OCEAN CITY — The city’s property-tax rate will increase this year, but its effects will be felt differently as property assessments declined across much of the island for the second year in a row.

The local-purpose tax rate would increase nearly 3 cents this year in a $71 million draft budget proposed by Mayor Jay Gillian’s administration.

The new rate of 38.5 cents per $100 of assessed value would mean the average residential property owner with an assessment of $594,800 would pay $11 more than the average homeowner with a property assessed at $641,200 last year.

That means that while the rate increases more than 8 percent, the new average local-purpose bill of $2,293 is an increase of less than 1 percent over last year’s average bill of $2,282.

While the total size of the budget increased by $2.2 million, or more than 3 percent, the total amount raised by taxes increased by 1 percent, or about $440,400.

Taxes are up in the proposed budget for two main reasons: a 7 percent drop in property values on the island and a cumulative 30 percent increase in debt service and statutory and deferred charges.

The city lost about $847 million from its ratable base since last year, a drop from about $12.1 billion to $11.3 billion, mostly due to an ongoing partial reassessment of residential and commercial properties.

Thousands of properties were found to be assessed at amounts far higher than their market worth following the decline of the housing market over the past several years. So far, about 12,600 properties have been reassessed through the so-called compliance plan.

That has made the average residential assessment decline from $641,200 last year to $594,800. It will likely decline again next year as the city plans one final round of reassessments.

“All in all, by next year everyone should be on an even keel,” city Finance Director Frank Donato said.

Since the value of some people’s properties has decreased, they will pay less in taxes even though the tax rate is increasing. Other people whose assessments did not decrease or went up will pay more.

In addition, the city received about 800 tax appeals last year, and officials have so far determined that properties damaged by Hurricane Sandy lost at least $15 million in value.

The municipal government will also be paying more for contractual, negotiated salary increases for union employees and for pensions, including $225,800 more to the police and firefighter retirement system.

Deferred charges include paying $725,000 in the first of five installments toward $3.6 million in Hurricane Sandy cleanup costs. Donato said the city hopes to recoup some of that money from the Federal Emergency Management Agency.

Debt-service payments would increase by $1.3 million in the proposed budget, a jump in principal and interest payments that is partially driven by $10 million in bonds issued at the end of the last year to fund various capital improvements.

In terms of new revenue, the city plans to increase parking rates near the Boardwalk this year to raise an additional $400,000. The government plans to add more meters that can accept credit cards and change the rates from 15 minutes for a quarter to 10 minutes for a quarter.

Donato said City Council expects to introduce the budget at its meeting at 7 p.m. March 28 in the public library on Simpson Avenue.

Contact Lee Procida:

609-463-6712

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