A positive budget variance and increased fund balance highlighted an annual financial report for the Town of Ocean City.
In a work session Tuesday, finance staff presented the resort’s fiscal year 2023 annual comprehensive financial report. When questioned about the growing unassigned fund balance, which is now at more than 32%, staff said City Manager Terry McGean, Finance Director Chuck Bireley and Budget Manager Jennie Knapp would be meeting soon to discuss it.
“The unassigned fund balance did increase this year. There will be further discussions on how to spend that,” Assistant Finance Director Shawn Bunting said.
In presenting the annual report, which is available on the town’s website, Bunting said the general fund ended the fiscal year with a positive variance. Revenues were about $2 million more than projected, coming in at $109 million.
“That was primarily due to room taxes and admissions and amusement tax increases over what was projected, as well as interest earnings,” Bunting said.
He added that expenditures in various departments, notably public safety and tourism, were under budget. Public safety expenditures were about $1.6 million under budget while tourism was $4 million under budget. He said that because room tax revenues were higher than expected, expenditures didn’t keep pace with them.
“The one point I want to make, if you take out room taxes, A and A taxes, interest earnings and the public safety and advertising expenditures, the actual results were within 1.5% of the budget. So it was actually a pretty accurate budget,” Bunting said.
According to the report, the unassigned fund balance grew from $25.6 million in 2022 to $31.6 million in 2023. That represents 32.5% of expenditures.
“The one thing I do want to say about unassigned fund balance, we’re going to go to the bond market at the end of this year,” Bunting said. “The rating agencies consistently look at these reserve levels.”
He said the town currently had an AA rating.
“I think if our rating was downgraded to single A that could be about a quarter percent on our interest that we get on our bonds,” he said.
In addition to the increase in room tax revenues, Bunting said the town saw increases in grants as well as building permit revenue. He said there were 200 more building permits issued in FY23, which provided the town with about 50% more revenue than during the previous year.
Bunting noted that the town’s enterprise funds also ended the year in good shape, particularly wastewater. The fund’s total net position increased $3.91 million during FY23.
Overall, the town’s net position during fiscal year 2023 increased nearly $25 million. Assets of $446,148,567 and liabilities of $202,826,746 resulted in a net position of $243,321,821. Bunting pointed out that OPEB (other post-employment benefits) moved from being a liability to an asset in FY22.
“OPEB, which as all of you know funds retiree health benefits,” he said. “It’s typically a liability for a lot of municipalities. In fy 22 OPEB actually became an asset for the town. The assets for the plan exceed the projected liabilities. In fy23 that asset increased by a little over one and a quarter million. It’s now almost 124% funded which is a good position to be in.”
Officials praised finance staff for their efforts during the past year.
“Positive variances are a very good thing,” Councilman Tony DeLuca said.
Councilman Peter Buas highlighted the increase in unassigned fund balance and asked when the council would receive a recommendation related to the increase.
“Jennie, myself and Chuck are going to get together, we will bring a recommendation to you,” McGean said. “Obviously one of the first things we want to do is reestablish that set aside for the pension and then we’ll talk about what else we want to do with that increase in fund balance.”
Tuesday’s work session also included a report from SB and Company, the independent auditor charged with providing an opinion of the annual financial report.
“We’ve issued a clean or unmodified opinion on the financial statements,” SB and Company’s Chris Lehman said. “That would be the best opinion we could give under professional standards.”
When asked if he had any recommendations for the town, Lehman said there were no material weaknesses or deficiencies noted but encouraged the town to consider IT related risks.
“I think one thing that’s probably good to keep in mind just with the environment we operate in is just from a technology perspective and the risk of someone penetrating your system is just a risk that I think any organization has and just coming up with a policy if someone was going to hold your system for ransom what would you do in that situation.”
He said the town just needed to consider its vulnerabilities in that regard.
“Not that there’s anything that puts you at higher risk than your peers but IT is always an area where there’s susceptibility to risk,” he said. “There are always perpetrators and bad guys spending a lot of time trying to get into your system.”
