Ocean City Report Details Financial Health

OCEAN CITY – The town’s chief financial health report was presented this week, and it showed a spike in revenues as well as an increase in expenditures from the previous fiscal year, but overall Ocean City’s general fund remains in a healthy state, financial officials report.

This week Ocean City Finance Administrator Martha Bennett presented the Town of Ocean City Comprehensive Annual Financial Report (CAFR) for the Fiscal Year (FY) 2012 that ended on June 30.

Major initiatives in the last fiscal year featured a complete reconstruction of Ocean City’s Boardwalk. The project has been divided into two phases, the first being completed before last summer and the second is currently in progress.

The project will be completed by April of 2013 and will include a new Caroline Street Comfort Station and Stage. The $6 million Boardwalk project and $1 million Caroline Street project are being funded by bonds.

In May of 2012, Ocean City issued $33,560,000 of General Obligation Municipal Purpose and Refunding Bonds. The sale resulted in a savings of over $858,000 in future debt service for the town’s wastewater and general funds.

Proceeds of the bonds were used to refund the town’s outstanding Series 2005 bonds, which mature after 2015, and to finance street improvements, fire stations, wastewater plant improvements and pumping stations and a new parking lot, on top of the Boardwalk reconstruction and new comfort station.

According to the CAFR, the town increased the advertising budget from $3.7 million in 2009 to $5.8 million in 2012. For the year ending June 30, room tax was 6.25 percent above the prior year and food and beverage sales was up 4.16 percent.

Ocean City relies on property taxes for 55 percent of its general fund revenues. Property tax revenues are directly impacted by the value of homes and new construction.

The number of construction permits was slightly less in 2012 at 1,525 compared to 1,622 in 2011, but the 2012 fiscal year saw a substantial increase in the estimated value of that construction. The estimated value of construction in 2012 was almost $35.5 million compared to $25.5 million in 2011.

Although Ocean City has a 3-percent assessment increase cap for owner-occupied homes, only 5 percent of the properties are eligible for the cap. The assessed value of the remaining business properties, second homes and condominiums is at full market value.

Ocean City’s overall financial position improved in 2012, increasing almost $4 million above 2011. The increase was primarily from higher service fees and bond proceeds, Bennett reported.

“At the end of the day when you look at revenues and expenditures, we had an increase of about $1.2 million in net assets for governmental funds, this is your capital projects and general fund,” Bennett said.

Bennett explained the total revenues remained stable in 2012, increasing 2 percent, or about $214,000, from 2011, while expenses increased by about $3 million or 2.7 percent.

In FY 2012, Ocean City received about $77.5 million in revenues, compared to about $75.7 million in 2011.

Altogether, 55 percent of Ocean City’s revenue derives from property taxes, 19 percent from other taxes, and 17 percent from charges for services, 8 percent from capital/operating grants and contributions, and 1 percent from other sources.

The total expenses in 2012 were about $73 million, compared to about $70 million in 2011.

“The biggest increase overall was in economic development,’ Bennett said. “This was your dedication to advertising increases in tourism.”

Bennett added that public safety is the largest governmental function with the largest expense of about $35.5 million in 2012, which is about a 3-percent increase from 2011. The increase is due to grants for new equipment and the response to Hurricane Irene.

Compared to what was budgeted for FY 2012, revenues were under by $64,000.

“When we include our commitments, which are our encumbrances, or standing commitments for the year we had a savings of $1.8 million in expenses compared to the budget,” Bennett said. “In Other Financing Uses, we had an improvement of about $85,000, so overall we had a debt change in the general fund, a loss of $21,000, but that was an improvement of over $2 million in what was anticipated. So with expenditures being less than expected, this was a very good result when we compare to what was budgeted.”

As of June 30, 2012 the General Fund Balance was set at $12,605,000, which is 17.5 percent.

“We look at national comparisons and norms, and they would consider us with a strong fund balance of 8 percent,” Bennett said. “So with 17.5 percent this puts us at a very positive fund balance. In 2011 the general fund balance was set at 21 percent.”

Within the town’s Utilities and Business Services, fees and service charges are 73 percent of all revenues. Bennett presented a graph that indicated the portion of expenses that are covered by service charges to customers for business-type activities.

In water, wastewater, and golf funds, service charges or reserves cover all costs, which were anticipated in the budget. The operations of the transportation, airport, and convention center recovered 49.5 percent of expenses from user charges.

“Overall utilities and business services did very well over the year,” Bennett said.

Between government and business-type finances, at the end of FY 2012 the town held about $68.5 million in cash and current assets and about $198.5 million in capital assets, totaling about $267 million in assets, which is a 8.6 percent change from 2011.

There is about $91 million in outstanding bonds and debt and almost $27.5 million in other liabilities, totaling almost $119 million in liabilities, which is a 17 percent change from 2011.

There is about $90.7 million invested in capital assets and net of debt, about $24.7 million restricted for capital and to pay debt, and almost $33 million of unrestricted funds, totaling about $148 million in excess of assets over debts, which is almost a 3 percent change from 2011.

“We have an active debt retirement,” Bennett said.

The town’s bonds have interest rates from 1 to 5.6 percent and are paid from 10 to 20 years. At the end of 2012, the town owed almost $97 million in debt. Over 50 percent of the debt will be paid from service fees from business-type activities and the remainder will be paid from general tax revenues.

Bennett included the town’s pension funds in her presentation. On March 31, the date of the actuarial valuation of the plans, the plans had an actuarial value of assets of about $80 million and an actuarial accrued liability of about $100 million

This means that about $21 million still needs to be contributed to the plans. Employees contribute 5-8 percent of their pay to the plans and the town plans to fund its portion of the liability over the next ten years. Ocean City has assets of about $12 million to fund retiree health benefits and an actuarial liability of about $40.5 million. The unfunded actuarial liability is being funded over 26 years.

To view the entire CAFR visit the town’s website, www.oceancitymd.gov.

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