Good credit rating and past season success fortify city against covid-19 for FY21

(Oct. 16, 2020) Ocean City officials will have to keep a close eye on its finances, as a summer plagued by covid-19 means diminished revenues and the need to cover that decline by drawing on a melange of sources that includes the city’s fund balance and grants.

City Finance Director Chuck Bireley  brought the City Council up to date on resort government’s finances Tuesday. 

“Fiscal year 20 (which ended on June 30) was a good year financially for the town,” Bireley said. “It was better than [Budget Manager] Jennie Knapp and I had anticipated.” 

This would be favorable for the city, as good finances meant favorable credit ratings from the three major bond rating agencies: Standard & Poor’s Global Rating, Moody’s and Fitch Group. 

“The general fund balance increased by over $2 million in fiscal year 20,” Bireley said. 

Budget Manager Jennie Knapp said this stemmed from additional property tax, corporation tax, gain on investments and unexpected grants, which totaled $1.3 million, coupled with reductions in expenditures. 

These expenditures included salary and benefits, contracted services, energy and supplies, many of which were related to the city scaling down because of covid-19. 

“At the end of the day we had $88.7 million in revenue and $86.6 million in expenses,” Knapp said. 

Knapp said the city currently has a little more than $23 million in fund balance, with $10 million more than the required 15 percent threshold. 

She said, however, that the bond rating agencies look for a median level of fund balance when assigning credit ratings. 

For double and triple A ratings, unassigned fund balance must be between 24.5 percent  and 29.4 percent, respectively. 

“So that means that for credit rating purposes we should be falling between $21 million and $25 million,” Knapp said. “For that reason we feel we could use an additional $2 million of fund balance in fiscal year 2021 to get us through the challenges of this fiscal year.” 

The city currently has a double A credit rating. 

“The fact that we added to our fund balance is going to be in our benefit for when they rate our next bond rating,” Knapp said. 

As for fiscal year 2021, Knapp said she is still missing key data, such as August room tax.

As of Monday, the city would need to cover $257,790 of reduced revenues. 

These reductions include July and August parking ($1 million), Sunfest ($445,000), recreation programs ($104,310) and July room tax ($429,650)  totaling $2 million. 

Much of this would be covered by additional revenue —  grants, parking fines and bonfire fees — as well as expense reductions. 

To cover the remainder, Knapp presented three options to the council: reduce funds allocated for street paving, eliminate storm drain cleaning and reduced street paving, or just take it from the fund balance. 

Knapp recommended the last option. 

The council did not come to a firm agreement, as some saw storm drain cleaning as essential, while others felt it could be pushed back another year or two. 

Ultimately, the council voted to fund street paving at $157,790 for now and revisit the issue. 

Also on Knapp’s agenda was a forecast of the transportation and convention center funds, which did not require action yet, but should be on the council’s radar.

Transportation revenues would be hit hard with a loss of approximately $2 million, although expenses also dropped by $1 million. 

This meant the city would need to cover $119,600 for buses and $838,531 for trams — the former would likely be covered by a federal CARES grant, although the exact parameters of the grant were a bit murky. 

How much the city would need to cover for the trams would depend on the level of bus service in the spring — tram revenues help subsidize the buses — and whether or not trams would be operated next summer, Knapp said.  

Some of it could be covered by the CARES grant, as well. 

As for the convention center fund, Knapp said City Engineer Terry McGean contacted the Maryland Stadium Authority and received the greenlight to resubmit the city’s expenses and predicted operating losses. 

“The revenue changes are higher than this [what was originally predicted] … the expense reductions we’re still working on,” Knapp said. “I’m looking at having to cover about $600,000, which we would split [50/50] with the stadium authority … $200,000 of our $300,000 would most likely come from the Worcester County CARES grant.” 

The Worcester County CARES grant, which is $450,000, is separate from the bus grant, Knapp later clarified.

Josh covers everything Ocean City government and crime. He graduated from the University of Richmond in 2019 with a B.A. in French and Journalism.

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