Former Sussex County Administrator Robert Stickels, now working with engineering firm George, Miles & Buhr LLC (GMB), made a pitch to Millville Town Council members at their very first workshop, on March 27, suggesting the town would be wise to consider establishing special tax districts to help finance public improvements and to move quickly to get the authority to do so.
Stickels attended the meeting with developer Jack Hayes, with whom GMB is working on The Estuary community near Camp Barnes in unincorporated Sussex County. Hayes has experience with the districts from the first such district created in Maryland and the first created in the nation, in California, where he previously worked in the banking industry, and Stickels had requested his presence to provide information to the council.
In a brief presentation, Hayes and Stickels proposed that the town request permission from the state of Delaware to add the creation of special tax districts to its powers, before the legislative crunch at the end of the current General Assembly session. The two men noted that a piece of legislation that would have made the districts available to all municipalities had gotten tied up in June of 2006 as late-session amendments and confusion had marked its demise.
Instead, Stickels said, only the City of Wilmington had received the power last year to employ special tax districts — something only the Town of Bridgeville currently has among all other municipalities in the state. Stickels said Laurel — which is experiencing nearly the same unprecedented level of growth as Millville is these days — already had a request in to legislators for the current session, to add that power to its charter. He advised Millville to join them, and quickly.
A special taxing district (STD), as they have been labeled in Maryland, is also known as Mello-Roos Community Facilities Districts (Mello-Roos) in California, Municipal Development Districts (MUDDs) in Texas, and Community Development Authority (CDA) in Virginia.
The benefits of such a district, as presented by the two men, would be the ability to more quickly fund improvements such as fire and ambulance service, and police service — the former stretched to capacity in the Delaware town and the latter not yet created there — as well as roads, water service, sewer service, schools, parks, libraries, cultural facilities and other types of basic infrastructure.
Property owners in new developments would fund infrastructure
Instead of putting the burden of those needs on the town, or on the county or state, a special taxing district would allow the town to assess special taxes and bonded debt on units within the prescribed district — typically a single large development. Property owners in that district would pay added taxes and/or regular payments on a bond debt.
The bulk of those funds would be collected in a special town fund, complete with offsets for any administration costs, that would build much more quickly than typical town property taxes — allowing infrastructure plans to be carried out by the towns with funds already in the bank, rather than stretching projects out over years under typical government or developer funding, Hayes said.
That resulting bond would be offered to investors — likely as part of a bond package in which the well-secured debt of the special tax district properties would be viewed as a revenue enhancer — who would then hold the entire risk of the debt, rather than the town. Buyers of the bonds who reside in Delaware would pay no taxes on their revenue from the investment, Hayes said, with typical initial bond denominations around $100,000.
Such bonds have only rarely ended in default, Hayes emphasized, with most of those in California, early in the history of the special taxing districts, when buyers and developers were unfamiliar with the practice. The bond is secured with the individual property upon which it is held, so as long as the individual owner is paying their regular bond debt payments, likely as part of their mortgage, there will be no default. Future buyers would see the bond debt as part of their title search information.
Hayes noted that programs exist in such districts where property owners can even pre-pay their bond payments, eliminating the debt entirely at the outset. He said a maximum cap for the bond was around 33 percent of the property’s value. Beyond that, he said, investors generally considered the bond too much of a risk. A more typical amount was 10 to 15 percent of property value, he said, with the term usually set at 30 years.
The tax payments are based on formulas that include the property size, use and structure size, Hayes said, and often continue with a reduced fee after bond payments are complete, helping to pay for maintenance of the infrastructure that was installed with the bond money.
The annual special tax, once the property is developed, he said, was generally less than 1 percent. The tax is usually included as a separate line item on the town’s tax bills. In return for the debt, new property owners — and the town — gain the related infrastructure, which might otherwise be financed through impact fees for a development or increased property taxes for all property owners.
At the outset of the process, towns seeking to create a special taxing district will have bond underwriters working with developers, consultants and the bond issuer to create a business plan for the bond issue, determining its scope and size, Hayes noted.
Stickels encouraged the town to consider the idea, saying that the potential for revenue for infrastructure projects was very alluring and had been known to spur interest from county or state government into developing their own special taxing districts that could compete with a municipal district for the revenue.
But Councilman Richard Thomas questioned whether the town would need such taxing districts, noting that Sussex County controls the area’s sewer service and has historically financed expansion itself or required developers to perform the work on their own tab, as has been the case with Millville By the Sea.
Hayes said that, in his experience, developers were generally more willing to help foot the bill for such improvements when there was a financing option like the special taxing districts, instead of having to find money up front or spread out their infrastructure project over many years. That could benefit the town, he said.
“What the town would say is, ‘No, county, you don’t have to fund the sewer,” Hayes pointed out, saying the resulting shift would remove the burden from county and other town taxpayers, and enable the developer to fund an entire water system, for example, in full, instead of building it in phases.
That could be an attractive option for Millville, where council members have been eyeing anticipated swells in real estate transfer tax in the coming decade as a revenue source with limited use for non-capital projects and where concerns about roads and other infrastructure keeping up with growth abound.
Council members did not discuss the issue further during their workshop and did not take a vote — a prohibition under the workshop format. But the issue of special taxing districts could come up again at a future council meeting and will likely be an issue for many towns in burgeoning Sussex County in the coming years.
Personnel manual, budget finalized, ready for vote
Also at the March 27 workshop, council members ironed out lingering questions about the town’s new personnel manual. With only one full-time worker in place so far, the growing town will add Town Manager Linda Collins to its roster of employees with full-time hours and benefits come May 1 and the start of the new fiscal year.
Millville is also set to hire a part-time finance administrator and a part-time receptionist, so the time was ripe to formalize personnel policies.
The extended debate over sick leave and vacation policy at the council’s regular meeting for March led to the creation of the new workshop format for an additional monthly meeting. And council members took advantage of the format to hammer out their differences on March 27, and settle on a policy that appeared to have an overall consensus behind it and to be ready for a vote at their April regular meeting.
Council members agreed to reduce the draft number of sick days for new full-time employees but ran into a conundrum with how to treat Collins and Town Clerk Debbie Botchie, who had been promised the number that was included in the original draft manual.
In the end, they agreed to grandfather the two employees, with new hires to receive the lesser number of days per year. The council also agreed to adopt a “use it or lose it” policy for vacation, with unused days not rolling over to the following year.
Council members also did a final perusal of their draft budget for the 2008 fiscal year, looking over updated numbers and making a decision as to how future donations to the Millville Volunteer Fire Company should be handled.
Collins said she had budgeted the town’s building fees at $100,000 for the year, with the 10 percent allocated to the MVFC coming up at $10,000.
But Councilwoman Joan Bennett said she was concerned about the term “donation” being applied to that number, as the figure was part of an agreement related to the fire company, rather than a true donation. Thomas seconded that notion, saying the funds had been “collected for a purpose.”
Council members agreed to drop the donation term, but Bennett said that left her concerned that the town was not being “courteous” to the MVFC if it simply elected to provide the 10 percent of building fees to the company and eliminated its usual annual donation — $5,000 last year — without notifying them ahead of time.
While the town is likely to end up sending at least $10,000, and as much as 6 percent of its total real estate-related revenue, to the MVFC’s fire and ambulance services, Thomas said that he knew MVFC officials had come to expect that the 10 percent would be on top of a donation from the town.
Vice-Mayor Gerry Hocker said he felt the town could afford to both make a donation and give the MVFC the promised 10 percent of building fees, and council members were in agreement, voting to add the $5,000 given last year to the 10 percent of fees for their 2008 contribution to the fire company and ambulance service.
Collins also noted that she had eliminated some $3,000 that had been initially budgeted for a new sign at town hall. Instead, she said, the $5,000 grant obtained from Sussex County in the 2007 fiscal year would serve to pay for the planned sign.
Finally, council members closed out their budget discussions with the notation that the “honorarium” provided to them was expected to be changed from the $25 per meeting voted at their January meeting to $50 per month, allowing for the additional workshop meeting but not increasing their compensation above that figure, no matter how many meetings they attend. Bennett said she opposed the change.
The budget will be up for an adoption vote at the council’s April 10 meeting, as will the personnel manual.