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Ocean City

City looks at debt levels ahead of capital improvement plan

(July 19, 2013) The city painted a rosy, but potentially cautious, picture of its bonds and debt this week ahead of discussions on the town’s Capital Improvement Plan.

“This is a prelude to the capital improvement discussion that we’ll be having shortly,” City Manager David Recor told City Council this week. “This gives you an idea of the amount of money, according to your debt policy, that you can afford to put into it.”

According to city Finance Administrator Martha Bennett, the city has borrowed $223 million in total since 1982, when a number of massive municipal projects began to be undertaken. Since then $135 million of that debt has been paid off.

“All that infrastructure that was put in place was integral to the increase in property values,” Bennett said, calling the city’s debt history “a tremendous accomplishment.”

“It’s an investment on the part of the town, but also an investment on the part of the property owners,” she said.

However, despite city officials’ insistence that the city only issues bonds of indebtedness for capital improvement work, the town frequently issues capital improvement bonds as a means to cover its general expenses.

For instance, $800,000 worth of roof repairs was originally scheduled to be paid outright, and not bonded, for the current 2013-2014 fiscal year. However, due to increased operating costs — specifically a $1 million hike in employee pay — the city will now be issuing a bond for the work.

By its own policy the town maintains a schedule to have 65 percent of its current debt in any given year paid off in the next 10. It also limits these payments to no more than 8 percent of its annual expenses. For the current fiscal year, that level is at 6.9 percent.

Under the current schedule, the city will retire almost all of its interest on currently outstanding bonds by 2033 – a pace Bennett said was “very aggressive” – but this is assuming the town issues no more debt, which is not the case.

Roughly $16 million in bonds will be issued this fiscal year, Bennett said, although half of that will be for the convention center expansion project, which is paid for out of a food tax cutout that is not part of the general fund.

“Note that that’s only what’s on the list so far. It doesn’t include anything that the eight of you may bring up,” Recor told the mayor and council.

In the past ten years, the city’s outstanding debt in any given year has grown from $75 million in 2003 to $87 million at the close of the fiscal year last month, according to Bennett’s estimate. In 1978, for comparison, debt was just over $1.6 million.

Also, in 2003, the city’s amortization payments for its pension plans totaled roughly $1.9 million. That number was up to over 5.8 million at the close of the 2012 fiscal year.

“My only concern is that basically we have the same income but we’re adding more debt,” Councilman Brent Ashley said.

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