News

October 1, 2004

New Castle County's highly touted budget surplus has crested and its key tax-maintenance component will essentially run out after about four years, according to chief financial officer Ronald Morris.

When that happens, he said, taxpayers can expect a property tax increase somewhere in the neighborhood of 15% followed by subsequent annual increases of around 5%.

Sewer fees will likely have to go up much sooner. That increase, also about 15%, will have to show up in bills which will be due in February, 2006, he said.

In a detailed presentation to County Council's finance committee, Morris revealed that combined reserves, built up during the eight years of the Gordon administration, peaked at $242 million as of the end of fiscal 2003 and dropped to about $230.5 million as of last June 30. Fiscal 2004 financial statements have not yet been audited.

Projected for the end of the current year, on June 30, 2005, is a balance of $196 million.

The $242 million figure was quoted frequently during the recent primary election campaign and has generally been used for several months in various contexts.

Calling Morris's comments "sobering," Council president Christopher Coons called for avoiding any new major spending projects to be financed from reserves. He said there has been "a significant run" on those reserves in recent months as a result of "a very large amount of previously unbudgeted spending" which has been approved by Council.

"If we continue to take on new projects at a $10 [million]-to-$13 million clip, we are going to advance the day of reckoning significantly," he said.

Coons is the Democratic nominee for election to succeed Gordon as county executive. It is the executive who, in the normal course, annually proposes both operating and capital budgets and advances most other major projects. Council approves the proposals, with or without modifications, and actually appropriates the money.

Morris made his presentation at the finance committee meeting on Sept. 28 in support of a plan to go to the bond market to borrow $80 million. When that plan was first presented to the committee two weeks earlier, questions were raised about its including $26 million to finance three projects which some Council members said they and the public had been led to believe were to be financed from the budget surplus.

As Delaforum previously reported, Councilwoman Karen Venezky decided not to introduce a resolution authorizing the bond sale that evening, pending clarification the issue raised by Councilman Penrose Hollins and auditor Robert Hicks. The projects that they questioned were the county's $15 million share of the buy-out of property owners in Glenville whose houses were destroyed by flooding during the September, 2003, storms; $10 million for a nature education center on the Christina River waterfront in Wilmington; and $1 million for Iron Hill Museum.

Morris prefaced his presentation on Sept. 28 by declaring, "Council has said you can do these projects and you can use bonds [to finance them]." After his presentation, Venezky secured the necessary support from three of her colleagues -- Councilmen Robert Woods and William Tansey along with Hollins -- for an off-agenda introduction of the resolution and an immediate vote at that evening's Council session. Because of the tornado and storm which hit northern New Castle County, however, the session was cancelled and a special session in lieu of it was scheduled for Oct. 5.

Morris had asked for quick action to get the New Castle County issue to Wall Street to take advantage of currently favorable interest rates before the traditional rush of municipal offerings, particularly more prominent ones from larger jurisdictions, toward the end of the calendar year.

The county sold $100 million worth of bonds in March after they were given their highest rating by all three major rating agencies. Morris said a new $80 million issue would keep county debt well within statutory limits and would be "consistent with our triple-A rating."

The current county tax rate -- 45 for each $100 of assessed property value -- has held since fiscal 1996. Barring an unexpected significant change in the pattern of county government spending, Morris said, it should continue to hold through fiscal 2009.

Although the portion of reserves which has been identified by county officials as the 'tax rate maintenance fund' and officially as a component of  'general fund financial reserves' will go away between now and then, Morris said both the mandatory 20% budget reserve and the 'rainy day reserve' will remain intact, providing an estimated $17 million spending back-up and averting any sort of financial crisis.

The gradual decline of the 'tax rate maintenance fund' was planned, he pointed out.

The fiscal 2004 budget will be the last for awhile that was written with black ink. The current budget is expected to run about $6 million in the red. That and the $15 million public safety grant the county is providing to the city government of Wilmington will account for the major inroads into the 'tax rate maintenance fund' this year.

The sewer budget has been operating at a deficit with that shortfall expected to increase this year from $6.5 million to $7.5 million. That will essentially wipe out the everything above the required 20% reserve against the operating budget, although the sewer fund's 'rainy day reserve' will stand at $11.3 million when the fiscal year ends.

Morris all but rejected a suggestion by Councilman Robert Weiner that a new bond issue greater than $80 million be considered. The finance officer had explained why a $200 million issue would not only be imprudent but also violate federal law. The idea behind the suggestion was that it would provide money at current interest rates against future capital needs.

Morris doing that, even as a lesser level, would result in borrowing money at 4% which, when invested pending its later use, would earn only 2%. He said no forecast of coming Federal Reserve interest rate maneuvers expects that they would result in anything coming close to justifying a $200 million issue. But he agreed to provide an evaluation of issues of $100 million and $120 million.

2004. All rights reserved.

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