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January 11, 2007

Removal of tax-rate cap is
start of a challenging process

With a successful scrimmage behind them, Chris Coons said he's ready to lead his administration in a "challenging march down the field." Carrying the sports analogy he used during his monthly meeting with business leaders a bit further, it's a fair assumption that whether the fans' cheers or the boos prevail will determine if the quarterback and some of the team will have their contracts renewed when they run out next year.

To be sure, the challenge the county executive faces is not a game, but a serious contest to determine how Delaware's most populous county is governed and what services its government is able to provide in coming years for its more than half million residents.

Coons was obviously pleased at the meeting the morning after a majority of County Council agreed that he should not be bound by an arbitrary limit on how large a property-tax increase he can seek when he presents his fiscal 2008 budget. "We (the administration) now has the ability to put together a budget that might include a tax increase of more than 5%," he said.

The 'might' in that comment is clearly academic. Coons did not react when Michael Strine, his chief financial officer, reiterated what he has said frequently during the past several months: "There is no possible scenario in which Council will not have to enact a tax increase in excess of 5%."

According to hypothetical scenarios posted on the county website, Strine estimates there would be a $280 million deficit accumulated between now and 2012. With 5% increases each year, the shortfall would still amount to nearly $160 million.

Because county and other local governments by law cannot deficit spend, those figures translate into a sequence of obviously unacceptable cutbacks that would eliminate the Department of Community Services -- which operates the county's parks and libraries -- by 2010, the Office of Emergency Management by 2011 and the Department of Land Use by 2012.

Noting that he "already [is] beginning to get panic calls," Coons stressed the obvious at the meeting on Jan. 10: "They're just hypotheticals to show the extremes of what could happen. They're not actual proposals this administration would make."

Still, he added, "there's no scenario that works easily."

He also cautioned that the proposed property-tax increase "should not be taken out of context." As previously reported, it is one of several short- and long-term proposals put forth by the Financial Future Taskforce, a proverbial blue-ribbon panel convened jointly by the administration and Council.

The taskforce has yet to complete its work. It currently is awaiting results of a consultant study of how pay and benefits of the 1,650 county employees compare with rates for comparable jobs in both the public and private sectors, and of a professional survey of residents aimed at determining which government services they value and for which they are willing to pay more.

Those clearly are key components of any comprehensive approach to dealing with the fiscal situation. About 75% of the current $230 million budget goes to cover personnel costs.  Topping the list of desired services is providing for public safety, which accounts for 48% of spending. "Everyone wants more cops and paramedics," Council president Paul Clark said. "We wouldn't have a secure [area] if we didn't have a county police force."

The property-tax increase and expected increases in the fee structures for some county services are required, taskforce members agreed, if the General Assembly is to seriously consider any request for state financial assistance for the county.

Delaware and Mississippi are the only two states which do not have some form of revenue sharing with local jurisdictions, according to former Councilwoman Karen Venezky, who sponsored the resolution establishing the taskforce and co-chaired it with Strine.

Coons told the business leaders meeting that he has had a preliminary conversation with Governor Ruth Ann Minner, but that no specific proposal for aid has been made. In any event, it would not help ease the situation in the coming fiscal year. The county's fiscal 2008 budget has to be enacted before June 1; the Assembly traditionally does not act on spending legislation until just before it adjourns on June 30.

Removing the 5% cap on a property-tax was largely an academic exercise. It just limited what the executive could propose; Council was not restricted on what it could enact. But the 10-to-three vote to repeal and, more significantly, extensive discussion at the finance committee meeting where the measure was considered prior to Council's plenary session provided a good measure of how Council members feel about the issue.

Clark and George Smiley, who is acting chairman of the committee and sponsored the ordinance, were highly supportive. "A lot of thought and work went into this. ... This stellar blue-ribbon panel has unanimously endorsed lifting the cap," Smiley said.

"We have a very low marginal tax rate. New Castle County has been a bargain; it will remain a bargain," said John Cartier.

At the opposite end of the scale was William Tansey who said flatly, "I don't think we ought to raise taxes at all."

Jea Street and Timothy Sheldon questioned the justification for seeking higher taxes citing, respectively, high-ticket spending in the past and alleged neglect of several cost-saving options. "The gravy train has got to jump the track," Street said.

Steering a middle course was William Bell who agreed that lifting the 5% limit was probably a good idea under present circumstances, but said he was uncomfortable with not having any limit. He suggested that 10% might be appropriate. However, he did not attempt to amend the ordinance and when it came to a vote supported it.

Still to be seen  is what will happen when Council delves into the arcane world of public finance and  holds department-by-department hearings on the budget proposal which Coons submits. For the past several years, the voluminous legislation has moved through the process with no significant changes or effort to make any.

"How can you vote against something if you don't have an alternate plan?" Sheldon asked. "A lot of decisions were made in the past that bound us for years to come," David Tackett said.

Also uncertain is what will happen with other proposed legislation to implement some or all of the taskforce's short-term recommendations.

Recognizing that a precipitous drop in revenue from the real estate transfer tax and related recorder of deeds fees was the main cause of an accelerated depletion of  accumulated reserves used by the previous Gordon administration to stave off any tax increase during its tenure, James Wolfe, president and chief executive officer, Delaware State Chamber of Commerce and a member of the taskforce cautioned against dependence on a volatile and uncertain source of revenue.

"This county operates on a hope and a wish that you're going to sell more houses. If you tried to run a business that way, you wouldn't make it," he told the finance committee.

Get more information about this topic

Read previous Delaforum article: Council votes to lift tax rate ceiling

Read the taskforce's interim report and access related information

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