Stone Harbor Budgets Steadily Rely on Taxes

STONE HARBOR – When borough taxpayers consider their contribution to the general budget, what stands out is consistency. Over a ten-year period, the percentage of Stone Harbor’s general fund budget dependence on the local purpose tax levy has not varied by more than 2%.
The bad news is that the percentage is consistently high. The 2022 budget relied on taxpayer funds for 73% of its total revenue. Other sources of revenue are few and they have not grown appreciably over a decade.
Stone Harbor has a conceptually simple budget. Everything is funded from one source, the general fund, with the only exception being a water and sewer utility, which depends on user fees. The borough does not have a separate beach utility, so even beach operations, theoretically funded by the sale of beach tags, are part of the general budget. 
Over a decade, that general fund budget has grown by 45%, moving from $13.6 million in 2013 to its current level of $19.8 million. During that same period, the taxpayer levy–the dollar amount expected from property owners–grew by 47%. The one exception was the 2017 budget which had the added benefit of a $2.7 million flood mitigation grant. 
In Stone Harbor, state aid is minimal, grants come and go, and potential sources of revenue like a municipal occupancy tax have not been implemented. That makes the revenue portion of the budget straightforward. With 73% coming from taxpayers and another 11% covered by borough surplus, the largest contributors to the remainder of the revenue are parking meters, beach tags, and fees and permits. 
When one considers the appropriation side of the budget, consistency remains the keyword. It is an unfortunate keyword when it comes to debt service. In 2022, the borough led all 16 municipalities in terms of the proportion of the general fund revenues that are dedicated to debt service. 
Over a ten-year period, the borough has dedicated between 20 and 25% of total revenue dollars to debt service payments each year. In 2022, the payments for debt service totaled 21% of the general fund budget. 
With another 35% of the budget revenue going to salary and wages before calculating pension and benefit costs, there is a year-to-year constraint on what the borough can do in terms of tackling major, potentially expensive issues.
An already high percentage of the revenue comes from taxes, making property tax levels hard to increase for additional revenue. Relatively fixed areas of expense like debt service and salaries restrict new spending opportunities. Already holding the top spot in the county for debt service as a percentage of total revenue, the borough also faces tough decisions when it comes to new debt.
Adding to the theme of consistency is a surplus balance that has not varied more than 10% since 2016. In 2022, the surplus balance stands at $3.1 million, getting back to its pre-pandemic level. Yet the surplus balance has never been greater than $3.1 million. While several other island resort towns in the county have surplus balances close to or exceeding $10 million, Stone Harbor has not been able to grow its balance. It lives off a revenue stream that, for the most part, fits its expenses.
The one exception to the theme of consistency is the water and sewer utility. Here, over a ten-year span, the budget of the utility has grown by 60% with the budget growth largely due to an increase in debt service payments of 114% over the decade. 
Currently, debt payments in the budget eat up 42% of the utility’s revenue. Principal and interest payments on bonds in the utility budget for 2022 come to $839,415 and similar payments for bond anticipation notes and capital notes come to $1,277,180. Those are high numbers when the total revenue stream of the utility is under $5 million and must also accommodate the annual county MUA payment of $1.6 million. 
The borough of Stone Harbor has a strong financial base to fall back on. The municipality of roughly 1.4 square miles of land has a taxable valuation topping $4 billion. The real estate market in the island community has been frenzied for the last three years, raising the real property values to levels that will trigger a borough-wide revaluation in the next few years. 
The difficulty the borough faces comes in the form of potentially huge capital outlays. Some sustainability projects will be required in the face of rising sea levels and with the increased frequency of major rain events. Unless the borough can either lower its current debt level or adopt strategies to increase revenue sources, something in the budget will have to give as those sustainability projects eat into the revenue stream.
Already, the borough is faced with a stormwater pump station and drainage strategy where the construction estimates are now substantially higher than expected. A five-year projection of the impact of sustainability efforts by the borough’s property owner’s association shows a potential 46% increase in property taxes. A borough promise made three years ago to develop a ten-year financial plan has languished without any resulting product. 
The 2022 budget called for no local tax increase. It allows for expanded recreational and tourism opportunities, ongoing street and infrastructure improvements, and all of the various activities residents and visitors have always expected from the resort community. It is, in a word, consistent. The question is whether that will be sufficient to meet the challenges of the future.
Have any thoughts and/or information on this story? Email vconti@cmcherald.com.