OCEAN CITY — Ocean City officials this week approved on second reading an amendment to the fiscal year 2016 budget, authorizing an additional $2.3 million in appropriations, but not before defending the reinvestment in capital projects and the importance of maintaining a healthy reserve balance.
The Mayor and Council on Tuesday ultimately approved Budget Amendment 1 for fiscal year 2016, which recognizes an additional $2.3 million in appropriations from fund balance for capital projects and prior-year purchase orders and re-appropriates the funding for projects approved but not completed in 2015.
Proceeds from the December 2015 bond sale are recognized in the budget amendment, as are the energy performance contract and the large equipment capital leases. In addition, adjustments to revenue estimates from the casino in excess of what was budgeted have been transferred to the street paving program, while overages in the estimates from the admissions tax have been recognized to cover the cost of the city’s new telephone system.
Finally, retirement program savings in the general fund have also been redirected to different categories and expenditures. While the various transfers and appropriations in the budget amendment are complex, in layman’s terms the city expects more revenue available at the end of the fiscal year than budgeted and is redirecting those funds toward long-needed capital projects and investments.
Not all are happy about the perceived windfall, however. It has been the town’s fiscal policy to maintain a reserve fund balance roughly equal to 15 percent of the entire budget for emergencies and unforeseen expenditures. It’s a common practice in municipal government and most towns and counties try to maintain a reserve balance of around 12 percent.
However, in recent years, Ocean City has strived for and achieved a reserve balance of at least 15 percent. Former Councilman and fiscal watchdog Vince Gisriel pointed out to the council on Monday Ocean City’s reserve balance in recent years has flirted with 20 percent and questioned why the overage was not returned to the taxpayers in the form of a tax cut.
“It looks like it has averaged around 19 percent the last few years,” he said. “That’s around $16.7 million over and above your stated policy of 15 percent. That’s the equivalent of about 17 cents on the tax rate.”
The fiscal note on the budget amendment ultimately approved on Monday essentially considers the changes a reshuffling or reinvestment with no impact on the taxpayers. Gisriel pointed out the overages in excess of the stated goal of 15 percent could, and probably should, be returned to the taxpayers.
“It says there is no change in the tax rate as a result of this budget amendment and that’s true,” he said. “But it certainly isn’t going down. Having a reserve and surplus is a noble thing and it’s good for the financial well-being of the town, but you don’t want to out-tax your residents.”
Gisriel said a healthy reserve balance could be achieved by throwing a modest fiscal bone to the property owners in the resort and urged city leaders to consider that as they prepare to tackle the fiscal year 2017 spending plan.
“You could cut the tax rate by two cents and still have a nice reserve fund balance,” he said. “As you get ready to deliberate on the budget, for the sake of the public please remember your fund balance has gone beyond your stated policy. When you find savings, that’s the time to think about cutting back.”
Budget Manager Jennie Knapp explained the perceived $35 million-plus in reserve fund balance over the last few years was not sitting in the bank, but rather was reinvested into various projects. For example, $18 million was invested in water and wastewater capital projects through the latest bond issue, another $4 million was the grant fund balance at no cost to the city, $500,000 was invested in water and wastewater projects at the Ocean City Airport and another $1.2 million went to improvements at the Convention Center.
“There is no general fund balance carried over year after year,” she said. “Any surplus goes into paying for other projects. There is no impact on the tax rate from this amendment and there is no impact on the taxpayers of Ocean City.”
Knapp explained any differences between anticipated revenues and expenditures were reinvested in other capital projects, including improvements at Northside Park, street paving, re-siding the Public Safety Building and the canal dredging program.
“Those are things we would have done if we had the money,” she said. “That’s why we waited to see how fiscal year 2015 turned out to see if we could reinvest in some of these projects. All this was done with no cost to the taxpayers.”
Finance Officer Martha Bennett further explained prudent planning and reserve balance-building has left the resort in a solid financial standing.
“The council has been very conservative in spending and wisely used the reserve for capital projects,” she said. “As a result, we’ve been able to maintain our low bond rating. All of these investments have strengthened the financial position of the city.”
Council President Lloyd Martin said maintaining a healthy reserve balance positioned the town well financially in case of an emergency.
“We need to account for what we may need if we get hit with a bad storm and what we may need to recover,” he said. “We’re in good financial shape. This is also about public safety and keeping people safe. We heard already today about our dropping crime rates. This is reinvesting in your community and keeping the tax rate down.”
Councilmember Mary Knight agreed and said Ocean City is in an enviable position compared to other municipal governments in terms of a reserve balance.
“If there is a disaster, we need to have a fund balance,” she said. “We go to these meetings and conferences and people are amazed we’ve been able to maintain that 12-percent in reserve. I trust the people who work on this eight to 10 hours a day and on the weekends.”
Councilman Dennis Dare recalled his days as city manager and the “low hanging fruit” policy as a means to explain the reinvestment in the infrastructure now that the economy has apparently improved.
“When the recession hit and the economy was down in 2008, we reduced our workforce and reduced our general fund budget by $5 million,” he said. “With some of these things like equipment and the Public Safety Building and Northside Park, we told our people to make it last another year. Unfortunately, some things that were cut were deferred and we’re paying for that now, but now we’re in a position to reinvest and do those things.”
The council approved on second reading the proposed budget amendment. Councilman Wayne Hartman said whatever the current reserve fund percentage is, it needs to be maintained despite pressure to reduce it in the form of a tax cut.
“The healthy fund balance shows how well the town is performing,” he said. “I guess you can’t please all of the people all of the time.”