With a doubling of the town’s current property tax rate, from 8 cents per $100 of assessed value to 16 cents per $100, recommended by the Bethany Beach Budget and Finance Committee for the coming fiscal year, Bethany Beach town council members have had an earful from their constituents in recent weeks.
They got a bit more of that at their council workshop on March 12, as part of their own budget analysis prior to a public hearing and vote scheduled for today, Friday, March 16.
“The increase is to offset the downturn in transfer taxes and the resulting revenue shortfall for this year and beyond,” Mayor Carol Olmstead stated at the outset of the marathon Monday meeting. “We want to maintain the same quality of life that we all came here to enjoy.”
Aside from that comment, council members kept their cards on the issue close to the vest, opting under protocol to hold their stances until the planned vote on Friday.
Council Treasurer Jerry Dorfman, who heads the Budget and Finance Committee, noted that the committee’s recommendations were based not only on their own extensive experience in finance but in an attempt to increase the town’s revenue in a way that would offset the $600,000 shortfall in transfer taxes for the current fiscal year and reduce the town’s future reliance on an unstable income source.
Instead, the committee had focused on property tax as the only substantial “fixed” income source for the town, under the leadership of council candidate Joseph Healy, whose contributions, along with other committee members, Dorfman described as “invaluable.”
Dorfman said enhanced revenue streams under the committee’s recommendations had been designed to spread out the increases’ impact among property owners, visitors and businesses, with property taxes, parking fees and fines, as well as rental fees, and business license fees all recommended to increase.
With a buzz already going throughout the town over the proposed property tax increase, Dorfman noted that the last time the tax had been changed was in the 1990-1991 fiscal year, when new property assessments brought a major adjustment, from $1.10 per $100 of value to just 8 cents per $100. The change, in place in 1992, had roughly split the town’s previous tax bills among those who ended up paying more and those ended up paying less.
Resident Lois Lipsett took issue with the emphasis on how long it had been since a change in property tax rates, and for an unexpected reason.
“This is baffling,” Lipsett declared of the lengthy discussion over how much, or if, to raise the tax rate. “You’re talking about all or nothing, for one year. … Why not make a projection of a gradual increase? You have to raise taxes and do it every year for a long time,” she said. “Every year in D.C. they raise my property tax,” she noted.
Olmstead acknowledged the probable wisdom of planning for tax increases to at least match inflation in the future, but most of the day’s debate was over the need to raise property taxes by 100 percent in the coming fiscal year.
Future forecast gloomy without changes
Finance Director Janet Connery displayed multiple fiscal projections for the coming five years, detailing what the town might expect if expenses are increased at only roughly the rate of inflation and services remain at their current level. That accounts for a 5 percent increase each year, from $4.4 million in the 2008 fiscal year to $5.6 million in 2013.
In contrast, Connery used the town’s current actual revenue, $4.45 million, for the projected future, showing how the town would exhaust its cash holdings within two years, then dip into emergency and capital reserves to pay for operating expenses, and end up $3.5 million in the hole on its cash by the fifth year.
That assumes the town would collect only the $600,000 it has so far this fiscal year in transfer taxes — what Connery and Town Manager Cliff Graviet said they considered reasonable when transfer tax revenues could possibly continue to decline.
Graviet said he wanted to avoid taking a short-term look at solving the revenue issue, lest the town “be back here every year looking at parking fees and fines.” He said that unless the council was committed to increasing those numbers every year, they had to look further into the future.
Connery further noted that the town’s existing emergency reserves were intended to cover basics such as reconstruction of the beach and boardwalk in the event of a devastating storm that could otherwise mangle the town’s tourist-based revenue for most of a summer. That revenue stream itself is unpredictable, when storms could reduce revenue by $1 million and a booming summer could increase revenues by $500,000, she said.
Graviet also pointed out that the bare-bones budget needed to even begin to avoid a tax increase would mean eliminating existing capital projects, as well as simple maintenance of town property.
“This assumes that every truck in town will keep running and every building would never need repair,” he said of the 2008 expense requests, pointing also to existing plans to improve drainage and infrastructure on Pennsylvania Avenue — estimated at $2.5 million — as well as plans to improve Garfield Parkway and the former Christian Church/Neff properties.
Tax increases on property owners a concern
Resident Phil Boesch took issue with the tax increase, though, saying he felt the town’s east-side residents were already seeing the benefit in their property values of the trend of tearing down small cottages in favor of large beach homes and that the town should be seeing resulting increases in revenue from property tax — or it should fix that situation if it wasn’t.
Connery noted that the town had set its reassessments level even for new construction at the level of the 1991 dollar, to keep the tax base level between those assessed at that time and those assessed more recently. A tax assessment in 2007 or 2008 might help in that regard and could be ordered by the council, but it would likely pale in impact compared to the proposed property tax increase.
Graviet said the most recent reassessment work had increased town revenue by just $42,000, from $699,000 annually to $742,000 annually. That hadn’t even begun to offset the last two years’ downturn in transfer tax income, Connery noted.
Council Member Wayne Fuller said he was concerned about the impact of the increase on the town’s retirees, who are on a fixed income and might find it hard to adjust to the increased rate. But Healy said that a $600,000 increase in assessed property value resulted in the town collecting just $480 in additional property taxes on that hypothetical property.
“If you’re only paying $250, doubling that isn’t going to hurt,” Boesch countered. “If you’re paying $1,200, doubling it will hurt.”
Neighboring towns could be vision of future
Healy said he feared what would happen to the town without a property tax hike. With a deficit likely to exceed $2 or $3 million by 2013, he said, “That means we don’t have any cash. We don’t have any reserves, no money to fund anything, unless we really look now to put money aside for these things.”
He further emphasized that the town could reduce the tax again in the future, if transfer taxes were to go on an upswing again.
“Part of the problem with all these little towns is I don’t think they have a handle on what their real expenses are going to be in the future,” Healy added, referring to neighboring towns that have also suffered under the fall-off in property transfers and already have had to dip into reserves to keep operating. “Unless this is addressed now, we’re going to be in real trouble.”
Olmstead agreed on the subject of that kind of trend. “Not to have any reserves is unacceptable,” she said, with Healy noting the potential impact on the town if a nor’easter or hurricane should do major damage after their reserves had been tapped for operating expenses.
Healy did have some optimism, so long as the situation is dealt with soon. “The town is in very good shape,” he said of this year. “It’s the next five years that are very scary.” Healy said he agreed that without the proposed tax hike, the town would be in a deficit in five years.
Long-term impact of tax rate detailed
With that belief strongly stated by most who have been involved in developing the draft budget for 2008, discussion focused on two issues: Is a 100 percent tax hike really necessary? And, have the town’s expenditures been trimmed enough to be sure that the increase is really the only way to get the budget back in balance?
Connery presented a number of scenarios, involving both the suggested fee increases and various levels of property tax increase. The bottom line, she said, is that the town can just barely cover its expenses through 2013 if a tax increase of just less than 5 cents is instituted along with the fee increases and assuming no capital projects or other additional expenses that didn’t exist in the 2007 fiscal year are included.
With the proposed 8-cent tax increase and the fee increases, the town will get $271,400 in additional revenue annually that can be added to its existing reserves to help fund future capital projects and other needs, Connery noted. At 6 cents, with the fee increases, just $85,050 in additional revenue comes in for future capital needs — roughly the same amount as an 8-cent tax increase alone.
At 4 cents, with the fee increases, the town is at a $101,000 operating deficit (coming from reserves). That 4-cent increase, without the fee increases, leaves the town dipping $300,000 per year out of its reserves for operating expenses alone.
“Our reserves will be used up by 2010 with no changes,” Connery said, noting that the town could add $2.6 million to its reserves by 2010 if the proposed budget is adopted, tax and fee increases included.
Absent changes to fees and taxes, the town will have $548,000 in cash remaining for future needs by the end of the 2008 fiscal year, just $58,655 by 2009; it would be at a $570,677 deficit by 2010, a $1.42 million deficit by 2011, a $2.52 million deficit by 2012 and a $3.8 million deficit by 2013.
On the expenditure side, Graviet noted that the town’s department heads had already cut back in the 2007 fiscal year, letting three employees go and cutting back on regular and major expenses in an effort to offset the transfer tax shortfall.
Additionally, he said, they’d been asked to cut their budget requests by another 10 percent, right off the bat at the start of the budget process.
The town government has grown over the last five years, adding six employees. But Connery said most of those, five in all, were public works employees whose main tasks involved things like improving stormwater drainage, working on sanitation duties, cleaning the town’s beaches and basic landscaping tasks — services most town residents have appreciated.
The sixth employee was a full-time code enforcement officer, who is generally agreed to be necessary as the town has continued to grown in both full-time population and summertime visitors. Additional expenses have gone to increase the number of town vehicles that those employees have to use, as well as trash trucks, Connery said.
She emphasized that the council really needed to decide what level of reserves it wants to maintain in future years — a key figure in determining how much the town needs to garner in revenue annually for it to meet that goal.
Council Member Tracy Mulligan broke down the budget numbers in a different way, putting some 96 percent of the town’s expenses in to categories he considered bare-bones: personnel costs; monies that “keep the doors” open with supplies, maintenance and basic services; and monies that keep town departments working.
Mulligan said many of the town’s capital expenses in recent years had been resoundingly supported by its citizens. He noted successful efforts to trim expenses in the 2007 fiscal year, combined with the shrinking of budget requests for 2008. And he pointed to the fact that the town’s recreational expenses essentially are offset or garner revenue by the business they bring in to the town.
Fee increases may be due
In addition to the lack of a property tax hike since 1992, many of the fees proposed for increase this year haven’t been raised for at least a few years. Rental licenses and parking fines were last increased in 2002; parking fees and business licenses in 2003.
Among fees not proposed for increases this year, trash fees were raised in 2006, building permits in 2006, parking permits in 2007.
The town has no control over its transfer tax revenue, the rate for which is set by the state. The town’s water department is a separate fiscal entity that aims to operate at no profit or loss.
Mulligan said he believes that the level of services currently provided by the town is part of the value of properties inside the town. “If we cut these services, it will have an influence on people’s assets,” he concluded.
Council members will have to digest all of this information, the input of citizens and their own personal feelings about the town’s financial future in preparation for Friday’s budget vote.
The committee is set to hold a final meeting on the subject at 11 a.m. on Friday, followed by a public hearing on the budget. The council will have its final say at Friday’s 2:30 p.m. council meeting.