OCEAN CITY — Despite concerns about the current pandemic, the first iteration of the town of Ocean City’s proposed fiscal year 2021 budget actually includes what would amount to a property tax reduction for most, but the spending document includes contingency plans if the crisis lingers into the new fiscal year.
The Mayor and Council and key staffers on Tuesday held a fiscal year 2021 budget introduction meeting, albeit it in a rather unconventional virtual format. The proposed combined budget for all funds is around $156 million, with the proposed general fund budget at roughly $91.7 million. By way of background, the overall budget includes certain sub-budgets such as enterprise funds like water and wastewater that are fueled by user fee and are largely self-sufficient, while the general fund provides revenue for basic operations of the city including public safety and public works, for example.
In a typical year, City Manager Doug Miller and Budget Manager Jennie Knapp start the process by presenting a balanced budget based on anticipated revenue and anticipated expenditures in the coming fiscal year and that was no different with Tuesday’s introduction presentation.
What was different, however, is Miller and Knapp presented a “Plan B” option and even a “Plan C” option based on uncertainties surrounding the current COVID-19 pandemic and its potential impacts. Knapp led off the budget introduction presentation with three anticipated scenarios based on the potential impacts of COVID-19 on the current fiscal year’s budget.
Under the first scenario, if the crisis lasts six weeks, the current fiscal year would still come in over budget under revenue and expenditure projections. Under the second scenario, if the crisis lingers eight weeks, the impact on the budget would be a decline of around $420,000. Finally, if the crisis lingers for 12 weeks, or roughly into the middle of June, the impact on the current fiscal year budget would be a decrease in revenue of around $4.6 million. Of course, the scenarios are based on projections for room tax and parking fees, which are moving targets right now because of uncertainties.
As far as the fiscal year 2021 budget, which begins on July 1, again a balanced general fund budget of about $97.1 million has been presented while adhering to the constant yield tax rate of .4559. For years, it was the council’s policy to set the property tax rate at the constant yield, or the rate that would generate the amount of municipal funding needed to maintain the same level of services and programs as the prior year.
Last year, however, faced with rising expenses including a state-mandated minimum wage increase, for example, the Mayor and Council adopted a budget at the constant rate of .4656, or the same rate as in the prior fiscal year. To some, depending on semantics, that represented a property tax hike based on changes in assessments for non-resident property owners and commercial accounts, while resident property owners are protected by the Homestead cap.
In the proposed budget introduced on Tuesday, the property tax rate is set at the constant yield rate of .4559, or the amount needed to balance projected expenditures and revenue. The .4559 constant yield rate proposed for the fiscal year 2021 balanced budget would essentially represent a property tax decrease compared to .4656 constant rate adopted last year.
The presented balanced budget with the constant yield tax rate represents Plan A and was drafted prior to the uncertainties surrounding the ongoing coronavirus epidemic. Plan B as presented on Tuesday would maintain the same constant yield property tax rate of .4559 and is based largely on calculations from a similar budget crisis at the onset of the last major recession in 2008. As a result, Plan B includes potential reductions in key revenue sources such as room tax and parking fees, for example, which could be caused by the lingering effects of the COVID-19 pandemic.
Plan B predicts a reduction in revenue by about $1.9 million in fiscal year 2021 as a result of the ongoing pandemic. Under the proposed Plan B budget, certain capital projects or other ongoing projects would be delayed in the next fiscal year to offset the potential $1.9 million reduction in revenue. Among the projects that could see a reduction of funding, or could at least be put off for another year, include repaving the Inlet lot, expanding the next phase of the City Watch surveillance camera project or reductions in funding for street paving or storm dream cleaning among other things.
Finally, Plan C would maintain the current fiscal year tax rate of .4656, or the same rate approved last year and paid by property owners this year. Maintaining the current property tax rate would generate roughly $896,000 in revenue and would allow some of those projects that face cuts or elimination under Plan B to be funded in fiscal year 2021.
In simplest terms, Plan A, which was prepared without the coronavirus impacts taken into consideration would reduce the tax rate to the constant yield and allow all projects proposed in the capital improvement plan to proceed as planned in fiscal year 2021. Plan B would set the property tax rate at the constant yield, but certain projects could have their funding reduced or could be pushed out to further years. Finally, Plan C would maintain the same tax rate as the current fiscal year, but certain projects might have to be reduced or pushed back.
Another important consideration is the town’s fund balance, a rainy day fund of sorts for emergencies such as hurricanes, for example, and for unforeseen setbacks, which the current COVID-19 pandemic certainly qualifies. The town’s stated position is to maintain the fund balance at 15 percent of general operating budget. Based on fiscal year general fund expenses, the town’s unassigned fund balance stands at around 26%, or around $8 million over the stated goal of 15%.
Roughly $1.7 million of fund balance has been appropriated for fiscal year 2021, reducing the unassigned fund balance to about 22.6%. Tuesday’s budget introduction was the first step in a lengthy process that will go on all week and tough decisions will have to be made on the various options on the table relative to the property tax rate, what if any projects to reduce or defer along with other adjustments.
