CITY EXPECTS TO FACE $1.5M DEFICIT

CITY EXPECTS TO FACE $1.5M DEFICIT

(March 1, 2013) With next year’s fiscal reserves looking to be un-replenished, the town of Ocean City may be taking measures to generate additional revenue through new and higher fees in order to close its projected budget gap for the 2014 fiscal year, which begins this July.

Among those possibilities are establishing a stormwater utility fund, higher rates on parking meters and charging for trash collection.

In a preliminary overview of revenues for the upcoming financial cycle, City Manager David Recor and Budget Manager Jennie Knapp informed the council this week that the city is looking at a fiscal hole in its FY14 operations of roughly $1.5 million.

“It does leave us with a projected budget gap, and as we move toward calendar dates for workshops and reviews … I wanted you to know up front that there is a projected gap,” Recor said.

“There are also a number of challenges we face as an organization and we can assign a dollar value to them,” Recor continued. “Our goal is to ask the council today for some parameters.”

The city’s major source of income – property taxes – will remain level if the city adopts “constant yield” tax rate of 46.2 cents per hundred dollars of property value, a marginal increase over last year’s 45.85 cents. This is to make up for a 1.4 percent decrease in property values over FY13, following the reassessment last year of the resort’s south-end commercial properties.

Although estimated at $7.13 million in value, the re-assessed properties are only a tiny part of the city’s total property value, most of which is in residential holdings. The 2011 residential re-assessment saw the Town of Ocean City lose $1.6 billion – about 15 percent – of its total assessed value, and subsequently raise its FY13 tax rate from 39.5 cents in order to bring in the same amount of revenue it had before.

The true constant yield rate for FY13 was actually 46.85, but the council voted last year to lower the rate and take the roughly $850,000 difference from the city’ unrestricted operating reserve to cover the gap. This subsequently lowered the level for this year as well.

“If the rate had been kept at the constant yield [last year], the rate for FY14 would be 47.2,” Knapp said.

Recor’s revenue projections do not anticipate dipping money out of reserves, however.

“There’s an assumption that we will not use monies from the unrestricted balance,” Recor said. “The projection assumes no transfer.”

The tax decrease compensation, combined with a number of other capital projects such as the Ocean City Center for the Arts and the inlet parking lot control overhaul, meant that a total of $3.8 million is scheduled to be taken from reserves this year.

But because of $600,000 in estimated increases in other sources of income – license fees and fines, room tax, or grants from higher agencies – the total projected revenue reduction for FY14 is $3.2 million.

Many of these revenues, however, are already earmarked for certain purposes or funds, such as the street paving fund, which for FY14 is projected to receive $1.25 million according to its allocation formula, although it is routinely underfunded.

Many other costs have gone up as well, but are more than offset if one assumes that the city will not be making any unplanned capital outlay from its reserve fund this year, further reducing the gap to $1.5 million.

This tight margin, Recor said, is combined with personnel concerns. Recor noted that city staff requested 21 new positions for hiring, mostly in the Ocean City Fire Department, although few are likely to be granted in Recor’s final budget proposal

However, fixed personnel costs resulting from the impending contracts with the city’s police and fire/EMS unions cannot be re-negotiated, nor can the federal health care mandate, where Recor estimated that 47 previously uninsured employees may meet the threshold for affordable insurance under the “Obamacare” system.

In order to de-qualify some employees – those whose income may not be high enough relative to the city’s health plan costs to meet the affordability requirement – Recor said he and the city’s department heads were looking into “management initiatives” to change hours.

“[Employees] may not get the hours they’re accustomed to, because we may have to use more part-time employees to spread the hours out,” Recor said. “Obviously, that is going to have an effect on part-time employees who have grown accustomed to a certain wage, but we have to balance that with the cost to the city to provide the health benefit.”

Recor said he and Mayor Rick Meehan had looked at a number of solutions to generate more revenue, including a re-assessment of parking fees, particularly on downtown street spaces. The city could also establish a stormwater utility system, as was recently done in Berlin, charging developers by the liner foot of roadside space onto which their property drains.

Recor also suggested that the Solid Waste Division of the Public Works Department be transformed into a self-sufficient enterprise fund, which would fund its own operations with its own separate revenues. This would likely involve charging for trash pickup, which has always been free, and waste services.

“Again, not popular options or alternatives, but policy discussion that we do need to have,” Recor told council. “When you look at the solid waste operation, I can tell you that many governments operate their solid waste as an enterprise fund.”

Roughly 7 cents of that 45.85 cents per hundred dollars of property value go to the solid waste operation, Recor said. Almost the entirety of the rest of the property tax revenue is devoted to public safety. The total cost for police, fire, EMS, emergency dispatch, and solid waste services is roughly $38.5 million in the FY13 budget, with public safety accounting for $33 million of that.

“That leaves us $655,000 to fund the rest of the house,” Recor said. “As I look at the challenges, I’m looking at the whole house. It’s no coincidence that I picked those two areas [solid waste and public safety] of our operations, because what did we hear in our strategic planning sessions? ‘Safe and clean, safe and clean.’ We need to think about different ways to skin that cat.”

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