Why Should Delaware Care?
Two Dover City Councilmen developed a plan to generate new revenue for Delaware’s capital city, but some leaders were left questioning its legality. The proposal — to charge certain tax-exempt properties an annual fee — has the potential to divide city leaders and state lawmakers, with residents’ tax bills caught in the crossfire.
Following a challenging budget year, two Dover leaders are offering up a revenue source proposal to resolve the city’s tight financial margins: new fees on certain tax-exempt properties.
Dover City Councilmen Roy Sudler and Brian Lewis proposed at a committee meeting last week that the city levy an impact fee of $1 per square-foot of building space on tax-exempt properties larger than 50,000 square feet in the city.
The proposal includes a list of 20 properties that would be subject to the yearly fee, including the Delaware State University (DSU) campus, Bayhealth Medical Center, the Delaware Technical Community College Terry Campus and Legislative Hall.
If approved, the concept would require institutions like Bayhealth, DSU and the state government to each pay the city more than a million dollars annually.
“Everyone should have to pay their fair price,” Sudler said at the meeting. “Job creation does not pave roads, institutional growth does not clear stormwater networks, and prestige does not fuel emergency rescue vehicles.”
In a rare show of unity among city leaders, the eight members of the Legislative and Finance Committee present at the meeting voted affirmatively to move forward with the impact fee. The city’s finance department will now conduct a feasibility assessment by late August.
Despite the enthusiasm about the proposal from city leaders, questions remain about the legality and logistics of the concept, which would require the state government to pay the city of Dover for its properties within city limits.
Dover City Attorney Dan Griffith told Spotlight Delaware he has not yet reviewed the proposal, and cannot comment on its constitutionality. Council members said a legal review will be a key part of the analysis of the proposal that city staff will undertake over the next month.
Dover officials have long expressed concern that roughly 45% of property in the city has non-profit status – meaning it qualifies for property tax exemptions – and have made various attempts over the years to impose comparable fees on tax-exempt organizations.
None of those past proposals have succeeded.
In addition to passing an ordinance within the city government, the impact fee would necessitate a charter change to be implemented. Charter changes require an affirmative vote by two-thirds of each chamber in the General Assembly to be approved.
While the proposal appears to have initial support within the city, it is not clear whether city leaders would be able to lobby their state counterparts to support the fee.
State Sen. Trey Paradee (D-Dover), whose district includes the majority of the city of Dover, said he does not believe the impact fee is constitutional, nor would it be successful if put to a vote in the legislature.
“It is politically impossible for them to do,” Paradee said. “It would just never happen.”
Paradee said the Constitution’s supremacy clause – which states that state law takes precedence over local law – is evidence that the city does not have the authority to implement what he described as “essentially a tax on state property.”
Specifics about the fee proposal
A 50-page packet created by Lewis and Sudler lays out the impact fee proposal. They say it would force tax-exempt organizations to pay their fair share of infrastructure costs, because these entities consistently use city resources like roads and stormwater networks without having to pay into the system.
Dover City Manager Sharon Duca and Finance Director Patricia Marney said they had not reviewed the plan, but that they believe it is an idea with some potential. At the same time, both said the concept would need a legal review.
Sudler said his goal is to incorporate the fee into the city’s next fiscal year budget, but Duca and Marney said it could take longer to iron out the logistics.
The so-called Municipal Services Impact Fee would generate nearly $13 million in revenue annually for the city. It would allow the government not to have to pass rising costs on to residents in the form of property tax and utility rate increases, Sudler said.
The city spent this spring debating its 2027 fiscal year budget, which initially included a $7 million shortfall.
The city council ultimately balanced its budget by imposing a 3-cent increase per $100 of assessed value on residents’ property taxes, and a 1-cent increase to their per-killowatt-hour electric usage rate.
The majority of council argued the tax increases were the only way to reconcile the budget shortfall, but Lewis and Sudler remained critical. They said the budget unduly placed the burden on residents instead of nonprofit organizations.
The pair said this past year’s budget conversation led them to introduce the impact fee idea as a way of creating a more permanent solution to the city’s budget issues.
But it’s not clear whether the nonprofits that own the 20 properties listed in Dover’s proposal would have the room in their budgets to pay the fees council members are suggesting.
A spokesperson for DSU wrote in a message to Spotlight Delaware that the proposal would have a “significant impact” on the university’s operations, and is not something the university could support.
Representatives from Bayhealth and Del Tech did not respond to Spotlight Delaware’s request for comment on Friday about the fee.
Lewis and Sudler also said Dover is one of the only state capitals without a program for collecting money from state owned real estate and higher education campuses within its city limits. They cited examples of capitals like Hartford, Connecticut, and Albany, New York, which they said receive funds from their respective state governments for maintaining state building infrastructure.
The New York State code, for example, requires the state to pay aid to cities with a population greater than 75,000 where at least 25% of the city’s property is owned by the state.
A similar ordinance discussed by the Dover City Council in 2018 drew pushback from smaller nonprofit organizations, like homeless shelters, who said they could not afford to pay such a fee. The updated fee proposal would not impact those organizations, however, because their properties are less than 50,000 square feet.
When asked about the additional financial burden the fee would place on organizations like Bayhealth and DSU, which already pay water and sewer usage fees, Sudler said he would encourage the tax-exempt properties to apply for grants or use state bond appropriations to pay their potential fees.
However, Sen. Paradee said the concept would quickly become an extremely costly situation for the state, because an impact fee in Dover would set the precedent for Wilmington, Georgetown and other jurisdictions to request state funds for the state-owned property within their municipal limits.
“It’s clearly a tax,” he said.
For the 2027 fiscal year, which began July 1, Dover was allocated $1.6 million from the state for fire and police services provided to DSU as a part of a higher education public safety grant program. The city also received $450,000 in payment in lieu of taxes – or PILOT money – for the large tax-exempt properties within its limits, like Bayhealth and DSU.
The city would no longer be eligible to receive these state funding sources if it implemented the impact fee program.
Residents back plan, officials question viability
Sudler and Lewis presented their proposal to an agreeable audience during the June 9 meeting. In addition to unanimous committee approval, a few residents voiced enthusiastic support for the plan, while also sharing their battles living in Dover.
Dover resident William Faust said he struggles to pay his increasing utility bills on a fixed income.
“I’m living in the dark because I can’t afford to have my lights on,” Faust said.
Another resident, Bonnie Pennington, said the plan is “the best thing that [city leaders] could ever come up with.”
Sudler said he and Lewis took a “biopsychosocial” approach to their proposal. He explained the economic predictability that would come from transferring the tax burden from residents to large entities.
“Traditional regressive tax hikes and utility spikes act as chronic financial stressors for working families,” Sudler explained. “By stabilizing local tax and utility rates, this model acts as a psychological buffer, lowering a systemic anxiety and protecting household wealth.”
Sudler said there will be a well-being survey in resident’s utility bills that measures if emergency room visits for severe stress go down. He said the survey would ask about symptoms related to chronic stress and safety.
While many voiced support for the plan, one council member raised questions about the plan’s economic viability.
Councilwoman Julia Pillsbury questioned whether the fee would cause impacted organizations, like Bayhealth and DSU, to simply raise the cost of their services.
“I’m not suggesting it’s a bad idea,” Pillsbury said. “I’m just saying, I think people need to think about the fact that it’s cost-shifting.”
Councilman David Anderson remained supportive of the bill. But he said the council will have to expect challenges from the state legislature and the nonprofit entities if they move forward.
“If we do this,” Anderson said, “we need to be prepared to go all in.”
Following a unanimous approval by the committee, Sudler and Lewis are asking for city staff to complete an assessment of the plan by Aug. 24.
Maggie Reynolds is a Report for America corps member and Spotlight Delaware reporter who covers rural communities in Delaware. Your donation to match our Report for America grant helps keep her writing stories like this one; please consider making a tax-deductible gift of any amount today by visiting https://spotlightdelaware.org/support/.
