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Chancellor William Chandler, in deciding a suit brought by two
county residents, declared the accounts illegal because they
were not established by legislative action. Although the opinion
the judge handed down did not specify a remedy, top county
officials agreed that he was asking for remedial action.
Following the decision, Richard Korn, one of the residents,
declared that the money should be "returned to the taxpayers."
As
Delaforum previously reported, doing so was unlikely for a
variety of reasons which Paul Clark, president of County
Council, summed up as being "fiscally irresponsible."
At a
meeting of Council's executive committee on Feb. 14, David
Singleton, the county's chief administrative officer, described
the process of doing so as a veritable exercise in futility.
Some
time before the end of June, property owners, would, according
to County Executive Christopher Coons, "get their tax bill back
plus a little bit more." On or before Sept. 30, however, they
would owe the county about 17% more than they paid last year.
For the average taxpayer, that would translate into receiving
between $350 and $360 and paying around $380. That does not take
into consideration the cost of effecting the refund.
There
would be a similar scenario as regards sewer fees -- which are
due by the end of February -- but the fiscal 2006 hike would be
33%. It is almost certain that the sewer fee rate will be
increased for the coming year, after having held for 12 years,
but the increase being talked about is less than half of that
and it may be spread in increments over two years.
The
proverbial 'plan B' which Coons and Singleton proposed -- and
the 10 Council members at the meeting seemed to agree is better
-- would be to enact a simply-worded straightforward ordinance
to establish a 'general fund reserve account', a 'sewer fund
budget reserve account' and a 'sewer capital rehabilitation
reserve account' in a revised fiscal 2005 budget. Those accounts
would also be part of the fiscal 2006 and subsequent budgets.
The
present 'rainy day' funds, which are provided for in existing
law and which Chandler upheld as legal, would remain. Intended
to assure that money is on hand to deal with significant
unforeseen emergencies, they are set each year at 20% of both
the general fund and sewer fund budgets. The chancellor, in a
footnote but not in the actual opinion, did question the size of
those reserves, which compare to 5% set-asides at the state
level. That point was not raised at the committee meeting.
Singleton, who previously was secretary of finance in state
government, told Delaforum earlier that a disparity is
reasonable because the state budget is considerably larger than
the county's.
Clark
endorsed the administration's proposed ordinance after pointing
out that it was drafted with his collaboration. "This seems to
be the best way to go in light of the Korn [case] decision," he
said.
"I
would agree that the prudent thing to do would be to amend the
budget," Councilman Robert Weiner said. Councilman John Cartier
said that, unlike taking the previous Gordon administration's
unilateral approach, enacting the ordinance would provide for
managing budget reserves "in a judicious and sensible way."
Councilman Penrose Hollins said it would "create more of a
hardship on residents of the county if we had a stopgap refund."
Councilwoman Karen Venezky, who chairs the finance committee,
said that the illegality which Chandler found in the
Gordon-established funds "was a technicality and it can be
fixed."
Neither the suing taxpayers, the judge nor anyone else in a
position to comment has accused former County Executive Tom
Gordon or anyone in his administration of personally benefiting
-- other than possibly in a political sense -- from creation of
the funds.
In
fact, it was clear from discussion at the meeting that amending
the budget rather than going the refund route is preferable
largely because it will retain Gordon's stated purpose of using
reserves to stave off a tax increase. Without the 'tax
stabilization' set-aside, it would have been necessary to raise
the tax rate this year in order to meet the statutory
requirement to come in with a balanced budget. As things stand
now, the rate could hold until as far out as fiscal 2009.
The
likely path forward will be for the proposed ordinance to be
introduced, possibly with most of if not all the 13 Council
members co-sponsoring it as a gesture of solidarity, at
Council's Feb. 22 meeting. It probably will be enacted on Mar.
7.
Doing
so will theoretically more than double the present combined
general fund and sewer budget from $210.5 million to $441
million. Singleton emphasized, however, that that does not
involve any new money -- just a redefinition of what already is
on hand.
The
difference lies in the fact that the new reserve funds would be
'on-budget'. That means that Council will have to approve and
the county executive sign off on transferring any of the amount
from them to a spending line in the budget. Previously, the
executive administration had discretion to use the money,
theoretically at least, for any purpose.
Acknowledging that, in practice, most governmental reserve
accounts are 'off-budget', Singleton said the Coons
administration took the other approach "because that's what we
believe the chancellor wants us to do." The alternative, he
indicated, might risk reopening the suit.
The
'rainy day' funds are off-budget, but the law establishing them
provides that that money can be spent only with Council's
approval by a 'super-majority' vote.
Coons
and Singleton asked Council to wait awhile before deciding
whether to proceed with a disputed $80 million bond sale, which
the Gordon administration voluntarily put on hold rather than
have Chandler issue an injunction against it in response to one
of the points raised in the suit. In his decision, he turned
down the residents' request that he permanently block the bond
sale.
Coons
promised that "after we resolve this issue (what to do about
reserve accounts), we will be reviewing the bond issue from the
ground up."
What
is involved there is a definition of what is to be financed with
the borrowed money. As approved by Council, the $80 million
issue would have gone in part to finance grants for development
of a nature center at the Christina Riverfront in Wilmington and
the Iron Hill museum near Newark. Neither of those are county
projects.
At
stake in that eventual decision is the county's triple-A bond
ratings by all three major Wall Street bond rating firms. Loss
of the rating would require that the bonds carry a higher
interest rate with resultant considerably greater debt service
costs over their 20- or 30-year life.
Despite Federal Reserve moves to tighten money, Singleton
pointed out that tax-free municipal bonds still command
favorable-to-the-borrower rates. "There [would be] wisdom to
lock in these favorable rates," he said.
As
part of the administration's pitch to the executive committee,
it lifted a corner on one part of a consultant firm's study of
county finances which is underway. A simplified chart
distributed at the meeting showed that county spending grew 33%
during the fiscal years from 2000 through 2005, inclusive, while
revenues went up only 8% during that time. And that disparity
occurred even though state government increased the county's
share of the real estate transfer tax and the northern Delaware
real estate market has been experiencing a boom.
"It's
useful for us to look back before we look forward," Coons said.
"Anyone who has those trend lines is going to go broke."
The
chart also showed a 12% growth in the county's workforce during
the most recent term-and-a-half of the Gordon administration.
Coons has said he wants zero growth in the immediate future.
Toward that end, he told the executive committee that he has
instructed department managers to justify holding on to the
approximately 100 currently vacant positions and "choose which
positions we can eliminate."
He
added that he hopes that paring down the workforce can be
accomplished through attrition rather than by lay-offs, but
stopped short of declaring that to be his policy. While there is
no job-freeze in effect, Singleton is personally reviewing any
proposed new hires.
Coons
said his announced intention to run a tight ship when it comes
to county spending is showing signs of dissension as possible
specifics are put out in various fourms including the series of
public meetings he and Clark are conducting. "I have not heard a
single citizen say please cut [any of] the services we have,"
Coons said.
"People want everything they have, and a little bit more, but
don't want more taxes," Hollins said.
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