Bethany Beach passes tax increase

Bethany Beach officials have had plenty of input in the last few weeks on the recommendations by the town’s Budget and Finance Committee to double property tax rates for the 2008 fiscal year.

The move was designed to reduce the town’s reliance on unpredictable transfer taxes, in favor of more consistent revenues from property taxes — especially in light of a shortfall in revenue from transfer taxes as a result of a slow real estate market.

At their March 16 meeting, the council members debated the issue at length and in the end reached a 4-2 decision to impose the recommended 8 cent increase, doubling the town’s property tax rate from 8 cents per $100 of assessed value to 16 cents per $100 of assessed value.

Vice-Mayor Tony McClenny and Council Member Wayne Fuller voted against the increase.

Fuller had championed a more gradual hike, at 2 cents per year over the next four years, with a reassessment of the need for the increase as future transfer tax revenues were tallied.

He said he was concerned about the impact of a more significant rate increase for the town’s retired population. Why should the town “sock it” to property owners at 100 percent, he asked, when the budget committee had decided to give Realtors a break in not instituting the proposed hike in rental taxes until the 2009 fiscal year?

“I can’t vote for the budget the way it is,” Fuller said, suggesting that the town find other ways to fund its operations in the short term, such as selling for development the former Christian Church property the town purchased with the intent to keep it as open space.

He also suggested that costly renovations to flood-prone Pennsylvania Avenue be scrapped to save capital expenditures. “We’ll always be flat. Accept it,” he added, seconding the recommendation of former councilwoman Jane Fowler earlier in the day that the town would be better off fiscally if it were to buy a pair of boots for every resident instead of trying to fight flooding problems so near to sea level.

McClenny was likewise concerned about the impact of a full 8 cent increase in a single year, suggesting that 4 cents for the 2008 fiscal year would be a good first step. He said he wanted the committee to review a future tax hike again for the 2009 and 2010 fiscal-year budgets.

“I believe the transfer tax will turn around,” he noted, adding that the real estate market had buoyed three times since he had resided in the town.

Compromise considered, but concerns remain

Mayor Carol Olmstead found compromise in McClenny’s suggestion, further recommending that the council pass a full 8-cent increase but that they hold off on putting 4 cents of that increase into effect until the 2009 fiscal year, at which time the additional increase would still be planned but with room for the council to increase, decrease or eliminate it.

“The 8 cent increase seems to best meet our needs,” Olmstead said, agreeing with the proposed budget. “But perhaps it seems to some like too much of a jump.” On the other hand, she said, “The 4 cent increase is not an acceptable solution for the town. It doesn’t solve the shortfalls.”

Council Treasurer Jerry Dorfman, who chairs the Budget and Finance Committee, was firmly in agreement with the latter aspect of her statement. He said he disagreed with McClenny’s assessment of the likelihood of a real estate turnaround and was more concerned about whether even the modest transfer taxes planned in the proposed budget could be counted upon.

“There’s no guarantee we will get that,” Dorfman said of the roughly $600,000 figure the town has collected in the 2007 fiscal year to date and which was the target revenue figure for transfer taxes in the budget projections presented by Finance Director Janet Connery.

Dorfman said he was concerned about a wider real estate market collapse and extended impacts on all mortgages after recent news of problems in the sub-prime mortgage market.

“The main objective of the committee was to reduce the town’s reliance on transfer taxes and get a revenue stream that this town can count on,” Dorfman emphasized. The lack of property tax increases by prior councils had led the town to the situation it found itself in that day, he opined.

Without the tax increase, Dorfman said, “The quality of life we still enjoy in this town would evaporate.” He also noted the committee’s efforts to increase funding from other revenue sources — such as proposed increases for parking fines and fees, the rental tax hike and a boost in business license fees — aimed to spread the impact around between property owners, renters, visitors and businesses.

Council Member Lew Killmer said he also agreed with Dorfman on the potential for a future that must be planned for.

“We need a stable income and not to rely on a variable income,” he said, adding that if the real estate market did turn around the town could look to tax rebates to offset the planned tax increase for property owners.

Killmer noted that the town already collects some 31 percent of its revenue from visitors, through rental taxes and parking, among other sources, and said he feared the variability in that revenue stream could lead the town into further fiscal danger should a summer season be strongly and negatively affected by a storm or other unpredictable element.

Connery had told council members she felt a bad summer could set the town back $1 million in revenue below projections, while a good summer could net $500,000 additional revenue. The revenue stream was not one she defined as predictable.

Killmer declared the proposed 8-cent increase “fiscally responsible,” saying it would preserve the town’s existing quality of life.

Future needs could further increase costs for town

Council Member Tracy Mulligan was also concerned about the potential for a worse-than-predicted year, particularly with the bare-bones budget that had been proposed in terms of expenses. He noted that no capital expenditures had been planned in budget projections, no funds allotted for regular maintenance of town vehicles or property.

Mulligan said he feared the town would end up draining its cash reserves if revenue wasn’t significantly increased. “I don’t support the 8 cent increase,” he noted. “I think that’s too low in the long run.” Moreover, he said, raising the tax just once might allow focus on the town’s revenue problems to be lost in the future, leaving a “structural problem” that hadn’t been addressed.

Instead, Mulligan proposed a 6 cent increase for 2008, with plans to revisit the tax rate in committee and council discussions going into 2009. But he said he could support Olmstead’s 4-cent/4-cent proposal, though it didn’t allow the town the kind of fiscal flexibility he though it needed.

The bottom line was the council’s final reference before votes were taken, with Town Manager Cliff Graviet reminding them that a 4-cent increase was not sufficient to keep the town in the black for the coming fiscal year. Indeed, it was projected to leave the town dipping into its reserves by $100,000.

Mulligan noted that the town had already used some $1.25 million of its reserves for capital projects in 2007. “Four cents leaves the future more uncertain,” he said.

Council splits on options

Dorfman added of the 4-cent option and the committee’s deliberations, “We felt charged with the need to have a revenue stream that would not get us into our reserves.”

That led into a 4-2 vote against Olmstead’s suggested 4-cent increase for both of the next two years, with the mayor and McClenny in favor. It was also a 4-2 split on Mulligan’s 6-cent increase, with Killmer joining him in favor.

Fuller alone was in favor of the 2-cent increase over each of the coming four years, with council members expressing distaste for the impact that would have on the town’s reserves.

Finally, Dorfman asked for a vote on the original budget proposal, which includes:

• the 8-cent property tax increase;

• a delayed hike in rental taxes from 5 cents to 6 cents in 2009;

• parking meters increased from $1 per hour to $1.25 per hour;

• parking fines increased from $20 to $25 per offense or expired meter; and

• business licenses increased from $150 to $180 per year.

Council members noted their particular concern about the town operating in the red and depleting its reserves, leaning toward the proposed doubling of property taxes as a way to ensure that the town’s reserves would build slowly rather than be depleted.

They voted 4-2 in favor of the proposed budget, as drafted, with McClenny and Fuller casting the opposing votes. (Council Member Steve Wode was absent from the meeting.)

With the decision made, Mulligan also asked the committee to make sure to look at the possibility of a future wholesale reassessment of town property values, which might help boost the town’s revenues over time. The existing assessments were last done in 2001 and have been kept level at the rate of that year’s dollar ever since, to avoid impacting newly assessed structures more than others.

Dorfman noted that a reassessment had been considered by the committee but had not been recommended due to the roughly $150,000 it would cost the town to do. However, council members were open to studying the idea to further improve the town’s fiscal picture in the long run.

Olmstead pointed out that the 8 cent tax increase reduces property tax from 16 percent of the town’s general fund revenue in 2007 to just 11 percent in 2008. Property taxes go from just 15 percent of the general fund revenue in 2007 to 28 percent in 2008.

The 2008 budget, as passed, calls for $4.416 million in expenditures, down 10 percent from 2007. Revenue is expected to increase, to $5.423 million — including both $4.453 million in previous revenue sources, and $970,000 in increased fee and tax revenues.

Some 50 percent of the town’s property owners currently pay between $101 and $200 annually in town property tax. With the property tax increase of 8 cents, they would pay $16.67 more per month on average.

Just 6 percent of the town’s property owners pay more than $600 per year. They would see an increase, under the 8-cent hike, of approximately $58.33 per month.

The average property owner in Bethany Beach pays just $250 per year in property taxes under the existing 8-cents-per-$100 rate.

Town divided over budget shifts

Still, the proposed budget raised concerns for many in the town over the last few weeks. An unintended e-mail dialogue amongst Bethany Beach Landowners Association (BBLA) members netted some 57 responses on the issue, with 24 favoring the proposed tax hike, 13 neutral on the issue and 19 opposed, according to Mulligan.

Commercial property owner Jack Burbage had resisted the rental tax increase during discussions earlier on Friday, saying that the impact on year-round renters — particularly those renting commercial property — was disproportionate.

A 1 percent increase, he said, could cost a renter paying $100,000 for the year an additional $1,000 above the $5,000 in rental tax they were already paying as part of their rent. That would come out of potential profits, he said.

Olmstead noted there was potential to consider commercial renters or year-round renters differently. In the past, the tax rate has varied between residential rent and commercial rent. It may do so in the future, or differ between year-round renters and those who rent seasonally or weekly, she indicated.

Despite some trimming to the expense side of the budget, Fowler and resident Joe Balestry both found fault with the town’s expenditures for its summertime visitors.

“Why do we need to fund entertainment for oppressive crowds of people five or six nights a week?” Fowler asked the council, referencing previous years when boardwalk entertainment was two or three nights per week.

“We want our town back,” Balestry declared, saying he no longer felt he could take his children to the boardwalk area during the period from June through August, or to the beach, as it was too crowded and people were packed too close. He favored raising the rental tax rate to a point where tourists no longer fill the town.

If the council wants to raise property taxes, “so be it,” he said, “but give us people of the town something in the off-season, something just for us. Give us a nice, quiet town. We own this town. It’s our interests that should be served first, always,” he concluded.

However, Burbage was deeply concerned that the town would shoot itself in the proverbial foot by increasing rental taxes beyond the point where renting was feasible for many. “Don’t kill the goose that laid the golden egg,” he warned..