Re: Council reduces tax hike to 5 cents, May 23
Setting Salisbury’s general fund budget for FY 2024 has entered another but not its final stage. In April, Mayor Jack Heath proposed a budget containing both a property tax increase on commercial real estate and a new “fire and life safety fee” to generate the revenue required to balance with his proposed increased expenditures.
This new fee would apply to apartments ($50) and to homes and other properties ($300), including those in areas outside the city where it provides fire and EMS services. According to Heath’s budget document, total revenue from the new fee would be nearly $5.4 million, and property tax revenue, with the tax rate increase, would be about $3 million more than this year,
What a surprising contrast with the rosy circumstances so often proclaimed by the former mayor. Not surprisingly, there was an immediate and sustained public reaction, and the proposed fee was challenged as an unlawful tax that would be oppressive for many homeowners.
At the City Council’s “budget session” on May 15, a major revision of the mayor's proposed budget was announced and briefly discussed. It appears that the fire and EMS fee will be completely eliminated and the city’s expenditures will be lowered by about $1.6 million. The proposed tax increase would be changed to a “universal” 5 percent on all property that is not exempt, including homes, subject to waiver in some cases as discussed below.
The expenditure reduction consists primarily in reducing the salary increase for city personnel, dropping four patrol vehicles, and cutting ballistic vests for the firefighters. Payment by Wicomico County for the fire and EMS services in the areas outside the city was not discussed, and it remains unclear whether the city will continue to furnish such services much longer.
As revised, the proposed budget will be presented to the public, but (it appears) not before a public hearing is held on June 5; until then, we may not know whether more revenue and/or a larger tax increase will be needed to balance the budget. Final adoption, after possible further revision, is scheduled for June 12.
City officials have suggested that the proposed tax increase is an abnormality because the property tax rate has not been raised since 2016. Since then, however, real estate value – and the “assessable base” for tax revenue – have increased significantly more than inflation and the consumer price index. Consequently, the city has been able to increase expenditures, including for new things such as folk festivals, without raising the tax rate.
That scenario may have ended. The “new normal” may be that inflation will exceed the increase in the assessable base for property tax revenue even if that base continues to increase as it has in recent years. Another factor is the end of funding from above due to the Covid pandemic – this year’s city budget includes about $4.5 million of “Federal Recovery Funds.” The loss of this revenue source seems to be a primary reason for the new “fee” and property tax rate increase proposed by Mayor Heath. Then there’s the growing concern about another recession such as occurred a dozen or so years ago.
Thus, the city should be prudent in its budgetary actions. For example, the proposed expenditure cuts that are mentioned above will postpone having to provide and fund those matters in the future, requiring more tax revenue then. The better method is to eliminate unnecessary spending, such as for folk festivals. To be sure, it may not be possible to avoid a tax increase, in either FY2024 or the next several years.
An equally significant factor is the loss of future tax revenue under the “Horizon Program” that the city adopted in 2021 to subsidize property developers with a huge (20-year) property tax waiver. This will begin with the rental housing facility being built on Main Street (“The Ross”) and result in the loss of millions of dollars in property tax revenue if allowed to continue for 20 years. The tax waiver will mean that the owners of other properties must pay higher taxes to provide the revenue that the city needs to operate, and that will be compounded if the tax waiver is extended to other developers.
The city is now in a fiscal hole, partly if not entirely of its own making, that could become much deeper because of matters beyond its control. The first rule of holemanship applies – stop digging (i.e., do whatever you can control). It is tempting to cut spending as needed to avoid any tax increase, but that is unrealistic and would be foolhardy. But it is both possible and prudent to eliminate unnecessary expenditure and to cease the Horizon tax waiver subsidy program as promptly as possible to reduce the extent of property tax increases in the future.
Robert B. Taylor