Rehoboth city hall payments loom over budget

As construction on Rehoboth Beach’s new $18 million City Hall wraps, the city commissioners are now faced with a series of loan payments that come due early this year, a development that is causing uncertainty with the city’s $26 million budget for 2017-18.

City Manager Sharon Lynn said, “I do have big concerns on City Hall. It’s evident that we’re going into a time period with a multimillion-dollar exposure of debt. And it’s a concern, a big concern to be able to maintain that.”

The city was due to pay off the remaining balance of a $6 million loan it had received to finish the Rehoboth Avenue streetscape project, money that was also used for the Lake Gerar Bridge and other projects. Once that loan was paid off, city officials would then go into paying off the loan for the City Hall project.

However, the U.S. Department of Agriculture, which loaned the city money for City Hall, offered a 2.36 percent interest rate if the city closed the loan early. Not wanting to miss out on that rate, which will save the city $120,000 a year in interest payments or $3 million over the 25-year term of the loan, city officials decided to close early. However, the early closing date also moves up the date when the city will have to start repaying the loan.

“It’s going to save a ton of money in the long run, but it created a problem in the upcoming year,” said Mayor Sam Cooper. Combining the City Hall loans with the Streetscape loan, the city is facing nearly $1 million in payments. Lynn said she is reviewing how to balance the budget.

In addition to construction costs, City Hall is the city’s largest capital outlay expense as well, costing $1.1 million, half of which is for furniture and office equipment, plus $165,000 for audiovisual technology and $159,000 for additional sitework on the campus.

The budget also includes increasing the salaries of city staff by 3 percent, raises the city has offered in recent years but which have Cooper worried. He said city salaries have risen 50 percent in the past seven years, which he said is unsustainable unless the commissioners change the tax structure.

The high expenses led the commissioners to discuss ways to increase revenue. The city has not raised property taxes in several years, and Cooper said parking meter increases are not a likely solution.

“When you look the services that you get as a property owner in Rehoboth, vis-å-vis any other municipality, you’d say the taxes are a bargain,” Cooper said.

Commissioner Paul Kuhns put forth several suggestions, including raising the gross receipts tax on residential rentals from 3 percent to 6 percent and imposing a 3 percent gross receipts tax on commercial rental buildings. Kuhns said raising residential rental taxes would bring the city $1 million in extra revenue. He said beach communities in other states have 8 percent to 10 percent residential rental tax.

“I think this is one place as we move forward, especially as we take on these larger expenditures: City Hall, fixing the stormwater drains, we’re going to need other sources of revenue,” Kuhns said. “I think the city provides phenomenal services. I think we’ve got to pay for it somehow.”

Parking meters are still the city’s biggest moneymaker, projected to take in $5.6 million, which includes quarters, credit cards and the Parkmobile pay-by-phone app. The commissioners have discussed the possibility of expanding the number of credit card meters, although Cooper said they should mainly be in high-traffic areas.

Besides City Hall, another area of concern for the commissioners was legal fees, which have jumped $250,000 in the last two years. Cooper said this was in part because the city spent $600,000 over the last 18 months fighting lawsuits over pools, the wastewater outfall project and the new zoning ordinance.

The commissioners will meet again to discuss the budget at 8:30 a.m., Thursday, Jan. 19, at the Rehoboth fire hall.