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Dewey Beach’s projected budget deficit for the year is $750,000 to $800,000, Town Manager Gordon Elliott told budget and finance committee members at their Friday, Sept. 5 meeting.
The revelation that the deficit is likely to exceed even the recent $700,000 estimate prompted a motion by budget and finance committee member Don Ziegler and a unanimous committee vote to recommend the town commissioners and town manager review all expenses with the intent of cutting them as soon as possible.
The commissioners and town manager should reduce all discretionary spending to the absolute minimum, said Ziegler. “In effect take a good hard look at every nickel and dime spent from this minute,” he said. Elliott said he wants a hiring freeze on every job unless it is absolutely essential.
Property owner Charles Bauer said the committee should define how much must be cut from the budget, such as 3 percent, 5 percent or 10 percent. “To just tell department heads to cut would be a terrible assignment,” he added.
Member Marc Appelbaum suggested the committee make another recommendation that would require the town to maximize income in addition to minimizing expenses, but the committee did not pursue it.
Biggest income problems
At $325,000 below budget at the end of July, Elliott said he expects income will be $425,000 below budget at the end of August, which Elliott blames largely on drops in transfer taxes and building permits.
Elliott said the town received about $194,000 in transfer tax revenue through July, but had budgeted revenues of $350,000. As of Aug. 28, town officials had projected the annual shortfall at $305,000 to $325,000 but Elliott now says a closer review indicates the transfer-tax shortfall will be $350,000 to $400,000.
Building permit fees through July produced $33,000 in revenues budgeted at $151,000, a deficit that is expected to increase to $200,000 by the end of the year, Elliott said.
Elliott said another major income setback is attributable to a drop in interest income. Currently $38,000 less than budgeted for, Elliott said the town projects the shortfall will be $50,000 by the end of the year.
On a more positive note Elliott said business licenses and fees generated more revenue than expected and that the town expects current shortfalls in parking revenue will even out and present no line-item shortfall by the end of the year.
Legal fees boost expenses
“Expenses you have control over. Income you don’t have control over,” said Elliott as he opened his review of the town’s expenses. Professional fees created the greatest problem, Elliott said, especially the $140,000 cost of the lawsuit brought by former Dewey police officer Eric Campbell against the police department.
Committee Chairman Dale Cooke said the town is going to sue its previous and current insurer to get that money back. Mayor Dell Tush said the prior insurer stopped providing coverage that would have covered the Campbell suit and refused coverage because it claims it was not properly notified of the suit. The current carrier, she said, also says it was not notified of the possible pending claim when it took over the coverage. So, she said, the town is suing both of them.
“We may not get it all but they’ll settle for something,” Tush said.
Ziegler said he hopes the town also will not have additional, unanticipated lawsuit costs next year. But the town is already facing the cost of its lawsuit against its insurance carriers. Tush said she expects the suit will be filed soon though the town has not received a cost estimate.
Property owner Vivian Barry said she predicts the town is going to face more legal fees within three months. “They’re blaming it on the police suit, but this one’s going to be much, much larger,” she said. Barry subsequently added that she was referring to a lawsuit she believes will be brought against the town by Ruddertowne owner Dewey Beach Enterprises. “The appeal from the Board of Adjustment is not the lawsuit. It’s just an appeal,” she said.
The other major expense overage is attributable to work on the comprehensive zoning plan and new code, Elliott said. Approximately $40,000 spent this year should not be incurred next year because the new zoning code is to be complete before the end of 2008, he said.
Immediate action required
Tush and other committee members focused on expenses. “We have to primarily look at cutting expenditures. We can’t cut the deficit; that’s for sure,” Tush said.
Elliott agreed. “Your $200,000 is going to be there, like it or not, because of the lawsuit,” he said. The lifeguard season will end Sept. 7 and that only a few summer police remain to handle parking through Sept. 15, he said.
Barry suggested that lifting the building moratorium now could help raise revenue. But committee member David King said that to stop the moratorium would circumvent the process for zoning code completion and approval, which should be completed this year.
Ziegler placed his hopes on the referendum on the Sept. 20 ballot for an accommodations tax of up to 3 percent, saying it needs to be approved and that the committee and commissioners haven’t done a good job selling it to the voters.
“If we don’t get the accommodations tax passed, we’re in deep trouble,” said Ziegler. Informed that the tax cannot be implemented for 2009, even if approved by the voters, Ziegler said, “We’re in deep trouble then.”
“If you’re going to charge 3 percent, why don’t you say what you really want?” asked Barry. “You want a property tax to support the town.”
Property owner Charles Bauer agreed, saying that he doesn’t approve of the accommodations tax and that if the town needs money to support the town it should take it from everybody in the town.
“Essentially it’s too late,” said King. “It’s part of the Dewey Beach position of making outsiders pay for the funding of the town, good or bad.” King said he believes all the committee can do now is recommend the commissioners reaffirm their commitment to the tax at the town council meeting on Friday, Sept. 12.
Town's new budget process to get test drive
The Dewey Beach Budget and Finance Committee will use a zero-based budgeting process in the coming year in an effort to limit spending and control the deficit the town is facing.
The process would require the committee to recommend an annual budget goal, to be accepted or amended by the town commissioners. The town manager would then work with department heads to formulate a budget that meets the goal. Timely budget reports and regular review of the budget by the budget committee, with reports to the commissioners, are also outlined in the new process. A new timeline for the budget committee to present the annual budget to the commissioners at least 30 days before it is due to be adopted are also part of the new process.
The committee rejected member Mary Nelson’s suggestion that the memorandum be submitted to the town council as a proposed ordinance. “This is still a work in progress, but it’s the way we want to go,” said Chairman Dale Cooke.
Marc Appelbaum, who drew up the elements of the proposal, agreed. “Let’s test drive it while we do the three-month budget.”
Additional highlights of the written policy include preparing a three-month budget to cover January through March 2009.
Under a recent charter change, the town’s new fiscal year starts April 1. The new process also institutes a budget for capital expenditures and fixed assets.
Committee member Don Ziegler said a suggestion that the policy incorporate incentives and disincentives could be easily met.
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