|
Sussex leaders say already battered local budgets would be slammed even harder if state lawmakers redistribute the real estate transfer tax.
Every time property changes hands in Delaware, 1.5 percent of the sale cost goes back to the town or county where the property was sold. Another 1.5 percent is sent to the state.
But legislators are considering a proposition that might eliminate local government shares giving the entire 3 percent transfer tax to the state, which faces its own $250 million budget shortfall.
Local leaders say that if towns or counties no longer receive the revenue, services would be severely affected.
The Delaware League of Local Governments and Sussex County Association of Towns both oppose any change to the real estate transfer tax. Local officials sent letters opposing a redistribution and about 70 mayors, council members and administrators from across the state met Tuesday, May 13, at Legislative Hall to talk to lawmakers and submit letters.
Rep. Joe Booth, R-Georgetown, who is a member of the Joint Finance Committee, said, a tax redistribution is possible. “All the options are on the table – that’s certainly one of them. My theory is that the county has stirred this up and enlisted the support of municipalities,” he said.
Booth said taking away the local share would hurt local services and called the option easy picking to solve the state’s financial woes – but one he does not support.
“I don’t know in terms of number of dollars the redistribution would provide. But even though the real estate market has sagged, it’s still a decent chunk of money,” he said.
“I just don’t see this as happening. I’m not voting for that,” he said.
Booth said the state should consider raising the transfer tax instead of taking it away from towns.
Bill to change law in House
No legislation has been proposed to change the existing tax share model, but House Bill 111, introduced last year, would prevent counties from collecting taxes from property transfers in land preservation areas or Level 4 areas. “We haven’t had a discussion on that,” said Booth.
Rep. Pete Schwartzkopf, D-Rehoboth Beach, a co-sponsor of H.B. 111, also sits on the Joint Finance Committee. He said he does not support any redistribution that would affect towns, but he would consider removing revenue share at the county level.
“Is the transfer tax proposal out there? Yes it is. I haven’t heard anyone talk about taking money from the municipalities,” he said.
He pointed to legislation in the 1990s that shifted some tax revenue from the state to the county.
“In the ‘70s, all the tax went to the state. Right now, the state is in a financial strain, and we’re looking to get money from somewhere. We gave money to the municipalities and counties when the state was flush. The counties had surpluses for years and now the state is in a bind,” he said.
In 1971, the real estate transfer tax was enacted, which sent 2 percent of all property sold to state coffers. In 1990, legislation was introduced that allowed counties to take 1 percent. In 1998, a law allowed 1.5 percent of the revenue to go to either the county or the municipality where a property sale took place. The state also receives 1.5 percent.
Roughly 3 percent to 4 percent of the state’s revenue comes from the transfer tax. Unlike the state, however, about 32 percent of Sussex County’s revenue was collected from transfer taxes in 2007. If the state redistributes the tax, in some cases, essential services in the county or in the towns may be cut.
Local effect
Lewes Mayor Jim Ford, president of the Delaware League of Local Governments, opposes any tax redistribution – away from towns or counties. When he met with Gov. Ruth Ann Minner Tuesday, May 13, he said she told him the tax redistribution option is on the table. He asked her to take it off.
“We did not talk about an increase of transfer taxes. Really, our position is that we do not support any reallocation of the current funds,” said Ford.
Kate Bailey, Minner’s communications director, did not return calls for comment.
About 20 percent of Lewes’ budget, or $700,000, is from transfer tax revenue. If that were eliminated, he said significant city services would suffer.
“I’m sure what we’d have to do is look at trash collection, police service backup. We’d have to raise taxes 50 percent just to make ends meet in the 2008 budget,” said Ford.
“I understand what the position the state faces. To me, this does not rectify their problems. It exacerbates their problems. It would cutoff major funds, cause layoffs and force tax increases on municipalities at a local level. Legislature needs to look at cutting their areas, more than us,” he said.
County response
Like Lewes, Sussex County uses transfer tax revenue for capital improvements, such as new sewer lines, buildings and upgrading existing infrastructure, said Hal Godwin, Sussex County deputy administrator. “But a few of those dollars, I’m sure, have crept into daily operations,” he said.
Since 2005, county officials report a 40 percent decrease in transfer taxes – the county’s largest revenue generator.
“The Joint Finance Committee has been discussing reducing the local share. We decided to start lobbying early, letting them know how that would injure us and affect our constituents,” said Godwin.
“All governments are struggling with budgets. There is no good guy or bad guy in this story. This is a pain going through federal, state and local government,” he said.
For now, towns and counties are safe.
“At this point in time, it’s all conjecture. There has been no legislation introduced. But, there has been lots of discussion while the state is trying to close a hole in the budget,” Godwin said.
The General Assembly recesses June 30.
George Wright, executive director of the Delaware League of Local Governments, said, “We realize the state is in a turmoil, but anything short of taking these funds away would have a tremendous impact on the way we do business. One municipality said 40 percent of town calls were for state police assistance.”
~
Sussex stands to lose $4 million to $5 million
It might just be talk, but Sussex County Administrator David Baker said if any changes are made in the way Delaware administers the real estate transfer tax, it could mean drastic cuts in county services and programs.
Baker said there is discussion in Dover that the state is considering a cut in the amount of money the county receives from the tax. The amount the county receives is already shrinking because fewer properties are changing hands, Baker said.
He estimates revenue from the tax will be around $21 million this fiscal year and about $18 million the next fiscal year – down 50 percent from $36 million in 2005.
“We want the General Assembly and governor to know what the implications would be to the county and towns,” he said.
The county is making a full-court press on legislators, providing a fact sheet of possible cutbacks in county services and programs even if 25 percent of real estate transfer tax money is cut. That would mean a loss of from $4 million to $5 million to the county.
Included in the possible cuts are some big-ticket items such as $939,000 for additional state police officers, $262,000 for local law enforcement grants to towns, $250,000 in local fire service grants, $250,000 in sewer grants, $375,000 to preserve open space and more than $1.3 million for airport projects.
|
