DOVER - For the second straight day, Governor Jack Markell (D) laid out a new part of his proposal for how Delaware should spend the additional $320 million in revenue the state has amassed, according to the latest estimates by the Delaware Economic and Financial Advisory Council (DEFAC).
Speaking at the Playtex facility in Dover, Markell recommended the state commit $54.5 million to "reasonable, responsible and targeted tax cuts", along with the reduction of state debt. Markell believes tax cuts will help attract new businesses to Delaware, while helping those businesses already in the state rebuild or expand. In an increasingly competitive environment to lure and retain companies, Markell says Delaware cannot stand still.
"We are in a world of competition. We have to keep proving ourselves everyday [as a good place to do business]," said Markell. "That's what this is all about."
Spending Delaware's Additional Revenue
Governor Jack Markell discusses his plans for tax and debt reduction
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Among the governor’s proposals specifically aimed at competing for businesses are tax breaks for financial sector companies and reductions in the gross receipts tax and the public utility tax for all businesses.
The financial sector tax breaks include an alternative method for calculating lower bank franchise taxes and a new credit that would give banks an annual $1,250 credit for ten years for each new job over 200 jobs they bring to the state, based on meeting certain requirements. Markell, who called the banking industry "incredibly important to our state", concedes the move is a response to job losses the state has faced in the banking sector recently. HBSC laid off 500 Delaware workers in January and the state is losing 700 jobs when M&T Bank completes its takeover of Wilmington Trust.
"We believe this combination [of business incentives] puts Delaware in a stronger, more competitive position to keep the jobs we already have and to build on them," said Markell. "A lot has changed in the financial services industry, and we believe we have to make changes to make Delaware more competitive."
The tax breaks for the financial services sector are expected to cost $8.5 million dollars.
Markell also calls for setting aside $6 million dollars for reduction of the state's gross receipts tax. That money would go toward a 3 percent across the board cut in the gross receipts tax rate. It would also increase businesses' monthly exclusion from the tax 25 percent, from $80 thousand to $100 thousand, a move that will exempt 330 businesses from paying any gross receipts tax at all.
The governor also seeks to use $9.5 million to cut the Public Utility tax paid on electric and gas by businesses from 5 percent to 4.25 percent, and to create a program to help Delaware businesses cover upfront costs for energy efficiency projects.
Markell's plan also targets the personal income tax rate. He calls for lowering the top marginal personal rate from 6.95 percent to 6.75 percent. That top marginal rate was raised from 5.95 percent to 6.95 percent two years ago. Cutting the top rate will cost the state $6.8 million.
Markell is also proposing the allocation of $3.7 million to cover interest payments on federal loans for the state's Unemployment Trust fund. Those interest payments are scheduled to come due at the end of September. The state needed to take the federal loans when the fund went into the red between 15 and 18 months ago. The fund is currently $62 million in debt. Markell also seeks use $20 million dollars of the additional revenue estimates to paying down state debt, a move he hopes will allow the state to maintain its AAA bond rating.
"There are three major bond rating agencies and they closely monitor every state's issuance of debt and every state's plan to retire debt in a timely manner. By allocating some of this revenue to debt reduction we continue to demonstrate financial responsibility,” said Markell.
President of State Chamber of Commerce president Jim Wolfe said the proposed tax cuts hit the right notes in the effort to get the state's economic engine going again.
"It is obvious when we listen to the things [the governor] has pointed out that he was listening. He was listening to businesses and especially to manufacturers, and he is right on target with his reductions," said Wolfe.
Two lawmakers, State Representative Brad Bennett (D- Dover) and Bryon Short (D-Highland Woods), attended Markell's tax and debt reduction announcement. Both offered initial support the Governor's plan, pointing out that it would provide relief across the board.
"I think it is important, we’re pushing hard on all fronts," said Short. "Our large employers are very important to us. We also know that the majority of jobs are created by small business and start-ups so we’re aggressively trying to make sure that those guys receive our support as well. So given a good strategy its important for us to be as broad as possible and support all levels of employers in Delaware."
"The reduction in the utility or energy tax, that helps everybody. Gross receipts helps everybody and obviously the personal income tax helps everybody," said Rep. Bennett. "I think you’ll see a turnaround. Businesses in the next few years will be hiring more people because of these reductions."
State Legislators react to Governor Markell's plan to spend additional state revenue
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Wednesday, Markell proposed spending $135 million dollars on a variety of one-time investments aimed at improving Delaware's infrastructure, preserving open space, and building up low-income housing. Friday, he'll unveil the final piece of his three-part proposal.
Short and Bennett agree with the Governor's decision to put forth a specific proposal on how to spend the additional $320 million in projected revenue.
"It's tough because there are 62 of us down [in the Legislature] and a lot of people don’t come from a business background or own their own business. So, it's difficult [for everyone] to understand the impact of what he’s trying to do here," said Bennett. "But there’s a group of us that were elected in the last four years that are business people and understand the impact. So, I think we’ll be able to bring the ideas forward and get them passed."
"It’s critical, and it’s important for him to bring it out as early as possible," said Short. "It needs to work its way through the Joint Finance Committee, Senators and Representatives, and both caucuses. And obviously there’s a back and forth, everybody has their opinion and he’s given us time to work that stuff out. And that’s appreciated."
