Bethany considers tax increase to create storm fund

Bethany Beach Town Council members have been finalizing the Town’s 2017-fiscal-year budget ahead of a possible vote to adopt the budget at their March 18 meeting. (The Town’s 2017 fiscal year begins on April 1 and ends March 31, 2017.) This week, the council heard comments from the public at a hearing on the budget, held jointly with the Budget & Finance Committee on Monday, March 14.

Generally, the council garners no public comments on its budget at the annual hearing, but this year, a proposal for a new reserve fund, called the Storm Emergency Relief Fund (SERF), is being considered as a way to help the Town recover quickly from infrastructure damage from a future hurricane, nor’easter or other natural disaster.

In the event of a large storm, the fund could be used to repair or replace the boardwalk, as well as clean up debris and repair town buildings.

While repairing such damage didn’t receive any opposition during Monday’s hearing, one resident voiced objections to how the funding for SERF is planned to be created. Initial funding is coming from the building permit and transfer taxes from the Bethany Ocean Suites Hotel project, which will provide $491,000 for the 2017 fiscal year and is expected to increase to $644,000 total in the 2018 fiscal year.

But funding SERF beyond the money already set aside to start it will also mean some increases in taxes for both residential property owners and those who rent property to others, including:

• An increase in the property tax rate, from $0.175 to $0.185 per $100 of assessed value. That is a 6 percent increase and would take effect on the May 2016 annual bill. Officials said it would cost less than $20 additional for most (61 percent) of the town’s residential improved properties. They estimated it will generate an additional $100,000 in revenue for the SERF reserve.

• An increase in the rental tax rate, from 6 percent to 6.5 percent for residential and commercial rentals, and from 3 percent to 3.25 percent for rentals subject to the State accommodations tax, such as hotels.

That increase was at one time proposed to take effect for property rentals as of May 1, but Councilwoman Rosemary Hardiman told the Coastal Point on Monday afternoon that she had been informed by local real estate rental agents that they had already sent out many of their rental contracts for the 2016 summer season, making it difficult to incorporate the tax until next summer’s rentals are on the table.

Officials said the rental tax increase would also generate an estimated additional $100,000 annually in revenue for the SERF reserve, making $200,000 per year in total estimated revenue for SERF from tax increases.

Costs of Dinker project raised in tax-increase opposition

At Monday’s hearing, part-time resident Molly Feliciano first expressed concern about an alleged lack of transparency in the budget process, saying that the budget documents hadn’t been posted on the Town’s website in a timely manner but had been posted after she had unsuccessfully searched the website for them and called the Town to inform them that she couldn’t find them.

Feliciano then addressed the tax increase aspect of the proposed budget, noting that when expenses and income don’t balance, household budgets often require a reduction in expenses, as opposed to increasing revenue.

“Reducing expenses becomes the first option in balancing the budget,” she said, urging the council to consider reducing the Town’s expenses in lieu of the proposed tax increase. “SERF is desperately needed to repair our beach access walkways, and damage from future storms,” she acknowledged, “but I seriously question whether raising property and rental taxes are the best option, and I question whether other options were explored.”

Feliciano suggested that the Town look at increasing the revenue from the fee it charges outside shuttles to drop people in Bethany Beach, saying, “Outlying communities would not be able to entice people to buy or prospective renters without the lure of convenient beach transportation.” The Town takes in roughly $42,000 in shuttle fees per year.

“What line items have been closely scrutinized?” she asked, referencing the cost of parking enforcement employees.

She then asked where the funds were coming from to complete the move of the historic Dinker Cottage and related changes to the Town’s Maryland Avenue Extended property, where it is to be relocated, stating that the amended budget for 2016 hadn’t included many of the related costs and that, with the estimate for the moving of the house having expired, she suspected that cost might have increased.

Notably, Feliciano’s family and some of their neighbors (Phillip L. Feliciano, Mary C. Feliciano, Joseph Tropea, Mary Jane Tropea and David A. Namrow), recently filed a lawsuit against the Town and town council members, seeking an injunction to stop the project to turn the historic home into a museum on the Town-owned property that her family and others living or staying in that immediate area have traditionally used as a sort of park.

In the suit the plaintiffs allege that the Town did not property notice meetings at which the project was considered and that the project would be detrimental to their enjoyment and use of their properties, which they said some of them had purchased while relying upon the Town property as “open space” under its Municipal, Open Space, Recreational & Educational (MORE) zoning as assurance for their continued use of it.

(The council did not comment on the pending litigation this week, except for a casual question posed to Town Manager Cliff Graviet between meetings Monday about whether the plaintiffs could, in fact, pursue legal fees from the Town as part of their case, as they have sought to do.)

“Perhaps the Town should take a serious look at what is needed for preservation of Bethany and what is non-essential,” Molly Feliciano suggested. “How many consecutive years can you raise taxes? … We will have to cut our personal budgets so Bethany does not have to cut its budget,” she concluded.

Neighbor Joe Tropea was the only other citizen to comment at Monday’s hearing, saying Molly Feliciano had covered most of what he had to say and then asking what portion of employee costs were going to benefits, versus salary.

Councilman and Budget & Finance Committee Chairman Chuck Peterson said that changes every year, and health costs are up this year, but generally, the Town has paid about 30 percent of its employment costs in the form of benefits.

Balance of SERF sources and its goals discussed

The hearing concluded on that note, but the council’s discussion of the SERF fund continued in its workshop immediately following the hearing. Mayor Jack Gordon reiterated that the Budget & Finance Committee had recommended the tax increases to fund SERF to spread its costs across property owners and renters, “so that everybody has skin in the game,” he said.

Hardiman said that the Bethany Beach Landowners’ Association (BBLA) had said it would be willing to support the creation of the fund, so long as the cost was being shared equally and was not put solely on property owners. With roughly $10 added to the tax bill per $100,000 of assessed property value, “I think people are more than willing to contribute that amount,” she said. “I don’t think that’s very much when you weigh the urgency of what we’d need to do.”

Both Gordon and Vice-Mayor Lew Killmer emphasized that the fund is not intended to repair damage to the beach and dunes.

“The beach belongs to DNREC,” Gordon said. “If there are any repairs needed, they should be doing it.”

The SERF fund would be for repair of Town infrastructure, Killmer said, which would include things such as the boardwalk, streets and Town buildings, along with operating costs to make those repairs.

Beyond the funding mechanism, in order to create the fund, the council must first adopt a change in its fund balance policy, which is also on the agenda for its March 18 meeting.

“Even at this rate, it’s going to take a number of years to get to the amount of money we’d need in case something significant happens to the town,” Killmer emphasized, noting an estimated $8 million that would be needed to replace the boardwalk alone.

Even if FEMA continues to fund a significant share of such costs (roughly 70 percent today, but expected to decrease, as it did between Hurricane Katrina and Hurricane Sandy), he said, “30 percent of whatever the cost is is a significant amount of money.”

But how much should go into the fund?

“We don’t know. We don’t know how much we’re going to need, how much of a percentage FEMA is going to do,” said Gordon. “At some point in time, we’ll have a better idea, but right now, we need to establish it, and if we need more, if something happens, we can borrow. … Do we need $10 million, $20 million?”

Graviet said that one of the things all the council members had wanted to do was make sure the fund was established.

“But at the end of the year, we could have $600,000. Then we could work to establish a number. FEMA paid 75 percent for Katrina. Sandy was 65 percent. Depending on what they’re doing that year, our obligation is going to change. We have a good idea we will need $2.5 million to $3.5 million without anything catastrophic, but we’d need $8 million to replace the boardwalk.”

The Town, he said, cannot purchase an insurance policy that would replace the boardwalk, so SERF would act as a sort of self-insurance against that kind of possible damage.

Killmer said a side benefit of funding SERF is the testimony it could give to the financial stability of the Town.

Post-Sandy, he said, “There were issues little towns had because they were not financially stable after the storm,” due to the loss of revenue from property owners and tourists, “so they could not qualify for low-interest funding to repair their infrastructure.

“This gives us the ability to show financial institutions that we are financially sound and have the ability to pay off the loan. … A lot of people abandoned their properties,” he said of the Sandy-ravaged towns. “They lost a lot of taxable income because of that. Their whole budget was decreased.

“We have to determine at some point whether we have enough money in that,” Killmer said of the fund, emphasizing that SERF would be “lockbox money” that would take a supermajority of the council to take out. “This is not to balance the budget. It is only for this purpose.”

Councilman Joe Healy sounded a note of caution about what the Town can expect as far as outside funding for its beach, and the Town at large, in the event of a storm.

“Having come back from the [American Shore & Beach Preservation Association] meeting, this was the first year I came back with less than a positive feeling from that group,” he said.

“Let’s face it — people come here for the beach, and without that beach, we might as well rename the town Bethany,” Killmer added.

Gordon again urged the council to keep the two issues separate. “The beach is a much broader issue,” he said, and one that could involve State, federal “and, hopefully, County funding.”

The council voiced a consensus that they were in favor of changing the funding policy to allow the creation of SERF and to fund it in the 2017 budget.