Delaware’s bigger problem? A possible $100 million deficit

Revenue in Delaware is flat but spending is up and with an election on the horizon real budget reform is largely unrealistic.

Here is Doug Rainey’s commentary:

It is hard to find much to like about the $3.9 billion state budget that was signed by the governor shortly before the sun came up on Wednesday.

The budget manages to eke out the usual 2.5 percent spending increase by tapping into one-time settlement funds and pruning expenses.

Revenues remain flat for reasons ranging from an aging population (more retirees making less money) to a global economy that is driving down wages.

Education and health care seemed to get enough funding, despite suspicions that a little trimming could be done. Again, this is from the outside looking in. We don’t get a great deal of insight into such things in the current process.

Transportation remains Delaware’s third rail in politics as legislators cower at the thought of hearing from upset constituents about the gas tax.

Meanwhile, the Joint Finance Committee performed some magic, tapping into a large chunk of the settlement funds involving the lending practices of large banks. A large constituency wanted the money used for police patrols and the victims of bank lending practices. It was not to be.

Normally, if everyone is unhappy, it must have been a pretty good budget. Not so, this time around.

There was less back slapping, talk about burning the midnight oil or any other cliché you want to come up with.

Granted, things have improved from the past. Delawareans may remember waking up one morning many years ago and finding out the state owned a couple of golf courses.

The far bigger problem involves the prospect of a $100 million deficit in 2016.

Some thoughtful legislators focused on the looming deficit and voted against the budget.

One viewpoint is based on the belief that the needs of those less fortunate are so great that cuts are simply impossible and legislators need to come up with more money.

A handful of legislators suggested adding a higher income tax rate for those making $125,000 or more. It sounds fair at first, until you figure out that many working families making that kind of money do not live lavishly.

Delaware does not have the luxury of taxing the ultra-rich. California got away with it, thanks to Hollywood, Silicon Valley and its worldwide appeal.

In Delaware, family fortunes ended up in income tax-free Florida or protected by Delaware-produced trusts. Pennsylvania is another option with lower income tax rates and a handful of top-flight public school districts.

Others in Dover were playing to the crowd, howling when budget cuts were proposed for well-connected and influential groups, such as state employees and local units of government.

While many of us struggle with health insurance premiums that are rising by double digits at smaller employers, both parties seemed to sign off on patching the hole in the amount of premiums paid by state employers and the cost of insurance with taxpayer funds.

Left out in the cold was the casino industry, which is certain to lay off blue collar workers, since no solution was offered for the high tax rate it pays in an era of waning revenues.

The solution we often hear about is across-the-board cuts. Of course, specifics are never mentioned, just vague references to families having to cut back.

We did see some movement toward transportation funding getting some relief by moving a few million dollars in expenses from the trust fund to the general fund. In the context of the looming deficit, the move is largely symbolic.

None of this is to suggest that the various ideas trotted out during the session are bad. Some, pushed by Republicans, should be pursued, and include a nod to technology.

A commission should be formed that looks at revenue and spending. Mandates should be in place that force legislators into an up and down vote on its recommendations.

Two and five percent budget cuts should be prepared, with the impact spelled out, minus the tired rhetoric we normally hear when even the smallest cuts or tax increases are proposed.

In a fair process, everyone would have to make a sacrifice, not just those with fewer connections and lobbyists. Worse yet, 2016 is an election year and chances of meaningful reform are sharply reduced.

Numbers should rule, with big data used to figure out the various options.

Hearings should be held in the evening hours, televised and streamed on-line. Social media should be employed to allow questions and input.

Everything should be on the table including grant-in-aid funding to nonprofits that have now become an entitlement.

The same can be said about the formula for divvying out property taxes to local units of governments and the property tax break for senior citizens, some of whom come to Delaware to escape taxes.

Are Sussex and Kent County getting subsidies for police protection that lower local property taxes? Let’s crunch the numbers and find out. Or should property taxes go up in the interest of shared sacrifice?

The messy process outlined above would be a start toward a long-term financial strategy for the state. Add a dose of technology and citizen involvement and we could become a model for the nation.

However, it seems that after everyone goes home and sleeps for a couple of days, the desire for real budget reform goes away and we are back to pulling all-nighters.

 

 

Doug Rainey is the editor of the Delaware Business Daily. He has reported on Delaware business for 25 years. Email Doug at drainey@delawarebusinessdaily.com This e-mail address is being protected from spambots. You need JavaScript enabled to view it  Follow Doug on twitter: https://twitter.com/DougRaineyDE.