June 1, 2005

Fiscal 2006 will dawn with the recently enacted county budget intact. With a court challenge to its legality all but dead, property owners will not receive a tax refund, but neither are they likely to be hit with an increase in the tax rate before 2008.

Richard Korn, lead plaintiff in the taxpayer suit challenging the budget and seeking a refund, told Delaforum that the probability of his pursuing the issue further "is rather slim, if [it exists] at all." He left the door slightly ajar, however, by saying that he had yet to confer with his lawyers in the wake of an adverse Court of Chancery decision.

Chancellor William Chandler on May 31 denied a request from Korn and co-plaintiff Andrew Dal Nogare for a preliminary injunction blocking the $214.5 million budget from taking effect. Granting the injunction would have paved the way for arguing that some or all of the county's accumulated budget reserves should be returned to taxpayers.

Although the only question officially before the judge was the injunction, he took the opportunity while ruling from the bench after about 90 minutes of oral argument to outline his thinking about the probable future course of the litigation. That was encapsulated in two sentences: "The county had a problem which the court identified. New Castle County and its officials acted in good faith to remedy that."

County Executive Christopher Coons read that as a complete vindication of the approach he and his administration have taken in managing county finances since taking office in January. "This ruling sends an important message to New Castle County taxpayers that we are doing the right thing and that the judicial branch supports our contention that these [budget] reserves are appropriate," he said in a press statement issued after the ruling. Coons did not attend the hearing.

Korn was almost equally insistent that Chandler had upheld his position. "I'm very satisfied that what we set out to do we accomplished," he said.

Korn's view is that the suit was successful on two of three significant issues it raised. In a previous ruling, he pointed out, Chandler held that the policy of former County Executive Thomas Gordon's administration of keeping some reserves -- Gordon referred to them as a surplus -- in off-budget accounts not established by Council through legislative action was illegal. Korn said that, because of that successful challenge, the county's budgeting and reporting process was brought further out into the open than it had been previously and county officials are being held more "accountable for how they handle the people's money."

"If our lawsuit was not brought, county government would have continued in the same way they were operating," he said. "The process is only more transparent now because we made it more transparent."

He said he doubts that those things would have occurred anyway with the change of administrations. As president of County Council for four years before being elected to be county executive, Coons "knew what was going on ... [or] had the duty and obligation to know what was going on," Korn said.

He added that the six Council members who continued in office when Council was expanded -- one of whom has been replaced with a Gordon appointee -- shared that obligation.

Chandler strongly indicated in his comments from the bench that Korn and Dal Nogare would most likely fail on the refund issue. The harm resulting from the complexity and cost of arranging a refund, not only of property tax but also real estate transfer tax and other county revenue sources, would "far outweigh" any harm to the public from not receiving a refund, the judge said.

While acknowledging that he was the one who initially raised the issue, he said that harm would be acerbated by requiring the county to cut back its 'rainy day' reserve from 20% to a maximum of the 5% reserve for emergencies that state government maintains.

In a footnote in his original opinion, which was issued in February, Chandler questioned whether the state has the power to delegate to the county the authority to establish a reserve greater than the state constitution allows the state government to have. Chandler said he had raised the point only as "an interesting question, philosophically."

In a practical vein, he said, the record shows that the "clear intention" of the General Assembly in amending the constitution was to establish a fund to control spending during a budget crisis in the 1970s and not to curb savings. Moreover, he added, there was no intention to thereby impose a limitation on county governments.

During the injunction hearing on May 31, county attorney Gregg Wilson argued that budget reserves "are built up in good times ... to be there to protect the public in lean times."

The county reserves that the lawsuit challenged, he said, are the result of the Gordon administration taking advantage of "a bubble of prosperity" to set aside money "that is now being used to hold off future tax increases." As a result, he added, "the public is not distressed in any way by these funds" and, in fact, "there has been no public support" for having any of the reserves returned.

Arguing for the plaintiffs, lawyer Gary Traynor said the Gordon administration "set aside massive amounts of taxpayers' money" to be used as it saw fit. And, he went on, the present reserve accounts set up by Council in response to Chandler's initial ruling are, in fact, "legislative slush funds."

"They are not what your honor had in mind when you directed the new Council to go back and set things right," he said.

Chandler in his remarks refuted that. He said Council did so in "an open process ... [where] the public could hear and see" what was happening. "All of that, it seems to me, was done in good faith to comply with my order," he said.

Korn declined to say how the lawsuit was financed, citing traditional lawyer-client confidentiality.

He told Delaforum that he intends to maintain an interest in county affairs. "I am going to stay active ... if I can contribute and participate in some meaningful way," he said.

He added that he does not know whether he will again seek elective office. He ran unsuccessfully in 2004 for the Democratic nomination to run for election as county executive, coming in second to Coons in the primary election. Sherry Freebery, the county's chief administrative officer during Gordon's administration, also ran.


2005. All rights reserved.

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