General fund imbalance, possible tax increases discussed at Milford council’s retreat

MILFORD — City Council met over Zoom on Tuesday for the first segment of its annual retreat, which was focused on the city’s finances.

A primary area of concern was imbalances in Milford’s general fund, which holds much of the money used to finance the city’s daily operations.

“This is the first of a couple of retreat meetings that we have planned,” said City Manager Mark Whitfield.

He said the council will schedule two more retreat workshops before the end of January. The second meeting will address planning, economic development and the city’s plan for its open space.

“In the third retreat, we’ll be with the facilitators,” he said. “Once you have the meat and potatoes from these two sessions, they’re going to help us figure out how to get from Point A to Point B and roll it out.”

The first and most thoroughly discussed topic on the council’s agenda was the general fund.

“Tough decisions have to be made on the city’s finances,” said Lou Vitola, Milford’s finance director. “A lot of this stuff is known and well-known by leadership, but it’s just easier said than done.”

Mr. Whitfield said the city has “some financially structural issues we need to deal with on the general fund in regard to real estate taxes and real estate transfer taxes.”

Mr. Vitola explained that to have balance in the city’s general fund, Milford needs to raise property taxes.

He said Milford hasn’t increased its property tax rate since 2007 and that the growth in parcel count in recent decades has allowed the city to put off doing so.

“So much growth (between 2004 and 2014) in property tax revenue was attributable to the growth in parcel count, but in the last six years or so, that has tapered off,” Mr. Vitola said.

“The parcel count has only increased by a couple hundred for a compound annual growth rate of half a percent over that period (since 2014), whereas it had been moving at a really strong pace, 5.8% compound annual growth rate, from 2004 to 2014,” he said.

But in the last six years, Mr. Vitola said the number of new parcels added every year has plateaued. Parcel growth accounted for 83.3% of contributions to total revenue between 2004 and 2014, but it accounted for just 20.1% between 2014 and 2020.

While he said the city does have more permits and real estate developments coming, those projects aren’t numerous enough or coming fast enough to provide the tax revenue needed by the city to keep up with its budget commitments.

“Regular, incremental increases in the property tax rate will assist Milford in its endeavor to achieve a structurally balanced General Fund budget,” Mr. Vitola said in a letter addressed to the council.

“In order to balance the (fiscal year 2022) General Fund budget and close the deficit, a tax increase estimated at $0.108 per $100 of (assessed value) is required,” he said in the letter.

Several members of council believe the city should be taking a more aggressive stance toward cutting costs as they prepare to raise taxes.

“Have we taken a hard look at our expenses? I know we say it’s wage increases and so on, but we owe it to the taxpayers to take a real hard look at every expense line item,” said Vice Mayor Jason James, who is also the chair of the council’s finance committee.

“I’m not saying you’re going to find a gold mine in doing that, but at least if you’ve done the work, you may find some things that may really lower your costs, which will lower your need for additional tax revenue,” he said when reached for comment Wednesday morning.

“I fully agree with Councilman James,” Councilman Todd Culotta said.

“So often, city government, state governments, even the federal government talks about tax increases to meet revenue shortfalls or the cost of operating a city,” he said. “I don’t believe you can have that conversation of tax increases without the conversation of cost cuts.”

Still, it’s unlikely that at this point the council would be able to remedy the general fund deficits without a tax increase.

“Expenses go up every year naturally. Everybody knows that, whether it’s wages or just the cost of living in general, but the taxes have not been raised,” Vice Mayor James said.

“Over the years, most of the councils we’ve had have always looked at our reserves and been excited because of what we had in reserves,” said longtime Councilwoman Katrina Wilson. “Truthfully, the deficits had never really been presented other than in the audit reports.”

She said these have never been highlighted before.

“I think every year it was mentioned, ‘We might have to increase our rates,’ and all of our mayors and a lot of the councilpeople would start grumbling,” Councilwoman Wilson said.

“Basically, we’ve survived off of the reserves bailing us out, and we can no longer live like that,” she said. “We’re going to have to look at everything and increase our rates in order to keep up with our growth.”

Vice Mayor James added that it’s a good time for clarity for the council.

“This is a fresh awakening and awareness for the entire council,” he said. “The council actually has more transparency and knows more about the financial position and the makeup now than they’ve probably ever had before.”

The vice mayor, who is an accountant by day, said it has been a goal of his to increase transparency around the city’s finances. He pushed for Tuesday night’s workshop because he felt much of the council needed help understanding the intricacies of the budget.

He said he is happy that Mr. Vitola, who is also an adjunct instructor of accounting at Delaware Technical Community College, has put so much effort into explaining the budget to council.

“If you don’t make it transparent and break it down into its proper components, council doesn’t have the right information to make the right decisions,” Vice Mayor James said.

“Now that (the) information is being developed more and more and is more transparent than it has been,” he said, “everyone is coming together on the same page.”

Another area of concern is realty transfer taxes, which are levied on financial transactions where land changes hands.

According to a letter from Mr. Vitola to the council, in Milford’s case, this RTT revenue is collected by the state and distributed to Milford through the governments of Kent and Sussex counties.

“Are we going to continue to use those for general fund shortfalls or are we going to use the real estate transfer taxes for capital expenses, which probably would be a better use for those funds?” Vice Mayor James asked.

Mr. Vitola said that although Milford has received $11 million in RTT over the last 15 years, it should not be used to supplement the general fund, as it’s not a recurring, sustainable source of monies.

“The funding is not reliable, due to its unpredictability and sensitivity to conditions beyond the City’s control,” he said in the letter.

“Over the last 15 years, RTT receipts have ranged from a low of $260,000 to a high of nearly $2 million,” Mr. Vitola said. “Unfortunately, those two extreme values were observed just three years apart.”