Impact fee proposed for BB construction

Members of the Bethany Beach Budget and Finance Committee worked on fine-tuning the town’s draft budget for the 2006 fiscal year at their March 11 meeting.
Among the items tackled was a re-visioning of plans to reformat building permit fees in the town.

Initially, the proposal had been to change the existing system of charging for the permits on a per-square-foot basis to one charging a percentage — 3 percent, as proposed — of the construction costs of the structure. That could mean a substantial increase in the cost of a building permit for construction in the town.

While the bulk of fee recommendations made by the committee had focused on assessing “real costs” for services provided by the town, the permit fee was one that was changed on the basis of becoming more in line with fees charged by other municipalities in the area.

(Building Inspector John Eckrich had initially said the town’s fees often lagged behind the actual cost to inspect and approve a building, but he had not specifically recommended such a change in structure.)

Committee member Don Doyle said he felt the committee is “doing the town and taxpayers a disservice when we under-price a service that is more highly valued elsewhere.”

Council Member Lew Killmer, a member of the subcommittee that had tackled the town’s schedule of fees, said he felt the fee should reflect a change from the town’s original “small cottage” existence to the trend toward razing cottages in favor of large, lavish homes.

“It’s our fiduciary responsibility to reflect the impact of these homes on the town’s resources, infrastructure and capital needed to fund improvements,” he said. “It’s only fair to put the burden on people who want to dramatically increase what they have on a lot.”

He noted a similar fee structure already exists in Fenwick Island and Dewey Beach, with no public complaints that he was aware of about the fees being excessive.

Doyle said, “This is an area where we have sold ourselves cheap.” He likened the fee to an “entrance fee” for obtaining the quality of life that has been built into Bethany Beach and paid for by previous property owners.

The idea has generally garnered support from committee members who acknowledged more lavish homes would require additional attention from town officials, regardless of their actual square footage. Council Member Wayne Fuller opposed the change.

But Mayor Jack Walsh, present at the meeting, said he specifically questioned the change being labeled simply as a permitting fee, when it essentially amounted to an impact fee that assessed additional cost based on the impact of the home on town resources and infrastructure.

During extensive discussion of the reasons for the change, committee members agreed that the new fee structure did act more as an impact fee and agreed to label it as such, differentiating it from the normal permitting fees for open or non-impacting structures like decks and storage buildings.

Town Manager Cliff Graviet also noted that the fee had the ability to be a source of revenue for future capital projects in the town, such as the town’s acquisition of and plans for the former Christian Church and Neff properties.

Graviet and committee Chairman Tony McClenny both expressed concerns at the meeting about the town’s financial condition. McClenny, the town council’s current secretary/treasure, cautioned that the town had exhausted much of its established reserves in recent years and would need to control spending to make sure it did not exceed its revenue.

Graviet backed up those concerns by providing committee members with information on the town’s revenue streams — some 31 percent of which comes from transfer taxes. That revenue resource isn’t considered the most reliable, and while it has steadily increased in recent decades, Graviet cautioned against becoming overly reliant upon transfer taxes for long-term revenue.

He noted, however, that he believed the town has made an “effort not to overburden its taxpayers.” A comparative chart of property taxes as charged by other area towns supported that statement, showing Bethany Beach charging only 8 cents per $100 of assessed value, while Fenwick Island taxes at $1.60 per $100 of assessed value.

(The closest figure to Bethany’s tax was Millville’s 20 cents per $100 of assessed value and Ocean View at 28 cents per $100. Not all towns’ assessments are equally current.)

On that basis, Graviet suggested that such an impact fee might be a relatively painless way to raise some revenue for the town.

Graviet did recommend a minor change to the formula for the assessment, however.

Instead of simply taking a contractor’s price for construction of a given structure and assessing a percentage of that value, Graviet recommended the square footage of the structure be used in conjunction with a standard table of building costs to determine the construction cost. The percentage assessed would be taken on that calculated value.

Use of such a table would allow for cost variation between two structures of similar size — for example, one with simple, basic construction and the other with the high-end construction often found in custom homes in the area. Thus, the formula would provide variability for both impact on the town and the cost to permit and inspect the structure.

Committee members agreed the new formula was a better standard than the cost indicated in any contract, and with the fee re-termed a “building impact fee” rather than a building permit fee, only Fuller objected to its inclusion in the town’s schedule of fees.

Graviet did express concerns that the 3 percent figure might pose problems for council members in approving the budget, but committee members noted it was a figure picked on the basis of other towns’ existing fees and could be reduced (or rejected) by council during discussion of the budget.

Walsh recommended an informational paper on the change and the amount be provided to council members prior to the March 18 council meeting during which that discussion is scheduled.

Graviet also provided committee members with a list of recent changes to the draft budget, including the following:

• $67,000 added to refuse fees revenue to reflect at 12 percent rate increase discussed at the previous meeting;

• $20,000 added to traffic fines revenue to reflect increased collection over the past year;

• $6,000 added to franchise fee revenue based on increasing revenue from Mediacom;

• $100,000 added to reflect increased cash on hand at the start of the year, over the original estimate;

• moved funding for the Neff property from Land to Debt Services due to settlement on the property;

• added a clerk/receptionist position in the administrative expense area;

• $10,000 added to the water department supply costs for added costs of chemical treatment;

• $200,000 added as a reserve for unfunded contingencies, to allow for mid-year budget changes if needed (similar amounts were previously held back but not separated in a reserve); and

• $550,000 added as a reserve for upcoming sanitation department capital needs, reflecting funds previously queued up for expenditure but not separately reserved.

Director of Finance Janet Connery also proposed to committee members that they consider a major change in how the Neff property is being paid for by the town.

In a memo to Graviet, Connery noted that the existing plan to pay the $600,000 still owed on the property in five annual installments (plus 7 percent interest) would cost the town $96,000 more than paying the entire amount due now, even with a $30,000 prepayment penalty mandated in the contract.

Connery noted that the town had included $162,000 in the 2006 fiscal year draft budget, for making the first of those five payments, requiring an additional $468,000 to be added to the budget if the committee supported paying the balance in full.

Graviet again mentioned the potential revenue of the proposed impact fee as a way to help with the larger payment, as well as noting the other revenue increases mentioned above.

Pending verification with the town solicitor that there were no other caveats to paying the amount due in full (with the prepayment penalty), committee members agreed the $96,000 savings was a valid reason to do so.

Graviet also proposed committee members consider a philosophical point in formulating the final budget numbers, namely whether the budget should include the $1 million in transfer taxes originally estimated to come in during the fiscal year, or the $1.3 million figure actually expected based on a 12 percent annual increase in that figure in recent years.

Committee members said they wanted the budget to be as accurate as possible and opted for the $1.3 million figure.

Those changes made, committee members voted unanimously to accept newly-amended draft of the budget. Doyle praised McClenny’s work as the committee’s chair, as the committee reached the final stage of its work for the budgeting process.

That final stage will come Friday, March 18, in a series of three meetings. The committee will meet that day at noon, to finalize any last-minute changes to the proposed budget. There will then be a public hearing on that finalized draft at 1 p.m. And, to close the process, council members will have the option to accept, alter or reject the budget at the regular town council meeting at 7 p.m.

Copies of the draft budget are available at town hall during regular business hours.