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Realtor has suggestions on revenues

March 13, 2017

The following letter was sent to Gov. John Carney with a copy submitted to the Cape Gazette for publication.

I do understand that the state needs to balance the budget, and I also know that you inherited a bad situation from the previous governor. He did not address cuts in spending that he had assured us he would. He was elected in part because of his background as treasurer and his promises to take that same approach to governing. Now, a mix of cutting spending and generating new revenues is necessary.

In the interview with WRDE, they trimmed a lot of what I shared regarding "unintended consequences." I am the broker/owner of Active Adults Realty, an independent brokerage with 15 agents and three staff. We do business all over Delaware and generated $55 million in business in 2016. We opened in 2010, just as the real estate market was showing signs of recovery.

Why do I think implementing a new property tax is the wrong approach?

Adding a new state property tax can never be undone. Adding a new tax or even increasing the state portion of the transfer tax may have unintended consequences.

In our business last year, 80 percent of our clients were buyers, many from out of state, and 50 percent of those purchased new-construction homes. Who does that impact? Every other business in Delaware. For every dollar spent on a new home there are studies showing the multiplier effect on the rest of the economy. (This means that each dollar increase in direct housing activity will increase the overall GDP by $1.34 to $1.62.)

See: http://archive.realtor.org/sites/default/files/ecoimp_homepurchases.pdf

Delaware is certainly attractive to those planning for retirement from surrounding states and lower taxes is one reason. We always tell our clients that if that is the only reason, that is not enough, and most agree. However, many will say that they would prefer to spend it on dining out, attending local events, patronizing local businesses, and that creates local jobs for the developers, the builders, the restaurants like SoDel and other local restaurant chains.

We also remind them that lower taxes come with fewer services. We do not have a good transportation system except in northern Delaware, above the canal, for example. They will be car dependent and that causes some to relocate elsewhere.

As a small state, is the ratio of state employees to residents too high? Many think so. With less than 1 million people in the entire state, doesn’t it make more sense to encourage more people to find Delaware an attractive place to live? That would perhaps make the ratio of revenue to expenses better. Not all move here without resources. Many are buying homes in communities like Senators and Showfield in Lewes, Coastal Club and Independence, Heritage Shores in Bridgeville and so many more new home communities. If the institution of a new state property tax causes even a 10 percent reduction in new homes sold, what are the unintended consequences? How many of the young people who work for the builders, developers and local businesses might be cut?

Likewise, an increase in the state portion of the transfer tax will be a burden on the buyer, already paying 3 percent. On an existing home sale, the 3 percent is typically split between the buyer and the seller, but with new construction, most builders pass on the entire 3 percent to the buyer. That is on top of impact fees that in some communities cost up to $10,000 in additional settlement costs.

If you recall, this budget problem has been going on for years. During the worst real estate market in history, from about 2007 through 2010, at least here in Delaware, the revenue from transfer taxes suffered as we all did. Now that the real estate market is once again healthy, raising that tax could have those same unintended consequences. Now, that revenue is once again contributing and businesses are thriving.

As a small business owner and a corporation, I have two suggestions: My corporate franchise tax for last year was $225. You could double the franchise tax and that would not put me out of business. How many LLCs and corporations are there here in Delaware?

Sales tax - many people come here by the busload to shop. They do not live here and they come from states with very high sales tax. Why not institute a sales tax on items over $500 for those with an out-of-state driver’s license?

I would be very happy to talk with you or your staff further. We all understand the problem, but hope we can find a better solution. Agriculture and tourism alone cannot support a growing economy in Delaware.

Kathy Sperl-Bell
broker/owner
Active Adults Realty

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