OCEAN CITY — Just how much reserve fund balance is the right amount and at what point should some of the town’s reserve be returned to the taxpayers was the subject of a philosophical debate among resort leaders this week.
The Mayor and Council had before them on Monday a rather routine vote on a proposed fiscal year 2020 budget amendment, an essential process during a budget cycle when funds are reallocated due to projected revenues or expenditures changing slightly during the course of the year. Before the vote was taken, however, former City Councilman Vince Gisriel, as he done often in the past, raised the issue of the town’s growing reserve fund balance.
It has been the town’s stated policy for years to maintain a reserve fund balance, or a rainy-day fund of sorts, of 15% of the general fund balance. However, during recent strategic planning sessions, the stated goal was to increase fund balance to 20%, which provides a nest egg in the event of an emergency such as a major storm, for example, to ensure the town can continue to operate and provide essential services.
Fund balance is also a reserve for certain pay-as-you-go projects such as street repaving and canal dredging, for example. Before the vote on the proposed budget amendment on Monday, Gisriel pointed out the fund balance had grown to nearly 23 percent, or considerably higher than the stated goal. As a result, the town has a reserve fund of around $7.3 million.
Gisriel suggested even lowering the fund balance back to the stated goal of 20% could save around eight cents on the property tax rate. That discussion sparked a larger philosophical debate about the positive direction in which the fund balance was growing annually.
Councilman John Gehrig, who has been a staunch advocate for re-investing reserve funds in economic development in general and rebranding the resort as a youth sports marketing destination specifically, questioned the philosophy of simply allowing the emergency fund balance to grow.
“We’ve been fortunate and we’ve been blessed and we’ve been making money,” he said. “We refuse to put more money in economic development, which has been my thing. We’re sitting at 22.6% and we have a line of credit now. I know we’re talking about this in case there is a hurricane, but we’ve had hurricanes before.”
Gehrig was suggesting fund balance over and above the stated goal of 20% should be reinvested in economic development or, in the alternative, returned to the taxpayers.
“We may want to talk about a tax cut if we’re not going to invest in economic development,” he said. “We can’t just have this money sitting there growing and growing. We’re either going to invest in the future, or we should give it back.”
Council President Lloyd Martin pointed out fund balance is a reserve in the event of an emergency. Martin said steadily growing the town’s fund balance has been the result of being fiscally conservative.
“I don’t disagree to a point, but what I do agree with is being conservative up here and having savings,” he said. “We never know when we’re going to need it.”
Martin pointed to a potential pandemic as the type of emergency for which the town should be prepared.
“Right now, we have the coronavirus out there nationwide and worldwide,” he said. “How will that affect us this year? If we don’t get our seasonal workers in, what about the room tax? They’re not going to be able to sell the rooms because they won’t have anyone to clean the rooms.”
Martin said the town should look for ways to continue to grow the fund balance, even if it exceeds the stated percentage goal. It’s a luxury not afforded to some jurisdictions with graver budget concerns.
“We have a lot of things to look at,” he said. “We always think we’re covered, we’re covered, we’re covered, but we won’t be if we don’t have that cushion. I believe in saving every day. I believe that piggybank should grow. The bigger it is, the better off we are.”
Martin said maintaining a healthy fund balance has allowed the city to keep the tax rate steady. For years, the town’s property tax rate was maintained at the constant yield, or the rate at which the same amount of revenue is garnered to maintain city services.
Last year, the budget was adopted at the constant tax rate, or the same rate as the previous year, which, depending on semantics could be construed as a modest tax hike with property values increasing. Nonetheless, Martin said the town’s healthy fund balance allowed Ocean City to maintain an amenable tax rate while improving services and making infrastructure improvements.
“We are using the money for good stuff,” he said. “We’re not raising the tax rate. We kept it at the constant tax rate last year. We’ve tried to hold the line. We have a zero tax cap for the people who live here and we’ve done a lot of things for the people who live here and visit here.”
Martin defended the council’s track record of fiscal conservatism.
“Being conservative is what we do up here,” he said. “Yes, sometimes we have money left over because we’ve been so conservative. I think we should stay that line and stay the course. If the fund balance goes to 25%, I’m happy with that. Our bond rating is good right now and we’re borrowing money at a lesser rate. We’re going to make money by saving money.”
Martin pointed to several pay-as-you-go initiatives for the town that would not be possible without a healthy fund balance.
“We’re investing $2.5 million each year into our roads,” he said. “We’re doing that by paying as we go, so all of that stuff doesn’t come out of the general fund. If we could do more we would, but we don’t have the time because we have people here on those roads. We do what we can to make the town better and I think we’ve done a great job because we’ve been very conservative.”
Councilman Tony DeLuca pointed out it seemed, in his opinion, disingenuous for Gehrig to suggest returning some fund balance in the form of a tax cut when he supported the constant tax rate approved in the last budget.
“I think it’s ironic that Councilman Gehrig would say we should reduce taxes when he voted last year to raise taxes on both our businesses and our non-resident taxpayers,” he said. “That’s just me I guess.”
Gehrig took the comment in stride and returned to his point of using fund balance above and beyond the stated goal for economic development.
“This is the best conversation I’ve had all day,” he said. “Now, we’re talking about something important. When times are good, that’s when we need to be investing in the future so we’re ready when times are bad. Last year, we kept the constant tax rate and the so-called increase actually turned out to be less for our businesses in real dollars. It basically turned out to be a tax cut.”
Gehrig said the healthy fund balance at roughly 23% is still over the desired goal of 20% and the extra funds should be reinvested in economic development projects.
“Now, it’s just a matter of how we use those funds,” he said. “I had a whole spreadsheet of what we could do with the funds and how we could invest in economic development so that we could make even more money, but we just don’t do it. A year later, we’ve done nothing with that.”
Gehrig said if there was no desire to reinvest excess fund balance, it should probably be returned to the taxpayers.
“If we’re not going to use the funds to prepare for the future and we’re just going to go year by year, we should just give it back,” he said. “We represent the taxpayers. It’s their money.”
Gehrig acknowledged the financial flexibility the healthy fund balance provides in terms of maintaining a safe, clean and working city, but said those funds go grow further with creative investments.
“We do a lot of things pay as you go with the roads and the canals, etc. and I’m not suggesting we reduce our services,” he said. “If we’re not going to use the funds for a productive purpose, if we’re not going to use the funds to be better, then let the people keep their own money for what they determine to be best for them.”
Gehrig said he had a plan for investing reserve fund balance and would present it again or he would present an alternative.
“I gave you guys a plan that was completely paid for and it just goes nowhere,” he said. “I’ll present the plan at budget time again and I’ll also present another plan with a tax cut. It has to be one way or the other. We’ve seen 20% turn into 25% and 25% will turn into 30% and we’re going to assume Armageddon is coming and we’re all going to be living underground or something.”
