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Markell's final budget proposal balanced on tax increases, benefit cuts

Delaware Public Media

Local governments, state employees and seniors will share in the burden of making up for projected falling revenues under outgoing Gov. Jack Markell’s (D) final budget proposal.

State officials say there’s a $200 million difference between current spending and the amount of cash flow expected for the upcoming fiscal year.

That, combined with about $149 million in anticipated spending increases  - some of which are mandatory - prompted Markell to offer a $4.1 billion budget that calls for massive program and policy cuts.

“In my opinion, the document we got today is a document that says, ‘If I were governor forever this is what I would do and I don’t have any opposition from anybody," said House Minority Leader Danny Short (R-Seaford).

Even one of the governor’s closer allies, Sen. Harris McDowell (D-Wilmington North), didn’t describe it in glowing terms.

“It’s the work of a governor who has worked long and hard for eight years and he’s almost out of here and his last effort was required to produce a budget. He did that, but it’s not exactly one of his – and I don’t think he would claim it’s one of his masterpieces," McDowell said.

Delaware Public Media political reporter James Dawson outlines Gov. Markell's final spending plan and reaction to it from lawmakers.

Delawareans 65 or older and who have maintained their residency here for at least three years currently receive a school property tax subsidy up to $500.

This spending plan eliminates the benefit completely – a measure Markell wanted to implement last year, but which faced tremendous opposition in the General Assembly.

Doing so would save the state $25.2 million in the upcoming fiscal year and more into perpetuity as residents continue to age and as Delaware attracts retirees from out of state.

All three counties would take a combined $21.8 million hit to their respective budgets in fiscal year 2018:

  • The state would eliminate its share of paramedic salaries, saving $10.8 million
  • The counties’ share of the realty transfer tax would drop from 1.5 percent to 1.25 percent, costing them an estimated $11 million.

Markell also want to increase the overall realty transfer tax to four percent, with all $44 million of the new money going directly to the state.
If it sticks, it’s almost certain to cause a ruckus according to House Speaker Pete Schwartzkopf (D-Rehoboth Beach).

“Usually when the counties get involved, people around here get afraid to vote sometimes,” he said.

Governor-elect John Carney (D) isn’t married to the budget proposal when he takes office and he didn’t make any specific points about it in a statement sent out Thursday afternoon.

Should revenues continue to drop or even flat line, some kind of political compromise will be needed.

Schwartzkopf says deep changes need to be made to the tax code to have any kind of stability – which could mean raising or cutting certain taxes.

“I don’t like the expression, ‘kick the can down the road,’ but I’m tired of doing it year after year after year. We have structural financial revenue problems. We need to fix them.”

Still, such a proposal isn’t finding many friends in the Senate, where Republicans could take the majority in an upcoming special election.

Former gubernatorial candidate and state Sen. Colin Bonini (R-Dover South) says he’s not looking to raise any tax.

“No society on planet earth has ever taxed its way into prosperity and Delawareans cannot afford increased taxes right now and, just like Delaware families do, we need to tighten our belts and pull back on the spending side,” Bonini said.

One proposal that is getting a warmer response from lawmakers is a shift in state worker health benefits, though maybe not in its current form.

Under the proposal, those hired in 2008 or later would be forced into a new health insurance plan with a $2,000 deductible for individuals and $4,000 for families.

The state would cover half of those deductibles with a “health savings account” that can be used to pay for doctor visits, prescription drugs and other medical expenses.

New deductibles would also be placed on legacy health plans.

All of this would save about $24 million and millions more in future years – a looming time bomb Markell says needs to be addressed immediately.

Bonini says the state can no longer afford to pick up the check for the generous, existing benefits.

“I do admire the governor for at least starting the discussion about those costs because those costs are just unsustainable," said Bonini. "I think everybody wants state employees to have good benefits, but those costs are simply unsustainable.”

Elsewhere in the plan, Delawareans earning more than $60,000 a year would see their personal income tax rates increase from 6.6 to 6.8 percent.

Itemized deductions would be eliminated, while the standard deduction would see a 50 percent boost.

The most significant tax increase would be levied on big corporations with at least $750 million in assets. A new corporate franchise tax rate of $250,000 would net $115 million for the state.

Smokers would also be affected, as the proposed budget would hike the cigarette tax by a dollar to $2.60 a pack.

Most agencies would also see small cuts to their base budgets, totaling $31.8 million.

Local school districts would have to pick up $14 million in costs associated with bussing students to and from class, with the state lowering its share of that program from 90 to 70 percent.

District residents would also have to shoulder higher school construction costs under the proposal, with the state potentially only paying half. Currently, it pays between 60 and 80 percent of the bill.

Markell declined to comment on his own budget.

In a statement, Carney said, "It’s no surprise that Delaware faces a challenging financial situation, and we need a budget reset that looks at state spending and our revenue system," but didn't elaborate on any changes he might make.

On the capital side, budget writers are asking for a 10 percent increase to $555.3 million, combining infrastructure and building projects.

Grants-in-Aid to nonprofits will take a hit – mostly through the county paramedic program cut.

In total, that proposed budget totals $33 million, down from $45.8 million in the current year.

The final $4.1 billion budget price tag would represent a 1.09 percent increase from the current year.

An initial round of budget hearings begins Jan. 30.