I read Michael Bednarek's letter to the editor "Let's hope Rehoboth officials move forward" with interest.
He confirms, inadvertently, what I have suspected: that the business community that matters to some of Rehoboth Beach's voters is not the people who labor to conduct businesses, employ people, and provide goods and services within the city limits of Rehoboth Beach.
Rather, their primary concern seems to be for the owners of the commercial property on which business is conducted, and my sense is that most of those landowners do not operate the businesses or even own the businesses.
Owners of commercial property are not busy people, at least not in their role as the owner of commercial property. They do not create jobs, except perhaps for their tax accountant, their lawyer and their rental real estate agent.
They do not sign payroll. They do not add anything to Rehoboth Beach's economy or the county's economy or the state's economy, or the nation's economy. The land was here long before they were, and will remain when they're just a memory.
Instead, by virtue of having acquired a piece of land five, 10, 20, 30, 50 or more years ago, or inherited a piece of land, and, some years ago, added a building to it, they acquired the right, under our customs, laws and Sussex County's tax system, to collect from their tenants a large and almost-ever-increasing monthly or perhaps paid-in-three-installments (June, July and August) rent payment. As Rehoboth Beach's 2014 assessments show, most of the value is not in the buildings (with the exception, perhaps, of a few newer hotels), but in the land on which it sits. And many of the buildings are so old that they may have been fully depreciated not just once, but two or three times already!
The landlord might have built the building (or perhaps he inherited the property) but he didn't create the land value. We - all of us: residents, property owners, tenants, tourists, employees, along with the federal taxpayers who so faithfully renourish our beaches and the state taxpayers who build and maintain our highways - created that land value. But under our tax system, the landlord gets to pocket the lion's share of it – and you know how much of the total the lion gets.
A modest-sized restaurant building within Rehoboth Beach might have a rent of $85,000 per year. That is what the tenant pays the landlord. On top of that, the tenant pays the property taxes to the city and the county (neither of which is very onerous; the city because we have other good revenue sources besides the property tax; the county because Sussex County is still using 1974 assessments, which don't recognize the awesome and uneven increase in land values across the county in the past 43 years).
And the landlord has no expenses to maintain the building on which he is collecting rent, or to insure it or outfit it. (Look up triple net lease. He needn't stay in town in order to collect his rent. He gets to vote - and his tenant likely doesn't - so it isn't surprising that Mr. Bednarek is so pleased to see outreach to commercial property owners.
What we see is a form of sharecropping.
When an entrepreneur invests in opening a business, he has a lot at risk. What is the landlord risking? Whose interests should we be concerned about?
Landlords per se are not entrepreneurs. Our perverse tax system allows them to grow rich in their sleep, as one of the classical economists expressed it. Meanwhile the tenant businesses struggle to pay the rent. Just outside of city limits, there is an establishment that has opened and closed a few times. It has reopened now because the business owners are also the land owners. Not a coincidence.
If the businesses Mr. Bednarek is so concerned about are the landlords, I think we ought to be conscious of the importance of the distinction. Entrepreneurs work their tails off. Landlords not so much. They have direct deposit, and sign their tax returns. Many of them may not even be paying Delaware income taxes; their state of residence sees that tax revenue. And the gross receipts tax doesn't affect most of them. Whose interests should we be concerned about? Let's stay conscious of the distinctions here - and move our local, state and national public policy in the direction of rewarding labor and investment in capital, not speculation in land.
I've wondered who it was who voted for the changes we saw in Rehoboth's recent election, and wondered if it was the landlords. Perhaps I have my answer. I wonder if the residents will like the results. Who will benefit? The commercial landlords?
Wyn Achenbaum
Rehoboth Beach
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