Tax dispute

County Executive Matt Meyer explains his reasoning for a tax change as Newark Councilman Chris Hamilton, Newark Finance Director David Del Grande and Newark Councilman James Horning Jr. look on during a meeting at the Newark Free Library in May.

Newark City Council on Monday escalated its disagreement with New Castle County, voting to sue the county over a change in the way it calculates the county taxes charged to residents of municipalities.

At issue is whether Newarkers should be expected to help fund the county’s grant to the fire department that serves the city.

Breaking decades of precedent, the county this year will begin charging Newarkers for fire protection, which will increase the county taxes paid by Newark residents an average of $7 per year.

Newark officials vehemently opposed the change. City council passed a resolution calling on the county to reverse it, and city officials confronted County Executive Matt Meyer during a town hall meeting at the Newark Free Library.

State Rep. Paul Baumbach attempted to mediate a solution, but the budget passed by county council in May included the $7 increase. Since then, the state legislature established a task force to review and propose revisions to the local services function process.

In the interim, though, Newark has decided to take its argument to the courts.

“In our opinion, what the county has done is illegal,” City Manager Tom Coleman said Monday. “It’s time to stand up on behalf of our residents.”

In a written statement Tuesday, Meyer called the city’s pending lawsuit frivolous.

“The City of Newark is demanding that taxpayers outside the city pay for fire services provided within the city. This is not fair to taxpayers and we will fight any lawsuit vigorously,” Meyer said. “This turn of events is particularly troublesome as it threatens the state task force created to study this very issue. Newark’s decision will only divert funds that could instead be used to support the local fire service or meet other important public needs. We should be working collaboratively to focus on fairness for our taxpayers and not wasting city and county taxpayer money on frivolous litigation.”

A complicated issue

The dispute revolves around a change in the way the county calculates the taxes owed by residents of municipalities, which typically pay a lower rate than residents of unincorporated areas.

Both sides say their concern is fairness, but the two governments have 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.

This 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.

“This is about people who get the same services should pay the same rate,” said David Gregor, chief financial officer for the county, explained in May.

Overall, the change is revenue-neutral for the county. It doesn’t bring in more money, it simply realigns 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 maintain their 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.

David Del Grande, finance director for Newark, argues 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.

“Newark taxpayers would be subject to paying twice for the same service; one based on Newark’s contribution and the other based on the county,” Del Grande said previously, noting that Newarkers have gone decades without having to pay the county portion.

However, Meyer argues that because Newarkers benefit from the county’s grant to Aetna, it’s only fair that they help pay for it.

“The reality is, this is revenue-neutral across county government,” Meyer said earlier this year. “So if we were to say, ‘OK, let’s go easy on Newark and let’s reduce it by an average of $7 per parcel per year,’ we have to increase taxes all across the county for other county residents to pay for that.”

The local services rate is calculated based on the cost of services to the county, and any additional grants from municipalities are irrelevant, he said.

“If Aetna Fire Company came to me, and said, ‘You know, Matt, we got $120,000 from the city of Newark, therefore, you at the county can reduce your payment to Aetna Fire Company by $120,000,’ then we would give Newark residents a break,” Meyer said.

Gregor said it’s unclear why the county has not charged Newarkers for fire protection in the past, but acknowledged that past county administrations have neglected their state-mandated duty to update the local service rates each year.

Other towns, like Elsmere, provide a grant to their local fire department, too, but still have to pay the county tax.

“We have folks around the county asking why is Newark singled out as different than us,” Gregor said.

Legal costs still undetermined

Newark’s city solicitor, Paul Bilodeau, is still drafting the lawsuit but hopes to file it in Delaware Superior Court by the end of the month. He plans to ask the court to declare the tax change illegal and order the county to reverse it.

This is not the first time Newark has sued the county over the local service fee. The city was one of several municipalities to sue the county in 1972. In that case, the Delaware Supreme Court ruled that residents who pay municipal taxes for a service cannot be charged by the county for the same service – a ruling Bilodeau plans to cite in his lawsuit.

Last month, he sent the county a letter asking it to reverse the tax change and warning that the city would consider legal options.

“They just pushed ahead,” he said. “They had the option to hold off on this.”

City council on Monday voted to hire Thomas Marconi, a partner at Bilodeau’s Wilmington law firm, as special counsel to help represent Newark in the case. Officials declined to estimate how much the legal fight will cost Newark taxpayers.

“It depends on how hard the other side plays,” Bilodeau said.

(2) comments

whealton

I'm no fan of Matt Meyer - in the least. Can't stand him and wanna see him out of that office as fast as humanly possible. But for Newark, the city that has their hands in the pockets of those unfortunate enough to live there - EVERY SINGLE CHANCE THEY GET - to complain over this? What, did I see $7.00 per year? If that's the case, it's a joke. Two governing bodies that screw their people over every chance they get, arguing over this. What a bad joke. The pathetic dirt we have in office is just sad.

Rich black

Welcome to America. Where one government agency sue's another, and taxpayers foot the legal bill, simply because our political class is made up of lawyers who have lawyer friends who need extra income.

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