OCEAN CITY — It was good news, bad news this week as the Town of Ocean City closed out fiscal year 2020 with an increase in the general fund balance, but budget shortfalls are already looming through the first quarter of fiscal year 2021.
Much of the latter half of fiscal year 2020 was affected by the ongoing pandemic in so many way and shortfalls in the budget were anticipated. Most of the spring and a good bit of the early summer were lost because of COVID-19 restrictions and many of the town’s key revenue sources were expected to take a beating.
However, Finance Director Chuck Bireley and Budget Director Jennie Knapp on Tuesday presented a somewhat rosier picture on the close of fiscal year 2020, which ended on June 30. The fiscal year closed with $88 million in revenue and $86 million in expenses, for a net gain of $2 million.
“It was a good year,” said Bireley. “It was better than anticipated, which is really good news. The general fund balance increased by over $2 million.”
Knapp agreed increasing fund balance in the midst of a pandemic was something to celebrate.
“The fund balance increased by $2 million,” she said. “That’s not something we anticipated.”
The increase leaves the general fund balance, a rainy-day fund of sorts, at around $23 million, which is about $10 million over the mandated goal of 15%. Knapp said the fund balance should be in the range of $21 million to $25 million to maintain the town’s solid AA bond rating, which allows it to issue general obligation bonds at attractively low interest rates.
“As a tourism-based economy, we get a lot of questions from the bond rating agencies,” she said. “They expected us to use some fund balance because of COVID-19 shortcomings, but we actually expanded our fund balance.”
While there was good news on the final numbers for fiscal year 2020, the impact of economic struggles in fiscal year 2021 is unknown thus far. The August room tax revenue figures have not yet been compiled and the books are not yet closed on the summer season in a variety of other seasonal revenue sources.
Knapp reported as of this week, reductions have been made in the general fund, the transportation fund and the convention center, while all other funds are performing adequately. Budget shortages in the general fund are currently projected at around $258,000.
The transportation fund is coming up about $958,000 short, largely because the Boardwalk tram did not run this summer. There is also a shortage in the convention center budget of around $127,000.
Among the key revenue sources in fiscal year 2021 showing a decline are the paid parking fees for July and August, which are coming in around $1 million under what was budgeted. Room tax in July was down about $430,000, and the projected revenue loss for cancelling Sunfest is around $445,000. The total for underperforming revenue sources thus far in FY21 is a little over $2 million.
However, some of those losses are being offset by gains in other revenue sources. For example, the town is getting around $255,000 from the county CARES Act grant, along with another $300,000 grant from Worcester County for providing ambulance service in unincorporated West Ocean City. Parking fines came in about $200,000 over what was budgeted and the town gained another $50,000 from beach bonfire permits, for a total of around $805,000.
Thus far in FY21, the town is realizing a significant reduction on the expense side of around $970,000. So, some key revenue sources are down about $2 million, but others are up about $805,000 and expenses have been reduced by $970,000. That leaves around $258,000 that must be made up in one of several ways.
Knapp laid out the options for the Mayor and Council on Tuesday. One option is to reduce the amount of fund balance allocated to street paving this year by about $158,000. Another option is to put the brakes on the ongoing storm drain cleaning project, which would net another $100,000 in savings. The third, and preferred option, is to simply transfer the $258,000 shortfall from the general fund balance, which increased by $2 million in fiscal year 2020.
Councilman Dennis Dare said he preferred to leave the fund balance alone and make up the shortfall by cutting back on the storm drain cleaning allocation.
“I don’t see a critical need for storm drain cleaning,” he said. “It’s a three-year project and I trust the most critical areas have already been taken care of. I’d like to take a more conservative approach. It’s more important to have an adequate fund balance. I can’t convey just how important that is to the bond rating agencies.”
However, Councilman John Gehrig supported making up the $258,000 shortfall from fund balance and made a motion to do so. Gehrig said he wasn’t keen on putting off the storm drain cleaning project.
“We made a commitment to keep that going,” he said. “Storm drain cleaning is one of the things we need to do. I think we all agree we don’t want to cut the funding for street paving either.”
Councilman Mark Paddack agreed the storm drain cleaning budget should not be reduced to help make up the budget shortfall.
“The storm drains haven’t been cleaned in 30 years,” he said. “We budgeted for three years and this is the last year of a three-year plan to get our highway free of flooding. It’s the last year and we should finish that project. We can’t keep bouncing around.”
However, Councilman Matt James said the fund balance should be protected and preserved because there would be additional shortfalls in the budget before the end of the fiscal year, especially with the pandemic still lurking.
“We all know the August room tax is going to be atrocious,” he said. “We’re going to have to pull those funds for other things.”
Gehrig ultimately withdrew his motion to make up the current $258,000 shortfall from the general fund balance.
“We have to be tight now,” he said. “If we can save $75,000 here and $100,000 there, we have to do that.”
Dare then made a motion to ensure the $158,000 earmarked for street paving is left untouched. That motion was passed unanimously. In the end, it was left open how to make up the anticipated $258,000 shortfall in FY21 thus far.