City looks to COVID relief
By BILL BARLOW /Special to the Sentinel
OCEAN CITY — 2020 was a tough year, which at this point is about as newsworthy as the fact that the ocean is salty and Ocean City does not allow BYOB.
Frank Donato, Ocean City’s chief financial officer, drove home just how tough it was — at least in terms of city finances — in a detailed budget presentation to City Council on March 25.
He said Ocean City is lucky to have multiple sources of revenue beyond relying on property taxes. But with the city all but closed up entering summer 2020, those revenue sources were reduced for the city just as they were for private businesses.
“It did hurt us, just as it hurt many of the small businesses in town,” Donato said.
Overall, revenue was down $1.3 million from what the city budgeted for 2020, in a year when expenses were also up.
“We have a lot of major expense categories. We didn’t really catch a break on any of them this year,” Donato told council members. “They’re all up to some degree; salaries, pensions, debt service, health care, trash and insurances and things like that. Usually, we’d get a year where one of them is flat, one of them goes down.”
The increasing expenses amount to about a penny’s worth of the proposed tax increase. In Ocean City, with more than $12 billion in tax ratables, a penny on the municipal tax rate per $100 of assessed value is the equivalent of $1.2 million in the budget.
Combined with a drop in revenue, the increased expenses have meant a squeeze on the 2021 budget.
“We suffered a revenue loss that was unprecedented in my time and probably one of the biggest the city has ever experienced,” Donato said.
In his lengthy presentation, Donato showed that Ocean City’s total property values have been climbing steadily for several years but have not yet returned to the highs of more than a decade ago, before the recession dramatically dropped values. In 2009, all of the taxable properties in the city were valued at more than $12.8 billion.
Under Ocean City’s form of government, the mayor and administration present a budget proposal to City Council, which can amend it, send it back for revisions or approve it. This year, Mayor Jay Gillian brought forward an $87.4 million budget proposal, including a proposed 2.2-cent increase in the local purpose tax rate.
As proposed, the municipal budget for 2021 includes a tax rate of 48.31 cents for every $100 of assessed value, an increase of 2.21 cents compared to last year. That means the owner of a home assessed at $500,000 will owe $2,415.50 in municipal taxes for 2021, under the budget as proposed.
That would mean the average homeowner would pay an additional $110 in municipal taxes this year, in addition to school and county taxes.
City Council is set to hold its first vote on the budget April 22, with a public hearing and final vote likely in late May.
“We’ve got a month to ask questions, do research, make suggestions, make changes, do whatever we’re going to do. We’ve got time is the message here,” Donato told council members.
Changes could still be made between the introduction and the public hearing and final vote on the budget, planned for the end of May. The city is hoping for a specific and dramatic change by then. A $7 million influx of federal money could ease the proposed tax increase, if not eliminate it.
“As everybody knows, we do have some COVID stimulus relief money that’s heading toward Ocean City. It’s still unclear — we still don’t have concrete direction on how we can use that, how we can incorporate that into our budget,” he said.
If the city tried to put the entire expected $7 million into this year’s budget, that would probably be rejected, Donato told council. The money is supposed to be a reimbursement for expenses related to the pandemic.
“We just have to go slowly, follow all the guidelines, because if not, there’s a risk of having to pay that money back. And that’s happened before with these types of programs,” Donato said. “It is safe to say that some of that money is going into this budget. It will definitely pull down the tax rate.”
Donato also discussed the city’s fund balance. Also known as the surplus, it is the money left over from the previous year’s budget. Donato typically splits that amount, using half of the surplus in the next year’s budget while holding half in reserve.
In the 2021 budget, with a total surplus of $6.5 million, he’s proposing using $3.5 million in this year’s budget, leaving a balance of $3 million.
Councilman Keith Hartzell questioned leaving that much out of the budget. He cited the climb of the assessed value after the loss of a decade ago. In 2013, he said, the city put 65 percent of the fund balance into that year’s budget. Using about $350,000 more this year could allow for less of a tax increase, he said.
“I think that there’s a precedent that we could make it back, because we did last year,” Hartzell said.
That was the year after Hurricane Sandy, Donato said. Part of the reason to keep a fund balance is to use in case of emergencies, he said. A lot of that money returned to the city’s coffers because of the reimbursements for the emergency, he said. If the city gets the green light to use the COVID relief money this year, Donato said, that money would be used to reduce the proposed tax increase.
Donato said he has been working to get Ocean City’s surplus up to $10 million, which he sees as appropriate given the size of the budget.
He acknowledged that will not happen this year.
Councilman Jody Levchuk said climbing ratables and the expected increase in revenue could be reasons to use a larger percentage of fund balance.
“We’re always told fund balance is for emergencies or a rainy day,” Councilman Bob Barr said. “Well, it’s raining outside.”
He said he would be willing to listen on getting the fund balance up to $10 million but does not believe it needs to be that high.
At one point in the meeting, Hartzell pointed to a reduction in beach tag sales. The city sold 13,000 fewer daily tags in 2020, according to Donato. Weekly tags sales were also down by about 10,000, he said.
Hartzell said the city should have been talking about revenue losses a lot earlier, suggesting that if he had known he would have sought to increase spending on advertising to encourage future visitors. He asked for weekly revenue updates to look for patterns.
“I’ll say this for all of us: Why didn’t we notice people weren’t here? And why didn’t we start asking questions why they weren’t? And why didn’t we try to do something about it?” he said.
Later, Hartzell spoke about staffing.
“In a municipal budget, if you want to cut cost, you have to cut people. I’m not suggesting that,” he said. “We have to be able to make sure that we can justify the people that we have, and what that tax rate is going to look like going forward.”
Hartzell also spoke about police staffing. He said the city has to have people in place all year to handle the increase in population in the summer. Some weekends there could be 30,000 or more additional people in town even on winter weekends, he said.
“You can’t just call in some police for the weekend,” he said.