No tax hike in Lewes budget after all

The City of Lewes budget for fiscal year 2026 is as much about what it does not include as what it does contain.

After the finance committee initially proposed a 20% property tax increase, then reduced it to 5%, mayor and city council unanimously approved a spending plan March 10 with no tax increases.

The budget also does not have an increase in bonfire fees, after an early proposal to double the cost.

The budget does include money to seed a new resiliency fund. The fund will allow the city to enhance disaster preparedness, strengthen climate resiliency and protect natural resources. It will also be there to help recover from a major disaster.

But, there was confusion over how much will be pumped into the fund in the first year. City Manager Ellen Lorraine McCabe’s final budget document identifies $1.4 million from several sources: $375,000 one-time transfer from transfer tax; $300,000 annual contribution of 10% of transfer tax collected; $416,000 annual contribution from property taxes; 2% of FY 2025 gross rental receipts tax collected; 2% of FY 2025 parking meter revenue collected; and $305,000 from Chesapeake Utilities franchise fees moved from bank account balance.

But Deputy Mayor Khalil Saliba and Councilman Joe Elder said they were under the impression council had agreed to $1.1 million.

McCabe explained that they were not accounting for the $305,000 that is being moved from the bank account.

Saliba said he supports the resiliency fund, but thinks it should start at a lower amount so more pressing projects can be addressed.

“I don’t see equivalency between a brand-new resiliency fund to focus on long-term flood mitigation and resiliency, to much-needed, known projects that are immediate,” Saliba said. 

The resiliency fund is expected to grow by $500,000 to $600,000 each year. Saliba said he favored seed money in that ballpark.

Council also identified the first resiliency projects: its final $250,000 donation to the Fourth Street Preserve campaign for open space, and a flood gate for Cedar Street, which will be funded in the FY 2027 budget.

They added several guardrails to protect the fund, including that withdrawals will require a supermajority of council, four out of five votes. Council will seek a charter change so future councils cannot change the supermajority. Council will also be restricted to drawing no more than $850,000 per year from the fund for the first five years.

Council has scheduled a public hearing on the resiliency fund, the 0.5% increase in the gross rental receipts tax on short-term rentals and the implementation of a 2% lodging tax for 5:30 p.m., Monday, April 7, at the Rollins Center. Revenue from both taxes will not be realized until FY 2027.

Overall, budget revenues are up $3 million to $14 million for FY 2026. Expenditures are down $645,000 to $12 million.

Other FY2026 budget highlights:

• $1.705 million for capital infrastructure projects

• $16.14 million capital and operating reserves

• $389,270 to city nonprofits

• $1.935 million additional revenue from increased building permit and other fees.

The Lewes Police Department budget is $2.839 million, a 32% increase over FY 2025. The increase is mostly for an additional officer and other personnel costs.

The FY 2026 budget goes into effect Tuesday, April 1.

The complete budget can be found at lewes.civicweb.net.

McCabe built the budget using a multiyear model for the first time, with projections for the next five years.

“It gives us a very good roadmap on how we can plan the financial success of the city,” she said.

“This has been the best budget preparation that I have sat through. We have approved the fiscal year 2026 budget, but we have the ability now to look into the future,” said Councilman Tim Ritzert.

Looking ahead, McCabe’s FY 2027 budget proposal includes a 10% hike in parking meter revenue, and doubling mayor and council members’ salaries.