OC Budget Introduced, Reserve Policy Increase Proposed

OCEAN CITY– Ocean City’s draft fiscal year 2023 budget was introduced this week, including a modest property tax decrease for some and a recommendation to increase the minimum reserve policy for the general fund balance.

City Manager Terry McGean and Budget Manager Jennie Knapp outlined the proposed fiscal year 2023 spending plan for the Mayor and Council on Wednesday. The total proposed balanced budget for all funds is around $156 million, while the total general fund budget is about $101 million.

The proposed budget sets the property tax rate at the constant yield rate of .4526. The constant yield is the tax rate needed to produce the same revenue as the prior year in order to provide the same level of municipal services and programs as the prior year.

Last year’s budget was set at the constant yield rate of .4561, meaning this year’s constant yield tax rate would represent a modest property tax decrease for many. Residential properties in Ocean City were reassessed in the last cycle and the property values went up in general.

Those whose Ocean City properties are their primary residences are insulated from rising property taxes due to increased assessments by the Homestead Tax Cap, which is set at 0% in Ocean City.

Non-resident property owners are not protected by the cap. McGean introduced the draft fiscal year 2023 budget on Wednesday. The Mayor and Council will meet almost daily over the next week to meet with the various departments before putting the wraps on the proposed spending plan.

“I am pleased to present the fiscal year 2023 budget,” he said. “This budget maintains the constant yield tax rate, requests no increases in other tax rates or parking rates and does not draw money from fund balance except for capital projects.”

McGean said the proposed budget is based on certain assumptions about major revenue sources such as room tax and parking revenue.

“In order to offset these increases, the budget assumes room tax and parking revenue equal to or increased from fiscal year 2022,” he said. “It also recognizes continued federal COVID relief funds.”

McGean said if room tax and parking revenue live up to expectations, there could be an opportunity to expand the general fund balance, or rainy-day fund of sorts, or forward fund some planned capital projects that would otherwise be bonded.

“After the summer season, if room tax and parking revenues are meeting or exceeding budget expectations, I will recommend a portion of the additional excess fund balance be used to fund additional capital projects including the OCDC housing project, major Inlet lot repaving and some of the Baltimore Avenue project rather than going to the bond market for the full amount.”

McGean said the healthy budget is the result of the town’s conservative fiscal policies and praised Knapp and his predecessor.

“The ability to fund these needed positions and projects comes from the combination of hard work, sound fiscal policy and aggressive marketing by current and previous mayors, councils, city managers and staff,” he said. “I respectfully would like to thank Budget Manager Jennie Knapp and former City Manager Doug Miller for doing most of the heavy lifting.”

Again, the ability to hold the tax rate at the constant yield is in part the result of rising property tax assessments in the resort. Councilman John Gehrig said when property values decline, the Mayor and Council do not raise the tax rate above the constant yield in order to balance the budget.

“So, it’s great when times are good and property values go up,” he said. “In a situation when the property values decline, what happens is taxes go up, but we’ve never done that. When the economy is good and there is a rising tide, property taxes drop.”

Councilman Tony DeLuca said what matters most to him is the bottom line.

“It’s all about the dollars to me,” he said. “I don’t care about the rates or the percentages.”

McGean said Gehrig’s assessment was fairly accurate.

“If you want to stay with the constant yield rate, technically that’s how it happens,” he said. “Typically, when things have gone down, you guys have not increased the tax rates. Having that healthy fund balance has allowed us to do that.”

Indeed, the town’s general fund balance, set at a percentage of the total general fund budget, appears healthy. The stated policy for fund balance has for years been 15%. The proposed budget recommends increasing that threshold to 20%.

However, that is largely symbolic as the current fund balance is more like 30%. The current fund balance is about $16 million over the 15% threshold. If it is moved to the recommended 20%, fund balance would be $11 million over the minimum threshold. McGean recommended leaving fund balance untouched in the proposed budget.

“Looking at how we’re budgeting this year, we’re assuming room tax and parking will be the same as they were last year,” he said. “It was a very good year. The state calls its fund balance a rainy-day fund. For us, that is literal. If we have a hurricane at the wrong time or if we have a rainy summer, we might need to rely on fund balance. My recommendation is we don’t dip any further into fund balance until we get through the summer this year.”

Gehrig said the discussion on fund balance can be 15% or 20%, but the bottom line is the amount of fund balance already exceeds either of those minimum thresholds.

“Even if it is 15% on paper, we’re really more like 31%,” he said. “We’ve done a really good job blowing right by 20%.”

DeLuca said regardless of where the threshold is set, fund balance can be moved back and forth to the general fund if an unanticipated expense arises.

“It’s not really tying it up,” he said. “As easy as we can put it in, we can take it back out.”

Fund balance has always been couched as an emergency fund of sorts when hurricanes or major storms cause the need for unanticipated expenditures. Councilman Peter Buas asked just what that means historically in terms of using fund balance in emergency situations.

“I’d like to see a cost analysis of some of the major hurricanes,” he said. “The Boardwalk got torn up during Gloria and there is street cleaning and other expenses. I know they are all different, but I’d like to see what some of the peak costs were.”

About The Author: Shawn Soper

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Shawn Soper has been with The Dispatch since 2000. He began as a staff writer covering various local government beats and general stories. His current positions include managing editor and sports editor. Growing up in Baltimore before moving to Ocean City full time three decades ago, Soper graduated from Loch Raven High School in 1981 and from Towson University in 1985 with degrees in mass communications with a journalism concentration and history.