OCEAN CITY – Although budget picture remains cloudy this week in Ocean City, the fiscal year 2014 General Fund revenue will fall short of expenses, staff told the Mayor and Council this week.
Subsequently, city officials are brainstorming alternative revenues to close the gap without having to pull from fund balance this time around.
At Tuesday’s meeting, City Manager David Recor and Budget Manager Jennie Knapp presented an overview of the projected FY14 General Fund revenue.
For the past few months, Knapp has been working with various city departments to put together their projected expenditure and budgets for FY14, and on Feb. 14, the town received the constant yield tax rate certification from the State of Maryland.
“We are half way complete or so with internal review … we are prepared to discuss our projection, or our forecasting methodology to give you some degree of comfort and reliability on these numbers,” Recor said. “I can tell you I am very comfortable.”
Recor furthered, given the projection for FY14, there is an assumption that monies will not be used from the unrestricted fund balance.
“We know that has not traditionally been the case … however, for purposes of identifying the financial resources that we have available to us for FY14, this projection assumes no transfer from the fund balance,” Recor said.
Knapp worked her way through the details of each category associated with the General Fund.
First, she explained property assessments in Ocean City are completed every three years. In Ocean City, there are three groups of properties assessed in town. The residential property is reassessed in the first year, which was last year, as is the commercial property from 25th Street to the Delaware line.
The commercial property south of 25th Street is reassessed in year two, or this year. There are 610 accounts in this group and they arued at $7.13 million. In comparison, the commercial property in the first group has 681 accounts and a value of about $8 million. Residential property has 31,410 accounts with a value of $7 billion.
“So you can see it is not a large group that’s assessed this year,” Knapp pointed out. “However, the assessment did decline for this group.”
Real property assessments decreased 1.4 percent since FY13. Revenue from property tax collections from FY13 was $39,257,605 based on a .4585 tax rate per $100 assessed valuation. The constant yield tax rate in FY13 was .4685.
If the tax rate would have been kept at the constant yield during the last budget cycle, it would have generated an additional $863,000 in tax revenue in FY13.
If the tax rate for FY13 had remained at .4685, the constant yield rate for FY14 would be .462, generating an additional $850,000 in tax revenue. The revenue in property taxes in FY14 at the constant yield rate of .462 is $39,227,063.
In summary, for FY14 property taxes will reflect a decrease of $182,032. Knapp explained this decrease is due to the estimation given by the state for FY13 was actually more than what the town collected in property tax revenue.
“I will be able to cover that in other line items in revenue in the General Fund but you will see a reduction,” she said.
Knapp added there will be an increase in other taxes by about $1.5 million, an increase of about $6,000 in licenses and permits, a decrease of almost $186,000 in revenue from other agencies, an increase of almost $144,000 in service charges, a decrease of about $416,000 in other revenues, and a decrease of about $3.8 million in fund balance. The total revenue reduction is about $3.2 million.
The fund balance is currently at 15.8 percent, or $12 million. The fund balance budget policy requires it remain at a minimum of 10 percent.
For FY14, there is projected revenue of $75,188,000. The FY13 approved expenditures were $76,655,000, resulting in a preliminary budget gap of $1,467,000.
On top of that gap, there are a number challenges to be faced in FY14 that will have to be factored into the budget as well, such as 21 requested positions, an increase in health care costs and legislative changes for part-time employees, the impact of union contracts, increase in Worker’s Compensation reserves, technology and equipment needs, building and equipment maintenance, increase in fuel cost, and legislated mandates.
On the union contracts, Recor said that picture should become clear soon.
“Now that we have tentative agreements with both the FOP and the IAFF, assuming both of those contracts are ratified, we will absolutely be able to advise you a cost because that is a cost that we will have to factor into the FY14 budget…,” Recor said. “As we prepared the projections, we were in the process of negotiating those contracts.”
Recor said a focus of the city’s budget team over the coming weeks will be identifying new revenue sources to help offset the shortages.
“I am not one to come to you with a problem, and if I do, I certainly want to have a solution,” Recor said. “Part of our strategic planning effort was a follow up and report on revenues as well as options and alternatives for increasing our revenues, so we have a couple of ideas, options and alternatives, all are policy discussions that ultimately you will have to make that will have a different level of impact on different constituents.”
For example, a discussion on parking and a review of Ocean City parking lots within the town, or where the town is charging for parking and where there is not, such as charging for parking on street ends. Additionally, a discussion on the Inlet lot fee structure is planned. There has also been some internal discussion over a solid waste fee or establishing a stormwater utility fund.
“Not popular options or alternatives but policy level discussions that we have to have to provide some direction on,” Recor said as he suggested having a budget workshop with the Mayor and City Council.
The anticipated schedule for the FY14 budget is by April 9 a work session will take place where Recor will present the city manager’s FY14 Financial Opening Plan to the Mayor and City Council. Between April 10 and April 30, the Mayor and City Council will review the budget, and May 6 will be the public hearing and first reading of budget ordinance, followed by the second reading on May 20.
The full presentation of FY14 general fund revenue projection and each category can be found in the Mayor and City Council agenda packet from the meeting held on Tuesday on the city government’s website, www.oceancitymd.gov.