OCEAN CITY – An overview of how city staff and the Mayor and City Council addressed this year’s budget shortfall was presented this week.
On Monday evening, City Manager David Recor presented the Town of Ocean City’s proposed Operating Budget for Fiscal Year 2014 in ordinance form on first reading.
The budget was broken down into the following categories, starting with the General Fund in the amount of about $77 million. The Enterprise Funds include $7.4 million in water, $12.6 million in wastewater, $9.7 million in transportation, $6.9 million for the convention center, $1.4 million for the airport and $2.1 million for the golf course. Internal Service funds include $1.8 million for information technology, $5.2 million for the service center, $2.2 million for the vehicle trust and $2.2 million for risk management. There is $16 million dedicated for Pension and OPEB Trust and $2.5 million for capital projects. The budget totals almost $147.7 million.
Developing and finalizing the proposed operating budget for FY14 required a great deal of collaboration and cooperation from all Town departments, according to Record. During the city manager’s initial budget review, original department funding requests were reduced by more than $4.2 million, including $3 million in personnel and operating expenditures, plus an additional $1.2 million in proposed new vehicle purchases.
Following the presentation of the Preliminary Operating Budget on April 9, the following changes were made to further reduce a budget gap; several additional paid parking locations were established, weekend rates at the Inlet Parking Lot were increased, ambulance fees were increased, the third shift bus service was eliminated during the winter months and operating hours at the skate park were reduced (although later overturned).
Also, projected surplus monies in the destination advertising budget were identified to offset the rising costs of in‐kind services provided to the growing number of large private/special events held in Ocean City. Plus, city staff further reduced other department expenditures by more than $250,000.
These reductions totaled about $1.2 million, which is equal to $.0144 off the preliminary tax rate. The final reductions to the original department budget requests total nearly $5.5 million.
According to Recor, each year the town begins the budget process by utilizing comprehensive trend analysis to project revenues and estimate expenditures to fund current programs and services with the existing workforce.
This year staff projected $42.1 million in revenue through property taxes, $15.6 million in other taxes, $3.9 million in licenses and permits, $4.4 million in revenue from other agencies, $9.4 million in charges for current services, $735,000 in fines and forfeitures, $414,000 in other revenue and $247,000 in prior year reserves, which totals about $77 million.
The FY14 Projected Revenue for Property Taxes is based on the Constant Yield tax rate of $0.462 plus a penny per $100 of assessed valuation of real property. The penny added derived from a decision the former council made last year to reduce the proposed tax rate by a penny that ended up saving the average taxpayer about $20 a year.
Recor pointed out the additional penny above constant yield will generate an additional $850,500 in property tax revenue for FY14. In addition, projected revenue from corporate and personal property is based on a rate of $1.29 per $100 of assessed valuation.
Recor reported rising costs of personnel, maintenance agreement obligations and equipment replacement needs resulted in increased expenditures for providing the same level of service as last year. In addition, new policy decisions and the desire to enhance and expand levels of service affect and cause the need for additional resources in the annual budget.
The estimated expenditure are as follows; $3.9 million for general government, $33.2 million for public safety, $4.9 million for general public works/beach maintenance, $5.6 million for sanitation and waste removal, $4.9 million for highways and streets, $6.8 million for economic development and tourism, $7.4 million for culture and recreation and $5.3 million in debt service, which totals about $72 million.
This is followed by transfers from the transportation fund of $1.7 million, the airport fund of $235,000, the convention center of $1.3 million and $1.4 million for capital projects, which brings the final total to about $77 million.
Recor highlighted a few items within the budget, such as it includes six new positions in the fire department at a cost of $292,000. The overall cost for public safety increased by $151,000 over the previous fiscal year.
In mid-April, the Mayor and City Council ratified contracts with the Fraternal Order of Police (FOP) and International Association of Fire Fighters (IAFF) collective bargaining units that provided wage adjustments for the first time in five years. However, as a result of attrition, overall salary and benefit costs, the police department budget decreased by nearly $60,000 even after factoring in wage adjustments for raises.
An equivalent average wage adjustment for all general employees has been included in the proposed Operating Budget. The cost of the wage adjustment for all affected town employees totals $924,508.
Recor added, the existing Public Safety Employees Pension Trust Plan was closed in 2011 but the FOP collective bargaining unit negotiated to restructure the Defined Benefit (DB) Pension benefits for new members effective July 1, 2013.
According to the actuarial analysis performed by Cavanaugh Macdonald Consulting, LLC, the restructured DB negotiated by the FOP, i.e., age 55 with 25 years of service, reduces the town’s Normal Cost, which is the underlying cost of the DB Plan, from 10.61 percent to 8.04 percent representing a 2.57 percent Normal Cost savings.
Recor included, following the adoption of the Operating Budget for Fiscal Year 2014, the Mayor and City Council will review and update the town’s Capital Improvement Program (CIP). The CIP identifies a schedule of planned physical improvements over the next five years and as well as financing sources for capital projects over the entire period.
For FY14, $817,000 has been included for roof replacements at the Public Safety Building and the 65th Street Garage however the city anticipates bonding the improvements. In addition, $1.4 million in “Pay As You Go” funding for street paving has been identified. Almost $1.2 million of this total was funded through a combination of parking fee revenue, casino revenue and State Highway User Fees.
A Fund Balance transfer in the amount of $247,000 accounts for the difference. Limiting the Fund Balance transfer that amount will maintain the Fund Balance at the Mayor and City Council’s specified goal of 15 percent of the previous year General Fund expenditures.
“With projections showing limited revenue growth, operating budgets will continue to be tight in the foreseeable future. While a challenging situation, I am confident that our prudent fiscal practices and strategic budgeting approach positions us well for the new fiscal year. Although a few service level reductions were necessary, the town will continue to provide visitors and residents with the high level of service for which the town is known,” Recor said
Councilwoman Mary Knight made a motion to accept the ordinance to adopt the FY14 Budget. A vote made earlier in the meeting to reverse the council’s decision to reduce the operating hours of the skate park in the off-season will be reflected in the budget when it returns to the council in second reading, which will be an additional expense of $21,000 to be subtracted from fund balance.
“Our spending priorities are out of whack,” Councilman Brent Ashley said. “The council proposed to cut skate park hours, eliminate bus service and to chase revenue streams from proposed controversial sources that will cost both the taxpayer and tourist more money, cause much ill will with our neighbors and I believe will result in less people visiting Ocean City.”
Ashley furthered the proposed new paid parking areas, including municipal lots, has been estimated to bring in almost $153,000, yet the council voted to spend $165,000 out of fund balance to begin the design process for a new beach patrol headquarters totaled to cost $2 million.
Also, Public Works has estimated $40 million in needed road maintenance to prevent roadways from deteriorating and eventually failing, but the council voted to reduce road maintenance funding from $2 million to $1.2 million.
Ashley added, despite the success of the City’s 401(a) employee pension plan, the council’s decision to have the FOP return to the old DB Plan costs more in current expense and adds more to the city’s long term debt.
“We have great employees and I although I favor the bonus type of wage increase, I wasn’t opposed to a moderate step increase this year,” he said.
According to Ashley, most local government is giving wage increases in the 2-percent range. The Bureau of Labor Statistics notes that for the period ending March 2013, wage and salaries for state and local government employees increased 1 percent.
“I can’t find any [governmental bodies] that are proposing increases in the 5-percent to 20-percent range that are proposed in this budget,” he said.
With no other comments, the council voted 5-2 to approve the budget in first reading with Ashley and Councilwoman Margaret Pillas opposed.