The City of Newark is proposing a tax on gross rental receipts, part of an ongoing effort to diversify the city’s revenue and reduce the need for property tax increases.
“Landlords have undeniably made millions from the student boom,” Councilwoman Corinth Ford said, noting that many student-focused apartments rent for upward of $3,000 or $4,000 per month. “We have raised and raised taxes on our permanent residents over the last two years. They’re always the one’s hit. We’ve said on council that we want to find alternatives to that, and this seems to me to be a reasonable alternative.”
If approved, the tax would be assessed on landlords and apply to all rent payments received for residential and commercial properties within the city, except for University of Delaware dorms and subsidized low-income housing. Officials had initially floated a tax as high as 5 percent, but council members agreed Monday night to cap it at no more than 1 percent, which would generate approximately $3 million per year.
City Manager Tom Coleman noted that at least nine other municipalities in Delaware, mostly beach towns, already have a gross rental receipts tax, with some as high as 8 percent.
The city would earmark 15 percent of the profits from the new tax for affordable housing initiatives, which could include grants to the Newark Housing Authority, assistance for low-income housing vouchers or even a potential city program or public-private partnership to build new affordable housing.
The rental tax, along with a separate proposal for a per-student tax on UD , is seen as a way to cover increased costs without overburdening residents.
Without alternatives, residents could see a significant tax hike next year. The city is negotiating new labor contracts with employee unions, and large salary increases are expected, particularly for police officers, as Newark looks to remain competitive with neighboring municipalities. At the same time, the city needs to pay millions of dollars per year to abide by new federal regulations concerning contaminants in the water supply, and the city needs to build a new $30 million electric substation, in part to accommodate growing demand on UD’s STAR Campus.
“I want equitable funding streams from all stakeholders,” Mayor Jerry Clifton said, arguing that it’s long past time for UD and landlords to pay their fair share, along with residents.
Council members held a preliminary discussion about the rental tax Monday night, and they will formally vote in March on a resolution asking the state legislature to amend the city’s charter allowing the city to levy the tax.
If the resolution is approved by a super majority of council — six of the seven members — it will move to the legislature, where it needs support from two-thirds of both houses and the governor’s signature.
It was not clear from Monday’s discussion whether the resolution will garner super majority support. Five council members voiced support for the tax, while Councilman Jason Lawhorn opposed it.
Lawhorn said he doesn’t see any justification for why landlords should face an additional tax on top of the property tax they already pay. He also worried that future councils would continue to raise the rental tax until it discourages business and development.
“That’s just another barrier that’s going to prevent people from wanting to come here to help develop our town,” he said. “I know sometimes development can have a negative connotation, but in reality, every town needs development or you die.”
It appears the deciding vote could be Councilwoman Dwendolyn Creecy. She said Monday that she had not yet made up her mind because while the city needs revenue, she worries that the rental tax will get passed on to the tenants.
Unsurprisingly, Newark landlords lined up Monday night to voice their opposition to the proposed tax.
“This is patently unfair to the renters of the City of Newark,” Chris Locke, of Lang Development Group, said, arguing that landlords will have to pass the added costs on to tenants, impacting low and moderate income residents the most, he added.
Landlords already pay property taxes, he noted.
“We do pay our fair share,” Locke said. “We pay our fair share in many ways.
Kevin Mayhew, president of the Newark Landlord Association, said the tax will discourage development.
“Instead of implementing new taxes, I urge the council to explore alternative solutions. One suggestion is to focus on budget cuts to address financial shortfalls,” Mayhew said. “Additionally, if necessary, consider a fair and even increase in property taxes to generate revenue without disproportionately affecting a specific group or property owner.”
Ryan German, who owns Caffe Gelato and several rental properties, said a rental tax would hurt restaurant owners like him who rent their property from a landlord.
Antonios Fessaras, owner of Cafeneo on South Main Street, made a similar argument, saying the tax would be another burden on business owners already facing other cost increases.
“There’s a trend of endless payments that are making it increasingly difficult for a new business owner like myself, at the age of 29, to succeed in the city,” Fessaras said.
Clifton said he received nearly 100 letters from UD students concerned their rent will go up if the rental tax is implemented. While the mayor sympathized with students facing financial burdens, he said they need to understand that residents face the same struggles when taxes are increased.
“You think you have it hard?” Clifton said. “How about my neighbor up the street in Marrows Court who makes it on $1,200 a month as an 80-year-old? How about other people in George Read Village or Madison Drive who are living on $1,200, $1,400, $1,600 a month?”
He said everyone thinks it should be someone else’s responsibility to pay, but in reality, everyone — residents, UD, and landlords — all need to share in the sacrifice to help cover the projected budget shortfall.
“We all need to be a team player,” Clifton added. “It’s about all of us coming together to fund the absolute essential services.”
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