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Rehoboth plots five-year capital budget

Rental tax increase on the table
July 10, 2017

Rehoboth Beach officials are pondering an increase in residential rental tax to help pay for future capital improvements.

The city commissioners have begun the process of crafting a five-year capital improvement budget, a long-discussed long-range planning strategy to plot out future infrastructure needs. During this year’s budget talks, the process was largely dominated by cost overruns for the new City Hall project, originally projected at $18 million, but having ballooned to cost between $20.3 million to $20.6 million, depending on who’s doing the accounting. To finish City Hall, the commissioners used $1 million from the city’s reserve fund and limited the proposed capital improvement program.

But faced with a flat revenue stream and rising costs for employee healthcare and the typical infrastructure costs of running a city, the commissioners have begun trying to craft a long-range capital improvement plan while also pondering ways to increase revenue.

The city’s primary revenue sources are parking meters, parking permits, property taxes, building permit fees, residential rental taxes and transfer taxes.

The commissioners have spent nearly a decade trying to not rely too much on transfer tax revenue - a percentage the city gets every time a home is sold within the city limits - because of the volatility of the real estate market. City officials have also been reluctant to raise property taxes, particularly after the city reassessed home values in 2014. The last property tax increase was in 2011; property taxes are set at .04 per $100 of assessed value, but with the reassessment, land values went up, meaning revenue has remained largely the same since the last increase.

At a special workshop meeting June 30, City Manager Sharon Lynn recommended not increasing parking meter fees, which were last raised two years ago to $2 per hour. Mayor Sam Cooper said the city had tapped that resource as much as it could.

Building fees eyed

Lynn suggested raising  building permit fees, which were last raised in 2015. According to revenue charts provided by Lynn, the city’s building permit fees have fluctuated the last three years, dropping from $742,000 in 2014 to $644,000 in 2015, then taking a huge jump to $922,000 in 2016. Lynn projects $829,000 in building permits in 2017.

However, the most obvious target for new revenue for city officials is the 3 percent residential rental tax. It has not been raised since 1995 and could raise an additional $350,000 to $1 million depending on how high the commissioners choose to raise it. A 1 percent increase would raise $350,000, 2 percent $700,000 and doubling the tax would bring in $1 million.

That led the discussion back to a five-year capital improvement budget. The commissioners tasked Lynn with delivering a first draft by September. To get there, city officials plan to send out surveys to each of the department heads seeking input on what they think their capital needs will be within the next five years.

“We have to start to think about these revenue sources,” Commissioner Paul Kuhns said. “Let’s raise money in anticipation of the needs of the city.”

Kuhns and Commissioner Lorraine Zellers said it was important to let the public know the justification for the increase, as a way to maintain the city’s services and infrastructure.

“The justification for a revenue increase is there, the question is how much,” Commissioner Stan Mills said.

While the capital improvement budget was something all the commissioners could agree on, what they do not have a handle on yet is how to rein in personnel costs. Cooper said 50 percent of the budget is employee pay and benefits; the city employs 90 people over the course of a year.

“Ninety employees for one square mile is pretty high,” he said.

Commissioner Kathy McGuiness said, “The real issue that’s driving our costs up is the health benefits. We need to go back to that and have a hearty part of our discussion with our employees.”

McGuiness asked for a separate meeting dedicated to discussing the city’s benefits package.

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