I. Overview of Findings and Recommendations
On March 31, 2003,
by Executive Order No. 42,
Governor Ruth Ann Minner established the Task Force on
Financial Options for the City of Wilmington. The Task Force
– structured to feature broad input from public and private
sector leaders at the State, County, and City levels – was
charged with reporting on
“specific recommendations for broadening and diversifying the
sources of the City of Wilmington’s annual revenues” by
May 30, 2003.
The Governor’s
Task Force included the following representation:
·
Four (4) bipartisan representatives of the 142nd
Delaware General Assembly, two appointed by the Speaker of the
House and two appointed by the President Pro Tempore of the
Senate;
·
Five (5) representatives of the State Government
appointed by the Governor;
·
Four (4) representatives of City Government
appointed by the Mayor;
·
One (1) representative of the Wilmington City
Council appointed by the President of City Council;
·
One (1) representative of the New Castle County
Government appointed by the County Executive;
·
One (1) representative of the Delaware Economic
and Financial Advisory Council (DEFAC);
·
Two (2) representatives of the Wilmington
Economic and Financial Advisory Council (WEFAC); and,
·
Five (5) representatives of the private sector
appointed by the Governor.
The appointment of
this Task Force followed an independent review of the City’s
finances completed earlier in the year
at the request of Mayor James M.
Baker by the members of
WEFAC and the national consulting firm of Public Financial
Management, Inc. (PFM).
This WEFAC/PFM report found that:
"...strong local action has both contained the City’s costs
and increased its locally generated revenues. Nonetheless,
Wilmington’s future holds budgetary crisis if joint State and
City solutions are not found in the months ahead.”
Through four half-day sessions,
multiple subcommittee meetings, and extensive supporting
research and analysis, the Governor’s Task Force has confirmed
the fundamental themes of the WEFAC/PFM review and has
formulated its own consensus findings and policy
guidelines. These findings are detailed below, with
additional background information provided in Section II of
this report.
In addition, the
Task Force has identified a series of specific options for
near-term action that are recommended for strong consideration
by the State and City elected leadership. Further outlined in
Section III of this report, these options can provide the
basis for developing a comprehensive approach to broaden and
diversify Wilmington’s revenues.
Consensus Task Force Findings
The Task Force
has adopted the following consensus guidelines to provide a
framework for analyzing the City’s financial options:
1)
The City of Wilmington is vital to the region and the
State of Delaware. Wilmington is an engine for economic
growth, home to many of Delaware’s leading corporations and
largest Court of Chancery. It is a cultural hub, with vibrant
arts and educational institutions and important venues for
sports and entertainment. At the same time, the City provides
a “livable” alternative to development sprawl, with existing
infrastructure capacity to serve its broader region.
2)
Like any government, Wilmington’s ability to fulfill
its role is dependent on a stable and reliable revenue base.
Historically, growth in the City’s revenues has been limited
by a high percentage of tax-exempt property (over 40% of total
assessed value as of FY2003), constraints on the City’s
ability to annex, and a disproportionate concentration of the
region’s low-income residents. In addition, the City’s single
largest revenue source, the wage tax, is subject to unreliable
“boom – bust” volatility.
3)
Limited and unpredictable revenue sources combine with
ever-growing demands for service to produce a structural
deficit in the City’s budget process. Despite significant and
successful local initiatives to reduce and control its
expenditures, the City of Wilmington still faces the potential
for fiscal crisis due to the pressures of its existing and
growing structural deficit. Without corrective action, the
“mid-range” estimate of the projected annual operating gap
within five years is $9.3 million – roughly 10% of the total
City budget.
4)
This structural deficit should not be addressed merely
by raising taxes or fees. As one key component of the plan to
improve the City’s fiscal stability, the Task Force endorses
the City’s ongoing efforts to further streamline government
and to contain and cut municipal spending. The City should
continue to work with the State government to pursue potential
health insurance savings and other economies of scale. The
City should complete the recently announced service delivery
study to uncover possible additional sources of savings. The
City should also study new mechanisms to insure that temporary
spikes in revenue during boom cycles are managed to avoid
placing unreasonable long-term demands on the City’s budget.
The existing Budget Reserve Account and Permanent Investment
Account are excellent examples of such controls. They should
be maintained, strengthened and supplemented as necessary.
5)
The current structural deficit creates a shortfall in
both the operating and capital budgets. Revenue enhancements
will be necessary to allow the City to meet its future
operating needs, as well as to make the necessary investments
in its infrastructure to provide the services critical to
public safety and quality-of-life.
6)
Continued investment in maintaining the City’s existing
infrastructure is more cost-effective for regional users than
costly new development in Delaware’s suburban and rural
communities. For example, the cost of building new water
storage capacity for regional drought management as an
alternative to the City’s Hoopes Reservoir has been estimated
at $30 million or more. Investing in Wilmington and making
full use of its current resources – as the State has supported
over the years through bond issues for City infrastructure and
development – also provides a positive alternative to sprawl,
preserving the quality-of-life and open space around the
state. Money invested in maintaining existing infrastructure
in the City of Wilmington allows all Delaware taxpayers to
avoid the costs commonly associated with sprawl, such as new
schools and roadway expansion.
7)
In exploring additional revenue sources, the Task Force
has established two overriding principles:
·
The City should not pursue any revenue sources
that would make Wilmington, New Castle County, or the State a
less competitive or desirable location for residents and
businesses. Taxes or fees that discourage people from living
or working in the City and its region must be avoided.
Indeed, the State, County, and City should engage in a
long-term analysis of existing taxes and fees with a goal of
eliminating disincentives for business and residential
location.
·
Because State government is also facing
budgetary challenges, the City’s structural deficit should not
be addressed simply by shifting existing revenues from the
State to the City.
8)
Gaming options are not included among the Task Force’s
consensus recommendations. However, if the State should
further expand gaming, opportunities to benefit the City
should be strongly considered.
9)
Many City “resources” – some of which traditionally
have been viewed by their host communities as burdens – should
be recognized for their value to the region, and Wilmington
should seek to maximize the return on such unique assets.
Where non-residents enjoy the benefits of using City
facilities such as water and wastewater systems and landfills,
full compensation for the direct and indirect costs to the
City should be assured. Similarly, taxpayers from outside the
City make extensive use of the City’s tax-exempt nonprofit
institutions. While the Task Force did not support the notion
of PILOTS, it also endorsed the principle that some
compensation for services is clearly warranted.
10)
Immediate action is needed to put financially
meaningful and diversified revenue sources into place for
near-term fiscal stability. At the same time, comprehensive,
structural fiscal and governance reforms should also continue
to be explored for potential longer-term benefit. The work
undertaken by this task force should be continued in some
form.
Summary of
Recommended Near-Term Revenue Options
To
capitalize on Wilmington’s unique regional role and assets:
·
Increased water/wastewater system return
on investment: To compensate the City for the
cost-effective role its system provides in regional drought
management and environmental protection.
- Water
rates could be increased to bring Wilmington’s charges more
in line with private providers and to reflect conservation
pricing goals.
- A water
availability charge of $1.00 per month per direct and
indirect regional customer would generate over $1.3
million annually.
·
New landfill host community compensation:
To compensate the City for the unique burden and negative
impacts associated with hosting the only regional landfill
within City limits, one or more of these options could be
enacted.
§
A $1.00 per
month surcharge per customer would generate $3 to $5
million annually.
§
Compensation
at 7.5% of total
gross operating revenues would generate more than $1.9
million.
§
Compensating the City for biosolids now provided
as landfill cover to the Delaware Solid Waste Authority at no
charge would generate $1.5 million to $2.5 million
annually.
§
Waiving
City solid waste disposal charges would reduce net costs by
over $2.0 million per year.
Summary
of Recommended Near-Term Revenue Options (continued)
To collect
new revenues locally from sources consistent and competitive
with other urban hubs:
·
Local lodging tax surcharge: With
only an 8.0% State lodging tax now in place, a new Wilmington
surcharge could be created while remaining competitive with
cities such as Baltimore (combined 12.5%), Boston (12.45%),
Philadelphia (14%), and Washington, DC (12.0%).
§
A 2.0% Wilmington hotel surcharge would bring
the combined rate within the City to just 10.0%, while
generating annual revenues of $450,000.
·
Extension of existing electricity
franchise tax to natural gas: To compensate for the
use of rights-of-way and establish a consistent approach to
taxing major energy services within the City.
§
Extending the current 2.0% electricity
franchise rate would generate $425,000 per year.
·
Ticket surcharge for sports and
entertainment events: To recapture a portion of the
public safety and infrastructure costs incurred when hosting
events through a charge on discretionary spending.
§
Several alternatives for sliding scale charges
would generate $400,000- $500,000 annually.
Summary of Recommended Near-Term Revenue Options (continued)
To update
local City revenue sources in response to inflationary
pressures:
·
Updated Wilmington Parking Authority (WPA)
payment. In recognition of a $430,000 property tax
exemption and City debt guarantee, the WPA provides an annual
transfer to the City – but without regular adjustments for
inflation.
§
Adjusting the current $200,000 payment by inflation since last
raised would generate $50,000.
§
Adjusting the original $150,000 payment by inflation since
inception would generate $185,000.
Summary of Recommended Near-Term Revenue Options (continued)
To close the
remaining revenue gap:
Even if options
within all six of the Task Force recommendations were
implemented, the total new revenues generated could still fall
as much as $5 million short of closing Wilmington’s currently
projected deficit. While the Task Force has not reached clear
consensus on specific, additional recommendations, the
following strategies are among the ideas discussed and that
merit further exploration by State and City leaders to help
bridge this remaining gap:
·
Further investigation of the role that City
government services play in facilitating the State's
incorporation activity, and consideration of providing the
City with a revenue stream appropriately reflecting this role.
·
Enhanced economic development efforts by the
City and State to attract jobs – and resulting incremental tax
revenues – to Wilmington.
·
Continued State and County support for capital
projects in Wilmington, which can both reduce the City's debt
service burden and also stimulate economic development.
·
Reasonable, periodic increases in the city's
existing revenue sources.
II. General Background
Like many state
and local governments around the country, Wilmington is now
experiencing fiscal strain with the national economic
downturn. Because of the City’s narrow base of economically
sensitive revenues and limited structural opportunities for
growth, Wilmington does not now possess adequate local tools
for addressing these adverse trends.
Instead, the
City’s fortunes now sway with its highly volatile wage tax –
Wilmington’s single largest revenue source, which represents
nearly half of total FY2004 budgeted revenues (45.5%). While
capable of strong growth in boom years with healthy corporate
bonuses, City wage tax receipts have seen actual
year-over-year declines in three of the last five fiscal years
– including a projected decrease of 16.5% from FY2002 to
FY2003. Financial controls, such as the Budget Reserve
Account and Permanent Investment Account should be maintained
and strengthened to manage fluctuating revenues from existing
sources. However, this alone will not be enough.
Given the importance of the City of
Wilmington to the overall Delaware economy and quality of
life, this Task Force has sought to identify a set of new
revenue generating resources that should be made available to
the City. Such tools are critical to Wilmington’s long-term
financial stability and flexibility.
By addressing this
structural imbalance on a multi-year basis in advance of the
onset of severe deficits, the State and City are embracing a
key best practice in municipal financial management. As one
major Wall Street credit rating agency has written:
“A
multiyear plan enables executives and legislators to
anticipate potential budget stress that may result from
projected revenue and expenditure imbalances, allowing them to
take corrective action long before budgetary gaps develop into
crises.”
Although
Wilmington today remains in a financially sound position,
rated A2 by Moody’s and A+ by Standard & Poor’s with moderate
reserves, the City’s fiscal future is clouded by pressures
that threaten to erode this hard-won stability. As Moody’s
wrote about Wilmington in a May 2002 evaluation:
“While
Moody’s believes the city has addressed these financial
pressures in the short-term, their ability to avoid dramatic
reductions in financial flexibility and promote consistency of
financial operations in all funds remains key to future credit
quality analysis.”
To continue
Wilmington’s forward progress without disruption, anticipatory
action is critical.
Projected Fiscal Gap
In reaching its
consensus findings, the Task Force focused considerable
attention on the size of the projected City budget gap and the
potential for reducing this deficit through expenditure
reductions rather than by new and increased revenues.
The March 2003
WEFAC/PFM report projected that, absent corrective action, the
City would face an annual operating budget gap beginning in
FY2004, rising to as high as $12.1 million by FY2007.
Subsequent to the
completion of this WEFAC/PFM review, Mayor Baker submitted his
proposed FY2004 Budget, which offset the projected first-year
deficit through deferred capital borrowing, the absence of any
cost-of-living increases for the City workforce, and other
cost containment measures – achieving only temporary relief.
Incorporating these latest City efforts, the current PFM
“mid-range” estimate of the projected annual operating gap by
FY2007 is $9.3 million – roughly 10% of the total budget –
with a potential variance of several million dollars in either
direction if one uses either more optimistic or more
pessimistic assumptions.
In developing
these forecasts, it should be noted that continued City
spending restraint has been assumed:
Nonetheless, even
taking into account the continued cost containment outlined
above, the City faces severe budgetary pressure from
skyrocketing costs for employee health and retirement
benefits.
·
Likewise, investment losses in the City’s
retirement systems, while not as severe as have been seen by
some other communities, will require a significant increase in
employer contributions. Wilmington’s annual funding
requirement has now returned to the pre-2000 level of
approximately $5.0 million per year (or twice the contribution
required by the City in 2001 and 2002).
Further, because
local government is inherently labor-intensive – requiring
people to patrol the streets, fight fires, and deliver
neighborhood services – such growth in benefit costs tends to
disproportionately impact municipalities relative to state
government and many sectors within private industry. In
Wilmington, employee wages and benefits constituted 68.5% of
actual expenditures in FY2002.
Concurrent with
negative trends in benefit costs, broader forces in the
national and regional economy have slowed City revenue
growth. Again, the City’s primary revenue source, a local
wage tax, is highly economically sensitive, and multiple other
key Wilmington revenue sources – from building permit fees to
the head tax to business licenses – hinge on economic growth.
Facing these
fiscal challenges, the City is not alone. Nationwide, state
and local governments are struggling with severe budget
deficits, driven by many of these same factors. From New York
City to Boston, for example, cities all along the East Coast
are imposing layoffs and slashing public services.
By taking action
now to address these adverse trends – before the City’s
reserves have been depleted and the choices available become
more stark – Wilmington is positioned to avoid such full-blown
crisis and disruption. When faced with such “pay me now or
pay me later” options, taking timely action while challenges
remain more easily managed is always the preferable policy
alternative.
City
Expenditure Reduction
In addressing
Wilmington’s projected budget gap, a key concern for the Task
Force is that the City continue to pursue every viable
opportunity to reduce municipal spending, rather than relying
solely on increased taxes and fees to address its fiscal
challenges. Toward this end, the Task Force convened a
Subcommittee to evaluate potential health care cost
containment and endorses the City’s recently announced study
of service delivery to seek additional sources of savings.
·
Since FY1992,
the City has eliminated 306 positions – reducing overall
headcount from 1,370 to 1,067. Fully 299 of these positions
were outside of the City’s public safety functions – a cut of
over 35% in these areas.
·
Total non-public safety expenditures were held
to an average growth rate of 1.9% per year across this same
period, well below the level of inflation, despite significant
cost pressures in certain areas such as health benefits.
·
In just the
two-and-one-half years since Mayor Baker took office,
significant streamlining and cost reduction have been
achieved:
ü
The Department
of Youth & Families was eliminated, saving $500,000.
ü
Grants to
agencies were reduced nearly 80%, for savings of almost one
half-million dollars.
ü
Spending for
temporary employees has been cut 40%, or $1 million.
ü
Police overtime
has been brought under strict control for annual savings of
$400,000.
ü
Strengthened
internal measures to resolve pending litigation against the
City have cut outside legal fees by over 40% or $300,000.
ü
While making
infrastructure renewal a top priority, the City has cut
approximately $40 million in discretionary projects from the
FY2000 Capital Budget, saving $3 million in annual debt
service.
ü
By ordinance,
the City has reconstituted and strengthened its Expenditure
Review Board, including senior City fiscal officers, City
Council representatives, and the Administrative Assistant to
the Mayor, to monitor and control departmental spending.
·
In addition to
spending cuts, City taxpayers have also contributed
significantly to sustaining budgetary balance. Since FY1992,
the City has raised its property tax five times for a total
increase of 57.2%.
Going
forward, the Task Force recommends consideration of the
following spending controls to further enhance these efforts:
·
Negotiation of restructured municipal employee
health benefits, parallel to plan design changes implemented
for State of Delaware workers, to help control growing costs
in this area;
·
Completion of the City’s ongoing workers’
compensation cost reduction study and the recently announced
multi-departmental expenditure review; and,
·
Expansion of the role of WEFAC and the City
Expenditure Review Board to include evaluation and
certification of five-year forecasts for revenues and spending
respectively, thereby institutionalizing a longer-term fiscal
planning horizon.
III. Options for Near-Term
Action
To broaden the
City’s revenue base, the Task Force recommends that the
Governor, General Assembly, Mayor, and City Council develop a
mix of diverse approaches. To serve as the basis for an
appropriate package, six (6) distinct options have received
sufficient support from a majority of Task Force members to be
put forward for consideration:
Consistent with
the Task Force policy goal of maximizing the return on
Wilmington’s regional assets, two (2) of these options would
improve the recovery of direct and indirect costs associated
with the City’s infrastructure:
·
Increased water/wastewater system return on
investment;
·
New landfill host community charges.
In addition, the
Task Force recommends consideration of three (3) new local
revenue sources found among other urban hubs that would not
impair Wilmington’s overall economic competitiveness:
·
Local lodging tax surcharge of 2.0%;
·
Extension of existing 2.0% electricity franchise
tax to natural gas;
·
Ticket surcharge for sports and entertainment
events.
Further, the Task
Force recommends local action to address inflationary
pressures
·
Updated Wilmington Parking Authority payment.
Finally,
recognizing that these six options will not likely generate
sufficient revenues to close the City’s projected budget gap,
the Task Force also calls on State and City leaders to further
explore additional alternatives for creating new revenue
sources and investing in Wilmington’s future growth and
stability.
|
REVENUE
SOURCE |
PROJECTED
ANNUAL REVENUES |
IMPLEMENTATION REQUIREMENTS |
Water/Wastewater Return on Investment
|
$1.3 million
|
Surcharge approach may require State enabling
legislation. Certain issues may be addressed by City
Council and/or within local ratemaking process in
conjunction with anticipated Water Supply and
Self-Sufficiency Act conservation rate adjustments
|
Landfill Host Community Compensation
|
$2 million - $5 million
|
State Legislation likely required
|
|
Lodging Tax (2% Local
Surcharge) |
$450,000 |
State enabling legislation
desirable |
|
Natural Gas Franchise Tax |
$425,000 |
State Legislation likely required. May also require
Public Services Commission approval
|
|
Events Surcharge |
$400,000
- $500,000 |
State enabling legislation
desirable |
|
Wilmington Parking
Authority payment |
$50,000 - $185,000 |
Local implementation via
City and WPA Board approval |
A.
Water/Wastewater Return On Investment
Rationale
The City of
Wilmington provides direct water and wastewater services to
City residents and both direct and indirect services to
suburban New Castle County residents beyond the City’s
borders. In fulfilling this critical regional role, the City
should “think more like a business” and ensure a
reasonable return on investment for its system assets, as well
as full cost recovery for service delivery.
Within Wilmington’s service region,
water supply is now delivered at highly competitive rates –
relying on City assets. The cost to build alternative water
storage capacity similar to that available from the City’s
Hoopes Reservoir, for example, is estimated at approximately
$30 million. Instead of incurring this major expense,
however, suburban users of the City system are able to rely on
Hoopes – and the City’s pledge of 500 million gallons in the
event of another drought – as a key component of regional
water supply planning. It is patently reasonable for the City
and its residents to be compensated for this direct benefit by
those non-residents who are served by it.
Currently, the City sells water to United Water Delaware and
the Artesian Water Company, both of which resell to customers
in suburban New Castle County. These private utilities,
regulated by the Delaware Public Service Commission, are
allowed to earn returns well in excess of the Wilmington
utility’s transfer to the City General Fund. Currently,
Artesian is permitted a 10.5% return-on-equity,
while United Water is allowed 10.75%.
Looking ahead, compliance with anticipated new legislation,
the Water Supply Self-Sufficiency Act (HB 118), cosponsored by
Representative Smith and Senator Henry, will lead the City and
other regional providers to establish new conservation rates.
In addition, the City enterprise must continue to plan for
combined sewer overflow (CSO) system improvements to meet
increasing Federal environmental mandates. Within the
utility’s overall ratemaking context, potentially in
conjunction with State legislative change, the City should
seek to improve its return on investment in its vital,
regional system assets.
Over the past
several years, total City Water/Sewer Fund revenues and
expenditures have been in the range of $35-40 million per
year:
City of Wilmington Water/Sewer Fund
FY2001-2004
From this overall budget, the City General Fund now receives a
transfer of $2.5 million and an indirect cost reimbursement of
$2.8 million. While Wall Street credit rating agencies and
other outside analysts have raised concerns in past years
regarding historically inconsistent City transfers to the
General Fund from the Water/Sewer enterprise, these transfers
have stabilized under the Baker Administration. Likewise, the
indirect cost reimbursement to the General Fund has not been
adjusted since FY1999.
While it is important for any such transfers and
reimbursements to be set at reasonable levels based on sound
and consistent rationales, it is also appropriate to
reevaluate the methodologies in place periodically to ensure
that the City is receiving a fair return on its investment
with reasonable ongoing adjustments for inflation. For
example, the City and New Castle County recently renegotiated
the agreement pursuant to which the County directly reimburses
the City enterprise for wastewater services. Under the terms
of the new agreement, the County will pay the City $14.6
million in FY2004, with automatic inflationary adjustments
of 2.75% per year going forward. The City Water/Sewer Fund
also receives a separate payment from the County of $401,123
annually for the debt service associated with an aeration tank
built to treat County wastewater flows.
Competitiveness Impacts
According to analysis provided by the Task Force
Infrastructure Subcommittee, Wilmington’s water rates are now
among the lowest in the region.
A residential County customer with a 5/8” meter using 10,000
gallons per quarter would pay $73.23 if served by the Artesian
Water Co., $57.37 if served by United Water, $40.82 if served
by the City of Newark, and only $33.37 if served by the City
of Wilmington. Consequently, even with some adjustments to
rates, Wilmington’s prices will likely remain highly
competitive within the region.
Revenue Impact
The
revenue impact of any changes will be a function of multiple
considerations, much of which would be included within a new
ratemaking process. Through the work of the Task Force,
several issues have been identified for particular
consideration:
·
The Infrastructure Subcommittee has recommended
a water availability charge per customer. Currently,
approximately 112,000 regional customers receive some type of
water service from the City: 12,000 directly, and
approximately 40,000 through United Water Delaware and 60,000
from the Artesian Water Company. The City provides Artesian
with treated drinking water at a cost of 70% of the current
in-City industrial rate ($20.84 per thousand gallons).
Artesian is obligated to take 200 million gallons per year,
but the supply is not now guaranteed in case of drought.
United benefits from a release of untreated water into Red
Clay Creek, from which it can draw and treat its supply.
United pays an yearly reservation charge of $1,200 per million
gallons for a predetermined amount up to 200 million gallons,
as well as a usage charge of $400 per million gallons. The
annual revenues from these sources are well below the resale
prices charged by the private utilities and obviate their need
to site and build expensive impoundment and treatment
facilities.
- At $1.00
per customer per month, applied to all 112,000 regional
beneficiaries of the City system, a water availability
surcharge would generate over $1.3 million annually. This
charge might potentially be structured as a State-enabled
drought prevention tax passed through to the City.
·
The Water/Sewer Fund makes an annual payment of
just under $2.8 million per year to the General Fund as a
reimbursement to the City for the costs of indirect services
provided (e.g., legal, financial, human resources, purchasing,
information technology, and other centrally administered
support). This amount has not been increased since 1999 and
has been dropping steadily as a percentage of Water/Sewer Fund
expenditures. In the recently adopted FY2004 budget, the
reimbursement of these services was projected at 7.28% of
expenditures. In order to keep this payment at a level where
it maintains its value, and the City does not continually
support greater and greater portions of Water/Sewer Fund
overhead, the payment could be indexed to inflation. In the
context of upcoming rate adjustments, the City should update
its indirect cost allocation study to ensure that the
appropriate base is in use for such reimbursements.
·
Because the County wastewater agreement
referenced above has been recently renegotiated, it is not
recommended that its terms be revisited at this time. In the
long-term, however, the issue of proper City compensation for
hosting the region’s wastewater treatment and biosolids
processing facilities merits ongoing review.
Legal/Implementation Requirements
A surcharge
approach may require State legislation, while other
adjustments may be addressed locally within the ratemaking
process.
B. Landfill Host Community Compensation
Rationale
In many landfill agreements nationally, a host community fee
is added to the base tipping fee collected by landfill
operators to compensate the host community in part for the
direct burdens the facility places on the host community. The
landfill in Wilmington is owned by the Delaware Solid Waste
Authority (DSWA), a public entity, and is operated by a
private contractor. Currently, no host community fee is
applied, and no other compensation is provided.
While no tax or surcharge will truly compensate those most
directly impacted by the sounds and smells of an active
landfill, through some form of host community compensation,
the City and its residents would receive partial compensation
for landfill-related costs and community impacts, and the
economic development opportunity costs associated with
dedicating prime waterfront real estate to a tax-exempt
regional landfill facility.
Competitiveness Impacts
Many landfills nationally absorb the costs of host community
charges and remain economically competitive. Currently, the
DSWA is in excellent financial condition – reporting excess
revenues over expenses FY2002 of $12.8 million and increasing
retained earnings from $18.8 million to $31.7 million during
the year. Further, within the overall DSWA balance sheet,
Wilmington’s Northern Solid Waste facility currently generates
the great majority of operating income – $25.6 million in
gross operating revenue and $11.8 million in net income after
expenses. The current base tipping fee has not been increased
since 1994. Consequently, the initiation of reasonable
compensation to the City should be feasible without
significantly impairing the competitiveness of the DSWA
facilities or causing sharp rate increases for regional
customers. Nonetheless, given the active competition among
solid waste disposal sites, market concerns should be
recognized in developing the specifics of any new host
community compensation program.
Revenue Impact
The revenue impact from
landfill compensation would vary pursuant to the methodology
used to determine the appropriate level of payment. Through
the work of the Task Force, four approaches have been put
forward.
·
The
Infrastructure Subcommittee of the Task Force has recommended
a surcharge on every customer (both residential and
commercial) of haulers disposing at the Wilmington landfill.
The Subcommittee estimates, for example, that a surcharge of
$1.00 per month would generate between $3 million to $5
million annually.
·
Alternatively compensation
to the City could be
established based on a percentage of total Cherry Island gross
operating revenues. At FY2002 revenue levels of $25.6%
million, for example, a 7.5% surcharge would generate over
$1.9 million.
·
Other Task
Force members have suggested that, as compensation for
Wilmington hosting the Cherry Island landfill, the DSWA could
provide solid waste disposal for the City at no charge. Based
on the FY2004 Budget, this would reduce net City expenditures
by more than $2.0 million annually.
·
In
addition, the City now provides biosolids to the DSWA for use
as landfill cover at no charge, saving the Authority
significant expense that would otherwise be required for
purchased fill.
The City should be compensated for this benefit, which could
potentially generate between $1.5 million and $2.5 million.
It may further be noted
that these four approaches are by no means the only
alternatives for providing compensation to the City, nor are
they necessarily mutually exclusive.
Legal/Implementation
Requirements
