February 15, 2005

Members of County Council turned down the idea of refunding property taxes and sewer fees and agreed to consider and, most likely, approve an ordinance which will make legal the approximately $190 million remaining of the money the previous county administration put into an array of reserve accounts.

Chancellor William Chandler, in deciding a suit brought by two county residents, declared the accounts illegal because they were not established by legislative action. Although the opinion the judge handed down did not specify a remedy, top county officials agreed that he was asking for remedial action.

Following the decision, Richard Korn, one of the residents, declared that the money should be "returned to the taxpayers."

As Delaforum previously reported, doing so was unlikely for a variety of reasons which Paul Clark, president of County Council, summed up as being "fiscally irresponsible."

At a meeting of Council's executive committee on Feb. 14, David Singleton, the county's chief administrative officer, described the process of doing so as a veritable exercise in futility.

Some time before the end of June, property owners, would, according to County Executive Christopher Coons, "get their tax bill back plus a little bit more." On or before Sept. 30, however, they would owe the county about 17% more than they paid last year. For the average taxpayer, that would translate into receiving between $350 and $360 and paying around $380. That does not take into consideration the cost of effecting the refund.

There would be a similar scenario as regards sewer fees -- which are due by the end of February -- but the fiscal 2006 hike would be 33%. It is almost certain that the sewer fee rate will be increased for the coming year, after having held for 12 years, but the increase being talked about is less than half of that and it may be spread in increments over two years.

The proverbial 'plan B' which Coons and Singleton proposed -- and the 10 Council members at the meeting seemed to agree is better -- would be to enact a simply-worded straightforward ordinance to establish a 'general fund reserve account', a 'sewer fund budget reserve account' and a 'sewer capital rehabilitation reserve account' in a revised fiscal 2005 budget. Those accounts would also be part of the fiscal 2006 and subsequent budgets.

The present 'rainy day' funds, which are provided for in existing law and which Chandler upheld as legal, would remain. Intended to assure that money is on hand to deal with significant unforeseen emergencies, they are set each year at 20% of both the general fund and sewer fund budgets. The chancellor, in a footnote but not in the actual opinion, did question the size of those reserves, which compare to 5% set-asides at the state level. That point was not raised at the committee meeting.

Singleton, who previously was secretary of finance in state government, told Delaforum earlier that a disparity is reasonable because the state budget is considerably larger than the county's.

Clark endorsed the administration's proposed ordinance after pointing out that it was drafted with his collaboration. "This seems to be the best way to go in light of the Korn [case] decision," he said.

"I would agree that the prudent thing to do would be to amend the budget," Councilman Robert Weiner said. Councilman John Cartier said that, unlike taking the previous Gordon administration's unilateral approach, enacting the ordinance would provide for managing budget reserves "in a judicious and sensible way." Councilman Penrose Hollins said it would "create more of a hardship on residents of the county if we had a stopgap refund."

Councilwoman Karen Venezky, who chairs the finance committee, said that the illegality which Chandler found in the Gordon-established funds "was a technicality and it can be fixed."

Neither the suing taxpayers, the judge nor anyone else in a position to comment has accused former County Executive Tom Gordon or anyone in his administration of personally benefiting -- other than possibly in a political sense -- from creation of the funds.

In fact, it was clear from discussion at the meeting that amending the budget rather than going the refund route is preferable largely because it will retain Gordon's stated purpose of using reserves to stave off a tax increase. Without the 'tax stabilization' set-aside, it would have been necessary to raise the tax rate this year in order to meet the statutory requirement to come in with a balanced budget. As things stand now, the rate could hold until as far out as fiscal 2009.

The likely path forward will be for the proposed ordinance to be introduced, possibly with most of if not all the 13 Council members co-sponsoring it as a gesture of solidarity, at Council's Feb. 22 meeting. It probably will be enacted on Mar. 7.

Doing so will theoretically more than double the present combined general fund and sewer budget from $210.5 million to $441 million. Singleton emphasized, however, that that does not involve any new money -- just a redefinition of what already is on hand.

The difference lies in the fact that the new reserve funds would be 'on-budget'. That means that Council will have to approve and the county executive sign off on transferring any of the amount from them to a spending line in the budget. Previously, the executive administration had discretion to use the money, theoretically at least, for any purpose.

Acknowledging that, in practice, most governmental reserve accounts are 'off-budget', Singleton said the Coons administration took the other approach "because that's what we believe the chancellor wants us to do." The alternative, he indicated, might risk reopening the suit.

The 'rainy day' funds are off-budget, but the law establishing them provides that that money can be spent only with Council's approval by a 'super-majority' vote.

Coons and Singleton asked Council to wait awhile before deciding whether to proceed with a disputed $80 million bond sale, which the Gordon administration voluntarily put on hold rather than have Chandler issue an injunction against it in response to one of the points raised in the suit. In his decision, he turned down the residents' request that he permanently block the bond sale.

 Coons promised that "after we resolve this issue (what to do about reserve accounts), we will be reviewing the bond issue from the ground up."

What is involved there is a definition of what is to be financed with the borrowed money. As approved by Council, the $80 million issue would have gone in part to finance grants for development of a nature center at the Christina Riverfront in Wilmington and the Iron Hill museum near Newark. Neither of those are county projects.

At stake in that eventual decision is the county's triple-A bond ratings by all three major Wall Street bond rating firms. Loss of the rating would require that the bonds carry a higher interest rate with resultant considerably greater debt service costs over their 20- or 30-year life.

Despite Federal Reserve moves to tighten money, Singleton pointed out that tax-free municipal bonds still command favorable-to-the-borrower rates. "There [would be] wisdom to lock in these favorable rates," he said.

As part of the administration's pitch to the executive committee, it lifted a corner on one part of a consultant firm's study of county finances which is underway. A simplified chart distributed at the meeting showed that county spending grew 33% during the fiscal years from 2000 through 2005, inclusive, while revenues went up only 8% during that time. And that disparity occurred even though state government increased the county's share of the real estate transfer tax and the northern Delaware real estate market has been experiencing a boom.

"It's useful for us to look back before we look forward," Coons said. "Anyone who has those trend lines is going to go broke."

The chart also showed a 12% growth in the county's workforce during the most recent term-and-a-half of the Gordon administration. Coons has said he wants zero growth in the immediate future. Toward that end, he told the executive committee that he has instructed department managers to justify holding on to the approximately 100 currently vacant positions and "choose which positions we can eliminate."

He added that he hopes that paring down the workforce can be accomplished through attrition rather than by lay-offs, but stopped short of declaring that to be his policy. While there is no job-freeze in effect, Singleton is personally reviewing any proposed new hires.

Coons said his announced intention to run a tight ship when it comes to county spending is showing signs of dissension as possible specifics are put out in various fourms including the series of public meetings he and Clark are conducting. "I have not heard a single citizen say please cut [any of] the services we have," Coons said.

"People want everything they have, and a little bit more, but don't want more taxes," Hollins said.

2005. All rights reserved.

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