A bill introduced in Dover last week would restrict county and town officials from collecting transfer taxes on some rural developments and carry sobering consequences for already-straining Sussex County budgets.
House Bill 111 would disallow local governments from collecting realty transfer taxes – the meat of most local budgets — in Level 4 areas or those outside of designated growth zones. Under the bill, the state would collect the full 3 percent tax now collected by the county in those areas and apply those funds instead to a beleaguered state transportation fund and its general fund.
A similar measure was proposed last year but was defeated. If approved then, the measure would have meant a decline of nearly $10 million in county transfer tax revenue in the same year officials expected that line to fall 20 percent due to a slumping real estate market, according to County Administrator Dave Baker.
Baker said such a measure, if passed in the future, could result in an increase in property taxes and cuts in funding for emergency services and other programs that rely heavily on the transfer tax.
“It will have a major impact,” Baker said of 2007’s proposed bill, which will be discussed in committee when legislators return to Dover on April 24. “It’s not the type of thing that we can simply make some minor changes to make it work out. This would be a major revenue reduction in the county’s budget.”
The bill, introduced in the state house April 3, unveils a ubiquitous disconnect between officials at the county and the state levels.
Officials at the state level, citing a $1.5 billion transportation shortfall, complain that county officials approve development and receive its spoils without being held accountable for picking up infrastructure costs to support the resulting rising population.
State officials are largely responsible for doling out funds for roads and schools statewide — including in Sussex, where there is no financial help coming from local governments, which have themselves increasingly grown to rely on transfer tax revenues to support their own growing operational budgets.
Sussex transfer tax revenues rose from roughly $9 million in 2000 to $35 million in 2006 before dropping to a projected $28 million this year. County officials budgeted more than half of this year’s amount, $15.2 million, in the general fund to cover costs such as paramedics, state police subsidization and sewer grants.
“The counties and the local jurisdictions were told not to rely on the realty transfer tax, not to put it in the general fund and not to expect it,” said Connie Holland, director of state planning. “The state simply can not continue to bear the tax burden of development in areas that don’t have infrastructure to support it. It isn’t fair to citizens because they expect the infrastructure to support their way of life. Those people expect to have their services.”
State Sen. George Bunting (D-20th) said he supports action to help the state pay for infrastructure costs but does not expect HB 111 to clear Dover.
“A lot of times when you see a bill like this coming, you might be trying to make a statement. But I’m not sure you’re going to end up with anything practical in the end,” Bunting said. “The other side of the argument is the county creates density. Density equals people. People equal need for services. The county has no direct financial responsibility to build one road, county or state.”
State Rep. Gerald Hocker (R-38th) addressed concerns about the bill from Millville Town Council members on April 10, saying that he believed the intention of the newly introduced bill was a good one: to ensure that monies that had been going to Sussex County’s coffers for general uses would be spent specifically on infrastructure needs, rather than having the monies go for other uses and the county continue to rely on the state for infrastructure support in areas outside those designated for growth.
Speaking specifically to the potential impact on municipalities, however, Hocker said he hadn’t had a chance to fully review the legislation, but, “If one penny is taken away from the incorporated towns, I will fight it.” He noted that he had worked to help defeat the previous bill when it was offered two legislative sessions ago, for just that reason.
The 2007 bill is arguably one meant to control growth statewide and in Sussex, where development has reached even the most rural areas. Two developments of more than 1,000 homes were approved in the past year for Level 4 areas — areas the state has earmarked for preservation and where it does not help with infrastructure costs to offset those impacts.
Clarification of the impact might be needed in Sussex, though, where the county’s Environmentally Sensitive Developing Area, a designated growth zone, overlaps some Level 4 areas. It is also yet unclear whether funds collected in Sussex through HB 111 would remain in Sussex for designated infrastructure uses or be administered by state agencies.
“You have to follow the money,” said Sussex County Councilman George Cole (R-4th). “If they can show me the bill that would take the money from the county’s coffers and make sure it comes back to where the impact is, I would support it,” he added. “We have been so generous with development, approving everything, putting such as stress on infrastructure. I believe the legislators in Dover finally said enough is enough.”
Sussex County Council President Dale Dukes (D-1st) disagreed, saying that he could not support the bill, which would undoubtedly come with cuts in funding for programs and services.
“We have already got a list of programs, partnerships we do with the state, that will definitely go,” said Dukes, who mentioned state police subsidization of 32 troopers working in the county (which does not have a county-level law-enforcement agency), as well as library funding and local law-enforcement grants. “If we don’t have the money, we can’t do it.”
Hocker told the Coastal Point he has “mixed feelings” about the concept of HB 111, due to the potential impacts on both county and municipal government.
“What I do know is the county is the one that is approving all of the developments,” Hocker said. “The state cannot possible keep up. The state is going to have to have some kind of help from the county to get the infrastructure needed. We need to have a full debate on that.”