Delaware’s Budget Is Set

Budget Deal Reached, Grants-in-Aid Restored
Delaware General Assembly called into “extraordinary session” …Photo courtesy of Ruth Briggs King

(Dover) Two days after missing a deadline to have a state spending plan in place, Delaware legislators and Gov. John Carney reached a consensus on a new balanced budget.

To avoid any interruption of state services, the government has been operating under a limited three-day spending bill to give decision-makers time to arrive at a compromise.  Gov. Carney called the General Assembly back into “extraordinary session” July 2nd to work on the plan.
Budget negotiations are always difficult, but contention was higher than usual this year due to the biggest budget shortfall the state has experienced since the end of the Great Recession.  As of late June, the state legislators were faced with a $364 million gap between expected revenue and expenditures.
Gov. Carney released a plan in the spring to close the budget gap with a 50-50 mix of spending reductions and higher revenue from tax increases.
A more controversial element of the governor’s plan included an across-the-board hike in the state personal income tax and eliminating the ability of filers to itemize deductions.  Both halves of the proposal drew fire, the latter of which was criticized by non-profit organizations who said the move would significantly impact donations.
Another hotly debated gubernatorial proposal was a $21.9 million cut to the Educational Sustainment Fund.  The governor floated the idea that school districts could recover the lost money by imposing a one-time tax increase on residents, without the need for voter approval – as is the case for most school property tax hikes.
Additionally, the budget-writing Joint Finance Committee, which is controlled by legislative Democrats (8 to 4), made numerous cuts to state spending.  Several of the cuts were especially painful.  Funding for the Grants-in-Aid Bill – which provides assistance for fire companies, senior centers, and dozens of other non-profit organizations helping the community – had been removed in its entirety.  The salaries of 22 state police troopers patrolling Sussex County were also removed from the budget.
General Assembly Republicans had for months demanded structural spending reforms and changes to the state’s prevailing wage laws, which add 20-percent to the cost of public works projects.
It was against this backdrop that lawmakers returned to the capitol early Sunday afternoon.
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Highlights of the Budget Deal
  • The state FY 2018 operating budget enacted in the early morning hours of July 3rd is $4.1069 billion or just 0.56-percent higher than the budget it replaced.
  • The majority of the $364 million budget gap was bridged with spending cuts ($192 million or 52.75-percent of the shortfall).  New tax revenue accounted for 47.25-percent or $172 million.
  • Of the new tax revenue, more than two-thirds (66.3-percent) came from an increase of the corporate franchise tax on large companies – a move that will raise $114 million in new revenue annually without impacting Delaware’s desirability as a venue for incorporation.
  • It contains no changes to the Personal Income Tax and preserves the ability of homeowners, those making charitable donations, and others to continue using itemized deductions.
  • A proposal to increase the eligibility age (from 60 to 65) to exclude the first $12,500 of retirement income from taxation was eliminated.
  • It includes money to fully fund pay scale increases and reduce forced overtime for the state’s correctional officers.  Chronic short-staffing and fatigue were both cited as causal factors in a prison riot and hostage-taking incident at the James T. Vaughn Correctional Center in February that led to the murder of a correctional officer.
  • It restores funding to the Grants-in-Aid Bill to continue assistance to non-profit agencies at 80-percent of FY 2017 levels.
  • It restores funding for the 22 State Police Troopers patrolling Sussex County.
  • The governor’s recommended cut to the Educational Sustainment Fund was reduced by half.  School districts will not have the ability to recoup that money via a tax increase not subject to a referendum.
  • Initiatives were started to look at ways to curtail Medicaid costs, explore the consolidation of Delaware’s public schools, and create a new mechanism to limit the state’s “growth and crisis” budgetary swings due to changing economic conditions.
  • The Realty Transfer tax, which is levied on the sale of a home and typically spilt between buyer and seller, will be increased from three percent to four percent.  The revenue flowing to counties and municipalities from the tax will be unaffected.
  • The tax on a pack of cigarettes will be raised by 50-cents per pack (half the dollar per pack sought by Gov. Carney).  A new, small tax will be levied on the sale of vaping liquid (five cents per milliliter).
  • The tax on alcoholic beverages (beer, wine, and spirits), which has not been raised in 27 years, will be increased.  Even with the bump, Delaware’s tax on all alcoholic beverages will be significantly lower than the taxes on the same products in all three neighboring states.
State House Minority Leader Danny Short on the Budget Deal
“Overall, I think this is a good plan for Delawareans.  We killed the personal income tax hike proposals, restored funding for police protection, fire companies, schools, senior centers, and community non-profit organizations.  Just as importantly, we held the line on spending, holding budget growth to about one-half of one-percent.”

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