Rehoboth commissioners seek answer to $1 million question

During the Rehoboth Beach commissioners’ Jan. 19 budget meeting, Mayor Sam Cooper asked the million dollar question. Literally.

Where will Rehoboth find $1 million to finish City Hall?

The city’s problem is a case of temporary pain in exchange for long-term savings. To get a lower interest rate on a loan from the U.S. Department of Agriculture, the city agreed to close early on the loan. But the early closing means that the city must begin to repay the loan earlier than expected.

The original plan was for the city to complete two remaining payments on a $6 million loan the city received for the Rehoboth Avenue Streetscape project and to begin paying the lower, interest-only payments at the end of this fiscal year before paying interest and principal on the City Hall loan next year. As a result of closing early on the loan, the city will have to finish paying off the Streetscape loan, and pay interest-only and the first interest and principal payments on City Hall in the same fiscal year. Taken together, loan payments total nearly $1 million.

The good news is city officials agree that after this year, the city’s loan obligations will be stabilized and the lower interest rate will ultimately save $3 million over the 25-year life of the USDA loan. The new City Hall is scheduled to open in July.

To ease the short-term pain, City Manager Sharon Lynn’s updated budget includes several cuts, most notably cutting over $280,000 by renting 463 credit card meters instead of buying them. Lynn’s revised budget includes an increase in the residential rental tax, from 3 percent to 6 percent. While that balances Lynn’s $28 million budget, the commissioners questioned how they can not only finish City Hall, but not continue cutting capital improvements.

The commissioners discussed whether to dip into $6 million in reserve funds the city has available, but Lynn and city accountant Burt Dukes were hesitant to dive too deep into it. Dukes and Lynn explained that the city gets large infusions of money at different points of the year: February, when residential rental tax comes due, and during the summer when the parking meters and permits become active. He said transfer tax can also provide a boost, but that revenue is unpredictable. Commissioner Stan Mills said the state may be looking to take a larger share of the transfer tax to repair the state budget.

Dukes said when revenue falls, the city often dips into reserve funds to continue operations; when the revenue begins flowing, the money that was spent in the off-season is replenished. Lynn said it is typical for cities to have reserves in the amount of 1.5 percent to 3 percent of the city’s overall budget.

The commissioners ultimately decided to use $1 million from the reserve funds in order to finish the project and maintain other items that were taken out of the budget. Mayor Sam Cooper said the rental tax increase should not be implemented until February 2018. He said the city should also consider implementing a 3 percent gross receipts tax on commercial rentals. The commissioners discussed using the revenue from the commercial rental tax to help fund capital improvements. Cooper said what he wants to avoid is what happened when the residential tax was implemented in the early 2000s. He said that tax was earmarked for capital improvements and was spent that way originally, but the city got off track around the time of the Rehoboth Avenue Streetscape project, which ran over budget, and in subsequent years those funds have helped pay for an increase in city staff. In both of the commissioners’ budget meetings, Cooper has been critical of the growth in salaries and number of staff on hand, which has grown at a rate he considers unsustainable.

Future of fireworks 

The commissioners also discussed the annual July 4 fireworks show.

The event was annually sponsored by Rehoboth Beach Main Street, but the organization will be formally dissolved in March. Main Street had established a fund run by a 501c3 organization to run the fireworks show. That fund has $150,000, so it can pay fireworks provider Zambelli Internationale its contracted $38,000 fee for this year and for the next several years before the fund runs out. Krys Johnson, the last administrator of Main Street, said the show costs a total of about $50,000, factoring in advertising and traffic mitigation, in addition to the city’s overtime costs for police and emergency responders. Johnson said the members of the fireworks board have no interest in fundraising for future shows.

The question facing the commissioners is whether the city should take up the mantle and run the show, and whether it is ethical for the city to accept donations for the fireworks show. Cooper said it is, but how the city goes about doing it is up in the air. Johnson said Main Street had trouble in recent years getting donations from businesses, some of whom were ambivalent about the show, and that donations from residential groups are usually about $4,000 a year.

The commissioners agreed to discuss the fireworks show at their February workshop.