OC Fiscal Outlook Called ‘Stable’ By Ratings Firm

OCEAN CITY — With the petition drive over Ocean City’s pending bond sale for the convention center expansion facing its deadline next Wednesday, a major ratings firm this week confirmed the resort’s economic outlook as “stable” and assigned a AA-minus rating to its general obligation bonds expected to be sold on the market early next month.
Fitch Ratings on Wednesday issued a press release assigning an AA-minus rating to the town of Ocean City’s $12.7 million general obligation bond sale expected in early December. The proceeds of the bond sale will be applied to certain costs related to the construction of the Performing Arts Center inside the Roland E. Powell Convention Center, along with a new building for the Ocean City Beach Patrol, a new roof for the Public Safety Building, a new roof for the service center garage and an effluent disinfection system at the wastewater treatment plant.
The bond sale, particularly the $8.47 million dedicated to cover the town’s portion of the construction of the new performing arts center inside the Convention Center, has been the subject of a heated debate in recent weeks and has led to the Ocean City Taxpayers for Social Justice group circulating a petition to halt the bond sale. The general obligation bonds are scheduled to go out for bid on Dec. 5. The petition needs 1,226 signatures of verified registered voters by Wednesday to be successful.
According to the Fitch Ratings release, the town of Ocean City has scored well on a variety of economic indicators, resulting in a relatively high rating for the latest general obligation bond release. Among the areas identified as key rating drivers in the report are the seasonal tourism-based economy, historically strong fiscal management and a manageable debt burden. In terms of the tourism-based economy, the Fitch report suggests it can be viewed as both a positive and a negative.
“The tourism sector remains a significant economic driver, vulnerable to economic cycles and contributing to seasonal employment fluctuations,” the report reads. “The rating is sensitive to shifts in fundamental credit characteristics including the town’s tourism-based economy. The stable outlook reflects Fitch’s expectation that such shifts are unlikely over the near to medium term.”
According to the report, the tourism and hospitality industry is Ocean City’s leading employment sector at 37 percent with top employers including several hotel and restaurant establishments. Worcester County unemployment rates generally follow the pattern of the tourism season in Ocean City with rates as high as 15 percent from January to April and dropping to about 8 percent from May to August. The report indicates the town’s population has remained flat for the last decade at around 7,000, however, additional wealth flows in during the summer months from tourists and second-homeowners.
The Fitch report touts the town’s efforts to extend the season, and specifically mentions the convention center expansion as a catalyst.
“Through local and state economic development efforts, Ocean City has tried to extend the visitor season beyond the summer months,” the report reads. “The well-utilized Ocean City Convention Center, a joint state and town project, attracts largely state and regional trade groups. A $9 million joint expansion project with the Maryland Stadium Authority is currently underway with partial funding from the current issuance.”
The Fitch report also touts the town’s fiscal responsibility as a reason for the stable economic outlook and the solid AA- rating, the same it received in 2012. According to the report, the town’s financial condition is “sound,” with consistently healthy reserve levels and tax-raising capacity. At the conclusion of fiscal year 2013 in June, the town’s general unrestricted fund balance equaled $15 million.
“The town realized positive budget variances mainly in economically sensitive revenue such as room and food taxes, which is a reflection of the stability of the economy,” the report reads. “The town has a fund balance to handle potential revenue shortfalls and cash flows for the peak employment in the summer season and for emergencies. During the fiscal year, the town council evaluated economic conditions and weather-related risks that the town could be exposed to and prudently changed the policy of 12 percent of general fund expenditures to 15 percent. As of the year-end at June 30, the town met and exceeded the policy.”
The Fitch report also speaks highly of the town’s manageable debt burden.
“Debt levels are low as a percent of market value in contrast to the higher per capita debt burden, which is indicative of a tourist-based economy with a smaller permanent population,” the report reads. “Pension and other post-employment benefits are well managed and do not stress financial flexibility. Ocean City’s outstanding debt and future capital needs are driven by the necessity to ensure an infrastructure that can accommodate the needs of the tourist industry.”