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(April 12, 2013) Ocean City’s preliminary budget for the 2014 fiscal year, which begins this July, appears to be narrowly holding the line in regards to the city’s level of service, but would require a 2.44-cent increase in the tax rate.

Holding the line of some things now, however, could mean having to spend much more later, according to the city’s staff.

The tentative proposal, submitted to the City Council this week by City Manager David Recor and Budget Manager Jennie Knapp, features a total of $78,272,716 in expenditures from the city’s general revenues, about a half million dollars less than the current 2013 budget year is projected to cost. That number expands to $130,396,993 if one includes exclusive expenditures from the city’s income-producing and internal service divisions.

Included in the budget are a number of long-term expenditures that the city will need to find solutions for, Recor said. Chief among them is the nearly $1 million cost, including Social Security tax increases, for the first year of employee pay raises as a result of contract negotiations with the town’s police and fire/EMS unions.

As is typically the case for the city, the bulk of otherwise unsupported expenditures come from property tax revenue, which clocks in at $43,137,913, slight less than $2 million more than last year.

This income is based off a tax rate of 48.64 cents per $100 of assessed property value, a 2.79 cent increase over last year’s rate and a 2.44 cent increase over the tax rate that would be necessary this year to generate the same income as last year, known as the constant yield rate.

However, the council moved during the FY13 budget process to knock a cent off the constant yield rate from FY12, instead taking the money out of the city’s reserves. Since this in turn lowered the FY14 constant yield rate, Recor said he added the penny back in to the rate as a matter of course.

“The other 1.44 cents equates to about $1.2 million in revenue, and that was where the budget gap stood at the point where we needed to prep this to present to you,” he told the council.

Given that the average property value for residential homeowners is $221,000, the tax hike will equate to roughly $40 for the average resident, Recor said.

Despite the slight increase in tax burden, Recor said “that figure was achieved by a lot of collaboration and discussion and cooperation with all the city’s departments.”

City staff had managed to trim $4.2 million off their budget requests over the past few weeks, Recor said, equivalent to a tax rate savings of 3.3 cents.

However, the general fund still takes $871,000 of its expenses out of the city’s standing reserve. Recor pointed out more than $3 million in unavoidable cost increases, chief among them being employee pay raises.

The city has not yet released or formally ratified its agreements with the Fraternal Order of Police or International Association of Fire Fighters and the City Council plans to do so at next week’s meeting. But the total financial impact of the raises is $924,508, plus $70,725 in resulting Social Security tax increases, Recor said.

This number includes not only union raises, but also equivalent raises to non-union employees of just over 5 percent, Recor said.

“What I mean is the average wage adjustment taken from the FOP and IAFF… to address any potential concerns or unrest from the general employees as we start this dialogue,” he said.

This raise will be given with a weight toward the mid-line of pay, meaning that employees making less will get more than 5 percent, and employees already making more will get less than 5 percent.

Further, the town has $735,000 of capital project work in the pipeline for FY14 that has no allocated funding.

“There are a number of ‘pay-as-you-go’ projects in the capital plan that have not been funded,” Recor said. “These are deferred maintenance items that can’t be deferred any longer.”

Chief among these are road resurfacing and rebuilding projects. A 2007 study indicated that the town has between $37 and $38 million worth of roads that could use repair, a number that has prompted city Public Works Director Hal Adkins to ask for a $3 million annual set-aside to “catch up” on street needs.

Because $1 million is already allocated for the second phase of the St. Louis Avenue reconstruction, Adkins requested a minimum of $2 million in additional street work for FY14. This number has been pared down to around $1.1 million.

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