Ocean View plans for financial future

Discussion turned on a potential loss of Real estate transfer tax revenue, at Ocean View’s first Long-Range Financial Planning Committee (LRFPC) meeting of the fiscal 2006 budget cycle, Sept. 20.

The committee has never convened so early. However, with mid-year revelations of a depleted Delaware Department of Transportation (DelDOT) Transportation Trust Fund, and officials at the state level casting about for new funding sources, committee members determined they’d better start reviewing their reliance on transfer taxes as soon as possible.

The three-percent tax (presently split 50/50 between towns and state, same goes for the counties) kicks in any time a new home is sold, or an existing home resold. And while growth-related prosperity necessarily comes with certain strings attached, a hot real estate market has enriched governmental coffers.

For many local towns, Ocean View among them, those reserves figure prominently in long-range budget planning.

While many state legislators have expressed skepticism, regarding the feasibility of reapportioning the 50/50 split (to favor the state, 66/33 for instance). A sizable chunk of the populace lives inside town limits, and many mayors and councils will be fighting against such a reapportionment. (County Administrator Bob Stickels is equally nonplussed.)

As Town Manager Kathy Roth noted, it was entirely possible Ocean View might lose at least a portion of those tax revenues, maybe 0.5 percent from the total 1.5 percent.

But even last year, before the recent threat to the real estate transfer tax surfaced, the LRFPC was reconsidering their planning philosophy.

While there’s always some resale, towns have to reach build-out at some point, so transfer taxes probably can’t support perpetual increases to the bottom line, some noted. And while annexation of additional, as-yet undeveloped land would generate new tax revenues, it also generates new expenditures – especially in local public safety and public works budgets.

LRFPC Chair (and Council Member) Eric Magill started off the Sept. 20 meeting by asking Roth and Police Chief Ken McLaughlin for their “wish lists” for the next five to seven years — and as the meeting unfolded, those lists began to look more and more wishful.

Roth noted wage and payroll increases (current as well as future), and said she could use some additional personnel — perhaps a part-time building inspector/code enforcement officer, and on the clerical end, maybe another part-timer to help with accounting. They were hoping to update their computers, and implement new software by 2007, and Roth suggested a new fax machine and copier sometime around 2009.

On the public works side, she said they’d pushed back the proposed sidewalks/bike paths project (the town budgeted $190,000 for that project last year), to stay coordinated with the pending town water project.

The current timeline for construction of the central water system is late 2006, Magill noted. (As Roth pointed out, that project is designed to be self-sufficient and, aside from building itself an operations and maintenance contingency fund, revenue neutral.)

Roth said public works could use some new equipment, too — a full-sized dump truck with snowplow attachment, a backhoe and tractor (might be some Homeland Security grant money available to help purchase these, she said), maybe a cherry-picker for trimming trees in town rights-of-way, an All-Terrain-Vehicle (ATV) with trailer and a commercial-grade chipper.

She said she’d allowed for a 20 percent increase in fuel costs from this year to next, followed by a five percent annual increase. She noted current and pending costs associated with continuing study of town drainage issues, and suggested public works could use some help in maintenance — perhaps a full time employee to manage town hall itself, and the park, plus a seasonal worker.

“If we do annex, we need to calculate for additional employees, and include that in the feasibility studies,” Roth pointed out.

McLaughlin seconded that — to maintain the current level of police service, he estimated the town would need to hire one additional police officer for every 100 or 150 new homes annexed or built.

He said the police department had experience a nearly 350 percent increase in calls for service over the past nine years, and in considering new hires, had figured on an additional 10 percent increase year after year.

McLaughlin said he’d like to hire another patrolman next year, and move one of his more seasoned officers into a full-time detective position. He suggested another two officers by 2008, which he said would help the department avoid overtime and scheduling problems. They could provide invaluable backup for dispatching officers, if a second call for service came in while the patrolling officer was already occupied, McLaughlin pointed out.

And he noted the importance of keeping Ocean View salaries comparable with those offered by departments in surrounding states. McLaughlin cited estimates from Delaware Police Chiefs Council’s Martin Johnson, suggesting it cost a police department $50,000 to replace an officer (especially when people left for other jobs soon after field training), so retention was key.

McLaughlin said much of the out-year planning revolved around the completion of the proposed new police station, but he also hoped to secure another clerical secretary by 2008, and suggested a facilities manager and a part-time receptionist once the new station opened.

Ocean View resident Roy Thomas asked McLaughlin how his predictions had changed since fiscal 2006 budget talks — as McLaughlin noted, he’d been warned there wouldn’t be many extras in that budget, and so he hadn’t bothered to bring much to the table at that time.

He said he had some young officers, and they were hustlers, but the department couldn’t maintain current levels of service indefinitely — especially as new developments on the town’s periphery increasingly influenced traffic levels, and crime, inside Ocean View itself.

So, these were the wish lists from public works and public safety — but as Magill quickly pointed out, the town would have zero dollars in reserves within two years (they’d be broke) if (A) the town lost its transfer tax revenue stream and (B) kept chasing the impossible dream.

Option two, the town retains its transfer tax revenues, and fulfills every wish — they’d still be solvent in 2010, Magill said, but with an unacceptably wispy safety net. “$204,000 in reserves is not much,” he said.

Option three, the town loses its transfer tax revenues, and maybe fulfills a wish or two (no promises). The town’s still nearly broke in 2010, Magill pointed out — and according to the ledger sheets, more than $1 million in the hole by 2011.

The LRFPC quickly reached consensus the only reasonable scenarios would be (A) maybe a wish or two and (B) either continued reliance on transfer taxes, or new revenue generation.

If the state doesn’t reapportion the transfer taxes, and the town is stingy, Ocean View would still have nearly $3.6 million in reserves out in 2011. Holding those funds in reserves made for a tough sell, Magill admitted, but even in that best-case scenario, he suspected the town would need to raise taxes at some point.

At least if they intended to continue providing current levels of service amid rising costs and a growing population. The committee made introduction of an ordinance to increase the maximum limit on the amount of property taxes the town is authorized to collect its first order of business.

As committee member (and Mayor) Gary Meredith noted, Ocean View hadn’t raised property taxes in nearly 10 years. And the town is presently seeking a request for proposal (RFP) for reassessment work, so they couldn’t raise taxes immediately thereafter — not until 2008, in any event, Roth pointed out.

But the town is still approaching the $1 million limit authorized under its charter — Meredith formally requested staff start drafting the charter change ordinance, at a workshop later that same evening. There was some discussion regarding what sort of max cap they set in place of $1 million — the consensus was, preferably an unspecified amount, but at least $2 million.

Assuming the town can in fact retain its transfer tax revenues, Magill suggested they might then be able to revisit the wish list, with periodic property tax adjustments.

But he asked committee member Marc Grimes, a real estate broker for Seacoast, what he thought about the continuing strength of the real estate market.

Grimes said the market was slowing somewhat, as a housing surplus created less urgency. He said there were more than 20,000 homes already cleared through the permitting process around Sussex County that hadn’t been built yet (major projects near Millville, Millsboro and Georgetown, primarily, but also increasing growth in the west county).

And Grimes said there were 13,000 more homes on the market this year, than at this time last year. Did he think this would cause downward pressure on home prices, Magill asked — no, not on prices, Grimes replied. Maybe some downward pressure on price increases, though.

“Of course, there are exceptions to the rule,” Grimes continued. “They’re not making water anymore, so if you’re oceanfront — that’s just going to keep going up.”

As Thomas had earlier noted, it was a little difficult to build a budget when such a large potential revenue source remained indefinable. However, Gov. Ruth Ann Minner’s taskforce studying the DelDOT budgetary situation is slated to make recommendations by the end of November. The LRFPC will meet again in December, tentatively Dec. 13.