Sussex County Delaware

F.I. Council Delays
Rental Tax Vote

Town of Fenwick Island ...

Two Council Members
Express Reservations

SC Online Content Editor

During an often heated four-and-a-half-hour meeting Nov. 15, 2002, Fenwick Island Town Council voted to postpone a vote on a controversial rental tax.

The council had proposed a 7.5 percent tax on gross rental receipts for rental of commercial property. Residential rental property owners already pay a 7.5 percent tax on gross rental receipts.

The proceeds from the proposed tax would help defray the expected $50,000 deficit in the town's fiscal year 2003 budget -- but the council has admitted it really doesn't know what the revenue from the tax would be.

At a public meeting on the issue in October, business owners said the tax could drive small business owners -- many of whom pay rent all year even though they are only open during the summer -- out of business.

Those concerns were reiterated at the Nov. 15 meeting. Fenwick Crab House owner Scott Fornwalt said the tax amounts to "double taxing" some businesses and that "you're going after the commercial people to pay your bills."

Blue Hen Gifts co-owner Carol Hughes said small businesses would suffer greatly from the tax. "We can't keep absorbing these additional costs," Hughes said.

Tim Collins, owner of the Ocean Avenue and Southern Exposure clothing stores, said the town should be prepared for the disappearance of small businesses from the town and their replacement with residential properties, which will bring more of a drain on town resources than the commercial properties.

Also at the Nov. 15 meeting, two council members expressed their own reservations on the proposal, and a third proposed implementing it in three stages instead of all in one year.

"I really don't think this tax is very well thought out," council member Vicki Carmean said. She said the fact that the town's budgets had not been audited for four years "worries me," and said "if you can't tell me where the budget is going, how can you tell me you need more?"

Council vice president Harry Haon said whether the town's books have been audited "has nothing to do with whether the money has been spent well." Council member Peter Frederick agreed. "You don't need an audit to tell you what you've spent."

Budget chairman Richard Griffin announced later in the meeting that audits have been completed up to 1999 and that the fiscal 1999-2000 audit should be completed by the end of this week.

Council member Theo Brans, meanwhile, said that although he believes the tax is fair, he would like the council to take more time to consider the possible consequences of it, as well as possible alternatives.

"Before we raise any more taxes, we ought to look at our books first and see what can be done to avoid this additional burden on the commercial property owner," Brans said. "We all know that any tax imposed on the landlord is most likely going to be passed on to his tenants. That means of course the merchant's profit margin is getting smaller, particularly since the 10 percent property tax (increase) I assume will be passed on to them."

Resident Elsie Weistling asked what would be done to address the $50,000 deficit if the rental tax doesn't pass. Haon said the town would "dip into savings" and reduce costs. Haon said the town has reserves to dip into, thanks in large part to its share of the real estate transfer tax.

Frederick said there are six programs already under way in an effort to reduce costs; the town is also looking at the possibility of outsourcing its payroll, and is examining its health insurance and personnel policies. He did not elaborate on possible impacts for town employees, but said, "we are not going back and taking anything away" from current employees.

Resident Chris Clark asked if the council would consider offering incentives to town employees who come up with cost-saving measures for the town.

Brans suggested five actions to help the town deal with the current fiscal crisis. They are:

  • Hold monthly workshops for the council to brainstorm ideas, "instead of having one or two council persons try to reach a quorum who agrees with the idea and not consult with other members, so in other words, their mind is made up before they come to the public meeting."

  • Reduce operating costs by 5 percent in each department;

  • Form an alliance with town businesses where they can exchange ideas with council members. Brans suggested setting up a committee of council members with business experience.

  • Merge some services with neighboring communities.

  • Table the proposal "till we get our house in order."

Budget chairman Richard Griffin said that while he agreed with some of Brans' points, it would be impossible to cut 5 percent of overall costs because more than 50 percent of the town's expenditures involve staff salaries. Griffin said the proposed tax "is not a tax to the business people of this town," which drew laughter from the audience.

"There's no guarantee it would be passed on, but I have to admit it probably would be," Griffin said of the likely impact on business owners who don't own the property where their businesses are located.

The council voted to revise the second reading of the proposal to include the phasing in of the tax, with 3 percent the first year (2003), 5 percent the second year (2004) and 7.5 percent the third year (2005). They also voted to revisit the issue at the Dec. 13 council meeting.

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