Bethany Beach officials went into Oct. 27’s six-month budget review well aware that there were revenue shortfalls looming that might call for a reevaluation of the town’s current fiscal-year budget.
Town Manager Cliff Graviet held the bad news until the final segment of budget discussions last week, calling it “the 600-pound gorilla.”
Indeed, real estate transfer tax revenues were expected to be short of budgeted figures, under the widely acknowledged slowing realty market nationwide. The question was by how much they’d be short and how the town would adapt ongoing expenditures to aim for a balanced budget by year’s end.
The big numbers: just $147,000 in transfer taxes received as of Oct. 19 — $130,000 of that from a single large transaction that went through in the last three to four weeks, Graviet admitted, saying that the large tax bill from that recent transaction might even serve to skew surface perception toward being less grim for town finances.
He said another $250,000 in transfer taxes was anticipated through the end of the current fiscal year, in March 2007. That would leave the town with an estimated $503,000 in revenue shortfalls from transfer tax alone.
For comparison, the town collected approximately $1.5 million in real estate transfer tax revenues in 2005 — typical of recent years, during the real estate boom. And it is now estimated that the town will collect just $500,000 to $600,000 in transfer taxes in the 2008 fiscal year, running from April 2007 through March 2008 — an amount typical of the times prior to the real estate boom.
Short-term shortfalls also showed up in the six-month budget review, with the town’s billing cycle expected to catch up before the final numbers are calculated for the year. “Everything else is fairly on track,” Graviet said.
In fact, real estate rental taxes are up 8 percent over the 2005 level — a periodic experience in the town, Finance Director Janet Connery said, alternating with flat times. But permit fees are down, in line with the slower real estate market that hit transfer tax revenues.
Aiming for balanced bottom line
As in other local towns, Bethany Beach is now looking at tightening its purse strings to adjust to its new financial reality.
“We’ve requested a 5 percent reduction in all General Fund departments,” Graviet explained to Budget and Finance Committee members at the Oct. 27 meeting. “And we’ve requested an additional 5 percent in reductions from the police department.”
That additional 5 percent from the police budget — 10 percent total — was anticipated to come, in part, in the form of unspent personnel expenses due to positions left unfilled at the end of the summer season, as well as grant funds the department received.
The department will also hold off on additional accreditation work until the next fiscal year, Connery explained. And legal fees for the department will also be less than expected, due to the lack of a police union that had been anticipated as possible at budget time, with an additional $30,000 budgeted to offset related expenses.
Connery said other town department heads had been encouraged to make small cuts here and there, putting on hold capital expenses with moves such as waiting to replace small equipment until the next fiscal year.
Also helping to offset the revenue shortfall is $71,000 in unspent contingency funds, and $125,000 budgeted for streets and alleys that will not be spent.
When all is said and done, estimating from this point forward, “I think we’ll probably return more than that,” Graviet said of the approximately $503,000 in cuts to offset that amount in anticipated revenue shortfalls — what should be a balanced budget come the end of the fiscal year, despite the revenue problems.
Wants versus needs
Graviet noted that there was not much help for expenditures under the town’s operating expenses but said cuts were much more easily made under its capital budget.
Those cuts are even more easily made with the town’s budget decisions of recent years. “We have a lot of good projects behind us,” Council member and committee chairman Jerry Dorfman commented.
Graviet noted the purchase of the town trolleys and former Christian Church and Neff properties, and renovations to the town bandstand. He compared those decisions to those of other local towns, where large reserves had been accumulated in the boom years and were now being tapped in leaner times with little in the way of capital projects to show for them.
In the coming budget cycle, Graviet said, discussions would have to focus on the town’s needs versus its wants. “I expect, when we sit down at the end of the day, we will find that the capital expenses are a lot of wants. The community will have to weigh its wants and needs.”
The first casualty of that discussion may have been the town’s Streetscape project, which was scaled down in October from an estimated $4 million project to an “as is” revamp with a decidedly more modest scope. Other proposed projects may go on the chopping block as budget discussions commence.
Also discussed at the Oct. 27 budget review:
• An increase in electrical bills for the town’s streetlights, due in part to increased electrical rates and offset even less than usual due to a cut in municipal street aid grants. Budget estimates had been $22,000, with $38,000 spent to-date and $81,000 in expenses predicted for the year.
• Modest overage for repairs to the rear wall of town hall, as well as $29,000 in overage for the town’s boardwalk and bandstand as final work was completed on the bandstand renovations and the town was unexpectedly forced to spend $13,000 to replace some boardwalk benches.
• The town’s standalone water department continues to operate at a break-even level, under recent rate increases designed for just that end. Its capital needs were also deemed to be “well planned” now. Likewise, the sanitation department, which the town has worked to make a standalone entity, is functioning as if it would pay for itself, with reserves being accumulated and budgeted for future capital needs.
• In the Building Official’s Office, there was $15,000 budgeted in contracted services and nearly that much spent to date, for digitization of documents — anticipated for a slight overage for the year. Graviet said that while revenues for the office had fallen off, under permit fees, costs of operating it had not gone down. But a decision to cut back on the quality of mapping for a new town map sliced mapping costs to just $5,000 to $6,000, he said.
• Some $243,000 in near-term additional expense is anticipated at the former Natter property and Addy III structure, for their conversion to a nature preserve and education center — $153,000 of that amount covered by grants. Additional funds will go toward finishing work at the property next to the town hall, which is being converted to a seating area for public use.
• Improvements to handicapped access at the beach and comfort station are on hold, anticipated to coincide with the planned beach reconstruction, which is unlikely to begin prior to fall of 2007.
• Graviet was cautious regarding anticipation of any additional grants for the town, in response to urging from committee member Joseph Healy that the town seek to recoup some additional funds in its time of revenue shortfall. “We have gotten what we can get in most cases,” Graviet said, noting the council’s decision to refuse a restriction-laden grant for the Church/Neff property purchase.
• Graviet acknowledged potentially millions of dollars to be spent on stormwater needs under an extensive plan for major east-side drainage improvements — but with a caveat. “There are millions of dollars in need,” he said, “but the problem has existed for decades.” It will, he said, be up to the town’s citizens whether those needs are sufficient to spend that kind of money toward a fix in the coming years.
A less conservative decision on those matters could potentially lead Bethany Beach the way of neighboring Fenwick Island, with tax increases to offset the loss of transfer tax revenues. But the silver lining for Oct. 27’s meeting was that the current year’s shortfall is expected to be made up by some nimble financial footwork.