OCEAN CITY — Resort officials this week set in motion the creation of a line of credit with a local bank to help fund larger purchases and projects without going to the general fund balance.
The Mayor and Council on Tuesday approved a $2.5 million line of credit offered by the Bank of Ocean City. The town will enter the $2.5 million line of credit for a three-year term with a fixed interest rate of 2.9%. Finance Director Chuck Bireley explained the advantage of using a line of credit as opposed to a traditional bank loan is the lower financing costs for the town.
The town received offers for the line of credit from three financial institutions and the Bank of Ocean City’s was the best in terms of the interest rate and other factors. Bireley’s recommendation includes a means to quickly pay it back if and when it is used.
“If the line of credit is used to purchase property, it would be paid back with the next bond issuance,” he said. “The Bank of Ocean City made a very good offer and the interest rate is fixed. There is a $250 annual fee, but I don’t think that’s unreasonable.”
With a healthy fund balance for unexpected expenses or purchases, Councilman Dennis Dare questioned why the line of credit was needed.
“How much return do we get now on our fund balance,” he said. “I think it’s roughly the same amount as this. I’m not opposed to having this tool in the tool box. In the past, we’ve used fund balance to bridge projects and purchases between bond issuances. Why do we need a line of credit when we have fund balance?”
Bireley explained the line of credit would be set aside for larger purchases and projects and would quickly be repaid through the next bond.
“Generally, this would be used for purchases over $1 million,” he said. “I agree we should use fund balance for smaller things. The town typically borrows for anything over $1 million and creating the line of credit would be used to pay for those types of things.”
Councilman Mark Paddack questioned how much debt the town currently carried in bonds. Bireley explained the number was still relatively high although it continues to decrease as bonds reach maturity.
“We were at around $101 million at the end of last year, but that has decreased and will continue to decrease. Now, we’re roughly around $90 million and that is going down.”