JOINT TOWN COUNCIL/

LONG-RANGE FINANCIAL PLANNING COMMITTEE MEETING  

OCTOBER 31, 2006

1.      Mayor Gary Meredith called the meeting to order at 3:00 p.m. with the following Town Council and Committee Members present:  Councilman Eric Magill, Norman Amendt, Bill Wichmann, Roy Thomas and Committee Members Marc Grimes and Cliff Mitchell. 

2.      The Pledge of Allegiance was recited.

3.      There were no changes to the agenda.  Roy Thomas made a motion to approve the agenda.  Bill Wichmann seconded the motion, and it was unanimously approved.

4.      Mayor Meredith then turned the meeting over to Roy Thomas, Chairman of the Long Range Financial Planning Committee.  Mr. Thomas said that four members of the Council were already on the Committee and invited Norman Amendt to attend all the meetings.  Mr. Thomas then began the Midyear Budget Review and said that the Town had approximately $350,000 more cash on hand than calculated during the FY 2007 budget-planning cycle.  He then went over the October 30, 2006, memorandum in detail. 

Revenues are projected to be $2,174,000 less than planned based on transfer tax revenues being 70% of FY 2007 Plan B and the loss of income from such items as building permit fees and property taxes because of the downturn in the real estate market and the Council’s decision not to sell one of its properties.   

Expenditures are projected to be $1,825,000 higher because of the potential creation of the Emergency Reserve Trust Fund (ERTF) and Capital Replacement Trust Fund (CRTF).  He explained that the ERTF was an unfunded liability created by the Council in FY 2006 but was not accounted for in the financial planning process, and the CRFT is an unfunded liability created by the large amount of capital spending recently done by the Town.  He said that the liabilities were always there but were not accounted for in the financial planning process.

Deficit Spending  will total $6,898,024 over the next 5 years.  The fund balance at the end of FY 2006 will fund approximately $5,592,322 of this amount, which will leave an unfunded deficit of $1,305,702. 

Tax Increases of approximately 81% over the next 5 years will be required to fund this deficit. 

Bill Wichmann said that he is not in favor of creating accounts.  He then noted that insurance should pay for any losses the Town incurs.  He also said that the real estate market is always up and down and said that it is difficult to work with transfer tax money because of this fluctuation.  Roy Thomas said that putting money in accounts is sound financial planning, and the auditors agreed with this action. He said that the Council agreed to establish an emergency reserve, and the auditors said that this should be done with separate accounts.  He then went on to discuss unfunded liabilities in some detail and said that the Town will have to cut expenses or raise taxes.  Norman Amendt said that he can’t comprehend that the Town will be in such poor financial condition.  He thinks that the Town is wasting money on the project manager hired for the police station and asked about the personnel study.  Bill Wichmann noted that setting up the two accounts will take that money out of circulation and said that he does not have a problem with the emergency fund but questions the need for a capital replacement fund.  He then raised the issue of annexations and referred to the Town’s Comprehensive Land Use Plan and asked if the Council wants the Town to grow.  Roy Thomas said that the Town earned about $8,000,000 in transfer taxes over the past 5 or 6 years and explained that $4,000,000 will go into the new police station, the ERTF and the CTF, and other capital improvements such as the new DPW building and drainage improvements.  He said that the remaining $4,000,000 went to or will go to operating expenses and also said that the Town has become more and more dependent upon transfer taxes over the past 5 years.  He said that if the money is not put into reserve accounts, it will be used for operating expenses.  Norman Amendt said that he agreed with the $1,000,000 ERTF but has a problem with the $825,000 CRFT and reminded attendees that the Town has insurance.  Eric Magill said that this fund will be used to replace items that have been purchased already.  Discussion followed, and Roy Thomas recommended that they put $425,000 rather than $825,000 into the CRFT.  Discussion then took place about whether a tax increase is needed in the future and the rate of tax increase that might be necessary.  Roy Thomas explained that tax increases could be held to 57% over the next 5 years (12% each year beginning in 2009) if his recommendations are followed.  Mayor Meredith noted that his HOA has put away money for future pool expenses.  After the issue of the Town’s “cash burn” for operating expenses, Bill Wichmann said that the Council is not conveying that it wants annexations.  Discussion about annexations and their value as a means to balance the budget followed.  Bill Wichmann and Norman Amendt raised the issue of the manpower study authorized by the Town Council.  Bill Wichmann also raised the issue of the money that the Town is paying for a project manager for the new police station and asked how the new DPW facility will fit into this plan..  Bill Wichmann raised the issue of salary adjustments, and Roy Thomas said for the record that he doesn’t recommend promises for salary adjustments.  Eric Magill reminded attendees that he has said repeatedly that the Town cannot continue to operate from transfer taxes and said that he is in favor of the reserve funds.  He said that Dick Loge, the former mayor of Bowie, Maryland, said that Bowie had a lock box emergency fund and reminded attendees that the Town might have to wait up to 6 months for FEMA money during an emergency.  Discussion about the effect of the downturn in the real estate market and the newly approved rental tax took place.  Roy Thomas made the following motion: 

Whereas the Town of Ocean View finds itself facing large financial deficits:  Moves that the Town Council instruct the Public Works Department and the Public Safety Department to prepare a detailed analysis of all capital expenditures for the next five years (by year) with detailed justification.  This analysis will be for the balance of FY 2007 throough FY 2012.  A preliminary detailed analysis of capital expenditures will be due on December 31^st for Town Council members’ review and comments.  The final detailed analysis of capital expenditures will be due on January 31^st.  Further moves that the Town Council instruct the Public Works Department and the Public Safety Department to prepare Five Year Comprehensive Service Plans (balance of FY 2007 through FY 2012) for the Town of Ocean View.  These plans should consider the following:  1.  No increase in headcount for the next five years.  2. The budgets for FY 2007 through FY 2012 (prepared during the budget planning for FY 2007) will be the basis for the financial resources available.  3.  The plan should consider innovation and, if necessary, any systems or reorganizations required to maintain the same level of service to the citizens of Ocean View that is currently being offered.  4. A preliminary report of the Five Year Comprehensive Service Plan will be due on December 15^th for Town Council Members’ review and comments.  5.  The Final Five Year Comprehensive Service Plan will be due on January 15^th for the Town Council’s consideration.  Further moves that the planned manpower study for the Public Safety Department be cancelled until a later date.  Eric Magill seconded the motion.  Police Chief Kenny McLaughlin asked for a definition of capital expense and was told that it is anything over $1,000.  After some discussion about this definition, the capital expense item amount was raised to $5,000, and it was noted that any item that has only a 1-year life span is not a capital item.   Discussion about such subjects as the new police and DPW buildings and annexation studies took place.  Chief McLaughlin asked that it noted that they could do so much more with more personnel.  Bill Wichmann expressed concern that the manpower study will not be done; he is concerned that the Town will lose employees and thinks that the Town should do some type of study.  Mayor Meredith said that the Town will do a salary and benefits’ study.  Roy Thomas then made a separate motion that the Town should do a salary study but subsequently withdrew his entire motion after Eric Magill noted that the agenda for this meeting had nothing to indicate that a vote would be taken.  He said that it should be added to the agenda for the November 7^th Council meeting.  Cliff Mitchell said that the Town should do a summary of building permits, rental tax, impact/annexation fees, transfer and property taxes for neighboring towns.  Mayor Meredith said it shouldn’t take too long to do this for towns such as Millsboro, South Bethany, Bethany Beach, and Millville.  Discussion of this proposed study took place.  Roy Thomas said that any salary study should include an organization study, which would be complex.  Cliff Mitchell said that the Town should review its property insurance coverage and was told that this would be done during the budget cycle.  Bill Wichmann stressed the importance of flood insurance for area property owners. 

Roy Thomas made a motion to adjourn the meeting.  Marc Grimes seconded the motion, and it was approved unanimously.  The meeting adjourned at approximately 4:25 p.m.

                                                 Respectfully submitted

                                                 Roy Thomas

                                                 Chairman

                                                 Long-Range Financial Planning Committee

Transcribed from notes:  December 31, 2006