November 3, 2006

a County financial-study panel
looking at a variety of approaches

Contrary to what you might have read or heard, no one in or around county government is considering selling any parkland or libraries. On the other hand, it is all but certain that resident taxpayers, and some passers-by, will be required to dig deeper to finance both vital services and amenities in both the short and long terms.

It's a foregone conclusion that County Council will approve a second consecutive increase in the property tax rate for the next fiscal year. Even before County Executive Chris Coons presents a budget and spending plan for fiscal 2008 in March, the lawmakers are likely to remove the 5% ceiling which currently applies to any rate  hike.

Beyond that, there will be a series of measures proposed, most of which will require county or state legislation and some of which can be done administratively, to bring about what are referred to as 'structural changes' in the ways county government raises and spends money in subsequent years.

They will be so deeply focused that they will require, to paraphrase the words of one taskforce member, a consensus of sorts on what sort of county the public wants and how much it is willing to pay for it. Following several boom years and more than a decade without a tax increase, the Coons administration maintains, the proverbial bubble has burst. While insisting there is not yet a financial crisis, officials warn that one of epic proportions is as close as two years away unless immediate steps are taken to head it off.

Those steps will be largely determined by recommendations from a so-called blue-ribbon taskforce put together by Council and the Coons administration. The panel is scheduled to report by the turn of the year, although one or more of its major recommendations will be delayed somewhat awaiting results of a consultant firm's study of how county employees' salaries and benefits compare with what other governments and the private sector pay people with comparable jobs. Personnel costs account for about 70% of the New Castle County budget.

From conversations at meetings of the taskforce and its four subcommittees has emerged a comprehensive list of other potential recommendations likely to be included.

Reports that the sale of assets such as parkland is a possibility are erroneous. Disposal of public parkland is tightly regulated and virtually impossible. However, it already has been determined that the county will test the water by formally seeking proposals from potential concessionaires to take over such functions as  managing the conference center at Rockwood, the equestrian program at Carousel and the tennis courts at Delcastle. Also on the horizon is the possibility of charging nominal fees to attend such events as  the popular Ice Cream Festival and overnight campouts. More significant would be joint maintenance agreements where county and state parks are adjacent or in close proximity.

Since it is the largest source of county revenue, the property tax system as well as the immediate tax rate will come under scrutiny. Open to question, for instance, is whether the senior-citizen and first-time-home-buyer exemptions are equitable when applied to high-value  properties. Limiting the exemption to the first $50,000 to $75,000 of assessed value would shift them from being age-based to being need-based. While it is unlikely that nonprofit entities will end up paying the tax, it is possible that a payment in lieu of tax will be sought from organizations such as the University of Delaware and Christiana Hospital which are run like multi-million-dollar businesses.

In addition to dealing with taxes, there no doubt the taskforce will recommend several steps to bring various fees more into line with the cost of providing services they are intended to finance. Middletown and unincorporated Westover Hills, for instance, receive county police services at what amounts to deep discounts under long-sanding contracts. A $1-a-month service charge to help support 9-1-1 emergency call service is applied to bills for land-line telephone service, but there is no such charge on cellular-telephone bills.

A longer-term recommendation will be to seek to reassess all property in the county to bring the assessment into line with market value. That was last done in 1983, with the result, chief financial officer Michael Strine said, that real estate is taxed on slightly more than a quarter its actual value. Relatively speaking, he added, commercial property, condominiums and townhouses are taxed on significantly higher proportions of their value..

State law requires that the property-tax rate be set after a reassessment at a level which will yield no more than 15% additional revenue. School districts are allowed a 10% increase without having to go to referendum. First-year county revenue would cover little more than the cost of doing the reassessment, but the higher rate would remain in subsequent years and authorizing a 'rolling reassessment' would provide for updates every two or three years so that assessed value in future year would follow the same trend lines as overall property values.

With budget drafting for the fiscal year beginning next July 1 in its early stages, the size of the inevitable tax- rate increase is pure speculation at this point. But the financial taskforce and its subcommittees have heard references to 15% as an order-of-magnitude suggestion. The current rate is 47.78 for each $100 of assessed value in unincorporated areas with that scaled down relative to the amount of services provided by Wilmington, Newark, Middletown and other municipalities.

Although proposing -- let alone imposing -- a double-digit tax increase is bound to be a political hot potato, it's not anywhere near as onerous as it might sound. At 15% hike would cost the average residential property owner an additional  $45, or less than $1 a week, according to Michael Strine, the county's chief financial officer. That is calculated on the average suburban assessment, $71,000, on a property with an estimated market value of $205,000.

The 5% cap also is not exactly what it sounds like either. Enacted by Council at the time it was considering what turned out to be an unsuccessful effort to reassess property, it limits only to what the executive can ask -- not what Council can grant. Leaving it in place, Council President Paul Clark points out, would require Council to completely rewrite Coons's budget or the administration to provide a double set of budget data. The former would make an already complex process more so and the latter would be an obviously unacceptable subterfuge.

Despite efforts to come up with simplified explanations, public budget drafting comes across to most people as something akin to alchemy. Even though for more than a year  there has been considerable publicity given to a looming fiscal crisis, there is still a widespread belief that county government is awash in surplus money.

Strine said that even though the budget reserve totaled $85 million at the start of the current fiscal year last July 1, spending in excess of revenue was anticipated to outpace revenue by $12.5 million. What actually has happened, is that a much-deeper-than-expected slump in the real estate market -- a local manifestation of a national trend -- has significantly reduced revenue from the county's portion of the state tax on real estate transactions and related fees. The projected operating had climbed to $17.1 million as of Sept. 30 was still rising.

Recently announced cost-cutting was aimed at reducing the near-term $10 million shortfall, but Strine said that does little to ward off the major crisis. If nothing were done to adjust either side of the ledger, he said, the reserve would be totally depleted by November, 2008.

In preparing their spending requests for the coming fiscal year, general managers have been instructed to allow for the 5% annual pay raise mandated by current employment contracts and then cut other spending back to end up with 96% of the resultant total.

Even so, he said, "that buys us time; it doesn't buy solutions."

Read previous Delaforum article: Coons orders steps to cut county spending


2006. All rights reserved.