Some cuts, corporate tax hike proposed in Delaware budget

 (photo courtesy Gov. Markell's office)

(photo courtesy Gov. Markell's office)

Governor Markell’s proposed budget for Fiscal Year 2015 calls for spending $3.8 billion, which is a three percent increase over the current year’s budget.

Markell calls his spending plan responsible and was quick to point out that the new initiatives he outlined in last week’s State of the State Address make up less than two tenths of one percent of that budget growth.

“This budget funds important education and job training to strengthen the workforce, it supports research that spurs innovation and economic development, it creates programs to give our most vulnerable citizens and communities a better chance,” said Markell. 

Also on the spending side, the budget proposal includes a one percent pay raise for state employees, at a cost of $15 million. State employees got no raise in the last budget cycle. After a 2.5 percent pay cut for state employees in FY 2010 was restored in 2011, those workers got a two percent increase in 2012 and a one percent increase in 2013.

“We think it’s important to retain and attract high quality state employees because of the incredibly important work that they do and we want to make sure that we have a compensation package that is as competitive as it can be,” said Markell. 

Another increase on the spending side comes from growth within public schools. The budget proposal calls for nearly $19 million to fund 220 new teacher units. That growth is just about double what is typically in the budget. Administration leaders say that’s evidence of growing confidence in the state’s public schools. It could also be a sign of fewer people able to afford the high costs of the state’s private schools.

Fixing the budget shortfall

The new budget comes with a $139 million deficit. The governor wants to plug that hole by trimming $39 million in funding earmarked for the Transportation Trust Fund and moving it to the General Fund. The proposal also cuts money from programs like Open Space and Farmland Preservation, and the Energy Efficiency Fund. Those cuts, along with the reallocation of some one time money, still leaves a nearly $50 million deficit.

The remaining shortfall will be made up by an increase in the annual tax on the 750,000 Limited Liability Companies, Limited Partnerships and General Partnerships in Delaware. Markell wants that tax to go from $250 to $300 per year. That increase would raise $33 million.

The plan also calls for an increase in the Corporate Franchise Tax paid by thousands of companies who incorporate in the First State. That fee would go from $75 to $100 under Markell’s plan, raising $18 million.

Delaware Secretary of State Jeffrey Bullock explained that the state did a lot of outreach among companies in order to come up with this solution.  

“I’m not suggesting anyone wants to pay more for anything, I would never do that, but with all the alternatives that are out there, these are the alternatives that they thought were the best,” said Bullock.  

Gas tax hike

On Wednesday, Markell unveiled a plan to raise the state’s gas tax by ten cents, raising revenue for the Transportation Trust Fund by $50 million per year. He also proposed borrowing $50 million to better manage debt costs for the TTF and allow for DelDOT to better plan long term projects.

According to a 2011 report, the Transportation Trust Fund has experienced insufficient revenues due to a number of factors, including rflat revenue streams, residual debt and rising costs. Markell said the TTF needs a stable source of revenue because while DelDOT’s costs have gone up with inflation, the revenue has not.  

The tax increase and borrowing would allow DelDOT to move forward with a number of projects that have been on hold. DelDOT Secretary Shailen Bhatt said the department has been delaying every project possible because of the concern about a lack of funds. 

Increasing the gas tax would cost Delaware motorists about $57 annually, or $4.78 a month, according to state estimates. The state has not increased the gas tax since 1995. Bhatt said Delaware’s gas tax would continue to be one of the lowest in the region.

New projects and help for Wilmington

As far as the capital budget, Markell proposed spending nearly $461 million to fund construction projects around the state. That includes $92 million for public education construction including major projects in the Capital, Laurel, Red Clay, Woodbridge, Cape Henlopen, Milford, lake Forest, Smyrna, Indian River, NCC Vo-Tech and Polytech districts.

The Port of Wilmington would benefit from $10 million in funding for a new container crane and other infrastructure improvements.

Markell’s plan for capital spending also includes $7 million for an effort to promote construction and rehab work in the state’s downtown areas, especially the city of Wilmington. That money would be offered as grants to encourage private developers to start work in downtown areas. The idea is based on a Virginia program that Markell says has been very successful.

Other capital spending projects include $3 million for construction of a new State Police Troop 3 building in Camden, $2.7 million for statewide trails and pathways, and $4.2 million for libraries including construction work in Delmar, Lewes, and Harrington. The plan calls for $3.1 million for the Riverfront Development Corporation in Wilmington. That money would fund land acquisition and several other projects underway along the Christina River.

Next step

The General Assembly will start their two and a half month break in February to allow the Joint Finance Committee to hold hearings and make changes to Markell’s proposed budget. According to state law, the spending plan must be approved by midnight June 30.

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