As Bethany Beach Budget and Finance Committee members have neared the end of the town’s annual budget drafting process they — like many other area officials — knew they were looking at the possibility of a tax hike in the town’s immediate future. Many of the area’s towns have had to deal with revenue shortfalls due to a slow real estate market and resulting less-than-stellar transfer tax revenues.
That change came one step closer to reality this week, with the Feb. 23 meeting of the committee and their recommendation to double the town’s property tax rate from 8 cents per $100 of assessed value to 16 cents per $100 of assessed value for the 2008 fiscal year.
“Committee members were advised that the average homeowner in Bethany Beach’s tax bill was $250 and that 72 percent of Bethany Beach tax payers have tax bills of $300 or less,” Town Manager Cliff Graviet said of the decision in a press release this week.
“It was noted that the last tax increase in Bethany Beach occurred in 1990, when property taxes brought in a total of $600,000; in the 2007 fiscal year, property taxes added $742,000 in revenue to town coffers,” he said. “This is an increase of only 24 percent in 15 years, when inflation for the same period is generally computed to be in excess of 50 percent. The increase is entirely due to renovations and new construction rather then a change in tax rate,” he added.
With that background, Graviet said, “After a lengthy review of multiple forecasts and budget scenarios focusing on five-year projections and possible tax increases that ranged from 2 percent to 8 percent, it was moved, seconded and unanimously approved that the town Budget and Finance Committee would recommend to the Bethany Beach Town Council that property taxes be … increased.”
The result of the increase would generate $745,000 in additional revenue, Graviet said.
Transfer tax revenues fueled capital projects
The town manager noted that the condition of the real estate market and its recent impact on town coffers had been high on the minds of those preparing the upcoming fiscal year’s budget.
“Committee members discussed how Bethany Beach has been incredibly fortunate over the last five years, able to avail itself of the State of Delaware’s law establishing a ‘transfer tax’ on real estate sales,” he said.
The tax takes 3 percent from the sale price of any home and transfers 1.5 percent to the state and 1.5 percent to the municipality or county (if no municipality holds jurisdiction) from that sale. In the 2006 fiscal year, transfer tax added more than $1.5 million to Bethany Beach’s coffers.
Revenue from the tax has enabled the town to pursue a number of capital projects and long-term investments in preserving property inside its limits for public use.
That includes the purchase the former Church/Neff parcel on the corners of Routes 1 and 26, purchase the two town trolleys, building of a new bandstand, development of the Natter property as an environmental preserve and education facility, beginning the restoration and enhancement of the town’s stormwater drainage infrastructure and “a long list of other projects and programs that have significantly added to the quality of life in Bethany Beach in just a few short years,” Graviet said.
Tax hike may have been overdue in town
Graviet noted that the booming real estate market and the accompanying transfer tax revenue in recent years had allowed the town to not raise property taxes after the town-wide property tax reassessment in 2002.
As a result of that reassessment, the tax rate dropped from $1.10 per hundred of assessed value to 8 cents per hundred of assessed value, and it has not been raised since, Graviet emphasized. When they considered a tax hike, committee members were advised the 8 cents per hundred valuation gives Bethany Beach the lowest property tax rate in the state.
As has been the case in many of the state’s coastal towns, Bethany Beach officials and citizens alike have expressed concern in a slow real estate market that the municipal budgets had perhaps become too reliant upon the boon of the transfer tax. Towns up and down the coast have been weighing cuts in planned projects and other expenditures, as well as increases in taxes and fees.
“With this year’s downturn in that tax, it was projected the town’s largest revenue source would come from the town’s Parking Department,” Graviet said in Wednesday’s release. Concern, he said, was voiced that the only stable and reliable source of revenue the town has is property tax revenue and revenue from sanitation billing.
Transfer taxes comprised some 29 percent of the town’s revenue in the 2006 fiscal year, while property taxes were just 13 percent of that total. Permit fees meters and fines came in at 16 percent of total revenue for 2006, rental tax 13 percent. Revenue from the other sources, Graviet said, depends upon a number of variables over which the town has no control.
Similar to discussions that took place in last summer’s budget discussions in nearby Fenwick Island, committee members questioned the wisdom of building a budget around revenue sources that were so unreliable.
Graviet also advised the Budget Committee on Feb. 23 that the proposed 2008 budget called for the town to use funds that had previously been committed for capital projects — primarily stormwater initiatives — to supplement the budget.
He also advised them that committing those funds would leave the town unable to fund new capital projects or major repairs to the current infrastructure.
“If revenue sources stay constant and no changes or enhancements are made, the town would have an annual budget deficit that would grow to over $400,000 per year in fiscal year 2010,” he told them. “The town would have a cumulative deficit of almost $4 million by the end of fiscal year 2013.”
Expenses cut, shortfall still forecast without increase
With an eye toward the bottom line and the expense side of the budget, town staff have also been asked to consider how they could deal with potential budget shortfalls within their departments.
“Committee members were advised that over a half-million dollars had been cut from this year’s budget, and the proposed 2008 budget had been cut 10 percent when compared to 2007,” Graviet said. Staff described those cuts as “significant” in some areas and said they had involved reductions of full-time staff.
“Committee members were further advised that other cuts would have a significant impact on the town’s ability to provide a variety of services at current level,” he added.
The committee members were faced not only with the idea of offsetting the loss of transfer tax revenues for the town’s operational budget but doing so in a way that might allow the town to save capital funds for future projects, such as the proposed Pennsylvania Avenue street/stormwater/water-supply project, now projected to cost $2.5 million.
In addition to the decision to recommend an increase in the property tax rate, the committee also unanimously recommended a series of other increases:
• Parking meters — increase current hourly rates from $1 per hour to $1.25 per hour.
• Parking fines — increase from $20 to $25 for expired meters.
• Rental tax — increase from 5 percent to 6 percent.
• Business license — increase from $150 to $180.
The above revenue enhancements would potentially add $365,000 to town revenue, Graviet said. Combined with the additional $745,000 in revenue from an increased property tax, the town would be looking at more than $1.1 million in additional annual revenue.
As Vice-Mayor Tony McClenny reminded the Budget Committee at the Feb. 23 meeting, the above changes are only a proposal — a recommendation for the Bethany Beach Town Council to take into consideration in the final weeks of budget preparation.
Council Treasurer and Committee Chairman Jerry Dorfman told committee members that he would place the Budget Committee’s recommendations on the Town Council’s agenda for their upcoming council workshop, on March 12 at 10 a.m. in Bethany Beach Town Hall.
Graviet noted there would be opportunity for public input at the next Budget and Finance Committee meeting, at 11 a.m. on March 16, as well as at the council’s public hearing on the budget (scheduled for 2:30 p.m. on the same day) and at the regular council meeting set for 7:30 p.m. that evening.
“There will be three separate opportunities for the public to listen and participate in a dialog regarding this issue before the council reaches any decisions,” he said.