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Analysis

Budgets and Taxes in Cape May County: The Outlook for 2025 and Beyond

Budget

By Vince Conti

As the 2025 municipal budget season kicks into gear there will be serious challenges facing budget formulators. The way they meet those challenges will ultimately come down upon the property tax payer.

Three components comprise the bulk of a property tax bill in Cape May County – the county tax, the local municipality tax and the school tax. Some communities may have other, smaller taxing authorities like the fire districts in the mainland communities, but the big three are what determine what a property owner pays.

How 2024 turned out for the towns

In 2024, six of the county’s 16 municipal budgets stayed even, with no local purpose tax increases. The other 10 all saw some level of increase in the local tax rate, with Sea Isle City leading the way with an 11.3% hike, or 4.3 cents per $100 of assessed value. Ocean City was not far behind with a 3.7 cent increase, or 7.5%.

Other towns with 2024 increases in the municipal tax rate included Middle Township, 5.2%, Upper Township, 5.1%, Stone Harbor, 3.3%, North Wildwood, 3.2%, Wildwood, ,2.0%, Wildwood Crest, 2.1%, Cape May Point, 4.0%, and West Cape May, 2.1%. Towns that saw no increase in the rate were Avalon, Dennis Township, Lower Township, Woodbine, West Wildwood and Cape May.

A major force in budget formulation in 2024 was the impact of the previous year’s high inflation rate and the 22% average increase in health plan premiums imposed by the state for the 2023 plan year.

Another factor impacting some municipalities is the end of pandemic-driven federal funding. A number of municipalities in the county had used the “recovery” funding for two years as a substitute for lost income. It became a revenue infusion that balanced budgets and even allowed some to grow. That funding expired.

State Health Benefit Plan hikes

This year, another year with a double-digit increase in the state health plan for local government employees, has already led to some county municipalities joining others around the state in withdrawing from the plan. A number of towns and school districts left the state plan in 2023. So far for the 2025 plan year, four Cape May County municipalities, Ocean City, Sea Isle City, Cape May and Avalon, have pulled out of the state plan for private insurance.

A clear problem is that those towns with the best risk pools, based on claims history, are the ones most likely to find better rates in the private market. Defections of that type leave the overall state plan with a larger percentage of higher-risk municipalities in the insurance pool, adding to the likelihood of future rate increases.

Taxes rising, but two tax rate cuts?

Even with two published tax rate decreases, the county government tax levy grew by 47% in the six-year period from 2018 to 2024. That is possible because the county is the only taxing entity that gets to take full advantage of the significant rise in the true value of real estate. The county tax process is not limited to the assessed value of property.

What this means is that in 2018, prior to the pandemic-driven increase in property values, the county tax levy was just 52% of the total combined tax levies of all 16 municipalities. By 2024, the county levy is 63% of the combined tax levies of the 16 towns. That is not because the municipal levies have failed to grow. It is because the rate of growth at the county level was at a much greater pace.

For some of the resort towns, the county tax has become the largest component of the overall tax bill. That is the case now in Stone Harbor. In tax year 2023, taxes paid to the county comprised 52% of the property tax bill for borough property owners. The local purpose tax for operation of the borough was 41% of the combined bill. School taxes were the other 7%.

In short, the county tax levy has been growing at a significantly faster rate than the levies of other local taxing authorities. In municipalities that have seen the greatest rise in property values, the county tax has become the largest component of the total property tax bill. In the two years in which the county tax rate was reduced, first by 2.5% and then by 2%, the actual tax levy applied to county taxpayers has risen by $16 million.

As property values level off, two outcomes can be expected. First, the county will not have the flexibility to reduce the tax rate and still collect more tax dollars. Second, revaluations will probably be needed for almost all county towns since the ratio of assessed value to true value is significantly out of sync, a pandemic consequence not often thought about.

School districts and loss of state aid

The fact that school district levies are growing as a response to the ending of state adjustment aid means taxpayers are likely to see continued increases in the school levy, to the extent that budget caps allow. In their 2022-2023 school year budgets the 16 municipal school districts and the one regional district had a combined levy of $176 million. This does not count the two county districts, which are funded separately.

In a number of towns, the school tax represents the largest single share of the property tax burden. That’s the case in Dennis Township even with the school system saying that the revenues available to it no longer allow it to meet the constitutional requirement of providing a “thorough and efficient education.”

In Middle Township, levies in 2024 budgets show the school tax comprising 53% of the total average property tax bill while the local purpose tax for operating the township is 27%. The county tax represents another 15%, with the fire districts averaging out to the remaining 5%.

This all makes for an important area of concern as the county and municipalities look to their 2025 budgets and the school districts to their 2025-2026 school year budgets.

The combined tax burden

Cape May County taxpayers in 2024 faced combined tax levies for local government, school district and county taxes of $603 million. The recent referendum measure defeats in the Dennis Township and Middle Township school district special elections present some evidence that taxpayers are pushing back.

Success in holding the line on municipal tax levy growth is uneven at best. The most positive results saw that over a six-year period, from 2018 to 2024, the amount of the tax levy, the actual dollar amount to be collected in local purpose tax in each municipality, rose 0% in Woodbine, 8% in Dennis Township and 9% in Cape May City. During the same six-year period, the municipal tax levy grew by 35% in West Cape May, 33% in Stone Harbor and 30% each in North Wildwood and West Wildwood.

A significant outlier in this six-year period was Upper Township, which saw a 65% increase in the local purpose tax levy as the township coped with a transition from a time when its energy receipt tax revenue, largely from the B.L. England plant, amounted to almost 50% of the general fund budget in 2018 to one in 2024 where that same, now static revenue contribution covers just a little more than 33% of the budget. The result has been a shift that increases the burden on taxpayers.

School district budgets in a number of county municipalities have increased annually as the districts deal with the evaporation of state aid that held them harmless under the 2018 state funding formula. The loss of pandemic relief funds meant to combat learning loss compounds the problem.

Finally, the annual county budget has topped $200 million. The county tax levy accounts for 77% of the total revenue needed to support that budget. As the rapid rise in real estate values plateaus, the relatively easy effort to tax the rise in value will not be as available as a means of growing the county budget. One stated reason for that growth has been for capital improvement funds to support the county’s ambitious bridge repair and replacement project.

A variety of challenges are present in the county, the municipalities and the school districts. Weathering all three speed bumps on the way to a 2025 combined property tax bill is the challenge facing taxpayers.

Contact the reporter, Vince Conti, at vconti@cmcherald.com.

Reporter

Vince Conti is a reporter for the Cape May County Herald.

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