OCEAN CITY — Resort officials this week approved on first reading an ordinance creating a line of credit with a local bank at $2.5 million, but not before some issues were raised from a familiar source.
The Mayor and Council had before them on Monday an ordinance for first reading that would approve a $2.5 million line of credit offered by the Bank of Ocean City. The town will likely enter a line of credit for a three-year term with a fixed rate of 2.9%.
When it was first presented during a work session last week, Finance Director Chuck Bireley explained the $2.5 million line of credit could be used for larger projects and purchases such as property acquisitions in the future. The ordinance provides for a means by which to quickly pay it back if and when any portion of the line of credit is used.
If the entire line of credit, or a portion of it, is utilized by the town for a major purchase or acquisition, it would be paid back with the next bond issuance. Essentially, Ocean City pays for most major expenses either with a transfer from the general fund balance or through the sale of bonds for major capital expenditures.
Last week, Bireley pointed out most expenses under $1 million are typically paid by a transfer from the general fund. Historically, anything over $1 million is bonded with the costs spread over a number of years.
During the first reading of the line of credit ordinance on Monday, former councilman Vince Gisriel questioned if the line of credit was truly need with the town’s healthy general fund balance. Ocean City’s mandated fund balance is 15% but the trend in recent years has been to grow that balance for unexpected expenses and is now over 20%
“How many more parcels of land is the city going to acquire?” he said. “How many capital projects in the pipeline would require this? Maybe in the future, but it’s not needed now.”
Gisriel said if the town needed $2.5 million or some portion thereof for a purchase or land acquisition, the general fund balance is currently more than sufficient to cover the expense.
“If you can’t pull that $1.5 million or $2.5 million out of fund balance, we’re in a lot of trouble,” he said. “When I look at this, I can’t help but think of it as easy access to money. It reminds me of a teenager getting a credit card with a high limit.”
Councilman Dennis Dare pointed out creating the line of credit does not change how the town views certain projects or acquisitions, but merely offers another alternative to pay for them. In other words, just because the mayor and council have a $2.5 million line of credit at their disposal doesn’t mean they will suddenly go looking for ways to spend it.
“The way I see this, the process of identifying a need doesn’t change a bit,” he said. “It just allows us to decide which pocket to take money from. It doesn’t change the process, it’s just another tool to have.”
The council approved the ordinance creating the line of credit on first reading with a 7-0 vote.