Giving back: State reimburses county seats for presence of tax-free government buildings

DOVER — Sixty state buildings are located in Delaware’s capital city. That’s 60 buildings exempt from local property taxes, costing Dover hundreds of thousands in annual revenue.

State-owned buildings not paying property taxes is not unique to Dover — throughout Delaware, properties owned by the federal, state and county governments are exempt.

That’s not something exclusive to Delaware: Some municipalities have programs known as payment in lieu of taxes, allowing local governments to still collect some money from properties that do not pay taxes.

Delaware does have a law requiring the state to provide some compensation to the three county seats of Dover, Wilmington and Georgetown, but the municipalities don’t get equal payments.

Dover and Georgetown receive 30.8 percent of the tax values of state buildings, while Wilmington is paid 100 percent, although the total payout caps at $3 million combined. In the current fiscal year, the breakdown is:

Dover, $312,458.78

Georgetown, $70,176.49

Wilmington, $2,497,907.74.

For comparison, Dover’s current operating budget is about $125 million.

Without a cap, each municipality would collect more from the state government — obviously costing the state more at the same time.

The law dates back to 2005 when, to aid the municipalities, lawmakers passed legislation providing some financial relief. The payment in lieu of taxes program was designed primarily to help the state’s largest city, Wilmington. That city has more state buildings than Dover and Georgetown combined.

The bill, which received few votes against, orders the three municipalities to “appraise and assess real property taxes on all property owned by the State lying within their respective city limits.”

From there, money is to be distributed to the municipalities based on the taxes the buildings would pay, with the Department of Finance initially being allocated $3.5 million annually for the payments.

Subsequent measures excluded Delaware Housing Authority, Delaware Solid Waste Authority, Delaware State University and University of Delaware properties and lowered the limit to $3 million.

A 1990 bill provided for some reimbursement for Dover alone, directing the Department of Finance to pay to the capital city 7.7 percent of what the state buildings would owe in taxes.

A 2013 proposal would have altered the existing statute by removing the universities from exempt property, changing the rates and including Newark in the municipalities that benefit from payment in lieu of taxes. The bill failed to find success, however.

Georgetown Town Manager Eugene Dvornick said he does not mind Wilmington receiving a higher percentage in reimbursement, although he noted raising the rate to 100 percent would help reduce the need for tax hikes.

“Certainly, it would be beneficial to us,” he said.

Former state Rep. Wayne Smith, a northern New Castle County Republican who sponsored the 2005 bill, said it would have been “overly generous” to give Dover and Georgetown a 100 percent reimbursement because the two municipalities have a higher percentage of state buildings than Wilmington.

While the bill included all three county seats, it was written with Wilmington in mind.

“This was a perfect example of the need to get geographic buy-in,” Mr. Smith said. “There was no way downstate legislators were going to go along with it if there’s nothing in it for their county seat.”

Although the law helps lessen some of the financial burdens on Dover, Wilmington and Georgetown, it does not specifically cite any of the three municipalities. The provision refers to the three county seats, and the reimbursement rate is set based on population: Towns or cities with more than 50,000 people get 100 percent, while those with fewer receive 30.8 percent.

If the total payment would exceed $3 million, it is to be divided proportionally based on the municipalities would otherwise receive.

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