By Josh Davis, Associate Editor
(Jan. 3, 2019) The next Town of Berlin budget will probably include property tax and utility fee increases, and public discussions related to how and to what levels that would occur could have implications on the next decade or more.
Last month, representatives from Ocean City firm PKS & Company, in delivering a fiscal 2018 audit, said overall the general fund decreased by more than $1.8 million.
Largely to blame were losses by three of the town’s utilities that operate under separate funds, or budgets. Of those, the sewer fund was hit the hardest with an operating loss of more than $900,000.
Compounding matters are increased funding levels to the Berlin Fire Company and EMS. In October, the Berlin Town Council approved a $605,000 contract for fire and EMS services, representing a significant increase.
Mayor Gee Williams, during a Dec. 27 interview, said none of this came as a surprise to town officials, who keep a close watch on such things, but it was clear something needed to be done.
“Every year has a different main theme, just based on life and how the community evolves,” Williams said. “This is our year to really talk about the budget and what is expected of the town, [and] what the people want and what they’re willing to support through taxes and fees.
“What have a number of budget decisions to make – we always do – but this year I think it’s more come to the [forefront] and the decisions we need to make in this new year, at least in my view, are based on one underlying premise. And that premise is that, financially, we need to be reasonable for the short term while also being responsible for the long term. And the two are not necessarily always the same – it’s a matter of finding balance.”
In preparing for the fiscal 2020 budget, Williams said it has become apparent that “adjustments to our utility fee structure and our property tax rate must be made.” He said that would first include increases and then setting a minimum level for the town’s unrestricted general fund balance.
“Currently, we have a general fund balance, also known as reserves, of $3.7 million, which equals about five months worth of town operating expenses,” Williams said, adding “there’s no one percentage or one amount that applies to all towns – large or small.”
“That depends on the vulnerabilities, risks and expectations of each community,” he said. “But, all of us working together, we’ll figure it out.”
Among the vulnerabilities and risks, Williams said, is the potential for a natural disaster because of a major storm.
“Part of the town is in the floodplain district immediately east of [Route]113 in East Berlin and the rest of the town is just one level up,” he said. “Everything becomes more vulnerable as you get closer to the ocean but, even so, we’ve already experienced serious flooding here and I think the community’s response has been the right one.”
Because of those risk factors, the town held a series of community meetings several years ago that led to the creation of a stormwater utility and, more recently, several major stormwater projects funded largely by more than $2 million in federal and state grants.
“Climate change and severe flooding are part of our future for, it looks like, at least hundreds of years,” Williams said. “And I’m very proud that the … community has been so supportive of this. We’re not done yet, but we’ve gotten off to a very good start.”
He said more improvements were coming as more grants became available, but cautioned, “grants don’t take care of 100 percent” of the problem.
“It’s a combination of, obviously the grants that come through the State of Maryland … but also it’s from the money that we raise through the town’s stormwater utility fees, plus the borrowing that the town does itself and, in this case, we’ve done some borrowing from the general fund,” Williams said.
“None of that money is being thrown away. It’s all for ongoing investments that would make anybody that’s got property here … know that they’ll be protected to the fullest extent that we can afford and what good practices allow in terms of minimizing stormwater situations,” he added.
Also at play, Williams said, was the “borrowing from the general fund to cover utility fund losses.”
“The past four years, the sewer fund has borrowed over $3 million from the general fund to cover operating expenses and, during the same time, the stormwater fund has borrowed about a half-million dollars,” he said. “Utility fees charged from these two funds must be increased to generate enough cash flow to first stop the borrowing and, over time, to pay back the loans from the general fund.”
Williams said repaying the general fund would not happen “in just one or two years.”
“I do not apologize for any of the improvements we made – they were essential, and I think that’s part of our responsibility, because if your basic services are something you can’t rely on day in and day out, what are we here?” he said.
Looking ahead to the next five to 10 years, Williams said the town and the public needed to determine what level of capital expenses are needed to meet both immediate needs and longer-term infrastructure and public safety requirements.
Along with stormwater, the town also in recent years has addressed major projects like the creation of an electric utility to help reduce the average eclectic bill.
“The old norm was to do what was absolutely needed to keep from getting into a bind,” Williams said, adding of the electric utility, “there had been no significant investment in it for at least multiple decades.”
“That [changed] toward the end of the last century … and over time it’s proven to be a very good investment, because we have extremely high reliability,” Williams said. “In addition to the reliability, our cost to our ratepayers in Berlin Electric has actually gone down, and significantly so in comparison to the overall marketplace.
“We’re very competitive in that way, but none of that would be possible unless you make the investment to make the whole system work,” he added.
Williams said property taxes, based on the audit report, would likely also need to be increased in order to maintain an adequate level of services.
“In 2018, the town budget showed that property taxes provided about 52 percent of general fund revenues to the town,” he said. “Now, we must determine what is the appropriate percentage of general fund revenues that should come from town property taxes, going forward.
“We must strike a balance between keeping taxes low while also meeting our financial responsibility,” Williams continued. “The world is not a stagnant place. We’ve had the lowest property taxes in this region for about seven years … I don’t think it’s realistic to think that we can keep the absolute lowest property taxes in this region and still meet all these responsibilities.”
Williams said property taxes had not increased at all during his tenure as mayor, which began in 2008.
“The rates have only gone one way … about seven years ago we dropped them,” he said. “They haven’t gone up in a long, long time. Unfortunately, expenses and inflation and critically needed infrastructure doesn’t go away. So, we’ll address it.”
As for exactly how much fees and property taxes could increase, Williams said it was too early to tell.
“At this point, that’s the process we need to go through. I don’t want to speculate until we’ve actually been through the process, and, all of that will be done very publicly,” he said. “As soon as we have figures that we have confidence in, we’ll be sharing them.”
Also likely to be part of upcoming budget discussions are funding for a parking and mobility study, as well as “options for capturing some reasonable level of town revenues from Berlin’s economic growth,” Williams said.
“The private business sector directly benefits from the town’s ongoing investments in both infrastructure and economic development, and I’ve long maintained that town revenues should not have to underwrite those town investments that are necessary for sustaining and enhancing economic growth,” he said.
“I also believe the mayor and council should do everything within our influence and means to ensure that Berlin’s economic resurgence is sustainable and does not become just a short-lived flash in the pan,” he continued. “Progress does not happen by itself … when you make investments some of them work out wonderfully and others are disappointing, but it doesn’t mean you just stop.”
William said a sales tax was “out of the question in this state at this time.”
“That would certainly answer a good deal, but the state would have to restructure so much of what it does,” he said. “We have to look at other ways and … even municipalities and states with sales taxes have income that comes from economic development. They key is, it’s gotta be structured to make sense here.”
He said possibilities included the formation of a commercial or parking improvement district.
“The solutions can take many forms,” Williams said. “First, we have to find out exactly what we need, because we don’t need everything.
“But, if people want the town to continue to be economically viable and vital … then we just can’t stop doing what we’re doing,” he continued. “All of this is about balance and … something has to give eventually, and that’s the community discussion we’ll have.”
Williams said one or more public meetings would likely occur during February and March, with formal budget hearings set to start in April.
He would also like to have public discussion based on “where future economic development should be encouraged.” In Williams’ opinion, those areas are Route 50 and Route 113, as well as along Old Ocean City Boulevard.
“There’s places where it makes sense and it’s the right places for development, and I think there’s other places where it would be totally inappropriate,” Williams said. “But, it’s just not my decision – it’s the community’s decision.”
When the Route 113 dualization is completed, meaning the entire stretch from Pocomoke to the Delaware line has two lanes going each way, Williams sees the intersection of 113 and Route 50 in Berlin becoming the transportation hub of the peninsula.
“Both of those critical, major corridors are in our community,” he said. “For a variety of reasons … we’ve never made the investments and encouraged the private sector investments that would greatly benefit our community and allow regular folks to continue to be able to live here, not just for the next few years, but for the next few generations. I know it sounds big, but it is.
“It’s our responsibility now to show what we can do in the immediate years ahead, what we can do in the next few decades, and what is the vision for the turn of the next century,” Williams continued. “All of these things are great things to discuss, but they need to be done publicly – and they will.
“All in all, I’m an optimist about our town’s immediate future,” he added.