By DONALD WITTKOWSKI
Ocean City is proposing an $87.4 million municipal budget for 2021 that reflects the financial challenges of the COVID-19 pandemic, including the unprecedented decline last year of key sources of revenue.
The spending plan calls for a 2.2 cent increase in the local property tax rate, but that figure is expected to decline once the city learns just how much it can use of $7 million in federal stimulus funding toward the budget.
Frank Donato, the city’s chief financial officer, told City Council during a detailed budget presentation Thursday night he is confident that some of the stimulus aid can be incorporated to reduce the proposed tax increase.
“It will definitely pull down the tax rate,” he said.
The proposed budget is about $5.7 million higher than the $81.7 million spending plan in 2020. Donato cited higher pension costs, salaries and wages, health care, trash collection and debt service as major expenses driving up the 2021 budget
As it stands now, the budget’s proposed 2.2 cent increase in the tax rate would translate into an extra $110 annually for a home assessed at $500,000 or $220 for a home assessed at $1 million.
Donato said it is too early to definitely say how the city will allocate the $7 million in stimulus money it will receive. Ocean City is awaiting more guidance from the state government, but stimulus funds may generally be used for COVID-related programs and to help offset revenue losses, he noted.
Reflecting a dramatic shift in its finances caused by the pandemic, Ocean City suffered a decline of revenue in 2020 in critical areas that are usually reliable moneymakers year after year, Donato explained.
He called the revenue declines “unprecedented” in his 20 years of working for the city. Overall, there was a $1.3 million decline in those revenues in 2020 compared to the previous year.
Significant drops in revenue occurred in parking fees, the municipal court system and the Aquatic & Fitness Center, among other areas, Donato pointed out.
The Aquatic & Fitness Center was closed down for months during the state and city’s pandemic shutdown. The city had projected $700,000 in revenue from the center for 2020, but the final figure was only $309,000, budget figures show. In most years, the center generates about $1 million in revenue, Donato said
Parking revenue came in at $2.3 million, about $600,000 lower than what was projected. Donato said uncertainty about the pandemic cut into Ocean City’s day-tripper market, causing the drop in parking revenue.
“The day-tripper is what we really lost last year and those are the ones who fill up our parking lots,” Donato told Council during his presentation.
The pandemic’s impact on the day-tripper market was also reflected in the city’s beach tag sales. Overall, the city’s total beach tag revenue of $3.8 million in 2020 was slightly higher than the $3.7 million projected at the beginning of the year. Traditionally, beach tag revenue is around $4 million annually.
Seasonal beach tag sales were strong in 2020, suggesting that second homeowners spent much of their summer vacations in Ocean City, Donato said. But the sale of weekly and particularly daily beach tags were off, indicating fewer day-trippers visiting the resort, he added.
Overall, the city’s revenue sources help to reduce the budget’s reliance on property taxes.
“We are lucky to have so many revenue sources,” Donato said.
What will help the city’s finances this year is money that is being returned by the Ocean City Free Public Library. The city helps to fund the library operations each year. Any unused operating money goes back to the city.
With the library being closed for months during the pandemic, its operating expenses declined. As a result, the city expects to receive about $1.7 million from the library in 2021 to help boost the municipal budget, Donato said.
Ocean City will also benefit from its expanding tax base, which usually increases more than $100 million annually to reflect the higher value of local real estate. The total tax base for 2021 is $12.1 billion, up nearly $200 million from last year, figures show.
“The growth in our town is phenomenal,” Donato said.
Also helping to underwrite the 2021 budget is $3.5 million in surplus funds. At the same time, the city is proposing to leave about $3.1 million in surplus funding in reserve as a “rainy day” fund for unexpected or emergency expenses such as storm-related costs.
Donato believes that some of the stimulus money Ocean City is receiving may be used to help replenish the budget surplus.
City Council President Bob Barr indicated that he may want to use an even bigger portion of the surplus funds to help finance the budget.
Barr noted that the surplus has traditionally been used for “rainy days” or emergencies.
“It’s raining outside,” he said metaphorically of the financial pressures caused by the pandemic. “This is the time to use it.”
Council and Mayor Jay Gillian’s administration are expected to negotiate changes in the budget before it is formally introduced by the governing body in April. A public hearing and final Council vote on the spending plan are tentatively scheduled in May.
“It’s a living document,” Donato said of how the budget is subject to change.
