Rehoboth attorney alleges charter violations

At issue is definition of property taxes
June 19, 2017

A Rehoboth Beach attorney has filed a petition with the Delaware Attorney General’s Office and the General Assembly alleging the city violated its charter.

Attorney Gene Lawson says by charter, the city can collect only $3 million in property taxes. He said the budget shows the city expects $4 million in property tax revenue.

The petition also alleges city government has been acting clandestinely regarding change orders on the City Hall project. The petition says the changes, which are approved by Mayor Sam Cooper, have caused the project to go millions of dollars over budget.

Lawson’s petition seeks to remove the mayor and commissioners who voted for the city budget - all of them except for Commissioner Kathy McGuiness - for violating the charter.

At issue is what taxes are considered property taxes under the charter. According to the budget, the city has property tax, rental tax, transfer tax and construction taxes; the city sets the tax rates on property tax but transfer tax is not a tax imposed by the city.

Sussex County Recorder of Deeds Scott Dailey said the transfer tax is a 3 percent state tax, with half the revenue going to the state and the other half staying in whatever locality where the property is sold. He said a municipality has no control over transfer tax, but they do have averages that can help cities budget how much they may receive.

Lawson said neither the Attorney General’s Office or the General Assembly are likely to act on the petition. “If what happened in the past is a sign of what happens in the future, nothing is going to happen,” he said.

In a statement, Delaware Department of Justice spokesman Carl Kanefsky said, “A dispute between a citizen or citizens and a local government with regards to publicly-made policy decisions of budget and finance is not generally a matter for this office.”

So far, the petition has 13 signatures. Lawson said more would sign but are fearful of retribution.

Former Rehoboth commissioner candidate Richard Perry was one of the signers. “Our city is facing serious financial problems without adequate oversight and planning.... I will always hold our elected officials accountable for their actions.”

Still, Perry, like Lawson, did not anticipate action on the petition.

Commissioners debate latest change orders

Part of Lawson’s petition is concern over the City Hall cost overruns and his belief that the city could be looking at even bigger expenses when it comes to the $52.5 million ocean outfall project, scheduled to begin construction this fall.

At this stage, the city has approved $1.1 million in change orders over the life of the project. Among the new, approved changes are additional waterproofing in the caucus room - the round, carousel-like structure - which Cooper said at the commissioners’ June 5 workshop was an oversight in the design, costing $2,600. Another change order was for wall tile in the showers of the men’s and women’s locker rooms for the police department, costing $5,630. Cooper said the wall tile was not specified in the plans. Finally, a change order was approved for $18,000 for an air/vapor barrier on the exterior walls of the atrium serving as the public entrance to the building. Air/vapor barriers serve as a defense against moisture damage to the building’s structure. Cooper said this barrier was omitted in the original plans.

All change orders during the project have been approved by Cooper. The amount of changes have led commissioners McGuiness and Stan Mills to question whether there should be a dollar threshold before a change order must be approved by the commissioners.

McGuiness said she has requested such a measure be put on the agenda, and she has drafted language meant to clarify and tighten the code. She said Cooper has so far ignored her request.

“This is concerning,” McGuiness said.

Cooper was not available for comment on changing the procedure for change orders.

The new City Hall building is scheduled for completion in September.

The city budget shows tax revenue breaks down like this:

  • Property taxes - $1.3 million
  • Penalty on taxes - $3,000
  • Transfer tax - $1.5 million
  • Construction tax - $55,000
  • Rental tax - $1.02 million