Stone Harbor Adopts Budget as Property Owners Raise Questions

STONE HARBOR – Stone Harbor Council adopted a $21.5 million current fund budget that calls for a 3.4% increase in the local purpose tax April 18. Also approved was a $5.6 million budget for the borough’s self-financing water and sewer utility.
The budget is 70% dependent on the tax levy for its revenue. The use of borough surplus funds contributes an additional 13%. All other revenue sources, including state aid and local revenue from activities like beach tag sales and parking, along with dedicated uniform construction code fees, make up the remaining 17% of total revenue. The surplus funds used represent 64% of the total surplus balance at the start of the year.
The budget lists $14 million for general expenses to run the borough. The other $5.8 million in appropriations includes $1.7 million for capital improvements, $5 million for debt service, and $800,000 for deferred expenses and a reserve for uncollected taxes. Debt service remains high at 23% of total current fund revenue. In 2022, debt service was 21% of total revenue.
During the budget hearing, Richard Fuchs presented comments from the Stone Harbor Property Owners Association (SHPOA). Fuchs serves as the organization’s president. The SHPOA comments had been distributed to all council members and the organization’s members in a three-page letter before the meeting.
A major thrust in the SHPOA comments concerned the borough debt levels and resulting debt service payments. For several years, SHPOA has been calling for a 10-year financial plan “incorporating operating, capital, and debt service requirements.” Various borough officials have agreed to that request over the years but no such plan has been developed.
The SHPOA letter relied on debt service numbers from one of the council presentations made during the period when the budget was under consideration. Those numbers did not tell the full story of borough debt service and the letter that SHPOA submitted to its members, therefore, underestimated the extent of the debt service.
As noted above, the municipal debt service in this budget stands at just under $5 million or 23% of revenue. The SHPOA letter argued that as the debt service as a percent of total appropriations continues to rise, it is “crowding out other spending.”
The SHPOA letter also called for more attention to alternative revenue streams like a short-term rental tax, attention to bulkhead upgrades where the borough should set an example for homeowners who must meet new borough standards, and a plan for beach maintenance that avoids using debt as a funding source. The organization also urged the borough to focus on raising the level of its current fund surplus.
Chief Financial Officer James Craft and auditor Michael Garcia responded to some of the SHPOA issues. Garcia said that the borough does well generating surplus. He did not directly address the issue of the level of the surplus balance which is lower than many of the other county island communities.
Garcia also noted that the state has rules on debt levels with a state requirement that debt cannot exceed 3.5% of the equalized value of property in the municipality. Again, his remarks did not specifically address the SHPOA concern since it avoided the issue of debt service as a percentage of revenue in the budget and instead focused on the level of debt the borough could legally carry. He essentially told the borough what it would take to max out its credit card.
Both Craft and Garcia identified three cost drivers in the budget over which the borough has little control. These were the significant hike in premiums for employee health care, increases in salaries and wages driven by employment contracts, and the rising expense of pension contributions.
Except for the SHPOA comments presented by Fuchs, no member of the public elected to speak on the budget during the mandatory hearing. The budget was adopted unanimously by the council. 
Contact the author, Vince Conti, at vconti@cmcherald.com.