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Lawmakers disappointed in revenue report, still differ on solutions

Delaware Public Media

Despite the sunny sky and warm spring temperatures in Dover, it was a gloomy start for the General Assembly reconvening after a month of early budget hearings.

The Delaware Economic and Financial Advisory Council or DEFAC released its latest revenue projections Monday, reporting a $45 million dollar downtick that took lawmakers by surprise.Projections haven’t been stellar in recent months, but mostly remained flat. This drop comes at a time when lawmakers are already clashing with Gov. Jack Markell and among themselves over any new spending.

Austerity talks have punctuated early budget meetings held over the past month, while legislators were hoping to get more money out of this latest report.

The Joint Finance Committee and most elected officials rejected Markell’s proposal to cut a senior citizen property tax subsidy. That means they’ll have to find $12.6 million to make up the difference in the General Fund budget.

“That was really disappointing," said Rep. Debra Heffernan (D-Bellefonte, Claymont, Edgemoor), who sits on the budget writing Joint Finance Committee. "It’s going to make a tough budget year even more difficult. I’m generally an optimist, so I was hoping the numbers would go up. I’m still optimistic for the rest of the DEFAC numbers.”

Her reaction isn’t unusual with three more months left to go before legislators finalize the next year’s spending plan.

House Speaker Pete Schwartzkopf (D-Rehoboth Beach) says he’s concerned about the latest projections, but that it’s still too early to start developing specific plans.

“We were looking from December on and we’ve been watching and this drop is unexpected, but it can go back up just as much as it went down," said Schwartzkopf. "It fluctuates so much.”

Schwartzkopf pointed to the 5 percent unemployment rate and how there are more people working in Delaware than at any other time in the state’s history as to why this news came as such a shocker.

“I think most of us in this building were expecting a little bit of a tick up because the economy is doing better and we’re pretty much on the leading path of coming out with a better economy this year than a lot of other states, so we expected that," said Schwartzkopf. "The problem is, 56 percent of our income is not tied to the economy.”

While the state’s top two revenue streams are the personal income tax and corporate franchise tax, Delaware heavily relies on abandoned property and lottery cash to balance the budget.

Cash from casinos has continued to drop, while abandoned property revenue heavily fluctuates depending on audit outcomes.

Some lawmakers are being proactive on the issue.

Rep. John Kowalko (D-Newark South) has been crunching numbers on adding new brackets to Delaware’s personal income tax, which currently tops out at 6.6 percent for those making over $60,000.

His proposal could add up to two new brackets around $125,000 and $250,000 and establish tax rates for them between 7.1 and 7.6 percent. That would generate between $13 and $26 million in the first year, with up to $72 million in fiscal year 2017.

He would also couple that with cuts to education initiatives backed by Gov. Jack Markell like the Delaware Stars Program, the Charter Schools Performance Fund and the governor’s push to keep funding parts of the Race to the Top program.

“Alone, none of these things can solve the woes. But the thing about cuts, you can make those, but eventually you’re going to have to grow in a standard way,” said Kowalko.

Republicans are standing firm on their convictions, opposing any increases to the personal income tax.

House Minority Leader Danny Short (R-Seaford) says the state shouldn’t balance the budget on the backs of higher income residents.

“If you go to a restaurant and you leave your bill on the table, I don’t think that anyone in that room that has maybe a better income or a better job situation should have to pick up that check for you,” said Short.

Instead, Short is continuing to call for reforming the prevailing wage set for manual laborers working on state construction projects and installing right-to-work zones.

Neither of those have any support among Democrats who have called them nonstarters.

While Schwartzkopf says now isn’t the time to start drafting specific plans, he says any proposals to raise revenue through tax increases would be more appropriate after the state learns exactly how much they collect through the personal income tax.

Those numbers will come next month.

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