Newark officials are declaring victory in their tax dispute with New Castle County after the state legislature passed a law reversing a recent change in the way the county calculates property taxes owed by Newark residents.
“That was a big win for Newark,” City Manager Tom Coleman said.
Last year, the county changed its complicated formula for calculating taxes, resulting in a slight increase for Newarkers on their county tax bill. Starting next year, that increase will be eliminated.
“It’s going to work out to the tune of $8 to $10 per year, which is a little bit of help,” Mayor Jerry Clifton said. “Clearly, the legislature recognized Newark residents were being double taxed on the fire service.”
However, while city officials are quick to note they went to bat for Newark residents against the county, it’s worth noting that residents’ savings on their county tax bill will be more than offset by increases to Newark’s tax rate and utility fees. In November, city council passed a 13 percent tax hike, as well as slight increases to the water and sewer rates – which translates to a yearly increase of $77 for the average resident, with additional water and sewer increases possible this spring.
The city’s dispute with the county began a year ago, when the county announced it would change the way it calculates the taxes owed by residents of municipalities, which typically pay a lower rate than residents of unincorporated areas.
Both sides said their concern was fairness, but the two governments had a fundamentally different idea of what is fair.
All county residents pay for general operating costs, like libraries, the recorder of deeds, regional parks, etc. Residents also pay a local services rate, which varies based on what services they receive from the county. For instance, those who live in unincorporated areas pay for services like county code enforcement, 911 dispatchers and police, while Newarkers do not, because they receive those services from the city and pay for them through city taxes.
Last year, the county discovered the local services rate had not been updated in at least 15 years and recalculated it to reflect the accurate cost of providing each service. As a result, the rate in some municipalities went up, while the rate in other municipalities went down.
Overall, the change was revenue-neutral for the county. It didn’t bring in more money; it simply realigned the taxes paid by residents of different areas.
As part of the changes, the county decided to start charging Newarkers for fire protection.
Neither the city nor the county maintains its own fire department, but both give grants to the volunteer Aetna Hose Hook and Ladder Company. The city gives Aetna $230,000 in financial contributions and free utilities, and the county provides $350,000.
Newark officials argued that because Newark residents already contribute to Aetna through city taxes, they should not have to chip in to help pay for the county’s grant. However, the county argued that because Newarkers benefit from the county’s grant to Aetna, it’s only fair that they help pay for it.
In May, city council passed a resolution calling on the county to rescind the changes and, when that was unsuccessful, Newark and Clifton filed suit against the county.
“In our opinion, what the county has done is illegal,” Coleman said at the time. “It’s time to stand up on behalf of our residents.”
In an interview last week, he struck a more conciliatory tone, praising the county for participating in a task force that is examining the local service fees.
“The county has been very cooperative and definitely an involved partner committed to doing the right thing,” Coleman said.
A broader review is still ongoing, but the two sides reached an agreement on the fire service fee, which was codified by the state law that was signed by Gov. John Carney late last month.
In broad terms, the agreement looks at a municipality’s contributions to the fire service and uses that amount to offset what is charged to residents. Because Newark gives more to Aetna than the county’s local service fee would generate from Newark residents, Newarkers’ local service fee for fire service is zero.
Other municipalities, such as Middletown, also benefit from the law.
“It’s about as an ideal result as anyone could have expected,” Coleman said. “We’re definitely happy with the results.”
The city has stayed its lawsuit and plans to drop it once county tax bills are sent out this summer.