed the town’s actual cost to do the inspections
“Have we actually looked at the revenue versus the cost to run the Noise Control Board and to have Mr. Sherman [city License Inspector Mike Sherman] go out and do his job?” Councilman Wayne Hartman asked.
Bennett responded that, in fact, the account for those operations was currently running a slight surplus.
“So we’re already at a surplus, and we’re looking to increase it?” Hartman asked. “I don’t see how we can do that.”
Although the account currently holds a surplus, costs have gone up since 2009, Bennett said.
But much of that increased cost is in the wages of employees who administer the permit system, begging the ethical question of whether a regulatory agency can give itself a raise, and then increase rates to compensate for the increased labor cost.
“It affects everybody when you raise license fees,” said Council President Lloyd Martin, noting that cost increases are typically passed on to the consumer.
Other council members, however, saw no problem with a rate hike given that city rates already compare favorably to those in other jurisdictions.
“When we did a study on this, as I recall, we were often close to or lower [than other nearby jurisdictions],” said Council Secretary Mary Knight. “I have no problem with two percent.”
Knight, Dennis Dare, and Tony DeLuca voted in favor of the hike, with the remaining four members against.