Facing $1.6M IRS bill, New Castle County Council opts to ‘raid’ agricultural fund

Why Should Delaware Care?
The New Castle County Council approved a pair of bills Tuesday that will take $2.6 million from the county’s agricultural preservation fund, usually reserved for preserving and protecting county farmland, to pay for a slew of looming debts, including a large required IRS arbitrage payment, tree removal and rising healthcare costs for employees.

A move last week by the New Castle County Council to reallocate millions of dollars from an agricultural preservation fund to cover an emergency payment to the Internal Revenue Service and other unforeseen expenses drew the ire of some objecting council members.

The council passed a pair of bills last Tuesday to use $2.6 million from the county’s agricultural preservation capital project, a pot of money set aside to preserve county farmland through easements and property rights purchases, to cover an unexpected debt to the IRS that must be paid by Nov. 30. The money will also be used to pay for an uptick in tree maintenance needs — a response to recent spate of storms — as well as increased employee healthcare costs. 

Council members ultimately approved the reallocations in a 9-3 vote, but not before the move was called a “raid” of the agricultural preservation fund by Councilman Brandon Toole, who voted in favor despite voicing his apprehension. 

Councilman Dave Carter, one of the voices opposing the decision, said his concerns were not about the specific expense, but what he called a concerning trend of increased spending without transparency.

“Many of us will remember that we had a chance to bail out this goddamn county budget with COVID money years ago, and we just […] rubberstamped as former [County] Executive [Matt] Meyer spent money like a drunken sailor,” Carter said. “That’s what happened. That’s why we’re here.” 

But David Del Grande, the county’s chief financial officer, said the expenses were the result of unanticipated costs that were largely outside the county’s control, arising despite what he called “careful forecasting.”

Approximately $1.6 million of the reallocated money will go to the IRS to repay the agency for county investment earnings that exceed federal limits, Del Grande said. The other $1 million will be split evenly between the tree maintenance and employee healthcare costs.

The repayment is a result of 2021A bonds the county issued when federal interest rates were quite low, which earned more interest than the IRS allows for bond investments. Del Grande attributed this to an “anomalous” series of interest rate changes by the Federal Reserve over the last several years, particularly in 2022 and 2023. 

He said he knew the county had an “issue brewing” over the summer but had not received the rebate report until Sept. 30, when the bonds were evaluated.

The county had encountered a similar situation in 2019, but was only obligated to repay around $50,000 to the IRS to rectify it that time, Del Grande said.

If the county does not make its payment by the Nov. 30 deadline, he said, the IRS could double the amount owed, among other potential penalties. 

“Short-sighted” spending amid budget crisis?

Along with his vocal objections to the spending, Carter attempted to block a portion of the allocation through proposed amendments.

He suggested the council only move forward with the $1.6 million IRS payment and hold off on immediately spending the other $1 million until they could be further considered, since the tree maintenance work and healthcare costs do not have a pending deadline or credit rating implications. 

But Carter ultimately withdrew his amendment, following a debate over its technical legality.

Council members Dee Durham, Kevin Caneco and Brandon Toole echoed Carter’s objections. Durham called the reallocations “short-sighted” and said she wanted the county administration to pledge not to draw the agricultural fund down any further. She said she was “very disappointed that this is the solution” presented by the county administration. 

In the event the county has more revenue than expenses at the end of the fiscal year, which Durham conceded is unlikely, she pushed for the administration to use that revenue to first replenish the fund. She introduced an amendment to that effect, which was approved. 

Caneco’s frustrations homed in on what he said was a lack of information about the county’s struggling financial picture.

“We’re in a budget crisis, and we still don’t have any information,” Caneco said. “All I hear is that there are going to be magical revenue streams from the State of Delaware, and guess what? We’re sitting here on Oct. 27, and I have been briefed on zero.”

During a committee meeting last Tuesday where the reallocation plan was first discussed, Toole said the amount of money being pulled from the agricultural preservation fund is two-and-a-half times the amount the county puts into it each year. 

Del Grande said the leftover $2.4 million in the agricultural fund — just less than half the $5 million total that was in the account before last week — would still cover projects currently under review through 2032. 

Despite these concerns, the reallocation plan passed by a vote of 9-3, with Caneco, Carter and Caneco voting against the measure.

After the meeting, Natalie Criscenzo, County Executive Marcus Henry’s spokesperson, responded to the critiques. 

She said paying the IRS in a timely manner is responsible debt management that would help the county maintain its credit rating. 

Criscenzo also said Henry “remains committed to protecting the county’s farmland and open space,” and that its agricultural preservation serves to bolster a similar endeavor that is already funded by the state.

County Council will receive a checkbook presentation at its next Finance Committee meeting on Nov. 17, giving members an opportunity to gauge the severity of the county’s current financial status and determine potential future budget issues before deliberations begin.

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