OCEAN CITY – Ocean City officials voted this week to transfer $6.9 million from its unassigned fund balance.
On Tuesday, the Ocean City Council voted unanimously to transfer $6,943,000 from its unassigned fund balance to three reserve funds, a risk retention fund and a vehicle trust fund. City Manager Terry McGean said the transfers would put Ocean City in a better financial position in the coming years.
“We believe these recommendations are the prudent course of action,” he said. “Ocean City is a tourism-based economy and, just as our business community has learned, we should prepare when times are good for the occasion when times are bad.”
In November, finance staff presented the Mayor and Council with a comprehensive financial report on the fiscal year 2023 budget, which ended June 30. At that time, officials learned the unassigned fund balance grew from $25.6 million in 2022 to $31.7 million in 2023.
“The increase was due to a combination of higher-than-expected revenues – mainly room tax and interest on investments – and lower-than-expected expenditures, primarily in public safety, supplies and equipment,” McGean told the council Tuesday.
To that end, the city manager, Finance Director Chuck Bireley and Budget Manager Jennie Knapp met to discuss ways the town could reallocate some of its unassigned fund balance. In a presentation Tuesday, McGean said of the $31.7 million fund balance, $1.04 million was allocated to a fire apparatus fund, $1.5 million was allocated to a capital reserve fund, $794,000 was allocated to the Ocean City Development Corporation Parking Fund, and $18.3 million was kept in a rainy day fund, as required by the town’s 17% reserve fund policy.
“The remaining unassigned fund balance, unassigned and unreserved, is $9.9 million,” he said.
McGean told council members Tuesday the town has created three reserve funds – a capital reserve fund, which creates a funding source for large-scale infrastructure maintenance projects, a pension reserve fund, and a salary reserve fund, which covers anticipated cost-of-living adjustments. In fiscal year 2023, and in the current year, the town has had to use all three funds to absorb pension shortfalls, increased material costs and wage increases.
“The purpose of these three funds is to provide budget stability during this era of uncertainty,” he said.
To that end, McGean said staff recommended using some of the town’s unassigned fund balance to replenish those reserves and plan for future cost increases. He recommended increasing the pension reserve fund by $2.5 million, increasing the salary reserve fund by $400,000 and increasing the capital reserve fund by $3 million.
“Total high priority capital projects estimated to come from that fund are about $2,242,000,” he said. “General fund street paving costs are forecasted to increase from $1.2 million to $1.8 million annually by FY28. Therefore, we are recommending that $3 million of the fund balance be transferred to the capital reserve fund.”
McGean also recommended transferring $350,000 to the risk management fund and $684,000 to the vehicle trust fund, which will allow the town to cover increasing radio maintenance fees.
“Essentially, we either pay now or we pay later,” he said.
McGean told the council those allocations would leave $21.4 million in unassigned fund balance, or roughly 20% of operating expenditures. When asked if there was a desire to increase the reserve policy from 17% to 20%, McGean said there wasn’t.
“We increased it from 15% to 17%,” he said. “I think we’re pretty comfortable with where that is.”
After further discussion, the council voted 7-0 to transfer unassigned funds of $2.5 million to the pension reserve fund, $400,000 to the salary reserve fund, $3 million to the capital reserve fund, $350,000 to the risk retention fund and $684,000 to the vehicle trust fund.
