Tides and taxes

October 19, 2004

OCEAN CITY VOTERS go to the polls today with high taxes on their minds. Besides electing a mayor and town council, they'll be voting on whether to impose a strict new limit on property taxes. The problem with most tax caps is clear: They apply in good times or bad, without regard to natural or man-made disasters or other extenuating circumstances. They take away a government's financial flexibility and put much greater pressure on elected leaders to raise revenue from other potentially unpopular taxes and fees.

The measure was put on the ballot by petition and the fact that residents are upset about rising property tax bills should come as no surprise. Ocean City real estate values have skyrocketed in recent years. Because of this, the town's property rate has actually dropped -- but not nearly enough to offset the increasing assessments of property value. The result has been a kind of tax bill sticker shock, particularly for retirees and others living on a fixed income. Their condos may be more valuable but that doesn't give them the cash to pay higher taxes.

But what Ocean City residents must think about is not just the town's current financial situation but its future needs. The Ehrlich administration has been trimming the state budget, in part, by reducing the amount of aid to local governments (about a quarter-billion this past year, according to the Maryland Association of Counties). That could worsen in future years. Property taxes account for about a third of municipal budgets. How will a revenue gap be offset? Maybe budget cuts. Maybe higher taxes.

Currently, there are five Maryland counties and 32 towns and cities that have some form of property tax cap. Most are not as strict as the one proposed for Ocean City -- a tax rate no higher than 2 cents above the constant yield (the rate that fully offsets rising assessment). Voters should know some limits on property taxes already exist. The Homestead Tax Credit Program limits assessment increases to no more than 10 percent each year -- and some towns and counties have set the limit below that. Seniors age 65 or older can also defer the increase in a property tax bill (they just have to be paid when the property is sold).

Finally, Ocean City residents ought to consider their unique position when it comes to real estate. The fact is, the town is fortunate to have billions of dollars of property owned by out-of-towners. But a property tax cap benefits these nonresidents disproportionately. They'll pay less in taxes, but it's the full-time residents (the people who get to vote today) who will likely have to make up the difference in the form of reduced services or higher user fees. Is that fair? That's for voters to decide.

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