OCEAN CITY — When city Finance Director Frank Donato used a $645,000 home to explain the tax impact of this year’s proposed $124.6 million budget, he did so with a bemused shrug.

“Now, I know what you’re going to say,” Donato began. He didn’t get far. As everyone in the City Council chambers at the Thursday meeting already knew, that is far below the current market value for most properties in the beachside community.

“It’s fair to say that this $645,000 home is worth at least twice that,” Donato said. “And some people have older assessments that have been on the books for 10 years.”

That discrepancy between assessed value and market values means Ocean City is in for a citywide revaluation soon, what Donato described as an expensive and laborious process.

He estimated the process will cost the city millions of dollars and take years before the new values are on the books.

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Other homes, especially those recently built, are assessed at much closer to the market value. That could mean some property owners are paying less while others fork over more to support city services.

Property taxes are based on assessed value. Someone with a higher assessed value ends up paying a larger share, but as Donato pointed out, if the entire island gets reassessed at higher values, that would in turn reduce the tax rate.

At the meeting, Donato mentioned a longstanding rule of thumb, which presumes about a third of property owners pay more in a revaluation while a third pay less.

“Some people won’t see any effect at all,” he said.

The comments came as part of a detailed presentation on the municipal budget proposed by Mayor Jay Gillian at the previous council meeting, which includes a proposed increase in the local purpose tax rate of 3.7 cents to 57.16 cents for every $100 of assessed property value.

That means the owner of the hypothetical $645,000 home will pay $242 more than last year in city taxes, which does not include school and county taxes.

The next steps are up to council, which can amend the budget or move it forward as proposed. A first vote is expected April 10, with a public hearing and final vote planned for May 8.

Walking council through the budget proposal, Donato discussed debt service, rising personnel costs and how the city offsets taxes with other sources of revenue. For instance, the budget anticipates the city bringing in $5.9 million in beach tag sales this year, and an additional $3.9 million in parking fees. That’s a little down compared to what the city raised last year, with Donato explaining that was because the city is in the midst of building a new police substation near the Boardwalk on one of its lots.

The city also will get about $3.8 million from the library, which has a separate assessment of 5.5 cents per $100 of assessed value. That is more than the library needs to operate, Donato said, so about half of the money it raises comes back to the city each year.

Of the total tax rate of $1.12 per $100 of assessed value for 2024, a little under half, 53.4 cents, went to the city, along with a portion of the library tax money. About 31.8 cents, or a little over 28%, went to the county, and 19.8 cents, or just under 18%, went to run Ocean City schools. An additional 1.7-cent assessment goes to the county open space program, which the city plans to hit up soon to help fund planned improvements to the recreation area at 34th Street and West Avenue.

County taxes are equalized based on how close a community is to the market value. Donato said Ocean City has already been informed that the county wants to see it and Sea Isle City up first for revaluation.

But with the sharp rise in shore real estate values, especially since the COVID-19 pandemic, the assessments in almost all of the county’s 16 communities are out of whack, Donato said.

And it takes time to get things lined up for a reval, he added, with only a few companies in New Jersey doing the work.

“One of the things you don’t want to do is revalue the whole town in a still-escalating real estate market,” Donato said.

That happened in 2012, when the total value of ratables in the city was over $12 billion, only to drop by hundreds of millions of dollars as the real estate market cooled. That meant a slew of successful assessment appeals, and the total ratable value for the city did not get back above $12 billion until 2021.

This year, that number is $12.9 billion, even with homes believed to be chronically underassessed.

A state listing of equalized values puts the real value of property in Ocean City at more than $23 billion and shows all of the towns in the county as undervalued, assessed at between 47% and 60% of the market value. Woodbine’s assessments are the closest to the actual value, at more than 80%, with Middle Township and Upper Township the next closest. But the market has cooled, at least in terms of sales, with a fraction of the number of homes on the market compared to a year ago.

The first step is to get the city’s tax map certified by the state, which Donato said is underway. After that, the city can seek proposals for a revaluation.

“Almost every town in the state needs one of these projects soon, so it’s going to be very competitive,” Donato said.

The process will include evaluating 19,000 properties. If the city prepares a request for proposals this year and signs a contract, Donato estimated it would take all of 2026 and 2027 to complete the work.

“I think, best case scenario, we get a new set of values on the books for 2028,” he said.

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