Future deficits may impact Rehoboth budget

As proposed, Rehoboth Beach’s $50 million budget for Fiscal Year 2027, which begins April 1, is revenue neutral without increasing taxes. However, it’s the two years following next year that have Commissioner Craig Thier concerned.

Over the course of the next two years, the city is going to effectively deplete all of its available savings, said Thier, during a budget discussion March 9. If the city isn’t willing to deal with it now, within the next couple of years, it’s going to be faced with raising taxes and fees, he said.

“I have zero interest, any time in the next five years, of increasing property taxes, increasing parking, increasing water fees or increasing wastewater fees,” said Thier.

Around this time last year, in an effort to make sure the city has adequate savings on hand in case of an emergency, city commissioners adopted a Fund Balance and Net Position Policy.

Their said the city has about $45 million in savings, and the policy calls for the city to have about $25 million in savings on hand. If projections stay true, he said, over the course of the next two years, the city will be about $12.5 million short – $9 million short in the general fund, $3.5 million between the water and wastewater funds – which means the city’s savings would be reduced to $32.5 million.

Thier said he’s willing to spend some savings, but definitely not $12.5 million. There will definitely need to be cuts in the next two years, he said.

“I’m going to have a difficult time voting for this year’s budget, because if I vote for this budget, I’m basically telling you it’s OK to spend $12.5 million in savings over the next two years, and I’m not on board to doing that,” said Thier.

Julia Johnson, who was hired in December as the city’s finance director, confirmed the city’s plan is to use the savings from the fund balance to close the gap. However, she said, the deficit is on the capital project side, not the operational side.

That doesn’t matter, said Thier in response. A deficit is a deficit, he said.

City Manager Taylour Tedder said he doesn’t have any desire to increase taxes or fees either. He also pointed to the city’s expenses in FY30 decreasing to $39 million total, with a $2 million surplus.

Tedder said his approach was to draw down the fund balance to the amount called out in the policy, because that’s what the policy says to do. But, he continued, there can be a presentation at the next budget meeting, and pencils can be sharpened to look over the capital improvement plan for future years.

Beyond the deficit facing the city in future years, commissioners also approved $570,000 worth of community grants – $60,000 to Rehoboth Beach Main Street, $60,000 to the Rehoboth Beach Historical Society, $300,000 to the Rehoboth Beach Volunteer Fire Company, $75,000 to the Rehoboth Beach Public Library and $75,000 to CAMP Rehoboth.

The historical society grant is $8,000 more than the $52,000 the organization requested, and it was the only one that received any real pushback. Commissioner Mark Saunders suggested the increase after the historical society was done making its presentation. Ultimately, it was approved 4-3, with Commissioners Suzanne Goode, Susan Stewart and Thier voting against, saying they would have voted in favor of the original request.

Commissioners also discussed merit salary increases versus merit bonuses for city staff. Last year, the city instituted merit salary increases for staff, and those increases are included again in the FY27 budget.

Goode raised concerns over how merit salary increases continue to build onto the city’s expenses year after year, while the bonuses are a one-time expense.

Jean Hendershot-Lee, the city’s payroll and HR administrator, said surrounding communities have similar increases and having one for the employees of Rehoboth Beach keeps the city competitive.

Commissioners are expected to approve the budget during a meeting Friday, March 20.