By William Wan
Washington Post Staff Writer
Monday, February 27, 2006; B01
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.
But although home values in some areas have tripled and quadrupled in the past decade, their assessed values in the city's financial books have largely stayed the same. The city still uses assessment formulas from 1968 -- when the median annual household salary was $7,743 and a gallon of gas sold for 34 cents, a time when a man walking on the moon was still a dream and the New York Jets had a shot at the Super Bowl.
"It's crazy. Everyone knows it's crazy," City Manager Greg Ferrese said. Walking along Rehoboth's boardwalk last week, he pointed out several beachfront mini-mansions and rattled off their tax bills and assessments.
"Something like this could go for up to $5 million today," Ferrese said, nodding toward a small mansion with a blue-tiled roof and glass windows all along its ocean-side view. The home last sold for $3.1 million in 2001, but as far as the city's concerned, it is still worth $143,680.
There has been talk of an assessment, but unlike the proposed tax increase, that plan has not gained serious traction.
It is a matter of politics, Ferrese explained. Most residents associate assessment with higher taxes, when in fact an assessment would probably not raise annual tax revenue much.
A three-decades-old provision in the city's charter bars officials from collecting more than $1 million in property taxes each year. With the city close to that cap, an assessment would lower Rehoboth's tax rate and produce little change in the total taxes collected.
Most jurisdictions have regular cycles for assessments. Maryland's counties, for example, assess a third of the land every year. But Sussex County, which contains Rehoboth, hasn't had an assessment since 1974. And although home values in such coastal regions as Dewey Beach and Fenwick Island have soared, those in inland areas such as Bridgeville have risen much more slowly.
"It means the people who are poorest in the county, who need the tax break most are getting the worst of the deal," said Mike Mock, a Sussex resident and real estate broker, who has pushed for assessments for two decades. "It's an issue of fairness."
There's also the issue of cost. The bill for a countywide assessment could run as much as $8 million and bring in little increased revenue in return.
"If we did a total reassessment, about a third of the county [tax bills] would decrease, a third stay the same and a third increase," said Sussex's assessment director, Eddie Parker, who has pushed for assessments for much of his 26 years with the county. But after making his case to countless committees, legislators and residents, he has learned not to get his hopes up.
"It's not like people are knocking down my door because they think their assessment is unfair. We're still getting calls from people wanting to know if what they got is a monthly or quarterly bill when in fact it's their annual bill."