A Tax Proposal Taken in Stride

REHOBOTH BEACH, Del. -- For more than a century, Washingtonians have flocked to this resort town for summer weekends on its windswept beaches. But recently, increasing numbers have moved here permanently, many of them retirees who are enjoying an attraction that involves neither sand nor swimwear, but tax bills.

Over the past few decades, Rehoboth has grown into a property taxpayer's paradise. Although home values and taxes have skyrocketed throughout the Washington area and nationwide, Rehoboth's average annual tax bill has hovered around $300. Homeowners here haven't seen an assessment since Richard M. Nixon was elected president in 1968, even as old beach bungalows have blossomed into million-dollar estates.

Now, for the first time in more than a decade, city officials are considering raising property taxes. And response from residents has been surprising, making this one of the few places in the country where possible tax increases have prompted homeowners to say: "It's about time."

"You'd have a hard time finding anyone here who thinks their taxes are too high," Mayor Sam Cooper said. "People see certain things they want done in Rehoboth. Some are actually asking us, 'Why don't you raise taxes to get it done?' "

The city held its first public hearing on the matter Friday, and officials encountered little opposition. The proposed 11 percent rise in taxes would mean slight increases for most people -- about $30 to $40 each year -- which would go toward such projects as a four-year renovation of the city's main street.

"As a practical matter, they could probably double our taxes, and a lot of residents still wouldn't blink," said homeowner Hoyte Decker, 65.

Like many in the city's new wave of residents, Decker left behind his life in the Washington area, along with its big-city expenses, to pursue the Rehoboth dream. After three decades with the federal government, he retired seven years ago, sold his house in Chevy Chase -- where he was paying $3,600 a year in property taxes -- and bought a small beach cottage.

His days consist of 4.5-mile hikes on the beach with his wife, stops at the local pub and an annual property tax bill of about $300.

"I'm paying in one year what I used to pay monthly in Montgomery," he said. "I'm telling you, it's like I'm living in a dreamland."

Rehoboth's fiscal system, which makes such giddy feelings over taxes possible, reflects a long-standing tradition in Delaware -- where the semi-official slogan is "Home of Tax-Free Shopping." Delaware, which ranked third-lowest nationwide in local taxes last year, after Alaska and New Hampshire, has lured more corporate headquarters to its shores with its tax breaks than any state.

Similarly, Rehoboth has not suffered from lack of revenue, even while keeping its taxes low. For many years, the tax burden in Rehoboth -- a Hebrew word that means "room for all" -- has been exported to tourists and newcomers. The city makes more money annually through its summer-only parking meters than from property taxes.

Another leading contributor to city coffers has been Rehoboth's transfer tax on property sales . Three percent of each property sale price goes to the city -- an especially significant sum as the city's newer mini-mansions and even its older, smaller cottages regularly sell for seven figures.