Official explains how it received money, is using it on certain purchases
By DAVID NAHAN/Sentinel staff
OCEAN CITY – A question about how Ocean City is funding $645,000 in purchases revealed the fact the city got a $3.4 million cash premium when it went out to bond $50.7 million for capital work earlier in the year.
On the Nov. 5 City Council agenda was an ordinance, unanimously approved, for appropriating $645,000 from the city’s capital reserve to pay for a range of items. The items include $80,000 for beach mats and pathway improvements to make the beaches more accessible and ADA compliant; $432,000 for four SUVs and four pickup trucks for the police, beach patrol and operations and engineering departments; $40,000 for parking meter and parking lot improvements; and $93,000 for equipment for the fire and emergency service departments, police departments (including body cameras, a license plate reader and patrol bikes).
The question, raised by Dave Breeden, president of the citizens group Fairness In Taxes, wasn’t about the purchases themselves, but why they were being paid for out of the city’s capital reserve fund.
Business Administrator George Savastano said he was explaining the situation because Chief Financial Officer Frank Donato wasn’t at the meeting. “You’ll have to suffer through my explanation,” he said.
Savastano said the money was coming from a $3.4 million premium in cash paid to the city by the firm that won the bond sale.
He said it was “not uncommon” for the financial firms that compete for bond sales to offer a “premium” of cash up front. Because some bidders can get extreme, he said the city limited the premium to a maximum of 7 percent.
That money goes into the city’s capital reserve.
“We can use that for anticipated down payment of ordinances in the future,” Savastano said. “Due to the size of the premium … and in order to satisfy federal tax laws pertaining to municipal bond sales, our bond counsel required that the city put forth a plan to spend at least $600,000 of that premium sooner rather than later. CFO Frank Donato recommended we fund purchases we were planning on incorporating into a bond ordnance as part of this plan that we would use part of the premiums now as opposed to later.”
He added that because “those items were mostly smaller items such as equipment and vehicles and were already included in the 2020 capital plan that we put forward but were not bonded, it seemed the most fitting use of that portion.”
Savastano said Breeden’s concerns “were legitimate. That we were going to use capital reserves that we already had the way this is listed on the agenda. He was not aware at the time of the premium we had gotten.”
“The premiums we get are part of our financial management and we’ll use those tonight, if you introduce it and it is adopted two weeks from now, to pay for things we don’t have to borrow funds for. We’ll still have remaining premium …. to pay down ordinances going forward to manage our debt service.”
Council did approve the ordinance on first reading that night.
Speaking at public comment later in the meeting, Breeden said he appreciated the explanation about the money and “the most important thing we discovered is the bond premium …. That places us in even stronger financial position.”
He suggested the money can be used for tax relief because of the city’s aggressive capital improvement plans or for helping offset the cost of the new public safety building, which has been estimated at $35 million.
Public Safety Building
City council members unanimously approved an ordinance on first reading to fund the design development phase of the new public safety building, slated to replace both the police department on Central Avenue and the fire department headquarters on Asbury Avenue.
The new facility would be between Fifth and Sixth streets and Asbury and West avenues.
The next phase, according to Savastano, is producing an accurate cost estimate.
The city has “thrown” out the cost of $35 million based on designs, but there is time to make changes to the design.