Town, Bank Renew $2.5M Line Of Credit

OCEAN CITY – Resort officials this week renewed a revolving $2.5 million line of credit with a local bank as a rainy-day plan of sorts.

In June 2019, the council voted unanimously to approve the offered $2.5 million revolving line of credit from the Bank of Ocean City. The line of credit was extended by the Bank of Ocean City for a three-year term with a fixed interest rate of 2.25%.

At the time, the Mayor and Council did not have an intended purpose for securing the $2.5 million line of credit but asserted it could be in place if needed for certain capital projects, budget overruns or property acquisitions if an opportunity presented itself. Finance Director Chuck Bireley explained on Monday the original three years agreed upon in 2019 has expired and the Bank of Ocean City was offering to renew it.

“The town established a line of credit with the Bank of Ocean City in 2019,” he said. “It has now expired, but the bank has offered to renew it for a three-year term. We didn’t ever have to draw on this during the prior three-year period.”

With little discussion, the council voted 4-0 with Councilmen John Gehrig and Lloyd Martin absent and Councilman Peter Buas abstaining to renew the line of credit agreement with the Bank of Ocean City. While the interest rate was set at 2.25% in the original agreement, the renewal approved this week comes with a 3.9% interest rate. The agreement includes a $50 annual fee.

Bireley explained the agreement includes interest-only monthly payments with the principal due if and when the $2.5 million is ever needed. He said going with the line of credit was advantageous to the town as opposed to a traditional bank loan because of lower financing costs.

Again, the town never had to borrow against the $2.5 million line of credit during the first three-year agreement with the Bank of Ocean City. The town generally pays for projects and other expenditures in different ways, including pay-as-you-go projects through the general fund, or by going to the bond market for major expenditures and projects.

It’s also important to note the town maintains a fund balance, or a source from which to draw money, for unanticipated expenditures. Earlier this year, the council voted to raise the fund balance to 17% of the general fund budget. Mayor Rick Meehan asked City Manager Terry McGean to explain the importance of having the Bank of Ocean City line of credit at the town’s disposal.

“It’s like an insurance policy,” McGean said. “For the $50 fee, we have access to this cash in case we have a bad storm or an emergency.  If we had an emergency and we needed to make a payment or had to meet payroll or something else came up, we have this cash at our disposal. It’s not something we routinely would use. For lack of a better term, it’s an insurance policy.”

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.