OCEAN CITY — Acknowledging the uncertainties surrounding the ongoing pandemic and the impact on the summer season, resort officials this week approved on first reading a fiscal year 2021 “Plan B” budget that will result in a property tax reduction for most.
When first presented in March, the proposed fiscal year 2021 budget for all funds came in around $156 million including certain enterprise funds such as water and wastewater, for example, which are largely self-sufficient. The all-important general fund budget in the original Plan A, or pre-COVID-19 budget came in around $97 million and was based on anticipated revenues and expenditures in the coming year. City Manager Doug Miller and Budget Manager Jennie Knapp presented a Plan B budget that attempted to account for the potential and realized ramifications of COVID-19 with adjusted estimates on certain revenue sources including room tax, for example.
The Plan B budget presented on Monday comes in at roughly $136 million, 14% less than first proposed. The general fund under Plan B is around $89 million, 8% less than originally estimated.
The Plan B budget, which was unanimously approved on first reading on Monday, includes a constant yield tax rate of .4559, which is actually a reduction of the .4656 property tax rate in the current fiscal year 2020. As a result, the personal property and corporate tax rates have been reduced from $1.29 per $100 of assessed value to $1.14 per $100 of assessed value.
Elected officials acknowledged this week there many unknowns on the revenue side as the town moves toward some semblance of a summer season and the budget would have to be adjusted accordingly in the coming months.
“I think we’re going to see some pretty nasty financial times over the next few months, or for the next year or maybe two years,” said Councilman Matt James. “This is going to have to be adjusted multiple times. I know we have to get a budget approved, but there are just so many unknowns.”
Councilman Dennis Dare agreed the proposed Plan B budget was based on well-educated assumptions and guesses, but there were still many uncertainties.
“It’s a really good discussion,” he said. “The one thing to remember is the budget in front of us can work if everything goes really well. The problem is we don’t know how this is going to play out. We’ll have businesses that don’t open, and we’ll have some that don’t make it after the season. Will all of those on unemployment not want to return to work at a job where they make less? Those are just some examples.”
Through the budget amendment process, the fiscal year 2021 budget could look much different after the summer when the economic damage of COVID-19 could more accurately be assessed.
“By Labor Day, we’ll know if real estate taxes are getting paid, we’ll going to know more about room tax and parking revenue and food tax,” said Dare. “What I think I know is many seniors and those at risk won’t travel this summer and for those who are unemployed or are having financial difficulties, vacations might not be in their plans. It could take years to recover if things don’t go as well as we hope. The budget in front of us is fine and we need to get it passed. Some things that aren’t critical can be put off until September when we have a better understanding of these things.”
Dare pointed out a handful of areas where savings could be realized and amenities could be reduced or eliminated because of social distancing and other restrictions that might still be in place. He used the Boardwalk tram as an example.
“The Boardwalk trams don’t allow for social distancing,” he said. When they do go down the Boardwalk, they push crowds of people together and that complicates social distancing too. It could be that we decide to put off the Boardwalk tram for this summer.”
Along the same lines, Dare said perhaps the municipal bus system could be tweaked in light of the current and anticipated situation.
“Maybe the bus system needs to be scaled back,” he said. “We know we’re going to have less seniors in June and there are still a lot of questions about the J-1s. We’re not sure what the late-night bar situation is going to be. There might be less late-night use because of the way the bar business rolls out. These are things we can look at.”
Dare even suggested looking at the sacred Fourth of July fireworks, although it’s important to note there has been no formal discussion on the midsummer milestone.
“We still need to think about what we want to do with the Fourth of July fireworks,” he said. “That’s the biggest crowd of the summer in Ocean City. Do we tell people to enter town at their own risk because social distancing can’t be maintained?”
Dare said if the Fourth of July fireworks do come up for debate, he suggested leaving the funding in the budget.
“If we do decide later to forego the Fourth of July fireworks, I think we should leave that money in the budget,” he said. “There might be an opportunity for some Fourth of October celebration in the fall or something of the sort if we’re somewhat back to normal.”
James clarified postponing the Fourth of July fireworks was not yet under consideration.
“I don’t believe we’re planning on cancelling the Fourth of July fireworks,” he said. “I don’t think we want that perception out there.”
Under the proposed fiscal year 2021, roughly $1.7 million has already been moved from the reserve fund balance, or rainy-day fund, to cover real and anticipated losses in revenue. It has been the town’s stated policy to maintain a reserve fund balance of 15% of the general fund budget although that figure has swelled to over 20% in recent years. Dare cautioned the reserve fund could be depleted if the summer season doesn’t play out as hoped.
“The bottom line is if the summer season goes well, this budget is fine,” he said. “If not, we could significantly reduce our rainy-day fund and deplete our fund balance. None of us want to see that. If the tourism numbers are off even by 30%, those losses could be much larger, maybe as much as $10 million to $15 million. That could leave us with a fund balance of around 5%. That’s all the more reason to delay, delay, delay this summer.”
James cautioned Dare’s assessment of the potential room tax situation could be greatly understated.
“I think a 30% reduction in room tax is very optimistic,” he said. “I think it’s going to be more like 50% to 70%.”
At the outset, Councilman Tony DeLuca outlined a handful of talking points he wanted to discuss prior to approving the budget on first reading including three proposed full-time positions, a hiring freeze on other positions, suspending raises other than certain guaranteed union raises and the amount of overtime for town employees among others. DeLuca drew a line in the sand on the overtime issue when the budget was first presented, but backed off that somewhat when it was determined much of the town’s roughly $2 million in overtime comes from public safety including police, firefighters and paramedics.
“I was talked off the ledge with overtime for paramedics and firefighters, but I still think we have an opportunity to reduce overtime,” he said. “We’ve done that already somewhat with what’s happened over the last two months. Overtime starts as an employer need, but over time, it becomes an employee need.”
Knapp explained 75% of the town’s overtime comes from the public safety sector because those departments operate 24 hours a day, seven days a week and if someone calls out, that position has to be filled. Another 14% comes from the water and wastewater divisions because they too operate in a 24-hour cycle. The remainder is fairly small, but a lot of that comes from special events, many of which have been postponed or cancelled.
Councilman Mark Paddack agreed the town’s overtime was top-heavy in the public safety sectors, but said there has been substantial savings in those departments already because of the ongoing pandemic situation.
“We know 75% of our overtime is focused on public safety,” he said. “We’ve wiped out two months of overtime because there are no special events in May and June. It’s already being minimized. I have faith in our department heads to use if they need it or don’t use it if they don’t have to. Let the managers manage the city. Let the managers manage their people.”
In terms of employment and wages, Gehrig said under the current situation there were fewer part-time positions being filled and in some cases, current employees were being moved from one department to another based on need.
“We’ve done a great job of keeping our team together and repurposing our people,” he said. “Let’s watch how we hire and let’s watch how we repurpose people. We’ve done a good job of keeping people working thus far.”
Another issue was funding for certain projects in the capital improvement plan. Some are recurring such as street paving and canal dredging, for example, but others can and will be put off to future years. For example, already the design phase for the downtown recreation complex and the Inlet lot repaving have been pushed to out years. DeLuca suggested moving as many projects back as possible.
“Where we can, let’s move capital projects out of this budget,” he said. “Move all capital projects we don’t need out to fiscal year 2022 and beyond.”
Knapp explained that had already been done for the most part.
“We’ve taken out the design funding for the downtown recreation complex and the Inlet lot,” she said. “The only capital projects still in here are street paving, canal dredging, storm drain cleaning and the City Watch system upgrades. That’s all that’s left.”
Council Secretary Mary Knight cautioned against moving the most critical capital projects such as street paving and canal dredging out of the budget.
“I feel very strongly about some of the capital projects left in the budget,” she said. “We need to pave the streets and we need to dredge the canals and I really feel we need the upgrades to City Watch. We need to maintain our infrastructure if we want to maintain a first-class resort.”
Each year, Ocean City commits $100,000 in the budget for Atlantic General Hospital and that has not changed. Fiscal year 2021 is year four of a five-year commitment, but Gehrig said in light of the current health crisis, that number could be increased this year.
“The AGH commitment is part of our healthcare system,” he said. “I’d like to see our commitment earmarked for the emergency room. I’d like to add another $100,000 for AGH for additional testing and PPE. Whatever we need to commit in case there is a strain.”
The $100,000 original commitment to AGH was included in the budget approved on first reading on Monday, with the additional funding proposed by Gehrig still under consideration.