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November 3, 2006

 

Thanks to the precipitous drop in activity in the real estate market, New Castle County government will come face to face with a budget crisis sooner than had been expected.

"We have to take action this fiscal year," chief financial officer Michael Strine told the monthly meeting of officers of 'umbrella' civic organizations. "Internally, we're (the Coons administration) working on a plan to do that."

Jeff Bullock, chief administrative officer and second-ranking county official, did not specify what the plan will propose, but he did refer to it as involving "shared pain across county government -- employees and taxpayers."

He indicated that the plan will be presented to County Council soon after at least two and possibly three new members are sworn into office on Nov. 14. Three other members whose terms are expiring will be returned without opposition in the Nov. 7 election and there are seven whose terms do not expire until 2008.

Council president Paul Clark said the biggest problem he anticipates will be to convince the public that county government is in a fiscally precarious position. Running a close second to that, he said, will be to get the public to understand that New Castle County property tax is low both when measured against the services that county government provides and when compared to levies in other jurisdictions in the region.

Many people, Clark said, do not differentiate between the county tax and the property tax that school districts impose. School taxes have gone up significantly while the county tax rate and property assessments remained unchanged for 11 years until this year. Strine said that, when adjusted for the increase in residential property values, county taxpayers enjoyed the equivalent of having their tax cut by about a third.

"A buck a day is a hell of a good deal. If it goes to a buck fifty, it's still a good deal," Clark said. "You (civic leaders) are going to have to help us get that [message] across."

It was obvious from discussion at the meeting on Nov. 2 that county property owners can expect an increase in the property-tax rate in the coming fiscal year and that it most likely will be significantly higher than the 5% increase imposed for the present fiscal year.

Also likely will be a reduction in the size of the county workforce.

However, neither of those things can be done in the immediate future. The tax rate cannot be changed during the fiscal year, which does not end until June 30, and most contracts with the heavily unionized workforce have clauses prohibiting involuntary terminations other than for disciplinary cause.

That would indicate that if Council is asked to take any actions before dealing with the proposed fiscal 2008 budget which County Executive Christopher Coons will submit in March it will have to be directed toward making cuts in existing budgets of county departments. That translates into reductions in some services.

Referring to the as yet incomplete plan, Bullock said the administration "is trying to do it in a way that is thoughtful [and] not degrade services more than is necessary."

In a separate context, Strine noted that one of the options now being considered by the taskforce established to produce recommendations for a long-term restructuring of county finances is 'privatization' of some public services. The panel is looking at "services that can be done more effectively by the private sector," he said. But he added that presupposes the ability to find a private, presumably for-profit, entity able or willing to take on such services.

Strine said the county workforce grew by about 200 positions between 1998 and 2005. Each year, about 60 positions become vacant and roughly half of those are open to a decision whether or not they should be filled. "Our hope is that we would be able to do it (reduce the workforce) by attrition, but you never say 'never'."

The alternative, he added, is "to reorganize government and not do everything we [now] do."

Clark said that cutting the number of employees and reducing the level of county services would be counter to "everything I've heard" at civic meetings and private conversations. "People say we don't have enough police or code inspectors," he said.

As Delaforum previously reported, the looming crisis is the result of a much-sharper-than-anticipated drop in revenue from the property transfer tax. Estimated income from that source has already been reduced by $6.4 million and Strine said it is now anticipated that a further reduction will be necessary.

Year-to-date, he said, the drop in revenue from that tax has almost wiped out the full-year anticipated gain from the higher real-estate tax. "Real estate was a great place to be in the '90s; now it's a lousy place to be," he said. New Castle County is almost totally dependent upon real estate for its income.

Spread across the entire county budget, Strine said, real estate tax provides $1 for every $1.26 county government spends on service delivery.

Another possible long-term solution, he said, would be to reassess properties to bring the assessments in line with market values. State law provides, however, that the tax rate would have to be reduced to the extent that the reassessment would result in no more than a 15% increase in county revenue. That, he added, would do little more than cover the cost of the reassessment. School districts, however, would be allowed a 10% revenue increase, presumably without have to occur any expense in connection with the reassessment.

Clark indicated that one step County Council is likely to take in the near future will be to remove the 5% ceiling on the size of a property-tax increase the county executive is permitted to propose. Clark explained that the limit is "meaningless" because it applies only to what can be proposed and not to what Council is permitted to enact. On the other hand, he said, seeking to impose an increase by "a double-digit percentage" would certainly draw public opposition irrespective of the dollar amount that involved.

Nevertheless, Strine's running projection of what would be required if present revenue and spending patterns are allowed to continue and if the entire then-anticipated budget shortfall had to be made up by the  real estate tax would be a rate increase in excess of 30% in fiscal 2009.

To avoid that, Bullock said, "it is important to address the issues now."

"People tell me, 'Don't do to us [then] what Delmarva [Power] did to us'," Clark added.

2006. All rights reserved.

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