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(April 26, 2013) Hearkening back to last year’s budget controversies, the Town of Ocean City will likely be looking to compensate in the coming weeks for another $300,000 in budget deficit in order to meet what has become the City Council’s apparent goal of raising the tax rate by only 1 cent, while maintaining its operating reserve at 15 percent of the year’s general expenses.

According to city Budget Manager Jennie Knapp, the city will still need to cut a further $300,000 in expenses – or gain $300,000 in revenues – in order to avoid raising its tax rate more than 1 cent beyond the constant yield rate.

The city’s preliminary bud-get, as prepared by Knapp and City Manager David Recor, featured a tax rate of 48.64 cents per $100 of assessed property value – a 2.79 cent increase over last year’s rate and a 2.44 cent increase over the tax rate that would be necessary this year to generate the same income as last year, known as the constant yield level.

However, the council engaged in a hot debate this time last year over whether to reduce the 2012-2013 budget year’s tax rate by a cent and instead take the money out of the city’s standing cash reserve.

The move was eventually approved by the council’s then-majority faction, but its opponents objected that the roughly $850,000 depletion of the city’s standing reserve was not worth the average of $20 that the reduction would save taxpayers.

“So the $20 that we gave back last year, we’re basically saying, ‘You had it for a year, now we need it back,’” said Council Secretary Mary Knight, who voted against the reduction last year.

Even if the extra cent was left in for the 2013-14 budget year, the city is still $300,000 short of breaking even while also eliminating the deficit. This gap caused Recor to add the extra 2.44 cents to the rate to balance the budget and not remove further funds from the reserve.

“When you look at the changes [the council] made during the initial budget reviews, which totaled around $700,000, and add in the additional parking revenues you approved … you’re pretty close to shaving off the 1.44 cents,” Recor said.

Further to that point, Recor said last week that there “seemed to be a consensus that the council was more comfortable with a 15 percent fund balance level,” meaning that the city’s operating account would be projected to maintain about 15 percent of the town’s total operating budget of around $78 million per year.

This ratio is significant, since the city relies on a standing account balance to bridge the time gap between when expenses are incurred and when revenues are generated. Depending on the municipality and its tax base, towns and cities around the country generally maintain balances of at least 10 percent.

However, as was stressed by council’s minority last year, a large cost-incurring event – such as a hurricane — could make the city temporarily broke if it did not have enough of a standing balance.

The current balance, according to Knapp, is $247,066 over the 15 percent mark. But this does not include the upcoming $871,000 bill for unplanned capital improvements, consisting of roof replacements at the city’s transportation service center as well as at the District Court building at 65th Street, which the city owns but leases to the state.

Mayor Rick Meehan suggested – and the council approved – that the city borrow money by issuing a bond for the roof work, essentially eliminating it from the general expense budget. The $247,066 in excess of 15 percent would be skimmed off the fund balance and put toward roadwork, which is chronically underfunded.

At present, $1.17 million is dedicated to road work in the upcoming fiscal year, far short of the $2 million that Public Works Director Hal Adkins has estimated the city will need to do each year in order to “catch up” with the $38 million roadwork deficit it identified in 2007.

The additional money will “buy more time for additional discussion on the stormwater utility issue,” Adkins told the council, referring to the creation of a stormwater impact fee that could be used to pay for storm drain repairs beneath the road, which constitute a large chunk of the city’s backlog in capital work.

City Engineer Terry McGean said there are 50 backlogged drainage projects, totaling 6 miles of storm drains. Most of this consists of corrugated metal pipe, put in place by the properties’ original developers and now beginning to collapse. The city has been retrofitting most areas with newer, plastic-based pipe that flows water better and doesn’t corrode.

“Those streets do need stormwater work done to them, but that is not in the budget right now,” McGean said. “We could be paving a street this year, and then five years later we’re digging them back up to put drains in [that could’ve been done earlier].”

Under the proposed structure given to the council by McGean, the utility fee would be added to properties’ water bills to compensate for the volume of rain runoff, and subsequent burden on the city’s drainage system, that they produce. Single-family homes would be charged a flat $40, while condos and commercial buildings would be charged $40 per equivalent residential unit, specified at 2,250 square feet of space, with a maximum fee of 50 unit-equivalents.

However, the council had concerns over how equitable the fee would be perceived to be by property owners and residents.

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