(Aug. 30, 2013) With time running out, and an offer on the table that it effectively couldn’t refuse, the City Council decided unanimously on Tuesday to build a new headquarters for the Ocean City Beach Patrol at the originally proposed Talbot Street site.
The move comes less than two weeks after the city all but cancelled the project by putting on hold indefinitely its solicitation of architectural work for the facility.
But this week, it appeared that negotiations with the Ocean City Development Corporation had reached a conclusion more favorable to the city. Those negotiations concerned the land swap necessary for the project, in which OCDC will give the city its Talbot Street property for a new OCBP building, and receive the old OCBP property on Dorchester street for its model block project
“There was some trepidation about moving forward with additional spending or borrowing, so we did not move forward with the design,” said City Manager David Recor. “But we’ve had the opportunity to sit down with OCDC again.”
OCDC, the city-backed nonprofit that sponsors downtown revitalization initiatives, sweetened the deal by offering to pay 35 percent of the construction costs for the new OCBP building.
“What we’re proposing is similar to the Art League project,” said OCDC President Bob Givarz, referring to the Art League of Ocean City’s contribution to the recently completed Ocean City Center for the Arts, which is owned by the town but run by the ALOC.
“I think it’s the same concept of making sure that a facility we need can be built,” Givarz said. “Were going to do anything and everything we can to make that happen. The Beach Patrol is that important to downtown.”
With OCDC’s subsidy of the beach patrol project, and the council’s decision to delay some other capital improvement projects, the city will be shaving over $4 million from its projected bond issuance this year, bringing projected new debt down to around $12 million.
Given that a large portion of outstanding debt – a 15-year bond issued in 1998 – will be retired this year, the city should see a reduction in its debt service payments for next year.
The anticipated new borrowing will add an extra $223,110 in annual costs to pay it off, according to City Engineer Terry McGean. But the city’s debt service was already scheduled to drop slightly more than that due to the retirement of old bonds.
“If they did every one of those projects [on the original plan], you would be at a zero-sum,” Recor said. “Anything less is an improvement in terms of how much we’re spending to pay off debt.”
The city currently spends 6.9 percent of its general fund revenues – those revenues that are not associated with a closed loop of funding – towards paying off general fund-obligated debt. Its self-imposed cap is eight percent.
Earlier this year, city officials were eager to start the construction of a new OCBP headquarters as soon as possible, given that the current facility is wracked with mold and is in such a state of general disrepair that it has begun to compromise the operations of an organization that is, to most visitors, the face of Ocean City.
However, there was increasing concern among officials and the public over the size of the city’s upcoming bond sale, which will occur at the end of 2013 to fund the next two fiscal years’ worth of capital improvement projects. As McGean noted this week, the city is already committed to two large initiatives that it is unable to alter.
Roughly $850,000 has already been funded to replace roofs at the city’s automotive service center as well as at the Public Safety Building on 65th Street. Part of the leaking roof covers the district court building, which is leased by the county and must be maintained by contract.
Another $8.3 million has already been committed by the city to fund the performing arts facility expansion at the Ocean City Convention Center. This cost, however is not a burden on the general fund. That project will be paid for with money borrowed against the projected future income of the city’s food tax, which is authorized by the state to finance the convention center.
This is, theoretically, a self-supporting enterprise, although the city general fund has historically had to subsidize the convention center roughly $1.5 million per year.
The issue with the convention center, McGean said, is not how the debt will be paid off long-term, but rather how much the city can manage to pay out-of-pocket before it is able to borrow money.
The city has already spent $626,181 in design and materials costs for the performing arts project. With construction slated to begin in October, the city will likely have paid out over $1 million from its cash reserves before it can reimburse itself with proceeds from the bond sale, which, because of lower interest rates, is typically done at the end of a calendar year.
“The key here, in addition to the competitive interest rates, is also how much the finance director feels comfortable paying out of our fund balance for the convention center,” McGean said. “Those things are pushing us to have this bond sale at the end of the year, but not beyond that.”
“That was one of the reasons I had come to you back in April to design the Beach Patrol building, so that we would have a design ready to go at that time,” McGean said.
Even with the delay of the past few weeks, McGean said he was confident that an architect could be brought on board as soon as the council approves the estimated $165,000 cost for the final design work of the OCBP headquarters.
Although it had declined to do so last week, the council voted unanimously this week to approve the expenditure with the expectation that the money would be reimbursed with bond proceeds later. By the time the city is ready to issue bonds, enough of the design work would likely be done that the city would have a better idea of the construction costs.
Those costs are currently projected at $2 million, but the council expressed interest in reducing this cost during the design process.
“I think we need to look at this as a ‘needs versus wants’ type scenario,” said Councilman Joe Mitrecic. “I would expect this scaled back from $2 million to something far less.”
Further, the council decided this week to forgo two more projects that were on the original capital improvement schedule for the next two years. The expansion of the skate park and construction of a downtown recreation complex – with a combined price tag of over $3 million – was axed out of fiscal concern as well as the fact that the project sits on county-owned land that is rented by the city.
A satisfactory long-term lease has yet to be reached, and city leaders are skeptical that the county will try to leverage its obligations to the city into doing so.
“My suspicion with the downtown complex is that the county will try to tie tax differential into any kind of lease,” said Council Secretary Mary Knight. “The downtown recreation complex, because of that, would not be a doable project … even though I would love to see a downtown recreation expansion.”
“Until we can get that lease, I think we need to put this on the back burner,” agreed Council President Lloyd Martin.
The council also decided against borrowing money for upcoming dredging needs in the city’s bayside canals.
“I feel like bonding this is not the correct way to go,” said Councilman Dennis Dare. “If you’re going to bond something for 20 years, it needs to last 20 years. Something like the Beach Patrol building will, but canal dredging isn’t the same thing.”
The city could use savings from other projects to pay for dredging as it went along, and it was suggested that the $800,000 savings from Boardwalk reconstruction be put to this use.
“We keep earmarking money for this and that and something isn’t going to get done eventually,” Mitrecic cautioned.
“There are other existing capital projects in that bond issue,” McGean said. “You still have a fire station to build, a fire headquarters to build and St. Louis Avenue to finish up. It’s nice that we have that savings so that we’re not scrambling if we have issues on these other projects.”