A House Education Committee discussion of a proposed tweak to a tax credit program on Wednesday offered a preview of coming debate over new or increased tax benefits for retirees.
State Rep. William Bush’s (D-Dover) bill — the only revenue bill considered in the committee on Wednesday — would eliminate the requirement that a person live in Delaware for three years before receiving the state’s disabled veteran property tax credit; instead, disabled veterans and their spouses would be exempted from paying school district property taxes as soon as they establish residency in Delaware.
Bush acknowledged the financial reasoning for the three-year residency requirement — it delays the financial impacts of the credit on the state's education budget — but argued that offering the credit immediately would offer much-needed relief to veterans on fixed incomes.
But his proposal received pushback from both sides of the aisle, with critics focusing on the possibility that disabled veterans with high incomes could move to Delaware and immediately receive a substantial tax break intended to serve their low-income counterparts.
Along with several of his Democratic colleagues, State Rep. Richard Collins (R-Millsboro) — the sole Republican critic — argued the bill might benefit from the addition of a means test for those applying for the credit.
“There must be some way to define what we’re trying to do with a little more clarity," he said.
State Rep. Eric Morrison (D-Glasgow) also expressed interest in the possibility of establishing a means test for the credit, though he noted that means-testing a program would create new staffing expenses.
But more fundamental criticisms of the proposal came from Finance Secretary Rick Geisenberger, who warned that lawmakers should be wary of expanding tax credit programs that primarily benefit retirees.
“We need to be careful not to incentivize relocation to Delaware solely to realize what is an extraordinary, permanent and uncapped benefit for them and their spouse throughout the lifetime of both," he testified on Wednesday.
Geisenberger argued that Delaware's low property tax rates and nonexistent sales tax already draw retirees to the state, and that creating new tax credits that will primarily benefit retirees — including the disabled veterans credit — could be a blow to the state's education budget with little payoff.
While the state's Board of Education testified in support of the proposal, Geisenberger noted that the state — not school districts — would be responsible for replacing any school property tax revenues lost by expanding the disabled veterans tax credit program. "If you buy a $3 million home in Greenville and move to Delaware, the next year, if your property tax bill were $20,000 or $50,000, that money will come out of the budget of the state of Delaware and go to the school districts," he said. "That's why there's no reason for the school districts to oppose this."
Expanding the disabled veterans property tax credit would benefit a relatively small group of people — fewer than 3,000 disabled veterans live in Delaware, and only a fraction of them have received the credit since the program launched last year. Delaware's Controller General's Office estimates that Bush's proposal would cost the state less than a million dollars in its first year, on top of the roughly $1.5 million the state expects to spend on the program next year.
But Geisenberger and several Representatives will likely express the same concerns about proposed changes to Delaware's senior property tax credit program — changes that would impact a far greater number of Delaware taxpayers.
The current senior tax credit program, which provides up to a $500 credit against school property taxes for seniors who have lived in Delaware for 10 years or more, costs the state roughly $30 million per year. This session, lawmakers will consider two potential expansions of the program: allowing seniors to receive a $400 credit after living in Delaware for three years and increasing the maximum credit for seniors with 10 years of residency to $750. Either proposal would cost the state more than $8 million, with expenses increasing over time.
Those proposals — one from Bush and the other from State Rep. Kevin Hensley (R-Odessa/Townsend) — were pulled from the agenda of Wednesday's House Education Committee hearing shortly before the meeting began; they will be considered later this session.
Though State Rep. Sean Lynn (D-Dover) proposed tabling Bush's disabled veterans property tax credit proposal in hopes of adding a means test to the program, his motion failed by a narrow margin. The bill then passed out of committee with no opposition.
