April 18, 2005

County Council and the Coons administration are perched on the proverbial tightrope as the six-week process of enacting budgets for the coming fiscal year gets underway. There is still a safety net, but it's questionable whether it's in good condition and there is yet a possibility that it may be snatched away.

A year ago, former County Executive Tom Gordon enthusiastically delivered a self-laudatory valediction, graciously spreading credit among those in the upper echelon of his administration for a stewardship well done, as he presented his eighth and last budget to Council. Topping a litany of accomplishments were absence of any property tax increase during his tenure, a $242 million surplus -- his number and terminology -- and triple-a bond ratings from all three Wall Street raters.

In the unlikely event anyone missed the point, those and other achievements were reiterated in the 416 pages of text and color photographs which made up a document entitled 'Excellence 1997-2004: A Final Report to the People of New Castle County'.

Gordon asked for just under $206 million. Adding $1.5 million to finance its own doubling in compliance with a state law which many, including Council itself, deemed ill-advised or worse, Council gave him $207.5 million and change.

Twelve months later, things couldn't be more different.

County Executive Christopher Coons came before the expanded Council with a request for $214.5 million contained in a speech which bordered on the austere. The county, he said, is not flush with money.

"The perception is that we're sitting on an enormous 'surplus' -- an incredible pile of loose cash that we can spend freely on anything we choose. The reality is that we do have a substantial accumulated reserve, but we've also been increasing our expenditures over the past few years at a brisk pace and are now spending significantly more than we are taking in," he said.

The administration describes its $214.5 million spending plan as a 3.35% increase over the $207.5 million fiscal 2005 budget which Council originally approved. However, Council has since authorized spending an additional $3 million. That would make the proposed budget only 1.8% higher than the current one as it stood on Mar. 30.

Soon after taking office in January, Coons hired Nachman Hayes Brownstein, a consulting firm, to make an independent evaluation of county finances. Chief administrative officer David Singleton told Delaforum that had intended to have someone from the firm share the results of that study with Council's finance committee on Apr. 12, but had put off doing so when the committee meeting ran beyond the scheduled time. He declined a Delaforum request for a copy of their report before what he said would be a mostly oral presentation is made at the committee's next meeting.

Coons has proposed that 27.3% of the $168 million designated as property tax- and sewer rate-stabilization reserves as of March 30 be spent to balance fiscal 2006 general and sewer fund budgets.

If that is done, those reserves may total $63.4 million come June 30, 2006. There would be another $42.9 million in the county's 'rainy day' funds. Existing county law requires setting aside the equivalent of 20% of the budget in order to have money to meet any emergency that might occur.

The $242 million that Gordon spoke of in March, 2004, included the emergency accounts. It had declined to $230.5 when fiscal 2005 began last July 1 and has further melted to $204.8 million by Mar. 30. Council and the Coons administration have indicated that they don't want to further erode the reserves between now and June 30, when this fiscal year ends.

If that sounds complex in the telling, it is further complicated by a pending lawsuit. Because how the suit will turn out is an unknown, comments about the county budget have to be qualified by the word 'may'.

Richard Korn, who had sought the Democratic nomination which Coons won to run for county executive, and an associate, Andrew Dal Nogare, have asked Court of Chancery to order the county to "return to the taxpayers" the reserves that were accumulated in accounts the court previously ruled to be illegal since they had not been authorized by Council.

Council has since retroactively combined several off-budget accounts into a tax rate stabilization account and a sewer fee stabilization account. They make up the non-emergency reserves. The preamble to the ordinance establishing the new accounts referred to the court determination that the previous arrangement was illegal as having turned on a "technicality."

The suit also has been amended to seek a declaration that the 'rainy day' funds are too large. In his original opinion, Chancellor William Chandler raised that point in a footnote questioning whether county government, as a 'creature of the state', had the authority to establish such funds in excess of the 5% set-aside that state government maintains. He did not rule on the matter because it was not then before the court.

Korn told Delaforum that there is nothing in recent county actions or pronouncements that deters continuing to press the lawsuit.

"For years, county spending has caused deficits in both the general fund and the sewer fund -- deficits that our elected officials knew about and permitted. There is nothing in the proposed 2006 county budget of approximately $214 million that justifies keeping almost $240-plus million [sic] of illegally accumulated surplus taxpayer dollars," he said in a statement.

"The continued operating deficits can be and should be dealt with responsibly by cutting spending and not by threatening to cut services or to raise taxes. Any claim by anyone that $240 plus million is needed to eliminate the deficits is irresponsible and misleading."

How the money would be 'returned' if the court were to so rule is anything but certain. Suggestions include mailing everyone who pays property tax a check or declaring a 'tax holiday' for the coming year. Coons, Singleton and other county officials have said that either would be fiscally irresponsible and would result in an immediate huge tax rate increase or a drastic cut in county services and wholesale layoffs of county employees or both.

Property taxes account for only a third of county revenue. Sewer fees are a fourth and the real estate transfer tax makes up about 15% of the total. All those and other sources contributed to the reserves. There has been virtually no public discussion about how any 'return' could be equitably distributed among them or, for that matter, residents who have moved into or left the county during the several years that the reserves were being accumulated.

Meanwhile, Council on Apr. 12 received a package of proposed legislation that would authorize the course which Coons requested.

At its core are the budget ordinances. In addition to the one authorizing the $214.5 million for operations, there is one providing for $58.7 million of capital spending. Of that, $40.7 million would go to sewer-related projects of which the largest are expansion of the sanitary system south of the Chesapeake & Delaware Canal, $30 million; and continued rehabilitation of the system in Brandywine Hundred, $8 million.

The capital budget also restores the $10 million previously cut from the parkland-acquisition fund to partly finance $17 million for stormwater- and flooding-related projects. Previously authorized $2 million for capital projects at Carousel Farms park would be eliminated. Expansion of the Hockessin library would be financed by just under $1 million and $686,000 would go to the new Woodlawn library in west Wilmington.

Capital spending would be financed in part by a $10 million bond issue Council is asked to authorize. An $80 million issue was authorized in 2004, but was challenged in the Korn-Dal Nogare lawsuit. County officials agreed to defer selling the bonds and Chandler accepted that in lieu of issuing a preliminary injunction barring the sale. He later ruled against a permanent injunction.

The biggest change from the previous bond proposal is elimination of $25.6 million previously authorized for sewer work and $8.8 million for parks.

Coons proposed that 95% of the sewer rate stabilization fund be diverted to finance the sewer work. In addition, Council is being asked to increase sewer rates by 28.1%. The average residential charge would increase to $233.70 from $170.50, according to the fiscal note attached to the proposed ordinance. Instead of the entire amount coming due on Feb. 28, as has been the practice, bills would be payable in two installments.

It has been generally assumed that a sewer fee increase -- the first in 12 years -- was in the offing.

The property tax rate would remain at 45.5 for each $100 of assessed value in unincorporated areas of the county. Because residents of municipalities do not receive all county services, their rates will be lower. The difference ranges from 7.75 in Arden, Ardentown and Ardencroft to 29.1 in Middletown and 29.7 in Wilmington and Newark.

Also proposed to be increased are fees charged by the sheriff and recorder of deeds. They are estimated to yield approximately $1 million and between $1.2 million and $1.5 million, respectively, in annual revenue.

2005. All rights reserved.

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Read previous Delaforum article: Coons asks for large sewer rate hike, but no tax increase
Read previous Delaforum article:
Gordon said hes leaving the county in very good shape 
County Executive Christopher Coons's Budget Address
Read: County budget documents

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