Push for special Millville tax

Fresh on the heels of a pitch by former Sussex County Administrator Bob Stickels, Millville Town Council members heard again on Tuesday the recommendation that the town quickly pursue the power to create special tax districts that could help the growing town finance infrastructure improvements at the head of development.

On April 3, the pitchmen were Bob Harris of the Millville Group — developers of Millville By the Sea; attorney Hal Salmons, who is an expert on the practice and was asked by Harris to speak to the council; and Joe Conaway, mayor of Bridgeville, the only town in the state to have already obtained and used the power to create a special tax district.

The three men described the districts’ creation as a way better way to finance infrastructure and other needs related to growth.

The districts allow government to create a tax that would apply to properties in just one area or development in the town. The tax would repay a bond that is held by investors. And the bond issuance would help create a fund upon which the town could draw for agreed-upon improvements related to the homes in the tax district’s boundaries.

The special tax district, in essence, allows towns to front the money for developers to add infrastructure and other growth-related needs at the outset of a project, rather than the developers needing to directly increase the sales price of individual homes or to take that money out of their own pockets at the start, before any homes are sold.

Conaway said the practice had paid off well for Bridgeville, where the Heritage Shores special tax district had been created by a town ordinance in 2006, with the specific goal of financing a town library for existing residents and all those buying within the district.

Some $1.1 million had been raised by the initial $20 million bond issuance, in addition to $500,000 the town received separately as part of its negotiations with the developer. The town has authorized up to $60 million in bonds to be issued over time.

Along with the library building fund, Conaway said the town had received repayment for a number of growth-related expenses, such as revisions to the town code.

Town pays nothing for improvements

“This is not an obligation that our residents have to worry about repaying. We did not pledge anything,” Conaway emphasized to Millville Town Council members.

He said the move had turned out to be one of the easiest and best things the town had ever done.

Towns’ credit ratings are unaffected by the issuance of such bonds, unlike conventional loans a municipality might receive, as the debt is held by the property owners in the new district and paid off — tax free — over 15 to 30 years, as part of the cost of owning property in a development where the town would then be able to provide infrastructure and other needs from the start, rather than having to save or borrow and repay a debt.

“The residents are told up front” about the tax, Conaway noted. He said there had been some minor communications problems in the initial period of selling homes in Heritage Shores, where salespersons hadn’t understood and explained exactly what was involved. But Conaway emphasized that any initial problems had been cleared up by the town, without a real complaint from anyone.

Each of those home buyers was expected to pay an additional $1,500 to $2,400 per year to the town in the special tax, depending on the unit’s definition as a single-family home, duplex or triplex, Conaway said, with a built-in 2 percent increase each year. The bond funds serve also to pay an administrator who would tell the town what amounts in special tax to assess each property owner in the district each year.

Conaway said developers had even paid the tax in advance for many of the first buyers, paying at settlement for a year or two, helping to build up a reserve in the town’s fund and serving as an incentive to early buyers. They could also pay some or all of the tax ahead of time on their own, he said. In the end, buyers had been paying between $710 and $1,040 per year in special taxes, Conaway said.

Public improvements could result

The first two years of existence for such tax districts, Salmons noted, the money is usually left untapped and building. After that, Conaway said, his town had submitted expense receipts that could “liberally” be categorized as being a result of growth in Heritage Shores.

Appropriate costs could include new libraries, museums, parks, roadways, public works needs, ordinance changes and updates, public safety and emergency services expansion, and more. Land set aside for parks inside Millville By the Sea could even be deeded to the town for public use, thanks to these funds. None of them could serve to build or maintain private amenities, they noted.

Millville Town Solicitor Mary Robin Schrider Fox asked for clarification on how the funds could be used for town infrastructure, noting that while Bridgeville had existing sewer and water service, and a police department, Millville has none of those things (aside from county-run sewer) and would have to build them to serve the entire town.

Would the town have to front money in respect to service in the older areas of the town, to combine with a percentage deemed directly related to, for example, a Millville By the Sea special tax district?

The men explained that while Millville By the Sea might constitute a hypothetical 50 percent of town property in the future, the fact that the town didn’t believe they needed a police department until faced with the growth resulting from the community might suggest the town was only responsible for 10 percent — or even none — of the cost of starting and maintaining a police department.

That was just one concern the town officials had to deal with in the early discussions of the issue.

Time pressing for action

But the clock is ticking on the first major step involved in obtaining the power to create a special tax district. As with Stickels before them, the men noted complications that had sidelined a bill before the state legislature in 2005, which would have granted such power to all municipalities in the state.

The June 2005 session had ended with the bill tied up in legislative confusion, tacked on with amendments, and, in the end, only applying to municipalities with more than 50,000 residents — the City of Wilmington, in essence. A similar bill is ready for legislative attention this year, but there are concerns that development-rights legislation could be tacked on to it.

Bridgeville made its own separate request in January of 2006 for a charter change to be permitted the power, despite its smaller size. Since then, both Millsboro and Georgetown have sought and obtained the power. And Laurel — under the same kind of growth pressure as Millville — is currently seeking it.

While Georgetown has yet to use its new power, Millsboro is in the process of creating a special tax district, and there is expectation that Laurel will do so as soon as its charter allows it.

Thus, with the June 2007 legislative session end looming, Stickels and Harris were both eager to have Millville make its own request to legislators for a charter change.

Rep. Gerald Hocker (R-38th) and Sen. George Howard Bunting (D-20th) are both on board and ready to put forward the charter change in their respective houses. Hocker raced back from Dover on Tuesday night to give his own input and state his support for whatever the council’s decision might be.

“I don’t want to influence your decision,” he emphasized. “I will be there for you if that is what the town council wants.”

Hocker supportive of concept

But, asked by Millville Mayor Don Minyon what Hocker would recommend if he were sitting in a town council seat — as Hocker’s son, Gerry, in fact does — Hocker said, “It would allow infrastructure to be put in place up front. And it spreads the cost out over years to the people who are buying in the development, instead of increasing the upfront cost to the buyer. It creates more affordable homes because it reduces what they pay at the start.”

Additionally, he noted that he’d received a number of complaints from constituents residing in new communities outside Millville where developers had been pushed into paying for infrastructure up front. He said they were now dealing with low-quality roads, streetlights that were in disrepair and sidewalks that were falling apart.

Hocker said that kind of problem might be avoided in Millville if special tax districts allowed the town to help developers build quality infrastructure right from the start, through the lower-cost tax bonds instead of conventionally borrowing for the projects or doing them piecemeal out of their own pockets.

He said the general feeling from the public was the people who cause growth should pay for its costs, be that the developer directly or the new property owners they sell to. Either way, the town might be wise to look for a way to make sure they aren’t the ones stuck with the tab.

Also pressing the council on the time front is the way in which a special tax district would be instituted, if the charter is changed. Some two-thirds of the property owners in the prospective district must vote to accept becoming part of the district for it to be created — a potential problem for an existing community with individual property owners.

But, currently, the Millville Group owns all of the property inside the prospective tax district. The fewer lots that are sold in advance of the creation of a district, the easier it becomes to pass that district should the town decide to create it, Gerry Hocker noted. If the charter change were to fail or languish through the end of the June 2007 session, the town and developer might have a bit more work in properly notifying buyers and getting their agreement.

With the pressure added by timing as the council’s April meeting nears with its legal advertising deadline past, Schrider Fox said the council might look to call a special meeting between then and their May meeting, at which they could vote on whether or not to request that Hocker and Bunting put forward a request for a charter change to allow creation of special tax districts.